[Federal Register Volume 80, Number 24 (Thursday, February 5, 2015)]
[Proposed Rules]
[Pages 6618-6644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01548]



[[Page 6617]]

Vol. 80

Thursday,

No. 24

February 5, 2015

Part III





Small Business Administration





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13 CFR Parts 121, 124, 125, et al.





 Small Business Mentor Prot[eacute]g[eacute] Program; Small Business 
Size Regulations; Government Contracting Programs; 8(a) Business 
Development/Small Disadvantaged Business Status Determinations; HUBZone 
Program; Women-Owned Small Business Federal Contract Program; Rules of 
Procedure Governing Cases Before the Office of Hearings and Appeals; 
Proposed Rule

  Federal Register / Vol. 80 , No. 24 / Thursday, February 5, 2015 / 
Proposed Rules  

[[Page 6618]]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, 125, 126, 127, 134

RIN 3245-AG24


Small Business Mentor Prot[eacute]g[eacute] Program; Small 
Business Size Regulations; Government Contracting Programs; 8(a) 
Business Development/Small Disadvantaged Business Status 
Determinations; HUBZone Program; Women-Owned Small Business Federal 
Contract Program; Rules of Procedure Governing Cases Before the Office 
of Hearings and Appeals

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
proposing to amend its regulations to implement provisions of the Small 
Business Jobs Act of 2010 and the National Defense Authorization Act 
for Fiscal Year 2013. Based on authorities provided in these two 
statutes, the proposed rule would establish a Government-wide mentor-
prot[eacute]g[eacute] program for all small business concerns, 
consistent with SBA's mentor-prot[eacute]g[eacute] program for 
Participants in SBA's 8(a) Business Development (BD) program. The 
proposed rule would also make minor changes to the mentor-
prot[eacute]g[eacute] provisions for the 8(a) Business Development 
program in order to make the mentor-prot[eacute]g[eacute] rules for 
each of the programs as consistent as possible. The proposed rule would 
amend the current joint venture provisions to clarify the conditions 
for creating and operating joint venture partnerships, including the 
effect of such partnerships on any mentor-prot[eacute]g[eacute] 
relationships. Finally, the proposed rule would make several additional 
changes to current size, 8(a) Office of Hearings and Appeals or HUBZone 
regulations, concerning among other things, ownership and control, 
changes in primary industry, standards of review and interested party 
status for some appeals.

DATES: Comments must be received on or before April 6, 2015.

ADDRESSES: You may submit comments, identified by RIN: 3245-AG24, by 
any of the following methods: (1) Federal eRulemaking Portal, available 
at www.regulations.gov, follow the instructions for submitting 
comments; or (2) Mail/Hand Delivery/Courier: Brenda Fernandez, U.S. 
Small Business Administration, Office of Government Contracting, 409 
3rd Street SW., 8th Floor, Washington, DC 20416. SBA will not accept 
comments to this proposed rule submitted by email.

FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, U.S. Small Business 
Administration, Office of Government Contracting, 409 3rd Street SW., 
8th Floor, Washington, DC 20416; (202) 205-7337; 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On September 27, 2010, the President signed into law the Small 
Business Jobs Act of 2010 (Jobs Act), Public Law 111-240, which was 
designed to protect the interests of small businesses and increase 
opportunities in the Federal marketplace. In April 2010, prior to the 
enactment of the Jobs Act, President Obama established an Interagency 
Task Force on Federal Contracting Opportunities for Small Businesses in 
order to coordinate executive departments' and agencies' efforts 
towards ensuring that all small businesses have a fair chance to 
participate in Federal contracting opportunities. The task force was 
ordered to produce proposals and recommendations for: (i) Using 
innovative strategies, such as teaming, to increase opportunities for 
small business contractors and utilizing and expanding mentorship 
programs, such as the mentor-prot[eacute]g[eacute] program; (ii) 
removing barriers to participation by small businesses in the Federal 
marketplace by unbundling large projects, improving training of Federal 
acquisition officials with respect to strategies for increasing small 
business contracting opportunities, and utilizing new technologies to 
enhance the effectiveness and efficiency of Federal program managers, 
acquisition officials, and the Directors of Offices of Small Business 
Programs and Offices of Small and Disadvantaged Business Utilization, 
their managers, and procurement center representatives in identifying 
and providing access to these opportunities; (iii) expanding outreach 
strategies to match small businesses, including firms located in 
HUBZones and firms owned and controlled by women, minorities, socially 
and economically disadvantaged individuals, and service-disabled 
veterans, with contracting and subcontracting opportunities; and (iv) 
establishing policies, including revision or clarification of existing 
legislation, regulations, or policies, that are necessary or 
appropriate to effectuate these objectives.
    In September 2010, the task force issued a preliminary report and 
announced three priority objectives for assisting small businesses in 
Federal contracting,: stronger rules; a better equipped, informed and 
accountable acquisition work force; and improved outreach and better 
use of technology and data. Among other recommendations, the task force 
determined that mentor-prot[eacute]g[eacute] programs should be 
promoted through a new government-wide framework to give small 
businesses the opportunity to develop their capabilities with the 
assistance of experienced businesses in an expanded Federal procurement 
arena.
    With the enactment of the Jobs Act, Congress recognized that 
mentor-prot[eacute]g[eacute] programs serve an important business 
development function for small business and authorized SBA to establish 
separate mentor-prot[eacute]g[eacute] programs for the Service-Disabled 
Veteran-Owned Small Business Concern (SDVO SBC) Program, the HUBZone 
Program, and the Women-Owned Small Business (WOSB) Program, each 
modeled on SBA's existing mentor-prot[eacute]g[eacute] program 
available to 8(a) Business Development (BD) program participants. See 
section 1347(b)(3) of the Jobs Act.
    On January 2, 2013, the President signed into law the National 
Defense Authorization Act for Fiscal Year 2013 (NDAA), Public Law 112-
239. Section 1641 of the NDAA authorized SBA to establish a mentor-
prot[eacute]g[eacute] program for all small business concerns. This 
section further provides that a small business mentor-
prot[eacute]g[eacute] program must be identical to the 8(a) BD mentor-
prot[eacute]g[eacute] program, except that SBA may modify the program 
to the extent necessary, given the types of small business concerns to 
be included as prot[eacute]g[eacute]s. Section 1641 also provides that 
a Federal department or agency could not carry out its own agency 
specific mentor-prot[eacute]g[eacute] program for small businesses 
unless the head of the department or agency submitted a plan for such a 
program to SBA and received the SBA Administrator's approval of the 
plan. Finally, section 1641 requires the head of each Federal 
department or agency carrying out an agency-specific mentor-
prot[eacute]g[eacute] program to report annually to SBA the 
participants in its mentor-prot[eacute]g[eacute] program, the 
assistance provided to small businesses through the program, and the 
progress of prot[eacute]g[eacute] firms to compete for Federal prime 
contracts and subcontracts.
    Instead of implementing four new separate small business mentor-
prot[eacute]g[eacute] programs (i.e., having a separate mentor-
prot[eacute]g[eacute] program for SDVO SBCs, HUBZone SBCs, WOSB 
concerns, and all other small business concerns, in addition to the 
current mentor-prot[eacute]g[eacute]

[[Page 6619]]

program for 8(a) BD Participants), this rule proposes to implement one 
additional mentor-prot[eacute]g[eacute] program for all small 
businesses since the other three types of small businesses (SDVO, 
HUBZone and women-owned) would be necessarily included within any 
mentor-prot[eacute]g[eacute] program targeting all small business 
concerns. Approved mentor-prot[eacute]g[eacute] relationships would 
then be able to seek to perform joint ventures for any contracts for 
which the prot[eacute]g[eacute] firm qualifies as eligible (e.g., 
women-owned set aside where the prot[eacute]g[eacute] firm qualifies as 
a WOSB concern). Although the NDAA language authorizing a mentor-
prot[eacute]g[eacute] program for all small businesses could to be read 
as specifically authorizing a fifth separate mentor-
prot[eacute]g[eacute] program for certain types of small businesses 
(i.e., one for small businesses not already covered by SBA's current 
8(a) BD mentor-prot[eacute]g[eacute] program and not previously 
contained in the Jobs Act provisions authorizing mentor-
prot[eacute]g[eacute] programs for HUBZone, SDVO or women-owned small 
businesses), SBA believes that having five separate small business 
mentor-prot[eacute]g[eacute] programs could become confusing to the 
public and procuring agencies and hard to implement by SBA.
    Currently, the mentor-prot[eacute]g[eacute] program available to 
firms participating in the 8(a) BD program is used as a business 
development tool in which mentors provide diverse types of business 
assistance to eligible 8(a) BD prot[eacute]g[eacute]s. This assistance 
may include, among other things, technical and/or management 
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing Federal prime 
contracts through joint venture arrangements. The explicit purpose of 
the 8(a) BD mentor-prot[eacute]g[eacute] relationship is to enhance the 
capabilities of prot[eacute]g[eacute]s and to improve their ability to 
successfully compete for both government and commercial contracts. 
Similarly, the proposed mentor-prot[eacute]g[eacute] program for all 
small business concerns is designed to require approved mentors to 
provide assistance to prot[eacute]g[eacute] firms in order to enhance 
the capabilities of prot[eacute]g[eacute]s, to assist 
prot[eacute]g[eacute]s with meeting their business goals, and to 
improve the ability of prot[eacute]g[eacute]s to compete for contracts.
    Instead of providing one mentor-prot[eacute]g[eacute] program for 
all small business concerns, SBA also considered authorizing separate 
mentor-prot[eacute]g[eacute] programs for each of the specific types of 
small businesses (i.e., to have five separate mentor-
prot[eacute]g[eacute] programs, including the current one for 8(a) BD 
program). SBA believes that it should not make a difference which way 
the regulations are written. In either approach, a mentor-
prot[eacute]g[eacute] relationship will be able to perform any small 
business contract through a joint venture for which the 
prot[eacute]g[eacute] firm is qualified to perform. SBA proposed one 
program for all small businesses because SBA believed it would be 
easier for the small business and acquisition communities to use and 
understand. However, SBA specifically requests comments as to whether 
SBA should finalize one small business mentor-prot[eacute]g[eacute] 
program, as proposed, or, rather, five separate mentor-
prot[eacute]g[eacute] programs for the various small business entities.
    In addition, the rule would revise the joint venture provisions 
contained in Sec.  125.15(b) (for SDVO SBCs, and which would now be 
contained in proposed Sec.  125.18(b)), Sec.  126.616 (for HUBZone 
SBCs), and Sec.  127.506 (for WOSB and EDOSB concerns) to more fully 
align those requirements to the requirements of the 8(a) BD program. 
The proposed rule would also add a new Sec.  125.8 to specify 
requirements for joint ventures between small business 
prot[eacute]g[eacute] firms and their mentors. The rule would also make 
several additional changes to current size, 8(a) BD and HUBZone 
regulations that are needed to clarify certain provisions or correct 
interpretations of the regulations that were inconsistent with SBA's 
intent. These changes are set forth more fully below.

II. Proposed Changes

Definition of Joint Venture (13 CFR 121.103(h)).

    This rule proposes to amend Sec.  121.103(h) regarding the 
definition of what constitutes a joint venture for all of SBA's 
programs. Currently, the rule recognizes that a joint venture may be an 
informal arrangement that exists between two (or more) parties through 
a written document, or may be a formal written arrangement existing as 
a separate legal entity. The current language has caused some confusion 
as to what an informal joint venture arrangement means. The proposed 
rule attempts to clarify SBA's intent. As with the current regulation, 
the proposed rule explicitly requires that any joint venture be in 
writing. SBA never meant that an informal joint venture arrangement 
could exist without a formal written document setting forth the 
responsibilities of all parties to the joint venture. SBA merely 
intended to recognize that a joint venture need not be established as a 
limited liability company or other formal separate legal entity. The 
proposed rule attempts to clarify that distinction. In all instances 
where two (or more) parties execute a written document setting forth 
their responsibilities as joint venture partners, it is SBA's view that 
the parties have formed a partnership. It may not be a formal 
partnership, but the responsibilities of the parties are as partners. 
The proposed rule specifies that a joint venture may be a formal or 
informal partnership or exist as a separate limited liability company 
or other separate legal entity. However, regardless of form, the joint 
venture must be reduced to a written agreement.
    In addition, the proposed rule would specify that if a joint 
venture exists as a formal separate legal entity, it may not be 
populated with individuals intended to perform contracts awarded to the 
joint venture. This is a change from the current regulation which 
allows a separate legal entity joint venture to be unpopulated, to be 
populated with administrative personnel only, or to be populated with 
its own separate employees that are intended to perform contracts 
awarded to the joint venture. In the mentor-prot[eacute]g[eacute] joint 
venture context, if SBA continued to allow populated joint ventures, 
SBA is concerned that it will be difficult to definitively determine 
that a small prot[eacute]g[eacute] firm directly benefits from, and in 
fact controls, a joint venture with a large business mentor where that 
joint venture formed a limited liability company that hired its own 
employees to perform contracts for the joint venture. SBA believes that 
the benefits received by a prot[eacute]g[eacute] from a joint venture 
are more readily identifiable where the work done on behalf of the 
joint venture is performed by the prot[eacute]g[eacute] and the mentor 
separately. In such a case, it is much easier to determine that the 
prot[eacute]g[eacute] firm performed at least 40% of all work done by 
the joint venture, performed more than merely ministerial or 
administrative work, and otherwise gained experience that could be used 
to perform a future contract independently. Thus, the rule proposes to 
allow a separate legal entity joint venture to have its own separate 
employees to perform administrative functions, but not to have its own 
separate employees to perform contracts awarded to the joint venture.
    SBA also requests comments regarding whether SBA should require all 
joint ventures formed under mentor-prot[eacute]g[eacute] agreements to 
be formed as separate legal entities. SBA believes that such a 
requirement would significantly enhance SBA's ability to monitor and

[[Page 6620]]

track awards to mentor-prot[eacute]g[eacute] joint ventures.

HUBZone Joint Ventures (13 CFR 126.616)

    The HUBZone program is a community growth and development program 
in which businesses are incentivized to establish principal office 
locations in, and employ individuals from, areas of chronically high 
unemployment and/or low income in order to stimulate economic 
development. To further this purpose, the HUBZone program regulations 
currently permit a joint venture only between a HUBZone SBC and another 
HUBZone SBC. Joint ventures are not permitted with any non-HUBZone SBC. 
In authorizing a mentor-prot[eacute]g[eacute] relationship for HUBZone 
qualified SBCs, SBA considered whether this policy should be re-visited 
for joint ventures between HUBZone prot[eacute]g[eacute] firms and 
their SBA-approved mentors. SBA believes that if it continued to 
require that joint ventures in the HUBZone program could be between 
only two or more HUBZone qualified SBCs, then the business development 
assistance sought to be provided through the mentor-
prot[eacute]g[eacute] program to HUBZone SBCs would be minimal. Large 
businesses and non-HUBZone small businesses would not be encouraged to 
participate in mentor-prot[eacute]g[eacute] relationships with HUBZone 
SBCs and HUBZone SBCs would not significantly benefit from such a 
program. For this reason, this rule proposes to allow joint ventures 
for HUBZone contracts between a HUBZone prot[eacute]g[eacute] firm and 
its mentor.
    Under the proposed rule, the HUBZone program would be consistent 
with the other small business programs and would allow a joint venture 
between a qualified HUBZone SBC and one or more other SBCs. As with the 
other small business programs, the HUBZone SBC would be required to be 
the project manager and otherwise control the performance of a HUBZone 
joint venture contract. The joint venture would be required to perform 
the specified percentage of work of the contract, and the HUBZone firm 
would be required to perform at least 40% of the work done by the joint 
venture. SBA specifically requests comments as to whether allowing a 
joint venture between a HUBZone firm and a non-HUBZone firm (other than 
the HUBZone firm's mentor) makes sense in light of the purposes of the 
HUBZone program.
    SBA requests comments on whether the purposes of the HUBZone 
program would be appropriately served by allowing non-HUBZone firms to 
act as mentors and joint venture with prot[eacute]g[eacute] HUBZone 
firms, and whether SBA should allow any joint ventures with non-HUBZone 
firms.

Joint Venture Certifications and Performance of Work Reports (13 CFR 
125.8, 125.18, 126.616, 127.506)

    The proposed rule would require all partners to a joint venture 
agreement that perform a SDVO, HUBZone, WOSB/EDWOSB, or small business 
set-aside contract to certify to the contracting officer and SBA prior 
to performing any such contract that it will perform the contract in 
compliance with the joint venture regulations and with the joint 
venture agreement. In addition, the parties to the joint venture are 
required to report to the contracting officer and to SBA how they are 
meeting or have met the applicable performance of work requirements for 
each SDVO/HUBZone/WOSB/EDWOSB or small business set-aside contract they 
perform as a joint venture. Specifically, the joint venture must 
annually submit a report to the relevant contracting officer and to SBA 
certifying compliance with the regulations and joint venture agreement, 
and explaining how the performance of work requirements are being met, 
and once the contract is completed, a report certifying compliance and 
explaining how the performance of work requirements were met for the 
contract (see proposed Sec.  125.8(h) for joint ventures between small 
business prot[eacute]g[eacute]s and their SBA-approved mentors, 
proposed Sec.  125.18(b)(8) for SDVO SBCs, proposed Sec.  126.616(i) 
for HUBZone SBCs, and proposed Sec.  127.506(j) for WOSBs/EDWOSBs). For 
SDVO SBCs, HUBZone SBCs, and WOSBs/EDWOSBs, this requirement would 
apply to all joint ventures.
    SBA believes that joint ventures permitted by SBA's regulations 
must benefit small businesses, and must not be used as vehicles to 
allow companies to fraudulently or improperly benefit from SBA 
contracting programs. The required certifications will help to ensure 
accountability within these programs, and assist the Government's 
ability to deter wrongdoing through criminal and civil fraud 
prosecutions as well as other administrative remedies such as 
suspension and debarment. In this regard, the proposed rule would 
specify that the Government may consider the failure to comply with the 
joint venture regulations or to submit the required certifications and 
reports to be a ground for suspension or debarment.

Tracking Joint Venture Awards

    SBA also believes that it is important to be able to track awards 
to the joint ventures permitted by SBA's regulations, and is 
considering various methods of tracking awards. Possible approaches 
include: requiring all joint ventures permitted by these regulations to 
include in their names ``small business joint venture,'' and if a 
mentor-prot[eacute]g[eacute] joint venture to include in their names 
``mentor-prot[eacute]g[eacute] small business joint venture;'' 
requiring contracting officers to identify awards as going to small 
business joint ventures or to mentor-prot[eacute]g[eacute] small 
business joint ventures; requiring SBCs to amend their System for Award 
Management (SAM) entries to specify that they have formed a joint 
venture; requiring each joint venture to get a separate DUNS number; or 
a combination of all of these actions. Ensuring that governmental 
agencies and members of the public can track joint venture awards will 
promote transparency and accountability, and thereby deter fraudulent 
or improper conduct, and promote compliance with SBA's regulations. SBA 
seeks comments from interested parties on how best to accomplish this 
and whether these alternatives should be implemented in a final rule.

Applications for SBA's Small Business Mentor-Prot[eacute]g[eacute] 
Program (13 CFR 125.9)

    As noted above, SBA has proposed implementing one universal small 
business mentor-prot[eacute]g[eacute] program instead of a separate 
mentor-prot[eacute]g[eacute] program for each type of small business 
(i.e., HUBZone, SDVO, WOSB, and small business). In addition, the 
proposed rule would continue to authorize SBA's separate mentor-
prot[eacute]g[eacute] program for eligible 8(a) BD Program 
Participants. A small business seeking a mentor-prot[eacute]g[eacute] 
relationship would be required to submit information to SBA in 
accordance with this proposed rule. SBA's Director of Government 
Contracting (D/GC) would review and either approve or decline small 
business mentor-prot[eacute]g[eacute] agreements. SBA's Associate 
Administrator for BD (AA/BD) would continue to review and approve or 
decline mentor-prot[eacute]g[eacute] relationships in the 8(a) BD 
program. An eligible 8(a) BD Program Participant could choose to seek 
SBA's approval of a mentor-prot[eacute]g[eacute] relationship through 
the 8(a) BD program, or could seek a small business mentor-
prot[eacute]g[eacute] relationship through SBA's D/GC. As noted above, 
SBA is considering having one office review and either approve or 
decline all mentor-prot[eacute]g[eacute] agreements to ensure

[[Page 6621]]

consistency in the process, and specifically seeks comments as to 
whether that approach should be implemented.
    SBA is uncertain of the number of various small businesses that 
will seek a mentor-prot[eacute]g[eacute] relationship through SBA once 
these regulations are finalized. If the number of firms seeking SBA to 
approve their mentor-prot[eacute]g[eacute] relationships becomes 
unwieldy, SBA may institute certain ``open'' and ``closed'' periods for 
the receipt of further mentor-prot[eacute]g[eacute] applications. In 
such a case, SBA would then accept mentor-prot[eacute]g[eacute] 
applications only in ``open'' periods.

Mentors (13 CFR 124.520 and 125.9)

    Under the proposed small business mentor-prot[eacute]g[eacute] 
program, any for-profit business concern that demonstrates a commitment 
and the ability to assist small business concerns may be approved to 
act as a mentor and receive the benefits of the mentor-
prot[eacute]g[eacute] relationship. Pursuant to the authority contained 
in the NDAA, SBA is attempting to make the small business mentor-
prot[eacute]g[eacute] program identical to the 8(a) mentor-
prot[eacute]g[eacute] program. Specifically, section 45(a)(2) of the 
Small Business Act, 15 U.S.C. 657r(a)(2), which was added by section 
1641 of the NDAA, requires the mentor-prot[eacute]g[eacute] program for 
small businesses to be ``identical to the [8(a)] mentor-
prot[eacute]g[eacute] program . . . as in effect on the date of 
enactment of this section. . . '' Although the current rules for the 
8(a) mentor-prot[eacute]g[eacute] program allow non-profit entities to 
act as mentors, this rule proposes to not allow non-profit mentors 
(i.e., to require mentors to be for-profit business concerns) for the 
small business mentor-prot[eacute]g[eacute] program due to the 
definition of the term mentor contained in the NDAA. In this regard, 
section 1641 of the NDAA added section 45(d)(1) of the Small Business 
Act, 15 U.S.C. 657r(d)(1), which defines the term mentor to be ``a for-
profit business concern of any size.'' These two provisions of the NDAA 
are in conflict. The small business mentor-prot[eacute]g[eacute] 
program cannot be ``identical'' to the current 8(a) mentor-
prot[eacute]g[eacute] program while at the same time excluding non-
profit entities from being mentors. Because the NDAA definition may be 
read to apply only to the small business mentor-prot[eacute]g[eacute] 
program, and not the 8(a) BD mentor-prot[eacute]g[eacute] program (or 
to mentor-prot[eacute]g[eacute] programs for SDVOs, HUBZone SBCs, or 
WOSBs if SBA had chosen to implement separate mentor-
prot[eacute]g[eacute] programs under the Jobs Act authority), SBA could 
have prohibited non-profit mentors only in the small business mentor-
prot[eacute]g[eacute] program. SBA has not done that in this proposed 
rule because SBA seeks to have as much consistency between the various 
programs as possible. As such, this rule proposes not to allow non-
profit mentors in any mentor-prot[eacute]g[eacute] program, including 
the 8(a) mentor-prot[eacute]g[eacute] program. For the 8(a) mentor-
prot[eacute]g[eacute] program, this definition requires, and this rule 
proposes, a change to the current 8(a) regulations. See proposed Sec.  
124.520(b)(2).
    Generally, a mentor participating in any SBA-approved mentor-
prot[eacute]g[eacute] program will have no more than one 
prot[eacute]g[eacute] at a time. However, SBA may authorize a concern 
to mentor more than one prot[eacute]g[eacute] at a time where it can 
demonstrate that the additional mentor-prot[eacute]g[eacute] 
relationship will not adversely affect the development of either 
prot[eacute]g[eacute] firm (e.g., the second firm may not be a 
competitor of the first firm). Under no circumstances will a mentor be 
permitted to have more than three prot[eacute]g[eacute]s in the 
aggregate at one time under either of the mentor-prot[eacute]g[eacute] 
programs authorized by Sec.  124.520 or Sec.  125.9. A mentor may 
choose to have: up to three prot[eacute]g[eacute]s in the 8(a) BD 
program; or up to three prot[eacute]g[eacute]s in the small business 
program; or one or more prot[eacute]g[eacute]s in one program and one 
or more in another program, but no more than three 
prot[eacute]g[eacute]s in the aggregate. In proposing this limitation, 
SBA did not believe it was good policy to allow one large business 
mentor to conceivably have up to three prot[eacute]g[eacute]s in each 
of the two programs, or a total of possibly six prot[eacute]g[eacute] 
firms. If that were allowed, large businesses might benefit more from 
small business programs than the intended beneficiaries, the small 
business proteges. In reviewing a mentor-prot[eacute]g[eacute] 
agreement where a mentor has more than one prot[eacute]g[eacute], SBA 
will determine whether the mentor has demonstrated that its 
prot[eacute]g[eacute]s will not compete against each other.
    In addition, consistent with the 8(a) mentor-prot[eacute]g[eacute] 
program, a prot[eacute]g[eacute] in the small business mentor-
prot[eacute]g[eacute] program may not become a mentor and retain its 
prot[eacute]g[eacute] status. The prot[eacute]g[eacute] must terminate 
the mentor-prot[eacute]g[eacute] agreement with its mentor before it 
will be approved as a mentor to another small business concern. SBA 
requests comments regarding whether this policy makes sense in the 
small business mentor-prot[eacute]g[eacute] program, whether it 
continues to make sense in the 8(a) mentor-prot[eacute]g[eacute] 
program, or whether a firm should be permitted to be both a 
prot[eacute]g[eacute] and mentor in both programs in appropriate 
circumstances.

Prot[eacute]g[eacute]s (13 CFR 124.520 and 125.9)

    Currently, in order to qualify as a prot[eacute]g[eacute] for the 
8(a) BD mentor-prot[eacute]g[eacute] program, an 8(a) Program 
Participant must: have a size that is less than half the size standard 
corresponding to its primary NAICS code; or be in the developmental 
stage of its 8(a) program participation; or not have received an 8(a) 
contract. There is no doubt that the second and third reasons 
permitting a firm to qualify as a prot[eacute]g[eacute] in the 8(a) BD 
mentor-prot[eacute]g[eacute] program (i.e., the firm must be in the 
developmental stage of its 8(a) participation, or the firm has not 
received an 8(a) contract) do not apply to a separately authorized 
small business mentor-prot[eacute]g[eacute] program. As such, SBA 
immediately eliminated those bases from consideration as criteria to 
qualify a prot[eacute]g[eacute] for the small business mentor-
prot[eacute]g[eacute] program. The question then becomes whether these 
criteria continue to make sense in the 8(a) BD program. The 8(a) BD 
mentor-prot[eacute]g[eacute] program was designed to be an additional 
tool to assist in the business development of 8(a) BD Program 
Participants. Although it is true that the three types of firms 
identified as eligible to qualify as a prot[eacute]g[eacute] in the 
8(a) BD mentor-prot[eacute]g[eacute] program would be the firms in most 
need of business development assistance, SBA questions whether 8(a) BD 
Participants that do not meet one of those three criteria could also 
substantially benefit from participating as a prot[eacute]g[eacute] in 
a mentor-prot[eacute]g[eacute] program. A Participant may have a size 
that slightly exceeds one-half the size standard corresponding to its 
primary NAICS code, be in its first year of the transitional stage of 
program participation, and have received one small 8(a) contract. 
Currently, that firm would be ineligible to be a prot[eacute]g[eacute] 
in the 8(a) BD program, even though it could substantially benefit from 
the assistance provided by a mentor and might not otherwise be able to 
advance its business development beyond its current level. And, 
considering that an 8(a) BD Participant that was not in the 
developmental stage of program participation or had received an 8(a) 
contract could nevertheless qualify as a prot[eacute]g[eacute] under 
the small business mentor-prot[eacute]g[eacute] program, SBA believes 
that it makes sense to have consistent rules between the mentor-
prot[eacute]g[eacute] programs and, therefore, is proposing to 
eliminate those restrictions on qualifying as a prot[eacute]g[eacute] 
for the 8(a) BD mentor-prot[eacute]g[eacute] program as well.
    SBA then considered whether the final restriction to qualify as a 
prot[eacute]g[eacute] for the 8(a) BD mentor-prot[eacute]g[eacute] 
program (i.e., the requirement that a firm be less

[[Page 6622]]

than half the size standard corresponding to its primary NAICS code) 
continues to make sense in the 8(a) BD program, whether it makes sense 
for the new small business mentor-prot[eacute]g[eacute] program, and if 
not, what, if any, restriction should be imposed in its place. SBA 
recognizes that many small businesses may need some specific form of 
business development assistance, and that a mentor-
prot[eacute]g[eacute] program may be the best vehicle for the small 
business to obtain such assistance. In addition, many small businesses 
may lack the tools necessary to advance to the next level. As such, 
this rule proposes to allow any firm that qualifies as a small business 
for the size standard corresponding to its primary NAICS code to also 
qualify as a prot[eacute]g[eacute] in either the small business or 8(a) 
BD mentor-prot[eacute]g[eacute] program. In the 8(a) BD program, 
however, the firm would also have to demonstrate how the business 
development assistance to be received through its proposed mentor-
prot[eacute]g[eacute] relationship would advance the goals and 
objectives set forth in its business plan.
    Although SBA has proposed to eliminate the less than half the size 
standard requirement from the 8(a) BD mentor-prot[eacute]g[eacute] 
program and not apply it to the small business mentor-
prot[eacute]g[eacute] program, SBA specifically requests comments as to 
whether the focus of a mentor-prot[eacute]g[eacute] program should be 
restricted to smaller firms or whether, as proposed, the benefits of a 
mentor-prot[eacute]g[eacute] program should be open to any firm that 
qualifies as small.
    A prot[eacute]g[eacute] participating in either of the mentor-
prot[eacute]g[eacute] programs generally will have no more than one 
mentor at a time. However, a prot[eacute]g[eacute] may have two mentors 
where the two relationships will not compete or otherwise conflict with 
each other and the prot[eacute]g[eacute] demonstrates that the second 
relationship pertains to an unrelated, secondary NAICS code, or the 
first mentor does not possess the specific expertise that is the 
subject of the mentor-prot[eacute]g[eacute] agreement with the second 
mentor. SBA asks for comments regarding whether there should be a 
maximum of two mentors per prot[eacute]g[eacute] or another maximum.
    SBA wants to ensure that only firms that truly qualify as small 
businesses under their primary NAICS code participate as 
prot[eacute]g[eacute]s in the small business mentor-
prot[eacute]g[eacute] program. Unlike the 8(a) BD program (where firms 
apply and SBA affirmatively certifies firms as eligible to participate 
in the program), there is no formal process by which a firm is 
certified as a ``small'' business. Status as a small business is based 
on a firm's self-certification, and SBA understands that some firms may 
in good faith believe that they qualify as small but may not fully 
understand all of the affiliation issues required to be considered 
small. To ensure that only qualified firms participate as 
prot[eacute]g[eacute] firms, the proposed rule would require that SBA 
verify that a firm qualifies as a small business before approving that 
firm to act as a prot[eacute]g[eacute] in a small business mentor-
prot[eacute]g[eacute] relationship. See proposed Sec.  125.9(c)(1). 
Only those firms that are affirmatively determined to be small 
businesses and have not received a negative determination from SBA 
pursuant to a size protest may qualify as a prot[eacute]g[eacute]. SBA 
proposes that this affirmative determination may take place either as 
part of a firm's request for participation in the small business 
mentor-prot[eacute]g[eacute] program, or as part of a size protest 
determination prior to that time. Where SBA previously found a firm to 
qualify as small as part of a formal size determination or size appeal, 
the firm would be required to certify that there has been no change in 
its small business status since that determination. In addition, for 
the two self-certification programs (SDVO and WOSB), SBA may examine 
status eligibility as part of its prot[eacute]g[eacute] approval 
process.

Mentor-Prot[eacute]g[eacute] Programs of Other Departments and Agencies 
(13 CFR 125.10)

    As noted above, section 1641 of the NDAA provided that a Federal 
department or agency cannot carry out its own agency specific mentor-
prot[eacute]g[eacute] program for small businesses unless the head of 
the department or agency submitted a plan for such a program to SBA and 
received the SBA Administrator's approval of the plan. The NDAA 
specifically excluded the Department of Defense's mentor-
prot[eacute]g[eacute] program, but included all other current mentor-
prot[eacute]g[eacute] programs of other agencies. Under its provisions, 
a department or agency that is currently conducting a mentor-
prot[eacute]g[eacute] program (except the Department of Defense) may 
continue to operate that program for one year but must then go through 
the SBA approval process in order for the program to continue after one 
year. Thus, in order to continue to operate any current mentor-
prot[eacute]g[eacute] program beyond one year after SBA's mentor-
prot[eacute]g[eacute] regulations are final, each department or agency 
would be required to obtain the SBA Administrator's approval. These 
statutory provisions are proposed to be implemented in new Sec.  125.10 
of SBA's regulations.
    Finally, proposed Sec.  125.10(d) would implement statutory 
reporting requirements imposed on each Federal department or agency 
that has its own mentor-prot[eacute]g[eacute] program. Specifically, 
the head of each Federal department or agency carrying out an agency-
specific mentor-prot[eacute]g[eacute] program would be required to 
report annually to SBA the participants in its mentor-
prot[eacute]g[eacute] program (broken out by various small business 
categories), the assistance provided to small businesses through the 
program, and the progress of prot[eacute]g[eacute] firms to compete for 
Federal prime contracts and subcontracts. These proposed changes may 
require corresponding revisions to agency contract reporting systems 
and the Government's contract reporting system, FPDS-NG.
    Because the SBA's 8(a) BD and small business mentor-
prot[eacute]g[eacute] programs will apply to all Government small 
business contracts, and thus to all Federal departments and agencies, 
conceivably other agency-specific mentor-prot[eacute]g[eacute] programs 
for small business would not be needed. For example, SBA notes that the 
Department of Veterans Affairs (VA) has separate Veteran-Owned Small 
Business (VOSB) and Service-Disabled Veteran-Owned Small Business 
(SDVOSB) mentor-prot[eacute]g[eacute] programs. Although this proposed 
rule would establish a government-wide small business mentor-
prot[eacute]g[eacute] program, it would not establish mentor-
prot[eacute]g[eacute] programs specific to either VOSBs or SDVOSBs. The 
question becomes whether either of those separate mentor-
prot[eacute]g[eacute] programs would be necessary after SBA's small 
business mentor-prot[eacute]g[eacute] program is established. A VOSB or 
SDVOSB could obtain a small business mentor-prot[eacute]g[eacute] 
relationship through SBA and then participate in programs specific to 
VA if VA determined that the firm did indeed qualify as a VOSB or an 
SDVOSB under VA's rules. SBA requests comments as to whether the VA's 
VOSB and SDVO mentor-prot[eacute]g[eacute] programs should continue 
after the one-year grace period expires.
    SBA also specifically requests comments on whether there would be a 
continuing need for other small business mentor-prot[eacute]g[eacute] 
programs once SBA's various mentor-prot[eacute]g[eacute] programs are 
implemented. SBA understands that many of the agency-specific mentor-
prot[eacute]g[eacute] programs incentivize mentors to utilize their 
prot[eacute]g[eacute]s as subcontractors. For instance, some agencies 
provide additional evaluation points to a large business submitting an 
offer on an unrestricted procurement where the business has an active 
mentor-prot[eacute]g[eacute]

[[Page 6623]]

agreement, where the business has used the prot[eacute]g[eacute] firm 
as a subcontractor previously, or where the mentor and 
prot[eacute]g[eacute] are submitting an offer as a joint venture. In 
addition, some mentor-prot[eacute]g[eacute] programs give additional 
credit to a large business mentor toward its subcontracting plan goals 
when the mentor uses the prot[eacute]g[eacute] as a subcontractor on 
the mentor's prime contract(s) with the given agency. SBA's mentor-
prot[eacute]g[eacute] programs assume more of a prime contractor role 
for prot[eacute]g[eacute]s, but would also encourage subcontracts from 
mentors to prot[eacute]g[eacute]s as part of the developmental 
assistance that prot[eacute]g[eacute]s receive from their mentors. 
Because one or more mentor-prot[eacute]g[eacute] programs of other 
agencies ultimately may not be continued after SBA's various mentor-
prot[eacute]g[eacute] programs are finalized, SBA requests comments as 
to whether the subcontracting incentives authorized by mentor-
prot[eacute]g[eacute] programs of other agencies should specifically be 
incorporated into SBA's mentor-prot[eacute]g[eacute] programs.

Benefits of Mentor-Prot[eacute]g[eacute] Relationships (13 CFR 124.520 
and 125.9)

    As with the 8(a) BD program, under the proposed small business 
mentor-prot[eacute]g[eacute] program, a prot[eacute]g[eacute] may joint 
venture with its SBA-approved mentor and qualify as a small business 
for any Federal government contract or subcontract, provided the 
prot[eacute]g[eacute] qualifies as small for the size standard 
corresponding to the NAICS code assigned to the procurement. In 
revising its 8(a) regulations in 2011, SBA considered allowing the 
exclusion from affiliation between a prot[eacute]g[eacute] and its 
mentor to apply only to 8(a) contracts. Comments to SBA's proposed 8(a) 
rule argued that 8(a) prot[eacute]g[eacute] firms receive important 
developmental benefits in performing non-8(a) contracts and that many 
of these benefits would be missed if a prot[eacute]g[eacute] could not 
joint venture with a large business mentor. SBA agreed and decided to 
continue to allow the exclusion from affiliation for all contracts so 
that a joint venture between a prot[eacute]g[eacute] in the 8(a) BD 
program and its mentor equally qualifies as small for 8(a) and non-8(a) 
contracts so long as the prot[eacute]g[eacute] qualifies as small. That 
same rationale has been applied in this proposed rule to the small 
business mentor-prot[eacute]g[eacute] program. This means that a joint 
venture between a prot[eacute]g[eacute] and its approved mentor in the 
small business mentor-prot[eacute]g[eacute] program would be deemed to 
be a small business concern for any Federal contract or subcontract. It 
does not mean that such a joint venture affirmatively qualifies for any 
other small business program. For example, a joint venture between a 
small business prot[eacute]g[eacute] firm and its SBA-approved mentor 
would be deemed a small business concern for any Federal contract or 
subcontract for which the prot[eacute]g[eacute] qualified as small, but 
the joint venture would not qualify for a contract reserved or set-
aside for eligible 8(a) BD, HUBZone SBCs, SDVO SBCs or WOSBs/EDWOSBs 
unless the prot[eacute]g[eacute] firm met those program-specific 
requirements as well.
    Consistent with the 8(a) BD program, the proposed rule would permit 
a mentor to a small business to own an equity interest of up to 40% in 
the prot[eacute]g[eacute] firm in order to raise capital for the 
prot[eacute]g[eacute] firm. See proposed Sec.  125.9(d)(2). SBA 
requests comments on whether this 40% ownership interest should be a 
temporary interest, being authorized only as long as the mentor-
prot[eacute]g[eacute] relationship exists, or whether it should be able 
to survive the termination of the mentor-prot[eacute]g[eacute] 
relationship. Although the proposed rule allows the ownership interest 
to survive the termination of a mentor-prot[eacute]g[eacute] 
relationship, SBA is concerned that such a rule may allow far-reaching 
influence by large businesses that act as mentors and enable them to 
receive long-term benefits from programs designed to assist only small 
businesses.

Written Mentor-Prot[eacute]g[eacute] Agreement (13 CFR 124.520 and 
125.9)

    The proposed rule requires that all mentor-prot[eacute]g[eacute] 
agreements be in writing, identifying specifically the benefits 
intended to be derived by the projected prot[eacute]g[eacute] firms. 
Under the proposed rule, SBA must approve any mentor-
prot[eacute]g[eacute] agreement prior to the firms receiving any 
benefits through the mentor-prot[eacute]g[eacute] program. SBA will not 
approve the agreement if SBA determines that the assistance to be 
provided is not sufficient to promote any real developmental gains to 
the prot[eacute]g[eacute], or if SBA determines that the agreement is 
merely a vehicle to enable the mentor to receive small business 
contracts. The proposed rule would also require a firm seeking approval 
to be a prot[eacute]g[eacute] in either the 8(a) BD or small business 
mentor-prot[eacute]g[eacute] programs to identify any other mentor-
prot[eacute]g[eacute] relationship it has through another federal 
agency or SBA and provide a copy of each such mentor-
prot[eacute]g[eacute] agreement to SBA. The mentor-
prot[eacute]g[eacute] agreement submitted to SBA for approval must 
identify how the assistance to be provided by the proposed mentor is 
different from assistance provided to the prot[eacute]g[eacute] through 
another mentor-prot[eacute]g[eacute] relationship, either with the same 
or a different mentor. For example, if a firm is a 
prot[eacute]g[eacute] in a mentor-prot[eacute]g[eacute] relationship 
approved by another agency and seeks to enter a mentor-
prot[eacute]g[eacute] relationship with the same mentor firm through 
one of SBA's programs, it cannot merely duplicate the same mentor-
prot[eacute]g[eacute] agreement. It must demonstrate that the 
assistance to be provided to the prot[eacute]g[eacute] firm is 
different and in addition to the assistance provided to the firm 
through the other mentor-prot[eacute]g[eacute] relationship.
    SBA requests comments regarding whether SBA should consider 
limiting its review and approval of mentor-prot[eacute]g[eacute] 
agreements to a certain timeframe each year (i.e., allow submissions of 
agreements only during certain specified months), or allow submissions 
of agreements at any time, but limit the number of mentor-
prot[eacute]g[eacute] agreements it will review and/or approve each 
year.
    The proposed rule also provides that SBA will review a mentor-
prot[eacute]g[eacute] relationship annually to determine whether to 
approve its continuation for another year. SBA will evaluate the 
relationship and determine whether the mentor provided the agreed-upon 
business development assistance, and whether the assistance provided 
appears to be worthwhile. SBA proposes to limit the duration of a 
mentor-prot[eacute]g[eacute] agreement to three years. The proposed 
rule also permits a prot[eacute]g[eacute] to have one three-year 
mentor-prot[eacute]g[eacute] agreement with one entity and one three-
year mentor-prot[eacute]g[eacute] agreement with another entity, or two 
three-year mentor-prot[eacute]g[eacute] agreements (successive or 
otherwise) with the same entity. SBA invites comments regarding whether 
three years is an appropriate length of time and whether SBA should 
allow a mentor and prot[eacute]g[eacute] to enter into an additional 
mentor-prot[eacute]g[eacute] agreement upon the expiration of the 
original agreement.
    In addition, SBA proposes to add clarifying language not currently 
contained in the 8(a) mentor-prot[eacute]g[eacute] regulations 
authorizing the continuation of a mentor-prot[eacute]g[eacute] 
relationship where control or ownership of the mentor changes during 
the term of the mentor-prot[eacute]g[eacute] agreement. Specifically, 
the proposed rule would provide (for the 8(a) BD and small business 
mentor-prot[eacute]g[eacute] programs) that if control of the mentor 
changes (through a stock sale or otherwise), the previously approved 
mentor-prot[eacute]g[eacute] relationship may continue provided that, 
after the change in control, the mentor expresses in writing to SBA 
that it acknowledges the mentor-prot[eacute]g[eacute] agreement and 
that it continues its commitment to fulfill its obligations under the 
agreement. This is

[[Page 6624]]

current SBA policy for the 8(a) BD program, but SBA believes that 
setting it forth in the regulatory text would eliminate any confusion.

Size of 8(a) Joint Venture (13 CFR 124.513)

    The proposed rule would amend Sec.  124.513 to clarify that 
interested parties may protest the size of an SBA-approved 8(a) joint 
venture that is the apparent successful offeror for a competitive 8(a) 
contract. This change alters the rule expressed in Size Appeal of Goel 
Services, Inc. and Grunley/Goel Joint Venture D LLC, SBA No. SIZ-5320 
(2012), which concluded that the size of an SBA-approved 8(a) joint 
venture could not be protested because SBA had, in effect, determined 
the joint venture to qualify as small when it approved the joint 
venture pursuant to Sec.  124.513(e). Approval of a joint venture by 
its Office of Business Development should not immunize the awardee of 
an 8(a) competitive contract from a size protest. This revision would 
make clear that unsuccessful offerors on a competitive 8(a) set aside 
contract may challenge the size of an apparently successful joint 
venture offeror.

Establishing Social Disadvantage for the 8(a) BD Program (13 CFR 
124.103)

    The proposed rule would amend Sec.  124.103(c) to clarify that an 
individual claiming social disadvantage must present a combination of 
facts and evidence which by itself establishes that the individual has 
suffered social disadvantage that has negatively impacted his or her 
entry into or advancement in the business world. This change would 
alter the rule expressed in several SBA OHA decisions that allowed an 
individual to establish social disadvantage despite the record lacking 
sufficient evidence supporting a discriminatory basis for the alleged 
misconduct. See Matter of Tootle Construction, LLC, SBA No. BDP-420 
(2012), StretegyGen Co., SBA No. BDPE-460 (2012). SBA believes that the 
burden of establishing eligibility for the 8(a) BD program is on the 
applicant. Absent any facts or statements as to the qualifications of 
the individual claiming social disadvantage or those of another 
individual offered as evidence of discrimination in a statement, it is 
no more likely that an action or inaction was based on discriminatory 
conduct than it was based on a legitimate alternative reason. The 
individual claiming social disadvantage bears the burden of making his 
or her claims of social disadvantage more likely than possible non-
discriminatory reasons for the same outcomes by providing additional 
facts.
    As such, the proposed rule clarifies that SBA may disregard a claim 
of social disadvantage where a legitimate alternative ground for an 
adverse action exists and the individual has not presented evidence 
that would render his/her claim any more likely than the alternative 
ground. It is the responsibility of the applicant to establish all 
aspects of eligibility. A statement that a male co-worker received 
higher compensation or was promoted over a woman does not amount to an 
incident of social disadvantage by itself.
    In addition, when SBA asks for evidence corroborating an 
individual's claims of social disadvantage, what SBA is really 
requesting is for the individual to provide additional facts to make 
his or her claims of discriminatory conduct more likely than possible 
non-discriminatory reasons for the same outcomes. Because SBA usually 
has no way to verify the statements made by an individual claiming 
social disadvantage, and SBA recognizes that documentary evidence is 
often not available to support the statements, it is vitally important 
that the narrative contain sufficient detail (i.e., names, dates, 
location or other specific details) in order to be credible. To 
constitute sufficient detail to establish social disadvantage, the 
description of the individual's claims of discriminatory conduct must 
generally include: (1) when and where the discrimination occurred; (2) 
who committed the discrimination; (3) how the discrimination took 
place; and (4) how the individual was adversely affected by such acts. 
See Ace Technical, SBA No. SDBA-178, at 4-5 (2008) (citing Matter of 
Seacoast Asphalt Servs., Inc., SBA No. SDBA-151, at 8 (2001)).
    In addition, SBA maintains that it needs the discretion to request 
corroborating evidence in certain circumstances. Such requests do not 
raise the evidentiary burden placed on an 8(a) applicant above the 
preponderance of the evidence standard. SBA is not seeking definitive 
proof, but rather additional facts to support the claim that a negative 
outcome (e.g., failure to receive a promotion or needed training) was 
based on discriminatory conduct instead of one or more legitimate non-
discriminatory reasons. SBA expects an individual claiming social 
disadvantage to provide the level of detail consistent with someone 
with first-hand knowledge of the discriminatory conduct claimed. The 
proposed rule would add language to the regulations to specifically 
recognize SBA's right to seek corroborating evidence where appropriate.
    Finally, the proposed rule would clarify that each instance of 
alleged discriminatory conduct must be accompanied by a description of 
the negative impact of the conduct on the individual's entry into or 
advancement in the business world in order for it to constitute an 
instance of social disadvantage. This clarification would alter the 
rule expressed in Matter of Bartkowski Life Safety Corp., SBA No. BDPE-
516 (2014), in which OHA ruled that ``a petitioner's claims can each be 
offered as evidence of social disadvantage, negative impact, or both.'' 
SBA maintains that each claim of discriminatory conduct or bias 
experienced by an individual must also include negative impact on the 
individual's entry into or advancement in the business world in order 
for it to constitute an instance of social disadvantage within the 
meaning of SBA's regulations. This proposed change clarifies that 
point.

Substantial Unfair Competitive Advantage Within an Industry Category 
(13 CFR 124.109, 124.110, and 124.111)

    Pursuant to section 7(j)(10)(J)(ii)(II) of the Small Business Act, 
15 U.S.C. 636(j)(10)(J)(ii)(II), ``[i]n determining the size of a small 
business concern owned by a socially and economically disadvantaged 
Indian tribe (or a wholly owned business entity of such tribe) [for 
purposes of 8(a) BD program entry and 8(a) BD contract award], each 
firm's size shall be independently determined without regard to its 
affiliation with the tribe, any entity of the tribal government, or any 
other business enterprise owned by the tribe, unless the Administrator 
determines that one or more such tribally owned business concerns have 
obtained, or are likely to obtain, a substantial unfair competitive 
advantage within an industry category.'' For purposes of the 8(a) BD 
program, the term ``Indian tribe'' includes any Alaska Native village 
or regional or village corporation (within the meaning of the Alaska 
Native Claims Settlement Act). 15 U.S.C. 637(a)(13). SBA's regulations 
have extended this broad exclusion from affiliation to the other 
entity-owned firms authorized to participate in the 8(a) BD program 
(i.e., firms owned by Native Hawaiian Organizations (NHOs) and 
Community Development Corporations (CDCs)). See Sec. Sec.  124.109(a), 
124.109(c)(2)(iii), 124.110(b), and 124.111(c). This proposed rule will 
provide guidance as to how SBA will determine whether a firm has 
obtained or is likely to obtain ``a substantial

[[Page 6625]]

unfair competitive advantage within an industry category.''
    First, in determining how best to define the term ``industry 
category,'' SBA considered how it has defined other similar terms in 
its regulations. In this regard, Sec.  124.3 defines ``primary industry 
classification'' to mean ``the six digit North American Industry 
Classification System (NAICS) code designation which best describes the 
primary business activity of the 8(a) BD applicant or Participant.'' 
Further, Sec.  124.109(c)(3)(ii) defines the ``same primary NAICS 
code'' to mean the six digit NAICS code having the same corresponding 
size standard. SBA believes that it makes sense to apply this same 
limitation when defining an industry category. Thus, the proposed rule 
would provide that an entity-owned business concern is not subject to 
the broad exemption to affiliation set forth in 13 CFR part 124 where 
one or more entity-owned firms are found to have obtained, or are 
likely to obtain, a substantial unfair competitive advantage in a 
particular NAICS code with a particular size standard.
    In addition, SBA believes that entity-owned concerns may be found 
affiliated only if they have obtained, or are likely to obtain, a 
substantial unfair competitive advantage within a particular industry 
category on a national scale. Because NAICS codes and their associated 
size standards are established on a national basis, it is reasonable to 
conclude that Congress intended SBA to look at ``an industry category'' 
nationally to determine whether a particular firm has obtained or is 
likely to obtain a substantial unfair competitive advantage. In making 
this assessment, SBA will consider a firm's percentage share of the 
national market and other relevant factors to determine whether a firm 
is dominant in a specific six-digit NAICS code with a particular size 
standard. SBA anticipates that it will review Federal Procurement Data 
System data to compare the firm's share of the industry as compared to 
overall small business participation in that industry to determine 
whether there is a an unfair competitive advantage. The proposed rule 
does not contemplate a finding of affiliation where an entity-owned 
concern appears to have obtained an unfair competitive advantage in a 
local market, but remains competitive, but not dominant, on a national 
basis.

Management of Tribally-Owned 8(a) Program Participants (13 CFR 124.109)

    The proposed rule would add language to Sec.  124.109(c)(4) 
specifying that the individuals responsible for the management and 
daily operations of a tribally-owned concern cannot manage more than 
two Program Participants at the same time. This language is taken 
directly from section 7(j)(11)(B)(iii)(II) of the Small Business Act 
(15 U.S.C. 636(j)(11)(B)(iii)(II)), but did not also appear in SBA's 
8(a) BD regulations. SBA believes it is necessary to incorporate this 
provision into the regulations to more fully apprise tribally-owned 
8(a) applicants and Participants of the control requirements applicable 
to them.

Native Hawaiian Organizations (NHOs) (13 CFR 124.110)

    The proposed rule would add language to Sec.  124.110(d) to clarify 
the control requirements applicable to NHO-owned firms for 8(a) BD 
program participation. Specifically, the rule would clarify that the 
members or directors of an NHO need not have the technical expertise or 
possess a required license to be found to control an applicant or 
Participant owned by the NHO. Rather, the NHO, through its members and 
directors, must merely have managerial experience of the extent and 
complexity needed to run the concern. As with individually owned 8(a) 
applicants and Participants, individual NHO members may be required to 
demonstrate more specific industry-related experience in appropriate 
circumstances to ensure that the NHO in fact controls the day-to-day 
operations of the firm. This would be particularly true where a non-
disadvantaged owner (or former owner) who has experience related to the 
industry is actively involved in the day-to-day management of the firm.
    Proposed Sec.  124.110(g) would clarify that an NHO-owned firm's 
eligibility for 8(a) BD participation is separate and distinct from the 
eligibility of individual members, directors or managers. As such, an 
individual Hawaiian Native who previously qualified his or her own 
business for 8(a) BD participation could be counted as a Native 
Hawaiian for NHO eligibility and could use his or her individual 
economic disadvantage to help qualify the NHO as economically 
disadvantage even if he or she previously used his or her disadvantaged 
status to qualify an individually-owned 8(a) applicant or Participant.
    Finally, although the rule does not propose to change the way in 
which SBA determines whether an NHO is economically disadvantaged, SBA 
specifically requests comments regarding whether an alternative 
approach is more suitable. Section 8(a)(4)(A) of the Small Business 
Act, 15 U.S.C. 637(a)(4)(A), requires that an NHO be economically 
disadvantaged in order to establish 8(a) eligibility for a concern 
owned by the NHO. Neither the statute nor its legislative history 
provide any guidance on how to determine whether an NHO is economically 
disadvantaged. Currently, Sec.  124.110(c)(1) provides that in 
determining whether an NHO is economically disadvantaged, SBA will look 
at the individual economic status of the NHO's members. The NHO must 
establish that a majority of its members qualify as economically 
disadvantaged under the rules that apply to individuals as set forth in 
Sec.  124.104. SBA has received several inquiries from NHOs asking if 
this is the most sensible approach to establishing economic 
disadvantage. They have recommended that NHOs establish economic 
disadvantage in the same way that tribes currently do so for the 8(a) 
BD program: that is, by providing information relating to members, 
including the tribal unemployment rate, the per capita income of tribal 
members, and the percentage of tribal members below the poverty level. 
SBA asks for specific comments as to whether SBA should adopt for NHOs 
the same criteria used for determining whether a tribe is economically 
disadvantaged. One of the concerns SBA has in adopting such an approach 
is how to define the community for an NHO that would correspond to the 
tribal population for a specific tribe. Would the same Native Hawaiian 
community be used to establish the economic disadvantage of each NHO? 
If so, would that diminish the entire economic disadvantage requirement 
for NHOs? After reviewing comments received in response to this issue, 
SBA will determine how best to proceed in a final rule.

Change in Primary Industry Classification (13 CFR 124.112)

    On February 11, 2011, SBA published a final rule in the Federal 
Register implementing comprehensive revisions to its 8(a) BD program. 
76 FR 8221. Included within these revisions was an amendment to the 
definition of the term ``primary industry classification'' and 
provisions authorizing an 8(a) Participant to change its primary 
industry classification where it can demonstrate to SBA that the 
majority of its total revenues during a three-year period have evolved 
from one NAICS code to another. The supplementary information to that 
final rule stated that it was not SBA's intent that SBA would be able 
to change a firm's primary NAICS code on its own. 76 FR 8221. At that 
time, SBA did not recognize a need

[[Page 6626]]

to require a Participant to change the primary industry classification 
contained in its business plan. SBA's views have changed. In the 
context of an entity-owned Participant, SBA believes that it needs to 
have to ability to change the Participant's primary industry 
classification in appropriate circumstances. An entity-owned applicant 
to the 8(a) BD program (i.e., one owned by an Indian tribe, Alaska 
Native Corporation (ANC), Native Hawaiian Organization (NHO), or 
Community Development Corporation (CDC)) cannot own more than 49% of 
another firm which, either at the time of application or within the 
previous two years, has been participating in the 8(a) BD program under 
the same primary NAICS code as the applicant. As such, an entity-owned 
applicant must select a primary business classification (as represented 
by a six digit NAICS code) that is different from the primary business 
classification of any other Participant owned by that same entity. 
After being certified to participate in the 8(a) BD program, however, 
there is no current requirement that the newly admitted Participant 
actually perform most, or any, work in the six digit NAICS code 
selected as its primary business classification in its application. SBA 
believes that this inconsistency could permit a firm to circumvent the 
intent of SBA's regulations by selecting a primary business 
classification that is different from the primary business 
classification of any other Participant owned by that same entity 
merely to get admitted to the 8(a) BD program, and then performing the 
majority, or even all, of its work in the identical primary NAICS code 
as another Participant owned by the entity. In order to make the 
regulations more consistent, this rule proposes to allow SBA to change 
the primary industry classification contained in a Participant's 
business plan where the greatest portion of the Participant's total 
revenues during a three-year period have evolved from one NAICS code to 
another. See proposed Sec.  124.112(e). The proposed language is not 
intended to imply that revenues from its primary NAICS code must 
account for at least 50% of the firm's total revenues, but rather that 
revenues from its primary NAICS code must exceed revenues generated 
from any other NAICS code. The proposed language also provides 
discretion to SBA in deciding whether to change a Participant's primary 
industry classification because SBA recognizes that whether the 
greatest portion of a firm's revenues is derived from one NAICS code, 
as opposed to one or more other NAICS codes, is a snapshot in time that 
is ever changing. The proposed rule would require SBA to notify the 
Participant of its intent to change the Participant's primary industry 
classification and afford the Participant the opportunity to submit 
information explaining why such a change would be inappropriate. Where 
the Participant provides information demonstrating that it has received 
one or more additional contracts in its primary NAICS code since the 
end of its most recently completed fiscal year, and such revenue would 
cause the revenue from its primary NAICS code to exceed the revenue 
generated from any other NAICS code, SBA would not change the 
Participant's primary industry classification. Where the revenue 
generated under its primary NAICS code is close to but less than the 
revenue generated under another NAICS code, the Participant can 
demonstrate that it has made good faith efforts to obtain contracts in 
its primary NAICS code. For example, where a Participant details 
contract opportunities under its primary NAICS code that it submitted 
offers for in the last year, but was not successful in winning, and its 
concrete plans to continue to seek additional opportunities in that 
NAICS code, SBA may not change the Participant's primary industry 
classification. SBA requests comments on whether a change in primary 
industry should instead be automatic, based on FPDS data.

8(a) BD Program Suspensions (13 CFR 124.305)

    SBA is also proposing to add two additional bases for allowing a 
Participant to elect to be suspended from 8(a) BD program 
participation: where the Participant's principal office is located in 
an area declared a major disaster area or where there is a lapse in 
Federal appropriations.
    President Obama signed an Executive Order on December 7, 2012 
creating the Hurricane Sandy Rebuilding Task Force. The President 
charged the Task Force with identifying and working to remove obstacles 
to rebuilding while taking into account existing and future risks and 
promoting the long-term sustainability of communities. The Final Task 
Force Implementation Plan made 69 recommendations to implement an 
effective Rebuilding Strategy, including several relating to small 
business. In particular, the Task Force recommended authorizing 8(a) BD 
program suspensions for Participants located in major disaster areas. 
The Task Force specifically recommended that, upon the request of a 
certified 8(a) firm in a major declared disaster area, SBA will suspend 
the eligibility of the firm for up to a one year period while they 
recover from the disaster to ensure they are able to take full 
advantage of the 8(a) BD program, rather than being impacted by lack of 
capacity or contracting opportunities due to disaster-induced 
disruptions. During such a suspension, a Participant would not be 
eligible for 8(a) BD Program benefits, including set-asides, however, 
but would not ``lose time'' in its program term due to the extenuating 
circumstances wrought by a disaster. This rule proposes to implement 
that recommendation into SBA's 8(a) BD regulations.
    In addition, SBA proposes to allow a firm-initiated suspension 
where there is a lapse in Federal appropriations that could adversely 
affect a Participant's ability to be awarded one or more 8(a) 
contracts. The need for such a suspension was brought to light during 
the Government shutdown at the beginning of fiscal year 2014. During 
the lapse of federal appropriations at the end of fiscal year 2013, 
several Program Participants' term of participation in the 8(a) program 
ended, and they were unable to finalize 8(a) contracts because there 
was no funding during the shutdown and they were no longer in the 8(a) 
BD program (because their term of program participation had ended) by 
the time the shutdown ended and appropriations were available. 
Therefore, this rule proposes to allow a Participant to elect to 
suspend its participation in the 8(a) BD program where: Federal 
appropriations for one or more federal departments or agencies have 
expired without being extended via continuing resolution or other means 
and no new appropriations have been enacted (i.e., during a lapse in 
appropriations); SBA has previously accepted an offer for a sole source 
8(a) award on behalf of the Participant; and award of the 8(a) sole 
source contract is pending. A Participant could not elect a partial 
suspension of 8(a) BD program benefits; if it elects to be suspended 
during a lapse in Federal appropriations, the Participant would be 
ineligible to receive any new 8(a) BD program benefits during the 
suspension. For example, if Department X was funded during a partial 
Government shutdown but Agency Y was not, a Participant could not elect 
to be suspended for purposes of executing 8(a) contracts with Agency Y, 
but not be suspended for purposes of executing 8(a) contracts with 
Department X. The suspension would start immediately upon the date 
requested by a Participant and would last the length of the lapse in 
Federal appropriations. However,

[[Page 6627]]

once the Government is fully funded and the suspension is lifted, the 
contracts from both Department X and Agency Y could be finalized.

Benefits Reporting Requirement (13 CFR 124.602)

    The proposed rule amends the time frame for the reporting of 
benefits for entity-owned Participants in the 8(a) BD program. SBA's 
current regulations require an entity-owned Participant to report 
benefits as part of its annual review submission. See Sec.  124.604. 
SBA believes it is more appropriate that this information be submitted 
as part of a Participant's submission of its annual financial 
statements pursuant to Sec.  124.602. SBA wants to make clear that 
benefits reporting should not be tied to continued eligibility, as may 
be assumed where such reporting is part of SBA's annual review 
analysis. In response to comments to the proposed rule which initially 
placed benefits reporting in the continued eligibility section of SBA's 
regulations (Sec.  124.112), see 74 FR 55694 (Oct. 28, 2009), SBA moved 
the benefits reporting requirement to a new section (Sec.  124.604) 
under miscellaneous reporting requirements contained in SBA's 8(a) BD 
regulations to evidence SBA's intent that benefits reporting not be 
considered a part of continued eligibility. 76 FR 8221 (Feb. 11, 2011). 
Although SBA changed the place in the regulations where the benefits 
reporting requirement appeared, it still collected that information 
with other information relating to a firm's annual review and believed 
that a perception could still exist that benefits reporting was, 
nevertheless, somehow tied to continued 8(a) BD eligibility. In order 
to further clarify SBA's intent and eliminate any doubt that benefits 
reporting is not in any way tied to continued 8(a) BD eligibility for 
any entity-owned Program Participant, this proposed rule changes the 
timing of benefits reporting from the time of a Participant's annual 
review submission to the time of a Participant's annual financial 
statement submission. In addition, SBA believes that the data collected 
by certain Participants in preparing their financial statements 
submissions may help them report some of the benefits that flow to the 
native or other community. The regulatory change will continue to 
require the submission of the data on an annual basis but within 120 
days after the close of the concern's fiscal year instead of as part of 
the annual submission.

Reverse Auctions (13 CFR 125.2 and 125.5)

    SBA is also proposing to amend Sec. Sec.  125.2(a) and 125.5(a)(1) 
to address reverse auctions. Specifically, SBA is proposing to 
reinforce the principle that all of SBA's regulations, including those 
relating to set-asides and referrals for a Certificate of Competency, 
apply to reverse auctions. With a reverse auction, the Government is 
buying a product or service, but the businesses are bidding against 
each other, which tends to drive the price down (hence the name reverse 
auction). In a reverse auction, the bidders actually get to see all of 
the other bidders' prices and can ``outbid'' them by offering a lower 
price. Although SBA believes that the small business rules apply to 
reverse auctions, the proposed rule is intended to make it clear to 
contracting officials that there are no exceptions to SBA's small 
business regulations for reverse auctions. Thus, the ``rule of two,'' 
which directs whether a small business set-aside is appropriate, 
applies equally to reverse auctions as it does to regular procurement 
actions.

Processing Applications for HUBZone Certification (13 CFR 126.306)

    SBA is proposing to amend Sec.  126.306, which addresses how SBA 
processes HUBZone applications. SBA is clarifying that the burden to 
prove eligibility is on the small business applying for certification 
into the program. Finally, SBA is proposing to amend the regulation to 
state that SBA will process the application within 90 days, if 
practicable, to more accurately reflect the amount of time it takes to 
process a HUBZone application along with all of the documents needed to 
verify eligibility and to make that process consistent with the 8(a) BD 
application process.

Reconsideration of Decisions of SBA's OHA (13 CFR 134.227)

    The proposed rule would add clarifying language to Sec.  134.227(c) 
to permit SBA to file a request for reconsideration in an OHA 
proceeding in which it has not previously participated. This provision 
alters the rule expressed in Size Appeal of Goel Services, Inc. and 
Grunley/Goel JVD LLC, SBA No. SIZ-5356 (2012), which held SBA could not 
request reconsideration where SBA did not appear as a party in the 
original appeal.

Administrative Record in 8(a) Appeals (13 CFR 134.406)

    The proposed rule incorporates language from a line of OHA cases 
regarding SBA 8(a) decisions and the administrative record. In 
reviewing 8(a) cases on appeal, SBA's regulations require the 
Administrative Law Judge to review SBA's decision to determine whether 
the Agency's determination is arbitrary, capricious, or contrary to 
law. As long as the Agency's determination is reasonable, the 
Administrative Law Judge must uphold it on appeal. OHA cases have 
stated that so long as SBA's path of reasoning may reasonably be 
discerned, OHA will uphold a decision of less than ideal clarity. See, 
e.g., Matter of Alloy Specialties, Inc., No. SDBA-108 at 6 (1999). The 
proposed rule would include this language in the regulatory text of 
Sec.  134.406 in order to more fully apprise the public how OHA must 
review an 8(a) case on appeal.

Compliance With Executive Orders 12866, 13563, 12988, and 13132, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a significant regulatory action for purposes of 
Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. This is not a major rule, however, under 
the Congressional Review Act.

Regulatory Impact Analysis

1. Is there a need for the regulatory action?
    The proposed regulations implement section 1347(b)(3) of the Small 
Business Jobs Act of 2010, Public Law 111-240, 124 Stat. 2504, which 
authorizes the Agency to establish mentor-prot[eacute]g[eacute] 
programs for SDVO SBCs, HUBZone SBCs, and WOSB concerns, modeled on the 
Agency's mentor-prot[eacute]g[eacute] program for small business 
concerns participating in programs under section 8(a) of the Small 
Business Act (15 U.S.C. 637(a)). In addition, the proposed rule 
implements section 1641 of the NDAA, Public Law 112-239, which 
authorized SBA to establish a mentor-prot[eacute]g[eacute] program for 
all small business concerns. SBA is also updating its rules to clarify 
areas where small business concerns may have been confused or where 
OHA's interpretations of SBA rules do not conform to SBA's 
interpretation or intent.
2. What are the alternatives to this rule?
    As noted above in the supplementary information, this rule proposes 
to implement the Jobs Act and NDAA authorities by creating one new 
mentor-prot[eacute]g[eacute] program for which any small

[[Page 6628]]

business could participate instead of implementing four new separate 
small business mentor-prot[eacute]g[eacute] programs (i.e., having a 
separate mentor-prot[eacute]g[eacute] program for SDVO SBCs, HUBZone 
SBCs, WOSB concerns, and all other small business concerns, in addition 
to the current mentor-prot[eacute]g[eacute] program for 8(a) BD 
Participants). SBA proposed one program for all small businesses 
because SBA believed it would be easier for the small business and 
acquisition communities to use and understand. The statutory authority 
for this rule specifically mandates that the new mentor-
prot[eacute]g[eacute] programs be modeled on the existing mentor-
prot[eacute]g[eacute] program for small business concerns participating 
in the 8(a) BD program. Thus, to the extent practicable, SBA attempted 
to adopt the regulations governing the 8(a) mentor-
prot[eacute]g[eacute] program in establishing the mentor-
prot[eacute]g[eacute] program for SBCs.
3. What are the potential benefits and costs of this regulatory action?
    The proposed regulatory action would enhance the ability of small 
business concerns to obtain larger prime contracts that would be 
normally out of the reach of these businesses. The proposed small 
business mentor-prot[eacute]g[eacute] program would allow all small 
businesses to tap into the expertise and capital of larger firms, which 
in turn would help small business concerns become more knowledgeable, 
stable, and competitive in the Federal procurement arena.
    SBA estimates that under the proposed rule, approximately 2,000 
SBCs, could become active in the proposed mentor-prot[eacute]g[eacute] 
program, and prot[eacute]g[eacute] firms may obtain Federal contracts 
totaling possibly $2 billion per year. SBA notes that these estimates 
represent an extrapolation from data on the percentage of 8(a) BD 
program participants with signed mentor-prot[eacute]g[eacute] 
agreements and joint venture agreements, and are based on the dollars 
awarded to SBCs in FY 2012 according to data retrieved from the Federal 
Procurement Data System--Next Generation (FPDS-NG). With SBCs able to 
compete for larger contracts and thus a greater number of contracts in 
general, Federal agencies may choose to set aside more contracts for 
competition among small businesses, SDVO SBCs, HUBZone SBCs, and WOSB 
concerns, rather than using full and open competition. The movement 
from unrestricted to set-aside contracting might result in competition 
among fewer total bidders, although there will be more small businesses 
eligible to submit offers. The added competition for many of these 
procurements could result in lower prices to the Government for 
procurements reserved for SBCs, HUBZone SBCs, WOSB concerns, and SDVO 
SBCs, although SBA cannot quantify this benefit. To the extent that 
more than two thousand SBCs could become active in the proposed mentor-
prot[eacute]g[eacute] program, this might entail some additional 
administrative costs to the Federal Government associated with 
additional bidders for Federal small business procurement 
opportunities.
    The proposed mentor-prot[eacute]g[eacute] program may have some 
distributional effects among large and small businesses. Although SBA 
cannot estimate with certainty the actual outcome of the gains and 
losses among small and large businesses, it can identify several 
probable impacts. There may be a transfer of some Federal contracts 
from large businesses to SBC prot[eacute]g[eacute]s. Large businesses 
may have fewer Federal prime contract opportunities as Federal agencies 
decide to set aside more Federal contracts for SBCs, SDVO SBCs, HUBZone 
SBCs, and WOSB concerns. In addition, some Federal contracts may be 
awarded to HUBZone prot[eacute]g[eacute]s instead of large businesses 
since these firms may be eligible for an evaluation adjustment for 
contracts when they compete on a full and open basis. This transfer may 
be offset by a greater number of contracts being set aside for small 
businesses, SDVO SBCs, HUBZone SBCs, and WOSB concerns. SBA cannot 
estimate the potential distributional impacts of these transfers with 
any degree of precision.
    The proposed mentor-prot[eacute]g[eacute] program is consistent 
with SBA's statutory mandate to assist small businesses, and this 
regulatory action promotes the Administration's objectives. One of 
SBA's goals in support of the Administration's objectives is to help 
individual small businesses, including SDVO SBCs, HUBZone SBCs, and 
WOSB concerns, succeed through fair and equitable access to capital and 
credit, Federal contracts, and management and technical assistance.

Executive Order 13563

    A description of the need for this regulatory action and the 
benefits and costs associated with this action, including possible 
distributional impacts that relate to Executive Order 13563, is 
included above in the Regulatory Impact Analysis under

Executive Order 12866

    In an effort to engage interested parties in this action, SBA met 
with representatives from various agencies to obtain their feedback on 
SBA's proposed mentor-prot[eacute]g[eacute] program. For example, SBA 
participated in a government-wide meeting involving Office of Small and 
Disadvantaged Business Utilization (OSDBU) representatives responsible 
for mentor-prot[eacute]g[eacute] programs in their respective agencies. 
It was generally agreed upon that SBA's proposed mentor-
prot[eacute]g[eacute] program would complement the already existing 
Federal programs due in part to the differing incentives offered to the 
mentors under the various programs. SBA also presented proposed small 
business mentor-prot[eacute]g[eacute] programs to businesses in 
thirteen cities in the U.S. and sought their input as part of the Jobs 
Act tours. In developing this proposed rule, SBA considered all input, 
suggestions, recommendations, and relevant information obtained from 
industry groups, individual businesses, and Federal agencies.

Executive Order 12988

    For purposes of Executive Order 12988, SBA has drafted this 
proposed rule, to the extent practicable, in accordance with the 
standards set forth in sections 3(a) and 3(b)(2) of that Executive 
Order, to minimize litigation, eliminate ambiguity, and reduce burden. 
This rule has no preemptive or retroactive effect.

Executive Order 13132

    For the purpose of Executive Order 13132, SBA has determined that 
this proposed rule will not have substantial direct effects 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, SBA has determined that this 
proposed rule has no federalism implications warranting preparation of 
a federalism assessment.

Paperwork Reduction Act

    For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35, 
SBA has determined that this proposed rule would impose new reporting 
requirements. These proposed collections of information include the 
following: (1) Information necessary for SBA to evaluate the success of 
a mentor-prot[eacute]g[eacute] relationship; (2) information necessary 
for SBA to determine whether a prospective mentor possesses a good 
financial condition (i.e., whether the mentor is capable of carrying 
out its responsibilities to assist the prot[eacute]g[eacute] firm under 
the proposed mentor-prot[eacute]g[eacute] agreement); (3) information 
necessary for SBA to evaluate compliance with

[[Page 6629]]

performance of work requirements; and (4) information detailing the 
proposed relationship between the mentor and prot[eacute]g[eacute].
    Finally, the proposed rule also amends an existing information 
collection (SBA Form 1450, 8(a) Annual Update--OMB Control Number 3245-
0205) by making a minor change to the benefits reporting schedule from 
the time of an 8(a) Participant's annual review submission to when the 
Participant submits its financial statement as required by Sec.  
124.602; specifically, within 120 days after the close of the 
Participant's fiscal year. There are no substantive changes to the 
information to be submitted.
    The title, summary of each information collection, description of 
respondents, and an estimate of the reporting burden are discussed 
below. Included in the estimate is the time for reviewing instructions, 
searching existing data needed, and completing and reviewing each 
collection of information.
    1. Title and Description: Mentor-prot[eacute]g[eacute] annual 
report [Form number to be determined]. Prot[eacute]g[eacute]s 
participating in the proposed small business mentor-
prot[eacute]g[eacute] program would be required to submit to SBA annual 
reports on their mentor-prot[eacute]g[eacute] relationships. The 
information to be included in these annual reports is the same type of 
information that is currently required of prot[eacute]g[eacute]s 
participating in SBA's 8(a) Business Development program, and as such 
would be modeled on the mentor-prot[eacute]g[eacute] annual reporting 
requirements in Attachment B of SBA Form 1450 (OMB Control Number 3245-
0205). Such information includes identification of the technical, 
management and/or financial assistance provided by mentors to 
prot[eacute]g[eacute]s; and a description of how that assistance has 
impacted the development of the prot[eacute]g[eacute]s.
    Need and Purpose: This information collection is necessary for SBA 
to, among other things, evaluate whether and to what extent the 
prot[eacute]g[eacute]s are benefiting from the relationship and 
determine whether to approve the continuation of the mentor-
prot[eacute]g[eacute] agreement or take other actions as necessary to 
protect against fraud, waste, or abuse in SBA's mentor-
prot[eacute]g[eacute] programs.
    OMB Control Number: New Collection.
    Description of and Estimated Number of Respondents: This 
information will be collected from small business 
prot[eacute]g[eacute]s pursuant to proposed Sec.  125.9(g). SBA 
estimates this number to be 2,000.
    Estimated Response Time: 2 hours.
    Total Estimated Annual Hour Burden: 4,000.
    2. Title and Description: Mentor financial information [Form number 
to be determined]. The proposed rule requires concerns seeking to 
benefit from the proposed small business mentor-prot[eacute]g[eacute] 
program as mentors to submit to SBA information to demonstrate that 
they possess a good financial condition, including either copies of 
Federal tax returns or audited financial statements, or, if applicable, 
filings required by the Securities and Exchange Commission.
    Need and Purpose: The information requested is necessary for SBA to 
determine whether prospective mentors are in good financial condition 
and capable of providing assistance to prot[eacute]g[eacute]s and 
enhance their ability to successfully compete for Federal contracts. 
SBA believes that any additional burden imposed by this requirement 
would be minimal since the firms would maintain the information in 
their general course of business.
    OMB Control Number: New Collection.
    Description of and Estimated Number of Respondents: Pursuant to 
proposed Sec.  125.9(b)(2), this information will be collected from 
concerns seeking to benefit as mentors from SBA's mentor-
prot[eacute]g[eacute] programs under proposed Sec.  125.9. SBA 
estimates this number to be 600.
    Estimated Response Time: 1 hour.
    Total Estimated Annual Hour Burden: 600.
    3. Title and Description: Joint venture performance of work report 
[Form number to be determined]. The proposed rule imposes a requirement 
on SBC joint venture partners to submit to SBA annually performance of 
work reports demonstrating their compliance with performance of work 
requirements. SBA requests comments addressing possible formats with 
which the information should be transmitted to SBA.
    Need and Purpose: This requirement will greatly enhance SBA's 
ability to monitor compliance with performance of work requirements in 
its effort to reduce fraud, waste, and abuse. SBA believes that any 
additional burden imposed by this recordkeeping requirement would be 
minimal because firms are already required to track their compliance 
with the performance of work requirements.
    OMB Control Number: New Collection.
    Description and Estimated Number of Respondents: This information 
will be collected from SBC, SDVO SBC, HUBZone SBC, and WOSB joint 
venture partners under proposed Sec.  125.8(h), Sec.  125.18(b), 
proposed Sec.  126.616(i), and proposed Sec.  127.506(j). SBA estimates 
this number to be 2,000.
    Estimated Response Time: 1 hour.
    Total Estimated Annual Hour Burden: 2,000.
    4. Title and Description: Mentor-prot[eacute]g[eacute] agreement 
[no SBA form number]. As proposed, the agreement between a mentor and 
prot[eacute]g[eacute] would include an assessment of the 
prot[eacute]g[eacute]'s needs and goals; a description of the how the 
mentor intends to assist prot[eacute]g[eacute] in meeting its goals; 
and the timeline for delivery of such assistance.
    Need and Purpose: The agreement must be submitted to SBA for review 
and approval, to help the Agency to determine whether the proposed 
assistance would enhance the development of the prot[eacute]g[eacute] 
and not merely further the interest of the mentor. The information 
would also be beneficial to SBA's efforts to reduce fraud, waste, and 
abuse in federal contracting programs.
    OMB Control Number: New Collection.
    Description and Estimated Number of Respondents: This information 
will be collected from small business prot[eacute]g[eacute]s pursuant 
to proposed Sec.  125.9(e). SBA estimates this number to be 2,000.
    Estimated Response Time: 1 hour.
    Total Estimated Annual Hour Burden: 2,000.
    SBA requests comments on how these requirements could best be 
implemented without imposing an undue burden on firms that wish to 
participate in SBA's small business mentor-prot[eacute]g[eacute] 
program. In addition, SBA invites comments on: (1) Whether the proposed 
collection of information is necessary for the proper performance of 
SBA's functions, including whether the information will have a 
practical utility; (2) the accuracy of SBA's estimate of the burden of 
the proposed collection of information, including the validity of the 
methodology and assumptions used; (3) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (4) ways 
to minimize the burden of the collection of information on respondents, 
including through the use of automated collection techniques, when 
appropriate, and other forms of information technology.

Regulatory Flexibility Act 5 U.S.C., 601-612

    Under the Regulatory Flexibility Act (RFA), this proposed rule may 
have a significant impact on a substantial

[[Page 6630]]

number of small businesses. Immediately below, SBA sets forth an 
initial regulatory flexibility analysis (IRFA) addressing the impact of 
the proposed rule in accordance with section 603, Title 5, of the 
United States Code. The IRFA examines the objectives and legal basis 
for this proposed rule; the kind and number of small entities that may 
be affected; the projected recordkeeping, reporting, and other 
requirements; whether there are any Federal rules that may duplicate, 
overlap, or conflict with this proposed rule; and whether there are any 
significant alternatives to this proposed rule.
1. What are the need for and objective of the rule?
    This proposed regulatory action would implement section 1347(b)(3) 
of the Small Business Jobs Act of 2010, Public Law 111-240, and section 
1641 of the National Defense Authorization Act for Fiscal Year 2013 
(NDAA), Public Law 112-239. As discussed above, the Small Business Jobs 
Act tasked the Agency with establishing mentor-prot[eacute]g[eacute] 
programs for SDVO SBCs, HUBZone SBCs, and WOSB concerns, modeled on the 
Agency's mentor-prot[eacute]g[eacute] program for small business 
concerns participating in programs under section 8(a) of the Small 
Business Act (13 U.S.C. 637(a)), commonly known as the 8(a) Business 
Development program. Similarly, section 1641 of NDAA authorized SBA to 
establish a mentor-prot[eacute]g[eacute] program for all small business 
concerns that is identical to the 8(a) BD mentor-prot[eacute]g[eacute] 
program, except that SBA may modify the program to the extent necessary 
given the types of small business concerns included as 
prot[eacute]g[eacute]s.
2. What are SBA's description and estimate of the number of small 
entities to which the rule will apply?
    If the proposed rule is adopted in its present form, the rule would 
be applicable to all small business concerns participating in the 
Federal procurement market that seek to form mentor/
prot[eacute]g[eacute] relationships. SBA estimates this number to be 
between twenty and thirty thousand, which represents between five and 
nine percent of total firms in the small business community, based on 
the number of small business concerns listed in the Dynamic Small 
Business Search database.
3. What are the projected reporting, recordkeeping, and other 
compliance requirements of the rule and an estimate of the classes of 
small entities which will be subject to the requirements?
    The proposed rule imposes the following reporting and recordkeeping 
requirements: (1) Information necessary for SBA to evaluate the success 
of a mentor-prot[eacute]g[eacute] relationship; (2) information 
necessary for SBA to determine whether a prospective mentor possesses a 
good financial condition; and (3) information necessary for SBA to 
evaluate compliance with performance of work requirements. SDVO SBC, 
HUBZone SBC, and WOSB joint venture partners would be required to 
submit to SBA performance of work reports demonstrating their 
compliance with performance of work requirements. SBA estimates this 
number to be approximately 2,000.
    The Paperwork Reduction Act requirements are addressed further 
above. SBA welcomes any comments on the requirements described.
4. What are the relevant Federal rules which may duplicate, overlap or 
conflict with the rule?
    Thirteen Federal agencies, including SBA, currently offer mentor-
prot[eacute]g[eacute] programs aimed at assisting small businesses to 
gain the technical and business skills necessary to successfully 
compete in the Federal procurement market. While the mentor-
prot[eacute]g[eacute] programs offered by other agencies share SBA's 
goal of increasing the participation of small businesses in Government 
contracts, the other Federal mentor-prot[eacute]g[eacute] programs are 
structured differently than SBA's proposed mentor-prot[eacute]g[eacute] 
programs, particularly in terms of the incentives offered to mentors. 
For example, some agencies offer additional points to a bidder who has 
a signed mentor-prot[eacute]g[eacute] agreement in place, while other 
agencies offer the benefit of reimbursing mentors for certain costs 
associated with prot[eacute]g[eacute]s' business development. SBA, as 
the agency authorized to determine small business size status, is 
uniquely qualified to offer mentor-prot[eacute]g[eacute] program 
participants the distinctive benefit of an exclusion from affiliation. 
Thus, SBA believes that the small business mentor-prot[eacute]g[eacute] 
program proposed by this rule would complement rather than duplicate, 
overlap or conflict with the existing Federal mentor-
prot[eacute]g[eacute] programs by offering to small businesses an 
additional and unique avenue through which to enhance their Federal 
procurement capabilities.
5. What alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?
    Section 1347(b)(3) of the Jobs Act authorizes SBA to establish 
mentor-prot[eacute]g[eacute] programs for SDVO SBCs, HUBZone SBCs, and 
WOSB concerns, modeled on the Agency's mentor-prot[eacute]g[eacute] 
program for small business concerns participating in the 8(a) BD 
program. Section 1641 of the NDAA authorized SBA to establish a mentor-
prot[eacute]g[eacute] program for all small business concerns. An 
alternative to implementing one small business mentor-
prot[eacute]g[eacute] program would be to implement the various mentor-
prot[eacute]g[eacute] programs separately in each of the specific 
substantive area regulations (i.e., SDVO, HUBZone, WOSB, 8(a), and 
small business).

List of Subjects

13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Individuals with disabilities, Loan programs--
business, Reporting and recordkeeping requirements, Small businesses.

13 CFR Part 124

    Administrative practice and procedures, Government procurement, 
Hawaiian natives, Indians--business and finance, Minority businesses, 
Reporting and recordkeeping requirements, Tribally-owned concerns, 
Technical assistance.

13 CFR Part 125

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

13 CFR Part 126

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

13 CFR Part 127

    Government procurement, Reporting and recordkeeping requirements, 
Small businesses.

13 CFR Part 134

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

    For the reasons set forth in the preamble, SBA proposes to amend 13 
CFR parts 121, 124, 125, 126, 127, and 134 as follows:

[[Page 6631]]

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, 634(b)(6), 636(b), 662, and 694a(9).

0
2. Amend Sec.  121.103 by revising paragraphs (b)(2)(ii), (b)(6), the 
last two sentences of the introductory text of paragraph (h), and 
paragraph (h)(3)(ii) to read as follows.


Sec.  121.103  How does SBA determine affiliation?

* * * * *
    (b) * * *
    (2) * * *
    (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 so long as adequate payment is 
provided for those services. Affiliation may be found for other 
reasons.
    (A) Common administrative services which are subject to the 
exception to affiliation include, bookkeeping, payroll, recruiting, 
other human resource support, cleaning services, and other duties which 
are otherwise unrelated to contract performance or management and can 
be reasonably pooled or otherwise performed by a holding company or 
parent entity without interfering with the control of the subject firm.
    (B) Contract administration services include both services that 
could be considered ``common administrative services'' under the 
exception to affiliation and those that could not.
    (1) Contract administration services that encompass actual and 
direct day-to-day oversight and control of the performance of a 
contract/project are not shared common administrative services, and 
would include tasks or functions such as negotiating directly with the 
government agency regarding proposal terms, contract terms, scope and 
modifications, project scheduling, hiring and firing of employees, and 
overall responsibility for the day-to-day and overall project and 
contract completion.
    (2) Contract administration services that are administrative in 
nature may constitute administrative services that can be shared, and 
would fall within the exception to affiliation. These administrative 
services include tasks such as record retention not related to a 
specific contract (e.g., employee time and attendance records), 
maintenance of databases for awarded contracts, monitoring for 
regulatory compliance, template development, and assisting accounting 
with invoice preparation as needed.
    (C) Business development may include both services that could be 
considered ``common administrative services'' under the exception to 
affiliation and those that could not. Efforts at the holding company or 
parent level to identify possible procurement opportunities for 
specific subsidiary companies may properly be considered ``common 
administrative services'' under the exception to affiliation. However, 
at some point the opportunity identified by the holding company's or 
parent entity's business development efforts becomes concrete enough to 
assign to a subsidiary and at that point the subsidiary must be 
involved in the business development efforts for such opportunity. At 
the proposal or bid preparation stage of business development, the 
appropriate subsidiary company for the opportunity has been identified 
and a representative of that company must be involved in preparing an 
appropriate offer. This does not mean to imply that one or more 
representatives of a holding company or parent entity cannot also be 
involved in preparing an offer. They may be involved in assisting with 
preparing the generic part of an offer, but the specific subsidiary 
that intends to ultimately perform the contract must control the 
technical and contract specific portions of preparing an offer. In 
addition, once award is made, employee assignments and the logistics 
for contract performance must be controlled by the specific subsidiary 
company and should not be performed at a holding company or parent 
entity level.
* * * * *
    (6) A firm that has an SBA-approved mentor-prot[eacute]g[eacute] 
agreement authorized under Sec.  124.520 or Sec.  125.9 of this chapter 
is not affiliated with its mentor firm solely because the 
prot[eacute]g[eacute] firm receives assistance from the mentor under 
the agreement. Similarly, a prot[eacute]g[eacute] firm is not 
affiliated with its mentor solely because the prot[eacute]g[eacute] 
firm receives assistance from the mentor under a federal mentor-
prot[eacute]g[eacute] program where an exception to affiliation is 
specifically authorized by statute or by SBA under the procedures set 
forth in Sec.  121.903. Affiliation may be found in either case for 
other reasons as set forth in this section.
* * * * *
    (h) * * * For purposes of this provision and in order to facilitate 
tracking of the number of contract awards made to a joint venture, a 
joint venture: must be in writing and must do business under its own 
name; may be in the form of a formal or informal partnership or exist 
as a separate limited liability company or other separate legal entity; 
and, if it exists as a formal separate legal entity, may not be 
populated with individuals intended to perform contracts awarded to the 
joint venture (i.e., the joint venture may have its own separate 
employees to perform administrative functions, but may not have its own 
separate employees to perform contracts awarded to the joint venture). 
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)(5) of this section.
* * * * *
    (3) * * *
    (ii) Two firms approved by SBA to be a mentor and 
prot[eacute]g[eacute] under Sec.  125.9 of this chapter may joint 
venture as a small business for any Federal government prime contract 
or subcontract, provided the prot[eacute]g[eacute] qualifies as small 
for the size standard corresponding to the NAICS code assigned to the 
procurement, and the joint venture meets the requirements of Sec.  
125.18(b)(2) and (3), Sec.  126.616(c) and (d), or Sec.  127.506(c) and 
(d) of this chapter, as appropriate.
* * * * *


Sec.  121.406  [Amended]

0
3. Amend Sec.  121.406(b)(5) introductory text by removing the phrase 
``paragraph (b)(1)(iii)'' and adding in its place the phrase 
``paragraph (b)(1)(iv).''
0
4. Amend Sec.  121.1001 by redesignating paragraph (b)(10) as paragraph 
(b)(11) and by adding a new paragraph (b)(10) to read as follows:


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

* * * * *
    (b) * * *
    (10) A firm seeking to establish a mentor-prot[eacute]g[eacute] 
relationship pursuant to Sec.  125.9 of this chapter (based on its 
status as a small business for its primary NAICS code) may request a 
formal size determination in order to verify its eligibility as a 
prot[eacute]g[eacute] firm.
* * * * *

[[Page 6632]]

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

0
5. The authority citation for part 124 continues to read as follows:

    Authority:  15 U.S.C. 634(b)(6), 636(j), 637(a), and 637(d); 
Pub. L. 99-661; Pub. L. 100-656, sec. 1207; Pub. L. 101-37; Pub. L. 
101-574, section 8021; Pub. L. 108-87; and 42 U.S.C. 9815.

0
6. Amend Sec.  124.103 as follows:
0
a. Add a sentence at the end of paragraph (c)(1);
0
b. Revise paragraph (c)(2)(ii);
0
c. Redesignate paragraph (c)(2)(iii) as (c)(2)(iv);
0
d. Add a new paragraph (c)(2)(iii);
0
e. Revise the introductory text of newly redesignated paragraph 
(c)(2)(iv); and
0
d. Add paragraphs (c)(3) through (6).
    The additions and revisions read as follows:


Sec.  124.103  Who is socially disadvantaged?

* * * * *
    (c) * * * (1) * * * Such individual should present corroborating 
evidence to support his or her claim(s) of social disadvantage where 
readily available.
    (2) * * *
    (ii) The individual's social disadvantage must be rooted in 
treatment which he or she has experienced in American society, not in 
other countries;
    (iii) The individual's social disadvantage must be chronic and 
substantial, not fleeting or insignificant; and
    (iv) The individual's social disadvantage must have negatively 
impacted on his or her entry into or advancement in the business world. 
SBA will consider any relevant evidence in assessing this element, 
including experiences relating to education, employment and business 
history (including experiences relating to both the applicant firm and 
any other previous firm owned and/or controlled by the individual), 
where applicable.
* * * * *
    (3) An individual claiming social disadvantage must present facts 
and evidence that by themselves establish that the individual has 
suffered social disadvantage that has negatively impacted his or her 
entry into or advancement in the business world.
    (i) Each instance of alleged discriminatory conduct must be 
accompanied by a negative impact on the individual's entry into or 
advancement in the business world in order for it to constitute an 
instance of social disadvantage.
    (ii) SBA may disregard a claim of social disadvantage where a 
legitimate alternative ground for an adverse employment action or other 
perceived adverse action exists and the individual has not presented 
evidence that would render his/her claim any more likely than the 
alternative ground.

    Example 1 to paragraph (c)(3)(ii). A woman who is not a member 
of a designated group attempts to establish her individual social 
disadvantage based on gender. She certifies that while working for 
company X, she received less compensation than her male counterpart. 
Without additional facts, that claim is insufficient to establish an 
incident of gender bias that could lead to a finding of social 
disadvantage. Without additional facts, it is no more likely that 
the individual claiming disadvantage was paid less than her male 
counterpart because he had superior qualifications or because he had 
greater responsibilities in his employment position. She must 
identify her qualifications (education, experience, years of 
employment, supervisory functions) as being equal or superior to 
that of her male counterpart in order for SBA to consider that 
particular incident may be the result of discriminatory conduct.
    Example 2 to paragraph (c)(3)(ii).  A woman who is not a member 
of a designated group attempts to establish her individual social 
disadvantage based on gender. She certifies that while working for 
company Y, she was not permitted to attend a professional 
development conference, even though male employees were allowed to 
attend similar conferences in the past. Without additional facts, 
that claim is insufficient to establish an incident of gender bias 
that could lead to a finding of social disadvantage. It is no more 
likely that she was not permitted to attend the conference based on 
gender bias than based on non-discriminatory reasons. She must 
identify that she was in the same professional position and level as 
the male employees who were permitted to attend similar conferences 
in the past, and she must identify that funding for training or 
professional development was available at the time she requested to 
attend the conference.

    (iii) SBA may disregard a claim of social disadvantage where an 
individual presents evidence of discriminatory conduct, but fails to 
connect the discriminatory conduct to consequences that negatively 
impact his or her entry into or advancement in the business world.

    Example to paragraph (c)(3)(iii).  A woman who is not a member 
of a designated group attempts to establish her individual social 
disadvantage based on gender. She provides instances where one or 
more male business clients utter derogatory statements about her 
because she is a woman. After each instance, however, she 
acknowledges that the clients gave her contracts or otherwise 
continued to do business with her. Despite suffering discriminatory 
conduct, this individual has not established social disadvantage 
because the discriminatory conduct did not have an adverse effect on 
her business.

    (4) SBA may request an applicant to provide additional facts to 
support his or her claim of social disadvantage to substantiate that a 
negative outcome was based on discriminatory conduct instead of one or 
more legitimate non-discriminatory reasons.
    (5) SBA will discount or disbelieve statements made by an 
individual seeking to establish his or her individual social 
disadvantage where such statements are inconsistent with other evidence 
contained in the record.
    (6) In determining whether an individual claiming social 
disadvantage meets the requirements set forth in paragraph (c) of this 
section, SBA will determine whether:
    (i) Each specific claim establishes an incident of bias or 
discriminatory conduct;
    (ii) Each incident of bias or discriminatory conduct negatively 
impacted the individual's entry into or advancement in the business 
world; and
    (iii) In the totality, the incidents of bias or discriminatory 
conduct that negatively impacted the individual's entry into or 
advancement in the business world establish chronic and substantial 
social disadvantage.
* * * * *
0
7. Amend Sec.  124.105 by revising the introductory text of paragraph 
(h)(2) to read as follows:


Sec.  124.105  What does it mean to be unconditionally owned by one or 
more disadvantaged individuals?

* * * * *
    (h) * * *
    (2) A non-Participant concern in the same or similar line of 
business or a principal of such concern may not own more than a 10 
percent interest in a Participant that is in the developmental stage or 
more than a 20 percent interest in a Participant in the transitional 
stage of the program, except that a former Participant in the same or 
similar line of business or a principal of such a former Participant 
(except those that have been terminated from 8(a) BD program 
participation pursuant to Sec. Sec.  124.303 and 124.304) may have an 
equity ownership interest of up to 20 percent in a current Participant 
in the developmental stage of the program or up to 30 percent in a 
transitional stage Participant.
* * * * *


Sec.  124.108  [Amended]

0
8. Amend Sec.  124.108 by removing ``10 percent'' in paragraph (a)(4) 
and adding in its place ``20 percent.''

[[Page 6633]]

0
9. Amend Sec.  124.109 by adding paragraphs (c)(2)(iv) and (c)(4)(iii) 
to read as follows:


Sec.  124.109  Do Indian tribes and Alaska Native Corporations have any 
special rules for applying to the 8(a) BD program?

* * * * *
    (c) * * *
    (2) * * *
    (iv) In determining whether a tribally-owned concern has obtained, 
or is likely to obtain, a substantial unfair competitive advantage 
within an industry category, SBA will examine the firm's participation 
in the relevant six digit NAICS code nationally as compared to the 
overall small business share of that industry.
    (A) SBA will consider the firm's percentage share of the national 
market and other relevant factors to determine whether the firm is 
dominant in a specific six-digit NAICS code with a particular size 
standard.
    (B) SBA does not contemplate a finding of affiliation where a 
tribally-owned concern appears to have obtained an unfair competitive 
advantage in a local market, but remains competitive, but not dominant, 
on a national basis.
* * * * *
    (4) * * *
    (iii) The individuals responsible for the management and daily 
operations of a tribally-owned concern cannot manage more than two 
Program Participants at the same time.
    (A) An individual's officer position, membership on the board of 
directors or position as a tribal leader does not necessarily imply 
that the individual is responsible for the management and daily 
operations of a given concern. SBA looks beyond these corporate 
formalities and examines the totality of the information submitted by 
the applicant to determine which individual(s) manage the actual day-
to-day operations of the applicant concern.
    (B) Officers, board members, and/or tribal leaders may control a 
holding company overseeing several tribally-owned or ANC-owned 
companies, provided they do not actually control the day-to-day 
management of more than two current 8(a) BD Program Participant firms.
* * * * *
0
10. Amend Sec.  124.110 as follows:
0
a. Add a sentence to the end of the introductory text of paragraph (b);
0
b. Add paragraphs (b)(1) and (2);
0
c. Revise paragraph (d);
0
d. Redesignate paragraph (g) as paragraph (h); and
0
e. Add a new paragraph (g).
    The additions and revisions read as follows:


Sec.  124.110  Do Native Hawaiian Organizations have any special rules 
for applying to the 8(a) BD program?

* * * * *
    (b) * * * In determining whether an NHO-owned concern has obtained, 
or is likely to obtain, a substantial unfair competitive advantage 
within an industry category, SBA will examine the firm's participation 
in the relevant six digit NAICS code nationally.
    (1) SBA will consider the firm's percentage share of the national 
market and other relevant factors to determine whether the firm is 
dominant in a specific six-digit NAICS code with a particular size 
standard.
    (2) SBA does not contemplate a finding of affiliation where an NHO-
owned concern appears to have obtained an unfair competitive advantage 
in a local market, but remains competitive, but not dominant, on a 
national basis.
* * * * *
    (d) An NHO must control the applicant or Participant firm. To 
establish that it is controlled by an NHO, an applicant or Participant 
must demonstrate that the NHO controls its board of directors, managing 
members, managers or managing partners.
    (1) The NHO need not possess the technical expertise necessary to 
run the NHO-owned applicant or Participant firm. The NHO must have 
managerial experience of the extent and complexity needed to run the 
concern. Management experience need not be related to the same or 
similar industry as the primary industry classification of the 
applicant or Participant.
    (2) An individual responsible for the day-to-day management of an 
NHO-owned firm need not establish personal social and economic 
disadvantage.
* * * * *
    (g) An NHO-owned firm's eligibility for 8(a) BD participation is 
separate and distinct from the individual eligibility of the NHO's 
members, directors, or managers.
    (1) The eligibility of an NHO-owned concern is not affected by the 
former 8(a) BD participation of one or more of the NHO's individual 
members.
    (2) In determining whether an NHO is economically disadvantaged, 
SBA may consider the individual economic status of an NHO member or 
director even if the member or director previously used his or her 
disadvantaged status to qualify an individually owned 8(a) applicant or 
Participant.
* * * * *
0
11. Amend Sec.  124.111 by adding a sentence to the end of the 
introductory text of paragraph (c), and by adding paragraphs (c)(1) and 
(2) to read as follows:


Sec.  124.111  Do Community Development Corporations (CDCs) have any 
special rules for applying to the 8(a) BD program?

* * * * *
    (c) * * * In determining whether a CDC-owned concern has obtained, 
or is likely to obtain, a substantial unfair competitive advantage 
within an industry category, SBA will examine the firm's participation 
in the relevant six digit NAICS code nationally.
    (1) SBA will consider the firm's percentage share of the national 
market and other relevant factors to determine whether the firm is 
dominant in a specific six-digit NAICS code with a particular size 
standard.
    (2) SBA does not contemplate a finding of affiliation where a CDC-
owned concern appears to have obtained an unfair competitive advantage 
in a local market, but remains competitive, but not dominant, on a 
national basis.
* * * * *
0
12. Amend Sec.  124.112 by designating the text of paragraph (e) as 
paragraph (e)(1), and adding paragraph (e)(2) to read as follows:


Sec.  124.112  What criteria must a business meet to remain eligible to 
participate in the 8(a) BD program?

* * * * *
    (e) Change in primary industry classification. (1) * * *
    (2) SBA may change the primary industry classification contained in 
a Participant's business plan where the greatest portion of the 
Participant's total revenues during a three-year period have evolved 
from one NAICS code to another. As part of its annual review, SBA will 
consider whether the primary NAICS code contained in a Participant's 
business plan continues to be appropriate.
    (i) Where SBA believes that the primary industry classification 
contained in a Participant's business plan does not match the 
Participant's actual revenues over the Participant's most recently 
completed three fiscal years, SBA may notify the Participant of its 
intent to change the Participant's primary industry classification.
    (ii) A Participant may challenge SBA's intent to change its primary 
industry classification by demonstrating why it believes the primary 
industry classification contained in its business plan continues to be 
appropriate, despite an increase in revenues in a secondary NAICS code 
beyond those

[[Page 6634]]

received in its designated primary industry classification.
* * * * *
0
13. Amend Sec.  124.305 by removing the ``.'' at the end of paragraph 
(h)(1)(ii) and adding in its place ``; or'', adding paragraphs 
(h)(1)(iii) and (h)(1)(iv), designating paragraph (h)(5) as (h)(6) and 
adding a new paragraph (h)(5) to read as follows:


Sec.  124.305  What is suspension and how is a Participant suspended 
from the 8(a) BD program?

* * * * *
    (h)(1) * * *
    (iii) A Participant has a principal place of business located in a 
Federally declared disaster area and elects to suspend its 
participation in the 8(a) BD program for a period of up to one-year 
from the date of the disaster declaration to allow the firm to recover 
from the disaster and take full advantage of the program. A Participant 
that elects to be suspended may request that the suspension be lifted 
prior to the end date of the original request; or
    (iv) Federal appropriations for one or more federal departments or 
agencies have lapsed, SBA has previously accepted an offer for a sole 
source 8(a) award on behalf of the Participant, award is pending, and 
the Participant elects to suspend its participation in the 8(a) BD 
program during the lapse in federal appropriations.
* * * * *
    (5) Where a Participant is suspended pursuant to (h)(1)(iv) of this 
section, the Participant must notify SBA when the lapse in 
appropriation ends so that SBA can immediately lift the suspension. 
When the suspension is lift, the length of the suspension will be added 
to the concern's program term.
* * * * *
0
14. Amend Sec.  124.501 by revising the first sentence of paragraph (a) 
and by adding two sentences to the end of paragraph (b) to read as 
follows:


Sec.  124.501  What general provisions apply to the award of 8(a) 
contracts?

    (a) Pursuant to section 8(a) of the Small Business Act, SBA is 
authorized to enter into all types of contracts with other Federal 
agencies regardless of the place of performance, including contracts to 
furnish equipment, supplies, services, leased real property, or 
materials to them or to perform construction work for them, and to 
contract the performance of these contracts to qualified Participants. 
* * *
    (b) * * * In addition, for multiple award contracts not set-aside 
for the 8(a) BD program, a procuring agency may set-aside specific 
orders to be competed only among eligible 8(a) Participants, regardless 
of the place of performance. Such an order may be awarded as an 8(a) 
award where the order was offered to and accepted by SBA as an 8(a) 
award and the order specifies that the performance of work and/or non-
manufacturer rule requirements apply as appropriate.
* * * * *
0
15. Amend Sec.  124.513 as follows:
0
a. Add paragraph (b)(4);
0
b. Revise paragraphs (c)(2), (d) and (e)(1);
0
c. Add paragraphs (e)(2)(iii) and (e)(3);
0
d. Redesignate paragraphs (f), (g), (h) and (i) as paragraphs (g), (h), 
(i) and (k), respectively;
0
e. Add new paragraph (f);
0
f. Revise newly redesignated paragraphs (g) and (i); and
0
g. Add paragraph (j) and (l).
    The additions and revisions read as follows:


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

* * * * *
    (b) * * *
    (4) SBA approval of a joint venture agreement pursuant to paragraph 
(e) of this section does not equate to a formal size determination. As 
such, despite SBA's approval of a joint venture, the size status of a 
joint venture that is the apparent successful offeror for a competitive 
8(a) contract may be protested pursuant to Sec.  121.1001(a)(2) of this 
chapter. See Sec.  124.517(b).
    (c) * * *
    (2) Designating an 8(a) Participant as the managing venturer of the 
joint venture and an employee of an 8(a) Participant as the project 
manager responsible for performance of the contract.
* * * * *
    (d) Performance of work. (1) For any 8(a) contract, including those 
between a prot[eacute]g[eacute] and a mentor authorized by Sec.  
124.520, the joint venture must perform the applicable percentage of 
work required by Sec.  124.510 of this chapter.
    (2) The 8(a) partner(s) to the joint venture must perform at least 
40% of the work performed by the joint venture.
    (i) The work performed by the 8(a) partner(s) to a joint venture 
must be more than administrative or ministerial functions so that the 
8(a) partners gain substantive experience.
    (ii) The amount of work done by the partners will be aggregated and 
the work done by the 8(a) partner(s) must be at least 40% of the total 
done by all partners. In determining the amount of work done by a non-
8(a) partner, all work done by the non-8(a) partner and any of its 
affiliates at any subcontracting tier will be counted.
    (e) * * * (1) SBA must approve a joint venture agreement prior to 
the award of an 8(a) contract on behalf of the joint venture. A 
Participant may submit a joint venture agreement to SBA for approval at 
any time, whether or not in connection with a specific 8(a) 
procurement.
    (2) * * *
    (iii) If a second or third contract to be awarded a joint venture 
is not an 8(a) contract, the Participant would not have to submit an 
addendum setting forth contract performance for the non-8(a) 
contract(s) to SBA for approval.
    (3) Where a joint venture has been established and approved by SBA 
without a corresponding specific 8(a) contract award (including where a 
joint venture is established in connection with a blanket purchase 
agreement (BPA), basic agreement (BA), or basic ordering agreement 
(BOA)), the Participant must submit an addendum to the joint venture 
agreement, setting forth the performance requirements, to SBA for 
approval for each of the three 8(a) contracts authorized to be awarded 
to the joint venture. In the case of a BPA, BA or BOA, each order 
issued under the agreement would count as a separate contract award, 
and SBA would need to approve the addendum for each order prior to 
award of the order to the joint venture.
    (f) Past performance. When evaluating the past performance of an 
entity submitting an offer for an 8(a) contract as a joint venture 
approved by SBA pursuant to this section, a procuring activity must 
consider work done individually by each partner to the joint venture as 
well as any work done by the joint venture itself previously.
    (g) Contract execution. Where SBA has approved a joint venture, the 
procuring activity will execute an 8(a) contract in the name of the 
joint venture entity or the 8(a) Participant, but in either case will 
identify the award as one to an 8(a) joint venture or an 8(a) mentor-
prot[eacute]g[eacute] joint venture, as appropriate.
* * * * *
    (i) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents.
    (j) Certification of compliance. Prior to the performance of any 
8(a) contract by a joint venture, the 8(a) BD

[[Page 6635]]

Participant to the joint venture must submit a written certification to 
the contracting officer and SBA, signed by an authorized official of 
each partner to the joint venture, stating as follows:
    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (c) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (d) of this section.
    (iii) The parties have obtained SBA's approval of the joint venture 
agreement and any addendum to that agreement and that there have been 
no modifications to the agreement that SBA has not approved.
* * * * *
    (l) Basis for suspension or debarment. The Government may consider 
the following as a ground for suspension or debarment as a willful 
violation of a regulatory provision or requirement applicable to a 
public agreement or transaction:
    (1) Failure to enter a joint venture agreement that complies with 
paragraph (c) of this section;
    (2) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph (d) 
of this section; or
    (3) Failure to submit the certification required by paragraph (e) 
of this section or comply with paragraph (i) of this section.
0
16. Amend Sec.  124.520 as follows:
0
a. Remove the words ``or non-profit entity'' from the first sentence of 
the introductory text of paragraph (b) and from the second sentence of 
paragraph (b)(2);
0
b. Revise the last sentence of paragraph (b)(2);
0
c. Revise paragraph (c)(1);
0
d. Revise paragraph (d)(1)(iii);
0
e. Redesignate paragraphs (e)(2) through(e)(5) as paragraphs (e)(3) 
through (e)(6), respectively; and
0
f. Add a new paragraph (e)(2) and add paragraphs (e)(7), and (e)(8).
    The revisions and additions read as follows:


Sec.  124.520  What are the rules governing SBA's 8(a) mentor-
prot[eacute]g[eacute] program?

* * * * *
    (b) * * *
    (2) * * * Under no circumstances will a mentor be permitted to have 
more than three prot[eacute]g[eacute]s at one time in the aggregate 
under the mentor-prot[eacute]g[eacute] programs authorized by 
Sec. Sec.  124.520 and 125.9 of this chapter.
* * * * *
* * * * *
    (c) * * * (1) In order to initially qualify as a 
prot[eacute]g[eacute] firm, a concern must:
    (i) Qualify as small for the size standard corresponding to its 
primary NAICS code; and
    (ii) Demonstrate how the business development assistance to be 
received through its proposed mentor-prot[eacute]g[eacute] relationship 
would advance the goals and objectives set forth in its business plan.
* * * * *
    (d) * * *
    (1) * * *
    (iii) Once a prot[eacute]g[eacute] firm graduates or otherwise 
leaves the 8(a) BD program or grows to be other than small for its 
primary NAICS code, it will not be eligible for any further 8(a) 
contracting benefits from its 8(a) BD mentor-prot[eacute]g[eacute] 
relationship. Leaving the 8(a) BD program, growing to be other than 
small for its primary NAICS code, or terminating the mentor-
prot[eacute]g[eacute] relationship while a prot[eacute]g[eacute] is 
still in the program, does not, however, generally affect contracts 
previously awarded to a joint venture between the prot[eacute]g[eacute] 
and its mentor. A prot[eacute]g[eacute] firm that graduates or 
otherwise leaves the 8(a) BD program but continues to qualify as a 
small business may transfer its 8(a) mentor-prot[eacute]g[eacute] 
relationship to a small business mentor-prot[eacute]g[eacute] 
relationship.
    (A) A joint venture between a prot[eacute]g[eacute] firm that 
continues to qualify as small and its mentor may certify its status as 
small for any Government contract or subcontract so long as the 
prot[eacute]g[eacute] (and/or the joint venture) has not been 
determined to be other than small for the size standard corresponding 
to the procurement at issue (or any lessor size standard).
    (B) Where the prot[eacute]g[eacute] firm no longer qualifies as 
small, the receipts and/or employees of the prot[eacute]g[eacute] and 
mentor would generally be aggregated in determining the size of any 
joint venture between the mentor and prot[eacute]g[eacute] after that 
date.
    (C) Except for contracts with durations of more than five years 
(including options), a contract awarded to a joint venture between a 
prot[eacute]g[eacute] and a mentor as a small business continues to 
qualify as an award to small business for the life of that contract and 
the joint venture remains obligated to continue performance on that 
contract.
    (D) For contracts with durations of more than five years (including 
options), where size re-certification is required no more than 120 days 
prior to the end of the fifth year of the contract and no more than 120 
days prior to exercising any option thereafter, once the 
prot[eacute]g[eacute] firm no longer qualifies as small for its primary 
NAICS code, the joint venture must aggregate the receipts/employees of 
the partners to the joint venture in determining whether it continues 
to qualify as and can re-certify itself to be a small business under 
the size standard corresponding to the NAICS code assigned to that 
contract. The rules set forth in Sec.  121.404(g)(3) of this chapter 
apply in such circumstances.
* * * * *
    (e) * * *
    (2) A firm seeking SBA's approval to be a prot[eacute]g[eacute] 
must identify any other mentor-prot[eacute]g[eacute] relationship it 
has through another federal agency or SBA and provide a copy of each 
such mentor-prot[eacute]g[eacute] agreement to SBA. The 8(a) BD mentor-
prot[eacute]g[eacute] agreement must identify how the assistance to be 
provided by the proposed mentor is different from assistance provided 
to the prot[eacute]g[eacute] through another mentor-
prot[eacute]g[eacute] relationship, either with the same or a different 
mentor.
* * * * *
    (7) If control of the mentor changes (through a stock sale or 
otherwise), the previously approved mentor-prot[eacute]g[eacute] 
relationship may continue provided that, after the change in control, 
the mentor expresses in writing to SBA that it acknowledges the mentor-
prot[eacute]g[eacute] agreement and certifies that it will continue to 
abide by its terms.
    (8) SBA may terminate the mentor-prot[eacute]g[eacute] agreement at 
any time if it determines that the prot[eacute]g[eacute] is not 
benefiting from the relationship or that the parties are not complying 
with any term or condition of the mentor prot[eacute]g[eacute] 
agreement. In the event SBA terminates the relationship, the mentor-
prot[eacute]g[eacute] joint venture is obligated to complete any 
previously awarded contracts unless the procuring agency issues a stop 
work order.
* * * * *


Sec.  124.604  [Amended]

0
17. Amend Sec.  124.604 by removing the phrase ``annual review 
submission'' and adding in its place the phrase ``annual financial 
statement submission (see Sec.  124.602)'' in the first sentence.


Sec.  124.520  [Amended]

0
18. Amend Sec.  124.1002 by removing paragraph (b)(4).

[[Page 6636]]

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
19. The authority citation for part 125 is revised to read as follows:

    Authority:  15 U.S.C. 632(p), (q); 634(b)(6); 637; 644; 657f; 
657r; Pub. L. 111-240, 124 Stat. 2504.

0
20. Amend Sec.  125.2 by revising the third sentence of the 
introductory text to paragraph (a) to read as follows:


Sec.  125.2  What are SBA's and the procuring agency's responsibilities 
when providing contracting assistance to small businesses?

    (a) General. * * * Small business concerns must receive any award 
(including orders, and orders placed against Multiple Award Contracts) 
or contract, part of any such award or contract, any contract for the 
sale of Government property, or any contract resulting from a reverse 
auction, regardless of the place of performance, which SBA and the 
procuring or disposal agency determine to be in the interest of: * * *
* * * * *
0
21. Amend Sec.  125.5 by revising the second and third sentences of 
paragraph (a)(1) to read as follows:


Sec.  125.5  What is the Certificate of Competency Program?

    (a) General. (1) * * * A COC is a written instrument issued by SBA 
to a Government contracting officer, certifying that one or more named 
small business concerns possess the responsibility to perform a 
specific Government procurement (or sale) contract, including any 
contract deriving from a reverse auction. The COC Program is applicable 
to all Government procurement actions, including Multiple Award 
Contracts and orders placed against Multiple Award Contracts, where the 
contracting officer has used any issues of capacity or credit 
(responsibility) to determine suitability for an award. * * *
* * * * *


Sec.  125.6  [Amended]

0
22. Amend Sec.  125.6 by removing ``Sec.  125.15'' from the 
introductory text of paragraph (b) and adding in its place ``Sec.  
125.18'', and by removing ``Sec.  125.15(b)(3)'' from paragraph (b)(5) 
and adding in its place ``Sec.  125.18(b)(3)''.


Sec. Sec.  125.8 through 125.30  [Redesignated as Sec. Sec.  125.11 
through 125.33]

0
23. Amend part 125 by redesignating Sec. Sec.  125.8 through 125.30 as 
Sec. Sec.  125.11 through 125.33, respectively.
0
24. Add new Sec. Sec.  125.8, 125.9 and 125.10 to the undesignated 
sections preceding Subpart A to read as follows:


Sec.  125.8  What requirements must a joint venture satisfy to submit 
an offer for a procurement or sale set aside or reserved for small 
business?

    (a) General. A joint venture may qualify as a small business as 
long as the partners to the joint venture in the aggregate meet the 
applicable size standard or qualify as small under one of the 
exceptions to affiliation set forth in Sec.  121.103(h)(3) of this 
chapter.
    (b) Contents of joint venture agreement. (1) A joint venture 
agreement between two or more entities that individually qualify as 
small need not be in any specific form or contain any specific 
conditions in order for the joint venture to qualify as a small 
business.
    (2) Any joint venture agreement to perform a contract set aside or 
reserved for small business between a prot[eacute]g[eacute] small 
business and a mentor authorized by Sec.  125.9 or Sec.  124.520 of 
this chapter must contain a provision:
    (i) Setting forth the purpose of the joint venture;
    (ii) Designating a small business as the managing venturer of the 
joint venture, and an employee of the small business managing venturer 
as the project manager responsible for performance of the contract;
    (iii) Stating that with respect to a separate legal entity joint 
venture, the small business must own at least 51% of the joint venture 
entity;
    (iv) Stating that the small business must receive profits from the 
joint venture commensurate with the work performed by the small 
business, or in the case of a separate legal entity joint venture, 
commensurate with their ownership interests in the joint venture;
    (v) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on a contract set aside or reserved for small business will 
be deposited in the special account; all expenses incurred under the 
contract will be paid from the account as well;
    (vi) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each;
    (vii) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the small business partner to the joint venture 
will meet the performance of work requirements set forth in paragraph 
(c) of this section;
    (viii) Obligating all parties to the joint venture to ensure 
performance of a contract set aside or reserved for small business and 
to complete performance despite the withdrawal of any member;
    (ix) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the small 
business managing venturer, unless approval to keep them elsewhere is 
granted by the District Director or his/her designee upon written 
request;
    (x) Requiring that the final original records be retained by the 
small business managing venturer upon completion of any contract set 
aside or reserved for small business that was performed by the joint 
venture;
    (xi) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (xii) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (c) Performance of work. (1) For any contract set aside or reserved 
for small business that is to be performed by a joint venture between a 
small business prot[eacute]g[eacute] and its SBA-approved mentor 
authorized by Sec.  125.9, the joint venture must perform the 
applicable percentage of work required by Sec.  125.6, and the small 
business partner to the joint venture must perform at least 40% of the 
work performed by the joint venture.
    (2) The work performed by the small business partner to a joint 
venture must be more than administrative or ministerial functions so 
that it gains substantive experience.
    (3) The amount of work done by the partners will be aggregated and 
the work done by the small business prot[eacute]g[eacute] partner must 
be at least 40% of the total done by the partners. In determining the 
amount of work done by a mentor participating in a joint venture with a 
small business prot[eacute]g[eacute], all work done by the mentor and 
any of its affiliates at any subcontracting tier will be counted.
    (d) Certification of compliance. Prior to the performance of any 
contract set aside or reserved for small business by a joint venture 
between a prot[eacute]g[eacute] small business and a mentor authorized 
by Sec.  125.9, the small business partner to the joint venture must 
submit a written certification to the contracting officer and SBA, 
signed by an authorized official of each partner to the joint venture, 
stating as follows:

[[Page 6637]]

    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (b) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (c) of this section.
    (e) Past performance. When evaluating the past performance of an 
entity submitting an offer for a contract set aside or reserved for 
small business as a joint venture established pursuant to this section, 
a procuring activity must consider work done individually by each 
partner to the joint venture as well as any work done by the joint 
venture itself previously.
    (f) Contract execution. The procuring activity will execute a 
contract set aside or reserved for small business in the name of the 
joint venture entity or a small business partner to the joint venture, 
but in either case will identify the award as one to a small business 
joint venture or a small business mentor-prot[eacute]g[eacute] joint 
venture, as appropriate.
    (g) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents.
    (h) Performance of work reports. In connection with any contract 
set aside or reserved for small business that is awarded to a joint 
venture between a prot[eacute]g[eacute] small business and a mentor 
authorized by Sec.  125.9, the small business partner must describe how 
it is meeting or has met the applicable performance of work 
requirements for each contract set aside or reserved for small business 
that it performs as a joint venture.
    (1) The small business partner to the joint venture must annually 
submit a report to the relevant contracting officer and to the SBA, 
signed by an authorized official of each partner to the joint venture, 
explaining how the performance of work requirements are being met for 
each contract set aside or reserved for small business that is 
performed during the year.
    (2) At the completion of every contract set aside or reserved for 
small business that is awarded to a joint venture between a 
prot[eacute]g[eacute] small business and a mentor authorized by Sec.  
125.9, the small business partner to the joint venture must submit a 
report to the relevant contracting officer and to the SBA, signed by an 
authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements were met 
for the contract, and further certifying that the contract was 
performed in accordance with the provisions of the joint venture 
agreement that are required under paragraph (b) of this section.
    (i) Basis for suspension or debarment. For any joint venture 
between a prot[eacute]g[eacute] small business and a mentor authorized 
by Sec.  125.9, the Government may consider the following as a ground 
for suspension or debarment as a willful violation of a regulatory 
provision or requirement applicable to a public agreement or 
transaction:
    (1) Failure to enter a joint venture agreement that complies with 
paragraph (b) of this section;
    (2) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph (c) 
of this section; or
    (3) Failure to submit the certification required by paragraph (d) 
of this section or comply with paragraph (g) of this section.
    (j) Any person with information concerning a joint venture's 
compliance with the performance of work requirements may report that 
information to SBA and/or the SBA Office of Inspector General.


Sec.  125.9  What are the rules governing SBA's small business mentor-
prot[eacute]g[eacute] program?

    (a) General. The small business mentor-prot[eacute]g[eacute] 
program is designed to enhance the capabilities of 
prot[eacute]g[eacute] firms by requiring approved mentors to provide 
business development assistance to prot[eacute]g[eacute] firms and to 
improve the prot[eacute]g[eacute] firms' ability to successfully 
compete for federal contracts. This assistance may include technical 
and/or management assistance; financial assistance in the form of 
equity investments and/or loans; subcontracts; and/or assistance in 
performing prime contracts with the Government through joint venture 
arrangements. Mentors are encouraged to provide assistance relating to 
the performance of contracts set-aside or reserved for small business 
so that prot[eacute]g[eacute] firms may more fully develop their 
capabilities.
    (b) Mentors. Any concern that demonstrates a commitment and the 
ability to assist small business concerns may act as a mentor and 
receive benefits as set forth in this section. This includes other than 
small businesses.
    (1) In order to qualify as a mentor, a concern must demonstrate 
that it:
    (i) Possesses a good financial condition;
    (ii) Possesses good character;
    (iii) Does not appear on the federal list of debarred or suspended 
contractors; and
    (iv) Can impart value to a prot[eacute]g[eacute] firm due to 
lessons learned and practical experience gained or through its 
knowledge of general business operations and government contracting.
    (2) In order to demonstrate that it possesses a good financial 
condition, a firm seeking to be a mentor must submit to the SBA copies 
of the federal tax returns it submitted to the IRS, or audited 
financial statements, including any notes, or in the case of publicly 
traded concerns, the filings required by the Securities and Exchange 
Commission (SEC), for the past three years.
    (3) Once approved, a mentor must annually certify that it continues 
to possess good character and a favorable financial position.
    (4) Generally, a mentor will have no more than one 
prot[eacute]g[eacute] at a time. However, the Director of Government 
Contracting (D/GC), or designee, may authorize a concern to mentor more 
than one prot[eacute]g[eacute] at a time where it can demonstrate that 
the additional mentor-prot[eacute]g[eacute] relationship will not 
adversely affect the development of either prot[eacute]g[eacute] firm 
(e.g., the second firm may not be a competitor of the first firm). 
Under no circumstances will a mentor be permitted to have more than 
three prot[eacute]g[eacute]s at one time in the aggregate under the 
mentor-prot[eacute]g[eacute] programs authorized by Sec. Sec.  124.520 
and 125.9 of this chapter.
    (c) Prot[eacute]g[eacute]s. (1) In order to initially qualify as a 
prot[eacute]g[eacute] firm, a concern must qualify as small for the 
size standard corresponding to its primary NAICS code. SBA will verify 
that a firm qualifies as a small business under its primary NAICS code 
before approving that firm to act as a prot[eacute]g[eacute]. This 
verification may take place either as part of a firm's request for 
participation in the small business mentor-prot[eacute]g[eacute] 
program, or as part of a size protest determination relating to the 
size standard corresponding to the NAICS code for its primary NAICS 
code prior to that time.
    (i) Where SBA has previously found the firm to qualify as small 
pursuant to a size protest relating to the size standard corresponding 
to the NAICS code for its primary NAICS code (or with respect to a size 
standard that is smaller than that associated with its primary NAICS 
code), the firm must certify that there has been no change in its size 
status since that determination.

[[Page 6638]]

    (ii) Where SBA has not previously found the firm to qualify as 
small pursuant to a size protest relating to the size standard 
corresponding to the NAICS code for its primary NAICS code (or with 
respect to a size standard that is smaller than that associated with 
its primary NAICS code), the firm must request a formal size 
determination pursuant to Sec.  121.1001(b)(10) of this chapter.
    (2) A prot[eacute]g[eacute] firm may generally have only one mentor 
at a time. The D/GC, or designee, may approve a second mentor for a 
particular prot[eacute]g[eacute] firm where the second relationship 
will not compete or otherwise conflict with the assistance set forth in 
the first mentor-prot[eacute]g[eacute] relationship and:
    (i) The second relationship pertains to an unrelated NAICS code; or
    (ii) The prot[eacute]g[eacute] firm is seeking to acquire a 
specific expertise that the first mentor does not possess.
    (3) A prot[eacute]g[eacute] may not become a mentor and retain its 
prot[eacute]g[eacute] status. The prot[eacute]g[eacute] must terminate 
the mentor-prot[eacute]g[eacute] agreement with its mentor before it 
will be approved as a mentor to another small business concern.
    (4) SBA may examine the Service Disabled Veteran Owned status or 
Women Owned Small Business status of an applicant concern that claims 
such status in any Federal procurement database.
    (d) Benefits. (1) A prot[eacute]g[eacute] and mentor may joint 
venture as a small business for any government prime contract or 
subcontract, provided the prot[eacute]g[eacute] qualifies as small for 
the procurement. Such a joint venture may seek any type of small 
business contract (i.e., small business set-aside, 8(a), HUBZone, SDVO, 
or WOSB/EDWOSB) for which the prot[eacute]g[eacute] firm qualifies.
    (i) SBA must approve the mentor-prot[eacute]g[eacute] agreement 
before the two firms may submit an offer as a joint venture on a 
particular government prime contract or subcontract in order for the 
joint venture to receive the exclusion from affiliation.
    (ii) In order to receive the exclusion from affiliation, the joint 
venture must meet the requirements set forth in Sec.  125.8(b)(2), (c) 
and (d).
    (iii) Once a prot[eacute]g[eacute] firm no longer qualifies as a 
small business for the size standard corresponding to its primary NAICS 
code, it will not be eligible for any further contracting benefits from 
its mentor-prot[eacute]g[eacute] relationship. However, a change in the 
prot[eacute]g[eacute]'s size status does not generally affect contracts 
previously awarded to a joint venture between the prot[eacute]g[eacute] 
and its mentor.
    (A) Except for contracts with durations of more than five years 
(including options), a contract awarded to a joint venture between a 
prot[eacute]g[eacute] and a mentor as a small business continues to 
qualify as an award to small business for the life of that contract and 
the joint venture remains obligated to continue performance on that 
contract.
    (B) For contracts with durations of more than five years (including 
options), where size re-certification is required under Sec.  
121.404(g)(3) of this chapter no more than 120 days prior to the end of 
the fifth year of the contract and no more than 120 days prior to 
exercising any option thereafter, once the prot[eacute]g[eacute] no 
longer qualifies as small for the size standard corresponding to its 
primary NAICS code, the joint venture must aggregate the receipts/
employees of the partners to the joint venture in determining whether 
it continues to qualify as and can re-certify itself to be a small 
business under the size standard corresponding to the NAICS code 
assigned to that contract. The rules set forth in Sec.  121.404(g)(3) 
of this chapter apply in such circumstances.
    (2) In order to raise capital, the prot[eacute]g[eacute] firm may 
agree to sell or otherwise convey to the mentor an equity interest of 
up to 40% in the prot[eacute]g[eacute] firm.
    (3) Notwithstanding the mentor-prot[eacute]g[eacute] relationship, 
a prot[eacute]g[eacute] firm may qualify for other assistance as a 
small business, including SBA financial assistance.
    (4) No determination of affiliation or control may be found between 
a prot[eacute]g[eacute] firm and its mentor based solely on the mentor-
prot[eacute]g[eacute] agreement or any assistance provided pursuant to 
the agreement. However, affiliation may be found for other reasons set 
forth in Sec.  121.103 of this chapter.
    (e) Written agreement. (1) The mentor and prot[eacute]g[eacute] 
firms must enter a written agreement setting forth an assessment of the 
prot[eacute]g[eacute]'s needs and providing a detailed description and 
timeline for the delivery of the assistance the mentor commits to 
provide to address those needs (e.g., management and/or technical 
assistance, loans and/or equity investments, cooperation on joint 
venture projects, or subcontracts under prime contracts being performed 
by the mentor). The mentor-prot[eacute]g[eacute] agreement must:
    (i) Address how the assistance to be provided through the agreement 
will help the prot[eacute]g[eacute] firm meet its goals as defined in 
its business plan;
    (ii) Establish a single point of contact in the mentor concern who 
is responsible for managing and implementing the mentor-
prot[eacute]g[eacute] agreement; and
    (iii) Provide that the mentor will provide such assistance to the 
prot[eacute]g[eacute] firm for at least one year.
    (2) A firm seeking SBA's approval to be a prot[eacute]g[eacute] 
must identify any other mentor-prot[eacute]g[eacute] relationship it 
has through another federal agency or SBA and provide a copy of each 
such mentor-prot[eacute]g[eacute] agreement to SBA. The small business 
mentor-prot[eacute]g[eacute] agreement must identify how the assistance 
to be provided by the proposed mentor is different from assistance 
provided to the prot[eacute]g[eacute] through another mentor-
prot[eacute]g[eacute] relationship, either with the same or a different 
mentor.
    (3) The written agreement must be approved by the D/GC or designee. 
The agreement will not be approved if SBA determines that the 
assistance to be provided is not sufficient to promote any real 
developmental gains to the prot[eacute]g[eacute], or if SBA determines 
that the agreement is merely a vehicle to enable the mentor to receive 
small business contracts.
    (4) The agreement must provide that either the 
prot[eacute]g[eacute] or the mentor may terminate the agreement with 30 
days advance notice to the other party to the mentor-
prot[eacute]g[eacute] relationship and to SBA.
    (5) SBA will review the mentor-prot[eacute]g[eacute] relationship 
annually to determine whether to approve its continuation for another 
year. The term of a mentor-prot[eacute]g[eacute] agreement may not 
exceed three years. A prot[eacute]g[eacute] may have one three-year 
mentor-prot[eacute]g[eacute] agreement with one entity and one three-
year mentor-prot[eacute]g[eacute] agreement with another entity, or two 
three-year mentor-prot[eacute]g[eacute] agreements (successive or 
otherwise) with the same entity.
    (6) SBA must approve all changes to a mentor-prot[eacute]g[eacute] 
agreement in advance, and any changes made to the agreement must be 
provided in writing. If the parties to the mentor-prot[eacute]g[eacute] 
relationship change the mentor-prot[eacute]g[eacute] agreement without 
prior approval by SBA, SBA shall terminate the mentor-
prot[eacute]g[eacute] relationship and may also propose suspension or 
debarment of one or both of the firms pursuant to paragraph (h) of this 
section where appropriate.
    (7) If control of the mentor changes (through a stock sale or 
otherwise), the previously approved mentor-prot[eacute]g[eacute] 
relationship may continue provided that, after the change in control, 
the mentor expresses in writing to SBA that it acknowledges the mentor-
prot[eacute]g[eacute] agreement and certifies that it will continue to 
abide by its terms.
    (8) SBA may terminate the mentor-prot[eacute]g[eacute] agreement at 
any time if it determines that the prot[eacute]g[eacute] is not

[[Page 6639]]

benefiting from the relationship or that the parties are not complying 
with any term or condition of the mentor prot[eacute]g[eacute] 
agreement. In the event SBA terminates the relationship, the mentor-
prot[eacute]g[eacute] joint venture is obligated to complete any 
previously awarded contracts unless the procuring agency issues a stop 
work order.
    (f) Decision to decline mentor-prot[eacute]g[eacute] relationship. 
(1) Where SBA declines to approve a specific mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] may request 
the D/GC to reconsider the Agency's initial decline decision by filing 
a request for reconsideration within 45 calendar days of receiving 
notice that its mentor-prot[eacute]g[eacute] agreement was declined. 
The prot[eacute]g[eacute] may revise the proposed mentor-
prot[eacute]g[eacute] agreement and provide any additional information 
and documentation pertinent to overcoming the reason(s) for the initial 
decline.
    (2) The D/GC, or designee, will issue a written decision within 45 
calendar days of receipt of the prot[eacute]g[eacute]'s request. The D/
GC may approve the mentor-prot[eacute]g[eacute] agreement, deny it on 
the same grounds as the original decision, or deny it on other grounds.
    (3) If the D/GC declines the mentor-prot[eacute]g[eacute] agreement 
solely on issues not raised in the initial decline, the 
prot[eacute]g[eacute] can ask for reconsideration as if it were an 
initial decline.
    (4) If SBA's final decision is to decline a specific mentor-
prot[eacute]g[eacute] agreement, the small business concern seeking to 
be a prot[eacute]g[eacute] cannot attempt to enter into another mentor-
prot[eacute]g[eacute] relationship with the same mentor for a period of 
60 calendar days from the date of the final decision. The small 
business concern may, however, submit another proposed mentor-
prot[eacute]g[eacute] agreement with a different proposed mentor at any 
time after the SBA's final decline decision.
    (g) Evaluating the mentor-prot[eacute]g[eacute] relationship. (1) 
Within 30 days of the anniversary of SBA's approval of the mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] must report 
to SBA for the preceding year:
    (i) All technical and/or management assistance provided by the 
mentor to the prot[eacute]g[eacute];
    (ii) All loans to and/or equity investments made by the mentor in 
the prot[eacute]g[eacute];
    (iii) All subcontracts awarded to the prot[eacute]g[eacute] by the 
mentor, and the value of each subcontract;
    (iv) All federal contracts awarded to the mentor-
prot[eacute]g[eacute] relationship as a joint venture (designating each 
as a small business set-aside, small business reserve, or unrestricted 
procurement), the value of each contract, and the percentage of the 
contract performed and the percentage of revenue accruing to each party 
to the joint venture; and
    (v) A narrative describing the success such assistance has had in 
addressing the developmental needs of the prot[eacute]g[eacute] and 
addressing any problems encountered.
    (2) The prot[eacute]g[eacute] must report the mentoring services it 
receives by category and hours.
    (3) The prot[eacute]g[eacute] must annually certify to SBA whether 
there has been any change in the terms of the agreement.
    (4) SBA will review the prot[eacute]g[eacute]'s report on the 
mentor-prot[eacute]g[eacute] relationship, and may decide not to 
approve continuation of the agreement if it finds that the mentor has 
not provided the assistance set forth in the mentor-
prot[eacute]g[eacute] agreement or that the assistance has not resulted 
in any material benefits or developmental gains to the 
prot[eacute]g[eacute].
    (h) Consequences of not providing assistance set forth in the 
mentor-prot[eacute]g[eacute] agreement. (1) Where SBA determines that a 
mentor has not provided to the prot[eacute]g[eacute] firm the business 
development assistance set forth in its mentor-prot[eacute]g[eacute] 
agreement, SBA will notify the mentor of such determination and afford 
the mentor an opportunity to respond. The mentor must respond within 30 
days of the notification, explaining why it has not provided the agreed 
upon assistance and setting forth a definitive plan as to when it will 
provide such assistance. If the mentor fails to respond, does not 
supply adequate reasons for its failure to provide the agreed upon 
assistance, or does not set forth a definite plan to provide the 
assistance:
    (i) SBA will terminate the mentor-prot[eacute]g[eacute] agreement;
    (ii) The firm will be ineligible to again act as a mentor for a 
period of two years from the date SBA terminates the mentor-
prot[eacute]g[eacute] agreement; and
    (iii) SBA may recommend to the relevant procuring agency to issue a 
stop work order for each federal contract for which the mentor and 
prot[eacute]g[eacute] are performing as a small business joint venture 
in order to encourage the mentor to comply with its mentor-
prot[eacute]g[eacute] agreement. Where a prot[eacute]g[eacute] firm is 
able to independently complete performance of any such contract, SBA 
may recommend to the procuring agency to authorize a substitution of 
the prot[eacute]g[eacute] firm for the joint venture.
    (2) SBA may consider a mentor's failure to comply with the terms 
and conditions of an SBA-approved mentor-prot[eacute]g[eacute] 
agreement as a basis for debarment on the grounds, including but not 
limited to, that the mentor has not complied with the terms of a public 
agreement under 2 CFR 180.800(b).


Sec.  125.10  Mentor-Prot[eacute]g[eacute] programs of other agencies.

    (a) Except as provided in paragraph (c) of this section, a Federal 
department or agency may not carry out a mentor-prot[eacute]g[eacute] 
program for small business unless the head of the department or agency 
submits a plan to the SBA Administrator for the program and the SBA 
Administrator approves the plan. Before starting a new mentor 
prot[eacute]g[eacute] program, the head of a department or agency must 
submit a plan to the SBA Administrator. Within one year of the 
effective date of this section, the head of a department or agency must 
submit a plan to the SBA for any previously existing mentor-
prot[eacute]g[eacute] program that the department or agency seeks to 
continue.
    (b) The SBA Administrator will approve or disapprove a plan 
submitted under paragraph (a) of this section based on whether the 
proposed program:
    (1) Will assist prot[eacute]g[eacute]s to compete for Federal prime 
contracts and subcontracts; and
    (2) Complies with the provisions set forth in Sec. Sec.  125.9 and 
124.520 of this chapter, as applicable.
    (c) Paragraph (a) of this section does not apply to:
    (1) Any mentor-prot[eacute]g[eacute] program of the Department of 
Defense;
    (2) Any mentoring assistance provided under a Small Business 
Innovation Research Program or a Small Business Technology Transfer 
Program; and
    (3) A mentor-prot[eacute]g[eacute] program operated by a Department 
or agency on January 2, 2013, for a period of one year after the 
effective date of this section.
    (d) The head of each Federal department or agency carrying out an 
agency-specific mentor-prot[eacute]g[eacute] program must report 
annually to SBA:
    (1) The participants (both prot[eacute]g[eacute] firms and their 
approved mentors) in its mentor-prot[eacute]g[eacute] program. This 
includes identifying the number of participants that are:
    (i) Small business concerns;
    (ii) Small business concerns owned and controlled by service-
disabled veterans;
    (iii) Small business concerns owned and controlled by socially and 
economically disadvantaged individuals;
    (iv) Small business concerns owned and controlled by Indian tribes, 
Alaska Native Corporations, native Hawaiian Organizations, and 
Community Development Corporations; and
    (v) Small business concerns owned and controlled by women;

[[Page 6640]]

    (2) The assistance provided to small businesses through the 
program; and
    (3) The progress of prot[eacute]g[eacute] firms under the program 
to compete for Federal prime contracts and subcontracts.
0
25. Amend newly redesignated Sec.  125.18 by adding paragraph 
(b)(1)(iii), revising paragraphs (b)(2) through (6), and adding 
paragraphs (b)(7) through (10) to read as follows:


Sec.  125.18  What requirements must an SDVO SBC meet to submit an 
offer on a contract?

* * * * *
    (b) * * *
    (1) * * *
    (iii) A joint venture between a prot[eacute]g[eacute] firm that 
qualifies as an SDVO SBC and its SBA-approved mentor (see Sec. Sec.  
125.9 and 124.520 of this chapter) will be deemed small provided the 
prot[eacute]g[eacute] qualifies as small for the size standard 
corresponding to the NAICS code assigned to the SDVO procurement.
    (2) Contents of joint venture agreement. Every joint venture 
agreement to perform an SDVO contract, including those between a 
prot[eacute]g[eacute] firm that qualifies as an SDVO SBC and its SBA-
approved mentor (see Sec. Sec.  125.9 and 124.520 of this chapter) must 
contain a provision:
    (i) Setting forth the purpose of the joint venture;
    (ii) Designating an SDVO SBC as the managing venturer of the joint 
venture, and an employee of the SDVO SBC managing venturer as the 
project manager responsible for performance of the contract;
    (iii) Stating that with respect to a separate legal entity joint 
venture, the SDVO SBC must own at least 51% of the joint venture 
entity;
    (iv) Stating that the SDVO SBC must receive profits from the joint 
venture commensurate with the work performed by the SDVO SBC, or in the 
case of a separate legal entity joint venture, commensurate with their 
ownership interests in the joint venture;
    (v) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on an SDVO contract will be deposited in the special 
account; all expenses incurred under the contract will be paid from the 
account as well;
    (vi) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each;
    (vii) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the SDVO SBC partner to the joint venture will 
meet the performance of work requirements set forth in paragraph (b)(3) 
of this section;
    (viii) Obligating all parties to the joint venture to ensure 
performance of the SDVO contract and to complete performance despite 
the withdrawal of any member;
    (ix) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the SDVO SBC 
managing venturer, unless approval to keep them elsewhere is granted by 
the District Director or his/her designee upon written request;
    (x) Requiring that the final original records be retained by the 
SDVO SBC managing venturer upon completion of the SDVO contract 
performed by the joint venture;
    (xi) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (xii) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (3) Performance of work. (i) For any SDVO contract, including those 
between a prot[eacute]g[eacute] and a mentor authorized by Sec.  125.9 
or Sec.  124.520 of this chapter, the joint venture must perform the 
applicable percentage of work required by Sec.  125.6.
    (ii) The SDVO SBC partner(s) to the joint venture must perform at 
least 40% of the work performed by the joint venture.
    (A) The work performed by the SDVO SBC partner(s) to a joint 
venture must be more than administrative or ministerial functions so 
that they gain substantive experience.
    (B) The amount of work done by the partners will be aggregated and 
the work done by the SDVO SBC partner(s) must be at least 40% of the 
total done by all partners. In determining the amount of work done by a 
non-SDVO SBC partner, all work done by the non-SDVO SBC partner and any 
of its affiliates at any subcontracting tier will be counted.
    (4) Certification of Compliance. Prior to the performance of any 
SDVO contract as a joint venture, the SDVO SBC partner to the joint 
venture must submit a written certification to the contracting officer 
and SBA, signed by an authorized official of each partner to the joint 
venture, stating as follows:
    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (b)(2) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (b)(3) of this section.
    (5) Past performance. When evaluating the past performance of an 
entity submitting an offer for an SDVO contract as a joint venture 
established pursuant to this section, a procuring activity must 
consider work done individually by each partner to the joint venture as 
well as any work done by the joint venture itself previously.
    (6) Contract execution. The procuring activity will execute an SDVO 
contract in the name of the joint venture entity or the SDVO SBC, but 
in either case will identify the award as one to an SDVO joint venture 
or an SDVO mentor-prot[eacute]g[eacute] joint venture, as appropriate.
    (7) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents.
    (8) Performance of work reports. An SDVO SBC partner to a joint 
venture must describe how it is meeting or has met the applicable 
performance of work requirements for each SDVO contract it performs as 
a joint venture.
    (i) The SDVO SBC partner to the joint venture must annually submit 
a report to the relevant contracting officer and to the SBA, signed by 
an authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements are being 
met.
    (ii) At the completion of every SDVO contract awarded to a joint 
venture, the SDVO SBC partner to the joint venture must submit a report 
to the relevant contracting officer and to the SBA, signed by an 
authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements were met 
for the contract, and further certifying that the contract was 
performed in accordance with the provisions of the joint venture 
agreement that are required under paragraph (b)(2) of this section.
    (9) Basis for suspension or debarment. The Government may consider 
the following as a ground for suspension or debarment as a willful 
violation of a regulatory provision or requirement

[[Page 6641]]

applicable to a public agreement or transaction:
    (i) Failure to enter a joint venture agreement that complies with 
paragraph (b)(2) of this section;
    (ii) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph 
(b)(3) of this section; or
    (iii) Failure to submit the certification required by paragraph 
(b)(4) of this section or comply with paragraph (b)(7) of this section.
    (10) Any person with information concerning a joint venture's 
compliance with the performance of work requirements may report that 
information to SBA and/or the SBA Office of Inspector General.


Sec.  125.22  [Amended]

0
26. Amend newly redesignated Sec.  125.22 by adding the phrase ``, 
regardless of the place of performance,'' in the first sentence of 
paragraphs (b)(1) and (b)(2)(i) after the words ``for small business 
concerns'' and before the words ``when there is a reasonable 
expectation''.

PART 126--HUBZONE PROGRAM

0
27. The authority citation for part 126 is revised to read as follows:

    Authority: 15 U.S.C. 632(a), 632(j), 632(p), and 657a; Pub. L. 
111-240, 24 Stat. 2504.

0
28. Amend Sec.  126.306 as follows:
0
a. Revise paragraphs (a) and (b);
0
b. Redesignate paragraphs (c) and (d) as paragraphs (f) and (g), 
respectively; and
0
c. Add new paragraphs (c) and (d) and add paragraph (e).
    The revisions and additions read as follows:


Sec.  126.306  How will SBA process the certification?

    (a) The D/HUB or designee is authorized to approve or decline 
applications for certification. SBA will receive and review all 
applications and request supporting documents. SBA must receive all 
required information, supporting documents, and completed HUBZone 
representation before it will begin processing a concern's application. 
SBA will not process incomplete packages. SBA will make its 
determination within ninety (90) calendar days after receipt of a 
complete package whenever practicable. The decision of the D/HUB or 
designee is the final agency decision.
    (b) SBA may request additional information or clarification of 
information contained in an application or document submission at any 
time.
    (c) The burden of proof to demonstrate eligibility is on the 
applicant concern. If a concern does not provide requested information 
within the allotted time provided by SBA, or if it submits incomplete 
information, SBA may presume that disclosure of the missing information 
would adversely affect the business concern or demonstrate a lack of 
eligibility in the area or areas to which the information relates.
    (d) The applicant must be eligible as of the date it submitted its 
application and up until and at the time the D/HUB issues a decision. 
The decision will be based on the facts set forth in the application, 
any information received in response to SBA's request for 
clarification, and any changed circumstances since the date of 
application.
    (e) Any changed circumstance occurring after it has submitted an 
application will be considered and may constitute grounds for decline. 
After submitting the application and signed representation, an 
applicant must notify SBA of any changes that could affect its 
eligibility. The D/HUB may propose for decertification any HUBZone SBC 
that failed to inform SBA of any changed circumstances that affected 
its eligibility for the program during the processing of the 
application.
0
29. Amend Sec.  126.600 by revising the introductory text to read as 
follows:


Sec.  126.600  What are HUBZone contracts?

    HUBZone contracts are contracts awarded to a qualified HUBZone SBC, 
regardless of the place of performance, through any of the following 
procurement methods:
* * * * *
0
30. Revise Sec.  126.615 to read as follows:


Sec.  126.615  May a large business participate on a HUBZone contract?

    Except as provided in Sec.  126.618(d), a large business may not 
participate as a prime contractor on a HUBZone award, but may 
participate as a subcontractor to an otherwise qualified HUBZone SBC, 
subject to the contract performance requirements set forth in Sec.  
126.700.
0
31. Revise Sec.  126.616 to read as follows:


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

    (a) General. A qualified HUBZone SBC may enter into a joint venture 
agreement with one or more other SBCs, or with an approved mentor 
authorized by Sec.  125.9 of this chapter (or, if also an 8(a) BD 
Participant, with an approved mentor authorized by Sec.  124.520 of 
this chapter), for the purpose of submitting an offer for a HUBZone 
contract. The joint venture itself need not be certified as a qualified 
HUBZone SBC.
    (b) Size. (1) A joint venture of at least one qualified HUBZone SBC 
and one or more other business concerns may submit an offer as a small 
business for a HUBZone contract so long as the firms in the aggregate 
are small under the size standard corresponding to the NAICS code 
assigned to the contract, unless the contract qualifies under the 
exception in Sec.  121.103(h)(3) of this chapter. If the contract 
qualifies under the exception in Sec.  121.103(h)(3) of this chapter, 
each firm must be small under the size standard corresponding to the 
NAICS code assigned to the contract.
    (2) A joint venture between a prot[eacute]g[eacute] firm and its 
SBA-approved mentor (see Sec.  125.9 of this chapter) will be deemed 
small provided the prot[eacute]g[eacute] qualifies as small for the 
size standard corresponding to the NAICS code assigned to the HUBZone 
contract.
    (c) Contents of joint venture agreement. Any joint venture 
agreement to perform a HUBZone contract between a prot[eacute]g[eacute] 
and a mentor authorized by Sec.  125.9 of this chapter must contain a 
provision:
    (1) Setting forth the purpose of the joint venture;
    (2) Designating a HUBZone SBC as the managing venturer of the joint 
venture, and an employee of the HUBZone SBC managing venturer as the 
project manager responsible for performance of the contract;
    (3) Stating that with respect to a separate legal entity joint 
venture, the HUBZone SBC must own at least 51% of the joint venture 
entity;
    (4) Stating that the HUBZone SBC must receive profits from the 
joint venture commensurate with the work performed by the HUBZone SBC, 
or in the case of a separate legal entity joint venture, commensurate 
with their ownership interests in the joint venture;
    (5) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on a HUBZone contract will be deposited in the special 
account; all expenses incurred under the contract will be paid from the 
account as well;
    (6) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each;

[[Page 6642]]

    (7) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the HUBZone SBC partner to the joint venture will 
meet the performance of work requirements set forth in paragraph (d) of 
this section;
    (8) Obligating all parties to the joint venture to ensure 
performance of the HUBZone contract and to complete performance despite 
the withdrawal of any member;
    (9) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the HUBZone SBC 
managing venturer, unless approval to keep them elsewhere is granted by 
the District Director or his/her designee upon written request;
    (10) Requiring that the final original records be retained by the 
HUBZone SBC managing venturer upon completion of the HUBZone contract 
performed by the joint venture;
    (11) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (12) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (d) Performance of work. (1) For any HUBZone contract to be 
performed by a joint venture between a qualified HUBZone SBC and 
another qualified HUBZone SBC, the aggregate of the qualified HUBZone 
SBCs to the joint venture, not each concern separately, must perform 
the applicable percentage of work required by Sec.  125.6 of this 
chapter.
    (2) For any HUBZone contract to be performed by a joint venture 
between a qualified HUBZone prot[eacute]g[eacute] and its SBA-approved 
mentor authorized by Sec.  125.9 or Sec.  124.520 of this chapter, the 
joint venture must perform the applicable percentage of work required 
by Sec.  125.6 of this chapter, and the HUBZone SBC partner to the 
joint venture must perform at least 40% of the work performed by the 
joint venture.
    (i) The work performed by the HUBZone SBC partner to a joint 
venture must be more than administrative or ministerial functions so 
that it gains substantive experience.
    (ii) The amount of work done by the partners will be aggregated and 
the work done by the HUBZone prot[eacute]g[eacute] partner must be at 
least 40% of the total done by the partners. In determining the amount 
of work done by a mentor participating in a joint venture with a 
HUBZone qualified prot[eacute]g[eacute], all work done by the mentor 
and any of its affiliates at any subcontracting tier will be counted.
    (e) Certification of compliance. Prior to the performance of any 
HUBZone contract as a joint venture, the HUBZone SBC partner to the 
joint venture must submit a written certification to the contracting 
officer and SBA, signed by an authorized official of each partner to 
the joint venture, stating as follows:
    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (c) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (d) of this section.
    (f) Past performance. When evaluating the past performance of an 
entity submitting an offer for a HUBZone contract as a joint venture 
established pursuant to this section, a procuring activity must 
consider work done individually by each partner to the joint venture as 
well as any work done by the joint venture itself previously.
    (g) Contract execution. The procuring activity will execute a 
HUBZone contract in the name of the joint venture entity or the HUBZone 
SBC, but in either case will identify the award as one to a HUBZone 
joint venture or a HUBZone mentor-prot[eacute]g[eacute] joint venture, 
as appropriate.
    (h) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents.
    (i) Performance of work reports. The HUBZone SBC partner to a joint 
venture must describe how it is meeting or has met the applicable 
performance of work requirements for each HUBZone contract it performs 
as a joint venture.
    (1) The HUBZone SBC partner to the joint venture must annually 
submit a report to the relevant contracting officer and to the SBA, 
signed by an authorized official of each partner to the joint venture, 
explaining how the performance of work requirements are being met for 
each HUBZone contract performed during the year.
    (2) At the completion of every HUBZone contract awarded to a joint 
venture, the HUBZone SBC partner to the joint venture must submit a 
report to the relevant contracting officer and to the SBA, signed by an 
authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements were met 
for the contract, and further certifying that the contract was 
performed in accordance with the provisions of the joint venture 
agreement that are required under paragraph (c) of this section.
    (j) Basis for suspension or debarment. The Government may consider 
the following as a ground for suspension or debarment as a willful 
violation of a regulatory provision or requirement applicable to a 
public agreement or transaction:
    (1) Failure to enter a joint venture agreement that complies with 
paragraph (c) of this section;
    (2) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph (d) 
of this section; or
    (3) Failure to submit the certification required by paragraph (e) 
of this section or comply with paragraph (h) of this section.
    (k) Any person with information concerning a joint venture's 
compliance with the performance of work requirements may report that 
information to SBA and/or the SBA Office of Inspector General.
0
32. Revise Sec.  126.618 to read as follows:


Sec.  126.618  How does a HUBZone SBC's participation in a Mentor-
Prot[eacute]g[eacute] relationship affect its participation in the 
HUBZone Program?

    (a) A qualified HUBZone SBC may enter into a mentor-
prot[eacute]g[eacute] relationship under Sec.  125.9 of this chapter 
(or, if also an 8(a) BD Participant, under Sec.  124.520 of this 
chapter) or in connection with a mentor-prot[eacute]g[eacute] program 
of another agency, provided that such relationships do not conflict 
with the underlying HUBZone requirements.
    (b) For purposes of determining whether an applicant to the HUBZone 
Program or a HUBZone SBC qualifies as small under part 121 of this 
chapter, SBA will not find affiliation between the applicant or 
qualified HUBZone SBC and the firm that is its mentor in an SBA or 
other Federally-approved mentor-prot[eacute]g[eacute] relationship 
(including a mentor that is other than small) on the basis of the 
mentor-prot[eacute]g[eacute] agreement or the assistance provided to 
the prot[eacute]g[eacute] firm under the agreement. As such, SBA will 
not consider the employees of the mentor in determining whether the 
applicant or qualified HUBZone SBC meets (or continues to meet) the 35%

[[Page 6643]]

HUBZone residency requirement, or in determining the size of the 
applicant or qualified HUBZone SBC for any employee-based size 
standard.
    (c) A qualified HUBZone SBC that is a prime contractor on a HUBZone 
contract may subcontract work to its mentor.
    (1) The HUBZone SBC must meet the applicable performance of work 
requirements set forth in Sec.  125.6(c) of this chapter.
    (2) SBA may find affiliation between a prime HUBZone contractor and 
its mentor subcontractor where the mentor will perform primary and 
vital requirements of the contract. See Sec.  121.103(h)(4) of this 
chapter.
    (d) A qualified HUBZone SBC that has an SBA-approved mentor-
prot[eacute]g[eacute] relationship pursuant to Sec.  125.9 or Sec.  
124.520 of this chapter may joint venture with its mentor (whether or 
not the mentor is small) on a HUBZone contract.
    (1) A joint venture between a qualified HUBZone SBC and its SBA-
approved mentor will qualify as a small business provided the 
prot[eacute]g[eacute] individually qualifies as small for the size 
standard corresponding to the NAICS code assigned to the procurement, 
and the joint venture meets the requirements of Sec.  126.616(c) and 
(d).
    (2) A qualified HUBZone SBC may not joint venture with any mentor 
that has not been approved by SBA pursuant to Sec.  125.9 or Sec.  
124.520 of this chapter unless the mentor is also a qualified HUBZone 
SBC.

PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM

0
33. The authority citation for part 127 is revised to read as follows:

    Authority:  15 U.S.C. 632, 634(b)(6), 637(m), and 644; Pub. L. 
111-240, 24 Stat. 2504.


Sec.  127.500  [Amended]

0
34. Amend Sec.  127.500 by adding the words ``, regardless of the place 
of performance'' to the end of the sentence.
0
35. Amend Sec.  127.506 as follows:
0
a. Revise the section introductory text and paragraphs (a), add an 
italic subject head to paragraph (c), and revise paragraphs (c)(2) and 
(3);
0
b. Redesignate paragraph (c)(4) as (c)(7) and paragraph (c)(5) as 
(c)(10) respectively;
0
c. Add new paragraphs (c)(4) and (c)(5) and add paragraph (c)(6);
0
d. Revise newly redesignated paragraph (c)(7);
0
e. Add paragraphs (c)(8), (c)(9), (c)(11), and (c)(12);
0
f. Revise paragraphs (d), (e) and (f); and
0
g. Add paragraphs (g), (h), (i), (j), (k) and (l).
    The revisions and additions read as follows:


Sec.  127.506  May a joint venture submit an offer on an EDWOSB or WOSB 
requirement?

    A joint venture, including those between a prot[eacute]g[eacute] 
and a mentor under Sec.  125.9 of this chapter (or, if also an 8(a) BD 
Participant, under Sec.  124.520 of this chapter), may submit an offer 
on an EDWOSB or WOSB contract if the joint venture meets all of the 
following requirements:
    (a)(1) A joint venture of at least one EDWOSB or WOSB and one or 
more other business concerns may submit an offer as a small business 
for a EDWOSB or WOSB contract so long as the firms in the aggregate are 
small under the size standard corresponding to the NAICS code assigned 
to the contract, unless the contract qualifies under the exception in 
121.103(h)(3). If the contract qualifies under the exception in 
121.103(h)(3), each firm must be small under the size standard 
corresponding to the NAICS code assigned to the contract.
    (2) A joint venture between a prot[eacute]g[eacute] firm and its 
SBA-approved mentor (see Sec.  125.9 and Sec.  124.520 of this chapter) 
will be deemed small provided the prot[eacute]g[eacute] qualifies as 
small for the size standard corresponding to the NAICS code assigned to 
the EDWOSB or WOSB procurement.
* * * * *
    (c) Contents of joint venture agreement. * * *
    (1) * * *
    (2) Designating a WOSB as the managing venturer of the joint 
venture, and an employee of the WOSB managing venturer as the project 
manager responsible for performance of the contract;
    (3) Stating that with respect to a separate legal entity joint 
venture, the WOSB must own at least 51% of the joint venture entity;
    (4) Stating that the WOSB must receive profits from the joint 
venture commensurate with the work performed by the WOSB, or in the 
case of a separate legal entity joint venture, commensurate with their 
ownership interests in the joint venture;
    (5) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on a WOSB or EDWOSB contract will be deposited in the 
special account; all expenses incurred under the contract will be paid 
from the account as well;
    (6) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each;
    (7) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the WOSB partner to the joint venture will meet 
the performance of work requirements set forth in paragraph (d) of this 
section;
    (8) Obligating all parties to the joint venture to ensure 
performance of the WOSB contract and to complete performance despite 
the withdrawal of any member;
    (9) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the WOSB 
managing venturer, unless approval to keep them elsewhere is granted by 
the District Director or his/her designee upon written request;
    (10) Requiring that the final original records be retained by the 
WOSB managing venturer upon completion of the EDWOSB or WOSB contract 
performed by the joint venture;
    (11) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (12) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (d) Performance of work. (1) For any EDWOSB or WOSB contract, the 
joint venture (including one between a prot[eacute]g[eacute] and a 
mentor authorized by Sec.  125.9 or Sec.  124.520 of this chapter) must 
perform the applicable percentage of work required by Sec.  125.6 of 
this chapter.
    (2) The WOSB partner(s) to the joint venture must perform at least 
40% of the work performed by the joint venture.
    (i) The work performed by the WOSB partner(s) to a joint venture 
must be more than administrative or ministerial functions so that they 
gain substantive experience.
    (ii) The amount of work done by the partners will be aggregated and 
the work done by the WOSB partner(s) must be at least 40% of the total 
done by all partners. In determining the amount of

[[Page 6644]]

work done by the non-WOSB partner, all work done by the non-WOSB 
partner and any of its affiliates at any subcontracting tier will be 
counted.
    (e) Certification of compliance. Prior to the performance of any 
WOSB or EDWOSB contract as a joint venture, the WOSB or EDWOSB SBC 
partner to the joint venture must submit a written certification to the 
contracting officer and SBA, signed by an authorized official of each 
partner to the joint venture, stating as follows:
    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (c) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (d) of this section.
    (f) Past performance. When evaluating the past performance of an 
entity submitting an offer for a WOSB or EDWOSB contract as a joint 
venture established pursuant to this section, a procuring activity must 
consider work done individually by each partner to the joint venture as 
well as any work done by the joint venture itself previously.
    (g) Contract execution. The procuring activity will execute a WOSB 
or EDWOSB contract in the name of the joint venture entity or the WOSB 
or EDWOSB SBC, but in either case will identify the award as one to a 
WOSB or ESWOSB joint venture or a WOSB or EDWOSB mentor-
prot[eacute]g[eacute] joint venture, as appropriate.
    (h) Submission of joint venture agreement. The WOSB or EDWOSB must 
provide a copy of the joint venture agreement to the contracting 
officer.
    (i) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents.
    (j) Performance of work reports. The WOSB or EDWOSB SBC partner to 
a joint venture must describe how it is meeting or has met the 
applicable performance of work requirements for each WOSB or EDWOSB 
contract it performs as a joint venture.
    (1) The WOSB or EDWOSB SBC partner to the joint venture must 
annually submit a report to the relevant contracting officer and to the 
SBA, signed by an authorized official of each partner to the joint 
venture, explaining how the performance of work requirements are being 
met for each WOSB or EDWOSB contract performed during the year.
    (2) At the completion of every WOSB or EDWOSB contract awarded to a 
joint venture, the WOSB or EDWOSB SBC partner to the joint venture must 
submit a report to the relevant contracting officer and to the SBA, 
signed by an authorized official of each partner to the joint venture, 
explaining how and certifying that the performance of work requirements 
were met for the contract, and further certifying that the contract was 
performed in accordance with the provisions of the joint venture 
agreement that are required under paragraph (c) of this section.
    (k) Basis for suspension or debarment. The Government may consider 
the following as a ground for suspension or debarment as a willful 
violation of a regulatory provision or requirement applicable to a 
public agreement or transaction:
    (1) Failure to enter a joint venture agreement that complies with 
paragraph (c) of this section;
    (2) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph (d) 
of this section; or
    (3) Failure to submit the certification required by paragraph (e) 
or comply with paragraph (i) of this section.
    (l) Any person with information concerning a joint venture's 
compliance with the performance of work requirements may report that 
information to SBA and/or the SBA Office of Inspector General.

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

0
36. The authority citation for 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
37. Amend Sec.  134.227 by revising paragraph (c) to read as follows:


Sec.  134.227  Finality of decisions.

* * * * *
    (c) Reconsideration. Except as otherwise provided by statute, the 
applicable program regulations in this chapter, or this part 134, an 
initial or final decision of the Judge may be reconsidered. Any party 
in interest, including SBA where SBA did not appear as a party during 
the proceeding that led to the issuance of the Judge's decision, may 
request reconsideration by filing with the Judge and serving a petition 
for reconsideration within 20 days after service of the written 
decision, upon a clear showing of an error of fact or law material to 
the decision. The Judge also may reconsider a decision on his or her 
own initiative.
0
38. Amend Sec.  134.406 by revising paragraph (b) to read as follows:


Sec.  134.406  Review of the administrative record.

* * * * *
    (b) Except in suspension appeals, the Administrative Law Judge's 
review is limited to determining whether the Agency's determination is 
arbitrary, capricious, or contrary to law. As long as the Agency's 
determination is not arbitrary, capricious or contrary to law, the 
Administrative Law Judge must uphold it on appeal.
    (1) The Administrative Law Judge must consider whether the decision 
was based on a consideration of the relevant factors and whether there 
has been a clear error of judgment.
    (2) If the SBA's path of reasoning may reasonably be discerned, the 
Administrative Law Judge will uphold a decision of less than ideal 
clarity.
* * * * *


Sec.  134.501  [Amended]

0
39. Amend Sec.  134.501 by removing ``Sec.  125.26'' from paragraph 
(a), and by adding ``Sec.  125.29'' in its place.


Sec.  134.515  [Amended]

0
40. Amend Sec.  134.515 by removing ``13 CFR 125.28'' from paragraph 
(a), and by adding ``Sec.  125.31 of this chapter'' in its place.

    Dated: December 19, 2014.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2015-01548 Filed 2-4-15; 8:45 am]
BILLING CODE 8025-01-P