[Federal Register Volume 63, Number 63 (Thursday, April 2, 1998)]
[Proposed Rules]
[Pages 16148-16163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8585]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 125, and 126


HUBZone Empowerment Contracting Program

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) is proposing to 
add to its regulations a new Part 126 to implement a new program 
entitled the ``HUBZone Empowerment Contracting Program'' (``hereinafter 
the HUBZone Program''). This program was created by the HUBZone Act of 
1997, which is contained in Title VI of Public Law 105-135, enacted on 
December 2, 1997 (111 Stat. 2592). The proposed rule would set forth 
the program requirements for qualification as a HUBZone small business 
concern (HUBZone SBC), the federal contracting assistance available to 
qualified HUBZone SBCs, and other aspects of this program.

DATES: SBA must receive comments by no later than May 4, 1998.

ADDRESSES: You may submit your comments by first class mail to Michael 
McHale, U.S. Small Business Administration, 409 Third Street, SW, 
Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Michael McHale, Assistant 
Administrator, Office of Procurement Policy and Liaison, (202) 205-
6731.

SUPPLEMENTARY INFORMATION: Title VI of the Small Business 
Reauthorization Act of 1997, Public Law 105-135, December 2, 1997, 
creates a new program called the ``HUBZone Program''. The purpose of 
the HUBZone program is to provide federal contracting opportunities for 
certain qualified small business concerns (SBCs) located in distressed 
communities in an effort to promote private-sector investment and 
employment opportunities in these communities. Fostering the growth of 
federal contractors in these areas and ensuring that these contractors 
remain viable businesses for the long-term will help to empower these 
areas while not adversely affecting recent efforts to streamline and 
improve the federal procurement process.
    The legislative history contains many strong indications that 
Congress wanted the SBA to implement the program in a manner that 
builds on the President's proposed Empowerment Contracting program 
(launched by Executive Order, May 21, 1996) and is consistent with the 
Federal government's other existing community empowerment programs-most 
notably the Empowerment Zone program. The legislative history also

[[Page 16149]]

contains many indications that Congress wanted SBA to implement the 
HUBZone program without harming SBA's existing 8(a) program. 
Furthermore, by increasing the small business contracting goal in this 
title, Congress sent a strong signal to SBA that it also should avoid 
harm to other Congressionally recognized programs which benefit small 
business. SBA is sensitive to these indications of Congressional intent 
and believes that this proposal reflects a balanced approach to HUBZone 
implementation.
    The HUBZone Act directs the Administrator of SBA to promulgate 
regulations to ``carry out this title and the amendments made by this 
title.'' (Pub.L. 105-135, Sec. 605(a)). This proposed rule would add a 
new part to Title 13 of the Code of Federal Regulations to include the 
regulations for the HUBZone program. The regulations set out the 
general principles and definitions applicable to the program; the 
departments and agencies affected by the program; the qualification 
requirements for HUBZone concerns; the certification procedures of the 
program; the verification processes which SBA will use for this 
program; the contractual assistance provided by the program; the 
applicable subcontracting percentage requirements; the protest and 
appeal procedures; and various applicable penalties.
    The proposed rule would also provide conforming amendments 
necessary to integrate the HUBZone program into the SBA size 
regulations and regulations related to government procurement.
    The HUBZone Act requires the Administrator of SBA to establish and 
maintain a database of qualified HUBZone SBCs. The proposed rule refers 
to this database as the List of those concerns that have been certified 
by SBA as qualified HUBZone SBCs (the List). The List will include, to 
the extent practicable, the name, address, and type of business of each 
concern; must be updated at least annually; and must be provided upon 
request to any Federal agency or other entity.
    SBA has attempted to write the proposed regulations in plain 
English. To this end, SBA has written proposed section headings in 
question and answer format for ease of use and has tried to avoid 
unnecessary verbiage.
    SBA encourages comments on all aspects of this proposed rule. This 
is a new government program with the potential to achieve significant 
public policy objectives. Like many new programs, it also carries the 
potential for abuse. SBA has developed these proposed regulations in an 
effort to achieve an appropriate balance; broad public comment will 
assist it in developing a final rule.

Section by Section Analysis

    The following is a section by section analysis of each provision of 
SBA's regulations that would be affected by this proposed rule:
    The authority citation for 13 CFR Part 121 would be revised to 
include Title VI of Public Law 105-135, as Part 121 would be amended to 
include references to the HUBZone program.
    Section 121.401 would be amended to add the HUBZone program to the 
list of government procurement programs subject to size determinations.
    Section 121.1001 would be amended by redesignating paragraph (a)(6) 
as (a)(7) and adding a new paragraph (a)(6) to describe who may 
initiate a size protest or request for formal size determination in the 
HUBZone program.
    Section 121.1008 would be amended by adding a sentence which 
requires the SBA Government Contracting Area Director, or designee, to 
notify the AA/HUB of receipt of a size protest concerning a qualified 
HUBZone SBC.
    The authority citation for Part 125 of this title would be revised 
to include Title VI of Public Law 105-135, as Sec. 125.3 would be 
amended to include HUBZone SBCs in the subcontracting assistance 
provisions of this section.
    A new part 126 would be added to Title 13 of the Code of Federal 
Regulations to implement the HUBZone program.
    Section 126.100 would explain that the purpose of the HUBZone 
program is to provide federal contracting assistance for qualified SBCs 
located in historically underutilized business zones in an effort to 
increase employment opportunities and investment in those areas.
    Proposed Sec. 126.101 lists the departments and agencies affected 
directly by the HUBZone program.
    Section 126.102 would describe the effect the HUBZone program would 
have on the section 8(d) subcontracting program. The HUBZone Act of 
1997 amended section 8(d) of the Small Business Act, 15 USC 637(d), to 
include qualified HUBZone SBCs in the formal subcontracting plans 
required by section 8(d) of the Small Business Act and described in 
Sec. 125.3 of this title.
    Section 126.103 would define terms that are important to the 
HUBZone program. In defining some terms essential to the HUBZone 
program, the HUBZone Act of 1997 relied upon definitions provided by 
other federal agencies. This proposed rule would cross reference those 
definitions for use in connection with the HUBZone program.
    For example, the HUBZone Act defines a ``HUBZone'' as an 
``historically underutilized business zone which is in an area located 
within one or more qualified census tracts, qualified non-metropolitan 
counties, or lands within the external boundaries of an Indian 
reservation.'' Further, the HUBZone Act states that the term 
``qualified census tracts'' has the meaning given that term in section 
42(d)(5)(C)(ii)(I) of the Internal Revenue Code. This section of the 
Internal Revenue Code refers to the low-income housing credit program 
maintained by the Department of Housing and Urban Development (HUD). 
The Secretary of HUD designates the qualified census tracts by Notice 
published periodically in the Federal Register. These notices are 
titled ``Statutorily Mandated Designation of Qualified Census Tracts 
and Difficult Development Areas for Section 42 of the Internal Revenue 
Code of 1986.'' The most recent Notice may be found at 59 FR 53518 
(1994). The proposed rule includes a cross reference to section 
42(d)(5)(C)(ii)(I) of the Internal Revenue Code.
    The term ``qualified non-metropolitan counties'' is based on the 
most recent data available concerning median household income and 
unemployment rates. The Bureau of Census of the Department of Commerce 
gathers the data regarding median household income and the Bureau of 
Labor Statistics of the Department of Labor gathers the data regarding 
unemployment rates. One may find the information from the Bureau of 
Census at any local Federal Depository Library. To find the nearest 
Federal Depository Library, one may call toll-free (888) 293-6498. The 
information from the Bureau of Labor Statistics is available for public 
inspection at the US Department of Labor, Bureau of Labor Statistics, 
Division of Local Area Unemployment Statistics office in Washington DC 
(the text of the proposed rule lists the complete address). Again, the 
proposed rule would cross reference this information to provide 
guidance in determining whether or not a small business concern is 
located in a HUBZone.
    The terms ``qualified census tract'' and ``qualified non-
metropolitan counties'' are based on statistics gathered periodically 
by various federal agencies. The census reflects changes every 10 
years, while unemployment statistics are calculated annually. Changes 
in either can generate changes in the areas that qualify as HUBZones--
even as often as annually.

[[Page 16150]]

    The HUBZone Act of 1997 does not define ``lands within the external 
boundaries of an Indian reservation.'' For purposes of the HUBZone 
program, SBA has adopted the definition of ``Indian reservation'' used 
in the Bureau of Indian Affairs' (BIA) regulations and the proposed 
rule includes a cross-reference to 25 CFR 151.2(f). The BIA definition 
of ``Indian reservation'' includes ``that area of land over which the 
tribe is recognized by the United States as having governmental 
jurisdiction, except that, in the State of Oklahoma or where there has 
been a final judicial determination that a reservation has been 
disestablished or diminished, Indian reservation means that area of 
land constituting the former reservation of the tribe as defined by the 
Secretary [of the Interior or authorized representative].'' 25 CFR 
151.2(f). BIA's definition of ``tribe'' includes Alaska Native 
entities. See 25 CFR 81.1(w).
    SBA created a website that enables individuals to input the address 
of their business to determine if it is located in a HUBZone. 
Additionally, through the SBA website, individuals may obtain lists of 
the qualified census tracts and qualified non-metropolitan counties on 
a state-by-state basis. The website also contains a ``hot link'' to a 
directory of BIA's Land Titles and Records Offices and their respective 
jurisdictions.
    Proposed Sec. 126.200 contains the HUBZone eligibility 
requirements. In general, as described in the regulations, the company 
must be a small business concern; the company must be owned and 
controlled by one or more persons each of whom is a citizen of the 
United States; the principal office of the concern must be located in a 
HUBZone; and at least thirty-five percent (35%) of the concern's 
employees must reside in a HUBZone. To be counted as residing in the 
HUBZone, an employee must either be registered to vote in the HUBZone 
or have resided in the HUBZone for a period of not less than 180 days.
    Proposed Sec. 126.201 describes who is considered to own a HUBZone 
SBC.
    Proposed Sec. 126.202 explains who is considered to control a 
HUBZone SBC.
    Section 126.203 would state that a HUBZone SBC must meet SBA's size 
standards for its primary industry classification as defined in Part 
121.
    SBA believes that current size standards for the procurement 
assistance program is an effective size standard for HUBZone purposes. 
However, because the focus of the HUBZone program is creating jobs in 
HUBZone communities rather than development of individual businesses, 
SBA is considering whether a different approach for HUBZones may be 
more appropriate. SBA is specifically seeking comments on policies that 
may help to create HUBZone areas. One way SBA is considering is a 
minimum alternative size standard for non-8(a) HUBZone SBCs of at least 
16 employees. SBCs in the 8(a) program could have fewer than 16 
employees. SBA is also considering a maximum size standard for most 
SBCs of one-half the procurement assistance size standard for purposes 
of initial qualification only. (The full procurement assistance size 
standard would apply to HUBZone contracting opportunities.) SBA is 
specifically seeking comments on the potential impact of a minimum size 
standard of 16 employees, except for 8(a) SBCs and a maximum size 
standard of one-half of the SBA size standard for initial qualification 
purposes, except for 8(a) firms and women-owned firms. Comments should 
address the potential impact of such size standards on types of 
businesses and specific industries, particularly those with large 
numbers of firms with very few employees, such as business consulting, 
health care, and construction.
    SBA believes a minimum size standard might better ensure that the 
HUBZone program concentrates its benefits on concerns with at least a 
minimum base of employees residing in HUBZones. Such a minimum base 
could enhance the impact that a HUBZone contract would have, both in 
terms of number of required resident employees and in terms of number 
of new employees to perform contracts. Directing HUBZone contracts to 
somewhat large firms may also ease the task of contract administration 
for contracting officers who will be dealing with HUBZone SBCs for the 
first time, and increase the likelihood that they will view favorably 
the prospect of working with such concerns.
    It should also be noted that, unlike the 8(a) program, the HUBZone 
program is not primarily aimed at encouraging the development of 
individual concerns. The HUBZone program focuses on job creation and 
investment in HUBZone communities, and uses Federal procurement 
contract awards to qualified HUBZone SBCs to achieve that purpose. The 
exception for 8(a) firms also ties in with the fact that smaller 8(a) 
participants have a mechanism in place to assist them with performing 
contracts--the Mentor-Protege program.
    The minimum size standard of 16 employees also would help 
distinguish the HUBZone program from the Very Small Business (VSB) 
program. The VSB program sets a maximum size standard of 15 employees. 
Like the 8(a) program, the VSB program is primarily designed as a 
developmental program and uses Federal contracting opportunities to 
assist in the development of individual firms. Setting a minimum size 
standard of 16 employees for the HUBZone program could help balance the 
objectives of the HUBZone program, the 8(a) program, and the VSB 
program.
    In addition to the minimum size standard under discussion, SBA also 
is reviewing a maximum size standard for qualified HUBZone SBCs. Under 
this alternative approach, at the time of application for 
certification, a concern could not exceed one-half the size standard 
corresponding to the SIC code of the concern's primary industry, unless 
the concern is an 8(a) participant or a small business concern owned 
and controlled by women.
    SBA is inviting public comment on whether this reduced size 
standard would best fulfill the purposes of the HUBZone program. SBA 
wants to avoid the situation where the award of a single HUBZone 
contract likely would result in a qualified HUBZone SBC exceeding the 
size standard for its primary industry classification. (Example: Assume 
that a qualified HUBZone SBC has 499 employees and its primary industry 
has a size standard of 500 employees. Should the concern receive a 
HUBZone contract and add 10 new employees to perform the contract, it 
would no longer meet the employee size standard.) The program may 
better achieve its intended purposes by providing incentives for 
existing qualified HUBZone SBCs to remain and expand in HUBZones 
without losing their eligibility, and by attracting non-HUBZone SBCs 
into HUBZones where they will provide new employment opportunities and 
spur community economic development. With a maximum size standard for 
qualified HUBZone SBCs, they will have room to grow in HUBZone 
communities before they are no longer small for purposes of obtaining 
contract awards under the program. SBA specifically invites comments on 
the question of whether there should be a maximum size standard for the 
HUBZone program that is different from other procurement programs, and 
what the impact of such a size standard would be on different types of 
business and specific industries.
    Additionally, if the commenter believes a lower initial maximum 
size standard for the HUBZone program is appropriate, SBA asks that the 
commenter address the issue of whether there should be an exception to 
that size standard for 8(a) participants or SBCs owned and controlled 
by women. SBA

[[Page 16151]]

is discussing exceptions for such firms. The 8(a) program is clearly a 
developmental program with its purpose to develop concerns owned and 
controlled by socially and economically disadvantaged individuals into 
competitively viable businesses that can survive upon graduation from 
the 8(a) program. SBA believes the HUBZone program could provide an 
additional source of government contract support while the 8(a) 
participant remains in the program. It is reluctant to impose any 
restrictions on such concerns that would conflict with other 
regulations governing the 8(a) program directly.
    In addition, the Small Business Act contains a congressional 
finding that assistance to women-owned businesses (WOBs) is needed to 
remove discriminatory barriers to their development. Similar to the 
developmental objectives of the 8(a) program, SBA is seeking comment on 
whether allowing WOBs a maximum opportunity to qualify as HUBZone SBCs 
would assist in overcoming such barriers and aid in their development.
    Under proposed Sec. 126.203, if SBA cannot verify that a concern is 
small, SBA may deny the concern status as a qualified HUBZone SBC, or 
SBA may request a formal size determination from the responsible 
Government Contracting Area Director or designee.
    Section 126.204 would provide that qualified HUBZone SBCs may have 
affiliates so long as the affiliates are also qualified HUBZone SBCs.
    Proposed Sec. 126.205 explains that WOBs, 8(a) participants, and 
small disadvantaged business concerns (SDBs) also can qualify as 
HUBZone SBCs if they meet the requirements set forth in this part.
    Section 126.206 would state the conditions under which regular 
dealers can qualify as HUBZone SBCs.
    Proposed Sec. 126.207 explains that a qualified HUBZone SBC may 
have offices or facilities located in another HUBZone or even outside a 
HUBZone. However, in order to qualify as a HUBZone SBC, the concern's 
principal office must be located in a HUBZone.
    Sections 126.300 through 126.306 would describe how a concern is 
certified as a qualified HUBZone SBC. This section would explain how 
SBA certifies a concern for the program, when the certification takes 
place, and whether a concern can certify itself.
    Proposed Sec. 126.304 sets forth what a concern must submit to be 
certified by SBA as a qualified HUBZone SBC. Proposed Sec. 126.304(f) 
explains that if a concern is applying for certification based on a 
location ``within the external boundaries of an Indian reservation'', 
it must submit official documentation from the Bureau of Indian Affairs 
Land Titles and Records Office governing their area that confirms that 
the concern is located within the external boundaries of an Indian 
reservation. This additional requirement is necessary because, while 
the qualified census tracts and qualified non-metropolitan counties are 
contained in databases available in an electronic format, the data 
concerning Indian reservations is available only through the BIA Land 
Titles and Records Offices and is not available in an electronic 
format. Consequently, concerns applying for HUBZone status based on 
location within the external boundaries of an Indian reservation must 
submit the additional documentation.
    Proposed Sec. 126.307 states where SBA will maintain the List and 
proposed Sec. 126.308 explains what a concern can do in the event SBA 
inadvertently omits it from the List.
    Section 126.309 would state that if SBA declines or de-certifies a 
concern, it may seek certification or re-certification no sooner than 
one year from the date of decline or de-certification, if it believes 
that it has overcome all of the reasons for decline or de-
certification. SBA requests comments addressing the prohibition on 
seeking certification sooner than one year from the date of decline or 
de-certification and, in particular, whether the time period is 
appropriate. SBA asks commenters to propose alternatives if they 
believe the time period is inappropriate.
    Proposed Secs. 126.400 through 126.405 discuss program 
examinations, including who will conduct program exams, what the 
examiners will review, and when examinations will be conducted. In 
addition, this section would set out the action SBA may take when it 
cannot verify a concern's eligibility and what action SBA will take 
once it has verified a concern's eligibility. Concerns would have an 
obligation to maintain relevant documentation for 6 years.
    Sections 126.500 through 126.503 would set forth how a concern 
maintains its HUBZone status; a qualified HUBZone SBC's ongoing 
obligation to SBA and the consequences for failure to uphold that 
obligation; the length of time a concern may qualify as a HUBZone SBC; 
and when SBA may remove a concern from the List. Specifically, a 
concern wishing to remain on the List must self-certify annually to SBA 
that it remains a qualified HUBZone SBC. This self-certification must 
take place within 30 days after the one-year anniversary of their date 
of certification. SBA is particularly interested in comments 
specifically addressing the requirement of annual self-certification to 
SBA. SBA asks commenters to propose alternatives if they believe the 
time period is inappropriate.
    This section would also explain the qualified HUBZone SBC's ongoing 
obligation to immediately notify SBA of any material change which could 
affect its eligibility. The consequences for failure to do so will be 
immediate de-certification, removal from the List, and possibly the 
imposition of penalties under Sec. 126.900 of this part. In order to be 
placed upon the List again, the concern must re-apply for certification 
pursuant to Secs. 126.300 through 126.309 of this part. Additionally, 
the application for certification must include a full explanation of 
why the concern failed to notify SBA of the material change. If SBA is 
not satisfied with the explanation, SBA may decline to certify the 
concern pursuant to Sec. 126.306 of this part.
    SBA proposes that qualified HUBZone SBCs remain eligible for 
HUBZone status for a period of 3 years beyond the date that the HUBZone 
in which the concern is located ceases to meet the definition of a 
HUBZone, if the concern continues to meet all other eligibility 
requirements. SBA specifically invites public comment on this 
particular issue. SBA desires to balance the need to de-certify 
concerns that are no longer located in a HUBZone against the need to 
not discourage concerns from investing in HUBZone communities and 
creating jobs and expanded business operations in those communities in 
reliance on HUBZone program benefits.
    Proposed Secs. 126.600 through 126.616 explain the general 
conditions applicable to HUBZone contracts. These sections include 
provisions regarding sole source contract awards; competitive contract 
awards; price evaluation preferences and their effect on qualified 
HUBZone SBCs; when SBA may appeal a non-award to a qualified HUBZone 
SBC; and when a HUBZone contract may be prohibited by other SBA 
programs or other Government programs.
    Proposed Sec. 126.609 discusses what a contracting officer may do 
if a contract opportunity does not exist for competition among 
qualified HUBZone SBCs. This section explains that, in this situation, 
the contracting officer may make an award under the 8(a) program on 
either a sole source or competitive basis, make award to a HUBZone SBC 
on a sole source award basis, or utilize a small business set-aside, in 
that order

[[Page 16152]]

of precedence. If the criteria are not met for any of these special 
contracting authorities, then the contracting officer may solicit the 
procurement through full and open competition. SBA believes this order 
of precedence will aid in providing the maximum practicable opportunity 
for the development of SBCs owned by members of socially and 
economically disadvantaged groups, as Congress intended in the Small 
Business Act (15 U.S.C. 632(f)(1)(e)), and yet is consistent with the 
new HUBZone legislation.
    Proposed Sec. 126.613 explains how a price evaluation preference 
affects the bid of a qualified HUBZone SBC in full and open 
competition. In a full and open competition, a contracting officer must 
deem the price offered by a qualified HUBZone SBC to be lower than the 
price offered by another offeror (other than another small business 
concern) if the price offered by the qualified HUBZone SBC is not more 
than 10% higher than the price offered by the otherwise lowest, 
responsive, and responsible offeror. An example of the application of 
the HUBZone price evaluation preference is included in this section of 
the proposed rule.
    Proposed Sec. 126.614 describes how a contracting officer must 
apply both HUBZone and SDB price evaluation preferences in a full and 
open competition. The HUBZone price evaluation preference is described 
in proposed Sec. 126.613 of this part. The SDB price evaluation 
preference currently applies to the Department of Defense only, and is 
set forth in 10 U.S.C. 2323. The Department of Defense regulations 
implementing this preference are set out in Sec. 252.219-7006 of the 
Defense Federal Acquisition Regulation Supplement.
    This proposed rule requires that the contracting officer first 
apply the SDB price evaluation preference, then apply the HUBZone price 
evaluation preference. The SDB price evaluation preference should be 
applied first in order to establish the lowest, responsive, and 
responsible offeror. Once the contracting officer establishes the 
lowest, responsive, and responsible offeror, if the qualified HUBZone 
SBC's offer is not more than 10 percent higher than that offer (unless 
the lowest, responsive, responsible offeror is another small business 
concern) the contracting officer must deem the price offered by the 
qualified HUBZone SBC to be lower than the price offered by the 
otherwise lowest, responsive, and responsible offeror. The SDB price 
evaluation must be applied first because if the contracting officer 
applies the HUBZone price evaluation preference first, the SDB price 
evaluation preference would effectively negate the HUBZone price 
evaluation preference. An example of the application of both HUBZone 
and SDB price evaluation preferences is included in proposed 
Sec. 126.614 of the regulations.
    It is possible that the qualified HUBZone SBC that submits an offer 
on a contract will be both a qualified HUBZone SBC and an SDB. For 
example, a qualified HUBZone SBC (but not an SDB) submits an offer of 
$102; a qualified HUBZone SBC that is also an SDB submits an offer of 
$105; an SDB (but not a qualified HUBZone SBC) submits an offer of 
$107; a small business concern (but not a qualified HUBZone SBC or an 
SDB) submits an offer of $100; and a large business submits an offer of 
$93. Under this proposal, the contracting officer must go through the 
following steps:
    1. Apply the SDB price evaluation preference to establish the 
lowest, responsive, and responsible offeror. Thus, the qualified 
HUBZone SBC's offer becomes $112.2; the qualified HUBZone SBC/SDB's 
offer remains $105; the SDB's offer remains $107; the small business 
concern's offer becomes $110; and the large business's offer becomes 
$102.3. As a result of the SDB price evaluation preference, the large 
business is the lowest, responsive, and responsible offeror.
    2. Apply the HUBZone price evaluation preference and if a qualified 
HUBZone SBC's price is not more than 10 percent higher than the large 
business's price, the contracting officer must deem its price to be 
lower than the large business's price. In this example, the qualified 
HUBZone price of $112.2 is not more than 10 percent higher than the 
large business's price, however, the qualified HUBZone/SDB's price of 
$105 is also not more than 10 percent higher than the large business's 
price and is lower than the qualified HUBZone SBC's price.

Consequently, as specified by this proposed rule, the contracting 
officer must deem the price of the qualified HUBZone/SDB as the lowest, 
responsive, and responsible offeror.
    This example illustrates the potential effect of according a small 
business concern a ``dual status'' as both a qualified HUBZone SBC and 
an SDB. SBA invites comments specifically addressing whether such an 
application of ``dual status'' is appropriate. Should concerns be able 
to benefit from both their qualified HUBZone status and their small 
disadvantaged status? Or, should they be required to choose one or the 
other when submitting an offer on a contract in full and open 
competition?
    Proposed Sec. 126.616 specifically discusses the circumstances in 
which a contracting officer may award a HUBZone contract to a joint 
venture. This section explains that a qualified HUBZone SBC may enter 
into a joint venture with one or more other qualified HUBZone SBCs for 
the purpose of performing a specific HUBZone contract. By allowing 
joint ventures between qualified HUBZone SBCs, 8(a) participants and 
WOBs, SBA would make it more possible for such concerns to bid on 
larger contracts.
    Proposed Sec. 126.616(b) explains the size standards applicable to 
such joint ventures. A joint venture of qualified HUBZone SBCs could 
submit an offer for a HUBZone procurement so long as each concern is 
small under the size standard corresponding to the SIC code assigned to 
the contract, provided that, for a procurement having an employee-based 
size standard, the procurement exceeds $10 million. On August 14, 1997, 
SBA proposed a similar rule for the 8(a) program. Although the final 
rule for the 8(a) program has yet to be published, SBA anticipates that 
the final rule will be the same on this issue. To achieve consistency 
within its programs, SBA modeled this section of the proposed rule 
after Sec. 124.512 of the 8(a) program proposed rule.
    Since a principal purpose of the HUBZone program is job creation 
and job growth, SBA would like commenters to address specifically 
whether HUBZone contract opportunities should be limited to certain 
types of contracts only. For example, should HUBZone contracts only be 
available for industries that are considered ``labor-intensive''? The 
proposed rule does not now contain such a restriction.
    Additionally, SBA requests that commenters discuss whether HUBZone 
contract opportunities should be limited to those not now awarded to 
SBCs. It also invites suggestions for ways in which HUBZone 
implementation can better help government contracting activities meet 
their SDB and WOB goals.
    Proposed Sec. 126.700 discusses the subcontracting percentage 
requirements applicable to the HUBZone program; the limited 
circumstances under which the subcontracting percentage requirements 
may be changed; and the procedures for changing those requirements. For 
purposes of definitions applicable to Sec. 126.700, as well as Secs.  
126.304(a)(5) and 126.602(b), SBA specifically solicits comment and, in 
particular, with regard to an appropriate definition for ``materials''. 
SBA asks commenters to discuss whether substantially completed products 
with only minor

[[Page 16153]]

modifications should be considered materials, and whether and how labor 
costs involved in producing such products should be considered.
    Proposed Sec. 126.800 addresses protests relating to a small 
business concern's HUBZone status. This section would explain who may 
file a protest, what the protest must contain, how and where a protest 
must be filed, who decides the protest, and what appeal rights are 
available.
    Proposed Sec. 126.900 prescribes the penalties applicable under the 
HUBZone program including procurement and non-procurement suspension or 
debarment, as well as applicable civil and criminal penalties.

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 may constitute a major rule 
within the meaning of Executive Order 12866, and 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. SBA 
submits the following economic analysis prepared pursuant to Executive 
Order 12866 and Initial Regulatory Flexibility Analysis (IRFA) prepared 
pursuant to the Regulatory Flexibility Act.
    In making its determination that this proposed rule may constitute 
a major rule and may have a significant economic impact on a 
substantial number of small entities, SBA used the definition of small 
business set forth in 13 CFR Part 121.
    The HUBZone Act of 1997, Title VI of Public Law 105-135, 111 Stat. 
2592 (December 2, 1997), creates the HUBZone program and directs the 
Administrator of SBA to promulgate regulations to implement it. The 
proposed rule sets forth the program requirements for qualification as 
a HUBZone SBC, the federal contracting assistance available to 
qualified HUBZone SBCs, and other aspects of this program.
    The HUBZone program will benefit SBCs by increasing the number of 
federal government contracts awarded to them. SBA cannot predict with 
any accuracy the number or dollar amount of contracts that will be 
awarded to qualified HUBZone SBCs or determine the magnitude of the 
shift, if any, among small and large businesses. SBA is seeking data or 
comments from the public on the impact of the proposed rule on all 
small businesses. The program also will benefit HUBZone communities by 
providing much needed jobs and investment in those communities.
    Prior to submitting an offer on a HUBZone contract, an interested 
small business must apply to SBA for certification as a qualified 
HUBZone SBC. The concern must submit information relating to its 
eligibility for the program, including supporting documentation. Once a 
concern is certified as a qualified HUBZone SBC, it must self-certify 
annually to SBA that there has been no material change in its 
circumstances that would affect eligibility. The information required 
for certification consists of general information about the business. 
SBA estimates that each concern will be able to complete the 
certification application in one hour or less.
    As the HUBZone program is new and this proposed rule is designed to 
implement the program, there are no relevant federal rules that may 
duplicate, overlap or conflict with the proposed rule. Additionally, 
since the HUBZone Act of 1997 directs the Administrator to promulgate 
regulations to implement this program, without new legislation there 
are no alternatives to implementing this proposed rule.
    The small entities who this proposed rule may affect are those who 
fit within the definition of a small business concern as defined by SBA 
in 13 CFR Part 121 and new Part 126 and who participate in government 
contracting. Because the program is new, SBA cannot estimate precisely 
the number or classes of small entities that this proposed rule will 
affect. However, as explained below, SBA estimates that more than 
30,000 SBCs will apply for certification as qualified HUBZone SBCs.
    Based on 1992 census data and making reasonable extrapolations to 
account for growth in recent years, SBA estimates that there are 
approximately 5 million businesses with employees in the United States; 
of this number, approximately 4.9 million--or 98 percent--are 
considered small. Clearly, not all of the businesses who are considered 
small seek to participate in federal government contracting or will 
seek to participate in the HUBZone program. Currently, there are 
approximately 170,000 SBCs registered on PRO-Net, SBA's database of 
SBCs actively seeking federal government contracts.
    The number of entities that seek certification as qualified HUBZone 
SBCs will depend, first, on the number of businesses located in 
HUBZones. The potential number of HUBZones is significant. Based on the 
data available, there are approximately 61,000 census tracts in the 
United States; of those tracts, about 7,000--or 11 percent--are 
qualified census tracts for purposes of the HUBZone program. In 
addition, there are approximately 3,000 non-metropolitan counties in 
the United States; of those counties, about 900 -or 30 percent--are 
qualified non-metropolitan counties for purposes of the HUBZone 
program. (At the time of publishing this proposed rule, there was no 
data available on the number of Indian reservations in the United 
States.) Based on combining the qualified census tract and qualified 
non-metropolitan county data, SBA estimates that approximately 12 
percent of the census tracts and non-metropolitan counties in the 
United States will qualify as HUBZones. For purposes of these 
estimates, the number of Indian reservations is not significant.
    If all small businesses interested in Federal procurement were 
evenly distributed geographically, then approximately 12 percent of the 
170,000 SBCs registered on PRO-Net--or 20,000--would be located in 
HUBZones. However, SBA believes that a much higher number of small 
business are located in qualified census tracts than in qualified non-
metropolitan counties; therefore, SBA adjusts this number upward and 
estimates that 25,000 SBCs--or 15 percent--interested in Federal 
procurement will be located in HUBZones.
    The incentives available through participation in the program 
should result in additional relocating to HUBZone areas. SBA is unable 
to predict the impact of this factor on the total number of qualified 
HUBZone SBCs, but estimates that roughly 30,000 concerns are either now 
HUBZone SBCs or will become HUBZone SBCs and will apply for 
certification.
    Because the HUBZone program is new, SBA also cannot estimate 
precisely the economic impact the proposed rule may have on the 
economy. According to the Congressional Budget Office (CBO), in 1996 
the federal agencies specified in the HUBZone Act contracted for more 
than 90 percent of all federal procurement obligations. (143 Cong. Rec. 
S8976 (daily ed. September 9, 1997)). In FY 1996, the federal 
government spent $197.6 billion on the procurement of goods and 
services. The government awarded small businesses $41.1 billion in 
direct contract actions--21 percent of the total $197.6 billion in 
contract actions.
    The HUBZone Act of 1997 amends the Small Business Act to increase 
the Government-wide federal contracting goal for SBCs from 20 percent 
to 23

[[Page 16154]]

percent of all federal prime contracts. In addition, the HUBZone Act 
sets the government contracting goal for HUBZone SBCs initially at 1 
percent of all federal prime contracts with a gradual increase to 3 
percent by the year 2003. Thus, by 2003, assuming the participating 
agencies reach the 3 percent contracting goal, HUBZone SBCs may be 
awarded approximately $6 billion in federal contract actions (3 percent 
of $197.6 billion).
    In addition to the procurement contract awards available to 
qualified HUBZone concerns, the HUBZone program will have other effects 
on the economy including the possibility of increased costs to the 
government. CBO anticipates that implementation of the HUBZone program 
will increase the incidence of sole source contracting. According to 
CBO, about 19 percent of federal procurement is awarded through sole 
source contracts. It is not possible to project any increase in sole 
source awards at this time, however, there might not be any increase in 
sole source awards at all. Instead, qualified HUBZone SBCs might 
receive sole source awards that would otherwise go to large businesses 
or other small businesses.
    CBO also estimates that implementing the HUBZone program would 
significantly increase discretionary spending for the federal agencies 
affected by the program. According to CBO, ``[s]uch costs could total 
tens of millions of dollars each year, but CBO cannot estimate such 
costs precisely.'' (143 Cong. Rec. S8976 (daily ed. September 9, 
1997)). CBO anticipated that these additional costs would stem from 
both additional administrative responsibilities for SBA and other 
federal agencies, as well as the likely increased use of sole source 
contracting. SBA is not in a position to shed much additional light on 
this subject. It has received an appropriation of $2 million in FY 1998 
to begin implementing the program and has requested $4 million for FY 
1999. No other cost information is available at the present time. 
Assessing whether the government will have a net cost from this program 
is very subjective. It is at least possible that increased competition 
from HUBZone SBCs will cause competing concerns to lower prices thereby 
reducing government procurement costs (perhaps substantially).
    Under all of these circumstances, SBA has determined that this 
proposed rule may constitute a major rule within the meaning of E.O. 
12866, and may have a significant impact on a substantial number of 
small entities within the meaning of the Regulatory Flexibility Act.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this proposed rule imposes new reporting or 
recordkeeping requirements on concerns applying to be certified as 
qualified HUBZone SBCs. The proposed rule requires such concerns to 
submit evidence that they meet the eligibility requirements set forth 
in the rule; once certified, in order to remain on the List a concern 
must self-certify annually to SBA that it remains qualified; and 
qualified HUBZone SBCs must notify SBA immediately of any material 
change in circumstances which could affect their eligibility.
    For purposes of Executive Order 12612, SBA certifies that this 
proposed rule has no federalism implications warranting the preparation 
of a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that it has 
drafted this rule, to the extent practicable, in accordance with the 
standards set forth in section 2 of that Order.

(Catalog of Federal Domestic Assistance Programs, No. 59.009)

List of Subjects

13 CFR Part 121

    Government procurement, Government property, Grant programs-
business, Individuals with disabilities, Loan programs-business, Small 
businesses.

13 CFR Part 125

    Government contracts; Government procurement; Reporting and 
recordkeeping requirements; Research; Small businesses; Technical 
assistance.

13 CFR Part 126

    Administrative practice and procedure, Government procurement, 
Reporting and recordkeeping requirements, Small business.
    Accordingly, for the reasons set forth above, SBA proposes to amend 
Title 13, Code of Federal Regulations (CFR), as follows:

PART 121--[AMENDED]

    1. The authority citation for 13 CFR Part 121 is revised to read as 
follows:

    Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15 
U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and Pub. L. 102-486, 
106 Stat. 2776, 3133.

    2. Section 121.401 is amended by deleting the word ``and'' before 
``Federal Small Disadvantaged Business Programs,'' adding a comma after 
``Federal Small Disadvantaged Business Programs,'' and adding the 
following language at the end of the sentence ``and SBA's HUBZone 
program''.
    3. Section 121.1001 is amended by redesignating paragraph (a)(5) as 
(a)(6) and by adding the following new paragraph (a)(5) to read as 
follows:


Sec. 121.1001  Who may initiate a size protest or a request for formal 
size determination?

    (c) Size Status Protests. * * *
    (5) For SBA's HUBZone program, the following entities may protest 
in connection with a particular HUBZone procurement:
    (i) Any concern that submits an offer for a specific HUBZone set-
aside contract;
    (ii) Any concern that submitted an offer in full and open 
competition and its opportunity for award will be affected by a price 
evaluation preference given a qualified HUBZone SBC;
    (iii) The contracting officer; and
    (iv) The Associate Administrator for Government Contracting, or 
designee.
* * * * *
    4. Section 121.1008 is amended by revising paragraph (a) to read as 
follows:


Sec. 121.1008  What happens after SBA receives a size protest or a 
request for a formal size determination?

    (a) When a size protest is received, the SBA Government Contracting 
Area Director, or designee, will promptly notify the contracting 
officer, the protested concern, and the protestor that a protest has 
been received. In the event the size protest pertains to a requirement 
involving SBA's HUBZone Program, the Government Contracting Area 
Director will advise the AA/HUB of receipt of the protest. In the event 
the size protest pertains to a requirement involving SBA's SBIR 
Program, the Government Contracting Area Director will advise the 
Assistant Administrator for Technology of the receipt of the protest. 
SBA will provide a copy of the protest to the protested concern along 
with a blank SBA Application for Small Business Size Determination (SBA 
Form 355) by certified mail, return receipt requested, or by any 
overnight delivery service that provides proof of receipt. SBA will ask 
the protested concern to respond to the allegations of the protestor.
* * * * *

PART 125--[AMENDED]

    5. The authority section for 13 CFR Part 125 is revised to read as 
follows:

    Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15 
U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 9792.


[[Page 16155]]


    6. Section 125.3 is amended by revising paragraphs (b) and (c) and 
by revising the last sentence of paragraph (d) to read as follows:


Sec. 125.3  Subcontracting assistance.

    (a) * * *
    (b) Upon determination of the successful subcontract offeror on a 
subcontract for which a small business, small disadvantaged business, 
and/or a HUBZone small business received a preference, but prior to 
award, the prime contractor must inform each unsuccessful offeror in 
writing of the name and location of the apparent successful offeror and 
if the successful offeror was a small business, small disadvantaged 
business, or HUBZone business. This applies to all subcontracts over 
$10,000.
    (c) SBA Commercial Market Representatives (CMRs) facilitate the 
process of matching large prime contractors with small, small 
disadvantaged, and HUBZone subcontractors. CMRs identify, develop, and 
market small businesses to the prime contractors and assist the small 
firms in obtaining subcontracts.
    (d) * * * Source identification means identifying those small, 
small disadvantaged, and HUBZone firms which can fulfill the needs 
assessed from the opportunity development process.
    7. Add a new part 126 to read as follows:

PART 126--HUBZONE PROGRAM

Subpart A--Provisions of General Applicability

Sec.
126.100  What is the purpose of the HUBZone program?
126.101  Which government departments or agencies are affected 
directly by the HUBZone program?
126.102  What is the effect of the HUBZone program on the section 
8(d) subcontracting program?
126.103  What definitions are important in the HUBZone program?

Subpart B--Requirements to be a Qualified Hubzone SBC

126.200  What requirements must a concern meet to receive SBA 
certification as a qualified HUBZone SBC?
126.201  For this purpose, who does SBA consider to own a HUBZone 
SBC?
126.202  Who does SBA consider to control a HUBZone SBC?
126.203  What size standards apply to HUBZone SBCs?
126.204  May a qualified HUBZone SBC have affiliates?
126.205  May WOBs, 8(a) participants or SDBs be qualified HUBZone 
SBCs?
126.206  May regular dealers be qualified HUBZone SBCs?
126.207  May a qualified HUBZone SBC have offices or facilities in 
another HUBZone or outside a HUBZone?

Subpart C--Certification

126.300  How may a concern be certified as a qualified HUBZone SBC?
126.301  Is there any other way for a concern to obtain 
certification?
126.302  When may a concern apply for certification?
126.303  Where must a concern file its certification?
126.304  What must a concern submit to SBA?
126.305  What format must the certification to SBA take?
126.306  How will SBA process the certification?
126.307  Where will SBA maintain the List of qualified HUBZone SBCs?
126.308  What happens if SBA inadvertently omits a qualified HUBZone 
SBC from the List?
126.309  How may a declined or de-certified concern seek 
certification at a later date?

Subpart D--Program Examinations

126.400  Who will conduct program examinations?
126.401  What will SBA examine?
126.402  When may SBA conduct program examinations?
126.403  May SBA require additional information from a HUBZone SBC?
126.404  What happens if SBA is unable to verify a qualified HUBZone 
SBC's eligibility?
126.405  What happens if SBA verifies eligibility?

Subpart E--Maintaining HUBZone Status

126.500  How does a qualified HUBZone SBC maintain HUBZone status?
126.501  What are a qualified HUBZone SBC's ongoing obligations to 
SBA?
126.502  Is there a limit to the length of time a qualified HUBZone 
SBC may be on the List?
126.503  When is a concern removed from the List?

Subpart F--Contractual Assistance

126.600  What are HUBZone contracts?
126.601  What additional requirements must a qualified HUBZone SBC 
meet to bid on a contract?
126.602  What additional requirements apply during contract 
performance?
126.603  Does HUBZone certification guarantee receipt of HUBZone 
contracts?
126.604  Who decides if a HUBZone contract opportunity exists?
126.605  What requirements are not available for HUBZone contracts?
126.606  May a contracting officer request that SBA release an 8(a) 
requirement for award as a HUBZone contract?
126.607  When must a contracting officer set aside a requirement for 
competition among qualified HUBZone SBCs?
126.608  What may the contracting officer do if an award cannot be 
made based on a set-aside for competition among qualified HUBZone 
SBCs?
126.609  What may the contracting officer do if a contract 
opportunity does not exist for competition among qualified HUBZone 
SBCs?
126.610  May SBA appeal a contracting officer's decision not to 
reserve a procurement for award as a HUBZone contract?
126.611  What is the process for such an appeal?
126.612  When may a contracting officer award sole source contracts 
to a qualified HUBZone SBC?
126.613  How does a price evaluation preference affect the bid of a 
qualified HUBZone SBC in full and open competition?
126.614  How must a contracting officer apply HUBZone and SDB price 
evaluation preferences in a full and open competition?
126.615  May a large business participate on a HUBZone contract?
126.616  What requirements must a joint venture satisfy to bid on a 
HUBZone contract?

Subpart G--Subcontracting Percentage Requirements

126.700  What are the subcontracting percentage requirements under 
this program?
126.701  Can these subcontracting percentage requirements change?
126.702  How can the subcontracting percentage requirements be 
changed?
126.703  What are the procedures for requesting changes in 
subcontracting percentages?

Subpart H--Protests

126.800  Who may protest the status of a qualified HUBZone SBC?
126.801  How does one submit a HUBZone status protest?
126.802  Who decides a HUBZone status protest?
126.803  How will SBA process a HUBZone status protest?
126.804  Will SBA decide all HUBZone status protests?
126.805  What are the procedures for appeals of HUBZone status 
determinations?

Subpart I--Penalties

126.900  What penalties may be imposed under this part?

    Authority: Pub.L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15 
U.S.C. 632(a).

Subpart A--Provisions of General Applicability


Sec. 126.100  What is the purpose of the HUBZone program?

    The purpose of the HUBZone program is to provide federal 
contracting assistance for qualified SBCs located in historically 
underutilized business zones in an effort to increase employment 
opportunities, investment, and economic development in such areas.

[[Page 16156]]

Sec. 126.101  Which government departments or agencies are affected 
directly by the HUBZone program?

    (a) Until September 30, 2000, the HUBZone program applies only to 
procurements by the following departments and agencies:
    (1) Department of Agriculture;
    (2) Department of Defense;
    (3) Department of Energy;
    (4) Department of Health and Human Services;
    (5) Department of Housing and Urban Development;
    (6) Department of Transportation;
    (7) Department of Veterans Affairs;
    (8) Environmental Protection Agency;
    (9) General Services Administration; and
    (10) National Aeronautics and Space Administration.
    (b) After September 30, 2000, the HUBZone program will apply to all 
federal departments and agencies which employ one or more contracting 
officers as defined by 41 U.S.C. 423(f)(5).


Sec. 126.102  What is the effect of the HUBZone program on the section 
8(d) subcontracting program?

    The HUBZone Act of 1997 amended the section 8(d) subcontracting 
program to include qualified HUBZone SBCs in the formal subcontracting 
plans described in Sec. 125.3 of this title.


Sec. 126.103  What definitions are important in the HUBZone program?

    Administrator means the Administrator of the United States Small 
Business Administration (SBA).
    AA/8(a)BD means SBA's Associate Administrator for 8(a) Business 
Development.
    AA/HUB means SBA's Associate Administrator for the HUBZone Program.
    ADA/GC&8(a)BD means SBA's Associate Deputy Administrator for 
Government Contracting and 8(a) Business Development.
    Certify means the process by which SBA determines that a HUBZone 
SBC is qualified for the HUBZone program and entitled to be included in 
SBA's ``List of Qualified HUBZone SBCs.''
    Citizen means a person born or naturalized in the United States. 
SBA does not consider holders of permanent visas and resident aliens to 
be citizens.
    Concern means a firm which satisfies the requirements in 
Secs. 121.105(a) and (b) of this title.
    Contract opportunity means a situation in which a requirement for a 
procurement exists, and either:
    (1) HUBZone contracts (including options) awarded by the 
contracting activity to HUBZone SBCs do not aggregate more than 3 
percent of all contract awards by that activity that fiscal year; or
    (2) The contracting activity has reached a HUBZone contracting 
level of 3 percent but the contracting activity also has met all other 
contracting goals applicable to SDBs and WOBs. See other definitions in 
this section for further details.
    County unemployment rate is the rate of unemployment for a county 
based on the most recent data available from the United States 
Department of Labor, Bureau of Labor Statistics. The appropriate data 
may be found in the DOL/BLS publication titled ``Supplement 2, 
Unemployment in States and Local Areas.'' This publication is available 
for public inspection at the Department of Labor, Bureau of Labor 
Statistics, Division of Local Area Unemployment Statistics located at 2 
Massachusetts Ave., NE, Room 4675, Washington DC 20212. A copy is also 
available at SBA, Office of AA/HUB, 409 3rd Street, SW, Washington DC 
20416.
    De-certify means the process by which SBA determines that a concern 
is no longer a qualified HUBZone SBC and removes that concern from its 
List.
    Employee means a person (or persons) employed by a HUBZone SBC on a 
full-time (or full-time equivalent), permanent basis. Full-time 
equivalent includes employees who work 30 hours per week or more. Full-
time equivalent also includes the aggregate of employees who work less 
than 30 hours a week, where the work hours of such employees add up to 
at least a 40 hour work week. The totality of the circumstances, 
including factors relevant for tax purposes, will determine whether 
persons are employees of a concern. Temporary employees, independent 
contractors or leased employees are not employees for these purposes.

    Example 1: 4 employees each work 20 hours per week; SBA will 
regard that circumstance as 2 full-time equivalent employees.
    Example 2: 1 employee works 20 hours per week and 1 employee 
works 15 hours per week; SBA will regard that circumstance as not a 
full-time equivalent.
    Example 3: 1 employee works 15 hours per week, 1 employee works 
10 hours per week, and 1 employee works 20 hours per week; SBA will 
regard that circumstance as 1 full-time equivalent employee.
    Example 4: 1 employee works 30 hours per week and 2 employees 
each work 15 hours per week; SBA will regard that circumstance as 1 
full-time equivalent employee.

    HUBZone means a historically underutilized business zone, which is 
an area located within one or more qualified census tracts, qualified 
non-metropolitan counties, or lands within the external boundaries of 
an Indian reservation. See other definitions in this section for 
further details.
    HUBZone small business concern (HUBZone SBC) means a concern that 
is small as defined by Sec. 126.203, is exclusively owned and 
controlled by persons who are United States citizens, and has its 
principal office located in a HUBZone.
    Indian reservation has the meaning used by the Bureau of Indian 
Affairs in 25 CFR 151.2(f). This definition refers generally to land 
over which a ``tribe'' has jurisdiction, and ``tribe'' includes Alaska 
Native entities under 25 CFR 81.1(w).
    Interested party means any concern that submits an offer for a 
specific HUBZone sole source or set-aside contract, any concern that 
submitted an offer in full and open competition and its opportunity for 
award will be affected by a price evaluation preference given a 
qualified HUBZone SBC, the contracting activity's contracting officer, 
or SBA.
    List refers to the database of qualified HUBZone SBCs that SBA has 
certified.
    Median household income has the meaning used by the Bureau of the 
Census, United States Department of Commerce, in its publication 
titled, ``1990 Census of Population, Social and Economic 
Characteristics,'' Report Number CP-2, pages B-14 and B-17. This 
publication is available for inspection at any local Federal Depository 
Library. For the location of a Federal Depository library, call toll-
free (888) 293-6498 or contact the Bureau of the Census, Income 
Statistics Branch, Housing and Economic Statistics Division, Washington 
DC 20233-8500.
    Metropolitan statistical area means an area as defined in section 
143(k)(2)(B) of the Internal Revenue Code of 1986. (title 26, United 
States Code).
    Non-metropolitan has the meaning used by the Bureau of the Census, 
United States Department of Commerce, in its publication titled, ``1990 
Census of Population, Social and Economic Characteristics,'' Report 
Number CP-2, page A-9. This publication is available for inspection at 
any local Federal Depository Library. For the location of a Federal 
Depository Library, call toll-free (888) 293-6498 or contact the Bureau 
of the Census, Population Distribution Branch, Population Division, 
Washington DC 20233-8800.
    Person means a natural person. Pursuant to the Alaska Native Claims 
Settlement Act, 43 U.S.C. 1626(e), Alaska Native Corporations and any

[[Page 16157]]

direct or indirect subsidiary corporations, joint ventures, and 
partnerships of a Native Corporation are deemed to be owned and 
controlled by Natives, and are thus persons.
    Principal office means the location where the greatest number of 
the concern's employees at any one location perform their work.
    Qualified census tract has the meaning given that term in section 
42(d)(5)(C)(ii)(I) of the Internal Revenue Code (title 26, United 
States Code).
    Qualified HUBZone SBC means a HUBZone SBC that SBA certifies as 
qualified for federal contracting assistance under the HUBZone program.
    Qualified non-metropolitan county means any county that:
    (1) Based on the most recent data available from the Bureau of the 
Census of the Department of Commerce--
    (i) Is not located in a metropolitan statistical area; and
    (ii) In which the median household income is less than 80 percent 
of the non-metropolitan State median household income; or
    (2) Based on the most recent data available from the Secretary of 
Labor, has an unemployment rate that is not less than 140 percent of 
the statewide average unemployment rate for the State in which the 
county is located.
    Reside means to live in a primary residence at a place for at least 
180 days, or as a currently registered voter, and with intent to live 
there indefinitely.
    Small disadvantaged business (SDB) means a concern that is small 
pursuant to part 121 of this title, and is owned and controlled by 
socially and economically disadvantaged individuals, tribes, Alaska 
Native Corporations, Native Hawaiian Organizations, or Community 
Development Corporations.
    Statewide average unemployment rate is the rate based on the most 
recent data available from the Bureau of Labor Statistics, United 
States Department of Labor, Division of Local Area Unemployment 
Statistics, 2 Massachusetts Ave., NE, Room 4675, Washington, DC 20212. 
A copy is also available at SBA, Office of AA/HUB, 409 3rd Street, SW, 
Washington DC 20416.
    Women-owned business (WOB) means a concern that is small pursuant 
to part 121 of this title, and is at least 51 percent owned and 
controlled by women.

Subpart B--Requirements to be a Qualified HUBZone SBC


Sec. 126.200  What requirements must a concern meet to receive SBA 
certification as a qualified HUBZone SBC?

    (a) The concern must be a HUBZone SBC as defined in Sec. 126.103; 
and
    (b) At least 35 percent of the concern's employees must reside in a 
HUBZone. When determining the percentage of employees that reside in a 
HUBZone, if the percentage results in a fraction round up to the 
nearest whole number.

    Example 1: A concern has 25 employees, 35 percent or 8.75 
employees must reside in a HUBZone. Thus, 9 employees must reside in 
a HUBZone.
    Example 2: A concern has 95 employees, 35 percent or 33.25 
employees must reside in a HUBZone. Thus, 34 employees must reside 
in a HUBZone.


Sec. 126.201  For this purpose, who does SBA consider to own a HUBZone 
SBC?

    An owner of a HUBZone SBC is a person who owns any legal or 
equitable interest in such HUBZone SBC. More specifically:
    (a) Corporations. SBA will consider any person who owns stock, 
whether voting or non-voting, to be an owner. SBA will consider options 
to purchase stock to have been exercised. SBA will consider the right 
to convert debentures into voting stock to have been exercised.
    (b) Partnerships. SBA will consider a partner, whether general or 
limited, to be an owner if that partner owns an equitable interest in 
the partnership.
    (c) Sole proprietorships. The proprietor is the owner.
    (d) Limited liability companies. SBA will consider each member to 
be an owner of a limited liability company.

    Example 1: All stock of a corporation is owned by U.S. citizens. 
The president of the corporation, a non-U.S. citizen, owns no stock 
in the corporation, but owns options to purchase stock in the 
corporation. SBA will consider the option exercised, and the 
corporation is not eligible to be a qualified HUBZone SBC.
    Example 2: A partnership is owned 99.9 percent by persons who 
are U.S. citizens, and 0.1 percent by someone who is not. The 
partnership is not eligible because it is not 100 percent owned by 
U.S. citizens.


Sec. 126.202  Who does SBA consider to control a HUBZone SBC?

    Control means both the day-to-day management and long-term 
decisionmaking authority for the HUBZone SBC. Many persons share 
control of a concern, including each of those occupying the following 
positions: officer, director, general partner, managing partner, and 
manager. In addition, key employees who possess critical licenses, 
expertise or responsibilities related to the concern's primary economic 
activity may share significant control of the concern. SBA will 
consider the control potential of such key employees on a case by case 
basis.


Sec. 126.203  What size standards apply to HUBZone SBCs?

    (a) At time of application for certification. A HUBZone SBC must 
meet SBA's size standards for its primary industry classification as 
defined in Sec. 121.201 of this title. If SBA is unable to verify that 
a concern is small, SBA may deny the concern status as a qualified 
HUBZone SBC, or SBA may request a formal size determination from the 
responsible Government Contracting Area Director or designee.
    (b) At time of contract offer. A HUBZone SBC must be small within 
the size standard corresponding to the SIC code assigned to the 
contract.


Sec. 126.204  May a qualified HUBZone SBC have affiliates?

    Yes. A qualified HUBZone SBC may have affiliates so long as the 
affiliates also are qualified HUBZone SBCs, 8(a) participants, or WOBs.


Sec. 126.205  May WOBs, 8(a) participants or SDBs be qualified HUBZone 
SBCs?

    Yes. WOBs, 8(a) participants, and SDBs can qualify as HUBZone SBCs 
if they meet the additional requirements in this part.


Sec. 126.206  May regular dealers be qualified HUBZone SBCs?

    Yes. Regular dealers (also known as non-manufacturers) may 
certified as qualified HUBZone SBCs if they meet all the requirements 
set forth in Sec. 126.200 and they can demonstrate that there are 
manufacturers located in a HUBZone who can provide the product required 
in the contract. The manufacturer must be located in a HUBZone and must 
meet the employee residence requirement set forth in Sec. 126.200(b). 
Additional requirements that regular dealers must meet to bid on a 
contract are set out in Sec. 126.601(d).


Sec. 126.207  May a qualified HUBZone SBC have offices or facilities in 
another HUBZone or outside a HUBZone?

    Yes. A qualified HUBZone SBC may have offices or facilities in 
another HUBZone or even outside a HUBZone and still be a qualified 
HUBZone SBC. However, in order to qualify, the concern's principal 
office must be located in a HUBZone.

[[Page 16158]]

Subpart C--Certification


Sec. 126.300  How may a concern be certified as a qualified HUBZone 
SBC?

    A concern must apply to SBA for certification. The application must 
include a representation that it meets the eligibility requirements 
described in Sec. 126.200 and must submit relevant supporting 
information. SBA will consider the information provided by the concern 
in order to determine whether the concern qualifies. SBA, in its sole 
discretion, may rely solely upon the information submitted to establish 
eligibility, or may request additional information, or may verify the 
information before making a determination. If SBA determines that the 
concern is a qualified HUBZone SBC, it will issue a certification to 
that effect and add the concern to the List.


Sec. 126.301  Is there any other way for a concern to obtain 
certification?

    No. SBA certification is the only way to qualify for HUBZone 
program status.


Sec. 126.302  When may a concern apply for certification?

    A concern may apply to SBA and submit the required information 
whenever it can represent that it meets the eligibility requirements, 
subject to Sec. 126.309. All representations and supporting information 
contained in the application must be complete and accurate as of the 
date of submission. The application must be signed by an officer of the 
concern who is authorized to represent the concern.


Sec. 126.303  Where must a concern file its certification?

    The concern must file its certification with the AA/HUB, U.S. Small 
Business Administration, 409 Third Street, SW, Washington, DC 20416.


Sec. 126.304  What must a concern submit to SBA?

    (a) To be certified by SBA as a qualified HUBZone SBC, a concern 
must represent to SBA that under the definitions set forth in 
Sec. 126.103:
    (1) It is a small business concern that is both owned only by 
United States citizens and controlled only by United States citizens;
    (2) Its principal office is located in a HUBZone;
    (3) Not less than 35 percent of its employees reside in a HUBZone;
    (4) It will use good faith efforts to ensure that a minimum 
percentage of 35 percent of its employees continue to reside in a 
HUBZone so long as SBA certifies it as qualified and during the 
performance of any contract awarded to it on the basis of its status as 
a qualified HUBZone SBC; and
    (5) It will ensure that, where it enters into subcontracts to aid 
in performance of any prime contracts awarded to it because of its 
status as a qualified HUBZone SBC, it will incur not less than a 
certain minimum percentage of certain contract costs for itself or 
subcontractor qualified HUBZone SBCs, as follows:
    (i) If a service contract, 50 percent of the cost of the contract 
performance incurred for personnel on the concern's employees or on the 
employees of other qualified HUBZone SBCs;
    (ii) If a contract for supplies not from a regular dealer in such 
supplies, 50 percent of the manufacturing cost (excluding the cost of 
materials) on performing the contract in a HUBZone;
    (iii) If a contract for general construction, 15 percent of the 
cost of contract performance incurred for personnel on the concern's 
employees or the employees of other qualified HUBZone SBCs; and
    (iv) If a contract for special trade construction, 25 percent of 
the cost of contract performance incurred for personnel on the 
concern's employees or the employees of other qualified HUBZone SBCs.
    (b) If the concern is applying for HUBZone status based on a 
location within the external boundaries of an Indian reservation, the 
concern must submit with its application for certification official 
documentation from the appropriate Bureau of Indian Affairs (BIA) Land 
Titles and Records Office with jurisdiction over the concern's area, 
confirming that it is located within the external boundaries of an 
Indian reservation. BIA lists the Land Titles and Records Offices and 
their jurisdiction in 25 CFR 150.4 and 150.5.
    (c) In addition to these representations, the concern must submit 
the forms, attachments, and any additional information required by SBA.


Sec. 126.305  What format must the certification to SBA take?

    A concern must submit the required information in either a written 
or electronic application form provided by SBA. An electronic 
application must be sufficiently authenticated for enforcement 
purposes.


Sec. 126.306  How will SBA process the certification?

    (a) The AA/HUB is authorized to approve or decline certifications. 
SBA will receive and review all certifications, but SBA will not 
process incomplete packages. SBA will make its determination within 30 
calendar days after receipt of a complete package whenever practicable. 
The decision of the AA/HUB is the final agency decision.
    (b) SBA will base its certification on facts existing on the date 
of submission. SBA, in its sole discretion, may request additional 
information or clarification of information contained in the submission 
at any time.
    (c) If SBA approves the application, SBA will send a written notice 
to the concern and automatically enter it on the List described in 
Sec. 126.307.
    (d) A decision to deny eligibility must be in writing and state the 
specific reasons for denial.


Sec. 126.307  Where will SBA maintain the List of qualified HUBZone 
SBCs?

    SBA maintains the List at its Internet website at http://
www.sba.gov/HUB. Requesters also may obtain a copy of the List by 
writing to the AA/HUB at U.S. Small Business Administration, 409 Third 
Street, SW, Washington, DC 20416 or via e-mail at [email protected].


Sec. 126.308  What happens if SBA inadvertently omits a qualified 
HUBZone SBC from the List?

    A HUBZone SBC that has received SBA's notice of certification, but 
is not on the List within 10 business days thereafter should 
immediately notify the AA/HUB in writing at U.S. Small Business 
Administration, 409 Third Street, SW, Washington, DC 20416 or via e-
mail at [email protected]. The concern must appear on the List to be 
eligible for HUBZone contracts.


Sec. 126.309  How may a declined or de-certified concern seek 
certification at a later date?

    A concern that SBA has declined or de-certified may seek 
certification no sooner than one year from the date of decline or de-
certification if it believes that it has overcome all reasons for 
decline through changed circumstances, and is otherwise eligible.

Subpart D--Program Examinations


Sec. 126.400  Who will conduct program examinations?

    SBA field staff or others designated by the AA/HUB will conduct 
program examinations.


Sec. 126.401  What will SBA examine?

    (a) Eligibility. Examiners will verify that the qualified HUBZone 
SBC met the requirements set forth in Sec. 126.200 at the time of its 
application for certification and at the time of examination.
    (b) Scope of review. Examiners may review any information related 
to the

[[Page 16159]]

HUBZone SBC qualifying requirements, including documentation related to 
the location and ownership of the concern and the employee percentage 
requirements. The qualified HUBZone SBC must document each employee's 
residence address through employment records. The examiner also may 
review property tax, public utility or postal records, and other 
relevant documents. The concern must retain documentation demonstrating 
satisfaction of the employee residence and other qualifying 
requirements for 6 years from date of submission to SBA.


Sec. 126.402  When may SBA conduct program examinations?

    SBA may conduct a program examination at the time the concern 
certifies to SBA that it meets the requirements of the program or at 
any other time while the concern is on the List or subsequent to 
receipt of HUBZone contract benefits. For example, SBA may conduct a 
program examination to verify eligibility upon notification of a 
material change under Sec. 126.501. Additionally, SBA, in its sole 
discretion, may perform random program examinations to determine 
continuing compliance with program requirements, or it may conduct a 
program examination in response to credible information calling into 
question the HUBZone status of a small business concern. For protests 
to the HUBZone status of a small business concern in regard to a 
particular procurement, see Sec. 126.800.


Sec. 126.403  May SBA require additional information from a HUBZone 
SBC?

    Yes. At the discretion of the AA/HUB, SBA has the right to require 
that a HUBZone SBC submit additional information as part of the 
certification process, or at any time thereafter. If SBA finds a 
HUBZone SBC is not qualified, SBA will de-certify the concern and 
delete its name from the List. SBA may choose to pursue penalties 
against any concern that has made material misrepresentations in its 
submissions to SBA in accordance with Sec. 126.900.


Sec. 126.404  What happens if SBA is unable to verify a qualified 
HUBZone SBC's eligibility?

    (a) Authorized SBA headquarters personnel will first notify the 
concern in writing of the reasons why it is no longer eligible.
    (b) The concern will have 10 business days to respond to the 
notification.
    (c) The AA/HUB will consider the reasons for proposed de-
certification and the concern's response before making a decision 
whether to de-certify.


Sec. 126.405  What happens if SBA verifies eligibility?

    If SBA verifies that the concern is eligible, it will amend the 
date of certification on the List to reflect the date of verification.

Subpart E--Maintaining HUBZone Status


Sec. 126.500  How does a qualified HUBZone SBC maintain HUBZone status?

    (a) Any qualified HUBZone SBC wishing to remain on the List must 
self-certify annually to SBA that it remains a qualified HUBZone SBC. 
There is no limit to the length of time a concern may remain on the 
List so long as it continues to satisfy SBA that it meets all 
eligibility requirements set forth in Sec. 126.200.
    (b) Concerns wishing to remain in the program without any 
interruption must self-certify their continued eligibility to SBA 
within 30 calendar days after the one-year anniversary of their date of 
certification. Failure to do so will result in SBA de-certifying the 
concern. The concern then would have to submit a new application for 
certification under Secs. 126.300 through 126.306.
    (c) The self-certification to SBA must be in writing and must 
represent that the circumstances relative to eligibility which existed 
on the date of certification showing on the List have not materially 
changed.


Sec. 126.501  What are a qualified HUBZone SBC's ongoing obligations to 
SBA?

    The concern must immediately notify SBA of any material change 
which could affect its eligibility. The notification must be in 
writing, and must be sent or delivered to the AA/HUB to comply with 
this requirement. Failure of a qualified HUBZone SBC to notify SBA of 
such a material change will result in immediate de-certification and 
removal from the List, and SBA may seek the imposition of penalties 
under Sec. 126.900. If the concern later becomes eligible for the 
program, the concern must apply for certification pursuant to 
Secs. 126.300 through 126.309 and must include with its application for 
certification a full explanation of why it failed to notify SBA of the 
material change. If SBA is not satisfied with the explanation provided, 
SBA may decline to certify the concern pursuant to Sec. 126.306.


Sec. 126.502  Is there a limit to the length of time a qualified 
HUBZone SBC may be on the List?

    (a)There is no limit to the length of time a qualified HUBZone SBC 
may remain on the List so long as it continues to follow the provisions 
of Secs. 126.500, 126.501, and 126.503, and so long as the HUBZone in 
which it is located remains a HUBZone.
    (b) In the event a HUBZone ceases to meet the definition of a 
HUBZone, qualified HUBZone SBCs may remain on the List for a period of 
3 years from the date of the change in the status of the HUBZone, if 
they continue to meet all the eligibility requirements set forth in 
this part.


Sec. 126.503  When is a concern removed from the List?

    If SBA determines at any time that a HUBZone SBC is not qualified, 
SBA may de-certify the HUBZone SBC, remove the concern from the List, 
and seek imposition of penalties pursuant to Sec. 126.900. An adverse 
finding in the resolution of a protest also may result in de-
certification and removal from the List, and the imposition of 
penalties pursuant to Sec. 126.900. Failure to notify SBA of a material 
change which could affect a concern's eligibility will result in 
immediate de-certification, removal from the List, and SBA may seek the 
imposition of penalties under Sec. 126.900.

Subpart F--Contractual Assistance


Sec. 126.600  What are HUBZone contracts?

    HUBZone contracts are contracts awarded to a qualified HUBZone SBC 
through any of the following procurement methods:
    (a) Sole source awards to qualified HUBZone SBCs;
    (b) Set-aside awards based on competition restricted to qualified 
HUBZone SBCs; or
    (c) Awards to qualified HUBZone SBCs through full and open 
competition after a price evaluation preference in favor of qualified 
HUBZone SBCs.


Sec. 126.601  What additional requirements must a qualified HUBZone SBC 
meet to bid on a contract?

    (a) In order to submit an offer on a specific HUBZone contract, a 
concern must be small under the size standard corresponding to the SIC 
code assigned to the contract.
    (b) At the time a qualified HUBZone SBC submits its offer on a 
specific contract, it must certify to the contracting officer that:
    (1) It is a qualified HUBZone SBC which appears on SBA's List;
    (2) there has been no material change in its circumstances since 
the date of certification shown on the List which could affect its 
HUBZone eligibility; and
    (3) It is small under the SIC code assigned to the procurement.
    (c) If bidding as a joint venture, each qualified HUBZone SBC must 
make the

[[Page 16160]]

certifications in paragraphs (b)(1), (2), and (3) separately under its 
own name.
    (d) A qualified HUBZone SBC which is a regular dealer may submit an 
offer on a contract for supplies if it meets the requirements under the 
non-manufacturer rule as defined in Sec. 121.406(b) of this title and 
if the small manufacturer is located in a HUBZone and meets the 
employee residence requirement of Sec. 126.200(b). The Administrator or 
designee may waive the requirement set forth in Sec. 121.406(b)(1)(iii) 
of this title, but the manufacturer must be located in a HUBZone and 
must meet the employee residence requirement of Sec. 126.200(b). The 
procedures for waivers of the non-manufacturer rule are set out in 
Secs. 121.1201 through 121.1205 of this title.


Sec. 126.602  What additional requirements apply during contract 
performance?

    (a) The qualified HUBZone SBC must attempt to maintain the required 
percentage of employees who reside in a HUBZone during the performance 
of any contract awarded to the concern on the basis of HUBZone status. 
``Attempt to maintain'' means making substantive and documented efforts 
to maintain that percentage such as written offers of employment, 
published advertisements seeking employees, and attendance at job 
fairs. HUBZone contracts are described more fully in Sec. 126.600.
    (b) During the performance of a contract for procurement of 
supplies (other than a procurement from a regular dealer in such 
supplies), the qualified HUBZone SBC must spend at least 50 percent of 
the manufacturing cost (excluding the cost of materials) on performing 
the contract in a HUBZone. See Sec. 126.700(a)(4).
    (c) Enforcement of paragraphs (a) and (b) of this section will be 
the responsibility of the contracting officer and violation of either 
requirement may be grounds for termination of the contract at the 
election of the contracting officer.


Sec. 126.603  Does HUBZone certification guarantee receipt of HUBZone 
contracts?

    No. Qualified HUBZone SBCs should market their capabilities to 
appropriate procuring agencies in order to increase their prospects of 
having a requirement set aside for HUBZone contract award.


Sec. 126.604  Who decides if a HUBZone contract opportunity exists?

    The contracting officer for the contracting activity makes this 
decision.


Sec. 126.605  What requirements are not available for HUBZone 
contracts?

    A contracting activity may not make a requirement available for a 
HUBZone contract if:
    (a) The contracting activity otherwise would fulfill that 
requirement through award to Federal Prison Industries, Inc. under 18 
U.S.C. 4124 or 4125, or to Javits-Wagner-O'Day Act participating non-
profit agencies for the blind and severely disabled, under 41 U.S.C. 46 
et seq., as amended; or
    (b) An 8(a) participant currently is performing that requirement or 
SBA has accepted that requirement for performance under the authority 
of the section 8(a) program, unless SBA has consented to release of the 
requirement from the 8(a) program; or
    (c) That requirement has an estimated value of between $2,500 and 
$100,000 and otherwise would be procured under simplified acquisition 
procedures; or
    (d) The requirement does not meet the definition of contract 
opportunity in Sec. 126.103. This provision does not apply to awards 
made to a qualified HUBZone SBC as a result of a price evaluation 
preference in a full and open competition.


Sec. 126.606  May a contracting officer request that SBA release an 
8(a) requirement for award as a HUBZone contract?

    Yes. However, SBA will grant its consent only where neither the 
incumbent nor any other 8(a) participant(s) can perform the 
requirement, and where the 8(a) program will not be adversely affected. 
The SBA official authorized to grant such consent is the AA/8(a)BD.


Sec. 126.607  When must a contracting officer set aside a requirement 
for competition among qualified HUBZone SBCs?

    (a) The contracting officer first must review a requirement to 
determine whether it is excluded from HUBZone contracting or is not a 
``contract opportunity,'' pursuant to Sec. 126.605. If the requirement 
is not excluded and is not a contract opportunity, then the contracting 
officer must set aside the requirement for competition restricted to 
qualified HUBZone SBCs if the contracting officer:
    (1) Has a reasonable expectation that at least 2 qualified HUBZone 
SBCs will submit offers; and
    (2) Determines that award can be made at a fair market price.
    (b) The contracting officer must review SBA's List of qualified 
HUBZone SBCs to determine whether there are 2 or more qualified HUBZone 
SBCs available to perform the requirement.


Sec. 126.608  What may the contracting officer do if an award cannot be 
made based on a set-aside for competition among qualified HUBZone SBCs?

    If the contracting officer sets the requirement aside for 
competition restricted to qualified HUBZone SBCs, and
    (a) If the contracting officer only receives one acceptable offer 
from a responsible qualified HUBZone SBC, the contracting officer may 
make an award to that concern on a sole source basis; or
    (b) If the contracting officer receives no acceptable offers from 
responsible qualified HUBZone SBCs, the contracting officer may 
withdraw the set-aside and re-solicit the requirement, if still valid, 
as an 8(a) contract or a small business set-aside. If procurement 
through the 8(a) program or through a small business set-aside is not 
possible, the contracting officer may re-solicit the procurement 
through full and open competition.


Sec. 126.609  What may the contracting officer do if a contracting 
opportunity does not exist for competition among qualified HUBZone 
SBCs?

    The contracting officer may make an award under the 8(a) program on 
either a sole source or competitive basis, make award to a qualified 
HUBZone SBC on a sole source award basis, or utilize a small business 
set-aside, in that order of precedence. If the criteria are not met for 
any of these special contracting authorities, then the contracting 
officer may solicit the procurement through full and open competition.


Sec. 126.610  May SBA appeal a contracting officer's decision not to 
reserve a procurement for award as a HUBZone contract?

    The Administrator may appeal a contracting officer's decision not 
to make a particular requirement available for award as a HUBZone sole 
source or a HUBZone set-aside contract.


Sec. 126.611  What is the process for such an appeal?

    (a) Notice of appeal. SBA must notify the contracting officer 
within 5 business days of SBA's receipt of the contracting officer's 
decision if the Administrator intends to appeal the decision. The 
contracting officer must notify SBA's procurement center representative 
or the AA/HUB as soon as practicable after a decision to not make an 
award to a qualified HUBZone SBC on either a HUBZone sole source or 
set-aside basis provided the decision was for reasons other than the 
applicability of Sec. 126.605.
    (b) Suspension of action. Upon receipt of notice of SBA's intent to 
appeal, the

[[Page 16161]]

contracting officer must suspend further action regarding the 
procurement until the head of the contracting activity issues a written 
decision on the appeal, unless the head of the contracting activity 
makes a written determination that urgent and compelling circumstances 
which significantly affect the interests of the United States compel 
award of the contract.
    (c) Deadline for appeal. Within 15 business days of SBA's 
notification to the contracting officer, SBA must file its formal 
appeal with the head of the contracting activity or that agency may 
consider the appeal withdrawn.
    (d) Decision. The contracting activity must specify in writing the 
reasons for a denial of an appeal brought under this section.


Sec. 126.612  When may a contracting officer award sole source 
contracts to a qualified HUBZone SBC?

    A contracting officer may award a sole source contract to a 
qualified HUBZone SBC only if the contracting officer determines that
    (a) None of the provisions of Sec. 126.605 apply;
    (b) The anticipated award price of the contract, including options, 
will not exceed:
    (1) $5,000,000 for a requirement within the SIC codes for 
manufacturing; or
    (2) $3,000,000 for a requirement within all other SIC codes;
    (c) Two or more qualified HUBZone SBCs are not likely to submit 
offers;
    (d) A qualified HUBZone SBC is a responsible contractor able to 
perform the contract; and
    (e) Contract award can be made at a fair and reasonable price.


Sec. 126.613  How does a price evaluation preference affect the bid of 
a qualified HUBZone SBC in full and open competition?

    Where a contracting officer will award a contract on the basis of 
full and open competition, the contracting officer must deem the price 
offered by a qualified HUBZone SBC to be lower than the price offered 
by another offeror (other than another small business concern) if the 
price offered by the qualified HUBZone SBC is not more than 10 percent 
higher than the price offered by the otherwise lowest, responsive, and 
responsible offeror.

    Example: In a full and open competition, a qualified HUBZone SBC 
submits an offer of $102; another small business concern submits an 
offer of $100; and a large business submits an offer of $93. The 
lowest, responsive, responsible offeror would be the large business. 
However, the contracting officer must consider whether to apply the 
HUBZone price evaluation preference. If the qualified HUBZone SBC's 
offer is not more than 10 percent higher than the large business's 
offer, the contracting officer must deem the qualified HUBZone SBC's 
price as lower than the price of the large business. In this 
example, the qualified HUBZone SBC's price is not more than 10 
percent higher than the large business's price and, consequently, 
the qualified HUBZone SBC displaces the large business as the 
lowest, responsive, and responsible offeror.


Sec. 126.614  How must a contracting officer apply HUBZone and SDB 
price evaluation preferences in a full and open competition?

    A contracting officer may receive offers from both qualified 
HUBZone SBCs and SDB concerns, or from concerns that qualify as both, 
during a full and open competition. First, the contracting officer must 
apply the SDB price evaluation preference described in 10 U.S.C. 2323 
to all appropriate offerors. Second, the contracting officer must apply 
the HUBZone price evaluation preference as described in Sec. 126.613 to 
all appropriate offerors. A contracting officer must apply both price 
preferences to concerns that qualify as both qualified HUBZone SBCs and 
SDB concerns.

    Example: In a full and open competition, a qualified HUBZone SBC 
(but not an SDB) submits an offer of $102; an SDB (but not a 
qualified HUBZone SBC) submits an offer of $107; and a large 
business submits an offer of $93. The contracting officer first 
applies the SDB price evaluation preference and adds 10 percent to 
the qualified HUBZone SBC's offer thereby making that offer $112.2, 
and to the large business's offer thereby making that offer $102.3. 
As a result, the large business is the lowest, responsive, and 
responsible offeror. Now the contracting officer applies the HUBZone 
preference and, since the qualified HUBZone SBC's offer is not more 
than 10 percent higher than the large business's offer, the 
contracting officer must deem the price offered by the qualified 
HUBZone SBC to be lower than the price offered by the large 
business.


Sec. 126.615  May a large business participate on a HUBZone contract?

    A large business may not participate as a prime contractor on a 
HUBZone award but may participate as a subcontractor to an otherwise 
qualified HUBZone SBC, subject to the subcontracting limitations set 
forth in Sec. 126.700.


Sec. 126.616  What requirements must a joint venture satisfy to bid on 
a HUBZone contract?

    A joint venture may bid on a HUBZone contract if the joint venture 
meets all of the following requirements:
    (a) HUBZone joint venture. A qualified HUBZone SBC may enter into a 
joint venture with one or more other qualified HUBZone SBCs, 8(a) 
participants, or WOBs for the purpose of performing a specific HUBZone 
contract.
    (b) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million.
    (c) Performance of work. The aggregate of the qualified HUBZone 
SBCs to the joint venture, not each concern separately, must perform 
the applicable percentage of work required by Sec. 126.700.

Subpart G--Subcontracting Percentage Requirements


Sec. 126.700  What are the subcontracting percentage requirements under 
this program?

    (a) Subcontracting percentage requirements. A qualified HUBZone SBC 
can subcontract part of a HUBZone contract, provided:
    (1) In the case of a contract for services (except construction), 
the qualified HUBZone SBC spends at least 50 percent of the cost of the 
contract performance incurred for personnel on the concern's employees 
or on the employees of other qualified HUBZone SBCs;
    (2) In the case of a contract for general construction, the 
qualified HUBZone SBC spends at least 15 percent of the cost of 
contract performance incurred for personnel on the concern's employees 
or the employees of other qualified HUBZone SBCs;
    (3) In the case of a contract for construction by special trade 
contractors, the qualified HUBZone SBC spends at least 25 percent of 
the cost of contract performance incurred for personnel on the 
concern's employees or the employees of other qualified HUBZone SBCs; 
or
    (4) In the case of a contract for procurement of supplies (other 
than a procurement from a regular dealer in such supplies), the 
qualified HUBZone SBC spends at least 50 percent of the manufacturing 
cost (excluding the cost of materials) on performing the contract in a 
HUBZone. One or more qualified HUBZone SBCs may combine to meet this 
subcontracting percentage requirement.
    (b) Definitions. Many definitions applicable to this section can be 
found in Sec. 125.6 of this title.


Sec. 126.701  Can these subcontracting percentage requirements change?

    Yes. The Administrator may change the subcontracting percentage 
requirements if the Administrator determines that such action is 
necessary to reflect conventional industry practices.

[[Page 16162]]

Sec. 126.702  How can the subcontracting percentage requirements be 
changed?

    Representatives of a national trade or industry group (as defined 
by two-digit Major Group industry codes) may request a change in 
subcontracting percentage requirements for that industry. Changes in 
subcontracting percentage requirements may be requested only for 
categories defined by two-digit Major Group industry codes in the 
Standard Industry Classification (SIC) Code system. SBA will not 
consider requests from anyone other than a representative of a national 
trade or industry group or requests for changes for four-digit SIC Code 
categories.


Sec. 126.703  What are the procedures for requesting changes in 
subcontracting percentages?

    (a) Format of request. There is no prescribed format, but the 
requester should try to demonstrate to the Administrator that a change 
in percentage is necessary to reflect conventional industry practices, 
and should support its request with information including, but not 
limited to:
    (1) Information relative to the economic conditions and structure 
of the entire national industry;
    (2) Market data, technical changes in the industry and industry 
trends;
    (3) Specific reasons and justifications for the change in the 
subcontracting percentage;
    (4) The effect such a change would have on the Federal procurement 
process; and
    (5) Information demonstrating how the proposed change would promote 
the purposes of the HUBZone Program.
    (b) Notice to public. Upon an adequate preliminary showing to SBA, 
SBA will publish in the Federal Register a notice of its receipt of a 
request that it consider a change in the subcontracting percentage 
requirements for a particular industry for HUBZone contracts. The 
notice will identify the group making the request, and give the public 
an opportunity to submit to the Administrator information and arguments 
in both support and opposition.
    (c) Comments. Once SBA has published a notice in the Federal 
Register, it will afford a period of not less than 60 days for public 
comment.
    (d) Decision. SBA will render its decision after the close of the 
comment period. If it decides against a change, it will publish notice 
of its decision in the Federal Register. Concurrent with the notice, 
SBA will advise the requester of its decision in writing. If it decides 
in favor of a change, SBA will propose an appropriate change to this 
part in accordance with proper rulemaking procedures.

Subpart H--Protests


Sec. 126.800  Who may protest the status of a qualified HUBZone SBC?

    (a) For sole source procurements. SBA or the contracting officer 
may protest the apparent successful offeror's qualified HUBZone SBC 
status.
    (b) For all other procurements. Any interested party may protest 
the apparent successful offeror's qualified HUBZone SBC status.


Sec. 126.801  How does one submit a HUBZone status protest?

    (a) General. The protest procedures described in this part are 
separate from those governing size protests and appeals. All protests 
relating to whether a qualified HUBZone SBC is a ``small'' business for 
purposes of any Federal program are subject to part 121 of this title. 
If a protest includes both the size of the HUBZone SBC and whether the 
concern meets the HUBZone qualifying requirements set forth in 
Sec. 126.200, SBA will process each protest concurrently, under the 
procedures set forth in part 121 of this title and this part.
    (b) Format. Protests must be in writing and state all specific 
grounds for the protest. A protest merely asserting that the protested 
concern is not a qualified HUBZone SBC, without setting forth specific 
facts or allegations, is insufficient.
    (c) Filing. (1) An unsuccessful offeror must submit its written 
protest to the contracting officer.
    (2) A contracting officer and SBA must submit their protest to the 
AA/HUB.
    (3) Protestors may deliver their protests in person, by facsimile, 
by express delivery service, or by U.S. mail (postmarked within the 
applicable time period).
    (d) Timeliness. (1) An interested party must submit its protest by 
close of business on the fifth business day after bid opening (in 
sealed bid acquisitions) or by close of business on the fifth business 
day after notification by the contracting officer of the apparent 
successful offeror (in negotiated acquisitions).
    (2) Any protest received after the time limits is untimely.
    (3) Any protest received prior to bid opening or notification of 
intended award, whichever applies, is premature.
    (e) Referral to SBA. The contracting officer must forward to SBA 
any non-premature protest received, notwithstanding whether he or she 
believes it is sufficiently specific or timely. The contracting officer 
must send protests to AA/HUB, U.S. Small Business Administration, 409 
3rd Street, SW, Washington, DC 20416.


Sec. 126.802  Who decides a HUBZone status protest?

    The AA/HUB or designee will determine whether the concern has 
qualified HUBZone status.


Sec. 126.803  How will SBA process a HUBZone status protest?

    (a) Notice of receipt of protest. (1) SBA immediately will notify 
the contracting officer and the protestor of the date SBA receives a 
protest and whether SBA will process the protest or dismiss it in 
accordance with Sec. 126.804.
    (2) If SBA determines the protest is timely and sufficiently 
specific, SBA will notify the protested HUBZone SBC of the protest and 
the identity of the protestor. The protested HUBZone SBC may submit 
information responsive to the protest within 5 business days.
    (b) Time period for determination. (1) SBA will determine the 
HUBZone status of the protested HUBZone SBC within 15 business days 
after receipt of a protest.
    (2) If SBA does not contact the contracting officer within 15 
business days, the contracting officer may award the contract, unless 
the contracting officer has granted SBA an extension.
    (3) The contracting officer may award the contract after receipt of 
a protest if the contracting officer determines in writing that an 
award must be made to protect the public interest.
    (c) Notice of determination. SBA will notify the contracting 
officer, the protestor, and the protested concern of its determination.
    (d) Effect of determination. The determination is effective 
immediately and is final unless overturned on appeal by the ADA/
GC&8(a)BD, pursuant to Sec. 126.805. If SBA upholds the protest, SBA 
will de-certify the concern as a qualified HUBZone SBC. If SBA denies 
the protest, after considering the merits of the protest, SBA will 
amend the date of certification on the List to reflect the date of 
protest decision.


Sec. 126.804  Will SBA decide all HUBZone status protests?

    SBA will decide all protests not dismissed as premature, untimely 
or non-specific.


Sec. 126.805  What are the procedures for appeals of HUBZone status 
determinations?

    (a) Who may appeal. The protested HUBZone SBC, the protestor, or 
the

[[Page 16163]]

contracting officer may file appeals of protest determinations with 
SBA's ADA/GC&8(a)BD.
    (b) Timeliness of appeal. SBA's ADA/GC&8(a)BD must receive the 
appeal no later than 5 business days after the date of receipt of the 
protest determination. SBA will dismiss any appeal received after the 
5-day period.
    (c) Method of submission. The party appealing the decision may 
deliver its appeal in person, by facsimile, by express delivery 
service, or by U.S. mail (postmarked within the applicable time 
period).
    (d) Notice of appeal. The party bringing an appeal must provide 
notice of the appeal to the contracting activity contracting officer 
and either the protested HUBZone SBC or original protestor, as 
appropriate.
    (e) Grounds for appeal. (1) 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 AA/HUB failed completely to 
consider a significant fact contained within the information supplied 
by the protestor or the protested HUBZone SBC.
    (2) SBA will not consider additional information or changed 
circumstances that were not disclosed at the time of the AA/HUB's 
decision or that are based on disagreement with the findings and 
conclusions contained in the determination.
    (f) Contents of appeal. The appeal must be in writing. The appeal 
must identify the protest determination being appealed and set forth a 
full and specific statement as to why the decision is erroneous or what 
significant fact the AA/HUB failed to consider.
    (g) Completion of appeal after award. An appeal may proceed to 
completion even after award of the contract that prompted the protest, 
if so desired by the protested HUBZone SBC, or where SBA determines 
that a decision on appeal is meaningful.
    (h) Decision. The ADA/GC&8(a)BD will make its decision within 5 
business days of its receipt, if practicable, and will base its 
decision 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 
HUBZone SBC, consistent with law. The ADA/GC&8(a)BD's decision is the 
final agency decision.

Subpart I--Penalties


Sec. 126.900  What penalties may be imposed under this part?

    (a) Suspension or debarment. The Agency Debarring Official may 
suspend or debar a person or concern pursuant to the procedures set 
forth in part 145 of this title. The contracting agency debarring 
official may debar or suspend a person or concern under the Federal 
Acquisition Regulation, 8 CFR part 9, subpart 9.4.
    (b) Civil penalties. Persons or concerns are subject to civil 
remedies under the False Claims Act, 31 U.S.C. 3729-3733, and under the 
Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, and any other 
applicable laws.
    (c) Criminal penalties. Persons or concerns are subject to severe 
criminal penalties for knowingly misrepresenting the HUBZone status of 
a small business concern in connection with procurement programs 
pursuant to sec. 16(d) of the Small Business Act, 15 U.S.C. 645(d), as 
amended; 18 U.S.C. 1001; and 31 U.S.C. 3729-3733. Persons or concerns 
also are subject to criminal penalties for knowingly making false 
statements or misrepresentations to SBA for the purpose of influencing 
any actions of SBA pursuant to sec. 16(a) of the Small Business Act, 15 
U.S.C. 645(a), as amended, including failure to correct ``continuing 
representations'' that are no longer true.

    Dated: March 26, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 98-8585 Filed 4-1-98; 8:45 am]
BILLING CODE 8025-01-P