[Federal Register Volume 83, Number 211 (Wednesday, October 31, 2018)]
[Proposed Rules]
[Pages 54812-54835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23285]



[[Page 54811]]

Vol. 83

Wednesday,

No. 211

October 31, 2018

Part II





Small Business Administration





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13 CFR Parts 115, 121, 125, et al.





 Small Business HUBZone Program; Government Contracting Programs; 
Proposed Rules

  Federal Register / Vol. 83 , No. 211 / Wednesday, October 31, 2018 / 
Proposed Rules  

[[Page 54812]]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 115, 121, 125, and 126

RIN 3245-AG38


Small Business HUBZone Program; Government Contracting Programs

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) 
proposes to amend its regulations for the Historically Underutilized 
Business Zone (HUBZone) Program to reduce the regulatory burdens 
imposed on HUBZone small business concerns and government agencies, 
implement new statutory provisions, and eliminate ambiguities in the 
regulations. SBA has reviewed all of its HUBZone regulations and is 
proposing a comprehensive revision to the HUBZone Program to clarify 
current HUBZone Program policies and procedures and to make changes 
that will benefit the small business community by making the HUBZone 
Program more efficient and effective. The proposed amendments are 
intended to make it easier for small business concerns to understand 
and comply with the program's requirements and to make the HUBZone 
program a more attractive avenue for procuring agencies.

DATES: Comments must be received on or before December 31, 2018.

ADDRESSES: You may submit comments, identified by RIN 3245-AG38, by any 
of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov and 
follow the instructions for submitting comments.
     Mail (for paper, disk, or CD-ROM submissions): Mariana 
Pardo, Director, HUBZone Program, 409 Third Street SW, Washington, DC 
20416.
    Instructions: All submissions received must include the agency name 
and docket number or Regulatory Information Number (RIN) for this 
rulemaking. All comments received will be posted on http://www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at http://www.regulations.gov, please submit the comments to Mariana Pardo and 
highlight the information that you consider to be CBI and explain why 
you believe this information should be held confidential. SBA will make 
a final determination as to whether the comments will be published or 
not.

FOR FURTHER INFORMATION CONTACT: Mariana Pardo, Director, Office of 
HUBZone (D/HUB), 202-205-2985 or [email protected].

SUPPLEMENTARY INFORMATION: On January 30, 2017, President Trump issued 
Executive Order 13771 directing federal departments and agencies to 
reduce regulatory burdens and control regulatory costs. In response to 
this directive, SBA initiated a review of all of its regulations to 
determine which might be revised or eliminated. This proposed rule 
would implement revisions to the HUBZone program. The HUBZone program 
was established pursuant to the HUBZone Act of 1997 (HUBZone Act), 
Title VI of the Small Business Reauthorization Act of 1997, Public Law 
105-135, enacted December 2, 1997. The stated purpose of the HUBZone 
program is to provide for Federal contracting assistance to HUBZone 
small business concerns. 15 U.S.C. 657a(a).
    In general, HUBZone small business concerns are those that have a 
principal place of business located in a HUBZone and 35 percent of 
their employees residing in one or more HUBZones. After SBA certifies 
eligible businesses into the program, they become eligible for HUBZone 
contracting preferences. HUBZone areas are generally defined as areas 
with low income levels, high poverty and unemployment rates, Indian 
reservations, closed military bases, or disaster areas.
    SBA has not issued a comprehensive regulatory amendment to the 
HUBZone program since the program's initial implementation nearly 
twenty years ago, although SBA has issued numerous smaller amendments 
to the HUBZone Program to implement specific changes in 1998, 2001, 
2004, 2005, 2007, 2009, 2013, and 2016. As such, SBA's review of the 
HUBZone program in response to President Trump's directive highlighted 
several areas that needed revision. This proposed rule would clarify 
and modify a number of the regulations implementing the program to 
update the rules to reflect SBA's current policies, to eliminate 
ambiguities in the regulations, and to reduce burdens on small 
businesses and procuring agencies.
    As part of this proposed rulemaking process, SBA also held tribal 
consultations pursuant to Executive Order 13175, Tribal Consultations, 
in Anchorage, AK, Albuquerque, NM, and Oklahoma City, OK to provide 
interested tribal representatives with an opportunity to discuss their 
views on various HUBZone-related issues. SBA considers tribal 
consultation meetings a valuable component of its deliberations and 
believes that these tribal consultation meetings allowed for 
constructive dialogue with the Tribal community, Tribal Leaders, Tribal 
Elders, elected members of Alaska Native Villages or their appointed 
representatives, and principals of tribally-owned and Alaska Native 
Corporations (ANC) owned firms participating in the HUBZone program. 
SBA has taken these discussions into account in drafting this proposed 
rule.
    In addition, SBA is proposing to implement section 1701(i) of the 
National Defense Authorization Act for Fiscal Year 2018 (NDAA 2018), 
Public Law 115-91, Dec. 12, 2017, which allows certain certified 
HUBZone small business concerns to maintain their HUBZone status until 
2021, by amending the definition of ``HUBZone small business concern.''
    The major challenge with the HUBZone program over the last two 
decades is the lack of stability and predictability for program 
participants. HUBZones change at different times based on economic 
data. Once certified, it is unrealistic to expect a business concern, 
or employee, to relocate in order to attempt to maintain the concern's 
HUBZone status when the area where the business is located or the 
employee resides loses its HUBZone status. This rule proposes changes 
that will help the HUBZone program achieve its intended results--
investment in communities and continued employment. First, the rule 
proposes to treat an individual as a HUBZone resident if that 
individual worked for the firm and resided in a HUBZone at the time the 
concern was certified or recertified as a HUBZone small business 
concern and he or she continues to work for that same firm, even if the 
area where the individual lives no longer qualifies as a HUBZone or the 
individual has moved to a non-HUBZone area. Second, the proposed rule 
would eliminate the burden on HUBZone small businesses to continually 
demonstrate that they meet all eligibility requirements at the time of 
each offer and award for any HUBZone contract opportunity. It is hard 
for many firms to meet the requirement that at least 35% of the firm's 
employees must live in a HUBZone. Firms with a significant number of 
employees have a hard time meeting this requirement because it is often 
difficult to find a large number of individuals living in a HUBZone who 
possess the necessary qualifications. Smaller firms also have a hard 
time meeting this requirement because the loss of one employee could 
adversely affect their HUBZone eligibility. If a certified HUBZone 
small business receives a Federal contract (HUBZone or otherwise), it 
often must

[[Page 54813]]

hire additional employees to perform the contract and would lose its 
status as a certified HUBZone small business if it no longer meets the 
requirement that at least 35% of its employees reside in a HUBZone. 
This makes it ineligible for any future HUBZone contracts. The 35% 
HUBZone residency requirement also makes it hard for service 
contractors to perform contracts in other locations. For example, if a 
firm wins a contract in another state, it would most likely need to 
hire additional employees from that state. If there is no HUBZone near 
that location, the firm would have to hire non-HUBZone residents to 
perform the contract, which would most likely make it ineligible for 
future HUBZone contracts. To alleviate these problems, the proposed 
rule would require only annual recertification rather than immediate 
recertification at the time of every offer for a HUBZone contract 
award. This reduced burden on certified HUBZone small businesses would 
allow a firm to remain eligible for future HUBZone contracts for an 
entire year, without requiring it to demonstrate that it continues to 
meet all HUBZone eligibility requirements at the time it submits an 
offer for each additional HUBZone opportunity. A concern would 
represent that it is a certified HUBZone small business concern at the 
time of each offer, but its eligibility would relate back to the date 
of its certification or recertification, not to the date of the offer. 
The concern would be required to come into compliance with the 35% 
HUBZone residency requirement again at the time of its annual 
recertification in order to continue to be eligible for additional 
HUBZone contracts after the one-year certification period. During the 
tribal consultation process, SBA also received a few comments 
recommending that SBA count ``seasonal'' employees in a firm's count of 
total employees for purposes of determining whether it meets the 35% 
HUBZone residency requirement even if those individuals are currently 
employed by the firm. SBA is concerned that counting any individuals 
who are not currently on a firm's payroll (in the anticipation that 
they will again be employed by the firm at some point) would allow 
firms to circumvent the 35% residency requirement and subject the 
program to abuse. SBA requests comments on whether seasonal employees 
can or should be counted and still maintain the integrity of the 
eligibility requirements.
    SBA addresses each proposed amendment below.

II. Section-by-Section Analysis

1. Definitions

    SBA has reviewed the current definitions set forth in 13 CFR 
126.103 and has determined that several definitions need to be revised, 
added, or eliminated to remove ambiguities and make the HUBZone program 
easier for firms to use.
    SBA proposes to delete the definitions of ``Alaska Native Village'' 
and ``ANCSA'' (i.e., Alaska Native Claims Settlement Act) and 
incorporate those terms in an amended definition of ``Alaska Native 
Corporation (ANC)'' to make the regulations more readable.
    SBA proposes to amend the definition of ``attempt to maintain'' to 
clarify what happens if a HUBZone small business concern's HUBZone 
residency percentage drops too low. The Small Business Act provides 
that a HUBZone small business concern must ``attempt to maintain'' 
compliance with the 35% employee HUBZone residency requirement during 
the performance of a HUBZone contract. 15 U.S.C. 632(p)(5)(A)(i)(II). 
This statutory requirement seeks to ensure that funds from HUBZone 
contracts flow to HUBZone areas and the residents of those areas, while 
at the same time recognizing that a HUBZone small business may need to 
hire additional employees in order to fully meet the terms of a 
contract. Under the ``attempt to maintain'' requirement, when hiring 
additional employees to perform on a HUBZone contract, the HUBZone 
small business must make efforts to hire HUBZone residents in order to 
try to maintain compliance with the 35% HUBZone residency requirement. 
The current regulation provides that ``attempt to maintain'' means 
``making substantive and documented efforts such as written offers of 
employment, published advertisements seeking employees, and attendance 
at job fairs.'' 13 CFR 126.103. SBA believes it is necessary to clarify 
that if the HUBZone residency percentage drops too low, then SBA will 
find that the HUBZone small business has not made its best efforts to 
``attempt to maintain'' compliance with this requirement. Therefore, 
SBA is proposing to amend this definition to add that falling below 20% 
HUBZone residency during the performance of a HUBZone contract will be 
deemed a failure to attempt to maintain compliance with the statutory 
35% HUBZone residency requirement. In such a case, SBA would propose 
that the concern be decertified from the HUBZone program. The concern 
would then have the opportunity to demonstrate that it in fact 
continues to have at least 20% HUBZone employees and that it continues 
to attempt to hire additional HUBZone residents in order to reach 35%. 
SBA does not intend to require that employees be hired in any 
particular order (i.e., in an order that ensures that at any moment in 
time, at least 20% of its total employees reside in a HUBZone), but 
merely that it always have at least 20% HUBZone employees once the 
hiring for contract performance is complete (and continues to attempt 
to hire more HUBZone employees). For example, if a certified HUBZone 
small business has 4 employees, 2 of which reside in a HUBZone, and 
wins a contract where it will be required to hire an additional 11 
employees to perform the contract, SBA would not propose 
decertification if the first 8 new hires were non-HUBZone residents 
(meaning that for a time, only 2 employees out of 12 would be HUBZone 
residents, which is less than 20% of the firm's total employees), as 
long as the firm makes documented efforts to hire HUBZone residents and 
at least 1 of the remaining individuals hired to perform the contract 
lives in a HUBZone (i.e., after hiring is complete, the firm employs 3 
HUBZone residents out of a total of 15 employees, which equals 20%, 
thus allowing the firm to be deemed to have attempted to maintain the 
35% HUBZone resident requirement). Of course, SBA would not believe 
that a firm truly attempted to maintain the 35% HUBZone resident 
requirement if it hired one HUBZone resident (in the example above, if 
it hired the third HUBZone resident in total, or first of the 11 
supposedly hired to perform the newly awarded contract) one day before 
its annual HUBZone eligibility review and that individual really had no 
input in contract performance. Thus, considering SBA's desire not to 
insert itself into a firm's business decisions in hiring individuals to 
perform a HUBZone contract and its responsibility to ensure that 
additional HUBZone employees are in fact hired to perform the contract 
and that the overall purposes of the program are served, SBA requests 
comments on how best to look at this 20% minimum requirement. SBA also 
believes that a lower percentage (i.e., allowing less than 20% HUBZone 
residents) would unreasonably diminish the impact of the program on the 
targeted areas and populations. However, SBA requests comments as to 
whether a different percentage is also reasonable and would accomplish 
the objectives of the HUBZone program while not unduly burdening firms 
performing HUBZone contracts.

[[Page 54814]]

    SBA proposes to eliminate the definition of ``county unemployment 
rate'' and incorporate it into the definition of ``qualified non-
metropolitan county (QNMC),'' as discussed further below.
    The proposed rule would amend the definition of ``D/HUB'' to make 
clear that this term refers to the Director of SBA's Office of HUBZone.
    SBA proposes to amend the definition of ``decertify'' to clarify 
that the decertification procedures described in part 126 are 
applicable to firms which voluntarily withdraw from the HUBZone 
program. If a certified HUBZone small business concern is unable to 
recertify its HUBZone eligibility at the time of its annual 
recertification, or if it acquires, is acquired by, or merges with 
another concern and no longer meets the HUBZone eligibility 
requirements, it should submit a request to SBA to voluntarily 
withdraw. Upon receipt of such request, SBA will remove the firm as a 
certified HUBZone small business concern from the Dynamic Small 
Business Search (DSBS) system.
    SBA proposes to amend the definition of the term ``employee.'' This 
term is key to the HUBZone program since the basic HUBZone eligibility 
requirements for a small business are to have at least 35% of its 
employees residing in a HUBZone and to have a principal office located 
in a HUBZone. SBA believes that a clarification is necessary because 
the existing definition's language--``a minimum of 40 hours per 
month''--is ambiguous. The proposed rule would explain that an 
individual is an employee if he or she works at least 40 hours during 
the four-week period immediately prior to the relevant date--either the 
date the concern submits its HUBZone application to SBA or the date of 
recertification. SBA will review a firm's payroll records for the most 
recently completed pay periods that account for the four-week period 
immediately prior to the date of application or date of recertification 
in order to determine which individuals meet this definition. If the 
firm has weekly pay periods, then SBA will review the payroll records 
for the most recently completed last four pay periods. If the firm has 
two-week pay periods, then SBA will review the payroll records for the 
last two most recently completed pay periods. If the payroll records 
demonstrate that an individual worked forty or more hours during that 
four-week period, he or she would be considered an employee of the 
concern. Additionally, SBA is considering revising the requirement from 
40 hours per month to 20 hours per week, due to concerns that the 40 
hours per month requirement is not sufficient to stimulate employment 
in HUBZones. Considering the purpose of the HUBZone program to 
stimulate meaningful employment in communities with high unemployment, 
SBA specifically requests comments on the number of hours SBA should 
require in order to count an individual as an employee of the firm for 
HUBZone eligibility purposes.
    The proposed definition of ``employee'' continues to specify that 
employees include temporary and leased employees, individuals obtained 
through a union agreement, and those co-employed through a professional 
employer organization (PEO) agreement. To further respond to the number 
of hours an individual must work in order to be considered an employee 
of the firm, SBA also requests comments on whether SBA should count 
only full-time employees or full-time equivalents.
    The proposed definition clarifies that all owners of a HUBZone 
applicant or HUBZone small business who work at least 40 hours per 
month will be considered employees, regardless of whether they receive 
compensation. This current interpretation responds to situations where 
the counting of one individual (i.e., a non-HUBZone resident owner who 
works at the firm but does not collect a direct salary and claims not 
to be an employee) would render the firm ineligible for HUBZone 
participation. SBA believes that any time an owner works at least 40 
hours per month for the concern, he or she should be counted as an 
employee. In addition, the proposed definition adds that if the sole 
owner of a firm works less than 40 hours during the four-week period 
immediately prior to the relevant date of review, but has not hired 
another individual to direct the actions of the concern's employees, 
then that owner will be considered an employee as well.
    The proposed definition clarifies that individuals who do not 
receive compensation and those who receive deferred compensation are 
generally not considered employees. The proposed definition further 
clarifies that individuals who receive in-kind compensation 
commensurate with the work performed will be considered employees. This 
means that an individual who works at least 40 hours per month and 
receives in-kind compensation equaling the value of 10 working hours 
would generally not be considered an employee. SBA believes these 
clarifications are needed because there has been confusion about 
whether someone who receives in-kind compensation should be considered 
an employee, about what SBA considers in-kind compensation, and about 
what deferred compensation means. In general, in-kind compensation is 
non-monetary compensation, or anything other than cash, wages, salary 
or other monetary benefit received in exchange for work performed. An 
example of in-kind compensation is housing received in exchange for 
work performed. SBA generally treats individuals receiving in-kind 
compensation as employees because they are receiving an economic 
benefit from working for the firm, which is consistent with the 
purposes of the HUBZone program. In a previous proposed rule amending 
the definition of ``employee'' to address in-kind compensation, SBA 
explained: ``SBA intended the term compensation to be read broadly and 
to encompass more than wages. Thus, a person who receives food, 
housing, or other non-monetary compensation in exchange for work 
performed would not be considered a volunteer under that proposed 
regulation. SBA believes that allowing volunteers to be counted as 
employees would not fulfill the purpose of the HUBZone Act--job 
creation and economic growth in underutilized communities.'' 67 FR 3826 
(Jan. 28, 2002). SBA requests comments on whether it is reasonable to 
continue treating in-kind compensation this way, and on how to measure 
whether in-kind compensation is commensurate with work performed. There 
has also been some confusion surrounding SBA's treatment of deferred 
compensation. In general, deferred compensation means compensation that 
is not received at the time it is earned, but is received sometime in 
the future. SBA does not treat individuals receiving deferred 
compensation as employees for HUBZone purposes because such individuals 
are not receiving a present economic benefit from working for the firm, 
which is not consistent with the purpose of the HUBZone program. The 
Court of Federal Claims has found this policy to be reasonable. In 
Aeolus Systems, LLC v. United States, 79 Fed. Cl. 1, 9 (2007), the 
Court held that: ``(1) the concept of deferred compensation is contrary 
to the program's goal of increasing gainful employment in HUBZones, and 
(2) the identification of non-owner individuals who work for deferred 
compensation as `employees' would open up the HUBZone program to 
potential abuse.''
    The proposed definition also clarifies that independent contractors 
who receive compensation through Internal Revenue Service (IRS) Form 
1099 generally are not considered employees,

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as long as such individuals are not considered to be employees for size 
purposes under SBA's Size Policy Statement No. 1. SBA believes that it 
would not make sense to find an individual to be an employee of a firm 
when determining the concern's size, but to then not consider that same 
individual to be an employee when determining compliance with HUBZone 
eligibility rules. If an independent contractor meets the employee test 
under SBA Size Policy Statement No. 1, such individual should also be 
considered an employee for HUBZone eligibility purposes. If someone is 
truly acting as an independent contractor, that individual is acting as 
a subcontractor, not an employee. Such an individual does not receive 
the same benefits as an employee, but is also not under the same 
control as an employee. The proposed rule also clarifies that 
subcontractors are not considered employees when determining compliance 
with the HUBZone eligibility rules.
    Additionally, the proposed definition states that employees of 
affiliates may be counted as employees of a HUBZone applicant or 
certified HUBZone small business concern, if the totality of 
circumstances demonstrates that there is no clear line of fracture 
between the concerns. This has always been SBA's policy and this 
amendment is intended to eliminate ambiguities in the regulation. When 
looking at the totality of circumstances to determine whether 
individuals are employees of a concern, SBA will review all 
information, including criteria used by the Internal Revenue Service 
(IRS) for Federal income tax purposes and those set forth in SBA's Size 
Policy Statement No. 1. This means that SBA will consider the employees 
of an affiliate firm as employees of the HUBZone small business if 
there is no clear line of fracture between the business concerns in 
question, the employees are in fact shared, or there is evidence of 
intentional subterfuge. When determining whether there is a clear line 
of fracture, SBA will review, among other criteria, whether the firms: 
Operate in the same or similar line of business; operate in the same 
geographic location; share office space or equipment; share any 
employees; share payroll or other administrative or support services; 
share or have similar websites or email addresses; share telephone 
lines or facsimile machines; have entered into agreements together 
(e.g., subcontracting, teaming, joint venture, or leasing agreements) 
or otherwise use each other's services; share customers; have similar 
names; have key employees participating in each other's business 
decisions; or have hired each other's former employees. For example, if 
John Smith owns 100% of Company A and 51% of Company B, the two 
companies are affiliated under SBA's size regulations based on common 
ownership. Thus, SBA would look at the totality of circumstances to 
determine whether it would be reasonable to treat the employees of 
Company B as employees of Company A for HUBZone program purposes. If 
both companies do construction work and share office space and 
equipment, then SBA would find that there is not a clear line of 
fracture between the firms, and would treat the employees of Company B 
as employees of Company A for HUBZone program purposes. This means that 
the employees of Company B would be counted in determining Company A's 
compliance with the 35% HUBZone residency requirement and the principal 
office requirement. Conversely, SBA would not treat the employees of 
one company as employees of another for HUBZone program purposes if the 
two firms would not be considered affiliates for size purposes. SBA 
will look at the totality of circumstances to determine whether it 
would be reasonable to treat the employees of one concern as employees 
of another for HUBZone program purposes only where SBA first determines 
that the two firms should be considered affiliates for size purposes.
    SBA specifically requests comments on these proposed changes to the 
definition of ``employee.'' SBA also requests comments on how SBA 
should treat individuals who are employed through an agreement with a 
third-party business that specializes in providing HUBZone resident 
employees to prospective HUBZone small business concerns for the 
specific purpose of achieving and maintaining HUBZone eligibility. For 
example, one individual could work 10 hours per month for four separate 
businesses and be counted as a HUBZone resident employee for each of 
those businesses. SBA has seen this arrangement several times in recent 
years and requests public input on whether such an arrangement is 
consistent with the purposes of the HUBZone program and/or how such 
arrangements should be structured in order to be consistent with such 
purposes.
    SBA proposes to revise the definition of ``HUBZone small business 
concern'' to remove ambiguities in the regulation. Currently, the 
definition of this term is copied directly from the Small Business Act 
and addresses only the ownership and control requirements. SBA proposes 
to revise the definition to state that ``HUBZone small business 
concern'' or ``certified HUBZone small business concern'' means a small 
business concern that meets the requirements described in Sec.  126.200 
and that SBA has certified as eligible for federal contracting 
assistance under the HUBZone program. In addition, SBA proposes to 
replace the term ``qualified HUBZone SBC'' with the term ``certified 
HUBZone small business concern'' to make the regulations more clear, 
since firms must apply to SBA and be certified as HUBZone small 
business concerns before they are can qualify to receive the benefits 
of the HUBZone program. Accordingly, this rule proposes to remove the 
phrase ``qualified HUBZone SBC'' or ``qualified HUBZone small business 
concern'' everywhere it appears in SBA's regulations and replace it 
with ``certified HUBZone small business concern.''
    In addition, SBA proposes to implement section 1701(i) of the NDAA 
2018 in the amended definition of ``HUBZone small business concern.'' 
The NDAA 2018 was enacted on December 12, 2017. Section 1701 of the act 
makes a number of amendments to sections 3(p) and 31 of the Small 
Business Act, 15. U.S.C. 632(p), 657a, which govern the HUBZone 
program. Most of these changes are not effective until January 1, 2020, 
with the exception of the provision contained in section 1701(i). In 
enacting section 1701(i), Congress intended for small businesses 
located in redesignated areas that are set to expire to retain their 
HUBZone eligibility until the date on which SBA updates the HUBZone 
maps in accordance with the broader changes described in section 1701. 
In other words, firms that were certified HUBZone small business 
concerns as of the date of enactment (December 12, 2017), and that had 
principal offices located in redesignated areas set to expire prior to 
January 1, 2020, shall remain certified HUBZone small business concerns 
until SBA updates the HUBZone maps after the 2020 decennial census, so 
long as all other HUBZone eligibility requirements described in Sec.  
126.200 are met. This means that in order to continue to be considered 
a certified HUBZone small business concern, the firm must: Continue to 
meet the HUBZone ownership and control requirements; continue to meet 
the 35% HUBZone residency requirement; and maintain its principal 
office in the redesignated area or another qualified HUBZone. SBA

[[Page 54816]]

notes that to implement this change, SBA will ``freeze'' the HUBZone 
maps with respect to qualified census tracts, qualified non-
metropolitan counties, and redesignated areas. As a result, for all 
redesignated areas in existence on December 12, 2017, the expiration of 
their HUBZone treatment has been extended until December 31, 2021. SBA 
selected this date because SBA estimates that the HUBZone maps will 
have been updated to incorporate the results of the 2020 census and to 
reflect the broad changes mandated by section 1701 by that time, and 
selecting a specific date provides stability to program participants. 
With respect to the 35% residency requirement, SBA notes that an 
employee of a certified HUBZone small business concern who resided in a 
redesignated area as of December 12, 2017, will continue to be treated 
as a HUBZone resident through December 31, 2021.
    SBA proposes to eliminate the definition of ``median household 
income'' and incorporate it into the definition of ``qualified non-
metropolitan county,'' to make the regulations more readable and to 
clarify that SBA obtains the data on median household income from the 
Bureau of the Census' publication titled, ``American Community Survey 
5-year estimates.''
    SBA also proposes to remove the definition of ``non-metropolitan'' 
and incorporate it into the definition of ``qualified non-metropolitan 
county'' to make the regulations more clear and explain that the term 
``non-metropolitan'' is defined by the Bureau of the Census, United 
States Department of Commerce, in its publications on the Census of 
Population, Social and Economic Characteristics.
    SBA proposes to remove the definition of ``metropolitan statistical 
area'' and incorporate it into the definitions of the terms ``qualified 
census tract'' and ``qualified non-metropolitan county'' to make the 
regulations more readable.
    SBA proposes to add a definition for ``primary industry 
classification'' that refers to SBA's definition of such term in 13 CFR 
121.107. To be certified into the HUBZone program, an applicant must be 
small, which means it must meet the size standard corresponding to the 
North American Industry Classification System (NAICS) code associated 
with its primary industry classification.
    SBA proposes to amend the definition of ``principal office'' to 
eliminate ambiguities in the regulation. SBA proposes to clarify that 
when determining whether a concern's principal office is located in a 
HUBZone. SBA counts all employees of the concern, other than those 
employees who work at jobsites. This includes both HUBZone residents 
and non-HUBZone residents. SBA is proposing this clarification because 
some applicants have been under the mistaken impression that only 
HUBZone resident employees are counted for purposes of determining a 
firm's principal office, but this is not and has never been SBA's 
intent. In addition, SBA proposes to add that in order for a location 
to be considered a concern's principal office, the concern must 
demonstrate that it conducts business at this location. SBA has 
included this clarification to address situations such as when firms 
are only able to provide a lease document but not utility bills. SBA 
believes that evidence that business is being conducted at the location 
is necessary to ensure the purposes of the HUBZone Program are being 
fulfilled. Finally, SBA proposes to add examples to the definition of 
principal office, to illustrate how the agency treats situations in 
which employees work at multiple locations. The first example provides 
that if an employee spends more than 50% of his or her time at one 
location, the employee is deemed to work at that location. If the 
employee does not spend more than 50% of his or her time at any one 
location, then generally the employee will be deemed to work at a non-
HUBZone location (assuming all locations are not in HUBZones). SBA 
specifically requests comments on these proposed changes.
    SBA proposes to amend the definition of ``qualified base closure 
area'' to remove ambiguities in the regulation and to be consistent 
with SBA's interpretation of the statutory text. In paragraph (1)(i) of 
the definition, SBA proposes to replace the language ``The date the 
Administrator makes a final determination as to whether or not to 
implement the applicable designations in accordance with the results of 
the decennial census conducted after the area was initially designated 
as a base closure area'' with ``the date on which the results of the 
decennial census conducted after the area was initially designated as a 
base closure area are released.'' In paragraph (2), SBA proposes to 
replace the language ``until such time as the Administrator makes a 
final determination as to whether or not to implement the applicable 
designations in accordance with the results of the 2020 decennial 
census are released'' with ``until the results of the 2020 decennial 
census are released.'' SBA believes these changes are needed to make 
clear that SBA interprets ``the date the Administrator makes a final 
determination as to whether or not to implement the applicable 
designations'' to mean the date that the public data is released.
    SBA proposes to amend the definition of ``qualified census tract'' 
to make the regulation more readable. The proposed definition provides 
the criteria used to define the term in the Internal Revenue Code, 
rather than simply cross-referencing it as the regulation currently 
does.
    SBA proposes to eliminate the definition of ``qualified HUBZone 
SBC,'' as discussed above.
    SBA proposes to amend the definition of ``qualified non-
metropolitan county'' to include Difficult Development Areas (DDAs) and 
to reflect SBA's current policy of utilizing the most recent data from 
the Local Area Unemployment Statistics report, which is annually 
produced by the Department of Labor's Bureau of Labor and Statistics. 
The proposed definition explains that a DDA is an area defined by the 
Department of Housing and Urban Development that is within Alaska, 
Hawaii, or any territory or possession of the United Sates outside the 
48 contiguous states. DDAs may be HUBZones if they are also 
nonmetropolitan counties. SBA notes that it has been including 
qualified non-metropolitan counties that are DDAs in its program since 
the statutory authority was enacted, but had not yet amended the term 
qualified non-metropolitan county to include DDAs.
    SBA proposes to amend the definition of ``redesignated area'' to 
delete an obsolete reference to the 2010 census. SBA proposes to define 
``redesignated area'' as a census tract or non-metropolitan county that 
remains qualified as a HUBZone for 3 years after the date on which the 
area ceased to be either a qualified census tract or a qualified non-
metropolitan county.
    The proposed rule would also amend the definition of ``reside.'' 
This term is used when analyzing whether an employee should be 
considered a HUBZone resident for purposes of determining a firm's 
compliance with the 35% HUBZone residency requirement. SBA proposes to 
remove the reference to primary residence, to eliminate the requirement 
that an individual demonstrate the intent to live somewhere 
indefinitely, and to provide clarifying examples. SBA proposes to 
remove the reference to primary residence because many individuals do 
not have primary residences as the term is traditionally defined. SBA 
proposes to remove the requirement to prove intent to live somewhere 
indefinitely

[[Page 54817]]

because SBA does not have a reasonably reliable method of enforcing 
this requirement. In the alternative, SBA proposes that ``reside'' 
means to live at a location full-time and for at least 180 days 
immediately prior to the date of application or date of 
recertification, as applicable. SBA believes that this is consistent 
with the purposes of the HUBZone program, while taking into account the 
realities of the unique living arrangements that may be utilized by 
certain small business' workforces. The definition also makes clear 
that to determine an individual's residence, SBA will first look to an 
individual's address as identified on his or her driver's license or 
voter's registration card, which is SBA's current and long-standing 
policy. Where such documentation is not available, SBA will require 
other specific proof of residency, such as deeds or leases, or utility 
bills. Additionally, this rule also proposes examples to add clarity to 
these revisions. SBA specifically requests comments on these proposed 
changes.
    In addition, SBA notes that more small businesses are performing 
contracts overseas and are faced with the problem of how to treat those 
employees who reside in a HUBZone when in the United States or its 
territories, but are temporarily residing overseas to perform a 
contract. SBA proposes that it will consider the residence located in 
the United States as that employee's residence, if the employee is 
working overseas for the period of a contract. SBA believes that as 
long as that employee can provide documents showing he or she is paying 
rent or owns a home in a HUBZone, then the employee should be counted 
as a HUBZone resident in determining whether the small business meets 
the 35% HUBZone residency requirement. Because of the proposed change, 
discussed below (which treats an individual as a HUBZone resident if 
that individual resided in a HUBZone at the time his or her employer 
was certified into the HUBZone program or at the time he or she first 
worked for the certified HUBZone small business concern (i.e., the 
individual was hired after the firm was certified into the HUBZone 
program), so long as he or she continues to work for that same firm, 
even if the area where the individual lives no longer qualifies as a 
HUBZone or the individual has moved to a non-HUBZone area) this 
provision would have meaning only with respect to firms that have 
employees performing overseas contracts and are applying to the HUBZone 
program for the first time. An individual who already qualified as a 
HUBZone resident for a certified HUBZone small business would continue 
to be treated as a resident of a HUBZone for HUBZone program 
eligibility purposes as long as he or she continued to work for the 
same certified HUBZone small business. SBA believes that this proposal 
strikes the right balance between acknowledging the increased 
prevalence of overseas contracting by small businesses and the need to 
ensure that the program benefits HUBZone areas. However, SBA requests 
comments on this issue.
    SBA proposes to eliminate the definition of ``small disadvantaged 
business (SDB)'' because SBA no longer certifies firms as SDBs, and SDB 
set-asides and price evaluation preferences no longer exist. However, 
the term SDB continues to be defined in part 124 for use in other 
contexts such as subcontracting.
    Finally, SBA proposes to remove the definition of ``statewide 
average unemployment rate'' and incorporate it into the definition of 
``qualified non-metropolitan county'' to make the regulations more 
readable and to clarify that the statewide average unemployment rate is 
determined using the Local Area Unemployment Statistics report, which 
is produced by the Department of Labor's Bureau of Labor Statistics.

2. Eligibility Requirements

    SBA proposes to reorganize Sec.  126.200 to make the section more 
readable and to make the HUBZone eligibility requirements more clear.
    With respect to the 35% HUBZone residency requirement, SBA proposes 
to clarify that all employees are counted when determining a concern's 
compliance with this requirement, regardless of where the employee 
performs his or her work. This has always been SBA's policy, but it 
appears that some applicants have misinterpreted SBA's rules. SBA has 
received several comments indicating that some in the community 
mistakenly believe that SBA would look only at those employees 
performing work in the principal office, and not any employees 
performing work at job site locations, in determining whether the firm 
meets the 35% HUBZone residency requirement. This has never been the 
case. SBA counts all individuals considered ``employees'' under the 
HUBZone definition of the term toward the 35% HUBZone residency 
requirement. SBA believes that the misunderstanding stems from the 
definition of the term ``principal office.'' In determining a concern's 
``principal office,'' SBA excludes the concern's employees who perform 
the majority of their work at job-site locations. That exclusion, 
however, applies only to the principal office determination, and not to 
whether a concern meets the 35% HUBZone residency requirement. The 
proposed rule seeks to clarify SBA's intent. In addition, SBA proposes 
to change its application of how SBA requires a firm to meet the 35% 
residency requirement when the calculation results in a fraction. 
Previously, when the calculation of 35% of a concern's total employees 
resulted in a fraction, SBA would round up to the nearest whole number. 
For example, under the current rule, if a firm has 6 total employees, 
since 35% of 6 is 2.1, then SBA would round 2.1 up to 3 and require the 
firm to employ 3 HUBZone residents to meet the 35% HUBZone residency 
requirement. This rule proposes rounding to the nearest whole number, 
rather than rounding up in every instance. This means that if 35% of a 
firm's employees equates to X plus .49 or less, SBA would round down to 
X and not up to the next whole number. Thus, in the example above, SBA 
would round 2.1 down to 2 and would only require the firm to employ 2 
HUBZone residents. SBA believes that this proposed change would have a 
minimal impact, but would clear up confusion that several small 
businesses seeking HUBZone status have encountered.
    In addition, SBA has proposed new examples relating to the HUBZone 
residency requirement. With respect to the principal office and HUBZone 
residency requirements for tribally owned entities, SBA has clarified 
the regulatory language without making any substantive changes to the 
rule. Specifically, the proposed rule would replace the word 
``adjoining'' with the word ``adjacent'' as it was used to describe 
HUBZones neighboring Indian reservations, because SBA believes this 
term is more accurate.
    In order to provide stability and certainty for program 
participants, SBA is also proposing that an employee that resides in a 
HUBZone at the time of a HUBZone small business concern's certification 
or recertification shall continue to count as a HUBZone employee as 
long as the individual remains an employee of the firm, even if the 
employee moves to a location that is not in a qualified HUBZone area or 
the area where the employee's residence is located is redesignated and 
no longer qualifies as a HUBZone. SBA understands that a few HUBZone 
concerns have become ineligible for further HUBZone contracts merely 
because one or two of their employees

[[Page 54818]]

have moved their residences from a HUBZone to non-HUBZone area. This 
has placed such businesses in the unenviable position of firing those 
individuals and replacing them with other individuals currently living 
in a HUBZone, or allowing the individuals to remain on the payroll and 
either becoming ineligible for the HUBZone program or having to hire 
additional HUBZone individuals that might cause a substantial hardship 
on very small businesses by increasing costs and reducing profits of 
those businesses. One of the purposes of the program is to promote job 
creation for individuals living in HUBZones, enabling them to better 
their lives and their communities. Someone who is hired by a HUBZone 
small business concern and who is then able to better the lives of his 
or her family by moving to a different location outside a HUBZone area 
(due to that newly created job) should not face losing his or her job 
because the HUBZone small business concern cannot maintain its HUBZone 
eligibility with that individual on the payroll. Under this proposed 
change, a certified HUBZone small business concern would have to 
maintain records of the employee's original HUBZone address, as well as 
records of the individual's continued and uninterrupted employment by 
the HUBZone small business concern, for the duration of the firm's 
participation in the HUBZone program.
    Further, SBA proposes to clarify in proposed Sec.  126.200(g) that 
the concern and its owners cannot have an active exclusion in the 
System for Award Management and be certified into the program. SBA 
believes that this logically follows from a debarred or suspended 
status, but would amend the regulations for clarity nevertheless. 
Debarred/suspended entities are ineligible for federal contracting 
assistance and would thus not receive any benefits from being certified 
as a HUBZone small business concern.
    In Sec.  126.204, SBA proposes to clarify that a HUBZone small 
business concern may have affiliates, but the affiliate's employees may 
be counted as employees of the HUBZone applicant/participant when 
determining the concern's compliance with the principal office and 35% 
percent HUBZone residency requirements. Proposed Sec.  126.204 
clarifies that where there is evidence that a HUBZone applicant/
participant and its affiliate are intertwined and acting as one, SBA 
will count the employees of one as employees of the other. The HUBZone 
applicant or concern must demonstrate a clear line of fracture between 
it and any affiliate in order for SBA to not count the affiliate's 
employees when determining the concern's principal office or compliance 
with the 35% residency requirement. The above supplementary information 
on the proposed definition of the term ``employee'' discusses this 
issue in more detail.
    In Sec.  126.205, SBA proposes to delete the following: 
``Participation in other SBA Programs is not a requirement for 
participation in the HUBZone Program.'' SBA believes that this language 
is unnecessary and may merely confuse prospective HUBZone small 
businesses.
    In Sec.  126.206, SBA proposes to replace the term ``non-
manufacturers'' with ``nonmanufacturers'' to be consistent with SBA's 
regulations at Sec.  121.406(b).
    SBA proposes to amend the title and text of Sec.  126.207 to 
clarify that a HUBZone small business concern may have multiple 
offices, as long as the firm's principal office is located in a 
HUBZone, and to clarify that a different rule applies to concerns owned 
by Indian Tribal Governments.

3. Certification

    The HUBZone program is a certification program. In other words, a 
small business concern must submit an application and supporting 
documents to SBA in order for SBA to determine eligibility and certify 
the company into the program. SBA has proposed several clarifications 
to its certification process.
    SBA proposes to amend Sec.  126.300 by breaking up the section to 
make it clearer and more readable, to move the discussion of the 
adverse inference rule to Sec.  126.306, and to clarify that SBA may 
conduct site visits, conduct independent research, and review 
additional information (such as tax and property records, public 
utility records, postal records, and other relevant information).
    SBA proposes to revise Sec.  126.303 to update the instructions for 
submitting electronic applications.
    This proposed rule would also clarify that an applicant must submit 
a completed application and all documents and a representation that it 
meets the program's requirements as of the date of the application and 
that the information provided and any subsequent information provided 
is complete, true and accurate. Further, SBA proposes to require that 
the representation be electronically signed by a person who is 
authorized to represent the concern. SBA believes that this should 
either an owner or officer of the applicant, and not an administrative 
employee acting on behalf of an officer.
    Further, SBA proposes to clarify that after an application has been 
submitted, the applicant must notify SBA of any changes that could 
affect its eligibility. The applicant would have to provide information 
and documents to support the changes.
    SBA also proposes to clarify that if an applicant believes that an 
area is a HUBZone but SBA's website is not showing the area to be a 
qualified HUBZone, the applicant must note this on the application. 
Further, the applicant must provide documents demonstrating why it 
believes that the area meets the statutory criteria of a HUBZone. It 
cannot merely assert that it believes the area is underutilized and 
should be a HUBZone; it must show that the area meets the statutory 
criteria.
    SBA proposes to delete and reserve Sec.  126.305, addressing what 
format the certification to SBA must take, because this is addressed in 
Sec.  126.303.
    SBA proposes several changes to Sec.  126.306. First, SBA proposes 
to clarify that the agency must receive all required information, 
supporting documents, and a completed HUBZone representation before it 
will begin processing a concern's application and that SBA will make a 
final decision within 90 calendar days after receipt of a complete 
package, whenever practicable. SBA proposes to clarify that the burden 
of proof to demonstrate eligibility is on the applicant concern and if 
the 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 and demonstrate a lack of eligibility in 
the area or areas to which the information relates and decline the 
applicant.
    Similarly, SBA proposes to clarify that an applicant must be 
eligible as of the date it submitted its application and up until the 
time the D/HUB issues a decision. SBA cannot certify a business into 
the program that does not meet the eligibility requirements at that 
time.
    SBA proposes to amend Sec.  126.307 to make a general reference to 
the website where SBA identifies where firms are listed as certified 
HUBZone small business concerns so that the regulation itself does not 
have to be updated every time a change in the website location occurs. 
The proposed rule would also delete the reference to the ability of 
requesters to obtain a copy of the list of certified HUBZone small 
business concerns by writing to the D/HUB at SBA. An interested party 
may find all firms that are certified HUBZone small business concerns 
by searching the

[[Page 54819]]

Dynamic Small Business Search (DSBS) system, and can verify a specific 
concern's HUBZone certification. SBA believes that the availability of 
this search function makes written requests an outdated and inefficient 
way of obtaining current information about certified HUBZone small 
business concerns.
    SBA proposes to amend Sec.  126.308 to clarify that certified 
HUBZone small business concerns cannot ``opt out'' of being publicly 
displayed in the DSBS system. All certified HUBZone small business 
concerns appear in DSBS as certified HUBZone small business concerns, 
and those not so appearing will not be eligible for HUBZone contracts. 
Contracting officers refer to DSBS to ensure that potential awardees 
are in fact HUBZone certified small business concerns.
    SBA proposes to revise Sec.  126.309 to add a new provision 
permitting a firm to submit a formal request for reconsideration when 
it receives a determination denying admission to the HUBZone program. 
Under the proposed regulation, the business would be able to submit a 
request for reconsideration within 15 calendar days after receiving 
SBA's decision. SBA will presume that written notice was provided if 
SBA sends a communication to the concern at an address, email address, 
or fax number provided in the concern's System for Award Management 
(SAM) (or any successor system) profile. The applicant would be 
required to set forth the reasons why it believes the D/HUB's initial 
decision was erroneous and include information and documentation 
pertinent to overcoming the reasons for the initial decline, whether or 
not available at the time of initial application.
    Proposed Sec.  126.309(a)(4) would explain that SBA would not add a 
concern to DSBS as a certified HUBZone small business concern during 
the reconsideration process. SBA would recognize a concern as a 
certified HUBZone small business concern in DSBS only if the D/HUB 
certifies the concern into the program. The D/HUB would have 30 
calendar days to issue a decision and could either approve the 
application, deny it on the same grounds as the original decision, or 
deny it on other grounds. If the D/HUB declines the application solely 
on issues not raised in the initial decline, the applicant could ask 
for reconsideration as if it were an initial decline.
    SBA proposes that if a concern that has been declined does not 
request reconsideration of the D/HUB's decision, the concern could 
reapply for certification 90 calendar days after the date of decline. 
If a concern that has been declined requests reconsideration and the 
decline is affirmed, the concern could apply for certification 90 
calendar days after the date of the D/HUB's decision on the request for 
reconsideration.

4. Program Examinations

    As part of SBA's oversight responsibilities for the HUBZone 
program, SBA monitors the HUBZone program and certified HUBZone small 
business concerns, and verifies information submitted by HUBZone 
applicants, by conducting program examinations.
    SBA proposes to revise Sec.  126.401 to clarify what a program 
examination is. The proposed rule would provide that a program 
examination is a review by SBA that verifies the accuracy of any 
certification made or information provided as part of the HUBZone 
application or recertification process.
    SBA proposes to revise Sec.  126.403 to clarify what SBA will 
review during a program examination. SBA would be able to review any 
information related to the concern's HUBZone eligibility, including 
documentation related to the concern's ownership and principal office, 
compliance with the 35% HUBZone residency requirement, and the 
concern's ``attempt to maintain'' 35% of its employees from a HUBZone 
during the performance of a HUBZone contract.
    SBA proposes to add a new Sec.  126.404 to provide the procedures 
and possible outcomes of a program examination. Whether the concern is 
applying to the HUBZone program for the first time, is undergoing a 
recertification analysis, or is subject to a program examination for 
another reason, SBA's program examination can result in a decision 
finding the concern either to be eligible to participate in the program 
(either for the first time or to be able to continue in the program), 
or not eligible to participate in the program (which would result in a 
disapproval of an application or the decertification of a HUBZone 
concern). The proposed regulation provides that SBA will make its 
determination within 90 calendar days after receiving all requested 
information, when practicable, and that possible outcomes of a program 
examination include certification, denial of certification, continued 
certification, or proposed decertification.

5. Maintaining HUBZone Status

    SBA proposes to amend Sec.  126.500 to require HUBZone small 
business concerns to recertify annually to SBA that they continue to 
meet all of the HUBZone eligibility requirements, instead of requiring 
them to undergo a recertification by SBA every three years. The 
proposed rule also provides that when a concern fails to submit its 
annual recertification to SBA, SBA will start proceedings to decertify 
the concern.
    SBA proposes to amend Sec.  126.501 to clarify that once certified, 
a HUBZone small business concern will remain eligible for HUBZone 
contract awards for one year from the date of certification, provided 
that the concern qualifies as small for the size standard corresponding 
to the NAICS code assigned to the contract. On the one-year anniversary 
of the certification, the firm would be required to recertify that it 
continues to meet the HUBZone eligibility requirements or voluntarily 
withdraw from the HUBZone program. Although requiring annual 
recertification instead of every three years may appear to impose 
additional burdens on a HUBZone small business concern, the annual 
recertification burden would be easily offset by the elimination of the 
requirement that a firm must demonstrate that it continues to be an 
eligible HUBZone small business concern both at the time of offer and 
time of award for any HUBZone contract. As set forth in proposed Sec.  
126.501(a), once SBA certifies a concern as eligible to participate in 
the HUBZone program, the concern would be treated as an eligible 
HUBZone small business for all HUBZone contracts for which the concern 
qualifies as small for a period of one year from the date of its 
initial certification or its annual recertification. Thus, any 
certification that the firm makes representing that it qualifies as a 
HUBZone small business concern relates back to the initial 
certification or annual recertification. The HUBZone concern would not 
have to review and demonstrate its continued compliance with all 
HUBZone eligibility requirements throughout the year for each new 
HUBZone contract that it seeks.
    HUBZone status protests would also relate back to the date of 
initial certification or most recent annual recertification (except for 
protests against HUBZone joint ventures). Thus, the protest would have 
to demonstrate that the information relied on by SBA in certifying or 
recertifying the concern as an eligible HUBZone small business concern 
was incorrect, not that there may have been changed circumstances since 
that certification that would render the concern ineligible. For 
HUBZone status protests filed against a

[[Page 54820]]

HUBZone joint venture in connection with a HUBZone contract, a 
protester could challenge both the HUBZone status of the HUBZone 
member(s) of the joint venture and the joint venture's compliance with 
the requirements governing HUBZone joint ventures, including the 
contents of the joint venture agreement. If a protester challenged the 
HUBZone status of the HUBZone member(s) of the joint venture, the 
protest would relate back to the date of that firm's initial 
certification or annual recertification (whichever was more recent) and 
the firm's HUBZone status would be determined as of that date. If the 
protester challenged the joint venture's compliance with the HUBZone 
joint venture requirements set forth in Sec.  126.616, the protest 
would relate to the date on which the joint venture submitted its 
initial offer including price and the joint venture's compliance with 
Sec.  126.616 would be determined as of that date. SBA will also 
utilize the program examination mechanism to review the status of 
selected firms on the date of initial certification or recertification.
    The proposed rule would also clarify that a HUBZone small business 
concern could voluntarily withdraw from the program at any time. This 
may be because the concern believes that it no longer meets the 
program's eligibility requirements and could not be recertified or it 
may simply no longer want to participate in the program for a variety 
of other reasons. The proposed rule would also clarify that any firm 
that voluntarily withdraws from the program could reapply to the 
program at any point after 90 calendar days from the date it was 
decertified. For a firm that voluntarily withdrew because it no longer 
met all the HUBZone eligibility requirements, it could make the 
necessary changes that would enable it to come back into compliance and 
reapply to the program after 90 days.
    SBA proposes to amend Sec.  126.503 to clarify that if SBA is 
unable to verify a HUBZone small business concern's eligibility or 
determines that it may not be eligible for the program, the SBA could 
conduct a program examination or propose the concern for 
decertification and the HUBZone small business concern would be 
required to rebut each of the reasons SBA sets forth in its written 
notification letter within 15 calendar days from the date that it 
receives SBA's notification. If SBA finds that the concern is not 
eligible, the SBA would provide notice to the concern stating the basis 
for the determination, decertify the concern and remove it as a 
certified HUBZone small business concern from DSBS. In addition, the 
proposed rule would authorize SBA to propose decertification of a 
HUBZone small business concern that is performing one or more HUBZone 
contracts if SBA determines that the concern no longer has at least 20% 
of its employees living in a HUBZone. As identified above, the proposed 
rule has defined the statutory requirement that a HUBZone small 
business concern ``attempt to maintain'' compliance with the 35% 
HUBZone while performing a HUBZone contract to mean having not less 
than 20% HUBZone employees. During the proposed decertification 
process, the concern could demonstrate that it does in fact continue to 
have at least 20% HUBZone employees and has otherwise attempted to meet 
the 35% requirement.
    SBA proposes to amend Sec.  126.504 to reflect the various ways 
that a HUBZone small business concern could lose its designation in 
DSBS as a certified HUBZone small business concern, including if it 
has: (1) Been decertified as a result of a protest; (2) been 
decertified as a result of the procedures set forth in the regulations; 
or (3) submitted a voluntary withdrawal agreement to SBA. SBA proposes 
to add a new Sec.  126.506 to provide that a decertified firm could 
reapply for admission to the HUBZone program after ninety (90) calendar 
days. This is the current rule for reapplying, but SBA has moved it to 
a new section to make the process clearer.

6. Contractual Assistance

    SBA proposes to revise Sec.  126.601 to remove the discussion of 
the acquisition-related dollar thresholds in paragraph (a) because this 
does not relate to additional requirements a certified HUBZone small 
business concern must meet to submit an offer on a HUBZone contract. In 
addition, SBA proposes to move the discussion of compliance with the 
limitations on subcontracting for multiple award contracts currently in 
paragraph Sec.  126.601(g) to proposed Sec.  126.700, which 
specifically addresses the limitations on subcontracting requirements 
for HUBZone contracts. Finally, SBA proposes to move the discussion of 
recertification currently in paragraph Sec.  126.601(h) to proposed new 
Sec.  126.619.
    SBA proposes to amend Sec.  126.602 to be consistent with the 
proposed change requiring certified HUBZone small businesses to 
demonstrate their eligibility at the time of initial certification and 
annual certification only. Under this proposed regulation, certified 
HUBZone small business concerns would no longer be required to meet the 
35% HUBZone residency requirement at all times while certified in the 
program. This means that they no longer would have to meet this 
requirement at the time of offer and time of award for a HUBZone 
contract. HUBZone small businesses would continue to have to ``attempt 
to maintain'' compliance with this requirement during the performance 
of a HUBZone contract. With respect to HUBZone status for the 
underlying contract, the agency will get credit if the firm was in the 
HUBZone program at the time of offer, and that status will continue 
unless and until recertification for the contract is required.

7. Protests

    SBA proposes to amend Sec.  126.801 to clarify how a HUBZone status 
protest should be filed and referred to SBA. Among other 
clarifications, SBA proposes to clarify that HUBZone status protests 
may be filed against HUBZone joint ventures. The grounds for such 
protests would include (1) arguments that the HUBZone small business 
concern partner(s) to the joint venture did not meet the HUBZone 
eligibility requirements set forth in Sec.  126.200 at the time of the 
concern's initial certification or most recent annual recertification, 
and (2) arguments that the HUBZone joint venture did not meet the 
requirements set forth in Sec.  126.616 at the time the joint venture 
submitted its offer for the HUBZone contract. For consistency purposes, 
SBA proposes to also make these clarifications for Service-Disabled 
Veteran-Owned (SDVO) small business joint ventures and Women-Owned 
Small Business (WOSB) joint ventures by amending sections 125.28(b) and 
127.602. For the SDVO and WOSB programs, unlike the HUBZone program, 
the eligibility of the SDVO/WOSB joint venture partner would continue 
to be determined as of the date of offer.
    SBA proposes to amend Sec.  126.803, addressing how SBA will 
process a HUBZone status protest, to reduce the timeframe by which a 
protested concern must respond to SBA's notification that an interested 
party has filed a protest to 3 business days after the date of receipt 
of the SBA's letter. SBA believes that businesses generally respond in 
a short period of time since an award on a contract is pending and the 
business has this information readily available. In addition to the 
above, SBA proposes to update all instructions contained in the HUBZone 
regulations related to submission of information and documentation to 
SBA to specify that such submissions must be completed

[[Page 54821]]

electronically. The appropriate email addresses have been added and 
updated where necessary, and mailing addresses and fax numbers have 
been removed. This change is intended to reduce the paperwork burden on 
program applicants and participants.

Compliance With Executive Orders 12866, 13563, 12988, 13132, and 13771, 
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. However, this is not a major rule under the 
Congressional Review Act, 5 U.S.C. 801, et seq.

Regulatory Impact Analysis

    1. Is there a need for the regulatory action?
    SBA is proposing to make several changes to clarify its 
regulations. Through the years, SBA has spoken with small business and 
representatives and has determined that several regulations need 
further refinement so that they are easier to understand and implement. 
Further, SBA has added in new provisions providing for reconsiderations 
of application denials and decertifications. Currently, there is no 
request for reconsideration process in the regulations, unlike SBA's 
other certification programs. SBA believes that making the programs as 
consistent and similar as possible, where practicable, will make it 
easier for small businesses to understand the process.
    2. What are the potential benefits and costs of this regulatory 
action?
    The proposed regulations seek to address or clarify issues, which 
will provide clarity to small businesses and contracting personnel. 
Further, SBA is proposing a formal request for reconsideration process, 
which could increase costs to the government (e.g., additional workload 
for requests for reconsideration), but will provide consistency in the 
processes for SBA's programs. SBA declined approximately 87 applicants 
in fiscal year 2017. The cost for requesting reconsideration is 
estimated at one and a half hours, and we estimate that approximately 
ten applicants would request reconsideration. That equates to 15 hours 
at an estimated rate of $33.34 an hour, for a de minimis annual total 
of $500. However, a reconsideration process is beneficial to HUBZone 
applicants because it allows them to correct deficiencies and come into 
compliance without waiting 90 days to reapply for the program. This 
should enable additional firms to be more quickly certified for the 
HUBZone program, which should allow them to seek and be awarded HUBZone 
contracts sooner. Thus, any costs associated with the voluntary request 
for reconsideration would be outweighed by the potential benefit of 
allowing firms to request reconsideration, although it is difficult to 
quantify the opportunity cost avoidance associated with this benefit. 
For example, if only one of the ten HUBZone firms applying for 
reconsideration was able to be recertified earlier and received a set 
aside contract of $150,000, it would clearly offset the entire cost 
incurred by the ten applicants.
    SBA proposes to require HUBZone small business concerns to 
recertify annually to SBA that they continue to meet all of the HUBZone 
eligibility requirements, instead of requiring them to undergo a 
recertification by SBA every three years. There are approximately 5,000 
firms in the HUBZone program. Under SBA's current rules, firms must 
recertify every three years. Approximately 1,200 firms recertify each 
year based on HUBZone data, and we estimate it takes approximately 1 
hour to recertify. OMB Control #3245-0320. Consequently, these proposed 
changes would increase the annual hourly burden for HUBZone firms by 
3,800 hours or an estimated annual cost of $126,692.00. Instead, of 
1,200 firms recertifying annually, all 5,000 would have to recertify 
annually.
    SBA is also proposing that HUBZone small business concerns will not 
have to represent or certify that they are eligible at the time of 
offer and award for every HUBZone contract, which are the current 
program requirements. Under current rules, a HUBZone small business 
concern must be eligible both at the time of offer and award of a 
HUBZone contract. Based on FPDS data, approximately 2,100 new HUBZone 
contracts are awarded each fiscal year. We estimate it takes 
approximately 1 hour for a firm to determine it is eligible at the time 
of offer and approximately 1 hour for a firm to determine it is 
eligible at the time of award. Thus, this proposed rule will reduce 
burden on HUBZone small business concerns by approximately 4,200 hours 
for an estimated annual savings of $140,028.00.
    SBA is proposing that an employee who resides in a HUBZone at the 
time of a HUBZone concern's certification or recertification shall 
continue to count as a HUBZone employee as long as the individual 
remains an employee of the firm, even if the employee moves to a 
location that is not in a qualified HUBZone area or the area where the 
employee's residence is located is redesignated and no longer qualifies 
as a HUBZone. This will greatly reduce burden on firms, as they will 
not have to continuously track whether their employees still reside in 
a HUBZone or seek to employ new individuals if the location that one or 
more current employees reside loses its HUBZone status. We estimate 
that it takes 1 hour to determine eligibility and that this proposed 
change will save approximately 0.5 hours because once a HUBZone 
employee is hired, the firm will never again have to examine where that 
employee resides. Thus, this proposed rule should reduce the hourly 
burden on approximately 5,000 HUBZone small business concerns by 2,500 
hours annually for an estimated annual savings of $83,350.00.
    3. What are the alternatives to this final rule?
    The alternative to the proposed regulations would be the status 
quo, where a firm must be eligible at the time of offer and time of 
award. SBA has also identified other alternatives that SBA considered 
in the supplementary information to this proposed rule. With respect to 
the requirement to annually recertify, SBA could instead require firms 
to certify at time of offer, as is done for the other small business or 
socioeconomic set aside contract programs. In addition, SBA could 
propose only a formal request for reconsideration process or could have 
proposed no request for reconsideration process. However, as noted 
above, SBA has modeled these processes from its other contracting 
programs (e.g., 8(a) request for reconsideration) and believes that 
these processes have worked well for these programs and should 
therefore be utilized for the HUBZone program. SBA also considered 
whether eligibility or protest decisions should be appealed to the 
Office of Hearings and Appeals.
Summary of Costs and Cost Savings
    Table 1: Summary of Incremental Costs and Cost Savings, below, sets 
out the estimated net incremental cost/(cost saving) associated with 
this proposed rule. Table 2: Detailed Breakdown of Incremental Costs 
and Cost Savings, below, provides a detailed explanation of the annual 
cost/(cost saving) estimates associated with this proposed rule.

[[Page 54822]]



         Table 1--Summary of Incremental Costs and Cost Savings
------------------------------------------------------------------------
                                 Regulatory action    Annual cost/ (cost
           Item No.                     item           saving) estimate
------------------------------------------------------------------------
1............................  Annual                           $126,692
                                recertification
                                instead of every 3
                                years.
2............................  Requiring a formal                    500
                                request of
                                reconsideration.
3............................  Removing requirement            (140,028)
                                to present
                                eligibility at award.
4............................  Change to employee               (83,350)
                                count eligibility.
                                                     -------------------
    Estimated Net Incremental Cost/(Cost Saving)....            (96,186)
------------------------------------------------------------------------


                        Table 2--Detailed Breakdown of Incremental Costs and Cost Savings
----------------------------------------------------------------------------------------------------------------
                                                                             Annual cost/ (cost saving) estimate
                Item No.                   Regulatory action item details                 breakdown
----------------------------------------------------------------------------------------------------------------
1.......................................  Proposed regulatory change: SBA   ....................................
                                           proposes to require HUBZone
                                           SBCs to recertify annually to
                                           SBA that they continue to meet
                                           all of the HUBZone eligibility
                                           requirements instead of
                                           requiring them to undergo a
                                           recertification by SBA every
                                           three years.
                                          Estimated number of impacted      3,800 entities.
                                           entities: There are
                                           approximately 5,000 firms in
                                           the HUBZone program, and under
                                           the proposed rule all these
                                           firms will need to recertify
                                           each year. However, since 1,200
                                           firms recertify each year
                                           currently, the incremental
                                           increase in recertifications is
                                           3,800 firms annually.
                                          Estimated average impact *        1 hour.
                                           (labor hour): SBA estimates
                                           that it takes the average
                                           participating firm about 1 hour
                                           to complete the recertification
                                           process.
                                          2017 Median Pay ** (per hour):    $33.34.
                                           Most HUBZone firms use an
                                           accountant or someone with
                                           similar skills for this task.
                                                                           -------------------------------------
    Estimated Cost/(Cost Saving)..........................................  $126,692.
----------------------------------------------------------------------------------------------------------------
2.......................................  Proposed regulatory change: SBA
                                           proposes to add a new provision
                                           permitting a firm to submit a
                                           formal request for
                                           reconsideration when it
                                           receives a determination
                                           denying admission to the
                                           HUBZone program.
                                          Estimated number of impacted      10 entities.
                                           entities: SBA declined 87
                                           applications in FY 2017. Of
                                           these, we estimate that only 10
                                           firms would seek
                                           reconsideration.
                                          Estimated average impact *        1.50 hours.
                                           (labor hour): SBA estimates
                                           that it would take 1.5 hours to
                                           respond to the denial and to
                                           request reconsideration.
                                          2017 Median Pay ** (per hour):    $33.34.
                                           Most HUBZone firms use an
                                           accountant or someone with
                                           similar skills for this task.
                                                                           -------------------------------------
    Estimated Cost/(Cost Saving)..........................................  $500.
----------------------------------------------------------------------------------------------------------------
3.......................................  Proposed regulatory change:       ....................................
                                           Under current rules, a HUBZone
                                           firm must be eligible at the
                                           time of offer and award of a
                                           HUBZone contract. SBA is
                                           proposing that firms will not
                                           have to represent or certify
                                           that they are eligible at the
                                           time of offer and award for
                                           every contract, which are the
                                           current program requirements.
                                          Estimated number of impacted      4,200 entities.
                                           entities: Approximately 2,100
                                           new HUBZone contracts awarded
                                           each fiscal year and each firm
                                           will need to certify twice per
                                           each contract.
                                          Estimated average impact *        1 hour.
                                           (labor hour): SBA estimates
                                           that it takes the average
                                           participating firm about 1 hour
                                           to complete the recertification
                                           process.
                                          2017 Median Pay ** (per hour):    $33.34.
                                           Most HUBZone firms use an
                                           accountant or someone with
                                           similar skills for this task.
    Estimated Cost/(Cost Saving)..........................................  ($140,028).
----------------------------------------------------------------------------------------------------------------
4.......................................  Proposed regulatory change: SBA   ....................................
                                           is proposing that an employee
                                           that resides in a HUBZone at
                                           the time of a HUBZone SBC's
                                           certification or
                                           recertification shall continue
                                           to count as a HUBZone employee
                                           as long as the individual
                                           remains an employee of the
                                           firm, even if the employee
                                           moves to a location that is not
                                           in a qualified HUBZone area or
                                           the area where the employee's
                                           residence is located is
                                           redesignated and no longer
                                           qualifies as a HUBZone. This
                                           will greatly reduce burden on
                                           firms, as they will not have to
                                           continually track whether their
                                           employees still reside in a
                                           HUBZone.
                                          Estimated number of impacted      5,000 entities.
                                           entities: SBA estimates that
                                           approximately 5,000 firms
                                           participate in the HUBZone
                                           program. All participating
                                           firms will be impacted by this
                                           change.
                                          Estimated average impact *        0.50 hours.
                                           (labor hour): SBA estimates
                                           that it would take 1 hour to
                                           determine eligibility but this
                                           proposed change will save 0.5,
                                           because once a HUBZone employee
                                           is hired the firm will never
                                           have to check residency for
                                           that employee.
                                                                           -------------------------------------

[[Page 54823]]

 
                                          2017 Median Pay ** (per hour):    $33.34.
                                           Most HUBZone firms use an
                                           accountant or someone with
                                           similar skills for this task.
    Estimated Cost/(Cost Saving)..........................................  ($83,350).
----------------------------------------------------------------------------------------------------------------
    Estimated Net Annual Impact...........................................  ($96,186).
----------------------------------------------------------------------------------------------------------------
* This estimate is based on HUBZone and FPDS data, as well as best professional judgment.
** Source: Bureau of Labor Statistics, Accountants and Auditors.

Executive Order 13563

    This executive order directs agencies to, among other things: (a) 
Afford the public a meaningful opportunity to comment through the 
internet on proposed regulations, with a comment period that should 
generally consist of not less than 60 days; (b) provide for an ``open 
exchange'' of information among government officials, experts, 
stakeholders, and the public; and (c) seek the views of those who are 
likely to be affected by the rulemaking, even before issuing a notice 
of proposed rulemaking. As far as practicable or relevant, SBA 
considered these requirements in developing this rule, as discussed 
below.
    1. Did the agency use the best available techniques to quantify 
anticipated present and future costs when responding to Executive Order 
12866 (e.g., identifying changing future compliance costs that might 
result from technological innovation or anticipated behavioral 
changes)?
    To the extent possible, the agency utilized the most recent data 
available in the Federal Procurement Data System--Next Generation, DSBS 
and SAM.
    2. Public participation: Did the agency: (a) Afford the public a 
meaningful opportunity to comment through the internet on any proposed 
regulation, with a comment period that should generally consist of not 
less than 60 days; (b) provide for an ``open exchange'' of information 
among government officials, experts, stakeholders, and the public; (c) 
provide timely online access to the rulemaking docket on 
Regulations.gov; and (d) seek the views of those who are likely to be 
affected by rulemaking, even before issuing a notice of proposed 
rulemaking? SBA has also discussed some of the proposals in this rule 
with stakeholders at various small business procurement conferences, 
and received written comments on suggested changes to the HUBZone 
Program regulations generally in response to SBA's regulatory reform 
initiative implementing Executive Order 13771.
    The proposed rule will have a 60-day comment period and will be 
posted on www.regulations.gov to allow the public to comment 
meaningfully on its provisions.
    3. Flexibility: Did the agency identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public?
    The proposed rule is intended to make it easier for firms to apply 
for, or participate in, the HUBZone program, as well as for procuring 
agencies to utilize the program.

Executive Order 12988

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

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, 
for the purposes of Executive Order 13132, SBA has determined that this 
proposed rule has no federalism implications warranting preparation of 
a federalism assessment.

Executive Order 13771

    This proposed rule is expected to be an Executive Order 13771 
deregulatory action. Details on the estimated cost savings of this 
proposed rule can be found in this rule's regulatory impact analysis. 
SBA proposes to require HUBZone small business concerns to recertify 
annually to SBA that they continue to meet all of the HUBZone 
eligibility requirements, instead of requiring them to undergo a 
recertification by SBA every three years. While the proposal to require 
firms to recertify annually will increase the burden on firms, this 
burden will be offset by the proposal to no longer require firms to be 
eligible at the time of offer and award for a contract, and will 
provide that if a firm hires a HUBZone resident, the firm will be able 
to count that employee towards the residency requirement, this reducing 
the burden on the firm to determine whether it meets the 35 percent 
residency requirement. Thus, the proposed rule will result in an 
estimated annual savings of $96,185.00

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

    For the purposes of the Paperwork Reduction Act, SBA has determined 
that this rule, if adopted in final form, would impose new government-
wide reporting requirements on HUBZone small business concerns. In the 
rule, SBA proposes that small businesses recertify annually to SBA 
concerning their status. At this time, HUBZone small businesses 
recertify every three years. Although requiring annual recertification 
instead of every three years may appear to impose additional burdens on 
a HUBZone small business concern, the annual recertification burden is 
offset by the elimination of the requirement to be eligible at the time 
of offer and award of a contract and the requirement to continually 
monitor the residency status of an employee that resides in a HUBZone 
at the time of hiring, resulting in an estimated annual savings of 
$96,186.00. In addition, SBA believes the annual recertification would 
assist in deterring fraud and abuse in the program. SBA also proposes 
that certified HUBZone small business concerns maintain records 
demonstrating the home address of employees who resided in a HUBZone at 
the time of the concern's certification or recertification, as well as 
records of the employee's continued employment with the firm. SBA 
believes allowing a HUBZone small business concern to continue 
employing individuals who once lived in HUBZones is consistent with the 
purpose of the HUBZone

[[Page 54824]]

program of increasing employment and would provide greater 
opportunities for certified HUBZone small business concerns to be 
eligible for and receive HUBZone contracts. Further, this will reduce 
burden as the firm will not have to continually determine whether the 
employee that resided in a HUBZone at the time of certification 
continues to reside in a HUBZone in connection with the offer and offer 
of each contract or future recertifications. A firm's ability to 
request reconsideration will be added to the existing information 
collection for the HUBZone program (OMB Control #3245-0320).

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

    According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601, 
when an agency issues a rulemaking, it must prepare a regulatory 
flexibility analysis to address the impact of the rule on small 
entities. However, section 605 of the RFA allows an agency to certify a 
rule, in lieu of preparing an analysis, if the rulemaking is not 
expected to have a significant economic impact on a substantial number 
of small entities. The RFA defines ``small entity'' to include ``small 
businesses,'' ``small organizations,'' and ``small governmental 
jurisdictions.'' This proposed rule concerns various aspects of SBA's 
HUBZone program, as such the rule relates to small business concerns 
but would not affect ``small organizations'' or ``small governmental 
jurisdictions'' because those programs generally apply only to 
``business concerns'' as defined by SBA regulations, in other words, to 
small businesses organized for profit. ``Small organizations'' or 
``small governmental jurisdictions'' are non-profits or governmental 
entities and do not generally qualify as ``business concerns'' within 
the meaning of SBA's regulations.
    There are approximately 5,000 certified HUBZone small business 
concerns that are listed as certified HUBZone small businesses in DSBS, 
and SBA receives approximately 1,500 applications annually. Most of the 
changes are clarification of current policy and therefore should not 
impact many of these concerns. Further, there is a new compliance or 
other costs imposed by the proposed rule on current or prospective 
HUBZone small business concerns. Under current law, HUBZone small 
business concerns must recertify every three years and under the 
proposed rule, the same firms will need to recertify every year.
    Nonetheless, most of these costs relating to reconsideration and 
appeals will be borne by the agency and not the small business. In 
addition, recertifying every year should not impose a significant cost 
on small business since the rules already require the business to 
actively monitor its compliance from the moment it applies to the 
program. As a result, SBA does not believe that the proposed amendments 
would have a disparate impact on small businesses or would impose any 
additional significant costs. For the reasons discussed, SBA certifies 
that this proposed rule would not have a significant economic impact on 
a substantial number of small business concerns.

List of Subjects

13 CFR Part 115

    Claims, Reporting and recordkeeping requirements, Small businesses, 
Surety bonds.

13 CFR Part 121

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

13 CFR Part 125

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

13 CFR Part 126

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

    For the reasons set forth in the preamble, SBA proposes to amend 13 
CFR parts 115, 121, 125, and 126 as set forth below:

PART 115--SURETY BOND GUARANTEE

0
1. The authority citation for part 115 continues to read as follows:

    Authority:  5 U.S.C. app 3; 15 U.S.C. 687b, 687c, 694a, 694b 
note; and Pub. L. 110-246, Sec. 12079, 122 Stat. 1651.


Sec.  115.31   [Amended]

0
2. Amend Sec.  115.31(a)(2) by removing the phrase ``qualified HUBZone 
small business concern'' and adding in its place the phrase ``certified 
HUBZone small business concern''.

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

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


Sec.  121.404   [Amended]

0
4. Amend Sec.  121.404(g)(4) by removing the phrase ``HUBZone SBCs'' 
and adding in its place the phrase ``certified HUBZone small business 
concerns''.


Sec.  121.1001   [Amended]

0
5. Amend Sec.  121.1001 as follows:
0
a. In paragraph (a)(6)(ii), remove the phrase ``qualified HUBZone SBC'' 
and add in its place the phrase ``certified HUBZone small business 
concern''; and
0
b. In paragraph (b)(8)(i), remove the phrase ``qualified HUBZone 
business concern'' and add in its place the phrase ``certified HUBZone 
small business concern''.

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
6. 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; 
657q; 657r; and 657s.


Sec.  125.1   [Amended]

0
7. In Sec.  125.1, amend the definition of ``similarly situated 
entity'' by removing the phrase ``qualified HUBZone small business 
concern'' and adding in its place the phrase ``certified HUBZone small 
business concern''.


Sec.  125.2   [Amended]

0
8. Amend Sec.  125.2(c)(1)(i) by removing the phrase ``qualified 
HUBZone small business concerns'' and adding in its place the phrase 
``certified HUBZone small business concerns''.


Sec.  125.3   [Amended]

0
9. Amend Sec.  125.3(c)(1)(xi) by removing the phrase ``qualified 
HUBZone small business concerns'' and adding in its place the phrase 
``certified HUBZone small business concerns''.


Sec.  125.6   [Amended]

0
10. Amend Sec.  125.6 by removing paragraph (d) and redesignating 
paragraphs (e) through (h) as paragraphs (d) through (g), respectively.
0
11. Revise Sec.  125.28(b) to read as follows:


Sec.  125.28  How does one file a service disabled veteran-owned status 
protest?

* * * * *
    (b) Format and specificity. (1) Protests must be in writing and 
must specify all the grounds upon which the protest is based. A protest 
merely asserting that the protested concern is not an eligible SDVO 
SBC, without setting forth specific facts or allegations is 
insufficient.


[[Page 54825]]


    Example to paragraph (b)(1): A protester submits a protest 
stating that the apparent successful offeror is not owned by a 
service-disabled veteran. The protest does not state any basis for 
this assertion. The protest allegation is insufficient.

    (2) For a protest filed against a SDVO SBC joint venture, the 
protest must state all specific grounds for why--
    (i) The SDVO SBC partner to the joint venture did not meet the SDVO 
SBC eligibility requirements set forth in subpart B of part 125; and/or
    (ii) The protested SDVO SBC joint venture did not meet the 
requirements set forth in Sec.  125.18.
* * * * *

PART 126--HUBZONE PROGRAM

0
12. The authority citation for part 126 continues to read as follows:

    Authority: 15 U.S.C. 632(a), 632(j), 632(p), 644 and 657a.


Sec.  126.101   [Amended]

0
13. Amend Sec.  126.101(b) by removing the phrase ``qualified HUBZone 
SBCs'' and adding in its place the phrase ``certified HUBZone small 
business concerns''.
0
14. Amend Sec.  126.103 as follows:
0
a. Remove the definitions of ``Alaska Native Village'', ``ANCSA'', 
``County unemployment rate'', ``De-certify'', ``List'', ``Median 
household income'', ``Metropolitan statistical area'', ``Qualified 
HUBZone SBC'', ``Small Disadvantaged Business (SDB)'', and ``Statewide 
average unemployment rate'';
0
b. Revise the definitions of ``Alaska Native Corporation'', ``Attempt 
to maintain'', ``Certify'', ``D/HUB'', ``Employee'', ``HUBZone small 
business concern'', ``Interested party'', ``Principal office'', 
``Qualified base closure area'', ``Qualified census tract'', 
``Qualified non-metropolitan county'', ``Redesignated area'', 
``Reside''; and
0
c. Add definitions for ``Decertify'', ``Dynamic Small Business Search 
(DSBS)'' and ``Primary industry classification or primary industry'' in 
alphabetical order.
    The revisions and additions read as follows:


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

* * * * *
    Alaska Native Corporation (ANC) has the same meaning as the term 
``Native Corporation'' in section 3 of the Alaska Native Claims 
Settlement Act (ANCSA), 43 U.S.C. 1602.
    Attempt to maintain means making substantive and documented 
efforts, such as written offers of employment, published advertisements 
seeking employees, and attendance at job fairs and applies only to 
concerns during the performance of any HUBZone contract. A certified 
HUBZone small business concern that has less than 20% of its total 
employees residing in a HUBZone during the performance of a HUBZone 
contract has failed to attempt to maintain the HUBZone residency 
requirement.
* * * * *
    Certify means the process by which SBA determines that a firm is 
qualified for the HUBZone program and eligible to be designated by SBA 
as a certified HUBZone small business concern in the Dynamic Small 
Business Search (DSBS) system (or successor system).
* * * * *
    D/HUB means the Director of SBA's Office of HUBZone.
    Decertify means the process by which SBA determines that a concern 
no longer qualifies as a HUBZone small business concern and removes 
that concern as a certified HUBZone small business concern from DSBS 
(or successor system), or the process by which SBA removes a concern as 
a certified HUBZone small business concern from DSBS (or successor 
system) after receiving a request to voluntarily withdraw from the 
HUBZone program.
    Dynamic Small Business Search (DSBS) means the database that 
government agencies use to find small business contractors for upcoming 
contracts. The information a business provides when registering in the 
System for Award Management (SAM) is used to populate DSBS. For HUBZone 
Program purposes, a firm's DSBS profile will indicate whether it is a 
certified HUBZone small business concern, and if so, the date it was 
certified or recertified.
    Employee means all individuals employed on a full-time, part-time, 
or other basis, so long as that individual works a minimum of 40 hours 
during the four-week period immediately prior to the relevant date of 
review, which is either the date the concern submits its HUBZone 
application to SBA or the date of recertification. SBA will review a 
firm's payroll records for the most recently completed pay periods that 
account for the four-week period immediately prior to the date of 
application or date of recertification in order to determine which 
individuals meet this definition. To determine if an individual is an 
employee, SBA reviews the totality of circumstances, including criteria 
used by the Internal Revenue Service (IRS) for Federal income tax 
purposes and the factors set forth in SBA's Size Policy Statement No. 1 
(51 FR 6099, Feb. 20, 1986).
    (1) In general, the following are considered employees:
    (i) Individuals obtained from a temporary employee agency, leasing 
concern, or through a union agreement, or co-employed pursuant to a 
professional employer organization agreement;
    (ii) An individual who has an ownership interest in the firm and 
who works for the firm a minimum of 40 hours during the four-week 
period immediately prior to the relevant date of review, whether or not 
the individual receives compensation;
    (iii) The sole owner of a firm who works less than 40 hours during 
the four-week period immediately prior to the relevant date of review, 
but who has not hired another individual to direct the actions of the 
concern's employees;
    (iv) Individuals who receive in-kind compensation commensurate with 
work performed.
    (2) In general, the following are not considered employees:
    (i) Individuals who receive no compensation (including no in-kind 
compensation) for work performed;
    (ii) Individuals who receive deferred compensation for work 
performed;
    (iii) Independent contractors that receive payment via IRS Form 
1099 and are not considered employees under SBA's Size Policy Statement 
No. 1 (51 FR 6099, Feb. 20, 1986); and
    (iv) Subcontractors.
    (3) Employees of an affiliate may be considered employees, if the 
totality of the circumstances shows that there is no clear line of 
fracture between the HUBZone applicant (or certified HUBZone small 
business concern) and its affiliate(s) (see Sec.  126.204).
* * * * *
    HUBZone small business concern or certified HUBZone small business 
concern (1) Means a small business concern that meets the requirements 
described in Sec.  126.200 and that SBA has certified as eligible for 
federal contracting assistance under the HUBZone program.
    (2) A firm that was a certified HUBZone small business concern as 
of December 12, 2017, and that had its principal office located in a 
redesignated area set to expire prior to January 1, 2020, shall remain 
a certified HUBZone small business concern until December 31, 2021, so 
long as all other HUBZone eligibility requirements are met.
* * * * *
    Interested party means any concern that submits an offer for a 
specific

[[Page 54826]]

HUBZone set-aside contract (including Multiple Award Contracts) or 
order, any concern that submitted an offer in full and open competition 
and its opportunity for award will be affected by a price evaluation 
preference given a qualified HUBZone small business concern, any 
concern that submitted an offer in a full and open competition and its 
opportunity for award will be affected by a reserve of an award given 
to a qualified HUBZone small business concern, the contracting 
activity's contracting officer, or SBA.
* * * * *
    Primary industry classification or primary industry means the six 
digit North American Industry Classification System (NAICS) code 
designation which best describes the primary business activity of the 
HUBZone applicant or HUBZone small business concern. SBA utilizes Sec.  
121.107 of this chapter in determining a firm's primary industry 
classification.
    Principal office means the location where the greatest number of 
the concern's employees at any one location perform their work.
    (1) If an employee works at multiple locations, then the employee 
will be deemed to work at the location where the employee spends more 
than 50% of his or her time. If an employee does not spend more than 
50% of his or her time at any one location and at least one of those 
locations is a non-HUBZone location, then the employee will be deemed 
to work at a non-HUBZone location;
    (2) In order for a location to be considered the principal office, 
the concern must conduct business at this location.
    (3) For those concerns whose ``primary industry classification'' is 
services or construction (see Sec.  121.201 of this chapter), the 
determination of principal office excludes the concern's employees who 
perform more than 50% of their work at job-site locations to fulfill 
specific contract obligations. If all of a concern's employees perform 
more than 50% of their work at job sites, the concern does not comply 
with the principal office requirement.
    Example 1: A business concern whose primary industry is 
construction has a total of 78 employees, including the owners. The 
business concern has one office (Office A), which is located in a 
HUBZone, with 3 employees working at that location. The business 
concern also has a job-site for a current contract, where 75 
employees perform more than 50% of their work. The 75 job-site 
employees are excluded for purposes of determining principal office. 
Since the remaining 3 employees all work at Office A, Office A is 
the firm's principal office. Since Office A is in a HUBZone, the 
business concern complies with the principal office requirement.

    Example 2: A business concern has a total of 4 employees, 
including the owner. The business concern has one office located in 
a HUBZone (Office A), where 2 employees perform more than 50% of 
their work, and a second office not located in HUBZone (Office B), 
where 2 employees perform more than 50% of their work. Since there 
is not one location where the greatest number of the concern's 
employees at any one location perform their work, the business 
concern would not have a principal office in a HUBZone.
    Example 3: A business concern whose primary industry is services 
has a total of 6 employees, including the owner. Five of the 
employees perform all of their work at jobsites fulfilling specific 
contract obligations. The business concern's owner performs 45% of 
her work at jobsites, and 55% of her work at an office located in a 
HUBZone (Office A) conducting tasks such as writing proposals, 
generating payroll, and responding to emails. Office A would be 
considered the principal office of the firm since it is the only 
location where any employees of the firm work that is not a job site 
and the 1 individual working there spends more than 50% of her time 
at Office A. Since Office A is located in a HUBZone, the small 
business concern would meet the principal office requirement.

    Qualified base closure area means:
    (1) A base closure area that is treated by SBA as a HUBZone for a 
period of at least 8 years, beginning on the date the military 
installation undergoes final closure and ending on the latter of the 
following:
    (i) The date on which the results of the decennial census conducted 
after the area was initially designated as a base closure area are 
released; or
    (ii) The date 8 years after the base closure area was initially 
designated as a HUBZone.
    (2) However, if a base closure area was treated as a HUBZone at any 
time after 2010, it shall be treated as a HUBZone until the results of 
the 2020 decennial census are released.
    Qualified census tract (1) Means any census tract which is 
designated by the Secretary of Housing and Urban Development, and for 
the most recent year for which census data are available on household 
income in such tract, either in which 50 percent or more of the 
households have an income which is less than 60 percent of the area 
median gross income for such year or which has a poverty rate of at 
least 25 percent. See 26 U.S.C. 42(d)(5)(B)(ii)(I).
    (2) The portion of a metropolitan statistical area (as defined by 
the Bureau of the Census, United States Department of Commerce, in its 
publications on the Census of Population, Social and Economic 
Characteristics) which may be designated as ``qualified census tracts'' 
shall not exceed an area having 20 percent of the population of such 
metropolitan statistical area. See 26 U.S.C. 42(d)(5)(B)(ii)(II). This 
paragraph does not apply to any metropolitan statistical area in the 
Commonwealth of Puerto Rico until December 22, 2027, or the date on 
which the Financial Oversight and Management Board for the Commonwealth 
of Puerto Rico created by the Puerto Rico Oversight, Management, and 
Economic Stability Act (PROMESA) (Pub. L. 114-187, June 30, 2016) 
ceases to exist, whichever event occurs first.
* * * * *
    Qualified non-metropolitan county means any county that was not 
located in a metropolitan statistical area (as defined by the Bureau of 
the Census, United States Department of Commerce, in its publications 
on the Census of Population, Social and Economic Characteristics) at 
the time of the most recent census taken for purposes of selecting 
qualified census tracts under section 26 U.S.C. 42(d)(5)(B)(ii), and in 
which:
    (1) The median household income is less than 80% of the non-
metropolitan State median household income, based on the most recent 
data available from the American Community Survey 5-year estimates, 
published by the Bureau of the Census of the Department of Commerce;
    (2) The unemployment rate is not less than 140% of the average 
unemployment rate for the United States or for the State in which such 
county is located, whichever is less, based on the most recent data 
available from the Local Area Unemployment Statistics report, produced 
by the Department of Labor's Bureau of Labor Statistics; or
    (3) There is located a Difficult Development Area within Alaska, 
Hawaii, or any territory or possession of the United States outside the 
48 contiguous States. A Difficult Development Area (DDA) is an area 
designated by the Secretary of the Department of Housing and Urban 
Development, in accordance with section 26 U.S.C. 42(d)(5)(B)(iii), 
with high construction, land, and utility costs relative to its Area 
Median Gross Income.
    Redesignated area (1) Means any census tract that ceases to be a 
``qualified census tract'' or any non-metropolitan county that ceases 
to be a ``qualified non-metropolitan county.''
    (2) A redesignated area generally shall be treated as a HUBZone for 
a period of three years, starting from the date on

[[Page 54827]]

which the area ceased to be a qualified census tract or a qualified 
non-metropolitan county. The date on which the census tract or non-
metropolitan county ceases to be qualified is the date on which the 
official government data affecting the eligibility of the HUBZone is 
released to the public. However, an area that was a redesignated area 
on or after December 12, 2017 shall remain a redesignated area until 
December 31, 2021.
    Reside means to live at a location full-time and for at least 180 
days immediately prior to the date of application or date of 
recertification, as applicable.
    (1) To determine residence, SBA will first look to an individual's 
address identified on his or her driver's license or voter's 
registration card. Where such documentation is not available, SBA will 
require other specific proof of residency, such as deeds, leases, and 
utility bills.
    (2) For HUBZone purposes, SBA will consider individuals temporarily 
residing overseas in connection with the performance of a contract to 
reside at their U.S. residence.

    Example 1:  A person possesses the deed to a residential 
property and pays utilities and property taxes for that property. 
However, the person does not live at this property, but instead 
rents out this property to another individual. For HUBZone purposes, 
the person does not reside at the address listed on the deed.
    Example 2:  A person moves into an apartment under a month-to-
month lease and lives in that apartment full-time. SBA would 
consider the person to reside at the address listed on the lease if 
the person can show that he or she has lived at that address for at 
least 180 days immediately prior to the date of application or date 
of recertification.
    Example 3: A person is working overseas on a contract for the 
small business and is therefore temporarily living abroad. The 
employee can provide documents showing he is paying rent for an 
apartment located in a HUBZone. That person is deemed to reside in a 
HUBZone.

* * * * *

Subpart B--Requirements To Be a Certified HUBZone Small Business 
Concern

0
15. Revise the heading for subpart B to read as set forth above.
0
16. Revise Sec.  126.200 to read as follows:


Sec.  126.200   What requirements must a concern meet to be eligible as 
a certified HUBZone small business concern?

    (a) Ownership. In order to be eligible for HUBZone certification 
and to continue to be certified, a small business concern must be owned 
in accordance with this paragraph. The concern must be:
    (1) At least 51% owned and controlled by one or more individuals 
who are United States citizens;
    (2) An ANC or at least 51% owned by an ANC or a wholly-owned 
business entity of an ANC;
    (3) At least 51% owned by one or more Indian Tribal Governments, or 
by a corporation that is wholly owned by one or more Indian Tribal 
Governments;
    (4) At least 51% owned by one or more CDCs;
    (5) A small agricultural cooperative organized or incorporated in 
the United States, or at least 51% owned by one or more small 
agricultural cooperatives organized or incorporated in the United 
States; or
    (6) At least 51% owned by one or more NHO, or by a corporation that 
is wholly owned by one or more NHO.
    (b) Size. (1) An applicant concern, together with its affiliates, 
must qualify as a small business under the size standard corresponding 
to its primary industry classification as defined in part 121 of this 
chapter.
    (2) In order to remain eligible as a certified HUBZone small 
business concern, a firm must qualify as small under the size standard 
corresponding to one or more NAICS codes in which it does business.
    (3) If the concern is a small agricultural cooperative, in 
determining size, the small agricultural cooperative is treated as a 
``business concern'' and its member shareholders are not considered 
affiliated with the cooperative by virtue of their membership in the 
cooperative.
    (c) Principal office. (1) The concern's principal office must be 
located in a HUBZone, except for concerns owned in whole or in part by 
one or more Indian Tribal Governments.
    (2) A concern that is owned in whole or in part by one or more 
Indian Tribal Governments (or by a corporation that is wholly owned by 
Indian Tribal Governments) must either:
    (i) Maintain a principal office located in a HUBZone and ensure 
that at least 35% of its employees reside in a HUBZone as provided in 
paragraph (d)(1) of this section; or
    (ii) Certify that when performing a HUBZone contract, at least 35% 
of its employees engaged in performing that contract will reside within 
any Indian reservation governed by one or more of the Indian Tribal 
Government owners, or reside within any HUBZone adjacent to such Indian 
reservation.
    (d) Employees. (1) At least 35% of the concern's employees must 
reside in a HUBZone. When determining the percentage of employees that 
reside in a HUBZone, if the percentage results in a fraction, SBA 
rounds to the nearest whole number.

    Example 1 to paragraph (d)(1):  A concern has 25 employees; 35% 
of 25, or 8.75, employees must reside in a HUBZone. The number 8.75 
rounded to the nearest whole number is 9. Thus, 9 employees must 
reside in a HUBZone.
    Example 2 to paragraph (d)(1):  A concern has 95 employees; 35% 
of 95, or 33.25, employees must reside in a HUBZone. The number 
33.25 rounded to the nearest whole number is 33. Thus, 33 employees 
must reside in a HUBZone.

    (2) If the concern is owned in whole or in part by one or more 
Indian Tribal Governments (or by a corporation that is wholly owned by 
one or more Indian Tribal Governments), see paragraph (c)(2) of this 
section.
    (3) An employee who resides in a HUBZone at the time of 
certification or recertification shall continue to count as a HUBZone 
resident employee as long as the individual remains an employee of the 
firm, even if the employee moves to a location that is not in a HUBZone 
or the area in which the employee's residence is located no longer 
qualifies as a HUBZone. The certified HUBZone small business concern 
must maintain records of the employee's original HUBZone address, as 
well as records of the individual's continued and uninterrupted 
employment by the HUBZone small business concern, for the duration of 
the firm's participation in the HUBZone program.
    (e) Attempt to maintain. (1) At the time of application, an 
applicant concern must certify that it will ``attempt to maintain'' 
(see Sec.  126.103) having at least 35% of its employees reside in a 
HUBZone during the performance of any HUBZone contract it receives.
    (2) If the concern is owned in whole or in part by one or more 
Indian Tribal Governments (or by a corporation that is wholly owned by 
one or more Indian Tribal Governments), the concern must certify that 
it will ``attempt to maintain'' (see Sec.  126.103) the applicable 
employment percentage described in paragraph (c)(2) of this section 
during the performance of any HUBZone contract it receives.
    (f) Subcontracting. At the time of application, an applicant 
concern must certify that it will comply with the applicable 
limitations on subcontracting requirements in connection with any 
procurement that it receives as a certified HUBZone small business 
concern (see Sec.  126.5 and Sec.  126.700).
    (g) Suspension and Debarment. The concern and any of its owners 
must not

[[Page 54828]]

have an active exclusion in the System for Award Management, available 
at www.SAM.gov, at the time of application.


Sec.  126.202   [Amended]

0
17. Amend Sec.  126.202 by removing the phrase ``Many persons share 
control'' and adding in its place the phrase ``Many persons may share 
control''.


Sec.  126.203   [Amended]

0
18. Amend Sec.  126.203 paragraph (a) by removing the phrase 
``qualified HUBZone SBC'' and adding in its place the phrase 
``certified HUBZone small business concern''.
0
19. Revise Sec.  126.204 to read as follows:


Sec.  126.204   May a HUBZone small business concern have affiliates?

    (a) A HUBZone small business concern may have affiliates, provided 
that the aggregate size of the concern together with all of its 
affiliates is small as defined in part 121 of this title, except as 
otherwise provided for small agricultural cooperatives in Sec.  
126.103.
    (b) The employees of an affiliate may be counted as employees of a 
HUBZone applicant or HUBZone small business concern for purposes of 
determining compliance with the HUBZone program's principal office and 
35% residency requirements. In determining whether individuals should 
be counted as employees of a HUBZone applicant or HUBZone small 
business concern, SBA will review all information, including criteria 
used by the Internal Revenue Service (IRS) for Federal income tax 
purposes and those set forth in SBA's Size Policy Statement No. 1 (Pub. 
L. 114-187, June 30, 2016). If the firms would be affiliated for size 
purposes and the totality of the circumstances shows that there is no 
clear line of fracture between the HUBZone applicant (or HUBZone small 
business concern) and the affiliate, SBA will consider the employees of 
the affiliate as employees of the HUBZone applicant (or HUBZone small 
business concern).
0
20. Revise Sec.  126.205 to read as follows:


Sec.  126.205   May participants in other SBA programs be certified as 
HUBZone small business concerns?

    Participants in other SBA programs may be certified as HUBZone 
small business concerns if they meet all of the requirements set forth 
in this part.
0
21. Revise Sec.  126.206 to read as follows:


Sec.  126.206   May nonmanufacturers be certified as HUBZone small 
business concerns?

    Nonmanufacturers (referred to in the HUBZone Act of 1997 as 
``regular dealers'') may be certified as HUBZone small business 
concerns if they meet all of the requirements set forth in Sec.  
126.200. For purposes of this part, a ``nonmanufacturer'' is defined in 
Sec.  121.406(b) of this chapter.
0
22. Revise Sec.  126.207 to read as follows:


Sec.  126.207   Do all of the offices or facilities of a certified 
HUBZone small business concern have to be located in a HUBZone?

    A HUBZone small business concern may have offices or facilities in 
multiple HUBZones or even outside a HUBZone. However, in order to be 
certified as a HUBZone small business concern, the concern's principal 
office must be located in a HUBZone (except see Sec.  126.200(c)(2) for 
concerns owned by Indian Tribal Governments).
0
23. Revise Sec.  126.300 to read as follows:


Sec.  126.300   How may a concern be certified as a HUBZone small 
business concern?

    (a) A concern must apply to SBA for HUBZone certification. SBA will 
consider the information provided by the concern in order to determine 
whether the concern qualifies.
    (b) SBA, at its discretion, may rely solely upon the information 
submitted, may request additional information, may conduct independent 
research, or may verify the information before making an eligibility 
determination.
    (c) If SBA determines that a concern meets the eligibility 
requirements of a HUBZone small business concern, it will notify the 
firm and designate the firm as a certified HUBZone small business 
concern in DSBS (or successor system).
0
24. Revise Sec.  126.303 to read as follows:


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

    A concern seeking certification as a HUBZone small business concern 
must submit an electronic application to SBA's HUBZone Program Office 
via SBA's web page at www.SBA.gov. The application and any supporting 
documentation must be submitted by a person authorized to represent the 
concern.
0
25. Revise Sec.  126.304 to read as follows:


Sec.  126.304   What must a concern submit to SBA in order to be 
certified as a HUBZone small business concern?

    (a) General. To be certified by SBA as a HUBZone small business 
concern, a concern must submit a completed application and all 
documents requested by SBA. The concern must also represent to SBA that 
it meets the requirements set forth in Sec.  126.200 and that all of 
the information provided as of the date of the application (and any 
subsequent information provided) is complete, true and accurate. The 
representation must be electronically signed by an owner of the 
applicant.
    (b) Supporting documents. (1) SBA may request documents to verify 
that the applicant meets the HUBZone program's eligibility 
requirements. The documents must show that the concern meets the 
program's requirements at the time it submits its application to SBA.
    (2) The concern must document compliance with the requirements 
listed in Sec.  126.200, including but not limited to employment 
records and documentation showing the address of each HUBZone resident 
employee. Records sufficient to demonstrate HUBZone residency include 
copies of driver's licenses and voter registration cards; only where 
such documentation is unavailable will SBA accept alternative 
documentation (such as copies of leases, deeds, and/or utility bills) 
accompanied by signed statements explaining why the alternative 
documentation is being provided.
    (c) Changes after submission of application. After submitting an 
application, a concern applying for HUBZone certification must notify 
SBA of any changes that could affect its eligibility, and provide 
information and documents to verify the changes. If the changed 
information indicates that the firm is not eligible, the applicant will 
be given the option to withdraw its application, or SBA will decline 
certification and the firm must wait 90 days to reapply.
    (d) HUBZone areas. Concerns applying for HUBZone status must use 
SBA's website (i.e., maps or other tools showing qualified HUBZones) to 
verify that the location of the concern's principal office and the 
residences of at least 35% of the concern's employees are within 
HUBZones. If SBA's website indicates that a particular location is not 
within a HUBZone and the applicant disagrees, then the applicant must 
note this on the application and submit relevant documents showing why 
the applicant believes the area meets the statutory criteria of a 
HUBZone. SBA will determine whether the location is within a HUBZone 
using available methods (e.g., contact Bureau of Indian Affairs for 
Indian reservations or Department of Defense for BRACs).
    (e) Record Maintenance. HUBZone small business concerns must retain

[[Page 54829]]

documentation demonstrating satisfaction of all qualifying requirements 
for 6 years from date of submission of all initial and continuing 
eligibility actions as required by this part. In addition, HUBZone 
small business concerns must retain documentation as required in Sec.  
126.200(d)(3).


Sec.  126.305   [Removed and reserved]

0
26. Remove and reserve Sec.  126.305.
0
27. Revise Sec.  126.306 to read as follows:


Sec.  126.306   How will SBA process an application for HUBZone 
certification?

    (a) The D/HUB or designee is authorized to approve or decline 
applications for HUBZone certification. SBA will receive and review all 
applications and request supporting documents. SBA must receive all 
required information, supporting documents, and a completed HUBZone 
representation before it will begin processing a concern's application. 
SBA will not process incomplete packages. SBA will make its 
determination within 90 calendar days after receipt of a complete 
package whenever practicable.
    (b) 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 draw an adverse inference and presume that the 
information that the applicant failed to provide would demonstrate 
ineligibility and deny certification on this basis.
    (c) SBA's decision will be based on the facts set forth in the 
application, any information received in response to SBA's request for 
clarification, any independent research conducted by SBA, and any 
changed circumstances.
    (d) In order to be certified into the program, the applicant must 
be eligible as of the date it submitted its application and at the time 
the D/HUB issues a decision. An applicant must inform SBA of any 
changes to its circumstances that occur after its application and 
before its certification that may affect its eligibility. SBA will 
consider such changed circumstances in determining whether to certify 
the firm.
    (e) If SBA approves the application, it will send a written notice 
to the concern and designate the firm as a certified HUBZone small 
business concern in DSBS (or successor system) as described in Sec.  
126.307.
    (f) If SBA denies the application, it will send a written notice to 
the concern and state the specific reasons for denial. The decision 
will also state the reconsideration rights.
    (g) SBA will presume that notice of its decision was provided to an 
applicant if SBA sends a communication to the concern at a mailing 
address, email address, or fax number provided in the concern's profile 
in the System for Award Management (or successor system).
0
28. Revise Sec.  126.307 to read as follows:


Sec.  126.307   Where is there a list of certified HUBZone small 
business concerns?

    SBA designates firms as certified HUBZone small business concerns 
in DSBS (or successor system).
0
29. Revise Sec.  126.308 to read as follows:


Sec.  126.308   What happens if a HUBZone small business concern 
receives notice of its certification but it does not appear in DSBS as 
a certified HUBZone small business concern?

    (a) A certified HUBZone small business concern that has received 
SBA's notice of certification, but does not appear in DSBS (or 
successor system) as a certified HUBZone small business concern within 
10 business days, should immediately notify the D/HUB via email at 
[email protected].
    (b) A certified HUBZone small business concern that has received 
SBA's notice of certification must appear as a certified HUBZone small 
business concern in DSBS (or successor system) in order to be eligible 
for HUBZone contracts (i.e., it cannot ``opt out'' of a public display 
in the System for Award Management (SAM.gov) or DSBS (or successor 
systems)).
0
30. Revise Sec.  126.309 to read as follows:


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

    (a) Reconsideration. An applicant may request that the D/HUB 
reconsider the initial decline decision by filing a request for 
reconsideration with SBA.
    (1) Method of submission. The applicant must submit its request for 
reconsideration to the SBA's HUBZone Program Office by email to 
[email protected].
    (2) Filing deadline. The request for reconsideration must be 
submitted within 15 calendar days of receipt of written notice that the 
concern's application was declined.
    (3) Contents of request. The request for reconsideration must set 
forth the reasons why the D/HUB's initial decision was erroneous and 
include information and documentation pertinent to overcoming the 
reason(s) for the initial decline, whether or not available at the time 
of initial application.
    (4) Decision on reconsideration. The D/HUB will issue a written 
decision within 30 calendar days of SBA's receipt of the applicant's 
request for reconsideration. The D/HUB may approve the application, 
deny it on the same grounds as the original decision, or deny it on 
other grounds.
    (i) If denied, the D/HUB will provide written notice and explain 
why the applicant is not eligible for admission to the program and give 
specific reasons for the decline.
    (ii) If the D/HUB declines the application solely on issues not 
raised in the initial decline, the applicant can ask for 
reconsideration as if it were an initial decline.
    (b) Reapplying for certification. A declined concern may reapply 
for certification ninety (90) calendar days after the date of the final 
agency decision (i.e., the initial decision of the D/HUB where the 
concern does not seek reconsideration, or the decision on 
reconsideration), if it believes that it has overcome all reasons for 
decline through changed circumstances and is currently eligible.
0
31. Revise Sec.  126.401 to read as follows:


Sec.  126.401   What is a program examination?

    A program examination is an investigation by SBA officials, which 
verifies the accuracy of any certification made or information provided 
as part of the HUBZone application or recertification process. 
Examiners may verify that the concern met the program's eligibility 
requirements at the time of its certification or, if applicable, at the 
time of its most recent recertification.


Sec.  126.402   [Amended]

0
32. Amend Sec.  126.402 by removing the phrase ``qualified HUBZone 
SBC'' and adding in its place the phrase ``certified HUBZone small 
business concern''.
0
33. Revise Sec.  126.403 to read as follows:


Sec.  126.403   What will SBA review during a program examination?

    (a) SBA may conduct a program examination, or parts of an 
examination, at one or more of the concern's offices. SBA will 
determine the location and scope of the examination and may review any 
information related to the concern's HUBZone eligibility including, but 
not limited to, documentation related to the location and ownership of 
the concern, compliance with the 35% HUBZone

[[Page 54830]]

residency requirement, and the concern's ``attempt to maintain'' (see 
Sec.  126.103) this percentage.
    (b) SBA may require that a HUBZone small business concern (or 
applicant) submit additional information as part of the program 
examination. If SBA requests additional information, SBA will presume 
that written notice of the request was provided when SBA sends such 
request to the concern at a mailing address, email address or fax 
number provided in the concern's profile in the Dynamic Small Business 
Search (DSBS) or the System for Award Management (SAM) (or successor 
systems). SBA may draw an adverse inference from a concern's failure to 
cooperate with a program examination or provide requested information 
and assume that the information that the HUBZone small business concern 
(or applicant) failed to provide would demonstrate ineligibility, and 
decertify (or deny certification) on this basis.
    (c) The concern must retain documentation provided in the course of 
a program examination for 6 years from the date of submission.
0
34. Add Sec.  126.404 to read as follows:


Sec.  126.404   What are the possible outcomes of a program examination 
and when will SBA make its determination?

    (a) Timing. SBA will make its determination within 90 calendar days 
after SBA receives all requested information, when practicable.
    (b) Program examinations on certified HUBZone small business 
concerns. If the program examination was conducted on a certified 
HUBZone small business concern--
    (1) And the D/HUB (or designee) determines that the firm is 
eligible, SBA will send a written notice to the HUBZone small business 
concern and continue to designate the concern as a certified HUBZone 
small business concern in DSBS (or successor system).
    (2) And the D/HUB (or designee) determines that the firm is not 
eligible, SBA will propose the concern for decertification pursuant to 
the procedures set forth in Sec.  126.503.
    (c) Program examinations on applicants. If the program examination 
was conducted on an applicant to the HUBZone program--
    (1) And the D/HUB (or designee) determines that the firm is 
eligible, SBA will send a written certification notice to the firm and 
designate the concern as a certified HUBZone small business concern in 
DSBS (or successor system).
    (2) And the D/HUB (or designee) determines that the firm is 
ineligible, SBA will send a written decline notice to the firm.
0
35. Revise Sec.  126.500 to read as follows:


Sec.  126.500  How does a concern maintain HUBZone certification?

    Any concern seeking to remain a certified HUBZone small business 
concern in DSBS (or successor system) must annually provide a written 
recertification to SBA that it continues to meet all HUBZone 
eligibility criteria (see Sec.  126.200) and provide supporting 
documentation when requested to do so by SBA. In order to remain in the 
program without any interruption, a HUBZone small business concern must 
recertify its eligibility to SBA on the anniversary of the date of its 
original HUBZone certification. The date of HUBZone certification is 
the date specified in the firm's certification letter. If the business 
fails to recertify, SBA may propose the firm for decertification 
pursuant to Sec.  126.503.
0
36. Revise Sec.  126.501 to read as follows:


Sec.  126.501  How long does HUBZone certification last?

    (a) Once SBA certifies a concern as eligible to participate in the 
HUBZone program, the concern will be treated as a certified HUBZone 
small business concern eligible for all HUBZone contracts for which the 
concern qualifies as small, for a period of one year from the date of 
its initial certification or recertification, unless the concern 
acquires, is acquired by, or merges with another firm during that one-
year period. Where a HUBZone small business concern acquires, is 
acquired by, or merges with another firm, the concern must demonstrate 
to SBA that it continues to meet the HUBZone eligibility requirements 
in order for it to remain eligible as a certified HUBZone small 
business concern.
    (b) On the annual anniversary of a firm's certification or 
recertification, the firm must recertify that it is fully compliant 
with all HUBZone eligibility requirements (see Sec.  126.200), or it 
can request to voluntarily withdraw from the HUBZone program.
    (c) SBA may review the firm's recertification through the program 
examination process.
    (1) If SBA determines that the firm is no longer eligible at the 
time of its annual recertification, SBA will propose the HUBZone small 
business concern for decertification pursuant to Sec.  126.503.
    (2) If SBA determines that the firm continues to be eligible, SBA 
will notify the firm of this determination. In such case, the concern 
will:
    (i) Continue to be designated as a certified HUBZone small business 
concern in DSBS (or successor system); and
    (ii) Be treated as an eligible HUBZone small business concern for 
all HUBZone contracts for which the concern qualifies as small for a 
period of one year from the date of the recertification.
    (d) Voluntary withdrawal. A HUBZone small business concern may 
request to voluntarily withdraw from the HUBZone program at any time. 
Once SBA concurs, SBA will decertify the concern and no longer 
designate it as a certified HUBZone small business concern in DSBS (or 
successor system). The concern may apply again for certification at any 
point after ninety (90) calendar days from the date of decertification. 
At that point, the concern would have to demonstrate that it meets all 
HUBZone eligibility requirements.
0
37. Revise Sec.  126.502 to read as follows:


Sec.  126.502  Is there a limit to the length of time a concern may be 
a certified HUBZone small business concern?

    There is no limit to the length of time a concern may remain 
qualified as a certified HUBZone small business concern in DSBS (or 
successor system) so long as it continues to comply with the provisions 
of Sec. Sec.  126.200, 126.500, and 126.501.
0
38. Revise Sec.  126.503 to read as follows:


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

    (a) Proposed decertification. (1) If SBA is unable to verify a 
certified HUBZone small business concern's eligibility or has 
information indicating that a firm was not eligible for the program at 
the time of certification or recertification, SBA may propose 
decertification of the concern. In addition, if during the one-year 
period of time after certification or recertification SBA believes that 
a HUBZone small business concern that is performing one or more HUBZone 
contracts no longer has at least 20% of its employees living in a 
HUBZone, SBA will propose the concern for decertification based on the 
concern's failure to attempt to maintain compliance with the 35% 
HUBZone residency requirement.
    (i) Notice of proposed decertification. SBA will notify the HUBZone 
small business concern in writing that SBA is proposing to decertify it 
and state the reasons for the proposed decertification. SBA will 
consider that written notice was provided if SBA sends the notice of

[[Page 54831]]

proposed decertification to the concern at a mailing address, email 
address, or fax number provided in the concern's profile in the System 
for Award Management (SAM.gov) or the Dynamic Small Business Search 
(DSBS) (or successor systems).
    (ii) Response to notice of proposed decertification. The HUBZone 
small business concern must respond to the notice of proposed 
decertification within the timeframe specified in the notice. In this 
response, the HUBZone small business concern must rebut each of the 
reasons set forth by SBA in the notice of proposed decertification, and 
where appropriate, the rebuttal must include documents showing that the 
concern is eligible for the HUBZone program as of the date specified in 
the notice.
    (iii) Adverse inference. If a HUBZone small business concern fails 
to cooperate with SBA or fails to provide the information requested, 
the D/HUB may draw an adverse inference and assume that the information 
that the concern failed to provide would demonstrate ineligibility.
    (2) SBA's decision. SBA will determine whether the HUBZone small 
business concern remains eligible for the program within 90 calendar 
days after receiving all requested information, when practicable. The 
D/HUB will provide written notice to the concern stating the basis for 
the determination. If SBA finds that the concern is not eligible, the 
D/HUB will decertify the concern and remove its designation as a 
certified HUBZone small business concern in DSBS (or successor system). 
If SBA finds that the concern is eligible, the concern will continue to 
be designated as a certified HUBZone small business concern in DSBS (or 
successor system).
    (b) Decertification pursuant to a protest. The procedures described 
in paragraph (a) of this section do not apply to HUBZone status 
protests. If the D/HUB sustains a protest pursuant to Sec.  126.803, 
SBA will decertify the HUBZone small business concern immediately and 
change the firm's status in DSBS (or successor system) to reflect that 
it no longer qualifies as a certified HUBZone small business concern 
without first proposing it for decertification.
0
39. Revise Sec.  126.504 to read as follows:


Sec.  126.504  When will SBA remove the designation of a concern in 
DSBS (or successor system) as a certified HUBZone small business 
concern?

    (a) SBA will remove the designation of a concern in DSBS (or 
successor system) as a certified HUBZone small business concern if the 
concern has:
    (1) Been decertified as a result of a HUBZone status protest 
pursuant to Sec.  126.803;
    (2) Been decertified as a result of the procedures set forth in 
Sec.  126.503; or
    (3) Voluntarily withdrawn from the HUBZone program pursuant to 
Sec.  126.501(b).
    (b) SBA may remove the designation of a concern in DSBS (or 
successor system) as a certified HUBZone small business concern as soon 
as the D/HUB issues a decision decertifying the concern from the 
program.
    (c) After a concern has been removed as a certified HUBZone small 
business concern in DSBS (or successor system), it is ineligible for 
the HUBZone program and may not submit an offer on or be an awarded a 
HUBZone contract, or receive any other benefit as a HUBZone small 
business concern.

Subpart F--Contracting with Certified HUBZone Small Business 
Concerns

0
40. Revise the heading of subpart F to read as set forth above.


Sec.  126.600   [Amended]

0
41. Amend Sec.  126.600 as follows:
0
a. In the introductory text, remove the phrase ``qualified HUBZone 
SBC'' and add in its place the phrase ``certified HUBZone small 
business concern'';
0
b. In paragraphs (a), (b), and (c), remove the phrase ``qualified 
HUBZone SBCs'' wherever it appears and add in its place the phrase 
``certified HUBZone small business concerns'';
0
c. In paragraphs (d) and (e), remove the phrase ``HUBZone SBCs'' 
wherever it appears and add in its place the phrase ``certified HUBZone 
small business concerns'';
0
d. In paragraph (e), remove the word ``against'' and add in its place 
the word ``under'' and remove the phrase ``, which had been'' and add 
in its place the phrase ``that was''.
0
42. Revise Sec.  126.601 to read as follows:


Sec.  126.601   What additional requirements must a certified HUBZone 
small business concern meet to submit an offer on a HUBZone contract?

    (a) Only certified HUBZone small business concerns are eligible to 
submit offers for a HUBZone contract or to receive a price evaluation 
preference under Sec.  126.613.
    (b) At the time a certified HUBZone small business concern submits 
its initial offer (including price) on a specific HUBZone contract, it 
must certify to the contracting officer that it:
    (1) Is a certified HUBZone small business concern in DSBS (or 
successor system);
    (2) Is small, together with its affiliates, at the time of its 
offer under the size standard corresponding to the NAICS code assigned 
to the procurement;
    (3) Will ``attempt to maintain'' having at least 35% of its 
employees residing in a HUBZone during the performance of the contract, 
as set forth in Sec.  126.200(e); and
    (4) Will comply with the applicable limitations on subcontracting 
during performance of the contract, as set forth in Sec.  125.6 of this 
chapter and Sec. Sec.  126.200(f), and 126.700.
    (c) A certified HUBZone small business concern may submit an offer 
on a HUBZone contract for supplies as a nonmanufacturer if it meets the 
requirements of the nonmanufacturer rule set forth at Sec.  121.406 of 
this chapter.
0
43. Revise Sec.  126.602 to read as follows:


Sec.  126.602   Must a certified HUBZone small business concern 
maintain the employee residency percentage during contract performance?

    (a) A certified HUBZone small business concern eligible for the 
program pursuant to Sec.  126.200(b) must have at least 35% of its 
employees residing within a HUBZone at the time of certification and 
annual recertification. Such a certified HUBZone small business concern 
must ``attempt to maintain'' (see Sec.  126.103) having at least 35% of 
its employees residing in a HUBZone during the performance of any 
HUBZone contract awarded to the concern on the basis of its HUBZone 
status.
    (b) For indefinite delivery, indefinite quantity contracts, 
including multiple award contracts, a certified HUBZone small business 
concern must ``attempt to maintain'' the HUBZone residency requirement 
during the performance of each order that is set aside for HUBZone 
small business concerns.
    (c) A certified HUBZone small business concern eligible for the 
program pursuant to Sec.  126.200(a) must have at least 35% of its 
employees engaged in performing a HUBZone contract residing within any 
Indian reservation governed by one or more of the concern's Indian 
Tribal Government owners, or residing within any HUBZone adjoining any 
such Indian reservation.
    (d) A certified HUBZone small business concern that has less than 
20% of its total employees residing in a HUBZone during the performance 
of a HUBZone contract has failed to attempt

[[Page 54832]]

to maintain the HUBZone residency requirement. Such failure will result 
in proposed decertification pursuant to Sec.  126.503.


Sec.  126.603   [Amended]

0
44. Amend Sec.  126.603 by removing the phrase ``qualified HUBZone 
SBCs'' and adding in its place the phrase ``certified HUBZone small 
business concerns''.
0
45. Amend Sec.  126.607 as follows:
0
a. Revise the section heading;
0
b. In paragraph (c), amend the introductory text by removing the phrase 
``qualified HUBZone SBCs'' and adding in its place the phrase 
``certified HUBZone small business concerns'';
0
c. In paragraph (c)(1), remove the phrase ``SBA's list of qualified 
HUBZone SBCs'' and add in its place the phrase ``the list of certified 
HUBZone small business concerns contained in DSBS (or successor 
system)''.
    The revision reads as follows:


Sec.  126.607  When must a contracting officer set aside a requirement 
for certified HUBZone small business concerns?

* * * * *


Sec.  126.608   [Amended]

0
46. Amend Sec.  126.608 by removing the phrase ``HUBZone set-aside'' 
and adding in its place the phrase ``HUBZone set-aside or sole source 
award''.


Sec.  126.611   [Amended]

0
47. Amend the heading of Sec.  126.611 by removing the phrase ``such an 
appeal'' and adding in its place the phrase ``an appeal of a 
contracting officer's decision not to issue a procurement as a HUBZone 
contract''.


Sec.  126.612   [Amended]

0
48. Amend Sec.  126.612 as follows:
0
a. In the introductory text and paragraph (d), remove the phrase 
``qualified HUBZone SBC'' wherever it appears and add in its place the 
phrase ``certified HUBZone small business concern'';
0
b. In paragraph (c), remove the phrase ``qualified HUBZone SBCs'' and 
add in its place the phrase ``certified HUBZone small business 
concerns''.


Sec.  126.613   [Amended]

0
49. Amend Sec.  126.613 as follows:
0
a. In the section heading and paragraphs (a)(1), (a)(2), (b)(2), and 
(d), remove the phrase ``qualified HUBZone SBC'' wherever it appears 
and add in its place the phrase ``certified HUBZone small business 
concern'';
0
b. In paragraph (a)(1):
0
i. Remove the phrase ``another SBC'' and add in its place the phrase 
``another small business concern'';
0
ii. In the final sentence, remove the phrase ``HUBZone SBC'' and add in 
its place the phrase ``certified HUBZone small business concern'';
0
iii. In the final sentence, remove the phrase ``HUBZone SBCs'' and add 
in its place the phrase ``certified HUBZone small business concerns'';
0
c. In Examples 1, 2, and 3 in paragraph (a)(2), remove the phrase 
``non-HUBZone SBC'' wherever it appears and add in its place the phrase 
``non-HUBZone small business concern''
0
d. In the second and third sentences in Example 4 in paragraph (a)(2), 
remove the phrase ``HUBZone SBC'' wherever it appears and add in its 
place the phrase ``HUBZone small business concern'';
0
e. In the third sentence in Example 4 in paragraph (a)(2), remove the 
phrase ``HUBZone SBCs'' and add in its place the phrase ``certified 
HUBZone small business concerns'';
0
f. In paragraph (b)(2), remove the phrase ``qualified HUBZone SBCs'' 
and add in its place the phrase ``certified HUBZone small business 
concerns''; and
0
g. In paragraph (d), remove the phrase ``SBCs'' and add in its place 
the phrase ``small business concerns''.
0
50. Amend Sec.  126.616 as follows:
0
a. Revise the section heading;
0
b. Revise paragraph (a);
0
c. In paragraph (b) and (d)(1), remove the phrase ``qualified HUBZone 
SBC'' wherever it appears and add in its place the phrase ``certified 
HUBZone small business concern'';
0
d. In the introductory text of paragraph (c), remove the phrase 
``HUBZone SBC'' and add in its place ``certified HUBZone small business 
concern'';
0
e. In paragraphs (c)(2) through (4), (c)(9), (c)(10), (d)(2), (g), and 
(i) remove the phrase ``HUBZone SBC'' wherever it appears'' and add in 
its place the phrase ``certified HUBZone small business concern'';
0
f. In paragraphs (c)(7), (i), (j)(2), and (k), remove the phrase 
``performance of work'' wherever it appears and add in its place the 
phrase ``limitations on subcontracting''; and
0
g. Revise paragraph (e).
    The revisions read as follows:


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

    (a) General. A certified HUBZone small business concern may enter 
into a joint venture agreement with one or more other small business 
concerns, 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 a certified HUBZone small business concern.
* * * * *
    (e) Certification of compliance.--(1) At time of offer. If 
submitting an offer as a joint venture for a HUBZone contract, at the 
time of initial offer (and if applicable, final offer), each certified 
HUBZone small business concern joint venture partner must make the 
following certifications to the contracting officer separately under 
its own name:
    (i) It is a certified HUBZone small business concern that appears 
in DSBS (or successor system) as a certified HUBZone small business 
concern and it met the eligibility requirements in Sec.  126.200 at the 
time of its initial certification or, if applicable, at the time of its 
most recent recertification;
    (ii) It, together with its affiliates, is small under the size 
standard corresponding to the NAICS code assigned to the procurement;
    (iii) It will ``attempt to maintain'' having at least 35% of its 
employees residing in a HUBZone during performance of the contract; and
    (iv) It will comply with the applicable limitations on 
subcontracting during performance of the contract, as set forth in 
Sec.  125.6 of this chapter and Sec. Sec.  126.200(f) and 126.700.
    (2) Prior to performance. Prior to the performance of any HUBZone 
contract as a joint venture, the HUBZone small business concern 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 the following:
    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (c) of this section; and
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement.
* * * * *


Sec.  126.617   [Amended]

0
51. Amend Sec.  126.617 as follows:
0
a. In the section heading, remove the phrase ``qualified HUBZone SBC'' 
and add in its place the phrase ``certified HUBZone small business 
concern'';
0
b. Remove the phrase ``qualified HUBZone SBC'' and add in its place the 
phrase ``certified HUBZone small business concern''.

[[Page 54833]]

Sec.  126.618   [Amended]

0
52. Amend Sec.  126.618 as follows:
0
a. In paragraph (a), remove the phrase ``the underlying HUBZone 
requirements'' and add in its place the phrase ``the HUBZone 
requirements described in Sec.  126.200'';
0
b. In paragraphs (a) through (c), remove the phrase ``qualified HUBZone 
SBC'' wherever it appears and add in its place the phrase ``certified 
HUBZone small business concern'';
0
c. In paragraph (c)(1), remove the phrase ``HUBZone SBC'' and add in 
its place the phrase ``certified HUBZone small business concern'';
0
d. In paragraphs (c)(1) and (c)(2), remove the phrase ``performance of 
work'' wherever it appears and add in its place the phrase 
``limitations on subcontracting''.
0
53. Add Sec.  126.619 to read as follows:


Sec.  126.619   When must a certified HUBZone small business concern 
recertify its status for a HUBZone contract?

    (a) A concern that is a certified HUBZone small business concern at 
the time of initial offer (including a Multiple Award Contract) is 
generally considered a HUBZone small business concern throughout the 
life of that contract.
    (1) If a concern is a certified HUBZone small business concern at 
the time of initial offer for a HUBZone Multiple Award Contract, then 
it will be considered a certified HUBZone small business concern for 
each order issued against the contract, unless a contracting officer 
requests a new HUBZone certification in connection with a specific 
order.
    (2) Where the underlying Multiple Award Contract is not a HUBZone 
contract and a procuring agency is setting aside an order for the 
HUBZone program, a firm must be a certified HUBZone small business 
concern and appear in DSBS (or successor system) as a certified HUBZone 
small business concern at the time it submits its offer for the order.
    (3) Where a HUBZone contract is novated to another business 
concern, the concern that will continue performance on the contract 
must certify its status as a certified HUBZone small business concern 
to the procuring agency, or inform the procuring agency that it is not 
a certified HUBZone small business concern, within 30 days of the 
novation approval. If the concern is not a certified HUBZone small 
business concern, the agency can no longer count any work performed 
under the contract, including any options or orders issued pursuant to 
the contract, from that point forward towards its HUBZone goals.
    (4) Where a concern that is performing a HUBZone contract acquires, 
is acquired by, or merges with another concern and contract novation is 
not required, the concern must, within 30 days of the transaction 
becoming final, recertify its status as a certified HUBZone small 
business concern status to the procuring agency, or inform the 
procuring agency that it no longer qualifies as a HUBZone small 
business concern. If the contractor is unable to recertify its status 
as a HUBZone small business concern, the agency can no longer count the 
options or orders issued pursuant to the contract, from that point 
forward, towards its HUBZone goals. The agency must immediately revise 
all applicable Federal contract databases to reflect the new status.
    (5) Where a concern is decertified after the award of a HUBZone 
contract, the procuring agency may exercise options and still count the 
award as an award to a HUBZone small business concern, except where 
recertification is required or requested under this section.
    (b) For the purposes of contracts (including Multiple Award 
Contracts) with durations of more than five years (including options), 
a contracting officer must request that a business concern recertify 
its status as a HUBZone small business concern 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.
    (1) If the concern cannot recertify that it qualifies as a HUBZone 
small business concern, the agency can no longer count the options or 
orders issued pursuant to the contract, from that point forward, 
towards its HUBZone goals. This means that if the firm either no longer 
meets the HUBZone eligibility requirements or no longer qualifies as 
small for the size standard corresponding to NAICS code assigned to the 
contract, the agency can no longer count the options or orders issued 
pursuant to the contract, from that point forward, towards its HUBZone 
goals.
    (2) A concern that did not certify itself as a HUBZone small 
business concern, either initially or prior to an option being 
exercised, may recertify itself as a HUBZone small business concern for 
a subsequent option period if it meets the eligibility requirements at 
that time.
    (3) Recertification does not change the terms and conditions of the 
contract. The limitations on subcontracting, nonmanufacturer and 
subcontracting plan requirements in effect at the time of contract 
award remain in effect throughout the life of the contract.
    (4) Where the contracting officer explicitly requires concerns to 
recertify their status in response to a solicitation for an order, SBA 
will determine eligibility as of the date of the firm's initial 
certification or, if applicable, its most recent recertification.
    (c) A concern's status will be determined at the time of submission 
of its initial response to a solicitation for and award of an Agreement 
(including Blanket Purchase Agreements (BPAs), Basic Agreements, Basic 
Ordering Agreements, or any other Agreement that a contracting officer 
sets aside or reserves awards for certified HUBZone small business 
concerns) and each order issued pursuant to the Agreement.
0
54. Revise Sec.  126.700 to read as follows:


Sec.  126.700   What are the limitations on subcontracting requirements 
for HUBZone contracts?

    (a) Other than Multiple Award Contracts. For other than a Multiple 
Award Contract, a prime contractor receiving an award as a certified 
HUBZone small business concern must meet the limitations on 
subcontracting requirements set forth in Sec.  125.6 of this chapter.
    (b) Multiple Award Contracts.--(1) Total Set-Aside Contracts. For a 
Multiple Award Contract that is totally set aside for certified HUBZone 
small business concerns, a certified HUBZone small business concern 
must comply with the applicable limitations on subcontracting (see 
Sec.  126.5), or if applicable, the nonmanufacturer rule (see Sec.  
121.406 of this chapter), during the base term and during each 
subsequent option period. However, the contracting officer, at his or 
her discretion, may also require the concern to comply with the 
limitations on subcontracting or the nonmanufacturer rule for each 
individual order awarded under the Multiple Award Contract.
    (2) Partial Set-Aside Contracts. For Multiple Award Contracts that 
are partially set aside for certified HUBZone small business concerns, 
paragraph (b)(1) of this section applies to the set-aside portion of 
the contract. For orders awarded under the non-set-aside portion of a 
Multiple Award Contract, a certified HUBZone small business concern 
need not comply with any limitations on subcontracting or 
nonmanufacturer rule requirements.
    (3) Orders Set Aside for certified HUBZone small business concerns. 
For each individual order that is set aside for certified HUBZone small 
business concerns under a Multiple Award Contract that is not itself 
setaside for certified HUBZone small business

[[Page 54834]]

concerns, a certified HUBZone small business concern must comply with 
the applicable limitations on subcontracting (see Sec.  125.6 of this 
chapter), or if applicable, the nonmanufacturer rule (see Sec.  121.406 
of this chapter), in the performance of such order.
    (4) Reserves. For an order that is set aside for certified HUBZone 
small business concerns against a Multiple Award Contract with a 
HUBZone reserve, a certified HUBZone small business concern must comply 
with the applicable limitations on subcontracting (see Sec.  125.6 of 
this chapter), or if applicable, the nonmanufacturer rule (see Sec.  
121.406 of this chapter), in the performance of such order. However, 
the certified HUBZone small business concern does not have to comply 
with the limitations on subcontracting or the nonmanufacturer rule for 
any order issued against the Multiple Award Contract if the order is 
competed amongst certified HUBZone small business concerns and one or 
more other-than-small business concerns.


Sec.  126.800   [Amended]

0
55. Amend Sec.  126.800 as follows:
0
a. Amend the section heading by removing the phrase ``qualified HUBZone 
SBC'' and adding in its place the phrase ``certified HUBZone small 
business concern''; and
0
b. In paragraphs (a) and (b), remove the phrase ``qualified HUBZone 
SBC'' wherever it appears and add in its place the phrase ``certified 
HUBZone small business concern'';
0
56. Amend Sec.  126.801 as follows:
0
a. Revise the section heading;
0
b. Revise paragraphs (a), (b), and (c)(3); and
0
c. Revise the second and third sentences in paragraph (e).
    The revisions read as follows:


Sec.  126.801   How does an interested party file a HUBZone status 
protest?

    (a) General. (1) A HUBZone status protest is the process by which 
an interested party may challenge the HUBZone status of an apparent 
successful offeror on a HUBZone contract, including a HUBZone joint 
venture submitting an offer under Sec.  126.616.
    (2) The protest procedures described in this part are separate from 
those governing size protests and appeals. All protests relating to 
whether a certified HUBZone small business concern is other than small 
for purposes of any Federal program are subject to part 121 of this 
chapter and must be filed in accordance with that part. If a protester 
protests both the size of the HUBZone small business concern and 
whether the concern meets the HUBZone eligibility requirements set 
forth in Sec.  126.200, SBA will process the protests concurrently, 
under the procedures set forth in part 121 of this chapter and this 
part.
    (3) SBA does not review issues concerning the administration of a 
HUBZone contract.
    (b) Format and specificity. (1) Protests must be in writing and 
must state all specific grounds for why the protested concern did not 
meet the HUBZone eligibility requirements set forth in Sec.  126.200 at 
the time the concern applied for certification or at the time SBA last 
recertified the concern as a HUBZone small business concern. A protest 
merely asserting that the protested concern did not qualify as a 
HUBZone small business concern at the time of certification or 
recertification, without setting forth specific facts or allegations, 
is insufficient. A protest asserting that a firm was not in compliance 
with the HUBZone eligibility requirements at the time of offer or award 
will be dismissed.
    (2) For a protest filed against a HUBZone joint venture, the 
protest must state all specific grounds for why--
    (i) The HUBZone small business concern partner to the joint venture 
did not meet the HUBZone eligibility requirements set forth in Sec.  
126.200 at the time the concern applied for certification or at the 
time SBA last recertified the concern as a HUBZone small business 
concern; and/or
    (ii) The protested HUBZone joint venture did not meet the 
requirements set forth in Sec.  126.616 at the time the joint venture 
submitted an offer for a HUBZone contract.
    (c) * * *
    (3) Protestors may submit their protests by email to 
[email protected].
* * * * *
    (e) * * * The contracting officer must send the protest, along with 
a referral letter, to the D/HUB by email to [email protected]. The 
contracting officer's referral letter must include information 
pertaining to the solicitation that may be necessary for SBA to 
determine timeliness and standing, including the following:
    (1) The solicitation number;
    (2) The name, address, telephone number, email address, and 
facsimile number of the contracting officer;
    (3) The type of HUBZone contract at issue;
    (4) If the procurement was conducted using full and open 
competition with a HUBZone price evaluation preference, whether the 
protester's opportunity for award was affected by the preference;
    (5) If the procurement was a HUBZone set-aside, whether the 
protester submitted an offer;
    (6) Whether the protested concern was the apparent successful 
offeror;
    (7) Whether the procurement was conducted using sealed bid or 
negotiated procedures;
    (8) The bid opening date, if applicable;
    (9) The date the protester was notified of the apparent successful 
offeror;
    (10) The date the protest was submitted to the contracting officer;
    (11) The date the protested firm submitted its initial offer or bid 
to the contracting activity; and
    (12) Whether a contract has been awarded, and if applicable, the 
date of contract award and contract number.


Sec.  126.802   [Amended]

0
57. Amend Sec.  126.802 by removing the phrase ``has qualified HUBZone 
status'' and adding in its place the phrase ``qualifies as a certified 
HUBZone small business concern''.
0
58. Amend Sec.  126.803 by:
0
a. Revising the section heading;
0
b. Redesignating paragraphs (a) through (d) as paragraphs (b) through 
(e), respectively;
0
c. Adding new paragraph (a); and
0
d. Revising newly redesignated paragraphs (b)(2), (c), and (e).
    The addition and revisions read as follows:


Sec.  126.803   How will SBA process a HUBZone status protest and what 
are the possible outcomes?

    (a) Date at which eligibility determined. SBA will determine the 
eligibility of a concern subject to a HUBZone status protest as of the 
date of its initial certification or, if applicable, its most recent 
recertification.
    (b) * * *
    (2) If SBA determines the protest is timely and sufficiently 
specific, SBA will notify the protested concern of the protest and the 
identity of the protestor. The protested concern must submit 
information responsive to the protest within 3 business days of the 
date of receipt of the protest.
    (c) Time period for determination. (1) SBA will determine the 
HUBZone status of the protested concern within 15 business days after 
receipt of a complete protest referral.
    (2) If SBA does not issue its determination within 15 business days 
(or request an extension that is granted), the contracting officer may 
award the contract if he or she determines in writing that there is an 
immediate need to award the contract and that waiting until SBA makes 
its determination will

[[Page 54835]]

be disadvantageous to the Government. Notwithstanding such a 
determination, the provisions of paragraph (d) of this section apply to 
the procurement in question.
* * * * *
    (e) Effect of determination. The determination is effective 
immediately and is final unless overturned on appeal by the AA/GC&BD, 
or designee, pursuant to Sec.  126.805.
    (1) Protest sustained. If the D/HUB finds the protested concern 
ineligible and sustains the protest, SBA will decertify the concern and 
remove its designation as a certified HUBZone small business concern in 
DSBS (or successor system). A contracting officer shall not award a 
contract to a protested concern that the D/HUB has determined is not an 
eligible HUBZone small business concern for the procurement in 
question.
    (i) No appeal filed. If a contracting officer receives a 
determination sustaining a protest after contract award, and no appeal 
has been filed, the contracting officer shall terminate the award.
    (ii) Appeal filed. (A) If a timely appeal is filed after contract 
award, the contracting officer must consider whether performance can be 
suspended until an appellate decision is rendered.
    (B) If the AA/GCBD affirms the initial determination finding the 
protested concern ineligible, the contracting officer shall either 
terminate the contract or not exercise the next option.
    (iii) Update FPDS-NG. Where the contract was awarded to a firm that 
is found not to qualify as a HUBZone small business concern, the 
contracting officer must update the Federal Procurement Data System-
Next Generation (FPDS-NG) and other procurement reporting databases to 
reflect the final agency HUBZone decision (i.e., the D/HUB's decision 
if no appeal is filed, or the decision of the AA/GCBD if the protest is 
appealed).
    (2) Protest dismissed or denied. If the D/HUB denies or dismisses 
the protest, the contracting officer may award the contract to the 
protested concern.
    (i) No appeal filed. If a contracting officer receives a 
determination dismissing or denying a protest and no appeal has been 
filed, the contracting officer may:
    (A) Award the contract to the protested concern if it has not yet 
been awarded; or
    (B) Authorize contract performance to proceed if the contract has 
been awarded.
    (ii) Appeal filed. If the AA/GCBD overturns the initial 
determination or dismissal, the contracting officer may apply the 
appeal decision to the procurement in question.
    (3) A concern found to be ineligible is precluded from applying for 
HUBZone certification for ninety (90) calendar days from the date of 
the final agency decision (the D/HUB's decision if no appeal is filed, 
or the decision of the AA/GCBD if the protest is appealed).

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

0
59. Amend Sec.  127.602 by redesignating the text of Sec.  127.602 as 
paragraph (a) and adding paragraph (b).
    The addition reads as follows:


Sec.  127.602   What are the grounds for filing an EDWOSB or WOSB 
status protest?

* * * * *
    (b) For a protest filed against an EDWOSB or WOSB joint venture, 
the protest must state all specific grounds for why--
    (1) The EDOWSB or WOSB partner to the joint venture did not meet 
the EDWOSB or WOSB eligibility requirements set forth in Sec.  127.200; 
and/or
    (2) The protested EDWOSB or WOSB joint venture did not meet the 
requirements set forth in Sec.  127.506.

    Dated: October 19, 2018.
Linda E. McMahon,
Administrator.
[FR Doc. 2018-23285 Filed 10-30-18; 8:45 am]
 BILLING CODE 8025-01-P