[Federal Register Volume 69, Number 99 (Friday, May 21, 2004)]
[Rules and Regulations]
[Pages 29192-29209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10066]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, 125, and 134

RIN 3245-AE92


Small Business Size Regulations; Rules of Procedure Governing 
Cases Before the Office of Hearings and Appeals

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: This final rule amends the U.S. Small Business 
Administration's (SBA's) small business size regulations and the 
regulations applying to appeals of size determinations. In particular, 
this rule amends the definitions of affiliation and employees. It also 
makes procedural and technical changes to cover programs such as the 
SBA's HUBZone Program and the government-wide Small Disadvantaged 
Business Program. Further, the rule codifies several long-standing 
precedents of the SBA's Office of Hearings and Appeals and clarifies 
the jurisdiction of that office.

DATES: Effective Date: The rule is effective on June 21, 2004. 
Applicability Date: These amendments apply to all solicitations issued 
on or after the effective date, as well as all applications for 
financial or other assistance pending as of or submitted to the SBA on 
or after the effective date.

FOR FURTHER INFORMATION CONTACT: Gary Jackson, Assistant Administrator, 
Office of Size Standards, (202) 205-6464 or [email protected].

SUPPLEMENTARY INFORMATION: On November 22, 2002, the U.S. Small 
Business Administration (SBA or Agency) published in the Federal 
Register, 67 FR 70339, a proposed rule to amend its regulations 
governing size. The SBA's size regulations (13 CFR part 121) are used 
to determine eligibility for all SBA and Federal programs that require 
an entity to be a small business concern (SBC).
    In general, the SBA's size standards are based on either average 
annual receipts or number of employees, depending on the industry. When 
measuring a concern's size, the receipts or employees of affiliated 
concerns are included. This final rule modifies the definitions of 
affiliation and number of employees. In addition, the rule amends 13 
CFR part 134 and clarifies the jurisdiction of the SBA's Office of 
Hearings and Appeals (OHA).

Section-by-Section Analysis of Comments

    The SBA received two comments on its proposal to amend Sec.  
121.102 and add a new paragraph (d) that would recognize that there 
currently exists an internal Size Policy Board at the SBA responsible 
for making recommendations to the Administrator on size standards, 
other size eligibility requirements, and size protest procedures. One 
commenter concurred with the proposal to recognize the size policy 
board, while another commenter noted a typographical error in the 
paragraph numbering. Upon further deliberation, the SBA has decided not 
to adopt this rule as proposed. The SBA believes that the make-up and 
utilization of a Size Policy Board or other means to effect size policy 
is an internal matter, and need not be spelled out in the regulations. 
The SBA's current organizational structure ensures that size standard 
issues are considered by all appropriate officials in the Agency.
    The SBA also proposed amending the definition of affiliation set 
forth at Sec.  121.103. The proposed rule provided that control may be 
affirmative or negative, set forth an example of negative control, 
stated that control may be exercised indirectly through a third party, 
and stated that affiliation may be found under the totality of 
circumstances even though no single factor is sufficient to constitute 
affiliation. The SBA received several comments on these proposed 
changes, including comments supporting the incorporation of certain 
provisions previously contained in the regulations to provide clearer 
guidance regarding the application of the affiliation rules.
    The SBA received one comment regarding Sec.  121.103(a)(6), which 
provides that when determining the concern's size, the SBA counts the 
receipts, employees, or other measure of size of the concern whose size 
is at issue and all of its domestic and foreign affiliates, regardless 
of whether the affiliates are organized for profit. The commenter 
stated that this regulation, along with Sec.  121.104(d), does not 
explain how to aggregate and then average the receipts or employees of 
a concern's affiliates. The commenter explained that there are three 
different ways to calculate an average and with each, a different 
answer is obtained.
    In response to this comment, the SBA has amended Sec.  121.104 
(receipts) and Sec.  121.106 (employees) to explain how to

[[Page 29193]]

calculate receipts and employees of affiliates. The amended language 
describes the SBA's historical practice of separately calculating the 
average annual receipts and average number employees for the business 
concerns and each affiliate and then aggregating them together. For 
example, a business concern with an average of 75 employees is added to 
the 20 employee average of an affiliate to arrive at an average number 
of employees of 95. This is not a change in policy, but merely more 
fully explains current policy.
    The SBA also proposed amending Sec.  121.103(b)(2) to clarify the 
exception to affiliation for Indian tribes, Alaska Native Corporations 
(ANCs), Community Development Corporations (CDCs) and Native Hawaiian 
Organizations (NHOs). The proposed rule specified that the exception 
applies whether the tribe, ANC, CDC or NHO owns the concern whose size 
is at issue directly, or through another entity, which is wholly-owned 
by the tribe, ANC, CDC or NHO. The proposed rule also provided that 
affiliation could not be found among several tribally, ANC, CDC or NHO-
owned concerns based on common management.
    The SBA received several comments on this proposed rule. Most 
supported the exception to affiliation when the subsidiary is wholly-
owned by the tribe, ANC, CDC or NHO, or through another entity, because 
many tribes and ANCs have formed holding companies. However, some 
commenters requested a clarification of the meaning of wholly-owned 
because a literal interpretation would encompass any business that is 
100% owned by a tribe, ANC, CDC or NHO. These commenters believe that 
for purposes of the 8(a) Business Development (BD) Program, ``wholly-
owned'' refers only to holding companies. Thus, they recommended the 
SBA define the term ``holding company'' in its size regulations.
    The SBA disagrees with these latter comments. For purposes of the 
8(a) BD Program, ``wholly-owned'' does not refer only to holding 
companies. In addition, the SBA believes that the term ``wholly-owned'' 
is clear. It means 100% ownership.
    Several commenters supported the proposed exception to affiliation 
for tribes, ANCs, CDCs and NHOs based on common management. However, 
each recommended that the SBA also include common contractual 
relationships between the tribe or ANC and its subsidiaries as an 
exception to affiliation. These commenters argued that tribes and ANCs 
provide support services to their subsidiaries and that these services 
are inherently part of their ownership and management responsibilities. 
The commenters suggested that the final rule specify that ``common 
administrative services'' should be permissible.
    The SBA agrees with these comments. The Agency recognizes that it 
is common practice for tribes, ANCs, CDCs, and NHOs to own other 
concerns and for the tribal managers to manage these concerns. However, 
allowing the tribes, ANCs, CDCs, and NHOs to own, manage, and perform 
the common administrative services for the concern would create an 
unfair, competitive advantage unless fair and adequate consideration is 
given. Thus, the SBA amends its regulation to state that no affiliation 
is found as a result of the performance of common administrative 
services by a tribe, ANC, CDC, or NHO for one of its subsidiaries, so 
long as proper consideration is provided for these services.
    The SBA stated in the proposed rule that although SBA will not find 
affiliation between tribes, ANCs, CDCs and NHOs and the business 
concerns they owned and control because of common management and 
ownership, ``affiliation may be found for other reasons.'' One 
commenter believed this statement is too confusing and is unclear as to 
which ``other reasons'' the SBA is referring. In response to this 
comment, the SBA notes that its regulations set forth numerous criteria 
to determine when the SBA may deem two or more business concerns 
affiliates. For example, the SBA may find affiliation based upon the 
totality of circumstances, the newly organized concern rule, or shared 
common facilities.
    Numerous commenters believed that the SBA should make its size 
rules and 8(a) BD rules on affiliation with respect to Tribes and ANCs 
the same because the conflict between the two rules provides for 
inconsistent size determinations, which then have to be explained to 
contracting officers (COs) and potential teaming partners. Some 
commenters argued that the legislative history of the 8(a) BD Program 
supports this position. Others argued that the Alaskan Native Claims 
Settlement Act (ANCSA) entitles ANCs to all the benefits afforded 
disadvantaged and minority businesses, and this would apply to size 
matters, as well. The SBA disagrees with these comments. For either 
8(a) BD program entry or 8(a) contract award, there is specific 
statutory language that generally provides that in determining the size 
of a concern owned by a tribe or ANC the firm's size will be determined 
independently without regard to its affiliation with the tribe or ANC, 
or any other business entity owned by the tribe or ANC. Thus, while 
there is specific statutory authority for a total exclusion from 
affiliation between a concern and the tribe or ANC that owns it for 
purposes of the 8(a) BD program, there is no such similar authority 
outside the 8(a) BD program. Congress specifically limited the full 
exclusion only to the 8(a) BD program.
    In addition, the differing purposes of the SBA's size regulations 
and the regulations implementing the 8(a) BD program support distinct 
affiliation exclusions for 8(a) and non-8(a) contracting opportunities. 
The purpose of the SBA's size regulations in the context of Federal 
procurement is to provide a benefit to SBCs that will assist SBCs in 
receiving a fair proportion of Federal procurements. The purpose of the 
8(a) BD Program is to promote business development of SBCs owned and 
controlled by socially and economically disadvantaged individuals or 
qualified entities (tribes, ANCs, NHOs and CDCs). The 8(a) BD program 
is intended to assist such firms toward economic viability so that they 
can compete with all other businesses, including SBCs that are not 
owned and controlled by socially and economically disadvantaged 
individuals and qualified entities. The final rule remains as proposed.
    One commenter explained that this part of the proposed rule, if 
enacted as final, would reverse the result in Size Appeal of HCI 
Construction, Inc., SBA No. SIZ-4460 (2001). In HCI Construction, Inc., 
SBA No. SIZ-4460, HCI was a tribal holding company that owned several 
companies. SBA found that HCI's subsidiaries were all affiliated and 
the exclusion for affiliation for tribally-owned business concerns did 
not apply because HCI was not a tribe. OHA stated that the appeal 
allegations raised a policy question calling for a change in the size 
regulations and were not a justiciable issue.
    SBA concurs with the comment that the rule reverses the result in 
HCI Construction, Inc. That is SBA's intent. In the final rule, SBA has 
divided this section into two parts to make clear that business 
concerns owned by Indian tribes, ANCs, CDCs, and NHOs (including wholly 
owned entities of tribes, ANCs, CDCs and NHOs) are not considered to be 
affiliated with those entities or other concerns owned by those 
entities for size determination purposes; however, two or more concerns 
owned by such entities may be affiliated with each other on grounds 
other than common ownership,

[[Page 29194]]

common management, and common administrative services.
    The proposed rule added language to Sec.  121.103(b)(6) to clarify 
that the SBA may find affiliation with respect to approved mentor/
prot[eacute]g[eacute] relationships for reasons other than the mentor/
prot[eacute]g[eacute] relationship. One commenter thought the phrase 
``other reasons'' was unclear. In response, the SBA notes that Federal 
Mentor/Prot[eacute]g[eacute] Programs allow mentors to provide specific 
assistance to the prot[eacute]g[eacute] and therefore place limits upon 
the mentor/prot[eacute]g[eacute] relationship. The SBA's size 
regulations set forth numerous criteria to determine when the SBA will 
deem two or more business concerns affiliates. These criteria, if 
outside of the mentor/prot[eacute]g[eacute] relationship, are the 
``other reasons'' the SBA may determine that the two concerns engaged 
in a mentor/prot[eacute]g[eacute] relationship are affiliated. The SBA 
has implemented the final rule as proposed.
    Two commenters believed that there should be an exclusion from 
affiliation for joint ventures with mentors/prot[eacute]g[eacute]s and 
another SBC (for size and 8(a)). Specifically, these commenters 
recommend the SBA's size regulations state that a joint venture between 
an 8(a) prot[eacute]g[eacute], a mentor and one or more other SBCs is 
permissible without subjecting the mentor and the other SBCs to an 
affiliation determination. The SBA does not agree with this suggestion 
because it would not serve the purpose of Federal mentor/
prot[eacute]g[eacute] programs and it would create an unfair 
competitive advantage for such joint ventures.
    The SBA received one comment on its proposal to amend Sec.  
121.103(c), which provided that where a concern's voting stock is 
widely held and no single block of stock is large as compared with all 
other stock holdings, the SBA will deem the concern's Board and Chief 
Executive Officer (CEO) or President to have the power to control the 
concern in the absence of evidence to the contrary. In the absence of 
evidence to the contrary, the SBA will find control in such 
circumstances to rest with the Board of Directors and with the highest 
ranking officer of the concern (either its CEO or President) because 
control of the concern must rest somewhere. One commenter believed that 
the President/CEO should not be considered as controlling with the 
Board because the Board selects the President. The SBA notes that even 
when this is true, the President or CEO still exercises certain 
elements of control over the concern. Again, someone controls the 
concern. It is up to the concern itself or the relevant individuals 
themselves to provide evidence to the contrary that one or more 
individuals truly do not control the concern. SBA has implemented the 
final rule as proposed.
    Section 121.103(d) discusses affiliation arising under stock 
options, convertible securities, and agreements to merge. The SBA gives 
present effect to all such arrangements in determining affiliation and 
proposed several exceptions to this ``present effect'' rule, which stem 
from OHA rulings. One commenter acknowledged support for this proposed 
rule, while another noted that the last three lines would be clearer if 
they read ``conjectural, or unenforceable under state or Federal law, 
or where the probability of the transaction (or exercise of the rights) 
occurring is shown to be extremely remote, are not given present 
effect.'' The SBA concurs with this comment and the final regulation 
provides that options, convertible securities, and agreements that are 
subject to conditions precedent which are incapable of fulfillment, 
speculative, conjectural, unenforceable under state or Federal law, or 
where the probability of the transaction (or exercise of the rights) 
occurring is shown to be extremely remote, are not given present 
effect. The rule also makes clear that SBA will not give present effect 
to options, convertible securities or agreements in order to make a 
firm eligible as a small business. For example, a concern cannot claim 
that an individual owning 40% of the concern where that block is large 
as compared to all others should not be deemed to control the concern 
because an agreement exists to sell his 40% some unspecified time in 
the future.
    Section 121.103(e) covers control through common management. The 
SBA proposed clarifying that affiliation arises when an officer, 
director, managing member, or partner controls two concerns. One 
commenter stated that the regulation is not clear and questions whether 
it reads that if an officer owns 51% of two concerns then there is 
affiliation or if the two concerns have a director in common then they 
are affiliated. The regulation provides that the SBA will find 
affiliation based upon common management when a manager controls more 
than one business concern. Thus, if one person is the President of two 
concerns, the concerns are affiliated based upon common management. If 
one person is simply on the Board of two business concerns, but does 
not control either or both concerns, there would be no finding of 
affiliation based upon common management. The SBA has implemented the 
final rule as proposed.
    Others commented that the proposed regulation at Sec.  121.103(e), 
dealing with common management, is in conflict with the 8(a) preclusion 
from outside employment found in 13 CFR 124.109. The SBA does not 
believe there is a conflict. The purpose of the size regulations is to 
determine whether a concern is small and the purpose of the 8(a) BD 
regulations is to determine eligibility for a business development 
program. The requirement that the disadvantaged individual upon whom 
8(a) eligibility is based must devote full-time to his or her business 
is a requirement to ensure that the business development purposes of 
the 8(a) BD program are advanced. That provision has nothing to do with 
ownership in or membership on boards of directors of more than one 
concern for size affiliation purposes.
    In its proposed regulation, the SBA added Sec.  121.103(g), 
``Affiliation based on the newly organized concern rule.'' This 
proposed section provided that affiliation may arise where former 
officers, directors, stockholders, managing members (in a limited 
liability corporation) or key employees of one concern organize a new 
concern in the same or related industry and serve as its officers, 
directors, stockholders, managing members or key employees, and the 
first concern will provide contractual, financial, or other assistance 
to the new concern. One commenter recommended defining the term ``key 
employee'' and suggested reviewing the SBA's former size regulations as 
reference. This commenter also believed that the proposed rule's 
preamble discussion of post-1996 OHA decisions should note that the 
newly organized concern rule was used as a factor in the totality of 
circumstances. The SBA concurs with these comments and has defined 
``key employee'' to mean an employee who, because of his/her position 
in the concern, has a critical influence in or substantive control over 
the operations or management of the concern.
    One comment recommended noting in the preamble that with the return 
of the newly organized concern rule as an independent basis of 
affiliation, the totality of circumstances ground for affiliation would 
be rarely used. The SBA disagrees with this comment. The newly 
organized concern rule is one factor used when determining the totality 
of circumstances. The totality of circumstances can arise in many 
instances, aside from newly-organized concerns. The totality of 
circumstances is used when, absent a single factor sufficient by itself 
to constitute affiliation, connecting relationships between firms are 
so suggestive of dependence as to render them affiliated.

[[Page 29195]]

For example, the connecting relationships may include financial 
assistance, the sharing of office space and personnel, and a minority 
owner having the power to control a challenged firm.
    The SBA proposed to redesignate the joint venture regulation 
currently at Sec.  121.103(f) to Sec.  121.103(h), clarify it, and 
define its key terms using definitions similar to those set forth in 
parts 9 and 19 of the Federal Acquisition Regulation (FAR), title 48 of 
the Code of Federal Regulations. The SBA stated in its preamble to the 
proposed rule that it was considering adopting a rule that would allow 
two or more SBCs to form a joint venture relationship that would go 
beyond a specific contract and still afford them the exclusion from 
affiliation (if the other requirements are met). In other words, the 
joint venture could be an ongoing relationship that would allow the 
concerns to seek out several different larger contract opportunities 
and still get an exclusion from affiliation without requiring the 
entities to form a separate joint venture for each contract 
opportunity. The SBA received several comments on its proposed rule 
regarding joint ventures.
    One commenter expressed support for this clarification and the 
utilization of FAR definitions to have consistency with the FAR and the 
SBA's regulations, while others believed that the proposed definition 
is too narrow. Specifically, the latter commenters stated that joint 
ventures should not be limited to informal partnership structures but 
instead should include ongoing relationships, as well as corporations, 
limited liability corporations and other legally recognized types of 
entities. These commenters supported the SBA's proposal to permit two 
or more SBCs to form a joint venture that would last beyond a specific 
contract and still afford them the exclusion from affiliation because: 
(1) Many SBCs pursue multiple procurements together; (2) a single 
ongoing joint venture vehicle should facilitate faster approval by the 
SBA, if required; and (3) it will increase the ability of SBCs to 
pursue bundled contracts. However, commenters also believed that if the 
SBA does allow SBCs to enter into a joint venture for multiple 
contracts, then the Agency should limit the number of contracts or 
revenues or define at what point the two companies are affiliated. 
Otherwise, these joint ventures could create an unfair competitive 
advantage.
    In response to these comments, the SBA first notes that joint 
ventures are not limited to informal partnership structures. The final 
rule clarifies that joint ventures may be in the form of a new legal 
entity (e.g., a limited liability corporation) or may be informal 
arrangements so long as the agreement between the business concerns 
explains that it is a joint venture and meets the regulation's 
definition of joint venture. Second, the SBA believes that it is 
reasonable to allow SBCs to enter into a joint venture relationship on 
more than one contract and not be considered ``affiliates'' generally 
for purposes of size. However, the SBA also believes that it must limit 
the application of the exclusion from affiliations for SBCs that have 
engaged in a joint venture with each other to no more than three offers 
over a two year time frame. This limitation will allow SBCs to work 
together for larger procurements on more that one contract while still 
ensuring that the joint venture relationship remains limited in nature. 
In addition, the SBA notes that it limits the exclusion from 
affiliation for those joint ventures that carry out no more than three 
specific or limited-purpose business ventures. Thus, joint ventures 
which compete for limited-purpose contracts, such as encryption 
contracts, would be excluded from affiliation. However, joint ventures 
which compete for varying types of contracts, such as an encryption 
contract and then a computer supply contract or an engineering services 
contract, would not be excluded from an affiliation determination. The 
SBA has amended its regulation accordingly.
    In addition, several commenters argued that there was a conflict 
between the proposed size rule regarding joint ventures and the 8(a) BD 
regulations and stated that allowing joint ventures for multiple 
contracts contradicts the 8(a) BD regulations on the issue. 
Specifically, 13 CFR 124.513(a) allows a joint venture for the purpose 
of performing a specific contract. The SBA concurs with this comment 
and has amended that regulation so that it is consistent with Sec.  
121.103(h).
    One commenter believed that the SBA should amend the 8(a) BD 
regulations to conform to the size joint venture regulation such that 
there should no longer be a requirement for an 8(a) joint venture to 
have an 8(a) SBC as the managing venture, etc. The SBA notes that the 
purpose of the 8(a) BD joint venture requirements is to ensure 
compliance with the Small Business Act. With respect to the statutory 
requirement that all 8(a) BD contracts be performed by Participant 
concerns, the SBA interprets the acceptance of Participants into the 
program to extend to approved joint ventures in which the Participant 
is the lead joint venture partner. In other words, for purposes of 
contracting, admission into the program includes both a concern in its 
own capacity and any approved joint venture in which the concern is the 
lead entity. For contracting purposes, the SBA will consider the joint 
venture to be the Participant where the joint venture meets all 
applicable requirements and is approved by the SBA. Thus, the SBA 
believes that it is inappropriate and declines to change either the 
8(a) BD joint venture regulations or the size regulations to conform to 
each other.
    The proposed regulations also provided for an exception to 
affiliation for certain joint ventures so long as each concern is small 
under the size standard corresponding to the NAICS assigned to the 
contract. However, an existing regulation provides that for joint 
ventures between a protege and its approved mentor, the SBA will deem 
the joint venture small if the protege qualifies as small for the NAICS 
code assigned to the procurement. This is not a change in the SBA 
policy. Nonetheless, one commenter believes this existing regulation 
conflicts with the SBA's 8(a) BD regulations. The SBA concurs and notes 
that the proposed size regulation is consistent with the 8(a) BD 
regulations set forth in Sec.  124.513(b)(3), which addresses the size 
of concerns to an 8(a) joint venture, including a joint venture between 
a mentor prot[eacute]g[eacute]. However, as noted by the commenter, the 
proposed size regulation and Sec.  124.513(b)(3) are inconsistent with 
Sec.  124.520(d)(1), which also addresses the size of mentors and their 
8(a) BD prot[eacute]g[eacute]s that enter into a joint venture for a 
contract. The SBA has determined that Sec.  124.520(d)(1), which 
requires that both the mentor and prot[eacute]g[eacute] qualify as 
small for the procurement, contains an inadvertent error and has 
amended that regulation so that it is now consistent with Sec.  124.513 
and the size regulations.
    Finally, one commenter stated that if this is issued as final, then 
former Sec.  121.103(f)(3) becomes Sec.  121.103(h)(3) and references 
to the former regulation must be changed in Sec.  124.1002(f)(3) and 
Sec.  125.6(g). The SBA concurs and has made those changes accordingly. 
In addition, SBA notes that Sec.  125.6(g) states that when an offeror 
is exempt from affiliation under Sec.  121.103(h)(3) the performance of 
work requirement set forth in this section applies to the cooperative 
effort of the team or joint venture. This implies that all the 
exclusions under Sec.  121.103(f)(3) are included. However, one 
commenter believed that this would not apply when dealing with the 
Mentor/Prot[eacute]g[eacute]

[[Page 29196]]

Program. The SBA disagrees with this comment. Section 124.513(d) 
specifically provides that for any 8(a) contract, including those 
between mentors and prot[eacute]g[eacute]s, the joint venture must 
perform the applicable percentage of work required by Sec.  124.510, 
and the 8(a) partner to the joint venture must perform a significant 
portion of the contract.
    The SBA proposed, at Sec.  121.103(h)(4), that it would treat a 
contractor and its ostensible subcontractor as joint venturers and 
affiliates for size determination purposes and defined ostensible 
subcontractor. One commenter suggested separating out the ``ostensible 
subcontractor rule'' because the rule requires full affiliation 
treatment and forbids more favorable joint venture treatment. The same 
person also believed that the first sentence should omit the reference 
to ``joint venturers.'' This commenter also recommended refining the 
last sentence and suggested language. The SBA does not agree with this 
comment and does not believe it should separate the ostensible 
contractor rule from the joint venture paragraph. If the SBA considers 
the prime and its ostensible subcontractor as joint venturers, there 
may be instances where an exception to affiliation for the joint 
venture applies. For instance, if an ostensible subcontractor is an 
SBA-approved mentor to the prime contractor, the two firms would be 
treated as joint venturers, but the exclusion from affiliation would 
apply.
    The SBA proposed several changes to Sec.  121.104, which pertain to 
how the annual receipts of a concern are calculated. This modification 
would identify the items on a Federal tax return that are to be used to 
calculate receipts. Specifically, the SBA proposed substituting the 
phrases ``gross receipts,'' ``gross sales,'' and ``other income'' for 
``total income'' and ``gross income.'' This change in terminology 
reflects the items on a Federal tax return that comprise all or part of 
total or gross income. In addition, the SBA proposed a revision to the 
definition of receipts to include interest, dividends, rents and 
royalties received by partnerships, S corporations, and sole 
proprietorships. For corporations, income from these sources is 
included in total income as reported on IRS Form 1120. However, for 
partnerships and S corporations, these items are reported separately 
from total income on Schedule K of IRS Form 1165 and 1120S, 
respectively, and on Schedule C or S of IRS Form 1040 for sole 
proprietorships. Business entities such as limited liability 
corporations can elect the tax entity (partnership, corporation, or 
disregarded entity) that best suits their need.
    One commenter stated that the proposed definition of receipts is 
confusing because it does not specify with certainty all of the 
required items and the formulae the size specialist is to apply to 
them. For example, this commenter questioned whether gross receipts, 
gross sales, interest, dividends, royalties and other income are all to 
be combined and what other income is included. This commenter believes 
the proposed definition invites a challenged firm to present its own 
receipts theory; in contrast, the current definition operates 
mechanically from items easily found on tax returns.
    At this time, the SBA has decided not to amend that part of Sec.  
121.104(a)(1). Although the SBA received only one comment on this 
definition, the comment suggested that the proposed rule was less clear 
than the current one. Therefore, the SBA feels it is necessary to 
further research the definition of ``receipts'' before implementing an 
amendment. It remains SBA's intent that amounts received from any 
source are to be counted in determining a firm's annual receipts. As 
noted in the proposed rule, this includes amounts received from gross 
sales, interest, dividends, rents, royalties and other income.
    The SBA also proposed to expand its exclusion of receipts received 
by an agent for another. The proposed regulation set forth those 
agency-type business entities for which the SBA would exclude amounts 
collected for another, and permitted the SBA to exclude amounts for 
similar agent-type situations.
    One commenter expressed concern with opening up the list of 
industries where ``agents'' may exclude receipts received in trust for 
another. Currently, the SBA makes changes in the list only after a 
detailed study of a particular industry and a notice and comment 
rulemaking. This commenter recommended retaining the current approach 
because of its certainty, uniformity and ease of application and stated 
that the proposed rule would invite all kinds of pass-through theories. 
Another commenter supported the proposed amendments as they relate to 
insurance agencies and financial businesses and supported not counting 
pass-through income as part of receipts. One commenter stated that the 
SBA does not expressly define ``received in trust,'' ``claim of right'' 
and ``asset base'' and each has a different meaning in different 
industries and contexts. As a result, this commenter believes that the 
proposed language creates confusion with respect to pass-throughs. In 
addition, the commenter recommended definitions for these terms.
    The SBA has decided not to adopt the proposed language and to 
retain its current policy of specifically listing those agent-like 
industries in which certain receipts may be excluded in the calculation 
of average annual receipts. Although the SBA could develop definitions 
of certain terms and explain under what conditions it would allow such 
exclusions, they would remain general guidance in which businesses 
would not know with certainty how the SBA would ultimately decide. The 
proposed language could likely, and unnecessarily, invite challenges 
that raised specious ``pass-through'' theories that would have to be 
interpreted through a size protest or size appeal. The current policy 
of limiting these exclusions to specific industries represents a more 
workable and clearer policy for the public. Specific industries seeking 
to exclude ``pass-through'' amounts will continue to be required to 
address their concerns to SBA's Office of Size Standards. SBA will then 
continue to review such submissions and determine whether a further 
regulatory change regarding ``pass-through'' amounts is needed.
    Finally, the SBA proposed a clarification to the definition of 
receipts, which stated that the only exclusions from the definition are 
those specifically provided for in the section and that all other 
items, such as subcontractor costs, reimbursements for purchases a 
contractor makes at a customer's request, and employee-based costs such 
as payroll taxes, may not be excluded from receipts. The SBA received 
several comments on this proposal.
    One commenter believes that there is some confusion with respect to 
the phrase in current Sec.  121.104 ``if also excluded from gross or 
total income on a consolidated return filed with the IRS.'' The 
proposed regulation deleted this parenthetical. Prior to the amendment 
in 1996, the SBA excluded interaffiliate transactions from an applicant 
firm's receipts without regard to whether the firm and its affiliates 
filed a consolidated tax return. The commenter questioned whether there 
is a return to the SBA's previous policy (pre-1996) of allowing 
exclusions for interaffiliate transactions even in situations where the 
business concern has not filed a consolidated return or whether the SBA 
simply does not feel the parenthetical is necessary because other areas 
of the current or proposed regulation address the situation. The 
commenter stated that it supported the position that no consolidated 
tax return

[[Page 29197]]

need be filed for the exclusion to apply because a parent company that 
subcontracts to a subsidiary does not always file a consolidated tax 
return. In addition, some affiliates do not qualify for a consolidated 
return. This commenter believes that the SBA should exclude all 
interaffiliate transactions.
    In response to this comment, the SBA notes that it did intend to 
delete the parenthetical requiring the filing of a consolidated return 
in this instance. The SBA understands that not all firms file such 
consolidated returns, but that these amounts should nonetheless still 
be excluded. Whether a consolidated return is filed should have no 
bearing on whether properly documented interaffiliate transactions are 
excluded from annual receipts. To do otherwise would be to count such 
amounts twice.
    The SBA received one comment supporting its clarification of Sec.  
121.104(b)(3), which describes the formula the SBA uses to determine 
annual receipts when the concern has a ``short year'' (as defined by 
the IRS) as one of the years within the period of measurement. The SBA 
has issued the final rule as proposed.
    The SBA also proposed to revise Footnote 14 to the Table of Small 
Business Size Standards by NAICS Industry in Sec.  121.201. 
Specifically, the proposed revisions to Footnote 14(b) added language 
to clarify that a Federal procurement involving a range of 
environmental services to restore a contaminated environment does not 
need to include remedial action as one of three activities to be 
classified under this size standard. One commenter supported the 
proposed language because they were aware of a situation where a SBC 
lost a contract as a result of a CO's belief that the larger size 
standard for Environmental Remediation Services required remedial 
action. However, the commenter favors even stronger language clarifying 
the intent of the footnote and recommended revising the footnote to 
state that ``although the general purpose of the procurement need not 
necessarily include remedial actions, such purpose must be to restore. 
* * *'' The commenter also recommended creating a separate NAICS code 
for environmental remediation.
    The SBA agrees with this comment and has revised the proposed 
language as recommended to ensure a better understanding of the 
application of the environmental remediation services size standard. 
The recommended language by the commenter is consistent with the SBA's 
purpose of revising the footnote description. The U.S. Bureau of the 
Census (Census) evaluates requests to establish new industry categories 
under the NAICS. The SBA is beginning a review of the two size 
standards it has established under NAICS 562910. As part of that 
review, it will give consideration to advising Census on the issue, if 
appropriate.
    The SBA also received a comment suggesting the Agency revise the 
``note'' to sector 42 of the NAICS, which would incorrectly restate the 
nonmanufacturer rule of proposed 121.406. The note states the 
requirement that the concern have fewer than 500 employees but does not 
include the two other tests. The commenter therefore recommended that 
the SBA simply refer readers to Sec.  121.406. The SBA disagrees. The 
comment under Sector 42 of Sec.  121.201 sets forth the size standard 
for nonmanufacturers. The term ``nonmanufacturer'' is defined in Sec.  
121.406. There is no need to revise the comment in Sector 42 and refer 
readers to Sec.  121.406.
    The SBA has also added a note to Sector 92. Because of the emphasis 
on contracting out Government operational services, the SBA has 
experienced an increase in inquiries regarding the use of Public 
Administration NAICS codes to classify procurements and firms 
performing traditionally government-provided activities. The SBA has 
amended its Table of Size Standards to clarify that small business size 
standards are not assigned to codes under Public Administration, NAICS 
Sector 92. This sector consists of establishments in the public sector, 
i.e., Federal, state, and local government agencies. The SBA 
establishes small business size standards to assist business concerns 
in the private sector, NAICS Sectors 11 through 81. The SBA's 
definition of a business concern, found in Sec.  121.105, emphasizes 
that a business concern is an ``entity organized for profit * * * which 
makes a significant contribution to the U.S. economy through payment of 
taxes.'' By their nature, establishments in the Public Administration 
Sector are not organized for profit and are the administrators of 
public funding. Therefore, establishments in this sector do not meet 
the SBA's definition of a concern.
    In addition, the NAICS manual stresses that ``the administration of 
governmental programs is classified in Sector 92, Public 
Administration, while the operation of that same government program is 
classified elsewhere in NAICS based on the activities performed.'' 
Concerns performing operational services for the administration of a 
government program are classified under the NAICS code based on the 
activities performed. Similarly, procurements for these types of 
services are classified under the NAICS code that best describes the 
activities to be performed. For example, the administration (oversight, 
funding, and policy) of Veterans' programs falls under NAICS code 
923140, Administration of Veterans' Affairs. The operation and services 
for a Veterans Hospital are classified using NAICS codes under 
Subsector 622, Hospitals. The incorporation of this explanation on 
NAICS Sector 92 into the Table of Size Standards will assist Government 
officials in assigning the correct NAICS codes for various small 
business assistance programs.
    The SBA proposed an amendment to Sec.  121.401, covering what 
procurement programs are subject to size determinations, for plain 
language purposes. One commenter stated that the SBA should clarify 
that its regulations on size apply to all competitions in which SBCs 
are competing and not just set-asides. The SBA believes that this 
regulation is clear that the size rules apply to all procurement 
programs to which size status as a small business is required or 
advantageous, and that a further change is not needed. Another 
commenter stated that the regulations should address representations of 
small business size status in public announcements, the SBA's Pro-Net 
(which, effective January 2004, has been merged into the Central 
Contractor Registration and is referred to as the Dynamic Small 
Business Search), GSA Advantage, etc. The SBA does not have the 
jurisdiction to impose its size rules in public announcements. However, 
if a business concern improperly certifies its size in the Dynamic 
Small Business Search or GSA's Advantage, then the appropriate Federal 
agency may deem it a false statement. The SBA notes that the proposed 
rule would cover such instances. SBA had in fact removed firms from 
Pro-Net that it found to be other than small after performing a formal 
size determination.
    Another commenter suggested adding a clarifying sentence 
distinguishing size determinations from protests. In response to this 
comment, the SBA notes that Sec. Sec.  134.101 and 134.102 define size 
determination. In addition, part 134 also distinguishes appeals from 
size determinations. Therefore, it is unnecessary to repeat this 
information in part 121.
    Section Sec.  121.404 proposed additional exceptions to the general 
rule that the size status of a concern is determined as of the date the 
concern submits a

[[Page 29198]]

written self-certification that it is small to the procuring agency as 
part of its initial offer including price. Proposed Sec.  121.404(a)(1) 
provided that a concern applying to be certified as a Participant in 
the SBA's 8(a) BD Program, as a small disadvantaged business (SDB), or 
as a HUBZone SBC must qualify as small as of the date of certification 
by the SBA. When requiring an 8(a) BD, SDB, or HUBZone applicant to be 
small for ``its primary industry classification,'' the concern's 
primary industry classification is determined by looking solely at the 
applicant concern (i.e., by excluding its affiliates), but the size of 
the concern is determined by including the receipts or employees of all 
affiliates. One commenter stated that the ``exceptions for size 
determinations'' is confusing. The commenter asked the Agency to 
clarify that it determines size at the time of program admission for 
8(a), SDB and the HUBZone Programs, and at time of contract offer for a 
contract. While that has always been SBA's position, SBA has clarified 
this provision.
    In proposed Sec.  121.404(a)(3), the SBA addressed size status for 
purposes of compliance with the nonmanufacturer and ostensible 
subcontractor rule. Several commenters stated that the use of the 
phrase ``best and final offer'' does not take sealed bids into 
consideration and recommended using the phrase ``as of the date of a 
bid or offer which, if accepted by the Government, would result in a 
contract.'' Another commenter stated that ``best and final offer'' 
should be ``final proposal revision.'' The SBA concurs and has amended 
the regulation to state `` * * * as of the date of the final proposal 
revision for negotiated acquisitions and final bid for sealed 
bidding.'' The SBA notes that the phrase ``final proposal revision'' is 
utilized by the FAR now, rather than ``best and final offer.''
    The SBA received several comments regarding proposed Sec.  
121.404(g), which specified that a concern that qualified as a small 
business at the time it receives a contract is considered to be a small 
business throughout the life of that contract. The SBA noted in the 
preamble that it was considering a rule that would permit a procuring 
agency to treat a concern as a SBC for no more than 5 years from the 
date of award.
    Four commenters opposed any rule that would require an agency to 
consider a business small only for a period of 5 years. These 
commenters stated that agencies are contracting for longer periods and 
simply because a contract is lengthy does not mean the concern will 
grow large over the length of the contract. The length of the contract 
should not be a factor when the original competition was among SBCs.
    Meanwhile, several commenters expressed a different view and stated 
that they do not support allowing a concern to be considered small 
``throughout the life of the contract.'' These commenters support GSA's 
FAR deviation (GSA Acquisition Letter MV-03-01, dated February 21, 
2003, and Supplemental Number 1, dated February 11, 2004) that requires 
businesses to re-certify their size status each time an option for 
performance in a new contract period is exercised. For example, if the 
concern is found to be other than small, the agency should be forced to 
count those contract dollars as an award to an other than small 
business. This may force agencies to re-solicit for a small business 
set aside rather than exercise the contract option.
    SBA notes that the GSA FAR deviation applies only to awards under 
the Multiple Awards Schedule (MAS) Program. It has been the SBA's 
longstanding policy to allow a concern that qualified as a small 
business at the time it received a contract to be considered a small 
business throughout the life of that contract. At this time, the SBA is 
not addressing awards under the MAS program and is not changing its 
policy regarding other than multiple award contracts. As such, the SBA 
is implementing the rule as proposed. However, the SBA will continue to 
consider this issue, including all of the comments received and issues 
raised.
    The SBA also received comments requesting that the Agency address 
how to treat the acquisition of a SBC by another concern during 
contract performance, especially since the awardee may then no longer 
be small. This includes instances where a contract is novated. The 
commenter believed that the SBA's regulations should require re-
certification at the time the contract is novated pursuant to FAR 42.12 
and that the SBA should consider re-certifications for other 
acquisitions, such as the acquisition of stock. The SBA concurs with 
this comment and has amended the size regulations to address novation 
of contracts at Sec.  121.404(i), including novations that occur for 
multiple award schedule contracts. The amended regulations now state 
that the new entity must submit a written self-certification that it is 
small to the procuring agency so that the agency can count the award 
options, or orders issued pursuant to that contract, towards its small 
business goals.
    The SBA proposed amendments to Sec.  121.406, which, in general, 
address how a SBC qualifies to provide manufactured products under a 
small business set-aside or an 8(a) contract. One commenter recommended 
that the SBA add a paragraph clarifying that this rule and Sec.  125.6 
(limitations on subcontracting) do not apply to Sec.  8(d) 
subcontracting. The SBA concurs and has added a sentence clarifying 
this issue.
    Other commenters stated that they oppose the two-tiered size 
standard for nonmanufacturers--one for most procurements and another 
for procurements at or under the simplified acquisition threshold. 
These commenters believe that the two-tiered approach can result in 
confusion and suggest changing the regulation to provide that the rule 
does not have to be met if no bidder or offeror proposes to supply the 
end item of a small business manufacturer or processor. The commenters 
believe that this change would provide a preference for small business 
suppliers when no item manufactured by a small business is proposed. 
The SBA does not agree with this comment and notes that the 
nonmanufacturer rule is statutory and applies to all procurements above 
the simplified acquisition threshold unless the SBA grants a waiver. 
The SBA has promulgated the regulation as proposed.
    In Sec.  121.406(b)(1)(ii), the SBA proposed deleting the 
requirement that a nonmanufacturer must normally sell the items being 
supplied to the public. This rule was based on provisions of the Walsh-
Healey Public Contracts Act, which permitted Federal acquisitions of 
supplies only from manufacturers or ``regular dealers.'' One of the 
requirements for being a regular dealer was to sell items to the 
general public. These provisions of the Walsh-Healey Act were repealed 
by the Federal Acquisition and Streamlining Act of 1994. The SBA 
believes that requiring a firm to sell to the general public is overly 
restrictive. Several commenters supported this amendment. However, some 
believed the rule should be limited to the defined sector of the small 
business community engaged in reselling. The SBA does not agree with 
this last comment because if the SBA limits application of the rule to 
only ``resellers,'' it will not be helping SBCs.
    With proposed Sec.  121.406(b)(2), the SBA explained how a reseller 
can qualify as an eligible small business manufacturer. According to 
the proposed regulation, if a firm adds something to an item that the 
manufacturer of that existing item does not provide, the SBA will 
consider the firm to be the manufacturer of the ultimate end item 
(i.e., the item plus the

[[Page 29199]]

addition). The SBA received several comments on this proposed rule.
    Several commenters stated that the explanation to this proposed 
regulation is confusing and inconsistent. The regulation states that 
the test is whether the modifications can be performed by and are 
available from the manufacturer of the existing end item. One commenter 
believed the examples provided in the preamble to the proposed rule 
were inconsistent with this definition. In one example, a SBC is 
considered the manufacturer because the safety switch it adds to a saw 
is a feature that the saw's manufacturer does not make or provide. In a 
second example, a concern is not a manufacturer because the video card 
it adds is one that the computer manufacturer could have installed. The 
commenter believed that whether the item is added or could be added are 
two different tests and the proposed rule is unclear as to whether both 
tests must be met. Similarly, another commenter believes that the 
original manufacturer could install any number of add-in peripherals 
but elects not to thereby allowing the SBC the option of adding it on. 
Thus, it should not be a factor in determining whether a concern is or 
is not considered a manufacturer. Rather, this commenter believed that 
the SBA should consider the following factors when determining whether 
the SBC is a reseller: (1) Whether the facility has true engineering 
capabilities; (2) whether the facility has the equipment to fabricate 
metal or plastic; (3) whether there is an assembly line operation; (4) 
whether there is a custom packaging and boxing operation; (5) whether 
the new name of the end product reflects the manufacturing changes; and 
(6) whether the company uses custom cases or bezels distinguishing it 
from the original. For example, this commenter believes that the SBA 
should consider a SBC that goes through the trouble of customizing 
logos, computer chassis, etc. and delivering a product under its own 
name a computer manufacturer.
    One commenter believed that firms that provide computer and other 
information technology equipment should have a specific rule detailing 
when such a firm will be treated as the manufacturer of the end item 
being supplied. The commenter suggested looking at the percentage (by 
value) of components installed.
    Finally, another commenter opposed the amendment because it could 
corrupt the current process. The simple process of setting up a bagging 
operation does not constitute manufacturing and unscrupulous operators 
could take advantage of this change.
    SBA believes that its regulations are clear--a business concern 
will not be deemed the end item manufacturer if the modification can be 
performed by and is available from the manufacturer of an existing end 
item. In addition, SBA agrees with the comment that when determining 
who is a manufacturer, factors that characterize the operations of a 
manufacturer, as opposed to a reseller, should be considered. SBA is 
adding as part of its assessment of a manufacturer a concern's 
technical capabilities; plant, facilities and equipment; production or 
assembly line processes; packaging and boxing operations; labeling of 
products; and product warranties. Consideration of these factors is 
consistent with the current regulations, which require a concern, 
through its own facilities, to perform activities to produce an end 
item to be deemed a manufacturer. The additional language enables SBA 
to better distinguish activities that constitute manufacturing from 
activities that are incidental or of minor value.
    SBA also agrees that the computer industry deserves special 
attention, as there has been confusion as to how much installation must 
be done before a firm will be considered a manufacturer of computers. 
The final rule provides that a firm must generally install components 
totaling at least 50% of the value of the end item in order to be 
considered the manufacturer. However, where a firm installs one or more 
components to an existing end item where those identical modifications 
cannot be performed by and are not available from the manufacturer of 
the existing end item, the general language of Sec.  121.406(b)(2) may 
permit the firm to be considered the manufacturer in appropriate 
circumstances.
    However, SBA notes that it is not making any changes in response to 
the comment regarding bagging operations. The issue raised by this 
comment pertains primarily to small business participation on commodity 
purchases. SBA plans to address that broader issue as part of a 
separate rulemaking action to be published in the near future.
    With Sec.  121.410, the SBA proposed an amendment to determining 
size for purposes of subcontracts. Specifically, the proposed rule 
eliminated the 500-employee size standard provision for subcontracts of 
less than $10,000 and required that the size standard of the NAICS 
industry that best matches the purpose of the subcontract be used. This 
change merely adopted the size standard policy now in effect for 
subcontracts of $10,000 or greater. The SBA received two comments on 
this proposal. Both supported the elimination of the 500-employee size 
standard for subcontracts, but recommended clarification that prime 
contractors can select the NAICS code for the subcontracts because many 
primes believe the NAICS code for the subcontract is the same as for 
the prime contract. The SBA concurs with this comment and has clarified 
the rule accordingly.
    Proposed Sec.  121.411(a) changed the reference to representations 
made in SBA's Procurement Automated Source System (PASS) to SBA's 
Procurement Marketing & Access Network (PRO-Net). This final rule makes 
a further change. PRO-Net has now become part of the Central Contractor 
Registration (CCR). Specifically, CCR's Dynamic Small Business Search 
provides the same representations as were contained in PRO-Net. As 
such, the final rule changes the reference from PASS to CCR.
    With Sec.  121.702(a), the SBA proposed recognizing that for 
purposes of the SBIR Program, the SBA permits a joint venture when each 
entity to the venture is at least 51 percent owned and controlled by 
one or more individuals who are citizens of, or permanent resident 
aliens in, the United States. The SBA received one comment on this 
rule, which noted a grammatical error. At this time, however, the SBA 
has decided not to implement the rule as proposed. The SBA published a 
proposed rule in the Federal Register on June 4, 2003, 68 FR 33412, 
which sought to amend the eligibility requirements of the SBIR Program. 
The SBA believes that any amendments to the eligibility requirements of 
the program should therefore be addressed as part of the finalization 
of that rule.
    The SBA received one comment on when size determinations are made 
for purposes of the SBIR Program. The commenter stated that based upon 
a ruling by OHA, Bend Research, Inc., SBA No. 4369 (July 29, 1999), 
size protests must be determined on the date of award of the Phase I or 
II SBIR funding agreement. However, many agencies are reluctant to 
issue a funding agreement to a concern if the concern may not be 
eligible for the program. The commenter believed that SBA should amend 
its regulation to state that SBA will allow size protests for Phase I 
or II SBIR awards in anticipation of the award. In other words, once 
the procuring agency has selected a business concern for an SBIR award, 
but prior to the actual issuance of the award, SBA will review the size 
of the concern in response to a protest to determine if it is actually 
eligible for that award.

[[Page 29200]]

    SBA concurs with this comment and has amended the regulation 
accordingly. The final regulation provides that the size status of a 
concern for the purpose of a funding agreement under the SBIR program 
is determined as of the date of the award for both Phase I and Phase II 
SBIR awards or on the date of the request for a size determination, if 
an award is pending.
    The SBA proposed amending Sec.  121.1001 entitled ``Who may 
initiate a size protest or request a formal size determination?'' The 
SBA received one comment supporting this proposal. The SBA has 
promulgated the final rule as proposed.
    The SBA received several comments to Sec.  121.1001(a)(7), which 
provided that ``For any unrestricted Government procurement in which 
status as a small business may be beneficial, including, but not 
limited to, the award of a contract to a small business where there are 
tie bids, the opportunity to seek a Certificate of Competency by a 
small business, and SDB or HUBZone price evaluation preferences, the 
following entities may protest in connection with a particular 
procurement: * * *'' According to the commenters, SBCs should be 
permitted to protest certifications by competitors in all contracts and 
not just those where a specific benefit is in question. Thus, for an 
unrestricted government procurement in which status as a SBC has been 
declared or represented by an awardee, any offeror can protest. These 
commenters point out that it is important to ensure that statistics 
reported on small business awards are accurate to determine if agencies 
are meeting their small business goals.
    SBA concurs with this comment, and believes that size protests 
should be allowed on unrestricted procurements. Small business concerns 
competing on unrestricted procurements have certain benefits not 
available to other businesses, such as faster progress payments, an 
exemption from submitting a small business subcontracting plan on 
certain contracts, and an exemption from cost accounting standards. If 
a business concern represents itself as small, the SBA believes it 
should have the opportunity to accept a challenge to ensure that these 
benefits are limited to eligible small businesses. Allowing size 
protests on unrestricted solicitations will provide an incentive for 
businesses and contracting officers to more carefully review small 
business representations. SBA is also concerned with the quality and 
integrity of the data it relies upon in establishing and monitoring 
small business goals. This new policy partly addresses that issue. 
Section 121.1001(a)(7) is therefore revised to permit size protests 
challenging a firm's representation that it is a small business on any 
unrestricted contract.
    One commenter noted that the SBA should add the AA for HUBZones to 
proposed Sec.  121.1001(a)(7)(iii). The SBA is not adopting that 
proposal as part of this final rule because that change is being made 
as part of another rulemaking. SBA notes that it proposed such an 
amendment pursuant to a rule issued on January 28, 2002, 67 FR 3826, 
amending the HUBZone Program.
    The SBA proposed a new Sec.  121.1004(a)(4) to address instances 
where notification of contract award is posted on the Internet, as 
authorized under Simplified Acquisition Procedures (SAP). In such 
cases, the SBA proposed that a size protest must be made to the CO 
within five business days after the electronic posting. One commenter 
stated that the 5-day protest period should begin ``upon oral or 
electronic notification by the contracting officer or the date that the 
protester learns the identity of the apparent successful offeror via 
another means.'' This commenter believes that protesters sometimes 
learn about awards via an awardee's public announcement or through oral 
communications.
    The SBA concurs and has added a new paragraph at Sec.  
121.1004(a)(5) that would provide that where no written notification is 
required, either prior to or at the time of award, a protest will be 
considered timely if filed within five days after receipt of verbal 
notification from the CO or other agency representative. For example, 
under SAP, there is no requirement for the CO to provide either pre-
award or award notification to unsuccessful offerors. Consequently, the 
date of verbal notification or date of posting on the internet will be 
considered the start of the 5-day period allotted for a timely size 
protest.
    The SBA proposes to amend Sec.  121.1007 containing the requirement 
that a size protest must allege specific facts by restoring the six 
examples that were formerly found at Sec.  121.1604(a) (1995). The SBA 
received one comment about these examples. One commenter noted that 
some of the examples used the term ``unspecific'' while the regulation 
itself uses the term ``non-specific'' and recommends changing the 
examples accordingly. The SBA concurs with this comment and has made 
the necessary changes.
    The proposed rule amended Sec.  121.1008(d) by adding a sentence 
requiring a concern whose size status is at issue to furnish 
information about its alleged affiliates to the SBA, notwithstanding 
any third party claims of privacy or confidentiality, because the SBA 
does not disclose information obtained in the course of a size 
determination except as permitted by Federal law. One commenter opposed 
any rule that would require a concern to provide information concerning 
an alleged third party affiliate because there is no means to force an 
alleged affiliated third party to produce the information. In addition, 
although the SBA does not ``disclose'' the information, it allegedly 
``misplaces'' the information. The SBA notes that this rule codifies 
several OHA rulings and therefore remains as proposed. See, e.g., Size 
Appeal of Donovan Travel, Inc., d/b/a Carlson Wagonlit Travel, SBA No. 
SIZ-4270 (1997); Size Appeal of Quantrad Sensor, Inc., SBA No. SIZ-4255 
(1997).
    With Sec.  121.1103(b)(3), the SBA proposed a regulation explaining 
service of a NAICS appeal to the SBA. One commenter noted that the new 
requirement to serve NAICS code appeals to the Associate General 
Counsel for Procurement Law and the CO is inconsistent with existing 
Sec.  134.305(c) which requires service to the CO only. The commenter 
recommends a conforming change to Sec.  134.305(c). The SBA concurs and 
has made a corresponding change to Sec.  134.305(c).
    Part 134 contains rules of procedure governing cases before OHA, 
including size appeals and former SIC (now NAICS) code appeals. The SBA 
proposed several amendments to part 134, mainly to conform to the 
changes proposed for part 121. The proposed rule amended Sec.  
134.102(k) to authorize an affected party to appeal a determination by 
the SBA Government Contracting Area Office as to whether two or more 
concerns are affiliated for purposes of the SBA's financial assistance 
programs, or other programs for which an affiliation determination was 
requested. One commenter noted that the definition of size 
determination is inconsistent with the definition in Sec.  134.101 and 
recommended conforming the revision to Sec.  134.101. The SBA concurs 
and has made a corresponding change to Sec.  134.101.

Application of the Final Rule

    As indicated above, this final rule is effective 30 days after the 
date of publication in the Federal Register. The amendments apply to 
all solicitations issued on or after the effective date, as well as all 
applications for financial or other assistance pending as of or

[[Page 29201]]

submitted to the SBA on or after the effective date.

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 final rule does not constitute a 
``significant regulatory action'' under Executive Order 12866. This 
rule clarifies the SBA's procedural and definitional size rules. As 
such, the rule has no effect on the amount or dollar value of any 
Federal contract requirements or of any financial assistance provided 
through the SBA. Therefore, the rule is not likely to have an annual 
economic effect of $100 million or more, result in a major increase in 
costs or prices, or have a significant adverse effect on competition or 
the United States economy. In addition, the final rule does not create 
a serious inconsistency or otherwise interfere with an action taken or 
planned by another agency, materially alter the budgetary impact of 
entitlements, grants, user fees, loan programs or the rights and 
obligations of such recipients, nor raise novel legal or policy issues 
arising out of legal mandates, the President's priorities, or the 
principles set forth in the Executive Order.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, the 
SBA determines that this rule does not impose new reporting or record 
keeping requirements.
    This action meets applicable standards set forth in sections 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 effect on the 
States, on the relationship between the national 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, SBA determines that this final rule has no federalism 
implications warranting preparation of a federalism assessment.
    The SBA has determined that this rule will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612. 
Although the rule amends several definitions concerning the size of a 
business concern, the majority of these amendments are clarification of 
current policy.

List of Subjects

13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Grant programs--business, Loan programs--business, 
Small businesses.

13 CFR Part 124

    Administrative practice and procedure, Government procurement, 
Small businesses, Minority businesses, Technical assistance.

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, 124, 125, 
and 134 of title 13, Code of Federal Regulations, as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

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

0
2. Amend Sec.  121.103 by revising the section heading; revising 
paragraphs (a)(1), (3) and (4) and adding new paragraphs (a)(5) and 
(6); revising the title of paragraph (b); revising paragraph (b)(2); 
adding a new sentence to the end of paragraph (b)(6); revising 
paragraphs (c), (d), (e) and (f); redesignating revised paragraph (f) 
as paragraph (h); redesignating paragraph (g) as paragraph (i); and 
adding new paragraphs (f) and (g) to read as follows:


Sec.  121.103  How does SBA determine affiliation?

    (a) General Principles of Affiliation. (1) Concerns and entities 
are affiliates of each other when one controls or has the power to 
control the other, or a third party or parties controls or has the 
power to control both. It does not matter whether control is exercised, 
so long as the power to control exists.
    (2) * * *
    (3) Control may be affirmative or negative. Negative control 
includes, but is not limited to, instances where a minority shareholder 
has the ability, under the concern's charter, by-laws, or shareholder's 
agreement, to prevent a quorum or otherwise block action by the board 
of directors or shareholders.
    (4) Affiliation may be found where an individual, concern, or 
entity exercises control indirectly through a third party.
    (5) In determining whether affiliation exists, SBA will consider 
the totality of the circumstances, and may find affiliation even though 
no single factor is sufficient to constitute affiliation.
    (6) In determining the concern's size, SBA counts the receipts, 
employees, or other measure of size of the concern whose size is at 
issue and all of its domestic and foreign affiliates, regardless of 
whether the affiliates are organized for profit.
    (b) Exceptions to affiliation coverage. (1) * * *
    (2)(i) Business concerns owned and controlled by Indian Tribes, 
Alaska Native Corporations (ANCs) organized pursuant to the Alaska 
Native Claims Settlement Act (43 U.S.C. 1601 et seq.), Native Hawaiian 
Organizations (NHOs), Community Development Corporations (CDCs) 
authorized by 42 U.S.C. 9805, or wholly-owned entities of Indian 
Tribes, ANCs, NHOs, or CDCs are not considered affiliates of such 
entities.
    (ii) Business concerns owned and controlled by Indian Tribes, ANCs, 
NHOs, CDCs, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or 
CDCs are not considered to be affiliated with other concerns owned by 
these entities because of their common ownership or common management. 
In addition, affiliation will not be found based upon the performance 
of common administrative services, such as bookkeeping and payroll, so 
long as adequate payment is provided for those services. Affiliation 
may be found for other reasons.
* * * * *
    (6) * * * Affiliation may be found for other reasons.
    (c) Affiliation based on stock ownership. (1) A person (including 
any individual, concern or other entity) that owns, or has the power to 
control, 50 percent or more of a concern's voting stock, or a block of 
voting stock which is large compared to other outstanding blocks of 
voting stock, controls or has the power to control the concern.
    (2) If two or more persons (including any individual, concern or 
other entity) each owns, controls, or has the power to control less 
than 50 percent of a concern's voting stock, and such minority holdings 
are equal or approximately equal in size, and the aggregate of these 
minority holdings is large as compared with any other stock holding, 
SBA presumes that each such person controls or has the power to

[[Page 29202]]

control the concern whose size is at issue. This presumption may be 
rebutted by a showing that such control or power to control does not in 
fact exist.
    (3) If a concern's voting stock is widely held and no single block 
of stock is large as compared with all other stock holdings, the 
concern's Board of Directors and CEO or President will be deemed to 
have the power to control the concern in the absence of evidence to the 
contrary.
    (d) Affiliation arising under stock options, convertible 
securities, and agreements to merge. (1) In determining size, SBA 
considers stock options, convertible securities, and agreements to 
merge (including agreements in principle) to have a present effect on 
the power to control a concern. SBA treats such options, convertible 
securities, and agreements as though the rights granted have been 
exercised.
    (2) Agreements to open or continue negotiations towards the 
possibility of a merger or a sale of stock at some later date are not 
considered ``agreements in principle'' and are thus not given present 
effect.
    (3) Options, convertible securities, and agreements that are 
subject to conditions precedent which are incapable of fulfillment, 
speculative, conjectural, or unenforceable under state or Federal law, 
or where the probability of the transaction (or exercise of the rights) 
occurring is shown to be extremely remote, are not given present 
effect.
    (4) An individual, concern or other entity that controls one or 
more other concerns cannot use options, convertible securities, or 
agreements to appear to terminate such control before actually doing 
so. SBA will not give present effect to individuals', concerns' or 
other entities' ability to divest all or part of their ownership 
interest in order to avoid a finding of affiliation.
    (e) Affiliation based on common management. Affiliation arises 
where one or more officers, directors, managing members, or partners 
who control the board of directors and/or management of one concern 
also control the board of directors or management of one or more other 
concerns.
    (f) Affiliation based on identity of interest. Affiliation may 
arise among two or more persons with an identity of interest. 
Individuals or firms that have identical or substantially identical 
business or economic interests (such as family members, individuals or 
firms with common investments, or firms that are economically dependent 
through contractual or other relationships) may be treated as one party 
with such interests aggregated. Where SBA determines that such 
interests should be aggregated, an individual or firm may rebut that 
determination with evidence showing that the interests deemed to be one 
are in fact separate.
    (g) Affiliation based on the newly organized concern rule. 
Affiliation may arise where former officers, directors, principal 
stockholders, managing members, or key employees of one concern 
organize a new concern in the same or related industry or field of 
operation, and serve as the new concern's officers, directors, 
principal stockholders, managing members, or key employees, and the one 
concern is furnishing or will furnish the new concern with contracts, 
financial or technical assistance, indemnification on bid or 
performance bonds, and/or other facilities, whether for a fee or 
otherwise. A concern may rebut such an affiliation determination by 
demonstrating a clear line of fracture between the two concerns. A 
``key employee'' is an employee who, because of his/her position in the 
concern, has a critical influence in or substantive control over the 
operations or management of the concern.
    (h) Affiliation based on joint ventures. A joint venture is an 
association of individuals and/or concerns with interests in any degree 
or proportion by way of contract, express or implied, consorting to 
engage in and carry out no more than three specific or limited-purpose 
business ventures for joint profit over a two year period, for which 
purpose they combine their efforts, property, money, skill, or 
knowledge, but not on a continuing or permanent basis for conducting 
business generally. This means that the joint venture entity cannot 
submit more than three offers over a two year period, starting from the 
date of the submission of the first offer. A joint venture may or may 
not be in the form of a separate legal entity. The joint venture is 
viewed as a business entity in determining power to control its 
management. SBA may also determine that the relationship between a 
prime contractor and its subcontractor is a joint venture, and that 
affiliation between the two exists, pursuant to paragraph (h)(4) of 
this section.
    (1) Parties to a joint venture are affiliates if any one of them 
seeks SBA financial assistance for use in connection with the joint 
venture.
    (2) Except as provided in paragraph (h)(3) of this section, 
concerns submitting offers on a particular procurement or property sale 
as joint venturers are affiliated with each other with regard to the 
performance of that contract.
    (3) Exception to affiliation for certain joint ventures. (i) A 
joint venture of two or more business concerns may submit an offer as a 
small business for a Federal procurement without regard to affiliation 
under paragraph (h) of this section so long as each concern is small 
under the size standard corresponding to the NAICS code assigned to the 
contract, provided:
    (A) The procurement qualifies as a ``bundled'' requirement, at any 
dollar value, within the meaning of Sec.  125.2(d)(1)(i) of this 
chapter; or
    (B) The procurement is other than a ``bundled'' requirement within 
the meaning of Sec.  125.2(d)(1)(i) of this chapter, and:
    (1) For a procurement having a receipts based size standard, the 
dollar value of the procurement, including options, exceeds half the 
size standard corresponding to the NAICS code assigned to the contract; 
or
    (2) For a procurement having an employee-based size standard, the 
dollar value of the procurement, including options, exceeds $10 
million.
    (ii) A joint venture of at least one 8(a) Participant and one or 
more other business concerns may submit an offer for a competitive 8(a) 
procurement without regard to affiliation under paragraph (h) of this 
section so long as the requirements of Sec.  124.513(b)(1) of this 
chapter are met.
    (iii) Two firms approved by SBA to be a mentor and 
prot[eacute]g[eacute] under 13 CFR 124.520 may joint venture as a small 
business for any Federal Government procurement, provided the 
prot[eacute]g[eacute] qualifies as small for the size standard 
corresponding to the NAICS code assigned to the procurement and, for 
purposes of 8(a) sole source requirements, has not reached the dollar 
limit set forth in 13 CFR 124.519.
    (4) A contractor and its ostensible subcontractor are treated as 
joint venturers, and therefore affiliates, for size determination 
purposes. An ostensible subcontractor is a subcontractor that performs 
primary and vital requirements of a contract, or of an order under a 
multiple award schedule contract, or a subcontractor upon which the 
prime contractor is unusually reliant. All aspects of the relationship 
between the prime and subcontractor are considered, including, but not 
limited to, the terms of the proposal (such as contract management, 
technical responsibilities, and the percentage of subcontracted work), 
agreements between the prime and subcontractor (such as bonding 
assistance or the teaming agreement), and whether the subcontractor is 
the incumbent contractor and is ineligible to submit a

[[Page 29203]]

proposal because it exceeds the applicable size standard for that 
solicitation.
    (5) For size purposes, a concern must include in its receipts its 
proportionate share of joint venture receipts, and in its total number 
of employees its proportionate share of joint venture employees.

0
3. In Sec.  121.104 redesignate (a)(3) as paragraph (e); revise 
paragraph (a); remove paragraph (c); redesignate paragraph (b) as (c); 
revise newly designated paragraph (c); add new paragraph (b); revise 
paragraph (d) to read as follows:


Sec.  121.104  How does SBA calculate annual receipts?

    (a) Receipts means ``total income'' (or in the case of a sole 
proprietorship, ``gross income'') plus ``cost of goods sold'' as these 
terms are defined and reported on Internal Revenue Service (IRS) tax 
return forms (such as Form 1120 for corporations; Form 1120S and 
Schedule K for S corporations; Form 1120, Form 1065 or Form 1040 for 
LLCs; Form 1065 and Schedule K for partnerships; Form 1040, Schedule F 
for farms; Form 1040, Schedule C for other sole proprietorships). 
Receipts do not include net capital gains or losses; taxes collected 
for and remitted to a taxing authority if included in gross or total 
income, such as sales or other taxes collected from customers and 
excluding taxes levied on the concern or its employees; proceeds from 
transactions between a concern and its domestic or foreign affiliates; 
and amounts collected for another by a travel agent, real estate agent, 
advertising agent, conference management service provider, freight 
forwarder or customs broker. For size determination purposes, the only 
exclusions from receipts are those specifically provided for in this 
paragraph. All other items, such as subcontractor costs, reimbursements 
for purchases a contractor makes at a customer's request, and employee-
based costs such as payroll taxes, may not be excluded from receipts.
    (1) The Federal income tax return and any amendments filed with the 
IRS on or before the date of self-certification must be used to 
determine the size status of a concern. SBA will not use tax returns or 
amendments filed with the IRS after the initiation of a size 
determination.
    (2) When a concern has not filed a Federal income tax return with 
the IRS for a fiscal year which must be included in the period of 
measurement, SBA will calculate the concern's annual receipts for that 
year using any other available information, such as the concern's 
regular books of account, audited financial statements, or information 
contained in an affidavit by a person with personal knowledge of the 
facts.
    (b) Completed fiscal year means a taxable year including any short 
year. ``Taxable year'' and ``short year'' have the meanings attributed 
to them by the IRS.
    (c) Period of measurement. (1) Annual receipts of a concern that 
has been in business for three or more completed fiscal years means the 
total receipts of the concern over its most recently completed three 
fiscal years divided by three.
    (2) Annual receipts of a concern which has been in business for 
less than three complete fiscal years means the total receipts for the 
period the concern has been in business divided by the number of weeks 
in business, multiplied by 52.
    (3) Where a concern has been in business three or more complete 
fiscal years but has a short year as one of the years within its period 
of measurement, annual receipts means the total receipts for the short 
year and the two full fiscal years divided by the total number of weeks 
in the short year and the two full fiscal years, multiplied by 52.
    (d) Annual receipts of affiliates.
    (1) The average annual receipts size of a business concern with 
affiliates is calculated by adding the average annual receipts of the 
business concern with the average annual receipts of each affiliate.
    (2) If a concern has acquired an affiliate or been acquired as an 
affiliate during the applicable period of measurement or before the 
date on which it self-certified as small, the annual receipts used in 
determining size status includes the receipts of the acquired or 
acquiring concern. Furthermore, this aggregation applies for the entire 
period of measurement, not just the period after the affiliation arose.
    (3) If the business concern or an affiliate has been in business 
for a period of less than three years, the receipts for the fiscal year 
with less than a 12 month period are annualized in accordance with 
paragraph (c)(2) of this section. Receipts are determined for the 
concern and its affiliates in accordance with paragraph (c) of this 
section even though this may result in using a different period of 
measurement to calculate an affiliate's annual receipts.
    (4) The annual receipts of a former affiliate are not included if 
affiliation ceased before the date used for determining size. This 
exclusion of annual receipts of a former affiliate applies during the 
entire period of measurement, rather than only for the period after 
which affiliation ceased.
    (e) Unless otherwise defined in this section, all terms shall have 
the meaning attributed to them by the IRS.

0
4. Revise Sec.  121.106(a) and (b)(4) to read as follows:


Sec.  121.106  How does SBA calculate number of employees?

    (a) In determining a concern's number of employees, SBA counts all 
individuals employed on a full-time, part-time, or other basis. This 
includes employees obtained from a temporary employee agency, 
professional employee organization or leasing concern. SBA will 
consider the totality of the circumstances, including criteria used by 
the IRS for Federal income tax purposes, in determining whether 
individuals are employees of a concern. Volunteers (i.e., individuals 
who receive no compensation, including no in-kind compensation, for 
work performed) are not considered employees.
    (b) * * *
    (4)(i) The average number of employees of a business concern with 
affiliates is calculated by adding the average number of employees of 
the business concern with the average number of employees of each 
affiliate. If a concern has acquired an affiliate or been acquired as 
an affiliate during the applicable period of measurement or before the 
date on which it self-certified as small, the employees counted in 
determining size status include the employees of the acquired or 
acquiring concern. Furthermore, this aggregation applies for the entire 
period of measurement, not just the period after the affiliation arose.
    (ii) The employees of a former affiliate are not counted if 
affiliation ceased before the date used for determining size. This 
exclusion of employees of a former affiliate applies during the entire 
period of measurement, rather than only for the period after which 
affiliation ceased.

0
5. Amend Sec.  121.201 as follows:
0
a. In the table ``Small Business Size Standards by NAICS Industry,'' 
add the heading NAICS Subsector 92, ``Public Administration'' at the 
end of the table and footnote 19; and
0
b. Amend footnote 14, by revising paragraph (b) to read as follows:


Sec.  121.201  What size standards has SBA identified by North American 
Industry Classification System codes?

* * * * *

[[Page 29204]]



                                 Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
                                         NAICS U.S. industry       Size standards in        Size standards in
             NAICS codes                        title              million of dollars      number of employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
--------------------------------------
                                      Sector 92--Public Administration \19\
 (Small business size standards are not established for this sector. Establishments in the Public Administration
  sector are Federal, state, and local government agencies which administer and oversee government programs and
                          activities that are not performed by private establishments.)
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

Footnotes

* * * * *
    14. NAICS 562910--Environmental Remediation Services:
    (a) * * *
    (b) For purposes of classifying a Government procurement as 
Environmental Remediation Services, the general purpose of the 
procurement must be to restore or directly support the restoration of a 
contaminated environment (such as, preliminary assessment, site 
inspection, testing, remedial investigation, feasibility studies, 
remedial design, remediation services, containment, removal of 
contaminated materials, storage of contaminated materials or security 
and site closeouts), although the general purpose of the procurement 
need not necessarily include remedial actions. Also, the procurement 
must be composed of activities in three or more separate industries 
with separate NAICS codes or, in some instances (e.g., engineering), 
smaller sub-components of NAICS codes with separate, distinct size 
standards. These activities may include, but are not limited to, 
separate activities in industries such as: Heavy Construction; 
Specialty Trade Contractors; Engineering Services; Architectural 
Services; Management Consulting Services; Hazardous and Other Waste 
Collection; Remediation Services, Testing Laboratories; and Research 
and Development in the Physical, Engineering and Life Sciences. If any 
activity in the procurement can be identified with a separate NAICS 
code, or component of a code with a separate distinct size standard, 
and that industry accounts for 50 percent or more of the value of the 
entire procurement, then the proper size standard is the one for that 
particular industry, and not the Environmental Remediation Service size 
standard.
* * * * *
    19. NAICS Sector 92--Small business size standards are not 
established for this sector. Establishments in the Public 
Administration sector are Federal, State, and local government agencies 
which administer and oversee government programs and activities that 
are not performed by private establishments. Concerns performing 
operational services for the administration of a government program are 
classified under the NAICS private sector industry based on the 
activities performed. Similarly, procurements for these types of 
services are classified under the NAICS private sector industry that 
best describes the activities to be performed. For example, if a 
government agency issues a procurement for law enforcement services, 
the requirement would be classified using one of the NAICS industry 
codes under 56161, Investigation, Guard, and Armored Car Services.

0
6. In Sec.  121.301, revise paragraphs (a), (d)(1) and (e) to read as 
follows:


Sec.  121.301  What size standards are applicable to financial 
assistance programs?

    (a) For Business Loans and Disaster Loans (other than physical 
disaster loans), an applicant business concern, including its 
affiliates, must not exceed the size standard for the industry in which 
the applicant is primarily engaged.
* * * * *
    (d) * * *
    (1) Any construction (general or special trade) concern or concern 
performing a contract for services is small if, together with its 
affiliates, its average annual receipts does not exceed $6.0 million.
* * * * *
    (e) The applicable size standards for purposes of SBA's financial 
assistance programs, excluding the Surety Bond Guarantee assistance 
program, are increased by 25% whenever the applicant agrees to use all 
of the financial assistance within a labor surplus area. Labor surplus 
areas are listed monthly in the Department of Labor publication ``Area 
Trends in Employment and Unemployment.''

0
7. Amend Sec.  121.302 by revising paragraph (a), re-designating 
paragraph (d) as paragraph (e), revising newly designated paragraph 
(e), and adding the following new paragraph (d) to read as follows:


Sec.  121.302  When does SBA determine the size status of an applicant?

    (a) The size status of an applicant for SBA financial assistance is 
determined as of the date the application for financial assistance is 
accepted for processing by SBA, except for applications under the 
Preferred Lenders Program (PLP), the Disaster Loan program, the SBIC 
program, and the New Markets Venture Capital (NMCV) program.
* * * * *
    (d) For financial assistance from an SBIC licensee or an NMVC 
company, size is determined as of the date a concern's application is 
accepted for processing by the SBIC or the NMVC company.
    (e) Changes in size after the applicable date when size is 
determined will not disqualify an applicant for assistance.

0
8. Revise Sec.  121.305 heading to read as follows:


Sec.  121.305  What size eligibility requirements exist for obtaining 
financial assistance relating to particular procurements?

* * * * *

0
9. Revise Sec.  121.401 to read as follows:


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

    The rules set forth in Sec. Sec.  121.401 through 121.413 apply to 
all Federal procurement programs for which status as a small business 
is required or advantageous, including the small business set-aside 
program, SBA's Certificate of Competency program, the Very Small 
Business program, SBA's 8(a) Business Development program, SBA's 
HUBZone program, the Small

[[Page 29205]]

Business Subcontracting program, and the Federal Small Disadvantaged 
Business (SDB) program.

0
10. Amend Sec.  121.402 by revising the section heading and paragraph 
(a), and by adding a new sentence to the end of paragraph (b) to read 
as follows:


Sec.  121.402  What size standards are applicable to Federal Government 
Contracting programs?

    (a) A concern must not exceed the size standard for the NAICS code 
specified in the solicitation. The contracting officer must specify the 
size standard in effect on the date the solicitation is issued. If SBA 
amends the size standard and it becomes effective before the date 
initial offers (including price) are due, the contracting officer may 
amend the solicitation and use the new size standard.
    (b) * * * Procurements for supplies must be classified under the 
appropriate manufacturing NAICS code, not under the wholesale trade 
NAICS code.
* * * * *

0
11. Revise Sec.  121.404 to read as follows:


Sec.  121.404  When does SBA determine the size status of a business 
concern?

    (a) SBA determines the size status of a concern, including its 
affiliates, as of the date the concern submits a written self-
certification that it is small to the procuring activity as part of its 
initial offer (or other formal response to a solicitation) which 
includes price. Where an agency modifies a solicitation so that initial 
offers are no longer responsive to the solicitation, a concern must 
recertify that it is a small business at the time it submits a 
responsive offer, which includes price, to the modified solicitation.
    (b) A concern applying to be certified as a Participant in SBA's 
8(a) Business Development program (under part 124, subpart A, of this 
chapter), as a small disadvantaged business (under part 124, subpart B, 
of this chapter), or as a HUBZone small business (under part 126 of 
this chapter) must qualify as a small business for its primary industry 
classification as of the date of its application and the date of 
certification by SBA.
    (c) The size status of an applicant for a Certificate of Competency 
(COC) relating to an unrestricted procurement is determined as of the 
date of the concern's application for the COC.
    (d) Size status for purposes of compliance with the nonmanufacturer 
rule set forth in Sec.  121.406(b)(1) and the ostensible subcontractor 
rule set forth in Sec.  121.103(h)(4) is determined as of the date of 
the final proposal revision for negotiated acquisitions and final bid 
for sealed bidding.
    (e) For subcontracting purposes, a concern must qualify as small as 
of the date that it certifies that it is small for the subcontract. The 
applicable size standard is that which is set forth in Sec.  121.410 
and which is in effect at the time the concern self-certifies that it 
is small for the subcontract.
    (f) For purposes of two-step sealed bidding under subpart 14.5 of 
the FAR, 48 CFR, a concern must qualify as small as of the date that it 
certifies that it is small as part of its step one proposal.
    (g) A concern that qualified as a small business at the time it 
receives a contract is considered a small business throughout the life 
of that contract. Where a concern grows to be other than small, the 
procuring agency may exercise options and still count the award as an 
award to a small business.
    (h) A follow-on or renewal contract is a new contracting action. As 
such, size is determined as of the date the concern submits a written 
self-certification that it is small to the procuring agency as part of 
its initial offer including price for the follow-on or renewal 
contract.
    (i) At the time a novation or change-of-name agreement has been 
executed pursuant to FAR subpart 42.12, the new entity must submit a 
written self-certification that it is small to the procuring agency so 
that the agency can count the award, options, or orders issued pursuant 
to the contract towards its small business goals.

0
12. Amend Sec.  121.406 by revising the heading; by revising paragraph 
(b)(1)(ii); by revising the last sentence in paragraph (b)(2) 
introductory text; by redesignating paragraphs (b)(2)(i) and (b)(2)(ii) 
as paragraphs (b)(2)(i)(A) and (b)(2)(i)(B); by adding a new paragraph 
(b)(2)(i) introductory text; by removing the word ``and'' at the end of 
newly redesignated paragraph (b)(2)(i)(A); by removing the ``.'' and 
adding ``; and'' at the end of newly redesignated paragraph 
(b)(2)(i)(B); by adding a new paragraph (b)(2)(i)(C); by adding a new 
paragraph (b)(2)(ii); and by adding a new paragraph (e) to read as 
follows:


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) * * *
    (ii) Is primarily engaged in the retail or wholesale trade and 
normally sells the type of item being supplied; and
* * * * *
    (2) * * * Firms that add substances, parts, or components to an 
existing end item to modify its performance will not be considered the 
end item manufacturer where those identical modifications can be 
performed by and are available from the manufacturer of the existing 
end item:
    (i) SBA will evaluate the following factors in determining whether 
a concern is the manufacturer of the end item:
    (A) * * *
    (B) * * *
    (C) The concern's technical capabilities; plant, facilities and 
equipment; production or assembly line processes; packaging and boxing 
operations; labeling of products; and product warranties.
* * * * *
    (ii) Firms that provide computer and other information technology 
equipment primarily consisting of component parts (such as 
motherboards, video cards, network cards, memory, power supplies, 
storage devices, and similar items) who install components totaling 
less than 50% of the value of the end item are generally not considered 
the manufacturer of the end item.
* * * * *
    (e) These requirements do not apply to small business concern 
subcontractors.

0
13. In Sec.  121.410, revise the introductory paragraph, and remove 
paragraphs (a), (b) and (c) to read as follows:


Sec.  121.410  What are the size standards for SBA's Section 8(d) 
Subcontracting Program?

    For subcontracting purposes pursuant to sections 8(d) of the Small 
Business Act, a concern is small for subcontracts which relate to 
Government procurements if it does not exceed the size standard for the 
NAICS code that the prime contractor believes best describes the 
product or service being acquired by the subcontract. However, 
subcontracts for engineering services awarded under the National Energy 
Policy Act of 1992 have the same size standard as Military and 
Aerospace Equipment and Military Weapons under NAICS 541213.

0
14. In Sec.  121.411(a), remove the words ``SBA's Procurement Automated 
Source System (PASS)'' and add, in its place, the words ``the Central 
Contractor Registration (CCR).''

0
15. Revise the undesignated center heading before Sec.  121.601 to read 
as follows:
Size Eligibility Requirements for the 8(a) Business Development Program

0
16. Revise Sec.  121.601 to read as follows:

[[Page 29206]]

Sec.  121.601  What is a small business for purposes of admission to 
SBA's 8(a) Business Development program?

    An applicant must not exceed the size standard corresponding to its 
primary industry classification in order to qualify for admission to 
SBA's 8(a) Business Development Program.


Sec.  121.602  [Amended]

0
17. In Sec.  121.602 replace the acronym ``MED'' in the heading and the 
text with the phrase ``8(a) BD.''


Sec.  121.603  [Amended]

0
18. In Sec.  121.603 replace the acronym ``MED'' in the heading and in 
paragraphs (a), (b) and (d) with the phrase ``8(a) BD.''


Sec.  121.604  [Amended]

0
19. In Sec.  121.604 replace the acronym ``MED'' in the heading and the 
text with the phrase ``8(a) BD.''

0
20. Revise Sec.  121.704 to read as follows:


Sec.  121.704  When does SBA determine the size status of a business 
concern?

    The size status of a concern for the purpose of a funding agreement 
under the SBIR program is determined as of the date of the award for 
both Phase I and Phase II SBIR awards or on the date of the request for 
a size determination, if an award is pending.

0
21. In Sec.  121.705, revise paragraph (a) to read as follows:


Sec.  121.705  Must a business concern self-certify its size status?

    (a) A firm must self-certify that it currently meets the 
eligibility requirements set forth in Sec.  121.702 of this title or 
will meet those eligibility requirements on the date of award of a 
funding agreement for a Phase I or Phase II SBIR award.
* * * * *

0
22. Amend Sec.  121.1001 by revising paragraphs (a)(1) introductory 
text, (a)(1)(i), (a)(2)(i), (a)(5)(i) and (iii), (a)(6)(i), (a)(7) 
introductory text, and (b)(2)(ii)(B), and by adding new paragraphs 
(b)(1)(iii), (b)(7), (b)(8), and (b)(9) as follows:


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

    (a) Size Status Protests. (1) For SBA's Small Business Set-Aside 
Program, including the Property Sales Program, or any instance in which 
a procurement or order has been restricted to or reserved for small 
business or a particular group of small business, the following 
entities may file a size protest in connection with a particular 
procurement, sale or order:
    (i) Any offeror whom the contracting officer has not eliminated for 
reasons unrelated to size;
* * * * *
    (2) * * *
    (i) Any offeror whom the contracting officer has not eliminated for 
reasons unrelated to size;
* * * * *
    (5) * * *
    (i) Any offeror for the specific SDB requirement whom the 
contracting officer has not eliminated for reasons unrelated to size;
    (ii) * * *
    (iii) The responsible SBA Area Director for Government Contracting, 
the SBA Associate Administrator for Government Contracting, or the SBA 
Associate Administrator for 8(a) Business Development;
    (6) * * *
    (i) Any concern that submits an offer for a specific HUBZone set-
aside procurement that the contracting officer has not eliminated for 
reasons unrelated to size;
* * * * *
    (7) For any unrestricted Government procurement in which a business 
concern has represented itself as a small business concern, the 
following entities may protest in connection with a particular 
procurement:
* * * * *
    (b)(1) * * *
    (iii) The SBA Associate Administrator for Investment or designee 
may request a formal size determination for any purpose relating to the 
SBIC program (see part 107 of this chapter) or the NMVC program (see 
part 108 of this chapter). A formal size determination includes a 
request to determine whether or not affiliation exists between two or 
more entities for any purpose relating to the SBIC program.
* * * * *
    (2) * * *
    (ii) * * *
    (B) The SBA program official with authority to execute the 8(a) 
contract or, where applicable, the procuring activity contracting 
officer who has been delegated SBA's 8(a) contract execution functions; 
or
* * * * *
    (7) In connection with initial or continued eligibility for the 
Small Disadvantaged Business (SDB) program, the following may request a 
formal size determination:
    (i) The applicant or SDB concern; or
    (ii) The Assistant Administrator of the Division of Program 
Certification and Eligibility or the Associate Administrator for 
8(a)BD.
    (8) In connection with initial or continued eligibility for the 
HUBZone program, the following may request a formal size determination:
    (i) The applicant or HUBZone concern; or
    (ii) The Associate Administrator for the HUBZone program, or 
designee.
    (9) For purposes of validating that firms listed in the Central 
Contractor Registration database are small, the Government Contracting 
Area Director or the Associate Administrator for Government Contracting 
may initiate a formal size determination when sufficient information 
exists that calls into question a firm's small business status. The 
current date will be used to determine size, and SBA will initiate the 
process to remove from the database the small business designation of 
any firm found to be other than small.

0
23. In Sec.  121.1004, add new paragraphs (a)(4) and (a)(5), and add a 
new sentence at the end of paragraph (b) to read as follows:


Sec.  121.1004  What time limits apply to size protests?

    (a) * * *
    (4) Electronic notification of award. Where notification of award 
is made electronically, such as posting on the Internet under 
Simplified Acquisition Procedures, a protest must be received by the 
contracting officer before close of business on the fifth day, 
exclusive of Saturdays, Sundays, and legal holidays, after the 
electronic posting.
    (5) No notice of award. Where there is no requirement for written 
pre-award notice or notice of award, or where the contracting officer 
has failed to provide written notification of award, the 5-day protest 
period will commence upon oral notification by the contracting officer 
or authorized representative or another means (such as public 
announcements or other oral communications) of the identity of the 
apparent successful offeror.
    (b) * * * Notwithstanding paragraph (e), for purposes of the SBIR 
program the contracting officer and SBA may file a protest in 
anticipation of award.
* * * * *

0
24. Revise the first sentence of Sec.  121.1005 to read as follows:


Sec.  121.1005  How must a protest be filed with the contracting 
officer?

    A protest must be delivered to the contracting officer by hand, 
telegram, mail, facsimile, Federal Express or other overnight delivery 
service, e-mail, or telephone. * * *

0
25. In Sec.  121.1007, add a new sentence at the end of paragraph (c) 
and the following examples after paragraph (c):

[[Page 29207]]

Sec.  121.1007  Must a protest of size status relate to a particular 
procurement and be specific?

* * * * *
    (c) * * * The following are examples of allegation specificity:

    Example 1: An allegation that concern X is large because it 
employs more than 500 employees (where 500 employees is the 
applicable size standard) without setting forth a basis for the 
allegation is non-specific.
    Example 2: An allegation that concern X is large because it 
exceeds the 500 employee size standard (where 500 employees is the 
applicable size standard) because a higher employment figure was 
published in publication Y is sufficiently specific.
    Example 3: An allegation that concern X is affiliated with 
concern Y without setting forth any basis for the allegation is non-
specific.
    Example 4: An allegation that concern X is affiliated with 
concern Y because Mr. A is the majority shareholder in both concerns 
is sufficiently specific.
    Example 5: An allegation that concern X has revenues in excess 
of $5 million (where $5 million is the applicable size standard) 
without setting forth a basis for the allegation is non-specific.
    Example 6: An allegation that concern X exceeds the size 
standard (where the applicable size standard is $5 million) because 
it received Government contracts in excess of $5 million last year 
is sufficiently specific.

0
26. In Sec.  121.1008, revise the heading and paragraphs (a) and (d) to 
read as follows:


Sec.  121.1008  What occurs after SBA receives a size protest or 
request for a formal size determination?

    (a) When SBA receives a size protest, the SBA Area Director for 
Government Contracting, or designee, will notify the contracting 
officer, the protested concern, and the protestor that the protest has 
been received. If the protest pertains to a requirement involving SBA's 
HUBZone program, the Area Director will also notify the AA/HUB of the 
protest. If the protest pertains to a requirement involving SBA's SBIR 
Program, the Area Director will also notify the Assistant Administrator 
for Technology. If the protest involves the size status of a concern 
that SBA has certified as a small disadvantaged business (SDB) (see 
part 124, subpart B of this chapter) the Area Director will notify 
SBA's AA/8(a) BD. If the protest pertains to a requirement that has 
been reserved for competition among eligible 8(a) BD program 
participants, the Area Director will notify the SBA district office 
servicing the 8(a) concern whose size status has been protested. SBA 
will provide a copy of the protest to the protested concern together 
with SBA Form 355, Application for Small Business Size Determination, 
by certified mail, return receipt requested, or by any overnight 
delivery service that provides proof of receipt. SBA will ask the 
protested concern to complete the form and respond to the allegations 
in the protest.
* * * * *
    (d) If a concern whose size status is at issue fails to submit a 
completed SBA Form 355, responses to the allegations of the protest, or 
other requested information within the time allowed by SBA, or if it 
submits incomplete information, SBA may presume that disclosure of the 
information required by the form or other missing information would 
demonstrate that the concern is other than a small business. A concern 
whose size status is at issue must furnish information about its 
alleged affiliates to SBA, despite any third party claims of privacy or 
confidentiality, because SBA will not disclose information obtained in 
the course of a size determination except as permitted by Federal law.

0
27. In Sec.  121.1009, revise paragraphs (b) and (g) to read as 
follows:


Sec.  121.1009  What are the procedures for making the size 
determination?

* * * * *
    (b) Basis for determination. The size determination will be based 
primarily on the information supplied by the protestor or the entity 
requesting the size determination and that provided by the concern 
whose size status is at issue. The determination, however, may also be 
based on grounds not raised in the protest or request for size 
determination. SBA may use other information and may make requests for 
additional information to the protestor, the concern whose size status 
is at issue and any alleged affiliates, or other parties.
* * * * *
    (g) Results of an SBA Size Determination.
    (1) A formal size determination becomes effective immediately and 
remains in full force and effect unless and until reversed by OHA.
    (2) A contracting officer may award a contract based on SBA's 
formal size determination.
    (3) If the formal size determination is appealed to OHA, the OHA 
decision on appeal will apply to the pending procurement or sale if the 
decision is received before award. OHA decisions received after 
contract award will not apply to that procurement or sale, but will 
have future effect, unless the contracting officer agrees to apply the 
OHA decision to the procurement or sale.
    (4) Once SBA has determined that a concern is other than small for 
purposes of a particular procurement, the concern cannot later become 
eligible for the procurement by reducing its size.
    (5) A concern determined to be other than small under a particular 
size standard is ineligible for any procurement or any assistance 
authorized by the Small Business Act or the Small Business Investment 
Act of 1958 which requires the same or a lower size standard, unless 
SBA recertifies the concern to be small pursuant to Sec.  121.1010 or 
OHA reverses the adverse size determination. After an adverse size 
determination, a concern cannot self-certify as small under the same or 
lower size standard unless it is first recertified as small by SBA. If 
a concern does so, it may be in violation of criminal laws, including 
section 16(d) of the Small Business Act, 15 U.S.C. 645(d). If the 
concern has already certified itself as small on a pending procurement 
or on an application for SBA assistance, the concern must immediately 
inform the officials responsible for the pending procurement or 
requested assistance of the adverse size determination.
* * * * *

0
28. Revise Sec.  121.1101 to read as follows:


Sec.  121.1101  Are formal size determinations subject to appeal?

    (a) Appeals from formal size determinations may be made to OHA. 
Unless an appeal is made to OHA, the size determination made by a SBA 
Government Contracting Area Office or Disaster Area Office is the final 
decision of the agency. The procedures for appealing a formal size 
determination to OHA are set forth in part 134 of this chapter. The OHA 
appeal is an administrative remedy that must be exhausted before 
judicial review of a formal size determination may be sought in a 
court.
    (b) OHA will not review a formal size determination where the 
contract has been awarded and the issue(s) raised in a petition for 
review are contract specific, such as compliance with the 
nonmanufacturer rule (see Sec.  121.406(b)), or joint venture or 
ostensible subcontractor rule (see Sec.  121.103(h)).

0
29. Revise Sec.  121.1103 to read as follows:


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

    (a) Any interested party adversely affected by a NAICS code 
designation may appeal the designation to OHA. The only exception is 
that, for a sole source contract reserved under SBA's 8(a) Business 
Development program (see

[[Page 29208]]

part 124 of this chapter), only SBA's Associate Administrator for 8(a) 
Business Development may appeal the NAICS code designation.
    (b) The contracting officer's determination of the applicable NAICS 
code is final unless appealed as follows:
    (1) An appeal from a contracting officer's NAICS code designation 
and applicable size standard must be served and filed within 10 
calendar days after the issuance of the initial solicitation. OHA will 
summarily dismiss an untimely NAICS code appeal.
    (2)(i) The appeal petition must be in writing and must be sent to 
the Office of Hearings & Appeals, U.S. Small Business Administration, 
409 3rd Street, SW., Suite 5900, Washington, DC 20416.
    (ii) There is no required format for a NAICS code appeal, but an 
appeal must include the following information: the solicitation or 
contract number; the name, address, and telephone number of the 
contracting officer; a full and specific statement as to why the NAICS 
code designation is erroneous, and argument in support thereof; and the 
name, address and telephone number of the appellant or its attorney.
    (3) The appellant must serve the appeal petition upon the 
contracting officer who assigned the NAICS code to the acquisition and 
SBA's Office of General Counsel, Associate General Counsel for 
Procurement Law, 409 3rd Street, SW., Washington, DC 20416.
    (4) Upon receipt of a NAICS code appeal, OHA will notify the 
contracting officer by notice and order of the date OHA received the 
appeal, the docket number, and the Judge assigned to the case. The 
contracting officer's response to the appeal must include argument and 
supporting evidence (see part 134, subpart C, of this chapter) and must 
be received by OHA within 10 calendar days from the date of the 
docketing notice and order, unless otherwise specified by the Judge. 
Upon receipt of OHA's docketing notice and order, the contracting 
officer must immediately send to OHA a copy of the solicitation 
relating to the NAICS code appeal.
    (5) After close of the record, OHA will issue a decision and inform 
all interested parties, including the appellant and contracting 
officer. If OHA's decision is received by the contracting officer 
before the date offers are due, the solicitation must be amended if the 
contracting officer's designation of the NAICS code is reversed. If 
OHA's decision is received by the contracting officer after the due 
date of initial offers, the decision will not apply to the pending 
procurement, but will apply to future solicitations for the same 
products or services.

0
30. Revise Sec.  121.1205 to read as follows:


Sec.  121.1205  How is a list of previously granted class waivers 
obtained?

    A list of classes of products for which waivers of the 
Nonmanufacturer Rule have been granted is maintained in SBA's Web site 
at www.sba.gov/GC/approved.html. A list of such waivers may also be 
obtained by contacting the Office of Government Contracting, U.S. Small 
Business Administration, 409 3rd Street, SW., Washington, DC 20416, or 
the nearest SBA Government Contracting Area Office.

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

0
31. The authority citation for 13 CFR part 124 is revised to read as 
follows:

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

0
32. Revise Sec.  124.513(a)(1) to read as follows:


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

    (a) General. (1) If approved by SBA, a Participant may enter into a 
joint venture agreement with one or more other small business concerns, 
whether or not 8(a) Participants, for the purpose of performing one or 
more specific 8(a) contracts.
* * * * *

0
33. Revise Sec.  124.520(d)(1) to read as follows:


Sec.  124.520  Mentor/prot[eacute]g[eacute] program.

* * * * *
    (d) Benefits. (1) A mentor and prot[eacute]g[eacute] may joint 
venture as a small business for any government procurement, including 
procurements with a dollar value less than half the size standard 
corresponding to the assigned NAICS code and 8(a) sole source 
contracts, provided the prot[eacute]g[eacute] qualifies as small for 
the procurement and, for purposes of 8(a) sole source requirements, the 
prot[eacute]g[eacute] has not reached the dollar limit set forth in 
Sec.  124.519.
* * * * *

0
34. Amend Sec.  124.1002(f)(3), by removing ``13 CFR 121.103(f)(3)'' 
and by adding, in its place, ``13 CFR 121.103(h)(3)''.

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
35. 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.

0
36. Revise Sec.  125.6(g) to read as follows:


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

* * * * *
    (g) Where an offeror is exempt from affiliation under Sec.  
121.103(h)(3) of this chapter and qualifies as a small business 
concern, the performance of work requirements set forth in this section 
apply to the cooperative effort of the joint venture, not its 
individual members.

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

0
37. 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(l), 656(i), and 687(c); E.O. 12549, 51 FR 6370, 3 CFR, 1986 
Comp., p. 189.

0
38. Revise the definition of ``size determination'' in Sec.  134.101 as 
follows:


Sec.  134.101  Definitions.

* * * * *
    Size determination means a formal size determination made by an 
Area Office and includes decisions by Government Contracting Area 
Directors that determine whether two or more concerns are affiliated 
for purposes of SBA's financial assistance programs, or other programs 
for which an appropriate SBA official requested an affiliation 
determination.

0
39. Revise Sec.  134.102(k) to read as follows:


Sec.  134.102  Jurisdiction of OHA.

* * * * *
    (k) Appeals from size determinations and NAICS code designations 
under part 121 of this chapter. ``Size determinations'' include 
decisions by Government Contracting Area Directors that determine 
whether two or more concerns are affiliated for purposes of SBA's 
financial assistance programs, or other programs for which an 
appropriate SBA official requested an affiliation determination;
* * * * *

0
40. Revise Sec.  134.305(c) as follows:


Sec.  134.305  The appeal petition.

* * * * *
    (c) Service of NAICS appeals. The appellant must serve the 
contracting officer who made the NAICS code designation and SBA's 
Office of General Counsel, Associate General Counsel for

[[Page 29209]]

Procurement Law, 409 3rd Street, SW., Washington, DC 20416.
* * * * *

0
41. In Sec.  134.314, revise the heading and add the following sentence 
at the end to read as follows:


Sec.  134.314  Standard of review and burden of proof.

    * * * The appellant has the burden of proof, by a preponderance of 
the evidence, in both size and NAICS code appeals.

0
42. Revise Sec.  134.316(a) by adding the following sentence at the end 
to read as follows:


Sec.  134.316  The decision.

    (a) * * * The Judge will not decide substantive issues raised for 
the first time on appeal, or which have been abandoned or become moot.
* * * * *

    Dated: April 28, 2004.
Hector V. Barreto,
Administrator.
[FR Doc. 04-10066 Filed 5-20-04; 8:45 am]
BILLING CODE 8025-01-P