[Federal Register Volume 69, Number 87 (Wednesday, May 5, 2004)]
[Rules and Regulations]
[Pages 25262-25271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-9727]



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Part IV





Small Business Administration





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13 CFR Parts 121, 125, and 134



Small Business Size Regulations; Government Contracting Programs; Final 
Rule

  Federal Register / Vol. 69, No. 87 / Wednesday, May 5, 2004 / Rules 
and Regulations  

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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 125 and 134

RIN 3245-AF16


Small Business Size Regulations; Government Contracting Programs

AGENCY: Small Business Administration.

ACTION: Interim final rule with request for comments.

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SUMMARY: This interim final rule implements that section of the 
recently enacted Veterans Benefits Act of 2003 (VBA), which addresses 
procurement programs for small business concerns (SBCs) owned and 
controlled by service-disabled veterans. According to the interim final 
rule, a contracting officer may restrict competition for a requirement 
to service-disabled veteran-owned (SDVO) SBCs. The interim final rule 
defines the term service-disabled veterans, explains when competition 
may be restricted to SDVO SBCs, and establishes procedures for 
protesting the status of an SDVO SBC.

DATES: This rule is effective May 5, 2004. Comments must be received on 
or before July 6, 2004.

ADDRESSES: You may submit comments, identified by the RIN number, by 
any of the following methods: through the Federal rulemaking portal at 
http://www.regulations.gov (follow the instructions for submitting 
comments); through e-mail at [email protected] (include RIN number 
in the subject line of the message); or by mail to Dean Koppel, 
Assistant Administrator, Office of Policy and Research, 409 3rd Street, 
SW., Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Dean Koppel, Assistant Administrator, 
Office of Policy and Research at (202) 205-7322 or at 
[email protected].

SUPPLEMENTARY INFORMATION: On December 16, 2003, the VBA was enacted, 
Public Law 108-183. Section 308 of that law amended the Small Business 
Act to establish a procurement program for SBCs owned and controlled by 
service-disabled veterans. This procurement program provides that 
contracting officers may award a sole source or set-aside contract to 
SDVO SBCs, if certain conditions are met. The Veterans Benefits Act of 
2003 also provides that the U.S. Small Business Administration (SBA) 
may verify the eligibility of any SDVO SBC.
    The SBA is issuing regulations to implement this procurement 
program for service-disabled veterans. As discussed below, the SBA has 
determined that it is necessary to issue the regulations as interim 
final and effective the same day it is published in the Federal 
Register. Although the SBA is issuing this rule as interim final with 
an immediate effective date, the Agency is seeking public comment 
concerning ways that the SBA can enhance this program for service-
disabled veterans.

I. Justification for Publication as Interim Final Status Rule

    In general, SBA publishes a rule for public comment before issuing 
a final rule, in accordance with the Administrative Procedure Act and 
SBA regulations. 5 U.S.C. 553 and 13 CFR 101.108. The Administrative 
Procedure Act provides an exception to this standard rulemaking 
process, however, where an agency finds good cause to adopt a rule 
without prior public participation. 5 U.S.C. 553(b)(3)(B). The good 
cause requirement is satisfied when prior public participation is 
impracticable, unnecessary, or contrary to the public interest. Under 
such circumstances, an agency may publish an interim final rule without 
soliciting public comment.
    In enacting the good cause exception to standard rulemaking 
procedures, Congress recognized that emergency situations arise where 
an agency must issue a rule without public participation. In this 
present case, the Agency notes that this procurement program for 
service-disabled veterans became effective upon enactment of the 
Veterans Benefits Act of 2003. Therefore, although contracting 
activities are required to abide by the set-aside requirements of this 
procurement program for service-disabled veterans, regulations are 
needed to implement the program and provide actual guidance. The SBA 
receives several telephone calls daily from contracting officials 
stating that they intend to set-aside requirements for service-disabled 
veterans and seeking guidance and clarification of this program. 
Consequently, the SBA believes it is necessary to implement this rule 
as quickly as possible.
    In addition, the Federal Acquisition Regulations (FAR) currently 
provides a definition for service-disabled veteran-owned small business 
concern. As a result, there are many business concerns that are 
representing themselves as SDVO SBCs to COs. However, the FAR does not 
provide a mechanism to check the status of these representations. This 
has become a critical issue with the enactment of the VBA because COs 
may now award sole source and set-aside contracts to business concerns 
that represent themselves as SDVO SBCs. The SBA's regulations provide 
for a mechanism to check SDVO SBC status through protests and appeals. 
Therefore, it is urgent that the SBA issue this regulation as interim 
final.
    Finally, the purpose of this procurement program is to assist 
agencies in achieving the statutorily mandated 3% government-wide goal 
for procurement from service-disabled veteran-owned SBCs. When drafting 
the Veterans Benefits Act of 2003, Congress found that agencies were 
falling far short of reaching this goal. Consequently, the legislative 
history specifically states that Congress urges the SBA and the Office 
of Federal Procurement Policy to expeditiously and transparently 
implement this program.
    Accordingly, SBA finds that good cause exists to publish this rule 
as an interim final rule in light of the urgent need to establish 
procedures for determining when a business concern is a SDVO SBC, 
provide guidance to CO's on when and how to issue a sole source or set-
aside to a SDVO SBC, and provide a mechanism to protect such status. 
Advance solicitation of comments for this rulemaking would be 
impracticable and contrary to the public interest, as it would delay 
the delivery of critical assistance to the Federal procurement 
community by a minimum of three to six months. Any such delay would be 
extremely prejudicial to SDVO SBCs. It is likely that CO's would not 
offer a procurement as a sole source or set-aside for SDVO SBCs despite 
the fact the statutory requirement is met, or that an SDVO SBC award 
would be made to a concern that is not qualified for the award, before 
a rule could be promulgated under standard notice and comment 
rulemaking procedures.
    Although this rule is being published as an interim final rule, 
comments are hereby solicited from interested members of the public. 
SBA may then consider these comments in making any necessary revisions 
to these regulations.

II. Justification for Immediate Effective Date of Interim Final Rule

    The APA requires that ``publication or service of a substantive 
rule shall be made not less than 30 days before its effective date, 
except * * * as otherwise provided by the agency for good cause found 
and published with the rule.'' 5 U.S.C. Sec.  553(d)(3). SBA finds that 
good cause exists to make this final rule effective the same day it is 
published in the Federal Register.
    The purpose of the APA provision is to provide interested and 
affected members of the public sufficient time to adjust their behavior 
before the rule

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takes effect. For the reasons set forth above in I, Justification of 
Publication of Interim Final Status Rule, SBA finds that good cause 
exists for making this interim final rule effective immediately, 
instead of observing the 30-day period between publication and 
effective date.
    SBA also believes, based on its contacts with interested members of 
the public, that there is strong interest in immediate implementation 
of this rule. SBA is aware of many procuring activities and business 
concerns that will be assisted by the immediate adoption of this rule.

Section-by-Section Analysis

    In Sec.  121.401, SBA is amending the size regulations to state 
that the Service-Disabled Veteran-Owned Small Business Concern Program 
(SDVO Program) is subject to size determinations. SBA is also amending 
the size regulations, at Sec.  121.1001, to provide that the following 
may protest the size of a SBC in connection with a particular SDVO 
Program procurement: any offeror on an SDVO Program set-aside; the CO; 
the SBA Government Contracting Area Director; and the Associate 
Administrator for Government Contracting.
    The SBA is also amending Sec.  125.6 to provide that SDVO SBCs 
awarded a contract as a result of a set-aside must meet certain 
limitations on subcontracting requirements. These subcontracting 
limitations are required for all SBCs awarded a contract as a result of 
their SBC status. For purposes of the SDVO SBC Program, the regulation 
allows the SDVO SBC prime contractor to utilize other SDVO SBCs to help 
it meet these subcontracting limitations.
    SBA has added a new subsection 125.8 to address the SDVO Program. 
Section 125.8 sets forth the definitions important to the program, 
including several that were defined by statute. For example, the 
Veterans Benefits Act of 2003 defines the term ``contracting officer'' 
while the Small Business Act defines the terms ``veteran,'' ``service-
disabled veteran'' and ``small business owned and controlled by 
service-disabled veterans.'' For those terms, SBA merely reiterated the 
definition set forth in statute.
    The Small Business Act defines the term veteran by referencing 38 
U.S.C. 101, and therefore these regulations reference that statute as 
well. Section 101 of Title 38 defines the term ``veteran'' to mean a 
person who served in the active military, naval, or air service, and 
who was discharged or released under conditions other than 
dishonorable. The Small Business Act also defines the term ``service-
disabled veteran'' as one with a disability that is service-connected, 
as defined by 38 U.S.C. 101. Section 101 of Title 38 defines the term 
``service-connected disability'' as a disability that was incurred or 
aggravated in line of duty in the active military, naval, or air 
service.
    The Small Business Act further defines the term ``owned and 
controlled by service-disabled veterans'' to mean: (1) A SBC that is 
not less than 51% owned by one or more service-disabled veterans; and 
(2) the management and daily business operations of which are 
controlled by one or more service-disabled veterans or, in the case of 
a veteran with permanent and severe disability, the spouse or permanent 
caregiver of such a veteran. Neither the Small Business Act nor the 
Veterans Benefits Act of 2003 defined the terms referenced in that 
definition, such as ``permanent and severe disability,'' ``spouse,'' or 
``permanent caregiver.'' When possible, such as for the definition of 
``spouse,'' SBA utilized the definition set forth in 38 U.S.C. 101, 
which sets forth definitions necessary for statutory programs for 
Veteran's Benefits.
    For the term ``permanent and severe disability,'' SBA referred to 
the regulations promulgated by the U.S. Department of Veteran's Affairs 
(VA) for guidance. The VA makes determination on permanent and 
``total'' disability for purposes of determining pension benefits and 
other compensation for veterans. When discussing ``total'' disability, 
the VA's regulations often refer to a severe disability. Accordingly, 
SBA believes that it should rely on these determinations of permanent 
and total disability by the VA to determine whether a veteran is 
permanently and severely disabled for purposes of this procurement 
program.
    With respect to the definition of the term ``permanent caregiver,'' 
SBA reviewed several definitions for caregiver or a similar term set 
forth in the VA's regulations and state sources. In addition, the SBA 
reviewed the purpose and intent of this reference in the Veterans 
Benefits Act of 2003. For purposes of a SDVO SBC, a permanent caregiver 
will be the person managing the business concern for the service-
disabled veterans with a permanent and severe disability. Therefore, 
the SBA believes that a permanent caregiver can be the spouse, or an 
individual 18 years of age or older, who is legally designated, in 
writing, to undertake responsibility for managing the well-being of the 
service-disabled veteran. Although the permanent care-giver may reside 
in the same household as the service-disabled veteran, he or she is not 
required to do so. In the case of a service-disabled veteran lacking 
legal capacity, the permanent caregiver shall be a parent, guardian, or 
person having legal custody.
    SBA has also set forth guidance on the ownership criteria of a 
service-disabled veteran-owned SBC. In Sec.  125.9, SBA explains that 
ownership must be direct and that stock options are given present 
effect when they are held by non-service disabled veterans. This is 
consistent with SBA's other programs, including the 8(a) Business 
Development Program.
    In Sec.  125.10, the SBA sets forth the criteria for determining 
who controls a service-disabled veteran-owned SBC. The regulation 
provides that the management and daily business operations of the 
concern must be controlled by a service-disabled veteran (or in the 
case of a veteran with permanent and severe disability, the spouse or 
permanent caregiver). This means that both the long-term decision 
making and the day-to-day management and administration of the business 
operations must be conducted by one or more service-disabled veterans 
(or in the case of a veteran with permanent and severe disability, the 
spouse or permanent caregiver). SBA utilizes the same criteria for its 
8(a) BD Program and SBA believes that this definition has worked well 
in determining who controls a business concern for purposes of 
eligibility into the 8(a) BD Program. In addition, SBA and its Office 
of Hearings and Appeals (OHA) has established policy on this criteria 
that will be helpful for this program.
    SBA has added Sec.  125.12 to address whether an SDVO SBC may have 
affiliates and Sec.  125.13 to address whether participants in SBA's 
other programs (such as the HUBZone or 8(a) BD Programs) may be SDVO 
SBCs. SBA has received several inquiries from the general public on 
these topics and therefore feels it is necessary to address them in the 
regulation. With Sec.  125.12, SBA explains that a concern may have 
affiliates so long as the aggregate size of the concern and all its 
affiliates is small as defined in part 121. With Sec.  125.13, SBA 
explains that participants in SBA's other programs may qualify as SDVO 
SBCs if they meet the eligibility requirements set forth in this 
regulation.
    These regulations also address contracting with SDVO SBCs. In Sec.  
125.14, SBC explains that service-disabled veteran-owned contracts are 
those awarded to an SDVO SBC via a sole source award or a set-aside 
based on competition restricted to SDVO SBCs. To be eligible to receive 
one of these contracts, Sec.  125.15 explains that a

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business concern must be small pursuant to the NAICS code assigned to 
the procurement and be an SDVO SBC.
    In addition, the regulations allow SDVO SBCs to joint venture with 
other SBCs for an SDVO contract so long as certain conditions are met. 
First, the venture partners must meet certain size requirements, 
similar to those for other programs and similar to those set forth in 
13 CFR 121.103(f), which sets forth exclusions from affiliation for 
certain joint ventures. In addition, SBA requires the joint venture to 
have a written agreement that specifically names the SDVO SBC as the 
managing venturer, states that not less than 51% of the net profits 
earned by the joint venture will be distributed to the SDVO SBC and 
specifies the responsibilities of each party with respect to the 
contract. These requirements ensure that the contract benefits will go 
to the SDVO SBC, since this is the purpose of the program.
    Section 125.15 also explains that an SDVO SBC that is a 
nonmanufacturer may submit an offer on a sole source or set-aside 
service-disabled veteran-owned contract if it meets the requirements of 
the non-manufacturer rule set forth in 13 CFR Sec.  121.406(b)(1). 
Section 121.406(b)(1) outlines the requirements all SBCs must meet to 
bid as a nonmanufacturer for a contract in which it receives some type 
of preference for its status as a SBC. These requirements are: (1) The 
SBC (together with its affiliates) cannot exceed 500 employees; (2) it 
is primarily engaged in the wholesale or retail trade and normally 
sells the items being supplied to the general public; and (3) it will 
supply the end items of a small business manufacturer or processor made 
in the United States or obtains a waiver of such requirements.
    Section 125.16 explains that status as an SDVO SBC does not 
guarantee receipt of a contract. The regulation states that SDVO SBCs 
must market their capabilities to appropriate procuring agencies in 
order to increase their prospects of having a procurement set-aside for 
SDVO SBCs. Likewise, Sec.  125.17 states that the contracting officer 
for the contracting activity makes the decision as to whether a 
contract opportunity should be set-aside for SDVO SBCs.
    The Veterans Benefits Act of 2003 specifically states that a 
contracting activity may not make a requirement available for an SDVO 
SBC if the activity would otherwise fulfill that requirement through 
award to Federal Prison Industries, Inc. or through the Javits-Wagner-
O'Day Act. Section 125.18 states the same as the statute.
    Section 125.19 addresses when a CO may set-aside a requirement for 
SDVO SBCs. This regulation provides that the CO should look at the 
8(a), HUBZone, and SDVO Program before considering setting-aside the 
requirement for SBCs. If the CO does decide to set-aside the 
requirement for SDVO SBCs, he must have a reasonable expectation that 
at least two responsible SDVO SBCs will submit offers and that award 
can be made at fair market price.
    Section 125.20 addresses when a CO may award a sole source contract 
to an SDVO SBC. The regulations, like the Veterans Benefits Act of 
2003, provides that a CO may award a sole source contract to an SDVO 
SBC when: (1) The anticipated award price of the contract, including 
options, will not exceed $5,000,000 for a requirement within the NAICS 
codes for manufacturing or $3,000,000 for a requirement within all 
other NAICS codes; (2) two or more SDVO SBCs are not likely to submit 
offers; (3) an SDVO SBC is a responsible contractor able to perform the 
contract; and (4) contract award can be made at a fair and reasonable 
price.
    The regulations provide, at Sec.  125.20, that CO's may set aside 
requirements at or below the simplified acquisition threshold for 
consideration among SDVO SBCs, using simplified acquisition procedures.
    The regulations also address protests for this program. Because 
SDVO SBCs will be attesting to their eligibility at the time of offer, 
and not through a certification process established by the SBA, it is 
important to have some mechanism to check eligibility for receipt of a 
contract issued as a sole source or set-aside for SDVO SBCs.
    Section 125.22 addresses who may protest the status of an SDVO SBC. 
This regulation, similar to those promulgated for SBA's certification 
programs, provides that for sole source procurements, SBA or the CO may 
protest the proposed awardee's status. For competitive set-asides, any 
interested party (any offeror, the SBA, or CO) may protest the apparent 
successful offeror's SDVO SBC status.
    Section 125.23 explains how one files an SDVO status protest. 
Protests relating to the concern's size must still be processed 
pursuant to 13 CFR part 121. Protests relating to the status of an SDVO 
will be processed by SBA's Associate Administrator for Government 
Contracting (AA/GC). The protest must be in writing, and set forth 
specific grounds for a protest. For negotiated acquisitions, the 
protest must be submitted by the close of business on the fifth 
business day after notification by the CO of the apparent successful 
offeror. For sealed bid acquisitions, an interested party must submit 
its protest by close of business on the fifth business day after bid 
opening.
    The regulations also require a referral letter from the CO, when 
submitting a protest to SBA. The referral letter will describe the 
procurement so that SBA has enough facts to determine whether the 
protest was submitted on time and by an interested party.
    When reviewing an SDVO protest, in cases where the protest is based 
on a service-connected disability or veteran status, the AA/GC will 
only consider a protest alleging that the owner or owners cannot 
provide documentation from the VA to show that they meet the definition 
of service-disabled veteran. When determining a protest related to an 
issue of ownership and control, the AA/GC will consider a protest only 
if the protestor presents credible evidence that the concern is not 51% 
owned and controlled by one or more service-disabled veterans. In the 
case of a veteran with a permanent and severe disability, the protestor 
must present credible evidence that the concern is not controlled by 
the veteran, spouse or permanent caregiver of such veteran or that the 
veteran does not have a permanent and severe disability.
    Upon receipt of the protest, SBA will notify the contracting 
officer and the protestor of the date SBA received the protest and 
whether SBA will process the protest or dismiss it. SBA will dismiss 
all protests that are determined to be premature, untimely, 
nonspecific, or based on non-protestable allegations. The protestor 
will have the right to appeal the dismissal to the SBA's OHA in 
accordance with 13 CFR part 134.
    The regulations further provide that if SBA determines the protest 
is timely, sufficiently specific and is based upon protestable 
allegations, it will notify the protested concern of the protest and of 
its right to submit information responding to the protest within five 
business days from the date of the notice, and forward a copy of the 
protest to the protested concern, with a copy to the contracting 
officer if one has not already been made available. The SBA will 
determine the SDVO SBC status of the protested concern within 15 
business days after receipt of the protest, or within any extension of 
that time which the contracting officer may grant SBA. However, if SBA 
does not issue its determination within the 15-day period, the 
contracting officer may award the contract, unless the contracting 
officer has granted SBA an extension.
    SBA will notify the contracting officer, the protestor, and the 
protested

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concern in writing of its determination. SBA's determination is 
effective immediately and is final unless overturned by OHA on appeal. 
If SBA sustains the protest, the concern may not submit another offer 
as an SDVO SBC on a future SDVO SBC procurement unless it overcomes the 
reasons for the protest (e.g., it meets the size standard under a 
different NAICS code or changes its ownership to satisfy the definition 
of an SDVO SBC set forth in Sec.  125.8).
    Finally, the regulations, at Sec.  125.29, address criminal and 
civil penalties for false representations with respect to SDVO status 
and eligibility for an SDVO contract. 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. 601-612).
    SBA has determined that this rule does not impose additional 
reporting or recordkeeping requirements under the Paperwork Reduction 
Act, 44 U.S.C., chapter 35.
    This action meets applicable standards set forth in Sec. Sec.  3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have retroactive or preemptive effect.
    This regulation will not have substantial direct effects on the 
States, on the relationship between the Federal government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Therefore, for the purposes of Executive 
Order 13132, the SBA determines that this rule has no federalism 
implications warranting preparation of a federalism assessment.
    Because this rule has been issued as interim final, there is no 
requirement for SBA to prepare an Initial Regulatory Flexibility Act 
analysis.
    OMB determined that this rule constitutes a ``significant 
regulatory action'' under Executive Order 12866. The SBA's Regulatory 
Impact Analysis is set forth below.

Regulatory Impact Analysis

A. General Considerations

1. Is There a Need for the Regulatory Actions?
    Yes. The SBA is statutorily authorized to administer the Service-
Disabled Veteran-Owned Small Business Concern (SDVO SBC) Program. The 
SDVO SBC Program is established pursuant to Public Law 108-183, the 
Veterans Benefits Act of 2003. Section 308 of that law amended the 
Small Business Act to establish a procurement program for SBCs owned 
and controlled by service-disabled veterans. This procurement program 
provides that contracting officers may award a sole source or set-aside 
contract to SDVO SBCs, if certain conditions are met. The VBA also 
provides that the SBA may verify the eligibility of any SDVO SBC.
    The SBA is issuing regulations to implement this procurement 
program for service-disabled veterans. The Agency notes that this 
procurement program for service-disabled veterans became effective upon 
enactment of the VBA. Therefore, although contracting activities are 
required to abide by the set aside requirements of this procurement 
program for service-disabled veterans, regulations are needed to 
implement the program and provide further guidance. The SBA receives 
several telephone calls daily from contracting officials seeking 
guidance and clarification for this program, stating that they intend 
to set aside requirements for service-disabled veterans. Consequently, 
the SBA believes that this regulation is necessary and that is must be 
implemented as quickly as possible.
    In addition, the purpose of this procurement program is to assist 
agencies in achieving the statutorily mandated 3% government-wide goal 
for procurement from SDVO SBCs. Congress found that agencies were 
falling far short of reaching this goal. Consequently, the legislative 
history specifically states that Congress urges the SBA and the Office 
of Federal Procurement Policy to expeditiously and transparently 
implement this program. Thus, the SBA must issue regulations 
implementing this program and must do so with an interim final rule.
2. Alternatives
    The SBA must implement this program through regulations. There are 
no practical alternatives to the implementation of this rule. Issuance 
of policy directives, for example, which are not generally published 
material like regulations, would hinder a SBC's access to this needed 
information.
    One alternative the SBA did consider for SDVO SBCs was proposing a 
certification program, similar to its 8(a) Business Development and 
HUBZone Programs. The statute implementing those programs discusses 
certain certification and program procedures. The SBA did not believe 
such a certification program was necessary to implement the VBA or was 
required by the VBA. Rather, the SDVO SBC will be able to self-
represent its status to the contracting activity as part of its offer. 
The contracting officer, the SBA, or other SDVO SBCs may protest this 
representation. If the protest is specific, the SBA will review the 
protested firm to determine whether it meets the program's 
requirements. A similar protest procedure is used for small business 
set-asides.

B. Potential Benefits and Costs of This Regulation

    SDVO SBCs will be the primary beneficiaries of this rule. 
Specifically, 15 U.S.C. 664(g), (502(b), Public Law 106-50, August 17, 
1999), established a 3 percent prime contracting and subcontracting 
goal for SDVO SBCs for Federal contracting. This statutory provision 
did not, however, establish a procurement mechanism to encourage 
contracting activities to award contracts to SDVO SBCs. On December 16, 
2003, Public Law 108-183, the VBA, was signed into law by the 
President. Section 308 of the VBA revised the Small Business Act to add 
new section 36 (15 U.S.C. 657f, a procurement program for SDVO SBCs. 
This program provides that contracting officers may award a sole source 
or set-aside contract to SDVO SBCs, if certain conditions are met.
    The SBA cannot accurately determine how many concerns will be 
competing for SDVO SBC contract awards because there is insufficient 
data on SDVO SBCs ready and able to perform on a government contract to 
support a reasonable estimate. However, a review of the data available 
from several different sources evidences the following.
    According to the Department of Veterans Affairs (DVA), there were 
2.5 million veterans with a service connected disability. (See http://www.va.gov/vetdata/demographics/index.htm). This does not mean that 
each of those veterans own a SBC or own a business concern that would 
qualify for the program. Thus, the SBA looked at data available from 
the state of California, the only state that has a similar SDVO SBC 
Program. (See http://www.ca.gov.) In Fiscal Year (FY) 2001, California 
awarded contracts to 832 Disabled Veteran Business Enterprises (DVBEs). 
In FY 2002, California awarded 2.8% of all State contract actions to 
973 DVBEs. The dollar value of contract awards for 2001 and 2002 was 
not readily available. In FY 2003, California awarded $142,670,222, or 
2.7% of all State contract actions to DVBEs. California requires DVBE 
Program participants to be a disabled veteran. SBA could not determine 
how many DVBEs were small business concerns. The SBA welcomes comments

[[Page 25266]]

discussing other State-level DVBE Programs.
    In addition, the SBA reviewed the 1992 Economic Census data 
reported under ``Characteristics of Business Owners.'' (See http://www.census.gov.) This data revealed that disabled veterans represented 
1.8% of all businesses, or approximately 310,557 businesses. The U.S. 
Bureau of the Census did not distinguish between small and large 
businesses or whether the veteran's disability status was based on a 
``service-connected'' disability as defined in 38 U.S.C. 101.
    Therefore, the SBA also reviewed information contained in the U.S. 
Department of Defense's Central Contractor Registration (CCR) database. 
There are 4,825 SDVO SBCs registered in CCR. This represents a small 
portion, 15.9% of the 30,434 veteran-owned businesses registered in 
CCR. Again, it is not known what percentage of the service-disabled 
veterans based their representation on the ``service-connected'' 
disability as defined by 38 U.S.C. 101.
    Finally, the SBA reviewed data from the Federal Procurement Data 
System. In FY 2001, there were 9,142 contract actions awarded to SDVO 
SBCs in the amount of $554,167,000. This represented .25% of all 
Federal contracts awarded. In FY 2002, 7,131 contract actions were 
awarded to SDVO SBCs in the amount of $298,901,000. This represented 
.13% of all Federal contracts awarded.
    Although there are over 2 million service-disabled veterans, only a 
small portion own small businesses. However, it is assumed that the 
establishment of a sole source and set-aside procurement vehicle for 
SDVO SBCs will attract more of these entities to the Federal 
procurement arena. In addition, according to the data set forth above, 
few contracts were awarded to SDVO SBCs in the Federal and State 
arenas. This number could increase as a result of the implementation of 
the VBA through this regulation. Nonetheless, based on the relatively 
small percentage of SDVO SBCs (2.4%) registered in the CCR (4,852), as 
compared to the total number of SBCs (201,742), the SBA believes that 
this rule will not have a major impact on SBCs in the Federal 
procurement arena.
    The SBA welcomes comments discussing the potential number of 
concerns that could become eligible under this rule. The SBA also 
specifically requests comments on the rule's impact on current small 
business participants.
    With respect to who will benefit from this regulation, the SBA 
notes that it believes currently eligible SDVO SBCs will benefit 
immediately since they are ready and able to tender an offer for a 
Federal procurement. In addition, Federal government agencies will also 
benefit becuase they will be able to tap the resources of SDVO SBCs 
using a sole source or set-aside mechanism and therefore have more 
opportunities to achieve their SDVO SBC goals. This rule will assist 
agencies in meeting their federally-mandated goal to award contracts to 
SDVO SBCs.
    SBA estimates that the Federal government will require no 
additional appropriations for agencies to implement this program. The 
awards would come from existing appropriated funds and current agency 
procurement needs and therefore there would be no increase in the cost 
to the Government. Further, while some agencies have actively sought 
SDVO SBCs, the SBA expects an increase in contract awards made to SDVO 
SBCs due to the enactment of Public Law 108-183 and the corresponding 
increase of contract opportunities made available through this 
contracting mechanism.
    SBA estimates that implementation of this regulation for SDVO SBCs 
will require no additional proposal costs under this program as 
compared to submitting proposals under any other small business set-
aside program. In addition, SDVO SBCs currently represent their status 
for purposes of data collecting in small business goaling in accordance 
with 15 U.S.C. 644(g).

List of Subjects

13 CFR Part 121

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

13 CFR Part 125

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

13 CFR Part 134

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


0
For the reasons set forth in the preamble, amend parts 121, 125, and 
134 of title 13 of the Code of Federal Regulations as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
1. The authority citation for 13 CFR part 121 is revised to read as 
follows:

    Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c) 662(5), 
and 657f; Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188; Pub. L. 
106-24, 113 Stat. 39.


Sec.  121.401  [Amended]

0
2. Amend Sec.  121.401 by adding the phrase ``the Service-Disabled 
Veteran-Owned Small Business Concern program'' after the phrase ``the 
HUBZone Program.''

0
3. Amend Sec.  121.1001 by adding paragraph (a)(8) to read as follows:


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

    (a)* * *
    (8) For SBA's Service Disabled Veteran-Owned Small Business Concern 
program, the following entities may protest in connection with a 
particular service-disabled veteran-owned procurement:
    (i) Any concern that submits an offer for a specific service-
disabled veteran-owned small business set-aside contract;
    (ii) The contracting officer;
    (iii) The SBA Government Contracting Area Director; and
    (iv) The Associate Administrator for Government Contracting, or 
designee.
* * * * *

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
4. The authority citation for 13 CFR part 125 is revised to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6), 637, 744, and 657f; 31 U.S.C. 
9701, 9702.


0
5. Amend Sec.  125.1 by revising the second sentence to read as 
follows:


Sec.  125.1  Programs included.

    * * * There are five main programs: Prime contracting assistance; 
Subcontracting assistance; Government property sales assistance; the 
Certificate of Competency program; and Service-Disabled Veteran-Owned 
Small Business Concern contracting assistance.* * *

0
6. In Sec.  125.6, redesignate paragraphs (b), (c), (d), (e), (f), and 
(g) as paragraphs (c), (d), (e), (f), (g), and (h), respectively, and 
add new paragraph (b) to read as follows:


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

* * * * *
    (b) An SDVO SBC prime contractor can subcontract part of an SDVO 
contract (as defined in Sec.  125.15) provided:
    (1) In the case of a contract for services (except construction), 
the SDVO SBC spends at least 50% of the cost of the contract 
performance incurred for personnel on the concern's

[[Page 25267]]

employees or on the employees of other SDVO SBCs;
    (2) In the case of a contract for general construction, the SDVO 
SBC spends at least 15% of the cost of contract performance incurred 
for personnel on the concern's employees or the employees of other SDVO 
SBCs;
    (3) In the case of a contract for construction by special trade 
contractors, the SDVO SBC spends at least 25% of the cost of contract 
performance incurred for personnel on the concern's employees or the 
employees of other SDVO SBCs; and
    (4) In the case of a contract for procurement of supplies or 
products (other than procurement from a non-manufacturer in such 
supplies or products), at least 50% of the cost of manufacturing the 
supplies or products (not including the costs of materials), will be 
performed by the SDVO SBC prime contractor or other SDVO SBCs.
* * * * *

0
7. Add Subpart A, consisting of Sec.  125.8, to read as follows:

Subpart A--Definitions for the Service-Disabled Veteran-Owned Small 
Business Concern Program


Sec.  125.8  What definitions are important in the Service-Disabled 
Veteran-Owned (SDVO) Small Business Concern (SBC) Program?

    (a) Contracting Officer has the meaning given such term in section 
27(f)(5) of the Office of Federal Procurement Policy Act (41 U.S.C. 
423(f)(5)).
    (b) Interested Party means the contracting activity's contracting 
officer, the SBA or any concern that submits an offer for a specific 
SDVO contract.
    (c) Permanent caregiver is the spouse, or an individual, 18 years 
of age or older, who is legally designated, in writing, to undertake 
responsibility for managing the well-being of the service-disabled 
veteran, to include housing, health and safety. A permanent care-giver 
may, but does not need to, reside in the same household as the service-
disabled veteran. In the case of a service-disabled veteran lacking 
legal capacity, the permanent caregiver shall be a parent, guardian, or 
person having legal custody. There may be no more than one ``permanent 
caregiver'' per service-disabled veteran.
    (d) Service-Disabled Veteran with a Permanent and Severe Disability 
means a veteran with a service-connected disability that has been 
determined by the U.S. Department of Veterans Affairs to have a 
permanent and total disability for purposes of receiving disability 
compensation or a disability pension.
    (e) Service-Connected has the meaning given that term in section 
101(16) of Title 38, United States Code.
    (f) Service-disabled veteran is a veteran with a disability that is 
service-connected.
    (g) SBC owned and controlled by service-disabled veterans (also 
known as a Service-Disabled Veteran-Owned SBC) is a concern--
    (1) Not less than 51% of which is owned by one or more service-
disabled veterans or, in the case of any publicly owned business, not 
less than 51% of the stock of which is owned by one or more service-
disabled veterans;
    (2) The management and daily business operations of which are 
controlled by one or more service-disabled veterans or, in the case of 
a service-disabled veteran with permanent and severe disability, the 
spouse or permanent caregiver of such veteran; and
    (3) That is small as defined by Sec.  125.11.
    (h) Spouse has the meaning given the term in section 101(16) of 
Title 38, United States Code.
    (i) Veteran has the meaning given the term in section 101(2) of 
Title 38, United States Code.

0
8. Add subpart B, consisting of Sec. Sec.  125.9 through 125.13, to 
read as follows:

Subpart B--Eligibility Requirements for the SDVO SBC Program

Sec.
125.9 Who does SBA consider to own an SDVO SBC?
125.10 Who does SBA consider to control an SDVO SBC?
125.11 What size standards apply to SDVO SBCs?
125.12 May an SDVO SBC have affiliates?
125.13 May 8(a) Program participants, HUBZone SBCs, Small and 
Disadvantaged Businesses, Very Small Businesses, or Women-Owned 
Small Businesses qualify as SDVO SBCs?


Sec.  125.9  Who does SBA consider to own an SDVO SBC?

    A concern must be at least 51% unconditionally and directly owned 
by one or more service-disabled veterans. More specifically:
    (a) Ownership must be direct. Ownership by one or more service 
disabled veterans must be direct ownership. A concern owned principally 
by another business entity that is in turn owned and controlled by one 
or more service-disabled veterans does not meet this requirement. 
Ownership by a trust, such as a living trust, may be treated as the 
functional equivalent of ownership by service-disabled veterans where 
the trust is revocable, and service-disabled veterans are the grantors, 
trustees, and the current beneficiaries of the trust.
    (b) Ownership of a partnership. In the case of a concern which is a 
partnership, at least 51% of every class of partnership interest must 
be unconditionally owned by one or more service-disabled veterans. The 
ownership must be reflected in the concern's partnership agreement.
    (c) Ownership of a limited liability company. In the case of a 
concern which is a limited liability company, at least 51% of each 
class of member interest must be unconditionally owned by one or more 
service-disabled veterans.
    (d) Ownership of a corporation. In the case of a concern which is a 
corporation, at least 51% of the aggregate of all stock outstanding and 
at least 51% of each class of voting stock outstanding must be 
unconditionally owned by one or more service-disabled veterans.
    (e) Stock options' effect on ownership. In determining 
unconditional ownership, SBA will disregard any unexercised stock 
options or similar agreements held by service-disabled veterans. 
However, any unexercised stock options or similar agreements (including 
rights to convert non-voting stock or debentures into voting stock) 
held by non-service-disabled veterans sill be treated as exercised, 
except for any ownership interests which are held by investment 
companies licensed under the Small Business Investment Act of 1958.
    (f) Change of ownership. A concern may change its ownership or 
business structure so long as one or more service-disabled veterans own 
and control it after the change.


Sec.  125.10  Who does SBA consider to control an SDVO SBC?

    (a) General. To be an eligible SDVO SBC, the management and daily 
business operations of the concern must be controlled by one or more 
service-disabled veterans (or in the case of a veteran with permanent 
and severe disability, the spouse or permanent caregiver of such 
veteran). Control by one or more service-disabled veterans means that 
both the long-term decisions making and the day-to-day management and 
administration of the business operations must be conducted by one or 
more service-disabled veterans (or in the case of a veteran with 
permanent and severe disability, the spouse or permanent caregiver of 
such veteran).
    (b) Managerial position and experience. A service-disabled veteran 
(or in the case of a service-disabled

[[Page 25268]]

veteran with permanent and severe disability, the spouse or permanent 
caregiver of such veteran) must hold the highest officer position in 
the concern (usually President or Chief Executive Officer) and must 
have managerial experience of the extent and complexity needed to run 
the concern. The service-disabled veteran manager (or in the case of a 
veteran with permanent and severe disability, the spouse or permanent 
caregiver of such veteran) need not have the technical expertise or 
possess the required license to be found to control the concern if the 
service-disabled veteran can demonstrate that he or she has ultimate 
managerial and supervisory control over those who possess the required 
licenses or technical expertise.
    (c) Control over a partnership. In the case of a partnership, one 
or more service-disabled veterans (or in the case of a veteran with 
permanent and severe disability, the spouse or permanent caregiver of 
such veteran) must serve as general partners, with control over all 
partnership decisions.
    (d) Control over a limited liability company. In the case of a 
limited liability company, one or more service-disabled veterans (or in 
the case of a veteran with permanent or severe disability, the spouse 
or permanent caregiver of such veteran) must serve as managing members, 
with control over all decisions of the limited liability company.
    (e) Control over a corporation. One or more service-disabled 
veterans (or in the case of a veteran with permanent and severe 
disability, the spouse or permanent caregiver of such veteran) must 
control the Board of Directors of the concern. Service-disabled 
veterans are considered to control the Board of Directors when either:
    (1) One of more service-disabled veterans own at least 51% of all 
voting stock of the concern, are on the Board of Directors and have the 
percentage of voting stock necessary to overcome any super majority 
voting requirements; or
    (2) Service-disabled veterans comprise the majority of voting 
directors through actual numbers or, where permitted by state law, 
through weighted voting.


Sec.  125.11  What size standards apply to SDVO SBCs?

    (a) At time of contract offer, an SDVO SBC must be small within the 
size standard corresponding to the NAICS code assigned to the contract.
    (b) If the contracting officer is unable to verify that the SDVO 
SBC is small, the concern shall be referred to the responsible SBA 
Government Contracting Area Director for a formal size determination in 
accordance with part 121 of this chapter.


Sec.  125.12  May an SDVO SBC have affiliates?

    A concern may have affiliates provided that the aggregate size of 
the concern and all its affiliates is small as defined in part 121 of 
this chapter.


Sec.  125.13  May 8(a) Program participants, HUBZone SBCs, Small and 
Disadvantaged Businesses, Very Small Businesses, or Women-Owned Small 
Businesses qualify as SDVO SBCs?

    Yes, 8(a) Program participants, HUBZone SBCs, Small and 
Disadvantaged Businesses, Very Small Businesses, and Women-Owned SBCs, 
may also qualify as SDVO SBCs if they meet the requirements in this 
subject.

0
9. Add Subpart C, consisting of Sec. Sec.  125.14 through 125.23, to 
read as follows:

Subpart C--Contracting with SDVO SBCs

Sec.
125.14 What are SDVO contracts?
125.15 What requirements must an SDVO SBC meet to submit an offer on 
a contract?
125.16 Does SDVO SBC status gurantee receipt of a contract?
125.17 Who decides if a contract opportunity for SDVO competition 
exists?
125.18 What requirements are not available for SDVO contracts?
125.19 When may a contracting officer set-aside a procurement for 
SDVO SBCs?
125.20 When may a contracting officer award sole source contracts to 
SDVO SBCs?
125.21 Are there SDVO contracting opportunities at or below the 
simplified acquisition threshold?
125.22 May SBA appeal a contracting officer's decision not to 
reserve a procurement for award as an SDVO contract?
125.23 What is the process for such as appeal?


Sec.  125.14  What are SDVO contracts?

    SDVO contracts are contracts awarded to an SDVO SBC through a sole 
source award or a set-aside award based on competition restricted to 
SDVO SBCs.


Sec.  125.15  What requirements must an SDVO SBC meet to submit an 
offer on a contract?

    (a) Representation of SDVO SBC status. At the time an SDVO SBC 
submits its offer on a specific contract, it must represent to the 
contracting officer that:
    (1) It is an SDVO SBC;
    (2) It is small under the NAICS code assigned to the procurement;
    (3) It will meet the percentage of work requirements set forth in 
Sec.  125.6;
    (4) If applicable, it is an eligible joint venture; and
    (5) If applicable, it is an eligible nonmanufacturer.
    (b) Joint ventures. An SDVO SBC may enter into a joint venture 
agreement with one or more other SBCs for the purpose of performing an 
SDVO contract.
    (1) Size of concerns to an SDVO SBC joint venture.
    (i) A joint venture of at least one SDVO SBC and one or more other 
business concerns may submit an offer as a small business for a 
competitive SDVO SBC procurement so long as each concern is small under 
the size standard corresponding to the NAICS code assigned to the 
contract, provided:
    (A) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the NAICS 
code assigned to the contract; or
    (B) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million;
    (ii) For sole source and competitive SDVO SBC procurements that do 
not exceed the dollar levels identified in paragraphs (b)(1)(i)(A) and 
(B) of this section, an SDVO SBC entering into a joint venture 
agreement with another concern is considered to be affiliated for size 
purposes with the other concern with respect to performance of the SDVO 
contract. The combined annual receipts or employees of the concerns 
entering into the joint venture must meet the size standard for the 
NAICS code assigned to the SDVO contract.
    (2) Contents of joint venture agreement. Every joint venture 
agreement to perform an SDVO contract must contain a provision:
    (i) Setting forth the purpose of the joint venture;
    (ii) Designating an SDVO SBC as the managing venturer of the joint 
venture, and an employee of the managing venturer as the project 
manager responsible for performance of the SDVO contract;
    (iii) Stating that not less than 51% of the net profits earned by 
the joint venture will be distributed to the SDVO SBC(s);
    (iv) Specifying the responsibilities of the parties with regard to 
contract performance, source of labor and negotiation of the SDVO 
contract;
    (v) Obligating all parties to the joint venture to ensure 
performance of the SDVO contract and to complete performance despite 
the withdrawal of any member;
    (vi) Requiring the final original records be retained by the 
managing

[[Page 25269]]

venturer upon completion of the SDVO contract performed by the joint 
venture;
    (3) Performance of work. For any SDVO contract, the joint venture 
must perform the applicable percentage of work required by Sec.  
124.510 of this chapter.
    (4) Contract execution. The procuring activity will execute an SDVO 
contract in the name of the joint venture entity or SDVO SBC.
    (5) Inspection of records. SBA may inspect the records of the joint 
venture without notice at any time deemed necessary.
    (c) Non-manufacturers. An SDVO SBC which is a non-manufacturer may 
submit an offer on an SDVO contract for supplies if it meets the 
requirements of the non-manufacturer rule set forth at 
Sec. 121.406(b)(1) of this chapter.


Sec.  125.16  Does SDVO SBC status guarantee receipt of a contract?

    No, SDVO SBCs should market their capabilities to appropriate 
procuring agencies in order to increase their prospects of having a 
procurement set-aside for SDVO contract award.


Sec.  125.17  Who decides if a contract opportunity for SDVO 
competition exists?

    The contracting officer for the contracting activity decides if a 
contract opportunity for SDVO competition exists.


Sec.  125.18  What requirements are not available for SDVO contracts?

    A contracting activity may not make a requirement available for a 
SDVO contract if:
    (a) The contracting activity otherwise would fulfill that 
requirement through award to Federal Prison Industries, Inc. under 18 
U.S.C. 4124 or 4125, or to Javits-Wagner-O'Day Act participating non-
profit agencies for the blind and severely disabled, under 41 U.S.C. 46 
et seq., as amended; or
    (b) An 8(a) participant currently is performing that requirement or 
SBA has accepted that requirement for performance under the authority 
of the section 8(a) program, unless SBA has consented to release of the 
requirement from the section 8(a) program.


Sec.  125.19  When may a contracting officer set-aside a procurement 
for SDVO SBCs?

    (a) The contracting officer first must review a requirement to 
determine whether it is excluded from SDVO contracting pursuant to 
Sec.  125.18.
    (b) If the contracting officer determines that Sec.  125.18 does 
not apply, the contracting officer should consider setting aside the 
requirement for 8(a), HUBZone, or SDVO SBC participation before 
considering setting aside the requirement as a small business set-
aside.
    (c) If the CO decides to set-aside the requirement for competition 
restricted to SDVO SBCs, the CO must:
    (1) Have a reasonable expectation that at least two responsible 
SDVO SBCs will submit offers; and
    (2) Determine that award can be made at fair market price.


Sec.  125.20  When may a contracting officer award sole source 
contracts to SDVO SBCs?

    A contracting officer may award a sole source contract to an SDVO 
SBC only when the contracting officer determines that:
    (a) None of the provisions of Sec. Sec.  125.18 or 125.19 apply;
    (b) The anticipated award price of the contract, including options, 
will not exceed:
    (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;
    (c) A SDVO SBC is a responsible contractor able to perform the 
contract; and
    (d) Contract award can be made at a fair and reasonable price.


Sec.  125.21  Are there SDVO contracting opportunities at or below the 
simplified acquisition threshold?

    Yes, if the requirement is at or below the simplified acquisition 
threshold, the contracting officer may set-aside the requirement for 
consideration among SDVO SBCs using simplified acquisition procedures 
or may award a sole source contact to an SDVO SBC.


Sec.  125.22  May SBA appeal a contracting officer's decision not to 
reserve a procurement for award as an SDVO contract?

    The Administrator may appeal a contracting officer's decision not 
to make a particular requirement available for award as an SDVO sole 
source or a SDVO set-aside contact at or above the simplified 
acquisition threshold.


Sec.  125.23  What is the process for such an appeal?

    (a) Notice of appeal. When the contacting officer rejects a 
recommendation by SBA's Procurement Center Representative to make a 
requirement available for award as an SDVO contract, he or she must 
notify the Procurement Center Representative as soon as practicable. If 
the Administrator intends to appeal the decision, SBA must notify the 
contracting officer no later than five business days after receiving 
notice of the contracting officer's decision.
    (b) Suspension of action. Upon receipt of notice of SBA's intent to 
appeal, the contracting officer must suspend further action regarding 
the procurement until the Secretary of the department or head of the 
agency issues a written decision on the appeal, unless the Secretary of 
the department or head of the agency makes a written determination that 
urgent and compelling circumstances which significantly affect the 
interests of the United States compel award of the contract.
    (c) Deadline for appeal. Within 15 business days of SBA's 
notification to the 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.
    (d) Decision. The Secretary of the department or head of the agency 
must specify in writing the reasons for a denial of an appeal brought 
under this section.

0
10. Add Subpart D, consisting of Sec. Sec.  125.24 through 125.28, to 
read as follows:

Subpart D--Protests Concerning SDVO SBCs

Sec.
125.24 Who may protest the status of an SDVO SBC?
125.25 How does one file a service disabled veteran-owned status 
protest?
125.26 What are the grounds for filing an SDVO SBC protest?
125.27 How will SBA process an SDVO protest?
125.28 What are the procedures for appealing an SDVO status protest?


Sec.  125.24  Who may protest the status of an SDVO SBC?

    (a) For Sole Source Procurements. SBA or the contracting officer 
may protest the proposed awardee's service-disabled veteran status.
    (b) For Competitive Set-Asides. Any interested party may protest 
the apparent successful offeror's SDVO SBC status.


Sec.  125.25  How does one file a service disabled veteran-owned 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 an eligible SDVO SBC is a ``small'' business 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 SDVO SBC and whether the concern meets the SDVO 
SBC requirements set forth in Sec.  125.15, SBA will process each 
protest concurrently, under the procedures set forth in part 121 of 
this chapter and this

[[Page 25270]]

part. SBA does not review issues concerning the administration of an 
SDVO contract.
     (b) Format. Protests must be in writing and must specify all the 
grounds upon which the protest is based. A protest merely asserting 
that the protested concern is not an eligible SDVO SBC, without setting 
forth specific facts or allegations is insufficient.
     (c) Filing. An interested party, other than the contracting 
officer or SBA, must deliver their protests in person, by facsimile, by 
express delivery service, or by U.S. mail (postmarked within the 
applicable time period) to the contracting officer. The contracting 
officer or SBA must submit their written protest directly to the 
Associate Administrator for Government Contracting.
     (d) Timeliness. (1) For negotiated acquisitions, an interested 
party must submit its protest by close of business on the fifth 
business day after notification by the contracting officer of the 
apparent successful offeror.
     (2) For sealed bid acquisitions, an interested party must submit 
its protest by close of business on the fifth business day after bid 
opening.
     (3) Any protest submitted after the time limits is untimely, 
unless it is from SBA or the CO.
     (4) Any protest received prior to bid opening or notification of 
intended awardee, whichever applies, is premature.
     (e) Referral to SBA. The contracting officer must forward to SBA 
any nonpremature protest received, notwithstanding whether he or she 
believes it is sufficiently specific or timely. The contracting officer 
must send all protests, along with a referral letter, directly to the 
Associate Administrator for Government Contracting, U.S. Small Business 
Administration, 409 Third Street, SW., Washington, DC 20416 or by fax 
to (202) 205-6390, marked Attn: Service-Disabled Veteran Status 
Protest. 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; whether the 
contract was sole source or 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.


Sec.  125.26  What are the grounds for filing an SDVO SBC protest?

     (a) Status. In cases where the protest is based on a service-
connected disability or veteran status, the Associate Administrator for 
Government Contracting will only consider a protest alleging that the 
owner(s) cannot provide documentation from the U.S. Department of 
Veterans Affairs or U.S. Department of Defense to show that they meet 
the definition of service-disabled veteran set forth in Sec.  125.8; or
     (b) Ownership and control. In cases where the protest is based on 
ownership and control, the Associate Administrator for Government 
Contracting will consider a protest only if the protestor presents 
credible evidence that the concern is not 51% owned and controlled by 
one or more service-disabled veterans. In the case of a veteran with a 
permanent and severe disability, the protestor must present credible 
evidence that the concern is not controlled by the veteran, spouse or 
permanent caregiver of such veteran or that the veteran does not have a 
permanent and severe disability.


Sec.  125.27  How will SBA process an SDVO protest?

     (a) Notice of receipt of protest. Upon receipt of the protest, SBA 
will notify the contracting officer and the protestor of the date SBA 
received the protest and whether SBA will process the protest or 
dismiss it under paragraph (b) of this section.
     (b) Dismissal of protest. If SBA determines that the protest is 
premature, untimely, nonspecific, or is based on non-protestable 
allegations, SBA will dismiss the protest and will send the contracting 
officer and the protestor a notice of dismissal, citing the reason(s) 
for the dismissal. The dismissal notice must also advise the protestor 
of his/her right to appeal the dismissal to SBA's Office of Hearings 
and Appeals (OHA) in accordance with part 134 of this chapter.
     (c) Notice to protested concern. If SBA determines that the 
protest is timely, sufficiently specific and is based upon protestable 
allegations, SBA will:
    (1) Notify the protested concern of the protest and of its right to 
submit information responding to the protest within five business days 
from date of the notice; and
    (2) Forward a copy of the protest to the protested concern, with a 
copy to the contracting officer if one has not already been made 
available.
    (d) Time period for determination. SBA will determine the SDVO SBC 
status of the protested concern within 15 business days after receipt 
of the protest, or within any extension of that time which the 
contracting officer may grant. SBA. If SBA does not issue its 
determination within the 15-day period, the contracting officer may 
award the contract, unless the contracting officer has granted SBA an 
extension.
    (e) Notification of determination. SBA will notify the contracting 
officer, the protestor, and the protested concern in writing of its 
determination.
    (f) Effect of determination. SBA's determination is effective 
immediately and is final unless overturned by OHA on appeal. If SBA 
sustains the protest, the concern may not submit another offer as an 
SDVO SBC on a future SDVO SBC procurement unless it overcomes the 
reasons for the protest (e.g., it meets the size standard under a 
different NAICS code or changes its ownership to satisfy the definition 
of an SDVO SBC set forth in Sec.  125.8).


Sec.  125.28  What are the procedures for appealing an SDVO status 
protest?

    The protested concern, the protestor, or the contracting officer 
may file an appeal of an SDVO status protest determination with OHA in 
accordance with part 134 of this chapter.

0
11. Add Subpart E, consisting of Sec.  125.29, to read as follows:

Subpart E--Penalties and Retention of Records


Sec.  125.29  What penalties may be imposed under this part?

    (a) Suspension or debarment. The Agency debarring official may 
suspend or debar a person or concern pursuant to the procedures set 
forth in part 145 of this chapter. The contracting agency debarring 
official may debar or suspend a person or concern under the Federal 
Acquisition Regulation, 48 CFR Part 9, subpart 9.4.
    (b) Civil penalties. Persons or concerns are subject to severe 
civil penalties under the False Claims Act, 31 U.S.C. 3729-3733, and 
under the Program Fraud Civil Remedies Act, 331 U.S.C. 3801-3812, and 
any other applicable laws.
    (c) Criminal penalties. Persons or concerns are subject to severe 
criminal penalties for knowingly misrepresenting the SDVO status of a 
SBC in connection with procurement programs pursuant to section 16 of 
the Small Business Act, 15 U.S.C. 645, as amended; 18 U.S.C. 1001; and 
31 U.S.C. 3729-3733. Persons or concerns also are subject to criminal 
penalties for knowingly making false statements or misrepresentations 
to SBA

[[Page 25271]]

for the purpose of influencing any actions of SBA pursuant to section 
16(a) of the Small Business Act, 15 U.S.C. 645(a), as amended, 
including failure to correct ``continuing representations'' that are no 
longer true.

PART 134--RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF 
HEARINGS AND APPEALS

0
12. The authority citation for 13 CFR part 134 continues to read as 
follows:

    Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), 637(a), 
648(1), 656(i), and 687(c); E.O. 12549, 51 FR 6370, 3 CFR, 1986 
Comp., p. 189.


0
13. Amend Sec.  134.102 by redesignating paragraphs (q) and (r) as 
paragraphs (r) and (s) respectively and inserting a new paragraph (q) 
to read as follows:


Sec.  134.102  Jurisdiction of OHA.

* * * * *
    (g) Appeals from the Service-Disabled Veteran-owned SBC Program 
ownership and control status under part 125 of this chapter;
* * * * *

    Dated: March 26, 2004.
Hector V. Barreto,
Administrator.
[FR Doc. 04-9727 Filed 5-4-04; 8:45 am]
BILLING CODE 8025-01-M