[Federal Register Volume 62, Number 157 (Thursday, August 14, 1997)]
[Proposed Rules]
[Pages 43584-43628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21514]
[[Page 43583]]
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Part II
Small Business Administration
_______________________________________________________________________
13 CFR Parts 121, 124, and 134
Small Business Size Regulations; 8(a) Business Development/Small
Disadvantaged Business Status Determinations; Rules of Procedure
Governing Cases Before the Office of Hearings and Appeals; Proposed
Rule
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 /
Proposed Rules
[[Page 43584]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, and 134
Small Business Size Regulations; 8(a) Business Development/Small
Disadvantaged Business Status Determinations; Rules of Procedure
Governing Cases Before the Office of Hearings and Appeals
AGENCY: Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: In response to President Clinton's government-wide regulatory
reform initiative and the Department of Justice's review of Federal
procurement affirmative action programs, the Small Business
Administration (SBA) proposes to amend both the eligibility
requirements for, and contractual assistance provisions within, the
SBA's 8(a) Business Development (8(a) BD) program. The proposed rule
would change the name of the program from the Minority Small Business
and Capital Ownership Development program to the 8(a) BD program to
better reflect the purpose of the program. This rule is designed to
streamline the operation of the 8(a) BD program, to ease certain
restrictions perceived to be burdensome on Program Participants, to
clarify certain eligibility requirements, and to delete obsolete
regulations.
DATES: Comments must be submitted on or before October 14, 1997.
ADDRESSES: Written comments should be addressed to William Fisher,
Acting Associate Administrator for Minority Enterprise Development,
U.S. Small Business Administration, 409 3rd Street, SW., Suite 13,
Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT: Arthur E. Collins, Jr., Assistant
Administrator for Program Development, Office of Minority Enterprise
Development, at (202) 205-6410.
SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a
Memorandum to federal agencies, directing them to simplify their
regulations. In response to this directive, SBA completed a page-by-
page, line-by-line review of all of its then existing regulations to
determine which might be revised or eliminated. Revisions to 13 CFR
Part 124 awaited a review of all Federal procurement affirmative action
programs by the Department of Justice (DOJ). On May 23, 1996, DOJ
published in the Federal Register a comprehensive proposal for
tailoring affirmative action programs in the Federal procurement arena
(see 61 FR 26042), and on May 9, 1997 the Department of Defense, the
General Services Administration, and the National Aeronautics and Space
Administration proposed amendments to the federal Acquisition
Regulation (FAR) concerning programs for small disadvantaged business
(SDB) concerns. In response to and in conjunction with the DOJ and FAR
reform proposals, SBA proposes specific amendments to 13 CFR Part 124,
its regulations governing the 8(a) Business Development (8(a) BD)
program which is authorized by sections 7(j)(10) and 8(a) of the Small
Business Act, 15 U.S.C. 636(j)(10), 637(a) (contained in subpart A of
part 124), and those relating to the certification and protest of small
disadvantaged businesses (subpart B of part 124). For the most part,
SBA's proposed changes in response to the DOJ and FAR proposals are
contained in subpart B of part 124. At the same time, SBA also proposes
to streamline the entire Part 124, and to make several substantive
changes in part A of the 8(a) BD regulations where needed. SBA also
proposes to make changes to SBA's size regulations (part 121) to permit
size protests and appeals of Standard Industrial Classification (SIC)
code designations in connection with 8(a) competitive procurements, and
to exclude certain joint venture arrangements from SBA's affiliation
rules. These latter changes should increase the potential pool of small
businesses available to compete for particular procurements. SBA
believes that this change should encourage contracting officers to
consider small business contractors more closely before determining a
procurement strategy. Finally, this proposed rule would transfer the
procedures relating to certain statutorily authorized appeals in the
8(a) program from part 124 to part 134 of 13 CFR.
In response to the DOJ review of Federal affirmative action
procurement programs, this rule would develop standards and procedures
by which a firm can apply to be recognized as a small disadvantaged
business (SDB). Under the proposal, private sector organizations or
business concerns (called Private Certifiers when approved by SBA)
would determine whether a firm is owned and controlled by specified
individuals claiming to be disadvantaged. Use of the term ``Private
Certifier'' is not meant to exclude state agencies from applying for
and receiving Private Certifier status. Once a firm receives a
determination that it is owned and controlled by the individual(s)
claiming to be disadvantaged from a Private Certifier (or from SBA if a
Private Certifier is not reasonably available), it would be required to
submit evidence of that determination to the appropriate procuring
agency, or to SBA if the agency has an agreement with SBA, for a
disadvantaged status determination and SDB certification. Individuals
that are members of designated groups would be presumed to be socially
and economically disadvantaged. Other individuals would be required to
submit a narrative statement identifying personally how their entry
into or advancement in the business world has been impaired because of
their individual social disadvantage, and how their ability to compete
in the free enterprise system has been impaired due to diminished
capital and credit opportunities. These standards and procedures would
be completely separate from the 8(a) BD requirements and contained in
an entirely rewritten subpart B to part 124. The rule would develop
procedures for placing firms on and removing them from an SBA-
maintained on-line register of certified SDBs. It would also provide
regulatory authority for SBA, in its discretion, to limit 8(a) BD
program entry, accelerate program graduation, and limit the numbers of
8(a) contracts available as a means of responding to benchmark
achievements in particular industries.
The proposed rule is also designed to streamline the operation of
the 8(a) BD program, to ease certain restrictions perceived to be
burdensome on Participants, to amend certain eligibility procedures,
and to delete obsolete regulations. SBA considered the need for each
section of its current regulations in developing this proposal. Any
regulatory provisions that SBA deemed duplicative are proposed to be
removed, while those that appeared wordy or unclearly written have been
rewritten in this proposed rule. The proposed rule also reorganizes the
regulations into identifiable substantive areas for ease of use and
clarity. The proposed unnumbered substantive category headings within
subpart A of part 124 would be: Provisions of General Applicability;
Eligibility Requirements for Participation in the Minority Enterprise
Development Program; Applying to the 8(a) BD Program; Exiting the 8(a)
BD Program; Business Development; Contractual Assistance; Miscellaneous
Reporting Requirements; and Management and Technical Assistance
Program. The proposed rule would also change all references to SBA's
Office of Minority Small Business and Capital Ownership Development
(MSB&COD) to the Office of 8(a) Business Development to
[[Page 43585]]
emphasize that individuals participating in the program need not be
members of minority groups and the stress the importance of assisting
participating firms in their overall business development.
SBA has attempted to rewrite the regulations in plain English
wherever possible. To this end, SBA has written proposed section
headings in question format for ease of use, and has tried to eliminate
all unnecessary verbiage from the regulations.
This proposed rule would amend eligibility procedures for admission
to the 8(a) BD program and also amend contractual assistance provisions
within the 8(a) BD program. Of particular note, this rule would
liberalize the standard of review for non-group members seeking
disadvantaged status from a clear and convincing evidence test to a
preponderance of the evidence standard, eliminate the requirement that
a Participant must have specified SIC codes approved by SBA in its
business plan in order to be eligible for 8(a) contracts, establish
consistent remedial measures for firms that do not meet their
competitive business mix targets, ease certain joint venture
restrictions, and establish a mentor/protege program for developing
8(a) Participants.
This rule would clarify that 8(a) BD eligibility decisions are
based on the facts before the Associate Administrator for 8(a) Business
Development (AA/8(a)BD) 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 field office of
the Division of Program Certification and Eligibility (DPCE) determines
that an application for the 8(a) BD 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 DPCE field office determines an application
to be complete. SBA believes that potential abuses would be greatly
lessened by the clarifications made in this rule.
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. Further, several typographical errors or inadvertent omissions
would be corrected by this proposed rule. Finally, several obsolete
references would be eliminated.
SBA invites comments on the proposed rule, and on any additional
ways to improve the 8(a) BD program.
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:
Section 121.103 would be amended so that certain joint venture
arrangements would be excluded from the normal affiliation rules. The
purpose of the proposal is to encourage contracting officers to use
small business contractors to a greater extent. With the consolidation
of procurements becoming an increasing reality, some contracting
officers may feel that requirements are too big for small business to
perform successfully. The proposed rule would permit two or more small
business concerns to joint venture for a particular procurement and be
considered a small business concern so long as each concern
individually was small. In other words, the joint venture would receive
an exclusion from the normal affiliation rules. SBA would not apply the
exclusion to all procurements, but, rather, only to higher dollar value
procurements where the likelihood that individual small business
concerns can successfully offer on and perform the requirement is
reduced. A large business could not, however, split into two smaller
business entities under the same control in order to joint venture for
a particular procurement reserved for small business.
Specifically, under the proposal, a joint venture of two or more
business concerns could submit an offer as a small business for a non-
8(a) federal procurement without regard to affiliation based on the
joint venture arrangement so long as each concern is small under the
size standard corresponding to the SIC code assigned to the contract
where the procurement exceeded a specified dollar amount. For a
procurement having a revenue-based size standard, the affiliation
exclusion would apply if the procurement exceeds half the size standard
corresponding to the SIC code assigned to the contract. For a
procurement having an employee-based size standard, the affiliation
exclusion would apply if the procurement exceeds $10 million. This same
rule would apply to competitive 8(a) procurements, with two additional
requirements. Pursuant to proposed Sec. 124.512(b), in order to receive
the exclusion from affiliation, there must be at least one 8(a) concern
to the joint venture which is smaller than one half the size standard
corresponding to the SIC code assigned to the procurement, and at least
51% of the work under the joint venture must be done by one or more of
these smaller 8(a) firms.
The proposed rule also would amend the size regulations to permit
firms approved by SBA under Sec. 124.519 to be a mentor and protege to
submit an offer as a joint venture and be considered a small business,
provided the protege qualifies as small for the size standard
corresponding to the procurement.
Sections 121.1001(a) and 121.1103(a) would be amended to permit
size protests and appeals of Standard Industrial Classification code
designations, respectively, in connection with competitive 8(a)
procurements. SBA believes that competitive 8(a) procurements should as
closely parallel normal Government contracting procedures as possible.
Size protests and SIC appeals would still not be available for sole
source 8(a) contracts.
Section 124.1 would be amended to delete unnecessary and
duplicative language.
Section 124.1(b) would be deleted as a separate subsection. The
substance of paragraph (b)(1) would be transferred to Sec. 124.501.
Present Sec. 124.2 would be deleted as unnecessary, administrative
material.
Present Sec. 124.3 would be deleted as unnecessary, administrative
material.
Present Sec. 124.4 would be deleted as obsolete since the
Commission on Minority Business Development completed its task and no
longer exists.
Section 124.5 would be deleted as unnecessary since proposed
Sec. 124.108(a) would provide for a review of an individual's
character.
Section 124.6 would be deleted and the substance of paragraph (b)
transferred to part 121 of this title for misrepresentations relating
to size status, and Sec. 124.501(i) for those relating to disadvantaged
status.
Section 124.7 would be eliminated as duplicative of Part 103 of
this title and Subpart 3.4 of the Federal Acquisition Regulation (FAR),
Title 48 of the Code of Federal Regulations.
Section 124.100 would be redesignated as Sec. 124.3. Those
definitions that SBA deemed to be unnecessary or obsolete due to other
changes in the proposed rule would be eliminated from this section.
Also, the definition of ``Unconditional ownership'' in present
Sec. 124.100 would be amended. The revised definition would explain
that a disadvantaged
[[Page 43586]]
owner may use his or her ownership interest (e.g., stock) in an
applicant or Participant concern as collateral for financing during the
normal course of business without affecting his or 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 applicants and
Participant concerns have the flexibility they need to raise necessary
capital. The requirement that disadvantaged owners ``unconditionally''
own and control an applicant or Participant concern would thus be
clarified so as to not restrict a firm's ability to raise capital under
normal commercial terms and conditions to assist it in becoming viable.
Present Sec. 124.100 would be amended further to correct a
typographical error in the definition of ``Primary industry
classification.''
Section 124.101 would be amended by rewording it for clarity, by
transferring the requirement for written eligibility decisions to new
Sec. 124.204(d), and by deleting paragraph (c), which is generally
contained in redesignated Sec. 124.112(c). The provisions relating to
reconsiderations would be written more plainly. An applicant denied
8(a) BD admission based solely on reasons of social disadvantage,
economic disadvantage, ownership or control would still have the right
to appeal to SBA's Office of Hearings and Appeals (OHA), and all
applicants would continue to have the right to reapply in 12 months
from the Agency's final decision denying program admission.
The portion of Sec. 124.101(a) concerning reconsideration and that
concerning appeal rights is duplicative of language currently contained
in Secs. 124.206(c) (1) and (2), respectively. SBA believes that it is
not needed in both places. In this rule, reconsiderations would appear
only in proposed Sec. 124.205, while appeal rights would appear only in
proposed Sec. 124.206. The first sentence of current Sec. 124.101(b)
would be transferred to proposed Sec. 124.112, and the remainder of
this paragraph would be deleted as obsolete.
Sections 124.102 (a) and (b) would be amended by eliminating
obsolete references. The proposed rule would further amend Sec. 124.102
by transferring the substance of paragraph (c) to proposed Sec. 124.112
and by transferring the substance of paragraph (d) to proposed
Sec. 124.501(h).
Section 124.103 would be amended by redesignating it as
Sec. 124.105 and by adding a new paragraph (a) that would require
direct ownership of 8(a) BD applicants or 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. SBA, however, recognizes the existence of
current trust and estate planning techniques, such as living trusts,
and invites comments on whether and, if so, how its ownership rules can
be liberalized to permit trust-owned concerns in the 8(a) BD program in
limited instances without violating the statutory requirement that 8(a)
BD concerns be owned by individuals, and also without permitting abuses
in the program.
Present Secs. 124.103 (a) and (b) would be redesignated to become
Secs. 124.105 (b) and (d). A new paragraph (c) would be added for
limited liability companies. Present Secs. 124.103 (c) and (d) would be
consolidated into proposed Sec. 124.105(e).
Pursuant to proposed Secs. 124.105 (g) and (h), 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 Participant, the 20 percent equity ownership limitations)
established by present Secs. 124.103 and 124.104.
Proposed Sec. 124.105(i) would make clear that a 8(a) BD concern
may substitute one disadvantaged individual for another without
invoking the termination for convenience/waiver provision of present
Sec. 124.317 (redesignated as Sec. 124.514 in the proposed rule) with
respect to any 8(a) contracts that it has been awarded. 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 present
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 Participant 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 Participant
concerns that termination of 8(a) contracts is not required in such
instances.
This proposed rule would also add a new Sec. 124.105(k), requiring
that SBA consider applicable state community property laws on the
respective ownership interests in an applicant concern or a
Participant. This revision would not be a change in current SBA policy.
Section 124.104 would become proposed Sec. 124.106 and its
introductory text would be amended to clarify that the applicant
concern must be actually controlled and managed by a disadvantaged
individual. The unexercised right of the disadvantaged individual to
bring about a change in the control or management of the applicant
concern is not adequate to satisfy this requirement.
Proposed Sec. 124.106(a) would be reorganized for greater clarity
and easier use. Of particular note, Sec. 124.106(a) would be amended to
specify that one or more disadvantaged individuals who are determined
to manage the applicant or Participant concern must devote full-time to
the business during normal business hours. This means that a
disadvantaged individual must be physically located at the offices of
the applicant or Participant concern during most normal business hours,
or devoting his or her full time efforts to the business away from its
offices through marketing and outreach. The term ``normal business
hours'' is intended to mean that the applicant or Participant concern
be open during the normal 40 hour work week of most business concerns.
Thus, an applicant would not meet this requirement if its disadvantaged
owner was present at the applicant's offices only at night or on the
weekends and worked outside the applicant during its normal business
hours. This rule does not imply that business activities of the
applicant or Participant concern could not be conducted by such
individual(s) outside the offices of the applicant or Participant
concern, nor does it prohibit a disadvantaged individual from
establishing a Participant concern at his/her home. Although this
proposed revision does not mean that the disadvantaged individual who
manages the applicant or Participant concern
[[Page 43587]]
cannot leave the concern's premises to conduct business, it does mean
that one or more disadvantaged owners must devote full-time to the
business of the applicant or Participant 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
Participant concern during normal business hours and claim that he or
she is managing the applicant or Participant concern from that
location.
In addition, proposed Sec. 124.106 would eliminate the requirement
that the disadvantaged owner(s) have, in every instance, the technical
expertise in the primary business classification of the applicant or
Participant. The rule would simply require that disadvantaged managers
must demonstrate that they have managerial experience to an extent and
complexity necessary to run the applicant or Participant. SBA believes
that sufficient management experience may be enough to overcome certain
technical deficiencies in a manager.
The proposed rule would add a new paragraph (b) clarifying the
control requirements for a partnership. The rule would require that one
or more disadvantaged individuals must serve as general partners, with
control over all partnership decisions. A partnership in which no
disadvantaged individual is a general partner would be ineligible for
8(a) BD participation. The proposed rule would add a new paragraph (c)
for limited liability companies.
Redesignated Sec. 124.106(d) would be amended along the lines set
forth above for proposed Sec. 124.101. This amended paragraph would
specify that the Board of Directors must actually be controlled by
disadvantaged individuals. The ability of a disadvantaged individual to
control the Board of Directors indirectly through his or her right to
vote his or 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) BD
program. Further, a quorum would require the presence of disadvantaged
individual(s) upon whom eligibility is based, and could not be
established to permit non-disadvantaged Directors to control the Board
of Directors. This paragraph would also provide that non-voting,
advisory or honorary Directors as well as Executive Committees may be
appointed so long as they do not possess negative control over the
Board or have the power to independently exercise the authority of the
Board between Board meetings. Similarly, a separate board of advisors,
particularly in the context of tribally-owned applicants and
Participant 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 Participant business
concern.
The proposed rule would revise redesignated Sec. 124.106(e)
(present Sec. 124.104(c)) to clarify that principals of corporations or
partners in a partnership are encompassed within the term ``former
employer.'' Although a corporation or a partnership may technically be
the former employer of a disadvantaged individual, a principal or
partner (general or limited) with greater than a 20% interest would be
treated as though he or she were the actual employer given their
potential to exert considerable influence over the individual upon whom
8(a) BD eligibility is based.
The requirements pertaining to social disadvantage would be moved
from present Sec. 124.105 to proposed Sec. 124.103. Paragraph (b) would
be amended to clarify that the presumption of social disadvantage for
members of designated groups is a rebuttable presumption. In addition,
redesignated Sec. 124.103(c) (present Sec. 124.105(c)) would be amended
to require an individual who is not a member of a designated socially
disadvantaged group to establish his or her social disadvantage by a
preponderance of evidence presented in the 8(a) BD application. This is
a change from the current regulation which requires that an individual
who is not a member of a designated group establish his or her social
disadvantage on the basis of clear and convincing evidence.
SBA asks for comments on how better to define specific designated
groups other than by requiring ``origins from'' specific countries. The
rule makes clear that ancestral country of birth alone is not
sufficient to make that country an individual's country of origin for
membership in a designated group, but SBA believes a heritage or
cultural requirement may be preferable to the ``origins'' requirement.
SBA also specifically seeks comments regarding how an individual who is
a member of a designated group can overcome his or her social
disadvantage. The proposed rule states that the presumption of social
disadvantage may be overcome with significant, credible evidence to the
contrary, and SBA seeks comments on its application.
Proposed Sec. 124.103(c)(2)(ii) would require that the social
disadvantage experienced by a non-group member be ``longstanding.''
This clarification would not change the substance of SBA's practice in
this area.
Proposed Sec. 124.103(c)(2)(iii) (present Sec. 124.105(c)(1)(v))
would be amended to clarify that, in evaluating whether an individual's
social disadvantage has had a negative impact on his or her entry into
and/or advancement in the business world, SBA will entertain any
relevant evidence, but would always consider the experiences of the
individual, where applicable, in education, employment and business
history. The failure to establish such disadvantage in any one or even
two areas (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 such disadvantage.
The proposed rule would move the economic disadvantage requirements
from Sec. 124.106 to proposed Sec. 124.104. Under the proposed rule, in
evaluating whether an individual is economically disadvantaged, SBA
would focus solely on the personal financial condition of the
individual. Factors in the current regulation pertaining to the
financial condition of the applicant concern and the applicant
concern's access to credit and capital would be eliminated as separate
requirements. The financial condition of the applicant concern would be
considered, but only in evaluating the individual's access to credit
and capital. The authorizing legislation for the 8(a) BD program
specifies that Participants must be owned and controlled by socially
and economically disadvantaged individuals. It requires SBA to consider
how the ability of socially disadvantaged individuals to compete in the
free enterprise system has been impaired due to diminished capital and
credit opportunities, but directs SBA to consider factors such as total
assets and net worth in assessing the degree of diminished capital and
credit opportunities. See 15 U.S.C. 637(a)(6)(A). The proposed rule
would clarify that these factors would continue to be the focus of
SBA's analysis of economic disadvantage.
The proposed rule would retain the current net worth limitations of
$250,000 for initial 8(a) BD eligibility, $750,000 for continued 8(a)
BD eligibility, and $750,000 for SDB eligibility. The proposed
regulation would further clarify that a contingent
[[Page 43588]]
liability does not reduce an individual's net worth.
The proposed rule would 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) BD
program would be presumed to be the property of the individual claiming
disadvantaged status. Currently, property or assets transferred by an
individual claiming disadvantaged status to a spouse within two years
of the date of 8(a) BD application is presumed to be the property of
the transferor, but current regulations are silent as to property or
assets transferred to children or other close family members. Several
applicants may have circumvented eligibility requirements by such
transfers. SBA believes that it should restrict this practice, lest it
allow firms into the 8(a) BD program that should be considered
ineligible.
The proposed rule would require an individual claiming
disadvantaged status to disclose to SBA all transfers of funds or other
assets to any immediate family member and to a trust the beneficiary of
which is one or more immediate family members for purposes of continued
program eligibility. At the time of the Participant's annual review,
each individual claiming disadvantage status would have to certify that
he or she made no transfers of assets to immediate family members
within two years, or that he or she made no transfers to immediate
family members within two years except as described on an attached
sheet. Any transfers within two years would be attributed to the
transferor in determining his or her continued economic disadvantage.
SBA is considering extending this requirement beyond immediate family
members so that any transfers for less than fair market value (e.g.,
gifts to charities) would be attributable to the transferor.
Proposed Sec. 124.107 would clarify the potential for success
requirements, without changing them substantively. Discussion of an
applicant concern's access to credit and capital, currently handled
under economic disadvantage in Sec. 124.106(a)(2)(iii), would be moved
to proposed Sec. 124.107(c), and several other paragraphs would be
revised for clarity and ease of use.
Section 124.108 would be amended for clarity. Proposed
Sec. 124.108(a)(4) would make an applicant to the 8(a) BD program
ineligible for program participation if the proprietor, a partner, a
director, officer or a holder of at least 10 percent of the stock, or a
key employee, is currently incarcerated, on parole or on probation
pursuant to a pre-trial diversion or following conviction for a felony
or any crime involving business integrity. This provision parallels a
similar provision in Part 120 of SBA's regulations, dealing with
ineligibility for SBA financial assistance. It would also now include a
new paragraph (c) that states that any wholesaler that applies for 8(a)
BD participation need not demonstrate that it can supply the product of
a small business manufacturer. Although SBA's nonmanufacturer rule
generally requires a regular dealer or wholesaler to supply the product
of a small business in order to be considered small for a specific 8(a)
or small business set aside procurement), the 8(a) BD program should
not be viewed solely as a contracting program. There is other business
development assistance available to Participants which should not be
foreclosed because of the nonmanufacturer rule. Moreover, the
availability of small business manufactured products can change
significantly over a Participant's program term. Wholesaler applicants
to the 8(a) BD program should be aware, however, that they must meet
the requirements of the nonmanufacturer rule in order to be awarded
specific 8(a) contracts.
In addition, a new Sec. 124.108(d) would be added that would
authorize SBA, in its discretion, to reject an application if the
applicant's primary industry classification falls within an industry
where actual participation by disadvantaged businesses in Government
contracting in a particular industry exceeds the benchmark limitations
established under the DOJ proposal by the Department of Commerce for
that industry. SBA would consider the developmental needs of the firm,
as well as contracting opportunities outside its primary SIC code. A
firm whose application was rejected on this basis could resubmit its
application earlier than the normal 12 month waiting period whenever
the benchmark was adjusted or a determination made that the benchmark
was no longer exceeded. Similar language regarding the achievement of
benchmarks in a particular industry would also be added to new
Secs. 124.302(c) and 124.403(c) to permit SBA to accelerate graduation,
and would be added to Sec. 124.504(d) to permit SBA not to accept an
8(a) offering in an industry in which the benchmark is achieved.
The proposed rule would delete current Sec. 124.109. Some of these
provisions are duplicative of other sections of part 124, or part 121,
or the Federal Acquisition Regulation. A few have been incorporated
elsewhere in this proposed rule. The rule also proposes to delete
franchisees as businesses that are ineligible (i.e., making them
eligible) for 8(a) BD participation.
Current section 124.110 would be clarified, streamlined, and
redesignated as proposed Sec. 124.2.
Proposed Sec. 124.112(c) repeats the current provision (current
Sec. 124.111(d)) that SBA will review a Participant's eligibility upon
receipt of information that the Participant no longer meets continued
8(a) eligibility requirements. The proposed rule requires that the
information received be ``specific'' and ``credible.'' Under the
proposed rule, sufficient reasons for SBA to conclude that a
Participant is no longer economically disadvantaged include, but are
not limited to, demonstrated access to a significant new source of
capital or loans, an unusually large amount of funds or other assets
withdrawn from the concern by its owners, or substantial personal
assets, income or net worth of any disadvantaged owner. The term
``excessive withdrawals'' is defined elsewhere in the proposed
regulation at Sec. 124.303(a)(13). SBA asks for comments on how better
to clarify a ``demonstrated access to a significant new source of
capital or loans.''
Proposed Sec. 124.112 would also add needed enforcement mechanisms
to the existing regulation discouraging excessive withdrawals from
Participants by their owners or managers. Certain Participants have
suggested that, if net worth continues to increase, large withdrawals
should be allowed as not detrimental to attainment of their business
objectives. SBA disagrees, and believes this restriction is necessary
to safeguard the development of Participant concerns toward economic
viability. Participants will increase their net worth more and will
achieve greater success if they avoid excessive withdrawals by their
owners and managers.
Section 124.112, redesignated as proposed Sec. 124.109, eliminates
the present paragraph (c)(2)(iv) which previously allowed a Participant
owned by an Indian tribe to joint venture with a large concern to
perform an 8(a) contract. The statutory authority for this provision
has expired. Proposed Sec. 124.109 also would delete other obsolete and
duplicative provisions. Additionally, it would eliminate the
requirement that a tribally-owned or ANC-owned concern demonstrate that
the primary economic benefits of the concern accrue to the tribe or ANC
by
[[Page 43589]]
being located on tribally-owned or ANC-owned land or otherwise. SBA has
previously interpreted the requirement as not applying to ANC-owned
concerns, but believes that it should also not apply to tribally-owned
concerns. In other ways the proposed rule would treat tribes and ANCs
and their 8(a) entities more similar. Tribes and ANCs would be
restricted from qualifying a new 8(a) concern possessing the same
primary SIC as another 8(a) concern only if the other concern has been
operating in the 8(a) program within the previous two years. Finally,
it would more narrowly focus management restrictions on tribally-owned
concerns to enhance development opportunities.
Section 124.113, redesignated as Sec. 124.110, would add an
exclusion from affiliation for concerns owned by a Native Hawaiian
Organization, prohibit a Native Hawaiian Organization from owning more
than one current or former Participant having the same primary industry
classification, and exclude from the one-time individual eligibility
requirement any individual who merely manages a concern owned by a
Native Hawaiian Organization. These changes would achieve consistency
with restrictions on other non-individual owners.
The proposed rule would redesignate Sec. 124.114 as Sec. 124.111.
Equating CDCs with Indian tribes, the proposed rule would permit
concerns that are at least 51% owned by a wholly owned business entity
of a CDC to be eligible for 8(a) BD participation.
It would amend Sec. 124.201 by deleting the last sentence of this
section which became obsolete when waivers to the two year in business
rule were statutorily required, and amend section 124.202 to revise
obsolete language and clarify its meaning. It would transfer
Sec. 124.203 to the sections pertaining to business development,
redesignating it as proposed Sec. 124.401.
It would delete Sec. 124.204 as duplicative of language in other
sections of part 124, and redesignate Sec. 124.205 as Sec. 124.203.
Section 124.206, redesignated as proposed Sec. 124.204, would
delete duplicative language from paragraph (a), which is contained in
proposed Sec. 124.206, and add new proposed Secs. 124.204 (b) and (c).
For further clarity, this section would delete obsolete and duplicative
language in current Secs. 124.206 (b) and (c), and redesignate current
Sec. 124.206(c)(4) as a separate proposed Sec. 124.207.
Proposed Sec. 124.204(b) would further clarify that the AA/8(a)BD's
decision to approve or decline an application for 8(a) BD program
participation would be based on whether the applicant concern complied
with each of SBA's eligibility criteria at the time the concern's
application for admission to the 8(a) BD program is deemed to be
complete by the DPCE field office. A change in circumstances submitted
by an applicant concern subsequent to the date that an application is
deemed to be complete by the DPCE field office would not be considered,
unless it causes a loss of eligibility. The structure of the concern,
including all necessary corporate or other organizational formalities,
would have to be in place prior to the DPCE field office's processing
of an application. A disadvantaged individual's ability to immediately
change the applicant's structure or cause 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. SBA would
obviously consider any information submitted in response to a request
by SBA.
The decision of the AA/8(a)BD to approve or decline an application
for 8(a) BD 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) BD
application, SBA would not consider information volunteered 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.
The proposed rule would redesignate Sec. 124.207 as Sec. 124.301,
amend redesignated Sec. 124.302 by revising obsolete references, and
specifically authorize a Participant to voluntarily ``graduate'' prior
to the expiration of its program term.
The examples of what constitutes ``good cause'' for terminating a
Participant from the 8(a) BD program would be amended from current
Sec. 124.209(a) in proposed Sec. 124.303. Several examples of good
cause previously listed for terminating a Participant would be dropped
in the proposed rule and a few new examples would be added. As before,
the examples of ``good cause'' are illustrative only. SBA's decision to
drop several examples of good cause should in no way be read to infer
that SBA no longer considers those situations as valid reasons for
termination. That is not SBA's intent. The proposed rule would also
define what constitutes an ``excessive'' withdrawal for purposes of
determining whether termination is warranted.
The procedures for graduation and termination currently contained
in Secs. 124.208 and 124.209 would be combined into proposed
Sec. 124.304 to eliminate unnecessary duplication and clarify confusing
language. The term graduation previously used in the regulations would
be changed to ``early graduation.'' Through the years, many people have
used the terms ``graduation,'' ``graduation date,'' and ``graduated
8(a) firm'' to describe the situation where a Participant has exited
the 8(a) BD program through nothing more than the expiration of its
program term. This proposed rule would recognize the use of the term
graduation in this context, and would refer to graduation prior to the
expiration of a firm's program term under proposed Secs. 124.302 and
124.304 as ``early graduation.''
Where an SBA district office initiates early graduation or
termination by sending a Notification of Early Graduation or
Termination to the concern, the allowable response time would be
reduced from 45 days to 30 days after service of the Notification (the
date that it is mailed, FAXed or hand delivered to the concern). SBA
would then review any information submitted by the concern. If the
Assistant Administrator of the DPCE decides that early graduation or
termination is not appropriate, he or she will notify the concern. If
it appears appropriate, the Assistant Administrator will forward that
recommendation to the AA/8(a)BD for a final decision. SBA will not take
early graduation lightly, but will initiate it in appropriate
circumstances. As part of the early graduation process, SBA will also
attempt to reduce any adverse impact on the Participant's business
development.
Current section 124.210 would be eliminated as a separate section
setting forth all appeal rights to SBA's Office of Hearings and Appeals
for the 8(a) BD program. Appeal rights for denials of 8(a) BD
eligibility would be contained in proposed Sec. 124.206, while the
appeal rights for early graduation, termination, suspension, or denial
of a request for waiver under current Sec. 124.317 would
[[Page 43590]]
be contained in the proposed sections dealing with those substantive
areas. A minor revision would be made to the first sentence of
paragraph (b), and a new second sentence added to clarify that an OHA
decision is the final Agency decision. The remainder of paragraph (b)
and paragraphs (c), (d), (e), (f), (g), (h), (i), and (j) would be
moved from part 124 to a new subpart C of part 134 of this chapter.
Current section 124.211 would be redesignated as proposed
Sec. 124.305. Redesignated Sec. 124.305 would be amended to revise
obsolete references, and reorganized to transfer procedural rights for
OHA appeals to part 134 of this title. The period to file an appeal
would be extended from 30 to 45 days to be consistent with part 134.
SBA is also considering ``suspension'' as a tool where ownership or
control changes and a Participant seeks approval of its changed
ownership or control. Where ownership or control of a Participant
changed prior to SBA's approval, and the Participant seeks SBA's
approval after the fact, SBA would suspend the Participant pending
SBA's resolution of the request to change its ownership or control.
The proposed rule would separate general business development
provisions and those dealing with contractual assistance into two
distinct substantive categories. Thus, the provisions currently
contained in Secs. 124.300-124.321 would be separated into Business
Development (proposed Secs. 124.401-124.405) and Contractual Assistance
(proposed Secs. 124.501-124.519). Most of these provisions would be
reorganized and/or clarified under the proposed rule.
Section 124.300 would be deleted from the final rule as
unnecessary.
Section 124.301 (proposed Sec. 124.402) would be divided into more
subheadings for ease of use. It would eliminate the requirement that a
Participant must have specified SIC codes in its approved business plan
(other than the entry requirement that an applicant must identify its
primary SIC code for initial size eligibility), and no longer treat a
concern as ineligible for any 8(a) contracting opportunity for which a
contracting officer has assigned a SIC code not in its approved
business plan. SBA believes that a Participant should not be denied the
opportunity to receive and perform an 8(a) contract where a procuring
agency determines the firm to be capable to perform the requirement,
simply because the firm does not have a particular SIC code in its
approved 8(a) business plan. This also eliminates the need for a
Participant to go through a sometimes lengthy and burdensome process
seeking to add additional SIC codes to its business plan after being
admitted to the 8(a) BD program. While an applicant would still be
required to give a detailed description of the products it produces and
services it performs, SBA would not prohibit the award of an 8(a)
contract solely because a product or service is not so identified. In
such a case, the Participant would still have to demonstrate its
capability and other aspects of responsibility to perform the contract
in question. As long as that burden is met, the Participant could be
awarded the subcontract. Identifying SIC codes, however, may be
beneficial to a concern because it will help SBA in providing business
development assistance.
An applicant must still identify its primary industry
classification. This identification is needed in order to permit SBA to
determine initial size eligibility. The requirement to submit an annual
capability statement would be moved from the miscellaneous reporting
requirements provision of current Sec. 124.501 to be included within
the requirement defining how a business plan is updated (proposed
Sec. 124.403). That part of current Sec. 124.501(a) addressing what SBA
does with capability statements would be moved to proposed
Sec. 124.501(e) of this proposed rule.
Section 124.303 (proposed section 124.404) would be revised by
eliminating obsolete references to the dates certain Participants were
admitted to the program or received their first 8(a) contract. Those
provisions were relevant to the length of 8(a) BD participation at the
time Public Law 100-656 was enacted, but are not relevant today. The
section would also be rewritten for clarity.
The reserved sections 124.304 and 124.305 would be eliminated in
this proposed rule.
Section 124.306, financial assistance for skills training, would be
eliminated from the regulations in the proposed rule because SBA has
not received funding from Congress for this program.
The proposed rule would add a new section 124.405, detailing how a
Participant may obtain Federal Government surplus property. The
authority for Participants to receive Federal surplus property was
created in Public Law 100-656. Section 301(b) of the Business
Opportunity Development Act of 1988, Pub. L. 100-656, 102 Stat. 3853,
amended the Small Business Act by adding a new section 7(j)(13)(F), 15
U.S.C. 636(j)(13)(F), which authorizes the transfer of surplus property
owned by the Federal Government to Participants under certain
conditions. This proposed rule would implement that authority in
regulation form for the first time.
The proposed rule would detail the procedures for, and conditions
upon which, the transfer of Federal Government surplus property could
be made to Participants. Such transfers would be made from the U.S.
General Services Administration (GSA) through State Agencies for
Surplus Property (SASPs) to eligible Participants. Transfers to SASPs
from GSA would be made in accordance with the procedures set forth in
41 CFR Part 101-44. Although the statutory language of section
7(j)(13)(F) of the Small Business Act, 15 U.S.C. 636(j)(13)(F),
authorizes that ``such property * * * be transferred to program
participants on a priority basis,'' the proposed rule would permit
Participants to participate in the surplus property distribution
program administered by the SASPs to the same extent as, but with no
special priority over, other authorized donees. See 41 CFR Subpart 101-
44.2. The Participant would have to certify in writing that it is
eligible to receive the property and that it will use the property only
for normal business activities. The Participant would have to agree to
a fair market value assigned to the acquired property, and if the firm
were to sell the property before one year after exiting the program, it
would have to repay to the Federal Government the agreed upon fair
market value of the property, or the sales price, whichever was
greater.
The proposed rule would detail the eligibility requirements a
Participant must meet to obtain Federal surplus property. Generally, a
Participant would be able to receive surplus property if it is in good
standing with the 8(a) BD Program as of the date it is to receive the
property. The firm would have to be in compliance with all reporting
requirements imposed by program management, and must not have been
debarred or suspended from receiving contracts. The firm also could not
be the subject of any termination or early graduation proceedings.
Finally, the firm would have to qualify as a small business for at
least one product or service identified in its business plan that it
produces or performs.
Proposed Secs. 124.501-124.517 would contain most of the substance
currently in Secs. 124.307-124.321, but in a revised organizational
structure for easier use. Proposed Secs. 124.518 and 124.519 would be
new provisions.
Section 124.307 (proposed section 124.501) would be redrafted for
clarity and revised by adding a provision
[[Page 43591]]
encouraging Participants to self-market their capabilities to increase
their chances of receiving 8(a) sole source contracts. SBA believes
that it is vital that Participants realize the importance of self-
marketing to their development in the 8(a) BD program. This revised
section would also recognize that SBA may delegate its 8(a) contract
execution function to procuring agency contracting officers where
appropriate. It is SBA's intent to enter into a Memorandum of
Understanding (MOU) with each procuring agency or activity that wishes
to receive a delegation of SBA's 8(a) contract execution and review
functions. SBA has a model MOU that would be modified according to the
particular circumstances of each agency or activity. It would only be
the rare case where SBA would not approve an MOU signed by an agency or
activity. SBA would, however, have the authority to rescind the
delegation where it saw fit. This would include cases where an agency
or activity failed to report all 8(a) contract awards, modifications,
and options to SBA in a timely manner.
The proposed rule would clarify the requirements relating to offers
and acceptances of procurements for the 8(a) BD program. Currently,
both the offer and acceptance processes are contained in Sec. 124.308.
The proposed rule would separate the offering provisions from the
procedures relating to SBA's acceptance of a procurement into proposed
Secs. 124.502 and 124.503, respectively.
Section 124.308(c) (proposed Sec. 124.502(b)) would specify the SBA
locations to which contracting officers must offer requirements to the
8(a) BD program. This clarification is needed in light of other recent
changes made by SBA in eliminating local and national buy requirements.
Under the proposed rule, all requirements that are offered to the 8(a)
BD program as competitive procurements and those sole source
requirements that are offered to the program without nominating a
specific Participant (i.e., open requirements) would be offered to the
SBA district office serving the geographical area in which the offering
procuring agency is located. The only exception to this provision would
be in the case of a construction requirement where the work to be
performed is in a different location than that of the procuring agency.
In such a case, an offering must be made to the SBA district office
serving the geographical area in which the work is to be performed.
Sole source requirements that are offered to the 8(a) BD program on
behalf of a specific Participant would be offered to the SBA district
office serving the geographical area in which the principal place of
business of the Participant is located.
SBA's verification of the SIC code assigned to a particular 8(a)
contract would be moved from Sec. 124.308(b)(1)-(2) (where it was part
of the ``requirement identification'' process) to proposed
Sec. 124.503(b) (where it is clearly identified as a step in SBA's
acceptance of a procurement for the 8(a) BD program).
The proposed rule would amend the provision dealing with formal
technical evaluations (proposed Sec. 124.503(e)). Specifically, SBA
would exclude Brooks Act procedures applying to architect-engineer
services (as set forth in FAR subpart 36.6) from the general
requirement that SBA will not authorize formal technical evaluations
for sole source 8(a) requirements. In practice SBA has recognized the
Brooks Act procedures, but believes that a specific provision in the
regulations would clarify its policy in this regard.
The proposed rule would add a new provision pertaining to Basic
Ordering Agreements (BOAs) as a method of contracting under the 8(a)
program (proposed Sec. 124.503(g)). Under SBA's current regulations,
SBA believes that BOAs could be used to circumvent the statutory
requirement that 8(a) procurements with an anticipated award value in
excess of $3 million or $5 million be competed among eligible
Participants. Each order issued under a BOA, and not the BOA itself, is
a contracting action. A procuring agency could issue a series of $2-3
million task orders under a BOA without ever competing the basic
procurement requirement. SBA believes that this is contrary to
Congressional intent. As such, under the proposed rule, SBA would not
accept any task order for award as an 8(a) contract if that task order
added to the total task orders issued to date would exceed the
applicable competitive threshold amount, unless the BOA itself was
awarded on the basis of competition among eligible Participants. SBA
would also 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) BD program.
Proposed Sec. 124.504 would clarify the circumstances limiting
SBA's ability to accept a procurement for award as an 8(a) contract.
Existing Secs. 124.309 (a) and (b) would be combined into one paragraph
(proposed Sec. 124.504(a)). The proposed rule would add a new provision
(proposed Sec. 124.504(b)) that would prohibit a procuring agency from
initiating the competitive process for an 8(a) requirement prior to
obtaining SBA's acceptance of the requirement for the 8(a) BD 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) BD program, the requirement would have to be offered to and
accepted by SBA for the 8(a) BD program, and the procuring agency would
have to use applicable 8(a) competitive procedures after the
acceptance. A new solicitation would have to be issued, and new offers
submitted and evaluated.
The proposed rule would broaden the concept of adverse impact
(current Sec. 124.309(c); proposed Sec. 124.504(c)), finding that
``adverse impact'' could be found to exist where several requirements
currently being performed by different small business concerns are
consolidated into one larger requirement which could be considered
``new'' under SBA's regulations due to the magnitude of the
consolidated requirement. This rule would permit SBA to find adverse
impact whenever at least one of the small business concerns losing work
that is to be consolidated meets the presumption of adverse impact. The
proposed rule would also add objective criteria for determining whether
a requirement is new. Under the proposal, the expansion or modification
of an existing requirement would be considered a ``new'' requirement
where the price (adjusted for inflation) increases by more than 25% or
where significant additional capabilities are added to the requirement.
Proposed Sec. 124.504(e) would clarify the limited instances where
SBA may reject the offer of a repetitive 8(a) acquisition to give a
Participant that is leaving or has left the 8(a) BD program the
opportunity to compete for the requirement outside the 8(a) BD program.
The proposal would require the applicable (former) Participant to
qualify as a small business concern for the requirement now offered to
the 8(a) BD program before SBA considers releasing the requirement from
the 8(a) BD program.
The proposed rule would eliminate section 124.310 as unnecessary or
duplicative. Debarment and suspension is adequately covered in the FAR.
Current Sec. 124.314 (proposed Sec. 124.509), deals with the required
percentages of work that a Participant must perform on any 8(a)
contract and need not be duplicated in this section.
[[Page 43592]]
Current section 124.311 would be separated into two sections:
proposed Sec. 124.506, regarding the dollar thresholds above which
procurements accepted for 8(a) award must be competed among eligible
Participants, and proposed Sec. 124.507, describing the procedures that
apply to competitive 8(a) procurements. Proposed Sec. 124.506 would
eliminate unnecessary language, but leave most of the substance of
current Secs. 124.311 (a)-(e) unchanged. It would clarify that there is
no order of precedence between accepting requirements for competition
and accepting requirements for sole source award above the applicable
threshold amounts for a tribally-owned or ANC-owned concern. Current
Sec. 124.311(d) permits SBA to accept a contract opportunity above the
applicable competitive threshold amount for a sole source 8(a) award
where SBA determines that only one eligible Participant in the 8(a) BD
portfolio is capable of performing the requirement at a fair price. The
proposed rule would eliminate this authority. SBA believes that such a
requirement should either be awarded under the sole source authority of
the FAR, if applicable, or competed as a small business set aside
requirement or as an SDB set-aside contract, where appropriate.
Proposed Sec. 124.507 would set forth the procedures applicable to
competitive 8(a) procurements. This proposed section would clarify how
SBA determines whether an apparent successful offeror in an 8(a)
competition is eligible to receive the award. SBA believes that the
eligibility process will be much easier to follow and understand under
this proposal. The proposal would also clarify which Participants
engaged in construction may submit offers in response to competitive
8(a) construction requirements. The proposed rule would limit
eligibility to those Participants located within the geographical
boundaries of one or more SBA district offices (looking first to the
district office serving the area in which the work is to be performed).
Any concern with a bona fide place of business in the applicable
geographic area would be eligible for the procurement. In order to be
considered a bona fide place of business, the Participant would have to
regularly maintain an office which employs at least one full-time
individual within that geographical boundary. Construction trailers or
other temporary construction sites would not qualify as bona fide
places of business under the regulation, nor would merely occupying a
government-furnished office to oversee the performance of a specific
contract qualify as having a bona fide place of business within that
geographic location. The term is meant to extend beyond one or more
individual contracts. SBA specifically requests comments on how best to
define ``bona fide place of business,'' and how eligibility for 8(a)
construction procurements should be limited.
Proposed Sec. 124.507(b)(5) would add the Certificate of Competency
(COC) procedures to competitive 8(a) procurements. Where a procuring
agency contracting officer finds the apparent successful offeror for a
competitive 8(a) procurement not to be responsible to perform the
contract, he or she would be required to refer the Participant to SBA
for a possible COC under the procedures set forth in Sec. 125.5 of this
chapter. SBA seeks to make competitive 8(a) procurements as similar as
possible to non-8(a) Government contracting procedures. COC procedures
would not, however, be available for sole source 8(a) procurements. In
most cases, the procuring agency would have selected the Participant
for the sole source contract by assessing the firm's capabilities prior
to offering the procurement to SBA. It is unlikely that the procuring
agency would select a Participant, go through negotiations with the
firm, and then find the firm not to be responsible. If that does
happen, or if the procuring agency determines that a firm nominated by
SBA for an open requirement cannot perform the contract, SBA would
review the situation to determine whether it agrees with the procuring
agency. If SBA agrees, it can nominate another Participant to perform
the contract, if one exists that is found to be eligible and
responsible for the requirement, or it can permit the agency to
withdraw the requirement from the 8(a) program if an eligible and
responsible Participant is not found. If SBA does not agree, it can
appeal the procuring agency's decision to the head of the procuring
agency pursuant to Sec. 124.505.
Proposed Sec. 124.507(d) (current Sec. 124.311(i)) would clarify
SBA's implementation of Sec. 8(a)(1)(C) of the Small Business Act, 15
U.S.C. Sec. 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) BD program. Of particular note, 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 only legislative
history to the statutory provision authorizing competitive 8(a) awards
to firms which have completed their terms of participation in the 8(a)
BD program indicates that Congress did not want Participants to go
through the expense of submitting offers for competitive 8(a)
procurement requirements only to be told that they were ineligible for
such requirements months later at the time of award. See 136 Cong. Rec.
S17645, S17648 (daily ed. October 27, 1990) (statement of Sen.
Bumpers). In addition, Congress was concerned that competition among
firms in the later stages of program participation would be discouraged
if firms felt that they could be deemed ineligible after going through
the expense of preparing an offer for a competitive 8(a) procurement
requirement. Id.
The proposed amendment would be consistent with these Congressional
purposes. The date for determining eligibility is firmly established
and cannot 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 cannot be prepared amid uncertainty that
the date for determining eligibility could be changed. As such, firms
are not dissuaded from participating in 8(a) competitive procurements
during the later stages of their participation terms.
Proposed Sec. 124.508 would contain the requirements relating to
competitive business mix targets. The proposed rule would eliminate
obsolete language contained in current Sec. 124.312 regarding modified
business activity targets. It would also tighten the language
throughout the section, eliminating unnecessary wording where
appropriate.
Proposed Sec. 124.508(d) would revise SBA's policy on imposing
remedial measures on Participants that fail to meet their applicable
competitive business mix targets. Recent audits and reports have
revealed that SBA needs to do a better job of encouraging firms to
develop in ways that will ensure their success in the competitive
marketplace after program completion. Too many firms are not meeting
competitive business mix targets during the transitional stage of
program participation.
If a Participant fails to meet its competitive business mix target
during any year in the transitional stage, it would be ineligible for
sole source 8(a) contracts during the succeeding program year unless
the Participant corrects the situation. A Participant that fails to
meet its applicable competitive business mix target during the
transitional stage of program
[[Page 43593]]
participation may attempt to meet the competitive business mix target
as part of the normal annual review process, or it may elect to submit
quarterly information regarding its non-8(a) revenue and contract
awards in an attempt to comply with the competitive business mix
requirements prior to its annual review. Where the Participant elects
to submit information to SBA, SBA would monitor the Participant's
revenues quarterly to determine whether the Participant has come into
compliance. At its 3-month or 6-month review, a Participant would be
required to demonstrate that it has received non-8(a) revenue and/or
new non-8(a) contract awards that are equal to or greater than the
dollar amount by which it failed to meet its competitive business mix
target for the just completed program year in order to again be
eligible to receive 8(a) sole source contracts for the remainder of the
program year. Compliance with the competitive business mix target for
that program year would again be determined at the end of the program
year. If the firm did not meet that target, it would again be
ineligible for 8(a) sole source contracts in the succeeding program
year unless and until it came into compliance during the succeeding
program year. In order for a Participant to come into compliance with
the competitive business mix target during the last six months of the
current program year (i.e., at either the nine-month or one year
review), it would be required to demonstrate that it has achieved its
competitive business mix target as of that point in the current program
year. At the 9-month or one-year review, SBA would look at all revenues
received during that program year (including options and modifications)
to determine whether the firm has achieved the competitive business mix
target for that year. If it has, it would again be eligible for 8(a)
sole source contracts; if it has not, it would remain ineligible for
8(a) sole source contracts. Additional remedial measures would continue
to be authorized where appropriate, including program termination where
the Participant makes no good faith efforts to obtain non-8(a)
revenues.
Current section 124.313 would be eliminated as unnecessary.
Proposed Sec. 124.509 would incorporate the substantive provisions
currently contained in Sec. 124.314, but would cross reference the
performance of work requirements contained in Sec. 125.6 of this
chapter. Proposed Sec. 124.510 would do the same for those requirements
currently contained in Sec. 124.315. Again, clarification would be made
wherever appropriate.
Proposed Sec. 124.511 would authorize SBA to delegate all
responsibilities for administering an 8(a) contract to the appropriate
procuring agency contracting officer except for the approval of
novation agreements. It would eliminate the reference to advance
payments contained in current Sec. 124.316. It clarifies that a
procuring agency may execute an in-scope 8(a) modification without
SBA's signature.
Proposed Sec. 124.512 would set forth the requirements for entering
into a joint venture agreement to perform an 8(a) contract. SBA
proposes several changes to this section from the provisions currently
contained in Sec. 124.321. Proposed Sec. 124.512(a)(2) would require
that a Participant seeking to joint venture with another firm 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 SBA concludes that
the 8(a) concern brings very little to the joint venture relationship
except its 8(a) status, SBA will not approve the joint venture
relationship. An 8(a) concern may lack the necessary management,
technical and financial capacity to perform a contract the size of the
joint venture contract on its own, but it 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 the 8(a) concern will
not be developing its own capabilities in any meaningful way, the joint
venture will not be approved. It is also SBA's intent to delegate the
approval of joint venture relationships from the AA/8(a) to the local
SBA district offices.
As described above for amendments to the size regulations, the
proposed rule would permit joint ventures for competitive 8(a)
procurements between two or more small businesses (at least one of
which is an 8(a) Participant whose size is smaller than one half the
size standard corresponding to the SIC code assigned to the
procurement--an eligible 8(a) Participant) so long as each small
business is individually small. One of the eligible 8(a) Participants
must be the lead entity in the joint venture, and the eligible 8(a)
Participants combined must perform the applicable percentage of work
required by proposed Sec. 124.509.
Joint ventures for sole source 8(a) procurements and competitive
8(a) procurements that do not exceed one half the size standard
corresponding to the SIC code assigned to the procurement would
continue to be authorized under current requirements, unless a mentor/
protege relationship exists, as discussed below. The joint venture
partners would be considered affiliates, and their revenues or
employees aggregated in determining whether the joint venture qualifies
as small.
The rule would also move certain requirements contained in ``Other
requirements'' of current Sec. 124.321(d) to provisions that must be
contained in the joint venture agreement itself.
The proposed rule would transfer current Sec. 124.321(i) concerning
joint ventures for Small Disadvantaged Business (SDB) set-asides and
evaluation preferences to proposed Sec. 124.1002(f) of subpart B of
these regulations. SBA believes that moving SDB joint ventures into the
subpart dealing with SDB protests and appeals makes more sense
organizationally.
Proposed Sec. 124.513 would contain the provisions currently
contained in Sec. 124.318, but eliminate duplicative language.
The provisions of Sec. 124.317 requiring an 8(a) contract to be
performed by the Participant that was initially awarded it, and
requiring the contract to be terminated for convenience if there is a
change in the ownership or control of the concern, would be
incorporated into proposed Sec. 124.514, with minor clarifications. The
proposed rule would specify that only physical or mental incapacity
(and not factors like criminal incarceration or bankruptcy) could
justify a waiver of the termination for convenience requirement imposed
by this section. In addition, this section would make clear that the
concern requesting a waiver must demonstrate that it has met the
grounds upon which the waiver is being sought. The Agency need not
consider and dismiss every possible basis for waiver. Finally, with
respect to determining whether a Participant seeking to acquire
ownership or control in another Participant is ``otherwise eligible''
to receive the award directly, the proposed rule would require SBA to
consider whether prior to the transaction the acquiring Participant is
eligible for and responsible with respect to each contract to be
transferred. For example, were a concern with ten employees seeking to
acquire a concern with 150 employees, responsibility would be
considered prior to the transaction (i.e., could the ten-employee
concern
[[Page 43594]]
perform the transferring contracts without the resources of the 150-
employee concern).
The proposed rule would add a new paragraph 124.517(c), clarifying
that SBA may substitute one 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. The original 8(a) concern would be
liable for any reprocurement costs, as is now the case.
The proposed rule would separate current Sec. 124.320 into two
sections: One dealing with SBA appeals of the terms and conditions of a
particular 8(a) contract or of a procuring agency decision not to
reserve a requirement for the 8(a) BD program (proposed Sec. 124.505);
and one concerning contract disputes arising between a Participant and
a procuring agency after the award of an 8(a) contract (proposed
Sec. 124.515). Both are clarified for easier use.
Proposed Sec. 124.505 would specify that SBA may appeal to the head
of the procuring agency a contracting officer's decision to reject a
specific Participant for award of an 8(a) contract after SBA's
acceptance of the requirement for the 8(a) BD program. This basis for
appeal has been used many times in practice. SBA believes that it
should be added to the regulation to apprise all contracting officers
of its existence.
Proposed Sec. 124.515 would improve the language of current
Sec. 124.320(a), eliminating unnecessary references to advance
payments, business development expense, and surety bond waivers (all
three of which the proposed rule would also eliminate).
The proposed rule would add a third appeal-related section,
pertaining to the ability of another party to question the eligibility
of a Participant for award of an 8(a) contract (proposed Sec. 124.516).
No party may challenge the eligibility of a Participant for a specific
sole source or competitive 8(a) requirement at SBA or any other
administrative forum. The authority to determine eligibility for an
8(a) contract is exclusively SBA's. 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.
Prior to the enactment of Public Law 100-656, there were no 8(a)
competitive requirements, and it was clear that a determination
concerning a Participant's eligibility for specific 8(a) contract
awards was exclusively within the jurisdiction of SBA's Office of
8(a)BD. After the enactment of Public Law 100-656, SBA's regulations
were amended to specify that eligibility protests would not be
authorized for competitive 8(a) procurements. This notified interested
parties that SBA intended to make eligibility for competitive 8(a)
procurements consistent with SBA's longstanding practice with regard to
sole source 8(a) procurements (that is, that the Office of 8(a)BD
(Minority Small Business and Capital Ownership Development (MSB&COD) at
that time) would retain exclusive authority for determining eligibility
for any 8(a) contract). The current regulations contain specific
language regarding protest restrictions for competitive 8(a)
procurements, but not for sole source procurements. This proposed rule
would clarify that these restrictions were always meant to apply to
both sole source and competitive 8(a) procurements. 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. Paragraph 124.311(g) would be deleted as
unnecessary.
SBA has historically included a Participant's size as part of a
concern's eligibility that cannot be protested. This proposed rule
would amend that policy with respect to competitive 8(a) contracts.
Another offeror for a competitive 8(a) contract would be able to
protest the size status of the apparent successful offeror in accord
with part 121 of this chapter. In addition, the proposed rule would
authorize appeals of SIC code designations in connection with 8(a)
competitive requirements. The policy for size protests and SIC appeals
would, however, remain unchanged for sole source 8(a) contracts (i.e.,
size protests would not be authorized for sole source 8(a) contracts;
SIC appeals would not be permitted for sole source contracts, except by
the AA/8(a)BD). In connection with a sole source 8(a) contract, 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.
SBA is currently examining ways to further address the perceived
problem of concentration of 8(a) contracts. Concerns about contract
concentration have been cited by several SBA oversight entities,
including the General Accounting Office, SBA's Office of Inspector
General, and the U.S. Senate and House of Representatives Committees on
Small Business. SBA believes that it has addressed this issue, in part,
by removing the indefinite delivery, indefinite quantity exception to
competition (see 60 FR 29969, 29971-72 and 29976), and by limiting sole
source 8(a) awards as described below in proposed Sec. 124.518.
Although not part of this rulemaking, SBA wishes to solicit comments on
how best to achieve a broader distribution of 8(a) contracts beyond
these proposals.
Proposed section 124.518 would authorize most Participants (other
than firms owned by an Indian tribe or an ANC) to receive any
combination of 8(a) sole source and 8(a) competitive contracts up to a
specified dollar amount. Once that dollar amount of 8(a) contracts is
reached, the firm would not be eligible to receive any more 8(a) sole
source contracts, but could remain eligible for competitive 8(a)
awards. For a firm having a revenue-based primary SIC code at time of
program entry, the limit above which it could no longer receive sole
source 8(a) contracts would be set at five times the size standard
corresponding to that SIC code or $100,000,000, whichever is less. For
a firm having an employee-based primary SIC code at time of program
entry, the limit above which it could no longer receive sole source
8(a) contracts would be set at $100,000,000. Under the proposed rule,
SBA would not consider 8(a) contracts awarded under $100,000 in
determining whether a Participant has reached its limit.
This change is designed to promote the equitable distribution of
8(a) contracts to an increased number of 8(a) Participants and to
foster 8(a) business development on a wider scale. Smaller developing
8(a) Participants should have an increased opportunity of receiving
sole source 8(a) contracts. SBA does not view this change as a penalty
for those firms reaching the dollar limit. They will still be eligible
for competitive 8(a) awards. SBA's mission is to advance the
development of Participants so that they can be viable businesses after
graduation from the 8(a) BD program. After a certain amount of contract
support within the 8(a) sheltered market, sole source 8(a) awards may
be counterproductive to a firm's development because they do not
prepare a firm for the competitive marketplace after graduation. A firm
that has received five times its applicable size standard or
$100,000,000 in 8(a) contracts, whichever is applicable, should not
need the business development tool of additional sole source contracts,
and should spend more resources refining its competitive skills. SBA
asks for comments on whether the restriction should apply to
competitive as well as sole source 8(a) contracts once the
[[Page 43595]]
specified level of 8(a) contract dollars has been reached.
Proposed section 124.519 would establish a mentor/protege program.
As proposed, firms that have graduated from the 8(a) BD program and
those that are in the transitional stage of program participation may
be approved as mentors for particular developing 8(a) Participants.
This could include businesses that have grown to be other than small.
The idea is to link firms that have gone through the 8(a) program with
developing 8(a) firms so that the more mature firms can impart their
knowledge and practical experience from their own program participation
to the developing firms. Although the proposed rule limits mentors to
current or former 8(a) Participants, SBA seeks comments on whether
other firms should be mentors. If mentors are limited to current and
former 8(a) Participants, SBA desires comments as to whether former
Participants should be permitted where their ownership or control has
changed since they were in the 8(a) program. SBA also seeks comments
regarding whether a mentor should be able to be a large business, or
whether mentors should be limited to firms that are small in their
primary industry category (whether or not they would qualify as small
under the protege's primary SIC code, or under a particular contract
for which the mentor and protege seek to perform as a joint venture).
Finally, SBA requests comments on appropriate safeguards SBA should
impose on mentors to ensure that mentors do not unjustly benefit from
the 8(a) BD program. SBA recognizes that some commenters may oppose any
mentor/protege program as a method of extending 8(a) participation for
firms that have graduated from the program, or of providing program
benefits to non-disadvantaged firms (if SBA were to allow mentors to be
other than current and former 8(a) Participants). SBA believes,
however, that such a program will provide substantial benefits for
developing 8(a) Participants, and that the assistance received through
the program will enhance their ability to be viable businesses after
they leave the 8(a) BD program.
The advantages to a protege firm in terms of management and
technical assistance, knowledge of the procurement process, and
personal relationships can be substantial. In order to encourage
mentors to participate, the proposed rule would permit a mentor and
protege to joint venture as a small business for various government
procurement opportunities, including procurements less than half the
size standard corresponding to the assigned SIC code and 8(a) sole
source contracts, provided the protege qualifies as small for the
procurement (and has not reached the limit described above in proposed
Sec. 124.518). The mentor/protege relationship would extend beyond the
8(a) BD program, and would encourage mentors and proteges to submit
offers as joint ventures for non-8(a) competitive contracts as well.
Because SBA would waive the affiliation requirements for a mentor/
protege joint venture, more contracts may become available for small
businesses that are 8(a) Participants. The regulation would also permit
a mentor firm to own up to 33% in the protege firm to assist the
protege firm raise needed capital. A protege firm could also qualify
for other assistance as a small business, including SBA financial
assistance, notwithstanding the mentor/protege relationship.
A mentor would have to possess good character and be operating
profitably. A mentor could have no more than one protege at a time. SBA
does not believe that proteges would be adequately served were one firm
able to mentor more than one Participant at a time. In addition, were a
mentor able to have more than one protege at a time, the perception
could exist that the mentor is ``chasing'' many different 8(a)
contracts through its various proteges. For a mentor that has left the
8(a) program or has grown large, there would be a concern that such a
mentor was unjustly benefitting from the 8(a) program. In order to be
recognized as mentors/proteges, the AA/8(a)BD would have to approve a
written agreement between the mentor and protege firms under which the
mentor commits to provide management and/or technical assistance to the
protege firm for at least one year.
The proposed rule would eliminate current Sec. 124.401 dealing with
advance payments. Funding for advance payments does not exist.
The proposed rule would also eliminate current Sec. 124.402,
concerning business development expense (BDE). References to it are
obsolete.
Proposed Secs. 124.601-124.603 would set forth reporting
requirements not contained elsewhere in the regulations. These
requirements are largely unchanged from the current regulations.
However, in keeping with President Clinton's request that Federal
agencies reduce reporting requirements wherever feasible, proposed
Sec. 124.601 would reduce from twice a year to once a year the number
of times a Participant must submit a report to SBA regarding its agents
and other representatives.
Sections 124.701-124.704 of the proposed rule would reduce and
clarify the provisions for its 7(j) management and technical assistance
program (currently contained in Secs. 124.403 and 124.404).
Subpart B, Eligibility, Certification, and Protests relating to
Federal Small Disadvantaged Business Programs, is an entirely new
subpart and is proposed in response to the DOJ's review on Federal
affirmative action procurement programs. Current subpart B, dealing
with SDB protests would be incorporated into the revised subpart. The
subpart would be expanded to include procedures by which Private
Certifiers will determine whether a firm is owned and controlled by one
or more individuals claiming disadvantaged status, procedures by which
a procuring agency or SBA (if the procuring agency has an agreement
with SBA) will certify businesses as SDBs for purposes of all Federal
procurement programs, and provisions defining how firms will be added
to and deleted from an SBA-maintained on line register of SDBs.
The proposed rule would add a clarifying provision that potential
for success would not be considered in determining the disadvantaged
status of a concern for purposes other than the 8(a) BD program.
Potential for success goes to the developmental purposes of the 8(a) BD
program, and should not be a criterion in determining disadvantaged
status for other programs. The proposed rule would add a provision to
the section regarding who can protest the disadvantaged status in an
SDB set-aside or evaluation procurement. It would not permit a firm
that had previously been found not to be disadvantaged for a specific
SDB set-aside to then protest the disadvantaged status of an apparent
successful offeror.
Proposed Sec. 124.1008(c)(2) would provide that the burden is on
the firm seeking an SDB certification to demonstrate that those
individuals claiming disadvantaged status own and control the concern.
Similarly, proposed Sec. 124.1020(c) would provide that the burden is
on the protested concern to demonstrate its disadvantaged status. The
protested concern must submit all information it deems relevant to such
a determination. A protested concern cannot challenge a disadvantaged
status determination by claiming that it did not submit a specific
piece of information because SBA did not request it.
Proposed new subpart D of part 134 would contain the rules of
procedure applying to appeals of denials of 8(a) BD program admission
based solely on a negative finding(s) of social
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disadvantage, economic disadvantage, ownership or control pursuant to
Sec. 124.206; early graduation pursuant to Secs. 124.302 and 124.304;
termination pursuant to Secs. 124.303 and 124.304; and denials of
requests to issue a waiver of the performance of work/termination for
convenience requirements pursuant to Sec. 124.514. The substance of
these provisions was previously contained in Sec. 124.210. This
proposed rule transfers them to part 134 so that all procedures
relating to appeals before OHA are contained in one part of SBA's
regulations. Proposed Sec. 134.406(d) clarifies that where SBA files
its answer to the appeal petition after the date specified in
Sec. 134.206, the Administrative Law Judge may ignore the answer and
base his or her decision solely on a review of the administrative
record. All the Administrative Law Judge has the authority to do is to
determine whether the Agency's decision is arbitrary or capricious. In
order to do so, he or she must review the administrative record.
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 proposed rule would not be considered a
significant rule within the meaning of Executive Order 12866, but may
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.
Regulatory Flexibility Analysis
We do not know the extent to which this proposed rule would have a
significant economic impact on a substantial number of small businesses
but are interested in receiving comments from the public on what they
believe the impact of this regulation will be.
Summary of the Proposed Rule
The SBA's proposed rule would improve and strengthen the 8(a)
program. The rule changes would also respond to the challenges posed by
the findings in the Adarand v. Pena court case and improve the success
rates for firms after participation in the 8(a) program. We believe
this to be the appropriate regulatory alternative to meet the judicial
requirements applicable to the agency.
The proposed 8(a) rule changes fall under four major categories.
They are: (1) Equitable distribution of 8(a) contracts; (2) small
business affiliation rule revisions; (3) a new 8(a) mentor-protege
program; and (4) SBA's responsibilities for implementing the Small
Disadvantaged Business (SDB) contracting program authorized by the
Federal Acquisition Streamlining Act and developed during the U.S.
Department of Justice's post-Adarand affirmative action review and
recommendations.
The proposed 8(a) regulations would make changes to the existing
regulations designed to distribute 8(a) contracts more equitably and
encourage participating 8(a) firms to compete more effectively for
contracts. The regulation would enhance the ability of 8(a) firms and
other small businesses to obtain larger prime contracts that would be
normally out of the reach of individual small businesses. Also, by
establishing an 8(a) mentor-protege program, SBA would allow
participants in the 8(a) program to tap into the expertise and capital
of 8(a) graduates or more advanced participating firms. Lastly, the
proposed 8(a) regulations would provide the guidelines needed to
conform SBA's rules and procedures to the Department of Justice's post-
Adarand guidelines, including SBA's responsibility to certify
participating SDB firms and maintain and provide oversight for a
national network of private sector SDB certifiers.
This proposal applies to all current and eligible participants in
the SBA 8(a) program and all eligible small disadvantaged businesses
(SDBs) that seek to do business with the federal government as
contractors.
Current Program Participants
At present, there are approximately 5,800 SBA certified 8(a) firms.
Based on information from the SBA PASS system, there are approximately
34,000 minority or SDB firms seeking contracts with the federal
government. All 8(a) firms meet the eligibility requirements of an SDB
firm and are included in the 34,000 number. Pursuant to PASS, there are
an additional 37,000 non-minority women-owned firms and 3,000 non-
minority disabled veteran-owned firms seeking contracts with the
federal government. Any or all of these additional 40,000 firms could
also seek SDB certification through SBA under SBA's new subpart B of
part 124.
In FY '96, 8(a) firms received $6.3 billion in federal contracts
and SDBs about $10.3 billion. The $10.3 billion in contracts to SDBs
represents about 5 percent of all federal contract dollars spent in FY
'96. In addition, the federal contract dollars that went to SDBs is
about 25 percent of all federal receipts that went to small businesses
for the same period.
It is believed that this rule will benefit eligible 8(a) and SDB
firms because it simplifies and clearly defines eligibility
requirements, especially for SDBs; streamlines the operation of the
8(a) program; increases partnering opportunities by easing affiliation
rules; and, improves business assistance provided by the SBA. It is
estimated that, under this proposal, the number of certified 8(a)
programs will increase by 10 percent and the number of SDBs seeking
federal contracts will increase by 20 to 30 percent.
Universe of Potential Program Applicants
The last official U.S. Census Statistics on women and minority-
owned firms are for 1992; these data were released in 1996. In 1992,
there were 2.0 million total minority-owned firms. Of these, 312
thousand (15.6 percent) had employees. If the growth in minority firms
between 1992 and 1997 is the same as it was between 1987 and 1992 --a
conservative assumption--then an estimate of total minority firms would
be 3.3 million in 1997 and perhaps half a million with employees. For
the most part, only firms with employees would be affected by this
proposal. The latter, of course, are only educated assumptions based
upon extrapolations.
An estimate of the racial composition of minority owned firms with
employees would be: Black (32 percent), Hispanic (38 percent), and the
cluster of Asian-American/Pacific Islanders/Native Americans, and
Alaska Natives (30 percent).
By gender, 63 percent of minority owned firms in 1992 were likely
to be owned by men; 37 percent were owned by women. For minority firms
with employees, about 71 percent of the minority owned firms were
likely to be owned by men; 29 percent were likely to be owned by women.
Including regular C corporations, women owned 6,407 million firms
in 1992. Of these 1,25 million firms (19.4 percent) had employees.
Based on estimates by the National Association of Women Business
Owners, there are nearly 8.0 million women-owned firms in 1996, we can
extrapolate that there were about 1.55 million women-owned firms with
employees in 1996.
With this large pool of businesses which may at some point apply to
the SBA's programs, we can anticipate that the number of 8(a)
participants and SDBs will increase, but cannot estimate the magnitude
of the increase or its effect on firms that have or may obtain
contracts in the future. We believe that the impact of these regulatory
changes will be beneficial to small business and,
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again, would be interested in receiving any information that would shed
additional light on the specific impact of these proposed regulations.
The rule is not, however, 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 of 1995 (Pub. L. 104-
13), SBA certifies that this proposed rule, if adopted in final form,
would contain no new reporting or recordkeeping requirements. Although
the proposed rule would require small disadvantaged business concerns
to submit evidence that they are owned and controlled by one or more
disadvantaged individuals to private certifiers, and representations of
group membership or evidence of disadvantaged status to SBA, in order
to become certified as an SDB, the information sought is the same as
that currently required for participation in SBA's 8(a) program. In
addition, once certified, this rule would not require SDB concerns to
report any other information to SBA or to maintain additional records.
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 in 13 CFR
Part 121
Government procurement, Government property, Grant programs-
business, Individuals with disabilities, Loan programs-business, Small
businesses.
Part 124
Government procurement; Minority businesses; Tribally-owned
concerns; Hawaiian natives; Reporting and record keeping requirements;
Technical Assistance.
Part 134
Administrative practice and procedure, Organization and functions
(Government agencies).
Accordingly, for the reasons set forth above, SBA hereby proposes
to amend 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 121.103 is amended by redesignating paragraphs (f)(3)
and (f)(4) as paragraphs (f)(4) and (f)(5), respectively, by revising
paragraph (f)(2) and by adding a new paragraph (f)(3) to read as
follows:
Sec. 121.103 What is affiliation?
* * * * *
(f) Affiliation based on joint venture arrangements. * * *
(2) Except as provided in paragraph (f)(3) of this section,
concerns submitting offers on a particular procurement or property sale
as joint venturers are affiliated with each other with regard to the
performance of that contract.
(3) Joint venture exclusion from affiliation. (i) A joint venture
of two or more business concerns may submit an offer as a small
business for a non-8(a) federal procurement without regard to
affiliation based on the joint venture arrangement so long as each
concern is small under the size standard corresponding to the SIC code
assigned to the contract, provided:
(A) For a procurement having a revenue-based size standard, the
procurement exceeds half the size standard corresponding to the SIC
code assigned to the contract; or
(B) For a procurement having an employee-based size standard, the
procurement exceeds $10 million.
(ii) A joint venture of at least one 8(a) Participant and one or
more other business concerns may submit an offer for a competitive 8(a)
procurement without regard to affiliation based on the joint venture
arrangement so long as the requirements of Sec. 124.512(b)(1) of this
chapter are met.
(iii) Two firms approved by SBA to be a mentor and protege under
Sec. 124.519 of this chapter may joint venture as a small business for
any government procurement, provided the protege qualifies as small for
the size standard corresponding to the SIC code assigned to the
procurement and, for purposes of 8(a) sole source requirements, has not
reached the dollar limit set forth in Sec. 124.518 of this chapter.
* * * * *
2a. Section 121.1001 is amended by redesignating paragraphs (a)(2)
through (a)(5) as paragraphs (a)(3) through (a)(6), by adding the
following new paragraph (a)(2), and by revising paragraph (b)(2) to
read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal size
determination?
(a) Size Status Protests. * * *
(2) For competitive 8(a) contracts, the following entities may
protest:
(i) Any offeror;
(ii) The contracting officer; or
(iii) The SBA District Director, or designee, in either the
district office serving the geographical area in which the procuring
agency is located or the district office that services the apparent
successful offeror, or the Associate Administrator for Minority
Enterprise Development.
* * * * *
(b) Request for Size Determinations. * * *
(2) For SBA's 8(a) BD program:
(i) Concerning initial or continued 8(a) BD eligibility, the
following entities may request a formal size determination:
(A) The 8(a) BD applicant concern or Participant; or
(B) The Assistant Administrator of the Division of Program
Certification and Eligibility or the Associate Administrator for
8(a)BD.
(ii) Concerning individual sole source 8(a) contract awards, the
following entities may request a formal size determination:
(A) The Participant nominated for award of the particular sole
source contract;
(B) The SBA program official with authority to execute the 8(a)
contract; or
(C) The SBA District Director in the district office that services
the Participant, or the Associate Administrator for 8(a)BD.
* * * * *
3. Section 121.1103 is amended by revising paragraph (a) to read as
follows:
Sec. 121.1103 What are the procedures for appealing a SIC code
designation?
(a) Generally, any interested party who has been adversely affected
by a SIC code designation may appeal the designation to OHA. However,
with respect to a particular sole source 8(a) contract, only the
Associate Administrator for 8(a)BD may appeal.
* * * * *
PART 124--[AMENDED]
4. Part 124 is revised to read as follows:
[[Page 43598]]
PART 124--8(A) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
Subpart A--8(a) Business Development
Provisions of General Applicability
Sec.
124.1 What is the purpose of the 8(a) Business Development program?
124.2 What length of time may a business participate in the 8(a) BD
program?
124.3 What definitions are important in the 8(a) BD program?
Eligibility Requirements for Participation in the 8(a) Business
Development Program
124.101 What are the basic requirements a concern must meet for the
8(a) BD program?
124.102 What size business is eligible to participate in the 8(a) BD
program?
124.103 Who is socially disadvantaged?
124.104 Who is economically disadvantaged?
124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
124.106 When do disadvantaged individuals control an applicant or
Participant?
124.107 What is potential for success?
124.108 What other eligibility requirements apply for individuals
or businesses?
124.109 Do Indian tribes and Alaska Native Corporations have any
special rules for applying to the 8(a) BD program?
124.110 Do Native Hawaiian Organizations have any special rules for
applying to the 8(a) BD program?
124.111 Do Community Development Corporations (CDCs) have any
special rules for applying to the 8(a) program?
124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
Applying to the 8(a) BD Program
124.201 May any business submit an application?
124.202 Where must an application be filed?
124.203 What must a concern submit to apply to the 8(a) BD
program?
124.204 How does SBA process applications for 8(a) BD program
admission?
124.205 Can an applicant ask SBA to reconsider SBA's initial
decision to decline its application?
124.206 What appeal rights are available to an applicant that has
been denied admission?
124.207 Can an applicant reapply for admission to the 8(a) BD
program?
Exiting the 8(a) BD Program
124.301 What are the ways a business may leave the 8(a) BD program?
124.302 What is early graduation?
124.303 What is termination?
124.304 What are the procedures for early graduation and
termination?
124.305 What is suspension and how is a Participant suspended from
the 8(a) BD program?
Business Development
124.401 Which SBA field office services a Participant?
124.402 How does a Participant develop a business plan?
124.403 How is a business plan updated and modified?
124.404 What business development assistance is available to
Participants during the two stages of participation in the 8(a) BD
program?
124.405 How does a Participant obtain Federal Government surplus
property?
Contractual Assistance
124.501 What general provisions apply to the award of 8(a)
contracts?
124.502 How does an agency offer a procurement to SBA for award
through the 8(a) BD program?
124.503 How does SBA accept a procurement for award through the
8(a) BD program?
124.504 What circumstances limit SBA's ability to accept a
procurement for award as an 8(a) contract?
124.505 When will SBA appeal the terms and conditions of a
particular 8(a) contract or a procuring agency decision not to
reserve a procurement for the 8(a) BD program?
124.506 At what dollar threshold must an 8(a) procurement be
competed among eligible Participants?
124.507 What procedures apply to competitive 8(a) procurements?
124.508 What are competitive business mix targets?
124.509 What percentage of work must a Participant perform on an
8(a) contract?
124.510 How is fair market price determined for an 8(a) contract?
124.511 Delegation of contract administration to procuring
agencies.
124.512 Under what circumstances can a joint venture be awarded an
8(a) contract?
124.513 Exercise of 8(a) options and modifications.
124.514 Can a Participant change its ownership or control and
continue to perform an 8(a) contract, and can it transfer
performance to another firm?
124.515 Who decides contract disputes arising between a Participant
and a procuring agency after the award of an 8(a) contract?
124.516 Can the eligibility or size of a Participant for award of
an 8(a) contract be questioned?
124.517 How can an 8(a) contract be terminated before performance
is completed?
124.518 Are there any dollar limits on the amount of 8(a) contracts
that a Participant may receive?
124.519 Mentor/Protege program.
Miscellaneous Reporting Requirements
124.601 What reports does SBA require on parties assisting
Participants in obtaining federal contracts?
124.602 What kind of annual financial statement must a Participant
submit to SBA?
124.603 What reports regarding the continued business operations of
former Participants does SBA require?
Management and Technical Assistance Program
124.701 What is the purpose of the 7(j) management and technical
assistance program?
124.702 What types of assistance are available through the 7(j)
program?
124.703 Who is eligible to receive 7(j) assistance?
124.704 What additional management and technical assistance is
reserved exclusively for concerns eligible to receive 8(a)
contracts?
Subpart B--Eligibility, Certification, and Protests Relating to Federal
Small Disadvantaged Business Programs
124.1001 General applicability.
124.1002 What is a Small Disadvantaged Business (SDB)?
124.1003 What is a Private Certifier?
124.1004 How does an organization or business concern become a
Private Certifier?
124.1005 Can a Private Certifier charge a fee?
124.1006 Is there a list of Private Certifiers?
124.1007 How long may an organization or business concern be
Private Certifier?
124.1008 How does a firm become certified as a SDB?
124.1009 How does a firm appeal a decision of a Private Certifier?
124.1010 Can a firm represent itself to be an SDB if it is not on
the list of qualified SDBs?
124.1011 What is a misrepresentation of disadvantaged status?
124.1012 Can a firm reapply for SDB certification?
124.1013 Is there a list of certified SDBs?
124.1014 What is the effect of receiving an SDB certification?
124.1015 Who may protest the disadvantaged status of a concern?
124.1016 When will SBA not decide an SDB protest?
124.1017 Who decides disadvantaged status protests?
124.1018 What submission procedures apply to disadvantaged status
protests?
124.1019 What format or degree of specificity does SBA require to
consider an SDB protest?
124.1020 What will SBA do when it receives an SDB protest?
124.1021 How does SBA make disadvantaged status determinations?
124.1022 Appeals of disadvantaged status determinations.
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub.
L. 99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L. 101-
574, and 42 U.S.C. 9815.
[[Page 43599]]
Subpart A--8(a) Business Development
Provisions of General Applicability
Sec. 124.1 What is the purpose of the 8(a) Business Development
program?
Sections 8(a) and 7(j) of the Small Business Act authorize a
Minority Small Business and Capital Ownership Development program
(designated the 8(a) Business Development or ``8(a) BD'' program for
purposes of the regulations in this part). The purpose of the 8(a) BD
program is to assist eligible small disadvantaged business concerns
compete in the American economy through business development.
Sec. 124.2 What length of time may a business participate in the 8(a)
BD program?
A Participant receives a program term of nine years from the date
of SBA's approval letter certifying the concern's admission to the
program. A firm that completes its nine year term of participation in
the 8(a) BD program is deemed to graduate from the program. The nine
year program term may be shortened only by termination, early
graduation or voluntary withdrawal as provided for in this part.
Sec. 124.3 What definitions are important in the 8(a) BD Program?
Alaska Native means a citizen of the United States who is a person
of one-fourth degree or more Alaskan Indian (including Tsimshian
Indians not enrolled in the Metlaktla Indian Community), Eskimo, or
Aleut blood, or a combination of those bloodlines. The term includes,
in the absence of proof of a minimum blood quantum, any citizen who a
Native village or Native group regards as an Alaska Native if their
father or mother is regarded as an Alaska Native.
Alaska Native Corporation or ANC means any Regional Corporation,
Village Corporation, Urban Corporation, or Group Corporation organized
under the laws of the State of Alaska in accordance with the Alaska
Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.)
Bona fide place of business, for purposes of 8(a) construction
procurements, means that a Participant regularly maintains an office
which employs at least one full-time individual within the appropriate
geographical boundary. The term does not include construction trailers
or other temporary construction sites.
Community Development Corporation or CDC means a nonprofit
organization responsible to residents of the area it serves which has
received financial assistance under 42 U.S.C. 9805 et seq.
Concern is defined in part 121 of this title.
Days means calendar days unless otherwise specified.
Immediate family member means father, mother, husband, wife, son,
daughter, brother, sister, father-in-law, mother-in-law, son-in-law,
daughter-in-law, brother-in-law, sister-in-law, step-father, step-
mother, step-son, step-daughter, step-brother, step-sister, half-
brother, and half-sister.
Indian tribe means any Indian tribe, band, nation, or other
organized group or community of Indians, including any ANC, which is
recognized as eligible for the special programs and services provided
by the United States to Indians because of their status as Indians, or
is recognized as such by the State in which the tribe, band, nation,
group, or community resides. See definition of ``tribally-owned
concern.''
Native Hawaiian means any individual whose ancestors were natives
prior to 1778, of the area which now comprises the State of Hawaii.
Native Hawaiian Organization means any community service
organization serving Native Hawaiians in the State of Hawaii which is a
not-for-profit organization chartered by the State of Hawaii, is
controlled by Native Hawaiians, and whose business activities will
principally benefit such Native Hawaiians.
Negative control is defined in part 121 of this title.
Nondisadvantaged individual means any individual who does not claim
disadvantaged status, does not qualify as disadvantaged, or upon whose
disadvantaged status an applicant or Participant does not rely in
qualifying for 8(a) BD program participation.
Participant means a small business concern admitted to participate
in the 8(a) BD program.
Primary industry classification means the four digit Standard
Industrial Classification (SIC) code designation which best describes
the primary business activity of the 8(a) BD applicant or Participant.
The SIC code designations are described in the Standard Industrial
Classification Manual published by the U.S. Office of Management and
Budget.
Principal place of business means the business location at which
the individuals who manage the concern's day-to-day operations spend
most working hours and where top management's business records are
kept. If different, SBA may determine the principal place of business
for program purposes.
Program year means a 12-month period of an 8(a) BD Participant's
program participation. The first program year begins on the date that
the concern is certified to participate in the 8(a) BD program and ends
one year later. Each subsequent program year begins on the
Participant's anniversary of program certification and runs for one 12-
month period.
Same or similar line of business means business activities within
the same two-digit ``Major Group'' of the SIC Manual as the primary
industry classification of the applicant or Participant. The phrase
``same business area'' is synonymous with this definition.
Self-marketing of a requirement occurs when a Participant
identifies a requirement that has not been committed to the 8(a) BD
program and, through its marketing efforts, causes the procuring agency
to offer that specific requirement to the 8(a) BD program on the
Participant's behalf. A firm which identifies and markets a requirement
which is subsequently offered to the 8(a) BD program as an open
requirement or on behalf of another Participant has not ``self-
marketed'' the requirement within the meaning of this part.
Tribally-owned concern means any concern at least 51 percent owned
by an Indian tribe as defined in this section.
Unconditional ownership means ownership that is not subject to
conditions precedent, conditions subsequent, executory agreements,
voting trusts, restrictions on or assignments of voting rights, or
other arrangements causing or potentially causing ownership benefits to
go to another (other than after death or incapacity). The encumbrance
of stock or other ownership interest as collateral, including seller-
financed transactions, does not affect the unconditional nature of
ownership if the terms follow normal commercial practices and the owner
retains control absent violations of the terms.
Eligibility Requirements for Participation in the 8(a) Business
Development Program
Sec. 124.101 What are the basic requirements a concern must meet for
the 8(a) BD program?
Generally, a concern meets the basic requirements for admission to
the 8(a) BD program if it is a small business which is unconditionally
owned and controlled by one or more socially and economically
disadvantaged individuals who are of good character and citizens of the
United States, and which demonstrates potential for success.
[[Page 43600]]
Sec. 124.102 What size business is eligible to participate in the 8(a)
BD program?
(a) An applicant concern must qualify as a small business concern
as defined in part 121 of this title. The applicable size standard is
the one for its primary industry classification. The rules for
calculating the size of a tribally-owned concern, a concern owned by an
Alaska Native Corporation, a concern owned by a Native Hawaiian
Organization, or a concern owned by a Community Development Corporation
are additionally affected by Secs. 124.109, 124.110, and 124.111,
respectively.
(b) If 8(a) BD program officials determine that a concern may not
qualify as small, they may deny an application for 8(a) BD program
admission or may request a formal size determination under part 121 of
this title.
(c) A concern whose application is denied due to size by 8(a) BD
program officials may request a formal size determination under part
121 of this title. A favorable determination will enable the firm to
submit a new 8(a) BD application without waiting one year.
Sec. 124.103 Who is socially disadvantaged?
(a) General. Socially disadvantaged individuals are those who have
been subjected to racial or ethnic prejudice or cultural bias within
American society because of their identities as members of groups and
without regard to their individual qualities. The social disadvantage
must stem from circumstances beyond their control.
(b) Members of designated groups. (1) There is a rebuttable
presumption that the following individuals are socially disadvantaged:
Black Americans; Hispanic Americans; Native Americans (American
Indians, Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans
(persons with origins from Burma, Thailand, Malaysia, Indonesia,
Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos,
Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust
Territory of the Pacific Islands (Republic of Palau), Republic of the
Marshall Islands, Federated States of Micronesia, the Commonwealth of
the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga,
Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with
origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the
Maldives Islands or Nepal); and members of other groups designated from
time to time by SBA according to procedures set forth at paragraph (d)
of this section. Being born in a country does not, by itself, suffice
to make the birth country an individual's country of origin for
purposes of being included within a designated group.
(2) An individual must demonstrate identification by others as a
member of a designated group if SBA requires it.
(3) The presumption of social disadvantage may be overcome with
significant, credible evidence to the contrary. Individuals possessing
or knowing of such evidence should submit the information in writing to
the Associate Administrator for 8(a) BD (AA/8(a)BD) for consideration.
(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
individual social disadvantage by a preponderance of the evidence.
(2) Evidence of individual social disadvantage must include the
following elements:
(i) At least one objective distinguishing feature that has
contributed to social disadvantage, such as race, ethnic origin,
gender, physical handicap, long-term residence in an environment
isolated from the mainstream of American society, or other similar
causes not common to individuals who are not socially disadvantaged;
(ii) Personal experiences of social disadvantage, not merely
membership in a non-designated group which might be socially
disadvantaged, but has not been so designated by SBA. The experiences
must have been in American society, not in other countries, and must
have been substantial, chronic, and longstanding; and
(iii) Negative impact on entry into or advancement in the business
world because of the disadvantage. SBA will consider any relevant
evidence in assessing this element. In every case, however, SBA will
consider education, employment and business history to see if the
totality of circumstances shows disadvantage in entering into or
advancing in the business world.
(A) Education. SBA considers such factors as denial of equal access
to institutions of higher education, exclusion from social and
professional association with students or teachers, denial of
educational honors rightfully earned, and social patterns or pressures
which discouraged the individual from pursuing a professional or
business education.
(B) Employment. SBA considers such factors as unequal treatment in
hiring, promotions and other aspects of professional advancement, pay
and fringe benefits, and other terms and conditions of employment;
retaliatory or discriminatory behavior by an employer; and social
patterns or pressures which have channelled the individual into
nonprofessional or non-business fields.
(C) Business history. SBA considers such factors as unequal access
to credit or capital, acquisition of credit or capital under
commercially unfavorable circumstances, unequal treatment in
opportunities for government contracts or other work, unequal treatment
by potential customers and business associates, and exclusion from
business or professional organizations.
(d) Socially disadvantaged group inclusion. (1) General.
Representatives of an identifiable group whose members believe that the
group has suffered chronic racial or ethnic prejudice or cultural bias
may petition SBA to be included as a presumptively socially
disadvantaged group under paragraph (b)(1) of this section. Upon an
adequate preliminary showing that the group has suffered such prejudice
or bias, SBA will publish a notice in the Federal Register that it has
received and is considering such a request, and that it will consider
public comments.
(2) Standards to be applied. In determining whether a group has
made an adequate preliminary showing that it has suffered chronic
racial or ethnic prejudice or cultural bias for the purposes of this
regulation, SBA must determine:
(i) Whether the group has suffered prejudice, bias, or
discriminatory practices;
(ii) Whether those conditions have resulted in economic deprivation
for the group of the type which Congress has found exists for the
groups named in the Small Business Act; and
(iii) Whether those conditions have produced impediments in the
business world for members of the group over which they have no control
and which are not common to small business owners generally.
(3) Procedure. The notice published under paragraph (d)(1) of this
section will authorize a specified period for the receipt of public
comments supporting or opposing the petition for socially disadvantaged
group status. If appropriate, SBA may hold hearings. SBA may also
conduct its own research relative to the group's petition.
(4) Decision. SBA will advise the petitioners of its final decision
in writing, and publish its conclusion as a notice in the Federal
Register. If appropriate, SBA will amend paragraph (b)(1) of this
section to include a new group.
[[Page 43601]]
Sec. 124.104 Who is economically disadvantaged?
(a) General. Economically disadvantaged individuals are socially
disadvantaged individuals whose ability to compete in the free
enterprise system has been impaired due to diminished capital and
credit opportunities as compared to others in the same or similar line
of business who are not socially disadvantaged.
(b) Submission of narrative and financial information. (1) Each
individual claiming economic disadvantage must describe it in a
narrative statement, and must submit personal financial information.
(2) When married, an individual claiming economic disadvantage also
must submit separate financial information for his or her spouse,
unless the individual and the spouse are legally separated.
(c) Factors to be considered. In considering diminished capital and
credit opportunities, SBA will examine factors relating to the personal
financial condition of any individual claiming disadvantaged status,
including personal income for the past two years (including bonuses and
the value of company stock given in lieu of cash), personal net worth,
and the fair market value of all assets, whether encumbered or not. SBA
will also consider the financial condition of the applicant compared to
the financial profiles of small businesses in the same primary industry
classification, or, if not available, in similar lines of business,
which are not owned and controlled by socially and economically
disadvantaged individuals in evaluating the individual's access to
credit and capital. The financial profiles that SBA compares include
total assets, net sales, pre tax profit, sales/working capital ratio,
and net worth.
(1) Assets. Assets which an individual claiming disadvantaged
status has transferred within two years of the application to an
immediate family member, or to a trust the beneficiary of which is an
immediate family member, for less than fair market value will be
attributed to the individual claiming disadvantaged status.
(2) Net worth. For initial 8(a) BD eligibility, the net worth of an
individual claiming disadvantage must be less than $250,000. For
continued 8(a) BD eligibility after admission to the program, net worth
must be less than $750,000. In determining such net worth, SBA will
exclude the ownership interest in the applicant or Participant and the
equity in the primary personal residence (except any portion of such
equity which is attributable to excessive withdrawals from the
applicant or Participant). Exclusions for net worth purposes are not
exclusions for asset valuation or access to capital and credit
purposes.
(i) A contingent liability does not reduce an individual's net
worth.
(ii) The personal net worth of an individual claiming to be an
Alaska Native will include assets and income from sources other than an
Alaska Native Corporation and exclude any of the following which the
individual receives from any Alaska Native Corporation: cash (including
cash dividends on stock received from a Native Corporation) to the
extent that it does not, in the aggregate, exceed $2,000 per individual
per annum; stock (including stock issued or distributed by a Native
Corporation as a dividend or distribution on stock); a partnership
interest; land or an interest in land (including land or an interest in
land received from a Native Corporation as a dividend or distribution
on stock); and an interest in a settlement trust.
Sec. 124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
An applicant or Participant must be at least 51 percent
unconditionally and directly owned by one or more socially and
economically disadvantaged individuals who are citizens of the United
States, except for concerns owned by Indian tribes, Alaska Native
Corporations, Native Hawaiian Organizations, or Community Development
Corporations (CDCs). See Sec. 124.3 for definition of unconditional
ownership; and Secs. 124.109, 124.110, and 124.111, respectively, for
special ownership requirements for concerns owned by Indian tribes,
ANCs, Native Hawaiian Organizations, and CDCs.
(a) Ownership must be direct. Ownership by one or more
disadvantaged individuals must be direct ownership. An applicant or
Participant owned principally by another business entity or by a trust
(including employee stock ownership trusts) that is in turn owned and
controlled by one or more disadvantaged individuals does not meet this
requirement.
(b) Ownership of a partnership. In the case of a concern which is a
partnership, at least 51 percent of every class of partnership interest
must be unconditionally owned by one or more individuals determined by
SBA to be socially and economically disadvantaged. The ownership must
be reflected in the concern's partnership agreement.
(c) Ownership of a limited liability company. In the case of a
concern which is a limited liability company, at least 51 percent of
each class of member interest must be unconditionally owned by one or
more individuals determined by SBA to be socially and economically
disadvantaged.
(d) Ownership of a corporation. In the case of a concern which is a
corporation, at least 51 percent of each class of voting stock
outstanding and 51 percent of the aggregate of all stock outstanding
must be unconditionally owned by one or more individuals determined by
SBA to be socially and economically disadvantaged.
(e) Stock options' effect on ownership. In determining
unconditional ownership, SBA will disregard any unexercised stock
options or similar agreements held by disadvantaged individuals.
However, any unexercised stock options or similar agreements (including
rights to convert non-voting stock or debentures into voting stock)
held by non-disadvantaged individuals will be treated as exercised,
except for any ownership interests which are held by investment
companies licensed under the Small Business Investment Act of 1958.
(f) Dividends and distributions. One or more disadvantaged
individuals must be entitled to receive:
(1) At least 51 percent of the annual distribution of dividends
paid on the stock of a corporate applicant concern;
(2) 100 percent of the unencumbered value of each share of stock
owned in the event that the stock is sold; and
(3) At least 51 percent of the retained earnings of the concern and
100 percent of the unencumbered value of each share of stock owned in
the event of dissolution of the corporation.
(g) Ownership of another Participant. The individuals determined to
be disadvantaged for purposes of one Participant, their immediate
family members, and the Participant itself, may not hold, in the
aggregate, more than a 10 percent equity ownership interest in any
other single Participant.
(h) Ownership restrictions for non-disadvantaged individuals and
concerns. (1) A non-disadvantaged individual (in the aggregate with all
immediate family members) or a non-Participant concern that is a
general partner or stockholder of at least 10 percent in one
Participant may not own more than 10 percent in another Participant.
This restriction does not apply to financial institutions licensed or
chartered by Federal, state or local government, including investment
companies which are licensed under the Small Business Investment Act of
1958.
[[Page 43602]]
(2) A non-Participant concern in the same or similar line of
business may not own more than 10 percent in a Participant, except that
a former Participant or a principal of a former Participant (except
those that have been terminated from 8(a) BD program participation
pursuant to Secs. 124.303 and 124.304) may have an equity ownership
interest of up to 20 percent in a current Participant in the same or
similar line of business.
(i) Change of ownership. A Participant may change its ownership so
long as one or more disadvantaged individuals would own and control it
after the change and it obtains the prior written approval of SBA.
(1) The Participant that was awarded one or more 8(a) contracts may
substitute one disadvantaged individual for another disadvantaged
individual without requiring the termination of those contracts or a
request for waiver under Sec. 124.514, as long as it receives SBA's
approval prior to the change.
(2) Where the previous owner held less than a 10 percent interest
in the concern, or the transfer results from the death or incapacity
due to a serious, long-term illness or injury of a disadvantaged
principal, prior approval is not required, but the concern must notify
SBA within 60 days.
(3) Continued participation of the Participant with new ownership
and the award of any new 8(a) contracts requires SBA's determination
that all eligibility requirements are met by the concern and the new
owners.
(4) The Participant's program term is in no way extended by the
change in ownership.
(j) Public offering. A Participant's request for SBA's approval for
the issuance of a public offering will be treated as a request for a
change of ownership. Such request will cause SBA to examine the
concern's continued need for access to the business development
resources of the 8(a) BD program.
(k) Community property laws given effect. In determining ownership
interests when an owner resides in any of the community property states
or territories of the United States (Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and
Wisconsin), SBA considers applicable state community property laws. If
only one spouse claims disadvantaged status, that spouse's ownership
interest will be considered unconditionally held only to the extent it
is vested by the community property laws. A transfer or relinquishment
of interest by the non-disadvantaged spouse may be necessary in some
cases to establish eligibility.
Sec. 124.106 When do disadvantaged individuals control an applicant or
Participant?
SBA regards control as including both the strategic policy setting
exercised by boards of directors and the day-to-day management and
administration of business operations. An applicant or Participant's
management and daily business operations must be conducted by one or
more disadvantaged individuals, except for concerns owned by Indian
tribes, ANCs, Native Hawaiian Organizations, or Community Development
Corporations (CDCs). (See Secs. 124.109, 124.110, and 124.111,
respectively, for the requirements for concerns owned by Indian tribes
or ANCs, for concerns owned by Native Hawaiian Organizations, and for
CDC-owned concerns). Disadvantaged individuals managing the concern
must have managerial experience of the extent and complexity needed to
run the concern. Control is not the same as ownership, although both
may reside in the same person. A disadvantaged owner's unexercised
right to cause a change in the control or management of the applicant
concern does not constitute disadvantaged control and management,
regardless of how quickly or easily the right could be exercised.
(a)(1) An applicant or Participant must be managed on a full-time
basis by one or more disadvantaged individuals who possess requisite
management capabilities.
(2) A disadvantaged full-time manager must hold the highest officer
position (usually President or Chief Executive Officer) in the
applicant or Participant.
(3) One or more disadvantaged individuals who manage the applicant
or Participant must devote full-time to the business during normal
working hours.
(4) Any disadvantaged manager who wishes to engage in outside
employment must notify SBA of the nature and anticipated duration of
the outside employment and obtain the prior written approval of SBA.
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) In the case of a partnership, one or more disadvantaged
individuals must serve as general partners, with control over all
partnership decisions. A partnership in which no disadvantaged
individual is a general partner will be ineligible for participation.
(c) In the case of a limited liability company, one or more
disadvantaged individuals must serve as management members, with
control over all decisions of the limited liability company.
(d) Disadvantaged individuals must control the Board of Directors
of a corporate applicant or Participant, either through a majority of
voting directors or through weighted voting.
(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.
(3) Any Executive Committee of Directors must be controlled by
disadvantaged directors unless the Executive Committee can only make
recommendations to and cannot independently exercise the authority of
the Board of Directors.
(4) Arrangements regarding the structure and voting rights of the
Board of Directors must comply with applicable state law.
(5) Provisions for the establishment of a quorum cannot permit non-
disadvantaged Directors to control the Board of Directors.
(e) Non-disadvantaged individuals may be involved in the management
of an applicant or Participant, and may be stockholders, partners,
limited liability members, officers, and/or directors of the applicant
or Participant. No such non-disadvantaged individual or immediate
family member may:
(1) Exercise actual control or have the power to control the
applicant or Participant;
(2) Be a former employer or a principal of a former employer of any
disadvantaged owner of the applicant or Participant, unless it is
determined by the AA/8(a)BD that the relationship between the former
employer or principal and the disadvantaged individual or applicant
concern does not give the former employer actual control or the
potential to control the applicant or Participant and such relationship
is in the best interests of the 8(a) BD firm; or
(3) Receive compensation from the applicant or Participant in any
form as directors, officers or employees, including dividends, that
exceeds the compensation to be received by the highest officer (usually
CEO or President). The highest ranking officer may elect to take a
lower salary than a non-disadvantaged individual only upon
demonstrating that it helps the concern and upon obtaining the prior
[[Page 43603]]
written consent of the AA/8(a)BD or designee).
(f) Non-disadvantaged individuals or entities may be found to
control or have the power to control in any of the following
circumstances, which are illustrative only and not all inclusive:
(1) Non-disadvantaged individuals control the Board of Directors of
the applicant or Participant, either directly through majority voting
membership, or indirectly, where the by-laws allow non-disadvantaged
individuals to effectively block actions proposed by the disadvantaged
individuals.
(2) A non-disadvantaged individual or entity provides critical
financial or bonding support to the applicant or Participant which
directly or indirectly allows the non-disadvantaged individual to
significantly influence business decisions of the Participant.
(3) A non-disadvantaged individual or entity controls the applicant
or Participant or an individual disadvantaged owner through loan
arrangements. Providing a loan guaranty on commercially reasonable
terms does not, by itself, give a nondisadvantaged individual or entity
the power to control a firm.
(4) Business relationships exist with non-disadvantaged individuals
or entities which cause such dependence that the applicant or
Participant cannot exercise independent business judgment without great
economic risk.
Sec. 124.107 What is potential for success?
The applicant concern must possess reasonable prospects for success
in competing in the private sector. To do so, it must be in business in
its primary industry classification for at least two full years
immediately prior to the date of its 8(a) BD application, unless a
waiver for this requirement is granted pursuant to paragraph (b) of
this section.
(a) Income tax returns for each of the two previous tax years must
show operating revenues in the primary industry in which the applicant
is seeking 8(a) BD certification.
(b)(1) SBA may waive the two years in business requirement if each
of the following five conditions are met:
(i) The individual or individuals upon whom eligibility is based
have substantial business management experience;
(ii) The applicant has demonstrated technical experience to carry
out its business plan with a substantial likelihood for success.
(iii) The applicant has adequate capital to sustain its operations
and carry out its business plan;
(iv) The applicant has a record of successful performance on
contracts from governmental or nongovernmental sources in its primary
industry category; and
(v) The applicant has, or can demonstrate its ability to timely
obtain, the personnel, facilities, equipment, and any other
requirements needed to perform contracts.
(2) The concern seeking a waiver under this paragraph (b) must
provide information on governmental and nongovernmental contracts in
progress and completed (including letters of reference) in order to
establish successful contract performance, and must demonstrate how it
otherwise meets the five conditions for waiver. SBA considers an
applicant's performance on both government and private sector contracts
in determining whether the firm has an overall successful performance
record. If, however, the applicant has performed only government
contracts or only private sector contracts, SBA will review its
performance on those contracts alone to determine whether the applicant
possesses a record of successful performance.
(c) In assessing potential for success for all concerns, SBA
considers the concern's access to credit and capital, including, but
not limited to, access to long-term financing, access to working
capital financing, equipment trade credit, access to raw materials and
supplier trade credit, and bonding capability.
(d) In assessing potential for success, SBA will also consider the
technical and managerial experience of the applicant concern's
managers, the operating history of the concern, 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) BD certification,
and its financial capacity. The applicant concern as a whole must
demonstrate both technical knowledge in its primary industry category
and management experience sufficient to run its day-to-day operations.
(e) The Participant or individuals employed by the Participant must
hold all requisite licenses if the concern is engaged in an industry
requiring professional licensing (e.g., public accountancy, law,
professional engineering).
(f) An applicant will not be denied admission into the 8(a) BD
program due solely to a determination that potential 8(a) contract
opportunities are unavailable to assist in the development of the
concern unless:
(1) The Government has not previously procured and is unlikely to
procure the types of products or services offered by the concern; or
(2) The purchase of such products or services by the Federal
Government will not be in quantities sufficient to support the
developmental needs of the applicant and other Participants providing
the same or similar items or services.
Sec. 124.108 What other eligibility requirements apply for individuals
or businesses?
(a) Good character. The applicant or Participant and all its
principals must have good character.
(1) If, during the processing of an application, adverse
information is obtained from the applicant or a credible source
regarding possible criminal conduct by the applicant or any of its
principals, no further action will be taken on the application until
SBA's Inspector General has collected relevant information and has
advised the AA/8(a)BD of his or her findings. The AA/8(a)BD will
consider those findings when evaluating the application.
(2) Violations of any of SBA's regulations may result in denial of
participation in the 8(a) BD program. The AA/8(a)BD will consider the
nature and severity of the violation in making an eligibility
determination.
(3) Debarred or suspended concerns or concerns owned by debarred or
suspended persons are ineligible for admission to the 8(a) BD program.
(4) An applicant is ineligible for admission to the 8(a) BD program
if a proprietor, partner, limited liability member, director, officer,
or holder of at least 10 percent of the stock, or another person
(including a key manager) with significant authority over the concern
is currently incarcerated, or on parole or probation pursuant to a pre-
trial diversion or following conviction for a felony or any crime
involving business integrity.
(5) If, during the processing of an application, SBA determines
that an applicant has submitted false information, regardless of
whether correct information would cause SBA to deny the application,
and regardless of whether correct information was given to SBA in
accompanying documents, SBA will deny the application. If SBA
determines that such false information has been submitted after a firm
is admitted to the 8(a) BD program, SBA will initiate termination
proceedings and suspend the firm under Secs. 124.304 and 124.305.
Whenever SBA determines that the applicant submitted false information,
the matter will be referred
[[Page 43604]]
to SBA's Office of Inspector General for review.
(b) One-time eligibility. Once a concern or disadvantaged
individual upon whom eligibility was based has participated in the 8(a)
BD program, neither the concern nor that individual will be eligible
again.
(1) An individual who claims disadvantage and completes the
appropriate SBA forms to qualify an applicant has participated in the
8(a) BD program if SBA approves the application.
(2) Use of eligibility will take effect on the date of the
concern's approval into the program.
(3) An individual who uses his/her one-time eligibility to qualify
a concern for the 8(a) BD program will be considered a non-
disadvantaged individual for ownership or control purposes of another
applicant or Participant. The criteria restricting participation by
non-disadvantaged individuals will apply to such an individual. See
Secs. 124.105 and 124.106.
(4) When at least 50% of the assets or liabilities of a concern are
the same as those of one or more former Participants, it will not be
eligible for participation.
(5) Participants which change their form of business organization
and transfer their assets and liabilities to the new organization may
do so without affecting the eligibility of the new organization
provided the previous business is dissolved and all other eligibility
criteria are met. In such a case, the new organization may complete the
remaining program term of the previous organization. A request for a
change in business form will be treated as a change of ownership under
Sec. 124.105(i).
(c) Wholesalers. An applicant concern seeking admission to the 8(a)
BD program as a wholesaler need not demonstrate that it is capable of
meeting the requirements of the nonmanufacturer rule for its primary
industry classification.
(d) Achievement of benchmarks. Where actual participation by
disadvantaged businesses in a particular industry exceeds the benchmark
limitations established by the Department of Commerce, in consultation
with the General Services Administration and the SBA, for that
industry, SBA, in its discretion, may decide not to accept an
application for 8(a) BD participation from a concern whose primary
industry classification falls within that industry.
(e) Multiple concerns for immediate family members. Immediate
family members may not each use their individual disadvantaged status
to qualify more than one business concern for 8(a) BD program
participation if the concerns are in the same or similar line of
business. When the concerns are in separate lines of business, each
concern must establish that it is separately owned, managed and
controlled.
(f) Brokers. Brokers are ineligible to participate in the 8(a) BD
program. A broker is a concern that adds no value to an item being
supplied to a procuring activity.
Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any
special rules for applying to the 8(a) BD program?
(a) Special rules for ANCs. Small business concerns owned and
controlled by ANCs are eligible for participation in the 8(a) program,
subject to the same conditions that apply to tribally-owned concerns,
as described in paragraphs (b) and (c) of this section, except that the
following provisions and exceptions apply only to ANC-owned concerns:
(1) Alaska Natives and descendants of Natives must own a majority
of both the total equity of the ANC and the total voting powers to
elect directors of the ANC through their holdings of settlement common
stock. Settlement common stock means stock of an ANC issued pursuant to
43 U.S.C. 1606(g)(1), which is subject to the rights and restrictions
listed in 43 U.S.C. 1606(h)(1).
(2) An ANC that meets the requirements set forth in paragraph
(a)(1) of this section is deemed economically disadvantaged under 43
U.S.C. 1626(e), and need not establish economic disadvantage as
required by paragraph (b)(2) of this section.
(3) Even though an ANC can be either for profit or non-profit, a
small business concern owned and controlled by an ANC must be for
profit to be eligible for the 8(a) program. The concern will be deemed
owned and controlled by the ANC where both the majority of stock or
other ownership interest and total voting power are held by the ANC and
holders of its settlement common stock.
(4) The Alaska Native Claims Settlement Act provides that a concern
which is majority owned by an ANC shall be deemed to be both owned and
controlled by Alaska Natives and an economically disadvantaged
business. Therefore, an individual responsible for control and
management of an ANC-owned applicant or Participant need not establish
personal social and economic disadvantage.
(5) Paragraphs (b)(3) (i), (ii) and (iv) of this section are not
generally applicable to an ANC, provided its status as an ANC is
clearly shown in its articles of incorporation.
(6) Paragraph (c)(1) of this section is not applicable to an ANC-
owned concern to the extent it requires an express waiver of sovereign
immunity or a ``sue and be sued'' clause.
(b) Tribal eligibility. In order to qualify a concern which it owns
and controls for participation in the 8(a) BD program, an Indian tribe
must establish its own economic disadvantaged status under paragraph
(b)(2) of this section. Thereafter, it need not reestablish such status
in order to have other businesses that it owns certified for 8(a) BD
program participation, unless specifically required to do so by the AA/
8(a)BD or designee. Each tribally-owned concern seeking to be certified
for 8(a) BD participation must comply with the provisions of paragraph
(c) of this section.
(1) Social disadvantage. An Indian tribe as defined in Sec. 124.3
is considered to be socially disadvantaged.
(2) Economic disadvantage. In order to be eligible to participate
in the 8(a) BD program, the Indian tribe must demonstrate to SBA that
the tribe itself is economically disadvantaged. This must involve the
consideration of available data showing the tribe's economic condition,
including but not limited to, the following information:
(i) The number of tribal members.
(ii) The present tribal unemployment rate.
(iii) The per capita income of tribal members, excluding judgment
awards.
(iv) The percentage of the local Indian population below the
poverty level.
(v) The tribe's access to capital.
(vi) The tribal assets as disclosed in a current tribal financial
statement. The statement must list all assets including those which are
encumbered or held in trust, but the status of those encumbered or in
trust must be clearly delineated.
(vii) A list of all wholly or partially owned tribal enterprises or
affiliates and the primary industry classification of each. The list
must also specify the members of the tribe who manage or control such
enterprises by serving as officers or directors.
(3) Forms and documents required to be submitted. Except as
otherwise provided in this section, the Indian tribe generally must
submit the forms and documents required of 8(a) BD applicants as well
as the following material:
(i) A copy of all governing documents such as the tribe's
constitution or business charter.
(ii) Evidence of its recognition as a tribe eligible for the
special programs
[[Page 43605]]
and services provided by the United States or by its state of
residence.
(iii) Copies of its articles of incorporation and bylaws as filed
with the organizing or chartering authority, or similar documents
needed to establish and govern a non-corporate legal entity.
(iv) Documents or materials needed to show the tribe's economically
disadvantaged status as described in paragraph (b)(2) of this section.
(c) Business eligibility. In order to be eligible to participate in
the 8(a) BD program, a concern which is owned by an eligible Indian
tribe (or wholly owned business entities of such tribe) must meet the
conditions set forth in paragraphs (c)(1) through (c)(7) of this
section.
(1) Legal business entity organized for profit and susceptible to
suit. The applicant or participating concern must be a separate and
distinct legal entity organized or chartered by the tribe, or Federal
or state authorities. The concern's articles of incorporation,
partnership agreement or limited liability company articles of
organization must contain express sovereign immunity waiver language,
or a ``sue and be sued'' clause which designates United States Federal
Courts to be among the courts of competent jurisdiction for all matters
relating to SBA's programs including, but not limited to, 8(a) BD
program participation, loans, and contract performance. Also, the
concern must be organized for profit, and the tribe must possess
economic development powers in the tribe's governing documents.
(2) Size. (i) A tribally-owned applicant concern must qualify as a
small business concern as defined for purposes of Government
procurement in part 121 of this title. The particular size standard to
be applied shall be based on the primary industry classification of the
applicant concern.
(ii) A tribally-owned Participant must certify to SBA that it is a
small business pursuant to the provisions of part 121 of this title for
the purpose of performing each individual contract which it is awarded.
(iii) In determining the size of a small business concern owned by
a socially and economically disadvantaged Indian tribe (or a wholly
owned business entity of such tribe) for either 8(a) BD program entry
or contract award, the firm's size shall be determined independently
without regard to its affiliation with the tribe, any entity of the
tribal government, or any other business enterprise owned by the tribe,
unless the Administrator determines that one or more such tribally-
owned business concerns have obtained, or are likely to obtain, a
substantial unfair competitive advantage within an industry category.
(3) Ownership. For corporate entities, a tribe must own at least 51
percent of the voting stock and at least 51 percent of the aggregate of
all classes of stock. For non-corporate entities, a tribe must own at
least a 51 percent interest. A tribe cannot own 51% or more of another
firm which, either at the time of application or within the previous
two years, has been operating in the 8(a) program under the same
primary Standard Industry Classification code as the applicant. The
restrictions of Sec. 124.105(h) do not apply to tribes; they do,
however, apply to non-disadvantaged individuals or other business
concerns that are partial owners of a tribally-owned concern.
(4) Control and management. (i) The management and daily business
operations of a tribally-owned concern must be controlled by the tribe,
through one or more disadvantaged individual members who possess
sufficient management experience of an extent and complexity needed to
run the concern, or through management as follows:
(A) Management may be provided by committees, teams, or Boards of
Directors which are controlled by one or more members of an
economically disadvantaged tribe, or
(B) Management may be provided by non-tribal members if SBA
determines that such management is required to assist the concern's
development, that the tribe will retain control of all management
decisions common to boards of directors, including strategic planning,
budget approval, and the employment and compensation of officers, and
that a written management development plan exists which shows how
disadvantaged tribal members will develop managerial skills sufficient
to manage the concern or similar tribally-owned concerns in the future.
(ii) Members of the management team, business committee members,
officers, and directors are precluded from engaging in any outside
employment or other business interests which conflict with the
management of the concern or prevent the concern from achieving the
objectives set forth in its business development plan. This is not
intended to preclude participation in tribal or other activities which
do not interfere with such individual's responsibilities in the
operation of the applicant concern.
(5) Individual eligibility limitation. SBA does not deem an
individual involved in the management or daily business operations of a
tribally-owned concern to have used his or her individual eligibility
within the meaning of Sec. 124.108(b).
(6) Potential for success. (i) A tribally-owned applicant concern
must be in business for at least two years, as evidenced by income tax
returns for each of the two previous tax years showing operating
revenues in the primary industry in which the applicant is seeking 8(a)
BD certification, or demonstrate potential for success as set forth in
paragraph (c)(6)(ii) of this section.
(ii) In determining whether a tribally-owned concern has the
potential for success, SBA will look at a number of factors including,
but not limited to:
(A) The technical and managerial experience and competency of the
individual(s) who will manage and control the daily operation of the
concern;
(B) The financial capacity of the concern; and
(C) The concern's record of performance on any previous Federal or
private sector contracts in the primary industry in which the concern
is seeking 8(a) certification.
(7) Other eligibility criteria. (i) As with other 8(a) applicants,
a tribally-owned applicant concern shall not be denied admission into
the 8(a) program due solely to a determination that specific contract
opportunities are unavailable to assist the development of the concern
unless:
(A) The Government has not previously procured and is unlikely to
procure the types of products or services offered by the concern; or
(B) The purchase of such products or services by the Federal
Government will not be in quantities sufficient to support the
developmental needs of the applicant and other program participants
providing the same or similar items or services.
(ii) Except for the tribe itself, the concern's officers,
directors, and 20% or more shareholders must demonstrate good
character. See Sec. 124.108(a).
Sec. 124.110 Do Native Hawaiian Organizations have any special rules
for applying to the 8(a) BD program?
(a) Concerns owned by economically disadvantaged Native Hawaiian
Organizations as defined in Sec. 124.3 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. 124.101 through 124.108 and Sec. 124.112(a) to the extent that
they are not inconsistent with this section.
[[Page 43606]]
(b) A concern owned by a Native Hawaiian Organization must qualify
as a small business concern as defined in part 121 of this title. The
size standard corresponding to the primary industry classification of
the applicant concern applies for determining size. Ownership by the
Native Hawaiian Organization will not, by 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) A Native Hawaiian Organization cannot own more than one current
or former Participant having the same primary industry classification.
(d) SBA does not deem an individual involved in the management or
daily business operations of a Participant owned by a Native Hawaiian
Organization to have used his or her individual eligibility within the
meaning of Sec. 124.108(b).
(e)(1) An applicant concern owned by a Native Hawaiian Organization
must be in business for at least two years, as evidenced by income tax
returns for each of the two previous tax years showing operating
revenues in the primary industry in which the applicant is seeking 8(a)
BD certification, or demonstrate potential for success as set forth in
paragraph (e)(2) of this section.
(2) In determining whether a concern owned by a Native Hawaiian
Organization has the potential for success, SBA will look at a number
of factors including, but not limited to:
(i) The technical and managerial experience and competency of the
individual(s) who will manage and control the daily operation of the
concern;
(ii) The financial capacity of the concern; and
(iii) The concern's record of performance on any previous Federal
or private sector contracts in the primary industry in which the
concern is seeking 8(a) certification.
Sec. 124.111 Do Community Development Corporations (CDCs) have any
special rules for applying to the 8(a) BD program?
(a) Concerns owned at least 51 percent by CDCs (or a wholly owned
business entity of a CDC) are eligible for participation in the 8(a) BD
program and other federal programs requiring SBA to determine social
and economic disadvantage as a condition of eligibility. These concerns
must meet all eligibility criteria set forth in Sec. 124.101 through
Sec. 124.108 and Sec. 124.112(a) to the extent that they are not
inconsistent with this section.
(b) A concern that is at least 51 percent owned by a CDC (or a
wholly owned business entity of a CDC) is considered to be controlled
by such CDC and eligible for participation in the 8(a) BD 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
experience of an extent and complexity needed to run the concern.
(c) A concern that is at least 51 percent owned by a CDC (or a
wholly owned business entity of a CDC) must qualify as a small business
concern as defined in part 121 of this title. The size standard
corresponding to the primary industry classification of the applicant
concern applies for determining size. Ownership by the CDC will not, by
itself, cause affiliation with the CDC or with other CDC-owned
entities. However, affiliation with the CDC or other CDC-owned entities
may arise due to circumstances other than common CDC ownership.
(d) A CDC cannot own more than one current or former 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(b).
(f)(1) A CDC-owned applicant concern must be in business for at
least two years, as evidenced by income tax returns for each of the two
previous tax years showing operating revenues in the primary industry
in which the applicant is seeking 8(a) BD certification, or demonstrate
potential for success as set forth in paragraph (e)(2) of this section.
(2) In determining whether a CDC-owned concern has the potential
for success, SBA will look at a number of factors including, but not
limited to:
(i) The technical and managerial experience and competency of the
individual(s) who will manage and control the daily operation of the
concern;
(ii) The financial capacity of the concern; and
(iii) The concern's record of performance on any previous Federal
or private sector contracts in the primary industry in which the
concern is seeking 8(a) certification.
(g) A CDC-owned applicant and all of its principals must have good
character as set forth in Sec. 124.108(a).
Sec. 124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
(a) Standards. In order for a concern to remain eligible for 8(a)
BD program participation, it must continue to meet all eligibility
criteria contained in Sec. 124.101 through Sec. 124.108. For continued
economic disadvantage, transfers of assets by an individual claiming
disadvantaged status to an immediate family member, or to a trust the
beneficiary of which is an immediate family member, for less than fair
market value will be attributed to the individual claiming
disadvantaged status for a period of two years after the transfer. Any
concern that fails to meet the eligibility requirements after being
admitted to the program will be subject to termination or early
graduation under Secs. 124.302 through 124.304, as appropriate.
(b) Submissions supporting continued eligibility. As part of an
annual review, each Participant must annually submit to the servicing
district office the following:
(1) A certification that it meets the 8(a) BD program eligibility
requirements as set forth in Sec. 124.101 through Sec. 124.108 and
paragraph (a) of this section;
(2) Personal financial information for each disadvantaged owner;
(3) A certification from each individual claiming disadvantaged
status regarding the transfer of assets to any immediate family member,
or to a trust the beneficiary of which is an immediate family member,
within two years of the date of the annual review. The individual must
certify that he or she has not transferred assets or that he or she has
not transferred assets except to the extent described in an attachment
to the certification.
(4) A record of all payments, compensation, and distributions
(including loans, advances, salaries and dividends) made by the
Participant to each of its owners, officers or directors, or to any
person or entity affiliated with such individuals; and
(5) Such other information as SBA may deem necessary. For other
required annual submissions, see Sec. 124.601 through Sec. 124.603.
(c) Eligibility reviews. (1) Upon receipt of specific and credible
information alleging that a Participant no longer meets the eligibility
requirements for continued program eligibility, SBA will review the
concern's eligibility for continued participation in the program.
(2) Sufficient reasons for SBA to conclude that a 8(a) BD
Participant is no longer economically disadvantaged include, but are
not limited to,
[[Page 43607]]
demonstrated access to a significant new source of capital or loans, an
unusually large amount of funds or other assets withdrawn from the
concern by its owners, or substantial personal assets, income or net
worth of any disadvantaged owner.
(3) If SBA determines that funds or other assets have been
withdrawn to the detriment of the achievement of the targets,
objectives and goals of the Participant's business plan, or to the
detriment of its overall business development, SBA may initiate a
termination proceeding under Secs. 124.303 and 124.304, or require an
appropriate reinvestment of funds or other assets, as well as any other
actions SBA deems necessary to counteract the detrimental effects of
the withdrawals, as a condition of the Participant maintaining program
eligibility. The 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.
Applying to the 8(a) BD Program
Sec. 124.201 May any business submit an application?
Any concern or any individual on behalf of a business has the right
to apply for 8(a) BD program participation whether or not there is an
appearance of eligibility.
Sec. 124.202 Where must an application be filed?
An application for 8(a) BD program admission must be filed in the
SBA Division of Program Certification and Eligibility (DPCE) field
office serving the territory in which the principal place of business
is located. The SBA district office will provide an applicant concern
with information regarding the 8(a) BD program and with all required
application forms.
Sec. 124.203 What must a concern submit to apply to the 8(a) BD
program?
Each 8(a) BD applicant concern must submit those forms and
attachments required by SBA when applying for admission to the 8(a) BD
program. These forms and attachments will include, but not be limited
to, financial statements, Federal personal and business tax returns,
and personal history statements. The application package may be in the
form of an electronic application.
Sec. 124.204 How does SBA process applications for 8(a) BD program
admission?
(a) The AA/8(a)BD is authorized to approve or decline applications
for admission to the 8(a) BD program. The DPCE will receive, review and
evaluate all 8(a) BD applications except those from ANC-owned
applicants. The SBA's Anchorage District Office will receive those
applications and review them for completeness before sending them to
the AA/8(a)BD for further processing. The field DPCE office will advise
each program applicant within 15 days after the receipt of an
application whether the application is complete and suitable for
evaluation and, if not, what additional information or clarification is
required to complete the application. SBA will process an application
for 8(a) BD program participation within 90 days of receipt of a
complete application package by the field DPCE office. Incomplete
application packages will not be processed.
(b) An applicant concern's eligibility will be based on
circumstances existing on the date of application except as provided in
paragraph (c) of this section. SBA, in its sole discretion, may request
clarification of information contained in the application at any time
in the application process.
(c) Changed circumstances for an applicant concern occurring
subsequent to its application and which adversely affect eligibility
will be considered and may constitute grounds for decline. The
applicant must inform SBA of any changed circumstances during its
application review.
(d) The decision of the AA/8(a)BD to approve or deny an application
will be in writing. A decision to deny admission will state the
specific reasons for denial, and will inform the applicant of any
appeal rights.
(e) If the AA/8(a)BD approves the application, the date of the
approval letter is the date of program certification for purposes of
determining the concern's program term. However, an applicant is not
entitled to receive program benefits until SBA has approved the
concern's business plan.
Sec. 124.205 Can an applicant ask SBA to reconsider SBA's initial
decision to decline its application?
(a) An applicant may request the AA/8(a)BD to reconsider his or her
initial decline decision. To do so, the applicant must ask for
reconsideration by sending a certified letter, return receipt
requested, to the regional office of the DPCE that originally processed
its application. The applicant must submit its request for
reconsideration within 45 days of receiving notice that its application
was declined. The applicant must provide any additional information and
documentation pertinent to overcoming the reason(s) for the initial
decline.
(b) The AA/8(a)BD will issue a written decision within 45 days of
the regional DPCE's receipt of the applicant's request. The AA/8(a)BD
may either approve the application, deny it on the same grounds as the
original decision, or deny it on other grounds. If denied, the AA/
8(a)BD will explain why the applicant is not eligible for admission to
the 8(a) BD program and give specific reasons for the decline.
(c) If the AA/8(a)BD declines the application solely on issues not
raised in the initial decline, the applicant can ask for
reconsideration as if it were an initial decline.
Sec. 124.206 What appeal rights are available to an applicant that has
been denied admission?
(a) An applicant may appeal a denial of program admission if it is
based solely on a negative finding of social disadvantage, economic
disadvantage, ownership, control, or any combination of these four
criteria. A denial decision that is based at least in part on the
failure to meet any other eligibility criterion is not appealable and
is the final Agency decision.
(b) The applicant may appeal an initial decision of the AA/8(a)BD
without requesting reconsideration, or may appeal the decision of the
AA/8(a)BD on reconsideration.
(c) The applicant may initiate an appeal by filing a petition in
accordance with part 134 of this title with SBA's Office of Hearings
and Appeals (OHA) within 45 days of the date of service (as defined in
Sec. 134.204) of the Agency decision.
(d) If an appeal is filed with OHA, the written decision of the
Administrative Law Judge is the final Agency decision. If an appealable
decision is not appealed, the decision of the AA/8(a)BD is the final
Agency decision.
Sec. 124.207 Can an applicant reapply for admission to the 8(a) BD
program?
A concern which has been declined for 8(a) BD program admission may
submit a new application for admission to the program 12 months after
the date of the final Agency decision to decline.
Exiting the 8(a) BD Program
Sec. 124.301 What are the ways a business may leave the 8(a) BD
program?
A concern participating in the 8(a) BD program may leave the
program by any of the following means:
[[Page 43608]]
(a) Voluntary early graduation or withdrawal;
(b) Expiration of the program term established pursuant to
Sec. 124.2;
(c) Early graduation pursuant to the provisions of Secs. 124.302
and 124.304; or
(d) Termination pursuant to the provisions of Secs. 124.303 and
124.304.
Sec. 124.302 What is early graduation?
(a) General. The Small Business Act authorizes SBA to graduate a
firm from the 8(a) BD program prior to the expiration of its Program
Term for two reasons:
(1) When a Participant is recognized as successfully completing the
8(a) BD program by substantially achieving the targets, objectives and
goals set forth in its business plan prior to the expiration of its
program term, and has demonstrated the ability to compete in the
marketplace without assistance under the 8(a) BD program; or
(2) When SBA determines that one or more of the disadvantaged
owners upon whom the Participant's eligibility is based are no longer
economically disadvantaged.
(b) Early graduation criteria. In determining whether a Participant
has substantially achieved the targets, objectives and goals of its
business plan and in assessing the overall competitive strength and
viability of a Participant, SBA considers the totality of
circumstances, including the following factors:
(1) Degree of sustained profitability;
(2) Sales trends, including improved ratio of non-8(a) sales to
8(a) sales since program entry;
(3) Business net worth, financial ratios, working capital,
capitalization, and access to credit and capital;
(4) Current ability to obtain bonding;
(5) A comparison of the Participant's business and financial
profiles with profiles of non-8(a) BD businesses having the same
primary four-digit SIC code as the Participant;
(6) Strength of management experience, capability, and expertise;
and
(7) Ability to operate successfully without 8(a) contracts.
(c) Benchmark achievement. SBA may graduate a Participant prior to
the expiration of its program term where the Participant has
substantially achieved the targets, objectives and goals of its
business plan as adjusted under Sec. 124.403(c) because of benchmark
achievement.
Sec. 124.303 What is termination?
(a) SBA may terminate the participation of a concern in the 8(a) BD
program prior to the expiration of the concern's Program Term for good
cause. Examples of good cause include, but are not limited to, the
following:
(1) Submission of false information in the concern's 8(a) BD
application, regardless of whether correct information would have
caused the concern to be denied admission to the program, and
regardless of whether correct information was given to SBA in
accompanying documents or by other means.
(2) Failure by the concern to maintain its eligibility for program
participation.
(3) Failure by the concern for any reason, including the death of
an individual upon whom eligibility was based, to maintain ownership,
full-time day-to-day management, and control by disadvantaged
individuals.
(4) Failure by the concern to obtain written approval from SBA for
any changes in ownership, management or control pursuant to
Secs. 124.105 and 124.106.
(5) Failure by the concern to disclose to SBA the extent to which
non-disadvantaged persons or firms participate in the management of the
Participant business concern.
(6) Failure by one or more of the concern's principals to maintain
good character.
(7) A pattern of failure to make required submissions or responses
to SBA in a timely manner, including a failure to provide required
financial statements, requested tax returns, reports, updated business
plans, information requested by SBA's Office of Inspector General, or
other requested information or data within 30 days of the date of
request.
(8) Cessation of business operations by the concern.
(9) Failure by the concern to pursue competitive and commercial
business in accordance with its business plan, or failure in other ways
to make reasonable efforts to develop and achieve competitive
viability.
(10) A pattern of inadequate performance by the concern of awarded
section 8(a) contracts.
(11) Failure by the concern to pay or repay significant financial
obligations owed to the Federal Government.
(12) Failure by the concern to obtain and keep current any and all
required permits, licenses, and charters.
(13) Excessive transfers of funds or other business assets
hindering development of the concern, or excessive withdrawals from the
concern for the personal benefit of any of its owners or any person or
entity affiliated with the owners. Withdrawals are excessive if they
exceed:
(i) $150,000 for firms with sales up to $1,000,000;
(ii) $200,000 for firms with sales between $1,000,000 and
$2,000,000; and
(iii) $300,000 for firms with sales over $2,000,000.
(14) Unauthorized use of SBA direct or guaranty loan proceeds or
violation of an SBA loan agreement.
(15) Submission on behalf of a Participant of false information to
SBA, including false certification of compliance with non-8(a) business
activity targets under Sec. 124.508, where responsible officials of the
8(a) BD concern knew or should have known the submission to be false.
(16) Debarment, suspension, voluntary exclusion, or ineligibility
of the concern or its principals pursuant to 13 CFR part 145 or FAR
subpart 9.4 (48 CFR part 9, subpart 9.4).
(17) Conduct by the concern, or any of its principals, indicating a
lack of business integrity. Such conduct may be demonstrated by
information in a criminal indictment, a criminal conviction, or a civil
judgment.
(18) Suspension or revocation of any professional license required
to run the business.
(19) Willful failure by the Participant business concern to comply
with applicable labor standards and obligations.
(20) Material breach of any terms and conditions of the 8(a) BD
Program Participation Agreement.
(21) Willful violation by a concern, or any of its principals, of
any SBA regulation.
(b) The examples of good cause listed in paragraph (a) of this
section are intended to be illustrative only. Other grounds for
terminating a Participant from the 8(a) BD program for cause may exist
and may be used by SBA.
Sec. 124.304 What are the procedures for early graduation and
termination?
(a) General. The same procedures apply to both early graduation and
termination of Participants from the 8(a) BD program.
(b) Letter of Intent to Terminate or Early Graduate. When SBA
believes that a Participant should be terminated or graduated prior to
the expiration of its program term, SBA will notify the concern in
writing. The Letter of Intent to Terminate or Early Graduate will set
forth the specific facts and reasons for SBA's findings, and will
notify the concern that it has 30 days from the date of service of the
letter to submit a written response to SBA. Service is defined in
Sec. 134.204.
(c) Recommendation and decision. Following the 30-day response
period,
[[Page 43609]]
the Assistant Administrator, DPCE, will consider the proposed early
graduation or termination and any information submitted in response by
the concern. Upon determining that early graduation or termination is
not warranted, the Assistant Administrator will notify the Participant
in writing. If early graduation or termination appears warranted, the
Assistant Administrator will make such a recommendation to the AA/
8(a)BD, who will then make a decision whether to early graduate or
terminate the concern.
(d) Notice requirements. Upon deciding that early graduation or
termination is warranted, the AA/8(a)BD will issue a Notice of Early
Graduation or Termination. The Notice will set forth the specific facts
and reasons for the decision, and will advise the concern that it may
appeal the decision in accordance with the provisions of part 134 of
this title.
(e) Appeal to Office of Hearings and Appeals. Procedures governing
appeals of early graduation or termination to SBA's OHA are set forth
in part 134. If a Participant does not appeal a Notification of Early
Graduation or Termination within 45 days of the date of service (as
defined in Sec. 134.204), the decision of the AA/8(a)BD is the final
agency decision effective on the date the appeal right expired.
(f) Effect of early graduation or termination. After the effective
date of early graduation or termination, a Participant is no longer
eligible to receive any 8(a) BD program assistance. However, such
concern is obligated to complete previously awarded 8(a) contracts,
including any priced options which may be exercised.
Sec. 124.305 What is suspension and how is a Participant suspended
from the 8(a) BD program?
(a) At any time after SBA issues a Letter of Intent to Terminate
pursuant to Sec. 124.304, the AA/8(a)BD may suspend 8(a) contract
support and all other forms of 8(a) BD program assistance to that
concern until the issue of the concern's termination from the program
is finally decided. The AA/8(a)BD may suspend a Participant when he or
she determines that suspension is needed to protect the interests of
the Government, such as where information showing a clear lack of
program eligibility or conduct indicating a lack of business integrity
exists, including where the concern or one of its principals submitted
false statements to the Government. SBA will suspend a Participant
where SBA determines that the Participant submitted false information
in its 8(a) BD application.
(b) SBA will issue a Notice of Suspension to the Participant's last
known address by certified mail, return receipt requested. Suspension
is effective as of the date of the issuance of the Notice. The Notice
will provide the following information:
(1) The basis for the suspension;
(2) A statement that the suspension will continue pending the
completion of further investigation, a final program termination
determination, or some other specified period of time;
(3) A statement that awards of competitive and non-competitive 8(a)
contracts, including those which have been ``self-marketed'' by a
Participant, will not be made during the pendency of the suspension
unless it is determined by the head of the relevant procuring agency or
an authorized representative to be in the best interest of the
Government to do so, and SBA adopts that determination;
(4) A statement that the concern is obligated to complete
previously awarded section 8(a) contracts;
(5) A statement that the suspension is effective nationally
throughout the SBA;
(6) A statement that a request for a hearing on the suspension will
be considered by an Administrative Law Judge at OHA, and granted or
denied as a matter of discretion.
(7) A statement that the firm's participation in the program is
suspended effective on the date the Notice is issued, and that the
program term will resume only if the suspension is lifted or the firm
is not terminated.
(c) The applicant concern may appeal a Notice of Suspension by
filing a petition in accordance with part 134 of this title with OHA
within 45 days of the date of service (as defined in Sec. 134.204) of a
Notice of Suspension pursuant to paragraph (b) of this section. It is
contemplated that in most cases a hearing on the issue of the
suspension will be afforded if the Participant requests one, but
authority to grant a hearing is within the discretion of the
Administrative Law Judge in OHA. A suspension remains in effect pending
the result of its appeal.
(d) SBA has the burden of showing that substantial evidence exists
in support of at least one of the grounds for termination cited in the
Letter of Intent to Terminate, and that protection of the Government's
interest requires suspension before OHA makes a final determination
regarding the termination.
(e) If there is a timely appeal, the decision of the Administrative
Law Judge is the final Agency decision. If there is not a timely
appeal, the decision of the AA/8(a)BD is the final Agency decision.
(f) Upon the request of SBA, OHA may consolidate suspension and
termination proceedings when the issues presented are identical.
(g) Any program suspension which occurs in accordance with this
part will continue in effect until such time as the SBA lifts the
suspension or the Participant's participation in the program is fully
terminated. If the concern is ultimately not terminated from the 8(a)
BD program, the suspension will be lifted and the length of the
suspension will be added to the concern's program term.
(h) SBA does not recognize the concept of de facto suspension.
Adding time to the end of a Participant's program term equal to the
length of a suspension will occur only where a concern's program
participation has been formally suspended in accordance with the
procedures set forth in this section.
(i) A suspension from 8(a) BD participation under this section has
no effect on a concern's eligibility for non-8(a) Government contracts.
However, a debarment or suspension under the Federal Acquisition
Regulation (48 CFR chapter 1) will disqualify a concern from receiving
all Government contracts, including 8(a) contracts.
Business Development
Sec. 124.401 Which SBA field office services a Participant?
The SBA district office which serves the geographical territory
where a Participant's principal place of business is located normally
will service the concern during its participation in the 8(a) BD
program.
Sec. 124.402 How does a Participant develop a business plan?
(a) General. In order to assist the SBA servicing office in
determining the business development needs of its portfolio
Participants, each Participant must develop a comprehensive business
plan setting forth its business targets, objectives, and goals.
(b) Submission of initial business plan. Each Participant must
submit a business plan to its SBA servicing office as soon as possible
after program admission. The Participant will not be eligible for 8(a)
BD program benefits, including 8(a) contracts, until SBA approves its
business plan.
(c) Contents of business plan. The business plan must contain at
least the following:
(1) A detailed description of any products currently being produced
and any services currently being performed
[[Page 43610]]
by the concern, as well as any future plans to enter into one or more
new markets;
(2) The applicant's designation of its primary industry
classification, as defined in Sec. 124.3;
(3) An analysis of market potential, competitive environment, and
the concern's prospects for profitable operations during and after its
participation in the 8(a) BD program;
(4) An analysis of the concern's strengths and weaknesses, with
particular attention on ways to correct any financial, managerial,
technical, or work force conditions which could impede the concern from
receiving and performing non-8(a) contracts;
(5) Specific targets, objectives, and goals for the business
development of the concern during the next two years;
(6) Estimates of both 8(a) and non-8(a) contract awards that will
be needed to meet its targets, objectives and goals; and
(7) Such other information as SBA may require.
Sec. 124.403 How is a business plan updated and modified?
(a) Annual review. Each Participant must annually review its
business plan with its assigned Business Opportunity Specialist (BOS),
and modify the plan as appropriate. The Participant must submit a
modified plan and updated information to its BOS within thirty (30)
days after the close of each program year. It also must submit a
capability statement describing its current contract performance
capabilities as part of its updated business plan.
(b) Contract forecast. As part of the annual review of its business
plan, each Participant must annually forecast in writing its needs for
contract awards for the next program year. The forecast must include:
(1) The aggregate dollar value of 8(a) contracts to be sought,
broken down by sole source and competitive opportunities where
possible;
(2) The aggregate dollar value of non-8(a) contracts to be sought;
(3) The types of contract opportunities to be sought, identified by
product or service; and
(4) Such other information as SBA may request to aid in providing
effective business development assistance to the Participant.
(c) Benchmark achievement. Where actual participation by
disadvantaged businesses in a particular industry exceeds the benchmark
limitations established by the Department of Commerce, in consultation
with the General Services Administration and the SBA, for that
industry, SBA may adjust the targets, objectives and goals contained in
the business plans of Participants whose primary industry
classification falls within that industry. Any adjustment will take
into account projected decreases in 8(a) and SDB contracting
opportunities.
(d) Transition management strategy. Beginning in the first year of
the transitional stage of program participation, each Participant must
annually submit a transition management strategy to be incorporated
into its business plan. The transition management strategy must
describe:
(1) How the Participant intends to meet the applicable non-8(a)
business activity target imposed by Sec. 124.508 during the
transitional stage of participation; and
(2) The specific steps the Participant intends to take to continue
its business growth and promote profitable business operations after
the expiration of its program term.
Sec. 124.404 What business development assistance is available to
Participants during the two stages of participation in the 8(a) BD
program?
(a) General. Participation in the 8(a) BD program is divided into
two stages, a developmental stage and a transitional stage. The
developmental stage will last four years, and the transitional stage
will last five years, unless the concern has exited the program by one
of the means set forth in Sec. 124.301 prior to the expiration of its
program term.
(b) Developmental stage of program participation. A Participant, if
otherwise eligible, may receive the following assistance during the
developmental stage of program participation:
(1) Sole source and competitive 8(a) contract support;
(2) Financial assistance pursuant to Sec. 120.385 of this title;
(3) The transfer of technology or surplus property owned by the
United States pursuant to Sec. 124.405; and
(4) Training to aid in developing business principles and
strategies to enhance their ability to compete successfully for both
8(a) and non-8(a) contracts.
(c) Transitional stage of program participation. A Participant, if
otherwise eligible, may receive the following assistance during the
transitional stage of program participation:
(1) The same assistance as that provided to Participants in the
developmental stage;
(2) Assistance from procuring agencies (in cooperation with SBA) in
forming joint ventures, leader-follower arrangements, and teaming
agreements between the concern and other Participants or other business
concerns with respect to contracting opportunities outside the 8(a) BD
program for research, development, or full scale engineering or
production of major systems (these arrangements must comply with all
relevant statutes and regulations, including applicable size standard
requirements); and
(3) Training and technical assistance in transitional business
planning.
Sec. 124.405 How does a Participant obtain Federal Government surplus
property?
(a) General. (1) Surplus Federal Government property may be
transferred to eligible Participants from State Agencies for Surplus
Property (SASPs) in accordance with the procedures set forth in 41 CFR
Part 101-44 and this section.
(2) The property which may be transferred to SASPs for further
transfer to eligible Participants includes all personal property which
has been determined to be ``donable'' as defined in 41 CFR 101-44.001-
3.
(b) Eligibility to receive Federal surplus property. To be eligible
to receive Federal surplus property, on the date of transfer a concern
must:
(1) Be in the 8(a) BD program;
(2) Be in compliance with all program requirements, including any
reporting requirements;
(3) Not be debarred, suspended or declared ineligible under part 9,
subpart 9.4 of the Federal Acquisition Regulations, Title 48 of the
Code of Federal Regulations;
(4) Not be under a pending 8(a) BD program suspension, termination
or early graduation proceeding; and
(5) Be engaged or expect to be engaged in business activities
making the item useful to it.
(c) Use of acquired surplus property. (1) Eligible Participants may
acquire surplus Federal property from any SASP located in any State,
provided the concern represents and agrees in writing:
(i) As to what the intended use of the surplus property is to be
and that this use is consistent with the objectives of the concern's
8(a) business plan;
(ii) That it will use the property to be acquired in the normal
conduct of its business activities or be liable for the fair rental
value from the date of its receipt;
(iii) That it will not sell or transfer the property to be acquired
to any party other than the Federal Government during its term of
participation in the 8(a) program and for one year after it leaves the
program;
(iv) That, at its own expense, it will return the property to a
SASP or transfer
[[Page 43611]]
it to another Participant if directed to do so by the SBA because it
has not used the property as intended within one year of receipt;
(v) That, should it breach its agreement not to sell or transfer
the property, it will be liable to the Government for the established
fair market value or the sale price, whichever is greater, of the
property sold or transferred; and
(vi) That it will give SBA access to inspect the property and all
records pertaining to it.
(2) A firm receiving surplus property pursuant to this section
assumes all liability associated with or stemming from the use of the
property.
(3) If the property is not placed in use for the purposes for which
it was intended within one year of its receipt, SBA may direct the
concern to deliver the property to another Participant or to the SASP
from which it was acquired.
(4) Failure to comply with any of the commitments made under
paragraph (c)(1) of this section constitutes a basis for termination
from the 8(a) program.
(d) Procedures for acquiring Federal Government surplus property.
(1) Participants may participate in the surplus property distribution
program administered by the SASPs to the same extent, but with no
special priority over, other authorized transferees. See 41 CFR subpart
101-44.2.
(2) Each Participant seeking to acquire Federal Government surplus
property from a SASP must:
(i) Certify in writing to the SASP that it is eligible to receive
the property pursuant to paragraph (b) of this section;
(ii) Make the written representations and agreement required by
paragraph (c)(1) of this section; and
(iii) Identify to the SASP its servicing SBA field office.
(3) Upon receipt of the required certification, representations,
agreement, and information set forth in paragraph (d)(2) of this
section, the SASP must contact the appropriate SBA field office and
obtain the SBA's verification that the concern seeking to acquire the
surplus property is eligible, and that the identified use of the
property is consistent with the concern's business activities. SASPs
may not release property to a Participant without this verification.
(4) The SASP and the Participant must agree on and record the fair
market value of the surplus property at the time of the transfer to the
Participant. The SASP must provide to SBA a written record, including
the agreed upon fair market value, of each transaction to a Participant
when any property has been transferred.
(e) Costs. Participants acquiring surplus property from a SASP must
pay a service fee to the SASP which is equal to the SASP's direct costs
of locating, inspecting, and transporting the surplus property. If a
Participant elects to incur the responsibility and the expense for
transporting the acquired property, the concern may do so and no
transportation costs will be charged by the SASP. In addition, the SASP
may charge a reasonable fee to cover its costs of administering the
program. In no instance will any SASP charge a Participant more for any
service than their established fees charged to other transferees.
(f) Title. The title to surplus property acquired from a SASP will
pass to the Participant when the Participant executes the applicable
SASP distribution documents and takes possession of the property.
(g) Compliance. (1) SBA will periodically review whether
Participants that have received surplus property have used and
maintained the property as agreed. This review may include site visits
to visually inspect the property to ensure that it is being used in a
manner consistent with the terms of its transfer.
(2) Participants must provide SBA with access to all relevant
records upon request.
(3) Where SBA receives credible information that transferred
surplus property may have been disposed of or otherwise used in a
manner that is not consistent with the terms of the transfer, SBA may
investigate such claim to determine its validity.
(4) SBA may, either by itself or through a SASP, take any action to
correct any noncompliance involving the use of transferred property
still in possession of the Participant or to enforce any terms,
conditions, reservations, or restrictions imposed on the property by
the distribution document. Actions to enforce compliance, or which may
be taken as a result of noncompliance, include the following:
(i) Requiring that the property be placed in proper use within a
specified time;
(ii) Requiring that the property be transferred to another
Participant having a need and use for the property, returned to the
SASP serving the area where the property is located for distribution to
another eligible transferee or to another SASP, or transferred through
GSA to another Federal agency;
(iii) Recovery of the fair rental value of the property from the
date of its receipt by the Participant; and
(iv) Initiation of proceedings to terminate the Participant from
the 8(a) BD program.
(5) Where SBA finds that a recipient has sold or otherwise disposed
of the acquired surplus property in violation of the agreement covering
sale and disposal, the Participant is liable for the agreed upon fair
market value of the property at the time of the transfer, or the sale
price, whichever is greater. However, a Participant need not repay any
amount where it can demonstrate to the SBA's satisfaction that the
property is no longer useful for the purpose for which it was
transferred and receives the SBA's prior written consent to transfer
the property. For example, if a piece of equipment breaks down beyond
repair, it may be disposed of without being subject to the repayment
provision, so long as the concern receives the SBA's prior consent.
(6) Any funds received by the SBA in enforcement of this section
will be remitted promptly to the Treasury of the United States as
miscellaneous receipts.
Contractual Assistance
Sec. 124.501 What general provisions apply to the award of 8(a)
contracts?
(a) Pursuant to section 8(a) of the Small Business Act, SBA is
authorized to enter into all types of contracts with other Federal
Government agencies, including contracts to furnish equipment,
supplies, services, leased real property, or materials to the
Government or to perform construction work for the Government, and to
contract the performance of these contracts to qualified Participants.
Where appropriate, SBA may delegate the contract execution function to
procuring activities. In order to receive and retain a delegation of
SBA's contract execution and review functions, a procuring activity
must report all 8(a) contract awards, modifications, and options to
SBA.
(b) 8(a) contracts may either be sole source awards or awards won
through competition with other Participants.
(c) Admission into the 8(a) BD program does not guarantee that a
Participant will receive 8(a) contracts.
(d) While a Participant's projected level of 8(a) contract support
is required as part of its business plan as a planning and development
tool, the proposed level contained in the business plan will not
prevent contract awards above that level so long as:
(1) The Participant is competent and responsible to perform a
particular 8(a) contract; and
(2) The Participant is in compliance with any applicable
competitive
[[Page 43612]]
business mix target or remedial measure imposed by Sec. 124.508.
(e) A requirement for possible award may be identified by SBA, a
particular Participant or the procuring agency itself. SBA will submit
the capability statements provided to SBA annually under Sec. 124.403
to appropriate procuring agencies for the purpose of matching
requirements with Participants.
(f) Participants should market their capabilities to appropriate
procuring agencies to increase their prospects of receiving sole source
8(a) contracts.
(g) A concern must be a current Participant in the 8(a) BD program
at the time of award, except as provided in Sec. 124.507(d).
(h) A Participant must certify that it is a small business under
the size standard corresponding to the SIC code assigned to each 8(a)
contract. 8(a) BD program personnel will verify size prior to award of
an 8(a) contract. If the Participant is not verified as small, it may
request a formal size determination from the appropriate General
Contracting Area Office under part 121 of this title.
(i) Any person or entity that misrepresents its status as a ``small
business concern owned and controlled by socially and economically
disadvantaged individuals'' in order to obtain any 8(a) contracting
opportunity will be subject to possible criminal, civil and
administrative penalties, including those imposed by section 16(d) of
the Small Business Act, 15 U.S.C. 645(d).
Sec. 124.502 How does an agency offer a procurement to SBA for award
through the 8(a) BD program?
(a) A procuring agency contracting officer indicates his or her
formal intent to award a procurement requirement as an 8(a) contract by
submitting an offering letter to SBA.
(b) Contracting officers must submit offering letters to the
following locations:
(1) For competitive 8(a) requirements and those sole source
requirements for which no specific Participant is nominated (i.e., open
requirements) other than construction requirements, to the SBA district
office serving the geographical area in which the procuring agency is
located;
(2) For competitive and open construction requirements, to the SBA
district office serving the geographical area in which the work is to
be performed;
(3) For sole source requirements offered on behalf of a specific
Participant, to the SBA district office servicing that concern.
(c) An offering letter must contain the following information:
(1) A description of the work to be performed or items to be
delivered and a copy of the statement of work, if available;
(2) The estimated period of performance;
(3) The SIC code that applies to the principal nature of the
acquisition;
(4) The anticipated dollar value of the requirement, including
options, if any;
(5) Any special restrictions or geographical limitations on the
requirement;
(6) The location of the work to be performed for construction
procurements;
(7) Any special capabilities or disciplines needed for contract
performance;
(8) The type of contract to be awarded, such as firm fixed price,
cost reimbursement, or time and materials;
(9) The acquisition history, if any, of the requirement;
(10) The names and addresses of any small business contractors
which have performed on this requirement during the previous 24 months;
(11) A statement that prior to the offering no solicitation for the
specific acquisition has been issued as a small business set-aside, as
a small disadvantaged business set-aside, or as a competitive 8(a)
procurement, and that no other public communication (such as a notice
in the Commerce Business Daily) has been made showing the procuring
agency's clear intent to use any of these means of procurement;
(12) Identification of any specific Participant that the procuring
agency contracting officer nominates for award of a sole source 8(a)
contract, if appropriate, including a brief justification for the
nomination, such as one of the following:
(i) The Participant, through its own efforts, marketed the
requirement and caused it to be reserved for the 8(a) BD program; or
(ii) The acquisition is a follow-on or renewal contract and the
nominated concern is the incumbent;
(13) Bonding requirements, if applicable;
(14) Identification of all Participants which have expressed an
interest in being considered for the acquisition;
(15) Identification of all SBA field offices which have requested
that the requirement be awarded through the 8(a) BD program;
(16) A request, if appropriate, that a requirement whose estimated
contract value is under the applicable competitive threshold be awarded
as an 8(a) competitive contract; and
(17) Any other information that the procuring agency deems relevant
or which SBA requests.
Sec. 124.503 How does SBA accept a procurement for award through the
8(a) BD program?
(a) 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) BD program. SBA's decision
whether to accept the requirement will be sent to the procuring agency
in writing within 10 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) BD 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 8(a) BD
program and in support of a specific Participant.
(2) Where SBA decides to accept an offering of a competitive 8(a)
procurement, SBA will accept the offer on behalf of the 8(a) BD
program.
(b) Verification of SIC code. As part of the acceptance process,
SBA will verify the appropriateness of the SIC code designation
assigned to the requirement by the procuring agency contracting
officer.
(1) SBA will accept the SIC code assigned to the requirement by the
procuring agency contracting officer as long as it is reasonable, even
though other SIC codes may also be reasonable.
(2) If SBA and the procuring agency are unable to agree as to the
proper SIC code designation for the requirement, SBA may either refuse
to accept the requirement for the 8(a) BD program, appeal the
contracting officer's determination to the head of the agency pursuant
to Sec. 124.505, or appeal the SIC code designation to OHA under part
134 of this title.
(c) Sole source award where procuring agency nominates a specific
Participant. SBA will determine whether an appropriate match exists
where the procuring agency identifies a particular Participant for a
sole source award.
(1) Once SBA determines that a procurement is suitable to be
accepted as an 8(a) sole source contract, SBA will normally accept it
on behalf of the Participant recommended by the procuring agency,
provided that:
(i) The procurement is consistent with the Participant's business
plan;
(ii) The Participant complies with its applicable competitive
business mix target or any remedial measures imposed by
Sec. 124.508(e);
[[Page 43613]]
(iii) The Participant is small for the size standard corresponding
to the SIC code assigned to the requirement by the procuring agency
contracting officer; and
(iv) The Participant has submitted required financial statements to
SBA.
(2) If an appropriate match exists, SBA will advise the procuring
agency whether SBA will participate in contract negotiations and
execution of award documents or whether SBA will authorize the
procuring agency to negotiate and execute award directly with the
identified Participant.
(3) If an appropriate match does not exist, SBA will notify the
Participant and the procuring agency, and may then nominate an
alternate Participant.
(d) Open requirements. When a procuring agency does not nominate a
particular concern for performance of a sole source 8(a) contract (open
requirement), the following additional procedures will apply:
(1) If the procurement is a construction requirement, SBA will
examine the portfolio of Participants that have a bona fide place of
business within the geographical boundaries served by the SBA district
office where the work is to be performed to select a qualified
Participant. If none is found to be qualified or a match for a concern
in that district is determined to be impossible or inappropriate, SBA
may nominate a Participant with a bona fide place of business within
the geographical boundaries served by another district office within
the same state, or may nominate a Participant having a bona fide place
of business out of state but within a reasonable proximity to the work
site. SBA's decision will ensure that the nominated Participant is
close enough to the work site to keep costs of performance reasonable.
(2) If the procurement is not a construction requirement, SBA may
select any eligible, responsible Participant nationally to perform the
contract.
(3) In cases in which SBA selects a Participant for possible award
from among two or more eligible and qualified Participants, the
selection will be based upon relevant factors, including business
development needs, compliance with competitive business mix
requirements (if applicable), financial condition, management ability,
and technical capability.
(4) To the maximum extent practicable, SBA will promote the
equitable geographic distribution of 8(a) sole source contracts.
(e) Formal technical evaluations. Except for the procedures set
forth in subpart 36.6 of the Federal Acquisition Regulation (FAR) (48
CFR part 36, subpart 36.6) for architect-engineer services, SBA will
not authorize formal technical evaluations for sole source 8(a)
requirements. A procuring agency:
(1) Must request that a procurement be a competitive 8(a) award if
it requires formal technical evaluations of more than one Participant
for a requirement below the applicable competitive threshold amount;
and
(2) May conduct informal assessments of several Participants'
capabilities to perform a specific requirement, so long as the
statement of work for the requirement is not released to any of the
Participants being assessed.
(f) Repetitive acquisitions. A procuring agency contracting officer
must submit a new offering letter to SBA where he or she intends to
award a follow-on or repetitive contract as an 8(a) award. This enables
the SBA to:
(1) Evaluate whether the requirement should be a competitive 8(a)
award;
(2) Assess a nominated firm's eligibility, whether or not it is the
same firm that performed the previous contract; and
(3) Determine whether the requirement should continue under the
8(a) BD program.
(g) Basic Ordering Agreements (BOAs). A Basic Ordering Agreement
(BOA) is not a contract under the FAR. See 48 CFR 16.703(a). Each order
to be issued under the BOA is an individual contract. As such, the
procuring agency must offer, and SBA must accept, each task order under
a BOA in addition to offering and accepting the BOA itself.
(1) SBA will not accept for award on a sole source basis any task
order under a BOA that would cause the total dollar amount of task
orders issued to exceed the applicable competitive threshold amount set
forth in Sec. 124.506(a).
(2) Where a procuring agency believes that task orders to be issued
under a proposed BOA will exceed the applicable competitive threshold
amount set forth in Sec. 124.506(a), the procuring agency must offer
the requirement to the program to be competed among eligible
Participants.
(3) Once a concern's program term expires, the concern otherwise
exits the 8(a) BD program, or becomes other than small for the SIC code
assigned under the BOA, new orders will not be accepted for the
concern.
Sec. 124.504 What circumstances limit SBA's ability to accept a
procurement for award as an 8(a) contract?
SBA will not accept a procurement for award as an 8(a) contract if
the circumstances identified in paragraphs (a) through (e) of this
section exist.
(a) Reservation as small business or SDB set-aside. The procuring
agency issued a solicitation for or otherwise expressed publicly a
clear intent to reserve the procurement as a small business or small
disadvantaged business (SDB) set-aside prior to offering the
requirement to SBA for award as an 8(a) contract. The AA/8(a)BD may
permit the acceptance of the requirement, however, under extraordinary
circumstances. Example. SBA may accept a requirement where a procuring
agency made a decision to offer the requirement to the 8(a) BD program
before the solicitation was sent out and the procuring agency
acknowledges and documents that the solicitation was in error.
(b) Competition prior to offer and acceptance. The procuring agency
competed a requirement among Participants prior to offering the
requirement to SBA and receiving SBA's formal acceptance of the
requirement.
(1) Any competition conducted without first obtaining SBA's formal
acceptance of the procurement for the 8(a) BD program will not be
considered an 8(a) competitive requirement.
(2) SBA may accept the requirement for the 8(a) BD program as a
competitive 8(a) requirement, but only if the procuring agency agrees
to resolicit the requirement using appropriate competitive 8(a)
procedures.
(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 Government contracts awarded
outside the 8(a) BD program, and does not apply to follow-on or renewal
8(a) acquisitions.
(1) In determining whether 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 a specific small business, SBA presumes
adverse impact to exist where:
(A) The small business concern has performed the specific
requirement for at least 24 months;
(B) The small business is performing the requirement at the time it
is offered to the 8(a) BD program, or its performance of the
requirement ended within 30 days of the procuring agency's offer of the
requirement to the 8(a) BD program; and
[[Page 43614]]
(C) The dollar value of the requirement that the small business is
or was performing is 25 percent or more of its most recent annual gross
sales (including those of its affiliates). For a multi-year
requirement, the dollar value of the last 12 months of the requirement
will be used to determine whether a small business would be adversely
affected by SBA's acceptance.
(ii) Except as provided in paragraph (c)(2) of this section,
adverse impact does not apply to ``new'' requirements. A new
requirement is one which has not been previously procured by the
relevant procuring agency.
(A) Where a requirement is new, no small business could have
previously performed the requirement and, thus, SBA's acceptance of the
requirement for the 8(a) BD program will not adversely impact any small
business.
(B) Construction contracts by their very nature (e.g., the one-time
building of a specific structure) are new requirements.
(C) The expansion or modification of an existing requirement will
be considered a new requirement where the magnitude of change is
significant enough to cause a price adjustment of at least 25 percent
(adjusted for inflation) or to require significant additional types of
capabilities.
(D) SBA need not perform an impact determination where a new
requirement is offered to the 8(a) BD program.
(2) In determining whether the acceptance of a requirement would
have an adverse impact on a group of small businesses, SBA will
consider the effects of combining or consolidating various requirements
being performed by two or more small business concerns into a single
contract which would be considered a ``new'' requirement as compared to
any of the previous smaller requirements. SBA may find adverse impact
to exist if one of the existing small business contractors meets the
presumption set forth in paragraph (c)(1)(i) of this section.
(3) In determining whether 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, the number
and value of contracts in the subject industry reserved for the 8(a) BD
program as compared with other small business programs.
(d) Benchmark achievement. Where actual participation by
disadvantaged businesses in a particular industry exceeds the benchmark
limitations established by the Department of Commerce, in consultation
with the General Services Administration and the SBA, for that
industry, SBA may elect not to accept a requirement offered to SBA for
award as an 8(a) contract in that industry, considering the
developmental needs of Participants and other anticipated contracting
opportunities.
(e) Release for non-8(a) competition. In limited instances, SBA may
decline to accept the offer of a follow-on or renewal 8(a) acquisition
to give a concern previously awarded the contract that is leaving or
has left the 8(a) BD program the opportunity to compete for the
requirement outside the 8(a) BD program.
(1) SBA will consider release only where:
(i) The procurement awarded through the 8(a) BD program is being
performed by either a Participant whose program term will expire prior
to contract completion, or, by a former Participant whose program term
expired within one year of the date of the offering letter;
(ii) The concern requests in writing that SBA decline to accept the
offer prior to SBA's acceptance of the requirement for award as an 8(a)
contract; and
(iii) The concern qualifies as a small business for the requirement
now offered to the 8(a) BD program.
(2) In considering release, SBA will balance the importance of the
requirement to the concern's business development needs against the
business development needs of other Participants that are qualified to
perform the requirement. This determination will include consideration
of whether rejection of the requirement would seriously reduce the pool
of similar types of contracts available for award as 8(a) contracts.
SBA will seek the views of the procuring agency.
(3) If SBA declines to accept the offer and releases the
requirement, it will recommend to the procuring agency that the
requirement be procured as a small business or SDB set-aside.
Sec. 124.505 When will SBA appeal the terms or conditions of a
particular 8(a) contract or a procuring agency decision not to reserve
a requirement for the 8(a) BD program?
(a) What SBA may appeal. The Administrator of SBA may appeal the
following matters to the head of the procuring agency:
(1) A contracting officer's decision not to make a particular
procurement available for award as an 8(a) contract;
(2) A contracting officer's decision to reject a specific
Participant for award of an 8(a) contract after SBA's acceptance of the
requirement for the 8(a) BD program; and
(3) The terms and conditions of a proposed 8(a) contract, including
the procuring agency's SIC code designation and estimate of the fair
market price.
(b) Procedures for appeal. (1) SBA must notify the contracting
officer of the SBA Administrator's intent to appeal an adverse decision
within 5 working days of SBA's receipt of the decision.
(2) Upon receipt of the notice of intent to appeal, the procuring
agency must suspend further action regarding the procurement until the
head of the procuring agency issues a written decision on the appeal,
unless the head of the procuring agency makes a written determination
that urgent and compelling circumstances which significantly affect
interests of the United States will not permit waiting for a
consideration of the appeal.
(3) The SBA Administrator must send a written appeal of the adverse
decision to the head of the procuring agency within 15 working days of
SBA's notification of intent to appeal or the appeal may be considered
withdrawn.
(4) The procuring agency head must specify in writing the reasons
for a denial of an appeal brought by the Administrator under this
section.
Sec. 124.506 At what dollar threshold must an 8(a) procurement be
competed among eligible Participants?
(a) Competitive thresholds. A procurement offered and accepted for
the 8(a) BD program must be competed among eligible Participants if:
(1) There is a reasonable expectation that at least two eligible
Participants will submit offers at a fair market price;
(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; and
(3) The requirement has not been accepted by SBA for award as a
sole source 8(a) procurement on behalf of a tribally-owned or ANC-owned
concern.
(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 the 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 contract price arrived at through
negotiations exceeds the competitive threshold, provided that the
contract price is not more than ten percent greater than the
competitive threshold amount. Example. If the anticipated award price
for a
[[Page 43615]]
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 may not be divided into
several separate procurement actions for lesser amounts in order to use
8(a) sole source procedures to award to a single contractor.
(b) Exemption from competitive thresholds for Participants owned by
Indian tribes. SBA may award a sole source 8(a) contract to a
Participant concern owned and controlled by an Indian tribe or an ANC
where the anticipated value of the procurement exceeds the applicable
competitive threshold if SBA has not accepted the requirement into the
8(a) BD program as a competitive procurement. There is no requirement
that a procurement must be competed whenever possible before it can be
accepted on a sole source basis for a tribally-owned or ANC-owned
concern, but a procurement may not be removed from competition to award
it to a tribally-owned or ANC-owned concern on a sole source basis.
(c) Competition below thresholds. The AA/8(a)BD, on a nondelegable
basis, may approve a request from a procuring agency to compete a
requirement that is below the applicable competitive threshold amount
among eligible Participants.
(1) This authority will be used primarily when technical
competitions are appropriate or when a large number of potential
awardees exist.
(2) The AA/8(a)BD will consider whether the procuring agency has
made and will continue to make available a significant number of its
contracts to the 8(a) BD program on a noncompetitive basis.
(3) The AA/8(a)BD will deny a request if the procuring agency
previously offered the requirement to the 8(a) BD program on a
noncompetitive basis and the request is made following the inability of
the procuring agency and the potential sole source awardee to reach an
agreement on price or some other material term or condition.
(d) Requirements above thresholds. Except as set forth in paragraph
(b) of this section, SBA will not accept a contract opportunity above
the applicable competitive threshold amount as a sole source 8(a)
requirement.
Sec. 124.507 What procedures apply to competitive 8(a) procurements?
(a) FAR procedures. Procuring agencies will conduct competitions
among and evaluate offers received from Participants in accordance with
the Federal Acquisition Regulation (48 CFR chapter 1).
(b) Eligibility determination by SBA. In either a negotiated or
sealed bid competitive 8(a) acquisition, the procuring agency will
request that the SBA district office servicing the apparent successful
offeror determine that firm's eligibility for award.
(1) Within 5 working days after receipt of a procuring agency's
request for an eligibility determination, SBA will determine whether
the firm identified by the procuring agency is eligible for award.
(2) Eligibility is based on 8(a) BD program criteria, including
whether the Participant is:
(i) A small business under the SIC code assigned to the
requirement;
(ii) In compliance with any applicable competitive business mix
target established or remedial measure imposed by Sec. 124.508 that
does not include the denial of future 8(a) contracts;
(iii) In the developmental stage of program participation if the
solicitation restricts offerors to the developmental stage of
participation; and
(iv) A concern with a bona fide place of business in the applicable
geographic area if the procurement is for construction.
(3) If SBA determines that the apparent successful offeror is
ineligible, SBA will notify the procuring agency. The procuring agency
will then send to SBA the identity of the next highest evaluated firm
for an eligibility determination. The process is repeated until SBA
determines that an identified offeror is eligible for award.
(4) Except to the extent set forth in paragraph (d) of this
section, SBA determines whether a Participant is eligible for a
specific 8(a) competitive requirement as of the date that the
Participant submitted its initial offer which includes price.
(5) If the procuring agency contracting officer believes that the
apparent successful offeror is not responsible to perform the contract,
he or she must refer the concern to SBA for a possible Certificate of
Competency in accord with Sec. 125.5 of this chapter.
(6) A competitive 8(a) contract will be executed using normal 8(a)
award procedures (i.e., a prime contract between the procuring agency
and SBA and a contract between SBA and the selected Participant).
(7) Paragraphs (b)(5) and (b)(6) of this section do not apply if
SBA has delegated contract execution authority to the procuring agency.
(c) Restricted competition. (1) Competition within stages of
program participation. SBA may accept a competitive 8(a) requirement
that is limited to Participants in the developmental stage of program
participation or limited to concerns in the transitional stage of
program participation, or may accept a requirement to be competed among
firms both in the developmental and transitional stages of program
participation.
(2) Construction competitions. Based on its knowledge of the 8(a)
BD portfolio, SBA will determine whether a competitive 8(a)
construction requirement should be competed among only those
Participants having a bona fide place of business within the
geographical boundaries of one or more SBA district offices, within a
state, or within the state and nearby areas. Only those Participants
with their principal places of business within the appropriate
geographical boundaries are eligible to submit offers.
(3) Competition for all non-construction requirements. Except for
construction requirements, all eligible Participants regardless of
location may submit offers in response to competitive 8(a)
solicitations. The only geographic restrictions pertaining to 8(a)
competitive requirements, other than those for construction
requirements, are any imposed by the solicitations themselves.
(d) Award to firms whose program terms have expired. A concern that
has completed its term of participation in the 8(a) BD program may be
awarded a competitive 8(a) contract if it was a Participant eligible
for award of the contract on the initial date specified for receipt of
offers contained in the contract solicitation, and if it continues to
meet all other applicable eligibility criteria.
(1) Amendments to the solicitation extending the date for
submissions of offers will be disregarded.
(2) For a negotiated procurement, a Participant may submit revised
offers, including a best and final offer, and be awarded a competitive
8(a) contract if it was eligible as of the initial date specified for
the receipt of offers in the solicitation, even though its program term
may expire after that date.
(3) An 8(a) requirement for architect-engineer services with a
value less than the competitive threshold amount and which uses the
evaluation procedures prescribed by part 36, subpart 36.6 of
[[Page 43616]]
the Federal Acquisition Regulation (48 CFR chapter 1) will not be
considered a competitive 8(a) requirement under this section for which
a firm whose program term has expired may be eligible.
Sec. 124.508 What are competitive business mix targets?
(a) General. (1) To ensure that Participants do not develop an
unreasonable reliance on 8(a) awards, and to ease their transition into
the competitive marketplace after exiting the 8(a) BD program,
Participants must make maximum efforts to obtain business outside the
8(a) BD program.
(2) During both the developmental and transitional stages of the
8(a) BD program, a Participant must make substantial and sustained
efforts, including following a reasonable marketing strategy, to attain
the targeted dollar levels of non-8(a) revenue established in its
business plan. It must attempt to use the 8(a) BD program as a resource
to strengthen the firm for economic viability when program benefits are
no longer available.
(b) Required non-8(a) business activity targets during transitional
stage. (1) General. During the transitional stage of the 8(a) BD
program, a Participant must achieve certain targets of non-8(a)
contract revenue. These targets are called non-8(a) business activity
targets and are expressed as a percentage of total revenue. The targets
reflect an increase in non-8(a) revenue over time.
(2) Non-8(a) business activity targets. Firms in the transitional
stage of program participation must meet the following non-8(a)
business activity targets during each year of program participation in
the transitional stage:
Participant's year in the transitional stage: Percent \
1\
1........................................................ 15
2........................................................ 25
3........................................................ 35
4........................................................ 45
5........................................................ 55
\1\ Competitive business mix targets (required minimum non-8(a) revenue
as a percentage of total revenue)
(3) Compliance with competitive business mix targets. Compliance
with the applicable competitive business mix target is measured at the
end of any program year in the transitional stage of program
participation based on the Participant's latest fiscal year-end total
revenue (e.g., at the end of the first year in the transitional stage
of program participation, non-8(a) revenue is compared to total
revenue). Remedial measures, if appropriate, will be imposed during the
subsequent program year (e.g., non-compliance with the required
business activity target in year one of the transitional stage of
program participation would cause SBA to initiate remedial measures
under paragraph (d) of this section for year two in the transitional
stage).
(4) Certification of compliance. A Participant must certify that it
complies with the applicable competitive business mix target or with
the measures imposed by SBA under paragraph (d) of this section before
it receives any 8(a) contract during the transitional stage of the 8(a)
BD program.
(c) Reporting and verification of business activity. (1) Once
admitted to the 8(a) BD program, a Participant must provide to SBA as
part of its annual review:
(i) Annual financial statements with a breakdown of 8(a) and non-
8(a) revenue in accord with Sec. 124.602; and
(ii) An annual report within 30 days from the end of the program
year of all non-8(a) contracts, options, and modifications affecting
price executed during the program year.
(2) At the end of each year of participation in the transitional
stage, the BOS assigned to work with the Participant will review the
Participant's total revenues to determine whether the non-8(a) revenues
have met the applicable target.
(d) Consequences of not meeting competitive business mix targets.
(1) Beginning at the end of the first year in the transitional stage
(the fifth year of participation in the 8(a) BD program), any firm that
does not meet its applicable competitive business mix target for the
just completed program year will be ineligible for sole source 8(a)
contracts in the current program year, unless and until the Participant
corrects the situation as described in paragraph (d)(2) of this
section.
(2) If SBA determines that an 8(a) Participant has failed to meet
its applicable competitive business mix target during any program year
in the transitional stage of program participation, SBA may increase
its monitoring of the Participant's contracting activity during the
ensuing program year. SBA will also notify the Participant in writing
that the Participant will not be eligible for further 8(a) sole source
contract awards until it has demonstrated to SBA that it has complied
with its competitive business mix requirements as described in
paragraphs (d)(2) (i) and (ii) of this section. In order for a
Participant to come into compliance with the competitive business mix
target and be eligible for further 8(a) sole source contracts, it may:
(i) Wait until the end of the current program year and demonstrate
to SBA as part of the normal annual review process that it has met the
revised competitive business mix target; or
(ii) At its option, submit information regarding its non-8(a)
revenue to SBA quarterly throughout the current program year in an
attempt to come into compliance before the end of the current program
year. If the Participant satisfies the requirements of paragraphs
(d)(2)(ii)(A) or (d)(2)(ii)(B) of this section, SBA will reinstate its
ability to get sole source 8(a) contracts prior to its annual review.
(A) During the first six months of the current program year (i.e.,
at either the first or second quarterly review), the Participant must
demonstrate that it has received non-8(a) revenue and new non-8(a)
contract awards that are equal to or greater than the dollar amount by
which it failed to meet its competitive business mix target for the
just completed program year. For this purpose, SBA does not count
options on existing non-8(a) contracts in determining whether a
Participant has received new non-8(a) contract awards; or
(B) During the last six months of the current program year (i.e.,
at either the nine-month or one year review), it has achieved its
competitive business mix target as of that point in the current program
year.
Example 1 to paragraph (d)(2). Firm A had $10 million in total
revenue during year 2 in the transitional stage (year 6 in the
program), but failed to meet the minimum competitive business mix
target of 25 percent. It had 8(a) revenues of $8.5 million and non-
8(a) revenues of $1.5 million. Based on total revenues of $10
million, Firm A should have had at least $2.5 million in non-8(a)
revenues. Thus, Firm A missed its target by $1 million (its target
($2.5 million) minus its actual non-8(a) revenues ($1.5 million)).
Because Firm A did not achieve its competitive business mix target,
it cannot receive 8(a) sole source awards until correcting that
situation. The firm may wait until the next annual review to
establish that it has met the revised target, or it can choose to
report contract awards and other non-8(a) revenue to SBA quarterly.
Firm A elects to submit information to SBA quarterly in year 3 of
the transitional stage (year 7 in the program). In order to be
eligible for sole source 8(a) contracts after either its 3 month or
6 month review, Firm A must show that it has received non-8(a)
revenue and/or been awarded new non-8(a) contracts totaling $1
million (the amount by which it missed its target in year 2 of the
transitional stage).
Example 2 to paragraph (d)(2). Firm B had $10 million in total
revenue during year 2 in the transitional stage (year 6 in the
program), of which $8.5 million were 8(a) revenues and $1.5 million
were non-8(a) revenues. At its first two quarterly reviews during
year 3 of the transitional stage (year 7 in the program),
[[Page 43617]]
Firm B could not demonstrate that it had received at least $1
million in non-8(a) revenue and new non-8(a) awards. In order to be
eligible for sole source 8(a) contracts after its 9 month or 1 year
review, Firm B must show that at least 35% (the competitive business
mix target for year 3 in the transitional stage) of all revenues
received during year 3 in the transitional stage as of that point
are from non-8(a) sources.
(3) In determining whether a Participant achieved its required
competitive business mix target at the end of any program year in the
transitional stage, or whether a Participant that failed to meet the
target for the previous program year has achieved the required level of
non-8(a) business at its nine-month review, SBA measures 8(a) support
by adding the base year value of all 8(a) contracts awarded during the
applicable program year to the value of all options and modifications
executed during that year.
(4) As a condition of eligibility for new 8(a) contracts, SBA may
also impose other requirements on a Participant that fails to achieve
the competitive business mix targets. These include requiring the
Participant to obtain management assistance, technical assistance, and/
or counseling, and/or attend seminars relating to management
assistance, business development, financing, marketing, accounting, or
proposal preparation.
(5) SBA will initiate proceedings to terminate a Participant from
the 8(a) BD program where the firm makes no good faith efforts to
obtain non-8(a) revenues.
Sec. 124.509 What percentage of work must a Participant perform on an
8(a) contract?
(a) To assist the business development of Participants in the 8(a)
BD program, an 8(a) contractor must perform certain percentages of work
with its own employees. These percentages and the requirements relating
to them are the same as those established for small business set-aside
prime contractors, and are set forth in Sec. 125.6 of this title.
(b) A Participant must certify in its offer that it will meet the
applicable percentage of work requirement. SBA will determine
compliance as of the date of best and final offers for a negotiated
procurement, and as of the date of bid opening for sealed bid
procurements.
(c) Indefinite quantity contracts. (1) In order to ensure that the
required percentage of an indefinite quantity 8(a) award is performed
by the Program Participant, at any point in time the Participant must
have performed the required percentage of the total value of the
contract to that date. For a service or supply contract, this does not
mean that the Participant must perform 50 percent of each task order
with its own force. But, rather, the Participant is required to perform
50 percent of the combined total of all task orders to date. The
applicable SBA District Director or his/her designee may waive this
requirement in writing where a large amount of contracting is essential
in the early stages of performance before the work to be done by the
Participant can be performed, provided that there are written
assurances from both the Participant and the procuring agency that the
contract will ultimately comply with the requirements of this section.
Example. If a Program Participant performed 90% of a $100,000 task
order on an indefinite quantity service contract with its own work
force, it would have to perform only 10 percent of a second task order
for $100,000 because the concern would still have performed 50% of the
combined total value of the contract to date ($100,000 out of
$200,000).
(2) Where there is a guaranteed minimum condition in an indefinite
quantity 8(a) award, the required performance of work percentage need
not be met on the first task order. In such a case, however, the
percentage of work that a Program Participant may further contract to
other concerns on the first task order may not exceed 50 percent of the
total guaranteed minimum dollar value to be provided by the contract.
If the first task order exceeds 50 percent of the guaranteed minimum
amount, the Participant may contract no more than 50 percent of the
guaranteed amount. Once the guaranteed minimum amount is met, the
general rule for indefinite quantity contracts set forth in paragraph
(c)(1) of this section applies. Example. Where a contract guarantees a
minimum of $100,000 in professional services and the first task order
is for $60,000 in such services, the Program Participant may perform as
little as $10,000 of that order. In such a case, however, the
Participant must perform all of the next task order(s) up to $40,000 to
ensure that it performs 50% of the $100,000 guaranteed minimum ($10,000
+ $40,000 = $50,000, or 50% of $100,000).
Sec. 124.510 How is fair market price determined for an 8(a) contract?
(a) The procuring agency determines what constitutes a ``fair
market price'' for an 8(a) contract.
(1) The procuring agency must derive the estimate of a current fair
market price for a new requirement, or a requirement that does not have
a satisfactory procurement history, from a price or cost analysis. This
analysis may take into account prevailing market conditions, commercial
prices for similar products or services, or data obtained from any
other agency. The analysis must also consider any cost or pricing data
that is timely submitted by the SBA.
(2) The procuring agency must base the estimate of a current fair
market price for a requirement that has a satisfactory procurement
history on recent award prices adjusted to ensure comparability.
Adjustments will take into account differences in quantities,
performance, times, plans, specifications, transportation costs,
packaging and packing costs, labor and material costs, overhead costs,
and any other additional costs which may be appropriate.
(b) Upon the request of SBA, a procuring agency will provide to SBA
a written statement detailing the method used by the agency to estimate
the current fair market price for the 8(a) requirement. This statement
must be submitted within 10 working days of SBA's request. The
procuring agency must identify the information, studies, analyses, and
other data it used in making its estimate.
(c) The procuring agency's estimate of fair market price and any
supporting data may not be disclosed by SBA to any Participant or
potential contractor.
(d) The concern selected to perform an 8(a) contract may request
SBA to protest the procuring agency's estimate of current fair market
price to the Secretary of the Department or head of the agency in
accordance with Sec. 124.505.
Sec. 124.511 Delegation of contract administration to procuring
agencies.
(a) SBA may delegate, by the use of special clauses in the 8(a)
contract documents or by a separate agreement with the procuring
agency, all responsibilities for administering an 8(a) contract to the
procuring agency except the approval of novation agreements under 48
CFR 42.302(a)(25).
(b) Because of this delegation of contract administration, a
contracting officer may execute any priced option or in scope
modification without SBA's concurrence. The contracting officer must,
however, notify SBA of all modifications and options exercised.
Sec. 124.512 Under what circumstances can a joint venture be awarded
an 8(a) contract?
(a) General. (1) If approved by SBA, a Participant may enter into a
joint venture agreement with another small business concern, whether or
not an 8(a) Participant, for the purpose of performing a specific 8(a)
contract.
(2) A joint venture agreement is permissible only where an 8(a)
concern
[[Page 43618]]
lacks the necessary capacity to perform the contract on its own, and
the agreement is fair and equitable and will be of substantial benefit
to the 8(a) concern. However, where SBA concludes that an 8(a) concern
brings very little to the joint venture relationship except its 8(a)
status, SBA will not approve the joint venture arrangement.
(b) Size of concerns to an 8(a) joint venture. (1) A joint venture
of at least one 8(a) Participant and one or more other business
concerns may submit an offer as a small business for a competitive 8(a)
procurement so long as each concern is small under the size standard
corresponding to the SIC code assigned to the contract, provided:
(i) For a procurement having a revenue-based size standard, the
procurement exceeds half the size standard corresponding to the SIC
code assigned to the contract;
(ii) For a procurement having an employee-based size standard, the
procurement exceeds $10 million;
(iii) The size of at least one 8(a) Participant to the joint
venture is less than one half the size standard corresponding to the
SIC code assigned to the contract; and
(iv) The 8(a) Participant(s) identified in paragraph (b)(1)(iii) of
this section must perform the applicable percentage of work required by
Sec. 124.509.
(2) Except as provided in Sec. 124.519, for sole source and
competitive 8(a) procurements that do not exceed the dollar levels
identified in paragraph (b)(1) of this section, an 8(a) Participant
entering into a joint venture agreement with another concern is
considered to be affiliated for size purposes with the other concern
with respect to performance of the 8(a) contract. The combined annual
receipts or employees of the concerns entering into the joint venture
must meet the size standard for the SIC code assigned to the 8(a)
contract.
(c) Contents of joint venture agreement. Every joint venture
agreement to perform an 8(a) contract, including those between mentors
and proteges authorized by Sec. 124.519, must contain a provision:
(1) Setting forth the purpose of the joint venture;
(2) Designating an 8(a) Participant as the lead entity of the joint
venture, and an employee of the lead entity as the project manager
responsible for performance of the 8(a) subcontract;
(3) Stating that not less than 51 percent of the net profits earned
by the joint venture be distributed to the 8(a) Participant(s);
(4) Providing for the establishment and administration of a special
bank account in the name of the joint venture. This account must
require the signature of all parties to the joint venture or designees
for withdrawal purposes. All payments due the joint venture for
performance on an 8(a) contract will be deposited in the special
account from which all expenses incurred under the contract will be
paid;
(5) Itemizing all major equipment, facilities, and other resources
to be furnished by each party to the joint venture, with a detailed
schedule of cost or value of each;
(6) Specifying the responsibilities of the parties with regard to
contract performance, source of labor and negotiation of the 8(a)
contract;
(7) Designating that accounting and other administrative records
relating to the joint venture be kept in the office of the lead 8(a)
concern, unless approval to keep them elsewhere is granted by the
District Director or his/her designee upon written request;
(8) Requiring the final original records be retained by the lead
8(a) concern upon completion of the 8(a) contract performed by the
joint venture;
(9) Stating that quarterly financial statements showing cumulative
contract receipts and expenditures (including salaries of the joint
venture's principals) must be submitted to SBA not later than 45 days
after each operating quarter of the joint venture; and
(10) Stating that a project-end profit and loss statement,
including a statement of final profit distribution, must be submitted
to SBA no later than 90 days after completion of the contract.
(d) Prior approval by SBA. SBA must approve a joint venture
agreement prior to the award of an 8(a) contract on behalf of the joint
venture.
(e) Contract execution. Where SBA has approved a joint venture, the
procuring agency will execute an 8(a) contract in the name of the 8(a)
Participant(s), not the joint venture entity.
(f) Obligation of performance. All parties to the joint venture
must sign such documents as are necessary to obligate themselves to
ensure performance of the 8(a) contract.
(g) Performance of work by 8(a) concern(s). The 8(a) partner(s) to
an eligible joint venture, and not the aggregate of all parties to the
joint venture, must perform the percentages of work required by
Sec. 124.510. Employees furnished by the 8(a) Participant(s) or hired
through normal employment channels by the joint venture are considered
to be employees of the 8(a) Participant(s) for this purpose.
(h) Amendments to joint venture agreement. All amendments to the
joint venture agreement must be approved by SBA.
(i) Inspection of records. SBA may inspect the records of the joint
venture without notice at any time deemed necessary.
Sec. 124.513 Exercise of 8(a) options and modifications.
(a) Unpriced options. The exercise of an unpriced option is
considered to be a new contracting action.
(1) If a concern has exited the 8(a) BD program or is no longer
small under the size standard corresponding to the SIC code for the
requirement, negotiations to price the option cannot be entered into
and the option cannot be exercised.
(2) If the concern is still a Participant and otherwise eligible
for the requirement on a sole source basis, the procuring agency
contracting officer may negotiate price and exercise the option
provided the option, considered a new contracting action, meets all
regulatory requirements, including SBA's acceptance of the requirement
for the 8(a) BD program.
(3) If the estimated fair market price of the option exceeds the
applicable threshold amount set forth in Sec. 124.506, the requirement
must be competed as a new contract among eligible Participants.
(b) Priced options. The procuring agency contracting officer may
exercise a priced option to an 8(a) contract whether the concern that
received the award has exited the 8(a) BD program or is no longer
eligible if to do so is in the best interests of the Government.
(c) Modifications beyond the scope. A modification beyond the scope
of the initial 8(a) contract award is considered to be a new
contracting action. It will be treated the same as an unpriced option
as described in paragraph (a) of this section.
(d) Modifications within the scope. The procuring agency
contracting officer may exercise a modification within the scope of the
initial 8(a) contract whether the concern that received the award has
exited the 8(a) BD program or is no longer eligible if to do so is in
the best interests of the Government.
Sec. 124.514 Can a Participant change its ownership or control and
continue to perform an 8(a) contract, and can it transfer performance
to another firm?
(a) An 8(a) contract must be performed by the Participant that
initially received it unless a waiver is granted under paragraph (b) of
this section.
[[Page 43619]]
(1) An 8(a) contract, whether in the base or an option year, must
be terminated for the convenience of the Government if one or more of
the individuals upon whom eligibility for the 8(a) BD program was based
relinquishes or enters into any agreement to relinquish ownership or
control of the Participant such that the Participant would no longer be
controlled or at least 51% owned by disadvantaged individuals.
(2) An 8(a) contract, whether in the base or an option year, must
be terminated for the convenience of the Government if the contract is
transferred or novated for any reason to another firm.
(3) The procuring agency may not assess repurchase costs or other
damages against the Participant due solely to the provisions of this
section.
(b) The SBA Administrator may waive the requirements of paragraphs
(a)(1) and (a)(2) of this section if requested to do so by the 8(a)
contractor when:
(1) It is necessary for the owners of the concern to surrender
partial control of such concern on a temporary basis in order to obtain
equity financing;
(2) Ownership and control of the concern that is performing the
8(a) contract will pass to another Participant, but only if the
acquiring firm would otherwise be eligible to receive the award
directly as an 8(a) contract;
(3) Any individual upon whom eligibility was based is no longer
able to exercise control of the concern due to physical or mental
incapacity or death;
(4) The head of the procuring agency, or an official with delegated
authority from the agency head, certifies that termination of the
contract would severely impair attainment of the agency's program
objectives or missions; and
(5) It is necessary for the disadvantaged owners of the initial
8(a) awardee to relinquish ownership of a majority of the voting stock
of the concern in order to raise equity capital, but only if --
(i) The concern has exited the 8(a) BD program;
(ii) The disadvantaged owners will maintain ownership of the
largest single outstanding block of voting stock (including stock held
by affiliated parties); and
(iii) The disadvantaged owners will maintain control of the daily
business operations of the concern.
(c) The 8(a) contractor must request a waiver in writing prior to
the relinquishment of ownership and control except in the case of death
or incapacity. A request for waiver due to incapacity or death must be
submitted within 60 days after such occurrence. The Participant seeking
to relinquish ownership or control must specify the grounds upon which
it requests a waiver, and must demonstrate that the proposed
transaction would meet such grounds.
(d) SBA determines the eligibility of an acquiring Participant
under paragraph (b)(2) of this section by referring to the items
identified in Sec. 124.507(b)(2) and deciding whether prior to the
transaction the acquiring Participant is a responsible and eligible
concern with respect to each contract to be transferred.
(e) Anyone other than a procuring agency head who submits a
certification regarding the impairment of the agency's objectives under
paragraph (b)(4) of this section, must also certify delegated authority
to make the certification.
(f) A concern performing an 8(a) contract must notify the SBA in
writing immediately upon entering into an agreement or agreement in
principle (either oral or written) to transfer all or part of its stock
or other ownership interest or assets to any other party. Such an
agreement could include an oral agreement to enter into a transaction
to transfer interests in the future.
(g) The Administrator has discretion to decline a request for
waiver even though legal authority exists to grant the waiver.
(h) The 8(a) contractor may appeal SBA's denial of a waiver request
by filing a petition with OHA pursuant to part 134 of this title within
45 days of the date of service (as defined in Sec. 134.204) of the
Agency decision.
Sec. 124.515 Who decides contract disputes arising between a
Participant and a procuring agency after the award of an 8(a) contract?
For purposes of the Disputes Clause of a specific 8(a) contract,
the contracting officer is that of the procuring agency. A dispute
arising between an 8(a) contractor and the procuring agency contracting
officer will be decided by the procuring agency, and appeals may be
taken by the 8(a) contractor without SBA involvement.
Sec. 124.516 Can the eligibility or size of a Participant for award of
an 8(a) contract be questioned?
(a) The eligibility of a Participant for a sole source or
competitive 8(a) requirement may not be challenged by another
Participant or any other party, either to SBA or any administrative
forum as part of a bid or other contract protest.
(b) The size status of the apparent successful offeror for a
competitive 8(a) procurement may be protested pursuant to
Sec. 121.1001(a)(2) of this chapter. The size status of a nominated
Participant for a sole source 8(a) procurement may not be protested by
another Participant or any other party.
(c) A Participant cannot appeal SBA's determination not to award it
a specific 8(a) contract because the concern lacks an element of
responsibility or is ineligible for the contract, other than the right
set forth in Sec. 124.501(h) to request a formal size determination
where SBA cannot verify it to be small.
(d)(1) The SIC code assigned to a sole source 8(a) requirement may
not be challenged by another Participant or any other party either to
SBA or any administrative forum as part of a bid or contract protest.
Only the AA/8(a)BD may appeal a SIC code designation with respect to a
sole source 8(a) requirement.
(2) In connection with a competitive 8(a) procurement, any
interested party who has been adversely affected by a SIC code
designation may appeal the designation to SBA's OHA pursuant to
Sec. 121.1103 of this chapter.
(e) Anyone with information questioning the eligibility of a
Participant to continue participation in the 8(a) BD program or for
purposes of a specific 8(a) contract may submit such information to SBA
under Sec. 124.112(c).
Sec. 124.517 How can an 8(a) contract be terminated before performance
is completed?
(a) Termination for default. A decision to terminate a specific
8(a) contract for default can be made by the procuring agency
contracting officer after consulting with SBA. The contracting officer
must advise SBA of any intent to terminate an 8(a) contract for default
in writing before doing so. SBA may provide to the Participant any
program benefits reasonably available in order to assist it in avoiding
termination for default. SBA will advise the contracting officer of
this effort. Any procuring agency contracting officer who believes
grounds for termination continue to exist may terminate the 8(a)
contract for default, in accordance with the FAR (48 CFR chapter 1).
SBA will have no liability for termination costs or reprocurement
costs.
(b) Termination for convenience. After consulting with SBA, the
procuring agency contracting officer may terminate an 8(a) contract for
convenience when it is in the best interests of the Government to do
so. A termination for convenience is appropriate if any disadvantaged
owner
[[Page 43620]]
of the Participant performing the contract relinquishes ownership or
control of such concern, or enters into any agreement to relinquish
such ownership or control, unless a waiver is granted pursuant to
Sec. 124.514.
(c) Substitution of one 8(a) contractor for another. Where a
procuring agency contracting officer demonstrates to SBA that an 8(a)
contract will otherwise be terminated for default, SBA may authorize
another Participant to complete performance and, in conjunction with
the procuring agency, permit novation of the contract without invoking
the termination for convenience or waiver provisions of Sec. 124.514.
Sec. 124.518 Are there any dollar limits on the amount of 8(a)
contracts that a Participant may receive?
(a) A Participant (other than one owned by an Indian tribe or an
ANC) may not receive sole source 8(a) contract awards where it has
received 8(a) contracts in excess of the dollar amount set forth in
this section during its participation in the 8(a) BD program.
(1) For a firm having a revenue-based primary SIC code at time of
program entry, the limit above which it can no longer receive sole
source 8(a) contracts is five times the size standard corresponding to
that SIC code or $100,000,000, whichever is less.
(2) For a firm having an employee-based primary SIC code at time of
program entry, the limit above which it can no longer receive sole
source 8(a) contracts is $100,000,000.
(3) SBA will not consider 8(a) contracts awarded under $100,000 in
determining whether a Participant has reached the limit identified in
paragraphs (a)(1) and (a)(2) of this section.
(b) Once the limit is reached, a firm could not receive any more
8(a) sole source contracts, but could remain eligible for competitive
8(a) awards.
(c) The limitation set forth in paragraph (a) of this section will
not apply for firms that are current Participants in the 8(a) BD
program as of December 31, 1996.
(d) SBA includes the dollar value of 8(a) options and modifications
in determining whether a Participant has reached the limit identified
in paragraph (a) of this section. If an option is not exercised or the
contract value is reduced by modification, SBA will deduct those
values.
(e) A Participant's eligibility for a sole source award is measured
as of the date of award without taking into account whether the value
of that award will cause the limit to be exceeded.
Sec. 124.519 Mentor/protege program.
(a) Who can be a mentor? Concerns that have graduated from the 8(a)
BD program and those that are in the transitional stage of program
participation may mentor developing 8(a) Participants and receive
benefits as set forth in this section. This could include businesses
that have become large.
(1) In order to qualify as a mentor, a concern must demonstrate
that it:
(i) Possesses favorable financial health, including profitability
for at least the last two years;
(ii) Possesses good character; and
(iii) Can impart value to a protege firm due to lessons learned and
practical experience gained because of the 8(a) BD program.
(2) A mentor could have no more than one protege at a time.
(3) In order to demonstrate its favorable financial health, a firm
seeking to be a mentor must submit its federal tax returns for the last
two years to SBA for review.
(4) Once approved, a mentor must annually certify that it continues
to possess good character and a favorable financial position.
(b) Proteges. (1) In order to be a protege firm, a Participant
must:
(i) Be in the developmental stage of program participation;
(ii) Have never received an 8(a) contract; or
(ii) Have a size that is less than half the size standard
corresponding to its primary SIC code.
(2) Only firms that are in good standing in the 8(a) BD program
(e.g., firms that do not have termination proceedings against them, and
are up to date with all reporting requirements) may qualify as a
protege.
(3) A protege firm can have only one mentor at a time.
(c) Benefits. (1) A mentor and protege can joint venture as a small
business for any government procurement, including procurements less
than half the size standard corresponding to the assigned SIC code and
8(a) sole source contracts, provided the protege qualifies as small for
the procurement and, for purposes of 8(a) sole source requirements, has
not reached the dollar limit set forth in Sec. 124.518.
(2) Notwithstanding the requirements set forth in Secs. 124.105(g)
and (h), in order to raise capital for the protege firm, the mentor may
own an equity interest of up to 33% in the protege firm.
(3) Notwithstanding the mentor/protege relationship, a protege firm
may qualify for other assistance as a small business, including SBA
financial assistance.
(d) Written agreement. (1) The mentor and protege firms must enter
a written agreement whereby the mentor commits to provide management
and/or technical assistance to the protege firm for at least one year.
(2) The written agreement must be approved by the AA/8(a) BD.
(3) The protege firm must have the right to terminate the agreement
with 30 days advance notice to the mentor and to SBA.
(4) Once approved, the protege must annually certify to SBA that
there has been no change in the terms of the agreement.
Miscellaneous Reporting Requirements
Sec. 124.601 What reports does SBA require on parties assisting
Participants in obtaining federal contracts?
(a) Each Participant must submit annually a written report to its
assigned BOS that includes a listing of any agents, representatives,
attorneys, accountants, consultants and other parties (other than
employees) receiving fees, commissions, or compensation of any kind to
assist such participant in obtaining a Federal contract. The listing
must indicate the amount of compensation paid and a description of the
activities performed for such compensation.
(b) Failure to submit the report is good cause for the initiation
of a termination proceeding pursuant to Secs. 124.303 and 124.304.
Sec. 124.602 What kind of annual financial statement must a
Participant submit to SBA?
(a) Participants with gross annual receipts of more than $5,000,000
must submit to SBA audited annual financial statements prepared by a
licensed independent public accountant within 120 days after the close
of the concern's fiscal year.
(1) The servicing SBA District Director may waive the requirement
for audited financial statements for good cause shown by the
Participant.
(2) Circumstances where waivers of audited financial statements may
be granted include, but are not limited to, the following:
(i) The concern has an unexpected increase in sales towards the end
of its fiscal year that creates an unforeseen requirement for audited
statements;
(ii) The concern unexpectedly experiences severe financial
difficulties which would make the cost of audited financial statements
a particular burden; and
(iii) The concern has been a Participant less than 12 months.
[[Page 43621]]
(b) Participants with gross annual receipts between $1,000,000 and
$5,000,000 must submit to SBA reviewed annual financial statements
prepared by a licensed independent public accountant within 90 days
after the close of the concern's fiscal year.
(c) Participants with gross annual receipts of less than $1,000,000
must submit to SBA an annual statement prepared in-house or a
compilation statement prepared by a licensed independent public
accountant, verified as to accuracy by an authorized officer, partner,
limited liability member, or sole proprietor of the Participant,
including signature and date, within 90 days after the close of the
concern's fiscal year.
(d) Any audited or reviewed financial statements submitted to SBA
pursuant to paragraphs (a) or (b) of this section must be prepared in
accordance with Generally Accepted Accounting Principles.
(e) While financial statements need not be submitted until 90 or
120 days after the close of a Participant's fiscal year, depending on
the receipts of the concern, a Participant 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 the concern's
eligibility for the 8(a) contract. This report must show a breakdown of
8(a) and non-8(a) sales.
(f) Notwithstanding the amount of a concern's gross annual
receipts, SBA may require audited or reviewed statements whenever they
are needed to obtain more complete information as to a concern's
assets, liabilities, income or expenses, such as when the concern's
capacity to perform a specific 8(a) contract must be determined, or
when they are needed to determine continued program eligibility.
Sec. 124.603 What reports regarding the continued business operations
of former Participants does SBA require?
Former Participants shall provide such information as SBA may
request concerning such former Participant's continued business
operations, contracts and financial condition for a period of three
years following the date on which the concern exits the program.
Failure to provide such information when requested will constitute a
violation of this part, and may result in the nonexercise of options on
or termination of contracts awarded through the 8(a) BD program,
debarment, or other legal recourse.
Management and Technical Assistance Program
Sec. 124.701 What is the purpose of the 7(j) management and technical
assistance program?
Section 7(j)(1) of the Small Business Act, 15 U.S.C. 636(j)(1),
authorizes SBA to enter into grants, cooperative agreements, or
contracts with public or private organizations to pay all or part of
the cost of technical or management assistance for individuals or
concerns eligible for assistance under sections 7(a)(11), 7(j)(10), or
8(a) of the Small Business Act.
Sec. 124.702 What types of assistance are available through the 7(j)
program?
Through its private sector service providers, SBA may provide a
wide variety of management and technical assistance to eligible
individuals or concerns to meet their specific needs, including:
(a) Counseling and training in the areas of financing, management,
accounting, bookkeeping, marketing, and operation of small business
concerns; and
(b) The identification and development of new business
opportunities.
Sec. 124.703 Who is eligible to receive 7(j) assistance?
The following businesses are eligible to receive assistance from
SBA through its service providers:
(a) Businesses which qualify as small within the meaning of size
standards prescribed in 13 CFR part 121, and which are located in urban
or rural areas with a high proportion of unemployed or low-income
individuals, or which are owned by such low-income individuals; and
(b) Businesses eligible to receive 8(a) contracts.
Sec. 124.704 What additional management and technical assistance is
reserved exclusively for concerns eligible to receive 8(a) contracts?
In addition to the management and technical assistance available
under Sec. 124.702, Section 7(j)(10) of the Small Business Act
authorizes SBA to provide additional management and technical
assistance through its service providers exclusively to small business
concerns eligible to receive 8(a) contracts, including:
(a) Assistance to develop comprehensive business plans with
specific business targets, objectives, and goals;
(b) Other nonfinancial services necessary for a Participant's
growth and development, including loan packaging; and
(c) Assistance in obtaining equity and debt financing.
Subpart B--Eligibility, Certification, and Protests Relating to
Federal Small Disadvantaged Business Programs
Sec. 124.1001 General applicability.
(a) This subpart defines a Small Disadvantaged Business (SDB). It
also sets forth procedures by which a firm can apply to be recognized
as an SDB, including procedures to be used by private sector entities
approved by SBA for determining whether a particular concern is owned
and controlled by one or more disadvantaged individuals. Finally, this
subpart establishes procedures by which SBA determines whether a
particular concern qualifies as an SDB in response to a protest
challenging the firm's status as disadvantaged.
(b) Only small firms that have been found to be owned and
controlled by disadvantaged individuals and appear on the SBA-
maintained list of qualified SDBs are eligible to participate in
Federal SDB set-aside, price evaluation adjustment, evaluation factor
or subfactor, or monetary subcontracting incentive programs, or SBA's
section 8(d) subcontracting program.
Sec. 124.1002 What is a Small Disadvantaged Business (SDB)?
(a) Reliance on 8(a) criteria. In determining whether a firm
qualifies as an SDB, use the definitions of social and economic
disadvantage and other eligibility requirements established in subpart
A of this part, including the requirements placed on ownership and
control and disadvantaged status, unless otherwise provided in this
subpart. Qualified private certifiers must use those requirements
applicable to ownership and control in determining whether a particular
firm is actually owned and controlled by individuals claiming
disadvantaged status.
(b) SDB eligibility criteria. A small disadvantaged business (SDB)
is a concern:
(1) Which qualifies as small under part 121 of this title for the
size standard corresponding to the applicable four digit Standard
Industrial Classification (SIC) code.
(i) For purposes of SDB certification, the applicable SIC code is
that which relates to the primary business activity of the concern;
(ii) For purposes of an SDB protest, the applicable SIC code is
that assigned by the contracting officer to the procurement at issue;
(2) Which is at least 51 percent unconditionally owned by one or
more
[[Page 43622]]
socially and economically disadvantaged individuals, as defined by
Secs. 124.103 and 124.104 and paragraph (c) of this section, an Indian
tribe, an Alaska Native Corporation (ANC), a Native Hawaiian
Organization, or a Community Development Corporation (CDC) (See
ownership requirements set forth in Sec. 124.105, and those in
Secs. 124.109, 124.110, and 124.111 pertaining to concerns owned by
tribes and ANCs, Native Hawaiian Organizations, or CDCs, respectively);
(3) Whose management and daily business operations are controlled
by one or more socially and economically disadvantaged individuals (See
control requirements set forth in Sec. 124.106; but see
Sec. 124.109(c)(4) for firms owned by Indian tribes or ANCs, and
Sec. 124.111(b) for firms owned by CDCs); and
(4) Which, for purposes of SDB set-asides and SDB evaluation
adjustments relating to the Department of Defense, NASA and the Coast
Guard only, has the majority of its earnings accruing directly to the
socially and economically disadvantaged individuals.
(c) Disadvantaged status. In assessing the personal financial
condition of an individual claiming economic disadvantage, the net
worth must be less than $750,000 after taking into account the
applicable exclusions set forth in Sec. 124.104(c)(2).
(d) Additional eligibility criteria. Each individual claiming
disadvantaged status must be a citizen of the United States and possess
good character. See Sec. 124.108(a).
(e) Potential for success not required. The potential for success
requirement set forth in Sec. 124.107 does not apply.
(f) Joint ventures. Joint ventures are permitted for Small
Disadvantaged Business (SDB) set-asides and SDB evaluation adjustments,
provided that the requirements set forth in this paragraph are met.
(1) The disadvantaged participant to the joint venture must be a
certified SDB and appear on the list of qualified SDBs;
(2) For purposes of this paragraph, the term joint venture means
two or more concerns forming an association to engage in and carry out
a single, specific business venture for joint profit. 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.
(3) 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.
(4) 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.
(5) The percentage ownership involvement in a joint venture by
disadvantaged individuals must be at least 51 percent.
Example 1 to paragraph (b)(5). 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 to paragraph (b)(5). 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)).
(g) Performance of work. In order to be awarded a Federal contract
reserved for SDB participation or through an SDB evaluation adjustment,
a certified SDB must agree to perform certain percentages of work with
its own employees. These percentages and the requirements relating to
them are set forth in Sec. 125.6 of this title.
Sec. 124.1003 What is a Private Certifier?
A Private Certifier is an organization or business concern approved
by SBA to determine whether firms are owned and controlled by one or
more individuals claiming disadvantaged status.
Sec. 124.1004 How does an organization or business concern become a
Private Certifier?
(a) SBA may execute no-cost contracts with organizations or
business concerns seeking to become Private Certifiers. Any such
contract will include provisions for the oversight, monitoring, and
evaluation of all certification activities by SBA.
(b) The organization or business concern must demonstrate a
knowledge of SBA's regulations regarding ownership and control, as well
as business organizations and the legal principles affecting their
ownership and control generally, including stock issuances, voting
rights, convertability of debt to equity, options, and powers and
responsibilities of officers and directors, general and limited
partners, and limited liability members.
(c) The organization or concern must also, along with its
principals, demonstrate good character. Good character does not exist
for these purposes if the organization or concern or any of its
principals:
(1) Are debarred or suspended under any Federal procurement or non-
procurement debarment and suspension regulations; or
(2) Have been indicted or convicted for any criminal offense or
suffered a civil judgment indicating a lack of business integrity.
(d) As a condition of approval, SBA may require that the principals
of the concern attend and pass a training session on SBA's rules and
requirements.
(e) A Private Certifier must provide access to SBA of its books and
records when requested, including records pertaining to its
certification activities. SBA may review this information, as well as
the decisions of a Private Certifier, in determining whether SBA will
renew or extend the term of the Private Certifier, or terminate the
Private Certifier for cause.
(f) Private Certifiers may not certify any company with which they
have other business dealings.
Sec. 124.1005 Can a Private Certifier charge a fee?
A Private Certifier may charge a reasonable fee a firm in order to
process the firm's determination of ownership and control.
Sec. 124.1006 Is there a list of Private Certifiers?
SBA maintains a list of approved Private Certifiers on the SBA's
Home Page on the Internet. Any interested person may also obtain a copy
of the list from the local SBA district office.
Sec. 124.1007 How long may an organization or concern be a Private
Certifier?
(a) SBA's approval document will specify how long the organization
or concern may act as a Private Certifier. If the approval is through a
no cost contract, the contract will generally be for one year, with
possible renewal or option years.
[[Page 43623]]
(b) SBA may terminate a contract with an organization or business
concern to be a Private Certifier for the convenience of the Government
at any time, and may terminate the contract for default where
appropriate.
Sec. 124.1008 How does a firm become certified as an SDB?
Any firm may apply for certification as a federally recognized SDB.
SBA's various district offices provide further information and required
application forms to any firm interested in SDB certification. In order
to become certified as an SDB, a firm must obtain a determination that
it is owned and controlled by one or more individuals claiming to be
disadvantaged from a Private Certifier (or from SBA if a Private
Certifier is not reasonably available), and must submit evidence of
that determination to SBA along with certifications or narratives
regarding the disadvantaged status of those individuals as set forth in
paragraph (e) of this section.
(a) Determination regarding ownership and control. A firm must
first submit a completed application for a determination of ownership
and control to an approved Private Certifier, or to SBA if a Private
Certifier is not reasonably available.
(1) The firm must identify one or more individuals claiming
disadvantaged status to the Private Certifier, which then will
determine whether those individuals own and control the firm.
(2) Where no Private Certifier is reasonably available, the firm
may submit its application for a determination of ownership and control
to the Assistant Administrator, Division of Program Certification and
Eligibility (DPCE), Office of Minority Enterprise Development, Small
Business Administration, 409 3rd Street, SW, Washington, DC 20416.
(b) Required forms. A firm seeking a determination of its ownership
and control must submit the following forms and documents to the
Private Certifier (or to SBA where no Private Certifier is reasonably
available): SBA Form 1010B, ``Statement of Business Eligibility;''
stock certificates; stock register; articles of incorporation, with
amendments; current by-laws; resolutions affecting rights and
responsibilities of officers and directors; voting agreements;
partnership agreements; limited liability articles of organization; and
any other relevant information regarding the concern's ownership and
control.
(c) Application processing. (1) A Private Certifier must advise
each applicant within 15 days after the receipt of an application for
an ownership and control determination whether the application is
complete and suitable for evaluation and, if not, what additional
information or clarification is required. The Private Certifier will
process an application for an ownership and control determination
within 30 days of receipt of a complete application package.
(2) The burden is on the applicant to demonstrate that those
individuals claiming disadvantaged status own and control the concern.
(d) Ownership and control decision. The Private Certifier will
issue a written decision as to whether the applicant is owned and
controlled by the individuals identified as claiming disadvantaged
status. If the Private Certifier finds that the applicant is not owned
and controlled by the individuals claiming disadvantaged status, the
decision will state the specific reasons for the finding, and inform
the applicant of its right to appeal the decision to SBA pursuant to
Sec. 124.1009.
(e) SDB certification. Once a concern receives a decision finding
that it is owned and controlled by those individuals claiming
disadvantaged status (either through an initial determination or on
appeal), the concern must apply to the appropriate office of the
relevant procuring agency, or to SBA if the agency has entered into an
agreement with SBA to have SBA make disadvantaged status
determinations, for inclusion on the SBA-maintained list of qualified
SDBs. A firm seeking inclusion on the list of qualified SDBs must
represent that it is small for the size standard corresponding to the
SIC code for its primary business activity.
(1) Members of designated groups. (i) Those individuals claiming
disadvantaged status that are members of the same designated groups
that are presumed to be socially disadvantaged for purposes of SBA's
8(a) BD program (see Sec. 124.103(b)) are presumed to be socially and
economically disadvantaged for purposes of SDB certification. These
individuals must represent that they are members of one of the
designated groups, that they are identified as a member of one of the
designated groups, that they are socially and economically
disadvantaged, and that they are citizens of the United States.
(ii) Provided that the ownership and control determination of the
Private Certifier is not based to any extent on ownership and/or
control by non-group members, the relevant procuring agency or SBA may
accept these representations as true and certify the firm as an SDB.
(2) Individuals not members of designated groups. (i) Each
individual claiming disadvantaged status that is not a member of one of
the designated groups must submit to SBA a statement identifying
personally how his or her entry into or advancement in the business
world has been impaired because of personally specific factors (see
Sec. 124.103(c)), and how his or her ability to compete in the free
enterprise system has been impaired due to diminished capital and
credit opportunities (see Sec. 124.104).
(ii) If the relevant procuring agency or SBA determines that the
individual(s) claiming disadvantage are disadvantaged, it will certify
the firm as an SDB. If the relevant procuring agency or SBA determines
that one or more of the individuals upon whose status the Private
Certifier relied in making its ownership and control decision is not
disadvantaged, it will reject the firm's application for SDB
certification. The procuring agency or SBA will issue a written
decision setting forth its reasons for decline.
(iii) A firm may appeal SBA's decision that one or more of the
individuals claiming disadvantaged status is not disadvantaged to SBA's
Office of Hearings and Appeals (OHA). OHA will determine whether SBA's
decision was arbitrary, capricious, or contrary to law. OHA will issue
a determination on appeal within 10 days, if possible.
(f) Current 8(a) BD program participants. Any firm that is
currently a participant in SBA's 8(a) BD program need not apply to an
Private Certifier for an ownership and control determination or to a
procuring agency or SBA for a separate certification as an SDB. SBA
will automatically include it on the list of qualified SDBs.
Sec. 124.1009 How does a firm appeal a decision of a Private
Certifier?
(a) If a Private Certifier finds that a firm is not owned and
controlled by the individual(s) claiming disadvantaged status, the firm
may appeal that decision to OHA.
(b) Where an appeal is filed, the Private Certifier must submit the
full record upon which its decision was based to OHA.
(c) OHA will perform a new ownership and control determination on
the firm, without regard to the decision of the Private Certifier. OHA
will issue a determination within 10 days, if possible.
(d) If OHA finds that the firm is owned and controlled by the
[[Page 43624]]
individual(s) claiming disadvantaged status, the firm may apply to SBA
for inclusion on the list of qualified SDBs. If OHA finds that the firm
is not owned and controlled by such individual(s), the administrative
judge will state the reasons for that decision, which will be the final
decision of the Agency.
Sec. 124.1010 Can a firm represent itself to be an SDB if it is not on
the list of qualified SDBs?
A firm cannot represent itself to be an SDB concern in order to
receive a preference as an SDB for any Federal procurement program if
it is not on the SBA-maintained list of qualified SDBs. A firm may,
however, represent itself to be an SDB concern for general statistical
purposes without regard to its inclusion on the SBA-maintained list of
qualified SDBs.
Sec. 124.1011 What is a misrepresentation of disadvantaged status?
(a) A representation of disadvantaged status by any firm that SBA
has found not to be owned and controlled by one or more disadvantaged
individuals (either in connection with an SDB application or protest)
will be deemed a misrepresentation of disadvantaged status, unless and
until the firm reapplies for and obtains SDB certification.
(b) Any person or entity that misrepresents its status as a ``small
business concern owned and controlled by socially and economically
disadvantaged individuals'' in order to obtain an 8(d) or SDB
contracting opportunity for anyone will be subject to the penalties
imposed by section 16(d) of the Small Business Act, 15 U.S.C. 645(d),
as well as any other penalty authorized by law.
Sec. 124.1012 Can a firm reapply for SDB certification?
(a) A concern which has been denied SDB certification may reapply
for certification 12 months after the date of the final Agency decision
to decline the application (either on appeal of an ownership and
control determination, or a negative finding of disadvantaged status).
(b) A concern which received a decision that it was not owned and
controlled by the individual(s) claiming disadvantaged status from an
Private Certifier and does not appeal that decision to SBA may apply
for a new ownership and control determination at any time.
Sec. 124.1013 Is there a list of certified SDBs?
(a) If a procuring agency certifies a firm to be an SDB, it must
notify SBA of its certification. If SBA certifies a firm to be an SDB
or receives notification of a procuring agency certification, SBA will
enter the name of the firm into an SBA-maintained central on-line
register.
(b) The register of SDBs will contain the names of all firms that
are currently certified to be SDBs, including the names of all firms
currently participating in SBA's 8(a) BD program.
(c) On a continuing basis, SBA will delete from the on-line
register those firms that have:
(1) Exited SBA's 8(a) BD program for any reason and have not
otherwise received SDB certification;
(2) Been determined not to be disadvantaged in response to an SDB
protest brought under Sec. 124.1015; or
(3) Not received a renewed SDB certification after being on the
register for three years (see Sec. 124.1014(a)).
Sec. 124.1014 What is the effect of receiving an SDB certification?
(a) Once SBA certifies a firm to be an SDB by placing it on the
list of qualified SDBs, the firm generally will be considered to be a
disadvantaged business for a period of three years from the date of the
certification.
(b) Once SBA certifies a firm to be an SDB by placing it on the
list of qualified SDBs, the firm may represent itself as an SDB for
purposes of Federal SDB set-aside, price evaluation adjustment,
evaluation factor or subfactor, monetary subcontracting incentive
programs, or section 8(d) subcontract, subject to the following
provisions:
(1) In order to participate as an SDB, the firm must be listed on
the SBA-maintained SDB register on the date of its representation.
(2) For purposes of a particular procurement, the firm must
represent that it is both disadvantaged and small at the time it
submits its initial offer including price (see part 121 of this title).
At the same time, the firm must also represent that no material change
has occurred in the disadvantaged ownership and control of the firm
since its SDB certification, and specifically that the net worth of the
disadvantaged individuals upon whom the SDB certification was based
does not exceed $750,000.
(c) A firm's status as ``disadvantaged'' or ``small'' may be
protested pursuant to Secs. 124.1015 through 124.1019 and
Secs. 121.1001 through 121.1005, respectively, despite the presence of
the firm on the SDB register.
(d) A firm must submit a new application and receive a new
certification in order to be recognized as an SDB after three years. If
a firm does not submit a new application and receive a new
certification, SBA will remove its name from the SDB register three
years after the date of the certification.
Sec. 124.1015 Who may protest the disadvantaged status of a concern?
(a)(1) In connection with a specific SDB set-aside or a requirement
for which the apparent successful offeror has invoked an SDB evaluation
adjustment, the following entities may protest the disadvantaged status
of the apparent successful offeror:
(i) Any other concern which submitted an offer for that
requirement, unless the contracting officer has found the concern to be
non-responsive or outside the competitive range, or SBA has previously
found the concern to be ineligible for the SDB set-aside requirement at
issue;
(ii) The procuring agency contracting officer; or
(iii) The SBA.
(2) A protest may challenge whether the apparent successful offeror
is owned and controlled by one or more disadvantaged individuals,
including whether one or more of the individuals claiming disadvantaged
status are in fact socially or economically disadvantaged.
(b) In connection with an 8(d) subcontract, or a requirement for
which the apparent successful offeror received an evaluation adjustment
for proposing one or more SDB subcontractors, the procuring agency
contracting officer or SBA may protest the disadvantaged status of a
proposed subcontractor. Other interested parties may submit information
to the contracting officer or SBA in an effort to persuade the
contracting officer or SBA to initiate a protest.
Sec. 124.1016 When will SBA not decide an SDB protest?
(a) SBA will not evaluate the disadvantaged status of any concern
other than the apparent successful offeror.
(b) SBA will not normally consider a post award protest. SBA may
consider a post award protest in its discretion where it determines
that an SDB determination after award is meaningful (e.g., where the
contracting officer agrees to terminate the contract if the protest is
sustained).
(c) The protest must be timely (see Sec. 124.1018(c)).
(d) The protest must have specificity (see Sec. 124.1019).
Sec. 124.1017 Who decides disadvantaged status protests?
In response to a protest challenging the disadvantaged status of a
concern, the SBA's Assistant Administrator of DPCE in the Office of
8(a)BD, or
[[Page 43625]]
designee, will determine whether the concern is disadvantaged.
Sec. 124.1018 What submission procedures apply to disadvantaged status
protests?
(a) General. The protest procedures described in this section are
separate and distinct from those governing size protests and appeals.
All protests relating to whether a concern is a ``small'' business for
purposes of any Federal program, including SDB set-asides and SDB
evaluation adjustments, must be filed and processed pursuant to part
121 of this title.
(b) Filing. (1) All protests challenging the disadvantaged status
of a concern with respect to a particular Federal procurement
requirement must be submitted in writing to the procuring agency
contracting officer, except in cases where the contracting officer or
SBA initiates a protest.
(2) Any contracting officer who initiates a protest must submit the
protest in writing to SBA in accord with paragraph (c) of this section.
(3) In cases where SBA initiates a protest, the protest must be
submitted in writing to the Assistant Administrator of DPCE and
notification provided in accord with Sec. 124.1020.
(c) Timeliness of protest. (1) SDB Set-Aside and SDB Evaluation
Adjustment protests. (i) General. In order for a protest to be timely,
it must be received by the contracting officer prior to the close of
business on the fifth day, exclusive of Saturdays, Sundays and legal
holidays, after the bid opening date for sealed bids, or after the
receipt from the contracting officer of notification of the identity of
the prospective awardee in negotiated acquisitions.
(ii) Oral protests. An oral protest relating to an SDB set-aside or
SDB evaluation adjustment made to the contracting officer within the
allotted 5-day period will be considered a timely protest only if the
contracting officer receives a confirming letter postmarked, FAXed, or
delivered no later than one calendar day after the date of such oral
protest.
(iii) Protests of contracting officers or SBA. The time limitations
in paragraph (c)(1)(i) of this section do not apply to contracting
officers or SBA, and they may file protests before or after awards,
except to the extent set forth in paragraph (c)(3) of this section.
(iv) Untimely protests. A protest received after the time limits
set forth in this paragraph (c)(1) will be dismissed by SBA.
(2) Section 8(d) protests. In connection with an 8(d) subcontract,
the contracting officer or SBA must submit a protest to the Assistant
Administrator of DPCE prior to the completion of performance by the
intended 8(d) subcontractor.
(3) Premature protests. Protests in connection with any procurement
which are submitted by any person, including the contracting officer,
before bid opening or notification of intended award, whichever
applies, will be considered premature, and will be returned to the
protestor without action. A contracting officer that receives a
premature protest must return it to the protestor without submitting it
to the SBA.
(d) Referral to SBA. (1) Any contracting officer who receives a
protest that is not premature must promptly forward it to the SBA's
Assistant Administrator of DPCE, 409 3rd Street, SW, Washington, DC
20416.
(2) A contracting officer's referral of a protest to SBA must
contain the following:
(i) The written protest and any accompanying materials;
(ii) The date on which the protest was received by the contracting
officer;
(iii) A copy of the protested concern's self-certification as an
SDB, and the date of such self-certification; and
(iv) The date of bid opening or the date on which notification of
the apparent successful offeror was sent to all unsuccessful offerors,
as applicable.
Sec. 124.1019 What format or degree of specificity does SBA require to
consider an SDB protest?
(a) An SDB protest need not be in any specific format in order for
SBA to consider it.
(b) A protest must be sufficiently specific to provide reasonable
notice as to all grounds upon which the protested concern's
disadvantaged status is challenged.
(1) A protest merely asserting that the protested concern is not
disadvantaged, without setting forth specific facts or allegations is
insufficient and will be dismissed.
(2) The contracting officer must forward to SBA any non-premature
protest received, notwithstanding whether he or she believes it is
sufficiently specific or timely.
(c) A dismissal of a protest by the Assistant Administrator of DPCE
for lack of specificity or lack of timeliness may be appealed to SBA's
AA/8(a)BD pursuant to Sec. 124.1022.
Sec. 124.1020 What will SBA do when it receives an SDB protest?
(a) Upon receipt of a protest challenging the disadvantaged status
of a concern, the Assistant Administrator of DPCE will immediately
notify the protestor and the contracting officer of the date the
protest was received and whether it will be processed or dismissed for
lack of timeliness or specificity.
(b) In cases where the protest is timely and sufficiently specific,
the Assistant Administrator of DPCE will also immediately advise the
protested concern of the protest and forward a copy of it to the
protested concern.
(1) The Assistant Administrator of DPCE is authorized to ask the
protested concern to provide any or all of the following information
and documentation, completed so as to show the circumstances existing
on the date of self-certification: SBA Form 1010A, ``Statement of
Personal Eligibility'' for each individual claiming disadvantaged
status; SBA Form 1010B, ``Statement of Business Eligibility;'' SBA Form
413, ``Personal Financial Statement,'' for each individual claiming
disadvantaged status; information as to whether the protested concern,
or any of its owners, officers or directors, have applied for admission
to or participated in the SBA's 8(a) BD program and if so, the name of
the company which applied or participated and the date of the
application or entry into the program; business tax returns for the
last two completed fiscal years prior to the date of self-
certification; personal tax returns for the last two years prior to the
date of self-certification for all individuals claiming disadvantaged
status, all officers, all directors and for any individual owning at
least 10% of the business entity; annual business financial statements
for the last two completed fiscal years prior to the date of self-
certification; a current monthly or quarterly business financial
statement no older than 90 days; articles of incorporation; corporate
by-laws; partnership agreements; limited liability company articles of
organization; and any other relevant information as to whether the
protested concern is disadvantaged.
(2) SBA's disadvantaged status determination is not limited to
consideration only of the issues raised in the protest. All applicable
criteria may be considered.
(3) Unless the protest presents specific credible information which
calls into question the veracity of application or other documents
previously submitted to SBA by a current Participant in SBA's 8(a) BD
program, SBA will allow the Participant to submit, in lieu of the
information specified in paragraph (b)(1) of this section, a sworn
affidavit or declaration that circumstances concerning the
[[Page 43626]]
ownership and control of the business and the disadvantaged status of
its principals have not changed since its application or entry into the
program or its most recent annual review, and a copy of its most
recently completed annual review.
(i) If the ownership or control of the business or the
disadvantaged status of any principals have changed, the protested
concern must comply with paragraph (b)(1) of this section.
(ii) An affidavit or declaration may be allowed only if SBA
admitted the protested concern to the 8(a) BD program, or conducted an
annual review of the protested concern, during the 12-month period
preceding the date on which SBA receives the protest, and if
proceedings to suspend, terminate or early graduate the concern from
the 8(a) BD program are not pending.
(c) Within 10 working days of the date that notification of the
protest was received from the Assistant Administrator of DPCE, the
protested concern must submit to the Assistant Administrator of DPCE,
by personal delivery, FAX, or mail, the information and documentation
requested pursuant to paragraph (b)(1) of this section or the affidavit
permitted by paragraph (b)(2) of this section. Materials submitted must
be received by the close of business on the 10th working day.
(1) SBA will consider only materials submitted timely, and the late
or non-submission of materials needed to make a disadvantaged status
determination may result in sustaining the protest.
(2) The burden is on the protested concern to demonstrate its
disadvantaged status, whether or not it is currently shown on the list
of qualified SDBs.
(3) The protested concern must timely submit to SBA any information
it deems relevant to a determination of its disadvantaged status.
Sec. 124.1021 How does SBA make disadvantaged status determinations?
(a) General. The Assistant Administrator of DPCE will determine a
protested concern's disadvantaged status within 15 working days after
receipt of a protest. If the procuring agency contracting officer does
not receive an SBA determination within 15 working days after the SBA's
receipt of the protest, the contracting officer may presume that the
challenged offeror is disadvantaged, unless the SBA requests and the
contracting officer grants an extension to the 15-day response period.
(b) Award after protest. (1) After receiving a protest involving an
offeror being considered for award, the contracting officer shall not
award the contract until:
(i) The SBA has made an SDB determination, or
(ii) 15 working days have expired since SBA's receipt of a protest
and the contracting officer has not agreed to an extension of the 15-
day response period.
(2) Notwithstanding paragraph (b)(1) of this section, the
contracting officer may award a contract after the receipt of an SDB
protest where he or she determines in writing that an award must be
made to protect the public interest.
(c) Withdrawal of protest. If a protest is withdrawn, SBA will not
complete a new disadvantaged status determination, and its previous SDB
certification will stand.
(d) Basis for determination. (1) Except with respect to a concern
which is a current Participant in SBA's 8(a) BD program and is
authorized under Sec. 124.1020(b)(3) to submit an affidavit concerning
its disadvantaged status, the disadvantaged status determination will
be based on the protest record, including reasonable inferences
therefrom, as supplied by the protestor, protested concern, SBA or
others.
(2) SBA may in its discretion make a part of the protest record
information already in its files, and information submitted by the
protestor, the protested concern, the contracting officer, or other
persons contacted for additional specific information.
(e) Disadvantaged status. In evaluating the social and economic
disadvantage of individuals claiming disadvantaged status, SBA will
consider the same information and factors set forth in Secs. 124.103
and 124.104.
(f) Disadvantaged status determination. SBA will render a written
determination including the basis for its findings and conclusions.
(g) Notification of determination. After making its disadvantaged
status determination, the SBA will immediately notify the contracting
officer, the protestor, and the protested concern of its determination.
SBA will promptly provide by certified mail, return receipt requested,
a copy of its written determination to the same entities, consistent
with law.
(h) Results of an SBA disadvantaged status determination. A
disadvantaged status determination becomes effective immediately.
(1) If the concern is found not to be disadvantaged, the
determination remains in full force and effect unless reversed upon
appeal by SBA's AA/8(a)BD pursuant to Sec. 124.1022, or the concern is
certified to be an SDB under Sec. 124.1008. The concern is precluded
from applying for SDB certification for 12 months from the date of the
final agency decision (whether by the Assistant Administrator of DPCE
without an appeal, or by the AA/8(a)BD on appeal).
(2) If the concern is found to be disadvantaged, the determination
remains in full force and effect unless and until reversed upon appeal
by SBA's AA/8(a)BD pursuant to Sec. 124.1022. A final agency decision
(whether by the Assistant Administrator of DPCE without an appeal, or
by the AA/8(a)BD on appeal) finding the protested concern to be an SDB
remains in effect generally for three years from the date of the
decision under the same conditions as if the concern had been granted
SDB certification under Sec. 124.1008.
Sec. 124.1022 Appeals of disadvantaged status determinations.
(a) Who may appeal. Appeals of protest determinations may be filed
with the SBA's AA/8(a)BD by the protested concern, the protestor, or
the contracting officer.
(b) Timeliness of appeal. An appeal must be in writing and must be
received by the AA/8(a)BD no later than 5 working days after the date
of receipt of the protest determination. SBA will dismiss any appeal
received after the five-day time period.
(c) Notice of appeal. Notice of the appeal must be provided by the
party bringing an appeal to the procuring agency contracting officer
and either the protested concern or original protestor, as appropriate.
(d) Grounds for appeal. SBA will re-examine a protest determination
only if there was a clear and significant error in the processing of
the protest, or if the Assistant Administrator of DPCE failed
completely to consider a significant fact contained within the
information supplied by the protestor or the protested concern. SBA
will not consider protest determination appeals based on additional
information or changed circumstances which were not disclosed at the
time of the decision of the Assistant Administrator of DPCE, or which
are based on disagreement with the findings and conclusions contained
in the determination.
(e) Contents of appeal. No specific format is required for the
appeal. However, the appeal must identify the protest determination
which is appealed, and set forth a full and specific statement as to
why the determination is erroneous under paragraph (c) of this section.
(f) Completion of appeal after award. An appeal may proceed to
completion
[[Page 43627]]
even though an award of the SDB acquisition or other procurement
requirement which prompted the protest has been made, if so desired by
the protested concern, or where SBA determines that a decision on
appeal is meaningful, such as where the contracting officer agrees:
(1) In the case where an award is made to a concern other than the
protested concern, to terminate the contract and award to the protested
concern if the appeal finds that the protested concern is
disadvantaged; or
(2) In the case where an award is made to the protested concern, to
terminate the contract if the appeal finds that the protested concern
is not disadvantaged.
(g) The appeal will be decided by the AA/8(a)BD within 5 working
days of its receipt, if practicable.
(h) The appeal decision will be based only on the information and
documentation in the protest record as supplemented by the appeal. SBA
will provide a copy of the decision to the contracting officer, the
protestor, and the protested concern, consistent with law.
(i) The decision of the AA/8(a)BD is the final decision of the SBA.
PART 134--[AMENDED]
5. The authority citation for 13 CFR part 134 would continue to
read as follows:
Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6) and 637(a).
6. Section 134.201 is amended by revising the second and third
sentences to read as follows:
Sec. 134.201 Scope of the rules in this subpart B.
* * * Specific procedural rules pertaining to 8(a) program appeals
and to proceedings under the Program Fraud Civil Remedies Act are set
forth, respectively in subpart D of this part and part 142 of this
chapter. In the case of a conflict between a particular rule in this
subpart and a rule of procedure pertaining to OHA appearing in another
subpart of this part or another part of this chapter, the latter rule
shall govern.
7. Section 134.202 is amended in paragraph (c) by removing the
reference to ``subpart D of this part'' and inserting in its place the
phrase ``subpart E of this part,'' and in paragraph (d) by removing the
phrase ``Sec. 124.211'' and inserting in its place the phrase
``Sec. 124.305.''
8. Section 134.206(a) is amended by removing the words ``the
service of'' and inserting in their place the words ``the filing of.''
9. Section 134.211 is amended by adding the following new paragraph
(d) at the end thereof.
Sec. 134.211 Motions.
* * * * *
(d) Stay. A motion to dismiss stays the time to answer. The Judge
will establish the time for serving and filing an answer in the order
determining the motion to dismiss.
Sec. 134.213 [Amended]
10. Section 134.213(a) is amended by removing the second sentence.
Sec. 134.222 [Amended]
11. Section 134.222 is amended by removing the ``;'' and the word
``or'' at the end of paragraph (a)(2), by inserting a ``.'' at the end
of paragraph (a)(2), and by removing paragraph (a)(3).
12. Subpart D is redesignated as Subpart E, sections 134.401
through 134.418 are redesignated as sections 134.501 through 134.518,
and the following new Subpart D is inserted:
Subpart D--Rules of Practice for Appeals Under the 8(a) Program
Sec. 134.401 Scope of the rules in this subpart D.
The rules of practice in this subpart D apply to all appeals to OHA
from:
(a) Denials of 8(a) BD program admission based solely on a negative
finding(s) of social disadvantage, economic disadvantage, ownership or
control pursuant to Sec. 124.206;
(b) Early graduation pursuant to Secs. 124.302 and 124.304;
(c) Termination pursuant to Secs. 124.303 and 124.304; and
(d) Denials of requests to issue a waiver pursuant to Sec. 124.514.
Sec. 134.402 Appeal petition.
In addition to the requirements of Sec. 134.203, an appeal petition
must state, with specific reference to the determination and the record
supporting such determination, the reasons why the determination is
alleged to be arbitrary, capricious or contrary to law.
Sec. 134.403 Service of appeal petition.
(a) Concurrent with its filing with OHA, a concern must also serve
SBA's AA/8(a)BD and SBA's Office of General Counsel with a copy of the
petition, including attachments.
(b) In the context of appeals relating to denials of program
admission pursuant to Sec. 124.206 or denials of requests for waivers
pursuant to Sec. 124.514, service on the Office of General Counsel must
be made to the SBA's Associate General Counsel for General Law. For
appeals relating to early graduation pursuant to Secs. 124.302 and
124.304 or termination pursuant to Secs. 124.303 and 124.304, service
on the Office of General Counsel must be made to the Associate General
Counsel for Litigation.
(c) Service should be addressed to the AA/8(a)BD and either
Associate General Counsel at the Small Business Administration, 409 3rd
Street, SW, Washington, DC 20416.
Sec. 134.404 Decision by Administrative Law Judge.
Appeal proceedings brought under this subpart will be conducted by
an Administrative Law Judge.
Sec. 134.405 Jurisdiction.
(a) The Administrative Law Judge selected to preside over an appeal
shall decline to accept jurisdiction over any matter if:
(1) The appeal does not, on its face, allege facts that, if proven
to be true, would warrant reversal or modification of the
determination, including appeals of denials of 8(a) BD program
admission based in whole or in part on grounds other than a negative
finding of social disadvantage, economic disadvantage, ownership or
control;
(2) The appeal is untimely filed under Sec. 134.202 or is not
otherwise filed in accordance with the requirements of this subpart or
the requirements in subparts A and B of this part; or
(3) The matter has been decided or is the subject of an
adjudication before a court of competent jurisdiction over such
matters.
(b) Once the Administrative Law Judge accepts jurisdiction over an
appeal, subsequent initiation of an adjudication of the matter by a
court of competent jurisdiction will not preclude the Administrative
Law Judge from rendering a final decision on the matter.
Sec. 134.406 Review of the administrative record.
(a) Except as provided in Sec. 134.407, any proceeding conducted
under this subpart shall be decided solely on a review of the written
administrative record.
(b) The Administrative Law Judge's review is limited to determining
whether the Agency's determination is arbitrary, capricious, or
contrary to law. As long as the Agency's determination is reasonable,
the Administrative Law Judge must uphold it on appeal.
(c) The administrative record must contain all documents that are
relevant to the determination on appeal before the Administrative Law
Judge. The administrative record, however, need not contain all
documents pertaining to the appellant. For example, the administrative
record in a termination proceeding need not include the
[[Page 43628]]
Participant's entire business plan file or documents pertaining to
specific 8(a) contracts that are unrelated to the termination action.
(d) Where the Agency files its answer to the appeal petition after
the date specified in Sec. 134.206, the Administrative Law Judge may
decline to consider the answer and base his or her decision solely on a
review of the administrative record.
(e) The Administrative Law Judge may remand a case to the AA/8(a)BD
(or, in the case of a denial of a request for waiver under
Sec. 124.514, to the Administrator) for further consideration if he or
she determines that, due to the absence in the written administrative
record of the reasons upon which the determination was based, the
administrative record is insufficiently complete to decide whether the
determination is arbitrary, capricious or contrary to law. Such a
remand will be for a period of 10 working days.
Sec. 124.407 Evidence beyond the record and discovery.
(a) The Administrative Law Judge may not admit evidence beyond the
written administrative record nor permit any form of discovery unless
he or she first determines that the appellant, upon written submission,
has made a substantial showing, based on credible evidence and not mere
allegation, that the Agency determination in question may have resulted
from bad faith or improper behavior.
(1) Prior to any such determination, the Administrative Law Judge
must permit the Agency to respond in writing to any allegations of bad
faith or improper behavior.
(2) Upon a determination by the Administrative Law Judge that the
appellant has made such a substantial showing, the Administrative Law
Judge may permit appropriate discovery, and accept relevant evidence
beyond the written administrative record, which is specifically limited
to the alleged bad faith or improper behavior.
(b) A determination by the Administrative Law Judge that the
required showing set forth in paragraph (a) of this section has been
made does not shift the burden of proof, which continues to rest with
the appellant.
Sec. 134.408 Decision on appeal.
(a) A decision of the Administrative Law Judge under this subpart
is the final agency decision, and is binding on the parties.
(b) The Administrative Law Judge shall issue a decision, insofar as
practicable, within 90 days after an appeal petition is filed. If the
Administrative Law Judge does not issue a decision within 90 days after
an appeal petition is filed, he or she must indicate the reason that
the 90-day time limit has not been met in the decision, when issued.
(c) The Administrative Law Judge may re-examine an appeal decision
if there is a clear showing of an error of fact or law material to the
decision.
Dated: July 23, 1997,
Aida Alvarez,
Administrator.
[FR Doc. 97-21514 Filed 8-13-97; 8:45 am]
BILLING CODE 8025-01-P