[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Rules and Regulations]
[Pages 35726-35767]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17196]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, and 134


Small Business Size Regulations; 8(a) Business Development/Small 
Disadvantaged Business Status Determinations; Rules of Procedure 
Governing Cases Before the Office of Hearings and Appeals

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: In response to President Clinton's government-wide regulatory 
reform initiative, the Small Business Administration (SBA) amends both 
the eligibility requirements for, and contractual assistance provisions 
within, the SBA's 8(a) Business Development (8(a) BD) program. This 
final rule changes the name of the program from the Minority Small 
Business and Capital Ownership Development program to the 8(a) BD 
program to better reflect the purpose of the program. This rule 
streamlines the operation of the 8(a) BD program, eases certain 
restrictions perceived to be burdensome on Program Participants, 
clarifies certain eligibility requirements, and deletes obsolete 
regulations.

DATES: Effective Date: This rule is effective on July 30, 1998.
    Compliance Dates: Subpart A applies to all applications for the 
8(a) Business Development program pending as of July 30, 1998 and all 
8(a) procurement requirements accepted by SBA on or after July 30, 
1998. These rules do not apply to any appeals pending before SBA's 
Office of Hearings and Appeals. The revisions to 13 CFR part 121 apply 
with respect to all solicitations issued on or after June 30, 1998. 
Except for 13 CFR 134.408(c), the procedural revisions to 13 CFR part 
134 apply to all appeals served or filed on or after June

[[Page 35727]]

30, 1998. 13 CFR 134.408(c) applies as of the publication to all 
pending appeals before SBA's Office of Hearings and Appeals.

FOR FURTHER INFORMATION CONTACT: William A. Fisher, Acting Associate 
Administrator for Minority Enterprise Development, at (202) 205-6412.

SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a 
Memorandum to federal agencies, directing them to simplify their 
regulations. In response to this directive, SBA completed a page-by-
page, line-by-line review of all of its then existing regulations to 
determine which might be revised or eliminated. Revisions to 13 CFR 
Part 124 awaited a review by the Department of Justice (DOJ) of all 
Federal procurement affirmative action programs. On May 23, 1996, DOJ 
published in the Federal Register a comprehensive proposal for 
tailoring affirmative action programs in the Federal procurement arena 
(see 61 FR 26042), and on May 9, 1997 the Department of Defense, the 
General Services Administration, and the National Aeronautics and Space 
Administration proposed amendments to the Federal Acquisition 
Regulation (FAR) concerning programs for small disadvantaged business 
(SDB) concerns. In response to and in conjunction with the DOJ and FAR 
reform proposals, on August 14, 1997, SBA published in the Federal 
Register, 62 FR 43584, a proposed rule to amend 13 CFR part 124. 
Subpart A of the proposed part 124 dealt with changes pertaining to the 
8(a) Business Development (8(a) BD) program which is authorized by 
sections 7(j)(10) and 8(a) of the Small Business Act, 15 U.S.C. 
636(j)(10), 637(a). Subpart B of proposed part 124 dealt with SBA's 
role in the certification and protest of small disadvantaged 
businesses, as contemplated by the DOJ and FAR proposals. During the 
proposed rule's 60-day comment period, SBA received 95 timely comments, 
the majority of which favored the proposed changes. This rule finalizes 
subpart A of 13 CFR part 124 (its regulations relating to the SBA's 
8(a) Business Development Program. SBA continues to consider issues 
relating to subpart B of 13 CFR part 124, and will finalize those 
regulations at a later time. This rule does not address any comments 
made regarding subpart B of part 124 or SBA's response thereto.
    A substantial number of commenters applauded SBA's effort to remove 
duplicative provisions, and rewrite those that appeared wordy or 
unclearly written. For the most part, the comments also supported the 
substantive changes proposed by SBA. SBA received comments on many 
aspects of the proposed rule. With the exception of comments which did 
not set forth any rationale or make suggestions, SBA discusses and 
responds fully to all the comments below.
    In addition to the changes to 13 CFR part 124, the final rule also 
makes changes to SBA's size regulations (part 121) to permit size 
protests and appeals of Standard Industrial Classification (SIC) code 
designations in connection with 8(a) competitive procurements, and to 
exclude certain joint venture arrangements from SBA's affiliation 
rules. These changes should increase the potential pool of small 
businesses available to compete for particular procurements and should 
encourage contracting officers to consider small business contractors 
more closely before determining a procurement strategy. The final rule 
also transfers the procedures relating to certain statutorily 
authorized appeals in the 8(a) program from part 124 to part 134 of 13 
CFR.
    This final rule streamlines the operation of the 8(a) BD program, 
eases certain restrictions perceived to be burdensome on Participants, 
amends certain eligibility procedures, and deletes obsolete 
regulations. It reorganizes the regulations into identifiable 
substantive areas for ease of use and clarity. It also changes all 
references to SBA's Office of Minority Small Business and Capital 
Ownership Development to the Office of 8(a) Business Development to 
emphasize that individuals participating in the program need not be 
members of minority groups and to stress the importance of assisting 
participating firms in their overall business development.
    SBA has attempted to rewrite the regulations in plain English 
wherever possible. To this end, SBA has written section headings in 
question format for ease of use, and has eliminated unnecessary 
verbiage from the regulations.
    This rule amends eligibility procedures for admission to the 8(a) 
BD program and also amends contractual assistance provisions within the 
8(a) BD program. It eliminates the requirement that a Participant must 
have specified SIC codes approved by SBA in its business plan in order 
to be eligible for 8(a) contracts, establishes consistent remedial 
measures for firms that do not meet their non-8(a) business activity 
targets, eases certain joint venture restrictions, and establishes a 
mentor/protege program for developing 8(a) Participants. This rule also 
liberalizes the standard of review for non-group members seeking 
disadvantaged status from a clear and convincing evidence test to a 
preponderance of the evidence standard.

Summary of Comments and SBA's Response

    Part 121: SBA received a substantial number of comments agreeing 
with SBA's proposal to exclude certain joint venture arrangements from 
the normal affiliation rules. This provision will encourage contracting 
officers to use small business contractors to a greater extent. With 
the consolidation of procurements becoming an increasing reality, some 
contracting officers may feel that requirements are too big for a small 
business to perform successfully. The proposed rule would have 
permitted two or more small business concerns to joint venture for a 
particular procurement and be considered a small business concern so 
long as each concern individually was small. Several commenters 
recommended that this provision be broadened to exclude affiliation 
rules where there are ``teaming'' agreements as well. SBA concurs with 
this recommendation, and has changed the rule accordingly.
    Part 124, subpart A: Most of the comments received by SBA focused 
on subpart A of part 124. The following analysis discusses each of the 
significant comments received.
    The proposed rule contained no provision for reporting changes that 
would adversely affect a firm's eligibility, either during the 
application stage or during a Participant's tenure in the program. As a 
result of a number of comments, several new provisions have been 
included in the regulation. Section 124.2 requires, in part, that a 
Participant must maintain its program eligibility throughout its tenure 
in the program and is obligated to inform SBA of any changes that would 
adversely affect its program eligibility. To continue a firm's 
participation in the program, Sec. 124.112 specifically reasserts this 
obligation and Sec. 124.112(b)(2) requires program Participants as part 
of their annual review to represent that no adverse change occurred or, 
in the alternative, to describe any adverse changes that have occurred. 
During the application stage, the 8(a) applicant is obligated to inform 
SBA of any adverse changes that may have occurred since the actual 
application.
    Section 124.103(c) of the proposed rule stated that individuals who 
are not members of designated socially disadvantaged groups must 
establish individual social disadvantage by a ``preponderance of the 
evidence.''

[[Page 35728]]

Previously, individuals not members of a designated group needed to 
prove individual social disadvantage by ``clear and convincing'' 
evidence. SBA received many comments regarding the proposed change in 
the evidentiary standard. The majority of commenters did not favor 
changing the standard. SBA believes that all individuals who can show 
that they have personally suffered social disadvantage, including women 
and handicapped individuals, should be admitted to the 8(a) BD program, 
and that the change in the evidentiary standard is necessary for 
constitutional reasons. In response to the Supreme Court's decision in 
Adarand Constructors, Inc. v. Pena, 115 Sup. Ct. 2097 (1995), which 
requires programs to provide a race-based remedy to be ``narrowly 
tailored,'' the Department of Justice recommended the ``preponderance 
of the evidence'' standard for government-wide disadvantaged business 
programs. SBA based the ``preponderance of the evidence'' standard on 
the Department of Justice proposal, and continues to believe that the 
use of this standard strengthens the defense of the 8(a) BD program. 
Therefore, SBA retains the ``preponderance of the evidence'' standard 
in the final rule. While the criteria for a case of individual social 
disadvantage remains basically the same, the final rule changes the 
evidentiary standard that must be shown to demonstrate an individual 
case of social disadvantage. In assessing a claim of individual social 
disadvantage, SBA will consider all relevant information submitted by 
an applicant. Evidence which tends to show generalized patterns of 
discrimination against a non-designated group or statistical data 
showing that businesses owned by a specific non-designated group are 
disproportionately underrepresented in a particular industry may be 
used to augment an individual's case. Statistics and generalized 
patterns are not sufficient by themselves to establish a case of 
individual social disadvantage. However, an individual's statement of 
personal experiences in combination with the generalized evidence may 
be sufficient to demonstrate social disadvantage.
    Proposed Sec. 124.103(d) stated that representatives of an 
identifiable group whose members believe that the group has suffered 
chronic racial or ethnic prejudice or cultural bias may petition SBA to 
be included as a group presumed to be socially disadvantaged. One 
commenter asked what the evidentiary standard should be for approval of 
a designated group. As a result of this comment, Sec. 124.103(d)(1) of 
the final rule provides that a preliminary showing must be made that 
substantial evidence exists that a group meets the criteria to be 
determined presumptively socially disadvantaged. Once this showing is 
made, SBA will publish a notice for comment and, where deemed 
appropriate, hold hearings and/or conduct its own research. After 
completion of the process, SBA will determine whether a preponderance 
of the evidence shows that the group meets the necessary criteria to be 
considered presumptively disadvantaged.
    Proposed Sec. 124.104, which set forth the factors to be reviewed 
to determine the economic status of socially disadvantaged individuals, 
clarified that a contingent liability does not reduce an individual's 
net worth. A commenter remarked that contingent liabilities reduce 
capital and credit opportunities and should be considered as reducing 
net worth. SBA understands this possibility, but does not adopt the 
comment. There are wide varieties of contingencies and their impacts on 
credit opportunities. Moreover, individuals should not be permitted to 
satisfy the net worth criterion by offering guarantees and indemnities 
with remote possibilities of becoming actual liabilities.
    Another commenter felt that Sec. 124.104 needed to set forth in 
greater detail the criteria SBA uses to determine whether an individual 
is economically disadvantaged. SBA will study this issue for possible 
later revision.
    Another commenter suggested that under Sec. 124.104, review of the 
financial status of individuals claiming economic disadvantage should 
be performed going back two years prior to application. This is already 
addressed in two subsections of this section and no further provisions 
are needed. Proposed Sec. 124.104(c) provides that SBA will take into 
account the individual's personal income for the previous two years. 
Proposed Sec. 124.104(c)(1) provides that SBA will attribute to an 
individual claiming disadvantaged status any assets which that 
individual has transferred to an immediate family member, or to a trust 
a or beneficiary of which is an immediate family member, for less than 
fair market value, within two years prior to a concern's application 
for participation in the 8(a) BD program or within two years of a 
Participant's annual program review, unless the individual claiming 
disadvantaged status can demonstrate that the transfer is to or on 
behalf of an immediate family member for that individual's education, 
medical expenses, or some other form of essential support.
    One commenter expressed concern that transfers of assets to family 
members within two years prior to application should be objectionable 
even if the transfer was ``for fair market value.'' The commenter felt 
that sham transfers would be made to enable individuals to qualify as 
economically disadvantaged under the thresholds. SBA has not adopted 
this comment since, if a transferee received fair market value for an 
asset, the transfer would be a sale, not a sham. As such, the transfer 
would not distort a calculation of the transferor's net worth.
    SBA had specifically requested comments on proposed Sec. 124.105, 
seeking input on whether and under what circumstances trust 
arrangements might be considered permissible without violating the 
statutory requirement that an applicant or Participant must be at least 
51 percent unconditionally owned by one or more socially and 
economically disadvantaged individuals. SBA received several comments 
on this issue. Upon further reflection, SBA has determined that 
ownership of an 8(a) applicant or Participant by trusts that are the 
functional equivalent of individuals, like living trusts, are 
tantamount to individual ownership and should be permitted in the 
program. One commenter noted that the IRS treats living trusts as 
individuals for the purposes of income tax calculation, and urged SBA 
to do the same. The SBA recognizes that an increasing number of 
entrepreneurs are using such vehicles for tax and estate planning 
purposes. Therefore, a provision making certain trusts eligible for 
8(a) participation has been included in Sec. 124.105(a). The new 
provision states that an 8(a) BD concern owned by a trust is considered 
to be directly owned by a disadvantaged individual if the trust is 
revocable and the disadvantaged individual is also the grantor, a 
trustee and the sole current beneficiary of the trust.
    Section 124.105(h) of the proposed rule set forth certain ownership 
restrictions for non-disadvantaged individuals and concerns. Proposed 
Sec. 124.105(h)(1) stated that a non-disadvantaged individual or a non-
Participant concern that owns a 10 percent or greater interest in a 
Participant as a general partner or stockholder may not own more than a 
10 percent interest in another Participant. Proposed Sec. 124.105(h)(2) 
stated that a non-Participant concern in the same or similar line of 
business may not own more than 10 percent in a current Participant, and 
a former

[[Page 35729]]

Participant in the same or similar line of business may not own more 
than 20 percent in a current Participant. Five commenters disagreed 
with these restrictions. They felt they were unnecessary and would 
place extra burdens on 8(a) firms that non-8(a) firms do not have. Most 
felt that if SBA determines that the firm is 51 percent owned, managed 
and controlled by a disadvantaged individual, no other ownership 
restrictions should apply. Two commenters pointed out that the 
regulation as proposed would hinder the firm's access to capital. The 
commenters pointed out that access to money is necessary to make the 
transition into the competitive market place. In response to these 
comments, the SBA has revised its regulations to raise the percentages 
that non-disadvantaged individuals, non-disadvantaged firms and former 
8(a) firms may own in an 8(a) Participant in the transitional stage of 
program participation. With respect to a firm in the transitional stage 
of 8(a) program participation, the final rule states that (1) a non-
disadvantaged individual or a non-Participant concern with at least a 
10 percent ownership interest in another Participant may own up to a 20 
percent interest; (2) a non-disadvantaged individual or concern in the 
same or similar line of business may own up to a 20 percent interest; 
and (3) a former 8(a) Participant may own up to a 30 percent interest. 
Percentages of ownership for firms in the developmental stage of 
program participation are not changed in this rule. SBA's decision to 
ease the current restrictions on ownership of an 8(a) BD concern should 
improve access to sources of capital. SBA decided not to raise the 
percentages higher than 20 and 30 percent at this time due to its 
continued concern over program abuse through the possible establishment 
of fronts. SBA will continue to monitor this section of the rule and 
may adjust the percentages further in the future if it deems it 
appropriate to do so.
    Section 124.105(i) contains standards for obtaining SBA approval of 
a change in a Participant's ownership. Several commenters expressed 
concern that a time limit should be imposed on SBA to approve or 
decline change of ownership requests. The final rule provides that the 
AA/8(a)BD will issue a decision within 60 days of receipt by the Agency 
of a request containing all necessary documentation, and that the 
decision of the AA/8(a)BD will be the final Agency decision. The final 
rule further provides that the denial of a request for a change of 
ownership may be grounds for program termination if the change is 
nonetheless completed.
    The preamble to the proposed rule solicited comments on a proposal 
to use suspension as a tool to allow time for an SBA inquiry into a 
Participant's change of ownership or control. No negative comments were 
received relating to this issue. Commenters who did address the matter 
approved of such use, providing that SBA would restore the length of 
the suspension to the firm's program term if the change is ultimately 
approved. As a result of the comments, SBA has revised Sec. 124.105(i). 
As revised, Sec. 124.105(i) provides that, where a Participant requests 
a change of ownership or business sture, and the che change has already 
occurred, SBA will suspend the Participant pending a decision on the 
request. If the change is approved, the SBA will restore the length of 
the suspension to the Participant's program term where the change in 
ownership results from the death or incapacity of a disadvantaged 
individual, or where the firm requested prior approval and waited 60 
days for SBA approval before making the change. SBA will not restore 
the length of a suspension for any firm that did not request a change 
in ownership prior to making the change (except, as noted, for a change 
due to death or incapacity). This provision has also been added to 
Sec. 124.305 governing suspensions.
    The proposed regulation regarding suspension (Sec. 124.305) has 
been modified to clarify the jurisdiction of the Office of Hearings and 
Appeals and the standard of evidence necessary for SBA to sustain its 
suspension action. The proposed rule stated that SBA has the burden of 
showing that ``substantial'' evidence exists in support of at least one 
of the grounds for termination cited in the Letter of Intent to 
Terminate. SBA has decided not to adopt this new standard in the final 
rule. The final rule provides that SBA is required to show only that 
``adequate'' evidence exists in support of a least one of the grounds 
for termination. The final rule defines the term ``adequate evidence'' 
as information sufficient to support the reasonable belief that a 
particular act or omission has occurred. This definition is adopted 
from Sec. 9.403 of Title 48 of the Code of Federal Regulations.
    Section 124.305 has also been amended to provide that, unless the 
Administrative Law Judge consolidates the suspension and termination 
proceedings, the review must be limited to determining whether the 
government's interest needs protection. SBA's Office of Hearings and 
Appeals (OHA) may not review the grounds for termination under a 
suspension action.
    A commenter questioned whether proposed Sec. 124.105(i) conflicts 
with the requirement in Sec. 124.515 that a change in ownership of an 
8(a) BD concern requires a waiver from SBA for the Participant to 
continue performing on an 8(a) contract. Section 124.105(i) allows 
continued performance of a contract without a waiver if a disadvantaged 
individual is substituted for another, with SBA approval before the 
change is implemented. SBA requires waivers under Sec. 124.515 only 
where ownership of an 8(a) Participant would be changed to an extent 
that the 8(a) BD concern would be no longer at least 51 percent owned 
by one or more disadvantaged individuals. If SBA does not approve a 
change in ownership because it determines that the acquiring individual 
is not disadvantaged or that the firm as structured after the change is 
no longer owned and controlled by disadvantaged individuals, then the 
firm must seek a waiver under Sec. 124.515 in order to continue to 
perform any of its 8(a) contracts.
    Proposed Sec. 124.106 explained the concept of control and the 
factors which SBA looks at to determine who controls an 8(a) BD 
concern. Several commenters raised issues of control where a non-
disadvantaged individual held a critical license. SBA does not believe 
that the mere fact that a non-disadvantaged employee who is not also an 
equity owner of the firm holds a critical license would cause the 
disadvantaged principal(s) to lose control. In such a case, the 
disadvantaged principal(s) must demonstrate their management expertise 
and the right to replace the non-disadvantaged employee at any time 
with another technical employee. However, SBA agrees that the situation 
is much more complicated where the non-disadvantaged individual who 
holds a critical license is also an equity owner of the firm. The final 
rule permits SBA to find negative control where a non-disadvantaged 
owner holds a critical license. The burden is on the applicant or 
Participant to demonstrate that control is in the hands of one or more 
disadvantaged individuals. The final rule provides that an individual 
need not have the technical expertise or possess a required license to 
be found to control an applicant or Participant if he or she can 
demonstrate that he or she has ultimate managerial and supervisory 
control over those who possess the required licenses or technical 
expertise. SBA recognizes that failure to possess technical expertise 
or a required license are factors that may be considered in evaluating 
the disadvantaged

[[Page 35730]]

individual's control of the concern, but that such circumstances are 
not dispositive.
    One commenter suggested that 8(a) concerns be allowed to own 
subsidiary concerns without being in violation of the requirement under 
proposed Sec. 124.106(a)(3) that an owner of an 8(a) concern devote 
full time to management of the concern. SBA's policy is to allow such 
ownership since working with the subsidiary indirectly advances the 
interests of the 8(a) concern. Therefore, a provision expressly 
allowing such ownership has been added to Sec. 124.106(a)(3). However, 
this exception does not change the general requirement that an owner of 
an 8(a) concern devote full time to manage the concern.
    A few commenters requested that some flexibility be given to the 
requirement under Sec. 124.106(a)(3) that a disadvantaged individual 
who manages the Participant concern must devote full-time to the 
business during normal working hours. As stated in the preamble to the 
proposed regulations, this requirement is not intended to prevent such 
individual from spending normal business hours away from the premises 
in such areas as marketing and outreach that benefit the concern. The 
rule does not imply that business activities could not be conducted by 
such individual outside the office. It does, however, prohibit such 
individual from being physically located at a site on a continuing 
basis which is separate and distinct from the Participant concern 
during normal business hours, despite any claim that he or she is 
managing the concern from that location. SBA believes it is important 
for the growth and development of the 8(a) BD concern that the 
disadvantaged individual who manages the concern devote full time to 
such management. Therefore, SBA makes no change to the final rule.
    The proposed regulations continued SBA's current approach and 
required that disadvantaged individuals have majority control of the 
board of directors. Some commenters felt that this requirement did not 
reflect business practice in the corporate world. One commenter felt 
that, particularly in smaller corporations, the sole shareholder or the 
majority shareholder virtually always controls the board of directors. 
This control stems from his or her ability to replace directors at 
will. The commenter recognized, however, that in rare situations the 
sole or majority owner might not control the board, such as where 
directors have fixed terms and cannot be removed before the end of such 
terms. In addition, SBA notes that cumulative voting practices and 
super majority requirements (i.e., any provisions requiring more than a 
simple majority vote) may make it difficult for a shareholder owning 
only 51% of a corporate concern to control the board of directors of 
that concern. Likewise, where more than one disadvantaged owner is 
involved, voting rights and control of the board of directors is harder 
to pinpoint. As such, SBA accepts this comment to a point. The final 
rule gives several alternatives for finding control by disadvantaged 
individuals of the board of directors. Where a single disadvantaged 
individual owns 100% of an applicant or Participant, SBA deems that 
individual to control the board of directors, and no further analysis 
is needed. Where a single disadvantaged individual owning less than 
100% seeks to qualify a concern, SBA deems that individual to control 
the board of directors where he or she owns at least 51% of the concern 
or, where the concern has super majority voting requirements, that 
percentage of ownership needed to overcome any such super majority 
ownership requirements, and he or she is on the board of directors. The 
applicant will be required to inform SBA of any super majority voting 
requirements provided for in its articles of incorporation, its by-
laws, or by state law. Thus, the disadvantaged owner is able to convene 
a shareholder's meeting, change corporate by-laws and articles of 
incorporation, and change directors on the board at will. In such a 
case, SBA will not look at the makeup of the board of directors for 
determining control of the firm (although SBA will continue to examine 
the character of directors). Where more than one disadvantaged owner 
seeks to qualify an applicant or Participant (i.e., no one individual 
owns 51%) and each such individual is on the board of directors, SBA 
deems those individuals to control the board of directors where 
together they own at least 51% of the concern or, where the concern has 
super majority voting requirements, that percentage of ownership needed 
to overcome any such super majority ownership requirements, and they 
can demonstrate that they have made arrangements to overcome any 
potential stalemates and that they have the comparable ability of a 
single majority owner to act quickly. For example, where a concern has 
three disadvantaged individuals each owning 17%, SBA will deem the 
individuals to control the board of directors without looking at the 
board's make-up if two of the three individuals have given their voting 
rights to the third individual. Where an applicant or Participant 
cannot demonstrate the ability for a disadvantaged individual to act 
quickly to replace members of the board of directors, SBA will look at 
the composition of the board of directors and will apply the current 
board of directors control requirements to the concern. The concern 
must meet the current requirement that one or more disadvantaged 
individuals must control the board of directors through numbers of 
individuals on the board or, where permitted by state law, through 
weighted voting.
    Numerous commenters expressed concern that, with the lowering of 
the evidentiary standard for eligibility in cases of individual social 
disadvantage, there would be a greater need to police fraud in the 
program application process. Many warned of potential front situations 
involving the transfer of ownership and/or control of the applicant 
firm from one family member to another. This final rule addresses these 
issues at several points. Section 124.106(f) provides that if a non-
disadvantaged individual transfers majority ownership or control of the 
applicant firm to a family member within two years of the date of 
application while remaining an owner, officer, director or key employee 
of the company, the non-disadvantaged individual will be presumed to 
control the company. As noted above, the final rule also requires 
program applicants (Sec. 124.204(d)) and Participants (Sec. 124.112(b)) 
to inform SBA of any changes that would adversely affect their 
eligibility. Failure to inform SBA of these adverse changes, or falsely 
certifying that no adverse changes exist, are grounds for denial of 
entry into the program or, if concern is a already a program 
Participant, grounds for termination from the program.
    Proposed Sec. 124.107 set forth the requirement that an 8(a) BD 
applicant must possess potential for success in competing in the 
private sector. One commenter questioned whether an 8(a) applicant that 
can meet the requirements under Sec. 124.107(b)(iii) and (iv), needs 
8(a) BD assistance. These subsections provide that if an applicant to 
the 8(a) BD program does not meet the requirement that it has been in 
business in its primary industry classification for at least two full 
years prior to applying, this requirement may be waived if certain 
conditions are met. In 1990, Congress passed legislation that would 
allow concerns to waive the two year rule after satisfying five 
conditions. See The Small Business Administration Reauthorization and 
Amendments Act

[[Page 35731]]

of 1990, Pub. L. No. 101-574 Sec. 203(b)(1), 104 Stat. 2814, 2818-2819 
(1990). SBA adopted the same five conditions for waiver in the 8(a) 
regulations, but has clarified that applicants will be assessed in the 
context of their proposed participation in the program.
    As indicated above, several commenters expressed a need for greater 
oversight by SBA during the application process to prevent fraud. SBA 
notes that provisions included in the proposed regulations at 
Sec. 124.108(a)(5) provide that SBA may decline an application due to 
the submission of false information. SBA may also terminate a firm from 
the program under Sec. 124.303(a)(1)(15) if it discovers later that the 
Participant falsified information in its application. SBA retains these 
provisions in the final rule.
    Proposed Sec. 124.108(a) provided that SBA could exclude firms from 
program participation for lack of good character in circumstances where 
there was credible evidence of criminal activity. Upon further internal 
deliberation, the final rule significantly expands and clarifies 
Sec. 124.108(a). SBA will also find a firm ineligible for the 8(a) BD 
program if it or one of its principals (1) lacks integrity as 
demonstrated by information related to an indictment, guilty plea, 
conviction, civil judgment or settlement; (2) is currently 
incarcerated, or on parole or probation pursuant to a pre-trial 
diversion or following conviction for a felony or any crime involving 
business integrity; or (3) has knowingly submitted false information as 
part of the application for program admission. This clarification and 
expansion of the definition of good character reinforces the concept of 
business character as a requirement for program eligibility. It also 
promotes greater consistency between the eligibility requirements in 
this section and the grounds for termination in Sec. 124.303(a).
    Several commenters believed that payment of obligations to the 
Federal government should be included as an element of good business 
character under Sec. 124.108(a). Failure to pay significant obligations 
owed to the Federal Government is already a basis for program 
termination under Sec. 124.303(a)(11). Additionally, the existence of 
defaults resulting in a loss on a federal loan or federally assisted 
financing has long been a reason for denying financial assistance in 
other SBA programs. See 13 CFR Sec. 120.110. For these reasons, SBA has 
added a new paragraph (e) to Sec. 124.108, providing that any firm or 
principal that fails to pay significant financial obligations owed to 
the Federal Government is not eligible for admission to the 8(a) BD 
program.
    Section 124.108(f) of the proposed rule defined a ``broker'' as a 
concern that adds no value to an item being supplied to a procuring 
activity. One commenter suggested that the definition of broker be 
expanded to provide that a company would not be considered a broker if 
it purchased and shipped an item, despite the fact that purchasing and 
shipping do not technically ``add value'' to an item. SBA concurs that 
the proposed language did not adequately capture the meaning of the 
term ``broker.'' SBA has, therefore, added language to Sec. 124.108 to 
refine the definition of a broker. The final rule (Sec. 124.108(d)) 
provides that a broker is a concern that adds no material value to an 
item being supplied to a procuring activity or which does not take 
ownership or possession of or handle the item being procured with its 
own equipment or facilities. This definition of ``broker'' is specific 
to this rule. Some firms which refer to themselves as brokers in their 
line of business may not be ineligible for 8(a) participation as 
``brokers'' under this rule.
    The final rule also clarifies the provision restricting a tribe's 
(or an ANC's) ability to own more than one firm in the 8(a) program 
doing the same work. Section 124.109(c)(3)(ii) specifies that a tribe 
may own a Participant or an applicant that conducts or will conduct 
secondary business in the 8(a) BD program under the same SIC code that 
a current Participant owned by the tribe operates in the 8(a) BD 
program as its primary SIC code. In other words, SBA will not deny an 
application from a tribally-owned concern where the application plans 
to do some work (but not its primary work) in the same SIC as another 
8(a) firm owned by the tribe. The final rule makes this same 
clarification for CDCs and Native Hawaiian Organizations as well. See 
Secs. 124.110(c) and 124.111(d), respectively.
    Proposed Sec. 124.112 listed the criteria Participants must meet in 
order to remain eligible for the 8(a) BD program. One commenter 
suggested that if SBA determines that a Participant is no longer 
eligible for the 8(a) BD program under Sec. 124.112, that the 
Participant be allowed to respond to the factors supporting 
ineligibility even before SBA initiates early graduation or termination 
proceedings under Sec. 124.302 and Sec. 124.303, respectively. If SBA 
initiates such proceedings, the Participant now has 30 days to respond 
to SBA under Sec. 124.304(b). SBA believes these procedures give the 
Participant an adequate opportunity to respond on the issue of 
continued eligibility.
    Another commenter recommended that a Participant which obtains an 
SBA loan should not thereby be considered to have ``access to credit'' 
under Sec. 124.112 such that the socially disadvantaged individuals are 
no longer considered economically disadvantaged. Since this is already 
SBA's policy, no change to the regulation is necessary.
    One commenter felt that requiring certification of the transfer of 
assets to family members under Sec. 124.112(b)(4) would penalize 
individuals for making gifts to their families and would serve no 
legitimate purpose. SBA does not intend that each disadvantaged owner 
report every gift made to his or her family members. SBA is merely 
trying to determine if an individual has transferred significant assets 
to his or her family members in order to remain eligible for the 
program (i.e., in order to remain ``economically disadvantaged''). 
Where the individual retains some use or enjoyment of the asset 
transferred (e.g., real estate is ``transferred'' to a spouse and the 
individual continues to have access to it; a piece of art is 
``transferred'' to a family member, but continues to be displayed in 
the individual's residence), SBA will attribute the asset back to the 
disadvantaged individual for purposes of determining his or her 
continued economic disadvantage status. Where the individual 
demonstrates that the transfer is an irrevocable transfer as to which 
the disadvantaged individual retains no use or enjoyment (e.g., the 
one-time transfer of funds to an adult child to assist the child's 
purchase of a residence), the asset will not be attributed back to the 
disadvantaged individual. In addition, Sec. 124.104(c)(1)(ii) of the 
final rule specifies that SBA will not attribute to an individual 
claiming disadvantaged status any assets transferred by that individual 
to an immediate family member that are consistent with the customary 
recognition of special occasions, such as birthdays, graduations, 
anniversaries, and retirements. This does not mean that an individual 
claiming disadvantaged status may transfer unreasonably large funds or 
other assets to an immediate family member and claim that it should not 
be attributed back to him or her because the transfer was, for example, 
a birthday present. The funds or assets transferred must be reasonable 
and within customary limits for the occasion.
    Another commenter suggested that SBA also attribute back to the 
disadvantaged transferor all transfers to

[[Page 35732]]

non-family members for less than fair market value. SBA does not adopt 
this suggestion. Such a rule could discourage, for example, an 
irrevocable charitable transfer of assets. SBA notes that if an asset 
is transferred subject to a retained interest or a remainder, then the 
present value of the retained interest will continue to be counted as 
an asset in determining the donor's net worth. As such, there is no 
need to impose further restrictions or requirements on these transfers.
    A few commenters noted that language in proposed Sec. 124.112, 
concerning the continuing eligibility of businesses in the 8(a) BD 
program, inadvertently requires concerns owned by Alaska Native 
Corporations (ANCs) to comply with Secs. 124.101 through 124.108. SBA 
has revised Sec. 124.112 to correct this error. In addition, this 
section has been revised to address the continuing eligibility of 
concerns owned by Indian tribes, Native Hawaiian Organizations and 
Community Development Corporations (CDCs).
    With respect to the new mentor/protege program, one commenter 
suggested that SBA should measure the performance of the mentor and 
benefits of the program. SBA has adopted this suggestion by revising 
Sec. 124.112(b) to require from protege firms a narrative report on the 
program as part of their annual report. SBA has also revised 
Sec. 124.520 to provide specific standards for SBA reviews of mentor/
protege relationships.
    Proposed Sec. 124.112(c) set forth examples under which SBA may 
determine that a socially disadvantaged individual is no longer 
economically disadvantaged. One commenter noted that the proposed rule 
referred to the economic status of the 8(a) BD Participant, rather than 
the disadvantaged individual. This error has been corrected in the 
final regulations, and language has been added to clarify that the 
economic status of the Participant may be considered in analyzing the 
status of the individual.
    Proposed Sec. 124.204 set forth the process of applying to the 8(a) 
BD program. Proposed Sec. 124.204(b) stated that eligibility for the 
program is based on the circumstances existing on the date of 
application, but that SBA may request clarification of information in 
the application. Several commenters felt that this was too harsh and 
that concerns which might easily be eligible for the program would not 
be allowed the chance to make simple changes in order to be eligible. 
While SBA understands the desire an applicant would have to be able to 
change its application at any point in time in order to come into 
compliance with SBA's requirements during the application process, SBA 
believes that it is more important for reviewers not to have an 
application that is an ever-changing moving target. In addition, SBA 
notes that the applicant still has its right to request reconsideration 
of an initial decline letter and it is free to make any changes in its 
application at that time.
    Proposed Sec. 124.302 of the regulations set forth the criteria for 
early graduation. A Participant could be graduated early if it either 
successfully completes the program prior to the end of its program term 
or if one or more of the disadvantaged owners are no longer 
economically disadvantaged. Some commenters felt that successful firms 
would be penalized for their success if they were graduated before the 
expiration of their 9 year term. Although SBA is authorized to graduate 
firms that meet their business objectives early, this process is at the 
discretion of the Administrator. Early graduation is not an automatic 
process. Only Participants that show sufficient competitive strength 
and viability to compete successfully outside the program will be 
subject to early graduation. Once they show such strength and 
viability, their need for continued participation in the program has 
ended. Accordingly, SBA has retained these provisions in the final 
rule.
    One commenter suggested that SBA should graduate Participants early 
when the Participants have demonstrated the ability to compete in the 
marketplace without assistance under the 8(a) BD program, whether or 
not they have achieved the targets, goals and objectives set forth in 
their business plans. SBA believes that this recommendation is contrary 
to the Small Business Act. The Small Business Act authorizes SBA to 
graduate Participants early only under limited circumstances, among 
them where a Participant has successfully completed the program by 
substantially achieving its targets, goals and objectives. SBA 
understands the concerns of the commenter, and will take efforts to 
ensure that the targets, goals and objectives in the business plans are 
realistic and appropriate.
    Section 124.303(a) of the proposed rule provides for early 
termination from the 8(a) program prior to the expiration of a 
concern's Program Term for good cause. Section 124.303(a)(13) lists, as 
an example of good cause, excessive transfers of funds or other 
business assets hindering development of the concern, and excessive 
withdrawals from the concern for the personal benefit of any of its 
owners or any entity affiliated with the owners. Several commenters 
were concerned with SBA labeling withdrawals ``excessive'' without 
reviewing the totality of the circumstances. Section 124.112(d)(3) 
defines as excessive those withdrawals during any one fiscal year of a 
Participant that exceed $150,000 for firms with sales up to $1,000,000; 
$200,000 for firms with sales between $1,000,000 and $2,000,000; and 
$300,000 for firms with sales over $2,000,000. The regulation permits 
SBA to terminate the concern for good cause for such withdrawals. 
However, it does not state that SBA will automatically terminate the 
concern. SBA realizes that some withdrawals above the ``excessive'' 
guidelines are not excessive in light of the totality of the 
circumstances. SBA decides terminations on a case-by-case basis and 
always considers the totality of the circumstances beforehand. 
Nonetheless, the final rule clarifies that SBA will presume to be 
excessive all withdrawals exceeding the specified amounts.
    The final rule changes Sec. 124.303 to add clarity and to eliminate 
redundancy. Proposed Sec. 124.303(a)(18) stated that a suspension or 
revocation of any license required to run the business is good cause 
for termination. SBA has deleted this paragraph and transferred its 
substance to Sec. 124.303(a)(12). Section 124.303(a)(12) of the final 
rule now lists as a ground for termination the failure to keep 
licenses, charters and permits current.
    SBA received several comments concerning the application of 
benchmarks to the 8(a) BD program. This application is based on the DOJ 
review of Federal procurement affirmative action programs and the 
Government-wide SDB program. Because this rule is not finalizing SBA's 
implementation of the SDB program at this time, it eliminates all 
references to benchmarks from the 8(a) regulations (i.e, subpart A).
    SBA has changed many of the 8(a) contracting sections as a result 
of the comments. It has amended the general provisions in proposed 
Sec. 124.501 in several respects. The final rule eliminates proposed 
paragraph (d) of Sec. 124.501 as unnecessary, and renumbers proposed 
paragraphs (e) and (f) as paragraphs (d) and (e) respectively. That 
paragraph had clarified that a concern's success in meeting its support 
level would not preclude future 8(a) BD contract awards. Although SBA 
thought this clarification necessary at the time the regulations were 
originally amended to permit 8(a) concerns to exceed their support 
levels, SBA believes that that need no longer exists.

[[Page 35733]]

    One commenter requested clarification concerning the purpose of 
delegating contract execution authority. The primary purpose behind 
such delegation is improved efficiency. Procuring activities can award 
contracts much more quickly and efficiently with such authority and 
may, therefore, see more opportunities for making use of the 8(a) BD 
program.
    A sentence was added to proposed Sec. 124.501 to provide that, 
where practicable, simplified acquisition procedures should be used for 
8(a) contracts at or below the simplified acquisition threshold. This 
change conforms SBA's regulations to the Federal Acquisition Regulation 
(FAR) governing simplified acquisition procedures (48 CFR Part 13) and 
promotes efficiency and economy. SBA has also amended its rule, 
including Sec. 124.501(e), to change the term ``procuring agency'' to 
``procuring activity,'' thus identifying correctly the Government 
contracting entity referenced. Since Federal contracting is frequently 
performed at the sub-Agency level, using the term ``procuring agency'' 
did not cover every entity that may enter into an 8(a) contract.
    As a result of the comments, SBA added a new paragraph (f) to 
provide that an 8(a) Participant that identifies a requirement should 
request SBA to contact the procuring activity to request that the 
requirement be offered to the 8(a) program.
    Proposed Sec. 124.502 addressed offers of procurements to the 8(a) 
BD Program. SBA has amended its proposed Sec. 124.502(a) to provide 
that a procuring activity may transmit an offering letter to SBA by 
electronic mail, if available, or by facsimile transmission, mail or 
commercial delivery service. This conforms the rule to the simplified 
acquisition procedures contained in the FAR and helps ensure that 
procuring activities can award small contracts expeditiously. SBA has 
amended its proposed Sec. 124.502(b) to provide that, in cases where 
performance of a construction contract is to take place overseas, the 
contract should be offered to the Office of 8(a) BD located in SBA 
Headquarters.
    One commenter asked why SBA verified the size of an 8(a) concern 
prior to accepting a sole source contract on its behalf since self-
certification is accepted in every other case. SBA performs this 
function for sole source awards since there is no mechanism in place 
for protesting a concern's size in reference to a sole source award. 
Thus, there is no other check to ensure that concerns in line for award 
of sole source contracts are in fact small for such contracts. 
Moreover, since sole source awards are significant benefits, enabling 
firms to receive contracts without having to compete with other firms, 
it is particularly important that eligibility, including size, is 
verified.
    Proposed Sec. 124.503 set forth the procedures for accepting a 
requirement for the 8(a) BD Program. This rule amends Sec. 124.503(a) 
to provide that, where a contract is valued at or below the simplified 
acquisition threshold, SBA will accept or reject the requirement within 
two days of receipt of the offer. In cases where the offer is made on 
behalf of a particular Program Participant, if SBA does not accept or 
reject the requirement or request an extension within two days, the 
procuring activity may assume that the offer has been approved and go 
forward with the award. SBA intends this change to conform to the 
simplified acquisition procedures contained in Part 13 of the FAR and 
to promote efficiency. This final rule also makes a significant change 
to promote efficiency where SBA has delegated its 8(a) contract 
execution functions to an agency and a procuring activity within that 
agency has a procurement requirement whose value is less than the 
Simplified Acquisition Procedures (SAP) threshold amount. In such case, 
this rule authorizes SBA, in its discretion, to permit the procuring 
activity to award an 8(a) contract under the SAP threshold amount 
without sending an offering letter to SBA and without receiving SBA's 
official acceptance of the requirement for the 8(a) program.
    A number of comments requested clarification of the treatment of 
multiple award and federal supply schedule contracts. SBA has added a 
paragraph to Sec. 124.503 setting forth the standards to be applied to 
these types of contracts. Since, unlike Basic Ordering Agreements 
(BOA's), multiple award schedule contracts and federal supply schedule 
contracts are contracts, a new task order under such a contract will 
not require a new offer and acceptance. Likewise, if a concern 
qualifies for award of a multiple award schedule or federal supply 
schedule contract in terms of eligibility and size, it will not be 
denied future task orders on that contract if it subsequently grows 
large. Finally, if a multiple award schedule or federal supply schedule 
contract was competed when awarded, subsequent task orders under such 
contract will not require further competition under Sec. 124.506.
    As a result of the comments, SBA has added a new paragraph (i) to 
clarify that where SBA has delegated its 8(a) contract execution 
authority to a procuring activity, the procuring activity must still 
offer and SBA must accept all requirements intended to be awarded as 
8(a) contracts. The only exception to the normal offer and acceptance 
process is that identified above where a procurement requirement is 
less than the SAP threshold amount and SBA has specifically authorized 
(through the Memorandum of Understanding delegating its contract 
execution functions or otherwise) a procuring activity to dispense with 
offer and acceptance.
    Proposed Sec. 124.504 set forth the circumstances limiting SBA's 
ability to accept a procurement for award as an 8(a) contract. In 
response to comments identified below, this final rule specifically 
authorizes the use of SAP in connection with 8(a) contract awards, and 
requires SBA to review offering letters for requirements under SAP in 
an expedited two-day time frame. In order to meet this quick acceptance 
turn around, SBA has decided not to consider adverse impact in 
connection with a requirement offered under SAP. It is not feasible for 
SBA to obtain current financial statements from affected small 
businesses and to make adverse impact determinations within two days. 
However, because the SAP threshold is $100,000, SBA believes that 
adverse impact should not be a real factor with these smaller 
contracts, and that this change should not have a harmful effect.
    Proposed Sec. 124.504(e) (Sec. 124.504(d) in the final rule) 
concerned the release of a procurement for non-8(a) competition. One 
commenter pointed out that the language in proposed Sec. 124.504(e)(3) 
was misleading. That language provided that if SBA declines to accept 
an offer and releases the requirement, it will recommend to the 
procuring agency that the requirement be procured as a small business 
or SDB set-aside. The commenter correctly pointed out that SDB set-
asides are not authorized at this time. SBA has, therefore, amended 
this paragraph to provide that if SBA declines to accept an offer for 
the 8(a) program, it will recommend that the requirement be procured as 
a small business or, if authorized, SDB set-aside.
    One commenter suggested that industries for which SBA has elected 
not to accept requirements should be listed on SBA's website. SBA is 
considering adopting this idea; however, it need not revise its 
regulations to adopt this policy. Another commenter recommended that 
firms that have graduated be permitted to compete for follow-on 
contracts where the firm had been awarded the original

[[Page 35734]]

contract. Applicable law precludes SBA from making this change.
     A number of commenters requested additional procedures to protect 
the rights of small firms which could be adversely impacted by a 
decision to accept an award for the 8(a) BD program. SBA carefully 
considered these comments and weighed them against the need of 
procuring activities for prompt award of contracts. SBA determined that 
the current procedures were sufficient to ensure that small businesses 
performing contracts are not unduly harmed by the acceptance of an 
award for the 8(a) program.
    Proposed Sec. 124.506 provided that 8(a) procurements above certain 
dollar thresholds must be competed among eligible Participants. A 
number of commenters requested that the competitive thresholds be 
lowered. These thresholds were set by statute and, therefore, may not 
be lowered by SBA.
    One commenter requested clarification concerning how the thresholds 
are applied to indefinite delivery/indefinite quantity (ID/IQ) 
contracts. The commenter asked whether the total value of such 
contracts would be the value of what the procuring activity actually 
expects to order or the maximum ordering amount it may order. SBA 
considers the maximum ordering amount to be the total value of the 
contract for purposes of determining whether a particular ID/IQ 
contract must be competed. As a result of this comment, 
Sec. 124.506(a)(2) has been amended to provide that for indefinite 
delivery or indefinite quantity type contracts, the thresholds are 
applied to the maximum order amount authorized.
    Language was mistakenly included in proposed Sec. 124.507(c) which 
referred to limiting competitions to the transitional stage of program 
participation. SBA has eliminated this language in the final rule, 
since it does not restrict competitions to the transitional stage.
    One commenter objected to the language in proposed 
Sec. 124.506(c)(3) requiring SBA to deny a request to compete a 
requirement under the competitive thresholds where the request is made 
following the inability of the procuring activity and the potential 
sole source awardee to reach an agreement on price or some other 
material term or condition. The commenter pointed out that this 
provision unnecessarily restricts the flexibility of the Federal 
Government. SBA agrees with this comment and has amended this paragraph 
to provide only that SBA may deny a request under such circumstances.
    A number of commenters objected to SBA's proposal to eliminate its 
authority to award an 8(a) contract above the competitive threshold on 
a sole-source basis where there is only one eligible firm capable of 
performing the requirement. As a result of the comments, SBA has added 
this provision back to the regulations at Sec. 124.506(d).
    Proposed Sec. 124.507 set forth the procedures applicable to 
competitive 8(a) contracts. One commenter objected to the elimination 
of the requirement that a firm must obtain SBA approval to do business 
under a particular SIC code. SBA has considered this comment, but has 
rejected it. After several years of experience, SBA believes that the 
burden on an 8(a) Participant to obtain SBA approval for every SIC code 
under which the Participant might want to perform contracts hinders 
more than helps the Participant's business development. Moreover, the 
procuring activity's determination that a particular 8(a) Participant 
is responsible to perform a given contract should suffice to prevent 
firms from brokering contracts or from competing for contracts for 
which they are not qualified.
    One commenter correctly pointed out that Certificate of Competency 
(COC) procedures should not be inapplicable in cases where SBA has 
delegated contract execution authority to the procuring activity as 
provided in proposed Sec. 124.507(b)(7). SBA agrees. SBA did not intend 
to make the COC procedures inapplicable where contract execution 
authority has been delegated. In addition, the final rule transfers the 
substance of proposed Sec. 124.507(b)(6) (dealing with the execution of 
competitive 8(a) contracts) to a new Sec. 124.508. The correction 
regarding the availability of COCs where SBA has delegated its 8(a) 
contract execution functions to a procuring activity and the transfer 
of proposed Sec. 124.507(b)(6) to a new section make proposed 
Sec. 124.507(b)(7) unnecessary. Thus, SBA has eliminated that provision 
in this final rule.
    A number of commenters objected to the special geographic 
requirements for construction contracts in proposed Sec. 124.507(c)(2). 
These requirements are mandated by the Small Business Act and, 
therefore, may not be eliminated. One commenter correctly pointed out 
that the reference to principal places of business in proposed 
Sec. 124.507(c)(2) is incorrect and should be bona fide places of 
business. SBA agrees with this comment and has made this correction.
    This final rule adds a new Sec. 124.508 governing execution of 8(a) 
contracts. This new section clarifies that SBA, the procuring activity 
and the 8(a) firm may sign a tripartite agreement or, where SBA has 
delegated contract execution authority, the procuring activity and the 
Participant alone may sign an 8(a) contract. This section also provides 
that, where SBA receives a contract for signature valued at or below 
the simplified acquisition threshold, it will sign the contract and 
return it to the procuring activity within three (3) days of receipt. 
This addition was made to conform to the simplified acquisition 
procedures in the FAR and to promote expeditious award of smaller 
contracts.
    Pursuant to proposed Sec. 124.508 (Sec. 124.509 in the final rule), 
a Participant could not receive sole source 8(a) contracts where it was 
not in compliance with its non-8(a) business activity targets. A 
commenter recommended that SBA allow more flexibility to permit sole 
source awards where the firm can demonstrate good faith efforts to 
obtain non-8(a) revenue. SBA agrees that a waiver to the requirement 
prohibiting further sole source contracts when a Participant does not 
meet its non-8(a) business activity target may be appropriate in 
limited, extraordinary circumstances. The final rule permits the AA/
8(a)BD, or his or her designee, to allow one or more sole source 
contracts to a Participant that is not in compliance with its non-8(a) 
business activity target where a denial of a sole source contract would 
cause severe economic hardship to the Participant so that the 
Participant's survival may be jeopardized, or where extenuating 
circumstances beyond the Participant's control caused the Participant 
not to meet its non-8(a) business activity target. For example, a 
Participant might demonstrate that it was the apparent successful 
offeror for a non-8(a) contract that was cancelled by the procuring 
activity, and that a loss of that projected revenue caused the 
Participant not to meet its non-8(a) business activity target. However, 
loss of additional profit or other normal business consequences will 
not be grounds for granting a waiver. SBA believes that a more 
extensive waiver is not needed because the rule permits sufficient 
flexibility by allowing a firm to come into compliance during 
authorized quarterly reviews. The rule authorizes no appeal right for 
decisions not to grant a waiver, and such a waiver is totally at SBA's 
discretion. The final rule also adds a provision authorizing the SBA 
Administrator to waive the requirement that a Participant cannot 
receive an 8(a) sole source award when it is not in

[[Page 35735]]

compliance with its non-8(a) business activity targets where the head 
of the procuring activity requests that award be made for the best 
interests of the Government.
    Proposed Sec. 124.509 (Sec. 124.510 in the final rule) set forth 
the requirement that certain percentages of work be performed by the 
8(a) BD concern on an 8(a) BD contract. One commenter pointed out that 
compliance with the percentage of work requirements is an element of 
responsibility and, therefore, should be determined as of the date of 
award. SBA agrees with this comment and has amended this section to 
provide that SBA will determine whether the firm will be capable of 
complying with the percentage of work requirements by the time of award 
of the contract for both sealed bid and negotiated procurements.
    Another commenter correctly pointed out that the example in the 
regulation conflicts with the requirements set forth in 13 CFR 
Sec. 125.6, which refer to the work required as a percentage of total 
labor rather than as a percentage of the total value of the contract. 
SBA agrees with this comment and has changed example 1 as well as some 
of the language in Sec. 124.510(c) of the final rule to conform to the 
language in Sec. 125.6. (The legislation on which the performance of 
work requirements are based states the percentage of work required as a 
percentage of total labor and not total value.) Example 2 was not 
changed because the example does not conflict with either Sec. 125.6 or 
the legislation. Example 2 merely clarifies application of the rule in 
the early stages of performance of an ID/IQ contract.
    One commenter pointed out that application of the subcontracting 
limitations at all times during performance of an ID/IQ contract would 
keep many contractors from proposing on task orders. SBA agrees that 
the regulation is not flexible enough in this regard and has amended 
the language in paragraph (c) to provide that SBA may approve in 
writing an 8(a) BD firm's request to subcontract out more than the 
required percentage where it receives assurances from both the 
contractor and the procuring activity that the percentages will be met 
by the time performance is completed. SBA believes that this addition 
will provide firms with the necessary flexibility without undermining 
the purposes of the rule. Where a firm has received permission to 
subcontract out more than the required percentage and does not comply 
with the percentage requirements by the end of the contract, SBA will 
not grant future waivers.
    There were a number of comments on proposed Sec. 124.512 governing 
joint ventures. Several commenters objected to the requirement in 
proposed Sec. 124.512(e) that a contract be awarded in the name of the 
8(a) BD participant or participants, even though the contract is to be 
performed by the joint venture. The commenters argued that the contract 
should be in the name of the joint venture to assure that all parties 
to the joint venture are obligated to perform. SBA agrees with this 
view and has amended this section to provide that the procuring 
activity will execute an 8(a) contract in the name of the joint venture 
entity. With respect to the statutory requirement that all 8(a) 
contracts be performed by participant concerns, SBA interprets the AA/
8(a)BD's acceptance of Participants into the program to extend to 
approved joint ventures in which the Participant is the lead joint 
venture partner. In other words, for purposes of contracting, admission 
into the program includes both a concern in its own capacity and any 
approved joint venture in which the concern is the lead entity. For 
contracting purposes, SBA will consider the joint venture to be the 
Participant where the joint venture meets all applicable requirements 
and is approved by SBA.
    Paragraph (f) requiring all parties to the joint venture to sign 
such documents as are necessary to obligate themselves to ensure 
performance of the contract was deleted as unnecessary where the 
contract is entered into in the joint venture's name. However, a 
provision was added requiring the joint venture agreement to obligate 
each party to the venture to complete performance of the contract even 
if one of the members withdraws. (See  Sec. 124.513(c)(7))
    A number of commenters felt that the provision requiring the 8(a) 
members of the joint venture to perform the applicable percentages of 
work under the performance of work requirements (Sec. 124.510) would 
undermine the benefits derived from the joint venture arrangement. SBA 
considered this comment and agrees that many of the advantages of 
performing a particular contract as a joint venture would be lost if 
the 8(a) BD concern is required to perform as much of the contract as 
it would have had to perform had it been awarded the contract directly. 
Therefore SBA has amended paragraph (b)(1)(iv) of this section to 
provide that the joint venture must perform the applicable percentage 
of work. Paragraph (g) was also eliminated in light of this change.
    SBA made a number of other technical changes to the joint venture 
provisions (Sec. 124.513 in the final rule) as a result of the 
comments. The term ``lead entity'' was changed to ``managing venturer'' 
to comport with current terminology. One commenter requested 
clarification of the term ``very little'' in proposed Sec. 124.512(a) 
which states that SBA will not approve a joint venture arrangement 
where the 8(a) concern brings ``very little'' to the relationship. That 
provision has been clarified to provide that SBA will not approve the 
joint venture if the 8(a) concern brings very little in terms of 
resources and expertise to the relationship. A more precise definition 
would not leave SBA sufficient discretion to judge each case on its own 
merits.
    Proposed Sec. 124.514 (Sec. 124.515 in the final rule) set forth 
the provisions requiring an 8(a) contract to be performed by the 
Participant that was initially awarded it, and requiring the contract 
to be terminated for convenience if there is a change in the ownership 
or control of the concern. SBA received several comments regarding the 
authority for a waiver where one Participant transfers ownership and 
control to another eligible Participant. The commenters believed that a 
bulk transfer of all or substantially all of one 8(a) concern's assets 
to another 8(a) concern should satisfy the requirement this 
requirement. SBA carefully considered the legal requirements of the 
Small Business Act as it pertains to this provision. Upon further 
deliberation, SBA agrees that a transfer of all a Participant's 
operating assets to another Participant should be treated the same as a 
transfer of stock or another ownership interest, provided the 
Participant that transfers its assets to another eligible Participant 
withdraws from the 8(a) BD program, and it ceases its business 
operations, or presents a plan to SBA for its orderly dissolution. The 
requirement that all ``operating assets'' be transferred excludes 
accounts receivable and cash. SBA will require dissolution or a plan to 
dissolve as a condition for the waiver because SBA does not believe 
that it is appropriate for the transferor to remain a separate legal 
entity that could restart operations and seek to obtain 8(a) contracts 
after the transfer of all of its operating assets.
    SBA received three comments on proposed Sec. 124.516 (Sec. 124.517 
in the final rule) concerning protests of 8(a) contract awards. All 
three commenters recommended extending this provision to permit 
protests of the size of a concern in line for a sole source award. SBA 
rejected this comment since it is difficult for other firms to find out 
about sole source awards and only a few, if

[[Page 35736]]

any, firms would have standing to protest the award of a sole-source 
contract under SBA's size regulations. SBA has historically verified 
the size of each potential awardee of a sole-source contract since the 
benefits of receiving a contract without having to compete are so 
significant. Moreover, if any concern or individual believes a firm in 
line for a sole-source award does not meet the size standard for the 
SIC code for the contract, such firm may contact SBA and explain why it 
believes that the firm is not small. SBA will consider such information 
in verifying the size of that concern for the award provided the 
information is specific and credible. While SBA makes no changes to 
allow size protests and SIC code appeals in connection with sole source 
8(a) contracts at this time, SBA will continue to examine this issue 
and may make additional changes at a later date.
    Proposed Sec. 124.518 (Sec. 124.519 in the final rule), authorized 
Participants (other than firms owned by an Indian tribe or an ANC) to 
receive any combination of 8(a) sole source and 8(a) competitive 
contracts up to a specified dollar amount (excluding contracts of 
$100,000 or less). Once that dollar amount of 8(a) contracts is 
reached, the firm will not be eligible to receive any more 8(a) sole 
source contracts, but will remain eligible for competitive 8(a) awards. 
The proposed rule set the dollar limit above which a firm could not 
receive sole source 8(a) awards at five times the size standard for the 
firm's primary SIC code or $100,000,000, whichever was less. SBA 
received comments on both sides of this issue. Several thought the cap 
was set at too high a level, while others thought that it should be set 
even higher. No commenters presented persuasive reasons for setting the 
cap at a level other than that set forth in the proposed rule. As such, 
the final rule continues the five times the size standard or 
$100,000,000 language. If the size standard for a particular SIC code 
increases over time, the corresponding cap amount will also increase. 
One comment suggested that after a firm reaches the specified dollar 
threshold amount, SBA should require it to use other 8(a) concerns that 
have not received contracts as subcontractors in order to receive 
additional sole source awards. SBA considered this comment, but decided 
not to adopt it. It is important to remember that SBA will not restrict 
all 8(a) contract support after a Participant receives total 8(a) 
contract support equaling at least five times the size standard for its 
primary SIC code or $100,000,000. A firm will be unable to receive only 
sole source 8(a) contracts after reaching the cap amount. The 
alternative suggested by the commenter seeks to have a Participant that 
has exceeded the cap subcontract 8(a) sole source contracts to other 
Participants that have not received an 8(a) contract. SBA believes that 
enforcing the cap should enable more of those same firms (i.e., the 
Participants that have not received an 8(a) contract) to receive 8(a) 
contracts directly. While both would aid in distributing the 
performance of 8(a) contracts to more Participants, from the 
perspective of a Participant that has not received an 8(a) contract, 
receiving a sole source contract directly is preferable to getting a 
piece of an 8(a) contract as another Participant's subcontractor. In 
addition, SBA believes that the alternative cap amounts are 
sufficiently high so that a Participant that reaches the cap amount 
should be able to compete effectively for 8(a) competitive contracts. 
That, in turn, should assist such firms in reaching viability after 
leaving the 8(a) program.
    Upon further reflection, SBA also amended the date at which a 
Participant's eligibility for a sole source contract is measured. The 
proposed rule stated that such eligibility would be measured as of the 
date of contract award, without taking into account whether the value 
of that award would cause the limit to be exceeded. SBA believes that 
such a requirement could cause an undue hardship for both 8(a) 
Participants and procuring activities. As proposed, SBA could accept a 
sole source requirement on behalf of a particular Participant (because 
the Participant had not yet received contracts in excess of the cap 
amount), the Participant and the procuring activity could enter into 
protracted negotiations, and SBA could be required later to deny the 
award of the contract because eligibility would be determined as of the 
date of award and the Participant may have received one or more 
competitive 8(a) contracts between the acceptance and award dates. 
Thus, this final rule changes the date that a firm's eligibility for a 
sole source award, in terms of whether the firm has exceeded the dollar 
limit for 8(a) contracts, from the date of award to the date that the 
requirement is accepted by SBA. This does not in any way imply that all 
eligibility for an 8(a) sole source contract will now be measured at 
the acceptance date. In other words, this final rule will continue to 
require that a firm be a current Participant in the 8(a) program on the 
date of contract award in order to receive an 8(a) sole source award. 
See Sec. 124.508(c).
    Finally, similar to the provision identified above when a 
Participant fails to achieve its non-8(a) business activity targets, 
the final rule adds a provision authorizing the SBA Administrator to 
waive the requirement that a Participant cannot receive an 8(a) sole 
source award in excess of the cap amount where the head of the 
procuring activity requests that award be made for the best interests 
of the Government.
    Proposed Sec. 124.519 (Sec. 124.520 in the final rule) set forth 
the standards for the mentor/protege program. Most of the commenters 
were in favor of this new program, although several warned that the 
potential existed for abuse. Numerous commenters requested greater 
detail in this section. Some of the commenters felt that a section 
explaining the purpose of the program would be helpful. In response to 
those comments, SBA has amended paragraph (a) of this section to 
clarify that the program is designed to encourage approved mentors to 
provide various forms of assistance to eligible Participants, with 
examples of the assistance contemplated.
    SBA received varying views regarding the type of business that 
should be able to act as a mentor. The comments ranged from 
recommendations that any business, large or small, disadvantaged-owned 
or not, should be able to be a mentor, to only small businesses, to 
support for the proposed rule which limited mentors to former 8(a) 
Participants and current 8(a) Participants in the transitional stage of 
the program. Upon further deliberation, SBA believes that the focus 
should not be on who the mentor is, but what the concern acting as a 
mentor will provide to the protege. For that reason, the final rule 
permits any business, large or small, to be a mentor if it can 
demonstrate the commitment and ability to assist small, developing 8(a) 
Participants. Under the final rule, a mentor generally will have no 
more than one protege at a time. The AA/8(a)BD may, however, authorize 
a concern to mentor more than one protege at a time where the concern 
can demonstrate that the additional mentor/protege relationship will 
not adversely affect the development of either protege firm. SBA does 
not believe that it would be appropriate to authorize a concern to be a 
mentor in a second mentor/protege relationship if that relationship 
would harm or compete with the protege of the first mentor/protege 
relationship approved by SBA.
    Some of the commenters felt that the amount of a contract the 
protege could perform should be limited. After considering this 
comment, SBA has

[[Page 35737]]

decided not to adopt it at this time. SBA does not want to impose 
additional requirements on mentor/protege joint ventures that do not 
apply to joint ventures between 8(a) BD concerns and other entities.
    Many of the commenters requested guidelines so that the mentor does 
not take control of the contracts or the company. SBA will monitor the 
mentor/protege arrangement on a regular basis to help ensure that this 
does not occur.
    Some commenters requested that the program be expanded to enable 
companies which have never been in the 8(a) BD program to become 
proteges. SBA has not adopted this recommendation. It must be 
remembered that SBA's mentor/protege program is designed to be an 
additional developmental tool for Participants in the 8(a) BD program. 
Only firms that SBA has certified to participate in the 8(a) BD program 
are statutorily eligible to receive any of the benefits of the program.
    One commenter suggested that a provision be added clarifying that a 
mentor and protege will not be determined to be affiliated based on the 
mentor/protege agreement or assistance provided pursuant to the 
agreement. SBA agrees with this comment and has amended paragraph (d) 
of this section to add a new subparagraph (4) to this effect.
    Several commenters suggested standards for SBA monitoring of the 
relationship and the adoption of objective standards by which to 
measure the success of a mentor/protege relationship. In response to 
these comments, SBA has added a new paragraph (f) to impose specific 
reporting requirements on the protege and to provide standards under 
which SBA will review the mentor/protege relationship. The final rule 
also amends paragraph (e) of this section (Sec. 124.519(d) in the 
proposed rule) to provide that SBA will review the mentor/protege 
relationship annually to determine whether to approve its continuation 
for another year. As set forth in the rule, the mentor/protege program 
is designed to assist the development of Participants in the 
developmental stage of the program, Participants that have not received 
an 8(a) contract, and Participants having a size that is less than half 
the size standard corresponding to its primary SIC code. Where a 
Participant leaves the developmental stage of the program, receives 
several significant 8(a) contracts, or has a size that exceeds half the 
size standard corresponding to its primary SIC code, the firm may no 
longer need the assistance provided by the mentor/protege relationship, 
and the AA/8(a)BD may decide not to authorize its continuation.
    SBA received no comments to proposed Secs. 124.601 through 124.603 
and Secs. 124.701 through 124.704. As such, this rule makes no changes 
to those sections from the proposed rule.
    Part 124, subpart B: Subpart B of the proposed rule defined a Small 
Disadvantaged Business (SDB) and set forth the procedures by which a 
firm can be recognized as an SDB. As noted above, SBA will discuss the 
comments to subpart B and finalize its provisions in a later rulemaking 
action.
    Part 134: The proposed new Subpart D of Part 134 contained the 
rules of procedure applying to appeals of denials of 8(a) BD program 
admission based solely on the negative finding(s) of social 
disadvantage, economic disadvantage, ownership or control pursuant to 
Sec. 124.206; early graduation pursuant to Sec. 124.302 and 124.304; 
termination pursuant to Sec. 124.303 and 124.304; and denials of 
requests to issue a waiver of the performance of work/termination for 
convenience requirements pursuant to Sec. 124.513.
    The proposed rules transferred the rules of procedure governing the 
8(a) program from Sec. 124.210 to Part 134 so that all procedures 
related to appeals before OHA are contained in one part of SBA's 
regulations.
    SBA received one comment regarding the proposed revisions to Part 
134. The majority of these comments dealt with streamlining the 
regulations governing the appeals of denials of 8(a) BD program 
admission and protecting appellant rights.
    The proposed rule did not change Sec. 134.202 and Sec. 134.203 of 
the former regulations. The commenter requested that SBA amend 
Sec. 134.202 to require that the appeal petition include the SBA 
determination. SBA agrees that the appeal petition should include the 
SBA determination and modified Sec. 134.203, which specifies the 
requirements of a petition, to include the submission of the SBA 
determination. This provision will allow the Administrative Law Judge 
to determine, without further delay, whether the appeal was timely 
filed.
    This rule does not finalize the proposed amendment to 
Sec. 134.206(a) that would have changed the date on which the SBA's 45-
day period to file an answer would run. The proposed rule would have 
changed that date from the date that an appeal is served on SBA to the 
date that an appeal is filed at OHA. Upon further consideration, SBA 
does not believe that this change is appropriate. The proposed rule was 
concerned about SBA not having the allotted time to answer an appeal 
where the appeal was incorrectly served on SBA's Office of General 
Counsel. SBA has addressed this concern by clarifying the service 
requirements for 8(a)-related appeals set forth in Sec. 134.403.
    Proposed Sec. 134.401, which outlined the scope of the rules in 
Subpart D, had no provision for appeals to OHA from suspensions 
pursuant to Sec. 124.305. A commenter stated that the inclusion of 
appeals related to suspension was necessary pursuant to Sec. 124.305(b) 
which provides that notice of suspension includes a statement that a 
request for hearing on the suspension will be considered by an 
Administrative Law Judge at OHA and granted or denied as a matter of 
discretion. SBA agreed with the comment and added Sec. 134.401(e) in 
response to it.
    A commenter noted that proposed Sec. 134.405, which deals with 
jurisdiction, failed to include a provision for the jurisdiction of 
suspension cases pursuant to Sec. 124.305. SBA added subsection (c) to 
proposed Sec. 134.405 in response to this comment. Subsection (c) 
provides that the jurisdiction of OHA in suspension cases is limited to 
determining whether the protection of the Government's interest 
requires suspension pending resolution of the termination action, 
unless the Administrative Law Judge has consolidated the suspension 
appeal with the corresponding termination appeal.
    Proposed Sec. 134.406 dealt with review of the administrative 
record and replaced Sec. 124.210. A commenter requested that an 
appellant be permitted to object to the absence of a document in the 
administrative record. Since Sec. 134.406(c) provides that the 
administrative record need not contain all documents pertaining to the 
appellant, SBA decided that Sec. 134.406(c) should be amended in 
response to this request. Revised Sec. 134.406(c) allows an appellant 
to object to the absence of a document he or she believes was 
erroneously omitted from the administrative record, thereby helping to 
ensure that the Administrative Law Judge has all of the information 
needed to decide the case.
    Proposed Sec. 134.406(e) limited remand to situations where ``due 
to the absence in the written administrative record of the reasons upon 
which the determination was based, the administrative record is 
insufficiently complete to decide'' the case. A commenter requested 
that remand be extended to include cases in which SBA made an erroneous 
analysis of facts. SBA determined that SBA error is properly handled on 
appeal under

[[Page 35738]]

proposed Sec. 134.408 and, therefore, did not adopt this comment.
    Proposed Sec. 134.408, which dealt with decisions on appeal, 
replaced Sec. 124.210. A commenter requested that the term ``re-
examine'' be changed to ``reconsider,'' and that a time limit be placed 
on when the decision is final. SBA determined that for clarity purposes 
the term ``re-examine'' should be changed to ``reconsider.'' SBA 
further determined that, in response to the commenter's request for a 
reasonable time period after which the decision is final, a period of 
20 days should be inserted into the proposed regulation after which 
time the decision is final.

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

    SBA certifies that this rule is not a major rule within the meaning 
of Executive Order 12866 and will not have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.
    The rule addresses changes in the SBA's 8(a) BD program. The 
overall impact of the changes to the 8(a) BD program will be beneficial 
to small businesses. The rule also makes several changes to SBA's size 
regulations that will have an impact beyond that program, and should 
result in more procurement opportunities for small business generally. 
No definitive data exist that would allow SBA to conclude that the 
proposed rule will have a substantial impact on a significant number of 
small businesses.
    Specifically, the rule improves and strengthens the 8(a) BD 
program. It responds to the challenges posed by the findings in the 
Adarand Constructors, Inc. v. Pena, 115 Sup. Ct. 2097 (1995) (Adarand), 
and are designed to improve the success rates for firms after their 
terms of participation in the 8(a) BD program end. The rule changes 
fall within three major categories. They are: (1) measures designed to 
more equitably distribute 8(a) contracts; (2) small business 
affiliation rule revisions; and (3) a new mentor/protege program.
    The changes that exclude certain joint venture and teaming 
arrangements from SBA's affiliation rules and the 8(a) mentor/protege 
program are designed to enable small businesses to effectively compete 
for contracts that were previously too large for a single small 
business to perform as a prime contractor. By allowing small businesses 
to form joint venture and teaming relationships without regard to 
affiliation, they can be considered responsible contractors for 
``bundled'' and other large contracts which exceed the capability of 
any of the individual small businesses to perform as prime contractors. 
Likewise, 8(a) Participants will be able to submit offers for and be 
considered responsible businesses for larger contracts than they would 
be able to obtain individually without the newly established mentor/
protege program. Expanding the number and dollar amount of contracts 
available for award through the 8(a) BD program may result in a shift 
of dollars to small business.
    In fiscal year (FY) 1996, the federal government spent $197.6 
billion on the procurement of goods and services. Small businesses were 
awarded $41.1 billion in prime contracts, representing about a 21 
percent share of the total contract dollars. There are approximately 
180,000 small firms registered on PRO-Net, SBA's database of small 
businesses actively seeking federal government contracts. By 
comparison, there are approximately 5,800 small firms certified as 
eligible 8(a) Participants. In FY 1996, $6.4 billion or 3.2 percent of 
the total government prime contracts were awarded to less than 2,000 
8(a) certified small businesses. SBA believes that the changes set 
forth in this rule will benefit small firms, but not increase the net 
number of current 8(a) Participants by more than 500 to 800 businesses, 
or less than 1 percent of the total universe of small firms seeking 
federal government contracts.
    Similarly, the changes regarding affiliation eligibility and the 
mentor/protege program will benefit small business contractors, but 
impact a relatively small number of businesses and dollars, when 
compared to total government spending and the universe of small firms 
seeking federal government contracts. Because of consolidation, 
contracts are becoming larger and fewer in number. It has become 
increasingly more difficult for small business to possess the 
wherewithal to individually perform these larger contracts. The changes 
in small business affiliation rules are designed to counter the growing 
trend of contract consolidation and allow small firms to compete for 
larger contracts.
    For purposes of the Paperwork Reduction Act of 1995 (Public Law 
104-13), SBA certifies that this final rule contains no new reporting 
or recordkeeping requirements.
    For purposes of Executive Order 12612, SBA certifies that this rule 
has no federalism implications warranting the preparation of a 
Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects

13 CFR Part 121

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

13 CFR Part 124

    Government procurement, Hawaiian Natives, Minority businesses, 
Reporting and recordkeeping requirements, Technical assistance, 
Tribally-owned concerns.

13 CFR Part 134

    Administrative practice and procedure, Organization and functions 
(Government agencies).

    Accordingly, for the reasons set forth above, SBA amends Title 13, 
Code of Federal Regulations (CFR), as follows:

PART 121--[AMENDED]

    1. The authority citation for 13 CFR part 121 continues to read as 
follows:

    Authority: 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 121.103 is amended by redesignating paragraphs (f)(3) 
and (f)(4) as paragraphs (f)(4) and (f)(5), respectively, by revising 
paragraph (f)(2) and by adding a new paragraph (f)(3) to read as 
follows:


Sec. 121.103  What is affiliation?

* * * * *
    (f) * * *
    (2) Except as provided in paragraph (f)(3) of this section, 
concerns submitting offers on a particular procurement or property sale 
as joint venturers are affiliated with each other with regard to the 
performance of that contract.
    (3) Exclusion from affiliation. (i) A joint venture or teaming 
arrangement of two or more business concerns may submit an offer as a 
small business for a non-8(a) Federal procurement without regard to 
affiliation under paragraph (f) of this section so long as each concern 
is small under the size standard corresponding to the SIC code assigned 
to the contract, provided:
    (A) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the SIC 
code assigned to the contract; or

[[Page 35739]]

    (B) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million.
    (ii) A joint venture or teaming arrangement of at least one 8(a) 
Participant and one or more other business concerns may submit an offer 
for a competitive 8(a) procurement without regard to affiliation under 
paragraph (f) of this section so long as the requirements of 13 CFR 
124.513(b)(1) are met.
    (iii) Two firms approved by SBA to be a mentor and protege under 13 
CFR 124.520 may joint venture as a small business for any Federal 
Government procurement, provided the protege qualifies as small for the 
size standard corresponding to the SIC code assigned to the procurement 
and, for purposes of 8(a) sole source requirements, has not reached the 
dollar limit set forth in 13 CFR 124.519.
* * * * *
    3. Section 121.1001 is amended by redesignating paragraphs (a)(2) 
through (a)(6) as paragraphs (a)(3) through (a)(7), by adding the 
following new paragraph (a)(2), and by revising paragraph (b)(2) to 
read as follows:


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

    (a) * * *
    (2) For competitive 8(a) contracts, the following entities may 
protest:
    (i) Any offeror;
    (ii) The contracting officer; or
    (iii) The SBA District Director, or designee, in either the 
district office serving the geographical area in which the procuring 
activity is located or the district office that services the apparent 
successful offeror, or the Associate Administrator for 8(a) Business 
Development.
* * * * *
    (b) * * *
    (2) For SBA's 8(a) BD program:
    (i) Concerning initial or continued 8(a) BD eligibility, the 
following entities may request a formal size determination:
    (A) The 8(a) BD applicant concern or Participant; or
    (B) The Assistant Administrator of the Division of Program 
Certification and Eligibility or the Associate Administrator for 
8(a)BD.
    (ii) Concerning individual sole source 8(a) contract awards, the 
following entities may request a formal size determination:
    (A) The Participant nominated for award of the particular sole 
source contract;
    (B) The SBA program official with authority to execute the 8(a) 
contract; or
    (C) The SBA District Director in the district office that services 
the Participant, or the Associate Administrator for 8(a)BD.
* * * * *
    4. Section 121.1103 is amended by revising paragraph (a) to read as 
follows:


Sec. 121.1103  What are the procedures for appealing a SIC code 
designation?

    (a) Generally, any interested party who has been adversely affected 
by a SIC code designation may appeal the designation to OHA. However, 
with respect to a particular sole source 8(a) contract, only the 
Associate Administrator for 8(a)BD may appeal.
* * * * *

PART 124--[AMENDED]

    5. The authority citation for part 124 continues to read as 
follows:

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

    6. In part 124, subpart B consisting of Secs. 124.601 through 
124.610 is redesignated as subpart B, Secs. 124.1001 through 124.1010, 
and subpart A is revised to read as follows:

PART 124--8(A) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS 
STATUS DETERMINATIONS

Subpart A--8(a) Business Development

Provisions of General Applicability

124.1  What is the purpose of the 8(a) Business Development program?
124.2  What length of time may a business participate in the 8(a) BD 
program?
124.3  What definitions are important in the 8(a) BD program?

Eligibility Requirements for Participation in the 8(a) Business 
Development Program

124.101  What are the basic requirements a concern must meet for the 
8(a) BD program?
124.102  What size business is eligible to participate in the 8(a) 
BD program?
124.103  Who is socially disadvantaged?
124.104  Who is economically disadvantaged?
124.105  What does it mean to be unconditionally owned by one or 
more disadvantaged individuals?
124.106  When do disadvantaged individuals control an applicant or 
Participant?
124.107  What is potential for success?
124.108  What other eligibility requirements apply for individuals 
or businesses?
124.109  Do Indian tribes and Alaska Native Corporations have any 
special rules for applying to the 8(a) BD program?
124.110  Do Native Hawaiian Organizations have any special rules for 
applying to the 8(a) BD program?
124.111  Do Community Development Corporations (CDCs) have any 
special rules for applying to the 8(a) BD program?
124.112  What criteria must a business meet to remain eligible to 
participate in the 8(a) BD program?

Applying to the 8(a) BD Program

124.201  May any business submit an application?
124.202  Where must an application be filed?
124.203  What must a concern submit to apply to the 8(a) BD program?
124.204  How does SBA process applications for 8(a) BD program 
admission?
124.205  Can an applicant ask SBA to reconsider SBA's initial 
decision to decline its application?
124.206  What appeal rights are available to an applicant that has 
been denied admission?
124.207  Can an applicant reapply for admission to the 8(a) BD 
program?

Exiting the 8(a) BD Program

124.301  What are the ways a business may leave the 8(a) BD program?
124.302  What is early graduation?
124.303  What is termination?
124.304  What are the procedures for early graduation and 
termination?
124.305  What is suspension and how is a Participant suspended from 
the 8(a) BD program?

Business Development

124.401  Which SBA field office services a Participant?
124.402  How does a Participant develop a business plan?
124.403  How is a business plan updated and modified?
124.404  What business development assistance is available to 
Participants during the two stages of participation in the 8(a) BD 
program?
124.405  How does a Participant obtain Federal Government surplus 
property?

Contractual Assistance

124.501  What general provisions apply to the award of 8(a) 
contracts?
124.502  How does an agency offer a procurement to SBA for award 
through the 8(a) BD program?
124.503  How does SBA accept a procurement for award through the 
8(a) BD program?
124.504  What circumstances limit SBA's ability to accept a 
procurement for award as an 8(a) contract?
124.505  When will SBA appeal the terms and conditions of a 
particular 8(a) contract or a procuring activity decision not to 
reserve a procurement for the 8(a) BD program?
124.506  At what dollar threshold must an 8(a) procurement be 
competed among eligible Participants?
124.507  What procedures apply to competitive 8(a) procurements?
124.508  How is an 8(a) contract executed?
124.509  What are non-8(a) business activity targets?

[[Page 35740]]

124.510  What percentage of work must a Participant perform on an 
8(a) contract?
124.511  How is fair market price determined for an 8(a) contract?
124.512  Delegation of contract administration to procuring 
agencies.
124.513  Under what circumstances can a joint venture be awarded an 
8(a) contract?
124.514  Exercise of 8(a) options and modifications.
124.515  Can a Participant change its ownership or control and 
continue to perform an 8(a) contract, and can it transfer 
performance to another firm?
124.516  Who decides contract disputes arising between a Participant 
and a procuring activity after the award of an 8(a) contract?
124.517  Can the eligibility or size of a Participant for award of 
an 8(a) contract be questioned?
124.518  How can an 8(a) contract be terminated before performance 
is completed?
124.519  Are there any dollar limits on the amount of 8(a) contracts 
that a Participant may receive?
124.520  Mentor/Protege program.

Miscellaneous Reporting Requirements

124.601  What reports does SBA require concerning parties who assist 
Participants in obtaining federal contracts?
124.602  What kind of annual financial statement must a Participant 
submit to SBA?
124.603  What reports regarding the continued business operations of 
former Participants does SBA require?

Management and Technical Assistance Program

124.701  What is the purpose of the 7(j) management and technical 
assistance program?
124.702  What types of assistance are available through the 7(j) 
program?
124.703  Who is eligible to receive 7(j) assistance?
124.704  What additional management and technical assistance is 
reserved exclusively for concerns eligible to receive 8(a) 
contracts?

Subpart A--8(a) Business Development

Provisions of General Applicability


Sec. 124.1  What is the purpose of the 8(a) Business Development 
program?

    Sections 8(a) and 7(j) of the Small Business Act authorize a 
Minority Small Business and Capital Ownership Development program 
(designated the 8(a) Business Development or ``8(a) BD'' program for 
purposes of the regulations in this part). The purpose of the 8(a) BD 
program is to assist eligible small disadvantaged business concerns 
compete in the American economy through business development.


Sec. 124.2  What length of time may a business participate in the 8(a) 
BD program?

    A Participant receives a program term of nine years from the date 
of SBA's approval letter certifying the concern's admission to the 
program. The Participant must maintain its program eligibility during 
its tenure in the program and must inform SBA of any changes that would 
adversely affect its program eligibility. A firm that completes its 
nine year term of participation in the 8(a) BD program is deemed to 
graduate from the program. The nine year program term may be shortened 
only by termination, early graduation or voluntary graduation as 
provided for in this subpart.


Sec. 124.3  What definitions are important in the 8(a) BD Program?

    Alaska Native means a citizen of the United States who is a person 
of one-fourth degree or more Alaskan Indian (including Tsimshian 
Indians not enrolled in the Metlaktla Indian Community), Eskimo, or 
Aleut blood, or a combination of those bloodlines. The term includes, 
in the absence of proof of a minimum blood quantum, any citizen whom a 
Native village or Native group regards as an Alaska Native if their 
father or mother is regarded as an Alaska Native.
    Alaska Native Corporation or ANC means any Regional Corporation, 
Village Corporation, Urban Corporation, or Group Corporation organized 
under the laws of the State of Alaska in accordance with the Alaska 
Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.)
    Bona fide place of business, for purposes of 8(a) construction 
procurements, means a location where a Participant regularly maintains 
an office which employs at least one full-time individual within the 
appropriate geographical boundary. The term does not include 
construction trailers or other temporary construction sites.
    Community Development Corporation or CDC means a nonprofit 
organization responsible to residents of the area it serves which has 
received financial assistance under 42 U.S.C. 9805, et seq.
    Concern is defined in part 121 of this title.
    Days means calendar days unless otherwise specified.
    Day-to-day operations of a firm means the marketing, production, 
sales, and administrative functions of the firm.
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, grandfather, grandmother, grandson, 
granddaughter, father-in-law, and mother-in-law.
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community of Indians, including any ANC, which is 
recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians, or 
is recognized as such by the State in which the tribe, band, nation, 
group, or community resides. See definition of ``tribally-owned 
concern.''
    Native Hawaiian means any individual whose ancestors were natives, 
prior to 1778, of the area which now comprises the State of Hawaii.
    Native Hawaiian Organization means any community service 
organization serving Native Hawaiians in the State of Hawaii which is a 
not-for-profit organization chartered by the State of Hawaii, is 
controlled by Native Hawaiians, and whose business activities will 
principally benefit such Native Hawaiians.
    Negative control is defined in part 121 of this title.
    Non-disadvantaged individual means any individual who does not 
claim disadvantaged status, does not qualify as disadvantaged, or upon 
whose disadvantaged status an applicant or Participant does not rely in 
qualifying for 8(a) BD program participation.
    Participant means a small business concern admitted to participate 
in the 8(a) BD program.
    Primary industry classification means the four digit Standard 
Industrial Classification (SIC) code designation which best describes 
the primary business activity of the 8(a) BD applicant or Participant. 
The SIC code designations are described in the Standard Industrial 
Classification Manual published by the U.S. Office of Management and 
Budget.
    Principal place of business means the business location where the 
individuals who manage the concern's day-to-day operations spend most 
working hours and where top management's business records are kept. If 
the offices from which management is directed and where the business 
records are kept are in different locations, SBA will determine the 
principal place of business for program purposes.
    Program year means a 12-month period of an 8(a) BD Participant's 
program participation. The first program year begins on the date that 
the concern is certified to participate in the 8(a) BD program and ends 
one year later. Each subsequent program year begins on the 
Participant's anniversary of program certification and runs for one 12-
month period.
    Same or similar line of business means business activities within 
the

[[Page 35741]]

same two-digit ``Major Group'' of the SIC Manual as the primary 
industry classification of the applicant or Participant. The phrase 
``same business area'' is synonymous with this definition.
    Self-marketing of a requirement occurs when a Participant 
identifies a requirement that has not been committed to the 8(a) BD 
program and, through its marketing efforts, causes the procuring 
activity to offer that specific requirement to the 8(a) BD program on 
the Participant's behalf. A firm which identifies and markets a 
requirement which is subsequently offered to the 8(a) BD program as an 
open requirement or on behalf of another Participant has not ``self-
marketed'' the requirement within the meaning of this part.
    Tribally-owned concern means any concern at least 51 percent owned 
by an Indian tribe as defined in this section.
    Unconditional ownership means ownership that is not subject to 
conditions precedent, conditions subsequent, executory agreements, 
voting trusts, restrictions on or assignments of voting rights, or 
other arrangements causing or potentially causing ownership benefits to 
go to another (other than after death or incapacity). The pledge or 
encumbrance of stock or other ownership interest as collateral, 
including seller-financed transactions, does not affect the 
unconditional nature of ownership if the terms follow normal commercial 
practices and the owner retains control absent violations of the terms.

Eligibility Requirements for Participation in the 8(a) Business 
Development Program


Sec. 124.101  What are the basic requirements a concern must meet for 
the 8(a) BD program?

    Generally, a concern meets the basic requirements for admission to 
the 8(a) BD program if it is a small business which is unconditionally 
owned and controlled by one or more socially and economically 
disadvantaged individuals who are of good character and citizens of the 
United States, and which demonstrates potential for success.


Sec. 124.102  What size business is eligible to participate in the 8(a) 
BD program?

    (a) An applicant concern must qualify as a small business concern 
as defined in part 121 of this title. The applicable size standard is 
the one for its primary industry classification. The rules for 
calculating the size of a tribally-owned concern, a concern owned by an 
Alaska Native Corporation, a concern owned by a Native Hawaiian 
Organization, or a concern owned by a Community Development Corporation 
are additionally affected by Secs. 124.109, 124.110, and 124.111, 
respectively.
    (b) If 8(a) BD program officials determine that a concern may not 
qualify as small, they may deny an application for 8(a) BD program 
admission or may request a formal size determination under part 121 of 
this title.
    (c) A concern whose application is denied due to size by 8(a) BD 
program officials may request a formal size determination under part 
121 of this title. A favorable determination will enable the firm to 
immediately submit a new 8(a) BD application without waiting one year.


Sec. 124.103  Who is socially disadvantaged?

    (a) General. Socially disadvantaged individuals are those who have 
been subjected to racial or ethnic prejudice or cultural bias within 
American society because of their identities as members of groups and 
without regard to their individual qualities. The social disadvantage 
must stem from circumstances beyond their control.
    (b) Members of designated groups. (1) There is a rebuttable 
presumption that the following individuals are socially disadvantaged: 
Black Americans; Hispanic Americans; Native Americans (American 
Indians, Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans 
(persons with origins from Burma, Thailand, Malaysia, Indonesia, 
Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos, 
Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust 
Territory of the Pacific Islands (Republic of Palau), Republic of the 
Marshall Islands, Federated States of Micronesia, the Commonwealth of 
the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, 
Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with 
origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the 
Maldives Islands or Nepal); and members of other groups designated from 
time to time by SBA according to procedures set forth at paragraph (d) 
of this section. Being born in a country does not, by itself, suffice 
to make the birth country an individual's country of origin for 
purposes of being included within a designated group.
    (2) An individual must demonstrate that he or she has held himself 
or herself out, and is currently identified by others, as a member of a 
designated group if SBA requires it.
    (3) The presumption of social disadvantage may be overcome with 
credible evidence to the contrary. Individuals possessing or knowing of 
such evidence should submit the information in writing to the Associate 
Administrator for 8(a) BD (AA/8(a)BD) for consideration.
    (c) Individuals not members of designated groups. (1) An individual 
who is not a member of one of the groups presumed to be socially 
disadvantaged in paragraph (b)(1) of this section must establish 
individual social disadvantage by a preponderance of the evidence.
    (2) Evidence of individual social disadvantage must include the 
following elements:
    (i) At least one objective distinguishing feature that has 
contributed to social disadvantage, such as race, ethnic origin, 
gender, physical handicap, long-term residence in an environment 
isolated from the mainstream of American society, or other similar 
causes not common to individuals who are not socially disadvantaged;
    (ii) Personal experiences of substantial and chronic social 
disadvantage in American society, not in other countries; and
    (iii) Negative impact on entry into or advancement in the business 
world because of the disadvantage. SBA will consider any relevant 
evidence in assessing this element. In every case, however, SBA will 
consider education, employment and business history, where applicable, 
to see if the totality of circumstances shows disadvantage in entering 
into or advancing in the business world.
    (A) Education. SBA considers such factors as denial of equal access 
to institutions of higher education, exclusion from social and 
professional association with students or teachers, denial of 
educational honors rightfully earned, and social patterns or pressures 
which discouraged the individual from pursuing a professional or 
business education.
    (B) Employment. SBA considers such factors as unequal treatment in 
hiring, promotions and other aspects of professional advancement, pay 
and fringe benefits, and other terms and conditions of employment; 
retaliatory or discriminatory behavior by an employer; and social 
patterns or pressures which have channelled the individual into 
nonprofessional or non-business fields.
    (C) Business history. SBA considers such factors as unequal access 
to credit or capital, acquisition of credit or capital under 
commercially unfavorable circumstances, unequal treatment in 
opportunities for government contracts or other work, unequal treatment 
by potential customers and business

[[Page 35742]]

associates, and exclusion from business or professional organizations.
    (d) Socially disadvantaged group inclusion. (1) General. 
Representatives of an identifiable group whose members believe that the 
group has suffered chronic racial or ethnic prejudice or cultural bias 
may petition SBA to be included as a presumptively socially 
disadvantaged group under paragraph (b)(1) of this section. Upon 
presentation of substantial evidence that members of the group have 
been subjected to racial or ethnic prejudice or cultural bias because 
of their identity as group members and without regard to their 
individual qualities, SBA will publish a notice in the Federal Register 
that it has received and is considering such a request, and that it 
will consider public comments.
    (2) Standards to be applied. In determining whether a group has 
made an adequate showing that it has suffered chronic racial or ethnic 
prejudice or cultural bias for the purposes of this section, SBA must 
determine that:
    (i) The group has suffered prejudice, bias, or discriminatory 
practices;
    (ii) Those conditions have resulted in economic deprivation for the 
group of the type which Congress has found exists for the groups named 
in the Small Business Act; and
    (iii) Those conditions have produced impediments in the business 
world for members of the group over which they have no control and 
which are not common to small business owners generally.
    (3) Procedure. The notice published under paragraph (d)(1) of this 
section will authorize a specified period for the receipt of public 
comments supporting or opposing the petition for socially disadvantaged 
group status. If appropriate, SBA may hold hearings. SBA may also 
conduct its own research relative to the group's petition.
    (4) Decision. In making a final decision that a group should be 
considered presumptively disadvantaged, SBA must find that a 
preponderance of the evidence demonstrates that the group has met the 
standards set forth in paragraph (d)(2) of this section based on SBA's 
consideration of the group petition, the comments from the public, and 
any independent research it performs. SBA will advise the petitioners 
of its final decision in writing, and publish its conclusion as a 
notice in the Federal Register. If appropriate, SBA will amend 
paragraph (b)(1) of this section to include a new group.


Sec. 124.104  Who is economically disadvantaged?

    (a) General. Economically disadvantaged individuals are socially 
disadvantaged individuals whose ability to compete in the free 
enterprise system has been impaired due to diminished capital and 
credit opportunities as compared to others in the same or similar line 
of business who are not socially disadvantaged.
    (b) Submission of narrative and financial information. (1) Each 
individual claiming economic disadvantage must describe it in a 
narrative statement, and must submit personal financial information.
    (2) When married, an individual claiming economic disadvantage also 
must submit separate financial information for his or her spouse, 
unless the individual and the spouse are legally separated.
    (c) Factors to be considered. In considering diminished capital and 
credit opportunities, SBA will examine factors relating to the personal 
financial condition of any individual claiming disadvantaged status, 
including personal income for the past two years (including bonuses and 
the value of company stock given in lieu of cash), personal net worth, 
and the fair market value of all assets, whether encumbered or not. SBA 
will also consider the financial condition of the applicant compared to 
the financial profiles of small businesses in the same primary industry 
classification, or, if not available, in similar lines of business, 
which are not owned and controlled by socially and economically 
disadvantaged individuals in evaluating the individual's access to 
credit and capital. The financial profiles that SBA compares include 
total assets, net sales, pre tax profit, sales/working capital ratio, 
and net worth.
    (1) Transfers within two years. (i) Except as set forth in 
paragraph (c)(1)(ii) of this section, SBA will attribute to an 
individual claiming disadvantaged status any assets which that 
individual has transferred to an immediate family member, or to a trust 
a beneficiary of which is an immediate family member, for less than 
fair market value, within two years prior to a concern's application 
for participation in the 8(a) BD program or within two years of a 
Participant's annual program review, unless the individual claiming 
disadvantaged status can demonstrate that the transfer is to or on 
behalf of an immediate family member for that individual's education, 
medical expenses, or some other form of essential support.
    (ii) SBA will not attribute to an individual claiming disadvantaged 
status any assets transferred by that individual to an immediate family 
member that are consistent with the customary recognition of special 
occasions, such as birthdays, graduations, anniversaries, and 
retirements.
    (iii) In determining an individual's access to capital and credit, 
SBA may consider any assets that the individual transferred within such 
two-year period described by paragraph (c)(1)(i) of this section that 
SBA does not consider in evaluating the individual's assets and net 
worth (e.g., transfers to charities).
    (2) Net worth. For initial 8(a) BD eligibility, the net worth of an 
individual claiming disadvantage must be less than $250,000. For 
continued 8(a) BD eligibility after admission to the program, net worth 
must be less than $750,000. In determining such net worth, SBA will 
exclude the ownership interest in the applicant or Participant and the 
equity in the primary personal residence (except any portion of such 
equity which is attributable to excessive withdrawals from the 
applicant or Participant). Exclusions for net worth purposes are not 
exclusions for asset valuation or access to capital and credit 
purposes.
    (i) A contingent liability does not reduce an individual's net 
worth.
    (ii) The personal net worth of an individual claiming to be an 
Alaska Native will include assets and income from sources other than an 
Alaska Native Corporation and exclude any of the following which the 
individual receives from any Alaska Native Corporation: cash (including 
cash dividends on stock received from an ANC) to the extent that it 
does not, in the aggregate, exceed $2,000 per individual per annum; 
stock (including stock issued or distributed by an ANC as a dividend or 
distribution on stock); a partnership interest; land or an interest in 
land (including land or an interest in land received from an ANC as a 
dividend or distribution on stock); and an interest in a settlement 
trust.


Sec. 124.105  What does it mean to be unconditionally owned by one or 
more disadvantaged individuals?

    An applicant or Participant must be at least 51 percent 
unconditionally and directly owned by one or more socially and 
economically disadvantaged individuals who are citizens of the United 
States, except for concerns owned by Indian tribes, Alaska Native 
Corporations, Native Hawaiian Organizations, or Community Development 
Corporations (CDCs). See

[[Page 35743]]

Sec. 124.3 for definition of unconditional ownership; and 
Secs. 124.109, 124.110, and 124.111, respectively, for special 
ownership requirements for concerns owned by Indian tribes, ANCs, 
Native Hawaiian Organizations, and CDCs.
    (a) Ownership must be direct. Ownership by one or more 
disadvantaged individuals must be direct ownership. An applicant or 
Participant owned principally by another business entity or by a trust 
(including employee stock ownership trusts) that is in turn owned and 
controlled by one or more disadvantaged individuals does not meet this 
requirement. However, ownership by a trust, such as a living trust, may 
be treated as the functional equivalent of ownership by a disadvantaged 
individual where the trust is revocable, and the disadvantaged 
individual is the grantor, a trustee, and the sole current beneficiary 
of the trust.
    (b) Ownership of a partnership. In the case of a concern which is a 
partnership, at least 51 percent of every class of partnership interest 
must be unconditionally owned by one or more individuals determined by 
SBA to be socially and economically disadvantaged. The ownership must 
be reflected in the concern's partnership agreement.
    (c) Ownership of a limited liability company. In the case of a 
concern which is a limited liability company, at least 51 percent of 
each class of member interest must be unconditionally owned by one or 
more individuals determined by SBA to be socially and economically 
disadvantaged.
    (d) Ownership of a corporation. In the case of a concern which is a 
corporation, at least 51 percent of each class of voting stock 
outstanding and 51 percent of the aggregate of all stock outstanding 
must be unconditionally owned by one or more individuals determined by 
SBA to be socially and economically disadvantaged.
    (e) Stock options' effect on ownership. In determining 
unconditional ownership, SBA will disregard any unexercised stock 
options or similar agreements held by disadvantaged individuals. 
However, any unexercised stock options or similar agreements (including 
rights to convert non-voting stock or debentures into voting stock) 
held by non-disadvantaged individuals will be treated as exercised, 
except for any ownership interests which are held by investment 
companies licensed under the Small Business Investment Act of 1958.
    (f) Dividends and distributions. One or more disadvantaged 
individuals must be entitled to receive:
    (1) At least 51 percent of the annual distribution of dividends 
paid on the stock of a corporate applicant concern;
    (2) 100 percent of the value of each share of stock owned by them 
in the event that the stock is sold; and
    (3) At least 51 percent of the retained earnings of the concern and 
100 percent of the unencumbered value of each share of stock owned in 
the event of dissolution of the corporation.
    (g) Ownership of another Participant. The individuals determined to 
be disadvantaged for purposes of one Participant, their immediate 
family members, and the Participant itself, may not hold, in the 
aggregate, more than a 20 percent equity ownership interest in any 
other single Participant.
    (h) Ownership restrictions for non-disadvantaged individuals and 
concerns. (1) A non-disadvantaged individual (in the aggregate with all 
immediate family members) or a non-Participant concern that is a 
general partner or stockholder with at least a 10 percent ownership 
interest in one Participant may not own more than a 10 percent interest 
in another Participant that is in the developmental stage or more than 
a 20 percent interest in another Participant in the transitional stage 
of the program. This restriction does not apply to financial 
institutions licensed or chartered by Federal, state or local 
government, including investment companies which are licensed under the 
Small Business Investment Act of 1958.
    (2) A non-Participant concern in the same or similar line of 
business may not own more than a 10 percent interest in a Participant 
that is in the developmental stage or more than a 20 percent interest 
in a Participant in a transitional stage of the program, except that a 
former Participant or a principal of a former Participant (except those 
that have been terminated from 8(a) BD program participation pursuant 
to Secs. 124.303 and 124.304) may have an equity ownership interest of 
up to 20 percent in a current Participant in the developmental stage of 
the program or up to 30 percent in a transitional stage Participant, in 
the same or similar line of business.
    (i) Change of ownership. A Participant may change its ownership or 
business structure so long as one or more disadvantaged individuals own 
and control it after the change and SBA approves the transaction in 
writing prior to the change. The decision to approve or deny a 
Participant's request for a change in ownership or business structure 
will be made and communicated to the firm by the AA/8(a)BD. The 
decision of the AA/8(a)BD is the final decision of the Agency. The AA/
8(a)BD will issue a decision within 60 days from receipt of a request 
containing all necessary documentation, or as soon thereafter as 
possible. If 60 days lapse without a decision from SBA, the Participant 
cannot presume that it can complete the change without written approval 
from SBA. A decision to deny a request for change of ownership or 
business structure may be grounds for program termination where the 
change is made nevertheless.
    (1) Any Participant that was awarded one or more 8(a) contracts may 
substitute one disadvantaged individual for another disadvantaged 
individual without requiring the termination of those contracts or a 
request for waiver under Sec. 124.515, as long as it receives SBA's 
approval prior to the change.
    (2) Where the previous owner held less than a 10 percent interest 
in the concern, or the transfer results from the death or incapacity 
due to a serious, long-term illness or injury of a disadvantaged 
principal, prior approval is not required, but the concern must notify 
SBA within 60 days.
    (3) Continued participation of the Participant with new ownership 
and the award of any new 8(a) contracts requires SBA's determination 
that all eligibility requirements are met by the concern and the new 
owners.
    (4) Where a Participant requests a change of ownership or business 
structure, and proceeds with the change prior to receiving SBA approval 
(or where a change of ownership results from the death or incapacity of 
a disadvantaged individual for which a request prior to the change in 
ownership could not occur), SBA will suspend the Participant from 
program benefits pending resolution of the request. If the change is 
approved, the length of the suspension will be restored to the 
Participant's program term in the case of death or incapacity, or if 
the firm requested prior approval and waited 60 days for SBA approval.
    (5) A change in ownership does not provide the new owner(s) with a 
new 8(a) BD program term. For example, if a concern has been in the 
8(a) BD program for five years when a change in ownership occurs, the 
new owner will have four years remaining until program graduation.
    (j) Public offering. A Participant's request for SBA's approval for 
the issuance of a public offering will be treated as a request for a 
change of ownership. Such request will cause SBA to examine the 
concern's continued need for access to the business

[[Page 35744]]

development resources of the 8(a) BD program.
    (k) Community property laws given effect. In determining ownership 
interests when an owner resides in any of the community property states 
or territories of the United States (Arizona, California, Idaho, 
Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and 
Wisconsin), SBA considers applicable state community property laws. If 
only one spouse claims disadvantaged status, that spouse's ownership 
interest will be considered unconditionally held only to the extent it 
is vested by the community property laws. A transfer or relinquishment 
of interest by the non-disadvantaged spouse may be necessary in some 
cases to establish eligibility.


Sec. 124.106  When do disadvantaged individuals control an applicant or 
Participant?

    Control is not the same as ownership, although both may reside in 
the same person. SBA regards control as including both the strategic 
policy setting exercised by boards of directors and the day-to-day 
management and administration of business operations. An applicant or 
Participant's management and daily business operations must be 
conducted by one or more disadvantaged individuals, except for concerns 
owned by Indian tribes, ANCs, Native Hawaiian Organizations, or 
Community Development Corporations (CDCs). (See Secs. 124.109, 124.110, 
and 124.111, respectively, for the requirements for concerns owned by 
Indian tribes or ANCs, for concerns owned by Native Hawaiian 
Organizations, and for CDC-owned concerns.) Disadvantaged individuals 
managing the concern must have managerial experience of the extent and 
complexity needed to run the concern. A disadvantaged individual need 
not have the technical expertise or possess a required license to be 
found to control an applicant or Participant if he or she can 
demonstrate that he or she has ultimate managerial and supervisory 
control over those who possess the required licenses or technical 
expertise. However, where a critical license is held by a non-
disadvantaged individual having an equity interest in the applicant or 
Participant firm, the non-disadvantaged individual may be found to 
control the firm.
    (a)(1) An applicant or Participant must be managed on a full-time 
basis by one or more disadvantaged individuals who possess requisite 
management capabilities.
    (2) A disadvantaged full-time manager must hold the highest officer 
position (usually President or Chief Executive Officer) in the 
applicant or Participant.
    (3) One or more disadvantaged individuals who manage the applicant 
or Participant must devote full-time to the business during the normal 
working hours of firms in the same or similar line of business. Work in 
a wholly-owned subsidiary of the applicant or participant may be 
considered to meet the requirement of full-time devotion. This applies 
only to a subsidiary owned by the 8(a) firm, and not to firms in which 
the disadvantaged individual has an ownership interest.
    (4) Any disadvantaged manager who wishes to engage in outside 
employment must notify SBA of the nature and anticipated duration of 
the outside employment and obtain the prior written approval of SBA. 
SBA will deny a request for outside employment which could conflict 
with the management of the firm or could hinder it in achieving the 
objectives of its business development plan.
    (5) Except as provided in paragraph (d)(1) of this section, a 
disadvantaged owner's unexercised right to cause a change in the 
control or management of the applicant concern does not in itself 
constitute disadvantaged control and management, regardless of how 
quickly or easily the right could be exercised.
    (b) In the case of a partnership, one or more disadvantaged 
individuals must serve as general partners, with control over all 
partnership decisions. A partnership in which no disadvantaged 
individual is a general partner will be ineligible for participation.
    (c) In the case of a limited liability company, one or more 
disadvantaged individuals must serve as management members, with 
control over all decisions of the limited liability company.
    (d) One or more disadvantaged individuals must control the Board of 
Directors of a corporate applicant or Participant.
    (1) SBA will deem disadvantaged individuals to control the Board of 
Directors where:
    (i) A single disadvantaged individual owns 100% of all voting stock 
of an applicant or Participant concern;
    (ii) A single disadvantaged individual owns at least 51% of all 
voting stock of an applicant or Participant concern, the individual is 
on the Board of Directors and no super majority voting requirements 
exist for shareholders to approve corporation actions. Where super 
majority voting requirements are provided for in the concern's articles 
of incorporation, its by-laws, or by state law, the disadvantaged 
individual must own at least the percent of the voting stock needed to 
overcome any such super majority voting requirements; or
    (iii) More than one disadvantaged shareholder seeks to qualify the 
concern (i.e., no one individual owns 51%), each such individual is on 
the Board of Directors, together they own at least 51% of all voting 
stock of the concern, no super majority voting requirements exist, and 
the disadvantaged shareholders can demonstrate that they have made 
enforceable arrangements to permit one of them to vote the stock of all 
as a block without a shareholder meeting. Where the concern has super 
majority voting requirements, the disadvantaged shareholders must own 
at least that percentage of voting stock needed to overcome any such 
super majority ownership requirements.
    (2) Where an applicant or Participant does not meet the 
requirements set forth in paragraph (d)(1) of this section, the 
disadvantaged individual(s) upon whom eligibility is based must control 
the Board of Directors through actual numbers of voting directors or, 
where permitted by state law, through weighted voting (e.g., in a 
concern having a two-person Board of Directors where one individual on 
the Board is disadvantaged and one is not, the disadvantaged vote must 
be weighted--worth more than one vote--in order for the concern to be 
eligible for 8(a) participation). Where a concern seeks to comply with 
this paragraph:
    (i) Provisions for the establishment of a quorum cannot permit non-
disadvantaged Directors to control the Board of Directors, directly or 
indirectly;
    (ii) Any Executive Committee of Directors must be controlled by 
disadvantaged directors unless the Executive Committee can only make 
recommendations to and cannot independently exercise the authority of 
the Board of Directors.
    (3) An applicant must inform SBA of any super majority voting 
requirements provided for in its articles of incorporation, its by-
laws, by state law, or otherwise. Similarly, after being admitted to 
the program, a Participant must inform SBA of changes regarding super 
majority voting requirements.
    (4) Non-voting, advisory, or honorary Directors may be appointed 
without affecting disadvantaged individuals' control of the Board of 
Directors.
    (5) Arrangements regarding the structure and voting rights of the 
Board of Directors must comply with applicable state law.
    (e) Non-disadvantaged individuals may be involved in the management 
of an applicant or Participant, and may be stockholders, partners, 
limited liability

[[Page 35745]]

members, officers, and/or directors of the applicant or Participant. 
However, no such non-disadvantaged individual or immediate family 
member may:
    (1) Exercise actual control or have the power to control the 
applicant or Participant;
    (2) Be a former employer or a principal of a former employer of any 
disadvantaged owner of the applicant or Participant, unless it is 
determined by the AA/8(a)BD that the relationship between the former 
employer or principal and the disadvantaged individual or applicant 
concern does not give the former employer actual control or the 
potential to control the applicant or Participant and such relationship 
is in the best interests of the 8(a) BD firm; or
    (3) Receive compensation from the applicant or Participant in any 
form as directors, officers or employees, including dividends, that 
exceeds the compensation to be received by the highest officer (usually 
CEO or President). The highest ranking officer may elect to take a 
lower salary than a non-disadvantaged individual only upon 
demonstrating that it helps the applicant or Participant. In the case 
of a Participant, the Participant must also obtain the prior written 
consent of the AA/8(a)BD or designee before changing the compensation 
paid to the highest ranking officer to be below that paid to a non-
disadvantaged individual.
    (f) Non-disadvantaged individuals who transfer majority stock 
ownership or control of the firm to an immediate family member within 
two years prior to the application and remain involved in the firm as a 
stockholder, officer, director, or key employee of the firm are 
presumed to control the firm. The presumption may be rebutted by 
showing that the transferee has independent management experience 
necessary to control the operation of the firm.
    (g) Non-disadvantaged individuals or entities may be found to 
control or have the power to control in any of the following 
circumstances, which are illustrative only and not all inclusive:
    (1) In circumstances where an applicant or Participant seeks to 
establish disadvantaged control of the Board of Directors through 
paragraph (d)(2) of this section, non-disadvantaged individuals control 
the Board of Directors of the applicant or Participant, either directly 
through majority voting membership, or indirectly, where the by-laws 
allow non-disadvantaged individuals effectively to prevent a quorum or 
block actions proposed by the disadvantaged individuals.
    (2) A non-disadvantaged individual or entity, having an equity 
interest in the applicant or participant, provides critical financial 
or bonding support or a critical license to the applicant or 
Participant which directly or indirectly allows the non-disadvantaged 
individual significantly to influence business decisions of the 
Participant.
    (3) A non-disadvantaged individual or entity controls the applicant 
or Participant or an individual disadvantaged owner through loan 
arrangements. Providing a loan guaranty on commercially reasonable 
terms does not, by itself, give a non-disadvantaged individual or 
entity the power to control a firm.
    (4) Business relationships exist with non-disadvantaged individuals 
or entities which cause such dependence that the applicant or 
Participant cannot exercise independent business judgment without great 
economic risk.


Sec. 124.107  What is potential for success?

    The applicant concern must possess reasonable prospects for success 
in competing in the private sector if admitted to the 8(a) BD program. 
To do so, it must be in business in its primary industry classification 
for at least two full years immediately prior to the date of its 8(a) 
BD application, unless a waiver for this requirement is granted 
pursuant to paragraph (b) of this section.
    (a) Income tax returns for each of the two previous tax years must 
show operating revenues in the primary industry in which the applicant 
is seeking 8(a) BD certification.
    (b)(1) SBA may waive the two years in business requirement if each 
of the following five conditions are met:
    (i) The individual or individuals upon whom eligibility is based 
have substantial business management experience;
    (ii) The applicant has demonstrated technical experience to carry 
out its business plan with a substantial likelihood for success if 
admitted to the 8(a) BD program;
    (iii) The applicant has adequate capital to sustain its operations 
and carry out its business plan as a Participant;
    (iv) The applicant has a record of successful performance on 
contracts from governmental or nongovernmental sources in its primary 
industry category; and
    (v) The applicant has, or can demonstrate its ability to timely 
obtain, the personnel, facilities, equipment, and any other 
requirements needed to perform contracts as a Participant.
    (2) The concern seeking a waiver under paragraph (b) must provide 
information on governmental and nongovernmental contracts in progress 
and completed (including letters of reference) in order to establish 
successful contract performance, and must demonstrate how it otherwise 
meets the five conditions for waiver. SBA considers an applicant's 
performance on both government and private sector contracts in 
determining whether the firm has an overall successful performance 
record. If, however, the applicant has performed only government 
contracts or only private sector contracts, SBA will review its 
performance on those contracts alone to determine whether the applicant 
possesses a record of successful performance.
    (c) In assessing potential for success, SBA considers the concern's 
access to credit and capital, including, but not limited to, access to 
long-term financing, access to working capital financing, equipment 
trade credit, access to raw materials and supplier trade credit, and 
bonding capability.
    (d) In assessing potential for success, SBA will also consider the 
technical and managerial experience of the applicant concern's 
managers, the operating history of the concern, the concern's record of 
performance on previous Federal and private sector contracts in the 
primary industry in which the concern is seeking 8(a) BD certification, 
and its financial capacity. The applicant concern as a whole must 
demonstrate both technical knowledge in its primary industry category 
and management experience sufficient to run its day-to-day operations.
    (e) The Participant or individuals employed by the Participant must 
hold all requisite licenses if the concern is engaged in an industry 
requiring professional licensing (e.g., public accountancy, law, 
professional engineering).
    (f) An applicant will not be denied admission into the 8(a) BD 
program due solely to a determination that potential 8(a) contract 
opportunities are unavailable to assist in the development of the 
concern unless:
    (1) The Government has not previously procured and is unlikely to 
procure the types of products or services offered by the concern; or
    (2) The purchase of such products or services by the Federal 
Government will not be in quantities sufficient to support the 
developmental needs of the applicant and other Participants providing 
the same or similar items or services.

[[Page 35746]]

Sec. 124.108  What other eligibility requirements apply for individuals 
or businesses?

    (a) Good character. The applicant or Participant and all its 
principals must have good character.
    (1) If, during the processing of an application, adverse 
information is obtained from the applicant or a credible source 
regarding possible criminal conduct by the applicant or any of its 
principals, no further action will be taken on the application until 
SBA's Inspector General has collected relevant information and has 
advised the AA/8(a)BD of his or her findings. The AA/8(a)BD will 
consider those findings when evaluating the application.
    (2) Violations of any of SBA's regulations may result in denial of 
participation in the 8(a) BD program. The AA/8(a)BD will consider the 
nature and severity of the violation in making an eligibility 
determination.
    (3) Debarred or suspended concerns or concerns owned by debarred or 
suspended persons are ineligible for admission to the 8(a) BD program.
    (4) An applicant is ineligible for admission to the 8(a) BD program 
if the applicant concern or a proprietor, partner, limited liability 
member, director, officer, or holder of at least 10 percent of its 
stock, or another person (including key employees) with significant 
authority over the concern:
    (i) Lacks business integrity as demonstrated by information related 
to an indictment or guilty plea, conviction, civil judgment, or 
settlement; or
    (ii) Is currently incarcerated, or on parole or probation pursuant 
to a pre-trial diversion or following conviction for a felony or any 
crime involving business integrity.
    (5) If, during the processing of an application, SBA determines 
that an applicant has knowingly submitted false information, regardless 
of whether correct information would cause SBA to deny the application, 
and regardless of whether correct information was given to SBA in 
accompanying documents, SBA will deny the application. If, after 
admission to the program, SBA discovers that false information has been 
knowingly submitted by a firm, SBA will initiate termination 
proceedings and suspend the firm under Secs. 124.304 and 124.305. 
Whenever SBA determines that the applicant submitted false information, 
the matter will be referred to SBA's Office of Inspector General for 
review.
    (b) One-time eligibility. Once a concern or disadvantaged 
individual upon whom eligibility was based has participated in the 8(a) 
BD program, neither the concern nor that individual will be eligible 
again.
    (1) An individual who claims disadvantage and completes the 
appropriate SBA forms to qualify an applicant has participated in the 
8(a) BD program if SBA approves the application.
    (2) Use of eligibility will take effect on the date of the 
concern's approval for admission into the program.
    (3) An individual who uses his or her one-time eligibility to 
qualify a concern for the 8(a) BD program will be considered a non-
disadvantaged individual for ownership or control purposes of another 
applicant or Participant. The criteria restricting participation by 
non-disadvantaged individuals will apply to such an individual. See 
Secs. 124.105 and 124.106.
    (4) When at least 50% of the assets of a concern are the same as 
those of a former Participant, the concern will not be eligible for 
entry into the program.
    (5) Participants which change their form of business organization 
and transfer their assets and liabilities to the new organization may 
do so without affecting the eligibility of the new organization 
provided the previous business is dissolved and all other eligibility 
criteria are met. In such a case, the new organization may complete the 
remaining program term of the previous organization. A request for a 
change in business form will be treated as a change of ownership under 
Sec. 124.105(i).
    (c) Wholesalers. An applicant concern seeking admission to the 8(a) 
BD program as a wholesaler need not demonstrate that it is capable of 
meeting the requirements of the nonmanufacturer rule for its primary 
industry classification.
    (d) Brokers. Brokers are ineligible to participate in the 8(a) BD 
program. A broker is a concern that adds no material value to an item 
being supplied to a procuring activity or which does not take ownership 
or possession of or handle the item being procured with its own 
equipment or facilities.
    (e) Federal financial obligations. Neither a firm nor any of its 
principals that fails to pay significant financial obligations owed to 
the Federal Government, including unresolved tax liens and defaults on 
Federal loans or other Federally assisted financing, is eligible for 
admission to or participation in the 8(a) BD program.


Sec. 124.109  Do Indian tribes and Alaska Native Corporations have any 
special rules for applying to the 8(a) BD program?

    (a) Special rules for ANCs. Small business concerns owned and 
controlled by ANCs are eligible for participation in the 8(a) program 
and must meet the eligibility criteria set forth in Sec. 124.112 to the 
extent the criteria are not inconsistent with this section. ANC-owned 
concerns are subject to the same conditions that apply to tribally-
owned concerns, as described in paragraphs (b) and (c) of this section, 
except that the following provisions and exceptions apply only to ANC-
owned concerns:
    (1) Alaska Natives and descendants of Natives must own a majority 
of both the total equity of the ANC and the total voting powers to 
elect directors of the ANC through their holdings of settlement common 
stock. Settlement common stock means stock of an ANC issued pursuant to 
43 U.S.C. 1606(g)(1), which is subject to the rights and restrictions 
listed in 43 U.S.C. 1606(h)(1).
    (2) An ANC that meets the requirements set forth in paragraph 
(a)(1) of this section is deemed economically disadvantaged under 43 
U.S.C. 1626(e), and need not establish economic disadvantage as 
required by paragraph (b)(2) of this section.
    (3) Even though an ANC can be either for profit or non-profit, a 
small business concern owned and controlled by an ANC must be for 
profit to be eligible for the 8(a) program. The concern will be deemed 
owned and controlled by the ANC where both the majority of stock or 
other ownership interest and total voting power are held by the ANC and 
holders of its settlement common stock.
    (4) The Alaska Native Claims Settlement Act provides that a concern 
which is majority owned by an ANC shall be deemed to be both owned and 
controlled by Alaska Natives and an economically disadvantaged 
business. Therefore, an individual responsible for control and 
management of an ANC-owned applicant or Participant need not establish 
personal social and economic disadvantage.
    (5) Paragraphs (b)(3)(i), (ii) and (iv) of this section are not 
applicable to an ANC, provided its status as an ANC is clearly shown in 
its articles of incorporation.
    (6) Paragraph (c)(1) of this section is not applicable to an ANC-
owned concern to the extent it requires an express waiver of sovereign 
immunity or a ``sue and be sued'' clause.
    (b) Tribal eligibility. In order to qualify a concern which it owns 
and controls for participation in the 8(a) BD program, an Indian tribe 
must establish its own economic disadvantaged status under paragraph 
(b)(2) of this section. Thereafter, it need not reestablish such status 
in order to have other businesses

[[Page 35747]]

that it owns certified for 8(a) BD program participation, unless 
specifically required to do so by the AA/8(a)BD or designee. Each 
tribally-owned concern seeking to be certified for 8(a) BD 
participation must comply with the provisions of paragraph (c) of this 
section.
    (1) Social disadvantage. An Indian tribe as defined in Sec. 124.3 
is considered to be socially disadvantaged.
    (2) Economic disadvantage. In order to be eligible to participate 
in the 8(a) BD program, the Indian tribe must demonstrate to SBA that 
the tribe itself is economically disadvantaged. This must involve the 
consideration of available data showing the tribe's economic condition, 
including but not limited to, the following information:
    (i) The number of tribal members.
    (ii) The present tribal unemployment rate.
    (iii) The per capita income of tribal members, excluding judgment 
awards.
    (iv) The percentage of the local Indian population below the 
poverty level.
    (v) The tribe's access to capital.
    (vi) The tribal assets as disclosed in a current tribal financial 
statement. The statement must list all assets including those which are 
encumbered or held in trust, but the status of those encumbered or in 
trust must be clearly delineated.
    (vii) A list of all wholly or partially owned tribal enterprises or 
affiliates and the primary industry classification of each. The list 
must also specify the members of the tribe who manage or control such 
enterprises by serving as officers or directors.
    (3) Forms and documents required to be submitted. Except as 
otherwise provided in this section, the Indian tribe generally must 
submit the forms and documents required of 8(a) BD applicants as well 
as the following material:
    (i) A copy of all governing documents such as the tribe's 
constitution or business charter.
    (ii) Evidence of its recognition as a tribe eligible for the 
special programs and services provided by the United States or by its 
state of residence.
    (iii) Copies of its articles of incorporation and bylaws as filed 
with the organizing or chartering authority, or similar documents 
needed to establish and govern a non-corporate legal entity.
    (iv) Documents or materials needed to show the tribe's economically 
disadvantaged status as described in paragraph (b)(2) of this section.
    (c) Business eligibility. In order to be eligible to participate in 
the 8(a) BD program, a concern which is owned by an eligible Indian 
tribe (or wholly owned business entities of such tribe) must meet the 
conditions set forth in paragraphs (c)(1) through (c)(7) of this 
section.
    (1) Legal business entity organized for profit and susceptible to 
suit. The applicant or participating concern must be a separate and 
distinct legal entity organized or chartered by the tribe, or Federal 
or state authorities. The concern's articles of incorporation, 
partnership agreement or limited liability company articles of 
organization must contain express sovereign immunity waiver language, 
or a ``sue and be sued'' clause which designates United States Federal 
Courts to be among the courts of competent jurisdiction for all matters 
relating to SBA's programs including, but not limited to, 8(a) BD 
program participation, loans, and contract performance. Also, the 
concern must be organized for profit, and the tribe must possess 
economic development powers in the tribe's governing documents.
    (2) Size. (i) A tribally-owned applicant concern must qualify as a 
small business concern as defined for purposes of Federal Government 
procurement in part 121 of this title. The particular size standard to 
be applied is based on the primary industry classification of the 
applicant concern.
    (ii) A tribally-owned Participant must certify to SBA that it is a 
small business pursuant to the provisions of part 121 of this title for 
the purpose of performing each individual contract which it is awarded.
    (iii) In determining the size of a small business concern owned by 
a socially and economically disadvantaged Indian tribe (or a wholly 
owned business entity of such tribe) for either 8(a) BD program entry 
or contract award, the firm's size shall be determined independently 
without regard to its affiliation with the tribe, any entity of the 
tribal government, or any other business enterprise owned by the tribe, 
unless the Administrator determines that one or more such tribally-
owned business concerns have obtained, or are likely to obtain, a 
substantial unfair competitive advantage within an industry category.
    (3) Ownership. (i) For corporate entities, a tribe must own at 
least 51 percent of the voting stock and at least 51 percent of the 
aggregate of all classes of stock. For non-corporate entities, a tribe 
must own at least a 51 percent interest.
    (ii) A tribe cannot own 51% or more of another firm which, either 
at the time of application or within the previous two years, has been 
operating in the 8(a) program under the same primary SIC code as the 
applicant. A tribe may, however, own a Participant or an applicant that 
conducts or will conduct secondary business in the 8(a) BD program 
under the same SIC code that a current Participant owned by the tribe 
operates in the 8(a) BD program as its primary SIC code.
    (iii) The restrictions of Sec. 124.105(h) do not apply to tribes; 
they do, however, apply to non disadvantaged individuals or other 
business concerns that are partial owners of a tribally-owned concern.
    (4) Control and management. (i) The management and daily business 
operations of a tribally-owned concern must be controlled by the tribe, 
through one or more disadvantaged individual members who possess 
sufficient management experience of an extent and complexity needed to 
run the concern, or through management as follows:
    (A) Management may be provided by committees, teams, or Boards of 
Directors which are controlled by one or more members of an 
economically disadvantaged tribe, or
    (B) Management may be provided by non-tribal members if SBA 
determines that such management is required to assist the concern's 
development, that the tribe will retain control of all management 
decisions common to boards of directors, including strategic planning, 
budget approval, and the employment and compensation of officers, and 
that a written management development plan exists which shows how 
disadvantaged tribal members will develop managerial skills sufficient 
to manage the concern or similar tribally-owned concerns in the future.
    (ii) Members of the management team, business committee members, 
officers, and directors are precluded from engaging in any outside 
employment or other business interests which conflict with the 
management of the concern or prevent the concern from achieving the 
objectives set forth in its business development plan. This is not 
intended to preclude participation in tribal or other activities which 
do not interfere with such individual's responsibilities in the 
operation of the applicant concern.
    (5) Individual eligibility limitation. SBA does not deem an 
individual involved in the management or daily business operations of a 
tribally-owned concern to have used his or her individual eligibility 
within the meaning of Sec. 124.108(b).
    (6) Potential for success. (i) A tribally-owned applicant concern 
must be in business for at least two years, as evidenced by income tax 
returns for

[[Page 35748]]

each of the two previous tax years showing operating revenues in the 
primary industry in which the applicant is seeking 8(a) BD 
certification, or demonstrate potential for success as set forth in 
paragraph (c)(6)(ii) of this section.
    (ii) In determining whether a tribally-owned concern has the 
potential for success, SBA will look at a number of factors including, 
but not limited to:
    (A) The technical and managerial experience and competency of the 
individual(s) who will manage and control the daily operation of the 
concern;
    (B) The financial capacity of the concern; and
    (C) The concern's record of performance on any previous Federal or 
private sector contracts in the primary industry in which the concern 
is seeking 8(a) certification.
    (7) Other eligibility criteria. (i) As with other 8(a) applicants, 
a tribally-owned applicant concern shall not be denied admission into 
the 8(a) program due solely to a determination that specific contract 
opportunities are unavailable to assist the development of the concern 
unless:
    (A) The Government has not previously procured and is unlikely to 
procure the types of products or services offered by the concern; or
    (B) The purchase of such products or services by the Federal 
Government will not be in quantities sufficient to support the 
developmental needs of the applicant and other program participants 
providing the same or similar items or services.
    (ii) Except for the tribe itself, the concern's officers, 
directors, and all shareholders owning an interest of 20% or more must 
demonstrate good character. See Sec. 124.108(a).


Sec. 124.110  Do Native Hawaiian Organizations have any special rules 
for applying to the 8(a) BD program?

    (a) Concerns owned by economically disadvantaged Native Hawaiian 
Organizations, as defined in Sec. 124.3, are eligible for participation 
in the 8(a) program and other federal programs requiring SBA to 
determine social and economic disadvantage as a condition of 
eligibility. Such concerns must meet all eligibility criteria set forth 
in Secs. 124.101 through 124.108 and Sec. 124.112 to the extent that 
they are not inconsistent with this section.
    (b) A concern owned by a Native Hawaiian Organization must qualify 
as a small business concern as defined in part 121 of this title. The 
size standard corresponding to the primary industry classification of 
the applicant concern applies for determining size. SBA will determine 
the concern's size independently, without regard to its affiliation 
with the Native Hawaiian Organization or any other business enterprise 
owned by the Native Hawaiian Organization, unless the Administrator 
determines that one or more such concerns owned by the Native Hawaiian 
Organization have obtained, or are likely to obtain, a substantial 
unfair competitive advantage within an industry category.
    (c) A Native Hawaiian Organization cannot own 51% or more of 
another firm which, either at the time of application or within the 
previous two years, has been operating in the 8(a) program under the 
same primary SIC code as the applicant. A Native Hawaiian Organization 
may, however, own a Participant or an applicant that conducts or will 
conduct secondary business in the 8(a) BD program under the same SIC 
code that a current Participant owned by the Native Hawaiian 
Organization operates in the 8(a) BD program as its primary SIC code.
    (d) SBA does not deem an individual involved in the management or 
daily business operations of a Participant owned by a Native Hawaiian 
Organization to have used his or her individual eligibility within the 
meaning of Sec. 124.108(b).
    (e)(1) An applicant concern owned by a Native Hawaiian Organization 
must be in business for at least two years, as evidenced by income tax 
returns for each of the two previous tax years showing operating 
revenues in the primary industry in which the applicant is seeking 8(a) 
BD certification, or demonstrate potential for success as set forth in 
paragraph (e)(2) of this section.
    (2) In determining whether a concern owned by a Native Hawaiian 
Organization has the potential for success, SBA will look at a number 
of factors including, but not limited to:
    (i) The technical and managerial experience and competence of the 
individual(s) who will manage and control the daily operation of the 
concern.
    (ii) The financial capacity of the concern; and
    (iii) The concern's record of performance on any previous Federal 
or private sector contracts in the primary industry in which the 
concern is seeking 8(a) certification.


Sec. 124.111  Do Community Development Corporations (CDCs) have any 
special rules for applying to the 8(a) BD program?

    (a) Concerns owned at least 51 percent by CDCs (or a wholly owned 
business entity of a CDC) are eligible for participation in the 8(a) BD 
program and other federal programs requiring SBA to determine social 
and economic disadvantage as a condition of eligibility. These concerns 
must meet all eligibility criteria set forth in Sec. 124.101 through 
Sec. 124.108 and Sec. 124.112 to the extent that they are not 
inconsistent with this section.
    (b) A concern that is at least 51 percent owned by a CDC (or a 
wholly owned business entity of a CDC) is considered to be controlled 
by such CDC and eligible for participation in the 8(a) BD program, 
provided it meets all eligibility criteria set forth or referred to in 
this section and its management and daily business operations are 
conducted by one or more individuals determined to have managerial 
experience of an extent and complexity needed to run the concern.
    (c) A concern that is at least 51 percent owned by a CDC (or a 
wholly owned business entity of a CDC) must qualify as a small business 
concern as defined in part 121 of this title. The size standard 
corresponding to the primary industry classification of the applicant 
concern applies for determining size. SBA will determine the concern's 
size independently, without regard to its affiliation with the CDC or 
any other business enterprise owned by the CDC, unless the 
Administrator determines that one or more such concerns owned by the 
CDC have obtained, or are likely to obtain, a substantial unfair 
competitive advantage within an industry category.
    (d) A CDC cannot own 51% or more of another firm which, either at 
the time of application or within the previous two years, has been 
operating in the 8(a) program under the same primary SIC code as the 
applicant. A CDC may, however, own a Participant or an applicant that 
conducts or will conduct secondary business in the 8(a) BD program 
under the same SIC code that a current Participant owned by the CDC 
operates in the 8(a) BD program as its primary SIC code.
    (e) SBA does not deem an individual involved in the management or 
daily business operations of a CDC-owned concern to have used his or 
her individual eligibility within the meaning of Sec. 124.108(b).
    (f)(1) A CDC-owned applicant concern must be in business for at 
least two years, as evidenced by income tax returns for each of the two 
previous tax years showing operating revenues in the primary industry 
in which the applicant is seeking 8(a) BD certification, or demonstrate 
potential for success as set forth in paragraph (e)(2) of this section.

[[Page 35749]]

    (2) In determining whether a CDC-owned concern has the potential 
for success, SBA will look at a number of factors including, but not 
limited to:
    (i) The technical and managerial experience and competence of the 
individual(s) who will manage and control the daily operation of the 
concern;
    (ii) The financial capacity of the concern; and
    (iii) The concern's record of performance on any previous Federal 
or private sector contracts in the primary industry in which the 
concern is seeking 8(a) certification.
    (g) A CDC-owned applicant and all of its principals must have good 
character as set forth in Sec. 124.108(a).


Sec. 124.112  What criteria must a business meet to remain eligible to 
participate in the 8(a) BD program?

    (a) Standards. In order for a concern (except those owned by Indian 
tribes, ANCs, Native Hawaiian Organizations or CDCs) to remain eligible 
for 8(a) BD program participation, it must continue to meet all 
eligibility criteria contained in Sec. 124.101 through Sec. 124.108. 
For concerns owned by Indian tribes, ANCs, Native Hawaiian 
Organizations or CDCs to remain eligible, they must meet the criteria 
set forth in this Sec. 124.112 to the extent that they are not 
inconsistent with Sec. 124.109, Sec. 124.110 and Sec. 124.111, 
respectively. The concern must inform SBA in writing of any changes in 
circumstances which would adversely affect its program eligibility, 
especially economic disadvantage and ownership and control. Any concern 
that fails to meet the eligibility requirements after being admitted to 
the program will be subject to termination or early graduation under 
Secs. 124.302 through 124.304, as appropriate.
    (b) Submissions supporting continued eligibility. As part of an 
annual review, each Participant must annually submit to the servicing 
district office the following:
    (1) A certification that it meets the 8(a) BD program eligibility 
requirements as set forth in Sec. 124.101 through Sec. 124.108 and 
paragraph (a) of this section;
    (2) A certification that there have been no changed circumstances 
which could adversely affect the Participant's program eligibility. If 
the Participant is unable to provide such certification, the 
Participant must inform SBA of any changes and provide relevant 
supporting documentation.
    (3) Personal financial information for each disadvantaged owner;
    (4) A record from each individual claiming disadvantaged status 
regarding the transfer of assets for less than fair market value to any 
immediate family member, or to a trust any beneficiary of which is an 
immediate family member, within two years of the date of the annual 
review. The record must provide the name of the recipient(s) and family 
relationship, and the difference between the fair market value of the 
asset transferred and the value received by the disadvantaged 
individual.
    (5) A record of all payments, compensation, and distributions 
(including loans, advances, salaries and dividends) made by the 
Participant to each of its owners, officers or directors, or to any 
person or entity affiliated with such individuals;
    (6) If it is an approved protege, a narrative report detailing the 
contacts it has had with its mentor and benefits it has received from 
the mentor/protege relationship. See Sec. 124.520(b)(4) for additional 
annual requirements;
    (7) IRS Form 4506, Request for Copy or Transcript of Tax Form; and
    (8) Such other information as SBA may deem necessary. For other 
required annual submissions, see Secs. 124.601 through 124.603.
    (c) Eligibility reviews. (1) Upon receipt of specific and credible 
information alleging that a Participant no longer meets the eligibility 
requirements for continued program eligibility, SBA will review the 
concern's eligibility for continued participation in the program.
    (2) Sufficient reasons for SBA to conclude that a socially 
disadvantaged individual is no longer economically disadvantaged 
include, but are not limited to, excessive withdrawals of funds or 
other assets withdrawn from the concern by its owners, or substantial 
personal assets, income or net worth of any disadvantaged owner. SBA 
may also consider access by the Participant firm to a significant new 
source of capital or loans since the financial condition of the 
Participant is considered in evaluating the disadvantaged individual's 
economic status.
    (d) Excessive withdrawals. (1) The term withdrawal includes, but is 
not limited to, the following: officer's salary; cash dividends; 
distributions in excess of amounts needed to pay S Corporation taxes; 
cash and property withdrawals; bonuses; loans; advances; payments to 
immediate family members; investments on behalf of an owner, officer, 
or key employee; acquisition of a business not merged with the 8(a) 
Participant; charitable contributions; and speculative ventures.
    (2) If SBA determines that excessive funds or other assets have 
been withdrawn from the Participant, SBA may:
    (i) Initiate termination proceedings under Secs. 124.303 and 
124.304 where the withdrawals detrimentally affect the achievement of 
the Participant's targets, objectives and goals set forth in its 
business plan, or its overall business development;
    (ii) Initiate early graduation proceedings under Secs. 124.302 and 
124.303 where the withdrawals do not adversely affect the Participant's 
business development; or
    (iii) Require an appropriate reinvestment of funds or other assets, 
as well as any other actions SBA deems necessary to counteract the 
detrimental effects of the withdrawals, as a condition of the 
Participant maintaining program eligibility.
    (3) Withdrawals are excessive if during any fiscal year of the 
Participant they exceed (i) $150,000 for firms with sales up to 
$1,000,000; (ii) $200,000 for firms with sales between $1,000,000 and 
$2,000,000; and (iii) $300,000 for firms with sales over $2,000,000.
    (4) The fact that a concern's net worth has increased despite 
withdrawals that are deemed excessive will not preclude SBA from 
determining that such withdrawals were detrimental to the attainment of 
the concern's business objectives or to its overall business 
development.

Applying to the 8(a) BD Program


Sec. 124.201  May any business submit an application?

    Any concern or any individual on behalf of a business has the right 
to apply for 8(a) BD program participation whether or not there is an 
appearance of eligibility.


Sec. 124.202  Where must an application be filed?

    An application for 8(a) BD program admission must be filed in the 
SBA Division of Program Certification and Eligibility (DPCE) field 
office serving the territory in which the principal place of business 
is located. The SBA district office will provide an applicant concern 
with information regarding the 8(a) BD program and with all required 
application forms.


Sec. 124.203  What must a concern submit to apply to the 8(a) BD 
program?

    Each 8(a) BD applicant concern must submit those forms and 
attachments required by SBA when applying for admission to the 8(a) BD 
program. These forms and attachments will include, but not be limited 
to, financial statements, Federal personal and business tax returns, 
and personal history statements. An applicant must also submit IRS Form 
4506, Request for Copy

[[Page 35750]]

or Transcript of Tax Form, to SBA. The application package may be in 
the form of an electronic application.


Sec. 124.204  How does SBA process applications for 8(a) BD program 
admission?

    (a) The AA/8(a)BD is authorized to approve or decline applications 
for admission to the 8(a) BD program. The appropriate DPCE field office 
will receive, review and evaluate all 8(a) BD applications except those 
from ANC-owned applicants. SBA's Anchorage District Office will receive 
all applications from ANC-owned applicants and review them for 
completeness before sending them to the AA/8(a)BD for further 
processing. The appropriate field office will advise each program 
applicant within 15 days after the receipt of an application whether 
the application is complete and suitable for evaluation and, if not, 
what additional information or clarification is required to complete 
the application. SBA will process an application for 8(a) BD program 
participation within 90 days of receipt of a complete application 
package by the DPCE field office. Incomplete application packages will 
not be processed.
    (b) SBA, in its sole discretion, may request clarification of 
information contained in the application at any time in the application 
process. SBA will take into account any clarifications made by an 
applicant in response to a request for such by SBA.
    (c) An applicant concern's eligibility will be based on 
circumstances existing on the date of application, except where 
clarification is made pursuant to paragraph (b) of this section or as 
provided in paragraph (d) of this section.
    (d) Changed circumstances for an applicant concern occurring 
subsequent to its application and which adversely affect eligibility 
will be considered and may constitute grounds for decline. The 
applicant must inform SBA of any changed circumstances that could 
adversely affect its eligibility for the program (particularly economic 
disadvantage and ownership and control) during its application review. 
Failure to inform SBA of any such changed circumstances constitutes 
good cause for which SBA may terminate the Participant if non-
compliance is discovered after admittance.
    (e) The decision of the AA/8(a)BD to approve or deny an application 
will be in writing. A decision to deny admission will state the 
specific reasons for denial, and will inform the applicant of any 
appeal rights.
    (f) If the AA/8(a)BD approves the application, the date of the 
approval letter is the date of program certification for purposes of 
determining the concern's program term.


Sec. 124.205  Can an applicant ask SBA to reconsider SBA's initial 
decision to decline its application?

    (a) An applicant may request the AA/8(a)BD to reconsider his or her 
initial decline decision by filing a request for reconsideration with 
the SBA field office that originally processed its application. Filing 
means submission by personal delivery, first-class mail, express mail, 
fascimile transmission followed by first-class mail, or commercial 
delivery service. The applicant must submit its request for 
reconsideration within 45 days of receiving notice that its application 
was declined. The applicant must provide any additional information and 
documentation pertinent to overcoming the reason(s) for the initial 
decline.
    (b) The AA/8(a)BD will issue a written decision within 45 days of 
the regional DPCE's receipt of the applicant's request. The AA/8(a)BD 
may either approve the application, deny it on the same grounds as the 
original decision, or deny it on other grounds. If denied, the AA/
8(a)BD will explain why the applicant is not eligible for admission to 
the 8(a) BD program and give specific reasons for the decline.
    (c) If the AA/8(a)BD declines the application solely on issues not 
raised in the initial decline, the applicant can ask for 
reconsideration as if it were an initial decline.


Sec. 124.206  What appeal rights are available to an applicant that has 
been denied admission?

    (a) An applicant may appeal a denial of program admission to SBA's 
Office of Hearings and Appeals (OHA), if it is based solely on a 
negative finding of social disadvantage, economic disadvantage, 
ownership, control, or any combination of these four criteria. A denial 
decision that is based at least in part on the failure to meet any 
other eligibility criterion is not appealable and is the final decision 
of SBA.
    (b) The applicant may appeal an initial decision of the AA/8(a)BD 
without requesting reconsideration, or may appeal the decision of the 
AA/8(a)BD on reconsideration.
    (c) The applicant may initiate an appeal by filing a petition in 
accordance with part 134 of this title with OHA within 45 days of the 
date of service (as defined in Sec. 134.204) of the Agency decision.
    (d) If an appeal is filed with OHA, the written decision of the 
Administrative Law Judge is the final Agency decision. If an appealable 
decision is not appealed, the decision of the AA/8(a)BD is the final 
Agency decision.


Sec. 124.207  Can an applicant reapply for admission to the 8(a) BD 
program?

    A concern which has been declined for 8(a) BD program admission may 
submit a new application for admission to the program 12 months after 
the date of the final Agency decision to decline.

Exiting the 8(a) BD Program


Sec. 124.301  What are the ways a business may leave the 8(a) BD 
program?

    A concern participating in the 8(a) BD program may leave the 
program by any of the following means:
    (a) Graduation upon the expiration of the program term established 
pursuant to Sec. 124.2;
    (b) Voluntary early graduation;
    (c) Early graduation pursuant to the provisions of Secs. 124.302 
and 124.304; or
    (d) Termination pursuant to the provisions of Secs. 124.303 and 
124.304.


Sec. 124.302  What is early graduation?

    (a) General. SBA may graduate a firm from the 8(a) BD program prior 
to the expiration of its Program Term where SBA determines that:
    (1) The concern has successfully completed the 8(a) BD program by 
substantially achieving the targets, objectives, and goals set forth in 
its business plan prior to the expiration of its program term, and has 
demonstrated the ability to compete in the marketplace without 
assistance under the 8(a) BD program; or
    (2) One or more of the disadvantaged owners upon whom the 
Participant's eligibility is based are no longer economically 
disadvantaged.
    (b) Criteria for determining whether a Participant has met its 
goals and objectives. In determining whether a Participant has 
substantially achieved the targets, objectives and goals of its 
business plan and in assessing the overall competitive strength and 
viability of a Participant, SBA considers the totality of 
circumstances, including the following factors:
    (1) Degree of sustained profitability;
    (2) Sales trends, including improved ratio of non-8(a) sales to 
8(a) sales since program entry;
    (3) Business net worth, financial ratios, working capital, 
capitalization, and access to credit and capital;
    (4) Current ability to obtain bonding;
    (5) A comparison of the Participant's business and financial 
profiles with profiles of non-8(a) BD businesses having the same 
primary four-digit SIC code as the Participant;

[[Page 35751]]

    (6) Strength of management experience, capability, and expertise; 
and
    (7) Ability to operate successfully without 8(a) contracts.
    (c) Excessive withdrawals. SBA may graduate a Participant prior to 
the expiration of its program term where excessive funds or other 
assets have been withdrawn from the Participant (see 
Sec. 124.112(d)(3)), causing SBA to determine that the Participant has 
demonstrated the ability to compete in the marketplace without 
assistance under the 8(a) BD program.


Sec. 124.303  What is termination?

    (a) SBA may terminate the participation of a concern in the 8(a) BD 
program prior to the expiration of the concern's Program Term for good 
cause. Examples of good cause include, but are not limited to, the 
following:
    (1) Submission of false information in the concern's 8(a) BD 
application, regardless of whether correct information would have 
caused the concern to be denied admission to the program, and 
regardless of whether correct information was given to SBA in 
accompanying documents or by other means.
    (2) Failure by the concern to maintain its eligibility for program 
participation.
    (3) Failure by the concern for any reason, including the death of 
an individual upon whom eligibility was based, to maintain ownership, 
full-time day-to-day management, and control by disadvantaged 
individuals.
    (4) Failure by the concern to obtain prior written approval from 
SBA for any changes in ownership or business structure, management or 
control pursuant to Secs. 124.105 and 124.106.
    (5) Failure by the concern to disclose to SBA the extent to which 
non-disadvantaged persons or firms participate in the management of the 
Participant business concern.
    (6) Failure by the concern or one or more of the concern's 
principals to maintain good character.
    (7) A pattern of failure to make required submissions or responses 
to SBA in a timely manner, including a failure to provide required 
financial statements, requested tax returns, reports, updated business 
plans, information requested by SBA's Office of Inspector General, or 
other requested information or data within 30 days of the date of 
request.
    (8) Cessation of business operations by the concern.
    (9) Failure by the concern to pursue competitive and commercial 
business in accordance with its business plan, or failure in other ways 
to make reasonable efforts to develop and achieve competitive 
viability.
    (10) A pattern of inadequate performance by the concern of awarded 
section 8(a) contracts.
    (11) Failure by the concern to pay or repay significant financial 
obligations owed to the Federal Government.
    (12) Failure by the concern to obtain and keep current any and all 
required permits, licenses, and charters, including suspension or 
revocation of any professional license required to operate the 
business.
    (13) Excessive withdrawals, including transfers of funds or other 
business assets, from the concern for the personal benefit of any of 
its owners or any person or entity affiliated with the owners that 
hinder the development of the concern (see Sec. 124.112(d).
    (14) Unauthorized use of SBA direct or guaranteed loan proceeds or 
violation of an SBA loan agreement.
    (15) Submission by or on behalf of a Participant of false 
information to SBA, including false certification of compliance with 
non-8(a) business activity targets under Sec. 124.507 or failure to 
report changes that adversely affect the program eligibility of an 
applicant or program participant under Sec. 124.204 and Sec. 124.112, 
where responsible officials of the 8(a) BD Participant knew or should 
have known the submission to be false.
    (16) Debarment, suspension, voluntary exclusion, or ineligibility 
of the concern or its principals pursuant to part 145 of this title or 
FAR subpart 9.4 (48 CFR part 9, subpart 9.4).
    (17) Conduct by the concern, or any of its principals, indicating a 
lack of business integrity. Such conduct may be demonstrated by 
information related to a criminal indictment or guilty plea, a criminal 
conviction, or a judgment or settlement in a civil case.
    (18) Willful failure by the Participant business concern to comply 
with applicable labor standards and obligations.
    (19) Material breach of any terms and conditions of the 8(a) BD 
Program Participation Agreement.
    (20) Willful violation by a concern, or any of its principals, of 
any SBA regulation pertaining to material issues.
    (b) The examples of good cause listed in paragraph (a) of this 
section are intended to be illustrative only. Other grounds for 
terminating a Participant from the 8(a) BD program for cause may exist 
and may be used by SBA.


Sec. 124.304  What are the procedures for early graduation and 
termination?

    (a) General. The same procedures apply to both early graduation and 
termination of Participants from the 8(a) BD program.
    (b) Letter of Intent to Terminate or Graduate Early. When SBA 
believes that a Participant should be terminated or graduated prior to 
the expiration of its program term, SBA will notify the concern in 
writing. The Letter of Intent to Terminate or Graduate Early will set 
forth the specific facts and reasons for SBA's findings, and will 
notify the concern that it has 30 days from the date of service (as 
defined in Sec. 134.204 of this title) of the letter to submit a 
written response to SBA explaining why the proposed ground(s) should 
not justify termination or early graduation. Service is defined in 
Sec. 134.204.
    (c) Recommendation and decision. Following the 30-day response 
period, the Assistant Administrator for DPCE (AA/DPCE) or designee will 
consider the proposed early graduation or termination and any 
information submitted in response by the concern. Upon determining that 
early graduation or termination is not warranted, the AA/DPCE or 
designee will notify the Participant in writing. If early graduation or 
termination appears warranted, the AA/DPCE will make such a 
recommendation to the AA/8(a)BD, who will then make a decision whether 
to early graduate or terminate the concern. SBA will act in a timely 
manner in processing early graduation and termination actions.
    (d) Notice requirements. Upon deciding that early graduation or 
termination is warranted, the AA/8(a)BD will issue a Notice of Early 
Graduation or Termination. The Notice will set forth the specific facts 
and reasons for the decision, and will advise the concern that it may 
appeal the decision in accordance with the provisions of part 134 of 
this title.
    (e) Appeal to OHA. Procedures governing appeals of early graduation 
or termination to SBA's OHA are set forth in part 134. If a Participant 
does not appeal a Notification of Early Graduation or Termination 
within 45 days of the date of service (as defined in Sec. 134.204), the 
decision of the AA/8(a)BD is the final agency decision effective on the 
date the appeal right expired.
    (f) Effect of early graduation or termination. After the effective 
date of early graduation or termination, a Participant is no longer 
eligible to receive any 8(a) BD program assistance. However, such 
concern is obligated to complete previously awarded 8(a) contracts, 
including any priced options which may be exercised.

[[Page 35752]]

Sec. 124.305  What is suspension and how is a Participant suspended 
from the 8(a) BD program?

    (a) At any time after SBA issues a Letter of Intent to Terminate 
pursuant to Sec. 124.304, the AA/8(a)BD may suspend 8(a) contract 
support and all other forms of 8(a) BD program assistance to that 
concern until the issue of the concern's termination from the program 
is finally decided. The AA/8(a)BD may suspend a Participant when he or 
she determines that suspension is needed to protect the interests of 
the Federal Government, such as where information showing a clear lack 
of program eligibility or conduct indicating a lack of business 
integrity exists, including where the concern or one of its principals 
submitted false statements to the Federal Government. SBA will suspend 
a Participant where SBA determines that the Participant submitted false 
information in its 8(a) BD application.
    (b) SBA will issue a Notice of Suspension to the Participant's last 
known address by certified mail, return receipt requested. Suspension 
is effective as of the date of the issuance of the Notice. The Notice 
will provide the following information:
    (1) The basis for the suspension;
    (2) A statement that the suspension will continue pending the 
completion of further investigation, a final program termination 
determination, or some other specified period of time;
    (3) A statement that awards of competitive and non-competitive 8(a) 
contracts, including those which have been ``self-marketed'' by a 
Participant, will not be made during the pendency of the suspension 
unless it is determined by the head of the relevant procuring agency or 
an authorized representative to be in the best interest of the 
Government to do so, and SBA adopts that determination;
    (4) A statement that the concern is obligated to complete 
previously awarded section 8(a) contracts;
    (5) A statement that the suspension is effective nationally 
throughout SBA;
    (6) A statement that a request for a hearing on the suspension will 
be considered by an Administrative Law Judge at OHA, and granted or 
denied as a matter of discretion.
    (7) A statement that the firm's participation in the program is 
suspended effective on the date the Notice is served, and that the 
program term will resume only if the suspension is lifted or the firm 
is not terminated.
    (c) The applicant concern may appeal a Notice of Suspension by 
filing a petition in accordance with part 134 of this title with OHA 
within 45 days of the date of service (as defined in Sec. 134.204) of a 
Notice of Suspension pursuant to paragraph (b) of this section. It is 
contemplated that in most cases a hearing on the issue of the 
suspension will be afforded if the Participant requests one, but 
authority to grant a hearing is within the discretion of the 
Administrative Law Judge in OHA. A suspension remains in effect pending 
the result of its appeal.
    (d) SBA has the burden of showing that adequate evidence exists 
that protection of the Federal Government's interest requires 
suspension before OHA or the AA/8(a)BD makes a final determination 
regarding the termination action.
    (1) The term ``adequate evidence'' means information contained in 
the record before the AA/8(a)BD at the time of his or her suspension 
decision that is sufficient to support the reasonable belief that the 
Government's interests need to be protected.
    (2) SBA need not demonstrate that an act or omission actually 
occurred in order for OHA to uphold a suspension. SBA's burden in a 
suspension proceeding is limited to demonstrating that it had a 
reasonable belief that a particular act or omission occurred, and that 
that act or omission requires suspension to protect the interests of 
the Government.
    (3) Unless the Administrative Law Judge consolidates the suspension 
and termination proceedings, OHA's review is limited to determining 
whether the Government's interests need to be protected, and will not 
consider the merits of the termination action.
    (e) If there is a timely appeal, the decision of the Administrative 
Law Judge is the final SBA decision. If there is not a timely appeal, 
the decision of the AA/8(a)BD is the final Agency decision.
    (f) Upon the request of SBA, OHA may consolidate suspension and 
termination proceedings when the issues presented are identical.
    (g) Any program suspension which occurs under this section is 
effective until such time as SBA lifts the suspension or the 
Participant's participation in the program is fully terminated. If the 
concern is ultimately not terminated from the 8(a) BD program, the 
suspension will be lifted and the length of the suspension will be 
added to the concern's program term.
    (h) SBA may suspend a Participant from program benefits where a 
change of ownership or business structure has been requested if 
ownership or control of the participant changed prior to SBA's approval 
pending resolution of the request to change its ownership or control. 
If the change of ownership is approved, the length of the suspension 
will be added to the firm's program term where the change in ownership 
results from the death or incapacity of a disadvantaged individual or 
where the firm requested prior approval and waited 60 days for SBA 
approval before making the change. The suspension will be commenced by 
the issuance of a notice similar to that required for termination-
related suspensions under paragraph (b) of this section, except that a 
change of ownership suspension is not appealable.
    (i) SBA does not recognize the concept of de facto suspension. 
Adding time to the end of a Participant's program term equal to the 
length of a suspension will occur only where a concern's program 
participation has been formally suspended in accordance with the 
procedures set forth in this section.
    (j) A suspension from 8(a) BD participation under this section has 
no effect on a concern's eligibility for non-8(a) Federal Government 
contracts. However, a debarment or suspension under the Federal 
Acquisition Regulation (48 CFR, chapter 1) will disqualify a concern 
from receiving all Federal Government contracts, including 8(a) 
contracts.

Business Development


Sec. 124.401  Which SBA field office services a Participant?

    The SBA district office which serves the geographical territory 
where a Participant's principal place of business is located normally 
will service the concern during its participation in the 8(a) BD 
program.


Sec. 124.402  How does a Participant develop a business plan?

    (a) General. In order to assist the SBA servicing office in 
determining the business development needs of its portfolio 
Participants, each Participant must develop a comprehensive business 
plan setting forth its business targets, objectives, and goals.
    (b) Submission of initial business plan. Each Participant must 
submit a business plan to its SBA servicing office as soon as possible 
after program admission. The Participant will not be eligible for 8(a) 
BD program benefits, including 8(a) contracts, until SBA approves its 
business plan.
    (c) Contents of business plan. The business plan must contain at 
least the following:
    (1) A detailed description of any products currently being produced 
and any services currently being performed by the concern, as well as 
any future

[[Page 35753]]

plans to enter into one or more new markets;
    (2) The applicant's designation of its primary industry 
classification, as defined in Sec. 124.3;
    (3) An analysis of market potential, competitive environment, and 
the concern's prospects for profitable operations during and after its 
participation in the 8(a) BD program;
    (4) An analysis of the concern's strengths and weaknesses, with 
particular attention on ways to correct any financial, managerial, 
technical, or work force conditions which could impede the concern from 
receiving and performing non-8(a) contracts;
    (5) Specific targets, objectives, and goals for the business 
development of the concern during the next two years;
    (6) Estimates of both 8(a) and non-8(a) contract awards that will 
be needed to meet its targets, objectives and goals; and
    (7) Such other information as SBA may require.


Sec. 124.403  How is a business plan updated and modified?

    (a) Annual review. Each Participant must annually review its 
business plan with its assigned Business Opportunity Specialist (BOS), 
and modify the plan as appropriate. The Participant must submit a 
modified plan and updated information to its BOS within thirty (30) 
days after the close of each program year. It also must submit a 
capability statement describing its current contract performance 
capabilities as part of its updated business plan.
    (b) Contract forecast. As part of the annual review of its business 
plan, each Participant must annually forecast in writing its needs for 
contract awards for the next program year. The forecast must include:
    (1) The aggregate dollar value of 8(a) contracts to be sought, 
broken down by sole source and competitive opportunities where 
possible;
    (2) The aggregate dollar value of non-8(a) contracts to be sought;
    (3) The types of contract opportunities to be sought, identified by 
product or service; and
    (4) Such other information as SBA may request to aid in providing 
effective business development assistance to the Participant.
    (c) Transition management strategy. Beginning in the first year of 
the transitional stage of program participation, each Participant must 
annually submit a transition management strategy to be incorporated 
into its business plan. The transition management strategy must 
describe:
    (1) How the Participant intends to meet the applicable non-8(a) 
business activity target imposed by Sec. 124.507 during the 
transitional stage of participation; and
    (2) The specific steps the Participant intends to take to continue 
its business growth and promote profitable business operations after 
the expiration of its program term.


Sec. 124.404  What business development assistance is available to 
Participants during the two stages of participation in the 8(a) BD 
program?

    (a) General. Participation in the 8(a) BD program is divided into 
two stages, a developmental stage and a transitional stage. The 
developmental stage will last four years, and the transitional stage 
will last five years, unless the concern has exited the program by one 
of the means set forth in Sec. 124.301 prior to the expiration of its 
program term.
    (b) Developmental stage of program participation. A Participant, if 
otherwise eligible, may receive the following assistance during the 
developmental stage of program participation:
    (1) Sole source and competitive 8(a) contract support;
    (2) Financial assistance pursuant to Sec. 120.375 of this title;
    (3) The transfer of technology or surplus property owned by the 
United States pursuant to Sec. 124.405; and
    (4) Training to aid in developing business principles and 
strategies to enhance their ability to compete successfully for both 
8(a) and non-8(a) contracts.
    (c) Transitional stage of program participation. A Participant, if 
otherwise eligible, may receive the following assistance during the 
transitional stage of program participation:
    (1) The same assistance as that provided to Participants in the 
developmental stage;
    (2) Assistance from procuring agencies (in cooperation with SBA) in 
forming joint ventures, leader-follower arrangements, and teaming 
agreements between the concern and other Participants or other business 
concerns with respect to contracting opportunities outside the 8(a) BD 
program for research, development, or full scale engineering or 
production of major systems (these arrangements must comply with all 
relevant statutes and regulations, including applicable size standard 
requirements); and
    (3) Training and technical assistance in transitional business 
planning.


Sec. 124.405  How does a Participant obtain Federal Government surplus 
property?

    (a) General. (1) Pursuant to 15 U.S.C. 636(j)(13)(F), eligible 
Participants may receive surplus Federal Government property from State 
Agencies for Surplus Property (SASPs). The procedures set forth in 41 
CFR Part 101-44 and this section will be used to transfer surplus 
property to eligible Participants.
    (2) The property which may be transferred to SASPs for further 
transfer to eligible Participants includes all personal property which 
has been determined to be ``donable'' as defined in 41 CFR 101-44.001-
3.
    (b) Eligibility to receive Federal surplus property. To be eligible 
to receive Federal surplus property, on the date of transfer a concern 
must:
    (1) Be in the 8(a) BD program;
    (2) Be in compliance with all program requirements, including any 
reporting requirements;
    (3) Not be debarred, suspended, or declared ineligible under part 
9, subpart 9.4 of the Federal Acquisition Regulations, Title 48 of the 
Code of Federal Regulations;
    (4) Not be under a pending 8(a) BD program suspension, termination 
or early graduation proceeding; and
    (5) Be engaged or expect to be engaged in business activities 
making the item useful to it.
    (c) Use of acquired surplus property. (1) Eligible Participants may 
acquire surplus Federal property from any SASP located in any state, 
provided the concern represents and agrees in writing:
    (i) As to what the intended use of the surplus property is to be 
and that this use is consistent with the objectives of the concern's 
8(a) business plan;
    (ii) That it will use the property to be acquired in the normal 
conduct of its business activities or be liable for the fair rental 
value from the date of its receipt;
    (iii) That it will not sell or transfer the property to be acquired 
to any party other than the Federal Government during its term of 
participation in the 8(a) program and for one year after it leaves the 
program;
    (iv) That, at its own expense, it will return the property to a 
SASP or transfer it to another Participant if directed to do so by SBA 
because it has not used the property as intended within one year of 
receipt;
    (v) That, should it breach its agreement not to sell or transfer 
the property, it will be liable to the Government for the established 
fair market value or the sale price, whichever is greater, of the 
property sold or transferred; and
    (vi) That it will give SBA access to inspect the property and all 
records pertaining to it.

[[Page 35754]]

    (2) A firm receiving surplus property pursuant to this section 
assumes all liability associated with or stemming from the use of the 
property.
    (3) If the property is not placed in use for the purposes for which 
it was intended within one year of its receipt, SBA may direct the 
concern to deliver the property to another Participant or to the SASP 
from which it was acquired.
    (4) Failure to comply with any of the commitments made under 
paragraph (c)(1) of this section constitutes a basis for termination 
from the 8(a) program.
    (d) Procedures for acquiring Federal Government surplus property. 
(1) Participants may participate in the surplus property distribution 
program administered by the SASPs to the same extent, but with no 
special priority over, other authorized transferees. See 41 CFR subpart 
101-44.2.
    (2) Each Participant seeking to acquire Federal Government surplus 
property from a SASP must:
    (i) Certify in writing to the SASP that it is eligible to receive 
the property pursuant to paragraph (b) of this section;
    (ii) Make the written representations and agreement required by 
paragraph (c)(1) of this section; and
    (iii) Identify to the SASP its servicing SBA field office.
    (3) Upon receipt of the required certification, representations, 
agreement, and information set forth in paragraph (d)(2) of this 
section, the SASP must contact the appropriate SBA field office and 
obtain SBA's verification that the concern seeking to acquire the 
surplus property is eligible, and that the identified use of the 
property is consistent with the concern's business activities. SASPs 
may not release property to a Participant without this verification.
    (4) The SASP and the Participant must agree on and record the fair 
market value of the surplus property at the time of the transfer to the 
Participant. The SASP must provide to SBA a written record, including 
the agreed upon fair market value, of each transaction to a Participant 
when any property has been transferred.
    (e) Costs. Participants acquiring surplus property from a SASP must 
pay a service fee to the SASP which is equal to the SASP's direct costs 
of locating, inspecting, and transporting the surplus property. If a 
Participant elects to incur the responsibility and the expense for 
transporting the acquired property, the concern may do so and no 
transportation costs will be charged by the SASP. In addition, the SASP 
may charge a reasonable fee to cover its costs of administering the 
program. In no instance will any SASP charge a Participant more for any 
service than their established fees charged to other transferees.
    (f) Title. The title to surplus property acquired from a SASP will 
pass to the Participant when the Participant executes the applicable 
SASP distribution documents and takes possession of the property.
    (g) Compliance. (1) SBA will periodically review whether 
Participants that have received surplus property have used and 
maintained the property as agreed. This review may include site visits 
to visually inspect the property to ensure that it is being used in a 
manner consistent with the terms of its transfer.
    (2) Participants must provide SBA with access to all relevant 
records upon request.
    (3) Where SBA receives credible information that transferred 
surplus property may have been disposed of or otherwise used in a 
manner that is not consistent with the terms of the transfer, SBA may 
investigate such claim to determine its validity.
    (4) SBA may take any action to correct any noncompliance involving 
the use of transferred property still in possession of the Participant 
or to enforce any terms, conditions, reservations, or restrictions 
imposed on the property by the distribution document. Actions to 
enforce compliance, or which may be taken as a result of noncompliance, 
include the following:
    (i) Requiring that the property be placed in proper use within a 
specified time;
    (ii) Requiring that the property be transferred to another 
Participant having a need and use for the property, returned to the 
SASP serving the area where the property is located for distribution to 
another eligible transferee or to another SASP, or transferred through 
GSA to another Federal agency;
    (iii) Recovery of the fair rental value of the property from the 
date of its receipt by the Participant; and
    (iv) Initiation of proceedings to terminate the Participant from 
the 8(a) BD program.
    (5) Where SBA finds that a recipient has sold or otherwise disposed 
of the acquired surplus property in violation of the agreement covering 
sale and disposal, the Participant is liable for the agreed upon fair 
market value of the property at the time of the transfer, or the sale 
price, whichever is greater. However, a Participant need not repay any 
amount where it can demonstrate to SBA's satisfaction that the property 
is no longer useful for the purpose for which it was transferred and 
receives SBA's prior written consent to transfer the property. For 
example, if a piece of equipment breaks down beyond repair, it may be 
disposed of without being subject to the repayment provision, so long 
as the concern receives SBA's prior consent.
    (6) Any funds received by SBA in enforcement of this section will 
be remitted promptly to the Treasury of the United States as 
miscellaneous receipts.

Contractual Assistance


Sec. 124.501  What general provisions apply to the award of 8(a) 
contracts?

    (a) Pursuant to section 8(a) of the Small Business Act, SBA is 
authorized to enter into all types of contracts with other Federal 
agencies, including contracts to furnish equipment, supplies, services, 
leased real property, or materials to them or to perform construction 
work for them, and to contract the performance of these contracts to 
qualified Participants. Where practicable, simplified acquisition 
procedures should be used for 8(a) contracts at or below the simplified 
acquisition threshold. Where appropriate, SBA will delegate the 
contract execution function to procuring activities. In order to 
receive and retain a delegation of SBA's contract execution and review 
functions, a procuring activity must report all 8(a) contract awards, 
modifications, and options to SBA.
    (b) 8(a) contracts may either be sole source awards or awards won 
through competition with other Participants.
    (c) Admission into the 8(a) BD program does not guarantee that a 
Participant will receive 8(a) contracts.
    (d) A requirement for possible award may be identified by SBA, a 
particular Participant or the procuring activity itself. SBA will 
submit the capability statements provided to SBA annually under 
Sec. 124.403 to appropriate procuring activities for the purpose of 
matching requirements with Participants.
    (e) Participants should market their capabilities to appropriate 
procuring activities to increase their prospects of receiving sole 
source 8(a) contracts.
    (f) An 8(a) participant that identifies a requirement that appears 
suitable for award through the 8(a) BD program may request SBA to 
contact the procuring activity to request that the requirement be 
offered to the 8(a) BD program.
    (g) A concern must be a current Participant in the 8(a) BD program 
at the time of award, except as provided in Sec. 124.507(d).
    (h) A Participant must certify that it is a small business under 
the size

[[Page 35755]]

standard corresponding to the SIC code assigned to each 8(a) contract. 
8(a) BD program personnel will verify size prior to award of an 8(a) 
contract. If the Participant is not verified as small, it may request a 
formal size determination from the appropriate General Contracting Area 
Office under part 121 of this title.
    (i) Any person or entity that misrepresents its status as a ``small 
business concern owned and controlled by socially and economically 
disadvantaged individuals'' in order to obtain any 8(a) contracting 
opportunity will be subject to possible criminal, civil and 
administrative penalties, including those imposed by section 16(d) of 
the Small Business Act, 15 U.S.C. 645(d).


Sec. 124.502  How does an agency offer a procurement to SBA for award 
through the 8(a) BD program?

    (a) A procuring activity contracting officer indicates his or her 
formal intent to award a procurement requirement as an 8(a) contract by 
submitting a written offering letter to SBA. The procuring activity may 
transmit the offering letter to SBA by electronic mail, if available, 
or by facsimile transmission, as well as by mail or commercial delivery 
service.
    (b) Contracting officers must submit offering letters to the 
following locations:
    (1) For competitive 8(a) requirements and those sole source 
requirements for which no specific Participant is nominated (i.e., open 
requirements) other than construction requirements, to the SBA district 
office serving the geographical area in which the procuring activity is 
located;
    (2) For competitive and open construction requirements, to the SBA 
district office serving the geographical area in which the work is to 
be performed or, in the case of such contracts to be performed 
overseas, to the Office of 8(a) BD located in SBA Headquarters;
    (3) For sole source requirements offered on behalf of a specific 
Participant, to the SBA district office servicing that concern.
    (c) An offering letter must contain the following information:
    (1) A description of the work to be performed;
    (2) The estimated period of performance;
    (3) The SIC code that applies to the principal nature of the 
acquisition;
    (4) The anticipated dollar value of the requirement, including 
options, if any;
    (5) Any special restrictions or geographical limitations on the 
requirement;
    (6) The location of the work to be performed for construction 
procurements;
    (7) Any special capabilities or disciplines needed for contract 
performance;
    (8) The type of contract to be awarded, such as firm fixed price, 
cost reimbursement, or time and materials;
    (9) The acquisition history, if any, of the requirement;
    (10) The names and addresses of any small business contractors 
which have performed on this requirement during the previous 24 months;
    (11) A statement that prior to the offering no solicitation for the 
specific acquisition has been issued as a small business set-aside, or 
as a small disadvantaged business set-aside if applicable, and that no 
other public communication (such as a notice in the Commerce Business 
Daily) has been made showing the procuring activity's clear intent to 
use any of these means of procurement;
    (12) Identification of any specific Participant that the procuring 
activity contracting officer nominates for award of a sole source 8(a) 
contract, if appropriate, including a brief justification for the 
nomination, such as one of the following:
    (i) The Participant, through its own efforts, marketed the 
requirement and caused it to be reserved for the 8(a) BD program; or
    (ii) The acquisition is a follow-on or renewal contract and the 
nominated concern is the incumbent;
    (13) Bonding requirements, if applicable;
    (14) Identification of all Participants which have expressed an 
interest in being considered for the acquisition;
    (15) Identification of all SBA field offices which have requested 
that the requirement be awarded through the 8(a) BD program;
    (16) A request, if appropriate, that a requirement whose estimated 
contract value is under the applicable competitive threshold be awarded 
as an 8(a) competitive contract; and
    (17) Any other information that the procuring activity deems 
relevant or which SBA requests.


Sec. 124.503  How does SBA accept a procurement for award through the 
8(a) BD program?

    (a) Acceptance of the requirement. Upon receipt of the procuring 
activity's offer of a procurement requirement, SBA will determine 
whether it will accept the requirement for the 8(a) BD program. SBA's 
decision whether to accept the requirement will be sent to the 
procuring activity in writing within 10 working days of receipt of the 
written offering letter if the contract is valued at more than the 
simplified acquisition threshold, and within two days of receipt of the 
offering letter if the contract is valued at or below the simplified 
acquisition threshold, unless SBA requests, and the procuring activity 
grants, an extension. SBA is not required to accept any particular 
procurement offered to the 8(a) BD program.
    (1) Where SBA decides to accept an offering of a sole source 8(a) 
procurement, SBA will accept the offer both on behalf of the 8(a) BD 
program and in support of a specific Participant.
    (2) Where SBA decides to accept an offering of a competitive 8(a) 
procurement, SBA will accept the offer on behalf of the 8(a) BD 
program.
    (3) Where SBA has delegated its contract execution functions to a 
procuring activity, the procuring activity may assume that SBA accepts 
its offer for the 8(a) program if the procuring activity does not 
receive a reply to its offer within five days.
    (4) In the case of procurement requirements valued at or below the 
Simplified Acquisition Procedures threshold:
    (i) Where a procuring activity makes an offer to the 8(a) program 
on behalf of a specific Program Participant and does not receive a 
reply to its offer within two days, the procuring activity may assume 
the offer is accepted and proceed with award of an 8(a) contract;
    (ii) Where SBA has delegated its 8(a) contract execution functions 
to an agency, SBA may authorize the procuring activity to award an 8(a) 
contract without requiring an offer and acceptance of the requirement 
for the 8(a) program. In such a case, the procuring activity must 
notify SBA of all 8(a) awards made under this authority.
    (5) Where SBA does not respond to an offering letter within the 
normal 10-day time period, the procuring activity may seek SBA's 
acceptance through the AA/8(a)BD. The procuring activity may assume 
that SBA accepts its offer for the 8(a) program if it does not receive 
a reply from the AA/8(a)BD within 5 days of his or her receipt of the 
procuring activity request.
    (b) Verification of SIC code. As part of the acceptance process, 
SBA will verify the appropriateness of the SIC code designation 
assigned to the requirement by the procuring activity contracting 
officer.
    (1) SBA will accept the SIC code assigned to the requirement by the 
procuring activity contracting officer as

[[Page 35756]]

long as it is reasonable, even though other SIC codes may also be 
reasonable.
    (2) If SBA and the procuring activity are unable to agree as to the 
proper SIC code designation for the requirement, SBA may either refuse 
to accept the requirement for the 8(a) BD program, appeal the 
contracting officer's determination to the head of the agency pursuant 
to Sec. 124.505, or appeal the SIC code designation to OHA under part 
134 of this title.
    (c) Sole source award where procuring activity nominates a specific 
Participant. SBA will determine whether an appropriate match exists 
where the procuring activity identifies a particular Participant for a 
sole source award.
    (1) Once SBA determines that a procurement is suitable to be 
accepted as an 8(a) sole source contract, SBA will normally accept it 
on behalf of the Participant recommended by the procuring activity, 
provided that:
    (i) The procurement is consistent with the Participant's business 
plan;
    (ii) The Participant complies with its applicable non-8(a) business 
activity target imposed by Sec. 124.509(d);
    (iii) The Participant is small for the size standard corresponding 
to the SIC code assigned to the requirement by the procuring activity 
contracting officer; and
    (iv) The Participant has submitted required financial statements to 
SBA.
    (2) If an appropriate match exists, SBA will advise the procuring 
activity whether SBA will participate in contract negotiations or 
whether SBA will authorize the procuring activity to negotiate directly 
with the identified Participant. Where SBA has delegated its contract 
execution functions to a procuring activity, SBA will also identify 
that delegation in its acceptance letter.
    (3) If an appropriate match does not exist, SBA will notify the 
Participant and the procuring activity, and may then nominate an 
alternate Participant.
    (d) Open requirements. When a procuring activity does not nominate 
a particular concern for performance of a sole source 8(a) contract 
(open requirement), the following additional procedures will apply:
    (1) If the procurement is a construction requirement, SBA will 
examine the portfolio of Participants that have a bona fide place of 
business within the geographical boundaries served by the SBA district 
office where the work is to be performed to select a qualified 
Participant. If none is found to be qualified or a match for a concern 
in that district is determined to be impossible or inappropriate, SBA 
may nominate a Participant with a bona fide place of business within 
the geographical boundaries served by another district office within 
the same state, or may nominate a Participant having a bona fide place 
of business out of state but within a reasonable proximity to the work 
site. SBA's decision will ensure that the nominated Participant is 
close enough to the work site to keep costs of performance reasonable.
    (2) If the procurement is not a construction requirement, SBA may 
select any eligible, responsible Participant nationally to perform the 
contract.
    (3) In cases in which SBA selects a Participant for possible award 
from among two or more eligible and qualified Participants, the 
selection will be based upon relevant factors, including business 
development needs, compliance with competitive business mix 
requirements (if applicable), financial condition, management ability, 
technical capability, and whether award will promote the equitable 
distribution of 8(a) contracts.
    (e) Formal technical evaluations. Except for requirements for 
architectural and engineering services, SBA will not authorize formal 
technical evaluations for sole source 8(a) requirements. A procuring 
activity:
    (1) Must request that a procurement be a competitive 8(a) award if 
it requires formal technical evaluations of more than one Participant 
for a requirement below the applicable competitive threshold amount; 
and
    (2) May conduct informal assessments of several Participants' 
capabilities to perform a specific requirement, so long as the 
statement of work for the requirement is not released to any of the 
Participants being assessed.
    (f) Repetitive acquisitions. A procuring activity contracting 
officer must submit a new offering letter to SBA where he or she 
intends to award a follow-on or repetitive contract as an 8(a) award. 
This enables SBA to determine:
    (1) Whether the requirement should be a competitive 8(a) award;
    (2) A nominated firm's eligibility, whether or not it is the same 
firm that performed the previous contract;
    (3) The affect that contract award would have on the equitable 
distribution of 8(a) contracts; and
    (4) Whether the requirement should continue under the 8(a) BD 
program.
    (g) Basic Ordering Agreements (BOAs). A Basic Ordering Agreement 
(BOA) is not a contract under the FAR. See 48 CFR 16.703(a). Each order 
to be issued under the BOA is an individual contract. As such, the 
procuring activity must offer, and SBA must accept, each task order 
under a BOA in addition to offering and accepting the BOA itself.
    (1) SBA will not accept for award on a sole source basis any task 
order under a BOA that would cause the total dollar amount of task 
orders issued to exceed the applicable competitive threshold amount set 
forth in Sec. 124.506(a).
    (2) Where a procuring activity believes that task orders to be 
issued under a proposed BOA will exceed the applicable competitive 
threshold amount set forth in Sec. 124.506(a), the procuring activity 
must offer the requirement to the program to be competed among eligible 
Participants.
    (3) Once a concern's program term expires, the concern otherwise 
exits the 8(a) BD program, or becomes other than small for the SIC code 
assigned under the BOA, new orders will not be accepted for the 
concern.
    (h) Multiple Award and Federal Supply Schedule Contracts. Unlike 
Basic Ordering Agreements, Multiple Award and Federal Supply Schedule 
contracts are contracts. Orders issued under these contracts are not 
considered separate contracts. As such, SBA's acceptance of the 
original Multiple Award or Federal Supply Schedule contract is valid 
for the duration of the contract. Separate offers and acceptances will 
not be made for individual task orders under these contracts.
    (1) Task orders are not required to be competed where the value of 
the task order will exceed the competitive threshold as long as the 
original contract was competed.
    (2) A concern may continue to accept new orders under a Multiple 
Award or Federal Supply Schedule contract even where a concern's 
program term expires, the concern otherwise exits the 8(a) BD program, 
or the concern becomes other than small for the SIC code assigned under 
the contract subsequent to award of the contract.
    (i) Requirements where SBA has delegated contract execution 
authority. Except as provided in paragraph (a)(4)(i) of this section, 
where SBA has delegated its 8(a) contract execution authority to the 
procuring activity, the procuring activity must still offer and SBA 
must still accept all requirements intended to be awarded as 8(a) 
contracts.


Sec. 124.504  What circumstances limit SBA's ability to accept a 
procurement for award as an 8(a) contract?

    SBA will not accept a procurement for award as an 8(a) contract if 
the circumstances identified in paragraphs (a) through (d) of this 
section exist.

[[Page 35757]]

    (a) Reservation as small business or SDB set-aside. The procuring 
activity issued a solicitation for or otherwise expressed publicly a 
clear intent to reserve the procurement as a small business or small 
disadvantaged business (SDB) set-aside prior to offering the 
requirement to SBA for award as an 8(a) contract. The AA/8(a)BD may 
permit the acceptance of the requirement, however, under extraordinary 
circumstances.

    Example to paragraph (a). SBA may accept a requirement where a 
procuring activity made a decision to offer the requirement to the 
8(a) BD program before the solicitation was sent out and the 
procuring activity acknowledges and documents that the solicitation 
was in error.

    (b) Competition prior to offer and acceptance. The procuring 
activity competed a requirement among Participants prior to offering 
the requirement to SBA and receiving SBA's formal acceptance of the 
requirement.
    (1) Any competition conducted without first obtaining SBA's formal 
acceptance of the procurement for the 8(a) BD program will not be 
considered an 8(a) competitive requirement.
    (2) SBA may accept the requirement for the 8(a) BD program as a 
competitive 8(a) requirement, but only if the procuring activity agrees 
to resolicit the requirement using appropriate competitive 8(a) 
procedures.
    (c) Adverse impact. SBA has made a written determination that 
acceptance of the procurement for 8(a) award would have an adverse 
impact on an individual small business, a group of small businesses 
located in a specific geographical location, or other small business 
programs. The adverse impact concept is designed to protect small 
business concerns which are performing Government contracts awarded 
outside the 8(a) BD program, and does not apply to follow-on or renewal 
8(a) acquisitions. SBA will not consider adverse impact with respect to 
any requirement offered to the 8(a) program under Simplified 
Acquisition Procedures.
    (1) In determining whether the acceptance of a requirement would 
have an adverse impact on an individual small business, SBA will 
consider all relevant factors.
    (i) In connection with a specific small business, SBA presumes 
adverse impact to exist where:
    (A) The small business concern has performed the specific 
requirement for at least 24 months;
    (B) The small business is performing the requirement at the time it 
is offered to the 8(a) BD program, or its performance of the 
requirement ended within 30 days of the procuring activity's offer of 
the requirement to the 8(a) BD program; and
    (C) The dollar value of the requirement that the small business is 
or was performing is 25 percent or more of its most recent annual gross 
sales (including those of its affiliates). For a multi-year 
requirement, the dollar value of the last 12 months of the requirement 
will be used to determine whether a small business would be adversely 
affected by SBA's acceptance.
    (ii) Except as provided in paragraph (c)(2) of this section, 
adverse impact does not apply to ``new'' requirements. A new 
requirement is one which has not been previously procured by the 
relevant procuring activity.
    (A) Where a requirement is new, no small business could have 
previously performed the requirement and, thus, SBA's acceptance of the 
requirement for the 8(a) BD program will not adversely impact any small 
business.
    (B) Construction contracts, by their very nature (e.g., the 
building of a specific structure), are deemed new requirements.
    (C) The expansion or modification of an existing requirement will 
be considered a new requirement where the magnitude of change is 
significant enough to cause a price adjustment of at least 25 percent 
(adjusted for inflation) or to require significant additional or 
different types of capabilities or work.
    (D) SBA need not perform an impact determination where a new 
requirement is offered to the 8(a) BD program.
    (2) In determining whether the acceptance of a requirement would 
have an adverse impact on a group of small businesses, SBA will 
consider the effects of combining or consolidating various requirements 
being performed by two or more small business concerns into a single 
contract which would be considered a ``new'' requirement as compared to 
any of the previous smaller requirements. SBA may find adverse impact 
to exist if one of the existing small business contractors meets the 
presumption set forth in paragraph (c)(1)(i) of this section.
    (3) In determining whether the acceptance of a requirement would 
have an adverse impact on other small business programs, SBA will 
consider all relevant factors, including but not limited to, the number 
and value of contracts in the subject industry reserved for the 8(a) BD 
program as compared with other small business programs.
    (d) Release for non-8(a) competition. In limited instances, SBA may 
decline to accept the offer of a follow-on or renewal 8(a) acquisition 
to give a concern previously awarded the contract that is leaving or 
has left the 8(a) BD program the opportunity to compete for the 
requirement outside the 8(a) BD program.
    (1) SBA will consider release only where:
    (i) The procurement awarded through the 8(a) BD program is being or 
was performed by either a Participant whose program term will expire 
prior to contract completion, or, by a former Participant whose program 
term expired within one year of the date of the offering letter;
    (ii) The concern requests in writing that SBA decline to accept the 
offer prior to SBA's acceptance of the requirement for award as an 8(a) 
contract; and
    (iii) The concern qualifies as a small business for the requirement 
now offered to the 8(a) BD program.
    (2) In considering release, SBA will balance the importance of the 
requirement to the concern's business development needs against the 
business development needs of other Participants that are qualified to 
perform the requirement. This determination will include consideration 
of whether rejection of the requirement would seriously reduce the pool 
of similar types of contracts available for award as 8(a) contracts. 
SBA will seek the views of the procuring activity.
    (3) If SBA declines to accept the offer and releases the 
requirement, it will recommend to the procuring activity that the 
requirement be procured as a small business or, if authorized, an SDB 
set-aside.


Sec. 124.505  When will SBA appeal the terms or conditions of a 
particular 8(a) contract or a procuring activity decision not to 
reserve a requirement for the 8(a) BD program?

    (a) What SBA may appeal. The Administrator of SBA may appeal the 
following matters to the head of the procuring agency:
    (1) A contracting officer's decision not to make a particular 
procurement available for award as an 8(a) contract;
    (2) A contracting officer's decision to reject a specific 
Participant for award of an 8(a) contract after SBA's acceptance of the 
requirement for the 8(a) BD program; and
    (3) The terms and conditions of a proposed 8(a) contract, including 
the procuring activity's SIC code designation and estimate of the fair 
market price.
    (b) Procedures for appeal. (1) SBA must notify the contracting 
officer of the SBA Administrator's intent to appeal an adverse decision 
within 5 working days of SBA's receipt of the decision.

[[Page 35758]]

    (2) Upon receipt of the notice of intent to appeal, the procuring 
activity must suspend further action regarding the procurement until 
the head of the procuring agency issues a written decision on the 
appeal, unless the head of the procuring agency makes a written 
determination that urgent and compelling circumstances which 
significantly affect interests of the United States will not permit 
waiting for a consideration of the appeal.
    (3) The SBA Administrator must send a written appeal of the adverse 
decision to the head of the procuring agency within 15 working days of 
SBA's notification of intent to appeal or the appeal may be considered 
withdrawn.
    (4) By statute (15 U.S.C. 637(a)(1)(A)), the procuring agency head 
must specify in writing the reasons for a denial of an appeal brought 
by the Administrator under this section.


Sec. 124.506  At what dollar threshold must an 8(a) procurement be 
competed among eligible Participants?

    (a) Competitive thresholds. (1) A procurement offered and accepted 
for the 8(a) BD program must be competed among eligible Participants 
if:
    (i) There is a reasonable expectation that at least two eligible 
Participants will submit offers at a fair market price;
    (ii) The anticipated award price of the contract, including 
options, will exceed $5,000,000 for contracts assigned manufacturing 
SIC codes and $3,000,000 for all other contracts; and
    (iii) The requirement has not been accepted by SBA for award as a 
sole source 8(a) procurement on behalf of a tribally-owned or ANC-owned 
concern.
    (2) For all types of contracts, the applicable competitive 
threshold amounts will be applied to the procuring activity estimate of 
the total value of the contract, including all options. For indefinite 
delivery or indefinite quantity type contracts, the thresholds are 
applied to the maximum order amount authorized.
    (3) Where the estimate of the total value of a proposed 8(a) 
contract is less than the applicable competitive threshold amount and 
the requirement is accepted as a sole source requirement on that basis, 
award may be made even though the contract price arrived at through 
negotiations exceeds the competitive threshold, provided that the 
contract price is not more than ten percent greater than the 
competitive threshold amount.

    Example to paragraph (a)(3). If the anticipated award price for 
a professional services requirement is determined to be $2.7 million 
and it is accepted as a sole source 8(a) requirement on that basis, 
a sole source award will be valid even if the contract price arrived 
at after negotiation is $3.1 million.

    (4) A proposed 8(a) requirement with an estimated value exceeding 
the applicable competitive threshold amount may not be divided into 
several separate procurement actions for lesser amounts in order to use 
8(a) sole source procedures to award to a single contractor.
    (b) Exemption from competitive thresholds for Participants owned by 
Indian tribes. SBA may award a sole source 8(a) contract to a 
Participant concern owned and controlled by an Indian tribe or an ANC 
where the anticipated value of the procurement exceeds the applicable 
competitive threshold if SBA has not accepted the requirement into the 
8(a) BD program as a competitive procurement. There is no requirement 
that a procurement must be competed whenever possible before it can be 
accepted on a sole source basis for a tribally-owned or ANC-owned 
concern, but a procurement may not be removed from competition to award 
it to a tribally-owned or ANC-owned concern on a sole source basis.
    (c) Competition below thresholds. The AA/8(a)BD, on a nondelegable 
basis, may approve a request from a procuring activity to compete a 
requirement that is below the applicable competitive threshold amount 
among eligible Participants.
    (1) This authority will be used primarily when technical 
competitions are appropriate or when a large number of potential 
awardees exist.
    (2) The AA/8(a)BD may consider whether the procuring activity has 
made and will continue to make available a significant number of its 
contracts to the 8(a) BD program on a noncompetitive basis.
    (3) The AA/8(a)BD may deny a request if the procuring activity 
previously offered the requirement to the 8(a) BD program on a 
noncompetitive basis and the request is made following the inability of 
the procuring activity and the potential sole source awardee to reach 
an agreement on price or some other material term or condition.
    (d) Sole source above thresholds. Where a contract opportunity 
exceeds the applicable threshold amount and there is not a reasonable 
expectation that at least two eligible 8(a) Participants will submit 
offers at a fair price, the AA/8(a)BD may accept the requirement for a 
sole source 8(a) award if he or she determines that an eligible 
Participant in the 8(a) portfolio is capable of performing the 
requirement at a fair price.


Sec. 124.507  What procedures apply to competitive 8(a) procurements?

    (a) FAR procedures. Procuring activities will conduct competitions 
among and evaluate offers received from Participants in accordance with 
the Federal Acquisition Regulation (48 CFR, chapter 1).
    (b) Eligibility determination by SBA. In either a negotiated or 
sealed bid competitive 8(a) acquisition, the procuring activity will 
request that the SBA district office servicing the apparent successful 
offeror determine that firm's eligibility for award.
    (1) Within 5 working days after receipt of a procuring activity's 
request for an eligibility determination, SBA will determine whether 
the firm identified by the procuring activity is eligible for award.
    (2) Eligibility is based on 8(a) BD program criteria, including 
whether the Participant is:
    (i) A small business under the SIC code assigned to the 
requirement;
    (ii) In compliance with any applicable competitive business mix 
target established or remedial measure imposed by Sec. 124.509 that 
does not include the denial of future 8(a) contracts;
    (iii) In the developmental stage of program participation if the 
solicitation restricts offerors to the developmental stage of 
participation; and
    (iv) A concern with a bona fide place of business in the applicable 
geographic area if the procurement is for construction.
    (3) If SBA determines that the apparent successful offeror is 
ineligible, SBA will notify the procuring activity. The procuring 
activity will then send to SBA the identity of the next highest 
evaluated firm for an eligibility determination. The process is 
repeated until SBA determines that an identified offeror is eligible 
for award.
    (4) Except to the extent set forth in paragraph (d) of this 
section, SBA determines whether a Participant is eligible for a 
specific 8(a) competitive requirement as of the date that the 
Participant submitted its initial offer which includes price.
    (5) If the procuring activity contracting officer believes that the 
apparent successful offeror is not responsible to perform the contract, 
he or she must refer the concern to SBA for a possible Certificate of 
Competency in accord with Sec. 125.5 of this title.
    (c) Restricted competition. (1) Competition within stages of 
program participation. SBA may accept a competitive 8(a) requirement 
that is limited to Participants in the developmental stage of program

[[Page 35759]]

participation, or may accept a requirement to be competed among firms 
both in the developmental and transitional stages of program 
participation.
    (2) Construction competitions. Based on its knowledge of the 8(a) 
BD portfolio, SBA will determine whether a competitive 8(a) 
construction requirement should be competed among only those 
Participants having a bona fide place of business within the 
geographical boundaries of one or more SBA district offices, within a 
state, or within the state and nearby areas. Only those Participants 
with bona fide places of business within the appropriate geographical 
boundaries are eligible to submit offers.
    (3) Competition for all non-construction requirements. Except for 
construction requirements, all eligible Participants regardless of 
location may submit offers in response to competitive 8(a) 
solicitations. The only geographic restrictions pertaining to 8(a) 
competitive requirements, other than those for construction 
requirements, are any imposed by the solicitations themselves.
    (d) Award to firms whose program terms have expired. A concern that 
has completed its term of participation in the 8(a) BD program may be 
awarded a competitive 8(a) contract if it was a Participant eligible 
for award of the contract on the initial date specified for receipt of 
offers contained in the contract solicitation, and if it continues to 
meet all other applicable eligibility criteria.
    (1) Amendments to the solicitation extending the date for 
submissions of offers will be disregarded.
    (2) For a negotiated procurement, a Participant may submit revised 
offers, including a best and final offer, and be awarded a competitive 
8(a) contract if it was eligible as of the initial date specified for 
the receipt of offers in the solicitation, even though its program term 
may expire after that date.


Sec. 124.508  How is an 8(a) contract executed?

    (a) An 8(a) contract can be awarded in the following ways:
    (1) As a tripartite agreement in which the procuring activity, SBA 
and the Participant all sign the appropriate contract documents. There 
may be separate prime and subcontract documents (i.e., a prime contract 
between the procuring activity and SBA and a subcontract between SBA 
and the selected 8(a) concern) or a combined contract document 
representing both the prime and subcontract relationships; or
    (2) Where SBA has delegated contract execution authority to the 
procuring activity, directly by the procuring activity through a 
contract between the procuring activity and the Participant.
    (b) Where SBA receives a contract for signature valued at or below 
the simplified acquisition threshold, it will sign the contract and 
return it to the procuring activity within three (3) days of receipt.
    (c) In order to be eligible to receive a sole source 8(a) contract, 
a firm must be a current Participant on the date of award. (See 
Sec. 124.507(d) for competitive 8(a) awards.)


Sec. 124.509  What are non-8(a) business activity targets?

    (a) General. (1) To ensure that Participants do not develop an 
unreasonable reliance on 8(a) awards, and to ease their transition into 
the competitive marketplace after graduating from the 8(a) BD program, 
Participants must make maximum efforts to obtain business outside the 
8(a) BD program.
    (2) During both the developmental and transitional stages of the 
8(a) BD program, a Participant must make substantial and sustained 
efforts, including following a reasonable marketing strategy, to attain 
the targeted dollar levels of non-8(a) revenue established in its 
business plan. It must attempt to use the 8(a) BD program as a resource 
to strengthen the firm for economic viability when program benefits are 
no longer available.
    (b) Required non-8(a) business activity targets during transitional 
stage. (1) General. During the transitional stage of the 8(a) BD 
program, a Participant must achieve certain targets of non-8(a) 
contract revenue (i.e., revenue from other than sole source or 
competitive 8(a) contracts). These targets are called non-8(a) business 
activity targets and are expressed as a percentage of total revenue. 
The targets call for an increase in non-8(a) revenue over time.
    (2) Non-8(a) business activity targets. During their transitional 
stage of program participation, Participants must meet the following 
non-8(a) business activity targets each year:

------------------------------------------------------------------------
                                                       Non-8(a) business
                                                        activity targets
                                                       (required minimum
     Participant's year in the transitional stage       non-8(a) revenue
                                                        as a percentage 
                                                       of total revenue)
------------------------------------------------------------------------
1....................................................                 15
2....................................................                 25
3....................................................                 35
4....................................................                 45
5....................................................                 55
------------------------------------------------------------------------

    (3) Compliance with non-8(a) business activity targets. SBA will 
measure the Participant's compliance with the applicable non-8(a) 
business activity target at the end of each program year in the 
transitional stage based on the Participant's latest fiscal year-end 
total revenue. Thus, at the end of the first year in the transitional 
stage of program participation, SBA will compare the Participant's non-
8(a) revenue to its total revenue during that first year. If 
appropriate, SBA will require remedial measures during the subsequent 
program year. Thus, for example, non-compliance with the required non-
8(a) business activity target in year one of the transitional stage 
would cause SBA to initiate remedial measures under paragraph (d) of 
this section for year two in the transitional stage.
    (4) Certification of compliance. A Participant must certify as part 
of its offer that it complies with the applicable non-8(a) business 
activity target or with the measures imposed by SBA under paragraph (d) 
of this section before it can receive any 8(a) contract during the 
transitional stage of the 8(a) BD program.
    (c) Reporting and verification of business activity. (1) Once 
admitted to the 8(a) BD program, a Participant must provide to SBA as 
part of its annual review:
    (i) Annual financial statements with a breakdown of 8(a) and non-
8(a) revenue in accord with Sec. 124.602; and
    (ii) An annual report within 30 days from the end of the program 
year of all non-8(a) contracts, options, and modifications affecting 
price executed during the program year.
    (2) At the end of each year of participation in the transitional 
stage, the BOS assigned to work with the Participant will review the 
Participant's total revenues to determine whether the non-8(a) revenues 
have met the applicable target. In determining compliance, SBA will 
compare all 8(a) revenues received during the year, including those 
from options and modifications, to all non-8(a) revenues received 
during the year.
    (d) Consequences of not meeting competitive business mix targets. 
(1) Except as set forth in paragraph (e) of this section, beginning at 
the end of the first year in the transitional stage (the fifth year of 
participation in the 8(a) BD program), any firm that does not meet its 
applicable competitive business mix target for the just completed 
program year will be ineligible for sole source 8(a) contracts in the 
current program year, unless and until the Participant corrects the 
situation as described in paragraph (d)(2) of this section.

[[Page 35760]]

    (2) If SBA determines that an 8(a) Participant has failed to meet 
its applicable competitive business mix target during any program year 
in the transitional stage of program participation, SBA may increase 
its monitoring of the Participant's contracting activity during the 
ensuing program year. SBA will also notify the Participant in writing 
that the Participant will not be eligible for further 8(a) sole source 
contract awards until it has demonstrated to SBA that it has complied 
with its non-8(a) business activity requirements as described in 
paragraphs (d)(2)(i) and (d)(2)(ii) of this section. In order for a 
Participant to come into compliance with the non-8(a) business activity 
target and be eligible for further 8(a) sole source contracts, it may:
    (i) Wait until the end of the current program year and demonstrate 
to SBA as part of the normal annual review process that it has met the 
revised non-8(a) business activity target; or
    (ii) At its option, submit information regarding its non-8(a) 
revenue to SBA quarterly throughout the current program year in an 
attempt to come into compliance before the end of the current program 
year. If the Participant satisfies the requirements of paragraphs 
(d)(2)(ii)(A) or (d)(2)(ii)(B) of this section, SBA will reinstate the 
Participant's ability to get sole source 8(a) contracts prior to its 
annual review.
    (A) To qualify for reinstatement during the first six months of the 
current program year (i.e., at either the first or second quarterly 
review), the Participant must demonstrate that it has received non-8(a) 
revenue and new non-8(a) contract awards that are equal to or greater 
than the dollar amount by which it failed to meet its non-8(a) business 
activity target for the just completed program year. For this purpose, 
SBA will not count options on existing non-8(a) contracts in 
determining whether a Participant has received new non-8(a) contract 
awards.
    (B) To qualify for reinstatement during the last six months of the 
current program year (i.e., at either the nine-month or one year 
review), the Participant must demonstrate that it has achieved its non-
8(a) business activity target as of that point in the current program 
year.

    Example 1 to paragraph (d)(2). Firm A had $10 million in total 
revenue during year 2 in the transitional stage (year 6 in the 
program), but failed to meet the minimum non-8(a) business activity 
target of 25 percent. It had 8(a) revenues of $8.5 million and non-
8(a) revenues of $1.5 million (15 percent). Based on total revenues 
of $10 million, Firm A should have had at least $2.5 million in non-
8(a) revenues. Thus, Firm A missed its target by $1 million (its 
target ($2.5 million) minus its actual non-8(a) revenues ($1.5 
million)). Because Firm A did not achieve its non-8(a) business 
activity target, it cannot receive 8(a) sole source awards until 
correcting that situation. The firm may wait until the next annual 
review to establish that it has met the revised target, or it can 
choose to report contract awards and other non-8(a) revenue to SBA 
quarterly. Firm A elects to submit information to SBA quarterly in 
year 3 of the transitional stage (year 7 in the program). In order 
to be eligible for sole source 8(a) contracts after either its 3 
month or 6 month review, Firm A must show that it has received non-
8(a) revenue and/or been awarded new non-8(a) contracts totaling $1 
million (the amount by which it missed its target in year 2 of the 
transitional stage).
    Example 2 to paragraph (d)(2). Firm B had $10 million in total 
revenue during year 2 in the transitional stage (year 6 in the 
program), of which $8.5 million were 8(a) revenues and $1.5 million 
were non-8(a) revenues. At its first two quarterly reviews during 
year 3 of the transitional stage (year 7 in the program), Firm B 
could not demonstrate that it had received at least $1 million in 
non-8(a) revenue and new non-8(a) awards. In order to be eligible 
for sole source 8(a) contracts after its 9 month or 1 year review, 
Firm B must show that at least 35% (the non-8(a) business activity 
target for year 3 in the transitional stage) of all revenues 
received during year 3 in the transitional stage as of that point 
are from non-8(a) sources.

    (3) In determining whether a Participant has achieved its required 
non-8(a) business activity target at the end of any program year in the 
transitional stage, or whether a Participant that failed to meet the 
target for the previous program year has achieved the required level of 
non-8(a) business at its nine-month review, SBA will measure 8(a) 
support by adding the base year value of all 8(a) contracts awarded 
during the applicable program year to the value of all options and 
modifications executed during that year.
    (4) As a condition of eligibility for new 8(a) contracts, SBA may 
also impose other requirements on a Participant that fails to achieve 
the non-8(a) business activity targets. These include requiring the 
Participant to obtain management assistance, technical assistance, and/
or counseling, and/or attend seminars relating to management 
assistance, business development, financing, marketing, accounting, or 
proposal preparation.
    (5) SBA may initiate proceedings to terminate a Participant from 
the 8(a) BD program where the firm makes no good faith efforts to 
obtain non-8(a) revenues.
    (e) Waiver of sole source prohibition. (1) The AA/8(a)BD, or his or 
her designee, may waive the requirement prohibiting a Participant from 
receiving further sole source 8(a) contracts when a Participant does 
not meet its non-8(a) business activity target where a denial of a sole 
source contract would cause severe economic hardship on the Participant 
so that the Participant's survival may be jeopardized, or where 
extenuating circumstances beyond the Participant's control caused the 
Participant not to meet its non-8(a) business activity target. The 
decision to grant or deny a request for a waiver is at SBA's 
discretion, and no appeal may be taken with respect to that decision.
    (2) The SBA Administrator on a non-delegable basis may waive the 
requirement prohibiting a Participant from receiving further sole 
source 8(a) contracts when the Participant does not meet its non-8(a) 
business activity target where the head of a procuring activity 
represents to the SBA Administrator that award of a sole source 8(a) 
contract to the Participant is needed to achieve significant interests 
of the Government.


Sec. 124.510  What percentage of work must a Participant perform on an 
8(a) contract?

    (a) To assist the business development of Participants in the 8(a) 
BD program, an 8(a) contractor must perform certain percentages of work 
with its own employees. These percentages and the requirements relating 
to them are the same as those established for small business set-aside 
prime contractors, and are set forth in Sec. 125.6 of this title.
    (b) A Participant must certify in its offer that it will meet the 
applicable percentage of work requirement. SBA will determine whether 
the firm will be in compliance as of the date of award of the contract 
for both sealed bid and negotiated procurements.
    (c) Indefinite quantity contracts. (1) In order to ensure that the 
required percentage of costs on an indefinite quantity 8(a) award is 
performed by the Participant, the Participant must demonstrate 
semiannually that it has performed the required percentage to that 
date. For a service or supply contract, this does not mean that the 
Participant must perform 50 percent of the applicable costs for each 
task order with its own force, or that a Participant must have 
performed 50 percent of the applicable costs at any point in time 
during the contract's life. Rather, the Participant must perform 50 
percent of the applicable costs for the combined total of all task 
orders issued to date at six month intervals.

    Example to paragraph (c)(1). Two task orders are issued under an 
8(a) indefinite quantity service contract during the first six 
months of the contract. If $100,000 in personnel costs are incurred 
on the first task order, 90% of those costs ($90,000) are incurred 
for performance by the Participant's

[[Page 35761]]

own work force, and the second task order also requires $100,000 in 
personnel costs, the Participant would have to perform only 10 
percent of the personnel costs on the second task order because it 
would still have performed 50% of the total personnel costs at the 
end of the six-month period ($100,000 out of $200,000).

    (2) Where there is a guaranteed minimum condition in an indefinite 
quantity 8(a) award, the required performance of work percentage need 
not be met on task orders issued during the first six months of the 
contract. In such a case, however, the percentage of work that a 
Participant may further contract to other concerns during the first six 
months of the contract may not exceed 50 percent of the total 
guaranteed minimum dollar value to be provided by the contract. Once 
the guaranteed minimum amount is met, the general rule for indefinite 
quantity contracts set forth in paragraph (c)(1) of this section 
applies.

    Example to paragraph (c)(2). Where a contract guarantees a 
minimum of $100,000 in professional services and the first task 
order is for $60,000 in such services, the Participant may perform 
as little as $10,000 of the personnel costs for that order. In such 
a case, however, the Participant must perform all of the next task 
order(s) up to $40,000 to ensure that it performs 50% of the 
$100,000 guaranteed minimum ($10,000 + $40,000 = $50,000 or 50% of 
the $100,000).

    (3) The applicable SBA District Director may waive the provisions 
in paragraphs (c)(1) and (c)(2) of this section requiring a Participant 
to meet the applicable performance of work requirement at the end of 
any six-month period where he or she makes a written determination that 
larger amounts of subcontracting are essential during certain stages of 
performance, provided that there are written assurances from both the 
Participant and the procuring activity that the contract will 
ultimately comply with the requirements of this section. Where SBA 
authorizes a Participant to exceed the subcontracting limitations and 
the Participant does not ultimately comply with the performance of work 
requirements by the end of the contract, SBA will not grant future 
waivers for the Participant.


Sec. 124.511  How is fair market price determined for an 8(a) contract?

    (a) The procuring activity determines what constitutes a ``fair 
market price'' for an 8(a) contract.
    (1) The procuring activity must derive the estimate of a current 
fair market price for a new requirement, or a requirement that does not 
have a satisfactory procurement history, from a price or cost analysis. 
This analysis may take into account prevailing market conditions, 
commercial prices for similar products or services, or data obtained 
from any other agency. The analysis must also consider any cost or 
pricing data that is timely submitted by SBA.
    (2) The procuring activity must base the estimate of a current fair 
market price for a requirement that has a satisfactory procurement 
history on recent award prices adjusted to ensure comparability. 
Adjustments will take into account differences in quantities, 
performance, times, plans, specifications, transportation costs, 
packaging and packing costs, labor and material costs, overhead costs, 
and any other additional costs which may be appropriate.
    (b) Upon the request of SBA, a procuring activity will provide to 
SBA a written statement detailing the method it has used to estimate 
the current fair market price for the 8(a) requirement. This statement 
must be submitted within 10 working days of SBA's request. The 
procuring activity must identify the information, studies, analyses, 
and other data it used in making its estimate.
    (c) The procuring activity's estimate of fair market price and any 
supporting data may not be disclosed by SBA to any Participant or 
potential contractor.
    (d) The concern selected to perform an 8(a) contract may request 
SBA to protest the procuring activity's estimate of current fair market 
price to the Secretary of the Department or head of the agency in 
accordance with Sec. 124.505.


Sec. 124.512  Delegation of contract administration to procuring 
agencies.

    (a) SBA may delegate, by the use of special clauses in the 8(a) 
contract documents or by a separate agreement with the procuring 
activity, all responsibilities for administering an 8(a) contract to 
the procuring activity except the approval of novation agreements under 
48 CFR 42.302(a)(25).
    (b) This delegation of contract administration authorizes a 
contracting officer to execute any priced option or in scope 
modification without SBA's concurrence. The contracting officer must, 
however, notify SBA of all modifications and options exercised.


Sec. 124.513  Under what circumstances can a joint venture be awarded 
an 8(a) contract?

    (a) General. (1) If approved by SBA, a Participant may enter into a 
joint venture agreement with one or more other small business concerns, 
whether or not 8(a) Participants, for the purpose of performing a 
specific 8(a) contract.
    (2) A joint venture agreement is permissible only where an 8(a) 
concern lacks the necessary capacity to perform the contract on its 
own, and the agreement is fair and equitable and will be of substantial 
benefit to the 8(a) concern. However, where SBA concludes that an 8(a) 
concern brings very little to the joint venture relationship in terms 
of resources and expertise other than its 8(a) status, SBA will not 
approve the joint venture arrangement.
    (b) Size of concerns to an 8(a) joint venture. (1) A joint venture 
of at least one 8(a) Participant and one or more other business 
concerns may submit an offer as a small business for a competitive 8(a) 
procurement so long as each concern is small under the size standard 
corresponding to the SIC code assigned to the contract, provided:
    (i) The size of at least one 8(a) Participant to the joint venture 
is less than one half the size standard corresponding to the SIC code 
assigned to the contract; and
    (ii)(A) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the SIC 
code assigned to the contract; or
    (B) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million;
    (2) For sole source and competitive 8(a) procurements that do not 
exceed the dollar levels identified in paragraph (b)(1) of this 
section, an 8(a) Participant entering into a joint venture agreement 
with another concern is considered to be affiliated for size purposes 
with the other concern with respect to performance of the 8(a) 
contract. The combined annual receipts or employees of the concerns 
entering into the joint venture must meet the size standard for the SIC 
code assigned to the 8(a) contract.
    (3) Notwithstanding the provisions of paragraphs (b)(1) and (b)(2) 
of this section, a joint venture between a protege firm and its 
approved mentor (see Sec. 124.520) will be deemed small provided the 
protege qualifies as small for the size standard corresponding to the 
SIC code assigned to the procurement and has not reached the dollar 
limit set forth in Sec. 124.519.
    (c) Contents of joint venture agreement. Every joint venture 
agreement to perform an 8(a) contract, including those between mentors 
and proteges authorized by Sec. 124.520, must contain a provision:
    (1) Setting forth the purpose of the joint venture;
    (2) Designating an 8(a) Participant as the managing venturer of the 
joint venture, and an employee of the managing venturer as the project

[[Page 35762]]

manager responsible for performance of the 8(a) contract;
    (3) Stating that not less than 51 percent of the net profits earned 
by the joint venture will be distributed to the 8(a) Participant(s);
    (4) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on an 8(a) contract will be deposited in the special 
account; all expenses incurred under the contract will be paid from the 
account as well;
    (5) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each;
    (6) Specifying the responsibilities of the parties with regard to 
contract performance, source of labor and negotiation of the 8(a) 
contract;
    (7) Obligating all parties to the joint venture to ensure 
performance of the 8(a) contract and to complete performance despite 
the withdrawal of any member;
    (8) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the managing 
venturer, unless approval to keep them elsewhere is granted by the 
District Director or his/her designee upon written request;
    (9) Requiring the final original records be retained by the 
managing venturer upon completion of the 8(a) contract performed by the 
joint venture;
    (10) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (11) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (d) Performance of work. For any 8(a) contract, including those 
between mentors and proteges authorized by Sec. 124.520, the joint 
venture must perform the applicable percentage of work required by 
Sec. 124.510, and the 8(a) partner(s) to the joint venture must perform 
a significant portion of the contract.
    (e) Prior approval by SBA. SBA must approve a joint venture 
agreement prior to the award of an 8(a) contract on behalf of the joint 
venture.
    (f) Contract execution. Where SBA has approved a joint venture, the 
procuring activity will execute an 8(a) contract in the name of the 
joint venture entity.
    (g) Amendments to joint venture agreement. All amendments to the 
joint venture agreement must be approved by SBA.
    (h) Inspection of records. SBA may inspect the records of the joint 
venture without notice at any time deemed necessary.


Sec. 124.514  Exercise of 8(a) options and modifications.

    (a) Unpriced options. The exercise of an unpriced option is 
considered to be a new contracting action.
    (1) If a concern has graduated or been terminated from the 8(a) BD 
program or is no longer small under the size standard corresponding to 
the SIC code for the requirement, negotiations to price the option 
cannot be entered into and the option cannot be exercised.
    (2) If the concern is still a Participant and otherwise eligible 
for the requirement on a sole source basis, the procuring activity 
contracting officer may negotiate price and exercise the option 
provided the option, considered a new contracting action, meets all 
regulatory requirements, including the procuring activity's offering 
and SBA's acceptance of the requirement for the 8(a) BD program.
    (3) If the estimated fair market price of the option exceeds the 
applicable threshold amount set forth in Sec. 124.506, the requirement 
must be competed as a new contract among eligible Participants.
    (b) Priced options. The procuring activity contracting officer may 
exercise a priced option to an 8(a) contract whether the concern that 
received the award has graduated or been terminated from the 8(a) BD 
program or is no longer eligible if to do so is in the best interests 
of the Government.
    (c) Modifications beyond the scope. A modification beyond the scope 
of the initial 8(a) contract award is considered to be a new 
contracting action. It will be treated the same as an unpriced option 
as described in paragraph (a) of this section.
    (d) Modifications within the scope. The procuring activity 
contracting officer may exercise a modification within the scope of the 
initial 8(a) contract whether the concern that received the award has 
graduated or been terminated from the 8(a) BD program or is no longer 
eligible if to do so is in the best interests of the Government.


Sec. 124.515  Can a Participant change its ownership or control and 
continue to perform an 8(a) contract, and can it transfer performance 
to another firm?

    (a) An 8(a) contract must be performed by the Participant that 
initially received it unless a waiver is granted under paragraph (b) of 
this section.
    (1) An 8(a) contract, whether in the base or an option year, must 
be terminated for the convenience of the Government if:
    (i) One or more of the individuals upon whom eligibility for the 
8(a) BD program was based relinquishes or enters into any agreement to 
relinquish ownership or control of the Participant such that the 
Participant would no longer be controlled or at least 51% owned by 
disadvantaged individuals; or
    (ii) The contract is transferred or novated for any reason to 
another firm.
    (2) The procuring activity may not assess repurchase costs or other 
damages against the Participant due solely to the provisions of this 
section.
    (b) The SBA Administrator may waive the requirements of paragraph 
(a)(1) of this section if requested to do so by the 8(a) contractor 
when:
    (1) It is necessary for the owners of the concern to surrender 
partial control of such concern on a temporary basis in order to obtain 
equity financing;
    (2) Ownership and control of the concern that is performing the 
8(a) contract will pass to another Participant, but only if the 
acquiring firm would otherwise be eligible to receive the award 
directly as an 8(a) contract;
    (3) Any individual upon whom eligibility was based is no longer 
able to exercise control of the concern due to physical or mental 
incapacity or death;
    (4) The head of the procuring agency, or an official with delegated 
authority from the agency head, certifies that termination of the 
contract would severely impair attainment of the agency's program 
objectives or missions; or
    (5) It is necessary for the disadvantaged owners of the initial 
8(a) awardee to relinquish ownership of a majority of the voting stock 
of the concern in order to raise equity capital, but only if--
    (i) The concern has graduated from the 8(a) BD program;
    (ii) The disadvantaged owners will maintain ownership of the 
largest single outstanding block of voting stock (including stock held 
by affiliated parties); and
    (iii) The disadvantaged owners will maintain control of the daily 
business operations of the concern.
    (c) The 8(a) contractor must request a waiver in writing prior to 
the change of

[[Page 35763]]

ownership and control except in the case of death or incapacity. A 
request for waiver due to incapacity or death must be submitted within 
60 days after such occurrence. The Participant seeking to change 
ownership or control must specify the grounds upon which it requests a 
waiver, and must demonstrate that the proposed transaction would meet 
such grounds.
    (d) SBA determines the eligibility of an acquiring Participant 
under paragraph (b)(2) of this section by referring to the items 
identified in Sec. 124.507(b)(2) and deciding whether at the time of 
the request for waiver (and prior to the transaction) the acquiring 
Participant is a responsible and eligible concern with respect to each 
contract for which a waiver is sought. As part of the waiver request, 
the acquiring firm must certify that it is a small business for the 
size standard corresponding to the SIC code assigned to each contract 
for which a waiver is sought.
    (e) Anyone other than a procuring agency head who submits a 
certification regarding the impairment of the agency's objectives under 
paragraph (b)(4) of this section, must also certify delegated authority 
to make the certification.
    (f) In processing a request for a waiver under paragraph (b)(2) of 
this section, SBA will treat a transfer of all a Participant's 
operating assets to another Participant the same as the transfer of an 
ownership interest, provided the Participant that transfers its assets 
to another eligible Participant:
    (1) Voluntarily graduates from the 8(a) BD program; and
    (2) Ceases its business operations, or presents a plan to SBA for 
its orderly dissolution.
    (g) A concern performing an 8(a) contract must notify SBA in 
writing immediately upon entering into an agreement or agreement in 
principle (either oral or written) to transfer all or part of its stock 
or other ownership interest or assets to any other party. Such an 
agreement could include an oral agreement to enter into a transaction 
to transfer interests in the future.
    (h) The Administrator has discretion to decline a request for 
waiver even though legal authority exists to grant the waiver.
    (i) The 8(a) contractor may appeal SBA's denial of a waiver request 
by filing a petition with OHA pursuant to part 134 of this title within 
45 days of the date of service (as defined in Sec. 134.204) of the 
Administrator's decision.


Sec. 124.516  Who decides contract disputes arising between a 
Participant and a procuring activity after the award of an 8(a) 
contract?

    For purposes of the Disputes Clause of a specific 8(a) contract, 
the contracting officer is that of the procuring activity. A dispute 
arising between an 8(a) contractor and the procuring activity 
contracting officer will be decided by the procuring activity, and 
appeals may be taken by the 8(a) contractor without SBA involvement.


Sec. 124.517  Can the eligibility or size of a Participant for award of 
an 8(a) contract be questioned?

    (a) The eligibility of a Participant for a sole source or 
competitive 8(a) requirement may not be challenged by another 
Participant or any other party, either to SBA or any administrative 
forum as part of a bid or other contract protest.
    (b) The size status of the apparent successful offeror for a 
competitive 8(a) procurement may be protested pursuant to 
Sec. 121.1001(a)(2) of this chapter. The size status of a nominated 
Participant for a sole source 8(a) procurement may not be protested by 
another Participant or any other party.
    (c) A Participant cannot appeal SBA's determination not to award it 
a specific 8(a) contract because the concern lacks an element of 
responsibility or is ineligible for the contract, other than the right 
set forth in Sec. 124.501(h) to request a formal size determination 
where SBA cannot verify it to be small.
    (d)(1) The SIC code assigned to a sole source 8(a) requirement may 
not be challenged by another Participant or any other party either to 
SBA or any administrative forum as part of a bid or contract protest. 
Only the AA/8(a)BD may appeal a SIC code designation with respect to a 
sole source 8(a) requirement.
    (2) In connection with a competitive 8(a) procurement, any 
interested party who has been adversely affected by a SIC code 
designation may appeal the designation to SBA's OHA pursuant to 
Sec. 121.1103 of this title.
    (e) Anyone with information questioning the eligibility of a 
Participant to continue participation in the 8(a) BD program or for 
purposes of a specific 8(a) contract may submit such information to SBA 
under Sec. 124.112(c).


Sec. 124.518  How can an 8(a) contract be terminated before performance 
is completed?

    (a) Termination for default. A decision to terminate a specific 
8(a) contract for default can be made by the procuring activity 
contracting officer after consulting with SBA. The contracting officer 
must advise SBA of any intent to terminate an 8(a) contract for default 
in writing before doing so. SBA may provide to the Participant any 
program benefits reasonably available in order to assist it in avoiding 
termination for default. SBA will advise the contracting officer of 
this effort. Any procuring activity contracting officer who believes 
grounds for termination continue to exist may terminate the 8(a) 
contract for default, in accordance with the Federal Acquisition 
Regulations (48 CFR chapter 1). SBA will have no liability for 
termination costs or reprocurement costs.
    (b) Termination for convenience. After consulting with SBA, the 
procuring activity contracting officer may terminate an 8(a) contract 
for convenience when it is in the best interests of the Government to 
do so. A termination for convenience is appropriate if any 
disadvantaged owner of the Participant performing the contract 
relinquishes ownership or control of such concern, or enters into any 
agreement to relinquish such ownership or control, unless a waiver is 
granted pursuant to Sec. 124.515.
    (c) Substitution of one 8(a) contractor for another. Where a 
procuring activity contracting officer demonstrates to SBA that an 8(a) 
contract will otherwise be terminated for default, SBA may authorize 
another Participant to complete performance and, in conjunction with 
the procuring activity, permit novation of the contract without 
invoking the termination for convenience or waiver provisions of 
Sec. 124.515.


Sec. 124.519  Are there any dollar limits on the amount of 8(a) 
contracts that a Participant may receive?

    (a) A Participant (other than one owned by an Indian tribe or an 
ANC) may not receive sole source 8(a) contract awards where it has 
received a combined total of competitive and sole source 8(a) contracts 
in excess of the dollar amount set forth in this section during its 
participation in the 8(a) BD program.
    (1) For a firm having a revenue-based primary SIC code at time of 
program entry, the limit above which it can no longer receive sole 
source 8(a) contracts is five times the size standard corresponding to 
that SIC code as of the date of SBA's acceptance of the requirement for 
the 8(a) BD program or $100,000,000, whichever is less.
    (2) For a firm having an employee-based primary SIC code at time of 
program entry, the limit above which it can no longer receive sole 
source 8(a) contracts is $100,000,000.

[[Page 35764]]

    (3) SBA will not consider 8(a) contracts awarded under $100,000 in 
determining whether a Participant has reached the limit identified in 
paragraphs (a)(1) and (a)(2) of this section.
    (b) Once the limit is reached, a firm may not receive any more 8(a) 
sole source contracts, but may remain eligible for competitive 8(a) 
awards.
    (c) The limitation set forth in paragraph (a) of this section will 
not apply for firms that are current Participants in the 8(a) BD 
program as of December 31, 1997.
    (d) SBA includes the dollar value of 8(a) options and modifications 
in determining whether a Participant has reached the limit identified 
in paragraph (a) of this section. If an option is not exercised or the 
contract value is reduced by modification, SBA will deduct those 
values.
    (e) A Participant's eligibility for a sole source award in terms of 
whether it has exceeded the dollar limit for 8(a) contracts is measured 
as of the date that the requirement is accepted for the 8(a) program 
without taking into account whether the value of that award will cause 
the limit to be exceeded.
    (f) The SBA Administrator on a non-delegable basis may waive the 
requirement prohibiting a Participant from receiving sole source 8(a) 
contracts in excess of the dollar amount set forth in this section 
where the head of a procuring activity represents to the SBA 
Administrator that award of a sole source 8(a) contract to the 
Participant is needed to achieve significant interests of the 
Government.


Sec. 124.520  Mentor/protege program.

    (a) General. The mentor/protege program is designed to encourage 
approved mentors to provide various forms of assistance to eligible 
Participants. This assistance may include technical and/or management 
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing prime contracts 
with the Government in the form of joint venture arrangements. The 
purpose of the mentor/protege relationship is to enhance the 
capabilities of the protege and to improve its ability to successfully 
compete for contracts.
    (b) Mentors. Any concern that demonstrates a commitment and the 
ability to assist developing 8(a) Participants may act as a mentor and 
receive benefits as set forth in this section. This includes businesses 
that have graduated from the 8(a) BD program, firms that are in the 
transitional stage of program participation, other small businesses, 
and large businesses.
    (1) In order to qualify as a mentor, a concern must demonstrate 
that it:
    (i) Possesses favorable financial health, including profitability 
for at least the last two years;
    (ii) Possesses good character;
    (iii) Does not appear on the federal list of debarred or suspended 
contractors; and
    (iv) Can impart value to a protege firm due to lessons learned and 
practical experience gained because of the 8(a) BD program, or through 
its general knowledge of government contracting.
    (2) Generally, a mentor will have no more than one protege at a 
time. However, the AA/8(a)BD may authorize a concern to mentor more 
than one protege at a time where the concern can demonstrate that the 
additional mentor/protege relationship will not adversely affect the 
development of either protege firm (e.g., the second firm cannot be a 
competitor of the first firm).
    (3) In order to demonstrate its favorable financial health, a firm 
seeking to be a mentor must submit its federal tax returns for the last 
two years to SBA for review.
    (4) Once approved, a mentor must annually certify that it continues 
to possess good character and a favorable financial position.
    (c) Proteges. (1) In order to initially qualify as a protege firm, 
a Participant must:
    (i) Be in the developmental stage of program participation;
    (ii) Have never received an 8(a) contract; or
    (ii) Have a size that is less than half the size standard 
corresponding to its primary SIC code.
    (2) Only firms that are in good standing in the 8(a) BD program 
(e.g., firms that do not have termination or suspension proceedings 
against them, and are up to date with all reporting requirements) may 
qualify as a protege.
    (3) A protege firm may have only one mentor at a time.
    (d) Benefits. (1) A mentor and protege may joint venture as a small 
business for any government procurement, including procurements less 
than half the size standard corresponding to the assigned SIC code and 
8(a) sole source contracts, provided both the mentor and the protege 
qualify as small for the procurement and, for purposes of 8(a) sole 
source requirements, the protege has not reached the dollar limit set 
forth in Sec. 124.519.
    (2) Notwithstanding the requirements set forth in Secs. 124.105(g) 
and (h), in order to raise capital for the protege firm, the mentor may 
own an equity interest of up to 40% in the protege firm.
    (3) Notwithstanding the mentor/protege relationship, a protege firm 
may qualify for other assistance as a small business, including SBA 
financial assistance.
    (4) No determination of affiliation or control may be found between 
a protege firm and its mentor based on the mentor/protege agreement or 
any assistance provided pursuant to the agreement.
    (e) Written agreement. (1) The mentor and protege firms must enter 
a written agreement setting forth an assessment of the protege's needs 
and describing the assistance the mentor commits to provide to address 
those needs (e.g., management and/or technical assistance, loans and/or 
equity investments, cooperation on joint venture projects, or 
subcontracts under prime contracts being performed by the mentor). The 
agreement must also provide that the mentor will provide such 
assistance to the protege firm for at least one year.
    (2) The written agreement must be approved by the AA/8(a)BD. The 
agreement will not be approved if SBA determines that the assistance to 
be provided is not sufficient to promote any real developmental gains 
to the protege, or if SBA determines that the agreement is merely a 
vehicle to enable a non-8(a) participant to receive 8(a) contracts.
    (3) The agreement must provide that either the protege or the 
mentor may terminate the agreement with 30 days advance notice to the 
other party to the mentor/protege relationship and to SBA.
    (4) SBA will review the mentor/protege relationship annually to 
determine whether to approve its continuation for another year.
    (5) SBA must approve all changes to a mentor/protege agreement in 
advance.
    (f) Evaluating the mentor/protege relationship. (1) In its annual 
business plan update required by Sec. 124.403(a,) the protege must 
report to SBA for the protege's preceding program year:
    (i) All technical and/or management assistance provided by the 
mentor to the protege;
    (ii) All loans to and/or equity investments made by the mentor in 
the protege;
    (iii) All subcontracts awarded to the protege by the mentor, and 
the value of each subcontract;
    (iv) All federal contracts awarded to the mentor/protege 
relationship as a joint venture (designating each as an 8(a), small 
business set aside, or unrestricted procurement), the value of each 
contract, and the percentage of the

[[Page 35765]]

contract performed and the percentage of revenue accruing to each party 
to the joint venture; and
    (v) A narrative describing the success such assistance has had in 
addressing the developmental needs of the protege and addressing any 
problems encountered.
    (2) The protege must annually certify to SBA whether there has been 
any change in the terms of the agreement.
    (3) SBA will review the protege's report on the mentor/protege 
relationship as part of its annual review of the firm's business plan 
pursuant to Sec. 124.403. SBA may decide not to approve continuation of 
the agreement if it finds that the mentor has not provided the 
assistance set forth in the mentor/protege agreement or that the 
assistance has not resulted in any material benefits or developmental 
gains to the protege.

Miscellaneous Reporting Requirements


Sec. 124.601  What reports does SBA require concerning parties who 
assist Participants in obtaining federal contracts?

    (a) Each Participant must submit annually a written report to its 
assigned BOS that includes a listing of any agents, representatives, 
attorneys, accountants, consultants and other parties (other than 
employees) receiving fees, commissions, or compensation of any kind to 
assist such participant in obtaining a Federal contract. The listing 
must indicate the amount of compensation paid and a description of the 
activities performed for such compensation.
    (b) Failure to submit the report is good cause for the initiation 
of a termination proceeding pursuant to Secs. 124.303 and 124.304.


Sec. 124.602  What kind of annual financial statement must a 
Participant submit to SBA?

    (a) Participants with gross annual receipts of more than $5,000,000 
must submit to SBA audited annual financial statements prepared by a 
licensed independent public accountant within 120 days after the close 
of the concern's fiscal year.
    (1) The servicing SBA District Director may waive the requirement 
for audited financial statements for good cause shown by the 
Participant.
    (2) Circumstances where waivers of audited financial statements may 
be granted include, but are not limited to, the following:
    (i) The concern has an unexpected increase in sales towards the end 
of its fiscal year that creates an unforeseen requirement for audited 
statements;
    (ii) The concern unexpectedly experiences severe financial 
difficulties which would make the cost of audited financial statements 
a particular burden; and
    (iii) The concern has been a Participant less than 12 months.
    (b) Participants with gross annual receipts between $1,000,000 and 
$5,000,000 must submit to SBA reviewed annual financial statements 
prepared by a licensed independent public accountant within 90 days 
after the close of the concern's fiscal year.
    (c) Participants with gross annual receipts of less than $1,000,000 
must submit to SBA an annual statement prepared in-house or a 
compilation statement prepared by a licensed independent public 
accountant, verified as to accuracy by an authorized officer, partner, 
limited liability member, or sole proprietor of the Participant, 
including signature and date, within 90 days after the close of the 
concern's fiscal year.
    (d) Any audited or reviewed financial statements submitted to SBA 
pursuant to paragraphs (a) or (b) of this section must be prepared in 
accordance with Generally Accepted Accounting Principles.
    (e) While financial statements need not be submitted until 90 or 
120 days after the close of a Participant's fiscal year, depending on 
the receipts of the concern, a Participant seeking to be awarded an 
8(a) contract between the close of its fiscal year and such 90 or 120-
day time period must submit a final sales report signed by the CEO or 
President to SBA in order for SBA to determine the concern's 
eligibility for the 8(a) contract. This report must show a breakdown of 
8(a) and non-8(a) sales.
    (f) Notwithstanding the amount of a Participant's gross annual 
receipts, SBA may require audited or reviewed statements whenever they 
are needed to obtain more complete information as to a concern's 
assets, liabilities, income or expenses, such as when the concern's 
capacity to perform a specific 8(a) contract must be determined, or 
when they are needed to determine continued program eligibility.


Sec. 124.603  What reports regarding the continued business operations 
of former Participants does SBA require?

    Former Participants must provide such information as SBA may 
request concerning the former Participant's continued business 
operations, contracts, and financial condition for a period of three 
years following the date on which the concern graduates or is 
terminated from the program. Failure to provide such information when 
requested will constitute a violation of the regulations set forth in 
this part, and may result in the nonexercise of options on or 
termination of contracts awarded through the 8(a) BD program, 
debarment, or other legal recourse.

Management and Technical Assistance Program


Sec. 124.701  What is the purpose of the 7(j) management and technical 
assistance program?

    Section 7(j)(1) of the Small Business Act, 15 U.S.C. 636(j)(1), 
authorizes SBA to enter into grants, cooperative agreements, or 
contracts with public or private organizations to pay all or part of 
the cost of technical or management assistance for individuals or 
concerns eligible for assistance under sections 7(a)(11), 7(j)(10), or 
8(a) of the Small Business Act.


Sec. 124.702  What types of assistance are available through the 7(j) 
program?

    Through its private sector service providers, SBA may provide a 
wide variety of management and technical assistance to eligible 
individuals or concerns to meet their specific needs, including:
    (a) Counseling and training in the areas of financing, management, 
accounting, bookkeeping, marketing, and operation of small business 
concerns; and
    (b) The identification and development of new business 
opportunities.


Sec. 124.703  Who is eligible to receive 7(j) assistance?

    The following businesses are eligible to receive assistance from 
SBA through its service providers:
    (a) Businesses which qualify as small under part 121 of this title, 
and which are located in urban or rural areas with a high proportion of 
unemployed or low-income individuals, or which are owned by such low-
income individuals; and
    (b) Businesses eligible to receive 8(a) contracts.


Sec. 124.704  What additional management and technical assistance is 
reserved exclusively for concerns eligible to receive 8(a) contracts?

    In addition to the management and technical assistance available 
under Sec. 124.702, Section 7(j)(10) of the Small Business Act 
authorizes SBA to provide additional management and technical 
assistance through its service providers exclusively to small business 
concerns eligible to receive 8(a) contracts, including:
    (a) Assistance to develop comprehensive business plans with

[[Page 35766]]

specific business targets, objectives, and goals;
    (b) Other nonfinancial services necessary for a Participant's 
growth and development, including loan packaging; and
    (c) Assistance in obtaining equity and debt financing.

PART 134--[AMENDED]

    7. The authority citation for 13 CFR part 134 continues to read as 
follows:

    Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6) and 637(a).

    7a. Section 134.201 is amended by revising the second and third 
sentences to read as follows:


Sec. 134.201  Scope of the rules in this subpart B.

    * * * Specific procedural rules pertaining to 8(a) program appeals 
and to proceedings under the Program Fraud Civil Remedies Act are set 
forth, respectively in subpart D of this part and part 142 of this 
chapter. In the case of a conflict between a particular rule in this 
subpart and a rule of procedure pertaining to OHA appearing in another 
subpart of this part or another part of this chapter, the latter rule 
shall govern.
    8. Section 134.202 is amended in paragraph (c) by removing the 
reference to ``subpart D of this part'' and inserting in its place the 
phrase ``subpart E of this part,'' and in paragraph (d) by removing the 
phrase ``Sec. 124.211'' and inserting in its place the phrase 
``Sec. 134.305.''
    9. Section 134.203 is amended by redesignating paragraphs (a)(2) 
through (4) as paragraphs (a)(3) through (5) and adding the following 
new paragraph (a)(2):


Sec. 134.203  The petition.

    (a) * * *
    (2) The SBA determination being appealed.
* * * * *
    10. Section 134.211 is amended by adding the following new 
paragraph (d):


Sec. 134.211  Motions.

* * * * *
    (d) Stay. A motion to dismiss stays the time to answer. The Judge 
will establish the time for serving and filing an answer in the order 
determining the motion to dismiss.


Sec. 134.213  [Amended]

    11. Section 134.213(a) is amended by removing the second sentence.


Sec. 134.222  [Amended]

    12. Section 134.222 is amended by removing the ``;'' and the word 
``or'' at the end of paragraph (a)(2), by inserting a ``.'' at the end 
of paragraph (a)(2), and by removing paragraph (a)(3).
    13. Subpart D is redesignated as Subpart E, Secs. 134.401 through 
134.418 are redesignated as Secs. 134.501 through 134.518, and the 
following new Subpart D is added:

Subpart D--Rules of Practice for Appeals Under the 8(a) Program

134.401  Scope of the rules in this subpart D.
134.402  Appeal petition.
134.403  Service of appeal petition.
134.404  Decision by Administrative Law Judge.
134.405  Jurisdiction.
134.406  Review of administrative record.
134.407  Evidence beyond the record and discovery.
134.408  Decision on appeal.

Subpart D--Rules of Practice for Appeals Under the 8(a) Program


Sec. 134.401  Scope of the rules in this subpart D.

    The rules of practice in this subpart D apply to all appeals to OHA 
from:
    (a) Denials of 8(a) BD program admission based solely on a negative 
finding(s) of social disadvantage, economic disadvantage, ownership or 
control pursuant to Sec. 124.206 of this title;
    (b) Early graduation pursuant to Secs. 124.302 and 124.304;
    (c) Termination pursuant to Secs. 124.303 and 124.304;
    (d) Denials of requests to issue a waiver pursuant to Sec. 124.515; 
and
    (e) Suspensions pursuant to Sec. 124.305(a).


Sec. 134.402  Appeal petition.

    In addition to the requirements of Sec. 134.203, an appeal petition 
must state, with specific reference to the determination and the record 
supporting such determination, the reasons why the determination is 
alleged to be arbitrary, capricious or contrary to law.


Sec. 134.403  Service of appeal petition.

    (a) Concurrent with its filing with OHA, a concern must also serve 
SBA's AA/8(a)BD and the appropriate Associate General Counsel in SBA's 
Office of General Counsel with a copy of the petition, including 
attachments.
    (1) For appeals relating to denials of program admission pursuant 
to Sec. 124.206 of this title, suspensions of program assistance 
pursuant to Sec. 124.305, or denials of requests for waivers pursuant 
to Sec. 124.515, a petitioner must serve the SBA's Associate General 
Counsel for General Law.
    (2) For appeals relating to early graduation pursuant to 
Secs. 124.302 and 124.304 or termination pursuant to Secs. 124.303 and 
124.304, a petitioner must serve the SBA's Associate General Counsel 
for Litigation.
    (3) Service on SBA's Office of General Counsel generally or the SBA 
General Counsel do not meet the service requirements of this section.
    (b) Service should be addressed to the AA/8(a)BD and the applicable 
Associate General Counsel at the Small Business Administration, 409 3rd 
Street, SW, Washington, DC 20416.


Sec. 134.404  Decision by Administrative Law Judge.

    Appeal proceedings brought under this subpart will be conducted by 
an Administrative Law Judge.


Sec. 134.405  Jurisdiction.

    (a) The Administrative Law Judge selected to preside over an appeal 
shall decline to accept jurisdiction over any matter if:
    (1) The appeal does not, on its face, allege facts that, if proven 
to be true, would warrant reversal or modification of the 
determination, including appeals of denials of 8(a) BD program 
admission based in whole or in part on grounds other than a negative 
finding of social disadvantage, economic disadvantage, ownership or 
control;
    (2) The appeal is untimely filed under Sec. 134.202 or is not 
otherwise filed in accordance with the requirements of this subpart or 
the requirements in subparts A and B of this part; or
    (3) The matter has been decided or is the subject of an 
adjudication before a court of competent jurisdiction over such 
matters.
    (b) Once the Administrative Law Judge accepts jurisdiction over an 
appeal, subsequent initiation of an adjudication of the matter by a 
court of competent jurisdiction will not preclude the Administrative 
Law Judge from rendering a final decision on the matter.
    (c) Jurisdiction of the Administrative Law Judge in a suspension 
case is limited to the issue of whether the protection of the 
Government's interest requires suspension pending resolution of the 
termination action, unless the Administrative Law Judge has 
consolidated the suspension appeal with the corresponding termination 
appeal.


Sec. 134.406  Review of the administrative record.

    (a) Except as provided in Sec. 134.407, any proceeding conducted 
under this subpart shall be decided solely on a review of the written 
administrative record.
    (b) The Administrative Law Judge's review is limited to determining

[[Page 35767]]

whether the Agency's determination is arbitrary, capricious, or 
contrary to law. As long as the Agency's determination is reasonable, 
the Administrative Law Judge must uphold it on appeal.
    (c) The administrative record must contain all documents that are 
relevant to the determination on appeal before the Administrative Law 
Judge and upon which the SBA decision-maker relied. The administrative 
record, however, need not contain all documents pertaining to the 
petitioner. For example, the administrative record in a termination 
proceeding need not include the Participant's entire business plan 
file, documents pertaining to specific 8(a) contracts, or the firm's 
application for participation in the 8(a) BD program if they are 
unrelated to the termination action. The petitioner may object to the 
absence of a document, previously submitted to or sent by SBA, which 
the petitioner believes was erroneously omitted from the administrative 
record.
    (d) Where the Agency files its answer to the appeal petition after 
the date specified in Sec. 134.206, the Administrative Law Judge may 
decline to consider the answer and base his or her decision solely on a 
review of the administrative record.
    (e) The Administrative Law Judge may remand a case to the AA/8(a)BD 
(or, in the case of a denial of a request for waiver under Sec. 124.515 
of this title, to the Administrator) for further consideration if he or 
she determines that, due to the absence in the written administrative 
record of the reasons upon which the determination was based, the 
administrative record is insufficiently complete to decide whether the 
determination is arbitrary, capricious or contrary to law, or where it 
is clearly apparent from the record that SBA made an erroneous factual 
finding (e.g., SBA double counted an asset of an individual claiming 
disadvantaged status) or a mistake of law (e.g., SBA applied the wrong 
regulatory provision in evaluating the case). Such a remand will be for 
a period of 10 working days.


Sec. 134.407  Evidence beyond the record and discovery.

    (a) The Administrative Law Judge may not admit evidence beyond the 
written administrative record nor permit any form of discovery unless 
he or she first determines that the petitioner, upon written 
submission, has made a substantial showing, based on credible evidence 
and not mere allegation, that the Agency determination in question may 
have resulted from bad faith or improper behavior.
    (1) Prior to any such determination, the Administrative Law Judge 
must permit SBA to respond in writing to any allegations of bad faith 
or improper behavior.
    (2) Upon a determination by the Administrative Law Judge that the 
petitioner has made such a substantial showing, the Administrative Law 
Judge may permit appropriate discovery, and accept relevant evidence 
beyond the written administrative record, which is specifically limited 
to the alleged bad faith or improper behavior.
    (b) A determination by the Administrative Law Judge that the 
required showing set forth in paragraph (a) of this section has been 
made does not shift the burden of proof, which continues to rest with 
the petitioner.


Sec. 134.408  Decision on appeal.

    (a) A decision of the Administrative Law Judge under this subpart 
is the final agency decision, and is binding on the parties.
    (b) The Administrative Law Judge shall issue a decision, insofar as 
practicable, within 90 days after an appeal petition is filed. If the 
Administrative Law Judge does not issue a decision within 90 days after 
an appeal petition is filed, he or she must indicate the reason that 
the 90-day time limit has not been met in the decision, when issued.
    (c) The Administrative Law Judge may reconsider an appeal decision 
within 20 days of the decision if there is a clear showing of an error 
of fact or law material to the decision.

    Dated: February 13, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 98-17196 Filed 6-26-98; 8:45 am]
BILLING CODE 8025-01-P