[Federal Register Volume 63, Number 170 (Wednesday, September 2, 1998)]
[Rules and Regulations]
[Pages 46640-46643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23656]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 125


Small Business Size Regulations and Government Contracting 
Assistance Regulations; Very Small Business Concern

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: This rule amends the regulations pertaining to the Small 
Business Administration's (SBA) size and government contracting 
programs to incorporate the Very Small Business Set-Aside Pilot 
Program. It also defines what a ``very small business concern'' is for 
purposes of the SBA's small business set-aside program. Section 304 of 
the Small Business Administration Reauthorization and Amendments Act of 
1994 (Public Law 103-403) authorized the SBA Administrator to establish 
and carry out a pilot program for very small business concerns. The Act 
defines a very small business concern as one that has 15 or fewer 
employees together with average annual receipts that do not exceed $1 
million. The Act established September 30, 1998, as the expiration date 
for this pilot.

DATES: This rule is effective on September 2, 1998.

FOR FURTHER INFORMATION CONTACT: Corinne Sisneros, Office of Government 
Contracting, at (202) 205-7624.

SUPPLEMENTARY INFORMATION:

I. Background

    On January 21, 1997 (62 FR 2979), SBA published a proposed rule in 
the Federal Register to amend parts 121 and 125 of title 13 of the Code 
of Federal Regulations (CFR) in order to establish a pilot program for 
very small business (VSB) concerns. (See Pub. L. 103-403, Section 304.) 
The purpose of this pilot program is to improve access to Federal 
Government contract opportunities for concerns that are substantially 
below SBA's size standards by reserving certain procurements for 
competition among such VSB concerns. VSB concerns under this program 
that receive a VSB set-aside contract will also be eligible for loan 
application support and assistance under the prequalification component 
of the program. This pilot program will expire on September 30, 2000, 
unless further extended through legislation. See section 508 of Pub. L. 
105-135, 111 Stat. 2606.

II. Summary and Analysis of Comments and SBA's Response

    SBA received 11 timely comments to the January 21, 1997, proposed 
rule. These comments addressed several issues, each of which is 
discussed below.
    Several commenters sought clarification as to how requirements 
under this program would be identified. Some commenters also requested 
that SBA clarify what is meant by ``advertise'' and provide guidance on 
synopsis and information dissemination requirements. SBA has not made 
any changes to the final rule in response to these comments. Procedures 
are already in place to address these issues regarding other set 
asides, which would cover this program as well. In addition to using 
SBA's existing automated reference system, procuring activities can 
rely on SBA district office personnel and procurement center 
representatives (PCRs) to identify VSB concerns likely to compete on a 
requirement. A procuring activity may elect to issue a ``VSB sources 
sought'' notice in the Commerce Business Daily. However, this rule does 
not require display or synopsizing requirements in excess of those 
currently in the Federal Acquisition Regulation (FAR).
    One commenter suggested establishing a web page, organized by 
region, of all VSBs and their applicable standard industrial 
classification (SIC) codes so that procurement offices could check to 
see if there were capable VSB vendors for a given requirement. A change 
to the proposed regulatory language is not needed to implement this 
recommendation. As such, SBA did not change the rule in response to 
this comment, but does plan to initiate a web site on the Government 
Contracting Home Page (www.sba.gov/GC) to list VSB concerns (and their 
applicable SIC codes) that are interested in participating in this 
pilot program. Buying activities will be able to review the SBA web 
site to search for compatible VSB concerns. Their efforts should not, 
however, be limited to the SBA web site. Procuring activities should 
also try to identify VSB sources through media pursuant to FAR 5.101 as 
well as their agency-specific regulations and polices.
    One commenter requested clarification regarding the types of 
procurement requirements that will be available through and the 
procuring activities that will be involved in the VSB program. Under 
the proposed rule, only those VSB concerns whose headquarters are 
located within the geographical area serviced by a designated SBA 
district office where the procurement is offered would be eligible for 
award. Upon further deliberation, SBA has changed the application of 
the VSB program for service and construction procurements. Under the 
final rule, any procurement requirement between $2,500 and $50,000 may 
be set aside for VSB concerns. A contracting officer must set aside for 
VSB concerns any such service or construction requirement that will be 
performed within the geographical boundaries served by a designated SBA 
district office if there is a reasonable expectation of obtaining fair 
and reasonable offers from two or more responsible VSB concerns 
headquartered within the geographical area served by that designated 
SBA district. In the case of a procurement for supplies or manufactured 
items, a contracting officer must set aside any such requirement for 
VSBs if the buying activity is located within the geographical area 
served by a designated SBA district and there is a reasonable 
expectation of obtaining fair and reasonable offers from two or more 
responsible VSB concerns headquartered within the geographical area 
served by that designated SBA district. SBA has made the distinction 
between service or construction requirements and requirements for 
supplies or manufactured items because of the size of VSB concerns and 
their limited ability to perform contracts outside of the geographic 
area where they are located. For a service or construction requirement, 
the place of performance is what is critical to a VSB, not the location 
of the buying activity. This is particularly true where more and more 
requirements are being procured on a consolidated basis by a number of 
buying activities, which are

[[Page 46641]]

geographically dispersed around the country. The VSB program is 
intended to give local smaller businesses a chance to perform local 
requirements. For a service or construction business, that means 
requirements that will be performed close to where the firm is located. 
Conversely, for a manufacturing firm or one that provides supply items, 
the place of ultimate delivery is not important. It is the location of 
the buying activity that matters to such a firm. Thus, SBA has adopted 
the proposed rule language, as clarified, in the final rule for 
requirements for supplies or manufactured items.
    For purposes of the VSB program, SBA will treat the geographic 
areas served by the SBA Los Angeles and Santa Ana District Offices as 
one designated SBA district. As such, any VSB whose headquarters is 
located within the geographical area served by the Los Angeles or Santa 
Ana SBA District Offices will be eligible for a VSB set-aside that will 
be performed or in which the buying activity is located within the 
geographical area of either SBA district office.
    One commenter also sought clarification on how SBA would achieve 
nationwide geographic coverage. SBA's plan to achieve nationwide 
geographical coverage by assigning this pilot program to widely 
dispersed district office pilot sites was already reflected in the 
proposed rule. Thus, SBA makes no changes to the rule in response to 
this comment.
    One commenter asked what sort of data collection will take place 
under the VSB program. SBA will obtain a record of all contract awards 
under this program after advising the contracting agencies of the 
manner and frequency of such reporting. At a minimum, reports will 
include the date of solicitation, the date of an award, the 
contractor's name and address, the SIC code assigned to the 
procurement, and the dollar value of the award. Reporting requirements 
are necessary since the SBA must report to Congress on the results of 
the program. Without documentation of efforts and activity, SBA will be 
unable to comply with the law. However, the final rule makes no changes 
to reporting requirements because SBA presently collects this 
information.
    Four commenters recommended that SBA provide guidance as to whether 
the procurement order of precedence would be changed for the purpose of 
the VSB program. The order of precedence was eliminated from the FAR in 
1996. However, SBA proposed the VSB program as an extension of the 
small business set-aside program. Therefore, if a procurement 
requirement does not meet the criteria for a small business set-aside, 
it cannot be set aside for VSBs. If a contracting officer determines 
that there is a reasonable likelihood that two or more VSB concerns 
will make offers which are competitive as to price, quality, and 
delivery, the contracting officer must complete the requirement as a 
VSB set-aside. SBA intends that the procedures in FAR 19.502-2 (as made 
applicable to simplified acquisitions by FAR 13.105) should apply. 
Where there is not a reasonable likelihood that there are two or more 
VSBs who will make offers which are competitive as to price, quality, 
and delivery, the contracting officer must then consider an award as a 
regular small business set-aside. In situations where the contracting 
officer does not agree with the recommendations of SBA's PCR, the 
procedures at FAR 19.505 will apply. The final rule reflects these 
clarifications. SBA has also added clarifying language to ensure that 
contracting officers do not give a preference to the VSB program over 
SBA's 8(a) Business Development program for business concerns owned and 
controlled by socially and economically disadvantaged individuals.
    The proposed rule limited the program to requirements of $50,000 or 
less that could be set aside for small business. Two commenters raised 
concerns that since the exception to the non-manufacturer rule applies 
only to procurements where the anticipated cost will not exceed $2,500 
this could result in confusion to some buyers and vendors for 
processing requirements between $2,500 and $50,000. One commenter 
recommended an extension to $50,000 of the exception to the non-
manufacturer rule for VSB set-aside requirements. SBA will not raise 
the exception threshold to the non-manufacturer rule. SBA believes that 
the non-manufacturer rule provides important protections to small 
businesses by limiting the instances in which the intent of a small 
business set-aside is subverted through a subcontract with a large 
business. Moreover, SBA disagrees that the $50,000 threshold to the VSB 
program will be confused with the $2,500 exception threshold to the 
non-manufacturer rule. The processing of VSB set-asides in the $2,500-
$50,000 range will be no different than the processing of small 
business set-asides in that range being done presently.
    Another commenter suggested raising the VSB set-aside limit from 
$50,000 to $100,000. SBA has elected to maintain the $50,000 threshold. 
Again, this is a pilot program. If experience shows that the dollar 
value of requirements reserved for VSBs should be raised, SBA will 
address that issue at that time.
    Two commenters expressed concern that without reserving a class of 
procurements for the VSB program, SBA will be unable to require 
agencies to contract with VSB concerns. SBA has changed the regulatory 
language to reserve the class of requirements in the $2,500-$50,000 
range for VSB concerns which meet the criteria of the requirement.
    Two commenters were concerned about the effect the pilot program 
may have on the Small Business Competitiveness Demonstration Program 
(Demonstration Program). One of the two comments recommended that the 
SBA exclude agencies that are participating in the Demonstration 
Program from this pilot program since under the Demonstration Program 
set-asides for small business are prohibited in the four designated 
industry groups. SBA was also asked to consider the impact this program 
may have on emerging small businesses. The Demonstration Program makes 
requirements in four designated industry groups ineligible for small 
business set-asides. The VSB program applies to requirements that are 
eligible to be set-aside for small business. Thus, any requirement 
which cannot be set aside because it is excluded by the Demonstration 
Program is also ineligible for the VSB program. Therefore, SBA has not 
changed the rule in response to this comment.
    The proposed rule stated that only VSBs whose headquarters are 
located within the geographical area served by a designated SBA 
district office where the procurement is offered are eligible for award 
of a contract under the pilot program. As noted above, the final rule 
distinguishes service and construction procurements from supply and 
manufactured item procurements. For service and construction 
procurements, only VSBs whose headquarters are located within the 
geographical area served by a designated SBA district office where the 
requirement will be performed are eligible for award. For supply and 
manufactured item procurements, only VSBs whose headquarters are 
located within the geographical area served by a designated SBA 
district office where the buying activity is located are eligible for 
award. One comment requested clarification as to who will be 
responsible for determining whether the VSB concern has its 
headquarters located within an appropriate designated SBA district. The 
determination will fall within the jurisdiction of the cognizant SBA 
Government Contracting Area Office

[[Page 46642]]

and will be included as part of any formal size determination (see 13 
CFR Secs. 121.1001-121.1009).
    One commenter asked how businesses would be certified as VSB 
concerns. There is no ``certification'' process under the VSB program. 
As with other procurements requiring concerns to be small, concerns 
will represent themselves to be VSB concerns for any procurement 
reserved as a VSB set-aside. As with any other representation as to 
size, absent information to the contrary, a contracting officer may 
accept such a self-representation and award a contract. If the size of 
a concern representing itself to be a VSB is protested on a VSB set-
aside, the contracting officer will forward the protest to SBA as he or 
she would any other size protest in accordance with 13 CFR part 121. 
SBA will determine whether the concern qualifies as a VSB by using the 
statutorily imposed 15-employee and $1 million in average annual 
receipts size standard. Because those regulations are already in place, 
no change to the proposed rule is required in response to this comment.
    One commenter asked what value the proposed rule would add to SBA's 
commitment to serve small businesses. The program will improve access 
to Federal contract opportunities by reserving certain procurements for 
competition among VSB concerns. Businesses receiving awards will also 
be eligible for loan application support and assistance under the pre-
qualification component of the program.

Compliance With Executive Orders 12612, 12788 and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and the 
Paperwork Reduction Act (44 U.S.C., Chapter 3501 et seq.)

    SBA certifies that this rule will not be a significant rule within 
the meaning of Executive Order 12866. The value of procurements awarded 
under the VSB program is expected to be less than $100 million since 
the program is being implemented as a pilot program in only 10 
locations and is targeted to businesses that have historically 
experienced limited participation in the Federal market. This rule does 
not impose costs upon the businesses which might be affected by it. The 
rule should have no effect on the amount or dollar value of any 
contract requirement or the number of requirements reserved for the 
small business set-aside program, since it is administered within and 
is a component of the small business set-aside program. Therefore, it 
would not have an annual economic effect of $100 million or more, 
result in a major increase in costs or prices, or have a significant 
adverse effect on competition or the United States economy.
    As required by the Regulatory Flexibility Act, 5 U.S.C. 601-612, 
SBA prepared a regulatory flexibility analysis of this rule. This 
analysis has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration, and is available upon request.
    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA certifies that this rule will not impose new reporting or record 
keeping requirements, other than those required of SBA.
    For purposes of Executive Order 12612, SBA certifies that this rule 
does not have any federalism implications warranting the preparation of 
a Federalism Assessment.
    For purposes of Executive Order 12778, the SBA certifies that this 
rule is drafted, to the extent practicable, in accordance with the 
standards set forth in section 2 of that order.

List of Subjects

13 CFR Part 121

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

13 CFR Part 125

    Government contracts, Government procurement, Reporting and 
recordkeeping requirements, Small businesses, Technical assistance.
    Accordingly, for the reasons set forth above, SBA hereby amends 13 
CFR as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

    Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c), and 
662(5); and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.

    2. Revise Sec. 121.401 to read as follows:


Sec. 121.401  What procurement programs are subject to size 
determinations?

    The requirements set forth in Secs. 121.401 through 121.413 cover 
all procurement programs for which status as a small business is 
required, including the small business set-aside program, SBA's 
Certificate of Competency program, SBA's 8(a) Business Development 
program, the Small Business Subcontracting program authorized under 
section 8(d) of the Small Business Act, the Federal Small Disadvantaged 
Business (SDB) programs, the HUBZone program, and the Very Small 
Business (VSB) program.
    3. Add Sec. 121.413 to subpart A to read as follows:


Sec. 121.413  What size must a concern be to be eligible for the Very 
Small Business program?

    A concern is a very small business (see Sec. 125.7 of this chapter) 
if, together with its affiliates, it has no more than 15 employees and 
its average annual receipts do not exceed $1 million.

PART 125--GOVERNMENT CONTRACTING PROGRAMS

    4. The authority citation for 13 CFR Part 125 is revised to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 
9702; and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.

    5. Add Sec. 125.7 to read as follows:


Sec. 125.7  What is the Very Small Business program?

    (a) The Very Small Business (VSB) program is an extension of the 
small business set-aside program, administered by SBA as a pilot to 
increase opportunities for VSB concerns. Procurement requirements, 
including construction requirements, estimated to be between $2,500 and 
$50,000 must be reserved for eligible VSB concerns if the criteria in 
paragraph (c) of this section are met.
    (b) Definitions. (1) The term designated SBA district means the 
geographic area served by any of the following SBA district offices:
    (i) Albuquerque, NM, serving New Mexico;
    (ii) Los Angeles, CA, serving the following counties in California: 
Los Angeles, Santa Barbara, and Ventura;
    (iii) Boston, MA, serving Massachusetts;
    (iv) Louisville, KY, serving Kentucky;
    (v) Columbus, OH, serving the following counties in Ohio: Adams, 
Allen, Ashland, Athens, Auglaize, Belmont, Brown, Butler, Champaign, 
Clark, Clermont, Clinton, Coshocton, Crawford, Darke, Delaware, 
Fairfield, Fayette, Franklin, Gallia, Greene, Guernsey, Hamilton, 
Hancock, Hardin, Highland, Hocking, Holmes, Jackson, Knox, Lawrence, 
Licking, Logan, Madison, Marion, Meigs, Mercer, Miami, Monroe, 
Montgomery, Morgan, Morrow, Muskingum, Noble, Paulding, Perry, 
Pickaway, Pike, Preble, Putnam, Richland, Ross, Scioto, Shelby, Union, 
Van Wert, Vinton, Warren, Washington, and Wyandot;
    (vi) New Orleans, LA, serving Louisiana;
    (vii) Detroit, MI, serving Michigan;
    (viii) Philadelphia, PA, serving the State of Delaware and the 
following

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counties in Pennsylvania: Adams, Berks, Bradford, Bucks, Carbon, 
Chester, Clinton, Columbia, Cumberland, Dauphin, Delaware, Franklin, 
Fulton, Huntington, Juniata, Lackawanna, Lancaster, Lebanon, Lehigh, 
Luzerne, Lycoming, Mifflin, Monroe, Montgomery, Montour, Northampton, 
Northumberland, Philadelphia, Perry, Pike, Potter, Schuylkill, Snyder, 
Sullivan, Susquehanna, Tioga, Union, Wayne, Wyoming, and York;
    (ix) El Paso, TX, serving the following counties in Texas: 
Brewster, Culberson, El Paso, Hudspeth, Jeff Davis, Pecos, Presidio, 
Reeves, and Terrell; and
    (x) Santa Ana, CA, serving the following counties in California: 
Orange, Riverside, and San Bernadino.
    (2) The term very small business or VSB means a concern whose 
headquarters is located within the geographic area served by a 
designated SBA district and, together with its affiliates, has no more 
than 15 employees and has average annual receipts that do not exceed $1 
million. The terms concerns, affiliates, average annual receipts, and 
employees have the meaning given to them in Secs. 121.105, 121.103, 
121.104, and 121.106, respectively, of this chapter.
    (c)(1) A contracting officer must set aside for VSB concerns each 
procurement that has an anticipated dollar value between $2,500 and 
$50,000 if:
    (i) In the case of a procurement for manufactured or supply items:
    (A) The buying activity is located within the geographical area 
served by a designated SBA district, and
    (B) There is a reasonable expectation of obtaining offers from two 
or more responsible VSB concerns headquartered within the geographical 
area served by that designated SBA district that are competitive in 
terms of market prices, quality and delivery; or
    (ii) In the case of a procurement for other than manufactured or 
supply items:
    (A) The requirement will be performed within the geographical area 
served by a designated SBA district, and
    (B) There is a reasonable expectation of obtaining offers from two 
or more responsible VSB concerns headquartered within the geographical 
area served by that designated SBA district that are competitive in 
terms of market prices, quality and delivery.
    (2) The geographic areas served by the SBA Los Angeles and Santa 
Ana District Offices will be treated as one designated SBA district for 
the purposes of this section.
    (3) If the contracting officer determines that there is not a 
reasonable expectation of receiving at least two responsible offers 
from VSB concerns headquartered within the geographic area served by 
the applicable designated SBA district, he or she must include in the 
contract file the reason(s) for this determination, and solicit the 
procurement pursuant to the provisions of 48 CFR 19.502-2. SBA may 
appeal such determination using the same procedure described in 48 CFR 
19.505.
    (4) If the contracting officer receives only one acceptable offer 
from a responsible VSB concern in response to a VSB set-aside, the 
contracting officer will make an award to that firm. If the contracting 
officer receives no acceptable offers from responsible VSB concerns, he 
or she will withdraw the procurement and, if still valid, must 
resolicit it pursuant to the provisions of 48 CFR 19.502-2.
    (d) Where a procurement is set aside for VSB concerns, only those 
VSB concerns whose headquarters are located within the geographic area 
served by the applicable designated SBA district are eligible to 
submits offers in response to the solicitation.
    (e) Nothing in this section shall be construed to alter in any way 
the procedures by which procuring activities award contracts under the 
SBA's 8(a) Business Development program (see 13 CFR part 124).
    (f) This pilot program terminates on September 30, 2000. Any award 
under this program must be made on or before this date.

    Dated: July 28, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 98-23656 Filed 9-1-98; 8:45 am]
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