[Federal Register Volume 60, Number 109 (Wednesday, June 7, 1995)]
[Rules and Regulations]
[Pages 29969-29978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13722]



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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 124


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

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: The Small Business Administration (SBA) hereby amends 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 final rule 
amends both eligibility requirements for and contractual assistance 
provisions within the 8(a) program. It is designed to streamline the 
operation of the 8(a) program and to ease certain restrictions 
perceived to be burdensome on Program Participants.

EFFECTIVE DATE: Except for Sec. 124.311(a)(2), this rule is effective 
on June 7, 1995.

    Section 124.311(a)(2) shall be effective August 7, 1995. It is 
applicable for all 8(a) requirements accepted by SBA on or after August 
7, 1995.

FOR FURTHER INFORMATION CONTACT:
Michael P. McHale, Deputy Associate Administrator for Minority 
Enterprise Development, (202) 205-6410.

SUPPLEMENTARY INFORMATION: On August 30, 1994, SBA published a proposed 
rule in the Federal Register (59 FR 44652) to amend both eligibility 
requirements for and contractual assistance provisions within the SBA's 
section 8(a) program. That proposal called for a 30-day comment period 
which was scheduled to close on September 29, 1994. In response to 
concerns raised that the 30-day comment period may not have been a 
sufficient amount of time to permit proper and thoughtful public 
comments, SBA, on October 27, 1994, extended the comment period through 
November 28, 1994. 59 FR 53947.
    SBA received a total of 175 comments in response to its proposed 
rule. After reviewing these comments, SBA now issues this final rule.
    SBA proposed this rule initially in order to simplify the operation 
of the [[Page 29970]] 8(a) program, to make clarifying changes to the 
regulations deemed necessary through experience, and to permit program 
participants to proceed in a more entrepreneurial manner, while 
maintaining a high degree of program integrity. After considering the 
comments received, and after further review of all proposed changes, 
SBA has concluded that the number and scope of the proposed changes was 
broader than was necessary to achieve SBA's immediate and most 
important objectives. Accordingly, this final rule is limited to only 
those changes that will streamline the operation of the 8(a) program or 
are particularly significant, as set forth below. The remaining 
proposed changes will be considered as part of a more far-reaching 
review of the 8(a) program and will not be implemented at the present 
time.
    This rule makes eleven significant revisions to current 
regulations, as follows:
    (1) It permits participation in the 8(a) program by qualified small 
businesses owned by Community Development Corporations to an extent 
that is not consistent with the requirements of the 8(a) program as 
imposed by the Small Business Act.
    (2) It simplifies 8(a) contracting procedures by eliminating the 
distinction established in SBA's regulations between ``local buy'' and 
``national buy'' requirements, except with regard to construction 
projects.
    (3) It eliminates the restriction on the dollar value of 8(a) 
contracts received by Program Participants previously imposed by SBA 
regulations.
    (4) It eliminates the separate treatment for applying the 
requirements for 8(a) competitive procurements which has existed for 
indefinite quantity or indefinite delivery type contracts.
    (5) It eliminates the separate treatment for individuals who are 
owners and participants of 8(a) concerns in the developmental stage of 
program participation so that they, like owners and principals of 8(a) 
concerns in the transitional stage, are eligible if their includable 
net worth is $750,000 or less.
    (6) It streamlines procedures by eliminating the requirement that 
an 8(a) concern be notified twice of a termination or graduation 
action.
    (7) It makes it easier for an 8(a) firm to add SIC codes to its 
business plan. Previously, concerns would have to show that a proposed 
new business SIC was a logical progression from its existing SIC. Under 
the new regulations, a concerned need merely show that it has a sound 
business explanation for requesting the new SIC code.
    (8) It eases the ownership restrictions placed on former Program 
Participants.
    (9) It streamlines SBA regulations by eliminating provisions 
dealing with SBA's expired authority to grant exemptions to the 
requirements of the Walsh-Healey Act and Miller Act.
    (10) In response to a Court of Federal Claims directive, it 
establishes eligibility requirements for small disadvantaged business 
joint ventures.
    (11) It reduces reporting requirements imposed on program 
participants.
Each of these changes is discussed below in SBA's summary of and 
response to the comments received to its August 30, 1994 proposed rule. 
This final rule also makes various technical changes to the regulations 
necessary to implement these significant revisions.

Summary of Issues Raised by Public Comment

    Initially, many commenters objected to the brevity of the 30-day 
comment period and requested that SBA extend it. As a result of these 
requests, SBA extended the comment period until November 28, 1994.
    SBA received many comments regarding provisions for its 8(a) 
regulations that were not the subject of proposed changes.
    Because such comments are outside the scope of this rulemaking 
process, SBA does not respond to them in this final rule. One commenter 
objected to the process by which the regulations were proposed on the 
grounds that SBA failed to adhere to economic analysis, planning, 
review, and comment requirements mandated by Executive Order 12866. SBA 
maintains that its issuance of the proposed rule was proper. SBA 
submitted the proposed rule to the Office of Management and Budget 
(OMB) in conformity with the requirements of the Executive Order. OMB 
did not believe that a full analysis of the proposed rule under 
Executive Order 12866 was necessary and directed SBA to publish the 
rule without its review under the Executive Order.
    Addition of CDC-owned businesses to the 8(a) Program.
    The rule adds a new Sec. 124.114 which specifically authorizes CDC-
owned small business concerns to participant in the 8(a) program. The 
regulation prohibits more than one concern with the same primary 
industry classification owned by the same CDC from entry into the 
program. It also establishes that disadvantaged individuals involved in 
the management and control of the business are not considered to have 
used up their eligibility under Sec. 124.108(c) even if their personal 
disadvantage is used to establish eligibility of the CDC-owned concern.
    This rule also makes a technical amendment to Sec. 121.401(b) that 
recognizes that concerns owned by a Community Development Corporation 
(CDC), authorized by 42 U.S.C. 9805 et seq., are not deemed to be 
affiliated with the CDC. This exemption from affiliation is contained 
in the proposed rule at Sec. 124.114(b). SBA believes that it should 
also appear in this section as well. In making this amendment, the 
final rule separates the various provisions of Sec. 121.401(b) into 
distinct paragraphs for clarity and ease of use.
    This final rule adds definitions of the term ``CDC-owned concern'' 
and ``Community Development Corporation or CDC'' to Sec. 124.100. 
Finally, the rule makes minor technical changes to Secs. 124.101(a), 
124.101(b), 124.102(a), 124.103, 124.104, and 124.109(d) in order to 
recognize the eligibility of CDC-owned concerns for participation in 
the 8(a) program.
    A number of commenters objected to the participation of CDCs in the 
8(a) program generally. As noted in the proposed rule, the 
participation of CDCs in the 8(a) program is required by statute and 
cannot be administratively eliminated by SBA.
    In addition, one commenter, an association representing CDCs, urged 
that SBA not require that the management and control of a CDC-owned 
business be in the hands of one or more disadvantaged individuals. The 
commenter pointed out that CDCs may acquire already existing business 
concerns, and that it may not be a prudent business decision to 
immediately replace nondisadvantaged managers of such a concern in 
order to meet 8(a) eligibility requirements. After further review, SBA 
has decided to revise the rule.
    In issuing regulations implementing the inclusion of CDCs pursuant 
to 42 U.S.C. 9815, SBA has analogized CDCs to Indian tribes. In the 
case of an applicant concern that is tribally-owned, section 
8(a)(4)(B)(ii) of the Small Business Act, 15 U.S.C. 637(a)(4)(B)(ii), 
permits the management and daily business operations of the concern to 
be controlled by one or more members of an economically disadvantaged 
Indian tribe. Thus, a tribally-owned concern need not be controlled by 
an individual determined to be socially and economically disadvantaged. 
SBA believes that similar treatment can be provided to CDC-owned 
companies. This result is also consistent with the treatment of 
concerns owned by Alaska Native Corporations (ANCs), which are entities 
established for the economic [[Page 29971]] development of their 
villages or regions. ANC-owned concerns are not required to be 
controlled by Alaska Natives in order to participate in the 8(a) 
program. The Alaska Native Claims Settlement Act provides that a 
concern owned by an ANC shall be deemed to be both owned and controlled 
by such ANC. Thus, the final rule provides that a concern that is at 
least 51% owned by a CDC shall be deemed to be controlled by such CDC 
and eligible for participation in the 8(a) program, provided that it 
meets other eligibility criteria and its management and daily business 
operations are conducted by one or more individuals determined to have 
managerial or technical experience and competency directly related to 
the primary industry in which the applicant concern is seeking 
certification. Because of this change, the requirement that a CDC-owned 
concern be controlled by socially and economically disadvantaged 
individuals is deleted from the final rule.

Simplifying 8(a) Contracting Procedures by Eliminating the Distinction 
Established in SBA's Regulations Between ``Local Buy'' and ``National 
Buy'' Requirements, Except With Regard to Construction Projects

    The rule eliminates the definitions for ``local buy'' and 
``national buy'' requirements from Sec. 124.100. The limitations in 
former Sec. 124.311 (h)(3) and (h)(4) effecting who may bid on local 
contracts has been eliminated, except for construction contracts. All 
requirements other than construction requirements will now be open to 
eligible 8(a) Participants nationally. Construction requirements are 
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 final rule 
limits competition for 8(a) construction contracts to those Program 
Participants within the geographical boundaries of one or more SBA 
district offices. SBA believes that a Program Participant may be 
considered as being located within a geographical boundary if it 
regularly maintains an office which employs at least one full-time 
individual within that geographical boundary. SBA also believes that a 
procuring agency may offer a local sole source 8(a) construction 
requirement to SBA on behalf of a concern that regularly maintains an 
office which employs at least one full-time individual within that 
geographical boundary.
    Several commenters expressed concern that eliminating the 
distinction between local and national buy requirements will adversely 
affect new or smaller 8(a) firms. Based on its experience with the 
operation of the present regulations, SBA believes that the adverse 
effect on new and smaller 8(a) firms will be negligible. In addition, 
SBA believes that the elimination of the local/national buy distinction 
will eliminate artificial barriers and promote national competition, 
something necessary for the survival of 8(a) concerns once they leave 
the program.
    One commenter claimed that the elimination of the local/national 
buy distinction would restrict procurement opportunities to all but 
those firms located around major procurement centers such as 
Washington, DC, and Los Angeles, CA. SBA believes that the physical 
location of firms will have little bearing on where they can market 
themselves. In fact, 8(a) firms will have more opportunities to market 
themselves because they will not be restricted by district or regional 
boundaries.
    One Federal agency opposed the elimination of the definitions for 
local and national buys because it believed that such elimination would 
create an increased opportunity for fraud and abuse. SBA does not 
believe fraud and abuse will increase simply by permitting 8(a) 
concerns to seek 8(a) contracts nationwide. SBA remains committed, 
however, to opposing any kind of fraud in the 8(a) program, and will 
work with procuring agencies to thwart such possibilities.
Eliminating Support Requirements

    Section 124.307 is amended by redesignating paragraph (d) as 
paragraph (e) and by adding a new paragraph (d) that eliminates 
approved 8(a) support levels as a basis for denying 8(a) contract 
awards in excess of those levels. Most of the commenters supported the 
proposed rule. One commenter recommended that 124.307(d) be amended by 
adding the clause ``or approved remedial plan'' after the words 
``competitive business mix'' and before the words ``imposed by 
124.312'' for clarification. SBA believes that this is a logical 
clarification of the intent of this proposed rule, and as such, it is 
to be incorporated into the final rule.
    The SBA Inspector General recommended that there should be some 
type of support level requirements. He urged that if annual levels are 
impractical, SBA should establish an overall dollar limit of 8(a) 
contracts that any individual company can receive. According to the 
comment, this would simplify administration of the program concerning 
continued eligibility and would eliminate concentration of 8(a) 
contracts within a small number of companies. SBA believes that a 
maximum support level, whether on an annual or some other basis, is not 
necessary with careful enforcement of competitive business mix 
requirements. SBA also believes that support levels unnecessarily 
impede the growth of 8(a) firms that are in full compliance with the 
mix requirements. Therefore, this recommendation was not incorporated 
into the final rule.

Indefinite Quantity, Indefinite Delivery

    This rule also amends Sec. 124.311(a) concerning how the 
competitive threshold requirements should be applied for indefinite 
quantity and indefinite delivery (IDIQ) requirements. Before this 
amendment, Sec. 124.311(a)(2) specified that ``[f]or purposes of 
indefinite quantity/delivery contracts, the thresholds will be applied 
to the guaranteed minimum value of the contract.'' Based on its 
experience with the rule, SBA now believes this provision to be 
unacceptable because of the wide differences commonly occurring between 
the ``guaranteed minimum'' amounts on procurements offered to the 8(a) 
program and the amounts actually expended under the procurements.
    The prior regulation was subject to substantial criticism. Under 
the prior rule, procuring agencies could 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 that such contracts could be procured on 
a sole source basis, even though the procurement would very likely 
exceed the applicable competitive threshold during the performance of 
the contract. SBA believes that 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 and avoid the necessity 
for competition. In order to eliminate this potential abuse, SBA 
proposed to amend its regulation to specify that the competitive 
threshold requirements which would be applied for all  types of 
contracts, including quantity/delivery contracts, would be the 
Government estimate of the requirement, including options, as 
identified by the procuring agency.
    SBA received 96 comments regarding this proposal. Most of the 
comments [[Page 29972]] objected to the proposed change. Many comments 
suggested that the change would result in a decline in the number of 
requirements being offered to the 8(a) program, and that this would 
increase costs to Program Participants as they would have to compete 
for requirements outside the confines of the 8(a) program that were 
previously accepted as sole source 8(a) awards.
    Many of the individual comments that opposed the proposed change 
were reflected also in the comments made by the National Association of 
Minority Business (NAMB). NAMB opposed the change because it contended 
that many IDIQ contracts do not exceed the guaranteed minimum value, 
and that many procuring activities do not exercise options on such 
contracts. Accordingly, they believed that the guaranteed minimum 
amount is a more accurate reflection of the value of the contract than 
any other figure. NAMB also claimed that the expansion work under an 
IDIQ contract is the direct result of strong performance by the 8(a) 
company, and that the proposed change would, therefore, penalize 8(a) 
firms for good performance.
    SBA's Inspector General and the Department of the Treasury 
submitted strong comments in support of the proposed change, citing 
various abuses they have found conducting periodic reviews of 8(a) 
contracts.
    SBA shares some of the same concerns voiced by NAMB.
    Clearly, not all IDIQ contracts ultimately exceed the guaranteed 
minimum amount. Many commenters, NAMB among them, argue that most 
contracts do not exceed the guaranteed minimum amount and some fall 
short even of that figure. Certainly, reliance on a contract's maximum 
authorized amount as a basis for determining the contract's value could 
leave small disadvantaged firms with inflated expectations and 
adversely affect their business development under the 8(a) program. It 
is for these same reasons that SBA initially adopted the separate 
competitive threshold requirement for IDIQ requirements.
    SBA now believes, however, that the frequency of abuses to the 8(a) 
procurement process caused by the inappropriate use of IDIQ contracts 
outweighs the possible disruption to business planning caused when a 
guaranteed minimum amount is not exceeded. Because of the overriding 
need for controlling the potential for abuse in this area, SBA adopts 
the proposed language in this final rule, although the formatting of 
the section is changed for clarity from the proposed rule.
    In addition, as pointed out in the NAMB analysis, SBA believes that 
a majority of IDIQ contracts, even when measured by the Government 
estimate, do not exceed the applicable competitive threshold amount. 
Because most IDIQ contracts will not exceed the competitive threshold, 
the change made in this final rule should not greatly affect the number 
of requirements offered to the 8(a) program.
    Other commenters felt that no change was needed to the IDIQ 
requirement because the newly enacted Government-wide Small 
Disadvantaged Business (SDB) program will consolidate competitive 
requirements and will result in the entry of fewer firms into the 8(a) 
program. However, SBA does not believe that the enactment of a 
Government-wide SDB program lessens SBA's responsibility to deal with 
the inappropriate use of 8(a) IDIQ contracts.
    Because of the change concerning IDIQ requirements, one commenter 
was concerned that procuring agencies would circumvent the competitive 
threshold requirement, and, thus, perpetuate past abuses of the 
program, by dividing one contract that exceeds the threshold amount 
into several smaller contracts, each below the competitive threshold 
amount and all to be awarded as sole source 8(a) contracts to the same 
Program Participant. SBA agrees that such a division would not be 
appropriate where a procuring agency seeks to award one large 
requirement to one 8(a) concern through a series of smaller sole source 
8(a) awards. SBA has made a change to the regulation to take this 
concern into account. Specifically, the new provision will state that 
an 8(a) requirement with an estimated value exceeding the applicable 
competitive threshold amount shall not be divided into several 
requirements for lessor amounts in order to use 8(a) sole source 
procedures for award to a single contractor. SBA does not, however, 
believe that it would be inappropriate for a procuring agency to divide 
a large contract into smaller sole source contracts where different 
Program Participants would be awarded the smaller contracts. Such an 
action would be consistent with the developmental purposes of the 8(a) 
program and with the statutory requirement that SBA equitably 
distribute 8(a) awards.
    Under the prior rule, contracting agencies were obligated to let 
contracts competitively among 8(a) concerns if the estimated value of 
the contract was more than $5 million for manufacturing work or more 
than $3 million for all other types of work. Where the anticipated 
price of the contracts was less than this threshold, the contracting 
agency was permitted to use a sole source even when the negotiated 
contract amount exceeded the threshold. A requirement of good faith on 
the part of the contracting agencies was implicit in the prior rule. 
The new rule makes the good faith requirement explicit, and requires 
that the ultimate price arrived at through negotiations not be 
significantly higher than the competitive threshold amount.

Economic Disadvantage Threshold for Individuals Who Are Principals or 
Owners of Concerns in the Developmental Stage

    This rule also amends Sec. 124.111(a)(2) to establish a $750,000 
net worth economic disadvantage threshold for Program Participants in 
either the development or transitional stage. Previously, concerns in 
the developmental stage were subject to possible termination or 
graduation from the program if their principals had an includable net 
worth in excess of $500,000. This rule operated to penalize success in 
the program and to discourage entrepreneurship and risk-taking. Under 
the amended rules, concerns in the developmental stage have the same 
threshold as concerns in the transitional stage. SBA received no 
objections to this proposed elimination of a different net worth figure 
for firms in the developmental stage of program participation.

Streamlining Termination and Graduation

    Sections 124.208(c) and 124.209(b) streamline the procedures 
governing graduation and termination of 8(a) Program Participants 
respectively. This rule eliminates the second letter of notification 
and the second 45 day response period provided in Sec. 124.208(c) and 
Sec. 124.209(b). SBA received no objections to this amendment, which 
will improve SBA's efficiency by eliminating an unneeded procedural 
step.

Making it Easier To Add SIC Codes to a Concern's Business Plan

    Section 124.302 eases the restrictions on adding SIC codes once a 
concern is admitted to the 8(a) program, and shortens the time it takes 
SBA to respond to a request for a change in SIC code designations from 
45 days to 30 days. Henceforth, a concern need not show that the new 
SIC Codes will be a logical extension of the old ones; just that there 
is a sound business reason for them. These amendments will make it 
easier for 8(a) concerns to maintain a diversified portfolio of 
products and [[Page 29973]] services. No comments were received 
regarding these provisions, and they remain unchanged in the final 
rule.

Easing Ownership Restrictions on Former Program Participants

    Section 124.103 is amended to permit a former Program Participant 
(except those that have been terminated from 8(a) program participation 
pursuant to Sec. 124.209) 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. SBA believes that allowing such ownership, and thus easing 
the previous restriction imposed by SBA, will enhance the development 
of both current and former 8(a) Participants. SBA received forty-four 
comments in support of this provision. Two commenters, however, were 
concerned that this change would permit current 8(a) concerns to become 
``fronts'' for former 8(a) concerns, and, thus, prolong their 
participation, albeit indirect, in the 8(a) program. SBA believes that 
there are enough safeguards in place to protect against abuse of this 
sort. The regulations require that management and control be in the 
hands of the disadvantaged owners of current 8(a) concerns. Failure to 
meet this requirement, which is confirmed yearly during the annual 
review process, is grounds for termination from the 8(a) program under 
Sec. 124.209 and may cause termination of previously awarded 8(a) 
contracts under Sec. 124.317. In addition, Sec. 124.314 requires the 
current 8(a) concern itself (and not a subsidiary of or another concern 
affiliated with the 8(a) concern) to perform specified percentages of 
awarded 8(a) contracts. Thus, a current 8(a) participant could not 
shift performance of an 8(a) contract to the former 8(a) concern 
partial owner. Finally, one commenter recommended that SBA increase the 
allowable equity ownership interest by a former Program Participant to 
35%. SBA believes that such an increase could give former Program 
Participants undue influence in current 8(a) Participants, and, thus, 
rejects it.
Streamlining Regulations by Removing References to Expired Authority

    The final rule repeals Sec. 124.304, (implementing statutory 
authority given SBA to grant Program Participants in the developmental 
stage of program participation a maximum of two exemptions to the 
requirements of the Walsh-Healey Act). It also repeals Sec. 124.305 
(implementing statutory authority given SBA to grant Program 
Participants exemptions from Miller Act bonding requirements). The rule 
reserves these sections. The former legislative authority expired on 
October 1, 1992, and the latter on October 1, 1994.

Establishing Joint Venture Rules for Small Disadvantaged Businesses

    The final rule institutes criteria for joint ventures for small 
disadvantaged business (SDB) set-asides and for SDB evaluation 
preferences. The majority of such joint venture's earnings must accrue 
to the socially and economically disadvantaged individuals in the small 
disadvantaged business, and disadvantaged individuals must own at least 
51% of the joint venture as a whole. Thus, as the examples make 
explicit, where a small disadvantaged concern which is 51% owned by one 
or more disadvantaged individuals enters a joint venture with a small 
concern which is 100% owned by nondisadvantaged individuals, the joint 
venture is not eligible even if the small disadvantaged concern earns 
90% of the contract's proceeds, since 51% of 90% is only 45.9%.
    SBA received seven comments pertaining to the section. For the most 
part, the commenters concurred with the provisions proposed by SBA. 
However, some commenters urged more restrictive provisions to protect 
against the possibility that a small disadvantaged business will 
``front'' for a nondisadvantaged business. SBA has concluded that the 
present language, which requires that both a majority of the joint 
venture's proceeds and 51% of its ownership accrue directly to 
disadvantaged individuals, is sufficient protection against abuse.

Eliminating Quarterly Reporting Requirements

    Section 124.501 adds a new paragraph (c) and redesignates current 
paragraph (c) as paragraph (d). The newly established Sec. 124.501(c) 
requires the submission of annual audited financial statements only by 
larger 8(a) Program Participants, those with revenues in excess of $5 
million. The requirement to submit such financial statements is not a 
change in SBA policy. The requirement for financial statements is 
currently contained in Secs. 124.312 (b)(7) and (c)(10) (which have 
elsewhere been redesignated as paragraphs (b)(4) and (c)(7) in this 
final rule), and failure to comply with it is referenced as a basis for 
finding good cause to terminate a Program Participant in 
Sec. 124.209(a)(6)(i). An earlier SBA Notice had established guidelines 
regarding these reporting requirements.
    A majority of the comments concerning this provision of the 
proposed rule opposed it because of cost. Taking into account this 
concern, SBA has determined that it should reduce the overall reporting 
requirements imposed by SBA on Program Participants. Accordingly, this 
rule eliminates the quarterly reporting requirements previously imposed 
by Secs. 124.312 (b)(7) and (c)(10), and the reference to a failure to 
submit quarterly financial statements as a basis for termination 
contained in Sec. 124.209. This will lessen the paperwork burden 
imposed on Program Participants, and is consistent with the Agency's 
initiative to streamline the operation of the 8(a) program.
    SBA is particularly sensitive to imposing administrative burdens on 
8(a) participants. The rule as proposed was designed to make compliance 
as inexpensive as possible. Only Program Participants with annual gross 
income of $5 million or more need submit audited financial statements 
prepared by a licensed independent public accountant. Program 
Participants with a gross annual income of at least $1 million and less 
than $5 million need only submit reviewed financial statements prepared 
by a licensed independent public accountant. Program Participants with 
annual gross revenues of less than $1 million need merely submit an 
annual statement prepared by a licensed independent public accountant. 
The actual cost of this last type of report is negligible, and in many 
cases is prepared as part of tax preparation. In addition, the 
regulation authorizes the District Director to waive the requirement 
for an audited financial statement for the first year a concern is 
required to submit one, and authorizes the Associate Administrator for 
Minority Enterprise Development to waive the requirement in subsequent 
years. One of the grounds for waiver can be financial hardship. SBA 
believes that the benefits to program integrity which will result from 
clear and accurate financial accounting requirements is significant, 
and that the elimination of quarterly financial statements will reduce 
the overall administrative burden placed on 8(a) concerns.

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)

    SBA certifies that this rule does not have a significant economic 
impact on a substantial number of small entities within the meaning of 
Executive Order 12866 or the Regulatory Flexibility Act, 5 U.S.C. 601, 
et seq. This rule is necessary to resolve several points regarding 
eligibility for SBA's Section [[Page 29974]] 8(a) program, eliminate 
certain regulatory restrictions imposed on the amount of 8(a) contract 
dollars and the type of 8(a) contracts received by a given 8(a) Program 
Participant, and to ensure that the statutory requirement governing 
which 8(a) requirements must be competed among eligible 8(a) Program 
Participants not be circumvented. Whether a particular 8(a) concern is 
eligible for participation in, or once in, whether it, as opposed to 
another 8(a) concern, would be awarded a particular 8(a) contract can 
be affected by the rule.
    As discussed above in the supplementary information, several 
commenters were concerned that the change in this rule relating to the 
application of the competitive threshold requirement in the IDIQ 
context would cause a reduction in the number of procurement 
requirements offered to the 8(a) program. SBA does not believe that any 
such possible reduction will be significant. In addition, also as 
discussed above, SBA believes that the potential for abuse that a 
failure to change the regulation would perpetuate outweighs any loss of 
contract dollars to the 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 rule contains no new reporting or record keeping 
requirements. In fact, it eliminates a prior requirement imposed on 
Program Participants to submit quarterly financial statements to SBA.
    For purposes of Executive Order 12612, SBA certifies that this rule 
has no 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 recordkeeping requirements; Technical assistance; 
Tribally-owned concerns.
    For the reasons set forth above, SBA hereby amends part 121 of 
title 13, 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 continues 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 121.401(b) is revised to read as follows:


Sec. 121.401  Affiliation.

* * * * *
    (b) Exclusion from affiliation coverage. (1) Portfolio or client 
concerns owned in whole or substantial part by investment companies 
licensed, or development companies qualifying, under the Small Business 
Investment Act of 1958, as amended, or by Investment Companies 
registered under the Investment Company Act of 1940, as amended, are 
not considered affiliates of such investment companies or development 
companies.
    (2) Business concerns owned and controlled by Indian Tribes, Alaska 
Regional or Village Corporations organized pursuant to the Alaska 
Native Claims Settlement Act (43 U.S.C. 1601, et seq.), or Native 
Hawaiian Organizations are not considered affiliates of such tribes, 
Alaska Regional or Village Corporations, or Native Hawaiian 
Organizations, or with other concerns owned by these entities solely 
because of their common ownership. However, affiliation with other 
concerns owned by these entities may be caused by circumstances other 
than common ownership under this section.
    (3) Business concerns owned and controlled by a Community 
Development Corporation (CDC) authorized by 42 U.S.C. 9805 et seq. are 
not considered affiliates of such CDC or with other concerns owned by 
the CDC solely because of their common ownership. However, affiliation 
with other concerns owned by a CDC may be caused by circumstances other 
than common ownership under this section.
* * * * *

PART 124--[AMENDED]

Subpart A--Minority Small Business and Capital Ownership 
Development

    3. The authority citation for part 124 is revised to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), and 637(d), Pub. 
L. 99-661, sec. 1207, Pub. L. 100-656, Pub. L. 101-37, Pub. L. 101-
574, and 42 U.S.C. 9815.


Sec. 124.7  [Amended]

    4. Section 124.7(b) is amended by removing paragraph (b)(1) and by 
redesignating paragraph (b)(2) as paragraph (b).
    5. Section 124.100 is amended by removing the terms ``Local buy 
item'' and ``National buy item'', and adding, in alphabetical order, 
the following new definitions of the terms ``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.
* * * * *
    Community Development Corporation or CDC means a nonprofit 
organization responsible to residents of the area it serves which has 
received financial assistance under 42 U.S.C. 9805 et seq.
* * * * *
    6. Section 124.101 is amended by adding the following new sentence 
after the third sentence in paragraph (a), and by revising the first 
sentence in paragraph (b) to read as follows:


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

    (a) * * * 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. * * *
    (b) In order to continue its participation in the 8(a) program, a 
Program Participant must continue to meet all eligibility requirements 
described in Secs. 124.102 through 124.109, Sec. 124.111(a), and 
Sec. 124.112, Sec. 124.113 or Sec. 124.114, if applicable. * * *
* * * * *
    7. Section 124.102(a) is 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. 124.122, Sec. 124.113 or Sec. 124.114, respectively.
* * * * * [[Page 29975]] 
    8. Section 124.103 is amended by revising the introductory text and 
the first sentence of paragraph (h) to read 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. 124.110, in order to be eligible to 
participate in the 8(a) program, an applicant concern must be at least 
51 percent unconditionally owned by an individual(s) who is a citizen 
of the United States (specifically excluding permanent resident 
alien(s)) and who is determined by SBA to be socially and economically 
disadvantaged. Special ownership requirements for concerns owned by 
Indian tribes and Alaska Native Corporations are set forth in 
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.
* * * * *
    (h) A non-8(a) concern in the same or similar line of business is 
prohibited from having an equity ownership interest in an 8(a) concern 
which exceeds 10 percent, except that a former Program Participant 
(except those that have been terminated from 8(a) program participation 
pursuant to Sec. 124.209) may have an equity ownership interest of up 
to 20 percent in a current 8(a) concern in the same or similar line of 
business. * * *
* * * * *
    9. Section 124.104 is amended by revising the introductory text to 
read as follows:


Sec. 124.104  Control and management.

    Except for concerns owned by Indian tribes, Alaska Native 
Corporations (ANCs), Native Hawaiian Organizations, or Community 
Development Corporations (CDCs), as defined in Sec. 124.100, an 
applicant concern's management and daily business operations must be 
conducted by one or more owners of the applicant concern who have been 
determined to be socially and economically disadvantaged. (See 
Sec. 124.112 for the requirements for tribally-owned entities and those 
owned by ANCs, Sec. 124.113 for requirements for concerns owned by 
Native Hawaiian Organizations, and Sec. 124.114 for requirements for 
CDC-owned concerns). In order for a disadvantaged individual to be 
found to control the concern, that individual must have managerial or 
technical experience and competency directly related to the primary 
industry in which the applicant concern is seeking certification.
* * * * *
    10. Section 124.109 is amended by revising paragraph (d) 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).
* * * * *
    11. Section 124.111 is amended by revising paragraph (a)(2) 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 $750,000, as 
calculated pursuant to Sec. 124.106(a)(2)(i). An individual whose 
personal net worth exceeds $750,000, as calculated pursuant to 
Sec. 124.106(a)(2)(i), will not be considered economically 
disadvantaged.
* * * * *
    12. A new Sec. 124.114 is added to read as follows:


Sec. 124.114  Concerns owned by Community Development Corporations.

    (a) Concerns owned at least 51% by Community Development 
Corporations (CDCs), as defined in Sec. 124.100, are eligible for 
participation in the 8(a) program and other federal programs requiring 
SBA to determine social and economic disadvantage as a condition of 
eligibility. Such concerns must meet all eligibility criteria set forth 
in Secs. 124.102 through 124.109 and Sec. 124.111(a) of this part.
    (b) A concern that is at least 51% owned by a CDC shall be deemed 
to be controlled by such CDC and eligible for participation in the 8(a) 
program, provided it meets all eligibility criteria set forth or 
referred to in this section and its management and daily business 
operations are conducted by one or more individuals determined to have 
managerial or technical experience and competency directly related to 
the primary industry in which the applicant concern is seeking 
certification.
    (c) A concern owned by a CDC must qualify as a small business 
concern as defined for purposes of Government procurement in part 121 
of this title. The particular size standard to be applied shall be 
based on the primary industry classification of the applicant concern. 
Ownership by the CDC will not, in and of itself, cause affiliation with 
the CDC or with other CDC-owned entities. However, affiliation with the 
CDC or other CDC-owned entities may be caused by circumstances other 
than common CDC ownership.
    (d) No CDC shall own more than one current or former 8(a) Program 
Participant having the same primary industry classification.
    (e) SBA does not deem an individual involved in the management or 
daily business operations of a CDC-owned concern to have used his or 
her individual eligibility within the meaning of Sec. 124.108(c).
    13. Section 124.208 is amended by removing paragraph (c)(2), by 
redesignating paragraphs (c)(3), (c)(4), (c)(5), and (c)(6) as 
paragraphs (c)(2), (c)(3), (c)(4), and (c)(5), and by revising the 
first sentence in 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. * * 
*
* * * * *
    14. Section 124.209 is amended by removing paragraph (b)(2), by 
redesignating paragraphs (b)(3), (b)(4), (b)(5) and (b)(6) as 
paragraphs (b)(2), (b)(3), (b)(4) and (b)(5), by revising the first 
sentence of paragraph (a)(6)(i) and newly redesignated paragraph 
(b)(2), and by adding the following new sentence to the end of newly 
redesignated paragraph (b)(3) to read as follows:


Sec. 124.209  Program termination

    (a) General. * * *
    (6) * * *
    (i) Failure by the concern to provide required financial statements 
to SBA [[Page 29976]] pursuant to Secs. 124.312 (b)(4), 124.312(c)(7), 
and 124.501(c). * * *
* * * * *
    (b) * * *
    (2) Recommendation of the Division. Following the 45-day response 
period, the Division Director will have 15 days to consider the facts 
of the proposed termination, including all information submitted by the 
Participant. The Division Director may, if he/she deems it necessary, 
request additional information from the Participant. If the grounds for 
the proposed termination continue to exist, the Division Director shall 
recommend in writing to the AA/MSB&COD that the Participant be 
terminated.
    (3) Decision of the AA/MSB&COD. * * * Unless appealed to OHA, the 
decision of the AA/MSB&COD to terminate a Program Participant shall be 
effective 45 days after its issuance.
* * * * *
    15. Section 124.302 is amended by revising paragraph (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;
* * * * *
    (2) SBA will make a decision on such request within 30 days from 
the date it receives the request.
* * * * *
Sec. 124.303  [Amended]

    16. Section 124.303 is amended by removing paragraphs (c)(3) and 
(c)(4), and by redesignating paragraphs (c) (5) through (7) of 
paragraph (c) as paragraphs (c)(3) through (c)(5).
    17. Section 124.303 is further amended by changing the reference in 
paragraph (d)(1) to ``paragraphs (c)(1), (c)(2), (c)(6) and (c)(7) of 
this section'' to a reference to ``paragraphs (c)(1), (c)(2), (c)(4) 
and (c)(5) of this section.''


Sec. 124.304  [Removed and Reserved]

    18. Section 124.304 is removed and reserved.


Sec. 124.305  [Removed and Reserved]

    19. Section 124.305 is removed and reserved.
    20. Section 124.307 is amended by redesignating paragraphs (d) and 
(e) as paragraphs (e) and (f), and by adding the following new 
paragraph (d):


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 
prevent contract awards above that level so long as SBA determines the 
concern to be competent and responsible to perform any such contracts 
and the Participant is in compliance with any applicable competitive 
business mix requirement, or approved remedial plan, imposed by 
Sec. 124.312.
* * * * *
    21. Section 124.308 is amended by revising paragraph (d), the first 
sentence of paragraph (f)(1), and paragraph (f)(2), to read as follows:


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

* * * * *
    (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) 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.
* * * * *


Sec. 124.308  [Amended]

    22. Section 124.308 is further amended by removing the words 
``approved 8(a) business support level or the'' contained in paragraph 
(e)(1)(iii).
    23. Section 124.311 is amended by revising paragraph (a)(2), by 
removing paragraph (b), by redesignating paragraphs (c), (d), (e), (f), 
(g), (h), and (i) as paragraphs (b), (c), (d), (e), (f), (g), and (h), 
respectively, by adding a sentence to the end of newly redesignated 
paragraph (d) introductory text, by removing newly redesignated (d)(1) 
and (d)(2), and by revising newly redesignated paragraphs (g)(3) and 
(g)(4), to read as follows:


Sec. 124.311  8(a) competition.

    (a) * * *
    (2) The anticipated award price of the contract, including options, 
will exceed $5,000,000 for contracts assigned manufacturing Standard 
Industrial Classification (SIC) codes and $3,000,000 for all other 
contracts.
    (i) For all types of contracts, the applicable competitive 
threshold amounts will be applied to the procuring agency estimate of 
the total value of the contract, including all options.
    (ii) Where a procuring agency good faith estimate of the total 
value of a proposed 8(a) contract is less than the applicable 
competitive threshold amount and the requirement is accepted as a sole 
source requirement on that basis, award may be made even though the 
ultimate price arrived at through negotiations exceeds the competitive 
threshold, provided that the ultimate price is not significantly 
greater than the competitive threshold amount.

    Example. If the anticipated award price for a professional 
services requirement is determined to be $2.7 million and it is 
accepted as a sole source 8(a) requirement on that basis, a sole 
source award will be valid even if the contract price arrived at 
after negotiation is $3.1 million.

    (iii) A proposed 8(a) requirement with an estimated value exceeding 
the applicable competitive threshold amount shall not be divided into 
several requirements for lesser amounts in order [[Page 29977]] to use 
8(a) sole source procedures for award to a single contractor.
* * * * *
    (d) Sole source above thresholds. * * * 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.
* * * * *
    (g) Restricted Competition. * * *
    (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 any solicitation for a competitive 
8(a) procurement requirement.
* * * * *
    24. Section 124.311 is further amended by removing the Example 
following newly redesignated paragraph (e)(4)(iii), 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. 124.311  [Amended]

    25. Section 124.311 is further amended by revising the reference in 
newly redesignated paragraph (e)(7) to ``paragraph (f)(5) of this 
section'' to a reference to ``paragraph (e)(5) of this section.''
    26. Section 124.312 is amended by removing paragraphs (b)(4), 
(b)(5), and (b)(6), by redesignating paragraph (b)(7) as paragraph 
(b)(4), and by revising the first sentence of newly redesignated 
paragraph (b)(4) to read as follows:


Sec. 124.312  Competitive business mix.

* * * * *
    (b) * * *
    (4) Reporting and verification of business activity. Once admitted 
to the 8(a) program, a Program Participant must provide annual 
financial statements to SBA in accord with Sec. 124.501(c). * * *
    27. Section 124.312 is further amended by removing paragraphs 
(c)(2), (c)(3), and (c)(9), 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, by revising the reference to ``paragraphs (c)(4) and 
(c)(5)'' in the last sentence of newly redesignated paragraph (c)(7) to 
a reference to ``paragraphs (c)(2) and (c)(3)'', and by revising the 
first sentence of newly redesignated paragraph (c)(7) to read as 
follows:


Sec. 124.312  Competitive business mix.

* * * * *
    (c) * * *
    (7) Reporting and verification of business activity. Program 
Participants during the transitional stage shall provide annual 
financial statements to SBA with a breakdown of 8(a) and non-8(a) 
revenue in accord with Sec. 124.501(c). * * *
* * * * *


Sec. 124.312  [Amended]

    28. Section 124.312 is further amended by changing the reference in 
paragraph (c)(1) to ``paragraph (c)(4) of this section'' to a reference 
to ``paragraph (c)(2) of this section'' and by changing the reference 
in the same paragraph to ``paragraph (c)(5) of this section'' to a 
reference to ``paragraph (c)(3) of this section''.
    29. Section 124.312 is further amended by changing the reference in 
newly designated paragraph (c)(8) to ``paragraph (c)(12) of this 
section'' to a reference to ``paragraph (c)(9) of this section''.
    30. Section 134.312 is further amended by changing the reference in 
newly designated paragraph (c)(9) to ``paragraphs (c)(4) and (c)(5) of 
this section'' to a reference to ``paragraphs (c)(2) and (c)(3) of this 
section''.
    31. Section 124.321 is amended by adding a new paragraph (i) to 
read as follows:


Sec. 124.321  Joint venture agreements.

* * * * *
    (i) Joint ventures for Small Disadvantaged Business Set-Asides and 
Small Disadvantaged Business Evaluation Preferences. Joint ventures are 
permitted for Small Disadvantaged Business (SDB) set-asides and SDB 
evaluation preferences, provided that the requirements set forth in 
this paragraph are met.
    (1) For purposes of this paragraph, the term joint venture has the 
same meaning as that set forth in Sec. 121.401(l) of this chapter. Two 
or more concerns that form an ongoing relationship to conduct business 
would not be considered ``joint venturers'' within the meaning of this 
paragraph, and would also not be eligible as an entity owned and 
controlled by one or more socially and economically disadvantaged 
individuals.
    (2) A concern that is owned and controlled by one or more socially 
and economically disadvantaged individuals entering into a joint 
venture agreement with one or more other business concerns is 
considered to be affiliated for size purposes with such other 
concern(s). The combined annual receipts or employees of the concerns 
entering into the joint venture must meet the applicable size standard 
corresponding to the SIC code designated for the contract.
    (3) The majority of the venture's earnings must accrue directly to 
the socially and economically disadvantaged individuals in the SDB 
concern(s) in the joint venture.
    (4) The percentage ownership involvement in a joint venture by 
disadvantaged individuals must be at least 51 percent.

    Example 1. Small business concern A is 100% owned by 
disadvantaged individuals. Small business concern B is 100% owned by 
nondisadvantaged individuals. The percentage involvement by concern 
A in a joint venture between A and B must be at least 51%.
    Example 2. Small business concern C is 51% owned by 
disadvantaged individuals. Small business concern D is 100% owned by 
nondisadvantaged individuals. Any joint venture between C and D 
would be ineligible because the amount of ownership involvement in 
such a joint venture by disadvantaged individuals would be less than 
51%. Even a 90% involvement by concern C in a joint venture with D 
would mean an overall ownership involvement by disadvantaged 
individuals of only 45.9% (51% of 90), and an overall ownership 
involvement by nondisadvantaged individuals of 54.1% (10+(49% of 
90)).

    32. Section 124.501 is amended by redesignating paragraph (c) as 
paragraph [[Page 29978]] (d) and by adding the following new paragraph 
(c):
Sec. 124.501  Miscellaneous reporting requirements.

* * * * *
    (c) Submission of financial statements. (1) Program Participants 
with actual gross annual receipts of $5,000,000 or more must submit to 
SBA audited annual financial statements prepared by a licensed 
independent public accountant (as defined in part 107, appendix I, 
paragraph II. B) within 120 days after the close of the concern's 
fiscal year.
    (i) Upon request by the Program Participant, SBA may waive the 
requirement for audited financial statements. Waivers under this 
paragraph may be granted by the appropriate District Director only for 
the first year that audited financial statements are required. Beyond 
such first year, only the AA/MSB&COD may waive this requirement for 
good cause shown by the Program Participant.
    (ii) Circumstances where waivers of audited financial statements 
may be granted include, but are not limited to, the following:
    (A) The concern has an unexpected increase in sales towards the end 
of its fiscal year that creates an unforeseen requirement for audited 
statements;
    (B) The concern unexpectedly experiences severe financial 
difficulties which would make the cost of audited financial statements 
a particular burden; and
    (C) The concern has been an 8(a) Program Participant less than 12 
months.
    (2) Program Participants with actual gross annual receipts of 
$1,000,000 to $4,999,999 shall submit to SBA reviewed annual financial 
statements prepared by a licensed independent public accountant (as 
defined in part 107, appendix I, paragraph II. B) within 90 days after 
the close of the concern's fiscal year.
    (3) Program Participants with actual gross annual receipts of less 
than $1,000,000 shall submit to SBA an annual statement prepared in-
house or a compilation statement prepared by a licensed independent 
public accountant (as defined in part 107, appendix I, paragraph II. 
B), verified as to accuracy by an authorized officer, partner, or sole 
proprietor of the 8(a) concern, by signature and date, within 90 days 
after the close of the concern's fiscal year.
    (4) Any audited financial statements submitted to SBA pursuant to 
Sec. 124.501(c) shall be prepared in accordance with Generally Accepted 
Accounting Principles and reflect the independent public accountant's 
opinion.
    (5) While financial statements need not be submitted until 90 or 
120 days after the close of an 8(a) concern's fiscal year, depending on 
the receipts of the concern, a concern seeking to be awarded an 8(a) 
contract between the close of its fiscal year and such 90 or 120-day 
time period must submit a final sales report signed by the CEO or 
President to SBA in order for SBA to determine/verify the concern's 
size and its compliance with competitive business mix targets. This 
report must show a breakdown of 8(a) and non-8(a) sales.
    (6) Notwithstanding a concern's gross annual receipts, audited or 
reviewed annual and/or quarterly statements may be required whenever 
SBA determines it is necessary to obtain a more thorough verification 
of a concern's assets, liabilities, income and/or expenses, or to 
determine the concern's capacity to perform a specific 8(a) contract.
* * * * *
    Dated: April 5, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-13722 Filed 6-6-95; 8:45 am]
BILLING CODE 8025-01-M