[Federal Register Volume 65, Number 192 (Tuesday, October 3, 2000)]
[Proposed Rules]
[Pages 58963-58965]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25291]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 65, No. 192 / Tuesday, October 3, 2000 / 
Proposed Rules  

[[Page 58963]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 126


HUBZone Program

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The Small Business Administration (SBA) proposes to amend its 
regulations governing the HUBZone Empowerment Contracting Program 
(HUBZone program). Now that SBA has officially launched the program, 
has received over two thousand applications for HUBZone certification, 
and has certified concerns into the program, SBA believes that it 
should make the following four regulatory amendments and clarifications 
to improve the administration and operation of the HUBZone program. 
First, SBA proposes to amend the provisions governing the application 
of the HUBZone program to various government departments and agencies. 
It proposes to add three federal agencies to the current list of 
agencies that are affected directly by the HUBZone program and to 
clarify that the HUBZone program does not apply to contracts awarded by 
state and local governments. Second, SBA proposes to amend the 
definition of the term ``principal office'' to accommodate those 
concerns whose industries require employees to perform their work at 
various job sites. Third, SBA proposes to eliminate the existing 
program eligibility restrictions on allowable affiliations of HUBZone 
small business concerns, since those requirements have proven to be 
unduly burdensome on otherwise eligible concerns. Finally, SBA proposes 
to ease the program eligibility requirements and procurement 
restrictions concerning qualified HUBZone small business concerns that 
operate as non-manufacturers because those requirements are unnecessary 
and overly restrictive.

DATES: Submit comments on or before November 2, 2000.

ADDRESSES: Send your comments to Michael McHale, Associate 
Administrator for the HUBZone Program, 409 Third Street, SW, 
Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Michael McHale, Associate 
Administrator for the HUBZone Program, (202) 205-6731 or 
[email protected].

SUPPLEMENTARY INFORMATION: The HUBZone program was established pursuant 
to the HUBZone Act of 1997 (HUBZone Act), Title VI of the Small 
Business Reauthorization Act of 1997, Pub. L. No. 105-135, enacted 
December 2, 1997. The purpose of the HUBZone program is ``to provide 
for Federal contracting assistance to qualified HUBZone small business 
concerns.'' 15 U.S.C. 657a(a). The HUBZone Act authorizes the SBA 
Administrator to publish regulations implementing the program. Pub. L. 
No. 105-135, Sec. 605. On April 2, 1998, SBA published its proposed 
rules for the HUBZone program. 63 FR 16148. After the close of the 
public comment period and review of the comments, SBA published its 
final regulations, which became effective on September 9, 1998. 63 FR 
31896 (June 11, 1998). The final HUBZone regulations, among other 
things, set forth the definition of key terms used in the regulations, 
the criteria for qualification as a HUBZone small business concern 
(SBC) and the Federal contracting assistance available to qualified 
HUBZone SBCs.
    Based upon the operation of the program since the effective date of 
the final HUBZone regulations, SBA has become aware of certain 
amendments that it believes should be made to the program's 
regulations. SBA proposes these amendments to clarify existing 
regulations, streamline the operation of the HUBZone program and ease 
program eligibility requirements perceived to be burdensome on 
concerns.
    SBA proposes to amend Sec. 126.101, concerning the application of 
the HUBZone program to various government departments and agencies. 
Specifically, paragraph (a) of that section lists the ten federal 
agencies to which the HUBZone Act originally applied and provides in 
paragraph (b) that after September 30, 2000, the HUBZone program will 
apply to all federal departments and agencies which employ one or more 
contracting officers as defined by 41 U.S.C. 423(f)(5). On November 29, 
1999, Congress enacted Pub. L. 106-113. Section 212 of that statute 
requires that the HUBZone Act also apply to three additional agencies: 
the Department of Commerce, the Department of Justice, and the 
Department of State. This proposed rule would add these three federal 
agencies to the list in paragraph (a).
    This proposed rule would also add a new paragraph (c) to 
Sec. 126.101, to make clear that the HUBZone program does not apply to 
contracts awarded by state and local governments, since the HUBZone Act 
only applies to the federal government. The proposed paragraph (c) 
would also indicate that state and local governments that have programs 
similar to the HUBZone program are free to use SBA's List of qualified 
HUBZone SBCs to identify such concerns.
    SBA proposes to amend the definition of ``principal office.'' 
Currently, Sec. 126.103 defines ``principal office'' to mean the 
location where the greatest number of the concern's employees at any 
one location perform their work. SBA proposes to amend that definition 
to accommodate those concerns whose primary industry requires employees 
to perform their work at various job sites. SBA received several 
comments on this definition of ``principal office'' when it originally 
proposed the current rule, but believed that the definition would not 
prevent those concerns from participating in the HUBZone program. See 
63 FR 31898. SBA has re-evaluated this definition in light of 
experience and has found that maintaining compliance with the current 
definition of ``principal office'' is difficult for those concerns 
engaged in the service and construction industries because under this 
definition, their principal office is subject to change from contract 
to contract. As a result, SBA proposes that for concerns whose primary 
industry is services or construction (i.e., other than manufacturing), 
the principal office would be the location where the greatest number of 
the concern's employees perform their work, but excluding those 
employees who perform their work at job-site locations to fulfill 
specific contract obligations. For example, a construction concern 
might have an office in a HUBZone where 10 employees perform their 
work. This

[[Page 58964]]

same firm might have a construction contract at a local government 
facility not located in a HUBZone, where 50 of the concern's employees 
work to fulfill the obligations of the construction contract. According 
to the proposed definition, the concern's principal office would be in 
the HUBZone.
    SBA requests public comment regarding our proposal to restrict this 
change only to the construction and service industries. We chose not to 
include manufacturing concerns in this change because such firms tend 
to operate with fixed plant, equipment and personnel tied to one 
location. Further, we believe that the exclusion of manufacturing firms 
from this revised definition is consistent with the purpose of the 
HUBZone Act of 1997, to both encourage employment opportunities and 
increase the level of investment in HUBZones.
    Next, SBA proposes to amend Sec. 126.204, which provides certain 
restrictions on the allowable affiliations of a qualified HUBZone SBC. 
Currently, Sec. 126.204 permits a qualified HUBZone SBC to have 
affiliates only if those affiliates are qualified HUBZone SBCs, 
participants in the 8(a) Business Development (8(a) BD) program, or 
woman-owned businesses (WOBs). Although that restriction is not 
required by statute, SBA included it in both the proposed and final 
HUBZone regulations to ensure that the HUBZone program was implemented 
in a manner that supported rather than undermined existing programs 
designed to assist small businesses. 63 FR 16150. As a means of support 
to the 8(a) BD program, SBA explained in the preamble to the proposed 
HUBZone regulation that minimizing the restrictions on the 
participation of 8(a) BD participants in the HUBZone program would 
provide an additional source of government contract assistance for 8(a) 
BD participants and would therefore enhance the business development 
objectives of that program. 63 FR 16151. SBA also explained in the 
preamble that allowing WOBs the maximum opportunity to qualify as 
HUBZone SBCs would provide the type of assistance that Congress 
determined in the Small Business Act was necessary to remove the 
discriminatory barriers to the development of WOBs. Id. SBA adopted 
this approach in its final regulations. 63 FR 31899.
    Since the effective date of the final HUBZone regulations, SBA has 
received over two thousand applications for certification under the 
HUBZone program. As a result of the limitation on allowable 
affiliations with only the three types of SBCs specified in the current 
Sec. 126.204, SBA has had to decline a number of otherwise eligible 
applicants for HUBZone certification. The restrictions likewise have 
operated to limit HUBZone certification of 8(a) BD participants and 
WOBs that have affiliates that are not themselves qualified HUBZone 
SBCs, 8(a) BD participants or WOBs. As a result 8(a) BD participants, 
WOBs, as well as other otherwise eligible SBCs alike, have been 
declined HUBZone certification by reason of the restriction in 
Sec. 126.204. SBA now believes that the current affiliation requirement 
is unnecessarily restrictive and should be removed. In addition, the 
removal of this restriction will allow SBCs in non-HUBZone areas to 
establish new business ventures in HUBZones. This is especially 
critical due to the historical lack of investment capital in HUBZones 
and the need for such capital to establish new businesses that will 
promote economic development and create jobs.
    Accordingly, SBA proposes to eliminate the existing restrictions on 
affiliation under Sec. 126.204. The proposed Sec. 126.204 would allow a 
qualified HUBZone SBC to have affiliates as long as it, when combined 
with its affiliates, is still small pursuant to SBA's size regulations 
contained in part 121 of this title.
    Finally, SBA proposes to amend two separate, but related, 
provisions concerning non-manufacturers. The first proposed amendment 
would delete the eligibility requirement for non-manufacturers 
contained in Sec. 126.206. Under this proposed rule, non-manufacturer 
HUBZone concerns would no longer be required to demonstrate that they 
can provide product or products manufactured by qualified HUBZone SBCs.
    The second proposed amendment would revise Sec. 126.601. Currently, 
that section provides that a qualified HUBZone SBC that operates as a 
non-manufacturer may submit an offer on a HUBZone contract for supplies 
only if the concern's small manufacturer is also a qualified HUBZone 
SBC. This proposed rule would amend that provision to allow qualified 
HUBZone SBCs that are non-manufacturers the opportunity to supply the 
product of any business for HUBZone contracts at or below $25,000 in 
total value. The reason for this proposed change is that SBA believes 
that for many products purchased in small dollar quantities (at or 
below $25,000), there are often too few or no small business 
manufacturers participating in the federal market. Thus, SBA proposes 
to allow a qualified HUBZone SBC to use any manufacturer, including a 
large business, for HUBZone contracts at or below $25,000 in total 
value. This provision will encourage the participation of small 
business non-manufacturers that are located in HUBZones.
    SBA believes that an exemption for contracts greater than $25,000 
would harm qualified HUBZone SBCs that are manufacturers and possibly 
impact the program's goal of attracting capital investment and jobs in 
HUBZones. SBA further believes that this proposed exemption for 
contracts under $25,000 and the requirement in Sec. 126.601 that a 
qualified HUBZone SBC that is a non-manufacturer may bid on HUBZone 
contracts for supplies only if the concern's small manufacturer is also 
a qualified HUBZone SBC, also support SBA's proposal to eliminate the 
eligibility requirement in Sec. 126.206, that non-manufacturers 
demonstrate at the time of application that they can provide the 
product or products manufactured by a qualified HUBZone SBC. With 
respect to the proposed $25,000 exemption, if the HUBZone contract is 
valued at or below the $25,000 threshold, the SBC would not be required 
to use the products of a qualified HUBZone SBC and so should not be 
required to demonstrate that they would do so as a precondition to 
HUBZone certification. With respect to contracts above the $25,000 
threshold, Sec. 126.601(d) requires qualified HUBZone SBCs to use a 
qualified HUBZone SBC manufacturer. It is therefore unnecessary to have 
a separate eligibility requirement that the concern demonstrate at the 
time of application that it can provide the product or products 
manufactured by a qualified HUBZone SBC.
    SBA solicits comments from the public addressing the issues raised 
in this proposed rule, including more effective ways to address these 
issues and whether we have solved adequately the problems identified.

Compliance With Executive Orders 12866, 12988, and 13132, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-602)

    The Office of Management and Budget (OMB) reviewed this rule as a 
``significant'' regulatory action under Executive Order 12866.
    For purposes of Executive Order 12988, SBA has drafted this 
proposed rule, to the extent practicable, in accordance with the 
standards set forth in section 3 of that Order.
    For purposes of Executive Order 13132, SBA has determined that this 
proposed rule has no federalism

[[Page 58965]]

implications warranting the preparation of a Federalism Assessment.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
has determined that this proposed rule does not impose new reporting or 
recordkeeping requirements.
    SBA has determined that this proposed rule may have a significant 
beneficial economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act (RFA), 5 U.S.C. 
601, et seq. The amendments proposed in this rule involve revising the 
definition of ``principal office'' and eliminating certain requirements 
governing the allowable affiliations of qualified HUBZone SBCs and SBCs 
that operate as non-manufacturers. These amendments will affect a large 
percentage of the over 30,000 SBCs that SBA believes are now eligible 
or will become eligible for certification as qualified HUBZone SBCs 
over the life of the program. Thus, SBA has prepared an Initial 
Regulatory Flexibility Analysis (IRFA) and has submitted a complete 
copy of the IRFA to the Chief Counsel for Advocacy of the Small 
Business Administration. For a complete copy of the IRFA, please 
contact Michael McHale at (202) 205-6731.
    The IRFA explains that this proposed rule will affect primarily 
those SBCs that participate in Federal procurements, that have 
affiliates, or that are non-manufacturers. The proposed rule will make 
it easier for qualified SBCs to participate in the program because it 
provides a definition of ``principal office'' that accommodates the 
fluid nature of the construction and service industries and it allows 
qualified HUBZone SBCs to have any affiliates provided that they, 
together with their affiliates, do not exceed their applicable size 
standard under part 121 of title 13 of the Code of Federal Regulations. 
This proposed rule will also facilitate the certification of qualified 
HUBZone SBCs and open the door to more HUBZone contracts by eliminating 
the eligibility requirement that non-manufacturers must demonstrate 
that they can supply the goods of a qualified SBC as a prerequisite for 
program certification, and by exempting non-manufacturers from making 
that showing when submitting offers to supply goods for HUBZone 
contracts with a total value of $25,000 or less.
    The IRFA further explains that these proposed amendments do not 
duplicate, overlap or conflict with relevant Federal regulations. It 
also indicates that SBA has reviewed several alternatives to the 
proposed amendments and that it believes that the amendments proposed 
are in the best interest of SBCs and the HUBZone Program.

(Catalog of Federal Domestic Assistance Programs, No. 59,009)

List of Subjects in 13 CFR Part 126

    Administrative practice and procedure, Government procurement, 
Reporting and recordkeeping requirements, Small businesses.

    Accordingly, for the reasons set forth above, SBA proposes to amend 
13 CFR part 126, as follows:

PART 126--HUBZONE PROGRAM [AMENDED]

    1. Amend the authority citation for 13 CFR part 126 to read as 
follows:

    Authority: 15 U.S.C. 632(a); Pub. L. 106-113 sec. 212, 113 Stat. 
1537-289; Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592.

    2. Amend Sec. 126.101 by removing paragraphs (a)(1) through 
(a)(10), by adding new paragraphs (a)(1) through (a)(13), and by adding 
a new paragraph (c) to read as follows:


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

    (a) * * *
    (1) Department of Agriculture;
    (2) Department of Commerce;
    (3) Department of Defense;
    (4) Department of Energy;
    (5) Department of Health and Human Services;
    (6) Department of Housing and Urban Development;
    (7) Department of Justice;
    (8) Department of State;
    (9) Department of Transportation;
    (10) Department of Veterans Affairs;
    (11) Environmental Protection Agency;
    (12) General Services Administration; and
    (13)National Aeronautics and Space Administration.
* * * * *
    (c) The HUBZone program does not apply to contracts awarded by 
state and local governments. However, state and local governments may 
use the List of qualified HUBZone SBCs to identify qualified HUBZone 
SBCs for similar programs authorized under state or local law.
    3. Amend Sec. 126.103 to revise the definition of ``principal 
office'' to read as follows:


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

* * * * *
    Principal office means the location where the greatest number of 
the concern's employees at any one location perform their work. 
However, for those concerns whose ``primary industry'' (see 13 CFR 
121.107) is service or construction (see 13 CFR 121.201), the 
determination of principal office excludes the concern's employees who 
perform the majority of their work at job-site locations to fulfill 
specific contract obligations.
* * * * *
    4. Revise Sec. 126.204 to read as follows:


Sec. 126.204  May a qualified HUBZone SBC have affiliates?

    A concern may have affiliates provided that the aggregate size of 
the concern and all its affiliates is small as defined in part 121 of 
this title.
    5. Revise Sec. 126.205 to read as follows:


Sec. 126.205  May non-manufacturers be certified as qualified HUBZone 
SBCs?

    Non-manufacturers (referred to in the HUBZone Act of 1997 as 
``regular dealers'') may be certified as qualified HUBZone SBCs if they 
meet all of the requirements set forth in Sec. 126.200. ``Non-
manufacturer'' is defined in Sec. 121.406(b)(1) of this title.
    6. Amend Sec. 126.601 by revising paragraph (d) to read as follows:


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

* * * * *
    (d) A qualified HUBZone SBC which is a non-manufacturer may submit 
an offer on a HUBZone contract for supplies if it meets the 
requirements under the non-manufacturer rule as defined in 
Sec. 121.406(b) of this title, and if the small manufacturer providing 
the end item for the contract is also a qualified HUBZone SBC. However, 
for HUBZone contracts at or below $25,000 in total value, a qualified 
HUBZone SBC may supply the end item of any manufacturer, including a 
large business.

    Dated: September 26, 2000.
Aida Alvarez,
Administrator.
[FR Doc. 00-25291 Filed 10-2-00; 8:45 am]
BILLING CODE 8025-01-P