[Federal Register Volume 59, Number 167 (Tuesday, August 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21217]


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[Federal Register: August 30, 1994]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 124

 

Small Business Size Regulations; Minority Small Business and 
Capital Ownership Development Assistance

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The Small Business Administration (SBA) proposes to amend its 
regulations governing the Minority Small Business and Capital Ownership 
Development program authorized by sections 7(j)(10) and 8(a) of the 
Small Business Act, 15 U.S.C. 636(j)(10), 637(a). This proposed rule 
would amend both eligibility requirements for and contractual 
assistance provisions within the 8(a) program. Of particular note, this 
rule would recognize participation of Community Development 
Corporations in the 8(a) program to an extent that would not be 
inconsistent with the requirements of the 8(a) program as imposed by 
the Small Business Act, increase the personal net worth limitations for 
8(a) applicants and Program Participants to take into account 
inflation, eliminate the distinctions established in SBA's regulations 
concerning ``local'' and ``national buy'' 8(a) requirements, eliminate 
the restrictions on the number and dollar value of 8(a) contracts 
received by Program Participants due to SBA-approved ``support 
levels'', and eliminate the distinction for applying the competitive 
8(a) requirements currently existing for indefinite quantity or 
indefinite delivery requirements.

DATES: Comments must be submitted on or before September 29, 1994.

ADDRESSES: Written comments should be addressed to Herbert L. Mitchell, 
Associate Administrator, Office of Minority Enterprise Development, 
U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 
20416.

FOR FURTHER INFORMATION CONTACT: Office of Minority Enterprise 
Development, (202) 205-6410.

SUPPLEMENTARY INFORMATION: This proposed rule, if adopted in final 
form, would (1) make several clarifications of the eligibility 
requirements for admission to SBA's 8(a) program, the need for which 
has been identified by SBA through the practical experience gained in 
operating the program and in defending the agency's actions in 8(a) 
eligibility appeals brought before SBA's Office of Hearings and Appeals 
(OHA), (2) authorize participation by business concerns owned by 
Community Development Corporations in the 8(a) program in accord with 
42 U.S.C. 9815, and (3) make several changes to the 8(a) contractual 
assistance requirements, including eliminating 8(a) support levels and 
the concepts of local buy and national buy 8(a) requirements.
    This rule would clarify that 8(a) eligibility decisions are based 
on the facts before the Associate Administrator for Minority Small 
Business and Capital Ownership Development (AA/MSB&COD) at the time of 
his/her eligibility decision. The rule would specify that actual 
control of the applicant concern must be in the hands of one or more 
socially and economically disadvantaged individuals at the time the 
appropriate district Certification and Eligibility Branch (C & E 
Branch) determines that an application for the 8(a) program is 
complete. Potential control or the power of disadvantaged individuals 
to change the applicant concern's Board of Directors or other aspects 
of control so that the applicant concern could be controlled by 
disadvantaged individuals, no matter how easily exercised, would not 
satisfy the requirement that the applicant be actually controlled by 
disadvantaged individuals at the time the SBA district office C & E 
Branch determines an application to be complete. One reason to require 
actual control at the time that an applicant applies for admission to 
the 8(a) program is to prevent ``front companies'' from being admitted 
to the 8(a) program. It is SBA's view that this potential for abuse 
would be greatly lessened by the clarifications made in this rule.
    In addition, Section 626(a)(2) of the Omnibus Reconciliation Act of 
1981, Pub. L. 97-35, codified at 42 U.S.C. 9815(a)(2), required 
``regulations to ensure the availability to community development 
corporations of such programs as shall further the purposes of this 
subchapter, including programs under section [8(a) of the Small 
Business Act].'' The purpose of the subchapter referred to in this 
provision ``is to encourage the development of special programs by 
which the residents of urban and rural low-income areas may, through 
self-help and mobilization of the community at large, with appropriate 
Federal assistance, improve the quality of their economic and social 
participation in community life in such a way as to contribute to the 
elimination of poverty and the establishment of permanent economic and 
social benefits.'' 42 U.S.C. 9801. SBA has not heretofore implemented 
this authority through regulations. This proposed rule would recognize 
participation of Community Development Corporations (CDCs) in the 8(a) 
program to an extent that would not be inconsistent with the 
requirements of the 8(a) program imposed by the Small Business Act.
    SBA believes that only CDC-owned or financed small business 
concerns can be eligible for the 8(a) program, and not the CDC itself. 
This position is consistent with the Agency's longstanding regulations 
implementing the Small Business Act that a small business must be a 
for-profit business entity. See 13 CFR 121.403. Since CDCs are non-
profit entities, they could not be considered small business concerns 
within the meaning of the size regulations and, hence, would not be 
eligible for the 8(a) program on that basis.
    This rule is not intended to imply in any way that the basic 
requirement of the Small Business Act that 8(a) concerns be owned by 
disadvantaged individuals can be administratively changed. Presently, 
two statutory exceptions to this ownership requirement have been 
implemented in regulations. Subclauses 8(a)(4)(A)(i)(II) and (III) of 
the Small Business Act, 15 U.S.C. 637(a)(4)(A)(i)(II) and (III), 
statutorily extend 8(a) program eligibility to small business concerns 
which are owned by either an economically disadvantaged Indian tribe, 
or a wholly owned business entity of such a tribe, or a Native Hawaiian 
organization. These provisions have been implemented in 13 CFR 
Secs. 124.112 and 124.113, respectively. The authority for extending 
eligibility for the 8(a) program to CDC-owned entities is also 
statutory. Thus, similar to SBA's treatment of tribally-owned concerns 
and concerns owned by Native Hawaiian organizations, this proposed rule 
recognizes CDC-owned concerns in accord with the authority set forth in 
42 U.S.C. 9815(a)(2).
    Pursuant to this proposed rule, SBA would consider CDCs comparable 
to Indian tribes. A CDC could have an ownership interest in several 
business enterprises, just like an Indian tribe under current 
regulations. Where statute and implementing regulations authorize a 
tribally-owned business concern to participate in the 8(a) program, but 
not the tribe acting on its own behalf, SBA proposes that similar 
treatment be afforded CDCs and CDC-owned business concerns. SBA also 
believes that the regulatorily created exclusion from affiliation that 
has been afforded tribally-owned business concerns (i.e., one tribally-
owned business is not considered affiliated with the tribe or other 
businesses owned by the tribe merely because of common tribal 
ownership) should be extended to CDC-owned business concerns as well 
(this proposal would also make that exclusion available to concerns 
owned by Native Hawaiian Organizations).
    In order for any CDC-owned business to participate in the 8(a) 
program, SBA would apply the basic management and control requirements 
imposed by the Small Business Act for 8(a) program participation. Thus, 
the proposed rule would require that CDC-owned applicant concerns must 
be managed by one or more socially and economically disadvantaged 
individuals.
    This proposed rule would also make changes, as needed, in various 
other eligibility and 8(a) contracting requirements. These changes are 
identified below in the section by section analysis of this proposed 
rule.

Section By Section Analysis

    The following is a section by section analysis of each provision of 
SBA's regulations that would be affected by this proposed rule:
    Sections 121.906(b)(1)(iv) and 121.1106(b)(1)(iv) would be amended 
to permit a small business non-manufacturer to supply other than a 
product made in the United States for a small business set-aside or 
8(a) contract where the procuring agency makes a non-availability 
determination pursuant to Sec. 25.102(a)(4) of the Federal Acquisition 
Regulation. There has been some confusion as to whether a non-
manufacturer could qualify as a small business if there was such a non-
availability determination under the Buy American Act and the Federal 
Acquisition Regulation. SBA did not intend to exclude non-manufacturers 
from small business set-aside and 8(a) contracts where such a non-
availability determination has been made. This clarification should 
clear up any ambiguity in this area.
    Section 121.1104 would be amended to impose its provisions on 
competitive as well as sole source 8(a) contracting opportunities. 
Heretofore, this regulation was inconsistent with competitive 
contracting procedures. Other minor changes for purposes of improved 
clarity would also be made to this section.
    Section 121.1703(b) would be amended to clarify that only the AA/
MSB&COD can appeal a Standard Industrial Classification (SIC) code 
assigned by a procuring agency contracting officer to either a sole 
source or a competitive 8(a) requirement. See discussion relating to 
proposed Sec. 124.307(f).
    Section 124.100 would be amended by adding definitions of the terms 
``CDC-owned concern'', ``Clear and convincing evidence'', and 
``Community Development Corporation or CDC''.
    The definition of ``Unconditional ownership'' in Sec. 124.100 would 
be amended to explain that a disadvantaged owner may use his/her 
ownership interest (e.g., stock) in an applicant or 8(a) concern as 
collateral for financing during the normal course of business without 
affecting his/her ``unconditional'' ownership in such concern, provided 
that complete control of the ownership interest remains with the 
disadvantaged owner absent any default in fulfilling the terms of the 
financing. However, events of default must be defined in commercially 
reasonable ways. Events of default beyond those that are deemed 
commercially reasonable could lead to a conclusion that unconditional 
ownership is not in the hands of the disadvantaged owner. This 
clarification is not intended to require a concern to obtain financing 
through a financial institution or to preclude, for example, seller-
financed transactions. It is intended only to permit financing terms 
that are reasonable within the marketplace. This change is essential to 
ensure that applicant and 8(a) concerns have the flexibility they need 
to raise necessary capital. The requirement that disadvantaged owners 
``unconditionally'' own and control an applicant or 8(a) concern should 
not restrict a firm's ability to raise capital under normal commercial 
terms and conditions to assist it in becoming viable.
    The proposed rule would eliminate the definitions for ``local buy'' 
and ``national buy'' requirements from Sec. 124.100. All requirements 
other than construction requirements would be open to eligible 8(a) 
Participants nationally. To the extent possible, SBA seeks to lift 
restrictions that are otherwise not imposed in procurements conducted 
other than through the 8(a) program. This would result in all eligible 
8(a) concerns nationally being able to submit offers in response to 
competitive 8(a) solicitations. In addition, a Program Participant 
could market and seek sole source 8(a) requirements nationally. 
Construction requirements would be exempt from this change because 
section 8(a)(11) of the Small Business Act, 15 U.S.C. 637(a)(11), 
requires, ``to the maximum extent practicable,'' that 8(a) construction 
contracts ``be awarded within the county or State where the work is to 
be performed.'' The proposed rule would make necessary changes in 
Sec. 124.308(d), Sec. 124.308(f), revised Sec. 124.311(d), (old 
Sec. 124.311(e)), revised Sec. 124.311(e) (old Sec. 124.311(f)), and 
revised Sec. 124.311(f) (old Sec. 124.311(h)) to eliminate the local 
and national buy concepts.
    The proposed rule would make minor technical changes to 
Secs. 124.101(a), 124.101(b), 124.102(a), 124.103, 124.104, and 
124.109(d) to recognize that CDC-owned concerns would be eligible for 
participation in the 8(a) program.
    Sections 124.101(a), 124.104 and 124.206(a) would be amended to 
clarify that the AA/MSB&COD's decision to approve or decline an 
application for 8(a) program participation would be based on whether 
the applicant concern complied with each of SBA's eligibility criteria 
at the time the concern's completed application for admission to the 
8(a) program is sent to the Office of MSB&COD for processing or, in the 
case of a request for reconsideration, at the time the reconsideration 
application is deemed to be complete by SBA's Central Office. A change 
in circumstances submitted by an applicant concern subsequent to the 
date that an application or reconsideration action is sent to the 
Office of MSB&COD for processing would not be considered, unless it 
causes a loss of eligibility. The structure of the concern, including 
all necessary corporate formalities, would have to be in place prior to 
the Office of MSB&COD's processing of an application or request for 
reconsideration. A disadvantaged individual's ability to immediately 
change the applicant's structure or effect a change in its control so 
that actual control of the concern is in the hands of disadvantaged 
individuals and/or other eligibility criteria are met would not satisfy 
the requirement that they be met at the time of the completed 
application. The rule would specify, however, that SBA, in its sole 
discretion, could request clarification of information contained in the 
application at any stage in the application process.
    The decision of the AA/MSB&COD to approve or decline an application 
for 8(a) program admission would then be based on whether the 
application, as clarified by any information submitted in response to a 
request by SBA, demonstrates that the applicant concern complies with 
each of SBA's eligibility criteria. While SBA would be able to request 
and consider additional information in processing an 8(a) application, 
SBA would not consider information gratuitously submitted by an 
applicant concern after it submits its application. This clarification 
is needed to streamline the application process and ensure that SBA 
meets its statutorily imposed time limitation for processing 
applications.
    Section 124.103 would be amended by adding a new paragraph (a) that 
would require direct ownership of 8(a) applicants or Program 
Participants by disadvantaged individuals. This statutory requirement 
is currently set forth in Sec. 124.109, but SBA believes that it should 
be added to this section for clarification purposes. Present 
Secs. 124.103(a) through (j) would be redesignated to become 
Secs. 124.103(b) through (k). Sections 124.109(d) and (e) would be 
similarly amended.
    Newly redesignated Sec. 124.103(i) (old Sec. 124.103(h)) would be 
amended to permit a former Program Participant to have an equity 
ownership interest of up to 20 percent in a current 8(a) concern in the 
same or similar line of business. Such a requirement would increase an 
8(a) concern's ability to raise capital, while continuing to advance 
the economic viability of a former Program Participant after its 8(a) 
program term has expired. Section Sec. 124.104(c)(2) would also be 
amended to permit the principal of a former Program Participant to have 
an equity ownership interest of up to 20 percent in a current 8(a) 
concern in the same or similar line of business as the former Program 
Participant.
    Newly redesignated Sec. 124.103(j) (old Sec. 124.103(i)) would be 
amended to make clear that an 8(a) concern may substitute one 
disadvantaged individual for another without invoking the termination 
for convenience/waiver provision of Sec. 124.317 of these regulations 
with respect to any 8(a) contracts that it has been awarded on or after 
June 1, 1989. Provided program eligibility is maintained and SBA 
approves a substitution of one disadvantaged individual for another, 
performance of 8(a) contracts already received could continue without 
seeking a waiver under Sec. 124.317. SBA believes that the statutory 
termination for convenience/waiver provision did not intend to prohibit 
the performance of an 8(a) contract by the 8(a) concern that initially 
received it simply where there has been one or more approved changes of 
particular individuals upon whom eligibility of the concern was based. 
This change is necessary to apprise procuring agencies and 8(a) 
concerns that termination of 8(a) contracts is not required in such 
instances.
    Pursuant to proposed Sec. 124.103(l), SBA would aggregate the 
ownership interests of a business concern and its principal(s) in 
determining whether a non-disadvantaged individual or business concern 
exceeds the 10 percent equity ownership limitations (or, in the case of 
a former Program Participant, the 20 percent equity ownership 
limitations) established by Secs. 124.103 and 124.104.
    This proposed rule would also add a new Sec. 124.103(m), dealing 
with the applicability of state community property laws on the 
respective ownership interests in an applicant concern or a Program 
Participant once admitted to the Program. This revision would not be a 
change in SBA policy.
    Section 124.104(a) would be reorganized for greater clarity and 
easier use. Of particular note, Sec. 124.104(a) would be amended to 
specify that one or more disadvantaged individuals who are determined 
to manage the applicant or 8(a) concern must be physically located at 
the offices of the applicant or 8(a) concern be open during the normal 
40-hour work week of most business concerns. Thus, this proposed 
provision would require that the disadvantaged individual(s) be present 
at the location of the applicant or 8(a) concern during those hours and 
not, for example, only at night or on the weekends. This rule does not 
imply that business activities of the applicant or 8(a) concern could 
not be conducted by such individual(s) outside the offices of the 
applicant or 8(a) concern, nor does it prohibit a disadvantaged 
individual from establishing an 8(a) concern at his/her home. It is 
meant to ensure only that one or more disadvantaged owners devote full-
time to the business of the applicant or 8(a) concern. Under this 
proposed amendment, SBA would not permit an individual to be physically 
located at a job which is separate and distinct from the applicant or 
8(a) concern during normal business hours and claim that he/she is 
managing the applicant or 8(a) concern from that location.
    Section 124.104(b) would be amended along the lines set forth above 
for Secs. 124.101(a), 124,104 and 124.206(a). This amended paragraph 
would specify that the Board of Directors must actually be controlled 
by disadvantaged individuals. The power of a disadvantaged individual 
to control the Board of Directors indirectly through his/her right to 
vote his/her stock (i.e., the power to remove and replace directors) 
would not be sufficient to establish control of the Board of Directors 
if non-disadvantaged individuals on the Board of Directors could 
control, or assert negative control on, the Board as currently 
structured at the time of the application for admission to the 8(a) 
program. This paragraph would also provide that non-voting, advisory or 
honorary Directors may be appointed so long as they do not possess 
negative control over the Board. Similarly, a separate board of 
advisors, particularly in the context of tribally-owned applicants and 
8(a) concerns, could be established provided such board of advisors 
could not actually run the day-to-day operations of or possess negative 
control over the applicant or 8(a) business concern.
    In evaluating whether an individual's social disadvantage has 
negatively impacted on his or her entry into and/or advancement in the 
business world, Sec. 124.105(c) would be amended to clarify that SBA 
will entertain any relevant evidence, but that SBA would consider the 
experiences of the individual, where applicable, in education, 
employment and business history. The failure to establish disadvantage 
in any one area (i.e., education, employment, or business history) 
would not prevent an individual from meeting this requirement of 
negative impact as long as the totality of the circumstances 
experienced by the individual demonstrate his/her disadvantage in 
entering into and/or advancing in the business world.
    Section 124.106(a)(2)(i) would be amended by increasing the entry 
level personal net worth limitation from $250,000 to $300,000 in order 
to take into account inflation. The $250,000 net worth figure was 
established by regulation in April 1989. Inflation increased 19.6 
percent between April 1989 and March 1994 based on the Consumer Price 
Index for All Urban Consumers. Applying the 19.6 percent inflation rate 
to the $250,000 figure would increase the net worth limitation to 
$299,000. This proposed rule would round that amount to $300,000.
    Section 124.106(a)(2)(ii) would clarify SBA's method of analysis in 
determining whether the applicant concern itself, as apart from its 
disadvantaged owner(s), should be considered economically 
disadvantaged. It would require SBA to compare an applicant concern to 
other small business concerns in the same four-digit Standard 
Industrial Classification Code which are not owned and controlled by 
socially and economically disadvantaged individuals.
    Section 124.106(a)(2)(i)(A)(1) would be amended to provide that 
assets transferred by an individual claiming disadvantaged status to 
any immediate family member within two years prior to the date of 
application to the 8(a) program shall be presumed to be the property of 
the individual claiming disadvantaged status. Currently, property or 
assets transferred by an individual claiming disadvantaged status to 
his/her spouse within two years of the date of 8(a) application is 
presumed to be the property of the transferor for purposes of 
determining his/her economic disadvantage. SBA believes that a change 
is needed to prevent circumvention of its eligibility regulations by 
asset transfers to other than an applicant individual's spouse. Several 
applicants have avoided the intent of this regulation by transferring 
assets to children. SBA believes that it is necessary to prevent the 
recurrence of this practice, which if left unchanged, could admit firms 
into the 8(a) program that SBA believes should be considered 
ineligible.
    Section 124.106(b) would be amended for clarity, and would increase 
the personal net worth limitation for the Small Disadvantaged Business 
program from $750,000 to $900,000 to take into account inflation since 
the $750,000 standard was set in April 1989.
    Section 124.107(b) would be amended to clarify that the requirement 
that an applicant concern possess technical and managerial experience 
to be deemed to have the required potential for success to be admitted 
to the 8(a) program was not meant to contradict the provision in 
Sec. 124.104 that the individual(s) upon whom eligibility is based need 
not posses both management and technical capabilities. In order to have 
the requisite potential for success, an applicant concern must have 
both management and technical experience. Conversely, the individual(s) 
upon whom eligibility is based must possess either management or 
technical capabilities to meet that part of the control requirement 
under Sec. 124.104.
    Section 124.108 would be amended by adding a new paragraph (d)(3) 
that would state that any 8(a) applicant that is a dealer or wholesaler 
would not be required to demonstrate that it is capable of supplying 
the product of a small business manufacturer in conjunction with its 
8(a) application. In the past, there has been confusion as to whether 
SBA's non-manufacturer rule (i.e., the rule requiring a regular dealer 
to supply the product of a small business in order for it to be 
considered small for a specific 8(a) or small business set aside 
procurement) should be applied in determining an applicant's initial 
eligibility for the 8(a) program. SBA believes that because the Small 
Business Act authorizes waivers to the non-manufacturer rule in 
connection with a specific contract where SBA determines that no small 
business manufacturer can reasonably be expected to offer a product 
meeting the specifications of the solicitation, the non-manufacturer 
rule should have no bearing on an applicant's eligibility for the 8(a) 
program. In addition, the 8(a) program should not be viewed solely as a 
contracting program. There is other business development assistance 
available to Program Participants which should not be foreclosed 
because of the non-manufacturer rule. Regular dealer applicants to the 
8(a) program should be aware, however, that they must generally meet 
the requirements of the non-manufacturer rule in order to be awarded 
specific 8(a) contracts as regular dealers.
    Proposed Sec. 124.109(f) would add a provision making an applicant 
to the 8(a) program ineligible for program participation if the 
proprietor, or a holder of at least 20 percent of the stock, or a 
partner, officer, director of the concern is currently incarcerated, on 
parole or on probation. This provision is derived from a similar 
determination of ineligibility for SBA financial assistance currently 
contained in 13 CFR 120.101-2(f).
    Section 124.111 would be amended by revising paragraph (a)(2) to 
set the same personal net worth limitation for a Program Participant in 
either the developmental or transitional stage of program participation 
to maintain its continued 8(a) eligibility. Currently, the limit is 
$500,000 for firms in the developmental stage of 8(a) program 
participation, $750,000 for firms in the transitional stage of 8(a) 
program participation, and $750,000 for purposes of eligibility for the 
Department of Defense's Small Disadvantaged Business (SDB) program. 
This rule would eliminate the separate net worth figure for firms in 
the developmental stage (i.e., eliminating the current $500,000 
amount). It would then apply the $750,000 amount, adjusted for 
inflation, to all participant firms to make the requirement for 
developmental firms consistent with continued eligibility for 
transitional firms and simplify program administration. As with the 
entry level personal net worth limitation amount, the $750,000 figure 
would also be increased by 19.6 percent due to inflation (see 
discussion relating to proposed Sec. 124.106(a)(2)(i)). A straight 
inflation adjustment would produce a net worth limitation of $897,000. 
This proposed rule would round that amount to $900,000.
    Section 124.111(c)(5) would be amended to further restrict 
excessive withdrawals from 8(a) Program Participants by their owners or 
managers. Specifically, a Participant could no longer claim that large 
withdrawals from the Participant should not be restricted where the 
concern's net worth has continued to increase throughout the period of 
time the withdrawals are made. Certain Program Participants have 
attempted to claim that excessive withdrawals could not be penalized 
where the Participant's net worth continued to increase because the 
withdrawals were not detrimental to the attainment of its business 
plan. The 8(a) program is designed to foster the development of 
business concerns owned by disadvantaged individuals. The fact that 
Participant's net worth has increased does not mean that it would not 
have increased more or achieved greater success but for excessive 
withdrawals by its owners/managers.
    Section 124.112(c)(2)(iv) would be amended to clarify the 
requirements pertaining to a joint venture between an 8(a) concern 
owned by an Indian tribe and a concern determined to be other than 
small. There has been some concern that this regulation required a 
majority of the performance of such a contract to be performed on an 
Indian reservation or land owned by the tribe. This was not the intent. 
This proposed rule would amend this provision to make it consistent 
with the same provision contained in Sec. 124.321 which requires only 
that the tribally-owned 8(a) concern must perform most of its 
activities generally on the reservation or tribally-owned land in order 
to be eligible to joint venture with a large business. This provision 
contains no specific requirement that the work done through the joint 
venture must be done on the Indian reservation or tribally-owned land. 
However, it is necessary not to overlook two requirements which may 
perpetuate that requirement in some instances--that the concern must be 
located on the reservation or tribally-owned land, and that the 8(a) 
participant to a joint venture must meet the performance of work 
requirements imposed by Sec. 124.314. See Sec. 124.321(f).
    Section 124.113 would be amended by adding an exclusion from 
affiliation for concerns owned by a Native Hawaiian Organization, by 
prohibiting a Native Hawaiian Organization from owning more than one 
current or former 8(a) Participant having the same primary industry 
classification, and by excluding from the one-time individual 
eligibility requirement any individual who merely manages a concern 
owned by a Native Hawaiian Organization.
    The proposed rule would add a new Sec. 124.114 which would 
specifically authorize CDC-owned small business concerns to participate 
in the 8(a) program. The same amendments added to Sec. 124.113 for 
Native Hawaiian Organizations would be added to this section regarding 
CDC-owned concerns.
    Minor clarifying language would be added to Sec. 124.206(c)(1) 
regarding the time frame for an applicant concern to request a 
reconsideration, and where such a request must be made.
    Sections 124.208(c) and 124.209(b) would be amended to streamline 
the procedures governing graduation and termination of 8(a) Program 
Participants respectively. This rule would eliminate the second letter 
of notification and the second 45 day response period provided in 
Sec. 124.208(c) and Sec. 124.209(b).
    Additionally, this rule would change the time period in which the 
Division Director must make a recommendation on graduation to the AA/
MSB&COD. The rule would change the time frame for the Division 
Director's recommendation to the AA/MSB&COD from 15 days to 45 days.
    Section 124.209(b) currently provides the same procedures and time 
limits regarding termination actions as are discussed above with regard 
to graduation from the 8(a) program. This rule would make the same 
changes to the termination procedures as are discussed above with 
regard to graduation from the 8(a) program.
    The proposed rule would amend the procedures concerning remands of 
8(a) eligibility appeals by OHA to the AA/MSB&COD. Section 
124.210(h)(2) would clarify that the AA/MSB&COD would issue a decision 
in accordance with a remand order of the Administrative Law Judge 
within 10 working days of the remand, unless the AA/MSB&COD requests 
and the Administrative Law Judge grants an extension thereof. An 
applicant or 8(a) concern could then appeal the AA/MSB&COD's remand 
decision to OHA within 20 working days of the date that the decision is 
mailed. The failure of an applicant to file an appeal within the 20-day 
time frame would serve to make the remand decision the final agency 
decision and would not require any further action by OHA.
    Section 124.210 would be further amended by adding a new paragraph 
(k) to specifically authorize reconsideration of 8(a) eligibility 
appeal decisions made by SBA's Office of Hearings and Appeals. 
Reconsideration would be specifically authorized where a petitioning 
party establishes a clear error of law or fact affecting the decision 
in the case.
    Section 124.302 would be amended to ease the restrictions on adding 
SIC codes once a concern is admitted to the 8(a) program. The proposed 
rule would permit SBA to approve an additional SIC code as long as a 
rational business explanation exists for acquiring the requested SIC 
code. SBA seeks to make it clear that the authority to make decisions 
regarding what types of business ventures an 8(a) concern should get 
involved in rests with the 8(a) concerns themselves. Thus, for example, 
an 8(a) concern may acquire or develop the capability to perform 
contracts in an industry not directly related to the 8(a) concern's 
primary business and seek to add the appropriate SIC code(s), or it may 
hire an additional key employee that opens up new avenues of work to 
the 8(a) concern and seek to add additional SIC codes. In addition, SBA 
proposes to shorten the time it takes SBA to respond to a request for a 
change in SIC code designations from 45 days to 30 days.
    The proposed rule would amend Sec. 124.305(b)(3) regarding what a 
Program Participant must demonstrate to qualify for an 8(a) bond 
exemption. As currently written, in order to qualify for a bond 
exemption, an 8(a) Program Participant must, among other things, 
demonstrate that it cannot obtain a bond for the performance of the 
specific 8(a) requirement at issued by submitting to SBA written 
denials from at least two sureties, one of which is a corporate surety 
and one of which is an individual surety. Based on experience with this 
provision, SBA believes that the requirement that two sureties decline 
to issue the required bond is unnecessary. As such, the proposed rule 
would amend Sec. 124.305(b)(3) to require a Participant to demonstrate 
only that it cannot obtain a bond from one corporate (Treasury-listed) 
surety.
    The proposed rule would revise Sec. 124.305(c)(4) to provide that a 
Program Participant may be eligible to receive only two bond exemptions 
at any one time. In other words, although up to five bond exemptions 
per Program Participant are authorized, a Participant may not have more 
than two active 8(a) contracts at a time for which it has received a 
bond exemption.
    This proposed rule would also eliminate the requirement that a 
Program Participant not be permitted to receive 8(a) contracts in 
excess of its approved 8(a) support level. However, this would not 
affect SBA's authority to impose a limit on the amount of 8(a) contract 
awards as a part of a remedial action plan where a firm fails to meet 
its competitive business mix requirements. A concern would still be 
required to project in its business plan its anticipated level of 8(a) 
contract support, but such level would be used only as a planning and 
development tool. Section 124.307 would be amended by redesignating 
paragraph ``(d)'' as paragraph ``(e)'' and by adding a new paragraph 
``(d)'' that would eliminate approved 8(a) support levels as a basis 
for denying 8(a) contract awards in excess of those levels. SBA 
believes that Program Participants should be afforded the flexibility 
to seek out and receive 8(a) contracts so long as they are capable and 
responsible to perform those contracts and meet their competitive 
business mix requirements. SBA would still determine whether a 
Participant was responsible to perform a particular 8(a) procurement 
requirement, and could determine that the concern did not have the 
capacity to perform the extra work, but, except as part of an approved 
remedial action plan, it could not withhold award merely because the 
concern would exceed (or has exceeded) its approved support level.
    Section 124.307 would be further amended by adding a new paragraph 
``(f)'' that would prohibit any party from challenging the eligibility 
of a Program Participant for a specific sole source or competitive 8(a) 
requirement at SBA or any other administrative forum. Much of this 
provision is currently contained in Sec. 124.311(g) for competitive 
8(a) requirements, but no such specific language was set forth for sole 
source 8(a) requirements. The regulatory language appearing in 
Sec. 124.311(g) would be moved into this new provision and would be 
expanded to apply to sole source 8(a) procurements as well. Section 
124.311(g) would be removed as unnecessary.
    In addition, the proposed rule would specify that only the AA/
MSB&COD could file a SIC code appeal in connection with either a sole 
source or competitive 8(a) requirement. While this restriction appears 
in Sec. 121.1703, as part of SBA's size and SIC code appeal 
regulations, it was not similarly contained in the 8(a) regulations. 
SBA believes that it should appear in both places for clarity and ease 
of use. It would specifically apply to both sole source and competitive 
8(a) requirements. SBA reviews every SIC code to determine its 
appropriateness, but so long as the code assigned by the procuring 
agency contracting officer is reasonable, SBA will concur. SBA 
frequently goes back to a procuring agency to dispute a SIC code when 
it feels that the statement of work indicates that the assigned SIC 
code is inappropriate. Discussions between SBA and the procuring agency 
normally clear up any confusion. As part of this process, any party may 
submit evidence to SBA to explain why it believes another SIC code 
should be assigned to the procurement. SBA will consider such 
information and will seek a SIC code change if it believes that the SIC 
code assigned by the procuring agency is unreasonable.
    Section 124.308(c) would be amended to specify where 8(a) offerings 
should be sent in light of the changes made by this rule eliminating 
local and national buy requirements. Under the proposed rule, all 
requirements that are offered to the 8(a) program as competitive 
procurements and those sole source requirements that are offered to the 
program without nominating a specific Program Participant (i.e., open 
requirements) would be offered to SBA's Division of Program Development 
in SBA's Central Office. Sole source requirements that are offered to 
the 8(a) program on behalf of a specific Program Participant would be 
offered to the appropriate SBA district office.
    Section 124.308(d) would be amended to clarify the distinction 
between accepting a competitive 8(a) requirement on behalf of the 8(a) 
program generally and a sole source 8(a) requirement on behalf of a 
particular 8(a) Program Participant. In addition, the proposed rule 
would prohibit a procuring agency from conducting a competitive 8(a) 
requirement prior to obtaining SBA's acceptance of the requirement for 
the 8(a) program. Any competition so held would not be considered an 
8(a) competition. If a procuring agency still wanted to fulfill its 
requirement through the 8(a) program, the requirement would have to be 
offered to and accepted by SBA for the 8(a) program, and the procuring 
agency would have to use applicable 8(a) competitive procedures after 
the acceptance. The procuring agency would again be required to 
synopsize the procurement in the Commerce Business Daily. A new 
solicitation would have to be issued, and new offers would have to be 
submitted and evaluated.
    Section 124.308 would also be amended, by adding a paragraph 
(d)(4), to permit all eligible 8(a) concerns nationally to submit 
offers in connection with 8(a) competitive requirements other than 
construction requirements.
    Sections 124.308(e)(1)(iii), 124.311(f)(4), 124.311(f)(5), 
124.312(b), and 124.312(c) would be amended by removing any provisions 
pertaining to 8(a) support level requirements.
    The rule would add a new Sec. 124.308(i) pertaining to Basic 
Ordering Agreements (BOAs). This provision would state that each order 
to be issued under a BOA, and not the BOA itself, is a contracting 
action. As such, there must be a separate offer and acceptance for each 
order. As with any other new offer, SBA would determine eligibility for 
an order under a BOA at the time of the issuance of the order. This 
would require a concern to remain a small business at the time the 
order is to be issued and would prohibit orders from being issued to 
concerns whose program terms have expired or who have otherwise exited 
the 8(a) program.
    Section 124.309(c) would be amended to clarify SBA's intent 
regarding the concept of adverse impact. Under the proposed rule, 
``adverse impact'' could be found to exist where several requirements 
currently being performed by different small business concerns are 
bundled into one larger requirement which could be considered ``new'' 
under SBA's regulations due to the magnitude of the bundled 
requirement. This rule would permit SBA to find adverse impact in such 
a case where at least one of the small business concerns losing work 
that is to be bundles meets the presumption of adverse impact.
    This rule also proposes to amend Sec. 124.311(a) concerning how the 
competitive threshold requirements should be applied for indefinite 
quantity and indefinite delivery requirements. Currently, 
Sec. 124.311(a)(2) specifies that ``[f]or purposes of indefinite 
quantity/delivery contracts, the thresholds will be applied to the 
guaranteed minimum value of the contract.'' This requirement has proven 
unworkable because of the immense differences noted between the 
``guaranteed minimum'' amounts on procurements offered to the 8(a) 
program and the maximum amounts authorized under the procurements, and 
has been subject to substantial criticism. Procuring agencies can 
presently offer very large procurement requirements to the 8(a) program 
as indefinite quantity type requirements with guaranteed minimum 
amounts below the applicable 8(a) competitive threshold in order for 
contracts to be procured on a sole source basis, even though the 
procurement would likely exceed the applicable competitive threshold 
during the performance of the contract. Requirements that traditionally 
were procured through other contract types were being offered and 
accepted into the 8(a) program as indefinite quantity requirements 
solely to take advantage of the guaranteed minimum rule. In order to 
eliminate this potential abuse, SBA proposes to amend its regulations 
to specify that the competitive threshold requirements would be applied 
for all types of contracts, including indefinite quantity/delivery 
contracts, to the Government estimate of the requirement, including 
options, as identified by the procuring agency.
    The proposed rule would amend newly redesignated Secs. 124.311(d), 
(f) and (g) (old Secs. 124.311(e), (h), and (i)) to take into account 
the proposed change made in Sec. 124.308(d)(4) that would permit all 
eligible Program Participants nationally to submit offers in response 
to 8(a) competitive solicitations, other than for construction 
requirements.
    Proposed redesignated Sec. 124.311(g) (old Sec. 124.311(i)) would 
clarify SBA's implementation of Sec. 8(a)(1)(C) of the Small Business 
Act, 15 U.S.C. 637(a)(1)(C), which authorizes competitive 8(a) awards 
in limited circumstances to firms which have completed their terms of 
participation in the 8(a) program. Of particular note, SBA would 
specify in the regulations that eligibility would be determined as of 
the initial date specified for the receipt of offers set forth in the 
solicitation without regard to extensions of time through amendments to 
the solicitation. The date for determining eligibility would thus be 
firmly established and could not change during the procurement process. 
With such a date certain, firms know up front if their program term 
will expire prior to that specified date. Offers would not be prepared 
amid uncertainty that the date for determining eligibility could be 
changed. As such, firms would not be dissuaded from participating in 
8(a) competitive procurements during the later stages of their 
participation terms.
    Section 124.317 would be amended to specify that only physical or 
mental incapacity, and not criminal incarceration or bankruptcy, could 
be a basis for a waiver of the termination for convenience requirement 
imposed by this section. In addition, this section would be amended to 
make clear that the burden is on the concern requesting a waiver to 
specify the ground(s) upon which the waiver is being sought and to 
demonstrate that it has met the ground(s). The Agency is not expected 
to raise every possible basis for waiver and to then dismiss them as 
not applicable.
    The proposed rule would add a new Sec. 124.319(c). This provision 
would clarify that SBA may novate one 8(a) Program Participant for 
another (with the consent of the procuring agency) where the first 
concern cannot complete performance of an 8(a) contract, without 
seeking the approval of the Administrator under Sec. 124.317.
    Section 124.321(a) would be amended to clarify that an 8(a) concern 
seeking to joint venture with another firm must bring something of 
value to the joint venture arrangement other than its status as an 8(a) 
concern. While the regulation would continue to state that a joint 
venture agreement is permissible only where an 8(a) concern lacks the 
necessary capacity to perform the contract on its own, it would specify 
for the first time that where the 8(a) concern lacks the management, 
technical and financial capacity to perform, a joint venture will not 
be approved. An 8(a) concern may be lacking in one or even two of these 
areas, but cannot be totally reliant on its proposed joint venture 
partner. The purpose of permitting joint ventures is to enable an 8(a) 
firm to gain experience and know-how so that it can become self-reliant 
in the future. If all an 8(a) concern will gain from the relationship 
is a profit, without developing its own capabilities in any way, the 
joint venture will not be approved.
    Proposed Sec. 124.321(c)(3) would clarify that a joint venture can 
be made up of two or more 8(a) concerns without any one firm receiving 
at least 51 percent of the net profits earned by the joint venture. In 
particular, a 50/50 joint venture arrangement between two 8(a) concerns 
would be expressly authorized, provided the other regulatory 
requirements were met.
    The rule would make minor clarification changes in Sec. 124.321(d) 
to recognize the possibility of a joint venture made up of two or more 
8(a) concerns.
    Proposed new Sec. 124.321(i) would establish criteria relating to 
joint ventures for Small Disadvantaged Business (SDB) set-asides and 
SDB evaluation preferences. In the past, SBA has held the position that 
SBA could not establish eligibility criteria relating to joint ventures 
for the Department of Defense's SDB program. A recent decision by the 
United States Court of Federal Claims held that ``the power to 
interpret the term small business concerns . . . owned and controlled 
by socially and economically disadvantaged individuals [for purposes of 
DOD's SDB program] is wholly and exclusively within the sphere of SBA's 
authority,'' and that ``SBA has both the power and the duty to define 
the bounds of [that] phrase.'' Y.S.K. Construction Co., Inc. v. United 
States, No. 93-738 at 10, 11 (Fed.Cl. Feb. 18, 1994). This proposed 
rule attempts to implement that authority in a way that is consistent 
with the purposes of the SDB program. While the rules vary somewhat 
from those pertaining to joint ventures in the 8(a) program, the 
developmental purposes of the 8(a) program are not totally consistent 
with the purposes of the SDB program. In addition, the rule applies the 
statutory requirement that the ``majority of the earnings of [an SDB 
contract] directly accrue to [disadvantaged] individuals.'' Pub. L. 99-
661, Sec. 1207(a)(1). Therefore, although an 8(a) concern that is 51 
percent owned and controlled by disadvantaged individuals can joint 
venture with a 100 percent nondisadvantaged concern for a particular 
8(a) contract (provided the 8(a) joint venture requirements are met), 
an SDB concern that is 51 percent owned and controlled by disadvantaged 
individuals cannot joint venture with a 100 percent nondisadvantaged 
concern for a particular SDB contract. In such a case, a majority of 
the earnings of the SDB contract could not accrue directly to 
disadvantaged individuals.
    Section 124.501 would be amended by adding a new paragraph ``(c)'' 
and redesignating current paragraph ``(c)'' as paragraph ``(d).'' The 
newly established Sec. 124.501(c) would require the submission of 
annual audited financial statements by 8(a) Program Participants.
    This proposed rule would also add a new Sec. 124.611 that would 
make SBA Small Disadvantaged Business status decisions issued pursuant 
to Sec. 7(j)(11)(F)(vii) of the Small Business Act, 15 U.S.C. 
636(j)(11)(F)(vii), available in full text. The decisions would be 
available for review in the law library located in SBA's central 
office. This new section would implement the requirements imposed by 
section 221 of the Small Business Credit and Business Opportunity 
Enhancement Act of 1992, Pub. L. 102-366, 106 Stat. 986, 999.

Compliance With Executive Orders 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    This rule was not reviewed under Executive Order 12866.
    SBA certifies that this proposed rule would not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. This 
rule is necessary to resolve several points relating to eligibility for 
SBA's Section 8(a) program and the procedures relating to appeals of 
denials of eligibility. It would also clarify/amend the requirements by 
which an 8(a) concern could obtain an exemption to the Miller Act bond 
requirements. The contracting opportunities offered to the 8(a) program 
should not be affected by this proposed rule. Whether a particular 8(a) 
concern would be eligible for participation in or, once in, could 
receive a bond exemption (and, therefore, whether it, as opposed to 
another 8(a) concern, would be awarded a particular 8(a) contract) 
could be affected by the rule. The rule would have no effect, however, 
on the amount or dollar value of any contract requirement or the number 
of such requirements reserved for the 8(a) program. Therefore, it is 
not likely to have an annual economic effect of $100 million or more, 
result in a major increase in costs or prices, or have a significant 
adverse effect on competition or the United States economy.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this proposed rule, if adopted in final form, would 
contain no new reporting or record keeping requirements.
    For purposes of Executive Order 12612, SBA certifies that this rule 
would not have any federalism implications warranting the preparation 
of a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects

13 CFR Part 121

    Government procurement; Government property; Grant programs--
business; Loan programs--business; Small businesses.

13 CFR Part 124

    Government procurement; Hawaiian natives; Minority businesses; 
Reporting and record keeping requirements; Technical assistance; 
Tribally-owned concerns.
    For the reasons set forth above, SBA hereby proposes to amend part 
121 of Title 3, Code of Federal Regulations, and subpart A, part 124 of 
Title 13, Code of Federal Regulations (CFR), as follows:

PART 121--[AMENDED]

    1. The authority citation for 13 CFR Part 121 would continue to 
read as follows:

    Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and 
Pub. L. 102-486, 106 Stat. 2776, 3133.

    2. Section 121.906(b)(1)(iv) would be revised to read as follows:


Sec. 121.906  Manufactured products under small business set-aside 
procurements.

* * * * *
    (b) * * *
    (1) * * *
    (iv) Represents that it will furnish an end product that was 
manufactured or produced in the United States, unless the procuring 
agency makes a non-availability determination pursuant to 
Sec. 25.102(a)(4) of the Federal Acquisition Regulations.
* * * * *


Sec. 121.1103  [Amended]

    3. Section 121.1103(b) would be amended by adding the words ``sole 
source or competitive'' after the word ``particular'' and before the 
phrase ``section 8(a) contract.''
    4. Section 121.1104 would be amended by revising paragraph (a), the 
introductory text of paragraphs (b) and (b)(2), and paragraph (f) to 
read as follows:


Sec. 121.1104  Section 8(a) self-certification.

    (a)(1) After SBA has notified a procuring agency in writing that it 
has accepted a requirement for the 8(a) program, the 8(a) concern shall 
certify that it is a small business for the purpose of performing that 
particular contract (by certifying that it is small with respect to the 
size standard corresponding to the SIC code assigned to the 
requirement) at the time it submits its initial offer including price 
to the procuring agency for that contract.
    (2) Size certifications occurring prior to SBA's acceptance of a 
requirement for the 8(a) program shall have no effect.
    (i) Where a procuring agency conducts an 8(a) competition without 
first obtaining SBA's acceptance of the requirement for the 8(a) 
program, any size certification made in response to the solicitation 
issued by the procuring agency shall have no effect.
    (ii) Where a procuring agency negotiates directly with an 8(a) 
Program Participant for a sole source 8(a) requirement, any size 
certification occurring prior to SBA's acceptance of the requirement 
for the 8(a) program shall have no effect.
    (b) Once a procuring agency has determined that award of a sole 
source or competitive contract should be made to a particular 8(a) 
Program Participant, SBA shall verify that the selected concern is 
small as of the date of its initial offer including price.
    (1) * * *
    (2) Where SBA verifies that the selected 8(a) concern is small for 
a particular procurement, changes in size subsequent to the concern's 
self-certification (i.e., changes occurring between the date of 
certification and the date of award), except those due to merger with 
or acquisition by another business concern, will not affect the 
concern's size status as it relates to that procurement.
    (i) * * *
* * * * *
    (f) Where the selected 8(a) concern does not timely request a 
formal size determination, SBA (1) in connection with a sole source 
8(a) requirement, may accept the procurement in support of another 8(a) 
concern, or may return the procurement from the 8(a) program, as 
appropriate, or (2) in connection with a competitive 8(a) requirement, 
shall notify the procuring agency of its determination and shall 
request that it select another apparent successful offeror.
    5. Section 121.1106(b)(1)(iv) would be revised to read as follows:


Sec. 121.1106  Manufactured products under section 8(a) contracts.

* * * * *
    (b) * * *
    (1) * * *
    (iv) Represents that it will furnish an end product that was 
manufactured or produced in the United States, unless the procuring 
agency makes a non-availability determination pursuant to 
Sec. 25.102(a)(4) of the Federal Acquisition Regulation.
* * * * *


Sec. 121.1703  [Amended]

    6 Section 121.1703(b) would be amended by adding the words ``sole 
source or competitive'' after the word ``particular'' and before the 
words ``8(a) contract.''

PART 124--[AMENDED]

Subpart A--Minority Small Business and Capital Ownership 
Development

    7. The authority citation for part 124 would be revised to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub. 
L. 99-661, sec. 1207, Pub. L. 100-656, Pub. L. 101-37, and Pub. L. 
101-574.


Sec. 124.7  [Amended]

    8. Section 124.7(b) would be amended by removing paragraph (b)(1) 
and by redesignating paragraph (b)(2) as paragraph (b).
    9. Section 124.100 would be amended by removing the terms ``Local 
buy item'' and ``National buy item'', and by adding, in alphabetical 
order, the following new definitions for the terms ``Clear and 
convincing evidence'', ``Community Development Corporation or CDC'', 
and ``CDC-owned concern'':


Sec. 124.100  Definitions.

* * * * *
    CDC-owned concern means any concern at least 51 percent owned by a 
Community Development Corporation as defined in this section.
* * * * *
    Clear and convincing evidence means an abiding conviction that the 
truth of the factual contentions is highly probable.
    Community Development Corporation or CDC means a nonprofit 
organization responsible to residents of the area it serves which has 
received financial assistance under 42 U.S.C. 9805 et sq.
* * * * *
    10. Section 124.100 would be further amended by adding the new 
definition ``Unconditional ownership'' to read as follows:


Sec. 124.100  Definitions.

* * * * *
    Unconditional ownership * * * The pledge of stock or other 
ownership interest in an applicant or 8(a) concern as collateral under 
normal commercial conditions does not affect a disadvantaged owner's 
``unconditional'' ownership in such concern.
    11. Section 124.101 would be amended by revising paragraph (a) and 
the first sentence of paragraph (b) to read as follows:


Sec. 124.101   The 8(a) program: General eligibility.

    (a) In order to be eligible to participate in the 8(a) program, an 
applicant concern and an individual upon whom eligibility is based must 
meet all of the eligibility criteria set forth in Secs. 124.102 through 
124.109. An applicant concern owned and controlled by an Indian tribe 
must meet the requirements set forth in Sec. 124.112 and in 
Secs. 124.102 through 124.109 as applicable. An applicant concern owned 
and controlled by a Native Hawaiian Organization must meet the 
requirements set forth in Sec. 124.113 and in Secs. 124.102 through 
124.109 as applicable. An applicant concern owned and controlled by a 
Community Development Corporation must meet the requirements set forth 
in Sec. 124.114 and in Secs. 124.102 through 124.109 as applicable.
    (1) An applicant concern's eligibility will be based on whether the 
concern meets each of SBA's eligibility criteria at the time the 
concern's completed application for admission to the 8(a) program is 
sent to the Office of MSB&COD for processing or, in the case of a 
request for reconsideration, at the time the reconsideration 
application is deemed to be complete by SBA's Central Office. SBA, in 
its sole discretion, may, however, request clarification of information 
contained in the application or request for reconsideration at any time 
in the application process.
    (i) SBA will consider only additional information submitted by an 
applicant in response to an SBA request for clarification. Changes in 
an applicant concern that SBA becomes aware of between the date of 
application (or request for reconsideration) and the decision of the 
AA/MSB&COD that adversely affect the applicant's eligibility for 8(a) 
program participation will be considered and constitute grounds for 
decline.
    (ii) The decision of the AA/MSB&COD to approve or decline an 
application for 8(a) program admission shall be based on whether the 
application, as clarified by any information submitted in response to a 
request by SBA, demonstrates that the applicant concern complies with 
each of SBA's eligibility criteria.
    (2) All determinations made by the AA/MSB&COD concerning the 
eligibility of an applicant concern for participation in the 8(a) 
program shall be in writing, setting forth the findings based on 
relevant facts and in accordance with applicable law and regulations.
    (3) An applicant concern which is declined 8(a) program admission 
may request a reconsideration of such decline, as set forth in 
Sec. 124.206.
    (i) If the application is declined on reconsideration based solely 
on a negative finding of social disadvantage, economic disadvantage, 
ownership or control, such decline may be appealed by an unsuccessful 
applicant to the SBA's Office of Hearings and Appeals.
    (ii) If no reconsideration is sought, or if after reconsideration 
the application is declined based in whole or in part on a ground other 
than a negative finding of social disadvantage, economic disadvantage, 
ownership or control, the written decline of the AA/MSB&COD is final 
and not subject to appeal.
    (4) The procedures by which an applicant concern may appeal the AA/
MSB&COD's denial of 8(a) program admission to SBA's Office of Hearings 
and Appeals, and the grounds for which such an appeal may be brought, 
are set forth in Sec. 124.210 and part 134 of this title. Where such an 
appeal is brought, the written decision of the Office of Hearings and 
Appeals shall be the final Agency decision.
    (5) A concern which has been declined for 8(a) program admission 
must wait at least 12 months from the date of the final Agency decision 
before it can reapply for program admission.
    (b) In order to continue its participation in the 8(a) program, a 
Program Participant must continue to meet all eligibility requirements 
described in Secs. 124.102 through 124.109, Sec. 124.111(a), and 
Sec. 124.112, Sec. 124.113 or Sec. 124.114, Pif applicable. * * *
* * * * *
    12. Section 124.102(a) would be revised to read as follows:


Sec. 124.102   Small business concern.

    (a) In order to be approved for participation in the 8(a) program, 
an applicant concern must qualify as a small business concern as 
defined in part 121 of this title. The particular size standard to be 
applied will be based on the primary industry classification of the 
applicant concern. The size of a tribally-owned concern, a concern 
owned by a Native Hawaiian Organization, or a concern owned by a 
Community Development Corporation shall be additionally determined by 
reference to Sec. 124.112, Sec. 124.113 or Sec. 124.114, respectively.
* * * * *
    13. Section 124.103 would be amended by revising the introductory 
text, redesignating current paragraphs (a) through (j) as paragraphs 
(b) through (k), respectively, adding a new paragraph (a), revising 
newly redesignated paragraph (g) and the first sentence of newly 
redesignated paragraph (i), adding a new sentence at the end of newly 
redesignated paragraph (j), and by adding new paragraphs (l) and (m) as 
follows:


Sec. 124.103   Ownership requirements.

    Except for concerns owned by Indian tribes, Alaska Native 
Corporations, Native Hawaiian Organizations, or Community Development 
Corporations, as defined in Sec. 124.100, in order to be eligible to 
participate in the 8(a) program, an applicant concern must be at least 
51 percent unconditionally owned by an individual(s) who is a citizen 
of the United States (specifically excluding permanent resident 
alien(s)) and who is determined by SBA to be socially and economically 
disadvantaged. Special ownership requirements for concerns owned by 
Indian tribes and Alaska Native Corporations are set forth in 
Sec. 124.112. Ownership requirements for Native Hawaiian Organizations 
are set forth in Sec. 124.113. Ownership requirements for Community 
Development Corporations are set forth in Sec. 124.114.
    (a) Ownership of an applicant or 8(a) concern by one or more 
disadvantaged individuals must be direct ownership.
    (1) An applicant concern owned by another business entity that is 
owned and controlled by one or more disadvantaged individuals does not 
meet the requirement that it be owned by disadvantaged individuals.
    (2) An applicant concern that is owned by a trust which is in turn 
owned and controlled by a disadvantaged individual does not meet the 
requirement that it be owned by disadvantaged individuals.
* * * * *
    (g) The individuals determined to be disadvantaged in one 8(a) 
concern, their immediate family members residing in the same household, 
and the 8(a) concern itself may not hold, in the aggregate, more than a 
10 percent equity ownership interest in any other single 8(a) concern.
    (h) * * *
    (i) A non-8(a) concern in the same or similar line of business is 
prohibited from having an equity ownership interest in an 8(a) concern 
which exceeds 10 percent, except that a former Program Participant may 
have an equity ownership interest of up to 20 percent in a current 8(a) 
concern in the same or similar line of business. * * *
    (j) * * * While SBA approval must be obtained, the substitution of 
one disadvantaged individual for another disadvantaged individual 
within an 8(a) concern that was awarded one or more 8(a) contracts does 
not require termination of those contracts under Sec. 124.317 of these 
regulations or a request for waiver of that termination requirement.
    (k) * * *
    (l) The ownership interests of business concern and its 
principal(s) are considered to be aggregated in determining whether a 
non-disadvantaged individual or business concern exceeds the 10 percent 
equity ownership limitations (or, in the case of a former Program 
Participant, the 20 percent equity ownership limitations) established 
by this section and Sec. 124.104.
    (m) In determining the respective ownership interests in an 
applicant concern, or in a Program Participant once admitted to the 
program, SBA considers applicable state community property laws.
    (1) In a community property state, even when only one spouse's name 
appears on a document of title or stock certificate, both spouses are 
considered to have one-half interest in that property as long as the 
property is acquired, earned, or accumulated during the course of the 
marriage.
    (2) If SBA determines that the stock or assets of an 8(a) applicant 
concern are held as community property, and if only one spouse 
demonstrates disadvantaged status, SBA shall require as a condition of 
demonstrating or maintaining eligibility, the transfer by the non-
disadvantaged spouse or his/her ownership interest to the disadvantaged 
spouse. Such a transfer must be in an amount sufficient for the 
disadvantaged spouse to meet the minimum 51% unconditional ownership 
requirement for 8(a) program eligibility.
    Example 1. Title to 8(a) applicant concern A is 100% in the name of 
Mrs. X (an individual determined to be socially and economically 
disadvantaged). Mr. X is a non-disadvantaged individual. Mr. and Mrs. X 
reside in a community property state and concern A is determined to be 
community property. By operation of law, Mr. X is deemed to own 50% of 
concern A. In order to meet 8(a) eligibility requirements, Mr. X would 
have to transfer 1% of his interest in concern A to Mrs. X as non-
community property.
    Example 2. Title to 8(a) applicant B is 51% in the name of Mr. Y 
(an individual determined to be socially and economically 
disadvantaged) and 49% in Mr. Z (an unmarried non-disadvantaged 
individual). Mrs. Y is a non-disadvantaged individual. Mr. and Mrs. Y 
reside in a community property state and concern B is determined to be 
community property. By operation of law, Mrs. Y is deemed to own 25.5% 
of concern B. In order to meet 8(a) eligibility requirements, Mrs. Y 
would have to transfer all 25.5% of her interest in concern B to Mr. Y 
as non-community property.
    14. Section 124.104 would be amended by revising the introductory 
text, paragraphs (a)(2) through (a)(4), paragraph (b), the introductory 
text of paragraph (c), paragraph (c)(2), and paragraph (d)(3) to read 
as follows:


Sec. 124.104  Control and management.

    Except for concerns owned by Indian tribes, Alaska Native 
Corporations, Native Hawaiian Organizations, or Community Development 
Corporations, as defined in Sec. 124.100, an applicant concern's 
management and daily business operations must be conducted by an 
owner(s) of the applicant concern who has (have) been determined to be 
socially and economically disadvantaged. (See Sec. 124.112 for the 
requirements for tribally-owned entities and those owned by ANCs). In 
the case of an applicant concern owned by a Native Hawaiian 
Organization, the concern's management and daily business operations 
must be conducted by one or more Native Hawaiian individuals. In the 
case of a concern owned by a Community Development Corporation, the 
concern's management and daily business operations must be conducted by 
one or more individuals determined to be socially and economically 
disadvantaged. In order for a disadvantaged individual to be found to 
control the concern, that individual must have managerial or technical 
experience and competency directly related to the primary industry in 
which the applicant concern is seeking certification. The application 
must demonstrate that the applicant concern is actually controlled and 
managed by one or more individuals determined to be socially and 
economically disadvantaged. A disadvantaged individual's unexercised 
right to cause a change in the control or management of the applicant 
concern does not satisfy this requirement, regardless of how quickly or 
easily the right could be exercised.
    (a)(1) * * *
    (2) An economically disadvantaged full-time manager must hold the 
position of President or Chief Executive Officer in the applicant or 
8(a) concern.
    (3) One or more disadvantaged individuals determined to manage the 
applicant or 8(a) concern on a full-time basis must be present and 
available during normal working hours at the place of business of the 
applicant or 8(a) concern.
    (4) Any disadvantaged individual upon whom 8(a) eligibility is 
based who is engaged in the management and daily business operations of 
the 8(a) concern and who wishes to engage in outside employment must 
notify SBA of the nature and anticipated duration of the outside 
employment and obtain the written approval of SBA prior to engaging in 
such employment. SBA will review any request for outside employment for 
compliance with the requirement of day-to-day management and control of 
the 8(a) concern. SBA will deny a request for outside employment which 
could conflict with the management of the firm or could hinder it in 
achieving the objectives of its business development plan.
    (b) The socially and economically disadvantaged individual(s) upon 
whom eligibility is based shall control the Board of Directors of an 
applicant or 8(a) concern, either in actual numbers of voting directors 
or through weighted voting (e.g., in a concern having a two-person 
Board of Directors where one individual on the Board is disadvantaged 
and one is not, the disadvantaged vote must be weighted--worth more 
than one vote--in order for the concern to be eligible for 8(a) 
participation).
    (1) The powers to appoint, remove, and replace directors (e.g., 
through ownership of voting stock) is not sufficient to satisfy the 
requirement that one or more disadvantaged individuals actually control 
the Board of Directors.
    (2) Non-voting, advisory, or honorary Directors may be appointed 
without affecting the control of the applicant or 8(a) concern to allow 
the firm to have a varied and experienced Board of Directors, provided 
they cannot negatively control the concern.
    (3) All arrangements regarding the structure and voting rights of 
the Board of Directors must comply with applicable state law.
    (c) Individuals who are not socially and economically disadvantaged 
may be involved in the management of an 8(a) applicant concern, and may 
be stockholders, partners, officers, and/or directors of such concern. 
Such partners, officers, directors, and/or more than 10 percent 
stockholders of the applicant concern, their spouses or immediate 
family members who reside in the individual's household may not 
however:
* * * * *
    (2) Have an equity ownership interest of more than 10 percent in an 
applicant or 8(a) concern where such individual is an officer or 
director or more than a 20 percent owner, stockholder, or partner of 
another firm in the same or similar line of business as the applicant 
or 8(a) concern, except that a principal of a former Program 
Participant may have an equity ownership interest of up to 20 percent 
in a current 8(a) concern in the same or similar lines of business as 
the former Program Participant.
* * * * *
    (d) * * *
    (3) The nondisadvantaged individual or entity provides critical 
financing or bonding support to the 8(a) concern which directly or 
indirectly allows the nondisadvantaged individual to gain control or 
direction of the 8(a) concern.
* * * * *
    15. Section 124.105(c)(1) would be amended by redesignating the 
second sentence and remaining text as paragraph (c)(2) and by revising 
paragraphs c)(1), introductory text of newly redesignated (c)(2) and 
newly redesignated paragraph (c)(2)(v) to read as follows:


Sec. 124.105  Social disadvantage.

* * * * *
    (c) Individuals not members of designated groups. (1) An individual 
who is not a member of one of the groups presumed to be socially 
disadvantaged in paragraph (b)(1) of this section must establish his/
her individual social disadvantage on the basis of clear and convincing 
evidence.
    (2) A clear and convincing case of social disadvantage must include 
the following elements:
* * * * *
    (v) The individual's social disadvantage must have negatively 
impacted on his or her entry into and/or advancement in the business 
world. SBA will entertain any relevant evidence in assessing this 
element. In every case, however, SBA will consider the experiences of 
the individual, where applicable, in education, employment and business 
history. Failure to establish disadvantage in any one of these 
components will not prevent an individual from meeting this requirement 
as long as the totality of the circumstances experienced by the 
individual demonstrates his/her disadvantage in entering into and/or 
advancing in the business world.
* * * * *
    16. Section 124.106 would be amended by revising the last sentence 
of paragraph (a)(1)(i), by changing ``$250,000'' to ``$300,000'' in 
paragraph (a)(2)(i), by changing ``$750,000'' to ``$900,000'' in 
paragraph (b)(2), by revising the fifth sentence of paragraph 
(a)(2)(i)(A)(1), by revising paragraph (a)(2)(ii), and by revising 
paragraph (b)(1), introductory text, to read as follows:


Sec. 124.106  Economic disadvantage.

    (a) Economic disadvantage for the 8(a) program.
    (1)(i) * * * In determining economic disadvantage for purposes of 
8(a) program eligibility, SBA will compare the applicant concern's 
business and financial profile with the profiles of other small 
business concerns in the same business area which are not owned and 
controlled by socially and economically disadvantaged individuals.
* * * * *
    (2) * * *
    (i) * * *
    (A)(1) * * * Assets which an individual claiming disadvantaged 
status has transferred to a non-applicant immediate family member (or 
to a trust the beneficiary of which is an immediate family member) 
within two years of the date of application to the 8(a) program will be 
presumed to be the property of the individual claiming disadvantaged 
status for purposes of determining his/her personal net worth. However, 
such presumption shall not apply to transfers to a spouse who is 
subject to a legal separation recognized by a court of competent 
jurisdiction. * * *
* * * * *
    (ii) Business financial condition. This criterion will be used to 
provide a financial picture of a firm at a specific point in time in 
comparison to other small concerns in the same business area which are 
not owned and controlled by socially and economically disadvantaged 
individuals. For purposes of this comparison, concerns in the same 
business area are those which are primarily engaged in the same four-
digit Standard Industrial Classification (SIC) code. SBA will rely on 
published data showing business and financial profiles of similarly 
sized businesses operating within the same four-digit SIC code as the 
applicant, except where such data is not reasonably available. In such 
a case SBA may rely on published data pertaining to small business 
concerns in closely related four-digit SIC code(s) to derive the 
comparative profiles. In evaluating a concern's financial condition, 
SBA's consideration will include, but not be limited to, the following 
information: business assets, revenues, pre-tax profit, working 
capital, and net worth of the concern (including the value of the 
investments in the concern held by the individual claiming 
disadvantaged status).
* * * * *
    (b) * * * (1) For purposes of the section 8(d) Subcontracting 
Program, Small Disadvantaged Business set-asides, Small Disadvantaged 
Business Evaluation preferences, and other programs requiring SBA's 
determination of disadvantaged status, SBA will consider the same 
information and factors set forth in paragraph (a) of this section, but 
will apply standards to each factor that are less restrictive than 
those applied when determining economic disadvantage for purposes of 
the 8(a) program. This approach reflects the Congressional intent that 
partial or complete achievement of a concern's 8(a) program business 
development goals should not necessarily preclude its participation in 
other Federal procurement programs for concerns owned and controlled by 
socially and economically disadvantaged individuals.
    (2) * * *
    17. Section 124.107(b) would be revised to read as follows;


Sec. 124.107  Potential for success.

* * * * *
    (b) In determining whether a concern has the requisite potential 
for success to be admitted into the 8(a) program, SBA will look at a 
number of factors including, but not limited to, the technical and 
managerial experience and competency of the applicant concern's 
managers and of the concern as a whole, the financial capacity of the 
applicant concern and the concern's record of performance on previous 
Federal and private sector contracts in the primary industry in which 
the concern is seeking 8(a) certification. While the individual(s) upon 
whom eligibility is based need not possess both management and 
technical capabilities pursuant to Sec. 124.104, the applicant concern 
as a whole must demonstrate both technical know-how in the primary 
industry in which the concern is seeking 8(a) certification and 
management experience sufficient to run its day-to-day operations. SBA 
will examine each of these factors to determine whether an otherwise 
eligible applicant concern has the potential to successfully perform 
subcontracts awarded under the 8(a) program and to meet the business 
development objectives and goals of the program.
* * * * *
    18. Section 124.108 would be amended by adding the following new 
paragraph (d)(3):


Sec. 124.108  Additional 8(a) program eligibility requirements.

* * * * *
    (d) * * *
    (3) An applicant concern seeking admission to the 8(a) program as a 
regular dealer need not demonstrate that it is capable of meeting the 
requirements of the non-manufacturer rule (see 13 CFR 121.1106(b)) for 
its primary industry classification.
* * * * *
    19. Section 124.109 would be amended by revising paragraphs (d) and 
(e), and by adding a new paragraph (f), to read as follows:


Sec. 124.109  Ineligible businesses.

* * * * *
    (d) Non-profit organizations. A non-profit organization does not 
meet the general definition of a concern as set forth in part 121 and 
Sec. 124.100 of these regulations and is, therefore, ineligible for 
8(a) program participation. In addition, a business entity owned by a 
non-profit organization is not eligible for 8(a) program participation 
because such a concern does not meet the requirement of being owned and 
controlled by disadvantaged individuals. Nothing in this paragraph 
affects the eligibility of a for-profit concern owned and controlled by 
an Indian tribe, including an Alaskan Native Corporation, a Native 
Hawaiian Organization or a Community Development Corporation (see 
Secs. 124.112, 124.113, and 124.114).
    (e) Concerns owned by other concerns. An 8(a) applicant concern 
which is owned by another business concern, even where that ``parent'' 
concern is itself owned and controlled by disadvantaged individuals, 
may not be admitted to the 8(a) program because the applicant concern 
would not be owned by disadvantaged individuals. Nothing in this 
section is intended to affect the eligibility of joint ventures for 
specific 8(a) procurement requirements that are authorized pursuant to 
Sec. 124.321.
    (f) Parole or probation. An applicant to the 8(a) program is 
ineligible for program participation if the proprietor, or a holder of 
at least 20 percent of the stock, or a partner, officer, director, or 
other persons, including hired managers, who have or will have the 
authority to speak for and commit the concern in the management of its 
business affairs, is currently incarcerated, on parole or on probation 
either pursuant to a pre-trial diversion or following conviction of a 
serious offense.
    20. Section 124.110 would be amended by revising the first three 
sentences of paragraph (a) and by revising paragraph (b) to read as 
follows:


Sec. 124.110  Program term.

    (a) Each concern certified for participation in the 8(a) program 
shall receive a Program Term of nine years from the date of such 
certification. The term will consist of two stages: the developmental 
stage, which lasts four years, and the transitional stage, which lasts 
five years. These stages are described in Sec. 124.303. * * *
    (b) Once a Program Term has been established in accordance with 
this section, SBA is statutorily prohibited from extending such term 
beyond the specified expiration date.
    21. Section 124.111 would be amended by revising paragraphs (a)(2) 
and (c)(5) to read as follows:


Sec. 124.111  Continued 8(a) program eligibility.

    (a) * * *
    (2) In order for a Program Participant to maintain continued 8(a) 
program eligibility, the net worth of an individual claiming to be 
socially and economically disadvantaged cannot exceed $900,000, as 
calculated pursuant to Sec. 124.106(a)(2)(i). An individual whose 
personal net worth exceeds $900,000, as calculated pursuant to 
Sec. 124.106(a)(2)(i), will not be considered economically 
disadvantaged.
* * * * *
    (c) * * *
    (5) If SBA determines, pursuant to paragraph (c)(4) of this 
section, that funds or assets have been withdrawn to the detriment of 
the achievement of the targets, objectives and goals of the 
Participant's business plan, or to the detriment of its overall 
business development, SBA shall initiate a termination proceeding under 
Sec. 124.209 or shall require an appropriate reinvestment of funds or 
other assets and such other actions as SBA may deem necessary to 
counteract the detrimental withdrawals as a condition of maintaining 
8(a) program eligibility. The mere fact that a concern's net worth has 
increased despite withdrawals that are deemed excessive will not 
preclude SBA from determining that such withdrawals were detrimental to 
the attainment of the concern's business objectives or to its overall 
business development.
* * * * *
    22. Section 124.112 would be amended by revising paragraphs 
(c)(2)(iv)(A) through (C) to read as follows:


Sec. 124.112  Concerns owned by Indian tribes, including Alaska Native 
Corporations.

* * * * *
    (c) * * *
    (2) * * *
    (iv) During its Program Term, a tribally-owned Program Participant 
may, for up to five 8(a) contracts, be a party to a joint venture which 
exceeds the applicable size standard, if the tribally-owned Program 
Participant:
    (A) Owns and controls 51 percent or more of the joint venture;
    (B) Is located on the reservation of or land owned by the tribe;
    (C) Performs most of its activities generally on such reservation 
or tribally-owned land; and
    (D) * * *
* * * * *
    23. Section 124.113 would be amended by redesignating the current 
text as paragraph (a) and by adding the following new paragraphs (b) 
through (d) to read as follows:


Sec. 124.113  Concerns owned by Native Hawaiian Organizations.

    (a) * * *
    (b) A concern owned by a Native Hawaiian Organization must qualify 
as a small business concern as defined for purposes of Government 
procurement in part 121 of this title. The particular size standard to 
be applied shall be based on the primary industry classification of the 
applicant concern. Ownership by the Native Hawaiian Organization will 
not, in and of itself, cause affiliation with the Native Hawaiian 
Organization or with other entities owned by the Native Hawaiian 
Organization. However, affiliation with the Native Hawaiian 
Organization or with other entities owned by the Native Hawaiian 
Organization may be caused by circumstances other than common 
ownership.
    (c) No Native Hawaiian Organization shall own more than one current 
or former 8(a) Program Participant having the same primary industry 
classification.
    (d) SBA does not deem an individual involved in the owned by the 
Native Hawaiian Organization to have used his or her individual 
eligibility within the meaning of Sec. 124.108(c).
    24. A new section 124.114 would be added to read as follows:


Sec. 124.114  Concerns owned by Community Development Corporations.

    (a) Concerns owned by Community Development Corporations (CDCs) as 
defined in Sec. 124.100 are eligible for participation in the 8(a) 
program and other federal programs requiring SBA to determine social 
and economic disadvantage as a condition of eligibility. Such concerns 
must meet all eligibility criteria set forth in Secs. 124.102 through 
124.109 and Sec. 124.111(a) of this part.
    (b) A concern owned by a CDC must qualify as a small business 
concern as defined for purposes of Government procurement in part 121 
of this title. The particular size standard to be applied shall be 
based on the primary industry classification of the applicant concern. 
Ownership by the CDC will not, in and of itself, cause affiliation with 
the CDC or with other CDC-owned entities. However, affiliation with the 
CDC or other CDC-owned entities may be caused by circumstances other 
than common CDC ownership.
    (c) No CDC shall own more than one current or former 8(a) Program 
Participant having the same primary industry classification.
    (d) SBA does not deem an individual involved in the management or 
daily business operations of a CDC-owned concern to have used his or 
her individual eligibility within the meaning of Sec. 124.108(c).


Sec. 124.201  [Amended]

    25. Section 124.210 would be amended by removing the second 
sentence.
    26. Section 124.202 would be amended by revising the last sentence 
and by adding a new sentence at the end of the section to read as 
follows:


Sec. 124.202  Place of filing.

    * * * An 8(a) application will be processed by the appropriate SBA 
field office of the Certification and Eligibility Branch. A request for 
reconsideration shall be made directly to the AA/MSB&COD at 409 Third 
Street, S.W., Washington, DC. 20416.
    27. Section 124.206 would be amended by removing the first two 
sentences of paragraph (a), by adding four sentences to the beginning 
of paragraph (a) and one sentence to the end of paragraph (a), by 
removing the first two sentences of paragraph (c)(1), and by adding 
three sentences to the beginning of paragraph (c)(1) to read as 
follows:


Sec. 124.206  Approval and decline of applications for 8(a) program 
admission.

    (a) General. The AA/MSB&COD is authorized to approve or decline 
applications for admission to the 8(a) program. The decision of the AA/
MSB&COD to approve or decline an application shall be based on whether 
the application demonstrates that an applicant concern complies with 
each of SBA's eligibility criteria at the time of the application or at 
the time of any request for reconsideration. A denial of program 
admission based on a finding that the individual(s) claiming social and 
economic disadvantage is (are) not socially and/or economically 
disadvantaged and/or that such individual(s) does (do) not own and/or 
does (do) not control the applicant concern, may be appealed to SBA's 
Office of Hearings and Appeals (OHA). Any such appeal must be based 
upon the circumstances which existed and were disclosed to SBA at the 
time the application or request for reconsideration was forwarded to 
SBA's Central Office for processing. * * * Incomplete application 
packages will not be processed. The appropriate field office shall 
notify the applicant concern when it has forwarded the application to 
SBA's Central Office of a final decision.
    (b) * * *
    (c) Decline. * * *
    (1) Reconsideration. Every applicant has the right to request that 
the AA/MSB&COD reconsider his/her decline decision. Such request must 
be made in writing by certified mail, return receipt requested, within 
45 days of the date the decline letter is mailed. The decline letter 
shall inform the applicant to whom a request for reconsideration must 
be made. As part of the reconsideration request, the applicant should 
include any additional information and documentation pertinent to 
overcoming the reason(s) for the initial decline. * * *
    (2) * * *
* * * * *
    28. Section 124.208 would be amended by removing paragraph (c)(2), 
by redesignating paragraph (c)(3) as paragraph (c)(2), and by revising 
newly redesignated paragraph (c)(2) to read as follows:


Sec. 124.208  Program graduation.

* * * * *
    (c) * * *
    (2) Recommendation of the Division. Following the 45 day response 
period, the Division Director will consider the facts of the proposed 
graduation, including all information submitted by the Participant. The 
Division Director shall make a recommendation in writing, as to whether 
or not graduation is appropriate, to the AA/MSB&COD within 45 days of 
the close of the response period. If he/she seems it necessary, the 
Division Director may request additional information from the 
Participant.
* * * * *
    29. Section 124.209 would be amended by removing paragraph (b)(2), 
by redesignating paragraph (b)(3) as paragraph (b)(2), and by revising 
newly redesignated paragraph (b)(2) to read as follows:


Sec. 124.209  Program termination.

* * * * *
    (b) * * *
    (2) Recommendation of the Division. Following the 45 day response 
period, the Division Director will have 45 days to consider the facts 
of the proposed termination, including all information submitted by the 
Participant. The Division Director may, if he/she deems it necessary, 
request additional information from the Participant. If the grounds for 
the proposed termination continue to exist, the Division Director shall 
recommend in writing to the AA/MSB&COD that the Participant be 
terminated.
* * * * *
    30. Section 124.210 would be amended by revising paragraph (h)(2) 
and adding the following new paragraph (k) at the end as follows:


Sec. 124.210  Appeals to SBA's Office of Hearings and Appeals.

* * * * *
    (h)(1) * * *
    (2) If the Administrative Law Judge determines that, due to the 
absence in the written administrative record of the reasons upon which 
the determination in question was based, such administrative record is 
insufficiently complete to decide whether the determination is 
arbitrary and capricious or contrary to law, the case shall be remanded 
by the Administrative Law Judge to the AA/MSB&COD for further 
consideration in accordance with the terms of such remand. The AA/
MSB&COD shall issue a revised decision in accordance with the remand 
order within 10 working days of the remand, unless the AA/MSB&COD 
requests and the Administrative Law Judge grants an extension thereof. 
An applicant or 8(a) concern may appeal the AA/MSB&COD's remand 
decision to OHA within 20 working days of the date that the decision is 
mailed. The failure of an applicant to file an appeal within the 20-day 
time frame would serve to make the remand decision the final agency 
decision and would not require any further action by OHA.
    (3)(i) * * *
    (k)(1) At any time after a written decision has been issued and 
upon notice to all parties to the proceeding, the Administrative Law 
Judge may, on his/her own initiative, reopen the proceeding and enter a 
new decision confirming, modifying, or setting aside the decision in 
whole or in part.
    (2) Within 20 calendar days after the issuance of a written 
decision and upon notice to all parties to the proceeding, any party 
may file a petition for reconsideration of such decision. Such a 
petition may be granted only where it establishes a clear error of law 
or fact of decisional significance.
    31. Section 124.302 would be amended by revising paragraphs 
(c)(1)(i)(A) and (c)(2) to read as follows:


Sec. 124.302  Review and modification of business plan.

* * * * *
    (c) Changes in SIC code designations. (1) * * * (i)(A) A sound 
business explanation exists for obtaining the requested SIC code, 
including, for example, the acquisition of the capability to perform 
contracts in an industry, even if unrelated to the 8(a) concern's 
primary SIC code;
    (B) * * *
* * * * *
    (2) SBA will make a decision on such request within 30 days from 
the date it receives the request.
* * * * *
    32. Section 124.303 would be amended by removing the first two 
sentences of paragraph (a) and by adding two sentences to the beginning 
of paragraph (a) to read as follows:


Sec. 124.303  Stages of 8(a) program participation.

    (a) General. Program participation is divided into two stages, a 
developmental stage and a transitional stage. The developmental stage 
shall be four years and the transitional stage shall be five years 
unless the Participant has exited the program by one of the means set 
forth in Sec. 124.110. * * *


Sec. 124.303  [Amended]

    33. Section 124.303 would be further amended by removing paragraph 
(b), redesignating paragraph (c) as paragraph (b), by removing 
paragraph (b)(3) of newly redesignated paragraph (b), and by 
redesignating paragraphs (b) (4) through (7) of newly redesignated 
paragraph (b) as paragraphs (b) (3) through (6).
    34. Section 124.304 would be removed and reserved as follows:


Sec. 124.304  [Reserved]

    35. Section 124.305 would be amended by revising paragraphs (b)(3) 
and (c)(4) to read as follows:


Sec. 124.305  Statutory exemptions from the Miller Act bond 
requirements.

* * * * *
    (b) * * *
    (3) The Participant must demonstrate that it cannot obtain a bond 
for the performance of the 8(a) procurement by submitting to SBA a 
written denial from a corporate (Treasury-listed) surety.
* * * * *
    (c) * * *
    (4) No Program Participant may receive an exemption to the Miller 
Act bonding requirements under this section if it is currently 
performing two 8(a) contracts for which such a bond exemption was 
granted.
* * * * *
    36. Section 124.307 would be amended by redesignating paragraph (d) 
as paragraph (e), by adding the following new paragraph (d), and by 
adding the following new paragraph (f):


Sec. 124.307  Contractual assistance.

* * * * *
    (d) While a Program Participant's projected level of 8(a) contract 
support is required as part of its business plan under Sec. 124.302(b) 
as a planning and development tool, the level approved by SBA will not 
act as a bar to contract awards above that level so long as SBA 
determines the concern to be competent and responsible to perform any 
such contracts and the Participant is in compliance with any applicable 
competitive business mix requirement imposed by Sec. 124.312.
* * * * *
    (f)(1) The eligibility of a Program Participant, including its 
status as a small business, for a sole source or competitive 8(a) 
requirement may not be challenged by another Program Participant or any 
other party to SBA or to any other administrative forum as part of a 
bid or other contract protest.
    (2) The SIC code assigned to a sole source or competitive 8(a) 
requirement may not be challenged by another Program Participant or any 
other party to SBA or to any other administrative forum as part of a 
bid or other contract protest. Pursuant to Sec. 121.1703(b), only the 
AA/MSB&COD may appeal a SIC code designation with respect to a sole 
source or competitive 8(a) requirement, and such appeal, if initiated 
in the discretion of the AA/MSB&COD, shall be made to OHA.
    (3) Anyone with information concerning the eligibility of a Program 
Participant to continue participation in the 8(a) program may submit 
such information to SBA in accordance with Sec. 124.111(c). Similarly, 
anyone with information concerning the size eligibility of a Program 
Participant for purposes of a specific 8(a) contract may submit such 
information to the appropriate SBA field office for consideration. See 
Secs. 121.1104(b)-(d).

    37. Section 124.308 would be amended by revising the introductory 
text of paragraph (c), revising paragraph (d), the first sentence of 
paragraph, (f)(1), paragraph (f)(2), the first sentence of paragraph 
(g), and by adding a new paragraph (i), to read as follows:


Sec. 124.308  Procedures for obtaining and accepting procurements for 
the 8(a) program.

* * * * *
    (c) Offering letter. All requirements that are offered to the 8(a) 
program as competitive procurements and those sole source requirements 
that are offered to the program without nominating a specific Program 
Participant (i.e., open requirements) should be offered to SBA's 
Division of Program Development, 409 Third Street SW., Washington, DC 
20416. Sole source requirements that are offered to the 8(a) program on 
behalf of a specific Program Participant should be offered to the 
appropriate SBA district office. When a requirement is offered to the 
8(a) program, the offering letter or notification from the procuring 
agency shall contain the following information:
* * * * *
    (d) Acceptance of the requirement. Upon receipt of the procuring 
agency's offer of a procurement requirement, SBA will determine whether 
it will accept the requirement for the 8(a) program. SBA's decision 
whether to accept the requirement will be transmitted to the procuring 
agency in writing within 15 working days of receipt of the written 
offering letter, unless SBA requests, and the procuring agency grants, 
an extension. SBA is not required to accept any particular procurement 
offered to the 8(a) program.
    (1) Where SBA decides to accept an offering of a sole source 8(a) 
procurement, SBa will accept the offer both on behalf of the program 
and in support of the approved business plan of a specific 8(a) Program 
Participant.
    (2) Where SBA decides to accept an offering of a competitive 8(a) 
procurement, SBA will accept the offer for the 8(a) program generally.
    (3) SBA will not accept a requirement as a competitive 8(a) 
procurement where a competition has been conducted by a procuring 
agency prior to SBA's formal acceptance of the requirement for the 8(a) 
program and the procuring agency seeks SBA's acceptance in order to 
select an apparent successful offeror and/or transmit a contract to SBA 
for execution. Such a competition conducted without obtaining SBA's 
formal acceptance of the procurement requirement for the 8(a) program 
will not be considered an 8(a) competitive requirement. In such a case, 
SBA may accept the requirement for the 8(a) program as a competitive 
8(a) requirement, but the procuring agency would be required to use 
appropriate competition procedures again, including issuing a new 
solicitation.
    (4) Except for requirements assigned a construction SIC code by the 
procuring agency contracting officer, all competitive 8(a) requirements 
accepted by SBA may be competed among all eligible 8(a) Program 
Participants nationally. The only geographic restrictions pertaining to 
8(a) competitive requirements, other than those for construction 
requirements, would be those imposed by the solicitations themselves.
* * * * *
    (f) Open requirements. * * *
    (1) If the procurement is a construction requirement, SBA will 
examine the portfolio of 8(a) concerns for the SBA district office 
where the work is to be performed for selection of a qualified 8(a) 
concern. * * *
    (2) If the procurement is anything other than a construction 
requirement, SBA may select any eligible, responsible Program 
Participant nationally to perform the contract.
    (3) * * *
* * * * *
    (g) Formal technical evaluations. Except for the procedures 
prescribed by subpart 36.6 of the Federal Acquisition Regulations for 
architect-engineer services, SBA will not authorize formal technical 
evaluations for sole source 8(a) procurement requirements. * * *
* * * * *
    (i) Basic Ordering Agreements (BOAs). (1) For purposes of the 8(a) 
program, a Basic Ordering Agreement (BOA) is not an 8(a) contract 
award. Each order to be issued under the BOA is an individual contract. 
As such, there must be a separate offer and acceptance of each BOA 
order before it may be issued through the 8(a) program as an 8(a) 
contract award. The 8(a) Participant must be eligible to receive each 
new order at the time of the order. For example, a concern's size 
status does not relate back to the time that the BOA was executed. 
Instead, a concern must be small at the time of the issuance of each 
new order.
    (2) Once a concern's term of program participation expires, or the 
concern otherwise exits the 8(a) program, new orders cannot be issued 
through the 8(a) program because the concern is no longer eligible to 
receive new 8(a) awards.


Sec. 124.308  [Amended]

    38. Section 124.308 would be further amended by removing the words 
``approved 8(a) business support level or the'' contained in paragraph 
(e)(1)(iii).

    39. Section 124.309(c) would be revised to read as follows:


Sec. 124.309  Barriers to acceptance.

* * * * *
    (c) Adverse Impact. SBA has made a written determination that 
acceptance of the procurement for 8(a) award would have an adverse 
impact on an individual small business, a group of small businesses 
located in a specific geographical location, or other small business 
programs. The adverse impact concept is designed to protect small 
business concerns which are performing or are seeking to perform 
Government contracts awarded outside the 8(a) program.
    (1) In determining whether or not the acceptance of a requirement 
would have an adverse impact on an individual small business, SBA will 
consider all relevant factors.
    (i) In connection with an individual small business, SBA presumes 
adverse impact to exist when a small business concern has performed a 
specific requirement for at least 24 months, it is performing the 
requirement at the time it is offered to the 8(a) program or its 
performance of the requirement ended within 30 days of the procuring 
agency's offer of the requirement to the 8(a) program, and the dollar 
value of the requirement that the small business was performing is 25 
percent or more of its most recent annual gross sales (including those 
of its affiliates).
    (ii) Except as provided in paragraph (c)(2) of this section, 
adverse impact does not apply to ``new'' requirements. A new 
requirement is a requirement which has not been previously procured by 
the relevant procuring agency. Where a requirement is new, no small 
business could have performed the requirement and, thus, an impact 
determination need not be performed. Construction contracts by their 
very nature (e.g., the one-time building of a specific structure) are 
new requirements. The expansion or alteration of an existing 
requirement shall be considered a new requirement where the requirement 
is materially expanded or modified so that the ensuing requirement is 
not substantially similar to the prior requirement due to the magnitude 
of the expansion or alteration.
    (2) In determining whether or not the acceptance of a requirement 
would have an adverse impact on a group of small businesses located in 
a specific geographical location, SBA shall consider the effects of a 
procuring agency bundling various requirements being performed by two 
or more small business concerns into a larger contract which would be 
considered a ``new'' requirement because of the magnitude of its 
expansion as compared to any of the previous smaller requirements. In 
such a case, adverse impact may be found if one of the small business 
concerns meets the presumption set forth in paragraph (c)(1)(i) of this 
section.
    (3) In determining whether or not the acceptance of a requirement 
would have an adverse impact on other small business programs, SBA will 
consider all relevant factors, including but not limited to, whether or 
not SBA's acceptance of a proposed 8(a) requirement is likely to result 
in SBA taking an inordinate portion of total procurements in the 
subject industry to the detriment of the small business set-aside 
program.


Sec. 124.309  [Amended]

    40. Section 124.309 would be further amended by revising the phrase 
``a sole source 8(a) contract'' in paragraph (d) to read ``an 8(a) 
contract.''
    41. Section 124.311(a)(2) is amended by removing the following 
sentence from the end:
    ``For purposes of indefinite quantity/delivery contracts, the 
thresholds will be applied to the guaranteed minimum value of the 
contract.''
    42. Section 124.311 would be further amended by removing paragraphs 
(b) and (g), by redesignating paragraphs (c), (d), (e), (f), (h) and 
(i) as paragraphs (b), (c), (d), (e), (f) and (g), respectively, by 
adding a new paragraph (a)(3), and by revising newly redesignated 
paragraphs (d)(1), (d)(2), (f)(3), (f)(4), and (g) to read as follows:


Sec. 124.311   8(a) competition.

    (a) * * *
    (3) For all types of contracts, the applicable competitive 
threshold amounts will be applied to the procuring agency estimate of 
the total value of the contract, including all options.
* * * * *
    (d) Sole source above thresholds. * * *
    (1) SBA will not accept a construction requirement above the 
competitive threshold amount as a sole source 8(a) requirement.
    (2) For purposes of any requirement other than a construction 
requirement, SBA will accept a contract opportunity above the 
applicable competitive threshold as a sole source 8(a) requirement only 
if there are not two eligible offerors in the United States capable of 
performing the requirement at a fair price.
* * * * *
    (f) Restricted competition. (1) * * *
* * * * *
    (3) Construction competitions. Where a construction requirement 
offered to the 8(a) program exceeds the $3 million competitive 
threshold, SBA will determine, based on its knowledge of the 8(a) 
portfolio, whether the competition should be limited only to those 
Program Participants located within the geographical boundaries of one 
or more SBA district offices, an entire SBA regional office, or 
adjacent SBA regional offices. Only those Participants located within 
the appropriate geographical boundaries are eligible to submit offers.
    (4) Competition for all non-construction requirements. Except for 
construction requirements, all eligible Program Participants nationally 
may submit offers in response to solicitations for procurement 
requirements offered to the 8(a) program that exceed the applicable 
competitive threshold.
    (g) Award to firms whose program terms have expired. A concern that 
has completed its term of participation in the 8(a) program, as set 
forth in Sec. 124.110, may be awarded a competitive 8(a) contract if it 
was a Program Participant eligible for award of the contract on the 
date specified for receipt of offers contained in the contract 
solicitation.
    (1) For a negotiated procurement, so long as a Program Participant 
is eligible as of the date specified for the receipt of offers in the 
solicitation, its program term may expire after that date without 
affecting the concern's eligibility to submit revised offers, including 
a best and final offer, and receive a competitive award.
    (2) Eligibility is determined as of the initial date specified for 
the receipt of offers set forth in the solicitation without regard to 
extensions of time through amendments to the solicitation.
    (3) This provision applies equally to all 8(a) procurement 
requirements, including construction requirements.
    (4) An 8(a) procurement requirement for architect-engineer 
services, in an amount less than the competitive threshold set forth in 
Sec. 124.311(a), that uses the evaluation procedures prescribed by 
subpart 36.6 of the Federal Acquisition Regulation will not be 
considered a competitive 8(a) requirement under this section for which 
a firm whose program term has expired may be eligible.

    43. Section 124.311 would be further amended by removing the phrase 
``business support level and'' in newly redesignated paragraph (e)(4), 
by adding the word ``and'' after the semi-colon (``;'') in newly 
redesignated paragraph (e)(5)(iii), by removing newly redesignated 
paragraph (e)(5)(iv) in its entirety, by redesignating paragraph 
(e)(5)(v) as paragraph (e)(5)(iv), and by revising newly redesignated 
paragraph (e)(5)(iv) to read as follows:


Sec. 124.311   8(a) competition.

* * * * *
    (e) * * *
    (5) * * *
* * * * *
    (iv) If the firm is in the transitional stage of program 
participation, whether it has achieved its competitive business mix 
targets under Sec. 124.312, or is in compliance with a remedial plan 
that does not include the denial of future 8(a) contracts.


Sec. 124.312   [Amended]

    44. Section 124.312 would be amended by removing paragraphs (b)(4), 
(b)(5), and (b)(6) and by redesignating paragraph (b)(7) as paragraph 
(b)(4).
    45. Section 124.312 would be further amended by removing paragraphs 
(c)(2), (c)(3), and (c)(9) and by redesignating paragraphs (c)(4), 
(c)(5), (c)(6), (c)(7), (c)(8), (c)(10), (c)(11), and (c)(12) as 
paragraphs (c)(2), (c)(3), (c)(4), (c)(5), (c)(6), (c)(7), (c)(8), and 
(c)(9), respectively.
    46. Section 124.317 would be amended by revising paragraph (b)(3), 
and by adding a sentence at the end of paragraph (c) to read as 
follows:


Sec. 124.317   Performance of contracts by original 8(a) concern.

* * * * *
    (b) * * *
    (3) The individuals upon whom eligibility was based are no longer 
able to exercise control of the concern due to physical or mental 
incapacity or death; and
* * * * *
    (c) * * * The burden is on the concern requesting a waiver to 
specify the ground(s) upon which the waiver is being sought and to 
demonstrate that it has met that (those) ground(s).
* * * * *
    47. Section 124.319 would be amended by adding a new paragraph (c) 
to read as follows:


Sec. 124.319  Contract termination.

* * * * *
    (c) Substitution of one 8(a) contractor for another. Where a 
Program Participant is unable to complete performance of an 8(a) 
contract, SBA may authorize another 8(a) Participant to complete 
performance and, in conjunction with the procuring agency, novate the 
contract to the substitute Program Participant.
    48. Section 124.321 would be amended by revising the second 
sentence of paragraph (a), by adding a new sentence after the second 
sentence of paragraph (a), by revising paragraphs (c)(3), (d)(2), 
(d)(3), and (h)(1)(iii), and by adding a new paragraph (i) to read as 
follows:


Sec. 124.321  Joint venture agreements.

    (a) Prerequisites for joint venture agreement. * * * A joint 
venture agreement is permissible only where an 8(a) concern lacks the 
necessary capacity to perform the contract on its own, and when the 
agreement is fair and equitable. Where an 8(a) concern brings nothing 
to the joint venture relationship (i.e., it lacks the management, 
technical, and financial capacity to perform the contract), the joint 
venture arrangement will not be approved by SBA.
* * * * *
    (b) * * *
    (c) Contents of joint venture agreement. * * *
    (3) A provision stating that not less than 51 percent of the net 
profits earned by the joint venture shall be distributed to the 8(a) 
concern. In the case of a joint venture that includes two or more 8(a) 
concerns, no one 8(a) concern is individually required to receive 51 
percent of the profits (e.g., there can be a 50/50 joint venture 
relationship between two 8(a) concerns).
* * * * *
    (d) Other requirements. * * *
    (1) * * *
    (2) An 8(a) concern to the joint venture arrangement must be 
designated as the lead entity of the joint venture. An employee of the 
8(a) concern designated as the lead entity must be appointed project 
manager responsible for contract performance.
    (3) Accounting and other administrative records relating to the 
joint venture shall be kept in the office of the lead 8(a) concern, 
unless approval to keep them elsewhere is granted by SBA upon written 
request. Upon completion of the contract performed by the joint 
venture, the final original records shall be retained by the lead 8(a) 
concern.
* * * * *
    (h) Joint ventures with concerns owned by Indian tribes. (1) * * *
* * * * *
    (iii) Performs most of its activities generally on such reservation 
or tribally-owned land; and
* * * * *
    (i) Joint ventures for Small Disadvantaged Business Set-Asides and 
Small Disadvantaged Business Evaluation Preferences. Joint ventures are 
permitted for Small Disadvantaged Business (SDB) set-asides and SDB 
evaluation preferences, provided that the requirements set forth in 
this paragraph are met.
    (1) For purposes of this paragraph, the term joint venture has the 
same meaning as that set forth in Sec. 121.401(1) of these regulations. 
Two or more concerns that form an ongoing relationship to conduct 
business would not be considered ``joint venturers'' within the meaning 
of this paragraph, and would also not be eligible as an entity owned 
and controlled by one or more socially and economically disadvantaged 
individuals.
    (2) A concern that is owned and controlled by one or more socially 
and economically disadvantaged individuals entering into a joint 
venture agreement with one or more other business concerns is 
considered to be affiliated for size purposes with such other 
concern(s). The combined annual receipts or employees of the concerns 
entering into the joint venture must meet the applicable size standard 
corresponding to the SIC code designated for the contract.
    (3) The majority of the venture's earnings must accrue directly to 
the socially and economically disadvantaged individuals in the SDB 
concern(s) in the joint venture.
    (4) The percentage ownership involvement in a joint venture by 
disadvantaged individuals must be at least 51 percent.
    Example 1. Small business concern A is 100% owned by disadvantaged 
individuals. Small business concern B is 100% owned by nondisadvantaged 
individuals. The percentage involvement by concern A in a joint venture 
between A and B must be at least 51%.
    Example 2. Small business concern C is 51% owned by disadvantaged 
individuals. Small business concern D is 100% owned by nondisadvantaged 
individuals. Any joint venture between C and D would be ineligible 
because the amount of ownership involvement in such a joint venture by 
disadvantaged individuals would be less than 51%. Even a 90% 
involvement by concern C in a joint venture with D would mean an 
overall ownership involvement by disadvantaged individuals of only 
45.9% (51% of 90), and an overall ownership involvement by 
nondisadvantaged individuals of 54.1% (10 + (49% of 90)).

    49. Section 124.501 would be amended by redesignating paragraph (c) 
as paragraph (d) and by adding the following new paragraph (c):


Sec. 124.501  Miscellaneous reporting requirements.

* * * * *
    (c) Submission of financial statements. (1) Program Participant 
with actual gross annual receipts of $5,000,000 or more must submit to 
SBA audited annual financial statements prepared by a licensed 
independent public accountant (as defined in part 107, Appendix I, II. 
B) within 120 days after the close of the concern's fiscal year.
    (i) Upon request by the Program Participant, SBA may waive the 
requirement for audited financial statements. Waivers under this 
paragraph may be granted by the appropriate District Director only for 
the first year the audited financial statements are required. Beyond 
such first year, only the AA/MSB&COD may waive this requirement for 
good cause shown by the Program Participant.
    (ii) Circumstances where waivers of audited financial statements 
may be granted include, but are not limited to, the following: (A) the 
concern has an unexpected increase in sales towards the end of its 
fiscal year that creates an unforeseen requirement for audited 
statements; (B) the concern unexpectedly experiences severe financial 
difficulties which would make the cost of audited financial statements 
a particular burden; and (C) the concern has been an 8(a) Program 
Participant less than 12 months.
    (2) Program Participants with actual gross annual receipts of 
$1,000,000 to $4,999,999 shall submit to SBA reviewed annual financial 
statements prepared by a licensed independent public accountant (as 
defined in part 107, Appendix I,  II. B) within 90 days after the 
close of concern's fiscal year.
    (3) Program Participants with actual gross annual receipts of less 
than $1,000,000 shall submit to SBA an annual statement prepared in-
house or compilation statement prepared by a licensed independent 
public accountant (as defined in part 107, Appendix I,  II. B), 
verified as to accuracy by an authorized officer, partner, or sole 
proprietor of the 8(a) concern, by signature and date, within 90 days 
after the close of the concern's fiscal year.
    (4) Any audited financial statements submitted to SBA pursuant to 
Sec. 124.501(c) shall be prepared in accordance with Generally Accepted 
Accounting Principles and reflect the independent public accountant's 
opinion.
    (5) While financial statements need not be submitted until 90 or 
120 days after the close of an 8(a) concern's fiscal year, depending on 
the receipts of the concern, every 8(a) concern must submit a final 
sales report signed by the CEO or President to SBA within 10 working 
days of the end of its fiscal year in order for SBA to determine/verify 
the concern's size for 8(a) contract awards and compliance with 
competitive business mix targets. This report must show a breakdown of 
8(a) and non-8(a) sales.
    (6) Audited or reviewed annual and/or quarterly statements may be 
required when SBA determines it is necessary to obtain a more thorough 
verification of a concern's assets, liabilities, income and/or 
expenses, or to determine the concern's capacity to perform a specific 
8(a) contract.
    (7) The requirements for submitting financial statements also apply 
to 8(a) joint venture agreements.

    50. The following new Sec. 124.611 would be added to read as 
follows:


Sec. 124.611  Availability of Small Disadvantaged Business status 
decisions.

    (a) Any SDB status decision issued pursuant to Sec. 124.609 or 
Sec. 124.610 of these regulations shall
    (1) be made available to the protester, the protested party, the 
contracting officer, and all other parties to the proceeding in full 
text; and
    (2) be published in full text in SBA's law library, 409 3rd Street, 
SW., 7th Floor, Washington, DC, 20416, and be made available for 
inspection upon request.
    (b) Any SDB status decision shall include findings of fact and 
conclusions of law, with specific reasons supporting such findings and 
conclusions, upon each material issue of fact and law of decisional 
significance regarding the disposition of the case.

    Dated: July 28, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-21217 Filed 8-29-94; 8:45 am]
BILLING CODE 8025-01-M