[Title 13 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 1997 Edition]
[From the U.S. Government Printing Office]


          13



          Business Credit and Assistance



[[Page i]]

          Revised as of January 1, 1997
          CONTAINING
          A CODIFICATION OF DOCUMENTS
          OF GENERAL APPLICABILITY
          AND FUTURE EFFECT

          AS OF JANUARY 1, 1997
          With Ancillaries
          Published by
          the Office of the Federal Register
          National Archives and Records
          Administration

          as a Special Edition of
          the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1997



               For sale by U.S. Government Printing Office
 Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328



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                            Table of Contents


                                                                    Page
  Explanation.................................................       v
  Title 13:
    Chapter I--Small Business Administration..................       3
    Chapter III--Economic Development Administration, 
        Department of Commerce................................     405
  Finding Aids:
    Material Approved for Incorporation by Reference..........     455
    Table of CFR Titles and Chapters..........................     457
    Alphabetical List of Agencies Appearing in the CFR........     473
    List of CFR Sections Affected.............................     483

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                                  ----------------------------------------------------------                    

  Cite this Code:  CFR                                                         
                                                                                                                
  To cite the regulations in this volume use title, part                       
  and section number. Thus, 13 CFR 101.100 refers to                          
  title 13, part 101, section 100.                                            
                                  ----------------------------------------------------------                    
                                                                                                                


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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 1997), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
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instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

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Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
containing that incorporation. If, after contacting the agency, you find 
the material is not available, please notify the Director of the Federal 
Register, National Archives and Records Administration, Washington DC 
20408, or call (202) 523-4534.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I), and Acts Requiring Publication 
in the Federal Register (Table II). A list of CFR titles, chapters, and 
parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.

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    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-523-5227 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408.
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                              Richard L. Claypoole,
                                    Director,
                          Office of the Federal Register.

January 1, 1997.



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                               THIS TITLE

    Title 13--Business Credit and Assistance is composed of one volume. 
This volume contains chapter I--Small Business Administration and 
chapter III--Economic Development Administration, Department of 
Commerce. The contents of this volume represent all current regulations 
codified under this title of the CFR as of January 1, 1997.

    For this volume, Anne Elise Maso was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

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            TITLE 13--BUSINESS CREDIT AND ASSISTANCE




  --------------------------------------------------------------------
                                                                    Part
chapter i--Small Business Administration....................         101

chapter iii--Economic Development Administration, Department 
  of Commerce...............................................         301

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                CHAPTER I--SMALL BUSINESS ADMINISTRATION




  --------------------------------------------------------------------

  Editorial Note: The Small Business Administration has asked the 
Director of the Federal Register to inform users of this chapter that 
parts 143, 145, and 146 are common rule regulations that cannot be 
amended by the Small Business Administration unilaterally.
Part                                                                Page
101             Administration..............................           5
102             Record disclosure and privacy...............          10
103             Standards for conducting business with SBA..          21
105             Standards of conduct and employee 
                    restrictions and responsibilities.......          23
107             Small business investment companies.........          27
112             Nondiscrimination in federally assisted 
                    programs of SBA--effectuation of Title 
                    VI of the Civil Rights Act of 1964......          91
113             Nondiscrimination in financial assistance 
                    programs of SBA--effectuation of 
                    policies of Federal Government and SBA 
                    Administrator...........................          97
114             Administrative claims under the Federal Tort 
                    Claims Act and representation and 
                    indemnification of SBA employees........         106
115             Surety bond guarantee.......................         109
117             Nondiscrimination in federally assisted 
                    programs of SBA--effectuation of the Age 
                    Discrimination Act of 1975, as amended..         126
120             Business loans..............................         136
121             Small business size regulations.............         191
123             Disaster loan program.......................         220
124             Minority small business and capital 
                    ownership development/small 
                    disadvantaged business status protest 
                    and appeal procedures...................         230
125             Government contracting programs.............         295
130             Small business development centers..........         301
134             Rules of procedure governing cases before 
                    the Office of Hearings and Appeals......         313
136             Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    actitities conducted by the Small 
                    Business Administration.................         328
140             Debt collection through offset..............         336
142             Program Fraud Civil Remedies Act regulations         338

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143             Uniform administrative requirements for 
                    grants and cooperative agreements to 
                    state and local governments.............         347
145             Governmentwide debarment and suspension 
                    (nonprocurement) and governmentwide 
                    requirements for drug-free workplace 
                    (grants)................................         374
146             New restrictions on lobbying................         393

Abbreviations Used in This Chapter:
    SBA=Small Business Administration.
    SBID=The Small Business Investment Division of SBA.
    RFC=Reconstruction Finance Corporation.

  Cross Reference: For regulations of the Securities and Exchange 
Commission, see 17 CFR, Chapter II.

[[Page 5]]



PART 101--ADMINISTRATION--Table of Contents




                           Subpart A--Overview

101.100  What is the purpose of SBA?
101.101  Who manages SBA?
101.102  Where is SBA's Headquarters located?
101.103  Where are SBA's field offices located?
101.104  What are the functions of SBA's field offices?
101.105  Who may use SBA's official seal and for what purposes?
101.106  Does Federal law apply to SBA programs and activities?
101.107  What SBA forms are approved for public use?
101.108  Has SBA waived any of the public participation exemptions of 
          the Administrative Procedure Act?
101.109  Do SBA regulations include the section headings?

                Subpart B--Employment of Private Counsel

101.200  When does SBA hire private counsel?
101.201  What are the minimum terms of private counsel's employment?

                      Subpart C--Inspector General

101.300  What is the Inspector General's authority to conduct audits, 
          investigations, and inspections?
101.301  Who should receive information or allegations of waste, fraud, 
          and abuse?
101.302  What is the scope of the Inspector General's authority?
101.303  How are Inspector General subpoenas served?

                Subpart D--Intergovernmental Partnership

101.400  What is the purpose of this subpart?
101.401  What programs and activities of SBA are subject to this 
          subpart?
101.402  What procedures apply to the selection of SBA programs and 
          activities?
101.403  What are the notice and comment procedures?
101.404  How does the Administrator receive comments?
101.405  How does the Administrator respond to comments?
101.406  What are the Administrator's responsibilities in interstate 
          situations?
101.407  May the Administrator waive these regulations?

    Authority: 5 U.S.C. 552 and App. 3, secs. 2, 4(a), 6(a), and 
9(a)(1)(T); 15 U.S.C. 633, 634, 687; 31 U.S.C. 6506; 44 U.S.C. 3512; 
E.O. 12372 (July 14, 1982), 47 FR 30959, 3 CFR, 1982 Comp., p. 197, as 
amended by E.O. 12416 (April 8, 1983), 48 FR 15887, 3 CFR, 1983 Comp., 
p. 186.

    Source: 61 FR 2394, Jan. 26, 1996, unless otherwise noted.



                           Subpart A--Overview



Sec. 101.100  What is the purpose of SBA?

    The U.S. Small Business Administration (SBA) aids, counsels, 
assists, and protects the interests of small business concerns, and 
advocates on their behalf within the Government. It also helps victims 
of disasters. It provides financial assistance, contractual assistance, 
and business development assistance. For a more detailed description of 
the functions of SBA see The United States Government Manual, a special 
publication of the Federal Register, which is available from 
Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954.



Sec. 101.101  Who manages SBA?

    (a) An Administrator, appointed by the President with the advice and 
consent of the Senate, manages SBA. The Administrator--
    (1) Is responsible to the President and Congress for exercising 
direction, authority, and control over SBA.
    (2) Determines and approves all policies covering SBA's programs to 
aid, counsel, assist, and protect the interests of the nation's small 
businesses.
    (3) Employs or appoints employees necessary to implement the Small 
Business Act, as amended, the Small Business Investment Act, as amended, 
and other laws and directives.
    (4) Delegates certain activities, by issuing regulations or 
otherwise, to Headquarters and field positions.
    (b) A Deputy Administrator, appointed by the President with the 
advice and consent of the Senate, serves as Acting Administrator during 
the absence or disability of the Administrator or in the event of a 
vacancy in the Office of the Administrator.



Sec. 101.102  Where is SBA's Headquarters located?

    The Headquarters of SBA is at 409 3rd Street, SW., Washington, DC 
20416.

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Sec. 101.103  Where are SBA's field offices located?

    A list of SBA's field offices with addresses, phone numbers and 
jurisdictions served is periodically published in the Federal Register. 
You can also obtain the address and phone number of an SBA office to 
serve you by calling 1-800-8-ASK-SBA or 1-800-827-5722.



Sec. 101.104  What are the functions of SBA's field offices?

    (a) Regional offices. Regional offices are managed by a Regional 
Administrator who is responsible to the Administrator and to the 
Associate Administrator for Field Operations. They are located in major 
cities and have geographical boundaries which cover multi-state areas. 
Regional offices exercise limited authority over field activities within 
their region.
    (b) District offices. District offices are managed by a District 
Director and are located in cities within a region. District offices are 
responsible to Headquarters, the Associate Administrator for Field 
Operations, and to a regional office. Within their delegated authority, 
district offices have authority for--
    (1) Conducting all program delivery activities within the district 
boundaries;
    (2) Supervising all branch offices located within the district 
boundaries; and
    (3) Providing subordinate branch offices with the technical 
capability necessary to execute assigned programs.
    (c) Branch offices. Branch offices are managed by a Branch Manager 
and are located in cities within a district. Branch offices are 
responsible to the district office within whose boundaries it is 
located. Branch offices execute one or more elements of the business or 
disaster loan programs and have limited authority for program execution.
    (d) Disaster area offices. Disaster area offices are managed by Area 
Directors and are located in cities within defined geographical areas. 
Disaster area offices are responsible to Headquarters and provide loan 
services to victims of declared disasters. Temporary disaster offices 
are often established in areas where disasters have occurred.
    (e) Responsibilities. Each field office has responsibilities within 
a defined geographical area as periodically set forth in the Federal 
Register.



Sec. 101.105  Who may use SBA's official seal and for what purposes?

    (a) The SBA's seal shall be in a manner and form set forth as 
follows:

[GRAPHIC] [TIFF OMITTED] TC08SE91.003


    (b) The Administrator, Deputy Administrator, General Counsel, 
Assistant Administrator for Administration, Assistant Administrator for 
Hearings and Appeals, Associate Administrator for Minority Enterprise 
Development, Regional Administrators, District Directors, Branch 
Managers, the Inspector General, and Disaster Area Directors are 
authorized to--
    (1) Certify and authenticate originals and copies of any books, 
records, papers, or other documents on file within SBA, or extracts 
taken from them.
    (2) Certify the nonexistence of records.
    (3) Affix the Seal of SBA to all such certifications for those 
purposes authorized by 28 U.S.C. 1733.



Sec. 101.106  Does Federal law apply to SBA programs and activities?

    (a) SBA makes loans and provides other services that are authorized 
and executed under Federal programs to achieve national purposes.
    (b) The following are construed and enforced in accordance with 
Federal law--

[[Page 7]]

    (1) Instruments evidencing loans;
    (2) Security interests in real or personal property payable to or 
held by SBA or the Administrator such as promissory notes, bonds, 
guarantee agreements, mortgages, and deeds of trust;
    (3) Other evidences of debt or security;
    (4) Contracts or agreements to which SBA is a party, unless 
expressly provided otherwise.
    (c) To the extent feasible, SBA uses local or state procedures, 
especially for recordation and notification purposes, in implementing 
and facilitating SBA's loan programs. This use of local or state 
procedures is not a waiver by SBA of any Federal immunity from any local 
or state control, penalty, tax, or liability.
    (d) No person, corporation, or organization that applies for and 
receives any benefit or assistance from SBA, or that offers any 
assurance or security upon which SBA relies for the granting of such 
benefit or assistance, is entitled to claim or assert any local or state 
law to defeat the obligation incurred in obtaining or assuring such 
Federal benefit or assistance.



Sec. 101.107  What SBA forms are approved for public use?

    (a) SBA uses forms approved by the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.), as amended. You may obtain approved forms for use by the public 
when applying for or obtaining SBA assistance, or when providing 
services for SBA, from any field office (see Sec. 101.103). You may also 
use forms which you have prepared yourself, or have obtained from 
another source, if those forms are identical in every respect to the 
forms approved by OMB for the same purpose.
    (b) Any member of the public who has reason to believe any SBA 
office or agent is in violation of the Public Protection Clause of the 
Paperwork Reduction Act (44 U.S.C. 3512 and see 5 CFR 1320.6) should 
notify SBA. Direct such comments to the Assistant Administrator for 
Administration at 409 3rd Street, SW., Washington, DC 20416.



Sec. 101.108  Has SBA waived any of the public participation exemptions of the Administrative Procedure Act?

    Yes. Despite these exemptions, SBA will follow the public 
participation requirements of the Administrative Procedure Act, 5 U.S.C. 
553, in rulemakings relating to public property, loans, grants, 
benefits, or contracts.



Sec. 101.109  Do SBA regulations include the section headings?

    Yes. All SBA regulations must be interpreted as including the 
section headings.



                Subpart B--Employment of Private Counsel



Sec. 101.200  When does SBA hire private counsel?

    (a) Business loans. SBA may hire private counsel to represent it in 
regard to business loans when the volume of activity in an area is not 
sufficient to require a full-time SBA employee, or the area is too 
remote for economical use of a full-time SBA employee.
    (b) Disaster loans. SBA may hire private counsel in regard to 
disaster loans when the disaster presents an emergency and a volume of 
activity that cannot be promptly and economically serviced by available 
SBA employees.



Sec. 101.201  What are the minimum terms of private counsel's employment?

    (a) Private counsel must perform all requested work in compliance 
with SBA's regulations, policies, and instructions, and take such action 
as is legally required under the Small Business Act, the Small Business 
Investment Act, and other laws applicable to SBA.
    (b) Private counsel must adhere to the highest standards of 
professional conduct and maintain confidentiality appropriate to the 
attorney-client relationship.
    (c) Private counsel acts under the supervision of the SBA General 
Counsel (and designees).
    (d) Private counsel usually is compensated at an hourly rate as 
approved by SBA. Contingency fee agreements may be used if approved by 
the General Counsel.

[[Page 8]]

    (e) Either party may terminate the employment upon written notice.



                      Subpart C--Inspector General



Sec. 101.300  What is the Inspector General's authority to conduct audits, investigations, and inspections?

    The Inspector General Act of 1978, as amended (5 U.S.C. App. 3) 
authorizes SBA's Inspector General to provide policy direction for, and 
to conduct, supervise, and coordinate such audits, investigations, and 
inspections relating to the programs and operations of SBA as appears 
necessary or desirable.



Sec. 101.301  Who should receive information or allegations of waste, fraud, and abuse?

    The Office of Inspector General should receive all information or 
allegations of waste, fraud, or abuse regarding SBA programs and 
operations.



Sec. 101.302  What is the scope of the Inspector General's authority?

    To obtain the necessary information and evidence, the Inspector 
General (and designees) have the right to:
    (a) Have access to all records, reports, audits, reviews, documents, 
papers, recommendations, and other materials available to SBA and 
relating to SBA's programs and operations;
    (b) Require by subpoena the production of all information, 
documents, reports, answers, records, accounts, papers, and other data 
and documentary evidence;
    (c) Administer oaths and affirmations or take affidavits; and
    (d) Request information or assistance from any Federal, state, or 
local government agency or unit.



Sec. 101.303  How are Inspector General subpoenas served?

    (a) Service of subpoenas may be effected by any of the following 
means--
    (1) If by mail, a copy of the subpoena must be addressed to the 
person, partnership, corporation, or unincorporated association to be 
served at a residence or usual dwelling place, or a principal office or 
place of business, and mailed first class by registered or certified 
mail (postage prepaid, return receipt requested), or by a commercial or 
U.S. Postal Service overnight or express delivery service.
    (2) If by personal delivery, a copy of the subpoena must be 
delivered to the person to be served, or to a member of the partnership 
to be served, or to an executive officer or a director of the 
corporation or unincorporated association to be served, or to a person 
authorized by appointment or by law to receive process for the person or 
entity named in the subpoena.
    (3) If by delivery to an address, a copy of the subpoena must be 
left at the principal office or place of business of the person, 
partnership, corporation, or unincorporated association to be served, or 
at the residence or usual dwelling place of the person, member of the 
partnership, or officer or director of the corporation or unincorporated 
association to be served, with someone of suitable age and discretion.
    (b) Proof of service--
    (1) When service is by registered, certified, overnight, or express 
mail, it is complete upon delivery of the document by the Postal Service 
or commercial service.
    (2) The return Postal Service receipt for a document that was 
registered or certified and mailed, the signed receipt for a document 
delivered by an overnight or express delivery service, or the Return of 
Service completed by the individual serving the subpoena by personal 
delivery shall be proof of service.



                Subpart D--Intergovernmental Partnership



Sec. 101.400  What is the purpose of this subpart?

    (a) This subpart implements section 401 of the Intergovernmental 
Cooperation Act (31 U.S.C. 6506 et seq.) which promotes 
intergovernmental partnership and strengthens Federalism by relying on 
state processes and state, area-wide, regional, and local coordination 
for the review of proposed Federal financial assistance and direct 
Federal development.
    (b) While guiding SBA's management, this subpart does not create any 
right or benefit enforceable at law.

[[Page 9]]



Sec. 101.401  What programs and activities of SBA are subject to this subpart?

    SBA publishes in the Federal Register a list of programs and 
activities subject to this subpart.



Sec. 101.402  What procedures apply to the selection of SBA programs and activities?

    (a) A state may--
    (1) Select any program or activity published in the Federal Register 
under Sec. 101.401 for intergovernmental review (providing it consults 
with local elected officials before doing so) and then notify the 
Administrator of the programs and activities selected; and
    (2) Notify the Administrator of changes in its selections at any 
time. For each change, the state submits to the Administrator an 
assurance that it consulted with local elected officials regarding the 
change.
    (b) SBA may establish deadlines by which states must inform the 
Administrator of changes in their program selections.
    (c) After receiving notice of a state's selections, the 
Administrator uses a state's process as soon as feasible depending on 
individual programs and activities.
    (d) ``State'' means any of the 50 States, the District of Columbia, 
the Commonwealth of Puerto Rico, the Commonwealth of the Northern 
Mariana Islands, Guam, American Samoa, the U.S. Virgin Islands, or the 
Trust Territory of the Pacific Islands.



Sec. 101.403  What are the notice and comment procedures?

    (a) The Administrator provides notice to directly affected state, 
area-wide, regional, and local entities in a state of proposed SBA 
financial assistance or direct SBA development if--
    (1) The state has not adopted a process under Executive Order 12372 
(3 CFR, 1982 Comp., p. 197), as amended by Executive Order 12416 (3 CFR, 
1983 Comp., p. 186); or
    (2) The assistance or development involves a program or activity not 
selected for the state process.
    (b) Notice may be made by publication in the Federal Register or 
other means as SBA deems appropriate.
    (c) Except in unusual circumstances the Administrator gives state 
processes or directly affected state, area-wide, regional, and local 
officials and entities at least 60 days to comment on proposed SBA 
financial assistance or direct SBA development.
    (d) In cases where SBA delegates the review, coordination, and 
communication authority under this subpart, this section also applies.



Sec. 101.404  How does the Administrator receive comments?

    (a) The Administrator follows the procedures of Sec. 101.405 if--
    (1) A state office or official is designated to act as a single 
point of contact between a state process and all Federal agencies; and
    (2) That office or official transmits a state process recommendation 
for a program selected under Sec. 101.402(a).
    (b)(1) The single point of contact is not obligated to transmit 
comments from state, area-wide, regional, or local officials and 
entities where there is no state process recommendation.
    (2) If a state process recommendation is transmitted by a single 
point of contact, all comments from state, area-wide, regional, and 
local officials and entities that differ from it must also be 
transmitted.
    (c) If a state has not established a process, or is unable to submit 
a state process recommendation, state, area-wide, regional, and local 
officials and entities may submit comments to SBA.
    (d) If a program or activity is not selected for a state process, 
state, area-wide, regional, and local officials and entities may submit 
comments to SBA. In addition, if a state process recommendation for a 
non-selected program or activity is transmitted to SBA by the single 
point of contact, the Administrator follows the procedures of 
Sec. 101.405.
    (e) The Administrator considers comments which do not constitute a 
state process recommendation submitted under this subpart and for which 
the Administrator is not required to apply the procedures of 
Sec. 101.405 when such comments are provided by a single point of 
contact directly to SBA by a commenting party.

[[Page 10]]



Sec. 101.405  How does the Administrator respond to comments?

    (a) If a state process provides a recommendation to SBA through its 
single point of contact, the Administrator:
    (1) Accepts the recommendation; or
    (2) Reaches a mutually agreeable solution with the state process; or
    (3) Provides the single point of contact with a written explanation 
of the decision in a form the Administrator deems appropriate. The 
Administrator may also supplement the written explanation by telephone 
or other means.
    (b) In any explanation under paragraph (a)(3) of this section, the 
Administrator informs the single point of contact that--
    (1) SBA will not implement its decision for at least 10 days after 
the single point of contact receives the explanation; or
    (2) Because of unusual circumstances the waiting period of at least 
10 days is not feasible.
    (c) For purposes of computing the waiting period under paragraph 
(b)(1) of this section, a single point of contact is presumed to have 
received written notification 5 days after the date of mailing.



Sec. 101.406  What are the Administrator's responsibilities in interstate situations?

    The Administrator is responsible for--
    (a) Identifying proposed SBA financial assistance and direct SBA 
development that have an impact on interstate areas;
    (b) Notifying appropriate officials and entities in states which 
have adopted a process and selected an SBA program or activity;
    (c) Making efforts to identify and notify the affected state, area-
wide, regional, and local officials and entities in states that have not 
adopted a process or selected an SBA program or activity;
    (d) Using the procedures of Sec. 101.405 if a recommendation of a 
designated area-wide agency is transmitted by a single point of contact 
in cases in which the review, coordination, and communication with SBA 
has been delegated; and
    (e) Using the procedures of Sec. 101.405 if a state process provides 
a state recommendation to SBA through a single point of contact.



Sec. 101.407  May the Administrator waive these regulations?

    The Administrator may waive any provision of Secs. 101.400 through 
and including 101.406 in an emergency.



PART 102--RECORD DISCLOSURE AND PRIVACY--Table of Contents




                  Subpart A--Disclosure of Information

Sec.
102.1  What does this subpart do?
102.2  How can I get records from SBA?
102.3  How long will it take for SBA to respond to my request for 
          records?
102.4  How will SBA respond to my request?
102.5  If SBA grants my request, which records will be supplied?
102.6  How will SBA respond to requests for business information?
102.7  What are the procedures for submitters of business information to 
          SBA after March 1, 1996?
102.8  What fees will SBA charge?
102.9  How may I appeal a denial of my request for information or a fee 
          determination?
102.10  How can I get the Public Index of SBA materials?
102.11  What happens if I ask SBA for a record that another Federal 
          agency generated?
102.12  What happens if I subpoena records or testimony of employees in 
          connection with a civil lawsuit, criminal proceeding or 
          administrative proceeding to which SBA is not a party?

                       Subpart B--The Privacy Act

102.20  What privacy rights does this subpart regulate?
102.21  How will SBA maintain records?
102.22  When will SBA disclose records?
102.23  Are there special rules about personnel and equal employment 
          opportunity files?
102.24  What is a record?
102.25  What is a system of records?
102.26  What does this subpart mean by ``person to whom a record 
          pertains'' or ``you''?
102.27  What records are partially exempt from the provisions of the 
          Privacy Act?
102.28  What about information compiled for a civil action?
102.29  Who administers SBA's responsibilities under the Privacy Act?

[[Page 11]]

102.30  How can I write to the Privacy Act Officer?
102.31  Who appoints Systems Managers?
102.32  What do Systems Managers do?
102.33  How can I write to a Systems Manager?
102.34  How can I see records kept on me?
102.35  How long will it take SBA to respond to my request?
102.36  How will SBA respond to my request?
102.37  How may I appeal a decision to deny me access to my records?
102.38  To whom should my appeal be addressed?
102.39  By when must I appeal to the Privacy Act Officer?
102.40  When will SBA respond to my appeal?
102.41  How will SBA respond to my appeal?
102.42  How can I get SBA to amend a record kept on me?
102.43  What should my petition say?
102.44  For what reasons will SBA amend my record?
102.45  Will SBA ask me for more information after I make my request?
102.46  When will SBA respond to my request?
102.47  How will SBA respond to my request?
102.48  How do I appeal a refusal to amend a record kept on me?
102.49  To whom should I address my appeal?
102.50  By when must I submit my appeal?
102.51  By what standards will the Privacy Act Officer review my appeal?
102.52  When will SBA respond to my appeal?
102.53  How will SBA respond to my appeal?
102.54  How can I obtain judicial review of an SBA Privacy Act decision?
102.55  What must SBA tell the individuals from whom it collects 
          information?
102.56  Will SBA release my name or address?
102.57  Do I have to give SBA my SSN?
102.58  When will SBA show personnel records to a representative?
102.59  What fees will SBA charge me for my records?
102.60  May I be informed of disclosures made of my record?
102.61  Are there Matching Program procedures?

    Authority: 5 U.S.C. 552 and 552a; 31 U.S.C. 1 et seq. and 67 et 
seq.; 44 U.S.C. 3501 et seq.; E.O. 12600, 3 CFR, 1987 Comp., p. 235.

    Source: 61 FR 2673, Jan. 29, 1996, unless otherwise noted.



                  Subpart A--Disclosure of Information



Sec. 102.1  What does this subpart do?

    This subpart describes the procedures by which the SBA makes 
documents available under the Freedom of Information Act (``FOIA'') (5 
U.S.C. 552).



Sec. 102.2  How can I get records from SBA?

    (a) You can go to the SBA office at which the records are kept, and 
photocopy any final SBA decision, policy statement, or standard 
operating procedure.
    (b) For copies of all other records, you must send a letter request 
to the SBA office at which the records are kept. The letter must 
describe specific records you want. If you don't know which SBA office 
keeps the records, you may send your letter to the nearest SBA District 
Office. You may also send your letter to the Chief, FOIA & PA Office, 
409 Third Street SW., Suite 5900, Washington DC 20416. The office 
receiving your letter will forward it to the correct office.



Sec. 102.3  How long will it take for SBA to respond to my request for records?

    (a) If you have met the fee requirements of Sec. 102.8, SBA will 
respond within 10 working days after the correct office receives your 
request, unless you have requested an especially large number of 
records, the records are not located in the office handling the request, 
or SBA needs to consult with another government office.
    (b) If you make your request on behalf of another person, SBA will 
respond within 10 working days after you present a document signed by 
that person authorizing you to request information on his or her behalf. 
If you make your request on behalf of another person without including 
such signed authorization, SBA will inform you of the authorization 
needed.
    (c) If you send your request to the wrong office, that office will 
send it to the correct office within 10 working days and will send you 
an acknowledgment letter.
    (d) If SBA determines that one of the circumstances described in 
paragraph (a) of this section apply, it will respond within 20 working 
days of the date upon which the correct office receives your request, 
and will notify you that the extra time is required.

[[Page 12]]



Sec. 102.4  How will SBA respond to my request?

    Within the time limit described in Sec. 102.3, SBA will either:
    (a) Give you all the records you requested;
    (b) Give you some or none of the records you requested, explain why 
SBA has decided not to comply fully with your request, citing specific 
exemptions where applicable, and explain how to appeal that decision; or
    (c) Tell you that you will not receive a response until you have 
either paid your fee or committed to the amount of fee you will pay, as 
applicable.



Sec. 102.5  If SBA grants my request, which records will be supplied?

    SBA will give you copies of all records or portions of records 
requested which are in the processing office as of the close of the day 
upon which that office received your request.



Sec. 102.6  How will SBA respond to requests for business information?

    (a) Business information is a trade secret, or commercial or 
financial information, contained in records provided to SBA by any 
person and which may be protected from disclosure under Exemption Four 
of FOIA (5 U.S.C. 552(b)(4)).
    (b) The submitter is the business entity to which the business 
information pertains and which submitted the information to SBA, either 
directly or through an intermediary, such as a bank.
    (c) SBA will disclose upon request business information that has 
previously been released to the general public.
    (d) If you request business information submitted to SBA prior to 
March 1, 1996 which has not previously been released to the general 
public, SBA will notify the submitter of your request upon SBA's receipt 
of it if SBA intends to release that information. SBA will give the 
submitter 5 working days to identify information the disclosure of which 
would likely cause substantial competitive harm and why that harm would 
occur unless SBA intends to deny your request in full.
    (e) If you request business information submitted to SBA after March 
1, 1996 which has not previously been released to the general public, 
SBA will notify the submitter if it intends to release business 
information which either the submitter has previously claimed or which 
SBA believes to be confidential and the disclosure of which would cause 
substantial competitive harm. The submitter will have 5 working days to 
object to the disclosure, explaining why the harm would occur.
    (f) Whenever a submitter objects to disclosure, SBA will consider 
the submitter's objections, but will not be bound by it. If SBA 
discloses information despite a submitter's objection, SBA will give the 
submitter the maximum notice possible before disclosure without 
violating the time constraints imposed by FOIA. In this notice, SBA will 
tell the submitter when and what it intends to disclose.
    (g) SBA will promptly notify the submitter of any suit filed against 
SBA to compel disclosure.



Sec. 102.7  What are the procedures for submitters of business information to SBA after March 1, 1996?

    Submitters may identify business information at the time of 
submission which would likely cause them substantial competitive harm if 
disclosed. The identification shall lapse after 10 years, unless renewed 
in writing.



Sec. 102.8  What fees will SBA charge?

    (a) Basic fees. (1) For manual record search. SBA will charge $18 
per hour.
    (2) For computer record searches. SBA will charge the actual costs.
    (3) For review and disclosure determinations. SBA will charge $18 
per hour.
    (4) Duplication. SBA will charge 10 cents per page for photocopy 
duplication, and the actual cost of reproduction for other methods.
    (5) Certifying records. SBA will charge actual costs.
    (6) For requested special types of delivery other than first-class 
mail. SBA may charge the actual cost.
    (b) If you are a representative of an educational institution, a 
non-commercial scientific institution, or a member of the news media. 
SBA will charge you only for the cost of duplication after the first 100 
pages.

[[Page 13]]

    (1) What is an educational institution? A state-certified preschool, 
elementary or secondary school, an accredited college or university, an 
accredited institution of professional education, or any accredited or 
state-certified institute of vocational education which operates a 
program or programs of scholarly research.
    (2) What is a non-commercial scientific institution? An organization 
which is operated solely for the purpose of conducting scientific 
research, the results of which are not intended to promote any 
particular product or industry.
    (3) What is a representative of an educational or non-commercial 
scientific institution? A requester seeking records on behalf of that 
institution who is authorized by that institution to do so, and who is 
seeking those records for scholarly or scientific reasons, as long as 
there is no commercial purpose to the request for records.
    (4) What is a representative of the news media? An individual who is 
actively gathering news for an entity that is organized and operated to 
disseminate information to the general public. To be considered ``news 
media'', this organization may provide information by subscription and 
may target its dissemination to a narrow section of the general public 
as long as any member of the general public may purchase information 
from it. If you are not employed by the news media, but have a 
reasonable expectation that you will sell the information you obtain to 
the news media, SBA may conclude that you are a representative of the 
news media. SBA will not consider you to be a representative of the news 
media if your request has a commercial purpose, beyond the commercial 
purpose of selling information to the general public.
    (c) Member of the general public. If you are a member of the general 
public, SBA will not charge you for the first two hours of search time, 
the first hundred pages of photocopy duplication, or for review and 
disclosure determinations. The general public is anyone who is not a 
representative of an educational institution, a representative of the 
news media, or a commercial requester.
    (d) Commercial requester. If you are a commercial requester you must 
pay all the basic fees set forth in paragraph (a) of this section. A 
commercial requester is anyone seeking information for commercial, 
trade, or profit interests of the requester or someone he or she is 
trying to help.
    (e) How does SBA determine what category of requester I am? The SBA 
office processing your request will determine the appropriate category. 
If you are not a commercial requester, you must show us what category of 
requester you are.
    (f) Tell us how much you are willing to pay. To get the quickest 
possible response, you must tell SBA how much money you are willing to 
pay in fees when you make your request for records.
    (g) If you don't tell us how much you are willing to pay and SBA 
estimates that the fee will exceed $25.00, SBA will estimate the fee and 
will not process your request until you tell SBA that you are willing to 
pay the estimated amount, or until you narrow the request so that the 
fee is less than $25.
    (h) SBA will waive fees less than $25.
    (i) If the fee is more than $250, or if you have a history of 
failing to pay FOIA fees in a timely manner, SBA will ask you to remit 
the estimated amount and any past due charges before sending you the 
records.
    (j) Who determines the fee? The SBA office which processes your 
request.
    (k) When do you pay the fee? SBA will bill you when it responds to 
your request. You must pay within thirty-one calendar days.
    (l) Failure to pay fees. (1) If you do not pay by the thirty-first 
day after the billing date, SBA will charge interest at the maximum rate 
allowed under Title 31 of the United States Code, section 3717.
    (2) If you do not pay the amount due within ninety calendar days of 
the due date, SBA may notify consumer credit reporting agencies of your 
delinquency.
    (3) If you owe fees for previous FOIA responses, SBA will not 
respond to further requests unless you satisfy the amount due.
    (m) Unsuccessful searches. If SBA's search for records is 
unsuccessful, it will still bill you for the search.
    (n) Multiple requests. If you make multiple requests at or about the 
same

[[Page 14]]

time, SBA will aggregate your requests for records. In no case will SBA 
give you more than the first two hours of search time, or more than the 
first 100 pages of duplication without charge.
    (o) Reduction of fees in the public interest. If SBA determines that 
disclosure of the information you seek is in the public interest because 
it is likely to contribute significantly to public understanding of the 
operations or activities of the government, and that you are not seeking 
the information in your own commercial interests, SBA may waive or 
reduce the fee.



Sec. 102.9  How may I appeal a denial of my request for information or a fee determination?

    (a) You must write to the Chief, FOIA & PA Office at 409 Third 
Street SW., Suite 5900, Washington, DC 20416.
    (b) The Chief must receive your written appeal within 45 calendar 
days of the date of the SBA determination from which you are appealing.
    (c)(1) If you are appealing a denial of your request for 
information, the appeal must contain the following information:
    (i) What records were denied.
    (ii) The name and title of the individual who denied the request and 
the address of his or her office.
    (iii) Any other information you deem appropriate.
    (2) If you are appealing a fee determination, the appeal must 
contain the following information:
    (i) The address of the office which made the fee determination from 
which you are appealing.
    (ii) The fee that office charged.
    (iii) The fee, if any, you believe should have been charged.
    (iv) The reasons you believe that your fee should be lower than the 
fee which the Agency charged.
    (v) Any other information you deem appropriate.
    (d) The Chief will decide your appeal, unless the Chief originally 
made the determination you are appealing. In that case, SBA's Assistant 
Administrator for Hearings and Appeals will decide your appeal.
    (e) SBA will decide your appeal within 20 working days from the date 
of its receipt. SBA may have an additional 10 working days if unusual 
circumstances require.
    (f)(1) If you are appealing a decision to deny your request for 
records, SBA will either:
    (i) Give you the records you requested; or
    (ii) Decline to give you the records you requested, tell you why SBA 
has concluded that the records were exempt from disclosure under FOIA, 
and tell you how to obtain judicial review of SBA's decision.
    (2) If you are appealing a fee determination, SBA will either charge 
the fee you request or charge another fee and explain why SBA has 
concluded that the fee it has decided to charge is appropriate.



Sec. 102.10  How can I get the Public Index of SBA materials?

    (a) The Public Index is a document which provides identifying 
information about official documents which SBA has issued.
    (b) SBA has administratively determined, as permitted by FOIA, that 
periodic publication and distribution is unnecessary and impracticable.
    (c) The Public Index is set forth in Appendix 3 of SBA Standard 
Operating Procedure 40 03. You can obtain the Public Index from any SBA 
office.



Sec. 102.11  What happens if I ask SBA for a record that another Federal agency generated?

    Such a request is a request directed to the wrong office, as that 
term is used in Sec. 102.3(c). SBA will forward your request to the 
generating agency.



Sec. 102.12  What happens if I subpoena records or testimony of employees in connection with a civil lawsuit, criminal proceeding or administrative proceeding 
          to which SBA is not a party?

    (a) The person to whom the subpoena is directed must consult with 
SBA counsel in the relevant SBA office, who will seek approval for 
compliance from the Associate General Counsel for Litigation. Except 
where the subpoena requires the testimony of an employee of the 
Inspector General's office, or records within the possession of the 
Inspector General, the Associate General

[[Page 15]]

Counsel may delegate the authorization for appropriate production of 
documents or testimony to local SBA counsel.
    (b) If SBA counsel approves compliance with the subpoena, SBA will 
comply.
    (c) If SBA counsel disapproves compliance with the subpoena, SBA 
will not comply, and will base such noncompliance on an appropriate 
legal basis such as privilege or a statute.
    (d) SBA counsel must provide a copy of any subpoena relating to a 
criminal matter to SBA's Inspector General prior to its return date.



                       Subpart B--The Privacy Act



Sec. 102.20  What privacy rights does this subpart regulate?

    This subpart establishes SBA's policy and procedures safeguarding an 
individual against an invasion of personal privacy.
    (a) Except as otherwise provided by law or regulation, SBA will 
permit you to do the following:
    (1) Determine what records pertaining to you are collected, 
maintained, used, or disseminated by SBA;
    (2) Object when records pertaining to you are obtained by SBA for a 
particular purpose and are proposed to be used or made available for 
another purpose without your consent; and
    (3) Gain access to information pertaining to you in records, have a 
copy made of all or any portion of those records, and correct or amend 
such records as appropriate.
    (b) SBA will collect, maintain, use, or disseminate any record of 
identifiable personal information in a manner that assures that such 
action is for a necessary and lawful purpose, that the information is 
current and accurate for its intended use, and that adequate safeguards 
are provided to prevent misuse of such information.
    (c) SBA will permit exemptions from the requirements of 5 U.S.C. 
552a (Privacy Act of 1974) (``PA'') only where an important public 
policy need for such exemption has been determined pursuant to or under 
specific statutory authority.



Sec. 102.21  How will SBA maintain records?

    SBA records will:
    (a) Contain only such information about an individual as is relevant 
and necessary to accomplish a purpose required of SBA by statute, 
regulation, or by Executive Order of the President.
    (b) Be comprised, to the maximum practical extent, of an 
individual's own statements when the information may result in an 
adverse determination about an individual's rights, benefits, or 
privileges under a Federal program.



Sec. 102.22  When will SBA disclose records?

    SBA will not disclose to anyone any record which is contained in a 
system of records, except that it will disclose a record:
    (a) To the person about whom the record is maintained, or to that 
person's agent, within the limits discussed in this subpart;
    (b) To those SBA employees who have a need for the record to perform 
their duties;
    (c) When required under 5 U.S.C. 552 (FOIA);
    (d) For a routine use of the record compatible with the purpose for 
which it was collected;
    (e) To the Bureau of the Census for purposes of planning or carrying 
out a census, survey, or related activity pursuant to Title 13, United 
States Code;
    (f) To a recipient who has provided the Agency with advance adequate 
written assurance that the record will be used solely as a statistical 
research or reporting record, where the record is transferred in a form 
that is not individually identifiable;
    (g) To the National Archives of the United States as a record which 
has sufficient historical or other value to warrant its continued 
preservation by the U.S. Government, or for evaluation by the 
Administrator of General Services or his or her designee to determine 
whether the record has such value;
    (h) To another agency or to an instrumentality of any governmental 
jurisdiction within or under the control of the United States for a 
civil or criminal law enforcement activity if:
    (1) The activity is authorized by law; and

[[Page 16]]

    (2) The head of the agency or instrumentality has made a written 
request to the PA Officer specifying the particular portion desired and 
the law enforcement activity for which the record is sought;
    (i) To a person showing compelling circumstances affecting the 
health or safety of an individual. Upon disclosure, SBA will notify such 
individual at his or her last known address;
    (j) To either House of Congress, or, to the extent of matters within 
its jurisdiction, any committee or subcommittee thereof, or any joint 
committee of Congress or subcommittee of any such joint committee;
    (k) To the Comptroller General, or any of his or her authorized 
representatives, in the course of the performance of the duties of the 
General Accounting Office;
    (l) Pursuant to the order of a court of competent jurisdiction; or
    (m) To a consumer reporting agency in accordance with 31 U.S.C. 
3711(f).



Sec. 102.23  Are there special rules about personnel and equal employment opportunity files?

    (a) The provisions of parts 293 and 297 of Title 5 of the Code of 
Federal Regulations govern all SBA files which the Office of Personnel 
Management determines are personnel files.
    (b) The provisions of part 1611 of Title 29 of the Code of Federal 
Regulations govern all Equal Employment Opportunity complaint files.



Sec. 102.24  What is a record?

    A record is information which SBA maintains on an individual and 
which includes either his name or an identifying symbol (such as a 
fingerprint, a social security number (``SSN''), or a photograph).



Sec. 102.25  What is a system of records?

    A system of records is one or more records which SBA routinely keeps 
for official purposes, and from which SBA can retrieve records by using 
a name or personal identifier.



Sec. 102.26  What does this subpart mean by ``person to whom a record pertains'' or ``you''?

    When this subpart refers to the ``person to whom a record pertains'' 
or uses the pronoun ``you'', it refers to a United States citizen or a 
lawfully admitted alien. It does not refer to a corporation, 
partnership, or sole proprietorship.



Sec. 102.27  What records are partially exempt from the provisions of the Privacy Act?

    (a) The following systems of records are exempt from certain 
provisions of the PA: Audit Reports (system of records #SBA 015), 
Litigation and Claims Files (#SBA 070), Personnel Security Files (#SBA 
100), Security and Investigations Files (#SBA 120), Office of Inspector 
General Referrals (#SBA 125), Investigations Division Management 
Information System (#SBA 130), and Standards of Conduct Files (#SBA 
140).
    (b) The provisions of the PA from which these systems of records are 
exempt are subsections (c)(3) (Accounting of Certain Disclosures), (d) 
(Access to Records), (e)(1), 4G, H, and I (Agency Requirements), and (f) 
(Agency Rules).
    (c) The systems of records described in paragraph (a) of this 
section are exempt from the provisions of the Privacy Act described in 
paragraph (b) of this section in order to:
    (1) Prevent the subject of investigations from frustrating the 
investigatory process;
    (2) Protect investigatory material compiled for law enforcement 
purposes;
    (3) Fulfill commitments made to protect the confidentiality of 
sources and to maintain access to necessary sources of information; or
    (4) Prevent interference with law enforcement proceedings.
    (d) In addition to the foregoing exemptions in paragraphs (a) 
through (c) of this section, the systems of records described in 
paragraph (a) of this section numbered SBA 015, 100, 120, 125 and 130 
are fully exempt from the Privacy Act to the extent that they contain:

[[Page 17]]

    (1) Information compiled to identify individual criminal offenders 
and alleged offenders and consisting only of identifying data and 
notations of arrests, confinement, release, and parole and probation 
status;
    (2) Information, including reports of informants and investigators, 
associated with an identifiable individual compiled to investigate 
criminal activity; or
    (3) Reports compiled at any stage of the process of enforcement of 
the criminal laws from arrest or indictment through release from 
supervision associated with an identifiable individual.
    (e) The systems of records described in paragraph (d) of this 
section are fully exempt from the PA to the extent described in that 
paragraph because they are records maintained by the Investigations 
Division of the Inspector General, which is a component of SBA which 
performs as its principal function activities pertaining to the 
enforcement of criminal laws within the meaning of 5 U.S.C. 552a(j)(2). 
They are exempt in order to:
    (1) Prevent the subjects of Office of Inspector General (OIG) 
investigations from using the PA to frustrate the investigative process;
    (2) Protect the identity of Federal employees who furnish a 
complaint or information to the OIG, consistent with section 7(b) of the 
Inspector General Act of 1978, 5 U.S.C. App. I;
    (3) Protect the confidentiality of other sources of information;
    (4) Avoid endangering confidential sources and law enforcement 
personnel;
    (5) Prevent interference with law enforcement proceedings;
    (6) Assure access to sources of confidential information, including 
that contained in Federal, State, and local criminal law enforcement 
information systems;
    (7) Prevent the disclosure of investigative techniques; or
    (8) Prevent the disclosure of classified information.



Sec. 102.28  What about information compiled for a civil action?

    No individual shall have access to any information compiled by SBA 
in reasonable anticipation of a civil action or proceeding. In the event 
of a question as to disclosure, the Systems Manager for the system of 
records involved will rely on the opinion of the General Counsel or 
designee, and will also consult with the PA Officer.



Sec. 102.29  Who administers SBA's responsibilities under the Privacy Act?

    The PA Officer has overall responsibility for administering the PA 
for SBA. A Systems Manager is responsible for administering the PA as to 
systems of records within an SBA Office.



Sec. 102.30  How can I write to the Privacy Act Officer?

    You can write to the PA Officer at 409 Third Street SW., Suite 5900, 
Washington, DC 20416.



Sec. 102.31  Who appoints Systems Managers?

    The senior official in each field office and each Headquarters 
program area designates himself or herself or appoints another as the 
Systems Manager for that office.



Sec. 102.32  What do Systems Managers do?

    Systems Managers have the following responsibilities, among others, 
for the offices for which they are appointed:
    (a) Acting as the initial contact person for individuals seeking 
access to or amendment of their records.
    (b) Responding to requests for information.
    (c) Discussing the availability of records with individuals.
    (d) Amending records in cases where amended information is not 
controversial and does not involve policy decisionmaking.
    (e) Informing individuals of any reproduction fees to be charged.
    (f) Assuring that their systems of records contain no record 
describing how any individual exercises rights guaranteed by the First 
Amendment unless expressly authorized by statute or by the individual 
about whom the record is maintained, or unless pertinent to and within 
the scope of an authorized law enforcement activity.

[[Page 18]]



Sec. 102.33  How can I write to a Systems Manager?

    You can write to a Systems Manager by writing to the SBA Office 
which maintains the record you are seeking. If you do not know which 
office that is, or you do not know the address of that office, you can 
write to the PA Officer at 409 3rd Street SW., Suite 5900, Washington, 
DC 20416, who will forward your request to the proper Systems Manager.



Sec. 102.34  How can I see records kept on me?

    (a) You may look at any information pertaining to yourself contained 
in any SBA system of records unless some law or regulation prohibits it.
    (b) In order to see this information, you must ask for it in 
writing, identifying what records you want. The writing should be 
addressed to the Systems Manager overseeing the system of records 
containing the record you wish to see.
    (c) The Systems Manager (or, when appropriate, the PA Officer) may 
ask for more specific information about the system of records in which 
the document you are seeking is kept, and may ask you for 
identification. The Systems Manager may ask you for your social security 
number but you are not obliged to present it and your request will not 
be denied simply because you do not provide it. The Systems Manager may, 
however, deny your request if he or she cannot determine that you are 
the person to whom the information pertains.



Sec. 102.35  How long will it take SBA to respond to my request?

    The Systems Manager will respond within 10 working days.



Sec. 102.36  How will SBA respond to my request?

    The Systems Manager will inform you that:
    (a) Your request is denied, in which case he or she will set forth 
the reasons for denial and your rights to appeal; or
    (b) Your request is granted and you may view your record, in which 
case he or she will set forth the time and date for you to review your 
record in the presence of an SBA employee; or
    (c) Your request is granted and, unless you object, SBA will mail 
you a copy of your record. SBA will mail you your record only if it 
determines that there are no other reasonable means for you to obtain 
access to your record.



Sec. 102.37  How may I appeal a decision to deny me access to my records?

    Your appeal should be in writing and should set forth any 
information you think would show that you should have access to your 
records.



Sec. 102.38  To whom should my appeal be addressed?

    (a) Denial of a personnel file. Address an appeal of a denial of a 
request for a personnel file to the Office of Personnel Management, 1900 
E Street NW., Washington, DC 20006.
    (b) Denial of an Equal Employment Opportunity Complaint File. 
Address an appeal of a denial of a request for an Equal Employment 
Opportunity Complaint File to the Equal Employment Opportunity 
Commission, 1801 L Street NW., Washington, DC 20036.
    (c) All other appeals. Appeal the denial of any other record to the 
PA Officer. See Sec. 102.30.



Sec. 102.39  By when must I appeal to the Privacy Act Officer?

    Your appeal must reach the PA Officer on or before 30 calendar days 
after the date the denial was issued. If your appeal is based on the 
failure of the Systems Manager to answer your request, your appeal must 
reach the PA Officer on or before 90 calendar days after the date by 
which the Systems Manager should have responded under Sec. 102.35.



Sec. 102.40  When will SBA respond to my appeal?

    The PA Officer will respond to you within 30 working days of the 
date when your appeal was received.



Sec. 102.41  How will SBA respond to my appeal?

    The PA Officer will inform you that:
    (a) Your request is denied, in which case the reasons for denial 
will be set forth along with your rights to judicial review of SBA's 
decision; or

[[Page 19]]

    (b) Your request is granted and you may view your record, in which 
case the time and date for you to review your records in the presence of 
an SBA employee will be set forth; or
    (c) Your request is granted and, unless you object, SBA will mail 
you a copy of your record. SBA will mail you your record only if it 
determines that there are no other reasonable means for you to obtain 
access to your record.



Sec. 102.42  How can I get SBA to amend a record kept on me?

    You can petition to have records kept on you amended by writing to 
the Systems Manager who oversees the system of records in which the 
record you wish amended is kept. If you are unable to determine who that 
Systems Manager is, you may send your petition to the PA Officer, who 
will forward it to the right Systems Manager. See Sec. 102.30.



Sec. 102.43  What should my petition say?

    Your petition should include the following:
    (a) In what system of records the record you want amended is kept.
    (b) What record you want amended.
    (c) What specific information in that record you want amended.
    (d) Why you want the record amended.
    (e) Any information you have, including copies of evidence, which 
you think will persuade the Systems Manager to amend the record.
    (f) What the record should say.



Sec. 102.44  For what reasons will SBA amend my record?

    SBA seeks to maintain only accurate, complete, and up-to-date 
records which are relevant to accomplish some purpose required by law, 
regulation, or Executive Order of the President. There are four grounds 
for amending a record. They are:
    (a) The record is not accurate.
    (b) The record is not relevant to any legitimate SBA concern.
    (c) The record is out-of-date. For example, there may have been 
events since the date of the record which have affected some of the 
information contained in the record.
    (d) The record is incomplete. There may be additional information 
relevant to the material contained in the record.



Sec. 102.45  Will SBA ask me for more information after I make my request?

    Perhaps, in which case the procedures of Sec. 102.34(c) shall apply.



Sec. 102.46  When will SBA respond to my request?

    The Systems Manager will acknowledge receipt of your request within 
10 working days and issue a written response within 30 working days.



Sec. 102.47  How will SBA respond to my request?

    The Systems Manager will:
    (a) Make the amendment you request, and send all individuals who had 
previously received a copy of that record a copy of the amended record; 
or
    (b) Amend the record, in a different manner, sending all individuals 
who had previously received a copy of that record a copy of the amended 
record and, in addition, telling you why your request was not granted in 
full and what appeal rights you have; or
    (c) Decline to amend the record, explaining why your request was not 
granted and telling you of your appeal rights.



Sec. 102.48  How do I appeal a refusal to amend a record kept on me?

    Your appeal should be in writing and include the following:
    (a) All of the information contained in your original request to 
amend the record;
    (b) Any response of the Systems Manager, including any reasons for 
denying your request; and
    (c) Any information you wish to submit in response to the Systems 
Manager's findings.



Sec. 102.49  To whom should I address my appeal?

    (a) Personnel file. Address your appeal to the Office of Personnel 
Management, 1900 E Street NW., Washington, DC 20006.
    (b) Equal Employment Opportunity Complaint File. Address your appeal 
to the Equal Employment Opportunity

[[Page 20]]

Commission, 1801 L Street NW., Washington, DC 20036.
    (c) All other appeals. Address your appeal to the PA Officer. See 
Sec. 102.30.



Sec. 102.50  By when must I submit my appeal?

    Your appeal must be received by the PA Officer within 30 calendar 
days of the date the Systems Manager declined to amend your records, or 
within 90 calendar days of the date the Systems Manager should have 
responded under Sec. 102.46 if the Systems Manager did not so respond.



Sec. 102.51  By what standards will the Privacy Act Officer review my appeal?

    The PA Officer will decide your appeal using the criteria of 
accuracy, relevance, timeliness, and completeness described in 
Sec. 102.44. The PA Officer will review all relevant information and may 
seek the views of other SBA personnel. The PA Officer may review 
information not available to or not used by the Systems Manager.



Sec. 102.52  When will SBA respond to my appeal?

    The PA Officer will respond to your appeal within 30 working days of 
its receipt, unless the Administrator determines that unusual 
circumstances exist, in which case the PA Officer will notify you of the 
presence of these unusual circumstances within 30 working days of the 
date upon which he or she received your appeal, and will respond to your 
appeal within 60 working days of the date of receipt.



Sec. 102.53  How will SBA respond to my appeal?

    The PA Officer will:
    (a) Make the amendment you request, sending all individuals who had 
previously received a copy of that record a copy of the amended record; 
or
    (b) Amend the record in a different manner; or decline to amend it 
at all:
    (1) Sending all individuals who had previously received a copy of 
that record a copy of the amended record;
    (2) Telling you why your request was not granted in full and that 
you can seek judicial review; and
    (3) Marking the areas of dispute, including your statement of 
disagreement in the file, and, if appropriate, a concise statement of 
why SBA refused to amend the record as you requested, sending this 
material to all individuals who had previously received a copy of that 
record.



Sec. 102.54  How can I obtain judicial review of an SBA Privacy Act decision?

    You may bring a civil action against SBA in a United States district 
court if the SBA:
    (a) Makes a final determination not to provide you with access to or 
to amend your record in accordance with your request;
    (b) Fails to maintain your records with such accuracy, relevance, 
timeliness and completeness as is necessary to assure fairness in any 
determination relating to the qualifications, character, rights, 
opportunities of, or benefits to you that may be made on the basis of 
such records, and consequently a determination is made which harms you; 
or
    (c) Fails to comply with any other provisions of the PA (5 U.S.C. 
552a) or the implementing regulations in this subpart, in such a way as 
to cause harm to you.



Sec. 102.55  What must SBA tell the individuals from whom it collects information?

    When SBA collects information from an individual, it must, either on 
the form which collects the information or on a separate form which the 
individual may keep, state:
    (a) Whether disclosure of the information is voluntary or mandatory;
    (b) By what authority SBA is collecting the information;
    (c) For what principal purpose or purposes SBA is collecting the 
information;
    (d) What routine uses might be made of that information; and
    (e) What will happen if the information isn't supplied.



Sec. 102.56  Will SBA release my name or address?

    No, unless compelled to by law.

[[Page 21]]



Sec. 102.57  Do I have to give SBA my SSN?

    (a) No. You need not give SBA your SSN, even if SBA asks for it.
    (b) If SBA asks you for your SSN, it must tell you under what 
authority it seeks your SSN, and for what purpose.
    (c) SBA cannot withhold a benefit solely because you refuse to tell 
it your SSN.



Sec. 102.58  When will SBA show personnel records to a representative?

    (a) If you go to where the records are kept, SBA will permit one 
person of your choosing to inspect the records with you.
    (b) If you want your representative to inspect the records without 
you, you must give SBA a written authorization.
    (c) SBA will mail a copy of the record to your representative if you 
direct SBA to do so in writing.
    (d) You may inspect the records of a minor if you present evidence 
that you are the custodial parent (including joint custodial parent) or 
legal guardian of that minor. An affidavit or declaration, signed by you 
under penalty of perjury, is normally sufficient evidence unless SBA has 
information to the contrary.
    (e) You may inspect the records of an adult incompetent if you 
present evidence that you are the legal guardian of that person. A 
guardianship order is sufficient evidence of your guardianship. Other 
evidence may be considered.



Sec. 102.59  What fees will SBA charge me for my records?

    SBA will charge you only for photocopying at the rate of 10 cents 
per page. SBA will not charge you for finding or reviewing your records. 
Fees less than $25 will be waived.



Sec. 102.60  May I be informed of disclosures made of my records?

    SBA will tell you what disclosures it made of your records if you 
ask, except that SBA will not tell you about disclosures it made to 
another federal agency or government entity for law enforcement 
purposes.



Sec. 102.61  Are there Matching Program procedures?

    (a) SBA will comply with the Computer Matching and Privacy 
Protection Act of 1988 (5 U.S.C. 552a, 552a notes). This Act establishes 
procedures federal agencies must use if they want to match their 
computer lists.
    (b) If SBA adopts any procedures to supplement its compliance with 
the Computer Matching and Privacy Protection Act of 1988 which are not 
mandated in that Act, SBA will publish those procedures in Standard 
Operating Procedure (SOP) 40 04. You can get a copy of SOP 40 04 at any 
SBA Office.
    (c) If SBA enters into an agreement with any federal agency, 
contractor of any federal agency, state or local government, or agency 
of any state or local government to disclose records for purposes of a 
computer matching program, SBA will make a copy of that agreement 
available to the general public. You can get a copy of any such 
agreement by writing to the Privacy Act Officer.



PART 103--STANDARDS FOR CONDUCTING BUSINESS WITH SBA--Table of Contents




103.1  Key definitions.
103.2  Who may conduct business with SBA?
103.3  May SBA suspend or revoke an Agent's privilege?
103.4  What is ``good cause'' for suspension or revocation?
103.5  How does SBA regulate an Agent's fees and provision of service?

    Authority: Secs. 5, 13, 72 Stat. 385, 394 (15 U.S.C. 634, 642).

    Source: 61 FR 2681, Jan. 29, 1996, unless otherwise noted.



Sec. 103.1  Key definitions.

    (a) Agent means an authorized representative, including an attorney, 
accountant, consultant, packager, lender service provider, or any other 
person representing an applicant or participant by conducting business 
with SBA.
    (b) The term conduct business with SBA means:
    (1) Preparing or submitting on behalf of an applicant an application 
for financial assistance of any kind, assistance from the Investment 
Division of SBA, or assistance in procurement and technical matters;

[[Page 22]]

    (2) Preparing or processing on behalf of a lender or a participant 
in any of SBA's programs an application for federal financial 
assistance;
    (3) Participating with or communicating in any way with officers or 
employees of SBA on an applicant's, participant's, or lender's behalf;
    (4) Acting as a lender service provider; and
    (5) Such other activity as SBA reasonably shall determine.
    (c) Applicant means any person, firm, concern, corporation, 
partnership, cooperative or other business enterprise applying for any 
type of assistance from SBA.
    (d) Lender Service Provider means an Agent who carries out lender 
functions in originating, disbursing, servicing, or liquidating a 
specific SBA business loan or loan portfolio for compensation from the 
lender. SBA determines whether or not one is a ``Lender Service 
Provider'' on a loan-by-loan basis.
    (e) Packager means an Agent who is employed and compensated by an 
Applicant or lender to prepare the Applicant's application for financial 
assistance from SBA. SBA determines whether or not one is a ``Packager'' 
on a loan-by-loan basis.
    (f) Referral Agent means a person or entity who identifies and 
refers an Applicant to a lender or a lender to an Applicant. The 
Referral Agent may be employed and compensated by either an Applicant or 
a lender.
    (g) Participant means a person or entity that is participating in 
any of the financial, investment, or business development programs 
authorized by the Small Business Act or Small Business Investment Act of 
1958.



Sec. 103.2  Who may conduct business with SBA?

    (a) If you are an Applicant, a Participant, a partner of an 
Applicant or Participant partnership, or serve as an officer of an 
Applicant, Participant corporation, or limited liability company, you 
may conduct business with SBA without a representative.
    (b) If you are an Agent, you may conduct business with SBA on behalf 
of an Applicant, Participant or lender, unless representation is 
otherwise prohibited by law or the regulations in this part or any other 
part in this chapter. For example, persons debarred under the SBA or 
Government-wide debarment regulations may not conduct business with SBA. 
SBA may request that any Agent supply written evidence of his or her 
authority to act on behalf of an Applicant, Participant, or lender as a 
condition of revealing any information about the Applicant's, 
Participant's, or lender's current or prior dealings with SBA.



Sec. 103.3  May SBA suspend or revoke an Agent's privilege?

    The Administrator of SBA or designee may, for good cause, suspend or 
revoke the privilege of any Agent to conduct business with SBA. Part 134 
of this chapter states the procedures for appealing the decision to 
suspend or revoke the privilege. The suspension or revocation remains in 
effect during the pendency of any administrative proceedings under part 
134 of this chapter.



Sec. 103.4  What is ``good cause'' for suspension or revocation?

    Any unlawful or unethical activity is good cause for suspension or 
revocation of the privilege to conduct business. This includes:
    (a) Attempting to influence any employee of SBA or a lender, by 
gifts, bribes or other unlawful or unethical activity, with respect to 
any matter involving SBA assistance.
    (b) Soliciting for the provision of services to an Applicant by 
another entity when there is an undisclosed business relationship 
between the two parties.
    (c) Violating ethical guidelines which govern the profession or 
business of the Agent or which are published at any time by SBA.
    (d) Implying or stating that the work to be performed for an 
Applicant will include use of political or other special influence with 
SBA. Examples include indicating that the entity is affiliated with or 
paid, endorsed or employed by SBA, advertising using the words Small 
Business Administration or SBA in a manner that implies SBA's 
endorsement or sponsorship, use of SBA's seal or symbol, and giving a 
``guaranty'' to an Applicant that the application will be approved.

[[Page 23]]

    (e) Charging or proposing to charge any fee that does not bear a 
necessary and reasonable relationship to the services actually rendered 
or expenses actually incurred in connection with a matter before SBA or 
which is materially inconsistent with the provisions of an applicable 
compensation agreement or Lender Service Provider agreement. A fee based 
solely on a percentage of a loan or guarantee amount can be reasonable, 
depending on the circumstances of a case and the services actually 
rendered.
    (f) Engaging in any conduct indicating a lack of business integrity 
or business honesty, including debarment, criminal conviction, or civil 
judgment within the last seven years for fraud, embezzlement, theft, 
forgery, bribery, falsification or destruction of records, false 
statements, conspiracy, receiving stolen property, false claims, or 
obstruction of justice.
    (g) Acting as both a Lender Service Provider or Referral Agent and a 
Packager for an Applicant on the same SBA business loan and receiving 
compensation for such activity from both the Applicant and lender. A 
limited exception to this ``two master'' prohibition exists when an 
Agent acts as a Packager and is compensated by the Applicant for 
packaging services; also acts as a Referral Agent and is compensated by 
the lender for those activities; discloses the referral activities to 
the Applicant; and discloses the packaging activities to the lender.
    (h) Violating materially the terms of any compensation agreement or 
Lender Service Provider agreement provided for in Sec. 103.5.
    (i) Violating or assisting in the violation of any SBA regulations, 
policies, or procedures of which the Applicant has been made aware.



Sec. 103.5  How does SBA regulate an Agent's fees and provision of service?

    (a) Any Applicant, Agent, or Packager must execute and provide to 
SBA a compensation agreement, and any Lender Service Provider must 
execute and provide to SBA a Lender Service Provider agreement. Each 
agreement governs the compensation charged for services rendered or to 
be rendered to the Applicant or lender in any matter involving SBA 
assistance. SBA provides the form of compensation agreement and a 
suggested form of Lender Service Provider agreement to be used by 
Agents.
    (b) Compensation agreements must provide that in cases where SBA 
deems the compensation unreasonable, the Agent or Packager must: reduce 
the charge to an amount SBA deems reasonable, refund any sum in excess 
of the amount SBA deems reasonable to the Applicant, and refrain from 
charging or collecting, directly or indirectly, from the Applicant an 
amount in excess of the amount SBA deems reasonable.
    (c) Each Lender Service Provider must enter into a written agreement 
with each lender for whom it acts in that capacity. SBA will review all 
such agreements. Such agreements need not contain each and every 
provision found in the SBA's suggested form of agreement. However, each 
agreement must indicate that both parties agree not to engage in any 
sharing of secondary market premiums, that the services to be provided 
are accurately described, and that the agreement is otherwise consistent 
with SBA requirements. Subject to the prohibition on splitting premiums, 
lenders have reasonable discretion in setting compensation for Lender 
Service Providers. However, such compensation may not be directly 
charged to an Applicant or borrower.



PART 105--STANDARDS OF CONDUCT AND EMPLOYEE RESTRICTIONS AND RESPONSIBILITIES--Table of Contents




                          Standards of Conduct

Sec.
105.101  Cross-reference to employee ethical conduct standards and 
          financial disclosure regulations.

 Restrictions and Responsibilities Related to SBA Employees and Former 
                                Employees

105.201  Definitions.
105.202  Employment of former employee by person previously the 
          recipient of SBA Assistance.
105.203  SBA Assistance to person employing former SBA employee.
105.204  Assistance to SBA employees or members of their household.
105.205  Duty to report irregularities.

[[Page 24]]

105.206  Applicable rules and directions.
105.207  Politically motivated activities with respect to the Minority 
          Small Business Program.
105.208  Penalties.

           Restrictions on SBA Assistance to Other Individuals

105.301  Assistance to officers or employees of other Government 
          organizations.
105.302  Assistance to employees or members of quasi-Government 
          organizations.

                        Administrative Provisions

105.401  Standards of Conduct Committee.
105.402  Standards of Conduct Counselors.
105.403  Designated Agency Ethics Officials.

    Authority: 5 U.S.C. 7301; 15 U.S.C. 634, 637(a)(18) and (a)(19), 
642, and 645(a).

    Source: 61 FR 2399, Jan. 26, 1996, unless otherwise noted.

                          Standards of Conduct



Sec. 105.101   Cross-reference to employee ethical conduct standards and financial disclosure regulations.

    In addition to this Part, Small Business Administration (SBA) 
employees should refer to the Uniform Standards of Ethical Conduct for 
Executive Branch employees at 5 CFR Part 2635, the SBA Supplemental 
Standards of Ethical Conduct at 5 CFR Chapter XLIV, and the Uniform 
Financial Disclosure regulation for Executive Branch employees at 5 CFR 
Part 2634.

 Restrictions and Responsibilities Related to SBA Employees and Former 
                                Employees



Sec. 105.201  Definitions.

    (a) Employee means an officer or employee of the SBA regardless of 
grade, status or place of employment, including employees on leave with 
pay or on leave without pay other than those on extended military leave. 
Unless stated otherwise. Employee shall include those within the 
category of Special Government Employee.
    (b) Special Government Employee means an officer or employee of SBA, 
who is retained, appointed or employed to perform temporary duties on a 
full-time or intermittent basis, with or without compensation, for not 
to exceed 130 days during any period of 365 consecutive days.
    (c) Person means an individual, a corporation, a company, an 
association, a firm, a partnership, a society, a joint stock company, or 
any other organization or institution.
    (d) Household member means spouse and minor children of an employee, 
all blood relations of the employee and any spouse who resides in the 
same place of abode with the employee.
    (e) SBA Assistance means financial, contractual, grant, managerial 
or other aid, including size determinations, section 8(a) participation, 
licensing, certification, and other eligibility determinations made by 
SBA. The term also includes an express decision to compromise or defer 
possible litigation or other adverse action.



Sec. 105.202  Employment of former employee by person previously the recipient of SBA Assistance.

    (a) No former employee, who occupied a position involving discretion 
over, or who exercised discretion with respect to, the granting or 
administration of SBA Assistance may occupy a position as employee, 
partner, agent, attorney or other representative of a concern which has 
received this SBA Assistance for a period of two years following the 
date of granting or administering such SBA Assistance if--
    (1) The date of granting or administering such SBA Assistance was 
within the period of the employee's term of employment; or
    (2) The date of granting or administering such SBA Assistance was 
within one year following the termination of such employment.
    (b) Failure of a recipient of SBA Assistance to comply with these 
provisions may result, in the discretion of SBA, in the requirement for 
immediate repayment of SBA financial Assistance, the immediate 
termination of other SBA Assistance involved or other appropriate 
action.



Sec. 105.203  SBA Assistance to person employing former SBA employee.

    (a) SBA will not provide SBA Assistance to any person who has, as an 
employee, owner, partner, attorney, agent, owner of stock, officer, 
director, creditor or debtor, any individual who, within one year prior 
to the request for

[[Page 25]]

such SBA Assistance was an SBA employee, without the prior approval of 
the SBA Standards of Conduct Counselor. The Standards of Conduct 
Counselor will refer matters of a controversial nature to the Standards 
of Conduct Committee for final decision; otherwise, his or her decision 
is final.
    (b) In reviewing requests for approval, the Standards of Conduct 
Counselor will consider:
    (1) The relationship of the former employee with the applicant 
concern;
    (2) The nature of the SBA Assistance requested;
    (3) The position held by the former employee with SBA and its 
relationship to the SBA Assistance requested; and
    (4) Whether an apparent conflict of interest might exist if the SBA 
Assistance were granted.



Sec. 105.204  Assistance to SBA employees or members of their household.

    Without the prior written approval of the Standards of Conduct 
Committee, no SBA Assistance, other than Disaster loans under 
subparagraphs (1) and (2) of section 7(b) of the Small Business Act, 
shall be furnished to a person when the sole proprietor, partner, 
officer, director or significant stockholder of the person is an SBA 
employee or a household member.



Sec. 105.205  Duty to report irregularities.

    Every employee shall immediately report to the SBA Inspector General 
any acts of malfeasance or misfeasance or other irregularities, either 
actual or suspected, arising in connection with the performance by SBA 
of any of its official functions.



Sec. 105.206  Applicable rules and directions.

    Every employee shall follow all agency rules, regulations, operating 
procedures, instructions and other proper directions in the performance 
of his official functions.



Sec. 105.207  Politically motivated activities with respect to the Minority Small Business Program.

    (a) Any employee who has authority to take, direct others to take, 
recommend, or approve any action with respect to any program or activity 
conducted pursuant to section 8(a) or section 7(j) of the Small Business 
Act, shall not, with respect to any such action, exercise or threaten to 
exercise such authority on the basis of the political activity or 
affiliation of any party. Employees shall expeditiously report to the 
SBA Inspector General any such action for which such employee's 
participation has been solicited or directed.
    (b) Any employee who willfully and knowingly violates this section 
shall be subject to disciplinary action, which may consist of separation 
from service, reduction in grade, suspension, or reprimand.
    (c) This section shall not apply to any action taken as a penalty or 
other enforcement of a violation of any law, rule, or regulation 
prohibiting or restricting political activity.
    (d) The prohibitions in and remedial measures provided for under 
this section with regard to such prohibitions, shall be in addition to, 
and not in lieu of, any other prohibitions, measures or liabilities that 
may arise under any other provision of law.



Sec. 105.208  Penalties.

    Any employee guilty of violating any of the provisions in this Part 
may be disciplined, including removal or suspension from SBA employment.

           Restrictions on SBA Assistance to Other Individuals



Sec. 105.301  Assistance to officers or employees of other Government organizations.

    (a) SBA must receive a written statement of no objection by the 
pertinent Department or military service before it gives any SBA 
Assistance, other than Disaster loans under subparagraphs (1) and (2) of 
section 7(b) of the Small Business Act, to a person when its sole 
proprietor, partner, officer, director or stockholder with a 10 percent 
or more interest, or a household member, is an employee of another 
Government Department or Agency having a grade of at least GS-13 or its 
equivalent.
    (b) The Standards of Conduct Committee must approve an SBA contract

[[Page 26]]

with an entity if a sole proprietor, general partner, officer, director, 
or stockholder with a 10 or more percent interest (or a household member 
of such individuals) is an employee of a Government Department or 
Agency. See also 48 CFR part 35, subpart 3.6.
    (c) The Standards of Conduct Committee must approve SBA Assistance, 
other than disaster loans under subparagraphs (1) and (2) of section 
7(b) of the Small Business Act, to a person if its sole proprietor, 
general partner, officer, director or stockholder with a 10 percent or 
more interest (or a household member of such individual) is a member of 
Congress or an appointed official or employee of the legislative or 
judicial branch of the Government.



Sec. 105.302  Assistance to employees or members of quasi-Government organizations.

    (a) The Standards of Conduct Committee must approve SBA Assistance, 
other than Disaster loans under subparagraphs (1) and (2) of section 
7(b) of the Small Business Act, to a person if its sole proprietor, 
general partner, officer, director or stockholder with a 10 percent or 
more interest (or a household member) is a member or employee of a Small 
Business Advisory Council or is a SCORE volunteer.
    (b) In reviewing requests for approval, factors the Standards of 
Conduct Committee may consider include whether the granting of the SBA 
Assistance might result in or create the appearance of giving 
preferential treatment, the loss of complete independence or 
impartiality, or adversely affect the confidence of the public in the 
integrity of the Government.

                        Administrative Provisions



Sec. 105.401  Standards of Conduct Committee.

    (a) The Standards of Conduct Committee will:
    (1) Advise and give direction to SBA management officials concerning 
the administration of this Part and any other rules, regulations or 
directives dealing with conflicts of interest and ethical standards of 
SBA employees; and
    (2) Make decisions on specific requests when its approval is 
required.
    (b) The Standards of Conduct Committee will consist of:
    (1) The General Counsel or, in his or her absence, the Deputy 
General Counsel or, in his or her absence, the Acting General Counsel 
who shall act as Chairman of the Committee;
    (2) The Associate Deputy Administrator for Management and 
Administration, or in his or her absence, the Assistant Administrator 
for Administration; and
    (3) The Director of Human Resources, or in his or her absence, the 
Deputy Director of Human Resources.



Sec. 105.402  Standards of Conduct Counselors.

    (a) The SBA Standards of Conduct Counselor is the Deputy General 
Counsel. The Associate General Counsel for General Law (AGC) is an 
Assistant Standards of Conduct Counselor, and other Assistants may be 
designated by the Standards of Conduct Counselor.
    (b) The Standards of Conduct Counselors and Assistants:
    (1) Provide general advice, assistance and guidance to employees 
concerning this Part and the regulations referred to in Sec. 105.101;
    (2) Monitor the Standards of Conduct Program within their assigned 
areas and provide required reports thereon;
    (3) Review Confidential Financial Disclosure Reports as required 
under 5 CFR part 2634, subpart I, and provide an annual report on 
compliance with filing requirements to the SBA Standards of Conduct 
Counselor as of February 1 of each year; and
    (4) Provide Outside Employment decisions pursuant to 5 CFR 5401.104.
    (c) Each employee will be periodically informed of the name, address 
and telephone number of the Assistant Standards of Conduct Counselor to 
contact for advice and assistance.
    (d) Employee requests for advice or rulings should be directed to 
the appropriate Standards of Conduct Counselor for appropriate action.



Sec. 105.403  Designated Agency Ethics Officials.

    (a) The Designated Agency Ethics Official, pursuant to the Ethics in 
Government Act of 1978 (5 U.S.C. App.), is the Deputy General Counsel. 
He or she

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may, in turn, appoint one or more Alternate Designated Agency Ethics 
Officials. The Alternates will assist the Designated Agency Ethics 
Official and act for him or her whenever absent.
    (b) The Designated Agency Ethics Official and Alternates administer 
the program for Financial Disclosure Statements under 5 CFR 2634.201, 
receive and evaluate these statements, and provide advice and counsel 
regarding matters relating to the Ethics in Government Act of 1978 and 
its implementing regulations. The duties and responsibilities of the 
Designated Agency Ethics Official and Alternates are set forth in more 
detail in 5 CFR 2638.203, which is promulgated and amended by the Office 
of Government Ethics.



PART 107--SMALL BUSINESS INVESTMENT COMPANIES--Table of Contents




                   Subpart A--Introduction to Part 107

Sec.
107.20  Legal basis and applicability of this part 107.
107.30  Amendments to Act and regulations.
107.40  How to read this part 107.

             Subpart B--Definition of Terms Used in Part 107

107.50  Definition of terms.

                Subpart C--Qualifying for an SBIC License

                           Organizing an SBIC

107.100  Organizing a Section 301(c) Licensee.
107.110  Organizing a Section 301(d) Licensee.
107.115  1940 Act and 1980 Act Companies.
107.120  Special rules for a Section 301(d) Licensee owned by another 
          Licensee.
107.130  Requirement for qualified management.
107.140  SBA approval of initial Management Expenses.
107.150  Management and ownership diversity requirement.
107.160  Special rules for Licensees formed as limited partnerships.

                          Capitalizing an SBIC

107.200  Adequate capital for Licensees.
107.210  Minimum capital requirements for Licensees.
107.220  Special minimum capital requirements for Licensees issuing 
          Leverage.
107.230  Permitted sources of Private Capital for Licensees.
107.240  Limitations on including non-cash capital contributions in 
          Private Capital.
107.250  Exclusion of stock options issued by Licensee from Management 
          Expenses.

                      Applying for an SBIC License

107.300  License application form and fee.

  Subpart D--Changes in Ownership, Control, or Structure of Licensee; 
                           Transfer of License

               Changes in Control or Ownership of Licensee

107.400  Changes in ownership of 10 percent or more of Licensee but no 
          change of Control.
107.410  Changes in Control of Licensee (through change in ownership or 
          otherwise).
107.420  Prohibition on exercise of ownership or Control rights in 
          Licensee before SBA approval.
107.430  Notification to SBA of transactions that may change ownership 
          or Control.
107.440  Standards governing prior SBA approval for a proposed transfer 
          of Control.
107.450  Notification to SBA of pledge of Licensee's shares.

  Restrictions on Common Control or Ownership of Two or More Licensees

107.460  Restrictions on Common Control or ownership of two (or more) 
          Licensees.

                     Change in Structure of Licensee

107.470  SBA approval of merger, consolidation, or reorganization of 
          Licensee.

                           Transfer of License

107.475  Transfer of license.

            Subpart E--Managing the Operations of a Licensee

                          General Requirements

107.500  Lawful operations under the Act.
107.501  Identification as a Licensee.
107.502  Representations to the public.
107.503  Licensee's adoption of an approved Valuation Policy.
107.504  Computer capability requirements of Licensee.
107.505  Facsimile requirement.
107.506  Safeguarding Licensee's assets/Internal controls.
107.507  Violations based on false filings and nonperformance of 
          agreements with SBA.
107.508  Accessible office.
107.509  Employment of SBA officials.

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                       Management and Compensation

107.510  SBA approval of Licensee's Investment Adviser/Manager.
107.520  Management Expenses of a Licensee.

                      Cash Management by a Licensee

107.530  Restrictions on investments of idle funds by leveraged 
          Licensees.

               Borrowing by Licensees From Non-SBA Sources

107.550  Prior approval of secured third-party debt of leveraged 
          Licensees.
107.560  Subordination of SBA's creditor position.
107.570  Restrictions on third-party debt of issuers of Participating 
          Securities.

           Voluntary Decrease in Licensee's Regulatory Capital

107.585  Voluntary decrease in Licensee's Regulatory Capital.

           Requirement To Conduct Active Investment Operations

107.590  Licensee's requirement to maintain active operations.

 Subpart F--Recordkeeping, Reporting, and Examination Requirements for 
                                Licensees

                Recordkeeping Requirements for Licensees

107.600  General requirement for Licensee to maintain and preserve 
          records.
107.610  Required certifications for Loans and Investments.
107.620  Requirements to obtain information from Portfolio Concerns.

                  Reporting Requirements for Licensees

107.630  Requirement for Licensees to file financial statements with SBA 
          (Form 468).
107.640  Requirement to file Portfolio Financing Reports (SBA Form 
          1031).
107.650  Requirement to report portfolio valuations to SBA.
107.660  Other items required to be filed by Licensee with SBA.
107.670  Application for exemption from civil penalty for late filing of 
          reports.
107.680  Reporting changes in Licensee not subject to prior SBA 
          approval.

       Examinations of Licensees by SBA for Regulatory Compliance

107.690  Examinations.
107.691  Responsibilities of Licensee during examination.
107.692  Examination fees.

          Subpart G--Financing of Small Businesses by Licensees

   Determining the Eligibility of a Small Business for SBIC Financing

107.700  Compliance with size standards in part 121 of this chapter as a 
          condition of Assistance.
107.710  Requirement to finance Smaller Businesses.
107.720  Small Businesses that may be ineligible for Financing.
107.730  Financings which constitute conflicts of interest.
107.740  Portfolio diversification (``overline'' limitation).
107.750  Conditions for financing a change of ownership of a Small 
          Business.
107.760  How a change in size or activity of a Portfolio Concern affects 
          the Licensee and the Portfolio Concern.

Structuring Licensee's Financing of Eligible Small Businesses: Types of 
                                Financing

107.800  Financings in the form of Equity Securities.
107.810  Financings in the form of Loans.
107.815  Financings in the form of Debt Securities.
107.820  Financings in the form of guarantees.
107.825  Purchasing Securities from an underwriter or other third party.

 Structuring Licensee's Financing of an Eligible Small Business: Terms 
                       and Conditions of Financing

107.830  Minimum duration/term of financing.
107.835  Exceptions to minimum duration/term of Financing.
107.840  Maximum term of Financing.
107.845  Maximum rate of amortization on Loans and Debt Securities.
107.850  Restrictions on redemption of Equity Securities.
107.855  Interest rate ceiling and limitations on fees charged to Small 
          Businesses (``Cost of Money'').
107.860  Financing fees and expense reimbursements a Licensee may 
          receive from a Small Business.
107.865  Restrictions on Control of a Small Business by a Licensee.
107.880  Assets acquired in liquidation of Portfolio securities.

                  Limitations on Disposition of Assets

107.885  Disposition of assets to Licensee's Associates or to 
          competitors of Portfolio Concern.

[[Page 29]]

                      Management Services and Fees

107.900  Management fees for services provided to a Small Business by 
          Licensee or its Associate.

      Subpart H--Non-leveraged Licensees-Exceptions to Regulations

107.1000  Licensees without Leverage--exceptions to the regulations.

      Subpart I--SBA Financial Assistance for Licensees (Leverage)

              General Information About Obtaining Leverage

107.1100  Types of Leverage available.
107.1110  How to apply for Leverage.
107.1120  General eligibility requirements for Leverage.
107.1130  Leverage fees payable by Licensee.
107.1140  Licensee's acceptance of SBA remedies under Secs. 107.1800 
          through 107.1820.

       Maximum Amount of Leverage for Which a Licensee Is Eligible

107.1150  Maximum amount of Leverage for a Section 301(c) Licensee.
107.1160  Maximum amount of Leverage for a Section 301(d) Licensee.
107.1170  Maximum amount of Participating Securities for any Licensee.

    Conditional Commitments by SBA To Reserve Leverage for a Licensee

107.1200  SBA's Leverage commitment to a Licensee--application 
          procedure, amount, and term.
107.1210  Commitment fees payable by Licensee.
107.1220  Requirement for Licensee to file quarterly financial 
          statements.
107.1230  Draw-downs by Licensee under SBA's Leverage commitment.
107.1240  Funding of Licensee's draw request through sale to short-term 
          investor.

   Exchange of Outstanding Debentures for Participating or Preferred 
                  Securities--Section 301(d) Licensees

107.1350  Exchange by Section 301(d) Licensee of Debentures for 
          Preferred or Participating Securities.

         Preferred Securities Leverage--Section 301(d) Licensees

107.1400  Stock dividends or partnership distributions on 4 percent 
          Preferred Securities.
107.1410  Requirement to redeem 4 percent Preferred Securities.
107.1420  Articles requirements for 4 percent Preferred Securities 
          issuers.
107.1430  Redeeming 4 percent Preferred Securities with proceeds of non-
          subsidized Debentures.
107.1440  Three percent preferred stock issued before November 21, 1989.
107.1450  Optional redemption of Preferred Securities.

                    Participating Securities Leverage

107.1500  General description of Participating Securities.
107.1505  Liquidity requirements for Licensees issuing Participating 
          Securities.
107.1510  How a Licensee computes Earmarked Profit (Loss).
107.1520  How a Licensee computes and allocates Prioritized Payments to 
          SBA.
107.1530  How a Licensee computes SBA's Profit Participation.
107.1540  Distributions by Licensee--Prioritized Payments and 
          Adjustments.
107.1550  Distributions by Licensee--permitted ``tax Distributions'' to 
          private investors and SBA.
107.1560  Distributions by Licensee--required Distributions to private 
          investors and SBA.
107.1570  Distributions by Licensee--optional Distribution to private 
          investors and SBA.
107.1580  Special rules for In-Kind Distributions by Licensees.
107.1590  Special rules for companies licensed on or before March 31, 
          1993.

 Funding Leverage by Use of SBA-Guaranteed Trust Certificates (``TCs'')

107.1600  SBA authority to issue and guarantee Trust Certificates.
107.1610  Effect of prepayment or early redemption of Leverage on a 
          Trust Certificate.
107.1620  Functions of agents, including Central Registration Agent, 
          Selling Agent and Fiscal Agent.
107.1630  SBA regulation of Brokers and Dealers and disclosure to 
          purchasers of Leverage or Trust Certificates.
107.1640  SBA access to records of the CRA, Brokers, Dealers and Pool or 
          Trust assemblers.

                              Miscellaneous

107.1700  Transfer by SBA of its interest in Licensee's Leverage 
          security.
107.1710  SBA authority to collect or compromise its claims.

       Subpart J--Licensee's Noncompliance With Terms of Leverage

107.1800  Licensee's agreement to terms and conditions in Secs. 107.1810 
          and 107.1820.
107.1810  Events of default and SBA's remedies for Licensee's 
          noncompliance with terms of Debentures.

[[Page 30]]

107.1820  Conditions affecting issuers of Preferred Securities and/or 
          Participating Securities.

              Computation of Licensee's Capital Impairment

107.1830  Licensee's Capital Impairment--definition and general 
          requirements.
107.1840  Computation of Licensee's Capital Impairment Percentage.
107.1850  Exceptions to Capital Impairment provisions for Licensees with 
          outstanding Participating Securities.

               Subpart K--Ending Operations as a Licensee

107.1900  Surrender of license.

                        Subpart L--Miscellaneous

107.1910  Non-waiver of SBA's rights or terms of Leverage security.
107.1920  Licensee's application for exemption from a regulation in this 
          part 107.
107.1930  Effect of changes in this part 107 on transactions previously 
          consummated.

    Authority: 15 U.S.C. 681 et seq., 683, 687(c), 687b, 687d, 687g and 
687m.

    Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.



                   Subpart A--Introduction to Part 107



Sec. 107.20  Legal basis and applicability of this part 107.

    (a) The regulations in this part implement Title III of the Small 
Business Investment Act of 1958, as amended. All Licensees must comply 
with all applicable regulations, accounting guidelines and valuation 
guidelines for Licensees.
    (b) Provisions of this part which are not mandated by the Act shall 
not supersede existing State law. A party claiming that a conflict 
exists shall submit an opinion of independent counsel, citing 
authorities, for SBA's resolution of the issues involved.



Sec. 107.30  Amendments to Act and regulations.

    A Licensee shall be subject to all existing and future provisions of 
the Act and parts 107 and 112 of title 13 of the Code of Federal 
Regulations.



Sec. 107.40  How to read this part 107.

    (a) Center Headings. All references in this part to SBA forms, and 
instructions for their preparation, are to the current issue of such 
forms. Center headings are descriptive and are used for convenience 
only. They have no regulatory effect.
    (b) Capitalizing defined terms. Terms defined in Sec. 107.50 are 
capitalized in this part 107.
    (c) The pronoun ``you'' as used in this part 107 means a Licensee or 
license applicant, as appropriate, unless otherwise noted.



             Subpart B--Definition of Terms Used in Part 107



Sec. 107.50  Definition of terms.

    Accumulated Prioritized Payments has the meaning set forth in 
Sec. 107.1520.
    Act means the Small Business Investment Act of 1958, as amended.
    Adjustments has the meaning set forth in Sec. 107.1520.
    Affiliate or Affiliates has the meaning set forth in Sec. 121.103 of 
this chapter.
    Articles mean articles of incorporation or charter for a Corporate 
Licensee and the partnership agreement or certificate for a Partnership 
Licensee.
    Assistance or Assisted means Financing of or management services 
rendered to a Small Business by a Licensee pursuant to the Act and these 
regulations.
    Associate of a Licensee means any of the following:
    (1)(i) An officer, director, employee or agent of a Corporate 
Licensee;
    (ii) A Control Person, employee or agent of a Partnership Licensee;
    (iii) An Investment Adviser/Manager of any Licensee, including any 
Person who contracts with a Control Person of a Partnership Licensee to 
be the Investment Adviser/Manager of such Licensee; or
    (iv) Any Person regularly serving a Licensee on retainer in the 
capacity of attorney at law.
    (2) Any Person who owns or controls, or who has entered into an 
agreement to own or control, directly or indirectly, at least 10 percent 
of any class of stock of a Corporate Licensee or a limited partner's 
interest of at least 10 percent of the partnership capital of a 
Partnership Licensee. However, a limited partner in a Partnership 
Licensee

[[Page 31]]

is not considered an Associate if such Person is an entity Institutional 
Investor whose investment in the Partnership, including commitments, 
represents no more than 33 percent of the partnership capital of the 
Licensee and no more than five percent of such Person's net worth.
    (3) Any officer, director, partner (other than a limited partner), 
manager, agent, or employee of any Associate described in paragraph (1) 
or (2) of this definition.
    (4) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, a Licensee.
    (5) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, any Person described in 
paragraphs (1) and (2) of this definition.
    (6) Any Close Relative of any Person described in paragraphs 
(1),(2), (4), and (5) of this definition.
    (7) Any Secondary Relative of any Person described in paragraphs 
(1), (2), (4), and (5) of this definition.
    (8) Any concern in which--
    (i) Any Person described in paragraphs (1) through (6) of this 
definition is an officer; or
    (ii) Any such Person(s) singly or collectively Control or own, 
directly or indirectly, an equity interest of at least 10 percent 
(excluding interests that such Person(s) own indirectly through 
ownership interests in the Licensee).
    (9) Any concern in which any Person(s) described in paragraph (7) of 
this definition singly or collectively own (including beneficial 
ownership) a majority equity interest, or otherwise have Control. As 
used in this paragraph (9), ``collectively'' means together with any 
Person(s) described in paragraphs (1) though (7) of this definition.
    (10) For the purposes of this definition, if any Associate 
relationship described in paragraphs (1) through (7) of this definition 
exists at any time within six months before or after the date that a 
Licensee provides Financing, then that Associate relationship is 
considered to exist on the date of the Financing.
    (11) If any Licensee has any ownership interest in another Licensee, 
the two Licensees are Associates of each other.
    Capital Impairment has the meaning set forth in Sec. 107.1830(c).
    Central Registration Agent or CRA means one or more agents appointed 
by SBA for the purpose of issuing TCs and performing the functions 
enumerated in Sec. 107.1620 and performing similar functions for 
Debentures and Participating Securities funded outside the pooling 
process.
    Close Relative of an individual means:
    (1) A current or former spouse;
    (2) A father, mother, guardian, brother, sister, son, daughter; or
    (3) A father-in-law, mother-in-law, brother-in-law, sister-in-law, 
son-in-law, or daughter-in-law.
    Combined Capital means the sum of Regulatory Capital and outstanding 
Leverage.
    Commitment means a written agreement between you and an eligible 
Small Business that obligates you to provide Financing (except a 
guarantee) to that Small Business in a fixed or determinable sum, by a 
fixed or determinable future date. In this context the term 
``agreement'' means that there has been agreement on the principal 
economic terms of the Financing. You may include in the agreement 
reasonable conditions precedent to your obligation to fund the 
commitment but these conditions must be outside your control.
    Common Control means a condition where two or more Licensees either 
through ownership, management, contract, or otherwise, are under the 
Control of one group or Person. Two or more Licensees are presumed to be 
under Common Control if they are Affiliates of each other by reason of 
common ownership or common officers, directors, or general partners; or 
if they are managed or their investments are significantly directed 
either by a common independent investment advisor or managerial 
contractor, or by two or more such advisors or contractors that are 
Affiliates of each other. This presumption may be rebutted by evidence 
satisfactory to SBA.
    Control means the possession, direct or indirect, of the power to 
direct or cause the direction of the management

[[Page 32]]

and policies of a Licensee or other concern, whether through the 
ownership of voting securities, by contract, or otherwise.
    Control Person means any Person that controls a Licensee, either 
directly or through an intervening entity. A Control Person includes:
    (1) A general partner of a Partnership Licensee;
    (2) Any Person serving as the general partner, officer, director, or 
manager (in the case of a limited liability company) of any entity that 
controls a Licensee, either directly or through an intervening entity;
    (3) Any Person that--
    (i) Controls or owns, directly or through an intervening entity, at 
least 10 percent of a Partnership Licensee or any entity described in 
paragraphs (1) or (2) of this definition; and
    (ii) Participates in the investment decisions of the general partner 
of such Partnership Licensee;
    (4) Any Person that controls or owns, directly or through an 
intervening entity, at least 50 percent of a Partnership Licensee or any 
entity described in paragraphs (1) or (2) of this definition.
    Corporate Licensee. See definition of Licensee in this section.
    Cost of Money has the meaning set forth in Sec. 107.855.
    Debenture Rate means the interest rate, as published from time to 
time in the Federal Register by SBA, for ten year debentures issued by 
Licensees and funded through public sales of certificates bearing SBA's 
guarantee. User or guarantee fees, if any, paid by a Licensee are not 
considered in determining the Debenture Rate.
    Debentures means debt obligations issued by Licensees pursuant to 
section 303(a) of the Act and held or guaranteed by SBA.
    Debt Securities has the meaning set forth in Sec. 107.815.
    Disadvantaged Business means a Small Business that is at least 50 
percent owned, and controlled and managed, on a day to day basis, by a 
person or persons whose participation in the free enterprise system is 
hampered because of social or economic disadvantages.
    Distribution means any transfer of cash or non-cash assets to SBA, 
its agent or Trustee, or to partners in a Partnership Licensee, or to 
shareholders in a Corporate Licensee. Capitalization of Retained 
Earnings Available for Distribution constitutes a Distribution to the 
Licensee's non-SBA partners or shareholders.
    Earmarked Assets has the meaning set forth in Sec. 107.1510(b). (See 
also Sec. 107.1590.)
    Earmarked Profit (Loss) has the meaning set forth in Sec. 107.1510.
    Earned Prioritized Payments has the meaning set forth in 
Sec. 107.1520.
    Equity Capital Investments means investments in a Small Business in 
the form of common or preferred stock, limited partnership interests, 
options, warrants, or similar equity instruments, including subordinated 
debt with equity features if such debt provides only for interest 
payments contingent upon and limited to the extent of earnings. Equity 
Capital Investments must not require amortization. Equity Capital 
Investments may be guaranteed; however, neither Equity Capital 
Investments nor such guarantee may be collateralized or otherwise 
secured. Investments classified as Debt Securities (see Secs. 107.800 
and 107.815) are not precluded from qualifying as Equity Capital 
Investments.
    Equity Securities has the meaning set forth in Sec. 107.800.
    Financing or Financed means outstanding financial assistance 
provided to a Small Business by a Licensee, whether through:
    (1) Loans;
    (2) Debt Securities;
    (3) Equity Securities;
    (4) Guarantees; or
    (5) Purchases of securities of a Small Business through or from an 
underwriter (see Sec. 107.825).
    Guaranty Agreement means the contract entered into by SBA which is a 
guarantee backed by the full faith and credit of the United States 
Government as to timely payment of principal and interest on Debentures 
or the Redemption Price of and Prioritized Payments on Participating 
Securities and SBA's rights in connection with such guarantee.

[[Page 33]]

    Includible Non-Cash Gains means those non-cash gains (as reported on 
SBA Form 468) that are realized in the form of Publicly Traded and 
Marketable securities or investment grade debt instruments. For purposes 
of this definition, investment grade debt instruments means those 
instruments that are rated ``BBB'' or ``Baa'', or better, by Standard & 
Poor's Corporation or Moody's Investors Service, respectively. Non-rated 
debt may be considered to be investment grade if Licensee obtains a 
written opinion from an investment banking firm acceptable to SBA 
stating that the non-rated debt instrument is equivalent in risk to the 
issuer's investment grade debt.
    Institutional Investor means:
    (1) Entities. Any of the following entities if the entity has a net 
worth (exclusive of unfunded commitments from investors) of at least $1 
million, or such higher amount as is specified in paragraph (1) of this 
definition. (See also Sec. 107.230(b)(4) for limitations on the amount 
of an Institutional Investor's commitment that may be included in 
Private Capital.)
    (i) A State or National bank, trust company, savings bank, or 
savings and loan association.
    (ii) An insurance company.
    (iii) A 1940 Act Investment Company or Business Development Company 
(each as defined in the Investment Company Act of 1940, as amended (15 
U.S.C. 8a-1 et seq.).
    (iv) A holding company of any entity described in paragraph (1)(i), 
(ii) or (iii) of this definition.
    (v) An employee benefit or pension plan established for the benefit 
of employees of the Federal government, any State or political 
subdivision of a State, or any agency or instrumentality of such 
government unit.
    (vi) An employee benefit or pension plan (as defined in the Employee 
Retirement Income Security Act of 1974, as amended (Pub. L. 93-406, 88 
Stat. 829), excluding plans established under section 401(k) of the 
Internal Revenue Code of 1986 (26 U.S.C. 401(k)), as amended).
    (vii) A trust, foundation or endowment exempt from Federal income 
taxation under the Internal Revenue Code of 1986, as amended.
    (viii) A corporation, partnership or other entity with a net worth 
(exclusive of unfunded commitments from investors) of more than $10 
million.
    (ix) A State, a political subdivision of a State, or an agency or 
instrumentality of a State or its political subdivision.
    (x) An entity whose primary purpose is to manage and invest non-
Federal funds on behalf of at least three Institutional Investors 
described in paragraphs (1)(i) through (1)(ix) of this definition, each 
of whom must have at least a 10 percent ownership interest in the 
entity.
    (xi) Any other entity that SBA determines to be an Institutional 
Investor.
    (2) Individuals. (i) Any of the following individuals if he/she is 
also a permanent resident of the United States:
    (A) An individual who is an Accredited Investor (as defined in the 
Securities Act of 1933, as amended (15 U.S.C. 77a-77aa)) and whose 
commitment to the Licensee is backed by a letter of credit from a State 
or National bank acceptable to SBA.
    (B) An individual whose personal net worth is at least $2 million 
and at least ten times the amount of his or her commitment to the 
Licensee. The individual's personal net worth must not include the value 
of any equity in his or her most valuable residence.
    (C) An individual whose personal net worth (determined in accordance 
with paragraph (2)(i)(B) of this definition) is at least $10 million.
    (ii) Any individual who is not a permanent resident of the United 
States but who otherwise satisfies paragraph (2)(i) of this definition 
provided such individual has irrevocably appointed an agent within the 
United States for the service of process.
    Investment Adviser/Manager means any Person who furnishes advice or 
assistance with respect to operations of a Licensee under a written 
contract executed in accordance with the provisions of Sec. 107.510.
    Lending Institution means a concern that is operating under 
regulations of a state or Federal licensing, supervising, or examining 
body, or whose shares are publicly traded and listed on a recognized 
stock exchange or NASDAQ and

[[Page 34]]

which has assets in excess of $500 million; and which, in either case, 
holds itself out to the public as engaged in the making of commercial 
and industrial loans and whose lending operations are not for the 
purpose of financing its own or an Associates's sales or business 
operations.
    Leverage means financial assistance provided to a Licensee by SBA, 
either through the purchase or guaranty of a Licensee's Debentures or 
Participating Securities, or the purchase of a Licensee's Preferred 
Securities, and any other SBA financial assistance evidenced by a 
security of the Licensee.
    Leverageable Capital means Regulatory Capital, excluding unfunded 
commitments and Qualified Non-private Funds whose source is Federal 
funds.
    Licensee means either a corporation (Corporate Licensee), or a 
limited partnership organized pursuant to Sec. 107.160 (Partnership 
Licensee), to which a license has been granted pursuant to the Act. For 
certain purposes, the Entity General Partner of a Partnership Licensee 
is treated as if it were a Licensee (see Sec. 107.160(b)(2)).
    Loan has the meaning set forth in Sec. 107.810.
    Loans and Investments means Portfolio Securities, Assets Acquired in 
Liquidation of Portfolio Securities, Operating Concerns Acquired, and 
Notes and Other Securities Received, as set forth in the Statement of 
Financial Position of SBA Form 468.
    Management Expenses has the meaning set forth in Sec. 107.520.
    1940 Act Company means a Licensee which is registered under the 
Investment Company Act of 1940.
    1980 Act Company means a Licensee which is registered under the 
Small Business Investment Incentive Act of 1980.
    Original Issue Price means the price paid by the purchaser for 
securities at the time of issuance.
    Participating Securities means preferred stock, preferred limited 
partnership interests, or similar instruments issued by Licensees, 
including debentures having interest payable only to the extent of 
earnings, all of which are subject to the terms set forth in 
Secs. 107.1500 through 107.1590 and section 303(g) of the Act.
    Partnership Licensee. See definition of Licensee in this section.
    Payment Date means, for a Participating Securities issuer, each 
February 1, May 1, August 1, and November 1 during the term of a 
Participating Security.
    Person means a natural person or legal entity.
    Pool means an aggregation of SBA guaranteed Debentures or SBA 
guaranteed Participating Securities approved by SBA.
    Portfolio means the securities representing a Licensee's total 
outstanding Financing of Small Businesses. It does not include idle 
funds or assets acquired in liquidation of Portfolio securities.
    Portfolio Concern means a Small Business Assisted by a Licensee.
    Preferred Securities means nonvoting preferred stock issued to SBA 
by a for-profit Section 301(d) Corporate Licensee, or securities having 
similar characteristics issued by a Section 301(d) Licensee organized as 
a nonprofit corporation, or nonvoting preferred limited partnership 
interests issued by a Section 301(d) Partnership Licensee.
    Prioritized Payments has the meaning set forth in Sec. 107.1520.
    Private Capital has the meaning set forth in Sec. 107.230.
    Profit Participation has the meaning set forth in 
Sec. 107.1500(c)(3).
    Publicly Traded and Marketable means securities that are salable 
without restriction or that are salable within 12 months pursuant to 
Rule 144 (17 CFR 230.144) of the Securities Act of 1933, as amended, by 
the holder thereof (or in the case of an In-kind Distribution by the 
distributee thereof), and are of a class which is traded on a regulated 
stock exchange, or is listed in the Automated Quotation System of the 
National Association of Securities Dealers (NASDAQ), or has, at a 
minimum, at least two market makers as defined in the relevant sections 
of the Securities Exchange Act of 1934, as amended (15 U.S.C. 77b et 
seq.), and in all cases the quantity of which can be sold over a 
reasonable period of time without having an adverse impact upon the 
price of the stock.

[[Page 35]]

    Qualified Non-private Funds has the meaning set forth in 
Sec. 107.230.
    Redemption Price means the amount required to be paid by the issuer, 
or successor to the issuer, of Preferred or Participating Securities to 
repurchase such securities from the holder. The Redemption Price shall 
be the Original Issue Price less any prepayments or prior redemptions.
    Regulatory Capital means:
    (1) General. Regulatory Capital means Private Capital, excluding 
non-cash assets contributed to a Licensee or a license applicant, and 
non-cash assets purchased by a license applicant, unless such assets 
have been converted to cash or have been approved by SBA for inclusion 
in Regulatory Capital. For purposes of this definition, sales of 
contributed non-cash assets with recourse or borrowing against such 
assets shall not constitute a conversion to cash.
    (2) Exclusion of questionable commitments. An investor's commitment 
to a Licensee is excluded from Regulatory Capital if SBA determines that 
the collectibility of the commitment is questionable.
    Retained Earnings Available for Distribution means Undistributed Net 
Realized Earnings less any Unrealized Depreciation on Loans and 
Investments (as reported on SBA Form 468), and represents the amount 
that a Licensee may distribute to investors (including SBA) as a profit 
Distribution, or transfer to Private Capital.
    SBA means the Small Business Administration, 409 Third Street, SW., 
Washington, DC 20416.
    Secondary Relative of an individual means:
    (1) A grandparent, grandchild, or any other ancestor or lineal 
descendent who is not a Close Relative;
    (2) An uncle, aunt, nephew, niece, or first cousin; or
    (3) A spouse of any person described in paragraph (1) or (2) of this 
definition.
    Section 301(c) Licensee has the meaning set forth in Sec. 107.100.
    Section 301(d) Licensee has the meaning set forth in Sec. 107.110.
    Short-term Financing means Financing for a term of less than five 
years in accordance with the regulations.
    SIC Manual means the latest issue of the Standard Industrial 
Classification Manual, prepared by the Office of Management and Budget, 
and available from the U.S. Government Printing Office, Superintendent 
of Documents, P.O. Box 371954, Pittsburgh, Pa., 15250-7954.
    Small Business means a small business concern as defined in section 
103(5) of the Act (including its Affiliates), which for purposes of size 
eligibility, meets the applicable criteria set forth in Part 121 of this 
chapter.
    Smaller Business has the meaning set forth in Sec. 107.710.
    Start-up Financing means an Equity Capital Investment in a Small 
Business that--
    (1) Has not had sales exceeding $3,000,000 or positive cash flow 
from operations in any of its last three full fiscal years; and
    (2) Was not formed to acquire any existing business, unless the 
acquired business satisfies paragraphs (1) and (2) of this definition.
    Temporary Debt has the meaning set forth in Sec. 107.570.
    Trust means the legal entity created for the purpose of holding 
guaranteed Debentures or Participating Securities and the guaranty 
agreement related thereto, receiving, holding and making any related 
payments, and accounting for such payments.
    Trust Certificate Rate means a fixed rate determined at the time 
Participating Securities are issued by the Secretary of the Treasury 
taking into consideration the current average market yield on 
outstanding marketable obligations of the United States with maturities 
comparable to the maturities of the Trust Certificates being guaranteed 
by SBA, adjusted to the nearest one-eighth of one percent.
    Trust Certificates (TCs) means certificates issued by SBA, its agent 
or Trustee and representing ownership of all or a fractional part of a 
Trust or Pool of Debentures or Participating Securities.
    Trustee means the trustee or trustees of a Trust.
    Undistributed Net Realized Earnings means Undistributed Realized 
Earnings less Non-cash Gains/Income, each as reported on SBA Form 468.

[[Page 36]]

    Unrealized Appreciation means the amount by which a Licensee's 
valuation of each of its Loans and Investments, as determined by its 
Board of Directors or General Partner(s) in accordance with Licensee's 
valuation policies, exceeds the cost basis thereof.
    Unrealized Depreciation means the amount by which a Licensee's 
valuation of each of its Loans and Investments, as determined by its 
Board of Directors or General Partner(s) in accordance with Licensee's 
valuation policies, is below the cost basis thereof.
    Unrealized Gain (Loss) on Securities Held means the sum of the 
Unrealized Appreciation and Unrealized Depreciation on all of a 
Licensee's Loans and Investments, less estimated future income tax 
expense or estimated realizable future income tax benefit, as 
appropriate.
    Venture Capital Financing has the meaning set forth in 
Sec. 107.1160.
    Wind-up Plan has the meaning set forth in Sec. 107.590.

[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996]



                Subpart C--Qualifying for an SBIC License

                           Organizing an SBIC



Sec. 107.100  Organizing a Section 301(c) Licensee.

    Section 301(c) Licensee means a company licensed under section 
301(c) of the Act. It may be organized as a for-profit corporation or as 
a limited partnership created in accordance with the special rules of 
Sec. 107.160.



Sec. 107.110  Organizing a Section 301(d) Licensee.

    Section 301(d) Licensee means a company licensed under section 
301(d) of the Act that may provide Assistance only to Disadvantaged 
Businesses. A Section 301(d) Licensee may be organized as a for-profit 
corporation, a non-profit corporation, or as a limited partnership 
created in accordance with the special rules of Sec. 107.160.



Sec. 107.115  1940 Act and 1980 Act Companies.

    A 1940 Act or 1980 Act Company is eligible to apply for an SBIC 
license, and an existing Licensee is eligible to apply for SBA's 
approval to convert to a 1940 Act or 1980 Act Company. In either case, 
the 1940 Act or 1980 Act Company may elect to be taxed as a regulated 
investment company under section 851 of the Internal Revenue Code of 
1986, as amended (26 U.S.C. 851). However, a Licensee making such 
election may make Distributions only as permitted under the applicable 
sections of this part (see the definition of Retained Earnings Available 
for Distribution, Sec. 107.585, and Secs. 107.1540 through 107.1580).



Sec. 107.120  Special rules for a Section 301(d) Licensee owned by another Licensee.

    A Section 301(d) Licensee may be licensed to operate as the 
subsidiary of one or more Licensees (participant Licensee), with or 
without non-Licensee participation, subject to the following:
    (a) Application. In reviewing the license application, SBA will 
consider what effect, if any, a capital contribution to the proposed 
Section 301(d) Licensee will have on the participant Licensee.
    (b) Participant Licensees. Each participant Licensee must propose to 
own at least twenty percent of the voting securities of the proposed 
Section 301(d)Licensee.
    (c) Capital contribution. A subsidiary Section 301(d) Licensee must 
receive capital contributions in cash, in an amount at least equal to 
the minimum capital requirement under Sec. 107.210. Capital contributed 
by a participant Licensee in excess of the required minimum may be in 
the form of securities of a Disadvantaged Business, valued at the lower 
of cost or fair value. A participant Licensee must treat its entire 
capital contribution to the subsidiary as a reduction of its Leveragable 
Capital. The participant Licensee's remaining Leverageable Capital must 
be sufficient to support its outstanding Leverage.

[[Page 37]]

    (d) No transfer of Leverage. A participant Licensee may not transfer 
its Leverage to a subsidiary Section 301(d) Licensee.



Sec. 107.130  Requirement for qualified management.

    When applying for a license, you must show, to the satisfaction of 
SBA, that your current or proposed management is qualified and has the 
knowledge, experience, and capability necessary for investing in the 
types of businesses contemplated by the Act, these regulations and your 
business plan. You must designate at least one individual as the 
official responsible for contact with SBA.



Sec. 107.140  SBA approval of initial Management Expenses.

    If you plan to obtain Leverage, you must have your Management 
Expenses approved by SBA at the time of licensing. (See Sec. 107.520 for 
the definition of Management Expenses.)



Sec. 107.150  Management and ownership diversity requirement.

    You must have diversity between management and ownership in order to 
be licensed, unless you do not plan to obtain Leverage. To establish 
diversity, you must meet the requirements in paragraphs (a) and (b) of 
this section unless SBA approves otherwise.
    (a) Requirement one. You must satisfy either paragraph (a)(1) or 
paragraph (a)(2)of this section.
    (1) You must have at least three shareholders or limited partners, 
or at least one acceptable Institutional Investor, in either case with 
an aggregate ownership interest equal to at least 30 percent of your 
Regulatory Capital. Such investors must not be your Associates (except 
for their status as your shareholders or limited partners) or Affiliates 
of any of your Associates. For purposes of this paragraph (a)(1), the 
following Institutional Investors are acceptable:
    (i) Entities regulated by state or Federal authorities satisfactory 
to SBA;
    (ii) Public or private employee pension funds;
    (iii) Trusts, foundations, or endowments which are exempt from 
Federal income taxation; or
    (iv) Other Institutional Investors satisfactory to SBA.
    (2) Your common stock or limited partnership interests are publicly 
traded.
    (b) Requirement two. Your shareholders or limited partners may not 
delegate their voting rights to any other Person without prior SBA 
approval. This restriction does not apply to:
    (1) Publicly traded Licensees.
    (2) Proxies given to vote at single specified meetings.
    (3) Delegations of voting rights by your investors to their 
investment advisors, provided such advisors are not your Associates 
(except for their status as your shareholder or partner).
    (c) Diversity based on Licensee's parent company. If you do not have 
diversity as defined in paragraphs (a) and (b) of this section, SBA in 
its sole discretion may accept diversity achieved on the same basis 
through your parent company as a substitute. As used in this paragraph 
(c), ``parent company'' means an entity that directly or indirectly has 
an interest of more than 50 percent of your Regulatory Capital.
    (d) Requirement to maintain diversity after licensing. If you were 
required to have diversity between management and ownership at the time 
you were licensed, you must maintain such diversity while you have 
outstanding Leverage or Earmarked Assets, unless SBA approves otherwise. 
If, at any time, you no longer satisfy the diversity criteria in 
paragraph (a) or (b) of this section, you must:
    (1) Notify SBA within 10 days; and
    (2) Re-establish diversity within six months.
    (e) Exception to diversity rule. This Sec. 107.150 does not apply if 
you are not licensed to issue participating securities and:
    (1) You received your license before November 28, 1995; or
    (2) SBA received your license application before November 28, 1995 
and, as of such date, you had raised the funds needed to begin 
operations as contemplated in your business plan.



Sec. 107.160  Special rules for Licensees formed as limited partnerships.

    A limited partnership organized under State law solely for the 
purpose

[[Page 38]]

of performing the functions and conducting the activities contemplated 
under the Act may apply for a license under section 301(c) or section 
301 (d) of the Act (``Partnership Licensee'').
    (a) Number of Licensee's General Partners. If you are a Partnership 
Licensee, you must have as your general partner(s) at least two 
individuals, or at least one corporation, partnership, or limited 
liability company (LLC), or any combination of individuals, 
corporations, partnerships, or LLCs.
    (b) Entity General Partner of Licensee. A general partner which is a 
corporation, limited liability company or partnership (an ``Entity 
General Partner'') shall be organized under state law solely for the 
purpose of serving as the general partner of one or more Licensees.
    (1) SBA must approve any person who will serve as an officer, 
director, manager, or general partner of the Entity General Partner. 
This provision must be stated in an Entity General Partner's Certificate 
of Incorporation, member agreement, Limited Partnership Agreement or 
other similar governing instrument which must, in each case, accompany 
the license application.
    (2) An Entity General Partner is subject to the same examination and 
reporting requirements as a Licensee under section 310(b) of the Act. 
The restrictions and obligations imposed upon a Licensee by 
Secs. 107.1800 through 107.1820, and 107.30, 107.410 through 107.450, 
107.470, 107.475, 107.500, 107.510, 107.585, 107.600, 107.680, 107.690 
through 107.692, 107.865, and 107.1910 apply also to an Entity General 
Partner of a Licensee.
    (3) The general partner(s) of your Entity General Partner(s) will be 
considered your general partner.
    (4) If your Entity General Partner is a limited partnership, its 
limited partners may be considered your Control Person(s) if they meet 
the definition for Control Person in Sec. 107.50.
    (5) If your Entity General Partner is a limited partnership, it is 
subject to paragraph (a) of this section.
    (c) Other requirements for Partnership Licensees. If you are a 
Partnership Licensee:
    (1) You must have a minimum duration of ten years or two years 
following the maturity of your last-maturing Leverage security, 
whichever is longer. After 10 years, if all Leverage has been repaid or 
redeemed and all amounts due SBA, its agent, or Trustee have been paid, 
the Partnership Licensee may be terminated by a vote of your partners. 
(For purposes of this provision SBA is not considered a partner.);
    (2) None of your general partner(s) may be removed or replaced by 
your limited partners without prior written approval of SBA;
    (3) Any transferee of, or successor in interest to, your general 
partner shall have only the rights and liabilities of a limited partner 
pending SBA's written approval of such transfer or succession; and
    (4) You must incorporate all the provisions in this paragraph (c) in 
your Limited Partnership Agreement.
    (d) Obligations of a Control Person. All Control Persons are bound 
by the disciplinary provisions of sections 313 and 314 of the Act and by 
the conflict-of-interest rules under section 312 of the Act. The term 
Licensee, as used in Secs. 107.30, 107.460, and 107.680 includes all of 
the Licensee's Control Persons. The term Licensee as used in 
Sec. 107.670 includes only the Licensee's general partner(s). The 
conditions specified in Secs. 107.1800 through 107.1820 and 
Sec. 107.1910 apply to all general partners.
    (e) Liability of general partner for partnership debts to SBA. 
Subject to section 314 of the Act, your general partner is not liable 
solely by reason of its status as a general partner for repayment of any 
Leverage or debts you owe to SBA unless SBA, in the exercise of 
reasonable investment prudence, and with regard to your financial 
soundness, determines otherwise prior to the purchase or guaranty of 
your Leverage.
    (f) Reorganization of Licensee. A corporate Licensee wishing to 
reorganize as a Partnership Licensee, or a Partnership Licensee wishing 
to reorganize as a Corporate Licensee, may apply to SBA for approval 
under Sec. 107.470.
    (g) Special Leverage requirement. Before your first issuance of 
Leverage, you must furnish SBA with evidence that you qualify as a 
partnership for tax purposes, either by a ruling from the Internal 
Revenue Service, or by an opinion of counsel.

[[Page 39]]

                          Capitalizing an SBIC



Sec. 107.200  Adequate capital for Licensees.

    You must meet the requirements of this Sec. 107.200 to qualify for a 
license, to continue as a Licensee, and to receive Leverage.
    (a) You must have enough Regulatory Capital to provide reasonable 
assurance that:
    (1) You will operate soundly and profitably over the long term; and
    (2) You will be able to operate actively in accordance with your 
Articles and within the context of your business plan, as approved by 
SBA.
    (b) In SBA's sole discretion, you must be economically viable, 
taking into consideration actual and anticipated income and losses on 
your Loans and Investments, and the experience and qualifications of 
your owners and managers.



Sec. 107.210  Minimum capital requirements for Licensees.

    (a) Minimum capital for Section 301(c) Licensees--general rule. A 
Section 301(c) Licensee or applicant must have Regulatory Capital 
(excluding commitments from your investors) of at least $2,500,000.
    (b) Minimum capital for Section 301(d) Licensees--general rule. A 
Section 301(d) Licensee or applicant must have Regulatory Capital 
(excluding commitments from your investors) of at least $1,500,000.
    (c) Exception to general rule--grandfather clause. The minimum 
capital requirements in paragraphs (a) and (b) of this section do not 
apply if you were licensed before October 2, 1990, or if SBA had your 
license application on file before October 2, 1990 and granted you a 
license on the basis of such application. If you qualify for this 
exception, you must have at least the minimum Private Capital required 
by the regulations in effect on October 1, 1990.
    (d) Additional capital requirements for Licensees seeking Leverage. 
If you are a license applicant who intends to seek Leverage, see 
Sec. 107.220.



Sec. 107.220  Special minimum capital requirements for Licensees issuing Leverage.

    (a) Participating Securities. You must have Regulatory Capital of at 
least $10,000,000 in order to apply for Participating Securities, unless 
you demonstrate to SBA's satisfaction that you can be financially viable 
over the long term with a lower amount. You are not permitted under any 
circumstances to apply for Participating Securities if your Regulatory 
Capital is less than $5,000,000.
    (b) Debentures. If you are licensed after January 31, 1996, you must 
have Regulatory Capital of at least $5,000,000 in order to apply for 
Debentures, unless you demonstrate to SBA's satisfaction that you can be 
financially viable over the long term with a lower amount.
    (c) Companies licensed before October 2, 1990. If Sec. 107.210(c) 
applies to you and your Regulatory Capital (excluding commitments from 
investors) is below $2,500,000 (for a Section 301(c) Licensee) or 
$1,500,000 (for a Section 301(d) Licensee):
    (1) You are eligible for Leverage (other than refinancing) only if 
you can demonstrate to SBA's satisfaction that you have been profitable 
for three out of your last four fiscal years before applying for 
Leverage and, on the average, have been profitable for all such fiscal 
years.
    (2) Even if you do not satisfy paragraph (c)(1) of this section, you 
may apply for Leverage needed to refinance any Debenture outstanding on 
October 2, 1990, one time only, for a term to be determined by SBA.



Sec. 107.230  Permitted sources of Private Capital for Licensees.

    Private Capital means the contributed capital of a Licensee, plus 
unfunded binding commitments by Institutional Investors (including 
commitments evidenced by a promissory note) to contribute capital to a 
Licensee.
    (a) Contributed capital. For purposes of this section, contributed 
capital means the paid-in capital and paid-in surplus of a Corporate 
Licensee, or the partners' contributed capital of a Partnership 
Licensee, in either case subject

[[Page 40]]

to the limitations in paragraph (b) of this section.
    (b) Exclusions from Private Capital. Private Capital does not 
include:
    (1) Funds borrowed by a Licensee from any source.
    (2) Funds obtained through the issuance of Leverage.
    (3) Funds obtained directly or indirectly from any Federal, State, 
or local government, or any government agency or instrumentality, except 
for funds invested by a public pension fund and ``Qualified Non-private 
Funds'' as defined in paragraph (d) of this section.
    (4) Any portion of a commitment from an Institutional Investor with 
a net worth of less than $10 million that exceeds 10 percent of such 
Institutional Investor's net worth and is not backed by a letter of 
credit from a State or National bank acceptable to SBA.
    (c) Non-cash capital contributions. Capital contributions in a form 
other than cash are subject to the limitations in Sec. 107.240.
    (d) Qualified Non-private Funds. Private Capital includes 
``Qualified Non-private Funds'' as defined in this paragraph (d); 
however, investors of Qualified Non-private Funds must not control, 
directly or indirectly, a Licensee's management, or its board of 
directors or general partner(s). Qualified Non-private Funds are:
    (1) Funds directly or indirectly invested in any Licensee on or 
before August 16, 1982 by any Federal agency except SBA, under a statute 
explicitly mandating the inclusion of such funds in ``Private Capital'';
    (2) Funds directly or indirectly invested in any Licensee by any 
Federal agency under a statute that is enacted after September 4, 1992, 
explicitly mandating the inclusion of such funds in ``Private Capital'';
    (3) Funds invested in any Licensee or license applicant by one or 
more State or local government entities (including any guarantee 
extended by such entities) in an aggregate amount that does not exceed 
33 percent of Regulatory Capital; and
    (4) Funds invested in any Section 301(d) Licensee or such license 
applicant from the following sources:
    (i) A State financing agency, or similar agency or instrumentality, 
if the funds invested are derived from such agency's net income and not 
from appropriated State or local funds; and
    (ii) Grants made by a state or local government agency or 
instrumentality into a nonprofit corporation or institution exercising 
discretionary authority with respect to such funds, if SBA determines 
that such funds have taken on a private character and the nonprofit 
corporation or institution is not a mere conduit.
    (e) You may not accept any capital contribution made with funds 
borrowed by a Person seeking to own an equity interest (whether direct 
or indirect, beneficial or of record) of at least 10 percent of your 
Private Capital. This exclusion does not apply if:
    (1) Such Person's net worth is at least twice the amount borrowed; 
or
    (2) SBA gives its prior written approval of the capital 
contribution.



Sec. 107.240  Limitations on including non-cash capital contributions in Private Capital.

    Non-cash capital contributions to a Licensee or license applicant 
are included in Private Capital only if they fall into one of the 
following categories:
    (a) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States.
    (b) Services rendered or to be rendered to you, priced at no more 
than their fair market value.
    (c) Tangible assets used in your operations, priced at no more than 
their fair market value.
    (d) Shares in a Disadvantaged Business received by a subsidiary 
Section 301(d) Licensee from its parent Licensee, valued at the lower of 
cost or fair value.
    (e) Other non-cash assets approved by SBA.



Sec. 107.250  Exclusion of stock options issued by Licensee from Management Expenses.

    Stock options issued by any Licensee, including a 1940 or 1980 Act 
Company, are not considered compensation and therefore do not count as 
part of a Licensee's Management Expenses.

[[Page 41]]

                      Applying for an SBIC License



Sec. 107.300  License application form and fee.

    The license application must be submitted on SBA Form 415 together 
with a processing fee computed as follows:
    (a) All license applicants will pay a base fee of $10,000.
    (b) All applicants who will be Partnership Licensees will pay an 
additional $5,000 fee, for a total of $15,000.
    (c) All applicants who will be issuing Participating Securities will 
pay an additional $5,000 fee, for a total of $15,000, or a total fee of 
$20,000 if they also intend to be Partnership Licensees.



  Subpart D--Changes in Ownership, Control, or Structure of Licensee; 
                           Transfer of License

               Changes in Control or Ownership of Licensee



Sec. 107.400  Changes in ownership of 10 percent or more of Licensee but no change of Control.

    (a) Prior approval requirements. You must obtain SBA's prior written 
approval for any proposed transfer or issuance of ownership interests 
that results in the ownership (beneficial or of record) by any Person, 
or group of Persons acting in concert, of at least 10 percent of any 
class of your stock or partnership capital.
    (b) Fee. A processing fee of $200 must accompany each such request 
for approval of a change of ownership.



Sec. 107.410  Changes in Control of Licensee (through change in ownership or otherwise).

    (a) Prior approval requirements. You must obtain SBA's prior written 
approval for any proposed transaction or event that results in Control 
by any Person(s) not previously approved by SBA.
    (b) Fee. A processing fee of $10,000 must accompany any application 
for approval of one or more transactions or events that will result in a 
transfer of Control.



Sec. 107.420  Prohibition on exercise of ownership or Control rights in Licensee before SBA approval.

    Without prior written SBA approval, no change of ownership or 
Control may take effect and no officer, director, employee or other 
Person acting on your behalf shall:
    (a) Register on your books any transfer of ownership interest to the 
proposed new owner(s);
    (b) Permit the proposed new owner(s) to exercise voting rights with 
respect to such ownership interest (including directly or indirectly 
procuring or voting any proxy, consent or authorization as to such 
voting rights at any shareholders' or partnership meeting);
    (c) Permit the proposed new owner(s) to participate in any manner in 
the conduct of your affairs (including exercising control over your 
books, records, funds or other assets; participating directly or 
indirectly in any disposition thereof; or serving as an officer, 
director, partner, employee or agent); or
    (d) Allow ownership or Control to pass to another Person.



Sec. 107.430  Notification to SBA of transactions that may change ownership or Control.

    You must promptly notify SBA as soon as you have knowledge of 
transactions or events that may result in a transfer of Control or 
ownership of at least 10 percent of your capital. If there is any doubt 
as to whether a particular transaction or event will result in such a 
change, report the facts to SBA.



Sec. 107.440  Standards governing prior SBA approval for a proposed transfer of Control.

    SBA approval is contingent upon full disclosure of the real parties 
in interest, the source of funds for the new owners' interest, and other 
data requested by SBA. As a condition of approving a proposed transfer 
of control, SBA may:
    (a) Require an increase in your Regulatory Capital;
    (b) Require the new owners or the transferee's Control Person(s) to 
assume, in writing, personal liability for your Leverage, effective only 
in the

[[Page 42]]

event of their direct or indirect participation in any transfer of 
Control not approved by SBA; or
    (c) Require compliance with any other conditions set by SBA.



Sec. 107.450  Notification to SBA of pledge of Licensee's shares.

    (a) You must notify SBA in writing, within 30 calendar days, of the 
terms of any transaction in which:
    (1) Any Person, or group of Persons acting in concert, pledges 
shares of your stock (or equivalent ownership interests) as collateral 
for indebtedness; and
    (2) The shares pledged are at least 10 percent of your Regulatory 
Capital.
    (b) If the transaction creates a change of ownership or Control, you 
must comply with Sec. 107.400 or Sec. 107.410, as appropriate.

  Restrictions on Common Control or Ownership of Two or More Licensees



Sec. 107.460  Restrictions on Common Control or ownership of two (or more) Licensees.

    (a) General rule. Without SBA's prior written approval, you must not 
have an officer, director, manager, Control Person, or owner (with a 
direct or indirect ownership interest of at least 10 percent) who is 
also:
    (1) An officer, director, manager, Control Person, or owner (with a 
direct or indirect ownership interest of at least 10 percent) of another 
Licensee; or
    (2) An officer or director of any Person that directly or indirectly 
controls, or is controlled by, or is under Common Control with, another 
Licensee.
    (b) Exceptions to general rule. This Sec. 107.460 does not apply to:
    (1) Common officers, directors, managers, or owners of a Section 
301(c) Licensee and its Section 301(d) subsidiary; or
    (2) Common officers, directors, managers, Control Persons, or owners 
of two (or more) Licensees which have no Leverage.

                     Change in Structure of Licensee



Sec. 107.470  SBA approval of merger, consolidation, or reorganization of Licensee.

    (a) Prior approval requirements. You may not merge, consolidate, 
change form of organization (corporation or partnership) or reorganize 
without SBA's prior written approval. Any such merger or consolidation 
will be subject to Sec. 107.440.
    (b) Fee. A processing fee of $5,000 must accompany any application 
for approval of a change in your form of organization (from corporation 
to partnership or partnership to corporation).

                           Transfer of License



Sec. 107.475  Transfer of license.

    You may not transfer your license in any manner without SBA's prior 
written approval.



            Subpart E--Managing the Operations of a Licensee

                          General Requirements



Sec. 107.500  Lawful operations under the Act.

    You must engage only in the activities contemplated by the Act and 
in no other activities.



Sec. 107.501  Identification as a Licensee.

    You must display your SBIC license in a prominent location. You must 
also have a listed telephone number. Before collecting an application 
fee or extending Financing to a Small Business, you must obtain a 
written statement from the concern acknowledging its awareness that you 
are ``a Federal licensee under the Small Business Investment Act of 
1958, as amended.''



Sec. 107.502  Representations to the public.

    You may not represent or imply to anyone that the SBA, the U.S. 
Government or any of its agencies or officers has approved any ownership 
interests you have issued or obligations you have incurred. Be certain 
to include a statement to this effect in any solicitation to investors. 
Example: You may not represent or imply that ``SBA

[[Page 43]]

stands behind the Licensee'' or that ``Your capital is safe because 
SBA's experts review proposed investments to make sure they are safe for 
the Licensee.''



Sec. 107.503  Licensee's adoption of an approved Valuation Policy.

    (a) SBA approval. You must have a written valuation policy for use 
in determining the value of your Loans and Investments. You must include 
this policy as part of your initial application to SBA.
    (b) Adopting SBA's valuation guidelines/automatic approval. If you 
adopt the exact wording of the Model Valuation Policy, ``Valuation 
Guidelines for SBICs'', and make absolutely no additions or changes, 
then SBA will automatically accept your Valuation Policy. With SBA's 
prior written approval, you may adopt a policy that differs from the 
model.
    (c) Licensee's adoption of policy. Your board of directors or 
general partners will be solely responsible for adopting your Valuation 
Policy and for using it to prepare valuations of your Loans and 
Investments for submission to SBA. If SBA reasonably believes that your 
valuations, individually or in the aggregate, are materially misstated, 
it reserves the right to require you to engage, at your expense, an 
independent third party, acceptable to SBA, to substantiate the 
valuations.
    (d) Frequency of valuations. (1) If you have outstanding Leverage or 
Earmarked Assets, you must value your Loans and Investments at the end 
of the second quarter of your fiscal year, and at the end of your fiscal 
year.
    (2) Otherwise, you must value your Loans and Investments only at 
your fiscal year end.
    (3) On a case-by-case basis, SBA may require you to perform 
valuations more frequently.
    (4) You must report material adverse changes in valuations at least 
quarterly, within thirty days following the close of the quarter.
    (e) Review of valuations by independent public accountant. Your 
independent public accountant must review only valuations performed as 
of the end of your fiscal year. The accountant's responsibility includes 
reviewing your valuation procedures and the implementation of such 
procedures, including adequacy of documentation. The accountant also has 
reporting responsibilities concerning the results of this review.



Sec. 107.504  Computer capability requirements of Licensee.

    You must have a personal computer with a modem, and be able to use 
this equipment to prepare reports (using SBA-provided software) and 
transmit them by modem to SBA.



Sec. 107.505  Facsimile requirement.

    You must be able to receive fax messages 24 hours per day at your 
primary office.



Sec. 107.506  Safeguarding Licensee's assets/Internal controls.

    You must adopt a plan to safeguard your assets and monitor the 
reliability of your financial data, personnel, Portfolio, funds and 
equipment. You must provide your bank and custodian with a certified 
copy of your resolution or other formal document describing your control 
procedures.



Sec. 107.507  Violations based on false filings and nonperformance of agreements with SBA.

    The following shall constitute a violation of this part:
    (a) Nonperformance. Nonperformance of any of the requirements of any 
Debenture, Participating Security or Preferred Security, or of any 
written agreement with SBA.
    (b) False statement. In any document submitted to SBA:
    (1) Any false statement knowingly made; or
    (2) Any misrepresentation of a material fact; or
    (3) Any failure to state a material fact. A material fact is any 
fact which is necessary to make a statement not misleading in light of 
the circumstances under which the statement was made.



Sec. 107.508  Accessible office.

    You must maintain an office that is convenient to the public and is 
open for business during normal working hours.

[[Page 44]]



Sec. 107.509  Employment of SBA officials.

    Without SBA's prior written approval, for a period of two years 
after the date of your most recent issuance of Leverage (or the receipt 
of any SBA Assistance as defined in part 105 of this chapter), you are 
not permitted to employ, offer employment to, or retain for professional 
services, any person who:
    (a) Served as an officer, attorney, agent, or employee of SBA on or 
within one year before such date; and
    (b) As such, occupied a position or engaged in activities which, in 
SBA's determination, involved discretion with respect to the granting of 
Assistance under the Act.

                       Management and Compensation



Sec. 107.510  SBA approval of Licensee's Investment Adviser/Manager.

    You may employ an Investment Adviser/Manager who will be subject to 
the supervision of your board of directors or general partner. If you 
have Leverage or plan to seek Leverage, you must obtain SBA's prior 
written approval of the management contract. SBA's approval of an 
Investment Adviser/Manager for one Licensee does not indicate approval 
of that manager for any other Licensee.
    (a) Management contract. The contract must:
    (1) Specify the services the Investment Adviser/Manager will render 
to you and to the Small Businesses in your Portfolio; and
    (2) Indicate the basis for computing Management Expenses.
    (b) Material change to approved management contract. If there is a 
material change, both you and SBA must approve such change in advance. 
If you are uncertain if the change is material, submit the proposed 
revision to SBA.



Sec. 107.520  Management Expenses of a Licensee.

    SBA must approve any increases in your Management Expenses if you 
have outstanding Leverage or Earmarked Assets.
    (a) Definition of Management Expenses. Management Expenses include:
    (1) Salaries;
    (2) Office expenses;
    (3) Travel;
    (4) Business development;
    (5) Office and equipment rental;
    (6) Bookkeeping; and
    (7) Expenses related to developing, investigating and monitoring 
investments.
    (b) Management Expenses do not include services provided by 
specialized outside consultants, outside lawyers and independent public 
accountants, if they perform services not generally performed by a 
venture capital company.
    (c) If your Management Expenses have not already been approved by 
SBA, you must submit such expenses for approval with your SBA Form 468 
for your first fiscal year ending after January 31, 1996.

                      Cash Management by a Licensee



Sec. 107.530  Restrictions on investments of idle funds by leveraged Licensees.

    (a) Applicability of this section. This Sec. 107.530 applies if you 
have outstanding Leverage or if you have applied for Leverage.
    (b) Permitted investments of idle funds. Funds not invested in Small 
Businesses must be maintained in:
    (1) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States, which mature within 15 months from 
the date of the investment; or
    (2) Repurchase agreements with federally insured institutions, with 
a maturity of seven days or less. The securities underlying the 
repurchase agreements must be direct obligations of, or obligations 
guaranteed as to principal and interest by, the United States. The 
securities must be maintained in a custodial account at a federally 
insured institution; or
    (3) Certificates of deposit with a maturity of one year or less, 
issued by a federally insured institution; or
    (4) A deposit account in a federally insured institution, subject to 
a withdrawal restriction of one year or less; or
    (5) A checking account in a federally insured institution; or
    (6) A reasonable petty cash fund.
    (c) Deposit of funds in excess of the insured amount. (1) You are 
permitted to

[[Page 45]]

deposit funds in a federally insured institution in excess of the 
institution's insured amount, but only if the institution is ``well 
capitalized'' in accordance with the definition set forth in regulations 
of the Federal Deposit Insurance Corporation, as amended (12 CFR 
325.103).
    (2) Exception: You may make a temporary deposit (not to exceed 30 
days) in excess of the insured amount, in a transfer account established 
to facilitate the receipt and disbursement of funds or to hold funds 
necessary to honor Commitments issued.
    (d) Deposit of funds in Associate institution. A deposit in, or a 
repurchase agreement with, a federally insured institution that is your 
Associate is not considered a Financing of such Associate under 
Sec. 107.730, provided the terms of such deposit or repurchase agreement 
are no less favorable than those available to the general public.

               Borrowing by Licensees From Non-SBA Sources



Sec. 107.550  Prior approval of secured third-party debt of leveraged Licensees.

    (a) Definition. In this Sec. 107.550, ``secured third-party debt'' 
means any non-SBA debt secured by any of your assets, including secured 
guarantees and other contingent obligations that you voluntarily assume, 
secured lines of credit, and secured Temporary Debt of a Licensee with 
outstanding Participating Securities.
    (b) General rule. If you have outstanding Leverage, you must get 
SBA's written approval before you incur any secured third-party debt or 
refinance any debt with secured third-party debt, including any renewal 
of a secured line of credit, increase in the maximum amount available 
under a secured line of credit, or expansion of the scope of a security 
interest or lien. For purposes of this paragraph (b), ``expansion of the 
scope of a security interest or lien'' does not include the substitution 
of one asset or group of assets for another, provided the asset values 
(as reported on your most recent annual Form 468) are comparable.
    (c) Additional rule for secured lines of credit in existence on 
April 8, 1994. If you have outstanding Leverage and you have a secured 
line of credit that was created on or before April 8, 1994, you must 
receive SBA's written approval of the line before you increase the 
amounts outstanding thereunder.
    (d) Conditions for SBA approval. As a condition of granting its 
approval under this Sec. 107.550, SBA may impose such restrictions or 
limitations as it deems appropriate, taking into account your historical 
performance, current financial position, proposed terms of the secured 
debt and amount of aggregate debt you will have outstanding (including 
Leverage). SBA will not favorably consider any requests for approval 
which include a blanket lien on all your assets, or a security interest 
in your investor commitments in excess of 125 percent of the proposed 
borrowing.
    (e) Thirty day approval. Unless SBA notifies you otherwise within 30 
days after it receives your request, you may consider your request 
automatically approved if:
    (1) You are in regulatory compliance;
    (2) The security interest in your assets is limited to either those 
assets being acquired with the borrowed funds or an asset coverage ratio 
of no more than 2:1;
    (3) Your Leverage does not exceed 150 percent of your Leverageable 
Capital; and
    (4) Your request is for approval of a secured line of credit that 
would not cause your total outstanding borrowings (not including 
Leverage) to exceed 50 percent of your Leverageable Capital.



Sec. 107.560  Subordination of SBA's creditor position.

    (a) Debentures purchased or guaranteed on or before July 1, 1991. 
Under the terms of any Debenture purchased or guaranteed by SBA on or 
before July 1, 1991, SBA's unsecured claims against you, as a Debenture-
holder or as subrogee, are subordinated in favor of all your other 
creditors, except to the extent that such claims may be subject to 
equitable subordination in SBA's favor.
    (b) Debentures purchased or guaranteed after July 1, 1991, including 
refinancings of Debentures previously purchased or guaranteed. (1) Under 
the terms of any

[[Page 46]]

Debenture purchased or guaranteed by SBA after July 1, 1991, SBA's 
unsecured claims against you, as a Debenture-holder or as subrogee, are 
subordinated only in favor of non-Associate lenders; and, to the extent 
that your indebtedness to such lenders exceeds the lesser of $10,000,000 
or 200 percent of your Regulatory Capital (determined as of the date 
your Debentures were purchased or guaranteed), SBA's unsecured claims 
enjoy parity with those of other unsecured creditors, except with 
respect to indebtedness created on or before July 1, 1991.
    (2) In order to induce others to lend you money after your Debenture 
has been purchased or guaranteed, SBA may agree in writing on a case-by-
case basis to subordinate its unsecured claims, on such terms as it may 
determine, in favor of one or more of your Associates, or in favor of 
other lenders in excess of the amounts mentioned in paragraph (b)(1) of 
this section.
    (3) SBA reserves the authority to refuse to subordinate its claims 
if it determines, at the time you request your Debenture be purchased or 
guaranteed, that the exercise of reasonable investment prudence and your 
financial condition warrant such refusal.



Sec. 107.570  Restrictions on third-party debt of issuers of Participating Securities.

    (a) General. Temporary Debt is the only debt (other than Leverage) 
that you are permitted to incur if you have applied to issue 
Participating Securities or if you have outstanding Participating 
Securities. For additional rules governing secured Temporary Debt, see 
Sec. 107.550.
    (b) Definition of Temporary Debt. Temporary Debt means your short-
term borrowings if:
    (1) Such borrowings are for the purpose of maintaining your 
operating liquidity or providing funds for a particular Financing of a 
Small Business;
    (2) The funds are borrowed from a regulated financial institution or 
a regulated credit company (or, if approved by SBA on a case-by-case 
basis, from non-regulated lenders including shareholders or partners);
    (3) Your total outstanding borrowings (not including Leverage) do 
not exceed 50 percent of your Leverageable Capital; and
    (4) All such borrowings are fully paid off for at least 30 
consecutive days during your fiscal year so that you have no outstanding 
third-party debt for 30 days.

           Voluntary Decrease in Licensee's Regulatory Capital



Sec. 107.585  Voluntary decrease in Licensee's Regulatory Capital.

    You must obtain SBA's prior written approval to reduce your 
Regulatory Capital by more than two percent in any fiscal year, unless 
otherwise permitted under Secs. 107.1560 and 107.1570. At all times, you 
must retain sufficient Regulatory Capital to meet the minimum capital 
requirements in the Act and Sec. 107.210, and sufficient Leverageable 
Capital to avoid having excess Leverage in violation of section 303 of 
the Act and Secs. 107.1150 through 107.1170.

           Requirement To Conduct Active Investment Operations



Sec. 107.590  Licensee's requirement to maintain active operations.

    (a) Activity test. You must conduct active operations, as determined 
under this Sec. 107.590, as a condition of your license. You will be 
considered active if:
    (1) During the eighteen months preceding your most recent fiscal 
year end, you made Financings totaling at least 20 percent of your 
Regulatory Capital; or
    (2) Your idle funds did not exceed 20 percent of your total assets 
(at cost) at your most recent fiscal year end.
    (b) Permitted exceptions to activity requirements. You are 
considered active if your failure to meet the requirements in paragraph 
(a) of this section is the result of one or more of the following 
factors:
    (1) Your excess idle funds are the result of the receipt, within the 
previous nine months, of realized gains, repayments, additional capital 
contributions, or Leverage.
    (2) It is necessary for you to maintain excess idle funds to conduct 
your operations because:

[[Page 47]]

    (i) Your unfunded commitments from investors are no more than 20 
percent of your Regulatory Capital; and
    (ii) You cannot receive additional Leverage, solely because SBA has 
insufficient funds available.
    (3) You have not made sufficient Financings because of a lack of 
available funds, evidenced by Loans and Investments (at cost) equal to 
at least 90 percent of your Combined Capital as of your most recent 
fiscal year end.
    (4) You have not made sufficient Financings solely because SBA has 
restricted your ability to make investments.
    (c) Applicability of activity requirements. The activity 
requirements in paragraph (a) of this section do not apply if you have 
filed a ``Wind-up Plan'' approved by SBA. ``Wind-up Plan'' means a plan 
that you prepare when you decide that you will no longer make any 
Financings other than follow-on investments, and that you update 
annually when you file your SBA Form 468. The plan must contain your 
best estimates of the following:
    (1) The remaining number of years you expect to operate.
    (2) For each of your Loans and Investments, the expected liquidation 
date and anticipated proceeds.
    (3) The timing of your repayment of obligations to SBA.
    (4) The timing and amount of any planned reductions in your 
Management Expenses.
    (d) Phase-in of activity requirements. (1) General rule. You must 
meet the activity requirements in this Sec. 107.590 as of the end of 
your first full fiscal year beginning after January 31, 1996. Until 
then, you will be considered active if you meet the activity 
requirements in effect on January 30, 1996.
    (2) Rule for new Licensees. If you received your license after 
January 31, 1996, or if you received your license less than eighteen 
months before the fiscal year end determined under paragraph (d)(1) of 
this section, you must meet the activity requirements in this 
Sec. 107.590 as of the end of your second full fiscal year beginning 
after the date you received your license.



 Subpart F--Recordkeeping, Reporting, and Examination Requirements for 
                                Licensees

                Recordkeeping Requirements for Licensees



Sec. 107.600  General requirement for Licensee to maintain and preserve records.

    (a) Maintaining your accounting records. You must establish and 
maintain your accounting records using SBA's standard chart of accounts 
for Licensees, unless SBA approves otherwise.
    (b) Location of records. You must keep the following records at your 
principal place of business or, in the case of paragraph (b)(3) of this 
section, at the branch office that is primarily responsible for the 
transaction:
    (1) All your accounting and other financial records;
    (2) All minutes of meetings of directors, stockholders, executive 
committees, partners, or other officials; and
    (3) All documents and supporting materials related to your business 
transactions, except for any items held by a custodian under a written 
agreement between you and a Portfolio Concern or non-SBA lender, or any 
securities held in a safe deposit box, or by a licensed securities 
broker in an amount not exceeding the broker's per-account insurance 
coverage.
    (c) Preservation of records. You must retain all the records that 
are the basis for your financial reports. Such records must be preserved 
for the periods specified in this paragraph (c), and must remain 
accessible for the first two years of the preservation period.
    (1) You must preserve for at least 15 years or, in the case of a 
Partnership Licensee, at least two years beyond the date of liquidation:
    (i) All your accounting ledgers and journals, and any other records 
of assets, asset valuations, liabilities, equity, income, and expenses.
    (ii) Your Articles, bylaws, minute books, and license application.
    (iii) All documents evidencing ownership of the Licensee including 
ownership ledgers, and ownership transfer registers.

[[Page 48]]

    (2) You must preserve for at least six years all supporting 
documentation (such as vouchers, bank statements, or canceled checks) 
for the records listed in paragraph (b)(1) of this section.
    (3) After final disposition of any item in your Portfolio, you must 
preserve for at least six years:
    (i) Financing applications and Financing instruments.
    (ii) All loan, participation, and escrow agreements.
    (iii) Size status declarations (SBA Form 480) and Financing 
Eligibility Statements (SBA Form 1941).
    (iv) Any capital stock certificates and warrants of the Portfolio 
Concern that you did not surrender or exercise.
    (v) All other documents and supporting material relating to the 
Portfolio Concern, including correspondence.
    (4) You may substitute a microfilm or computer-scanned or generated 
copy for the original of any record covered by this paragraph (c).



Sec. 107.610  Required certifications for Loans and Investments.

    For each of your Loans and Investments, you must have the documents 
listed in this section. You must keep these documents in your files and 
make them available to SBA upon request.
    (a) SBA Form 480, the Size Status Declaration, executed both by you 
and by the concern you are financing. By executing this document, both 
parties certify that the concern is a Small Business. For securities 
purchased from an underwriter in a public offering, you may substitute a 
prospectus showing that the concern is a Small Business.
    (b) SBA Form 652, a certification by the concern you are financing 
that it will not illegally discriminate (see part 112 of this chapter).
    (c) SBA Form 1941 (for Section 301(d) Licensees only), executed both 
by you and by the concern you are financing. By executing this document, 
both parties certify that the concern is a Disadvantaged Business.
    (d) A certification by the concern you are financing of the intended 
use of the proceeds. For securities purchased from an underwriter in a 
public offering, you may substitute a prospectus indicating the intended 
use of proceeds.



Sec. 107.620  Requirements to obtain information from Portfolio Concerns.

    All the information required by this section is subject to the 
requirements of Sec. 107.600 and must be in English.
    (a) Information for initial Financing decision. Before extending any 
Financing, you must require the applicant to submit such financial 
statements, plans of operation (including intended use of financing 
proceeds), cash flow analyses and projections as are necessary to 
support your investment decision. The information submitted must be 
consistent with the size and type of the business and the amount of the 
proposed Financing.
    (b) Updated financial information. (1) The terms of each Financing 
must require the Portfolio Concern to provide, at least annually, 
sufficient financial information to enable you to perform the following 
required procedures:
    (i) Evaluate the financial condition of the Portfolio Concern for 
the purpose of valuing your investment;
    (ii) Determine the continued eligibility of the Portfolio Concern; 
and
    (iii) Verify the use of Financing proceeds.
    (2) The information submitted to you must be certified by the 
president, chief executive officer, treasurer, chief financial officer, 
general partner, or proprietor of the Portfolio Concern.
    (3) For financial and valuation purposes, you may accept a complete 
copy of the Federal income tax return filed by the Portfolio Concern (or 
its proprietor) in lieu of financial statements, but only if appropriate 
for the size and type of the business involved.
    (4) The requirements in this paragraph (b) do not apply when you 
acquire securities from an underwriter in a public offering (see 
Sec. 107.825). In that case, you must keep copies of all reports 
furnished by the Portfolio Concern to the holders of its securities.
    (c) Information required for examination purposes. You must obtain 
any information requested by SBA's examiners for the purpose of 
verifying the certifications made by a Portfolio Concern under 
Sec. 107.610. In this regard, your Financing documents must contain

[[Page 49]]

provisions requiring the Portfolio Concern to give you and/or SBA's 
examiners access to its books and records for such purpose.

                  Reporting Requirements for Licensees



Sec. 107.630  Requirement for Licensees to file financial statements with SBA (Form 468).

    (a) Annual filing of Form 468. For each fiscal year, you must submit 
to SBA financial statements and supplementary information prepared on 
SBA Form 468. You must file Form 468 on or before the last day of the 
third month following the end of your fiscal year, except for the 
information required under paragraph (e) of this section, which must be 
filed on or before the last day of the fifth month following the end of 
your fiscal year.
    (1) Audit of Form 468. The annual Form 468 must be audited by an 
independent public accountant acceptable to SBA.
    (2) Insurance requirement for public accountant. Unless SBA approves 
otherwise, your independent public accountant must carry at least 
$1,000,000 of Errors and Omissions insurance, or be self-insured and 
have a net worth of at least $1,000,000.
    (b) Interim filings of Form 468. When requested by SBA, you must 
file interim reports on Form 468. SBA may require you to file the entire 
form or only certain statements and schedules. You must file such 
reports on or before the last day of the month following the end of the 
reporting period. If you have an outstanding Leverage commitment from 
SBA, see the filing requirements in Sec. 107.1220.
    (c) Standards for preparation of Form 468. You must prepare SBA Form 
468 in accordance with SBA's Accounting Standards and Financial 
Reporting Requirements for Small Business Investment Companies.
    (d) Where to file Form 468. Submit all filings of Form 468 to the 
Investment Division of SBA.
    (e) Reporting of economic impact information on Form 468. Your 
annual filing of SBA Form 468 must include an assessment of the economic 
impact of each Financing, specifying the full-time equivalent jobs 
created or retained, and the impact of the Financing on the revenues and 
profits of the business and on taxes paid by the business and its 
employees.



Sec. 107.640  Requirement to file Portfolio Financing Reports (SBA Form 1031).

    For each Financing of a Small Business (excluding guarantees), you 
must submit a Portfolio Financing Report on SBA Form 1031 within 30 days 
of the closing date.



Sec. 107.650  Requirement to report portfolio valuations to SBA.

    You must determine the value of your Loans and Investments in 
accordance with Sec. 107.503. You must report such valuations to SBA 
within 90 days of the end of the fiscal year in the case of annual 
valuations, and within 30 days following the close of other reporting 
periods. You must report material adverse changes in valuations at least 
quarterly, within thirty days following the close of the quarter.



Sec. 107.660  Other items required to be filed by Licensee with SBA.

    (a) Reports to owners. You must give SBA a copy of any report you 
furnish to your investors, including any prospectus, letter, or other 
publication concerning your financial operations or those of any 
Portfolio Concern.
    (b) Documents filed with SEC. You must give SBA a copy of any 
report, application or document you file with the Securities and 
Exchange Commission.
    (c) Litigation reports. When you become a party to litigation or 
other proceedings, you must give SBA a report within 30 days that 
describes the proceedings and identifies the other parties involved and 
your relationship to them.
    (1) The proceedings covered by this paragraph (c) include any action 
by you, or by your security holder(s) in a personal or derivative 
capacity, against an officer, director, Investment Adviser or other 
Associate of yours for alleged breach of official duty.
    (2) SBA may require you to submit copies of the pleadings and other 
documents SBA may specify.

[[Page 50]]

    (3) Where proceedings have been terminated by settlement or final 
judgment, you must promptly advise SBA of the terms.
    (4) This paragraph (c) does not apply to collection actions or 
proceedings to enforce your ordinary creditors' rights.
    (d) Other reports. You must file any other reports that SBA may 
require by written directive.



Sec. 107.670  Application for exemption from civil penalty for late filing of reports.

    (a) If it is impracticable to submit any required report within the 
time allowed, you may apply for an extension. The request for an 
extension must:
    (1) Be filed before the reporting deadline;
    (2) Certify to an extraordinary occurrence, not within your control, 
that makes timely filing of the report impracticable; and
    (3) Be accompanied by written evidence of such occurrence, where 
appropriate.
    (b) Upon receipt of your request, SBA may exempt you from the civil 
penalty provision of section 315(a) of the Act, in such manner and under 
such conditions as SBA determines.



Sec. 107.680  Reporting changes in Licensee not subject to prior SBA approval.

    (a) Changes to be reported for post approval. (1) This section 
applies to any changes in your Articles, ownership, capitalization, 
management, operating area, or investment policies that do not require 
SBA's prior approval. You must report such changes to SBA within 30 days 
for post approval. A processing fee of $200 must accompany each request 
for post approval of new officers, directors, or Control Persons.
    (2) Exception for non-leveraged Licensees. If you do not have 
outstanding Leverage or Earmarked Assets, you are not required to obtain 
post approval of new directors or new officers other than your chief 
operating officer; however, you must notify SBA of the new directors or 
officers within 30 days.
    (b) Approval by SBA. You may consider any change submitted under 
this section Sec. 107.680 to be approved unless SBA notifies you to the 
contrary within 90 days after receiving it. SBA's approval is contingent 
upon your full disclosure of all relevant facts and is subject to any 
conditions SBA may prescribe.

       Examinations of Licensees by SBA for Regulatory Compliance



Sec. 107.690  Examinations.

    SBA will examine all Licensees for the purpose of evaluating 
regulatory compliance.



Sec. 107.691  Responsibilities of Licensee during examination.

    You must make all books, records and other pertinent documents and 
materials available for the examination, including any information 
required by the examiner under Sec. 107.620(c). In addition, the 
agreement between you and the independent public accountant performing 
your audit must provide that any information in the accountant's working 
papers be made available to SBA upon request.



Sec. 107.692  Examination fees.

    (a) SBA will assess fees for examinations. Fees will be assessed 
based on your assets as of the date of your latest certified financial 
statement submitted to SBA prior to the examination. As a general rule, 
SBA will not assess fees for special examinations to obtain specific 
information. The rate table is as follows:

------------------------------------------------------------------------
      Total assets of Licensee        Base rate     Percent of assets   
------------------------------------------------------------------------
$0 to $1,500,000....................     $3,500  +0                     
$1,500,001 to $5,000,000............     $3,700  +.065% over $1,500,000 
$5,000,001 to $10,000,000...........     $6,000  +.02% over $5,000,000  
$10,000,001 to $15,000,000..........     $7,000  +.01% over $10,000,000 
$15,000,001 to $25,000,000..........     $7,700  +.015% over $15,000,000
$25,000,001 to $50,000,000..........     $9,200  +.015% over $25,000,000
$50,000,001 to $100,000,000.........    $13,000  +.01% over $50,000,000 
$100,000,001 or more................    $18,000  +.009% over            
                                                  $100,000,000          
------------------------------------------------------------------------

    (b) Delay Fee. If, in the judgment of SBA, the time required to 
complete your examination is delayed due to

[[Page 51]]

your lack of cooperation or the condition or your records, SBA may 
assess an additional fee of up to $500 per day.

[61 FR 3189, Jan. 31, 1996; 61 FR 7985, Mar. 1, 1996]



          Subpart G--Financing of Small Businesses by Licensees

   Determining the Eligibility of a Small Business for SBIC Financing



Sec. 107.700  Compliance with size standards in Part 121 of this chapter as a condition of Assistance.

    You are permitted to provide financial assistance and management 
services only to a Small Business. To determine whether an applicant is 
a Small Business, you may use either the financial size standards in 
Sec. 121.301(c)(1) of this chapter or the industry standard covering the 
industry in which the applicant is primarily engaged, as set forth in 
Sec. 121.301(c)(2) of this chapter.



Sec. 107.710  Requirement to finance Smaller Businesses.

    Your Portfolio must include Financings to Smaller Businesses.
    (a) Definition of Smaller Business. A Smaller Business means a 
business that:
    (1) Together with its Affiliates has a net worth of not more than 
$6.0 million and average net income after Federal income taxes 
(excluding any carry-over losses) for the preceding two years no greater 
than $2.0 million; or
    (2) Both together with its affiliates, and by itself, meets the size 
standard of Sec. 121.201 of this chapter at the time of the Financing 
for the industry in which it is then primarily engaged.
    (b) Phase 1 of Smaller Business Financing requirement. At the close 
of your first complete fiscal year beginning on or after April 25, 1994, 
at least 10 percent of the total dollar amount of the Financings you 
extended since April 25, 1994 must have been in Smaller Businesses.
    (c) Phase 2 of Smaller Business Financing requirement. At the close 
of each of your next fiscal years, at least 20 percent of the total 
dollar amount of the Financings you extended since April 25, 1994 must 
have been invested in Smaller Businesses.
    (d) Financing a change of ownership which results in the creation of 
a Smaller Business. The Financing of a change of ownership under 
Sec. 107.750 which results in the creation of a Smaller Business 
qualifies as a Smaller Business Financing.
    (e) Non-compliance with this section. If you have not reached the 
required percentage of Smaller Business Financings at the end of any 
fiscal year, then you must be in compliance by the end of the following 
fiscal year.



Sec. 107.720  Small Businesses that may be ineligible for Financing.

    (a) Relenders or reinvestors. You are not permitted to finance any 
business that is a relender or reinvestor.
    (1) Definition. Relenders or reinvestors are businesses whose 
primary business activity involves, directly or indirectly, providing 
funds to others, purchasing debt obligations, factoring, or long-term 
leasing of equipment with no provision for maintenance or repair.
    (2) Exception. You may provide Venture Capital Financing to 
Disadvantaged Businesses that are relenders or reinvestors (except banks 
or savings and loans not insured by agencies of the federal government, 
and agricultural credit companies). Without SBA's prior written 
approval, total Financings under this paragraph (a)(2) that are 
outstanding as of the close of your fiscal year must not exceed your 
Regulatory Capital.
    (b) Passive Businesses. You are not permitted to finance a passive 
business.
    (1) Definition. A business is passive if:
    (i) It is not engaged in a regular and continuous business operation 
(for purposes of this paragraph (b), the mere receipt of payments such 
as dividends, rents, lease payments, or royalties is not considered a 
regular and continuous business operation); or
    (ii) Its employees are not carrying on the majority of day to day 
operations, and the company does not provide effective control and 
supervision, on a day to day basis, over persons employed under 
contract; or
    (iii) It passes through substantially all of the proceeds of the 
Financing to another entity.

[[Page 52]]

    (2) Exception. You may finance a passive business if, for all 
Financings extended, it passes substantially all the proceeds through to 
the same eligible Small Business that is not passive.
    (c) Real Estate Businesses. (1) You are not permitted to finance any 
business classified under Major Group 65 (Real Estate) or Industry No. 
1532 (Operative Builders) of the SIC Manual, with the following 
exceptions:
    (i) Title Abstract companies (Industry No. 6541); and
    (ii) Companies listed under Industry No. 6531 (for example, real 
estate agents, brokers, escrow agents, managers and multiple listing 
services) that derive at least 80 percent of their revenue from non-
Affiliate sources.
    (2) You are not permitted to finance a business, regardless of SIC 
classification, if the Financing is to be used to acquire realty or to 
discharge an obligation relating to the prior acquisition of realty, 
unless the Small Business:
    (i) Is acquiring an existing property and will use at least 51 
percent of the usable square footage for an eligible business purpose; 
or
    (ii) Is building or renovating a building and will use at least 67 
percent of the usable square footage for an eligible business purpose.
    (d) Project Financing. You are not permitted to finance a business 
if:
    (1) The assets of the business are to be reduced or consumed, 
generally without replacement, as the life of the business progresses, 
and the nature of the business requires that a stream of cash payments 
be made to the business's financing sources, on a basis associated with 
the continuing sale of assets. Examples include real estate development 
projects and oil and gas wells; or
    (2) The primary purpose of the Financing is to fund production of a 
single item or defined limited number of items, generally over a defined 
production period, and such production will constitute the majority of 
the activities of the Small Business. Examples include motion pictures 
and electric generating plants.
    (e) Farm land purchases. You are not permitted to finance the 
acquisition of farm land. Farm land means land which is or is intended 
to be used for agricultural or forestry purposes, such as the production 
of food, fiber, or wood, or is so taxed or zoned.
    (f) Public interest. You are not permitted to finance any business 
if the proceeds are to be used for purposes contrary to the public 
interest, including but not limited to activities which are in violation 
of law, or inconsistent with free competitive enterprise.
    (g) Foreign investment--(1) General rule. You are not permitted to 
finance a business if:
    (i) The funds will be used substantially for a foreign operation; or
    (ii) At the time of the Financing or within one year thereafter, 
more than 49 percent of the employees or tangible assets of the Small 
Business are located outside the United States (unless you can show, to 
SBA's satisfaction, that the Financing was used for a specific domestic 
purpose).
    (2) Exception. This paragraph (g) does not prohibit a Financing used 
to acquire foreign materials and equipment or foreign property rights 
for use or sale in the United States.
    (h) Associated supplier. You are not permitted to finance a business 
that purchases, or will purchase, goods or services from a supplier who 
is your Associate, except under the following conditions:
    (1) The amount of goods and services purchased (or to be purchased) 
from your Associate with the proceeds of the Financing, or with funds 
released as a result of the Financing, is less than 50 percent of the 
total amount of the Financing (75 percent for a Section 301(d) 
Licensee);
    (2) The price of such goods and services is no higher than that 
charged other customers of your Associate; and
    (3) The Small Business purchases no capital goods from your 
Associate.
    (i) Financing Licensees. You are not permitted to provide funds, 
directly or indirectly, that the Small Business will use:
    (1) To purchase stock in or provide capital to a Licensee; or
    (2) To repay an indebtedness incurred for the purpose of investing 
in a Licensee.

[[Page 53]]



Sec. 107.730  Financings which constitute conflicts of interest.

    (a) General rule. You must not self-deal to the prejudice of a Small 
Business, the Licensee, its shareholders or partners, or SBA. Unless you 
obtain a prior written exemption from SBA for special instances in which 
a Financing may further the purposes of the Act despite presenting a 
conflict of interest, you must not directly or indirectly:
    (1) Provide Financing to any of your Associates.
    (2) Provide Financing to an Associate of another Licensee if one of 
your Associates has received or will receive any direct or indirect 
Financing or a Commitment from that Licensee or a third Licensee 
(including Financing or Commitments received under any understanding, 
agreement, or cross dealing, reciprocal or circular arrangement).
    (3) Borrow money from:
    (i) A Small Business Financed by you;
    (ii) An officer, director, or owner of at least a 10 percent equity 
interest in such business; or
    (iii) A Close Relative of any such officer, director, or equity 
owner.
    (4) Provide Financing to a Small Business to discharge an obligation 
to your Associate or free other funds to pay such obligation. This 
paragraph (a)(4) does not apply if the obligation is to an Associate 
Lending Institution and is a line of credit or other obligation incurred 
in the normal course of business.
    (5) Provide Financing to a Small Business for the purpose of 
purchasing property from your Associate, except as permitted under 
Sec. 107.720(h).
    (b) Rules applicable to Associates. Without SBA' s prior written 
approval, your Associates must not, directly or indirectly:
    (1) Borrow money from any Person described in paragraph (a)(3) of 
this section.
    (2) Receive from a Small Business any compensation in connection 
with Assistance you provide (except as permitted under Secs. 107.825(c) 
and 107.900), or anything of value for procuring, attempting to procure, 
or influencing your action with respect to such Assistance.
    (c) Applicability of other laws. You are also bound by any 
restrictions in Federal or State laws governing conflicts of interest 
and fiduciary obligations.
    (d) Financings with Associates--(1) Financings with Associates 
requiring prior approval. Without SBA's prior written approval, you may 
not Finance any business in which your Associate has either a voting 
equity interest, or total equity interests (including potential 
interests), of at least five percent.
    (2) Other Financings with Associates. If you and an Associate 
provide Financing to the same Small Business, either at the same time or 
at different times, you must be able to demonstrate to SBA's 
satisfaction that the terms and conditions are (or were) fair and 
equitable to you, taking into account any differences in the timing of 
each party's financing transactions.
    (3) Exceptions to paragraphs (d)(1) and (d)(2) of this section. A 
Financing that falls into one of the following categories is exempt from 
the prior approval requirement in paragraph (d)(1) of this section or is 
presumed to be fair and equitable to you for the purposes of paragraph 
(d)(2) of this section, as appropriate:
    (i) Your Associate is a Lending Institution that is providing 
financing under a credit facility in order to meet the operational needs 
of the Small Business, and the terms of such financing are usual and 
customary.
    (ii) Your Associate invests in the Small Business on the same terms 
and conditions and at the same time as you.
    (iii) Both you and your Associate are leveraged Licensees, and both 
have outstanding Participating Securities or neither has outstanding 
Participating Securities.
    (iv) Both you and your Associate are non-leveraged Licensees.
    (e) Use of Associates to manage Portfolio Concerns. To protect your 
investment, you may designate an Associate to serve as an officer, 
director, or other participant in the management of a Small Business. 
You must identify any such Associate in your records available for SBA's 
review under Sec. 107.600. Without SBA's prior written approval, the 
Associate must not:

[[Page 54]]

    (1) Have any other direct or indirect financial interest in the 
Portfolio Concern that exceeds, or has the potential to exceed, 5 
percent of the Portfolio Concern's equity.
    (2) Have served for more than 30 days as an officer, director or 
other participant in the management of the Portfolio Concern before you 
provided Financing.
    (3) Receive any income or anything of value from the Portfolio 
Concern unless it is for your benefit, with the exception of director's 
fees, expenses, and distributions based upon the Associate's ownership 
interest in the Concern.
    (f) 1940 and 1980 Act Companies: SEC exemptions. If you are a 1940 
or 1980 Act Company and you receive an exemption from the Securities and 
Exchange Commission for a transaction described in this Sec. 107.730, 
you need not obtain SBA's approval of the transaction. However, you must 
promptly notify SBA of the transaction and satisfy the public notice 
requirements in paragraph (g) of this section.
    (g) Public notice. Before SBA grants an exemption under this 
Sec. 107.730, you must publish notice of the transaction in a newspaper 
of general circulation in the locality most directly affected by the 
transaction, and furnish a certified copy to SBA within 10 days of 
publication. SBA will publish a similar notice in the Federal Register.



Sec. 107.740  Portfolio diversification (``overline'' limitation).

    (a) General rule. This Sec. 107.740 applies if you have outstanding 
Leverage or want to be eligible for Leverage. Without SBA's prior 
written approval, your aggregate outstanding Financings and Commitments 
to a Small Business (including its Affiliates) must not exceed:
    (1) 20 percent of Regulatory Capital for a Section 301(c) Licensee; 
or
    (2) 30 percent of Regulatory Capital for a Section 301(d)Licensee.
    (b) Outstanding Financings. For the purposes of paragraph (a) of 
this section, you must measure each outstanding Financing at its current 
cost plus any amount of the Financing that was previously written off.
    (c) Adjustment to Regulatory Capital. For the purposes of paragraph 
(a) of this section, you may compute a higher maximum permitted 
investment in a Small Business (an ``increased limit'') by adding ``net 
unrealized gains'' on Publicly Traded and Marketable securities to your 
Regulatory Capital, subject to the following conditions:
    (1) ``Net unrealized gains'' on Publicly Traded and Marketable 
securities means unrealized gains on Publicly Traded and Marketable 
securities minus unrealized losses on all Loans and Investments.
    (2) You must value your Publicly Traded and Marketable securities in 
accordance with your SBA-approved valuation policy.
    (3) You must have positive Retained Earnings Available for 
Distribution at the time you compute an increased limit under this 
paragraph (c).
    (4) At the time you first compute an increased limit, and as of the 
first business day of each calendar quarter that the increased limit is 
in effect, you must keep copies in your files of the NASDAQ listings (or 
the Wall Street Journal) or written quotations from the market makers 
quoting the Publicly Traded and Marketable securities which support the 
adjustment.
    (5) If your net unrealized gains on Publicly Traded and Marketable 
securities are more than 30 percent below their original level on the 
first business day of any calendar quarter, and remain so for the next 
30 days, you agree to do one of the following to remain in compliance 
with the terms of your Leverage:
    (i) By the first day of the next calendar quarter, increase your 
Regulatory Capital sufficiently to restore support for the increased 
limit; or
    (ii) Lower the increased limit to reflect the decrease in net 
unrealized gains on Publicly Traded and Marketable securities, and 
reduce any Financings that exceed the lower limit.

    Example to paragraph (c) of this section. Your Regulatory Capital is 
$2,500,000 and your overline limit is $500,000 (20 percent of 
$2,500,000). On January 15, 1995, you document net unrealized gains on 
Publicly Traded and Marketable securities of $200,000 and compute an 
increased limit of $540,000 (20 percent of $2,700,000). You now make an 
investment of $540,000 in a Small Business. Nothing changes until the 
first business day

[[Page 55]]

of April, 1996, when you document net unrealized gains on Publicly 
Traded and Marketable securities of only $120,000, a reduction of more 
than 30 percent. Your net unrealized gains remain at this level for the 
next 30 days. Your increased limit is now only $524,000 (20 percent of 
$2,620,000). By July 1, 1996, you must either increase Regulatory 
Capital by $80,000 to restore your increased limit to $540,000, or 
reduce your portfolio investment from $540,000 to $524,000.



Sec. 107.750  Conditions for financing a change of ownership of a Small Business.

    You may finance a change of ownership of a Small Business only under 
the conditions set forth in this section.
    (a) The Financing must:
    (1) Promote the sound development or preserve the existence of the 
Small Business;
    (2) Help create a Small Business as a result of a corporate 
divestiture; or
    (3) Facilitate ownership in a Disadvantaged Business.
    (b) The Resulting Concern (as defined in paragraph (c) of this 
section) must:
    (1) Be a Small Business under Sec. 107.700;
    (2) Have 500 or fewer full-time equivalent employees; or meet one of 
the appropriate debt/equity ratio tests:
    (i) If you have outstanding Leverage, the Resulting Concern's ratio 
of debt to equity must be no more than 5 to 1; or
    (ii) If you have no outstanding Leverage, the Resulting Concern's 
ratio of debt to equity must be no more than 8 to 1.
    (c) Definitions. (1) The ``Resulting Concern'' is determined by 
viewing the business as though the change of ownership had already 
occurred, giving effect to all contemplated financing, mergers, and 
acquisitions.
    (2) For purposes of this section, ``debt'' means long-term debt, 
including contingent liabilities, but excluding accounts payable, 
operating leases, letters of credit, subordinated notes payable to the 
seller, any other liabilities approved for exclusion by SBA and short-
term working capital loans (so long as the loans carry a zero balance 
for 30 consecutive days during the concern's fiscal year).
    (3) For purposes of this section, ``equity'' means common and 
preferred stock (corporation), contributed capital (partnership), or 
membership interests (limited liability company).



Sec. 107.760  How a change in size or activity of a Portfolio Concern affects the Licensee and the Portfolio Concern.

    (a) Effect on Licensee of a change in size of a Portfolio Concern. 
If a Portfolio Concern no longer qualifies as a Small Business you may 
keep your investment in the concern and:
    (1) Subject to the overline limitations of Sec. 107.740, you may 
provide additional Financing to the concern up to the time it makes a 
public offering of its securities.
    (2) Even after the concern makes a public offering, you may exercise 
any stock options, warrants, or other rights to purchase Equity 
Securities which you acquired before the public offering, or fund 
Commitments you made before the public offering.
    (b) Effect of a change in business activity occurring within one 
year of Licensee's initial Financing--(1) Retention of Investment. 
Unless you receive SBA's written approval, you may not keep your 
investment in a Portfolio Concern, small or otherwise, which becomes 
ineligible by reason of a change in its business activity within one 
year of your initial investment.
    (2) Request for SBA's approval to retain investment. If you request 
that SBA approve the retention of your investment, your request must 
include sufficient evidence to demonstrate that the change in business 
activity was caused by an unforeseen change in circumstances and was not 
contemplated at the time the Financing was made.
    (3) Additional Financing. If SBA approves your request to retain an 
investment under paragraph (b)(2) of this section, you may provide 
additional Financing to the Portfolio Concern to the extent necessary to 
protect against the loss of the amount of your original investment, 
subject to the overline limitations of Sec. 107.740.
    (c) Effect of a change in business activity occurring more than one 
year after the initial Financing. If a Portfolio Concern becomes 
ineligible because of a change in business activity more than one year 
after your initial Financing you may:

[[Page 56]]

    (1) Retain your investment; and
    (2) Provide additional Financing to the Portfolio Concern to the 
extent necessary to protect against the loss of the amount of your 
original investment, subject to the overline limitations of 
Sec. 107.740.

Structuring Licensee's Financing of Eligible Small Businesses: Types of 
                                Financing



Sec. 107.800  Financings in the form of Equity Securities.

    (a) You may purchase the Equity Securities of a Small Business. You 
may not, inadvertently or otherwise:
    (1) Become a general partner in any unincorporated business; or
    (2) Become jointly or severally liable for any obligations of an 
unincorporated business.
    (b) Definition. Equity Securities means stock of any class in a 
corporation, stock options, warrants, limited partnership interests in a 
limited partnership, membership interests in a limited liability 
company, or joint venture interests. If the Financing agreement contains 
debt-type acceleration provisions or includes redemption provisions 
other than those permitted under Sec. 107.850, the security will be 
considered a Debt Security for purposes of Sec. 107.855.



Sec. 107.810  Financings in the form of Loans.

    You may make Loans to Small Businesses. A Loan means a transaction 
evidenced by a debt instrument with no provision for you to acquire 
Equity Securities.



Sec. 107.815  Financings in the form of Debt Securities.

    You may purchase Debt Securities from Small Businesses.
    (a) Definition. Debt Securities are instruments evidencing a loan 
with an option or any other right to acquire Equity Securities in a 
Small Business or its Affiliates, or a loan which by its terms is 
convertible into an equity position. Consideration must be paid for all 
options that you acquire.
    (b) Restriction on options obtained by Licensee's management and 
employees. If you have outstanding Leverage or plan to obtain Leverage, 
your employees, officers, directors or general partners, or the general 
partners of the management company that is providing services to you or 
to your general partner, may obtain options in a Financed Small Business 
only if:
    (1) They participate in the Financing on a pari passu basis with 
you; or
    (2) SBA gives its prior written approval; or
    (3) The options received are compensation for service as a member of 
the board of directors of the Small Business, and such compensation does 
not exceed that paid to other outside directors. In the absence of such 
directors, fees must be reasonable when compared with amounts paid to 
outside directors of similar companies.



Sec. 107.820  Financings in the form of guarantees.

    At the request of a Small Business or where necessary to protect 
your existing investment, you may guarantee the monetary obligation of a 
Small Business to any non-Associate creditor.
    (a) You may not issue a guaranty if:
    (1) You would become subject to State regulation as an insurance, 
guaranty or surety business;
    (2) The amount of the guaranty plus any direct Financings to the 
Small Business exceed the overline limitations of Sec. 107.740, except 
that a pledge of the Equity Securities of the issuer or a subordination 
of your lien or creditor position does not count toward your overline; 
or
    (3) The total financing cost to the Small Business exceeds the cost 
of money limits of Sec. 107.855.
    (b) Pledge of Licensee's assets as guaranty. For purposes of this 
section, a guaranty with recourse only to specific asset(s) you have 
pledged is equal to the fair market value of such asset(s) or the amount 
of the debt guaranteed, whichever is less.



Sec. 107.825  Purchasing securities from an underwriter or other third party.

    (a) Securities purchased through or from an underwriter. You may 
purchase the securities of a Small Business through or from an 
underwriter if:

[[Page 57]]

    (1) You purchase such securities within 90 days of the date the 
public offering is first made;
    (2) Your purchase price is no more than the original public offering 
price; and
    (3) The amount paid by you for the securities (less ordinary and 
reasonable underwriting charges and commissions) has been, or will be, 
paid to the Small Business, and the underwriter certifies in writing 
that this requirement has been met.
    (b) Recordkeeping requirements. If you have outstanding Leverage or 
plan to obtain Leverage, you must keep records available for SBA's 
inspection which show the relevant details of the transaction, 
including, but not limited to, date, price, commissions, and the 
underwriter's certifications required under paragraph (c) of this 
section.
    (c) Underwriter's requirements. If you have outstanding Leverage or 
plan to obtain Leverage, the underwriter must certify whether it is your 
Associate. You may pay reasonable and customary commissions and expenses 
to an Associate underwriter for the portion of an offering that you 
purchase, provided it is no more than 25 percent of the total offering. 
If you buy more than 25 percent of the offering, the amount you pay to 
the Associate underwriter must not exceed the total of the application 
and closing fees and reimbursable expenses permitted by Sec. 107.860.
    (d) Securities purchased from another Licensee or from SBA. You may 
purchase from, or exchange with, another Licensee, Portfolio securities 
(or any interest therein). Such purchase or exchange may only be made on 
a non-recourse basis. You may not have more than one-third of your total 
assets(valued at cost) invested in such securities. If you have 
previously sold Portfolio Securities (or any interest therein) on a 
recourse basis, you shall include the amount for which you may be 
contingently liable in your overline computation.
    (e) Purchases of securities from other non-issuers. You may purchase 
securities of a Small Business from a non-issuer not previously 
described in this Sec. 107.825 if:
    (1) Such acquisition is a reasonably necessary part of the overall 
sound Financing of the Small Business under the Act; or
    (2) The securities are acquired to finance a change of ownership 
under Sec. 107.750.

 Structuring Licensee's Financing of an Eligible Small Business: Terms 
                       and Conditions of Financing



Sec. 107.830  Minimum duration/term of financing.

    (a) General rule for Section 301(c) Licensees. If you are a Section 
301(c) Licensee, the duration/term of all your Financings must be for a 
minimum period of five years. Exception: You may finance a Disadvantaged 
Business for a minimum term of four years.
    (b) General rule for Section 301(d) Licensees. The duration/term of 
your Financings may be for a minimum period of four years.
    (c) Restrictions on mandatory redemption of Equity Securities. If 
you have acquired Equity Securities, options or warrants on terms that 
include redemption by the Small Business, you must not require 
redemption by the Small Business within the first five years of your 
acquisition except as permitted in Sec. 107.850.
    (d) Special rules for Loans and Debt Securities. (1) Term. The 
minimum term for Loans and Debt Securities starts with the first 
disbursement of the Financing.
    (2) Prepayment before five years. You must permit voluntary 
prepayment of Loans and Debt Securities by the Small Business at any 
time during the initial five year term. You must obtain SBA's prior 
written approval of any restrictions on the ability of the Small 
Business to prepay other than the imposition of a reasonable prepayment 
penalty under paragraph (d)(3) of this section.
    (3) Prepayment penalties. You may charge a reasonable prepayment 
penalty which must be agreed upon at the time of the Financing. If SBA 
determines that a prepayment penalty is unreasonable, you must refund 
the entire penalty to the Small Business. A prepayment penalty equal to 
5 percent of the outstanding balance during the

[[Page 58]]

first year of any Financing, declining by one percentage point per year 
through the fifth year, is considered reasonable.



Sec. 107.835  Exceptions to minimum duration/term of Financing.

    You may make a Short-term Financing for a term less than five years 
if the Financing is:
    (a) An interim financing (for a period not to exceed one year) in 
contemplation of long-term Financing. The contemplated long-term 
Financing must be in an amount at least equal to the short-term 
Financing, and must be made by you alone or in participation with other 
investors; or
    (b) For protection of your prior investment(s); or
    (c) For the purpose of Financing a change of ownership under 
Sec. 107.750. The total amount of such Financings may not exceed 20 
percent of your Loans and Investments (at cost) at the end of any fiscal 
year; or
    (d) For the purpose of aiding a Small Business in performing a 
contract awarded under a Federal, State, or local government set-aside 
program for ``minority'' or ``disadvantaged'' contractors.



Sec. 107.840  Maximum term of Financing.

    The maximum term of any Loan or Debt Security Financing must be no 
longer than 20 years.



Sec. 107.845  Maximum rate of amortization on Loans and Debt Securities.

    The principal of any Loan (or the loan portion of a Debt Security) 
with a term of five years or less cannot be amortized faster than 
straight line. If the term is greater than five years, the principal 
cannot be amortized faster than straight line for the first five years.



Sec. 107.850  Restrictions on redemption of Equity Securities.

    (a) A Portfolio Concern cannot be required to redeem Equity 
Securities earlier than five years from the date of the first closing 
unless:
    (1) The concern makes a public offering, or has a change of 
management or control, or files for protection under the provisions of 
the Bankruptcy Code, or materially breaches your Financing agreement; or
    (2) You make a follow-on investment, in which case the new 
securities may be redeemed in less than five years, but no earlier than 
the redemption date associated with your earliest Financing of the 
concern.
    (b) The redemption price must be either:
    (1) A fixed amount that is no higher than the price you paid for the 
securities; or
    (2) An amount that cannot be fixed or determined before the time of 
redemption. In this case, the redemption price must be based on:
    (i) A reasonable formula that reflects the performance of the 
concern (such as one based on earnings or book value); or
    (ii) The fair market value of the concern at the time of redemption, 
as determined by a professional appraisal performed under an agreement 
acceptable to both parties.
    (c) Any method for determining the redemption price must be agreed 
upon no later than the date of the first (or only) closing of the 
Financing.



Sec. 107.855  Interest rate ceiling and limitations on fees charged to Small Businesses (``Cost of Money'').

    ``Cost of Money'' means the interest and other consideration that 
you receive from a Small Business. Subject to lower ceilings prescribed 
by local law, the Cost of Money to the Small Business must not exceed 
the ceiling determined under this section.
    (a) Financings to which the Cost of Money rules apply. This section 
applies to all Loans and Debt Securities. As required by 
Sec. 107.800(b), you must include as Debt Securities any equity 
interests with redemption provisions that do not meet the restrictions 
in Sec. 107.850.
    (b) When to determine the Cost of Money ceiling for a Financing. You 
may determine your Cost of Money ceiling for a particular Financing as 
of the date you issue a Commitment or as of the date of the first 
closing of the Financing. Once determined, the Cost of Money ceiling 
remains fixed for the duration of the Financing.
    (c) How to determine the Cost of Money ceiling for a Financing. At a 
minimum,

[[Page 59]]

you may use a Cost of Money ceiling of 19 percent for a Loan and 14 
percent for a Debt Security. To determine whether you may charge more, 
do the following:
    (1) Choose a base rate for your Cost of Money computation. The base 
rate may be either the Debenture Rate currently in effect or your own 
``Cost of Capital'' as determined under paragraph (d) of this section.
    (2) For a Loan, add 11 percentage points to the base rate; for a 
Debt Security, add 6 percentage points. In either case, round the sum 
down to the nearest eighth of one percent.
    (3) If the result is more than 19 percent (for a Loan) or 14 percent 
(for a Debt Security), you may use it as your Cost of Money ceiling.
    (4) If two or more Licensees participate in the same Financing of a 
Small Business, the base rate used in this paragraph (c) is the highest 
of the following:
    (i) The current Debenture rate;
    (ii) The Cost of Capital of the lead Licensee; or
    (iii) The weighted average of the Cost of Capital for all Licensees 
participating in the Financing.
    (d) How to determine your Cost of Capital. ``Cost of Capital'' is an 
optional computation of the weighted average interest rate you pay on 
your ``qualified borrowings''. ``Qualified borrowings'' means your 
Debentures together with your borrowings at or below the usual interest 
rate charged by banks in your locality on the date your loan was made.
    (1) For any fiscal year, you may compute your Cost of Capital:
    (i) As of the first day of your fiscal year, to remain in effect for 
the entire year; or
    (ii) As of the first day of every fiscal quarter during the fiscal 
year, to remain in effect for the duration of the quarter.
    (2) For each qualified borrowing outstanding at your last fiscal 
year or fiscal quarter end, multiply the ending principal balance (net 
of related unamortized fees) by the number of days during the past four 
fiscal quarters that the borrowing was outstanding, and divide the 
result by 365.
    (3) Add together the amounts computed for all borrowings under 
paragraph (d)(2)of this section. The result is your weighted average 
borrowings.
    (4) For all qualified borrowings outstanding at your last fiscal 
year or fiscal quarter end, determine the aggregate interest expense for 
the past four fiscal quarters (excluding amortization of loan fees).
    (5) Divide the interest expense from paragraph (d)(4)of this section 
by the weighted average borrowings from paragraph (d)(3)of this section, 
and multiply by 100. The result is your Cost of Capital, which you may 
use to compute a Cost of Money ceiling under paragraph (c) of this 
section.
    (e) SBA review of Cost of Capital computation. You must keep your 
Cost of Capital computations in a separate file available for SBA's 
review.
    (1) A computation that is kept in such a file and is audited by your 
independent public accountant is considered correct unless SBA 
demonstrates otherwise.
    (2) If a computation is not kept in such a file or is unaudited, you 
must prove its accuracy to SBA's satisfaction.
    (f) Charges included in the Cost of Money. The Cost of Money 
includes all interest, points, discounts, fees, royalties, profit 
participation, and any other consideration you receive from a Small 
Business, except for the specific exclusions in paragraph (g) of this 
section. For equity interests subject to the Cost of Money rules (see 
paragraph (a) of this section), you must include:
    (1) The portion of the fixed redemption price that exceeds your 
original cost.
    (2) Any amount of a redemption that is paid out of accounts other 
than the Small Business's capital accounts (capital, paid-in surplus, or 
retained earnings of a corporation; or partners' capital of a 
partnership).
    (g) Charges excluded from the Cost of Money. You may exclude from 
the Cost of Money:
    (1) Closing fees, application fees, and expense reimbursements, each 
as permitted under Sec. 107.860.
    (2) Reasonable prepayment penalties permitted under 
Sec. 107.830(d)(3).
    (3) Out-of-pocket conveyance and/or recordation fees and taxes.
    (4) Reasonable closing costs.

[[Page 60]]

    (5) Fees for management services as permitted under Sec. 107.900.
    (6) Reasonable and necessary out-of-pocket expenses you incur to 
monitor the Financing.
    (7) Board of director fees not in excess of those paid to other 
outside directors, if your board representation meets the requirements 
of Sec. 107.730(e).
    (8) A reasonable fee for arranging financing for a Small Business 
from a source that is neither a Licensee nor an Associate of yours. The 
Small Business must agree in writing to pay such a fee before you 
arrange the financing.
    (9) A one-time ``bonus'' that satisfies the requirements in 
paragraph (i) of this section.
    (10) The difference between the contractual interest rate of the 
Financing and a default rate of interest permitted as follows:
    (i) If a Small Business is in default, you may charge a default rate 
of interest as much as 7 percentage points higher than the contractual 
rate until the default is cured.
    (ii) For this purpose, ``default'' means either failure to pay an 
amount when due or failure to provide information required under the 
Financing documents.
    (h) How to evaluate compliance with the Cost of Money ceiling. You 
must determine whether a Financing is within the Cost of Money ceiling 
based on its discounted cash flows, as follows:
    (1) Beginning with the date of the first disbursement (``period 
zero''), identify your cash inflows and cash outflows for each period of 
the Financing. The appropriate period to use (such as years, quarters, 
or months) depends on how you have structured the disbursements and 
payments.
    (2) Discount the cash flows back to the first disbursement date 
using the Cost of Money ceiling from paragraph (d) of this section as 
the discount rate.
    (3) If the result is zero or less, the Financing is within the Cost 
of Money ceiling; if it is greater than zero, the Financing exceeds the 
Cost of Money ceiling.
    (i) ``Bonus'' paid by a Small Business. You may provide Financing to 
a Small Business that includes both a loan and a one-time ``bonus'' 
determined at the end of the loan term. For Cost of Money purposes, you 
must treat such a Financing as a Debt Security. You may exclude a bonus 
from the Cost of Money only if it is:
    (1) Computed on or after the date that the Financing is repaid in 
full or was originally due to be repaid in full, whichever is earlier;
    (2) Not fixed or determinable before the computation date; and
    (3) Fully contingent upon factor(s) that reflect the performance of 
the Small Business. The period for which such performance is measured 
must not extend beyond the Small Business's fiscal year end immediately 
following repayment of the Financing. You must demonstrate to SBA's 
satisfaction that the factor(s) used are appropriate indicators of 
performance. Examples of generally acceptable factors include net income 
and operating cash flow; examples of generally unacceptable factors 
include gross revenues or gross margin.



Sec. 107.860  Financing fees and expense reimbursements a Licensee may receive from a Small Business.

    You may collect Financing fees and receive expense reimbursements 
from a Small Business only as permitted under this Sec. 107.860.
    (a) Application fee. You may collect a nonrefundable application fee 
from a Small Business to review its Financing application. The 
application fee may be collected at the same time as the closing fee 
under paragraph (c) or (d) of this section, or earlier. The fee must be:
    (1) No more than 1 percent of the amount of Financing requested (or, 
if two or more Licensees participate in the Financing, their combined 
application fees are no more than 1 percent of the total Financing 
requested); and
    (2) Agreed to in writing by the Financing applicant.
    (b) SBA review of application fees. For any fiscal year, if the 
number of application fees you collect is more than twice the number of 
Financings closed, SBA in its sole discretion may determine that you are 
engaged in activities not contemplated by the Act, in violation of 
Sec. 107.500.
    (c) Closing fee--Loans. You may charge a closing fee on a Loan if:

[[Page 61]]

    (1) The fee is no more than 2 percent of the Financing amount (or, 
if two or more Licensees participate in the Financing, their combined 
closing fees are no more than 2 percent of the total Financing amount); 
and
    (2) You charge the fee no earlier than the date of the first 
disbursement.
    (d) Closing fee--Debt or Equity Financings. You may charge a Closing 
Fee on a Debt Security or Equity Security Financing if:
    (1) The fee is no more than 4 percent of the Financing amount (or, 
if two or more Licensees participate in the Financing, their combined 
closing fees are no more than 4 percent of the total Financing amount); 
and
    (2) You charge the fee no earlier than the date of the first 
disbursement.
    (e) Limitation on dual fees. If another Licensee or an Associate of 
yours collects a transaction fee under Sec. 107.900(e) in connection 
with your Financing of a Small Business, the sum of the transaction fee 
and your application and closing fees cannot exceed the maximum 
application and closing fees permitted under this Sec. 107.860.
    (f) Expense reimbursements. You may charge a Small Business for the 
reasonable out-of-pocket expenses, other than Management Expenses, that 
you incur to process its Financing application. If SBA determines that 
any of your reimbursed expenses are unreasonable or are Management 
Expenses, SBA will require you to include such amounts in the Cost of 
Money or refund them to the Small Business.
    (g) Breakup fee. If a Small Business accepts your Commitment and 
then fails to close the Financing because it has accepted funds from 
another source, you may charge a ``breakup fee'' equal to the closing 
fee that you would have been permitted to charge under paragraph (c) or 
(d) of this section.

[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996]



Sec. 107.865  Restrictions on Control of a Small Business by a Licensee.

    (a) General. You must not operate a business enterprise or function 
as a holding company exercising Control over a business enterprise. 
Neither you, nor you and your Associates, nor you and other Licensee(s) 
(in the latter two cases, the ``Investor Group'') may, except as set 
forth in this section, assume Control over a Small Business through 
management agreements, voting trusts, majority representation on the 
board of directors, or otherwise.
    (b) Presumption of Control. Control over a Small Business will be 
presumed to exist whenever you or the Investor Group own or control, 
directly or indirectly:
    (1) At least 50 percent of the outstanding voting securities, if 
there are fewer than 50 shareholders; or
    (2) More than 25 percent of the outstanding voting securities, if 
there are 50 or more shareholders; or
    (3) A block of at least 20 percent of the outstanding voting 
securities, if there are 50 or more shareholders and no other party 
holds a larger block.
    (c) Rebuttals to presumption of Control. A presumption of Control 
under paragraph (b) of this section is rebutted if:
    (1) The management of the Small Business owns at least a 25 percent 
interest in the voting securities of the business; and
    (2) The management of the Small Business can elect at least 40 
percent (rounded down) of the board members of a corporation, general 
partners of a limited partnership, or managers of a limited liability 
company, as appropriate, and the Investor Group can elect no more than 
40 percent (rounded up). The balance of such officials may be elected 
through mutual agreement by management and the Investor Group.
    (d) Temporary Control permitted. You may acquire temporary Control:
    (1) Where reasonably necessary for the protection of your 
investment;
    (2) If there has been a material breach of the Financing agreement 
by the Small Business;
    (3) If there has been a substantial change in the Small Business's 
operations or products during the past 2 years, or such a change is the 
intended result of the Financing, and the Investor Group's Financing 
constitutes the Small Business's major source of capital; or

[[Page 62]]

    (4) In the case of a Start-up Financing, if you or the Investor 
Group constitute the Small Business's major source of capital.
    (e) Control certification. If you take temporary Control of a Small 
Business under paragraph (d) of this section, you must file a Control 
certification with SBA within 30 days. The certification must state:
    (1) The date on which you took Control;
    (2) The basis for taking Control; and
    (3) Your agreement to relinquish Control within five years (although 
you may, under extraordinary circumstances, request SBA's approval of an 
extension beyond five years).
    (f) Control acquired through enforcement actions. If you retain or 
acquire Control through enforcement action, you must notify SBA 
immediately and submit a Control certification within 30 days.
    (g) Additional Financing for businesses under Licensee's Control. If 
you assume Control of a Small Business, you may later provide additional 
Financing, without an exemption under Sec. 107.730(a)(1).



Sec. 107.880  Assets acquired in liquidation of Portfolio securities.

    You may acquire assets in full or partial liquidation of a Small 
Business's obligation to you under the conditions permitted by this 
Sec. 107.880. The assets may be acquired from the Small Business, a 
guarantor of its obligation, or another party.
    (a) Timely disposition of assets. You must dispose of assets 
acquired in liquidation of a Portfolio security within a reasonable 
period of time.
    (b) Permitted expenditures to preserve assets. (1) You may incur 
reasonably necessary expenditures to maintain and preserve assets 
acquired.
    (2) You may incur reasonably necessary expenditures for improvements 
to render such assets saleable.
    (3) You may make payments of mortgage principal and interest 
(including amounts in arrears when you acquired the asset), pay taxes 
when due, and pay for necessary insurance coverage.
    (c) SBA approval of expenditures. This paragraph (c) applies if you 
have outstanding Leverage or are applying for Leverage. Any application 
for SBA approval under this paragraph must specify all expenses 
estimated to be necessary pending disposal of the assets. Without SBA's 
prior written approval:
    (1) Your total expenditures under paragraphs (b)(1) and (b)(2) of 
this section plus your total Financing(s) to the Small Business must not 
exceed your overline limit under Sec. 107.740; and
    (2) Your total expenditures under paragraph (b) of this section plus 
your total Financing(s) to the Small Business must not exceed 35 percent 
of your Regulatory Capital.

                  Limitations on Disposition of Assets



Sec. 107.885  Disposition of assets to Licensee's Associates or to competitors of Portfolio Concern.

    (a) Sale of assets to Associate. Except with SBA's prior written 
approval, you are not permitted to dispose of assets (including assets 
acquired in liquidation) to any Associate if you have outstanding 
Leverage or Earmarked Assets. As a prerequisite to such approval, you 
must demonstrate that the proposed terms of disposal are at least as 
favorable to you as the terms obtainable elsewhere.
    (b) Sale of assets to competitor of Small Business. Except with the 
prior written approval of the Portfolio Concern (if it is not under your 
Control) or of SBA, you are not permitted to dispose of Portfolio 
securities to a competitor of such concern. If SBA's prior approval is 
not required, you must promptly notify SBA of any such disposal.

                      Management Services and Fees



Sec. 107.900  Management fees for services provided to a Small Business by Licensee or its Associate.

    This Sec. 107.900 applies to management services that you or your 
Associate provide to a Small Business during the term of a Financing or 
prior to Financing. It does not apply to management services that you or 
your Associate provide to a Small Business that you do not finance. Fees 
permitted under this section are not included in the Cost of Money (see 
Sec. 107.855).

[[Page 63]]

    (a) Permitted management fees. You or your Associate may provide 
management services to a Small Business financed by you if:
    (1) You or your Associate have entered into a written contract with 
the Small Business;
    (2) The fees charged are for services actually performed;
    (3) Services are provided on an hourly fee, project fee, or other 
reasonable basis; and
    (4) You can demonstrate to SBA, upon request, that the rate does not 
exceed the prevailing rate charged for comparable services by other 
organizations in the geographic area of the Small Business.
    (b) Fees for service as a board member. You or your Associate may 
receive fees in the form of cash, warrants, or other payments, for 
services provided as members of the board of directors of a Small 
Businesses Financed by you. The fees must not exceed those paid to other 
outside board members. In the absence of such board members, fees must 
be reasonable when compared with amounts paid to outside directors of 
similar companies.
    (c) SBA approval required. You must obtain SBA's prior written 
approval of any management contract that does not satisfy paragraphs (a) 
or (b) of this section.
    (d) Recordkeeping requirements. You must keep a record of hours 
spent and amounts charged to the Small Business, including expenses 
charged.
    (e) Transaction fees. (1) You may charge reasonable transaction fees 
for work you or your Associate perform to prepare a client for a public 
offering, private offering, or sale of all or part of the business, and 
for assisting with the transaction. Compensation may be in the form of 
cash, notes, stock, and/or options.
    (2) Your Associate may charge market rate investment banking fees to 
a Small Business on that portion of a Financing that you do not provide.



      Subpart H--Non-leveraged Licensees--Exceptions to Regulations



Sec. 107.1000  Licensees without Leverage--exceptions to the regulations.

    The regulatory exceptions in this section apply to Licensees with no 
outstanding Leverage or Earmarked Assets.
    (a) You are exempt from the following provisions (but you must come 
into compliance with them to become eligible for Leverage):
    (1) The overline limitation in Sec. 107.740.
    (2) The restrictions in Sec. 107.530 on investments of idle funds, 
provided you do not engage in activities not contemplated by the Act.
    (3) The restrictions in Sec. 107.550 on third-party debt.
    (4) The restrictions in Sec. 107.880 on expenses incurred to 
maintain or improve assets acquired in liquidation of Portfolio 
securities.
    (5) The recordkeeping requirements and fee limitations in 
Sec. 107.825(b) and (c), respectively, for securities purchased through 
or from an underwriter.
    (b) You are exempt from the requirements to obtain SBA's prior 
approval for:
    (1) A decrease in your Regulatory Capital of more than two percent 
under Sec. 107.585 (but not below the minimum required under the Act or 
these regulations). You must report the reduction to SBA within 30 days.
    (2) Disposition of any asset to your Associate under Sec. 107.885.
    (3) A contract to employ an Investment Adviser/Manager under 
Sec. 107.510. However, you must notify SBA of the Management Expenses to 
be incurred under such contract, or of any subsequent material changes 
in such Management Expenses, within 30 days of execution. In order to 
become eligible for Leverage, you must have the contract approved by 
SBA.
    (4) Your initial Management Expenses under Sec. 107.140 and 
increases in your Management Expenses under

[[Page 64]]

Sec. 107.520. However, you must have your Management Expenses approved 
by SBA in order to become eligible for Leverage.
    (5) Options obtained from a Small Business by your management or 
employees under Sec. 107.815(b).
    (c) You are exempt from the requirement in Sec. 107.680 to obtain 
SBA's post approval of new directors and new officers, other than your 
chief operating officer. However, you must notify SBA of the new 
directors or officers within 30 days, and you must have all directors 
and officers approved by SBA in order to become eligible for Leverage.



      Subpart I--SBA Financial Assistance for Licensees (Leverage)

              General Information About Obtaining Leverage



Sec. 107.1100  Types of Leverage available.

    (a) Types of Leverage available for Section 301(c) Licensees. If you 
are a Section 301(c) Licensee, you may apply for Leverage from SBA in 
one or both of the following forms:
    (1) The purchase or guarantee of your Debentures.
    (2) The purchase or guarantee of your Participating Securities.
    (b) Types of Leverage available for Section 301(d) Licensees. If you 
are a Section 301(d) Licensee, you may apply for Leverage from SBA in 
one or more of the following forms:
    (1) The purchase or guarantee of your Debentures.
    (2) The purchase or guarantee of your Participating Securities.
    (3) The purchase of your Preferred Securities.
    (c) Subsidized and non-subsidized Debentures available to Licensees. 
If you are a Section 301(d) Licensee, you may issue both subsidized and 
non-subsidized Debentures. If you are a Section 301(c) Licensee, you may 
issue only non-subsidized Debentures.
    (1) Non-subsidized Debentures. SBA may purchase or guarantee non-
subsidized Debentures under section 303(b) of the Act. You pay interest 
on a non-subsidized Debenture at the rate stated on its face.
    (2) Subsidized Debentures. SBA may purchase or guarantee subsidized 
Debentures under section 303(c) of the Act. On a guaranteed Debenture, 
during the first 5 years of the term, you pay an interest rate that is 
300 basis points below the rate stated on the face of the Debenture. On 
a Debenture that SBA purchases, you pay a reduced interest rate 
determined under section 317 of the Act.



Sec. 107.1110  How to apply for Leverage.

    (a) Application forms. Select the appropriate form from the 
following table:

------------------------------------------------------------------------
Type of Leverage you are applying for:          Application form:       
------------------------------------------------------------------------
Debentures (any type).................  SBA Form 1022.                  
4% Preferred Securities...............  SBA Form 1022A.                 
Participating Securities..............  SBA Form 1022B.                 
------------------------------------------------------------------------

    (b) Where to send your application. Send all Leverage applications 
to SBA, Investment Division, 409 Third Street, SW., Washington, DC 
20416.



Sec. 107.1120  General eligibility requirements for Leverage.

    To be eligible for Leverage, you must:
    (a) Demonstrate a need for Leverage, evidenced by your investment 
activity and a lack of sufficient funds for investment. For your first 
issuance of Leverage, if you have invested at least 50 percent of your 
Leverageable Capital, you are presumed to lack sufficient funds for 
investment.
    (b) Have adequate Private Capital to satisfy the requirements for 
financial viability under Sec. 107.200.
    (c) Meet the minimum capital requirements of Sec. 107.210 or 
Sec. 107.220, as appropriate.
    (d) Show, to the satisfaction of SBA, that your management is 
qualified and has the knowledge, experience, and capability necessary 
for investing in the types of businesses contemplated by the Act, the 
regulations in this part and your business plan.
    (e) Be in compliance with the regulations in this part.
    (f) If required by SBA, have your Control Person(s) assume, in 
writing,

[[Page 65]]

personal responsibility for your Leverage, effective only if such 
Control Person(s) participate (directly or indirectly) in a transfer of 
Control not approved by SBA.



Sec. 107.1130  Leverage fees payable by Licensee.

    (a) User fee for Debentures and Participating Securities. You must 
pay a user fee to SBA for each issuance of a Debenture or Participating 
Security. The fee is 2 percent of the face amount of the Leverage 
issued.
    (b) Payment of user fee. If you issue a Debenture or Participating 
Security:
    (1) To repay or redeem existing Leverage, you must pay the user fee 
before SBA will guarantee or purchase the new Debenture or Participating 
Security.
    (2) That is not used to repay or redeem existing Leverage, SBA will 
deduct the user fee from the proceeds remitted to you, unless you 
prepaid the fee under Sec. 107.1210.
    (c) Refundability. The user fee is not refundable under any 
circumstances.
    (d) Other Leverage fees. SBA may establish a fee structure for 
services performed by the CRA. SBA will not collect any fee for its 
guarantee of TCs.



Sec. 107.1140  Licensee's acceptance of SBA remedies under Secs. 107.1800 through 107.1820.

    If you issue Leverage after April 25, 1994, you automatically agree 
to the terms and conditions in Secs. 107.1800 through 107.1820 as they 
exist at the time of issuance. The effect of these terms and conditions 
is the same as if they were fully incorporated in the terms of your 
Leverage.

       Maximum Amount of Leverage for Which a Licensee Is Eligible



Sec. 107.1150  Maximum amount of Leverage for a Section 301(c) Licensee.

    (a) Maximum amount of Leverage. If you are a Section 301(c) 
Licensee, use the following table to determine the maximum amount of 
Leverage you may have outstanding at any time:

------------------------------------------------------------------------
                                             Then your maximum Leverage 
     If your Leverageable Capital is:                    is:            
------------------------------------------------------------------------
Not over $15,000,000......................  300% of Leverageable        
                                             Capital.                   
Over $15,000,000 but not over $30,000,000.  $45,000,000 + [200% of      
                                             [Leverageable Capital--    
                                             $15,000,000)].             
Over $30,000,000 but not over $45,000,000.  $75,000,000 + [100% of      
                                             [(Leverageable Capital--   
                                             $30,000,000)].             
Over $45,000,000..........................  $90,000,000.                
------------------------------------------------------------------------

    (b) Exceptions to maximum Leverage provisions--(1) Licensees under 
Common Control. Two or more Licensees under Common Control may have 
aggregate outstanding Leverage over $90,000,000 only if SBA gives them 
permission to do so. SBA may grant such permission on a case-by-case 
basis only. SBA may impose any terms and conditions SBA considers 
appropriate to minimize its risk of loss in the event of default.
    (2) Licensees with excess Leverage issued before March 31, 1993. If 
you had outstanding Debentures on March 31, 1993 that exceeded 300 
percent of your Leverageable Capital:
    (i) You do not have to prepay the excess amount.
    (ii) You may apply for an additional Debenture guarantee or 
Participating Security guarantee if you use the proceeds solely to pay 
the amount due at maturity on a Debenture issued before March 31, 1993. 
The new Debenture or Participating Security must mature on or before 
September 30, 2002.
    (iii) You must maintain at least 65 percent of your ``Total Funds 
Available for Investment'' in ``Venture Capital Financings'' (as defined 
in Sec. 107.1160(e) and (f), respectively) until your outstanding 
Debentures no longer exceed 300 percent of your Leverageable Capital.
    (3) Maximum amount of Participating Securities. See Sec. 107.1170.



Sec. 107.1160  Maximum amount of Leverage for a Section 301(d) Licensee.

    (a) Maximum amount of subsidized Leverage. (1) ``Subsidized 
Leverage'' means Debentures with a reduced interest rate and Preferred 
Securities. If you are a Section 301(d) Licensee:
    (i) The maximum amount of subsidized Leverage you may have 
outstanding at any time is the lesser of 400 percent of your 
Leverageable Capital, or $35,000,000. The same limit applies to

[[Page 66]]

a group of Section 301(d) Licensees under Common Control.
    (ii) The maximum amount of Preferred Securities you may have 
outstanding at any time is 200 percent of your Leverageable Capital.
    (2) Certain types and amounts of subsidized Leverage have special 
eligibility requirements (see paragraphs (c) and (d) of this section).
    (b) Maximum amount of total Leverage. Use Sec. 107.1150(a) and 
(b)(1) to determine your maximum amount of Leverage as if you were a 
Section 301(c) Licensee. If the result is more than your maximum 
subsidized Leverage, then this is your maximum total (subsidized plus 
non-subsidized) Leverage. Otherwise, your maximum total Leverage is the 
same as your maximum subsidized Leverage. For Participating Securities, 
see Sec. 107.1170.
    (c) Special eligibility requirements for fourth tier of Leverage. A 
``fourth tier of Leverage'' is any amount of outstanding Leverage in 
excess of 300 percent of your Leverageable Capital.
    (1) To qualify for a fourth tier of Leverage, you must have invested 
(or have Commitments to invest) at least 30 percent of your ``Total 
Funds Available for Investment'' in ``Venture Capital Financings'' (see 
the definitions in paragraphs (e) and (f) of this section).
    (2) While you have a fourth tier of Leverage, you must maintain 
Venture Capital Financings (at cost) that equal at least 30 percent of 
your Total Funds Available for Investment.
    (d) Special eligibility requirements for second tier of Preferred 
Securities. A ``second tier of Preferred Securities'' is any amount of 
outstanding Preferred Securities in excess of 100 percent of your 
Leverageable Capital.
    (1) To qualify for a second tier of Preferred Securities:
    (i) If your license was issued after October 13, 1971, you must have 
at least $500,000 of Leverageable Capital.
    (ii) You must have invested (or have Commitments to invest) at least 
the same dollar amount in Venture Capital Financings.
    (2) While you have a second tier of Preferred Securities, you must 
maintain at least the same dollar amount of Venture Capital Financings 
(at cost).
    (e) Definition of ``Total Funds Available for Investment''. Total 
Funds Available for Investment means the result obtained from the 
following formula:

T = .90  x  (CA + LI)

Where:

T = Total funds available for investment
CA = Total current assets
LI = Total Loans and Investment at cost (as reported on SBA Form 468), 
net of current maturities

    (f) Definition of ``Venture Capital Financing''. Venture Capital 
Financing means an investment represented by common or preferred stock, 
a limited partnership interest, or a similar ownership interest; or by 
an unsecured debt instrument that is subordinated by its terms to all 
other borrowings of the issuer.
    (1) A debt secured by any agreement with a third party is not a 
Venture Capital Financing, whether or not you have a security interest 
in any asset of the third party or have recourse against the third 
party.
    (2) A Financing that originally qualified as a Venture Capital 
Financing will continue to qualify (at its original cost), even if you 
later must report it on SBA Form 468 under either Assets Acquired in 
Liquidation of Portfolio Securities or Operating Concerns Acquired.



Sec. 107.1170  Maximum amount of Participating Securities for any Licensee.

    The maximum amount of Participating Securities you may have 
outstanding at any time is 200 percent of your Leverageable Capital. If 
you are a Section 301(d) Licensee, the maximum combined amount of 
Participating Securities and Preferred Securities you may have 
outstanding at any time is 200 percent of your Leverageable Capital.

    Conditional Commitments by SBA To Reserve Leverage for a Licensee



Sec. 107.1200  SBA's Leverage commitment to a Licensee--application procedure, amount, and term.

    (a) General. Under the provisions in Secs. 107.1200 through 
107.1240, you may

[[Page 67]]

apply for SBA's conditional commitment to reserve a specific amount and 
type of Leverage for your future use. You may then apply to draw down 
Leverage against the commitment.
    (b) Applying for a Leverage commitment. SBA will notify you when it 
is accepting requests for Leverage commitments. Upon receipt of your 
request, SBA will send you a complete application package.
    (c) Limitations on the amount of a Leverage commitment. The amount 
of any Leverage commitment must be at least $500,000. It must not exceed 
100 percent of your Regulatory Capital or your remaining Leverage 
eligibility, whichever is less.
    (d) Term of Leverage commitment. SBA's Leverage commitment will 
automatically lapse at 5:00 P.M. Eastern Time on August 1 of the next 
full Federal fiscal year following issuance of the commitment.



Sec. 107.1210  Commitment fees payable by Licensee.

    (a) Commitment fees. As a condition of SBA's Leverage commitment, 
and before you may draw any Leverage, you must pay SBA a non-refundable 
fee of:
    (1) 3 percent of the face amount of the Debentures or Participating 
Securities reserved under the commitment; or
    (2) 1 percent of the issue price of Preferred Securities reserved 
under the commitment.
    (b) Credit for user fee. The 3 percent commitment fee paid by 
issuers of Debentures or Participating Securities under paragraph (a)(1) 
of this section includes the 2 percent user fee required under 
Sec. 107.1130. If you pay the commitment fee, you do not have to pay the 
user fee separately.
    (c) Automatic cancellation of commitment. Unless you pay the full 
amount of the commitment fee by 5:00 P.M. Eastern Time on the 30th 
calendar day following the issuance of SBA's Leverage commitment, the 
commitment will be automatically canceled.



Sec. 107.1220  Requirement for Licensee to file quarterly financial statements.

    As long as any part of SBA's Leverage commitment is outstanding, you 
must give SBA a Financial Statement on SBA Form 468 (Short Form) as of 
the close of each quarter of your fiscal year (other than your fourth 
fiscal quarter, which is covered by your annual filing of Form 468 under 
Sec. 107.630(a)). You must file this form within 30 days after the close 
of the quarter, or with any request for a draw that you make within such 
30-day period. You will not be eligible for a draw if you are not in 
compliance with this Sec. 107.1220.



Sec. 107.1230  Draw-downs by Licensee under SBA's Leverage commitment.

    (a) Licensee's authorization of SBA to purchase or guarantee 
securities. By submitting a request for a draw against SBA's Leverage 
commitment, you:
    (1) Authorize SBA to purchase your Preferred Security; or
    (2) Authorize SBA, or any agent or trustee SBA designates, to 
guaranty your Debenture or Participating Security and to sell it with 
SBA's guarantee.
    (b) Limitations on amount of draw. For Debentures or Participating 
Securities, any draw against SBA's Leverage commitment must be at least 
$500,000; amounts above $500,000 must be in multiples of $100,000. You 
may issue Preferred Securities in any amount.
    (c) Effect of regulatory violations on Licensee's eligibility for 
draws--(1) General rule. You are eligible to make a draw against SBA's 
Leverage commitment only if you are in compliance with all applicable 
provisions of the Act and SBA regulations (i.e., no unresolved statutory 
or regulatory violations).
    (2) Exception to general rule. If you are not in compliance, you may 
still be eligible for draws if:
    (i) SBA determines that your outstanding violations are of non-
substantive provisions of the Act or regulations and that you have not 
repeatedly violated any non-substantive provisions; or
    (ii) You have agreed with SBA on a course of action to resolve your 
violations and such agreement does not prevent you from issuing 
Leverage.
    (d) Procedures for funding draws. You may request a draw at any time 
during the term of the commitment. With each request, submit the 
following documentation:

[[Page 68]]

    (1) If your request is submitted within 30 days following the close 
of your fiscal quarter, a Financial Statement on SBA Form 468 (Short 
Form) prepared as of the close of that fiscal quarter; otherwise, a 
statement certifying that there has been no material adverse change in 
your financial condition since your last filing of SBA Form 468 (Long or 
Short Form).
    (2) A statement certifying that to the best of your knowledge and 
belief, you are in compliance with all provisions of the Act and SBA 
regulations (i.e., no unresolved regulatory or statutory violations), or 
a statement listing any specific violations you are aware of. Either 
statement must be executed by one of the following:
    (i) An officer of the Licensee;
    (ii) An officer of a corporate general partner of the Licensee; or
    (iii) An individual who is authorized to act as or for a general 
partner of the Licensee.
    (3) A statement that the proceeds are needed to fund one or more 
particular Small Businesses. If required by SBA, the statement must 
include the name and address of each Small Business, and the amount and 
anticipated closing date of each proposed Financing.
    (e) Reporting requirements after drawing funds. (1) Within 30 
calendar days after the actual closing date of each Financing funded 
with the proceeds of your draw, you must file an SBA Form 1031 
confirming the closing of the transaction.
    (2) If SBA required you to provide information concerning a specific 
planned Financing under paragraph (d)(3) of this section, and such 
Financing has not closed within 60 calendar days after the anticipated 
closing date, you must give SBA a written explanation of the failure to 
close.
    (3) If you do not comply with this paragraph (e), you will not be 
eligible for additional draws. SBA may also determine that you are not 
in compliance with the terms of your Leverage under Secs. 107.1810 or 
107.1820.



Sec. 107.1240  Funding of Licensee's draw request through sale to short-term investor.

    (a) Licensee's authorization of SBA to arrange sale of securities to 
short-term investor. By submitting a request for a draw of Debenture or 
Participating Security Leverage, you authorize SBA, or any agent or 
trustee SBA designates, to enter into any agreements (and to bind you to 
such agreements) necessary to accomplish:
    (1) The sale of your Debenture or Participating Security to a short-
term investor;
    (2) The purchase of your security from the short-term investor, 
either by you or on your behalf; and
    (3) The pooling of your security with other securities with the same 
maturity date.
    (b) Sale of Debentures to a short-term investor. If SBA sells your 
Debenture to a short-term investor:
    (1) The sale will be at a discount based on an interest rate 
determined under section 303(b) of the Act (without any interest rate 
subsidy), as if the maturity date of the Debenture were the next 
scheduled date for the sale of Debenture Trust Certificates.
    (2) If the actual sale of Trust Certificates takes place after the 
scheduled date, you must pay the short-term investor daily interest on 
the Debenture, at the same rate, from the scheduled sale date to the 
actual sale date. This additional interest is due on the actual sale 
date. Failure to pay the interest constitutes noncompliance with the 
terms of your Leverage (see Secs. 107.1810 and 107.1820).
    (c) Sale of Participating Securities to a short-term investor. If 
SBA sells your Participating Security to a short-term investor:
    (1) The sale price will be the face amount.
    (2) At the closing of the next scheduled sale of Participating 
Security Trust Certificates, you (or SBA, as guarantor) must pay the 
short-term investor Earned Prioritized Payments at a rate determined 
under section 303(b) of the Act, as if the maturity date of the 
Participating Security were the next scheduled date for the sale of 
Trust Certificates.
    (d) Licensee's right to repurchase its securities before pooling. 
You may repurchase your securities from the short-term investor before 
they are pooled. To do so, you must:

[[Page 69]]

    (1) Give SBA written notice at least 10 days before the cut-off date 
for the pool in which your security is to be included; and
    (2) Pay the face amount of the Debenture, or the face amount of the 
Participating Security plus Earned Prioritized Payments, to the short-
term investor.

   Exchange of Outstanding Debentures for Participating or Preferred 
                  Securities--Section 301(d) Licensees



Sec. 107.1350  Exchange by Section 301(d) Licensee of Debentures for Preferred or Participating Securities.

    (a) Conditions for exchange of Debentures. A Section 301(d) Licensee 
may, in SBA's discretion, retire an eligible Debenture through the 
issuance of Preferred or Participating Securities. To do so, you must:
    (1) Pay all unpaid accrued interest on the Debenture, plus any 
applicable prepayment penalties, fees, and other charges.
    (2) Comply with all conditions that apply to the issuance of 
Preferred or Participating Securities.
    (b) Debentures not eligible for exchange. You may not retire a 
Debenture by issuing Preferred or Participating Securities if SBA 
guaranteed or purchased it on the basis of funds not included in your 
Leverageable Capital. You must repay such a Debenture at its maturity 
date, unless SBA extends it. SBA has discretion to extend the maturity 
to a date not more than 15 years from the date of issuance if SBA 
believes the extension is necessary for orderly liquidation of the 
indebtedness.

         Preferred Securities Leverage--Section 301(d) Licensees



Sec. 107.1400  Stock dividends or partnership distributions on 4 percent Preferred Securities.

    Preferred Securities that SBA purchases from a Section 301(d) 
Licensee may be in the form of either preferred stock issued at par 
value or a preferred limited partnership interest issued at face value. 
When you issue Preferred Securities, you agree to pay SBA a dividend or 
partnership distribution of 4 percent per year, from the date you issue 
Preferred Securities to the date you repay them, both inclusive. The 
dividend or partnership distribution is:
    (a) Computed on the par value of the outstanding stock or the face 
value of the outstanding limited partnership interest.
    (b) Cumulative. This means that if you do not pay the entire 
dividend or partnership distribution for a given fiscal year, the unpaid 
balance accumulates as a distribution in arrears. You do not have to pay 
interest on distributions in arrears.
    (c) Preferred. This means that you must pay SBA in full (including 
distributions in arrears) before setting aside or paying any amount to 
any other equity holder.
    (d) Payable at the discretion of your Board of Directors or General 
Partner(s), except that all distributions in arrears must be paid in 
full when you redeem the Preferred Securities.



Sec. 107.1410  Requirement to redeem 4 percent Preferred Securities.

    You must redeem 4 percent Preferred Securities not later than 15 
years from the date of issuance. At the redemption date, you must pay to 
SBA:
    (a) The par value (of preferred stock) or face value (of a preferred 
limited partnership interest); plus
    (b) Any unpaid dividends or partnership distributions accrued to the 
redemption date.



Sec. 107.1420  Articles requirements for 4 percent Preferred Securities issuers.

    You may issue 4 percent Preferred Securities only if your Articles 
contain all the provisions in Secs. 107.1400 and 107.1410.



Sec. 107.1430  Redeeming 4 percent Preferred Securities with proceeds of non-subsidized Debentures.

    If SBA approves, a Section 301(d) Licensee may use the proceeds of a 
Debenture to redeem Preferred Securities at their mandatory redemption 
date, including any accrued unpaid dividends or partnership 
distributions. For this purpose, you may issue only a non-subsidized 
Debenture (see Sec. 107.1100(c)).

[[Page 70]]



Sec. 107.1440  Three percent preferred stock issued before November 21, 1989.

    Before November 21, 1989, Preferred Securities were available only 
in the form of preferred stock and had a preferred and cumulative 
dividend of 3 percent. If you have such preferred stock outstanding, you 
must follow Sec. 107.1400 (except for Sec. 107.1400(d)), substituting 
``3 percent'' for ``4 percent'' throughout.) Dividends on 3 percent 
preferred stock are payable at the discretion of your Board of Directors 
or General Partner(s), except that all dividends in arrears must be paid 
in full before any non-SBA investor receives any distribution. Upon your 
liquidation, SBA is entitled to payment of all dividends in arrears even 
if you have no Retained Earnings Available for Distribution at such 
time.



Sec. 107.1450  Optional redemption of Preferred Securities.

    (a) Redemption at par or face value. A Section 301(d) Licensee may 
redeem Preferred Securities at any time, provided you give SBA at least 
30 days written notice. You may redeem all or only part of your 
Preferred Securities, but the par value or face value of the securities 
being redeemed must be at least $50,000. At the redemption date, you 
must pay to SBA:
    (1) The par value (of preferred stock) or face value (of a preferred 
limited partnership interest); plus
    (2) Any unpaid dividends or partnership distributions accrued to the 
redemption date.
    (b) Repurchase of 3 percent preferred stock for less than par value. 
If you issued 3 percent preferred stock to SBA, you may ask SBA to sell 
it back to you at a price less than its par value. The terms and 
conditions of any such transaction will be as set forth in the Notice 
published in the Federal Register on April 1, 1994 (Copies of this 
notice are available from SBA, 409 3rd Street, SW., Washington, DC, 
20416). SBA has sole discretion to:
    (1) Approve or disapprove the sale.
    (2) Determine the sale price after considering any factors SBA 
considers appropriate.
    (3) Determine the form of payment SBA will accept. SBA is not 
authorized to accept the proceeds of a subsidized Debenture as payment.

                    Participating Securities Leverage



Sec. 107.1500  General description of Participating Securities.

    (a) Types of Participating Securities. Participating Securities are 
redeemable, preferred, equity-type securities. SBA may purchase or 
guarantee Participating Securities issued by Licensees in the form of 
limited partnership interests, preferred stock, or debentures with 
interest payable only to the extent of earnings. The structure, terms 
and conditions of Participating Securities are set forth in detail in 
Secs. 107.1500 through 107.1590.
    (b) Special eligibility requirements for Participating Securities. 
In addition to the general eligibility requirements for Leverage under 
Sec. 107.1120, Participating Securities issuers must also comply with 
special rules on:
    (1) Minimum capital (see Sec. 107.220).
    (2) Liquidity (see Sec. 107.1505).
    (3) Non-SBA borrowing (see Sec. 107.570).
    (4) Making Equity Capital Investments in Small Businesses, as 
follows:
    (i) General rule. If you issue Participating Securities, you must 
invest an amount equal to the Original Issue Price of such securities 
solely in Equity Capital Investments.
    (ii) Continuing requirement to maintain Equity Capital Investments. 
Unless SBA permits otherwise, once you have met the initial investment 
requirement of this paragraph (b)(4), you must maintain Equity Capital 
Investments with an original cost equal to or greater than the 
outstanding balance of Participating Securities in your portfolio, 
measured as of the end of each fiscal year.
    (c) Special features of Participating Securities--Prioritized 
Payments, Adjustments, and Profit Participation. When you issue 
Participating Securities, you agree to make the following payments:
    (1) Prioritized Payments. Depending upon the type of Participating 
Security you issue, Prioritized Payments may be preferred partnership 
distributions, preferred dividends, or interest. Your obligation to pay 
Prioritized Payments is contingent upon your profits as determined under 
Sec. 107.1520.

[[Page 71]]

    (2) Adjustments to Prioritized Payments. If you have unpaid 
Prioritized Payments, you must compute Adjustments, which are additional 
contingent obligations determined under Sec. 107.1520. The conditions 
for paying Adjustments are the same as for Prioritized Payments.
    (3) SBA Profit Participation. Profit Participation is an amount 
payable to SBA under Sec. 107.1530 in consideration for SBA's guarantee 
of your Participating Securities.
    (d) Distributions by Licensees issuing Participating Securities. 
Sections 107.1540 through 107.1580 govern both required and optional 
Distributions by Participating Securities issuers. Distributions include 
both profit distributions and returns of capital, paid either to SBA or 
to your non-SBA investors.
    (e) Mandatory redemption of Participating Securities. You must 
redeem Participating Securities at the redemption date, which is the 
same as the maturity date of the Trust Certificates for the Trust 
containing such securities. The redemption date can never be later than 
15 years after the issue date. You must pay the Redemption Price plus 
any unpaid Earned Prioritized Payments and any earned Adjustments due 
under Sec. 107.1520.
    (f) Priority of Participating Securities in liquidation of Licensee. 
In the event of your liquidation, the following are senior in priority, 
for all purposes, to all other equity interests you have issued at any 
time:
    (1) The Redemption Price of Participating Securities;
    (2) Any Prioritized Payments and earned Adjustments; and
    (3) Any Profit Participation allocated to SBA under Sec. 107.1530.



Sec. 107.1505  Liquidity requirements for Licensees issuing Participating Securities.

    If you have outstanding Participating Securities, you must maintain 
sufficient liquidity to avoid a condition of Liquidity Impairment. Such 
a condition will constitute noncompliance with the terms of your 
Leverage under Sec. 107.1820(e).
    (a) Definition of Liquidity Impairment. A condition of Liquidity 
Impairment exists when your Liquidity Ratio, as determined in paragraph 
(b) of this section, is less than 1.20. You are responsible for 
calculating whether you have a condition of Liquidity Impairment as of 
the close of your fiscal year, at the time of application for Leverage, 
or at such time as you contemplate making any Distribution.
    (b) Computation of Liquidity Ratio. Your Liquidity Ratio equals your 
Total Current Funds Available (A) divided by your Total Current Funds 
Required (B), as determined in the following table:

                     Calculation of Liquidity Ratio                     
------------------------------------------------------------------------
                                   Amount                               
      Financial account          reported on     Weight      Weighted   
                                SBA Form 468                  amount    
------------------------------------------------------------------------
Cash and invested idle funds.  ..............   x  1.00   ..............
Commitments from investors...  ..............   x  1.00   ..............
Current maturities...........  ..............   x  0.50   ..............
Other current assets.........  ..............   x  1.00   ..............
Publicly Traded and            ..............   x  0.65   ..............
 Marketable Securities.                                                 
Anticipated operating revenue           (\1\)   x  1.00   ..............
 for next 12 months.                                                    
      Total Current Funds      ..............  .........               A
       Available.                                                       
------------------------------------------------------------------------
Current liabilities..........  ..............   x  1.00   ..............
Commitments to Small           ..............   x  0.75   ..............
 Businesses.                                                            
Anticipated operating expense           (\1\)   x  1.00   ..............
 for next 12 months.                                                    
Anticipated interest expense            (\1\)   x  1.00   ..............
 for next 12 months.                                                    
Contingent liabilities         ..............   x  0.25   ..............
 (guarantees).                                                          
      Total Current Funds      ..............  .........              B 
       Required.                                                        
------------------------------------------------------------------------
\1\ As determined by Licensee's management under its business plan.     


[[Page 72]]



Sec. 107.1510  How a Licensee computes Earmarked Profit (Loss).

    Computing your Earmarked Profit (Loss) is the first step in 
determining your obligations to pay Prioritized Payments and Adjustments 
under Sec. 107.1520 and Profit Participation under Sec. 107.1530.
    (a) Requirement to compute your Earmarked Profit (Loss). While you 
have Participating Securities outstanding or have Earmarked Assets (as 
defined in paragraph (b) of this section), you must compute your 
Earmarked Profit (Loss) for:
    (1) Each full fiscal year.
    (2) Any interim period (consisting of one or more fiscal quarters) 
for which you want to make a Distribution.
    (b) How to determine your Earmarked Assets. ``Earmarked Assets'' 
means all the Loans and Investments that you have when you issue 
Participating Securities or that you acquire while you have 
Participating Securities outstanding, and any non-cash assets that you 
receive in exchange for such Loans and Investments.
    (1) An Earmarked Asset remains earmarked until you dispose of it, 
even if you no longer have any outstanding Participating Securities.
    (2) Investments you make after redeeming all your Participating 
Securities are not Earmarked Assets. However, if you issue new 
Participating Securities, all of your Loans and Investments again become 
Earmarked Assets.
    (3) If you were licensed before March 31, 1993, you may be permitted 
to exclude Loans and Investments held at that date from Earmarked Assets 
under Sec. 107.1590.
    (c) How to compute your Earmarked Asset Ratio. You must determine 
your Earmarked Asset Ratio each time you compute Earmarked Profit 
(Loss). If all your Loans and Investments are Earmarked Assets, your 
Earmarked Asset Ratio equals 100 percent. Otherwise, compute your 
Earmarked Asset Ratio using the following formula:

EAR = [(EA + P) / (LI + P)]  x  100

where:

EAR = Earmarked Asset Ratio
EA = Weighted average Earmarked Assets (at cost) for the fiscal year or 
interim period
P = Weighted average uninvested proceeds of Participating Securities for 
the fiscal year or interim period
LI = Weighted average Loans and Investments (at cost) for the fiscal 
year or interim period

    (d) How to compute your Earmarked Profit (Loss) if Earmarked Asset 
Ratio is 100 percent. (1) (i) If your Earmarked Asset Ratio from 
paragraph (b) of this section is 100 percent, use the following formula 
to compute your Earmarked Profit (Loss):

EP = NI + IK + EME

where:

EP = Earmarked Profit (Loss)
NI = Net Income (Loss), as reported on SBA Form 468 except as otherwise 
provided in this paragraph (d)(1)
IK = Unrealized Appreciation (Depreciation) on Earmarked Assets that you 
are distributing as an In-Kind Distribution under Sec. 107.1580
EME = Excess Management Expenses

    (ii) For the purpose of determining Net Income (Loss), user fees and 
commitment fees paid to SBA and partnership syndication costs that you 
incur must be capitalized and amortized on a straight-line basis over 
five years.
    (2) ``Excess Management Expenses'' are those that exceed the 
following limit:
    (i) For a full fiscal year, the limit is the lower of:
    (A) 2.5 percent of your weighted average Combined Capital for the 
year, plus $125,000 if Combined Capital is below $20,000,000; or
    (B) Your Management Expenses approved by SBA.
    (ii) For less than a full fiscal year, you must prorate the annual 
amounts in paragraph (d)(2)(i) of this section to determine the limit.
    (e) How to compute your Earmarked Profit (Loss) if Earmarked Asset 
Ratio is less than 100 percent. If your Earmarked Asset Ratio is less 
than 100 percent, compute your Earmarked Profit (Loss) as follows:
    (1) Do the Earmarked Profit (Loss) computation in paragraph (d) of 
this section.

[[Page 73]]

    (2) Subtract your net realized gain (loss) (as reported on SBA Form 
468) on Loans and Investments that are not Earmarked Assets.
    (3) Separate the result from paragraph (e)(2) of this section into:
    (i) Net realized gain (loss) (as reported on SBA Form 468) on 
Earmarked Assets (``EGL''); and
    (ii) The remainder (``R'').
    (4) Your Earmarked Profit (Loss) equals:

EGL + (R  x  Earmarked Asset Ratio)

    (f) How to compute your cumulative Earmarked Profit (Loss). Sum your 
Earmarked Profit (Loss) for all fiscal years and for any interim period 
following the end of your last fiscal year. The total is your cumulative 
Earmarked Profit (Loss), which you must use in the Prioritized Payment 
computations under Sec. 107.1520.



Sec. 107.1520  How a Licensee computes and allocates Prioritized Payments to SBA.

    This section tells you how to compute Prioritized Payments and 
Adjustments and determine the amounts you must pay. To distribute 
Prioritized Payments, see Sec. 107.1540.
    (a) How to compute Prioritized Payments and Adjustments. (1) 
Prioritized Payments. For a full fiscal year, the Prioritized Payment on 
an outstanding Participating Security equals the Redemption Price times 
the Trust Certificate Rate. For a shorter period (one or more fiscal 
quarters), you must prorate the annual Prioritized Payment.
    (2) Adjustments. Compute Adjustments using paragraph (f) of this 
section.
    (b) Licensee's obligation to pay Prioritized Payments and 
Adjustments. You are obligated to pay Prioritized Payments and 
Adjustments only if you have profit as determined under paragraph (d) of 
this section.
    (1) Prioritized Payments that you must pay (or have already paid) 
because you have sufficient profit are ``Earned Prioritized Payments''.
    (2) Prioritized Payments that are not payable because you lack 
sufficient profit are ``Accumulated Prioritized Payments''. Treat all 
Prioritized Payment as ``Accumulated'' until they become ``Earned'' 
under this section.
    (3) Adjustments are computed under paragraph (f) of this section and 
are ``earned'' according to the same criteria applied to Prioritized 
Payments.
    (c) How to keep track of Prioritized Payments. You must establish 
three accounts to record your Accumulated and Earned Prioritized 
Payments.
    (1) Accumulation Account. The Accumulation Account is a memorandum 
account. Its balance represents your Accumulated Prioritized Payments 
and unearned Adjustments.
    (2) Distribution Account. The Distribution Account is a liability 
account. Its balance represents your unpaid Earned Prioritized Payments 
and earned Adjustments.
    (3) Earned Payments Account. The Earned Payments Account is a 
memorandum account. Each time you add to the Distribution Account 
balance, add the same amount to the Earned Payments Account. Its balance 
represents your total (paid and unpaid) Earned Prioritized Payments and 
earned Adjustments.
    (d) How to determine your profit for Prioritized Payment purposes. 
As of the end of each fiscal year and any interim period (one or more 
fiscal quarters) for which you want to make a Distribution:
    (1) Bring the Accumulation Account up to date by adding to it all 
Prioritized Payments through the end of the fiscal period.
    (2) Determine your cumulative Earmarked Profit (Loss) under 
Sec. 107.1510(e) and subtract your Earned Payments Account balance from 
it. The result (if greater than zero) is your profit for the purposes of 
this section; if zero or less, you have no profit.
    (3) If you have a profit, continue with paragraph (e) of this 
section. Otherwise, continue with paragraph (f) of this section.
    (e) Allocating Prioritized Payments to the Distribution Account. (1) 
If you have a profit under paragraph (d) of this section, determine the 
lesser of:
    (i) Your profit; or
    (ii) The balance in your Accumulation Account.
    (2) Subtract the result in paragraph (e)(1) of this section from the 
Accumulation Account and add it to the Distribution Account.

[[Page 74]]

    (f) How to compute Adjustments. You must compute your Adjustments as 
of the end of each fiscal year.
    (1) Adjustments based on Accumulation Account balance. If you have 
any balance in your Accumulation Account, determine your average 
Accumulation Account balance for the fiscal year and multiply it by the 
average of the Trust Certificate Rates for all the Participating 
Securities poolings during such year.
    (2) Adjustments based on Distribution Account balance. If you have 
any balance in your Distribution Account after giving effect to any 
Distribution that will be made on the first or second Payment Date 
following your fiscal year end, do the computations in paragraph (f)(1) 
of this section, substituting ``Distribution Account'' for 
``Accumulation Account''.
    (3) Add the amounts computed in this paragraph (f) to your 
Accumulation Account balance.
    (g) Licensee's obligation to pay Prioritized Payments after 
redeeming Participating Securities. This paragraph (g) applies if you 
have redeemed all your Participating Securities, but you still hold 
Earmarked Assets and still have a balance in your Accumulation Account.
    (1) You must continue to perform all the procedures in this 
Sec. 107.1520 as of the end of each fiscal quarter. You must distribute 
any Earned Prioritized Payments and earned Adjustments in accordance 
with Sec. 107.1540.
    (2) After you dispose of all your Earmarked Assets and make any 
required Distributions in accordance with Sec. 107.1540, your obligation 
to pay any remaining Accumulated Prioritized Payments and unearned 
Adjustments will be extinguished.



Sec. 107.1530  How a Licensee computes SBA's Profit Participation.

    This section tells you how to compute SBA's Profit Participation. 
Profit Participation is included in the Distributions you make to SBA 
under Secs. 107.1550 and 107.1560.
    (a) How to compute Profit Participation. Profit Participation equals 
your ``Base'' times your ``Profit Participation Rate'' (if the Base is 
zero or less, you do not owe SBA Profit Participation). Compute the Base 
using paragraph (c) of this section and the Profit Participation Rate 
using paragraphs (d) through (g) of this section. You must compute your 
Earmarked Profit (Loss) under Sec. 107.1510 and your Prioritized 
Payments and Adjustments under Sec. 107.1520 before you can compute 
Profit Participation.
    (b) How to keep track of Profit Participation. You must establish a 
Profit Participation Account to record your computations under this 
section and payments under Secs. 107.1550 and 107.1560. Its balance 
represents your unpaid Profit Participation.
    (c) How to compute the Base. As of the end of each fiscal year and 
any year-to-date interim period (one or more fiscal quarters) for which 
you want to make a Distribution, compute your Base using the following 
formula:

B = EP - PPA - UL

where:

B = Base
EP = Earmarked Profit (Loss) for the period from Sec. 107.1510
PPA = Prioritized Payments from Sec. 107.1520(a)(1) and Adjustments (if 
applicable) from Sec. 107.1520(f)
UL = ``Unused Loss'' as determined in this paragraph (c).

    (1) If you have never computed a Base before, or if the Base as of 
the end of your last fiscal year (your ``Previous Base'') was zero or 
greater, your Unused Loss is zero with the following exception: If, at 
the end of your last fiscal year, you computed a negative result under 
paragraph (h)(3) of this section, your Unused Loss equals that negative 
result.
    (2) If your Previous Base was less than zero, your Unused Loss 
equals your Previous Base.
    (d) How to compute the Profit Participation Rate. You must determine 
your Profit Participation Rate each time you compute a Base that is 
greater than zero. Compute the Rate by following the steps in paragraphs 
(e) through (g) of this section.
    (e) Compute the ``PLC ratio''. (1) General rule. The ``PLC ratio'' 
is the highest ratio of outstanding Participating Securities to 
Leverageable Capital that you have ever attained.

[[Page 75]]

    (2) Exception. You may reduce the ratio computed under paragraph 
(e)(1) of this section if you have increased your Leverageable Capital 
above its highest previous level. The increase must have taken place at 
least 120 days before the date as of which your Base is computed. In 
addition, the increase must have been expressly provided for in a plan 
of operations submitted to and approved by SBA in writing, or must be 
the result of the takedown of commitments or the conversion of non-cash 
assets that were included in your Private Capital. To reduce your PLC 
ratio:
    (i) Determine the increase in your Leverageable Capital over its 
highest previous level.
    (ii) Find your highest previous ratio of Participating Securities to 
Leverageable Capital. If you have attained your highest ratio more than 
once, with different numerators and denominators, choose the ratio with 
the highest numerator.
    (iii) Add the increase in Leverageable Capital to the denominator of 
the ratio chosen in paragraph (e)(2)(ii)of this section, and divide the 
numerator by the revised denominator. The result is your new PLC ratio.
    (3) Once you compute a PLC ratio under either paragraph (e)(1) or 
(e)(2)of this section, do not recompute it unless there has been a 
change in your outstanding Participating Securities or your Leverageable 
Capital.
    (4) Example.

----------------------------------------------------------------------------------------------------------------
                                                           Participating                                        
                                                             Securities   Leverageable      A/B       PLC Ratio 
                                                                (A)        Capital (B)                          
----------------------------------------------------------------------------------------------------------------
End of period 1..........................................         1,000          1,000         1.00         1.00
End of period 2..........................................         1,500          1,000         1.50         1.50
End of period 3..........................................         1,200            900         1.33         1.50
End of period 4..........................................           750            500         1.50         1.50
End of period 5..........................................           750          1,500         0.50        1.00 
----------------------------------------------------------------------------------------------------------------
Explanation of PLC Ratio calculation following increase in Leverageable Capital:                                
Step 1: Increase in Leverageable Capital over highest previous level=1,500 -1,000=500.                          
Step 2: Highest previous ratio of Participating Securities to Leverageable Capital=1.50 (attained two times, at 
  end of periods 2 and 4).                                                                                      
Step 3: Highest numerator associated with highest ratio=1,500 (at end of period 2); associated                  
  denominator=1,000.                                                                                            
Step 4: Add the increase in Leverageable Capital (from step 1) to the denominator (from step 3):                
  500+1,000=1,500.                                                                                              
Step 5: Divide the numerator (from step 3) by the revised denominator (from step 4): 1,500/1,500=1.00.          

    (f) Compute the Profit Participation Rate (before indexing). Compute 
the Profit Participation Rate (before indexing) using the table in this 
paragraph (f). Then go to paragraph (g) of this section to determine 
whether to index the Profit Participation Rate.

------------------------------------------------------------------------
     If your PLC ratio is:       Then your Profit Participation Rate is:
------------------------------------------------------------------------
1 or less......................  9% x PLC Ratio.                        
More than 1....................  9%+[3% x (PLC ratio-1)].               
------------------------------------------------------------------------

    (g) Indexing the Profit Participation Rate. The Profit Participation 
Rate is indexed, up or down, to the yield-to-maturity on Treasury bonds 
with a remaining term of ten (10) years (the ``Treasury Rate''). You 
must perform the indexing procedures in this paragraph (g) unless the 
Treasury Rate was exactly 8 percent on every date that you issued 
Participating Securities.
    (1) Licensees that have issued Participating Securities on only one 
occasion. Determine the Treasury Rate for the date you issued your 
Participating Security. Adjust the Profit Participation Rate from 
paragraph (f) of this section by the percentage difference between the 
Treasury Rate and 8 percent. For example, assume that you issued 
Participating Securities when the Treasury Rate was 10 percent. The 
percentage difference between 10 percent and 8 percent is 25 percent. If 
you had a PLC ratio of 1, the Profit Participation Rate before indexing 
would be 9 percent. You would increase this rate by 25 percent, giving 
you a Profit Participation Rate of 11.25 percent.
    (2) Licensees that have issued Participating Securities on more than 
one occasion. Determine the Treasury Rate for each of the dates you 
issued Participating Securities.
    (i) Compute an average of all such Treasury Rates, weighted to 
reflect the

[[Page 76]]

dollar amount of each issuance (ignoring any redemptions) and the number 
of days from the date of each issuance to the date as of which you are 
computing the Profit Participation Rate.
    Example to paragraph (g)(2)(i) of this section. If you issued $10 
million of Participating Securities on the 60th day of Fiscal Year 1 
when the Treasury Rate was 8 percent, and another $15 million on the 
100th day of Fiscal Year 3 when the Treasury Rate was 10 percent, then 
the weighted average Treasury Rate computed as of the end of Fiscal Year 
3 would be 8.55 percent. [Days elapsed since first issuance of 
Participating Securities = 1,035; days elapsed since second issuance of 
Participating Securities = 265; weighted amount of first issuance = 
$10,000,000  x  1,035/1,035 = $10,000,000; weighted amount of second 
issuance = $15,000,000  x  265/1035 = $3,840,579; weighted average 
amount of Participating Securities issued = $10,000,000 + $3,840,579 = 
$13,840,579; weighted average Treasury Rate= {(.08  x  $10,000,000) + 
(.10  x  $3,840,579)} / $13,840,579 = 8.55%]
    (ii) Adjust the Profit Participation Rate from paragraph (f) of this 
section by the percentage difference between the weighted average 
Treasury Rate and 8 percent. In the example given in paragraph (g)(2)(i) 
of this section, if the PLC ratio were equal to 2, the Profit 
Participation Rate for the fiscal year would be 12.83 percent. 
[{((.0855-.08) .08) + 1}  x  .12  x  100 = 12.83%]
    (h) Computing SBA's Profit Participation. If the Base from paragraph 
(c) of this section is greater than zero, you must compute SBA's Profit 
Participation as follows:
    (1) Multiply the Base by the Profit Participation Rate to determine 
the Profit Participation for the fiscal year or year-to-date interim 
period.
    (2) If your last Profit Participation computation was for an interim 
period during the same fiscal year and used a higher Profit 
Participation Rate than that used in paragraph (h)(1) of this section, 
multiply the Base for that period by the Profit Participation Rate used 
in paragraph (h)(1) of this section.
    (3) Reduce the Profit Participation from paragraph (h)(1) of this 
section by any amounts of Profit Participation that you distributed or 
reserve for distribution to SBA, or its designated agent or Trustee, for 
any previous interim period during the fiscal year, or by the amount you 
computed in paragraph (h)(2) of this section, whichever is less. If the 
result is less than zero, SBA's Profit Participation is zero. If you 
obtain a negative result as of the end of your fiscal year, you must add 
it to your Unused Loss the next time you compute your Base under 
paragraph (c)(1) of this section.
    (i) Allocation of Profit Participation. Before any Distribution and 
in any case within 120 days following the end of your fiscal year, you 
must add the amount of Profit Participation computed under this 
Sec. 107.1530 to the Profit Participation Account. You must reserve 
funds equal to this amount for distribution to SBA, or its designated 
agent or Trustee; you may not reinvest these funds or use them for any 
other purpose.

[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996]



Sec. 107.1540  Distributions by Licensee--Prioritized Payments and Adjustments.

    After you compute Prioritized Payments and Adjustments under 
Sec. 107.1520, you must distribute them in accordance with this 
Sec. 107.1540.
    (a) Requirement to distribute Prioritized Payments and Adjustments. 
This paragraph (a) applies only if you satisfy the liquidity requirement 
in Sec. 107.1505. All Distributions under this paragraph (a) go to SBA 
or its designated agent or trustee.
    (1) You must distribute the balance in your Distribution Account 
from Sec. 107.1520 annually on the first or second Payment Date 
following your fiscal year end, and on any date when you are making any 
other Distribution.
    (2) You may distribute all or part of the balance in your 
Distribution Account on any Payment Date regardless of whether you are 
making any other Distribution on that date.
    (b) Additional requirement for Licensees with undistributed 
Prioritized Payments. This paragraph (b) applies if you do not 
distribute the full amount in your Distribution Account by the second 
Payment Date following the end of your fiscal year. At the end of each 
fiscal

[[Page 77]]

quarter, until you reduce the balance in your Distribution Account to 
zero, you must:
    (1) Do all the steps in Sec. 107.1520; and
    (2) Distribute the balance in your Distribution Account on the next 
Payment Date following the end of your fiscal quarter, provided you 
satisfy the liquidity requirement in Sec. 107.1505.



Sec. 107.1550  Distributions by Licensee--permitted ``tax Distributions'' to private investors and SBA.

    If you have outstanding Participating Securities or Earmarked 
Assets, and you are a limited partnership, ``S Corporation'', or 
equivalent pass-through entity for tax purposes, you may make an annual 
``tax Distribution'' to your investors, whether or not they have an 
actual tax liability. SBA receives a share of any tax Distribution you 
make. This section tells you when you may make a ``tax Distribution'' 
and how to compute it.
    (a) Conditions for making a tax Distribution. You may make a tax 
Distribution only if:
    (1) You have paid all your Prioritized Payments and Adjustments, so 
that the balance in both your Distribution Account and your Accumulation 
Account is zero (see Sec. 107.1520).
    (2) You satisfy the liquidity requirement in Sec. 107.1505.
    (3) The tax Distribution does not exceed your Retained Earnings 
Available for Distribution.
    (4) The tax Distribution does not exceed the Maximum Tax Liability 
from paragraph (b) of this section.
    (b) How to compute the Maximum Tax Liability. (1) Compute your 
Maximum Tax Liability for a full fiscal year only. Use the following 
formula:

M = (TOI x HRO) + (TCG x HRC)

where:

M = Maximum Tax Liability.
TOI = Total ordinary income (less ordinary deductions) allocated to your 
          partners or shareholders for Federal income tax purposes.
HRO = The highest combined marginal Federal and State income tax rates 
          for corporations or individuals (whichever is higher), on 
          ordinary income.
TCG = Total capital gains allocated to your partners or shareholders for 
          Federal income tax purposes.
HRC = The highest combined marginal Federal and State income tax rates 
          for corporations or individuals (whichever is higher), on 
          capital gains.

    (2) For purposes of this paragraph (b), the ``State income tax'' is 
that of the State where your principal place of business is located.
    (c) SBA's share of the tax Distribution. (1) SBA's percentage share 
of the tax Distribution is equal to the Profit Participation Rate 
computed under Sec. 107.1530.
    (2) SBA may direct you to pay its share of the tax Distribution to 
its designated agent or Trustee.
    (3) SBA will apply its share of the tax Distribution to the Profit 
Participation you owe SBA under Sec. 107.1530.
    (d) Paying a tax Distribution. You may make a tax Distribution only 
on the first or second Payment Date following the end of your fiscal 
year or, if your fiscal year end is December 31, during the period 
beginning March 1 and ending April 15.



Sec. 107.1560  Distributions by Licensee--required Distributions to private investors and SBA.

    You must make Distributions under this Sec. 107.1560 if you have 
outstanding Participating Securities or Earmarked Assets and you satisfy 
the conditions in paragraph (a) of this section. Distributions under 
this section are determined as of the end of each fiscal year.
    (a) Conditions for making Distributions. Distributions under this 
section are subject to the following conditions:
    (1) You must have paid all your Prioritized Payments and 
Adjustments, so that the balance in both your Distribution Account and 
your Accumulation Account is zero (see Secs. 107.1520 and 107.1540).
    (2) You must have made any permitted tax Distribution that you 
choose to make under Sec. 107.1550.
    (3) You must satisfy the liquidity requirement in Sec. 107.1505.
    (4) The amount you distribute under this section must not exceed 
your Retained Earnings Available for Distribution.
    (b) Total amount you must distribute. Unless SBA permits otherwise, 
the total amount you must distribute

[[Page 78]]

equals the result (if greater than zero) of the following computation:
    (1) Your Retained Earnings Available for Distribution as of the end 
of your fiscal year; minus
    (2) All previous Distributions under this Sec. 107.1560 that were 
applied as redemptions or repayments of Leverage; plus
    (3) All previous Distributions under Sec. 107.1570(b) that reduced 
your Retained Earnings Available for Distribution.
    (c) When you must make Distributions. You must make the required 
Distributions on either the first or second Payment Date following the 
end of your fiscal year.
    (d) Effect of Distributions on Retained Earnings Available for 
Distribution. Distributions under this Sec. 107.1560 have the following 
effect on your Retained Earnings Available for Distribution:
    (1) All Distributions to private investors reduce Retained Earnings 
Available for Distribution.
    (2) Distributions to SBA, or its designated agent or Trustee, reduce 
Retained Earnings Available for Distribution if they are applied as 
payments of Profit Participation or distributions on Preferred 
Securities (see paragraph (g) of this section).
    (3) Distributions to SBA, or its designated agent or Trustee, do not 
reduce Retained Earnings Available for Distribution if they are applied 
as a repayment or redemption of Leverage (see paragraph (g) of this 
section).
    (e) SBA's share of the total Distribution. Use the following table 
to determine the percentage share of the total Distribution (from 
paragraph (b) of this section) that goes to SBA (or its designated agent 
or Trustee):

              SBA's Percentage Share of Total Distribution              
------------------------------------------------------------------------
 If your ratio of Leverage to Leverageable   Then SBA's percentage share
   Capital as of the fiscal year end is:       of the Distribution is:  
------------------------------------------------------------------------
Over 200%.................................  [Leverage / (Leverage +     
                                             Leverageable Capital)]  x  
                                             100.                       
Over 100% but not over 200%...............  50%.                        
100% or less..............................  Profit Participation Rate   
                                             from Sec.  107.1530.       
------------------------------------------------------------------------

    (f) Exceptions to the Distribution requirement. (1) With SBA's prior 
written approval, you may withhold from distribution reasonable reserves 
necessary to protect your investments or relative position in Loans and 
Investments and to meet contingent liabilities.
    (i) If you submit a written request for SBA approval, you may 
consider it approved unless SBA notifies you otherwise within 30 days 
from receipt.
    (ii) Reserves that you withhold from distribution may not be used to 
make investments in additional portfolio companies.
    (iii) Withholding of reserves under this paragraph (f)(1) is not a 
``payment failure'' in violation of Sec. 107.1820(e)(6).
    (2) SBA may restrict Distributions under this Sec. 107.1560 if SBA 
determines that the value of your assets is materially overstated. SBA 
must give you notice of such a determination in advance of your proposed 
Distribution.
    (g) How SBA will apply your Distributions. Your Distributions to SBA 
(or its designated agent or Trustee) under this Sec. 107.1560 will be 
applied in the following order:
    (1) First, to Profit Participation;
    (2) Second, to the extent there remain any Retained Earnings 
Available for Distribution, to distributions on Preferred Securities;
    (3) Third, as a redemption of Participating Securities in order of 
issue;
    (4) Fourth, as a redemption of Preferred Securities; and
    (5) Fifth, as the repayment of principal of any outstanding 
Debentures, with such repayment to be made into escrow on terms and 
conditions SBA determines.



Sec. 107.1570  Distributions by Licensee--optional Distribution to private investors and SBA.

    If you have outstanding Participating Securities or Earmarked 
Assets, you may make two types of optional Distributions under this 
Sec. 107.1570: quarterly Distributions determined the same way as the 
required annual Distributions in Sec. 107.1560, and Distributions 
allocated between SBA and your private investors in proportion to the 
capital contributions of each.
    (a) Quarterly Distributions subject to conditions in Sec. 107.1560. 
(1) You may make Distributions under this paragraph (a) as of the end of 
any fiscal

[[Page 79]]

quarter, giving SBA (or its designated agent or Trustee) a percentage 
share determined under Sec. 107.1560(e).
    (2) Such Distributions are subject to all the provisions in 
Sec. 107.1560(a)(1), (a)(3), (a)(4), (d), (f)(2), and (g).
    (3) You may make such Distributions only on the next Payment Date 
following the end of your fiscal quarter.
    (4) The total amount of such Distributions may not exceed the result 
of the following computation:
    (i) Your Retained Earnings Available for Distribution as of the end 
of your fiscal quarter; minus
    (ii) All previous Distributions under this paragraph (a) or 
Sec. 107.1560 that were applied as redemptions or repayments of 
Leverage; plus
    (iii) All previous Distributions under paragraph (b) of this section 
that reduced your Retained Earnings Available for Distribution.
    (b) Other optional Distributions. On any Payment Date, you may make 
additional Distributions to your private investors and to SBA (or its 
designated agent or Trustee) under this paragraph (b).
    (1) Conditions for making Distribution. You may make a Distribution 
under this paragraph (b) only if:
    (i) You have distributed all Earned Prioritized Payments and earned 
Adjustments, so that the balance in your Distribution Account is zero 
(see Sec. 107.1520).
    (ii) You have distributed all Profit Participation computed under 
Sec. 107.1530 and made all required Distributions under Sec. 107.1560.
    (iii) You satisfy the liquidity requirement in Sec. 107.1505 or 
obtain SBA's prior written approval of the Distribution.
    (iv) You do not have a condition of Capital Impairment.
    (v) The Distribution does not reduce your Regulatory Capital 
(excluding commitments from Institutional Investors) below the minimum 
required under Sec. 107.210, unless SBA approves the reduction as part 
of a plan of liquidation.
    (vi) The Distribution does not cause you to have excess Leverage 
contrary to section 303 of the Act.
    (2) SBA's share of Distribution. (i) If your Capital Impairment 
Percentage under Sec. 107.1840 is zero, SBA's percentage share of any 
Distribution under this paragraph (b) equals:

[Leverage/(Leverage + Leverageable Capital)]  x  100

In this formula, use Leverage and Leverageable Capital as of the date of 
the Distribution, after giving effect to any Distribution under 
Sec. 107.1560 and paragraph (a) of this section.

    (ii) If your Capital Impairment Percentage under Sec. 107.1840 is 
greater than zero, you must modify the formula in paragraph (b)(2)(i) of 
this section by replacing Leverageable Capital with:

Leverageable Capital  x  (100% - CIP)

where ``CIP'' is your Capital Impairment Percentage or 100 percent, 
whichever is less.

    (3) How SBA will apply Distributions. Any amounts you distribute to 
SBA, or its designated agent or Trustee, under this paragraph (b) will 
be applied as a repayment or redemption of Leverage in the order set 
forth in Sec. 107.1560 (g)(3) through (g)(5).
    (4) Effect of Distributions on Retained Earnings Available for 
Distribution. Any amounts you distribute to non-SBA investors under this 
paragraph (b) must reduce your Retained Earnings Available for 
Distribution to zero before reducing your Private Capital.
    (5) Permitted exception to Sec. 107.585. You may make any 
Distribution permitted by this paragraph (b), even if the result is a 
reduction in your Regulatory Capital that would otherwise be prohibited 
under Sec. 107.585.



Sec. 107.1580  Special rules for In-Kind Distributions by Licensees.

    (a) In-Kind Distributions while Licensee has outstanding 
Participating Securities. A Distribution under Secs. 107.1560 or 
107.1570 may consist of securities (an ``In-Kind Distribution''). Such a 
Distribution must satisfy the conditions in this paragraph (a).
    (1) You may distribute only securities that are Publicly Traded and 
Marketable at the time of the Distribution.
    (2) You must distribute each security pro-rata to all investors and 
to SBA or its designated agent or Trustee, based on the amounts that 
each party would receive if the Distribution were in cash.
    (3) You must impute a gain (loss) on each security being distributed 
as if it

[[Page 80]]

were being sold, using the value of the security as of the declaration 
date of the Distribution (if you are a Corporate Licensee) or the 
distribution date (if you are a Partnership Licensee).
    (4) You must deposit SBA's share of the securities being distributed 
with the CRA, who will select a Disposition Agent (a person who is 
knowledgeable about and proficient in the marketing of thinly traded 
securities). As an alternative, if you agree, SBA may direct you to 
dispose of its share. In this case, you must promptly remit the proceeds 
to SBA.
    (b) In-Kind Distributions after Licensee has redeemed all 
Participating Securities. This paragraph (b) applies from the time you 
redeem all your Participating Securities until you dispose of all your 
Earmarked Assets.
    (1) You may make an In-Kind Distribution of an Earmarked Asset only 
if you pay SBA the lower of:
    (i) An amount equal to the Unrealized Appreciation on the asset; or
    (ii) The full amount of your Accumulated Prioritized Payments and 
unpaid Adjustments.
    (2) You must obtain SBA's prior written approval of any In-Kind 
Distribution of an Earmarked Asset that is not Publicly Traded and 
Marketable, specifically including approval of the valuation of the 
asset.



Sec. 107.1590  Special rules for companies licensed on or before March 31, 1993.

    This section applies to companies licensed on or before March 31, 
1993 that apply to issue Participating Securities.
    (a) Election to exclude pre-existing portfolio. You may choose to 
exclude all (but not a portion) of your Loans and Investments as of 
March 31, 1993, from classification as Earmarked Assets if:
    (1) The proceeds of your first issuance of Participating Securities 
are not used to refinance outstanding Debentures (see paragraph (c) of 
this section). SBA will consider payment or prepayment of any 
outstanding Debenture to be a refinancing unless you demonstrate to 
SBA's satisfaction that you can pay the Debenture principal without 
relying on the proceeds of the Participating Securities.
    (2) SBA, in its sole discretion, approves the exclusion.
    (b) Treatment of pre-existing portfolio if not excluded. If you do 
not choose to exclude your Loans and Investments as of March 31, 1993, 
they will be Earmarked Assets for all purposes.
    (c) Refinancing Debentures with Participating Securities. SBA may 
permit you to use the proceeds of a Participating Security to pay the 
principal amount due on an outstanding Debenture if:
    (1) You have outstanding Equity Capital Investments (at cost) equal 
to the amount of the Debentures being refinanced.
    (2) You have not elected to exclude Loans and Investments from 
Earmarked Assets under paragraph (a) of this section.
    (d) Requirements for Licensee's first issuance of Participating 
Securities. When you apply for your first issuance of Participating 
Securities, you must comply with the following:
    (1) For each of your Loans and Investments, you must submit:
    (i) The most recent annual report (or fiscal year-end financial 
statements) and the most recent interim financial statements of the 
Small Business; and
    (ii) Your valuation reports on the Small Business, prepared as of 
the end of each of your last three fiscal years. If you have applied for 
Participating Securities on the basis of interim financial statements, 
you must also submit a valuation report as of your interim financial 
statement date.
    (2) If you have negative Undistributed Net Realized Earnings and/or 
a net Unrealized Loss on Securities Held, SBA may require you to undergo 
a quasi-reorganization in accordance with generally accepted accounting 
principles.
    (3) If your financial statements accompanying the Participating 
Securities application are for an interim period, you must have your 
SBA-approved independent public accountant perform a limited-scope audit 
of the statements. For purposes of this paragraph (d)(3), ``limited 
scope audit'' means auditing procedures sufficient to enable the 
independent public accountant to express an opinion on the Statement of 
Financial Position and

[[Page 81]]

the accompanying Schedule of Loans and Investments.

 Funding Leverage by Use of SBA-Guaranteed Trust Certificates (``TCs'')



Sec. 107.1600  SBA authority to issue and guarantee Trust Certificates.

    (a) Authorization. Sections 321 (a) and (b) of the Act authorize SBA 
or its CRA to issue TCs, and SBA to guarantee the timely payment of the 
principal and interest thereon. Any guarantee by SBA of such TC is 
limited to the principal and interest due on the Debentures or the 
Redemption Price of and Prioritized Payments on Participating Securities 
in any Trust or Pool backing such TC. The full faith and credit of the 
United States is pledged to the payment of all amounts due under the 
guarantee of any TC.
    (b) Periodic exercise of authority. SBA will issue guarantees of 
Debentures and Participating Securities under section 303 and of TCs 
under section 321 of the Act at three month intervals, or at shorter 
intervals, taking into account the amount and number of such guarantees 
or TCs.
    (c) SBA authority to arrange public or private fundings of Leverage. 
SBA in its discretion may arrange for public or private financing under 
its guarantee authority. Such financing arranged by SBA may be 
accomplished by the sale of individual Debentures or Participating 
Securities, aggregations of Debentures or Participating Securities, or 
Pools or Trusts of Debentures or Participating Securities.
    (d) Pass-through provisions. TCs shall provide for a pass-through to 
their holders of all amounts of principal and interest paid on the 
Debentures, or the Redemption Price of and Prioritized Payments on the 
Participating Securities, in the Pool or Trust against which they are 
issued.
    (e) Formation of a Pool or Trust holding Leverage Securities. SBA 
shall approve the formation of each Pool or Trust. SBA may, in its 
discretion, establish the size of the Pools and their composition, the 
interest rate on the TCs issued against Trusts or Pools, fees, 
discounts, premiums and other charges made in connection with the Pools, 
Trusts, and TCs, and any other characteristics of a Pool or Trust it 
deems appropriate.



Sec. 107.1610  Effect of prepayment or early redemption of Leverage on a Trust Certificate.

    (a) The rights, if any, of a Licensee to prepay any Debenture or 
make early redemption of any Participating Security are established by 
the terms of such securities, and no such right is created or denied by 
the regulations in this part.
    (b) SBA's rights to purchase or prepay any Debenture without premium 
are established by the terms of the Guaranty Agreement relating to the 
Debenture. SBA's rights to redeem, at any time, any Participating 
Security without premium are established by the terms of the Guaranty 
Agreement relating to the Participating Security.
    (c) Any prepayment of a Debenture or early redemption of a 
Participating Security pursuant to the terms of the Guaranty Agreement 
relating to such securities, shall reduce the SBA guarantee of timely 
payment of principal and interest on a TC in proportion to the amount of 
principal or Redemption Price that such prepaid Debenture or redeemed 
Participating Security represents in the Trust or Pool backing such TC.
    (d) SBA shall be discharged from its guarantee obligation to the 
holder or holders of any TC, or any successor or transferee of such 
holder, to the extent of any such prepayment, whether or not such 
successor or transferee shall have notice of any such prepayment.
    (e) Interest on prepaid Debentures and Prioritized Payments on 
Participating Securities shall accrue only through the date of such 
voluntary prepayment or SBA payment, as the case may be.
    (f) In the event that all Debentures or Participating Securities 
constituting a Trust or Pool are prepaid, the TCs backed by such Trust 
or Pool shall be redeemed by payment of the unpaid principal and 
interest on the TCs; Provided, however, that in the case of the 
prepayment of a Debenture pursuant to the provisions of the Guaranty 
Agreement relating to the Debenture, the CRA shall pass through pro rata 
to the

[[Page 82]]

holders of the TCs any such prepayments including any prepayment penalty 
paid by the obligor Licensee pursuant to the terms of the Debenture.



Sec. 107.1620  Functions of agents, including Central Registration Agent, Selling Agent and Fiscal Agent.

    (a) Agents. SBA will appoint or cause to be appointed agent(s) to 
perform functions necessary to market and service Debentures, 
Participating Securities, or TCs pursuant to this part.
    (1) Selling Agent. As a condition of guaranteeing a Debenture or 
Participating Security, SBA shall cause each Licensee to appoint a 
Selling Agent to perform functions which include, but are not limited 
to:
    (i) Selecting qualified entities to become pool or Trust assemblers 
(``Poolers'').
    (ii) Receiving guaranteed Debentures and Participating Securities as 
well as negotiating the terms and conditions of periodic offerings of 
Debentures and/or TCs with Poolers on behalf of Licensees.
    (iii) Directing and coordinating periodic sales of Debentures and 
Participating Securities and/or TCs.
    (iv) Arranging for the production of the Offering Circular, 
certificates, and such other documents as may be required from time to 
time.
    (2) Fiscal Agent. SBA shall appoint a Fiscal Agent to:
    (i) Establish performance criteria for Poolers.
    (ii) Monitor and evaluate the financial markets to determine those 
factors that will minimize or reduce the cost of funding Debentures or 
Participating Securities.
    (iii) Monitor the performance of the Selling Agent, Poolers, CRA, 
and the Trustee.
    (iv) Perform such other functions as SBA, from time to time, may 
prescribe.
    (3) Central Registration Agent. Pursuant to a contract entered into 
with SBA, the CRA, as SBA's agent, will do the following with respect to 
the Pools or Trust Certificates for the Debentures or Participating 
Securities:
    (i) Form an SBA-approved Pool or Trust;
    (ii) Issue the TCs in the form prescribed by SBA;
    (iii) Transfer the TCs upon the sale of original issue TCs in any 
secondary market transaction;
    (iv) Receive payments from Licensees;
    (v) Make periodic payments as scheduled or required by the terms of 
the TCs, and pay all amounts required to be paid upon prepayment of 
Debentures or redemption of Participating Securities;
    (vi) Hold, safeguard, and release all Debentures and Participating 
Securities constituting Trusts or Pools upon instructions from SBA;
    (vii) Remain custodian of such other documentation as SBA shall 
direct by written instructions;
    (viii) Provide for the registration of all pooled Debentures and 
Participating Securities, all Pools and Trusts, and all TCs;
    (ix) Perform such other functions as SBA may deem necessary to 
implement the provisions of this section.
    (b) Functions. The function of locating purchasers, and negotiating 
and closing the sale of Debentures, Participating Securities and TCs, 
may be performed either by SBA or an agent appointed by SBA. Nothing in 
the regulations in this part shall be interpreted to prevent the CRA 
from acting as SBA's agent for this purpose.



Sec. 107.1630  SBA regulation of Brokers and Dealers and disclosure to purchasers of Leverage or Trust Certificates.

    (a) Disclosure to purchasers. Prior to any sale of a Debenture, 
Participating Security, or TC, SBA shall require the seller, or the 
broker or dealer as agent for the seller, to disclose to the purchaser, 
in a form prescribed or approved by SBA, specified information on the 
terms, conditions, and yield of such instrument.
    (b) Brokers and Dealers. Each broker, dealer, and Pool or Trust 
assembler approved by SBA pursuant to these regulations shall either be 
regulated by a Federal financial regulatory agency, or be a member of 
the National Association of Securities Dealers (NASD), and shall be in 
good standing in respect to compliance with the financial, ethical, and 
reporting requirements of such

[[Page 83]]

body. They also shall be in good standing with SBA as determined by the 
SBA Associate Administrator for Investment (see paragraph (d) of this 
section) and shall provide a fidelity bond or insurance in such amount 
as SBA may require.
    (c) Suspension and/or termination of Broker or Dealer. SBA shall 
exclude from the sale and all other dealings in Debentures, 
Participating Securities or TCs any broker or dealer:
    (1) If such broker's or dealer's authority to engage in the 
securities business has been revoked or suspended by a supervisory 
agency. When such authority has been suspended, such broker or dealer 
will be suspended by SBA for the duration of such suspension by the 
supervisory agency.
    (2) If such broker or dealer has been indicted or otherwise formally 
charged with a misdemeanor or felony bearing on its fitness, such broker 
or dealer may be suspended while the charge is pending. Upon conviction, 
participation may be terminated.
    (3) If such broker or dealer has suffered an adverse final civil 
judgment, holding that such broker or dealer has committed a breach of 
trust or violation of law or regulation protecting the integrity of 
business transactions or relationships, participation in the market for 
Debentures, Participating Securities or TCs may be terminated.
    (4) If such broker or dealer has failed to make full disclosure of 
the information required by SBA in paragraph (a) of this section, such 
broker's or dealer's participation in the market for Debentures, 
Participating Securities or TCs may be terminated.
    (d) Termination/suspension proceedings. A broker's or dealer's 
participation in the market for Debentures, Participating Securities or 
TCs will be conducted in accordance with Part 134 of this chapter. SBA 
may, for any of the reasons stated in paragraphs (b)(1) through (b)(4) 
of this section, suspend the privilege of any broker or dealer to 
participate in this market. SBA shall give written notice at least ten 
(10) business days prior to the effective date of such suspension. Such 
notice shall inform the broker or dealer of the opportunity for a 
hearing pursuant to part 134 of this chapter.



Sec. 107.1640  SBA access to records of the CRA, Brokers, Dealers and Pool or Trust assemblers.

    The CRA and any broker, dealer and Pool or Trust assembler operating 
under the regulations in this part shall make all books, records and 
related materials associated with Debentures, Participating Securities 
and TCs available to SBA for review and copying purposes. Such access 
shall be at such party's primary place of business during normal 
business hours.

                              Miscellaneous



Sec. 107.1700  Transfer by SBA of its interest in Licensee's Leverage security.

    Upon such conditions and for such consideration as it deems 
reasonable, SBA may sell, assign, transfer, or otherwise dispose of any 
Preferred Security, Debenture, Participating Security, or other security 
held by or on behalf of SBA in connection with Leverage. Upon notice by 
SBA, Licensee will make all payments of principal, dividends, interest, 
Prioritized Payments, and redemptions as shall be directed by SBA. 
Licensee will be liable for all damage or loss which SBA may sustain by 
reason of such disposal, up to the amount of Licensee's liability under 
such security, plus court costs and reasonable attorney's fees incurred 
by SBA.



Sec. 107.1710  SBA authority to collect or compromise its claims.

    SBA may, upon such conditions and for such consideration as it deems 
reasonable, collect or compromise all claims relating to Preferred or 
Participating Securities or obligations held or guaranteed by SBA, and 
all legal or equitable rights accruing to SBA.



       Subpart J--Licensee's Noncompliance With Terms of Leverage



Sec. 107.1800  Licensee's agreement to terms and conditions in Secs. 107.1810 and 107.1820.

    Any Licensee that violates the terms and conditions of its Leverage 
is subject to SBA remedies. The terms, conditions and remedies in 
Sec. 107.1810 apply to outstanding Debentures issued after April 25, 
1994. The terms, conditions

[[Page 84]]

and remedies in Sec. 107.1820 apply to outstanding Preferred Securities 
and Participating Securities issued after April 25, 1994, or if you have 
Earmarked Assets in your portfolio.



Sec. 107.1810  Events of default and SBA's remedies for Licensee's noncompliance with terms of Debentures.

    (a) Applicability of this section. This Sec. 107.1810 applies to 
Debentures issued after April 25, 1994. By issuing such Debentures, you 
automatically agree to the terms, conditions and remedies in this 
section, as in effect at the time of issuance and as if fully set forth 
in the Debentures. Debentures issued before April 25, 1994 continue to 
be governed by the remedies in effect at the time of their issuance.
    (b) Automatic events of default. The occurrence of one or more of 
the events in this paragraph (b) causes the remedies in paragraph (c) of 
this section to take effect immediately.
    (1) Insolvency. You become equitably or legally insolvent.
    (2) Voluntary assignment. You make a voluntary assignment for the 
benefit of creditors without SBA's prior written approval.
    (3) Bankruptcy. You file a petition to begin any bankruptcy or 
reorganization proceeding, receivership, dissolution or other similar 
creditors' rights proceeding, or such action is initiated against you 
and is not dismissed within 60 days.
    (c) SBA remedies for automatic events of default. Upon the 
occurrence of one or more of the events in paragraph (b) of this 
section:
    (1) Without notice, presentation or demand, the entire indebtedness 
evidenced by your Debentures, including accrued interest, and any other 
amounts owed SBA with respect to your Debentures, is immediately due and 
payable; and
    (2) You automatically consent to the appointment of SBA or its 
designee as your receiver under section 311(c) of the Act.
    (d) Events of default with notice. For any occurrence (as determined 
by SBA) of one or more of the events in this paragraph (d), SBA may 
avail itself of one or more of the remedies in paragraph (e) of this 
section.
    (1) Fraud. You commit a fraudulent act which causes detriment to 
SBA's position as a creditor or guarantor.
    (2) Fraudulent transfers. You make any transfer or incur any 
obligation that is fraudulent under the terms of 11 U.S.C. 548.
    (3) Willful conflicts of interest. You willfully violate 
Sec. 107.730.
    (4) Willful non-compliance. You willfully violate one or more of the 
substantive provisions of the Act, specifically including but not 
limited to the provisions summarized in section 310(c) of the Act, or 
any substantive regulation promulgated under the Act.
    (5) Repeated Events of Default. At any time after being notified by 
SBA of the occurrence of an event of default under paragraph (f) of this 
section, you engage in similar behavior which results in another 
occurrence of the same event of default.
    (6) Transfer of Control. You violate Sec. 107.475 and/or willfully 
violate Sec. 107.410, and as a result of such violation you undergo a 
transfer of Control.
    (7) Non-cooperation under Sec. 107.1810(h). You fail to take 
appropriate steps, satisfactory to SBA, to accomplish any action SBA may 
have required under paragraph (h) of this section.
    (8) Non-notification of Events of Default. You fail to notify SBA as 
soon as you know or reasonably should have known that any event of 
default exists under this section.
    (9) Non-notification of defaults to others. You fail to notify SBA 
in writing within ten days from the date of a declaration of an event of 
default or nonperformance under any note, debenture or indebtedness of 
yours, issued to or held by anyone other than SBA.
    (e) SBA remedies for events of default with notice. Upon written 
notice to you of the occurrence (as determined by SBA) of one or more of 
the events in paragraph (d) of this section:
    (1) SBA may declare the entire indebtedness evidenced by your 
Debentures, including accrued interest, and/or any other amounts owed 
SBA with respect to your Debentures, immediately due and payable; and
    (2) SBA may avail itself of any remedy available under the Act, 
specifically including institution of proceedings for the appointment of 
SBA or its

[[Page 85]]

designee as your receiver under section 311(c) of the Act.
    (f) Events of default with opportunity to cure. For any occurrence 
(as determined by SBA) of one or more of the events in this paragraph 
(f), SBA may avail itself of one or more of the remedies in paragraph 
(g) of this section.
    (1) Excessive Management Expenses. Without the prior written consent 
of SBA, you incur Management Expenses in excess of those permitted under 
Sec. 107.520.
    (2) Improper Distributions. You make any Distribution to your 
shareholders or partners, except with the prior written consent of SBA, 
other than:
    (i) Distributions permitted under Sec. 107.585;
    (ii) Payments from Retained Earnings Available for Distribution 
based on either the shareholders' pro-rata interests or the provisions 
for profit distributions in your partnership agreement, as appropriate; 
and
    (iii) Distributions by Participating Securities issuers as permitted 
under Secs. 107.1540 through 107.1580.
    (3) Failure to make payment. Unless otherwise approved by SBA, you 
fail to make timely payment of any amount due under any security or 
obligation of yours that is issued to, held or guaranteed by SBA.
    (4) Failure to maintain Regulatory Capital. You fail to maintain the 
minimum Regulatory Capital required under these regulations or, without 
the prior written consent of SBA, you reduce your Regulatory Capital, 
except as permitted by Secs. 107.585 and 107.1560 through 107.1580.
    (5) Capital Impairment. You have a condition of Capital Impairment 
as determined under Sec. 107.1830.
    (6) Cross-default. An obligation of yours that is greater than 
$100,000 becomes due or payable (with or without notice) before its 
stated maturity date, for any reason including your failure to pay any 
amount when due. This provision does not apply if you pay the amount due 
within any applicable grace period or contest the payment of the 
obligation in good faith by appropriate proceedings.
    (7) Nonperformance. You violate or fail to perform one or more of 
the terms and conditions of any security or obligation of yours that is 
issued to, held or guaranteed by SBA, or of any agreement with or 
conditions imposed by SBA in its administration of the Act and the 
regulations promulgated under the Act.
    (8) Noncompliance. Except as otherwise provided in paragraph (d)(5) 
of this section, SBA determines that you have violated one or more of 
the substantive provisions of the Act, specifically including but not 
limited to the provisions summarized in section 310(c) of the Act, or 
any substantive regulation promulgated under the Act.
    (9) Failure to maintain investment ratio. You fail to maintain the 
investment ratio for Leverage in excess of 300 percent of Leverageable 
Capital (see Secs. 107.1150(b)(2) and 107.1160(c)), if applicable to 
you, as of the end of each fiscal year. In determining whether you have 
maintained the ratio, SBA will disregard any prepayment, sale, or 
disposition of Venture Capital Financing, any increase in Leverageable 
Capital, and any receipt of additional Leverage, within 120 days prior 
to the end of your fiscal year.
    (10) Failure to maintain diversity. You fail to maintain diversity 
between management and ownership as required by Sec. 107.150, if 
applicable to you.
    (g) SBA remedies for events of default with opportunity to cure. (1) 
Upon written notice to you of the occurrence (as determined by SBA) of 
one or more of the events of default in paragraph (f) of this section, 
and subject to the conditions in paragraph (g)(2) of this section:
    (i) SBA may declare the entire indebtedness evidenced by your 
Debentures, including accrued interest, and/or any other amounts owed 
SBA with respect to your Debentures, immediately due and payable; and
    (ii) SBA may avail itself of any remedy available under the Act, 
specifically including institution of proceedings for the appointment of 
SBA or its designee as your receiver under section 311(c) of the Act.
    (2) SBA may invoke the remedies in paragraph (g)(1) of this section 
only if:
    (i) It has given you at least 15 days to cure the default(s); and
    (ii) You fail to cure the default(s) to SBA's satisfaction within 
the allotted time.

[[Page 86]]

    (h) Repeated non-substantive violations. If you repeatedly fail to 
comply with one or more of the non-substantive provisions of the Act or 
any non-substantive regulation promulgated under the Act, SBA, after 
written notification to you and until you cure such condition to SBA's 
satisfaction, may deny you additional Leverage and/or require you to 
take such actions as SBA may determine to be appropriate under the 
circumstances.
    (i) Consent to removal of officers, directors, or general partners 
and/or appointment of receiver. The Articles of any Licensee issuing 
Debentures after April 25, 1994 must include the following provisions as 
a condition to the purchase or guarantee by SBA of such Leverage. Upon 
the occurrence of any of the events specified in paragraphs (d)(1) 
through (d)(6) or (f)(1) through (f)(3) of this section as determined by 
SBA, SBA shall have the right, and your consent to SBA's exercise of 
such right:
    (1) With respect to a Corporate Licensee, upon written notice, to 
require you to replace, with individuals approved by SBA, one or more of 
your officers and/or such number of directors of your board of directors 
as is sufficient to constitute a majority of such board; or
    (2) With respect to a Partnership Licensee, upon written notice, to 
require you to remove the person(s) responsible for such occurrence and/
or to remove the general partner of Licensee, which general partner 
shall then be replaced in accordance with Licensee's Articles by a new 
general partner approved by SBA; and/or
    (3) With respect to either a Corporate or Partnership Licensee, to 
obtain the appointment of SBA or its designee as your receiver under 
section 311(c) of the Act for the purpose of continuing your operations. 
The appointment of a receiver to liquidate a Licensee is not within such 
consent, but is governed instead by the relevant provisions of the Act.



Sec. 107.1820  Conditions affecting issuers of Preferred Securities and/or Participating Securities.

    (a) Applicability of this section. This section applies if you have 
Preferred Securities issued after April 25, 1994, or if you issue 
Participating Securities or have Earmarked Assets in your portfolio. 
Your Articles must include the provisions of this Sec. 107.1820 as a 
condition to SBA's purchase of Preferred Securities or guarantee of 
Participating Securities and for as long as you own Earmarked Assets. 
Preferred Securities issued before April 25, 1994 continue to be 
governed by the remedies in effect at the time of their issuance.
    (b) Removal Conditions. Upon the occurrence (as determined by SBA) 
of any of the following conditions (``Removal Conditions''), SBA may 
avail itself of one or more of the remedies in paragraph (d) of this 
section:
    (1) Insolvency or extreme Capital Impairment. You become equitably 
or legally insolvent, or have a Capital Impairment Percentage of 100 
percent or more (``extreme Capital Impairment'') and have not cured such 
Capital Impairment within the time limits set by SBA in writing. In this 
regard:
    (i) You are not considered to have a condition of extreme Capital 
Impairment during the first eight years following your first issuance of 
Participating Securities.
    (ii) This paragraph (b)(1) does not give you an additional 
opportunity to cure if you have already had an opportunity to cure your 
Capital Impairment under paragraph (e)(3) of this section.
    (2) Voluntary assignment. You make a voluntary assignment for the 
benefit of creditors.
    (3) Bankruptcy. You begin any bankruptcy or reorganization 
proceeding, receivership, dissolution or other similar creditors' rights 
proceeding, or such action is initiated against you and is not dismissed 
within 60 days.
    (4) Transfer of Control. You violate Sec. 107.475 and/or willfully 
violate Sec. 107.410, and such violation results in a transfer of 
Control.
    (5) Fraud. You commit a fraudulent act which causes serious 
detriment to SBA's position as a guarantor or investor.
    (6) Fraudulent transfers. You make any transfer or incur any 
obligation that is fraudulent under the terms of 11 USC 548.

[[Page 87]]

    (c) Contingent Removal Conditions. Upon the occurrence (as 
determined by SBA) of any of the following conditions (``Contingent 
Removal Conditions''), SBA may avail itself of one or more of the 
remedies in paragraph (d) of this section, but only if you fail to 
remove the person(s) SBA identifies as responsible for such occurrence 
and/or cure such occurrence to SBA's satisfaction within a time period 
determined by SBA (but not less than 15 days):
    (1) Willful conflicts of interest. You willfully violate 
Sec. 107.730.
    (2) Willful or repeated noncompliance. You willfully or repeatedly 
violate one or more of the substantive provisions of the Act, 
specifically including but not limited to the provisions summarized in 
section 310(c) of the Act, or any substantive regulation promulgated 
under the Act.
    (3) Failure to comply with restrictions under paragraph (f) of this 
section. You fail to comply with the restrictions imposed by SBA under 
paragraph (f) of this section.
    (d) SBA remedies for Removal Conditions and Contingent Removal 
Conditions. Upon the occurrence (as determined by SBA) of any Removal 
Condition, or any Contingent Removal Condition accompanied by your 
failure to act as set forth in paragraph (c) of this section, SBA has 
the following rights, and you consent to SBA's exercise of any or all of 
such rights:
    (1) With respect to a Corporate Licensee, upon written notice, to 
require you to replace, with individuals approved by SBA, one or more of 
your officers and/or such number of directors as is sufficient to 
constitute a majority of your board of directors; or
    (2) With respect to a Partnership Licensee, upon written notice, to 
require you to remove the person(s) responsible for such occurrence and/
or to remove your general partner, who shall then be replaced in 
accordance with your Articles by a new general partner approved by SBA; 
and/or
    (3) With respect to either a Corporate or Partnership Licensee, to 
the appointment of SBA or its designee as your receiver under section 
311(c) of the Act for the purpose of continuing your operations. The 
appointment of a receiver to liquidate a Licensee is not within such 
consent, but is governed instead by the relevant provisions of the Act.
    (e) Restricted Operations Conditions. Upon the occurrence (as 
determined by SBA) of any of the following conditions (``Restricted 
Operations Conditions''), SBA may avail itself of any of the remedies in 
paragraph (f) of this section.
    (1) Removal Conditions or Contingent Removal Conditions. Any 
condition occurs which is listed in paragraphs (b) or (c) of this 
section.
    (2) Failure to maintain Regulatory Capital. You fail to maintain the 
minimum Regulatory Capital required by this part.
    (3) Capital or Liquidity Impairment. You have a condition of Capital 
Impairment as determined under Sec. 107.1830 or, if applicable, a 
condition of Liquidity Impairment as determined under Sec. 107.1505, and 
you fail to cure the impairment within time limits set by SBA in 
writing.
    (4) Improper Distributions. You make any Distribution to your 
shareholders or partners other than those permitted by Secs. 107.585 and 
107.1560 through 107.1580.
    (5) Excessive Management Expenses. Without the prior written consent 
of SBA, you incur Management Expenses in excess of those permitted under 
Sec. 107.520.
    (6) Failure to make payment. You fail to pay any amounts due under 
Preferred Securities or required by Secs. 107.1500 through 107.1590, 
unless otherwise permitted by SBA.
    (7) Noncompliance. Except as otherwise provided for in paragraphs 
(c)(1) and (c)(2) of this section, SBA determines that you have failed 
to comply with one or more of the substantive provisions of the Act, 
specifically including but not limited to the provisions summarized in 
section 310(c) of the Act, or any substantive regulation promulgated 
under the Act.
    (8) Failure to maintain diversity. You fail to maintain diversity 
between management and ownership as required by Sec. 107.150, if 
applicable to you.
    (9) Failure to maintain investment ratios. You fail to maintain the 
investment ratios or amounts required for Participating Securities 
(Sec. 107.1500(b)(4)) or Leverage in excess of

[[Page 88]]

300 percent of Leverageable Capital (Sec. 107.1160(c)) or Preferred 
Securities in excess of 100 percent of Leverageable Capital 
(Sec. 107.1160(d)), if applicable to you, as of the end of each fiscal 
year. In determining whether you have maintained the ratios or amounts, 
SBA will disregard any prepayment, sale, or disposition of Equity 
Capital Investments or Venture Capital Financings, as appropriate, any 
increase in Leverageable Capital, and any receipt of additional 
Leverage, within 120 days prior to the end of your fiscal year.
    (10) Nonperformance. You violate or fail to perform one or more of 
the terms and conditions of any Participating Security or Preferred 
Security or of any agreement with or condition imposed by SBA in its 
administration of the Act and the regulations promulgated thereunder.
    (11) Noncooperation under paragraph (g) of this section. You fail to 
take appropriate steps, satisfactory to SBA, to accomplish such action 
as SBA may have required under paragraph (g) of this section.
    (f) SBA remedies for Restricted Operations Conditions. Upon the 
occurrence of any Restricted Operations Condition, and until such 
condition(s) are cured to SBA's satisfaction within a time period 
determined by SBA (but not less than 15 days), upon written notice SBA 
shall have the following rights, and you consent to SBA's exercise of 
any or all of such rights:
    (1) To prohibit you from making any additional investments except 
for investments under legally binding commitments you entered into 
before such notice and, subject to SBA's prior written approval, 
investments that are necessary to protect your investments;
    (2) Until all Leverage is redeemed and amounts due are paid, to 
prohibit Distributions by you to any party other than SBA, its agent or 
Trustee;
    (3) To require all your commitments from investors to be funded at 
the earliest time(s) permitted in accordance with your Articles; and
    (4) To review and re-determine your approved Management Expenses.
    (g) Repeated non-substantive violations. If you repeatedly fail to 
comply with one or more of the non-substantive provisions of the Act or 
any non-substantive regulation promulgated thereunder, SBA, after 
written notification to you and until such condition is cured to SBA's 
satisfaction, will deny you additional Leverage and/or require you to 
take such actions as SBA may determine to be appropriate under the 
circumstances.

              Computation of Licensee's Capital Impairment



Sec. 107.1830  Licensee's Capital Impairment--definition and general requirements.

    (a) Applicability of this section. This Sec. 107.1830 applies to you 
if you have any outstanding Leverage issued on or after April 25, 1994. 
If you only have outstanding Leverage issued before April 25, 1994, you 
must comply with paragraphs (e) and (f) of this section and the Capital 
Impairment regulations in this part in effect when you issued your 
Leverage.
    (b) Significance of Capital Impairment condition. If you have a 
condition of Capital Impairment, you are not in compliance with the 
terms of your Leverage. As a result, SBA has the right to impose the 
applicable remedies for noncompliance in Secs. 107.1810(g) and 
107.1820(f).
    (c) Definition of Capital Impairment condition. You have a condition 
of Capital Impairment if your Capital Impairment Percentage, as computed 
in Sec. 107.1840, exceeds:
    (1) For Section 301(d) Licensees, 75 percent.
    (2) For Section 301(c) Licensees, the appropriate percentage from 
the following table:

[[Page 89]]



                  Maximum Permitted Capital Impairment Percentages for Section 301(c) Licensees                 
----------------------------------------------------------------------------------------------------------------
                                                                                                      Then your 
                                                                                                       maximum  
                                                                                                      permitted 
 If the percentage of equity capital investments      And your ratio of outstanding leverage to        capital  
         (at cost) in your portfolio is:                       leverageable capital is:               impairment
                                                                                                      percentage
                                                                                                         is:    
----------------------------------------------------------------------------------------------------------------
67%.............................................  100% or less.....................................           70
                                                  Over 100% but not over 200%......................           60
                                                  Over 200%........................................           50
At least 40% but under 67%......................  100% or less.....................................           55
                                                  Over 100% but not over 200%......................           50
                                                  Over 200%........................................           40
Under 40%.......................................  100% or less.....................................           45
                                                  Over 100% but not over 200%......................           40
                                                  Over 200%........................................           35
----------------------------------------------------------------------------------------------------------------

    (d) Phase-in of maximum permitted Capital Impairment Percentages for 
Section 301(c) Licensees. If you are a Section 301(c) Licensee, 
regardless of your maximum permitted Capital Impairment Percentage under 
paragraph (c) of this section, you will not have a condition of Capital 
Impairment if:
    (1) Your Capital Impairment Percentage does not exceed 50 percent; 
and
    (2) You have not reached your first fiscal year end occurring after 
April 25, 1995.
    (e) Quarterly computation requirement and procedure. You must 
determine whether you have a condition of Capital Impairment as of the 
end of each fiscal quarter. You must notify SBA promptly if you are 
capitally impaired.
    (f) SBA's right to determine Licensee's Capital Impairment 
condition. SBA may make its own determination of your Capital Impairment 
condition at any time.



Sec. 107.1840  Computation of Licensee's Capital Impairment Percentage.

    (a) General. This section contains the procedures you must use to 
determine your Capital Impairment Percentage if you have outstanding 
Leverage issued after April 25, 1994. You must compare your Capital 
Impairment Percentage to the maximum permitted under Sec. 107.1830(c) to 
determine whether you have a condition of Capital Impairment.
    (b) Preliminary impairment test. If you satisfy the preliminary 
impairment test, your Capital Impairment Percentage is zero and you do 
not have to perform any more procedures in this Sec. 107.1840. 
Otherwise, you must continue with paragraph (c) of this section. You 
satisfy the test if the following amounts are both zero or greater:
    (1) The sum of Undistributed Net Realized Earnings, as reported on 
SBA Form 468, and Includible Non-Cash Gains.
    (2) Unrealized Gain (Loss) on Securities Held.
    (c) How to compute your Capital Impairment Percentage. (1) If you 
have an Unrealized Gain on Securities Held, compute your Adjusted 
Unrealized Gain using paragraph (d) of this section. If you have an 
Unrealized Loss on Securities Held, continue with paragraph (c)(2)of 
this Section.
    (2) Add together your Undistributed Net Realized Earnings, your 
Includible Non-cash Gains, and either your Unrealized Loss on Securities 
Held or your Adjusted Unrealized Gain.
    (3) If the sum in paragraph (c)(2) of this section is zero or 
greater, your Capital Impairment Percentage is zero.
    (4) If the sum in paragraph (c)(2) of this section is less than 
zero, drop the negative sign, divide by your Regulatory Capital 
(excluding Treasury Stock), and multiply by 100. The result is your 
Capital Impairment Percentage.
    (d) How to compute your Adjusted Unrealized Gain. (1) Subtract 
Unrealized Depreciation from Unrealized Appreciation. This is your ``Net 
Appreciation''.
    (2) Determine your Unrealized Appreciation on Publicly Traded and 
Marketable securities. This is your ``Class 1 Appreciation''.

[[Page 90]]

    (3) Determine your Unrealized Appreciation on securities that are 
not Publicly Traded and Marketable and meet the following criteria, 
which must be substantiated to the satisfaction of SBA (this is your 
``Class 2 Appreciation''):
    (i) The Small Business that issued the security received a 
significant subsequent equity financing by an investor whose objectives 
were not primarily strategic and at a price that conclusively supports 
the Unrealized Appreciation;
    (ii) Such financing represents a substantial investment in the form 
of an arm's length transaction by a sophisticated new investor in the 
issuer's securities; and
    (iii) Such financing occurred within 24 months of the date of the 
Capital Impairment computation, or the Small Business' pre-tax cash flow 
from operations for its most recent fiscal year was at least 10 percent 
of the Small Business' average contributed capital for such fiscal year.
    (4) Perform the appropriate computation from the following table:

          Adjusted Unrealized Gain Before Estimated Tax Effects         
------------------------------------------------------------------------
                                                       Then adjusted    
              If:                      And:           unrealized gain   
                                                      before taxes is:  
------------------------------------------------------------------------
Class 1 Appreciation  Net Appreciation.           Appreciation +     Appreciation) + (50%
                                 Class 2             x  Class 2         
                                 Appreciation  Net                            
                                 Appreciation.                          
Class 1 Appreciation  Net Appreciation.           Appreciation +     Appreciation) +     
                                 Class 2            [(50%  x  (Net      
                                 Appreciation >     Appreciation - Class
                                 Net Appreciation.  1 Appreciation)].   
Class 1 Appreciation > Net      .................  80%  x  Net          
 Appreciation.                                      Appreciation.       
------------------------------------------------------------------------

    (5) Reduce the gain computed in paragraph (d)(4) of this section by 
your estimate of related future income tax expense. Subject to any 
adjustment required by paragraph (d)(6)of this section, the result is 
your Adjusted Unrealized Gain for use in paragraph (c)(2) of this 
section.
    (6) If any securities that are the source of either Class 1 or Class 
2 Appreciation are pledged or encumbered in any way, you must reduce the 
Adjusted Unrealized Gain computed in paragraph (d)(5) of this section by 
the amount of the related borrowing or other obligation, up to the 
amount of the Unrealized Appreciation on the securities.



Sec. 107.1850  Exceptions to Capital Impairment provisions for Licensees with outstanding Participating Securities.

    The provisions in this Sec. 107.1850 apply only if at least two-
thirds of your outstanding Leverage consists of Participating 
Securities, and at least two-thirds of your Loans and Investments (at 
cost) consist of Equity Capital Investments.
    (a) Forbearance period for Participating Securities issuers. During 
the first forty-eight (48) months following your first issuance of 
Participating Securities, you will not have a condition of Capital 
Impairment if your Capital Impairment Percentage is below 85 percent.
    (b) Extended forbearance period for early stage investors. If at 
least two-thirds of your Loans and Investments (at cost) are in Start-Up 
Financings, the forbearance period in paragraph (a) of this section is 
extended to 60 months.
    (c) Forbearance based on actions by Licensee. The provisions of this 
paragraph (c) apply only during the fifth and sixth years following your 
first issuance of Participating Securities. If your Capital Impairment 
Percentage, as determined either by you or by SBA, exceeds the maximum 
permitted under Sec. 107.1830(c) but is below 85 percent, you will not 
have a condition of Capital Impairment if you do either of the following 
within thirty (30) days of such determination:
    (1) Increase your Regulatory Capital by a cash contribution placed 
in an escrow account or other account satisfactory to SBA, for its 
benefit. The contribution must equal, during the fifth year, 15 percent 
of your outstanding Leverage or, during the sixth year, 30 percent.

[[Page 91]]

    (2) Provide a guarantee, satisfactory to SBA and for its benefit, 
for the amount of the cash contribution required in paragraph (c)(1) of 
this section. SBA will credit any escrowed funds or guarantee received 
in the fifth year toward the requirements for the sixth year.
    (d) Conditions for forbearance under paragraph (c) of this section. 
(1) You cannot count any funds placed in an escrow or other account 
under paragraph (c) of this section as Leverageable Capital.
    (2) Any fee and/or any claim to repayment by the party making the 
capital contribution or by the guarantor must be deferred and 
subordinate to all outstanding Leverage plus any unpaid Earned 
Prioritized Payments and earned Adjustments.
    (3) If there is an acceleration or mandatory redemption under 
Sec. 107.1810 or Sec. 107.1820, any funds in the escrow account and/or 
any guarantee received under paragraph (c) of this section will be 
applied toward repaying any amounts due SBA.
    (4) If you reduce your Capital Impairment Percentage to zero, SBA 
will release and return any escrowed funds and/or any guarantee received 
under paragraph (c) of this section.



               Subpart K--Ending Operations as a Licensee



Sec. 107.1900  Surrender of license.

    You may not surrender your license without SBA's prior written 
approval. Your request for approval must be accompanied by an offer of 
immediate repayment of all of your outstanding Leverage (including any 
prepayment penalties thereon), or by a plan satisfactory to SBA for the 
orderly liquidation of the Licensee.



                        Subpart L--Miscellaneous



Sec. 107.1910  Non-waiver of SBA's rights or terms of Leverage security.

    SBA's failure to exercise or delay in exercising any right or remedy 
under the Act or the regulations in this part does not constitute a 
waiver of such right or remedy. SBA's failure to require you to perform 
any term or provision of your Leverage does not affect SBA's right to 
enforce such term or provision. Similarly, SBA's waiver of, or failure 
to enforce, any term or provision of your Leverage or of any event or 
condition set forth in Sec. 107.1810 or Sec. 107.1820 does not 
constitute a waiver of any succeeding breach of such term or provision 
or condition.



Sec. 107.1920  Licensee's application for exemption from a regulation in this part 107.

    You may file an application in writing with SBA to have a proposed 
action exempted from any procedural or substantive requirement, 
restriction, or prohibition to which it is subject under this part, 
unless the provision is mandated by the Act. SBA may grant an exemption 
for such applicant, conditionally or unconditionally, provided the 
exemption would not be contrary to the purposes of the Act. Your 
application must be accompanied by supporting evidence which 
demonstrates to SBA's satisfaction that:
    (a) The proposed action is fair and equitable; and
    (b) The exemption requested is reasonably calculated to advance the 
best interests of the SBIC program in a manner consonant with the policy 
objectives of the Act and the regulations in this part.



Sec. 107.1930  Effect of changes in this part 107 on transactions previously consummated.

    The legality of a transaction covered by the regulations in this 
part is governed by the regulations in this part in effect at the time 
the transaction was consummated, regardless of later changes. Nothing in 
this part bars SBA enforcement action with respect to any transaction 
consummated in violation of provisions applicable at the time, but no 
longer in effect.



PART 112--NONDISCRIMINATION IN FEDERALLY ASSISTED PROGRAMS OF SBA--EFFECTUATION OF TITLE VI OF THE CIVIL RIGHTS ACT OF 1964--Table of Contents




Sec.
112.1  Purpose.
112.2  Application of this part.
112.3  Discrimination prohibited.

[[Page 92]]

112.4  Discrimination in employment.
112.5  Discrimination in providing financial assistance.
112.6  Discrimination in accommodations or services.
112.7  Illustrative applications.
112.8  Assurances required.
112.9  Compliance information.
112.10  Conduct of investigations.
112.11  Procedure for effecting compliance.
112.12  Effect on other regulations; forms and instructions.

Appendix A to Part 112

    Authority: Sec. 602, 78 Stat. 252 (42 U.S.C. 2000d-1).

    Source: 30 FR 298, Jan. 9, 1965, unless otherwise noted.



Sec. 112.1   Purpose.

    The purpose of this part is to effectuate the provisions of Title VI 
of the Civil Rights Act of 1964 (hereinafter referred to as the Act) to 
the end that no person in the United States shall, on the ground of 
race, color, or national origin, be excluded from participation in, be 
denied the benefits of, or be otherwise subjected to discrimination 
under any financial assistance activities of the Small Business 
Administration to which the Act applies.



Sec. 112.2   Application of this part.

    (a) This part applies to all recipients of assistance under programs 
administered by the Small Business Administration. (See appendix A)
    (b) The term Federal financial assistance includes: (1) Grants and 
loans of Federal funds; (2) the grant or donation of Federal property 
and interests in property; (3) the detail of Federal personnel; (4) the 
sale and lease of, and the permission to use (on other than a casual or 
transient basis), Federal property or any interest in such property 
without consideration, or at a nominal consideration, or at a 
consideration which is reduced for the purpose of assisting the 
recipient, or in recognition of the public interest to be served by such 
sale or lease to the recipient; and (5) any Federal agreement, 
arrangement, or other contract which has as one of its purposes the 
provision of assistance.
    (c) This part does not apply to financial assistance extended by way 
of insurance or guarantee.
    (d) The terms applicant and recipient mean, respectively, one who 
applies for and one who receives any of the financial assistance under 
any of the statutes referred to in paragraph (a) of this section. The 
term recipient also shall be deemed to include subrecipients of SBA 
financial assistance, i.e., concerns which secondarily receive financial 
assistance from the primary recipients of such financial assistance.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973; 50 FR 
1441 Jan. 11, 1985]



Sec. 112.3   Discrimination prohibited.

    (a) General. To the extent that this part applies, no person in the 
United States shall, on the ground of race, color or national origin be 
excluded from participation in, be denied the benefits of, or be 
otherwise subjected to discrimination by any business or other activity.
    (b) Specific discriminatory actions prohibited. (1) To the extent 
that this part applies, a business or other activity may not, directly 
or through contractual or other arrangements, on ground of race, color 
or national origin:
    (i) Deny an individual any services, financial aid or other benefit 
provided by the business or other activity;
    (ii) Provide any service, financial aid or other benefit to an 
individual which is different or is provided in a different manner, from 
that provided to others by the business or other activity;
    (iii) Subject an individual to segregation or separate treatment in 
any manner related to his receipt of any service, financial aid or other 
benefit from the business or other activity;
    (iv) Restrict an individual in any way in the enjoyment of any 
advantage or privilege enjoyed by others receiving any service, 
financial aid or other benefit from the business or other activity;
    (v) Treat an individual differently from others in determining 
whether he satisfies any admission, enrollment, quota, eligibility, 
membership or other requirement or condition which individuals must meet 
in order to be provided any service, financial aid or other benefit 
provided by the business or other activity.
    (2) The enumeration of specific forms of prohibited discrimination 
in this

[[Page 93]]

paragraph does not limit the generality of the prohibition in paragraph 
(a) of this section.
    (3) This regulation does not prohibit the consideration of race, 
color, or national origin if the purpose and effect are to remove or 
overcome the consequences of practices or impediments which have 
restricted the availability of, or participation in, the program or 
activity receiving Federal financial assistance, on the grounds of race, 
color, or national origin. Where previous discriminatory practice or 
usage tends, on the grounds of race, color, or national origin, to 
exclude individuals from participation in, to deny them the benefits of, 
or to subject them to discrimination under any program or activity to 
which this regulation applies, the applicant or recipient has an 
obligation to take reasonable action to remove or overcome the 
consequences of the prior discriminatory practice or usage, and to 
accomplish the purposes of the Act.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973]



Sec. 112.4   Discrimination in employment.

    Small business concerns and development companies which apply for or 
receive any financial assistance of the kind described in 
Sec. 112.2(a)(1) and (2), including concerns which are identifiable 
beneficiaries of loans made under Sec. 112.2(a)(2), may not discriminate 
on the grounds of race, color, or national origin in their employment 
practices. Such assistance is deemed to have as a primary objective the 
providing of employment. Where a primary objective of the Federal 
financial assistance is not to provide employment, but discrimination on 
the grounds of race, color, or national origin in the employment 
practices of the recipient or other persons subject to the regulation 
tends, on the grounds of race, color, or national origin, to exclude 
individuals from participation in, to deny them the benefits of, or to 
subject them to discrimination under any program to which this 
regulation applies, the provisions of Sec. 112.7(a) shall apply to the 
employment practices of the recipient or other persons subject to the 
regulation, to the extent necessary to assure equality of opportunity 
and nondiscriminatory treatment.

[38 FR 17934, July 5, 1973]



Sec. 112.5   Discrimination in providing financial assistance.

    Development companies and small business investment companies which 
apply for or receive any of the financial assistance described in 
Sec. 112.2(a) may not discriminate, on the ground of race, color or 
national origin, in providing financial assistance to small business 
concerns.



Sec. 112.6   Discrimination in accommodations or services.

    Small business concerns which apply for or receive any financial 
assistance of the kind described in Sec. 112.2(a)(1), concerns which are 
identifiable beneficiaries of loans made under Sec. 112.2(a)(2), and 
physicians, hospitals, schools, libraries, and other individuals or 
organizations which apply for or receive financial assistance of the 
kind described in Sec. 112.2(a)(5), may not discriminate in the 
treatment accommodations or services they provide to their patients, 
students, visitors, guests, members, passengers, or patrons in the 
conduct of such businesses or other enterprises, whether or not operated 
for profit.

[31 FR 2374, Feb. 4, 1966]



Sec. 112.7   Illustrative applications.

    (a) Employment. The discrimination prohibited by Sec. 112.4 includes 
but is not limited to any action (taken directly or through contractual 
or other arrangements) which subjects an individual to discrimination on 
the ground of race, color or national origin in any employment practice, 
including recruitment or recruitment advertising, employment, layoff or 
termination, upgrading, demotion, or transfer, rates of pay or other 
forms of compensation, and use of facilities.
    (b) Financial assistance. The discrimination prohibited by 
Sec. 112.5 includes but is not limited to the failure or refusal, 
because of the race, color, or national origin of a person, to extend a 
loan or equity financing to him or to any business concern of which he 
is an owner or employee; or, in the case of financing

[[Page 94]]

which has actually been extended, the failure or refusal, because of the 
race, color, or national origin of the borrower or of an owner or 
employee of the borrower, to accord the borrower fair treatment and the 
customary courtesies regarding such matters as default, grace periods 
and the like.
    (c) Accommodations or services. The discrimination prohibited by 
Sec. 112.6 includes but is not limited to the failure or refusal, 
because of the race, color, or national origin of a person, to accept 
him on a nonsegregated basis as a patient, student, visitor, guest, 
member, customer, passenger or patron.
    (d) Affirmative action. (1) In some situations even though past 
discriminatory practices have been abandoned, the consequences of such 
practices continue to impede the full availability of equal opportunity. 
If the efforts required of the applicant or recipient under 
Sec. 112.3(b)(3) to provide information as to the availability of equal 
opportunity, and the rights of individuals under this regulation, have 
failed to overcome these consequences, it will become necessary for such 
applicant or recipient to take additional steps to make equal 
opportunity fully available to racial and nationality groups previously 
subjected to discrimination.
    (2) Even though an applicant or recipient has never used 
discriminatory policies, the opportunities in the business it operates 
may not in fact be equally available to some racial or nationality 
groups. In such circumstances a recipient may properly give special 
consideration to race, color, or national origin to make opportunity 
more widely available to such groups.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973]



Sec. 112.8   Assurances required.

    An application for any of the financial assistance described in 
Sec. 112.2(a) shall, as a condition to its approval and the extension of 
such assistance, contain or be accompanied by an assurance that the 
recipient will comply with this part. Such an assurance shall contain 
provisions authorizing the acceleration of the maturity of the 
recipient's financial obligation to the SBA in the event of a failure to 
comply, and provisions which give the United States a right to seek 
judicial enforcement of the terms of the assurance. SBA shall specify 
the form of the foregoing assurance for each program, and the extent to 
which like assurances will be required of contractors and 
subcontractors, transferees, successors in interest, and other 
participants in the program.



Sec. 112.9   Compliance information.

    (a) Cooperation and assistance. SBA shall to the fullest extent 
practicable seek the cooperation of applicants and recipients in 
obtaining compliance with this part and shall provide assistance and 
guidance to applicants and recipients to help them comply voluntarily 
with this part.
    (b) Compliance reports. Each applicant or recipient shall keep such 
records and submit to SBA timely, complete and accurate compliance 
reports at such times, and in such form and containing such information, 
as SBA may determine to be necessary to enable SBA to ascertain whether 
the applicant or recipient has complied or is complying with this part. 
In the case of a small business concern which receives financial 
assistance from a development company or from a small business 
investment company, such concern shall submit to the company such 
information as may be necessary to enable the company to meet its 
reporting requirements under this part.
    (c) Access to sources of information. Each applicant or recipient 
shall permit access by SBA during normal business hours to such of its 
books, records, accounts, and other sources of information, and its 
facilities as may be pertinent to ascertain compliance with this part. 
Where any information required of an applicant or recipient is in the 
exclusive possession of any other agency, institution or person and this 
agency, institution or person shall fail or refuse to furnish this 
information, the applicant or recipient shall so certify in its report 
and shall set forth what efforts it has made to obtain this information.
    (d) Information to the public. Each recipient shall make available 
to persons entitled under the Act and under this

[[Page 95]]

part to protection against discrimination by the recipient such 
information as SBA may find necessary to apprise them of their rights to 
such protection.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973]



Sec. 112.10   Conduct of investigations.

    (a) Periodic compliance reviews. SBA shall from time to time review 
the practices of recipients to determine whether they are complying with 
this part.
    (b) Complaints. Any person who believes himself or any specific 
class of individuals to be subjected to discrimination prohibited by 
this part may, by himself or by a representative, file with SBA a 
written complaint. A complaint must be filed not later than 180 days 
from the date of the alleged discrimination, unless the time for filing 
is extended by SBA.
    (c) Investigations. SBA will make a prompt investigation whenever a 
compliance review, report, complaint, or any other information indicates 
a possible failure to comply with this part. The investigation should 
include, where appropriate, a review of the pertinent practices and 
policies of the applicant or recipient, the circumstances under which 
the possible noncompliance with this part occurred, and other factors 
relevant to a determination as to whether the applicant or recipient has 
failed to comply with this part.
    (d) Resolution of matters. (1) If an investigation pursuant to 
paragraph (c) of this section indicates a failure to comply with this 
part, SBA will so inform the applicant or recipient and the matter will 
be resolved by informal means whenever possible. If it has been 
determined that the matter cannot be resolved by informal means, action 
will be taken as provided for in Sec. 112.11.
    (2) If an investigation does not warrant action pursuant to 
paragraph (d)(1) of this section, SBA will so inform the applicant or 
recipient and the complainant, if any, in writing.
    (e) Intimidatory or retaliatory acts prohibited. No applicant or 
recipient or other person shall intimidate, threaten, coerce, or 
discriminate against any individual for the purpose of interfering with 
any right or privilege secured by section 601 of the Act or by this part 
or because he has made a complaint, testified, assisted, or participated 
in any manner in an investigation, proceeding, or hearing under this 
part. The identity of complainants shall be kept confidential except to 
the extent necessary to carry out the purposes of this part, including 
the conduct of any investigation, hearing, or judicial proceeding 
arising thereunder.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973]



Sec. 112.11   Procedure for effecting compliance.

    (a) General. (1) If there appears to be a failure or threatened 
failure to comply with this part and if the noncompliance or threatened 
noncompliance cannot be corrected by informal means, compliance with 
this part may be effected by suspending, terminating, or refusing any 
financial assistance approved but not yet disbursed to an applicant or, 
in the case of a loan which has been partially disbursed, by refusing to 
make further disbursements. In addition, compliance may be effected by 
any other means authorized by law.
    (2) Such other means may include but are not limited to (i) legal 
action by SBA to enforce its right, embodied in the assurances described 
in Sec. 112.8, to accelerate the maturity of the recipient's obligation; 
(ii) a reference to the Department of Justice with a recommendation that 
appropriate proceedings be brought to enforce any rights of the United 
States under any law of the United States, including other titles of the 
Act; and (iii) any applicable proceedings under State or local law.
    (b) Noncompliance with Sec. 112.8. If an applicant fails or refuses 
to furnish an assurance required under Sec. 112.8 or otherwise fails or 
refuses to comply with a requirement imposed by or pursuant to that 
section Federal financial assistance may be refused in accordance with 
the procedures of paragraph (c) of this section. SBA shall not be 
required to provide assistance in such a case during the pendency of the 
administrative proceedings under such paragraph except that SBA shall 
continue assistance during the pendency of such proceedings where such 
assistance is due and payable pursuant to an application

[[Page 96]]

therefor approved prior to the effective date of this part. Such 
proceedings shall be conducted in accordance with the provisions of part 
134 of this chapter by an Administrative Law Judge of the Office of 
Hearings and Appeals, who shall issue an initial decision in the case. 
The Administrator shall be the reviewing official for purposes of 
Sec. 134.228. The applicant's failure to file a timely motion in 
accordance with Secs. 134.222 and 134.211, requesting that the matter be 
scheduled for an oral hearing, shall constitute waiver of the right to 
an oral hearing but shall not prevent the submission of written 
information and argument for the record in accordance with the 
provisions of part 134.
    (c) Conditions precedent. No order suspending, terminating, or 
refusing financial assistance shall become effective until (1) SBA has 
advised the applicant or recipient of his failure to comply and has 
determined that compliance cannot be secured by voluntary means; (2) 
there has been an express finding on the record after an opportunity for 
an oral hearing, of a failure by the applicant or recipient to comply 
with a requirement imposed by or pursuant to this part; (3) the initial 
decision has become final pursuant to Sec. 134.227(b); and (4) the 
expiration of 30 days after SBA has filed with the committee of the 
House and the committee of the Senate having legislative jurisdiction of 
the form of financial assistance involved, a full written report of the 
circumstances and the grounds for such action.
    (d) Other means authorized by law. No action to effect compliance by 
any other means authorized by law shall be taken until (1) SBA has 
determined that compliance cannot be secured by voluntary means; (2) the 
action has been approved by the Administrator or his designee; (3) the 
applicant or recipient or other person has been notified of its failure 
to comply and of the action to be taken to effect compliance; and (4) 
the expiration of at least 10 days from the mailing of such notice to 
the applicant or recipient or other person. During this period of at 
least 10 days from the mailing of such notice to the applicant or 
recipient or other person. During this period of at least 10 days 
additional efforts shall be made to persuade the applicant or recipient 
or other person to comply with this part and to take such corrective 
action as may be appropriate.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973; 49 FR 
33629, Aug. 24, 1984; 61 FR 2691, Jan. 29, 1996]



Sec. 112.12   Effect on other regulations; forms and instructions.

    (a) Effect on other regulations. All regulations, orders or like 
directions heretofore issued by SBA which impose requirements designed 
to prohibit any discrimination against individuals on the grounds of 
race, color, or national origin and which authorize the suspension or 
termination of or refusal to grant to or to continue financial 
assistance to any applicant for or recipient of such assistance for 
failure to comply with such requirements, are hereby superseded to the 
extent that such discrimination is prohibited by this part, except that 
nothing in this part shall be deemed to relieve any person of any 
obligation assumed or imposed under any such superseded regulation, 
order, instruction, or like direction prior to the effective date of 
this part. Nothing in this part, however, shall be deemed to supersede 
any of the following (including future amendments thereof):
    (1) Executive Order 11246 and regulations issued thereunder, or (2) 
any other orders, regulations or instructions, insofar as such order, 
regulations, or instructions prohibit discrimination on the grounds of 
race, color, or national origin in any program or situation to which 
this part is inapplicable or prohibit discrimination on any other 
ground.
    (b) Forms and instructions. SBA shall issue and promptly make 
available to interested persons forms and detailed instructions and 
procedures for effectuating this part.
    (c) Supervision and coordination. The Administrator may from time to 
time assign to officials of SBA or to officials of other agencies of the 
Government with the consent of such agencies, responsibilities in 
connection with the effectuation of the purpose of Title VI

[[Page 97]]

of the Act and this part (other than responsibility for final decision 
as provided in Sec. 112.13), including the achievement of effective 
coordination and maximum uniformity within SBA and within the Executive 
Branch of the Government in the application of Title VI and this part to 
similar programs and in similar situations. Any action taken, 
determination made, or requirement imposed by an official of another 
Department or agency acting pursuant to an assignment of responsibility 
under this subsection shall have the same effect as though such action 
had been taken by the Administrator of SBA.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17935, July 5, 1973. 
Redesignated at 49 FR 33629, Aug. 24, 1984]

                         Appendix A to Part 112                         
------------------------------------------------------------------------
              Name of program                         Authority         
------------------------------------------------------------------------
                           Financial Programs                           
                                                                        
------------------------------------------------------------------------
Regular business loans....................  Small Business Act, sec.    
                                             7(a) and 7(a)(11).         
Handicapped assistance loans..............  Small Business Act, sec.    
                                             7(a)(10)                   
Small business energy loans...............  Small Business Act, sec.    
                                             7(a)(12).                  
Small general contractors.................  Small Business Act, sec.    
                                             7(a)(9).                   
Vietnam-era and Disabled Veterans Loan      Pub. L. 97-72.              
 Program.                                                               
Debtor State development company loans      Small Business Investment   
 (501) and their small business concerns.    Act, title V, and Small    
                                             Business Act, sec.         
                                             7(a)(13).                  
Debtor small business investment companies  Small Business Investment   
 and their small business concerns.          Act, title III.            
                                                                        
------------------------------------------------------------------------
                             Disaster Loans                             
                                                                        
------------------------------------------------------------------------
Physical..................................  Small Business Act, sec.    
                                             7(b)(1).                   
Economic injury (EIDL)....................  Small Business Act, sec.    
                                             7(b)(2).                   
Federal action--economic injury...........  Small Business Act, sec.    
                                             7(b)(3).                   
Currency fluctuation--economic injury.....  Small Business Act, sec.    
                                             7(b)(4).                   
                                                                        
------------------------------------------------------------------------
                          Nonfinancial Programs                         
                                                                        
------------------------------------------------------------------------
Women's business enterprise...............  Executive Order 12138.      
Small business innovation and research....  Small Business Act, sec. 9. 
Procurement automated source system.......  Small Business Act, sec. 8  
                                             and Pub. L. 96-302.        
Business Development Program..............  Small Business Act, sec.    
                                             8(a) and Pub. L. 95-507, as
                                             amended by Pub. L. 96-481. 
Small Business Institute Program..........  Small Business Act, sec.    
                                             8(b)(1) and Pub. L. 85-536.
Certificate of competency.................  Small Business Act, sec.    
                                             8(b)(7) and Pub. L 95-89.  
Subcontracting Assistance Program.........  Small Business Act, sec.    
                                             8(d) and and Pub. L. 95-   
                                             507.                       
Technology Assistance Program.............  Small Business Act, sec. 9. 
Small business development centers........  Small Business Act, sec. 21 
                                             and Pub. L. 96-302.        
International Trade Program...............  Small Business Act, sec. 22 
                                             and Pub. L. 96-481.        
Service Corps of Retired Executives and     Small Business Act, secs.   
 Active Corps of Executives.                 101 and 8(b)(1) and Pub. L.
                                             95-510.                    
Veterans affairs programs.................  Pub. L. 93-237.             
Private sector initiatives................  Small Business Act, sec.    
                                             8(b)(1).                   
------------------------------------------------------------------------

    Note: All programs listed above are also covered by part 113 of 
title 13 of the Code of Federal Regulations.

[50 FR 1441, Jan. 11, 1985]



PART 113--NONDISCRIMINATION IN FINANCIAL ASSISTANCE PROGRAMS OF SBA--EFFECTUATION OF POLICIES OF FEDERAL GOVERNMENT AND SBA ADMINISTRATOR--Table of Contents




Sec.
113.1  Purpose.
113.2  Definitions.
113.3  Discrimination prohibited.
113.3-1  Consideration of race, color, religion, sex, marital status, 
          handicap or national origin.
113.3-2  Accommodations to religious observance and practice.
113.3-3  Structural accommodations for handicapped clients.
113.4  Assurances required.
113.5  Compliance information.
113.6  Conduct of investigations.
113.7  Procedure for effecting compliance.
113.8  Effect on other regulations, forms and instructions.

Appendix A to Part 113

    Authority: Secs. 5, 308, 72 Stat. 385, 694, as amended; 15 U.S.C. 
633, 634, 687, 1691; 20 U.S.C. 1681-1686; 29 U.S.C. 794.

    Source: 44 FR 20068, Apr. 4, 1979, unless otherwise noted.



Sec. 113.1  Purpose.

    (a) Part 112 of this chapter, issued pursuant to Title VI of the 
Civil Rights Act of 1964, prohibits discrimination on

[[Page 98]]

the basis of race, color, or national origin by some recipients of 
financial assistance from SBA. The purpose of this part is to reflect to 
the fullest extent possible the nondiscrimination policies of the 
Federal Government as expressed in the several statutes, Executive 
Orders, and messages of the President dealing with civil rights and 
equality of opportunity, and in the previous determination of the 
Administrator of the Small Business Administration that discrimination 
based on race, color, religion, sex, marital status, handicap or 
national origin shall be prohibited, to the extent that it is not 
prohibited by part 112 of this chapter, to all recipients of financial 
assistance from SBA.
    (b) In accordance with Pub. L. 94-239, 15 U.S.C. 1691, cited as the 
Equal Credit Act Amendments of 1976, it is unlawful for any recipient 
creditor to discriminate against any applicant, with respect to any 
aspect of a credit transaction because of race, color, religion, 
national origin, sex, marital status, age: (Provided, the applicant has 
the capacity to contract), because all or part of the applicant's income 
derives from any public assistance program, or because the applicant has 
in good faith exercised any right under the Consumer Credit Protection 
Act.
    (c) It is the intention of the Administrator that the prohibitions 
in this part supplement those in part 112 of this chapter, that the two 
parts be read in pari materia, and that the procedures established 
herein be harmonized to the maximum extent feasible with those 
established in part 112 of this chapter.



Sec. 113.2  Definitions.

    As used in this part:
    (a) The term Federal financial assistance includes (1) grants and 
loans of Federal funds, (2) the grant or donation of Federal property 
and interests in property, (3) the detail of Federal personnel, (4) the 
sale and lease of, and the permission to use (on other than a casual or 
transient basis), Federal property or any interest in such property 
without consideration, or at a nominal consideration, or at a 
consideration which is reduced for the purpose of assisting the 
recipient, or in recognition of the public interest to be served by such 
sale or lease to the recipient, and (5) any Federal agreement, 
arrangement, or other contract which has as one of its purposes the 
provision of assistance.
    (b) The terms applicant and recipient mean, respectively, one who 
applies for and one who receives any of the financial assistance under 
any of the statutes referred to in paragraph (a) of this section. The 
term recipient also shall be deemed to include subrecipientsof SBA 
financial assistance, i.e., concerns which secondarily receive financial 
assistance from the primary recipients of such financial assistance. For 
the purposes of this part, a paragraph (b) lender (13 CFR 120.4(b)) 
shall be deemed a recipient of financial assistance.
    (c) The term religion includes all aspects of religious observance 
and practice, as well as belief.
    (d) The term qualified handicapped person means (1) with respect to 
employment, a handicapped person who, with reasonable accommodation, can 
perform the essential functions of the job in question and (2) with 
respect to services, a handicapped person who meets the essential 
eligibility requirements for the receipt of such services.
    (e) The term handicapped person, as defined by the guideline set 
forth by the Department of Health, Education, and Welfare in Sec. 85.31 
of title 45 of the CFR (43 FR 2137, dated January 13, 1978), means any 
person who has a physical or mental impairment that substantially limits 
one or more major life activities, has a record of such an impairment, 
or is regarded as having such an impairment.
    (f) As used in paragraph (e) of this section, the phrase:
    (1) Physical or mental impairment means (i) any physiological 
disorder or condition, cosmetic disfigurement, or anatomical loss 
affecting one or more of the following body systems: Neurological; 
musculoskeletal; special sense organs; respiratory, including speech 
organs; cardiovascular; reproductive; digestive; genitourinary; hemic 
and lymphatic; skin; and endocrine; or (ii) any mental or psychological 
disorder, such as mental retardation, organic brain syndrome, emotional 
or mental

[[Page 99]]

illness, and specific learning disabilities. The term physical or mental 
impairment includes, but is not limited to, such diseases and conditions 
as orthopedic, visual, speech, and hearing impairments, cerebral palsy, 
epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, 
diabetes, mental retardation, emotional illness, drug addiction and 
alcoholism.
    (2) Major life activities means functions such as caring for one's 
self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means (i) has a physical or 
mental impairment that does not substantially limit major life 
activities but is treated by a recipient as constituting such a 
limitation; (ii) has a physical or mental impairment that substantially 
limits major life activities only as a result of the attitudes of others 
toward such impairment; or (iii) has none of the impairments defined in 
paragraph (f)(1) of this section but is treated by a recipient as having 
such an impairment.
    (g) The term reasonable accommodation as used in these Regulations 
may include: (1) making facilities used by employees readily accessible 
to and usable by handicapped persons; and (2) job restructuring, part-
time or modified work schedules, acquisition or modification of 
equipment or devices, the provision of readers or interpreters, and 
other similar actions.
    (h) The term facility means all or any portion of buildings, 
structures, equipment, roads, walks, parking lots, or other real or 
personal property.

[44 FR 20068, Apr. 4, 1979, as amended at 48 FR 14891, Apr. 6, 1983]



Sec. 113.3  Discrimination prohibited.

    To the extent not covered or prohibited by part 112 of this chapter, 
recipients of financial assistance may not:
    (a) Discriminate with regard to goods, services, or accommodations 
offered or provided by the aided business or other enterprise, whether 
or not operated for profit, because of race, color, religion, sex, 
handicap, or national origin of a person, or fail or refuse to accept a 
person on a nonsegregated basis as a patient, student, visitor, guest, 
customer, passenger, or patron.
    (b) With regard to employment practices within the aided business or 
other enterprise, whether or not operated for profit; fail or refuse, 
because of race, color, religion, sex or national origin of a person, to 
seek or retain the person's services, or to provide the person with 
opportunities for advancement or promotion, or accord an employee the 
rank and rate of compensation, including fringe benefits, merited by the 
employee's services and abilities.
    (c) With regard to employment practices within the aided business or 
other enterprise, whether or not operated for profit; discriminate 
against a qualified handicapped person; or because of handicap, fail or 
refuse to seek or retain the person's services or to provide the person 
with opportunities for advancement or promotion, or accord an employee 
the rank and rate of compensation, including fringe benefits, merited by 
the employee's services and abilities. All employment decisions shall be 
made in a manner which ensures that discrimination on the basis of 
handicap does not occur. Such decisions may not limit, segregate, or 
classify job applicants or employees in any way that adversely affects 
the opportunities or status of qualified handicapped individuals.
    (d) Participate in a contractual or other relationship that has the 
effect of subjecting job applicants or employees to discrimination 
prohibited by this part. The relationships referred to in this paragraph 
include those with employment and referral agencies, labor unions, 
organizations providing or administering fringe benefits to employees of 
the recipient, and organizations providing training and apprenticeship 
programs. Activities covered by this part are as follows:
    (1) Recruitment, advertising, and the processing of applications for 
employment;
    (2) Hiring, upgrading, promotion, award of tenure, demotion, 
transfer, layoff, termination, right of return from layoff, and 
rehiring;

[[Page 100]]

    (3) Rates of pay or any other form of compensation and changes in 
compensation;
    (4) Job assignments, job classifications, organizational structures, 
position descriptions, lines of progression, and seniority lists;
    (5) Leaves of absence, sick leave, or any other leave;
    (6) Fringe benefits available by virtue of employment, whether or 
not administered by the recipient;
    (7) Selection and financial support for training, including 
apprenticeship, professional meetings, conferences, and other related 
activities, and selection for leaves of absence to pursue training;
    (8) Employer sponsored activities, including social or recreational 
programs; and
    (9) Any other term, condition, or privilege of employment.
    (e) Use employment tests or criteria that discriminate on the basis 
of race, color, religion, sex, marital status, handicap, or national 
origin. Employment tests which are used for all other job applicants 
shall be adapted in an appropriate mode for use by persons who have 
handicaps that impair sensory, manual, or speaking skills.
    (f) Conduct a preemployment medical examination, unless required of 
all job applicants, and subsequent to a conditional offer of employment. 
The results of all such medical examinations shall be kept confidential.
    (g) Make a preemployment inquiry as to whether a job applicant is a 
handicapped person or as to the nature or severity of a handicap: EXCEPT 
when a recipient is taking remedial action to overcome the effects of 
conditions which resulted in past discrimination, or when a recipient is 
taking affirmative action pursuant to section 503 of the Rehabilitation 
Act of 1973, as amended.
    (1) Such preemployment inquiry may only be made after the job 
applicant has been informed that such disclosure is for the purposes set 
forth in paragraph (g) of this section; that the disclosure is voluntary 
and will be kept confidential; and that refusal of the job applicant to 
provide such information will not subject the applicant to any adverse 
action.
    (2) Information elicited from qualified handicapped job applicants 
concerning their medical history or condition shall be kept confidential 
EXCEPT that:
    (i) Supervisors and managers may be informed about restrictions on 
or accommodations to be made for the qualified handicapped individual;
    (ii) First aid and safety personnel may be informed, where 
appropriate, of the need for possible emergency treatment; and
    (iii) Compliance officials shall be given relevant information, if 
requested.
    (h) Discriminate on the basis of race, color, religion, handicap or 
national origin in the use of toilets or any facilities for rest or 
comfort. Discriminate on the basis of race, color, religion, sex, 
handicap or national origin in the use of cafeterias, recreational 
programs or other programs sponsored by the applicant or recipient.
    (i) With regard to all recipients offering credit, such as Small 
Business Investment Companies and Community Development Companies, 
discriminate against debtors on the basis of race, color, religion, sex, 
marital status, handicap, or national origin.
    (j) With regard to the granting of credit by all recipient 
creditors, discriminate against any credit applicant, with respect to 
any aspect of a credit transaction because of race, color, religion, 
national origin, sex, marital status, handicap, age (provided the 
applicant has the capacity to contract), because all or part of the 
applicant's income derives from any public assistance program, or 
because the applicant has in good faith exercised any right under the 
Consumer Credit Protection Act.



Sec. 113.3-1  Consideration of race, color, religion, sex, marital status, handicap, or national origin.

    (a) This regulation does not prohibit the consideration of race, 
color, religion, sex, marital status, handicap, or national origin if 
the purpose and effect are to remove or overcome the

[[Page 101]]

consequences of practices or impediments which have restricted the 
availability of, or participation in, the program or activity receiving 
Federal financial assistance, on the grounds of race, color, religion, 
sex, marital status, handicap, or national origin. Where previous 
discriminatory practices or usage tends, on the grounds of race, color, 
religion, sex, marital status, handicap, or national origin, to exclude 
individuals from participation in, to deny them the benefits of, or to 
subject them to discrimination under any program or activity to which 
this regulation applies, the applicant or recipient has an obligation to 
take reasonable action to remove or overcome the consequences of the 
prior discriminatory practice or usage, and to accomplish the purposes 
of this regulation. All programs and activities shall be administered in 
the most integrated setting possible.
    (b) Nothing in this part shall prohibit the restriction of certain 
jobs to members of one sex if a bona fide occupational qualification can 
be demonstrated by the applicant or recipient. Custom or tradition is 
not a bona fide occupational qualification.
    (c) Recipients shall take steps to ensure that communications with 
job applicants and employees who have vision and/or hearing disabilities 
are available in appropriate modes.
    (d) Recipients shall make reasonable accommodation to the known 
physical or mental limitations of an otherwise qualified handicapped job 
applicant or employee UNLESS the recipient can demonstrate that the 
accommodation would impose an undue hardship on the operation of the 
business. Factors to be considered in determining whether an 
accommodation would impose an undue hardship on the operation of a 
recipient's business include:
    (1) The overall size of the recipient's business with respect to 
number of employees, number and type of facilities, size of budget, and 
the financial condition of the business;
    (2) The type of the recipient's operation, including the composition 
and structure of the recipient's workforce; and
    (3) The nature and cost of the accommodation needed.
    (e) Such accommodation may include making facilities used by 
employees readily accessible to and usable by handicapped persons, job 
restructuring, part-time or modified work schedules, acquisition or 
modification of equipment or devices, the provision of readers or 
interpreters, and other similar actions.
    (f) The final decision, when making a review or investigation of a 
complaint, as to whether an accommodation would impose an undue hardship 
on the operation of a recipient business will be made by the compliance 
officials of the Small Business Administration.
    (g) Recipients shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified handicapped 
persons, and shall not participate in a contractual relationship that 
has the effect of subjecting qualified handicapped job applicants or 
employees to discrimination prohibited by this part. The relationships 
referred to in this paragraph include those with referral agencies, 
labor unions, organizations providing or administering fringe benefits 
to employees of the recipient, and organizations providing training and 
apprenticeship programs.
    (h) Nothing in this part shall apply to a religious corporation, 
association, educational institution or society with respect to the 
membership or the employment of individuals of a particular religion to 
perform work connected with the carrying on by such corporation, 
association, educational institution or society of its religious 
activities.



Sec. 113.3-2  Accommodations to religious observance and practice.

    A recipient of financial assistance must accommodate to the 
religious observances and practices of an employee or prospective 
employee unless the recipient demonstrates that it is unable to 
reasonably accommodate to an employee's or prospective employee's 
religious observance or practice without undue hardship on the conduct 
of the employer's business. As part of this obligation, recipient must 
make reasonable accommodations to the religious observances and 
practices of an employee or prospective employee who

[[Page 102]]

regularly observes Friday evening and Saturday, or some other day of the 
week, as Sabbath and/or who observes certain religious holidays during 
the year and who is conscientiously opposed to performing work or 
engaging in similar activity on such days, when such accommodations can 
be made without undue hardship on the conduct of the employer's 
business. In determining the extent of a recipient's obligations under 
this section, at least the following factors should be considered: (a) 
Business necessity, (b) financial costs and expenses, and (c) resulting 
personnel problems.



Sec. 113.3-3  Structural accommodations for handicapped clients.

    (a) Existing facilities. Recipients in preexisting structures shall 
make their goods or services accessible to and usable by handicapped 
clients. Where structural changes are necessary to make the recipient's 
goods or services accessible, such changes shall be made as soon as 
practicable, but in no event later than three years after the effective 
date of this Regulation. A plan setting forth the steps necessary to 
complete such structural changes shall be developed and submitted to 
SBA. If practical, interested persons, including handicapped persons or 
organizations representing handicapped persons, will be consulted.
    (b) Design, construction, and alteration. New facilities shall be 
designed and constructed to be readily accessible to and usable by 
persons with handicaps. Alterations to existing facilities that affect 
usability shall, to the maximum extent feasible, be designed and 
constructed to be readily accessible to and usable by handicapped 
persons.
    (c) Conformance with Uniform Federal Accessibility Standards. (1) 
Effective as of January 18, 1991, design, construction, or alteration of 
buildings in conformance with sections 3-8 of the Uniform Federal 
Accessibility Standards (UFAS) (appendix A to 41 CFR subpart 101-19.6) 
shall be deemed to comply with the requirements of this section with 
respect to those buildings. Departures from particular technical and 
scoping requirements of UFAS by the use of other methods are permitted 
where substantially equivalent or greater access to and usability of the 
building is provided.
    (2) For purposes of this section, section 4.1.6(1)(g) of UFAS shall 
be interpreted to exempt from the requirements of UFAS only mechanical 
rooms and other spaces that, because of their intended use, will not 
require accessibility to the public or beneficiaries or result in the 
employment or residence therein of persons with physical handicaps.
    (3) This section does not require recipients to make building 
alterations that have little likelihood of being accomplished without 
removing or altering a load-bearing structural member.

[44 FR 20068, Apr. 4, 1979, as amended at 45 FR 81734, Dec. 12, 1980; 55 
FR 52138, 52140, Dec. 19, 1990]



Sec. 113.4  Assurances required.

    An application for financial assistance shall, as a condition to its 
approval and the extension of such assistance, contain or be accompanied 
by an assurance that the recipient will comply with this part. Such an 
assurance shall contain provisions authorizing the acceleration of the 
maturity of the recipient's financial obligations to SBA in the event of 
a failure to comply, and provisions which give the United States a right 
to seek judicial enforcement of the terms of the assurance. SBA shall 
specify the form of the foregoing assurance for each program, and the 
extent to which like assurances will be required of contractors and 
subcontractors, transferees, successors in interest, and other 
participants in the program.



Sec. 113.5  Compliance information.

    (a) Cooperation and assistance: SBA shall to the fullest extent 
practicable seek the cooperation of applicants and recipients in 
obtaining compliance with this part and shall provide assistance and 
guidance to applicants and recipients to help them comply voluntarily 
with this part. Recipients are expected to continually evaluate their 
compliance status, with the assistance of interested persons, including 
handicapped persons or organizations representing handicapped persons.
    (b) Compliance reports: Each applicant or recipient shall keep such 
records

[[Page 103]]

and submit to SBA timely, complete and accurate compliance reports at 
such times, and in such form and containing such information, as SBA may 
determine to be necessary to enable SBA to ascertain whether the 
applicant or recipient has complied or is complying with this part. In 
the case of a small business concern which receives financial assistance 
from a development company or from a small business investment company, 
such concern shall submit to the company such information as may be 
necessary to enable the company to meet its reporting requirements under 
this part.
    (c) Access to sources of information: Each applicant or recipient 
shall permit access by SBA during normal business hours to such of its 
books, records, accounts and other sources of information, and its 
facilities as may be pertinent to ascertain compliance with this part. 
Where any information required of an applicant or recipient is in the 
exclusive possession of any other agency, institution or person; and 
such agency, institution or person shall fail or refuse to furnish this 
information, the applicant or recipient shall so certify in its report 
and shall set forth what efforts it has made to obtain this information.
    (d) Information to the Public. Each recipient shall make available 
to persons entitled under this part to protection against discrimination 
by the recipient such information as SBA may find necessary to apprise 
them of their rights to such protection.
    (1) In some situations even though past discriminatory practices 
have been abandoned, the consequences of such practices continue to 
impede the full availability of equal opportunity. If the efforts 
required of the applicant or recipient under Sec. 113.5(b) to provide 
information as to the availability of equal opportunity, and the rights 
of individuals under this regulation, have failed to overcome these 
consequences, it will become necessary for such applicant or recipient 
to take additional steps to make equal opportunity fully available to 
racial, qualified handicapped, nationality groups and persons who 
because of their sex were previously subjected to discrimination.
    (2) Even though an applicant or recipient has never used 
discriminatory policies, the opportunities in the business it operates 
may not in fact be equally available to some racial, qualified 
handicapped, or nationality groups. In such circumstances a recipient 
may properly give special consideration to race, color, religion, sex, 
marital status, qualified handicap or national origin to make the 
opportunities more widely available to such groups.



Sec. 113.6  Conduct of investigations.

    (a) Periodic compliance reviews. SBA shall from time to time review 
the practices of recipients to determine whether they are complying with 
this part.
    (b) Complaints. Any person who believes that he, she or any class of 
individuals has been subjected to discrimination prohibited by this part 
may, personally or through a representative, file with SBA a written 
complaint. A complaint must be filed not later than 180 days from the 
date of the alleged discrimination, unless the time for filing is 
extended by SBA.
    (c) Investigations. SBA will make a prompt investigation whenever a 
compliance review, report, complaint, or any other information indicates 
a possible failure to comply with this part. The investigation should 
include, where appropriate, a review of the pertinent practices and 
policies of the applicant or recipient, the circumstances under which 
the possible noncompliance with this part occurred, and other factors 
relevant to a determination as to whether the applicant or recipient has 
failed to comply with this part.
    (d) Resolution of matters. (1) If an investigation pursuant to 
paragraph (c) of this section indicates a failure to comply with this 
part, SBA will so inform the applicant or recipient and the matter will 
be resolved by informal means whenever possible. If it has been 
determined that the matter cannot be resolved by informal means, action 
will be taken as provided for in Sec. 113.7.
    (2) If an investigation does not warrant action pursuant to 
paragraph (d)(1) of this section, SBA will so inform the applicant or 
recipient and the complainant, if any, in writing.

[[Page 104]]

    (e) Intimidatory or retaliatory acts prohibited. No applicant or 
recipient or other person shall intimidate, threaten, coerce, or 
discriminate against any individual for the purpose of interfering with 
any right or privilege secured by this part or because he has made a 
complaint, testified, assisted, or participated in any manner in an 
investigation, proceeding, or hearing under this part. The identity of 
complainants shall be kept confidential except to the extent necessary 
to carry out the purposes of this part, including the conduct of any 
investigation, hearing, or judicial proceeding arising thereunder.



Sec. 113.7  Procedure for effecting compliance.

    (a) General. (1) If there appears to be a failure or threatened 
failure to comply with this part and if the noncompliance or threatened 
noncompliance cannot be corrected by informal means, compliance with 
this part may be effected by suspending, terminating, or refusing any 
financial assistance approved but not yet disbursed to an applicant. In 
the case of loans partially or fully disbursed, compliance with this 
part may be effected by calling, canceling, terminating, accelerating 
repayment, or suspending in whole or in part the financial assistance 
provided. In addition compliance may be effected by any other means 
authorized by law.
    (2) Such other means may include but are not limited to (i) legal 
action by SBA to enforce its rights, embodied in the assurances 
described in Sec. 113.4; (ii) a reference to the Department of Justice 
with a recommendation that appropriate proceedings be brought to enforce 
any rights of the United States under any law of the United States; and 
(iii) any applicable proceedings under State or local law.
    (b) Noncompliance with Sec. 113.4. If an applicant fails or refuses 
to furnish an assurance required under Sec. 113.4 or otherwise fails or 
refuses to comply with a requirement imposed by or pursuant to that 
section, Federal financial assistance may be refused in accordance with 
the procedures of paragraph (c) of this section. SBA shall not be 
required to provide assistance in such a case during the pendency of the 
administrative proceedings under such paragraph except that SBA shall 
continue assistance during the pendency of such proceedings where such 
assistance is due and payable pursuant to an application therefor 
approved prior to the effective date of this part. Such proceedings 
shall be conducted in accordance with the provisions of part 134 of this 
chapter by an Administrative Law Judge of the Office of Hearings and 
Appeals, who shall issue an initial decision in the case. The 
Admininstrator shall be the reviewing official for purposes of 
Sec. 134.228. The applicant's failure to file a timely motion in 
accordance with Secs. 134.222 and 134.211, requesting that the matter be 
scheduled for an oral hearing, shall constitute waiver of the right to 
an oral hearing but shall not prevent the submission of written 
information and argument for the record in accordance with the 
provisions of part 134.
    (c) Condition precedent. Under this part 113, no order suspending, 
terminating, refusing, calling, canceling, or accelerating repayment of 
financial assistance in whole or in part shall become effective until 
(1) SBA has advised the applicant or recipient of his failure to comply 
and has determined that compliance cannot be secured by voluntary means; 
(2) there has been an express finding on the record after an opportunity 
for an oral hearing, of a failure by the applicant or recipient to 
comply with a requirement imposed by or pursuant to this part; and (3) 
the initial decision has become final pursuant to Sec. 134.227(b).
    (d) Other means authorized by law. No action to effect compliance by 
any other means authorized by law shall be taken until:
    (1) SBA has determined that compliance cannot be secured by 
voluntary means.
    (2) The action has been approved by the Administrator or the 
Administrator's designee.
    (3) The applicant or recipient or other person has been notified of 
its failure to comply and of the action to be taken to effect 
compliance.
    (4) The expiration of at least 10 days from the mailing of such 
notice to the applicant or recipient or other person. During this period 
of at least 10 days,

[[Page 105]]

additional efforts shall be made to persuade the applicant or recipient 
or other person to comply with this part and to take such corrective 
action as may be appropriate.

[44 FR 20068, Apr. 4, 1979, as amended at 49 FR 33629, Aug. 24, 1984; 61 
FR 2691, Jan. 29, 1996]



Sec. 113.8  Effect on other regulations, forms and instructions.

    (a) Effect on other regulations. All regulations, orders of like 
directions heretofore issued by SBA which impose requirements designed 
to prohibit any discrimination against individuals on the grounds of 
race, color, religion, sex, handicap, marital status, age, or national 
origin and which authorize the suspension or termination of a refusal to 
grant to or to continue financial assistance to any applicant for or 
recipient of such assistance for failure to comply with such 
requirements, are hereby superseded to the extent that such 
discrimination is prohibited by this part, except that nothing in this 
part shall be deemed to relieve any person of any obligation assumed or 
imposed under any such superseded regulation, order, instruction or like 
direction prior to the effective date of this part.
    (b) Forms and instructions. SBA shall issue and promptly make 
available to interested persons forms and detailed instructions and 
procedures for effectuating this part.
    (c) Supervision and coordination. The Administrator may from time-
to-time assign to officials of SBA or to officials of other agencies of 
the Government, with the consent of such agencies, responsibilities in 
connection with the effectuation of the purposes of this part (other 
than responsibility of first decisions as provided in Sec. 113.9) 
including the achievement of effective coordination and maximum 
uniformity within SBA and within the executive branch of the Government 
in the application of this part and of comparable regulations issued by 
other agencies of the Government to similar situations. Any action 
taken, determination made, or requirement imposed by an official of 
another department or agency acting pursuant to an assignment of 
responsibility under this subsection shall have the same effect as 
though such action had been taken by the Administrator of SBA.

[44 FR 20068, Apr. 4, 1979. Redesignated at 49 FR 33629, Aug. 24, 1984]

                         Appendix A to Part 113                         
------------------------------------------------------------------------
              Name of program                         Authority         
------------------------------------------------------------------------
                           Financial Programs                           
                                                                        
------------------------------------------------------------------------
Regular business loans....................  Small Business Act, sec.    
                                             7(a).                      
Handicapped assistance loans..............  Small Business Act, sec.    
                                             7(a)(10).                  
Small business energy loans...............  Small Business Act, sec.    
                                             7(a)(12).                  
Small general contractors loans...........  Small Business Act, sec.    
                                             7(a)(9).                   
Export revolving line of credit...........  Small Business Act, sec.    
                                             7(a)(14).                  
Vietnam-era and Disabled Veterans Loan      Pub. L. 97-72.              
 Program.                                                               
Debtor State development company loans      Small Business Investment   
 (501) and their small business concerns.    Act, Title V and Small     
                                             Business Act, sec.         
                                             7(a)(13).                  
Debtor State and local development company  Small Business Investment   
 loans (502) and their small business        Act, Title V and Small     
 concerns.                                   Business Act, sec.         
                                             7(a)(13).                  
Debtor certified development companies      Small Business Investment   
 (503) and their small business concerns.    Act, Title V and Small     
                                             Business Act, sec.         
                                             7(a)(13).                  
Debtor small business investment companies  Small Business Investment   
 and their small business concerns.          Act, Title III.            
Pollution Control.........................  Small Business Investment   
                                             Act, Title IV, Part A.     
Surety bond guarantees....................  Small Business Investment   
                                             Act, Title IV, Part B.     
Lease guarantees (not funded) disaster      Small Business Investment   
 loans.                                      Act, Title IV.             
Physical..................................  Small Business Act, sec.    
                                             7(b)(1).                   
Economic injury (EIDL)....................  Small Business Act, sec.    
                                             7(b)(2).                   
Federal action--economic injury...........  Small Business Act, sec.    
                                             7(b)(3).                   
Currency fluctuation--economic injury.....  Small Business Act, sec     
                                             7(b)(4).                   
                                                                        
------------------------------------------------------------------------
                          Nonfinancial Programs                         
                                                                        
------------------------------------------------------------------------
Women's business enterprise...............  Executive Order 12138.      
Small business innovation and research....  Small Business Act, sec. 9. 
Procurement automated source system.......  Small Business Act, sec. 8  
                                             and Pub. L. 96-302.        
Business Development Program..............  Small Business Act, sec.    
                                             8(a) and Pub. L. 95-507, as
                                             amended by Pub. L. 96-481. 
Small Business Institute..................  Small Business Act, sec.    
                                             8(b)(1).                   
Certificate of competency.................  Small Business Act, sec.    
                                             8(b)(7) and Pub. L. 95-89. 
Subcontracting Assistance Program.........  Small Business Act, sec.    
                                             8(d) and Pub. L. 95-507.   
Technology Assistance Program.............  Small Business Act, sec. 9. 

[[Page 106]]

                                                                        
Small business development centers........  Small Business Act, sec. 21 
                                             and Pub. L. 96-302.        
International Trade Program...............  Small Business Act, sec. 22 
                                             and Pub. L. 96-481.        
Service Corps of Retired Executives and     Small Business Act, secs.   
 Active Corps of Executives.                 101 and 8(b)(1) and Pub. L.
                                             95-510.                    
Veterans Affairs Programs.................  Pub. L. 93-237.             
Private sector initiatives................  Small Business Act, sec.    
                                             8(b)(1).                   
------------------------------------------------------------------------


[50 FR 1442, Jan. 11, 1985]



PART 114--ADMINISTRATIVE CLAIMS UNDER THE FEDERAL TORT CLAIMS ACT AND REPRESENTATION AND INDEMNIFICATION OF SBA EMPLOYEES--Table of Contents




                  Subpart A--Administrative Tort Claims

Sec.
114.100  Definitions.
114.101  What do these regulations cover?
114.102  When and where do I present a claim?
114.103  Who may file a claim?
114.104  What evidence and information may SBA require relating to my 
          claim?
114.105  Who investigates and considers my claim?
114.106  What if my claim exceeds $5,000?
114.107  What if my claim exceeds $25,000 or has other special features?
114.108  What if my claim is approved?
114.109  What if my claim is denied?

     Subpart B--Representation and Indemnification of SBA Employees

114.110  What is SBA's policy with respect to indemnifying and providing 
          legal representation to SBA employees?
114.111  Does the attorney-client privilege apply when SBA employees are 
          represented by the Government?

    Authority: 15 U.S.C. 634 (b)(1), (b)(6); 28 U.S.C. 2672; 28 CFR 
14.11.

    Source: 61 FR 2401, Jan. 26, 1996, unless otherwise noted.



                  Subpart A--Administrative Tort Claims



Sec. 114.100  Definitions.

    As used throughout this part 114, date of accrual means the date you 
know or reasonably should have known of your injury. The date of accrual 
will depend on the facts of each case. Site means the geographic 
location where the incident giving rise to your claim occurred.



Sec. 114.101  What do these regulations cover?

    This part applies only to monetary claims you assert under the 
Federal Tort Claims Act, 28 U.S.C. 2671 et seq., for injury to or loss 
of property, personal injury, or death arising from the negligent or 
wrongful act or omission of any SBA employee acting within the scope of 
his or her employment.



Sec. 114.102  When and where do I present a claim?

    You must present your claim within two years of the date of accrual 
at the SBA District Office nearest to the site and within the same state 
as the site. You must use an official form obtained from SBA or give 
other written notice of your claim, stating the specific amount of your 
alleged damages and providing enough information to enable SBA to 
investigate your claim. Your claim will be considered presented when SBA 
receives this information.



Sec. 114.103  Who may file a claim?

    (a) If a claim is based on factors listed in the first column, then 
it may be presented by persons listed in the second column.

------------------------------------------------------------------------
               Claim factors                      Claim presenters      
------------------------------------------------------------------------
Injury to or loss of property.............  The owner of the property,  
                                             his or her duly authorized 
                                             agent, or legal            
                                             representative.            
Personal injury...........................  The injured person, his or  
                                             her duly authorized agent, 
                                             or legal representative.   
Death.....................................  The executor, administrator,
                                             or legal representative of 
                                             the decedent's estate, or  
                                             any other person entitled  
                                             to assert the claim under  
                                             applicable state law.      
Loss wholly compensated by an insurer with  The parties individually, as
 rights as a subrogee.                       their interests appear, or 
                                             jointly.                   
------------------------------------------------------------------------

    (b) An agent or legal representative may present your claim in your 
name, but must sign the claim, state his or her title or legal capacity, 
and include documentation of authority to present the claim on your 
behalf.

[[Page 107]]



Sec. 114.104  What evidence and information may SBA require relating to my claim?

    (a) For a claim based on injury to or loss of property:
    (1) Proof you own the property.
    (2) A specific statement of the damage you claim with respect to 
each item of property.
    (3) Itemized receipts for payment for necessary repairs or itemized 
written estimates of the cost of such repairs.
    (4) A statement listing date of purchase, purchase price and salvage 
value, where repair is not economical.
    (5) Full information about potential insurance coverage and any 
insurance claims or payments relating to your claim.
    (6) Any other information that may be relevant to the government's 
alleged liability or the damages you claim.
    (b) For a claim based on personal injury, including pain and 
suffering:
    (1) A written report from your health care provider stating the 
nature and extent of your injury and treatment, the degree of your 
temporary or permanent disability, your prognosis, period of 
hospitalization, and any diminished earning capacity.
    (2) A written report following a physical, dental or mental 
examination of you by a physician employed by SBA or another Federal 
Agency. If you want a copy of this report, you must request it in 
writing, furnish SBA with the written report of your health care 
provider, if SBA requests it, and make or agree to make available to SBA 
any other medical reports relevant to your claim.
    (3) Itemized bills for medical, dental and hospital expenses you 
have incurred, or itemized receipts of payment for these expenses.
    (4) Your health care provider's written statement of the expected 
expenses related to any necessary future treatment.
    (5) A statement from your employer showing actual time lost from 
employment, whether you are a full or part-time employee, and the wages 
or salary you actually lost.
    (6) Documentary evidence showing the amount of earnings you actually 
lost if you are self-employed.
    (7) Information about the existence of insurance coverage and any 
insurance claims or payments relating to the claim in question.
    (8) Any other information that may be relevant to the government's 
alleged liability or the damages you claim.
    (c) For a claim based on death:
    (1) An authenticated death certificate or other competent evidence 
showing cause of death, date of death, and age of the decedent.
    (2) Evidence of decedent's employment or occupation at the time of 
death, including monthly or yearly salary or earnings, and the duration 
of such employment or occupation.
    (3) Full names, addresses, birth dates, kinship, and marital status 
of the decedent's survivors, including identification of those survivors 
who were dependent upon the decedent for support at the time of his or 
her death.
    (4) Evidence of the support provided by the decedent to each 
dependent survivor at the time of his or her death.
    (5) A summary of the decedent's general physical and mental 
condition before death.
    (6) Itemized bills or receipts for payments for medical and burial 
expenses.
    (7) For pain and suffering damage claims, a physician's detailed 
statement specifying the injuries suffered, the duration of pain and 
suffering, any drugs administered for pain, and the decedent's physical 
condition in the interval between injury and death.
    (8) Any other information that may be relevant to the government's 
alleged liability or the damages claimed.



Sec. 114.105  Who investigates and considers my claim?

    (a) SBA may investigate, or ask another Federal agency to 
investigate, your claim. SBA also may request any Federal agency to 
conduct a physical examination of you and provide a report to SBA. SBA 
will reimburse the Federal agency for the costs of that examination when 
authorized or required by statute or regulation.
    (b) In those cases in which SBA investigates your claim, the SBA 
District Counsel with jurisdiction over the site will conduct an 
investigation and make recommendations or a determination with respect 
to your claim.

[[Page 108]]

The District Counsel may negotiate with you and is authorized to use 
alternative dispute resolution mechanisms (nonbinding on SBA) when they 
may promote the prompt, fair and efficient resolution of your claim.
    (c) If your claim is for $5,000 or less, the District Counsel may 
deny the claim, or may recommend approval, compromise, or settlement of 
the claim to the General Counsel or designee, who may take final action. 
The District Counsel first must refer the claim to SBA's General Counsel 
or designee for review if SBA should consult with the Department of 
Justice before approving the claim, as required under Sec. 114.107.



Sec. 114.106  What if my claim exceeds $5,000?

    The District Counsel must review and investigate your claim and 
forward it with a report and recommendation to the General Counsel or 
designee, who may approve or deny an award, compromise, or settlement of 
claims in excess of $5,000, but not exceeding $25,000. The General 
Counsel or designee will handle claims in excess of $25,000 as required 
by Sec. 114.107.



Sec. 114.107  What if my claim exceeds $25,000 or has other special features?

    (a) The U.S. Attorney General or designee must approve in writing 
any award, compromise, or settlement of a claim in excess of $25,000. 
For this purpose, a principal claim and any derivative or subrogated 
claim are considered a single claim.
    (b) SBA must consult with the Department of Justice before 
adjusting, determining, compromising, or settling a claim whenever the 
General Counsel or designee determines:
    (1) The claim involves a new precedent or a new point of law; or
    (2) The claim involves or may involve a question of policy; or
    (3) The United States is or may be entitled to indemnity or 
contribution from a third party and SBA is unable to adjust the third 
party claim; or
    (4) Approval of a claim, as a practical matter, will or may control 
the disposition of a related claim in which the amount to be paid may 
exceed $25,000.
    (c) SBA must consult with the Department of Justice before 
adjusting, determining, compromising, or settling a claim whenever SBA 
learns that the United States, or any of its employees, agents, or cost-
plus contractors, is involved in litigation based on a claim arising out 
of the same incident or transaction.
    (d) SBA, acting through its General Counsel or designee, must make 
any referrals to the Department of Justice for approval or consultation 
by transmitting them in writing to the Assistant Attorney General, Civil 
Division.
    (1) The referral must contain a short and concise statement of the 
facts and the reason for the request or referral, copies of the relevant 
portions of the claim file, and SBA's views and recommendations.
    (2) SBA may make this referral at any time after a claim is 
presented.



Sec. 114.108  What if my claim is approved?

    SBA will notify you in writing if it approves your claim. The 
District Counsel will forward to you or your agent or legal 
representative the forms necessary to indicate satisfaction of your 
claim and your acceptance of the payment. Acceptance by you, your agent 
or your legal representative, of any award, compromise or settlement of 
your claim is final and conclusive under the Federal Tort Claims Act. It 
binds you, your agent or your legal representative, and any other person 
on whose behalf or for whose benefit the claim was presented. It also 
constitutes a complete release of your claim against the United States 
and its employees. If you are represented by counsel, SBA will designate 
you and your counsel as joint payees and will deliver the check to your 
counsel. Payment is contingent upon the waiver of your claim and is 
subject to the availability of appropriated funds.



Sec. 114.109  What if my claim is denied?

    SBA will notify you or your agent or legal representative in writing 
by certified or registered mail if it denies your claim. You have a 
right to file suit in an appropriate U.S. District Court not later than 
six months after the date the notification was mailed.

[[Page 109]]



     Subpart B--Representation and Indemnification of SBA Employees



Sec. 114.110  What is SBA's policy with respect to indemnifying and providing legal representation to SBA employees?

    (a) If an SBA employee engages in conduct, within the scope of his 
or her employment, which gives rise to a claim, and the SBA 
Administrator or designee determines that any of the following actions 
relating to the claim are in SBA's interest, SBA may:
    (1) Indemnify the employee after a verdict, judgment, or other 
monetary award is rendered personally against the employee in any civil 
suit in state or federal court or any arbitration proceeding;
    (2) Settle or compromise the claim; and/or
    (3) Pay for, or request that the Department of Justice provide, 
legal representation to the employee once personally named in such a 
suit.
    (b) If you are an SBA employee, you may ask SBA to settle or 
compromise your claim, provide you with legal representation, or provide 
you with indemnification for a verdict, judgment or award entered 
against you in a suit. To do so, you must submit a timely, written 
request to the General Counsel, with appropriate documentation, 
including copies of any pleadings, verdict, judgment, award, or 
settlement proposal. The General Counsel will decide all requests for 
representation or settlement, and will forward to the Administrator, 
with the accompanying documentation and a recommendation, any requests 
for indemnification.
    (c) Any payments by SBA under this section will be contingent upon 
the availability of appropriated funds.



Sec. 114.111  Does the attorney-client privilege apply when SBA employees are represented by the Government?

    When attorneys employed by SBA participate in any process in which 
SBA seeks to determine whether SBA should request the Department of 
Justice to provide representation to an SBA employee sued, subpoenaed, 
or charged in his or her individual capacity, or whether attorneys 
employed by SBA should provide representational assistance for such an 
employee, those attorneys undertake a full and traditional attorney-
client relationship with the employee with respect to the attorney-
client privilege. If representation is authorized, SBA attorneys who 
assist in the representation of an SBA employee also undertake a full 
and traditional attorney-client relationship with the employee with 
respect to the attorney-client privilege. Unless authorized by the 
employee, the attorney must not disclose to anyone other than attorneys 
also responsible for the employee's representation information 
communicated to the attorney by the client-employee during the course of 
the attorney-client relationship. The attorney-client privilege will 
continue with respect to that information whether or not representation 
is provided, and even if the employee's representation is denied or 
discontinued.



PART 115--SURETY BOND GUARANTEE--Table of Contents




Sec.
115.1  Overview of regulations.
115.2  Savings clause.

          Subpart A--Provisions for All Surety Bond Guarantees

115.10  Definitions.
115.11  Applying to participate in the Surety Bond Guarantee Program.
115.12  General program policies and provisions.
115.13  Eligibility of Principal.
115.14  Loss of Principal's eligibility for future assistance.
115.15  Underwriting and servicing standards.
115.16  Determination of Surety's Loss.
115.17  Minimization of Surety's Loss.
115.18  Refusal to issue further guarantees; suspension and termination 
          of PSB status.
115.19  Denial of liability.
115.20  Insolvency of Surety.
115.21  Audits and investigations.

             Subpart B--Guarantees Subject to Prior Approval

115.30  Submission of Surety's guarantee application.
115.31  Guarantee percentage.
115.32  Fees and Premiums.
115.33  Surety bonding line.
115.34  Minimization of Surety's Loss.

[[Page 110]]

115.35  Claims for reimbursement of Losses.
115.36  Indemnity settlements and reinstatement of Principal.

            Subpart C--Preferred Surety Bond (PSB) Guarantees

115.60  Selection and admission of PSB Sureties.
115.61  Duration of PSB program.
115.62  Prohibition on participation in Prior Approval program.
115.63  Allotment of guarantee authority.
115.64  Timeliness requirement.
115.65  General PSB procedures.
115.66  Fees.
115.67  Changes in Contract or bond amount.
115.68  Guarantee percentage.
115.69  Imminent Breach.
115.70  Claims for reimbursement of Losses.
115.71  Denial of liability.

    Authority: 5 U.S.C. app. 3; 15 U.S.C. 687b, 687c, 694a, 694b; Pub. 
L. 101-574, 104 Stat. 2823 (1990).

    Source: 61 FR 3271, Jan. 31, 1996, unless otherwise noted.



Sec. 115.1  Overview of regulations.

    The regulations in this part cover the SBA's Surety Bond Guarantee 
Programs under Part B of Title IV of the Small Business Investment Act 
of 1958, as amended. Subpart A of this part contains regulations common 
to both the program requiring prior SBA approval of each bond guarantee 
(the Prior Approval Program) and the program not requiring prior 
approval (the PSB Program). Subpart B of this part contains the 
regulations applicable only to the Prior Approval Program. Subpart C of 
this part contains the regulations applicable only to the PSB Program.



Sec. 115.2  Savings clause.

    Transactions affected by this part 115 are governed by the 
regulations in effect at the time they occur.



          Subpart A--Provisions for All Surety Bond Guarantees



Sec. 115.10  Definitions.

    AA/SG means SBA's Associate Administrator for Surety Guarantees.
    Affiliate is defined in part 121 of this chapter.
    Ancillary Bond means a bond incidental and essential to the 
performance of a Contract for which there is a guaranteed Final Bond.
    Bid Bond means a bond conditioned upon the bidder on a Contract 
entering into the Contract, and furnishing the required Payment and 
Performance Bonds. The term does not include a forfeiture bond unless it 
is issued for a jurisdiction where statute or settled decisional law 
requires forfeiture bonds for public works.
    Contract means a written obligation of the Principal requiring the 
furnishing of services, supplies, labor, materials, machinery, 
equipment, or construction. A Contract must not prohibit a Surety from 
performing the Contract upon default of the Principal. A Contract does 
not include a permit, subdivision contract, lease, land contract, 
evidence of debt, financial guarantee (e.g., a contract requiring any 
payment by the Principal to the Obligee), warranty of performance or 
efficiency, warranty of fidelity, or release of lien (other than for 
claims under a guaranteed bond). It includes a maintenance agreement of 
2 years or less which covers defective workmanship or materials only. 
With SBA's written approval, it can also include a longer maintenance 
agreement covering defective workmanship or materials, or a maintenance 
agreement covering something other than defective workmanship or 
materials. To qualify for such approval, the agreement must be ancillary 
to the Contract for which SBA is guaranteeing a bond, must be required 
to be performed by the same Principal, and must be customarily required 
in the relevant trade or industry.
    Execution means signing by a representative or agent of the Surety 
with the authority and power to bind the Surety.
    Final Bond means a Performance Bond and/or a Payment Bond.
    Imminent Breach means a threat to the successful completion of a 
bonded Contract which, unless remedied by the Surety, makes a default 
under the bond appear to be inevitable.
    Investment Act means the Small Business Investment Act of 1958 (15 
U.S.C. 661 et seq.), as amended.
    Loss has the meaning set forth in Sec. 115.16.

[[Page 111]]

    Obligee means:
    (1)(i) In the case of a Bid Bond, the Person requesting bids for the 
performance of a Contract; or
    (ii) In the case of a Final Bond, the Person who has contracted with 
a Principal for the completion of the Contract and to whom the primary 
obligation of the Surety runs in the event of a breach by the Principal.
    (2) In either case, no Person (other than a Federal department or 
agency) may be named co-Obligee or Obligee on a bond or on a rider to 
the bond unless that Person is bound by the Contract to the Principal 
(or to the Surety, if the Surety has arranged completion of the 
Contract) to the same extent as the original Obligee. In no event may 
the addition of one or more co-Obligees increase the aggregate liability 
of the Surety under the bond.
    OSG means SBA's Office of Surety Guarantees.
    Payment Bond means a bond which is conditioned upon the payment by 
the Principal of money to persons who have a right of action against 
such bond, including those who have furnished labor, materials, 
equipment and supplies for use in the performance of the Contract. A 
Payment Bond can not require the Surety to pay an amount which exceeds 
the claimant's actual loss or damage.
    Performance Bond means a bond conditioned upon the completion by the 
Principal of a Contract in accordance with its terms.
    Person means a natural person or a legal entity.
    Premium means the amount charged by a Surety to issue bonds. The 
Premium is determined by applying an approved rate (see Secs. 115.32(a) 
and 115.60(a)(2)) to the bond or contract amount. The Premium does not 
include surcharges for extra services, whether or not considered part of 
the ``premium'' under local law.
    Principal means, in the case of a Bid Bond, the Person bidding for 
the award of a Contract. In the case of Final Bonds and Ancillary Bonds, 
Principal means the Person primarily liable to complete the Contract, or 
to make Contract-related payments to other persons, and is the Person 
whose performance or payment is bonded by the Surety. A Principal may be 
a prime contractor or a subcontractor.
    Prior Approval Agreement means the Surety Bond Guarantee Agreement 
(SBA Form 990) entered into between a Prior Approval Surety and SBA 
under which SBA agrees to guarantee a specific bond.
    Prior Approval Surety means a Surety which must obtain SBA's prior 
approval on each guarantee and which has entered into one or more Prior 
Approval Agreements with SBA.
    PSB Agreement means the Preferred Surety Bond Guarantee Agreement 
entered into between a PSB Surety and SBA.
    PSB Surety means a Surety that has been admitted to the Preferred 
Surety Bond (PSB) Program.
    Surety means a company which:
    (1)(i) Under the terms of a Bid Bond, agrees to pay a sum of money 
to the Obligee if the Principal breaches the conditions of the bond;
    (ii) Under the terms of a Performance Bond, agrees to pay a sum of 
money or to incur the cost of fulfilling the terms of a Contract if the 
Principal breaches the conditions of the Contract; and
    (iii) Under the terms of a Payment or an Ancillary Bond, agrees to 
make payment to all who have a right of action against such bond, 
including those who have furnished labor, materials, equipment and 
supplies in the performance of the Contract.
    (2) The term Surety includes an agent, independent agent, 
underwriter, or any other company or individual empowered to act on 
behalf of the Surety.

[61 FR 3271, Jan. 31, 1996; 61 FR 7985, Mar. 1, 1996]



Sec. 115.11  Applying to participate in the Surety Bond Guarantee Program.

    Sureties interested in participating as Prior Approval Sureties or 
PSB Sureties should apply in writing to the AA/SG at 409 3rd Street, 
SW., Washington, DC 20416. OSG will determine the eligibility of the 
applicant considering its standards and procedures for underwriting, 
administration, claims and recovery. Each applicant must be a 
corporation listed by the U.S. Treasury as eligible to issue bonds in 
connection with Federal procurement contracts.

[[Page 112]]



Sec. 115.12  General program policies and provisions.

    (a) Description of Surety Bond Guarantee Programs. SBA guarantees 
Sureties participating in the Surety Bond Guarantee Programs against a 
portion of their Losses incurred and paid as a result of a Principal's 
breach of the terms of a Bid Bond, Final Bond or Ancillary Bond, on any 
eligible Contract. In the Prior Approval Program, the Surety must obtain 
SBA's approval before a guaranteed bond can be issued. In the PSB 
Program, selected Sureties may issue, monitor, and service SBA 
guaranteed bonds without further SBA approval.
    (b) Eligibility of bonds. Bid Bonds and Final Bonds are eligible for 
an SBA guarantee if they are executed in connection with an eligible 
Contract and are of a type listed in the ``Contract Bonds'' section of 
the current Manual of Rules, Procedures and Classifications of the 
Surety Association of America (100 Wood Avenue South, Iselin, New Jersey 
08830). Ancillary Bonds may also be eligible for SBA's guarantee. A 
Performance Bond must not prohibit a Surety from performing the Contract 
upon default of the Principal.
    (c) Expiration of Bid Bond Guarantee. A Bid Bond guarantee expires 
120 days after Execution of the Bid Bond, unless the Surety notifies SBA 
in writing before the 120th day that a later expiration date is 
required. The notification must include the new expiration date.
    (d) Guarantee agreement. The terms and conditions of SBA's bond 
guarantee agreements, including the guarantee percentage, may vary from 
Surety to Surety, depending on past experience with SBA. If the 
guarantee percentage is not fixed by the Investment Act, it is 
determined by OSG after considering, among other things, the rating or 
ranking assigned to the Surety by recognized authority, and the Surety's 
Loss rate, average Contract amount, average bond penalty per guaranteed 
bond, and ratio of Bid Bonds to Final Bonds, all in comparison with 
other Sureties participating in the same SBA Surety Bond Guarantee 
Program (Prior Approval or PSB) to a comparable degree. Any guarantee 
agreement under this part is made exclusively for the benefit of SBA and 
the Surety, and does not confer any rights (such as a right of action 
against SBA) or benefits on any other party.
    (e) Amount of Contract--(1) Statutory ceiling. The amount of the 
Contract to be bonded must not exceed $1,250,000 in face value at the 
time of the bond's Execution.
    (2) Aggregation of Contract amounts. The amounts of two or more 
Contracts for a ``single project'' are aggregated to determine the 
Contract amount unless the Contracts are to be performed in phases and 
the prior bond is released before the beginning of each succeeding 
phase. A bond may be considered released even if the warranty period it 
is covering has not yet expired. For purposes of this paragraph, a 
``single project'' means one represented by two or more Contracts of one 
Principal or its Affiliates with one Obligee or its Affiliates for 
performance at the same location, regardless of job title or nature of 
the work to be performed.
    (3) Service and supply contracts. A service or supply Contract 
covering more than a 1 year period is eligible for an SBA guaranteed 
bond if neither the annual Contract amount nor the penal sum of the bond 
exceeds $1,250,000 at any time.
    (f) Transfers or sales by Surety. Sureties must not sell or 
otherwise transfer their files or accounts, whether before or after a 
default by the Principal has occurred, without the prior written 
approval of SBA. A violation of this provision is grounds for 
termination from participation in the program. This provision does not 
apply to the sale of an entire business division, subsidiary or 
operation of the Surety.



Sec. 115.13  Eligibility of Principal.

    (a) General eligibility. In order to be eligible for a bond 
guaranteed by SBA, the Principal must comply with the following 
requirements:
    (1) Size. Together with its Affiliates, it must qualify as a small 
business under part 121 of this title.
    (2) Character. It must possess good character and reputation. A 
Principal meets this standard if each owner of 20% or more of its 
equity, and each of

[[Page 113]]

its officers, directors, or general partners, possesses good character 
and reputation. A Person's good character and reputation is presumed 
absent when:
    (i) The Person is under indictment for, or has been convicted of a 
felony, or a final civil judgment has been entered stating that such 
Person has committed a breach of trust or has violated a law or 
regulation protecting the integrity of business transactions or business 
relationships; or
    (ii) A regulatory authority has revoked, canceled, or suspended a 
license of the Person which is necessary to perform the Contract; or
    (iii) The Person has obtained a bond guarantee by fraud or material 
misrepresentation (as described in Sec. 115.19(b)), or has failed to 
keep the Surety informed of unbonded contracts or of a contract bonded 
by another Surety, as required by a bonding line commitment under 
Sec. 115.33.
    (3) Need for bond. It must certify that a bond is expressly required 
by the bid solicitation or the original Contract in order to bid on the 
Contract or to serve as a prime contractor or subcontractor.
    (4) Availability of bond. It must certify that a bond is not 
obtainable on reasonable terms and conditions without SBA's guarantee.
    (5) Partial subcontract. It must certify the percentage of work 
under the Contract to be subcontracted. SBA will not guarantee bonds for 
Principals who are primarily brokers or who have effectively transferred 
control over the project to one or more subcontractors.
    (6) Debarment. It must certify that the Principal is not presently 
debarred, suspended, proposed for debarment, declared ineligible, or 
voluntarily excluded from transactions with any Federal department or 
agency, under governmentwide debarment and suspension rules.
    (b) Conflict of interest. A Principal is not eligible for an SBA-
guaranteed bond issued by a particular Surety if that Surety, or an 
Affiliate of that Surety, or a close relative or member of the household 
of that Surety or Affiliate owns, directly or indirectly, 10% or more of 
the Principal. This prohibition also applies to ownership interests in 
any of the Principal's Affiliates.



Sec. 115.14  Loss of Principal's eligibility for future assistance.

    (a) Ineligibility. A Principal and its Affiliates lose eligibility 
for further SBA bond guarantees if any of the following occurs under an 
SBA-guaranteed bond issued on behalf of the Principal:
    (1) Legal action under the guaranteed bond has been initiated.
    (2) The Obligee has declared the Principal to be in default under 
the Contract.
    (3) The Surety has established a claim reserve for the bond of at 
least $1000.
    (4) The Surety has requested reimbursement for Losses incurred under 
the bond.
    (5) The guarantee fee has not been paid by the Principal.
    (6) The Principal committed fraud or material misrepresentation in 
obtaining the guaranteed bond.
    (b) Reinstatement of Principal's eligibility. Prior Approval 
Sureties should refer to Sec. 115.36(b) for provisions on reinstatement 
of the Principal's eligibility. A PSB Surety may reinstate a Principal's 
eligibility upon the Surety's determination that reinstatement is 
appropriate.



Sec. 115.15  Underwriting and servicing standards.

    (a) Underwriting. (1) Sureties must evaluate the credit, capacity, 
and character of a Principal using standards generally accepted by the 
surety industry and in accordance with SBA's Standard Operating 
Procedures on underwriting and the Surety's principles and practices on 
unguaranteed bonds. The Principal must satisfy the eligibility 
requirements set forth in Sec. 115.13. The Surety must reasonably expect 
that the Principal will successfully perform the Contract to be bonded.
    (2) The terms and conditions of the bond and the Contract must be 
reasonable in light of the risks involved and the extent of the Surety's 
participation. The bond must satisfy the eligibility requirements set 
forth in Sec. 115.12(b). The Surety must be satisfied as to the 
reasonableness of cost and the feasibility of successful completion of 
the Contract.

[[Page 114]]

    (b) Servicing. The Surety must ensure that the Principal remains 
viable and eligible for SBA's Surety Bond Guarantee Program, must 
monitor the Principal's progress on bonded Contracts guaranteed by SBA, 
and must request job status reports from Obligees of Final Bonds 
guaranteed by SBA. Documentation of the job status requests must be 
maintained by the Surety.



Sec. 115.16  Determination of Surety's Loss.

    Loss is determined as follows:
    (a) Loss under a Bid Bond is the lesser of the penal sum or the 
amount which is the difference between the bonded bid and the next 
higher responsive bid. In either case, the Loss is reduced by any 
amounts the Surety recovers by reason of the Principal's defenses 
against the Obligee's demand for performance by the Principal and any 
sums the Surety recovers from indemnitors and other salvage.
    (b) Loss under a Payment Bond is, at the Surety's option, the sum 
necessary to pay all just and timely claims against the Principal for 
the value of labor, materials, equipment and supplies furnished for use 
in the performance of the bonded Contract and other covered debts, or 
the penal sum of the Payment Bond. In either case, the Loss includes 
interest (if any), but Loss is reduced by any amounts recovered (through 
offset or otherwise) by reason of the Principal's claims against 
laborers, materialmen, subcontractors, suppliers, or other rightful 
claimants, and by any amounts recovered from indemnitors and other 
salvage.
    (c) Loss under a Performance Bond is, at the Surety's option, the 
sum necessary to meet the cost of fulfilling the terms of a bonded 
Contract or the penal sum of the bond. In either case, the Loss includes 
interest (if any), but Loss is reduced by any amounts recovered (through 
offset or otherwise) by reason of the Principal's defenses or causes of 
action against the Obligee, and by any amounts recovered from 
indemnitors and other salvage.
    (d) Loss under an Ancillary Bond is the amount covered by such bond 
which is attributable to the Contract for which guaranteed Final Bonds 
were Executed.
    (e) Loss includes the following expenses if they are itemized, 
documented and attributable solely to the Loss under the guaranteed 
bond:
    (1) Amounts actually paid by the Surety which are specifically 
allocable to the investigation, adjustment, negotiation, compromise, 
settlement of, or resistance to a claim for Loss resulting from the 
breach of the terms of the bonded Contract. Any cost allocation method 
must be reasonable and must comply with generally accepted accounting 
principles; and
    (2) Amounts actually paid by the Surety for court costs and 
reasonable attorney's fees incurred to mitigate any Loss under 
paragraphs (a) through (e)(1) of this section including suits to obtain 
sums due from Obligees, indemnitors, Principals and others.
    (f) Loss does not include the following expenses:
    (1) Any unallocated expenses, or any clear mark-up on expenses or 
any overhead, of the Surety, its attorney, or any other party hired by 
the Surety or the attorney;
    (2) Expenses paid for any suits, cross-claims, or counterclaims 
filed against the United States of America or any of its agencies, 
officers, or employees unless the Surety has received, prior to filing 
such suit or claim, written concurrence from SBA that the suit may be 
filed;
    (3) Attorney's fees and court costs incurred by the Surety in a suit 
by or against SBA or its Administrator; and
    (4) Fees, costs, or other payments, including tort damages, arising 
from a successful tort suit or claim by a Principal or any other Person 
against the Surety.



Sec. 115.17  Minimization of Surety's Loss.

    (a) Indemnity agreements and collateral--(1) Requirements. The 
Surety must take all reasonable action to minimize risk of Loss 
including, but not limited to, obtaining from each Principal a written 
indemnity agreement which covers actual Losses under the Contract and 
Imminent Breach payments under Sec. 115.34(a) or Sec. 115.69. The 
indemnity agreement must be secured by such collateral as the Surety or 
SBA finds appropriate. Indemnity agreements from other Persons, secured 
or

[[Page 115]]

unsecured, may also be required by the Surety or SBA.
    (2) Prohibitions. No indemnity agreement may be obtained from the 
Surety, its agent or any other representative of the Surety. The Surety 
must not separately collateralize the portion of its bond which is not 
guaranteed by SBA.
    (b) Salvage and recovery--(1) General. The Surety must pursue all 
possible sources of salvage and recovery. Salvage and recovery includes 
all payments made in settlement of the Surety's claim, even though the 
Surety has incurred other losses as a result of that Principal which are 
not reimbursable by SBA.
    (2) SBA's share. SBA is entitled to its guaranteed percentage of all 
salvage and recovery from a defaulted Principal, its guarantors and 
indemnitors, and any other party, received by the Surety in connection 
with the guaranteed bond or any other bond issued by the Surety on 
behalf of the Principal unless such recovery is unquestionably 
identifiable as related solely to the non-guaranteed bond. The Surety 
must reimburse or credit SBA (in the same proportion as SBA's share of 
Loss) within 90 days of receipt of any recovery by the Surety.
    (3) Multiple Sureties. In any dispute between two or more Sureties 
concerning recovery under SBA guaranteed bonds, the dispute must first 
be brought to the attention of OSG for an attempt at mediation and 
settlement.



Sec. 115.18  Refusal to issue further guarantees; suspension and termination of PSB status.

    (a) Improper surety bond guarantee practices--(1) Imprudent 
practices. SBA may refuse to issue further guarantees to a Prior 
Approval Surety or may suspend the preferred status of a PSB Surety, by 
written notice stating all reasons for such decision and the effective 
date. Reasons for such a decision include, but are not limited to, a 
determination that the Surety (in its underwriting, its efforts to 
minimize Loss, its claims or recovery practices, or its documentation 
related to SBA guaranteed bonds) has failed to adhere to prudent 
standards or practices, including any standards or practices required by 
SBA, as compared to those of other Sureties participating in the same 
SBA Surety Bond Guarantee Program to a comparable degree.
    (2) Regulatory violations, fraud. Acts of wrongdoing such as fraud, 
material misrepresentation, breach of the Prior Approval or PSB 
Agreement, or regulatory violations (as defined in Secs. 115.19(d) and 
115.19(h)) also constitute sufficient grounds for refusal to issue 
further guarantees, or in the case of a PSB Surety, termination of 
preferred status.
    (3) Audit; records. The failure of a Surety to consent to SBA's 
audit or to maintain and produce records constitutes grounds for SBA to 
refuse to issue further guarantees for a Prior Approval Surety, to 
suspend a PSB Surety from participation, and to refuse to honor claims 
submitted by a Prior Approval or PSB Surety until the Surety consents to 
the audit.
    (4) Excessive Losses. If a Surety experiences excessive Losses on 
SBA guaranteed bonds relative to those of other Sureties participating 
in the same SBA Surety Bond Guarantee Program to a comparable degree, 
SBA may also require the renegotiation of the guarantee percentage and/
or SBA's charge to the Surety for bonds executed thereafter.
    (b) Lack of business integrity. A Surety's participation in the 
Surety Bond Guarantee Programs may be denied, suspended, or terminated 
upon the occurrence of any event in paragraphs (b) (1) through (5) of 
this section involving any of the following Persons: The Surety or any 
of its officers, directors, partners, or other individuals holding at 
least 20% of the Surety's voting securities, and any agents, 
underwriters, or any individual empowered to act on behalf of any of the 
preceding Persons.
    (1) If a State or other authority has revoked, canceled, or 
suspended the license required of such Person to engage in the surety 
business, the right of such Person to participate in the SBA Surety Bond 
Guarantee Program may be denied, terminated, or suspended, as 
applicable, in that jurisdiction or in other jurisdictions. 
Ineligibility or suspension from the Surety Bond Guarantee Programs is 
for at least the duration of the license suspension.

[[Page 116]]

    (2) If such Person has been indicted or otherwise formally charged 
with a misdemeanor or felony bearing on such Person's fitness to 
participate in the Surety Bond Guarantee Programs, the participation of 
such Person may be suspended pending disposition of the charge. Upon 
conviction, participation may be denied or terminated.
    (3) If a final civil judgment is entered holding that such Person 
has committed a breach of trust or violation of a law or regulation 
protecting the integrity of business transactions or relationships, 
participation may be denied or terminated.
    (4) If such Person has made a material misrepresentation or 
willfully false statement in the presentation of oral or written 
information to SBA in connection with an application for a surety bond 
guarantee or the presentation of a claim, or committed a material breach 
of the Prior Approval or PSB Agreement or a material violation of the 
regulations (all as described in Sec. 115.19), participation may be 
denied or terminated.
    (5) If such Person is debarred, suspended, voluntarily excluded 
from, or declared ineligible for participation in Federal programs, 
participation may be denied or terminated.
    (c) Notification requirement. The Prior Approval or PSB Surety must 
promptly notify SBA of the occurrence of any event in paragraphs (b) (1) 
through (5) of this section, or if any of the Persons described in 
paragraph (b) of this section does not, or ceases to, qualify as a 
Surety. SBA may require submission of a Statement of Personal History 
(SBA Form 912) from any of these Persons.
    (d) SBA proceedings. Decisions to suspend, terminate, deny 
participation in, or deny reinstatement in the Surety Bond Guarantee 
program are made by the AA/SG. A Surety may file a petition for review 
of suspensions and terminations with the SBA Office of Hearings and 
Appeals (OHA) under part 134 of this chapter. SBA's Administrator may, 
pending a decision pursuant to Part 134 of this chapter, suspend the 
participation of any Surety for any of the causes listed in paragraphs 
(b) (1) through (5) of this section.
    (e) Effect on guarantee. A guarantee issued by SBA before a 
suspension or termination under this section remains in effect, subject 
to SBA's right to deny liability under the guarantee.



Sec. 115.19  Denial of liability.

    In addition to equitable and legal defenses and remedies under 
contract law, the Act and the regulations in this part, SBA is not 
liable under a Prior Approval or PSB Agreement if any of the 
circumstances in paragraphs (a) through (h) of this section exist.
    (a) Excess Contract or bond amount. The total Contract amount at the 
time of Execution of the bond exceeds $1,250,000 in face value (see 
Sec. 115.12(e)), or the bond amount at any time exceeds the total 
Contract amount.
    (b) Misrepresentation or fraud. The Surety obtained the Prior 
Approval or PSB Agreement, or applied for reimbursement for losses, by 
fraud or material misrepresentation. Material misrepresentation includes 
(but is not limited to) both the making of an untrue statement of 
material fact and the omission of a statement of material fact necessary 
to make a statement not misleading in light of the circumstances in 
which it was made. Material misrepresentation also includes the adoption 
by the Surety of a material misstatement made by others which the Surety 
knew or under generally accepted underwriting standards should have 
known to be false or misleading. The Surety's failure to disclose its 
ownership (or the ownership by any owner of at least 20% of the Surety's 
equity) of an interest in a Principal or an Obligee is considered the 
omission of a statement of material fact.
    (c) Material breach. The Surety has committed a material breach of 
one or more terms or conditions of its Prior Approval or PSB Agreement. 
A material breach is considered to have occurred if:
    (1) Such breach (or such breaches in the aggregate) causes an 
increase in the Contract amount or in the bond amount of at least 25% or 
$50,000; or
    (2) One of the conditions under Part B of Title IV of the Investment 
Act is not met.
    (d) Substantial regulatory violation. The Surety has committed a 
``substantial violation'' of SBA regulations. For

[[Page 117]]

purposes of this paragraph, a ``substantial violation'' is a violation 
which causes an increase in the bond amount of at least 25% or $50,000 
in the aggregate, or is contrary to the purposes of the Surety Bond 
Guarantee Programs.
    (e) Alteration. Without obtaining prior written approval from SBA 
(which may be conditioned upon payment of additional fees), the Surety 
agrees to or acquiesces in any material alteration in the terms, 
conditions, or provisions of the bond, including but not limited to the 
following acts:
    (1) Naming as an Obligee or co-Obligee any Person that does not 
qualify as an Obligee under Sec. 115.10; or
    (2) In the case of a Prior Approval Surety, acquiescing in any 
alteration to the bond which would increase the bond amount by at least 
25% or $50,000.
    (f) Timeliness. (1) Either:
    (i) The bond was Executed prior to the date of SBA's guarantee; or
    (ii) The bond was Executed (or approved, if the Surety is legally 
bound by such approval) after the work under the Contract had begun, 
unless SBA executes a ``Surety Bond Guarantee Agreement Addendum'' (SBA 
Form 991) after receiving all of the following from the Surety:
    (A) Satisfactory evidence, including a certified copy of the 
Contract (or a sworn affidavit from the Principal), showing that the 
bond requirement was contained in the original Contract, or other 
documentation satisfactory to SBA, showing why a bond was not previously 
obtained and is now being required;
    (B) Certification by the Principal that all taxes and labor costs 
are current, and listing all suppliers and subcontractors, indicating 
that they are all paid to date, and attaching a waiver of lien from 
each; or an explanation satisfactory to SBA why such documentation 
cannot be produced; and
    (C) Certification by the Obligee that all payments due under the 
Contract to date have been made and that the job has been satisfactorily 
completed to date.
    (2)(i) For purposes of paragraph (f)(1)(ii) of this section, work 
under a Contract is considered to have begun when a Principal takes any 
action at the job site which would have exposed its Surety to liability 
under applicable law had a bond been Executed (or approved, if the 
Surety is legally bound by such approval) at the time.
    (ii) For purposes of this paragraph (f), the Surety must maintain a 
contemporaneous record of the Execution and approval of each bond.
    (g) Principal fee. The Surety has not remitted to SBA the 
Principal's payment for the full amount of the guarantee fee within the 
time period required under Sec. 115.30(d) for Prior Approval Sureties or 
Sec. 115.66 for PSB Sureties. SBA may reinstate the guarantee upon a 
showing that the Contract is not in default and that a valid reason 
exists why a timely submission was not made.
    (h) Other regulatory violations. The occurrence of any of the 
following:
    (1) The Principal on the bonded Contract is not a small business;
    (2) The bond was not required under the bid solicitation or the 
original Contract;
    (3) The bond was not eligible for guarantee by SBA because the 
bonded contract was not a Contract as defined in Sec. 115.10;
    (4) The loss occurred under a bond that was not guaranteed by SBA;
    (5) The loss incurred by the Surety was not a Loss as determined 
under Sec. 115.16; or
    (6) The Surety's loss under a Performance Bond did not result from 
the Principal's breach or Imminent Breach of the Contract.



Sec. 115.20  Insolvency of Surety.

    (a) Successor in interest. If a Surety becomes insolvent, all rights 
or benefits conferred on the Surety under a valid and binding Prior 
Approval or PSB Agreement will accrue only to the trustee or receiver of 
the Surety. SBA will not be liable to the trustee or receiver of the 
insolvent Surety except for the guaranteed portion of any Loss incurred 
and actually paid by such Surety or its trustee or receiver under the 
guaranteed bonds.
    (b) Filing requirement. The trustee or receiver must submit to SBA 
quarterly status reports accounting for all funds received and all 
settlements being considered.

[[Page 118]]



Sec. 115.21  Audits and investigations.

    (a) Audits--(1) Scope of audit. SBA may audit in the office of a 
Prior Approval or PSB Surety, the Surety's attorneys or consultants, or 
the Principal or its subcontractors, all documents, files, books, 
records, tapes, disks and other material relevant to SBA's guarantee, 
commitments to guarantee a surety bond, or agreements to indemnify the 
Prior Approval or PSB Surety. See Sec. 115.18(a)(3) for consequences of 
failure to comply with this section.
    (2) Frequency of PSB audits. Each PSB Surety is subject to audit at 
least once each year by examiners selected and approved by SBA.
    (b) Records. The Surety must maintain the records listed in this 
paragraph (b) for the term of each bond, plus any additional time 
required to settle any claims of the Surety for reimbursement from SBA 
and to attempt salvage or other recovery, plus an additional 3 years. If 
there are any unresolved audit findings in relation to a particular 
bond, the Surety must maintain the related records until the findings 
are resolved. The records to be maintained include the following:
    (1) A copy of the bond;
    (2) A copy of the bonded Contract;
    (3) All documentation submitted by the Principal in applying for the 
bond;
    (4) All information gathered by the Surety in reviewing the 
Principal's application;
    (5) All documentation of any of the events set forth in 
Sec. 115.35(a) or Sec. 115.65(c)(2);
    (6) All records of any transaction for which the Surety makes 
payment under or in connection with the bond, including but not limited 
to claims, bills (including lawyers' and consultants' bills), judgments, 
settlement agreements and court or arbitration decisions, consultants' 
reports, Contracts and receipts;
    (7) All documentation relating to efforts to mitigate Losses, 
including documentation required by Sec. 115.34(a) or Sec. 115.69 
concerning Imminent Breach;
    (8) All records of any accounts into which fees and funds obtained 
in mitigation of Losses were paid and from which payments were made 
under the bond, and any other trust accounts, and any reconciliations of 
such accounts;
    (9) Job status reports received from Obligees and documentation of 
each unanswered request for a job status report; and
    (10) All documentation relating to any collateral held by or 
available to the Surety.
    (c) Purpose of audit. SBA's audit will determine, but not be limited 
to:
    (1) The adequacy and sufficiency of the Surety's underwriting and 
credit analysis, its documentation of claims and claims settlement 
procedures and activities, and its recovery procedures and practices;
    (2) The Surety's minimization of Loss, including the exercise of 
bond options upon Contract default; and
    (3) The Surety's loss ratio in comparison with other Sureties 
participating in the same SBA Surety Bond Guarantee Program to a 
comparable degree.
    (d) Investigations. SBA may conduct investigations to inquire into 
the possible violation by any Person of the Small Business Act or the 
Investment Act, or of any rule or regulation under those Acts, or of any 
order issued under those Acts, or of any Federal law relating to 
programs and operations of SBA.



             Subpart B--Guarantees Subject to Prior Approval



Sec. 115.30  Submission of Surety's guarantee application.

    (a) Legal effect of application. By submitting an application to SBA 
for a bond guarantee, the Prior Approval Surety certifies that the 
Principal meets the eligibility requirements set forth in Sec. 115.13 
and that the underwriting standards set forth in Sec. 115.15 have been 
met.
    (b) SBA's determination. SBA's approval or decline of a guarantee 
application is made in writing by an authorized SBA officer. The officer 
may provide telephone notice before the Prior Approval Surety receives 
SBA's guarantee approval form if the officer has already signed the 
form. In the event of a conflict between the telephone notice and the 
written form, the written form controls.

[[Page 119]]

    (c) Reconsideration-appeal of SBA determination. A Prior Approval 
Surety may request reconsideration of a decline from the SBA officer who 
made the decision. If the decision on reconsideration is negative, the 
Surety may appeal to an individual designated by the AA/SG. If the 
decision is again adverse, the Surety may appeal to the AA/SG, who will 
make the final decision.
    (d) Notice and payment to SBA. When the Surety has Executed a Final 
Bond, including a Final Bond under a bonding line, the Surety must 
complete the Prior Approval Agreement, and submit the form, together 
with the Principal's payment for its guarantee fee (see Sec. 115.32(b)) 
to SBA within 45 days, or in the case of a bonding line, within 15 
business days (see Sec. 115.33(d)(2)) after Execution of the bond.



Sec. 115.31  Guarantee percentage.

    (a) Ninety percent. SBA reimburses a Prior Approval Surety for 90% 
of the Loss incurred and paid if:
    (1) The total amount of the Contract at the time of Execution of the 
bond is $100,000 or less; or
    (2) The bond was issued on behalf of a small business owned and 
controlled by socially and economically disadvantaged individuals. See 
part 124 of this chapter for applicable definitions and criteria.
    (b) Eighty percent. SBA reimburses a Prior Approval Surety in an 
amount not to exceed 80% of the Loss incurred and paid on bonds for 
Contracts in excess of $100,000 which are executed on behalf of non-
disadvantaged concerns.
    (c) Contract increase to over $100,000. If the Contract amount 
increases to more than $100,000 after Execution of the bond, the 
guarantee percentage decreases by one percentage point for each $5,000 
of increase or part thereof, but it does not decrease below 80%. This 
provision applies only to guarantees which qualify under paragraph 
(a)(1) of this section.
    (d) Contract increase to over $1,250,000. If the Contract amount 
increases above the statutory limit of $1,250,000 after Execution of the 
bond, SBA's share of the Loss is limited to that percentage of the 
increased Contract amount which the statutory limit represents, 
multiplied by the guarantee percentage approved by SBA. For example, if 
a Contract amount increases to $1,375,000, SBA's share of the Loss under 
an 80% guarantee is limited to 72.73% [1,250,000 / 
1,375,000=90.91% x 80%=72.73%].
    (e) Contract decrease to $100,000 or less. If the Contract amount 
decreases to $100,000 or less after Execution of the bond, SBA's 
guarantee percentage increases to 90% if the Surety provides SBA with 
evidence supporting the decrease and any other information or documents 
requested.



Sec. 115.32  Fees and Premiums.

    (a) Surety's Premium. A Prior Approval Surety must not charge a 
Principal an amount greater than that authorized by the appropriate 
insurance department. The Surety must not require the Principal to 
purchase casualty or other insurance or any other services from the 
Surety or any Affiliate or agent of the Surety. The Surety must not 
charge non-Premium fees to a Principal unless the Surety performs other 
services for the Principal, the additional fee is permitted by State 
law, and the Principal agrees to the fee.
    (b) SBA charge to Principal. SBA does not charge Principals 
application or Bid Bond guarantee fees. If SBA guarantees a Final Bond, 
the Principal must pay a guarantee fee equal to a certain percentage of 
the Contract amount. The percentage is determined by SBA and is 
published in Notices in the Federal Register from time to time. The 
Principal's fee is rounded to the nearest dollar and is to be remitted 
to SBA by the Surety together with the form required under 
Sec. 115.30(d). See paragraph (d) of this section for additional 
requirements when the Contract amount changes.
    (c) SBA charge to Surety. SBA does not charge Sureties application 
or Bid Bond guarantee fees. Subject to Sec. 115.18(a)(4), the Surety 
must pay SBA a guarantee fee on each guaranteed bond (other than a Bid 
Bond) in the ordinary course of business. The fee is a certain 
percentage of the bond Premium, determined by SBA and published in 
Notices in the Federal Register from time to time. The fee is rounded to 
the nearest dollar. SBA

[[Page 120]]

does not receive any portion of a Surety's non-Premium charges. See 
paragraph (d) of this section for additional requirements when the bond 
amount or the Contract amount changes.
    (d) Contract or bond increases/decreases--(1) Notification and 
approval. The Prior Approval Surety must notify SBA of any increases or 
decreases in the Contract or bond amount that aggregate 25% or $50,000, 
as soon as the Surety acquires knowledge of the change. Whenever the 
original bond amount increases as a result of a single change order of 
at least 25% or $50,000, the prior written approval of such increase by 
SBA is required on a supplemental Prior Approval Agreement (Supplemental 
Form 990) and is conditioned upon payment by the Surety of the increase 
in the Principal's guarantee fee as set forth in paragraph (d)(2) of 
this section.
    (2) Increases; fees. Notification of increases in the Contract or 
bond amount under this paragraph (d) must be accompanied by payment of 
the increase in the Principal's guarantee fee computed on the increase 
in the Contract amount. If the increase in the Principal's fee is less 
than $40, such increase is not due until all unpaid increases in the 
Principal's fee aggregate at least $40. The Surety's check for payment 
of the increase in the Surety's guarantee fee, computed on the increase 
in the bond Premium, may be submitted in the ordinary course of 
business. Increases in the Surety's fee are not due until they aggregate 
at least $40.
    (3) Decreases; refunds. Whenever SBA is notified of a decrease in 
the Contract or bond amount, SBA will refund to the Principal a 
proportionate amount of the Principal's guarantee fee and rebate to the 
Surety a proportionate amount of SBA's Premium share in the ordinary 
course of business. If the amount to be refunded or rebated is less than 
$40, such refund or rebate will not be made until the amounts to be 
refunded or rebated, respectively, aggregate at least $40. Upon receipt 
of the refund, the Surety must promptly pay a proportionate amount of 
its Premium to the Principal.



Sec. 115.33  Surety bonding line.

    A surety bonding line is a written commitment by SBA to a Prior 
Approval Surety which provides for the Surety's Execution of multiple 
bonds for a specified small business strictly within pre-approved terms, 
conditions and limitations. In applying for a bonding line, the Surety 
must provide SBA with information on the applicant as requested. In 
addition to the other limitations and provisions set forth in this part 
115, the following conditions apply to each surety bonding line:
    (a) Underwriting. A bonding line may be issued by SBA for a 
Principal only if the underwriting evaluation is satisfactory. The Prior 
Approval Surety must require the Principal to keep it informed of all 
its contracts, whether bonded by the same or another surety or unbonded, 
during the term of the bonding line.
    (b) Bonding line conditions. The bonding line contains limitations 
on the following:
    (1) The term of the bonding line, not to exceed 1 year subject to 
renewal in writing;
    (2) The total dollar amount of the Principal's bonded and unbonded 
work on hand at any time, including outstanding bids, during the term of 
the bonding line;
    (3) The number of such bonded and unbonded contracts outstanding at 
any time during the term of the bonding line;
    (4) The maximum dollar amount of any single guaranteed bonded 
Contract;
    (5) The timing of Execution of bonds under the bonding line--bonds 
must be dated and Executed before the work on the underlying Contract 
has begun, or the Surety must submit to SBA the documentation required 
under Sec. 115.19(f)(1)(ii); and
    (6) Any other limitation related to type, specialty of work, 
geographical area, or credit.
    (c) Excess bonding. If, after a bonding line is issued, the 
Principal desires a bond and the Surety desires a guarantee exceeding a 
limitation of the bonding line, the Surety must submit an application to 
SBA under regular procedures.

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    (d) Submission of forms to SBA--(1) Bid Bonds. Within 15 business 
days after the Execution of any Bid Bonds under a bonding line, the 
Surety must submit a ``Surety Bond Guarantee Underwriting Review'' (SBA 
Form 994B) to SBA for approval. If that form is already on file with SBA 
and no new financial statements are required or have been received from 
the Principal, a ``Surety Bond Guarantee Review Update'' (SBA Form 994C) 
may be submitted instead. If the Surety fails to submit either form 
within this time period, SBA's guarantee of the bond will be void from 
its inception unless SBA determines otherwise upon a showing that a 
valid reason exists why the timely submission was not made.
    (2) Final Bonds. Within 15 business days after the Execution of any 
Final Bonds under a bonding line, the Surety must submit a signed Prior 
Approval Agreement and a ``Surety Bond Guarantee Underwriting Review'' 
(SBA Form 994B) to SBA for approval. If that form is already on file 
with SBA and no new financial statements are required or have been 
received from the Principal, a ``Surety Bond Guarantee Review Update'' 
(SBA Form 994C) may be submitted instead. If the Surety fails to submit 
these forms together with the Principal's payment for its guarantee fee 
within this time period, SBA's guarantee of the bond will be void from 
its inception unless SBA determines otherwise upon a showing that the 
Contract is not in default and a valid reason exists why the timely 
submission was not made.
    (3) Additional information. The Surety must submit any other data 
SBA requests.
    (e) Cancellation of bonding line--(1) Optional cancellation. Either 
SBA or the Surety may cancel a bonding line at any time, with or without 
cause, upon written notice to the other party. Upon the receipt of any 
adverse information concerning the Principal, the Surety must promptly 
notify SBA, and SBA may cancel the bonding line.
    (2) Mandatory cancellation. Upon the occurrence of a default by the 
Principal, whether under a contract bonded by the same or another surety 
or an unbonded contract, the Surety must immediately cancel the bonding 
line.
    (3) Effect of cancellation. Cancellation of a bonding line by SBA is 
effective upon receipt of written notice by the Surety. Bonds issued 
before the effective date of cancellation remain guaranteed by SBA. Upon 
cancellation by SBA or the Surety, the Surety must promptly notify the 
Principal in writing.



Sec. 115.34  Minimization of Surety's Loss.

    (a) Imminent Breach--(1) Prior approval requirement. SBA will 
reimburse its guaranteed share of payments made by a Surety to avoid or 
attempt to avoid an Imminent Breach of the terms of a Contract covered 
by an SBA guaranteed bond only if the payments were made with the prior 
approval of OSG. OSG's prior approval will be given only if the Surety 
demonstrates to SBA's satisfaction that a breach is imminent and that 
there is no other recourse to prevent such breach.
    (2) Amount of reimbursement. The aggregate of the payments by SBA to 
avoid Imminent Breach cannot exceed 10% of the Contract amount, unless 
the Administrator finds that a greater payment (not to exceed the 
guaranteed share of the bond penalty) is necessary and reasonable. In no 
event will SBA make any duplicate payment pursuant to this or any other 
provision of this part 115.
    (3) Recordkeeping requirement. The Surety must keep records of 
payments made to avoid Imminent Breach.
    (b) Salvage and recovery. A Prior Approval Surety must pursue all 
possible sources of salvage and recovery until SBA concurs with the 
Surety's recommendation for a discontinuance or for a settlement. The 
Surety must certify that continued pursuit of salvage and recovery would 
be neither economically feasible nor a viable strategy in maximizing 
recovery. See also Sec. 115.17(b).



Sec. 115.35  Claims for reimbursement of Losses.

    (a) Notification requirements--(1) Events requiring notification. A 
Prior Approval Surety must notify OSG of the occurrence of any of the 
following:
    (i) Legal action under the bond has been initiated.

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    (ii) The Obligee has declared the Principal to be in default under 
the Contract.
    (iii) The Surety has established a claim reserve for the bond.
    (iv) The Surety has received any adverse information concerning the 
Principal's financial condition or possible inability to complete the 
project or to pay laborers or suppliers.
    (2) Timing of notification. Notification must be made in writing at 
the earlier of the time the Surety applies for a guarantee on behalf of 
an affected Principal, or within 30 days of the date the Surety acquires 
knowledge, or should have acquired knowledge, of any of the listed 
events.
    (b) Surety action. The Surety must take all necessary steps to 
mitigate Losses resulting from any of the events in paragraph (a) of 
this section, including the disposal at fair market value of any 
collateral held by or available to the Surety. Unless SBA notifies the 
Surety otherwise, the Surety must take charge of all claims or suits 
arising from a defaulted bond, and compromise, settle and defend such 
suits. The Surety must handle and process all claims under the bond and 
all settlements and recoveries as it does on non-guaranteed bonds.
    (c) Claim reimbursement requests. (1) Claims for reimbursement for 
Losses which the Surety has paid must be submitted (together with a copy 
of the bond, the bonded Contract, and any indemnity agreements) with the 
initial claim to OSG on a ``Default Report, Claim for Reimbursement and 
Record of Administrative Action'' (SBA Form 994H), within 1 year from 
the time of each disbursement. Claims submitted after 1 year must be 
accompanied by substantiation satisfactory to SBA. The date of the claim 
for reimbursement is the date of receipt of the claim by SBA, or such 
later date as additional information requested by SBA is received.
    (2) The Surety must also submit evidence of the disposal of all 
collateral at fair market value.
    (3) SBA may request additional information prior to reimbursing the 
Surety for its Loss.
    (4) Subject to the offset provisions of part 140, SBA pays its share 
of the Loss incurred and paid by the Surety within 90 days of receipt of 
the requisite information.
    (5) Claims for reimbursement and any additional information 
submitted are subject to review and audit by SBA, including but not 
limited to the Surety's compliance with SBA's regulations and forms.
    (d) Status updates. The Surety must submit semiannual status reports 
on each claim 6 months after the initial default notice, and then every 
6 months. The Surety must notify SBA immediately of any substantial 
changes in the status of the claim or the amounts of Loss reserves.
    (e) Reservation of SBA rights. The payment by SBA of a Surety's 
claim does not waive or invalidate any of the terms of the Prior 
Approval Agreement, the regulations set forth in this part 115, or any 
defense SBA may have against the Surety. Within 30 days of receipt of 
notification that a claim or any portion of a claim should not have been 
paid by SBA, the Surety must repay the specified amounts to SBA.



Sec. 115.36  Indemnity settlements and reinstatement of Principal.

    (a) Indemnity settlements. (1) An indemnity settlement occurs when a 
defaulted Principal and its Surety agree upon an amount, less than the 
actual loss under the bond, which will satisfy the Principal's 
indebtedness to the Surety. Sureties must not agree to any indemnity 
settlement proposal or enter into any such agreement without SBA's 
concurrence.
    (2) Any settlement proposal submitted for SBA's consideration must 
include current financial information, including financial statements, 
tax returns, and credit reports, together with the Surety's written 
recommendations. It should also indicate whether the Principal is 
interested in further bonding.
    (3) The Surety must pay SBA its pro rata share of the settlement 
amount within 90 days of receipt. Prior to closing the file on a 
Principal, the Surety must certify that SBA has received its pro rata 
share of all indemnity recovery.

[[Page 123]]

    (b) Conditions for reinstatement. At any time after a Principal 
becomes ineligible for further bond guarantees under Sec. 115.14(a), the 
Surety may recommend that such Principal's eligibility be reinstated. 
OSG may agree to reinstate the Principal and its Affiliates if:
    (1) The Principal's guarantee fee has been paid to SBA and SBA 
receives evidence that the Principal has paid all delinquent amounts due 
to the Surety (including amounts for Imminent Breach); or
    (2) The Surety has settled its claim with the Principal for an 
amount and on terms accepted by OSG; or
    (3) The Principal contests a claim and provides collateral, 
acceptable to the Surety and OSG, which has a liquidation value of at 
least the amount of the claim including related expenses; or
    (4) The Principal's indebtedness to the Surety is discharged by 
operation of law (e.g., bankruptcy discharge); or
    (5) OSG and the Surety determine that further bond guarantees are 
appropriate.
    (c) Underwriting after reinstatement. A guarantee application 
submitted after reinstatement of the Principal's eligibility is subject 
to a very stringent underwriting review.



            Subpart C--Preferred Surety Bond (PSB) Guarantees



Sec. 115.60  Selection and admission of PSB Sureties.

    (a) Selection of PSB Sureties. SBA's selection of PSB Sureties will 
be guided by, but not limited to, these factors:
    (1) An underwriting limitation of at least $1,250,000 on the U.S. 
Treasury Department list of acceptable sureties;
    (2) An agreement to charge Principals no more than the Surety 
Association of America's advisory premium rates in effect on August 1, 
1987;
    (3) Premium income from contract bonds guaranteed by any government 
agency (Federal, State or local) of no more than one- quarter of the 
total contract bond premium income of the Surety;
    (4) The vesting of underwriting authority for SBA guaranteed bonds 
only in employees of the Surety;
    (5) The vesting of final settlement authority for claims and 
recovery under the PSB program only in employees of the Surety's 
permanent claims department; and
    (6) The rating or ranking designations assigned to the Surety by 
recognized authority.
    (b) Admission of PSB Sureties. A Surety admitted to the PSB program 
must execute a PSB Agreement before approving SBA guaranteed bonds. No 
SBA guarantee attaches to bonds approved before the AA/SG or designee 
has countersigned the Agreement.



Sec. 115.61  Duration of PSB program.

    The PSB program terminates on September 30, 1997, unless extended by 
legislation. SBA guarantees effective under this program on or before 
September 30, 1997, will remain in effect after such date.



Sec. 115.62  Prohibition on participation in Prior Approval program.

    Neither a PSB Surety nor any of its Affiliates is eligible to submit 
applications under subpart B of this part.



Sec. 115.63  Allotment of guarantee authority.

    (a) General. SBA allots to each PSB Surety a periodic maximum 
guarantee authority. No SBA guarantee attaches to bonds approved by a 
PSB Surety if the bonds exceed the allotted authority for the period in 
which the bonds are approved. No reliance on future authority is 
permitted. An allotment can be increased only by prior written 
permission of SBA.
    (b) Execution of Bid Bonds. When the PSB Surety Executes a Bid Bond, 
SBA debits the Surety's allotment for an amount equal to the guarantee 
percentage of the estimated penal sum of the Final Bond SBA would 
guarantee if the Contract were awarded. If the Contract is then awarded 
for an amount other than the bid amount, or if the bid is withdrawn or 
the Bid Bond guarantee has expired (see Sec. 115.12(c)), SBA debits or 
credits the Surety's allotment accordingly.
    (c) Execution of Final Bonds. If the PSB Surety Executes a 
guaranteed Final Bond, but not the related Bid

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Bond, SBA debits the Surety's allotment for an amount equal to the 
guarantee percentage of the penal sum of the Final Bond. SBA will debit 
the allotment for increases, and credit the allotment for decreases, in 
the bond amount.
    (d) Release and non-issuance of Final Bonds. The release of Final 
Bonds upon completion of the Contract does not restore the corresponding 
allotment. If, however, a PSB Surety approves a Final Bond but never 
issues the bond, SBA will credit the Surety's allotment for an amount 
equal to the guarantee percentage of the penal sum of the bond. In that 
event, the Surety must notify SBA as soon as possible, but in no event 
later than 5 business days after the non-issuance has been determined. 
Until the Surety has so notified SBA, it cannot rely on such credit.



Sec. 115.64  Timeliness requirement.

    There must be no Execution or approval of a bond by a PSB Surety 
after commencement of work under a Contract unless the Surety obtains 
written approval from the AA/SG. To apply for such approval, the Surety 
must submit a completed ``Surety Bond Guarantee Agreement Addendum'' 
(SBA Form 991), together with the evidence and certifications described 
in Sec. 115.19(f)(1)(ii).



Sec. 115.65  General PSB procedures.

    (a) Retention of information. A PSB Surety must comply with all 
applicable SBA regulations and obtain from its applicants all the 
information and certifications required by SBA. The PSB Surety must 
document compliance with SBA regulations and retain such certifications 
in its files, including a contemporaneous record of the date of approval 
and Execution of each bond. See also Sec. 115.19(f). The certifications 
and other information must be made available for inspection by SBA or 
its agents and must be available for submission to SBA in connection 
with the Surety's claims for reimbursement. The PSB Surety must retain 
the certifications and other information for the term of the bond, plus 
such additional time as may be required to settle any claims of the 
Surety for reimbursement from SBA and to attempt salvage or other 
recovery, plus an additional 3 years. If there are any unresolved audit 
findings in relation to a particular bond, the Surety must maintain the 
related certifications and other information until the findings are 
resolved.
    (b) Usual staff and procedures. The approval, Execution and 
administration by a PSB Surety of SBA guaranteed bonds must be handled 
in the same manner and with the same staff as the Surety's activity 
outside the PSB program. The Surety must request job status reports from 
Obligees in accordance with its own procedures.
    (c) Notification to SBA. (1) Approvals. A PSB Surety must notify SBA 
by electronic transmission or monthly bordereau, as agreed between the 
Surety and SBA, of all approved Bid and Final Bonds, and of the Surety's 
approval of increases and decreases in the Contract or bond amount. The 
notice must contain the information specified from time to time in 
agreements between the Surety and SBA. SBA may deny liability with 
respect to Final Bonds for which SBA has not received timely notice.
    (2) Other events requiring notification. The PSB Surety must notify 
SBA within 30 calendar days of the name and address of any Principal 
against whom legal action on the bond has been instituted; whenever an 
Obligee has declared a default; whenever the Surety has established or 
added to a claim reserve; of the recovery of any amounts on the 
guaranteed bond; and of any decision by the Surety to bond any such 
Principal again.



Sec. 115.66  Fees.

    The PSB Surety must pay SBA a certain percentage of the Premium it 
charges on Final Bonds. The PSB Surety must also remit to SBA the 
Principal's payment for its guarantee fee, equal to a certain percentage 
of the Contract amount. The fee percentages are determined by SBA and 
are published in Notices in the Federal Register from time to time. Each 
fee is rounded to the nearest dollar. The Surety must remit SBA's 
Premium share and the Principal's guarantee fee with the bordereau 
listing the related Final

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Bond, as required in the PSB Agreement.



Sec. 115.67  Changes in Contract or bond amount.

    (a) Increases. The PSB Surety must process Contract or bond amount 
increases within its allotment in the same manner as initial guaranteed 
bond issuances (see Sec. 115.65(c)(1)). The Surety must present checks 
for additional fees due from the Principal and the Surety on increases 
aggregating 25% of the contract or bond amount or $50,000, and attach 
such payments to the respective monthly bordereau. If the additional 
Principal's fee or Surety's fee is less than $40, such fee is not due 
until all unpaid increases in such fee aggregate at least $40.
    (b) Decreases. If the Contract or bond amount is decreased, SBA will 
refund to the Principal a proportionate amount of the guarantee fee, and 
adjust SBA's Premium share accordingly in the ordinary course of 
business. No refund or adjustment will be made until the amounts to be 
refunded or rebated, respectively, aggregate at least $40.



Sec. 115.68  Guarantee percentage.

    SBA reimburses a PSB Surety in an amount not to exceed 70% of the 
Loss incurred and paid. Where the Contract amount, after the Execution 
of the bond, increases beyond the statutory limit of $1,250,000, SBA's 
share of the Loss is limited to that percentage of the increased 
Contract amount which the statutory limit represents, multiplied by the 
guarantee percentage approved by SBA. For an example, see 
Sec. 115.31(d).



Sec. 115.69  Imminent Breach.

    (a) No prior approval requirement. SBA will reimburse a PSB Surety 
for the guaranteed portion of payments the Surety makes to avoid or 
attempt to avoid an Imminent Breach of the terms of a Contract covered 
by an SBA guaranteed bond. The PSB Surety does not need SBA approval to 
make Imminent Breach payments.
    (b) Amount of reimbursement. The aggregate of the payments by SBA 
under this section cannot exceed 10% of the Contract amount, unless the 
Administrator finds that a greater payment (not to exceed the guaranteed 
portion of the bond penalty) is necessary and reasonable. In no event 
will SBA make any duplicate payment under any provision of these 
regulations in this part.
    (c) Recordkeeping requirement. The PSB Surety must keep records of 
payments made to avoid Imminent Breach.



Sec. 115.70  Claims for reimbursement of Losses.

    (a) How claims are submitted. A PSB Surety must submit claims for 
reimbursement on a form approved by SBA no later than 1 year from the 
date the Surety paid the amount. Loss is determined as of the date of 
receipt by SBA of the claim for reimbursement, or as of such later date 
as additional information requested by SBA is received. Subject to the 
offset provisions of part 140, SBA pays its share of Loss within 90 days 
of receipt of the requisite information. Claims for reimbursement and 
any additional information submitted are subject to review and audit by 
SBA.
    (b) Surety responsibilities. The PSB Surety must take all necessary 
steps to mitigate Losses when legal action against a bond has been 
instituted, when the Obligee has declared a default, and when the Surety 
has established a claim reserve. The Surety may dispose of collateral at 
fair market value only. Unless SBA notifies the Surety otherwise, the 
Surety must take charge of all claims or suits arising from a defaulted 
bond, and compromise, settle or defend the suits. The Surety must handle 
and process all claims under the bond and all settlements and recoveries 
in the same manner as it does on non-guaranteed bonds.
    (c) Reservation of SBA's rights. The payment by SBA of a PSB 
Surety's claim does not waive or invalidate any of the terms of the PSB 
Agreement, the regulations in this part 115, or any defense SBA may have 
against the Surety. Within 30 days of receipt of notification that a 
claim or any portion of a claim should not have been paid by SBA, the 
Surety must repay the specified amounts to SBA.

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Sec. 115.71  Denial of liability.

    In addition to the grounds set forth in Sec. 115.19, SBA may deny 
liability to a PSB Surety if:
    (a) The PSB Surety's guaranteed bond was in an amount which, 
together with all other guaranteed bonds, exceeded the allotment for the 
period during which the bond was approved, and no prior SBA approval had 
been obtained;
    (b) The PSB Surety's loss was incurred under a bond which was not 
listed on the bordereau for the period when it was approved; or
    (c) The loss incurred by the PSB Surety is not attributable to the 
particular Contract for which an SBA guaranteed bond was approved.



PART 117--NONDISCRIMINATION IN FEDERALLY ASSISTED PROGRAMS OF SBA--EFFECTUATION OF THE AGE DISCRIMINATION ACT OF 1975, AS AMENDED--Table of Contents




Sec.
117.1  Purpose.
117.2  Application of this part.
117.3  Definitions.
117.4  Discrimination prohibited and exceptions.
117.5  Illustrative applications.
117.6  Remedial and affirmative action by recipients.
117.7  Assurances required.
117.8  Responsibilities of SBA recipients.
117.9  Compliance information.
117.10  Review procedures.
117.11  Complaint procedures.
117.12  Mediation.
117.13  Investigation and resolution of matters.
117.14  Intimidating or retaliatory acts prohibited.
117.15  Procedure for effecting compliance.
117.16  Hearings.
117.17  Decisions and notices.
117.18  Judicial review.
117.19  Effect on other regulations.
117.20  Supervision and coordination.

Appendix A to Part 117

    Authority: Age Discrimination Act of 1975, 42 U.S.C. 6101 et seq.

    Source: 50 FR 41648, Oct. 11, 1985, unless otherwise noted.



Sec. 117.1  Purpose.

    The purpose of this part is to effectuate the provisions of The Age 
Discrimination Act of 1975, as amended (hereinafter referred to as the 
Act), to the end that no person in the United States shall, on the basis 
of age, be excluded from participation in, be denied the benefits of, or 
be subjected to discrimination under programs receiving financial 
assistance or any financial activities of the Small Business 
Administration to which this Act applies. The Act also permits 
recipients of Federal funds to continue to use certain age distinctions 
and other factors other than age which meet the requirements of the Act 
and these regulations in the conduct of programs and the provision of 
services to the public.



Sec. 117.2  Application of this part.

    (a) This part applies to all recipients of assistance under programs 
administered by the Small Business Administration and to programs of 
financial assistance by the Small Business Administration, whether or 
not listed in Appendix A.
    (b) For the purposes of this part, the prohibition against age 
discrimination applies to natural persons of all ages.
    (c) This part does not apply to the employment practices of any 
recipients.



Sec. 117.3  Definitions.

    As used in this part:
    (a) The term act means the Age Discrimination Act of 1975, as 
amended (Title III of Pub. L. 94-135).
    (b) The term action means any act, activity, policy, rule, standard, 
or method of administration; or the use of any policy, rule, standard, 
or method of administration.
    (c) The term age means how old a person is, or the number of years 
from the date of a person's birth.
    (d) The term age distinction means any action using age or an age-
related term.
    (e) The term age-related means a word or words which necessarily 
imply a particular age or range of ages (for example, children, adult, 
older persons, but not student).
    (f) The term agency means a Federal department or agency that is 
empowered to extend financial assistance.

[[Page 127]]

    (g) The term applicant means one who applies for Federal financial 
assistance.
    (h) The term Federal financial assistance includes: (1) Grants and 
loans of Federal funds; (2) the grant or donation of Federal property 
and interests in property; (3) the detail of Federal personnel; (4) the 
sale and lease of, and the permission to use (on other than a casual or 
transient basis), Federal property or any interest in such property 
without consideration, or at a nominal consideration, or at a 
consideration which is reduced for the purpose of assisting the 
recipient, or in recognition of the public interest to be served by such 
sale or lease to the recipient; and (5) any Federal agreement, 
arrangement, or other contract which has as one of its purposes the 
provision of assistance.
    (i) The term normal operation means the operation of a business or 
activity without significant changes that would impair its ability to 
meet its objectives.
    (j) The term recipient means one who receives any Federal financial 
assistance under any program administered by the Small Business 
Administration. (See Appendix A.) The term recipient also shall be 
deemed to include subrecipients of SBA financial assistance.
    (k) The term SBA means the Small Business Administration.
    (l) The term subrecipient means any business concern that receives 
Federal financial assistance from the primary recipient of such 
financial assistance. A subrecipient is generally regarded as a 
recipient of Federal financial assistance and has all the duties of a 
recipient in these regulations.
    (m) The term statutory objective means the purposes of the 
legislation as stated in an act, statute or ordinance or can be shown in 
the legislative history of any Federal statute, State statute, or local 
statute or ordinance adopted by an elected, general purpose legislative 
body.



Sec. 117.4  Discrimination prohibited and exceptions.

    (a) General. To the extent that this part applies, no person in the 
United States shall, on the basis of age, be excluded from participation 
in, be denied the benefits of, or be subjected to discrimination under 
any business or activity receiving Federal financial assistance.
    (b) Specific discriminatory actions prohibited. To the extent that 
this part applies, a recipient business or other activity may not, 
directly or through contractual arrangements, on the ground of age:
    (1) Deny an individual any services, financial aid or other benefit 
provided by the business or other activity, except where sanctioned by 
one of the exceptions stated in Sec. 117.4 (d), (e) or (f) of this 
section.
    (2) Provide any service, financial aid or other benefit, except as 
sanctioned by one of the exceptions stated below, in such a way as to 
deny or limit persons in their efforts to participate in federally-
assisted programs;
    (3) Treat an individual differently from others, except as 
sanctioned by an exception stated below, in determining whether the 
person satisfied any admission, enrollment, eligibility, membership, or 
other requirement or condition which individuals must meet in order to 
be provided any service, financial aid or other benefit provided by the 
business or activity.
    (c) The specific forms of prohibited discrimination in paragraph (b) 
of this section does not limit the generality of the prohibition in 
paragraph (a) of this section.
    (d) Exception 1. A recipient is permitted to take an action 
otherwise prohibited by paragraphs (a) and (b) of this section, if the 
action reasonably takes into account age as a factor necessary to the 
normal operation or the achievement of any statutory objective of a 
business or activity. An action reasonably takes into account age as a 
factor necessary to the normal operation or the achievement of any 
statutory objective of a business or activity, if:
    (1) Age is used as a measure or approximation of one or more other 
characteristics; and
    (2) The other characteristic(s) must be measured or approximated in 
order for the normal operation of the business or activity to continue, 
or to achieve any statutory objective of the business or activity; and

[[Page 128]]

    (3) The other characteristic(s) can be reasonably measured or 
approximated by the use of age; and
    (4) The other characteristic(s) are impractical to measure directly 
on an individual basis.

    Note: All of the above factors must be met in order to exclude a 
business activity from the provisions of this part.

    (e) Exception 2. A recipient is permitted to take an action 
otherwise prohibited by paragraphs (a) and (b) of this section which is 
based on a factor other than age, even though that action may have a 
disproportionate effect on persons of different ages. An action may be 
based on a factor other than age if the factor bears a direct and 
substantial relationship to the normal operation of the business or 
activity or to the achievement of a statutory objective.
    (f) Exception 3. A recipient is permitted to take an action 
otherwise prohibited by paragraphs (a) and (b) of this section if an age 
distinction is contained in that part of a Federal, State or local 
statute or ordinance adopted by an elected general purpose legislative 
body which provides any benefits or assistance to, establishes criteria 
for participation in, or describes intended beneficiaries or target 
groups in age-related terms.
    (g) The burden of proving that an age distinction or other action 
falls within the exceptions outlined in paragraphs (d), (e), and (f) of 
this section on the recipient of Federal financial assistance.



Sec. 117.5  Illustrative applications.

    (a) Discrimination in providing financial assistance. Development 
companies and small business investment companies, which apply for or 
receive any financial assistance may not discriminate on the ground of 
age in providing financial assistance to small business concerns. Such 
discrimination prohibited by Sec. 117.4 includes but is not limited to 
the failure or refusal, because of the age of the applicant, or the age 
of the applicant's principal owner or operating official to extend a 
loan or equity financing to any business concern; or, in the case of 
financing which has actually been extended, the failure or refusal 
because of the age of the recipient, or the age of recipient's principal 
owner or operating official to accord the recipient fair treatment and 
the customary courtesies regarding such matters as default, grace 
periods and the like.
    (b) Discrimination in accommodations or services. Small Business 
Concerns and others who or which apply for or receive any financial 
assistance in a program administered by the Small Business 
Administration, such as but not limited to physicians, dentists, 
hospitals, schools, libraries, and other individuals or organizations 
may not discriminate in the treatment, accommodations or services they 
provide to their patients, students, members, passengers, or members of 
the public, except when the normal operation or statutory objective of 
the business or activity of the intended beneficiary is designated in 
age-related terms, whether or not operated for profit. Action by such 
business or activity to be excluded from compliance with this regulation 
must fall within the exceptions enumerated in Sec. 117.4 (d), (e), and 
(f) of this part.
    (c) The discrimination prohibited by Sec. 117.5(b) includes, but is 
not limited to the failure or refusal, because of age, to accept a 
patient, student, member, customer, client, or passenger, except when 
the imposition of this prohibition would interfere with the normal 
operation of the business, e.g., pediatricians, nursery schools, 
geriatric clinics.



Sec. 117.6  Remedial and affirmative action by recipients.

    (a) Where a recipient is found to have discriminated on the basis of 
age, the recipient shall take any remedial action which the Agency may 
require to overcome the effects of the discrimination. If another 
recipient exercises control over the recipient that has discriminated, 
both recipients may be required to take remedial action.
    (b) Even in the absence of a finding of discrimination, a recipient 
may take affirmative action to overcome the effects of conditions that 
resulted in limited participation in the recipient's business or program 
on the basis of age.

[[Page 129]]

    (c) If a recipient operating a program which serves the elderly or 
children in addition to persons of other ages, provides special benefits 
to the elderly or to children, the provision of those benefits shall be 
presumed to be voluntary affirmative action provided that it does not 
have the effect of excluding otherwise eligible persons from 
participation in the program.



Sec. 117.7  Assurances required.

    An application for financial assistance under any program 
administered by the Small Business Administration shall, as a condition 
of its approval and the extension of such assistance, contain or be 
accompanied by an assurance that the recipient will comply with this 
part. SBA shall specify the form of the foregoing assurance for each 
program, and the extent to which like assurances will be required of 
contractors and subcontractors, transferees, successors, and other 
participants in the program.



Sec. 117.8  Responsibilities of SBA recipients.

    (a) Each SBA recipient has the primary responsibility to ensure that 
its programs and activities are in compliance with the Act and these 
regulations, and shall take steps to eliminate violations of the Act. A 
recipient also has responsibility to maintain records, provide 
information, and to afford SBA access to its records to the extent SBA 
finds necessary to determine whether the recipient is in compliance with 
the Act and these regulations. (OMB No. 3245 0076)
    (b) Where a recipient passes on Federal financial assistance from 
SBA to subrecipients, the recipient shall provide the subrecipients 
written notice of their obligations under the Act and these regulations.
    (c) Each recipient shall make necessary information about the Act 
and these regulations available to its program beneficiaries in order to 
inform them about the protections against discrimination provided by the 
Act and these regulations.
    (d) Whenever an assessment indicates a violation of the Act and the 
SBA regulations, the recipient shall take corrective action.



Sec. 117.9  Compliance information.

    (a) Cooperation and assistance. SBA shall, to the fullest extent 
practicable, seek the cooperation of recipients in obtaining compliance 
with this part and shall provide assistance and guidance to recipients 
to help them comply voluntarily with this part.
    (b) Record Keeping. Each recipient shall keep records in such form, 
and containing such information which SBA determines may be necessary to 
ascertain whether the recipient has complied or is complying with this 
part (OMB No. 3245 0076). In the case of a small business concern which 
receives financial assistance from a development company or from a small 
business investment company, the small business concern shall also keep 
such records and information as may be necessary to enable SBA to 
determine if the small business concern is complying with this part.
    (c) Each recipient shall provide to SBA, upon request, information 
and reports which SBA determines are necessary to ascertain whether the 
recipient is complying with the Act and these regulations.
    (d) Access to sources of information. Each recipient shall permit 
reasonable access by SBA during normal business hours to such of its 
books, records, accounts, and other sources of information, and its 
facilities as may be pertinent to ascertain compliance with this part. 
Where any information required of an applicant or recipient is in the 
exclusive possession of any other agency, institution or person and that 
agency, institution or person shall fail or refuse to furnish the 
information, the recipient shall so certify and shall set forth what 
efforts it has made to obtain the required information. The recipient 
will be held responsible for submitting the information. Failure to 
submit information or permit access to sources of information required 
by SBA will subject the recipient to enforcement procedure as provided 
in Sec. 117.15 of this part.

(Information collection requirements in paragraph (c) were approved by 
the Office of Management and Budget under control number 3245-0076)

[[Page 130]]



Sec. 117.10  Review procedures.

    (a) SBA shall from time to time review the practices of recipients 
to determine whether they are complying with this part. As part of a 
compliance review or complaint investigation, SBA may require a 
recipient employing 15 or more full-time employees to complete a written 
self-evaluation, in a manner specified by the Agency, of any age 
distinction imposed in its program or activity receiving Federal 
financial assistance.
    (b) If a compliance review or pre-award review indicates a violation 
of the Act or these regulations, SBA will attempt to achieve voluntary 
compliance with the Act. If voluntary compliance with the recipient 
cannot be achieved, such recipient will be subject to the enforcement 
procedure contained in Sec. 117.15 of these regulations. A refusal to 
permit an on-site compliance review during normal working hours may 
constitute noncompliance with this part.



Sec. 117.11  Complaint procedures.

    (a) Any person who believes that he/she or any specific class of 
individuals is being or has been subjected to discrimination by SBA, a 
recipient, or an applicant for assistance, prohibited by this part may, 
by himself/herself or by a representative, file with SBA a written 
complaint. The complainant has the right to have a representative at all 
stages of the complaint procedure.
    (b) A complaint must be filed not later than 180 days from the date 
of the alleged discrimination, unless the time filing is extended by 
SBA. The Adminstrator, the Director, Office of Equal Employment 
Opportunity and Compliance, and the Chief, Office of Civil Rights 
Compliance, are the only officials who may waive the 180-day time limit 
for filing complaints under this part. SBA will consider the date a 
complaint is filed to be the date upon which the complaint is sufficient 
to be processed.
    (c) Each complaint will be reviewed to ensure that it falls within 
the coverage of the Act and contains all information necessary for 
further processing.
    (d) SBA will attempt to facilitate the filing of complaints wherever 
possible, including taking the following actions:
    (1) Accepting as a sufficient complaint, any written statement which 
identifies the parties involved and the date the complainant first had 
knowledge of the alleged violation, describes generally the action or 
practice complained of, and is signed by the complainant.
    (2) Freely permitting a complainant to add information to the 
complaint to meet the requirements of a sufficient complaint.
    (3) Notifying the complainant and the recipient of their rights and 
obligations under the complaint procedure, including the right to have a 
representative at all stages of the complaint procedure.
    (4) Notifying the complainant and the recipient (or their 
representatives) of their right to contact the Chief, Office of Civil 
Rights Compliance, for information and assistance regarding the 
complaint resolution process.
    (e) SBA will return to the complainant any complaint filed under the 
jurisdiction of this regulation, but found to be outside the 
jurisdiction of this regulation, and will state the reason(s) why it is 
outside the jurisdiction of this regulation.



Sec. 117.12  Mediation.

    (a) SBA shall, after ensuring that the complaint falls within the 
coverage of this Act and all information necessary for further 
processing is contained therein, unless the age distinction complained 
of is clearly within an exception, promptly refer the complaint to the 
Federal Mediation and Conciliation Service (FMCS).
    (b) SBA shall, to the extent possible, require the participation of 
the recipient and the complainant in the mediation process in an effort 
to reach a mutually satisfactory settlement of the complaint or make an 
informed judgment that an agreement is not possible. Both parties need 
not meet with the mediator at the same time.

[[Page 131]]

    (c) If the complainant and the recipient reach a mutually 
satisfactory resolution of the complaint during the mediation period, 
the mediator shall prepare a written statement of the agreement and have 
the complainant and recipient sign it.
    (d) A copy of the written mediation agreement will be referred to 
SBA, and no further action will be taken unless it appears that either 
the complainant or the recipient (or other alleged discriminator subject 
to this part) fails to comply with the agreement.
    (e) If at the end of 60 days after the receipt of a complaint by 
SBA, or at any time prior thereto, an agreement is reached or the 
mediator determines an agreement cannot be reached through mediation, 
the agreement or complaint will be returned to SBA.
    (f) This 60-day period may be extended by the mediator, with the 
concurrence of SBA for not more than 30 days if the mediator determines 
that an agreement will likely be reached during the extended period.
    (g) The mediator shall protect the confidentiality of all 
information obtained in the course of the mediation process. No mediator 
shall testify in any adjudicative proceeding, produce any document, or 
otherwise disclose any information obtained during the course of the 
mediation process without prior approval of the head of the agency 
appointing the mediator.



Sec. 117.13  Investigation and resolution of matters.

    (a) SBA will make a prompt investigation whenever a compliance 
review indicates a possible failure to comply with this part by the 
recipient and additional information is needed by SBA to assure 
compliance with this part, or when an unresolved complaint has been 
returned by the FMCS, or when it appears that the complainant or the 
recipient is failing to comply with a mediation agreement. The 
investigation shall include a review of the pertinent practices and 
policies of the recipient, the circumstances under which the possible 
noncompliance with this part occurred, and other factors relevant to a 
determination as to whether the recipient is complying, is not 
complying, or has failed to comply with this part.
    (b) Resolution of matters. If an investigation indicates a failure 
to comply with this part, SBA will so inform the complainant, if 
applicable, and the recipient that the matter will be resolved by 
informal means that are mutually agreeable to the parties, whenever 
possible.
    (1) If, during the course of an investigation, the matter is 
resolved by informal means, SBA will put any agreement in writing and 
have it signed by the parties and an authorized official of SBA.
    (2) If investigation indicates a violation of the Act or these 
regulations, SBA will attempt to achieve voluntary compliance. If SBA 
cannot achieve voluntary compliance, it will begin enforcement as 
described in Sec. 117.15.
    (3) If an investigation does not warrant action, SBA will so inform 
the complainant, if applicable, and the recipient in writing.



Sec. 117.14  Intimidating or retaliatory acts prohibited.

    No complainant, recipient or other person shall intimidate, 
threaten, coerce, or discriminate against any individual for the purpose 
of interfering with any right or privilege secured by this part or 
because an individual or group has made a complaint, testified, 
assisted, or participated in any manner in an investigation, review, 
enforcement process, or hearing under this part. The identity of 
complainants shall be kept confidential except to the extent necessary 
to carry out the purposes of this part, including the conduct of any 
investigation, hearing, mediation, or judicial proceeding.



Sec. 117.15  Procedure for effecting compliance.

    (a) General. (1) If there appears to be a failure or threatened 
failure to comply with this part by an applicant or recipient and if the 
noncompliance or threatened noncompliance cannot be resolved by informal 
means, compliance with this part may be effected by suspending, 
terminating, or refusing any financial assistance approved but not yet 
disbursed to an applicant. In the case of loans partially or fully 
disbursed, compliance with this part may

[[Page 132]]

be effected by calling, canceling, terminating, accelerating repayment, 
or suspending in whole or in part the Federal financial assistance 
provided. The determination of the recipient's violation may be made 
only after a recipient has had an opportunity for a hearing on the 
record before an administrative law judge.
    (2) In addition, compliance may be effected by any other means 
authorized by law. Such other means may include, but are not limited to:
    (i) Action by SBA to accelerate the maturity of the recipient's 
obligation;
    (ii) Referral to the Department of Justice with a recommendation 
that appropriate proceedings be brought to enforce any rights of the 
United States under any law of the United States or obligations of the 
recipient created by the Act or this part; and
    (iii) Use of any requirement of or referral to any Federal, State or 
local government agency that will have the effect of correcting a 
violation of the Act or these regulations.
    (3) If there appears to be a failure or threatened failure to comply 
with this part by an SBA program office or official, the Chief, Office 
of Civil Rights Compliance, through the Director, Office of Equal 
Employment Opportunity and Compliance, will recommend appropriate 
corrective action to the Administrator. Any resulting adverse action 
against an SBA employee shall follow Office of Personnel Management and 
SBA procedures for such action.
    (b) Noncompliance with Secs. 117.7 and 117.9. If an applicant fails 
or refuses to furnish an assurance required under Sec. 117.7, or fails 
to provide information or allow SBA access to information under 
Sec. 117.9 or otherwise fails or refuses to comply with a requirement 
imposed by or pursuant to those sections, Federal financial assistance 
may be deferred for a period not to exceed 60 days after the applicant 
has received a notice for an opportunity for hearing under Sec. 117.16, 
or unless a hearing has begun within that time, or the time for 
beginning the hearing has been extended by mutual consent of the 
recipient and the Agency, for purposes of determining what constitutes 
mutual consent, the Agency shall be deemed to have consented to any 
extension requested by the recipient and granted by the administrative 
law judge (hearing officer), whether or not the Agency initially 
approved the extension. A deferral may not continue for more than 30 
days after the close of the hearing, unless the hearing results in a 
finding against the applicant or recipient.
    (c) SBA will not take action toward accelerating repayment, 
suspending, terminating, or refusing financial assistance until:
    (1) SBA has advised the applicant or recipient of the failure to 
comply and has determined that compliance cannot be secured by voluntary 
means;
    (2) There has been an express finding on the record, after an 
opportunity for hearing, of a failure by the applicant or recipient to 
comply with a requirement imposed by or pursuant to this part;
    (3) The action has been approved by the Administrator of SBA 
pursuant to Sec. 117.17; and
    (4) The expiration of 30 days after SBA has filed with the committee 
of the House and the committee of the Senate having legislative 
jurisdiction over the form of financial assistance involved, a full 
written report of the circumstances and the grounds for such action.
    (d) Other means authorized by law. No action to effect compliance by 
any other means authorized by law shall be taken until:
    (1) SBA has determined that compliance cannot be secured by 
voluntary means;
    (2) The action has been approved by the Administrator or designee;
    (3) The expiration of 30 days after SBA has filed with the committee 
of the House and the committee of the Senate having legislative 
jurisdiction over the form of financial assistance involved, a full 
written report of the circumstances and the grounds for such action;
    (4) The applicant or recipient has been notified of the failure to 
comply, and of the action to be taken to effect compliance; and
    (5) The expiration of at least 10 days from the mailing of such 
notice to the applicant or recipient or other person. During this period 
of at least 10 days from the mailing of such notice to the applicant or 
recipient or other person,

[[Page 133]]

additional efforts shall be made to persuade the applicant or recipient 
to comply with this part and to take such corrective action as may be 
appropriate.



Sec. 117.16  Hearings.

    (a) Opportunity for hearing. Whenever an opportunity for a hearing 
is required by Sec. 117.15, reasonable notice shall be given by 
registered or certified mail, return receipt requested, to the affected 
applicant or recipient. This notice shall advise the applicant or 
recipient of the action proposed to be taken, the specific provision 
under which the proposed action against it is to be taken, and the 
matters of fact or law asserted as the basis for this action, and 
either.
    (1) Fix a date not less than 20 days after the date of such notice 
within which the applicant or recipient may request the Office of 
Hearings and Appeals (OHA) that the matter be scheduled for hearing; or
    (2) Advise the applicant or recipient that the matter in question 
has been set down for hearing at a stated place and time. The time and 
place so fixed shall be reasonable and shall be subject to change for 
cause. The complainant shall be advised of the time and place of the 
hearing. An applicant or recipient may waive a hearing and submit 
written information and argument for the record. The failure of an 
applicant or recipient to appear at a hearing for which a date has been 
set shall be deemed to be a waiver of the right to a hearing and as 
consent to the making of a decision on the basis of such information as 
is available.
    (b) Time and place of hearing. Hearings shall be held at OHA in 
Washington, DC, at a time fixed by OHA unless that office determines 
that the convenience of the complainant, applicant, recipient or SBA 
requires that another place be selected. Hearings shall be held before 
an administrative law judge designated in accordance with the 
Administrative Procedure Act.
    (c) Right to counsel. In all proceedings under this section, the 
applicant or recipient and SBA shall have the right to be represented by 
counsel.
    (d) Procedures, evidence, and record. (1) The hearings, decisions, 
and any administrative review shall be conducted in conformity with the 
Administrative Procedure Act and 13 CFR part 134. Such rules of 
procedure should be consistent with this section, relate to the conduct 
of the hearing, provide for giving of notices to those referred to in 
paragraph (a) of this section, taking of testimony, exhibits, arguments, 
and briefs, request for findings and other related matters. SBA, the 
complainant, if any, and the applicant or recipient shall be entitled to 
introduce all relevant evidence on the issues as stated in the notice 
for hearing, or as determined by the administrative law judge conducting 
the hearing at the outset of or during the hearing.
    (2) Technical rules of evidence may be waived by the administrative 
law judge conducting a hearing pursuant to this part, but rules or 
principles designed to assure production of the most credible evidence 
available, and subject testimony to test by cross-examination shall be 
applied where reasonably necessary. The administrative law judge may 
exclude irrelevant, immaterial, or unduly repetitious evidence. All 
documents and other evidence offered or taken for the record shall be 
open to examination by the parties and opportunity shall be given to 
refute facts and arguments advanced on either side of the issues. A 
transcript shall be made of the oral evidence except to the extent the 
substance thereof is stipulated for the record. All decisions shall be 
based upon the hearing record and written findings shall be made.
    (e) Consolidated or joint hearings. In cases in which the same or 
related facts are asserted to constitute noncompliance or threatened 
noncompliance with this part, with respect to two or more forms of 
financial assistance to which this part applies, or noncompliance with 
this part and the regulations of one or more other Federal agencies 
issued under the Act, the Administrator may, by agreement with such 
other agencies, provide for the conduct of consolidated or joint 
hearings, and for the application to such hearings of rules and 
procedures not inconsistent with this part. Final decisions in such 
cases, insofar as this part is concerned, shall be made in accordance 
with Sec. 117.17.

[[Page 134]]



Sec. 117.17  Decisions and notices.

    (a) Decision by an administrative law judge. If the hearing is held 
by an administrative law judge, such administrative law judge shall 
either make an initial decision, if so authorized, or certify the entire 
record, including recommended findings and proposed decision, to the 
Administrator for a final decision and a copy of such initial decision 
or certification shall be mailed to the applicant or recipient and the 
complainant. Where the initial decision is made by the administrative 
law judge, the applicant or recipient may, within 30 days of the mailing 
of such notice of initial decision, file with the Administrator 
exceptions to the initial decision, with the reasons therefor. In the 
absence of exceptions, the Administrator may, by motion within 45 days 
after the initial decision, serve on the applicant or recipient a notice 
that he/she will review the decision. Upon the filing of such exceptions 
or of such notice of review, the Administrator shall review the initial 
decision and issue his/her decision thereon, including the reasons 
therefor. The decision of the Administrator shall be mailed promptly to 
the applicant or recipient, and the complainant, if any. In the absence 
of either exceptions or a notice of review, the initial decision shall 
constitute the final decision of the Administrator.
    (b) Decisions on record or review by the Administrator. Whenever a 
record is certified to the Administrator for decision or the 
Administrator reviews the decision of an administrative law judge 
pursuant to paragraph (a) of this section, or whenever the Secretary of 
the Department of Health and Human Services or the Department of Justice 
conducts the hearing, the applicant or recipient shall be given 
reasonable opportunity to file briefs or other written statements of its 
contentions and a copy of the final decision of the Administrator shall 
be given in writing to the applicant or recipient and the complainant, 
if any.
    (c) Decisions on record where a hearing is waived. Whenever a 
hearing is waived pursuant to Sec. 117.16, a decision shall be made by 
the Administrator on the record and a copy of such decision shall be 
given in writing to the applicant or recipient, and to the complainant, 
if any.
    (d) Rulings required. Each decision of an administrative law judge 
or the Administrator shall set forth the ruling on each finding, 
conclusion, or exception presented, and shall identify the requirement 
or requirements imposed by or pursuant to this part with which it is 
found that the applicant or recipient has failed to comply.
    (e) Decision by the Administrator. The Administrator shall make any 
final decision which provides for the suspension or termination of, or 
the refusal to grant or continue Federal financial assistance, 
acceleration repayment or the imposition of any other sanction available 
under the regulations or taken under other means authorized by law.
    (f) Content of orders. The final decision may provide for 
accelerating of repayment, suspension or termination of, or refusal to 
approve, disburse, or continue Federal financial assistance, in whole or 
in part, under the programs involved, and may contain such terms, 
conditions, and other provisions as are consistent with and will 
effectuate the purposes of the Act and this part, including provisions 
designed to assure that no Federal financial assistance will, 
thereafter, be extended under such program to the applicant or recipient 
determined by such decision to have failed to comply with this part, 
unless and until it corrects its noncompliance and satisfies the 
Administrator that it will fully comply with this part.
    (g) Post termination proceedings. (1) An applicant or recipient 
adversely affected by an order issued under paragraph (e) of this 
section shall be restored to full eligibility to receive Federal 
financial assistance only if it satisfies the terms and conditions of 
that order for such eligibility and it brings itself into compliance 
with this regulation and provides reasonable assurance that it will 
fully comply with this regulation.
    (2) Any applicant or recipient adversely affected by an order 
entered pursuant to paragraph (f) of this section may at any time 
request the Administrator to restore fully its eligibility to receive 
Federal financial assistance. Any such request shall be

[[Page 135]]

supported by information showing that the applicant or recipient has met 
the requirements of paragraph (g)(1) of this section. If the 
Administrator determines that those requirements have been satisfied, 
he/she shall restore such eligibility.
    (3) If the Administrator denies any such request, the applicant or 
recipient may submit a request for a hearing in writing, specifying why 
it believes the denial to have been in error. It shall there upon be 
given an expeditious hearing, with a decision on the record, in 
accordance with rules and procedures issued by the Administrator. The 
applicant or recipient shall be restored to such eligibility if it 
proves at such hearing that it satisfied the requirements of paragraph 
(g)(1) of this section. While proceedings under this paragraph are 
pending, the sanctions imposed by the order issued under paragraph (f) 
of this section shall remain in effect.



Sec. 117.18  Judicial review.

    (a) The complainant may file a civil action following the exhaustion 
of administrative remedies under the Act. Administrative remedies are 
exhausted if:
    (1) 180 days have elapsed since the complainant filed the complaint 
and the Agency has made no finding with regard to the complaint; or
    (2) The Agency has issued a finding in favor of the recipient.
    (b) If the Agency fails to make a finding within 180 days or issues 
a finding in favor of the recipient, the Agency shall:
    (1) Advise the complainant of this fact;
    (2) Advise the complainant of the right to file a civil action for 
injunctive relief; and
    (3) Inform the complainant:
    (i) That the complainant may bring a civil action only in a United 
States district court for the district in which the recipient is found 
or transacts business;
    (ii) That a complainant prevailing in a civil action has the right 
to be awarded the costs of the action, including reasonable attorney's 
fees, but that the complainant must demand these costs in the complaint;
    (iii) That before commencing the action the complainant shall give 
30 days notice by registered mail to the Secretary of the Department of 
Health and Human Services, the Attorney General of the United States and 
the recipient;
    (iv) That the notice must state: The alleged violation of the Act; 
the relief requested; the court in which the complainant is bringing the 
action; and whether or not attorney's fees are demanded in the event the 
complainant prevails; and
    (v) That the complainant may not bring an action if the same alleged 
violation of the Act by the same recipient is the subject of a pending 
action in any court of the United States.



Sec. 117.19  Effect on other regulations.

    (a) All regulations, orders or like directions heretofore issued by 
SBA which impose requirements designed to prohibit any discrimination 
against individuals on the grounds of age and which authorize the 
suspension or termination of or refusal to grant or to continue 
financial assistance to any applicant for or recipient of such 
assistance for failure to comply with such requirements, are hereby 
superseded to the extent that such discrimination is prohibited by this 
part, except that nothing in this part shall be deemed to relieve any 
person of any obligation assumed or imposed under any such superseded 
regulation, order, instruction, or like direction prior to the effective 
date of this part. Nothing in this part, however, shall be deemed to 
supersede any of the following (including future amendments thereof):
    (1) Executive Order 11246, as amended, and regulations issued 
thereunder;
    (2) Title VI of the Civil Rights Act of 1964, as amended;
    (3) The Equal Credit Opportunity Act, as amended and Regulation B of 
the Board of Governors of the Federal Reserve System, (12 CFR part 202);
    (4) Section 504 of the Rehabilitation Act of 1973, as amended;
    (5) Title VIII of the Civil Rights Act of 1968;
    (6) Title IX of the Educational Amendments of 1972;
    (7) Section 633(b) of the Small Business Act;

[[Page 136]]

    (8) Part 113 of title 13 of the Code of Federal Regulations (13 CFR 
part 113); or
    (9) Any other statute, order, regulation or instruction, insofar as 
such order, regulations, or instruction prohibits discrimination on the 
grounds of age in any program or situation to which this part is 
inapplicable on any other ground.



Sec. 117.20  Supervision and coordination.

    The Administrator may from time to time assign to officials of SBA 
or to officials of other agencies of the Government with the consent of 
such agencies, responsibilities in connection with the effectuation of 
the purpose of the Act and this part (other than responsibility for 
final decision as provided in Sec. 117.17), including the achievement of 
effective coordination and maximum uniformity within SBA and within the 
Executive Branch of the Government in the application of the Act and 
this part to similar programs and in similar situations. Responsibility 
for administering and enforcing this part is assigned by the 
Administrator, to the Office of Civil Rights Compliance, Office of Equal 
Employment Opportunity and Compliance of the Small Business 
Administration.

                        Appendix A to Part 117\1\                       
------------------------------------------------------------------------
              Name of program                         Authority         
------------------------------------------------------------------------
Business Loans............................  Small Business Act, section 
                                             7(a).                      
Debtor State Development companies (501)    Small Business Investment   
 and their small business concerns.          Act, Title V.              
Debtor State Development companies (502)    Small Business Investment   
 and their small business concerns.          Act, Title V.              
Debtor certified development companies      Small Business Investment   
 (503) and their small business concerns.    Act, Title V.              
Debtor small business investment companies  Small Business Investment   
 and their small business concerns.          Act, Title III.            
Pollution Control.........................  Small Business Investment   
                                             Act, Title IV, Part A.     
Disaster Loans:                                                         
  Physical, including riot................  Small Business Act, section 
                                             7(b)(1).                   
  Economic Injury (EIDL)..................  Small Business Act, section 
                                             7(b)(2).                   
  Federal Action Loan Program.............  Small Business Act, section 
                                             7(b)(3).                   
  Small Business Institute................  Small Business Act, section 
                                             8(b)(1).                   
  Small Business Development Centers......  Small Business Act, section 
                                             21.                        
  International Trade Program.............  Small Business Act, section 
                                             22.                        
  Technical and Management Assistance.....  Small Business Act, section 
                                             7(j).                      
------------------------------------------------------------------------
\1\ None of the programs administered have any age distinctions except  
  as statutorily required.                                              



PART 120--BUSINESS LOANS--Table of Contents




          General Descriptions of SBA'S Business Loan Programs

Sec.
120.1  Which loan programs does this part cover?
120.2  Descriptions of the business loan programs.
120.3  Pilot programs.

                               Definitions

120.10  Definitions.

           Subpart A--Policies Applying to All Business Loans

                        Eligibility Requirements

120.100  What are the basic eligibility requirements for all applicants 
          for SBA business loans?
120.101  Credit not available elsewhere.
120.102  Funds not available from alternative sources, including 
          personal resources of principals.
120.103  Are farm enterprises eligible?
120.104  Are businesses financed by SBICs eligible?
120.105  Special consideration for veterans.

          Ineligible Businesses and Eligible Passive Companies

120.110  What businesses are ineligible for SBA business loans?
120.111  What conditions must an Eligible Passive Company satisfy?

                            Uses of Proceeds

120.120  What are eligible uses of proceeds?
120.130  Restrictions on uses of proceeds.
120.131  Leasing part of new construction or existing building to 
          another business.

                          Ethical Requirements

120.140  What ethical requirements apply to participants?

                      Credit Criteria for SBA Loans

120.150  What are SBA's lending criteria?
120.151  What is the statutory limit for total loans to a Borrower?
120.160  Loan conditions.

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            Requirements Imposed Under Other Laws and Orders

120.170  Flood insurance.
120.171  Compliance with child support obligations.
120.172  Flood-plain and wetlands management.
120.173  Lead-based paint.
120.174  Earthquake hazards.
120.175  Coastal barrier islands.
120.176  Compliance with other laws.

                   Enforceability Despite Rule Changes

120.180  Are rules enforceable if they are changed later?

                            Loan Applications

120.190  Where does an applicant apply for a loan?
120.191  The contents of a business loan application.
120.192  Approval or denial.
120.193  Reconsideration after denial.

                         Computerized SBA Forms

120.194  Use of computer forms.

                            Reporting of Fees

120.195  Disclosure of fees.

               Subpart B--Policies Specific to 7(a) Loans

                          Bonding Requirements

120.200  What bonding requirements exist during construction?

                     Limitations on Use of Proceeds

120.201  Refinancing unsecured or undersecured loans.
120.202  Restrictions on loans for changes in ownership.

         Maturities; Interest Rates; Loan and Guarantee Amounts

120.210  What percentage of a loan may SBA guarantee?
120.211  What limits are there on the amounts of direct loans?
120.212  What limits are there on loan maturities?
120.213  What fixed interest rates may a Lender charge?
120.214  What conditions apply for variable interest rates?
120.215  What interest rates apply to smaller loans?

                        Fees for Guaranteed Loans

120.220  Fees that Lender pays SBA.
120.221  Fees which the Lender may collect from a loan applicant.
120.222  Fees which the Lender or Associate may not collect from the 
          Borrower or share with third parties.

                    Subpart C--Special Purpose Loans

120.300  Statutory authority.

                 Disabled Assistance Loan Program (DAL)

120.310  What assistance is available for the disabled?
120.311  Definitions.
120.312  DAL-1 use of proceeds and other program conditions.
120.313  DAL-2 use of proceeds and other program conditions.
120.314  Resolving doubts about creditworthiness.
120.315  Interest rate and loan limit.

               Businesses Owned by Low Income Individuals

120.320  Policy.

                           Energy Conservation

120.330  Who is eligible for an energy conservation loan?
120.331  What devices or techniques are eligible for a loan?
120.332  What are the eligible uses of proceeds?
120.333  Are there any special credit criteria?

                  Export Working Capital Program (EWCP)

120.340  What is the Export Working Capital Program?
120.341  Who is eligible?
120.342  What are eligible uses of proceeds?
120.343  Collateral.
120.344  Unique requirements of the EWCP.

                        International Trade Loans

120.345  Policy.
120.346  Eligibility.
120.347  Use of proceeds.
120.348  Amount of guarantee.

                    Qualified Employee Trusts (ESOP)

120.350  Policy.
120.351  Definitions.
120.352  Use of proceeds.
120.353  Eligibility.
120.354  Creditworthiness.

                          Veterans Loan Program

120.360  Which veterans are eligible?
120.361  Other conditions of eligibility.

                        Pollution Control Program

120.370  Policy.

                Loans to Participants in the 8(a) Program

120.375  Policy.
120.376  Special requirements.
120.377  Use of proceeds.

                 Defense Economic Transition Assistance

120.380  Program.

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120.381  Eligibility.
120.382  Repayment ability.
120.383  Restrictions on loan processing.

                            CapLines Program

120.390  Revolving credit.

                          Builders Loan Program

120.391  What is the Builders Loan Program?
120.392  Who may apply?
120.393  Are there special application requirements?
120.394  What are the eligible uses of proceeds?
120.395  What is SBA's collateral position?
120.396  What is the term of the loan?
120.397  Are there any special restrictions?

                           Subpart D--Lenders

120.400  Loan Guarantee Agreements.

                         Participation Criteria

120.410  Requirements for all participating Lenders.
120.411  Preferences.
120.412  Other services Lenders may provide Borrowers.
120.413  Advertisement of relationship with SBA.

           Pledging Notes or Transferring Unguaranteed Portion

120.420  Financings by Nondepository Lenders.

                        Miscellaneous Provisions

120.430  SBA access to Lender files.
120.431  Suspension or revocation of eligibility to participate.

                     Certified Lenders Program (CLP)

120.440  What is the Certified Lenders Program?
120.441  How does a Lender become a CLP Lender?
120.442  Suspension or revocation of CLP status.

                     Preferred Lenders Program (PLP)

120.450  What is the Preferred Lenders Program?
120.451  How does a Lender become a PLP Lender?
120.452  What are the requirements of PLP loan processing?
120.453  What are the requirements of a PLP Lender in servicing and 
          liquidating SBA guaranteed loans?
120.454  PLP performance review.
120.455  Suspension or revocation of PLP status.

                 Small Business Lending Companies (SBLC)

120.470  What is an SBLC?
120.471  Records.
120.472  Reports to SBA.
120.473  Change of ownership or control.
120.474  Prohibited financing.
120.475  Audits.
120.476  Suspension or revocation.

                     Subpart E--Loan Administration

120.500  General.

                                Servicing

120.510  Servicing direct and immediate participation loans.
120.511  Servicing guaranteed loans.
120.512  Who services the loan after SBA honors its guarantee?
120.513  What servicing actions require the prior written consent of 
          SBA?

                 SBA'S Purchase of a Guaranteed Portion

120.520  When does SBA honor its guarantee?
120.521  What interest rate applies after SBA purchases its guaranteed 
          portion?
120.522  How much accrued interest does SBA pay to the Lender or 
          Registered Holder when SBA purchases the guaranteed portion?
120.523  What is the ``earliest uncured payment default''?
120.524  When is SBA released from liability on its guarantee?

          Deferment, Extension of Maturity and Loan Moratorium

120.530  Deferment of payment.
120.531  Extension of maturity.
120.532  What is a loan Moratorium?

                        Liquidation of Collateral

120.540  What are SBA's policies concerning liquidation of collateral?

                    Homestead Protection for Farmers

120.550  What is homestead protection for farmers?
120.551  Who is eligible for homestead protection?
120.552  Lease.
120.553  Appeal.
120.554  Conflict of laws.

                       Subpart F--Secondary Market

                     Fiscal and Transfer Agent (FTA)

120.600  Definitions.
120.601  SBA Secondary Market.

                              Certificates

120.610  Form and terms of Certificates.
120.611  Pools backing Pool Certificates.
120.612  Loans eligible to back Certificates.
120.613  Secondary Participation Guarantee Agreement.

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                   The SBA Guarantee of a Certificate

120.620  SBA guarantee of a Pool Certificate.
120.621  SBA guarantee of an Individual Certificate.

                             Pool Assemblers

120.630  Qualifications to be a Pool Assembler.
120.631  Suspension or termination of Pool Assembler.

                        Miscellaneous Provisions

120.640  Administration of the Pool and Individual Certificates.
120.641  Disclosure to purchasers.
120.642  Requirements before the FTA issues Pool Certificates.
120.643  Requirements before the FTA issues Individual Certificates.
120.644  Transfers of Certificates.
120.645  Redemption of Certificates.
120.650  Registration duties of FTA in Secondary Market.
120.651  Claim to FTA by Registered Holder to replace Certificate.
120.652  FTA fees.

       Suspension or Revocation of Participant in Secondary Market

120.660  Suspension or revocation.

               Subpart G--Microloan Demonstration Program

120.700  What is the Microloan Program?
120.701  Definitions.
120.702  Are there limitations on who can be an Intermediary or on where 
          an Intermediary may operate?
120.703  How does an organization apply to become an Intermediary?
120.704  How are applications evaluated?
120.705  What is a Specialized Intermediary?
120.706  What are the terms and conditions of an Intermediary SBA loan?
120.707  What conditions apply to loans by Intermediaries to Microloan 
          borrowers?
120.708  What is the Intermediary's financial contribution?
120.709  What is the Microloan Revolving Fund?
120.710  What is the Loan Loss Reserve Fund?
120.711  What rules govern Intermediaries?
120.712  How does an Intermediary get a grant to assist Microloan 
          borrowers?
120.713  Does SBA provide technical assistance to Intermediaries?
120.714  How does a non-Intermediary get a grant?
120.715  Does SBA guarantee any loans an Intermediary obtains from 
          another source?

            Subpart H--Development Company Loan Program (504)

120.800  What is the purpose of the 504 program?
120.801  How is a 504 Project financed?
120.802  Definitions.

                Certification Procedures to Become a CDC

120.810  Applications for certification as a CDC.
120.811  Public notice of CDC certification application.
120.812  Probationary period for newly certified CDCs.

            Requirements for CDC Certification and Operation

120.820  CDC non-profit status.
108.821  CDC Area of Operations.
120.822  CDC membership.
120.823  CDC Board of Directors.
120.824  Professional management and staff.
120.825  Financial ability to operate.
120.826  Basic requirements for operating a CDC.
120.827  Services a CDC provides to small businesses.
120.828  Minimum level of CDC lending activity.
120.829  Job Opportunity average a CDC must maintain.
120.830  Reports a CDC must submit.

                  Extending a CDC's Area of Operations

120.835  Application to extend an Area of Operations.
120.836  Public notice and opportunity for response.
120.837  SBA decision on application for extension.
120.838  Expiration of existing, temporary expansions.
120.839  Case-by-case extensions.

                    Accredited Lenders Program (ALP)

120.840  Accredited Lenders Program.

                    Premier Certified Lenders Program

120.845  Premier Certified Lenders Program.

                 Associate Development Companies (ADCs)

120.850  ADC functions.
120.851  ADC eligibility and operating requirements.
120.852  Suspension and revocation of ADCs.

                          Ethical Requirements

120.855  CDC and ADC ethical requirements.

                   Project Economic Development Goals

120.860  Required objectives.
120.861  Job creation or retention.
120.862  Other economic development objectives.

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                 Leasing Policies Specific to 504 Loans

120.870  Leasing Project Property.
120.871  Leasing part of an existing building to another business.

               Loan-Making Policies Specific to 504 Loans

120.880  Basic eligibility requirements.
120.881  Ineligible Projects for 504 loans.
120.882  Eligible Project costs for 504 loans.
120.883  Eligible administrative costs for 504 loans.
120.884  Ineligible costs for 504 loans.

                            Interim Financing

120.890  Source of interim financing.
120.891  Certifications of disbursement and completion.
120.892  Certifications of no adverse change.

                           Permanent Financing

120.900  What are the sources of permanent financing?

                       The Borrower's Contribution

120.910  How much must the Borrower contribute?
120.911  Land contributions.
120.912  Borrowed contributions.
120.913  May an SBIC provide the contribution?

                            Third Party Loans

120.920  The first lien position.
120.921  Terms of Third Party loans.
120.922  Pre-existing debt on the Project Property.
120.923  What are the policies on subordination?
120.924  Prepayment of subordinate financing.
120.925  Preferences.
120.926  Referral fee.

                        504 Loans and Debentures

120.930  Amount.
120.931  504 lending limits.
120.932  Interest rate.
120.933  Maturity.
120.934  Collateral.
120.935  Deposit.
120.936  Subordination to CDC.
120.937  Assumption.
120.938  Default.
120.939  Borrower prohibition.
120.940  Prepayment of the 504 loan or Debenture.
120.941  Certificates.

                   Debenture Sales and Service Agents

120.950  SBA and CDC must appoint agents.
120.951  Selling agent.
120.952  Fiscal agent.
120.953  Trustee.
120.954  Central Servicing Agent.
120.955  Agent bonds and records.
120.956  Suspension or revocation of brokers and dealers.

                                Closings

120.960  Responsibility for closing.
120.961  Construction escrow accounts.

                           Servicing and Fees

120.970  Servicing of 504 loans and Debentures.
120.971  Allowable fees paid by Borrower.
120.972  Oversight and evaluation of CDCs and ADCs.

                 CDR Transfer, Suspension and Revocation

120.980  Transfer of CDC to ADC status.
120.981  Voluntary transfer and surrender of CDC certification.
120.982  Correcting CDC servicing deficiencies.
120.983  Transfer of CDC servicing to SBA or another CDC.
120.984  Suspension or revocation of CDC certification.

         Enforceability of 501, 502 and 503 Loans and Other Laws

120.990  501, 502 and 503 loans.
120.991  Effect of other laws.

    Authority: 15 U.S.C 634(b)(6) and 636(a) and (h).

    Source: 61 FR 3235, Jan. 31, 1996, unless otherwise noted.

          General Descriptions of SBA's Business Loan Programs



Sec. 120.1  Which loan programs does this part cover?

    This part regulates SBA's financial assistance to small businesses 
under its general business loan programs (``7(a) loans'') authorized by 
section 7(a) of the Small Business Act (``the Act''), 15 U.S.C. 636(a), 
its microloan demonstration loan program (``Microloans'') authorized by 
section 7(m) of the Act, 15 U.S.C. 636(m), and its development company 
program (``504 loans'') authorized by Title V of the Small Business 
Investment Act, 15 U.S.C. 695 to 697f (``Title V''). These three 
programs constitute the business loan programs of the SBA.



Sec. 120.2  Descriptions of the business loan programs.

    (a) 7(a) loans. (1) 7(a) loans provide financing for general 
business purposes and may be:
    (i) A direct loan by SBA;

[[Page 141]]

    (ii) An immediate participation loan by a Lender and SBA; or
    (iii) A guaranteed loan (deferred participation) by which SBA 
guarantees a portion of a loan made by a Lender.
    (2) A guaranteed loan is initiated by a Lender agreeing to make an 
SBA guaranteed loan to a small business and applying to SBA for SBA's 
guarantee under a blanket guarantee agreement (participation agreement) 
between SBA and the Lender. If SBA agrees to guarantee (authorizes) a 
portion of the loan, the Lender funds and services the loan. If the 
small business defaults on the loan, SBA's guarantee requires SBA to 
purchase its portion of the outstanding balance, upon demand by the 
Lender and subject to specific conditions. Regulations specific to 7(a) 
loans are found in subpart B of this part.
    (b) Microloans. SBA makes loans and loan guarantees to non-profit 
Intermediaries that make short-term loans up to $25,000 to eligible 
small businesses for general business purposes, except payment of 
personal debts. SBA also makes grants to Intermediaries for use in 
providing management assistance and counseling to small businesses. 
Regulations specific to these loans are found in subpart G of this part.
    (c) 504 loans. Projects involving 504 loans require long-term fixed-
asset financing for small businesses. A Certified Development Company 
(CDC) provides the final portion of this financing with a 504 loan made 
from the proceeds of a Debenture issued by the CDC, guaranteed 100 
percent by SBA (with the full faith and credit of the United States), 
and sold to investors. The regulations specific to these loans are found 
in subpart H of this part.



Sec. 120.3  Pilot programs.

    The Administrator of SBA may from time to time suspend, modify, or 
waive rules for a limited period of time to test new programs or ideas. 
The Administrator shall publish a document in the Federal Register 
explaining the reasons for these actions.

                               Definitions



Sec. 120.10  Definitions.

    The following terms have the same meaning wherever they are used in 
this part. Defined terms are capitalized wherever they appear.
    Associate. (1) An Associate of a Lender or CDC is:
    (i) An officer, director, key employee, or holder of 20 percent or 
more of the value of the Lender's or CDC's stock or debt instruments, or 
an agent involved in the loan process;
    (ii) Any entity in which one or more individuals referred to in 
paragraphs (1)(i) of this definition or a Close Relative of any such 
individual owns or controls at least 20 percent.
    (2) An Associate of a small business is:
    (i) An officer, director, owner of more than 20 percent of the 
equity, or key employee of the small business;
    (ii) Any entity in which one or more individuals referred to in 
paragraphs (2)(i) of this definition owns or controls at least 20 
percent; and
    (iii) Any individual or entity in control of or controlled by the 
small business (except a Small Business Investment Company (``SBIC'') 
licensed by SBA).
    (3) For purposes of this definition, the time during which an 
Associate relationship exists commences six months before the following 
dates and continues as long as the certification, participation 
agreement, or loan is outstanding:
    (i) For a CDC, the date of certification by SBA;
    (ii) For a Lender, the date of application for a loan guarantee on 
behalf of an applicant; or
    (iii) For a small business, the date of the loan application to SBA, 
the CDC, the Intermediary, or the Lender.
    Authorization is SBA's written agreement providing the terms and 
conditions under which SBA will make or guarantee business loans. It is 
not a contract to make a loan.
    Borrower is the obligor of an SBA business loan.
    Certified Development Company (``CDC'') is an entity authorized by

[[Page 142]]

SBA to deliver 504 financing to small businesses.
    Close Relative is a spouse; a parent; or a child or sibling, or the 
spouse of any such person.
    Eligible Passive Company is a small entity or trust which does not 
engage in regular and continuous business activity, which leases real or 
personal property to an Operating Company for use in the Operating 
Company's business, and which complies with the conditions set forth in 
Sec. 120.111.
    Intermediary is the entity in the Microloan program that receives 
SBA financial assistance and makes loans to small businesses in amounts 
up to $25,000.
    Lender is an institution that has executed a participation agreement 
with SBA under the guaranteed loan program.
    Loan Instruments are the Authorization, note, instruments of 
hypothecation, and all other agreements and documents related to a loan.
    Operating Company is an eligible small business actively involved in 
conducting business operations now or about to be located on real 
property owned by an Eligible Passive Company, or using or about to use 
in its business operations personal property owned by an Eligible 
Passive Company.
    Preference is any arrangement giving a Lender or a CDC a preferred 
position compared to SBA relating to the making, servicing, or 
liquidation of a business loan with respect to such things as repayment, 
collateral, guarantees, control, maintenance of a compensating balance, 
purchase of a Certificate of deposit or acceptance of a separate or 
companion loan, without SBA's consent.
    Rural Area is a political subdivision or unincorporated area in a 
non-metropolitan county (as defined by the Department of Agriculture), 
or, if in a metropolitan county, any such subdivision or area with a 
resident population under 20,000 which is designated by SBA as rural.
    Service Provider is an entity that contracts with a Lender or CDC to 
perform management, marketing, legal or other services.



           Subpart A--Policies Applying to All Business Loans

                        Eligibility Requirements



Sec. 120.100  What are the basic eligibility requirements for all applicants for SBA business loans?

    To be eligible for an SBA business loan, a small business applicant 
must:
    (a) Be an operating business (except for loans to Eligible Passive 
Companies);
    (b) Be organized for profit;
    (c) Be located in the United States;
    (d) Be small under the size requirements of part 121 of this chapter 
(including affiliates). See subpart H of this part for the size 
standards of part 121 of this chapter which apply only to 504 loans; and
    (e) Be able to demonstrate a need for the desired credit.



Sec. 120.101  Credit not available elsewhere.

    SBA provides business loan assistance only to applicants for whom 
the desired credit is not otherwise available on reasonable terms from 
non-Federal sources. SBA requires the Lender or CDC to certify or 
otherwise show that the desired credit is unavailable to the applicant 
on reasonable terms and conditions from non-Federal sources without SBA 
assistance, taking into consideration the prevailing rates and terms in 
the community in or near where the applicant conducts business, for 
similar purposes and periods of time. Submission of an application to 
SBA by a Lender or CDC constitutes certification by the Lender or CDC 
that it has examined the availability of credit to the applicant, has 
based its certification upon that examination, and has substantiation in 
its file to support the certification.



Sec. 120.102  Funds not available from alternative sources, including personal resources of principals.

    (a) An applicant for a business loan must show that the desired 
funds are not available from the personal resources of any owner of 20 
percent or more of the equity of the applicant.

[[Page 143]]

SBA will require the use of personal resources from any such owner as an 
injection to reduce the SBA funded portion of the total financing 
package (i.e., any SBA loans and any other financing, including loans 
from any other source) when that owner's liquid assets exceed the 
amounts specified in paragraphs (a)(1) through (3) of this section. When 
the total financing package:
    (1) Is $250,000 or less, each 20 percent owner of the applicant must 
inject any personal liquid assets which are in excess of two times the 
total financing package or $100,000, whichever is greater;
    (2) Is between $250,001 and $500,000, each 20 percent owner of the 
applicant must inject any personal liquid assets which are in excess of 
one and one-half times the total financing package or $500,000, 
whichever is greater;
    (3) Exceeds $500,000, each 20 percent owner of the applicant must 
inject any personal liquid assets which are in excess of one times the 
total financing package or $750,000, whichever is greater.
    (b) Any liquid assets in excess of the applicable amount set forth 
in paragraph (a) of this section must be used to reduce the SBA portion 
of the total financing package. These funds must be injected prior to 
the disbursement of the proceeds of any SBA financing.
    (c) For purposes of this section, liquid assets means cash or cash 
equivalent, including savings accounts, CDs, stocks, bonds, or other 
similar assets. Equity in real estate holdings and other fixed assets 
are not to be considered liquid assets.



Sec. 120.103  Are farm enterprises eligible?

    Federal financial assistance to agricultural enterprises is 
generally made by the United States Department of Agriculture (USDA), 
but may be made by SBA under the terms of a Memorandum of Understanding 
between SBA and USDA. Farm-related businesses which are not agricultural 
enterprises are eligible businesses under SBA's business loan programs.



Sec. 120.104  Are businesses financed by SBICs eligible?

    SBA may make or guarantee loans to a business financed by an SBIC if 
SBA's collateral position will be superior to that of the SBIC. SBA may 
also make or guarantee a loan to an otherwise eligible small business 
which temporarily is owned or controlled by an SBIC under the 
regulations in part 107 of this chapter. SBA neither guarantees SBIC 
loans nor makes loans jointly with SBICs.



Sec. 120.105  Special consideration for veterans.

    SBA will give special consideration to a small business owned by a 
veteran or, if the veteran chooses not to apply, to a business owned or 
controlled by one of the veteran's dependents. If the veteran is 
deceased or permanently disabled, SBA will give special consideration to 
one survivor or dependent. SBA will process the application of a 
business owned or controlled by a veteran or dependent promptly, resolve 
close questions in the applicant's favor, and pay particular attention 
to maximum loan maturity. For SBA loans, a veteran is a person honorably 
discharged from active military service.

          Ineligible Businesses and Eligible Passive Companies



Sec. 120.110  What businesses are ineligible for SBA business loans?

    The following types of businesses are ineligible:
    (a) Non-profit businesses (for-profit subsidiaries are eligible);
    (b) Financial businesses primarily engaged in the business of 
lending, such as banks, finance companies, and factors (pawn shops, 
although engaged in lending, may qualify in some circumstances);
    (c) Passive businesses owned by developers and landlords that do not 
actively use or occupy the assets acquired or improved with the loan 
proceeds (except Eligible Passive Companies under Sec. 120.111);
    (d) Life insurance companies;
    (e) Businesses located in a foreign country (businesses in the U.S. 
owned by aliens may qualify);

[[Page 144]]

    (f) Pyramid sale distribution plans;
    (g) Businesses deriving more than one-third of gross annual revenue 
from legal gambling activities;
    (h) Businesses engaged in any illegal activity;
    (i) Private clubs and businesses which limit the number of 
memberships for reasons other than capacity;
    (j) Government-owned entities (except for businesses owned or 
controlled by a Native American tribe);
    (k) Businesses principally engaged in teaching, instructing, 
counseling or indoctrinating religion or religious beliefs, whether in a 
religious or secular setting;
    (l) Consumer and marketing cooperatives (producer cooperatives are 
eligible);
    (m) Loan packagers earning more than one third of their gross annual 
revenue from packaging SBA loans;
    (n) Businesses with an Associate who is incarcerated, on probation, 
on parole, or has been indicted for a felony or a crime of moral 
turpitude;
    (o) Businesses in which the Lender or CDC, or any of its Associates 
owns an equity interest;
    (p) Businesses which:
    (1) Present live performances of a prurient sexual nature; or
    (2) Derive directly or indirectly more than de minimis gross revenue 
through the sale of products or services, or the presentation of any 
depictions or displays, of a prurient sexual nature;
    (q) Unless waived by SBA for good cause, businesses that have 
previously defaulted on a Federal loan or Federally assisted financing, 
resulting in the Federal government or any of its agencies or 
Departments sustaining a loss in any of its programs, and businesses 
owned or controlled by an applicant or any of its Associates which 
previously owned, operated, or controlled a business which defaulted on 
a Federal loan (or guaranteed a loan which was defaulted) and caused the 
Federal government or any of its agencies or Departments to sustain a 
loss in any of its programs. For purposes of this section, a compromise 
agreement shall also be considered a loss;
    (r) Businesses primarily engaged in political or lobbying 
activities; and
    (s) Speculative businesses (such as oil wildcatting).



Sec. 120.111  What conditions must an Eligible Passive Company satisfy?

    An Eligible Passive Company must use loan proceeds to acquire or 
lease, and/or improve or renovate real or personal property (including 
eligible refinancing) that it leases to an Operating Company for the 
conduct of the Operating Company's business. Any ownership structure or 
legal form may qualify as an Eligible Passive Company.
    (a) Conditions that apply to all legal forms:
    (1) The Operating Company must be an eligible small business, and 
the proposed use of the proceeds must be an eligible use if the 
Operating Company were obtaining the financing directly;
    (2) The Eligible Passive Company (with the exception of a trust) and 
the Operating Company each must be small under the appropriate size 
standards in part 121 of this chapter;
    (3) The lease between the Eligible Passive Company and the Operating 
Company must be in writing and must be subordinated to SBA's mortgage, 
trust deed lien, or security interest on the property. Also, the 
Eligible Passive Company (as landlord) must furnish as collateral for 
the loan an assignment of all rents paid under the lease;
    (4) The lease between the Eligible Passive Company and the Operating 
Company, including options to renew exercisable solely by the Operating 
Company, must have a remaining term at least equal to the term of the 
loan;
    (5) The Operating Company must be a guarantor or a co-borrower (with 
the Eligible Passive Company) of the loan (in a 7(a) loan including 
working capital, the Operating Company must be a co-borrower); and
    (6) Each holder of an ownership interest constituting at least 20 
percent of the Eligible Passive Company and the Operating Company must 
guarantee the loan (the trustee shall execute the guarantee on behalf of 
any trust).
    (b) Additional conditions that apply to trusts. The eligibility 
status of the trustor will determine trust eligibility. All donors to 
the trust will be deemed to have trustor status for eligibility

[[Page 145]]

purposes. A trust qualifying as an Eligible Passive Company may engage 
in other activities as authorized by its trust agreement. The trustee 
must warrant and certify that the trust will not be revoked or 
substantially amended for the term of the loan without the consent of 
SBA. The trustor must guarantee the loan. For purposes of this section, 
the trustee shall certify to SBA that:
    (1) The trustee has authority to act;
    (2) The trust has the authority to borrow funds, pledge trust 
assets, and lease the property to the Operating Company;
    (3) The trustee has provided accurate, pertinent language from the 
trust agreement confirming the above; and
    (4) The trustee has provided and will continue to provide SBA with a 
true and complete list of all trustors and donors.

[61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]

                            Uses of Proceeds



Sec. 120.120  What are eligible uses of proceeds?

    A small business must use an SBA business loan for sound business 
purposes. The uses of proceeds are prescribed in each loan's 
Authorization.
    (a) A Borrower may use loan proceeds from any SBA loan to:
    (1) Acquire land (by purchase or lease);
    (2) Improve a site (e.g., grading, streets, parking lots, 
landscaping), including up to 5 percent for community improvements such 
as curbs and sidewalks;
    (3) Purchase one or more existing buildings;
    (4) Convert, expand or renovate one or more existing buildings;
    (5) Construct one or more new buildings; and/or
    (6) Acquire (by purchase or lease) and install fixed assets (for a 
504 loan, these assets must have a useful life of at least 10 years and 
be at a fixed location, although short-term financing for equipment, 
furniture, and furnishings may be permitted where essential to and a 
minor portion of the 504 Project).
    (b) A Borrower may also use 7(a) and microloan proceeds for:
    (1) Inventory;
    (2) Supplies;
    (3) Raw materials; and
    (4) Working capital (if the Operating Company is a co-Borrower with 
an Eligible Passive Company, part of the loan proceeds may be applied 
for working capital if used for that purpose only by the Operating 
Company).
    (c) A Borrower may use 7(a) loan proceeds for refinancing certain 
outstanding debts.



Sec. 120.130  Restrictions on uses of proceeds.

    SBA will not authorize nor may a Borrower use loan proceeds for the 
following purposes (including the replacement of funds used for any such 
purpose):
    (a) Payments, distributions or loans to Associates of the applicant 
(except for ordinary compensation for services rendered);
    (b) Refinancing a debt owed to a Small Business Investment Company 
(``SBIC'');
    (c) Floor plan financing or other revolving line credit, except 
under Sec. 120.390;
    (d) Investments in real or personal property acquired and held 
primarily for sale, lease, or investment (except for a loan to an 
Eligible Passive Company or to a small contractor under Sec. 120.310);
    (e) A purpose which does not benefit the small business; or
    (f) Any use restricted by Secs. 120.201 through 120.203 and 120.884 
(specific to 7(a) loans and 504 loans respectively).



Sec. 120.131  Leasing part of new construction or existing building to another business.

    (a) If the SBA business loan involves the construction of a new 
building, a Borrower may lease up to 33% of the square footage of 
rentable property (total square footage of all buildings or facilities 
used for business operations) for a short term to any third party if 
reasonable growth projections show that the Borrower will need 
additional space within three years and will use all of the additional 
space within ten years. If the Borrower is an Eligible Passive Company 
leasing 100 percent of

[[Page 146]]

the Project space to an Operating Company, the Operating Company may 
sublease up to 33 percent to a third party under the same conditions.
    (b) If the SBA business loan involves the acquisition, renovation, 
or reconstruction of an existing building, the Borrower (or Operating 
Company, if the Borrower is an Eligible Passive Company) must occupy at 
least 51 percent of the Rentable Property. The balance of the Rentable 
Property may be leased out to any third party, if the loan proceeds were 
not used to remodel or convert the space to be leased out. (For 504 
loans, see also Sec. 120.871.)

                          Ethical Requirements



Sec. 120.140  What ethical requirements apply to participants?

    Lenders, Intermediaries, CDCs, and Associate Development Companies 
(``ADCs'') (in this section, collectively referred to as 
``Participants''), must act ethically and exhibit good character. 
Ethical indiscretion of an Associate of a Participant or a member of a 
CDC will be attributed to the Participant. A Participant must promptly 
notify SBA if it obtains information concerning the unethical behavior 
of an Associate. The following are examples of such unethical behavior. 
A Participant may not:
    (a) Self-deal;
    (b) Have a real or apparent conflict of interest with a small 
business with which it is dealing (including any of its Associates or an 
Associate's Close Relatives) or SBA;
    (c) Own an equity interest in a business that has received or is 
applying to receive SBA financing (during the term of the loan or within 
6 months prior to the loan application);
    (d) Be incarcerated, on parole, or on probation;
    (e) Knowingly misrepresent or make a false statement to SBA;
    (f) Engage in conduct reflecting a lack of business integrity or 
honesty;
    (g) Be a convicted felon, or have an adverse final civil judgment 
(in a case involving fraud, breach of trust, or other conduct) that 
would cause the public to question the Participant's business integrity, 
taking into consideration such factors as the magnitude, repetition, 
harm caused, and remoteness in time of the activity or activities in 
question;
    (h) Accept funding from any source that restricts, prioritizes, or 
conditions the types of small businesses that the Participant may assist 
under an SBA program or that imposes any conditions or requirements upon 
recipients of SBA assistance inconsistent with SBA's loan programs or 
regulations;
    (i) Fail to disclose to SBA all relationships between the small 
business and its Associates (including Close Relatives of Associates), 
the Participant, and/or the lenders financing the Project of which it is 
aware or should be aware;
    (j) Fail to disclose to SBA whether the loan will:
    (1) Reduce the exposure of a Participant or an Associate of a 
Participant in a position to sustain a loss;
    (2) Directly or indirectly finance the purchase of real estate, 
personal property or services (including insurance) from the Participant 
or an Associate of the Participant;
    (3) Repay or refinance a debt due a Participant or an Associate of a 
Participant; or
    (4) Require the small business, or an Associate (including Close 
Relatives of Associates), to invest in the Participant (except for 
institutions which require an investment from all members as a condition 
of membership, such as a Production Credit Association);
    (k) Issue a real estate forward commitment to a builder or 
developer; or
    (l) Engage in any activity which taints its objective judgment in 
evaluating the loan.

                      Credit Criteria for SBA Loans



Sec. 120.150  What are SBA's lending criteria?

    The applicant (including an Operating Company) must be creditworthy. 
Loans must be so sound as to reasonably assure repayment. SBA will 
consider:
    (a) Character, reputation, and credit history of the applicant (and 
the Operating Company, if applicable), its Associates, and guarantors;
    (b) Experience and depth of management;
    (c) Strength of the business;

[[Page 147]]

    (d) Past earnings, projected cash flow, and future prospects;
    (e) Ability to repay the loan with earnings from the business;
    (f) Sufficient invested equity to operate on a sound financial 
basis;
    (g) Potential for long-term success;
    (h) Nature and value of collateral (although inadequate collateral 
will not be the sole reason for denial of a loan request); and
    (i) The effect any affiliates (as defined in part 121 of this 
chapter) may have on the ultimate repayment ability of the applicant.



Sec. 120.151  What is the statutory limit for total loans to a Borrower?

    The aggregate amount of the SBA portions of all loans to a single 
Borrower, including the Borrower's affiliates as defined in part 121 of 
this chapter, may not exceed a guarantee amount of $750,000, except as 
otherwise authorized by statute for a specific loan program. The amount 
of any loan received by an Eligible Passive Company applies to the loan 
limit of both the Eligible Passive Company and the Operating Company.



Sec. 120.160  Loan conditions.

    The following requirements are normally required by SBA for all 
business loans:
    (a) Personal guarantees. Holders of at least a 20 percent ownership 
interest generally must guarantee the loan. SBA, in its discretion, 
consulting with the Participating Lender, may require other appropriate 
individuals to guarantee the loan as well, except SBA will not require 
personal guarantees from those owning less than 5% ownership.
    (b) Appraisals. SBA may require professional appraisals of the 
applicant's and principals' assets, a survey, or a feasibility study.
    (c) Hazard Insurance. SBA requires hazard insurance on all 
collateral.
    (d) Taxes. The applicant may not use any of the proceeds to pay 
past-due Federal and state payroll taxes.

            Requirements Imposed Under Other Laws and Orders



Sec. 120.170  Flood insurance.

    Under the Flood Disaster Protection Act of 1973 (Sec. 205(b) of Pub. 
L. 93-234; 87 Stat. 983 (42 U.S.C. 4000 et seq.)), a loan recipient must 
obtain flood insurance if any building (including mobile homes), 
machinery, or equipment acquired, installed, improved, constructed, or 
renovated with the proceeds of SBA financial assistance is located in a 
special flood hazard area. The requirement applies also to any inventory 
(business loan program), fixtures or furnishings contained or to be 
contained in the building. Mobile homes on a foundation are buildings. 
SBA, Lenders, CDCs, and Intermediaries must notify Borrowers that flood 
insurance must be maintained.



Sec. 120.171  Compliance with child support obligations.

    Any holder of 50% or more of the ownership interest in the recipient 
of an SBA loan must certify that he or she is not more than 60 days 
delinquent on any obligation to pay child support arising under:
    (a) An administrative order;
    (b) A court order;
    (c) A repayment agreement between the holder and a custodial parent; 
or
    (d) A repayment agreement between the holder and a State agency 
providing child support enforcement services.



Sec. 120.172  Flood-plain and wetlands management.

    (a) All loans must conform to requirements of Executive Orders 
11988, ``Flood Plain Management'' (3 CFR, 1977 Comp., p. 117) and 11990, 
``Protection of Wetlands'' (3 CFR, 1977 Comp., p. 121). Lenders, 
Intermediaries, CDCs, and SBA must comply with requirements applicable 
to them. Applicants must show:
    (1) Whether the location for which financial assistance is proposed 
is in a floodplain or wetland;
    (2) If it is in a floodplain, that the assistance is in compliance 
with local land use plans; and
    (3) That any necessary construction or use permits will be issued.
    (b) Generally, there is an 8-step decision making process with 
respect to:
    (1) Construction or acquisition of anything, other than a building;

[[Page 148]]

    (2) Repair and restoration equal to more than 50% of the market 
value of a building; or
    (3) Replacement of destroyed structures.
    (c) SBA may determine for the following types of actions, on a case-
by-case basis, that the full 8-step process is not warranted and that 
only the first step (determining if a proposed action is in the base 
floodplain) need be completed:
    (1) Actions located outside the base floodplain;
    (2) Repairs, other than to buildings, that are less than 50% of the 
market value;
    (3) Replacement of building contents, materials, and equipment;
    (4) Hazard mitigation measures;
    (5) Working capital loans; or
    (6) SBA loan assistance of $1,500,000 or less.



Sec. 120.173  Lead-based paint.

    If loan proceeds are for the construction or rehabilitation of a 
residential structure, lead-based paint may not be used on any interior 
surface, or on any exterior surface that is readily accessible to 
children under the age of seven years.



Sec. 120.174  Earthquake hazards.

    When loan proceeds are used to construct a new building or an 
addition to an existing building, the construction must conform with the 
``National Earthquake Hazards Reduction Program (``NEHRP'') Recommended 
Provisions for the Development of Seismic Regulations for New 
Buildings'' (which can be obtained from the Federal Emergency Management 
Agency, Publications Office, Washington, DC) or a code identified by SBA 
as being substantially equivalent.



Sec. 120.175  Coastal barrier islands.

    SBA and Intermediaries may not make or guarantee any loan within the 
Coastal Barrier Resource System.



Sec. 120.176  Compliance with other laws.

    All SBA loans are subject to all applicable laws, including (without 
limitation) the civil rights laws (see parts 112, 113, 117 and 136 of 
this chapter), prohibiting discrimination on the grounds of race, color, 
national origin, religion, sex, marital status, disability or age. SBA 
requests agreements or evidence to support or document compliance with 
these laws, including reports required by applicable statutes or the 
regulations in this chapter.

                   Enforceability Despite Rule Changes



Sec. 120.180  Are rules enforceable if they are changed later?

    Regulations and contractual provisions in effect at the time of a 
transaction govern an SBA loan financing transaction, notwithstanding 
subsequent rule or contract changes. SBA may conduct an enforcement 
action regarding any violation of provisions of regulations or contracts 
applicable at the time, but no longer in effect or in use.

                            Loan Applications



120.190  Where does an applicant apply for a loan?

    An applicant for a business loan should apply to:
    (a) A Lender for a guaranteed or immediate participation loan;
    (b) A CDC for a 504 loan;
    (c) An Intermediary for a Microloan; or
    (d) SBA for a direct loan.



Sec. 120.191  The contents of a business loan application.

    For most business loans, SBA requires that an application for a 
business loan contain, among other things, a description of the history 
and nature of the business, the amount and purpose of the loan, the 
collateral offered for the loan, current financial statements, 
historical financial statements (or tax returns if appropriate) for the 
past three years, IRS tax verification, and a business plan, when 
applicable. Personal histories and financial statements will be required 
from principals of the applicant (and the Operating Company, if 
applicable).



Sec. 120.192  Approval or denial.

    Applicants receive notice of approval or denial by the Lender, CDC, 
Intermediary, or SBA, as appropriate.

[[Page 149]]

Notice of denial will include the reasons. If a loan is approved, an 
Authorization will be issued.



Sec. 120.193  Reconsideration after denial.

    An applicant or recipient of a business loan may request 
reconsideration of a denied loan or loan modification request within 6 
months of denial. Applicants denied due to a size determination can 
appeal that determination under part 121 of this chapter. All others 
must be submitted to the office that denied the original request. To 
prevail, the applicant must demonstrate that it has overcome all 
legitimate reasons for denial. Six months after denial, a new 
application is required. If the reconsideration is denied, a second and 
final reconsideration may be considered by the Associate Administrator 
for Financial Assistance (AA/FA), whose decision is final.

                         Computerized SBA Forms



Sec. 120.194  Use of computer forms.

    Any Applicant or Participant may use computer generated SBA 
application forms, closing forms, and other forms designated by SBA if 
the forms are exact reproductions of SBA forms.

                            Reporting of Fees



Sec. 120.195  Disclosure of fees.

    An Applicant for a business loan must identify to SBA the name of 
each Agent as defined in part 103 of this chapter that helped the 
applicant obtain the loan, describing the services performed, and 
disclosing the amount of each fee paid or to be paid by the applicant to 
the Agent in conjunction with the performance of those services.



               Subpart B--Policies Specific to 7(a) Loans

                          Bonding Requirements



Sec. 120.200  What bonding requirements exist during construction?

    On 7(a) loans which finance construction, the Borrower must supply a 
100 percent payment and performance bond and builder's risk insurance, 
unless waived by SBA.

                     Limitations on Use of Proceeds



Sec. 120.201  Refinancing unsecured or undersecured loans.

    A Borrower may not use 7(a) loan proceeds to pay any creditor in a 
position to sustain a loss causing a shift to SBA of all or part of a 
potential loss from an existing debt.



Sec. 120.202  Restrictions on loans for changes in ownership.

    A Borrower may not use 7(a) loan proceeds to purchase a portion of a 
business or a portion of another owner's interest. One or more current 
owners may use loan proceeds to purchase the entire interest of another 
current owner, or a Borrower can purchase ownership of an entire 
business.

         Maturities; Interest Rates; Loan and Guarantee Amounts



Sec. 120.210  What percentage of a loan may SBA guarantee?

    SBA's guarantee percentage must not exceed the applicable percentage 
established in section 7(a) of the Act. The maximum allowable guarantee 
percentage on a loan will be determined by the loan amount. As of 
October 12, 1995, the percentages are: Loans of $100,000 or less may 
receive a maximum guarantee of 80 percent. All other loans may receive a 
maximum guarantee of 75 percent, not to exceed $750,000, unless 
otherwise authorized by SBA.



Sec. 120.211  What limits are there on the amounts of direct loans?

    (a) The statutory limit for direct loans made under the authority of 
section 7(a)(1)-(19) of the Small Business Act is $350,000. SBA has 
established an administrative limit of $150,000 for direct loans. The 
AA/FA may authorize acceptance of an application up to the statutory 
limit.
    (b) The statutory limit for direct loans made under the authority of 
section 7(a)(20) is $750,000. SBA has established an administrative 
limit of $150,000. The Associate Administrator for Minority Enterprise 
Development may authorize the acceptance of an application that exceeds 
the administrative limit.
    (c) The statutory limit on SBA's portion of an immediate 
participation

[[Page 150]]

loan is $350,000. The administrative limit is the lesser of 75 percent 
of the loan or $150,000. The AA/FA may authorize exceptions to the 
administrative limit up to $350,000.



Sec. 120.212  What limits are there on loan maturities?

    The term of a loan shall be:
    (a) The shortest appropriate term, depending upon the Borrower's 
ability to repay;
    (b) Ten years or less, unless it finances or refinances real estate 
or equipment with a useful life exceeding ten years; and
    (c) A maximum of 25 years, including extensions. (A portion of a 
loan used to acquire or improve real property may have a term of 25 
years plus an additional period needed to complete the construction or 
improvements.)



Sec. 120.213  What fixed interest rates may a Lender charge?

    (a) Fixed Rates for Guaranteed Loans. A loan may have a reasonable 
fixed interest rate. SBA periodically publishes the maximum allowable 
rate in the Federal Register.
    (b) Direct loans. A statutory formula based on the cost of money to 
the Federal government determines the interest rate on direct loans. SBA 
publishes the rate periodically in the Federal Register.



Sec. 120.214  What conditions apply for variable interest rates?

    A Lender may use a variable rate of interest, upon SBA's approval. 
SBA's maximum allowable rates apply only to the initial rate on the date 
SBA received the loan application. SBA shall approve the use of a 
variable interest rate under the following conditions:
    (a) Frequency. The first change may occur on the first calendar day 
of the month following initial disbursement, using the base rate (see 
paragraph (c) of this section) in effect on the first business day of 
the month. After that, changes may occur no more often than monthly.
    (b) Range of fluctuation. The amount of fluctuation shall be equal 
to the movement in the base rate. The difference between the initial 
rate and the ceiling rate may be no greater than the difference between 
the initial rate and the floor rate.
    (c) Base rate. The base rate shall be the prime rate in effect on 
the first business day of the month, printed in a national financial 
newspaper published each business day, or the SBA Optional Peg Rate 
which SBA publishes quarterly in the Federal Register.
    (d) Maturities under 7 years. For loans with maturities under seven 
years, the maximum interest rate shall not exceed two and one-quarter (2 
1/4 ) percentage points over the base rate.
    (e) Maturities of 7 years or more. For loans with maturities of 
seven or more years, the maximum interest rate shall not exceed two and 
three-quarters (2 3/4 ) percentage points over the base rate.
    (f) Amortization. Initial amortization of principal and interest may 
be recomputed and reassessed as interest rates fluctuate, as directed by 
SBA. With prior approval of SBA, the Lender may use certain other 
amortization methods, except that SBA does not allow balloon payments.



Sec. 120.215  What interest rates apply to smaller loans?

    For a loan over $25,000 but not exceeding $50,000, the interest rate 
may be one percent more than the maximum interest rate described above. 
For a loan of $25,000 or less, the maximum interest rate described above 
may be increased by two percentage points.

[61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]

                        Fees for Guaranteed Loans



Sec. 120.220  Fees that Lender pays SBA.

    (a) The Lender pays a guarantee fee to SBA for each loan as follows:

[[Page 151]]



----------------------------------------------------------------------------------------------------------------
                                   Fee measured as                        Lender may get                        
  Guaranteed portion of loan        percentage of        When payable        fee from       When SBA refunds fee
                                  guaranteed portion                         borrower          from borrower    
----------------------------------------------------------------------------------------------------------------
12 Months or less.............  .25%.................  With Guarantee    When SBA          If Application       
                                                        Application.      Approves Loan.    Withdrawn or        
                                                                                            Denied.\1\          
More Than 12 months and Total   2.0% of Guaranteed     Within 90 days    After First       If Loan Cancelled and
 Guaranteed Portion Is $80,000   Portion.               of SBA Approval.  Disbursement.     Never Disbursed.    
 or Less.                                                                                                       
More Than 12 Months and Amount  3%...................  Within 90 Days    After First       If Loan Cancelled and
 of Guaranteed Portion of Loan                          of SBA Approval.  Disbursement.     Never Disbursed.    
 That Is $250,000 or Less.                                                                                      
More Than 12 Months and Amount  3.0% of 1st $250,000   Within 90 Days    After First       If Loan Cancelled and
 of Guaranteed Portion of Loan   plus 3.5% of balance.  of SBA Approval.  Disbursement.     Never Disbursed.    
 Between $250,000 and $500,000.                                                                                 
More Than 12 Months and Amount  3.0% of 1st $250,000   Within 90 Days    After First       If Loan Cancelled and
 of Guaranteed Portion of Loan   plus 3.5% of next      of SBA Approval.  Disbursement.     Never Disbursed.    
 Exceeding $500,000.             $250,000 plus 3.875%                                                           
                                 of the Amount                                                                  
                                 Exceeding $500,000.                                                            
----------------------------------------------------------------------------------------------------------------
\1\ Also, if SBA substantially changes the Lender's loan terms and approves the loan, but the modified terms are
  unacceptable to the Borrower or Lender. (The Lender must request refund in writing within 30 calendar days of 
  the approval).                                                                                                


[[Page 152]]

    (b) If the guarantee fee is not paid, SBA may terminate the 
guarantee. The Borrower may use working capital loan proceeds to 
reimburse the Lender for the guarantee fee. Acceptance of the guarantee 
fee by SBA shall not waive any right of SBA arising from the Lender's 
misconduct or violation of any provision of this part, the guarantee 
agreement, the Authorization, or other loan documents.
    (c) The Lender shall also pay SBA an annual service fee equal to 0.5 
percent of the outstanding balance of the guaranteed portion of each 
loan. The service fee cannot be charged to the Borrower. SBA may 
institute a late fee charge for delinquent payments of the annual 
service fee to cover administrative costs associated with collecting 
delinquent fees.

[61 FR 3235, Jan. 31, 1996; 61 FR 11471, Mar. 20, 1996]



Sec. 120.221  Fees which the Lender may collect from a loan applicant.

    (a) Service and packaging fees. The Lender may charge an applicant 
reasonable fees (customary for similar Lenders in the geographic area 
where the loan is being made) for packaging and other services. The 
Lender must advise the applicant in writing that the applicant is not 
required to obtain or pay for unwanted services. The applicant is 
responsible for deciding whether fees are reasonable. SBA may review 
these fees at any time. Lender must refund any such fee considered 
unreasonable by SBA.
    (b) Extraordinary servicing. Subject to prior written SBA approval, 
if all or part of a loan will have extraordinary servicing needs, the 
Lender may charge the applicant a service fee not to exceed 2 percent 
per year on the outstanding balance of the part requiring special 
servicing.
    (c) Out-of-pocket expenses. The Lender may collect from the 
applicant necessary out-of-pocket expenses such as filing or recording 
fees.
    (d) Late payment fee. The Lender may charge the Borrower a late 
payment fee not to exceed 5 percent of the regular loan payment.
    (e) No prepayment fee. The Lender may not charge a fee for full or 
partial prepayment of a loan.



Sec. 120.222  Fees which the Lender or Associate may not collect from the Borrower or share with third parties.

    The Lender or its Associate may not:
    (a) Require the applicant or Borrower to pay the Lender, an 
Associate, or any party designated by either, any fees or charges for 
goods or services, including insurance, as a condition for obtaining an 
SBA guaranteed loan (unless permitted by this part);
    (b) Charge an applicant any commitment, bonus, broker, commission, 
referral or similar fee;
    (c) Charge points or add-on interest;
    (d) Share any premium received from the sale of an SBA guaranteed 
loan in the secondary market with a Service Provider, packager, or other 
loan-referral source; or
    (e) Charge the Borrower for legal services, unless they are hourly 
charges for requested services actually rendered.



                    Subpart C--Special Purpose Loans



Sec. 120.300  Statutory authority.

    Congress has authorized several special purpose programs in various 
subsections of section 7(a) of the Act. Generally, 7(a) loan policies, 
eligibility requirements and credit criteria enumerated in subpart B of 
this part apply to these programs. The sections of this subpart 
prescribe the special conditions applying to each special purpose 
program. As with other business loans, special purpose loans are 
available only to the extent funded by annual appropriations.

                 Disabled Assistance Loan Program (DAL)



Sec. 120.310  What assistance is available for the disabled?

    Section 7(a)(10) of the Act authorizes SBA to guarantee or make 
direct loans to the disabled. SBA distinguishes two kinds of assistance:
    (a) DAL-1. DAL-1 Financial Assistance is available to non-profit 
public or private organizations for disabled individuals that employ 
such individuals; or
    (b) DAL-2. DAL-2 Financial Assistance is available to:

[[Page 153]]

    (1) Small businesses wholly owned by disabled individuals; and
    (2) Disabled individuals to establish, acquire, or operate a small 
business.



Sec. 120.311  Definitions.

    (a) Organization for the disabled means one which:
    (1) Is organized under federal or state law to operate in the 
interest of disabled individuals;
    (2) Is non-profit;
    (3) Employs disabled individuals for seventy-five percent of the 
time needed to produce commodities or services for sale; and
    (4) Complies with occupational and safety standards prescribed by 
the Department of Labor.
    (b) Disabled individual means a person who has a permanent physical, 
mental or emotional impairment, defect, ailment, disease or disability 
which limits the type of employment for which the person would otherwise 
be qualified.



Sec. 120.312  DAL-1 use of proceeds and other program conditions.

    (a) DAL-1 applicants must submit appropriate documents to establish 
program eligibility.
    (b) Generally, applicants may use loan proceeds for any 7(a) loan 
purposes. Loan proceeds may not be used:
    (1) To purchase or construct facilities if construction grants and 
mortgage assistance are available from another Federal source; or
    (2) For supportive services (expenses incurred by a DAL-1 
organization to subsidize wages of low producers, health and 
rehabilitation services, management, training, education, and housing of 
disabled workers).
    (c) SBA does not consider a DAL-1 organization to have a conflict of 
interest if one or more of its Associates is an Associate of the Lender.



Sec. 120.313  DAL-2 use of proceeds and other program conditions.

    (a) The DAL-2 loan proceeds may be used for any 7(a) loan purposes.
    (b) An applicant may use DAL-2 loan proceeds to acquire an eligible 
small business without complying with the change of ownership conditions 
in Sec. 120.202.
    (c) A DAL-2 applicant must submit evidence from a physician, 
psychiatrist, or other qualified professional as to the permanent nature 
of the disability and the limitation it places on the applicant.



Sec. 120.314  Resolving doubts about creditworthiness.

    For the purpose of the DAL Program, SBA shall resolve doubts 
concerning the creditworthiness of an applicant in favor of the 
applicant. However, the applicant must present satisfactory evidence of 
repayment ability. Personal guarantees of Associates are not required 
for purposes of DAL-1 financial assistance.



Sec. 120.315  Interest rate and loan limit.

    The interest rate on direct DAL loans is three percent. There is an 
administrative limit of $150,000 on a direct DAL loan.

               Businesses Owned by Low Income Individuals



Sec. 120.320  Policy.

    Section 7(a)(11) of the Act authorizes SBA to guarantee or make 
direct loans to establish, preserve or strengthen small business 
concerns:
    (a) Located in an area having high unemployment according to the 
Department of Labor;
    (b) Located in an area in which a high percentage of individuals 
have a low income inadequate to satisfy basic family needs; and
    (c) More than 50 percent owned by low income individuals.

                           Energy Conservation



Sec. 120.330  Who is eligible for an energy conservation loan?

    SBA may make or guarantee loans to assist a small business to 
design, engineer, manufacture, distribute, market, install, or service 
energy devices or techniques designed to conserve the Nation's energy 
resources.



Sec. 120.331  What devices or techniques are eligible for a loan?

    Eligible energy conservation devices or techniques include:
    (a) Solar thermal equipment;

[[Page 154]]

    (b) Photovoltaic cells and related equipment;
    (c) A product or service which increases the energy efficiency of 
existing equipment, methods of operation or systems which use fossil 
fuels, and which is on the Energy Conservation Measures list of the 
Secretary of Energy;
    (d) Equipment producing energy from wood, biological waste, grain or 
other biomass energy sources;
    (e) Equipment for cogeneration of energy, district heating or 
production of energy from industrial waste;
    (f) Hydroelectric power equipment;
    (g) Wind energy conversion equipment; and
    (h) Engineering, architectural, consulting, or other professional 
services necessary or appropriate for any of the devices or techniques 
in paragraphs (a) through (g) of this section.



Sec. 120.332  What are the eligible uses of proceeds?

    (a) Acquire property. The Borrower may use the loan proceeds to 
acquire land necessary for imminent plant construction, buildings, 
machinery, equipment, furniture, fixtures, facilities, supplies, and 
material needed to accomplish any of the eligible program purposes in 
Sec. 120.330.
    (b) Research and development. Up to 30% of loan proceeds may be used 
for research and development:
    (1) Of an existing product or service; or
    (2) A new product or service.
    (c) Working capital. The Borrower may use proceeds for working 
capital for entering or expanding in the energy conservation market.



Sec. 120.333  Are there any special credit criteria?

    In addition to regular credit evaluation criteria, SBA shall weigh 
the greater risk associated with energy projects. SBA shall consider 
such factors as quality of the product or service, technical 
qualifications of the applicant's management, sales projections, and 
financial status.

                  Export Working Capital Program (EWCP)



Sec. 120.340  What is the Export Working Capital Program?

    Under the EWCP, SBA guarantees short-term working capital loans made 
by participating lenders to exporters (section 7(a)(14) of the Act). 
Loan maturities may be for up to three years with annual renewals. 
Proceeds can be used only to finance export transactions. Loans can be 
for single or multiple export transactions. An export transaction is the 
production and payment associated with a sale of goods or services to a 
foreign buyer.



Sec. 120.341  Who is eligible?

    In addition to the eligibility criteria applicable to all 7(a) 
loans, an applicant must be in business for one full year at the time of 
application, but not necessarily in the exporting business. SBA may 
waive this requirement if the applicant has sufficient export trade 
experience or other managerial experience.



Sec. 120.342  What are eligible uses of proceeds?

    Loan proceeds may be used:
    (a) To acquire inventory;
    (b) To pay the manufacturing costs of goods for export;
    (c) To purchase goods or services for export;
    (d) To support standby letters of credit;
    (e) For pre-shipment working capital; and
    (f) For post-shipment foreign accounts receivable financing.



Sec. 120.343  Collateral.

    A Borrower must give SBA a first security interest sufficient to 
cover 100 percent of the EWCP loan amount (such as insured accounts 
receivable or letters of credit). Collateral must be located in the 
United States, its territories or possessions.



Sec. 120.344  Unique requirements of the EWCP.

    (a) An applicant must submit cash flow projections to support the 
need for the loan and the ability to repay. After the loan is made, the 
loan recipient

[[Page 155]]

must submit continual progress reports.
    (b) SBA does not limit the amount of extraordinary servicing fees, 
as referenced in Sec. 120.221(b), under the EWCP.
    (c) SBA does not prescribe the interest rates for the EWCP, but will 
monitor these rates for reasonableness.

                        International Trade Loans



Sec. 120.345  Policy.

    Section 7(a)(16) of the Act authorizes SBA to guarantee loans to 
small businesses that are:
    (a) Engaged or preparing to engage in international trade; or
    (b) Adversely affected by import competition.



Sec. 120.346  Eligibility.

    (a) An applicant must establish that:
    (1) The loan proceeds will significantly expand an existing export 
market or develop new export markets; or
    (2) The applicant business is adversely affected by import 
competition; and
    (3) Upgrading facilities or equipment will improve the applicant's 
competitive position.
    (b) The applicant must have a business plan reasonably supporting 
its projected export sales.



Sec. 120.347  Use of proceeds.

    The Borrower may use loan proceeds to acquire, construct, renovate, 
modernize, improve, or expand facilities and equipment to be used in the 
United States to produce goods or services involved in international 
trade, and to develop and penetrate foreign markets.



Sec. 120.348  Amount of guarantee.

    SBA can guarantee up to $1,250,000 for a combination of fixed-asset 
financing and working capital, supplies and EWCP assistance. The fixed-
asset portion of the loan cannot exceed $1,000,000 and the non-fixed-
asset portion cannot exceed $750,000.

                    Qualified Employee Trusts (ESOP)



Sec. 120.350  Policy.

    Section 7(a)(15) of the Act authorizes SBA to guarantee a loan to a 
qualified employee trust (``ESOP'') to:
    (a) Help finance the growth of its employer's small business; or
    (b) Purchase ownership or voting control of the employer.



Sec. 120.351  Definitions.

    All terms specific to ESOPs have the same definition for purposes of 
this section as in the Internal Revenue Service (IRS) Code (title 26 of 
the United States Code) or regulations (26 CFR chapter I).



Sec. 120.352  Use of proceeds.

    Loan proceeds may be used for two purposes.
    (a) Qualified employer securities. A qualified employee trust may 
relend loan proceeds to the employer by purchasing qualified employer 
securities. The small business concern may use these funds for any 
general 7(a) purpose.
    (b) Control of employer. A qualified employee trust may use loan 
proceeds to purchase a controlling interest (51 percent) in the 
employer. Ownership and control must vest in the trust by the time the 
loan is repaid.



Sec. 120.353  Eligibility.

    SBA may assist a qualified employee trust (or equivalent trust) that 
meets the requirements and conditions for an ESOP prescribed in all 
applicable IRS, Treasury and Department of Labor (DOL) regulations. In 
addition, the following conditions apply:
    (a) The small business must provide the funds needed by the trust to 
repay the loan; and
    (b) The small business must provide adequate collateral.



Sec. 120.354  Creditworthiness.

    In determining repayment ability, SBA shall not consider the 
personal assets of the employee-owners of the trust. SBA shall consider 
the earnings history and projected future earnings of the employer small 
business. SBA may consider the business and management experience of the 
employee-owners.

[[Page 156]]

                          Veterans Loan Program



Sec. 120.360  Which veterans are eligible?

    SBA may guarantee or make direct loans to a small business 51 
percent owned by one or more of the following eligible veterans:
    (a) Vietnam-era veterans who served for a period of more than 180 
days between August 5, 1964, and May 7, 1975, and were discharged other 
than dishonorably;
    (b) Disabled veterans of any era with a minimum compensable 
disability of 30 percent; or
    (c) A veteran of any era who was discharged for disability.



Sec. 120.361  Other conditions of eligibility.

    (a) Management and daily operations of the business must be directed 
by one or more of the veteran owners whose veteran status was used to 
qualify for the loan.
    (b) This direct loan program is available only if private sector 
financing and guaranteed loans are not available.
    (c) A veteran may qualify only once for this program on a direct 
loan basis.

                        Pollution Control Program



Sec. 120.370  Policy.

    Section 7(a)(12) of the Act authorizes SBA to guarantee loans up to 
$1,000,000 to an eligible small business to plan, design or install a 
pollution control facility. An applicant must meet the eligibility 
requirements for 7(a) loans.

                Loans to Participants in the 8(a) Program



Sec. 120.375  Policy.

    Section 7(a)(20) of the Act authorizes SBA to provide direct 
(unilaterally or together with Lenders) or guaranteed loans to firms 
participating in the 8(a) Program.



Sec. 120.376  Special requirements.

    The following special conditions apply (otherwise, 7(a) loan 
eligibility criteria apply):
    (a) The Associate Administrator of Minority Enterprise Development 
(``MED'') may waive the direct loan administrative ceiling of $150,000, 
and raise it to $750,000.
    (b) The SBA portion of a guaranteed loan must not exceed $750,000.
    (c) The interest rate on a guaranteed loan shall be the same as on 
7(a) guaranteed business loans. The interest rate on a direct loan shall 
be one percent less than on a regular direct loan.
    (d) For a direct loan or SBA's portion of an immediate participation 
loan, SBA shall subordinate its security interest on all collateral to 
other debt of the applicant.



Sec. 120.377  Use of proceeds.

    The loan proceeds shall not be used for debt refinancing. Only a 
manufacturing concern may use loan proceeds for working capital.

                 Defense Economic Transition Assistance



Sec. 120.380  Program.

    Section 7(a)(21) of the Act authorizes SBA to guarantee loans to 
help eligible small businesses transition from defense to civilian 
markets, or eligible individuals adversely impacted by base closures or 
defense cutbacks to acquire or open and operate a small business.



Sec. 120.381  Eligibility.

    (a) Eligible small businesses. A small business is eligible if it 
has been detrimentally impacted by the closure (or substantial 
reduction) of a Department of Defense installation, or the termination 
(or substantial reduction) of a Department of Defense Program on which 
the small business was a prime contractor, subcontractor, or supplier at 
any tier.
    (b) Eligible individual. An eligible individual, for purposes of 
this program, includes the following persons involuntarily separated 
from their position or voluntarily terminated under a program offering 
inducements to encourage early retirement:
    (1) A member of the Armed Forces of the United States (honorably 
discharged);
    (2) A civilian employee of the Department of Defense; or
    (3) An employee of a prime contractor, sub-contractor, or supplier 
at any tier of a Department of Defense program.
    (c) Defense loan and technical assistance (DELTA). The DELTA program

[[Page 157]]

provides financial and technical assistance to defense dependent small 
businesses which have been adversely affected by defense reductions. The 
goal of the program is to assist these businesses to diversify into the 
commercial market while remaining part of the defense industrial base. 
Complete information on eligibility and other rules is available from 
each SBA district office.



Sec. 120.382  Repayment ability.

    SBA shall resolve reasonable doubts concerning the small business' 
proposed business plan for transition to non-defense-related markets in 
favor of the loan applicant in determining the sound value of the 
proposed loan.



Sec. 120.383  Restrictions on loan processing.

    Since greater risk may be associated with a loan to an applicant 
under this program, a Certified Lender or Preferred Lender shall not 
make a defense economic assistance loan under the PLP or CLP programs.

                            CapLines Program



Sec. 120.390  Revolving credit.

    (a) CapLines finances eligible small businesses' short-term, 
revolving and non-revolving working-capital needs. SBA regulations 
governing the 7(a) loan program govern business loans made under this 
program. Under CapLines, SBA generally can guarantee up to $750,000.
    (b) CapLines proceeds can be used to finance the cyclical, 
recurring, or other identifiable short-term operating capital needs of 
small businesses. Proceeds can be used to create current assets or used 
to provide financing against the current assets that already exist.

                          Builders Loan Program



Sec. 120.391  What is the Builders Loan Program?

    Under section 7(a)(9) of the Act, SBA may make or guarantee loans to 
finance small general contractors to construct or rehabilitate 
residential or commercial property for resale. This program provides an 
exception under specified conditions to the general rule against 
financing investment property. ``Construct'' and ``rehabilitate'' mean 
only work done on-site to the structure, utility connections and 
landscaping.



Sec. 120.392 Who may apply?
    A construction contractor or home-builder with a past history of 
profitable construction or rehabilitation projects of comparable type 
and size may apply. An applicant may subcontract the work. Subcontracts 
in excess of $25,000 may require 100 percent payment and performance 
bonds.



Sec. 120.393  Are there special application requirements?

    (a) An applicant must submit documentation from:
    (1) A mortgage lender indicating that permanent mortgage money is 
available to qualified purchasers to buy such properties;
    (2) A real estate broker indicating that a market exists for the 
proposed building and that it will be compatible with its neighborhood; 
and
    (3) An architect, appraiser or engineer agreeing to make inspections 
and certifications to support interim disbursements.
    (b) The Borrower may substitute a letter from a qualified Lender for 
one or more of the letters.



Sec. 120.394  What are the eligible uses of proceeds?

    A Borrower must use the loan proceeds solely to acquire, construct 
or substantially rehabilitate an individual residential or commercial 
building for sale. ``Substantial'' means rehabilitation expenses of more 
than one-third of the purchase price or fair market value at the time of 
the application. A Borrower may use up to 20 percent of the proceeds to 
acquire land, and up to 5 percent for community improvements such as 
curbs and sidewalks.



Sec. 120.395  What is SBA's collateral position?

    SBA will require a lien on the building which must be in no less 
than a second position.



Sec. 120.396  What is the term of the loan?

    The loan must not exceed sixty (60) months plus the estimated time 
to

[[Page 158]]

complete construction or rehabilitation.



Sec. 120.397  Are there any special restrictions?

    The borrower must not use loan proceeds to purchase vacant land for 
possible future construction or to operate or hold rental property for 
future rehabilitation. SBA may allow rental of the property only if the 
rental will improve the ability to sell the property. The sale must be a 
legitimate change of ownership.



                           Subpart D--Lenders



Sec. 120.400  Loan Guarantee Agreements.

    SBA may enter into a Loan Guarantee Agreement with a Lender to make 
deferred participation (guaranteed) loans. Such an agreement does not 
obligate SBA to participate in any specific proposed loan that a Lender 
may submit. The existence of a Loan Guarantee Agreement does not limit 
SBA's rights to deny a specific loan or establish general policies. See 
also Secs. 120.441(b) and 120.451(d) concerning Supplemental Guarantee 
Agreements.

                         Participation Criteria



Sec. 120.410  Requirements for all participating Lenders.

    A Lender must:
    (a) Have a continuing ability to evaluate, process, close, disburse, 
service and liquidate small business loans;
    (b) Be open to the public for the making of such loans (not be a 
financing subsidiary, engaged primarily in financing the operations of 
an affiliate);
    (c) Have continuing good character and reputation, and otherwise 
meet and maintain the ethical requirements of Sec. 120.140; and
    (d) Be supervised and examined by a State or Federal regulatory 
authority, satisfactory to SBA.



Sec. 120.411  Preferences.

    An agreement to participate under the Act may not establish any 
Preferences in favor of the Lender.



Sec. 120.412  Other services Lenders may provide Borrowers.

    Subject to Sec. 120.140 Lenders, their Associates or the designees 
of either may provide services to and contract for goods with a Borrower 
only after full disbursement of the loan to the small business or to an 
account not controlled by the Lender, its Associate, or the designee. A 
Lender, an Associate, or a designee providing such services must do so 
under a written contract with the small business, based on time and 
hourly charges, and must maintain time and billing records for 
examination by SBA. Fees cannot exceed those charged by established 
professional consultants providing similar services. See also 
Sec. 120.195.



Sec. 120.413  Advertisement of relationship with SBA.

    A Lender may refer in its advertising to its participation with SBA. 
The advertising may not:
    (a) State or imply that the Lender, or any of its Borrowers, has or 
will receive preferential treatment from SBA;
    (b) Be false or misleading; or
    (c) Make use of SBA's seal.

           Pledging Notes or Transferring Unguaranteed Portion



Sec. 120.420  Financings by Nondepository Lenders.

    (a) A Small Business Lending Company regulated by SBA or a Business 
and Industrial Development Company (``Nondepository Lender'') may pledge 
the notes evidencing SBA guaranteed loans or sell the unguaranteed 
portions of such loans if SBA, notwithstanding the provisions of 
Sec. 120.453(c), in its sole discretion, gives its prior written 
consent. The Lender must be secure financially and have a history of 
compliance with SBA's regulations and any other applicable state or 
Federal statutory and regulatory requirements.
    (b) The Nondepository Lender, SBA, and any third party involved in 
the transaction, as determined by SBA in its sole discretion, must enter 
into a written agreement satisfactory to SBA acknowledging SBA's 
interest as guarantor of the subject loans and accepting that all 
relevant third parties agree

[[Page 159]]

to recognize and uphold those interests under the Act, this part, and 
the contractual provisions of SBA's Loan Guarantee Agreement. In any 
such agreement, the parties must agree to the following conditions:
    (1) The Nondepository Lender, SBA, or a third party custodian 
agreeable to SBA, will hold all pertinent Loan Instruments, and the 
Nondepository Lender will continue to service the loans after the pledge 
or transfer is made; and
    (2) The Nondepository Lender must retain an economic risk in and 
bear the ultimate risk of loss on the unguaranteed portions. This must 
be demonstrated to SBA's satisfaction by establishing a sufficient 
reserve fund at the time of sale of the unguaranteed portions and, in 
the case of pledging notes, by retaining all of the economic interest in 
the unguaranteed portion of any loan which a note evidences.
    (c) The Nondepository Lender may not use SBA guaranteed loans or the 
collateral supporting such loans as collateral for any borrowing not 
related to financing of the guaranteed or unguaranteed portion of SBA 
loans.

                        Miscellaneous Provisions



Sec. 120.430  SBA access to Lender files.

    A Lender must allow SBA's authorized representatives, during normal 
business hours, access to its files to review, inspect and copy all 
records and documents relating to SBA guaranteed loans.



Sec. 120.431  Suspension or revocation of eligibility to participate.

    SBA may suspend or revoke the eligibility of a Lender to participate 
in the 7(a) program because of a violation of SBA regulations, a breach 
of any agreement with SBA, a change of circumstance resulting in the 
Lender's inability to meet operational requirements, or a failure to 
engage in prudent lending practices. Proceedings for such purposes will 
be conducted in accordance with the provisions of part 134 of this 
chapter. A suspension or revocation will not invalidate a guarantee 
previously provided by SBA.

                     Certified Lenders Program (CLP)



Sec. 120.440  What is the Certified Lenders Program?

    Under the Certified Lenders Program (CLP), designated Lenders 
process, close, service, and may liquidate, SBA guaranteed loans. SBA 
gives priority to applications and servicing actions submitted by 
Lenders under this program, and will provide expedited loan processing 
or servicing. All other rules in this part 120 relating to the 
operations of Lenders apply to CLP Lenders.

[61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]



Sec. 120.441  How does a Lender become a CLP Lender?

    (a) An SBA field office may nominate a Lender or a Lender may 
request a field office to consider it for CLP status. SBA district 
directors may approve and renew a Lender's CLP status. The district 
director will consider whether the Lender:
    (1) Has the ability to process, close, service and liquidate loans;
    (2) Has a satisfactory performance history with SBA, including the 
submission of complete and accurate loan guarantee application packages;
    (3) Has an acceptable SBA purchase rate; and
    (4) Has shown the ability to work well with the local SBA office.
    (b) If the district director does not approve a request for CLP 
status, the Lender may appeal to the AA/FA, whose decision will be 
final. If SBA grants CLP status, it applies only in the field office 
that processed the CLP designation. A CLP Lender must execute a 
Supplemental Guarantee Agreement that will specify a term not to exceed 
two years.



Sec. 120.442  Suspension or revocation of CLP status.

    The AA/FA may suspend or revoke CLP status upon written notice 
providing the reasons at least 10 business days prior to the effective 
date of the suspension or revocation. Reasons for suspension or 
revocation may include a loan performance record unacceptable to SBA, 
failure to make the required number of loans under the expedited

[[Page 160]]

procedures, or violations of applicable statutes, regulations or 
published SBA policies and procedures. A CLP Lender may appeal the 
suspension or revocation made under this section under procedures found 
in part 134 of this chapter. The action of the AA/FA remains in effect 
pending resolution of the appeal.

                     Preferred Lenders Program (PLP)



Sec. 120.450  What is the Preferred Lenders Program?

    Under the Preferred Lenders Program (PLP), designated Lenders 
process, close, service, and liquidate SBA guaranteed loans with reduced 
requirements for documentation to and prior approval by SBA.



Sec. 120.451  How does a Lender become a PLP Lender?

    (a) An SBA field office serving the area in which a Lender's office 
is located can nominate the Lender, or a Lender can request a field 
office to consider it for PLP status. The SBA field office will forward 
its recommendation to an SBA centralized loan processing center which 
will submit its recommendation and supporting documentation to the AA/FA 
for final decision.
    (b) In making its decision, SBA considers whether the Lender:
    (1) Has the required ability to process, close, service and 
liquidate loans;
    (2) Has the ability to develop and analyze complete loan packages; 
and
    (3) Has a satisfactory performance history with SBA.
    (c) If the Lender is approved, the AA/FA will designate the area in 
which it can make PLP loans.
    (d) Before it can operate as a PLP Lender, the approved Lender must 
execute a Supplemental Guarantee Agreement, which will specify a term 
not to exceed two years.
    (e) When a PLP's Supplemental Guarantee Agreement expires, SBA may 
recertify it as a PLP Lender for an additional term not to exceed two 
years. Prior to recertification, SBA will review a PLP Lender's loans, 
policies and procedures. The recertification decision of the AA/FA is 
final.
    (f) A PLP Lender may request an expansion of the territory in which 
it can process PLP loans by submitting its request to a loan processing 
center. The center will obtain the recommendation of each SBA office in 
the area into which the PLP Lender would like to expand its PLP 
operations. The center will forward the recommendations to the AA/FA for 
final decision. If a PLP Lender is not a CLP Lender in a territory into 
which it seeks to expand its PLP status, it automatically obtains CLP 
status in that territory when it is granted PLP status for the 
territory.



Sec. 120.452  What are the requirements of PLP loan processing?

    (a) Subparts A and B of this part govern the making of PLP loans, 
except for the following:
    (1) Certain types of businesses, loans, and loan programs are not 
eligible for PLP, as detailed in published SBA policy and procedures.
    (2) A Lender may not make a PLP business loan which reduces its 
existing credit exposure for any Borrower, except in cases where an 
interim loan(s) has been made for other than real estate construction 
purposes to the Borrower which was approved by the Lender within 90 days 
of receipt of the issuance fo a subsequent PLP loan number.
    (3) SBA will not guarantee more than the specified statutory 
percentage of any PLP loan.
    (b) A PLP Lender notifies SBA of its approval of a PLP loan by 
submitting to SBA's loan processing center appropriate documentation 
signed by two of the PLP's authorized representatives. SBA will attach 
the SBA guarantee and notify the PLP Lender of the SBA loan number (if 
it does not identify a problem with eligibility, and funds are 
available).
    (c) The PLP Lender is responsible for all PLP loan decisions 
regarding eligibility (including size) and creditworthiness. The PLP 
Lender is also responsible for confirming that all PLP loan closing 
decisions are correct, and that it has complied with all requirements of 
law and SBA regulations.

[[Page 161]]



Sec. 120.453  What are the requirements of a PLP Lender in servicing and liquidating SBA guaranteed loans?

    The PLP Lender must service and liquidate its SBA guaranteed loan 
portfolio (including its non-PLP loans) using generally accepted 
commercial banking standards employed by prudent lenders. The PLP Lender 
must liquidate any defaulted SBA guaranteed loan in its portfolio unless 
SBA advises in writing that SBA will liquidate the loan. The PLP Lender 
must submit a liquidation plan to SBA prior to commencing liquidation 
action. The PLP Lender may take any necessary servicing action, or 
liquidation action consistent with a plan, for any SBA guaranteed loan 
in its portfolio, except it may not:
    (a) Take any action that confers a Preference on the Lender;
    (b) Accept a compromise settlement without prior written SBA 
consent; and
    (c) Sell or pledge more than 90 percent of a PLP loan.



Sec. 120.454  PLP performance review.

    SBA may review the performance of a PLP Lender. SBA may charge the 
PLP Lender a fee to cover the costs of this review.



Sec. 120.455  Suspension or revocation of PLP status.

    The AA/FA may suspend or revoke PLP status upon written notice 
providing the reasons at least 10 business days prior to the effective 
date of the suspension or revocation. Reasons for suspension or 
revocation may include loan performance unacceptable to SBA, failure to 
make the required number of loans under the expedited procedures, or 
violations of applicable statutes, regulations or published SBA policies 
and procedures. A PLP Lender may appeal the suspension or revocation 
made under this section under procedures found in part 134 of this 
chapter. The action of the AA/FA remains in effect pending resolution of 
the appeal.

                 Small Business Lending Companies (SBLC)



Sec. 120.470  What is an SBLC?

    A Small Business Lending Company (SBLC) is a nondepository lending 
institution licensed by SBA. SBA supervises, examines, and regulates 
SBLCs. An SBLC is subject to all applicable SBA regulations, including 
those governing Lenders. SBA has imposed a moritorium on licensing new 
SBLC's since January, 1982.
    (a) An SBLC may only make:
    (1) Loans under section 7(a) (except section 7(a)(13)) of the Act in 
participation with SBA; and/or
    (2) SBA guaranteed loans to micro-Lenders in the SBA Microloan 
program (see subpart G of this part). Such loans are subject to the same 
conditions as guaranteed loans made to SBA-designated microlenders by 
SBA participating Lenders.
    (b) In addition to complying with Secs. 120.400 through 120.413, an 
SBLC must meet the following requirements:
    (1) Business structure. It must be a corporation (profit or non-
profit).
    (2) Written agreement. It must sign a written agreement with SBA.
    (3) Capital structure. It must have unencumbered paid-in capital and 
paid-in surplus of at least $1,000,000, or ten percent of the aggregate 
of its share of all outstanding loans, whichever is more.
    (4) Capital impairment. It must avoid capital impairment at all 
times. Impairment exists if the retained earnings deficit of an SBLC 
exceeds 50 percent of combined paid-in capital and paid-in-surplus, 
excluding treasury stock. An SBLC must give SBA prompt written notice of 
any capital impairment within 30 calendar days of the month-end 
financial report that first reflects the impairment. Until the 
impairment is cured, an SBLC may not present any loans to SBA for 
guarantee.
    (5) Issuance of securities. Without prior written SBA approval, it 
must not issue any securities (including stock options and debt 
securities) except stock dividends and common stock issued for cash or 
direct obligations of, or obligations fully guaranteed as to principal 
and interest by, the United States.
    (6) Voluntary capital reduction. Without prior written SBA approval, 
it must not voluntarily reduce its capital, or purchase and hold more 
than 2

[[Page 162]]

percent of any class or combination of classes of its stock.
    (7) Reserves for losses. It must maintain a reserve in the amount of 
anticipated losses on loans and receivables.
    (8) Internal control. It must adopt a plan designed to safeguard its 
funds and other assets, to assure the reliability of its personnel, and 
to maintain the accuracy of its financial data.
    (9) Dual control. It must maintain dual control over disbursement of 
funds and withdrawal of securities. An SBLC may disburse funds only by 
checks or wire transfers authorized by signatures of two or more 
officers covered by the SBLC's fidelity bond, except that checks in an 
amount of $1,000 or less may be signed by one bonded officer. There must 
be two or more bonded officers, or one bonded officer and a bonded 
employee to open safe deposit boxes or withdraw securities from 
safekeeping. The SBLC shall furnish to each depository bank, custodian, 
or entity providing safe deposit boxes a certified copy of the 
resolution implementing these control procedures.
    (10) Fidelity insurance. It must maintain a Brokers Blanket Bond, 
Standard Form 14, or Finance Companies Blanket Bond, Standard Form 15, 
or such other form of coverage as SBA may approve, in a minimum amount 
of $500,000 executed by a surety holding a certificate of authority from 
the Secretary of the Treasury pursuant to 31 U.S.C. 9304-9308.
    (11) Common control. It must not control, be controlled by, or be 
under common control with, another SBLC. Without prior written SBA 
approval, an Associate of one SBLC shall not be an Associate of another 
SBLC or of any entity which directly or indirectly controls or is under 
common control with another SBLC.
    (12) Management. An SBLC must employ full time professional 
management.
    (13) Borrowed funds. Without SBA's prior written approval, it must 
not be capitalized with borrowed funds. Shareholders owning 10 percent 
or more of any class of its stock shall not use borrowed funds to 
purchase the stock unless the net worth of the shareholders is at least 
twice the amount borrowed or unless the shareholders receive SBA's prior 
written approval for a lower ratio.



Sec. 120.471  Records.

    Each SBLC must comply with the following requirements concerning 
records:
    (a) Maintenance of Records. It must maintain accurate and current 
financial records, including books of account, minutes of stockholder, 
directors, and executive committee meetings, and all documents and 
supporting materials relating to the SBLC's transactions at its 
principal business office. Securities held by a custodian pursuant to a 
written agreement shall be exempt from this requirement.
    (b) Preservation of records. (1) It must preserve in a manner 
permitting immediate retrieval the following documentation for the 
financial statements required by Sec. 120.472 (and of the accompanying 
certified public accountant's opinion), for the following specified 
periods:
    (i) Preserve permanently:
    (A) All general and subsidiary ledgers (or other records) reflecting 
asset, liability, capital stock and surplus, income, and expense 
accounts;
    (B) All general and special journals (or other records forming the 
basis for entries in such ledgers); and
    (C) The corporate charter, bylaws, application for determination of 
eligibility to participate with SBA, and all minutes books, capital 
stock certificates or stubs, stock ledgers, and stock transfer 
registers;
    (ii) Preserve for at least 6 years following final disposition of 
the related loan:
    (A) All applications for financing;
    (B) Lending, participation, and escrow agreements;
    (C) Financing instruments; and
    (D) All other documents and supporting material relating to such 
loans, including correspondence.
    (2) Records and other documents referred to in this section may be 
preserved electronically if the original is available for retrieval 
within a reasonable period.



Sec. 120.472  Reports to SBA.

    An SBLC must submit the following to the AA/FA:

[[Page 163]]

    (a) An audited financial statement prepared by a certified public 
accountant within three months after the close of each fiscal year, and 
interim financial reports when requested by SBA;
    (b) A report of any legal or administrative proceeding, by or 
against the SBLC, or against an officer, director, or employee of the 
SBLC for an alleged breach of official duty, within 10 days after 
initiating or learning of the proceeding, as well as notification of the 
terms of any settlement or final judgment (in addition to any reporting 
under applicable SBA Forms);
    (c) Copies of any report furnished to its stockholders (including 
any prospectus, letter, or other publication concerning the financial 
operations of the SBLC);
    (d) A summary of any changes in the SBLC's organization or 
financing, such as:
    (1) Any change in its name, address or telephone number;
    (2) Any change in its charter, bylaws, or its officers or directors 
(to be accompanied by a statement of personal history on an approved SBA 
form);
    (3) Any changes in capitalization (including those identified in 
Sec. 120.470);
    (4) Any changes affecting the eligibility of the SBLC to continue to 
participate as an SBLC; and
    (5) Notice of a pledge of stock within 30 calendar days of the 
transaction if 10 percent or more of the stock is pledged by any person 
(or group of persons acting in concert) as collateral for indebtedness, 
and such pledge does not involve a transfer for which prior written 
approval of SBA is required under Sec. 120.473;
    (e) Such other reports as SBA may require from time to time by 
written directive.



Sec. 120.473  Change of ownership or control.

    (a) Any change of ownership or control without prior written 
approval of SBA is prohibited. An SBLC must request approval of any such 
change from the AA/FA. Pending the approval, the SBLC may not register 
the proposed new owners on its transfer books nor permit them to 
participate in any manner in the conduct of the SBLC's affairs. Change 
of ownership or control includes:
    (1) Any transfer of 10 percent or more of any class of the SBLC's 
stock, and any agreement providing for such transfer;
    (2) Any transfer that could result in the beneficial ownership by 
any person or group of persons acting in concert of 10 percent or more 
of any class of its stock, and any agreement providing for such 
transfer;
    (3) Any merger, consolidation, or reorganization; or
    (4) Any other transaction or agreement that transfers control of the 
SBLC.
    (b) If transfer of ownership or control is subject to the approval 
of any State or Federal chartering, licensing, or other regulatory 
authority, copies of any documents filed with such authority must, at 
the same time, be transmitted to the AA/FA.



Sec. 120.474  Prohibited financing.

    An SBLC may not make a loan to a small business that has received 
financing (or a commitment for financing) from an SBIC that is an 
Associate of the SBLC.



Sec. 120.475  Audits.

    Every SBLC is subject to periodic audits by SBA's Office of 
Inspector General, Auditing Division, and the cost of such audits will 
be assessed against the SBLC, except for the first audit. Fees are 
structured based on the SBLC's assets as of the date of the latest 
audited financial statement submitted to SBA before the audit. The fee 
schedule is set forth in SBA's Standard Operating Procedures manual.



Sec. 120.476  Suspension or revocation.

    SBA may revoke or suspend an SBLC for a violation of law, these 
regulations, or any agreement with SBA. An appeal can be made following 
the procedures set forth in part 134 of this chapter.



                     Subpart E--Loan Administration



Sec. 120.500  General.

    This subpart outlines the general loan administration policies 
applicable to loan servicing and liquidation.

[[Page 164]]

                                Servicing



Sec. 120.510  Servicing direct and immediate participation loans.

    SBA services the direct loans that it makes. Generally, the Lender 
services immediate participation loans that it makes and in which SBA 
participates.



Sec. 120.511  Servicing guaranteed loans.

    The Lender services guaranteed loans, holds the Loan Instruments and 
receives the Borrower's payments of principal and interest.



Sec. 120.512  Who services the loan after SBA honors its guarantee?

    Generally, after SBA honors its guarantee, the Lender must continue 
to hold the Loan Instruments and service and liquidate the loan. The 
Lender must execute a Certificate of Interest showing SBA's percentage 
of the loan, and must submit a liquidation plan to SBA for each loan to 
be liquidated. If SBA elects to service or liquidate the loan, the 
Lender must assign the Loan Instruments to SBA.



Sec. 120.513  What servicing actions require the prior written consent of SBA?

    Except as otherwise provided in a Supplemental Guarantee Agreement 
with the Lender, SBA must give its prior written consent before the 
Lender takes any of the following actions:
    (a) Alters substantially the terms or conditions of any Loan 
Instrument (for example, any increase in the principal amount or change 
in the interest rate, or action conferring a Preference on the Lender);
    (b) Releases collateral having a cumulative value in excess of 20 
percent of the original loan amount;
    (c) Accelerates the maturity of the note;
    (d) Sues upon any Loan Instrument;
    (e) Compromises or waives any claim against any Borrower, guarantor, 
obligor or standby creditor arising out of any Loan Instrument; or
    (f) Increases the amount of any prior lien held by the Lender on the 
collateral securing the loan.

                 SBA'S Purchase of a Guaranteed Portion



Sec. 120.520  When does SBA honor its guarantee?

    (a) SBA, in its sole discretion, may purchase a guaranteed portion 
of a loan at any time. A Lender may demand in writing that SBA honor its 
guarantee if the Borrower is in default on any installment for more than 
60 calendar days (or less if SBA agrees) and the default has not been 
cured. If a Borrower cures a default before a Lender requests purchase 
by SBA, the Lender's right to request purchase on that default lapses.
    (b) Purchase by SBA of the guaranteed portion does not waive any of 
SBA's rights to recover money paid on the guarantee, based upon the 
Lender's negligence, misconduct, or violation of this part, including 
those actions listed in Sec. 120.524(a), the Loan Guarantee Agreement or 
the Loan Instruments.



Sec. 120.521  What interest rate applies after SBA purchases its guaranteed portion?

    When SBA purchases the guaranteed portion of a fixed interest rate 
loan, the rate of interest remains as stated in the note. On loans with 
a fluctuating interest rate, the interest rate that the Borrower owes 
will be at the rate in effect at the time of the earliest uncured 
payment default, or the rate in effect at the time of purchase (where no 
default has occurred).



Sec. 120.522  How much accrued interest does SBA pay to the Lender or Registered Holder when SBA purchases the guaranteed portion?

    (a) Rate of interest. If SBA purchases the guaranteed portion from a 
Lender or from a Registered Holder (if sold in the Secondary Market), it 
will pay accrued interest at:
    (1) The rate in the note if it is a fixed rate loan; or
    (2) The rate in effect on the date of the earliest uncured payment 
default, or of SBA's purchase (if there has been no default).
    (b) Payment to Lender. If the Lender submits a complete purchase 
request to SBA within 120 days of the earliest uncured payment default, 
SBA will pay accrued interest to the Lender from the last interest paid-
to-date up to the

[[Page 165]]

date of payment. If the Lender requests SBA to purchase after 120 days 
from the date of the earliest uncured payment default date, SBA will pay 
only 120 days of interest. For LowDoc loans, the interest paid to the 
Lender will be governed by the Supplemental Guarantee Agreement.
    (c) Payment to Registered Holder. SBA will pay a Registered Holder 
all accrued interest up to the date of payment.
    (d) Extension of the 120 day period. Before the 120 days expire, the 
SBA field office may extend the period if the Lender and SBA agree that 
the Borrower can cure the default within a reasonable and definite 
period of time or that the benefits from doing so otherwise will exceed 
the costs of SBA paying additional interest. If the 120 days have 
passed, only the AA/FA or designee can extend the period.



Sec. 120.523  What is the ``earliest uncured payment default''?

    The earliest uncured payment default is the date of the earliest 
failure by a Borrower to pay a regular installment of principal and/or 
interest when due. Payments made by the Borrower before a Lender makes 
its request to SBA to purchase are applied to the earliest uncured 
payment default. If the installment is paid in full, the earliest 
uncured payment default date will advance to the next unpaid installment 
date. If a Borrower makes any payment after the Lender makes its request 
to SBA to purchase, the earliest uncured payment default date does not 
change because the Lender has already exercised its right to request 
purchase.



Sec. 120.524  When is SBA released from liability on its guarantee?

    (a) SBA is released from liability on a loan guarantee (in whole or 
in part, within SBA's exclusive discretion), if any of the events below 
occur:
    (1) The Lender has failed to comply materially with any of the 
provisions of these regulations, the Loan Guarantee Agreement, or the 
Authorization;
    (2) The Lender has failed to make, close, service, or liquidate a 
loan in a prudent manner;
    (3) The Lender's improper action or inaction has placed SBA at risk;
    (4) The Lender has failed to disclose a material fact to SBA 
regarding a guaranteed loan in a timely manner;
    (5) The Lender has misrepresented a material fact to SBA regarding a 
guaranteed loan;
    (6) SBA has received a written request from the Lender to terminate 
the guarantee;
    (7) The Lender has not paid the guarantee fee within the period 
required under SBA rules and regulations;
    (8) The Lender has failed to request that SBA purchase a guarantee 
within 120 days after maturity of the loan;
    (9) The Lender has failed to use required SBA forms or exact 
electronic copies; or
    (10) The Borrower has paid the loan in full.
    (b) If SBA determines, after purchasing its guaranteed portion of a 
loan, that any of the events set forth in paragraph (a) of this section 
occurred in connection with that loan, SBA is entitled to recover any 
money paid on the guarantee plus interest from the Lender responsible 
for those events.
    (c) If the Lender's loan documentation indicates that one or more of 
the events in paragraph (a) of this section may have occurred, SBA may 
undertake such investigation as it deems necessary to determine whether 
to honor or deny the guarantee, and may withhold a decision on whether 
to honor the guarantee until the completion of such investigation.
    (d) Any information provided to SBA prior to Lender's request for 
SBA to honor its guarantee shall not prejudice SBA's right to deny 
liability for a guarantee if one or more of the events listed in 
paragraph (a) of this section occur.
    (e) Unless SBA provides written notice to the contrary, the Lender 
remains responsible for all loan servicing ad liquidation actions until 
SBA honors its guarantee in full.

          Deferment, Extension of Maturity and Loan Moratorium



Sec. 120.530  Deferment of payment.

    SBA may agree to defer payments on a business loan for a stated 
period of time, and use such other methods as it considers necessary and 
appropriate to help in the successful operation of the

[[Page 166]]

Borrower. This policy applies to all business loan programs, including 
504 loans.



Sec. 120.531  Extension of maturity.

    SBA may agree to extend the maturity of a loan for up to 10 years 
beyond its original maturity if the extension will aid in the orderly 
repayment of the loan.



Sec. 120.532  What is a loan Moratorium?

    SBA may assume a Borrower's obligation to repay principal and 
interest on a loan by agreeing to make the payments to the Lender on 
behalf of the Borrower under terms and conditions set by SBA. This 
relief is called a ``Moratorium.'' Complete information concerning this 
program may be obtained from local SBA offices.

                        Liquidation of Collateral



Sec. 120.540  What are SBA's policies concerning liquidation of collateral?

    (a) Liquidation policy. SBA or the Lender may liquidate collateral 
securing a loan if the loan is in default or there is no reasonable 
prospect that the loan can be repaid within a reasonable period.
    (b) Sale and conversion of loans. Without the consent of the 
Borrower, SBA may:
    (1) Sell a direct loan;
    (2) Convert a guaranteed or immediate participation loan to a direct 
loan; or
    (3) Convert an immediate participation loan to a guaranteed loan or 
a loan owned solely by the Lender.
    (c) Disposal of collateral and assets acquired through foreclosure 
or conveyance. SBA or the Lender may sell real and personal property 
(including contracts and claims) pledged to secure a loan that is in 
default in accordance with the provisions of the related security 
instrument (see Sec. 120.550 for Homestead Protection for Farmers).
    (1) Competitive bids or negotiated sales. Generally, SBA will offer 
loan collateral and acquired assets for public sale through competitive 
bids at auctions or sealed bid sales. The Lender may use negotiated 
sales if consistent with its usual practice for similar non-SBA assets.
    (2) Lease of acquired property. Normally, neither SBA nor a Lender 
will rent or lease acquired property or grant options to purchase. SBA 
and the Lender will consider proposals for a lease if it appears a 
property cannot be sold advantageously and the lease may be terminated 
on reasonable notice upon receipt of a favorable purchase offer.
    (d) Recoveries and security interests shared. SBA and the Lender 
will share pro rata (in accordance with their respective interests in a 
loan) all loan payments or recoveries, all reasonable expenses 
(including advances for the care, preservation, and maintenance of 
collateral securing the loan and the payment of senior lienholders), and 
any security interest or guarantee (excluding SBA's guarantee) which the 
Lender or SBA may hold or receive in connection with a loan.
    (e) Guarantors. Guarantors of financial assistance have no rights of 
contribution against SBA on an SBA guaranteed or direct loan. SBA is not 
deemed to be a co-guarantor with any other guarantors.

                    Homestead Protection for Farmers



Sec. 120.550  What is homestead protection for farmers?

    SBA may lease to a farmer-Borrower the farm residence occupied by 
the Borrower and a reasonable amount of adjoining property (no more than 
10 acres and seven farm buildings), if they were acquired by SBA as a 
result of a defaulted farm loan made or guaranteed by SBA (see the 
Consolidated Farm and Rural Development Act, 7 U.S.C. 1921, for 
qualifying loan purposes).



Sec. 120.551  Who is eligible for homestead protection?

    SBA must notify the Borrower in possession of the availability of 
these homestead protection rights within 30 days after SBA acquires the 
property. A farmer-Borrower must:
    (a) Apply for the homestead occupancy to the SBA field office which 
serviced the loan within 90 days after SBA acquires the property;

[[Page 167]]

    (b) Provide evidence that the farm produces farm income reasonable 
for the area and economic conditions;
    (c) Show that at least 60 percent of the Borrower and spouse's gross 
annual income came from farm or ranch operations in at least any two out 
of the last six calendar years;
    (d) Have resided on the property during the previous six years; and
    (e) Be personally liable for the debt.



Sec. 120.552  Lease.

    If approved, the applicant must personally occupy the residence 
during the term of the lease and pay a reasonable rent to SBA. The lease 
will be for a period of at least 3 years, but no more than 5 years. A 
lease of less than 5 years may be renewed, but not beyond 5 years from 
the original lease date. During or at the end of the lease period, the 
lessee has a right of first refusal to reacquire the homestead property 
under terms and conditions no less favorable than those offered to any 
other purchaser.



Sec. 120.553  Appeal.

    If the application is denied, the Borrower may appeal the decision 
to the AA/FA. Until the conclusion of any appeal, the Borrower may 
retain possession of the homestead property.



Sec. 120.554  Conflict of laws.

    In the event of a conflict between the homestead provisions at 
Secs. 120.550 through 120.553 of this part, and any state law relating 
to the right of a Borrower to designate for separate sale or to redeem 
part or all of the real property securing a loan foreclosed by the 
Lender, state law shall prevail.



                       Subpart F--Secondary Market

                     Fiscal and Transfer Agent (FTA)



Sec. 120.600  Definitions.

    (a) Certificate is the document the FTA issues representing a 
beneficial fractional interest in a Pool (Pool Certificate), or an 
undivided interest in the entire guaranteed portion of an individual 
7(a) guaranteed loan (Individual Certificate).
    (b) Current means that no repayment from a Borrower to a Lender is 
over 29 days late measured from the due date of the payment on the 
records of the FTA's central registry (Pools) or the entity servicing 
the loan (individual guaranteed portion).
    (c) FTA is the SBA's fiscal and transfer agent.
    (d) Note Rate is the interest rate on the Borrower's note.
    (e) Net Rate is the interest rate on an individual guaranteed 
portion of a loan in a Pool.
    (f) Pool is an aggregation of SBA guaranteed portions of loans made 
by Lenders.
    (g) Pool Assembler is a financial institution that:
    (1) Organizes and packages a Pool by acquiring the SBA guaranteed 
portions of loans from Lenders;
    (2) Resells fractional interests in the Pool to Registered Holders; 
and
    (3) Directs the FTA to issue Certificates.
    (h) Pool Rate is the interest rate on a Pool Certificate.
    (i) Registered Holder is the Certificate owner listed in FTA's 
records.
    (j) SBA's Secondary Market Program Guide is an issuance from SBA 
which describes the characteristics of Secondary Market transactions.



Sec. 120.601  SBA Secondary Market.

    The SBA secondary market (``Secondary Market'') consists of the sale 
of Certificates, representing either the entire guaranteed portion of an 
individual 7(a) guaranteed loan or an undivided interest in a Pool 
consisting of the SBA guaranteed portions of a number of 7(a) guaranteed 
loans. By the terms of such Certificate, SBA guarantees a Registered 
Holder timely payment of principal and interest from the loan or loans 
underlying the Certificate. Transactions involving interests in Pools or 
the sale of individual guaranteed portions of loans are governed by the 
contracts entered into by the parties, SBA's Secondary Market Program 
Guide, and this subpart. See sections 5 (f), (g), and (h) of the Small 
Business Act (15 U.S.C. 634 (f), (g) and (h)).

[[Page 168]]

                              Certificates



Sec. 120.610  Form and terms of Certificates.

    (a) General form and content. Each Certificate must be registered 
with the FTA. SBA must approve the terms of the Certificate.
    (b) Face amount of Pool Certificate. The face amount of a Pool 
Certificate cannot be less than a minimum amount as specified in the 
Program Guide, and the dollar amount of Certificates must be in 
increments which SBA will specify in the Program Guide (except for one 
Certificate in each Pool). SBA may change these requirements based upon 
an analysis of market conditions and program experience, and will 
publish any such change in the Federal Register.
    (c) Basis of payment for Pool Certificates. Principal installments 
and interest payments are based on the unpaid principal balance of the 
portion of the Pool represented by a Pool Certificate. All prepayments 
on loans in the Pool must be passed through to the appropriate 
Registered Holders with the regularly scheduled payments to such 
Holders.
    (d) Basis of payment for Individual Certificates. Principal 
installments and interest payments are based on the unpaid principal 
balance of the SBA guaranteed portion of the loan supporting an 
Individual Certificate. The Certificate must provide for a pass through 
to the Registered Holder of payments which the FTA receives from a 
Lender or any entity servicing the loan, less applicable fees.
    (e) Interest rate on Pool Certificate. The interest rate on a Pool 
Certificate must be equal to the lowest Net Rate on any individual 
guaranteed portion of a loan in the Pool.



Sec. 120.611  Pools backing Pool Certificates.

    (a) Pool characteristics. As set forth in the Program Guide, each 
Pool must have:
    (1) A minimum number of guaranteed portions of loans;
    (2) A minimum aggregate principal balance of the guaranteed 
portions;
    (3) A maximum percentage of the Pool which an individual guaranteed 
portion may constitute;
    (4) A maximum allowable difference between the highest and lowest 
note interest rates;
    (5) A maximum allowable difference between the remaining terms to 
maturity of the loans in the Pool; and
    (6) A minimum weighted average maturity at Pool formation.
    (b) Adjustment of Pool characteristics. SBA may adjust the Pool 
characteristics periodically based upon program experience and market 
conditions.



Sec. 120.612  Loans eligible to back Certificates.

    (a) Pool Certificates are backed by the SBA guaranteed portions of 
loans comprising the Pool. An Individual Certificate is backed by the 
SBA guaranteed portion of a single loan. Any such loan must:
    (1) Be current as of the date the Pool is formed or the individual 
guaranteed portion of a loan is initially sold in the Secondary Market;
    (2) Be guaranteed under the Act; and
    (3) Meet such other standards as SBA may determine to be necessary 
for the successful operation of the Secondary Market program.
    (b) The loans that back a Pool must meet the SBA requirements in 
effect at the time the Pool is formed.



Sec. 120.613  Secondary Participation Guarantee Agreement.

    When a Lender wants to sell the guaranteed portion of a loan, it 
enters into a Secondary Participation Guarantee Agreement (``SPGA'') 
with SBA and the prospective purchaser. The terms of sale between the 
Lender and the purchaser cannot require the Lender or SBA to repurchase 
the guaranteed portion of the loan except in accordance with the terms 
of the SPGA. Before execution of the SPGA, the Lender must:
    (a) Submit to FTA a copy of the proposed SPGA, the note, and such 
other documents as SBA may require;
    (b) Disburse to the Borrower the full amount of the loan; and
    (c) Pay SBA all guarantee fees relevant to the loan in full.

[[Page 169]]

                   The SBA Guarantee of a Certificate



Sec. 120.620  SBA guarantee of a Pool Certificate.

    (a) Extent of Guarantee. SBA guarantees to a Registered Holder the 
timely payment of principal and interest installments and any prepayment 
or other recovery of principal to which the Registered Holder is 
entitled. If the Borrower of a loan in a Pool backing the Certificates 
does not make a required installment payment, SBA, through the FTA, will 
make advances to maintain the schedule of interest and principal 
payments to the Registered Holders.
    (b) SBA guarantee backed by full faith and credit. SBA's guarantee 
of the Pool Certificate is backed by the full faith and credit of the 
United States.



Sec. 120.621  SBA guarantee of an Individual Certificate.

    (a) Extent of SBA guarantee. With respect to Individual 
Certificates, SBA guarantees to purchase from the Registered Holder the 
guaranteed portion of the loan for an amount equal to the unpaid 
principal and accrued interest due as of the date of SBA's purchase, 
less deductions for applicable fees. Unlike the SBA guarantee with 
respect to pooled loans, SBA does not guarantee timely payment on 
Individual Certificates.
    (b) What triggers the SBA guarantee. SBA's guarantee to the 
Registered Holder may be called upon when:
    (1) The Borrower remains in uncured default for 60 days on payments 
of principal or interest due on the note;
    (2) The Lender fails to send to the FTA on a timely basis payments 
it received from the Borrower; or
    (3) The FTA fails to send to the Registered Holder on a timely basis 
any payments it has received from the Lender.
    (c) Full faith and credit. SBA's guarantee to the Registered Holder 
is backed by the full faith and credit of the United States.

                             Pool Assemblers



Sec. 120.630  Qualifications to be a Pool Assembler.

    (a) Application to become Pool Assembler. The application to become 
a Pool Assembler is available from the AA/FA. In order to qualify as a 
Pool Assembler, an entity must send the application to the AA/FA, with 
an application fee, and certify that it:
    (1) Is regulated by the appropriate agency as defined in section 
3(a)(34)(G) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(34)(G));
    (2) Meets all financial and other applicable requirements of its 
regulatory authority and the Government Securities Act of 1986, as 
amended (Pub. L. 99-571, 100 Stat. 3208);
    (3) Has the financial capability to assemble acceptable and eligible 
guaranteed loan portions in sufficient quantity to support the issuance 
of Pool Certificates; and
    (4) Is in good standing with SBA (as the AA/FA determines), the 
Office of the Comptroller of the Currency (``OCC'') if it is a national 
bank, the Federal Deposit Insurance Corporation if it is a bank not 
regulated by the OCC, or the National Association of Securities Dealers 
if it is a member.
    (b) Approval by SBA. An entity may not submit Pool applications to 
the FTA until SBA has approved the application to become a Pool 
Assembler.
    (c) Conduct of business by Pool Assembler. An entity continues to 
qualify as a Pool Assembler so long as it:
    (1) Meets the eligibility standards in paragraph (a) of this 
section;
    (2) Conducts its business in accordance with SBA regulations and 
accepted securities or banking industry practices, ethics, and 
standards; and
    (3) Maintains its books and records in accordance with generally 
accepted accounting principles or in accordance with the guidelines of 
the regulatory body governing its activities.



Sec. 120.631  Suspension or termination of Pool Assembler.

    (a) Suspension or termination. The AA/FA may suspend a Pool 
Assembler

[[Page 170]]

from operating in the Secondary Market for up to 18 months or terminate 
its status as a Pool Assembler, if the Pool Assembler (and/or its 
Associates):
    (1) Does not comply with any of the requirements in Sec. 120.630 (a) 
and (c);
    (2) Has been indicted or otherwise formally charged with, or 
convicted of, a misdemeanor or felony;
    (3) Has received an adverse civil judgment that it has committed a 
breach of trust or a violation of a law or regulation protecting the 
integrity of business transactions or relationships;
    (4) Has not formed a Pool for at least three years; or
    (5) Is under investigation by its regulating authority for 
activities which may affect its fitness to participate in the Secondary 
Market.
    (b) Suspension procedures. The AA/FA shall notify a Pool Assembler 
by certified mail, return receipt requested, of the decision to suspend 
and the reasons therefore at least 10 business days prior to the 
effective date of the suspension. The Pool Assembler may appeal the 
suspension made under this section pursuant to the procedures set forth 
in part 134 of this chapter. The action of the AA/FA shall remain in 
effect pending resolution of the appeal.
    (c) Notice of termination. In order to terminate a Pool Assembler, 
the AA/FA must issue an order to show cause why the SBA should not 
terminate the Pool Assembler's participation in the Secondary Market. 
The Pool Assembler may appeal the termination made under this section 
pursuant to procedures set forth in part 134 of this chapter. The action 
of the AA/FA shall remain in effect pending resolution of the appeal.

                        Miscellaneous Provisions



Sec. 120.640  Administration of the Pool and Individual Certificates.

    (a) FTA responsibility. The FTA has the responsibility to administer 
each Pool or Individual Certificate. It shall maintain a registry of 
Registered Holders and other information as SBA requires.
    (b) Self-liquidating. Each Pool or individual guaranteed portion of 
a loan in the Secondary Market is self-liquidating because of Borrower 
payments or prepayments, redemption by SBA, and/or payments by SBA or 
the Lender after default by the Borrower. Substitution of the guaranteed 
portions of existing loans for defaulted loans is not permitted.
    (c) SBA's right to subrogation. If SBA pays a claim under a 
guarantee with respect to a Certificate issued under this subpart, it 
must be subrogated fully to the rights satisfied by such payment.
    (d) SBA ownership rights not limited. No Federal, State or local law 
can preclude or limit the exercise by SBA of its ownership rights in the 
portions of loans constituting the Pool against which the Certificates 
are issued.



Sec. 120.641  Disclosure to purchasers.

    (a) Information to purchaser. Prior to any sale, the Pool Assembler, 
Registered Holder of an Individual Certificate, or any subsequent seller 
must disclose to the purchaser, verbally or in writing, information on 
the terms, conditions, and yield as described in the SBA Secondary 
Market Program Guide.
    (b) Information on transfer document. The seller must provide the 
same information described in paragraph (a) of this section in writing 
on the transfer document when the seller submits it to the FTA. After 
the sale of an Individual Certificate, the FTA will provide the 
disclosure information in writing to the purchaser.
    (c) Information in prospectus. If the Registered Holder is a trust, 
investment Pool, mutual fund or other security, it must disclose the 
information in paragraph (a) of this section to investors through a 
prospectus and other promotional material if an Individual Certificate 
or Pool Certificate is placed into or used as the backing for the 
investment vehicle.



Sec. 120.642  Requirements before the FTA issues Pool Certificates.

    Before the FTA issues any Pool Certificate, the Pool Assembler must 
deliver to it the following documents:
    (a) A properly completed Pool application form;
    (b) Either:

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    (1) Individual Certificates evidencing the guaranteed portions 
comprising the Pool; or
    (2) An executed SPGA and related documentation for the loans whose 
guaranteed portions are to be part of the Pool; and
    (c) Any other documentation which SBA may require.



Sec. 120.643  Requirements before the FTA issues Individual Certificates.

    (a) FTA issuance of initial Certificate. Before the FTA can issue 
the Individual Certificate for a guaranteed portion of a loan, the 
original seller must provide the following documents to the FTA:
    (1) An executed SPGA;
    (2) A copy of the note representing the guaranteed loan; and
    (3) Any other documentation which SBA may require.
    (b) Review of documentation. SBA may review or require the FTA to 
review any documentation before the FTA issues a Certificate.



Sec. 120.644  Transfers of Certificates.

    (a) General rule. Certificates are transferable. Transfers in the 
Secondary Market must comply with Article 8 of the Uniform Commercial 
Code of the State of New York. The seller must use the detached form of 
assignment (SBA Form 1088), unless the seller and purchaser choose to 
use another form which the SBA approves. The FTA may refuse to issue a 
Certificate until it is satisfied that the documents of transfer are 
complete.
    (b) Transfer on FTA records. In order for the transfer of a 
Certificate to be effective the FTA must reflect it on its records.
    (c) Contents of letter of transmittal accompanying the transfer of 
Certificates. (1) A letter of transmittal must accompany each 
Certificate which a Registered Holder submits to the FTA for transfer. 
The Registered Holder must supply the following information in the 
letter:
    (i) Pool number, if applicable;
    (ii) Certificate number;
    (iii) Name of purchaser of Certificate;
    (iv) Address and tax identification number of the purchaser;
    (v) Name and telephone number of the person handling or facilitating 
the transfer;
    (vi) Instructions for the delivery of the new Certificate.
    (2) The Registered Holder must also send the fee which the FTA 
charges for this service. The FTA will supply fee information to the 
Registered Holder.
    (d) Lender cannot purchase guaranteed portion of loan it made. The 
Lender (or its Associate) that made a 7(a) guaranteed loan cannot 
purchase the guaranteed portion of that loan in the Secondary Market. If 
a Lender does purchase the guaranteed portion of one of its own loans, 
it shall not have the unconditional guarantee of SBA.



Sec. 120.645  Redemption of Certificates.

    (a) Redemption of Individual Certificate. The prepayment of the 
underlying loan or a default on such loan will trigger the redemption of 
the Certificate by FTA/SBA in accordance with the procedures prescribed 
in the SPGA.
    (b) Redemption of Pool Certificate. The FTA and SBA may redeem a 
Pool Certificate because of prepayment or default of all loans in a 
Pool.



Sec. 120.650  Registration duties of FTA in Secondary Market.

    The FTA registers all Certificates. This means it issues, transfers 
title to, and redeems them. All financial transactions relating to a 
guaranteed portion of a loan flow through the FTA. In fulfilling its 
obligation to keep the central registry current, the FTA may, with SBA's 
approval, obtain any necessary information from the parties involved in 
the Secondary Market.



Sec. 120.651  Claim to FTA by Registered Holder to replace Certificate.

    (a) To replace a Certificate because of loss, theft, destruction, 
mutilation, or defacement, the Registered Holder must:
    (1) Give the FTA information about the Certificate and the facts 
relating to the claim;
    (2) File an indemnity bond acceptable to SBA and the FTA with a 
surety to protect the interests of SBA and the FTA;
    (3) Pay the FTA its fee to replace a Certificate; and

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    (4) Use an affidavit of loss (form available from the FTA) to 
report:
    (i) The name and address of the Registered Holder (and the name and 
capacity of any representative actually filing the claim);
    (ii) The Certificate by Pool number, if applicable;
    (iii) The Certificate number;
    (iv) The original principal amount;
    (v) The name in which the Certificate was registered;
    (vi) Any assignment, endorsement or other writing on the 
Certificate; and
    (vii) A statement of the circumstances of the theft or loss.
    (b) When the FTA receives notice of the theft or loss, it will stop 
any transfer of the Certificate. The Registered Holder must send to the 
FTA all available portions of a mutilated or defaced Certificate. When 
the Registered Holder completes these steps, the FTA will replace the 
Certificate.



Sec. 120.652  FTA fees.

    The FTA may charge reasonable servicing fees, transfer fees, and 
other fees as the SBA and FTA may negotiate under contract.

       Suspension or Revocation of Participant in Secondary Market



Sec. 120.660  Suspension or revocation.

    (a) Suspension or revocation of Lender, broker, dealer, or 
Registered Holder for violation of Secondary Market rules and 
regulations. The AA/FA may suspend or revoke the privilege of a Lender, 
broker, dealer, or Registered Holder to sell, purchase, broker, or deal 
in loans or Certificates for:
    (1) Committing a serious violation, in SBA's discretion, of:
    (i) The regulations governing the Secondary Market; or
    (ii) Any provisions in the contracts entered into by the parties, 
including SBA Forms 1085, 1086, 1088 and 1454; or
    (2) Knowingly submitting false or fraudulent information to the SBA 
or FTA.
    (b) Additional rules for suspension or revocation of broker or 
dealer. In addition to acting under paragraph (a) of this section, the 
AA/FA may suspend or revoke the privilege of any broker or dealer to 
sell or otherwise deal in Certificates in the Secondary Market if:
    (1) Its supervisory agency has revoked or suspended the broker or 
dealer from engaging in the securities business, or is investigating the 
firm or broker for a practice which SBA considers, in its sole 
discretion, to be relevant to the broker's or dealer's fitness to 
participate in the Secondary Market;
    (2) The broker or dealer has been indicted or otherwise formally 
charged with a misdemeanor or felony which bears on its fitness to 
participate in the Secondary Market; or
    (3) A civil judgment is entered holding that the broker or dealer 
has committed a breach of trust or a violation of any law or regulation 
protecting the integrity of business transactions or relationships.
    (c) Notice to suspend or revoke. The AA/FA shall notify the affected 
party in writing, providing the reasons therefore, at least 10 business 
days prior to the effective date of the suspension or revocation. The 
affected party may appeal the suspension or revocation made under this 
section pursuant to the procedures set forth in part 134 of this 
chapter. The action of the AA/FA will remain in effect pending 
resolution of the appeal. Revocation will last a minimum of five years.



               Subpart G--Microloan Demonstration Program



Sec. 120.700  What is the Microloan Program?

    The Microloan Demonstration Program assists women, low income 
individuals, minority entrepreneurs, and other small businesses which 
need small amounts of financial assistance. Under this program, SBA 
makes direct and guaranteed loans to Intermediaries (as defined below) 
who use the proceeds to make loans to eligible borrowers. SBA may also 
make grants under the program to Intermediaries and other qualified 
nonprofit entities to be used for marketing, management, and technical 
assistance to the program's target population.

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Sec. 120.701  Definitions.

    (a) Deposit account is a demand, time, savings, passbook, or similar 
account maintained with an insured depository institution (not including 
an account evidenced by a Certificate of Deposit).
    (b) Economically Distressed Area is a county or equivalent division 
of local government of a state in which, according to the most recent 
available data from the United States Bureau of the Census, 40 percent 
or more of the residents have an annual income that is at or below the 
poverty level.
    (c) Grant is a Federal award of money, or property in lieu of money 
(including cooperative agreements) to an eligible grantee that must 
account for its use. The term does not include the provision of 
technical assistance, revenue sharing, loans, loan guarantees, interest 
subsidies, insurance, direct appropriations, or any fellowship or other 
lump sum award.
    (d) Insured depository institution has the same meaning as in 
section 3(c) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(c).
    (e) Intermediary is an entity participating in the Microloan 
Demonstration Program which makes and services Microloans to eligible 
small businesses and which provides marketing, management, and technical 
assistance to its borrowers. It may be:
    (1) A private, nonprofit community development corporation or other 
entity;
    (2) A consortium of private, nonprofit community development 
corporations or other entities;
    (3) A quasi-governmental economic development entity, other than a 
state, county, municipal government or any agency thereof; or
    (4) An agency of or a nonprofit entity established by a Native 
American Tribal Government.
    (f) Microloan is a short-term, fixed interest rate loan of not more 
than $25,000 made by an Intermediary to an eligible small business.
    (g) Non-Federal sources are sources of funds other than the Federal 
Government and may include indirect costs or in-kind contributions paid 
for under non-Federal programs. Community Block Development Grants are 
considered non-Federal sources.
    (h) Specialized Intermediary is an Intermediary which maintains a 
portfolio of Microloans averaging $7,500 or less.



Sec. 120.702  Are there limitations on who can be an Intermediary or on where an Intermediary may operate?

    (a) Prior experience requirement. To be eligible to be an 
Intermediary, an organization must:
    (1) Have made and serviced short-term fixed rate loans of not more 
than $25,000 to newly established or growing small businesses for at 
least one year; and
    (2) Have at least one year of experience providing technical 
assistance to its borrowers.
    (b) Limitation to one state. An Intermediary may not operate in more 
than one state unless the AA/FA determines that it would be in the best 
interests of the small business community for it to operate across state 
lines.



Sec. 120.703  How does an organization apply to become an Intermediary?

    (a) Application Process. Organizations interested in becoming 
Intermediaries should contact SBA for information on the application 
process.
    (b) Documentation in support of application. The application must 
include a detailed narrative statement describing:
    (1) The types of businesses assisted in the past and those the 
applicant intends to assist with Microloans;
    (2) The average size of the loans made in the past and the average 
size of intended Microloans;
    (3) The extent to which the applicant will make Microloans to small 
businesses in rural areas;
    (4) The geographic area in which the applicant intends to operate, 
including a description of the economic and demographic conditions 
existing in the intended area of operations;
    (5) The availability and cost of obtaining credit for small 
businesses in the area;
    (6) The applicant's experience and qualifications in providing 
marketing, management, and technical assistance to small businesses; and

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    (7) Any plan to use other technical assistance resources (such as 
counselors from the Service Corps of Retired Executives) to help 
Microloan borrowers.



Sec. 120.704  How are applications evaluated?

    (a) Evaluation criteria. In selecting Intermediaries, SBA will 
attempt to insure that Microloans are available to small businesses in 
all industries and particularly to small businesses located in urban and 
rural areas.
    (b) Preference for organizations which make very small loans. In 
selecting Intermediaries, SBA will give priority to applicants which 
maintain a portfolio of loans averaging $7,500 or less.
    (c) Consideration of quasi-governmental organizations. Generally, 
SBA will consider applications by quasi-governmental organizations only 
when it determines that program services for a particular geographic 
area would be best provided by such organization.



Sec. 120.705  What is a Specialized Intermediary?

    At the end of an Intermediary's first year of participation in the 
program, SBA will determine whether it qualifies as a Specialized 
Intermediary. An Intermediary qualifies as a Specialized Intermediary if 
it maintains a portfolio of Microloans averaging $7,500 or less. 
Specialized Intermediaries qualify for more favorable interest rates on 
SBA loans. If, after the first year, an Intermediary qualifies as a 
Specialized Intermediary, the special interest rate is applied 
retroactively to SBA loans made to the Intermediary. After the first 
year SBA will determine an Intermediary's qualifications as a 
Specialized Intermediary annually, based on its lending practices during 
the term of its participation in the program. Specialized Intermediaries 
also qualify for a greater amount of technical assistance grant funding.



Sec. 120.706  What are the terms and conditions of an Intermediary SBA loan?

    (a) Loan Amount. An Intermediary may not borrow more than $750,000 
in the first year of participation in the program. In subsequent years, 
the Intermediary's obligations to SBA may not exceed an aggregate of 
$2.5 million, subject to statutory limitations on the total amount of 
funds available per state.
    (b) Repayment terms. During the first year of the loan, an 
Intermediary is not required to make any payments, but interest accrues 
from the date that SBA disburses the loan proceeds to the Intermediary. 
After that, SBA will determine the periodic payments. The loan must be 
repaid within 10 years.
    (c) Interest rate. The interest rate is equal to the rate applicable 
to five-year obligations of the United States Treasury, adjusted to the 
nearest one-eighth percent, less 1.25 percent. However, the interest 
rate for Specialized Intermediaries is equal to the rate applicable to 
five-year obligations of the United States Treasury, adjusted to the 
nearest one-eighth percent, less two percent.
    (d) Collateral. As security for repayment of the SBA loan, an 
Intermediary must pledge to SBA a first lien position in the MRF 
(described below), LLRF (described below), and all notes receivable from 
Microloans.
    (e) Default. If for any reason an Intermediary is unable to make 
payment to SBA when due, SBA may accelerate maturity of the loan and 
demand payment in full. In this event, or if an Intermediary violates 
this part or the terms of its loan agreement, it must surrender 
possession of all collateral described in paragraph (d) of this section 
to SBA. The Intermediary is not obligated to pay SBA any loss or 
deficiency which may remain after liquidation of the collateral unless 
the loss was caused by fraud, negligence, violation of any of the 
ethical requirements of Sec. 120.140, or violation of any other 
provision of this part.
    (f) Fees. SBA does not charge Intermediaries any fees for loans 
under this Program. An Intermediary may, however, pay minimal closing 
costs to third parties, such as filing and recording fees.



Sec. 120.707  What conditions apply to loans by Intermediaries to Microloan borrowers?

    (a) General. An Intermediary may make Microloans to any small 
business

[[Page 175]]

eligible to receive financial assistance under this part. Proceeds from 
Microloans may be used only for working capital and acquisition of 
materials, supplies, furniture, fixtures, and equipment. SBA does not 
review Microloans for creditworthiness.
    (b) Amount and maturity. Generally, Intermediaries should not make a 
Microloan of more than $10,000 to any borrower. An Intermediary may not 
make a Microloan of more than $15,000 unless the borrower demonstrates 
that it is unable to obtain credit elsewhere at comparable interest 
rates and that it has good prospects for success. An Intermediary may 
not make a loan of more than $25,000, and no borrower may owe an 
Intermediary more than $25,000 at any one time. Each Microloan must be 
repaid within six years.
    (c) Interest rate. The maximum interest rate that can be charged a 
Microloan borrower is:
    (1) On loans of more than $7,500, the interest rate charged on the 
SBA loan to the Intermediary, plus 7.75 percentage points; and
    (2) On loans of $7,500 or less, the interest rate charged on the SBA 
loan to the Intermediary, plus 8.5 percentage points.



Sec. 120.708  What is the Intermediary's financial contribution?

    The Intermediary must contribute from non-Federal sources an amount 
equal to 15 percent of any loan that it receives from SBA. The 
contribution may not be borrowed. For purposes of this program, 
Community Development Block Grants are considered non-Federal sources.



Sec. 120.709  What is the Microloan Revolving Fund?

    The Microloan Revolving Fund (``MRF'') is an interest-bearing 
Deposit Account into which an Intermediary must deposit the proceeds 
from SBA loans, its contributions from non-Federal sources, and payments 
from its Microloan borrowers. An Intermediary may only withdraw from 
this account the money needed to establish the Loan Loss Reserve Fund 
(Sec. 120.710), proceeds for each Microloan it makes, and any payments 
to be made to SBA.



Sec. 120.710  What is the Loan Loss Reserve Fund?

    (a) General. The Loan Loss Reserve Fund (``LLRF'') is an interest-
bearing Deposit Account which an Intermediary must establish to pay any 
shortage in the MRF caused by delinquencies or losses on Microloans. An 
Intermediary must maintain the LLRF until it has repaid all obligations 
it owes SBA.
    (b) Level of Loan Loss Reserve Fund in first year. In an 
Intermediary's first year, the balance on deposit in the LLRF must equal 
not less than 15 percent of the total outstanding balance of all notes 
receivable owed by its Microloan borrowers.
    (c) Level of Loan Loss Reserve Fund in subsequent years. In all 
subsequent years, an Intermediary must maintain a balance on deposit in 
the LLRF at a level which, at a minimum, reflects its loss experience as 
determined by SBA. However, the maximum amount required in the LLRF will 
not exceed 15 percent of the total outstanding balance owed by an 
Intermediary's Microloan borrowers.



Sec. 120.711  What rules govern Intermediaries?

    Intermediaries must operate in accordance with applicable statutes, 
regulations, policy notices, SBA's Standard Operating Procedures (SOPs), 
and the information in the application.



Sec. 120.712  How does an Intermediary get a grant to assist Microloan borrowers?

    (a) General. An Intermediary is eligible to receive grant funding 
from SBA of not more than 25 percent of the outstanding balance of all 
SBA loans to the Intermediary. The Intermediary must contribute, solely 
from non-Federal sources, an amount equal to 25 percent of the grant. 
Contributions may be made in cash or in kind.
    (b) Limitations on grant funds. An Intermediary may not borrow its 
contribution. It may only use grant funds to provide Microloan borrowers 
with marketing, management, and technical assistance, except that:
    (1) Up to 15 percent of the grant funds may be used to provide 
information

[[Page 176]]

and technical assistance to prospective Microloan borrowers; and
    (2) Grant monies may be used to attend training required by SBA. 
Intermediaries may not enter into third party contracts for the 
provision of technical assistance to program clients.
    (c) Exception to contribution requirement. Intermediaries which make 
at least 50 percent of their loans to small businesses located in or 
owned by residents of Economically Distressed Areas are not subject to 
the contribution requirement in paragraph (a) of this section.
    (d) Intermediaries eligible to receive additional grant monies. An 
Intermediary may receive an additional SBA grant equal to five percent 
of the outstanding balance of all loans received from SBA (with no 
obligation to contribute additional matching funds) if:
    (1) The Intermediary makes at least 25 percent of its loans to small 
businesses located in or owned by residents of an Economically 
Distressed Area; or
    (2) The Intermediary is a Specialized Intermediary.
    (e) SBA will determine an Intermediary's eligibility for all grants 
under this section separately for each loanmaking office or site.



Sec. 120.713  Does SBA provide technical assistance to Intermediaries?

    SBA may procure technical assistance for an Intermediary to improve 
its knowledge, skill, and understanding of microlending by awarding a 
grant to a more experienced Intermediary. SBA may also obtain such 
assistance for prospective Intermediaries in areas of the country that 
are either not served or underserved by an existing Intermediary.



Sec. 120.714  How does a non-Intermediary get a grant?

    (a) Grant procedure for non-Intermediaries. Any nonprofit entity 
that is not an Intermediary may apply to SBA for a grant to provide 
marketing, management and technical assistance to low-income individuals 
for the purpose of assisting them in obtaining private sector financing 
in amounts of $25,000 or less. To qualify, it must submit information 
regarding its ability to provide this assistance. If approved, the grant 
agreement will establish the terms and conditions for the grant.
    (b) Number and amounts of grants. In each year of the Microloan 
Program, SBA may make no more than 25 grants to non-Intermediaries for 
terms of up to five years. A grant may not exceed $125,000.
    (c) Contribution by nonprofit entity. The nonprofit entity must 
contribute an amount equal to 20 percent of the grant. The contribution 
from the nonprofit entity must come solely from non-Federal sources, and 
may include direct costs or in-kind contributions paid for under non-
Federal programs.



Sec. 120.715  Does SBA guarantee any loans an Intermediary obtains from another source?

    (a) SBA may guarantee not less than 90 percent of no more than 10 
loans by for-profit or nonprofit entities (or an alliance of such 
entities) to Intermediaries located in urban areas and no more than 10 
loans by such entities to Intermediaries located in Rural Areas (as 
defined in Sec. 120.10).
    (b) Any loan guaranteed by SBA under this section will have a term 
of 10 years. If an Intermediary receives such a loan, it will not need 
to repay any principal or interest during the first year, although the 
interest will accrue. During the second through fifth years, the 
Intermediary will pay interest only. During the sixth through tenth 
years, it will pay interest and fully amortize the principal.
    (c) The interest rate on any loan under this section shall be 
calculated as described in Sec. 120.706.



            Subpart H--Development Company Loan Program (504)



Sec. 120.800  What is the purpose of the 504 program?

    As authorized by Congress, SBA has established this program to 
foster economic development, create or preserve job opportunities, and 
stimulate growth, expansion, and modernization of small businesses.

[[Page 177]]



Sec. 120.801  How is a 504 Project financed?

    (a) A small business may apply for 504 financing through the CDC 
serving the area in which the 504 Project is located. SBA issues an 
Authorization if it agrees to guarantee part of the funding for a 
Project.
    (b) Usually, a Project requires interim financing from an interim 
lender (often the same lender that later provides a portion of the 
permanent financing).
    (c) Generally, permanent financing of the Project consists of:
    (1) A contribution by the small business in an amount of at least 10 
percent of the Project costs;
    (2) A loan made with the proceeds of a CDC Debenture for up to 40 
percent of the Project costs and certain administrative costs, 
collateralized by a second lien on the Project Property; and
    (3) A private sector loan comprising the balance of the financing, 
collateralized by a first lien on the Project property.
    (d) The Debenture is guaranteed 100 percent by SBA (with the full 
faith and credit of the United States), and sold to Underwriters who 
form Debenture Pools. Investors purchase interests in Debenture Pools 
and receive Certificates representing ownership of all or part of a 
Debenture Pool. SBA and CDCs use various agents to facilitate the sale 
and service of the Certificates and the orderly flow of funds among the 
parties.



Sec. 120.802  Definitions.

    The following terms have the same meaning wherever they are used in 
this subpart. Defined terms are capitalized wherever they appear.
    Area of Operations is a geographic area in which a CDC conducts its 
activities.
    Associate Development Company (ADC) is an entity approved by SBA to 
assist CDCs to deliver 504 financing.
    Central Servicing Agent (CSA) is an entity that receives and 
disburses funds among the various parties involved in 504 financing 
under a master servicing agent agreement with SBA.
    Certificate is a document issued by SBA or its agent representing 
ownership of all or part of a Debenture Pool.
    Debenture is an obligation issued by a CDC and guaranteed 100 
percent by SBA, the proceeds of which are used to fund a 504 loan.
    Debenture Pool is an aggregation of Debentures.
    Investor is an owner of a beneficial interest in a Debenture Pool.
    Job Opportunity is a full time (or equivalent) permanent job created 
within two years of receipt of 504 funds, or retained in the community 
because of a 504 loan.
    Net Debenture Proceeds are the portion of Debenture proceeds that 
finance eligible Project costs (excluding administrative costs).
    Project is the purchase or lease, and/or improvement or renovation 
of long-term fixed assets by a small business, with 504 financing, for 
use in its business operations.
    Project Property is one or more long-term fixed assets, such as 
land, buildings, machinery, and equipment, acquired or improved by a 
small business, with 504 financing, for use in its business operations.
    Third Party Loan is a loan from a commercial or private lender, 
investor, or Federal (non-SBA), State or local government source as part 
of the Project financing.
    Underwriter is an entity approved by SBA to form Debenture Pools and 
arrange for the sale of Certificates.

                Certification Procedures to Become a CDC



Sec. 120.810  Applications for certification as a CDC.

    (a) Applicants for certification as a CDC must apply to the SBA 
District Office serving a proposed Area of Operations. An applicant must 
demonstrate that it satisfies the certification and operating criteria 
in Secs. 120.820 through 120.829, as well as:
    (1) The need for 504 services (if there is already a CDC in the Area 
of Operations, the applicant must justify the need for another and 
present a plan to avoid duplication or overlap);
    (2) A budget, approved by its Board of Directors; and
    (3) A plan to meet CDC operating requirements (without specializing 
in a particular industry).

[[Page 178]]

    (b) The AA/FA, with the recommendation of each District Office in 
the applicant's proposed Area of Operations, shall make the 
certification decision.



Sec. 120.811  Public notice of CDC certification application.

    (a) As part of the application process, the applicant must publish a 
notice in a general circulation newspaper in the proposed Area of 
Operations, including the name and location of the proposed CDC, its 
purpose and Area of Operations, and the names and addresses of its 
officers and directors. The applicant shall send a copy of the notice to 
SBA. The notice shall provide the public at least 30 days to submit 
written comments to the District Office. The SBA shall consider the 
comments in making its decision on the application.
    (b) CDCs serving the proposed Area of Operations shall be directly 
notified and given at least 30 days to comment.



Sec. 120.812  Probationary period for newly certified CDCs.

    (a) Newly certified CDCs will be on probation for a period of two 
years, at the end of which the CDC must petition for:
    (1) Permanent CDC status;
    (2) A single, one-year extension of probation; or
    (3) ADC status.
    (b) SBA will consider failure to file a petition before the end of 
the probationary period as a withdrawal from the 504 program. If the CDC 
elects ADC status or withdrawal, it must transfer all funded and/or 
approved loans to another CDC, SBA, or another servicer approved by SBA.

            Requirements for CDC Certification and Operation



Sec. 120.820  CDC non-profit status.

    A CDC must be a non-profit corporation (or limited liability 
company) in good standing. (For-profit CDCs certified by SBA prior to 
January 1, 1987 may retain their certifications.) An SBIC may not become 
a CDC.



Sec. 120.821  CDC Area of Operations.

    A CDC must have a designated Area of Operations, specified by the 
CDC and approved by SBA. There can be only one statewide CDC in each 
state, which must foster economic development throughout the state and 
provide 504 assistance to areas not adequately served by other CDCs.



Sec. 120.822  CDC membership.

    A CDC must have at least 25 members (or stockholders for for-profit 
CDCs approved prior to January 1, 1987). No person or entity may own or 
control more than 10 percent of the CDC's voting membership (or stock). 
Members must be representative of and provide evidence of active support 
in the Area of Operations. Members must be from each of the following 
groups:
    (a) Government organizations responsible for economic development in 
the Area of Operations and acceptable to SBA;
    (b) Financial institutions that provide commercial long-term fixed 
asset financing in the Area of Operations;
    (c) Community organizations dedicated to economic development in the 
Area of Operations such as chambers of commerce, foundations, trade 
associations, colleges, or universities; and
    (d) Businesses in the Area of Operations.



Sec. 120.823  CDC Board of Directors.

    The CDC must have a Board of Directors chosen from the membership by 
the members, and representing at least three of the four membership 
groups. No single group shall control. The Board members must be 
responsible officials of the organizations they represent, and at least 
one must possess commercial lending experience. The Board must meet at 
least quarterly and shall be responsible for CDC staff decisions and 
actions. A quorum shall require at least 5 Directors. If there is a vote 
on loan approval or servicing actions, at least one Board member with 
commercial loan experience approved by SBA must be present and vote. As 
an alternative, the Board may obtain the recommendation of another 
person approved by SBA and possessing commercial lending experience.

[[Page 179]]



Sec. 120.824  Professional management and staff.

    A CDC must have full-time professional management, including an 
Executive Director (or the equivalent) managing daily operations. It 
must also have a full-time professional staff qualified by training and 
experience to market the 504 Program, package and process loan 
applications, close loans, service the loan portfolio, and sustain a 
sufficient level of service and activity in the Area of Operations.
    (a) Contracting out to third parties. CDCs may obtain, under 
contract, marketing, packaging, processing, and servicing services from 
qualified Lender Service Providers, as that term is defined in part 103 
of this chapter, located in the Area of Operations, subject to SBA's 
prior written approval. CDCs may contract for outside legal and 
accounting services without SBA approval. Compensation under all such 
contracts must be reasonable and customary for similar services in the 
Area of Operations. SBA may audit the contracts.
    (b) Contracting out to other CDCs. CDCs may contract with other CDCs 
for specific services, subject to SBA's prior written approval.



Sec. 120.825  Financial ability to operate.

    A CDC must be able to sustain its operations continuously, with 
reliable sources of funds (such as income from services rendered and 
contributions from government or other sponsors).



Sec. 120.826  Basic requirements for operating a CDC.

    A CDC must operate in accordance with applicable statutes, 
regulations, policy notices, SBA's SOPs, and the information in its 
application. It must supply to SBA current and accurate information 
about all certification and operational requirements, and maintain the 
records and submit the reports required by SBA.



Sec. 120.827  Services a CDC provides to small businesses.

    (a) A CDC must operate in and adequately service its Area of 
Operations. It must market the 504 program, package and process 504 loan 
applications, and close and service 504 loans. A CDC's loan portfolio 
must be diversified by business sector.
    (b) A CDC may provide small businesses with financial and technical 
assistance, or may help small businesses obtain such assistance from 
other sources, including preparing, closing, and servicing loans under 
contract with Lenders in SBA's 7(a) program.
    (c) A CDC also may loan amounts to the Borrower equal to the value 
of all or part of the Borrower's contribution to a Project in the form 
of cash or land, including site improvements, previously acquired by the 
CDC.



Sec. 120.828  Minimum level of CDC lending activity.

    A CDC must provide at least two 504 loan approvals each full fiscal 
year.



Sec. 120.829  Job Opportunity average a CDC must maintain.

    (a) A CDC's portfolio must reflect an average of one Job Opportunity 
per $35,000 of 504 loan funding. The AA/FA may permit a CDC to average 
up to one per $45,000 for good cause in:
    (1) Alaska;
    (2) Hawaii;
    (3) State-designated urban or rural jobs and enterprise zones;
    (4) Empowerment Zones and Enterprise Communities; and
    (5) Labor Surplus Areas listed in the Department of Labor's 
publication ``Area Trends.''
    (b) A CDC must indicate in its annual report the Job Opportunities 
actually or estimated to be provided by each Project.
    (c) If a CDC does not maintain the required average, it may retain 
its certification if it justifies to SBA's satisfaction its failure to 
do so in its annual report and shows how it intends to attain the 
required average.



Sec. 120.830  Reports a CDC must submit.

    A CDC must submit the following reports to SBA:
    (a) An annual report within 90 days after the end of the CDC's 
fiscal year, and such interim reports as SBA may require;
    (b) Resumes for all new Associates and staff;
    (c) Reports of involvement in any legal proceeding;

[[Page 180]]

    (d) Changes in organizational status;
    (e) Changes in any condition that affects its eligibility to 
continue to participate in the 504 program; and
    (f) Quarterly service reports on each loan in its portfolio which is 
60 days or more past due (and interim reports upon request by SBA).

                  Extending a CDC'S Area of Operations



Sec. 120.835  Application to extend an Area of Operations.

    SBA may expand a CDC's Area of Operations if the proposed Area of 
Operation is not being adequately served by existing CDC(s) and the 
expanding CDC is well-qualified to serve it. A CDC seeking to expand its 
Area of Operations must apply in writing to the SBA District Office 
serving the geographic area in which the CDC proposes to expand.
    (a) A CDC may submit an application to expand its Area of Operations 
if the existing CDCs serving the area have not averaged, over the last 
two years, at least one loan approval per 100,000 of general population 
in the Area of Operation. The one loan per 100,000 population 
requirement applies only to the area proposed for expansion, not the 
entire Area of Operations of the existing CDC or CDCs serving the 
expanded area.

    Example to paragraph (a) of this section. CDC A averages 0.8 loans 
per 100,000 of general population state-wide, but 1.2 loans per 100,000 
in city X. CDC B seeks to expand its Area of Operations only into city 
X. CDC B's application will be denied without further review because CDC 
A meets the 1 loan per 100,000 population requirement in the proposed 
expanded Area of Operation.

    (b) The application to expand must demonstrate to the satisfaction 
of SBA the expanding CDC's ability to provide full service to small 
businesses in the expanded territory, including processing, closing, 
servicing, and, if authorized, liquidating 504 loans. The expanding CDC 
must also demonstrate in its application that it will have a local 
presence and representation in the expanded Area of Operations before 
submitting any 504 loans for approval.



Sec. 120.836  Public notice and opportunity for response.

    SBA will notify all CDCs servicing the proposed area of expansion, 
allowing at least 30 days for the existing CDCs to respond to the 
District Office. The expanding CDC also must publish a notice in a 
general circulation newspaper in the proposed area of expansion, 
advising of its intent to expand and giving the public at least 30 days 
to comment to SBA. The burden of proof in opposing the application will 
be upon the existing CDC or CDCs to show why SBA should not grant the 
application for extension.



Sec. 120.837  SBA decision on application for extension.

    (a) The SBA District Office may consider any factor presented to it 
concerning the proposed area of expansion, the expanding CDC and its 
Area of Operations, and the existing CDC or CDCs serving the area, 
including the following: number of loan approvals per 100,000 of general 
population; number of loan approvals per 100,000 of small businesses; 
the density of small businesses; jobs created and retained; the number 
of 504 loan closings; the average 504 loan amount; urban, suburban, or 
rural character of the expanding area; the mix of small businesses; the 
prevailing economic conditions; servicing record and capabilities; 
currency rates; loss rates; other services provided to small businesses 
(technical and financial assistance); relationship with the local SBA 
office; and ties to and knowledge of the local community and its 
resources.
    (b) The SBA District Office will submit a recommendation, with any 
supporting materials, within 30 days of the end of the comment period to 
the AA/FA, who will make the final decision within 30 days of his or her 
receipt of the District Office's recommendation. In making its decision, 
SBA will consider all information submitted to it, as well as the 
currency of the expanding CDC's portfolio, including the default rate.



Sec. 120.838  Expiration of existing, temporary expansions.

    All existing, temporary expansions of Areas of Operation shall 
expire 6

[[Page 181]]

months after March 1, 1996, unless a CDC applies for permanent expansion 
before the expiration date.



Sec. 120.839  Case-by-case extensions.

    (a) A CDC may apply to make an individual loan for a Project outside 
its Area of Operations to the District Office serving the area in which 
the Project will be located if:
    (1) The applicant CDC has previously assisted the business to obtain 
a 504 loan;
    (2) The applicant small business or CDC can document in writing to 
the AA/FA specific circumstances that would prevent the existing CDC or 
CDCs serving the area from assisting the business adequately; or
    (3) The existing CDC or CDCs serving the area agree to permit the 
applicant CDC to make the loan.
    (b) The applicant CDC must demonstrate that it adequately can 
service the loan.
    (c) The AA/FA may approve the request for good cause shown.

[61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]

                    Accredited Lenders Program (ALP)



Sec. 120.840  Accredited Lenders Program.

    The SBA may designate a CDC as an Accredited Lender. SBA will 
provide an Accredited Lender with expedited loan processing or servicing 
action.
    (a) Applications. CDCs may apply to the SBA field office with which 
it is most active. The SBA office will send its recommendation and the 
application to the AA/FA for final decision.
    (b) Eligibility. In order to be eligible to receive Accredited 
Lender status, a CDC must have been an active participant in the 504 
loan program for not less than the preceding 12 months. In evaluating an 
application to be an Accredited Lender, SBA will consider all relevant 
factors, including:
    (1) The CDC's ability to work with the local SBA office;
    (2) The quality of past performance; and
    (3) The quality of the loan portfolio, including the default rate.
    (c) Term of designation. CDCs will be designated as ALPs for a two 
year period, and are eligible to renew the designation for additional 
two year periods.
    (d) Suspension and revocation. The AA/FA may suspend or revoke ALP 
designation upon written notice stating the reasons therefore at least 
10 business days prior to the effective date of the suspension or 
revocation. Reasons for suspension or revocation may include loan 
performance unacceptable to SBA or violations of applicable statutes, 
regulations or published SBA policies and procedures. An ALP may appeal 
the suspension or revocation made under this section pursuant to the 
procedures set forth in part 134 of this chapter. The action of the AA/
FA shall remain in effect pending resolution of the appeal.

                    Premier Certified Lenders Program



Sec. 120.845  Premier Certified Lenders Program.

    The SBA has established a pilot program to designate a number of 
CDCs as Premier Certified Lenders (``PCLPs''), which will be able to 
process, approve, close and service 504 loans.
    (a) Characteristics. Loans processed through the PCL Program will be 
subject to the same loan terms and conditions as other 504 loans, but 
final approval by SBA will be limited to eligibility of the guarantee.
    (b) Applications. A CDC may obtain information concerning this 
program from SBA's Office of Pilot Operations in Washington, D.C. A CDC 
may apply to the SBA field office with which it is most active. The SBA 
office will send the application with a recommendation to the AA/FA for 
final decision.
    (c) Eligibility. SBA will consider the CDC's ability to work with 
the local SBA office and the quality of past performance.
    (d) Loss reserve. A PCLP must establish a loss reserve for its 
financings under this program, secured by its segregated assets in favor 
of SBA, in the amount of the PCLP's historic loss rate or 10 percent of 
its exposure under the PCLP program, whichever is greater. The PCLP must 
contribute to the loss reserve for each such financing at the times and 
in the amounts established by law.

[[Page 182]]

    (e) Review. The SBA shall review a PCLP's financings at least 
annually.
    (f) Suspension and revocation. The AA/FA may suspend or revoke PCLP 
designation upon written notice stating the reasons therefore at least 
10 business days prior to the effective date of the suspension or 
revocation. Reasons for suspension or revocation may include loan 
performance unacceptable to SBA, failure to meet loss reserve or 
eligibility criteria, or violations of applicable statutes, regulations 
or published SBA policies and procedures. A PCLP may appeal the 
suspension or revocation made under this section pursuant to the 
procedures set forth in part 134 of this chapter. The action of the AA/
FA shall remain in effect pending resolution of the appeal.
    (g) Program period. On October 1, 1997, the PCLP pilot program ends.

                 Associate Development Companies (ADCs)



Sec. 120.850  ADC functions.

    (a) An ADC must support local economic development efforts. An ADC 
may package, close, and service loans for a CDC under a written contract 
approved by SBA. Such contracts must meet Service Provider criteria, and 
specify the rights and responsibilities of the parties (including 
payment terms). The CDC remains solely responsible to SBA for the 
processing, closing, and servicing of the loan. It may not charge the 
Borrower a higher fee because it is using the ADC's services.
    (b) An ADC must operate in accordance with statutes, regulations, 
policy notices, SBA's Standard Operating Procedures (SOPs), and the 
information in its application. It must supply to SBA current and 
accurate information about all certification and operational 
requirements, and maintain the records required by SBA.



Sec. 120.851  ADC eligibility and operating requirements.

    (a) An ADC must demonstrate to SBA and maintain the following:
    (1) Adequate management ability;
    (2) A Board of Directors meeting at least quarterly and chosen from 
the membership by the members;
    (3) A professional staff, including at least one qualified full-time 
professional with small business lending experience available during 
regular business hours; and
    (4) A budget or financial statements showing the financial 
capability and funding to sustain continuing operations.
    (b) An ADC may contract out for staff services only if SBA gives 
prior approval. The contract, subject to SBA audit, may not be self-
serving, and compensation must be reasonable and customary.



Sec. 120.852  Suspension and revocation of ADCs.

    SBA may require corrective action, or the AA/FA may suspend or 
revoke ADC status upon written notice stating the reasons therefore at 
least 10 business days prior to the effective date of the suspension or 
revocation. Reasons for suspension or revocation may include violations 
of applicable statutes, regulations or published SBA policies and 
procedures. An ADC may appeal the suspension or revocation made under 
this section pursuant to the procedures set forth in part 134 of this 
chapter. The action of the AA/FA shall remain in effect pending 
resolution of the appeal.

                          Ethical Requirements



Sec. 120.855  CDC and ADC ethical requirements.

    CDCs, ADCs and their Associates must act ethically and exhibit good 
character. They must meet all of the ethical requirements of 
Sec. 120.140. In addition, they are subject to the following:
    (a) Any benefit flowing to an Associate or his or her employer from 
activities as an Associate must be merely incidental (this requirement 
does not prevent an Associate or an Associate's employer from engaging 
in a business relationship with the CDC and/or the Borrower in the 
regular course of business, including providing interim financing or 
Third-Party loans); and
    (b) Unless waived by SBA for good cause, an Associate may not be an 
officer, director, or manager of more than

[[Page 183]]

one CDC or ADC (except that the membership or Board of Directors of a 
broader-based CDC may include a member or director of a local CDC within 
its Area of Operations).

                   Project Economic Development Goals



Sec. 120.860  Required objectives.

    A Project must achieve at least one of the economic development 
objectives set forth in Sec. 120.861 or Sec. 120.862.



Sec. 120.861  Job creation or retention.

    A Project must create or retain one Job Opportunity for every 
$35,000 guaranteed by SBA.



Sec. 120.862  Other economic development objectives.

    A Project that achieves any of the following community development 
or public policy goals is eligible if the CDC's overall portfolio of 504 
loans, including the subject loan, meets or exceeds the CDC's required 
Job Opportunity average. Loan applications must indicate how the Project 
will meet the specified economic development objective.
    (a) Community Development goals:
    (1) Improving, diversifying or stabilizing the economy of the 
locality;
    (2) Stimulating other business development;
    (3) Bringing new income into the community;
    (4) Assisting manufacturing firms (Standard Industrial 
Classification Manual (SIC) Codes 20-49); or
    (5) Assisting businesses in Labor Surplus Areas as defined by the 
Department of Labor.
    (b) Public Policy goals:
    (1) Revitalizing a business district of a community with a written 
revitalization or redevelopment plan;
    (2) Expanding exports;
    (3) Expanding Minority Enterprise development (See Sec. 124.103(b) 
of this chapter);
    (4) Aiding rural development;
    (5) Increasing productivity and competitiveness (retooling, 
robotics, modernization, competition with imports);
    (6) Modernizing or upgrading facilities to meet health, safety, and 
environmental requirements; or
    (7) Assisting businesses affected by Federal budget reductions, 
including base closings, either because of the loss of Federal contracts 
or the reduction in revenues due to a decreased Federal presence.

                 Leasing Policies Specific to 504 Loans



Sec. 120.870  Leasing Project Property.

    (a) A Borrower may use the proceeds of a 504 loan to acquire, 
construct, or modify buildings and improvements, and/or to purchase and 
install machinery and equipment located on land leased to the Borrower 
by the CDC or an unrelated lessor if:
    (1) The remaining term of the lease, including options to renew, 
exercisable solely by the lessee, equals or exceeds the term of the 
Debenture, or, in the case of machinery or equipment, equals or exceeds 
the useful life of the property or the term of the Debenture, whichever 
is lesser;
    (2) The Borrower assigns its interest in the lease to the CDC with 
right of reassignment to SBA; and
    (3) The 504 loan is secured by a recorded lien against the leasehold 
estate and other collateral as necessary.
    (b) If a CDC leases property to a small business, the rent paid by 
the small business during the term of the Debenture must be enough to 
pay principal and interest on all debt incurred by the CDC to finance 
the Project, and all related expenses. The rent also may include a 
reasonable return on the CDC's investment.



Sec. 120.871  Leasing part of an existing building to another business.

    (a) The costs of interior finishing of space to be leased out to 
another business are not eligible Project costs.
    (b) Third-party loan proceeds used to renovate the leased space do 
not count towards the 504 first mortgage requirement or the Borrower's 
contribution.

               Loan-Making Policies Specific to 504 Loans



Sec. 120.880  Basic eligibility requirements.

    In addition to the eligibility requirements specified in subpart A, 
to be an eligible Borrower for a 504 loan, a small business must:

[[Page 184]]

    (a) Use the Project Property (except that an Eligible Passive 
Company may lease to an Operating Company); and
    (b) Together with its affiliates, meet one of the following size 
standards:
    (1) It does not have a tangible net worth in excess of $6 million, 
and does not have an average net income after Federal income taxes 
(excluding any carry-over losses) for the preceding two years in excess 
of $2 million; or
    (2) It meets the size standards in Part 121 of this chapter for the 
industry in which it is primarily engaged.



Sec. 120.881  Ineligible Projects for 504 loans.

    In addition to the ineligible businesses and uses of proceeds 
specified in subpart A of this part, the following Projects are 
ineligible for 504 financing:
    (a) Relocation of any of the operations of a small business which 
will cause a net reduction of one-third or more in the workforce of a 
relocating small business or a substantial increase in unemployment in 
any area of the country, unless the CDC can justify the loan because:
    (1) The relocation is for key economic reasons and crucial to the 
continued existence, economic wellbeing, and/or competitiveness of the 
applicant; and
    (2) The economic development benefits to the applicant and the 
receiving community outweigh the negative impact on the community from 
which the applicant is moving; and
    (b) Projects in foreign countries (loans financing real or personal 
property located outside the United States or its possessions).



Sec. 120.882  Eligible Project costs for 504 loans.

    Eligible Project costs which may be paid with the proceeds of 504 
loans are:
    (a) Costs directly attributable to the Project including 
expenditures incurred by the Borrower (with its own funds or from a 
loan):
    (1) To acquire land used in the Project prior to applying to SBA for 
the 504 loan; or
    (2) For any other expense toward a Project within nine months prior 
to receipt by SBA of a complete loan application, unless the time limit 
is extended or waived by SBA for good cause;
    (b) In Projects involving construction, a contingency reserve for 
cost overruns not to exceed 10 percent of construction cost;
    (c) Professional fees directly attributable and essential to the 
Project, such as title insurance, architecture, engineering, accounting, 
environmental studies, and legal fees (other than legal fees associated 
with the closing); and
    (d) Repayment of interim financing including points, fees and 
interest.



Sec. 120.883  Eligible administrative costs for 504 loans.

    The following costs and fees are not part of Project costs but may 
be paid with the proceeds of the 504 loan and the Debenture (see 
Sec. 120.971):
    (a) SBA guarantee fee;
    (b) Funding fee (to cover the cost of a public issuance of 
securities and the Trustee);
    (c) CDC processing fee;
    (d) Closing costs, other than legal fees; and
    (e) Underwriters fee.



Sec. 120.884  Ineligible costs for 504 loans.

    Costs not directly attributable and necessary for the Project may 
not be paid with proceeds of the 504 loan. These include, but are not 
limited to, the following:
    (a) Debt refinancing (other than interim financing).
    (b) Third-Party Loan fees (commitment, broker, finders, origination, 
processing fees of permanent financing).
    (c) Ancillary business expenses, such as:
    (1) Working capital;
    (2) Counseling or management services fees;
    (3) Incorporation/organization costs;
    (4) Franchise fees; and
    (5) Advertising.
    (d) Fixed-asset Project components, such as:
    (1) Short-term equipment, furniture, and furnishings (unless 
essential to and a minor portion of the Project);
    (2) Automobiles, trucks, and airplanes; and

[[Page 185]]

    (3) Construction equipment (except for heavy duty construction 
equipment integral to a business' operations and meeting the IRS 
definition of capital equipment).
    (e) Closing legal fees.

                            Interim Financing



Sec. 120.890  Source of interim financing.

    A Project may use interim financing for all Project costs except the 
Borrower's contribution. Any source (including a CDC) may supply interim 
financing provided:
    (a) The financing is not derived from any SBA program, directly or 
indirectly;
    (b) The terms and conditions of the financing are acceptable to SBA;
    (c) The source is not the Borrower or an Associate of the Borrower; 
and
    (d) The source has the experience and qualifications to monitor 
properly all Project construction and progress payments. (If the source 
lacks such experience or qualifications, SBA may require the interim 
loan to be managed by a third party such as a bank or professional 
construction manager.)



Sec. 120.891  Certifications of disbursement and completion.

    Before the Debenture is issued, the interim lender must certify the 
amount disbursed. The CDC must certify that the Project was completed in 
accordance with the final plans and specifications (except as provided 
in Sec. 120.961).



Sec. 120.892  Certifications of no adverse change.

    Following completion of the Project, the following certifications 
must be made before the 504 loan closing:
    (a) The interim lender must certify to the CDC that it has no 
knowledge of any unremedied substantial adverse change in the condition 
of the small business since the application to the interim lender;
    (b) The Borrower (or Operating Company) must certify to the CDC that 
there has been no unremedied substantial adverse change in its financial 
condition or its ability to repay the 504 loan since the date of 
application, and must furnish interim financial statements, current 
within 90 days of closing; and
    (c) The CDC must issue an opinion to the best of its knowledge that 
there has been no unremedied substantial adverse change in the 
Borrower's (or Operating Company's) ability to repay the 504 loan since 
its submission of the loan application to SBA.

                           Permanent Financing



Sec. 120.900  What are the sources of permanent financing?

    Permanent financing for each Project must come from three sources: 
the Borrower's contribution, Third-Party Loans, and the 504 loan. 
Typically, the Borrower contributes 10 percent of the permanent 
financing, Third-Party Loans 50 percent and the 504 loan 40 percent.

                       The Borrower's Contribution



Sec. 120.910  How much must the Borrower contribute?

    The Borrower must contribute to the Project cash (or property 
acceptable to SBA obtained with the cash) or land (that is part of the 
Project Property) valued at 10 percent or more of the Project cost 
(exclusive of administrative cost). The source of the contribution may 
be a CDC or any other source except an SBA business loan program (see 
Sec. 120.913 for SBIC exception).



Sec. 120.911  Land contributions.

    The Borrower's contribution may be land (including buildings, 
structures and other site improvements which will be part of the Project 
Property) previously acquired by the Borrower or the CDC.



Sec. 120.912  Borrowed contributions.

    The Borrower may borrow its cash contribution from the CDC or a 
third party. If any of the contribution is borrowed, the interest rate 
must be reasonable. If the loan is secured by any of the Project assets, 
the loan must be subordinate to the liens securing the 504 Loan, and the 
loan may not be repaid at a faster rate than the 504 Loan unless SBA 
gives prior written approval. A third party lender may not receive 
voting rights, stock options, or

[[Page 186]]

any other actual or potential voting interest in the small business.



Sec. 120.913  May an SBIC provide the contribution?

    Subject to part 107 of this chapter, SBIC's may provide financing 
for all or part of the Borrower's contribution to the project. SBA shall 
consider SBIC funds to be derived from federal sources if the SBIC has 
leverage (as defined in part 107 of this chapter). If the SBIC does not 
have leverage, the investment will be considered to be from private 
funds. SBIC financing must be subordinated to the 504 loan and may not 
be repaid at a faster rate than the Debenture.

                            Third Party Loans



Sec. 120.920  The first lien position.

    The Borrower must obtain one or more Third Party Loans totaling at 
least as much as the 504 loan. Third Party Loans usually have the first 
lien position. They cannot be guaranteed by SBA.



Sec. 120.921  Terms of Third Party loans.

    (a) Maturity. A Third Party Loan must have a term of at least 7 
years when the 504 loan is for a term of 10 years and 10 years when the 
504 loan is for 20 years. If there is more than one Third Party Loan, an 
overall loan maturity must be calculated, taking into account the 
maturities and amounts of each loan. If there is a balloon payment, it 
must be justified in the loan report and clearly identified in the Loan 
Authorization.
    (b) Interest rates. Interest rates must be reasonable. SBA must 
establish and publish in the Federal Register a maximum interest rate 
for any Third Party Loan from commercial financial institutions. The 
rate shall remain in effect until changed.
    (c) Other terms. The Third Party Loan must not have any early call 
feature or contain any demand provisions unless the loan is in default. 
By participating, a Third Party Loan lender waives, as to the CDC/SBA 
financing, any provision in its deed of trust, or mortgage, or other 
documents prohibiting further encumbrances or subordinate debt. In the 
event of default, the Third Party Lender must give the CDC and SBA 
written notice of default within 30 days of the event of default and at 
least 60 days prior to foreclosure.
    (d) Subordination. A Third-Party Loan lienholder must subordinate to 
the CDC/SBA lien any future advance in excess of the outstanding 
principal balance and accrued interest of the Third Party Loan at the 
time of such advance except expenditures for collection, maintenance, 
and protection of the Third Party Loan lienholder's lien position.
    (e) Escalation upon default. A Third-Party Lender may not escalate 
the rate of interest upon default to an amount greater than the maximum 
rate set forth in paragraph (b) of this section.



Sec. 120.922  Pre-existing debt on the Project Property.

    In addition to its share of Project cost, a Third-Party Loan may 
include consolidation of existing debt on the Project Property. The 
consolidation must not improve the lien position of the Lender on the 
pre-existing debt, unless the debt is a previous Third-Party Loan.



Sec. 120.923  What are the policies on subordination?

    (a) Financing provided by the seller of Project Property must be 
subordinate to the 504 loan. SBA may waive the subordination requirement 
if the property is classified as ``other real estate owned'' by a 
national bank or other Federally regulated lender and SBA considers the 
property to be of sufficient value to support the 504 loan.
    (b) A Borrower is eligible for a 504 loan even if part of the 
Project financing is tax-exempt. SBA's lien position must not be 
subordinate to loans made from the proceeds of the tax-exempt 
obligation.



Sec. 120.924  Prepayment of subordinate financing.

    The Borrower must not prepay any Project financing subordinate to 
the 504 loan without SBA's prior written consent.

[[Page 187]]



Sec. 120.925  Preferences.

    No Third Party Lender shall establish a Preference.



Sec. 120.926  Referral fee.

    The CDC may receive a referral fee from the Third Party Lender if 
the CDC secured the lender for the Borrower under a written contract. 
The Borrower cannot pay this fee. If a CDC charges a referral fee, the 
CDC will be construed as a Referral Agent under part 103 of this 
chapter.

                        504 Loans and Debentures



Sec. 120.930  Amount.

    (a) Generally, a 504 loan may not exceed 40 percent of total Project 
cost plus 100 percent of eligible administrative costs. For good cause 
shown, SBA may authorize an increase in the percentage of Project costs 
covered up to 50 percent. No more than 50 percent of eligible Project 
costs can be from Federal sources, whether received directly or 
indirectly through an intermediary.
    (b) Generally, the minimum 504 loan must be $50,000, although, upon 
good cause shown, SBA may permit a 504 loan as small as $25,000. The 
amount of the Debenture must equal the amount of the 504 Loan plus 
administrative costs.
    (c) Upon completion of the Project, the Debenture amount will be 
reduced by the amount that the unused contingency reserve exceeds 2 
percent of the anticipated Debenture.



Sec. 120.931  504 lending limits.

    The outstanding balance of all SBA financial assistance to a 
Borrower and its affiliates under the 504 program covered by this part 
must not exceed $750,000 ($1,000,000 if one or more of the public policy 
goals enumerated in Sec. 120.862(b) applies to the Project).



Sec. 120.932  Interest rate.

    The interest rate of the 504 Loan and the Debenture which funds it 
is set by the SBA and approved by the Secretary of the Treasury.



Sec. 120.933  Maturity.

    The term of a 504 Loan and the Debenture which funds it shall be 
either 10 or 20 years.



Sec. 120.934  Collateral.

    The CDC/SBA takes a junior lien position (usually a second lien) on 
the Project collateral. In rare circumstances, collateral other than the 
Project collateral may be accepted by SBA. Sometimes secondary 
collateral is required. All collateral must be insured against such 
hazards and risks as SBA may require, with provisions for notice to SBA 
and the CDC in the event of impending lapse of coverage.



Sec. 120.935  Deposit.

    At the time of application for a 504 loan, the CDC may require a 
deposit from the Borrower of $2,500 or 1 percent of the Net Debenture 
Proceeds, whichever is less. The deposit may be applied to the loan 
processing fee if the application is accepted, but must be refunded if 
the application is denied. If the small business withdraws its 
application, the CDC may deduct from the deposit reasonable costs 
incurred in packaging and processing the application.



Sec. 120.936  Subordination to CDC.

    SBA, in its sole discretion, may permit subordination of the 
Debenture to any other obligation of the CDC, except debt incurred by 
the CDC to obtain funds to loan to the Borrower for the Borrower's 
required contribution to the Project financing.



Sec. 120.937  Assumption.

    A 504 loan may be assumed with SBA's prior written approval.



Sec. 120.938  Default.

    (a) Upon occurrence of an event of default specified in the 504 note 
which requires automatic acceleration, the note becomes due and payable. 
Upon occurrence of an event of default which does not require automatic 
acceleration, SBA may forbear acceleration of the note and attempt to 
resolve the default. If the default is not cured subsequently, the note 
shall be accelerated.

[[Page 188]]

In either case, upon acceleration of the note, the Debenture which 
funded it is also due immediately, and SBA must honor its guarantee of 
the Debenture. SBA shall not reimburse the investor for any premium 
paid.
    (b) If a CDC defaults on a Debenture, SBA generally shall limit its 
recovery to the payments made by the small business to the CDC on the 
loan made from the Debenture proceeds, and the collateral securing the 
defaulted loan. However, SBA will look to the CDC for the entire amount 
of the Debenture in the case of fraud, negligence, or misrepresentation 
by the CDC.



Sec. 120.939  Borrower prohibition.

    Neither a Borrower nor an Associate of the Borrower may purchase an 
interest in a Debenture Pool in which the Debenture that funded its 504 
loan has been placed.



Sec. 120.940  Prepayment of the 504 loan or Debenture.

    The Borrower may prepay its 504 loan, if it pays the entire 
principal balance, unpaid interest, any unpaid fees, and any prepayment 
premium established in the note. If the Borrower prepays, the CDC must 
prepay the corresponding Debenture with interest and premium. If one of 
the Debentures in a Debenture Pool is prepaid, the Investors in that 
Debenture Pool must be paid pro rata, and SBA's guarantee on the entire 
Debenture Pool must be proportionately reduced. If the entire Debenture 
Pool is paid off, SBA may call all Certificates backed by the Pool for 
redemption.



Sec. 120.941  Certificates.

    (a) The face value of a Certificate must be at least $25,000. 
Certificates are issued in registered form and transferred only by entry 
on the central registry maintained by the Trustee. SBA guarantees the 
timely payment of principal and interest on the Certificates.
    (b) Before the sale of a Certificate, the seller, or the broker or 
dealer acting as the seller's agent, must disclose to the purchaser the 
terms, conditions, yield, and premium and other characteristics not 
guaranteed by SBA.

                   Debenture Sales and Service Agents



Sec. 120.950  SBA and CDC must appoint agents.

    SBA and the CDC must appoint the following agents to facilitate the 
sale and service of the Certificates and disbursement of the proceeds.



Sec. 120.951  Selling agent.

    The CDC, with SBA approval, shall appoint a Selling Agent to select 
underwriters, negotiate the terms and conditions of Debenture offerings 
with the underwriters, and direct and coordinate Debenture sales.



Sec. 120.952  Fiscal agent.

    SBA shall appoint a Fiscal Agent to assess the financial markets, 
minimize the cost of sales, arrange for the production of the Offering 
Circular, Debenture Certificates, and other required documents, and 
monitor the performance of the Trustee and the underwriters.



Sec. 120.953  Trustee.

    SBA must appoint a Trustee to:
    (a) Issue Certificates;
    (b) Transfer the Certificates upon resale in the secondary market;
    (c) Maintain physical possession of the Debentures for SBA and the 
Certificate holders;
    (d) Establish and maintain a central registry of:
    (1) Debenture Pools, including the CDC obligors and the interest 
rate payable on the Debentures in each Pool;
    (2) Certificates issued or transferred, including the Debenture Pool 
backing the Certificate, name and address of the purchaser, price paid, 
the interest rate on the Certificate, and fees or charges assessed by 
the transferror; and
    (3) Brokers and dealers in Certificates, and the commissions, fees 
or discounts granted to the brokers and dealers;
    (e) Receive semi-annual Debenture payments and prepayments;
    (f) Make regularly scheduled and prepayment payments to Investors; 
and
    (g) Assure before any resale of a Debenture or Certificate is 
recorded in

[[Page 189]]

the registry that the seller has provided the purchaser a written 
disclosure statement approved by SBA.



Sec. 120.954  Central Servicing Agent.

    (a) SBA has entered into a Master Servicing Agreement designating a 
Central Servicing Agent (CSA) to support the orderly flow of funds among 
Borrowers, CDCs, and SBA. The CDC and Borrower must enter into an 
individual Servicing Agent Agreement with the CSA for each 504 loan, 
constituting acceptance by the CDC and the Borrower of the terms of the 
Master Servicing Agreement.
    (b) The CSA has established a master reserve account. All funds 
related to the 504 loans and Debentures flow through the master reserve 
account under the provisions of the Master Servicing Agreement. The 
master reserve account will be funded by a guarantee fee, a funding fee 
to be published from time to time in the Federal Register, and by 
principal and interest payments of 504 loans. At SBA's direction, the 
CSA may use funds in the master reserve account to defray program 
expenses. In the event a Borrower defaults and its 504 note is 
accelerated, SBA shall add funds under its guarantee to ensure the full 
and timely payment of the Debenture which funded the 504 loan. At SBA's 
direction, the CSA must pay to the CDC servicing each loan the interest 
accruing in the master reserve account on loan payments made by each 
Borrower between the date of receipt of each monthly payment and the 
date of disbursement to investors. The CSA may disburse such interest 
periodically to CDCs on a pro rata basis. SBA may use interest accruals 
in the master reserve account earned prior to October 1991 (not 
previously distributed to the CDCs) for the costs of 504 program 
administration.



Sec. 120.955  Agent bonds and records.

    (a) Each agent (in Secs. 120.951 through 120.954) must provide a 
fidelity bond or insurance in such amount as necessary to fully protect 
the interest of the government.
    (b) SBA must have access at the agent's place of business to all 
books, records and other documents relating to Debenture activities.



Sec. 120.956  Suspension or revocation of brokers and dealers.

    The AA/FA may suspend or revoke the privilege of any broker or 
dealer to participate in the sale or marketing of Debentures and 
Certificates for actions or conduct bearing negatively on the broker's 
fitness to participate in the securities market. SBA must give the 
broker or dealer written notice, stating the reasons therefore, at least 
10 business days prior to the effective date of the suspension or 
revocation. A broker or dealer may appeal the suspension or revocation 
made under this section pursuant to the procedures set forth in part 134 
of this chapter. The action of the AA/FA will remain in effect pending 
resolution of the appeal. SBA may suspend or revoke the opportunity for 
a hearing under part 134 of this chapter.

                                Closings



Sec. 120.960  Responsibility for closing.

    The CDC is responsible for the 504 Loan closing. The Debenture 
closing is the joint responsibility of the CDC and SBA.



Sec. 120.961  Construction escrow accounts.

    The CSA, title company, CDC attorney, or bank may hold Debenture 
proceeds in escrow to complete Project components such as landscaping 
and parking lots, and acquire machinery and equipment if the component 
or acquisition is a minor portion of the total Project and has been 
contracted for completion or delivery at a specified price and specific 
future date. The escrow agent must disburse funds upon approval by the 
CDC and the SBA, supported by invoices and payable jointly to the small 
business and the designated contractor.

                           Servicing and Fees



Sec. 120.970  Servicing of 504 loans and Debentures.

    The CDC must service the 504 loan in accordance with the Loan 
Authorization, these regulations, SBA policies and procedures, and 
prudent lending standards until paid in full, including review of the 
small business's financial

[[Page 190]]

statements, tax filings, insurance, and security filings. In doing so, 
CDCs must comply with the provisions of Sec. 120.513. In addition, CDCs 
must comply with the servicing requirements set forth in SBA's SOP. CDCs 
must report promptly to SBA any adverse trend, condition or information 
relevant to a Borrower. Upon request by a CDC, SBA may agree to defer a 
Borrower's monthly payment. SBA may negotiate agreements with CDCs to 
liquidate loans.



Sec. 120.971  Allowable fees paid by Borrower.

    (a) CDC fees. CDCs may charge the following fees to the Borrower:
    (1) Processing fee. The CDC may charge up to 1.5 percent of the net 
Debenture proceeds to process the financing. Two-thirds of this fee will 
be considered earned and may be collected by the CDC when the 
Authorization for the Debenture is issued by SBA. The portion of the 
processing fee paid by the Borrower may be reimbursed from the Debenture 
proceeds;
    (2) Closing fee. The CDC may charge a fee to cover an amount 
sufficient to reimburse it for reasonable legal expenses of in-house or 
outside legal counsel. The CDC may also charge a fee to cover reasonable 
miscellaneous closing costs. Closing costs, other than legal fees, may 
be funded out of the Debenture proceeds;
    (3) Servicing fee. The CDC will charge a monthly servicing fee of 
not less than 0.5 percent per annum nor more than 2 percent per annum on 
the unpaid balance of the loan as determined at five-year anniversary 
intervals. A servicing fee in excess of 1.5 percent in a Rural Area and 
1 percent everywhere else requires SBA's prior written approval, based 
on evidence of substantial need. The servicing fee may be paid only from 
loan payments received. The fees may be accrued without interest and 
collected from the CSA when the payments are made;
    (4) Late fees. Loan payments received after the 15th of each month 
may be subject to a late payment fee of 5 percent of the late payment or 
$100, whichever is greater. These fees will be collected by the CSA on 
behalf of the CDC; and
    (5) Assumption fee. Upon SBA's written approval, a CDC may charge an 
assumption fee not to exceed 1 percent of the outstanding principal 
balance of the loan being assumed.
    (b) CSA fees. The CSA may charge an initiation fee on each loan and 
a monthly servicing fee under the terms of the Master Servicing 
Agreement.
    (c) Other agent fees. Agent fees and charges necessary to market and 
service Debentures and Certificates may be assessed to the Borrower or 
the investor. The fees must be approved by SBA and published 
periodically in the Federal Register.
    (d) SBA fees. (1) SBA charges a 0.5 percent guarantee fee on the 
Debenture.
    (2) For those loans approved after October 1, 1995, SBA charges a 
fee of 0.125 per annum on the unpaid principal balance of the loan as 
determined at five-year anniversary intervals.
    (e) Miscellaneous fees. A funding fee not to exceed 0.25 percent of 
the Debenture may be charged to cover costs incurred by the trustee, 
fiscal agent, transfer agent.



Sec. 120.972  Oversight and evaluation of CDCs and ADCs.

    SBA may conduct an operational review of a CDC or ADC. The SBA 
Office of Inspector General may conduct, supervise or coordinate audits 
pursuant to the Inspector General Act. The CDC or ADC must cooperate and 
make its staff, records, and facilities available.

                 CDC Transfer, Suspension and Revocation



Sec. 120.980  Transfer of CDC to ADC status.

    SBA shall transfer to ADC status any CDC that fails to meet the 
activity level required by SBA, on average over two consecutive fiscal 
years. SBA shall notify the CDC in writing of the action and of the 
opportunity for a hearing pursuant to part 134 of this chapter at least 
10 business days prior to the transfer. During the pendency of a 
hearing, SBA's action will remain in effect.

[[Page 191]]



Sec. 120.981  Voluntary transfer and surrender of CDC certification.

    A CDC may not transfer its certification or withdraw from the 504 
program without SBA's consent. The CDC must provide a plan to SBA to 
transfer its portfolio. The portfolio may only be transferred with SBA's 
written consent. If a CDC desires to withdraw from the 504 program, it 
must forfeit its portfolio to SBA. SBA may conduct an audit of the 
transferring or withdrawing CDC.



Sec. 120.982  Correcting CDC servicing deficiencies.

    SBA may require corrective action, including the transfer of 
existing or pending financings to another CDC in good standing. SBA must 
notify the CDC in writing of any servicing, reporting or collection 
deficiencies and the corrective actions to be taken. SBA may instruct 
the CSA to withhold service and late fees and may assess the CDC up to 
$250 per day for expenses incurred by SBA to correct the deficiencies. 
If non-compliance continues for 90 days, SBA may take the fees as 
compensation for its efforts to obtain compliance.



Sec. 120.983  Transfer of CDC servicing to SBA or another CDC.

    If a CDC fails to correct servicing deficiencies, or is unable or 
unwilling to service its portfolio, SBA may assume the servicing or 
require the transfer of all or part of the CDC's portfolio to another 
CDC within or adjoining the deficient CDC's Area of Operations. If there 
is no suitable CDC, SBA may approve a transfer to another entity. Future 
service fees from transferred loans will be paid to the transferee. In 
addition, the CDC's processing authority will be temporarily suspended.



Sec. 120.984  Suspension or revocation of CDC certification.

    (a) Suspend or revoke. The AA/FA may suspend or revoke the CDC's 
certification if a CDC:
    (1) Violates a statute, an SBA regulation, or the terms of a 
Debenture, authorization, or agreement with SBA;
    (2) Makes a material false statement, knowingly misrepresents, or 
fails to state a material fact;
    (3) Fails to maintain good character;
    (4) Fails to operate according to prudent lending standards;
    (5) Fails to correct servicing, collection, reporting, or other 
deficiencies; or
    (6) Is unable or unwilling to operate in accordance with the 
requirements of this part.
    (b) Transfer portfolio. Upon suspension or revocation, the CDC must 
transfer its remaining portfolio and any 504 applications or financings 
in process to another CDC designated or approved by SBA. If a pending 
504 financing is completed after a transfer, any deposit must also be 
transferred. Any fees must be apportioned by SBA between the two CDCs in 
proportion to services performed.
    (c) Provide written notice. SBA must give written notice to the CDC 
at least 10 business days prior to the effective date of a suspension or 
revocation, informing the CDC of the opportunity for a hearing pursuant 
to part 134 of this chapter.

         Enforceability of 501, 502 and 503 Loans and Other Laws



Sec. 120.990  501, 502 and 503 loans.

    SBA has discontinued loan programs for 501, 502, and 503 loans. 
Outstanding loans remain under these programs, and Borrowers, CDCs, and 
SBA must comply with the terms and conditions of the corresponding notes 
and Debentures, and the regulations in this part in effect when the 
obligations were undertaken or last in effect, if applicable.



Sec. 120.991  Effect of other laws.

    No State or local law may preclude or limit SBA's exercise of its 
rights with respect to notes, guarantees, Debentures and Debenture 
Pools, or of its enforcement rights to foreclose on collateral.



PART 121--SMALL BUSINESS SIZE REGULATIONS--Table of Contents




          Subpart A--Size Eligibility Provisions and Standards

                   Provisions of General Applicability

Sec.
121.101  What are SBA size standards?

[[Page 192]]

121.102  How does SBA establish size standards?
121.103  What is affiliation?
121.104  How does SBA calculate annual receipts?
121.105  How does SBA define ``business concern or concern''?
121.106  How does SBA calculate number of employees?
121.107  How does SBA determine a concern's ``primary industry''?
121.108  What are the penalties for misrepresentation of size status?

          Size Standards Used to Define Small Business Concerns

121.201  What size standards has SBA identified by Standard Industrial 
          Classification codes?

       Size Eligibility Requirements for SBA Financial Assistance

121.301  What size standards are applicable to financial assistance 
          programs?
121.302  When does SBA determine the size status of an applicant?
121.303  What size procedures are used by SBA before it makes a formal 
          size determination?
121.304  What are the size requirements for refinancing an existing SBA 
          loan?
121.305  What size eligibility requirements exist for obtaining business 
          loans relating to particular procurements?

        Size Eligibility Requirements for Government Procurement

121.401  What procurement programs are subject to size determinations?
121.402  What size standards are applicable to procurement assistance 
          programs?
121.403  Are SBA size determinations and SIC code designations binding 
          on parties?
121.404  When does SBA determine the size status of a business concern?
121.405  May a business concern self-certify its small business size 
          status?
121.406  How does a small business concern qualify to provide 
          manufactured products under small business set-aside or MED 
          procurements?
121.407  What are the size procedures for multiple item procurements?
121.408  What are the size procedures for SBA's Certificate of 
          Competency Program?
121.409  What size standard applies in an unrestricted procurement for 
          Certificate of Competency purposes?
121.410  What are the size standards for SBA's Section 8(d) 
          Subcontracting Program?
121.411  What are the size procedures for SBA's Section 8(d) 
          Subcontracting Program?
121.412  What are the size procedures for partial small business set-
          asides?

 Size Eligibility Requirements for Sales or Lease of Government Property

121.501  What programs for sales or leases of Government property are 
          subject to size determinations?
121.502  What size standards are applicable to programs for sales or 
          leases of Government property?
121.503  Are SBA size determinations binding on parties?
121.504  When does SBA determine the size status of a business concern?
121.505  What is the effect of a self-certification?
121.506  What definitions are important for sales or leases of 
          Government-owned timber?
121.507  What are the size standards and other requirements for the 
          purchase of Government-owned timber (other than Special 
          Salvage Timber)?
121.508  What are the size standards and other requirements for the 
          purchase of Government-owned Special Salvage Timber?
121.509  What is the size standard for leasing of Government land for 
          coal mining?
121.510  What is the size standard for leasing of Government land for 
          uranium mining?
121.511  What is the size standard for buying Government-owned 
          petroleum?
121.512   What is the size standard for stockpile purchases?

 Size Eligibility Requirements for the Minority Enterprise Development 
                              (MED) Program

121.601  What is a small business for purposes of admission to SBA's 
          Minority Enterprise Development (MED) program?
121.602  At what point in time must a MED applicant be small?
121.603  How does SBA determine whether a Participant is small for a 
          particular MED subcontract?
121.604  Are MED Participants considered small for purposes of other SBA 
          assistance?

Size Eligibility Requirements for the Small Business Innovation Research 
                             (SBIR) Program

121.701  What SBIR programs are subject to size determinations?
121.702  What size standards are applicable to the SBIR program?
121.703  Are formal size determinations binding on parties?
121.704  When does SBA determine the size status of a business concern?
121.705  Must a business concern self-certify its size status?

[[Page 193]]

      Size Eligibility Requirements for Paying Reduced Patent Fees

121.801  May patent fees be reduced if a concern is small?
121.802  What size standards are applicable to reduced patent fees 
          programs?
121.803  Are formal size determinations binding on parties?
121.804  When does SBA determine the size status of a business concern?
121.805  May a business concern self-certify its size status?

  Size Eligibility Requirements for Compliance With Programs of Other 
                                Agencies

121.901  Can other Government agencies obtain SBA size determinations?
121.902  What size standards are applicable to programs of other 
          agencies?
121.903  When does SBA determine the size status of a business concern?

Procedures for Size Protests and Requests for Formal Size Determinations

121.1001  Who may initiate a size protest or a request for formal size 
          determination?
121.1002  Who makes a formal size determination?
121.1003  Where should a size protest be filed?
121.1004  What time limits apply to size protests?
121.1005  How must a protest be filed with the contracting officer?
121.1006  When will a size protest be referred to an SBA Government 
          Contracting Area Office?
121.1007  Must a protest of size status relate to a particular 
          procurement and be specific?
121.1008  What happens after SBA receives a size protest or a request 
          for a formal size determination?
121.1009  What are the procedures for making the size determination?
121.1010  How does a concern become recertified as a small business?

        Appeals of Size Determinations and SIC Code Designations

121.1101  Are formal size determinations subject to appeal?
121.1102  Are SIC code designations subject to appeal?
121.1103  What are the procedures for appealing a SIC code designation?

                 Subpart B--Other Applicable Provisions

    Waivers of the Nonmanufacturer Rule for Classes of Products and 
                          Individual Contracts

121.1201  What is the Nonmanufacturer Rule?
121.1202  When will a waiver of the Nonmanufacturer Rule be granted for 
          a class of products?
121.1203  When will a waiver of the Nonmanufacturer Rule be granted for 
          an individual contract?
121.1204  What are the procedures for requesting and granting waivers?
121.1205  How is a list of previously granted class waivers obtained?

    Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and Pub. 
L. 102-486, 106 Stat. 2776, 3133.

    Source: 61 FR 3286, Jan. 31, 1996, unless otherwise noted.



          Subpart A--Size Eligibility Provisions and Standards

                   Provisions of General Applicability



Sec. 121.101  What are SBA size standards?

    SBA's size standards define whether a business entity is small and, 
thus, eligible for Government programs and preferences reserved for 
``small business'' concerns. Size standards have been established for 
types of economic activity, or industry, generally under the Standard 
Industrial Classification (SIC) System. The SIC System is described in 
the ``Standard Industrial Classification Manual'' published by the 
Office of Management and Budget, Executive Office of the President, and 
sold by the U.S. Government Printing Office, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. The SIC System 
assigns four-digit SIC codes to all economic activity within ten major 
divisions. Section 121.201 describes the size standards now established. 
A full table matching a size standard with each four-digit SIC code is 
also published annually by SBA in the Federal Register.



Sec. 121.102  How does SBA establish size standards?

    (a) SBA considers economic characteristics comprising the structure 
of an industry, including degree of competition, average firm size, 
start-up costs and entry barriers, and distribution of firms by size. It 
also considers technological changes, competition from other industries, 
growth trends, historical activity within an industry, unique factors 
occurring in the industry which may distinguish small firms from other 
firms, and the objectives of its programs and the impact on those

[[Page 194]]

programs of different size standard levels.
    (b) As part of its review of a size standard, SBA will investigate 
if any concern at or below a particular standard would be dominant in 
the industry. SBA will take into consideration market share of a concern 
and other appropriate factors which may allow a concern to exercise a 
major controlling influence on a national basis in which a number of 
business concerns are engaged. Size standards seek to ensure that a 
concern that meets a specific size standard is not dominant in its field 
of operation.
    (c) Please address any requests to change existing size standards or 
establish new ones for emerging industries to the Assistant 
Administrator for Size Standards, Small Business Administration, 409 3rd 
Street, SW., Washington, DC 20416.



Sec. 121.103  What is affiliation?

    (a) General Principles of Affiliation. (1) Concerns are affiliates 
of each other when one concern controls or has the power to control the 
other, or a third party or parties controls or has the power to control 
both.
    (2) SBA considers factors such as ownership, management, previous 
relationships with or ties to another concern, and contractual 
relationships, in determining whether affiliation exists.
    (3) Individuals or firms that have identical or substantially 
identical business or economic interests, such as family members, 
persons with common investments, or firms that are economically 
dependent through contractual or other relationships, may be treated as 
one party with such interests aggregated.
    (4) SBA counts the receipts or employees of the concern whose size 
is at issue and those of all its domestic and foreign affiliates, 
regardless of whether the affiliates are organized for profit, in 
determining the concern's size.
    (b) Exclusion from affiliation coverage. (1) Business concerns owned 
in whole or substantial part by investment companies licensed, or 
development companies qualifying, under the Small Business Investment 
Act of 1958, as amended, are not considered affiliates of such 
investment companies or development companies.
    (2) Business concerns owned and controlled by Indian Tribes, Alaska 
Regional or Village Corporations organized pursuant to the Alaska Native 
Claims Settlement Act (43 U.S.C. 1601), Native Hawaiian Organizations, 
or Community Development Corporations authorized by 42 U.S.C. 9805 are 
not considered affiliates of such entities, or with other concerns owned 
by these entities solely because of their common ownership.
    (3) Business concerns which are part of an SBA approved pool of 
concerns for a joint program of research and development as authorized 
by the Small Business Act are not affiliates of one another because of 
the pool.
    (4) Business concerns which lease employees from concerns primarily 
engaged in leasing employees to other businesses are not affiliated with 
the leasing company solely on the basis of a leasing agreement.
    (5) For financial, management or technical assistance under the 
Small Business Investment Company program, an applicant concern is not 
affiliated with the investors listed in paragraphs (b)(5)(i) through 
(vi) of this section if the investors do not control the concern except 
under those circumstances set forth in Sec. 107.865(c) or (d) of this 
chapter. For purposes of this paragraph (b)(5), ``control'' is 
determined under Sec. 107.865 of this chapter.
    (i) Venture capital operating companies, as defined in the U.S. 
Department of Labor regulations found at 29 CFR 2510.3-101(d);
    (ii) Employee benefit or pension plans established and maintained by 
the Federal government or any state, or their political subdivisions, or 
any agency or instrumentality thereof, for the benefit of employees;
    (iii) Employee benefit or pension plans within the meaning of the 
Employee Retirement Income Security Act of 1974, as amended (29 U.S.C. 
1001, et seq.);
    (iv) Charitable trusts, foundations, endowments, or similar 
organizations exempt from Federal income taxation under section 501(c) 
of the Internal Revenue Code of 1986, as amended (26 U.S.C. 501(c));

[[Page 195]]

    (v) Investment companies registered under the Investment Company Act 
of 1940, as amended (1940 Act) (15 U.S.C. 80a-1, et seq.); and
    (vi) Investment companies, as defined under the 1940 Act, which are 
not registered under the 1940 Act because they are beneficially owned by 
less than 100 persons, if the company's sales literature or 
organizational documents indicate that its principal purpose is 
investment in securities rather than the operation of commercial 
enterprises.
    (6) A protege firm is not an affiliate of a mentor firm solely 
because the protege firm receives assistance from the mentor firm under 
Federal Mentor-Protege programs.
    (c) Affiliation based on stock ownership. (1) A person is an 
affiliate of a concern if the person owns or controls, or has the power 
to control 50 percent or more of its voting stock, or a block of stock 
which affords control because it is large compared to other outstanding 
blocks of stock.
    (2) If two or more persons each owns, controls or has the power to 
control less than 50 percent of the voting stock of a concern, with 
minority holdings that are equal or approximately equal in size, but the 
aggregate of these minority holdings is large as compared with any other 
stock holding, each such person is presumed to be an affiliate of the 
concern.
    (d) Affiliation arising under stock options, convertible debentures, 
and agreements to merge. Since stock options, convertible debentures, 
and agreements to merge (including agreements in principle) affect the 
power to control a concern, SBA treats them as though the rights granted 
have been exercised (except that an affiliate cannot use them to appear 
to terminate control over another concern before it actually does so). 
SBA gives present effect to an agreement to merge or sell stock whether 
such agreement is unconditional, conditional, or finalized but 
unexecuted. Agreements to open or continue negotiations towards the 
possibility of a merger or a sale of stock at some later date are not 
considered ``agreements in principle'' and, thus, are not given present 
effect.
    (e) Affiliation based on common management. Affiliation arises where 
one or more officers, directors or general partners controls the board 
of directors and/or the management of another concern.
    (f) Affiliation based on joint venture arrangements. (1) Parties to 
a joint venture are affiliates if any one of them seeks SBA financial 
assistance for use in connection with the joint venture.
    (2) Concerns bidding on a particular procurement or property sale as 
joint venturers are affiliated with each other with regard to 
performance of that contract.
    (3) A contractor and subcontractor are treated as joint venturers if 
the ostensible subcontractor will perform primary and vital requirements 
of a contract or if the prime contractor is unusually reliant upon the 
ostensible subcontractor. All requirements of the contract are 
considered in reviewing such relationship, including contract 
management, technical responsibilities, and the percentage of 
subcontracted work.
    (4) For size purposes, a concern must include in its revenues its 
proportionate share of joint venture receipts.
    (g) Affiliation based on franchise and license agreements. The 
restraints imposed on a franchisee or licensee by its franchise or 
license agreement relating to standardized quality, advertising, 
accounting format and other similar provisions, generally will not be 
considered in determining whether the franchisor or licensor is 
affiliated with the franchisee or licensee provided the franchisee or 
licensee has the right to profit from its efforts and bears the risk of 
loss commensurate with ownership. Affiliation may arise, however, 
through other means, such as common ownership, common management or 
excessive restrictions upon the sale of the franchise interest.



Sec. 121.104  How does SBA calculate annual receipts?

    (a) Definitions. In determining annual receipts of a concern:
    (1) Receipts means ``total income'' (or in the case of a sole 
proprietorship, ``gross income'') plus the ``cost of goods sold'' as 
these terms are defined or reported on Internal Revenue Service

[[Page 196]]

(IRS) Federal tax return forms (Form 1120 for corporations; Form 1120S 
for Subchapter S corporations; Form 1065 for partnerships; and Form 
1040, Schedule F for farm or Schedule C for other sole proprietorships). 
However, the term receipts excludes net capital gains or losses, taxes 
collected for and remitted to a taxing authority if included in gross or 
total income, proceeds from the transactions between a concern and its 
domestic or foreign affiliates (if also excluded from gross or total 
income on a consolidated return filed with the IRS), and amounts 
collected for another by a travel agent, real estate agent, advertising 
agent, or conference management service provider.
    (2) Completed fiscal year means a taxable year including any short 
period. Taxable year and short period have the meaning attributed to 
them by the IRS.
    (3) Unless otherwise defined in this section, all terms shall have 
the meaning attributed to them by the IRS.
    (b) Period of measurement. (1) Annual receipts of a concern which 
has been in business for 3 or more completed fiscal years means the 
receipts of the concern over its last 3 completed fiscal years divided 
by three.
    (2) Annual receipts of a concern which has been in business for less 
than 3 complete fiscal years means the receipts for the period the 
concern has been in business divided by the number of weeks in business, 
multiplied by 52.
    (3) Annual receipts of a concern which has been in business 3 or 
more complete fiscal years but has a short year as one of those years 
means the receipts for the short year and the two full fiscal years 
divided by the number of weeks in the short year and the two full fiscal 
years, multiplied by 52.
    (c) Use of information other than the Federal tax return. Where 
other information gives SBA reason to regard Federal Income Tax returns 
as false, SBA may base its size determination on such other information.
    (d) Annual receipts of affiliates. (1) If a concern has acquired an 
affiliate or been acquired as an affiliate during the applicable 
averaging period or before small business self-certification, the annual 
receipts in determining size status include the receipts of both firms. 
Furthermore, this aggregation applies for the entire applicable period 
used in computing size rather than only for the period after the 
affiliation arose. Receipts are determined for the concern and its 
affiliates in accordance with paragraph (b) of this section even though 
this may result in different periods being used to calculate annual 
receipts.
    (2) The annual receipts of a former affiliate are not included as 
annual receipts if affiliation ceased before the date used for 
determining size. This exclusion of annual receipts of a former 
affiliate applies during the entire period used in computing size, 
rather than only for the period after which the affiliation ceased .



Sec. 121.105  How does SBA define ``business concern or concern''?

    (a) A business concern eligible for assistance from SBA as a small 
business is a business entity organized for profit, with a place of 
business located in the United States, and which operates primarily 
within the United States or which makes a significant contribution to 
the U.S. economy through payment of taxes or use of American products, 
materials or labor.
    (b) A business concern may be in the legal form of an individual 
proprietorship, partnership, limited liability company, corporation, 
joint venture, association, trust or cooperative, except that where the 
form is a joint venture there can be no more than 49 percent 
participation by foreign business entities in the joint venture.
    (c) A firm will not be treated as a separate business concern if a 
substantial portion of its assets and/or liabilities are the same as 
those of a predecessor entity. In such a case, the annual receipts and 
employees of the predecessor will be taken into account in determining 
size.



Sec. 121.106  How does SBA calculate number of employees?

    (a) Employees counted in determining size include all individuals 
employed on a full-time, part-time, temporary, or other basis. SBA will 
consider the totality of the circumstances,

[[Page 197]]

including factors relevant for tax purposes, in determining whether 
individuals are employees of the concern in question.
    (b) Where the size standard is number of employees, the method for 
determining a concern's size includes the following principles:
    (1) The average number of employees of the concern is used 
(including the employees of its domestic and foreign affiliates) based 
upon numbers of employees for each of the pay periods for the preceding 
completed 12 calendar months.
    (2) Part-time and temporary employees are counted the same as full-
time employees.
    (3) If a concern has not been in business for 12 months, the average 
number of employees is used for each of the pay periods during which it 
has been in business.
    (4) The treatment of employees of former affiliates or recently 
acquired affiliates is the same as for size determinations using annual 
receipts in Sec. 121.104(d).



Sec. 121.107  How does SBA determine a concern's ``primary industry''?

    In determining the primary industry in which a concern or a concern 
combined with its affiliates is engaged, SBA considers the distribution 
of receipts, employees and costs of doing business among the different 
industries in which business operations occurred for the most recently 
completed fiscal year. SBA may also consider other factors, such as the 
distribution of patents, contract awards, and assets.



Sec. 121.108  What are the penalties for misrepresentation of size status?

    In addition to other laws which may be applicable, section 16(d) of 
the Small Business Act, 15 U.S.C. 645(d), provides severe criminal 
penalties for knowingly misrepresenting the small business size status 
of a concern in connection with procurement programs. Section 16(a) of 
the Act also provides, in part, for criminal penalties for knowingly 
making false statements or misrepresentations to SBA for the purpose of 
influencing in any way the actions of the Agency.

          Size Standards Used To Define Small Business Concerns



Sec. 121.201  What size standards has SBA identified by Standard Industrial Classification codes?

    The size standards described in this section apply to all SBA 
programs unless otherwise specified. The size standards themselves are 
expressed either in number of employees or annual receipts in millions 
of dollars, unless otherwise specified. The number of employees or 
annual receipts indicates the maximum allowed for a concern and its 
affiliates to be considered small. The following is a listing of size 
standards for industries under the SIC System. Size standards are listed 
by Division and apply to all industries in that Division except those 
specifically listed with separate size standards for a specific two-
digit major group or four-digit industry code. The industry code 
applicable to a business that cannot be otherwise classified will be SIC 
code 9999, Nonclassifiable Establishments, with a corresponding size 
standard of $5.0 million in annual receipts.

                     Size Standards by SIC Industry                     
------------------------------------------------------------------------
                                             Size standards in number of
          SIC code and description             employees or millions of 
                                                       dollars          
------------------------------------------------------------------------
              DIVISION A--AGRICULTURE, FORESTRY AND FISHING             
------------------------------------------------------------------------
MAJOR GROUP 01--AGRICULTURAL PRODUCTION      $0.5                       
 CROPS.                                                                 
MAJOR GROUP 02--LIVESTOCK AND ANIMAL         $0.5                       
 SPECIALTIES.                                                           
Except:                                                                 
    0211  Beef Cattle Feedlots (Custom)....  $1.5                       
    0252  Chicken Eggs.....................  $9.0                       
MAJOR GROUP 07--AGRICULTURAL SERVICES......  $5.0                       
MAJOR GROUP 08--FORESTRY...................  $5.0                       
MAJOR GROUP 09--FISHING, HUNTING, AND        $3.0                       
 TRAPPING.                                                              
------------------------------------------------------------------------

[[Page 198]]

                                                                        
             DIVISION B--MINING                                         
------------------------------------------------------------------------
MAJOR GROUP 10--METAL MINING...............  500                        
MAJOR GROUP 12--COAL MINING................  500                        
MAJOR GROUP 13--OIL AND GAS EXTRACTION AND   500                        
 MAJOR GROUP 14--MINING AND QUARRYING OF                                
 NONMETALLIC MINERALS, EXCEPT FUELS.                                    
EXCEPT:                                                                 
    1081  Metal Mining Services............  $5.0                       
    1241  Coal Mining Services.............  $5.0                       
    1382  Oil and Gas Field Exploration      $5.0                       
     Services.                                                          
    1389  Oil and Gas Field Services,        $5.0                       
     N.E.C..                                                            
    1481  Nonmetallic Minerals Services,     $5.0                       
     Except Fuels.                                                      
------------------------------------------------------------------------
                        DIVISION C--CONSTRUCTION                        
------------------------------------------------------------------------
MAJOR GROUP 15--GENERAL BUILDING             $17.0                      
 CONTRACTORS.                                                           
MAJOR GROUP 16--HEAVY CONSTRUCTION, NON      $17.0                      
 BUILDING.                                                              
EXCEPT:                                                                 
    1629 (Part)    Dredging and Surface      $13.5 \1\                  
     Cleanup Activities.                                                
MAJOR GROUP 17--CONSTRUCTION--SPECIAL TRADE  $7.0                       
 CONTRACTORS.                                                           
------------------------------------------------------------------------
DIVISION D--MANUFACTURING,\2\..............  500                        
------------------------------------------------------------------------
EXCEPT:                                                                 
    2032  Canned Specialties...............  1,000                      
    2033  Canned Fruits, Vegetables,         500 \3\                    
     Preserves, Jams and Jellies.                                       
    2043  Cereal Breakfast Foods...........  1,000                      
    2046  Wet Corn Milling.................  750                        
    2052  Cookies and Crackers.............  750                        
    2062  Cane Sugar Refining..............  750                        
    2063  Beet Sugar.......................  750                        
    2076  Vegetable Oil Mills, Except Corn,  1,000                      
     Cottonseed, and Soybean.                                           
    2079  Shortening, Table Oils,            750                        
     Margarine, and Other Edible Fats and                               
     Oils, N.E.C.                                                       
    2085  Distilled and Blended Liquors....  750                        
    2111  Cigarettes.......................  1,000                      
    2211  Broadwoven Fabric Mills, Cotton..  1,000                      
    2261  Finishers of Broadwoven Fabrics    1,000                      
     of Cotton.                                                         
    2295  Coated Fabrics, Not Rubberized...  1,000                      
    2296  Tire Cord and Fabrics............  1,000                      
    2611  Pulp Mills.......................  750                        
    2621  Paper Mills......................  750                        
    2631  Paperboard Mills.................  750                        
    2656  Sanitary Food Containers, Except   750                        
     Folding.                                                           
    2657  Folding Paperboard Boxes,          750                        
     Including Sanitary.                                                
    2812  Alkalies and Chlorine............  1,000                      
    2813  Industrial Gases.................  1,000                      
    2816  Inorganic Pigments...............  1,000                      
    2819  Industrial Inorganic Chemicals,    1,000                      
     N.E.C.                                                             
    2821  Plastics Materials, Synthetic      750                        
     Resins, and Nonvulcanizable Elastomers.                            
    2822  Synthetic Rubber (Vulcanizable     1,000                      
     Elastomers).                                                       
    2823  Cellulosic Manmade Fibers........  1,000                      
    2824  Manmade Organic Fibers, Except     1,000                      
     Cellulosic.                                                        
    2833  Medicinal Chemicals and Botanical  750                        
     Products.                                                          
    2834  Pharmaceutical Preparations......  750                        
    2841  Soap and Other Detergents, Except  750                        
     Specialty Cleaners.                                                
    2865  Cyclic Organic Crudes and          750                        
     Intermediates, and Organic Dyes and                                
     Pigments.                                                          
    2869  Industrial Organic Chemicals,      1,000                      
     N.E.C..                                                            
    2873  Nitrogenous Fertilizers..........  1,000                      
    2892  Explosives.......................  750                        
    2911  Petroleum Refining...............  1,500 \4\                  
    2952  Asphalt Felts and Coatings.......  750                        
    3011  Tires and Inner Tubes............  1,000 \5\                  
    3021  Rubber and Plastics Footwear.....  1,000                      
    3211  Flat Glass.......................  1,000                      
    3221  Glass Containers.................  750                        
    3229  Pressed and Blown Glass and        750                        
     Glassware, N.E.C.                                                  
    3241  Cement, Hydraulic................  750                        
    3261  Vitreous China Plumbing Fixtures   750                        
     and China and Earthenware Fittings and                             
     Bathroom Accessories.                                              
    3275  Gypsum Products..................  1,000                      

[[Page 199]]

                                                                        
    3292  Asbestos Products................  750                        
    3296  Mineral Wool.....................  750                        
    3297  Nonclay Refractories.............  750                        
    3312  Steel Works, Blast Furnaces        1,000                      
     (Including Coke Ovens), and Rolling                                
     Mills.                                                             
    3313  Electrometallurgical Products,     750                        
     Except Steel.                                                      
    3315  Steel Wiredrawing and Steel Nails  1,000                      
     and Spikes.                                                        
    3316  Cold-Rolled Steel Sheet, Strip,    1,000                      
     and Bars.                                                          
    3317  Steel Pipe and Tubes.............  1,000                      
    3331  Primary Smelting and Refining of   1,000                      
     Copper.                                                            
    3334  Primary Production of Aluminum...  1,000                      
    3339  Primary Smelting and Refining of   750                        
     Nonferrous Metals, Except Copper and                               
     Aluminum.                                                          
    3351  Rolling, Drawing, and Extruding    750                        
     of Copper.                                                         
    3353  Aluminum Sheet, Plate, and Foil..  750                        
    3354  Aluminum Extruded Products.......  750                        
    3355  Aluminum Rolling and Drawing,      750                        
     N.E.C.                                                             
    3356  Rolling, Drawing, and Extruding    750                        
     of Nonferrous Metals, Except Copper                                
     and Aluminum.                                                      
    3357  Drawing and Insulating of          1,000                      
     Nonferrous Wire.                                                   
    3398  Metal Heat Treating..............  750                        
    3399  Primary Metal Products, N.E.C....  750                        
    3411  Metal Cans.......................  1,000                      
    3431  Enameled Iron and Metal Sanitary   750                        
     Ware.                                                              
    3482  Small Arms Ammunition............  1,000                      
    3483  Ammunition, Except for Small Arms  1,500                      
    3484  Small Arms.......................  1,000                      
    3511  Steam, Gas, and Hydraulic          1,000                      
     Turbines, and Turbine Generator Set                                
     Units.                                                             
    3519  Internal Combustion Engines,       1,000                      
     N.E.C.                                                             
    3531  Construction Machinery and         750                        
     Equipment.                                                         
    3537  Industrial Trucks, Tractors,       750                        
     Trailers, and Stackers.                                            
    3562  Ball and Roller Bearings.........  750                        
    3571  Electronic Computers.............  1,000                      
    3572  Computer Storage Devices.........  1,000                      
    3575  Computer Terminals...............  1,000                      
    3577  Computer Peripheral Equipment,     1,000                      
     N.E.C.                                                             
    3578  Calculating and Accounting         1,000                      
     Machines, Except Electronic Computers.                             
    3585  Air-Conditioning and Warm Air      750                        
     Heating Equipment and Commercial and                               
     Industrial Refrigeration Equipment.                                
    3612  Power, Distribution, and           750                        
     Specialty Transformers.                                            
    3613  Switchgear and Switchboard         750                        
     Apparatus.                                                         
    3621  Motors and Generators............  1,000                      
    3624  Carbon and Graphite Products.....  750                        
    3625  Relays and Industrial Controls...  750                        
    3631  Household Cooking Equipment......  750                        
    3632  Household Refrigerators and Home   1,000                      
     and Farm Freezers.                                                 
    3633  Household Laundry Equipment......  1,000                      
    3634  Electric Housewares and Fans.....  750                        
    3635  Household Vacuum Cleaners........  750                        
    3641  Electric Lamp Bulbs and Tubes....  1,000                      
    3651  Household Audio and Video          750                        
     Equipment.                                                         
    3652  Phonograph Records and             750                        
     Prerecorded Audio Tapes and Disks.                                 
    3661  Telephone and Telegraph Apparatus  1,000                      
    3663  Radio and Television Broadcasting  750                        
     and Communications Equipment.                                      
    3669  Communications Equipment, N.E.C..  750                        
    3671  Electron Tubes...................  750                        
    3692  Primary Batteries, Dry and Wet...  1,000                      
    3694  Electrical Equipment for Internal  750                        
     Combustion Engines.                                                
    3695  Magnetic and Optical Recording     1,000                      
     Media.                                                             
    3699  Electrical Machinery, Equipment,   750                        
     and Supplies, N.E.C.                                               
    3711  Motor Vehicles and Passenger Car   1,000                      
     Bodies.                                                            
    3714  Motor Vehicle Parts and            750                        
     Accessories.                                                       
    3716  Motor Homes......................  1,000                      
    3721  Aircraft.........................  1,500                      
    3724  Aircraft Engines and Engine Parts  1,000                      
    3728  Aircraft Parts and Auxiliary       1,000 \9\                  
     Equipment, N.E.C.                                                  
    3731  Shipbuilding and Repair of         1,000                      
     Nuclear Propelled Ships.                                           
        Shipbuilding of Nonnuclear           1,000                      
         Propelled Ships and Nonpropelled                               
         Ships.                                                         
        Ship Repair (Including Overhauls     1,000                      
         and Conversions) Performed on                                  
         Nonnuclear Propelled and                                       
         Nonpropelled Ships East of the 108                             
         Meridian.                                                      
        Ship Repair (Including Overhauls     1,000                      
         and Conversions) Performed on                                  
         Nonnuclear Propelled and                                       
         Nonpropelled Ships West of the 108                             
         Meridian.                                                      
    3743  Railroad Equipment...............  1,000                      

[[Page 200]]

                                                                        
    3761  Guided Missiles and Space          1,000                      
     Vehicles.                                                          
    3764  Guided Missile and Space Vehicle   1,000                      
     Propulsion Units and Propulsion Units                              
     Parts.                                                             
    3769  Guided Missile and Space Vehicle   1,000                      
     Parts and Auxiliary Equipment, N.E.C.                              
    3795  Tanks and Tank Components........  1,000                      
    3812  Search, Detection, Navigation,     750                        
     Guidance, Aeronautical, and Nautical                               
     Systems and Instruments.                                           
    3996  Linoleum, Asphalted-Felt-Base,     750                        
     and other Hard Surface Floor                                       
     Coverings, N.E.C.                                                  
------------------------------------------------------------------------
 DIVISION E--TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS, AND SANITARY
                                SERVICES                                
------------------------------------------------------------------------
MAJOR GROUP 40--RAILROAD TRANSPORTATION....  1500                       
EXCEPT:                                                                 
    4013  Railroad Switching and Terminal    500                        
     Establishments.                                                    
MAJOR GROUP 41--LOCAL AND SUBURBAN TRANSIT   $5.0                       
 AND INTERURBAN HIGHWAY PASSENGER                                       
 TRANSPORTATION.                                                        
MAJOR GROUP 42--MOTOR FREIGHT                $18.5                      
 TRANSPORTATION AND WAREHOUSING.                                        
EXCEPT:                                                                 
    4212 (Part)  Garbage and Refuse          $6.0                       
     Collection, Without Disposal.                                      
    4231  Terminal and Joint Terminal        $5.0                       
     Maintenance Facilities for Motor                                   
     Freight Transportation.                                            
MAJOR GROUP 44--WATER TRANSPORTATION.......  500                        
EXCEPT:                                                                 
    4491  Marine Cargo Handling............  $18.5                      
    4492  Towing and Tugboat Services......  $5.0                       
    4493  Marinas..........................  $5.0                       
    4499  Water Transportation Services,     $5.0                       
     N.E.C..                                                            
          --Offshore Marine Water            $20.5                      
     Transportation Services.                                           
MAJOR GROUP 45--TRANSPORTATION BY AIR......  1500                       
EXCEPT:                                                                 
    4522  Air Transportation, Nonscheduled.  1500                       
          --Offshore Marine Air              $20.5                      
     Transportation Services.                                           
    4581  Airports, Flying Fields, and       $5.0                       
     Airport Terminal Services.                                         
MAJOR GROUP 46--PIPELINES, EXCEPT NATURAL    1500                       
 GAS,.                                                                  
EXCEPT:                                                                 
    4619  Pipelines, N.E.C.................  $25.0                      
MAJOR GROUP 47--TRANSPORTATION SERVICES,...  $5.0                       
EXCEPT:                                                                 
    4724  Travel Agencies..................  $1.0\6\                    
    4731  Arrangement of Transportation of   $18.5                      
     Freight and Cargo.                                                 
    4783  Packing and Crating..............  $18.5                      
MAJOR GROUP 48--COMMUNICATIONS.............                             
    4812  Radiotelephone Communications....  1,500                      
    4813  Telephone Communications, Except   1,500                      
     Radiotelephone.                                                    
    4822  Telegraph and Other Message        $5.0                       
     Communications.                                                    
    4832  Radio Broadcasting Stations......  $5.0                       
    4833  Television Broadcasting Stations.  $10.5                      
    4841  Cable and Other Pay Television     $11.0                      
     Services.                                                          
    4899  Communications Services, N.E.C...  $11.0                      
MAJOR GROUP 49--ELECTRIC, GAS, AND SANITARY  $5.0                       
 SERVICES,.                                                             
EXCEPT:                                                                 
    4911  Electric Services................  4 million megawatt hrs.    
    4924  Natural Gas Distribution.........  500                        
    4953  Refuse Systems...................  $6.0                       
    4961  Steam and Air-Conditioning Supply  $9.0                       
------------------------------------------------------------------------
DIVISION F--WHOLESALE TRADE................  100                        
    (Not Applicable to Government                                       
     procurement of supplies. The                                       
     nonmanufacturer size standard of 500                               
     employees shall be used for purposes                               
     of Government procurement of                                       
     supplies.)                                                         
------------------------------------------------------------------------
DIVISION G--RETAIL TRADE...................  $5.0                       
    (Not Applicable to Government                                       
     procurement of supplies. The                                       
     nonmanufacturer size standard of 500                               
     employees shall be used for purposes                               
     of Government procurement of                                       
     supplies.)                                                         
------------------------------------------------------------------------
EXCEPT:                                                                 
    5271  Mobile Home Dealers..............  $9.5                       
    5311  Department Stores................  $20.0                      
    5331  Variety Stores...................  $8.0                       
    5411  Grocery Stores...................  $20.0                      
    5511  Motor Vehicle Dealers (New and     $21.0                      
     Used).                                                             
    5521  Motor Vehicle Dealers (Used Only)  $17.0                      
    5541  Gasoline Service Stations........  $6.5                       

[[Page 201]]

                                                                        
    5599  Automobile Dealers, N.E.C........  $5.0                       
          --Aircraft Dealers, Retail.......  $7.5                       
    5611  Men's and Boys' Clothing and       $6.5                       
     Accessory Stores.                                                  
    5621  Women's Clothing Stores..........  $6.5                       
    5651  Family Clothing Stores...........  $6.5                       
    5661  Shoe Stores......................  $6.5                       
    5722  Household Appliance Stores.......  $6.5                       
    5731  Radio, Television, and Consumer    $6.5                       
     Electronics Stores.                                                
    5734  Computer and Computer Software     $6.5                       
     Stores.                                                            
    5812  (Part) Food Service,               $15.0                      
     Institutional.                                                     
    5961  Catalog and Mail-Order Houses....  $18.5                      
    5983  Fuel Oil Dealers.................  $9.0                       
------------------------------------------------------------------------
DIVISION H--FINANCE, INSURANCE, AND REAL     $5.0                       
 ESTATE.                                                                
------------------------------------------------------------------------
EXCEPT:                                                                 
    6021-6082  National and Commercial       $100 Million in assets \7\ 
     Banks, Savings Institutions and Credit                             
     Unions.                                                            
    6331  Fire, Marine, and Casualty         1,500                      
     Insurance.                                                         
    6515 (Part)  Leasing of Building Space   $15.0 \8\                  
     to Federal Government by Owners.                                   
    6531  Real Estate Agents and Managers..  $1.5 \6\                   
------------------------------------------------------------------------
DIVISION I--SERVICES.......................  $5.0                       
------------------------------------------------------------------------
EXCEPT:                                                                 
    7211  Power Laundries, Family and        $10.5                      
     Commercial.                                                        
    7213  Linen Supply.....................  $10.5                      
    7216  Drycleaning Plants, Except Rug     $3.5                       
     Cleaning.                                                          
    7217  Carpet and Upholstery Cleaning...  $3.5                       
    7218  Industrial Launderers............  $10.5                      
    7311  Advertising Agencies.............  $5.0 \6\                   
    7312  Outdoor Advertising Services.....  $5.0 \6\                   
    7313  Radio, Television, and             $5.0 \6\                   
     Publishers' Advertising                                            
     Representatives.                                                   
    7319  Advertising, N.E.C...............  $5.0 \6\                   
    7349  Building Cleaning and Maintenance  $12.0                      
     Services, N.E.C..                                                  
    7371  Computer Programming Services....  $18.0                      
    7372  Prepackaged Software.............  $18.0                      
    7373  Computer Integrated Systems        $18.0                      
     Design.                                                            
    7374  Computer Processing and Data       $18.0                      
     Preparation and Processing Services.                               
    7375  Information Retrieval Services...  $18.0                      
    7376  Computer Facilities Management     $18.0                      
     Services.                                                          
    7377  Computer Rental and Leasing......  $18.0                      
    7378  Computer Maintenance and Repair..  $18.0                      
    7379  Computer Related Services, N.E.C.  $18.0                      
    7381  Detective, Guard, and Armored Car  $9.0                       
     Services.                                                          
    7382  Security Systems Services........  $9.0                       
    7389  Business Services, N.E.C.........  $5.0                       
        Map Drafting Services, Mapmaking     $3.5                       
         (Including Aerial) and                                         
         Photogrammetric Mapping Services.                              
    7513  Truck Rental and Leasing Without   $18.5                      
     Drivers.                                                           
    7514  Passenger Car Rental.............  $18.5                      
    7515  Passenger Car Leasing............  $18.5                      
    7534  Tire Retreading and Repair Shops.  $10.5                      
    7699  Repair Shops and Related           $5.0 \9\                   
     Services, N.E.C.                                                   
    7812  Motion Picture and Video Tape      $21.5                      
     Production.                                                        
    7819  Services Allied to Motion Picture  $21.5                      
     Production.                                                        
    7822  Motion Picture and Video Tape      $21.5                      
     Distribution.                                                      
    8299  (Part) Flight Training Services..  $18.5                      
    8711  Engineering Services.............  $2.5                       
        Military and Aerospace Equipment     $20.0                      
         and Military Weapons.                                          
        Contracts and Subcontracts for       $20.0                      
         Engineering Services Awarded Under                             
         the National Energy Policy Act of                              
         1992.                                                          
        Marine Engineering and Naval         $13.5                      
         Architecture.                                                  
    8712  Architectural Services (Other      $2.5                       
     Than Naval).                                                       
    8713  Surveying Services...............  $2.5                       
    8721  Accounting, Auditing, and          $6.0                       
     Bookkeeping Services.                                              
    8731  Commercial Physical and            500 \10\                   
     Biological Research.                                               
        Aircraft...........................  1,500                      
        Aircraft Parts, and Auxiliary        1,000                      
         Equipment, and Aircraft Engines                                
         and Engine Parts.                                              
        Space Vehicles and Guided Missiles,  1,000                      
         their Propulsion Units, their                                  
         Propulsion Units Parts, and their                              
         Auxiliary Equipment and Parts.                                 

[[Page 202]]

                                                                        
    8741 (Part)  Conference Management       $5.0 \6\                   
     Services.                                                          
    8744  Facilities Support Management      $5.0 \11\                  
     Services.                                                          
        Base Maintenance...................  $20.0 \12\                 
        Environmental Remediation Services.  500 \13\                   
------------------------------------------------------------------------
Footnotes:                                                              
\1\ SIC code 1629--Dredging: To be considered small for purposes of     
  Government procurement, a firm must perform at least 40 percent of the
  volume dredged with its own equipment or equipment owned by another   
  small dredging concern.                                               
\2\ SIC Division D--Manufacturing: For rebuilding machinery or equipment
  on a factory basis, or equivalent, use the SIC code for a newly       
  manufactured product. Concerns performing major rebuilding or overhaul
  activities do not necessarily have to meet the criteria for being a   
  ``manufacturer'' although the activities may be classified under a    
  manufacturing SIC code. Ordinary repair services or preservation are  
  not considered rebuilding.                                            
\3\ SIC code 2033: For purposes of Government procurement for food      
  canning and preserving, the standard of 500 employees excludes        
  agricultural labor as defined in section 3306(k) of the Internal      
  Revenue Code, 26 U.S.C. 3306(k).                                      
\4\ SIC code 2911: For purposes of Government procurement, the firm may 
  not have more than 1,500 employees nor more than 75,000 barrels per   
  day capacity of petroleum-based inputs, including crude oil or bona   
  fide feedstocks. Capacity includes owned or leased facilities as well 
  as facilities under a processing agreement or an arrangement such as  
  an exchange agreement or a throughput. The total product to be        
  delivered under the contract must be at least 90 percent refined by   
  the successful bidder from either crude oil or bona fide feedstocks.  
\5\ SIC code 3011: For purposes of Government procurement, a firm is    
  small for bidding on a contract for pneumatic tires within Census     
  Classification codes 30111 and 30112, provided that:                  
(1) The value of tires within Census Classification codes 30111 and     
  30112 which it manufactured in the United States during the previous  
  calendar year is more than 50 percent of the value of its total       
  worldwide manufacture;                                                
(2) The value of pneumatic tires within Census Classification codes     
  30111 and 30112 comprising its total worldwide manufacture during the 
  preceding calendar year was less than 5 percent of the value of all   
  such tires manufactured in the United States during that period; and  
(3) the value of the principal product which it manufactured or         
  otherwise produced, or sold worldwide during the preceding calendar   
  year is less than 10 percent of the total value of such products      
  manufactured or otherwise produced or sold in the United States during
  that period.                                                          
\6\ SIC codes 4724, 6531, 7311, 7312, 7313, 7319, and 8741 (part): As   
  measured by total revenues, but excluding funds received in trust for 
  an unaffiliated third party, such as bookings or sales subject to     
  commissions. The commissions received are included as revenue.        
\7\ A financial institution's assets are determined by averaging the    
  assets reported on its four quarterly financial statements for the    
  preceding year. Assets for the purposes of this size standard means   
  the assets defined according to the Federal Financial Institutions    
  Examination Council 034 call report form.                             
\8\ SIC code 6515: Leasing of building space to the Federal Government  
  by Owners: For Government procurement, a size standard of $15.0       
  million in gross receipts applies to the owners of building space     
  leased to the Federal Government. The standard does not apply to an   
  agent.                                                                
\9\ SIC codes 7699 and 3728: Contracts for the rebuilding or overhaul of
  aircraft ground support equipment on a contract basis are classified  
  under SIC code 3728.                                                  
\10\ SIC code 8731: For research and development contracts requiring the
  delivery of a manufactured product, the appropriate size standard is  
  that of the manufacturing industry.                                   
(1) Research and Development means laboratory or other physical research
  and development. It does not include economic, educational,           
  engineering, operations, systems, or other nonphysical research; or   
  computer programming, data processing, commercial and/or medical      
  laboratory testing.                                                   
(2) For purposes of the Small Business Innovation Research (SBIR)       
  program only, a different definition has been established by law. See 
  Sec.  121.701.                                                        
(3) Research and development for guided missiles and space vehicles     
  includes evaluations and simulation, and other services requiring     
  thorough knowledge of complete missiles and spacecraft.               
\11\ Facilities Management, a component of SIC code 8744, includes      
  establishments, not elsewhere classified, which provide overall       
  management and the personnel to perform a variety of related support  
  services in operating a complete facility in or around a specific     
  building, or within another business or Government establishment.     
  Facilities management means furnishing three or more personnel supply 
  services which may include, but are not limited to, secretarial       
  services, typists, telephone answering, reproduction or mimeograph    
  service, mailing service, financial or business management, public    
  relations, conference planning, travel arrangements, word processing, 
  maintaining files and/or libraries, switchboard operation, writers,   
  bookkeeping, minor office equipment maintenance and repair, or use of 
  information systems (not programming).                                
\12\ SIC code 8744:                                                     
(1) If one of the activities of base maintenance, as defined in         
  paragraph (2) of this footnote, can be identified with a separate     
  industry and that activity (or industry) accounts for 50 percent or   
  more of the value of an entire contract, then the proper size standard
  is that of the particular industry, and not the base maintenance size 
  standard.                                                             
(2) ``Base Maintenance'' requires the performance of three or more      
  separate activities in the areas of service or special trade          
  construction industries. If services are performed, these activities  
  must each be in a separate SIC code including, but not limited to,    
  Janitorial and Custodial Service, Fire Prevention Service, Messenger  
  Service, Commissary Service, Protective Guard Service, and Grounds    
  Maintenance and Landscaping Service. If the contract requires the use 
  of special trade contractors (plumbing, painting, plastering,         
  carpentry, etc.), all such special trade construction activities are  
  considered a single activity and classified as Base Housing           
  Maintenance. Since Base Housing Maintenance is only one activity, two 
  additional activities are required for a contract to be classified as 
  ``Base Maintenance.''                                                 
\13\ SIC code 8744: (1) For SBA assistance as a small business concern  
  in the industry of Environmental Remediation Services, other than for 
  Government procurement, a concern must be engaged primarily in        
  furnishing a range of services for the remediation of a contaminated  
  environment to an acceptable condition including, but not limited to, 
  preliminary assessment, site inspection, testing, remedial            
  investigation, feasibility studies, remedial design, containment,     
  remedial action, removal of contaminated materials, storage of        
  contaminated materials and security and site closeouts. If one of such
  activities accounts for 50 percent or more of a concern's total       
  revenues, employees, or other related factors, the concern's primary  
  industry is that of the particular industry and not the Environmental 
  Remediation Services Industry.                                        

[[Page 203]]

                                                                        
(2) For purposes of classifying a Government procurement as             
  Environmental Remediation Services, the general purpose of the        
  procurement must be to restore a contaminated environment and also the
  procurement must be composed of activities in three or more separate  
  industries with separate SIC codes or, in some instances (e.g.,       
  engineering), smaller sub-components of SIC codes with separate,      
  distinct size standards. These activities may include, but are not    
  limited to, separate activities in industries such as: Heavy          
  Construction; Special Trade Construction; Engineering Services;       
  Architectural Services; Management Services; Refuse Systems; Sanitary 
  Services, Not Elsewhere Classified; Local Trucking Without Storage;   
  Testing Laboratories; and Commercial, Physical and Biological         
  Research. If any activity in the procurement can be identified with a 
  separate SIC code, or component of a code with a separate distinct    
  size standard, and that industry accounts for 50 percent or more of   
  the value of the entire procurement, then the proper size standard is 
  the one for that particular industry, and not the Environmental       
  Remediation Service size standard.                                    


[61 FR 3286, Jan. 31, 1996; 61 FR 6412, Feb. 20, 1996; 61 FR 7306, Feb. 
27, 1996; 61 FR 7986, Mar. 1, 1996; 61 FR 43119, Aug. 20, 1996]

       Size Eligibility Requirements For SBA Financial Assistance



Sec. 121.301  What size standards are applicable to financial assistance programs?

    (a) For Business Loans and Disaster Loans (other than physical 
disaster loans), an applicant must not exceed the size standard for the 
industry in which:
    (1) The applicant combined with its affiliates is primarily engaged; 
and
    (2) The applicant alone is primarily engaged.
    (b) For Development Company programs, an applicant must meet one of 
the following standards:
    (1) Including its affiliates, tangible net worth not in excess of $6 
million, and average net income after Federal income taxes (excluding 
any carry-over losses) for the preceding two completed fiscal years not 
in excess of $2 million; or
    (2) The same standards applicable under paragraph (a) of this 
section.
    (c) For the Small Business Investment Company (SBIC) program, an 
applicant must meet one of the following standards:
    (1) Including its affiliates, tangible net worth not in excess of 
$18 million, and average net income after Federal income taxes 
(excluding any carry-over losses) for the preceding 2 completed fiscal 
years not in excess of $6 million; or
    (2) The same standards applicable under paragraph (a) of this 
section.
    (d) For Surety Bond Guarantee assistance--
    (1) Any construction (general or special trade) concern or concern 
performing a contract for services is small if its average annual 
receipts do not exceed $5.0 million.
    (2) Any concern not specified in paragraph (d)(1) of this section 
must meet the size standard for the primary industry in which it, 
combined with its affiliates, is engaged.
    (e) The applicable size standards for the purpose of all SBA 
financial assistance programs, excluding the Surety Bond Guarantee 
assistance program, are increased by 25 percent whenever the applicant 
agrees to use the assistance within a labor surplus area. Labor surplus 
areas are listed monthly in the Department of Labor publication called 
``Area Trends.''



Sec. 121.302  When does SBA determine the size status of an applicant?

    (a) The size of an applicant for SBA financial assistance is 
determined as of the date the application for such financial assistance 
is accepted for processing by SBA, except for the Disaster Loan and 
Preferred Lenders programs.
    (b) For the Preferred Lenders program, size is determined as of the 
date of approval of the loan by the Preferred Lender.
    (c) For disaster loan assistance (other than physical disaster 
loans), size status is determined as of the date the disaster commenced, 
as set forth in the Disaster Declaration.
    (d) Changes in size subsequent to the applicable date when size is 
determined will not disqualify an applicant for assistance.

[[Page 204]]



Sec. 121.303  What size procedures are used by SBA before it makes a formal size determination?

    (a) A concern that submits an application for financial assistance 
is deemed to have certified that it is small under the applicable size 
standard. SBA may question the concern's status based on information 
supplied in the application or from any other source.
    (b) A small business investment company, a development company, a 
surety bond company, or a preferred lender may accept as true the size 
information provided by an applicant, unless credible evidence to the 
contrary is apparent.
    (c) Size is initially considered by the individual with final 
financial assistance authority. This is not a formal size determination. 
A formal determination may be requested prior to a denial of eligibility 
based on size.
    (d) An applicant may request a formal size determination when 
assistance has been denied for size ineligibility. Except for disaster 
loan eligibility, a request for a formal size determination must be made 
to the Government Contracting Area Director serving the area in which 
the headquarters of the applicant is located, regardless of the location 
of the parent company or affiliates. For disaster loan assistance, the 
request for a size determination must be made to the Area Director for 
the Disaster Area Office which denied the assistance.
    (e) There are no time limitations for making a formal size 
determination for purposes of financial assistance. The official making 
the formal size determination must provide a copy of the determination 
to the applicant, to the requesting SBA official, and to other 
interested SBA program officials.



Sec. 121.304  What are the size requirements for refinancing an existing SBA loan?

    (a) A concern that applies to refinance an existing SBA loan or 
guarantee will be considered small for the refinancing even though its 
size has increased since the date of the original financing to exceed 
its applicable size standard, provided that:
    (1) The increase in size is due to natural growth (as distinguished 
from merger, acquisition or similar management action); and
    (2) SBA determines that refinancing is necessary to protect the 
Government's financial interest.
    (b) If a concern's size has increased other than by natural growth, 
the concern and its affiliates must be small at the time the application 
for refinancing is accepted for processing by SBA.



Sec. 121.305  What size eligibility requirements exist for obtaining business loans relating to particular procurements?

    A concern qualified as small for a particular procurement, including 
an 8(a) subcontract, is small for financial assistance directly and 
primarily relating to the performance of the particular procurement.

        Size Eligibility Requirements for Government Procurement



Sec. 121.401  What procurement programs are subject to size determinations?

    The requirements set forth in Secs. 121.401 through 121.412 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 Minority Enterprise Development 
program, the Small Business Subcontracting program authorized under 
section 8(d) of the Small Business Act, and Federal Small Disadvantaged 
Business programs.



Sec. 121.402  What size standards are applicable to procurement assistance programs?

    (a) A concern must meet the size standard for the SIC code specified 
in the solicitation.
    (b) The procuring agency contracting officer, or authorized 
representative, designates the proper SIC code and size standard in a 
solicitation, selecting the SIC code which best describes the principal 
purpose of the product or service being acquired. Primary consideration 
is given to the industry descriptions in the SIC Manual, the product or 
service description in the solicitation and any attachments to it, the 
relative value and importance of the components of

[[Page 205]]

the procurement making up the end item being procured, and the function 
of the goods or services being purchased. Other factors considered 
include previous Government procurement classifications of the same or 
similar products or services, and the classification which would best 
serve the purposes of the Small Business Act. A procurement is usually 
classified according to the component which accounts for the greatest 
percentage of contract value.
    (c) The SIC code assigned to a procurement and its corresponding 
size standard is final unless timely appealed to SBA's Office of 
Hearings and Appeals (OHA), or unless SBA assigns a SIC code or size 
standard as provided in paragraph (d) of this section.
    (d) An unclear, incomplete or missing SIC code designation or size 
standard in the solicitation may be clarified, completed or supplied by 
SBA in connection with a formal size determination or size appeal.
    (e) Any offeror or other interested party adversely affected by a 
SIC code designation or size standard designation may appeal the 
designations to OHA under part 134 of this chapter.



Sec. 121.403  Are SBA size determinations and SIC code designations binding on parties?

    Formal size determinations and SIC code designations made by 
authorized SBA officials are binding upon the parties. Opinions 
otherwise provided by SBA officials to contracting officers or others 
are advisory in nature, and are not binding or appealable.



Sec. 121.404  When does SBA determine the size status of a business concern?

    Generally, SBA determines the size status of a concern (including 
its affiliates) as of the date the concern submits a written self-
certification that it is small to the procuring agency as part of its 
initial offer including price. The following are two exceptions to this 
rule:
    (a) The size status of an applicant for a Certificate of Competency 
(COC) relating to an unrestricted procurement is determined as of the 
date of the concern's application for the COC.
    (b) Size status for purposes of compliance with the nonmanufacturer 
rule set forth in Sec. 121.406(b)(1) and the ostensible subcontractor 
rule set forth in Sec. 121.103(f)(3) is determined as of the date of the 
best and final offer.



Sec. 121.405  May a business concern self-certify its small business size status?

    (a) A concern must self-certify it is small under the size standard 
specified in the solicitation, or as clarified, completed or supplied by 
SBA pursuant to Sec. 121.402(d).
    (b) A contracting officer may accept a concern's self-certification 
as true for the particular procurement involved in the absence of a 
written protest by other offerors or other credible information which 
causes the contracting officer or SBA to question the size of the 
concern.
    (c) Procedures for protesting the self-certification of an offeror 
are set forth in Secs. 121.1001 through 121.1009.



Sec. 121.406  How does a small business concern qualify to provide manufactured products under small business set-aside or MED procurements?

    (a) General. In order to qualify as a small business concern for a 
small business set-aside or 8(a) contract to provide manufactured 
products, an offeror must either:
    (1) Be the manufacturer of the end item being procured (and the end 
item must be manufactured or produced in the United States); or
    (2) Comply with the requirements of paragraph (b), (c) or (d) of 
this section as a nonmanufacturer, a kit assembler or a supplier under 
Simplified Acquisition Procedures.
    (b) Nonmanufacturers. (1) A concern may qualify for a requirement to 
provide manufactured products as a nonmanufacturer if it:
    (i) Does not exceed 500 employees;
    (ii) Is primarily engaged in the wholesale or retail trade and 
normally sells the items being supplied to the general public; and

[[Page 206]]

    (iii) Will supply the end item of a small business manufacturer or 
processor made in the United States, or obtains a waiver of such 
requirement pursuant to paragraph (b)(3) of this section.
    (2) For size purposes, there can be only one manufacturer of the end 
item being acquired. The manufacturer is the concern which, with its own 
facilities, performs the primary activities in transforming inorganic or 
organic substances, including the assembly of parts and components, into 
the end item being acquired. The end item must possess characteristics 
which, as a result of mechanical, chemical or human action, it did not 
possess before the original substances, parts or components were 
assembled or transformed. The end item may be finished and ready for 
utilization or consumption, or it may be semifinished as a raw material 
to be used in further manufacturing. Firms which perform only minimal 
operations upon the item being procured do not qualify as manufacturers 
of the end item. SBA will evaluate the following factors in determining 
whether a concern is the manufacturer of the end item:
    (i) The proportion of total value in the end item added by the 
efforts of the concern, excluding costs of overhead, testing, quality 
control, and profit; and
    (ii) The importance of the elements added by the concern to the 
function of the end item, regardless of their relative value.
    (3) The Administrator or designee may waive the requirement set 
forth in paragraph (b)(1)(iii) of this section under the following two 
circumstances:
    (i) The contracting officer has determined that no small business 
manufacturer or processor reasonably can be expected to offer a product 
meeting the specifications (including period for performance) required 
by a particular solicitation and SBA reviews and accepts that 
determination; or
    (ii) SBA determines that no small business manufacturer or processor 
of the product or class of products is available to participate in the 
Federal procurement market.
    (4) The two waiver possibilities identified in paragraph (b)(3) of 
this section are called ``individual'' and ``class'' waivers 
respectively, and the procedures for them are contained in Sec. 121.1204 
.
    (5) Any SBA waiver of the nonmanufacturer rule has no effect on 
requirements external to the Small Business Act which involve domestic 
sources of supply, such as the Buy American Act.
    (c) Kit assemblers. (1) Where the manufactured item being acquired 
is a kit of supplies or other goods provided by an offeror for a special 
purpose, the offeror cannot exceed 500 employees, and 50 percent of the 
total value of the components of the kit must be manufactured by 
business concerns in the United States which are small under the size 
standards for the SIC codes of the components being assembled. The 
offeror need not itself be the manufacturer of any of the items 
assembled.
    (2) Where the Government has specified an item for the kit which is 
not produced by U.S. small business concerns, such item shall be 
excluded from the calculation of total value in paragraph (c)(1) of this 
section.
    (d) Simplified Acquisition Procedures. Where the procurement of a 
manufactured item is processed under Simplified Acquisition Procedures, 
as defined in Sec. 13.101 of the Federal Acquisition Regulation (FAR) 
(48 CFR 13.101), and where the anticipated cost of the procurement will 
not exceed $25,000, the offeror need not supply the end product of a 
small business concern as long as the product acquired is manufactured 
or produced in the United States, and the offeror does not exceed 500 
employees. The offeror need not itself be the manufacturer of any of the 
items acquired.

[61 FR 3286, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]



Sec. 121.407  What are the size procedures for multiple item procurements?

    If a procurement calls for two or more specific end items or types 
of services with different size standards and the offeror may submit an 
offer on any or all end items or types of services, the offeror must 
meet the size standard for each end item or service item for which it 
submits an offer. If the procurement calls for more than one specific 
end item or type of service and an offeror is required to submit an

[[Page 207]]

offer on all items, the offeror may qualify as a small business for the 
procurement if it meets the size standard of the item which accounts for 
the greatest percentage of the total contract value.



Sec. 121.408  What are the size procedures for SBA's Certificate of Competency Program?

    (a) A firm which applies for a COC must file an ``Application for 
Small Business Size Determination'' (SBA Form 355). If the initial 
review of SBA Form 355 indicates the applicant, including its 
affiliates, is small for purposes of the COC program, SBA will process 
the application for COC. If the review indicates the applicant, 
including its affiliates, is other than small, SBA will initiate a 
formal size determination as set forth in Sec. 121.1009. In such a case, 
SBA will not further process the COC application until a formal size 
determination is made.
    (b) A concern is ineligible for a COC if a formal SBA size 
determination finds the concern other than small.



Sec. 121.409  What size standard applies in an unrestricted procurement for Certificate of Competency purposes?

    For the purpose of receiving a Certificate of Competency in an 
unrestricted procurement, the applicable size standard is that 
corresponding to the SIC code set forth in the solicitation. For a 
manufactured product, a concern must also furnish a domestically 
produced or manufactured product, regardless of the size status of the 
product manufacturer. The offeror need not be the manufacturer of any of 
the items acquired.



Sec. 121.410  What are the size standards for SBA's Section 8(d) Subcontracting Program?

    For subcontracting purposes pursuant to section 8(d) of the Small 
Business Act, a concern is small:
    (a) For subcontracts of $10,000 or less which relate to Government 
procurements, if its number of employees (including its affiliates) does 
not exceed 500 employees. However, subcontracts for engineering services 
awarded under the National Energy Policy Act of 1992 have the same size 
standard as Military and Aerospace Equipment and Military Weapons under 
SIC code 8711;
    (b) For subcontracts exceeding $10,000 which relate to Government 
procurements, if its number of employees or average annual receipts 
(including its affiliates) does not exceed the size standard for the 
product or service it is providing on the subcontract; and
    (c) For subcontracts for financial services, if the concern 
(including its affiliates) is a commercial bank or savings and loan 
association whose assets do not exceed $100 million.



Sec. 121.411  What are the size procedures for SBA's Section 8(d) Subcontracting Program?

    (a) Prime contractors may rely on the information contained in SBA's 
Procurement Automated Source System (PASS), or equivalent data base 
maintained or sanctioned by SBA, as an accurate representation of a 
concern's size and ownership characteristics for purposes of maintaining 
a small business source list. Even though a concern is on a small 
business source list, it must still qualify and self-certify as a small 
business at the time it submits its offer as a section 8(d) 
subcontractor.
    (b) Upon determination of the successful subcontract offeror for a 
competitive subcontract, but prior to award, the prime contractor must 
inform each unsuccessful subcontract offeror in writing of the name and 
location of the apparent successful offeror.
    (c) The self-certification of a concern subcontracting or proposing 
to subcontract under section 8(d) of the Small Business Act may be 
protested by the contracting officer, the prime contractor, the 
appropriate SBA official or any other interested party.



Sec. 121.412  What are the size procedures for partial small business set-asides?

    A firm is required to meet size standard requirements only for the 
small business set-aside portion of a procurement, and is not required 
to qualify as a small business for the unrestricted portion.

[[Page 208]]

 Size Eligibility Requirements for Sales or Lease of Government Property



Sec. 121.501  What programs for sales or leases of Government property are subject to size determinations?

    Sections 121.501 through 121.512 apply to small business size 
determinations for the purpose of the sale or lease of Government 
property, including the Timber Sales Program, the Special Salvage Timber 
Sales Program, and the sale of Government petroleum, coal and uranium.



Sec. 121.502  What size standards are applicable to programs for sales or leases of Government property?

    (a) Unless otherwise specified in this part--
    (1) A concern primarily engaged in manufacturing is small for sales 
or leases of Government property if it does not exceed 500 employees;
    (2) A concern not primarily engaged in manufacturing is small for 
sales or leases of Government property if it has annual receipts not 
exceeding $2 million.
    (b) Size status for such sales and leases is determined by the 
primary industry of the applicant business concern.



Sec. 121.503  Are SBA size determinations binding on parties?

    Formal size determinations based upon a specific Government sale or 
lease, or made in response to a request from another Government agency 
under Sec. 121.901, are binding upon the parties. Other SBA opinions 
provided to contracting officers or others are only advisory, and are 
not binding or appealable.



Sec. 121.504  When does SBA determine the size status of a business concern?

    SBA determines the size status of a concern (including its 
affiliates) as of the date the concern submits a written self-
certification that it is small to the Government as part of its initial 
offer including price where there is a specific sale or lease at issue, 
or as set forth in Sec. 121.903 if made in response to a request of 
another Government agency.



Sec. 121.505  What is the effect of a self-certification?

    (a) A contracting officer may accept a concern's self-certification 
as true for the particular sale or lease involved, in the absence of a 
written protest by other offerors or other credible information which 
would cause the contracting officer or SBA to question the size of the 
concern.
    (b) Procedures for protesting the self-certification of an offeror 
are set forth in Secs. 121.1001 through 121.1009.



Sec. 121.506  What definitions are important for sales or leases of Government-owned timber?

    (a) Forest product industry means logging, wood preserving, and the 
manufacture of lumber and wood related products such as veneer, plywood, 
hardboard, particle board, or wood pulp, and of products of which lumber 
or wood related products are the principal raw materials.
    (b) Logging of timber means felling and bucking, yarding, and/or 
loading. It does not mean hauling.
    (c) Manufacture of logs means, at a minimum, breaking down logs into 
rough cuts of the finished product.
    (d) Sell means, in addition to its usual and customary meaning, the 
exchange of sawlogs for sawlogs on a product-for-product basis with or 
without monetary adjustment, and an indirect transfer, such as the sale 
of the assets of a concern after it has been awarded one or more set-
aside sales of timber.
    (e) Significant logging of timber means that a concern uses its own 
employees to perform at least two of the following: felling and bucking, 
yarding, and loading.



Sec. 121.507  What are the size standards and other requirements for the purchase of Government-owned timber (other than Special Salvage Timber)?

    (a) To be small for purposes of the sale of Government-owned timber 
(other than Special Salvage Timber) a concern must:
    (1) Be primarily engaged in the logging or forest products industry;
    (2) Not exceed 500 employees, taking into account its affiliates; 
and

[[Page 209]]

    (3) If it does not intend at the time of the offer to resell the 
timber--
    (i) Agree that it will manufacture the logs with its own facilities 
or those of another business which meets the requirements of paragraphs 
(a)(1) and (a)(2) of this section;
    (ii) Agree that if it eventually resells the timber, it will resell 
no more than 30% of the sawtimber volume to other businesses which do 
not meet the requirements of paragraphs (a)(1) and (a)(2) of this 
section; and
    (iii) Agree that if it becomes acquired or controlled by a business 
which does not meet the requirements of paragraphs (a)(1) and (a)(2) of 
this section, it will require as a condition of the acquisition or 
change of control that the acquiring or controlling business resell at 
least 70% of the sawtimber volume to businesses which do meet the 
requirements of paragraphs (a)(1) and (a)(2) of this section; or
    (4) If it intends at the time of offer to resell the timber--
    (i) Agree that it will not sell more than 30% of such timber (50% of 
such timber if the concern is an Alaskan business) to a business which 
does not meet the requirements of paragraphs (a)(1) and (a)(2) of this 
section; and
    (ii) Agree that if it becomes acquired or controlled by a business 
which does not meet the requirements of paragraphs (a)(1) and (a)(2) of 
this section, it will require as a condition of the acquisition or 
change of control that the acquiring or controlling business resell at 
least 70% of the sawtimber volume (or at least 50% of the sawtimber 
volume, if it is an Alaskan business) to businesses which meet the 
requirements of paragraphs (a)(1) and (a)(2) of this section.
    (b) For a period of three years following the date upon which a 
concern purchases timber under a small business set-aside (other than 
through the Special Salvage Timber Sale program), it must maintain a 
record of:
    (1) The name, address and size status of every concern to which it 
sells the timber or sawlogs; and
    (2) The species, grades and volumes of sawlogs sold.
    (c) For a period of three years following the date upon which a 
concern purchases timber, it must by contract require all small business 
repurchasers of the sawlogs or timber it purchased under the small 
business set-aside to maintain the records described in paragraph (b) of 
this section.



Sec. 121.508  What are the size standards and other requirements for the purchase of Government-owned Special Salvage Timber?

    (a) In order to purchase Government-owned Special Salvage Timber 
from the United States Forest Service or the Bureau of Land Management 
as a small business, a concern must:
    (1) Be primarily engaged in the logging or forest product industry;
    (2) Have, together with its affiliates, no more than twenty-five 
employees during any pay period for the last twelve months; and
    (3) If it does not intend at the time of offer to resell the 
timber--
    (i) Agree that it will manufacture a significant portion of the logs 
with its own employees; and
    (ii) Agree that it will log the timber only with its own employees 
or with employees of another business which is eligible for award of a 
Special Salvage Timber sales contract; or
    (4) If it intends at the time of offer to resell the timber, agree 
that it will perform a significant portion of timber logging with its 
own employees and that it will subcontract the remainder of the timber 
logging to a concern which is eligible for award of a Special Salvage 
Timber sales contract.



Sec. 121.509  What is the size standard for leasing of Government land for coal mining?

    A concern is small for this purpose if it:
    (a) Together with its affiliates, does not have more than 250 
employees;
    (b) Maintains management and control of the actual mining operations 
of the tract; and
    (c) Agrees that if it subleases the Government land, it will be to 
another small business, and that it will require its sublessors to agree 
to the same.

[[Page 210]]



Sec. 121.510  What is the size standard for leasing of Government land for uranium mining?

    A concern is small for this purpose if it, together with its 
affiliates, does not have more than 100 employees.



Sec. 121.511  What is the size standard for buying Government-owned petroleum?

    A concern is small for this purpose if it is primarily engaged in 
petroleum refining and meets the size standard for a petroleum refining 
business.



Sec. 121.512  What is the size standard for stockpile purchases?

    A concern is small for this purpose if:
    (a) It is primarily engaged in the purchase of materials which are 
not domestic products; and
    (b) Its annual receipts, together with its affiliates, do not exceed 
$42 million.

 Size Eligibility Requirements for the Minority Enterprise Development 
                              (MED) Program



Sec. 121.601  What is a small business for purposes of admission to SBA's Minority Enterprise Development (MED) program?

    An applicant must be small under the size standard corresponding to 
its primary industry classification in order to be admitted to SBA's 
Minority Enterprise Development (MED) program.



Sec. 121.602  At what point in time must a MED applicant be small?

    A MED applicant must be small for its primary industry at the time 
SBA certifies it for admission into the program.



Sec. 121.603  How does SBA determine whether a Participant is small for a particular MED subcontract?

    (a) Self certification by Participant. A MED Participant must 
certify that it qualifies as a small business under the SIC code 
assigned to a particular MED subcontract as part of its initial offer 
including price to the procuring agency. The Participant also must 
submit a copy of its offer, including its self-certification as to size, 
to the appropriate SBA district office at the same time it submits the 
offer to the procuring agency. See Sec. 121.404 for the time at which 
size is determined for, and Sec. 121.406 for the applicability of the 
nonmanufacturer rule to, MED procurements.
    (b) Verification of size by SBA. Within 30 days of its receipt of a 
Participant's size self-certification for a particular MED subcontract, 
the SBA district office serving the geographic area in which the 
Participant's principal office is located will review the Participant's 
self-certification and determine if it is small for purposes of that 
subcontract. The SBA district office will review the Participant's most 
recent financial statements and other relevant data and then notify the 
Participant of its decision.
    (c) Changes in size between date of self-certification and date of 
award. (1) Where SBA verifies that the selected Participant is small for 
a particular procurement, subsequent changes in size up to the date of 
award, except those due to merger with or acquisition by another 
business concern, will not affect the firm's size status for that 
procurement.
    (2) Where a Participant has merged with or been acquired by another 
business concern between the date of its self-certification and the date 
of award, the concern must recertify its size status, and SBA must 
verify the new certification before award can occur.
    (d) Finding Participant to be other than small. (1) A Participant 
may request a formal size determination (pursuant to Secs. 121.1001 
through 121.1009) with the SBA Government Contracting Area Office 
serving the geographic area in which the principal office of the 
Participant is located within 5 working days of its receipt of notice 
from the SBA district office that it is not small for a particular MED 
subcontract.
    (2) Where the Participant does not timely request a formal size 
determination, SBA may accept the procurement in support of another 
Participant, or may rescind its acceptance of the offer for the MED 
program, as appropriate.



Sec. 121.604  Are MED Participants considered small for purposes of other SBA assistance?

    A concern which SBA determines to be a small business for the award 
of a

[[Page 211]]

MED subcontract will be considered to have met applicable size 
eligibility requirements of other SBA programs where that assistance 
directly and primarily relates to the performance of the MED subcontract 
in question.

Size Eligibility Requirements for the Small Business Innovation Research 
                             (SBIR) Program



Sec. 121.701  What SBIR programs are subject to size determinations?

    (a) These sections apply to size status for award of a funding 
agreement pursuant to the Small Business Innovation Development Act of 
1982 (Pub. L. 97-219, 15 U.S.C. 638(e) through (k)).
    (b) Funding agreement officer means a contracting officer, a grants 
officer, or a cooperative agreement officer.
    (c) Funding agreement means any contract, grant or cooperative 
agreement entered into between any Federal agency and any small business 
for the performance of experimental, developmental, or research work 
funded in whole or in part by the Federal Government. Such work 
includes:
    (1) A systematic, intensive study directed toward greater knowledge 
or understanding of the subject studied;
    (2) A systematic study directed specifically toward applying new 
knowledge to meet a recognized need; or
    (3) A systematic application of knowledge toward the production of 
useful materials, devices, and systems or methods, including design, 
development, and improvement of prototypes and new processes to meet 
specific requirements.



Sec. 121.702  What size standards are applicable to the SBIR program?

    To be eligible to compete for award of funding agreements in SBA's 
Small Business Innovation Research (SBIR) program, a business concern 
must:
    (a) Be at least 51 percent owned and controlled by one or more 
individuals who are citizens of, or permanent resident aliens in, the 
United States; and
    (b) Not have more than 500 employees, including its affiliates.



Sec. 121.703  Are formal size determinations binding on parties?

    Size determinations by authorized SBA officials are formal actions 
based upon a specific funding agreement, and are binding upon the 
parties. Other SBA opinions provided to funding agreement officers or 
others, are only advisory, and are not binding or appealable.



Sec. 121.704  When does SBA determine the size status of a business concern?

    The size status of a concern for the purpose of a funding agreement 
under the SBIR program is determined as of the date of the award for 
both Phase I and Phase II SBIR awards.



Sec. 121.705  Must a business concern self-certify its size status?

    (a) A firm must self-certify it is small in its SBIR funding 
proposal.
    (b) A funding agreement officer may accept a concern's self-
certification as true for the particular funding agreement involved in 
the absence of a written protest by other offerors or other credible 
information which would cause the funding agreement officer or SBA to 
question the size of the concern.
    (c) Procedures for protesting an offeror's self-certification are 
set forth in Secs. 121.1001 through 121.1009.

      Size Eligibility Requirements for Paying Reduced Patent Fees



Sec. 121.801  May patent fees be reduced if a concern is small?

    These sections apply to size status for the purpose of paying 
reduced patent fees authorized by Pub. L. 97-247, 96 Stat. 317. The 
eligibility requirements for independent inventors and nonprofit 
organizations for the purpose of paying reduced patent fees are set 
forth in regulations of the Patent and Trademark Office of the 
Department of Commerce, 37 CFR 1.9, 1.27, 1.28.



Sec. 121.802  What size standards are applicable to reduced patent fees programs?

    A concern eligible for reduced patent fees is one:

[[Page 212]]

    (a) Whose number of employees, including affiliates, does not exceed 
500 persons; and
    (b) Which has not assigned, granted, conveyed, or licensed (and is 
under no obligation to do so) any rights in the invention to any person 
who made it and could not be classified as an independent inventor, or 
to any concern which would not qualify as a non-profit organization or a 
small business concern under this section.



Sec. 121.803  Are formal size determinations binding on parties?

    Size determinations by authorized SBA officials are formal actions, 
based upon a specific patent application pursuant to the rules of the 
Patent and Trademark Office, Department of Commerce, and are binding 
upon the parties. Other SBA opinions provided to patent applicants or 
others are only advisory, and are not binding or appealable.



Sec. 121.804  When does SBA determine the size status of a business concern?

    Size status is determined as of the date of the patent applicant's 
written verification of size.



Sec. 121.805  May a business concern self-certify its size status?

    (a) A concern verifies its size status with its submission of its 
patent application.
    (b) Any attempt to establish small size status improperly 
(fraudulently, through gross negligence, or otherwise) may result in 
remedial action by the Patent and Trademark Office.
    (c) In the absence of credible information indicating otherwise, the 
Patent and Trademark Office may accept the verification by the concern 
as a small business as true.
    (d) Questions concerning the size verification are resolved 
initially by the Patent and Trademark Office. If not verified as small, 
the applicant may request a formal SBA size determination.

  Size Eligibility Requirements for Compliance With Programs of Other 
                                Agencies



Sec. 121.901  Can other Government agencies obtain SBA size determinations?

    Upon request by another Government agency, SBA will provide a size 
determination, under SBA rules, standards and procedures, for its use in 
determining compliance with small business requirements of its statutes, 
regulations or programs.



Sec. 121.902  What size standards are applicable to programs of other agencies?

    (a) SBA size standards. The size standards for compliance with 
programs of other agencies are those for SBA programs which are most 
comparable to the programs of such other agencies, unless otherwise 
agreed by the agency and SBA.
    (b) Special size standards. (1) Federal agencies or departments 
promulgating regulations relating to small businesses usually use SBA 
size criteria. In limited circumstances, if they decide the SBA size 
standard is not appropriate, then agency heads may establish a small 
business definition for the exclusive use of such program which is more 
appropriate, but only when:
    (i) The size standard is first proposed for public comment pursuant 
to the Administrative Procedure Act, 4 U.S.C. 553;
    (ii) The proposed size standard provides for determining size 
measured by average number of employees over 12 months for manufacturing 
concerns, average annual revenues over three years for concerns 
providing services, and data over a period of not less than three years 
for all other concerns (unless approved by SBA, ``annual receipts'' and 
``number of employees'' must be determined in accordance with 
Secs. 121.104 and 121.106, respectively); and
    (iii) The proposed size standard is approved by SBA's Administrator.
    (2) In order to receive the approval of SBA's Administrator, the 
agency head must:

[[Page 213]]

    (i) Request approval prior to publishing the proposed rule 
containing the size standard. The request must include: an explanation 
of the contemplated industry size standard, the reasons the SBA size 
standard is not appropriate, and the reasons the proposed size standard 
would be appropriate; and a certification that there will be compliance 
with the criteria set forth in paragraphs (b)(1)(i) and (b)(1)(ii) of 
this section; and
    (ii) Agree to provide written notice to SBA's Administrator prior to 
publishing the contemplated size standard as a final rule. The notice 
must include: a copy of the intended final rule, including the preamble, 
or a separate written justification for the intended size standard 
followed by a copy of the intended final rule and preamble prior to its 
publication; copies of all public comments relating to the size standard 
received in response to the proposed rule; and any other supporting 
documentation relevant to the size standard and requested by SBA's 
Administrator.
    (3) When approving any size standard established pursuant to 
subsection (b) of this section, SBA's Administrator will ensure that the 
size standard varies from industry to industry to the extent necessary 
to reflect the differing characteristics of the various industries, and 
consider other relevant factors.
    (4) Where the agency head is developing a size standard for the sole 
purpose of performing a Regulatory Flexibility Analysis pursuant to the 
Regulatory Flexibility Act, the department or agency may, after 
consultation with the SBA Office of Advocacy, establish a size standard 
different from SBA's which is more appropriate for such analysis.



Sec. 121.903  When does SBA determine the size status of a business concern?

    For the purpose of compliance with programs of other agencies, SBA 
will base its size determination on the size of the concern as of the 
date set forth in the request of the other agency.

Procedures for Size Protests and Requests for Formal Size Determinations



Sec. 121.1001  Who may initiate a size protest or a request for formal size determination?

    (a) Size Status Protests. (1) For SBA's Small Business Set-Aside 
Program, including the Property Sales Program, the following entities 
may file a size protest in connection with a particular procurement or 
sale:
    (i) Any offeror;
    (ii) The contracting officer;
    (iii) The SBA Government Contracting Area Director having 
responsibility for the area in which the headquarters of the protested 
offeror is located, regardless of the location of a parent company or 
affiliates, or the Associate Administrator for Government Contracting; 
and
    (iv) Other interested parties. Other interested parties include 
large businesses where only one concern submitted an offer for the 
specific procurement in question. A concern found to be other than small 
in connection with the procurement is not an interested party unless 
there is only one remaining offeror after the concern is found to be 
other than small.
    (2) For SBA's Subcontracting Program, the following entities may 
protest:
    (i) The prime contractor;
    (ii) The contracting officer;
    (iii) Other potential subcontractors;
    (iv) The responsible SBA Government Contracting Area Director or the 
Associate Administrator for Government Contracting; and
    (v) Other interested parties.
    (3) For SBA's Small Business Innovation Research (SBIR) Program, the 
following entities may protest:
    (i) A prospective offeror;
    (ii) The funding agreement officer;
    (iii) The responsible SBA Government Contracting Area Director or 
the Assistant Administrator for Technology; and
    (iv) Other interested parties.
    (4) For the Department of Defense's Small Disadvantaged Business 
(SDB) Program, and any other similar program of another Federal agency, 
the following entities may file a protest in

[[Page 214]]

connection with a particular SDB procurement:
    (i) Any offeror for the specific SDB requirement;
    (ii) The contracting officer; and
    (iii) The responsible SBA Government Contracting Area Director, the 
Associate Administrator for Government Contracting, or the Associate 
Administrator for MED.
    (5) For any unrestricted Government procurement in which status as a 
small business may be beneficial, including, but not limited to, the 
award of a contract to a small business where there are tie bids, the 
opportunity to seek a Certificate of Competency by a small business, and 
SDB price evaluation preferences, the following entities may protest in 
connection with a particular procurement:
    (i) Any offeror;
    (ii) The contracting officer; and
    (iii) The responsible SBA Government Contracting Area Director, the 
Associate Administrator for Government Contracting, or the Associate 
Administrator for MED.
    (b) Request for Size Determinations. (1) For SBA's Financial 
Assistance Programs, the following entities may request a formal size 
determination:
    (i) The applicant for assistance; and
    (ii) The SBA official with authority to take final action on the 
assistance requested. That official may also request the appropriate 
Government Contracting Area Office to determine whether affiliation 
exists between an applicant for financial assistance and one or more 
other entities for purposes of determining whether the applicant would 
exceed the loan limit amount imposed by Sec. 120.151 of this chapter.
    (2) For SBA's MED program--
    (i) Concerning initial MED eligibility, the following entities may 
request a formal size determination:
    (A) The MED applicant concern; and
    (B) The Director of the Division of Program Certification and 
Eligibility or the Associate Administrator for MED.
    (ii) Concerning individual 8(a) subcontract awards, whether sole 
source or competitive, the following entities may request a formal size 
determination:
    (A) The MED concern nominated by SBA for the particular sole source 
8(a) award or the apparent successful offeror for the particular 
competitive 8(a) award;
    (B) The SBA program official with authority to execute the 8(a) 
subcontract; and
    (C) The SBA District Director in the district serving the area in 
which the headquarters of the MED concern is located, regardless of the 
location of a parent company and affiliates, or the Associate 
Administrator for MED.
    (3) For SBA's Certificate of Competency Program, the following 
entities may request a formal size determination:
    (i) The offeror who has applied for a COC; and
    (ii) The responsible SBA Government Contracting Area Director or the 
Associate Administrator for Government Contracting.
    (4) For SBA's sale or lease of government property, the following 
entities may request a formal size determination:
    (i) The responsible SBA Government Contracting Area Director or the 
Associate Administrator for Government Contracting; and
    (ii) Authorized officials of other Federal agencies administering a 
property sales program.
    (5) For eligibility to pay reduced patent fees, the following 
entities may request a formal size determination:
    (i) The applicant for the reduced patent fees; and
    (ii) The Patent and Trademark Office.
    (6) For purposes of determining compliance with small business 
requirements of another Government agency program not otherwise 
specified in this section, an official with authority to administer the 
program involved may request a formal size determination.



Sec. 121.1002  Who makes a formal size determination?

    The responsible Government Contracting Area Director or designee 
makes all formal size determinations in response to either a size 
protest or a request for a formal size determination, with the exception 
of size determinations for purposes of the Disaster

[[Page 215]]

Loan Program, which will be made by the Disaster Area Office Director or 
designee responsible for the area in which the disaster occurred.



Sec. 121.1003  Where should a size protest be filed?

    A protest involving a government procurement or sale must be filed 
with the contracting officer for the procurement or sale, who must 
forward the protest to the SBA Government Contracting Area Office 
serving the area in which the headquarters of the protested concern is 
located, regardless of the location of any parent company or affiliates.



Sec. 121.1004  What time limits apply to size protests?

    (a) Protests by entities other than contracting officers or SBA. (1) 
Non-negotiated procurement or sale. A protest must be received by the 
contracting officer prior to the close of business on the 5th day, 
exclusive of Saturdays, Sundays, and legal holidays, after bid or 
proposal opening.
    (2) Negotiated procurement. A protest must be received by the 
contracting officer prior to the close of business on the 5th day, 
exclusive of Saturdays, Sundays, and legal holidays, after the 
contracting officer has notified the protestor of the identity of the 
prospective awardee.
    (3) Multiple award schedule. On a multiple award schedule 
procurement set aside for small business, protests will be considered 
timely if received by SBA at any time prior to the expiration of the 
contract period (including renewals).
    (b) Protests by contracting officers or SBA. The time limitations in 
paragraph (a) of this section do not apply to contracting officers or 
SBA, and they may file protests before or after awards, except to the 
extent set forth in paragraph (e) of this section.
    (c) Effect of contract award. A timely filed protest applies to the 
procurement in question even though a contracting officer awarded the 
contract prior to receipt of the protest.
    (d) Untimely protests. A protest received after the allotted time 
limits must still be forwarded to SBA. SBA will dismiss untimely 
protests.
    (e) Premature protests. A protest filed by any party, including the 
contracting officer, before bid opening or notification to offerors of 
the selection of the apparent successful offer will be dismissed as 
premature.



Sec. 121.1005  How must a protest be filed with the contracting officer?

    A protest must be delivered to the contracting officer by hand, 
telegram, mail, FAX, or telephone. If a protest is made by telephone, 
the contracting officer must later receive a confirming letter either 
within the 5-day period in Sec. 121.1004(a)(1) or postmarked no later 
than one day after the date of the telephone protest.



Sec. 121.1006  When will a size protest be referred to an SBA Government Contracting Area Office?

    (a) A contracting officer who receives a protest (other than from 
SBA) must forward the protest promptly to the SBA Government Contracting 
Area Office serving the area in which the headquarters of the offeror is 
located.
    (b) A contracting officer's referral must contain the following 
information:
    (1) The protest and any accompanying materials;
    (2) A copy of the self-certification as to size;
    (3) Identification of the applicable size standard;
    (4) A copy of the solicitation;
    (5) Identification of the date of bid opening or notification 
provided to unsuccessful offerors;
    (6) The date on which the protest was received; and
    (7) A complete address and point of contact for the protested 
concern.



Sec. 121.1007  Must a protest of size status relate to a particular procurement and be specific?

    (a) Particular procurement. A protest challenging the size of a 
concern which does not pertain to a particular procurement or sale will 
not be acted on by SBA.
    (b) A protest must include specific facts. A protest must be 
sufficiently specific to provide reasonable notice as to the grounds 
upon which the protested concern's size is questioned. Some basis for 
the belief or allegation stated in

[[Page 216]]

the protest must be given. A protest merely alleging that the protested 
concern is not small or is affiliated with unnamed other concerns does 
not specify adequate grounds for the protest. No particular form is 
prescribed for a protest. Where materials supporting the protest are 
available, they should be submitted with the protest.
    (c) Non-specific protests will be dismissed. Protests which do not 
contain sufficient specificity will be dismissed by SBA.



Sec. 121.1008  What happens after SBA receives a size protest or a request for a formal size determination?

    (a) When a size protest is received, the SBA Government Contracting 
Area Director, or designee, will promptly notify the contracting 
officer, the protested concern, and the protestor that a protest has 
been received. In the event the size protest pertains to a requirement 
involving SBA's SBIR Program, the Government Contracting Area Director 
will advise the Assistant Administrator for Technology of the receipt of 
the protest. SBA will provide a copy of the protest to the protested 
concern along with a blank SBA Application for Small Business Size 
Determination (SBA Form 355) by certified mail, return receipt 
requested, or by any overnight delivery service that provides proof of 
receipt. SBA will ask the protested concern to respond to the 
allegations of the protestor.
    (b) When SBA receives a request for a formal size determination in 
accord with Sec. 121.1001(b), SBA will provide a blank copy of SBA Form 
355 to the concern whose size is at issue.
    (c) The protested concern or concern whose size is at issue must 
return the completed SBA Form 355 and all other requested information to 
SBA within 3 working days from the date of receipt of the blank form 
from SBA. SBA has discretion to grant an extension of time to file the 
form. The firm must attach to the completed SBA Form 355 its answers to 
the allegations contained in the protest, where applicable, together 
with any supporting material.
    (d) If a concern does not submit a completed SBA Form 355, answers 
to the protest allegations, or other requested information within the 
allotted time provided by SBA, or if it submits incomplete information, 
SBA may presume that disclosure of the form, any information missing 
from it, or other missing information would show or tend to show that 
the concern is other than a small business.



Sec. 121.1009  What are the procedures for making the size determination?

    (a) Time frame for making size determination. After receipt of a 
protest or a request for a formal size determination, SBA will make a 
formal size determination within 10 working days, if possible.
    (b) Basis for determination. The size determination will be based 
primarily on information supplied by the protestor or the entity 
requesting the size determination and the subject concern. The 
determination, however, may also be based on other grounds not raised in 
the protest or request for size determination. SBA may utilize other 
information in its files and may make inquiries including requests to 
the protestor, the protested concern and any alleged affiliates, or 
other persons for additional specific information.
    (c) Burden of persuasion. The concern whose size is under 
consideration has the burden of establishing its small business size.
    (d) Weight of evidence. SBA will give greater weight to specific, 
signed, factual evidence than to general, unsupported allegations or 
opinions. In the case of refusal or failure to furnish requested 
information within a required time period, SBA may assume that 
disclosure would be contrary to the interests of the party failing to 
make disclosure.
    (e) Formal size determination. The SBA will base its formal size 
determination upon the record, including reasonable inferences from the 
record, and will state in writing the basis for its findings and 
conclusions.
    (f) Notification of determination. SBA will promptly notify the 
contracting officer, the protestor, and the protested offeror, as well 
as each affiliate or alleged affiliate, of the size determination. The 
notification will be by certified mail, return receipt requested, or by 
any overnight delivery service that provides proof of receipt.

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    (g) Results of an SBA size determination. (1) A formal size 
determination becomes effective immediately and remains in full force 
and effect unless and until reversed by OHA.
    (2) Once SBA has determined that a concern is other than small for 
purposes of a particular procurement, the concern cannot later become 
eligible for the procurement by reducing its size.
    (3) A concern determined to be other than small for a particular 
size standard is ineligible for any procurement or assistance authorized 
by the Small Business Act or the Small Business Investment Act of 1958, 
requiring the same or a lower size standard, unless recertified as small 
pursuant to Sec. 121.1010. Following an adverse size determination, a 
concern cannot again self-certify as small within the same or a lower 
size standard unless it is recertified as small by SBA. If it does so, 
it may be in violation of criminal laws, including section 16(d) of the 
Small Business Act, 15 U.S.C. 645(d). If the concern has already 
certified itself as small on a pending procurement or on another 
assistance application, the concern must immediately inform the 
officials responsible for the pending procurement or other requested 
assistance of the adverse size determination.
    (h) Limited reopening of size determinations. In cases where the 
size determination contains clear administrative error or a clear 
mistake of fact, SBA may, in its sole discretion, reopen the size 
determination to correct the error or mistake, provided the case has not 
been accepted for review by OHA.



Sec. 121.1010  How does a concern become recertified as a small business?

    (a) A concern may request SBA to recertify it as small at any time 
by filing an application for recertification with the Government 
Contracting Area Office responsible for the area in which the 
headquarters of the applicant is located, regardless of the location of 
parent companies or affiliates. No particular form is prescribed for the 
application; however, the request for recertification must be 
accompanied by a current completed SBA Form 355 and any other 
information sufficient to show a significant change in its ownership, 
management, or other factors bearing on its status as a small concern.
    (b) Recertification will not be required nor will the prohibition 
against future self-certification apply if the adverse SBA size 
determination is based solely on a finding of affiliation due to a joint 
venture (e.g., ostensible subcontracting) limited to a particular 
Government procurement or property sale, or is based on an ineligible 
manufacturer where the eligible small business bidder or offeror is a 
nonmanufacturer on a particular Government procurement.
    (c) A denial of an application for recertification is a formal size 
determination and may be reviewed by OHA at the discretion of that 
office.
    (d) The granting of an application for recertification has future 
effect only. While it is a formal size determination, notice of 
recertification is required to be given only to the applicant.

        Appeals of Size Determinations and SIC Code Designations



Sec. 121.1101  Are formal size determinations subject to appeal?

    There is no right of appeal of a size determination. OHA, however, 
may, in its sole discretion, review a formal size determination made by 
a SBA Government Contracting Area Office or by a Disaster Area Office. 
Unless OHA accepts a petition for review of a formal size determination, 
the size determination made by a SBA Government Contracting Area Office 
or by a Disaster Area Office is the final decision of SBA. The 
procedures for requesting discretionary reviews by OHA of formal size 
determinations are set forth in part 134 of this chapter.



Sec. 121.1102  Are SIC code designations subject to appeal?

    Appeals may be made to OHA, which has exclusive jurisdiction to 
determine appeals of SIC code designations pursuant to part 134 of this 
chapter.



Sec. 121.1103  What are the procedures for appealing a SIC code designation?

    (a) Generally, any interested party who has been adversely affected 
by a SIC code designation may appeal the

[[Page 218]]

designation to OHA. However, with respect to a particular MED contract, 
only the Associate Administrator for MED may appeal.
    (b) Procedures for perfecting SIC code appeals with OHA are 
contained in Sec. 19.303 of the Federal Acquisition Regulations, 48 CFR 
19.303.



                 Subpart B--Other Applicable Provisions

    Waivers of the Nonmanufacturer Rule for Classes of Products and 
                          Individual Contracts



Sec. 121.1201  What is the Nonmanufacturer Rule?

    The Nonmanufacturer Rule is set forth in Sec. 121.406(b).



Sec. 121.1202  When will a waiver of the Nonmanufacturer Rule be granted for a class of products?

    (a) A waiver for a class of products (class waiver) will be granted 
when there are no small business manufacturers or processors available 
to participate in the Federal market for that class of products.
    (b) Federal market means acquisitions by the Federal Government from 
offerors located in the United States, or such smaller area as SBA 
designates if it concludes that the class of products is not supplied on 
a national basis.
    (1) When considering the appropriate market area for a product, SBA 
presumes that the entire United States is the relevant Federal market, 
unless it is clearly demonstrated that a class of products cannot be 
procured on a national basis. This presumption may be particularly 
difficult to overcome in the case of manufactured products, since such 
items typically have a market area encompassing the entire United 
States.
    (2) When considering geographic segmentation of a Federal market, 
SBA will not necessarily use market definitions dependent on airline 
radius, political, or SBA regional boundaries. Market areas typically 
follow established transportation routes rather than jurisdictional 
borders. SBA examines the following factors, among others, in cases 
where geographic segmentation for a class of products is urged:
    (i) Whether perishability affects the area in which the product can 
practically be sold;
    (ii) Whether transportation costs are high as a proportion of the 
total value of the product so as to limit the economic distribution of 
the product;
    (iii) Whether there are legal barriers to transportation of the 
item;
    (iv) Whether a fixed, well-delineated boundary exists for the 
purported market area and whether this boundary has been stable over 
time; and
    (v) Whether a small business, not currently selling in the defined 
market area, could potentially enter the market from another area and 
supply the market at a reasonable price.
    (c) Available to participate in the context of the Federal market 
means that contractors exist that have been awarded or have performed a 
contract to supply a specific class of products to the Federal 
Government within 24 months from the date of the request for waiver, 
either directly or through a dealer, or who have submitted an offer on a 
solicitation for that class of products within that time frame.
    (d) Class of products is an individual subdivision within a four-
digit Industry Number as established by the Office of Management and 
Budget in the SIC Manual.



Sec. 121.1203  When will a waiver of the Nonmanufacturer Rule be granted for an individual contract?

    An individual waiver for a product in a specific solicitation will 
be approved when the SBA Associate Administrator for Government 
Contracting reviews and accepts a contracting officer's determination 
that no small business manufacturer or processor can reasonably be 
expected to offer a product meeting the specifications of a 
solicitation, including the period of performance.



Sec. 121.1204  What are the procedures for requesting and granting waivers?

    (a) Waivers for classes of products. (1) SBA may, at its own 
initiative, examine a class of products for possible waiver of the 
Nonmanufacturer Rule.

[[Page 219]]

    (2) Any interested person, business, association, or Federal agency 
may submit a request for a waiver for a particular class of products. 
Requests should be addressed or hand-carried to the Associate 
Administrator of Government Contracting, Small Business Administration, 
409 3rd Street SW., Washington, DC 20416.
    (3) Requests for a waiver of a class of products need not be in any 
particular form, but should include a statement of the class of products 
to be waived, the applicable SIC code, and detailed information on the 
efforts made to identify small business manufacturers or processors for 
the class.
    (4) If SBA decides that there are small business manufacturers or 
processors in the Federal procurement market, it will deny the request 
for waiver, issue notice of the denial, and provide the names, 
addresses, and telephone numbers of the sources found. If SBA does not 
initially confirm the existence of small business manufacturers or 
processors in the Federal market, it will:
    (i) Publish notices in the Commerce Business Daily and the Federal 
Register seeking information on small business manufacturers or 
processors, announcing a notice of intent to waive the Nonmanufacturer 
Rule for that class of products and affording the public a 15-day 
comment period; and
    (ii) If no small business sources are identified, publish a notice 
in the Federal Register stating that no small business sources were 
found and that a waiver of the Nonmanufacturer Rule for that class of 
products has been granted.
    (5) An expedited procedure for issuing a class waiver may be used 
for emergency situations, but only if the contracting officer provides a 
determination to the Associate Administrator for Government Contracting 
that the procurement is proceeding under the authority of FAR 
Sec. 6.302-2 (48 CFR 6.302-2) for ``unusual and compelling urgency,'' or 
provides a determination materially the same as one of unusual and 
compelling urgency. Under the expedited procedure, if a small business 
manufacturer or processor is not identified by a PASS search, the SBA 
will grant the waiver for the class of products and then publish a 
notice in the Federal Register. The notice will state that a waiver has 
been granted, and solicit public comment for future procurements.
    (6) The decision by the Associate Administrator for Government 
Contracting to grant or deny a waiver is the final decision by the 
Agency.
    (7) A waiver of the Nonmanufacturer Rule for classes of products has 
no specific time limitation. SBA will, however, periodically review 
existing class waivers to the Nonmanufacturer Rule to determine if small 
business manufacturers or processors have become available to 
participate in the Federal market for the waived classes of products and 
the waiver should be terminated.
    (i) Upon SBA's receipt of evidence that a small business 
manufacturer or processor exists in the Federal market for a waived 
class of products, the waiver will be terminated by the Associate 
Administrator for Government Contracting. This evidence may be 
discovered by SBA during a periodic review of existing waivers or may be 
brought to SBA's attention by other sources.
    (ii) SBA will announce its intent to terminate a waiver for a class 
of products through the publication of a notice in the Federal Register, 
asking for comments regarding the proposed termination.
    (iii) Unless public comment reveals that no small business 
manufacturer or processor in fact exists for the class of products in 
question, SBA will publish a final Notice of Termination in the Federal 
Register.
    (b) Individual waivers for specific solicitations. (1) A contracting 
officer's request for a waiver of the Nonmanufacturer Rule for specific 
solicitations need not be in any particular form, but must, at a 
minimum, include:
    (i) A definitive statement of the specific item to be waived and 
justification as to why the specific item is required;
    (ii) The solicitation number, SIC code, dollar amount of the 
procurement, and a brief statement of the procurement history;
    (iii) A determination by the contracting officer that there are no 
known

[[Page 220]]

small business manufacturers or processors for the requested items (the 
determination must contain a narrative statement of the contracting 
officer's efforts to search for small business manufacturers or 
processors of the item and the results of those efforts, and a statement 
by the contracting officer that there are no known small business 
manufacturers for the items and that no small business manufacturer or 
processor can reasonably be expected to offer the required items); and
    (iv) For contracts expected to exceed $500,000, a copy of the 
Statement of Work.
    (2) Requests should be addressed to the Associate Administrator for 
Government Contracting, Small Business Administration, 409 3rd Street, 
SW., Washington, DC 20416.
    (3) SBA will examine the contracting officer's determination and any 
other information it deems necessary to make an informed decision on the 
individual waiver request. If SBA's research verifies that no small 
business manufacturers or processors exist for the item, the Associate 
Administrator for Government Contracting will grant an individual, one-
time waiver. If a small business manufacturer or processor is found for 
the product in question, the Associate Administrator will deny the 
request. Either decision represents a final decision by SBA.



Sec. 121.1205  How is a list of previously granted class waivers obtained?

    A list of classes of products for which waivers of the 
Nonmanufacturer Rule have been granted will be maintained in SBA's 
Procurement Automated Source System (PASS). A list of such waivers may 
also be obtained by contacting the Office of Government Contracting at 
the Small Business Administration, 409 3rd Street, SW., Washington, DC 
20416, or at the nearest SBA Government Contracting Area Office.



PART 123--DISASTER LOAN PROGRAM--Table of Contents




                                Overview

123.1  What do these rules cover?
123.2  What are disaster loans and disaster declarations?
123.3  How are disaster declarations made?
123.4  What is a disaster area and why is it important?
123.5  What kinds of loans are available?
123.6  What does SBA look for when considering a disaster loan 
          applicant?
123.7  Are  there restrictions on how disaster loans can be used?
123.8  Does SBA charge any fees for obtaining a disaster loan?
123.9  What happens if I don't use loan proceeds for the intended 
          purpose?
123.10  What happens if I cannot use my insurance proceeds to make 
          repairs?
123.11  Does SBA require collateral for any of its disaster loans?
123.12  Are books and records required?
123.13  What happens if my loan application is denied?
123.14  How does the Federal Debt Collection Procedures Act of 1990 
          apply?
123.15  What if I change my mind?
123.16  How are loans administered and serviced?
123.17  Do other Federal requirements apply?

                           Home Disaster Loans

123.100  Am I eligible to apply for a home disaster loan?
123.101  When am I not eligible for a home disaster loan?
123.102  What circumstances would justify my relocating?
123.103  What happens if I am forced to move from my home?
123.104  What interest rate will I pay on my home disaster loan?
123.105  How much can I borrow with a home disaster loan and what limits 
          apply on use of funds and repayment terms?
123.106  What is eligible refinancing?
123.107  What is mitigation?

                    Physical Disaster Business Loans

123.200  Am I eligible to apply for a physical disaster business loan?
123.201  When am I not eligible to apply for a physical disaster 
          business loan?
123.202  How much can my business borrow with a physical disaster 
          business loan?
123.203  What interest rate will my business pay on a physical disaster 
          business loan and what are the repayment terms?

                     Economic Injury Disaster Loans

123.300  Is my business eligible to apply for an economic injury 
          disaster loan?
123.301  When would my business not be eligible to apply for an economic 
          injury disaster loan?
123.302  What is the interest rate on an economic injury disaster loan?
123.303  How can my business spend my economic injury disaster loan?


[[Page 221]]


    Authority: 15 U.S.C. 634(b)(6), 636(b), 636(c) and 636(f); Pub. L. 
102-395, 106 Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739.

    Source: 61 FR 3304, Jan. 31, 1996, unless otherwise noted.

                                Overview



Sec. 123.1  What do these rules cover?

    This part covers the disaster loan programs authorized under the 
Small Business Act, 15 U.S.C. 636(b), (c), and (f). Since SBA cannot 
predict the occurrence or magnitude of disasters, it reserves the right 
to change the rules in this part, without advance notice, by publishing 
interim emergency regulations in the Federal Register.



Sec. 123.2  What are disaster loans and disaster declarations?

    SBA offers low interest, fixed rate loans to disaster victims, 
enabling them to repair or replace property damaged or destroyed in 
declared disasters. It also offers such loans to affected small 
businesses to help them recover from economic injury caused by such 
disasters. Disaster declarations are official notices recognizing that 
specific geographic areas have been damaged by floods and other acts of 
nature, riots, civil disorders, or industrial accidents such as oil 
spills. These disasters are sudden events which cause severe physical 
damage, and do not include slower physical occurrences such as shoreline 
erosion or gradual land settling. Sudden physical events that cause 
substantial economic injury may be disasters even if they do not cause 
physical damage to a victim's property. Past examples include ocean 
conditions causing significant displacement (major ocean currents) or 
closure (toxic algae blooms) of customary fishing waters, as well as 
contamination of food or other products for human consumption from 
unforeseeable and unintended events beyond the control of the victims.



Sec. 123.3  How are disaster declarations made?

    (a) There are four ways in which disaster declarations are issued 
which make SBA disaster loans possible:
    (1) The President declares a Major Disaster and authorizes Federal 
assistance, including individual assistance (temporary housing and 
Individual and Family Grant Assistance).
    (2) SBA makes a physical disaster declaration, based on the 
occurrence of at least a minimum amount of physical damage to buildings, 
machinery, equipment, inventory, homes and other property. Such damage 
usually must meet the following tests:
    (i) In any county or other smaller political subdivision of a State 
or U.S. possession, at least 25 homes or 25 businesses, or a combination 
of at least 25 homes, businesses, or other eligible institutions, each 
sustain uninsured losses of 40 percent or more of the estimated fair 
replacement value or pre-disaster fair market value of the damaged 
property, whichever is lower; or
    (ii) In any such political subdivision, at least three businesses 
each sustain uninsured losses of 40 percent or more of the estimated 
fair replacement value or pre-disaster fair market value of the damaged 
property, whichever is lower, and, as a direct result of such physical 
damage, 25 percent or more of the work force in their community would be 
unemployed for at least 90 days; and
    (iii) the Governor of the State in which the disaster occurred 
submits a written request to SBA for a physical disaster declaration by 
SBA (OMB Approval No. 3245-0121). This request should be delivered to 
the SBA Disaster Area Office serving the region where the disaster 
occurred within 60 days of the date of the disaster.
    (3) SBA makes an economic injury disaster declaration in response to 
a determination of a natural disaster by the Secretary of Agriculture.
    (4) SBA makes an economic injury declaration in reliance on a state 
certification that at least 5 small business concerns in a disaster area 
have suffered substantial economic injury as a result of the disaster 
and are in need of financial assistance not otherwise available on 
reasonable terms. The state certification must be signed by the 
Governor, must specify the county or counties or other political 
subdivisions in which the disaster occurred, and must be delivered (with 
supporting documentation) to the servicing SBA Disaster Area Office 
within 120 days of the disaster occurrence.

[[Page 222]]

    (b) SBA publishes notice of any disaster declaration in the Federal 
Register. The published notice will identify the kinds of assistance 
available, the date and nature of the disaster, and the deadline and 
location for filing loan applications. Additionally, SBA will use the 
local media to inform potential loan applicants where to obtain loan 
applications and otherwise to assist victims in applying for disaster 
loans. SBA will accept applications after the announced deadline only 
when SBA determines that the late filing resulted from substantial 
causes beyond the control of the applicant.



Sec. 123.4  What is a disaster area and why is it important?

    Each disaster declaration defines the geographical areas affected by 
the disaster. Only those victims located in the declared disaster area 
are eligible to apply for SBA disaster loans. When the President 
declares a major disaster, the Federal Emergency Management Agency 
defines the disaster area. In major disasters, economic injury disaster 
loans may be made for victims in contiguous counties or other political 
subdivisions. Disaster declarations issued by the Administrator of SBA 
include contiguous counties for both physical and economic injury 
assistance. Contiguous counties or other political subdivisions are 
those land areas which abut the land area of the declared disaster area 
without geographic separation other than by a minor body of water, not 
to exceed one mile between the land areas of such counties.



Sec. 123.5  What kinds of loans are available?

    SBA offers three kinds of disaster loans: physical disaster home 
loans, physical disaster business loans, and economic injury business 
loans. SBA makes these loans directly or in participation with a 
financial institution. If a loan is made in participation with a 
financial institution, SBA's share in that loan may not exceed 90 
percent.



Sec. 123.6  What does SBA look for when considering a disaster loan applicant?

    There must be reasonable assurance that you can repay your loan out 
of your personal or business cash flow, and you must have satisfactory 
credit and character. SBA will not make a loan to you if repayment 
depends upon the sale of collateral through foreclosure or any other 
disposition of assets owned by you. SBA is prohibited by statute from 
making a loan to you if you are engaged in the production or 
distribution of any product or service that has been determined to be 
obscene by a court.



Sec. 123.7  Are there restrictions on how disaster loans can be used?

    You must use disaster loans to restore or replace your primary home 
(including a mobile home used as a primary residence) and your personal 
or business property as nearly as possible to their condition before the 
disaster occurred, and within certain limits, to protect damaged or 
destroyed real property from possible future similar disasters.



Sec. 123.8  Does SBA charge any fees for obtaining a disaster loan?

    SBA does not charge points, closing, or servicing fees on any 
disaster loan. You will be responsible for payment of any closing costs 
owed to third parties, such as recording fees and title insurance 
premiums. If your loan is made in participation with a financial 
institution, SBA will charge a guarantee fee to the financial 
institution, which then may recover the guarantee fee from you.



Sec. 123.9  What happens if I don't use loan proceeds for the intended purpose?

    (a) When SBA approves each loan application, it issues a loan 
authorization which specifies the amount of the loan, repayment terms, 
any collateral requirements, and the permitted use of loan proceeds. If 
you wrongfully misapply these proceeds, you will be liable to SBA for 
one and one-half times the proceeds disbursed to you as of the date SBA 
learns of your wrongful misapplication. Wrongful misapplication means 
the willful use of any loan proceeds without SBA approval contrary to 
the loan authorization. If you fail to use loan proceeds for authorized 
purposes for 60 days or more

[[Page 223]]

after receiving a loan disbursement check, such non-use also is 
considered a wrongful misapplication of the proceeds.
    (b) If SBA learns that you may have misapplied your loan proceeds, 
SBA will notify you at your last known address, by certified mail, 
return receipt requested. You will be given at least 30 days to submit 
to SBA evidence that you have not misapplied the loan proceeds or that 
you have corrected any such misapplication. Any failure to respond in 
time will be considered an admission that you misapplied the proceeds. 
If SBA finds a wrongful misapplication, it will cancel any undisbursed 
loan proceeds, call the loan, and begin collection measures to collect 
your outstanding loan balance and the civil penalty. You may also face 
criminal prosecution or civil or administrative action.



Sec. 123.10  What happens if I cannot use my insurance proceeds to make repairs?

    If you must pay insurance proceeds to the holder of a recorded lien 
or encumbrance against your damaged property instead of using them to 
make repairs, you may apply to SBA for the full amount needed to make 
such repairs. If you voluntarily pay insurance proceeds to a recorded 
lienholder, your loan eligibility is reduced by the amount of the 
voluntary payment.



Sec. 123.11  Does SBA require collateral for any of its disaster loans?

    Generally, SBA will not require that you pledge collateral to secure 
a disaster home loan or a physical disaster business loan of $10,000 or 
less, or an economic injury disaster loan of $5,000 or less. For loans 
larger than these amounts, you will be required to provide available 
collateral such as a lien on the damaged or replacement property, a 
security interest in personal property, or both.
    (a) Sometimes a borrower, including affiliates as defined in part 
121 of this title, will have more than one loan after a single disaster. 
In deciding whether collateral is required, SBA will add up all physical 
disaster loans to see if they exceed $10,000 and all economic injury 
disaster loans to see if they exceed $5,000.
    (b) SBA will not decline a loan if you lack a particular amount of 
collateral as long as it is reasonably sure that you can repay your 
loan. If you refuse to pledge available collateral when requested by 
SBA, however, SBA may decline or cancel your loan.



Sec. 123.12  Are books and records required?

    You must retain complete records of all transactions financed with 
your SBA loan proceeds, including copies of all contracts and receipts, 
for a period of 3 years after you receive your final disbursement of 
loan proceeds. If you have a physical disaster business or economic 
injury loan, you must also maintain current and accurate books of 
account, including financial and operating statements, insurance 
policies, and tax returns. You must retain applicable books and records 
for 3 years after your loan matures including any extensions, or from 
the date when your loan is paid in full, whichever occurs first. You 
must make available to SBA or other authorized government personnel upon 
request all such books and records for inspection, audit, and 
reproduction during normal business hours and you must also permit SBA 
and any participating financial institution to inspect and appraise your 
assets. (OMB Approval No. 3245-0110.)



Sec. 123.13  What happens if my loan application is denied?

    (a) If SBA denies your loan application, SBA will notify you in 
writing and set forth the specific reasons for the denial. Any applicant 
whose request for a loan is declined for reasons other than size (not 
being a small business) has the right to present information to overcome 
the reason or reasons for the decline and to request reconsideration in 
writing. (OMB Approval No. 3245-0122.)
    (b) Any decline due to size can only be appealed as set forth in 
part 121 of this chapter.
    (c) Any request for reconsideration must be received by the SBA 
office that declined the original application

[[Page 224]]

within six months of the date of the declined notice. After six months, 
a new loan application is required.
    (d) A request for reconsideration must contain all significant new 
information that you rely on to overcome SBA's denial of your original 
loan application. Your request for reconsideration of a business loan 
application must also be accompanied by current business financial 
statements.
    (e) If SBA declines your application a second time, you have the 
right to appeal in writing to the Area Director's Office. All appeals 
must be received by the office that declined the prior reconsideration 
within 30 days of the decline action. Your request must state that you 
are appealing, and must give specific reasons why the decline action 
should be reversed.
    (f) The decision of the Area Director is final unless:
    (1) The Area Director does not have authority to approve the 
requested loan;
    (2) The Area Director refers the matter to the Associate 
Administrator for Disaster Assistance; or
    (3) The Associate Administrator for Disaster Assistance, upon a 
showing of special circumstances, requests the Area Director's office to 
forward the matter to him or her for final consideration. Special 
circumstances may include, but are not limited to, policy 
considerations, alleged improper acts by SBA personnel or others in 
processing the application, and conflicting policy interpretations 
between two Area Offices.



Sec. 123.14  How does the Federal Debt Collection Procedures Act of 1990 apply?

    (a) Under the Federal Debt Collection Procedures Act of 1990 (28 
U.S.C. 3201(e)), a debtor who owns property which is subject to an 
outstanding judgment lien for a debt owed to the United States generally 
is not eligible to receive physical and economic injury disaster loans. 
The SBA Associate Administrator for Disaster Assistance, or designee, 
may waive this restriction as to disaster loans upon a demonstration of 
good cause. Good cause means a written representation by you under oath 
which convinces SBA that:
    (1) The declared disaster was a major contributing factor to the 
delinquency which led to the judgment lien, regardless of when the 
original debt was incurred; or
    (2) The disaster directly prevented you from fulfilling the terms of 
an agreement with SBA or any other Federal Government entity to satisfy 
its pre-disaster judgment lien; in this situation, the judgment creditor 
must certify to SBA that you were complying with the agreement to 
satisfy the judgment lien when the disaster occurred; or
    (3) Other circumstances exist which would justify a waiver.
    (b) The waiver determination by the Associate Administrator for 
Disaster Assistance, or designee, is a final, non-appealable decision. 
The granting of a waiver does not include loan approval; a waiver 
recipient must then follow normal loan application procedures.



Sec. 123.15  What if I change my mind?

    If SBA required you to pledge collateral for your loan, you may 
change your mind and rescind your loan pursuant to the Consumer Credit 
Protection Act, 15 U.S.C. 1601, and Regulation Z of the Federal Reserve 
Board, 12 CFR Part 226. Your note and any collateral documents signed by 
you will be canceled upon your return of all loan proceeds and your 
payment of any interest accrued.



Sec. 123.16  How are loans administered and serviced?

    (a) If you obtained your disaster loan from a participating lender, 
that lender is responsible for closing and servicing your loan. If you 
obtained your loan directly from SBA, your loan will be closed and 
serviced by SBA. The SBA rules on servicing are found in part 120 of 
this chapter.
    (b) If you are unable to pay your SBA loan installments in a timely 
manner for reasons substantially beyond your control, you may request 
that SBA suspend your loan payments, extend your maturity, or both.

[[Page 225]]



Sec. 123.17  Do other Federal requirements apply?

    As a condition of disbursement, you must be in compliance with 
certain requirements relating to flood insurance, lead-based paint, 
earthquake hazards, coastal barrier islands, and child support 
obligations, as set forth in Secs. 120.170 through 120.175 of this 
chapter.

                           Home Disaster Loans



Sec. 123.100  Am I eligible to apply for a home disaster loan?

    (a) You are eligible to apply for a home disaster loan if you:
    (1) Own and occupy your primary residence and have suffered a 
physical loss to your primary residence, personal property, or both; or
    (2) Do not own your primary residence, but have suffered a physical 
loss to your personal property. Family members sharing a residence are 
eligible if they are not dependents of the owners of the residence.
    (b) Losses may be claimed only by the owners of the property at the 
time of the disaster, and all such losses will be verified by SBA. SBA 
will consider beneficial ownership as well as legal title (for real or 
personal property) in determining who suffered the loss.



Sec. 123.101  When am I not eligible for a home disaster loan?

    You are not eligible for a home disaster loan if:
    (a) You have been convicted, during the past year, of a felony 
during and in connection with a riot or civil disorder or other declared 
disaster;
    (b) You acquired voluntarily more than a 50 percent ownership 
interest in the damaged property after the disaster, and no contract of 
sale existed at the time of the disaster;
    (c) Your damaged property can be repaired or replaced with the 
proceeds of insurance, gifts or other compensation, including 
condemnation awards (with one exception, these amounts must either be 
deducted from the amount of the claimed losses or, if received after SBA 
has approved and disbursed a loan, must be paid to SBA as principal 
payments on your loan. You must notify SBA of any such recoveries 
collected after receiving an SBA disaster loan (OMB Approval No. 3245-
0124)). The one exception applies to amounts received under the 
Individual and Family Grant Program of the Federal Emergency Management 
Agency solely to meet an emergency need pending processing of an SBA 
loan. In such an event, you must repay the financial assistance with SBA 
loan proceeds if it was used for purposes also eligible for an SBA 
loan);
    (d) SBA determines that you assumed the risk (for example, by not 
maintaining flood insurance as required by an earlier SBA disaster loan 
when the current loss is also due to flood);
    (e) Your damaged property is a secondary home (although if you 
rented the property out before the disaster and the property would not 
constitute a ``residence'' under the provisions of Section 280A of the 
Internal Revenue Code (26 U.S.C. 280A), you may be eligible for a 
physical disaster business loan);
    (f) Your damaged property is the type of vehicle normally used for 
recreational purposes, such as motorhomes, aircraft, and boats;
    (g) Your damaged property consists of cash or securities;
    (h) The replacement value of your damaged personal property is 
extraordinarily high and not easily verified, such as the value of 
antiques, artworks, or hobby collections;
    (i) You or other principal owners of the damaged property are 
presently incarcerated, or on probation or parole following conviction 
for a serious criminal offense;
    (j) Your only interest in the damaged property is in the form of a 
security interest, mortgage, or deed of trust;
    (k) The damaged building, including contents, was newly constructed 
or substantially improved on or after February 9, 1989, and (without a 
significant business justification) is located seaward of mean high tide 
or entirely in or over water; or
    (l) You voluntarily decide to relocate outside the business area in 
which the disaster has occurred, and there are no special or unusual 
circumstances leading to your decision (business area means the 
municipality which provides general governmental services to your

[[Page 226]]

damaged home or, if not located in a municipality, the county or 
equivalent political entity in which your damaged home is located).



Sec. 123.102  What circumstances would justify my relocating?

    SBA may approve a loan if you intend to relocate outside the 
business area in which the disaster has occurred if your relocation is 
caused by such special or unusual circumstances as:
    (a) demonstrable risk that the business area will suffer future 
disasters;
    (b) a change in employment status (such as loss of job, transfer, 
lack of adequate job opportunities within the business area or scheduled 
retirement within 18 months after the disaster occurs);
    (c) medical reasons; or
    (d) special family considerations which necessitate a move outside 
of the business area.



Sec. 123.103  What happens if I am forced to move from my home?

    If you must relocate inside or outside the business area because 
local authorities will not allow you to repair your damaged property, 
SBA considers this to be a total loss and a mandatory relocation. In 
this case, your loan would be an amount that SBA considers sufficient to 
replace your residence at your new location, plus funds to cover losses 
of personal property and eligible refinancing.



Sec. 123.104  What interest rate will I pay on my home disaster loan?

    If you can obtain credit elsewhere, your interest rate is set by a 
statutory formula, but will not exceed 8 percent per annum. If you 
cannot obtain credit elsewhere, your interest rate is one-half the 
statutory rate, but will not exceed 4 percent per annum. Credit 
elsewhere means that, with your cash flow and disposable assets, SBA 
believes you could obtain financing from non-federal sources on 
reasonable terms. If you cannot obtain credit elsewhere, you also may be 
able to borrow from SBA to refinance existing recorded liens against 
your damaged real property. Under prior legislation, some SBA disaster 
loans had split interest rates. On any such loan, repayments of 
principal are applied first to that portion of the loan with the lowest 
interest rate.



Sec. 123.105  How much can I borrow with a home disaster loan and what limits apply on use of funds and repayment terms?

    (a) For all disasters occurring on or after October 26, 1993, there 
are limits on how much money you can borrow for particular purposes:
    (1) $40,000 for repair or replacement of household and personal 
effects;
    (2) $200,000 for repair or replacement of a primary residence 
(including upgrading in order to meet minimum standards of safety and 
decency or current building code requirements). Repair or replacement of 
landscaping and/or recreational facilities cannot exceed $5,000;
    (3) $200,000 for eligible refinancing purposes; and
    (4) 20 percent of the loan amount (not including refinancing) up to 
a maximum of $48,000 for mitigation (see Sec. 123.107).
    (b) You may not use loan proceeds to repay any debts on personal 
property, secured or unsecured, unless you incurred those debts as a 
direct result of the disaster.
    (c) SBA determines the loan maturity and repayment terms based on 
your needs and your ability to pay. Generally, you will pay equal 
monthly installments of principal and interest, beginning five months 
from the date of the loan, as shown on the Note securing the loan. SBA 
will consider other payment terms if you have seasonal or fluctuating 
income, and SBA may allow installment payments of varying amounts over 
the first two years of the loan. The maximum maturity for a home 
disaster loan is 30 years. There is no penalty for prepayment of home 
disaster loans.



Sec. 123.106  What is eligible refinancing?

    (a) If your home (primary residence) is totally destroyed or 
substantially damaged, and you do not have credit elsewhere, SBA may 
allow you to borrow money to refinance recorded liens or encumbrances on 
your home. Your

[[Page 227]]

home is totally destroyed or substantially damaged if it has suffered 
uninsured or otherwise uncompensated damage which, at the time of the 
disaster, is either:
    (1) 40 percent or more of the home's market value or replacement 
cost at the time of the disaster, including land value, whichever is 
less; or
    (2) 50 percent or more of its market value or replacement cost at 
the time of the disaster, not including land value, whichever is less.
    (b) Your home disaster loan for refinancing existing liens or 
encumbrances cannot exceed an amount equal to the lesser of $200,000, or 
the physical damage to your primary residence after reductions for any 
insurance or other recovery.



Sec. 123.107  What is mitigation?

    Mitigation means specific measures taken by you to protect against 
recurring damage in similar future disasters. Examples include retaining 
walls, sea walls, grading and contouring land, relocating utilities and 
modifying structures. The money that you can borrow for mitigation is 
limited to the lesser of the cost of mitigation, or 20 percent of your 
loan to repair or replace your damaged primary residence and personal 
property. SBA will not accept a request for a loan increase for 
mitigation filed after final disbursement of your original loan unless 
you can show that your request was late because of substantial reasons 
beyond your control.

                    Physical Disaster Business Loans



Sec. 123.200  Am I eligible to apply for a physical disaster business loan?

    (a) Almost any business concern or charitable or other non-profit 
entity whose real or tangible personal property is damaged in a declared 
disaster area is eligible to apply for a physical disaster business 
loan. Your business may be a sole proprietorship, partnership, 
corporation, limited liability company, or other legal entity recognized 
under State law. Your business' size (average annual receipts or number 
of employees) is not taken into consideration in determining your 
eligibility for a physical disaster business loan. If your damaged 
business occupied rented space at the time of the disaster, and the 
terms of your business' lease require you to make repairs to your 
business' building, you may have suffered a physical loss and can apply 
for a physical business disaster loan to repair the property. In all 
other cases, the owner of the building is the eligible loan applicant.
    (b) Damaged vehicles, of the type normally used for recreational 
purposes, such as motorhomes, aircraft, and boats, may be repaired or 
replaced with SBA loan proceeds if you can submit evidence that the 
damaged vehicles were used in your business at the time of the disaster.



Sec. 123.201  When am I not eligible to apply for a physical disaster business loan?

    (a) You are not eligible for a physical disaster business loan if 
your business is an agricultural enterprise or if you (or any principal 
of the business) fit into any of the categories in Sec. 123.101. 
Agricultural enterprise means a business primarily engaged in the 
production of food and fiber, ranching and raising of livestock, 
aquaculture and all other farming and agriculture-related industries.
    (b) Sometimes a damaged business is engaged in both agricultural and 
non-agricultural business activities. If the primary business activity 
of your damaged business is not an agricultural enterprise, you may 
apply for a physical disaster business loan, but loan proceeds may not 
be used, directly or indirectly, for the benefit of your agricultural 
enterprises, even if they also suffered damage.
    (c) If your business is going to relocate voluntarily outside the 
business area in which the disaster occurred, you are not eligible for a 
physical disaster business loan. If, however, the relocation is due to 
uncontrollable or compelling circumstances, SBA will consider the 
relocation to be involuntary and eligible for a loan. Such circumstances 
may include, but are not limited to:
    (1) The elimination or substantial decrease in the market for your 
products or services, as a consequence of the disaster;

[[Page 228]]

    (2) A change in the demographics of your business area within 18 
months prior to the disaster, or as a result of the disaster, which 
makes it uneconomical to continue operations in your business area;
    (3) A substantial change in your cost of doing business, as a result 
of the disaster, which makes the continuation of your business in the 
business area not economically viable;
    (4) Location of your business in a hazardous area such as a special 
flood hazard area or an earthquake-prone area;
    (5) A change in the public infrastructure in your business area 
which occurred within 18 months or as a result of the disaster that 
would result in substantially increased expenses for your business in 
the business area;
    (6) Your implementation of decisions adopted and at least partially 
implemented within 18 months prior to the disaster to move your business 
out of the business area; and
    (7) Other factors which undermine the economic viability of your 
business area.



Sec. 123.202  How much can my business borrow with a physical disaster business loan?

    (a) Disaster business loans, including both physical disaster and 
economic injury loans to the same borrower, together with its 
affiliates, cannot exceed the greater of the uncompensated physical loss 
and economic injury or $1.5 million. Physical disaster loans may include 
amounts to meet current building code requirements. If your business is 
a major source of employment, SBA may waive the $1.5 million limitation. 
A major source of employment is a business concern which has one or more 
locations in the disaster area which:
    (1) Employed 10 percent or more of the entire work force within the 
commuting area of a geographically identifiable community (no larger 
than a county), provided that the commuting area does not extend more 
than 50 miles from such community; or
    (2) Employed 5 percent of the work force in an industry within the 
disaster area and, if the concern is a non-manufacturing concern, 
employed no less than 50 employees in the disaster area, or if the 
concern is a manufacturing concern, employed no less than 150 employees 
in the disaster area; or
    (3) Employed no less than 250 employees within the disaster area.
    (b) SBA will consider waiving the $1.5 million loan limit only if:
    (1) Your damaged location or locations are out of business or in 
imminent danger of going out of business as a result of the disaster, 
and a loan in excess of $1.5 million is necessary to reopen or keep open 
the damaged locations in order to avoid substantial unemployment in the 
disaster area; and
    (2) You have used all reasonably available funds from your business, 
its affiliates and its principal owners (20% or greater ownership 
interest) and all available credit elsewhere (as described in 
Sec. 123.104) to alleviate your physical damage and economic injury.
    (c) Physical disaster business borrowers may request refinancing of 
liens on both damaged real property and machinery and equipment, but for 
an amount reduced by insurance or other compensation. To do so, your 
business property must be totally destroyed or substantially damaged, 
which means:
    (1) 40 percent or more of the aggregate value (lesser of market 
value or replacement cost at the time of the disaster) of the damaged 
real property (including land) and damaged machinery and equipment; or
    (2) 50 percent or more of the aggregate value (lesser of market 
value or replacement cost at the time of the disaster) of the damaged 
real property (excluding land) and damaged machinery and equipment.
    (d) Loan funds allocated for repair or replacement of landscaping or 
recreational facilities may not exceed $5,000 unless the landscaping or 
recreational facilities fulfilled a functional need or contributed to 
the generation of business.



Sec. 123.203  What interest rate will my business pay on a physical disaster business loan and what are the repayment terms?

    (a) SBA will announce interest rates with each disaster declaration. 
If your business, together with its affiliates

[[Page 229]]

and principal owners, have credit elsewhere, your interest rate is set 
by a statutory formula, but will not exceed 8 percent per annum. If you 
do not have credit elsewhere, your interest rate will not exceed 4 
percent per annum. The maturity of your loan depends upon your repayment 
ability, but cannot exceed 3 years if you have credit elsewhere. 
Otherwise, the maximum maturity is 30 years.
    (b) Generally, you must pay equal monthly installments, of principal 
and interest, beginning five months from the date of the loan as shown 
on the Note. SBA will consider other payment terms if you have seasonal 
or fluctuating income, and SBA may allow installment payments of varying 
amounts over the first two years of the loan. There is no penalty for 
prepayment for disaster loans.

                     Economic Injury Disaster Loans



Sec. 123.300  Is my business eligible to apply for an economic injury disaster loan?

    (a) If your business is located in a declared disaster area, and 
suffered substantial economic injury as a direct result of a declared 
disaster, you are eligible to apply for an economic injury disaster 
loan.
    (1) Substantial economic injury is such that a business concern is 
unable to meet its obligations as they mature or to pay its ordinary and 
necessary operating expenses.
    (2) Loss of anticipated profits or a drop in sales is not considered 
substantial economic injury for this purpose.
    (b) Economic injury disaster loans are available only if you were a 
small business (as defined in Part 121 of this chapter) when the 
declared disaster commenced, you and your affiliates and principal 
owners (20% or more ownership interest) have used all reasonably 
available funds, and you are unable to obtain credit elsewhere (see 
Sec. 123.104).
    (c) Eligible businesses do not include agricultural enterprises, but 
do include--
    (1) Small nurseries affected by a drought disaster designated by the 
Secretary of Agriculture (nurseries are commercial establishments 
deriving 50 percent or more of their annual receipts from the production 
and sale of ornamental plants and other nursery products, including, but 
not limited to, bulbs, florist greens, foliage, flowers, flower and 
vegetable seeds, shrubbery, and sod);
    (2) Small agricultural cooperatives; and
    (3) Producer cooperatives.



Sec. 123.301  When would my business not be eligible to apply for an economic injury disaster loan?

    Your business is not eligible for an economic disaster loan if you 
(or any principal of the business) fit into any of the categories in 
Secs. 123.101 and 123.201, or if your business is:
    (a) Engaged in gambling, lending, multi-level sales distribution, 
loan packaging, speculation, or investment (except for real estate 
investment with property held for rental when the disaster occurred);
    (b) A non-profit or charitable concern;
    (c) A consumer or marketing cooperative; or
    (d) Not a small business concern.



Sec. 123.302  What is the interest rate on an economic injury disaster loan?

    Your economic injury loan will have an interest rate of 4 percent 
per annum or less.



Sec. 123.303  How can my business spend my economic injury disaster loan?

    (a) You can only use the loan proceeds for working capital necessary 
to carry your concern until resumption of normal operations and for 
expenditures necessary to alleviate the specific economic injury, but 
not to exceed that which the business could have provided had the injury 
not occurred.
    (b) Loan proceeds may not be used to:
    (1) Refinance indebtedness which you incurred prior to the disaster 
event;
    (2) Make payments on loans owned by another federal agency 
(including SBA) or a Small Business Investment Company licensed under 
the Small Business Investment Act;
    (3) Pay, directly or indirectly, any obligations resulting from a 
federal, state or local tax penalty as a result of negligence or fraud, 
or any non-tax criminal fine, civil fine, or penalty for

[[Page 230]]

non-compliance with a law, regulation, or order of a federal, state, 
regional, or local agency or similar matter;
    (4) Repair physical damage; or
    (5) Pay dividends or other disbursements to owners, partners, 
officers or stockholders, except for reasonable remuneration directly 
related to their performance of services for the business.



PART 124--MINORITY SMALL BUSINESS AND CAPITAL OWNERSHIP DEVELOPMENT/SMALL DISADVANTAGED BUSINESS STATUS PROTEST AND APPEAL PROCEDURES--Table of Contents




  Subpart A--Minority Small Business and Capital Ownership Development

Sec.
124.1  Scope of regulations.
124.2  Associate Administrator for Minority Small Business and Capital 
          Ownership Development.
124.3  Division of Program Certification and Eligibility.
124.4  Commission on Minority Business Development.
124.5  Violations.
124.6  Penalties for misrepresentations and false statements.
124.7  Restrictions on fees for applicant and Participant 
          representatives.
124.100  Definitions.
124.101  The 8(a) program: General eligibility.
124.102  Small business concern.
124.103  Ownership requirements.
124.104  Control and management.
124.105  Social disadvantage.
124.106  Economic disadvantage.
124.107  Potential for success.
124.108  Additional 8(a) program eligibility requirements.
124.109  Ineligible businesses.
124.110  Program term.
124.111  Continued 8(a) program eligibility.
124.112  Concerns owned by Indian tribes, including Alaska Native 
          Corporations.
124.113  Concerns owned by Native Hawaiian Organizations.
124.114  Concerns owned by Community Development Corporations.
124.201  8(a) Program application.
124.202  Place of filing.
124.203  Servicing office.
124.204  Applicant representatives.
124.205  Forms and documents required.
124.206  Approval and decline of applications for 8(a) program 
          admission.
124.207  8(a) Program exit.
124.208  Program graduation.
124.209  Program termination.
124.210  Appeals to SBA's Office of Hearings and Appeals.
124.211  Suspension of program assistance.
124.300  Business development.
124.301  Development of business plan.
124.302  Review and modification of business plan.
124.303  Stages of 8(a) program participation.
124.304--124.305  [Reserved]
124.306  Financial assistance for skills training.
124.307  Contractual assistance.
124.308  Procedures for obtaining and accepting procurements for the 
          8(a) program.
124.309  Barriers to acceptance.
124.310  Approval of lower tier subcontractors.
124.311  8(a) competition.
124.312  Competitive business mix.
124.313  Certification of SBA's competency.
124.314  Performance of work by the 8(a) concern.
124.315  Fair market price for 8(a) awards.
124.316  Contract administration.
124.317  Performance of contracts by original 8(a) concern.
124.318  Exercise of options and modifications.
124.319  Contract termination.
124.320  Disputes and appeals.
124.321  Joint venture agreements.
124.401  Advance payments.
124.402  Business development expense.
124.403  Development Assistance Program.
124.404  Small Business and Capital Ownership Development Program.
124.501  Miscellaneous reporting requirements.

 Subpart B--Disadvantaged Business Status Protest and Appeal Procedures

124.601  Introduction.
124.602  General definitions.
124.603  Who may protest the disadvantaged status of a concern.
124.604  Who makes disadvantaged status determinations.
124.605  Protest procedures.
124.606  Grounds of protest.
124.607  Form and specificity of protest.
124.608  Notification of protest.
124.609  Making the disadvantaged status determination.
124.610  Appeals of disadvantaged status determinations.

    Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), and 637(d), Pub. L. 
99-661, sec. 1207, Pub. L. 100-656, Pub. L. 101-37, Pub. L. 101-574, and 
42 U.S.C. 9815.

[[Page 231]]



  Subpart A--Minority Small Business and Capital Ownership Development

    Source: 54 FR 34712, Aug. 21, 1989, unless otherwise noted.



Sec. 124.1  Scope of regulations.

    (a) General. (1) These regulations implement sections 8(a) and 7(j) 
of the Small Business Act, as amended by the Business Opportunity 
Development Reform Act of 1988, and Business Opportunity Development 
Reform Act Technical Corrections Act, (15 U.S.C. 637(a) and 636(j), as 
amended by Pub. L. 100-656 and Pub. L. 101-37.). Sections 8(a) and 7(j) 
of the Small Business Act establish the Minority Small Business and 
Capital Ownership Development Program or 8(a) Program. The 8(a) Program 
is intended to be used exclusively for business development purposes to 
help small businesses owned and controlled by socially and economically 
disadvantaged individuals, economically disadvantaged Indian tribes, 
including Alaska Native Corporations, and economically Native Hawaiian 
Organizations to compete on an equal basis in the mainstream of the 
American economy.
    (2)(i) Except as set forth in paragraphs (a)(2)(ii) and (iii) of 
this section and Sec. 124.311(b) of this title, these regulations apply 
to all business concerns that are 8(a) Program Participants, or have 
8(a) Program applications in process as of the effective date of the 
regulations. As noted, portions of these regulations also apply to other 
Federal programs for which social and economic disadvantaged status is a 
requirement of program eligibility. Such programs include, among others, 
the Small Disadvantaged Business (SDB) Set-aside and Bid Preference 
Programs authorized by section 1207(a) of Pub. L. 99-661, and the 
Minority Small Business Subcontracting Program authorized by section 
8(d) of the Small Business Act (15 U.S.C. 637(d)).
    (ii) Applications in process as of the effective date of these 
regulations, including applications that have been declined but have not 
received final determinations on requests for reconsideration, will not 
be subject to the new provisions of Sec. 124.107(a) regarding length of 
time in business or the new provisions of Sec. 124.109(b) which make 
franchises ineligible for 8(a) program participation. Such applicants 
will be subject to Agency policy requirements regarding potential for 
success and ineligible businesses which were in effect on the date of 
application.
    (iii) Procedures described in Sec. 124.210 relating to appeal of 
SBA's decline of an application are effective as to applications which 
are declined, after reconsideration, by the Associate Administrator for 
Minority Small Business and Capital Ownership Development on or after 
the effective date of these regulations. Procedures described in 
Secs. 124.208, 124.209, 124.211, relating to Program graduation, Program 
termination and Program suspension shall apply to concerns which SBA 
seeks to graduate, terminate or suspend but to which, as of the 
effective date of these regulations, an Order to Show Cause has not been 
issued pursuant to 13 CFR 124.110(k), 124.112 and 124.113 of SBA's rules 
which were in effect on July 31, 1989. Proceedings relating to any 
concern to which SBA has issued an Order to Show Cause prior to the 
effective date of these regulations shall be governed by 13 CFR part 124 
and part 134 as it existed on the date of the issuance of the Order to 
Show Cause.
    (b) The 8(a) and 7(j) programs. (1) Section 8(a) authorizes SBA to 
enter into all types of contracts, including, but not limited to, 
contracts for supplies, services, construction, research and development 
with other Government departments and agencies and to subcontract the 
performance of these contracts to small business concerns owned and 
controlled by socially and economically disadvantaged individuals, 
Indian tribes or Hawaiian Native Organizations.
    (2) Section 7(j) authorizes SBA to provide financial assistance to 
public or private organizations to pay all or part of the cost of 
projects designed to provide technical or management assistance to 
individuals or small business concerns eligible for assistance under 
sections 7(i), 7(j)(10), and 8(a) of the Small Business Act.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34902, Aug. 27, 1990]

[[Page 232]]



Sec. 124.2  Associate Administrator for Minority Small Business and Capital Ownership Development.

    The Associate Administrator for Minority Small Business and Capital 
Ownership Development (AA/MSB&COD), who shall be an employee in the 
competitive service or in the Senior Executive Service, and a career 
appointee, is responsible for the formulation and execution of the 
policies and programs under sections 7(j) and 8(a) of the Small Business 
Act. The AA/MSB&COD operates under the ultimate supervision of, and is 
generally responsible to, the Administrator of SBA.



Sec. 124.3  Division of Program Certification and Eligibility.

    The Division of Program Certification and Eligibility (Division) 
within the Office of Minority Small Business and Capital Ownership 
Development (MSB&COD) shall be responsible for handling all matters 
relating to 8(a) program eligibility, termination and graduation from 
8(a) program participation, and certifications of disadvantaged status 
for purposes of any program or activity conducted under the authority of 
section 8(d) of the Small Business Act or any Federal law that 
references such section. The Division, headed by a Director who shall 
report directly to the AA/MSB&COD, shall have field offices within some 
or all of the Agency's regional offices.



Sec. 124.4  Commission on Minority Business Development.

    A Commission on Minority Business Development (Commission) shall be 
established pursuant to section 505 of the Business Opportunity 
Development Reform Act of 1988 (Pub. L. 100-656). This Commission is 
authorized to review all Federal programs designed to promote the 
development of minority-owned businesses in order to ascertain whether 
the congressionally described goals and purposes of such programs are 
being realized.



Sec. 124.5  Violations.

    Willful violation by an applicant for admission to the section 8(a) 
program or an applicant for participation in the section 7(j) program or 
any of SBA's regulations governing these or its other programs may 
result in the applicant's denial of admission to the program. The nature 
and severity of any such violation will be considered by the AA/MSB&COD 
in making a determination on the admission of an applicant to the 
program.



Sec. 124.6  Penalties for misrepresentations and false statements.

    (a) General. Section 16 of the Small Business Act (15 U.S.C. 645) 
sets forth penalties for false statements and misrepresentations.
    (b) Misrepresentation of small business or small disadvantaged 
business status. The Business Opportunity Development Reform Act of 1988 
(Pub. L. 100-656) increased the penalties for intentional 
misrepresentation of small business status or small disadvantaged 
business status. Generally, section 16(d) of the Small Business Act 
provides that any person or entity that intentionally misrepresents the 
status of any concern or person as a ``small business concern'' or 
``small business concern owned and controlled by socially and 
economically disadvantaged individuals'' in order to obtain for him/
herself or another any of the contracting opportunities set forth in 
paragraph (b)(1) of this section will be subject to the penalties set 
forth in paragraph (b)(2) of this section. The following contracting 
opportunities are subject to penalties for misrepresentation described 
in this section:
    (1)(i) A prime contract to be awarded pursuant to section 9 (Small 
Business Innovation Research Program authority) or section 15 (various 
small business set-aside authorities) of the Small Business Act;
    (ii) A subcontract to be awarded pursuant to section 8(a) of the 
Small Business Act;
    (iii) A subcontract that is to be included as part or all of a goal 
contained in a subcontracting plan required pursuant to section 8(d) of 
the Small Business Act; or
    (iv) A prime or subcontract to be awarded as a result, or in 
furtherance, of any other provision of Federal law that specifically 
references section 8(d) of the Small Business Act for a definition of 
program eligibility.

[[Page 233]]

    (2) The following penalties apply for violations of this section:
    (i) A fine of not more than $500,000 or by imprisonment for not more 
than 10 years, or both;
    (ii) The administrative remedies prescribed by the Program Fraud 
Civil Remedies Act of 1986 (31 U.S.C. 3801-3812) and implementing 
regulations in part 142 of this chapter;
    (iii) Suspension and debarment as specified in 13 CFR part 145 of 
subpart 9.4 of the Federal Acquisition Regulation (FAR) (48 CFR subpart 
9.4), or any successor regulation, on the basis that such 
misrepresentation indicates a lack of business integrity that seriously 
and directly affects the present responsibility of a person or entity to 
transact business wtih the Federal government; and
    (iv) Ineligibility for participation in any program or activity 
conducted under the authority of the Small Business Act or the Small 
Business Investment Act of 1958 (15 U.S.C. 661, et seq.) for a period 
not to exceed 3 years.
    (c) Misrepresentation concerning compliance with competitive mix 
targets. Section 16(f) of the Small Business Act, as amended by Public 
Law 100-656, imposes the penalties set forth in paragraph (b)(2) of this 
section on any person or entity that falsely certifies past compliance 
with the requirements of section 7(j)(10)(I) of the Small Business Act 
which deals with competitive business mix and attainment of business 
activity targets (see Sec. 124.312).



Sec. 124.7  Restrictions on fees for applicant and Participant representatives.

    (a) General. The compensation received by any agent or 
representative of an 8(a) applicant or Program Participant for assisting 
the applicant in obtaining 8(a) certification or for assisting the 
Program Participant in obtaining 8(a) contracts must be reasonable in 
light of the service(s) performed by the agent or representative.
    (b) Contingent fees. Payment of a contingent fee for assisting a 
Program Participant in obtaining any 8(a) contract is generally 
prohibited as contrary to public policy, but is permitted if the payment 
is made by a Program Participant to a ``bona fide employee'' or a ``bona 
fide agency,'' as defined by the FAR, 48 CFR subpart 3.4, and 
Sec. 124.100.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34902, Aug. 27, 1990; 
60 FR 29974, June 7, 1995]



Sec. 124.100  Definitions.

    Alaska Native means a citizen of the United States who is a person 
of one-fourth degree or more Alaskan Indian (including Tsimshian Indians 
not enrolled in the Metlaktla Indian Community), Eskimo, or Aleut blood, 
or a combination thereof. The term includes, in the absence of proof of 
a minimum blood quantum, any citizen who is regarded as an Alaska Native 
by a Native village or Native group and whose father or mother is 
regarded as an Alaska Native.
    Alaska Native Corporation means any Regional Corporation, Village 
Corporation, Urban Corporation, or Group Corporation organized under the 
laws of the State of Alaska in accordance with the Alaska Native Claims 
Settlement Act, as amended (43 U.S.C. 1601, et seq.)
    Application or 8(a) application means all forms and attachments 
required by SBA to be completed by an applicant for the 8(a) program for 
the purpose of establishing program eligibility.
    Bona fide agency means an established commercial or selling agency, 
maintained by a contractor (or subcontractor where SBA is the 
contractor) for the purpose of securing business that neither exerts nor 
proposes to exert improper influence to solicit or obtain government 
contracts nor holds itself out as being able to obtain any government 
contract or contracts through improper influence.
    Bona fide employee, means a person, who is employed by a contractor 
(or subcontractor where SBA is the contractor) and subject to the 
contractor's, (or where SBA is the contractor, the subcontractor's) 
supervision; control as to time, place, and manner of performance; and 
who neither exerts nor proposes to exert improper influence to solicit 
or obtain government contracts nor holds himself/herself out as being 
able to obtain any government contract or contracts through improper 
influence.

[[Page 234]]

    Business Opportunity Specialist (BOS) means the SBA field office 
employee responsible for providing business development assistance to 
Program Participants pursuant to sections 7(j) and 8(a) of the Small 
Business Act (15 U.S.C. 636(j) 637(a)).
    Business plan means the business plan documents as submitted by the 
8(a) concern and approved in writing by SBA which include the 
objectives, goals, and business projections of an 8(a) concern, and all 
written amendments or modifications which have also been approved in 
writing by SBA.
    CDC-owned concern means any concern at least 51 percent owned by a 
Community Development Corporation as defined in this section.
    Certification of SBA's competency means a certification by SBA, 
based on its assessment of an 8(a) concern's competency to perform, that 
SBA is competent to perform the requirements as stated in the contract. 
The assessment does not require a special investigation or the issuance 
of a Certificate of Competency (COC) as provided for elsewhere in these 
regulations under the authority of section 8(b)(7)(A), (B) and (C) of 
the Small Business Act.
    Community Development Corporation or CDC means a nonprofit 
organization responsible to residents of the area it serves which has 
received financial assistance under 42 U.S.C. 9805 et seq.
    Concern is defined in part 121 of this title.
    Days means calendar days unless otherwise specified.
    Descendant of an Alaska Native means a lineal descendant of an 
Alaska Native, or of an individual who would have been an Alaska Native 
if such individual were alive on December 18, 1971, or an adoptee of an 
Alaska Native, or of a descendant of an Alaska Native whose adoption 
occurred prior to his or her majority (age 18 in the State of Alaska), 
and is recognized at law or in equity.
    Disadvantaged individual means an individual who SBA has determined 
to be socially and economically disadvantaged in connection with a 
concern's application for or participation in the 8(a) program.
    Fixed Program Participation Term means that ultimate time period 
during which a concern may have participated in the 8(a) program under 
Public Law 96-481, (April 21, 1982).
    Graduation means completion of 8(a) Program Participation pursuant 
to Sec. 124.208 prior to expiration of the Program Term because of 
substantial achievement of the targets, objectives and goals contained 
in the Participant's business plan.
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, father-in-law, mother-in-law, son-in-law, 
daughter-in-law, brother-in-law, sister-in-law, step-father, step-
mother, step-son, step-daughter, step-brother, step-sister, half-brother 
and half-sister.
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community of Indians, including any Alaska Native 
Corporation, as defined in this section, which is recognized as eligible 
for the special programs and services provided by the United States to 
Indians because of their status as Indians, or is recognized as such by 
the State in which such tribe, band, nation, group, or community 
resides. See, definition of ``tribally-owned concern.''
    Joint venture agreement means an agreement between an eligible 8(a) 
concern and another small business concern, whether or not an 8(a) 
participant, solely for the purpose of performing a specific 8(a) 
contract. See Sec. 124.321(h) for joint venture agreements with 
tribally-owned 8(a) concerns.
    Manufacturer means a concern which owns, operates, or maintains a 
factory or establishment that produces on the premises the materials, 
supplies, articles, or equipment described in the business plan. In 
order to qualify as a manufacturer, a concern must be able to show that 
it is an established manufacturer of particular goods or goods of 
general character which may be sought by the Government, or, if it is 
newly entering into such manufacturing activity, that it has made all 
necessary prior arrangements for space, equipment, and personnel to 
perform manufacturing operations. A new firm which has made such 
definite commitments in order to enter a manufacturing business which 
will later qualify it for the 8(a) program, shall not be barred from

[[Page 235]]

8(a) approval because it has not yet done any manufacturing; however, 
this interpretation is not intended to qualify a firm whose arrangements 
to use space, equipment, or personnel are contingent upon 8(a) approval. 
This definition is based upon the Walsh-Healey Public Contracts Act, 41 
U.S.C. 35-45.
    Native Hawaiian means any individual whose ancestors were natives 
prior to 1778, of the area which now comprises the State of Hawaii.
    Native Hawaiian Organization means any community service 
organization serving Native Hawaiians in the State of Hawaii which
    (1) Is a not-for-profit organization chartered by the State of 
Hawaii,
    (2) Is controlled by Native Hawaiians, and
    (3) Whose business activities will principally benefit such Native 
Hawaiians.
    Negative control is defined in part 121 of this title, 13 CFR 
121.401(c)(1) and (2) only.
    Nondisadvantaged individual means any individual who does not claim 
disadvantaged status, does not qualify as disadvantaged, or upon whose 
disadvantaged status applicant concern does not rely in qualifying for 
8(a) program participation. An individual who has used his/her 
disadvantaged status in previously qualifying a concern for 8(a) program 
participation is considered a nondisadvantaged individual for all other 
8(a) program purposes.
    Non-8(a) business activity target means the amount of non-8(a) 
revenue forecasted in a Participant's approved business plan during each 
year of its participation in the 8(a) program. During the developmental 
stage of program participation, these targets are goals of non-8(a) 
business that a Participant must strive to achieve and may be either a 
percentage of total revenues or a specified dollar figure. During the 
transitional stage of program participation these targets must be 
expressed as a percentage of total revenues, as set forth in 
Sec. 124.312(c), that a Participant is required to achieve in each year 
in the transitional stage.
    Open requirement means a requirement submitted to SBA by a procuring 
agency for possible 8(a) award without a particular 8(a) concern being 
identified as a candidate for the award. Open requirements can be for 
local buy items or national buy items.
    Operational control means actual or constructive authority to 
establish long and short term goals for the concern, and to manage the 
concern's day-to-day operations.
    Personal net worth means the net value of the assets of an 
individual remaining after total liabilities are deducted. See 
Sec. 124.106.
    Primary industry classification means the four digit Standard 
Industrial Classification (SIC) code designation which best describes 
the primary of industry the 8(a) applicant or Participant as defined in 
part 121 of this title.
    Principal place of business means the location at which the business 
records of the applicant concern are maintained and the location at 
which the individual who manages the concern's day-to-day operations 
spends the majority of his/her working hours.
    Program Participant (Participant or 8(a) Participant) means a small 
business concern participating in the Small Business and Capital 
Ownership Development Program established by sections 7(j) and 8(a) of 
the Small Business Act (15 U.S.C. 636(j) and 637(a)).
    Program suspension means the temporary cessation of all 8(a) program 
assistance pursuant to Sec. 124.211 of these regulations.
    Program year means a 12-month period of an 8(a) Participant's 
Program Participation. The first program year begins on the date that 
the concern is certified to participate in the 8(a) program and ends one 
year later. Each subsequent program year begins on the Participant's 
anniversary of program certification and runs for one 12-month period.
    Regular dealer means regular dealer as defined by the Walsh-Healey 
Public Contracts Act, 41 U.S.C. 35-45, and Department of Labor 
regulations found at 41 CFR 50-201.101, 50-206.53, and 50-206.54.
    Requirement means a contract opportunity from a Federal procuring 
agency to acquire articles, equipment, supplies, services, materials or 
construction work.
    Same or similar line of business means all business activities 
within the same

[[Page 236]]

two-digit ``Major Group'' of the Standard Industrial Classification 
(SIC) System (set forth in the SIC Manual), as the primary industry 
classification of the applicant concern.
    Self-marketing of a requirement occurs when an 8(a) firm identifies 
a requirement that has not been committed to the 8(a) program and, 
through its marketing efforts causes the procuring agency to offer that 
specific requirement to the 8(a) program on its behalf. A firm which 
identifies and markets a requirement which is subsequently offered to 
the 8(a) program as an open requirement or on behalf of another 8(a) 
Participant has not ``self-marketed'' the requirement within the meaning 
of these regulations.
    Termination means the permanent cessation of 8(a) Program 
Participation prior to the expiration of the concern's Program Term for 
good cause pursuant to Sec. 124.209.
    Tribally-owned concern means any concern at least 51 percent owned 
by an Indian tribe as defined in this section.
    Unconditional ownership means ownership that is not subject to 
conditions precedent, conditions subsequent, executory agreements, 
voting trusts, shareholder agreements or other similar arrangements 
which serve to allow the primary benefits of Program Participation to 
accrue to entities or individuals other than upon whom 8(a) program 
eligibility is based.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34902, Aug. 27, 1990; 
60 FR 29974, June 7, 1995]



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 8(a) eligibility is based 
must meet all of the eligibility criteria set forth in Secs. 124.102 
through 124.109 hereunder. 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. All 
determinations by the AA/MSB&COD made pursuant to Secs. 124.102, 
124.103, 124.104, 124.105, 124.106, and 124.107 shall be in writing, 
setting forth the findings based on relevant facts and in accordance 
with law and regulations, upon which the determination is based. An 
applicant concern which is declined 8(a) program admission may request a 
reconsideration of such decline, as set forth in Sec. 124.206. 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 Office of Hearings and Appeals. 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. Appeal 
procedures for a decline of program admission by the AA/MSB&COD and 
grounds for which such an appeal may be brought are set forth in 
Sec. 124.210 and part 134 of this title. The written decision of the 
Office of Hearings and Appeals shall be the final Agency decision. A 
concern which has been declined for 8(a) program admission may reapply 
for program admission 12 months after the date of the final Agency 
decision to decline.
    (b) In order to continue its participation in the 8(a) program, a 
Program Participant must continue to meet all eligibility requirements 
described in Secs. 124.102 through 124.109, Sec. 124.111(a), and 
Sec. 124.112, Sec. 124.113 or Sec. 124.114, if applicable. In order to 
continue its participation in the 8(a) program, a concern certified for 
program participation prior to the effective date of these regulations 
must comply with the requirements of Secs. 124.102 through 124.109, 
124.11(a) and 124.112, if applicable, which have been previously 
required by regulation, policy or procedure. Within 12 months of the 
effective date of these regulations, such concerns must also

[[Page 237]]

come into compliance with the requirements of paragraph (a) of this 
section which have not been previously required by regulation, policy or 
procedure. Failure to do so may lead to termination or graduation 
pursuant to Secs. 124.208 and 124.209.
    (c)(1) It is SBA's intent to process applications for participation 
in a fair and consistent manner and to ensure that 8(a) program 
participation is limited to eligible individuals and concerns. Toward 
that end, SBA invites the participation of the public in preventing 
fraud and assuring the integrity of the 8(a) program.
    (2) The AA/MSB&COD shall cause to be reviewed any determination that 
an individual, applicant concern or Participant is eligible to 
participate in the 8(a) program whenever a member of the public submits 
credible evidence that
    (i) Such determination was based on fraudulent information;
    (ii) SBA did not follow the requirements of these regulations in 
rendering the determination; or
    (iii) The individual or concern has undergone one or more changes 
which have rendered it ineligible for 8(a) Program Participation.
    (3) The AA/MSB&COD shall determine whether the facts developed 
during any such review warrant further action. The member of the public 
whose information gave rise to the review shall be advised of SBA's 
findings, consistent with laws protecting confidentiality.

[54 FR 34712, Aug. 21, 1989, as amended at 60 FR 29974, June 7, 1995]



Sec. 124.102  Small business concern.

    (a) In order to be approved for participation in the 8(a) program, 
an applicant concern must qualify as a small business concern as defined 
in part 121 of this title. The particular size standard to be applied 
will be based on the primary industry classification of the applicant 
concern. The size of a tribally-owned concern, a concern owned by a 
Native Hawaiian Organization, or a concern owned by a Community 
Development Corporation shall be additionally determined by reference to 
Sec. 124.122, Sec. 124.113 or Sec. 124.114, respectively.
    (b) If the AA/MSB&COD is unable to determine that an applicant 
concern qualifies as a small business, the AA/MSB&COD may deny the 
concern's application for 8(a) program admission or may request a formal 
size determination from the appropriate regional office. If the 
application is so denied, the small business concern may request a 
formal size determination from the appropriate regional office pursuant 
to part 121 of this title. Size determinations by an SBA regional office 
may be appealed to SBA's Office of Hearings and Appeals pursuant to part 
121 of this title.
    (c) In order to continue to participate in the 8(a) program, a 
Program Participant must qualify pursuant to the provisions of part 121 
of this title as a small business under one or more of the SIC Codes 
contained in the concern's approved business plan.
    (d) Except for contracts awarded to joint ventures controlled by 
eligible Indian tribes, under Sec. 124.321, a Program Participant must 
certify that it is a small business pursuant to part 121 of this title 
for the purpose of performing each contract awarded under the authority 
of section 8(a). SBA, in turn, will undertake to verify such 
certifications. In the event that the SBA does not verify a 
certification, the Program Participant may request a formal size 
determination from the appropriate SBA regional office. Formal size 
determinations will be conducted in accordance with part 121 of this 
title.

[54 FR 34712, Aug. 21, 1989, as amended at 60 FR 29974, June 7, 1995]



Sec. 124.103  Ownership requirements.

    Except for concerns owned by Indian tribes, Alaska Native 
Corporations, Native Hawaiian Organizations, or Community Development 
Corporations, as defined in Sec. 124.110, in order to be eligible to 
participate in the 8(a) program, an applicant concern must be at least 
51 percent unconditionally owned by an individual(s) who is a citizen of 
the United States (specifically excluding permanent resident alien(s)) 
and who is determined by SBA to be socially and economically 
disadvantaged. Special ownership requirements for concerns owned by 
Indian tribes and Alaska Native Corporations are set forth in

[[Page 238]]

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) In the case of an applicant concern which is a partnership, 51 
percent of the partnership interest must be unconditionally owned by an 
individual(s) determined by SBA to be socially and economically 
disadvantaged. Such unconditional ownership must be reflected in the 
concern's partnership agreement.
    (b) In the case of an applicant concern which is a corporation, 51 
percent of each class of voting stock and 51 percent of the aggregate of 
all outstanding shares of stock must be unconditionally owned by an 
individual(s) determined by SBA to be socially and economically 
disadvantaged.
    (c) SBA will not find unconditional ownership if socially and 
economically disadvantaged individual(s) asserts ownership of a concern 
on the basis of unexercised stock options or other arrangements.
    (d) When determining ownership for purposes of 8(a) program 
eligibility, SBA will consider options to purchase stock held by 
nondisadvantaged individuals or entities, or to rights to convert non-
voting stock or debentures held by nondisadvantaged individuals or 
entities into voting stock, to have been exercised. However, any 
potential ownership interests (such as options or warrants) held by 
investment companies licensed under the Small Business Investment Act of 
1958 shall not be treated as ownership interests until exercised.
    (e)(1) The individual(s) upon whom eligibility is based must receive 
at least 51 percent of the annual distribution of dividends paid on the 
voting stock of a corporate applicant concern;
    (2) In the event that the stock is sold, the individual(s) upon whom 
eligibility is based must be entitled to receive 100 percent of the 
value of each share of stock in his/her possession; and
    (3) In the event of dissolution of the corporation, the 
individual(s) upon whom eligibility is based must be entitled to receive 
at least 51 percent of the retained earnings of the concern and 100 
percent of the value of each share of stock in his/her possession.
    (f) One 8(a) concern may not hold more than a 10 percent equity 
ownership interest in any other 8(a) concern.
    (g) Except for partners or shareholders which are financial 
institutions licensed or chartered by Federal, state or local 
government, including investment companies which are licensed under the 
Small Business Investment Act of 1958, an individual, whether or not 
disadvantaged, or entity, who/which is a partner, stockholder, officer 
and/or director in an 8(a) concern is prohibited from simultaneously 
holding an equity ownership interest exceeding 10 percent in another 
8(a) concern. In no case shall an ownership interest in an 8(a) concern 
held by any such financial institution exceed 49 percent. The 
restrictions of this paragraph are not intended to affect the ability of 
an 8(a) concern to participate in any joint venture agreement that meets 
the requirements of Sec. 124.321.
    (h) A non-8(a) concern in the same or similar line of business is 
prohibited from having an equity ownership interest in an 8(a) concern 
which exceeds 10 percent, except that a former Program Participant 
(except those that have been terminated from 8(a) program participation 
pursuant to Sec. 124.209) may have an equity ownership interest of up to 
20 percent in a current 8(a) concern in the same or similar line of 
business. The restrictions of this paragraph are not intended to affect 
the ability of an 8(a) concern to participate in any joint venture 
agreement that meets the requirements of Sec. 124.321.
    (i) An 8(a) business concern may continue participation in the 
program subsequent to a change in its 8(a) ownership, provided that SBA 
gave prior written approval to such change. Where the change in 8(a) 
ownership represents less than a 10 percent interest in the concern or 
results from the death or incapacity due to serious, long-term illness 
or injury of a disadvantaged principal, prior approval is not required; 
however, the concern shall notify SBA as soon as possible. Continued 
participation of the 8(a) concern under new disadvantaged ownership 
requires SBA's determination that all individual and business 
eligibility

[[Page 239]]

requirements of these regulations are met by the concern and the new 
owners.
    (j) A Program Participant's request for SBA's approval for the 
issuance of a public offering will be treated as a request for a change 
of ownership. Such request will cause SBA to examine the concern's 
continued need for access to the business development resources of the 
8(a) program.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 33896, Aug. 20, 1990; 
60 FR 29975, June 7, 1995]



Sec. 124.104  Control and management.

    Except for concerns owned by Indian tribes, Alaska Native 
Corporations (ANCs), Native Hawaiian Organizations, or Community 
Development Corporations (CDCs), as defined in Sec. 124.100, an 
applicant concern's management and daily business operations must be 
conducted by one or more owners of the applicant concern who have been 
determined to be socially and economically disadvantaged. (See 
Sec. 124.112 for the requirements for tribally-owned entities and those 
owned by ANCs, Sec. 124.113 for requirements for concerns owned by 
Native Hawaiian Organizations, and Sec. 124.114 for requirements for 
CDC-owned concerns). In order for a disadvantaged individual to be found 
to control the concern, that individual must have managerial or 
technical experience and competency directly related to the primary 
industry in which the applicant concern is seeking certification.
    (a)(1) An applicant concern must be managed on a full-time basis by 
one or more individuals who have been found by SBA to be socially and 
economically disadvantaged, and such person(s) must possess requisite 
management or technical capabilities as determined by SBA. In addition, 
for those industries requiring professional licensing (i.e., public 
accountancy, law, professional engineering, etc.), SBA must determine 
that the applicant concern or individuals employed by the applicant 
concern hold(s) the requisite license(s).
    (2) At least one socially and economically disadvantaged full-time 
manger must hold the position of President or Chief Executive Officer. 
This precludes outside employment or any other business interest by the 
individual which conflicts with the management of the firm or hinders it 
in achieving the objectives of its business development plan. Any 
disadvantaged person 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 such notification for compliance with the requirement of day-to-
day management and control of the 8(a) cencern.
    (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.) 
This does not preclude the appointment of non-voting or honorary 
Directors so as to allow the firm to have a varied and experienced Board 
of Directors. All arrangements regarding the structure and voting rights 
of the Board must comply with applicable state law.
    (c) Individuals who are not socially and economically disadvantaged 
may be involved in the management of an applicant concern, and may be 
stockholders, partners, officers, and/or directors of such concern. Such 
individual(s), their spouses or immediate family members who reside in 
the individual's household may not however:
    (1) Exercise actual control or have the power to control the 
applicant or 8(a) concern.
    (2) Be an officer or director or more than a 10% owner, stockholder, 
or partner of another firm in the same or similar line of business as 
the applicant or 8(a) concern.
    (3) Receive excessive compensation from the applicant or 8(a) 
concern as directors, officers or employees. Individual compensation 
from the concern

[[Page 240]]

in any form, including dividends, which is paid to a nondisadvantaged 
owner, his/her spouse or immediate family member residing in the same 
household will be deemed excessive if it exceeds the compensation to be 
received by the Chief Executive Officer or, if no Chief Executive 
Officer, the President; provided that, with the written consent of the 
AA/MSB&COD or designee, the Chief Executive Officer or President may 
elect to take a lower salary than such a nondisadvantaged individual if 
it is demonstrated to be in the best interest of the applicant or 8(a) 
concern.
    (4) Be former employers of the disadvantaged owner(s) of the 
applicant or 8(a) concern, unless it is determined by the AA/MSB&COD 
that the contemplated relationship between the former employer and the 
disadvantaged individual or applicant concern does not give the former 
actual control or the potential to control the applicant or 8(a) concern 
and such relationship is in the best interests of the 8(a) firm.
    (5) Have an equity ownership interest of more than 10 percent in 
another 8(a) concern.
    (d) Nondisadvantaged individuals or entities may be found to control 
or have the power to control in any of the following circumstances, 
which are illustrative only and not all inclusive:
    (1) Nondisadvantaged individuals control the voting Board of 
Directors of the 8(a) concern, either directly through majority voting 
membership, or indirectly, if the by-laws allow nondisadvantaged 
individuals to block any action proposed by the disadvantaged 
individuals through negative control. For example, an equal number of 
disadvantaged and nondisadvantaged voting directors could create 
negative control.
    (2) A nondisadvantaged individual, as an officer or member of the 
Board of Directors of the 8(a) concern, or through stock ownership, has 
the power to control day-to-day direction of the business affairs of the 
concern.
    (3) The nondisadvantaged individual or entity provides critical 
financial or bonding support or licenses to the 8(a) concern which 
directly or indirectly allows the nondisadvantaged individual to gain 
control or direction of the 8(a) concern.
    (4) A nondisadvantaged individual or entity exercises voting control 
of the Participant through a nominee(s).
    (5) A nondisadvantaged individual or entity controls the corporation 
or the individual disadvantaged owners through loan arrangements.
    (6) Other contractual relationships exist with nondisadvantaged 
individuals or entities, the terms of which would create control over 
the disadvantaged concern.

[54 FR 34712, Aug. 21, 1989, as amended at 60 FR 29975, June 7, 1995]



Sec. 124.105  Social disadvantage.

    (a) General. Socially disadvantaged individuals are those who have 
been subjected to racial or ethnic prejudice or cultural bias because of 
their identities as members of groups without regard to their individual 
qualities. The social disadvantage must stem from circumstances beyond 
their control. For social disadvantage relating to Indian tribes and 
Alaska Native Corporations, see Sec. 124.112(a).
    (b) Members of designated groups. (1) In the absence of evidence to 
the contrary, the following individuals are presumed to be socially 
disadvantaged: Black Americans; Hispanic Americans; Native Americans 
(American Indians, Eskimos, Aleuts, or Native Hawaiians); Asian Pacific 
Americans (persons with origins from Burma, Thailand, Malaysia, 
Indonesia, Singapore, Brunei, Japan, China, Taiwan, Laos, Cambodia 
(Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of 
the Pacific Islands (Republic of Palau), Republic of the Marshall 
Islands, Federated States of Micronesia, the Commonwealth of the 
Northern Mariana Islands, Guam, Samoa, Macao, Hong Kong, Fiji, Tonga, 
Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with 
origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the 
Maldives Islands or Nepal); and members of other groups designated from 
time to time by SBA according to procedures set forth at paragraph (d) 
of this section.
    (2) An individual seeking socially disadvantaged status as a member 
of a designated group may be required to demonstrate that he/she holds 
himself/

[[Page 241]]

herself out and is identified as a member of a designated group if SBA 
has reason to question such individual's status as a group member.
    (c) Individuals not members of designated groups. (1) An individual 
who is not a member of one of the above-named groups must establish his/
her individual social disadvantage on the basis of clear and convincing 
evidence. A clear and convincing case of social disadvantage must 
include the following elements:
    (i) The individual's social disadvantage must stem from his or her 
color, ethnic origin, gender, physical handicap, long-term residence in 
an environment isolated from the mainstream of American society, or 
other similar cause not common to small business persons who are not 
socially disadvantaged.
    (ii) The individual must demonstrate that he or she has personally 
suffered social disadvantage, not merely claim membership in a non-
designated group which could be considered socially disadvantaged.
    (iii) The individual's social disadvantage must be rooted in 
treatment which he or she has experienced in American society, not in 
other countries.
    (iv) The individual's social disadvantage must be chronic and 
substantial, not fleeting or insignificant.
    (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 of an applicant's case. SBA will particularly consider and place 
emphasis on the following experiences of the individual, where relevant:
    (A) Education. SBA shall consider, as evidence of an individual's 
social disadvantage, denial of equal access to institutions of higher 
education; exclusion from social and professional association with 
students and teachers; denial of educational honors; social patterns or 
pressures which have discouraged the individual from pursuing a 
professional or business education; and other similar factors.
    (B) Employment. SBA shall consider, as evidence of an individual's 
social disadvantage, discrimination in hiring; discrimination in 
promotions and other aspects of professional advancement; discrimination 
in pay and fringe benefits; discrimination in other terms and conditions 
of employment; retaliatory behavior by an employer; social patterns or 
pressures which have channelled the individual into nonprofessional or 
non-business fields; and other similar factors.
    (C) Business history. SBA shall consider, as evidence of an 
individual's social disadvantage, unequal access to credit or capital; 
acquisition of credit or capital under unfavorable circumstances; 
discrimination in receipt (award and/or bid) of government contracts; 
discrimination by potential clients; exclusion from business or 
professional organizations; and other similar factors which have impeded 
the individual's business development.
    (d) Socially disadvantaged group inclusion--(1) General. Upon an 
adequate preliminary showing to SBA by representatives of an 
identifiable group that the group has suffered chronic racial or ethnic 
prejudice or cultural bias, and upon the request of the representatives 
of the group that SBA do so, SBA shall publish in the Federal Register a 
notice of its receipt of a request that it consider a group not 
specifically named in paragraph (b)(1) of this section to have members 
which are socially disadvantaged because of their identification as 
members of the group for the purpose of eligibility for the 8(a) 
program. The notice shall adequately identify the group making the 
request, and if a hearing is requested on the matter and such request is 
granted, the time, date and location at which such hearing is to be 
held. All information submitted to support a request should be addressed 
to the AA/MSB&COD.
    (2) Standards to be applied. In determining whether a group has made 
an adequate preliminary showing that it has suffered chronic racial or 
ethnic prejudice or cultural bias for the purposes of this regulation, 
SBA shall determine:
    (i) Whether the group has suffered the effects of prejudice, bias, 
or discriminatory practices;

[[Page 242]]

    (ii) Whether such conditions have resulted in economic deprivation 
for the group of the type which Congress has found exists for the groups 
named in the Small Business Act; and
    (iii) Whether such conditions have produced impediments in the 
business world for members of the group over which they have no control 
and which are not common to all small business owners. If it is 
demonstrated to SBA by a particular group that it satisfies the above 
criteria, SBA will publish the notice described in paragraph (d)(1) of 
this section.
    (3) Procedure. Once a notice is published under paragraph (d)(1) of 
this section, SBA shall adduce further information on the record of the 
proceeding which tends to support or refute the group's request. Such 
information may be submitted by any member of the public, including 
Government representatives and any member of the private sector. 
Information may be submitted in written form, or orally at such hearings 
as SBA may hold on the matter.
    (4) Decision. Once SBA has published a notice under paragraph (d)(1) 
of this section, it shall afford a period of not more than thirty (30) 
days for public comment concerning the petition for socially 
disadvantaged group status. If appropriate, SBA may hold hearings within 
such comment period. Thereafter, SBA shall consider all information 
received and shall render its final decision within 60 days of the close 
of the comment period. Such decisions shall be published as a notice in 
the Federal Register. Concurrent with the notice, SBA shall advise the 
petitioners of its final decision in writing. If appropriate, SBA shall 
amend this regulation accordingly.



Sec. 124.106  Economic disadvantage.

    (a) Economic disadvantage for the 8(a) program. (1)(i) For purposes 
of the 8(a) program, economically disadvantaged individuals are socially 
disadvantaged individuals whose ability to compete in the free 
enterprise system has been impaired due to diminished capital and credit 
opportunities as compared to others in the same or similar line of 
business who are not socially disadvantaged, and such diminished 
opportunities have precluded or are likely to preclude such individuals 
from successfully competing in the open market. In determining economic 
disadvantage for purposes of 8(a) program eligibility, SBA shall compare 
the applicant concern's business and financial profile with profiles of 
businesses in the same or similar line of business which are not owned 
and controlled by socially and economically disadvantaged individuals.
    (ii) This program is not intended to assist concerns owned and 
controlled by socially disadvantaged individuals who have accumulated 
substantial wealth, who have unlimited growth potential or who have not 
experienced or have overcome impediments to obtaining access to 
financing, markets and resources.
    (iii) For economic disadvantage as it relates to tribally-owned 
concerns, see Sec. 124.112(b)(2).
    (2) Factors to be considered. In determining the degree of 
diminished credit and capital opportunities of a socially disadvantaged 
individual, SBA will consider factors relating both to the applicant 
concern and to the individual(s) claiming disadvantaged status. Factors 
fall into three general categories: The personal financial condition of 
the individual(s) claiming disadvantaged status, including that 
individual's access to credit and capital; the financial condition of 
the applicant concern; and the applicant concern's access to credit, 
capital and markets.
    (i) Personal financial condition of the individuals claiming 
disadvantaged status. This criterion is designed to assess the relative 
degree of economic disadvantage of the individual, as well as the 
individual's potential to capitalize or otherwise provide financial 
support for the business. The specific factors to be considered include, 
but are not limited to: the individual's personal income for at least 
the past two years; total fair market value of all assets; and the 
individual's personal net worth. Subject to the exclusions set forth in 
paragraph (a)(2)(i)(B) of this section, an individual whose personal net 
worth exceeds $250,000 will not be considered economically disadvantaged 
for purposes of 8(a) program entry. For personal net worth thresholds 
relating

[[Page 243]]

to continued 8(a) program eligibility, see Sec. 124.111(a).
    (A)(1) Except as provided in paragraph (a)(2)(i)(A)(2) of this 
section, when married, an individual upon whom eligibility is based 
shall submit a financial statement relating to his/her personal finances 
and a separate financial statement relating to his/her spouse's personal 
finances. A married applicant individual residing in any of the 
community property states or territories of the United States (e.g., 
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Puerto Rico 
Texas, Washington and Wisconsin) must clearly identify on his or her 
financial statement those assets which are his or her separate property 
and those which are community property. The spouse of such married 
applicant must similarly identify on his or her financial statement 
those assets which are his or her separate property and those which are 
community property. A one-half interest in the assets identified as 
community property (and income derived from such assets) will be 
attributed to the applicant individual for purposes of determining 
economic disadvantage. Assets or a community property interest in 
assets, which applicant spouse has transferred to a non-applicant spouse 
within 2 years of the date of application to the 8(a) program will be 
presumed to be the property of the applicant spouse for purposes of 
determining his/her personal net worth. However, such presumption shall 
not apply to any applicant spouse who is subject to a legal separation 
recognized by a court of competent jurisdiction. A financial statement 
of a spouse of an applicant is not required if the individual and his/
her spouse are subject to a legal separation recognized by a court of 
competent jurisdiction. However, an applicant individual must include on 
his or her statement all community property in which he or she has an 
interest.
    (2) Except for concerns where both spouses are individuals upon whom 
eligibility is based, the requirement of paragraph (a)(2)(i)(A)(1) of 
this section, relating to the separate financial statements, applies 
only to determinations of economic disadvantage for purposes of 8(a) 
program entry. For a concern where both spouses are individuals upon 
whom program eligibility is based, the personal net worth of each spouse 
individually will be considered for program certification and for 
continued program eligibility.
    (B) Whenever SBA calculates the personal net worth of an individual 
claiming disadvantaged status for purposes of the 8(a) program, SBA 
shall exclude the individual's ownership interest in the applicant or 
participating 8(a) concern and the equity in his/her primary personal 
residence, but shall not exclude any portion of such equity in his/her 
primary residence which is attributable to excessive withdrawals from 
the applicant or participating 8(a) concern.
    (C) Whenever SBA calculates the personal net worth of an individual 
claiming to be an Alaska Native, as defined in Sec. 124.100, for 
purposes of qualifying an individually owned 8(a) applicant concern, SBA 
shall include assets and income from sources other than an Alaska Native 
Corporation, as defined in Sec. 124.100, and shall exclude from such 
calculation any of the following which the individual receives from any 
Alaska Native Corporation:
    (1) Cash (including cash dividends on stock received from a Native 
Corporation) to the extent that it does not, in the aggregate, exceed 
$2,000 per individual per annum;
    (2) Stock (including stock issued or distributed by a Native 
Corporation as a dividend or distribution on stock);
    (3) A partnership interest;
    (4) Land or an interest in land (including land or an interest in 
land received from a Native Corporation as a dividend or distribution on 
stock); and
    (5) An interest in a settlement trust.
    (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 concerns in the same or similar line of business 
which are not owned and controlled by socially and economically 
disadvantaged individuals. In evaluating a concern's financial 
condition, SBA's consideration will include, but not be limited to, the 
following factors: business assets, revenues, pre-tax profit, working 
capital and net worth of the concern, including the value of the

[[Page 244]]

investments in the concern held by the individual claiming disadvantaged 
status.
    (iii) Access to credit and capital. This criterion will be used to 
evalute the ability of the applicant concern to obtain the external 
support necessary to operate a competitive business enterprise. In 
making the evaluation, SBA shall consider the concern's access to credit 
and capital, including, but not limited to, the following factors: 
Access to long-term financing; access to working capital financing; 
equipment trade credit; access to raw materials and/or supplier trade 
credit; and bonding capability.
    (b) Economic disadvantage for the 8(d) Subcontracting Program, Small 
Disadvantaged Business Set-Asides, Small Disadvantaged Business 
Evaluation Preferences and for any other Federal procurement programs 
requiring SBA's determination of disadvantaged status. (1) For purposes 
of the section 8(d) Subcontracting Program and other programs requiring 
SBA's determination of disadvantaged status, economically disadvantaged 
individuals are socially disadvantaged individuals whose ability to 
compete in the free enterprise system has been impaired due to 
diminished capital and credit opportunities, as compared to others in 
the same or similar line of business and whose diminished opportunities 
have precluded or are likely to preclude such individuals from 
successfully competing in the open market. In determining economic 
disadvantage for the section 8(d) Subcontracting program, Small 
Disadvantaged Business set-asides and Small Disadvantaged Business 
Evaluation preferences, SBA will consider the 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 corresponds 
to 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) An individual whose personal net worth exceeds $750,000 as 
calculated pursuant to paragraph (a)(2)(i) of this section, will not be 
considered economically disadvantaged for purposes of section 8(d) of 
the Small Business Act (15 U.S.C. 637(d)) or any Federal procurement 
program which uses section 8(d) for its definition of economic 
disadvantage.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34902, Aug. 27, 1990]



Sec. 124.107  Potential for success.

    Except for tribally-owned applicant concerns which must meet the 
requirements of Sec. 124.112(c)(6), SBA will approve a concern for 
Program Participation only when it finds that the applicant concern 
possesses reasonable prospects for success in competing in the private 
sector and has been in business in its primary industry classification 
for two full years, unless a waiver for the two-year in business 
requirement is granted pursuant to paragraph (b) of this section.
    (a) Unless a waiver is granted pursuant to paragraph (b) of this 
section, an applicant concern must demonstrate that it has been in 
business in the primary industry classification in which it seeks 8(a) 
certification for two full years prior to the date of its 8(a) 
application by submitting income tax returns showing revenues for each 
of the two previous years.
    (b) The requirement that an applicant concern be in business for two 
full years may be waived, and the concern shall be considered to have 
demonstrated reasonable prospects for success, if each of the five 
conditions set forth in paragraph (b)(1) of this section are met.
    (1) The two-year in business requirement may be waived if--
    (i) The individual or individuals upon whom eligibility is to be 
based have substantial and demonstrated business management experience;
    (ii) The prospective Program Participant has demonstrated technical 
experience to carry out its business plan with a substantial likelihood 
for success;
    (iii) The prospective Program Participant has adequate capital to 
sustain

[[Page 245]]

its operations and carry out its business plan;
    (iv) The prospective Program Participant has a record of successful 
performance on contracts from governmental and/or nongovernmental 
sources in the primary industry category in which the prospective 
Program Participant is seeking Program certification; and
    (v) The prospective Program Participant has, or can demonstrate its 
ability to timely obtain, the personnel, facilities, equipment, and any 
other requirements needed to perform such contracts.
    (2) In order to be eligible for a waiver of the two-year in business 
requirement, an applicant concern that has been in business for less 
than two years must indicate in its application that it seeks a waiver, 
must provide information on governmental and nongovernmental contracts 
in progress and completed (including letters of reference) to establish 
successful contract performance, and must demonstrate how it otherwise 
meets the five conditions for waiver.
    (3) SBA shall consider an applicant's performance on both government 
and private sector contracts if the applicant has performed contracts in 
both arenas. In such a case, an applicant's performance on both types of 
contracts will be reviewed to determine whether the firm has an overall 
successful performance record. If, however, the applicant has performed 
only government contracts or only private sector contracts, the 
applicant's performance on those contracts alone will be reviewed to 
determine whether the applicant possesses a record of successful 
performance.
    (c) In determining whether a concern has the potential for success, 
SBA will look at a number of factors including, but not limited to, the 
technical and managerial experience and competency of the individual(s) 
upon whom eligibility is based, 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. SBA will examine each of these factors to 
determine whether the otherwise eligibile 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.
    (d) An applicant concern shall not be denied admission into the 
program due solely to a determination that specific contract 
opportunities are unavailable to assist in the development of the 
concern unless:
    (1) The Government has not previously procured and is unlikely to 
procure the types of products or services offered by the concern; or
    (2) The purchase of such products or services by the Federal 
Government will not be in quantities sufficient to support the 
developmental needs of the applicant and other Program Participants 
providing the same or similar items or services.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 33896, Aug. 20, 1990; 
59 FR 12814, Mar. 18, 1994]



Sec. 124.108  Additional 8(a) program eligibility requirements.

    (a) Individual character review. If, during the processing of an 
application, adverse information is obtained from the 8(a) program 
applicant or a credible source regarding possible criminal conduct by an 
applicant concern or any of its principals, no further action will be 
taken on the application until SBA's Inspector General has evaluated 
that information and has advised the AA/MSB&COD of his or her findings. 
The AA/MSB&COD will consider those findings when evaluating the 
application.
    (b) Standards of conduct. The SBA Standards of Conduct regulations, 
13 CFR part 105, et seq., apply to eligibility questions involving SBA 
employees and their relatives. In particular, see Secs. 105.404 and 
105.506 of this title prohibiting certain SBA employees and former 
employees from, among other things, holding an ownership interest in an 
8(a) concern.
    (c) Eligibility limitations. (1) Except for concerns owned by Indian 
tribes or Alaska Native Corporations, once a concern or disadvantaged 
individual upon whom eligibility was based has participated in the 8(a) 
program and

[[Page 246]]

the concern has exited the program by termination, graduation, voluntary 
withdrawal or expiration of its program term, neither the concern nor 
any individual whose personal disadvantaged status was required to 
qualify the concern for 8(a) Program Participation shall be eligible to 
reapply for Program Participation. See Sec. 124.112 regarding 
eligibility limitations for Indian tribes, including Alaska Native 
Corporations.
    (2) An individual will be found to have used his or her eligibility 
for the 8(a) Program if he or she has claimed disadvantaged status by 
completing the appropriate SBA forms and SBA has approved the applicant 
concern's entry into the 8(a) program.
    (3) Use of eligibility will take effect on the date of the concern's 
approval into the program.
    (4) After an 8(a) concern exits the program, a disadvantaged owner 
of that concern may hold an ownership interest in or be involved in the 
management of another 8(a) concern, subject to the provisions of 
Sec. 124.104(c). In these instances, for purposes of 8(a) participation 
only, such an individual will be deemed to be a non-disadvantaged owner 
of that concern and criteria restricting non-disadvantaged individual 
participation shall apply. See Secs. 124.103 and 124.104.
    (5) Transfer of the ownership and control of an 8(a) Participant to 
one or more other individuals does not terminate such concern's 
eligibility for the program provided that SBA determines the 
transferee(s) to be socially and economically disadvantaged. However, 
the 8(a) concern's Program Term as described in Sec. 124.110 is in no 
way affected by such transfer.
    (d) Manufacturers and regular dealers. (1) For purposes of program 
entry, each applicant concern whose primary industry classification is 
as a manufacturer or supplier of materials, supplies, articles and 
equipment must be determined to be a manufacturer or regular dealer as 
defined in the Walsh-Healey Public Contracts Act Regulations found at 48 
CFR part 22, subpart 22.6.
    (2) Participants in the developmental stage of 8(a) Program 
Participation may be eligible for two exemptions from the contingent 
agreement requirements of the Walsh-Healey Public Contracts Act, see, 
Sec. 124.304(d). However, the availability of such exemptions during the 
Program Term in no way affects the requirement that an applicant concern 
comply with the provisions of paragraph (d)(1) of this section for 
purposes of program entry.
    (e) Multiple concerns in same household. Immediate family members 
living in the same household may not each use their individual 
disadvantaged status to qualify more than one business concern for 8(a) 
Program Participation if the concerns are in the same or similar line of 
business. When the concerns are in separate lines of business, each 
applicant must establish that the concerns are separately owned, managed 
and controlled. (For size limitations see part 121 of this title.)



Sec. 124.109  Ineligible businesses.

    (a) Brokers and packagers. Brokers and packagers are ineligible to 
participate in the 8(a) program. These types of businesses do not 
satisfy the definition of a manufacturer or regular dealer, as stated in 
Sec. 124.100.
    (b) Franchises. Except for those admitted to the 8(a) program prior 
to the effective date of these regulations, franchisees are ineligible 
to participate in the section 8(a) program.
    (c) Debarred or suspended person or concern. Pursuant to 48 CFR part 
9, subpart 9.4, or 13 CFR part 145, individuals or concerns who are 
debarred, suspended, voluntarily excluded from Federal programs, 
including the 8(a) program, or are found to be ineligible for Federal 
programs, including the 8(a) Program, by any agency of the Federal 
Government are ineligible for admission into the 8(a) program during the 
period of debarment, suspension, voluntary exclusion or status as 
ineligible. Prior to approval for admission to the 8(a) program, the 
applicant must certify that both the applicant concern and the 
disadvantaged individual(s) upon whom eligibility is based are not at 
that time debarred, suspended, voluntarily excluded or otherwise 
ineligible.
    (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

[[Page 247]]

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 disadvantaged concerns. A concern which 
is owned in whole or in part by another business concern and relies on 
the disadvantaged status of that concern to claim disadvantaged status 
is ineligible for 8(a) Program Participation and for participation in 
the Defense Department's Small Disadvantaged Business program (Pub. L. 
99-661, section 1207(a)) and the section 8(d) Subcontracting Program, 
(15 U.S.C. 637(d)). These types of businesses do not meet the individual 
disadvantaged ownership requirements of the Small Business Act and these 
regulations as set forth in Sec. 124.103.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34902, Aug. 27, 1990; 
60 FR 29975, June 7, 1995]



Sec. 124.110  Program term.

    (a) Each concern certified for program participation on or after 
November 15, 1988, is subject to a Program Term of nine years from the 
date of such certification. The term will consist of two stages: the 
developmental stage and the transitional stage, which are described in 
Sec. 124.303. Nothing in this subsection shall be construed to limit SBA 
from initiating graduation, termination or suspension actions pursuant 
to Secs. 124.208, 124.209 and 124.211 or to prohibit a Participant from 
voluntarily withdrawing from the program.
    (b) A concern is subject to a revised Program Term if the following 
conditions are met:
    (1) The concern was a Program Participant as of September 1, 1988 or 
was approved for 8(a) Program Participation between September 1, 1988 
and November 15, 1988; and
    (2) The concern did not voluntarily withdraw from the 8(a) program 
and was not graduated or terminated pursuant to Secs. 124.208 and 
124.209 between September 1, 1988 and November 15, 1988.
    (c) The revised Program Term shall be the greater of nine years from 
the date of the Participant's first contract pursuant to section 8(a) or 
the Participant's Fixed Program Participation Term (FPPT) expiration 
date, including any extension thereof, plus 18 months.
    (d) Once a Program Term has been established or revised in 
accordance with this section, SBA is statutorily prohibited from 
extending such term beyond the specified expiration date.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34902, Aug. 27, 1990]



Sec. 124.111  Continued 8(a) program eligibility.

    (a) Standards. (1) Except as set forth in paragraph (a)(2) of this 
section, in order for a concern to remain eligible for 8(a) program 
participation, it must continue to meet all eligibility criteria 
contained in Sec. 124.101 through Sec. 124.109. Failure to do so may 
cause SBA to initiate a graduation or termination proceeding in 
accordance with Secs. 124.208 and 124.209.
    (2) In order for a Program Participant to maintain continued 8(a) 
program eligibility, the net worth of an individual claiming to be 
socially and economically disadvantaged cannot exceed $750,000, as 
calculated pursuant to Sec. 124.106(a)(2)(i). An individual whose 
personal net worth exceeds $750,000, as calculated pursuant to 
Sec. 124.106(a)(2)(i), will not be considered economically 
disadvantaged.
    (b) Submissions supporting continued eligibility. As part of an 
annual review, each Program Participant shall annually submit to the 
Division of Program Certification and Eligibility and to the servicing 
field office the following:
    (1) A certification that it meets the 8(a) program eligibility 
requirements as set forth in Sec. 124.101 through Sec. 124.109 and 
paragraph (a) of this section;
    (2) A personal financial statement for each disadvantaged owner;
    (3) A record of all payments, compensation, and distribution 
(including

[[Page 248]]

loans, advances, salaries and dividends) made by the Participant to each 
of its owners or to any person or entity affiliated with such owners; 
and
    (4) Such other information as SBA may deem necessary. For other 
required annual submissions, see Sec. 124.501.
    (c) Economic disadvantage eligibility reviews. (1) Upon receipt of 
specific and credible information alleging that a Program Participant no 
longer meets the requirements of economic disadvantage for continued 
program eligibility, SBA shall conduct a review of the concern's 
eligibility for continued participation in the Program.
    (2)(i) If, based on information received from the Participant or 
elsewhere, SBA has reason to believe that the Participant no longer 
meets the standards of economic disadvantage as set forth in 
Sec. 124.106 or paragraph (a) of this section, SBA shall conduct a 
review to determine whether the Participant and its disadvantaged owners 
continue to meet such standards.
    (ii) Sufficient reasons for SBA to conclude that an 8(a) Participant 
is no longer economically disadvantaged may include, but are not limited 
to: demonstrated access of the concern and/or its owners to a 
substantial new source of capital or loans, an unusually large amount of 
funds withdrawn from the concern by its owners, or personal net worth of 
the disadvantaged owner(s) which exceeds the threshold described in 
paragraph (a) of this section, not including the owner's equity in the 
8(a) concern and in his/her primary personal residence.
    (3) If SBA determines, pursuant to paragraphs (c)(1) or (c)(2) of 
this section, that a Program Participant and/or its disadvantaged 
owner(s) are no longer economically disadvantaged, SBA shall initiate a 
graduation or a termination proceeding under Secs. 124.208 and 124.209.
    (4) If, based on information received from the Participant or 
elsewhere, SBA has reason to believe that an excessive amount of funds 
or other assets has been withdrawn from the Participant for the personal 
benefit of the disadvantaged owner(s) or that of any person or entity 
affiliated with such owner(s), SBA shall conduct a review to determine 
whether such withdrawal was detrimental to the achievement of the 
targets, objectives and goals of the Participant's business plan.
    (5) If SBA determines, pursuant to paragraph (c)(4) of this section, 
that funds or other assets have been withdrawn to the detriment of the 
achievement of the targets, objectives and goals of the Participant's 
business plan, 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 
program eligibility.
    (d) Eligibility Reviews. If, on the basis of information submitted 
pursuant to paragraph (b) of this section or upon information received 
from any source, SBA has reason to believe the Program Participant no 
longer meets the eligibility criteria (other than economic 
disadvantage), SBA shall conduct a review of the Participant's 8(a) 
program eligibility. If as a result of such review, SBA determines such 
Participant may no longer be eligible for program participation, SBA 
shall initiate termination proceedings under Sec. 124.209.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34902, Aug. 27, 1990; 
59 FR 12815, Mar. 18, 1994; 60 FR 29975, June 7, 1995]



Sec. 124.112  Concerns owned by Indian tribes, including Alaska Native Corporations.

    (a) General. (1) Small business concerns owned by Indian tribes (or 
wholly owned business entities of such tribes) are eligible for 
participation in the section 8(a) program, provided that certain 
conditions are met as described below. The term ``Indian tribe'' is 
defined in Sec. 124.100.
    (2) Small business concerns owned and controlled by Indian tribes 
are generally considered socially and economically disadvantaged for 
purposes of participation in programs authorized by section 8(d) of the 
Small Business Act, section 1207(a) of the Defense Authorization Act of 
1987 and any other program, except the 8(a) program, which requires 
social and economic disadvantaged status as a condition of eligibility. 
If the disadvantaged status of a tribally-owned concern is challenged

[[Page 249]]

under subpart B of this part, SBA will evaluate the concern's 
disadvantaged status using the criteria set forth in this section.
    (3) Small business concerns owned and controlled by Alaska Native 
Corporations (ANCs) are eligible for participation in the 8(a) program, 
subject to the same conditions as apply to tribally-owned concerns which 
are described at paragraphs (b) through (e) of this section, with the 
following exceptions which apply solely to ANC-owned concerns:
    (i) Alaska Natives and descendants of Natives must own a majority of 
both the total equity of the ANC and the total voting powers to elect 
directors of the ANC through their holdings of settlement common stock. 
Settlement common stock means stock of an ANC issued pursuant to 43 
U.S.C. 1606(g)(1), which is subject to the rights and restrictions 
listed in 43 U.S.C. 1606(h)(1).
    (ii) An ANC that meets the requirements set forth in paragraph 
(a)(3)(i) of this section shall be deemed economically disadvantaged and 
need not establish that it is economically disadvantaged pursuant to 
paragraph (b)(2) of this section. See section 29(e) of the Alaska Native 
Claims Settlement Act, 43 U.S.C. 1626(e).
    (iii) Even though an ANC can be either for profit or non-profit, a 
small business concern owned and controlled by ANC must be for profit to 
be eligible for the 8(a) program. The concern will be deemed owned and 
controlled by the ANC for purposes of program eligibility so as to 
satisfy paragraph (c)(3) of this section where the majority of stock or 
other ownership interest is held by the ANC and holders of its 
settlement common stock. Both a majority of the total equity and total 
voting power must be so held.
    (iv) Paragraphs (b)(3)(i) and (ii) of this section are not generally 
applicable to an ANC, provided its status as an ANC is clearly shown in 
its articles of incorporation and by-laws. Additionally, paragraph 
(c)(1) of this section is not applicable to the ANC-owned concern to the 
extent it requires an express waiver of sovereign immunity or a ``sue 
and be sued'' clause.
    (v) The Alaska Native Claims Settlement Act provides that a concern 
minority-owned by an ANC shall be deemed to be both owned and controlled 
by such ANC. Therefore, an individual responsible for control and 
management of an ANC-owned 8(a) applicant or Participant need not 
establish personal social and economic disadvantage.
    (b) Tribal eligibility. In order to qualify a concern which it owns 
and controls for participation in the 8(a) program, an Indian tribe 
itself must meet the conditions set forth in paragraphs (b)(1) and 
(b)(2) of this section. Once an Indian tribe has so established its 
disadvantaged status, it need not reestablish such status in order to 
have other businesses that it owns certified for 8(a) Program 
Participation, unless specifically required to do so by the AA/MSB&COD 
or his/her designee. The AA/MSB&COD, or designee, may require proof of 
tribal eligibility during the Program Participation of any tribally-
owned business or at any time during the processing of an 8(a) program 
application from a tribally-owned concern. However, nothing in this 
paragraph affects the requirement that each tribally-owned concern 
seeking to be certified for 8(a) Program Participation comply with the 
provisions of paragraph (c) of this section.
    (1) Social disadvantage. An Indian tribe meeting the definition set 
forth in Sec. 124.100 shall be deemed socially disadvantaged.
    (2) Economic disadvantage. In order to be eligible to participate in 
the 8(a) Program the Indian tribe must demonstrate to SBA that the tribe 
itself is economically disadvantaged. This shall involve the 
consideration of available data showing the tribe's economic condition, 
including but not limited to, the following information:
    (i) The number of tribal members.
    (ii) The present tribal unemployment rate.
    (iii) The per capita income of tribal members, excluding judgment 
awards.
    (iv) The percentage of the local Indian population below the poverty 
level.
    (v) The tribe's access to capital markets.
    (vi) The tribal assets as disclosed in a current tribal financial 
statement. The

[[Page 250]]

statement should list all assets including those which are encumbered or 
held in trust, but the status of those encumbered or trust assets should 
be clearly delineated.
    (vii) A list of all wholly or partially owned tribal enterprises or 
affiliates and the primary industry classification of each, as defined 
in Sec. 124.100. The list must also specify the members of the tribe who 
manage or control such enterprises or serve as officers or directors.
    (3) Application process--forms and documents required. Except as 
provided in paragraph (a)(3)(iv) of this section, in order to establish 
tribal eligibility to qualify for the 8(a) program, the Indian tribe 
must submit the forms and documents required of 8(a) applicants 
generally as well as the following material:
    (i) A copy of the tribe's governing document(s) such as its 
constitution or business charter.
    (ii) Evidence of its recognition as a tribe eligible for the special 
programs and services provided by the United States or by its state of 
residence.
    (iii) Copies of its articles of incorporation and bylaws as filed 
with the organizing or chartering authority, or similar documents needed 
to establish and govern a non-corporate legal entity.
    (iv) Documents or materials needed to show the tribe's economically 
disadvantaged status as described in paragraph (b)(2) of this section.
    (c) Business eligibility. In order to be eligible to participate in 
the 8(a) program, a concern which is owned by an eligible Indian tribe 
(or wholly owned business entities of such tribe) must meet the 
conditions set forth in paragraphs (c)(1) through (c)(6) of this 
section.
    (1) Legal business entity organized for profit and susceptible to 
suit. The applicant or participating concern must be a separate and 
distinct legal entity organized or chartered by the tribe, or Federal or 
state authorities. Except as provided in paragraph (a)(3)(iv) of this 
section, the concern's articles of incorporation must contain express 
sovereign immunity waiver language, or a ``sue and be sued'' clause 
which designates United States Federal Courts to be among the courts of 
competent jurisdiction for all matters relating to SBA's programs 
including, but not limited to, 8(a) Program Participation, loans, 
advance payments and contract performance. Also, the concern must be 
organized for profit, and the tribe must possess economic development 
powers in the tribe's governing documents.
    (2) Size. (i) A tribally-owned applicant concern 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.
    (ii) Except as provided in paragraph (c)(2)(iii) of this section, a 
tribally-owned Program Participant must certify to SBA that it is a 
small business pursuant to the provisions of part 121 of this title for 
the purpose of performing each individual contract which it is awarded.
    (iii) In determining the size of a small business concern owned by a 
socially and economically disadvantaged Indian tribe (or a wholly owned 
business entity of such tribe) for either 8(a) program entry or contract 
award, each firm's size shall be determined independently without regard 
to its affiliation with the tribe, any entity of the tribal government, 
or any other business enterprise owned by the tribe, unless the 
Administrator determines that one or more such tribally-owned business 
concerns have obtained, or are likely to obtain, a substantial unfair 
competitive advantage within an industry category.
    (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 joint venture is:
    (A) 51 percent or more owned and controlled by the tribally-owned 
Participant;
    (B) Is located on the tribe's reservation or land owned by such 
tribe;
    (C) Performs most of its activities on such reservation or tribally-
owned land; and
    (D) Employs members of the tribe for at least 50 percent of its 
total workforce.

[[Page 251]]

    (3) Ownership. For corporate entities, a tribe must own at least 51 
percent of the voting stock and at least 51 percent of the aggregate of 
all classes of stock. For non-corporate entities, a tribe must own at 
least a 51 percent interest. No Indian tribe shall own more than one 
current or former 8(a) Program Participant having the same primary 
industry classification. Tribally-owned Program Participants are subject 
to the provisions of paragraphs (g) and (h) of Sec. 124.103 relating to 
ownership by nondisadvantaged individuals and non-8(a) concerns.
    (4) Control and management. (i) Except for concerns owned by ANCs, 
the management and daily business operations of a tribally-owned concern 
must be controlled by an individual member(s) of an economically 
disadvantaged tribe, who does not manage and control more than one other 
tribally-owned 8(a) Program Participant. In addition, such manager(s) 
must be found to possess the requisite management or technical 
capabilities as determined by SBA. This paragraph does not preclude 
management of a tribally-owned concern by committees, teams, or Boards 
controlled by such individuals.
    (ii) Members of the tribal council shall not participate in the 
daily management or on the board of directors of any tribally-owned 8(a) 
concern without obtaining prior written approval for such participation 
from SBA.
    (iii) Except as permitted by paragraph (c)(4)(i) of this section, 
members of the management team, business committee members, officers, 
and directors are precluded from engaging in any outside employment or 
other business interests which conflict with the management of the 
concern or prevent the concern from achieving the objectives set forth 
in its business development plan. This is not intended to preclude 
participation in tribal or other activities which do not interfere with 
such individual's responsibilities in the operation of the applicant 
concern.
    (5) Location and economic benefit. The primary economic benefits 
from the concern must accrue to the tribe. A concern located on a 
designated Indian reservation or on tribally-owned land will be presumed 
to provide an economic benefit, such as employment, to the tribal 
community. SBA may approve a location not on tribally-owned land, if the 
applicant concern can demonstrate that similar economic benefits will 
accrue to the tribal community.
    (6) Potential for success. (i) SBA will approve a tribally-owned 
concern, including a concern owned by an Alaska Native Corporation 
(ANC), for 8(a) Program participation only when it finds that:
    (A) Either the applicant concern has been in business in its primary 
industry classification for two full years or a waiver is granted 
pursuant to paragraph (c)(6)(ii); and
    (B) The concern meets the requirements of paragraph (c)(6)(iii) 
regarding potential success.
    (ii) The AA/MSB&COD will waive the two year in business requirement 
for a tribally-owned concern if he/she finds that the concern has a 
marketing and development strategy for meeting the 8(a) program 
competitive business mix requirements of Sec. 124.312 without undue 
dependence on one or more contracts anticipated to be awarded under 8(a) 
program authority.
    (iii) In determining whether a tribally-owned concern has the 
potential for success, SBA will look at a number of factors including, 
but not limited to:
    (A) The technical and managerial experience and competency of the 
individual(s) who will manage and control the daily operations of the 
tribally-owned concern;
    (B) The financial capacity of the tribally-owned concern; and
    (C) The concern's record of performance on any previous Federal or 
private sector contract in the primary industry in which the concern is 
seeking 8(a) certification.
    (7) Other eligibility criteria. (i) A tribally-owned applicant 
concern shall not be denied admission into the 8(a) program due solely 
to a determination that specific contract opportunities are unavailable 
to assist the development of the concern unless:
    (A) The Government has not previously procured and is unlikely to 
procure the types of products or services offered by the concern; or
    (B) The purchase of such products or services by the Federal 
Government

[[Page 252]]

will not be in quantities sufficient to support the developmental needs 
of the applicant and other Program Participants providing the same or 
similar items or services.
    (ii) Applicant must meet the eligibility criteria set forth in 
Secs. 124.108 and 124.109.
    (d) Individual eligibility limitation. (1) Concerns owned by Indian 
tribes except those owned by Alaska Native Corporations. The Small 
Business Act, as amended, provides that the 8(a) requirements regarding 
management and daily business operations are met if a tribally-owned 
concern is controlled by one or more members of the economically 
disadvantaged Indian tribe. The statute does not require that such 
individual be found by SBA to be personally socially and economically 
disadvantaged. Therefore, SBA does not deem an individual involved in 
the management or daily business operations of the tribally-owned 
concern to have used his or her individual eligibility within the 
meaning of Sec. 124.108(c).
    (2) Concerns owned by Alaska Native Corporations. The Alaska Native 
Claims Settlement Act, as amended, provides that a concern which is 
majority owned by an Alaska Native Corporation shall be deemed to be 
controlled and managed by minority individuals for purpose of 
participation in Federal programs. Therefore, SBA will not examine the 
disadvantaged status of an individual involved in the management of 
daily business operations of an Alaska Native Corporation-owned concern, 
and such individual will not be deemed to have used his or her 
individual eligibility within the meaning of Sec. 124.108(c).
    (e) Existing Section 8(a) Firms. Tribally-owned concerns presently 
in the section 8(a) program must comply with the requirements of this 
section within 12 months from the effective date of these regulations. 
Failure to do so may result in the commencement of section 8(a) program 
termination proceedings.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 33896, Aug. 20, 1990; 
59 FR 12815, Mar. 18, 1994]



Sec. 124.113  Concerns owned by Native Hawaiian Organizations.

    Concerns owned by economically disadvantaged Native Hawaiian 
Organizations 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.



Sec. 124.114  Concerns owned by Community Development Corporations.

    (a) Concerns owned at least 51% by Community Development 
Corporations (CDCs), as defined in Sec. 124.100, are eligible for 
participation in the 8(a) program and other federal programs requiring 
SBA to determine social and economic disadvantage as a condition of 
eligibility. Such concerns must meet all eligibility criteria set forth 
in Secs. 124.102 through 124.109 and Sec. 124.111(a) of this part.
    (b) A concern that is at least 51% owned by a CDC shall be deemed to 
be controlled by such CDC and eligible for participation in the 8(a) 
program, provided it meets all eligibility criteria set forth or 
referred to in this section and its management and daily business 
operations are conducted by one or more individuals determined to have 
managerial or technical experience and competency directly related to 
the primary industry in which the applicant concern is seeking 
certification.
    (c) A concern owned by a CDC must qualify as a small business 
concern as defined for purposes of Government procurement in part 121 of 
this title. The particular size standard to be applied shall be based on 
the primary industry classification of the applicant concern. Ownership 
by the CDC will not, in and of itself, cause affiliation with the CDC or 
with other CDC-owned entities. However, affiliation with the CDC or 
other CDC-owned entities may be caused by circumstances other than 
common CDC ownership.
    (d) No CDC shall own more than one current or former 8(a) Program 
Participant having the same primary industry classification.
    (e) SBA does not deem an individual involved in the management or 
daily business operations of a CDC-owned

[[Page 253]]

concern to have used his or her individual eligibility within the 
meaning of Sec. 124.108(c).

[60 FR 29975, June 7, 1995]



Sec. 124.201  8(a) Program application.

    It is SBA's policy that any concern or any individual on behalf of 
such business has the right to apply for 8(a) Program Participation 
whether or not there is an appearance of eligibility. However, concerns 
which have not been in business for two full years as described 
Sec. 124.107 will not be approved for 8(a) Program Participation.



Sec. 124.202  Place of filing.

    An application for 8(a) program admission is to be filed in the SBA 
field office serving the territory in which the principal place of 
business, as defined in Sec. 124.100, is located. The field office will 
provide an applicant concern with information regarding the 8(a) 
program, and with all required application forms. An 8(a) application 
will be processed by the appropriate SBA regional office of the Division 
of Program Certification and Eligibility.



Sec. 124.203  Servicing office.

    Once approved, a Program Participant will be serviced in the field 
office serving the territory in which the concern's principal place of 
business, as defined in Sec. 124.100, is located.



Sec. 124.204  Applicant representatives.

    Subject to the limitations of Sec. 124.7, an applicant concern may 
employ at its option outside representatives in connection with an 
application for 8(a) Program Participation. If the applicant chooses to 
employ outside representation such as an attorney, accountant, or 
others, the requirements of part 103 of this title dealing with the 
appearance and compensation of persons appearing before SBA are 
applicable to the conduct of the representative. In addition, 
representation in proceedings before the Office of Hearings and Appeals 
shall be limited as provided in Sec. 134.16 of this title.



Sec. 124.205  Forms and documents required.

    Each 8(a) applicant concern must submit the forms and attachments 
thereto required by SBA when making application for admission to the 
8(a) program. Such forms and attachments will include, but are not 
limited to, financial statements and Federal personal and business tax 
returns.



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. However, denials of 
program admission based on his/her finding that the individual(s) 
claiming social and economic disadvantage 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). The Division of Program 
Certification and Eligibility (the Division) will receive, review and 
evaluate all 8(a) applications. The Division will advise each program 
applicant within 15 days after the receipt of an application whether 
such application is complete and suitable for evaluation and, if not, 
what additional information or clarification is required to complete the 
application. SBA will process an application for 8(a) Program 
Participation within 90 days of receipt by the Division of a complete 
application package. Incomplete application packages will not be 
processed.
    (b) Approval. If the AA/MSB&COD finds that the applicant concern 
meets all eligibility criteria, he/she shall issue an approval letter to 
the concern. The date of the approval letter shall be the date of 
program certification for purposes of determining the concern's Program 
Term pursuant to Sec. 124.110. A concern is not approved for 
participation in the 8(a) program until an approval letter is sent by 
the AA/MSB&COD to the concern. Up until that event occurs, any new 
information which could have an adverse affect on the application may be 
considered by

[[Page 254]]

the AA/MSB&COD. An applicant is not entitled to receive program benefits 
of any kind until a participation agreement is signed and SBA has 
approved the concern's business plan pursuant Sec. 124.301.
    (c) Decline. If the AA/MSB&COD finds that an applicant concern does 
not meet all eligibility criteria, he/she will provide written 
notification of this finding to the applicant in a letter of decline. 
The letter of decline shall set forth findings based on the facts and in 
accordance with law and regulations for every material issue relating to 
each eligibility factor with specific reasons for each finding. The 
letter of decline shall inform the applicant of its rights to request 
reconsideration of the AA/MSB&COD's decision and/or to appeal such 
decision.
    (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 to the appropriate regional office of the Division by 
certified mail, return receipt requested, within 45 days of the date of 
service of the decline letter. 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. If the concern requests reconsideration, the AA/MSB&COD will 
issue a written determination on the reconsideration within 45 days of 
receipt of the request by the Regional Office of the Division which 
processed the original application. The Agency's eligibility analysis on 
reconsideration will consider all eligibility factors in light of all 
information then available to the Agency, and may approve the 
application, decline it for any of the same reasons cited in the initial 
decline or decline it for reasons not previously identified. If, on 
reconsideration, the AA/MSB&COD finds that the applicant concern meets 
all eligibility criteria, he/she shall issue an approval letter to the 
concern. The date of the approval letter shall be the date of program 
certification for purposes of determining the concern's Program Term 
pursuant to Sec. 124.110. If, on reconsideration, the AA/MSB&COD 
determines that the concern does not meet all eligibility criteria, he/
she will notify the applicant of this decision by letter. Such letter 
shall set forth findings based on the facts and in accordance with law 
and regulations for every material issue relating to each eligibility 
factor with specific reasons for each finding. If the concern is being 
declined solely for reasons not identified in the initial decline, the 
concern will be advised that SBA will treat the decline as an initial 
decline, and that the concern will be afforded all rights which were 
available to it on its initial decline.
    (2) Appeal. An unsuccessful applicant will have the right to appeal 
its decline to OHA if the application is denied based solely on a 
negative finding of one or more of the following criteria: social 
disadvantage, economic disadvantage, ownership or control. The 
applicant, at its option, may bring such appeal either after the initial 
decline or after a decline on reconsideration. Petitions of appeal must 
conform to the requirements of Sec. 124.210 and will be handled in 
accordance with the procedures contained in Sec. 124.210 and part 134 of 
this title.
    (3) Final Agency Decision. If a declined applicant does not request 
reconsideration of the decline or, if eligible under paragraph (c)(2) of 
this section, a declined applicant does not file an appeal with OHA 
within 45 days of the date of service of the decline letter, the 
determination of the AA/MSB&COD will become the final Agency division. 
If the application is denied on reconsideration and the applicant does 
not appeal or have the right to appeal the denial under paragraph (c)(2) 
of this section, the decision of the AA/MSB&COD is the final Agency 
decision. If the applicant is entitled under paragraph (c)(2) of this 
section to an appeal, and exercises that right, the decision of the 
Administrative Law Judge shall be the final Agency decision.
    (4) Reapplication for Program Participation. A concern which has 
been declined for 8(a) program admission may reapply for admission to 
the program 12 months after the date of the final Agency decision to 
decline.

[[Page 255]]



Sec. 124.207  8(a) Program exit.

    A concern participating in the 8(a) program may leave the program by 
any of the following means:
    (a) Voluntary withdrawal.
    (b) Expiration of the Program Term established pursuant to 
Sec. 124.110;
    (c) Graduation pursuant to the provisions of Sec. 124.208;
    (d) Termination pursuant to the provisions of Sec. 124.209.



Sec. 124.208  Program graduation.

    (a) General. When an 8(a) concern is recognized as successfully 
completing the 8(a) program by substantially achieving the targets, 
objectives and goals set forth in its business plan prior to the 
expiration of its Program Term, and has demonstrated the ability to 
compete in the marketplace without assistance under the 8(a) program, 
its participation within the program may be determined by SBA to be 
completed and the firm may be graduated from the program.
    (b) Graduation criteria. In determining whether a concern has 
substantially achieved the goals and objectives of its business plan and 
has attained the ability to compete in the marketplace without 8(a) 
program assistance, the following factors, among others, shall be 
considered by SBA. Positive overall financial trends, including but not 
limited to:
    (1) Profitability;
    (2) Sales, including improved ratio of non-8(a) sales to 8(a) sales;
    (3) Net worth, financial ratios, working capital, capitalization, 
access to credit and capital;
    (4) Ability to obtain bonding;
    (5) A positive comparison of the 8(a) concern's business and 
financial profile with profiles of non-8(a) businesses in the same area 
or similar business category; and
    (6) Good management capacity and capability.
    (c) Graduation procedures. (1) Letter of notification. Upon 
determination by the SBA pursuant to paragraph (b) of this section that 
an 8(a) concern should be graduated from the 8(a) program, SBA shall 
notify the Participant in writing of its intent to graduate in a letter 
of notification. The letter of notification shall set forth findings, 
based on the facts and in accordance with law and regulations, for every 
material issue relating to the basis of the program graduation with 
specific reasons for each finding. The letter of notification shall also 
provide the Participant 45 days from the date of service of the letter 
to submit in writing information which would explain why the proposed 
basis of graduation is not warranted.
    (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. If 
the Division Director determines that graduation is not appropriate, he/
she will so notify the Participant within 15 days of the close of the 
response period. If the Division Director determines that graduation is 
appropriate, he/she will recommend in writing to the AA/MSB&COD, within 
15 days of the close of the response period, that the Participant be 
graduated.
    (3) Decision of the AA/MSB&COD. Upon the recommendation of the 
Division Director, the AA/MSB&COD will consider the proposed graduation 
and the written record supporting it. If the AA/MSB&COD determines that 
program graduation is warranted, he/she will issue a Notice of Program 
Graduation to the Participant. If not, he/she will so notify the 
Participant.
    (4) Notice requirements. A Notice of Program Graduation shall 
conform to the form, filing and service requirements of part 134 of this 
title, under which the appeal proceeding shall be conducted. The Notice 
of Program Graduation shall set forth findings, based on the facts and 
in accordance with law and regulations, for every material issue 
relating to the basis of the program graduation with specific reasons 
for each finding. The Notice of Program Graduation shall also advise the 
Program Participant that it may avail itself of an opportunity for an 
appeal by filing a petition in accordance with the provisions of 
Sec. 124.210 and part 134 of this title.
    (5) Appeal to Office of Hearings and Appeals. Procedures governing 
appeals of program graduation to the Office of Hearings and Appeals are 
set forth in Sec. 124.210 and part 134.

[[Page 256]]

    (d) Post-graduation. After the effective date of a program 
graduation as provided for herein, an 8(a) concern is no longer eligible 
to receive any 8(a) program assistance. However, such concern is 
obligated to complete previously awarded 8(a) subcontracts, including 
any priced options which may be exercised.

[54 FR 34712, Aug. 21, 1989, as amended at 60 FR 29975, June 7, 1995]



Sec. 124.209  Program termination.

    (a) General. Participation of a 8(a) business concern in the 8(a) 
program may be terminated by SBA prior to the expiration of the 
concern's Program Term for good cause. Examples of good cause include, 
but are not limited to, the following:
    (1) Failure by the concern to continue to maintain its eligibility 
for program participation.
    (2) Failure by the concern to maintain its status as a small 
business under the Small Business Act, as amended, and the regulations 
promulgated thereunder. See Sec. 124.102.
    (3) Failure by the concern for any reason, including the death of an 
individual upon whom eligibility was based, to maintain ownership, full-
time day-to-day management, and control by the person(s) who has (have) 
been determined to be socially and economically disadvantaged pursuant 
to these regulations.
    (4) Failure by the concern to obtain written approval from SBA for 
any changes in ownership, management or control pursuant to 
Secs. 124.103 and 124.104.
    (5) Failure by the concern to disclose to SBA the extent to which 
nondisadvantaged persons or firms participate in the management of the 
section 8(a) business concern.
    (6) A demonstrated pattern of failing to make required submissions 
or responses to the Administration in a timely manner, including:
    (i) Failure by the concern to provide required financial statements 
to SBA pursuant to Secs. 124.312 (b)(4), 124.312(c)(7), and 124.501(c). 
Failure to provide SBA with requested tax returns, reports, or other 
available data within 30 days of the date of request.
    (ii) Failure by the concern to submit an updated business plan 
within 30 days of receipt of request, without an extension of time which 
has been approved by SBA.
    (iii) Failure by the concern to provide documents or certifications 
of continued eligibility or otherwise respond to requests for 
information relating to the section 8(a) program from SBA or other 
authorized government officials within the time frames provided for in 
the requests.
    (7) Cessation of business operations by the concern.
    (8) Failure by the concern to achieve the goals cited in its 
original or modified business plan as a result of repeated refusals to 
accept or utilize SBA assistance.
    (9) Failure by the concern to pursue competitive and commercial 
business in accordance with the business plan, or failure to make 
reasonable efforts to achieve competitive status.
    (10) Failure by the concern to engage in business practices that 
will promote its competitiveness within a reasonable period of time as 
evidenced by, among other indicators, a pattern of inadequate 
performance or unjustified delinquent performance or terminations for 
default with respect to contracts awarded under the authority of section 
8(a).
    (11) A pattern of inadequate performance of awarded section 8(a) 
procurement subcontracts by the concern.
    (12) Failure by the concern to pay or repay significant financial 
obligations owed to the Federal Government.
    (13) Failure by the concern to obtain and keep current any and all 
required permits, licenses, and charters.
    (14) Diversion of funds or other assets from the section 8(a) 
business concern or excessive withdrawals from such concern for the 
personal benefit of its disadvantaged owners or any person or entity 
affiliated with such owners which is detrimental to the achievement of 
the targets, objectives, and goals contained in such Program 
Participant's business plan.
    (15) Unauthorized use of business development expense funds and/or 
advance payment funds and/or SBA direct, guaranty or immediate 
participation loan proceeds; or violation of an

[[Page 257]]

advance payment, business development expense agreement, or loan 
agreement.
    (16) Failure by the concern to obtain prior SBA approval of any 
management agreement, joint venture agreement or other agreement 
relative to the performance of a section 8(a) subcontract. Violation of 
any requirement of a management, joint venture, or other agreement 
approved by SBA by either the section 8(a) concern or one of the joint 
venturers.
    (17) Failure by the concern to obtain approval from SBA before 
subcontracting under a section 8(a) subcontract, or failure by the 
concern to abide by any conditions imposed by SBA upon such approval.
    (18) Violation by the concern of a section 8(a) subcontract 
provision which prohibits contingent fees and gratuities; or failure to 
disclose to SBA fees paid or to be paid, or costs incurred or committed 
to third parties, directly or indirectly, in the process of obtaining 
section 8(a) contracts or subcontracts, or violation of Sec. 124.7.
    (19) Knowing submission of false information to SBA, including false 
certification of compliance with non-8(a) business activity targets 
under Sec. 124.312(c)(11), on behalf of a section 8(a) business concern 
by its principals, officers, or agents, or by its employees, where the 
principal(s) of the section 8(a) concern knows or should have known such 
submission to be false.
    (20) Debarment, suspension, voluntary exclusion, or ineligibility of 
the concern or its principals pursuant to 13 CFR part 145, FAR subpart 
9.4, 48 CFR Ch.1, and 48 CFR Ch. 22, or any successor regulation.
    (21) Conviction of the concern, the individual(s) upon whom 8(a) 
program eligibility is based, or the director, officer or manager of 
tribally-owned concern, including one owned by an Alaska Native 
Corporation, or concern owned by a Hawaiian organization is based for 
any offense indicating a lack of business integrity including, but not 
limited to:
    (i) Commission of a criminal offense as an incident to obtaining or 
attempting to obtain a public or private contract, or subcontract 
thereunder, or in the performance of such contract or subcontract;
    (ii) Violation of the Organized Crime Control Act of 1970 (Pub. L. 
91-452; 84 Stat. 922);
    (iii) Embezzlement, theft, forgery, bribery, falsification or 
destruction of records, receiving stolen property, or any other offense 
indicating a lack of business integrity or business honesty which 
seriously and directly affects the question of present responsibility as 
a government contractor;
    (iv) Violation of any Federal antitrust statute;
    (v) Commission of any felony not specifically listed above; or
    (vi) Violation of section 16 of the Small Business Act, (15 U.S.C. 
645).
    (22) Conviction of a nondisadvantaged owner, officer, or director of 
the concern for any offense described in paragraph (a)(21) of this 
section, provided that one or more disadvantaged owners or officers of 
the concern abetted, conspired with or otherwise acquiesced in the 
owner's or officer's commission of the offense.
    (23) Willful failure on behalf of an 8(a) business concern to comply 
with applicable labor standards and obligations.
    (24) Violation of any terms and conditions of the 8(a) Program 
Participation Agreement.
    (25) Willful violation by an 8(a) business concern, or any of its 
principals, of any rule or regulation of the Administration pertaining 
to material issues.
    (b) Termination procedures. (1) Letter of notification. When SBA 
determines that grounds exist to terminate a concern's participation in 
the 8(a) program pursuant to this section, SBA shall notify the 
Participant in writing of its intent to terminate in a letter of 
notification. The letter of notification shall set forth findings, based 
on the facts and in accordance with law and regulations, for every 
material issue relating to the grounds upon which such termination would 
be based with specific reasons for each finding. The letter of 
notification shall provide the Participant 45 days from the date of 
service of the letter to submit in writing information which would 
eliminate the

[[Page 258]]

ground(s) for termination or would explain why the proposed ground(s) 
should not justify termination.
    (2) Recommendation of the Division. Following the 45-day response 
period, the Division Director will have 15 days to consider the facts of 
the proposed termination, including all information submitted by the 
Participant. The Division Director may, if he/she deems it necessary, 
request additional information from the Participant. If the grounds for 
the proposed termination continue to exist, the Division Director shall 
recommend in writing to the AA/MSB&COD that the Participant be 
terminated.
    (3) Decision of the AA/MSB&COD. Upon the recommendation of the 
Division Director, the AA/MSB&COD will consider the proposed termination 
and the written record supporting it. If the AA/MSB&COD determines that 
a termination is warranted, he/she will issue a Notice of Termination to 
the Participant. If not, he/she will so notify the Participant. Unless 
appealed to OHA, the decision of the AA/MSB&COD to terminate a Program 
Participant shall be effective 45 days after its issuance.
    (4) Notice requirements. A Notice of Termination shall conform to 
the form, filing and service requirements of Part 134 of this Title, 
under which the appeal proceeding shall be conducted. The Notice of 
Termination shall set forth findings, based on the facts and in 
accordance with law and regulations, for every material issue relating 
to the grounds upon which the termination is based. The Notice of 
Termination shall also advise the Program Participant that it may avail 
itself of an opportunity for an appeal by filing a petition in 
accordance with the provisions of Sec. 124.210 and part 134 of this 
title.
    (5) Appeal to Office of Hearings and Appeals. Procedures governing 
appeals of program termination to the Office of Hearings and Appeals are 
set forth in Sec. 124.210 and part 134 of this title.
    (c) Post-termination. After the effective date of a program 
termination, an 8(a) business concern is no longer eligible to receive 
any section 8(a) program assistance. However, such concern is obligated 
to complete previously awarded 8(a) subcontracts, including any priced 
options which may be exercised. (See Sec. 124.211 for Program 
Suspension).

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990; 
60 FR 29975, June 7, 1995]



Sec. 124.210  Appeals to SBA's Office of Hearings and Appeals.

    (a) Except as provided in paragraph (d) of this section, an 
applicant concern or Program Participant shall be afforded the 
opportunity to appeal any of the following Agency determinations:
    (1) Denial of program admission based solely on a negative 
finding(s) of social disadvantage, economic disadvantage, ownership or 
control pursuant to Sec. 124.206;
    (2) Graduation pursuant to Sec. 124.208;
    (3) Termination pursuant to Sec. 124.209; or,
    (4) Denial of a request to issue a waiver pursuant to Sec. 124.317.
    (b) The applicant or Participant concern may initiate such appeal by 
filing a petition in accordance with part 134 of this title with SBA's 
Office of Hearings and Appeals (OHA) within 45 days of the date of 
service of the final Agency determination pursuant to paragraph (a) of 
this section. In addition to the requirements of Sec. 134.203(a), the 
petition shall state, with specific reference to the determination and 
the record supporting such determination, the reasons why the 
determination is alleged to be arbitrary, capricious or contrary to law. 
Concurrent with its filing with OHA, the concern shall also serve the 
AA/MSB&COD and SBA's Office of General Counsel with a copy of the 
petition, including attachments. In the context of appeals relating to 
denials of program admission pursuant to Sec. 124.206 or denials of 
requests for waivers pursuant to Sec. 124.317, service on the Office of 
General Counsel shall be made by personal delivery or certified mail, 
return receipt requested, to SBA's Associate General Counsel for General 
Law. For appeals relating to graduation pursuant to Sec. 124.208 or 
termination pursuant to Sec. 124.209, service on the Office of General 
Counsel shall be made by personal delivery or certified mail, return 
receipt requested, to SBA's Associate General Counsel for

[[Page 259]]

Litigation. Service should be addressed to the AA/MSB&COD and either 
Associate General Counsel at the Small Business Administration, 409 3rd 
Street, SW., Washington, DC 20416.
    (c) Appeal proceedings brought under the authority of this section 
shall be conducted by an Administrative Law Judge.
    (d) The Administrative Law Judge selected to preside over an appeal 
shall decline to accept jurisdiction over any matter if:
    (1) The appeal does not, on its face, allege facts that, if proven 
to be true, would warrant reversal or modification of the determination, 
including appeals of proposed denials of 8(a) program admission which 
have been based in whole or in part on grounds other than a negative 
finding of social disadvantage, economic disadvantage, ownership or 
control;
    (2) The appeal is untimely filed under Sec. 134.202 or is not 
otherwise filed in accordance with the requirements of this section and 
the rules of procedure set forth in part 134 of this title; or
    (3) The matter has been decided or is the subject of an adjudication 
before a court of competent jurisdiction over such matters.
    (e) Once the Administrative Law Judge accepts jurisdiction over an 
appeal, subsequent initiation of an adjudication of the matter by a 
court of competent jurisdiction will not preclude the Administrative Law 
Judge from rendering a final decision on the matter.
    (f) Proceedings conducted under the authority of this section shall 
be conducted in accordance with the provisions of this section and part 
134 of this title.
    (g) Unless it is established that the convenience and necessity of 
the parties requires otherwise, in the sole discretion of the 
Administrative Law Judge, any oral hearing conducted with respect to an 
appeal pursuant to paragraph (a) of this section shall be held in the 
Washington, DC area.
    (h)(1) Except as provided in paragraph (h)(3) of this section, any 
proceeding conducted under the authority of paragraph (a) of this 
section shall be decided solely on a review of the written 
administrative record. The determination by the AA/MSB&COD or a designee 
for matters related to paragraphs (a)(1), (a)(2), and (a)(3) of this 
section, and the determination by the Administrator for matters related 
to paragraph (a)(4) of this section, shall be sustained unless such 
determination is found to be arbitrary, capricious, or contrary to law.
    (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. Such remand shall be for a 
period of no more than 10 working days. The ALJ shall retain 
jurisdiction of the matter during such period as the matter is on 
remand.
    (3)(i) Neither the admission of evidence beyond the written 
administrative record, nor any form of discovery, will be permitted in 
proceedings under this section unless it is first determined by the 
Administrative Law Judge that the applicant concern or Participant, upon 
written submission, has made a substantial showing, based upon credible 
evidence, and not mere allegation, that the Agency determination in 
question may have resulted from bad faith or improper behavior. Prior to 
any such determination, the Agency shall be afforded an opportunity to 
respond in writing to the submission of the applicant concern or 
Participant. Upon a determination by the Administrative Law Judge that 
the applicant concern or Participant has made such a substantial 
showing, the Administrative Law Judge may permit appropriate discovery, 
and accept relevant evidence beyond the written administrative record, 
which is specifically limited to the alleged bad faith or improper 
behavior asserted by the applicant concern or Participant.
    (ii) A determination by the Administrative Law Judge that the 
required showing set forth in paragraph (h)(3)(i) of this section has 
been made does not

[[Page 260]]

shift the burden of proof, which continues to rest with the applicant 
concern or the Participant.
    (i) A decision rendered by the Administrative Law Judge under the 
authority of this section shall be the final decision of the 
Administration and shall be binding upon the parties and those within 
the employ of the Administration.
    (j) Such decision shall be rendered, insofar as practicable, within 
ninety days after a petition for appeal is filed, and, in the event such 
90-day time limit has not been met, the Administrative Law Judge shall 
indicate the reason therefor in the decision, when issued.

[54 FR 34712, Aug. 21, 1989, as amended at 57 FR 28780, June 29, 1992; 
61 FR 2691, Jan. 29, 1996]



Sec. 124.211  Suspension of program assistance.

    (a) At any time after the issuance of an initial letter of 
notification of termination pursuant to Sec. 124.209(b)(1), the AA/MSB 
and COD may suspend contract support and all other forms of 8(a) program 
assistance to that concern for a period of time not to exceed the time 
necessary to resolve the issue of the concern's termination from the 
program under the procedures set forth in Sec. 124.209 and in part 134 
of this title. The institution of such a suspension will not occur in 
conjunction with each proposed termination, but will only occur when SBA 
determines that suspension of the concern's program participation is 
needed to protect the interests of the Government. For example, SBA will 
generally find that it is in the best interests of the Government to 
suspend a Participant where the proposed termination is based on fraud 
or the submission of false statements or program ineligibility.
    (b) Immediately upon SBA's determination to suspend an 8(a) concern, 
SBA will furnish that concern with a Notice of Suspension by certified 
mail, return receipt requested, to the last known address of the 
concern. If no receipt is returned within ten calendar days from the 
mailing of the notice, notice will be presumed to have occurred as of 
that time. The Notice of Suspension will provide the following 
information:
    (1) The reason(s) for the suspension;
    (2) A statement that the suspension will continue pending the 
completion of further investigation or final program termination 
proceeding or some other specified period of time;
    (3) Notice that awards of competitive and non-competitive section 
8(a) subcontracts, including those which have been ``self-marketed'' by 
an 8(a) concern, will not be made during the pendency of the suspension 
unless it is determined by the head of the relevant procuring agency or 
his/her authorized representative to be in the best interest of the 
Government to do so, and SBA adopts that determination;
    (4) Notice that the concern is obligated to complete previously 
awarded section 8(a) subcontracts;
    (5) Notice that the suspension is effective nationally throughout 
the SBA;
    (6) A statement that a request for a hearing on the suspension will 
be considered by an Administrative Law Judge in SBA's Office of Hearings 
and Appeals (OHA), and granted or denied as a matter of his/her 
discretion.
    (7) A statement that the firm's Program Term is suspended effective 
the date of the suspension and that it will resume only if the concern's 
participation in the program is not terminated.
    (c) It is contemplated that in most cases a hearing on the issue of 
the suspension will be afforded if the Participant requests one. 
However, no hearing shall be granted if the suspension is based upon 
advice from either the Department of Justice or the Department of Labor 
that such a hearing would prejudice substantial interests of the 
Government.
    (d) The applicant concern may appeal a Notice of Suspension by 
filing a petition in accordance with part 134 of this title with OHA 
within 30 days of the date of service of a Notice of Suspension pursuant 
to paragraph (b) of this section. Concurrent with its filing with OHA, 
the concern shall also serve the AA/MSB&COD and SBA's Office of General 
Counsel with a copy of the petition, including attachments. Service on 
the Office of General Counsel shall be made by personal delivery or 
certified mail, return receipt requested, to

[[Page 261]]

SBA's Associate General Counsel for General Law.
    (e) A request for a hearing on the suspension will be considered by 
an Administrative Law Judge in OHA, and granted as a matter of his/her 
discretion.
    (f) Proceedings conducted under the authority of this section shall 
be conducted in accordance with the provisions of this section and part 
134 of this title.
    (g) For any oral hearing convened pursuant to Sec. 134.222 of this 
Title resulting from a request filed in accordance with this section, 
the Administrative Law Judge shall give due regard to the convenience 
and necessity of the parties or their authorized representatives in 
designating the place of the oral hearing.
    (h) A hearing on the suspension will commence as soon as possible 
following the decision of the Administrative Law Judge to grant a 
request, but in no case more than 20 calendar days after the 
Administrative Law Judge's ruling if the request is granted.
    (i) At the close of such suspension hearing, the Administrative Law 
Judge shall issue a decision upholding or lifting the suspension.The 
decision of the Administrative Law Judge shall be the final Agency 
decision.
    (j) Any program suspension which occurs in accordance with these 
regulations will continue in effect until such time as the SBA lifts the 
suspension or the 8(a) concern's participation in the program is fully 
terminated. If all program assistance to an 8(a) concern has been 
suspended under these regulations and the concern's participation in the 
program is not terminated, the suspension will be lifted and the Program 
Term remaining as of the effective date of Program Suspension will be 
restored to the concern. However, nothing in this paragraph precludes 
SBA from initiating termination, graduation or suspension proceedings at 
any time during the concern's Program Term.
    (k) SBA does not recognize the concept of de facto suspension. 
Reinstatement of the remaining portion of a Program Term will occur only 
where a concern's program participation has been formally suspended by 
SBA in accordance with the procedures set forth in this section.

[54 FR 34712, Aug. 21, 1989, as amended at 57 FR 28780, June 29, 1992; 
61 FR 2691, Jan. 29, 1996]



Sec. 124.300  Business development.

    The regulations at Sec. 124.301 through Sec. 124.321 address the 
provision of various forms of assistance to 8(a) Program Participants to 
promote the business development of such concerns. Such assistance 
includes financial, management and technical assistance, and contract 
support.



Sec. 124.301  Development of business plan.

    (a) General. In order to assist the SBA in determining the business 
development needs of each 8(a) Program Participant, each such 
Participant shall develop a comprehensive business plan, setting forth 
the Participant's business targets, objectives, and goals. The business 
plan shall be submitted to the SBA servicing field office in final form 
promptly after the Participant's receipt of notice of certification to 
participate in the 8(a) program. The Participant will not be eligible 
for 8(a) Program benefits, including contracts until the SBA approves 
its business plan. The approved business plan will constitute the 
Participant's short and long term goals and the strategy for 
developmental growth to the point of economic viability independent of 
the 8(a) program.
    (b) Standard Industrial Classification (SIC) code designations. The 
concern's primary industry classification as defined in Sec. 124.100 and 
all related secondary Standard Industrial Classification (SIC) code 
designations shall be stated in an 8(a) concern's original business 
plan. Such SIC codes may be changed, and new SIC codes may be added to 
the business plan, however, where the conditions of Sec. 124.302(c) are 
met. Once admitted to the 8(a) program, a concern will only be permitted 
to perform 8(a) contracts which are classified under approved SIC codes 
which appear in its business plan. An 8(a) concern may receive a Federal 
contract classified under a SIC code not contained in its business plan 
where the contract is not

[[Page 262]]

awarded through the section 8(a) program.
    (c) Contents of business plan. The initial business plan shall 
contain at least the following:
    (1) An analysis of market potential, competitive environment, and 
other business analyses estimating the Program Participant's prospects 
for profitable operations during the term of program participation and 
after graduation;
    (2) An analysis of the Program Participant's strengths and 
weaknesses, with particular attention paid to the means of correcting 
any financial, managerial, technical, or labor conditions which could 
impede the Participant from receiving contracts other than those awarded 
through the 8(a) Program;
    (3) Specific targets, objectives, and goals for the business 
development of the Participant during the next two years, utilizing the 
results of the analyses conducted pursuant to paragraphs (c)(1) and 
(c)(2) of this section;
    (4) Estimates of contract awards pursuant to section 8(a) and from 
other sources which would be needed by the Participant to meet the 
specific targets, objectives and goals for the years covered by the 
business plan; and
    (5) Such other information as SBA may require.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990]



Sec. 124.302  Review and modification of business plan.

    (a) Annual review. Each Participant shall annually review its 
currently approved business plan with the Business Opportunity 
Specialist (BOS) and shall modify such plan as may be appropriate. Any 
modified plan shall be submitted to the BOS for approval. A currently 
approved plan shall be considered the applicable plan for all program 
purposes until the SBA approves in writing a modified plan. SBA shall 
establish an anniversary date for review of the Participant's business 
plan and contract support forecasts. The annual review of a 
Participant's business plan will generally occur within 15 working days 
before or after the anniversary of the firm's certification of 8(a) 
eligibility.
    (b) Contract support forecast. Each Participant shall annually 
forecast in writing its needs for contract awards for the next program 
year and the succeeding program year during the review of its business 
plan conducted under paragraph (a) of this section. Such forecast shall 
be included in the Participant's business plan. The forecast shall 
include:
    (1) The aggregate dollar value of contract support to be sought 
under section 8(a) (sole source and competitive), reflecting compliance 
with the business mix requirements of Sec. 124.312;
    (2) The aggregate dollar value of non-8(a) contracts to be sought;
    (3) The types of contract opportunities being sought, identified by 
the appropriate Standard Industrial Classification (SIC) code; and
    (4) Such other information as may be requested by the SBA to aid in 
providing effective business development assistance to the Participant.
    (c) Changes in SIC code designations. (1) Requests for changes in 
SIC code designations stated in a business plan shall be approved by SBA 
if it is determined that:
    (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) The 8(a) concern has demonstrated capacity and capability to 
perform in the requested SIC code; and
    (C) Other applicable eligibility criteria (Walsh-Healey Act, the 
non-manufacturer rule, size rules, etc.) appear to be met; or
    (ii) SBA erred in omitting a previously requested and supported SIC 
code, improperly classifying a business industry or making a 
typographical or other error in its letter of approval to the 8(a) 
concern.
    (2) SBA will make a decision on such request within 30 days from the 
date it receives the request.
    (d) Transition management plan. Beginning in the first year of the 
transitional stage of program participation under Sec. 124.303, each 
Participant shall annually submit for inclusion in its business plan a 
transition management

[[Page 263]]

plan outlining specific steps to promote profitable business operations 
after graduation. The transition management plan should be submitted to 
the BOS at the same time other modifications are submitted pursuant to 
the annual review under paragraph (a) of this section. Such plan shall 
set forth the same information as required under paragraph (b) of this 
section for the initial plan, incorporate the competitive mix 
requirements of Sec. 124.312, and provide specific transition steps the 
Participant will take to continue its business development after the 
expiration of its Program Term.

[54 FR 34712, Aug. 21, 1989, as amended at 60 FR 29976, June 7, 1995]



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. For firms approved for 
8(a) program participation after November 15, 1988, the developmental 
stage shall be 4 years and the transitional stage shall be 5 years 
unless the Participant has exited the program by one of the means set 
forth in Sec. 124.110. The developmental stage is designed to assist 
participants to overcome their economic disadvantage by providing such 
assistance as may be necessary and appropriate to enable them to access 
relevant markets and strengthen their financial and managerial skills. 
The transitional stage of program participation follows the 
developmental stage and is designed to assist Participants to overcome, 
insofar as practicable, the remaining elements of economic disadvantage 
and to prepare Participants for leaving the 8(a) program.
    (b) Stages for grandfathered Program Participants. (1) For Program 
Participants with five or fewer years remaining in the 8(a) program as 
of August 15, 1989, the program year they are in on August 15, 1989 
shall be considered the first year of the transitional stage. Such 
Participants shall be subject to the modified business targets set forth 
in Sec. 124.312.
    (2) For concerns with more than five years remaining in the 8(a) 
program as of August 15, 1989, the stages of program participation shall 
be determined so that the Participant will have five years in the 
transitional stage. The remaining time in the program shall be 
considered time in the developmental stage. For example, if a 
Participant has seven years remaining in the program as of August 15, 
1989, it will be considered to have 2 years remaining in the 
developmental stage and five years in the transitional stage.
    (c) Developmental stage of program participation. A Program 
Participant, if otherwise eligible, shall be qualified to receive the 
following assistance during the developmental stage of program 
participation:
    (1) Sole source and competitive 8(a) contract support;
    (2) Financial assistance pursuant to Sec. 122.59 of this title;
    (3) Pursuant to Sec. 124.306, financial assistance from SBA for 
skills training or upgrading for employees or potential employees of 
Program Participants;
    (4) The transfer of technology or surplus property owned by the 
United States to Program Participants by grant, license, or sale. 
Technology or property transferred pursuant to this paragraph must be 
used by the Participant during the normal conduct of its business 
operation and cannot be sold or transferred to any other party (other 
than the Government) during such concern's Program Term and for one year 
thereafter. A Participant must agree to these conditions prior to any 
transfer of technology or property; and
    (5) Training sessions to assist individuals and enterprises eligible 
to receive 8(a) contracts in the development of business principles and 
strategies to enhance their ability to compete successfully for 
contracts in the marketplace.
    (d) Transitional stage of program participation. A Program 
Participant, if otherwise eligible, shall be qualified to receive the 
following assistance during the transitional stage of program 
participation:
    (1) The same assistance as that provided to Participants in the 
developmental stage under paragraphs (c)(1), (c)(2), (c)(4) and (c)(5) 
of this section;

[[Page 264]]

    (2) Assistance from procuring agencies (in cooperation with SBA) in 
forming joint ventures, leader-follower arrangements, and teaming 
agreements between the Participant and other Program Participants or 
other business concerns, in accordance with all applicable statutes and 
regulations, with respect to contracting opportunities for research, 
development, fullscale engineering or production of major systems. In 
the case of a requirement to be procured as a Small Business Set-aside, 
a Small Disadvantaged Business Set-aside, or through the 8(a) program, 
applicable size regulationis will apply in determining whether the 
cooperative venture between a Participant and another business entity 
qualifies as a small business concern; and
    (3) Training and technical assistance in transitional business 
planning.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990; 
60 FR 29976, June 7, 1995]
Secs. 124.304--124.305  [Reserved]



Sec. 124.306  Financial assistance for skills training.

    (a) SBA may pay in whole or in part the costs of training or 
upgrading of employees or potential employees of 8(a) concerns. An owner 
participating in the day-to-day management of a Participant may be 
considered to be an employee for purposes of this section. Payments may 
be made directly to the training provider or by reimbursing the Program 
Participant or the Participant's employee, if such reimbursement is 
found to be reasonable and appropriate.
    (b) SBA assistance under this section is subject to the following 
conditions and requirements:
    (1) The concern must be in the developmental stage of program 
participation.
    (2) The 8(a) concern must document that it has explored the use of 
existing cost-free or cost-subsidized training programs offered by 
public and private sector agencies working with programs of employment 
and training and economic development and that no such programs are 
available or are capable of meeting the training needs of the 
participant.
    (3) The concern must be current with any reporting requirements 
established by SBA for ongoing program participation.
    (4) The employee receiving the training or upgrading may not be a 
beneficiary of any other publicly or privately funded training program 
which benefits the trainee or upgraded employee for the same activity 
SBA is compensating under this section.
    (5) The training provider must be an institution of higher 
education, a community or vocational college, or an institution eligible 
to provide skills training under the Job Training Partnership Act (29 
U.S.C. 1501, et seq.).
    (6) The training provider may not be debarred or suspended from any 
Federal programs.
    (7) The training of employees or potential employees of a concern 
must be consistent with the concern's approved business plan.
    (8) SBA must approve the training in writing prior to its 
commencement.
    (9) No more than five employees or potential employees of a single 
8(a) concern may be recipients of benefits under this section at one 
time.
    (10) The length of training or skills upgrading financed under this 
section may be no less than one month nor more than six months.
    (11) The training of skills upgrading assistance must be of a type 
which will offer genuine capacity development for the employing firm.
    (12) No more than $2,500 shall be made available for any one 
employee or potential employee.
    (13) The Participant must execute and submit to SBA any appropriate 
written employment agreements in accordance with paragraph (f) of this 
section.
    (c) SBA's allocation of resources appropriated for the purposes of 
this section shall generally be based on the identification of needs of 
developmental stage concerns. SBA shall evaluate training needs in the 
annual business plan review process, and may conduct other surveys as 
appropriate.
    (d) Projects to be funded under this section shall be initiated by a 
request

[[Page 265]]

prepared by the 8(a) concern and submitted to SBA. SBA may request 
additional information before the request is processed.
    (e) Assistance under this section will be made only when the 
agreements entered into by SBA to fund training or upgrading contain 
acceptable training and upgrading standards and acceptable monitoring 
standards and requirements to insure the integrity and effectiveness of 
the training or upgrading.
    (f) The Participant must give adequate assurance that it will employ 
the trainee or upgraded employee for at least six months after the 
training or upgrading financed pursuant to this section has been 
completed. Trainees and upgraded employees must provide a similar 
assurance that they will remain in the employ of the 8(a) firm for such 
six-month period. Such assurance will consist of an appropriate written 
employment agreement. If a trainee or upgraded employee does not remain 
in the employ of the participant for at least six months after receiving 
such SBA-financed training or upgrading, the violating party must 
reimburse SBA for the amount expended together with any reasonable 
interest and costs incurred for collection. In addition, the violating 
party, whether it is the Participant, individual trainee or upgraded 
employee, shall be barred from receiving any further assistance under 
this section. The appropriate SBA Regional Administrator, or his/her 
designee, may waive the reimbursement provisions of this paragraph in 
limited circumstances where an employee's leaving is due to an unforseen 
event (e.g., the employee's spouse is relocated by his/her business and 
the employee must move).



Sec. 124.307  Contractual assistance.

    (a) It is the policy of SBA to enter into contracts with other 
Government agencies and to subcontract the performance of such 
contracts, pursuant to section 8(a)(1)(C) of the Small Business Act, to 
8(a) Program Participants at prices which will enable such concerns to 
perform the contracts and earn a reasonable profit.
    (b) Such subcontracts may either be sole source awards or awards 
attained through competition reserved for eligible Participants.
    (c) Admission into the 8(a) program does not bestow a right to 
receive 8(a) contracts. SBA's approval of a Participant's business plan 
pursuant to Sec. 124.301 does not guarantee the Participant any 
particular level of contract support.
    (d) While a Program Participant's projected level of 8(a) contract 
support is required as part of its business plan under Sec. 124.302(b) 
as a planning and development tool, the level approved by SBA will not 
prevent contract awards above that level so long as SBA determines the 
concern to be competent and responsible to perform any such contracts 
and the Participant is in compliance with any applicable competitive 
business mix requirement, or approved remedial plan, imposed by 
Sec. 124.312.
    (e) An 8(a) contract will be provided to a Participant only when 
such contract is consistent with the Participant's capabilities and 
business development needs, as determined by SBA.
    (f) Except as provided in Sec. 124.311(i), an 8(a) concern must be 
an eligible Program Participant on the date of contract award.

[54 FR 34712, Aug. 21, 1989, as amended at 59 FR 12815, Mar. 18, 1994; 
60 FR 29976, June 7, 1995]



Sec. 124.308  Procedures for obtaining and accepting procurements for the 8(a) program.

    (a) PCR-serviced agencies. If an SBA Procurement Center 
Representative (PCR) is resident or has liaison responsibilities in a 
procuring agency, he/she will be responsible for screening proposed 
procurements for possible 8(a) contracts, in accordance with 13 CFR 
125.6.
    (b) Requirement identification. (1) A requirement for possible award 
may be identified by SBA, a particular Program Participant or the 
procuring agency itself. Once a requirement that appears suitable for 
the 8(a) program has been identified, SBA shall verify the 
appropriateness of the SIC code designation assigned to the requirement 
and request the procuring agency to offer the requirement to the 8(a) 
program.


[[Page 266]]


So long as the SIC code assigned to the requirement by the procuring 
agency contracting officer is reasonable, the SIC Code will be accepted 
by SBA.
    (2) If SBA and the procuring agency are unable to agree as to the 
proper SIC code designation for the requirement, SBA may refuse to 
accept the requirement for the 8(a) program, or appeal the contracting 
officer's determination to the head of the agency pursuant to 
Sec. 124.320, or the AA/MSB & COD may file a SIC code appeal to SBA's 
Office of Hearings and Appeals.
    (3) If the requirement exceeds the thresholds established by 
Sec. 124.311, the SBA will request that the requirement be offered to 
the 8(a) program to be competed among eligible Program Participants, 
unless SBA determines that there is not a reasonable expectation that at 
least two eligible 8(a) concerns will submit offers.
    (4) If the requirement is below the thresholds established by 
Sec. 124.311, the SBA may request that it be offered to the 8(a) program 
for possible sole source award as an open requirement or in support of 
the approved business plan of a specific Program Participant, or it may 
accept the requirement for competition upon the procuring agency's 
request.
    (c) Offering letter. When a requirement is offered to the 8(a) 
program, the offering letter or notification from the procuring activity 
shall contain the following information.
    (1) A description of the work to be performed or items to be 
delivered and a copy of the statement of work, if available;
    (2) The estimated period of performance;
    (3) The SIC code that applies to the principal nature of the 
acquisition;
    (4) The anticipated dollar value of the requirement, including 
options, if any;
    (5) Any special restrictions or geographical limitations on the 
requirement;
    (6) The location of the work to be performed for construction and 
service procurements;
    (7) Any special capabilities or disciplines needed for contract 
performance;
    (8) The type of contract to be awarded, such as firm fixed price, 
cost reimbursement, or time and materials;
    (9) The acquisition history, if any, of the requirement;
    (10) The names and addresses of any small business contractors which 
have performed on this requirement during the previous 24 months;
    (11) A statement that no solicitation for the specific acquisition 
has been issued as a small business set-aside or small disadvantaged 
business set-aside and that no other public communication (such as a 
notice in the Commerce Business Daily) has been made evidencing the 
procuring agency's clear intention to set aside the acquisition for 
small business or small disadvantaged business (see Sec. 124.309(a));
    (12) Identification of any particular 8(a) concern designated for 
consideration, including a brief justification, such as one of the 
following:
    (i) The 8(a) concern, through its own efforts, marketed the 
requirement and caused it to be reserved for the 8(a) program; or
    (ii) The acquisition is a follow-on or renewal contract and the 
nominated concern is the incumbent;
    (13) Bonding requirements, if applicable;
    (14) Identification of all 8(a) concerns which have expressed an 
interest in being considered for the acquisition;
    (15) If the requirement is a national buy, identification of all SBA 
district or regional offices which have asked for the acquisition for 
the 8(a) program;
    (16) A request that the acquisition be competitive, if appropriate, 
and the estimated contract value is under the applicable threshold; and
    (17) Any other information that the procuring agency deems relevant 
or SBA requests.
    (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

[[Page 267]]

grants, an extension. SBA is not required to accept any particular 
procurement offered to the 8(a) program.
    (1) Where SBA decides to accept an offering of a sole source 8(a) 
procurement, SBA will accept the offer both on behalf of the program and 
in support of the approved business plan of a specific 8(a) Program 
Participant.
    (2) Where SBA decides to accept an offering of a competitive 8(a) 
procurement, SBA will accept the offer for the 8(a) program generally.
    (3) Except for requirements assigned a construction SIC code by the 
procuring agency contracting officer, all competitive 8(a) requirements 
accepted by SBA may be competed among all eligible 8(a) Program 
Participants nationally. The only geographic restrictions pertaining to 
8(a) competitive requirements, other than those for construction 
requirements, would be those imposed by the solicitations themselves.
    (e) Sole source award where procuring agency nominates a specific 
program participant. If the procuring agency identifies a particular 
8(a) concern for a sole source award, SBA will determine whether an 
appropriate match exists.
    (1) Once a procurement is deemed suitable for acceptance as an 8(a) 
sole source contract, it will normally be accepted on behalf of the 
participant recommended by the procuring agency, provided that:
    (i) The procurement is consistent with the Participant's business 
plan;
    (ii) The Participant is determined by SBA to be a responsible 
contractor with respect to performance of the contract; and
    (iii) The award of the contract would not result in the Participant 
exceeding its business mix requirements established under Sec. 124.312.
    (2) If an appropriate match exists, SBA will send a letter accepting 
the offer in support of the business plan of the identified Participant 
to the procuring agency. This letter will advise the procuring agency 
whether SBA will participate in contract negotiations or whether SBA 
will authorize the procuring agency to negotiate directly with the 
identified Program Participant. A Program Participant selected by SBA to 
perform a noncompetitive 8(a) contract shall, when practicable, 
participate in any negotiation of the terms and conditions of such 
contract.
    (3) If SBA determines that an appropriate match with the nominated 
8(a) concern does not exist based on the factors set forth in paragraph 
(e)(1) of this section, it will notify the affected 8(a) concern and may 
then select an alternate 8(a) concern, in accordance with paragraph 
(f)(3) of this section. It will so advise the procuring agency of its 
actions.
    (f) Open requirements. When a procuring agency does not nominate a 
particular concern for performance of a sole source 8(a) contract (open 
requirement), the following additional procedures will apply:
    (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. 
If none is found to be qualified or a match for a concern in that 
district is determined to be impossible or inappropriate, the 
requirement may be considered for other 8(a) concerns located within the 
region or, if appropriate, other regions.
    (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) In cases in which SBA must select a participant for possible 
award from among two or more eligible and qualified participants, the 
selection will be based upon consideration of relevant factors, 
including the business development needs, compliance with competitive 
business mix requirements (if applicable), financial condition, 
management ability, and technical capability of each participant. SBA 
shall make its selection based upon an examination of the business plan 
and procurement history of the concern as well as any supplemental 
materials requested and received.
    (4) To the maximum extent practicable, the SBA shall promote the 
equitable geographic distribution of 8(a) sole source contracts.
    (g) Formal technical evaluations. SBA will not authorize formal 
technical evaluations for sole source 8(a) contracts. If a procuring 
agency requires

[[Page 268]]

the performance of a formal technical evaluation among more than one 
8(a) concern, the procuring agency must request that the requirement be 
a competitive 8(a) award. The procuring agency may request a formal two-
step procurement process pursuant to section 14.5 of the FAR, 48 CFR 
subpart 14.5, or a standard negotiated competitive procurement. Agencies 
may, however, conduct informal assessments of several 8(a) firms' 
capabilities to perform a specific requirement, provided that the 
statement of work for the requirement is not released to any of the 
participating 8(a) firms.
    (h) Repetitive acquisitions. In order for repetitive acquisitions to 
be awarded through the 8(a) program, there must be separate offers and 
acceptances. This enables the SBA to reassess a firm's eligibility, to 
evaluate the suitability of each acquisition for competitive 8(a) award, 
and to determine whether the requirement should continue under the 8(a) 
program.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990; 
60 FR 29976, June 7, 1995]



Sec. 124.309  Barriers to acceptance.

    SBA will not accept for 8(a) award proposed procurements not 
previously in the 8(a) program if any of the circumstances identified in 
paragraphs (a), (b), or (c) of this section exist.
    (a) Solicitation previously issued. A solicitation has already been 
issued for the procurement as a small business set-aside, such as an 
Invitation for Bid (IFB) or Request for Proposal (RFP). The AA/MSB&COD 
may permit the acceptance of the requirement, however, under 
extraordinary circumstances, such as where a procuring agency had made a 
decision to offer the requirement to the 8(a) program before the 
solicitation was sent out and the procuring agency acknowledges and 
documents that the solicitation was in error.
    (b) Reservation as small business or SDB set-aside. The procuring 
agency has expressed publicly a clear intention to reserve the 
procurement as a small business or small disadvantaged business (SDB) 
set-aside (e.g., a notice of intent to set aside a procurement published 
in the Commerce Business Daily which invites a response from interested 
small businesses). The AA/MSB&COD may permit the acceptance of the 
requirement, however, under extraordinary circumstances, such as where a 
procuring agency had made a decision to offer the requirement to the 
8(a) program before the notice was sent out and the procuring agency 
acknowledges and documents that the notice was in error. An annual 
procurement forecast or solicitation of information for possible small 
business set aside will generally not be considered as a clear 
exhibition of intention to set aside a procurement for small businesses.
    (c) Adverse Impact. SBA has made a written determination that 
acceptance of the procurement for 8(a) award would have an adverse 
impact on other small business programs or on an individual small 
business, whether or not the affected small business is in the 8(a) 
program. The adverse impact concept is designed to protect small 
business concerns which are performing Government contracts awarded 
outside the 8(a) program. 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. 
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.
    (1) In determining whether or not adverse impact exist, all relevant 
factors will be considered.
    (2) SBA presumes adverse impact to exist when a small business 
concern has performed a specific requirement for at least 24 months, it 
is currently performing the requirement or finished such performance 
within 30 days of the procuring agency's offer of the requirement for 
the 8(a) program, and the estimated dollar value of the offered 8(a) 
award is 25 percent or more of its most

[[Page 269]]

recent annual gross sales (including those of its affiliates).
    (d) Release for non-8(a) competition. In limited instances, SBA may 
determine that a sole source 8(a) contract being performed by either a 
Program Participant whose Program Term will expire prior to contract 
completion, or, by a former Program Participant whose Program Term has 
expired within one year of the date of the offering letter for the 
proposed procurement may be rejected so that it may be competed outside 
the 8(a) program. If such a determination is made, SBA will reject the 
procuring agency's offer of the requirement for award through the 8(a) 
program. In such a case, SBA will recommend that the requirement be 
procured as a small business set-aside or, where appropriate, through a 
small disadvantaged business competition authorized by Pub. L. 99-661.
    (1) In making such a determination, SBA will balance the importance 
of the contract for the (former) Participant's stability and business 
development needs against the needs of other Program Participants 
qualified to perform the requirement in order to develop in accord with 
their business plan. Such a determination will include consideration of 
whether the rejection of the requirement would seriously reduce the pool 
of similar types of contracts to be fulfilled through the 8(a) program. 
In making such determination, SBA will also seek the views of the 
procuring agency.
    (2) A written request for the rejection of a contract must be made 
to SBA by the applicable (former) Participant prior to SBA's acceptance 
of the requirement for the 8(a) program. SBA will not reject a 
requirement absent such a request.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990]



Sec. 124.310  Approval of lower tier subcontractors.

    (a) SBA's approval must be obtained prior to a Particpant's 
subcontracting of the performance of an 8(a) contract to another 
concern.
    (b) SBA will not approve any subcontracting arrangement where:
    (1) The performance of work requirements set forth in Sec. 124.314 
would not be met;
    (2) The proposed subcontractor has been suspended, debarred, or 
determined to be ineligible by any Federal agency;
    (3) SBA determines that the proposed subcontractor would control the 
performance of the requirement;
    (4) SBA determines that the proposed subcontracting relationship is 
not an arms length agreement; or
    (5) SBA determines that the proposed subcontracting arrangement is 
an attempt to circumvent SBA's size regulations.



Sec. 124.311  8(a) competition.

    (a) Competitive thresholds. A contract opportunity offered to the 
8(a) program for award shall be awarded on the basis of a competition 
restricted to eligible Program Participants if:
    (1) There is a reasonable expectation that at least two eligible 
program participants will submit offers and that award can be made at a 
fair market price; and
    (2) The anticipated award price of the contract, including options, 
will exceed $5,000,000 for contracts assigned manufacturing Standard 
Industrial Classification (SIC) codes and $3,000,000 for all other 
contracts.
    (i) For all types of contracts, the applicable competitive threshold 
amounts will be applied to the procuring agency estimate of the total 
value of the contract, including all options.
    (ii) Where a procuring agency good faith estimate of the total value 
of a proposed 8(a) contract is less than the applicable competitive 
threshold amount and the requirement is accepted as a sole source 
requirement on that basis, award may be made even though the ultimate 
price arrived at through negotiations exceeds the competitive threshold, 
provided that the ultimate price is not significantly greater than the 
competitive threshold amount.

    Example. If the anticipated award price for a professional services 
requirement is determined to be $2.7 million and it is accepted as a 
sole source 8(a) requirement on that basis, a sole source award will be 
valid even if the contract price arrived at after negotiation is $3.1 
million.


[[Page 270]]


    (iii) A proposed 8(a) requirement with an estimated value exceeding 
the applicable competitive threshold amount shall not be divided into 
several requirements for lesser amounts in order to use 8(a) sole source 
procedures for award to a single contractor.
    (b) Exemption from competitive thresholds for 8(a) concerns owned by 
Indian tribes. SBA may award an 8(a) subcontract on a non-competitive 
basis to an 8(a) concern owned and controlled by an economically 
disadvantaged Indian tribe, as defined in Sec. 124.100, even if such 
contract exceeds the competitive thresholds set forth in paragraph (a) 
of this section. See generally, Sec. 124.112. However, once a 
requirement is accepted into the 8(a) program for competition and 
prospective offerors have been notified of such acceptance, SBA may not 
remove the requirement from competition and award it to a disadvantaged 
Indian tribe as a sole source contract.
    (c) Competition below thresholds. The AA/MSB&COD may, on a 
nondelegable basis, approve a request from a procuring agency that an 
8(a) contract be competed even if the anticipated award price is not 
expected to exceed the dollar amounts specified in paragraph (a) of this 
section. Such approvals will be granted on a limited basis.
    (1) This authority will be used primarily in areas where technical 
competitions are appropriate or when a large number of responsible 8(a) 
contractors exists.
    (2) In determining whether to approve a request to compete an 8(a) 
contract below the applicable threshold amount, the AA/MSB&COD shall 
consider whether the requesting agency has made and will continue to 
make available a significant number of its contracts to the 8(a) program 
on a noncompetitive basis.
    (3) The AA/MSB&COD shall deny a request to compete a contract having 
a dollar figure below the applicable threshold amount where the 
requirement was previously offered to the 8(a) program on a 
noncompetitive basis if he/she concludes that the request is based on 
the inability of the contracting agency and the Participant selected to 
perform the contract to reach an agreement on price or some other 
material term or condition.
    (d) Sole source above thresholds. Where a contract opportunity 
exceeds the applicable threshold dollar figure and there is not a 
reasonable expectation that at least two eligible Program Participants 
will submit offers at a fair price, SBA may accept the requirement for a 
sole source 8(a) award if SBA determines that an eligible participant in 
the 8(a) portfolio is capable of performing the requirement at a fair 
price. 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.
    (e) Procedures for competition. (1) Competitions among eligible 8(a) 
participants shall be conducted by the procuring agencies in accordance 
with the Federal Acquisition Regulation (FAR). Such competitions shall 
be representative of competitions which are the normal practice in the 
relevant industries. Competitions need not stress price as the dominant 
factor, but may be based primarily on technical evaluations or other 
non-price related factors. Selection of a particular Program Participant 
by the procuring agency shall be based on specific evaluation criteria 
set forth in the solicitation.
    (2) All solicitations for competitive 8(a) requirements shall 
include the appropriate SIC code for the requirement.
    (3) The procuring agency shall evaluate offers pursuant to the 
evaluation criteria in the solicitation and the applicable FAR 
provisions.
    (4)(i) In a sealed bid acquisition, upon the receipt of offers, the 
procuring agency shall submit to SBA a list of offerors ranked in the 
order of their standing for award (that is, lowest bid, second low bid, 
etc.) with the total evaluated price for each offer, differentiating 
between basic requirements and any options.
    (ii) In a negotiated acquisition, the procuring agency shall 
transmit to SBA the offeror determined by the procuring agency to be the 
apparent successful offeror. Such a referral generally shall be made at 
the time the procuring agency transmits the 8(a)

[[Page 271]]

contract documents to SBA for signature, unless the contracting officer 
has made a responsibility referral to SBA under FAR 19.809. In the case 
of such a referral, SBA shall determine eligibility when the 
responsibility referral is made to SBA, and may determine responsibility 
both at the time of the referral and at the time of award.
    (iii) Eligibility shall be determined as of the date of a 
Participant's submission of its initial offer which includes price. In 
addition, eligibility is determined for each competitive 8(a) 
acquisition independent of other 8(a) acquisitions for which a 
Participant has submitted an offer, but for which no award has been 
made.
    (5) Within 5 working days after receipt of the procuring agency's 
request for an eligibility determination, the SBA will determine whether 
any firm identified is eligible for award of the contract, including:
    (i) Whether it has the SIC code for the requirement in its approved 
business plan;
    (ii) Whether it is small under the SIC code for the requirement;
    (iii) If the procurement is to be restricted within a particular 
stage of program participation or a particular geographical area, 
whether the firm is within the required stage of development or 
location; and
    (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.
    (6) If the low bidder in a sealed bid procurement is determined to 
be ineligible by SBA, SBA shall determine the eligibility of the next 
low bidder. This process shall be repeated until SBA determines that an 
identified participant is eligible for award, or until the list is 
exhausted.
    (7) In a negotiated procurement, the procuring agency will evaluate 
the offers of those firms determined by SBA to be eligible for award 
pursuant to paragraph (e)(5) of this section and will conduct 
discussions and/or negotiations with those firms deemed appropriate.
    (8) After negotiaitons and/or discussions occur in a negotiated 
procurement, the potential awardee will be selected by the procuring 
agency.
    (9) Award shall be made through the normal 8(a) award procedures 
(i.e., a prime contract between the procuring agency and SBA and a 
subcontract between SBA and the selected 8(a) concern).
    (f) Protest restrictions. The eligibility of a Program Participant 
for a competitive 8(a) award 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. 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).
    (g) Restricted competition. (1) Competition within stages of program 
participation. SBA may accept a requirement to be awarded through a 
competition limited to 8(a) concerns in the developmental stage of 
program participation or limited to concerns in the transitional stage 
of program participation, or may accept a requirement to be competed 
among firms both in the developmental and transitional stages of program 
participation.
    (2) SIC code requirements. Only those Participants that have in 
their approved business plan the SIC code identified in the solicitation 
may submit offers for the requirement. A participant will be deemed 
ineligible for award by SBA if it submits an offer for a requirement for 
which it does not have an approved SIC code.
    (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.

[[Page 272]]

    (4) Competition for all non-construction requirements. Except for 
construction requirements, all eligible Program Participants nationally 
may submit offers in response to any solicitation for a competitive 8(a) 
procurement requirement.
    (h) 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.

[54 FR 34712, Aug. 21, 1989, as amended at 59 FR 12815, 12816, Mar. 18, 
1994; 60 FR 29976, 29977, June 7, 1995]



Sec. 124.312  Competitive business mix.

    (a) General. To ensure that 8(a) firms do not develop an 
unreasonable reliance on 8(a) contracts and to ease the transition of 
such firms into the competitive marketplace after exiting the 8(a) 
program, Program Participants must make maximum efforts to obtain 
business outside the 8(a) program.
    (b) Non-8(a) business activity targets and support levels during 
developmental stage. (1) Attainment of targeted levels. During the 
developmental stage of Program Participation, an 8(a) concern must make 
substantial and sustained efforts to attain the targeted dollar levels 
of non-8(a) revenue established in its business plan.
    (2) Maintenance of existing business base. A business concern which 
enters the 8(a) program must make maximum efforts to maintain its 
existing business base and use the 8(a) program as a resource to 
strengthen the firm after its 8(a) certification.
    (3) Marketing strategy to attain targeted levels. Every Program 
Participant must engage in a reasonable marketing strategy that will 
maximize its potential to achieve the targeted levels of non-8(a) 
revenue established in its business plan.
    (4) Reporting and verification of business activity. Once admitted 
to the 8(a) program, a Program Participant must provide annual financial 
statements to SBA in accord with Sec. 124.501(c). The statements shall 
segregate revenues as non-8(a) and 8(a) revenue as appropriate. Also, 
within 30 days from the end of the program year, the Program Participant 
shall provide SBA with an annual report of all non-8(a) contracts, 
options and modifications affecting price executed during the program 
year.
    (c) Required Non-8(a) Business Activity Targets During Transitional 
Stage. (1) General. During the transitional stage of the program, the 
Program Participant shall be required to achieve certain targets of non-
8(a) contract revenue. Such targets shall be referred to as non-8(a) 
business activity targets and shall be expressed as a percentage of 
total revenue. The targets shall reflect a reasonably consistent 
increase in non-8(a) revenue. Participants approved for participation on 
or after November 15, 1988 and Participants with more than five years 
remaining in the program as of August 15, 1989 shall be subject to the 
non-8(a) business activity targets set forth in paragraph (c)(2) of this 
section. Participants with five years or less remaining in the program 
as of August 15, 1989 shall be subject to the modified non-8(a) business 
activity targets set forth in paragraph (c)(3) of this section.
    (2) Non-8(a) business activity targets. Firms approved for program 
participation on or after the enactment of Pub. L. 100-656 (November 15, 
1988) and current Program Participants that have more than five years 
remaining in the program as of August 15, 1989 shall be subject to the 
following non-8(a) business activity targets during each year of program 
participation in the transitional stage:

------------------------------------------------------------------------
                                                       Non-8(a) business
                                                        activity targets
 Program participant's year in the transitional stage  (non-8(a) revenue
                                                        as a percentage 
                                                       of total revenue)
------------------------------------------------------------------------
1....................................................              15-25
2....................................................              25-35
3....................................................              35-45
4....................................................              45-55
5....................................................              55-75
------------------------------------------------------------------------

    (3) Modified non-8(a) business activity targets. Firms that have 
five years or less remaining in the program as of August 15, 1989 shall 
be subject to modified non-8(a) business activity targets during the 
transitional stage of program participation.

[[Page 273]]

    (i) A firm with three to five years remaining in the program as of 
August 15, 1989 shall be subject to the following non-8(a) business 
activity targets:

------------------------------------------------------------------------
                                                       Modified non-8(a)
                                                       business activity
                                                       targets (non-8(a)
 Program participant's year in the transitional stage     revenue as a  
                                                         percentage of  
                                                         total revenue) 
------------------------------------------------------------------------
      1..............................................              10-15
      2..............................................              15-20
      3..............................................              20-30
      4..............................................              30-40
      5..............................................              40-50
------------------------------------------------------------------------

    (ii) A firm with less than three years remaining in the program as 
of August 15, 1989 shall make substantial and sustained efforts to 
attain the targeted dollar levels of non-8(a) sales approved in its 
business plan.
    (4) Failure to meet required non-8(a) business activity target. 
Firms that fail to achieve the minimum percentage non-8(a) business 
activity target in any year of the transitional stage will be subject to 
the remedial measures set forth in paragraph (c)(12) of this section. 
Compliance with the applicable business activity target is measured at 
the end of any program year in the transitional stage of program 
participation (e.g., at the end of the first year in the transitional 
stage of program participation, non-8(a) revenue is compared to total 
revenue). Remedial measures, if appropriate, will be imposed during the 
subsequent program year (e.g., non-complaince with the required business 
activity target in year one of the transitional stage of program 
participation would cause remedial measures to be imposed in year two in 
the transitional stage).
    (5) Attainment of targeted levels. The program participant must make 
maximum efforts to maintain and increase its targeted level of non-8(a) 
revenue during the transitional stage.
    (6) Marketing strategy to attain targeted levels. The program 
participant must engage in a reasonable marekting strategy that will 
maximize its potential to achieve the targeted levels of non-8(a) 
revenue established in the business plan.
    (7) Reporting and verification of business activity. Program 
Participants during the transitional stage shall provide annual 
financial statements to SBA with a breakdown of 8(a) and non-8(a) 
revenue in accord with Sec. 124.501(c). The Program Participant shall 
also provide SBA with a report of all non-8(a) contracts, options and 
modifications affecting price executed during the program year (and any 
other information as required by SBA) within thirty days from the end of 
the reporting period. At the end of each year of participation in the 
transitional stage, the BOS assigned to work with the participant shall 
review the participant's total revenues to determine whether the 
participant's non-8(a) revenues have met the targets estabished pursuant 
to paragraphs (c)(2) and (c)(3) of this section.
    (8) Certification of compliance. Before the receipt of any 8(a) 
contract during the transitional stage of the program, a Program 
Participant must certify that it is in compliance with the non-8(a) 
business activity targets estabished in its business plan as approved by 
SBA or that it is in compliance with any remedial measures imposed by 
SBA pursuant to paragraph (c)(9) of this section, if such remedial 
measures allow the continued award of 8(a) contracts.
    (9) Remedial measures for failure to achieve non-8(a) business 
activity targets. SBA is authorized to take appropriate remedial 
measures with respect to a Program Participant which has failed to 
attain the minimum required business activity targets as established in 
paragraphs (c)(2) and (c)(3) of this section. The type of remedial 
measure used depends in part on the extent to which the Participant 
failed to obtain and the effort expended in seeking non-8(a) business. 
These remedial actions include, but are not limited to:
    (i) Requiring the Program Participant to obtain management and 
technical assistance or to obtain counseling and/or attend seminars 
relating to management assistance, business development, financing, 
marketing, or proposal preparation.
    (ii) Conditioning the award of future sole source 8(a) contracts on 
the Participant's taking affirmative steps to expand the dollar volume 
of its competitive business activity, such as changes in marketing of 
financing strategies;

[[Page 274]]

    (iii) Reducing a Participant's approved level of 8(a) support;
    (iv) Reducing, or eliminating, sole source 8(a) contracts;
    (v) Program termination pursuant to Sec. 124.209--program 
termination proceedings will be commenced where a firm makes no efforts 
to obtain non-8(a) revenues.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990; 
60 FR 29977, June 7, 1995]



Sec. 124.313  Certification of SBA's competency.

    (a) SBA will certify that it is competent to perform the 
requirement, as provided by section 8(a)(1)(A) of the Small Business 
Act, based on its determination that the 8(a) concern with which it 
intends to subcontract is responsible to perform the requirement. If SBA 
determines that the concern lacks the capability, competency, capacity, 
credit, integrity, or tenacity and perseverance to perform on a specific 
8(a) subcontract, the subcontract will not be awarded to such concern. A 
Program Participant which has not submitted required financial 
statements to SBA will be deemed not responsible to receive 8(a) 
subcontracts. In addition, SBA will also certify whether an 8(a) concern 
is eligible under the Walsh-Healey Public Contracts Act, 41 U.S.C. 
35(a), for each individual 8(a) subcontract.
    (b) SBA's determination not to award a Program Participant a 
specific 8(a) subcontract because the concern lacks an element of 
responsibility, or is ineligible under the Walsh-Healey Public Contracts 
Act, does not constitute a denial of total 8(a) program participation 
for the purposes of section 8(a)(9) of the Small Business Act.
    (c) A Participant that is determined by SBA not to be responsible to 
perform a sole source or competitive 8(a) contract may not seek the 
issuance of a Certificate of Competency pursuant to Sec. 125.5 of this 
title.



Sec. 124.314  Performance of work by the 8(a) concern.

    (a) To assure the accomplishment of the purposes of the 8(a) 
program, each 8(a) subcontractor must perform work equivalent to the 
following percentages:
    (1) Services (except construction). In the case of an 8(a) contract 
for professional and/or non-professional services (except construction), 
at least 50 percent of the cost of contract performance incurred for 
labor must be expended for employees of the 8(a) concern.
    (2) Supplies (other than procurement from a regular dealer in such 
supplies). In the case of an 8(a) contract for supplies, an 8(a) concern 
that seeks to perform the requirement as a manufacturer must perform 
work for at least 50 percent of the cost of manufacturing the supplies, 
not including the cost of materials. This requirement does not apply to 
8(a) concerns that seek to perform 8(a) supply contracts as regular 
dealers in such supplies.
    (3) General construction. In the case of an 8(a) general 
construction contract, the 8(a) concern must perform at least 15 percent 
of the cost of the contract, not including the cost of materials, with 
its own employees.
    (4) Construction by special trade contractors. In the case of an 
8(a) contract for special trade construction (e.g., electrical, 
plumbing, mechanical), the 8(a) concern must perform at least 25 percent 
of the cost of the contract, not including the cost of materials, with 
its own employees.
    (b) The Program Participant must certify in its bid or proposal that 
it will perform the required percentage of work with its own employees. 
Failure of the concern to provide such a statement will result in the 
firm being considered ineligible for award.
    (c) For purposes of determining whether a Program Participant will 
perform the required percentage of the contract, the work to be 
performed by a subsidiary(ies) of the Participant or a concern(s) 
otherwise affiliated with the Participant is not counted as being 
performed by the Participant.
    (d) Indefinite quantity contracts. (1) In order to ensure that the 
required percentage of an indefinite quantity 8(a) award is performed by 
the Program Participant, at any point in time the Program Participant 
must have performed the required percentage of the total value of the 
contract to that

[[Page 275]]

date. For a service or supply contract, this does not mean that the 
Program Participant must perform 50% of each task order with its own 
force. But, rather, the Participant is required to perform 50% of the 
combined total of all task orders to date. The Regional Administrator or 
his/her designee may waive this requirement where a large amount of 
subcontracting is essential in the early stages of performance before 
the work to be done by the Participant can be performed, provided that 
there are written assurances from both the Participant and the procuring 
agency that the contract will ultimately comply with the requirements of 
this section.

    Example. If a Program Participant performed 90 percent of a $100,000 
task order on an indefinite quantity service contract with its own work 
force, it would only have to perform 10 percent of a second task order 
for $100,000 because the concern would still have performed 50 percent 
of the combined total value of the contract to date ($100,000 out of 
$200,000).

    (2) Where there is a guaranteed minimum condition in an indefinite 
quantity 8(a) award, the required performance of work percentage need 
not be met on the first task order. In such a case, however, the 
percentage of work to be subcontracted to other concerns by the Program 
Participant on the first task order may not exceed 50 percent of the 
total guaranteed minimum dollar value to be provided by the contract. If 
the first task order exceeds 50 percent of the guaranteed minimum 
amount, the Participant may subcontract no more than 50 percent of the 
guaranteed amount. Once the guaranteed minimum amount is met, the 
general rule for indefinite quantity contracts set forth in paragraph 
(d)(1) of this section applies.

    Example. Where a contract guarantees a minimum of $100,000 in 
professional services and the first task order is for $60,000 in such 
services, it would be acceptable for the Program Participant to perform 
less than $30,000 (i.e., 50 percent of $60,000). The Program Participant 
could be permitted to perform only $10,000 of that first task order. In 
such a case, the entire remainder of the guaranteed minimum ($40,000), 
however, would have to be performed by the Program Participant so that 
the Participant would have ultimately performed $50,000 (i.e., 50% of 
the $100,000 guaranteed minimum).



Sec. 124.315  Fair market price for 8(a) awards.

    (a) A ``fair market price'' for an 8(a) contract shall be determined 
by the agency offering the procurement requirement to SBA in accordance 
with paragraphs (a)(1) and (a)(2) of this section.
    (1) The estimate of a current fair market price for a new 
procurement requirement, or a requirement that does not have a 
satisfactory procurement history, shall be derived from a price or cost 
analysis. Such analysis may take into account prevailing market 
conditions, commercial prices for similar products or services, or data 
obtained from any other agency. Such analysis must also consider any 
cost or pricing data that is timely submitted by the SBA.
    (2) The estimate of a current fair market price for a procurement 
requirement that has a satisfactory procurement history shall be based 
on recent award prices adjusted to insure comparability. Such 
adjustments shall take into account differences in quantities, 
performance, times, plans, specifications, transportation costs, 
packaging and packing costs, labor and material costs, overhead costs, 
and any other additional costs which may be deemed appropriate.
    (b) Upon the request of SBA, an agency offering a procurement 
requirement for potential award through the 8(a) program shall submit to 
SBA a written statement detailing the method used by the agency to 
estimate the current fair market price for such contract. Such statement 
shall be submitted within 10 working days. The procuring agency must 
identify the information, studies, analyses, and other data it used in 
making its estimate. The procuring agency's estimate of fair market 
price and any supporting data may not be disclosed to any potential 
contractor or subcontractor, other than SBA.
    (c) The concern selected to perform the 8(a) contract may request 
SBA to protest the procuring agency's estimate of current fair market 
price to the Secretary of the Department or

[[Page 276]]

head of the agency in accordance with Sec. 124.320(b).



Sec. 124.316  Contract administration.

    (a) SBA may delegate, by the use of special clauses in the prime 
contract and subcontract, certain responsibilities for administering an 
8(a) subcontract to the procuring agency.
    (b) SBA may delegate to the procuring agency all subcontract 
administration functions except the following: the approval of novation 
agreements (48 CFR 42.302(a)(25)); and all matters pertaining to advance 
payments approved by SBA.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990]



Sec. 124.317  Performance of contracts by original 8(a) concern.

    (a) Subject to the provisions of paragraph (b) of this section, a 
contract (including options) awarded pursuant to section 8(a) of the 
Small Business Act on or after June 1, 1989 shall be performed by the 
concern that initially received such contract. If the owner or owners 
upon whom eligibility was based relinquishes ownership or control of 
such concern, or enters into any agreement to relinquish such ownership 
or control, such contract or option shall be terminated for the 
convenience of the Government. In such a case, repurchase costs or other 
damages cannot be assessed against the concern due solely to the 
provisions of this paragraph. This provision applies whether the concern 
that initially received 8(a) certification remains a separate legal 
entity after a transfer of ownership or whether the concern merges into 
or is acquired by another business concern.
    (b) The Administrator may, as a matter of discretion and on a 
nondelegable basis, waive the requirements of paragraph (a) of this 
section if requested to do so by the original 8(a) awardee if any of the 
following conditions exist:
    (1) When it is necessary for the owner(s) of the concern to 
surrender partial control of such concern on a temporary basis in order 
to obtain equity financing;
    (2) Ownership and control of the concern that is performing the 
contract will pass to another Program Participant, but only if the 
acquiring firm would otherwise be eligible to receive the award directly 
as an 8(a) contract;
    (3) The individuals upon whom eligibility was based are no longer 
able to exercise control of the concern due to incapacity of death; and
    (4) When, in order to raise equity capital, it is necessary for the 
disadvantaged owner(s) of the concern to relinquish ownership of a 
majority of the voting stock of such concern, but only if--
    (i) Such concern has exited the 8(a) program;
    (ii) The disadvantaged owner(s) will maintain ownership of the 
largest single outstanding block of voting stock (including stock held 
by affiliated parties); and
    (iii) The disadvantaged owner(s) will maintain control of the daily 
business operations of the concern.
    (c) Requests pursuant to paragraph (b) of this section must be made 
prior to the relinquishment of ownership and control except in the case 
of death or incapacity. A request for a waiver under paragraph (b)(4) of 
this section must be made as soon as possible after the incapacity or 
death occurs.
    (d) A procuring agency may request a waiver of the requirements of 
paragraph (a) of this section if the head of the procuring agency 
certifies that termination of the contract would severely impair 
attainment of the agency's program objectives or missions.
    (e) A concern performing an 8(a) contract must notify the SBA in 
writing immediately upon entering into an agreement or agreement in 
principle (either oral or written) to transfer all or part of its stock 
or other ownership interest or assets to any other party. Such an 
agreement could include an oral agreement to enter into a transaction to 
transfer interests in the future.
    (f) Denial of a waiver request may be appealed to SBA's Office of 
Hearings and Appeals in accordance with Sec. 124.210 and part 134 of the 
title.
    (g) For the purposes of determining ownership and control of a 
concern under these regulations, any potential ownership interests (such 
as options or warrants) held by investment companies licensed under the 
Small Business

[[Page 277]]

Investment Act of 1958 shall not be treated as ownership interests until 
exercised.
    (h) An 8(a) concern may not transfer the performance of an 8(a) 
contract to another concern, absent a waiver or authorized by this 
section. Such a transfer may be grounds for termination of the concern 
from the 8(a) program.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990]



Sec. 124.318  Exercise of options and modifications.

    (a) Unpriced Options. The exercise of an unpriced option is 
considered to be a new contracting action. As such, if a concern has 
exited the 8(a) program or is no longer small under the size standard 
corresponding to the SIC code for the requirement, negotiations to price 
the option cannot be entered into and the option cannot be exercised. 
If, however, the concern is still a Program Participant and is still a 
small business under the size standard corresponding to the SIC code for 
the requirement, negotiations to price the option may be entered into 
provided the estimated fair market price falls below the applicable 
threshold amount set forth in Sec. 124.311 and, if a fair and reasonable 
price is negotiated, and it is otherwise consistent with program 
requirements, the option may be exercised. If the estimated fair market 
price exceeds the applicable threshold amount set forth in Sec. 124.311, 
the requirement must be competed among eligible 8(a) concerns. Because 
this equates to a new contracting action, SBA's concurrence in the 
exercise of such options is required.
    (b) Priced Options. A priced option to an 8(a) contract award may be 
exercised whether the concern that received the award has exited the 
8(a) program and whether the concern is no longer small under the size 
standard corresponding to the SIC Code for the requirement, if to do so 
is in the best interests of the Government considering the purposes of 
the 8(a) program.
    (c) Modifications Beyond the Scope. A modification beyond the scope 
of the initial 8(a) contract award is considered to be a new contracting 
action. As such, if a concern has exited the 8(a) program or is no 
longer small under the size standard corresponding to the SIC Code for 
the requirement, the modification cannot be exercised. If, however, the 
concern is still a Program Participant and is still a small business 
under the size standard corresponding to the SIC Code for the 
requirement, the modification may be made provided the estimated fair 
market price falls below the applicable threshold amount set forth in 
Sec. 124.311 and other program requirements are met, since the authority 
exists to enter into a new 8(a) contract to fulfill the requirement. If 
the estimated fair market price exceeds the applicable threshold amount 
set forth in Sec. 124.311, the requirement must be competed among 
eligible 8(a) concerns. Because this equates to a new contracting 
action, SBA's concurrence in the exercise of such modifications is 
required.
    (d) Modifications Within the Scope. A modification within the scope 
of the initial 8(a) contract award may be exercised whether the concern 
that received the award has exited the 8(a) program and whether the 
concern is no longer small under the size standard corresponding to the 
SIC Code for the requirement.

[54 FR 34712, Aug. 21, 1989; 54 FR 43217, Oct. 23, 1989]



Sec. 124.319  Contract termination.

    (a) Termination for default. A decision to terminate a specific 8(a) 
contract for default is made by the procuring agency contracting officer 
in cooperation with SBA. The contracting officer will advise SBA in 
writing in advance of his/her intent to terminate the 8(a) contract for 
default. SBA may provide to the 8(a) concern any program benefits 
reasonably available in order to assist in preventing termination for 
default of the contract. SBA will advise the contracting officer of this 
effort. If, despite the efforts of the SBA, the procuring agency 
contracting officer believes grounds for termination continue to exist, 
he/she may terminate the 8(a) contract for default, after consulting 
with SBA. Such terminations shall be processed in accordance with the 
FAR, 48 CFR. SBA will have no liability for termination costs or 
reprocurement costs.

[[Page 278]]

    (b) Termination for convenience. (1) In cooperation with SBA, the 
procuring agency contracting officer may terminate an 8(a) contract for 
convenience any time it is determined to be in the best interest of the 
government to do so.
    (2) Pursuant to Sec. 124.317, a contract shall be terminated for 
convenience if the owner or owners upon whom eligibility was based 
relinquish ownership or control of such concern, or enter into any 
agreement to relinquish such ownership or control, unless a waiver is 
granted pursuant to Sec. 124.317. Such terminations shall be processed 
in accordance with the FAR, 48 CFR.



Sec. 124.320  Disputes and appeals.

    (a) Contract disputes generally. (1) Except as provided in 
paragraphs (a)(2) and (a)(3) of this section, for purposes of the 
Disputes Clause of a specific 8(a) contract, the contracting officer is 
that of the procuring agency. A dispute arising between an 8(a) 
subcontractor and the procuring agency contracting officer will be 
decided unilaterally by the procuring agency contracting officer.
    (2) For disputes arising out of advance payments or business 
development expense funds, the contracting officer is that of SBA.
    (3) For disputes arising out of construction contracts where SBA has 
waived bonding pursuant to Sec. 124.305, the appropriate contracting 
officer depends upon the dispute. Where the dispute arises out of the 
disbursement of funds from the special bank account established to 
protect persons furnishing materials or labor to the 8(a) concern, the 
SBA contracting officer shall decide the dispute. In all other disputes, 
including disputes arising out of the performance of the contract, the 
procuring agency contracting officer shall decide the dispute.
    (4) Decisions by contracting officers (either of SBA or a procuring 
agency) may be appealed as provided by the Contract Disputes Act of 
1978.
    (b) SBA appeals of nonselection or terms and conditions. (1) The 
Administrator of SBA may appeal the following matters to the head of the 
procuring agency:
    (i) The decision not to make a particular procurement requirement 
available for award under the 8(a) program; or
    (ii) The terms and conditions of a particular contract to be awarded 
under the 8(a) program, including selection of an appropriate SIC code.
    (2) The SBA must notify the contracting officer of the 
Administrator's intent to appeal an adverse determination within 5 
working days of the SBA's receipt of such determination. The SBA 
Administrator must file a written request to reconsider the adverse 
decision with the head of the procuring agency (appeal) within 15 
working days of the SBA's notification of intent to appeal.
    (3) Upon receipt of the notice of intent to appeal, the procuring 
agency shall suspend further action regarding the procurement until the 
head of the procuring agency issues a written decision on the appeal, 
unless the head of the procuring agency makes a written determination 
that urgent and compelling circumstances which significantly affect 
interests of the United States will not permit waiting for a 
reconsideration of the adverse decision.
    (4) If the Administrator's appeal is denied, the procuring agency 
head shall so notify the SBA, specifying the reasons for the denial. 
This information shall be made a part of the contract file for the 
requirement.
    (c) An 8(a) Participant selected by the SBA to perform or negotiate 
an 8(a) contract may request the SBA to protest the procuring agency's 
estimate of the fair market price for such contract pursuant to 
paragraph (b) of this section.



Sec. 124.321  Joint venture agreements.

    (a) Prerequisites for joint venture agreement. If approved by the 
AA/MSB&COD or his/her designee, an 8(a) concern may enter into a joint 
venture agreement, as defined in Sec. 124.100, with another small 
business concern, whether or not an 8(a) participant, for the purpose of 
performing a specific 8(a) contract. A joint venture agreement is 
permissible only when the 8(a) concern lacks the necessary capacity to 
perform the contract on its own, and when the agreement is fair and 
equitable and

[[Page 279]]

will be of substantial benefit to the 8(a) concern.
    (b) Size limitations. Except for certain Program Participants owned 
and controlled by Indian tribes, an 8(a) concern entering into a joint 
venture agreement with another concern is considered to be affiliated 
for size purposes with the other concern with respect to performance of 
the 8(a) subcontract. As such, the annual receipts or employees of the 
other concern are included in determining the size of the selected 8(a) 
concern. The combined annual receipts or employees of the concerns 
entering into the joint venture must meet the size standard for the SIC 
code industry designated for the contract. See paragraph (h) of this 
section for joint ventures controlled by tribally-owned concerns.
    (c) Contents of joint venture agreements. The following provisions 
shall be included in all joint venture agreements:
    (1) A provision setting forth the purpose of the joint venture.
    (2) A provision designating the parties to the joint venture as co-
managers.
    (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.
    (4) A provision providing for the establishment and administration 
of a special bank account in the name of the joint venture. This account 
shall require the signature of all participants to the joint venture or 
designees for withdrawal purposes. All payments due the joint venture 
for performance on an 8(a) subcontract shall be deposited in the special 
account from which all expenses incurred under the subcontract shall be 
paid.
    (5) An itemized description of all major equipment, facilities, and 
other resources to be furnished by each participant to the joint 
venture, with a detailed schedule of cost or value of each.
    (6) A provision specifying the responsibilities of the parties with 
regard to contract performance, source of labor and negotiation of the 
8(a) contract and any subcontracts to the joint venture.
    (d) Other requirements. Joint venture agreements are subject to the 
following additional requirements:
    (1) The joint venture agreement must be approved in advance of 
contract award by the AA/MSB&COD or his/her designee.
    (2) An employee of the 8(a) concern must be the designated 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 8(a) concern, unless 
approval to keep them elsewhere is granted by the Regional Administrator 
or his/her designee upon written request. Upon completion of the 
contract performed by the joint venture, the final original records 
shall be retained by the 8(a) concern.
    (4) Quarterly financial statements showing cumulative contract 
receipts and expenditures (including salaries of the joint venture's 
principals) shall be submitted to SBA not later than 45 days after each 
operating quarter of the joint venture.
    (5) A project-end profit and loss statement shall be submitted no 
later than 90 days after completion of the contract including a 
statement of final profit distribution.
    (e) Obligation of performance. All parties to the joint venture must 
sign such documents as are necessary to obligate themselves to ensure 
performance of the 8(a) contract.
    (f) Performance of work by 8(a) concern(s). The 8(a) partner(s) to 
an eligible joint venture, and not the aggregate of all parties to the 
joint venture, must perform the applicable percentages of work required 
by Sec. 124.314.
    (g) Inspection of records. The SBA shall have the right to inspect 
the records of the joint venture without notice at any time deemed 
necessary.
    (h) Joint ventures with concerns owned by Indian tribes--(1) 
Exemption from size limitations. The size limitations set forth in 
paragraph (b) of this section will not be applied to joint ventures 
entered into by an 8(a) concern owned and controlled by an economically 
disadvantaged Indian tribe, as defined in Sec. 124.100, if the concern:

[[Page 280]]

    (i) Owns and controls 51 percent or more of the joint venture;
    (ii) Is located on the reservation of or land owned by the tribe;
    (iii) Performs most of its activities on such reservation or 
tribally owned land; and
    (iv) Employs members of such tribe for at least 50 percent of its 
total workforce.
    (2) Limitations. A tribally owned 8(a) concern as a party to a joint 
venture may receive the exemption set forth in paragraph (h) of this 
section on no more than five contracts.
    (3) Sunset. This paragraph shall cease to be effective after 
September 30, 1994.
    (i) Joint ventures for Small Disadvantaged Business Set-Asides and 
Small Disadvantaged Business Evaluation Preferences. Joint ventures are 
permitted for Small Disadvantaged Business (SDB) set-asides and SDB 
evaluation preferences, provided that the requirements set forth in this 
paragraph are met.
    (1) For purposes of this paragraph, the term joint venture has the 
same meaning as that set forth in Sec. 121.401(l) of this chapter. Two 
or more concerns that form an ongoing relationship to conduct business 
would not be considered ``joint venturers'' within the meaning of this 
paragraph, and would also not be eligible as an entity owned and 
controlled by one or more socially and economically disadvantaged 
individuals.
    (2) A concern that is owned and controlled by one or more socially 
and economically disadvantaged individuals entering into a joint venture 
agreement with one or more other business concerns is considered to be 
affiliated for size purposes with such other concern(s). The combined 
annual receipts or employees of the concerns entering into the joint 
venture must meet the applicable size standard corresponding to the SIC 
code designated for the contract.
    (3) The majority of the venture's earnings must accrue directly to 
the socially and economically disadvantaged individuals in the SDB 
concern(s) in the joint venture.
    (4) The percentage ownership involvement in a joint venture by 
disadvantaged individuals must be at least 51 percent.

    Example 1. Small business concern A is 100% owned by disadvantaged 
individuals. Small business concern B is 100% owned by nondisadvantaged 
individuals. The percentage involvement by concern A in a joint venture 
between A and B must be at least 51%.
    Example 2. Small business concern C is 51% owned by disadvantaged 
individuals. Small business concern D is 100% owned by nondisadvantaged 
individuals. Any joint venture between C and D would be ineligible 
because the amount of ownership involvement in such a joint venture by 
disadvantaged individuals would be less than 51%. Even a 90% involvement 
by concern C in a joint venture with D would mean an overall ownership 
involvement by disadvantaged individuals of only 45.9% (51% of 90), and 
an overall ownership involvement by nondisadvantaged individuals of 
54.1% (10+(49% of 90)).

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 33896, Aug. 20, 1990; 
55 FR 34903, Aug. 27, 1990; 59 FR 12816, Mar. 18, 1994; 60 FR 29977, 
June 7, 1995]



Sec. 124.401  Advance payments.

    (a) General. (1) Advance payments are disbursements of cash made by 
SBA to an 8(a) concern prior to the completion of performance of a 
specific 8(a) subcontract and are based on anticipated performance on 
the part of the 8(a) concern under a particular 8(a) subcontract. 
Advance payments are made for the purpose of assisting the 8(a) concern 
to meet financial requirements pertinent to the performance of an 8(a) 
subcontract. Advance payments will be considered only after all other 
forms of financing have been considered by SBA and are determined to be 
either unavailable or unacceptable to support performance of the 8(a) 
subcontract.
    (2) Advance payments may be authorized only for concerns which are 
current Program Participants at the time of the approval of the advance 
payment. A firm which has graduated from or otherwise exited the 8(a) 
program prior to approval is ineligible for advance payments. Where the 
concern will graduate from the 8(a) program during the initial 
performance period (base year), advance payments may be authorized only 
for that year, and may not be authorized for option years.
    (3) Advance payments will be authorized only in connection with sole

[[Page 281]]

source 8(a) awards and not in connection with competitive 8(a) awards.
    (4) The gross amount of advance payments will be determined by SBA 
at the time the request for such payments is approved. The gross amount 
of advance payments must be determined by SBA prior to commencement of 
performance of the contract, where possible. In no event shall the total 
amount of advance payments disbursed and not repaid exceed 90 percent of 
the outstanding unpaid proceeds of the 8(a) subcontract to which the 
advance payments relate. The value of unexercised options is not 
considered in determining the outstanding unpaid proceeds of the 8(a) 
subcontract. In the case of requirements and indefinite quantity type 
contracts, advance payments will be authorized only when a guaranteed 
minimum value is established in the 8(a) subcontract, and the amount of 
advance payments approved shall not exceed 90 percent of that guaranteed 
minimum. SBA must approve in writing any subsequent change in the gross 
amount of advance payments.
    (5) All advance payments, whether disbursed by letter of credit or 
otherwise, and all 8(a) subcontract proceeds shall be deposited into a 
Special Bank Account established exclusively for that purpose pursuant 
to the Advance Payment clause of the 8(a) subcontract. Under no 
circumstances may advance payment funds be deposited in certificates of 
deposit or other securities. The procuring agency shall pay all 8(a) 
subcontract proceeds directly into the Special Bank Account until 
notified by SBA in writing that the advance payments have been fully 
liquidated. SBA will not authorize any withdrawals from the Special Bank 
Account that are inconsistent with the disbursement schedule established 
by the 8(a) subcontract under which the advance payments were made.
    (6) Advance payments shall be liquidated from proceeds derived from 
the performance of the specific 8(a) subcontract to which they pertain 
or from other revenues of the business (except other advance payments). 
8(a) subcontract proceeds shall be applied first to liquidate 
outstanding advance payments. Repayment must occur according to the 
liquidation schedule established by the 8(a) subcontract under which the 
advance payments were made.
    (7) The special bank account may not be used as a revolving line of 
credit. The cumulative total amount of advance payments disbursed may 
not exceed the amount authorized by the Regional Administrator or the 
ARA/MSB&COD.
    (b) Requirements and conditions. (1) Advance payments may be 
approved for an 8(a) concern only when all of the following conditions 
are found by SBA to exist:
    (i) An 8(a) concern does not have adequate working capital to 
perform a specific 8(a) subcontract.
    (ii) Adequate and timely private financing is not available on 
reasonable terms to provide necessary capital.
    (iii) Progress payments based on costs at customary rates will not 
satisfy the working capital requirements of the 8(a) concern to perform 
the 8(a) subcontract.
    (iv) When applicable, loan guarantees for defense production are not 
available.
    (v) Progress payments based on costs with unusual terms will not 
satisfy the working capital requirements of the 8(a) concern to perform 
the 8(a) subcontract.
    (vi) The 8(a) concern has established or agrees to establish and 
maintain financial records and controls which will provide for complete 
accountability and required reporting of advance payment funds. These 
records must be made available upon request for review and copying by 
SBA and other appropriate Federal officials.
    (vii) The 8(a) concern has no unliquidated advance payments 
outstanding on another 8(a) subcontract which is completed, terminated 
or in default, unless such unliquidated advance payments are due only to 
the contracting agency's delay in making final payment to the 8(a) 
concern after it has successfully completed the 8(a) subcontract.
    (2) Advance payments shall not be made to an 8(a) concern in any 
case in which the concern has assigned its right to receive any payment 
under the specific 8(a) subcontract to any person or entity.

[[Page 282]]

    (3) SBA shall not charge interest on advance payments disbursed 
pursuant to these regulations, except upon an event of default, as 
defined in the subcontract. When charged, interest shall be assessed at 
such rate as established by the Secretary of the Treasury pursuant to 
Pub. L. 92-41.
    (4) Under no circumstances may a liquidation schedule be waived. 
However, the cognizant Regional Administrator or ARA/MSB&COD may 
authorize a modified liquidation schedule in appropriate cases. Such 
modified schedule becomes effective when contained in an appropriate 
modification to the subcontract.
    (c) Application and approval procedure. The following procedures 
apply to the approval of advance payments:
    (1) The 8(a) concern must submit a written request for advance 
payments to the cognizant SBA Regional Administrator or the ARA/MSB&COD. 
Such request must include such detailed documentation as SBA may specify 
to support 8(a) concern's need for such funds and proof that working 
capital financing cannot be found from financing institutions at 
reasonable terms.
    (2) The 8(a) concern must identify a commercial bank which is a 
member of the Federal Reserve System in which it will establish a 
Special Bank Account for the deposit of advance payments and all 
payments made to it by the procuring agency for its performance of the 
8(a) subcontract. This special account shall be a non-interest bearing 
demand deposit account.
    (3) The 8(a) concern must, as required by IRS regulations, select a 
Federal Depository into which the Federal withholding and FICA payment 
will be made.
    (4) Upon review of all of the circumstances, the Regional 
Administrator or the ARA/MSB&COD shall decide whether to approve or deny 
a request for advance payments, and, if approval is granted, shall 
designate the amount thereof and the terms and conditions upon which 
such advance payments may be made.
    (d) Post-approval procedures. The Contracting Officer shall be 
responsible for assuring that advance payments are implemented 
consistent with the Finding, Determination and Authorization for Advance 
Payments issued by the Regional Administrator or the ARA/MSB&COD. Before 
any advance payments are disbursed, the following actions must occur:
    (1) The 8(a) concern must execute a note evidencing the full amount 
of the advance payments and any other documents needed to create and 
perfect such other sources of security as SBA shall require, including, 
but not limited to the following:
    (i) Real estate, deeds of trust and mortgages;
    (ii) Security agreements and financing statements; and
    (iii) Personal guarantees.
    (2)(i) The 8(a) concern and SBA shall execute a modification to the 
8(a) subcontract adding an Advance Payment clause prior to the 
disbursement of any advance payments. The clause shall state the amount 
of the advance payments, a liquidation schedule and all other terms and 
conditions to govern the advance payments, consistent with the Finding, 
Determination and Authorization for Advance Payments issued by the 
Regional Administrator or ARA/MSB&COD.
    (ii) The Contracting Officer, when other contract terms reducing the 
quantity, price or term of performance of the 8(a) prime and subcontract 
are modified by the procuring agency, shall initiate action to modify 
the Advance Payment clause and, if appropriate, the letter of credit as 
necessary, including but not limited to reduction of the total amount of 
advance payments authorized or the amount of the letter of credit and/or 
restructuring the liquidation schedule, to ensure that at no time during 
the performance of the 8(a) subcontract does the unliquidated advance 
payments exceed 90 percent of the unpaid value of the 8(a) subcontract.
    (3) The 8(a) concern, SBA and the bank in which the Special Bank 
Account has been established will enter into a Special Bank Account 
Agreement prior to disbursement of any funds. The agreement shall 
specify the respective rights and responsibilities of the parties. The 
Agreement shall grant

[[Page 283]]

to SBA the unilateral right to withdraw any funds in the Special Bank 
Account to the extent necessary to liquidate any unliquidated advance 
payments.
    (i) The cognizant SBA Regional Administrator or the ARA/MSB&COD 
shall designate at least two SBA employees to serve as 
countersignatories on the Special Bank Account. Withdrawals from the 
account will be made only upon the authorized signatures of a 
representative of the 8(a) concern and one of the designated SBA 
employees, as identified on the signature card for the Special Bank 
Account. Under no circumstances shall the requirement for an SBA 
employee countersignature be waived.
    (ii) At the time that SBA disburses advance payment funds into the 
Special Bank Account, SBA shall obtain a paramount lien upon the Special 
Bank Account, any property contracted for, supplies, material and other 
property acquired with the advance payment funds, and the most superior 
lien possible upon any other security required by the Finding, 
Determination and Authorization for Advance Payments.
    (4) Prior to disbursement of an advance payment, SBA shall modify 
the prime contract with the procuring agency in the following respects:
    (i) Reassign contract administration authority to the extent 
necessary to administer the Advance Payment clause of the 8(a) 
subcontract to SBA's Contracting Officer.
    (ii) Direct payment of all contract proceeds into the Special Bank 
Account until SBA issues written notice that the advance payments have 
been fully liquidated.
    (iii) Require prompt notice of any adverse developments in contract 
performance, changes in the Government requirement, or of any other 
condition that may affect contract payments.
    (iv) Require that copies of all payment vouchers issued by the 
procuring agency's disbursing office be sent to the Contracting Officer.
    (e) Procedures for use of Advance Payment funds. (1) Except for 
repayment to SBA in appropriate circumstances, advance payment funds may 
be used by an 8(a) concern only for the purchase of materials, payment 
of labor, payment for equipment expenses, general and administrative 
expenses and overhead, and payments to the subcontractors of the 8(a) 
concern necessary for the performance of the specific 8(a) subcontract 
for which the advance payments were authorized. Program Participants 
shall follow a two-step process to gain access to advance payment funds. 
The first step is the disbursement of the advance payment funds from 
SBA, either directly or by way of letter of credit into the Special Bank 
Account. The second step is the withdrawal of funds from the Special 
Bank Account by check to pay particular contract expenses.
    (2) Disbursement of advance payment funds by SBA. (i) SBA shall 
disburse advance payments through a letter of credit where the Agency 
anticipates that all of the following conditions exist:
    (A) Its relationship with the particular 8(a) concern will last for 
a year or more.
    (B) The cumulative disbursements to that 8(a) concern will total at 
least $120,000 annually.
    (C) The 8(a) concern has submitted a schedule of its projected 
monthly advance requirements for 8(a) subcontract disbursements and SBA 
has reviewed it and found it to be reasonable.
    (D) The 8(a) concern has established or agrees to establish and 
maintain financial records and controls which will provide for complete 
accountability and required reporting of program funds. These records 
must be made available upon request for review and audit by SBA and the 
General Accounting Office.
    (ii) Procedures for disbursements by letter of credit. The 
procedures for the utilization of the letter of credit method of payment 
shall be in accord with 48 CFR 32.406. Where disbursement is by the 
letter of credit method, 8(a) concerns shall draw down funds against 
their letters of credit for deposit into the Special Bank Account only 
as needed and in such amounts necessary for its immediate cash needs 
under the 8(a) subcontract for which the advance payments were 
authorized. Such immediate cash needs shall be documented by the 8(a) 
concern and verified by SBA

[[Page 284]]

prior to draw down. The amount of each draw down against the letter of 
credit shall be for the minimum amount needed to satisfy immediate cash 
needs, taking into account other financial resources available to the 
8(a) concern, including progress payments not required for the 
liquidation of disbursed advance payments.
    (iii) In all instances not covered by paragraph (e)(2)(i) of this 
section, SBA shall disburse advance payments by Treasury check or 
electronic funds transfer. In such cases, the Contracting Officer shall 
request SBA's Office of Financial Operations, Denver, Colorado, to 
disburse the authorized amount of the advance payments into the Special 
Bank Account.
    (3) Procedures for withdrawal of funds from the Special Bank 
Account. All payments to the 8(a) concern under the 8(a) subcontract for 
which advance payments were authorized, together with all disbursements 
of such advance payments, shall be paid into the Special Bank Account.
    (i) Liquidation of disbursed advance payments. The funds in the 
Special Bank Account shall be applied by SBA first to liquidate the 
balance of disbursed advance payments, in accordance with the 
liquidation schedule in the Advance Payment clause of the 8(a) 
subcontract. Withdrawals for liquidation of disbursed advance payments 
shall be made in accordance with the procedures contained in the Advance 
Payment clause of the 8(a) subcontract.
    (ii) Payment of 8(a) subcontract expenses. Any amounts in the 
Special Bank Account not required to liquidate disbursed advance 
payments shall next be applied to pay allowable and allocable costs 
incurred in the performance of the 8(a) subcontract for which the 
advance payments were authorized. To obtain withdrawals from the Special 
Bank Account for the payment of such costs, the 8(a) concern shall 
request issuance of checks for the payment of expenses to the 
Contracting Officer, supported by the documentation described below. 
Such requests shall be made sufficiently in advance of the due date for 
such obligations to permit the review of the request by SBA and 
countersignature by the designated SBA countersignatories. The 8(a) 
concern shall support each request for a withdrawal from the Special 
Bank Account by submitting to the Contracting Officer or his/her 
designee, to the extent applicable, the following:
    (A) The original vendor invoice or original payroll record;
    (B) A certified statement, dated and signed by the concern's 
authorized certifying official, attesting to the truth and accuracy of 
the vendor invoice, and/or the payroll records for the requested 
withdrawal, including records of direct payroll expenditures as well as 
labor overhead;
    (C) A certification by the 8(a) concern that all Federal taxes and 
FICA payments are current, or a copy of any agreement with the Internal 
Revenue Service (IRS) providing for payment of delinquent taxes; and
    (D) Documentation of overhead and general and administrative rates, 
using projected indirect costs applied to a valid base, which have been 
properly allocated to direct material, labor, or other direct costs.
    (E) Where the requested withdrawal is for payroll expenses, the 8(a) 
concern must prepare a check for Federal taxes in the name of the tax 
collecting agency, or the Federal Depository selected by the 8(a) 
concern into which its Federal withholding and FICA payments are made, 
to be signed by SBA and the 8(a) concern concurrent with the check for 
the submitted payroll. If the amount of a check payable to IRS or to the 
Federal Depository is less than 25 percent of the gross payroll for the 
period, the 8(a) concern's authorized certifying official shall prepare 
a statement certifying that the amount designated as payable to IRS or 
to the Federal Depository is true and correct. There shall be no change 
of Federal Depository without obtaining the prior written consent of 
SBA.
    (iii) Release of residual funds after liquidation of the advance 
payments and payment of 8(a) subcontract expenses. Any funds remaining 
in the Special Bank Account after the 8(a) subcontract has been 
successfully completed or terminated and after the advance payments have 
been fully liquidated and all allowable and allocable 8(a) subcontract 
performance costs

[[Page 285]]

have been paid shall be disbursed to the 8(a) concern. Upon receipt of 
the final progress payment, the Contracting Officer shall expeditiously 
close the Special Bank Account, executing a check withdrawing the 
remaining balance of the Account payable to the 8(a) concern.
    (f) Cancellation. (1) SBA may determine that advance payments should 
be cancelled under appropriate circumstances, including but not limited 
to the following:
    (i) The terms and conditions of the Advance Payment clause have not 
been adhered to by an 8(a) concern.
    (ii) The 8(a) concern is not in compliance with its 8(a) 
Participation Agreement.
    (iii) The 8(a) concern has been suspended pursuant to Sec. 124.211 
or has been terminated by administrative action under section 8(a)(9) of 
the Small Business Act, 15 U.S.C. 637(a)(9).
    (2) In the event of cancellation of advance payments to an 8(a) 
concern, all previous advance payments made to that 8(a) concern shall 
become due and payable to SBA prior to the receipt of final contract 
payment.

[54 FR 34712, Aug. 21, 1989, as amended at 55 FR 34903, Aug. 27, 1990]



Sec. 124.402  Business development expense.

    (a) Any Business Development Expense (BDE) funds received by a 
Program Participant prior to the expiration of the BDE program must be 
used exclusively for the purposes stated in the BDE approval. Use of 
such funds for any other purpose may be good cause for termination from 
the 8(a) program pursuant to Sec. 124.209.
    (b) Any Program Participant which received BDE funds prior to the 
expiration of the BDE program shall maintain records to substantiate the 
uses for which the BDE funds have been expended.
    (c) In the event of default on an 8(a) contract to which BDE funds 
relate, the Participant shall be liable for repayment of the full amount 
of the BDE to SBA.



Sec. 124.403  Development Assistance Program.

    (a) General. Section 7(j)(1) of the Small Business Act provides for 
financial assistance to public or private organizations to pay all or 
part of the cost of projects designed to provide technical or management 
assistance to individual or enterprises eligible for assistance under 
sections 7(a)(11), 7(j)(10) and 8(a) of the Small Business Act. The AA/
MSB&COD is responsible for coordinating and formulating policies 
relating to the dissemination of this assistance to small business 
concerns eligible for assistance under sections 7(a)(11), 7(j)(10) and 
8(a) of the Small Business Act.
    (b) Services. (1) Section 7(j)(1-2) of the Small Business Act 
empowers the SBA to provide through public and private organizations the 
management and technical assistance enumerated in paragraph (b)(3) of 
this section to those individuals or concerns who meet the eligibility 
criteria contained in sections 7(a)(1) and 8(a) of the Small Business 
Act.
    (2) The SBA shall give preference to projects which promote the 
ownership, participation in ownership, or management of small businesses 
owned by low-income individuals and small businesses eligible to 
participate in the section 8(a) program.
    (3) This assistance may include any or all of the following:
    (i) Planning and research, including feasibility studies and market 
research;
    (ii) The identification and development of new business 
opportunities;
    (iii) The furnishing of centralized services with regard to public 
services and Federal Government programs including programs authorized 
under sections 7(a)(11), 7(j)(10) and 8(a) of the Small Business Act.
    (iv) The establishment and strengthening of business service 
agencies, including trade associations and cooperatives;
    (v) The furnishing of business counseling, management training, with 
special emphasis on the development of management training programs 
using the resources of the business community, including the development 
of management training opportunities in

[[Page 286]]

existing business, and with emphasis in all cases upon providing 
management training of sufficient scope and duration to develop 
entrepreneurial and managerial self-sufficiency on the part of the 
individuals served.
    (4) Sections 7(j)(3) and 7(j)(9) of the Small Business Act authorize 
SBA to:
    (i) Encourage the placement of subcontracts with small business 
concerns located in areas of high concentration of unemployed or low-
income individuals, with small businesses owned by low-income 
individuals, and with small businesses eligible to receive contracts 
pursuant to section 8(a) of the Act. SBA may provide incentives and 
assistance to such business that will aid in the training and upgrading 
of potential subcontractors or other small business concerns eligible 
for assistance under sections 7(a)(11), 7(j), and 8(a) of the Small 
Business Act.
    (ii) Coordinate and cooperate with the heads of other Federal 
departments and agencies, to insure that contracts, subcontracts, and 
deposits made by the Federal Government or with programs aided with 
Federal funds are placed in such a way as to further the purposes of 
sections 7(a)(11), 7(j) and 8(a) of the Small Business Act.
    (c) Eligibility. (1) Eligibility for the assistance enumerated under 
paragraph (b) of this section above shall include, but not limited to:
    (i) Businesses which qualify as small within the meaning of size 
standards prescribed in 13 CFR part 121, and which are located in urban 
or rural areas with a high proportion of unemployed or low-income 
individuals, or which are owned by such low-income individuals; and
    (ii) Businesses eligible to receive contracts pursuant to section 
8(a) of the Small Business Act.
    (d) Delivery of services. (1) The financial assistance authorized 
for projects under paragraph (b) of this section includes assistance 
advanced by grant, cooperative agreement, or contract.
    (2) To the extent feasible, services available under paragraph (b) 
of this section shall be provided in a location which is easily 
accessible to the individuals and small business concerns served.
    (e) Coordination and cooperation with other government agencies. (1) 
The AA/MSB&COD may utilize the resources of other agencies and 
departments whenever practicable which can directly or indirectly 
support or augment the purposes of sections 7(a)(11), 7(j) and 8(a) of 
the Small Business Act.
    (2) The AA/MSB&COD shall enter into agreements with Federal agencies 
and departments to further the objectives of sections 7(a)(11), 7(j) and 
8(a) of the Small Business Act.
    (3) The AA/MSB&COD shall encourage the placement of deposits made by 
the Federal Government, or by programs aided with Federal Funds, in such 
a way as to further the purposes of section 7(a)(11), 7(j) and 8(a) of 
the Small Business Act.



Sec. 124.404  Small Business and Capital Ownership Development Program.

    Section 7(j)(10) of the Small Business Act establishes a Small 
Business and Capital Ownership Development program which shall provide 
additional assistance exclusively for small business concerns eligible 
to receive contracts pursuant to section 8(a) of Small Business Act. The 
management of the Capital Ownership Development program is vested in the 
AA/MSB&COD who is responsible for the oversight of the program and 
activities set forth in this part of these regulations. The development 
assistance described below shall be provided exclusively to those small 
business concerns eligible to receive contracts pursuant to section 8(a) 
of the Small Business Act. Such small business concerns shall be 
participants in the Small Business Capital Ownership Development 
program. This program shall:
    (a) Assist small business concerns participating in the program to 
develop comprehensive business plans with specific business targets, 
objectives, and goals;
    (b) Provide for such other nonfinancial services as deemed necessary 
for the establishment, preservation, and growth of small business 
concerns participating in the program, including but not limted to:
    (1) Loan packaging,
    (2) Financial counseling,

[[Page 287]]

    (3) Accounting and Bookkeeping assistance,
    (4) Marketing assistance, and
    (5) Management assistance.
    (c) Assist small business concerns participating in the program to 
obtain equity and debt financing;
    (d) Establish regular performance monitoring and reporting systems 
for small business concerns participating in the program to assure 
compliance with their business plans;
    (e) Analyze and report the causes of success and failure of small 
business concerns participating in the program; and
    (f) Provide assistance necessary to help small business concerns 
participating in the program to procure surety bonds. Such assistance 
shall include, but not be limited to:
    (1) The preparation of surety bond participating forms;
    (2) Special management and technical assistance designed to meet the 
specific needs of small business concerns participating in the program 
and which have received or are applying to receive a surety bond, and
    (3) Preparation of all forms necessary to receive a surety bond 
guarantee from the SBA pursuant to Title IV, part B of the Small 
Business Investment Act of 1958.



Sec. 124.501  Miscellaneous reporting requirements.

    (a) Capability statements. Each 8(a) concern shall annually prepare 
and submit to the SBA a capability statement. Such statement shall 
briefly describe the concern's various contract performance capabilities 
and shall contain the name and telephone number of the BOS assigned to 
the concern. SBA will submit the capability statements to appropriate 
procuring agencies for the purpose of matching requirements with 8(a) 
concerns.
    (b) Participant reports on parties assisting it and fees. (1) Each 
8(a) Program Participant shall submit semi-annually a written report to 
its assigned BOS to include the following information:
    (i) A listing of any agents, representatives, attorneys, 
accountants, consultants and other parties (other than employees) 
receiving fees, commissions, or compensation of any kind to assist such 
participant in obtaining a Federal contract;
    (ii) The amount of compensation received by any person listed under 
paragraph (b)(1)(i) of this section during the relevant reporting period 
along with a description of the activities performed for such 
compensation.
    (2) The BOS will review the report and forward it to the AA/MSB&COD. 
Any report that raises a suspicion of improper activity shall be 
referred immediately to the SBA Inspector General.
    (3) The failure to submit a report pursuant to the requirements of 
this section shall be considered good cause for the initiation of a 
termination proceeding pursuant to Sec. 124.209.
    (c) Submission of financial statements. (1) Program Participants 
with actual gross annual receipts of $5,000,000 or more must submit to 
SBA audited annual financial statements prepared by a licensed 
independent public accountant (as defined in part 107, appendix I, 
paragraph II. B) within 120 days after the close of the concern's fiscal 
year.
    (i) Upon request by the Program Participant, SBA may waive the 
requirement for audited financial statements. Waivers under this 
paragraph may be granted by the appropriate District Director only for 
the first year that audited financial statements are required. Beyond 
such first year, only the AA/MSB&COD may waive this requirement for good 
cause shown by the Program Participant.
    (ii) Circumstances where waivers of audited financial statements may 
be granted include, but are not limited to, the following:
    (A) The concern has an unexpected increase in sales towards the end 
of its fiscal year that creates an unforeseen requirement for audited 
statements;
    (B) The concern unexpectedly experiences severe financial 
difficulties which would make the cost of audited financial statements a 
particular burden; and
    (C) The concern has been an 8(a) Program Participant less than 12 
months.
    (2) Program Participants with actual gross annual receipts of 
$1,000,000 to $4,999,999 shall submit to SBA reviewed annual financial 
statements prepared

[[Page 288]]

by a licensed independent public accountant (as defined in part 107, 
appendix I, paragraph II. B) within 90 days after the close of the 
concern's fiscal year.
    (3) Program Participants with actual gross annual receipts of less 
than $1,000,000 shall submit to SBA an annual statement prepared in-
house or a compilation statement prepared by a licensed independent 
public accountant (as defined in part 107, appendix I, paragraph II. B), 
verified as to accuracy by an authorized officer, partner, or sole 
proprietor of the 8(a) concern, by signature and date, within 90 days 
after the close of the concern's fiscal year.
    (4) Any audited financial statements submitted to SBA pursuant to 
Sec. 124.501(c) shall be prepared in accordance with Generally Accepted 
Accounting Principles and reflect the independent public accountant's 
opinion.
    (5) While financial statements need not be submitted until 90 or 120 
days after the close of an 8(a) concern's fiscal year, depending on the 
receipts of the concern, a concern seeking to be awarded an 8(a) 
contract between the close of its fiscal year and such 90 or 120-day 
time period must submit a final sales report signed by the CEO or 
President to SBA in order for SBA to determine/verify the concern's size 
and its compliance with competitive business mix targets. This report 
must show a breakdown of 8(a) and non-8(a) sales.
    (6) Notwithstanding a concern's gross annual receipts, audited or 
reviewed annual and/or quarterly statements may be required whenever SBA 
determines it is necessary to obtain a more thorough verification of a 
concern's assets, liabilities, income and/or expenses, or to determine 
the concern's capacity to perform a specific 8(a) contract.
    (d) Reporting requirements after exiting the 8(a) program. Former 
8(a) Program Participants shall provide such information as SBA may 
request concerning such former Participant's continued business 
operations, contract portfolio and financial condition for a period of 
three years following the date on which the concern exits the program. 
Failure to provide such information when requested may result in the 
nonexercise of options on contracts awarded through the 8(a) program.

[54 FR 34712, Aug. 21, 1989, as amended at 60 FR 29977, June 7, 1995]



 Subpart B--Disadvantaged Business Status Protest and Appeal Procedures

    Source: 54 FR 10272, Mar. 13, 1989, unless otherwise noted.



Sec. 124.601  Introduction.

    (a) This subpart sets forth the procedures to be used whenever the 
SBA is asked to make a determination as to whether a particular concern 
is ``disadvantaged'' for purposes of Department of Defense's (DoD's) 
Small Disadvantaged Business (SDB) set-aside contracts and SDB 
evaluation preferences, authorized by section 1207 of the National 
Defense Authorization Act for Fiscal Year 1987, Pub. L. 99-661, SBA's 
section 8(d) subcontracting program, and any other Federal procurement 
program requiring SBA to determine social and economic disadvantage as a 
condition for eligibility. These procedures are separate and distinct 
from those governing size protests and appeals.
    (b) In determining the disadvantaged status of a protested concern, 
the SBA shall utilize the definitions of social and economic 
disadvantage and other eligibility requirements established in subpart A 
of part 124 of this title, including the requirements placed on 
ownership and control. In addition, for purposes of SDB set-asides and 
SDB evaluation preferences only, there is the additional requirement 
that the majority of the earnings of the concern directly accrue to the 
disadvantaged individual who owns and controls it. SBA shall apply these 
definitions in accordance with the presumption contained in section 8(d) 
of the Small Business Act (15 U.S.C. 636(d)).
    (c) All protests relating to whether a concern is a ``small'' 
business for purposes of any Federal program requiring such a condition 
for eligibility, including SDB set-asides and SDB evaluation 
preferences, are to be filed pursuant to the procedures set forth in 
Secs. 121.1601--121.1608 of these regulations. The rules contained in 
part 121 apply to all such

[[Page 289]]

size determinations. For purposes of SDB set-asides, SDB evaluation 
preferences and the section 8(a) subcontracting program, the size 
standard contained in the solicitation is the applicable size standard 
for the requirement. An appeal of such a size determination may be made 
pursuant to Sec. 121.11 of these regulations.

[54 FR 10272, Mar. 13, 1989, as amended at 59 FR 12816, Mar. 18, 1994]



Sec. 124.602  General definitions.

    (a) Annual Review. SBA's annual review and evaluation of financial 
statements, eligibility certifications submitted by the 8(a) concern, 
and such other submissions as may be required of Program Participants to 
ascertain continued eligibility of a concern for participation in the 
8(a) program.
    (b) Appeal. A request for re-examination of the initial SBA 
determination regarding a protest.
    (c) Associate Administrator for Minority Small Business and Capital 
Ownership Development (AA/MSB&COD). The SBA official who is responsible 
for deciding appeals of disadvantaged status.
    (d) Control. See Sec. 124.104, title 13, CFR.
    (e) Current Section 8(a) Program Participant. Any business concern 
which is approved for participation in the section 8(a) program as of 
the date on which SBA receives the protest on the solicitation at issue.
    (f) Director, Division of Programs Certification and Eligibility. 
For purposes of this section, the term Director shall include the head 
of the Division of Programs Certification and Eligibility or any 
individual which he/she designates.
    (g) Division of Programs Certification and Eligibility (DPCE). The 
SBA office within the Office of Minority Small Business and Capital 
Ownership Development which is responsible for making determinations 
regarding protests of disadvantaged status.
    (h) Economic Disadvantage. See Sec. 124.106, title 13, CFR.
    (i) Graduation Proceeding. See Sec. 124.110(k), title 13, CFR.
    (j) Ownership. See Sec. 124.103, title 13, CFR.
    (k) Protest. An initial challenge of the disadvantaged status of a 
business concern.
    (l) Small Disadvantaged Business (SDB) Concern. A business concern, 
including mass media:
    (1) Which is small as defined pursuant to section (3) of the Small 
Business Act and implementing regulations at 13 CFR part 121;
    (2) Which is at least 51 per centum owned by one or more socially 
and economically disadvantaged individuals as defined by Secs. 124.105 
and 124.106, title 13, CFR; or in the case of any publicly owned 
business, at least 51 per centum of the stock of which is owned by one 
or more socially and economically disadvantaged individuals;
    (3) Which has the majority of its earnings accruing directly to such 
individuals; and
    (4) Whose management and daily business operations are controlled by 
one or more of such individuals.
    (m) Social Disadvantage. See Sec. 124.105, title 13, CFR.
    (n) Suspension Proceeding. See Sec. 124.113, title 13, CFR.
    (o) Termination Proceeding. See Sec. 124.112, title 13, CFR.

[54 FR 10272, Mar. 13, 1989, as amended at 59 FR 12816, Mar. 18, 1994]



Sec. 124.603  Who may protest the disadvantaged status of a concern.

    (a) In connection with a specific SDB set-aside requirement or a 
requirement for which the apparent low bidder is an SDB which has 
invoked its SDB evaluation preference, the following entities may 
protest the disadvantaged status of a concern which is the apparent low 
responsible offeror:
    (1) Any other concern which submitted an offer for that requirement;
    (2) The procuring agency contracting officer; and
    (3) The Small Business Administration.
    (b) In connection with an 8(d) subcontract, the procuring agency 
contracting officer or SBA may protest the disadvantaged status of a 
proposed subcontractor. Other small business subcontractors and the 
prime contractor may submit information to the contracting officer in an 
effort to persuade the contracting officer to initiate a protest.
    (c) Protests of disadvantaged status relating to other Federal 
procurement

[[Page 290]]

programs, excluding SBA's section 8(a) program, which require SBA to 
determine social and economic disadvantage as a condition of 
eligibility, may be filed by the Federal agency official responsible for 
determining program eligibility, and any other interested party.



Sec. 124.604  Who makes disadvantaged status determinations.

    In response to a protest challenging the disadvantaged status of a 
concern, the SBA's Director of the Division of Programs Certification 
and Eligibility (DPCE), or such person as the Director shall designate, 
in the Office of Minority Small Business and Capital Ownership 
Development (MSB&COD) shall determine whether the concern is 
disadvantaged.

[54 FR 10272, Mar. 13, 1989, as amended at 59 FR 12816, Mar. 18, 1994]



Sec. 124.605  Protest procedures.

    (a) Filing. (1) Except in cases where the contracting officer or SBA 
initiates a protest, all protests shall be directed to the procuring 
agency contracting officer responsible for the particular requirement.
    (2) In cases where the contracting officer initiates a protest, he/
she shall file the protest with SBA in accordance with paragraph (c) of 
this section and shall provide notification in accordance with 
Sec. 124.608 of this part.
    (3) In cases where SBA initiates a protest, the protest shall be 
referred to the Division of Programs Certification and Eligibility 
within the Office of MSB&COD and notification shall be provided in 
accordance with Sec. 124.608 of this part.
    (b) Timeliness of Protest--(1) SDB Set-Aside and SDB Evaluation of 
Preference Protest--(i) Written SDB Set-Aside Protest. In order for a 
written protest submitted by a business concern in connection with a 
specific SDB set-aside requirement to be considered timely, it must be 
received by the contracting officer prior to the close of business on 
the fifth day, exclusive of Saturdays, Sundays and legal holidays, after 
the bid opening date for sealed bids, or after the receipt from the 
contracting officer of notification of the identity of the prospective 
awardee in negotiated acquisitions.
    (ii) Written SDB Evaluation Preference Protest. In order for a 
protest by a business concern to be timely when challenging the SDB 
status of an apparent low bidder to which an SDB evaluation preference 
has been applied, it must be received by the contracting officer prior 
to the close of business on the fifth day, exclusive of Saturdays, 
Sundays and legal holidays, after the receipt from the contracting 
officer of notification of the prospective awardee.
    (iii) Oral Protests. A protest for SDB set-asides or SDB evaluation 
preferences shall also be considered timely if made orally to the 
contracting officer within the allotted 5-day period, and the 
contracting officer thereafter receives a confirming letter postmarked 
no later than one calendar day after the date of such telephone protest.
    (iv) A protest by the contracting officer or SBA shall be timely for 
the purpose of the SDB acquisition in question whether filed before or 
after award. However, when a protest is brought by the contracting 
officer, it must be brought on his or her own behalf stating the grounds 
for such protest. The contracting officer may not initiate a protest 
merely by forwarding to SBA the protest of a third party.
    (v) A protest received after the time limits set forth above shall 
not be considered.
    (2) Section 8(d) Protests. (i) In order for a protest in connection 
with an 8(d) subcontract to be considered timely, it must be received by 
the contracting officer prior to the completion of performance by the 
intended 8(d) subcontractor.
    (ii) A protest received after subcontract performance by the 
intended 8(d) subcontractor shall not be considered.
    (3) Protests, in connection with any procurement, which are filed by 
any person before bid opening or notification of intended award, 
whichever applies, shall be considered premature and shall not be 
forwarded to SBA, but shall be returned to the protestor without action.

[[Page 291]]

    (c) Referral to SBA. (1) Any contracting officer who receives a 
timely protest shall promptly forward such protest to the SBA's Director 
of the Division of Programs Certification and Eligibility, Office of 
Minority Small Business and Capital Ownership Development, 1441 L 
Street, NW., Washington, DC 20416.
    (2) When a contracting officer receives a protest and refers it to 
the SBA, such referral shall contain the following:
    (i) The protest and any accompanying materials;
    (ii) The date on which the protest was received and a determination 
as to timeliness;
    (iii) A copy of the protested concern's self-certification as to 
disadvantaged status; and
    (iv) the date of bid opening or the date on which notification of 
the apparent successful offeror was sent to all unsuccessful offerors, 
as applicable.
    (3) A protest by a Federal agency in connection with a procurement 
program requiring SBA to determine social and economic disadvantage as a 
condition of eligibility shall be accompanied by any materials in the 
possession of the agency which cause it to question the disadvantaged 
status of the concern.

[54 FR 10272, Mar. 13, 1989, as amended at 59 FR 12816, Mar. 18, 1994]



Sec. 124.606  Grounds of protest.

    (a) Protests challenging the social disadvantage of the protested 
concern must demonstrate that the protested concern is not owned and 
controlled by one or more socially disadvantaged individuals as defined 
by subpart A of this part. A protest could challenge the social 
disadvantage of the protested concern by submitting evidence that:
    (1) The individuals who own and control the protested concern have 
not been subjected to, or have overcome racial or ethnic prejudice or 
cultural bias, or
    (2) The individuals associated with the protested concern who could 
be considered socially disadvantaged do not actually own and control the 
protested concern.
    (b) Protests challenging the economic disadvantage of the protested 
concern must demonstrate that the protested concern is not owned and 
controlled by one or more economically disadvantaged individuals as 
defined in subpart A of this part.



Sec. 124.607  Form and specificity of protest.

    (a) No specific form is required for a protest under this subpart.
    (b) A protest must be sufficiently specific to provide reasonable 
notice as to the ground(s) upon which the protested concern's 
disadvantaged status is challenged and to call into question the 
disadvantaged status of the protested concern. A protest merely alleging 
that the protested concern is not disadvantaged, without setting forth 
any basis for the allegation, will not be deemed to specify adequate 
grounds for the protest. Some basis for the belief stated in the protest 
must be given. However, the contracting officer shall forward all 
protests received to SBA for a decision on whether to pursue the 
determination of disadvantaged status.
    (c) Protests which do not contain sufficient specificity may be 
dismissed by the SBA.
    (d) A dismissal by the Director of DPCE of a protest for lack of 
specificity may be appealed to SBA's AA/MSB&COD pursuant to Sec. 124.609 
of these regulations.

[54 FR 10272, Mar. 13, 1989, as amended at 59 FR 12816, Mar. 18, 1994]



Sec. 124.608  Notification of protest.

    (a) Upon receipt of a protest challenging the disadvantaged status 
of a concern, the Director of DPCE shall immediately notify the 
protestor and the contracting officer of the date such protest was 
received and whether it will be processed or dismissed for lack of 
specificity.
    (b) In cases where the protest is sufficiently specific, the 
Director of DPCE shall also immediately advise the protested concern of 
the receipt of the protest and forward to the protested concern a copy 
of the protest.
    (1) In such cases, the Director of DPCE is authorized to ask the 
protested concern to provide any or all of the following information and 
documentation: a completed SBA Form

[[Page 292]]

1010A, ``Statement of Personal Eligibility'' for each individual 
claiming disadvantaged status; a completed SBA Form 1010B, ``Statement 
of Business Eligibility;'' a completed SBA Form 413, ``Personal 
Financial Statement,'' no older than 60 days, for each individual 
claiming disadvantaged status; whether the protested concern, or any of 
its owner(s), officers or directors have applied for admission to or 
participated in the SBA's section 8(a) program and if so, the name of 
the company which applied for 8(a) participation and the date of the 
application; business tax returns for the last two completed fiscal 
years; personal tax returns for the last two completed fiscal years; 
personal tax returns for the last two years for all officers, directors 
and for any individual owning at least 5% of the business entity; 
business financial statements for the last two completed fiscal years, 
and current business financial statements no older than 90 days; 
articles of incorporation, corporate by-laws, or partnership agreements, 
as appropriate; and any other information which the Director of DPCE 
deems necessary to permit a determination as to the social and/or 
economic disadvantaged status of the protested concern.
    (2) Unless the protest presents specific information which would 
call into question the veracity of the application documents filed by a 
current participant in SBA's section 8(a) program, SBA may allow such a 
concern to submit, in lieu of the information specified in paragraph 
(b)(1) of this section, a sworn affidavit by its owner, managing 
partner, President or Chief Executive Officer that the 8(a) application 
and any amendments thereto remain accurate, and that circumstances 
concerning the ownership and control of the business and the 
disadvantaged status of its principal(s) have not changed since the most 
recent annual review. If the ownership and/or control of the business 
have changed since the date of the most recent annual review, the 
protested concern must comply with paragraph (b)(1) of this section. An 
affidavit may be allowed only if SBA has conducted an annual review of 
the 8(a) participant firm during the 12-month period preceding the date 
on which SBA receives the protest; and if proceedings to suspend, 
terminate or graduate the concern from the 8(a) program are not pending.
    (3) Notwithstanding the exceptions in paragraph (b)(2) of this 
section, the Director of DPCE is authorized to request any document 
which he/she deems necessary to determine disadvantaged status.
    (c) Within 10 working days of the date that notification of the 
protest was received from the Director of DPCE, the protested concern 
must deliver to the Director of DPCE by hand or by mail the information 
and documentation requested pursuant to paragraph (b)(1) of this section 
or the affidavit permitted by paragraph (b)(2) of this section. 
Materials submitted by mail must be received by the close of business on 
the 10th working day. Materials, including affidavits, not received by 
close of business on the 10th working day shall not be considered in 
deciding the protest.

[54 FR 10272, Mar. 13, 1989, as amended at 59 FR 12816, Mar. 18, 1994]



Sec. 124.609  Making the disadvantaged status determination.

    (a) General. The Director of DPCE shall make a disadvantaged status 
determination within 15 working days after receipt of a protest 
challenging such status, or as soon thereafter as possible. If, in 
connection with an SDB acquisition or other procurement requirement, the 
SBA cannot make such a determination within 15 working days, the 
Director of DPCE shall inform the contracting officer responsible for 
the particular requirement when a determination is expected to be made.
    (b) Time Limits for Response. If the information and documentation 
requested by SBA under Sec. 124.608(b) is not received by the Director 
of DPCE within the 10-day period as required by Sec. 124.608(c), SBA may 
determine the protested concern to be non-disadvantaged.
    (c) Withdrawal of Protest. Once properly instituted by the filing of 
a specific disadvantaged status protest, the determination may be 
completed by the SBA even if the protest is withdrawn or the SDB 
acquisition or other

[[Page 293]]

procurement requirement in question is cancelled or awarded. The 
continuation of the disadvantaged status determination is discretionary 
with the SBA.
    (d) Basis for Determination. (1) Except with respect to a concern 
which is a current participant in SBA's section 8(a) program or a 
concern authorized by Sec. 124.608(b) of this part to submit an 
affidavit concerning its disadvantaged status, the disadvantaged status 
determination shall be based on the protest record as supplied by the 
protestor, protested concern, SBA or others.
    (2) If deemed necessary or appropriate, the SBA may make a part of 
the protest record information in its files and information submitted in 
response to requests to the protestor, the protested concern, the 
contracting officer, or other persons for additional specific 
information.
    (3) In determining disadvantaged status, SBA shall review ownership 
and control of each protested firm as well as social and economic 
disadvantage regardless of the grounds specified in the protest.
    (e) Disadvantaged Status Determination. The SBA shall base its 
disadvantaged status determination upon the record, including reasonable 
inferences therefrom. SBA shall render a written determination including 
the basis for its findings and conclusions.
    (f) Summary Determination for Current 8(a) Participant. The SBA may 
summarily determine that a concern is socially and economically 
disadvantaged if that concern is a current participant in the SBA's 
section 8(a) program so long as SBA has completed an annual review of 
the concern within the previous 12 month period unless the protested 
concern cannot submit or fails to submit an affidavit authorized by 
Sec. 124.608(b) of these regulations. This summary determination shall 
not apply if suspension, termination, or graduation proceedings are 
pending against the concern.
    (g) Notification of Determination. After making its disadvantaged 
status determination, the SBA shall immediately notify the contracting 
officer, the protestor, and the protested concern of its determination. 
No later than one business day thereafter, SBA shall provide by 
certified mail, return receipt requested, a copy of its written 
determination to the protested concern and, consistent with the Privacy 
Act (5 U.S.C. 552a) and Freedom of Information Act (5 U.S.C. 552), to 
all other parties to the proceeding.
    (h) Results of an SBA Disadvantaged Status Determination. (1) A 
disadvantaged status determination becomes effective immediately and 
remains in full force and effect unless and until reversed upon appeal 
by SBA's AA/MSB&COD pursuant to Sec. 124.610 of this part.
    (2) A concern which was determined to be non-disadvantaged may 
certify itself as a disadvantaged business for purposes of future SDB 
evaluation preferences, future SDB acquisitions, 8(d) subcontracts, and 
other Federal procurement programs requiring disadvantaged status as a 
condition for eligibility provided that it has a good faith belief that 
it has changed the conditions upon which the determination of non-
disadvantaged status was based. At the time of such certification, the 
concern shall notify the contracting officer that it was previously 
determined to be non-disadvantaged. However, if such concern is the 
lowest responsive offeror for an SDB acquisition, or for any requirement 
by involving its SDB evaluation preference, or is otherwise deemed 
eligible for a Federal procurement program requiring disadvantaged 
status as a condition for eligibility, the contracting officer shall 
treat such certification as a protest of the concern's disadvantaged 
status and shall forward it to SBA pursuant to Sec. 124.605(c) of this 
part. SBA shall process a protest based on such certification in 
accordance with the provisions of this part.
    (3) If a current 8(a) participant is found to be non-disadvantaged 
as a result of failure to submit the affidavit permitted by 
Sec. 124.608(b)(ii) of this part, or for other cause, the concern will 
be subject to the same certification and notice requirements specified 
in paragraph (i)(2) of this section. However, a determination of non-
disadvantaged status will not automatically terminate the concern's 8(a) 
program participation. A hearing before an administrative law judge is 
required before a

[[Page 294]]

firm can be terminated from the 8(a) program, see Sec. 124.112 of this 
part.
    (i) Misrepresentation of Disadvantaged Status. (1) A concern which 
was determined to be non-disadvantaged and which has not overcome or 
changed the circumstances which caused this determination cannot certify 
itself to be disadvantaged for future SDB acquisitions, 8(d) 
subcontracts, and other Federal procurement programs requiring 
disadvantaged status as a condition for eligibility. A certification of 
disadvantaged status by such a firm may be deemed a misrepresentation of 
disadvantaged status.
    (2) A concern which was previously determined to be non-
disadvantaged and certifies, in good faith, that it is a disadvantaged 
business for a subsequent SDB acquisition, SDB evaluation preference, 
8(d) subcontract, or other Federal procurement program requiring 
disadvantaged status as a condition for eligibility, must nevertheless 
inform the contracting officer that it previously had been determined by 
the SBA to be non-disadvantaged. Failure to advise the contracting 
officer of such a non-disadvantaged status determination by the SBA may 
be deemed a misrepresentation of disadvantaged status.

[54 FR 10272, Mar. 13, 1989, as amended at 59 FR 12816, Mar. 18, 1994]



Sec. 124.610  Appeals of disadvantaged status determinations.

    (a) Appeals to re-examine disadvantaged status determinations may be 
filed with the SBA's AA/MSB&COD by any of the following:
    (1) The concern whose disadvantaged status was determined by the 
Director of OPE;
    (2) The original protestor; and
    (3) The procuring agency contracting officer responsible for the SDB 
acquisition or other procurement requirement in question.
    (b) Notice of an appeal must be provided to the protested concern, 
the original protestor, and the procuring agency contracting officer 
responsible for the SDB acquisition or other procurement requirement in 
question.
    (c)(1) An appeal must be in writing and must be received by the 
Associate Administrator for Minority Small Business and Capital 
Ownership Development, U.S. Small Business Administration, 1441 L 
Street, NW., Washington, DC 20416, no later than 5 working days after 
the date of receipt of such determination.
    (2) An untimely appeal shall be dismissed.
    (d) Grounds for Appeal. The SBA will re-examine a disadvantaged 
status determination only if there was a clear and significant 
administrative error in the processing of such decision, or if the 
Director of OPE completely failed to consider a significant fact 
contained within the materials supplied by the protestor or the 
protested concern. Disadvantaged status determinations shall not be re-
examined based on additional information or changed circumstances which 
were not disclosed to the Director of OPE at the time of his/her 
decision.
    (e) No specific form is required for the appeal. However, the appeal 
must identify the disadvantaged status determination for which a re-
examination is sought, set forth a full and specific statement of the 
reasons as to why the disadvantaged status determination is alleged to 
be erroneous pursuant to paragraph (d) of this section, and present 
arguments in support of such allegations.
    (f) An appeal may proceed to completion even though an award of the 
SDB acquisition or other procurement requirement which prompted the 
initial protest has been made. In such a case, however, a reversal by 
the AA/MSB&COD shall not apply to the awarded SDB acquisition or other 
awarded procurement requirement and shall have future effect only.
    (g) The appeal will be decided by the AA/MSB&COD within 5 working 
days of its receipt, if practicable.
    (h) The appeal decision shall be based on all the information and 
documentation in the record. A copy of the decision shall be provided to 
the protested concern by certified mail, return receipt requested. To 
the extent consistent with the Privacy Act and the Freedom of 
Information Act, all parties to the proceeding shall be notified of 
SBA's final decision.

[[Page 295]]

    (i) The decision of the AA/MSB&COD is the final decision of the 
Small Business Administration.



PART 125--GOVERNMENT CONTRACTING PROGRAMS--Table of Contents




Sec.
125.1  Programs included.
125.2  Prime contracting assistance.
125.3  Subcontracting assistance.
125.4  Government property sales assistance.
125.5  Certificate of Competency Program.
125.6  Prime contractor performance requirements (limitations on 
          subcontracting).

    Authority: 15 U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 9702.

    Source: 61 FR 3312, Jan. 31, 1996, unless otherwise noted.



Sec. 125.1  Programs included.

    The regulations in this part relate to the Government contracting 
assistance programs of SBA. There are four main programs: Prime 
contracting assistance; Subcontracting assistance; Government property 
sales assistance; and the Certificate of Competency program. The 
objective of the programs is to assist small businesses in obtaining a 
fair share of Federal Government contracts, subcontracts, and property 
sales.



Sec. 125.2  Prime contracting assistance.

    (a) Traditional PCR responsibilities. (1) SBA Procurement Center 
Representatives (PCRs) are located at Federal agencies and buying 
activities which have major contracting programs. PCRs review all 
acquisitions not set aside for small businesses to determine whether a 
set-aside would be appropriate. In cases where there is disagreement 
between a PCR and the contracting officer over the suitability of a 
particular acquisition for a small business set-aside, the PCR may 
initiate an appeal to the head of the contracting activity. If the head 
of the contracting activity agrees with the contracting officer, SBA may 
appeal to the secretary of the department or head of the agency. The 
procedures and time limits for such appeals are set forth in Sec. 19.505 
of the Federal Acquisition Regulation (FAR) (48 CFR 19.505).
    (2) PCRs review and evaluate the small business programs of Federal 
agencies and buying activities and make recommendations for improvement. 
They also recommend small business, small women-owned business, and 
small disadvantaged business sources for use by contracting activities 
and assist these businesses in obtaining Federal contracts and 
subcontracts. Other authorized duties of a PCR are set forth in the FAR 
in 48 CFR 19.402(c) and in the Small Business Act (the Act) in Section 
15(a) (15 U.S.C. 644(a)).
    (b) BPCR responsibilities. (1) SBA is required by section 403 of 
Public Law 98-577 (15 U.S.C. 644(l)) to assign a breakout PCR (BPCR) to 
major contracting centers. A major contracting center is a center that, 
as determined by SBA, purchases substantial dollar amounts of other than 
commercial items, and which has the potential to achieve significant 
savings as a result of the assignment of a BPCR.
    (2) BPCRs advocate full and open competition in the Federal 
contracting process and recommend the breakout for competition of items 
and requirements which previously have not been competed. They may 
appeal the failure by the buying activity to act favorably on a 
recommendation in accord with the appeal procedures set forth in 
Sec. 19.505 of the FAR (48 CFR 19.505). BPCRs also review restrictions 
and obstacles to competition and make recommendations for improvement. 
Other authorized functions of a BPCR are set forth in 48 CFR 19.403(c) 
of the FAR and Section 15(l) of the Act (15 U.S.C. 644(l)).



Sec. 125.3  Subcontracting assistance.

    (a) The purpose of the subcontracting assistance program is to 
achieve maximum utilization of small business by major prime 
contractors. The Act requires other-than-small firms awarded contracts 
that offer subcontracting possibilities by the Federal Government in 
excess of $500,000, or $1 million for construction of a public facility, 
to submit a subcontracting plan to the contracting agency. The FAR sets 
forth the requirements for subcontracting plans in 48 CFR part 19, 
subpart 19.7, and 48 CFR 52.219-9.

[[Page 296]]

    (b) Upon determination of the successful subcontract offeror on a 
subcontract for which a small business, small disadvantaged business, 
and/or women-owned small business received preference, but prior to 
award, the prime contractor must inform each unsuccessful subcontract 
offeror in writing of the name and location of the apparent successful 
offeror and if the successful offeror was a small business, small 
disadvantaged business, or small women-owned business. This is 
applicable to all subcontracts over $10,000.
    (c) SBA Commercial Market Representatives (CMRs) facilitate the 
process of matching large prime contractors with small, small 
disadvantaged, and small women-owned subcontractors. CMRs identify, 
develop, and market small businesses to the prime contractors and assist 
the small firms in obtaining subcontracts.
    (d) Each CMR has a portfolio of prime contractors and conducts 
periodic compliance reviews and needs assessments of the companies in 
this portfolio. CMRs are also required to perform opportunity 
development and source identification. Opportunity development means 
assessing the current and future needs of the prime contractors. Source 
identification means identifying those small, small disadvantaged, and 
small women-owned firms which can fulfill the needs assessed from the 
opportunity development process.

[61 FR 3312, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]



Sec. 125.4  Government property sales assistance.

    (a) The purpose of SBA's Government property sales assistance 
program is to:
    (1) Insure that small businesses obtain their fair share of all 
Federal real and personal property qualifying for sale or other 
competitive disposal action; and
    (2) Assist small businesses in obtaining Federal property being 
processed for disposal, sale, or lease.
    (b) SBA property sales assistance primarily consists of two 
activities:
    (1) Obtaining small business set-asides when necessary to insure 
that a fair share of Government property sales are made to small 
businesses; and
    (2) Providing advice and assistance to small businesses on all 
matters pertaining to sale or lease of Government property.
    (c) The program is intended to cover the following categories of 
Government property:
    (1) Sales of timber and related forest products;
    (2) Sales of strategic material from national stockpiles;
    (3) Sales of royalty oil by the Department of Interior's Minerals 
Management Service;
    (4) Leases involving rights to minerals, petroleum, coal, and 
vegetation; and
    (5) Sales of surplus real and personal property.
    (d) SBA has established specific small business size standards and 
rules for the sale or lease of the different kinds of Government 
property. These provisions are contained in Secs. 121.501 through 
121.514 of this chapter.



Sec. 125.5  Certificate of Competency Program.

    (a) General. (1) The Certificate of Competency (COC) Program is 
authorized under section 8(b)(7) of the Small Business Act. A COC is a 
written instrument issued by SBA to a Government contracting officer, 
certifying that one or more named small business concerns possess the 
responsibility to perform a specific Government procurement (or sale) 
contract. The COC Program is applicable to all Government procurement 
actions. For purposes of this Section, the term ``United States'' 
includes its territories, possessions, and the Commonwealth of Puerto 
Rico.
    (2) A contracting officer must, upon determining an apparent low 
small business offeror to be nonresponsible, refer that small business 
to SBA for a possible COC, even if the next low apparently responsible 
offeror is also a small business.
    (3) A small business offeror referred to SBA as nonresponsible may 
apply to SBA for a COC. Where the applicant is

[[Page 297]]

a non-manufacturing offeror on a supply contract, the COC applies to the 
responsibility of the non-manufacturer, not to that of the manufacturer.
    (b) COC Eligibility. (1) The offeror seeking a COC has the burden of 
proof to demonstrate its eligibility for COC review. To be eligible for 
the COC program, a firm must meet the following criteria:
    (i) It must qualify as a small business concern under the size 
standard applicable to the procurement. Where the solicitation fails to 
specify a size standard or Standard Industrial Classification (SIC) 
code, SBA will assign the appropriate size standard to determine COC 
eligibility. SBA determines size eligibility as of the date described in 
Sec. 121.404 of this chapter.
    (ii) A manufacturing, service, or construction concern must 
demonstrate that it will perform a significant portion of the proposed 
contract with its own facilities, equipment, and personnel. The contract 
must be performed or the end item manufactured within the United States.
    (iii) A non-manufacturer making an offer on a small business set-
aside contract for supplies must furnish end items that have been 
manufactured in the United States by a small business. A waiver of this 
requirement may be requested under Secs. 121.1301 through 121.1305 of 
this chapter for either the type of product being procured or the 
specific contract at issue.
    (iv) A non-manufacturer making an offer on an unrestricted 
procurement or a procurement utilizing simplified acquisition threshold 
procedures with a cost that does not exceed $25,000 must furnish end 
items manufactured in the United States to be eligible for a COC.
    (v) An offeror intending to provide a kit consisting of finished 
components or other components provided for a special purpose, is 
eligible if:
    (A) It meets the Size Standard for the SIC code assigned to the 
procurement;
    (B) Each component comprising the kit was manufactured in the United 
States; and
    (C) In the case of a set-aside, each component comprising the kit 
was manufactured by a small business under the size standard applicable 
to the component provided. A waiver of this requirement may be requested 
under Secs. 121.1301 through 121.1305 of this chapter.
    (2) SBA will determine a concern ineligible for a COC if the 
concern, or any of its principals, appears in the ``Parties Excluded 
From Federal Procurement Programs'' section found in the U.S. General 
Services Administration Office of Acquisition Policy Publication: List 
of Parties Excluded From Federal Procurement or Nonprocurement Programs. 
If a principal is unable to presently control the applicant concern, and 
appears in the Procurement section of the list due to matters not 
directly related to the concern itself, responsibility will be 
determined in accordance with paragraph (f)(2) of this section.
    (3) An eligibility determination will be made on a case-by-case 
basis, where a concern or any of its principals appears in the 
Nonprocurement Section of the publication referred to in paragraph 
(b)(2) of this section.
    (c) Referral of nonresponsibility determination to SBA. (1) A 
contracting officer who determines that an apparently successful offeror 
that has certified itself to be a small business with respect to a 
specific Government procurement lacks any element of responsibility 
(including competency, capability, capacity, credit, integrity or 
tenacity or perseverance) must refer the matter in writing to the SBA 
Government Contracting Area Office (Area Office) serving the area in 
which the headquarters of the offeror is located. The referral must 
include a copy of the following:
    (i) Solicitation;
    (ii) Offer submitted by the concern whose responsibility is at issue 
for the procurement (its Best and Final Offer for a negotiated 
procurement);
    (iii) Abstract of Bids, where applicable, or the Contracting 
Officer's Price Negotiation Memorandum;
    (iv) Preaward survey, where applicable;
    (v) Contracting officer's written determination of 
nonresponsibility;
    (vi) Technical data package (including drawings, specifications, and 
Statement of Work); and

[[Page 298]]

    (vii) Any other justification and documentation used to arrive at 
the nonresponsibility determination.
    (2) Contract award must be withheld by the contracting officer for a 
period of 15 working days (or longer if agreed to by SBA and the 
contracting officer) following receipt by the appropriate Area Office of 
a referral which includes all required documentation.
    (3) The COC referral must indicate that the offeror has been found 
responsive to the solicitation, and also identify the reasons for the 
nonresponsibility determination.
    (d) Application for COC. (1) Upon receipt of the contracting 
officer's referral, the Area Office will inform the concern of the 
contracting officer's negative responsibility determination, and offer 
it the opportunity to apply to SBA for a COC by a specified date.
    (2) The COC application must include all information and 
documentation requested by SBA and any additional information which the 
firm believes will demonstrate its ability to perform on the proposed 
contract. The application should be returned as soon as possible, but no 
later than the date specified by SBA.
    (3) Upon receipt of a complete and acceptable application, SBA may 
elect to visit the applicant's facility to review its responsibility. 
SBA personnel may obtain clarification or confirmation of information 
provided by the applicant by directly contacting suppliers, financial 
institutions, and other third parties upon whom the applicant's 
responsibility depends.
    (e) Incomplete applications. If an application for a COC is 
materially incomplete or is not submitted by the date specified by SBA, 
SBA will close the case without issuing a COC and will notify the 
contracting officer and the concern with a declination letter.
    (f) Reviewing an application. (1) The COC review process is not 
limited to the areas of nonresponsibility cited by the contracting 
officer. SBA may, at its discretion, independently evaluate the COC 
applicant for all elements of responsibility, but it may presume 
responsibility exists as to elements other than those cited as 
deficient. SBA may deny a COC for reasons of nonresponsibility not 
originally cited by the contracting officer.
    (2) A small business will be rebuttably presumed nonresponsible if 
any of the following circumstances are shown to exist:
    (i) Within three years before the application for a COC, the 
concern, or any of its principals, has been convicted of an offense or 
offenses that would constitute grounds for debarment or suspension under 
FAR subpart 9.4 (48 CFR part 9, subpart 9.4), and the matter is still 
under the jurisdiction of a court (e.g., the principals of a concern are 
incarcerated, on probation or parole, or under a suspended sentence); or
    (ii) Within three years before the application for a COC, the 
concern or any of its principals has had a civil judgment entered 
against it or them for any reason that would constitute grounds for 
debarment or suspension under FAR subpart 9.4 (48 CFR part, subpart 
9.4).
    (g) Decision by Area Director (``Director''). After reviewing the 
information submitted by the applicant and the information gathered by 
SBA, the Area Director will make a determination, either final or 
recommended as set forth in the following chart:

------------------------------------------------------------------------
                                 SBA official or         Finality of    
                                   office with        decision; options 
     Contracting actions        authority to make      for contracting  
                                    decision              agencies      
------------------------------------------------------------------------
$100,000 or less, or in       Director may approve  Final. The Director 
 accordance with Simplified    or deny.              will notify both   
 Acquisition Threshold                               applicant and      
 procedures.                                         contracting agency 
                                                     in writing of the  
                                                     decision.          
Between $100,000 and $25      (1) Director may      (1) Final.          
 million.                      deny.                                    
                              (2) Director may      (2) Contracting     
                               approve, subject to   agency may proceed 
                               right of appeal and   under paragraph (h)
                               other options.        or paragraph (i) of
                                                     this section.      
Exceeding $25 million.......  (1) Director may      (1) Final.          
                               deny.                                    
                              (2) Director must     (2) Contracting     
                               refer to SBA          agency may proceed 
                               Headquarters          under paragraph (j)
                               recommendation for    of this section.   
                               approval.                                
------------------------------------------------------------------------


[[Page 299]]

    (h) Notification of intent to issue on a contract with a value 
between $100,000 and $25 million. Where the Director determines that a 
COC is warranted, he or she will notify the contracting officer of the 
intent to issue a COC, and of the reasons for that decision, prior to 
issuing the COC. At the time of notification, the contracting officer 
has the following options:
    (1) Accept the Director's decision to issue the COC and award the 
contract to the concern. The COC issuance letter will then be sent, 
including as an attachment a detailed rationale of the decision; or
    (2) Ask the Director to suspend the case for one of the following 
purposes:
    (i) To forward a detailed rationale for the decision to the 
contracting officer for review within a specified period of time;
    (ii) To afford the contracting officer the opportunity to meet with 
the Area Office to review all documentation contained in the case file;
    (iii) To submit any information which the contracting officer 
believes SBA has not considered (at which time, SBA will establish a new 
suspense date mutually agreeable to the contracting officer and SBA); or
    (iv) To permit resolution of an appeal by the contracting agency to 
SBA Headquarters under paragraph (i) of this section.
    (i) Appeals of Area Director determinations. For COC actions with a 
value exceeding $100,000, contracting agencies may appeal a Director's 
decision to issue a COC to SBA Headquarters by filing an appeal with the 
Area Office processing the COC application. The Area Office must honor 
the request to appeal if the contracting officer agrees to withhold 
award until the appeal process is concluded. Without such an agreement 
from the contracting officer, the Director must issue the COC. When such 
an agreement has been obtained, the Area Office will immediately forward 
the case file to SBA Headquarters.
    (1) The intent of the appeal procedure is to allow the contracting 
agency the opportunity to submit to SBA Headquarters any documentation 
which the Area Office may not have considered.
    (2) SBA Headquarters will furnish written notice to the Director, 
Office of Small and Disadvantaged Business Utilization (OSDBU) at the 
secretariat level of the procuring agency (with a copy to the 
contracting officer), that the case file has been received and that an 
appeal decision may be requested by an authorized official at that 
level. If the contracting agency decides to file an appeal, it must 
notify SBA Headquarters through its Director, OSDBU, within 10 working 
days (or a time period agreed upon by both agencies) of its receipt of 
the notice under paragraph (h) of this section. The appeal and any 
supporting documentation must be filed within 10 working days (or a 
different time period agreed to by both agencies) after SBA receives the 
request for a formal appeal.
    (3) The SBA Associate Administrator for Government Contracting (AA/
GC) will make a final determination, in writing, to issue or to deny the 
COC.
    (j) Decision by SBA Headquarters where contract value exceeds $25 
million. (1) Prior to taking final action, SBA Headquarters will contact 
the contracting agency at the secretariat level or agency equivalent and 
afford it the following options:
    (i) Ask SBA Headquarters to suspend the case so that the agency can 
meet with Headquarters personnel and review all documentation contained 
in the case file; or
    (ii) Submit to SBA Headquarters for evaluation any information which 
the contracting agency believes has not been considered.
    (2) After reviewing all available information, the AA/GC will make a 
final decision to either issue or deny the COC. If the AA/GC's decision 
is to deny the COC, the applicant and contracting agency will be 
informed in writing by the Area Office. If the decision is to issue the 
COC, a letter certifying the responsibility of the firm will be sent to 
the contracting agency by Headquarters and the applicant will be 
informed of such issuance by the Area Office. Except as set forth in 
paragraph (l) of this section, there can be no further appeal or 
reconsideration of the decision of the AA/GC.

[[Page 300]]

    (k) Notification of denial of COC. The notification to an 
unsuccessful applicant following either an Area Director or a 
Headquarters denial of a COC will briefly state all reasons for denial 
and inform the applicant that a meeting may be requested with 
appropriate SBA personnel to discuss the denial. Upon receipt of a 
request for such a meeting, the appropriate SBA personnel will confer 
with the applicant and explain the reasons for SBA's action. The meeting 
does not constitute an opportunity to rebut the merits of the SBA's 
decision to deny the COC, and is for the sole purpose of giving the 
applicant the opportunity to correct deficiencies so as to improve its 
ability to obtain future contracts either directly or, if necessary, 
through the issuance of a COC.
    (l) Reconsideration of COC after issuance. (1) An approved COC may 
be reconsidered and possibly rescinded, at the sole discretion of SBA, 
where an award of the contract has not occurred, and one of the 
following circumstances exists:
    (i) The COC applicant submitted false or omitted materially adverse 
information;
    (ii) New materially adverse information has been received relating 
to the current responsibility of the applicant concern; or
    (iii) The COC has been issued for more than 60 days (in which case 
SBA may investigate the firm's current circumstances).
    (2) Where SBA reconsiders and reaffirms the COC the procedures under 
paragraph (h) of this section do not apply.
    (m) Effect of a COC. By the terms of the Act, a COC is conclusive as 
to responsibility. Where SBA issues a COC on behalf of a small business 
with respect to a particular contract, contracting officers are required 
to award the contract without requiring the firm to meet any other 
requirement with respect to responsibility.
    (n) Effect of Denial of COC. Denial of a COC by SBA does not 
preclude a contracting officer from awarding a contract to the referred 
firm, nor does it prevent the concern from making an offer on any other 
procurement.
    (o) Monitoring performance. Once a COC has been issued and a 
contract awarded on that basis, SBA will monitor contractor performance.

[61 FR 3312, Jan. 31, 1996; 61 FR 7987, Mar. 1, 1996]



Sec. 125.6  Prime contractor performance requirements (limitations on subcontracting).

    (a) In order to be awarded a full or partial small business set-
aside contract, an 8(a) contract, or an unrestricted procurement where a 
concern has claimed a 10 percent small disadvantaged business (SDB) 
price evaluation preference, a small business concern must agree that:
    (1) In the case of a contract for services (except construction), 
the concern will perform at least 50 percent of the cost of the contract 
incurred for personnel with its own employees.
    (2) In the case of a contract for supplies or products (other than 
procurement from a non-manufacturer in such supplies or products), the 
concern will perform at least 50 percent of the cost of manufacturing 
the supplies or products (not including the costs of materials).
    (3) In the case of a contract for general construction, the concern 
will perform at least 15 percent of the cost of the contract with its 
own employees (not including the costs of materials).
    (4) In the case of a contract for construction by special trade 
contractors, the concern will perform at least 25 percent of the cost of 
the contract with its own employees (not including the cost of 
materials).
    (b) Definitions. The following definitions apply to this section:
    (1) Cost of the contract. All allowable direct and indirect costs 
allocable to the contract, excluding profit or fees.
    (2) Cost of contract performance incurred for personnel. Direct 
labor costs and any overhead which has only direct labor as its base, 
plus the concern's General and Administrative rate multiplied by the 
labor cost.
    (3) Cost of manufacturing. Those costs incurred by the firm in the 
production of the end item being acquired. These are costs associated 
with the manufacturing process, including the direct costs of 
fabrication, assembly, or other

[[Page 301]]

production activities, and indirect costs which are allocable and 
allowable. The cost of materials, as well as the profit or fee from the 
contract, are excluded.
    (4) Cost of materials. Includes costs of the items purchased, 
handling and associated shipping costs for the purchased items (which 
includes raw materials), off-the-shelf items (and similar 
proportionately high-cost common supply items requiring additional 
manufacturing or incorporation to become end items), special tooling, 
special testing equipment, and construction equipment purchased for and 
required to perform on the contract. In the case of a supply contract, 
the acquisition of services or products from outside sources following 
normal commercial practices within the industry are also included.
    (5) Off-the-shelf item. An item produced and placed in stock by a 
manufacturer, or stocked by a distributor, before orders or contracts 
are received for its sale. The item may be commercial or may be produced 
to military or Federal specifications or description. Off-the-shelf 
items are also known as Nondevelopmental Items (NDI).
    (6) Personnel. Individuals who are ``employees'' under Sec. 121.106 
of this chapter.
    (7) Subcontracting. That portion of the contract performed by a 
firm, other than the concern awarded the contract, under a second 
contract, purchase order, or agreement for any parts, supplies, 
components, or subassemblies which are not available off-the-shelf, and 
which are manufactured in accordance with drawings, specifications, or 
designs furnished by the contractor, or by the government as a portion 
of the solicitation. Raw castings, forgings, and moldings are considered 
as materials, not as subcontracting costs. Where the prime contractor 
has been directed by the Government to use any specific source for 
parts, supplies, components subassemblies or services, the costs 
associated with those purchases will be considered as part of the cost 
of materials, not subcontracting costs.
    (c) Compliance will be considered an element of responsibility and 
not a component of size eligibility.
    (d) The period of time used to determine compliance will be the 
period of performance which the evaluating agency uses to evaluate the 
proposal or bid. If the evaluating agency fails to articulate in its 
solicitation the period of performance it will use to evaluate the 
proposal or bid, the base contract period, excluding options, will be 
used to determine compliance. In indefinite quantity contracts, 
performance over the guaranteed minimum will be used to determine 
compliance unless the evaluating agency articulates a different period 
of performance which it will use to evaluate the proposal or bid in its 
solicitation.
    (e) Work to be performed by subsidiaries or other affiliates of a 
concern is not counted as being performed by the concern for purposes of 
determining whether the concern will perform the required percentage of 
work.
    (f) The procedures of Sec. 125.5 apply where the contracting officer 
determines non-compliance, the procurement is a full or partial small 
business set-aside or an SDB has claimed a preference, and refers the 
matter to SBA for a COC determination.

[61 FR 3312, Jan. 31, 1996; 61 FR 39305, July 20, 1996]



PART 130--SMALL BUSINESS DEVELOPMENT CENTERS--Table of Contents




Sec.
130.100  Introduction.
130.110  Definitions.
130.200  Eligible entities.
130.300  Small Business Development Centers (SBDCs). [Reserved]
130.310  Area of service.
130.320  Location of lead centers and SBDC service providers.
130.330  Operating requirements.
130.340  SBDC services and restrictions on service.
130.350  Specific program responsibilities.
130.360  SBDC advisory boards.
130.400  Application procedure. [Reserved]
130.410  New applications.
130.420  Renewal applications.
130.430  Application decisions.
130.440  Maximum grant.
130.450  Matching funds.
130.460  Budget justification.
130.470  Fees.
130.480  Program income.
130.500  Funding.
130.600  Cooperative agreement. [Reserved]

[[Page 302]]

130.610  General terms.
130.620  Revisions and amendments to cooperative agreement.
130.630  Dispute resolution procedures.
130.700  Suspension, termination and non-renewal.
130.800  Oversight of the SBDC program.
130.810  SBA review authority.
130.820  Reports and recordkeeping.
130.830  Audits and investigations.

    Authority: Sections 5(b)(6) and 21 of the Small Business Act, as 
amended, 15 U.S.C. 634(b)(6) and 648; Pub. L. 101-515, 101 Stat. 2101; 
Pub. L. 101-574, 104 Stat. 2814; Pub. L. 102-366, 106 Stat. 986; and 
Pub. L. 102-395, 106 Stat. 1828.

    Source: 60 FR 31056, June 13, 1995, unless otherwise noted.



Sec. 130.100  Introduction.

    (a) Objective. The SBDC Program creates a broad-based system of 
assistance for the small business community by linking the resources of 
Federal, State and local governments with the resources of the 
educational community and the private sector. Although SBA is 
responsible for the general management and oversight of the SBDC 
Program, a partnership exists between SBA and the recipient organization 
for the delivery of assistance to the small business community.
    (b) Incorporation of amended references. All references in these 
regulations to OMB Circulars, other SBA regulations, Standard Operating 
Procedures, and other sources of SBA policy guidance incorporate all 
ensuing changes or amendments to such sources.



Sec. 130.110  Definitions.

    Applicant organization. An entity, described in Sec. 130.200(a), 
which applies to establish and operate an SBDC network.
    Application. The written submission by a new applicant organization 
or an existing recipient organization explaining its projected SBDC 
activities for the upcoming budget period and requesting SBA funding for 
use in its operations.
    Area of Service. The State or territory, or portion of a State or 
territory (when there is more than one SBDC in a State or territory), or 
the District of Columbia, in which an applicant organization proposes to 
provide services or in which a recipient organization provides services.
    Budget period. The 12-month period in which expenditure obligations 
are incurred by an SBDC network, coinciding with either the calendar 
year or the Federal fiscal year.
    Cash Match. Non-Federal funds allocated specifically to the 
operation of the SBDC network equalling no less than fifty percent of 
the Federal funds. Cash Match includes direct costs committed by the 
applicant or recipient organization and sponsoring SBDC organizations, 
to the extent that such costs are committed as part of the verified, 
specific, line item direct costs prior to funding. Cash Match does not 
include indirect costs, overhead costs or in-kind contributions.
    Cognizant Agency. The Federal agency, other than SBA, from which a 
recipient organization or sponsoring SBDC organization receives its 
largest grant or greatest amount of Federal funding, and from which it 
obtains an indirect cost rate for budgetary and funding purposes, 
applicable throughout the Federal government.
    Cooperative Agreement. The written contract between SBA and a 
recipient organization, describing the conditions under which SBA awards 
Federal funds and recipient organizations provide services to the small 
business community.
    Cosponsorship. A ``Cosponsorship'' as defined in and governed by 
Sec. 8(b)(1)(A) of the Act and SBA's Standard Operating Procedures.
    Counseling. Individual advice, guidance or instruction given to a 
small business person or entity.
    Direct costs: ``Direct costs'' as defined in Office of Management 
and Budget (OMB) Circulars A-21, A-87 and A-122. Recipient organizations 
must allocate at least 80 percent of the Federal funds provided through 
the Cooperative Agreement to the direct costs of program delivery.
    Dispute. Dispute means a program or financial disagreement which the 
recipient organization requests be handled with SBA in a formal manner.
    Grants and Cooperative Agreement Appeals Committee. The SBA 
committee, appointed by the SBA Administrator,

[[Page 303]]

which resolves appeals arising from financial Disputes between a 
recipient organization and SBA.
    Grants Management Specialist. An SBA employee designated by the AA/
SBDCs who is responsible for the financial review, award, and 
administration of one or more SBDC Cooperative Agreements.
    In-kind contributions. Property, facilities, services or other non-
monetary contributions from non-federal sources. See OMB Circular A-87, 
A-102, or A-110, as appropriate.
    Indirect costs. ``Indirect costs'' as defined in Office of 
Management and Budget (OMB) Circular A-21, A-87 or A-122.
    Lead Center. The entity which administers and operates the SBDC 
network.
    Lobbying. Lobbying as described in OMB Circulars A-21, A-87 and A-
122, and Pub. L. 101-121, section 319.
    Overmatched Amount. Non-Federal Contributions to SBDC project costs, 
including cash, in-kind contributions and indirect costs, in excess of 
the statutorily required amount.
    Program Announcement. SBA's annual publication of requirements which 
an applicant or recipient organization must address in its initial or 
renewal application.
    Program income. Income earned or received by the SBDC network from 
any SBDC supported activity as defined in Attachment D of OMB Circular 
A-110 and Attachment E of OMB Circular A-102.
    Program manager. An SBA employee responsible for overseeing the 
operations of one or more SBDCs.
    Project officer. An SBA employee who negotiates the annual 
Cooperative Agreement and monitors the ongoing operations of an SBDC.
    Project period. The period of time, usually in twelve (12) month 
increments, during which the SBDC network operates, beginning on the day 
of award and continuing over a number of budget periods.
    Recipient organization. The name given to an applicant organization 
after funding is approved and the applicant organization enters into a 
Cooperative Agreement. The recipient organization receives the Federal 
funds and is responsible for establishing the Lead Center.
    Recognized Organization. The organization whose members include a 
majority of SBDCs and which is recognized as an SBDC representative by 
SBA in accordance with Sec. 21(a)(3)(A) of the Small Business Act, 15 
U.S.C. 648(a)(3)(A).
    SBDC Director. The full-time senior manager designated by each 
recipient organization and approved by SBA.
    SBDC network. The Lead Center and SBDC service providers.
    SBDC service providers. SBDC network participants, including the 
Lead Center, subcenters (at times referred to as regional centers), 
satellite locations, and any other entity authorized by the recipient 
organization to perform SBDC services.
    Specialized Services. SBDC services other than Counseling and 
Training.
    Sponsoring SBDC organizations. Organizations or entities which 
establish one or more SBDC service providers as part of the SBDC network 
under a contract or agreement with the recipient organization.
    Training. The provision of advice, guidance and instruction to 
groups of prospective and existing small business persons and entities, 
whether by in-person group sessions or by such communication modes as 
teleconferences, videos, publications and electronic media.



Sec. 130.200  Eligible entities.

    (a) Recipient Organization. The following entities are eligible to 
operate an SBDC network:
    (1) A public or private institution of higher education;
    (2) A land-grant college or university;
    (3) A college or school of business, engineering, commerce or 
agriculture;
    (4) A community or junior college;
    (5) An entity formed by two or more of the above entities; or
    (6) Any entity which was operating as a recipient organization as of 
December 31, 1990.
    (b) SBDC Service Providers. SBDC service providers are not required 
to meet the eligibility requirements of a recipient organization.

[[Page 304]]

Sec. 130.300  Small Business Development Centers (SBDCs). [Reserved]



Sec. 130.310  Area of service.

    The AA/SBDC shall designate in writing the Area of Service of each 
recipient organization, consistent with the State plan. More than one 
recipient organization may be located in a State or Territory if the AA/
SBDC determines it is necessary or beneficial to implement the Program 
effectively and to provide services to all interested small businesses.



Sec. 130.320  Location of lead centers and SBDC service providers.

    (a) The recipient organization must locate its Lead Center and SBDC 
service providers so that services are readily accessible to small 
businesses in the Area of Service.
    (b) The locations of the Lead Center and the SBDC service providers 
will be reviewed by SBA as part of the application review process for 
each budget period.



Sec. 130.330  Operating requirements.

    (a) The Lead Center must be an independent entity within the 
recipient organization, having its own staff, including a full-time SBDC 
Director.
    (b) A Lead Center must provide administrative services and 
coordination for the SBDC network, including program development, 
program management, financial management, reports management, promotion 
and public relations, program assessment and evaluation, and internal 
quality control.
    (c) The Lead Center shall be open to the public throughout the year 
during the normal business hours of the recipient organization. 
Anticipated closures shall be included in the annual renewal 
application. Emergency closures shall be reported to the SBA Project 
Officer as soon as is feasible. Other SBDC service providers shall be 
open during the normal business hours of their sponsoring SBDC 
organizations.
    (d) The Lead Center and other SBDC service providers must have a 
conflict of interest policy applicable to their SBDC consultants, 
employees, instructors and volunteers.
    (e) The SBDC network shall comply with 13 CFR parts 112, 113 and 
117, which require that no person shall be excluded on the grounds of 
age, color, handicap, marital status, national origin, race, religion or 
sex from participation in, be denied that benefits of, or otherwise be 
subjected to discrimination under, any program or activity for which the 
recipient organization received Federal financial assistance from SBA.



Sec. 130.340  SBDC services and restrictions on service.

    (a) Services. The SBDC network must provide prospective and existing 
small business persons and entities with Counseling, Training and 
Specialized Services, concerning the formation, financing, management 
and operation of small business enterprises, reflecting local needs. The 
recipient organization shall primarily utilize institutions of higher 
education to provide services to the small business community. To the 
extent possible, SBDCs shall use other Federal, State, and local 
government programs that assist small business. Services periodically 
should be assessed and improved to keep pace with changing small 
business needs.
    (b) Access to Capital. (1) SBDCs are encouraged to provide 
counseling services that increase a small business concern's access to 
capital, such as business plan development, financial statement 
preparation and analysis, and cash flow preparation and analysis.
    (2) SBDCs should help prepare their clients to represent themselves 
to lending institutions. While SBDCs may attend meetings with lenders to 
assist clients in preparing financial packages, the SBDCs may not take a 
direct role in representing clients in loan negotiations.
    (3) SBDCs should inform their clients that financial packaging 
assistance does not guarantee receipt of a loan.
    (4) SBDCs may not make loans, service loans or make credit decisions 
regarding the award of loans.
    (5) With respect to SBA guaranty programs, SBDCs may assist clients 
to formulate a business plan, prepare financial statements, complete 
forms which are part of a loan application, and accompany an applicant 
appearing before SBA. Unless authorized by the SBA Administrator with 
respect to a

[[Page 305]]

specific program, an SBDC may not advocate, recommend approval or 
otherwise attempt in any manner to influence SBA to provide financial 
assistance to any of its clients. An SBDC cannot collect fees for 
helping a client to prepare an application for SBA financial assistance.
    (c) Special emphasis initiatives. From time to time, SBA may 
identify portions of the general population to be targeted for 
assistance by SBDCs. Support of SBA special emphasis initiatives will be 
negotiated each year as part of the application process and included in 
the Cooperative Agreement when appropriate.



Sec. 130.350  Specific program responsibilities.

    (a) Policy development. SBA will establish Program policies and 
procedures to improve the delivery of services by SBDCs to the small 
business community, and to enhance compliance with applicable laws, 
regulations, OMB Circulars and Executive Orders. In doing so, SBA should 
consult, to the extent practicable, with the Recognized Organization.
    (b) Responsibilities of SBDC Directors. The SBDC Director shall 
direct and monitor program activities and financial affairs of the SBDC 
network to deliver effective services to the small business community, 
comply with applicable laws, regulations, OMB Circulars and Executive 
Orders, and implement the Cooperative Agreement. The SBDC Director has 
authority to control expenditures under the Lead Center's budget. SBDC 
Directors may manage other programs in addition to the SBDC Program if 
the programs serve small businesses and do not duplicate the services 
provided by the SBDC network. However, SBDC Directors may not receive 
additional compensation for managing these programs. The SBDC Director 
shall serve as the principal contact point for all matters involving the 
SBDC network.



Sec. 130.360  SBDC advisory boards.

    (a) State/Regional Advisory Boards. (1) The Lead Center must 
establish an advisory board to advise, counsel, and confer with the SBDC 
Director on matters pertaining to the operation of the SBDC network.
    (2) The advisory board shall be referred to as a State SBDC Advisory 
Board in an Area of Service having only one recipient organization, and 
a Regional SBDC Advisory Board in an Area of Service having more than 
one recipient organization.
    (3) These advisory boards must include small business owners and 
other representatives from the entire Area of Service.
    (4) New Lead Centers must establish a State or Regional SBDC 
Advisory Board no later than the second budget period.
    (5) A State or Regional SBDC Advisory Board member may also be a 
member of the National SBDC Advisory Board.
    (6) The reasonable cost of travel of any Board member for official 
Board activities may be paid out of the SBDC's budgeted funds.
    (b) National SBDC Advisory Board. (1) SBA shall establish a National 
SBDC Advisory Board consisting of nine members who are not Federal 
employees, appointed by the SBA Administrator. The Board shall elect a 
Chair. Three members of the Board shall be from universities or their 
affiliates and six shall be from small businesses or associations 
representing small businesses. Board members shall serve staggered three 
year terms, with three Board members appointed each year. The SBA 
Administrator may appoint successors to fill unexpired terms.
    (2) The National SBDC Advisory Board shall advise and confer with 
SBA's AA/SBDCs on policy matters pertaining to the operation of the SBDC 
program. The Board shall meet with the AA/SBDCs at least semiannually.
Sec. 130.400  Application procedure. [Reserved]



Sec. 130.410  New applications.

    (a) If SBA declines to renew an existing recipient organization or 
the recipient organization declines to reapply, SBA may accept 
applications from other organizations interested in becoming a recipient 
organization. An eligible entity may apply by submitting

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an application to the SBA District Office in the Area of Service in 
which the applicant proposes to provide services.
    (b) An application for initial funding of a new SBDC network must 
include a letter by the Governor, or his or her designee, of the Area of 
Service in which the SBDC will operate, or other evidence, confirming 
that the applicant's designation as an SBDC would be consistent with the 
plan adopted by the State government and approved by SBA. No such 
requirement is imposed on subsequent applications from existing 
recipient organizations.
    (c) The application must set forth the eligible entity or entities 
proposing to operate the SBDC network; a list of the Lead Center and 
other SBDC service providers by name, address and telephone number; the 
geographic areas to be serviced; the resources to be used; the services 
that will be provided; the method for delivering the services, including 
a description of how and to what extent academic, private and public 
resources will be used; a budget; a listing of the proposed members of 
the State or Regional Advisory Board and other relevant information set 
forth in the Program Announcement.
    (d) SBA officials may request supplemental information or 
documentation to revise or complete an application.
    (e) Upon written recommendation for approval by the SBA District 
Director, the proposal shall be submitted to the AA/SBDCs for review.



Sec. 130.420  Renewal applications.

    (a) SBDCs shall comply with the requirements in the annual Program 
Announcement, including format and due dates, to receive consideration 
of their renewal applications. The SBA Project Officer, with the 
concurrence of the Program Manager, may grant an extension. The 
recipient organization shall submit the renewal application to the SBA 
office in the District in which the recipient organization is located. 
The annual Program Announcement will include a timetable for SBA review.
    (b) After review by the SBA Project Officer and written 
recommendation for approval by the District Director, the Program 
Manager and Grants Management Specialist shall review the renewal 
application for conformity with the Program Announcement, OMB Circulars 
and all other statutory, financial and regulatory requirements. SBA 
officials may request supplemental information and documentation prior 
to issuing the Cooperative Agreement.



Sec. 130.430  Application decisions.

    (a) The AA/SBDCs may approve, conditionally approve, or reject any 
application. In the event of a rejection, the AA/SBDCs shall communicate 
the reasons for rejection to the applicant and the appropriate SBA field 
office. If the approval is conditional, the conditions and applicable 
remedies shall be specified as special terms and conditions in the 
Cooperative Agreement. Upon approval or conditional approval, the Grants 
Management specialist may issue a Cooperative Agreement.
    (b) In considering the application, significant factors shall 
include:
    (1) The applicant's ability to contribute Matching Funds;
    (2) For renewal Proposals, the quality of prior performance;
    (3) The results of any examination conducted pursuant to 
Sec. 130.810(b) of these regulations; and
    (4) Any certification resulting from any certification program 
developed by the Recognized Organization.
    (c) In the event of a conditional approval, SBA may conditionally 
fund a recipient organization for one or more specified periods of time 
up to a maximum of one budget period. If the recipient organization 
fails to resolve the specified matters to the AA/SBDCs' satisfaction 
within the allotted time period, SBA has the right to discontinue 
funding the SBDC, subject to the provisions of Sec. 130.700.



Sec. 130.440  Maximum grant.

    No recipient shall receive an SBDC grant exceeding the greater of 
the minimum statutory amount, or its pro rata share of all SBDC grants 
as determined by the statutory formula set forth in section 21(a)(4) of 
the Act.



Sec. 130.450  Matching funds.

    (a) The recipient organization must provide total Matching Funds 
equal to the total amount of SBA funding. At least 50% of the Matching 
Funds must be Cash Match. The remaining 50%

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may be provided through any allowable combination of additional cash, 
in-kind contributions, or indirect costs.
    (b) All sources of Matching Funds must be identified as specifically 
as possible in the budget proposal. Cash sources shall be identified by 
name and account. All applicants must submit a Certification of Cash 
Match and Program Income executed by an authorized official of the 
recipient organization or any sponsoring SBDC organization providing 
Cash Match through a subcontract agreement. The account containing such 
cash must be under the direct management of the SBDC Director, or, if 
provided by a sponsoring SBDC organization, its subcenter Director. If a 
political entity is providing such cash and the funds have not been 
appropriated prior to issuance of the Cooperative Agreement, the 
recipient organization must certify that sufficient funds will be 
available from the political entity prior to the use of Federal dollars.
    (c) The Grants Management Specialist is responsible for determining 
whether Matching Funds or Cash Match meet the requirements of the Act 
and appropriate OMB circulars.
    (d) Overmatched Amounts. (1) SBDC are encouraged to furnish 
Overmatched Amounts.
    (2) An Overmatched Amount can be applied to additional Matching 
Funds requirements necessitated by any supplemental funding increase 
received by the SBDC during the budget period, as long as the total Cash 
Match provided by the SBDC is 50% or more of the total SBA funds 
provided during the budget period.
    (3) If used in the manner described in paragraph (d)(2) of this 
section, such Overmatched Amount is reclassified as committed Matching 
Funds.
    (4) Allowable Overmatched Amounts which have not been used in the 
manner described in paragraph (d)(2) of this section may, with the 
approval of the AA/SBDCs, be used as a credit to offset any confirmed 
audit disallowances applicable only to the budget period in which the 
Overmatched Amount exists and the two previous budget periods. Such 
offsetting funds shall be considered Matching Funds.
    (e) Impermissible sources of Matching Funds. Under no circumstances 
may the following be used as sources of the Matching Funds of the 
recipient organization:
    (1) Uncompensated student labor;
    (2) SCORE, ACE, or SBI volunteers;
    (3) Program income or fees collected from small businesses receiving 
assistance;
    (4) Funds or indirect or in-kind contributions from any other 
Federal source.



Sec. 130.460  Budget justification.

    The SBDC Director, as a part of the renewal application, or the 
applicant organization's authorized representative in the case of a new 
SBDC application, shall prepare and submit to the SBA Project Officer 
the budget justification for the upcoming budget period. The budget 
shall be reviewed annually upon submission of a renewal application.
    (a) Direct costs. Unless otherwise provided in applicable OMB 
circulars, at least eighty percent (80%) of SBA funding must be 
allocated to direct costs of Program delivery.
    (b) Indirect costs. If the applicant organization waives all 
indirect costs to meet the Matching Funds requirement, one hundred 
percent (100%) of SBA funding must be allocated to program delivery. If 
some, but not all, indirect costs are waived to meet the Matching Funds 
requirement, the lesser of the following may be allocated as indirect 
costs of the Program and charged against the Federal contribution:
    (1) Twenty percent (20%) of Federal contribution, or
    (2) The amount remaining after the waived portion of indirect costs 
is subtracted from the total indirect costs.
    (c) Separate SBDC service provider budgets.
    (1) The applicant organization shall include separate budgets for 
all subcontracted SBDC service providers in conformity with OMB 
requirements. Applicable direct cost categories and indirect cost base/
rate agreements shall be included for the Lead Center and all SBDC 
service providers, using a rate equal to or less than the negotiated 
predetermined rate. If no such rate exists, the sponsoring SBDC 
organization

[[Page 308]]

or SBDC service provider shall negotiate a rate with its Cognizant 
Agency. In the event the sponsoring SBDC organization or SBDC service 
provider does not have a Cognizant Agency, the rate shall be negotiated 
with the SBA Project Officer in accordance with OMB guidelines (see OMB 
Circular A-21).
    (2) The amount of cash, in-kind contributions and indirect costs for 
the Lead Center and all sub-contracted SBDC service providers shall be 
indicated in accordance with OMB requirements.
    (d) Cost principles. Principles for determining allowable costs are 
contained in OMB Circulars A-21 (cost principles for grants, contracts, 
and other agreements with educational institutions), A-87 (cost 
principles for programs administered by State and local governments), 
and A-122 (cost principles for nonprofit organizations).
    (e) Costs associated with lobbying. No portion of the Federal 
contribution received by an SBDC may be used for lobbying activities, 
either directly by the SBDC or indirectly through outside organizations, 
except those activities permitted by OMB. Restrictions on and reports of 
lobbying activities by the SBDC shall be in accordance with OMB 
requirements, Section 319 of Public Law No. 101-121, and the annual 
Program Announcement.
    (f) Salaries. (1) If a recipient organization is an educational 
institution, the salaries of the SBDC Director and the subcenter 
Directors must approximate the average annualized salary of a full 
professor and an assistant professor, respectively, in the school or 
department in which the SBDC is located. If a recipient organization is 
not an educational institution, the salaries of the SBDC Director and 
the subcenter Directors must approximate the average salaries of 
parallel positions within the recipient organization. In both cases, the 
recipient organization should consider the Director's longevity in the 
Program, the number of subcenters and the individual's experience and 
background.
    (2) Salaries for all other positions within the SBDC should be based 
upon level of responsibility, and be comparable to salaries for similar 
positions in the area served by the SBDC.
    (3) Recruitment and salary increases for SBDC Directors, subcenter 
Directors and staff members should conform to the administrative policy 
of the recipient organization.
    (g) Travel. All travel must be separately identified in the proposed 
budget as planned in-State, planned out-of-State, unplanned in-State or 
unplanned out-of-State. All proposed travel must use coach class, apply 
directly to specific work of the SBDC or be incurred in the normal 
course of Program administration, and conform to the written travel 
policies of the recipient organization or the sponsoring SBDC 
organization. (Per diem rates, including lodging, shall not exceed those 
authorized by the recipient organization.) Transportation costs must be 
justified in writing, including the estimated cost, number of persons 
traveling, and the benefit to be derived by the small business community 
from the proposed travel. A specific projected amount, based on the 
SBDC's past experience, where appropriate, must also be included in the 
budget for unplanned travel. A more detailed justification must be given 
for unplanned out-of-State travel. Any proposed unplanned out-of-State 
travel exceeding the approved budgeted amount for travel must be 
submitted to the Project Officer for approval on a case-by-case basis. 
Travel outside the United States must have prior approval by the AA/
SBDCs on a case-by-case basis.
    (h) Dues. Costs of memberships in business, technical, and 
professional organizations shall be allowable expenses. The use of 
Federal funds to pay dues for business, technical and professional 
organizations shall be permitted, provided that the payments are 
included in the budget proposal, are approved by the SBA and comply with 
Sec. 130.460(e).



Sec. 130.470  Fees.

    An SBDC may charge clients a reasonable fee to cover the costs of 
Training sponsored or cosponsored by the SBDC, costs of services 
provided by or obtained from third parties, or the costs of providing 
Specialized Services.

[[Page 309]]

Fees may not be imposed for Counseling.



Sec. 130.480  Program income.

    (a) Program income for recipient organizations or SBDC service 
providers based in universities or nonprofit organizations shall be 
subject to OMB requirements (see OMB Circular A-110). Program income for 
recipient organizations or SBDC service providers based in State or 
local governments shall be subject to OMB requirements (see the 
provisions of Sec. 7.e and Attachment E of OMB Circular A-102) and 13 
CFR 143.25.
    (b) Program income, including any interest earned on Program income, 
must be used to expand the quantity or quality of services, resources or 
outreach provided by the SBDC network. It cannot be used to satisfy the 
requirements for Matching Funds. The Project Officer shall monitor the 
use of Program income. Any unused Program income will be carried over to 
a subsequent budget period.
    (c) SBDCs must report in detail on standard SBA forms receipts and 
expenditures of program income, including any income received through 
cosponsored activities. A narrative description of how Program income 
was used to accomplish Program objectives shall be included.



Sec. 130.500  Funding.

    The SBA funds Cooperative Agreements through its internal Letter of 
Credit Replacement System (LORS), using SBA standard forms to establish 
and modify letters of credit. SBDCs must use SBA standard forms to draw 
down funds required to meet their estimated or actual expenses and to 
submit quarterly cash transactions reports used by SBA to monitor the 
frequency of drawdowns and the cash-on-hand balance. Repeated drawdowns 
in excess of immediate cash needs may result in the cancellation of the 
letter of credit. If interest results from the deposit of any drawdowns 
in an interest-bearing account, SBDCs, other than State government 
sponsored SBDCs, must report and return such interest annually to SBA.
Sec. 130.600  Cooperative agreement. [Reserved]



Sec. 130.610  General terms.

    Upon approval of the initial or renewal application, SBA will enter 
into a Cooperative Agreement with the recipient organization, setting 
forth the programmatic and fiscal responsibilities of the recipient 
organization and SBA, the scope of the project to be funded, and the 
budget of the program year covered by the Cooperative Agreement. 
Administrative requirements are contained in 13 CFR 143 and applicable 
OMB Circulars.



Sec. 130.620  Revisions and amendments to cooperative agreement.

    (a) Requests for revisions. The recipient organization may request 
at any time one or more revisions to the Cooperative Agreement on an 
appropriate SBA form signed by the recipient organization's authorized 
representative (including a revised budget and budget narrative, if 
applicable). Revisions will normally relate to changes in scope, work or 
funding during the specified budget year.
    (b) Revisions which require amendment to Cooperative Agreement. The 
Cooperative Agreement shall list the revisions which require Project 
Officer concurrence, review by the Program Manager and the Grants 
Management Specialist, approval of the AA/SBDCs and amendment of the 
Cooperative Agreement. No application for an amendment shall be 
effective until it is approved and incorporated into the Cooperative 
Agreement. Revisions which require amendments shall include:
    (1) any change in project scope or objectives;
    (2) the addition or deletion of any subgrants or contracts;
    (3) the addition of any new budget line items;
    (4) Budget revisions and fund reallocations exceeding the limit 
established by applicable administrative regulations or OMB Circulars, 
either individually or in the aggregate (see paragraphs (c)(1) and 
(c)(2) of this section);

[[Page 310]]

    (5) any proposed sole-source or one-bid contracts exceeding the 
limits established by applicable regulations or OMB Circulars; and
    (6) the carryover from one budget period to the next budget period 
of unobligated, unexpended SBA funds allocable under the Cooperative 
Agreement to nonrecurring, nonseverable bona fide needs of the SBDC 
network as provided in applicable OMB Circulars and the annual Program 
Announcement.
    (c) Revisions which do not require amendments to the Cooperative 
Agreement. (1) Budget revisions. Any budget revision, except those which 
are covered by paragraph (b)(4) of this section. Budget revisions 
require approval of the SBA Project Officer and the AA/SBDCs as 
prescribed by applicable OMB Circulars or 13 CFR 143.30.
    (2) Reallocation of funds. Reallocation of funds must be conducted 
in accordance with applicable OMB Circulars or 13 CFR 143.30. Additional 
guidance on this matter may be included in the annual Program 
Announcement.



Sec. 130.630  Dispute resolution procedures.

    (a) Financial Disputes. (1) A recipient organization wishing to 
resolve a financial Dispute formally must submit a written statement 
describing the subject of the Dispute, together with any relevant 
documents or other evidence bearing on the Dispute, to the Grants 
Management Specialist, with copies to the Project Officer. The Grants 
Management Specialist shall respond in writing to the recipient 
organization within 30 calendar days of receipt of the descriptive 
statement.
    (2) If the recipient organization receives an unfavorable decision 
from the Grants Management Specialist, it may file an appeal with the 
AA/SBDCs within 30 calendar days of issuance of the unfavorable 
decision. The AA/SBDCs shall respond in writing to the recipient 
organization within 15 calendar days of receipt of the appeal.
    (3) If the recipient organization receives an unfavorable decision 
from the AA/SBDCs, it may make a final appeal to the SBA Grants and 
Cooperative Agreements Appeals Committee (the ``Committee'') within 30 
calendar days of the date of issuance of the AA/SBDCs' written decision. 
Copies of the appeal shall also be sent to the Grants Management 
Specialist and the Project Officer.
    (4) Appeals must be in writing. Formal briefs and other technical 
forms of pleading are not required. Requests for a hearing will not be 
granted unless there are material facts substantially in dispute. 
Appeals must contain at least the following:
    (i) Name and address of the recipient organization;
    (ii) The SBA field office;
    (iii) The Cooperative Agreement;
    (iv) A statement of the grounds for appeal, with reasons why the 
appeal should be sustained;
    (v) The specific relief desired on appeal; and
    (vi) If a hearing is requested, a statement of the material facts 
which are substantially in dispute.
    (5) The AA/SBDCs or the Committee may request from the SBDC or the 
District Office additional information or documentation at any stage in 
the proceedings.
    (6) If a request for a hearing is granted, the Committee will 
provide the recipient organization with written instructions, and will 
afford the parties an opportunity to present their positions to the 
Committee.
    (7) The Committee will reach a decision on the merits of the appeal 
within 30 days of the hearing date.
    (8) The Chairperson, with advice from the Office of General Counsel, 
shall prepare and transmit a written final decision to the recipient 
organization with copies to the Grants Management Specialist and the 
Project Officer.
    (9) Expedited Dispute appeal process. By an affirmative vote 
constituting a majority of its total membership, the Committee may 
shorten response times to attain final resolution of a Dispute before 
the issuance date of a new Cooperative Agreement. At any time within 120 
days of the end of the budget period, the recipient organization may 
submit a written request to use an expedited process. If a Dispute 
affects refunding, the Committee must meet to consider the matter prior 
to the end of the budget period, provided that the recipient 
organization has supplied the

[[Page 311]]

Committee with all requested documentation.
    (b) Programmatic (non-financial) Disputes. (1) If a programmatic 
Dispute is not resolved at the SBA District Office level, the recipient 
organization may request its submission to the next SBA administrative 
level having authority to review such matter. The Project Officer shall 
refer the Dispute in writing, including comments of the SBDC Director, 
within 15 calendar days of receipt of the request.
    (2) If the programmatic Dispute is not resolved at an intermediate 
SBA administrative level within 15 calendar days of receipt thereof, it 
shall be forwarded, in writing, to the AA/SBDCs for final resolution. 
All comments of the SBDC Director must be included in any package 
forwarded to the AA/SBDCs.
    (3) The AA/SBDCs shall transmit a final, written decision to the 
recipient organization, the SBDC Director, the SBA Project Officer and 
other appropriate SBA field office personnel within 30 calendar days of 
receipt of such documentation, unless an extension of time is mutually 
agreed upon by the recipient organization and the AA/SBDCs.



Sec. 130.700  Suspension, termination and non-renewal.

    (a) General. After SBA has entered into a Cooperative Agreement with 
a recipient organization, it shall not suspend, terminate or fail to 
renew the agreement unless SBA gives the recipient organization written 
notice setting forth the reasons and affording the recipient 
organization an opportunity for a hearing. Subject to this requirement 
and the provisions of Sec. 130.700(c) regarding non-renewal procedures 
for non-performance, the applicable general procedures for suspension 
and termination are contained in 13 CFR 143.43 and 143.44, and in OMB 
Circular A-110, Attachment L.
    (b) Causes. Causes which may lead to suspension, termination, or 
failure to renew include non-performance, poor performance, 
unwillingness to implement changes to improve performance, or any of the 
following reasons:
    (1) Disregard or material violation of these regulations;
    (2) A willful or material failure to perform under the Cooperative 
Agreement or under these regulations;
    (3) Conduct reflecting a lack of business integrity or honesty;
    (4) A conflict of interest causing real or perceived detriment to a 
small business concern, a contractor, the SBDC or SBA;
    (5) Improper use of Federal funds;
    (6) Failure of a Lead Center or its subcenters to consent to audits 
or examination or to maintain required documents or records;
    (7) Failure of the SBDC Director to work at the SBDC Lead Center on 
a full-time basis;
    (8) Failure promptly to suspend or terminate the employment of an 
SBDC Director, subcenter Director or other key employee upon receipt of 
knowledge by the recipient organization and/or SBA that such individual 
is engaging in or has engaged in conduct resulting in a criminal 
conviction or civil judgment which would cause the public to question 
the SBDC's business integrity, taking into consideration such factors as 
the magnitude, repetitiveness, harm caused and remoteness in time of the 
activity or activities underlying the conviction or judgment.
    (9) Violation of the SBDC's standards of conduct as specified in 
these rules and as established by the SBDC pursuant to these rules; or
    (10) Any other cause not otherwise specified which materially and 
adversely affects the operation or integrity of an SBDC or the SBDC 
program.
    (c) Non-Renewal Procedure. (1) Subject to Sec. 130.700(a), when an 
SBA District Director believes there is sufficient evidence of SBDC 
nonperformance, poor performance or unwillingness to implement changes 
to improve performance, under the terms of the Cooperative Agreement or 
these regulations, the District Director shall notify the SBDC Director 
and any other appropriate official of the recipient organization of an 
intention not to approve its renewal application.
    (2) Notice can be submitted at any time during the budget period, 
but normally should be sent no later than 3 months prior to the due date 
for renewal applications at the District Office.

[[Page 312]]

    (3) The notice shall specifically cite the reasons for the intention 
not to renew. It must allow the recipient organization 60 days within 
which to change its operations to correct the problems cited in the 
notice, and to report to the Project Officer, in writing, regarding the 
results of such changes.
    (4) If the recipient organization is unwilling or unable to address 
the specific problem areas to the satisfaction of the SBA District 
Office within the 60-day period, the SBA Project Officer shall have ten 
(10) calendar days after expiration of the 60 days to submit to the AA/
SBDCs a written description of the unresolved issues, a summary of the 
positions of the District Office on the issues, and any supportive 
documentation.
    (5) The AA/SBDCs shall transmit a written, final decision to the 
recipient organization, the SBDC Director, the SBA Project Officer and 
other appropriate SBA field office personnel within 30 calendar days of 
receipt of such documentation, unless an extension of time is mutually 
agreed upon by the recipient organization and the AA/SBDCs.
    (6) The AA/SBDCs shall consider written documentation of the issues 
to be resolved, including all relevant correspondence between the 
Project Officer, District Director and any other SBA personnel and the 
affected recipient organization. At a minimum, such documentation shall 
commence with the first written notice of issues invoking the non-
renewal procedure. In addition, the AA/SBDCs also may communicate with 
the recipient organization and appropriate SBA personnel.
    (7) If the AA/SBDCs determines that the evidence submitted 
establishes nonperformance, ineffective performance or an unwillingness 
to implement suggested changes to improve performance, the AA/SBDCs 
shall have full discretion to order non-renewal of the SBDC. The SBA 
District Office shall then pursue proposals from other organizations 
interested in applying for SBDC designation. The incumbent SBDC shall 
have until the end of the budget period or 120 days, whichever is 
longer, to conclude operations and to submit close-out documents to the 
SBA District Office. Close-out procedures shall conform with applicable 
OMB Circulars.
    (d) Effect of action on subcenter. If competing applications are 
being accepted, a subcenter of the previously funded recipient 
organization may apply for designation as the recipient organization, so 
long as the subcenter was not involved in the conduct leading to non-
renewal or termination of the former recipient organization.



Sec. 130.800  Oversight of the SBDC program.

    SBA shall monitor and oversee the Cooperative Agreement and ongoing 
operations of the SBDC network to ensure the effective and efficient use 
of Federal funds for the benefit of the small business community.



Sec. 130.810  SBA review authority.

    (a) Site visits. The AA/SBDCs, or a representative, on notice to the 
SBDC Director, is authorized to make programmatic and financial review 
visits to SBDC service providers to inspect records and client files, 
and to analyze and assess SBDC activities.
    (b) SBA examinations. SBA examiners shall perform a biannual 
programmatic and financial examination of each SBDC.
    (c) Certification program. SBA may provide financial support to the 
Recognized Organization to develop and implement an SBDC certification 
program.
    (d) Audits. The examinations by SBA examiners shall not substitute 
for audits required of Federal grantees under the Single Audit Act of 
1984 or applicable OMB guidelines (see Circulars A-110, A-128 and A-
133), nor shall such internal review substitute for audits to be 
conducted by the SBA Office of Inspector General under authority of the 
Inspector General Act of 1978, as amended (see Sec. 130.830(b)).



Sec. 130.820  Reports and recordkeeping.

    (a) Records. The recipient organization shall maintain the records 
required for a Lead Center audit and SBA reports. Lead Centers and other 
SBDC service providers shall maintain detailed, complete and accurate 
client activity files, specifying counseling, training and other 
assistance provided.

[[Page 313]]

    (b) Reports. The recipient organization shall submit client service 
evaluations and performance and financial reports for SBA review to 
determine the quality of services provided by the SBDC, the completeness 
and accuracy of SBDC records, and actual SBDC network accomplishments 
compared to performance objectives.
    (c) Performance reports. For recipient organizations in the Program 
for more than three years, interim reports shall be due 30 days after 
completion of six months of operation each year; for those recipient 
organizations in the Program three years or less, reports shall be due 
30 days after completion of each of the first three quarters. The annual 
report shall include the second semiannual or the fourth quarter report 
and shall be due December 30 for fiscal year and March 30 for calendar 
year SBDCs. These reports shall reflect accurately the activities, 
accomplishments and deficiencies of the SBDC network.
    (d) Financial reports. The recipient organization shall provide 
three quarterly and one annual financial report to the SBA Project 
Officer as set forth in the Program Announcement and the Cooperative 
Agreement, in compliance with OMB Circulars.
    (e) Availability of records. As required by OMB (see Circular A-
133), all SBDC service provider records shall be made available to SBA 
for review upon request.



Sec. 130.830  Audits and investigations.

    (a) Access to records. Applicable OMB Circulars set forth the 
requirements concerning record access and retention.
    (b) Audits. (1) Pre-award audit. Applicant organizations that 
propose to enter the Program for the first time may be subject to a pre-
award audit conducted by or coordinated with the SBA Office of Inspector 
General. The purpose of a pre-award audit is to verify the adequacy of 
the accounting system, the suitability of posed costs and the nature and 
source of proposed Matching Funds.
    (2) Interim or final audits. The recipient organization or SBA may 
conduct SBDC network audits. All audits will be conducted according to 
Government Auditing Standards, promulgated by the Comptroller General of 
the United States.
    (i) The recipient organization will conduct its audits as a single 
audit of a recipient organization pursuant to OMB Circulars A-102, A-
110, A-128, and A-133, as applicable.
    (ii) The SBA Office of Inspector General or its agents will conduct, 
supervise, or coordinate SBA's audits, which may, at SBA's discretion, 
be audits of the SBDC network, even though single audits may have been 
performed. In such instances, SBA will conduct such audits in compliance 
with Government Auditing Standards and all applicable OMB Circulars.
    (c) Investigations. SBA may conduct investigations as it deems 
necessary to determine whether any person or entity has engaged in acts 
or practices constituting a violation of the Act, any rule, regulation 
or order issued under that Act, or any other applicable Federal law.



PART 134--RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF HEARINGS AND APPEALS--Table of Contents




                        Subpart A--General Rules

Sec.
134.101  Definitions.
134.102  Jurisdiction of OHA.
134.103  Rules applicable to time periods provided in this part.

               Subpart B--Rules of Practice for Most Cases

134.201  Scope of the rules in this subpart B.
134.202  Commencement of cases.
134.203  The petition.
134.204  Service and filing requirements.
134.205  Motion for a more definite statement.
134.206  The answer.
134.207  Amendments and supplemental pleadings.
134.208  Representation in cases before OHA.
134.209  Requirement of signature.
134.210  Intervention.
134.211  Motions.
134.212  Summary decision.
134.213  Discovery.
134.214  Subpoenas.
134.215  Interlocutory appeals.
134.216  Alternative dispute resolution procedures.
134.217  Settlement.
134.218  Judges.

[[Page 314]]

134.219  Sanctions.
134.220  Prohibition against ex parte communications.
134.221  Prehearing conferences.
134.222  Oral hearing.
134.223  Evidence.
134.224  Standards for decision.
134.225  The record.
134.226  The decision.
134.227  Finality of decisions.
134.228  Review of initial decisions.
134.229  Termination of jurisdiction.

 Subpart C--Rules of Practice for Appeals From Size Determinations and 
                          SIC Code Designations

134.301  Scope of the rules in this subpart C.
134.302  Who may appeal.
134.303  No absolute right to an appeal from a size determination.
134.304  Commencement of appeals from size determinations and SIC code 
          designations.
134.305  The appeal petition.
134.306  Transmission of the case file.
134.307  Service and filing requirements.
134.308  Limitation on new evidence and adverse inference from non-
          submission in appeals from size determinations.
134.309  Response to an appeal petition.
134.310  Discovery.
134.311  Oral hearings.
134.312  Evidence.
134.313  Applicability of subpart B provisions.
134.314  Standard of review.
134.315  The record.
134.316  The decision.
134.317  Termination of jurisdiction.
134.318  Return of the case file.

      Subpart D--Implementation of the Equal Access to Justice Act

134.401  What is the purpose of this subpart?
134.402  Under what circumstances may I apply for reimbursement?
134.403  What is an adversary adjudication?
134.404  What benefits may I claim?
134.405  Under what circumstances are fees and expenses reimbursable?
134.406  Who is eligible for possible reimbursement?
134.407  How do I know which eligibility requirement applies to me?
134.408  What are the special rules for calculating net worth and number 
          of employees?
134.409  What is the difference between a fee and an expense?
134.410  Are there limitations on reimbursement for fees and expenses?
134.411  What should I include in my application for an award?
134.412  What must a net worth exhibit contain?
134.413  What documentation do I need for fees and expenses?
134.414  What deadlines apply to my application for an award and where 
          do I send it?
134.415  How will proceedings relating to my application for fees and 
          expenses be conducted?
134.416  How will I know if I receive an award?
134.417  May I seek review of the ALJ's decision on my award?
134.418  How are awards paid?

    Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), and 637(a).

    Source: 61 FR 2683, Jan. 29, 1996, unless otherwise noted.



                        Subpart A--General Rules



Sec. 134.101  Definitions.

    As used in this part:
    AA/OHA means the Assistant Administrator for OHA.
    Act means the Small Business Act, 15 U.S.C. 631 et seq.
    Address means the primary home or business address of a person or 
entity, including the street location or postal box number, city or 
town, state, and postal zip code.
    Area Office means a Government Contracting Area Office or a Disaster 
Area Office of the Small Business Administration.
    Day means a calendar day, unless a Judge specifies otherwise.
    Hearing means the presentation and consideration of argument and 
evidence. A hearing need not include live testimony or argument.
    Investment Act means the Small Business Investment Act of 1958, 15 
U.S.C. 661 et seq.
    Judge means an Administrative Law Judge or an Administrative Judge 
of OHA, or the AA/OHA when he or she acts as an Administrative Judge.
    OHA means the Office of Hearings and Appeals.
    Party means the petitioner, respondent, or intervenor.
    Person means an individual or any form of business entity.
    Petition means a written complaint, a written appeal from an SBA 
determination, or a written request for the initiation of proceedings 
before OHA.
    Pleading means a petition, an order to show cause commencing a case, 
an appeal petition, an answer, or any

[[Page 315]]

amendment or supplement to those documents.
    Respondent means any person or governmental agency against which a 
case has been brought before OHA.
    SBA means the Small Business Administration.
    SIC code means Standard Industrial Classification code.
    Size determination means a formal size determination made by an Area 
Office.



Sec. 134.102  Jurisdiction of OHA.

    OHA has authority to conduct proceedings in the following cases:
    (a) The revocation or suspension of Small Business Investment 
Company licenses, cease and desist orders, and the removal or suspension 
of directors and officers of licensees, under the Investment Act and 
part 107 of this chapter;
    (b) Alleged violations of those civil rights laws which are 
effectuated by parts 112, 113, 117, and 136 of this chapter;
    (c) The revocation of the privilege of a person to conduct business 
with SBA under the Act and part 103 of this chapter;
    (d) The eligibility of, or preferred or certified status of, any 
bank or non-bank lender to continue to participate in SBA loan programs 
under the Act and part 120 of this chapter;
    (e) The suspension or termination of surety bond program 
participants under 15 U.S.C. 694a et seq. and part 115 of this chapter;
    (f) The rights, privileges, or obligations of development companies 
under section 504 of the Investment Act and part 120, subpart H, of this 
chapter;
    (g) Allowance of fees and expenses under the Equal Access to Justice 
Act, 5 U.S.C. 504;
    (h) Debarment from appearance before the SBA because of post-
employment restrictions under 18 U.S.C. 207 and part 105 of this 
chapter;
    (i) Collection of debts owed to SBA and the United States under the 
Debt Collection Act of 1982 and part 140 of this chapter;
    (j) Appeals from the following SBA 8(a) program determinations under 
the Act and part 124 of this chapter:
    (1) Denial of program admission based solely on a negative finding 
as to social disadvantage, economic disadvantage, ownership or control; 
program termination; program graduation; or denial of a waiver of the 
requirement to perform to completion an 8(a) contract; and
    (2) Program suspension;
    (k) Appeals from size determinations and SIC code designations under 
part 121 of this chapter;
    (l) The imposition of civil penalties and assessments against 
persons who make false claims or statements to SBA under the Program 
Fraud Civil Remedies Act, 31 U.S.C. 3801-3812 and part 142 of this 
chapter; and
    (m) Any other hearing, determination, or appeal proceeding referred 
to OHA by the Administrator of SBA.



Sec. 134.103  Rules applicable to time periods provided in this part.

    (a) The day from which the time period is computed is excluded, but 
the last business day is counted, excluding Saturday, Sunday, or Federal 
holiday.
    (b) At the Judge's initiative, or upon the motion of a party showing 
good cause, the Judge may modify any of the applicable time limits, 
other than those established by statute and those governing when a case 
may be commenced. Any motion to extend a time limit must be filed and 
served before the expiration of that time limit.



               Subpart B--Rules of Practice for Most Cases



Sec. 134.201  Scope of the rules in this subpart B.

    The rules in this subpart generally apply to all proceedings over 
which OHA has jurisdiction, except for appeals from size determinations 
and SIC code designations. Specific procedural rules pertaining to 8(a) 
program appeals and to proceedings under the Program Fraud Civil 
Remedies Act are set forth, respectively, in parts 124 and 142 of this 
chapter. In the case of a conflict between a particular rule in this 
part, and a rule of procedure pertaining to OHA appearing in another 
part of this chapter, the latter rule shall govern.

[[Page 316]]



Sec. 134.202  Commencement of cases.

    A case may be commenced by filing a written petition within the 
following time periods:
    (a) Except as provided by paragraphs (b) through (d) of this 
section, no later than 45 days from the date of service of the SBA 
action or determination to which the petition relates;
    (b) In debt collection proceedings under part 140 of this chapter, 
no later than 15 days after receipt of a notice of indebtedness and 
intention to collect such debt by salary or administrative offset;
    (c) In applications for an award of fees pursuant to subpart D of 
this part, no later than 30 days after the decision to which it applies 
becomes final;
    (d) For 8(a) program suspension proceedings, see Sec. 124.211 of 
this chapter.



Sec. 134.203  The petition.

    (a) A petition must contain the following:
    (1) The basis of OHA's jurisdiction;
    (2) A clear and concise statement of the factual basis of the case;
    (3) The relief being sought; and
    (4) The name, address, telephone number, and signature of the 
petitioner or its attorney.
    (b) A petition which does not contain all of the information 
required by paragraph (a) of this section may be dismissed, with or 
without prejudice, at the Judge's own initiative, or upon motion of the 
respondent.



Sec. 134.204  Service and filing requirements.

    (a) Service. Each party is responsible for the service of its 
pleadings and other submissions upon all other parties or their 
attorneys. Unless otherwise ordered by the Judge, service is made by 
providing each party, or its attorney, with a copy of the pleading or 
other submission by personal delivery, first- class mail, express mail, 
facsimile transmission, or commercial delivery service. Service by mail 
must be directed as follows:
    (1) To a party's last-known residence or business address if it has 
not yet appeared in the case, or to the address of a party which has 
appeared as shown in its submission;
    (2) If a party has appeared in the case through an attorney, to the 
address of the attorney shown in the party's submission or in a notice 
of appearance;
    (3) If SBA is the party, unless an attorney has been specified in 
SBA's submissions to OHA, by mailing to: Office of General Counsel, 
Small Business Administration, 409 Third Street, SW., Washington, DC 
20416.
    (b) Filing. (1) All pleadings and other submissions must be filed 
with OHA by personal delivery, first-class mail, express mail, facsimile 
transmission, or commercial delivery service. Filing may only be 
accomplished at the following address: Office of Hearings and Appeals, 
Small Business Administration, 409 Third Street, SW., Washington, DC 
20416.
    (2) If filing is by personal delivery or commercial delivery 
service, such filing must be accomplished between the hours of 8:30 a.m. 
and 5:00 p.m. If filing is by facsimile transmission, the telephone 
number to be used may be obtained by calling OHA.
    (c) Copies. Only the original of a pleading or other submission must 
be filed with OHA. In the case of a document offered as evidence, an 
authenticated copy may be filed instead of the original.
    (d) Certificate of service. A signed certificate stating how and 
when service was made on all parties must be attached to each pleading 
or other submission filed with OHA.
    (e) Date. Unless otherwise specified by the Judge, the date of 
service or filing is as follows:
    (1) If by facsimile transmission, the date of transmission.
    (2) If by first-class mail, the date of postmark. Where the postmark 
is illegible or incomplete, there is a rebuttable presumption that the 
postmark was dated five days prior to the date of receipt.
    (3) If by personal delivery, express mail, or commercial delivery 
service, the date of receipt.
    (f) Confidential information. Any information in pleadings or other 
submissions that is believed by the submitting party to constitute 
proprietary or confidential information need not be

[[Page 317]]

served upon parties so long as the deletions are clearly identified and 
generally described in the documents which are served. Upon motion, the 
Judge may direct that the withheld information be provided to other 
parties, subject to any appropriate protective order.



Sec. 134.205  Motion for a more definite statement.

    (a) Procedure. No later than 20 days after service of the petition 
or order to show cause, the respondent may serve and file a motion 
requesting a more definite statement of particular allegations in the 
petition.
    (b) Stay. The serving and filing of a motion for a more definite 
statement stays the time for serving and filing an answer. The Judge 
will establish the time for serving and filing an answer.



Sec. 134.206  The answer.

    (a) A respondent must serve and file an answer within 45 days after 
the service of a petition or order to show cause, except that debt 
collection proceeding answers are due within 30 days.
    (b) The answer must contain the following:
    (1) An admission or denial of each of the factual allegations 
contained in the petition or order to show cause, or a statement that 
the respondent denies knowledge or information sufficient to determine 
the truth of a particular allegation;
    (2) Any affirmative defenses; and
    (3) The name, address, telephone number, and signature of the 
respondent or its attorney.
    (c) Allegations in the petition or order to show cause which are not 
answered in accordance with paragraph (b)(1) of this section will be 
deemed admitted unless injustice would occur.
    (d) Upon an appeal from an SBA determination concerning the 8(a) 
program, SBA must serve and file the administrative record pertaining to 
that determination within the same time period applicable to the service 
and filing of its answer. If SBA fails to do so, the Judge will issue an 
order directing SBA to serve and file the administrative record by a 
specified date.
    (e) If the respondent fails to serve and file an answer within the 
time period set forth in paragraph (a) of this section, or within any 
extended time period granted by the Judge, that failure will constitute 
a default. Following such a default, the respondent may be prohibited 
from participating further in the case, except to serve and file the 
administrative record in accordance with paragraph (d) of this section.



Sec. 134.207  Amendments and supplemental pleadings.

    (a) Amendments. Upon motion, and under terms needed to avoid 
prejudice to any non-moving party, the Judge may permit the service and 
filing of amendments to pleadings. However, an amendment will not be 
permitted if it would cause unreasonable delay in the determination of 
the matter.
    (b) Supplements. Upon motion, and under terms needed to avoid 
prejudice to any non-moving party, the Judge may permit the service and 
filing of a supplemental pleading setting forth relevant transactions or 
occurrences that have taken place since the filing of the original 
pleading.
    (c) 8(a) appeals. In 8(a) program appeals, amendments to pleadings 
and supplemental pleadings will be permitted by the Judge only upon a 
showing of good cause.
    (d) Answer. In an order permitting the serving and filing of an 
amended or supplemented petition or order to show cause, the Judge will 
establish the time for serving and filing an answer.



Sec. 134.208  Representation in cases before OHA.

    (a) A party may represent itself, or be represented by a duly 
licensed attorney. A member of a partnership may represent the 
partnership, and an officer may represent a corporation, trust, or 
association.
    (b) An attorney for a party who did not appear on behalf of that 
party in the party's first filing with OHA must serve and file a written 
notice of appearance.
    (c) An attorney seeking to withdraw from a case must serve and file 
a motion for the withdrawal of his or her appearance.

[[Page 318]]



Sec. 134.209  Requirement of signature.

    Every written submission to OHA, other than evidence, must be signed 
by the party filing that submission, or by the party's attorney. By 
signing the submission, a party or its attorney attests that the 
statements and allegations in that submission are true to the best of 
its knowledge, and that the submission is not being filed for the 
purpose of delay or harassment.



Sec. 134.210  Intervention.

    (a) By SBA. SBA may intervene as of right at any time in any case 
until final decision.
    (b) By interested persons. Any individual, partnership, association, 
corporation, trust, or governmental agency may move to intervene at any 
time until final decision by serving and filing a motion to intervene 
containing a statement of the movant's interest in the case and the 
necessity for intervention to protect such interest. The Judge may grant 
leave to intervene upon such terms as he or she deems appropriate.



Sec. 134.211  Motions.

    (a) Contents. All motions must state the relief being requested, as 
well as the grounds and any authority for that relief.
    (b) Response. No later than 20 days after the service of a motion, 
all non-moving parties must serve and file a response or be deemed to 
have consented to the relief sought. Unless the Judge directs otherwise, 
the moving party will have no right to reply to a response, nor will 
oral argument be heard on the motion.
    (c) Service of orders. OHA will serve upon all parties any written 
order issued in response to a motion.



Sec. 134.212  Summary decision.

    (a) Grounds. A party may move for summary decision at any time as to 
all or any portion of the case, on the grounds that there is no genuine 
issue as to any material fact, and that the moving party is entitled to 
a decision in its favor as a matter of law.
    (b) Contents of motion. The motion must include a statement of the 
material facts believed not to be disputed, and relevant law. Supporting 
affidavits may also be included.
    (c) Cross-motions. In its response to a motion for summary decision, 
a party may cross-move for summary decision. The initial moving party 
may serve and file a response to any cross-motion for summary decision 
within 20 days after the service of that cross-motion.
    (d) Stay. A motion for summary decision stays the time to answer. 
The Judge will establish the time for serving and filing an answer in 
the order determining the motion for summary decision.



Sec. 134.213  Discovery.

    (a) Motion. A party may obtain discovery only upon motion, and for 
good cause shown. For 8(a) program appeals other than those involving 
suspensions, see Sec. 124.210 of this chapter.
    (b) Forms. The forms of discovery which a Judge can order under 
paragraph (a) of this section include requests for admissions, requests 
for production of documents, interrogatories, and depositions.
    (c) Limitations. Discovery may be limited in accordance with the 
terms of a protective order. Further, privileged information and 
irrelevant issues or facts will not be subject to discovery.
    (d) Disputes. If a dispute should arise between the parties over a 
particular discovery request, the party seeking discovery may serve and 
file a motion to compel discovery. Discovery may be opposed on the 
grounds of harassment, needless embarrassment, irrelevance, undue burden 
or expense, privilege, or confidentiality.



Sec. 134.214  Subpoenas.

    (a) Availability. At the request of a party, or upon his or her own 
initiative, a Judge may issue a subpoena requiring a witness to appear 
and testify, or to produce particular documents, at a specified time and 
place.
    (b) Requests. A request for the issuance of a subpoena must be 
written, served upon all parties, and filed. The request must clearly 
identify the witness and any documents to be subpoenaed, and must set 
forth the relevance of the testimony or documents sought.

[[Page 319]]

    (c) Service. A subpoena may only be served by personal delivery. The 
individual making service shall prepare an affidavit stating the date, 
time, and place of the service. The party which obtained the subpoena 
must serve upon all other parties, and file with OHA, a copy of the 
subpoena and affidavit of service within 2 days after service is made.
    (d) Motion to quash. A motion to limit or quash a subpoena must be 
served and filed within 10 days after service of the subpoena, or by the 
return date of the subpoena, whichever date comes first. Any response to 
the motion must be served and filed within 10 days after service of the 
motion, unless a shorter time is specified by the Judge. No oral 
argument will be heard on the motion unless the Judge directs otherwise.



Sec. 134.215  Interlocutory appeals.

    (a) General. A motion for leave to take an interlocutory appeal from 
a Judge's ruling will not be entertained in those proceedings in which 
OHA issues final decisions. In all other cases, an interlocutory appeal 
will be permitted only if, upon motion by a party, or upon the Judge's 
own initiative, the Judge certifies that his or her ruling raises a 
question which is immediately appealable. Interlocutory appeals will be 
decided by the AA/OHA or a designee.
    (b) Motion for certification. A party must serve and file a motion 
for certification no later than 20 days after issuance of the ruling to 
which the motion applies. A denial of the motion does not preclude 
objections to the ruling in any subsequent request for review of an 
initial decision.
    (c) Basis for certification. The Judge will certify a ruling for 
interlocutory appeal only if he or she determines that:
    (1) The ruling involves an important question of law or policy about 
which there is substantial ground for a difference of opinion; and
    (2) An interlocutory appeal will materially expedite resolution of 
the case, or denial of an interlocutory appeal would cause undue 
hardship to a party.
    (d) Stay of proceedings. A stay while an interlocutory appeal is 
pending will be at the discretion of the Judge.



Sec. 134.216  Alternative dispute resolution procedures.

    At any time during the pendency of a case, the parties may submit a 
joint motion requesting that the Judge permit the use of alternative 
dispute resolution procedures to assist in resolving the matter. If the 
motion is granted, the Judge will also stay the proceedings before OHA, 
in whole or in part, as he or she deems appropriate, pending the outcome 
of the alternative dispute resolution procedures.



Sec. 134.217  Settlement.

    At any time during the pendency of a case, the parties may submit a 
settlement agreement, signed by all settling parties, to the Judge. 
Settlement negotiations, and rejected settlement agreements, are not 
admissible into evidence.



Sec. 134.218  Judges.

    (a) Assignment. The AA/OHA will assign all cases subject to the 
Administrative Procedure Act, 5 U.S.C. 551 et seq., to an Administrative 
Law Judge. The AA/OHA will assign all other cases before OHA to either 
an Administrative Law Judge or an Administrative Judge, or, if the AA/
OHA is a duly licensed attorney, to himself or herself.
    (b) Authority. Except as otherwise limited by this part, or by 
statute or other regulation, a Judge has the authority to take all 
appropriate action to ensure the efficient, prompt, and fair 
determination of a case, including, but not limited to, the authority to 
administer oaths and affirmations and to subpoena and examine witnesses.
    (c) Recusal. Upon the motion of a party, or upon the Judge's own 
initiative, a Judge will promptly recuse himself or herself from further 
participation in a case whenever disqualification is appropriate due to 
conflict of interest, bias, or some other significant reason. A denial 
of a motion for recusal may be immediately appealed to the AA/OHA, or to 
the Administrative Law Judge if the AA/OHA is the Judge, but that appeal 
will not stay proceedings in the case.



Sec. 134.219  Sanctions.

    A Judge may impose appropriate sanctions, except for fees, costs, or

[[Page 320]]

monetary penalties, which he or she deems necessary to serve the ends of 
justice, if a party or its attorney:
    (a) Fails to comply with an order of the Judge;
    (b) Fails to comply with the rules set forth in this part;
    (c) Acts in bad faith or for purposes of delay or harassment;
    (d) Submits false statements knowingly, recklessly, or with 
deliberate disregard for the truth; or
    (e) Otherwise acts in an unethical or disruptive manner.



Sec. 134.220  Prohibition against ex parte communications.

    No person shall consult or communicate with a Judge concerning any 
fact, question of law, or SBA policy relevant to the merits of a case 
before that Judge except on prior notice to all parties, and with the 
opportunity for all parties to participate. In the event of such 
prohibited consultation or communication, the Judge will disclose the 
occurrence in accordance with 5 U.S.C. 557(d)(1), and may impose such 
sanctions as he or she deems appropriate.



Sec. 134.221  Prehearing conferences.

    Prior to a hearing, the Judge, at his or her own initiative, or upon 
the motion of any party, may direct the parties or their attorneys to 
appear, by telephone or in person, in order to consider any matter which 
may assist in the efficient, prompt, and fair determination of the case. 
The conference may be recorded verbatim at the discretion of the Judge, 
and, if so, a party may purchase a transcript, at its own expense, from 
the recording service.



Sec. 134.222  Oral hearing.

    (a) Availability. A party may obtain an oral hearing only if:
    (1) It is required by regulation; or
    (2) Following the motion of a party, or at his or her own 
initiative, the Judge orders an oral hearing upon concluding that there 
is a genuine dispute as to a material fact that cannot be resolved 
except by the taking of testimony and the confrontation of witnesses; or
    (3) In 8(a) program appeals other than those involving suspensions, 
the requirements of Sec. 124.210 of this chapter are met.
    (b) Place and time. The place and time of oral hearings is within 
the discretion of the Judge, who shall give due regard to the necessity 
and convenience of the parties, their attorneys, and witnesses. The 
Judge may direct that an oral hearing be conducted by telephone.
    (c) Public access. Unless otherwise ordered by the Judge, all oral 
hearings are public.
    (d) Payment of subpoenaed witnesses. A party which obtains a 
witness' presence at an oral hearing by subpoena, must pay to that 
witness the fees and mileage costs to which the witness would be 
entitled in Federal Court.
    (e) Recording. Oral hearings will be recorded verbatim. A transcript 
of a recording may be purchased by a party, at its own expense, from the 
recording service.



Sec. 134.223  Evidence.

    (a) Federal Rules of Evidence. Unless contrary to a particular rule 
in this part, or an order of the Judge, the Federal Rules of Evidence 
will be used as a general guide in all cases before OHA.
    (b) Hearsay. Hearsay evidence is admissible if it is deemed by the 
Judge to be relevant and reliable.



Sec. 134.224  Standards for decision.

    The decision of a Judge will be based upon a preponderance of the 
evidence.



Sec. 134.225  The record.

    (a) Contents. The record of a case before OHA will consist of all 
pleadings, motions, and other non-evidentiary submissions, all admitted 
evidence, all orders and decisions, and any transcripts of proceedings 
in the case.
    (b) Public access. Except for information subject to a protective 
order, proprietary or confidential information withheld in accordance 
with this part, or any other information which is excluded from 
disclosure by law or regulation, the record will be available at OHA for 
public inspection during normal business hours. Copies of the documents 
available for public inspection may be obtained by the public upon 
payment of any duplication charges.

[[Page 321]]

    (c) Closure. The Judge will set the date upon which the pre-
decisional record of the case will be closed, and after which no 
additional evidence or argument will be accepted.



Sec. 134.226  The decision.

    (a) Contents. Following closure of the record, the Judge will issue 
a decision containing findings of fact and conclusions of relevant law, 
reasons for such findings and conclusions, and any relief ordered. The 
contents of the record will constitute the exclusive basis for a 
decision.
    (b) Time limits. Decisions pertaining to the collection of debts 
owed to SBA and the United States under the Debt Collection Act of 1982 
and part 140 of this chapter must be rendered within 60 days after a 
petition is filed.
    (c) Service. OHA will serve a copy of all written decisions on:
    (1) Each party, or, if represented by counsel, on its counsel; and
    (2) SBA's General Counsel, or his or her designee, if SBA is not a 
party.



Sec. 134.227  Finality of decisions.

    (a) Final decisions. A decision on the merits shall be a final 
decision, upon issuance, in proceedings concerning the collection of 
debts owed to SBA and the United States, under the Debt Collection Act 
of 1982 and part 140 of this chapter.
    (b) Initial decisions. All decisions on the merits other than those 
set forth in paragraph (a) of this section are initial decisions. 
However, unless a request for review is filed pursuant to 
Sec. 134.228(a), an initial decision shall become the final decision of 
SBA 30 days after its issuance.



Sec. 134.228  Review of initial decisions.

    (a) Request for review. Within 30 days after the service of an 
initial decision, any party, or SBA's Office of General Counsel, may 
serve and file with OHA a request for review. A request for review must 
set forth the filing party's specific objections to the initial 
decision, and any alleged support for those objections in the record, or 
in case law, statute, regulation, or SBA policy. A party must serve its 
request for review upon all other parties and upon SBA's Office of 
General Counsel.
    (b) Response. Within 20 days after the service of a request for 
review, any party, or SBA's Office of General Counsel, may serve and 
file with OHA a response. A party must serve its response upon all other 
parties and upon SBA's Office of General Counsel.
    (c) Transfer of the record. Upon receipt of all responses, or 30 
days after the filing of a request for review, whichever is earlier, OHA 
will transfer the record of the case to the Administrator. The 
Administrator, or his or her designee, will then review the record.
    (d) Standard of review. Upon review, the Administrator, or his or 
her designee, will sustain the initial decision unless it is based on an 
erroneous finding of fact or an erroneous interpretation or application 
of case law, statute, regulation, or SBA policy.
    (e) Order. The Administrator, or his or her designee, will:
    (1) Affirm, reverse, or modify the initial decision, which 
determination will become the final decision of the SBA upon issuance; 
or
    (2) Remand the initial decision to the Judge for appropriate further 
proceedings.



Sec. 134.229  Termination of jurisdiction.

    The jurisdiction of OHA will terminate upon the issuance of a 
decision by a Judge resolving all material issues of fact and law unless 
the case is subsequently remanded for appropriate further proceedings, 
pursuant to Sec. 134.228(e)(2).



 Subpart C--Rules of Practice for Appeals From Size Determinations and 
                          SIC Code Designations



Sec. 134.301  Scope of the rules in this subpart C.

    The rules of practice in this subpart C apply to all appeals to OHA 
from:
    (a) Formal size determinations made by an SBA Government Contracting 
Area Office, under part 121 of this chapter, or by a Disaster Area 
Office, in connection with applications for disaster loans; and
    (b) SIC code designations, pursuant to part 121 of this chapter.

[[Page 322]]



Sec. 134.302  Who may appeal.

    Appeals from size determinations and SIC code designations may be 
filed with OHA by the following, as applicable:
    (a) Any person adversely affected by a size determination;
    (b) Any person adversely affected by a SIC code designation. 
However, with respect to an 8(a) contract, only the Associate 
Administrator for Minority Enterprise Development may appeal a SIC code 
designation;
    (c) The Associate or Assistant Administrator for the SBA program 
involved, through SBA's Office of General Counsel; or
    (d) The procuring agency contracting officer responsible for the 
procurement affected by a size determination.



Sec. 134.303  No absolute right to an appeal from a size determination.

    It is within the discretion of the Judge whether to accept an appeal 
from a size determination. If the Judge decides not to consider such an 
appeal, he or she will issue an order denying review, and specifying the 
reasons for the decision.



Sec. 134.304  Commencement of appeals from size determinations and SIC code designations.

    (a) Appeals from size determinations and SIC code designations must 
be commenced by serving and filing an appeal petition as follows:
    (1) If appeal is from a size determination in a pending procurement 
or pending Government property sale, then the appeal petition must be 
served and filed within 15 days after service of the size determination;
    (2) If appeal is from a size determination other than one in a 
pending procurement or pending Government property sale, then the appeal 
petition must be served and filed within 30 days after service of the 
size determination;
    (3) If appeal is from a SIC code designation, then the appeal 
petition must be served and filed within 10 days after the issuance of 
the initial invitation for bids or initial request for proposals or 
quotations.
    (b) An untimely appeal will be dismissed. However, an appeal which 
is untimely under paragraph (a)(1) of this section, with respect to a 
pending procurement or sale, may, if timely under paragraph (a)(2) of 
this section, proceed with respect to future procurements or sales.



Sec. 134.305  The appeal petition.

    (a) Form. There is no required format for an appeal petition. 
However, it must include the following information:
    (1) The Area Office which issued the size determination, or the 
contracting office which designated the SIC code;
    (2) The solicitation or contract number, and the name, address, and 
telephone number of the contracting officer;
    (3) A full and specific statement as to why the size determination 
or SIC code designation is alleged to be in error, together with 
argument supporting such allegations; and
    (4) The name, address, telephone number, and signature of the 
appellant or its attorney.
    (b) Service of size determination appeals. The appellant must serve 
the appeal petition upon each of the following:
    (1) The SBA official who issued the size determination;
    (2) The contracting officer responsible for the procurement affected 
by a size determination;
    (3) The business concern whose size status is at issue;
    (4) All persons who filed protests; and
    (5) SBA's Office of General Counsel.
    (c) Service of SIC appeals. The appellant must serve the contracting 
officer who made the SIC code designation.
    (d) Certificate of service. The appellant must attach to the appeal 
petition a signed certificate identifying each person or governmental 
agency which was served with the notice of appeal, and how and when each 
of those persons or governmental agencies was served.
    (e) Dismissal. An appeal petition which does not contain all of the 
information required in paragraph (a) of this section may be dismissed, 
with or without prejudice, by the Judge at his or her own initiative, or 
upon motion of a respondent.

[[Page 323]]



Sec. 134.306  Transmission of the case file.

    Upon receipt of an appeal petition pertaining to a size 
determination, the Area Office which issued the size determination must 
immediately send to OHA the entire case file relating to that 
determination. Upon receipt of an appeal petition pertaining to a SIC 
code designation, the contracting officer who designated the SIC code 
must immediately send to OHA the solicitation relating to that 
designation.



Sec. 134.307  Service and filing requirements.

    The provisions of Sec. 134.204 apply to the service and filing of 
all pleadings and other submissions permitted under this subpart.



Sec. 134.308  Limitation on new evidence and adverse inference from non-submission in appeals from size determinations.

    (a) Evidence not previously presented to the Area Office which 
issued the size determination being appealed will not be considered by a 
Judge unless:
    (1) The Judge, on his or her own initiative, orders the submission 
of such evidence; or
    (2) A motion is served and filed establishing good cause for the 
submission of such evidence.
    (b) If the submission of evidence is ordered by a Judge, and the 
party in possession of that evidence does not submit it, the Judge may 
draw adverse inferences against that party.



Sec. 134.309  Response to an appeal petition.

    (a) Who may respond. Any person served with an appeal petition, or 
any other interested person, may serve and file a response supporting or 
opposing the appeal. The response should present argument.
    (b) Time limits. Unless otherwise specified by the Judge, a 
respondent must serve and file a response within 10 days after service 
of the appeal petition upon it.
    (c) Service. The respondent must serve its response upon the 
appellant and upon each of the persons identified in the certificate of 
service attached to the appeal petition pursuant to Sec. 134.305.
    (d) Reply to a response. No reply to a response will be permitted 
unless the Judge directs otherwise.



Sec. 134.310  Discovery.

    Discovery will not be permitted in appeals from size determinations 
or SIC code designations.



Sec. 134.311  Oral hearings.

    Oral hearings will not be held in appeals from SIC code 
designations, and will be held in appeals from size determinations only 
upon a finding by the Judge of extraordinary circumstances. If such an 
oral hearing is ordered, the proceeding shall be conducted in accordance 
with those rules of subpart B of this part as the Judge deems 
appropriate.



Sec. 134.312  Evidence.

    To the extent the rules in this subpart permit the submission of 
evidence, the provisions of Sec. 134.223 (a) and (b) apply.



Sec. 134.313  Applicability of subpart B provisions.

    The following sections from subpart B of this part apply to an 
appeal under this subpart C: Sec. 134.207(a) (pertaining to amendments 
to pleadings); Sec. 134.208 (Representation in cases before OHA); 
Sec. 134.209 (Requirement of signature); Sec. 134.210 (Intervention); 
Sec. 134.211 (Motions); Sec. 134.214 (Subpoenas); Sec. 134.218 (Judges); 
Sec. 134.219 (Sanctions); and Sec. 134.220 (Prohibition against ex parte 
communications).



Sec. 134.314  Standard of review.

    The standard of review is whether the size determination or SIC code 
designation was based on clear error of fact or law.



Sec. 134.315  The record.

    Where relevant, the provisions of Sec. 134.225 (a), (b), and (c) 
apply. In an appeal under this subpart, the contents of the record also 
include the case file or solicitation submitted to OHA in accordance 
with Sec. 134.306.



Sec. 134.316  The decision.

    (a) Contents. Following closure of the record, the Judge will issue 
a decision

[[Page 324]]

containing findings of fact and conclusions of law, reasons for such 
findings and conclusions, and any relief ordered.
    (b) Finality. The decision is the final decision of the SBA and 
becomes effective upon issuance.
    (c) Service. OHA will serve a copy of all written decisions on:
    (1) Each party, or, if represented by counsel, on its counsel; and
    (2) SBA's General Counsel, or his or her designee, if SBA is not a 
party.



Sec. 134.317  Termination of jurisdiction.

    The jurisdiction of OHA will terminate upon the issuance of a 
decision.



Sec. 134.318  Return of the case file.

    Upon termination of jurisdiction, OHA will return the case file to 
the transmitting Area Office. The remainder of the record will be 
retained by OHA.



      Subpart D--Implementation of the Equal Access to Justice Act



Sec. 134.401  What is the purpose of this subpart?

    The Equal Access to Justice Act, 5 U.S.C. 504, establishes 
procedures by which prevailing parties in certain administrative 
proceedings may apply for reimbursement of fees and other expenses. 
Eligible parties may receive awards when they prevail over SBA, unless 
SBA's position in the proceeding was ``substantially justified'' or, as 
provided in Sec. 134.405(b), special circumstances make an award unjust. 
The rules of this subpart explain which OHA proceedings are covered, who 
may be eligible for an award of fees and expenses, and how to apply for 
such an award.



Sec. 134.402  Under what circumstances may I apply for reimbursement?

    You may apply for reimbursement under this subpart if you meet the 
eligibility requirements in Sec. 134.406 and you prevail over SBA in a 
final decision in:
    (a) The type of administrative proceeding which qualifies as an 
``adversary adjudication'' under Sec. 134.403; or
    (b) An ancillary or subsidiary issue in that administrative 
proceeding that is sufficiently significant and discrete to merit 
treatment as a separate unit; or
    (c) A matter which the agency orders to be determined as an 
``adversary adjudication'' under 5 U.S.C. 554.



Sec. 134.403  What is an adversary adjudication?

    For purposes of this subpart, adversary adjudications are 
administrative proceedings before OHA which involve SBA as a party and 
which are required to be conducted by an Administrative Law Judge 
(``ALJ''). These adjudications (``administrative proceedings'') include 
those proceedings listed in Sec. 134.102 (a), (i), and (j)(1), but do 
not include other OHA proceedings such as those listed in 
Sec. 134.102(k). In order for an administrative proceeding to qualify, 
SBA must have been represented by counsel or by another representative 
who enters an appearance and participates in the proceeding.



Sec. 134.404  What benefits may I claim?

    You may seek reimbursement for certain reasonable fees and expenses 
incurred in prosecuting or defending a claim in an administrative 
proceeding.



Sec. 134.405  Under what circumstances are fees and expenses reimbursable?

    (a) If you are a prevailing eligible party, you may receive an award 
for reasonable fees and expenses unless the position of the agency in 
the proceeding is found by the ALJ to be ``substantially justified'', or 
special circumstances exist which make an award unjust. The ``position 
of the agency'' includes not only the position taken by SBA in the 
administrative proceeding, but also the position which it took in the 
action which led to the administrative proceeding. No presumption arises 
that SBA's position was not substantially justified simply because it 
did not prevail in a proceeding. However, upon your assertion that the 
position of SBA was not substantially justified, SBA will be required to 
establish that its position was reasonable in fact and law.
    (b) The ALJ may reduce or deny an award for reimbursement if you 
have unreasonably protracted the administrative proceeding or if other 
special

[[Page 325]]

circumstances would make the award unjust.
    (c) Awards for fees and expenses incurred before the date on which 
an administrative proceeding was initiated are allowable only if you can 
demonstrate that they were reasonably incurred in preparation for the 
proceeding.



Sec. 134.406  Who is eligible for possible reimbursement?

    (a) You are eligible for possible reimbursement if:
    (1) You are an individual, owner of an unincorporated business, 
partnership, corporation, association, organization, or unit of local 
government; and
    (2) You are a party, as defined in 5 U.S.C. 551(3); and
    (3) You are the prevailing party; and
    (4) You meet certain net worth and employee eligibility requirements 
set forth in Sec. 134.407.
    (b) You are not eligible for possible reimbursement if you 
participated in the administrative proceeding only on behalf of persons 
or entities that are ineligible.



Sec. 134.407  How do I know which eligibility requirement applies to me?

    Follow this chart to determine your eligibility. You should 
calculate your net worth and the number of your employees as of the date 
the administrative proceeding was initiated.

------------------------------------------------------------------------
If your participation in the proceeding                                 
                  was:                      Eligibility requirements:   
------------------------------------------------------------------------
(1) As an individual rather than a       (1) Personal net worth may not 
 business owner.                          exceed 2 million dollars.     
(2) As owner of an unincorporated        (2) Personal net worth may not 
 business.                                exceed 7 million dollars, and 
                                         No more than 500 employees.    
(3) As a partnership, corporation,       (3) Business net worth may not 
 association, organization, or unit of    exceed 7 million dollars, and 
 local government.                       No more than 500 employees.    
(4) As a charitable or other tax-exempt  (4) No net worth limitations,  
 organization described in 26 U.S.C.      and                           
 501(c)(3) or a cooperative association  No more than 500 employees.    
 as defined in 12 U.S.C. 1141j(a).                                      
------------------------------------------------------------------------



Sec. 134.408  What are the special rules for calculating net worth and number of employees?

    (a) Your net worth must include the value of any assets disposed of 
for the purpose of meeting an eligibility standard, and must exclude any 
obligation incurred for that purpose. Transfers of assets, or 
obligations incurred, for less than reasonably equivalent value will be 
presumed to have been made for the purpose of meeting an eligibility 
standard.
    (b) If you are an owner of an unincorporated business, or a 
partnership, corporation, association, organization, or unit of local 
government, your net worth must include the net worth of all of your 
affiliates. ``Affiliates'' are:
    (1) Corporations or other business entities which directly or 
indirectly own or control a majority of the voting shares or other 
ownership interests in the applicant concern; and
    (2) Corporations or other business entities in which the applicant 
concern directly or indirectly owns or controls a majority of the voting 
shares or other ownership interests.
    (c) Your employees include all those persons regularly working for 
you at the time the administrative proceeding was initiated, whether or 
not they were at work on that date. Part-time employees must be included 
on a proportional basis. You must include the employees of all your 
affiliates in your total number of employees.



Sec. 134.409  What is the difference between a fee and an expense?

    A fee is a charge to you for the professional services of attorneys, 
agents, or expert witnesses rendered in connection with your case. An 
expense is the cost to you of any study, analysis, engineering report, 
test, project, or similar matter prepared in connection with your case.



Sec. 134.410  Are there limitations on reimbursement for fees and expenses?

    (a) Awards will be calculated on the basis of fees and expenses 
actually incurred. If services were provided by one or more of your 
employees, or were made available to you free, you may not seek an award 
for those services. If

[[Page 326]]

services were provided at a reduced rate, fees and expenses will be 
calculated at that reduced rate.
    (b) In determining the reasonableness of the fees for attorneys, 
agents or expert witnesses, the ALJ will consider at least the 
following:
    (1) That provider's customary fee for like services;
    (2) The prevailing rate for similar services in the community in 
which that provider ordinarily performs services;
    (3) The time actually spent in representing you; and
    (4) The time reasonably spent in light of the difficulty and 
complexity of the issues.
    (c) An award for the fees of an attorney or agent may not exceed $75 
per hour, and an award for the fees of an expert witness may not exceed 
$25 per hour, regardless of the rate charged.
    (d) An award for the reasonable cost of any study, analysis, 
engineering report, test, project or similar matter prepared on your 
behalf may not exceed the prevailing rate payable for similar services, 
and you may be reimbursed only if the study or other matter was 
necessary to the preparation of your case.



Sec. 134.411  What should I include in my application for an award?

    (a) Your application must be in the form of a written petition which 
is served and filed in accordance with Sec. 134.204. It must contain the 
following information:
    (1) A statement that OHA has jurisdiction over the case pursuant to 
Sec. 134.102(g);
    (2) Identification of the administrative proceeding for which you 
are seeking an award;
    (3) A statement that you have prevailed, and a list of each issue in 
which you claim the position of SBA was not substantially justified;
    (4) Your status as an individual, owner of an unincorporated 
business, partnership, corporation, association, organization, or unit 
of local government;
    (5) Your net worth and number of employees as of the date the 
administrative proceeding was initiated, or a statement that one or both 
of these eligibility requirements do not apply to you;
    (6) The amount of fees and expenses you are seeking, along with the 
invoice or billing statement from each service provider;
    (7) A description of any affiliates (as that term is defined in 
Sec. 134.408), or a statement that no affiliates exist;
    (8) A statement that the application and any attached statements and 
exhibits are true and complete to the best of your knowledge and that 
you understand a false statement on these documents is a felony 
punishable by fine and imprisonment under 18 U.S.C. 1001; and
    (9)(i) Your name and address;
    (ii) Your signature, or the signature of either a responsible 
official or your attorney; and
    (iii) The address and telephone number of the person who signs the 
application.
    (b) You should follow this chart to determine which further 
documents must be included with your application:

------------------------------------------------------------------------
                 Party                          Required documents      
------------------------------------------------------------------------
(1) Individual, owner of unincorporated  (1) Net worth exhibit.         
 business, partnership, corporation,                                    
 association, organization, or unit of                                  
 local government.                                                      
(2) Organization qualified as tax-       (2) Copy of a ruling by the    
 exempt under 26 U.S.C. 501(c)(3).        Internal Revenue Service that 
                                          you qualify as a 501(c)(3)    
                                          organization or               
                                         Statement that you were listed 
                                          in the current edition of IRS 
                                          Bulletin 78 as of the date the
                                          administrative proceeding was 
                                          initiated.                    
(3) Tax-exempt religious organization    (3) Description of your        
 not required to obtain a ruling from     organization and the basis for
 the Internal Revenue Service on its      your belief you are exempt.   
 exempt status.                                                         
(4) Cooperative association as defined   (4) Copy of your charter or    
 in 12 U.S.C. 1141j(a).                   articles of incorporation, and
                                         Copy of your bylaws.           
------------------------------------------------------------------------


[[Page 327]]



Sec. 134.412  What must a net worth exhibit contain?

    (a) A net worth exhibit may be in any format, but it must contain:
    (1) List of all assets and liabilities for you and each affiliate in 
detail sufficient to show your eligibility;
    (2) Aggregate net worth for you and all affiliates; and
    (3) Description of any transfers of assets from, or obligations 
incurred by, you or your affiliates within one year prior to the 
initiation of the administrative proceeding which reduced your net worth 
below the eligibility ceiling, or a statement that no such transfers 
occurred.
    (b) The net worth exhibit must be filed with your application, but 
will not be part of the public record of the proceeding. Further, in 
accordance with the provisions of Sec. 134.204(g), you need not serve 
your net worth exhibit on other parties.



Sec. 134.413  What documentation do I need for fees and expenses?

    You must submit a separate itemized statement or invoice for the 
services of each provider for which you seek reimbursement. Each 
separate statement or invoice must contain:
    (a) The hours worked in connection with the proceeding by each 
provider supplying a billable service;
    (b) A description of the specific services performed by each 
provider;
    (c) The rate at which fees were computed for each provider;
    (d) The total charged by the provider on that statement or invoice; 
and
    (e) The provider's verification that the statement or invoice is 
true to the best of his or her knowledge and that he or she understands 
that a false statement is punishable by fine and imprisonment under 18 
U.S.C. 1001.



Sec. 134.414  What deadlines apply to my application for an award and where do I send it?

    After you have prevailed in an administrative proceeding or in a 
discrete issue therein, you must serve, and file with OHA, your written 
application for an award, and its attachments, no later than 30 days 
after the decision in the administrative proceeding becomes final under 
Sec. 134.227. The deadline for filing an application for an award may 
not be extended. If SBA or another party requests review of the decision 
in the underlying administrative proceeding, your request for an award 
for fees and expenses may still be filed, but it will not be considered 
by the ALJ until a final decision is rendered.



Sec. 134.415  How will proceedings relating to my application for fees and expenses be conducted?

    Proceedings will be conducted in accordance with the provisions in 
subpart B of this part.



Sec. 134.416  How will I know if I receive an award?

    The ALJ will issue an initial decision on the merits of your request 
for an award which will become final in 30 days unless a request for 
review is filed under Sec. 134.228. The decision will include findings 
on your eligibility, on whether SBA's position was substantially 
justified, and on the reasonableness of the amount you requested. Where 
applicable, there will also be findings on whether you have unduly 
protracted the proceedings or whether other circumstances make an award 
unjust, and an explanation of the reason for the difference, if any, 
between the amount requested and the amount awarded. If you have sought 
an award against more than one federal agency, the decision will 
allocate responsibility for payment among the agencies with appropriate 
explanation.



Sec. 134.417  May I seek review of the ALJ's decision on my award?

    You may request review of the ALJ's decision on your award by filing 
a request for review in accordance with Sec. 134.228. You may seek 
judicial review of a final decision as provided in 5 U.S.C. 504(c)(2).



Sec. 134.418  How are awards paid?

    If you are seeking payment of an award, you must submit a copy of 
the final decision, along with your certification that you are not 
seeking judicial review of either the decision in the adversary 
adjudication, or of the award, to the following address: Chief Financial 
Officer, Office of Financial

[[Page 328]]

Operations, SBA, P.O. Box 205, Denver, CO 80201-0205. SBA will pay you 
the amount awarded within 60 days of receipt of your request unless it 
is notified that you or another party has sought judicial review of the 
underlying decision or the award.



PART 136--ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF HANDICAP IN PROGRAMS OR ACTIVITIES CONDUCTED BY THE SMALL BUSINESS ADMINISTRATION--Table of Contents




Sec.
136.101  Purpose.
136.102  Application.
136.103  Definitions.
136.104--136.109  [Reserved]
136.110  Self-evaluation.
136.111  Notice.
136.112--136.129  [Reserved]
136.130  General prohibition against discrimination.
136.131--136.139  [Reserved]
136.140  Employment.
136.141--136.148  [Reserved]
136.149  Program accessibility: Discrimination prohibited.
136.150  Program accessibility: Existing facilities.
136.151  Program accessibility: New construction and alterations.
136.152--136.159  [Reserved]
136.160  Communications.
136.161--136.169  [Reserved]
136.170  Compliance procedures.

    Authority: 29 U.S.C. 794.

    Source: 53 FR 19760, May 31, 1988, unless otherwise noted.



Sec. 136.101  Purpose.

    The purpose of this part is to effectuate section 119 of the 
Rehabilitation, Comprehensive Services, and Developmental Disabilities 
Amendments of 1978, which amended section 504 of the Rehabilitation Act 
of 1973 to prohibit discrimination on the basis of handicap in programs 
or activities conducted by Executive agencies or the United States 
Postal Service.



Sec. 136.102  Application.

    This part applies to all programs or activities conducted by the 
Small Business Administration except for programs or activities 
conducted outside the United States that do not involve individuals with 
handicaps in the United States.



Sec. 136.103  Definitions.

    For purposes of this part, the term--
    Agency means the Small Business Administration.
    Assistant Attorney General. Assistant Attorney General means the 
Assistant Attorney General, Civil Rights Division, United States 
Department of Justice.
    Auxiliary aids means services or devices that enable persons with 
impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the Agency. For example, auxiliary aids useful 
for persons with impaired vision include readers, Brailled materials, 
audio recordings, and other similar services and devices. Auxiliary aids 
useful for persons with impaired hearing include telephone handset 
amplifiers, telephones compatible with hearing aids, telecommunication 
devices for deaf persons (TDD's), interpreters, notetakers, written 
materials, and other similar services and devices.
    Complete complaint means a written statement that contains the 
complainant's name and address and describes the Agency's alleged 
discriminatory actions in sufficient detail to inform the Agency of the 
nature and date of the alleged violation of section 504. It shall be 
signed by the complainant or by someone authorized to do so on his or 
her behalf. Complaints filed on behalf of classes or third parties shall 
describe or identify (by name, if possible) the alleged victims of 
discrimination.
    Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, rolling stock or other 
conveyances, or other real or personal property.
    Individual with handicaps means any person who has a physical or 
mental impairment that substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as having 
such an impairment. As used in this definition, the phrase:
    (1) Physical or mental impairment includes--

[[Page 329]]

    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term physical or mental impairment 
includes, but is not limited to, such diseases and conditions as 
orthopedic, visual, speech, and hearing impairments, cerebral palsy, 
epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, 
diabetes, mental retardation, emotional illness, and drug addiction and 
alcoholism.
    (2) Major life activities includes functions such as caring for 
one's self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means--
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the Agency as constituting 
such a limitation;
    (ii) Has a physical or mental impairment that substantially limits 
major life activities only as a result of the attitudes of others toward 
such impairment; or
    (iii) Has none of the impairments defined in paragraph (1) of this 
definition but is treated by the Agency as having such an impairment.
    Qualified individual with handicaps means--
    (1) With respect to any Agency program or activity under which a 
person is required to perform services or to achieve a level of 
accomplishment, an individual with handicaps who meets the essential 
eligibility requirements and who can achieve the purpose of the program 
or activity without modifications in the program or activity that the 
Agency can demonstrate would result in a fundamental alteration in its 
nature;
    (2) With respect to any other program or activity, an individual 
with handicaps who meets the essential eligibility requirements for 
participation in, or receipt of benefits from, that program or activity; 
and
    (3) For purposes of employment, a person who qualifies under the 
definition contained at 29 CFR 1613.702(f), which is made applicable to 
this part by Sec. 136.140.
    Respondent means the organizational unit in which a complainant 
alleges that discrimination occurred.
    Section 504 means section 504 of the Rehabilitation Act of 1973 
((Pub. L. 93-112, 87 Stat. 394) (29 U.S.C. 794)), as amended by the 
Rehabilitation Act Amendments of 1974 (Pub. L. 93-516, 88 Stat. 1617), 
and the Rehabilitation, Comprehensive Services, and Developmental 
Disabilities Amendments of 1978 (Pub. L. 95-602, 92 Stat. 2955) and the 
Rehabilitation Act Amendments of 1986 (Pub. L. 99-506, 100 Stat. 1810). 
As used in this part, section 504 applies only to programs or activities 
conducted by SBA and not to activities of recipients of assistance from 
SBA.
Secs. 136.104--136.109  [Reserved]



Sec. 136.110  Self-evaluation.

    (a) The Agency shall, by July 17, 1989, evaluate its current 
policies and practices, and the effects thereof, that do not or may not 
meet the requirements of this part, and, to the extent modification of 
any such policies and practices is required, the Agency shall proceed to 
make the necessary modifications.
    (b) The Agency shall provide an opportunity to interested persons, 
including individuals with handicaps or organizations representing 
individuals with handicaps, to participate in the self-evaluation 
process by submitting comments (both oral and written).
    (c) The Agency shall, for at least three years following the self-
evaluation, maintain on file and make available for public inspection:
    (1) A description of areas examined and any problems identified; and

[[Page 330]]

    (2) A description of any modifications made.



Sec. 136.111  Notice.

    The Agency shall make available to employees, applicants, 
participants, beneficiaries, and other interested persons such 
information regarding the provisions of this part and its applicability 
to the programs or activities conducted by the Agency, and make such 
information available to them in such manner as the Administrator finds 
necessary to apprise such persons of the protections against 
discrimination assured them by section 504 and this part.
Secs. 136.112--136.129  [Reserved]



Sec. 136.130  General prohibition against discrimination.

    (a) No qualified individual with handicaps shall, on the basis of 
handicap, be excluded from participation in, be denied the benefits of, 
or otherwise be subjected to discrimination under any program or 
activity conducted by the Agency.
    (b) The Agency, in providing any aid, benefit, or service, may not, 
directly or through contractual, licensing, or other arrangements, on 
the basis of handicap:
    (1) Deny a qualified individual with handicaps the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (2) Afford a qualified individual with handicaps an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (3) Provide a qualified individual with handicaps with an aid, 
benefit, or service that is not as effective in affording equal 
opportunity to obtain the same result, to gain the same benefit, or to 
reach the same level of achievement as that provided to others;
    (4) Provide different or separate aid, benefits, or services to 
individuals with handicaps or to any class of individuals with handicaps 
than is provided to others unless such action is necessary to provide 
qualified individuals with handicaps with aid, benefits, or services 
that are as effective as those provided to others;
    (5) Deny a qualified individual with handicaps the opportunity to 
participate as a member of planning, voluntary (such as SCORE or Ace) or 
advisory boards; or
    (6) Otherwise limit a qualified individual with handicaps in the 
enjoyment of any right, privilege, advantage, or opportunity enjoyed by 
others receiving the aid, benefit, or service.
    (c) The Agency shall permit a qualified individual with handicaps 
the opportunity to participate in any of the Agency's programs or 
activities, despite the existence of permissibly separate or different 
programs or activities especially designed to accommodate qualified 
individuals with handicaps.
    (d) The Agency may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration the purpose 
of effect of which would--
    (1) Subject qualified individuals with handicaps to discrimination 
on the basis of handicap; or
    (2) Defeat or substantially impair accomplishment of the objectives 
of a program or activity with respect to individuals with handicaps.
    (e) The Agency may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would:
    (1) Exclude individuals with handicaps from, deny them the benefits 
of, or otherwise subject them to discrimination under any program or 
activity conducted by the Agency; or
    (2) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to individuals with 
handicaps.
    (f) The Agency, in the selection of procurement contactors, may not 
use criteria that subject qualified individuals with handicaps to 
discrimination on the basis of handicap.
    (g) The Agency may not administer a licensing or certification 
program in a manner that subjects qualified individuals with handicaps 
to discrimination on the basis of handicap, nor may the Agency establish 
requirements for the programs or activities of licensees or certified 
entities that subject qualified

[[Page 331]]

individuals with handicaps to discrimination on the basis of handicap. 
However, the programs or activities of entities that are licensed or 
certified by the Agency are not, themselves, covered by this part.
    (h) The exclusion of individuals without handicaps from the benefits 
of a program limited by Federal statute or Executive Order to 
individuals with handicaps or the exclusion of a specific class of 
individuals with handicaps from a program limited by Federal statute or 
Executive Order to a different class of individuals with handicaps is 
not prohibited by this part.
    (i) The Agency shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified individuals 
with handicaps.
Secs. 136.131--136.139  [Reserved]



Sec. 136.140  Employment.

    (a) No qualified individual with handicaps shall, on the basis of 
handicap, be subjected to discrimination in employment under any 
program, or activity conducted by the Agency.
    (b) The definitions, requirements and procedures of section 501 of 
the Rehabilitation Act of 1973 (29 U.S.C. 791) as established by the 
EEOC in 29 CFR part 1613, shall apply to employment in federally 
conducted programs or activities.
Secs. 136.141--136.148  [Reserved]



Sec. 136.149  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec. 136.150, no qualified 
individual with handicaps shall, because the Agency's facilities are 
inaccessible to or unusable by individuals with handicaps, be denied the 
benefits of, be excluded from participation in, or otherwise be 
subjected to discrimination under any program or activity conducted by 
the Agency.



Sec. 136.150  Program accessibility: Existing facilities.

    (a) General. The Agency shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by individuals with handicaps. This paragraph 
does not--
    (1) Necessarily require the Agency to make each of its existing 
facilities accessible to and usable by individuals with handicaps; or
    (2) Require the Agency to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where Agency personnel believe that the proposed action 
would fundamentally alter the program or activity or would result in 
undue financial and administrative burdens, the Agency has the burden of 
proving that compliance with Sec. 136.150(a) would result in such 
alteration or burdens. The decision that compliance would result in such 
alteration or burdens must be made by the Administrator or Deputy 
Administrator after considering all Agency resources available for use 
in the funding and operation of the conducted program or activity and 
must be accompanied by a written statement of the reasons for reaching 
that conclusion. The Administrator or Deputy Administrator's decision 
shall be made within 30 days of the initial decision by Agency personnel 
that an action would result in such an alteration or burdens. If an 
action would result in such an alteration or such burdens, the Agency 
shall take any other action that would not result in such an alteration 
or such burdens but would, nevertheless, ensure that individuals with 
handicaps receive the benefits and services of the program or activity.
    (b) Methods. The Agency may comply with the requirements of this 
section through such means as redesign of equipment, reassignment of 
services to accessible buildings, assignment of aids to beneficiaries, 
home visits, delivery of services at alternate accessible sites, 
alteration of existing facilities and construction of new facilities, 
use of accessible rolling stock, or any other methods that result in 
making its programs or activities readily accessible to and usable by 
individuals with handicaps. The Agency is not required to make 
structural changes in existing facilities where other methods are 
effective in achieving compliance with this section. The Agency, in 
making alterations to existing buildings, shall

[[Page 332]]

meet accessibility requirements to the extent compelled by the 
Architectural Barriers Act of 1968, as amended (42 U.S.C. 4151-4157), 
and any regulations implementing it. In choosing among available methods 
for meeting the requirements of this section, the Agency shall give 
priority to those methods that offer programs and activities to 
qualified individuals with handicaps in the most integrated setting 
appropriate.
    (c) Time period for compliance. The Agency shall comply with the 
obligations established under this section by September 13, 1988, except 
that where structural changes in facilities are undertaken, such changes 
shall be made by July 15, 1991, but in any event as expeditiously as 
possible.
    (d) Transition plan. In the event that structural changes to 
facilities will be undertaken to achieve program accessibility, the 
Agency shall develop, by January 16, 1989, a transition plan setting 
forth the steps necessary to complete such changes. The Agency shall 
provide an opportunity to interested persons, including individuals with 
handicaps or organizations representing individuals with handicaps, to 
participate in the development of the transition plan by submitting 
comments (both oral and written). A copy of the transition plan shall be 
made available for public inspection. The plan shall, at a minimum:
    (1) Identify physical obstacles in the Agency's facilities that 
limit the accessibility of its programs or activities to individuals 
with handicaps;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
compliance with this section and, if the time period of the transition 
plan is longer than one year, identify steps that will be taken during 
each year of the transition period; and
    (4) Indicate the official responsible for implementation of the 
plan.



Sec. 136.151  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf if, or for the use of the Agency shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
individuals with handicaps. The definitions, requirements, and standards 
of the Architectural Barriers Act (42 U.S.C. 4151-4157), as established 
in 41 CFR 101-19.600--101-19.607, apply to buildings covered by this 
section.
Secs. 136.152--136.159  [Reserved]



Sec. 136.160  Communications.

    (a) The Agency shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The Agency shall furnish appropriate auxiliary aids where 
necessary to afford an individual with handicaps an equal opportunity to 
participate in, and enjoy the benefits of, a program or activity 
conducted by the Agency.
    (i) In determining what type of auxiliary aid is necessary, the 
Agency shall give primary consideration to the requests of the 
individual with handicaps.
    (ii) The Agency need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the Agency communicates with applicants and beneficiaries 
by telephone, telecommunication devices for deaf persons (TDD's) or 
equally effective telecommunication systems shall be used.
    (b) The Agency shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The Agency shall provide a sign at each primary entrance to each 
of its inaccessible facilities, directing users to a location at which 
they can obtain information about accessible facilities. The 
international symbol for accessibility shall be used at each primary 
entrance of an accessible facility.
    (d) This section does not require the Agency to take any action that 
it can demonstrate would result in a fundamental alteration in the 
nature of a program or activity or in undue financial and administrative 
burdens. In

[[Page 333]]

those circumstances where Agency personnel believe that the proposed 
action would fundamentally alter the program or activity or would result 
in undue financial and administrative burdens, the Agency has the burden 
of proving that compliance with Sec. 136.160 would result in such 
alteration or burdens. The decision that compliance would result in such 
alteration or burdens must be made by the Administrator or Deputy 
Administrator after considering all Agency resources available for use 
in the funding and operation of the conducted program or activity and 
must be accompanied by a written statement of the reasons for reaching 
that conclusion. The Administrator or Deputy Administrator's decision 
shall be made within 30 days of the initial decision by Agency personnel 
that an action would result in such an alteration or burdens. If an 
action required to comply with this section would result in such as 
alteration or such burdens, the Agency shall take any other action that 
would not result in such an alteration or such burdens but would 
nevertheless ensure that, to the maximum extent possible, individuals 
with handicaps receive the benefits and services of the program or 
activity.
Secs. 135.161--136.169  [Reserved]



Sec. 136.170  Compliance procedures.

    (a) Applicability. Except as provided in paragraph (b) of this 
section, this section applies to all allegations of discrimination on 
the basis of handicap in programs or activities conducted by the Agency.
    (b) Employment complaints. The Agency shall process complaints 
alleging violations of section 504 with respect to employment according 
to the procedures established by EEOC in 29 CFR part 1613 pursuant to 
section 501 of the Rehabilitation Act of 1973 (29 U.S.C. 791).
    (c) Filing a complaint--(1) Who may file. Any person who believes 
that he or she has been subjected to discrimination prohibited by this 
part may file a complaint. An authorized representative of such person 
may file a complaint on his or her behalf. Any person who believes that 
any specific class of persons has been subjected to discrimination 
prohibited by this part and who is a member of that class, or the 
authorized representative of a member of that class, may file a 
complaint.
    (2) Confidentiality. The Chief, Office of Civil Rights Compliance 
(OCRC), shall hold in confidence the identity of any person submitting a 
complaint, unless the person submits written authorization otherwise, 
except to the extent necessary to carry out the purposes of this part, 
including the conduct of any investigation, hearing, or proceeding under 
this part, or to cooperate with the Office of Inspector General in the 
performance of its responsibilities under the Inspector General Act of 
1978, as amended.
    (3) When to file. Complaints shall be filed within 180 days of the 
alleged act of discrimination, except when this deadline is extended by 
the Chief, OCRC, for good cause shown. For purposes of determining when 
a complaint is timely filed under this paragraph, a complaint mailed to 
the Agency shall be deemed filed on the date it is postmarked. Any other 
complaint shall be deemed filed on the date it is received by the 
Agency.
    (4) How to file. Complaints may be delivered or mailed to the Chief, 
OCRC, Small Business Administration, 1441 L Street NW.--Room 501, 
Washington, DC 20416. Any other SBA official receiving a complaint under 
this part shall forward such complaint immediately to the Chief, OCRC.
    (d) Notification to the Architectural and Transportation Barriers 
Compliance Board. The agency shall promptly send to the Architectural 
and Transportation Barriers Compliance Board a copy of any complaint 
alleging that a building or facility that is subject to the 
Architectural Barriers Act of 1968, as amended, 42 U.S.C. 4151-4157 is 
not readily accessible to and usable by individuals with handicaps.
    (e) Acceptance of complaint. (1) The Chief, OCRC, shall accept a 
complete complaint that is filed in accordance with paragraph (c) of 
this section and over which the Agency has jurisdiction. The Chief, 
OCRC, shall notify the complainant and the respondent of receipt and 
acceptance of the complaint.
    (2) If the Chief, OCRC, receives a complaint that is not complete, 
he or

[[Page 334]]

she shall notify the complainant, within 30 days of receipt of the 
incomplete complaint, that additional information is needed. If the 
complainant fails to furnish the necessary information within 30 days of 
receipt of this notice, the Chief, OCRC, shall dismiss the complaint 
without prejudice.
    (3) If the Chief, OCRC, receives a complaint over which the Agency 
does not have jurisdiction, he or she shall promptly notify the 
complainant and shall make reasonable efforts to refer the complaint to 
the appropriate Government entity.
    (f) Investigation/Conciliation. (1) Within 180 days of the receipt 
of a complete complaint the Chief, OCRC, shall complete the 
investigation of the complaint and attempt informal resolution. If no 
informal resolution is achieved, the Chief, OCRC, shall issue a letter 
of findings.
    (2) The Chief, OCRC, may require Agency employees to cooperate in 
the investigation and attempted resolution of complaints. Employees who 
are required to participate in any investigation under this section 
shall do so as part of their official duties and during regular duty 
hours.
    (3) The Chief, OCRC, shall furnish the complainant and the 
respondent with a copy of the investigative report and provide the 
complainant and respondent with an opportunity for informal resolution 
of the complaint.
    (4) If a complaint is resolved informally, the terms of the 
agreement shall be reduced to writing and made part of the complaint 
file, with a copy of the agreement provided to the complainant and 
respondent. The written agreement may include a finding on the issue of 
discrimination and shall describe any corrective action to which the 
complainant and respondent have agreed.
    (g) Letter of findings. If an informal resolution of the complaint 
is not reached, the Chief, OCRC, shall, within 180 days of receipt of 
the complete complaint, notify the complainant, the respondent and the 
Director, Office of Equal Employment Opportunity and Compliance (OEEOC), 
of the results of the investigation in a letter sent by certified mail, 
return receipt requested, and containing--
    (1) Findings of fact and conclusions of law;
    (2) A description of a remedy for each violation found;
    (3) A notice of the right of the complainant and respondent to 
appeal to the Director, OEEOC; and
    (4) A notice of the right of the complainant and respondent to 
request a hearing.
    The letter of findings becomes the final Agency decision if neither 
party files an appeal within the time prescribed in paragraph (h)(1) of 
this section. The Chief, OCRC, shall certify that the letter of findings 
is the final Agency decision on the complaint at the expiration of that 
time.
    (h) Filing an appeal. (1) Any notice of appeal to the Director, 
OEEOC, with or without a request for hearing, shall be filed by the 
complainant or the respondent in writing with the Chief, OCRC, within 30 
days of receipt from him or her of the letter required by paragraph (g) 
of this section. The notice shall be accompanied by a certificate of 
service attesting that the party has served a copy of his or her notice 
of appeal on all other parties to the proceeding. The Director, OEEOC, 
may extend this time limit for good cause shown pursuant to the 
procedure in paragraph (h)(3) of this section.
    (2) If a timely notice of appeal without a request for hearing is 
filed, any other party may file a written request for hearing within the 
time limit specified in paragraph (h)(1) of this section or within 10 
days of his or her receipt of such notice of appeal, whichever is later.
    (3) A party may appeal to the Director, OEEOC, from a decision of 
the Chief, OCRC, that an appeal is untimely. This appeal shall be filed 
with the Director, OEEOC, within 15 days of receipt of the decision from 
the Chief, OCRC.
    (4) Any request for hearing will be construed as a request for an 
oral hearing. The complainant's failure to file a timely request for a 
hearing in accordance with this part shall constitute waiver of the 
right to a hearing, but shall not preclude his or her submitting written 
information and argument to the Director, OEEOC, in connection with his 
or her notice of appeal.

[[Page 335]]

    (i) Acceptance of appeal. The Chief, OCRC, shall accept and process 
any timely filed appeal.
    (1) If a notice of appeal is filed but no party requests a hearing, 
the Chief, OCRC, shall promptly transmit the complaint file, the letter 
of findings and the notice of appeal to the Director, OEEOC.
    (2) If a notice of appeal if filed and a party makes a timely 
request for a hearing, the Chief, OCRC, will transmit the notice of 
appeal, the request for hearing and the investigative file to the Office 
of Hearings and Appeals which office will assign the case to an 
administrative judge who will conduct a hearing in accordance with the 
procedures contained in 13 CFR part 134.
    (j) Decision. (1) Where no request for a hearing is made, the 
Director, OEEOC, shall make the final Agency decision based on the 
contents of the complaint file, the letter of findings, the notice of 
appeal, and any responses to the notice of appeal filed by other 
parties. The decision shall be made within 60 days of receipt of the 
appeal or any response to the notice of appeal, whichever is applicable. 
If the Director, OEEOC, determines that he or she needs additional 
information from any party, he or she shall request the information and 
provide the other party or parties an opportunity to respond to that 
information. The Director, OEEOC, shall have 60 days from receipt of the 
additional information or responses to such additional information, 
whichever is later, to make the decision. The Director, OEEOC, shall 
transmit his or her decision in writing to the parties. The decision 
shall set forth the findings, remedial actions, and reasons for the 
decision.
    (2) Where a request for a hearing has been made, the administrative 
judge shall issue an initial decision, in writing, based on the hearing 
record, composed of the proposed findings of fact, conclusions of law, 
and remedies, to the parties and to the Director, OEEOC, within 30 days 
after receipt of the hearing transcripts, or within 30 days after the 
conclusion of the hearing if no transcript is made. This time limit may 
be extended with the permission of the Director, OEEOC. The decision of 
the administrative judge shall be deemed to be the final decision of the 
Agency after 30 days, unless a party files a petition for review with 
the Director, OEEOC, pursuant to 13 CFR 134.228(a) or the Director, 
OEEOC, issues an order stating his or her decision to review the initial 
decision, pursuant to 13 CFR 134.228(a). See 13 CFR 134.227(b).
    (3) Where a petition for review is filed or a review is ordered by 
the Director, OEEOC, the Director, OEEOC, shall make the final decision 
of the Agency based on information in the complaint file, the letter of 
findings, the hearing record, the initial decision, the petition for 
review, and any responses to the petition or order. The decision shall 
be made within 60 days of receipt of the petition for review, the order, 
or any responses to such petition or order, whichever is later. If the 
Director, OEEOC, determines that he or she needs additional information 
from any party, he or she shall request the information and provide the 
other party or parties an opportunity to respond to that information. 
The Director, OEEOC, shall have 60 days from receipt of the additional 
information or responses to such additional information, whichever is 
later, to make the decision. The Director, OEEOC, shall transmit his or 
her decision by letter to the parties. The decision shall set forth the 
findings, recommended remedial actions, and reasons for the decision. 
The decision shall adopt, reject, or modify the initial decision of the 
administrative judge. If the decision is to reject or modify the initial 
decision, the decision letter shall set forth in detail the specific 
reasons for the rejection or modification.
    (4) Any respondent required to take action under the terms of the 
decision of the Agency shall do so promptly. The Chief, OCRC, may 
require periodic compliance reports specifying:
    (i) The manner in which compliance with the provisions of the 
decision has been achieved;
    (ii) The reasons any action required by the final decision has not 
been taken; and
    (iii) The steps being taken to ensure full compliance.
    (k) The time limit cited in paragraph (f) of this section may be 
extended with

[[Page 336]]

the permission of the Assistant Attorney General.
    (l) The Agency may delegate its authority for conducting complaint 
investigations to other Federal agencies, except that the authority for 
making the final determination may not be delegated to another agency.

[53 FR 19760, May 31, 1988, as amended at 61 FR 2691, Jan. 29, 1996]



PART 140--DEBT COLLECTION THROUGH OFFSET--Table of Contents




Sec.
140.1  What does this part cover?
140.2  What is a debt and how can the SBA collect it through offset?
140.3  What rights do you have when SBA tries to collect a debt from you 
          through offset?

    Authority: 31 U.S.C. 3711, Collection and compromise; 31 U.S.C. 
3720A, Reduction of tax refund by amount of debt; 5 U.S.C. 5514, 
Installment deduction for indebtedness to the United States; 31 U.S.C. 
3716, Administrative offset; 15 U.S.C. 634(b)(6), Small Business Act.

Source: 60 FR 62191, Dec. 5, 1995, unless otherwise noted.



Sec. 140.1  What does this part cover?

    This part establishes procedures which SBA may use in the 
collection, through offset, of past-due debts owed to the Government. 
SBA's failure to comply with any provision of the regulations in this 
part is not available to any debtor as a defense against collection of 
the debt through judicial process.



Sec. 140.2  What is a debt and how can the SBA collect it through offset?

    (a) A debt means an amount owed to the United States from loans made 
or guaranteed by the United States, and from fees, leases, rents, 
royalties, services, sales of real or personal property, overpayments, 
fines, penalties, damages, interest, forfeitures, or any other source. 
You are a debtor if you owe an amount to the United States from any of 
these sources.
    (b) SBA may collect past-due debts through offset by using any of 
three procedures: administrative offset, salary offset, or IRS tax 
refund offset. A past-due debt is one which has been reduced to 
judgment, has been accelerated, or has been due for at least 90 days.
    (1) Administrative offset. SBA may withhold money it owes to the 
debtor in order to satisfy the debt. This procedure is an 
``administrative offset'' and is authorized by 31 U.S.C. 3716.
    (2) Salary offset. If the debtor is a federal employee (a civilian 
employee as defined by 5 U.S.C. 2105, an employee of the U.S. Postal 
Service or Postal Rate Commission, or a member of the Uniformed Services 
or Reserve of the Uniformed Services), SBA may deduct payments owed to 
SBA or another federal agency from the debtor's paycheck. This procedure 
is a ``salary offset'' and is authorized by 5 U.S.C. 5514.
    (i) Any amount deducted from salary in any one pay period will not 
exceed 15 percent of a debtor's disposable pay, unless the debtor agrees 
in writing to a greater percentage.
    (ii) SBA also may collect against travel advances, training 
expenses, disallowed payments, retirement benefits, or any other amount 
due the employee, including lump-sum payments.
    (iii) If an employee has terminated employment after salary offset 
has been initiated, there are no limitations on the amount that can be 
withheld or offset.
    (3) IRS tax refund offset. SBA may request that IRS reduce a 
debtor's tax refund by the amount of the debt, as authorized by 31 
U.S.C. 3720A. Where available, administrative and salary offsets must be 
used before collection is attempted through income tax offset. SBA may 
refer a debt to the IRS for a tax refund offset and take additional 
action against the debtor to collect the debt at the same time or in 
sequence. When SBA makes simultaneous or sequential referrals (within 
six months of the initial notice), only one review pursuant to the rules 
in this part and the statutes authorizing them is required.



Sec. 140.3  What rights do you have when SBA tries to collect a debt from you through offset?

    (a) SBA must write to you and tell you that it proposes to collect 
the debt by reducing your federal paycheck, withholding money the 
Government

[[Page 337]]

owes you, and/or reducing your tax refund.
    (b) In its written notice to you, SBA must tell you the nature and 
amount of the debt; that SBA will begin procedures to collect the debt 
through reduction of your federal paycheck, administrative offset, or 
reduction of your tax refund; that you have an opportunity to inspect 
and copy Government records relating to the debt at your expense; and 
that, before collection begins, you have an opportunity to agree with 
SBA on a schedule for repayment of your debt.
    (c) SBA also must tell you that unless you respond within 60 days 
from the date of the notice, it will disclose to consumer reporting 
agencies (also known as credit bureaus or credit agencies) that you are 
responsible for the debt and the specific information it intends to 
disclose in order to establish your identity. The amount, status, 
history of the debt, and agency program under which it arose also will 
be disclosed.
    (d) If you respond to SBA within 60 days from the date of the 
notice, SBA will not disclose the information to consumer reporting 
agencies until it considers your response and determines that you owe a 
past-due, legally enforceable debt.
    (e) Within 60 days of the notice you may present evidence that all 
or part of the debt is not past due or not legally enforceable.
    (1) Where a salary offset or administrative offset is proposed, you 
will have the opportunity to present your evidence to SBA's Office of 
Hearings and Appeals (``OHA''). The rules in part 134 of this title 
govern the procedural rights to which you are entitled. In order to have 
a hearing before OHA, you must request a hearing within 15 days of 
receipt of the written notice described in this section. An OHA judge 
will issue a decision within 60 days of the date you filed your 
petition/request for a review or hearing with OHA, unless you were 
granted additional time within which to file your request for review.
    (2) Where an income tax refund offset is proposed, you will have the 
opportunity to request a review and present your evidence to the 
appropriate SBA Commercial Loan Servicing Center at the address provided 
in the notice.
    (f) SBA must consider any evidence you present and must first decide 
that a debt is past due and legally enforceable. A debt is legally 
enforceable if there is any forum, including a State or Federal Court or 
administrative agency, in which SBA's claim would not be barred on the 
date of offset. Non-judgment debts are enforceable for ten years; 
judgment debts are enforceable beyond ten years. You will be notified of 
SBA's decision at least 30 days before any offset deduction is made. You 
also will be notified of the amount, frequency, proposed beginning date, 
and duration of the deductions, as well as any obligation to pay 
interest, penalties, and administrative costs.
    (g) If there is any substantial change in the status or amount of 
your debt, SBA will promptly report that change to each consumer 
reporting agency it originally contacted.
    (h) SBA will obtain satisfactory assurances from each consumer 
reporting agency that the consumer reporting agency has complied with 
all federal laws relating to provision of consumer credit information.
    (i) If your debt is being repaid by reduction of your income tax 
refund and you make any additional payments to SBA, SBA will notify the 
IRS of these payments and your new balance within 10 business days of 
receiving your payment.
    (j) When the debt of a federal employee is reduced to court 
judgment, the employee is not entitled to further review by SBA, but is 
only entitled to notice of a proposed salary offset resulting from the 
judgment. The amount deducted may not exceed 15% of disposable pay, 
except when the deduction of a greater amount is necessary to completely 
collect the debt within the employee's remaining period of employment.
    (k) When another federal agency asks SBA to offset a debt for it, 
SBA will not initiate the requested offset until it has received from 
the creditor agency a written certification that the debtor owes a debt, 
its amount, and that the provisions of all applicable statutes and 
regulations have been complied with fully.

[[Page 338]]

    (l) SBA may make an offset prior to completion of the procedures 
described in this part, if:
    (1) Failure to make an offset would substantially prejudice the 
government's ability to collect the debt; and
    (2) The time before the payment would otherwise be made to you does 
not reasonably permit the completion of the procedures.
    (3) Such prior offset then must be followed by the completion of the 
procedures described in this part.
    (m) Where an IRS tax refund offset is sought, SBA must follow the 
Department of the Treasury's regulations governing offset of a past-due, 
legally enforceable debt against tax overpayment.



PART 142--PROGRAM FRAUD CIVIL REMEDIES ACT REGULATIONS--Table of Contents




                        Overview and Definitions

142.1  Overview of regulations.
142.2  What kind of conduct will result in program fraud enforcement?
142.3  What is a claim?
142.4  What is a statement?
142.5  What is a false claim or statement?
142.6  What does the phrase ``know or have reason to know'' mean?

              Procedures Leading to Issuance of a Complaint

142.7  Who investigates program fraud?
142.8  What happens if program fraud is suspected?
142.9  When will SBA issue a complaint?
142.10  What is contained in a complaint?
142.11  How will the complaint be served?

               Procedures Following Service of a Complaint

142.12  How does a defendant respond to the complaint?
142.13  What happens if a defendant fails to file an answer?
142.14  What happens once an answer is filed?

                           Hearing Provisions

142.15  What kind of hearing is contemplated?
142.16  At the hearing, what rights do the parties have?
142.17  What is the role of the ALJ?
142.18  Can the reviewing official or ALJ be disqualified?
142.19  How are issues brought to the attention of the ALJ?
142.20  How are papers served?
142.21  How will the hearing be conducted and who has the burden of 
          proof?
142.22  How is evidence presented at the hearing?
142.23  Are there limits on disclosure of documents or discovery?
142.24  Can witnesses be subpoenaed?
142.25  Can a party or witness object to discovery?
142.26  Can a party informally discuss the case with the ALJ?
142.27  Are there sanctions for misconduct?
142.28  Where is the hearing held?
142.29  Are witness lists exchanged before the hearing?

                          Decisions and Appeals

142.30  How is the case decided?
142.31  Can a party request reconsideration of the initial decision?
142.32  When does the initial decision of the ALJ become final?
142.33  What are the procedures for appealing the ALJ decision?
142.34  Are there any limitations on the right to appeal to the 
          Administrator?
142.35  How does the Administrator dispose of an appeal?
142.36  Can I obtain judicial review?
142.37  What judicial review is available?
142.38  Can the administrative complaint be settled voluntarily?
142.39  How are civil penalties and assessments collected?
142.40  What if the investigation indicates criminal misconduct?
142.41  How does SBA protect the rights of defendants?

    Authority: 15 U.S.C. 634(b); 31 U.S.C. 3803(g)(2).

    Source: 61 FR 2691, Jan. 29, 1996, unless otherwise noted.

                        Overview and Definitions



Sec. 142.1  Overview of regulations.

    (a) Statutory basis. This part implements the Program Fraud Civil 
Remedies Act of 1986, 31 U.S.C. 3801-3812 (``the Act''). The Act 
provides SBA and other federal agencies with an administrative remedy to 
impose civil penalties and assessments against persons making false 
claims and statements. The Act also provides due process protections to 
all persons who are subject to administrative proceedings under this 
part.
    (b) Possible remedies for program fraud. In addition to any other 
penalty which may be prescribed by law, a person who submits, or causes 
to be submitted, a false claim or a false statement to SBA

[[Page 339]]

is subject to a civil penalty of not more than $5,000 for each statement 
or claim, regardless of whether property, services, or money is actually 
delivered or paid by SBA. If SBA has made any payment, transferred 
property, or provided services in reliance on a false claim, the person 
submitting it is also subject to an assessment of not more than twice 
the amount of the false claim. This assessment is in lieu of damages 
sustained by SBA because of the false claim.



Sec. 142.2  What kind of conduct will result in program fraud enforcement?

    (a) Any person who makes, or causes to be made, a false, fictitious, 
or fraudulent claim or written statement to SBA is subject to program 
fraud enforcement. A ``person'' means any individual, partnership, 
corporation, association, or other legal entity.
    (b) If more than one person makes a false claim or statement, each 
person is liable for a civil penalty. If more than one person makes a 
false claim which has induced SBA to make payment, an assessment is 
imposed against each person. The liability of each such person to pay 
the assessment is joint and several, that is, each is responsible for 
the entire amount.
    (c) No proof of specific intent to defraud is required to establish 
liability under this part.



Sec. 142.3  What is a claim?

    (a) Claim means any request, demand, or submission:
    (1) Made to SBA for property, services, or money;
    (2) Made to a recipient of property, services, or money from SBA or 
to a party to a contract with SBA for property or services, or for the 
payment of money. This provision applies only when the claim is related 
to the property, services or money from SBA or to the contract with SBA; 
or
    (3) Made to SBA which decreases an obligation to pay or account for 
property, services, or money.
    (b) A claim can relate to grants, loans, insurance, or other 
benefits, and includes SBA guaranteed loans made by participating 
lenders. A claim is made when it is received by SBA, an agent, fiscal 
intermediary, or other entity acting for SBA, or when it is received by 
the recipient of property, services, or money, or the party to the 
contract.
    (c) Each voucher, invoice, claim form, or individual request or 
demand for property, services, or money constitutes a separate claim.



Sec. 142.4  What is a statement?

    A ``statement'' means any written representation, certification, 
affirmation, document, record, or accounting or bookkeeping entry made 
with respect to a claim or with respect to a contract, bid or proposal 
for a contract, grant, loan or other benefit from SBA. ``From SBA'' 
means that SBA provides some portion of the money or property in 
connection with the contract, bid, grant, loan, or benefit, or is 
potentially liable to another party for some portion of the money or 
property under such contract, bid, grant, loan, or benefit. A statement 
is made, presented, or submitted to SBA when it is received by SBA or an 
agent, fiscal intermediary, or other entity acting for SBA.



Sec. 142.5  What is a false claim or statement?

    (a) A claim submitted to SBA is a ``false'' claim if the person 
making the claim, or causing the claim to be made, knows or has reason 
to know that the claim:
    (1) Is false, fictitious or fraudulent;
    (2) Includes or is supported by a written statement which asserts or 
contains a material fact which is false, fictitious, or fraudulent;
    (3) Includes or is supported by a written statement which is false, 
fictitious or fraudulent because it omits a material fact that the 
person making the statement has a duty to include in the statement; or
    (4) Is for payment for the provision of property or services which 
the person has not provided as claimed.
    (b) A statement submitted to SBA is a false statement if the person 
making the statement, or causing the statement to be made, knows or has 
reason to know that the statement:
    (1) Asserts a material fact which is false, fictitious, or 
fraudulent; or

[[Page 340]]

    (2) Is false, fictitious, or fraudulent because it omits a material 
fact that the person making the statement has a duty to include in the 
statement. In addition, the statement must contain or be accompanied by 
an express certification or affirmation of the truthfulness and accuracy 
of the contents of the statement.



Sec. 142.6  What does the phrase ``know or have reason to know'' mean?

    A person knows or has reason to know (that a claim or statement is 
false) if the person:
    (a) Has actual knowledge that the claim or statement is false, 
fictitious, or fraudulent; or
    (b) Acts in deliberate ignorance of the truth or falsity of the 
claim or statement; or
    (c) Acts in reckless disregard of the truth or falsity of the claim 
or statement.

              Procedures Leading to Issuance of a Complaint



Sec. 142.7  Who investigates program fraud?

    The Inspector General, or his designee, is responsible for 
investigating allegations that a false claim or statement has been made. 
In this regard, the Inspector General has authority under the Program 
Fraud Civil Remedies Act and the Inspector General Act of 1978 (5 U.S.C. 
App. 3), as amended, to issue administrative subpoenas for the 
production of records and documents. The methods for serving a subpoena 
are set forth in Part 101 of this chapter.



Sec. 142.8  What happens if program fraud is suspected?

    (a) If the investigating official concludes that an action under 
this Part is warranted, the investigating official submits a report 
containing the findings and conclusions of the investigation to a 
reviewing official. The reviewing official is the General Counsel or his 
designee. If the reviewing official determines that the report provides 
adequate evidence that a person submitted a false claim or statement, 
the reviewing official transmits to the Attorney General written notice 
of an intention to refer the matter for adjudication, with a request for 
approval of such referral. This notice will include the reviewing 
official's statements concerning:
    (1) The reasons for the referral;
    (2) The claims or statements upon which liability would be based;
    (3) The evidence that supports liability;
    (4) An estimate of the amount of money or the value of property, 
services, or other benefits requested or demanded in the false claim or 
statement;
    (5) Any exculpatory or mitigating circumstances that may relate to 
the claims or statements known by the reviewing official or the 
investigating official; and
    (6) The likelihood of collecting the proposed penalties and 
assessments.
    (b) If at any time, the Attorney General or designee requests in 
writing that this administrative process be stayed, the Administrator 
must stay the process immediately. The Administrator may order the 
process resumed only upon receipt of the written authorization of the 
Attorney General.



Sec. 142.9  When will SBA issue a complaint?

    SBA will issue a complaint:
    (a) If the Attorney General (or designee) approves the referral of 
the allegations for adjudication; and
    (b) In a case of submission of false claims, if the amount of money 
or the value of property or services demanded or requested in a false 
claim, or a group of related claims submitted at the same time, does not 
exceed $150,000. A group of related claims submitted at the same time 
includes only those claims arising from the same transaction (such as a 
grant, loan, application, or contract) which are submitted together as 
part of a single request, demand, or submission.



Sec. 142.10  What is contained in a complaint?

    (a) A complaint is a written statement giving notice to the person 
alleged to be liable under 31 U.S.C. 3802 of the specific allegations 
being referred for adjudication and of the person's right to request a 
hearing with respect

[[Page 341]]

to those allegations. The person alleged to have made false statements 
or to have submitted false claims to SBA is referred to as the 
``defendant.''
    (b) The reviewing official may join in a single complaint false 
claims or statements that are unrelated or were not submitted 
simultaneously, regardless of the amount of money or the value of 
property or services demanded or requested.
    (c) The complaint will state that SBA seeks to impose civil 
penalties, assessments, or both, against each defendant and will 
include:
    (1) The allegations of liability against each defendant, including 
the statutory basis for liability, identification of the claims or 
statements involved, and the reasons liability allegedly arises from 
such claims or statements;
    (2) The maximum amount of penalties and assessments for which each 
defendant may be held liable;
    (3) A statement that each defendant may request a hearing by filing 
an answer and may be represented by a representative;
    (4) Instructions for filing such an answer;
    (5) A warning that failure to file an answer within 30 days of 
service of the complaint will result in imposition of the maximum amount 
of penalties and assessments.
    (d) The reviewing official must serve any complaint on the defendant 
and provide a copy to the Office of Hearings and Appeals (OHA). If a 
hearing is requested, an Administrative Law Judge (ALJ) from OHA will 
serve as the Presiding Officer.



Sec. 142.11  How will the complaint be served?

    (a) The complaint must be served on individual defendants directly, 
a partnership through a general partner, and on corporations or on 
unincorporated associations through an executive officer or a director, 
except that service also may be made on any person authorized by 
appointment or by law to receive process for the defendant.
    (b) The complaint may be served either by:
    (1) Registered or certified mail (return receipt requested) 
addressed to the defendant at his or her residence, usual dwelling 
place, principal office or place of business; or by
    (2) Personal delivery by anyone 18 years of age or older.
    (c) The date of service is the date of personal delivery or, in the 
case of service by registered or certified mail, the date of postmark.
    (d) Proof of service--
    (1) When service is made by registered or certified mail, the return 
postal receipt will serve as proof of service.
    (2) When service is made by personal delivery, an affidavit of the 
individual serving the complaint, or written acknowledgment of receipt 
by the defendant or a representative, will serve as proof of service.
    (e) When served with the complaint, the defendant also should be 
served with a copy of this part 142 and 31 U.S.C. 3801-3812.

               Procedures Following Service of a Complaint



Sec. 142.12  How does a defendant respond to the complaint?

    (a) A defendant may file an answer with the reviewing official and 
the Office of Hearings and Appeals within 30 days of service of the 
complaint. An answer will be considered a request for an oral hearing.
    (b) In the answer, a defendant--
    (1) Must admit or deny each of the allegations of liability 
contained in the complaint (a failure to deny an allegation is 
considered an admission);
    (2) Must state any defense on which the defendant intends to rely;
    (3) May state any reasons why he or she believes the penalties, 
assessments, or both should be less than the statutory maximum; and
    (4) Must state the name, address, and telephone number of the person 
authorized by the defendant to act as defendant's representative, if 
any.
    (c) If the defendant is unable to file an answer which meets the 
requirements set forth in paragraph (b) of this section, the defendant 
may file with the reviewing official a general answer denying liability, 
requesting a hearing, and requesting an extension of time in

[[Page 342]]

which to file a complete answer. A general answer must be filed within 
30 days of service of the complaint.
    (d) If the defendant initially files a general answer requesting an 
extension of time, the reviewing official must promptly file with the 
ALJ the complaint, the general answer, and the request for an extension 
of time.
    (e) For good cause shown, the ALJ may grant the defendant up to 30 
additional days within which to file an answer meeting the requirements 
of paragraph (b) of this section. Such answer must be filed with OHA and 
a copy must be served on the reviewing official.



Sec. 142.13  What happens if a defendant fails to file an answer?

    (a) If a defendant does not file any answer within 30 days after 
service of the complaint, the reviewing official will refer the 
complaint to the ALJ.
    (b) Once the complaint is referred, the ALJ will promptly serve on 
the defendant a notice that an initial decision will be issued.
    (c) The ALJ will assume the facts alleged in the complaint to be 
true and, if such facts establish liability under the statute, the ALJ 
will issue an initial decision imposing the maximum amount of penalties 
and assessments allowed under the statute.
    (d) Except as otherwise provided in this section, when a defendant 
fails to file a timely answer, the defendant waives any right to further 
review of the penalties and assessments imposed in the initial decision.
    (e) The initial decision becomes final 30 days after it is issued.
    (f) If, at any time before an initial decision becomes final, a 
defendant files a motion with the ALJ asking that the case be reopened 
and describing the extraordinary circumstances that prevented the 
defendant from filing an answer, the initial decision will be stayed 
until the ALJ makes a decision on the motion. The reviewing official may 
respond to the motion.
    (g) If, in his motion to reopen, a defendant demonstrates 
extraordinary circumstances excusing his failure to file a timely 
answer, the ALJ will withdraw the initial decision, and grant the 
defendant an opportunity to answer the complaint.
    (h) A decision by the ALJ to deny a defendant's motion to reopen a 
case is not subject to review or reconsideration.



Sec. 142.14  What happens once an answer is filed?

    (a) When the reviewing official receives an answer, he must file 
concurrently, the complaint and the answer with the ALJ, along with a 
designation of an SBA representative.
    (b) When the ALJ receives the complaint and the answer, the ALJ will 
promptly serve a notice of oral hearing upon the defendant and the 
representative for SBA, in the same manner as the complaint, service of 
which is described in Sec. 142.11. The notice of oral hearing must be 
served within six years of the date on which the claim or statement is 
made.
    (c) The notice must include:
    (1) The tentative time, place and nature of the hearing;
    (2) The legal authority and jurisdiction under which the hearing is 
to be held;
    (3) The matters of fact and law to be asserted;
    (4) A description of the procedures for the conduct of the hearing;
    (5) The name, address, and telephone number of the defendant's 
representative and the representative for SBA; and
    (6) Such other matters as the ALJ deems appropriate.

                           Hearing Provisions



Sec. 142.15  What kind of hearing is contemplated?

    The hearing is a formal proceeding conducted by the ALJ during which 
a defendant will have the opportunity to cross-examine witnesses, 
present testimony, and dispute liability.



Sec. 142.16  At the hearing, what rights do the parties have?

    (a) The parties to the hearing shall be the defendant and SBA. 
Pursuant to 31 U.S.C. 3730(c)(5), a private plaintiff in an action under 
the False Claims Act may participate in the hearing to the extent 
authorized by the provisions of that Act.

[[Page 343]]

    (b) Each party has the right to:
    (1) Be represented by a representative;
    (2) Request a pre-hearing conference and participate in any 
conference held by the ALJ;
    (3) Conduct discovery;
    (4) Agree to stipulations of fact or law which will be made a part 
of the record;
    (5) Present evidence relevant to the issues at the hearing;
    (6) Present and cross-examine witnesses;
    (7) Present arguments at the hearing as permitted by the ALJ; and
    (8) Submit written briefs and proposed findings of fact and 
conclusions of law after the hearing, as permitted by the ALJ.



Sec. 142.17  What is the role of the ALJ?

    An ALJ from OHA serves as the Presiding Officer at all hearings, 
with authority as set forth in Sec. 134.218(b) of this chapter.



Sec. 142.18  Can the reviewing official or ALJ be disqualified?

    (a) A reviewing official or an ALJ may disqualify himself or herself 
at any time.
    (b) Upon motion of any party, the reviewing official or ALJ may be 
disqualified as follows:
    (1) The motion must be supported by an affidavit containing specific 
facts establishing that personal bias or other reason for 
disqualification exists, including the time and circumstances of the 
discovery of such facts;
    (2) The motion must be filed promptly after discovery of the grounds 
for disqualification, or the objection will be deemed waived; and
    (3) The party, or representative of record, must certify in writing 
that the motion is made in good faith.
    (c) Once a motion has been filed to disqualify the reviewing 
official, the ALJ will halt the proceedings until resolving the matter 
of disqualification. If the ALJ determines that the reviewing official 
is disqualified, the ALJ will dismiss the complaint without prejudice. 
If the ALJ disqualifies himself or herself, the case will be promptly 
reassigned to another ALJ.



Sec. 142.19  How are issues brought to the attention of the ALJ?

    All applications to the ALJ for an order or ruling are made by 
motion, stating the relief sought, the authority relied upon, and the 
facts alleged. Procedures for filing motions under this section are 
governed by Sec. 134.211 of this chapter.



Sec. 142.20  How are papers served?

    Except for service of a complaint or a notice of hearing under 
Secs. 142.11 and 142.14(b) respectively, service of papers must be made 
as prescribed by Sec. 134.204 of this chapter.



Sec. 142.21  How will the hearing be conducted and who has the burden of proof?

    (a) The ALJ conducts a hearing in order to determine whether a 
defendant is liable for a civil penalty, assessment, or both and, if so, 
the appropriate amount of the civil penalty and/or assessment. The 
hearing will be recorded and transcribed, and the transcript of 
testimony, exhibits admitted at the hearing, and all papers and requests 
filed in the proceeding constitute the record for a decision by the ALJ.
    (b) SBA must prove a defendant's liability and any aggravating 
factors by a preponderance of the evidence.
    (c) A defendant must prove any affirmative defenses and any 
mitigating factors by a preponderance of the evidence.
    (d) The hearing will be open to the public unless otherwise ordered 
by the ALJ for good cause shown.



Sec. 142.22  How is evidence presented at the hearing?

    (a) Witnesses at the hearing must testify orally under oath or 
affirmation unless otherwise ordered by the ALJ. At the discretion of 
the ALJ, testimony may be admitted in the form of a written statement or 
deposition, a copy of which must be provided to all other parties, along 
with the last known address of the witness, in a manner which allows 
sufficient time for other parties to subpoena the witness for cross-
examination at the hearing.

[[Page 344]]

    (b) The ALJ determines the admissibility of evidence in accordance 
with Sec. 134.223 (a) and (b) of this chapter.



Sec. 142.23  Are there limits on disclosure of documents or discovery?

    (a) Upon written request to the reviewing official, the defendant 
may review all non-privileged, relevant and material documents, records 
and other material related to the allegations contained in the 
complaint. After paying SBA a reasonable fee for duplication, the 
defendant may obtain a copy of the records described.
    (b) Upon written request to the reviewing official, the defendant 
may obtain a copy of all exculpatory information in the possession of 
the reviewing official or investigating official relating to the 
allegations in the complaint. If the document would otherwise be 
privileged, only the portion of the document containing exculpatory 
information must be disclosed. As used in this section, the term 
``information'' does not include legal materials such as statutes or 
case law obtained through legal research.
    (c) The notice sent to the Attorney General from the reviewing 
official is not discoverable under any circumstances.
    (d) Other discovery is available only as ordered by the ALJ and 
includes only those methods of discovery allowed by Sec. 134.213 of this 
chapter.



Sec. 142.24  Can witnesses be subpoenaed?

    A party seeking the appearance and testimony of any individual or 
the production of documents or records at a hearing may request in 
writing that the ALJ issue a subpoena. Any such request must be filed 
with the ALJ not less than 15 days before the scheduled hearing date 
unless otherwise allowed by the ALJ for good cause. A subpoena shall be 
issued by the ALJ in the manner specified by Sec. 134.214 of this 
chapter.



Sec. 142.25  Can a party or witness object to discovery?

    Any party or prospective witness may file a motion to quash a 
subpoena or to limit discovery or the disclosure of evidence. Motions to 
limit discovery or to object to the disclosure of evidence are governed 
by Sec. 134.213 of this chapter. Motions to limit or quash subpoenas are 
governed by Sec. 134.214(d) of this chapter.



Sec. 142.26  Can a party informally discuss the case with the ALJ?

    No. Such discussions are forbidden as ex parte communications with 
the ALJ as set forth in Sec. 134.220 of this chapter. This does not 
prohibit a party from communicating with other employees of OHA to 
inquire about the status of a case or to ask routine questions 
concerning administrative functions and procedures.



Sec. 142.27  Are there sanctions for misconduct?

    The ALJ may sanction a party or representative, as set forth in 
Sec. 134.219 of this chapter.



Sec. 142.28  Where is the hearing held?

    The ALJ will hold the hearing in any judicial district of the United 
States:
    (a) In which the defendant resides or transacts business; or
    (b) In which the claim or statement on which liability is based was 
made, presented or submitted to SBA; or
    (c) As agreed upon by the defendant and the ALJ.



Sec. 142.29  Are witness lists exchanged before the hearing?

    (a) At least 15 days before the hearing or at such other time as 
ordered by the ALJ, the parties must exchange witness lists and copies 
of proposed hearing exhibits, including copies of any written statements 
or transcripts of deposition testimony that the party intends to offer 
in lieu of live testimony.
    (b) If a party objects, the ALJ will not admit into evidence the 
testimony of any witness whose name does not appear on the witness list 
or any exhibit not provided to an opposing party unless the ALJ finds 
good cause for the omission or concludes that there is no prejudice to 
the objecting party.
    (c) Unless a party objects within the time set by the ALJ, documents 
exchanged in accordance with this section are deemed to be authentic for 
the purpose of admissibility at the hearing.

[[Page 345]]

                          Decisions and Appeals



Sec. 142.30  How is the case decided?

    (a) The ALJ will issue an initial decision based only on the record. 
It will contain findings of fact, conclusions of law, and the amount of 
any penalties and assessments imposed.
    (b) The ALJ will serve the initial decision on all parties within 90 
days after close of the hearing or expiration of any allowed time for 
submission of post-hearing briefs. If the ALJ fails to meet this 
deadline, he or she shall promptly notify the parties of the reason for 
the delay and set a new deadline.
    (c) The findings of fact must include a finding on each of the 
following issues:
    (1) Whether any one or more of the claims or statements identified 
in the complaint violate this part; and
    (2) If the defendant is liable for penalties or assessments, the 
appropriate amount of any such penalties or assessments, considering any 
mitigating or aggravating factors.
    (d) The initial decision will include a description of the right of 
a defendant found liable for a civil penalty or assessment to file a 
motion for reconsideration with the ALJ or a notice of appeal with the 
Administrator.



Sec. 142.31  Can a party request reconsideration of the initial decision?

    (a) Any party may file a motion for reconsideration of the initial 
decision with the ALJ within 20 days of receipt of the initial decision. 
If the initial decision was served by mail, there is a rebuttable 
presumption that the initial decision was received by the party 5 days 
from the date of mailing.
    (b) A motion for reconsideration must be accompanied by a supporting 
brief and must describe specifically each allegedly erroneous decision.
    (c) Any response to a motion for reconsideration must be filed 
within 20 days of receipt of such motion.
    (d) The ALJ will dispose of a motion for reconsideration by denying 
it or by issuing a revised initial decision.
    (e) If the ALJ issues a revised initial decision upon motion of a 
party, that party may not file another motion for reconsideration.



Sec. 142.32  When does the initial decision of the ALJ become final?

    (a) The initial decision of the ALJ becomes the final decision of 
SBA, and shall be binding on all parties 30 days after it is issued, 
unless any party timely files a motion for reconsideration or any 
defendant adjudged to have submitted a false claim or statement timely 
appeals to the SBA Administrator, as set forth in Sec. 142.33.
    (b) If the ALJ disposes of a motion for reconsideration by denying 
it or by issuing a revised initial decision, the ALJ's order on the 
motion for reconsideration becomes the final decision of SBA 30 days 
after the order is issued, unless a defendant adjudged to have submitted 
a false claim or statement timely appeals to the Administrator, within 
30 days of the ALJ's order, as set forth in Sec. 142.33.



Sec. 142.33  What are the procedures for appealing the ALJ decision?

    (a) Any defendant who submits a timely answer and is found liable 
for a civil penalty or assessment in an initial decision may appeal the 
decision.
    (b) The defendant may file a notice of appeal with the Administrator 
within 30 days following issuance of the initial decision, serving a 
copy of the notice of appeal on all parties and the ALJ. The 
Administrator may extend this deadline for up to thirty additional days 
if an extension request is filed within the initial 30 day period and 
shows good cause.
    (c) The defendant's appeal will not be considered until all timely 
motions for reconsideration have been resolved.
    (d) If a timely motion for reconsideration is denied, a notice of 
appeal may be filed within 30 days following such denial or issuance of 
a revised initial decision, whichever applies.
    (e) A notice of appeal must be supported by a written brief 
specifying why the initial decision should be reversed or modified.
    (f) SBA's representative may file a brief in opposition to the 
notice of appeal within 30 days of receiving the defendant's notice of 
appeal and supporting brief.
    (g) If a defendant timely files a notice of appeal, and the time for 
filing

[[Page 346]]

motions for reconsideration has expired, the ALJ will forward the record 
of the proceeding to the Administrator.



Sec. 142.34  Are there any limitations on the right to appeal to the Administrator?

    (a) A defendant has no right to appear personally, or through a 
representative, before the Administrator.
    (b) There is no right to appeal any interlocutory ruling.
    (c) The Administrator will not consider any objection or evidence 
that was not raised before the ALJ unless the defendant demonstrates 
that the failure to object was caused by extraordinary circumstances. If 
the appealing defendant demonstrates to the satisfaction of the 
Administrator that extraordinary circumstances prevented the 
presentation of evidence at the hearing, and that the additional 
evidence is material, the Administrator may remand the matter to the ALJ 
for consideration of the additional evidence.



Sec. 142.35  How does the Administrator dispose of an appeal?

    (a) The Administrator may affirm, reduce, reverse, compromise, 
remand, or settle any penalty or assessment imposed by the ALJ in the 
initial decision or reconsideration decision.
    (b) The Administrator will promptly serve each party to the appeal 
and the ALJ with a copy of his or her decision. This decision must 
contain a statement describing the right of any person, against whom a 
penalty or assessment has been made, to seek judicial review.



Sec. 142.36  Can I obtain judicial review?

    If the initial decision is appealed, the decision of the 
Administrator is the final decision of SBA and is not subject to 
judicial review unless the defendant files a petition for judicial 
review within 60 days after the Administrator serves the defendant with 
a copy of the final decision.



Sec. 142.37  What judicial review is available?

    31 U.S.C. 3805 authorizes judicial review by the appropriate United 
States District Court of any final SBA decision imposing penalties or 
assessments, and specifies the procedures for such review. To obtain 
judicial review, a defendant must file a petition in a timely fashion.



Sec. 142.38  Can the administrative complaint be settled voluntarily?

    (a) Parties may make offers of compromise or settlement at any time. 
Any compromise or settlement must be in writing.
    (b) The reviewing official has the exclusive authority to compromise 
or settle the case from the date on which the reviewing official is 
permitted to issue a complaint until the ALJ issues an initial decision.
    (c) The Administrator has exclusive authority to compromise or 
settle the case from the date of the ALJ's initial decision until 
initiation of any judicial review or any action to collect the penalties 
and assessments.
    (d) The Attorney General has exclusive authority to compromise or 
settle the case while any judicial review or any action to recover 
penalties and assessments is pending.
    (e) The investigating official may recommend settlement terms to the 
reviewing official, the Administrator, or the Attorney General, as 
appropriate. The reviewing official may recommend settlement terms to 
the Administrator or the Attorney General, as appropriate.



Sec. 142.39  How are civil penalties and assessments collected?

    31 U.S.C. 3806 and 3808(b) authorize the Attorney General to bring 
specific actions for collection of such civil penalties and assessments 
including administrative offset under 31 U.S.C. 3716. The penalties and 
assessments may not, however, be administratively offset against an 
overpayment of federal taxes (then or later owed) to the defendant by 
the United States.



Sec. 142.40  What if the investigation indicates criminal misconduct?

    (a) Any investigating official may:
    (1) Refer allegations of criminal misconduct directly to the 
Department of Justice for prosecution or for suit under the False Claims 
Act or other civil proceeding;


[[Page 347]]


    (2) Defer or postpone a report or referral to the reviewing official 
to avoid interference with a criminal investigation or prosecution; or
    (3) Issue subpoenas under other statutory authority.

    (b) Nothing in this part limits the requirement that SBA employees 
report suspected violations of criminal law to the SBA Office of 
Inspector General or to the Attorney General.



Sec. 142.41  How does SBA protect the rights of defendants?

    These procedures separate the functions of the investigating 
official, reviewing official, and the ALJ, each of whom report to a 
separate organizational authority in accordance with 31 U.S.C. 3801. 
Except for purposes of settlement, or as a witness or a representative 
in public proceedings, no investigating official, reviewing official, or 
SBA employee or agent who helps investigate, prepare, or present a case 
may (in such case, or a factually related case) participate in the 
initial decision or the review of the initial decision by the 
Administrator. This separation of functions and organization is designed 
to assure the independence and impartiality of each government official 
during every stage of the proceeding. The representative for SBA may be 
employed in the offices of either the investigating official or the 
reviewing official.



PART 143--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS--Table of Contents




                           Subpart A--General

Sec.
143.1  Purpose and scope of this part.
143.2  Scope of subpart.
143.3  Definitions.
143.4  Applicability.
143.5  Effect on other issuances.
143.6  Additions and exceptions.

                    Subpart B--Pre-Award Requirements

143.10  Forms for applying for grants.
143.11  State plans.
143.12  Special grant or subgrant conditions for ``high-risk'' grantees.

                   Subpart C--Post-Award Requirements

                        Financial Administration

143.20  Standards for financial management systems.
143.21  Payment.
143.22  Allowable costs.
143.23  Period of availability of funds.
143.24  Matching or cost sharing.
143.25  Program income.
143.26  Non-Federal audit.

                    Changes, Property, and Subawards

143.30  Changes.
143.31  Real property.
143.32  Equipment.
143.33  Supplies.
143.34  Copyrights.
143.35  Subawards to debarred and suspended parties.
143.36  Procurement.
143.37  Subgrants.

              Reports, Records, Retention, and Enforcement

143.40  Monitoring and reporting program performance.
143.41  Financial reporting.
143.42  Retention and access requirements for records.
143.43  Enforcement.
143.44  Termination for convenience.

                 Subpart D--After-the-Grant Requirements

143.50  Closeout.
143.51  Later disallowances and adjustments.
143.52  Collection of amounts due.

                   Subpart E--Entitlements [Reserved]

    Authority: 15 U.S.C. 634(b)(6).

    Source: 53 FR 8048, 8087, Mar. 11, 1988, unless otherwise noted.

    Editorial Note: For additional information, see related documents 
published at 49 FR 24958, June 18, 1984, 52 FR 20198, May 29, 1987, and 
53 FR 8028, Mar. 11, 1988.



                           Subpart A--General



Sec. 143.1  Purpose and scope of this part.

    This part establishes uniform administrative rules for Federal 
grants and cooperative agreements and subawards to State, local and 
Indian tribal governments.



Sec. 143.2  Scope of subpart.

    This subpart contains general rules pertaining to this part and 
procedures for control of exceptions from this part.

[[Page 348]]



Sec. 143.3  Definitions.

    As used in this part:
    Accrued expenditures mean the charges incurred by the grantee during 
a given period requiring the provision of funds for: (1) Goods and other 
tangible property received; (2) services performed by employees, 
contractors, subgrantees, subcontractors, and other payees; and (3) 
other amounts becoming owed under programs for which no current services 
or performance is required, such as annuities, insurance claims, and 
other benefit payments.
    Accrued income means the sum of: (1) Earnings during a given period 
from services performed by the grantee and goods and other tangible 
property delivered to purchasers, and (2) amounts becoming owed to the 
grantee for which no current services or performance is required by the 
grantee.
    Acquisition cost of an item of purchased equipment means the net 
invoice unit price of the property including the cost of modifications, 
attachments, accessories, or auxiliary apparatus necessary to make the 
property usable for the purpose for which it was acquired. Other charges 
such as the cost of installation, transportation, taxes, duty or 
protective in-transit insurance, shall be included or excluded from the 
unit acquisition cost in accordance with the grantee's regular 
accounting practices.
    Administrative requirements mean those matters common to grants in 
general, such as financial management, kinds and frequency of reports, 
and retention of records. These are distinguished from programmatic 
requirements, which concern matters that can be treated only on a 
program-by-program or grant-by-grant basis, such as kinds of activities 
that can be supported by grants under a particular program.
    Awarding agency means (1) with respect to a grant, the Federal 
agency, and (2) with respect to a subgrant, the party that awarded the 
subgrant.
    Cash contributions means the grantee's cash outlay, including the 
outlay of money contributed to the grantee or subgrantee by other public 
agencies and institutions, and private organizations and individuals. 
When authorized by Federal legislation, Federal funds received from 
other assistance agreements may be considered as grantee or subgrantee 
cash contributions.
    Contract means (except as used in the definitions for grant and 
subgrant in this section and except where qualified by Federal) a 
procurement contract under a grant or subgrant, and means a procurement 
subcontract under a contract.
    Cost sharing or matching means the value of the third party in-kind 
contributions and the portion of the costs of a federally assisted 
project or program not borne by the Federal Government.
    Cost-type contract means a contract or subcontract under a grant in 
which the contractor or subcontractor is paid on the basis of the costs 
it incurs, with or without a fee.
    Equipment means tangible, nonexpendable, personal property having a 
useful life of more than one year and an acquisition cost of $5,000 or 
more per unit. A grantee may use its own definition of equipment 
provided that such definition would at least include all equipment 
defined above.
    Expenditure report means: (1) For nonconstruction grants, the SF-269 
``Financial Status Report'' (or other equivalent report); (2) for 
construction grants, the SF-271 ``Outlay Report and Request for 
Reimbursement'' (or other equivalent report).
    Federally recognized Indian tribal government means the governing 
body or a governmental agency of any Indian tribe, band, nation, or 
other organized group or community (including any Native village as 
defined in section 3 of the Alaska Native Claims Settlement Act, 85 Stat 
688) certified by the Secretary of the Interior as eligible for the 
special programs and services provided by him through the Bureau of 
Indian Affairs.
    Government means a State or local government or a federally 
recognized Indian tribal government.
    Grant means an award of financial assistance, including cooperative 
agreements, in the form of money, or property in lieu of money, by the 
Federal Government to an eligible grantee. The term does not include 
technical assistance which provides services instead of money, or other 
assistance in the form

[[Page 349]]

of revenue sharing, loans, loan guarantees, interest subsidies, 
insurance, or direct appropriations. Also, the term does not include 
assistance, such as a fellowship or other lump sum award, which the 
grantee is not required to account for.
    Grantee means the government to which a grant is awarded and which 
is accountable for the use of the funds provided. The grantee is the 
entire legal entity even if only a particular component of the entity is 
designated in the grant award document.
    Local government means a county, municipality, city, town, township, 
local public authority (including any public and Indian housing agency 
under the United States Housing Act of 1937) school district, special 
district, intrastate district, council of governments (whether or not 
incorporated as a nonprofit corporation under state law), any other 
regional or interstate government entity, or any agency or 
instrumentality of a local government.
    Obligations means the amounts of orders placed, contracts and 
subgrants awarded, goods and services received, and similar transactions 
during a given period that will require payment by the grantee during 
the same or a future period.
    OMB means the United States Office of Management and Budget.
    Outlays (expenditures) mean charges made to the project or program. 
They may be reported on a cash or accrual basis. For reports prepared on 
a cash basis, outlays are the sum of actual cash disbursement for direct 
charges for goods and services, the amount of indirect expense incurred, 
the value of in-kind contributions applied, and the amount of cash 
advances and payments made to contractors and subgrantees. For reports 
prepared on an accrued expenditure basis, outlays are the sum of actual 
cash disbursements, the amount of indirect expense incurred, the value 
of inkind contributions applied, and the new increase (or decrease) in 
the amounts owed by the grantee for goods and other property received, 
for services performed by employees, contractors, subgrantees, 
subcontractors, and other payees, and other amounts becoming owed under 
programs for which no current services or performance are required, such 
as annuities, insurance claims, and other benefit payments.
    Percentage of completion method refers to a system under which 
payments are made for construction work according to the percentage of 
completion of the work, rather than to the grantee's cost incurred.
    Prior approval means documentation evidencing consent prior to 
incurring specific cost.
    Real property means land, including land improvements, structures 
and appurtenances thereto, excluding movable machinery and equipment.
    Share, when referring to the awarding agency's portion of real 
property, equipment or supplies, means the same percentage as the 
awarding agency's portion of the acquiring party's total costs under the 
grant to which the acquisition costs under the grant to which the 
acquisition cost of the property was charged. Only costs are to be 
counted--not the value of third-party in-kind contributions.
    State means any of the several States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency or instrumentality of a 
State exclusive of local governments. The term does not include any 
public and Indian housing agency under United States Housing Act of 
1937.
    Subgrant means an award of financial assistance in the form of 
money, or property in lieu of money, made under a grant by a grantee to 
an eligible subgrantee. The term includes financial assistance when 
provided by contractual legal agreement, but does not include 
procurement purchases, nor does it include any form of assistance which 
is excluded from the definition of grant in this part.
    Subgrantee means the government or other legal entity to which a 
subgrant is awarded and which is accountable to the grantee for the use 
of the funds provided.
    Supplies means all tangible personal property other than equipment 
as defined in this part.
    Suspension means depending on the context, either (1) temporary 
withdrawal of the authority to obligate grant funds pending corrective 
action

[[Page 350]]

by the grantee or subgrantee or a decision to terminate the grant, or 
(2) an action taken by a suspending official in accordance with agency 
regulations implementing E.O. 12549 to immediately exclude a person from 
participating in grant transactions for a period, pending completion of 
an investigation and such legal or debarment proceedings as may ensue.
    Termination means permanent withdrawal of the authority to obligate 
previously-awarded grant funds before that authority would otherwise 
expire. It also means the voluntary relinquishment of that authority by 
the grantee or subgrantee. Termination does not include: (1) Withdrawal 
of funds awarded on the basis of the grantee's underestimate of the 
unobligated balance in a prior period; (2) Withdrawal of the unobligated 
balance as of the expiration of a grant; (3) Refusal to extend a grant 
or award additional funds, to make a competing or noncompeting 
continuation, renewal, extension, or supplemental award; or (4) voiding 
of a grant upon determination that the award was obtained fraudulently, 
or was otherwise illegal or invalid from inception.
    Terms of a grant or subgrant mean all requirements of the grant or 
subgrant, whether in statute, regulations, or the award document.
    Third party in-kind contributions mean property or services which 
benefit a federally assisted project or program and which are 
contributed by non-Federal third parties without charge to the grantee, 
or a cost-type contractor under the grant agreement.
    Unliquidated obligations for reports prepared on a cash basis mean 
the amount of obligations incurred by the grantee that has not been 
paid. For reports prepared on an accrued expenditure basis, they 
represent the amount of obligations incurred by the grantee for which an 
outlay has not been recorded.
    Unobligated balance means the portion of the funds authorized by the 
Federal agency that has not been obligated by the grantee and is 
determined by deducting the cumulative obligations from the cumulative 
funds authorized.



Sec. 143.4  Applicability.

    (a) General. Subparts A through D of this part apply to all grants 
and subgrants to governments, except where inconsistent with Federal 
statutes or with regulations authorized in accordance with the exception 
provision of Sec. 143.6, or:
    (1) Grants and subgrants to State and local institutions of higher 
education or State and local hospitals.
    (2) The block grants authorized by the Omnibus Budget Reconciliation 
Act of 1981 (Community Services; Preventive Health and Health Services; 
Alcohol, Drug Abuse, and Mental Health Services; Maternal and Child 
Health Services; Social Services; Low-Income Home Energy Assistance; 
States' Program of Community Development Block Grants for Small Cities; 
and Elementary and Secondary Education other than programs administered 
by the Secretary of Education under Title V, Subtitle D, Chapter 2, 
Section 583--the Secretary's discretionary grant program) and Titles I-
III of the Job Training Partnership Act of 1982 and under the Public 
Health Services Act (Section 1921), Alcohol and Drug Abuse Treatment and 
Rehabilitation Block Grant and Part C of Title V, Mental Health Service 
for the Homeless Block Grant).
    (3) Entitlement grants to carry out the following programs of the 
Social Security Act:
    (i) Aid to Needy Families with Dependent Children (Title IV-A of the 
Act, not including the Work Incentive Program (WIN) authorized by 
section 402(a)19(G); HHS grants for WIN are subject to this part);
    (ii) Child Support Enforcement and Establishment of Paternity (Title 
IV-D of the Act);
    (iii) Foster Care and Adoption Assistance (Title IV-E of the Act);
    (iv) Aid to the Aged, Blind, and Disabled (Titles I, X, XIV, and 
XVI-AABD of the Act); and
    (v) Medical Assistance (Medicaid) (Title XIX of the Act) not 
including the State Medicaid Fraud Control program authorized by section 
1903(a)(6)(B).
    (4) Entitlement grants under the following programs of The National 
School Lunch Act:

[[Page 351]]

    (i) School Lunch (section 4 of the Act),
    (ii) Commodity Assistance (section 6 of the Act),
    (iii) Special Meal Assistance (section 11 of the Act),
    (iv) Summer Food Service for Children (section 13 of the Act), and
    (v) Child Care Food Program (section 17 of the Act).
    (5) Entitlement grants under the following programs of The Child 
Nutrition Act of 1966:
    (i) Special Milk (section 3 of the Act), and
    (ii) School Breakfast (section 4 of the Act).
    (6) Entitlement grants for State Administrative expenses under The 
Food Stamp Act of 1977 (section 16 of the Act).
    (7) A grant for an experimental, pilot, or demonstration project 
that is also supported by a grant listed in paragraph (a)(3) of this 
section;
    (8) Grant funds awarded under subsection 412(e) of the Immigration 
and Nationality Act (8 U.S.C. 1522(e)) and subsection 501(a) of the 
Refugee Education Assistance Act of 1980 (Pub. L. 96-422, 94 Stat. 
1809), for cash assistance, medical assistance, and supplemental 
security income benefits to refugees and entrants and the administrative 
costs of providing the assistance and benefits;
    (9) Grants to local education agencies under 20 U.S.C. 236 through 
241-1(a), and 242 through 244 (portions of the Impact Aid program), 
except for 20 U.S.C. 238(d)(2)(c) and 240(f) (Entitlement Increase for 
Handicapped Children); and
    (10) Payments under the Veterans Administration's State Home Per 
Diem Program (38 U.S.C. 641(a)).
    (b) Entitlement programs. Entitlement programs enumerated above in 
Sec. 143.4(a)(3) through (8) are subject to subpart E.



Sec. 143.5  Effect on other issuances.

    All other grants administration provisions of codified program 
regulations, program manuals, handbooks and other nonregulatory 
materials which are inconsistent with this part are superseded, except 
to the extent they are required by statute, or authorized in accordance 
with the exception provision in Sec. 143.6.



Sec. 143.6  Additions and exceptions.

    (a) For classes of grants and grantees subject to this part, Federal 
agencies may not impose additional administrative requirements except in 
codified regulations published in the Federal Register.
    (b) Exceptions for classes of grants or grantees may be authorized 
only by OMB.
    (c) Exceptions on a case-by-case basis and for subgrantees may be 
authorized by the affected Federal agencies.



                    Subpart B--Pre-Award Requirements



Sec. 143.10  Forms for applying for grants.

    (a) Scope. (1) This section prescribes forms and instructions to be 
used by governmental organizations (except hospitals and institutions of 
higher education operated by a government) in applying for grants. This 
section is not applicable, however, to formula grant programs which do 
not require applicants to apply for funds on a project basis.
    (2) This section applies only to applications to Federal agencies 
for grants, and is not required to be applied by grantees in dealing 
with applicants for subgrants. However, grantees are encouraged to avoid 
more detailed or burdensome application requirements for subgrants.
    (b) Authorized forms and instructions for governmental 
organizations. (1) In applying for grants, applicants shall only use 
standard application forms or those prescribed by the granting agency 
with the approval of OMB under the Paperwork Reduction Act of 1980.
    (2) Applicants are not required to submit more than the original and 
two copies of preapplications or applications.
    (3) Applicants must follow all applicable instructions that bear OMB 
clearance numbers. Federal agencies may specify and describe the 
programs, functions, or activities that will be used to plan, budget, 
and evaluate the work under a grant. Other supplementary instructions 
may be issued only with the approval of OMB to the

[[Page 352]]

extent required under the Paperwork Reduction Act of 1980. For any 
standard form, except the SF-424 facesheet, Federal agencies may shade 
out or instruct the applicant to disregard any line item that is not 
needed.
    (4) When a grantee applies for additional funding (such as a 
continuation or supplemental award) or amends a previously submitted 
application, only the affected pages need be submitted. Previously 
submitted pages with information that is still current need not be 
resubmitted.



Sec. 143.11  State plans.

    (a) Scope. The statutes for some programs require States to submit 
plans before receiving grants. Under regulations implementing Executive 
Order 12372, ``Intergovernmental Review of Federal Programs,'' States 
are allowed to simplify, consolidate and substitute plans. This section 
contains additional provisions for plans that are subject to regulations 
implementing the Executive order.
    (b) Requirements. A State need meet only Federal administrative or 
programmatic requirements for a plan that are in statutes or codified 
regulations.
    (c) Assurances. In each plan the State will include an assurance 
that the State shall comply with all applicable Federal statutes and 
regulations in effect with respect to the periods for which it receives 
grant funding. For this assurance and other assurances required in the 
plan, the State may:
    (1) Cite by number the statutory or regulatory provisions requiring 
the assurances and affirm that it gives the assurances required by those 
provisions,
    (2) Repeat the assurance language in the statutes or regulations, or
    (3) Develop its own language to the extent permitted by law.
    (d) Amendments. A State will amend a plan whenever necessary to 
reflect: (1) New or revised Federal statutes or regulations or (2) a 
material change in any State law, organization, policy, or State agency 
operation. The State will obtain approval for the amendment and its 
effective date but need submit for approval only the amended portions of 
the plan.



Sec. 143.12  Special grant or subgrant conditions for ``high-risk'' grantees.

    (a) A grantee or subgrantee may be considered high risk if an 
awarding agency determines that a grantee or subgrantee:
    (1) Has a history of unsatisfactory performance, or
    (2) Is not financially stable, or
    (3) Has a management system which does not meet the management 
standards set forth in this part, or
    (4) Has not conformed to terms and conditions of previous awards, or
    (5) Is otherwise not responsible; and if the awarding agency 
determines that an award will be made, special conditions and/or 
restrictions shall correspond to the high risk condition and shall be 
included in the award.
    (b) Special conditions or restrictions may include:
    (1) Payment on a reimbursement basis;
    (2) Withholding authority to proceed to the next phase until receipt 
of evidence of acceptable performance within a given funding period;
    (3) Requiring additional, more detailed financial reports;
    (4) Additional project monitoring;
    (5) Requiring the grante or subgrantee to obtain technical or 
management assistance; or
    (6) Establishing additional prior approvals.
    (c) If an awarding agency decides to impose such conditions, the 
awarding official will notify the grantee or subgrantee as early as 
possible, in writing, of:
    (1) The nature of the special conditions/restrictions;
    (2) The reason(s) for imposing them;
    (3) The corrective actions which must be taken before they will be 
removed and the time allowed for completing the corrective actions and
    (4) The method of requesting reconsideration of the conditions/
restrictions imposed.

[[Page 353]]



                   Subpart C--Post-Award Requirements

                        Financial Administration



Sec. 143.20  Standards for financial management systems.

    (a) A State must expand and account for grant funds in accordance 
with State laws and procedures for expending and accounting for its own 
funds. Fiscal control and accounting procedures of the State, as well as 
its subgrantees and cost-type contractors, must be sufficient to--
    (1) Permit preparation of reports required by this part and the 
statutes authorizing the grant, and
    (2) Permit the tracing of funds to a level of expenditures adequate 
to establish that such funds have not been used in violation of the 
restrictions and prohibitions of applicable statutes.
    (b) The financial management systems of other grantees and 
subgrantees must meet the following standards:
    (1) Financial reporting. Accurate, current, and complete disclosure 
of the financial results of financially assisted activities must be made 
in accordance with the financial reporting requirements of the grant or 
subgrant.
    (2) Accounting records. Grantees and subgrantees must maintain 
records which adequately identify the source and application of funds 
provided for financially-assisted activities. These records must contain 
information pertaining to grant or subgrant awards and authorizations, 
obligations, unobligated balances, assets, liabilities, outlays or 
expenditures, and income.
    (3) Internal control. Effective control and accountability must be 
maintained for all grant and subgrant cash, real and personal property, 
and other assets. Grantees and subgrantees must adequately safeguard all 
such property and must assure that it is used solely for authorized 
purposes.
    (4) Budget control. Actual expenditures or outlays must be compared 
with budgeted amounts for each grant or subgrant. Financial information 
must be related to performance or productivity data, including the 
development of unit cost information whenever appropriate or 
specifically required in the grant or subgrant agreement. If unit cost 
data are required, estimates based on available documentation will be 
accepted whenever possible.
    (5) Allowable cost. Applicable OMB cost principles, agency program 
regulations, and the terms of grant and subgrant agreements will be 
followed in determining the reasonableness, allowability, and 
allocability of costs.
    (6) Source documentation. Accounting records must be supported by 
such source documentation as cancelled checks, paid bills, payrolls, 
time and attendance records, contract and subgrant award documents, etc.
    (7) Cash management. Procedures for minimizing the time elapsing 
between the transfer of funds from the U.S. Treasury and disbursement by 
grantees and subgrantees must be followed whenever advance payment 
procedures are used. Grantees must establish reasonable procedures to 
ensure the receipt of reports on subgrantees' cash balances and cash 
disbursements in sufficient time to enable them to prepare complete and 
accurate cash transactions reports to the awarding agency. When advances 
are made by letter-of-credit or electronic transfer of funds methods, 
the grantee must make drawdowns as close as possible to the time of 
making disbursements. Grantees must monitor cash drawdowns by their 
subgrantees to assure that they conform substantially to the same 
standards of timing and amount as apply to advances to the grantees.
    (c) An awarding agency may review the adequacy of the financial 
management system of any applicant for financial assistance as part of a 
preaward review or at any time subsequent to award.



Sec. 143.21  Payment.

    (a) Scope. This section prescribes the basic standard and the 
methods under which a Federal agency will make payments to grantees, and 
grantees will make payments to subgrantees and contractors.
    (b) Basic standard. Methods and procedures for payment shall 
minimize the time elapsing between the transfer of funds and 
disbursement by the grantee or subgrantee, in accordance

[[Page 354]]

with Treasury regulations at 31 CFR part 205.
    (c) Advances. Grantees and subgrantees shall be paid in advance, 
provided they maintain or demonstrate the willingness and ability to 
maintain procedures to minimize the time elapsing between the transfer 
of the funds and their disbursement by the grantee or subgrantee.
    (d) Reimbursement. Reimbursement shall be the preferred method when 
the requirements in paragraph (c) of this section are not met. Grantees 
and subgrantees may also be paid by reimbursement for any construction 
grant. Except as otherwise specified in regulation, Federal agencies 
shall not use the percentage of completion method to pay construction 
grants. The grantee or subgrantee may use that method to pay its 
construction contractor, and if it does, the awarding agency's payments 
to the grantee or subgrantee will be based on the grantee's or 
subgrantee's actual rate of disbursement.
    (e) Working capital advances. If a grantee cannot meet the criteria 
for advance payments described in paragraph (c) of this section, and the 
Federal agency has determined that reimbursement is not feasible because 
the grantee lacks sufficient working capital, the awarding agency may 
provide cash or a working capital advance basis. Under this procedure 
the awarding agency shall advance cash to the grantee to cover its 
estimated disbursement needs for an initial period generally geared to 
the grantee's disbursing cycle. Thereafter, the awarding agency shall 
reimburse the grantee for its actual cash disbursements. The working 
capital advance method of payment shall not be used by grantees or 
subgrantees if the reason for using such method is the unwillingness or 
inability of the grantee to provide timely advances to the subgrantee to 
meet the subgrantee's actual cash disbursements.
    (f) Effect of program income, refunds, and audit recoveries on 
payment. (1) Grantees and subgrantees shall disburse repayments to and 
interest earned on a revolving fund before requesting additional cash 
payments for the same activity.
    (2) Except as provided in paragraph (f)(1) of this section, grantees 
and subgrantees shall disburse program income, rebates, refunds, 
contract settlements, audit recoveries and interest earned on such funds 
before requesting additional cash payments.
    (g) Withholding payments. (1) Unless otherwise required by Federal 
statute, awarding agencies shall not withhold payments for proper 
charges incurred by grantees or subgrantees unless--
    (i) The grantee or subgrantee has failed to comply with grant award 
conditions or
    (ii) The grantee or subgrantee is indebted to the United States.
    (2) Cash withheld for failure to comply with grant award condition, 
but without suspension of the grant, shall be released to the grantee 
upon subsequent compliance. When a grant is suspended, payment 
adjustments will be made in accordance with Sec. 143.43(c).
    (3) A Federal agency shall not make payment to grantees for amounts 
that are withheld by grantees or subgrantees from payment to contractors 
to assure satisfactory completion of work. Payments shall be made by the 
Federal agency when the grantees or subgrantees actually disburse the 
withheld funds to the contractors or to escrow accounts established to 
assure satisfactory completion of work.
    (h) Cash depositories. (1) Consistent with the national goal of 
expanding the opportunities for minority business enterprises, grantees 
and subgrantees are encouraged to use minority banks (a bank which is 
owned at least 50 percent by minority group members). A list of minority 
owned banks can be obtained from the Minority Business Development 
Agency, Department of Commerce, Washington, DC 20230.
    (2) A grantee or subgrantee shall maintain a separate bank account 
only when required by Federal-State agreement.
    (i) Interest earned on advances. Except for interest earned on 
advances of funds exempt under the Intergovernmental Cooperation Act (31 
U.S.C. 6501 et seq.) and the Indian Self-Determination Act (23 U.S.C. 
450), grantees and subgrantees shall promptly, but at least quarterly, 
remit interest earned on advances to the Federal agency. The

[[Page 355]]

grantee or subgrantee may keep interest amounts up to $100 per year for 
administrative expenses.



Sec. 143.22  Allowable costs.

    (a) Limitation on use of funds. Grant funds may be used only for:
    (1) The allowable costs of the grantees, subgrantees and cost-type 
contractors, including allowable costs in the form of payments to fixed-
price contractors; and
    (2) Reasonable fees or profit to cost-type contractors but not any 
fee or profit (or other increment above allowable costs) to the grantee 
or subgrantee.
    (b) Applicable cost principles. For each kind of organization, there 
is a set of Federal principles for determining allowable costs. 
Allowable costs will be determined in accordance with the cost 
principles applicable to the organization incurring the costs. The 
following chart lists the kinds of organizations and the applicable cost 
principles.

                                                                        
------------------------------------------------------------------------
           For the costs of a--                Use the principles in--  
------------------------------------------------------------------------
State, local or Indian tribal government..  OMB Circular A-87.          
Private nonprofit organization other than   OMB Circular A-122.         
 an (1) institution of higher education,                                
 (2) hospital, or (3) organization named                                
 in OMB Circular A-122 as not subject to                                
 that circular.                                                         
Educational institutions..................  OMB Circular A-21.          
For-profit organization other than a        48 CFR part 31. Contract    
 hospital and an organization named in OBM   Cost Principles and        
 Circular A-122 as not subject to that       Procedures, or uniform cost
 circular.                                   accounting standards that  
                                             comply with cost principles
                                             acceptable to the Federal  
                                             agency.                    
------------------------------------------------------------------------



Sec. 143.23  Period of availability of funds.

    (a) General. Where a funding period is specified, a grantee may 
charge to the award only costs resulting from obligations of the funding 
period unless carryover of unobligated balances is permitted, in which 
case the carryover balances may be charged for costs resulting from 
obligations of the subsequent funding period.
    (b) Liquidation of obligations. A grantee must liquidate all 
obligations incurred under the award not later than 90 days after the 
end of the funding period (or as specified in a program regulation) to 
coincide with the submission of the annual Financial Status Report (SF-
269). The Federal agency may extend this deadline at the request of the 
grantee.



Sec. 143.24  Matching or cost sharing.

    (a) Basic rule: Costs and contributions acceptable. With the 
qualifications and exceptions listed in paragraph (b) of this section, a 
matching or cost sharing requirement may be satisfied by either or both 
of the following:
    (1) Allowable costs incurred by the grantee, subgrantee or a cost-
type contractor under the assistance agreement. This includes allowable 
costs borne by non-Federal grants or by others cash donations from non-
Federal third parties.
    (2) The value of third party in-kind contributions applicable to the 
period to which the cost sharing or matching requirements applies.
    (b) Qualifications and exceptions--(1) Costs borne by other Federal 
grant agreements. Except as provided by Federal statute, a cost sharing 
or matching requirement may not be met by costs borne by another Federal 
grant. This prohibition does not apply to income earned by a grantee or 
subgrantee from a contract awarded under another Federal grant.
    (2) General revenue sharing. For the purpose of this section, 
general revenue sharing funds distributed under 31 U.S.C. 6702 are not 
considered Federal grant funds.
    (3) Cost or contributions counted towards other Federal costs-
sharing requirements. Neither costs nor the values of third party in-
kind contributions may count towards satisfying a cost sharing or 
matching requirement of a grant agreement if they have been or will be 
counted towards satisfying a cost sharing or matching requirement of 
another Federal grant agreement, a Federal procurement contract, or any 
other award of Federal funds.
    (4) Costs financed by program income. Costs financed by program 
income, as defined in Sec. 143.25, shall not count towards satisfying a 
cost sharing or matching requirement unless they are expressly permitted 
in the terms of the

[[Page 356]]

assistance agreement. (This use of general program income is described 
in Sec. 143.25(g).)
    (5) Services or property financed by income earned by contractors. 
Contractors under a grant may earn income from the activities carried 
out under the contract in addition to the amounts earned from the party 
awarding the contract. No costs of services or property supported by 
this income may count toward satisfying a cost sharing or matching 
requirement unless other provisions of the grant agreement expressly 
permit this kind of income to be used to meet the requirement.
    (6) Records. Costs and third party in-kind contributions counting 
towards satisfying a cost sharing or matching requirement must be 
verifiable from the records of grantees and subgrantee or cost-type 
contractors. These records must show how the value placed on third party 
in-kind contributions was derived. To the extent feasible, volunteer 
services will be supported by the same methods that the organization 
uses to support the allocability of regular personnel costs.
    (7) Special standards for third party in-kind contributions. (i) 
Third party in-kind contributions count towards satisfying a cost 
sharing or matching requirement only where, if the party receiving the 
contributions were to pay for them, the payments would be allowable 
costs.
    (ii) Some third party in-kind contributions are goods and services 
that, if the grantee, subgrantee, or contractor receiving the 
contribution had to pay for them, the payments would have been an 
indirect costs. Costs sharing or matching credit for such contributions 
shall be given only if the grantee, subgrantee, or contractor has 
established, along with its regular indirect cost rate, a special rate 
for allocating to individual projects or programs the value of the 
contributions.
    (iii) A third party in-kind contribution to a fixed-price contract 
may count towards satisfying a cost sharing or matching requirement only 
if it results in:
    (A) An increase in the services or property provided under the 
contract (without additional cost to the grantee or subgrantee) or
    (B) A cost savings to the grantee or subgrantee.
    (iv) The values placed on third party in-kind contributions for cost 
sharing or matching purposes will conform to the rules in the succeeding 
sections of this part. If a third party in-kind contribution is a type 
not treated in those sections, the value placed upon it shall be fair 
and reasonable.
    (c) Valuation of donated services--(1) Volunteer services. Unpaid 
services provided to a grantee or subgrantee by individuals will be 
valued at rates consistent with those ordinarily paid for similar work 
in the grantee's or subgrantee's organization. If the grantee or 
subgrantee does not have employees performing similar work, the rates 
will be consistent with those ordinarily paid by other employers for 
similar work in the same labor market. In either case, a reasonable 
amount for fringe benefits may be included in the valuation.
    (2) Employees of other organizations. When an employer other than a 
grantee, subgrantee, or cost-type contractor furnishes free of charge 
the services of an employee in the employee's normal line of work, the 
services will be valued at the employee's regular rate of pay exclusive 
of the employee's fringe benefits and overhead costs. If the services 
are in a different line of work, paragraph (c)(1) of this section 
applies.
    (d) Valuation of third party donated supplies and loaned equipment 
or space. (1) If a third party donates supplies, the contribution will 
be valued at the market value of the supplies at the time of donation.
    (2) If a third party donates the use of equipment or space in a 
building but retains title, the contribution will be valued at the fair 
rental rate of the equipment or space.
    (e) Valuation of third party donated equipment, buildings, and land. 
If a third party donates equipment, buildings, or land, and title passes 
to a grantee or subgrantee, the treatment of the donated property will 
depend upon the purpose of the grant or subgrant, as follows:
    (1) Awards for capital expenditures. If the purpose of the grant or 
subgrant is to assist the grantee or subgrantee in the acquisition of 
property, the market

[[Page 357]]

value of that property at the time of donation may be counted as cost 
sharing or matching,
    (2) Other awards. If assisting in the acquisition of property is not 
the purpose of the grant or subgrant, paragraphs (e)(2)(i) and (ii) of 
this section apply:
    (i) If approval is obtained from the awarding agency, the market 
value at the time of donation of the donated equipment or buildings and 
the fair rental rate of the donated land may be counted as cost sharing 
or matching. In the case of a subgrant, the terms of the grant agreement 
may require that the approval be obtained from the Federal agency as 
well as the grantee. In all cases, the approval may be given only if a 
purchase of the equipment or rental of the land would be approved as an 
allowable direct cost. If any part of the donated property was acquired 
with Federal funds, only the non-federal share of the property may be 
counted as cost-sharing or matching.
    (ii) If approval is not obtained under paragraph (e)(2)(i) of this 
section, no amount may be counted for donated land, and only 
depreciation or use allowances may be counted for donated equipment and 
buildings. The depreciation or use allowances for this property are not 
treated as third party in-kind contributions. Instead, they are treated 
as costs incurred by the grantee or subgrantee. They are computed and 
allocated (usually as indirect costs) in accordance with the cost 
principles specified in Sec. 143.22, in the same way as depreciation or 
use allowances for purchased equipment and buildings. The amount of 
depreciation or use allowances for donated equipment and buildings is 
based on the property's market value at the time it was donated.
    (f) Valuation of grantee or subgrantee donated real property for 
construction/acquisition. If a grantee or subgrantee donates real 
property for a construction or facilities acquisition project, the 
current market value of that property may be counted as cost sharing or 
matching. If any part of the donated property was acquired with Federal 
funds, only the non-federal share of the property may be counted as cost 
sharing or matching.
    (g) Appraisal of real property. In some cases under paragraphs (d), 
(e) and (f) of this section, it will be necessary to establish the 
market value of land or a building or the fair rental rate of land or of 
space in a building. In these cases, the Federal agency may require the 
market value or fair rental value be set by an independent appraiser, 
and that the value or rate be certified by the grantee. This requirement 
will also be imposed by the grantee on subgrantees.



Sec. 143.25  Program income.

    (a) General. Grantees are encouraged to earn income to defray 
program costs. Program income includes income from fees for services 
performed, from the use or rental of real or personal property acquired 
with grant funds, from the sale of commodities or items fabricated under 
a grant agreement, and from payments of principal and interest on loans 
made with grant funds. Except as otherwise provided in regulations of 
the Federal agency, program income does not include interest on grant 
funds, rebates, credits, discounts, refunds, etc. and interest earned on 
any of them.
    (b) Definition of program income. Program income means gross income 
received by the grantee or subgrantee directly generated by a grant 
supported activity, or earned only as a result of the grant agreement 
during the grant period. During the grant period is the time between the 
effective date of the award and the ending date of the award reflected 
in the final financial report.
    (c) Cost of generating program income. If authorized by Federal 
regulations or the grant agreement, costs incident to the generation of 
program income may be deducted from gross income to determine program 
income.
    (d) Governmental revenues. Taxes, special assessments, levies, 
fines, and other such revenues raised by a grantee or subgrantee are not 
program income unless the revenues are specifically identified in the 
grant agreement or Federal agency regulations as program income.
    (e) Royalties. Income from royalties and license fees for 
copyrighted material, patents, and inventions developed by a grantee or 
subgrantee is program

[[Page 358]]

income only if the revenues are specifically identified in the grant 
agreement or Federal agency regulations as program income. (See 
Sec. 143.34.)
    (f) Property. Proceeds from the sale of real property or equipment 
will be handled in accordance with the requirements of Secs. 143.31 and 
143.32.
    (g) Use of program income. Program income shall be deducted from 
outlays which may be both Federal and non-Federal as described below, 
unless the Federal agency regulations or the grant agreement specify 
another alternative (or a combination of the alternatives). In 
specifying alternatives, the Federal agency may distinguish between 
income earned by the grantee and income earned by subgrantees and 
between the sources, kinds, or amounts of income. When Federal agencies 
authorize the alternatives in paragraphs (g)(2) and (3) of this section, 
program income in excess of any limits stipulated shall also be deducted 
from outlays.
    (1) Deduction. Ordinarily program income shall be deducted from 
total allowable costs to determine the net allowable costs. Program 
income shall be used for current costs unless the Federal agency 
authorizes otherwise. Program income which the grantee did not 
anticipate at the time of the award shall be used to reduce the Federal 
agency and grantee contributions rather than to increase the funds 
committed to the project.
    (2) Addition. When authorized, program income may be added to the 
funds committed to the grant agreement by the Federal agency and the 
grantee. The program income shall be used for the purposes and under the 
conditions of the grant agreement.
    (3) Cost sharing or matching. When authorized, program income may be 
used to meet the cost sharing or matching requirement of the grant 
agreement. The amount of the Federal grant award remains the same.
    (h) Income after the award period. There are no Federal requirements 
governing the disposition of program income earned after the end of the 
award period (i.e., until the ending date of the final financial report, 
see paragraph (a) of this section), unless the terms of the agreement or 
the Federal agency regulations provide otherwise.



Sec. 143.26  Non-Federal audit.

    (a) Basic rule. Grantees and subgrantees are responsible for 
obtaining audits in accordance with the Single Audit Act of 1984 (31 
U.S.C. 7501-7) and Federal agency implementing regulations. The audits 
shall be made by an independent auditor in accordance with generally 
accepted government auditing standards covering financial and compliance 
audits.
    (b) Subgrantees. State or local governments, as those terms are 
defined for purposes of the Single Audit Act, that receive Federal 
financial assistance and provide $25,000 or more of it in a fiscal year 
to a subgrantee shall:
    (1) Determine whether State or local subgrantees have met the audit 
requirements of the Act and whether subgrantees covered by OMB Circular 
A-110, ``Uniform Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals and Other Nonprofit 
Organizations'' have met the audit requirement. Commercial contractors 
(private forprofit and private and governmental organizations) providing 
goods and services to State and local governments are not required to 
have a single audit performed. State and local govenments should use 
their own procedures to ensure that the contractor has complied with 
laws and regulations affecting the expenditure of Federal funds;
    (2) Determine whether the subgrantee spent Federal assistance funds 
provided in accordance with applicable laws and regulations. This may be 
accomplished by reviewing an audit of the subgrantee made in accordance 
with the Act, Circular A-110, or through other means (e.g., program 
reviews) if the subgrantee has not had such an audit;
    (3) Ensure that appropriate corrective action is taken within six 
months after receipt of the audit report in instance of noncompliance 
with Federal laws and regulations;
    (4) Consider whether subgrantee audits necessitate adjustment of the 
grantee's own records; and

[[Page 359]]

    (5) Require each subgrantee to permit independent auditors to have 
access to the records and financial statements.
    (c) Auditor selection. In arranging for audit services, Sec. 143.36 
shall be followed.

                    Changes, Property, and Subawards



Sec. 143.30  Changes.

    (a) General. Grantees and subgrantees are permitted to rebudget 
within the approved direct cost budget to meet unanticipated 
requirements and may make limited program changes to the approved 
project. However, unless waived by the awarding agency, certain types of 
post-award changes in budgets and projects shall require the prior 
written approval of the awarding agency.
    (b) Relation to cost principles. The applicable cost principles (see 
Sec. 143.22) contain requirements for prior approval of certain types of 
costs. Except where waived, those requirements apply to all grants and 
subgrants even if paragraphs (c) through (f) of this section do not.
    (c) Budget changes--(1) Nonconstruction projects. Except as stated 
in other regulations or an award document, grantees or subgrantees shall 
obtain the prior approval of the awarding agency whenever any of the 
following changes is anticipated under a nonconstruction award:
    (i) Any revision which would result in the need for additional 
funding.
    (ii) Unless waived by the awarding agency, cumulative transfers 
among direct cost categories, or, if applicable, among separately 
budgeted programs, projects, functions, or activities which exceed or 
are expected to exceed ten percent of the current total approved budget, 
whenever the awarding agency's share exceeds $100,000.
    (iii) Transfer of funds allotted for training allowances (i.e., from 
direct payments to trainees to other expense categories).
    (2) Construction projects. Grantees and subgrantees shall obtain 
prior written approval for any budget revision which would result in the 
need for additional funds.
    (3) Combined construction and nonconstruction projects. When a grant 
or subgrant provides funding for both construction and nonconstruction 
activities, the grantee or subgrantee must obtain prior written approval 
from the awarding agency before making any fund or budget transfer from 
nonconstruction to construction or vice versa.
    (d) Programmatic changes. Grantees or subgrantees must obtain the 
prior approval of the awarding agency whenever any of the following 
actions is anticipated:
    (1) Any revision of the scope or objectives of the project 
(regardless of whether there is an associated budget revision requiring 
prior approval).
    (2) Need to extend the period of availability of funds.
    (3) Changes in key persons in cases where specified in an 
application or a grant award. In research projects, a change in the 
project director or principal investigator shall always require approval 
unless waived by the awarding agency.
    (4) Under nonconstruction projects, contracting out, subgranting (if 
authorized by law) or otherwise obtaining the services of a third party 
to perform activities which are central to the purposes of the award. 
This approval requirement is in addition to the approval requirements of 
Sec. 143.36 but does not apply to the procurement of equipment, 
supplies, and general support services.
    (e) Additional prior approval requirements. The awarding agency may 
not require prior approval for any budget revision which is not 
described in paragraph (c) of this section.
    (f) Requesting prior approval. (1) A request for prior approval of 
any budget revision will be in the same budget formal the grantee used 
in its application and shall be accompanied by a narrative justification 
for the proposed revision.
    (2) A request for a prior approval under the applicable Federal cost 
principles (see Sec. 143.22) may be made by letter.
    (3) A request by a subgrantee for prior approval will be addressed 
in writing to the grantee. The grantee will promptly review such request 
and shall approve or disapprove the request in writing. A grantee will 
not approve any budget or project revision which is

[[Page 360]]

inconsistent with the purpose or terms and conditions of the Federal 
grant to the grantee. If the revision, requested by the subgrantee would 
result in a change to the grantee's approved project which requires 
Federal prior approval, the grantee will obtain the Federal agency's 
approval before approving the subgrantee's request.



Sec. 143.31  Real property.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to real property acquired under a grant or subgrant 
will vest upon acquisition in the grantee or subgrantee respectively.
    (b) Use. Except as otherwise provided by Federal statutes, real 
property will be used for the originally authorized purposes as long as 
needed for that purposes, and the grantee or subgrantee shall not 
dispose of or encumber its title or other interests.
    (c) Disposition. When real property is no longer needed for the 
originally authorized purpose, the grantee or subgrantee will request 
disposition instructions from the awarding agency. The instructions will 
provide for one of the following alternatives:
    (1) Retention of title. Retain title after compensating the awarding 
agency. The amount paid to the awarding agency will be computed by 
applying the awarding agency's percentage of participation in the cost 
of the original purchase to the fair market value of the property. 
However, in those situations where a grantee or subgrantee is disposing 
of real property acquired with grant funds and acquiring replacement 
real property under the same program, the net proceeds from the 
disposition may be used as an offset to the cost of the replacement 
property.
    (2) Sale of property. Sell the property and compensate the awarding 
agency. The amount due to the awarding agency will be calculated by 
applying the awarding agency's percentage of participation in the cost 
of the original purchase to the proceeds of the sale after deduction of 
any actual and reasonable selling and fixing-up expenses. If the grant 
is still active, the net proceeds from sale may be offset against the 
original cost of the property. When a grantee or subgrantee is directed 
to sell property, sales procedures shall be followed that provide for 
competition to the extent practicable and result in the highest possible 
return.
    (3) Transfer of title. Transfer title to the awarding agency or to a 
third-party designated/approved by the awarding agency. The grantee or 
subgrantee shall be paid an amount calculated by applying the grantee or 
subgrantee's percentage of participation in the purchase of the real 
property to the current fair market value of the property.



Sec. 143.32  Equipment.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to equipment acquired under a grant or subgrant will 
vest upon acquisition in the grantee or subgrantee respectively.
    (b) States. A State will use, manage, and dispose of equipment 
acquired under a grant by the State in accordance with State laws and 
procedures. Other grantees and subgrantees will follow paragraphs (c) 
through (e) of this section.
    (c) Use. (1) Equipment shall be used by the grantee or subgrantee in 
the program or project for which it was acquired as long as needed, 
whether or not the project or program continues to be supported by 
Federal funds. When no longer needed for the original program or 
project, the equipment may be used in other activities currently or 
previously supported by a Federal agency.
    (2) The grantee or subgrantee shall also make equipment available 
for use on other projects or programs currently or previously supported 
by the Federal Government, providing such use will not interfere with 
the work on the projects or program for which it was originally 
acquired. First preference for other use shall be given to other 
programs or projects supported by the awarding agency. User fees should 
be considered if appropriate.
    (3) Notwithstanding the encouragement in Sec. 143.25(a) to earn 
program income, the grantee or subgrantee must not use equipment 
acquired with grant funds to provide services for a fee to compete 
unfairly with private companies that provide equivalent services,

[[Page 361]]

unless specifically permitted or contemplated by Federal statute.
    (4) When acquiring replacement equipment, the grantee or subgrantee 
may use the equipment to be replaced as a trade-in or sell the property 
and use the proceeds to offset the cost of the replacement property, 
subject to the approval of the awarding agency.
    (d) Management requirements. Procedures for managing equipment 
(including replacement equipment), whether acquired in whole or in part 
with grant funds, until disposition takes place will, as a minimum, meet 
the following requirements:
    (1) Property records must be maintained that include a description 
of the property, a serial number or other identification number, the 
source of property, who holds title, the acquisition date, and cost of 
the property, percentage of Federal participation in the cost of the 
property, the location, use and condition of the property, and any 
ultimate disposition data including the date of disposal and sale price 
of the property.
    (2) A physical inventory of the property must be taken and the 
results reconciled with the property records at least once every two 
years.
    (3) A control system must be developed to ensure adequate safeguards 
to prevent loss, damage, or theft of the property. Any loss, damage, or 
theft shall be investigated.
    (4) Adequate maintenance procedures must be developed to keep the 
property in good condition.
    (5) If the grantee or subgrantee is authorized or required to sell 
the property, proper sales procedures must be established to ensure the 
highest possible return.
    (e) Disposition. When original or replacement equipment acquired 
under a grant or subgrant is no longer needed for the original project 
or program or for other activities currently or previously supported by 
a Federal agency, disposition of the equipment will be made as follows:
    (1) Items of equipment with a current per-unit fair market value of 
less than $5,000 may be retained, sold or otherwise disposed of with no 
further obligation to the awarding agency.
    (2) Items of equipment with a current per unit fair market value in 
excess of $5,000 may be retained or sold and the awarding agency shall 
have a right to an amount calculated by multiplying the current market 
value or proceeds from sale by the awarding agency's share of the 
equipment.
    (3) In cases where a grantee or subgrantee fails to take appropriate 
disposition actions, the awarding agency may direct the grantee or 
subgrantee to take excess and disposition actions.
    (f) Federal equipment. In the event a grantee or subgrantee is 
provided federally-owned equipment:
    (1) Title will remain vested in the Federal Government.
    (2) Grantees or subgrantees will manage the equipment in accordance 
with Federal agency rules and procedures, and submit an annual inventory 
listing.
    (3) When the equipment is no longer needed, the grantee or 
subgrantee will request disposition instructions from the Federal 
agency.
    (g) Right to transfer title. The Federal awarding agency may reserve 
the right to transfer title to the Federal Government or a third part 
named by the awarding agency when such a third party is otherwise 
eligible under existing statutes. Such transfers shall be subject to the 
following standards:
    (1) The property shall be identified in the grant or otherwise made 
known to the grantee in writing.
    (2) The Federal awarding agency shall issue disposition instruction 
within 120 calendar days after the end of the Federal support of the 
project for which it was acquired. If the Federal awarding agency fails 
to issue disposition instructions within the 120 calendar-day period the 
grantee shall follow Sec. 143.32(e).
    (3) When title to equipment is transferred, the grantee shall be 
paid an amount calculated by applying the percentage of participation in 
the purchase to the current fair market value of the property.



Sec. 143.33  Supplies.

    (a) Title. Title to supplies acquired under a grant or subgrant will 
vest, upon acquisition, in the grantee or subgrantee respectively.

[[Page 362]]

    (b) Disposition. If there is a residual inventory of unused supplies 
exceeding $5,000 in total aggregate fair market value upon termination 
or completion of the award, and if the supplies are not needed for any 
other federally sponsored programs or projects, the grantee or 
subgrantee shall compensate the awarding agency for its share.



Sec. 143.34  Copyrights.

    The Federal awarding agency reserves a royalty-free, nonexclusive, 
and irrevocable license to reproduce, publish or otherwise use, and to 
authorize others to use, for Federal Government purposes:
    (a) The copyright in any work developed under a grant, subgrant, or 
contract under a grant or subgrant; and
    (b) Any rights of copyright to which a grantee, subgrantee or a 
contractor purchases ownership with grant support.



Sec. 143.35  Subawards to debarred and suspended parties.

    Grantees and subgrantees must not make any award or permit any award 
(subgrant or contract) at any tier to any party which is debarred or 
suspended or is otherwise excluded from or ineligible for participation 
in Federal assistance programs under Executive Order 12549, ``Debarment 
and Suspension.''



Sec. 143.36  Procurement.

    (a) States. When procuring property and services under a grant, a 
State will follow the same policies and procedures it uses for 
procurements from its non-Federal funds. The State will ensure that 
every purchase order or other contract includes any clauses required by 
Federal statutes and executive orders and their implementing 
regulations. Other grantees and subgrantees will follow paragraphs (b) 
through (i) in this section.
    (b) Procurement standards. (1) Grantees and subgrantees will use 
their own procurement procedures which reflect applicable State and 
local laws and regulations, provided that the procurements conform to 
applicable Federal law and the standards identified in this section.
    (2) Grantees and subgrantees will maintain a contract administration 
system which ensures that contractors perform in accordance with the 
terms, conditions, and specifications of their contracts or purchase 
orders.
    (3) Grantees and subgrantees will maintain a written code of 
standards of conduct governing the performance of their employees 
engaged in the award and administration of contracts. No employee, 
officer or agent of the grantee or subgrantee shall participate in 
selection, or in the award or administration of a contract supported by 
Federal funds if a conflict of interest, real or apparent, would be 
involved. Such a conflict would arise when:
    (i) The employee, officer or agent,
    (ii) Any member of his immediate family,
    (iii) His or her partner, or
    (iv) An organization which employs, or is about to employ, any of 
the above, has a financial or other interest in the firm selected for 
award. The grantee's or subgrantee's officers, employees or agents will 
neither solicit nor accept gratuities, favors or anything of monetary 
value from contractors, potential contractors, or parties to 
subagreements. Grantee and subgrantees may set minimum rules where the 
financial interest is not substantial or the gift is an unsolicited item 
of nominal intrinsic value. To the extent permitted by State or local 
law or regulations, such standards or conduct will provide for 
penalties, sanctions, or other disciplinary actions for violations of 
such standards by the grantee's and subgrantee's officers, employees, or 
agents, or by contractors or their agents. The awarding agency may in 
regulation provide additional prohibitions relative to real, apparent, 
or potential conflicts of interest.
    (4) Grantee and subgrantee procedures will provide for a review of 
proposed procurements to avoid purchase of unnecessary or duplicative 
items. Consideration should be given to consolidating or breaking out 
procurements to obtain a more economical purchase. Where appropriate, an 
analysis will be made of lease versus purchase alternatives, and any 
other appropriate analysis to determine the most economical approach.

[[Page 363]]

    (5) To foster greater economy and efficiency, grantees and 
subgrantees are encouraged to enter into State and local 
intergovernmental agreements for procurement or use of common goods and 
services.
    (6) Grantees and subgrantees are encouraged to use Federal excess 
and surplus property in lieu of purchasing new equipment and property 
whenever such use is feasible and reduces project costs.
    (7) Grantees and subgrantees are encouraged to use value engineering 
clauses in contracts for construction projects of sufficient size to 
offer reasonable opportunities for cost reductions. Value engineering is 
a systematic and creative anaylsis of each contract item or task to 
ensure that its essential function is provided at the overall lower 
cost.
    (8) Grantees and subgrantees will make awards only to responsible 
contractors possessing the ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration will be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (9) Grantees and subgrantees will maintain records sufficient to 
detail the significant history of a procurement. These records will 
include, but are not necessarily limited to the following: rationale for 
the method of procurement, selection of contract type, contractor 
selection or rejection, and the basis for the contract price.
    (10) Grantees and subgrantees will use time and material type 
contracts only--
    (i) After a determination that no other contract is suitable, and
    (ii) If the contract includes a ceiling price that the contractor 
exceeds at its own risk.
    (11) Grantees and subgrantees alone will be responsible, in 
accordance with good administrative practice and sound business 
judgment, for the settlement of all contractual and administrative 
issues arising out of procurements. These issues include, but are not 
limited to source evaluation, protests, disputes, and claims. These 
standards do not relieve the grantee or subgrantee of any contractual 
responsibilities under its contracts. Federal agencies will not 
substitute their judgment for that of the grantee or subgrantee unless 
the matter is primarily a Federal concern. Violations of law will be 
referred to the local, State, or Federal authority having proper 
jurisdiction.
    (12) Grantees and subgrantees will have protest procedures to handle 
and resolve disputes relating to their procurements and shall in all 
instances disclose information regarding the protest to the awarding 
agency. A protestor must exhaust all administrative remedies with the 
grantee and subgrantee before pursuing a protest with the Federal 
agency. Reviews of protests by the Federal agency will be limited to:
    (i) Violations of Federal law or regulations and the standards of 
this section (violations of State or local law will be under the 
jurisdiction of State or local authorities) and
    (ii) Violations of the grantee's or subgrantee's protest procedures 
for failure to review a complaint or protest. Protests received by the 
Federal agency other than those specified above will be referred to the 
grantee or subgrantee.
    (c) Competition. (1) All procurement transactions will be conducted 
in a manner providing full and open competition consistent with the 
standards of Sec. 143.36. Some of the situations considered to be 
restrictive of competition include but are not limited to:
    (i) Placing unreasonable requirements on firms in order for them to 
qualify to do business,
    (ii) Requiring unnecessary experience and excessive bonding,
    (iii) Noncompetitive pricing practices between firms or between 
affiliated companies,
    (iv) Noncompetitive awards to consultants that are on retainer 
contracts,
    (v) Organizational conflicts of interest,
    (vi) Specifying only a brand name product instead of allowing an 
equal product to be offered and describing the performance of other 
relevant requirements of the procurement, and
    (vii) Any arbitrary action in the procurement process.
    (2) Grantees and subgrantees will conduct procurements in a manner

[[Page 364]]

that prohibits the use of statutorily or administratively imposed in-
State or local geographical preferences in the evaluation of bids or 
proposals, except in those cases where applicable Federal statutes 
expressly mandate or encourage geographic preference. Nothing in this 
section preempts State licensing laws. When contracting for 
architectural and engineering (A/E) services, geographic location may be 
a selection criteria provided its application leaves an appropriate 
number of qualified firms, given the nature and size of the project, to 
compete for the contract.
    (3) Grantees will have written selection procedures for procurement 
transactions. These procedures will ensure that all solicitations:
    (i) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. Such 
description shall not, in competitive procurements, contain features 
which unduly restrict competition. The description may include a 
statement of the qualitative nature of the material, product or service 
to be procured, and when necessary, shall set forth those minimum 
essential characteristics and standards to which it must conform if it 
is to satisfy its intended use. Detailed product specifications should 
be avoided if at all possible. When it is impractical or uneconomical to 
make a clear and accurate description of the technical requirements, a 
brand name or equal description may be used as a means to define the 
performance or other salient requirements of a procurement. The specific 
features of the named brand which must be met by offerors shall be 
clearly stated; and
    (ii) Identify all requirements which the offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.
    (4) Grantees and subgrantees will ensure that all prequalified lists 
of persons, firms, or products which are used in acquiring goods and 
services are current and include enough qualified sources to ensure 
maximum open and free competition. Also, grantees and subgrantees will 
not preclude potential bidders from qualifying during the solicitation 
period.
    (d) Methods of procurement to be followed. (1) Procurement by small 
purchase procedures. Small purchase procedures are those relatively 
simple and informal procurement methods for securing services, supplies, 
or other property that do not cost more than the simplified acquisition 
threshold fixed at 41 U.S.C. 403(11) (currently set at $100,000). If 
small purchase procedures are used, price or rate quotations shall be 
obtained from an adequate number of qualified sources.
    (2) Procurement by sealed bids (formal advertising). Bids are 
publicly solicited and a firm-fixed-price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is the 
lowest in price. The sealed bid method is the preferred method for 
procuring construction, if the conditions in Sec. 143.36(d)(2)(i) apply.
    (i) In order for sealed bidding to be feasible, the following 
conditions should be present:
    (A) A complete, adequate, and realistic specification or purchase 
description is available;
    (B) Two or more responsible bidders are willing and able to compete 
effectively and for the business; and
    (C) The procurement lends itself to a firm fixed price contract and 
the selection of the successful bidder can be made principally on the 
basis of price.
    (ii) If sealed bids are used, the following requirements apply:
    (A) The invitation for bids will be publicly advertised and bids 
shall be solicited from an adequate number of known suppliers, providing 
them sufficient time prior to the date set for opening the bids;
    (B) The invitation for bids, which will include any specifications 
and pertinent attachments, shall define the items or services in order 
for the bidder to properly respond;
    (C) All bids will be publicly opened at the time and place 
prescribed in the invitation for bids;
    (D) A firm fixed-price contract award will be made in writing to the 
lowest responsive and responsible bidder. Where specified in bidding 
documents, factors such as discounts, transportation cost, and life 
cycle costs shall be

[[Page 365]]

considered in determining which bid is lowest. Payment discounts will 
only be used to determine the low bid when prior experience indicates 
that such discounts are usually taken advantage of; and
    (E) Any or all bids may be rejected if there is a sound documented 
reason.
    (3) Procurement by competitive proposals. The technique of 
competitive proposals is normally conducted with more than one source 
submitting an offer, and either a fixed-price or cost-reimbursement type 
contract is awarded. It is generally used when conditions are not 
appropriate for the use of sealed bids. If this method is used, the 
following requirements apply:
    (i) Requests for proposals will be publicized and identify all 
evaluation factors and their relative importance. Any response to 
publicized requests for proposals shall be honored to the maximum extent 
practical;
    (ii) Proposals will be solicited from an adequate number of 
qualified sources;
    (iii) Grantees and subgrantees will have a method for conducting 
technical evaluations of the proposals received and for selecting 
awardees;
    (iv) Awards will be made to the responsible firm whose proposal is 
most advantageous to the program, with price and other factors 
considered; and
    (v) Grantees and subgrantees may use competitive proposal procedures 
for qualifications-based procurement of architectural/engineering (A/E) 
professional services whereby competitors' qualifications are evaluated 
and the most qualified competitor is selected, subject to negotiation of 
fair and reasonable compensation. The method, where price is not used as 
a selection factor, can only be used in procurement of A/E professional 
services. It cannot be used to purchase other types of services though 
A/E firms are a potential source to perform the proposed effort.
    (4) Procurement by noncompetitive proposals is procurement through 
solicitation of a proposal from only one source, or after solicitation 
of a number of sources, competition is determined inadequate.
    (i) Procurement by noncompetitive proposals may be used only when 
the award of a contract is infeasible under small purchase procedures, 
sealed bids or competitive proposals and one of the following 
circumstances applies:
    (A) The item is available only from a single source;
    (B) The public exigency or emergency for the requirement will not 
permit a delay resulting from competitive solicitation;
    (C) The awarding agency authorizes noncompetitive proposals; or
    (D) After solicitation of a number of sources, competition is 
determined inadequate.
    (ii) Cost analysis, i.e., verifying the proposed cost data, the 
projections of the data, and the evaluation of the specific elements of 
costs and profits, is required.
    (iii) Grantees and subgrantees may be required to submit the 
proposed procurement to the awarding agency for pre-award review in 
accordance with paragraph (g) of this section.
    (e) Contracting with small and minority firms, women's business 
enterprise and labor surplus area firms. (1) The grantee and subgrantee 
will take all necessary affirmative steps to assure that minority firms, 
women's business enterprises, and labor surplus area firms are used when 
possible.
    (2) Affirmative steps shall include:
    (i) Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;
    (ii) Assuring that small and minority businesses, and women's 
business enterprises are solicited whenever they are potential sources;
    (iii) Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small and 
minority business, and women's business enterprises;
    (iv) Establishing delivery schedules, where the requirement permits, 
which encourage participation by small and minority business, and 
women's business enterprises;
    (v) Using the services and assistance of the Small Business 
Administration, and the Minority Business Development Agency of the 
Department of Commerce; and
    (vi) Requiring the prime contractor, if subcontracts are to be let, 
to take

[[Page 366]]

the affirmative steps listed in paragraphs (e)(2)(i) through (v) of this 
section.
    (f) Contract cost and price. (1) Grantees and subgrantees must 
perform a cost or price analysis in connection with every procurement 
action including contract modifications. The method and degree of 
analysis is dependent on the facts surrounding the particular 
procurement situation, but as a starting point, grantees must make 
independent estimates before receiving bids or proposals. A cost 
analysis must be performed when the offeror is required to submit the 
elements of his estimated cost, e.g., under professional, consulting, 
and architectural engineering services contracts. A cost analysis will 
be necessary when adequate price competition is lacking, and for sole 
source procurements, including contract modifications or change orders, 
unless price resonableness can be established on the basis of a catalog 
or market price of a commercial product sold in substantial quantities 
to the general public or based on prices set by law or regulation. A 
price analysis will be used in all other instances to determine the 
reasonableness of the proposed contract price.
    (2) Grantees and subgrantees will negotiate profit as a separate 
element of the price for each contract in which there is no price 
competition and in all cases where cost analysis is performed. To 
establish a fair and reasonable profit, consideration will be given to 
the complexity of the work to be performed, the risk borne by the 
contractor, the contractor's investment, the amount of subcontracting, 
the quality of its record of past performance, and industry profit rates 
in the surrounding geographical area for similar work.
    (3) Costs or prices based on estimated costs for contracts under 
grants will be allowable only to the extent that costs incurred or cost 
estimates included in negotiated prices are consistent with Federal cost 
principles (see Sec. 143.22). Grantees may reference their own cost 
principles that comply with the applicable Federal cost principles.
    (4) The cost plus a percentage of cost and percentage of 
construction cost methods of contracting shall not be used.
    (g) Awarding agency review. (1) Grantees and subgrantees must make 
available, upon request of the awarding agency, technical specifications 
on proposed procurements where the awarding agency believes such review 
is needed to ensure that the item and/or service specified is the one 
being proposed for purchase. This review generally will take place prior 
to the time the specification is incorporated into a solicitation 
document. However, if the grantee or subgrantee desires to have the 
review accomplished after a solicitation has been developed, the 
awarding agency may still review the specifications, with such review 
usually limited to the technical aspects of the proposed purchase.
    (2) Grantees and subgrantees must on request make available for 
awarding agency pre-award review procurement documents, such as requests 
for proposals or invitations for bids, independent cost estimates, etc. 
when:
    (i) A grantee's or subgrantee's procurement procedures or operation 
fails to comply with the procurement standards in this section; or
    (ii) The procurement is expected to exceed the simplified 
acquisition threshold and is to be awarded without competition or only 
one bid or offer is received in response to a solicitation; or
    (iii) The procurement, which is expected to exceed the simplified 
acquisition threshold, specifies a ``brand name'' product; or
    (iv) The proposed award is more than the simplified acquisition 
threshold and is to be awarded to other than the apparent low bidder 
under a sealed bid procurement; or
    (v) A proposed contract modification changes the scope of a contract 
or increases the contract amount by more than the simplified acquisition 
threshold.
    (3) A grantee or subgrantee will be exempt from the pre-award review 
in paragraph (g)(2) of this section if the awarding agency determines 
that its procurement systems comply with the standards of this section.
    (i) A grantee or subgrantee may request that its procurement system 
be reviewed by the awarding agency to determine whether its system meets

[[Page 367]]

these standards in order for its system to be certified. Generally, 
these reviews shall occur where there is a continuous high-dollar 
funding, and third-party contracts are awarded on a regular basis.
    (ii) A grantee or subgrantee may self-certify its procurement 
system. Such self-certification shall not limit the awarding agency's 
right to survey the system. Under a self-certification procedure, 
awarding agencies may wish to rely on written assurances from the 
grantee or subgrantee that it is complying with these standards. A 
grantee or subgrantee will cite specific procedures, regulations, 
standards, etc., as being in compliance with these requirements and have 
its system available for review.
    (h) Bonding requirements. For construction or facility improvement 
contracts or subcontracts exceeding the simplified acquisition 
threshold, the awarding agency may accept the bonding policy and 
requirements of the grantee or subgrantee provided the awarding agency 
has made a determination that the awarding agency's interest is 
adequately protected. If such a determination has not been made, the 
minimum requirements shall be as follows:
    (1) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' shall consist of a firm commitment 
such as a bid bond, certified check, or other negotiable instrument 
accompanying a bid as assurance that the bidder will, upon acceptance of 
his bid, execute such contractual documents as may be required within 
the time specified.
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price. A ``performance bond'' is one executed in 
connection with a contract to secure fulfillment of all the contractor's 
obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by law of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (i) Contract provisions. A grantee's and subgrantee's contracts must 
contain provisions in paragraph (i) of this section. Federal agencies 
are permitted to require changes, remedies, changed conditions, access 
and records retention, suspension of work, and other clauses approved by 
the Office of Federal Procurement Policy.
    (1) Administrative, contractual, or legal remedies in instances 
where contractors violate or breach contract terms, and provide for such 
sanctions and penalties as may be appropriate. (Contracts more than the 
simplified acquisition threshold)
    (2) Termination for cause and for convenience by the grantee or 
subgrantee including the manner by which it will be effected and the 
basis for settlement. (All contracts in excess of $10,000)
    (3) Compliance with Executive Order 11246 of September 24, 1965, 
entitled ``Equal Employment Opportunity,'' as amended by Executive Order 
11375 of October 13, 1967, and as supplemented in Department of Labor 
regulations (41 CFR chapter 60). (All construction contracts awarded in 
excess of $10,000 by grantees and their contractors or subgrantees)
    (4) Compliance with the Copeland ``Anti-Kickback'' Act (18 U.S.C. 
874) as supplemented in Department of Labor regulations (29 CFR Part 3). 
(All contracts and subgrants for construction or repair)
    (5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a-7) 
as supplemented by Department of Labor regulations (29 CFR Part 5). 
(Construction contracts in excess of $2000 awarded by grantees and 
subgrantees when required by Federal grant program legislation)
    (6) Compliance with Sections 103 and 107 of the Contract Work Hours 
and Safety Standards Act (40 U.S.C. 327-330) as supplemented by 
Department of Labor regulations (29 CFR Part 5). (Construction contracts 
awarded by grantees and subgrantees in excess of $2000, and in excess of 
$2500 for other contracts which involve the employment of mechanics or 
laborers)
    (7) Notice of awarding agency requirements and regulations 
pertaining to reporting.

[[Page 368]]

    (8) Notice of awarding agency requirements and regulations 
pertaining to patent rights with respect to any discovery or invention 
which arises or is developed in the course of or under such contract.
    (9) Awarding agency requirements and regulations pertaining to 
copyrights and rights in data.
    (10) Access by the grantee, the subgrantee, the Federal grantor 
agency, the Comptroller General of the United States, or any of their 
duly authorized representatives to any books, documents, papers, and 
records of the contractor which are directly pertinent to that specific 
contract for the purpose of making audit, examination, excerpts, and 
transcriptions.
    (11) Retention of all required records for three years after 
grantees or subgrantees make final payments and all other pending 
matters are closed.
    (12) Compliance with all applicable standards, orders, or 
requirements issued under section 306 of the Clean Air Act (42 U.S.C. 
1857(h)), section 508 of the Clean Water Act (33 U.S.C. 1368), Executive 
Order 11738, and Environmental Protection Agency regulations (40 CFR 
part 15). (Contracts, subcontracts, and subgrants of amounts in excess 
of $100,000)
    (13) Mandatory standards and policies relating to energy efficiency 
which are contained in the state energy conservation plan issued in 
compliance with the Energy Policy and Conservation Act (Pub. L. 94-163, 
89 Stat. 871).

[53 FR 8048, 8087, Mar. 11, 1988, as amended at 60 FR 19639, 19642, Apr. 
19, 1995]



Sec. 143.37  Subgrants.

    (a) States. States shall follow state law and procedures when 
awarding and administering subgrants (whether on a cost reimbursement or 
fixed amount basis) of financial assistance to local and Indian tribal 
governments. States shall:
    (1) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing regulations;
    (2) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statute and regulation;
    (3) Ensure that a provision for compliance with Sec. 143.42 is 
placed in every cost reimbursement subgrant; and
    (4) Conform any advances of grant funds to subgrantees substantially 
to the same standards of timing and amount that apply to cash advances 
by Federal agencies.
    (b) All other grantees. All other grantees shall follow the 
provisions of this part which are applicable to awarding agencies when 
awarding and administering subgrants (whether on a cost reimbursement or 
fixed amount basis) of financial assistance to local and Indian tribal 
governments. Grantees shall:
    (1) Ensure that every subgrant includes a provision for compliance 
with this part;
    (2) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing regulations; 
and
    (3) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statutes and regulations.
    (c) Exceptions. By their own terms, certain provisions of this part 
do not apply to the award and administration of subgrants:
    (1) Section 143.10;
    (2) Section 143.11;
    (3) The letter-of-credit procedures specified in Treasury 
Regulations at 31 CFR part 205, cited in Sec. 143.21; and
    (4) Section 143.50.

              Reports, Records, Retention, and Enforcement



Sec. 143.40  Monitoring and reporting program performance.

    (a) Monitoring by grantees. Grantees are responsible for managing 
the day-to-day operations of grant and subgrant supported activities. 
Grantees must monitor grant and subgrant supported activities to assure 
compliance with applicable Federal requirements and that performance 
goals are being achieved. Grantee monitoring must cover each program, 
function or activity.
    (b) Nonconstruction performance reports. The Federal agency may, if 
it decides that performance information available from subsequent 
applications contains sufficient information to

[[Page 369]]

meet its programmatic needs, require the grantee to submit a performance 
report only upon expiration or termination of grant support. Unless 
waived by the Federal agency this report will be due on the same date as 
the final Financial Status Report.
    (1) Grantees shall submit annual performance reports unless the 
awarding agency requires quarterly or semi-annual reports. However, 
performance reports will not be required more frequently than quarterly. 
Annual reports shall be due 90 days after the grant year, quarterly or 
semi-annual reports shall be due 30 days after the reporting period. The 
final performance report will be due 90 days after the expiration or 
termination of grant support. If a justified request is submitted by a 
grantee, the Federal agency may extend the due date for any performance 
report. Additionally, requirements for unnecessary performance reports 
may be waived by the Federal agency.
    (2) Performance reports will contain, for each grant, brief 
information on the following:
    (i) A comparison of actual accomplishments to the objectives 
established for the period. Where the output of the project can be 
quantified, a computation of the cost per unit of output may be required 
if that information will be useful.
    (ii) The reasons for slippage if established objectives were not 
met.
    (iii) Additional pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (3) Grantees will not be required to submit more than the original 
and two copies of performance reports.
    (4) Grantees will adhere to the standards in this section in 
prescribing performance reporting requirements for subgrantees.
    (c) Construction performance reports. For the most part, on-site 
technical inspections and certified percentage-of-completion data are 
relied on heavily by Federal agencies to monitor progress under 
construction grants and subgrants. The Federal agency will require 
additional formal performance reports only when considered necessary, 
and never more frequently than quarterly.
    (d) Significant developments. Events may occur between the scheduled 
performance reporting dates which have significant impact upon the grant 
or subgrant supported activity. In such cases, the grantee must inform 
the Federal agency as soon as the following types of conditions become 
known:
    (1) Problems, delays, or adverse conditions which will materially 
impair the ability to meet the objective of the award. This disclosure 
must include a statement of the action taken, or contemplated, and any 
assistance needed to resolve the situation.
    (2) Favorable developments which enable meeting time schedules and 
objectives sooner or at less cost than anticipated or producing more 
beneficial results than originally planned.
    (e) Federal agencies may make site visits as warranted by program 
needs.
    (f) Waivers, extensions. (1) Federal agencies may waive any 
performance report required by this part if not needed.
    (2) The grantee may waive any performance report from a subgrantee 
when not needed. The grantee may extend the due date for any performance 
report from a subgrantee if the grantee will still be able to meet its 
performance reporting obligations to the Federal agency.



Sec. 143.41  Financial reporting.

    (a) General. (1) Except as provided in paragraphs (a)(2) and (5) of 
this section, grantees will use only the forms specified in paragraphs 
(a) through (e) of this section, and such supplementary or other forms 
as may from time to time be authorized by OMB, for:
    (i) Submitting financial reports to Federal agencies, or
    (ii) Requesting advances or reimbursements when letters of credit 
are not used.
    (2) Grantees need not apply the forms prescribed in this section in 
dealing with their subgrantees. However, grantees shall not impose more 
burdensome requirements on subgrantees.
    (3) Grantees shall follow all applicable standard and supplemental 
Federal agency instructions approved by OMB to the extend required under 
the Paperwork Reduction Act of 1980 for use in connection with forms 
specified in

[[Page 370]]

paragraphs (b) through (e) of this section. Federal agencies may issue 
substantive supplementary instructions only with the approval of OMB. 
Federal agencies may shade out or instruct the grantee to disregard any 
line item that the Federal agency finds unnecessary for its 
decisionmaking purposes.
    (4) Grantees will not be required to submit more than the original 
and two copies of forms required under this part.
    (5) Federal agencies may provide computer outputs to grantees to 
expedite or contribute to the accuracy of reporting. Federal agencies 
may accept the required information from grantees in machine usable 
format or computer printouts instead of prescribed forms.
    (6) Federal agencies may waive any report required by this section 
if not needed.
    (7) Federal agencies may extend the due date of any financial report 
upon receiving a justified request from a grantee.
    (b) Financial Status Report--(1) Form. Grantees will use Standard 
Form 269 or 269A, Financial Status Report, to report the status of funds 
for all nonconstruction grants and for construction grants when required 
in accordance with Sec. 143.41(e)(2)(iii) of this section.
    (2) Accounting basis. Each grantee will report program outlays and 
program income on a cash or accrual basis as prescribed by the awarding 
agency. If the Federal agency requires accrual information and the 
grantee's accounting records are not normally kept on the accural basis, 
the grantee shall not be required to convert its accounting system but 
shall develop such accrual information through and analysis of the 
documentation on hand.
    (3) Frequency. The Federal agency may prescribe the frequency of the 
report for each project or program. However, the report will not be 
required more frequently than quarterly. If the Federal agency does not 
specify the frequency of the report, it will be submitted annually. A 
final report will be required upon expiration or termination of grant 
support.
    (4) Due date. When reports are required on a quarterly or semiannual 
basis, they will be due 30 days after the reporting period. When 
required on an annual basis, they will be due 90 days after the grant 
year. Final reports will be due 90 days after the expiration or 
termination of grant support.
    (c) Federal Cash Transactions Report--(1) Form. (i) For grants paid 
by letter or credit, Treasury check advances or electronic transfer of 
funds, the grantee will submit the Standard Form 272, Federal Cash 
Transactions Report, and when necessary, its continuation sheet, 
Standard Form 272a, unless the terms of the award exempt the grantee 
from this requirement.
    (ii) These reports will be used by the Federal agency to monitor 
cash advanced to grantees and to obtain disbursement or outlay 
information for each grant from grantees. The format of the report may 
be adapted as appropriate when reporting is to be accomplished with the 
assistance of automatic data processing equipment provided that the 
information to be submitted is not changed in substance.
    (2) Forecasts of Federal cash requirements. Forecasts of Federal 
cash requirements may be required in the Remarks section of the report.
    (3) Cash in hands of subgrantees. When considered necessary and 
feasible by the Federal agency, grantees may be required to report the 
amount of cash advances in excess of three days' needs in the hands of 
their subgrantees or contractors and to provide short narrative 
explanations of actions taken by the grantee to reduce the excess 
balances.
    (4) Frequency and due date. Grantees must submit the report no later 
than 15 working days following the end of each quarter. However, where 
an advance either by letter of credit or electronic transfer of funds is 
authorized at an annualized rate of one million dollars or more, the 
Federal agency may require the report to be submitted within 15 working 
days following the end of each month.
    (d) Request for advance or reimbursement--(1) Advance payments. 
Requests for Treasury check advance payments will be submitted on 
Standard Form 270, Request for Advance or Reimbursement. (This form will 
not be used for drawdowns under a letter of credit, electronic funds 
transfer or when

[[Page 371]]

Treasury check advance payments are made to the grantee automatically on 
a predetermined basis.)
    (2) Reimbursements. Requests for reimbursement under nonconstruction 
grants will also be submitted on Standard Form 270. (For reimbursement 
requests under construction grants, see paragraph (e)(1) of this 
section.)
    (3) The frequency for submitting payment requests is treated in 
Sec. 143.41(b)(3).
    (e) Outlay report and request for reimbursement for construction 
programs. (1) Grants that support construction activities paid by 
reimbursement method.
    (i) Requests for reimbursement under construction grants will be 
submitted on Standard Form 271, Outlay Report and Request for 
Reimbursement for Construction Programs. Federal agencies may, however, 
prescribe the Request for Advance or Reimbursement form, specified in 
Sec. 143.41(d), instead of this form.
    (ii) The frequency for submitting reimbursement requests is treated 
in Sec. 143.41(b)(3).
    (2) Grants that support construction activities paid by letter of 
credit, electronic funds transfer or Treasury check advance.
    (i) When a construction grant is paid by letter of credit, 
electronic funds transfer or Treasury check advances, the grantee will 
report its outlays to the Federal agency using Standard Form 271, Outlay 
Report and Request for Reimbursement for Construction Programs. The 
Federal agency will provide any necessary special instruction. However, 
frequency and due date shall be governed by Sec. 143.41(b)(3) and (4).
    (ii) When a construction grant is paid by Treasury check advances 
based on periodic requests from the grantee, the advances will be 
requested on the form specified in Sec. 143.41(d).
    (iii) The Federal agency may substitute the Financial Status Report 
specified in Sec. 143.41(b) for the Outlay Report and Request for 
Reimbursement for Construction Programs.
    (3) Accounting basis. The accounting basis for the Outlay Report and 
Request for Reimbursement for Construction Programs shall be governed by 
Sec. 143.41(b)(2).



Sec. 143.42  Retention and access requirements for records.

    (a) Applicability. (1) This section applies to all financial and 
programmatic records, supporting documents, statistical records, and 
other records of grantees or subgrantees which are:
    (i) Required to be maintained by the terms of this part, program 
regulations or the grant agreement, or
    (ii) Otherwise reasonably considered as pertinent to program 
regulations or the grant agreement.
    (2) This section does not apply to records maintained by contractors 
or subcontractors. For a requirement to place a provision concerning 
records in certain kinds of contracts, see Sec. 143.36(i)(10).
    (b) Length of retention period. (1) Except as otherwise provided, 
records must be retained for three years from the starting date 
specified in paragraph (c) of this section.
    (2) If any litigation, claim, negotiation, audit or other action 
involving the records has been started before the expiration of the 3-
year period, the records must be retained until completion of the action 
and resolution of all issues which arise from it, or until the end of 
the regular 3-year period, whichever is later.
    (3) To avoid duplicate recordkeeping, awarding agencies may make 
special arrangements with grantees and subgrantees to retain any records 
which are continuously needed for joint use. The awarding agency will 
request transfer of records to its custody when it determines that the 
records possess long-term retention value. When the records are 
transferred to or maintained by the Federal agency, the 3-year retention 
requirement is not applicable to the grantee or subgrantee.
    (c) Starting date of retention period--(1) General. When grant 
support is continued or renewed at annual or other intervals, the 
retention period for the records of each funding period starts on the 
day the grantee or subgrantee submits to the awarding agency its single 
or last expenditure report for that period. However, if grant support is 
continued or renewed quarterly, the retention period for each year's 
records starts on the day the grantee submits

[[Page 372]]

its expenditure report for the last quarter of the Federal fiscal year. 
In all other cases, the retention period starts on the day the grantee 
submits its final expenditure report. If an expenditure report has been 
waived, the retention period starts on the day the report would have 
been due.
    (2) Real property and equipment records. The retention period for 
real property and equipment records starts from the date of the 
disposition or replacement or transfer at the direction of the awarding 
agency.
    (3) Records for income transactions after grant or subgrant support. 
In some cases grantees must report income after the period of grant 
support. Where there is such a requirement, the retention period for the 
records pertaining to the earning of the income starts from the end of 
the grantee's fiscal year in which the income is earned.
    (4) Indirect cost rate proposals, cost allocations plans, etc. This 
paragraph applies to the following types of documents, and their 
supporting records: indirect cost rate computations or proposals, cost 
allocation plans, and any similar accounting computations of the rate at 
which a particular group of costs is chargeable (such as computer usage 
chargeback rates or composite fringe benefit rates).
    (i) If submitted for negotiation. If the proposal, plan, or other 
computation is required to be submitted to the Federal Government (or to 
the grantee) to form the basis for negotiation of the rate, then the 3-
year retention period for its supporting records starts from the date of 
such submission.
    (ii) If not submitted for negotiation. If the proposal, plan, or 
other computation is not required to be submitted to the Federal 
Government (or to the grantee) for negotiation purposes, then the 3-year 
retention period for the proposal plan, or computation and its 
supporting records starts from end of the fiscal year (or other 
accounting period) covered by the proposal, plan, or other computation.
    (d) Substitution of microfilm. Copies made by microfilming, 
photocopying, or similar methods may be substituted for the original 
records.
    (e) Access to records--(1) Records of grantees and subgrantees. The 
awarding agency and the Comptroller General of the United States, or any 
of their authorized representatives, shall have the right of access to 
any pertinent books, documents, papers, or other records of grantees and 
subgrantees which are pertinent to the grant, in order to make audits, 
examinations, excerpts, and transcripts.
    (2) Expiration of right of access. The rights of access in this 
section must not be limited to the required retention period but shall 
last as long as the records are retained.
    (f) Restrictions on public access. The Federal Freedom of 
Information Act (5 U.S.C. 552) does not apply to records Unless required 
by Federal, State, or local law, grantees and subgrantees are not 
required to permit public access to their records.



Sec. 143.43  Enforcement.

    (a) Remedies for noncompliance. If a grantee or subgrantee 
materially fails to comply with any term of an award, whether stated in 
a Federal statute or regulation, an assurance, in a State plan or 
application, a notice of award, or elsewhere, the awarding agency may 
take one or more of the following actions, as appropriate in the 
circumstances:
    (1) Temporarily withhold cash payments pending correction of the 
deficiency by the grantee or subgrantee or more severe enforcement 
action by the awarding agency,
    (2) Disallow (that is, deny both use of funds and matching credit 
for) all or part of the cost of the activity or action not in 
compliance,
    (3) Wholly or partly suspend or terminate the current award for the 
grantee's or subgrantee's program,
    (4) Withhold further awards for the program, or
    (5) Take other remedies that may be legally available.
    (b) Hearings, appeals. In taking an enforcement action, the awarding 
agency will provide the grantee or subgrantee an opportunity for such 
hearing, appeal, or other administrative proceeding to which the grantee 
or subgrantee is entitled under any statute or regulation applicable to 
the action involved.
    (c) Effects of suspension and termination. Costs of grantee or 
subgrantee

[[Page 373]]

resulting from obligations incurred by the grantee or subgrantee during 
a suspension or after termination of an award are not allowable unless 
the awarding agency expressly authorizes them in the notice of 
suspension or termination or subsequently. Other grantee or subgrantee 
costs during suspension or after termination which are necessary and not 
reasonably avoidable are allowable if:
    (1) The costs result from obligations which were properly incurred 
by the grantee or subgrantee before the effective date of suspension or 
termination, are not in anticipation of it, and, in the case of a 
termination, are noncancellable, and,
    (2) The costs would be allowable if the award were not suspended or 
expired normally at the end of the funding period in which the 
termination takes effect.
    (d) Relationship to debarment and suspension. The enforcement 
remedies identified in this section, including suspension and 
termination, do not preclude grantee or subgrantee from being subject to 
``Debarment and Suspension'' under E.O. 12549 (see Sec. 143.35).



Sec. 143.44  Termination for convenience.

    Except as provided in Sec. 143.43 awards may be terminated in whole 
or in part only as follows:
    (a) By the awarding agency with the consent of the grantee or 
subgrantee in which case the two parties shall agree upon the 
termination conditions, including the effective date and in the case of 
partial termination, the portion to be terminated, or
    (b) By the grantee or subgrantee upon written notification to the 
awarding agency, setting forth the reasons for such termination, the 
effective date, and in the case of partial termination, the portion to 
be terminated. However, if, in the case of a partial termination, the 
awarding agency determines that the remaining portion of the award will 
not accomplish the purposes for which the award was made, the awarding 
agency may terminate the award in its entirety under either Sec. 143.43 
or paragraph (a) of this section.



                 Subpart D--After-The-Grant Requirements



Sec. 143.50  Closeout.

    (a) General. The Federal agency will close out the award when it 
determines that all applicable administrative actions and all required 
work of the grant has been completed.
    (b) Reports. Within 90 days after the expiration or termination of 
the grant, the grantee must submit all financial, performance, and other 
reports required as a condition of the grant. Upon request by the 
grantee, Federal agencies may extend this timeframe. These may include 
but are not limited to:
    (1) Final performance or progress report.
    (2) Financial Status Report (SF 269) or Outlay Report and Request 
for Reimbursement for Construction Programs (SF-271) (as applicable).
    (3) Final request for payment (SF-270) (if applicable).
    (4) Invention disclosure (if applicable).
    (5) Federally-owned property report:
In accordance with Sec. 143.32(f), a grantee must submit an inventory of 
all federally owned property (as distinct from property acquired with 
grant funds) for which it is accountable and request disposition 
instructions from the Federal agency of property no longer needed.
    (c) Cost adjustment. The Federal agency will, within 90 days after 
receipt of reports in paragraph (b) of this section, make upward or 
downward adjustments to the allowable costs.
    (d) Cash adjustments. (1) The Federal agency will make prompt 
payment to the grantee for allowable reimbursable costs.
    (2) The grantee must immediately refund to the Federal agency any 
balance of unobligated (unencumbered) cash advanced that is not 
authorized to be retained for use on other grants.



Sec. 143.51  Later disallowances and adjustments.

    The closeout of a grant does not affect:
    (a) The Federal agency's right to disallow costs and recover funds 
on the basis of a later audit or other review;

[[Page 374]]

    (b) The grantee's obligation to return any funds due as a result of 
later refunds, corrections, or other transactions;
    (c) Records retention as required in Sec. 143.42;
    (d) Property management requirements in Secs. 143.31 and 143.32; and
    (e) Audit requirements in Sec. 143.26.



Sec. 143.52  Collection of amounts due.

    (a) Any funds paid to a grantee in excess of the amount to which the 
grantee is finally determined to be entitled under the terms of the 
award constitute a debt to the Federal Government. If not paid within a 
reasonable period after demand, the Federal agency may reduce the debt 
by:
    (1) Making an adminstrative offset against other requests for 
reimbursements,
    (2) Withholding advance payments otherwise due to the grantee, or
    (3) Other action permitted by law.
    (b) Except where otherwise provided by statutes or regulations, the 
Federal agency will charge interest on an overdue debt in accordance 
with the Federal Claims Collection Standards (4 CFR Ch. II). The date 
from which interest is computed is not extended by litigation or the 
filing of any form of appeal.



                   Subpart E--Entitlements [Reserved]



PART 145--GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) AND GOVERNMENTWIDE REQUIREMENTS FOR DRUG-FREE WORKPLACE (GRANTS)--Table of Contents




                           Subpart A--General

Sec.
145.100  Purpose.
145.105  Definitions.
145.110  Coverage.
145.115  Policy.

                       Subpart B--Effect of Action

145.200  Debarment or suspension.
145.205  Ineligible persons.
145.210  Voluntary exclusion.
145.215  Exception provision.
145.220  Continuation of covered transactions.
145.225  Failure to adhere to restrictions.

                          Subpart C--Debarment

145.300  General.
145.305  Causes for debarment.
145.310  Procedures.
145.311  Investigation and referral.
145.312  Notice of proposed debarment.
145.313  Opportunity to contest proposed debarment.
145.314  Debarring official's decision.
145.315  Settlement and voluntary exclusion.
145.320  Period of debarment.
145.325  Scope of debarment.

                          Subpart D--Suspension

145.400  General.
145.405  Causes for suspension.
145.410  Procedures.
145.411  Notice of suspension.
145.412  Opportunity to contest suspension.
145.413  Suspending official's decision.
145.415  Period of suspension.
145.420  Scope of suspension.

       Subpart E--Responsibilities of GSA, Agency and Participants

145.500  GSA responsibilities.
145.505  SBA responsibilities.
145.510  Participants' responsibilities.

          Subpart F--Drug-Free Workplace Requirements (Grants)

145.600  Purpose.
145.605  Definitions.
145.610  Coverage.
145.615  Grounds for suspension of payments, suspension or termination 
          of grants, or suspension or debarment.
145.620  Effect of violation.
145.625  Exception provision.
145.630  Certification requirements and procedures.
145.635  Reporting of and employee sanctions for convictions of criminal 
          drug offenses.

Appendix A to Part 145--Certification Regarding Debarment, Suspension, 
          and Other Responsibility Matters--Primary Covered Transactions
Appendix B to Part 145--Certification Regarding Debarment, Suspension, 
          Ineligibility and Voluntary Exclusion--Lower Tier Covered 
          Transactions
Appendix C to Part 145--Certification Regarding Drug-Free Workplace 
          Requirements

    Authority: E.O. 12549; Secs. 5151-5160 of the Drug-Free Workplace 
Act of 1988 (Pub. L. 100-690, Title V, Subtitle D; 41 U.S.C. 701 et 
seq.); 15 U.S.C. 634(b)(6).


[[Page 375]]


    Source: 53 FR 19176, 19204, May 26, 1988, unless otherwise noted.

    Editorial Note: For additional information, see related documents 
published at 52 FR 20360, May 29, 1987, 53 FR 19160, May 26, 1988, and 
53 FR 34474, Sept. 6, 1988.

    Cross Reference: See also Office of Management and Budget notice 
published at 55 FR 21679, May 25, 1990, and 60 FR 33036, June 26, 1995.



                           Subpart A--General



Sec. 145.100  Purpose.

    (a) Executive Order (E.O.) 12549 provides that, to the extent 
permitted by law, Executive departments and agencies shall participate 
in a governmentwide system for nonprocurement debarment and suspension. 
A person who is debarred or suspended shall be excluded from Federal 
financial and nonfinancial assistance and benefits under Federal 
programs and activities. Debarment or suspension of a participant in a 
program by one agency shall have governmentwide effect.
    (b) These regulations implement section 3 of E.O. 12549 and the 
guidelines promulgated by the Office of Management and Budget under 
section 6 of the E.O. by:
    (1) Prescribing the programs and activities that are covered by the 
governmentwide system;
    (2) Prescribing the governmentwide criteria and governmentwide 
minimum due process procedures that each agency shall use;
    (3) Providing for the listing of debarred and suspended 
participants, participants declared ineligible (see definition of 
``ineligible'' in Sec. 145.105), and participants who have voluntarily 
excluded themselves from participation in covered transactions;
    (4) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion; and
    (5) Offering such other guidance as necessary for the effective 
implementation and administration of the governmentwide system.
    (c) These regulations also implement Executive Order 12689 (3 CFR, 
1989 Comp., p. 235) and 31 U.S.C. 6101 note (Public Law 103-355, sec. 
2455, 108 Stat. 3327) by--
    (1) Providing for the inclusion in the List of Parties Excluded from 
Federal Procurement and Nonprocurement Programs all persons proposed for 
debarment, debarred or suspended under the Federal Acquisition 
Regulation, 48 CFR Part 9, subpart 9.4; persons against which 
governmentwide exclusions have been entered under this part; and persons 
determined to be ineligible; and
    (2) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion.
    (d) Although these regulations cover the listing of ineligible 
participants and the effect of such listing, they do not prescribe 
policies and procedures governing declarations of ineligibility.

[60 FR 33040, 33044, June 26, 1995]



Sec. 145.105  Definitions.

    The following definitions apply to this part:
    Adequate evidence. Information sufficient to support the reasonable 
belief that a particular act or omission has occurred.
    Affiliate. Persons are affiliates of each other if, directly or 
indirectly, either one controls or has the power to control the other, 
or, a third person controls or has the power to control both. Indicia of 
control include, but are not limited to: interlocking management or 
ownership, identity of interests among family members, shared facilities 
and equipment, common use of employees, or a business entity organized 
following the suspension or debarment of a person which has the same or 
similar management, ownership, or principal employees as the suspended, 
debarred, ineligible, or voluntarily excluded person.
    Agency. Any executive department, military department or defense 
agency or other agency of the executive branch, excluding the 
independent regulatory agencies.
    Civil judgment. The disposition of a civil action by any court of 
competent jurisdiction, whether entered by verdict, decision, 
settlement, stipulation, or otherwise creating a civil liability for the 
wrongful acts complained of; or a final determination of liability under 
the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-12).

[[Page 376]]

    Conviction. A judgment or conviction of a criminal offense by any 
court of competent jurisdiction, whether entered upon a verdict or a 
plea, including a plea of nolo contendere.
    Debarment. An action taken by a debarring official in accordance 
with these regulations to exclude a person from participating in covered 
transactions. A person so excluded is debarred.
    Debarring official. An official authorized to impose debarment. The 
debarring official is either:
    (1) The agency head, or
    (2) An official designated by the agency head.
    Indictment. Indictment for a criminal offense. An information or 
other filing by competent authority charging a criminal offense shall be 
given the same effect as an indictment.
    Ineligible. Excluded from participation in Federal nonprocurement 
programs pursuant to a determination of ineligibility under statutory, 
executive order, or regulatory authority, other than Executive Order 
12549 and its agency implementing regulations; for exemple, excluded 
pursuant to the Davis-Bacon Act and its implementing regulations, the 
equal employment opportunity acts and executive orders, or the 
environmental protection acts and executive orders. A person is 
ineligible where the determination of ineligibility affects such 
person's eligibility to participate in more than one covered 
transaction.
    Legal proceedings. Any criminal proceeding or any civil judicial 
proceeding to which the Federal Government or a State or local 
government or quasi-governmental authority is a party. The term includes 
appeals from such proceedings.
    List of Parties Excluded from Federal Procurement and Nonprocurement 
Programs. A list compiled, maintained and distributed by the General 
Services Administration (GSA) containing the names and other information 
about persons who have been debarred, suspended, or voluntarily excluded 
under Executive Orders 12549 and 12689 and these regulations or 48 CFR 
part 9, subpart 9.4, persons who have been proposed for debarment under 
48 CFR part 9, subpart 9.4, and those persons who have been determined 
to be ineligible.
    Notice. A written communication served in person or sent by 
certified mail, return receipt requested, or its equivalent, to the last 
known address of a party, its identified counsel, its agent for service 
of process, or any partner, officer, director, owner, or joint venturer 
of the party. Notice, if undeliverable, shall be considered to have been 
received by the addressee five days after being properly sent to the 
last address known by the agency.
    Participant. Any person who submits a proposal for, enters into, or 
reasonably may be expected to enter into a covered transaction. This 
term also includes any person who acts on behalf of or is authorized to 
commit a participant in a covered transaction as an agent or 
representative of another participant.
    Person. Any individual, corporation, partnership, association, unit 
of government or legal entity, however organized, except: foreign 
governments or foreign governmental entities, public international 
organizations, foreign government owned (in whole or in part) or 
controlled entities, and entities consisting wholly or partially of 
foreign governments or foreign governmental entities.
    Preponderance of the evidence. Proof by information that, compared 
with that opposing it, leads to the conclusion that the fact at issue is 
more probably true than not.
    Principal. Officer, director, owner, partner, key employee, or other 
person within a participant with primary management or supervisory 
responsibilities; or a person who has a critical influence on or 
substantive control over a covered transaction, whether or not employed 
by the participant. Persons who have a critical influence on or 
substantive control over a covered transaction are:
    (1) Principal investigators.
    (2) Securities brokers and dealers under the section 7(a) Loan, 
Certified Development Company (CDC) and Small Business Investment 
Company (SBIC) Programs.
    Proposal. A solicited or unsolicited bid, application, request, 
invitation to consider or similar communication by

[[Page 377]]

or on behalf of a person seeking to participate or to receive a benefit, 
directly or indirectly, in or under a covered transaction.
    Respondent. A person against whom a debarment or suspension action 
has been initiated.
    State. Any of the States of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, any territory or possession 
of the United States, or any agency of a State, exclusive of 
institutions of higher education, hospitals, and units of local 
government. A State instrumentality will be considered part of the State 
government if it has a written determination from a State government 
that such State considers that instrumentality to be an agency of the 
State government.
    Suspending official. An official authorized to impose suspension. 
The suspending official is either:
    (1) The agency head, or
    (2) An official designated by the agency head.
    Suspension. An action taken by a suspending official in accordance 
with these regulations that immediately excludes a person from 
participating in covered transactions for a temporary period, pending 
completion of an investigation and such legal, debarment, or Program 
Fraud Civil Remedies Act proceedings as may ensue. A person so excluded 
is suspended.
    Voluntary exclusion or voluntarily excluded. A status of 
nonparticipation or limited participation in covered transactions 
assumed by a person pursuant to the terms of a settlement.
    SBA. The Small Business Administration.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988; 60 FR 33041, 33044, June 26, 1995]



Sec. 145.110  Coverage.

    (a) These regulations apply to all persons who have participated, 
are currently participating or may reasonably be expected to participate 
in transactions under Federal nonprocurement programs. For purposes of 
these regulations such transactions will be referred to as covered 
transactions.
    (1) Covered transaction. For purposes of these regulations, a 
covered transaction is a primary covered transaction or a lower tier 
covered transaction. Covered transactions at any tier need not involve 
the transfer of Federal funds.
    (i) Primary covered transaction. Except as noted in paragraph (a)(2) 
of this section, a primary covered transaction is any nonprocurement 
transaction between an agency and a person, regardless of type, 
including: grants, cooperative agreements, scholarships, fellowships, 
contracts of assistance, loans, loan guarantees, subsidies, insurance, 
payments for specified use, donation agreements and any other 
nonprocurement transactions between a Federal agency and a person. 
Primary covered transactions also include those transactions specially 
designated by the U.S. Department of Housing and Urban Development in 
such agency's regulations governing debarment and suspension.
    (ii) Lower tier covered transaction. A lower tier covered 
transaction is:
    (A) Any transaction between a participant and a person other than a 
procurement contract for goods or services, regardless of type, under a 
primary covered transaction.
    (B) Any procurement contract for goods or services between a 
participant and a person, regardless of type, expected to equal or 
exceed the Federal procurement small purchase threshold fixed at 10 
U.S.C. 2304(g) and 41 U.S.C. 253(g) (currently $25,000) under a primary 
covered transaction.
    (C) Any procurement contract for goods or services between a 
participant and a person under a covered transaction, regardless of 
amount, under which that person will have a critical influence on or 
substantive control over that covered transaction. Such persons are:
    (1) Principal investigators.
    (2) Providers of federally-required audit services.
    (3) Securities brokers and dealers under the section 7(a) Loan, 
Certified Development Company (CDC), and Small Business Investment 
Company (SBIC) Programs.
    (4) Applicant representatives under the section 7(a) Loan, Certified 
Development Company (CDC), Small Business Investment Company (SBIC),

[[Page 378]]

Small Business Development Center (SBDC) and section 7(j) Programs.
    (5) Providers of professional services under the section 7(a) Loan, 
Certified Development Center (CDC), Small Business Investment Company 
(SBIC), Small Business Development Center (SBDC), and section 7(j) 
Programs.
    (2) Exceptions. The following transactions are not covered:
    (i) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (ii) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, entities 
consisting wholly or partially of foreign governments or foreign 
governmental entities;
    (iii) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (iv) Federal employment;
    (v) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (vi) Incidental benefits derived from ordinary governmental 
operations; and
    (vii) Other transactions where the application of these regulations 
would be prohibited by law.
    (b) Relationship to other sections. This section describes the types 
of transactions to which a debarment or suspension under the regulations 
will apply. Subpart B, ``Effect of Action,'' Sec. 145.200, ``Debarment 
or suspension,'' sets forth the consequences of a debarment or 
suspension. Those consequences would obtain only with respect to 
participants and principals in the covered transactions and activities 
described in Sec. 145.110(a). Sections 145.325, ``Scope of debarment,'' 
and 145.420, ``Scope of suspension,'' govern the extent to which a 
specific participant or organizational elements of a participant would 
be automatically included within a debarment or suspension action, and 
the conditions under which affiliates or persons associated with a 
participant may also be brought within the scope of the action.
    (c) Relationship to Federal procurement activities. In accordance 
with E.O. 12689 and section 2455 of Public Law 103-355, any debarment, 
suspension, proposed debarment or other governmentwide exclusion 
initiated under the Federal Acquisition Regulation (FAR) on or after 
August 25, 1995 shall be recognized by and effective for Executive 
Branch agencies and participants as an exclusion under this regulation. 
Similarly, any debarment, suspension or other governmentwide exclusion 
initiated under this regulation on or after August 25, 1995 shall be 
recognized by and effective for those agencies as a debarment or 
suspension under the FAR.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988; 60 FR 33041, 33044, June 26, 1995]



Sec. 145.115  Policy.

    (a) In order to protect the public interest, it is the policy of the 
Federal Government to conduct business only with responsible persons. 
Debarment and suspension are discretionary actions that, taken in 
accordance with Executive Order 12549 and these regulations, are 
appropriate means to implement this policy.
    (b) Debarment and suspension are serious actions which shall be used 
only in the public interest and for the Federal Government's protection 
and not for purposes of punishment. Agencies may impose debarment or 
suspension for the causes and in accordance with the procedures set 
forth in these regulations.
    (c) When more than one agency has an interest in the proposed 
debarment or suspension of a person, consideration shall be given to 
designating one agency as the lead agency for making the decision. 
Agencies are encouraged to establish methods and procedures for 
coordinating their debarment or suspension actions.



                       Subpart B--Effect of Action



Sec. 145.200  Debarment or suspension.

    (a) Primary covered transactions. Except to the extent prohibited by 
law, persons who are debarred or suspended shall be excluded from 
primary covered

[[Page 379]]

transactions as either participants or principals throughout the 
Executive Branch of the Federal Government for the period of their 
debarment, suspension, or the period they are proposed for debarment 
under 48 CFR part 9, subpart 9.4. Accordingly, no agency shall enter 
into primary covered transactions with such excluded persons during such 
period, except as permitted pursuant to Sec. 145.215.
    (b) Lower tier covered transactions. Except to the extent prohibited 
by law, persons who have been proposed for debarment under 48 CFR part 
9, subpart 9.4, debarred or suspended shall be excluded from 
participating as either participants or principals in all lower tier 
covered transactions (see Sec. 145.110(a)(1)(ii)) for the period of 
their exclusion.
    (c) Exceptions. Debarment or suspension does not affect a person's 
eligibility for--
    (1) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (2) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, and 
entities consisting wholly or partially of foreign governments or 
foreign governmental entities;
    (3) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (4) Federal employment;
    (5) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (6) Incidental benefits derived from ordinary governmental 
operations; and
    (7) Other transactions where the application of these regulations 
would be prohibited by law.

[60 FR 33041, 33044, June 26, 1995]



Sec. 145.205  Ineligible persons.

    Persons who are ineligible, as defined in Sec. 145.105(i), are 
excluded in accordance with the applicable statutory, executive order, 
or regulatory authority.



Sec. 145.210  Voluntary exclusion.

    Persons who accept voluntary exclusions under Sec. 145.315 are 
excluded in accordance with the terms of their settlements. SBA shall, 
and participants may, contact the original action agency to ascertain 
the extent of the exclusion.



Sec. 145.215  Exception provision.

    SBA may grant an exception permitting a debarred, suspended, or 
voluntarily excluded person, or a person proposed for debarment under 48 
CFR part 9, subpart 9.4, to participate in a particular covered 
transaction upon a written determination by the agency head or an 
authorized designee stating the reason(s) for deviating from the 
Presidential policy established by Executive Order 12549 and 
Sec. 145.200. However, in accordance with the President's stated 
intention in the Executive Order, exceptions shall be granted only 
infrequently. Exceptions shall be reported in accordance with 
Sec. 145.505(a).

[60 FR 33041, 33044, June 26, 1995]



Sec. 145.220  Continuation of covered transactions.

    (a) Notwithstanding the debarment, suspension, proposed debarment 
under 48 CFR part 9, subpart 9.4, determination of ineligibility, or 
voluntary exclusion of any person by an agency, agencies and 
participants may continue covered transactions in existence at the time 
the person was debarred, suspended, proposed for debarment under 48 CFR 
part 9, subpart 9.4, declared ineligible, or voluntarily excluded. A 
decision as to the type of termination action, if any, to be taken 
should be made only after thorough review to ensure the propriety of the 
proposed action.
    (b) Agencies and participants shall not renew or extend covered 
transactions (other than no-cost time extensions) with any person who is 
debarred, suspended, proposed for debarment under 48 CFR part 9, subpart 
9.4, ineligible or voluntary excluded, except as provided in 
Sec. 145.215.

[60 FR 33041, 33044, June 26, 1995]

[[Page 380]]



Sec. 145.225  Failure to adhere to restrictions.

    (a) Except as permitted under Sec. 145.215 or Sec. 145.220, a 
participant shall not knowingly do business under a covered transaction 
with a person who is--
    (1) Debarred or suspended;
    (2) Proposed for debarment under 48 CFR part 9, subpart 9.4; or
    (3) Ineligible for or voluntarily excluded from the covered 
transaction.
    (b) Violation of the restriction under paragraph (a) of this section 
may result in disallowance of costs, annulment or termination of award, 
issuance of a stop work order, debarment or suspension, or other 
remedies as appropriate.
    (c) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, proposed for debarment under 48 
CFR part 9, subpart 9.4, ineligible, or voluntarily excluded from the 
covered transaction (See Appendix B of these regulations), unless it 
knows that the certification is erroneous. An agency has the burden of 
proof that a participant did knowingly do business with a person that 
filed an erroneous certification.

[60 FR 33041, 33044, June 26, 1995]



                          Subpart C--Debarment



Sec. 145.300  General.

    The debarring official may debar a person for any of the causes in 
Sec. 145.305, using procedures established in Secs. 145.310 through 
145.314. The existence of a cause for debarment, however, does not 
necessarily require that the person be debarred; the seriousness of the 
person's acts or omissions and any mitigating factors shall be 
considered in making any debarment decision.



Sec. 145.305  Causes for debarment.

    Debarment may be imposed in accordance with the provisions of 
Secs. 145.300 through 145.314 for:
    (a) Conviction of or civil judgment for:
    (1) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public or private 
agreement or transaction;
    (2) Violation of Federal or State antitrust statutes, including 
those proscribing price fixing between competitors, allocation of 
customers between competitors, and bid rigging;
    (3) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, or obstruction of 
justice; or
    (4) Commission of any other offense indicating a lack of business 
integrity or business honesty that seriously and directly affects the 
present responsibility of a person.
    (b) Violation of the terms of a public agreement or transaction so 
serious as to affect the integrity of an agency program, such as:
    (1) A willful failure to perform in accordance with the terms of one 
or more public agreements or transactions;
    (2) A history of failure to perform or of unsatisfactory performance 
of one or more public agreements or transactions; or
    (3) A willful violation of a statutory or regulatory provision or 
requirement applicable to a public agreement or transaction.
    (c) Any of the following causes:
    (1) A nonprocurement debarment by any Federal agency taken before 
October 1, 1988, the effective date of these regulations, or a 
procurement debarment by any Federal agency taken pursuant to 48 CFR 
subpart 9.4;
    (2) Knowingly doing business with a debarred, suspended, ineligible, 
or voluntarily excluded person, in connection with a covered 
transaction, except as permitted in Sec. 145.215 or Sec. 145.220;
    (3) Failure to pay a single substantial debt, or a number of 
outstanding debts (including disallowed costs and overpayments, but not 
including sums owed the Federal Government under the Internal Revenue 
Code) owed to any Federal agency or instrumentality, provided the debt 
is uncontested by the debtor or, if contested, provided that the 
debtor's legal and administrative remedies have been exhausted;

[[Page 381]]

    (4) Violation of a material provision of a voluntary exclusion 
agreement entered into under Sec. 145.315 or of any settlement of a 
debarment or suspension action; or
    (5) Violation of any requirement of subpart F of this part, relating 
to providing a drug-free workplace, as set forth in Sec. 145.615 of this 
part.
    (d) Any other cause of so serious or compelling a nature that it 
affects the present responsibility of a person.

[53 FR 19176, 19204, May 26, 1988, as amended at 54 FR 4950, 4953, Jan. 
31, 1989]



Sec. 145.310  Procedures.

    SBA shall process debarment actions as informally as practicable, 
consistent with the principles of fundamental fairness, using the 
procedures in Secs. 145.311 through 145.314.



Sec. 145.311  Investigation and referral.

    Information concerning the existence of a cause for debarment from 
any source shall be promptly reported, investigated, and referred, when 
appropriate, to the debarring official for consideration. After 
consideration, the debarring official may issue a notice of proposed 
debarment.



Sec. 145.312  Notice of proposed debarment.

    A debarment proceeding shall be initiated by notice to the 
respondent advising:
    (a) That debarment is being considered;
    (b) Of the reasons for the proposed debarment in terms sufficient to 
put the respondent on notice of the conduct or transaction(s) upon which 
it is based;
    (c) Of the cause(s) relied upon under Sec. 145.305 for proposing 
debarment;
    (d) Of the provisions of Secs. 145.311 through 145.314, and any 
other SBA procedures, if applicable, governing debarment decisionmaking; 
and
    (e) Of the potential effect of a debarment.



Sec. 145.313  Opportunity to contest proposed debarment.

    (a) Submission in opposition. Within 30 days after receipt of the 
notice of proposed debarment, the respondent may submit, in person, in 
writing, or through a representative, information and argument in 
opposition to the proposed debarment.
    (b) Additional proceedings as to disputed material facts. (1) In 
actions not based upon a conviction or civil judgment, if the debarring 
official finds that the respondent's submission in opposition raises a 
genuine dispute over facts material to the proposed debarment, 
respondent(s) shall be afforded an opportunity to appear with a 
representative, submit documentary evidence, present witnesses, and 
confront any witness the agency presents.
    (2) A transcribed record of any additional proceedings shall be made 
available at cost to the respondent, upon request, unless the respondent 
and the agency, by mutual agreement, waive the requirement for a 
transcript.
    (3) In accordance with Sec. 145.314(b)(2), the debarring official 
may refer cases involving disputed material facts to the Office of 
Hearings and Appeals, which shall conduct any additional proceedings 
necessary in accordance with the procedures contained in part 134 of 
this title. Upon conclusion of such proceedings, the Office of Hearings 
and Appeals shall issue a recommended decision to the debarring official 
including proposed findings of facts and conclusions of law.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988]



Sec. 145.314  Debarring official's decision.

    (a) No additional proceedings necessary. In actions based upon a 
conviction or civil judgment, or in which there is no genuine dispute 
over material facts, the debarring official shall make a decision on the 
basis of all the information in the administrative record, including any 
submission made by the respondent. The decision shall be made within 45 
days after receipt of any information and argument submitted by the 
respondent, unless the debarring official extends this period for good 
cause.
    (b) Additional proceedings necessary. (1) In actions in which 
additional proceedings are necessary to determine disputed material 
facts, written findings of fact shall be prepared. The debarring 
official shall base the decision on the facts as found, together with

[[Page 382]]

any information and argument submitted by the respondent and any other 
information in the administrative record.
    (2) The debarring official may refer disputed material facts to 
another official for findings of fact. The debarring official may reject 
any such findings, in whole or in part, only after specifically 
determining them to be arbitrary and capricious or clearly erroneous.
    (i) The Office of Hearings and Appeals shall conduct any proceedings 
regarding disputed material facts necessary under this section.
    (ii) Any party to the debarment proceeding may file exceptions to 
the recommended decision with the debarring official in accordance with 
13 CFR 134.35.
    (3) The debarring official's decision shall be made after the 
conclusion of the proceedings with respect to disputed facts.
    (c)(1) Standard of proof. In any debarment action, the cause for 
debarment must be established by a preponderance of the evidence. Where 
the proposed debarment is based upon a conviction or civil judgment, the 
standard shall be deemed to have been met.
    (2) Burden of proof. The burden of proof is on the agency proposing 
debarment.
    (d) Notice of debarring official's decision. (1) If the debarring 
official decides to impose debarment, the respondent shall be given 
prompt notice:
    (i) Referring to the notice of proposed debarment;
    (ii) Specifying the reasons for debarment;
    (iii) Stating the period of debarment, including effective dates; 
and
    (iv) Advising that the debarment is effective for covered 
transactions throughout the executive branch of the Federal Government 
unless an agency head or an authorized designee makes the determination 
referred to in Sec. 145.215.
    (2) If the debarring official decides not to impose debarment, the 
respondent shall be given prompt notice of that decision. A decision not 
to impose debarment shall be without prejudice to a subsequent 
imposition of debarment by any other agency.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988]



Sec. 145.315  Settlement and voluntary exclusion.

    (a) When in the best interest of the Government, SBA may, at any 
time, settle a debarment or suspension action.
    (b) If a participant and the agency agree to a voluntary exclusion 
of the participant, such voluntary exclusion shall be entered on the 
Nonprocurement List (see subpart E).



Sec. 145.320  Period of debarment.

    (a) Debarment shall be for a period commensurate with the 
seriousness of the cause(s). If a suspension precedes a debarment, the 
suspension period shall be considered in determining the debarment 
period.
    (1) Debarment for causes other than those related to a violation of 
the requirements of subpart F of this part generally should not exceed 
three years. Where circumstances warrant, a longer period of debarment 
may be imposed.
    (2) In the case of a debarment for a violation of the requirements 
of subpart F of this part (see Sec. 145.305(c)(5)), the period of 
debarment shall not exceed five years.
    (b) The debarring official may extend an existing debarment for an 
additional period, if that official determines that an extension is 
necessary to protect the public interest. However, a debarment may not 
be extended solely on the basis of the facts and circumstances upon 
which the initial debarment action was based. If debarment for an 
additional period is determined to be necessary, the procedures of 
Secs. 145.311 through 145.314 shall be followed to extend the debarment.
    (c) The respondent may request the debarring official to reverse the 
debarment decision or to reduce the period or scope of debarment. Such a 
request shall be in writing and supported by documentation. The 
debarring official may grant such a request for reasons including, but 
not limited to:
    (1) Newly discovered material evidence;
    (2) Reversal of the conviction or civil judgment upon which the 
debarment was based;
    (3) Bona fide change in ownership or management;

[[Page 383]]

    (4) Elimination of other causes for which the debarment was imposed; 
or
    (5) Other reasons the debarring official deems appropriate.

[53 FR 19176, 19204, May 26, 1988, as amended at 54 FR 4950, 4953, Jan. 
31, 1989]



Sec. 145.325  Scope of debarment.

    (a) Scope in general. (1) Debarment of a person under these 
regulations constitutes debarment of all its divisions and other 
organizational elements from all covered transactions, unless the 
debarment decision is limited by its terms to one or more specifically 
identified individuals, divisions or other organizational elements or to 
specific types of transactions.
    (2) The debarment action may include any affiliate of the 
participant that is specifically named and given notice of the proposed 
debarment and an opportunity to respond (see Secs. 145.311 through 
145.314).
    (b) Imputing conduct. For purposes of determining the scope of 
debarment, conduct may be imputed as follows:
    (1) Conduct imputed to participant. The fraudulent, criminal or 
other seriously improper conduct of any officer, director, shareholder, 
partner, employee, or other individual associated with a participant may 
be imputed to the participant when the conduct occurred in connection 
with the individual's performance of duties for or on behalf of the 
participant, or with the participant's knowledge, approval, or 
acquiescence. The participant's acceptance of the benefits derived from 
the conduct shall be evidence of such knowledge, approval, or 
acquiescence.
    (2) Conduct imputed to individuals associated with participant. The 
fraudulent, criminal, or other seriously improper conduct of a 
participant may be imputed to any officer, director, shareholder, 
partner, employee, or other individual associated with the participant 
who participated in, knew of, or had reason to know of the participant's 
conduct.
    (3) Conduct of one participant imputed to other participants in a 
joint venture. The fraudulent, criminal, or other seriously improper 
conduct of one participant in a joint venture, grant pursuant to a joint 
application, or similar arrangement may be imputed to other participants 
if the conduct occurred for or on behalf of the joint venture, grant 
pursuant to a joint application, or similar arrangement may be imputed 
to other participants if the conduct occurred for or on behalf of the 
joint venture, grant pursuant to a joint application, or similar 
arrangement or with the knowledge, approval, or acquiescence of these 
participants. Acceptance of the benefits derived from the conduct shall 
be evidence of such knowledge, approval, or acquiescence.



                          Subpart D--Suspension



Sec. 145.400  General.

    (a) The suspending official may suspend a person for any of the 
causes in Sec. 145.405 using procedures established in Secs. 145.410 
through 145.413.
    (b) Suspension is a serious action to be imposed only when:
    (1) There exists adequate evidence of one or more of the causes set 
out in Sec. 145.405, and
    (2) Immediate action is necessary to protect the public interest.
    (c) In assessing the adequacy of the evidence, the agency should 
consider how much information is available, how credible it is given the 
circumstances, whether or not important allegations are corroborated, 
and what inferences can reasonably be drawn as a result. This assessment 
should include an examination of basic documents such as grants, 
cooperative agreements, loan authorizations, and contracts.



Sec. 145.405  Causes for suspension.

    (a) Suspension may be imposed in accordance with the provisions of 
Secs. 145.400 through 145.413 upon adequate evidence:
    (1) To suspect the commission of an offense listed in 
Sec. 145.305(a); or
    (2) That a cause for debarment under Sec. 145.305 may exist.
    (b) Indictment shall constitute adequate evidence for purposes of 
suspension actions.



Sec. 145.410  Procedures.

    (a) Investigation and referral. Information concerning the existence 
of a cause for suspension from any source

[[Page 384]]

shall be promptly reported, investigated, and referred, when 
appropriate, to the suspending official for consideration. After 
consideration, the suspending official may issue a notice of suspension.
    (b) Decisionmaking process. SBA shall process suspension actions as 
informally as practicable, consistent with principles of fundamental 
fairness, using the procedures in Secs. 145.411 through 145.413.



Sec. 145.411  Notice of suspension.

    When a respondent is suspended, notice shall immediately be given:
    (a) That suspension has been imposed;
    (b) That the suspension is based on an indictment, conviction, or 
other adequate evidence that the respondent has committed irregularities 
seriously reflecting on the propriety of further Federal Government 
dealings with the respondent;
    (c) Describing any such irregularities in terms sufficient to put 
the respondent on notice without disclosing the Federal Government's 
evidence;
    (d) Of the cause(s) relied upon under Sec. 145.405 for imposing 
suspension;
    (e) That the suspension is for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings;
    (f) Of the provisions of Secs. 145.411 through 145.413 and any other 
SBA procedures, if applicable, governing suspension decisionmaking; and
    (g) Of the effect of the suspension.



Sec. 145.412  Opportunity to contest suspension.

    (a) Submission in opposition. Within 30 days after receipt of the 
notice of suspension, the respondent may submit, in person, in writing, 
or through a representative, information and argument in opposition to 
the suspension.
    (b) Additional proceedings as to disputed material facts. (1) If the 
suspending official finds that the respondent's submission in opposition 
raises a genuine dispute over facts material to the suspension, 
respondent(s) shall be afforded an opportunity to appear with a 
representative, submit documentary evidence, present witnesses, and 
confront any witness the agency presents, unless:
    (i) The action is based on an indictment, conviction or civil 
judgment, or
    (ii) A determination is made, on the basis of Department of Justice 
advice, that the substantial interests of the Federal Government in 
pending or contemplated legal proceedings based on the same facts as the 
suspension would be prejudiced.
    (2) A transcribed record of any additional proceedings shall be 
prepared and made available at cost to the respondent, upon request, 
unless the respondent and the agency, by mutual agreement, waive the 
requirement for a transcript.
    (3) In accordance with Sec. 145.413(b)(2), the suspending official 
may refer cases involving disputed material facts to the Office of 
Hearings and Appeals, which shall conduct any additional proceedings 
necessary in accordance with the procedures contained in part 134 of 
this title. Upon conclusion of such proceedings, the Office of Hearings 
and Appeals shall issue a recommended decision to the suspending 
official including proposed findings of facts and conclusions of law.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988]



Sec. 145.413  Suspending official's decision.

    The suspending official may modify or terminate the suspension (for 
example, see Sec. 145.320(c) for reasons for reducing the period or 
scope of debarment) or may leave it in force. However, a decision to 
modify or terminate the suspension shall be without prejudice to the 
subsequent imposition of suspension by any other agency or debarment by 
any agency. The decision shall be rendered in accordance with the 
following provisions:
    (a) No additional proceedings necessary. In actions: based on an 
indictment, conviction, or civil judgment; in which there is no genuine 
dispute over material facts; or in which additional proceedings to 
determine disputed material facts have been denied on the basis of 
Department of Justice advice, the suspending official shall make a 
decision on the basis of all the information in the administrative 
record, including

[[Page 385]]

any submission made by the respondent. The decision shall be made within 
45 days after receipt of any information and argument submitted by the 
respondent, unless the suspending official extends this period for good 
cause.
    (b) Additional proceedings necessary. (1) In actions in which 
additional proceedings are necessary to determine disputed material 
facts, written findings of fact shall be prepared. The suspending 
official shall base the decision on the facts as found, together with 
any information and argument submitted by the respondent and any other 
information in the administrative record.
    (2) The suspending official may refer matters involving disputed 
material facts to another official for findings of fact. The suspending 
official may reject any such findings, in whole or in part, only after 
specifically determining them to be arbitrary or capricious or clearly 
erroneous.
    (i) The Office of Hearings and Appeals shall conduct any proceedings 
regarding disputed material facts necessary under this section.
    (ii) Any party to the suspension proceeding may file exceptions to 
the recommended decision with the suspending official in accordance with 
13 CFR 134.35.
    (c) Notice of suspending official's decision. Prompt written notice 
of the suspending official's decision shall be sent to the respondent.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988]



Sec. 145.415  Period of suspension.

    (a) Suspension shall be for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings, unless terminated sooner by the 
suspending official or as provided in paragraph (b) of this section.
    (b) If legal or administrative proceedings are not initiated within 
12 months after the date of the suspension notice, the suspension shall 
be terminated unless an Assistant Attorney General or United States 
Attorney requests its extension in writing, in which case it may be 
extended for an additional six months. In no event may a suspension 
extend beyond 18 months, unless such proceedings have been initiated 
within that period.
    (c) The suspending official shall notify the Department of Justice 
of an impending termination of a suspension, at least 30 days before the 
12-month period expires, to give that Department an opportunity to 
request an extension.



Sec. 145.420  Scope of suspension.

    The scope of a suspension is the same as the scope of a debarment 
(see Sec. 145.325), except that the procedures of Secs. 145.410 through 
145.413 shall be used in imposing a suspension.



       Subpart E--Responsibilities of GSA, Agency and Participants



Sec. 145.500  GSA responsibilities.

    (a) In accordance with the OMB guidelines, GSA shall compile, 
maintain, and distribute a list of all persons who have been debarred, 
suspended, or voluntarily excluded by agencies under Executive Order 
12549 and these regulations, and those who have been determined to be 
ineligible.
    (b) At a minimum, this list shall indicate:
    (1) The names and addresses of all debarred, suspended, ineligible, 
and voluntarily excluded persons, in alphabetical order, with cross-
references when more than one name is involved in a single action;
    (2) The type of action;
    (3) The cause for the action;
    (4) The scope of the action;
    (5) Any termination date for each listing; and
    (6) The agency and name and telephone number of the agency point of 
contact for the action.



Sec. 145.505  SBA responsibilities.

    (a) The agency shall provide GSA with current information concerning 
debarments, suspension, determinations of ineligibility, and voluntary 
exclusions it has taken. Until February 18, 1989, the agency shall also 
provide GSA and OMB with information concerning all transactions in 
which SBA has granted exceptions under Sec. 145.215 permitting 
participation by debarred, suspended, or voluntarily excluded persons.

[[Page 386]]

    (b) Unless an alternative schedule is agreed to by GSA, the agency 
shall advise GSA of the information set forth in Sec. 145.500(b) and of 
the exceptions granted under Sec. 145.215 within five working days after 
taking such actions.
    (c) The agency shall direct inquiries concerning listed persons to 
the agency that took the action.
    (d) Agency officials shall check the Nonprocurement List before 
entering covered transactions to determine whether a participant in a 
primary transaction is debarred, suspended, ineligible, or voluntarily 
excluded (Tel. ).
    (e) Agency officials shall check the Nonprocurement List before 
approving principals or lower tier participants where agency approval of 
the principal or lower tier participant is required under the terms of 
the transaction, to determine whether such principals or participants 
are debarred, suspended, ineligible, or voluntarily excluded.



Sec. 145.510  Participants' responsibilities.

    (a) Certification by participants in primary covered transactions. 
Each participant shall submit the certification in appendix A to this 
part for it and its principals at the time the participant submits its 
proposal in connection with a primary covered transaction, except that 
States need only complete such certification as to their principals. 
Participants may decide the method and frequency by which they determine 
the eligibility of their principals. In addition, each participant may, 
but is not required to, check the Nonprocurement List for its principals 
(Tel. ). Adverse information on the certification will not necessarily 
result in denial of participation. However, the certification, and any 
additional information pertaining to the certification submitted by the 
participant, shall be considered in the administration of covered 
transactions.
    (b) Certification by participants in lower tier covered 
transactions. (1) Each participant shall require participants in lower 
tier covered transactions to include the certification in appendix B to 
this part for it and its principals in any proposal submitted in 
connection with such lower tier covered transactions.
    (2) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, ineligible, or voluntarily 
excluded from the covered transaction by any Federal agency, unless it 
knows that the certification is erroneous. Participants may decide the 
method and frequency by which they determine the eligiblity of their 
principals. In addition, a participant may, but is not required to, 
check the Nonprocurement List for its principals and for participants 
(Tel. ).
    (c) Changed circumstances regarding certification. A participant 
shall provide immediate written notice to SBA if at any time the 
participant learns that its certification was erroneous when submitted 
or has become erroneous by reason of changed circumstances. Participants 
in lower tier covered transactions shall provide the same updated notice 
to the participant to which it submitted its proposals.



          Subpart F--Drug-Free Workplace Requirements (Grants)

    Source: 55 FR 21688, 21692, May 25, 1990, unless otherwise noted.



Sec. 145.600  Purpose.

    (a) The purpose of this subpart is to carry out the Drug-Free 
Workplace Act of 1988 by requiring that--
    (1) A grantee, other than an individual, shall certify to the agency 
that it will provide a drug-free workplace;
    (2) A grantee who is an individual shall certify to the agency that, 
as a condition of the grant, he or she will not engage in the unlawful 
manufacture, distribution, dispensing, possession or use of a controlled 
substance in conducting any activity with the grant.
    (b) Requirements implementing the Drug-Free Workplace Act of 1988 
for contractors with the agency are found at 48 CFR subparts 9.4, 23.5, 
and 52.2.



Sec. 145.605  Definitions.

    (a) Except as amended in this section, the definitions of 
Sec. 145.105 apply to this subpart.

[[Page 387]]

    (b) For purposes of this subpart--
    (1) Controlled substance means a controlled substance in schedules I 
through V of the Controlled Substances Act (21 U.S.C. 812), and as 
further defined by regulation at 21 CFR 1308.11 through 1308.15;
    (2) Conviction means a finding of guilt (including a plea of nolo 
contendere) or imposition of sentence, or both, by any judicial body 
charged with the responsibility to determine violations of the Federal 
or State criminal drug statutes;
    (3) Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance;
    (4) Drug-free workplace means a site for the performance of work 
done in connection with a specific grant at which employees of the 
grantee are prohibited from engaging in the unlawful manufacture, 
distribution, dispensing, possession, or use of a controlled substance;
    (5) Employee means the employee of a grantee directly engaged in the 
performance of work under the grant, including:
    (i) All direct charge employees;
    (ii) All indirect charge employees, unless their impact or 
involvement is insignificant to the performance of the grant; and,
    (iii) Temporary personnel and consultants who are directly engaged 
in the performance of work under the grant and who are on the grantee's 
payroll.

This definition does not include workers not on the payroll of the 
grantee (e.g., volunteers, even if used to meet a matching requirement; 
consultants or independent contractors not on the payroll; or employees 
of subrecipients or subcontractors in covered workplaces);
    (6) Federal agency or agency means any United States executive 
department, military department, government corporation, government 
controlled corporation, any other establishment in the executive branch 
(including the Executive Office of the President), or any independent 
regulatory agency;
    (7) Grant means an award of financial assistance, including a 
cooperative agreement, in the form of money, or property in lieu of 
money, by a Federal agency directly to a grantee. The term grant 
includes block grant and entitlement grant programs, whether or not 
exempted from coverage under the grants management government-wide 
common rule on uniform administrative requirements for grants and 
cooperative agreements. The term does not include technical assistance 
that provides services instead of money, or other assistance in the form 
of loans, loan guarantees, interest subsidies, insurance, or direct 
appropriations; or any veterans' benefits to individuals, i.e., any 
benefit to veterans, their families, or survivors by virtue of the 
service of a veteran in the Armed Forces of the United States;
    (8) Grantee means a person who applies for or receives a grant 
directly from a Federal agency (except another Federal agency);
    (9) Individual means a natural person;
    (10) State means any of the States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency of a State, exclusive of 
institutions of higher education, hospitals, and units of local 
government. A State instrumentality will be considered part of the State 
government if it has a written determination from a State government 
that such State considers the instrumentality to be an agency of the 
State government.



Sec. 145.610  Coverage.

    (a) This subpart applies to any grantee of the agency.
    (b) This subpart applies to any grant, except where application of 
this subpart would be inconsistent with the international obligations of 
the United States or the laws or regulations of a foreign government. A 
determination of such inconsistency may be made only by the agency head 
or his/her designee.
    (c) The provisions of subparts A, B, C, D and E of this part apply 
to matters covered by this subpart, except where specifically modified 
by this subpart. In the event of any conflict between

[[Page 388]]

provisions of this subpart and other provisions of this part, the 
provisions of this subpart are deemed to control with respect to the 
implementation of drug-free workplace requirements concerning grants.



Sec. 145.615  Grounds for suspension of payments, suspension or termination of grants, or suspension or debarment.

    A grantee shall be deemed in violation of the requirements of this 
subpart if the agency head or his or her official designee determines, 
in writing, that--
    (a) The grantee has made a false certification under Sec. 145.630;
    (b) With respect to a grantee other than an individual--
    (1) The grantee has violated the certification by failing to carry 
out the requirements of paragraphs (A)(a)-(g) and/or (B) of the 
certification (Alternate I to Appendix C) or
    (2) Such a number of employees of the grantee have been convicted of 
violations of criminal drug statutes for violations occurring in the 
workplace as to indicate that the grantee has failed to make a good 
faith effort to provide a drug-free workplace.
    (c) With respect to a grantee who is an individual--
    (1) The grantee has violated the certification by failing to carry 
out its requirements (Alternate II to Appendix C); or
    (2) The grantee is convicted of a criminal drug offense resulting 
from a violation occurring during the conduct of any grant activity.



Sec. 145.620  Effect of violation.

    (a) In the event of a violation of this subpart as provided in 
Sec. 145.615, and in accordance with applicable law, the grantee shall 
be subject to one or more of the following actions:
    (1) Suspension of payments under the grant;
    (2) Suspension or termination of the grant; and
    (3) Suspension or debarment of the grantee under the provisions of 
this part.
    (b) Upon issuance of any final decision under this part requiring 
debarment of a grantee, the debarred grantee shall be ineligible for 
award of any grant from any Federal agency for a period specified in the 
decision, not to exceed five years (see Sec. 145.320(a)(2) of this 
part).



Sec. 145.625  Exception provision.

    The agency head may waive with respect to a particular grant, in 
writing, a suspension of payments under a grant, suspension or 
termination of a grant, or suspension or debarment of a grantee if the 
agency head determines that such a waiver would be in the public 
interest. This exception authority cannot be delegated to any other 
official.



Sec. 145.630  Certification requirements and procedures.

    (a)(1) As a prior condition of being awarded a grant, each grantee 
shall make the appropriate certification to the Federal agency providing 
the grant, as provided in appendix C to this part.
    (2) Grantees are not required to make a certification in order to 
continue receiving funds under a grant awarded before March 18, 1989, or 
under a no-cost time extension of such a grant. However, the grantee 
shall make a one-time drug-free workplace certification for a non-
automatic continuation of such a grant made on or after March 18, 1989.
    (b) Except as provided in this section, all grantees shall make the 
required certification for each grant. For mandatory formula grants and 
entitlements that have no application process, grantees shall submit a 
one-time certification in order to continue receiving awards.
    (c) A grantee that is a State may elect to make one certification in 
each Federal fiscal year. States that previously submitted an annual 
certification are not required to make a certification for Fiscal Year 
1990 until June 30, 1990. Except as provided in paragraph (d) of this 
section, this certification shall cover all grants to all State agencies 
from any Federal agency. The State shall retain the original of this 
statewide certification in its Governor's office and, prior to grant 
award, shall ensure that a copy is submitted individually with respect 
to

[[Page 389]]

each grant, unless the Federal agency has designated a central location 
for submission.
    (d)(1) The Governor of a State may exclude certain State agencies 
from the statewide certification and authorize these agencies to submit 
their own certifications to Federal agencies. The statewide 
certification shall name any State agencies so excluded.
    (2) A State agency to which the statewide certification does not 
apply, or a State agency in a State that does not have a statewide 
certification, may elect to make one certification in each Federal 
fiscal year. State agencies that previously submitted a State agency 
certification are not required to make a certification for Fiscal Year 
1990 until June 30, 1990. The State agency shall retain the original of 
this State agency-wide certification in its central office and, prior to 
grant award, shall ensure that a copy is submitted individually with 
respect to each grant, unless the Federal agency designates a central 
location for submission.
    (3) When the work of a grant is done by more than one State agency, 
the certification of the State agency directly receiving the grant shall 
be deemed to certify compliance for all workplaces, including those 
located in other State agencies.
    (e)(1) For a grant of less than 30 days performance duration, 
grantees shall have this policy statement and program in place as soon 
as possible, but in any case by a date prior to the date on which 
performance is expected to be completed.
    (2) For a grant of 30 days or more performance duration, grantees 
shall have this policy statement and program in place within 30 days 
after award.
    (3) Where extraordinary circumstances warrant for a specific grant, 
the grant officer may determine a different date on which the policy 
statement and program shall be in place.



Sec. 145.635  Reporting of and employee sanctions for convictions of criminal drug offenses.

    (a) When a grantee other than an individual is notified that an 
employee has been convicted for a violation of a criminal drug statute 
occurring in the workplace, it shall take the following actions:
    (1) Within 10 calendar days of receiving notice of the conviction, 
the grantee shall provide written notice, including the convicted 
employee's position title, to every grant officer, or other designee on 
whose grant activity the convicted employee was working, unless a 
Federal agency has designated a central point for the receipt of such 
notifications. Notification shall include the identification number(s) 
for each of the Federal agency's affected grants.
    (2) Within 30 calendar days of receiving notice of the conviction, 
the grantee shall do the following with respect to the employee who was 
convicted.
    (i) Take appropriate personnel action against the employee, up to 
and including termination, consistent with requirements of the 
Rehabilitation Act of 1973, as amended; or
    (ii) Require the employee to participate satisfactorily in a drug 
abuse assistance or rehabilitation program approved for such purposes by 
a Federal, State, or local health, law enforcement, or other appropriate 
agency.
    (b) A grantee who is an individual who is convicted for a violation 
of a criminal drug statute occurring during the conduct of any grant 
activity shall report the conviction, in writing, within 10 calendar 
days, to his or her Federal agency grant officer, or other designee, 
unless the Federal agency has designated a central point for the receipt 
of such notices. Notification shall include the identification number(s) 
for each of the Federal agency's affected grants.

(Approved by the Office of Management and Budget under control number 
0991-0002)

 Appendix A to Part 145--Certification Regarding Debarment, Suspension, 
     and Other Responsibility Matters--Primary Covered Transactions

                     Instructions for Certification

    1. By signing and submitting this proposal, the prospective primary 
participant is providing the certification set out below.
    2. The inability of a person to provide the certification required 
below will not necessarily result in denial of participation in this 
covered transaction. The prospective participant shall submit an 
explanation of why it cannot provide the certification set out below. 
The certification or explanation

[[Page 390]]

will be considered in connection with the department or agency's 
determination whether to enter into this transaction. However, failure 
of the prospective primary participant to furnish a certification or an 
explanation shall disqualify such person from participation in this 
transaction.
    3. The certification in this clause is a material representation of 
fact upon which reliance was placed when the department or agency 
determined to enter into this transaction. If it is later determined 
that the prospective primary participant knowingly rendered an erroneous 
certification, in addition to other remedies available to the Federal 
Government, the department or agency may terminate this transaction for 
cause or default.
    4. The prospective primary participant shall provide immediate 
written notice to the department or agency to which this proposal is 
submitted if at any time the prospective primary participant learns that 
its certification was erroneous when submitted or has become erroneous 
by reason of changed circumstances.
    5. The terms covered transaction, debarred, suspended, ineligible, 
lower tier covered transaction, participant, person, primary covered 
transaction, principal, proposal, and voluntarily excluded, as used in 
this clause, have the meanings set out in the Definitions and Coverage 
sections of the rules implementing Executive Order 12549. You may 
contact the department or agency to which this proposal is being 
submitted for assistance in obtaining a copy of those regulations.
    6. The prospective primary participant agrees by submitting this 
proposal that, should the proposed covered transaction be entered into, 
it shall not knowingly enter into any lower tier covered transaction 
with a person who is proposed for debarment under 48 CFR part 9, subpart 
9.4, debarred, suspended, declared ineligible, or voluntarily excluded 
from participation in this covered transaction, unless authorized by the 
department or agency entering into this transaction.
    7. The prospective primary participant further agrees by submitting 
this proposal that it will include the clause titled ``Certification 
Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion-
Lower Tier Covered Transaction,'' provided by the department or agency 
entering into this covered transaction, without modification, in all 
lower tier covered transactions and in all solicitations for lower tier 
covered transactions.
    8. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not proposed for debarment under 48 CFR part 9, 
subpart 9.4, debarred, suspended, ineligible, or voluntarily excluded 
from the covered transaction, unless it knows that the certification is 
erroneous. A participant may decide the method and frequency by which it 
determines the eligibility of its principals. Each participant may, but 
is not required to, check the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs.
    9. Nothing contained in the foregoing shall be construed to require 
establishment of a system of records in order to render in good faith 
the certification required by this clause. The knowledge and information 
of a participant is not required to exceed that which is normally 
possessed by a prudent person in the ordinary course of business 
dealings.
    10. Except for transactions authorized under paragraph 6 of these 
instructions, if a participant in a covered transaction knowingly enters 
into a lower tier covered transaction with a person who is proposed for 
debarment under 48 CFR part 9, subpart 9.4, suspended, debarred, 
ineligible, or voluntarily excluded from participation in this 
transaction, in addition to other remedies available to the Federal 
Government, the department or agency may terminate this transaction for 
cause or default.

Certification Regarding Debarment, Suspension, and Other Responsibility 
                  Matters--Primary Covered Transactions

    (1) The prospective primary participant certifies to the best of its 
knowledge and belief, that it and its principals:
    (a) Are not presently debarred, suspended, proposed for debarment, 
declared ineligible, or voluntarily excluded by any Federal department 
or agency;
    (b) Have not within a three-year period preceding this proposal been 
convicted of or had a civil judgment rendered against them for 
commission of fraud or a criminal offense in connection with obtaining, 
attempting to obtain, or performing a public (Federal, State or local) 
transaction or contract under a public transaction; violation of Federal 
or State antitrust statutes or commission of embezzlement, theft, 
forgery, bribery, falsification or destruction of records, making false 
statements, or receiving stolen property;
    (c) Are not presently indicted for or otherwise criminally or 
civilly charged by a governmental entity (Federal, State or local) with 
commission of any of the offenses enumerated in paragraph (1)(b) of this 
certification; and
    (d) Have not within a three-year period preceding this application/
proposal had one or more public transactions (Federal, State or local) 
terminated for cause or default.
    (2) Where the prospective primary participant is unable to certify 
to any of the statements in this certification, such prospective

[[Page 391]]

participant shall attach an explanation to this proposal.

[60 FR 33042, 33044, June 26, 1995]

 Appendix B to Part 145--Certification Regarding Debarment, Suspension, 
 Ineligibility and Voluntary Exclusion--Lower Tier Covered Transactions

                     Instructions for Certification

    1. By signing and submitting this proposal, the prospective lower 
tier participant is providing the certification set out below.
    2. The certification in this clause is a material representation of 
fact upon which reliance was placed when this transaction was entered 
into. If it is later determined that the prospective lower tier 
participant knowingly rendered an erroneous certification, in addition 
to other remedies available to the Federal Government the department or 
agency with which this transaction originated may pursue available 
remedies, including suspension and/or debarment.
    3. The prospective lower tier participant shall provide immediate 
written notice to the person to which this proposal is submitted if at 
any time the prospective lower tier participant learns that its 
certification was erroneous when submitted or had become erroneous by 
reason of changed circumstances.
    4. The terms covered transaction, debarred, suspended, ineligible, 
lower tier covered transaction, participant, person, primary covered 
transaction, principal, proposal, and voluntarily excluded, as used in 
this clause, have the meaning set out in the Definitions and Coverage 
sections of rules implementing Executive Order 12549. You may contact 
the person to which this proposal is submitted for assistance in 
obtaining a copy of those regulations.
    5. The prospective lower tier participant agrees by submitting this 
proposal that, should the proposed covered transaction be entered into, 
it shall not knowingly enter into any lower tier covered transaction 
with a person who is proposed for debarment under 48 CFR part 9, subpart 
9.4, debarred, suspended, declared ineligible, or voluntarily excluded 
from participation in this covered transaction, unless authorized by the 
department or agency with which this transaction originated.
    6. The prospective lower tier participant further agrees by 
submitting this proposal that it will include this clause titled 
``Certification Regarding Debarment, Suspension, Ineligibility and 
Voluntary Exclusion-Lower Tier Covered Transaction,'' without 
modification, in all lower tier covered transactions and in all 
solicitations for lower tier covered transactions.
    7. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not proposed for debarment under 48 CFR part 9, 
subpart 9.4, debarred, suspended, ineligible, or voluntarily excluded 
from covered transactions, unless it knows that the certification is 
erroneous. A participant may decide the method and frequency by which it 
determines the eligibility of its principals. Each participant may, but 
is not required to, check the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs.
    8. Nothing contained in the foregoing shall be construed to require 
establishment of a system of records in order to render in good faith 
the certification required by this clause. The knowledge and information 
of a participant is not required to exceed that which is normally 
possessed by a prudent person in the ordinary course of business 
dealings.
    9. Except for transactions authorized under paragraph 5 of these 
instructions, if a participant in a covered transaction knowingly enters 
into a lower tier covered transaction with a person who is proposed for 
debarment under 48 CFR part 9, subpart 9.4, suspended, debarred, 
ineligible, or voluntarily excluded from participation in this 
transaction, in addition to other remedies available to the Federal 
Government, the department or agency with which this transaction 
originated may pursue available remedies, including suspension and/or 
debarment.

    Certification Regarding Debarment, Suspension, Ineligibility an 
          Voluntary Exclusion--Lower Tier Covered Transactions

    (1) The prospective lower tier participant certifies, by submission 
of this proposal, that neither it nor its principals is presently 
debarred, suspended, proposed for debarment, declared ineligible, or 
voluntarily excluded from participation in this transaction by any 
Federal department or agency.
    (2) Where the prospective lower tier participant is unable to 
certify to any of the statements in this certification, such prospective 
participant shall attach an explanation to this proposal.

[60 FR 33042, 33044, June 26, 1995]

  Appendix C to Part 145--Certification Regarding Drug-Free Workplace 
                              Requirements

                     Instructions for Certification

    1. By signing and/or submitting this application or grant agreement, 
the grantee is providing the certification set out below.
    2. The certification set out below is a material representation of 
fact upon which reliance is placed when the agency awards the grant. If 
it is later determined that the grantee knowingly rendered a false 
certification, or otherwise violates the requirements of the Drug-Free 
Workplace Act, the

[[Page 392]]

agency, in addition to any other remedies available to the Federal 
Government, may take action authorized under the Drug-Free Workplace 
Act.
    3. For grantees other than individuals, Alternate I applies.
    4. For grantees who are individuals, Alternate II applies.
    5. Workplaces under grants, for grantees other than individuals, 
need not be identified on the certification. If known, they may be 
identified in the grant application. If the grantee does not identify 
the workplaces at the time of application, or upon award, if there is no 
application, the grantee must keep the identity of the workplace(s) on 
file in its office and make the information available for Federal 
inspection. Failure to identify all known workplaces constitutes a 
violation of the grantee's drug-free workplace requirements.
    6. Workplace identifications must include the actual address of 
buildings (or parts of buildings) or other sites where work under the 
grant takes place. Categorical descriptions may be used (e.g., all 
vehicles of a mass transit authority or State highway department while 
in operation, State employees in each local unemployment office, 
performers in concert halls or radio studios).
    7. If the workplace identified to the agency changes during the 
performance of the grant, the grantee shall inform the agency of the 
change(s), if it previously identified the workplaces in question (see 
paragraph five).
    8. Definitions of terms in the Nonprocurement Suspension and 
Debarment common rule and Drug-Free Workplace common rule apply to this 
certification. Grantees' attention is called, in particular, to the 
following definitions from these rules:
    Controlled substance means a controlled substance in Schedules I 
through V of the Controlled Substances Act (21 U.S.C. 812) and as 
further defined by regulation (21 CFR 1308.11 through 1308.15);
    Conviction means a finding of guilt (including a plea of nolo 
contendere) or imposition of sentence, or both, by any judicial body 
charged with the responsibility to determine violations of the Federal 
or State criminal drug statutes;
    Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance;
    Employee means the employee of a grantee directly engaged in the 
performance of work under a grant, including: (i) All direct charge 
employees; (ii) All indirect charge employees unless their impact or 
involvement is insignificant to the performance of the grant; and, (iii) 
Temporary personnel and consultants who are directly engaged in the 
performance of work under the grant and who are on the grantee's 
payroll. This definition does not include workers not on the payroll of 
the grantee (e.g., volunteers, even if used to meet a matching 
requirement; consultants or independent contractors not on the grantee's 
payroll; or employees of subrecipients or subcontractors in covered 
workplaces).

        Certification Regarding Drug-Free Workplace Requirements

             Alternate I. (Grantees Other Than Individuals)

    A. The grantee certifies that it will or will continue to provide a 
drug-free workplace by:
    (a) Publishing a statement notifying employees that the unlawful 
manufacture, distribution, dispensing, possession, or use of a 
controlled substance is prohibited in the grantee's workplace and 
specifying the actions that will be taken against employees for 
violation of such prohibition;
    (b) Establishing an ongoing drug-free awareness program to inform 
employees about--
    (1) The dangers of drug abuse in the workplace;
    (2) The grantee's policy of maintaining a drug-free workplace;
    (3) Any available drug counseling, rehabilitation, and employee 
assistance programs; and
    (4) The penalties that may be imposed upon employees for drug abuse 
violations occurring in the workplace;
    (c) Making it a requirement that each employee to be engaged in the 
performance of the grant be given a copy of the statement required by 
paragraph (a);
    (d) Notifying the employee in the statement required by paragraph 
(a) that, as a condition of employment under the grant, the employee 
will--
    (1) Abide by the terms of the statement; and
    (2) Notify the employer in writing of his or her conviction for a 
violation of a criminal drug statute occurring in the workplace no later 
than five calendar days after such conviction;
    (e) Notifying the agency in writing, within ten calendar days after 
receiving notice under paragraph (d)(2) from an employee or otherwise 
receiving actual notice of such conviction. Employers of convicted 
employees must provide notice, including position title, to every grant 
officer or other designee on whose grant activity the convicted employee 
was working, unless the Federal agency has designated a central point 
for the receipt of such notices. Notice shall include the identification 
number(s) of each affected grant;
    (f) Taking one of the following actions, within 30 calendar days of 
receiving notice under paragraph (d)(2), with respect to any employee 
who is so convicted--

[[Page 393]]

    (1) Taking appropriate personnel action against such an employee, up 
to and including termination, consistent with the requirements of the 
Rehabilitation Act of 1973, as amended; or
    (2) Requiring such employee to participate satisfactorily in a drug 
abuse assistance or rehabilitation program approved for such purposes by 
a Federal, State, or local health, law enforcement, or other appropriate 
agency;
    (g) Making a good faith effort to continue to maintain a drug-free 
workplace through implementation of paragraphs (a), (b), (c), (d), (e) 
and (f).
    B. The grantee may insert in the space provided below the site(s) 
for the performance of work done in connection with the specific grant:

Place of Performance (Street address, city, county, state, zip code)
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________

Check {time}  if there are workplaces on file that are not identified 
here.

              Alternate II. (Grantees Who Are Individuals)

    (a) The grantee certifies that, as a condition of the grant, he or 
she will not engage in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance in conducting 
any activity with the grant;
    (b) If convicted of a criminal drug offense resulting from a 
violation occurring during the conduct of any grant activity, he or she 
will report the conviction, in writing, within 10 calendar days of the 
conviction, to every grant officer or other designee, unless the Federal 
agency designates a central point for the receipt of such notices. When 
notice is made to such a central point, it shall include the 
identification number(s) of each affected grant.

[55 FR 21690, 21692, May 25, 1990]



PART 146--NEW RESTRICTIONS ON LOBBYING--Table of Contents




                           Subpart A--General

146.100  Conditions on use of funds.
146.105  Definitions.
146.110  Certification and disclosure.

                 Subpart B--Activities by Own Employees

146.200  Agency and legislative liaison.
146.205  Professional and technical services.
146.210  Reporting.

            Subpart C--Activities by Other Than Own Employees

146.300  Professional and technical services.

                  Subpart D--Penalties and Enforcement

146.400  Penalties.
146.405  Penalty procedures.
146.410  Enforcement.

                          Subpart E--Exemptions

146.500  Secretary of Defense.

                        Subpart F--Agency Reports

146.600  Semi-annual compilation.
146.605  Inspector General report.

Appendix A to Part 146--Certification Regarding Lobbying
Appendix B to Part 146--Disclosure Form to Reporting Lobbying

    Authority: Section 319, Pub. L. 101-121 (31 U.S.C. 1352); 15 U.S.C. 
634(b)(6).

    Source: 55 FR 6737 and 6747, Feb. 26, 1990, unless otherwise noted.

    Cross reference: See also Office of Management and Budget notice 
published at 54 FR 52306, December 20, 1989.



                           Subpart A--General



Sec. 146.100  Conditions on use of funds.

    (a) No appropriated funds may be expended by the recipient of a 
Federal contract, grant, loan, or cooperative ageement to pay any person 
for influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with any of the following 
covered Federal actions: the awarding of any Federal contract, the 
making of any Federal grant, the making of any Federal loan, the 
entering into of any cooperative agreement, and the extension, 
continuation, renewal, amendment, or modification of any Federal 
contract, grant, loan, or cooperative agreement.
    (b) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or cooperative agreement shall file with that 
agency a certification, set forth in appendix A, that the person has not 
made, and will not make, any payment prohibited by paragraph (a) of this 
section.

[[Page 394]]

    (c) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or a cooperative agreement shall file with that 
agency a disclosure form, set forth in appendix B, if such person has 
made or has agreed to make any payment using nonappropriated funds (to 
include profits from any covered Federal action), which would be 
prohibited under paragraph (a) of this section if paid for with 
appropriated funds.
    (d) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a statement, set forth in appendix A, whether that 
person has made or has agreed to make any payment to influence or 
attempt to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with that loan insurance or guarantee.
    (e) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a disclosure form, set forth in appendix B, if that 
person has made or has agreed to make any payment to influence or 
attempt to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with that loan insurance or guarantee.



Sec. 146.105  Definitions.

    For purposes of this part:
    (a) Agency, as defined in 5 U.S.C. 552(f), includes Federal 
executive departments and agencies as well as independent regulatory 
commissions and Government corporations, as defined in 31 U.S.C. 
9101(1).
    (b) Covered Federal action means any of the following Federal 
actions:
    (1) The awarding of any Federal contract;
    (2) The making of any Federal grant;
    (3) The making of any Federal loan;
    (4) The entering into of any cooperative agreement; and,
    (5) The extension, continuation, renewal, amendment, or modification 
of any Federal contract, grant, loan, or cooperative agreement.

Covered Federal action does not include receiving from an agency a 
commitment providing for the United States to insure or guarantee a 
loan. Loan guarantees and loan insurance are addressed independently 
within this part.
    (c) Federal contract means an acquisition contract awarded by an 
agency, including those subject to the Federal Acquisition Regulation 
(FAR), and any other acquisition contract for real or personal property 
or services not subject to the FAR.
    (d) Federal cooperative agreement means a cooperative agreement 
entered into by an agency.
    (e) Federal grant means an award of financial assistance in the form 
of money, or property in lieu of money, by the Federal Government or a 
direct appropriation made by law to any person. The term does not 
include technical assistance which provides services instead of money, 
or other assistance in the form of revenue sharing, loans, loan 
guarantees, loan insurance, interest subsidies, insurance, or direct 
United States cash assistance to an individual.
    (f) Federal loan means a loan made by an agency. The term does not 
include loan guarantee or loan insurance.
    (g) Indian tribe and tribal organization have the meaning provided 
in section 4 of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450B). Alaskan Natives are included under the definitions 
of Indian tribes in that Act.
    (h) Influencing or attempting to influence means making, with the 
intent to influence, any communication to or appearance before an 
officer or employee or any agency, a Member of Congress, an officer or 
employee of Congress, or an employee of a Member of Congress in 
connection with any covered Federal action.
    (i) Loan guarantee and loan insurance means an agency's guarantee or 
insurance of a loan made by a person.
    (j) Local government means a unit of government in a State and, if 
chartered, established, or otherwise recognized by a State for the 
performance of a governmental duty, including a local

[[Page 395]]

public authority, a special district, an intrastate district, a council 
of governments, a sponsor group representative organization, and any 
other instrumentality of a local government.
    (k) Officer or employee of an agency includes the following 
individuals who are employed by an agency:
    (1) An individual who is appointed to a position in the Government 
under title 5, U.S. Code, including a position under a temporary 
appointment;
    (2) A member of the uniformed services as defined in section 101(3), 
title 37, U.S. Code;
    (3) A special Government employee as defined in section 202, title 
18, U.S. Code; and,
    (4) An individual who is a member of a Federal advisory committee, 
as defined by the Federal Advisory Committee Act, title 5, U.S. Code 
appendix 2.
    (l) Person means an individual, corporation, company, association, 
authority, firm, partnership, society, State, and local government, 
regardless of whether such entity is operated for profit or not for 
profit. This term excludes an Indian tribe, tribal organization, or any 
other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (m) Reasonable compensation means, with respect to a regularly 
employed officer or employee of any person, compensation that is 
consistent with the normal compensation for such officer or employee for 
work that is not furnished to, not funded by, or not furnished in 
cooperation with the Federal Government.
    (n) Reasonable payment means, with respect to perfessional and other 
technical services, a payment in an amount that is consistent with the 
amount normally paid for such services in the private sector.
    (o) Recipient includes all contractors, subcontractors at any tier, 
and subgrantees at any tier of the recipient of funds received in 
connection with a Federal contract, grant, loan, or cooperative 
agreement. The term excludes an Indian tribe, tribal organization, or 
any other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (p) Regularly employed means, with respect to an officer or employee 
of a person requesting or receiving a Federal contract, grant, loan, or 
cooperative agreement or a commitment providing for the United States to 
insure or guarantee a loan, an officer or employee who is employed by 
such person for at least 130 working days within one year immediately 
preceding the date of the submission that initiates agency consideration 
of such person for receipt of such contract, grant, loan, cooperative 
agreement, loan insurance commitment, or loan guarantee commitment. An 
officer or employee who is employed by such person for less than 130 
working days within one year immediately preceding the date of the 
submission that initiates agency consideration of such person shall be 
considered to be regularly employed as soon as he or she is employed by 
such person for 130 working days.
    (q) State means a State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, a territory or possession of 
the United States, an agency or instrumentality of a State, and a multi-
State, regional, or interstate entity having governmental duties and 
powers.



Sec. 146.110  Certification and disclosure.

    (a) Each person shall file a certification, and a disclosure form, 
if required, with each submission that initiates agency consideration of 
such person for:
    (1) Award of a Federal contract, grant, or cooperative agreement 
exceeding $100,000; or
    (2) An award of a Federal loan or a commitment providing for the 
United States to insure or guarantee a loan exceeding $150,000.
    (b) Each person shall file a certification, and a disclosure form, 
if required, upon receipt by such person of:
    (1) A Federal contract, grant, or cooperative agreement exceeding 
$100,000; or
    (2) A Federal loan or a commitment providing for the United States 
to insure or guarantee a loan exceeding $150,000,

Unless such person previously filed a certification, and a disclosure 
form, if

[[Page 396]]

required, under paragraph (a) of this section.
    (c) Each person shall file a disclosure form at the end of each 
calendar quarter in which there occurs any event that requires 
disclosure or that materially affects the accuracy of the information 
contained in any disclosure form previously filed by such person under 
paragraphs (a) or (b) of this section. An event that materially affects 
the accuracy of the information reported includes:
    (1) A cumulative increase of $25,000 or more in the amount paid or 
expected to be paid for influencing or attempting to influence a covered 
Federal action; or
    (2) A change in the person(s) or individual(s) influencing or 
attempting to influence a covered Federal action; or,
    (3) A change in the officer(s), employee(s), or Member(s) contacted 
to influence or attempt to influence a covered Federal action.
    (d) Any person who requests or receives from a person referred to in 
paragraphs (a) or (b) of this section:
    (1) A subcontract exceeding $100,000 at any tier under a Federal 
contract;
    (2) A subgrant, contract, or subcontract exceeding $100,000 at any 
tier under a Federal grant;
    (3) A contract or subcontract exceeding $100,000 at any tier under a 
Federal loan exceeding $150,000; or,
    (4) A contract or subcontract exceeding $100,000 at any tier under a 
Federal cooperative agreement,

Shall file a certification, and a disclosure form, if required, to the 
next tier above.
    (e) All disclosure forms, but not certifications, shall be forwarded 
from tier to tier until received by the person referred to in paragraphs 
(a) or (b) of this section. That person shall forward all disclosure 
forms to the agency.
    (f) Any certification or disclosure form filed under paragraph (e) 
of this section shall be treated as a material representation of fact 
upon which all receiving tiers shall rely. All liability arising from an 
erroneous representation shall be borne solely by the tier filing that 
representation and shall not be shared by any tier to which the 
erroneous representation is forwarded. Submitting an erroneous 
certification or disclosure constitutes a failure to file the required 
certification or disclosure, respectively. If a person fails to file a 
required certification or disclosure, the United States may pursue all 
available remedies, including those authorized by section 1352, title 
31, U.S. Code.
    (g) For awards and commitments in process prior to December 23, 
1989, but not made before that date, certifications shall be required at 
award or commitment, covering activities occurring between December 23, 
1989, and the date of award or commitment. However, for awards and 
commitments in process prior to the December 23, 1989 effective date of 
these provisions, but not made before December 23, 1989, disclosure 
forms shall not be required at time of award or commitment but shall be 
filed within 30 days.
    (h) No reporting is required for an activity paid for with 
appropriated funds if that activity is allowable under either Subpart B 
or C.



                 Subpart B--Activities by Own Employees



Sec. 146.200  Agency and legislative liaison.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 146.100 (a), does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a Federal contract, grant, loan, or cooperative agreement if 
the payment is for agency and legislative liaison activities not 
directly related to a covered Federal action.
    (b) For purposes of paragraph (a) of this section, providing any 
information specifically requested by an agency or Congress is allowable 
at any time.
    (c) For purposes of paragraph (a) of this section, the following 
agency and legislative liaison activities are allowable at any time only 
where they are not related to a specific solicitation for any covered 
Federal action:
    (1) Discussing with an agency (including individual demonstrations) 
the qualities and characteristics of the person's products or services, 
conditions or terms of sale, and service capabilities; and,

[[Page 397]]

    (2) Technical discussions and other activities regarding the 
application or adaptation of the person's products or services for an 
agency's use.
    (d) For purposes of paragraph (a) of this section, the following 
agencies and legislative liaison activities are allowable only where 
they are prior to formal solicitation of any covered Federal action:
    (1) Providing any information not specifically requested but 
necessary for an agency to make an informed decision about initiation of 
a covered Federal action;
    (2) Technical discussions regarding the preparation of an 
unsolicited proposal prior to its official submission; and,
    (3) Capability presentations by persons seeking awards from an 
agency pursuant to the provisions of the Small Business Act, as amended 
by Public Law 95-507 and other subsequent amendments.
    (e) Only those activities expressly authorized by this section are 
allowable under this section.



Sec. 146.205  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 146.100 (a), does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a Federal contract, grant, loan, or cooperative agreement or 
an extension, continuation, renewal, amendment, or modification of a 
Federal contract, grant, loan, or cooperative agreement if payment is 
for professional or technical services rendered directly in the 
preparation, submission, or negotiation of any bid, proposal, or 
application for that Federal contract, grant, loan, or cooperative 
agreement or for meeting requirements imposed by or pursuant to law as a 
condition for receiving that Federal contract, grant, loan, or 
cooperative agreement.
    (b) For purposes of paragraph (a) of this section, professional and 
technical services shall be limited to advice and analysis directly 
applying any professional or technical discipline. For example, drafting 
of a legal document accompanying a bid or proposal by a lawyer is 
allowable. Similarly, technical advice provided by an engineer on the 
performance or operational capability of a piece of equipment rendered 
directly in the negotiation of a contract is allowable. However, 
communications with the intent to influence made by a professional (such 
as a licensed lawyer) or a technical person (such as a licensed 
accountant) are not allowable under this section unless they provide 
advice and analysis directly applying their professional or technical 
expertise and unless the advice or analysis is rendered directly and 
solely in the preparation, submission or negotiation of a covered 
Federal action. Thus, for example, communications with the intent to 
influence made by a lawyer that do not provide legal advice or analysis 
directly and solely related to the legal aspects of his or her client's 
proposal, but generally advocate one proposal over another are not 
allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis prior 
to the preparation or submission of a bid or proposal are not allowable 
under this section since the engineer is providing technical services 
but not directly in the preparation, submission or negotiation of a 
covered Federal action.
    (c) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.
    (d) Only those services expressly authorized by this section are 
allowable under this section.



Sec. 146.210  Reporting.

    No reporting is required with respect to payments of reasonable 
compensation made to regularly employed officers or employees of a 
person.

[[Page 398]]



            Subpart C--Activities by Other Than Own Employees



Sec. 146.300  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 146.100 (a), does not apply in the case of any reasonable payment 
to a person, other than an officer or employee of a person requesting or 
receiving a covered Federal action, if the payment is for professional 
or technical services rendered directly in the preparation, submission, 
or negotiation of any bid, proposal, or application for that Federal 
contract, grant, loan, or cooperative agreement or for meeting 
requirements imposed by or pursuant to law as a condition for receiving 
that Federal contract, grant, loan, or cooperative agreement.
    (b) The reporting requirements in Sec. 146.110 (a) and (b) regarding 
filing a disclosure form by each person, if required, shall not apply 
with respect to professional or technical services rendered directly in 
the preparation, submission, or negotiation of any commitment providing 
for the United States to insure or guarantee a loan.
    (c) For purposes of paragraph (a) of this section, professional and 
technical services shall be limited to advice and analysis directly 
applying any professional or technical discipline. For example, drafting 
or a legal document accompanying a bid or proposal by a lawyer is 
allowable. Similarly, technical advice provided by an engineer on the 
performance or operational capability of a piece of equipment rendered 
directly in the negotiation of a contract is allowable. However, 
communications with the intent to influence made by a professional (such 
as a licensed lawyer) or a technical person (such as a licensed 
accountant) are not allowable under this section unless they provide 
advice and analysis directly applying their professional or technical 
expertise and unless the advice or analysis is rendered directly and 
solely in the preparation, submission or negotiation of a covered 
Federal action. Thus, for example, communications with the intent to 
influence made by a lawyer that do not provide legal advice or analysis 
directly and solely related to the legal aspects of his or her client's 
proposal, but generally advocate one proposal over another are not 
allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis prior 
to the preparation or submission of a bid or proposal are not allowable 
under this section since the engineer is providing technical services 
but not directly in the preparation, submission or negotiation of a 
covered Federal action.
    (d) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.
    (e) Persons other than officers or employees of a person requesting 
or receiving a covered Federal action include consultants and trade 
associations.
    (f) Only those services expressly authorized by this section are 
allowable under this section.



                  Subpart D--Penalties and Enforcement



Sec. 146.400  Penalties.

    (a) Any person who makes an expenditure prohibited herein shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such expenditure.
    (b) Any person who fails to file or amend the disclosure form (see 
appendix B) to be filed or amended if required herein, shall be subject 
to a civil penalty of not less than $10,000 and not more than $100,000 
for each such failure.
    (c) A filing or amended filing on or after the date on which an 
administrative action for the imposition of a civil penalty is commenced 
does not prevent the imposition of such civil penalty for a failure 
occurring before that date. An administrative action is commenced with 
respect to a failure when an investigating official determines in 
writing to commence an investigation of an allegation of such failure.

[[Page 399]]

    (d) In determining whether to impose a civil penalty, and the amount 
of any such penalty, by reason of a violation by any person, the agency 
shall consider the nature, circumstances, extent, and gravity of the 
violation, the effect on the ability of such person to continue in 
business, any prior violations by such person, the degree of culpability 
of such person, the ability of the person to pay the penalty, and such 
other matters as may be appropriate.
    (e) First offenders under paragraphs (a) or (b) of this section 
shall be subject to a civil penalty of $10,000, absent aggravating 
circumstances. Second and subsequent offenses by persons shall be 
subject to an appropriate civil penalty between $10,000 and $100,000, as 
determined by the agency head or his or her designee.
    (f) An imposition of a civil penalty under this section does not 
prevent the United States from seeking any other remedy that may apply 
to the same conduct that is the basis for the imposition of such civil 
penalty.



Sec. 146.405  Penalty procedures.

    Agencies shall impose and collect civil penalties pursuant to the 
provisions of the Program Fraud and Civil Remedies Act, 31 U.S.C. 
sections 3803 (except subsection (c)), 3804, 3805, 3806, 3807, 3808, and 
3812, insofar as these provisions are not inconsistent with the 
requirements herein.



Sec. 146.410  Enforcement.

    The head of each agency shall take such actions as are necessary to 
ensure that the provisions herein are vigorously implemented and 
enforced in that agency.



                          Subpart E--Exemptions



Sec. 146.500  Secretary of Defense.

    (a) The Secretary of Defense may exempt, on a case-by-case basis, a 
covered Federal action from the prohibition whenever the Secretary 
determines, in writing, that such an exemption is in the national 
interest. The Secretary shall transmit a copy of each such written 
exemption to Congress immediately after making such a determination.
    (b) The Department of Defense may issue supplemental regulations to 
implement paragraph (a) of this section.



                        Subpart F--Agency Reports



Sec. 146.600  Semi-annual compilation.

    (a) The head of each agency shall collect and compile the disclosure 
reports (see appendix B) and, on May 31 and November 30 of each year, 
submit to the Secretary of the Senate and the Clerk of the House of 
Representatives a report containing a compilation of the information 
contained in the disclosure reports received during the six-month period 
ending on March 31 or September 30, respectively, of that year.
    (b) The report, including the compilation, shall be available for 
public inspection 30 days after receipt of the report by the Secretary 
and the Clerk.
    (c) Information that involves intelligence matters shall be reported 
only to the Select Committee on Intelligence of the Senate, the 
Permanent Select Committee on Intelligence of the House of 
Representatives, and the Committees on Appropriations of the Senate and 
the House of Representatives in accordance with procedures agreed to by 
such committees. Such information shall not be available for public 
inspection.
    (d) Information that is classified under Executive Order 12356 or 
any successor order shall be reported only to the Committee on Foreign 
Relations of the Senate and the Committee on Foreign Affairs of the 
House of Representatives or the Committees on Armed Services of the 
Senate and the House of Representatives (whichever such committees have 
jurisdiction of matters involving such information) and to the 
Committees on Appropriations of the Senate and the House of 
Representatives in accordance with procedures agreed to by such 
committees. Such information shall not be available for public 
inspection.
    (e) The first semi-annual compilation shall be submitted on May 31, 
1990, and shall contain a compilation of the disclosure reports received 
from December 23, 1989 to March 31, 1990.
    (f) Major agencies, designated by the Office of Management and 
Budget

[[Page 400]]

(OMB), are required to provide machine-readable compilations to the 
Secretary of the Senate and the Clerk of the House of Representatives no 
later than with the compilations due on May 31, 1991. OMB shall provide 
detailed specifications in a memorandum to these agencies.
    (g) Non-major agencies are requested to provide machine-readable 
compilations to the Secretary of the Senate and the Clerk of the House 
of Representatives.
    (h) Agencies shall keep the originals of all disclosure reports in 
the official files of the agency.



Sec. 146.605  Inspector General report.

    (a) The Inspector General, or other official as specified in 
paragraph (b) of this section, of each agency shall prepare and submit 
to Congress each year, commencing with submission of the President's 
Budget in 1991, an evaluation of the compliance of that agency with, and 
the effectiveness of, the requirements herein. The evaluation may 
include any recommended changes that may be necessary to strengthen or 
improve the requirements.
    (b) In the case of an agency that does not have an Inspector 
General, the agency official comparable to an Inspector General shall 
prepare and submit the annual report, or, if there is no such comparable 
official, the head of the agency shall prepare and submit the annual 
report.
    (c) The annual report shall be submitted at the same time the agency 
submits its annual budget justifications to Congress.
    (d) The annual report shall include the following: All alleged 
violations relating to the agency's covered Federal actions during the 
year covered by the report, the actions taken by the head of the agency 
in the year covered by the report with respect to those alleged 
violations and alleged violations in previous years, and the amounts of 
civil penalties imposed by the agency in the year covered by the report.

        Appendix A to Part 146--Certification Regarding Lobbying

 Certification for Contracts, Grants, Loans, and Cooperative Agreements

    The undersigned certifies, to the best of his or her knowledge and 
belief, that:
    (1) No Federal appropriated funds have been paid or will be paid, by 
or on behalf of the undersigned, to any person for influencing or 
attempting to influence an officer or employee of an agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with the awarding of any Federal contract, the 
making of any Federal grant, the making of any Federal loan, the 
entering into of any cooperative agreement, and the extension, 
continuation, renewal, amendment, or modification of any Federal 
contract, grant, loan, or cooperative agreement.
    (2) If any funds other than Federal appropriated funds have been 
paid or will be paid to any person for influencing or attempting to 
influence an officer or employee of any agency, a Member of Congress, an 
officer or employee of Congress, or an employee of a Member of Congress 
in connection with this Federal contract, grant, loan, or cooperative 
agreement, the undersigned shall complete and submit Standard Form-LLL, 
``Disclosure Form to Report Lobbying,'' in accordance with its 
instructions.
    (3) The undersigned shall require that the language of this 
certification be included in the award documents for all subawards at 
all tiers (including subcontracts, subgrants, and contracts under 
grants, loans, and cooperative agreements) and that all subrecipients 
shall certify and disclose accordingly.
    This certification is a material representation of fact upon which 
reliance was placed when this transaction was made or entered into. 
Submission of this certification is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, U.S. 
Code. Any person who fails to file the required certification shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such failure.

            Statement for Loan Guarantees and Loan Insurance

    The undersigned states, to the best of his or her knowledge and 
belief, that:
    If any funds have been paid or will be paid to any person for 
influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with this commitment 
providing for the United States

[[Page 401]]

to insure or guarantee a loan, the undersigned shall complete and submit 
Standard Form-LLL, ``Disclosure Form to Report Lobbying,'' in accordance 
with its instructions.
    Submission of this statement is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, U.S. 
Code. Any person who fails to file the required statement shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such failure.

[[Page 402]]

       Appendix B to Part 146--Disclosure Form to Report Lobbying

[GRAPHIC] [TIFF OMITTED] TC08SE91.000


[[Page 403]]

[GRAPHIC] [TIFF OMITTED] TC08SE91.001



[[Page 404]]

[GRAPHIC] [TIFF OMITTED] TC08SE91.002



[[Page 405]]



CHAPTER III--ECONOMIC DEVELOPMENT ADMINISTRATION, DEPARTMENT OF COMMERCE




  --------------------------------------------------------------------

Part                                                                Page
300             General information.........................         406
301             Designation of areas........................         407
302             Economic development districts..............         412
303             Overall Economic Development Program........         417
304             General selection process and evaluation 
                    criteria................................         419
305             Public Works and Facilities Development 
                    Program.................................         420
306       [Reserved]
307             Local Technical Assistance, University 
                    Center Technical Assistance, National 
                    Technical Assistance, Research and 
                    Evaluation, and Planning................         425
308             Requirements for grants under the Title IX 
                    Economic Adjustment Program.............         430
309-311   [Reserved]
312             Supplemental and basic assistance under 
                    section 304 of the Act..................         434
313       [Reserved]
314             Property management standards...............         435
315             Certification and adjustment assistance for 
                    firms...................................         439
316             General requirements for financial 
                    assistance..............................         446
317             Civil rights................................         450
318       [Reserved]

[[Page 406]]





PART 300--GENERAL INFORMATION--Table of Contents




Sec.
300.1  Purpose.
300.2  Definitions.
300.3  OMB control numbers.
300.4  Economic Development Administration--Washington, DC, Regional and 
          Economic Development Representatives.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49678, Sept. 26, 1995, unless otherwise noted.



Sec. 300.1   Purpose.

    The purpose of the Public Works and Economic Development Act of 
1965, as amended, (PWEDA) as administered by the Economic Development 
Administration (EDA), is to provide assistance in economically 
distressed areas, regions and communities in order to alleviate 
conditions of substantial and persistent unemployment and 
underemployment and to establish stable and diversified economies 
subject to PWEDA. Unless otherwise stated in this Chapter, all parts 
describe requirements which are based upon and subject to PWEDA.



Sec. 300.2   Definitions.

    Unless otherwise defined in other parts or sections of this chapter, 
the terms listed below are defined as follows:
    Act and PWEDA are used interchangeably to mean the Public Works and 
Economic Development Act of 1965, as amended. (Pub. L. 89-136, 42 U.S.C. 
121 et seq.)
    Alaskan Native Village means:
    (1) A town or village site occupied and used by natives of Alaska-
American Indians, Eskimos, and Aleuts under the Native Townsite Act of 
1926;
    (2) Native villages under the Alaska Native Claims Settlement Act 
and any contiguous corporate boundary adjustments under the state laws 
of Alaska; and
    (3) Such additional lands as are authorized to be included under 
Pub. L. 92-203, sec 2, Dec. 18, 1971, 85 Stat. 688, 43 U.S.C. 1601.
    American Indian Tribe means the governing body of a tribe, non-
profit American Indian corporation (restricted to American Indians); 
American Indian authority or other tribal organization or entity or 
Alaskan Native Village.
    Community Development Corporation means an entity as defined in the 
Community Economic Development Act of 1981, 42 U.S.C. 9802; i.e., 
Community Development Corporations receiving financial assistance under 
authority of the Community Assistance Block Grant Act, as amended, 42 
U.S.C. 9815.
    Cooperative agreement, grant, financial assistance award, financial 
assistance grant, offer of grant and grant award all refer to the non-
procurement award of EDA funds to an eligible entity under PWEDA or the 
Trade Act, as applicable.
    District, Economic Development District or EDD means a geographic 
area consisting of one or more redevelopment areas as defined under 
PWEDA and designated in accordance with part 302 of this chapter.
    EDA means the Economic Development Administration when a place or 
agency is intended; or it means the Assistant Secretary of Commerce for 
Economic Development or his/her designee when a person is intended.
    Growth Center means either an Economic Development Center (EDC), 
which is a geographic area located outside an EDA designated area, 
containing a population of 250,000 or less and identified in an OEDP as 
having growth potential and the ability to alleviate distress within the 
EDD; or a Redevelopment Center, which is a geographic area located 
within a designated redevelopment area identified in an OEDP as having 
growth potential and the ability to alleviate distress within the EDD.
    Local share, matching share or local share match are used 
interchangeably to mean non-Federal funds or goods and services from 
recipients or third parties, and includes funds from other Federal 
agencies only if there is statutory authority allowing such use.
    OEDP means an Overall Economic Development Program, (or plan of 
action) pertaining to an area or district.

[[Page 407]]

    Project means the activity or activities whose purpose fulfills EDA 
program requirements and which is funded in whole or in part by EDA.
    Proposed District means a geographic entity composed of one or more 
designated redevelopment areas represented by an entity seeking 
designation as an EDD.
    Public Works and Development Facility means a project funded under 
Title I of the Act.
    Recipient, grantee, and awardee are used interchangeably to mean an 
entity accepting funds from EDA under PWEDA or the Trade Act, as 
applicable and includes any EDA approved successor to such recipient. 
Similarly, subawardee, subgrantee and subrecipient are also used 
interchangeably.
    The Trade Act means Chapter 3, Title II of the Trade Act of 1974, as 
amended (19 U.S.C. 2341 et seq.).



Sec. 300.3   OMB control numbers.

    (a) This table displays control numbers assigned to EDA's 
information collection requirements by the Office of Management and 
Budget (``OMB'') pursuant to the Paperwork Reduction Act of 1980, Pub. 
L. 96-511. EDA intends that this table comply with Section 3507(f) of 
the Paperwork Reduction Act, requiring agencies to display a current 
control number assigned by the Director of OMB for each agency 
information collection requirement.
    (b) Control Number Table:

------------------------------------------------------------------------
                                                             Current OMB
   13 CFR part or section where identified and described     control No.
------------------------------------------------------------------------
303........................................................    0610-0093
305........................................................    0610-0094
                                                               0610-0092
308........................................................    0610-0092
312.5......................................................    0610-0094
315........................................................    0610-0091
316.4......................................................    0610-0082
------------------------------------------------------------------------


[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7981, Mar. 1, 1996]



Sec. 300.4  Economic Development Administration--Washington, DC, Regional and Economic Development Representatives.

    For addresses and phone numbers of the Economic Development 
Administration in Washington, DC, Regional and Field Offices and 
Economic Development Representatives, refer to EDA's annual Fiscal Year 
(FY) Notice of Funding Availability (NOFA).

[61 FR 7981, Mar. 1, 1996]



PART 301--DESIGNATION OF AREAS--Table of Contents




 Subpart A--Standards for Designation of Redevelopment Areas Under and 
                  Subject to Section 401(a) of the Act

Sec.
301.1  Designation on the basis of unemployment.
301.2  Designation on the basis of loss of population.
301.3  Designation on the basis of median family income.
301.4  Designation on the basis of American Indian lands.
301.5  Designation on the basis of sudden rise in unemployment.
301.6  Designation of public works impact program areas.
301.7  Designation of special impact areas.
301.8  Recognition of redevelopment areas designated under the Community 
          Economic Redevelopment Act of 1981, as amended.
301.9  Designation on the basis of per capita employment.
301.10  Designation on the basis of substantial unemployment and the 
          national average rate of unemployment.
301.11  Designation on the basis of long-term economic deterioration.
301.12  Exception to criteria for qualification.

             Subpart B--Limitations on Designation of Areas

301.13  Limitations with respect to the size and boundaries of 
          redevelopment areas.
301.14  Receipt of an acceptable OEDP.

               Subpart C--Modification of Designated Areas

301.15  Adjustment of boundaries.

                            Subpart D--Notice

  301.16  Notification of public officials.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49679, Sept. 26, 1995, unless otherwise noted.

[[Page 408]]



 Subpart A--Standards for Designation of Redevelopment Areas Under and 
                  Subject to Section 401(a) of the Act



Sec. 301.1  Designation on the basis of unemployment.

    On the basis of labor force data on unemployment supplied by the 
Secretary of Labor, EDA shall designate such redevelopment areas in 
accordance with section 401(a) of the Act.



Sec. 301.2  Designation on the basis of loss of population.

    Such designation shall be made in accordance with section 401(a) of 
the Act, 42 U.S.C. 3161.



Sec. 301.3  Designation on the basis of median family income.

    Such designation shall be made in accordance with section 401(a) of 
the Act.



Sec. 301.4  Designation on the basis of American Indian lands.

    (a) EDA shall designate as Redevelopment Areas those American Indian 
reservations, American Indian trust land areas, and restricted American 
Indian-owned land areas, including Alaskan Native Villages, which 
manifest the greatest degree of economic distress.
    (1) American Indian reservations shall consist of land areas which 
by official Federal or State action or recognition have been reserved 
for the use and benefit of a specific American Indian tribe or tribes, 
and shall include those lands to which the Federal or State Government 
retains title and may include tribally-owned lands, lands allotted to 
individual tribal members, and interspersed land belonging to non-
American Indians.
    (2) American Indian trust land areas shall consist of land areas 
held in trust by or under the authority of Federal or State Government 
for use and occupancy by American Indians.
    (3) Restricted American Indian-owned land areas shall consist of 
land areas owned by American Indian tribes, but subject to restrictions 
on alienation or use imposed by Federal or State Governments.
    (b) EDA shall make such designations of Redevelopment Areas upon 
consultation with the Secretary of Interior or an appropriate State 
agency and on the basis of unemployment and income statistics and other 
appropriate evidence of economic underdevelopment.
    (c) EDA, upon consultation with the Secretary of Interior or an 
appropriate State agency, may designate uninhabited Federal or State 
American Indian reservations or trust or restricted American Indian-
owned land areas where such designation would permit assistance to 
American Indian tribes, with a direct beneficial effect on the economic 
well-being of American Indians.
    (d) When the determination of economic distress pertains to land 
areas that are not contiguous, it must be shown that there is a clear 
economic connection justifying the inclusion of the noncontiguous land 
areas that will contribute to a more effective economic development 
program for the area.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7982, Mar. 1, 1996]



Sec. 301.5  Designation on the basis of sudden rise in unemployment.

    Such designation can be made under the Act when the following 
conditions are met:
    (a) Where the loss, removal, curtailment, or closing of the major 
source of employment has occurred provided that:
    (1) The major source of employment shall be construed as a single 
firm or industry; or
    (2) Job losses in more than a single firm or in more than in a 
single industry may be considered in the aggregate where:
    (i) There is a clear demonstrable economic connection between or 
among the firms or industries; or
    (ii) More than one firm or industry has been affected by a common 
disaster.
    (3) A major source of employment is when its loss, removal, 
curtailment, or closing has caused or can reasonably be expected to 
cause:
    (i) An increase of 500 or more of unemployed persons in the area; or
    (ii) An increase of 2 percentage points or more in the area's 
unemployment

[[Page 409]]

rate, based on the relationship of actual or expected additional 
unemployed to the number of persons in the area's labor force.
    (b) Where there is an actual or threatened closing of a major source 
of employment within 3 years after the date of the area's request 
provided that:
    (1) The rise in unemployment must be shown to be unusual or unique 
for the area, the industry, and the time of year; and
    (2) Such rise must have occurred or be reasonably expected to occur 
during a 1-year period within the qualifying span of 3 years before to 3 
years after the date of the request for designation.
    (c) The area's unemployment rate can reasonably be expected to 
exceed the national average by 50 percent or more, except for those job-
loss situations in which it is public knowledge that the jobs lost were 
or will be of a type in such great demand that the persons laid off were 
or will be readily reemployable.
    (d) Areas designated under this section are allowed a reasonable 
time after designation to submit an acceptable OEDP to EDA. An area 
designated under this section which does not have an approved OEDP is 
not eligible for financial assistance under Title I of the Act.



Sec. 301.6  Designation of public works impact program areas.

    (a) EDA shall designate communities or neighborhoods defined without 
regard to political or other subdivisions or boundaries as a public 
works impact program (PWIP) area, when it determines one of the 
following conditions have been met by the defined area in its entirety.
    (1) A large concentration of low income persons. This includes:
    (i) An area selected for assistance under the Community Economic 
Development Act of 1981, as amended (42 U.S.C. 9815), Title VI, Chapter 
8, Subchapter A of the Omnibus Budget Reconciliation Act of 1981 (Pub. 
L. 97-35); or
    (ii) An area in which the majority of the families are living in 
poverty, as defined by the U.S. Department of Health and Human Services 
guidelines, as published each year in the Federal Register.
    (2) Rural areas having substantial outmigration. This includes an 
area which has experienced a minimum outmigration rate of at least 25 
percent during the period from the beginning to the end of the most 
recent 10-year census period for which data is available.
    (3) Substantial unemployment as established by an annual average 
unemployment rate of 8.5 percent or more during the most recent quarter 
for which such data is available.
    (4) An actual or threatened abrupt rise of unemployment due to the 
closing or curtailment of a major source of employment. The area must 
meet the qualifications as set forth in Sec. 301.5 (a) through (c). 
Although no boundary constraints, as set forth in Sec. 301.13, shall 
apply, the area for which designation is sought must be one for which 
EDA can obtain data establishing its eligibility for designation.
    (b) No PWIP area designated under this section shall be eligible to 
be considered a redevelopment area for the purposes of district 
designation.

[60 FR 49679, Sept. 26, 1995, as amended at 61 FR 15371, Apr. 8, 1996]



Sec. 301.7  Designation of special impact areas.

    EDA shall designate special impact areas where:
    (a) One of the following criteria have been met:
    (1) There are large concentration of low-income persons. This 
includes:
    (i) An area presently selected for assistance by the Department of 
Health and Human Services under the Community Economic Development Act 
of 1981, as amended (42 U.S.C. 9815), (Title VI, Chapter 8, Subchapter A 
of the Omnibus Budget Reconciliation Act of 1981 (Pub. L. 97-35); or
    (ii) An area in which a majority of the families are living in 
poverty as defined by the Department of Health and Human Services 
guidelines as published each year in the Federal Register.
    (2) Rural areas having substantial outmigration. This includes any 
area which has experienced a minimum outmigration rate of at least 25 
percent

[[Page 410]]

during the most recent 10-year period as established by the Bureau of 
the Census.
    (3) An area of substantial unemployment, meaning one which:
    (i) Experienced an average unemployment rate at least 50 percent 
higher than the U.S. average unemployment rate for the most recent 12-
month period for which data are available; or
    (ii) Is currently experiencing an unemployment rate at least 100 
percent higher than the U.S. average unemployment rate.
    (4) An area which has or is threatened with an abrupt rise in 
unemployment due to the closing or curtailment of a major source of 
employment, and which has or can reasonably be expected to have an 
unemployment rate 100 percent or more above the national average.
    (b) Written requests have been submitted by State or local 
governments, agencies or instrumentalities thereof, or with the 
concurrence of the appropriate governmental authority of the political 
subdivision of which the area is a part, by any public or private non-
profit organization or association representing the area for which 
designation is sought. Requests should contain the following material:
    (1) A description of the proposed boundary and facility 
characteristics of the proposed special impact area including a map 
showing the relation to the larger area to which it is a part. Such 
description should show consistency with area wide zoning ordinances and 
appropriate land use plans;
    (2) A description of the socioeconomic characteristics of the 
proposed special impact area;
    (3) An OEDP; and
    (4) Written evidence of support from members of the community at 
large.
    (c) No special impact area designated under this section shall be 
eligible to be considered a redevelopment area for the purposes of 
district designation.



Sec. 301.8  Recognition of redevelopment areas designated under the Community Economic Redevelopment Act of 1981, as amended.

    Areas selected for assistance under the Community Economic 
Development Act of 1981, as amended (42 U.S.C. 9815) will be deemed 
redevelopment areas within the meaning of section 401 of the Act.



Sec. 301.9  Designation on the basis of per capita employment.

    EDA shall designate as redevelopment areas those areas which have 
suffered a significant decline in per capita employment of more than 1.2 
percentage points from the beginning to the end of the most recent 10-
year census period for which data is available and has had net 
outmigration during the same period, as determined by the most currently 
available census data.



Sec. 301.10  Designation on the basis of substantial unemployment and the national average rate of unemployment.

    (a) EDA shall designate as a redevelopment area any area for which 
the Secretary of Labor has provided labor force data showing that:
    (1) The area has experienced a substantial average unemployment rate 
over a 24-month period; and
    (2) The area has experienced an average 24-month unemployment rate 
for the most recent 24-month period for which data are available which 
was above the national 24-month average unemployment rate for the same 
period.
    (b) The Secretary of Labor shall provide the unemployment data for 
use by EDA in designating redevelopment areas pursuant to the criteria 
of section 401(a)(8) of the Act, as implemented by paragraphs (a)(1) and 
(a)(2) of this section.
    (c) For the purpose of this section, substantial unemployment is 
defined as an unemployment rate of 6 percent or more.
    (d) EDA may determine for the purpose of this section that 24 month 
unemployment data is not available so that data for the most recent 12-
month or 4-month period may be used instead.



Sec. 301.11  Designation on the basis of long-term economic deterioration.

    Such designation shall be made in accordance with section 401(a) of 
the Act.

[[Page 411]]



Sec. 301.12  Exception to criteria for qualification.

    (a) EDA shall designate in a State which has no redevelopment area 
that area which most nearly qualifies under this subpart.
    (b) Designation made under paragraph (a) of this section shall be 
terminated in accordance with section 402 of the Act if any other area 
within the same State subsequently becomes qualified or designated under 
any other section of this subpart.
    (1) Designation under paragraph (a) of this section will not be 
terminated under paragraph (b) of this section if the area becoming 
qualified or designated becomes qualified under Sec. 301.6 or 
Sec. 301.7.
    (2) Termination under this subsection will become effective at the 
time of the annual review.



             Subpart B--Limitations on Designation of Areas



Sec. 301.13  Limitations with respect to the size and boundaries of redevelopment areas.

    (a) The size and boundaries of redevelopment areas will be 
determined by EDA subject to requirements under the Act for at least 
1500 in population, unless designated under Sec. 301.4 or Secs. 301.6, 
301.7, 301.8, and other requirements in section 401(b) of the Act.
    (b) Except for areas designated under Secs. 301.4, 301.5, 301.6, 
301.7 and 301.8, no area may be designated which is smaller than a labor 
area (as defined by the Secretary of Labor), a county, or a municipality 
with a population of over 25,000 persons whichever EDA deems 
appropriate.
    (c) All parts of the area seeking designation under Sec. 301.5 must 
be contiguous.
    (d) Delineation of the area designated under Sec. 301.5 must be 
based on a reasonable grouping of census tracts or similar geographical 
units, or the area must be defined by specific boundaries incorporating 
commercial or industrial sites and enterprises which can offer 
employment opportunities for the work force of the area.
    (e) Nothing in this section shall prevent any municipality 
designated or eligible to be designated as a redevelopment area from 
combining with any other community having mutual economic interests and 
transportation and marketing patterns for the purpose of such 
designation.
    (f) Areas qualified in accordance with Sec. 301.5 may be designated 
subject to the receipt of an acceptable OEDP within 6 months following 
such conditional designation, or within such additional period as the 
Assistant Secretary may grant for good cause.
    (g) Any area, other than those areas eligible for designation 
pursuant to Secs. 301.5 and 301.6, which does not submit an acceptable 
OEDP within 6 months after notification of its qualification for 
designation, shall not thereafter be designated prior to the next annual 
review of eligibility; however, such period may be extended for good 
cause.



Sec. 301.14  Receipt of an acceptable OEDP.

    (a) No area shall be designated until it has an approved OEDP, as 
described in section 403 of the Act, except those areas eligible for 
designation under Secs. 301.5 and 301.6.
    (b) Areas qualified in accordance with Sec. 301.5 may be designated 
subject to the receipt of an acceptable OEDP within 6 months following 
such conditional designation, or within such additional period as EDA 
may grant for good cause.
    (c) Any area, other than those areas eligible for designation 
pursuant to Secs. 301.5 and 301.6, which does not submit an acceptable 
OEDP within 6 months after notification of its qualification for 
designation, shall not thereafter be designated prior to the next annual 
review of eligibility; however, such period may be extended for up to 6 
months if EDA determines there is good cause.



               Subpart C--Modification of Designated Areas



Sec. 301.15  Adjustment of boundaries.

    (a) EDA may make minor modifications in the boundaries of 
redevelopment areas designated under Subpart A of this part if:

[[Page 412]]

    (1) Such modification will contribute to a more effective program 
for economic development within such area; and
    (2) There is a request in writing which:
    (i) Outlines the exact extent of the boundary adjustment;
    (ii) States how the absence of the boundary adjustment would impede 
the implementation of the approved OEDP;
    (iii) States why a specifically proposed project cannot be located 
within the existing boundaries of the designated redevelopment area; or
    (iv) States other reasons why a boundary adjustment is needed.
    (3) The interested State official or agency is informed and given 
opportunity to submit comments on and endorse or not endorse the 
request.
    (b) Additional areas will be included within the redevelopment area 
only if such inclusion is necessary to meet program requirements for a 
project.



                            Subpart D--Notice



Sec. 301.16  Notification of public officials.

    (a) EDA shall notify local, State, and national officials when an 
area:
    (1) Qualifies for designation under criteria set forth in subpart A 
of this part;
    (2) Is designated; and/or
    (3) Has its designation modified or terminated.
    (b) [Reserved]



PART 302--ECONOMIC DEVELOPMENT DISTRICTS--Table of Contents




 Subpart A--Standards for Designation, Modification and Termination of 
                     Economic Development Districts

Sec.
302.1  Authorization of economic development districts.
302.2  Designation of economic development districts.
302.3  Designation of nonfunded districts.
302.4  District organizations.
302.5  District organization functions and responsibilities.
302.6  Coordination with state and local organizations.
302.7  Modification of district boundaries.
302.8  Termination and suspension of district designation.
302.9  Benefits.

 Subpart B--Standards for Designation, Modification, and Termination of 
                      Economic Development Centers

302.10  General standards for designation of economic development 
          centers.
302.11  Number of economic development centers per district.
302.12  Boundaries of economic development centers and boundary 
          modifications.
302.13  Termination and suspension of economic development centers.
302.14  Redevelopment centers.

   Subpart C--Financial and Other Assistance to Economic Development 
                          Centers and Districts

302.15  Financial assistance to economic development centers.
302.16  Economic development center project characteristics.
302.17  Grant rate for economic development center projects.
302.18  Financial assistant redevelopment centers.
302.19  Assistance to economic development districts.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49681, Sept. 26, 1995, unless otherwise noted.



 Subpart A--Standards for Designation, Modification and Termination of 
                     Economic Development Districts



Sec. 302.1  Authorization of economic development districts.

    (a) EDA may authorize, at the request of the Governor(s) of the 
State or States, the delineation of proposed district boundaries as a 
prerequisite to designation as an economic development district and as a 
prerequisite to the provision of planning grants under part 307 of this 
chapter.
    (b) Authorization of delineation may be made:
    (1) Where the State or States, after analyzing economic and social 
relationships among the various redevelopment area counties, propose a 
boundary delineation for the proposed district;
    (2) Where the proposed district meets the general standards for 
designation set forth in Sec. 302.2;

[[Page 413]]

    (3) Where a consideration of the following factors has been made:
    (i) The percentage of the population living in redevelopment areas;
    (ii) Per capita income in the proposed district;
    (iii) The percentage of families with annual income below the 
poverty threshold;
    (iv) Unemployment rates and labor force participation rates of the 
proposed district;
    (v) Economic characteristics of growth centers; and
    (vi) The proposed district's readiness to hire a professional staff 
and begin work.
    (4) Where the boundaries conform to an officially delineated sub-
State district or where the Governor has provided EDA with an 
explanation of and support for any variation of the officially 
delineated sub-State district.



Sec. 302.2  Designation of economic development districts.

    EDA is authorized to designate proposed districts as economic 
development districts (EDDs) with the concurrence of the States in which 
the EDDs will be wholly or partially located when the proposed district 
meets the following requirements:
    (a) It is of sufficient size or population, and contains sufficient 
resources, to foster economic development on a scale involving more than 
a single redevelopment area;
    (b) It contains at least one redevelopment area;
    (c) It contains one or more redevelopment areas or economic 
development centers identified in an approved district overall economic 
development program (hereinafter OEDP) as having sufficient size and 
potential to foster the economic growth activities necessary to 
alleviate the distress of the redevelopment areas within the district;
    (d) It has an OEDP which identifies one or more proposed growth 
centers, includes adequate land use and transportation planning, 
contains a specific program for district cooperation and public 
investment and is approved by the State or States affected and by EDA;
    (e) When at least three-fourths of the counties within the proposed 
district boundaries have submitted documentation of their commitment to 
support the economic development activities of the district;
    (f) A district organization has been established by the proposed 
district which meets the requirements of Sec. 302.4; and
    (g) The proposed district organization requests such designation.



Sec. 302.3  Designation of nonfunded districts.

    Designation is not limited to districts receiving EDA planning 
grants. However, the continuing designation of any nonfunded EDD is 
subject to the same criteria and organization requirements applicable to 
funded districts.



Sec. 302.4  District organizations.

    (a) The district organization is a prerequisite to the awarding of a 
planning grant and to the initial designation of EDDs. The District 
shall be organized in one of the following manners:
    (1) As non-profit organizations incorporated under the laws of the 
States in which they are located;
    (2) As public organizations through intergovernmental agreements for 
the joint exercise of local government powers; or
    (3) As public organizations established under State enabling 
legislation for the creation of multijurisdictional area wide planning 
organizations.
    (b) Each proposed district or EDD organization must meet EDA 
requirements concerning its membership composition as set forth in 
Sec. 302.4(c), its authorities and responsibilities for carrying out 
economic development functions as set forth in Sec. 302.5, and the 
maintenance of adequate staff support to perform its economic 
development functions as set forth in Sec. 302.4(d). Such requirements 
must be met by the board of directors (or other governing body of the 
organization) as a whole.
    (c) The proposed district or EDD organization shall demonstrate that 
it meets all of the following requirements:
    (1) It is broadly representative of the following interests:

[[Page 414]]

    (i) The principal economic interests of the proposed district or 
EDD, including business, industry, finance, transportation, utilities, 
the professions, labor, agriculture, Federal and State recognized 
American Indian tribes and education. In meeting this requirement, the 
representatives of the principal economic interests may be private 
citizens, part-time elected officials, or minority representatives also 
selected under paragraph (c)(1)(ii) of this section;
    (ii) Minority and low-income populations whose representatives may 
be private citizens, elected officials, or government employees; and
    (iii) Representatives of the unemployed and underemployed who may 
also be minority representatives selected under paragraph (c)(1)(ii) of 
this section.
    (2) There is at least a simple majority of its membership who are 
elected officials and/or employees of a general purpose unit of local 
government who have been appointed to represent the government.
    (i) Where appointment of local government members is not otherwise 
provided for by the district organization charter or by-laws, each 
county and major unit of local government which joins the proposed 
district or EDD shall name an elected official or an employee to 
represent it.
    (ii) Where appropriate to their nongovernmental occupations, part-
time elected officials may also represent the principal economic 
interests.
    (3) There is at least one-fifth of its membership who are private 
citizens who are neither elected officials of a general purpose unit of 
local government nor employees of such a government who have been 
appointed to represent that government.
    (i) The district organization shall demonstrate that persons 
fulfilling this requirement represent the interests of groups listed in 
paragraphs (c)(1)(i) or (iii) of this section. Minority and low-income 
representatives who meet these criteria may be counted toward the 
fulfillment of the private citizen requirement.
    (ii) Except where these private citizens are also selected as 
minority/low-income representatives under paragraph (c)(1)(ii) of this 
section, these representatives shall be appointed by the governing 
bodies of the counties actively participating in the district 
organization or as otherwise provided in the district organizational 
charter and by-laws.
    (d) Staff support is provided as follows:
    (1) The district organization shall be assisted by a professional 
staff drawn from qualified persons in planning, economics, business 
administration, engineering and related disciplines.
    (2) EDA may provide planning grants to economic development 
districts to employ professional staff in accordance with part 307 of 
this chapter.
    (e) District organizations shall provide access for persons who are 
not members of the district organization to make their views known 
concerning ongoing and proposed district activities of the proposed 
district or EDD in accord with the following requirements:
    (1) The district organization shall conduct meetings open to the 
public at least once a year and shall also publish the date and agenda 
of the meeting at least four weeks in advance to allow the public a 
reasonable time to prepare to participate effectively in the meetings.
    (2) The district organization shall adopt a system of parliamentary 
procedures to assure that board members and others have access to and an 
effective opportunity to participate in the affairs of the proposed 
district or EDD.
    (3) Information should be provided sufficiently in advance of public 
decisions to give the public adequate opportunity to review and react to 
proposals. District organizations should seek to relate technical data 
and other material to the public so that they may understand the impact 
of public programs, available options and alternative decisions.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7982, Mar. 1, 1996]



Sec. 302.5  District organization functions and responsibilities.

    (a) District organizations must arrange to carry out two classes of 
functions and responsibilities: Those which every EDD must carry out 
(paragraph

[[Page 415]]

(b) of this section), and those which EDDs receiving grants must carry 
out (paragraph (c)).
    (b) Subject to the requirements of Sec. 302.4, district 
organizations are responsible for seeing that the following functions 
are provided for on a continuing basis:
    (1) Organizational actions, including:
    (i) Arranging the legal form of organization which will be used;
    (ii) Arranging for the membership of the governing body to meet 
Sec. 302.4 requirements;
    (iii) Recruiting staff to carry out the economic development 
functions;
    (iv) Establishing a management system;
    (v) Contracting for services to carry out district functions;
    (vi) Establishing and directing activities of economic development 
subcommittees; and
    (vii) Submitting reports as determined by EDA to comply with civil 
rights requirements under part 317 of this chapter.
    (2) Actions to develop and maintain the required district OEDP, and 
any subsequent supplements or revisions, including:
    (i) Preparing the analytic, strategic and implementation components 
of the OEDP;
    (ii) Identifying growth centers, i.e., economic development centers 
and redevelopment centers, and any later boundary modifications;
    (iii) Adopting the OEDP by formal action of the EDD governing board;
    (iv) Submitting the OEDP, any supplements or revisions and annual 
reports for reviews by appropriate governmental bodies and interested 
organized groups, and attaching dissenting opinions and comments 
received; and
    (v) Submitting to EDA an approvable OEDP.
    (3) Preparation of proposals that EDA take actions which:
    (i) Establish or change the designation status of the district or 
its growth centers; or
    (ii) Affect economic development projects available to the EDD.
    (4) Coordination and implementation of economic development 
activities in the district, including:
    (i) Assisting other eligible units within the district to apply for 
grant assistance for economic development purposes;
    (ii) Carrying out economic development related research, planning, 
implementation and advisory functions as are necessary and helpful to 
the coordination with other local, State, Federal, and private 
organizations, and as are necessary and helpful to the development and 
implementation of the OEDP;
    (iii) Coordinating the development and implementation of the OEDP 
with other local, State, Federal and private organizations (including 
minority organizations); and
    (iv) Carrying out the annual OEDP plan for implementation.



Sec. 302.6  Coordination with state and local organizations.

    EDA shall cooperate with state and local organizations in accordance 
with Sec. 403 of PWEDA.



Sec. 302.7  Modification of district boundaries.

    EDA (with concurrence of the State or States affected, unless such 
concurrence is waived by EDA) may modify the boundaries of a district 
consistent with standards for authorizing new districts set forth in 
Sec. 302.1, if it determines that such modification will contribute to a 
more effective program for economic development.



Sec. 302.8  Termination and suspension of district designation.

    EDA may, upon 30 days prior notice, terminate the designation status 
of an economic development district:
    (a) When the district no longer meets the standards for designation 
as set forth in Sec. 302.2(a), (b), (c), (d), (f), or (g); or 
Sec. 302.2(e), except that district designation status may be continued 
if those counties which would maintain their commitment to support 
economic development activities are determined by EDA to meet the other 
standards of Sec. 302.2 and the standards of Sec. 302.1;
    (b) When a district has not maintained a currently approved OEDP in 
accordance with part 303 of this chapter;

[[Page 416]]

    (c) When a district has requested termination (with the approval of 
the State or States affected, unless such approval is waived by EDA); or
    (d) Where a funded district fails to comply with terms and 
conditions of an EDA planning grant agreement.



Sec. 302.9  Benefits.

    (a) Designation of an economic development district within which the 
economic development center (EDC) is located is a prerequisite to EDA 
providing financial assistance to an EDC.
    (b) Projects in redevelopment areas which are located within 
designated economic development districts and which actively participate 
in the economic development district's OEDP planning process are 
eligible for 10 percent bonus grants, if the project is consistent with 
a currently approved district OEDP.



 Subpart B--Standards for Designation, Modification, and Termination of 
                      Economic Development Centers



Sec. 302.10  General standards for designation of economic development centers.

    EDA may designate an economic development center if such proposed 
center:
    (a) Has been identified and included in an approved district OEDP;
    (b) Is recommended by the State or States affected. Written 
concurrence from the State must be received by EDA;
    (c) Is geographically and economically so related to the economic 
development district that the economic development center's economic 
growth may be expected to contribute significantly to the alleviation of 
distress in the redevelopment areas of the district;
    (d) Does not have a population in excess of 250,000 according to the 
last preceding Federal census;
    (e) May reasonably be expected to accelerate or maintain existing 
rates of growth in terms of population, employment, and income;
    (f) Has the prospect of developing a diversified economy providing a 
wide range of health, educational, recreational, and cultural 
facilities; a relatively large local market; a relatively large well-
trained labor force; and other similar qualities which encourage the 
continuing growth of economic activities; and
    (g) Is an active participant in the district economic development 
program.



Sec. 302.11  Number of economic development centers per district.

    EDA will designate the single leading growth point in an EDD as the 
economic development center. However, additional centers may be 
designated where unusual conditions exist in the district, such as for 
example:
    (a) Where the district contains a relatively large number of 
redevelopment area residents who do not have reasonable commuting access 
to any one economic development center; and
    (b) Where the district contains several smaller growth points rather 
than one leading economic development center.



Sec. 302.12  Boundaries of economic development centers and boundary modifications.

    (a) An economic development center is administratively defined as a 
city or grouping of contiguous incorporated places. However, where 
justified, boundaries may be extended to include adjoining minor civil 
divisions or corridors of growth between centers.
    (b) EDA may modify either the boundaries of an economic development 
center or the number of economic development centers in a district after 
giving notice and opportunity for comment to the State or States 
affected, if such modification will contribute to a more effective 
program.



Sec. 302.13  Termination and suspension of economic development centers.

    (a) EDA may, upon 30 days prior notice to the interested State and 
local agencies, terminate the designated status of an economic 
development center when:
    (1) The economic development center is no longer identified or 
recommended for designation in an approved district OEDP;
    (2) The economic development center no longer meets the standards 
for designation, Sec. 302.10;

[[Page 417]]

    (3) It fails to actively pursue its role as an economic development 
center in a manner that makes a significant impact on the performance of 
the economic development district within which it is located; or
    (4) The economic development center is no longer part of a 
designated economic development district.
    (b) The termination of the designation of an economic development 
district and termination of the designation of an economic development 
center may be done concurrently.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7982, Mar. 1, 1996]



Sec. 302.14  Redevelopment centers.

    EDA may recognize a redevelopment center which meets the criteria 
for economic development centers, but which falls in a designated 
redevelopment area. There is no limit on the size of the population of a 
redevelopment center.



   Subpart C--Financial and Other Assistance to Economic Development 
                          Centers and Districts



Sec. 302.15  Financial assistance to economic development centers.

    EDA may provide financial assistance in accordance with the criteria 
contained in part 305 of this chapter for projects in economic 
development centers (EDCs) when:
    (a) The project will further enhance the objectives of the OEDP of 
the district in which the EDC is located;
    (b) The project will enhance the relationship between the EDC and 
the EDD, particularly the redevelopment areas; and
    (c) The project will achieve one or more of the following:
    (1) Encourage economic growth;
    (2) Discourage out-migration from the district; and
    (3) Have a beneficial impact on the district's redevelopment areas.



Sec. 302.16  Economic development center project characteristics.

    Projects in EDCs shall have one or more of the following 
characteristics:
    (a) High job producing capability;
    (b) Remove barriers of access to jobs for the target population;
    (c) Ability to trigger further project activity;
    (d) Ability to trigger further economic impact; or
    (e) Provision of facilities and services deemed essential to 
stimulate further growth, at a level above that normally required for 
simple maintenance of a substantial community.



Sec. 302.17  Grant rate for economic development center projects.

    The grant rate for projects under Title I of the Act in EDCs, which 
are growth centers not located in designated redevelopment areas, shall 
not exceed 50 percent of the project costs except for the ten percent 
bonus provided for in Sec. 302.18 and Sec. 305.9 of this chapter.

[61 FR 7982, Mar. 1, 1996]



Sec. 302.18  Financial assistant redevelopment centers.

    The eligibility of redevelopment centers for EDA financial 
assistance, including the ten percent bonus as provided for herein, is 
the same as for any designated redevelopment area within the district. 
The grant rate for the redevelopment center shall be determined by the 
rate applicable to the redevelopment area within which it is located.

[61 FR 7982, Mar. 1, 1996]



Sec. 302.19  Assistance to economic development districts.

    Pursuant to Title III of the Act, EDA may provide other assistance 
to the district including:
    (a) Technical assistance;
    (b) Planning grants under part 307 of this chapter to assist the 
district organization in engaging a professional staff and carrying out 
its planning activities; and
    (c) Research assistance.



PART 303--OVERALL ECONOMIC DEVELOPMENT PROGRAM--Table of Contents




Sec.
303.1  Purpose and scope.
303.2  Redevelopment area--District OEDPs.
303.3  Redevelopment area OEDP committee.
303.4  Initial OEDP.

[[Page 418]]

303.5  Approval process for initial OEDPs.
303.6  The continuing program.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49685, Sept. 26, 1995, unless otherwise noted.



Sec. 303.1  Purpose and scope.

    (a) Approval of an OEDP is generally a prerequisite for designation 
of a redevelopment area or economic development district; and
    (b) A redevelopment area or economic development district, where 
appropriate, is required to maintain a currently approved OEDP to retain 
its previous designation for eligibility to receive EDA funds.



Sec. 303.2  Redevelopment area--District OEDP's.

    Those qualified areas within existing economic development districts 
may use the district's accepted OEDP in lieu of a separate area OEDP 
when the following conditions have been met:
    (a) The area actively participates in and supports the district OEDP 
planning process; and
    (b) The area submits a letter or resolution to EDA signed by the 
area's chief elected official, governing body, or the local OEDP 
committee stating that the area will use the district OEDP.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7982, Mar. 1, 1996]



Sec. 303.3  Redevelopment area OEDP committee.

    (a)(1) The primary purpose of this committee is to develop an 
ongoing development program and to prepare the Area OEDP.
    (2) Redevelopment area OEDP committees are required only in areas 
not located in EDDs. EDA recommends OEDP committees in all areas 
whenever practicable.
    (b) OEDP committees shall be representative of the community so that 
all viewpoints are considered in discussion and decisionmaking and all 
available local skills are engaged in program formulation. To the extent 
practicable, representation on these committees shall include those from 
local government, business, industry, finance, agriculture, the 
professions, organized labor, utilities, education, minorities, and the 
unemployed or underemployed.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7982, Mar. 1, 1996]



Sec. 303.4  Initial OEDP.

    (a) The initial OEDP should contain the following information:
    (1) Background on the area or district's economic development 
situation, including for example a discussion of the district or area's:
    (i) Geography;
    (ii) Population;
    (iii) Labor force, including minority and female;
    (iv) Natural and manmade resources;
    (v) Economic and social activities; and
    (vi) Environmental considerations.
    (2) An examination of economic and community development, 
opportunities and problems, including for example, identification of 
current major activities of other organizations involved in economic and 
community development and improvement; and
    (3) A realistic action plan that will:
    (i) Promote the district or area's economic progress;
    (ii) Improve community facilities and services; and
    (iii) Serve as a basis for a continuing planning and development 
program.
    (b) In addition to requirements in paragraph (a) of this section, 
OEDPs for districts must contain the following:
    (1) Proposed designation or recognition of at least one growth 
center; and
    (2) Description of the role of the proposed center in implementing 
the district wide development program, particularly as it relates to 
redevelopment areas.



Sec. 303.5  Approval process for initial OEDPs.

    (a) The completed initial OEDP must be reviewed and commented upon 
by appropriate:
    (1) Governmental bodies;
    (2) Interest groups; and
    (3) EDA Regional Office.
    (b) If the OEDP is approved, copies must be made available to 
interested

[[Page 419]]

parties by the designated area or district.
    (c) If the initial OEDP is inadequate, the EDA Regional Office will 
contact the chairman of the OEDP committee by letter stating 
deficiencies and allowing additional time for corrections to be made and 
reviewed by EDA.



Sec. 303.6  The continuing program.

    (a) After designation by EDA the area or district shall implement 
the development program as updated and made known to EDA through annual 
reports or revised OEDPs.
    (b) No financial assistance for a designated area or district will 
be awarded if it:
    (1) Has not submitted a timely annual report;
    (2) Has submitted a deficient annual report; or
    (3) Has not corrected noted deficiencies.
    (c) Revised OEDPs.
    (1) A revised OEDP will be required if EDA determines that the 
initial OEDP of the area or district is inadequate, or outdated.
    (2) The area or district may choose to revise its initial OEDP if 
the OEDP committee determines that a complete reassessment of the local 
situation or a complete reassessment of the economic development program 
is desirable.
    (3) A revised OEDP may be submitted in lieu of the annual OEDP 
progress report.
    (4) Before any revised OEDP for a district is approved by EDA, it 
shall be reviewed by appropriate:
    (i) Governmental bodies;
    (ii) Interest groups; and
    (iii) EDA Regional Office.



PART 304--GENERAL SELECTION PROCESS AND EVALUATION CRITERIA--Table of Contents




304.1  General selection process and evaluation criteria for programs 
          under PWEDA.
304.2  Demonstration project assistance under Section 301(f) of PWEDA.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49685, Sept. 26, 1995, unless otherwise noted.



Sec. 304.1  General selection process and evaluation criteria for programs under PWEDA.

    EDA has established a streamlined and uniform selection process 
based upon a short proposal and standardized application form with 
attachments as applicable to each particular program. Additional 
information if any, is set forth in program specific parts/sections. EDA 
applies uniform evaluation criteria to all programs, as well as 
evaluation criteria which are set forth in parts 305, 307 and 308 of 
this chapter.
    (a) The selection process is described as follows:
    (1) For projects to be funded under parts 305, 307 and 308 of this 
chapter proponents will submit forms to EDA during the selection process 
as follows:
    (i) There will be a brief proposal on the OMB approved form, number 
0610-0094, consisting of the face sheet (SF-424) and two additional 
pages, except for projects under part 307, subparts C and D, of this 
chapter for which proponents may include more than two pages if 
necessary to provide adequate information to EDA upon which to make an 
informed determination whether to invite a more comprehensive proposal 
and application, including for example, budget, scope of work and 
capability statements.
    (ii) There will be a standard application for all programs which 
will include an additional attachment for each program as appropriate.
    (2) For projects to be funded under part 307--Subparts A, B, E and F 
and parts 305 and 308 of this chapter, requirements are as follows:
    (i) Initial contact with EDA will generally be through contact with 
the appropriate Economic Development Representative (EDR) (see 
Sec. 300.4 of this chapter) who will provide assistance as needed in 
filling out the proposal as described in paragraph (a)(1) of this 
section.
    (ii) Such proposals, whether received through contact with the 
appropriate Economic Development Representative (EDR) or Regional Office 
of EDA, shall have the opportunity to be formally reviewed by the 
appropriate Regional Office Project Review Committee (consisting of at 
least three EDA officials) (PRC). Generally, an EDR will evaluate

[[Page 420]]

proposals under paragraph (b) of this section before submitting them to 
the EDA Regional Office for such review.
    (iii) The results of these PRC meetings shall be communicated to the 
proponents in writing and in a timely manner, advising them that they 
are: being invited to submit a formal application; having their 
application returned because of specified deficiencies (resubmissions 
will be allowed when the deficiencies are cured) or being denied for 
specific reasons.
    (iv) An invitation to submit an application does not assure EDA 
funding.
    (v) Applications are generally to be submitted within 30 days after 
receipt of an invitation letter.
    (3) For projects to be funded under part 307--Subparts C and D of 
this chapter, requirements are as follows:
    (i) Initial contact by proponents for information and assistance 
concerning proposals will generally be with Washington, DC, at locations 
noted in Secs. 307.13 and 307.18 of this chapter.
    (ii) Generally, proposals will be reviewed for relevance and quality 
by three or more technically knowledgeable EDA officials.
    (iii) If the proposal is acceptable under paragraph (b) of this 
section, EDA may invite proponents to submit applications which must 
include a more detailed and comprehensive project narrative.
    (iv) An invitation to submit an application does not assure EDA 
funding.
    (v) Applications are generally to be submitted within 30 days after 
receipt of an invitation letter.
    (b) General evaluation criteria for projects to be funded under 
parts 305, 307 and 308 of this chapter in addition to criteria noted in 
such parts, are as follows: All proposals/applications will be screened 
for conformance to statutory and regulatory requirements, the relative 
severity of the economic problem of the area, the quality of the scope 
of work proposed to address the problem, the merits of the activity(ies) 
for which funding is requested, and the ability of the prospective 
applicant to carry out the proposed activity(ies) successfully. The NOFA 
may identify special areas of interest for the fiscal year of such NOFA.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7982, Mar. 1, 1996]



Sec. 304.2  Demonstration project assistance under Section 301(f) of PWEDA.

    In addition to the selection of projects under the general selection 
process as set forth in Sec. 304.1 above, EDA may also select 
demonstration projects, as authorized under section 301(f) of PWEDA. 
Demonstration projects involve the provision of funds, through grants, 
loans or otherwise, to carry out the purpose of PWEDA. There are no set 
forms or procedure for project selection, and proposals may be submitted 
to EDA at any time. Demonstration projects must be within redevelopment 
areas.



PART 305--PUBLIC WORKS AND DEVELOPMENT FACILITIES PROGRAM--Table of Contents




                           Subpart A--General

Sec.
305.1  Purpose and scope.
305.2  Applicants.
305.3  Eligibility requirements.
305.4  Project requirements.
305.5  Selection process.
305.6  Evaluation criteria.
305.7  Award requirements.

               Subpart B--Supplementary and Overrun Grants

305.8  Supplementary grants.
305.9  Ten percent bonus supplemental grants.
305.10  Grants for construction cost increases.

                      Subpart C--Other Requirements

305.11  Disbursements of funds for grants.
305.12  Variance in cost of grant projects.
305.13  Final inspection.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49686, Sept. 26, 1995, unless otherwise noted.

[[Page 421]]



                           Subpart A--General



Sec. 305.1  Purpose and scope.

    The purpose of the Public Works Program is to assist communities 
with the funding of public works and development facilities that 
contribute to the creation or retention of primarily private sector jobs 
and alleviation of unemployment and underemployment. Such assistance is 
designed to help communities achieve lasting improvement by stabilizing 
and diversifying local economies and by improving local living 
conditions and the economic development of the area. Alleviation of 
unemployment and underemployment among residents of the project area is 
a primary focus of this program.



Sec. 305.2  Applicants.

    Eligible applicants under this program include:
    (a) States, or political subdivisions thereof;
    (b) American Indian tribes;
    (c) The Federated States of Micronesia, the Republic of the Marshall 
Islands, the Republic of Palau, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, American Samoa and the Commonwealth of the 
Northern Mariana Islands; and
    (d) A private or public non-profit organization or association 
representing any redevelopment area or part thereof, provided the EDA 
project is located within an eligible EDA area represented by such non-
profit organization or association.
    (e) When the applicant is not a State, American Indian tribe or 
other general-purpose governmental authority, the applicant must afford 
the appropriate local governmental authority of the area a minimum of 15 
days in which to review and comment on the proposed project. The 
applicant shall furnish with the application a copy of such comments, or 
a statement of the efforts made to obtain them together with an 
explanation of the actions taken to address any comments received.



Sec. 305.3  Eligibility requirements.

    (a) Other than those areas designated under PWIP, applicant areas, 
including Special Impact Areas (SIAs) must have a current EDA approved 
Overall Economic Development Program (OEDP).
    (b) Political entities claiming eligibility under OEDPs developed by 
multicounty economic development organizations are expected to continue 
to participate actively in the organization.
    (c) Non-profit organizations or associations must meet the following 
requirements:
    (1) Such non-profit organizations or associations must represent a 
redevelopment area or part thereof, if EDA determines that such 
applicant is potentially capable of furthering the objectives of the 
economic development program of the area in which it is located;
    (2) To the extent possible, non-profit applicants are urged to seek 
the cooperation and support of units of local government; and
    (3) When deemed appropriate by EDA, have the local government as co-
applicant for EDA assistance. This ensures the financial stability and 
continuity of the project in the event that the non-profit entity finds 
itself in a position of not having the financial resources to 
administer, operate, and maintain the EDA assisted facility in a proper 
and efficient manner consistent with the provisions of part 314 of this 
chapter.



Sec. 305.4  Project requirements.

    (a) Public works projects other than PWIP projects must meet the 
following requirements:
    (1) Be consistent with the EDA approved OEDP for the area in which 
it is or will be located, and have broad community support;
    (2) Improve opportunities for the successful establishment or 
expansion of industrial or commercial facilities in the area where such 
project will be located;
    (3) The project will not result in the increase of goods or services 
beyond the demand for such goods or services existing or to be created 
in the market area;
    (4) The project fulfills a pressing need of the area or part 
thereof, in which it is located;
    (5) There is adequate local matching share; and

[[Page 422]]

    (6) The project benefits the long-term unemployed and members of 
low-income families who are residents of the area to be served.
    (b) PWIP projects must create immediate useful work for the 
unemployed and underemployed residents in the project area.



Sec. 305.5  Selection process.

    Projects will be selected in accordance with Sec. 304.1 of this 
chapter.



Sec. 305.6  Evaluation criteria.

    In addition to and/or as an elaboration of the evaluation criteria 
set forth in part 304 of this chapter of this chapter and to the extent 
practicable, evaluations are made on the basis of whether the proposed 
project:
    (a) Assists in creating or retaining private sector jobs (primarily 
in the near term) and assists in the creation of additional long-term 
employment opportunities (provided the jobs have not been transferred 
from another commuting area of the United States) and will result in low 
costs-per-job in relation to total EDA costs, evidenced for example by:
    (1) Commitments to create such jobs;
    (2) Marketing; and
    (3) Financial capabilities of the applicant.
    (b) Is supported by significant private sector investment.
    (c) Maximizes the amount of local, state or other Federal funding 
that is available.
    (d) Is likely to be started and completed in a timely fashion.
    (e) If located in an EDC with a stable economy and little distress, 
an employment plan is required that explains how new employment 
opportunities for residents of nearby highly distressed redevelopment 
areas will be provided.
    (f) To the extent possible, factors that will be considered in the 
evaluation of PWIP projects include whether the proposed project:
    (1) Improves the economic or community environment in areas of 
severe economic distress;
    (2) Includes an acceptable plan for hiring the unemployed and 
underemployed from the project area to work on construction of the 
project;
    (3) Assists in providing long-term employment opportunities or other 
economic benefits for the unemployed and underemployed in the project 
area;
    (4) Primarily benefits low-income families by providing essential 
community services, or satisfying a pressing public need;
    (5) Involves construction which can be started (normally within 120 
days after affirmation of the award), and completed quickly (normally 
within one year) preferably without early construction start; or
    (6) Has significant labor intensity (i.e., the proportion of labor 
costs to the total project costs).



Sec. 305.7  Award requirements.

    (a) Projects are expected to be completed in a timely manner 
consistent with the nature of the project. Normally, the maximum period 
for any financial assistance that is provided shall be not more than 5 
years from the end of the fiscal year of the award.
    (b) Matching Requirements are as follows:
    (1) EDA may provide direct grants not to exceed 50 percent of the 
estimated cost of the project;
    (2) Under certain circumstances supplementary grants to augment the 
direct grant may be provided up to a maximum of 80 percent of the 
eligible project costs, though waivers may be permitted in accordance 
with Section 101(c) of the Act. Supplementary grant assistance to 
finance over 50 percent of the project costs will be approved by EDA 
only for projects in areas of high distress. Decisions on such 
supplementary grant assistance will be based on the nature of the 
project, the amount of fair user charges or other revenues the project 
may reasonably be expected to generate, and the relative needs of the 
area;
    (3) Applicants are required to provide the local share from 
acceptable sources;
    (4) The local share need not be in hand at the time of application; 
however, the applicant must assure EDA that such share is committed and 
will be available at the time the award is accepted; and

[[Page 423]]

    (5) The local share must not be encumbered in any way that would 
preclude its use consistent with the requirements of the grant.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



               Subpart B--Supplementary and Overrun Grants



Sec. 305.8  Supplementary grants.

    (a) In the case of projects for which EDA supplements direct grants 
of other Federal agencies, the total Federal funding may be up to 80 
percent of the project's costs (except as allowed by paragraph (b)(1), 
(2) or (3) of this section).
    (b) Based upon the kind of project, the severity of distress factors 
and revenue above and beyond the amount needed to amortize the local 
share, supplemental grants in excess of 50% may be awarded by EDA in 
accordance with the following Table:

------------------------------------------------------------------------
                                                               Maximum  
                          Projects                           grant rates
                                                              (percent) 
------------------------------------------------------------------------
(1) Projects of American Indian Tribes which are concerned              
 with general economic development will be given special                
 consideration, and the Assistant Secretary may reduce or               
 waive the non-Federal share for such projects.............          100
(2) Projects located in redevelopment areas designated                  
 under section 401(a)(6) of the act, applied for by States              
 or political subdivision thereof which have demonstrated               
 they have exhausted their effective taxing and borrowing               
 capacity..................................................          100
(3) Projects located in redevelopment areas designated                  
 under section 401(a)(6) of the Act applied for by                      
 community development corporations (as defined in 13 CFR               
 300.2) which have demonstrated they have exhausted their               
 effective borrowing capacity..............................          100
(4) Projects located in redevelopment areas designated                  
 under section 401(a)(6) of the Act as special impact areas             
 and which were not designated under section 401(a)(6) as a             
 result of the October 12, 1976 amendment of section                    
 401(a)(8) of the Act, but which cannot meet the                        
 requirement of paragraph (b)(2) of this section...........           80
(5) Projects located in areas designated under Title IV of              
 the Act which have been declared disaster areas by the                 
 President of the United States under the Disaster Relief               
 and Emergency Assistance Act (Pub. L. 100-707) as amended              
 provided:.................................................  ...........
    (i) Such areas retain their EDA designations, and......             
    (ii) No more than one year has elapsed since the date               
     of such area's disaster area designation..............           80
(6) Projects located in areas designated under Title IV of              
 the Act in which the median family income is $12,100 or                
 below, or the average unemployment rate for the preceding              
 24 months is 12 percent or higher.........................           80
(7) Projects located in areas designated under Title IV of              
 the Act in which the median family income is $13,900-                  
 $12,101, or the average unemployment rate for the                      
 preceding 24 months is 10 percent to 11.9 percent.........           70
(8) Projects located in areas designated under Title IV of              
 the Act in which the median family income is $15,700-                  
 $13,901, or the average unemployment rate for the                      
 preceding 24 months is 8 percent to 9.9 percent...........           60
(9) Projects located in areas designated under section                  
 401(a)(6) of the Act solely on the basis of the October                
 12, 1976 amendment of section 401(a)(8) of the Act by Pub.             
 L. 94-487.................................................           50
(10) Projects in all other areas...........................           50
------------------------------------------------------------------------

    (c) The applicable maximum grant eligibility rate for projects 
located in EDDs pursuant to section 403(j) of the Act shall be the same 
as the grant rates for the redevelopment areas for which such projects 
are determined to be a direct and substantial benefit.
    (d) Notwithstanding paragraph (c) of this section, an applicant 
shall be eligible for the highest applicable maximum grant rate in 
effect between the time EDA invites the application and the time the 
project is approved.
    (e) Where municipalities of over 25,000 population qualify for 
designation under Title IV of the Act and part 302 of this chapter, but 
are located in areas already designated thereunder, such municipalities 
are eligible for the maximum grant under paragraph (b) of this section 
as if they were designated independent of the existing redevelopment 
area. In determining the maximum grant rate for such municipalities, EDA 
will use the appropriate statistical information for the municipality 
involved, provided that consideration of such information will work to 
the municipality's advantage.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



Sec. 305.9  Ten percent bonus supplemental grants.

    (a) Subject to the limitation that the maximum Federal share for any 
project may not exceed 80 percent of the aggregate project cost or 100 
percent for projects listed in Sec. 305.8(b)(1)-

[[Page 424]]

(3), EDA may increase the amount of grant assistance for projects within 
redevelopment areas by an amount not to exceed 10 percent of the 
aggregate cost of any such project if:
    (1) The redevelopment area is situated within a designated economic 
development district (EDD) and is actively participating in the economic 
development activities of the district; and
    (2) The project is consistent with a currently approved district 
OEDP.
    (b) Projects assisted in districts outside redevelopment areas 
pursuant to section 403(j) of the Act shall not be eligible for 10 
percent bonus grants under this section.



Sec. 305.10  Grants for construction cost increases.

    (a) For the purposes of this section, construction cost increases 
means those costs which the applicant incurs or will incur in completing 
the project according to the original designs and specifications beyond 
the project costs set forth in the grant agreement.
    (b) EDA may increase the amount of any grant made under the 
authority of Title I of the Act when the following conditions are met:
    (1) The project is being or will be constructed in accordance with 
the original designs and specifications or in accord with final plans 
and specifications which reflect the original intent and purpose;
    (2) The project's total cost has increased because of increases in 
costs based on the original designs and specifications (or based on 
final plans and specifications reflecting the original intent and 
purpose); and
    (3) The project has incurred construction cost increases after the 
grant was made but prior to completion of the project.
    (c) Limitations on amount of grants are as follows:
    (1) The amount of a grant made under paragraph (b) of this section 
may be equal to an amount based on the percentage increase in the costs 
referred to in paragraph (b)(2) of this section, as determined by EDA; 
and
    (2) A grant for construction cost increases may not be in an amount 
which would cause the Federal share of the project's costs to exceed the 
percentage originally provided for in the grant agreement.



                      Subpart C--Other Requirements



Sec. 305.11  Disbursements of funds for grants.

    (a) Though disbursements of funds for grants are generally made upon 
application for reimbursement, advances of funds are allowable at the 
discretion of EDA. Disbursements will be made when the following 
conditions have been met:
    (1) After execution of all contracts required for the completion of 
the project. This condition may be waived by EDA if the grantee can 
demonstrate that enforcement of the condition would place an undue 
burden on it;
    (2) For itemized and certified eligible costs incurred, as 
substantiated by such documentary evidence as EDA may require;
    (3) For the percentage of EDA participation, but in no event for 
more than the total sum stated in the financial assistance award 
accepted by the grantee;
    (4) Upon such evidence as EDA may require that grantee's 
proportionate share of funds is on deposit;
    (5) After a determination by EDA that all applicable conditions of 
the grant have been met; and
    (6) After meeting such other requirements as EDA shall establish.
    (b) Disbursements are generally made in installments, based upon 
grantee's actual rate of disbursement in accordance with the grant rate.



Sec. 305.12  Variance in cost of grant projects.

    (a) If the total eligible costs are equal to or exceed the amount 
stated in the financial assistance award, disbursements will be the 
amount identified in the financial assistance award.
    (b) If the total eligible project costs are less than the amount 
stated in the financial assistance award, the disbursements will be 
determined by multiplying the total eligible project costs by the grant 
rate percentage.

[[Page 425]]

    (c) The grant rate percentage is determined by dividing the total 
estimated project costs stated in the financial assistance award into 
the amount of EDA funding provided in the grant. For example, if the 
financial assistance award states that EDA will provide $50,000 for a 
project estimated to cost $100,000, the grant rate is 50% ($50,000 
divided by $100,000). If the actual eligible project costs were 
$100,000, EDA would provide $50,000. If the actual eligible project 
costs were $120,000, EDA would still provide $50,000. If the actual 
eligible project costs were only $80,000, EDA would provide $40,000 (50% 
x $80,000).



Sec. 305.13  Final inspection.

    A final inspection will be scheduled by the grantee, with EDA 
concurrence and/or participation, when the project has been completed 
and is functional and when all deficiencies have been corrected.

[60 FR 49678, Sept. 26, 1995. Redesignated at 61 FR 7983, Mar. 1, 1996]



PART 306  [RESERVED]






PART 307--LOCAL TECHNICAL ASSISTANCE, UNIVERSITY CENTER TECHNICAL ASSISTANCE, NATIONAL TECHNICAL ASSISTANCE, RESEARCH AND EVALUATION AND PLANNING--Table of Contents




                  Subpart A--Local Technical Assistance

Sec.
307.1  Purpose and scope.
307.2  Applicants.
307.3  Selection process.
307.4  Evaluation criteria.
307.5  Award requirements.

                  Subpart B--University Center Program

307.6  Purpose and scope.
307.7  Applicants.
307.8  Selection process.
307.9  Evaluation criteria.
307.10  Award requirements.

                Subpart C--National Technical Assistance

307.11  Purpose and scope.
307.12  Applicants.
307.13  Selection process.
307.14  Evaluation criteria.
307.15  Award requirements.

                   Subpart D--Research and Evaluation

307.16  Purpose and scope.
307.17  Eligible applicants.
307.18  Selection process.
307.19  Evaluation criteria.
307.20  Research topics and structure.
307.21  Award requirements.

 Subpart E--Economic Development Districts, American Indian Tribes and 
        Redevelopment Areas Economic Development Planning Grants

307.22  Purpose and scope.
307.23  Definitions.
307.24  Applicants.
307.25  Selection process.
307.26  Evaluation criteria.
307.27  Award requirements.
307.28  Limitations.

     Subpart F--State and Urban Economic Development Planning Grants

307.29  Purpose and scope.
307.30  Applicants.
307.31  Selection process.
307.32  Evaluation criteria.
307.33  Award requirements.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49689, Sept. 26, 1995, unless otherwise noted.



                  Subpart A--Local Technical Assistance



Sec. 307.1  Purpose and scope.

    Funds are awarded to eligible applicants to support the initiation 
and implementation of area, state, and regional development efforts 
designed to alleviate economic distress. This program is designed to 
help economically distressed areas to address local economic development 
problems through specific project efforts.



Sec. 307.2  Applicants.

    Eligible applicants for Local Technical Assistance grants or 
cooperative agreements include:
    (a) Public or private non-profit organizations;
    (1) National, state, area, district, or local organizations; and/or
    (2) Accredited educational institutions or non profit entities 
representing them.

[[Page 426]]

    (b) Public sector organizations;
    (1) American Indian tribes;
    (2) Local governments; and
    (3) State agencies.
    (c) Technical assistance grant funds may not be awarded to private 
individuals or for profit organizations.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



Sec. 307.3  Selection process.

    Projects will be selected in accordance with Sec. 304.1 of this 
chapter.



Sec. 307.4  Evaluation criteria.

    In addition to and/or as an elaboration of evaluation criteria set 
forth in part 304 of this chapter and to the extent practicable, 
evaluation criteria should include whether the project:
    (a) Strengthens the capability of state and local organizations and 
institutions, including non-profit development groups, to undertake and 
promote effective economic development programs targeted to people and 
areas of distress;
    (b) Benefits distressed areas;
    (c) Diversifies distressed economies;
    (d) Demonstrates innovative approaches to stimulating economic 
development in depressed areas;
    (e) Is consistent with the EDA approved Overall Economic Development 
Program (OEDP) for the area in which the project is located; and
    (f) Presents a reasonable, itemized budget.



Sec. 307.5  Award requirements.

    (a) Assistance will be for the period of time required to complete 
the scope of the work. This typically does not exceed twelve months.
    (b) EDA will provide grants and cooperative agreements not to exceed 
75 percent of the proposed project costs. Applicants are expected to 
provide the remaining share. EDA may waive all or part of the 25 percent 
share of technical assistance grants if it determines that the 
nonfederal share is not reasonably available because of the critical 
nature of the situation requiring technical assistance, or for other 
good cause.
    (c) Quarterly financial reports, semi-annual progress reports and 
project products will be specified in the Special Award Conditions of 
the grant.



                  Subpart B--University Center Program



Sec. 307.6  Purpose and scope.

    Funds under the University Center Technical Assistance Program help 
institutions of higher education in using their own and other resources 
to address the economic development problems and opportunities of their 
service area. The University Center Technical Assistance Program is 
designed to help in improving the economies of distressed areas.



Sec. 307.7  Applicants.

    Eligible applicants for University Center Technical Assistance 
grants or cooperative agreements include public and private accredited 
educational institutions and non-profit entities representing them. In 
certain circumstances, other applicants proposing projects that benefit 
the University Center Technical Assistance Program may be considered.



Sec. 307.8  Selection process.

    (a) Projects will be selected in accordance with Sec. 304.1 of this 
chapter.
    (b) The concurrence of EDA in Washington, DC, is required for the 
selection of all new University Centers.



Sec. 307.9  Evaluation criteria.

    In addition to and/or as an elaboration of evaluation criteria set 
forth in part 304 of this chapter and to the extent practicable, 
evaluation criteria include whether the project:
    (a) Has the commitment of the highest management levels of the 
sponsoring institution;
    (b) Provides evidence of adequate nonfederal financial support, 
either from the sponsoring institution or other sources;
    (c) Outlines activities consistent with the expertise of the 
proposed staff, the academic programs, and other resources available 
within the sponsoring institution;
    (d) Presents a reasonable budget;

[[Page 427]]

    (e) Documents past experience of the sponsoring institution in 
operating technical assistance programs; and
    (f) Adds to the geographic distribution of University Centers across 
the country.



Sec. 307.10  Award requirements.

    (a) Assistance will be for the period of time required to complete 
the scope of the work. This typically does not exceed twelve months.
    (b) EDA will provide grants and cooperative agreements not to exceed 
75 percent of the proposed project costs. Applicants are expected to 
provide the remaining share. EDA may waive all or part of the 25 percent 
share of technical assistance grants if it determines that the 
nonfederal share is not reasonably available because of the critical 
nature of the situation requiring technical assistance or for other good 
cause.
    (c) Indirect costs are limited to 20 percent of the Federal and 
nonfederal shares. EDA encourages applicants to absorb all indirect 
costs for this program.
    (d) Quarterly financial reports, semi-annual progress reports and 
project products will be specified in the Special Award Conditions of 
the grant.



                Subpart C--National Technical Assistance



Sec. 307.11  Purpose and scope.

    Funds under the National Technical Assistance Program are awarded to 
assure the successful initiation and implementation of development 
efforts designed to alleviate economic distress. This program is 
designed to help alleviate or prevent conditions of excessive 
unemployment or underemployment and problems of economically distressed 
areas.



Sec. 307.12  Applicants.

    Eligible applicants for National Technical Assistance grants or 
cooperative agreements include:
    (a) Public or private non-profit organizations, including:
    (1) Non-profit national, state, area, district, or local 
organizations; and
    (2) Accredited educational institutions or non-profit entities 
representing them.
    (b) Public sector organizations and Native American organizations, 
including:
    (1) American Indian tribes;
    (2) Local governments; and
    (3) State agencies.
    (c) Technical assistance grant funds may not be awarded to private 
individuals or for profit organizations.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



Sec. 307.13  Selection process.

    (a) Projects will be selected in accordance with Sec. 304.1 of this 
chapter.
    (b) EDA may during the course of the year, identify specific 
economic development technical assistance activities it wishes to have 
conducted. Organizations and individuals interested in being invited to 
respond to Solicitations of Applications (SOAs) to conduct such studies 
should submit information on their capabilities and experience. See the 
annual FY NOFA for the appropriate point of contact and address.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



Sec. 307.14  Evaluation criteria.

    In addition to and/or as an elaboration of the evaluation criteria 
described in part 304 of this chapter and to the extent practicable, 
evaluation criteria include whether the project:
    (a) Does not depend upon further EDA or other Federal funding 
assistance to achieve results;
    (b) Strengthens the capability of state and local organizations and 
institutions, including non-profit development groups, to undertake and 
promote effective economic development programs targeted to people and 
areas of distress;
    (c) Benefits severely distressed areas including both rural and 
urban counties and communities;
    (d) Diversifies distressed economies;
    (e) Demonstrates innovative approaches to stimulating economic 
development in depressed areas.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]

[[Page 428]]



Sec. 307.15  Award requirements.

    (a) Assistance will be for the period of time required to complete 
the scope of the work. This typically does not exceed twelve months.
    (b) EDA will provide grants and cooperative agreements not to exceed 
75 percent of the proposed project costs. Applicants are expected to 
provide the remaining share. EDA may waive all or part of the 25 percent 
share of technical assistance grants if it determines that the 
nonfederal share is not reasonably available because of the critical 
nature of the situation requiring technical assistance or for other good 
cause.
    (c) Quarterly financial reports, semi-annual progress reports and 
project products will be specified in the Special Award Conditions of 
the grant.



                   Subpart D--Research and Evaluation



Sec. 307.16  Purpose and scope.

    The purposes of research and evaluation projects are as follows:
    (a) To determine the causes of unemployment, underemployment, 
underdevelopment, and chronic depression in various areas and regions of 
the Nation;
    (b) To assist in the formulation and implementation of national, 
state, and local programs that will raise employment and income levels 
and otherwise produce solutions to problems resulting from the above 
conditions; and
    (c) To evaluate the effectiveness of programs, projects, and 
techniques used to alleviate economic distress and promote economic 
development.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



Sec. 307.17  Eligible applicants.

    Eligible applicants for Research and Evaluation grants or 
cooperative agreements include:
    (a) Private individuals;
    (b) Partnerships;
    (c) Corporations;
    (d) Associations;
    (e) Colleges and universities; and
    (f) Other suitable organizations with expertise relevant to economic 
development research. Research funds may not be used to start or expand 
a private business.



Sec. 307.18  Selection process.

    (a) Projects will be selected in accordance with Sec. 304.1 of this 
chapter.
    (b) EDA may during the course of the year, identify specific 
research or program evaluation projects it wishes to have conducted. 
Organizations and individuals interested in being invited to respond to 
SOAs to conduct such studies should submit information on their 
capabilities and experience. See the annual FY NOFA for the appropriate 
point of contact and address.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



Sec. 307.19  Evaluation criteria.

    In addition to and/or as an elaboration of the evaluation criteria 
set forth in part 304 of this chapter and to the extent practicable, EDA 
will use the following criteria to evaluate research and evaluation 
proposals:
    (a) Suitability of the subject;
    (b) Potential usefulness of the research to state and local economic 
development officials and specialists;
    (c) General quality and clarity of the proposal;
    (d) Soundness and completeness of the research methodology; and
    (e) Total cost and value of proposed product in relation to cost.



Sec. 307.20  Research topics and structure.

    (a) EDA is interested in receiving proposals dealing with:
    (1) Employment and unemployment;
    (2) Income and poverty;
    (3) Rural and nonmetropolitan economic development;
    (4) Urban economic development; or
    (5) Regional and local growth and competitiveness.
    (b) Requests should be for specific, well-defined, one-time research 
projects. EDA research grants are not intended for support of continuing 
programs (permanent research programs, publication and information 
programs, periodic forecasts, etc.), or for nonresearch activities.
    (c) EDA normally prefers research of broad geographical scope.
    (d) Preference will normally be given to practical cause-and-effect 
research

[[Page 429]]

(including hypothesis testing models) and descriptive analyses, as 
opposed to theoretical studies, forecasting models, and ``how to'' 
guides.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



Sec. 307.21  Award requirements.

    (a) Assistance under this program will normally be for a period not 
exceeding 15 months.
    (b) EDA will provide grants and cooperative agreements covering up 
to 100 percent of project costs.



 Subpart E--Economic Development Districts, American Indian Tribes and 
        Redevelopment Areas--Economic Development Planning Grants



Sec. 307.22  Purpose and scope.

    The primary objective of planning assistance for administrative 
expenses is to support the formulation and implementation of economic 
development planning programs designed to create or retain permanent 
jobs and income, particularly for the unemployed and underemployed in 
the most distressed areas. Planning activities supported by these 
administrative funds must be part of a permanent and continuous process 
involving significant leadership by public officials and private 
citizens.



Sec. 307.23  Definitions.

    (a) Category A grants means those made to Economic Development 
Districts and Redevelopment Areas; and
    (b) Category B grants means those made to American Indian Tribes.



Sec. 307.24  Applicants.

    Eligible applicants are economic development district organizations, 
redevelopment areas, organizations representing redevelopment areas (or 
parts of such areas), American Indian tribes, organizations representing 
multiple American Indian tribes, the Federated States of Micronesia, the 
Republic of the Marshall Islands, the Republic of Palau, the 
Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American 
Samoa, and the Commonwealth of the Northern Mariana Islands.



Sec. 307.25  Selection process.

    EDA invites currently funded grantees to apply if they are in 
compliance with their current financial assistance awards. EDA will 
select projects in accordance with Sec. 304.1 of this chapter.



Sec. 307.26  Evaluation criteria.

    (a) In addition to and/or as an elaboration of the evaluation 
criteria set forth in part 304 of this chapter and to the extent 
practicable, EDA will evaluate applicants on the following:
    (1) Quality of the proposed work program;
    (2) Management and staff capacity and qualifications;
    (3) Involvement of the local leadership in the applicant's economic 
development activities; and
    (b) Previously funded grantees, in addition to the requirements of 
paragraph (a) of this section, will be evaluated on the basis of the 
quality of their past performance.



Sec. 307.27  Award requirements.

    (a) Assistance will normally be for a 12-month period.
    (b) Grant assistance may be provided for up to 75 percent of project 
costs for Category A grants with the applicant required to provide the 
remaining share from non-federal sources. Category B grant assistance 
may be provided for up to 100 percent of project costs.
    (c) EDA will make annual determinations of satisfactory performance, 
and periodically conduct on-site performance appraisals.



Sec. 307.28  Limitations.

    (a) Except as set forth in paragraph (b) of this section, no 
planning grants to economic development district organizations will be 
extended unless at least three-fourths of the counties within the 
district boundaries indicate, by resolution or other appropriate 
document, their commitment to support the activities of the district.
    (b) Where a sufficient number of counties have withdrawn from the 
district to make compliance with this three-fourths requirement 
impossible or unreasonable, EDA may fund the continuing committed 
counties in the

[[Page 430]]

name of the original district organization if EDA determines that the 
remaining counties can meet the requirements for authorizing and 
designating economic development districts, as set forth at part 302 of 
this chapter.



     Subpart F--State and Urban Economic Development Planning Grants



Sec. 307.29  Purpose and scope.

    Planning assistance is to strengthen significant economic 
development planning capability and initiatives of eligible applicants 
to ensure a more productive use of available resources in reducing the 
effects of economic problems by formulation and implementation of an 
economic development program. Assistance must be part of a continuous 
process involving significant local leadership from public officials and 
private citizens and should include efforts to reduce unemployment and 
increase incomes. These efforts should be systematic and coordinated 
when applicable, with other planning organizations in the area, and 
should strengthen the planning capabilities of applicants.



Sec. 307.30  Applicants.

    Eligible applicants under this program are as follows:
    (a) Governors or agencies so designated by Governors of States;
    (b) Chief executive officers of cities or counties, or their 
designated agencies or organizations; and
    (c) Sub-state planning and development organizations (including 
redevelopment areas and economic development districts).



Sec. 307.31  Selection process.

    Projects will be selected in accordance with Sec. 304.1 of this 
chapter.



Sec. 307.32  Evaluation criteria.

    In addition to and/or as an elaboration of the evaluation criteria 
set forth in part 304 of this chapter and to the extent practicable, EDA 
will evaluate projects on the following:
    (a) Overall quality of the proposal;
    (b) Extent to which the proposed planning activities are expected 
to:
    (1) Impact upon the service area's economic development needs; and
    (2) Address the problems of the unemployed and underemployed of the 
area, including minorities, workers displaced by plant closings, etc.;
    (c) The proximity of the performing office to the chief executive 
(i.e., likelihood that the activities will have a significant influence 
on the policy and decision making process);
    (d) Past performance of currently or formerly funded grantees, when 
applicable;
    (e) The amount of local participation provided as matching share to 
the Federal funds; and
    (f) Other characteristics, such as involvement of the private sector 
businesses and professional groups in the proposed activities, and 
particularly for states, the innovativeness of the proposed approach and 
replicability of the model process or results.



Sec. 307.33  Award requirements.

    (a) Assistance will be for the period of time required to complete 
the work. This period is normally 12 to 18 months.
    (b) Grant assistance may be provided for up to 75 percent of project 
costs. Applicants will be required to provide the remaining share, 
preferably in cash.



PART 308--REQUIREMENTS FOR GRANTS UNDER THE TITLE IX ECONOMIC ADJUSTMENT PROGRAM--Table of Contents




Sec.
308.1  Purpose and scope.
308.2  Use of economic adjustment grants.
308.3  Eligible applicants.
308.4  Eligible areas.
308.5  Selection process.
308.6  Evaluation factors.
308.7  Award requirements.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49692, Sept. 26, 1995, unless otherwise noted.



Sec. 308.1  Purpose and scope.

    (a) The Economic Adjustment Program addresses the particular needs 
of

[[Page 431]]

areas experiencing changes in their economic situation which are 
causing, or threaten to cause, serious structural damage to the 
underlying economic base. Such changes may occur suddenly or over time, 
for example, as a result of industrial or corporate restructuring in 
response to technological advancements or changes in the marketplace, 
new Federal laws or requirements, reductions in defense expenditures, or 
depletion of natural resources or natural disasters.
    (b) Economic Adjustment grants are awarded for the purpose of 
enabling communities in such areas to meet the challenge of economic 
change more effectively through the development and implementation of 
strategies for inducing capital investment in production of the types of 
goods and/or services for which the community may have or be able to 
develop a comparative economic advantage, and which will lead to 
economic recovery and saving and/or creating permanent jobs.
    (c) Overall funding objectives of this program are to:
    (1) Provide impacted communities with the skills and knowledge 
needed to organize and carry out a strategic planning process focusing 
on increasing the productivity and competitiveness of a community's 
assets, such as for example, existing industries and business acumen, 
natural resources, or labor force skills;
    (2) Expand the capacity of public officials and development 
organizations to work more effectively with their business community to 
identify and address unmet needs of the types of firms identified in 
area strategies. Such needs include, for example, management assistance 
and information to help with modernization, financing, market research, 
and new product development;
    (3) Assist communities to overcome critical impediments to 
implementing their adjustment strategy. Such impediments include, for 
example, a lack of available financing for the businesses or weaknesses 
in economic infrastructure;
    (4) Enable communities to plan and coordinate:
    (i) The use of Federal, and/or other resources available to support 
economic recovery from Federal actions adversely affecting a major 
industrial sector;
    (ii) The economy of a discrete geographic region; or
    (iii) Recovery from natural disasters.
    (5) Encourage the development of innovative public/private 
approaches to economic restructuring and revitalization.



Sec. 308.2  Use of economic adjustment grants.

    (a) Grants shall be used to develop or implement economic adjustment 
strategies. Strategy grants provide the resources for organizing and 
conducting a strategic planning process. Implementation grants support 
one or more activities identified in an adjustment strategy approved by 
EDA. Such activities include the following, which may be undertaken 
singly or in combination:
    (1) Infrastructure improvements, such as for example, acquisition, 
site preparation, construction, rehabilitation and/or equipping of 
eligible facilities;
    (2) Provision of business financing through establishment of locally 
administered revolving loan funds (RLFs);
    (3) Planning, including strategy development, updating or 
refinement;
    (4) Market or industry research and analysis;
    (5) Technical assistance, including organizational development such 
as business networking, restructuring or improving the delivery of 
business services, or for feasibility studies;
    (6) Public Services;
    (7) Training; and
    (8) Other activities as justified by the economic adjustment 
strategy which meet statutory and regulatory requirements.
    (b) Adjustment grants may be disbursed by the grantee through direct 
expenditures or through redistribution by them to public and private 
entities.
    (1) Redistribution in the form of grants may only be to units of 
government or to public or private non-profit organizations.

[[Page 432]]

    (2) Redistribution in the form of loans, loan guarantees or other 
appropriate assistance may be to public or private entities.



Sec. 308.3  Eligible applicants.

    Eligible applicants within areas meeting the EDA eligibility 
criteria described below include:
    (a) A redevelopment area or economic development district 
established under Title IV of the Act;
    (b) An American Indian tribe;
    (c) A State;
    (d) A city or other political subdivision of a state;
    (e) A consortium of such political subdivisions;
    (f) A Community Development Corporation;
    (g) A non-profit organization determined by EDA to represent the 
interests of a redevelopment area(s) or economic development districts 
with respect to the objectives of the Economic Adjustment program; and
    (h) The Federated States of Micronesia, the Republic of the Marshall 
Islands, the Republic of Palau, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, American Samoa, and the Commonwealth of the 
Northern Mariana Islands.



Sec. 308.4  Eligible areas.

    (a) General. The area(s) to be assisted by the applicant must be 
eligible on the basis of the criteria described below for establishing 
that it is experiencing either Long-Term Economic Deterioration (LTED) 
or a Sudden and Severe Economic Dislocation (SSED) or a Special Need.
    (b) LTED. The area must be experiencing at least one of three 
economic problems:
    (1) Very high unemployment;
    (2) Low per capita income; or
    (3) Chronic distress (i.e., failure to keep pace with national 
economic growth trends over the last 5 years). Priority consideration 
will be given to those areas with two or more of these indicators. 
Eligibility is generally determined statistically. Further information 
is available from EDA's regional offices and EDRs (see Sec. 300.4 of 
this chapter).
    (c) SSED. The area must show actual or threatened permanent job 
losses that exceed the following threshold criteria:
    (1) For areas not in Metropolitan Statistical Areas:
    (i) If the unemployment rate of the Labor Market Area exceeds the 
national average, the dislocation must amount to the lesser of 2 percent 
of the employed population, or 500 direct jobs; and
    (ii) If the unemployment rate of the Labor Market Area is equal to 
or less than the national average, the dislocation must amount to the 
lesser of 4 percent of the employed population, or 1,000 direct jobs.
    (2) For areas within Metropolitan Statistical Areas:
    (i) If the unemployment rate of the Metropolitan Statistical Area 
exceeds the national average, the dislocation must amount to the lesser 
of 0.5 percent of the employed population, or 4,000 direct jobs; and
    (ii) If the unemployment rate of the Metropolitan Statistical Area 
is equal to or less than the national average, the dislocation must 
amount to the lesser of 1 percent of the employed population or 8,000 
direct jobs.
    (3) In addition, 50 percent of the job loss threshold must result 
from the action of a single employer, or 80 percent of the job loss 
threshold must occur in a single standard industry classification (i.e., 
two digit SIC code).
    (4) Actual dislocations must have occurred within one year and 
threatened dislocations must be anticipated to occur within 2 years of 
the date EDA is contacted.
    (5) In the case of a Presidentially declared disaster, the area 
eligibility criteria findings are waived.
    (d) Special need. An area must be determined by EDA to require 
assistance for another kind of economic adjustment problem or problems.



Sec. 308.5  Selection process.

    (a) Projects will be selected in accordance with Sec. 304.1 of this 
chapter.
    (b) Applicants for funding of a Revolving Loan Fund (RLF) are 
generally required to submit a RLF Plan in addition to the adjustment 
strategy for the area. Guidelines on RLFs are available

[[Page 433]]

from the Regional Offices. See the annual FY NOFA for the appropriate 
point of contact and address.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



Sec. 308.6  Evaluation factors.

    (a) General. EDA will use the evaluation criteria set forth in part 
304 of this chapter. To the extent practicable, EDA will use the 
evaluation factors set out in this section in the selection process:
    (b) Strategy grants. EDA will review strategy grant applications to 
determine whether:
    (1) The applicant organization has the necessary authority, mandate 
and capacity to lead and manage the planning process and implementation 
of the resulting strategy;
    (2) The planning process provides for the representation of public 
and private sector entities with a contribution to make to the 
development of the strategy and/or on which accomplishment of the 
strategic objectives will depend. These entities include public program 
and service providers, trade and business associations, educational and 
research institutions, and community development corporations, etc.; and
    (3) The proposed scope of work focuses on the specific economic 
problems to be addressed and provides for undertaking the appropriate 
research and analysis needed to formulate a realistic, market-based, 
adjustment strategy.
    (c) Implementation grants. EDA will review implementation grant 
applications to determine whether:
    (1) Strategies have been completed; provided however, that EDA may 
in some instances, consider funding a project prior to completion of the 
strategy/plan, if:
    (i) An appropriate community planning process is underway;
    (ii) Sufficient analysis has been done to show that the proposed 
project is economically viable and potentially consistent with the 
evolving strategy; and
    (iii) The proposed project has the support of the community.
    (2) Activities or projects proposed for funding are generally 
identifiable as integral and priority elements within an adjustment 
strategy for the eligible area(s) prepared or updated within the 
preceding 2 years;
    (3) The strategy addresses the following:
    (i) An appropriately designed and conducted planning process;
    (ii) An understanding of the economic problems being addressed;
    (iii) An analysis of the industry sectors and the firms within them 
that comprise the area's economic base, and of the particular strengths 
and weaknesses of the area that contribute to, or detract from, its 
current and potential economic competitiveness;
    (iv) Strategic objectives that flow from the economic analysis and 
conclusions and focus on stimulating investment in new and/or expanding 
economic activities that offer the best prospects for revitalization and 
growth;
    (v) Appropriate and necessary resources in the area and elsewhere 
which have been identified and are/will be coordinated to support 
implementation of the strategy; and
    (vi) The performance measures which the applicant will use to assess 
progress toward accomplishing its strategic objectives.
    (4) All individual activities or projects proposed for funding are 
consistent with one or more of the Economic Adjustment Program 
objectives stated in Sec. 308.1.
    (d) Revolving Loan Fund grants. For implementation grants proposing 
to capitalize or recapitalize a Revolving Loan Fund (RLF), EDA will also 
review how the application discusses:
    (1) The need for a new or expanded public financing tool to 
complement other business assistance programs and services available to 
firms and/or would-be entrepreneurs in industry sectors and/or locations 
targeted by the adjustment strategy;
    (2) The types of financing activities anticipated; and
    (3) The prospective capacity of the RLF's organization to work 
effectively with the business community and other financing providers, 
to function as an integral part of the overall economic adjustment 
effort and to manage the lending function.

[[Page 434]]



Sec. 308.7  Award requirements.

    (a) Projects are expected to be completed in a timely manner 
consistent with the nature of the project. Normally, the maximum period 
for any financial assistance that is provided shall be not more than 5 
years from the end of the fiscal year of the award.
    (b) Title IX funds are awarded through grants generally not to 
exceed 75 percent of the project cost. EDA may waive all or part of the 
25 percent nonfederal share of economic adjustment assistance grants, 
because of the critical nature of the situation requiring economic 
adjustment assistance, or for other good cause. The local share must not 
be encumbered in any way that would preclude its use as required by the 
grant agreement. The local share for grants to establish or recapitalize 
a RLF must be in cash, and while the local share for grants for other 
activities may be cash or in-kind, priority consideration will be given 
to proposals with a cash local share.
    (c) Direct recipients of grant assistance shall submit a report to 
EDA each year that the assistance continues in accordance with the Act. 
The report shall include:
    (1) Whether planned activities are completed or their anticipated 
completion time;
    (2) The degree to which activities have achieved their planned goals 
as described in the plan; and
    (d) RLF grantees must submit semi-annual reports until graduated to 
annual report status.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7983, Mar. 1, 1996]



PARTS 309-311  [RESERVED]






PART 312--SUPPLEMENTAL AND BASIC ASSISTANCE UNDER SECTION 304 OF THE ACT--Table of Contents




Sec.
312.1  Purpose and scope.
312.2  Selection and qualification of projects for supplementary 
          assistance.
312.3  Selection and qualification of projects for basic grant 
          assistance.
312.4  Award requirements.
312.5  Construction management and disbursement.
312.6  Conditions for disbursement of funds.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49694, Sept. 26, 1995, unless otherwise noted.



Sec. 312.1  Purpose and scope.

    The purpose of this part is to set forth requirements governing the 
extension of assistance under section 304 of the Act (42 U.S.C. 3153). 
Funds obligated to a State shall be available for supplementing or 
making grants authorized under Titles I, III (other than planning grants 
authorized under sections 301(b) and 302), IV, and IX of the Act for 
projects within such States. The Assistant Secretary has notified the 
State of amounts available under section 304, if any, for basic and 
supplemental assistance under this part.



Sec. 312.2  Selection and qualification of projects for supplementary assistance.

    The selection of projects to be assisted by the use of funds in 
supplementing grants made by EDA under Titles I and III (other than 
planning grants authorized under sections 301(b) and 302), IV, and IX of 
the Act shall be made by the States and communicated to EDA on forms 
prescribed by EDA. Eligibility of a project for assistance shall be 
determined by EDA incident to the evaluation of the application for the 
underlying basic grant assistance for such project.



Sec. 312.3  Selection and qualification of projects for basic grant assistance.

    (a) In those cases where the States propose to use funds for basic 
grant assistance for projects meeting requirements for assistance under 
Titles I and III (other than planning grants authorized under sections 
301(b) and 302), IV, and IX of the Act, and for which funds have been 
determined to be unavailable by EDA under Titles I, III, IV, and IX, the 
States shall communicate the proposed use of the funds to EDA on forms 
prescribed by EDA. A proposal shall contain or be accompanied by the 
documentation or certification evidencing compliance with the 
requirements, conditions, and limitations as would be applicable to such 
project if it were

[[Page 435]]

being considered for funding under Titles I and III (other than planning 
grants authorized under sections 301(b) and 302), IV, and IX of the Act. 
Eligibility and compliance of a project for assistance shall be 
determined by EDA in the same manner as applicable to projects receiving 
only supplementary assistance under section 304 of the Act.
    (b) A proposal by a State for the use of funds for a basic grant 
shall be accompanied by evidence that the principal governing 
authorities for the area in which a project is to be located have 
approved the project.
    (c) Funds may not be used by a State as a grant to a private 
profitmaking entity.



Sec. 312.4  Award requirements.

    States must make a contribution which is equal to at least 25 
percent of the funds being made available to a particular project from 
funds appropriated under section 304 of the Act. Participation in or 
contributions to a project by local subdivisions of a State or private 
individuals or organizations shall not be deemed contributions by the 
State as required by this section.



Sec. 312.5  Construction management and disbursement.

    Projects assisted through the use of funds in supplementing EDA 
grants under Titles I and III (other than planning grants authorized 
under sections 301(b) and 302), IV, and IX of the Act or in providing 
basic grants shall be subject to the same procedures and requirements 
relating to post-approval compliances, construction management, and 
disbursement as applicable to projects funded under Titles I, III, IV, 
and IX of the Act.



Sec. 312.6  Conditions for disbursement of funds.

    (a) As a condition for the disbursement of funds, a State shall 
conform to the requirements of the Act and provide acceptable evidence 
of compliance with requirements conditions and limitations applicable to 
projects assisted under Titles I, III (other than planning grants 
authorized under section 301(b) and 302), IV, and IX of the Act. States 
will be promptly notified of proposals which do not meet requirements.
    (b) It shall also be a condition for the disbursement of funds for 
any project that the State must make a showing:
    (1) That such funds will be used in a manner consistent with the 
State planning process assisted under part 307 of this chapter if such a 
planning process has been established;
    (2) That such State is not receiving planning assistance under part 
307 but has an economic development planning process meeting the 
standards required for assistance under part 307 of this chapter and 
that the proposed use of funds is consistent with such planning process; 
or
    (3) That the project is clearly of such nature that EDA may conclude 
that its implementation would not impair the benefits intended to be 
derived from an orderly economic development planning process.



PART 313  [RESERVED]






PART 314--PROPERTY MANAGEMENT STANDARDS--Table of Contents




                          Subpart A--In General

Sec.
314.1  Federal interest, applicability.
314.2  Definitions.
314.3  Use of property.
314.4  Unauthorized use.
314.5  Federal share.
314.6  Encumbrances.

                        Subpart B--Real Property

314.7  Title.
314.8  Recorded statement.

                      Subpart C--Personal Property

314.9  Recorded statement.
314.10  Revolving loan funds.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Title II, Chapter 3 of the Trade Act of 1974, as amended (19 U.S.C. 
2341-2355); Title I, Pub. L. 94-369, as amended, 90 Stat. 999 (42 U.S.C. 
6701); Pub. L. 95-31; 91 Stat. 169 (42 U.S.C. 184); Department of 
Commerce Organization Order 10-4, as amended (40 FR 56702, as amended).

    Source: 60 FR 49695, Sept. 26, 1995, unless otherwise noted.

[[Page 436]]



                          Subpart A--In General



Sec. 314.1  Federal interest, applicability.

    (a) All property that is acquired or improved with EDA grant 
assistance shall be held in trust by the recipient for the benefit of 
the project purposes under which the property was acquired or improved.
    (b) During the estimated useful life of the project, EDA retains an 
undivided equitable reversionary interest in property acquired or 
improved with EDA grant assistance.
    (c) EDA may approve the substitution of an eligible entity for a 
grantee. The original grantee remains responsible for the period it was 
the grantee, and the successor grantee holds the project property with 
the responsibilities of an original grantee under the award.
    (d) The requirements contained in this part apply solely to grant 
and cooperative agreement award projects.



Sec. 314.2  Definitions.

    As used in this part 314 of this chapter:
    Dispose includes sell, lease, abandon, or use for a purpose or 
purposes not authorized under the grant award or this part.
    Estimated useful life means that period of years from the time of 
award, determined by EDA as the expected lifespan of the project.
    Grantee includes any recipient, subrecipient, awardee, or subawardee 
of grant assistance under the Public Works and Economic Development Act 
of 1965, or under Title II, Chapter 3 of the Trade Act of 1974, Title I 
of the Public Works Employment Act of 1976, the Public Works Employment 
Act of 1977, or the Community Emergency Drought Relief Act of 1977, and 
any EDA-approved successor to such recipient, subrecipient, awardee or 
subawardee.
    Owner includes fee owner, transferee, lessee, or optionee of real 
property upon which project facilities or improvements are or will be 
located, or real property improved under a project which has as its 
purpose that the property be sold.
    Personal Property means all property other than real property.
    Project means the activity and property acquired or improved for 
which a grant is awarded. When property is used in other programs as 
provided in Sec. 314.3(b), ``project'' includes such programs.
    Property includes all forms of property, real, personal (tangible 
and intangible), and mixed.
    Real property means any land, improved land, structures, 
appurtenances thereto, or other improvements, excluding movable 
machinery and equipment. Improved land also includes land which is 
improved by the construction of such project facilities as roads, 
sewers, and water lines which are not situated directly on the land but 
which contribute to the value of such land as a specific part of the 
project purpose.



Sec. 314.3  Use of property.

    (a) The grantee or owner shall use any property acquired or improved 
in whole or in part with grant assistance only for the authorized 
purpose of the project as long as it is needed during the estimated 
useful life of the project and such property shall not be leased, sold, 
disposed of or encumbered without the written authorization of EDA.
    (b) In the event that EDA and the grantee determine that property 
acquired or improved in whole or in part with grant assistance is no 
longer needed for the original grant purpose, it may be used in other 
Federal grant programs, or programs that have purposes consistent with 
those authorized for support by EDA, if EDA approves such use.
    (c) When the authorized purpose of the EDA grant is to develop real 
property to be leased or sold, as determined by EDA, such sale or lease 
is permitted provided the sale is consistent with the authorized purpose 
of the grant and with applicable EDA requirements concerning, but not 
limited to, nondiscrimination and nonrelocation.
    (d) When acquiring replacement personal property of equal or greater 
value, the grantee may trade-in the property originally acquired or sell 
the original property and use the proceeds in the acquisition of the 
replacement property, provided that the replacement property shall be 
used for the

[[Page 437]]

project and be subject to the same requirements as the original 
property.



Sec. 314.4  Unauthorized use.

    (a) Except as provided in Sec. 314.3(b), (c) or (d), whenever, 
during the expected useful life of the project, any property acquired or 
improved in whole or in part with grant assistance is disposed of 
without the approval of EDA, or no longer used for the authorized 
purpose of the project, the Federal Government shall be compensated by 
the grantee for the Federal share of the value of the property; provided 
that for equipment and supplies, the standards of the Uniform 
Administrative Requirements for Grants at 15 CFR part 24 and OMB 
Circular A-110 or any supplements or successors thereto, as applicable, 
shall apply.
    (b) If property is disposed of without approval, EDA may assert its 
interest in the property to recover the Federal share of the value of 
the property for the Federal Government. EDA may pursue its rights under 
both paragraphs (a) and (b) of this section, except that the total 
amount to be recovered shall not exceed the Federal share, plus costs 
and interest.



Sec. 314.5  Federal share.

    (a) For purposes of this part 314, the Federal share of the value of 
property is that percentage of the current fair market value of the 
property attributable to the EDA participation in the project (after 
deducting actual and reasonable selling and fix-up expenses, if any, 
incurred to put the property into condition for sale).
    (b) Where the grantee's interest in property is a leasehold for a 
term of years less than the depreciable remaining life of the property, 
that factor shall be considered in determining the percentage of the 
Federal share.
    (c) If property is transferred from the grantee to another eligible 
entity, as provided in Sec. 314.1(c), the Federal Government shall be 
compensated the Federal share of any money paid by or on behalf of the 
successor grantee to or for the benefit of the original grantee, 
provided that EDA may first permit the recovery by the original grantee 
of an amount not exceeding its investment in the project nor exceeding 
that percentage of the value of the property that is not attributable to 
the EDA participation in the project.
    (d) When the Federal Government is compensated for the Federal share 
of the value of property acquired or improved in whole or in part with 
grant assistance, EDA has no further interest in the ownership, use or 
disposition of the property.



Sec. 314.6  Encumbrances.

    (a) Except as provided in Sec. 314.6(c), grantee-owned property 
acquired or improved in whole or in part with grant assistance may not 
be used to secure a mortgage or deed of trust or otherwise be used as 
collateral or encumbered except to secure a grant or loan made by a 
State or Federal agency or other public body participating in the same 
project.
    (b) Encumbering such property other than as permitted in this 
section is an unauthorized use of the property requiring compensation to 
the Federal Government as provided in Secs. 314.4 and 314.5.
    (c) EDA may waive the provisions of Sec. 314.6(a) for good cause 
when EDA determines all of the following:
    (1) All proceeds from the grant/loan to be secured by the 
encumbrance on the property shall be available only to the grantee, and 
all proceeds from such secured grant/loan shall be used only on the 
project for which the EDA grant was awarded or on related activities of 
which the project is an essential part;
    (2) The lender/grantor would not provide funds without the security 
of a lien on the project property; and
    (3) There is a reasonable expectation that the borrower/grantee will 
not default on its obligation.
    (d) EDA may waive the provisions of Sec. 314.6(a) as to an 
encumbrance on property which is acquired and/or improved by an EDA 
grant when EDA determines that the encumbrance arises solely from the 
requirements of a pre-existing water or sewer facilities or other 
utility encumbrance which by its terms extends to additional property 
connected to such facilities. EDA's determination shall make reference 
to the specific requirements (for example, ``water system and all 
accessions or additions or improvements thereto'') which extend

[[Page 438]]

the terms of the pre-existing encumbrance to the property which is 
acquired and/or improved by the EDA grant.



                        Subpart B--Real Property



Sec. 314.7  Title.

    (a) The grantee must furnish evidence, satisfactory in form and 
substance to EDA, that title to real property required for a project 
(other than property of the United States) is vested in the grantee, and 
that such easements, rights-of-way, state permits, or long-term leases 
as are required for the project have been or will be obtained by the 
grantee within an acceptable time. EDA may determine that, in lieu of 
title, a long-term leasehold interest for a period not less than the 
estimated useful life of the project will be acceptable, but only if fee 
title is not obtainable and the lease provisions adequately safeguard 
EDA's interest in the project.
    (b) The grantee must disclose to EDA any liens, mortgages, other 
encumbrances, reservations, reversionary interests, or other 
restrictions on title or the grantee's interest in the property. No such 
encumbrance or restriction will be acceptable if, as determined by EDA, 
the encumbrance or restriction will interfere with the construction, 
use, operation or maintenance of the project during its estimated useful 
life.



Sec. 314.8  Recorded statement.

    (a) For all projects involving the acquisition, construction or 
improvement of a building, as determined by EDA, the grantee shall 
execute a lien, covenant or other statement of EDA's interest in the 
property acquired or improved in whole or in part with the funds made 
available under the award. The statement shall specify in years the 
estimated useful life of the project and shall include, but not be 
limited to disposition, encumbrance, and compensation of Federal share 
requirements of this part 314. The statement shall be satisfactory in 
form and substance to EDA.
    (b) The statement of EDA's interest must be perfected and placed of 
record in the real property records of the jurisdiction in which the 
property is located, all in accordance with local law.
    (c) Facilities in which the EDA investment is only a small part of a 
large project, as determined by EDA, may be exempted from the 
requirements of this section.



                      Subpart C--Personal Property



Sec. 314.9  Recorded statement.

    For all projects which EDA determines involve the acquisition or 
improvement of significant items of tangible personal property, 
including but not limited to ships, machinery, equipment, removable 
fixtures or structural components of buildings, EDA will require the 
grantee to execute a security interest or other statement of EDA's 
interest in the property, acceptable in form and substance to EDA, which 
statement must be perfected and placed of record in accordance with 
local law, with continuances refiled as appropriate.



Sec. 314.10  Revolving loan funds.

    (a) With EDA's consent, grantees holding revolving loan fund (RLF) 
property (including but not limited to money, notes, and security 
interests) may sell such property or encumber such property as part of a 
securitization of the RLF portfolio in either case to generate money to 
be used for additional loans as part of the RLF project;
    (b) When a grantee determines that it is no longer necessary or 
desirable to operate an RLF, the RLF may be terminated; provided that, 
unless otherwise stated in the award, the Federal Government shall be 
compensated the Federal share of the value of the RLF property. The 
Federal share shall apply proportionate to the percentage of the 
capitalization of the RLF contributed by EDA to all RLF property 
including the present value of all outstanding loans; provided that the 
grantee may use for other economic development purposes with EDA's 
approval that portion of such RLF property which EDA determines is 
attributable to the payment of interest on RLF loans and not used by the 
grantee for administrative or other allowable expenses.

[[Page 439]]



PART 315--CERTIFICATION AND ADJUSTMENT ASSISTANCE FOR FIRMS--Table of Contents




                      Subpart A--General Provisions

Sec.
315.1  Purpose and scope.
315.2  Definitions.
315.3  Confidential business information.
315.4  Eligible applicants.
315.5  Selection process.
315.6  Evaluation criteria.
315.7  Award requirements.

             Subpart B--Trade Adjustment Assistance Centers

315.8  Purpose and scope.

                    Subpart C--Certification of Firms

315.9  Certification requirements.
315.10  Processing petitions for certification.
315.11  Hearings, appeals and final determinations.
315.12  Termination of certification and procedure.
315.13  Loss of certification benefits.

                   Subpart D--Assistance to Industries

315.14  Assistance to firms in import-impacted industries.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Title II, Chapter 3 of the Trade Act of 1974, as amended, (19 U.S.C. 
2341-2355); Department of Commerce Organization Order 10-4, as amended 
(40 FR 56702, as amended).

    Source: 60 FR 49696, Sept. 26, 1995, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 315.1  Purpose and scope.

    The regulations in this part implement certain changes to 
responsibilities of the Secretary of Commerce under Chapter 3 of Title 
II of the Trade Act of 1974, as amended (19 U.S.C. 2341 et. seq.) (Trade 
Act), concerning adjustment assistance for firms. The statutory 
authority and responsibilities of the Secretary of Commerce relating to 
adjustment assistance are delegated to EDA. EDA has the duties of 
certifying firms as eligible to apply for adjustment assistance, 
providing technical adjustment assistance to eligible recipients, and 
providing assistance to organizations representing trade injured 
industries.



Sec. 315.2  Definitions.

    As used in this part 315:
    Adjustment assistance is technical assistance provided to firms or 
industries under Chapter 3 of Title II of the Trade Act.
    Adjustment proposal means a certified firm's plan for improving its 
economic situation.
    Certified firm means a firm which has been determined by EDA to be 
eligible to apply for adjustment assistance.
    Confidential business information means information submitted to EDA 
or TAACs by firms that concerns or relates to trade secrets for 
commercial or financial purposes which is exempt from public disclosure 
under 5 U.S.C. 552(b)(4), 5 U.S.C. 552 b(c)(4) and 15 CFR part 4.
    Decreased absolutely means a firm's sales or production has 
declined:
    (1) Irrespective of industry or market fluctuations; and
    (2) Relative only to the previous performance of the firm;
    Directly competitive means:
    (1) Articles which are substantially equivalent for commercial 
purposes, i.e., are adapted to the same function or use and are 
essentially interchangeable; and
    (2) Oil or natural gas (exploration, drilling or otherwise 
produced);
    Firm means an individual proprietorship, partnership, joint venture, 
association, corporation (including a development corporation), business 
trust, cooperative, trustee in bankruptcy or receiver under court decree 
and including fishing, agricultural entities and those which explore, 
drill or otherwise produce oil or natural gas. When a firm owns or 
controls other firms as described below, for purposes of receiving 
benefits under this part, the firm and such other firms may be 
considered a single firm when they produce like or directly competitive 
articles or are exerting essential economic control over one or more 
production facilities. Such other firms include:
    (1) Predecessor;
    (2) Successor;
    (3) Affiliate; or
    (4) Subsidiary.
    A group of workers threatened with total or partial separation means 
there is

[[Page 440]]

reasonable evidence that such total or partial separation is imminent;
    Like articles means articles which are substantially identical in 
their intrinsic characteristics.
    Partial separation means either:
    (1) A reduction in an employee's work hours to 80 percent or less of 
the employee's average weekly hours during the year of such reductions 
as compared to the preceding year; or
    (2) A reduction in the employee's weekly wage to 80 percent or less 
of his/her average weekly wage during the year of such reduction as 
compared to the preceding year.
    Person means individual, organization or group.
    The record means:
    (1) A petition for certification of eligibility to qualify for 
adjustment assistance;
    (2) Any supporting information submitted by the petitioner;
    (3) Report of the EDA investigation in regard to the petition; and
    (4) Any information developed during the investigation or in 
connection with any public hearing held on the petition.
    Recipient means a firm, Trade Adjustment Assistance Center or other 
party receiving adjustment assistance or through which adjustment 
assistance is provided under the Trade Act.
    A significant number or proportion of workers means 5 percent of the 
firm's work force or 50 workers, whichever is less. An individual farmer 
is considered a significant number or proportion of workers.
    Substantial interest means a direct, material, economic interest in 
the certification or noncertification of the petitioner.
    Technical Assistance means assistance provided to firms or 
industries under Chapter 3 of Title II of the Trade Act.
    A totally separated worker means an employee who has been laid off 
or whose employment has been terminated by his/her employer for lack of 
work.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7984, Mar. 1, 1996]



Sec. 315.3  Confidential business information.

    EDA will follow the procedures set forth in 15 CFR 4.7, and 
submitters should so designate any information they believe 
confidential.



Sec. 315.4  Eligible applicants.

    (a) Trade Adjustment Assistance Centers (TAACs) are eligible 
applicants. A TAAC can be:
    (1) A university affiliate;
    (2) State or local government affiliate;
    (3) Non-profit organization.
    (b) Firms;
    (c) Organizations assisting or representing industries in which a 
substantial number of firms or workers have been certified as eligible 
to apply for adjustment assistance under sections 223 or 251 of the 
Trade Act including the following:
    (1) Existing agencies;
    (2) Private individuals;
    (3) Firms;
    (4) Universities;
    (5) Institutions;
    (6) Associations;
    (7) Unions; or
    (8) Other non-profit industry organizations.



Sec. 315.5  Selection process.

    (a) TAACs are selected in accordance with the following:
    (1) Currently funded TAACs are invited by EDA to submit either new 
or amended applications, provided they have performed in a satisfactory 
manner and complied with previous and/or current conditions in their 
cooperative agreements with EDA and contingent upon availability of 
funds. Such TAACs shall submit an application on a form approved by OMB, 
as well as a proposed budget, narrative scope of work, and such other 
information as requested by EDA. Acceptance of an application or amended 
application for a cooperative agreement does not assure funding by EDA; 
and
    (2) New TAACs will be invited to submit proposals, and if they are 
acceptable, EDA will invite an application on a form approved by OMB. An 
application will be accompanied by a narrative scope of work, proposed 
budget

[[Page 441]]

and such other information as requested by EDA. Acceptance of an 
application does not assure funding by EDA.
    (b) Firms are selected in accordance with the following:
    (1) Firms may apply for certification generally through a TAAC by 
filling out a petition for certification. The TAAC will provide 
technical assistance to firms wishing to fill out such petitions;
    (2) Once firms are certified in accordance with the procedures 
described in Secs. 315.9 and 315.10, an adjustment proposal is usually 
prepared with technical assistance from a party independent of the firm, 
usually the TAAC, and submitted to EDA;
    (3) Certified firms which have submitted acceptable adjustment 
proposals within the time limits described in Sec. 315.13 below, may 
begin implementation of such proposal, generally through the TAAC and 
often with Technical Assistance from the TAAC, by submitting a request 
to the TAAC to provide assistance in implementing an accepted adjustment 
proposal; and
    (4) EDA determines whether or not to provide assistance for 
adjustment proposals based upon Sec. 315.6(c)(2).
    (c) Organizations representing trade injured industries must meet 
with an EDA representative to discuss the industry problems, 
opportunities and assistance needs, and if invited by EDA may then 
submit an application as approved by OMB, as well as a scope of work and 
proposed budget.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7984, Mar. 1, 1996]



Sec. 315.6  Evaluation criteria.

    (a) Currently funded TAACs are generally evaluated based on the 
following:
    (1) How well they have performed under cooperative agreements with 
EDA and if they are in compliance with the terms and conditions of such 
cooperative agreements;
    (2) Proposed scope of work, budget and application or amended 
application; and
    (3) The availability of funds.
    (b) New TAACs are generally evaluated on the following:
    (1) Demonstrates competence in administering business assistance 
programs;
    (2) Background and experience of staff;
    (3) Proposed scope of work, budget and application; and
    (4) The availability of funding.
    (c) Firms are generally evaluated based on the following:
    (1) For certification, firms' petitions are selected strictly on the 
basis of conformance with requirements set forth in Sec. 315.9 below;
    (2) An adjustment proposal is evaluated on the basis of the 
following:
    (i) The proposal must be submitted to EDA within 2 years after the 
date of the certification of the firm; and
    (ii) The adjustment proposal must include a description of any 
technical assistance requested to implement such proposal including 
financial and other supporting documentation as EDA determines is 
necessary, based upon either:
    (A) An analysis of the firm's problems, strengths and weaknesses and 
an assessment of its prospects for recovery; or
    (B) If EDA so determines, an acceptable adjustment proposal can be 
prepared on the basis of other available information.
    (iii) The adjustment proposal must be evaluated to determine that 
it:
    (A) Is reasonably calculated to contribute materially to the 
economic adjustment of the firm, i.e., that such proposal will be a 
constructive aid to the firm in establishing a competitive position in 
the same or a different industry;
    (B) Gives adequate consideration to the interests of a sufficient 
number of separated workers of the firm, by providing for example that 
the firm will:
    (1) Give a rehiring preference to such workers;
    (2) Make efforts to find new work for a number of such workers; and
    (3) Assist such workers in obtaining benefits under available 
programs.
    (C) Demonstrates that the firm will make all reasonable efforts to 
use its own resources for economic development, though under certain 
circumstances, resources of related firm

[[Page 442]]

or major stockholders will also be considered.
    (d) Organizations representing trade injured industries must 
demonstrate that the industry is injured by increased imports and that 
the activities to be funded will yield some short-term actions that the 
industry itself (and individual firms) can and will take toward the 
restoration of the industry's international competitiveness.
    (1) The emphasis is on practical results that can be implemented in 
the near term, and long-term research and development activities are 
given low priority.
    (2) It is also expected that the industry will continue activities 
on its own without the need for continued Federal assistance.



Sec. 315.7  Award requirements.

    (a) Award periods are as follows:
    (1) TAACs are generally funded for 12 months;
    (2) Firms are generally provided assistance over a 2-year period; 
and
    (3) Organizations representing trade injured industries are 
generally funded for 12 months.
    (b) Matching requirements are as follows:
    (1) There are no matching requirements for certification assistance 
provided by the TAACs to firms or for administrative expenses for the 
TAACs;
    (2) All adjustment proposals and implementation assistance must 
include not less than 25% nonfederal match, provided to the extent 
practicable, by firms being assisted; and
    (3) Contributions of at least 50% of the total project cash cost, in 
addition to appropriate in kind contribution, are expected from 
organizations representing trade injured industries.



             Subpart B--Trade Adjustment Assistance Centers



Sec. 315.8   Purpose and scope.

    (a) Trade Adjustment Assistance Centers (TAACs) are available to 
assist firms in all fifty states, the District of Columbia and the 
Commonwealth of Puerto Rico in obtaining adjustment assistance. TAACs 
provide technical assistance in accordance with this subpart either 
through their own staffs or by arrangements with outside consultants. 
Information concerning TAACs serving particular areas can be obtained 
from EDA. See the annual FY NOFA for the appropriate point of contact 
and address.
    (b) Prior to submitting a request for technical assistance to EDA, a 
firm should determine the extent to which the required technical 
assistance can be provided through a TAAC. EDA will provide technical 
assistance through TAACs whenever EDA determines that such assistance 
can be provided most effectively in this manner. Requests for technical 
assistance will normally be made through TAACs.
    (c) TAACs generally provide technical assistance to a firm by 
providing the following:
    (1) Assistance to a firm in preparing its petition for 
certification;
    (2) Assistance to a certified firm in diagnosing its strengths and 
weaknesses and developing an adjustment proposal for the firm; and
    (3) Assistance to a certified firm in the implementation of the 
adjustment proposal for the firm.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7984, Mar. 1, 1996]



                    Subpart C--Certification of Firms



Sec. 315.9   Certification requirements.

    A firm will be certified eligible to apply for adjustment assistance 
based upon the petition for certification if EDA determines, under 
section 251(c) of the Trade Act, that:
    (a) A significant number or proportion of workers in such firm have 
become totally or partially separated, or are threatened to become 
totally or partially separated.
    (b) Either sales or production, or both of the firm have decreased 
absolutely; or sales or production, or both of any article that 
accounted for not less than 25 percent of the total production or sales 
of the firm during the 12-month period preceding the most recent 12-
month period for which data are available have decreased absolutely; and
    (c) Increases of imports (absolute or relative to domestic 
production) of articles like or directly competitive with

[[Page 443]]

articles produced by such firm contributed importantly to such total or 
partial separation or threat thereof, and to such decline in sales or 
production; provided that imports will not be considered to have 
contributed importantly if other factors were so dominant, acting singly 
or in combination, that the worker separation or threat thereof, or 
decline in sales or production would have been essentially the same 
irrespective of the influence of imports.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7984, Mar. 1, 1996]



Sec. 315.10  Processing petitions for certification.

    (a) Firms are encouraged to consult with a TAAC or EDA for guidance 
and assistance in the preparation of their petitions for certification.
    (b) A firm seeking certification shall complete a petition (OMB 
Control Number 0610-0091) in the form prescribed by EDA with the 
following information about such firm:
    (1) Identification and description of the firm, including legal form 
of organization, economic history, major ownership interests, officers, 
directors, management, parent company, subsidiaries or affiliates, and 
production and sales facilities;
    (2) Description of goods and services produced and sold;
    (3) Description of imported articles like or directly competitive 
with those produced;
    (4) Data on its sales, production and employment for the two most 
recent years;
    (5) Copies of its audited financial statements, or if not available, 
unaudited financial statements and Federal income tax returns for the 
two most recent years;
    (6) Copies of unemployment insurance reports for the two most recent 
years.
    (7) Information concerning its major customers and their purchases; 
and
    (8) Such other information as EDA may consider material.
    (c) EDA shall determine whether the petition has been properly 
prepared and can be accepted. Immediately thereafter, EDA shall notify 
the petitioner that the petition has been accepted or advise the 
petitioner that the petition has not been accepted, but may be 
resubmitted at any time without prejudice when the specified 
deficiencies have been corrected and the resubmission will be treated as 
a new petition.
    (d) A notice of acceptance of a petition shall be published in the 
Federal Register.
    (e) An investigation shall be initiated by EDA to determine whether 
the petitioner meets requirements set forth in section 251(c) of the 
Trade Act and Sec. 315.9 above. The investigation can be terminated at 
any time for failure to meet such requirements. A report of this 
investigation shall become part of the record upon which a determination 
of the petitioner's eligibility to apply for adjustment assistance shall 
be made.
    (f) A petitioner may withdraw a petition for certification if a 
request for withdrawal is received by EDA before a certification 
determination or denial is made. Such firm may submit a new petition at 
any time thereafter in accordance with the requirements of this section 
and Sec. 315.9.
    (g) Following acceptance, EDA shall decide what action to take on 
petitions for certification as follows:
    (1) Make a determination based on the record as soon as possible 
after all material has been submitted. In no event may the period exceed 
60 days from the date on which the petition was accepted; and
    (2) Either certify the petitioner eligible to apply for adjustment 
assistance or deny the petition, and in either event EDA shall promptly 
give notice of the action in writing to the petitioner. A notice to the 
petitioner or any parties requesting notice as specified in 
Sec. 315.10(d) of a denial of a petition shall specify the reasons upon 
which the denial is based. If a petition is denied, the petitioner shall 
not be entitled to resubmit its petition within one year from the date 
of the denial. At the time of the denial of a petition EDA may waive the 
1-year limitation for good cause.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7984, Mar. 1, 1996]

[[Page 444]]



Sec. 315.11   Hearings, appeals and final determinations.

    (a) Any petitioner may appeal to EDA from a denial of certification 
provided that the appeal is received by EDA in writing by personal 
delivery or by registered mail within 60 days from the date of notice of 
denial under Sec. 315.10(g). The appeal shall state the grounds on which 
the appeal is based, including a concise statement of the supporting 
facts and law. The decision of EDA on the appeal shall be the final 
determination within the Department of Commerce. In the absence of an 
appeal by the petitioner under this paragraph, such final determination 
shall be determined under Sec. 315.10(g).
    (b) A firm, its representative or any other interested domestic 
party aggrieved by a final determination under paragraph (a) of this 
section may, within 60 days after notice of such determination, begin a 
civil action in the United States Court of International Trade for 
review of such determination in accordance with section 284 of the Trade 
Act (19 U.S.C. 2395).
    (c) EDA will hold a public hearing on an accepted petition not later 
than 10 days after the date the publication of the Notice of Acceptance 
in the Federal Register if requested by either the petitioner or any 
other person found by EDA to have a substantial interest in the 
proceedings, under procedures, as follows:
    (1) The petitioner and other interested persons shall have an 
opportunity to be present, to produce evidence, and to be heard;
    (2) A request for public hearing must be delivered by hand or by 
registered mail to EDA. A request by a person other than the petitioner 
shall contain:
    (i) The name, address, and telephone number of the person requesting 
the hearing; and
    (ii) A complete statement of the relationship of the person 
requesting the hearing to the petitioner and the subject matter of the 
petition, and a statement of the nature of its interest in the 
proceedings.
    (3) If EDA determines that the requesting party does not have a 
substantial interest in the proceedings, a written notice of denial 
shall be sent to the requesting party. The notice shall specify the 
reasons for the denial;
    (4) EDA shall publish a notice of a public hearing in the Federal 
Register, containing the subject matter, name of petitioner, and date, 
time and place of hearing;
    (5) EDA shall appoint the presiding officer of the hearing who shall 
determine all procedural questions;
    (6) Procedures for requests to appear are as follows:
    (i) Within 5 days after publication of the Notice of Public Hearing 
in the Federal Register, each party wishing to be heard must file a 
request to appear with EDA. Such request may be filed by:
    (A) The party requesting such hearing;
    (B) Any other party with substantial interest; or
    (C) Any other party demonstrating to the satisfaction of the 
presiding officer that it should be allowed to be heard.
    (ii) The party filing the request shall submit the names of the 
witnesses and a summary of the evidence it wishes to present; and
    (iii) Such requests to appear may be approved as deemed appropriate 
by the presiding officer.
    (7) Witnesses will testify in the order and for the time designated 
by the presiding officer, except that the petitioner shall have the 
opportunity to make its presentation first. After testifying, a witness 
may be questioned by the presiding officer or his/her designee. The 
presiding officer may allow any person who has been granted permission 
to appear to question the witnesses for the purpose of assisting him/her 
in obtaining relevant and material facts on the subject matter of the 
hearing;
    (8) The presiding officer may exclude evidence which s/he deems 
improper or irrelevant. Formal rules of evidence shall not be 
applicable. Documentary material must be of a size consistent with ease 
of handling, transportation, and filing. Large exhibits may be used 
during the hearing, but copies of such exhibits must be provided in 
reduced size for submission as evidence. Two copies of all documentary 
evidence must be furnished to the presiding officer during the hearing;

[[Page 445]]

    (9) Briefs may be presented to the presiding officer by parties who 
have entered an appearance. Three copies of such briefs shall be filed 
with the presiding officer within 10 days of the completion of the 
hearing; and
    (10) Procedures for transcripts are as follows:
    (i) All hearings will be transcribed. Persons interested in 
transcripts of the hearings may inspect them at the U.S. Department of 
Commerce in Washington, DC, or purchase copies as provided in 15 CFR 
part 4, Public Information; and
    (ii) Confidential business information as determined by EDA shall 
not be a part of the transcripts. Any confidential business information 
may be submitted directly to the presiding officer prior to the hearing. 
Such information shall be labeled Confidential Business Information. For 
the purpose of the public record, a brief description of the nature of 
the information shall be submitted to the presiding officer during the 
hearing.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7984, Mar. 1, 1996]



Sec. 315.12   Termination of certification and procedure.

    (a) Whenever EDA determines that a certified firm no longer requires 
adjustment assistance or for other good cause, EDA will terminate the 
certification and promptly publish notice of such termination in the 
Federal Register. The termination will take effect on the date specified 
in the Notice.
    (b) EDA shall immediately notify the petitioner and shall state the 
reasons for such termination.



Sec. 315.13   Loss of certification benefits.

    A firm may fail to obtain benefits of certification, regardless of 
whether its certification is terminated for any of the following 
reasons:
    (a) Failure to submit an acceptable adjustment proposal within 2 
years after date of certification. While approval of an adjustment 
proposal may occur after the expiration of such 2-year period, an 
acceptable adjustment proposal must be submitted before such expiration;
    (b) Failure to submit documentation necessary to start 
implementation or modify its request for adjustment assistance 
consistent with its adjustment proposal within 6 months after approval 
of the adjustment proposal and 2 years have elapsed since the date of 
certification. If the firm anticipates that a longer period will be 
required to submit documentation, such longer period should be indicated 
in its adjustment proposal. If the firm becomes unable to submit its 
documentation within the allowed time, it should notify EDA in writing 
of the reasons for the delay and submit a new schedule. EDA has the 
discretion to accept or refuse a new schedule;
    (c) If the firm's request for adjustment assistance has been denied, 
the time period allowed for the submission of any documentation in 
support of such request has expired, and 2 years have elapsed since the 
date of certification; or
    (d) Failure to diligently pursue an approved adjustment proposal, 
and 2 years have elapsed since the date of certification.



                   Subpart D--Assistance to Industries



Sec. 315.14   Assistance to firms in import-impacted industries.

    (a) Whenever the International Trade Commission makes an affirmative 
finding under section 202(B) of the Trade Act that increased imports are 
a substantial cause of serious injury or threat thereof with respect to 
an industry, EDA shall provide to the firms in such industry, assistance 
in the preparation and processing of petitions and applications for 
benefits under programs which may facilitate the orderly adjustment to 
import competition of such firms.
    (b) EDA may provide technical assistance, on such terms and 
conditions as EDA deems appropriate for the establishment of industry 
wide programs for new product development, new process development, 
export development or other uses consistent with the purposes of this 
part.
    (c) Expenditures for technical assistance under this section may be 
up to $10,000,000 annually per industry and shall be made under such 
terms and conditions as EDA deems appropriate.

[[Page 446]]



PART 316--GENERAL REQUIREMENTS FOR FINANCIAL ASSISTANCE--Table of Contents




Sec.
316.1  Environment.
316.2  Certification as to waste treatment.
316.3  Excess capacity.
316.4  Nonrelocation.
316.5  Electric and gas facilities.
316.6  Procedures in disaster areas.
316.7  Project servicing for loans and loan guarantees.
316.8  Public information.
316.9  Relocation assistance and land acquisition policies.
316.10  Additional requirements; Federal policies and procedures.
316.11  Amendments and changes.
316.12  Contract and subcontract clauses.
316.13  Preapproval construction.

    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Title II, Chapter 3 of the Trade Act of 1974, as amended, (42 U.S.C. 
2341-2355); Department of Commerce Organization Order 10-4, as amended 
(40 FR 56702, as amended).

    Source: 60 FR 49700, Sept. 26, 1995, unless otherwise noted.



Sec. 316.1  Environment.

    (a) The purpose of this section is to ensure proper environmental 
review of EDA's actions under PWEDA and the Trade Act and to comply with 
the Federal environmental statutes and regulations in making a 
determination that balances economic development and environmental 
enhancement and mitigates adverse environmental impacts to the extent 
possible.
    (b) Environmental assessments of EDA actions will be conducted in 
accordance with the statutes, regulations, and Executive Orders listed 
below. This list will be supplemented and modified, as applicable, in 
EDA's annual FY NOFA.
    (1) Requirements under the National Environmental Policy Act of 1969 
(NEPA), Public Law 91-190, as amended, 42 U.S.C. 4321 et seq. as 
implemented under 40 CFR parts 1500 et seq. including the following:
    (i) The implementing regulations of NEPA require EDA to provide 
public notice of the availability of project specific environmental 
documents such as environmental impact statements, environmental 
assessments, findings of no significant impact, records of decision 
etc., to the affected public as specified in 40 CFR 1506.6(b); and
    (ii) Depending on the project location, environmental information 
concerning specific projects can be obtained from the Environmental 
Officer in the appropriate Washington, D.C. or regional office listed in 
the NOFA;
    (2) Clean Air Act, Pub. L. 88-206 as amended, 42 U.S.C. 7401 et 
seq.;
    (3) Clean Water Act (Federal Water Pollution Control Act), c. 758, 
62 Stat. 1152 as amended, 33 U.S.C. 1251 et seq.;
    (4) Comprehensive Environmental Response, Compensation, and 
Liability Act of 1980 (CERCLA), Pub. L. 96-510, as amended, 42 U.S.C. 
9601 et seq. and the Superfund Amendments and Reauthorization Act of 
1986 (SARA), Pub. L. 99-499, as amended;
    (5) Floodplain Management Executive Order 11988 (May 24, 1977);
    (6) Protection of Wetlands Executive Order 11990 (May 24, 1977);
    (7) Resource Conservation and Recovery Act of 1976, Public Law 94-
580 as amended, 42 U.S.C. 6901 et seq.;
    (8) Historical and Archeological Data Preservation Act, Pub. L. 86-
523, as amended, 16 U.S.C. 469a-1 et seq.;
    (9) National Historic Preservation Act of 1966, Pub. L. 89-665, as 
amended, 16 U.S.C. 470 et seq.;
    (10) Endangered Species Act of 1973, Pub. L. 93-205, as amended, 16 
U.S.C. 1531 et seq.;
    (11) Coastal Zone Management Act of 1972, Pub. L. 92-583, as 
amended, 16 U.S.C. 1451 et seq.;
    (12) Flood Disaster Protection Act of 1973, Pub. L. 93-234, as 
amended, 42 U.S.C. 4002 et seq.;
    (13) Safe Drinking Water Act of 1974, Pub. L. 92-523, as amended, 42 
U.S.C. 300f-j26;
    (14) Wild and Scenic Rivers Act, Pub. L. 90-542, as amended, 16 
U.S.C. 1271 et seq.;
    (15) Environmental Justice in Minority Populations and Low-Income 
Populations Executive Order 12898 (February 11, 1994);
    (16) Farmland Protection Policy Act, Pub. L. 97-98, as amended, 7 
U.S.C. 4201 et seq.; and

[[Page 447]]

    (17) Other Federal Environmental Statutes and Executive Orders as 
applicable.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7984, Mar. 1, 1996]



Sec. 316.2  Certification as to waste treatment.

    Whenever the Environmental Protection Agency (EPA) has established a 
permitting and enforcement system for the regulation and monitoring of 
the design and operation of wastewater treatment plants which is 
delegated to the states for certification, EDA under PWEDA will accept 
such state certifications in lieu of certification by EPA.



Sec. 316.3  Excess capacity.

    (a) All projects funded by EDA under PWEDA are subject to section 
702 of PWEDA and EDA shall determine section 702 compliance based on the 
following:
    (1) A section 702 study;
    (2) A section 702 report; or
    (3) A section 702 exemption.
    (b) Definitions. For purposes of this section only:
    Capacity means the maximum amount of a product or service that can 
be supplied to the market area over a sustained period by existing 
enterprises through the use of present facilities and customary work 
schedules for the industry.
    Demand means the actual quantity of a product or service that users 
are willing to purchase for use in the market area served by the 
intended commercial or industrial beneficiary.
    Efficient capacity means that part of capacity derived from the use 
of contemporary structures, machinery and equipment, designs and 
technologies.
    Existing competitive enterprise means an established operation which 
either produces the same product or delivers the same service to all or 
a substantial part of the market area.
    Market Area means the geographic area within which products and/or 
services compete for purchase by customers.
    Primary Beneficiary means one or more firms within the same industry 
which may reasonably be expected to use 50 percent or more of the 
capacity of an EDA-financed facility(ies) in order to expand the supply 
of goods or services sold in competition with other producers or 
suppliers of such goods or services.
    (c) For certain types of EDA projects, a section 702 study of 
competitive impact will be used as a basis for a decision by EDA that 
such project would not violate section 702 of PWEDA. A section 702 study 
is required when either of the following situations exists:
    (1) Where a primary beneficiary is present; or
    (2) When EDA so determines.
    (d) The following procedures shall be followed to the extent 
necessary to provide EDA with sufficient information to prepare a 702 
study:
    (1) The primary beneficiary shall submit as part of the project 
selection process the following information with regard to each product 
or service affected by the project:
    (i) A detailed description;
    (ii) Current and projected amount and value of annual sales;
    (iii) Distribution channel(s) and geographic marketing area; and
    (iv) Name of other suppliers and amount presently available in the 
market area.
    (2) If the primary beneficiary has conducted or commissioned a 
market study supporting the proposed project, such market study shall be 
made available to EDA early in the project selection process for 
verification and possible use by EDA as a basis for the 702 study or 
report.
    (e) A section 702 report (a summary of supply/demand factors) will 
form an acceptable basis on which to make a section 702 compliance 
finding when the characteristics described in paragraph (c)(1) or (2) of 
this section are present and in addition, it is readily apparent that 
the resulting increase in output alleviates a shortage of goods or 
services in the market area.
    (f) EDA will make a blanket finding of compliance with section 702 
of PWEDA for those projects which have one or more of the following 
characteristics:
    (1) The project has no primary beneficiary;
    (2) The beneficiary's projected new or additional annual output is 
less than 1

[[Page 448]]

percent of the last recorded annual output in the market area;
    (3) The project will replace or restore capacity recently destroyed 
by flood, fire, wind, or other natural disaster;
    (4) The project will assure the retention of the physical capacity 
and/or employment;
    (5) The project will replace, rebuild or modernize, within the same 
labor market area, facilities displaced by official governmental action;
    (6) The project assures completion of a project previously assisted 
by EDA where further funding is required because of revised project cost 
estimates, rather than for additional productive capacity;
    (7) When the purpose of research or evaluation grants or cooperative 
agreements is to determine the causes of or to assist in the formulation 
of programs to address, or to provide personnel needed to conduct 
programs concerning unemployment, underemployment, underdevelopment, or 
chronic depression;
    (8) When the purpose of planning grants to state or local 
governments, or regional or area organizations is to fund administrative 
expenses of a planning process or for the preparation of economic 
development plans or programs;
    (9) When a technical assistance grant is not designed to assist a 
specific firm or group of firms or lead directly to expanded productive 
capacity or output of specific goods or services for sale in a 
designated market area; and
    (10) PWIP projects.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7984, Mar. 1, 1996; 61 
FR 45738, Aug. 29, 1996]



Sec. 316.4  Nonrelocation.

    (a) General requirements for nonrelocation for funding under PWEDA 
are as follows:
    (1) EDA financial assistance will not be used to assist employers 
who transfer jobs from one commuting area to another. A commuting area 
(``area'') is that area defined by the distance people travel to work in 
the locality of the project receiving EDA financial assistance;
    (2) Every applicant for EDA financial assistance has an affirmative 
duty to inform EDA of any employer who will benefit from such assistance 
who will transfer jobs (not persons) in connection with the EDA grant;
    (3) EDA will determine compliance with this requirement prior to 
grant award based upon information provided by the applicant during the 
project selection process; and
    (4) Each applicant and identified primary beneficiary of EDA 
assistance, which for purposes of this section means an entity providing 
the economic justification for the project, must submit its 
certification of compliance with this section, and other applicable 
information as determined by EDA.
    (b) The nonrelocation requirements stated in paragraph (a) of this 
section shall not apply to businesses which:
    (1) Relocated to the area prior to the date of applicant's request 
for EDA assistance;
    (2) Have moved or will move into the area primarily for reasons 
which have no connection to the EDA assistance;
    (3) Will expand employment in the area where the project is to be 
located substantially beyond employment in the area in which the 
business had originally been located;
    (4) Are relocating from technologically obsolete facilities to be 
competitive;
    (5) Are expanding into the new area by adding a branch, affiliate, 
or subsidiary while maintaining employment levels in the old area or 
areas; or
    (6) Are determined by EDA to be exempt.



Sec. 316.5  Electric and gas facilities.

    (a) General requirements for funding under PWEDA are as follows:
    (1) Except for those types of facilities listed in paragraph (a)(2), 
(b) and (c) of this section, no financial assistance authorized under 
PWEDA will be used to finance:
    (i) The cost of facilities for the generation, transmission, or 
distribution of electrical energy; or
    (ii) For the production or transmission of natural, manufactured or 
mixed gas.
    (2) Electric or gas facilities are eligible to receive EDA funding 
under

[[Page 449]]

PWEDA if they meet the following requirements:
    (i) Those specifically authorized by Congress; or
    (ii) If not funded, jobs will be lost or reduced or new jobs will 
not be created, provided the following findings are made:
    (A) EDA determines that project financing is not available from 
private lenders or other Federal agencies on terms which, in the opinion 
of EDA, would permit completion and operation of the project; and
    (B) The Federal or state agency regulating such facility makes one 
of the following determinations:
    (1) There would not be any competition with existing public 
utilities under their jurisdiction in public rate charges; and
    (2) There would be such competition as described in paragraph 
(a)(2)(ii)(B)(1) of this section, but existing public utilities are 
unable or unwilling to meet the increase in demand for such energy.
    (b) Electrical facilities may also be funded if such funds would be 
used for:
    (1) An internal electrical system (system) on the consumer side of 
the distribution metering station, including for example, conductors, 
conduits, structures, switchgear, transformers and other appurtenances; 
provided such system meets the following requirements:
    (i) It is owned by the owner of all or a portion of the facility 
served by such system; and
    (ii) Electricity carried on such system will not be resold.
    (2) Standby electrical generating equipment, provided that such 
equipment is:
    (i) Incapable of and not intended to provide service on a regular 
and continuous basis; and
    (ii) Needed to prevent significant damage or harm resulting from a 
power failure.
    (3) Facilities for replacement or expansion of existing public 
utilities when the area served will remain unchanged;
    (4) Otherwise eligible components of projects which generate 
electricity but which also have other purposes, such as heating; or
    (5) Electrical generation facilities which use waste as an 
alternative to conventional fuels.
    (c) Gas facilities, including those needed for local storage, 
regulation and consumer metering, may also be funded if for the 
distribution of gas from the plant and metering station to consumers 
within a particular area.



Sec. 316.6  Procedures in disaster areas.

    When non-statutory EDA administrative or procedural conditions for 
financial assistance awards cannot be met by applicants under PWEDA as 
the result of a disaster, EDA may waive such conditions.



Sec. 316.7  Project servicing for loans and loan guarantees.

    EDA will provide project servicing to borrowers and lenders who 
received EDA loans and/or guaranteed loans under any programs 
administered by EDA. This includes but is not limited to loans under 
PWEDA, the Trade Act and the Community Emergency Drought Relief Act of 
1977.
    (a) EDA will continue to monitor such loans and guarantees in 
accordance with the loan or guarantee program.
    (b) Borrowers/lenders shall submit to EDA any requests for 
modifications of their agreements with EDA. EDA shall, in accordance 
with applicable laws and policies, including the Federal Credit Reform 
Act of 1990 (2 U.S.C. 661 c(e)), consider and respond to such 
modification requests.
    (c) In the event that EDA determines it necessary or desirable to 
take actions to protect or further the interests of EDA in connection 
with loans or guarantees made or evidences of indebtedness purchased, 
EDA may:
    (1) Assign or sell at public or private sale, or otherwise dispose 
of for cash or credit, in its discretion and upon such terms and 
conditions as it shall determine to be reasonable, any evidence of debt, 
contract, claim, personal or real property, or security assigned to or 
held by it in connection with financial assistance extended;
    (2) Collect or compromise all obligations assigned to or held by it 
in connection with EDA financial assistance

[[Page 450]]

projects until such time as such obligations may be referred to the 
Attorney General for suit or collection; and
    (3) Take any and all other actions determined by it to be necessary 
or desirable in purchasing, servicing, compromising, modifying, 
liquidating, or otherwise administratively dealing with or realizing on 
loans or guaranties made or evidences of indebtedness purchased.



Sec. 316.8  Public information.

    The rules and procedures regarding public access to the records of 
the Economic Development Administration are found at 15 CFR part 4.



Sec. 316.9  Relocation assistance and land acquisition policies.

    Recipients of EDA financial assistance under PWEDA and the Trade Act 
(states and political subdivisions of states and non-profits as 
applicable) are subject to requirements set forth at 15 CFR part 11.



Sec. 316.10  Additional requirements; Federal policies and procedures.

    Grantees as defined under Sec. 314.2 of this chapter are subject to 
all Federal laws and to Federal, Department of Commerce and EDA 
policies, regulations, and procedures applicable to Federal financial 
assistance awards.



Sec. 316.11  Amendments and changes.

    (a) Requests by grantees for amendments to a grant shall be 
submitted in writing to the EDA Regional Office for processing, and 
shall contain such information and documentation necessary to justify 
the request.
    (b) All change orders are subject to EDA approval. Any changes made 
without prior approval by EDA are made at grantee's own risk of 
suspension or termination of the project.
    (c) Changes of project scope will not be approved by EDA.

[60 FR 49678, Sept. 26, 1995. Redesignated at 61 FR 7983, Mar. 1, 1996]



Sec. 316.12  Contract and subcontract clauses.

    Grantees must see that grantees' and subgrantees' contracts contain 
all required clauses in accordance with 15 CFR part 24, Uniform 
Administrative Requirements for Grants and Cooperative Agreements to 
State and Local Governments, or OMB Circular A-110, Uniform 
Administrative Requirements for Grants and Agreements with Non-profit 
Organizations, whichever is applicable.

[60 FR 49678, Sept. 26, 1995. Redesignated at 61 FR 7983, Mar. 1, 1996]



Sec. 316.13  Preapproval construction.

    Project construction carried out before approval of an application 
by EDA is carried out at the sole risk of applicant. Such activity could 
result in rejection of such project application, the disallowance of 
costs, or other adverse consequences as a result of non-compliance with 
Federal labor standards, or Federal environmental, historic preservation 
or related requirements.

[61 FR 7985, Mar. 1, 1996]



PART 317--CIVIL RIGHTS--Table of Contents




    Authority: Sec. 701, Pub. L. 89-136; 79 Stat. 570 (42 U.S.C. 3211); 
Department of Commerce Organization Order 10-4, as amended (40 FR 56702, 
as amended).

    Source: 60 FR 49702, Sept. 26, 1995, unless otherwise noted.



Sec. 317.1  Civil rights.

    (a) Discrimination is prohibited in programs receiving federal 
financial assistance from EDA in accordance with the following 
authorities:
    (1) Section 601 of Title VI of the Civil Rights Act of 1964, 
codified at 42 U.S.C. 2000d et seq. (proscribing discrimination on the 
basis of race, color, or national origin), and the Department of 
Commerce's implementing regulations found at 15 CFR part 8;
    (2) 42 U.S.C. 3123 (proscribing discrimination on the basis of sex);
    (3) 29 U.S.C. 794, as amended, and the Department of Commerce's 
implementing regulations found at 15 CFR part 8b (proscribing 
discrimination on the basis of disabilities);
    (4) 42 U.S.C. 6101, as amended, and the Department of Commerce's 
implementing regulations found at 15 CFR part 20; and
    (5) Other Federal statutes, regulations and Executive Orders as 
applicable.

[[Page 451]]

    (b)(1) Definitions:
    (1) Other Parties means, as an elaboration of the definition in 15 
CFR part 8, entities which, or which are intended to create and/or save 
15 or more permanent jobs as a result of EDA assistance provided that 
they are also either specifically named in the application as 
benefitting from the project, or are or will be located in an EDA 
building, port, facility, or industrial, commercial or business park 
prior to EDA's final disbursement of funds awarded for the project.
    (2)  [Reserved]
    (2) Additional definitions are provided in EDA's Civil Rights 
Guidelines and 15 CFR part 8.
    (c) All recipients of EDA financial assistance under PWEDA and the 
Trade Act, and Other Parties are required to submit the following to 
EDA:
    (1) Written assurances that they will comply with Department of 
Commerce and EDA regulations, and such other requirements as may be 
applicable, prohibiting discrimination;
    (2) Employment data in such form and manner as determined by EDA;
    (3) Information on civil rights status and involvement in charges of 
discrimination in employment or the provision of services during the 2 
years previous to the date of submission of such data as follows:
    (i) Description of the status of any lawsuits, complaints or the 
results of compliance reviews; and
    (ii) Statement indicating any administrative findings by a Federal 
or State agency.
    (4) Whenever deemed necessary by EDA to determine that applicants 
and other parties are in compliance with civil rights regulations, such 
applicants and other parties shall submit additional information in the 
form and manner requested by EDA; and
    (5) In addition to employment record requirements found in 15 CFR 
8.7, complete records on all employees and applicants for employment, 
including information on race, sex, national origin, age, education and 
job-related criteria must be retained by employers.
    (d) To enable EDA to determine that there is no discrimination in 
the distribution of benefits in projects which provide service benefits, 
in addition to requirements listed in paragraph (c) of this section, 
applicants are required to submit any other information EDA may deem 
necessary for such determination.
    (e) EDA assisted planning organizations must meet the following 
requirements:
    (1) For the selection of representatives, EDA expects planning 
organizations and OEDP Committees to take appropriate steps to ensure 
that there is adequate representation of minority and low-income 
populations, women, people with disabilities and Federal and State 
recognized American Indian tribes and that such representation is 
accomplished in a nondiscriminatory manner; and
    (2) EDA assisted planning organizations and OEDP Committees shall 
take appropriate steps to ensure that no individual will be subject to 
discrimination in employment because of their race, color, national 
origin, sex, age or disability.
    (f) Reporting and other procedural matters are set forth in 15 CFR 
parts 8, 8(b), 8(c), and 20 and the Civil Rights Guidelines which are 
available from EDA's Regional Offices. See part 300 of this chapter.

[60 FR 49678, Sept. 26, 1995, as amended at 61 FR 7985, Mar. 1, 1996]



PART 318  [RESERVED]
[[Page 453]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 455]]

            Material Approved for Incorporation by Reference

                     (Revised as of January 1, 1997)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR Part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


13 CFR CHAPTER I (PARTS 1-199)

SMALL BUSINESS ADMINISTRATION


American National Standards Institute

  1430 Broadway, New York, NY 10018
ANSI A117.1-1980 American National Standard 
  Specifications for Making Buildings and 
  Facilities Accessible to and Usable by the 
  Physically Handicapped..........................            113.3-3(c)


                                                                    Chap.

[[Page 457]]



                    Table of CFR Titles and Chapters



                     (Revised as of January 1, 1997)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2--[Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)
        II  Federal Claims Collection Standards (General 
                Accounting Office--Department of Justice) (Parts 
                100--299)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Advisory Committee on Federal Pay (Parts 1400--1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
       VII  Advisory Commission on Intergovernmental Relations 
                (Parts 1700--1799)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3202)
     XXIII  Department of Energy (Part 3301)

[[Page 458]]

      XXIV  Federal Energy Regulatory Commission (Part 3401)
      XXVI  Department of Defense (Part 3601)
    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                          Title 6--[Reserved]

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Consumer Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)

[[Page 459]]

        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of Finance and Management, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  [Reserved]
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)

[[Page 460]]

    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Immigration and Naturalization Service, Department of 
                Justice (Parts 1--499)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Meat and Poultry 
                Inspection, Department of Agriculture (Parts 300--
                599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
        XI  United States Enrichment Corporation (Parts 1100--
                1199)
        XV  Office of the Federal Inspector for the Alaska Natural 
                Gas Transportation System (Parts 1500--1599)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)

[[Page 461]]

        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Thrift Depositor Protection Oversight Board (Parts 
                1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700-1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Export Administration, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements

[[Page 462]]

        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)

[[Page 463]]

        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development, International 
                Development Cooperation Agency (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Information Agency (Parts 500--599)
        VI  United States Arms Control and Disarmament Agency 
                (Parts 600--699)
       VII  Overseas Private Investment Corporation, International 
                Development Cooperation Agency (Parts 700--799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Board for International Broadcasting (Parts 1300--
                1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

[[Page 464]]

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs and Section 202 Direct Loan Program) 
                (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--999)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Part 1001)

[[Page 465]]

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--799)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Bureau of Alcohol, Tobacco and Firearms, Department of 
                the Treasury (Parts 1--299)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--199)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Programs, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Pension and Welfare Benefits Administration, 
                Department of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)

[[Page 466]]

       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
        VI  Bureau of Mines, Department of the Interior (Parts 
                600--699)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)
      XXIX  Presidential Commission on the Assignment of Women in 
                the Armed Forces (Part 2900)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)

[[Page 467]]

        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799)
        XI  National Institute for Literacy (Parts 1100-1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
       XIV  Assassination Records Review Board (Parts 1400-1499)

             Title 37--Patents, Trademarks, and Copyrights

         I  Patent and Trademark Office, Department of Commerce 
                (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)

[[Page 468]]

        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
         V  Council on Environmental Quality (Parts 1500--1599)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans 
                Employment and Training, Department of Labor 
                (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       301  Travel Allowances (Parts 301-1--301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Parts 303-1--303-2)
       304  Payment from a Non-Federal Source for Travel Expenses 
                (Parts 304-1--304-99)

[[Page 469]]

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Health Care Financing Administration, Department of 
                Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services, 
                General Administration (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  ACTION (Parts 1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)

[[Page 470]]

       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
      XXII  Christopher Columbus Quincentenary Jubilee Commission 
                (Parts 2200--2299)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)

[[Page 471]]

        19  United States Information Agency (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Part 
                5452)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Highway Administration, Department of 
                Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)

[[Page 472]]

         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            Acts Requiring Publication in the Federal Register
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 473]]





           Alphabetical List of Agencies Appearing in the CFR



                     (Revised as of January 1, 1997)

                                                  CFR Title, Subtitle or
                     Agency                               Chapter

ACTION                                            45, XII
Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Commission on Intergovernmental          5, VII
     Relations
Advisory Committee on Federal Pay                 5, IV
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Finance and Management, Office of               7, XXX
  Food and Consumer Service                       7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Alaska Natural Gas Transportation System, Office  10, XV
     of the Federal Inspector
Alcohol, Tobacco and Firearms, Bureau of          27, I
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
Animal and Plant Health Inspection Service        7, III; 9, I

[[Page 474]]

Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Arms Control and Disarmament Agency, United       22, VI
     States
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Assassination Records Review Board                36, XIV
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Board for International Broadcasting              22, XIII
Census Bureau                                     15, I
Central Intelligence Agency                       32, XIX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Christopher Columbus Quincentenary Jubilee        45, XXII
     Commission
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Commerce Department                               44, IV
  Census Bureau                                   15, I`
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Export Administration, Bureau of                15, VII
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office                     37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I

[[Page 475]]

  Defense Logistics Agency                        32, I, XII; 48, 54
  Defense Mapping Agency                          32, I
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Mapping Agency                            32, I
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Enrichment Corporation, United States             10, XI
Environmental Protection Agency                   5, LIV; 40, I
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                25, III, LXXVII; 48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export Administration, Bureau of                  15, VII
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I

[[Page 476]]

  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               4, II
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II; 49, III
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Inspector for the Alaska Natural Gas      10, XV
     Transportation System, Office of
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Pay, Advisory Committee on                5, IV
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Property Management Regulations System    41, Subtitle C
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Finance and Management, Office of                 7, XXX
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Consumer Service                         7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I, II
General Services Administration                   5, LVII
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Property Management Regulations System  41, 101, 105
  Federal Travel Regulation System                41, Subtitle F
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
     of Certain Employees
[[Page 477]]

  Relocation Allowances                           41, 302
  Travel Allowances                               41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Great Lakes Pilotage                              46, III
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Health Care Financing Administration            42, IV
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Health Care Financing Administration              42, IV
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Human Development Services, Office of             45, XIII
Immigration and Naturalization Service            8, I
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Information Agency, United States                 22, V
  Federal Acquisition Regulation                  48, 19
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Intergovernmental Relations, Advisory Commission  5, VII
     on
Interior Department
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  Mines, Bureau of                                30, VI

[[Page 478]]

  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, Agency for             22, II
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
  International Development, Agency for           22, II; 48, 7
  Overseas Private Investment Corporation         5, XXXIII; 22, VII
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             4, II
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration and Naturalization Service          8, I
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Relations and Cooperative      29, II
       Programs, Bureau of
  Labor-Management Programs, Office of            29, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Pension and Welfare Benefits Administration     29, XXV
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training, Office of    41, 61; 20, IX
       the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Relations and Cooperative        29, II
     Programs, Bureau of
Labor-Management Programs, Office of              29, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Management and Budget, Office of                  5, III, LXXVII; 48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II

[[Page 479]]

Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Mines, Bureau of                                  30, VI
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National and Community Service, Corporation for   45, XXV
National Council on Disability                    34, XII
National Credit Union Administration              12, VII
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office                       37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension and Welfare Benefits Administration       29, XXV
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
     Acquisition Regulation
[[Page 480]]

  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Commission on the Assignment of      32, XXIX
     Women in the Armed Forces
Presidential Documents                            3
Prisons, Bureau of                                28, V
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Depositor Protection Oversight Board       12, XV
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Coast Guard                                     33, I; 46, I; 49, IV
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II; 49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X

[[Page 481]]

Transportation, Office of                         7, XXXIII
Travel Allowances                                 41, 301
Treasury Department                               5, XXI; 17, IV
  Alcohol, Tobacco and Firearms, Bureau of        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
United States Enrichment Corporation              10, XI
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training, Office of the  41, 61; 20, IX
     Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 483]]



List of CFR Sections Affected


All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
1986, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 1986, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, and 1973-1985'' published in seven 
separate volumes.

                                  1986

13 CFR
                                                                   51 FR
                                                                    Page
Chapter I
101.3-2  Amended.......................................4703, 4704, 35501
    Amendment confirmed............................................44036
101.5  Revised.....................................................14979
105.802  (a) revised................................................7551
105.803  (a) revised................................................7551
107.3  Amended.....................................................40001
107.201  (b)(2) amended; (c) redesignated as (d); new (c) added; 
        interim....................................................21485
107.302  Introductory text republished; (a) through (c) revised....40001
107  Appendixes A, B, and C removed; Appendixes I and II added.....30751
108  Authority citation revised....................................20770
108.1  (b) redesignated as (c); new (b) added......................20770
108.2  (c) revised; (g) and (h) redesignated as (j) and (l); new 
        (j) revised; (d)(3), new (g), (h), (i), (k), and (m) added
                                                                   20770
    (n) through (v) added; interim.................................20782
108.4  Added.......................................................20770
108.5  Added.......................................................20771
108.7--108.10  Added...............................................20772
108.503--108.503-15  Undesignated center heading added.............20773
108.503  Revised...................................................20773
108.503-1  Revised.................................................20773
108.503-2  Revised.................................................20775
108.503-3  Revised.................................................20775
108.503-4  Revised.................................................20776
108.503-5  Revised.................................................20777
108.503-6  Revised.................................................20777
108.503-7  Revised.................................................20777
108.503-8  Revised.................................................20778
108.503-9  Revised.................................................20778
108.503-10  Revised................................................20779
108.503-11  Revised................................................20779
108.503-12--108.503-15  Added......................................20780
108.504--108.505  Undesignated center heading added; interim.......20782
108.504  Added; interim............................................20782
108.505  Added; interim............................................20782
111  Authority citation revised....................................20248
111.2  Revised.....................................................20248
115.2  (b) revised; emergency......................................20923
    (a) amended....................................................27166
    (b) correctly revised..........................................27167
115.6  Policy statement.............................................4297
    Effective date deferred........................................10362
115.8  (a)(3) amended..............................................27166
115.9  (a) and (c)(2) amended; emergency...........................20923
115.10  (d)(1) revised.............................................27167
115.11  (a)(1) revised.............................................27167
120  Authority citation revised.............................17003, 18436
120.101-2  (b)(2)(v) removed.......................................10363
120.104-1  (a) revised.............................................18436
120.204-2  (b), (c), and (d) redesignated as (c), (d) and (e); new 
        (b) added; interim.........................................17003

[[Page 484]]

    (c) amended; interim...........................................17004
120.403-1  Revised.................................................18437
121  Policy statement...............................................6099
121.2  (c)(2) table amended..........................20797, 25191, 32198
    (c)(2) amended; interim........................................44037
121.4  (d) revised; (g)(2)(i) and (ii) added; interim eff. to 10-
        6-86.......................................................11706
    (d) revised; (g)(2)(i) and (ii) added; final...................45104
122  Authority citation revised....................................18437
122.7-3  (a) and (b) revised.......................................18437
122.8-4  (a) revised...............................................20248
123  Authority citation amended....................................32198
    Authority citation revised.....................................45300
123.6  (b) amended.................................................45300
123.13  (a) amended; interim.......................................17004
123.15  (a) amended................................................45300
123.17  Revised....................................................32198
123.25  (c) revised................................................45300
    (c) amended....................................................47209
123.26  (b) revised................................................45300
123.40  Revised....................................................32198
123.41  (b)(4) removed; (b)(5) redesignated as (b)(4); (d)(1) 
        revised....................................................45300
123.42  Removed....................................................45300
123.50--123.53 (Subpart D)  Removed................................45300
123.60--123.63 (Subpart E)  Removed................................45300
123  Appendix A heading revised; Appendix A text amended...........45300
    Appendix A removed.............................................47209
124  Revised.......................................................36141
125.5  (f) revision confirmed......................................44037
140  Authority citation revised....................................42547
140.6  Added; eff. to 12-31-87.....................................42547
Chapter III
302  Authority citation revised.......................1782, 24303, 24514
302.1  Introductory text revised; interim..........................24514
302.3  (b) revised; interim........................................24514
302.5  (b)(2) and (3)(ii) revised; interim.........................24514
302.7  (a)(4) revised; interim.....................................24303
    (a) introductory text, (1)(i) and (ii), and (2) revised; 
interim............................................................24514
302.8  Introductory text republished; (a) revised; interim.........24514
302.10--302.14  Redesignated as 302.9--302.13......................24514
302.10  Revised; interim...........................................24514
302.11  Revised; interim...........................................24514
302.41  (b)(2) and (d)(3) revised; interim.........................24515
302.50  (c) and (d) revision confirmed..............................1782
304  Authority citation revised....................................24514
304.4  (a) revised; interim........................................24515
304.6  (a) and (d) revised; interim................................24515
304.8  (a), (b), (e), (f) introductory text and (3) revised; 
        interim....................................................24515
304.9  (e) revised; interim........................................24515
305  Authority citation revised........................1492, 1783, 24514
305.5  (b)(3) table amended; interim...............................24515
305.41  Revision confirmed..........................................1783
305.44  (b) introductory text revision confirmed....................1783
305.59  (a) revision confirmed......................................1492
306  Authority citation revised...............................1492, 5513
306.12  (g)(4) and (j) revisions confirmed..........................1492
306.20  Revision confirmed..........................................5513
307  Authority citation revised.....................................1492
307.22  (b) revision confirmed......................................1492
307.28  (c)(6) revision confirmed...................................1492
307.55  (a)(5) and (c)(5) revisions confirmed.......................1492
307.56  (h) revision confirmed......................................1492
307.57  (a)(6) revision confirmed...................................1492
308  Authority citation revised.....................................1492
308.6  (a)(8) revision confirmed....................................1492
309  Authority citation revised...................................16293,
23043, 24304, 32629, 37176
309.2  (a), (d), (e)(1), and (2)(ii) revised; (e) introductory 
        text republished; (e)(2)(v) removed; (e)(3) added; interim
                                                                   16293

[[Page 485]]

309.3  Introductory text, (a) through (e), (g), and (h) revised; 
        (f) and (j) through (m) added..............................32629
309.7  (c) introductory text revised; interim......................24304
309.15  (a) through (c) revised; interim...........................23043
309.18  (b) revised; interim.......................................23043
309.26  (a)(1) introductory text and (3), and (b)(1) introductory 
        text and (3) revised.......................................37176
310  Removed........................................................7010
    Part correctly added....................................24516, 27828
    Authority citation revised.....................................24516
314  Authority citation revised.....................................1783
314.5  (c) addition confirmed.......................................1783

                                  1987

13 CFR
                                                                   52 FR
                                                                    Page
Chapter I
101.3-2  Amended............................................18352, 35412
102.1--102.7 (Subpart A)  Authority citation revised...............47699
102.6  Revised.....................................................47699
105.511  (g) revised...............................................34896
108.1  (b)(3) amended; interim.....................................27675
108.2  Revised; interim............................................27675
108.4  (d)(2)(iii) amended; interim................................27676
108.5  (d) amended; interim........................................27676
108.503-1  (b)(3) amended; (c)(1)(iii) added; interim..............27676
108.503-3  (f) and (g) amended; interim............................27677
108.503-4  (c)(3)(iii)(A) amended; (c)(4) added; interim...........27677
108.503-6  (a)(1) and (2) amended; (d) redesignated as (e); new 
        (d) added; interim.........................................27677
108.503-7  (b)(2) amended; (c) revised; interim....................27677
108.503-8  Revised; interim........................................27677
108.503-9  (a)(6) removed; (a)(7) through (11) redesignated as 
        (a)(6) through (10); interim...............................27678
108.503-10  Revised; interim.......................................27678
108.503-12  Revised; interim.......................................27678
108.503-13  (c) and (h) amended; interim...........................27678
108.504  (a) amended; (b), (c), (e), and (f) revised; (g), (h), 
        and (i) redesignated as (j), (k), and (l); new (g), (h), 
        and (i) added; new (j) revised; interim....................27678
108.505  (a), (d), (e), and (h) amended; (f), (g), and (k) 
        revised; interim...........................................27679
114  Heading and authority citation revised........................32534
114.100--114.111 (Subpart A)  Heading added........................32534
114.112--114.113 (Subpart B)  Added................................32534
121.2  Existing table designated as table 2; (d) and new table 1 
        added; interim emergency.....................................399
    Table 1 corrected.........................................2400, 6133
    (c)(2) table corrected.........................................21497
121.5  (a) revised.................................................42093
125  Authority citation revised....................................48392
125.9  (i) redesignated as 125.10 and existing text in part 
        designated as (a) and (b) added............................48392
125.10  Redesignated as 125.11; new 125.10 redesignated from 125.9 
        (i) and existing text in part designated as (a) and (b) 
        added......................................................48392
125.11  Redesignated from 125.10...................................48392
133.1  (c) table revised...........................................27988
144  Added.........................................................31527
Chapter III
309.3  (f) and (m) revised; interim................................21932
309.7  (c) introductory text revised...............................27539
311  Authority citation revised....................................11627
311.1  (a)(5) added; (c) revised...................................11627
311.3  (d) revised.................................................11627

                                  1988

13 CFR
                                                                   53 FR
                                                                    Page
Chapter I
101.3-2  Amended...................................................36005
105.503  (a)(1) and (b)(2) revised.................................38941

[[Page 486]]

108  Regulations at 51 FR 20770-20782 and 52 FR 27675-27679 
        confirmed; authority citation revised......................10243
108.5  (d) amended.................................................10243
108.8  (d)(3) amended; (d)(7) revised..............................10244
108.502-1  (d)(1) and (2) amended..................................35458
108.503-3  (f) introductory text revised; (f)(3) removed; interim 
                                                                   10243
108.503-4  (c)(2) amended..........................................35458
108.503-5  (d)(2) revised; OMB number..............................10244
108.503-9  (a)(8) amended..........................................35458
108.503-10  Corrected...............................................1468
108.503-15  (b) revised; (c) and (d) removed; interim..............10243
108.505  (f)(2)(iv) correctly revised...............................1468
115  Revised.......................................................32202
    Eff. date deferred to 11-28-88.................................41149
115  Appendix B corrected..........................................34872
120.403-1  Amended.................................................35459
120.605-1  Amended..................................................7345
120.605-2  Redesignated as 120.605-3; new 120.605-2 added...........7345
120.605-3  Redesignated from 120.605-2..............................7345
120.703  (a)(1) revised.............................................7345
120.705  Redesignated as 120.706; new 120.705 added.................7345
120.706  Redesignated as 120.707; new 120.706 redesignated from 
        120.705.....................................................7345
120.707  Redesignated as 120.708; new 120.707 redesignated from 
        120.706.....................................................7345
120.708  Redesignated as 120.709; new 120.708 redesignated from 
        120.707.....................................................7345
120.709  Redesignated as 120.710; new 120.709 redesignated from 
        120.708.....................................................7345
120.710  Redesignated as 120.711; new 120.710 redesignated from 
        120.709.....................................................7345
120.711  Redesignated as 120.712; new 120.711 redesignated from 
        120.710.....................................................7345
120.712  Redesignated as 120.713 and revised; new 120.712 
        redesignated from 120.711...................................7345
120.713  Redesignated from 120.712 and revised......................7345
120.809  Revised....................................................7346
120.810  Added......................................................7346
121  Authority citation revised.............................30670, 32373
121.1  (d)(2) Table 2 amended......................................32373
121.2  Footnote 19 revised.........................................10245
    (d)(2) Table 2 revised.........................................18823
    (d)(2) Table 2 amended........................................18821,
                                                            36070, 43425
    (d)(2) Table 2 corrected.......................................21547
    (d)(2) Table 2 text and revision eff. date corrected...........26426
    (d)(2) Table 2 amended; interim.........................29877, 47664
122.7-3  Amended...................................................35459
122.55-3  Amended..................................................35459
123  Authority citation revised....................................52113
123.3  Amended.....................................................52114
125  Authority citation revised.....................................4009
125.10  (b) amended.................................................4009
133.1  (c) table revised (OMB numbers)..............................9612
136  Added.........................................................19760
140  Authority citation revised.....................................4113
140.2  (c)  introductory text amended; (c)(1) and (2) removed; (g) 
        and (h) redesignated as (h) and (i); new (g) and (j) added
                                                                    1607
140.4  (a)(4)(i) removed; (a) introductory text and (4)(ii), 
        (b)(1) introductory text, (i), and (iii), (2) introductory 
        text, (ii), and (iii), (3), (4)(vi) and (5) revised; 
        (a)(4) redesignated as new (a)(4)(i) and revised; (a)(4) 
        heading added...............................................1607
    (c) redesignated as (e); new (c), (d), (f), and (g) added.......1608
140.6  Added........................................................4113
143  Added....................................................8048, 8087
145  Added; nomenclature change.............................19176, 19204
145.105  (p)(2) and (w) added......................................19176
145.110  (a)(1)(ii)(C)(3), (4) and (5) added.......................19176
145.313  (b)(3) added..............................................19176
145.314  (b)(2)(i) and (ii) added..................................19176
145.412  (b)(3) added..............................................19176
145.413  (b)(2)(i) and (ii) added..................................19176

[[Page 487]]

Chapter III
302.7  Regulation at 51 FR 24303 confirmed.........................50206
302.8  (a)(3) revised; interim.....................................50207
308  Authority citation revised....................................12511
308.5  (c)(2) revised; interim.....................................12511
309.2  Regulation at 52 FR 16293 confirmed.........................50208
309.15  (a) through (c) revision at 51 FR 23043 confirmed..........13252
309.18  (b) revision at 51 FR 23043 confirmed......................13252
309.26  Regulation at 51 FR 37176 confirmed........................51237
314.5  Regulation at 49 FR 22464 confirmed.........................51237

                                  1989

13 CFR
                                                                   54 FR
                                                                    Page
Chapter I
101.3-2  Amended...................................................6512,
                                                            47075, 50614
105  Authority citation revised....................................34745
105.521  Added.....................................................34745
105.522  Added.....................................................34746
108  Authority citation revised..............................6266, 15920
108.1  (b) and (c) redesignated as (c) and (d); new (b) added.......6266
108.8  (d)(4) revised...............................................6266
    Regulation at 53 FR 10244 confirmed............................24701
108.503-1  (b)(2) amended..........................................24701
108.503-4  (a) introductory text amended and (a)(2) revised.........6266
108.503-5  Regulation at 53 FR 10244 confirmed.....................24701
108.503-8  (b)(4) revised...........................................6267
108.503-10  Revised................................................24701
108.503-15  (e)(1) revised.........................................24701
108.504  Heading, (b) and (c) revised...............................6267
108.505  (e) amended...............................................15920
108.506  Added......................................................6267
    Corrected......................................................11937
115  Revised; interim.......................................19544, 47169
115.3  (a) corrected........................................21526, 30823
115.4  Corrected...................................................21526
115.5  (d) corrected...............................................21526
115.6  (c)(1) and (3) corrected....................................21526
115.7  (b) corrected...............................................21526
115.8  (a) corrected...............................................21526
115.11  (a)(2), (b) and (c) corrected..............................21526
120.101-2  (e)(5) revised..........................................35453
120.104-1  (f) added...............................................37096
120.104-2  (e) revised.............................................22878
120.500--120.502-2 (Subpart E)  Added..............................39518
120.502-1  Corrected...............................................45892
120.502-2  (a) corrected...........................................45892
120.710  (a)(2) revised.............................................9424
121  Authority citation revised.....................................7031
    Size standards retained.........................................1335
    Revised; eff. in part 1-1-90...................................52643
    Waiver.........................................................53317
121.2  (d)(2) Table 2 amended; (d)(2) Table 2 footnote 10 revised 
                                                                    6268
    (d)(2) Table 2 revised..........................................7031
    (d)(2) Table 2 amended..................................13163, 47970
    (d)(2) Table 2 headings corrected..............................35454
121.5  (b)(2) introductory text and (iv) revised...................13163
121.403  (Interim).................................................52647
121.1202  (a)(Interim).............................................52666
122.7-1  Revised...................................................36761
122.54--122.54-2  Revised..........................................23961
122.54-3--122.54-6  Revised........................................23962
122.57--122.57-5  Added............................................23962
122.58  Added......................................................39519
122.58-1  Added....................................................39519
122.58-2  Added....................................................39520
122.58-3  Added....................................................39520
122.58-4  Added....................................................39520
122.59  Added......................................................36761
122.59-1  Added....................................................36761
122.59-2  Added....................................................36762
    (a)(1) amended.................................................39985
122.59-3  Added....................................................36761
    (a) amended....................................................39985
122.59-4  Added....................................................36761
123.9  (a) revised..................................................6270
123.14  (c) and (d) redesignated as (d) and (e); new (c) added......6270
123.19  Added.......................................................6270
123.24  (d) amended.................................................6270
123.41  (g)(3) amended..............................................6270
124  Authority citation revised.............................10272, 34711
    Heading revised................................................10272
    Technical correction...........................................37636
124.1--124.503  Designated as Subpart A and heading added..........10272

[[Page 488]]

124.1--124.501 (Subpart A)  Revised................................34712
124.318  (b) corrected.............................................43217
124.601--124.610 (Subpart B)  Added................................10272
125.10  (b) amended.................................................3773
129  Authority citation revised.....................................9426
129.1--129.4 (Subpart A)  Heading added.............................9426
129.5--129.8 (Subpart B)  Heading added.............................9426
129.5  Removed; new 129.5 redesignated from 129.6...................9426
129.6  Redesignated as 129.5; new 129.6 redesignated from 129.7.....9426
129.7  Redesignated as 129.6; new 129.7 redesignated from 129.8.....9426
129.8  Redesignated as 129.7; new 129.8 redesignated from 129.9.....9426
129.9  Redesignated as 129.8........................................9426
129.100--129.400 (Subpart D)  Added.................................9426
133  Authority citation revised......................................103
133.1  (c) table revised.............................................103
134  Authority citation revised....................................34747
134.1  (b) revised; (c), (g)(1), and (h)(2) amended................34747
134.2  (a)(15) revised.............................................34747
134.3  (c) revised.................................................34747
134.11  (a)(2) revised; (a)(7) added...............................34747
134.12  (a) revised................................................34747
134.13  (a), (b), and (c) amended..................................34748
134.18  (a) amended................................................34748
134.19  (a) and (b) amended........................................34748
134.23  (a) amended................................................34748
134.24  Existing text designated as (a); (a) introductory text and 
        (b) added..................................................34748
134.32  (a)(4) added; (b)(2) removed; (b)(3) through (9) 
        redesignated as (b)(2) through (8).........................34748
142  Added..........................................................6273
142.4  (c) corrected...............................................11937
145  Heading and authority citation revised.........................4953
    Technical correction............................................6363
145.305  (c)(3) and (4) amended; (c)(5) added; interim........4950, 4953
145.320  (a) revised; interim.................................4950, 4953
145.600--145.630 (Subpart F)  Added; interim..................4950, 4953
145  Appendix C added; interim................................4951, 4953
Chapter III
301  Authority citation revised....................................47970
301.2  Amended.....................................................47970
305  Authority citation revised....................................47970
305.5  (b)(3) table amended........................................47970

                                  1990

13 CFR
                                                                   55 FR
                                                                    Page
Chapter I
101.3-2  Amended...................................................35296
    Corrected......................................................38663
105  Authority citation revised....................................39398
105.404  Revised...................................................39398
105.501  (d)(1) amended............................................39399
105.510  (b)(1)(i) amended; (b)(1)(ii), (2) introductory text and 
        (i) revised................................................39398
105.801  (a) introductory text, (b)(2) and (3) revised.............39399
105.802  (d) revised...............................................39399
107  Authority citation revised....................................28169
107.3  Amended; interim.....................................28169, 40357
    Comment time extended; interim.................................46190
107.4  (b)(2), (3)(ii), and (iii) amended; (b)(3)(iv) added; 
        interim....................................................40357
    Comment time extended; interim.................................46190
107.101  (d) introductory text and (1) revised; interim............40357
    Comment time extended; interim.................................46190
107.201  (a) revised; (c)(2) introductory text and (i) through (v) 
        redesignated as (c)(2)(i) and (iii) through (vii); new 
        (c)(2)(i) revised; new (c)(2)(ii) added; new (c)(2)(vi) 
        amended; interim...........................................28169
107.205  (b)(3) revised; interim...................................28170
108.2  Amended......................................................9111
108.8  (d)(5) amended...............................................9111
108.503  (b)(3) revised.............................................9111

[[Page 489]]

    (b)(1) introductory text and (c) amended.......................24073
108.503-1  (b)(3) amended...........................................9111
108.503-4  (a) amended; (b)(3) and (4) redesignated as (b)(4) and 
        (5); new (b)(3) added.......................................9111
108.503-6  (a)(1) and (b) revised...................................9111
108.503-11  (a) amended.............................................9112
113  Authority citation revised....................................52140
113.3-3  (a) heading and (b) heading added; (b) text amended; (c) 
        revised; eff. 1-18-91...............................52138, 52140
115  Regulation at 54 FR 47169 confirmed...........................10225
115.10  (a), (b), (g)(1), and (3) amended..........................10225
115.11  Amended....................................................10225
115.30  (b) amended................................................10225
115.60  (b) revised................................................10225
    (c)(1) amended; (c)(4) revised.................................10226
115.62  (b)(1) and (d) amended.....................................10226
115.64  (b) revised................................................10226
116.41  Amended.....................................................2049
120.101-2  (e)(6) revised..........................................40151
120.104-1  (f) revised..............................................2051
120.204-2  (b) revised.............................................33892
120.403-2  Revised..................................................2050
120.403-7  Heading revised; (d) added...............................2050
    (d) revised....................................................27198
121  Authority citation revised.....................................3203
    Waiver....................................31575, 38313, 39140, 39141
    Policy statement...............................................48106
121.401  (d) heading, (e)(3) Example, and (f) Example 2 amended....27199
121.402  (b)(2), (c), and (e)(1) amended...........................27199
121.403  Regulation at 54 FR 52647 confirmed.......................38664
121.407  (d) amended...............................................27199
121.601  Table amended.............................................27199
121.801  Amended...................................................27199
121.802  (a)(3) revised; interim...................................17420
121.906  (a) heading amended.......................................27200
121.1103  (b) amended..............................................27200
121.1106  (c) redesignated as (c)(1); (c)(2) added.................27200
    (c)(2) corrected...............................................30796
121.1202  (a) regulation at 54 FR 52666 confirmed..................38664
121.1601  (a)(5) and (b)(2)(i)(B) and (ii)(A) amended..............27200
121.1602  (c) amended..............................................27200
121.1604  (c) amended..............................................27200
121.1605  (a) amended..............................................27200
121.1703  (b) amended..............................................27200
121.2001--121.2005 (Subpart B)  Added; interim......................3203
122.6-1  (b) revised...............................................38664
122.7-1  Amended...................................................41996
122.7-3  (a) revised................................................2051
    (b) amended....................................................17267
123.2  Revised.....................................................23073
123.3  Amended.....................................................23073
    Amended; interim...............................................28753
123.4  Amended.....................................................23074
123.5  Amended.....................................................23074
123.11  Amended....................................................23074
123.21  (e) amended................................................23074
123.23  (c) amended................................................23074
123.24  (a) and (f) revised; (j) added.............................23074
123.25  (a)(3) amended; (a)(4) and (e) revised; (a)(5) added; (g) 
        removed; (h) redesignated as (g)...........................23075
123.26  (a) amended................................................23075
123.29  Revised....................................................23075
123.40  Amended....................................................23075
123.41  (b) revised; (e) amended...................................23075
124.1  (a)(2)(i) amended...........................................34902
124.7  (c) removed.................................................34902
124.100  Amended...................................................34902
124.103  (g) and (h) amended.......................................33896
124.106  (a)(2)(i)(B) amended......................................34902
124.107  Introductory text amended.................................33896
124.109  (d) amended...............................................34902
124.110  (c) amended...............................................34902
124.111  (a)(2)(i) and (ii) amended................................34902
124.112  (c)(4)(i) amended; (c)(6) redesignated as (c)(7); new 
        (c)(6) added; new (c)(7) revised...........................33896
124.209  (a)(21) introductory text and (22) amended................34903
124.301  (a) amended...............................................34903
124.303  (c)(2) amended............................................34903
124.305  (c)(4), (d) introductory text and (1) amended.............34903
124.308  (b)(2) amended............................................34903
124.309  (d) amended...............................................34903
124.312  (b)(4), (c)(4), and (10)..................................34903
124.316  (b) amended...............................................34903

[[Page 490]]

124.317  (a) amended; (b)(2) removed; (b)(3) through (5) 
        redesignated as (b)(2) through (4).........................34903
124.321  (h)(2) removed; (h)(3) and (4) redesignated as new (h)(2) 
        and (3)....................................................33896
    (a) and (d)(1) amended.........................................34903
124.401  (a)(3) through (6) redesignated as (a)(4) through (7); 
        new (a)(3) added; new (a)(4) and (7), (c)(1), (d) 
        introductory text, (d)(3)(i) and (f)(iii) amended..........34903
134.3  (i) revised..................................................4411
145.305  Regulation at 54 FR 4950, 4953 confirmed..................21692
145.320  Regulation at 54 FR 4950, 4953 confirmed..................21692
145.600--145.635 (Subpart F)  Revised.......................21688, 21692
145  Appendix C revised.....................................21690, 21692
146  Added; interim...........................................6737, 6747
Chapter III
302.8  Regulation at 53 FR 50207 confirmed.........................18593
305.89  Revised; interim...........................................49252
309  Authority citation revised.....................................3400
309.4  (a) introductory text, (2)(ii) introductory text; (b) 
        introductory text and (2)(ii) revised......................18595
    (b)(2)(ii) introductory text correctly designated..............38313
309.18  (c) added; interim..........................................3400
Chapter V
500--590 Chapter V  Removed........................................11361

                                  1991

13 CFR
                                                                   56 FR
                                                                    Page
Chapter I
101.3-1  (b)(8) and (11) amended...................................23500
101.3-2  Amended.....................................23499, 54779, 59211
    Amended........................................................65822
107.3  Amended.....................................................13583
    Amended; footnote 4 revised....................................31777
107.4  (b)(2), (3)(ii) and (iii) amended; (b)(3)(iv) removed.......13583
107.101  (d) revised...............................................37461
107.201  (b)(2) and (3) redesignated as (b)(3) and (4); new (b)(2) 
        added......................................................31777
107.205  (d)(2) revised............................................31778
107.304  Revised...................................................31778
107.321  (b) revised...............................................31778
107.401  (a) introductory text revised; (a)(7) added...............31778
107.402  (d) added.................................................31778
107.403  (b)(1) revised............................................31779
107.707  Revised...................................................31779
107.708  (c)(1) and (2) revised....................................31779
107.901  (c)(2) introductory text revised..........................31779
107.903  (b) introductory text revised.............................31779
107  Appendix I amended............................................30850
108  Authority citation revised....................................41056
108.1  (b) and (c) revised; (d) redesignated as (e); new (d) added
                                                                   41056
108.3  (a)(1) revised..............................................43868
108.4  (d)(3)(i) amended...........................................43868
108.8  (e) revised.................................................43868
    (d)(4) revised.................................................55446
    Technical correction....................................57558, 58610
108.502-1  (d)(2) revised..........................................41057
108.503  (b) introductory text, (1) and (2) revised................41057
    (c) and (d) revised............................................43869
108.503-4  (c)(2) amended..........................................41057
108.503-6  (a)(3) revised..........................................43869
108.503-8  (a)(1) and (b)(4) amended...............................41057
    (b)(1) amended; (b)(2) revised.................................43869
108.503-9  (a)(8)(i) revised; (a)(8)(iii) amended..................41057
108.503-13  (g) revised; (h) amended...............................43869
108.504  (e) amended; interim......................................11354
115  Authority citation revised......................................627
115.10  (e) amended..................................................627
120.101-2  (e)(5) revised..........................................55446
    Technical correction....................................57558, 58610
121  Waiver.......................................................10360,
22306, 37648, 41057, 41787, 42524, 49672, 49841, 52463
    Authority citation revised..............................37278, 55618
121.601  Table amended.............................................55618
121.802  (a)(3) revised.............................................5748
121.904  (d) added; interim........................................43870

[[Page 491]]

121.1013  Added....................................................22992
121.1103  (d) added; interim.......................................43871
121.2001--121.2005 (Subpart B)  Revised............................37278
122  Technical correction..........................................12584
122.8-4  (h) removed; (g) redesignated as (h); new (g) added.......11355
122.54-1  Revised..................................................10361
122.54-3  Amended..................................................10361
122.57-5  Removed..................................................10361
122.60  Added......................................................52188
122.60-1  Added....................................................52188
122.60-2  Added....................................................52188
122.60-3  Added....................................................52188
123  Authority citation revised....................................65955
123.1  (a) amended.................................................65955
    (a) clarification..............................................67159
123.60--123.69 (Subpart D)  Added..................................65955
    Clarification..................................................65955
125  Authority citation revised.............................12651, 22992
125.4  (g)(2) amended; (j) added...................................12651
125.6  (a) through (p) redesignated as (a)(1) through (16); new 
        (b) and (c) added; (a) introductory text and (a)(9) 
        amended....................................................12651
125.12  Added......................................................22992
Chapter III
302  Authority citation revised....................................22110
302.1  Regulation at 51 FR 24514 confirmed..........................2425
302.3  Regulation at 51 FR 24514 confirmed..........................2425
302.5  Regulation at 51 FR 24514 confirmed..........................2425
302.7  Regulation at 51 FR 24514 confirmed..........................2425
302.8  Regulation at 51 FR 24514 confirmed..........................2425
302.9  Regulation at 51 FR 24514 confirmed..........................2425
302.10  Regulation at 51 FR 24514 confirmed.........................2425
    Revised; interim...............................................22110
302.11  Regulation at 51 FR 24514 confirmed.........................2425
302.12  Regulation at 51 FR 24514 confirmed.........................2425
302.13  Regulation at 51 FR 24514 confirmed.........................2425
302.41  Regulation at 51 FR 24515 confirmed.........................2425
304.4  Regulation at 51 FR 24515 confirmed..........................2425
304.6  Regulation at 51 FR 24515 confirmed..........................2425
304.8  Regulation at 51 FR 24515 confirmed..........................2425
304.9  Regulation at 51 FR 24515 confirmed..........................2425
305.5  Regulation at 51 FR 24515 confirmed..........................2425
305.89  Regulation at 55 FR 49252 confirmed........................55447
308.5  Regulation at 53 FR 12511 confirmed..........................2426
309.3  Regulation at 52 FR 21932 confirmed..........................2426
309.18  Regulation at 55 FR 3400 confirmed..........................2427

                                  1992

13 CFR
                                                                   57 FR
                                                                    Page
Chapter I
101.3-2  Amended................................524, 26768, 30392, 61255
102.1--102.7 (Subpart A)  Authority citation amended...............48307
102.2  (b) revised.................................................48307
102.3  (b)(2)(vi) removed; (b)(2)(vii), (viii) and (ix) 
        redesignated as (b)(2)(vi), (vii) and (viii); (j) revised 
                                                                   48307
102.4  (e) removed; (f) redesignated as (e); new (e)(2) revised; 
        (e)(3) added...............................................48307
102.5  Redesignated as 102.6; new 102.5 added......................48307
102.6  Redesignated as 102.7; new 102.6 redesignated from 102.5....48307
    (a) through (d) and (e)(1) revised.............................48308
102.7  Redesignated as 102.8; new 102.7 redesignated from 102.6....48307
    (b)(6) revised.................................................48308
102.8  Redesignated from 102.7.....................................48307
    Revised........................................................48308
107  Authority citation revised....................................49389
107.3  Amended.....................................................49389

[[Page 492]]

107.201  (a)(2)(ii) removed; (a)(2)(i) and (iii) redesignated as 
        (a)(2) and (3); (a)(3) heading and new (a)(2) revised......49389
107.203  (b)(7) removed............................................49389
108.2  Amended.....................................................11909
108.503-1  (e) revised.............................................11909
    (c)(1)(iii) revised............................................26770
108.503-2  (b) revised.............................................26770
108.503-3  (f) introductory text amended; (f)(1) revised...........26770
108.503-7  (b)(1) through (b)(4) redesignated as (b)(2) through 
        (b)(5); new (b)(1) added; new (b)(3) revised...............26770
108.503-8  (a)(3) amended..........................................26770
108.503-10  (a) amended............................................26770
108.503-11  (b)(2) amended.........................................26770
108.504  (e) amended...............................................26770
120.200-2  Amended.................................................62477
120.202-1  Amended.................................................10984
120.202-4  Revised.................................................10984
120.202-5  (e) revised.............................................10985
120.301-7  Added...................................................62476
120.403-7  (d) amended.............................................62477
121  Waiver.............................6290, 14638, 18396, 20962, 27677
121.303  Revised...................................................37691
121.402  (d)(1) revised; interim....................................2444
    (d)(1) revised.................................................41069
121.601  Table amended..........................4838, 4840, 18810, 27911
121.802  (a)(1) amended; (2) revised...............................62478
121.1010  (c) amended..............................................18810
121.1704  Revised..................................................28780
    Amended........................................................32890
122  Authority citation revised..............................3849, 48311
122.8-4  (g) revised.........................................8574, 13267
122.61  Added; interim..............................................3849
122.61-1  Added; interim............................................3849
    (a) amended; (b) revised; interim..............................48311
122.61-2  Added; interim............................................3849
    (b) and (d) revised; interim...................................48311
122.61-3  Added; interim............................................3850
    (b)(3) and (8) revised; (c) added; interim.....................48311
122.61-4  Added; interim............................................3850
122.61-5  Added; interim............................................3850
    Amended; interim...............................................48311
122.61-6  Added; interim............................................3850
    (b) through (e) redesignated as (c) through (f); (a) and new 
(d) revised; new (b) added; interim................................48311
122.61-7  Added; interim............................................3850
    (c) revised; interim...........................................48312
122.61-8  Added; interim............................................3851
122.61-9  Added; interim............................................3851
    Revised; interim...............................................48312
122.61-10  Added; interim...........................................3851
    (b) amended; interim...........................................48312
122.61-11  Added; interim...........................................3851
    (a) revised; interim...........................................48312
122.61-12  Added; interim..........................................48312
123  Authority citation revised....................................54505
123.9  (c) added; interim..........................................54505
123.24  (g)(1) and (2) amended; interim............................54505
123.41  (h) revised; interim.......................................54505
124.210  (b) amended...............................................28780
124.211  (d) amended...............................................28780
134.12  (a) amended................................................28780
134.14  (a) revised; (b) amended...................................28780
Chapter III
301  Authority citation revised.....................................2223
301.50  Revised.....................................................2223
301.51--301.60  Removed.............................................2223
305.45  (a), (b), (c)(4) and (8) revised; interim..................11674

                                  1993

13 CFR
                                                                   58 FR
                                                                    Page
Chapter I
101.3-2  Amended......................................2967, 19321, 44437
    Regulation at 58 FR 44437 corrected............................53120
102.26  (c) revised................................................14148
102.27  Redesignated as 102.28; new 102.27 added...................14146
102.28  Redesignated as 102.29; new 102.28 redesignated from 
        102.27.....................................................14146
102.29  Redesignated as 102.30; new 102.29 redesignated from 
        102.28.....................................................14146
102.30  Redesignated as 102.31; new 102.30 redesignated from 
        102.29.....................................................14146
    (a) revised....................................................14148

[[Page 493]]

102.31  Redesignated as 102.32; new 102.31 redesignated from 
        102.30.....................................................14146
102.32  Redesignated as 102.33; new 102.32 redesignated from 
        102.31.....................................................14146
102.33  Redesignated as 102.34; new 102.33 redesignated from 
        102.32.....................................................14146
    (a) amended....................................................14148
102.34  Redesignated as 102.35; new 102.34 redesignated from 
        102.33.....................................................14146
    (c) amended....................................................14148
102.35  Redesignated as 102.36; new 102.35 redesignated from 
        102.34.....................................................14146
102.36  Redesignated as 102.37; new 102.36 redesignated from 
        102.35.....................................................14146
    (a) revised....................................................14148
102.37  Redesignated from 102.36...................................14146
107  Authority citation revised....................................47032
107.1002  (e) revised..............................................47032
107  appendix I amended.....................................47032, 47033
108.4  (c), (d) and (e) redesignated as (d), (e) and (f); new (c) 
        added......................................................15757
108.503-2  (d) and (e) added.......................................45246
108.503-3  (c) revised.............................................45246
108.503-5  (d)(2) amended..........................................15757
108.507--108.507-5  Undesignated center heading and sections added
                                                                   45246
120.102  Revised...................................................45248
120.102-12  Added..................................................45248
120.104-2  (b) revised.............................................49423
120.403-2  Revised.................................................49424
120.403-5  Revised.................................................49424
121  Waiver...............................7479, 9112, 9113, 11372, 29346
    Authority citation revised.....................................25929
121.303  Revised...................................................65281
121.601  Table amended; Footnote 21 added; interim..................4077
    Table amended...........................................25929, 52415
121.802  (a)(1) amended; (a)(2) revised............................12335
121.910  (a) revised...............................................25930
121.911  (a) revised........................................47371, 58651
121.2101--121.2106  Undesignated center heading and sections added
                                                                   48956
122.7-3  (b) and (c) revised.......................................49424
122.8-4  (d) revised...............................................49424
122.61-10  (a) amended; (b) revised................................49424
123  Authority citation revised.............................32055, 64673
123.3  Amended.....................................................64673
123.9  (c) revised.................................................32055
123.24  Heading revised; (g)(1) and (2) amended....................32055
    (a) revised....................................................64674
123.26  (a) amended................................................64674
123.28  Revised....................................................64674
123.41  (h) revised................................................32055
    (e) revised....................................................64674
Chapter III
301  Authority citation revised....................................61804
301.31  (e) revised................................................61804
301.32  Revised....................................................61804
301.33  Revised....................................................61804
301.35  Revised....................................................61805
301.36  Removed; new 301.36 redesignated from 301.37...............61806
301.37  Redesignated as 301.36.....................................61806
301.70  Revised (OMB numbers)......................................61806

                                  1994

13 CFR
                                                                   59 FR
                                                                    Page
Chapter I
101.3-2  Amended............................................37413, 67176
102.35  (a) revised.................................................4553
107  Authority citation revised.............................16916, 16942
107.1  Amended..............................................16916, 16942
107.3  Amended..............................................16916, 16943
107.4  (b)(1), (2) and (3)(i) revised; (c) amended; (f) added......16945
107.101  (d) and (e) redesignated as (e) and (f); (a) and new (e) 
        introductory text revised; new (d), (g), (h) and (i) added
                                                                   16945
107.103  Revised...................................................16946
107.201--107.205  Undesignated center heading removed..............16918
107.201  Removed...................................................16918
107.202  Removed...................................................16918
107.203  Removed...................................................16918
107.204  Removed...................................................16918
107.205  Removed...................................................16918
107.210--107.263  Undesignated center heading added................16918
107.210  Added.....................................................16918

[[Page 494]]

107.215  Added.....................................................48562
107.220  Added.....................................................16921
107.230  Added.....................................................16921
107.240  Added.....................................................16923
107.241  Added.....................................................16923
107.242  Added.....................................................16924
107.243  Added.....................................................16925
107.244  Added.....................................................16926
107.245  Added.....................................................16927
107.246  Added.....................................................16928
107.247  Added.....................................................16928
107.250  Added.....................................................16928
107.260  Added.....................................................16930
107.261  Added.....................................................16930
107.262  Added.....................................................16932
107.263  Added.....................................................16933
107.302  Revised...................................................16946
107.303  (b) redesignated as (c); (a) and new (c) introductory 
        text, (6) and (7) Example revised; new (b) added...........16947
107.304  Heading, (a)(1) and (b) revised; (c) added................16947
107.305  Added.....................................................16948
107.401  (a)(5) revised............................................16948
107.402  (a) and (d) revised; (e), (f) and (g) added...............16948
107.403  (b)(1) revised............................................16949
107.501  (c) amended...............................................16949
107.601  (g) amended; (h)(1) revised...............................16949
107.705  (a)(8) added..............................................16949
107.706  Revised...................................................16949
107.707  Revised...................................................16950
107.708  Revised...................................................16950
107.710  (b)(3) revised............................................16950
107.711  Revised...................................................16950
107.712  (c) amended...............................................16950
107.901  (a) amended........................................16933, 16951
107.906  (a) revised...............................................16933
107.1004  (a) amended..............................................16933
107  Appendix III added............................................16951
    Appendix III correctly added...................................28471
108.8  (g) revised.................................................36045
109  Added; interim................................................60306
120.101-2  (b) removed; (c) through (h) redesignated as new (b) 
        through (g)................................................36044
121  Waiver..........................................38113, 38114, 38115
121.601  Table revised.............................................16518
    Table  corrected...............................................19753
    Clarification..................................................23131
    Table  amended.................................................47245
    Footnotes  19 and 23 corrected.................................50964
121.802  (a)(2) amended; (a)(3) redesignated as (a)(4); new (a)(3) 
        added......................................................16956
    (a)(3)  revised................................................28234
    (a)(4)  correctly designated...................................38116
121.906  (b)(3) revised............................................12814
    (b)(1)  revised; (b)(4) added..................................49173
    (b)(3)  amended................................................49174
121.1102  (a)(3) added.............................................12814
121.1106  (b)(3) revised...........................................12814
    (b)(1)  revised; (b)(3) amended; (b)(4) added..................49174
121.1603  (a)(4) amended...........................................39427
121.1711  Revised..................................................45621
121.1713  Introductory text amended................................45621
121.1721  (a) amended..............................................45621
121.1722  Amended..................................................45621
122.62--122.62-4  Added.............................................5941
123.3  Amended; interim............................................10954
123.25  (a) and (b) revised.........................................6214
    (a)  revised...................................................36046
123.41  (b)(2)(ix) revised.........................................10956
    (b)(2)  revised................................................36045
124.107  Introductory text and (a) revised; (b) and (c) 
        redesignated as (c) and (d); new (b) added.................12814
124.111  (a)(2)(ii) revised........................................12815
124.112  (a)(3)(i) removed; (a)(3)(ii) and (c)(2)(iii) 
        redesignated as (a)(3)(i) and (c)(2)(iv); (a)(1), (c) 
        introductory text and new (2)(iv) introductory text 
        amended; new (a)(3)(ii) and new (c)(2)(iii) added; 
        (c)(2)(i) revised..........................................12815
124.305  (f) revised...............................................12815
124.307  (e) added.................................................12815
124.311  (f)(4) and (5) introductory text revised; (f)(5)(iii) and 
        (iv) redesignated as (f)(5)(iv) and (v); new (f)(5)(iii) 
        added; new (f)(5)(v) amended...............................12815
    (i)  added.....................................................12816
124.321  (h)(2) and (3) amended....................................12816
124.601  (c) amended...............................................12816
124.602  (f) and (g) amended.......................................12816
124.604  Amended...................................................12816
124.605  (a)(3) and (c)(1) amended.................................12816
124.607  (d) amended...............................................12816
124.608  (a), (b) introductory text, (1), (3) and (c) amended......12816

[[Page 495]]

124.609  (a) and (b) amended.......................................12816
Chapter III
302  Authority citation revised....................................15329
302.2  Revised; interim............................................15329
302.3  (b) revised; interim........................................15329
302.7  (a)(2) revised; interim.....................................15329
302.8  (a)(2) revised; interim.....................................15329
305.5  (b)(3) table amended; interim...............................15329

                                  1995

13 CFR
                                                                   60 FR
                                                                    Page
Chapter I
101  Authority delegation..........................................15864
101.3-2  Amended....................................................5564
106  Removed.......................................................54590
    Comment period reopening.......................................17438
107  Appendix I revised; interim....................................7393
    Appendix II removed; appendix III redesignated as appendix II; 
interim.............................................................7402
108.2  Amended.....................................................20392
    Amended; interim...............................................20393
108.503-8  (b)(2) revised...........................................4074
108.508-1  Undesignated center heading added.......................20392
    Added..........................................................20392
108.508-2  Added...................................................20392
108.508-3  Added...................................................20392
108.508-4  Added...................................................20392
108.508-5  Added...................................................20392
108.509-1  Undesignated center heading added; interim..............20393
    Added; interim.................................................20393
108.509-2  Added; interim..........................................20393
108.509-3  Added; interim..........................................20394
108.509-4  Added; interim..........................................20394
108.509-5  Added; interim..........................................20394
109  Removed.......................................................54590
110  Removed.......................................................54590
111  Removed.......................................................54590
116.42--116.44 (Subpart F)  Added..................................27871
120.202-5  Introductory text revised...............................42780
121  Technical correction..........................................18981
121.401  (b) revised...............................................29974
121.2001  Revised..................................................15478
121.2004  (c)(1) and (5) revised...................................15478
121.2005  (c)(1) revised...........................................15478
122.5-6  Added.....................................................42781
122.54-1  Revised...................................................4373
122.57-3  Revised...................................................4373
122.61-1  (a) amended..............................................55654
122.61-2  (d)(3) and (4) amended; (d)(5) and (h) added.............55654
122.61-3  (a) amended..............................................55654
122.61-6  (e) revised..............................................55654
122.61-9  (a) and (b)(2) amended; (b)(1) revised...................55655
122.61-11  (a) amended.............................................42781
122.61-13  Added...................................................55655
123  Authority citation revised....................................22496
123.2  Amended.....................................................22496
124  Authority citation revised....................................29974
124.7  (b)(1) removed; (b)(2) redesignated as (b)..................29974
124.100  Amended...................................................29974
124.101  (a) and (b) amended.......................................29974
124.102  (a) revised...............................................29974
124.103  Introductory text revised; (h) amended....................29975
124.104  Introductory text revised.................................29975
124.109  (d) revised...............................................29975
124.111  (a)(2) revised............................................29975
124.114  Added.....................................................29975
124.208  (c)(2) removed; (c)(3), through (6) redesignated as 
        (c)(2) through (5); new (c)(2) amended.....................29975
124.209  (b)(2) removed; (b)(3) through (6) redesignated as (b)(2) 
        through (5); (a)(6)(i) and new (b)(3) amended; new (b)(2) 
        revised....................................................29975
124.302  (c)(1)(i)(A) and (2) revised..............................29976
124.303  (c)(3) and (4) removed; (c)(5), (6) and (7) redesignated 
        as (c)(3), (4) and (5); (d)(1) amended.....................29976
124.304  Removed...................................................29976
124.305  Removed...................................................29976
124.307  (d) and (e) redesignated as (e) and (f); new (d) added....29976
124.308  (d) and (f)(2) revised; (e)((1)(iii) and (f)(1) amended 
                                                                   29976

[[Page 496]]

124.311  (b) removed; (c) through (i) redesignated as (b) through 
        (h); (a)(2), new (g)(3) and new (4) revised; new (d) 
        introductory text amended; new (d)(1) and new (2) removed 
                                                                   29976
    (e)(4)(iii), (5)(iii) and (7) amended; (e)(5)(iv) removed; 
(e)(5)(v) redesignated as (e)(5)(iv); new (e)(5)(iv) revised.......29977
124.312  (b)(4), (5), (6), (c)(2), (3) and (9) removed; (b)(7), 
        (c)(4) through (8), (10), (11) and (12) redesignated as 
        (b)(4) and (c)(2) through (9); new (b)(4), (c)(1), (7), 
        (8) and (9) amended........................................29977
124.321  (i) added.................................................29977
124.501  (c) redesignated as (d); new (c) added....................29977
128  Removed.......................................................54590
129  Removed.......................................................54590
130  Added.........................................................31056
140  Revised; eff. 1-4-96..........................................62191
143.36  (d), (g), (h) and (i) revised.......................19639, 19642
144  Removed.......................................................54590
145.100  Revised............................................33040, 33044
145.105  Amended............................................33041, 33044
145.110  (c) revised........................................33041, 33044
145.200  Revised............................................33041, 33044
145.215  Revised............................................33041, 33044
145.220  Revised............................................33041, 33044
145.225  Revised............................................33041, 33044
145  Appendixes A and B revised.............................33042, 33044
Chapter III
Chapter III  Revised; interim......................................49678

                                  1996

13 CFR
                                                                   61 FR
                                                                    Page
Chapter I
101  Revised........................................................2394
102  Revised........................................................2673
103  Revised........................................................2681
105  Revised........................................................2399
107  Revised........................................................3189
107.692  (a) corrected..............................................7985
107.50  Amended....................................................41496
107.692  (a) corrected..............................................7985
107.860  (b) amended...............................................41496
107.1530  (g)(2)(i) and (ii) amended...............................41496
108  Removed........................................................3266
112.11  (b) and (c) amended.........................................2691
113.7  (b) and (c) amended..........................................2691
114  Revised........................................................2401
115  Revised........................................................3271
115.10  Corrected...................................................7985
116  Removed........................................................3266
120  Revised........................................................3235
120.111  (a)(4) corrected; (b)(2) correctly removed; (b)(3), (4) 
        and (5) correctly redesignated as (b)(2), (3) and (4).......7986
120.215  Corrected..................................................7986
120.220  Table corrected...........................................11471
120.440  Corrected..................................................7986
120.839  (a)(2) corrected...........................................7986
121  Revised........................................................3286
  Waiver....................................................42376, 54538
121.201  Table corrected.........................6412, 7306, 7986, 43119
121.406  (b)(4) corrected...........................................7986
122  Removed........................................................3266
123  Revised........................................................3304
124.210  (b) and (d)(2) amended.....................................2691
124.211  (g) amended................................................2691
125  Revised........................................................3312
125.3  (b) corrected................................................7986
125.5  (d)(3) and (o) corrected.....................................7987
125.6  (a)(2) corrected; (c) correctly removed; (d) through (g) 
        correctly designated as (c) through (f)....................39305
131  Removed........................................................3266
132  Removed........................................................2691
133  Removed........................................................2397
134  Revised........................................................2683
135  Removed........................................................2397
136.170  (j)(2) amended.............................................2691
137  Removed..............................................