[Federal Register Volume 67, Number 18 (Monday, January 28, 2002)]
[Proposed Rules]
[Pages 3826-3844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1834]


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 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. 67, No. 18 / Monday, January 28, 2002 / 
Proposed Rules  

[[Page 3826]]



SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 125 and 126

RIN 3245-AE 66


Small Business Size Regulations; Government Contracting Programs; 
HUBZone Program

AGENCY: Small Business Administration.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Small Business Administration proposes to amend its 
regulations for the Historically Underutilized Business Zone Program 
(HUBZone Program). On December 21, 2000, the Small Business 
Reauthorization Act of 2000 made several changes to the HUBZone 
Program, including changes to the eligibility requirements for small 
business concerns owned by Native American Tribal Governments and 
Community Development Corporations, and the addition of new HUBZone 
areas called redesignated areas. This proposed rule addresses these 
statutory amendments, clarifies several regulations, and makes some 
technical changes, including changes to website addresses.
    In addition, SBA proposes to amend its regulations, which address 
subcontracting limitations. Specifically, SBA proposes consolidating 
all of the subcontracting limitations requirements into one regulation, 
rather than have them scattered throughout SBA's chapter of the Code of 
Federal Regulations. In addition, SBA proposes language explaining how 
to petition for changes in the subcontracting limitations requirements.
    Finally, SBA proposes to amend its size regulations to make SBA's 
application of the nonmanufacturer rule consistent for all programs. 
This change corresponds to a similar change made in this rule with 
respect to HUBZone contracts. For contracts below the simplified 
acquisition threshold, SBA proposes to permit a small business 
nonmanufacturer to submit the product of any manufacturer, including a 
large business, and still be considered small.

DATES: Comments must be received on or before February 27, 2002.

ADDRESSES: Send your comments to Michael McHale, Associate 
Administrator for the HUBZone Empowerment Contracting Program (AA/HUB), 
409 3rd Street, SW., Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Michael McHale, AA/HUB, (202) 205-8885 
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, Public Law 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 
Administrator of the U.S. Small Business Administration (SBA or Agency) 
to publish regulations implementing the program. Public Law 105-135, 
section 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. 
63 FR 31896 (June 11, 1998). These regulations amended parts 121 and 
125 of title 13 of the Code of Federal Regulations (CFR), and added 
part 126. On October 3, 2000, SBA published a proposed rule amending 
the definition of principal office, the affiliation requirement, the 
non-manufacturer eligibility requirement, and the non-manufacturer 
contract performance requirement. 65 FR 58963. SBA published this rule 
as final on January 18, 2001. 66 FR 4643.
    Since that time, SBA has received more applications for 
certification, has certified over four thousand concerns into the 
program, and has become aware of additional amendments that should be 
made to the program's regulations. Many of these amendments are 
technical, while others are proposed to clarify existing regulations. 
Some amendments, such as the amendment to the definition of 
``employee,'' propose to ease program eligibility requirements 
perceived to be burdensome on concerns and streamline the operation of 
the HUBZone Program. SBA has also proposed to remove any regulatory 
provisions that it deems duplicative.
    In addition, the proposed regulations address the recent amendments 
made to the HUBZone Act by the Small Business Reauthorization Act of 
2000, Public Law 106-554. Specifically, Congress amended the 
eligibility requirements for small business concerns (SBCs) owned by 
Tribal Governments or Community Development Corporations (CDCs). 
Further, Congress amended the definition of HUBZone to include 
``redesignated areas,'' and added definitions for the terms Indian 
Reservation and Alaska Native Corporation. This regulation addresses 
those amendments.
    SBA also proposes to amend part 125 of its regulations to add 
language that addresses requests for changes in subcontracting 
percentages for small business set-asides and for SBA's various 
programs. In order to be awarded a small business set-aside or partial 
small business set-aside contract, an 8(a) contract, a HUBZone 
contract, a woman-owned small business (WOB) contract, or a contract 
awarded pursuant to an unrestricted procurement where a concern claims 
a 10 percent price evaluation preference/adjustment, the concern must 
agree that it will perform a certain percentage of the contract itself. 
In other words, there is a limit on the percentage of work that the 
concern can subcontract. Currently, Sec. 125.6 sets forth these 
limitations on subcontracting percentages for SBCs, 8(a) concerns, and 
small and disadvantaged business concerns. Current Sec. 126.700 
addresses the subcontracting limitations for qualified HUBZone SBCs.
    SBA does not propose changing these percentages; rather, SBA 
proposes adding language in Sec. 125.6 explaining how such percentages 
may be changed through requests from interested parties. In addition, 
SBA proposes adding the subcontracting limitations for qualified 
HUBZone SBCs, currently set forth in Sec. 126.700, to Sec. 125.6 so 
that all such subcontracting limitations will be located in one place 
and, thus, be easy for SBCs and contracting officials to locate.
    Finally, SBA proposes to amend its size regulations to make SBA's 
application of the nonmanufacturer rule consistent for all programs. 
This change corresponds to a similar change made in this rule with 
respect to HUBZone

[[Page 3827]]

contracts. For contracts below the simplified acquisition threshold, 
SBA proposes to permit a small business nonmanufacturer to submit the 
product of any manufacturer, including a large business, and still be 
considered small.
    SBA invites comments on the proposed rule and on any additional 
ways to improve the HUBZone Program.

Section-by-Section Analysis

    SBA proposes to amend Sec. 121.406(b) of SBA's size regulations 
pertaining to the application of the nonmanufacturer rule. Proposed 
Sec. 121.406(b)(6) would permit a nonmanufacturer to supply the product 
of any domestic business, small or large, and be considered small with 
respect to any contract below the simplified acquisition threshold. 
This change corresponds to a similar change made in this rule for the 
HUBZone program in proposed Sec. 126.601(e)(2). SBA believes that 
procurements below the simplified acquisition threshold were intended 
to be quick and easy, and that small business nonmanufacturers should 
not be restricted in this limited contracting arena. In addition, SBA 
proposes to remove current paragraph (d) because it would be superceded 
by the above amendment.
    The proposed rule also revises Sec. 121.1001 to permit the AA/HUB 
to protest the size status of a concern in connection with a HUBZone 
contract, and authorizes the AA/HUB to request a formal size 
determination in connection with a HUBZone application or continued 
HUBZone eligibility.
    SBA proposes to amend 13 CFR 125.6 by adding the subcontracting 
limitations for qualified HUBZone SBCs, currently set forth in 
Sec. 126.700, so that all such subcontracting limitations will be 
located in one place and thus easy for SBCs and contracting officials 
to locate. In addition, SBA proposes language explaining when it may 
use different percentages. According to the proposed rule, SBA may use 
different percentages if the Administrator determines that such action 
is necessary to reflect conventional industry practices among small 
business concerns in that industry group. Representatives of a national 
trade or industry group or any interested SBC may request a change in 
subcontracting percentage requirements for the categories defined by 
the six digit industry codes in the North American Industry 
Classification System (NAICS). The proposed rule sets forth the 
procedures by which an interested party may request a change (in 
writing, with information supporting its request). If SBA determines 
that there is an adequate preliminary showing, it will publish a notice 
in the Federal Register of its receipt of a request to consider a 
change in the subcontracting percentage requirements for a particular 
industry. The notice will identify the party making the request, and 
give the public an opportunity to submit information and arguments in 
both support and opposition.
    SBA proposes several amendments to 13 CFR part 126.
    SBA proposes to amend Sec. 126.101, which addresses the government 
departments and agencies subject to the HUBZone Program. Prior to 
September 30, 2000, the HUBZone Program applied to the procurements of 
only ten agencies and departments. These agencies and departments are 
currently set forth in the regulations. The HUBZone Program now applies 
to more than those ten agencies and departments. Thus, SBA proposes to 
remove the names of those agencies and departments and simply state 
that the HUBZone Program applies to all agencies and departments that 
employ one or more contracting officers.
    SBA proposes several amendments to the definitions contained in 
Sec. 126.103. This rule would amend the definitions of the Associate 
Administrator for 8(a) Business Development (AA/8(a)BD) and Associate 
Deputy Administrator for Government Contracting and 8(a) Business 
Development (ADA/GC&8(a)BD). The rule would also change the name of the 
AA/8(a)BD to the Associate Administrator for Business Development and 
change the name of the ADA/GC&8(a)BD to the Associate Deputy 
Administrator for Government Contracting and Business Development. In 
addition, SBA is amending the definition of the term AA/HUB to mean the 
Associate Administrator for the HUBZone Empowerment Contracting 
Program. SBA proposes these changes in response to a re-organization 
within SBA's Office of Government Contracting and Business Development.
    SBA proposes to define the term ``Agricultural Commodity,'' because 
Congress recently amended the HUBZone Act's application of the price 
evaluation preference in procurements involving agricultural 
commodities. This definition appearing in this rule is the same as the 
one mandated by Congress in Public Law 106-554.
    SBA proposes to define the terms ``Alaska Native Corporation 
(ANC)'' and ``Alaska Native Village'' as those terms are defined in 
Public Law 106-554. Currently, the HUBZone regulations define the term 
``Alaska Native Corporation'' under its definition of ``person.'' SBA 
proposes to define the terms ``ANC'' and ``person'' separately, to 
avoid confusion.
    SBA proposes moving the definition of ``attempt to maintain,'' 
which is currently found in two places in the HUBZone regulations, to 
the definition section so that it is easier to find. The proposed rule 
would not change the substance of this definition, but would merely 
move it to the definition section for ease of use.
    The proposed rule adds a definition for the term ``Community 
Development Corporation (CDC).'' Public Law 106-554 defines CDC and 
adds an eligibility criterion for SBCs owned by CDCs so that such 
concerns can participate in the HUBZone Program. The proposed 
definition is the same as the one enacted by Congress--a CDC is a 
corporation that receives financial assistance under 42 U.S.C. 9805.
    SBA proposes to add a definition for the term ``Contracting Officer 
(CO).'' According to the HUBZone Act, a CO has the meaning given that 
term in 41 U.S.C. 423(f)(5). That statute defines a CO as a person who, 
by appointment in accordance with applicable regulations, has the 
authority to enter into a Federal agency procurement contract on behalf 
of the Government and to make determinations and findings with respect 
to such a contract.
    SBA proposes to amend the definition of the term ``employee.'' 
Currently, the regulations provide that an ``employee'' of a concern 
includes ``full-time equivalents.'' SBA proposes to remove the 
provision concerning ``full-time equivalents'' because SBA believes it 
is confusing. SBA proposes a definition that allows persons employed on 
a full-time or part-time basis to be considered employees of the 
concern. This proposed definition is similar to the one used for size, 
set forth in part 121 of SBA's regulations.
    In addition, SBA proposes to allow leased or temporary employees to 
be counted as employees of the concern. It is believed that such 
employees comprise approximately 2-5% of the work force in the U.S. 
economy. In addition, small businesses account for the employment of 
about 40% of such employees. SBA believes that counting leased, 
temporary and part-time employees will fulfill the statutory purpose 
and intent of the HUBZone Act by providing more job opportunities for 
HUBZone residents, albeit temporary or part-time.
    Finally, the proposed definition of the term ``employee'' 
specifically states that volunteers are not to be counted. The rule 
would define a volunteer as a person who receives no compensation for 
work performed. SBA intends the term compensation to be read broadly 
and to be more than wages. Thus, a

[[Page 3828]]

person who receives food, housing, or other non-monetary compensation 
in exchange for work performed would not be considered a volunteer 
under this regulation. SBA believes that allowing volunteers to be 
counted as employees would not fulfill the purpose of the HUBZone Act--
job creation and economic growth in underutilized communities.
    The proposed rule would amend the definition of the term 
``HUBZone'' to include redesignated areas. As part of the Small 
Business Administration Reauthorization Act of 2000, Congress made 
``redesignated areas'' qualified HUBZones because governmental data, 
which determines whether census tracts and non-metropolitan counties 
are qualified HUBZones, changes periodically. Non-metropolitan counties 
that qualify based upon unemployment level, may, as a result of updated 
U.S. Department of Labor, Bureau of Labor Statistics data, shift in and 
out of eligibility year after year. Also, individual census tracts and 
non-metropolitan counties that qualify based upon certain income levels 
may lose their status as a result of data developed during the 
decennial census--the results of which are due shortly. As a result, 
SBCs that locate to a HUBZone may lose their eligibility in only one 
year due to changes in such data. Consequently, Congress sought to 
stabilize this situation and determined that ``redesignated areas'' 
should be HUBZones. A ``redesignated area'' is a qualified census tract 
or qualified non-metropolitan county that ceases to be qualified as a 
result of a change in official government data. This ``redesignated'' 
status lasts for a period of 3 years following the date of the census 
tract's or non-metropolitan county's disqualification. It is important 
to note that the redesignated status applies to concerns currently in 
the program and concerns seeking certification to the program. Thus, 
because a redesignated area is a HUBZone, concerns may seek 
certification to the program if their principal office is located in 
and the required percentage of their employees reside in such an area. 
SBA has also proposed defining the term ``redesignated area,'' as set 
forth below.
    SBA proposes to amend the term ``HUBZone SBC.'' The current 
definition is redundant of the eligibility criteria set forth in 
Sec. 126.200 and does not set forth the new eligibility criteria for 
SBCs owned by Tribal governments or CDCs. The proposed definition would 
state that a ``HUBZone SBC'' is: (1) One that is owned and controlled 
by 1 or more persons, each of whom is a United States citizen; (2) an 
ANC owned and controlled by Natives (determined pursuant to the Alaskan 
Native Claims Settlement Act (ANCSA), 43 U.S.C. 1626(e)(1)); (3) a 
direct or indirect subsidiary corporation, joint venture, or 
partnership of an ANC qualifying pursuant to ANCSA, if that subsidiary, 
joint venture, or partnership is owned and controlled by Natives 
(determined pursuant ANCSA); (4) one that is wholly-owned by 1 or more 
Indian Tribal Governments, or by a corporation that is wholly owned by 
1 or more Indian Tribal Governments; (5) one that is owned in part by 1 
or more Indian Tribal Governments, or by a corporation that is wholly 
owned by 1 or more Indian Tribal Governments, if all other owners are 
either United States citizens or SBCs; or (6) one that is wholly owned 
by a CDC; or, (7) one that is owned in part by 1 or more CDCs, if all 
other owners are either United States citizens or SBCs. This proposed 
definition is the same as the one set forth in the HUBZone Act.
    SBA proposes to amend its definition of ``Indian reservation'' to 
conform to Public Law 106-554. According to that law, the term ``Indian 
reservation'' has the same meaning as the term ``Indian country'' in 18 
U.S.C. 1151, with certain exceptions. According to 18 U.S.C. 1151, the 
term ``Indian country'' means (a) all land within the limits of any 
Indian reservation under the jurisdiction of the United States 
Government, notwithstanding the issuance of any patent, and, including 
rights-of-way running through the reservation, (b) all dependent Indian 
communities within the borders of the United States whether within the 
original or subsequently acquired territory thereof, and whether within 
or without the limits of a state, and (c) all Indian allotments, the 
Indian titles to which have not been extinguished, including rights-of-
way running through the same. The amendments to the HUBZone Act, 
however, excepted the following land from being treated as an ``Indian 
reservation'' for purposes of the HUBZone Program: (a) lands that are 
located within a State in which a tribe did not exercise governmental 
jurisdiction as of the date of enactment (December 21, 2000), unless 
that tribe is recognized after that date of enactment by either an Act 
of Congress or pursuant to regulations of the Secretary of the Interior 
for the administrative recognition that an Indian group exists as an 
Indian tribe (25 CFR part 83); and (b) lands taken into trust or 
acquired by an Indian tribe after the date of enactment of this 
paragraph if such lands are not located within the external boundaries 
of an Indian reservation or former reservation or are not contiguous to 
the lands held in trust or restricted status on that date of enactment.
    In addition, Congress provided that for the state of Oklahoma, the 
term ``Indian reservation'' will include lands within the 
jurisdictional areas of an Oklahoma Indian tribe (as determined by the 
Secretary of Interior) and lands that are recognized by the Secretary 
of the Interior as eligible for trust land status under 25 CFR part 151 
(as in effect as of December 21, 2000).
    Essentially, the statutory definition of ``Indian Reservation,'' 
for HUBZone Program purposes, includes federally-recognized Indian 
reservations, Indian communities dependent on the Federal Government, 
and certain federal Indian allotments (parcels of land created out of a 
diminished Indian reservation and held in trust by the Federal 
Government for the benefit of individual Indians). The new statutory 
definition of ``Indian Reservation'' does not include lands transferred 
to Alaskan Natives pursuant to the Alaskan Native Claims Settlement 
Act. See Alaska v. Native Village of Venetie Tribal Government, 522 
U.S. 520 (1998). In the state of Oklahoma, an ``Indian Reservation'' 
includes a federally recognized Indian reservation and trust land. SBA 
has been and intends to keep working with the U.S. Department of the 
Interior to appropriately identify these areas.
    The proposed rule defines for the first time the term ``Indian 
Tribal Government.'' The recent amendments to the HUBZone Program set 
forth specific eligibility criteria for concerns owned by ``Indian 
Tribal Governments.'' The statutory amendments, however, do not define 
that term. Thus, SBA proposes to define the term ``Indian Tribal 
Government'' to mean ``the governing body of any Indian tribe, band, 
nation, pueblo, or other organized group or community which is 
recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians.'' 
The Bureau of Indian Affairs of the U. S. Department of the Interior 
(BIA) publishes in the Federal Register a list of tribes that it 
recognizes as eligible for special Federal programs. See 65 FR 13298 
(March 13, 2000). An Indian Tribal Government is essentially the 
governing body of one of the tribes or entities set forth on that list. 
This definition does not include ANCs because the recent amendments to 
the HUBZone Program establish specific eligibility criteria solely for 
ANCs and concerns owned by ANCs.

[[Page 3829]]

    SBA proposes to amend the definition of ``person'' by removing the 
provision relating to ANCs. ANCs and their subsidiaries were made 
eligible by Public Law 106-554 and therefore the discussion on ANCs in 
this definition is unnecessary.
    SBA proposes to amend the terms ``qualified census tract'' and 
``qualified non-metropolitan county'' to address technical changes made 
by Public Law 106-554. The changes to the definitions are based 
entirely on the changes made by Public Law 106-554.
    SBA proposes defining the term ``redesignated area,'' discussed 
above, to mean any census tract and any non-metropolitan county that 
ceases to be a qualified HUBZone, except that a census tract or a non-
metropolitan county may be a ``redesignated area'' only for the 3-year 
period following the date on which the census tract or non-metropolitan 
county ceased to be so qualified. This is the same definition that is 
set forth in the HUBZone Act, as recently amended. In addition, SBA 
proposes to use the public release date of the official government 
data, which affects the eligibility of the HUBZone, as the date on 
which the census tract or non-metropolitan county ceases to be 
qualified. It is important to note that it is the formerly qualified 
census tract or qualified non-metropolitan county that is designated as 
a HUBZone area (as a ``redesignated area'') for three years from the 
date that it ceases to be qualified. As such, a concern that applies 
for and receives HUBZone certification based on its location in a 
redesignated area would not receive three years of HUBZone 
participation unless the tract or county again becomes qualified as a 
HUBZone based on new data. Such a firm would remain eligible as a 
qualified HUBZone concern until three years from the date that the 
tract or county became a redesignated area, regardless of the amount of 
time it had participated in the HUBZone Program.
    SBA proposes a definition for the term ``small business concern 
(SBC).'' The recent amendments to the HUBZone Act allow a HUBZone SBC 
to be owned in part by a SBC, with certain restrictions. SBA proposes 
defining the term SBC to mean a concern that, with its affiliates, 
meets the size standard for its primary industry.
    SBA proposes to amend the definition of ``small disadvantaged 
business'' to clarify that such a concern is one that is certified by 
SBA pursuant to subpart B, part 124, of this chapter.
    SBA proposes to remove the definition of woman-owned business 
because that term is no longer referenced in this part of the 
regulations.
    SBA proposes to amend Sec. 126.200, which sets forth the 
eligibility requirements for the program, because Congress recently 
changed these requirements in Public Law 106-554. To be eligible, all 
applicants must (together with all their affiliates) be small. In 
addition, according to Public Law 106-554, concerns owned by Indian 
Tribal Governments or tribal corporations must certify: (1) That they 
are owned by an Indian Tribal Government, by a wholly-owned tribal 
corporation, or owned in part by a Indian Tribal Government or tribal 
corporation and in part by another SBC or U.S. citizens, and (2) when 
the concern obtains a HUBZone contract, at least 35 percent of its 
employees engaged in performing that contract will reside within any 
Indian reservation governed by one or more of the Indian Tribal 
Government owners, or reside within any HUBZone adjoining any such 
Indian reservation. When enacting this legislation, Congress believed 
that no firm should be made eligible solely by virtue of who owns the 
concern. Thus, for example, concerns owned by Indian Tribal Governments 
will not be eligible solely because they are tribally-owned. Instead, 
such concerns will be eligible only if they agree to advance the goals 
of the HUBZone Program--job creation and economic development in the 
areas that need it most. See S. Rpt. 422, 106th Cong., 2d Sess. 21 
(2000).
    As discussed above, the statutory amendments provide that an Indian 
Tribal Government or tribal corporation may own a HUBZone SBC ``in 
part'' with a SBC or U.S. citizens. For example, an SBC in which a 
Tribal Government or tribal corporation owned 1% or less could claim 
that it qualified for the program if the other owners were SBCs or U.S. 
citizens. Further, there is no principal office eligibility requirement 
for such applicants. Thus, SBA is considering whether or not to require 
a Tribal Government or tribal corporation to own at least 51 percent of 
the HUBZone SBC. SBA is specifically requesting comments on this issue, 
and whether or not the Agency should require the Tribal Government or 
tribal corporation own a certain percentage (e.g., 51% or more) of the 
HUBZone SBC. SBA believes Congress intended the HUBZone benefits to 
assist Native American Indian Tribes, their Indian Reservations, and 
the HUBZone communities adjoining those reservations. If a Tribal 
Government or tribal corporation were able to own an inconsequential 
amount of a HUBZone SBC, the intended benefits may not reach that 
community or those people.
    It must be noted that SBA is not considering such a limitation on 
ownership for HUBZone SBC owned by CDCs. As discussed below, a HUBZone 
SBC may be owned in part by a CDC and in part by U.S. citizens or SBCs. 
SBA is not considering a limit on how much or little of the applicant 
the CDC must own because the qualified HUBZone SBC that is owned ``in 
part'' by a CDC must also have its principal office located in a 
HUBZone and must meet the 35% HUBZone residence requirement. Therefore, 
the benefits of the program must necessarily flow to a HUBZone 
community, regardless of the percentage of ownership by a CDC.
    Finally, proposed Sec. 126.200(a)(3) defines the term 
``adjoining.'' When tribally-owned concerns obtain a HUBZone contract, 
at least 35 percent of the qualified HUBZone SBC's employees engaged in 
performing that contract must reside within any Indian reservation 
governed by one or more of the qualified HUBZone SBC's Tribal 
Government owners, or reside within any HUBZone adjoining any such 
Indian reservation. The common meaning of the term ``adjoining'' is 
``to be next to'' or ``to be in contact.'' SBA believes that tribal 
members often may not reside on the reservation, but may still live 
next to the reservation. Thus, SBA believes the common meaning of the 
term is in harmony with the purpose of this amendment, the HUBZone Act 
and the employee residency requirement. Thus, this rule proposes that a 
HUBZone and Indian reservation are ``adjoining'' when the two areas are 
right next to and in contact with each other.
    SBA also proposes to address the eligibility requirements for all 
other SBCs in Sec. 126.200. According to the HUBZone statute, an 
applicant that is not tribally-owned must: be small; have a principal 
office located in a HUBZone; have at least 35% of its employees 
residing in a HUBZone; represent that it will attempt to maintain this 
percentage during the performance of any HUBZone contract; and 
represent that it will ensure compliance with certain contract 
performance requirements in connection with contracts awarded to it as 
a qualified HUBZone SBC, as set forth in Sec. 126.700. The recent 
amendments to the HUBZone Act provide that an applicant may be owned by 
a CDC or owned in part by a CDC and the rest by U.S. citizens or SBCs.
    SBA also proposes to amend Sec. 126.201 concerning who owns a 
HUBZone SBC. The proposed rule would clarify Example 1 to Sec. 126.201,

[[Page 3830]]

addressing ownership of stock options. In addition, the proposed rule 
would move Example 2 from Sec. 126.201 to Sec. 126.200 because it 
provides a better example of the U.S. citizen ownership requirement set 
forth in that section. In addition, SBA has proposed addressing who it 
considers to own a concern owned by an Employee Stock Option Plan 
(ESOP). According to the proposed rule, SBA will deem the employees 
that participate in the ESOP and the ESOP's trustees to be owners 
because these persons have legal and equitable ownership in the ESOP. 
Likewise, SBA proposes addressing who it considers to own a concern 
owned by a trust. SBA believes that where the ownership interest in a 
HUBZone SBC is held under a trust, all of the trustees and trust 
beneficiaries must be deemed owners.
    SBA proposes to amend Sec. 126.202 to add ``managing member'' to 
the list of persons who share control of a concern because such persons 
share control of limited liability companies.
    In Sec. 126.203, SBA proposes a technical correction in paragraph 
(b). SBA recently amended its size regulations and established a new 
table of small business size standards based upon the NAICS rather than 
the Standard Industrial Classification (SIC) code. Thus, SBA proposes 
changing the reference in paragraph (b) from SIC codes to NAICS codes.
    SBA proposes to amend Sec. 126.205 to clarify that all SBCs, and 
not just 8(a) Participants, WOBs, and small disadvantaged businesses 
(SDBs), may be qualified HUBZone SBCs, if they meet the HUBZone 
Program's eligibility requirements.
    SBA proposes amending Sec. 126.207 to state that HUBZone SBCs may 
have offices located outside of a HUBZone, so long as the concern's 
principal office is located in a HUBZone (when required by Sec. 126.200 
to have a principal office located in a HUBZone). As noted above, 
Congress recently amended the HUBZone Act to no longer require certain 
tribally-owned concerns to have a principal office in a HUBZone.
    SBA proposes to remove parts of Sec. 126.300 that are duplicative 
of Sec. 126.304. In addition, SBA has proposed language that allows SBA 
to draw an adverse inference from the failure of a HUBZone SBC to 
cooperate or submit additional information.
    SBA proposes amendments to Sec. 126.303 to address how the 
electronic HUBZone application may be submitted to SBA online.
    SBA proposes to amend Secs. 126.304(a)-(b) and move the 
certification requirement currently set forth in Sec. 126.501 to this 
section. Currently, paragraph (a) reiterates all of the eligibility 
requirements set forth in Sec. 126.200. SBA proposes to amend paragraph 
(a) to state that to be certified, concerns must submit a completed 
application (paper or electronic) and represent that they meet the 
eligibility requirements of Sec. 126.200. In addition, paragraph (b) 
currently requires all concerns applying for HUBZone status based on a 
location within the external boundaries of an Indian reservation to 
submit official documentation from the appropriate BIA Land Titles and 
Records Office confirming that it is located within such an area. When 
SBA first promulgated the HUBZone regulations, it did not have 
available electronic data for lands within the external boundaries of 
an Indian reservation, as it did for qualified census tracts and 
qualified nonmetropolitan counties. SBA now has this data available 
electronically. However, SBA understands that there may be rare 
instances when a concern believes a certain location is within the 
external boundaries of an Indian reservation, but the HUBZone maps 
indicate otherwise. Thus, the proposed regulation provides that upon 
such an occurrence, the concern may obtain certification from the 
appropriate BIA Land Titles and Record Offices confirming that the 
location is within the external boundaries of an Indian Reservation, as 
defined by the HUBZone Act and regulations.
    Finally, SBA proposes adding a new paragraph (c) to Sec. 126.304 
stating that if the concern was decertified for failure to notify SBA 
of a material change affecting its eligibility, it must include with 
its application for certification a full explanation of why it failed 
to notify SBA of the material change. If SBA is not satisfied with the 
explanation provided, SBA may decline to certify the concern. This 
requirement is currently set forth in Sec. 126.501, which addresses a 
qualified HUBZone SBC's ongoing obligations. SBA believes it would be 
appropriate to place this requirement in this section, which addresses 
application requirements.
    SBA proposes amending Sec. 126.306 by deleting part of paragraph 
(b). Currently, the first sentence of paragraph (b) states that SBA 
will base its certification on facts existing on the date of 
submission. However, SBA can only certify a concern into the program 
that meets all of the eligibility requirements. If circumstances change 
from the date of submission of the application that affect the 
concern's eligibility, then SBA can not certify the concern into the 
program.
    Section 126.307 would be amended to reflect the change in the 
Internet website where SBA maintains its List of qualified HUBZone SBCs 
and the change in SBA's HUBZone e-mail address. SBA believes that in 
addition to having a separate List of qualified HUBZone SBCs, Pro-Net 
may also be used as the List. Pro-Net is a database containing profiles 
of over 200,000 SBCs. The information in the Pro-Net system includes 
data from SBA's files and other available databases. Pro-Net is 
designed to be used as a search engine for COs and a marketing tool for 
SBCs.
    Section 126.308 would be amended to reflect the change in SBA's 
HUBZone e-mail address.
    Section 126.401, addressing program examinations, would be amended 
to clarify that examiners will verify that the concern currently meets 
the HUBZone eligibility requirements, and that it met such requirements 
at the time of its initial certification or most recent 
recertification. This provision would also permit an examination of a 
HUBZone certification in connection with a HUBZone contract. In 
addition, paragraph (b) would be amended to clarify how the examiners 
will conduct the review. SBA proposes to add a sentence explaining that 
the review, or parts of the review, may be conducted at one or all of 
the concern's offices. SBA also proposes an amendment that specifically 
allows the examiners to determine the location of the examination.
    SBA proposes to amend Sec. 126.403 to provide that SBA may draw an 
adverse inference from the failure of a concern to cooperate with a 
program examination or provide requested information. This provision 
should discourage firms from being unresponsive to SBA's request for 
more information. SBA also does not want firms to be able to purposely 
delay the examination process. SBA should be allowed to draw an adverse 
inference to make the process more efficient.
    SBA proposes to remove Sec. 126.405. This regulation currently 
provides that if SBA verifies that a concern is eligible after 
conducting a program examination or a protest, then SBA will amend the 
date of certification on the List to reflect the date of verification. 
Protests and program examinations do not always cover all of the 
program's eligibility requirements. Therefore, the List should not be 
amended to reflect a new ``eligibility'' date. In addition, even if a 
protest or program examination does cover all of the eligibility 
requirements, SBA believes that amending the List will be confusing to 
the SBC as to when

[[Page 3831]]

its next recertification submission is due.
    SBA proposes to amend Sec. 126.500 concerning continued eligibility 
in the program. Currently, a qualified HUBZone SBC must recertify 
annually that it continues to be eligible for the program. SBA believes 
that such an annual recertification is burdensome to SBCs, and proposes 
that qualified HUBZone SBCs recertify every three years that they 
continue to meet all of the program eligibility requirements. SBA 
believes that the program examination process and protest mechanism 
will effectively eliminate concerns that are not eligible, and, 
therefore, annual recertification is unnecessary. SBA also believes 
that three years is a reasonable period of time to give effect to a 
HUBZone certification. SBA notes that a small disadvantaged business 
(SDB) certification generally lasts for three years. See 13 CFR 
124.1014. In addition, under the new statutory language identified 
above, three years will correspond with the amount of time an area 
losing its HUBZone status is classified as a redesignated area.
    SBA proposes amending Sec. 126.501 to state that failure to notify 
SBA of a material change in the circumstances of a qualified HUBZone 
SBC's eligibility may result in decertification. In addition, SBA 
proposes moving the last sentence of this section, which requires the 
concern to submit with any new application for HUBZone certification a 
statement explaining why it failed to notify SBA of a material change, 
to Sec. 126.304, which addresses what a concern must submit to SBA to 
be certified into the program.
    SBA proposes combining the substance of current Sec. 126.404, 
concerning what happens if SBA is unable to verify a concern's 
eligibility, with Sec. 126.503, regarding decertification. In addition, 
SBA proposes to revise Sec. 126.503 to clarify the procedures by which 
SBA decertifies a concern. These procedures ensure that due process is 
followed before any firm is decertified from the program. Under these 
procedures, SBA must generally first propose to decertify the concern 
and allow the concern to respond to all allegations that it is 
ineligible. The current regulations require a concern to respond within 
10 business days from the date that it receives notification of SBA's 
intent to decertify. This rule changes the amount of time a concern has 
to respond to SBA's notification of intent to decertify from 10 
business days to 30 calendar days. SBA believes that it is important to 
give a HUBZone SBC ample opportunity to respond to SBA's notification 
of its intent to decertify the concern. This is particularly true in 
the context of the 35% HUBZone residency requirement. Where a HUBZone 
SBC is experiencing economic hardships, it may be required to 
temporarily reduce its number of employees, and may fall below the 35% 
requirement. SBA would give the concern the opportunity to explain its 
situation and meet the 35% requirement. Although the firm would not be 
able to certify itself to be a qualified HUBZone SBC in connection with 
a HUBZone contract during the time that it did not meet the 35% 
requirement, if SBA believes that the firm will come into compliance, 
it may determine not to decertify the firm. The AA/HUB will review any 
responses submitted by a concern receiving a notification of SBA's 
intent to decertify and will make a written determination, which is the 
final agency decision. Where decertification emanates from an adverse 
finding in the resolution of a HUBZone protest, SBA need not propose 
the firm for decertification. The same due process rights afforded a 
concern through proposing a concern for decertification are available 
in the protest context. In both cases, the firm is apprised of 
allegations against it, and has the opportunity to rebut those 
allegations and prove its eligibility.
    SBA proposes to amend Sec. 126.601 to change the reference in 
paragraph (a) from SIC to NAICS, in light of SBA's change to the NAICS 
system. In addition, SBA proposes to add a new paragraph (b) that would 
specify that a firm must be a qualified HUBZone SBC both at the time of 
its initial offer and at the time of award in order to be eligible for 
a HUBZone contract. Further, SBA proposes to amend Sec. 126.601 to 
clarify that a qualified HUBZone SBC must make certain representations 
to a CO at the time it submits its initial and final offers for a 
HUBZone contract. A concern that is not a qualified HUBZone SBC at the 
time it submits its initial offer can not submit an offer on a HUBZone 
sole source or set-aside contract, or receive the benefits of the 
HUBZone price evaluation preference. Similarly, a concern that is not 
qualified at the time of award can not receive a HUBZone contract. The 
proposed rule would also require SBCs owned by Indian Tribal 
Governments (as set forth in Sec. 126.200(a)) to certify on a HUBZone 
contract that at least 35 percent of its employees engaged in 
performing the HUBZone contract will reside within any Indian 
reservation governed by one or more of the HUBZone SBC's tribal 
government owners or within any HUBZone adjoining any such Indian 
reservation. This is a statutory requirement for such concerns, added 
by Public Law 106-554.
    Finally, SBA proposes to amend paragraph (e) to address confusion 
regarding the nonmanufacturer rule. The statutory nonmanufacturer rule 
generally requires a small business nonmanufacturer to supply the 
product of a small business in connection with an 8(a) or small 
business set aside contract. The SBA Administrator may waive that 
requirement in certain cases. The nonmanufacturer rule that applies to 
HUBZone contracts requires a HUBZone nonmanufacturer to supply the 
product of a manufacturer, which is a qualified HUBZone SBC. This rule 
would clarify that for purposes of a HUBZone contract, there are no 
waivers of the nonmanufacturer rule. The program is designed to assist 
HUBZones by assuring that individuals residing in those areas are 
employed generally by a qualified HUBZone SBC and specifically in 
connection with the performance of a HUBZone contract. SBA believes 
that allowing a non-HUBZone manufacturer to be the firm ultimately 
supplying the product for a HUBZone contract would be contrary to the 
intent of the program. The proposed rule would provide, however, that 
for HUBZone contracts at or below the simplified acquisition threshold 
(currently $100,000), a qualified HUBZone SBC may supply the end item 
of any manufacturer, including a large business.
    SBA proposes to amend Sec. 126.602 to address the employee 
residency requirements for qualified HUBZone SBCs performing HUBZone 
contracts. The requirements are different, depending on the ownership 
of the qualified HUBZone SBC, as mandated by Public Law 106-554. In 
addition, SBA proposes deleting the definition for ``attempt to 
maintain'' currently set forth in this regulation and moving it to the 
definition section of the regulations.
    SBA proposes to replace the term ``procuring agencies'' in 
Sec. 126.603 with ``contracting activities'' for consistency in the 
regulations and conformance with the Federal Acquisition Regulations 
(FAR).
    SBA proposes to amend Sec. 126.605 by deleting paragraph (c) to 
allow HUBZone contracts for micropurchases. SBA believes this will open 
up the market to the program's participants. In addition, SBA proposes 
to amend Sec. 126.608 to explain that HUBZone contracts at or below the 
micropurchase threshold are not mandatory. Further, SBA proposes to 
clarify Sec. 126.608 and

[[Page 3832]]

allow HUBZone contract opportunities ``at or below'' the simplified 
acquisition threshold, as opposed to just below the simplified 
acquisition threshold. This change will conform the regulation to FAR 
part 13.
    SBA proposes to amend Sec. 126.606 to change the reference of ``AA/
8(a)BD'' to ``AA/BD,'' as a result of a reorganization in SBA's Office 
of Government Contracting and Business Development that occurred more 
than a year ago, and to clarify that the AA/BD will consult with the 
AA/HUB before determining whether to release an 8(a) requirement to the 
HUBZone Program.
    In response to several inquiries, SBA proposes to amend 
Sec. 126.607 to clarify the interaction between the HUBZone and 8(a) 
Programs. The proposed rule would provide for parity between the two 
programs. A CO must look first to the HUBZone and 8(a) Programs in 
determining how to fulfill a particular procurement requirement. In 
deciding which contracting vehicle to use, a CO must consider where the 
contracting activity is in fulfilling its HUBZone and 8(a) goals, as 
well as other pertinent factors. The CO is directed to exercise his/her 
discretion on whether to offer the requirement to the 8(a) or HUBZone 
Program. For example, if the contracting activity has met 0% of its 
HUBZone goals and has met its 8(a) goals, then the CO should restrict 
the requirement for competition among HUBZone SBCs, if all other 
criteria are met. If the activity has met half of its HUBZone and half 
of its 8(a) goals, then the CO has the discretion to offer the 
requirement to the 8(a) Program or restrict the requirement for 
competition among HUBZone SBCs. At this point, other factors, including 
knowledge of a particular HUBZone or 8(a) SBC that is capable of 
performing the requirement, become more important. SBA believes that 
this determination should be made by the contracting activity, based 
upon the activity's needs at that time. Further, the regulation 
restates the position in the FAR that HUBZone set-asides procurements 
take priority over small business set-asides. A CO must consider using 
a HUBZone set-aside to fulfill a requirement before considering whether 
award can be made as a small business set-aside.
    SBA proposes amending Sec. 126.611 to clarify that SBA may appeal a 
CO's decision to not use a HUBZone contract for a certain requirement 
to the Secretary of the department or the head of the agency, rather 
than the head of the contracting activity. This proposed change 
conforms with the statute.
    SBA proposes amending Sec. 126.612 to address the conversion from 
the SIC to NAICS code. In addition, SBA has proposed adding language in 
paragraph (e), addressing when a CO may issue a sole source award to a 
qualified HUBZone SBC, to state that it is the CO's determination (not 
SBA's) that the contract can be made at a fair and reasonable price. 
This language is the same as set forth in the HUBZone Act.
    SBA proposes amending Sec. 126.613 to conform to the recent 
statutory amendments made by Public Law 
106-554. According to that statute, for purchases by the Secretary of 
Agriculture of agricultural commodities, the price evaluation 
preferences is 10 percent for the portion of a contract to be awarded 
that is not greater than 25 percent of the total volume being procured 
for each commodity in a single invitation; 5 percent for the portion of 
a contract to be awarded that is greater than 25 percent, but not 
greater than 40 percent, of the total volume being procured for each 
commodity in a single invitation; and zero for the portion of a 
contract to be awarded that is greater than 40 percent of the total 
volume being procured for each commodity in a single invitation. 
HUBZone contracts awarded pursuant to this preference may not be 
counted toward the fulfillment of any requirement partially set aside 
for competition restricted to SBCs.
    In addition, SBA proposes to add other examples to Sec. 126.613, 
regarding the price evaluation preference for a qualified HUBZone SBC 
in full and open competition, to clarify that only qualified HUBZone 
SBCs should benefit from the preference. SBA also proposes to amend the 
current example by correcting a mathematical error. According to the 
current example, if the qualified HUBZone SBC's offer was $101 and the 
large business' offer was $93, the award would go to the large 
business. This is inaccurate because at $101, the HUBZone SBC's offer 
is not more than 10% higher than the large business' offer. SBA has 
amended the example to state that if the qualified HUBZone SBC's offer 
was $103 and the large business' offer was $93, the award would go to 
the large business because the qualified HUBZone SBC's offer would be 
more than 10% higher than the lowest, responsive, responsible offeror.
    SBA proposes to correct a typographical error in Sec. 126.614. That 
regulation currently refers to the price evaluation preference 
described in ``126.614.'' The regulation should refer to the price 
evaluation preference described in ``126.613.'' In addition, SBA 
proposes to amend the regulation by providing examples of how to apply 
the HUBZone and SDB price evaluation preferences when a CO receives 
offers from two such concerns and must apply both preferences, and when 
a CO receives an offer from a concern that qualifies for both 
preferences. SBA had proposed similar examples when it issued its first 
proposed regulations for the HUBZone Program. See 63 FR 16148, 16152 
(April 2, 1998). SBA did not provide these examples in the final rule 
because the Agency decided to leave the mechanics for implementation in 
the FAR. 63 FR 31896, 31904 (June 11, 1998). Although the FAR has 
addressed these issues, SBA has received numerous requests for further 
clarification. Therefore, SBA proposes to provide examples explaining 
clearly how this process works.
    SBA proposes to amend Sec. 126.616 to allow for joint ventures 
comprised of only qualified HUBZone SBCs and not 8(a) concerns or 
women-owned businesses. SBA believes the proposed eligibility 
requirements allowing qualified HUBZone SBCs to be owned in part by 
SBCs, makes joint ventures with other SBCs and large businesses 
unnecessary. Allowing HUBZone contracts to go to qualified HUBZone SBCs 
that are owned in part by a non-qualified HUBZone SBC, and which joint 
venture with another non-qualified HUBZone SBC, will dilute the 
benefits intended to go to the HUBZone area and residents. In addition, 
SBA proposes clarifying that the joint venture, which is comprised of 
two or more qualified HUBZone SBCs, does not itself have to be 
certified as a qualified HUBZone SBC, because joint ventures are 
limited entities that are formed for the purpose of performing on a 
specific contract. In addition, SBA proposes to amend the reference of 
SIC to NAICS.
    SBA proposes to add Sec. 126.617 to address disputes arising under 
a HUBZone contract. Oftentimes, qualified HUBZone SBCs request SBA's 
assistance with contract disputes between the procuring activity and 
the concern. However, it is not within SBA's authority to decide 
disputes arising under a HUBZone contract. Therefore, SBA proposes a 
regulation specifically stating that for purposes of the Disputes 
Clause of a HUBZone contract, the procuring activity will decide 
disputes arising between a qualified HUBZone SBC and the procuring 
activity.
    SBA proposes to add a new Sec. 126.618, which would explain how the 
participation of an applicant to the HUBZone Program or a HUBZone SBC 
in a Mentor-Protege relationship affects its participation in the 
HUBZone Program. This section would provide

[[Page 3833]]

that qualified HUBZone SBCs may enter into Mentor-Protege relationships 
in connection with other Federal programs, provided that such 
relationships do not conflict with the underlying HUBZone requirements. 
For example, SBA may approve mentor-protege agreements for purposes of 
its 8(a) BD program in which the mentor owns up to 40% of the 8(a) 
protege firm. See 13 CFR 124.520(d)(2). Because such a relationship 
would violate the statutory requirement that a HUBZone SBC be 100% 
owned and controlled by persons who are United States citizens, a 
protege firm in such a relationship would not be eligible for the 
HUBZone Program. For purposes of determining whether an applicant to 
the HUBZone Program or a HUBZone SBC qualifies as small, proposed 
Sec. 126.618(b) would exempt a protege firm from being considered 
affiliated with its mentor based on its mentor-protege agreement. SBA 
could still find affiliation on other grounds. Proposed Sec. 126.618(c) 
would permit a qualified HUBZone SBC to team with and subcontract work 
under a HUBZone contract to its mentor, but would not permit a joint 
venture between a protege and its mentor on a HUBZone contract unless 
the mentor was also a qualified HUBZone SBC.
    SBA proposes to amend Sec. 126.700 to state that the performance of 
work requirements for qualified HUBZone SBCs are set forth in 13 CFR 
125.6. SBA proposes adding the performance of work requirements for 
qualified HUBZone SBCs to Sec. 125.6 so that all of the performance of 
work requirements will be located in one place and thus easy to locate.
    In addition, SBA is considering adding a new paragraph to 
Sec. 126.700, which would add an additional contract performance 
requirement for construction HUBZone contracts. Specifically, in the 
case of a HUBZone construction contract (either general construction or 
specialty trade construction), SBA is considering requiring qualified 
HUBZone SBCs to perform at least 50 percent of the contract, either at 
the prime or subcontracting level. Such a provision would not affect 
the prime performance of work requirements set forth in Sec. 125.6 
(i.e., 15% for general construction and 25% for specialty trade 
construction); rather, the Agency is considering a new overall 
performance of work requirement for HUBZone construction contracts. 
Thus, for general construction, if a prime contractor will perform 15% 
of the contract, it would be required to subcontract at least 35% of 
the contract to one or more other qualified HUBZone SBCs. For a 
specialty trade construction contract, if a prime contractor will 
perform 25% of the contract, it would be required to subcontract at 
least 25% of the contract to one or more other qualified HUBZone SBCs.
    The HUBZone Program is intended to stimulate historically 
underutilized business zones through job creation and capital 
investment. Where a qualified HUBZone SBC is able to subcontract up to 
85% of a general construction contract or up to 75% of a specialty 
trade construction contract to non-HUBZone SBCs (which may in fact be 
large businesses), SBA is concerned that it would not be adequately 
meeting the underlying Congressional purpose of the program. At the 
same time, however, SBA is not seeking to impose a barrier that could 
dissuade COs from using the HUBZone Program. If such a requirement in 
any way would cause a CO to use a contracting vehicle other than a 
HUBZone set-aside because he or she believes that there are not at 
least two qualified HUBZone SBCs that could meet it, then the 
requirement would have the opposite effect of what is intended. In such 
a case, instead of causing more work to be done by one or more 
qualified HUBZone SBCs, and hopefully increasing jobs in a HUBZone, the 
requirement would have caused 15% (or 25% for specialty trade 
construction) of the work that would have been performed by a qualified 
HUBZone SBC to be taken away from the Program and go elsewhere.
    Thus, SBA is also considering several alternatives that would 
attempt to encourage increased performance by qualified HUBZone SBCs, 
but that would not adversely affect the HUBZone Program. One 
alternative that SBA is considering is requiring that HUBZone SBCs 
perform at least 50% of a construction contract through prime or 
subcontracting arrangements, but allow the CO to waive this requirement 
where he or she believes it cannot be met for a particular procurement. 
Where a CO believes that the 50% requirement can be met, it would 
continue to apply. Where a CO waives the 50% requirement, the 
solicitation would have to specify that the 50% requirement does not 
apply to the HUBZone procurement. The 15% or 25% prime contractor 
performance of work requirement would continue to apply. As another 
alternative, SBA is also considering imposing an evaluation factor in 
the award of negotiated HUBZone set-asides relating to overall 
performance by qualified HUBZone SBCs. SBA specifically requests 
comments on these proposals, including whether the 50% requirement is 
one that can be met by the affected concerns, and whether and to what 
extent the CO waiver and evaluation factor can be used to make the 
requirement acceptable to COs and the procurement community.
    In addition, SBA proposes to amend Sec. 126.702 to state that the 
procedures for requesting changes in the subcontracting percentages are 
set forth in 13 CFR 125.6. As noted above, SBA has proposed a 
regulation amending Sec. 125.6, which outlines the procedures for 
requesting changes in subcontracting percentages for all of SBA's 
program, including the HUBZone Program. Because it is redundant and 
unnecessary to have these procedures listed twice in the regulations, 
SBA proposes to remove Sec. 126.703.
    SBA proposes to amend paragraph (b) of Sec. 126.800 to clarify that 
SBA and the CO may protest the apparent successful offeror's qualified 
HUBZone SBC status.
    SBA proposes amending Sec. 126.801 to clarify that SBA does not 
review protest issues concerning the conduct or administration of a 
HUBZone contract. In addition, SBA proposes amending paragraphs (d) to 
state that any protest received after the time limits is untimely, 
unless it is from SBA or the CO. This is similar to SBA's size protest 
procedures and will allow SBA or the CO to file HUBZone status protests 
any time either obtains information that a qualified HUBZone SBC may 
not be eligible. Further, SBA proposes amending paragraph (e) to state 
the information a CO should include in his or her protest referral 
letter to SBA. The CO's protest referral letter, in which he or she 
refers a HUBZone protest, should include certain information about the 
procurement so that SBA can determine issues of standing and 
timeliness.
    SBA proposes amending paragraph (d) of Sec. 126.803. Currently, 
that paragraph states that if SBA denies a protest, it will amend the 
date of certification on the List of qualified HUBZone SBCs to reflect 
the date of the protest decision. SBA believes that because protests 
often do not decide all eligibility issues, the Agency should not 
change the date of certification for the concern.
    SBA proposes to change the references in Sec. 126.805 of the ADA/
GC&8(a)BD to ADA/GC&BD, to conform to SBA's recent re-organization and 
change in title of this position.
    SBA proposes a technical change to Sec. 126.900(b). SBA proposes to 
replace the term ``civil remedies'' with ``civil penalties,'' in 
accordance with the statute.

[[Page 3834]]

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)

    OMB has determined that this rule constitutes a ``significant 
regulatory action'' under Executive Order 12866. A copy of the 
Regulatory Impact Analysis is set forth below.

Regulatory Impact Analysis--HUBZone Empowerment Contracting Program

A. General Considerations

1. Is There a Need for the Regulatory Actions?
    Yes. The U.S. Small Business Administration (SBA) is statutorily 
authorized to administer the HUBZone Empowerment Contracting Program 
(HUBZone Program). In addition, the SBA is required to implement and 
administer all statutory changes to the program. The HUBZone Act has 
been amended by the 2000 Reauthorization Act. These amendments must be 
implemented pursuant to regulations. There are no practical 
alternatives to the implementation of the proposed regulatory changes. 
In addition, the SBA believes these changes are necessary and 
appropriate to better service the needs of small business concerns 
(SBCs) and the statutory goals of the HUBZone Program.
2. What Is the Baseline?
    There are several baselines being considered in the formulation of 
this proposed rule change. These include the present set of HUBZone 
Program regulations and definitions that would be modified by this 
proposal, the estimated universe of potential HUBZone SBCs, the 
existing statutory requirements, the achievement of HUBZone contracting 
goals by Federal agencies, and current procurement practices of Federal 
agencies. The SBA estimates that over 30,000 small businesses may be 
eligible and may be certified for the HUBZone Program. As of the end of 
fiscal year 2001, there were 4000 firms participating in the HUBZone 
Program. There are, at present, approximately 8000 designated HUBZone 
areas and approximately one HUBZone certified firm for every two 
designated HUBZone areas. As of the end of fiscal year 2000, Federal 
agencies (according to the Federal Procurement Data Center--FPDC) are, 
on average, achieving only 22% of their statutorily mandated goals for 
HUBZone contracting. This means that agencies are well below the 
required HUBZone goal of 2-3 percent of the total contracting dollars.
    It is difficult to obtain precise quantitative estimates of the 
impact these changes might have on these baseline criteria. However, we 
estimate that adoption of this proposed regulation will significantly 
increase the number of HUBZone SBCs, increase the number of HUBZone 
procurement actions by Federal agencies, and result in better and more 
efficient administration of the program. Ultimately, the program would 
move closer to meeting its statutory objectives of creating jobs and 
infusing capital into distressed communities.
3. Alternatives
    There are no alternatives to implementing or changing the 
statutorily mandated items detailed in the proposed rule. Issuance of 
policy notices, for example, which are not published material like 
regulations, would hinder a SBC's access to this needed information. 
However, SBA did consider proposing that no regulatory changes, other 
than those required by the amendments to the HUBZone Act, be made to 
the HUBZone Program. We also considered the proposal of less stringent 
and more stringent regulatory changes that were either well-short of or 
well-beyond what is included in this proposal. Those alternatives were 
disregarded on the basis of market, economic and administrative 
considerations. The utilization of HUBZone SBCs, while growing, lags 
far behind congressional goals. The SBA has observed and investigated 
this phenomenon and has concluded that our current rules are 
insufficient to propel the program to the legislatively established 
levels. The alternatives to propose less or more stringent regulatory 
changes were abandoned by the SBA as they precluded the Agency from 
striking a balance between the competing considerations of program 
integrity, program viability and program resources.
    In addition, the ``program achievement costs'' of implementing less 
stringent regulations or not changing the regulations are unacceptably 
high. At the other end of the spectrum, the potential increases in 
program achievement to be gained by writing more stringent rules are 
far outweighed by the exponential increase in administrative and 
operating costs necessary to enforce regulations of that nature.
    Our proposal maintains the legislative intent of the HUBZone 
Program. It facilitates the growth of the program to congressionally 
established levels, and provides balanced give and take among the needs 
to manage the program, maintain program integrity, service the 
program's small business participants and meet the procurement needs of 
other Federal agencies.

B. Benefit Estimates

    The three most significant benefits to implementing the changes 
included in this proposal are:
    1. Improved efficiency of the HUBZone Program and its added 
benefits to both small businesses and Federal agencies. SBA believes 
that the changes in this proposal will increase the base number of 
small businesses in the HUBZone Program and increase the viability and 
practicability of using the HUBZone Program by Federal agencies. We 
consider these to be mutually dependent in that the more firms that are 
in the program, the more Federal agencies will use the program, and 
when more Federal agencies use the program, more concerns will want to 
be able to take advantage of the benefits (contracts) available in the 
program. According to FPDC data, in fiscal year 2000 Federal agencies 
executed 3500 HUBZone actions worth over $650,000,000. We estimate that 
these changes in the rule have the potential to triple the number of 
participating concerns and the number of contract actions directed to 
the HUBZone Program.
    2. Greater administrative efficiency and program integrity. SBA 
believes that this proposal will allow the program to be run more 
effectively with existing resources relative to program activity while 
simultaneously permitting SBA to more precisely focus the benefits of 
the program on the businesses and those areas of low income or high 
unemployment.
    3. Greater contracting efficiency for Federal agencies. SBA 
believes that by increasing the level of activity and participation in 
the HUBZone Program, it will increase economic savings to the Federal 
government on HUBZone awards. By having more HUBZone eligible concerns, 
procuring agencies will have a larger base of HUBZone vendors, which 
will ultimately reduce the cost of HUBZone contracts through increased 
competition among HUBZone SBCs.

C. Cost Estimates

    Pursuant to this proposed rule, SBA expects significant increases 
in the number of concerns participating in the HUBZone Program and in 
the number of contract dollars spent in the program by Federal 
agencies. To the extent that this materializes, there may be attendant

[[Page 3835]]

cost increases to the government in terms of the costs of goods and 
services and slightly increased administrative costs. However, existing 
provisions of the Federal Acquisition Regulations concerning the 
determination of ``fair and reasonable'' pricing will mitigate any 
significant monetary costs to the government of this proposal.
    The SBA does not believe these changes will result in significantly 
higher increased costs to HUBZone SBCs because SBA is attempting to 
streamline the program and ease burdensome restrictions on SBCs.

D. Other Considerations Including Distributional Effects, Equity 
Considerations and Uncertainty

    SBA anticipates that the distribution of contracts among different 
procurement vehicles will change. Non-HUBZone concerns currently 
participating in the Federal marketplace will be affected economically 
as a result of their not being eligible to compete for the contracts 
that are restricted to the HUBZone Program. These costs will vary based 
on the goods and services provided by newly eligible HUBZone SBCs. In 
some industries there may be very little impact, while in other 
industries there may be substantial impact.
    Large Federal prime contractors will see some decrease in contract 
opportunities as Federal agencies begin to utilize the HUBZone Program. 
However, these changes are insignificant in light of the magnitude of 
Federal procurement versus HUBZone procurement. The Federal government 
annually spends about $200 billion on goods and services. However, in 
fiscal year 2000, the HUBZone Program accounted for only $650 million 
of that amount (less than half of one percent). This is significantly 
less than the estimated $1-6 billion goal set by Congress for the 
program.
    Current and future HUBZone participants will see a tightening of 
definitions concerning contract performance. However, additional 
contracting opportunities and clearer regulations should offset these 
additional restrictions.
    Most of the benefits of this proposal will accrue to HUBZone 
communities. Expanded eligibility for designated areas, increased 
HUBZone contacting and a refocusing of HUBZone subcontracting should 
result in more Federal contract dollars going to distressed 
communities.
    Overall, projecting winners and losers from regulatory changes in 
the HUBZone Program cannot be done with certainty. SBA believes that 
increasing the efficiency and access to the HUBZone Program to both 
Federal agencies and small businesses will, over time, result in 
increased use of the program and a higher probability that the HUBZone 
Program will meet its original objectives to create jobs and increase 
capital investment in HUBZone communities. The HUBZone Act of 1997 
increased the small business goal from 20% to 23%, to include the 
HUBZone contracting goal (maximum level 3%), and ensure that small 
business contracting would not be impacted. In every case, the mix of 
winners and losers will be affected by the decisions of contracting 
agencies to use or not to use the HUBZone Program.
    SBA has determined that this rule, if adopted in final form, may 
have a significant economic impact on a substantial number of small 
entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 
601 et seq. The amendments proposed in this rule involve revising 
several definitions, including the definition of ``HUBZone'' and 
``employee.'' These amendments may affect a large percentage of the 
over 30,000 SBCs that SBA believes are 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 SBA. The IRFA explains that this 
proposed rule will affect those SBCs that participate in Federal 
procurements, that hire leased or temporary employees, or are owned by 
Indian Tribal Governments or tribal corporations. The proposed rule 
will make it easier for such entities to apply to and become eligible 
for the program. For a complete copy of the IRFA, please contact 
Michael McHale at (202) 205-8885.
    SBA has determined that this proposed rule imposes additional 
reporting or recordkeeping requirements under the Paperwork Reduction 
Act, 44 U.S.C., chapter 35. The rule authorizes SBA to request that a 
HUBZone SBC submit updated financial information and information 
relating to the number of its employees. This information is needed to 
comply with the statutory requirement that SBA report to Congress ``the 
degree to which the HUBZone program has resulted in increased 
employment opportunities and an increased level of investment in 
HUBZones.'' Pub. L. 105-135, Title VI, Sec. 606, 111 Stat. 2635. As 
noted in the Supplementary Information above, SBA has certified over 
four thousand concerns into the HUBZone Program. Each of these concerns 
could be subject to this request for information. SBA estimates the 
burden of this collection of information as follows: SBA may request 
updated financial information and information relating to the number of 
employees from a qualified HUBZone SBC annually. SBA estimates that the 
time needed to complete this collection will average less than one-half 
hour. SBA estimates that the cost to complete this collection will be 
approximately $30 per hour. Thus, the estimated aggregated burden for 
each qualified HUBZone SBC is 0.5 hours per annum costing an estimated 
$15 for the year. Included in the estimate is the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing each 
collection of information.
    SBA invites comments on: (1) Whether the proposed collection of 
information is necessary for the proper performance of SBA's functions, 
including whether the information will have a practical utility; (2) 
the accuracy of SBA's estimate of the burden of the proposed 
collections of information, including the validity of the methodology 
and assumptions used; (3) ways to enhance the quality, utility, and 
clarity of the information to be collected; and (4) ways to minimize 
the burden of the collection of information on respondents, including 
through the use of automated collection techniques, when appropriate, 
and other forms of information technology.
    Please send comments by the closing date for comment for this 
proposed rule to David Rostker, Office of Management and Budget, Office 
of Information and Regulatory Affairs, 725 17th Street, NW, Washington, 
DC 20503 and to Michael McHale, Associate Administrator for the HUBZone 
Empowerment Contracting Program, Small Business Administration, 409 
Third Street, SW, Washington, DC 20416.
    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 implications warranting the preparation 
of a Federalism Assessment.

List of Subjects

13 CFR Part 121

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

[[Page 3836]]

13 CFR Part 125

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

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 parts 121, 125 and 126, as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. Revise the authority citation for 13 CFR part 121 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), 644(c) and 662(5); and Sec. 304, 
Pub. L. 103-403, 108 Stat. 4175, 4188.

    2. Amend Sec. 121.406 by revising the section heading, by adding a 
new paragraph (b)(6) to read as follows, and by removing paragraph (d):


Sec. 121.406  How does a small business concern qualify to provide 
manufactured products under small business set-aside or 8(a) contracts?

* * * * *
    (b) Nonmanufacturers. (1) * * *
    (6) With respect to any contract under the simplified acquisition 
threshold, a small business nonmanufacturer may supply the end item of 
any manufacturer made in the United States, including a large business.
* * * * *
    3. Amend Sec. 121.1001 by revising paragraph (a)(6)(iv), and by 
adding new paragraph (b)(7) to read as follows:


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

    (a) Size status protests. * * *
    (6) * * *
    (iv) The SBA Associate Administrator for the HUBZone Program, or 
designee.
* * * * *
    (b) * * *
    (7) In connection with initial or continued eligibility for the 
HUBZone program, the following may request a formal size determination:
    (i) The applicant or qualified HUBZone concern; or
    (ii) The Associate Administrator for the HUBZone program, or 
designee.

PART 125--GOVERNMENT CONTRACTING PROGRAMS

    4. The authority citation for 13 CFR part 125 continues to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6), 637 and 644; 31 U.S.C. 9701, 
9702.

    5. In Sec. 125.6, redesignate paragraphs (b), (c), (d), (e), (f), 
and (g) as paragraphs (d), (e), (f), (g), (h), and (i) respectively, 
and add new paragraphs (b) and (c) to read as follows:


Sec. 125.6  Prime contractor performance requirements (limitations on 
subcontracting).

* * * * *
    (b) A qualified HUBZone SBC prime contractor can subcontract part 
of a HUBZone contract (as defined in Sec. 126.600) provided:
    (1) In the case of a contract for services (except construction), 
the qualified HUBZone SBC spends at least 50 percent of the cost of the 
contract performance incurred for personnel on the concern's employees 
or on the employees of other qualified HUBZone SBCs;
    (2) In the case of a contract for general construction, the 
qualified HUBZone SBC spends at least 15 percent of the cost of 
contract performance incurred for personnel on the concern's employees 
or the employees of other qualified HUBZone SBCs;
    (3) In the case of a contract for construction by special trade 
contractors, the qualified HUBZone SBC spends at least 25 percent of 
the cost of contract performance incurred for personnel on the 
concern's employees or the employees of other qualified HUBZone SBCs;
    (4) In the case of a contract for procurement of supplies (other 
than procurement from a regular dealer in such supplies), the qualified 
HUBZone SBC spends at least 50 percent of the manufacturing cost 
(excluding the cost of materials) on performing the contract in a 
HUBZone. One or more qualified HUBZone SBCs may combine to meet this 
subcontracting percentage requirement; and
    (5) In the case of a contract for the procurement by the Secretary 
of Agriculture of agricultural commodities, the qualified HUBZone SBC 
may not purchase from a subcontractor any of the commodity if the 
subcontractor will supply the commodity in substantially the final form 
in which it is to be supplied to the Government.
    (c) SBA may use different percentages if the Administrator 
determines that such action is necessary to reflect conventional 
industry practices among small business concerns that are below the 
numerical size standard for businesses in that industry group. 
Representatives of a national trade or industry group or any interested 
SBC may request a change in subcontracting percentage requirements for 
the categories defined by six digit industry codes in the North 
American Industry Classification System (NAICS) pursuant to the 
following procedures.
    (1) Format of request. Requests from representatives of a trade or 
industry group and interested SBCs should be in writing and sent or 
delivered to the Associate Administrator of the Office of Government 
Contracting, U.S. Small Business Administration, 409 3rd Street, SW., 
Washington, DC 20416. The requester must demonstrate to SBA that a 
change in percentage is necessary to reflect conventional industry 
practices among small business concerns that are below the numerical 
size standard for businesses in that industry category, and must 
support its request with information including, but not limited to:
    (i) Information relative to the economic conditions and structure 
of the entire national industry;
    (ii) Market data, technical changes in the industry and industry 
trends;
    (iii) Specific reasons and justifications for the change in the 
subcontracting percentage;
    (iv) The effect such a change would have on the federal procurement 
process; and
    (v) Information demonstrating how the proposed change would promote 
the purposes of the small business, 8(a), SDB, woman-owned business, or 
HUBZone programs.
    (2) Notice to public. Upon an adequate preliminary showing to SBA, 
SBA will publish in the Federal Register a notice of its receipt of a 
request that it considers a change in the subcontracting percentage 
requirements for a particular industry. The notice will identify the 
group making the request, and give the public an opportunity to submit 
information and arguments in both support and opposition.
    (3) Comments. SBA will provide a period of not less than 30 days 
for public comment in response to the Federal Register notice.
    (4) Decision. SBA will render its decision after the close of the 
comment period. If SBA decides against a change, SBA will publish 
notice of its decision in the Federal Register. Concurrent with the 
notice, SBA will advise the requester of its decision in writing. If 
SBA decides in favor of a change, SBA will propose an appropriate 
change to this part.
* * * * *

PART 126--HUBZONE PROGRAM

    6. Revise the authority citation for 13 CFR part 126 to read as 
follows:

    Authority: 15 U.S.C. 632, and 15 U.S.C. 657a.


[[Page 3837]]


    7-8. Amend Sec. 126.101 by revising paragraph (a), removing 
paragraph (b), and redesignating current paragraph (c) as paragraph (b) 
to read as follows:


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

    (a) The HUBZone Program applies to all federal departments or 
agencies that employ one or more contracting officers.
* * * * *
    9. Amend Sec. 126.103 to remove the terms and definitions for 
``HUBZone 8(a) concern,'' and ``Woman-owned business (WOB);'' revise 
the terms and definitions of ``AA/8(a)BD'', ``AA/HUB,'' ``ADA/
GC&8(a)BD'', ``employee,'' ``HUBZone,'' ``HUDZone small busines concern 
(HUBZone SBC),'' ``Indian reservation,'' ``Lands within the external 
boundaries of an Indian reservation'', ``Person,'' ``Qualified census 
tract,'' ``Qualified non-metropolitan county,'' and ``Small 
disadvantaged business (SDB);'' add the terms ``Agricultural 
Commodity,'' ``Alaska Native Corporation (ANC),'' ``Alaska Native 
Village,'' ``Attempt to Maintain,'' ``Community Development 
Corporation,'' ``Contracting Officer,'' ``Indian Tribal Government,'' 
``Redesignated area,'' and ``Small business concern (SBC)'' to read as 
follows:


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

* * * * *
    AA/BD means SBA's Associate Administrator for the Office of 
Business Development.
    AA/HUB means SBA's Associate Administrator for the HUBZone 
Empowerment Contracting Program.
    ADA/GC&BD means SBA's Associate Deputy Administrator for Government 
Contracting and Business Development.
    Agricultural Commodity has the same meaning as in section 102 of 
the Agricultural Trade Act of 1978 (7 U.S.C. 5602).
    Alaska Native Corporation (ANC) has the same meaning as the term 
``Native Corporation'' in section 3 of the Alaska Native Claims 
Settlement Act (ANCSA), 43 U.S.C. 1602.
    Alaska Native Village has the same meaning as the term ``Native 
village'' in section 3 of the ANCSA, 43 U.S.C. 1602.
    Attempt to maintain means making substantive and documented efforts 
such as written offers of employment, published advertisements seeking 
employees, and attendance at job fairs.
* * * * *
    Community Development Corporation (CDC) means a corporation that 
has received financial assistance under 42 U.S.C. 9805 et seq.
* * * * *
    Contracting Officer (CO) has the meaning given that term in 41 
U.S.C. 423(f)(5), which defines a CO as a person who, by appointment in 
accordance with applicable regulations, has the authority to enter into 
a Federal agency procurement contract on behalf of the Government and 
to make determinations and findings with respect to such a contract.
* * * * *
    Employee means a person (or persons) employed by a concern on a 
full-time, part-time, temporary, leased or other basis. SBA will 
consider the totality of circumstances, including factors relevant for 
tax purposes, when determining whether individuals are employees of a 
concern. Volunteers (i.e., persons who receive no compensation for work 
performed) are not considered employees. To determine the size of a 
HUBZone concern, SBA uses the calculation of ``employee'' set forth in 
Sec. 121.106 of this chapter.
    HUBZone means a historically underutilized business zone, which is 
an area located within one or more qualified census tracts, qualified 
non-metropolitan counties, lands within the external boundaries of an 
Indian reservation, or redesignated areas.
    HUBZone SBC means:
    (1) An SBC that is owned and controlled by 1 or more persons, each 
of whom is a United States citizen;
    (2) An ANC owned and controlled by Natives (as determined pursuant 
to section 29(e)(1) of the ANCSA, 43 U.S.C. 1626(e)(1));
    (3) A direct or indirect subsidiary corporation, joint venture, or 
partnership of an ANC qualifying pursuant to section 29(e)(1) of the 
ANCSA, 43 U.S.C. 1626(e)(1)), if that subsidiary, joint venture, or 
partnership is owned and controlled by Natives (as determined pursuant 
to section 29(e)(2) of the ANCSA, 43 U.S.C. 1626(e)(2));
    (4) An SBC that is wholly owned by one or more Indian Tribal 
Governments, or by a corporation that is wholly owned by one or more 
Indian Tribal Governments;
    (5) An SBC that is 51% owned by one or more Indian Tribal 
Governments or 51% owned by a corporation that is wholly owned by one 
or more Indian Tribal Governments, if all other owners are either 
United States citizens or SBCs; or,
    (6) An SBC that is wholly owned by a CDC or owned in part by one or 
more CDCs, if all other owners are either United States citizens or 
SBCs.
* * * * *
    Indian reservation has the same meaning as the term ``Indian 
country'' in 18 U.S.C. 1151, except that such term does not include--
    (1) Any lands that are located within a State in which a tribe did 
not exercise governmental jurisdiction as of December 21, 2000, unless 
that tribe is recognized after that date by either an Act of Congress 
or pursuant to regulations of the Secretary of the Interior for the 
administrative recognition that an Indian group exists as an Indian 
tribe (25 CFR part 83); and
    (2) Lands taken into trust or acquired by an Indian tribe after 
December 21, 2000 if such lands are not located within the external 
boundaries of an Indian reservation or former reservation or are not 
contiguous to the lands held in trust or restricted status as of 
December 21, 2000. However, in the State of Oklahoma, ``Indian 
reservation'' means lands that--are within the jurisdictional areas of 
an Oklahoma Indian tribe (as determined by the Secretary of the 
Interior); and are recognized by the Secretary of the Interior as 
eligible for trust land status under 25 CFR part 151, as in effect on 
December 21, 2000.
    Indian Tribal Government means the governing body of any Indian 
tribe, band, nation, pueblo, or other organized group or community 
which is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians.
* * * * *
    Lands within the external boundaries of an Indian reservation 
includes all lands within the perimeter of an Indian reservation, 
whether tribally owned and governed or not. For example, land that is 
individually owned and located within the perimeter of an Indian 
reservation is ``lands within the external boundaries of an Indian 
reservation.'' By contrast, an Indian-owned parcel of land that located 
outside the perimeter of an Indian reservation is not ``lands within 
the external boundaries of an Indian reservation.''
* * * * *
    Person means a natural person.
* * * * *
    Qualified census tract has the meaning given that term in 
Sec. 42(d)(5)(C)(ii) of the Internal Revenue Code of 1986.
* * * * *
    Qualified non-metropolitan county means any county that was not 
located in a metropolitan statistical area at the time of the most 
recent census taken for purposes of selecting qualified census tracts 
under Sec. 42(d)(5)(C)(ii) of the

[[Page 3838]]

Internal Revenue Code of 1986, and in which:
    (1) The median household income is less than 80 percent of the 
nonmetropolitan State median household income, based on the most recent 
data available from the Bureau of the Census of the Department of 
Commerce; or
    (2) The unemployment rate is not less than 140 percent of the 
Statewide average unemployment rate for the State in which the county 
is located, based on the most recent data available from the Secretary 
of Labor.
    Redesignated area means any census tract or any nonmetropolitan 
county that ceases to be a qualified HUBZone, except that such census 
tracts or nonmetropolitan counties may be ``redesignated areas'' only 
for the 3-year period following the date on which the census tract or 
nonmetropolitan county ceased to be so qualified. The date on which the 
census tract or nonmetropolitan county ceases to be qualified is the 
date that the official government data, which affects the eligibility 
of the HUBZone, is released to the public.
* * * * *
    Small business concern (SBC) means a concern that, with its 
affiliates, meets the size standard for its primary industry, pursuant 
to part 121 of this chapter.
    Small disadvantaged business (SDB) means a concern that is small 
pursuant to part 121 of this chapter, is owned and controlled by one or 
more socially and economically disadvantaged individuals, tribes, ANCs, 
Native Hawaiian Organizations, or CDCs and has been certified pursuant 
to subpart B, part 124 of this chapter.
* * * * *
    10. Revise Sec. 126.200 to read as follows:


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

    (a) Concerns owned by Indian Tribal Governments. 
    (1) Ownership. (i) The concern must be wholly owned by one or more 
Indian Tribal Governments;
    (ii) The concern must be wholly-owned by a corporation that is 
wholly owned by one or more Indian Tribal Governments;
    (iii) The concern must be owned in part by one or more Indian 
Tribal Governments and all other owners are either United States 
citizens or SBCs; or
    (iv) The concern must be owned in part by a corporation, which is 
wholly-owned by one or more Indian Tribal Governments, and all other 
owners are either United States citizens or SBCs.
    (2) Size. The concern, with its affiliates, must meet the size 
standard corresponding to its primary industry classification as 
defined in part 121 of this chapter.
    (3) Employees. The concern must certify that when performing a 
HUBZone contract, at least 35 percent of its employees engaged in 
performing that contract will reside within any Indian reservation 
governed by one or more of the Indian Tribal Government owners, or 
reside within any HUBZone adjoining such Indian reservation. A HUBZone 
and Indian reservation are adjoining when the two areas are next to and 
in contact with each other.
    (b) Concerns owned by U.S. citizens or CDCs. 
    (1) Ownership. (i) The concern must be 100 percent owned and 
controlled by persons who are United States citizens;

    Example: A concern that is a partnership is owned 99.9 percent 
by persons who are U.S. citizens, and 0.1 percent by someone who is 
not. The concern is not eligible because it is not 100 percent owned 
by U.S. citizens;

    (ii) The concern must be an ANC owned and controlled by Natives 
(determined pursuant to Sec. 29(e)(1) of the ANCSA); or a direct or 
indirect subsidiary corporation, joint venture, or partnership of an 
ANC qualifying pursuant to Sec. 29(e)(1) of ANCSA, if that subsidiary, 
joint venture, or partnership is owned and controlled by Natives 
(determined pursuant to Sec. 29(e)(2)) of the ANCSA); or
    (iii) The concern must be wholly-owned by a CDC, or owned in part 
by one or more CDCs, if all other owners are either United States 
citizens or SBCs;
    (2) Size. The concern, together with its affiliates, must qualify 
as a small business under the size standard corresponding to its 
primary industry classification as defined in part 121 of this chapter.
    (3) Principal office. The concern's principal office must be 
located in a HUBZone.
    (4) Employees. At least 35 percent of the concern's employees must 
reside in a HUBZone. When determining the percentage of employees that 
reside in a HUBZone, if the percentage results in a fraction, round up 
to the nearest whole number;

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

    (5) Contract Performance. The concern must represent, as provided 
in the application, that it will attempt to maintain having 35 percent 
of its employees reside in a HUBZone during the performance of any 
HUBZone contract it receives.
    (6) Subcontracting. The concern must represent, as provided in the 
application, that it will ensure that it will comply with certain 
contract performance requirements in connection with contracts awarded 
to it as a qualified HUBZone SBC, as set forth in Sec. 126.700.
    11. Revise Sec. 126.201 to read as follows:


Sec. 126.201  Who does SBA consider to own a HUBZone SBC?

    An owner of a SBC seeking HUBZone certification or a qualified 
HUBZone SBC is a person who owns any legal or equitable interest in 
such SBC. If an Employee Stock Option Plan owns all or part of the 
concern, SBA considers each stock trustee and plan member to be an 
owner. If a trust owns all or part of the concern, SBA considers each 
trustee and trust beneficiary to be an owner. In addition:
    (a) Corporations. SBA considers any person who owns stock, whether 
voting or non-voting, to be an owner. SBA considers options to purchase 
stock and the right to convert debentures into voting stock to have 
been exercised.

    Example: U.S. citizens own all of the stock of a corporation. A 
corporate officer, a non-U.S. citizen, owns no stock in the 
corporation, but owns options to purchase stock in the corporation. 
SBA will consider the options exercised and the individual to be an 
owner. Thus, pursuant to Sec. 126.200, the corporation would not be 
eligible to be a qualified HUBZone SBC because it is not 100 percent 
owned and controlled by persons who are United States citizens.

    (b) Partnerships. SBA considers all partners, whether general or 
limited, to be owners in a partnership.
    (c) Sole proprietorships. The proprietor is the owner.
    (d) Limited liability companies. SBA considers each member to be an 
owner of a limited liability company.
    12. Revise Sec. 126.202 to read as follows:


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

    Control means both the day-to-day management and long-term 
decisionmaking authority for the HUBZone SBC. Many persons share 
control of a concern, including each of those occupying the following 
positions:

[[Page 3839]]

officer, director, general partner, managing partner, managing member 
and manager. In addition, key employees who possess expertise or 
responsibilities related to the concern's primary economic activity may 
share significant control of the concern. SBA will consider the control 
potential of such key employees on a case by case basis.
    13. Revise Sec. 126.203(b) to read as follows:


Sec. 126.203  What size standards apply to HUBZone SBCs?

* * * * *
    (b) At time of initial contract offer. A HUBZone SBC must be small 
within the size standard corresponding to the NAICS code assigned to 
the contract.
    14. Revise Sec. 126.205 to read as follows:


Sec. 126.205  May participants in other SBA programs be certified as 
qualified HUBZone SBCs?

    Participants in other SBA programs may be certified as qualified 
HUBZone SBCs if they meet all of the requirements set forth in this 
part.
    15. Revise Sec. 126.207 to read as follows:


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

    A qualified HUBZone SBC may have offices or facilities in another 
HUBZone or even outside a HUBZone and still be a qualified HUBZone SBC. 
However, in order to be certified as a qualified HUBZone SBC and if 
required by Sec. 126.200, the concern's principal office must be 
located in a HUBZone.
    16. Revise Sec. 126.300 to read as follows:


Sec. 126.300  How may a concern be certified as a qualified HUBZone SBC 
and what information will SBA consider?

    A concern must apply to SBA for certification. SBA will consider 
the information provided by the concern in order to determine whether 
the concern qualifies. SBA, in its discretion, may rely solely upon the 
information submitted to establish eligibility, may request additional 
information, or may verify the information before making a 
determination. SBA may draw an adverse inference and deny the 
certification where a concern fails to cooperate with SBA or submit 
information requested by SBA. If SBA determines that the concern is a 
qualified HUBZone SBC, it will issue a certification to that effect and 
add the concern to the List.
    17. Revise Sec. 126.303 to read as follows:


Sec. 126.303  Where must a concern submit its application and 
certification?

    A concern seeking certification as a HUBZone SBC must submit its 
electronic application to SBA via 
https://eweb1.sba.gov/hubzone/internet/ and its written application to 
the AA/HUB, U.S. Small Business Administration, 409 3rd Street, SW., 
Washington, DC 20416. Certification pages must be signed by a person 
authorized to represent the concern.
    18. Revise Sec. 126.304 to read as follows:


Sec. 126.304  What must a concern submit to SBA?

    (a) To be certified by SBA as a qualified HUBZone SBC, a concern 
must submit a completed application and represent to SBA that it meets 
the requirements set forth in Sec. 126.200. The concern must also 
submit any additional information required by SBA.
    (b) Concerns applying for HUBZone status based on a location within 
the external boundaries of an Indian reservation must use SBA's maps to 
verify that the location is within the external boundaries of an Indian 
reservation. If, however, SBA's maps indicate that the location is not 
within the external boundaries of an Indian reservation and the concern 
disagrees, then the concern must submit official documentation from the 
appropriate Bureau of Indian Affairs (BIA) Land Titles and Records 
Office with jurisdiction over the concern's area, confirming that it is 
located within the external boundaries of an Indian reservation. BIA 
lists the Land Titles and Records Offices and their jurisdiction in 25 
CFR 150.4 and 150.5.
    (c) If the concern was decertified for failure to notify SBA of a 
material change affecting its eligibility pursuant to Sec. 126.501, it 
must include with its application for certification a full explanation 
of why it failed to notify SBA of the material change. If SBA is not 
satisfied with the explanation provided, SBA may decline to certify the 
concern.
    19. Revise Sec. 126.306(b) to read as follows:


Sec. 126.306  How will SBA process the certification?

* * * * *
    (b) SBA may request additional information or clarification of 
information contained in an application submission at any time.
* * * * *
    20. Revise Sec. 126.307 to read as follows:


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

    Qualified HUBZone SBCs are identified on Pro-Net at 
http://pro-net.sba.gov and on the HUBZone Web page at https://eweb1.sba.gov/hubzone/internet/general/approved-firms.cfm. In addition, 
requesters may obtain a copy of the List by writing to the AA/HUB at 
U.S. Small Business Administration, 409 3rd Street, SW., Washington, DC 
20416 or at [email protected]. 
    21. Revise Sec. 126.308 to read as follows:


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

    A HUBZone SBC that has received SBA's notice of certification, but 
is not on the List within 10 business days thereafter, should 
immediately notify the AA/HUB in writing at U.S. Small Business 
Administration, 409 Third Street, SW., Washington, DC 20416 or via e-
mail at [email protected]. The concern must appear on the List to be 
eligible for HUBZone contracts.
    22. Revise Sec. 126.309 to read as follows:


Sec. 126.309  May a declined or decertified concern seek certification 
at a later date?

    A concern that SBA has declined or decertified may seek 
certification no sooner than one year from the date of decline or 
decertification if it believes that it has overcome all reasons for 
decline or decertification through changed circumstances and is 
currently eligible. See Sec. 126.304(c).
    23. Revise Sec. 126.401 to read as follows:


Sec. 126.401  What is a program examination and what will SBA examine?

    (a) General. A program examination is an investigation by SBA 
officials, which verifies the accuracy of any certification made or 
information provided as part of the HUBZone application process or in 
connection with a HUBZone contract. Thus, examiners may verify that the 
concern currently meets the program's eligibility requirements, and 
that it met such requirements at the time of its application for 
certification, its most recent recertification, or its certification in 
connection with a HUBZone contract.
    (b) Scope of review. Examiners may conduct the review, or parts of 
the review, at one or all of the concern's offices. SBA will determine 
the location of the examination. Examiners may review any information 
related to the concern's eligibility requirements including, but not 
limited to, documentation related to the location and ownership of the 
concern, the

[[Page 3840]]

employee percentage requirements, and the concern's attempt to maintain 
this percentage. The concern must document each employee's residence 
address through employment records. The examiner also may review 
property tax, public utility or postal records, and other relevant 
documents. The concern must retain documentation demonstrating 
satisfaction of the employee residence and other qualifying 
requirements for 6 years from date of submission of the application and 
any recertifications issued to SBA.
    24. Revise Sec. 126.402 to read as follows:


Sec. 126.402  When may SBA conduct program examinations?

    SBA may conduct a program examination at any time after the concern 
submits its application, during the processing of the application, and 
at any time while the concern is certified as a qualified HUBZone SBC.
    25. Revise Sec. 126.403 to read as follows:


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

    (a) At the discretion of the AA/HUB, SBA has the right to require 
that a HUBZone SBC submit additional information as part of the 
certification process, or at any time thereafter. SBA may draw an 
adverse inference from the failure of a HUBZone SBC to cooperate with a 
program examination or provide requested information.
    (b) In order to gauge the success of the program, SBA may request 
that a HUBZone SBC submit updated financial information and information 
relating to the number of its employees.


Sec. 126.404  [Removed]

    26. Remove Sec. 126.404.


Sec. 126.405  [Removed]

    27. Remove Sec. 126.405.
    28. Revise Sec. 126.500 to read as follows:


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

    Any qualified HUBZone SBC seeking to remain on the List must 
recertify every three years to SBA that it remains a qualified HUBZone 
SBC. Concerns wishing to remain in the program without any interruption 
must recertify their continued eligibility to SBA within 30 calendar 
days after the third anniversary of their date of certification and 
each subsequent three-year period. Failure to do so will result in SBA 
initiating decertification proceedings. Once decertified, the concern 
then would have to submit a new application for certification pursuant 
to Sec. 126.309. The recertification to SBA must be in writing and must 
represent that the circumstances relative to eligibility that existed 
on the date of certification showing on the List have not materially 
changed and that the concern meets any new eligibility requirements.
    29. Revise Sec. 126.501 to read as follows:


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

    A qualified HUBZone SBC must immediately notify SBA of any material 
change that could affect its eligibility. Material change includes, but 
is not limited to, a change in the ownership, business structure, or 
principal office of the concern, or a failure to meet the 35% HUBZone 
residency requirement. The notification must be in writing, and must be 
sent or delivered to the 
AA/HUB to comply with this requirement. Failure of a qualified HUBZone 
SBC to notify SBA of such a material change may result in 
decertification and removal from the List pursuant to Sec. 126.504. In 
addition, SBA may seek the imposition of penalties under Sec. 126.900. 
If the concern later becomes eligible for the program, it must apply 
for certification pursuant to Secs. 126.300 through 126.306.


Sec. 126.503  [Redesignated as Sec.  126.504]

    30. Redesignate current Sec. 126.503 as Sec. 126.504.
    31. Add new Sec. 126.503 to read as follows:


Sec. 126.503  What happens if SBA is unable to verify a qualified 
HUBZone SBC's eligibility or determines that the concern is no longer 
eligible for the program?

    If SBA is unable to verify a qualified HUBZone SBC's eligibility or 
determines it is not eligible for the program, SBA may propose 
decertification of the concern.
    (a) Proposing Decertification. Except as set forth in paragraph (c) 
of this section, the Deputy AA/HUB or designee will first notify the 
qualified HUBZone SBC in writing of the reasons why decertification is 
being proposed. The qualified HUBZone SBC will have 30 calendar days 
from the date that it receives SBA's notification to respond, in 
writing, to the AA/HUB or designee.
    (b) SBA's Decision. The AA/HUB or designee will consider the 
reasons for proposed decertification and the qualified HUBZone SBC's 
response before making a written decision whether to decertify. The AA/
HUB may draw an adverse inference where a qualified HUBZone SBC fails 
to cooperate with SBA or provide the information requested. The AA/
HUB's decision is the final agency decision.
    (c) Decertifying Pursuant to a Protest. SBA may decertify a 
qualified HUBZone SBC and remove its name from the List without first 
proposing it for decertification if the AA/HUB upholds a protest 
pursuant to Sec. 126.803 and the AA/HUB's decision is not overturned 
pursuant to Sec. 126.805.
    32. Revise Sec. 126.601 to read as follows:


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

    (a) In order to submit an offer on a specific HUBZone contract, the 
qualified HUBZone SBC, together with its affiliates, must be small 
under the size standard corresponding to the NAICS code assigned to the 
contract.
    (b) A firm must be a qualified HUBZone SBC both at the time of its 
initial offer and at the time of award in order to be eligible for a 
HUBZone contract.
    (c) At the time a qualified HUBZone SBC submits its initial offer, 
and where applicable its final offer, on a specific HUBZone contract, 
it must certify to the CO that:
    (1) It is a qualified HUBZone SBC that appears on SBA's List;
    (2) There has been no material change in its circumstances since 
the date of certification shown on the List that could affect its 
HUBZone eligibility;
    (3) It is small under the NAICS code assigned to the procurement; 
and
    (4) If the qualified HUBZone SBC was certified pursuant to 
Sec. 126.200(b), it must represent that it will attempt to maintain the 
required percentage of employees who are HUBZone residents during the 
performance of a HUBZone contract. If the qualified HUBZone SBC was 
certified pursuant to Sec. 126.200(a) of this title, then it must 
represent that at least 35 percent of its employees engaged in 
performing the HUBZone contract reside within any Indian reservation 
governed by one or more of its Indian Tribal Government owners or 
reside within any HUBZone adjoining any such Indian reservation.
    (d) If bidding as a joint venture, each qualified HUBZone SBC must 
make the certifications in paragraph (c) of this section separately 
under its own name.
    (e) A qualified HUBZone SBC may submit an offer on a HUBZone 
contract for supplies as a nonmanufacturer if it meets the requirements 
of the nonmanufacturer rule set forth at Sec. 121.406(b)(1) of this 
chapter, and if the small manufacturer providing the end item for the 
contact is also a qualified HUBZone SBC.
    (1) There are no waivers to the nonmanufacturer rule for HUBZone 
contracts.

[[Page 3841]]

    (i) SBA will not issue contract-specific waivers as it does for 
small business set-aside and 8(a) contracts under Sec. 121.406(b)(3)(i) 
of this chapter.
    (ii) Class waivers issued under Sec. 121.406(b)(3)(ii) of this 
chapter do not apply to HUBZone contracts.
    (2) For HUBZone contracts at or below the simplified acquisition 
threshold in total value, a qualified HUBZone SBC may supply the end 
item of any manufacturer made in the United States, including a large 
business.
    33. Revise Sec. 126.602 to read as follows:


Sec. 126.602  Must a qualified HUBZone SBC maintain the employee 
residency percentage during contract performance?

    Qualified HUBZone SBCs eligible for the program pursuant to 
Sec. 126.200(b) must attempt to maintain the required percentage of 
employees who reside in a HUBZone during the performance of any 
contract awarded to the concern on the basis of its HUBZone status. 
Qualified HUBZone SBCs eligible for the program pursuant to 
Sec. 126.200(a) must have at least 35 percent of its employees engaged 
in performing a HUBZone contract residing within any Indian reservation 
governed by one or more of the concern's Indian Tribal Government 
owners, or residing within any HUBZone adjoining any such Indian 
reservation. To monitor compliance, SBA will conduct program 
examinations, pursuant to Secs. 126.400 through 126.403, where 
appropriate.
    34. Revise Sec. 126.603 to read as follows:


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

    HUBZone certification does not guarantee that a qualified HUBZone 
SBC will receive HUBZone contracts. Qualified HUBZone SBCs should 
market their capabilities to appropriate contracting activities in 
order to increase their prospects of having a requirement set aside for 
HUBZone contract award.
    35. Amend Sec. 126.605 by removing the semicolon and ``or'' at the 
end of paragraph (b), adding a period in its place, and removing 
paragraph (c).
    36. Revise Sec. 126.606 to read as follows:


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

    A CO may request that SBA release an 8(a) requirement for award as 
a HUBZone contract. However, SBA will grant its consent only where 
neither the incumbent nor any other 8(a) participant can perform the 
requirement. The request must be made to the AA/BD, who will make a 
determination after consulting with the AA/HUB.
    37. Revise Sec. 126.607 to read as follows:


Sec. 126.607  When must a CO set aside a requirement for qualified 
HUBZone SBCs?

    (a) The CO first must review a requirement to determine whether it 
is excluded from HUBZone contracting pursuant to Sec. 126.605.
    (b) After determining that paragraph (a) of this section does not 
apply, the CO must next determine whether the requirement should be set 
aside for competition restricted to qualified HUBZone SBCs or offered 
to the 8(a) program. In making this determination, the CO must consider 
the contracting activity's achievement of its HUBZone and 8(a) goals, 
and other relevant factors.
    (c) A CO must consider using a HUBZone set-aside to fulfill a 
requirement before considering whether award can be made as a small 
business set-aside.
    (d) If the CO decides to set-aside the requirement for competition 
restricted to qualified HUBZone SBCs, the CO must:
    (1) Review SBA's List of Qualified HUBZone SBCs and have a 
reasonable expectation that at least two qualified HUBZone SBCs will 
submit offers; and
    (2) Determine that award can be made at a fair market price.
    38. Revise Sec. 126.608 to read as follows:


Sec. 126.608  Are there HUBZone contract opportunities at or below the 
simplified acquisition threshold or micropurchase threshold?

    A CO may make a requirement available as a HUBZone set-aside if it 
is at or below the simplified acquisition threshold. In addition, a CO 
may award a requirement as a HUBZone contract to a qualified HUBZone 
SBC at or below the micropurchase threshold.
    39. Revise Sec. 126.610 to read as follows:


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

    (a) The Administrator may appeal a CO's decision not to make a 
particular requirement available for award as a HUBZone contract to the 
Secretary of the department or head of the agency.
    (b) An appeal is initiated by SBA's Procurement Center 
Representative to the CO, and may be in response to information 
supplied by the AA/HUB, his or her designee, or other interested 
parties.
    40. Revise Sec. 126.611(c) to read as follows:


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

* * * * *
    (c) Deadline for appeal. Within 15 business days of SBA's 
notification to the CO, SBA must file its formal appeal with the 
Secretary of the department or head of the agency, or the appeal will 
be deemed withdrawn.
* * * * *
    41. Revise paragraphs (b)(1), (b)(2), and (e) of Sec. 126.612 to 
read as follows:


Sec. 126.612  When may a CO award sole source contracts to qualified 
HUBZone SBCs?

* * * * *
    (b) * * *
    (1) $5,000,000 for a requirement within the NAICS codes for 
manufacturing; or
    (2) $3,000,000 for a requirement within all other NAICS codes;
* * * * *
    (e) In the estimation of the CO, contract award can be made at a 
fair and reasonable price.
    42. Revise Sec. 126.613 to read as follows:


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

    (a)(1) Where a CO will award a contract on the basis of full and 
open competition, the CO must deem the price offered by a qualified 
HUBZone SBC to be lower than the price offered by another offeror 
(other than another SBC) if the price offered by the qualified HUBZone 
SBC is not more than 10 percent higher than the price offered by the 
otherwise lowest, responsive, and responsible offeror. For a best value 
procurement, the CO must apply the 10% preference to the otherwise 
successful offer of a large business and then determine which offeror 
represents the best value to the Government, in accordance with the 
terms of the solicitation.
    (2) Where, after considering the price evaluation adjustment, the 
price offered by a qualified HUBZone SBC is equal to the price offered 
by a large business (or, in a best value procurement, the total 
evaluation points received by a qualified HUBZone SBC is equal to the 
total evaluation points received by a large business), award shall be 
made to the qualified HUBZone SBC.

    Example 1: In a full and open competition, a qualified HUBZone 
SBC submits an offer of $98, a non-HUBZone SBC submits an offer of 
$95, and a large business submits an offer of

[[Page 3842]]

$93. The lowest, responsive, responsible offeror would be the large 
business. However, the CO must apply the HUBZone price evaluation 
preference. In this example, the qualified HUBZone SBC's offer is 
not more than 10 percent higher than the large business' offer and, 
consequently, the qualified HUBZone SBC displaces the large business 
as the lowest, responsive, and responsible offeror.
    Example 2: In a full and open competition, a qualified HUBZone 
SBC submits an offer of $103, a non-HUBZone SBC submits an offer of 
$100, and a large business submits an offer of $93. The lowest, 
responsive, responsible offeror would be that from a large business. 
The CO must then apply the HUBZone price evaluation preference. In 
this example, the qualified HUBZone SBC's offer is more than 10 
percent higher than the large business' offer and, consequently, the 
qualified HUBZone SBC does not displace the large business as the 
lowest, responsive, and responsible offeror. In addition, the non-
HUBZone SBC's offer at $100 does not displace the large business' 
offer because a price evaluation preference is not applied to change 
an offer and benefit a non-HUBZone SBC.
    Example 3: In a full and open competition, a qualified HUBZone 
SBC submits an offer of $98 and a non-HUBZone SBC submits an offer 
of $93. The CO would not apply the price evaluation preference in 
this procurement because the lowest, responsive, responsible offeror 
is a SBC.

    (b)(1) For purchases by the Secretary of Agriculture of 
agricultural commodities, the price evaluation preferences shall be:
    (i) 10 percent, for the portion of a contract to be awarded that is 
not greater than 25 percent of the total volume being procured for each 
commodity in a single invitation for bids (IFB);
    (ii) 5 percent, for the portion of a contract to be awarded that is 
greater than 25 percent, but not greater than 40 percent, of the total 
volume being procured for each commodity in a single IFB; and
    (iii) Zero, for the portion of a contract to be awarded that is 
greater than 40 percent of the total volume being procured for each 
commodity in a single IFB.
    (2) The 10 percent and 5 percent price evaluation preferences for 
agricultural commodities apply to all offers from qualified HUBZone 
SBCs up to the 25 percent and 40 percent volume limits specified in 
paragraph (b)(1) of this section. As such, more than one qualified 
HUBZone SBC may receive a price evaluation preference for any given 
commodity in a single IFB.

    Example. There is an IFB for 100,000 pounds of wheat. Bid 1 
(from a large business) is $1/pound for 100,000 pounds of wheat. Bid 
2 (from a HUBZone SBC) is $1.05/pound for 20,000 pounds of wheat. 
Bid 3 (from a HUBZone SBC) is $1.04/pound for 20,000 pounds. Bid 3 
receives a 10% price evaluation adjustment for 20,000 pounds, since 
20,000 is less than 25% of 100,000 pounds. With the 10% price 
evaluation adjustment, Bid 1 changes from $20,000 for the first 
20,000 pounds to $22,000. Bid 3's price of $20,800 ($1.04  x  
20,000) is now lower than any other bid for 20,000 pounds. Thus, Bid 
3 will be accepted for the full 20,000 pounds. Bid 2 receives a 10% 
price evaluation adjustment for that amount of its bid when added to 
the volume in Bid 3 that does not exceed 25% of the total volume 
being procured. Since 25,000 pounds is 25% of the total volume of 
wheat under the IFB, and Bid 3 totaled 20,000 pounds, a 10% price 
evaluation adjustment will be applied to the first 5,000 pounds of 
Bid 2. With the price evaluation adjustment, the price for Bid 1, as 
measured against Bid 2, for 5,000 pounds changes from $5,000 to 
$5,500. Bid 2's price of $5,250 ($1.05  x  5,000) is lower than Bid 
1 for 5,000 pounds. Bid 2 will then receive a 5% price evaluation 
adjustment for the remaining 15,000 pounds, since the total volume 
of Bids 3 and 2 receiving an adjustment does not exceed 40% of the 
total volume of wheat under the IFB (i.e., 40,000 pounds). With the 
5% price evaluation adjustment, Bid 1's price for the next 15,000 
pounds changes from $15,000 to $15,750. Bid 2's price for that 
15,000 pounds is also $15, 750 ($1.05  x  15,000). Because the 
evaluation price for Bid 2 is not more than 10 percent higher than 
the price offered by Bid 1, Bid 2's price is deemed to be lower than 
the price offered by Bid 1. Since the evaluation price for both the 
first 5,000 pounds (receiving a 10% price evaluation adjustment) and 
the remaining 15,000 pounds (receiving a 5% price evaluation 
adjustment) is less than Bid 1, Bid 2 will be accepted for the full 
20,000 pounds.

    (c) A contract awarded to a qualified HUBZone SBC under a 
preference described in paragraph (b) shall not be counted toward the 
fulfillment of any requirement partially set aside for competition 
restricted to SBCs.
    43. Revise Sec. 126.614 to read as follows:


Sec. 126.614  How does a CO apply HUBZone and SDB price evaluation 
preferences in full and open competition?

    A CO may receive offers from both qualified HUBZone SBCs and SDB 
concerns, or from concerns that qualify as both, during a full and open 
competition. The CO must first apply the SDB price evaluation 
preference described in 10 U.S.C. 2323 to all appropriate offerors. The 
CO must then apply the HUBZone price evaluation preference as described 
in Sec. 126.613 to all appropriate offerors. A concern that is both a 
qualified HUBZone SBC and an SDB must receive the benefit of both the 
HUBZone price evaluation preference described in Sec. 126.613 and the 
SDB price evaluation preference described in 10 U.S.C. 2323 and the 
Federal Acquisition Streamlining Act, section 7102(a)(1)(B), Public Law 
103-355, in a full and open competition.
    Example 1: In a full and open competition, a qualified HUBZone 
SBC (but not an SDB) submits an offer of $102; an SDB (but not a 
qualified HUBZone SBC) submits an offer of $107; and a large 
business submits an offer of $93. The CO first applies the SDB price 
evaluation preference and adds 10 percent to the qualified HUBZone 
SBC's offer thereby making that offer $112.2, and to the large 
business's offer thereby making that offer $102.3. As a result, the 
large business is the lowest, responsive, and responsible offeror. 
Next, the CO applies the HUBZone preference and, since the qualified 
HUBZone SBC's offer is not more than 10 percent higher than the 
large business's offer, the CO must deem the price offered by the 
qualified HUBZone SBC to be lower than the price offered by the 
large business.
    Example 2: A qualified HUBZone SBC (but not an SDB) submits an 
offer of $102; a qualified HUBZone SBC that is also an SDB submits 
an offer of $105; an SDB (but not a qualified HUBZone SBC) submits 
an offer of $107; a small business concern (but not a qualified 
HUBZone SBC or an SDB) submits an offer of $100; and a large 
business submits an offer of $93. The CO must first apply the SDB 
price evaluation preference to establish the lowest, responsive, and 
responsible offeror. Thus, the qualified HUBZone SBC's offer becomes 
$112.2; the qualified HUBZone SBC/SDB's offer remains $105; the 
SDB's offer remains $107; the small business concern's offer becomes 
$110; and the large business's offer becomes $102.3. As a result of 
the SDB price evaluation preference, the large business is the 
lowest, responsive, and responsible offeror. Next, the CO must apply 
the HUBZone price evaluation preference and if a qualified HUBZone 
SBC's price is not more than 10 percent higher than the large 
business's price, the CO must deem its price to be lower than the 
large business's price. In this example, the qualified HUBZone price 
of $112.2 is not more than 10 percent higher than the large 
business's price, however, the qualified HUBZone/SDB's price of $105 
is also not more than 10 percent higher than the large business's 
price and is lower than the qualified HUBZone SBC's price. 
Consequently, the CO must deem the price of the qualified HUBZone/
SDB as the lowest, responsive, and responsible offeror.

    44. Revise Sec. 126.616 to read as follows:


Sec. 126.616  What requirements must a joint venture satisfy to submit 
an offer on a HUBZone contract?

    A joint venture may submit an offer on a HUBZone contract if the 
joint venture meets all of the following requirements:
    (a) HUBZone joint venture. A qualified HUBZone SBC may enter into a 
joint venture with another qualified HUBZone SBC for the purpose of 
performing a specific HUBZone contract. The joint venture itself need

[[Page 3843]]

not be certified as a qualified HUBZone SBC.
    (b) Size of concerns. (1) A joint venture of two or more qualified 
HUBZone SBCs may submit an offer for a HUBZone contract so long as each 
concern is small under the size standard corresponding to the NAICS 
code assigned to the contract, provided:
    (i) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the NAICS 
code assigned to the contract; and
    (ii) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million.
    (2) For a procurement that does not exceed the applicable dollar 
amount specified in paragraph (b)(1) of this section, a joint venture 
of two or more qualified HUBZone SBCs may submit an offer for a HUBZone 
contract so long as the qualified HUBZone SBCs in the aggregate are 
small under the size standard corresponding to the NAICS code assigned 
to the contract.
    (c) Performance of work. The aggregate of the qualified HUBZone 
SBCs to the joint venture, not each concern separately, must perform 
the applicable percentage of work required by 13 CFR 125.6.
    45. Add new Sec. 126.617 to read as follows:


Sec. 126.617  Who decides contract disputes arising between a qualified 
HUBZone SBC and a contracting activity after the award of a HUBZone 
contract?

    For purposes of the Disputes Clause of a specific HUBZone contract, 
the contracting activity will decide disputes arising between a 
qualified HUBZone SBC and the contracting activity.
    46. Add new Sec. 126.618 to read as follows:


Sec. 126.618  How does a HUBZone SBC's participation in a Mentor-
Protege relationship affect its participation in the HUBZone Program?

    (a) Qualified HUBZone SBCs may enter into Mentor-Protege 
relationships in connection with other Federal programs, provided that 
such relationships do not conflict with the underlying HUBZone 
requirements.
    (b) For purposes of determining whether an applicant to the HUBZone 
Program or a HUBZone SBC qualifies as small under part 121 of this 
chapter, SBA will not find affiliation between the applicant or HUBZone 
SBC and the firm that is its mentor in a Federally-approved mentor-
protege relationship on the basis of the mentor-protege agreement.
    (c)(1) A qualified HUBZone SBC that is a prime contractor on a 
HUBZone contract may team with and subcontract work to its mentor.
    (i) The HUBZone SBC must meet the applicable performance of work 
requirement set forth in Sec. 125.6(b) of this chapter.
    (ii) SBA may find affiliation between a prime HUBZone contractor 
and its mentor subcontractor where the mentor will perform primary and 
vital requirements of the contract. See Sec. 121.103(f)(4) of this 
chapter.
    (2) A qualified HUBZone SBC may not joint venture with its mentor 
on a HUBZone contract unless the mentor is also a qualified HUBZone 
SBC.
    47. Revise Sec. 126.700 to read as follows:


Sec. 126.700  What are the performance of work requirements for HUBZone 
contracts?

    A prime contractor receiving an award as a HUBZone SBC must meet 
the performance of work requirements set forth in Sec. 125.6(b) of this 
chapter.
    48. Revise Sec. 126.702 to read as follows:


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

    SBA may change the required subcontracting percentage for a 
specific industry if the Administrator determines that such action is 
necessary to reflect conventional industry practices among SBCs that 
are below the numerical size standard for businesses in that industry 
group. The procedures for requesting changes in subcontracting 
percentages are set forth in Sec. 125.6 of this chapter.


Sec. 126.703  [Removed]

    49. Remove Sec. 126.703, ``What are the procedures for requesting 
changes in subcontracting percentages.''
    50. Revise Sec. 126.800(b) to read as follows:


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

* * * * *
    (b) For all other procurements. SBA, the CO, or any other 
interested party may protest the apparent successful offeror's 
qualified HUBZone SBC status.
    51. Revise paragraphs (a), (d)(2) and (e) of Sec. 126.801 to read 
as follows:


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

    (a) General. The protest procedures described in this part are 
separate from those governing size protests and appeals. All protests 
relating to whether a qualified HUBZone SBC is other than small for 
purposes of any Federal program are subject to part 121 of this chapter 
and must be filed in accordance with that part. If a protester protests 
both the size of the HUBZone SBC and whether the concern meets the 
HUBZone qualifying requirements set forth in Sec. 126.200, SBA will 
process protests concurrently, under the procedures set forth in part 
121 of this chapter and this part. SBA does review protest issues 
concerning the conduct or administration of a HUBZone contract.
* * * * *
    (d) Timeliness.
    (1) * * *
    (2) Any protest received after the time limits is untimely, unless 
it is from SBA or the CO.
* * * * *
    (e) Referral to SBA. The CO must forward to SBA any non-premature 
protest received, notwithstanding whether he or she believes it is 
sufficiently specific or timely. The CO must send the protests, along 
with a referral letter, to AA/HUB, U.S. Small Business Administration, 
409 3rd Street, SW., Washington, DC 20416. The CO's referral letter 
must include information pertaining to the solicitation that may be 
necessary for SBA to determine timeliness and standing, including: The 
solicitation number; the name, address, telephone number and facsimile 
number of the CO; the type of HUBZone contract at issue; if the 
procurement was conducted using full and open competition with a 
HUBZone price evaluation preference, and whether the protester's 
opportunity for award was affected by the preference; if the 
procurement was a HUBZone set-aside, whether the protester submitted an 
offer; whether the protested concern was the apparent successful 
offeror; whether the procurement was conducted using sealed bid or 
negotiated procedures; the bid opening date, if applicable; when the 
protest was submitted to the CO; and whether a contract has been 
awarded.
    52. Revise Sec. 126.803(d) to read as follows:


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

* * * * *
    (d) Effect of determination. The determination is effective 
immediately and is final unless overturned on appeal by the ADA/GC&BD, 
pursuant to Sec. 126.805. If SBA upholds the protest, SBA will 
decertify the concern.
    53. Revise paragraphs (a), (b), and (h) of Sec. 126.805 to read as 
follows:


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

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

[[Page 3844]]

may file appeals of protest determinations with the ADA/GC&BD.
    (b) Timeliness of appeal. The ADA/GC&BD must receive the appeal no 
later than five business days after the date of receipt of the protest 
determination. SBA will dismiss any appeal received after the five-day 
period.
* * * * *
    (h) Decision. The ADA/GC&BD will make a decision within five 
business days of receipt of the appeal, if practicable, and will base 
his or her decision only on the information and documentation in the 
protest record as supplemented by the appeal. SBA will provide a copy 
of the decision to the CO, the protestor, and the protested HUBZone 
SBC, consistent with law. The ADA/GC&BD's decision is the final agency 
decision.
    54. Revise paragraph (b) of Sec. 126.900 to read as follows:


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

* * * * *
    (b) Civil penalties. Persons or concerns are subject to civil 
penalties under the False Claims Act, 31 U.S.C. 3729-3733, and under 
the Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, and any 
other applicable laws.
* * * * *

    Dated: January 16, 2002.
Hector V. Barreto,
Administrator.
[FR Doc. 02-1834 Filed 1-25-02; 8:45 am]
BILLING CODE 8025-01-P