[Federal Register Volume 85, Number 90 (Friday, May 8, 2020)]
[Rules and Regulations]
[Pages 27290-27293]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08619]


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 SMALL BUSINESS ADMINISTRATION

13 CFR Part 124

RIN 3245-AH13


Regulatory Reform Initiative: Small Disadvantaged Businesses

AGENCY: U.S. Small Business Administration.

ACTION: Direct final rule.

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SUMMARY: The U.S. Small Business Administration (SBA) is removing from 
the Code of Federal Regulations (CFR) 16 regulations that are no longer 
necessary because they are either redundant or obsolete. This action 
will assist the public by simplifying SBA's regulations.

DATES: This rule is effective on August 6, 2020 without further action, 
unless significant adverse comment is received by July 7, 2020. If 
significant adverse comment is received, SBA will publish a timely 
withdrawal of the rule in the Federal Register.

ADDRESSES: You may submit comments, identified by RIN 3245-AH13 by any 
of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail or Hand Delivery/Courier: Brenda Fernandez, U.S. 
Small Business Administration, Office of Policy, Planning and Liaison, 
409 Third Street SW, 8th Floor, Washington, DC 20416.
    SBA will post all comments on http://www.regulations.gov. If you 
wish to submit confidential business information (CBI), as defined in 
the User Notice at http://www.regulations.gov, please submit the 
information to Brenda Fernandez, U.S. Small Business Administration, 
Office of Policy, Planning and Liaison, 409 Third Street SW, 8th Floor, 
Washington, DC 20416, or send an email to [email protected]. 
Highlight the information that you consider to be CBI and explain why 
you believe SBA should hold this information as confidential. SBA will 
review the information and make the final determination on whether it 
will publish the information.

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

SUPPLEMENTARY INFORMATION: 

Small Disadvantaged Business Program

    The government promotes contracting and subcontracting with small 
disadvantaged businesses (SDBs) by setting government-wide and agency-
specific goals for the percentage of Federal contract and subcontract 
dollars awarded to SDBs each fiscal year. The government-wide goal is 
that not less than 5 percent of the total value of all prime contract 
and subcontract awards be made to SDBs. At one time, SDBs had to be 
certified by the SBA, or by a private certifying entity acting in 
compliance with SBA regulations, to qualify for certain Federal 
programs as prime contractors. However, all Federal programs for SDB 
prime contractors have been discontinued, with only the government-wide 
and agency-specific goals for the percentage of Federal contract and/or 
subcontract dollars awarded to SDBs each year remaining. Pursuant to 
the SDB subcontracting program, Federal agencies must negotiate 
subcontracting plans with the apparent successful bidder or offeror on 
qualifying prime contracts prior to awarding the contract. 
Subcontracting plans set goals for the percentage of subcontract 
dollars to be awarded to SDBs, among others, and describe efforts that 
will be made to ensure that SDBs have an equitable opportunity to 
compete for subcontracts. Federal agencies may also consider the extent 
of subcontracting with SDBs in determining to whom to award a contract 
or whether to give contractors monetary incentives to subcontract with 
SDBs.
    Firms do not need to be certified SDBs to qualify for Federal 
programs for subcontractors. Rather, a firm may represent that it 
qualifies as an SDB for any Federal subcontracting program if it 
believes in good faith that it is owned and controlled by one or more 
socially and economically disadvantaged individuals. In addition, 8(a) 
Participants are deemed to be SBDs for Federal contracting purposes. As 
of August 8, 2019, the SBA's Dynamic Small Business Search database 
included 125,616 self-certified SDBs.

Background Information

    On February 24, 2017, President Trump issued Executive Order 13777, 
Enforcing the Regulatory Reform Agenda, which further emphasized the 
goal of the Administration to alleviate the regulatory burdens placed 
on the public. Under Executive Order 13777, agencies must evaluate 
their existing regulations to determine which ones should be repealed, 
replaced, or modified. In doing so, agencies should focus on 
identifying regulations that, among other things: Eliminate jobs or 
inhibit job creation; are outdated, unnecessary or ineffective; impose 
costs that exceed benefits; create a serious inconsistency or otherwise 
interfere with regulatory reform initiatives and policies; or are 
associated with Executive Orders or other Presidential directives that 
have been rescinded or substantially modified.
    In response to the President's directive, SBA initiated a review of 
its regulations to determine which might be revised or eliminated. 
Based on this analysis, SBA has identified unnecessary provisions that 
can be removed from the CFR. First, this rule removes 13 CFR 124.516--
which states that the procuring activity decides all contract disputes 
arising between an 8(a) Participant and a procuring activity 
contracting officer after the award of an 8(a) contract--because this 
provision is redundant. 13 CFR 124.512 already delegates 8(a) contract 
administration functions to procuring agencies and contract dispute 
resolution is an element of contract administration.
    Second, this rule removes 13 CFR 124.1002 through 124.1016. As 
discussed below, these provisions pertain to the Small Disadvantaged 
Business Program, which is no longer a viable program. Section 1207 of 
the 1987 Defense Authorization Act (Pub. L. 99-661, codified in 10 
U.S.C. 2323) established a statutory 5 percent goal for all Department 
of Defense (DOD) contracts to be awarded to small disadvantaged 
businesses (SDBs). To this end, the statute authorized the award of 
contracts to SDBs using less than full and open competitive procedures. 
Specifically, DOD implemented regulations requiring a contracting 
officer to set-aside a procurement for exclusive competition among SDBs 
whenever market research identified two or more SDBs that could perform 
the contract at a fair and reasonable price. In addition, SDBs would 
receive a 10 percent price evaluation adjustment for offers submitted 
in an unrestricted or full and open competition. DOD's SDB program was 
initially a self-certification program. SBA established eligibility 
criteria, but firms self-certified their SDB status for particular 
procurements. However, SBA was responsible for processing SDB

[[Page 27291]]

status protests and appeals filed in connection with individual 
contracts.
    In 1994, Congress extended the authority granted to DOD to all 
Federal agencies through enactment of the Federal Acquisition 
Streamlining Act (FASA) (Pub. L. 103-355). However, as a result of the 
U.S. Supreme Court's decision in Adarand Constructors, Inc. v. Pena, 
515 U.S. 200 (1995), President Clinton directed the Department of 
Justice (DOJ) to work with Federal agencies to conduct a review of all 
race and gender conscious Federal contracting programs and implement 
necessary regulatory reforms to comply with the Court's ruling. 
Regulations to implement FASA were delayed until completion of this 
review.
    On May 23, 1996, DOJ proposed reforms to these Federal preferential 
contracting programs (61 FR 26042-63). Among other things, DOJ placed 
the SDB set-aside authority in abeyance pending further review, which 
left the price evaluation adjustment for SBDs on full and open 
competitions as the primary benefit for SDBs. DOJ further proposed 
governmental SDB certification for all firms seeking to submit offers 
as SDBs for Federal prime contracts and subcontracts. Agencies were 
given the option to implement a certification program or enter into an 
agreement with SBA under which SBA would make all determinations of SDB 
eligibility. However, agencies were strongly encouraged to defer to 
SBA's experience on matters related to SDB eligibility. SBA published 
regulations governing its SDB certification process in August 1997 and 
June 1998.
    SBA terminated its SDB certification program on October 3, 2008 (73 
FR 57490) after determining that it was no longer efficient or 
effective to certify SDBs government-wide. At that time, statutory 
authority for the SDB price evaluation adjustment had expired for all 
but three agencies: DOD, the National Aeronautics and Space 
Administration, and the U.S. Coast Guard. Subsequently, on November 3, 
2008, the U.S. Court of Appeals for the Federal Circuit struck down 
DOD's SDB program in Rothe Development Corporation v. Department of 
Defense, 545 F.3d 1023 (Fed. Cir. 2008), holding that Section 1207 of 
the 1987 Defense Authorization Act was facially unconstitutional 
because Congress did not have sufficient evidence to conclude that 
there was racial discrimination in defense contracting when it 
reauthorized the program in 2006. Congress declined to reauthorize the 
government's remaining SDB programs in 2009, and the SDB price 
evaluation adjustment was removed from the Federal Acquisition 
Regulation and the Defense Federal Acquisition Regulation Supplement in 
2014 and 2015, respectively (79 FR 61746 and 80 FR 15912). Currently, 
there is no SDB set-aside program; there is no statutory authority for 
the SDB price evaluation adjustment; and SBA does not administer an SDB 
certification program. As such, the provisions set forth in 13 CFR 
124.1002 through 124.1016 are obsolete and SBA is removing them from 
the CFR. However, SBA is retaining and re-designating the SDB 
definition currently set forth in 13 CFR 124.1002. Because a firm may 
self-certify that it qualifies as an SDB for any Federal subcontracting 
program, SBA believes this provision should remain in the CFR in order 
to provide guidance to firms seeking to participate in the Federal 
subcontracting program.

Executive Order 13771

    On January 30, 2017, President Trump signed Executive Order 13771, 
Reducing Regulation and Controlling Regulatory Costs, which, among 
other objectives, is intended to ensure that an agency's regulatory 
costs are prudently managed and controlled so as to minimize the 
compliance burden imposed on the public. For every new regulation an 
agency proposes to implement, unless prohibited by law, this Executive 
Order requires the agency to (i) identify at least two existing 
regulations that the agency can cancel; and (ii) use the cost savings 
from the cancelled regulations to offset the cost of the new 
regulation.

Executive Order 13777

    On February 24, 2017, the President issued Executive Order 13777, 
Enforcing the Regulatory Reform Agenda, which further emphasized the 
goal of the Administration to alleviate the regulatory burdens placed 
on the public. Under Executive Order 13777, agencies must evaluate 
their existing regulations to determine which ones should be repealed, 
replaced, or modified. In doing so, agencies should focus on 
identifying regulations that, among other things: Eliminate jobs or 
inhibit job creation; are outdated, unnecessary or ineffective; impose 
costs that exceed benefits; create a serious inconsistency or otherwise 
interfere with regulatory reform initiatives and policies; or are 
associated with Executive Orders or other Presidential directives that 
have been rescinded or substantially modified. SBA has engaged in this 
process and has identified the regulations in this rulemaking as 
appropriate for removal in accordance with Executive Order 13777.

Section by Section Analysis

Section 124.516

    The rule removes Sec.  124.516, which provides that a contract 
dispute arising between an 8(a) contractor and the procuring activity 
contracting officer will be decided by the procuring activity, and that 
appeals may be taken by the 8(a) contractor without SBA involvement. As 
previously noted, Sec.  124.512 already delegates 8(a) contract 
administration functions, including contract dispute resolution 
responsibilities, to procuring agencies. As such, Sec.  124.516 is 
redundant and is no longer needed.

Section 124.1001

    The rule amends Sec.  124.1001 to eliminate references to SBA's SDB 
protest and appeal procedures as well as the SDB certification program, 
as these provisions are now obsolete. SBA is also amending this section 
to incorporate the substantive provisions of the SDB definition 
currently set forth in Sec.  124.1002. As noted above, SDB status 
remains relevant for Federal subcontracting programs.

Sections 124.1002 Through 124.1016

    The rule removes Sec. Sec.  124.1002 through 124.1016, which set 
forth SBA's SDB certification program, as well as SBA's SDB protest and 
appeal procedures. These provisions are unnecessary because SBA no 
longer administers an SDB certification program, nor does it process 
SDB protests or appeals.
    To provide more information to the public, the titles of these 
rules to be removed are as follows: (1) Sec.  124.1002 What is a Small 
Disadvantaged Business (SDB)?; (2) Sec.  124.1003 How does a firm 
become certified as an SDB?; (3) Sec.  124.1004 What is a 
misrepresentation of SDB status?; (4) Sec.  124.1005 How long does an 
SDB certification last?; (5) Sec.  124.1006 Can SBA initiate a review 
of the SDB status of a firm claiming to be an SDB?; (6) Sec.  124.1007 
Who may protest the disadvantaged status of a concern?; (7) Sec.  
124.1008 When will SBA not decide an SDB protest?; (8) Sec.  124.1009 
Who decides disadvantaged status protests?; (9) Sec.  124.1010 What 
procedures apply to disadvantaged status protests?; (10) Sec.  124.1011 
What format, degree of specificity, and basis does SBA require to 
consider an SDB protest?; (11) Sec.  124.1012 What will SBA do when it 
receives an SDB protest?; (12) Sec.  124.1013 How does SBA make 
disadvantaged status determinations in considering an SDB protest?; 
(13) Sec.  124.1014 Appeals of disadvantaged status determinations.; 
(14) Sec.  124.1015 What are the requirements for

[[Page 27292]]

representing SDB status, and what are the penalties for 
misrepresentation?; and (15) Sec.  124.1016 What must a concern do in 
order to be identified as an SDB in any Federal procurement database?.

Administrative Procedure Act--Direct Final Rule

    SBA is publishing this rule as a direct final rule because SBA 
views this action as an administrative action that relates solely to 
expired SBA programs and is non-controversial. This rule will be 
effective on the date shown in the DATES section unless SBA receives 
any significant adverse comments on or before the deadline for comments 
set forth in the DATES section. Significant adverse comments are 
comments that provide strong justifications for why the rule should not 
be adopted or for changing the rule. If SBA receives any significant 
adverse comments, SBA will publish a notice in the Federal Register 
withdrawing this rule before the effective date.

Compliance With Executive Orders 12866, 13771, 12988, and 13132, the 
Paperwork Reduction Act (44 U.S.C., Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

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

Executive Order 13771

    This direct final rule is an Executive Order 13771 deregulatory 
action with an annualized net savings of $74,606 and a net present 
value of $1,065,795, both in 2016 dollars.
    This rule removes redundant and obsolete regulations, which will 
save SDBs time reading irrelevant information. These calculations 
assume 2 percent of the 125,616 self-certified SDBs read these 
regulations per year (or approximately 2,500 SDBs) and that they would 
save 30 minutes each from not reading them. This time is valued at 
$75.57 per hour--the wage of an attorney according to 2018 Bureau of 
Labor Statistics data adding 30 percent more for benefits. This 
produces savings to the SBA community of $94,928 per year.
    The cost savings also includes a savings to the government 
workforce assuming that 2 percent of the 38,000 Federal contracting 
officers per year (or about 760) will save 30 minutes from not reading 
this removed information. This time is valued at a rate of $54.21 per 
hour--assuming the average Federal contracting officer is a GS-12 step 
1 (DC locality) adding 30 percent more benefits, for savings of 
$20,600. This produces total savings per year of $115,528 in current 
dollars.
    In the first year, it is assumed that 5 percent of SDBs (about 
6,280) and 5 percent of Federal contracting officers (1,900) would read 
this Direct Final Rule, which is estimated to take 1 hour per SDB at 
$75.57 per hour and $54.21 per Federal contracting officer, producing 
cost in the first year of $577,639 ($474,640 for SDBs and $102,999 for 
the Federal government). This cost is not expected to continue in 
subsequent years.
    Table 1 lays out the costs and savings of this rule over the first 
2 years after publication, with the savings and costs in the second 
year expected to continue into perpetuity. Table 2 presents the 
annualized net savings in 2016 dollars.

    Table 1--Schedule of Costs/(Savings) Over 2 Year Horizon, Current
                                 Dollars
------------------------------------------------------------------------
                                        Savings              Costs
------------------------------------------------------------------------
Year 1..........................  1,636 hours.......  8,181 hours.
                                  ($115,528)........  $577,639.
Year 2..........................  1,636 hours.......  0 hours.
                                  ($115,528)........  $0.
------------------------------------------------------------------------


  Table 2--Annualized Savings in Perpetuity with 7% Discount Rate, 2016
                                 Dollars
------------------------------------------------------------------------
                                                             Estimate
------------------------------------------------------------------------
Annualized Savings......................................        $110,872
Annualized Costs........................................       ($36,267)
                                                         ---------------
  Annualized Net Savings................................         $74,606
------------------------------------------------------------------------

Executive Order 12988

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

Executive Order 13132

    This rule does not have federalism implications as defined in 
Executive Order 13132. It 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, as specified in the Executive Order. As 
such it does not warrant the preparation of a Federalism Assessment.

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

    The SBA has determined that this final rule does not affect any 
existing collection of information.

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

    When an agency issues a rule, the Regulatory Flexibility Act (RFA) 
requires the agency to prepare a final regulatory flexibility analysis 
(FRFA), which describes whether the rule will have a significant 
economic impact on a substantial number of small entities. However, 
Section 605 of the RFA allows an agency to certify a rule, in lieu of 
preparing a FRFA, if the rulemaking is not expected to have a 
significant economic impact on a substantial number of small entities.
    There are approximately 125,000 self-certified SDBs in SBA's 
Dynamic Small Business Search and all can be affected by this rule. 
However, this rule removes regulations that are no longer necessary 
because they are either redundant or obsolete. The annualized net 
savings to SDBs is $63,877 in current dollars or less than a dollar per 
SDB, as detailed in the Executive Order13771 discussion above.
    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 in 13 CFR Part 124

    Administrative practice and procedure, Government procurement, 
Government property, Small businesses.

    Accordingly, for the reasons stated in the preamble, SBA amends 13 
CFR part 124 as follows:

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

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

    Authority:  15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d), 644 and 
Pub. L. 99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L. 
101-574, section 8021, Pub. L. 108-87, and 42 U.S.C. 9815.


Sec.  124.516   [Removed and Reserved]

0
2. Remove and reserve Sec.  124.516.

0
3. Revise Sec.  124.1001 to read as follows:

[[Page 27293]]

Sec.  124.1001   What is a Small Disadvantaged Business?

    (a) General. A Small Disadvantaged Business (SDB) for purposes of 
any Federal subcontracting program is a concern that qualifies as small 
under part 121 of this title for the size standard corresponding to the 
six-digit North American Industry Classification System (NAICS) code 
that is assigned by the contracting officer to the procurement at 
issue, and that is owned and controlled by one or more socially and 
economically disadvantaged individuals. Unless specifically stated 
otherwise, the phrase ``socially and economically disadvantaged 
individuals'' includes Indian tribes, ANCs, CDCs, and NHOs. A firm may 
represent that it qualifies as an SDB for any Federal subcontracting 
program if it believes in good faith that it is owned and controlled by 
one or more socially and economically disadvantaged individuals.
    (b) Reliance on 8(a) criteria. In determining whether a firm 
qualifies as an SDB, the criteria of social and economic disadvantage 
and other eligibility requirements established in subpart A of this 
part apply, including the requirements of ownership and control and 
disadvantaged status, unless otherwise provided in this subpart. All 
current Participants in the 8(a) BD program qualify as SDBs.


Sec. Sec.  124.1002 through 124.1016   [Removed]

0
4. Remove Sec. Sec.  124.1002 through 124.1016.

Jovita Carranza,
Administrator.
[FR Doc. 2020-08619 Filed 5-7-20; 8:45 am]
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