[Federal Register Volume 84, Number 228 (Tuesday, November 26, 2019)]
[Rules and Regulations]
[Pages 65222-65251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24915]



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Vol. 84

Tuesday,

No. 228

November 26, 2019

Part II





Small Business Administration





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13 CFR Parts 115, 121, et al.





 Small Business HUBZone Program and Government Contracting Programs; 
Final Rule

  Federal Register / Vol. 84 , No. 228 / Tuesday, November 26, 2019 / 
Rules and Regulations  

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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 115, 121, 125, 126, and 127

RIN 3245-AG38


Small Business HUBZone Program and Government Contracting 
Programs

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
amending 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. 
This comprehensive revision to the HUBZone Program clarifies current 
HUBZone Program policies and procedures and makes changes that will 
benefit the small business community by making the HUBZone Program more 
efficient and effective. The rule is 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: This rule is effective on December 26, 2019.

FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, Office of Government 
Contracting, 202-205-7337 or [email protected].

SUPPLEMENTARY INFORMATION:

Background

    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 final rule implements 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).
    On October 31, 2018, SBA published in the Federal Register a 
comprehensive proposal to amend the HUBZone program. 83 FR 54812. SBA 
had not issued a comprehensive regulatory amendment to the HUBZone 
program since the program's initial implementation over twenty years 
ago. SBA's review of the HUBZone program in response to President 
Trump's directive highlighted several areas that needed revision. In 
order to address these deficiencies, SBA proposed to clarify and modify 
a number of the regulations implementing the program to reflect current 
policies, eliminate ambiguities in the regulations, and reduce burdens 
on small businesses and procuring agencies.
    The proposed rule initially called for a 60-day comment period, 
with comments due by December 31, 2018. Due to the scope and 
significance of the proposed changes, SBA subsequently published a 
notice in the Federal Register on December 31, 2018 that extended the 
comment period to February 14, 2019. 83 FR 67701.
    In addition, SBA proposed to implement section 1701(i) of the 
National Defense Authorization Act for Fiscal Year 2018 (NDAA 2018), 
Public Law 115-91, 131 Stat. 1283 (December 12, 2017), which by 
amending the definition of ``HUBZone small business concern,'' allows 
certain certified HUBZone small business concerns to maintain their 
HUBZone status until 2021. In addition, based on comments received, SBA 
is implementing sections 1701(b), 1701(c), and parts of section 1701(h) 
of the NDAA 2018 that are effective January 1, 2020, as discussed 
further below.
    A challenge HUBZone participants have faced over the last two 
decades is understanding the definitions of key components of the 
program requirements. HUBZones change based on economic data. Once 
certified, it is unrealistic to expect a business concern or its 
employees to relocate in order to attempt to maintain the concern's 
HUBZone status if the area where the business is located or employees 
reside loses its HUBZone status. The proposed rule detailed changes to 
help the HUBZone program achieve its intended results: Investment and 
continued employment in distressed communities. First, the rule 
proposed 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 rule proposed 
to 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.
    SBA recognizes the challenge many firms face in attempting to meet 
the requirement that at least 35% of the firm's employees live in a 
HUBZone. Firms with a significant number of employees may 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 hire 
additional employees to perform the contract, thus jeopardizing 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 would make it ineligible for any future HUBZone contracts. The 35% 
HUBZone residency requirement can also make 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, Sec.  126.500(a) of the final rule 
requires 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 will 
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. SBA also 
requested comments on whether seasonal

[[Page 65223]]

employees can or should be counted and still maintain the integrity of 
the HUBZone eligibility requirements.
    SBA received extensive responses to the proposed rule from 98 
commenters, which comprised about 370 specific comments. SBA addresses 
each proposed amendment below, including the disposition of any 
comments.

II. Section-by-Section Analysis and Comments Received

1. Definitions

    The proposed rule revised, added, or eliminated several definitions 
set forth in 13 CFR 126.103 in order to remove ambiguities and make the 
HUBZone program easier for firms to use.
    SBA proposed 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 received 
several comments that did not oppose the proposed change but asked SBA 
to be careful about conflating or confusing terms such as ANCSA, Alaska 
Native Village, and Alaskan Native Corporation. SBA does not believe it 
has incorrectly merged or eliminated any terms in the revised 
definition, but SBA will continue to be careful when defining these 
terms and other related terms.
    SBA proposed to amend the definition of ``attempt to maintain'' to 
clarify what happens if a HUBZone small business concern's HUBZone 
residency percentage drops significantly below the 35% employee HUBZone 
residency requirement. The Small Business Act provides that a HUBZone 
small business concern must ``attempt to maintain'' compliance with the 
35% residency requirement during the performance of a HUBZone contract. 
15 U.S.C. 632(p)(5)(A)(i)(II). As noted in the proposed rule, 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 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 that it would be helpful to have clearer guidelines 
that would allow firms to adequately plan and ensure that they are in 
fact maintaining compliance and continued eligibility. SBA proposed to 
amend this definition by adding that falling below 20% HUBZone 
residency during the performance of a HUBZone contract would 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. SBA requested 
comments on how best to look at this 20% minimum requirement, 
specifically 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.
    SBA received 20 comments on the proposed change. Several commenters 
opposed the changes and preferred the current language because of the 
flexibility of the current standard. One commenter said the current 
flexible standard was better for firms with a very low total number of 
employees. The remaining commenters supported SBA's change. One 
commenter supported the change to a fixed percentage but thought 15% 
would be better. Another commenter supported the change to a fixed 
percentage but thought 25% would be better. SBA received five comments 
that supported the change to a fixed percentage but expressed concerns 
about the inflexibility this would create and the consequence of 
decertification. These commenters recommended several alternatives, 
including establishing a rebuttable presumption and not decertifying 
firms that do not meet the requirements. One commenter effectively 
recommended changing the 35% residency requirement to a 20% requirement 
where participants would only need to show demonstrable efforts if they 
fell below 20%.
    After considering the comments, SBA is adopting the change 
implementing a 20% floor within the definition of ``attempt to 
maintain''. SBA believes that it is important to remember the goals of 
the HUBZone program: To provide capital infusion into and hire 
individuals living in distressed areas. SBA believes that allowing any 
number below 20% would not properly capture the intent of the program. 
In addition, most commenters agreed that 20% was a reasonable standard. 
The final rule also maintains the proposed consequences for firms that 
do not meet the standard. SBA believes that it is important that firms 
adhere to the requirements. The attempt to maintain standard is already 
an exception to the general 35% residency requirement, and SBA believes 
that a situation in which a firm that does not meet this relaxed 
standard and faces little or no consequence would not further SBA's 
goal of ensuring firms meet the requirements of the program.
    Two comments supported the change but requested clarity as to what 
it means to attempt to maintain in relation to recertification, 
continued eligibility, and the change made in Sec.  126.501 providing 
that certification lasts for one year. These commenters raised concerns 
about firms merely hiring several employees immediately before an 
upcoming recertification date, employing those individuals for a short 
time to meet the 20% threshold, but only for a small window of time 
right before recertification. SBA agrees with this commenter and has 
provided clarity on this issue in other sections of this final rule. 
Specifically, SBA makes clear that the 20% threshold is the floor only 
for firms performing HUBZone contracts, and if a concern falls below 
that threshold during the year, it will be decertified according to the 
standards in Sec.  126.602(d). SBA also made clear that firms have an 
affirmative duty to notify SBA if they fall below the 20% attempt to 
maintain standard in Sec.  126.501(a)(2).
    SBA proposed eliminating the definition of ``county unemployment 
rate'' as a separate definition and incorporating it into the 
definition of ``qualified non-metropolitan county (QNMC)'' and amending 
the definition of ``D/HUB'' to make clear that this term refers to the 
Director of SBA's Office of HUBZone. SBA received no comments on these 
changes to the proposed rule.
    SBA proposed to amend the definition of ``decertify'' to clarify 
that the decertification procedures described in part 126 also apply to 
firms that voluntarily withdraw from the HUBZone program, and not 
solely to situations where SBA initiates a decertification action. SBA 
received three comments on the proposed changes to the definition of 
``decertify.'' All three comments supported the change. As such, SBA is 
adopting the definition as proposed.
    The proposed rule also sought to amend the definition of the term 
``employee.'' This term is crucial to the HUBZone program since the 
HUBZone eligibility requirements for a small business are to have at 
least 35% of its employees residing in a HUBZone and

[[Page 65224]]

to have a principal office located in a HUBZone. The proposed rule 
intended to clarify how SBA determines whether an individual worked ``a 
minimum of 40 hours per month.'' The proposed rule explained that an 
individual is considered an employee for HUBZone program purposes if he 
or she works at least 40 hours during the four-week period immediately 
prior to the relevant date of consideration, which is either the date 
the concern submits its HUBZone application to SBA or the date of 
recertification. Per the proposed rule, 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. Most commenters 
favored this proposed clarification, and SBA has finalized it in this 
rule.
    SBA also sought comments on whether it should revise the 
requirement from 40 hours per month to 20 hours per week, due to 
concerns that the 40 hours per month standard may be insufficient to 
stimulate employment in HUBZones. SBA received 35 comments opposing 
this possible change to the definition of ``employee.'' Of these, 20 
commenters cited concerns about the administrative and financial 
burdens on HUBZone firms and the restrictions it would place on firms' 
ability to hire certain groups of potential employees such as students, 
working parents, interns, individuals with more than one job, or 
individuals who are otherwise unable to work for a firm 20 hours or 
more per week. One of the purposes of the HUBZone program is to provide 
meaningful employment opportunities for residents of HUBZone areas. 
After reviewing the comments, SBA agrees that changing the requirement 
to 20 hours per week would hinder, rather than encourage, firms' 
efforts to hire and retain HUBZone-resident employees. Therefore, SBA 
will retain the existing requirement that an ``employee'' is an 
individual who works at least 40 hours per month.
    SBA also sought comments on whether the definition of ``employee'' 
should continue to include temporary and leased employees, individuals 
obtained through a union agreement, and those co-employed through a 
professional employer organization (PEO) agreement, or if SBA should 
count only full-time employees or full-time equivalents. SBA received 
30 comments on this issue, with 18 commenters in favor of continuing to 
use a broad definition of ``employee'' and 12 in favor of a narrower 
approach that would count only full-time employees or full-time 
equivalents. After reviewing the comments, SBA will retain the 
definition of ``employees'' that includes temporary and leased 
employees, individuals obtained through a union agreement, and those 
employed through a PEO agreement. As discussed above, the purpose of 
the program is to increase employment opportunities for individuals 
residing in HUBZones. A more inclusive definition of ``employee'' 
allows a wider group of people to apply for positions at HUBZone firms 
and thus gives the firms more opportunities to find employees who fit 
their needs.
    The proposed definition of ``employee'' also clarified 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 is SBA's current policy, and it 
is intended to prevent a firm owner from being able to circumvent the 
HUBZone rules by not paying himself a salary to remove himself from the 
employee count. 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. The proposed rule also included a provision 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. All five comments 
received on this issue favored this change. The proposed change is 
adopted as final.
    The proposed definition of ``employee'' also clarified SBA's 
existing rule that individuals who do not receive compensation and 
those who receive deferred compensation are not considered employees 
(other than owners who work at least 40 hours per month, as described 
above). As SBA's current rules provide, such individuals are considered 
volunteers, and volunteers are not considered employees. 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.'' SBA received three 
comments in support of continuing to exclude individuals who receive 
deferred compensation from the definition of ``employee.'' Thus, the 
final rule will continue to exclude individuals who receive deferred 
compensation from the definition of ``employee.''
    In addition, the proposed definition clarified that individuals who 
receive in-kind compensation are not considered volunteers and will be 
considered employees, as long as such in-kind compensation is 
commensurate with the work performed by the individual. This means that 
an individual who works 40 hours per month but receives in-kind 
compensation equaling the value of only 10 hours would generally not be 
considered an employee. These clarifications were intended to address 
confusion about what SBA considers in-kind compensation and whether 
someone who receives in-kind compensation should be considered an 
employee. 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 provide that volunteers are not 
considered employees, SBA explained: ``SBA intends the term 
compensation to be read broadly and to be more than wages. Thus, a 
person who receives food, housing, or other non-monetary

[[Page 65225]]

compensation in exchange for work performed would not be considered a 
volunteer under this 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 (January 28, 2002).
    SBA requested 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. Of the eight 
comments received on this issue, half supported a definition of 
``employee'' that includes commensurate in-kind compensation and half 
opposed this definition. The former noted that they supported this 
element of the definition, as long as the in-kind compensation offered 
financial value to the employee because that would in turn benefit the 
HUBZone area. For example, one commenter supported in-kind compensation 
in the form of housing for the employee. Another supported in-kind 
compensation as long as it was equivalent to the minimum wage. The 
commenters who opposed the proposed regulation expressed concern about 
the difficulty of ensuring in-kind compensation complies with all 
relevant labor and tax laws and were concerned that it would be too 
subjective. In response to these concerns, SBA has revised the 
definition to provide that ``in-kind compensation commensurate with the 
work performed'' means compensation that is of demonstrable financial 
value to the individual and compliant with relevant laws. In general, a 
firm would be able to meet this standard by providing documentation 
such as: Employment agreements for any individuals receiving in-kind 
compensation, showing the employment relationship between the 
individuals and the firm, including the terms of employment, work 
requirements, and form of compensation for work performed; records 
showing that the individuals worked the required minimum of 40 hours 
per month at the time of evaluation (e.g., signed timesheets, job logs, 
etc.); documentation showing the value of the in-kind compensation; and 
documentation showing that the firm is reporting and withholding 
appropriate taxes from the compensation provided. SBA notes that this 
is not a change in policy, but a clarification of what SBA currently 
requires. SBA believes this fulfills the public policy aim of 
facilitating the advantages that accrue to communities where 
individuals have increased employment opportunities, while also 
allowing firms flexibility to offer benefits such as housing that could 
make them more competitive to qualified individuals.
    The proposed definition of ``employee'' clarified that independent 
contractors who receive compensation through Internal Revenue Service 
(IRS) Form 1099 generally are not considered employees, where such 
individuals would not be considered employees for size purposes under 
SBA's Size Policy Statement No. 1. 51 FR 6099 (February 20, 1986). SBA 
believes that it does not make sense to find an individual who receives 
a Form 1099 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, then that individual should also be considered an 
employee for HUBZone eligibility purposes. If an individual 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 and is also not under the same control as 
an employee.
    SBA received four comments in favor of counting independent 
contractors as employees for HUBZone purposes if they are considered 
employees for size purposes, and three comments opposed to counting 
them as employees under any circumstances (including for size 
purposes). It is beyond the scope of this rulemaking to consider 
whether independent contractors should be treated as employees for size 
purposes. Thus, SBA did not consider those comments in finalizing this 
rule. SBA proposed including similar treatment for HUBZone eligibility 
because there is value in ensuring uniformity and consistency among its 
programs where possible. More importantly, SBA believes having one 
definition for size standards and another for HUBZone eligibility will 
lead to confusion and ultimately make it more difficult for firms to 
comply with SBA's regulations. As noted above, SBA intends for these 
revisions to clarify participants' and applicants' understanding of the 
program requirements. As such, the final rule adopts the language 
noting that an independent contractor considered an ``employee'' for 
size regulations is also an employee for HUBZone purposes.
    SBA requested 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. Under such an arrangement, 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 requested public input on whether such an arrangement 
is consistent with the purposes of the HUBZone program and how such 
arrangements could be structured in order to be consistent with the 
goals of the program. SBA received two comments in favor of allowing 
firms to count individuals employed through third-party businesses as 
employees and one comment opposed. One commenter noted that these 
arrangements help HUBZone firms connect with potential employees who 
may not otherwise be familiar with the program or its benefits. By 
connecting HUBZone firms with eligible employees, third-party 
businesses serve the program goal of increasing employment 
opportunities for individuals in HUBZones. Another commenter noted that 
an applicant seeking HUBZone status (or one already in the program) may 
not need a full-time employee, and that concern should not be burdened 
with employing someone beyond its needs. Thus, arrangements allowing 
one individual to be counted as a HUBZone employee for more than one 
concern provides flexibility to firms to meet their needs and provides 
the opportunity for an individual to be fully employed where they 
otherwise might not be. SBA has considered all the comments received 
and is not changing the current policy allowing these arrangements 
where the arrangement appears legitimate and the HUBZone applicant (or 
participant) shows that the individuals being hired through the third-
party business are doing legitimate work.
    SBA proposed 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 proposed 
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.  [thinsp]126.200 
and that SBA has certified as eligible for federal contracting 
assistance under the HUBZone program. In addition, SBA proposed to 
replace the term ``qualified

[[Page 65226]]

HUBZone SBC'' through the regulations with the term ``certified HUBZone 
small business concern'' (or ``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.
    In addition, SBA proposed to implement section 1701(i) of the NDAA 
2018 in the amended definition of ``HUBZone small business concern.'' 
In enacting section 1701(i), Congress intended for small businesses 
located in expiring redesignated areas 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 of the NDAA 2018 (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.  [thinsp]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 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. 
SBA did not receive any comments on the proposed definition of 
``HUBZone small business concern'' and is implementing the changes as 
proposed.
    SBA proposed to amend the definition of ``principal office'' to 
eliminate ambiguities in the regulation. Specifically, SBA proposed to 
make more clear 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 job-sites. In addition, SBA 
proposed to clarify that a concern must demonstrate that it conducts 
business at a location in order for that location to be considered its 
principal office. SBA believes HUBZone firms should provide evidence 
that business is being conducted at the location to ensure the purposes 
of the HUBZone Program are being fulfilled. A firm that simply owns or 
leases a building but conducts no business there is not fulfilling the 
purposes of the program. Finally, SBA proposed to add clarifying 
language and examples to the definition of principal office, to 
illustrate how the agency treats situations in which employees work at 
multiple locations. SBA received three comments supporting these 
proposed changes. SBA also received two comments asking if SBA intended 
for ``job-site'' to refer only to firms whose primary industry 
classification is construction. The final rule clarifies that ``job-
site'' refers to locations where work is performed for all service or 
construction contracts.
    SBA proposed 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. SBA received a comment 
noting that section 1701 of the 2018 NDAA amends this definition 
effective January 1, 2020, and suggesting that SBA amend this 
definition to reflect this change. The statutory amendment does not 
make a substantive change but clarifies that ``qualified base closure 
areas'' are base closure areas that are treated as HUBZones for at 
least eight years. SBA agrees with this comment and has revised this 
definition accordingly.
    SBA proposed to amend the definition of ``qualified census tract'' 
to make the regulation more readable. The proposed definition described 
the criteria used to define this term in the Internal Revenue Code, 
rather than simply cross-referencing it as the regulation currently 
does. SBA received a comment noting that section 1701 of the 2018 NDAA 
amends this definition effective January 1, 2020, and suggesting that 
SBA amend this definition to reflect this change. The statutory 
amendment does not make a substantive change but simply adds a 
reference to the HUBZone maps. SBA agrees with this comment and has 
amended this definition accordingly.
    SBA proposed 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 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 States outside the 
48 contiguous states. DDAs may be HUBZones if they are also 
nonmetropolitan counties. The proposed rule noted 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 
received a comment noting that section 1701 of the 2018 NDAA amends 
this definition effective January 1, 2020, and suggesting that SBA 
amend this definition to reflect this change. The statutory amendment 
does not make a substantive change but adds a reference to the HUBZone 
maps, corrects a reference to the Internal Revenue Code, and clarifies 
that qualified nonmetropolitan counties are designated based on a 5-
year average of the available data. SBA agrees with this comment and 
has amended this definition accordingly.
    The proposed rule also amended 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 proposed 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 proposed to remove the reference to 
primary residence because many individuals do not have primary 
residences as the term is traditionally defined. SBA proposed to remove 
the requirement to prove intent to live somewhere indefinitely because 
SBA does not have a reasonably reliable method of enforcing this 
requirement. In the alternative, SBA proposed 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. 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

[[Page 65227]]

will require other specific proof of residency, such as deeds or 
leases, or utility bills. Additionally, this rule also proposed 
examples to add clarity to these revisions. SBA specifically requested 
comments on these proposed changes.
    SBA received 36 comments on the proposal that ``reside'' requires 
that an individual live in a place for at least 180 days before 
certification. Of these comments, 24 opposed the proposed changes, 9 
supported them as proposed, and 3 supported SBA's intent behind the 
proposed changes but suggested alternate language to convey that 
intent. Of the comments opposed, most expressed concern that the 180-
day requirement would further limit the pool of eligible employees for 
HUBZone firms. Several commenters suggested shorter timeframes, 
including 90 days or 30 days. SBA understands these concerns but 
believes that a shorter timeframe, or no timeframe at all, would allow 
firms seeking HUBZone status to circumvent the intent of the program by 
encouraging individuals to move into a HUBZone designated area shortly 
before the concern applies for certification and then move out of that 
area immediately after the concern is certified, yet still be counted 
as a HUBZone employee. That clearly would not serve the purpose of the 
HUBZone program, which is to promote capital infusion into HUBZone 
areas and to employ individuals living in HUBZones. This aim is best 
achieved by counting as employees individuals who have long-term 
connections in an area. However, SBA agrees with comments noting that a 
residency requirement that is defined too narrowly may constrain firms' 
ability to attract and hire qualified employees, such as students. SBA 
notes that this rule does not intend to prohibit students from counting 
as HUBZone employees if they reside in a HUBZone area for at least 180 
days.
    Several commenters raised concerns that the proposed rule did not 
require any specified period of HUBZone residency after certification 
and believed some period of residence after certification should be 
required in order to reduce the likelihood of firms trying to 
circumvent the residency requirements. SBA believes that the regulation 
requiring an individual to demonstrate an intent to continue to reside 
in a HUBZone indefinitely has been hard to enforce. As such, SBA does 
not believe it would be helpful to keep that requirement. SBA does 
agree, however, that some post-certification residency requirement 
should be imposed. As discussed further below, SBA has revised proposed 
Sec.  126.200(d)(3) to require that an individual must live in a 
HUBZone for at least 180 days after certification in order for that 
individual to be counted as a resident of a HUBZone beyond the first 
year after certification. The same rule will apply to new HUBZone 
resident employees at the time of recertification--meaning that an 
individual who is being considered a HUBZone resident employee for the 
first time at the time of recertification must have lived in a HUBZone 
for at least 180 days prior to the date of recertification to be 
counted towards the 35% requirement, and then must continue to live in 
a HUBZone at least 180 days after recertification in order to count as 
a HUBZone resident employee thereafter. Consequently, as long as an 
individual lived in a HUBZone for at least 180 days prior to 
certification (or recertification, as applicable), he or she will count 
as a HUBZone employee for that entire HUBZone program year, even if the 
individual moves out of a HUBZone within 180 days of certification or 
recertification. However, if an individual moves out of a HUBZone 
within 180 days of certification (or recertification, as applicable), 
that person will not be considered a HUBZone employee in subsequent 
years.
    In addition, the proposed rule acknowledged 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 proposed that it will consider the 
residence located in the United States as an 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 change in Sec.  126.200(d)(3), 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 received six comments in favor of considering the U.S. address 
of individuals working on overseas contracts as their addresses for 
HUBZone residency purposes and one comment opposed to this change. SBA 
also received three comments suggesting that SBA not consider the 
address of employees working on overseas contracts at all as long as 
they resided in HUBZones at the time of certification. As discussed 
below, that is exactly what the change at Sec.  126.200(d)(3) will 
accomplish. As such, SBA is adopting the rule as proposed.
    SBA also proposed changes to or the elimination of the following 
definitions: Non-metropolitan county, redesignated area, median 
household income, metropolitan statistical area, primary industry 
classification, small disadvantaged business (SDB), and statewide 
average unemployment rate. SBA did not receive any comments regarding 
these definitions and is adopting the changes as proposed.

2. Eligibility Requirements

Section 126.200
    SBA proposed to reorganize Sec.  126.200 to make the section more 
readable and to make the HUBZone eligibility requirements clearer. SBA 
received one comment on proposed Sec.  126.200(a), which addressed the 
ownership requirements for HUBZone small business concerns. The 
commenter requested that SBA make clear that firms owned by tribes and 
Native Hawaiian Organizations (NHOs) need not be structured as 
corporations to be eligible for the HUBZone program but can take any 
legal form. SBA believes this is clear in the regulations. Proposed 
Sec. Sec.  126.200(a)(3) and 126.200(a)(6) provided that in order to be 
eligible for HUBZone certification, a ``concern must be . . . [a]t 
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'' or ``[a]t least 51% owned

[[Page 65228]]

by one or more NHO[s], or by a corporation that is wholly owned by one 
or more NHO[s].'' The current HUBZone regulations define ``concern'' to 
mean ``a firm which satisfies the requirements in Sec. Sec.  121.105(a) 
and (b) of this title.'' Section 121.105(b) provides: ``A business 
concern may be in the legal form of an individual proprietorship, 
partnership, limited liability company, corporation, joint venture, 
association, trust or cooperative.'' SBA has implemented this paragraph 
as proposed.
    In proposed Sec.  126.200(b), which addresses the size requirements 
for HUBZone small business concerns, SBA clarified that 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. This clarification was 
meant to prevent firms that have grown to be other than small in all 
industries from remaining in the HUBZone program. SBA did not receive 
any comments on this paragraph and it has been adopted as proposed.
    In proposed Sec.  126.200(c), which addresses the principal office 
requirement, SBA proposed to 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. 
SBA did not receive any comments on this change and will adopt the 
provision as proposed. SBA did, however, receive several comments 
recommending changes to the principal office requirement that would 
take into account long-term investment in a qualified HUBZone area. Two 
commenters recommended that SBA adopt a provision similar to that 
proposed for HUBZone residency, meaning that if a concern makes a 
substantial investment to establish a principal office in a qualified 
HUBZone area and that area loses its HUBZone status, the concern should 
be deemed to continue to have its principal office located in a HUBZone 
for some extended period of time. One of the commenters suggested that 
such period of time should be for at least ten years or for the length 
of a long-term lease. They argue that with such a change, firms would 
make more permanent investments and more substantial leasehold 
improvements in a HUBZone, which would benefit the community at large. 
Another commenter suggested that any firm that has moved its principal 
office into a qualified HUBZone area should be able to have that 
principal office location be considered to be in a HUBZone for at least 
a known, specified amount of time. The commenter believes that firms 
would otherwise be hesitant to expend the substantial resources 
necessary to move into a HUBZone if there is uncertainty as to how long 
such status would last. The commenter points to the possibility that a 
firm could move into a qualified HUBZone area one year, have the area 
lose its HUBZone status the next year, and then get an additional three 
years of HUBZone eligibility through the area's redesignated status. 
The commenter argues that that is not enough time for a firm to recoup 
its moving costs, and, thus, firms would choose not to relocate into a 
HUBZone area. Another commenter noted that even if a small business 
concern located in an area that lost its HUBZone status were willing to 
relocate its principal office to another qualified HUBZone, its 
existing employees might be unable or unwilling to relocate with the 
business. SBA agrees with the commenters that establishing a principal 
office in a HUBZone can be a significant investment for any business, 
especially small businesses, and that by providing more certainty 
regarding a firm's eligibility for the program will further the 
programmatic purpose of encouraging firms to invest in these areas for 
the long term. In response to the comments, the final rule provides 
that a concern that owns or makes a long-term investment (i.e., a lease 
of at least 10 years) in a principal office in an area that qualifies 
as a HUBZone at the time of its initial certification will be deemed to 
have its principal office located in a HUBZone for at least 10 years 
from the date of that certification as long as the firm maintains the 
long-term lease or continues to own the property upon which the 
principal office designation was made. This means that in the example 
cited by the commenter above, the firm's principal office would be 
deemed to be located in a HUBZone for 10 years from the date of its 
certification even though the area's redesignated status would have 
ended after five years. In order to be eligible for a HUBZone contract, 
the firm would still have to meet the 35% HUBZone residency requirement 
and continue to qualify as a small business concern under the size 
standard corresponding to the NAICS code assigned to the contract. The 
final rule also provides that this change would not apply to leases of 
office space that are shared with one or more other concerns or 
individuals, or to other co-working arrangements. SBA does not believe 
that ``virtual offices'' or co-working arrangements rise to the level 
of a significant investment in a HUBZone area that would warrant this 
exception. Similarly, SBA does not believe that the exception should 
apply to subleases, which also do not create a significant investment 
in a HUBZone area.
    Proposed Sec.  126.200(d) addressed the 35% HUBZone residency 
requirement, and SBA received numerous comments in response to this 
paragraph. In proposed Sec.  126.200(d)(1), SBA proposed to change 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. Under the 
proposed rule, SBA would round 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 require the firm to employ only 2 HUBZone 
residents. SBA received 11 comments in support of the proposed change 
and one opposed. The commenter who opposed the change argued that firms 
should be allowed to round up to meet the requirement. SBA believes 
that this commenter misinterpreted SBA's intent because the new rule 
will provide more flexibility and allow an even greater number of firms 
to meet the 35% residency requirement. Moreover, a rule that mirrors 
the common usage of rounding will reduce confusion for participants and 
applicants. This final rule adopts this change as proposed.
    In order to provide stability and certainty for program 
participants, in proposed Sec.  126.200(d)(3), SBA proposed 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 ceases to be qualified as a HUBZone. Under this 
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

[[Page 65229]]

and uninterrupted employment by the HUBZone small business concern, for 
the duration of the firm's participation in the HUBZone program.
    SBA received 21 comments in support of the proposed change, two 
partially supporting the proposed change, four opposed, and two 
requesting clarification. The comments in support of the proposed 
change agreed with SBA's intent, which is to avoid penalizing 
successful HUBZone firms with employees who, as a result of the firm's 
success, have increased flexibility in deciding where to live. The 
unsupportive comments noted that the change would enable firms to 
maintain their HUBZone status even if they are no longer benefiting the 
communities in which they are located by providing employment 
opportunities to residents. SBA recognizes this legitimate concern, but 
believes it would be more harmful to the public policy goals of the 
program for firms to be punished by their own success by requiring them 
to either fire employees who have moved out of a HUBZone, or to have to 
seek out and hire additional employees who currently live in HUBZones, 
regardless of their staffing needs. In addition, a HUBZone concern 
would always be required to maintain its principal office in a HUBZone, 
which would support increased economic activity in the HUBZone. In 
response to the change made to the term ``reside,'' the final rule also 
makes a change to Sec.  126.200(d) to require an employee to continue 
to live in a HUBZone for at least 180 days after certification (or 
recertification if that was the first time that the individual's 
HUBZone residency was used to qualify the concern). Then, as long as he 
or she continuously remains an employee of the concern, even if the 
employee subsequently 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, he or she will continue to count as a HUBZone 
employee for that concern. However, if an individual moves out of a 
HUBZone, or the area where he or she lives loses its status as a 
HUBZone within 180 days, the individual will not count as a HUBZone 
employee at the time the firm seeks recertification. Similarly, if an 
individual has a break in employment by the HUBZone firm, he or she 
will not count as a HUBZone employee upon reemployment unless the 
individual has resided in a HUBZone for at least 180 days prior to the 
date the firm seeks recertification.
    Finally, one commenter asked for clarification regarding an 
employee who lived in a HUBZone at the time he or she was employed by a 
certified HUBZone small business concern, but who moved out of the 
HUBZone prior to the change specified in this final rule. The commenter 
asked for clarification as to whether such an employee, who lost his or 
her status as a HUBZone employee when he or she moved out of a HUBZone 
but is still employed by the certified HUBZone small business concern, 
would once again count as a HUBZone employee under this final rule. The 
new regulatory language of Sec.  126.200(d)(3) specifies that 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 continues to live in the HUBZone for at least 
180 days after certification. There are three requirements in this 
provision. First, the individual must live in a HUBZone at the time he 
or she is counted as a HUBZone resident in order to qualify a firm as a 
certified HUBZone small business concern. Second, the individual must 
continue to live in a HUBZone for at least 180 days after the 
certification. Third, the individual must continuously work for the 
certified HUBZone small business concern. In the case questioned in the 
comment, the individual lived in a HUBZone at the time he or she was 
counted as a HUBZone resident to qualify a firm as a certified HUBZone 
small business concern. That individual has continued to work for the 
certified HUBZone small business concern since its certification. Thus, 
as long as the individual continued to live in a HUBZone for at least 
180 days after the certification date, that individual would count 
today as a HUBZone employee. It would not matter that for some certain 
amount of time the individual did not count as a HUBZone employee.
    SBA proposed to clarify in 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 amended the 
regulations for clarity nevertheless. Debarred and suspended entities 
are ineligible for Federal contracting assistance and would thus not 
receive any benefits from being certified as a HUBZone small business 
concern. SBA received one comment in support of this change and is 
adopting the rule as proposed.
Section 126.204
    SBA proposed changes to Sec.  126.204 in order 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. The 
proposed changes to Sec.  126.204 clarified 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. Further, the proposed rule stated the HUBZone 
applicant or concern must demonstrate to SBA 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. This has always been 
SBA's policy and SBA merely sought 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 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. 
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.

[[Page 65230]]

    SBA received seven comments on this proposed change. All seven 
comments supported SBA's proposed amendment clarifying that employees 
of affiliates are considered employees of a HUBZone participant or 
applicant if there is no clear line of fracture between the two. 
Several of the comments requested clarifying examples. One commenter 
was concerned that any contact between a parent company or one or more 
sister companies could cause SBA to aggregate the employees of those 
concerns in determining whether 35% of the concern's employees reside 
in a HUBZone. That was not SBA's intent. In response, SBA has clarified 
that minimal business activity between the concern and its affiliate 
and the use of common back office or administrative services between 
parent and/or sister concerns will not result in an affiliate's 
employees being counted as employees of the HUBZone applicant or 
HUBZone small business concern. Several commenters requested additional 
clarification on how SBA would treat the employees of sister companies 
for entity-owned companies. These comments recommended that SBA state 
that there would be a presumption that the employees of sister-owned 
companies of entities should not be counted. SBA does not believe that 
such a presumption is needed. This section clarifies when employees 
``of an affiliate'' should be counted as employees of the applicant or 
HUBZone small business concern. Under Sec.  121.103(b)(2)(ii) of SBA's 
size regulations, business concerns owned and controlled by Indian 
Tribes, ANCs, NHOs, or CDCs are not considered to be affiliated with 
other concerns owned by these entities because of their common 
ownership, common management, or common administrative services. 
Affiliation may be found for other reasons. Thus, if the 
interconnections between sister companies of a tribe, ANC, NHO or CDC 
are merely based on common ownership, management or performance of 
administrative services, the firms would not be considered affiliates 
and would not be aggregated for HUBZone eligibility purposes. It is 
only where affiliation exists between entity-owned sister companies 
that SBA might count employees of a sister company as employees of the 
HUBZone applicant/participant when determining the concern's compliance 
with the principal office and 35% percent HUBZone residency 
requirements, and then only if there is not a clear line of fracture 
between the business concerns.
    SBA has also added an example to Sec.  126.204, which refers to the 
definition of ``employee'' laid out in Sec.  126.103.
Section 126.205, Section 126.206, Section 126.207
    In Sec.  126.205, SBA proposed to delete the statement that 
``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 proposed to replace the term ``non-
manufacturers'' with ``nonmanufacturers'' to be consistent with SBA's 
regulations at Sec.  121.406(b).
    SBA proposed 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.
    SBA did not receive any comments in response to the proposed 
changes to Sec. Sec.  126.205, 126.206, and 126.207. Therefore, SBA is 
adopting the proposed changes as final.

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 proposed several clarifications to 
its certification process.
Section 126.300
    SBA proposed to divide Sec.  126.300 into several paragraphs 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 
received no comments on Sec.  126.300 and is adopting the proposed 
changes as final.
Section 126.303
    SBA proposed to revise Sec.  126.303 to update the instructions for 
submitting electronic applications. The proposed rule clarified 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 
proposed to require that the application and any supporting 
documentation must be submitted by a person authorized to represent the 
concern. SBA did not receive any comments regarding this section and is 
adopting the proposed changes as final.
Section 126.304
    SBA proposed several changes to Sec.  126.304. The proposed rule 
clarified 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. The 
rule also proposed 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 proposed to clarify that after an application has been 
submitted, the applicant must immediately notify SBA of any changes 
that could affect its eligibility. The applicant would have to provide 
information and documents to support the changes.
    Finally, SBA proposed 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 received four comments to the changes proposed to Sec.  
126.304. One commenter disagreed with requiring electronic signatures, 
believing that not all small businesses have the capability to e-sign. 
SBA agrees. The final rule merely requires that an authorized 
representative of the concern submit the application and supporting 
documentation. SBA will accept electronic signatures but will not 
require them. In addition, a commenter noted that while proposed Sec.  
126.304(a) required representations to be made only by an owner of the 
applicant, the supplementary information to the proposed rule noted 
that the person making representations on behalf of a concern should 
either be an owner or officer of the applicant, and not an 
administrative employee acting on behalf of an officer. The commenter 
supported the flexibility provided for in

[[Page 65231]]

the supplementary information. In response to the comment, the final 
rule authorizes either an owner or officer to represent the concern.
    SBA received one comment on Sec.  126.304(c). The commenter did not 
think a concern should have to wait 90 days to resubmit its 
application. This requirement however is not new. The proposed 
regulation moved the requirement to a new section for clarity and 
consistency. The current requirement can be found in Sec.  126.309. 
This provision is consistent with other proposed sections of the 
regulations that require concerns that are found ineligible to wait 90 
days before submitting a new application for the program. As such, the 
final rule does not shorten the 90-day time period to reapply for 
HUBZone certification after initially being declined.
    SBA did not receive any comments to proposed Sec.  126.304(d), 
which authorized an applicant to represent that it believes that an 
area is a qualified HUBZone where SBA's website is not showing the area 
as such. This rule adopts the proposed language as final.
    SBA received one comment on Sec.  126.304(e), which required 
concerns to retain records demonstrating their eligibility for six 
years. The commenter believed this requirement was overly burdensome. 
However, this is not a new requirement. SBA moved the requirement and 
simplified the wording to provide more clarity. The requirement to 
maintain these records for six years is currently in Sec.  126.401(b). 
Given that this is not a new requirement, SBA is adopting the rule as 
proposed.
Section 126.306
    SBA proposed several changes to Sec.  126.306. SBA proposed 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 proposed 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. Finally, SBA proposed 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 received three comments. The first comment suggested that 
applications should be processed within thirty days of SBA receiving a 
complete application submission. The second comment noted that the 2018 
NDAA requires applications to be processed in 60 days, starting January 
1, 2020, and suggested that the rule be changed to be consistent with 
this upcoming statutory requirement. SBA agrees with this second 
comment and has made this change to the rule. The third comment 
discussed issues with the current application process that are beyond 
the scope of this rulemaking.
Section 126.307
    SBA proposed 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 deleted 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 
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 did not receive any comments on this change and 
will adopt the rule as proposed.
Section 126.308
    SBA proposed 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. 
SBA did not receive any comments on this change and will be adopting 
the rule as proposed.
Section 126.309
    SBA proposed 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. 
SBA proposed this change in order to make the HUBZone program more 
consistent with the 8(a) BD program, where a firm that is declined 
admission may request reconsideration of that decision and have an 
opportunity to demonstrate its eligibility within 45 days of the 
decline decision rather than having to wait a year to reapply. SBA 
received three comments regarding this section. One commenter supported 
the changes to Sec.  126.309 as proposed. One commenter believed that 
the 15-day timeframe set forth in the proposed rule for submitting a 
request for reconsideration was insufficient and recommended extending 
the amount of time to submit a request for reconsideration. One 
commenter thought that a reconsideration process that in effect 
amounted to allowing a concern to submit a totally revised application 
contradicted the provision requiring applicants to wait 90 days before 
submitting a new application. If SBA were to proceed with authorizing 
reconsideration, SBA agrees with the commenter that the 15-day 
timeframe should be lengthened. Since SBA allows a concern to submit a 
new application after 90 days from the date of the decline decision, it 
would not make sense to extend the reconsideration process to that 
extent. With 15 days being too short and 90 days not making sense with 
the ability to reapply at that point, SBA would have to determine some 
point in between to be the appropriate amount of time. In response to 
the comments and upon further consideration, SBA believes that a 
reconsideration process is not needed. Unlike the 8(a) BD program, 
where a concern must wait one year from the date of a final decline 
decision to reapply to the program, a concern can reapply to the 
HUBZone program 90 calendar days after the date of decline. Thus, a 
reconsideration process that allows changes to overcome deficiencies in 
an application in a shortened timeframe becomes redundant. The current 
HUBZone application process does not authorize reconsideration, and SBA 
has not been inundated with recommendations calling for a 
reconsideration process. SBA merely sought to make applying to the 
HUBZone program consistent with that for the 8(a) BD program. Upon 
further review, SBA believes that is not necessary in this instance. 
Allowing a concern to reapply for the HUBZone program 90 days after a 
decline decision appears to be a reasonable and

[[Page 65232]]

appropriate amount of time. As such, the final rule does not adopt the 
proposed reconsideration process.

4. Program Examinations

    As part of SBA's oversight responsibilities for the HUBZone 
program, SBA monitors certified HUBZone small business concerns, and 
verifies information submitted by HUBZone applicants, by conducting 
program examinations.
Section 126.401
    SBA proposed to revise Sec.  126.401 to clarify what a program 
examination is. The proposed rule provided 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 did not receive any comments on this 
provision and is adopting Sec.  126.401 as proposed.
Section 126.402
    SBA did not receive any comments on the minor proposed wording 
change to Sec.  126.402. However, SBA did receive numerous comments on 
Sec. Sec.  126.500 and 126.501 concerning the lack of clarity regarding 
the burden on participants during the recertification process. In order 
to provide more clarity, SBA has made changes to Sec.  126.402 related 
to program examinations and when program examinations may be part of 
the recertification process. SBA is adding new language to Sec.  
126.402 to provide clarity as to when a program examination will be 
initiated. The new language specifically references Sec.  126.500 and 
the recertification process. The final rule also provides that SBA will 
conduct program examinations when determined to be necessary during 
recertification. In order to provide additional clarity, the final rule 
also incorporates language similar to that contained in Sec.  
124.112(c) for the 8(a) BD program into Sec.  126.402. Specifically, 
the final rule provides that SBA will examine a certified HUBZone small 
business concern's eligibility for continued participation in the 
program upon the receipt of specific and credible information alleging 
that a certified HUBZone small business concern no longer meets the 
eligibility requirements for continued program eligibility.
Section 126.403
    SBA proposed to revise Sec.  126.403 to clarify what SBA will 
review during a program examination. The rule stated that 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 did not receive any comments on this section and is adopting the 
proposed language as final.
Section 126.404
    SBA proposed to add a new Sec.  126.404 to provide the procedures 
and possible outcomes of a program examination. Whether a concern is 
applying to the HUBZone program for the first time, is undergoing 
recertification, 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). SBA received a comment noting that section 1701(h) of the 
2018 NDAA requires that starting January 1, 2020, firms found 
ineligible as a result of a program examination be given 30 days to 
provide documentation showing that they are in fact eligible. During 
this time, firms cannot compete for or be awarded HUBZone contracts. If 
after the 30-day period, the firm has not demonstrated its HUBZone 
eligibility, it shall be decertified. SBA agrees with this comment and 
makes these changes to the final rule.

5. Maintaining HUBZone Status

Section 126.500
    SBA proposed to amend Sec.  126.500 to require HUBZone small 
business concerns to recertify annually to SBA that they continue to 
meet all HUBZone eligibility requirements, instead of requiring them to 
undergo a recertification by SBA every three years as required prior to 
the proposed change. The proposed rule also provided that when a 
concern fails to submit its annual recertification to SBA, SBA will 
start proceedings to decertify the concern.
    SBA received 24 comments in response to this proposed change. 
Although many commenters supported the change, a majority thought that 
recertification on an annual basis would be burdensome for certified 
HUBZone small business concerns if recertification entailed a full 
programmatic review of concerns each year. If, however, recertification 
required some sort of less exhaustive process, a majority of commenters 
favored the change. Several commenters believed that the current 
process of requiring recertification by SBA every three years should be 
retained and one commenter recommended recertification every five 
years.
    SBA does not seek to impose unnecessary burdens on certified 
HUBZone small business concerns. However, SBA takes seriously its 
responsibility to ensure that only eligible concerns remain as 
certified HUBZone small business concerns. In response to comments 
received from both small business concerns and procuring agencies, SBA 
agrees that a full document review recertification process is not 
needed annually. Such a process could be burdensome on small 
businesses, difficult for SBA to timely accomplish, and, therefore, 
could be inefficient for procuring agencies seeking to make awards 
through the HUBZone program. The final rule keeps the requirement that 
certified HUBZone small business concerns must annually represent that 
they continue to meet all HUBZone eligibility criteria. However, SBA 
will accept the representation without requiring the certified HUBZone 
small business concern to submit any supporting information or 
documentation unless SBA has reason to question the concern's 
recertification. If at the time of its recertification the certified 
HUBZone small business concern is not currently performing a HUBZone 
contract, its recertification means that at least 35% of its employees 
continue to reside in a HUBZone and the principal office of the concern 
continues to be located in a HUBZone. If at the time of its 
recertification the certified HUBZone small business concern is 
currently performing a HUBZone contract, its recertification means that 
at least 20% of its employees continue to reside in a HUBZone and the 
principal office of the concern continues to be located in a HUBZone. 
This requirement is no different or any more burdensome than the 
current requirement that concerns must annually certify their size 
status in the System for Award Management (SAM). SBA will then require 
a full document review recertification, or program examination, every 
three years, which is the same as currently required. SBA believes this 
approach balances the need to not impose unnecessary burdens while 
promoting program integrity and ensuring only eligible firms remain as 
certified HUBZone small business concerns.

[[Page 65233]]

Section 126.501
    SBA proposed to amend Sec.  126.501 to provide that once certified, 
a HUBZone small business concern will remain eligible for HUBZone 
contract awards for one year from the date of certification (as long as 
the concern qualifies as small for the size standard corresponding to 
the NAICS code assigned to any such contract). On the one-year 
anniversary of the firm's HUBZone certification, the firm would be 
required to recertify to SBA that it continues to meet the HUBZone 
eligibility requirements or voluntarily withdraw from the HUBZone 
program.
    SBA received 19 comments on proposed Sec.  126.501. Of the 
comments, 16 supported the change. One comment, while supportive, was 
also concerned about the burden that could be caused by requiring a 
full re-application process each year for recertification. This comment 
also recommended keeping the certification good for a year, and only 
doing a full application-type certification every three years. SBA 
believes it has addressed the concerns raised by this comment in 
changes made to Sec.  126.500, discussed above. The final rule has made 
some clarifications to Sec.  126.501 to take into account the changes 
made by this rule to Sec.  126.500.
    SBA received two comments that opposed the changes generally. The 
commenters believed that the change could lead to issues with employees 
being fired near the time of recertification or concerns generally not 
meeting the eligibility requirements throughout the year. The comments 
either requested the change not be adopted, or that additional 
regulations be added to allow additional opportunities for SBA to 
review a concern's eligibility, possibly a protest mechanism. SBA does 
not believe these changes are needed to this section. As noted above, 
the final rule has amended Sec.  126.402 to provide that SBA will 
examine a certified HUBZone small business concern's eligibility for 
continued participation in the program upon the receipt of specific and 
credible information alleging that a certified HUBZone small business 
concern no longer meets the eligibility requirements for continued 
program eligibility. In addition, SBA can perform a program examination 
with respect to a concern's continued eligibility at any time SBA deems 
it to be warranted.
    In order to clarify SBA's intent in response to some of the 
concerns raised by the commenters, the final rule adds language 
requiring a certified HUBZone small business concern to timely notify 
SBA if the concern acquires, is acquired by, or merges with another 
business entity or fails to attempt to maintain the minimum employee 
HUBZone residency requirement (see Sec.  126.103) where the concern is 
performing a HUBZone contract. Either case will then trigger a program 
examination to determine whether the concern continues to be eligible 
to participate in the HUBZone program.
Section 126.502
    Proposed Sec.  126.502 provided that 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 all eligibility requirements. SBA did not 
receive any comments on this section and is adopting Sec.  126.502 as 
proposed.
Section 126.503
    SBA proposed to amend Sec.  126.503 to provide the procedures for 
program decertification and certain program examinations. The proposed 
rule also authorized 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.
    SBA received several comments on this section. One comment 
supported the proposed change. One commenter recommended that firms 
found ineligible pursuant to a HUBZone status protest should not be 
decertified. SBA does not agree with this comment. It is important for 
concerns' certifications and recertifications to be accurate. If a 
concern is found to not meet the eligibility requirements at the time 
of its certification or recertification, SBA believes it should be 
decertified from the program. The concern will be allowed to reenter 
the program by re applying at a later date.
    One comment recommended that the regulation should provide a 
specific amount of time for a concern proposed for decertification to 
respond to SBA instead of merely stating that the concern must respond 
to the notice of proposed decertification within the timeframe 
specified in the notice. SBA agrees and has amended this section to 
require a response to SBA within 30 days from the date it receives the 
letter. This 30-day response time is the same as that set forth in the 
8(a) BD program for a concern to respond to a notice of proposed 
termination.
Section 126.504
    SBA proposed 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 did not receive any comments on this section. On further 
consideration, SBA believes that some clarification is needed. As 
proposed, Sec.  126.504(c) provided that 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. When SBA's 
regulations required a concern to be an eligible HUBZone small business 
both at the time of offer and time of award, it made sense to say that 
as soon as a concern was decertified it would be ineligible for any 
future HUBZone contract. However, under the proposed rule and now this 
final rule, where a concern is certified as of a particular date, it 
remains eligible to submit offers for HUBZone contracts for a year, and 
if an award occurs after that one-year period, the concern would still 
be eligible for the award even if it could not recertify its status as 
an eligible HUBZone for the following year. Thus, as long as the 
concern was eligible at the time of its offer (and eligibility relates 
back to the date of its certification or recertification), it could be 
awarded a HUBZone contract even if it no longer appears as a certified 
HUBZone small business concern on DSBS on the date of award. However, 
if SBA determines that the concern's recertification was invalid (i.e., 
based on a protest or program examination SBA determines that the 
concern did not qualify as a HUBZone small business concern on the date 
of its recertification), the concern will be ineligible for the award 
of any HUBZone contract for which it previously certified its HUBZone 
status.

6. Contractual Assistance

Section 126.601
    SBA proposed 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 in order to submit an offer on a HUBZone 
contract. In addition, SBA proposed to move the discussion of 
compliance with the limitations on subcontracting for multiple award 
contracts currently in paragraph Sec.  126.601(g) to proposed

[[Page 65234]]

Sec.  126.700, which specifically addresses the limitations on 
subcontracting requirements for HUBZone contracts. Finally, SBA 
proposed to move the discussion of recertification currently in 
paragraph Sec.  126.601(h) to proposed new Sec.  126.619, which 
includes the requirement for firms to recertify their HUBZone status 
for HUBZone set-aside orders and Blanket Purchase Agreements. SBA 
received one comment in support of these changes and adopts Sec.  
126.601 as proposed.
Section 126.602
    SBA proposed 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 recertification only. Under the 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. However, HUBZone small businesses would continue to have to 
``attempt to maintain'' compliance with this requirement during the 
performance of a HUBZone contract.
    In order to be consistent with the changes made to Sec.  126.500 in 
response to comments, the final rule makes similar corresponding 
changes to Sec.  126.602. The final rule clarifies that a certified 
HUBZone small business concern that has received a HUBZone contract 
must have at least 20% of its employees residing in a HUBZone during 
the performance of any HUBZone contract and at the time of its annual 
recertification.
    SBA received two comments on Sec.  126.602. One commenter 
recommended that SBA clarify Sec.  126.602(b) regarding how the attempt 
to maintain requirement should be applied to indefinite delivery, 
indefinite quantity contracts, including multiple award contracts. SBA 
believes the regulatory language is clear. If the base contract is set 
aside or reserved exclusively for eligible HUBZone small business 
concerns, then the certified HUBZone small business concern must 
maintain at least 20% of its employees residing in a HUBZone throughout 
the full contract. However, if the concern is performing an order that 
was set aside or reserved for HUBZone small business concerns on a 
contract that was not itself set aside or reserved for HUBZone small 
business concerns, then the certified HUBZone small business concern 
must maintain at least 20% of its employees residing in a HUBZone only 
while preforming that task order.
Section 126.619
    SBA proposed to move the discussion of recertification currently in 
paragraph Sec.  126.601(h) to proposed new Sec.  126.619. The proposed 
rule required an offeror to be a certified HUBZone small business 
concern at the time it submits an offer for an order issued against a 
MAC where the order is set-aside for HUBZone small business concerns 
and the underlying MAC was not a HUBZone contract. SBA received one 
comment on Sec.  126.619. The commenter believed that orders or Blanket 
Purchase Agreements issued under any General Services Administration 
Federal Supply Schedule (FSS) contract should be excluded from this 
requirement. The commenter argued that the FSS program has a successful 
track record of increasing small business opportunities under current 
ordering procedures and was concerned that changing those procedures 
could have an adverse effect on small business. The final rule adopts 
this recommendation to exclude orders and Blanket Purchase Agreements 
issued under any FSS contract at this time. Under this requirement, an 
offeror must be identified as a certified HUBZone small business 
concern in SAM at the time it submits an offer for an order issued 
against a MAC where the order is set-aside for HUBZone small business 
concerns and the underlying MAC was not a HUBZone contract, except for 
FSS contracts. Being a certified HUBZone small business at the time of 
offer for an order merely means that the concern has been certified or 
recertified within a year of that offer and is identified in SAM as a 
certified HUBZone small business concern. Specifically, time of 
eligibility for the order relates back to the certification or 
recertification date, not to the date of the offer for the order. The 
final rule also adds language at the end of paragraph (a)(5) to clarify 
that a procuring agency may not count options as an award to a HUBZone 
small business concern where the concern has been found ineligible for 
the award of the contract pursuant to a HUBZone status protest pursuant 
to Sec.  126.803.
Section 126.700
    As noted above, SBA proposed 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 SBA did not receive any comments on 
this section and is adopting Sec.  126.700 as proposed.

7. Protests

Section 126.800
    The proposed rule amended Sec.  126.800 by changing the phrase 
``qualified HUBZone SBC'' to ``certified HUBZone small business 
concern'' throughout the section. SBA received no comments in response 
to the proposed changes. The final rule makes minor, non-substantive 
edits to the wording of the section for clarity.
Section 126.801
    SBA proposed to amend Sec.  126.801 to clarify how a HUBZone status 
protest should be filed and referred to SBA. Among other 
clarifications, SBA proposed to clarify that HUBZone status protests 
may be filed against HUBZone joint ventures. For consistency purposes, 
SBA proposed 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 Sec. Sec.  125.28(b) 
and 127.602. SBA did not receive any comments on these amendments. In 
addition, SBA received a comment suggesting that SBA clarify that it 
dismisses protests that are moot or not filed by an interested party. 
SBA agrees with this commenter and has amended Sec.  126.804, which 
addresses this issue more specifically.
Section 126.803
    SBA proposed to amend Sec.  126.803 to specify the date at which a 
protested concern's eligibility will be determined, in light of the 
changes contained in Sec.  126.501 providing that once certified, a 
HUBZone small business concern will remain eligible for HUBZone 
contract awards for one year from the date of certification. Proposed 
Sec.  126.803(a) provided that SBA will determine the eligibility of a 
concern subject to a HUBZone status protest as of the date of its 
initial certification or its most recent recertification, whichever is 
later in time. This means that if a concern is certified on January 1, 
and the concern submits an offer on June 1 of the same year and its 
status is protested, SBA will determine the concern's eligibility as of 
January 1. After the firm completes its annual recertification, any 
subsequent protests during that year will relate back to its 
eligibility as of the date its of recertification. SBA did not receive 
any comments on this change and adopts it as final in this rule.
    SBA also proposed to amend Sec.  126.803 to state that a concern 
that is

[[Page 65235]]

the subject of a HUBZone protest must submit responsive information 
within three days of receiving notification of a timely and specific 
protest. The current rule is that a concern must submit such 
information within five days. SBA received twelve comments on the 
proposed change, all of which opposed it. In response to the comments, 
SBA has revised this provision in the final rule to reflect that 
concerns will continue to have five business days to respond to 
protests.
    In addition, SBA proposed 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 
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. There were no comments on these 
proposed changes and SBA adopts them as final in this rule.
Section 126.804
    As discussed above, in response to a comment received, SBA has 
revised Sec.  126.804 to clarify that SBA will dismiss any HUBZone 
status protest that is premature, untimely, unspecific, moot, or not 
filed by an interested party. This is simply a clarification of SBA's 
current policy.

Compliance With Executive Orders 12866, 13563, 12988, 13132, 13175, 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 
final 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 making several changes to clarify its regulations. Through 
the years, SBA has spoken with small business representatives and has 
determined that several regulations needed further refinement so that 
they are easier to understand and implement. In addition, the major 
challenge with the HUBZone program over the last two decades is the 
lack of stability and predictability for program participants and 
procuring agencies. This rule attempts 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. In addition, this rule implements section 
1701(i) of the NDAA 2018, which allows certain certified HUBZone small 
business concerns to maintain their HUBZone status until 2021, and 
section 1701(h) of the NDAA 2018, which provides that HUBZone 
application decisions will be made within 60 days and that firms found 
ineligible under a program examination will have 30 days to provide 
documentation demonstrating their eligibility.
2. What are the potential benefits and costs of this regulatory action?
    The rule addresses or clarifies issues, which will provide clarity 
to small businesses and contracting personnel. SBA believes that 
improved clarity will necessarily alleviate burdens on small business 
and make it easier to participate in the program.
    The proposed rule sought to implement a formal request for 
reconsideration process with an associated annual cost of about $500. 
Because this final rule is not adopting a reconsideration process, that 
cost will no longer be borne by small businesses and has been removed 
from this impact analysis.
    SBA initially proposed to require HUBZone small business concerns 
to recertify annually to SBA that they continue to meet all 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, the proposed 
changes would have increased the annual hourly burden for HUBZone firms 
by 3,800 hours or an estimated annual cost of $167,428. Instead of 
1,200 firms recertifying annually, all 5,000 would have to recertify 
annually. However, in response to comments, the final rule merely 
requires a recertification without a full document production and 
review every year and only requires a full document production and 
review recertification process every three years. Thus, the only 
additional burden in this final rule from the current process is to 
require certified HUBZone small business concerns to annually represent 
to SBA that they continue to meet all HUBZone eligibility criteria. As 
such, we estimate that the burden imposed by this change will be cut in 
half from that proposed. Instead of 3,800 hours, SBA estimates a burden 
of 1,900 hours with an estimated annual cost of $83,714.
    The final rule also provides 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 Federal Procurement Data System (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 $185,052.
    SBA has amended the definition of the term ``employee'' such 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 certified HUBZone small business concerns, 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 $110,150.
    The largest benefit of this final rule for HUBZone entities is that 
the flexibility provided for the residency requirement will allow many 
HUBZone

[[Page 65236]]

entities to maintain their certification even if they do not meet the 
35% residency rule. As long as an employee is a resident of a HUBZone 
when they begin their employment, they will count toward the 
requirement even if they move out of a HUBZone. The average annual 
value of federal prime contracting dollars awarded to HUBZone certified 
entities from 2012 to 2017 was $6.9 billion. There are approximately 
5,000 HUBZone certified firms each year, resulting in approximately 
$1.4 million in federal prime contracting dollars per HUBZone certified 
firm annually. For the same years, 62 HUBZone firms, on average, 
decertified per year as they no longer met the 35% residency 
requirement. Assuming these entities would stay certified given the new 
rules, this would transfer $85,973,333 from HUBZone entities who would 
be decertified due to the residency requirement to a certified HUBZone 
entity or a non-HUBZone entity. The flexibilities in this rule create 
distributional effects in favor of HUBZone entities but do not affect 
total resources available to society. Given that the primary objectives 
of the HUBZone program are job creation and increased capital 
investment in distressed communities, these distributional effects are 
desired and should be noted although they are not included in the 
estimate of benefits for the purposes of this analysis.
    This rule also clarifies SBA's position with respect to HUBZone 
status certifications on task orders under MACs. Currently, HUBZone 
status certifications at the order level are not required unless the 
contracting officer, in his or her discretion, requests a 
recertification in connection with a specific order. This rule requires 
that an offeror be identified as a certified HUBZone small business 
concern in SAM at the time it submits an offer for an order issued 
against a MAC where the order is set-aside for HUBZone small business 
concerns and the underlying MAC was not a HUBZone contract, except for 
orders or Blanket Purchase Agreements issued under any FSS contracts. 
Being identified as a HUBZone small business concern in SAM at the time 
of offer for the order will be considered a recertification of HUBZone 
status. Since a firm's HUBZone status in SAM is updated by SBA and not 
the firm, the firm will not need to submit an additional certification 
or any other additional documentation with its offer or take any other 
action. Thus, SBA believes that this requirement imposes no additional 
burden on a small business contract holder.
    The added burden to ordering agencies includes the act of checking 
a firm's HUBZone status in SAM at the time of order award. Since 
ordering agencies are already familiar with checking SAM information, 
such as to ensure that an order awardee is not debarred, suspended, or 
proposed for debarment, this verification is de minimis. SBA 
recognizes, however, that an agency's market research for the order 
level may be impacted where the agency intends to issue a HUBZone set-
aside order off an unrestricted vehicle. The ordering agency may need 
to identify MAC-eligible vendors and then find their status in SAM. 
This is particularly the case where the agency is applying the Rule of 
Two and verifying that there are at least two HUBZone small business 
concerns to set aside the order.
    FPDS-NG indicates that, in Fiscal Years 2014 to 2018, agencies set 
aside for HUBZone small business concerns an average of about 11 orders 
per year off unrestricted MACs, excluding orders under FSS contracts. 
The annual cost of additional market research efforts for applicable 
set-aside orders under MACs, therefore, is calculated as 11 orders x 10 
minutes (0.16 hours) per order x $44.06 cost per hour. This amounts to 
an annual government burden of about $78.
3. What are the alternatives to this final rule?
    SBA considered alternatives to each of the significant changes made 
by this rule. Instead of requiring a one-time certification that would 
allow a concern to seek and be eligible for HUBZone contracts for a 
year, SBA considered the status quo, where a firm must be eligible at 
the time of offer and time of award, and requiring certifications at 
time of offer only, but eligibility would be fluid and could change 
from contract opportunity to contract opportunity (as is done for the 
other small business or socioeconomic set aside contract programs). SBA 
proposed a formal annual recertification process but has changed that 
in this final rule to merely require a recertification without a full 
document production and review. A formal annual recertification process 
could be unnecessarily burdensome on certified HUBZone small business 
concerns. This does not change the current requirement that a full 
document production and review recertification process is required 
every three years. SBA also considered whether eligibility or protest 
decisions should be appealed to the Office of Hearings and Appeals. SBA 
decided against pursuing this change because of the added cost to 
certified HUBZone small business concerns and the added delay to the 
procurement process that could dissuade procuring agencies from using 
the HUBZone program.
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 final 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 final rule.

         Table 1--Summary of Incremental Costs and Cost Savings
------------------------------------------------------------------------
                                                       Annual cost/(cost
       Item No.            Regulatory action item      saving) estimate
------------------------------------------------------------------------
1....................  Annual representation of                  $83,714
                        continued eligibility.
2....................  Removing requirement to                 (185,052)
                        present eligibility at award.
3....................  Change to employee count                (110,150)
                        eligibility.
4....................  Change to residency                  * 85,973,333
                        requirements.
5....................  Additional Government market                   78
                        research to identify
                        qualified sources for set-
                        aside orders.
                                                     -------------------
                       Estimated Net Incremental               (211,410)
                        Cost/(Cost Saving).
------------------------------------------------------------------------
* (Transfer).


[[Page 65237]]


    Table 2--Detailed Breakdown of Incremental Costs and Cost Savings
------------------------------------------------------------------------
                   Regulatory action item    Annual cost/(cost  saving)
    Item No.               details               estimate breakdown
------------------------------------------------------------------------
1...............  Regulatory change: SBA
                   will require certified
                   HUBZone small business
                   concerns to annually
                   represent their
                   continued eligibility.
                   The rule would continue
                   to require certified
                   HUBZone small business
                   concerns to undergo a
                   full document
                   recertification review
                   by SBA every three
                   years.
                  Estimated number of       3,800 entities.
                   impacted entities:
                   There are approximately
                   5,000 firms in the
                   HUBZone program, and
                   under the rule all
                   these firms will need
                   to represent their
                   continued eligibility
                   each year. However,
                   since 1,200 firms
                   recertify each year
                   currently, the
                   incremental increase in
                   recertifications is
                   3,800 firms annually.
                  Estimated average impact  0.5 hour.
                   *  (labor hour): SBA
                   estimates that it takes
                   the average
                   participating firm
                   about 0.5 hour to
                   complete its annual
                   representation of
                   continued eligibility.
                  2018 Median Pay ** (per   $44.06.
                   hour + 30% for
                   benefits): Most HUBZone
                   firms use an accountant
                   or someone with similar
                   skills for this task.
                                           -----------------------------
                     Estimated Cost/(Cost   $83,714.
                      Saving).
2...............  Regulatory change: Under
                   current rules, a
                   HUBZone firm must be
                   eligible at the time of
                   offer and award of a
                   HUBZone contract. This
                   rule provides 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       4,200 certifications.
                   occurrences:
                   Approximately 2,100 new
                   HUBZone contracts are
                   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.
                  2018 Median Pay ** (per   $44.06.
                   hour + 30% for
                   benefits): Most HUBZone
                   firms use an accountant
                   or someone with similar
                   skills for this task.
                                           -----------------------------
                     Estimated Cost/(Cost   ($185,052).
                      Saving).
3...............  Regulatory change: SBA
                   is changing the
                   eligibility
                   requirements to provide
                   that an individual
                   employee who 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. 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       5,000 entities.
                   impacted 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
                   hours, because once a
                   HUBZone employee is
                   hired the firm will
                   never have to check
                   residency for that
                   employee.
                  2018 Median Pay ** (per   $44.06.
                   hour + 30% for
                   benefits): Most HUBZone
                   firms use an accountant
                   or someone with similar
                   skills for this task.
                                           -----------------------------
                     Estimated Cost/(Cost   ($110,150).
                      Saving).
4...............  Regulatory change: SBA
                   is changing the
                   eligibility
                   requirements to provide
                   that an individual
                   employee who 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. Further, the
                   requirement to maintain
                   certification is being
                   lowered from 35% to
                   20%, which will provide
                   HUBZone entities with
                   greater flexibility to
                   maintain their
                   certification and stay
                   in the program.
                  Estimated number of       62 entities.
                   impacted entities: SBA
                   estimates that
                   approximately 62 firms
                   are decertified from
                   the HUBZone program
                   annually due to no
                   longer meeting the 35%
                   residency requirement.
                  Estimated average impact  $1,386,667.
                   *: HUBZone entities are
                   awarded an average of
                   $6.9 million per year.
                   Assuming 5,000
                   entities, this is
                   $1,386,667 per entity.
                                           -----------------------------
                     Estimated Transfer...  $85,973,333.
5...............  Regulatory change: SBA
                   is changing the HUBZone
                   recertification
                   requirements to provide
                   a firm must be a
                   certified HUBZone small
                   business concern at the
                   time of offer for set-
                   aside orders and
                   Blanket Purchase
                   Agreements issued
                   against unrestricted
                   Multiple Award
                   Contracts, except for
                   Federal Supply Schedule
                   contracts. This change
                   impacts the market
                   research required by
                   ordering activities to
                   determine if a set-
                   aside order for HUBZone
                   small business concerns
                   may be pursued.
                  Estimated number of       11 orders.
                   impact entities:
                   Approximately 11
                   HUBZone set-aside
                   orders are issued
                   annually on Multiple
                   Award Contracts that
                   are not set aside in
                   the same category,
                   other than on the
                   Federal Supply Schedule.
                  Estimated average         0.16 hours.
                   impact: SBA estimates
                   that ordering
                   activities applying the
                   Rule of Two will spend
                   an average of 10
                   additional minutes to
                   locate contractors
                   awarded MACs and
                   looking up the current
                   HUBZone status for each
                   of the contractors in
                   SAM to determine if a
                   set-aside order can be
                   pursued.
                  2017 Median Pay (per      $44.06.
                   hour): Contracting
                   officers typically
                   perform the market
                   research for the
                   acquisition plan.
                                           -----------------------------
                     Estimated Cost/(Cost   $78.
                      Saving).
                                           -----------------------------
                       Estimated Net        ($211,410)
                        Annual Impact.
------------------------------------------------------------------------
* This estimate is based on HUBZone and FPDS data, as well as best
  professional judgment.
** Source: Bureau of Labor Statistics, Accountants and Auditors.

    Table 3 displays the savings and costs of the rules in effect 
during the first 3 years. Savings would be the same for all years and 
is the sum of Items 2 and 3 in Table 2 above. Additional costs will be 
incurred in year 2 and year 3 as HUBZone entities will now have to 
represent their continued eligibility in those years (Item 1 in Table 
2) and there are no additional costs in year 1, since the requirement 
to certify eligibility into the program and undergo a full document 
recertification review by SBA every three years has not changed. This 
pattern would continue into perpetuity.

        Table 3--Schedule of Costs/(Savings) Over 3 Year Horizon
------------------------------------------------------------------------
                                              Savings          Costs
------------------------------------------------------------------------
Year 1..................................      ($295,202)             $78
Year 2..................................       (295,202)          83,792
Year 3..................................       (295,202)          83,792
------------------------------------------------------------------------


[[Page 65238]]


  Table 4--Annualized Savings in Perpetuity With 7% Discount Rate, 2016
                                 Dollars
------------------------------------------------------------------------
                                                             Estimate
------------------------------------------------------------------------
Annualized Savings......................................      ($283,306)
Annualized Costs........................................          51,804
                                                         ---------------
  Annualized Net Savings................................       (231,502)
------------------------------------------------------------------------

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 published a proposed rule with a 60-day comment period, and the 
proposed rulemaking was posted on www.regulations.gov to allow the 
public to comment meaningfully on its provisions. In addition, the 
proposed rule was discussed with the Small Business Procurement 
Advisory Council, which consists of the Directors of the Office of 
Small and Disadvantaged Business Utilization. SBA also submitted the 
rule to multiple agencies with representatives on the FAR Small 
Business Subcommittee prior to submitting the rule to the Office of 
Management and Budget for interagency review. 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. SBA received extensive responses to the proposed rule from 
98 commenters, which comprised about 370 specific comments.
    3. Flexibility: Did the agency identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public?
    The 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 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 
rule has no federalism implications warranting preparation of a 
federalism assessment.

Executive Order 13175

    As part of the proposed rulemaking process, SBA held tribal 
consultations with tribal governments in Anchorage, Alaska, 
Albuquerque, New Mexico, and Oklahoma City, Oklahoma 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 
Corporation (ANC)-owned firms participating in the HUBZone program. SBA 
took these discussions into account in drafting the proposed rule.

Executive Order 13771

    This rule is an Executive Order 13771 deregulatory action. Details 
on the estimated cost savings of this rule can be found in this rule's 
Regulatory Impact Analysis. By making eligibility requirements more 
flexible and by reducing the amount of recording keeping required for 
participation in the program, the rule will result in annualized 
savings of $231,502 discounted to perpetuity using a 7% discount rate 
in 2016 dollars and a net present value of $3,307,169.

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

    For the purposes of the Paperwork Reduction Act, SBA has determined 
that this rule will impose new government-wide reporting requirements 
on HUBZone small business concerns. The rule requires 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 
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. The requirement to 
maintain records is included in 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

[[Page 65239]]

expected to have a significant economic impact on a substantial number 
of small entities.
    While this final rule is expected to impact a substantial number of 
small entities as all HUBZone entities are small, the impact is not 
expected to be significant. As detailed in the Regulatory Impact 
Analysis, there will be an annualized savings of $231,502 to all 
HUBZone entities, or approximately $33 per HUBZone entity, which 
qualifies as de minimis savings for each entity.
    Accordingly, the Administrator of the SBA hereby certifies that 
this rule will not have a significant economic impact on a substantial 
number of small entities.

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.

13 CFR Part 127

    Government contracts, Reporting and recordkeeping requirements, 
Small businesses.

    For the reasons set forth in the preamble, SBA amends 13 CFR parts 
115, 121, 125, 126, and 127 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.
    (i) 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.
    (ii) [Reserved]
    (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'' wherever it appears and adding in its place the phrase 
``certified HUBZone small business concerns''.

0
14. Amend Sec.  126.103 as follows:
0
a. Revise the definition of ``Alaska Native Corporation (ANC)'';
0
b. Remove the definitions of ``Alaska Native Village'' and ``ANCSA'';
0
c. Revise the definitions of ``Attempt to maintain'' and ``Certify'';
0
d. Remove the definitions of ``County unemployment rate'' and ``De-
certify'';
0
e. Revise the definition of ``D/HUB'';
0
f. Add a definition in alphabetical order for ``Decertify'';
0
g. Add a definition in alphabetical order for ``Dynamic Small Business 
Search (DSBS)'';
0
h. Revise the definition of ``Employee'';
0
i. Remove the definition of ``HUBZone small business concern (HUBZone 
SBC)'';
0
j. Add a definition in alphabetical order for ``HUBZone small business 
concern or certified HUBZone small business concern'';
0
k. Revise the definition of ``Interested party'';
0
l. Remove the definitions of ``List'', ``Medium household income'', and 
``Metropolitan statistical area'';

[[Page 65240]]

0
m. Add in alphabetical order a definition for ``Primary industry 
classification or primary industry'';
0
n. Revise the definitions of ``Principal office'', ``Qualified base 
closure area'', ``Qualified census tract'', and ``Qualified disaster 
area'';
0
o. Remove the definition of ``Qualified HUBZone SBC'';
0
p. Revise the definitions of ``Qualified non-metropolitan county'', 
``Redesignated area'', and ``Reside''; and
0
q. Remove the definitions of ``Small disadvantaged business (SDB)'' and 
``Statewide average unemployment rate''.
    The revisions and additions to 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 concern 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 concern'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 
concern'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, February 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 concern and 
who works for the concern 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 concern 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. Such compensation must provide a demonstrable financial 
value to the individual and must be compliant with all relevant federal 
and state laws.
    (2) In general, the following are not considered employees:
    (i) Individuals who are not owners and 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; 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 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. A concern 
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 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 certified HUBZone small business concern. SBA 
utilizes Sec.  121.107 of this chapter in determining a concern'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

[[Page 65241]]

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.

    (i) 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 concern's principal office. Since Office A is in a HUBZone, the 
business concern complies with the principal office requirement.
    (ii) Example 2: A business concern whose primary industry is 
services 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 a 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.
    (iii) 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 job-sites fulfilling 
specific contract obligations. The business concern's owner performs 
45% of her work at job-sites, 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 concern since it is 
the only location where any employees of the concern 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 a base closure area that is 
treated by SBA as a HUBZone for a period of at least 8 years, beginning 
on the date on which the Administrator designates the base closure area 
as a HUBZone and ending on the date on which the base closure area 
ceases to be a qualified census tract or a qualified nonmetropolitan 
county in accordance with the online tool prepared by the 
Administrator.
    Qualified census tract. (1) Qualified census tract means a 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.
    (3) Qualified census tracts are reflected in a publicly accessible 
online tool that depicts HUBZones and will be updated every 5 years.
    Qualified disaster area. (1) Qualified disaster area means any 
census tract or nonmetropolitan county located in an area where a major 
disaster declared by the President under section 401 of the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5170) 
has occurred or an area in which a catastrophic incident has occurred 
if such census tract or nonmetropolitan county ceased to be a qualified 
census tract or qualified nonmetropolitan county during the period 
beginning 5 years before the date on which the President declared the 
major disaster or the catastrophic incident occurred.
    (2) A census tract or nonmetropolitan county shall be considered to 
be a qualified disaster area only for the period of time ending on the 
date the area ceases to be a qualified census tract or a qualified 
nonmetropolitan county, in accordance with the publicly accessible 
online tool that depicts HUBZones, and beginning--
    (i) In the case of a major disaster, on the date on which the 
President declared the major disaster for the area in which the census 
tract or nonmetropolitan county, as applicable, is located; or
    (ii) In the case of a catastrophic incident, on the date on which 
the catastrophic incident occurred in the area in which the census 
tract or nonmetropolitan county, as applicable, is located.
    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 State 
median household income, based on a 5-year average of the available 
data from 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 a 5-year average of the 
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.
    (4) Qualified non-metropolitan counties are reflected in a publicly 
accessible online tool that depicts HUBZones and will be updated every 
5 years.
    Redesignated area 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.'' A redesignated area 
generally shall be treated as a HUBZone for a period of three years, 
starting from the date on which the area ceased to be a qualified 
census tract or a qualified non-

[[Page 65242]]

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 where the individual is being treated as a HUBZone 
resident for the first time).
    (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, or 
utility bills. Where the documentation provided does not demonstrate 
180 days of residency, SBA will require a signed statement attesting to 
an individual's dates of residency.
    (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.

    (i) 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.
    (ii) 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.
    (iii) 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 remain 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 NHOs, or by a corporation 
that is wholly owned by one or more NHOs.
    (b) Size. (1) An applicant concern, together with its affiliates, 
must qualify as a small business concern 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 concern 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. In order to be eligible for HUBZone 
certification, a 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.
    (1) A concern that owns or makes a long-term investment (i.e., a 
lease of at least 10 years) in a principal office in an area that 
qualifies as a HUBZone at the time of its initial certification will be 
deemed to have its principal office located in a HUBZone for at least 
10 years from the date of that certification as long as the firm 
maintains the long-term lease or continues to own the property upon 
which the principal office designation was made. This does not apply to 
leases of office space that are shared with one or more other concerns 
or individuals.
    (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) In order to be eligible for HUBZone 
certification, at least 35% of a 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.

    (i) 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.
    (ii) 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 time of recertification where the individual is being 
treated as a HUBZone resident for the first time) shall continue to 
count as a HUBZone resident employee if the individual continues to 
live in the HUBZone for at least 180 days immediately after 
certification (or recertification) and remains an employee of the 
concern, even if the employee subsequently 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

[[Page 65243]]

concern's participation in the HUBZone program.

    (i) Example to paragraph (d)(3): As part of its application for 
HUBZone certification, a concern provides documentation showing that 
35% of its employees have lived in a HUBZone for more than 180 days. 
SBA certifies the concern as a certified HUBZone small business 
concern. Within 180 after being certified, an individual critical to 
the concern's meeting the 35% residency requirement moves out of the 
HUBZone area. That individual will continue to be treated as a 
HUBZone resident during the first year after the concern's 
certification; however, at the time of the firm's recertification, 
that individual will not be counted as a resident of a HUBZone.

    (ii) [Reserved]
    (e) Attempt to maintain. (1) At the time of application, a 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. Sec.  126.5 and 126.700).
    (g) Suspension and Debarment. In order to be eligible for HUBZone 
certification and to remain certified, the concern and any of its 
owners must not 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(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) Employees of affiliates are not automatically considered 
employees of a HUBZone applicant or HUBZone small business concern 
solely on the basis of affiliation.
    (c) 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 certain circumstances. In determining 
whether individuals should be counted as employees of a HUBZone 
applicant or HUBZone small business concern, SBA will consider all 
information, including criteria used by the IRS for Federal income tax 
purposes and those set forth in SBA's Size Policy Statement No. 1. 
Employees of the concern's affiliate will not be counted as the 
concern's employees if there is a clear line of fracture between the 
concern and its affiliate.
    (1) SBA generally will find that there is a clear line of fracture 
where the concern demonstrates that it does not share employees, 
facilities, or equipment with the affiliate; has different customers or 
lines of business (or is distinctly segregated geographically); and 
does not receive significant contracts or financial assistance from the 
affiliate.
    (2) The use of common administrative services between parent and/or 
sister concerns by itself will not result in an affiliate's employees 
being counted as employees of the HUBZone applicant or HUBZone small 
business concern.
    (3) Minimal business activity between the concern and its affiliate 
will not result in an affiliate's employees being counted as employees 
of the HUBZone applicant or HUBZone small business concern.

    (i) Example to paragraph (c): X owns 100% of Company A and 51% 
of Company B. Based on X's common ownership of A and B, the two 
companies are affiliated under SBA's size regulations. SBA will look 
at the totality of circumstances to determine whether it would be 
reasonable to treat the employees of B as employees of 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 two concerns and would treat the 
employees of B as employees of A for HUBZone program purposes. In 
order to be eligible for the HUBZone program, at least 35% of the 
combined employees of A and B must reside in a HUBZone.
    (ii) [Reserved]


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 
concern and designate the concern as a certified HUBZone small business 
concern in DSBS (or successor system).

0
24. Revise Sec.  126.303 to read as follows:

[[Page 65244]]

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 signed by an owner or officer 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 
immediately 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 concern is not eligible, the 
applicant will be given the option to withdraw its application, or SBA 
will decline certification and the concern must wait 90 days to 
reapply.
    (d) HUBZone areas. Concerns applying for HUBZone status must use 
SBA's website (e.g., 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., by contacting Bureau of Indian Affairs 
for Indian reservations or Department of Defense for BRACs).
    (e) Record maintenance. HUBZone small business concerns must retain 
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 60 calendar days after receipt of a complete 
package.
    (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 concern.
    (e) If SBA approves the application, it will send a written notice 
to the concern and designate the concern 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.
    (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 concerns 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.  126.401 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

[[Page 65245]]

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.

0
31. Revise Sec.  126.402 to read as follows:


Sec.  126.402   When will SBA conduct program examinations?

    (a) SBA may conduct a program examination at any time after the 
concern submits its application, during the processing of the 
application, and at any time while the concern is a certified HUBZone 
small business concern.
    (b) SBA will conduct program examinations periodically as part of 
the recertification process set forth in Sec.  126.500.
    (c) Upon receipt of specific and credible information alleging that 
a certified HUBZone small business concern no longer meets the 
eligibility requirements for continued program eligibility, SBA will 
examine the concern's eligibility for continued participation in the 
program.

0
32. 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 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
33. Add Sec.  126.404 to subpart D 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 concern 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 concern is not 
eligible, the concern will have 30 days to submit documentation showing 
that it is eligible. During the 30-day period, such concern may not 
compete for or be awarded a HUBZone contract. If such concern fails to 
demonstrate its eligibility by the last day of the 30-day period, the 
concern will be decertified.
    (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 concern is 
eligible, SBA will send a written certification notice to the concern 
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 concern is 
ineligible, SBA will send a written decline notice to the concern.

0
34. Revise Sec.  126.500 to read as follows:


Sec.  126.500   How does a concern maintain HUBZone certification?

    (a) Any concern seeking to remain a certified HUBZone small 
business concern in DSBS (or successor system) must annually represent 
to SBA that it continues to meet all HUBZone eligibility criteria (see 
Sec.  126.200).
    (1) If at the time of its recertification the certified HUBZone 
small business concern is not currently performing a HUBZone contract, 
its representation means that at least 35% of its employees continue to 
reside in a HUBZone and the principal office of the concern continues 
to be located in a HUBZone.
    (2) If at the time of its recertification the certified HUBZone 
small business concern is currently performing a HUBZone contract, its 
representation means that at least 20% of its employees continue to 
reside in a HUBZone and the principal office of the concern continues 
to be located in a HUBZone.
    (3) Except as provided in paragraph (b) of this section, unless SBA 
has reason to question the concern's representation of its continued 
eligibility, SBA will accept the representation without requiring the 
certified HUBZone small business concern to submit any supporting 
information or documentation.
    (4) The concern's recertification must be submitted within 30 days 
of the anniversary date of its original HUBZone certification. The date 
of HUBZone certification is the date specified in the concern's 
certification letter. If the business fails to recertify, SBA may 
propose the concern for decertification pursuant to Sec.  126.503.
    (b) SBA will conduct a program examination of each certified 
HUBZone small business concern pursuant to Sec.  126.403 at least once 
every three years to ensure continued program eligibility. 
Specifically, SBA will conduct a program examination as part of the 
recertification process three years after the concern's initial HUBZone 
certification (whether by SBA or a third-party certifier) or three 
years after the date of the concern's last program examination, 
whichever date is later.

    (1) Example: Concern A is certified by SBA to be eligible for 
the HUBZone program on September 27, 2020. During that year, Concern 
A does not receive a HUBZone contract. Concern A must recertify its 
eligibility to SBA between August 27, 2021 and September 26, 2021. 
Concern A must represent that at least 35% of its employees continue 
to reside in a HUBZone and that its principal office continues to be 
located in a HUBZone. Concern A will continue to be a certified 
HUBZone small business concern that is eligible to receive HUBZone 
contracts (as long as it is small for the size standard 
corresponding to the NAICS code assigned to the contract) through 
September 26, 2022. On June 28, 2022, Concern A is awarded a HUBZone 
contract. Concern A must recertify its eligibility to SBA between 
August 27, 2022 and September 26, 2022. Because Concern A is 
performing a HUBZone contract, Concern A must represent that at 
least 20% of its employees continue to reside in a HUBZone and that 
its principal office continues to be located in a HUBZone. Concern A 
will continue to be a certified HUBZone small business concern that 
is eligible to receive HUBZone contracts (as

[[Page 65246]]

long as it is small for the size standard corresponding to the NAICS 
code assigned to the contract) through September 26, 2023. Concern A 
must recertify its eligibility to SBA between August 27, 2023 and 
September 26, 2023. Because three years have elapsed since its 
application and original certification, SBA will conduct a program 
examination of Concern A at that time. In addition to its 
representation that it continues to be eligible as a certified 
HUBZone small business concern, Concern A must provide additional 
information as requested by SBA to demonstrate that it continues to 
meet all the eligibility requirements of the HUBZone Program.
    (2) [Reserved]


0
35. Revise Sec.  126.501 to read as follows:


Sec.  126.501   How long does HUBZone certification last?

    (a) One-year certification. 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, or the concern is 
performing a HUBZone contract and fails to attempt to maintain the 
minimum employee HUBZone residency requirement (see Sec.  126.103).
    (1) A certified HUBZone small business concern that acquires, is 
acquired by, or merges with another business entity must notify SBA 
within 30 days of the transaction becoming final. The concern must then 
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.
    (2) A certified HUBZone small business concern that is performing a 
HUBZone contract and fails to attempt to maintain the minimum employee 
HUBZone residency requirement (see Sec.  126.103) must notify SBA 
within 30 days of such occurrence. A concern that cannot meet the 
requirement may voluntarily withdraw from the program, or it will be 
removed by SBA pursuant to program decertification procedures.
    (b) Annual recertification. On the annual anniversary of a 
concern's certification or recertification, the concern 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) Review of recertification. SBA may review the concern's 
recertification through the program examination process when deemed 
appropriate and will do so every three years pursuant to Sec.  126.500.
    (1) If SBA determines that the concern is no longer eligible at the 
time of its recertification, SBA will propose the HUBZone small 
business concern for decertification pursuant to Sec.  126.503.
    (2) If SBA determines that the concern continues to be eligible, 
SBA will notify the concern 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 ninety (90) calendar days after the date of decertification. At 
that point, the concern would have to demonstrate that it meets all 
HUBZone eligibility requirements.

0
36. 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 
designated 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
37. 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) General. If SBA is unable to 
verify a certified HUBZone small business concern's eligibility or has 
information indicating that a concern 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 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. The notice of 
proposed decertification will notify the concern that it has 30 days 
from the date it receives the letter to submit a written response to 
SBA explaining why the proposed ground(s) should not justify 
decertification. SBA will consider that written notice was provided if 
SBA sends the notice of 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 submit a written response 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).

[[Page 65247]]

    (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 concern'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
38. 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 will 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 for a HUBZone contract.
    (1) As long as the concern was eligible at the time of its offer 
(and eligibility relates back to the date of its certification or 
recertification), it could be awarded a HUBZone contract even if it no 
longer appears as a certified HUBZone small business concern on DSBS on 
the date of award.
    (2) If SBA determines that the concern's recertification was 
invalid (i.e., based on a protest or program examination SBA determines 
that the concern did not qualify as a HUBZone small business concern on 
the date of its recertification), the concern will be ineligible for 
the award of any HUBZone contract for which it previously certified its 
HUBZone status.

Subpart F--Contracting With Certified HUBZone Small Business 
Concerns

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


Sec.  126.600   [Amended]

0
40. 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 paragraph (a), (b), and (c), remove the phrase ``qualified 
HUBZone SBCs'' and add in its place the phrase ``certified HUBZone 
small business concerns'';
0
c. In paragraphs (d) and (e), remove the phrase ``HUBZone SBCs'' and 
add in its place the phrase ``certified HUBZone small business 
concerns''; and
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
41. 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
42. 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 that has not 
received a HUBZone contract must have at least 35% of its employees 
residing within a HUBZone at the time of certification and annual 
recertification. Such a concern need not meet the 35% HUBZone residency 
requirement at all times while certified in the program. A certified 
HUBZone small business concern that has received a HUBZone contract 
must ``attempt to maintain'' (see Sec.  126.103) having 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. 
Such a concern must have at least 20% of its employees residing within 
a HUBZone at the time of its annual recertification.
    (b) For orders under indefinite delivery, indefinite quantity 
contracts, including orders under 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 to maintain the HUBZone 
residency requirement. Such failure will result in proposed 
decertification pursuant to Sec.  126.503.


Sec.  126.603   [Amended]

0
43. Amend Sec.  126.603 as follows:
0
a. Remove the phrase ``qualified HUBZone SBC'' and add in its place the 
phrase ``certified HUBZone small business concern''; and
0
b. Remove the phrase ``qualified HUBZone SBCs'' and add in its place 
the phrase ``certified HUBZone small business concerns''.

0
44. Amend Sec.  126.607 as follows:
0
a. In the section heading, remove the phrase ``qualified HUBZone SBCs'' 
and add in its place the phrase ``certified HUBZone small business 
concerns'';
0
b. In paragraph (c) introductory text, remove the phrase ``qualified 
HUBZone SBCs'' and add in its place the phrase ``certified HUBZone 
small business concerns''; and

[[Page 65248]]

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)''.


Sec.  126.608  [Amended]

0
45. Amend Sec.  126.608 as follows:
0
a. Remove the phrase ``HUBZone set-aside'' and add in its place the 
phrase ``HUBZone set-aside or sole source award'';
0
b. Remove the phrase ``qualified HUBZone SBC'' and add in its place the 
phrase ``certified HUBZone small business concern''.


Sec.  126.611  [Amended]

0
46. Amend the Sec.  126.611 heading 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
47. Amend Sec.  126.612 as follows:
0
a. In the introductory text, remove the phrase ``qualified HUBZone 
SBC'' wherever it appears and add in its place the phrase ``HUBZone 
small business concern'';
0
b. In paragraph (c), remove the phrase ``qualified HUBZone SBCs'' and 
add in its place the phrase ``HUBZone small business concerns''; and
0
c. In paragraph (d), remove the phrase ``qualified HUBZone SBC'' 
wherever it appears and add in its place the phrase ``HUBZone small 
business concern''


Sec.  126.613   [Amended]

0
48. Amend Sec.  126.613 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. In paragraph (a)(1):
0
i. Remove the phrase ``qualified HUBZone SBC'' wherever it appears and 
add in its place the phrase ``certified HUBZone small business 
concern'';
0
ii. Remove the phrase ``another SBC'' and add in its place the phrase 
``another small business concern'';
0
iii. In the final sentence, remove the phrase ``HUBZone SBC'' and add 
in its place the phrase ``certified HUBZone small business concern'';
0
iv. In the final sentence, remove the phrase ``HUBZone SBCs'' and add 
in its place the phrase ``HUBZone small business concerns'';
0
c. In paragraph (a)(2):
0
i. Designate the paragraphs that are Examples 1 through 4 as paragraphs 
(a)(2)(i) through (iv), respectively;
0
ii. Remove the phrase ``qualified HUBZone SBC'' wherever it appears and 
add in its place the phrase ``certified HUBZone small business 
concern'';
0
iii. Remove the phrase ``non-HUBZone SBC'' wherever it appears and add 
in its place the phrase ``non-HUBZone small business concern'';
0
iv. In newly designated paragraph (a)(2)(ii) (Example 2), remove the 
phrase ``non-HUBZone SBC's'' and add in its place the phrase ``non-
HUBZone small business concern's'';
0
v. In the second and third sentences in newly designated paragraph 
(a)(2)(iv) (Example 4), remove the phrase ``HUBZone SBC'' wherever it 
appears and add in its place the phrase ``HUBZone small business 
concern'';
0
vi. In the third sentence in newly designated paragraph (a)(2)(iv) 
(Example 4), remove the phrase ``HUBZone SBCs'' and add in its place 
the phrase ``certified HUBZone small business concerns'';
0
d. In paragraph (b)(2):
0
i. Remove the phrase ``qualified HUBZone SBCs'' and add in its place 
the phrase ``certified HUBZone small business concerns'';
0
ii. Remove the phrase ``qualified HUBZone SBC'' and add in its place 
the phrase ``certified HUBZone small business concern'';
0
iii. Designate the ``Example'' paragraph as paragraph (b)(2)(i) and add 
a reserved paragraph (b)(2)(ii); and
0
e. In paragraph (d):
0
i. Remove the phrase ``qualified HUBZone SBC'' and add in its place the 
phrase ``certified HUBZone small business concern'';
0
ii. Remove the phrase ``SBCs'' and add in its place the phrase ``small 
business concerns''.

0
49. Amend Sec.  126.616 as follows:
0
a. Revise the section heading;
0
b. Revise paragraph (a);
0
c. In paragraphs (b)(1), (d)(1), and (d)(2) introductory text, remove 
the phrase ``qualified HUBZone SBC'' wherever it appears and add in its 
place the phrase ``certified HUBZone small business concern'';
0
e. In paragraph (c) introductory text, remove ``SBC'' and add in its 
place ``small business concern'';
0
f. In paragraphs (c)(2) through (4), (c)(9) and (10), (d)(2), (e), (g), 
and (i) remove the phrase ``HUBZone SBC'' wherever it appears'' and add 
in its place the phrase ``certified HUBZone small business concern'';
0
g. 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
h. 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.
* * * * *

[[Page 65249]]

Sec.  126.617   [Amended]

0
50. 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''.


Sec.  126.618   [Amended]

0
51. Amend Sec.  126.618 as follows:
0
a. In the section heading, remove the phrase ``HUBZone SBC's'' and add 
in its place the phrase ``certified HUBZone small business concern's'';
0
b. 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
c. 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
d. In paragraphs (b) and (c)(1), remove the phrase ``HUBZone SBC'' 
wherever it appears and add in its place the phrase ``certified HUBZone 
small business concern'';
0
e. In paragraph (c)(1), remove the phrase ``performance of work'' and 
add in its place the phrase ``limitations on subcontracting''.

0
52. Add Sec.  126.619 to subpart F 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 (see paragraph (b)(4) of this section).
    (2) Except for orders under Federal Supply Schedule contracts, 
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 concern 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 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, or where 
the concern has been found to be ineligible for award pursuant to a 
HUBZone status protest pursuant to Sec.  126.803.
    (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 concern 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 concern's initial 
certification or, if applicable, its most recent recertification.
    (c) Except for Blanket Purchase Agreements under Federal Supply 
Schedule contracts, a concern's status will be determined at the time 
of submission of its initial response to a solicitation for 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
53. 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

[[Page 65250]]

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 
set aside for certified HUBZone small business 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.

0
54. Revise Sec.  126.800 to read as follows:


Sec.  126.800   Who may protest the status of a certified HUBZone small 
business concern?

    (a) For sole source procurements. SBA or the contracting officer 
may protest the proposed awardee's status as a certified HUBZone small 
business concern.
    (b) For all other procurements, including Multiple Award Contracts 
(see Sec.  125.1 of this chapter). SBA, the contracting officer, or any 
other interested party may protest the apparent successful offeror's 
status as a certified HUBZone small business concern.

0
55. Amend Sec.  126.801 by revising the section heading, paragraphs 
(a), (b), and (c)(3), and the second and third sentences in paragraph 
(e), and by adding paragraphs (e)(1) through (12) to 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 concern 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 (i.e., HUBZone set-aside; 
HUBZone sole source; full and open competition with a HUBZone price 
evaluation preference applied; reserve for HUBZone small business 
concerns under a Multiple Award Contract; or order set-aside for 
HUBZone small business concerns against a Multiple Award Contract);
    (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 concern 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
56. 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
57. 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

[[Page 65251]]

0
d. Revising newly redesignated paragraphs (b)(2), (c), and (e).
    The revisions and addition 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 5 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 be disadvantageous to the Government. 
Notwithstanding such a determination, the provisions of paragraph (e) 
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 concern 
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).

0
58. Revise Sec.  126.804 to read as follows:


Sec.  126.804  Will SBA decide all HUBZone status protests?

    SBA will decide all protests not dismissed on the basis that they 
are premature, untimely, non-specific, moot, or not filed by an 
interested party.

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

0
59. The authority citation for part 127 continues to read as follows:

    Authority: 15 U.S.C. 632, 634(b)(6), 637(m), 644 and 657r.


0
60. 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: November 12, 2019.
Christopher M. Pilkerton,
Acting Administrator.
[FR Doc. 2019-24915 Filed 11-25-19; 8:45 am]
 BILLING CODE 8025-01-P