[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Rules and Regulations]
[Pages 7533-7536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02746]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 80, No. 28 / Wednesday, February 11, 2015 / 
Rules and Regulations  

[[Page 7533]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG59


Advisory Small Business Size Decisions

AGENCY: Small Business Administration.

ACTION: Final rule.

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

SUMMARY: This rule implements provisions of the National Defense 
Authorization Act of 2013 (NDAA) pertaining to small business size. 
This rule amends the U.S. Small Business Administration's (SBA or 
Agency) program regulations to implement statutory provisions 
establishing limitations of liability from fraud penalties for 
individuals or firms that misrepresent business concerns as being small 
for purposes of Federal procurement opportunities if they acted in good 
faith reliance upon small business status advisory opinions received 
from Small Business Development Centers (SBDCs) or Procurement 
Technical Assistance Centers (PTACs). The rule also amends SBA's 
regulations to establish the criteria small business status advisory 
opinions must meet in order to be deemed adequate and specify the 
review process for such opinions. Finally, the rule further amends 
SBA's regulations to update the circumstances under which SBA may 
initiate a formal size determination.

DATES: This rule is effective August 10, 2015.

FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, U.S. Small Business 
Administration, Office of Policy, Planning & Liaison, 409 Third Street 
SW., 8th Floor, Washington, DC 20416, (202) 205-7337, 
[email protected].

SUPPLEMENTARY INFORMATION: On January 2, 2013, Congress amended the 
Small Business Act to provide that the penalties created under 15 
U.S.C. 645(d) for misrepresentation of a firm as a small business 
concern do not apply to individuals or firms that act in good faith 
reliance upon small business status advisory opinions they receive from 
SBDCs or PTACs. Additionally, the Small Business Act was amended to 
give responsibility for reviewing, accepting, or rejecting these small 
business status advisory opinions to SBA's Office of General Counsel. 
Finally, the Small Business Act was further amended to require that SBA 
promulgate regulations to implement this provision no later than 270 
days after the date of passage of the statutory amendment.
    SBA published a proposed rule regarding these statutory provisions 
in the Federal Register on June 25, 2014 (79 FR 35963), inviting the 
public to submit comments on or before August 25, 2014.

Summary of Comments and SBA's Responses

    SBA received and considered sixteen comments on the proposed rule. 
Twelve commenters opposed the creation of the limitation on liability 
in general and urged SBA not to adopt the proposed rule. As noted in 
the preamble to the proposed rule, Congress has mandated via 
legislation that SBA establish this limitation on liability protection 
via regulation. With this rule, SBA is implementing that legislative 
mandate. The remaining comments, as well as SBA's responses to them, 
are discussed below.

Requiring SBDCs/PTACs To Provide Advisory Opinions

    Two comments urged SBA to change the approach taken under the 
proposed rule and require SBDCs and PTACs to provide small business 
status advisory opinions to interested parties rather than giving them 
the authority to do so. SBA notes that the statutory provision does not 
mandate that SBDCs and PTACs perform such services. As such, SBA 
believes that the approach taken in the proposed rule is consistent 
with the authorizing legislation. Moreover, SBA notes that the PTAC 
program is administered by the Department of Defense, not SBA. Absent 
express statutory authority, SBA believes it lacks the power to impose 
performance mandates on a program administered by another agency.
    Additionally, with regard to SBDCs, 15 U.S.C. 648(a)(3)(A) requires 
SBA to consult with the association representing SBDC grant recipients 
prior to defining the scope of activities conducted under the SBDC 
program. That provision further obligates SBA to develop, in 
conjunction with that association, the rules governing the general 
operations and administration of the SBDC program. Therefore, there are 
statutory obstacles to SBA unilaterally requiring SBDCs to provide 
these new advisory opinion services. Such new performance requirements 
may only be established following the consultation required by 15 
U.S.C. 648(a)(3)(A), which the Agency conducts with the association on 
an annual basis. It is SBA's intention to address the topic of small 
business status advisory opinions during the next annual consultation.

Liability of SBDCs/PTACs

    SBA received two comments regarding the potential liability of 
SBDCs or PTACs that issue small business status advisory opinions to 
firms that subsequently turn out to be other than small. SBA notes that 
Sec.  1681 of the enabling legislation expressly provides that an SBDC 
or PTAC that issues a positive advisory opinion will not be liable to 
that business concern in the event SBA subsequently declines to accept 
the opinion. In cases where an SBDC or PTAC issues a negative advisory 
opinion for a business concern that is subsequently determined to be 
small, the issue of whether section 1681's grant of immunity from 
liability would apply in those circumstances is one that SBA must leave 
to the courts to determine.
    With regard to the potential liability of an SBDC or PTAC to third 
parties for advisory opinion it issued, while one commenter suggested 
that section 1681 of the enabling legislation might also immunize an 
SBDC or PTAC from liability in those circumstances, SBA must similarly 
defer to the courts to determine the scope of the shield afforded under 
section 1681.

Inherently Governmental Function

    Two commenters objected to the use of SBDCs and PTACs as issuers of 
small business status advisory opinions on the grounds that this 
approach will result in the impermissible delegation of an

[[Page 7534]]

inherently governmental function. SBA notes that the legislation 
requires the use of SBDCs and PTACs in this role and the Agency is 
merely implementing that scheme. Moreover, SBA has historically 
permitted outside organizations to act as private certifiers for its 
contracting programs. Where private or outside certifiers are utilized, 
ultimate decisionmaking authority as to whether a firm qualifies for 
participation in its contracting programs, including small business 
set-asides, still rests with SBA. In the case of small business status 
advisory opinions, the regulations provide that SBA will review and 
either accept or reject. As such, SBA does not believe the issuance of 
small business status advisory opinions by SBDCs and PTACs will lead to 
the delegation of an inherently governmental function. In addition, the 
firm's size may always be challenged through a size protest in 
connection with an actual procurement.

Evidence of Business Size

    One commenter requested that SBA provide more detailed guidance and 
specific examples regarding the type of evidence a firm could provide 
to an SBDC or PTAC to adequately document its compliance with the size 
standards. SBA concurs with this suggestion and has amended Sec.  
121.109(b)(4) accordingly.

Qualifications of SBDC or PTAC Employees Issuing Advisory Opinions

    One commenter alleged that the phrase ``counselor or similarly 
qualified employee'' as used in Sec.  121.109(b)(3) may create 
uncertainty or confusion on the part of SBDCs or PTACs. However, there 
was insufficient information provided for SBA to create an alternative 
term to describe these individuals. SBA does agree with the suggestion 
that it would be beneficial to provide periodic training on SBA's size 
rules to SBDCs and PTACs to enable them to better carry out their roles 
under this rule. SBA is currently exploring the most effective method 
of accomplishing that objective.

Timeframe for Issuing Advisory Opinions

    One commenter suggested that SBA impose a deadline on the length of 
time SBDCs and PTACs are allowed to take when preparing small business 
status advisory opinions. SBA has no reason to doubt the capability or 
responsiveness of SBDCs and PTACs in this area. SBA notes that the 
performance of SBDCs and PTACs in carrying out their duties is already 
being monitored and policed by the program offices charged with 
administering their grant agreements. As such, the responsiveness and 
timeliness of SBDCs and PTACs will be taken into account during the 
regular grant recipient performance review process and any shortcomings 
on their parts will be addressed during that process. However, SBA does 
reserve the right to impose such a deadline if circumstances 
subsequently demonstrate a need for it.

Review of Advisory Opinions

    SBA concurs with one commenter's request that firms which receive 
small business status advisory opinions holding that they are other 
than small be permitted to seek review of those determinations. 
Therefore, SBA is amending 13 CFR 121.1001 to permit a firm that 
receives a negative advisory opinion (i.e., an opinion concluding that 
it is other than small) from an SBDC or PTAC to request that SBA 
conduct a formal size determination of it.
    Furthermore, with regard to the review of advisory opinions 
rejected by SBA, it is SBA's intention to immediately initiate a formal 
size determination for each firm that is the subject of an advisory 
opinion that is rejected by the Agency. Affected firms will thus be 
able to avail themselves of the standard appeals process set forth in 
13 CFR 121.1101.

Expiration of Advisory Opinions

    One commenter suggested that small business status advisory 
opinions issued by SBDCs and PTACs should expire, or that the 
remoteness in time from when they were issued should be taken into 
account when determining whether they are entitled to avail themselves 
of the safe harbor provision. SBA rejects this suggestion. The enabling 
statute does not include a provision calling for the expiration of 
advisory opinions and does not envision that the safe harbor protection 
is something that should be switched on or off. As the statute makes 
clear, firms that receive positive advisory opinions are automatically 
entitled to protection from liability. Of course, a firm's size status 
can be protested in connection with an actual procurement.
    Moreover, such an approach would be inconsistent with the treatment 
given formal size determinations, which do not expire absent a material 
change in circumstances. See 13 CFR 121.1009. However, SBA does believe 
that Sec.  121.109 of the new rule should make clear that a firm is no 
longer justified in relying upon a positive advisory opinion where it 
has experienced a material change in circumstances with regard to its 
average annual receipts or its number of employees. SBA has therefore 
amended Sec.  121.109 accordingly.

Other Comments

    In addition to the comments received from the public, SBA also 
received comments during its internal review cycle which recommended 
that the Agency simplify and streamline the process of issuing small 
business status advisory opinions by requiring SBDCs and PTACs to 
utilize the same form SBA relies upon when making size determinations. 
These internal commenters also suggested that SBA clarify that SBDCs 
and PTACs must take into account the principles of affiliation 
established under 13 CFR 121.103 when issuing advisory opinions. SBA 
concurs with these recommendations and has therefore amended Sec.  
121.109 accordingly.

Compliance With Executive Orders 12866, 12988, 13132, 13175, 13563, the 
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork 
Reduction Act (44 U.S.C., Chapter 35)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
final rule is not a significant regulatory action under Executive Order 
12866. This is also not a ``major'' rule under the Congressional Review 
Act, 5 U.S.C. 801, et seq.

Executive Order 12988

    This action meets applicable standards set forth in Sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have retroactive or preemptive effect.

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined that this 
final 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, for the purpose of Executive Order 13132, 
Federalism, SBA determines that this final rule has no federalism 
implications warranting preparation of federal assessment.

Executive Order 13175

    For purposes of Executive Order 12175, SBA has determined that this 
final rule will not will not have substantial direct effects on one or 
more Indian Tribes, on the relationship between the Federal Government 
and

[[Page 7535]]

Indian Tribes, or on the distribution of power and responsibilities 
between the Federal Government and Indian Tribes. Therefore, for the 
purpose of Executive Order 13175, Consultation and Coordination with 
Indian Tribal Governments, SBA determines that this final rule does not 
require consultations with tribal officials or warrant the publication 
of a Tribal Summary Impact Statement.

Executive Order 13563

    As part of its ongoing efforts to engage stakeholders in the 
development of its regulations, SBA consulted with representatives from 
the contracting community regarding the intent of this rule and the 
various components related to it. No concerns or comments were raised 
that needed to be addressed in this rule.

Paperwork Reduction Act, 44 U.S.C. Ch. 35

    At the proposed rule stage SBA concluded this rule imposed no 
reporting or recordkeeping requirements. However, during review of this 
final rule, SBA realized it erred in its conclusion. Specifically, as 
outlined in section 121.109(b), in order to obtain an advisory opinion 
on their size status, concerns must submit to SBDCs and PTACs 
information to support their claims, including payroll records, time 
sheets, federal income tax returns, or other documentation that would 
show concerns annual receipts or number of employees. SBDCs and PTACS 
will use submit this information to SBA as basis for their opinions. 
The information to concerns will submit to SBDCs and PTACs is the same 
information that concerns currently submit to SBA for a size 
determination using SBA Form 355, Information for Small Business Size 
Determination. Therefore, SBA will amend this information collection to 
include this additional use and submit same to OMB for approval.

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

    SBA has determined that this rule may have a significant impact on 
a substantial number of small entities within the meaning of the 
Regulatory Flexibility Act, 5 U.S.C. 601-612. In accordance with 5 
U.S.C. 603(b), SBA sets forth a regulatory flexibility analysis (RFA) 
of this final rule addressing the following topics: (1) The legal 
basis, need for, and objective of the rule; (2) a description and 
estimate of the number of small entities to which the rule will apply; 
(3) the projected reporting, record keeping, and other compliance 
requirements of the rule; (4) the relevant Federal rules which may 
duplicate, overlap or conflict with the rule; and (5) any significant 
alternatives that would allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities.
    1. What is the legal basis, need for, and objective of the rule? 
Pursuant to section 1681 of Public Law 112-239, SBA is statutorily 
required to publish a regulation granting an exemption from the 
misrepresentation penalties imposed under 15 U.S.C. 645(d) in cases 
where a party's erroneous claim to small business status stems from its 
good faith reliance upon an advisory opinion issued by an SBDC or PTAC. 
SBA is also obligated under Sec.  1681 to define via regulation what 
constitutes an adequate advisory opinion and to review and accept or 
reject all advisory opinions issued by SBDCs and PTACs. In addition to 
giving effect to these statutory mandates, the final rule also 
establishes the procedures and timeline by which SBA will review 
advisory opinions.
    2. What is SBA's description and estimate of the number of small 
entities to which the rule will apply? Because SBA's programs do not 
apply to small governmental jurisdictions or small organizations, only 
small businesses will be affected by this final rule. Additionally, the 
final rule will not apply to all small businesses generally, but only 
to those firms that represent themselves as being small for purposes of 
federal procurement opportunities.
    The limitation on liability provision of the final rule will only 
affect those firms that incorrectly claim status as small business 
concerns after obtaining small business status advisory opinions from 
SBDCs or PTACs. In Fiscal Year 2014, SBA determined that approximately 
137 firms that had represented themselves as being small for purposes 
of federal procurement opportunities were not small. Most of these 
cases did not involve fraud, but instead were the result of errors or 
misunderstandings of the size regulations. To date, SBA is unaware of 
any firms being penalized under 15 U.S.C. 645(d) for fraudulently 
misrepresenting themselves as small business concerns. Therefore, SBA 
anticipates that the limitation on liability provision of the final 
rule will impact very few concerns.
    With regard to the small business status advisory opinion provision 
of the final rule, SBA notes that neither SBDCs nor PTACs are required 
to provide such opinions under the language of the statute. It is 
currently unknown how many SBDCs and PTACs will elect to provide such 
services, particularly given that no additional funding will be awarded 
to them to cover the cost of these services. Moreover, it is unclear 
how much demand there will be for such services from those SBDCs and 
PTACs that offer them. While it is thus impossible to gauge the number 
of small businesses that will obtain these services, SBA anticipates 
that very few concerns will be affected by the small business status 
advisory opinion provision of the final rule.
    3. What are the projected reporting, record keeping, and other 
compliance requirements of the rule and an estimate of the classes of 
small entities which will be subject to the requirements? There would 
be no additional reporting or recordkeeping requirements imposed by the 
rule, but there would be certain minor compliance requirements. 
Businesses that believe they are small and that wish to receive 
advisory opinions to that effect from SBDCs or PTACs would be required 
to provide information documenting the basis for that belief to SBDCs 
or PTACs and attest to its accuracy.
    4. What are the relevant Federal rules which may duplicate, overlap 
or conflict with the rule? The Federal Acquisition Regulation (FAR) 
defers to and incorporates the substance of the provisions set forth in 
SBA's regulations for issues pertaining to business size. To the extent 
the FAR is inconsistent with size rules implemented by SBA, the FAR 
would need to be changed to be consistent.
    5. Are there any significant alternatives that would allow the 
Agency to accomplish its regulatory objectives while minimizing the 
impact on small entities? SBA has considered a number of alternatives 
to the final rule. One alternative SBA has considered would have 
permitted firms to simply self-certify to SBDCs or PTACs that they are 
small. Another alternative SBA considered would have had the General 
Counsel review the SBDC or PTAC advisory opinions rather than the 
Associate General Counsel, Office of Procurement Law. SBA has not 
incorporated the first alternative in the final rule because it would 
render any advisory opinion pro forma and would not provide the Agency 
with any basis for accepting or rejecting the opinion. With regard to 
the second alternative, SBA did not propose it given the substantial 
time demands already placed upon the General Counsel. SBA believes that 
delegating this responsibility to the Associate General Counsel, Office 
of Procurement Law would permit the Agency to provide a

[[Page 7536]]

quicker turnaround time for reviewing advisory opinions and would take 
advantage of the established subject matter expertise of that official.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, and Small Businesses.

    For the reasons stated in the preamble, SBA amends 13 CFR part 121 
as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

    Authority:  15 U.S.C. 632, 634(b)(6), 662, and 694a(9).


0
2. Amend 121.108 by revising the section heading and adding paragraph 
(e)(4) to read as follows:


Sec.  121.108  What are the penalties for misrepresentation of size 
status?

* * * * *
    (e) * * *
    (4) Limitation on Liability. An individual or business concern will 
not be subject to the penalties imposed under 15 U.S.C. 645(a) where it 
acted in good faith reliance on a small business status advisory 
opinion accepted by SBA under Sec.  121.109.


Sec.  121.109  [Redesignated as Sec.  121.110]

0
3. Redesignate Sec.  121.109 as Sec.  121.110.

0
4. Add new Sec.  121.109 to read as follows:


Sec.  121.109  What is a small business status advisory opinion?

    (a) Defined. A small business status advisory opinion is a written 
opinion issued by either a Small Business Development Center (SBDC) 
operating under part 130 of this chapter or a Procurement Technical 
Assistance Center (PTAC) operating under 10 U.S.C. chapter 142 which 
concludes that a firm is entitled to represent itself as a small 
business concern for purposes of federal government procurement 
opportunities.
    (b) Submission. An SBDC or PTAC must submit a copy of each small 
business status advisory opinion it issues to the following Agency 
official for review: Associate General Counsel, Office of Procurement 
Law, U.S. Small Business Administration, 409 Third Street SW., 
Washington, DC 20416 or by fax to (202) 205-6390 marked Attn: Small 
Business Status Advisory Opinion. A small business status advisory 
opinion must:
    (1) Provide a written analysis explaining the reasoning underlying 
the SBDC or PTAC's determination that the covered concern, along with 
its affiliates, either does or does not exceed the size standard(s). 
This analysis must be dated and signed by an SBDC or PTAC business 
counselor or similarly qualified individual.
    (2) Include, as an attachment, a completed copy of an SBA Form 355 
for the covered concern and its affiliates.
    (3) Include, as an attachment, copies of the evidence (such as 
payroll records, time sheets, federal income tax returns, etc.) 
provided by the covered concern to the SBDC or PTAC clearly documenting 
its annual receipts and/or number of employees as those terms are 
defined by Sec. Sec.  121.104 and 121.106.
    (c) Review. Unless a referral is made under paragraph (e) of this 
section, SBA will decide within 10 business days of receiving a small 
business status advisory opinion to accept or reject it based on its 
consistency with part 121. SBA will provide written notification of 
that decision to the SBDC or PTAC that issued the small business status 
advisory opinion as well as to the covered concern.
    (d) Reliance. A concern that receives a small business status 
advisory opinion holding that it does not exceed the applicable size 
standard(s) may rely upon that determination for purposes of responding 
to Federal procurement opportunities from the date it is issued unless 
and until that advisory opinion is rejected by SBA in accordance with 
paragraph (c) of this section or the concern undergoes a significant 
change in its ownership, management, or other factors bearing on its 
status as a small business concern. However, the firm's size may be 
protested by interested parties in connection with a specific 
procurement.
    (e) Referral for size determination. Nothing in this section 
precludes the Associate General Counsel, Office of Procurement Law from 
requesting a formal size determination for a concern that is the 
subject of a small business status advisory opinion pursuant to Sec.  
121.1001(b)(9).
    (f) Penalties for misrepresentation--(1) Suspension or debarment. 
The SBA suspension and debarment official may suspend or debar a person 
or concern for misrepresenting a concern's size for purposes of 
obtaining a small business size status advisory opinion pursuant to the 
procedures set forth in 48 CFR subpart 9.4.
    (2) Civil penalties. Persons or concerns are subject to severe 
penalties under the False Claims Act, 31 U.S.C. 3729-3733, and under 
the Program Fraud Civil Remedies Act, 331 U.S.C. 3801-3812, and any 
other applicable laws.
    (3) Criminal Penalties. Persons or concerns are subject to severe 
criminal penalties for knowingly misrepresenting the small business 
size status of a concern in connection with procurement programs 
pursuant to section 16(d) of the Small Business Act, 15 U.S.C. 645(d), 
as amended, 18 U.S.C. 1001, 18 U.S.C. 287, and any other applicable 
laws. Persons or concerns are subject to criminal penalties for 
knowingly making false statements or misrepresentations for the purpose 
of influencing any actions of SBA pursuant to section 16(a) of the 
Small Business Act, 15 U.S.C. 645(a), as amended, including failure to 
correct ``continuing representations'' that are no longer true.

0
4. Amend Sec.  121.1001 by revising paragraph (b)(9), redesignating 
paragraph (b)(10) as paragraph (b)(11), and adding new paragraph 
(b)(10) to read as follows:


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

* * * * *
    (b) * * *
    (9) For other purposes related to protecting the integrity of the 
Federal procurement process, including validating that firms listed in 
the System for Award Management database are small, the Government 
Contracting Area Director or the Director, Office of Government 
Contracting may initiate a formal size determination when sufficient 
information exists that calls into question a firm's small business 
status. The current date will be used to determine size, and SBA will 
initiate the process to remove from the database the small business 
designation of any firm found to be other than small.
    (10) For purposes of determining compliance with small business 
requirements for firms relying upon small business status advisory 
opinions, the Associate General Counsel, Office of Procurement Law may 
request a formal size determination. Additionally, any firm that is the 
subject of a small business status advisory opinion holding that it is 
other than small may request a formal size determination.
* * * * *

    Dated: January 28, 2015.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2015-02746 Filed 2-10-15; 8:45 am]
BILLING CODE 8025-01-P