[Federal Register Volume 85, Number 201 (Friday, October 16, 2020)]
[Rules and Regulations]
[Pages 66146-66199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19428]



[[Page 66145]]

Vol. 85

Friday,

No. 201

October 16, 2020

Part VI





Small Business Administration





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





Consolidation of Mentor-Prot[eacute]g[eacute] Programs and Other 
Government Contracting Amendments; Final Rule

  Federal Register / Vol. 85 , No. 201 / Friday, October 16, 2020 / 
Rules and Regulations  

[[Page 66146]]


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SMALL BUSINESS ADMINISTRATION

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

RIN 3245-AG94


Consolidation of Mentor-Prot[eacute]g[eacute] Programs and Other 
Government Contracting Amendments

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: In response to President Trump's government-wide regulatory 
reform initiative, the U.S. Small Business Administration (SBA) 
initiated a review of its regulations to determine which might be 
revised or eliminated. As a result, this rule merges the 8(a) Business 
Development (BD) Mentor-Prot[eacute]g[eacute] Program and the All Small 
Mentor-Prot[eacute]g[eacute] Program to eliminate confusion and remove 
unnecessary duplication of functions within SBA. This rule also 
eliminates the requirement that 8(a) Participants seeking to be awarded 
an 8(a) contract as a joint venture submit the joint venture agreement 
to SBA for review and approval prior to contract award, revises several 
8(a) BD program regulations to reduce unnecessary or excessive burdens 
on 8(a) Participants, and clarifies other related regulatory provisions 
to eliminate confusion among small businesses and procuring activities. 
In addition, in response to public comment, the rule requires a 
business concern to recertify its size and/or socioeconomic status for 
all set-aside orders under unrestricted multiple award contracts, 
unless the contract authorized limited pools of concerns for which size 
and/or status was required.

DATES: This rule is effective on November 16, 2020, except for Sec.  
127.504 which is effective October 16, 2020.

FOR FURTHER INFORMATION CONTACT: Mark Hagedorn, U.S. Small Business 
Administration, Office of General Counsel, 409 Third Street SW, 
Washington, DC 20416; (202) 205-7625; [email protected].

SUPPLEMENTARY INFORMATION:

I. Background Information

    On January 30, 2017, President Trump issued Executive Order 13771, 
``Reducing Regulation and Controlling Regulatory Costs'', which is 
designed to reduce unnecessary and burdensome regulations and to 
control costs associated with regulations. In response to the 
President's directive to simplify regulations, SBA initiated a review 
of its regulations to determine which might be revised or eliminated. 
Based on this analysis, SBA identified provisions in many areas of its 
regulations that can be simplified or eliminated.
    On November 8, 2019, SBA published in the Federal Register a 
comprehensive proposal to merge the 8(a) Business Development (BD) 
Mentor-Prot[eacute]g[eacute] Program and the All Small Mentor-
Prot[eacute]g[eacute] Program to eliminate confusion and remove 
unnecessary duplication of functions within SBA; eliminate the 
requirement that 8(a) Participants seeking to be awarded an 8(a) 
contract as a joint venture submit the joint venture to SBA for review 
and approval prior to contract award; revise several 8(a) BD program 
regulations to reduce unnecessary or excessive burdens on 8(a) 
Participants; and clarify other related regulatory provisions to 
eliminate confusion among small businesses and procuring activities. 84 
FR 60846. Some of the proposed changes involved technical issues. 
Others were more substantive and resulted from SBA's experience in 
implementing the current regulations. The proposed rule initially 
called for a 70-day comment period, with comments required to be made 
to SBA by January 17, 2020. SBA received several comments in the first 
few weeks after the publication to extend the comment period. 
Commenters felt that the nature of the issues raised in the rule and 
the timing of comments during the holiday season required more time for 
affected businesses to adequately review the proposal and prepare their 
comments. In response to these comments, SBA published a notice in the 
Federal Register on January 10, 2020, extending the comment period an 
additional 21 days to February 7, 2020. 85 FR 1289.
    As part of the rulemaking process, SBA also held tribal 
consultations pursuant to Executive Order 13175, Tribal Consultations, 
in Minneapolis, MN, Anchorage, AK, Albuquerque, NM and Oklahoma City, 
OK to provide interested tribal representatives with an opportunity to 
discuss their views on various 8(a) BD-related issues. See 84 FR 66647. 
These consultations were in addition to those held by SBA before 
issuing the proposed rule in Anchorage, AK (see 83 FR 17626), 
Albuquerque, NM (see 83 FR 24684), and Oklahoma City, OK (see 83 FR 
24684). 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 8(a) BD Program. Additionally, SBA held a 
Listening Session in Honolulu, HI to obtain comments and input from key 
8(a) BD program stakeholders in the Hawaiian small business community, 
including 8(a) applicants and Participants owned by Native Hawaiian 
Organizations (NHOs).
    During the proposed rule's 91-day comment period, SBA received 189 
timely comments, with a high percentage of commenters favoring the 
proposed changes. A substantial number of commenters applauded SBA's 
effort to clarify and address misinterpretations of the rules. For the 
most part, the comments supported the substantive changes proposed by 
SBA.
    This rule merges the 8(a) BD Mentor-Prot[eacute]g[eacute] Program 
and the All Small Mentor-Prot[eacute]g[eacute] Program. The rule also 
eliminates the requirement that 8(a) Participants seeking to be awarded 
an 8(a) contract as a joint venture must submit the joint venture to 
SBA for review and approval prior to contract award in every instance. 
Additionally, the rule makes several other changes to the 8(a) BD 
Program to eliminate or reduce unnecessary or excessive burdens on 8(a) 
Participants.
    The rule combines the 8(a) BD Mentor-Prot[eacute]g[eacute] Program 
and the All Small Mentor-Prot[eacute]g[eacute] Program in order to 
eliminate confusion regarding perceived differences between the two 
Programs, remove unnecessary duplication of functions within SBA, and 
establish one, unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. SBA originally established a 
mentor-prot[eacute]g[eacute] program for 8(a) Participants a little 
more than 20 years ago. 63 FR 35726, 35764 (June 30, 1998). The purpose 
of that program was to encourage approved mentors to provide various 
forms of business assistance to eligible 8(a) Participants to aid in 
their development. On September 27, 2010, the Small Business Jobs Act 
of 2010 (Jobs Act), Public Law 111-240 was enacted. The Jobs Act was 
designed to protect the interests of small businesses and increase 
opportunities in the Federal marketplace. The Jobs Act was drafted by 
Congress in recognition of the fact that mentor-prot[eacute]g[eacute] 
programs serve an important business development function for small 
businesses and therefore included language authorizing SBA to establish 
separate mentor-prot[eacute]g[eacute] programs for the Service-Disabled 
Veteran-Owned Small Business Concern (SDVO SBC) Program, the HUBZone 
Program, and the Women-Owned Small Business (WOSB)

[[Page 66147]]

Program, each of which was modeled on SBA's existing mentor-
prot[eacute]g[eacute] program available to 8(a) Participants. See 
section 1347(b)(3) of the Jobs Act. Thereafter, on January 2, 2013, the 
National Defense Authorization Act for Fiscal Year 2013 (NDAA 2013), 
Public Law 112-239 was enacted. Section 1641 of the NDAA 2013 
authorized SBA to establish a mentor-prot[eacute]g[eacute] program for 
all small business concerns. This section further provided that a small 
business mentor-prot[eacute]g[eacute] program must be identical to the 
8(a) BD Mentor-Prot[eacute]g[eacute] Program, except that SBA could 
modify each program to the extent necessary, given the types of small 
business concerns to be included as prot[eacute]g[eacute]s.
    Subsequently, SBA published a Final Rule in the Federal Register 
combining the authorities contained in the Jobs Act and the NDAA 2013 
to create a mentor-prot[eacute]g[eacute] program for all small 
businesses. 81 FR 48558 (July 25, 2016).
    The mentor-prot[eacute]g[eacute] program available to firms 
participating in the 8(a) BD Program has been used as a business 
development tool in which mentors provide diverse types of business 
assistance to eligible 8(a) BD prot[eacute]g[eacute]s. This assistance 
may include, among other things, technical and/or management 
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing Federal prime 
contracts through joint venture arrangements. The explicit purpose of 
the 8(a) BD Mentor-Prot[eacute]g[eacute] relationship has been to 
enhance the capabilities of prot[eacute]g[eacute]s and to improve their 
ability to successfully compete for both government and commercial 
contracts. Similarly, the All Small Mentor-Prot[eacute]g[eacute] 
Program is designed to require approved mentors to aid 
prot[eacute]g[eacute] firms so that they may enhance their 
capabilities, meet their business goals, and improve their ability to 
compete for contracts. The purposes of the two programs are identical. 
In addition, the benefits available under both programs are identical. 
Small businesses and 8(a) Program Participants receive valuable 
business development assistance and any joint venture formed between a 
prot[eacute]g[eacute] firm and its SBA-approved mentor receives an 
exclusion from affiliation, such that the joint venture will qualify as 
a small business provided the prot[eacute]g[eacute] individually 
qualifies as small under the size standard corresponding to the NAICS 
code assigned to the procurement. A prot[eacute]g[eacute] firm may 
enter a joint venture with its SBA-approved mentor and be eligible for 
any contract opportunity for which the prot[eacute]g[eacute] qualifies. 
If a prot[eacute]g[eacute] firm is an 8(a) Program Participant, a joint 
venture between the prot[eacute]g[eacute] and its mentor could seek any 
8(a) contract, regardless of whether the mentor-prot[eacute]g[eacute] 
agreement was approved through the 8(a) BD Mentor-Prot[eacute]g[eacute] 
Program or the All Small Mentor-Prot[eacute]g[eacute] Program. 
Moreover, a firm could be certified as an 8(a) Participant after its 
mentor-prot[eacute]g[eacute] relationship has been approved by SBA 
through the All Small Mentor-Prot[eacute]g[eacute] Program and be 
eligible for 8(a) contracts as a joint venture with its mentor once 
certified.
    Because the benefits and purposes of the two programs are 
identical, SBA believes that having two separate mentor-
prot[eacute]g[eacute] programs is unnecessary and causes needless 
confusion in the small business community. As such, this rule 
eliminates a separate 8(a) BD Mentor-Prot[eacute]g[eacute] Program and 
continues to allow any 8(a) Participant to enter a mentor-
prot[eacute]g[eacute] relationship through the All Small Mentor-
Prot[eacute]g[eacute] Program. Specifically, the rule revises Sec.  
124.520 to merely recognize that an 8(a) Participant, as any other 
small business, may participate in SBA's Small Business Mentor-
Prot[eacute]g[eacute] Program. In merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program with the All Small Mentor-
Prot[eacute]g[eacute] Program, the rule also makes conforming 
amendments to SBA's size regulations (13 CFR part 121), the joint 
venture provisions (13 CFR 125.8), and the All Small Mentor-
Prot[eacute]g[eacute] Program regulations (13 CFR 125.9).
    A mentor-prot[eacute]g[eacute] relationship approved by SBA through 
the 8(a) BD Mentor-Prot[eacute]g[eacute] Program will continue to 
operate as an SBA-approved mentor-prot[eacute]g[eacute] relationship 
under the All Small Mentor-Prot[eacute]g[eacute] Program. It will 
continue to have the same remaining time in the All Small Mentor-
Prot[eacute]g[eacute] Program as it would have had under the 8(a) BD 
Mentor-Prot[eacute]g[eacute] Program if that Program continued. Any 
mentor-prot[eacute]g[eacute] relationship approved under the 8(a) BD 
Mentor-Prot[eacute]g[eacute] Program will count as one of the two 
lifetime mentor-prot[eacute]g[eacute] relationships that a small 
business may have under the All Small Mentor-Prot[eacute]g[eacute] 
Program.
    As stated previously, SBA has also taken this action partly in 
response to the President's directive that each agency review its 
regulations. Therefore, this rule also revises regulations pertaining 
to the 8(a) BD and size programs in order to further reduce unnecessary 
or excessive burdens on small businesses and to eliminate confusion or 
more clearly delineate SBA's intent in certain regulations. 
Specifically, this rule makes additional changes to the size and 
socioeconomic status recertification requirements for orders issued 
against multiple award contracts (MACs). A detailed discussion of these 
changes is contained below in the Section-by-Section Analysis.

II. Section-by-Section Analysis

Section 121.103(b)(6)

    The rule amends the references to SBA's mentor-
prot[eacute]g[eacute] programs in this provision, specifying that a 
prot[eacute]g[eacute] firm cannot be considered affiliated with its 
mentor based solely on assistance received by the prot[eacute]g[eacute] 
under the mentor-prot[eacute]g[eacute] agreement. The rule eliminates 
the cross-reference to the regulation regarding the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program (13 CFR 124.520), leaving only the 
reference to the regulation regarding the All Small Business Mentor-
Prot[eacute]g[eacute] Program.

Section 121.103(f)(2)(i)

    Under Sec.  121.103(f)(2), SBA may presume an identity of interest 
(and thus affiliate one concern with another) based upon economic 
dependence if the concern in question derived 70 percent or more of its 
receipts from another concern over the previous three fiscal years. The 
proposed rule provided that this presumption may be rebutted by a 
showing that despite the contractual relations with another concern, 
the concern at issue is not solely dependent on that other concern, 
such as where the concern has been in business for a short amount of 
time and has only been able to secure a limited number of contracts or 
where the contractual relations do not restrict the concern in question 
from selling the same type of products or services to another 
purchaser. Commenters supported this change, appreciating that SBA 
seemed to be making economic dependence more about the issue of 
control, where they thought it should be. SBA adopts this language as 
final.

Section 121.103(g)

    The rule amends the newly organized concern rule contained in Sec.  
121.103(g) by clarifying that affiliation may be found where both 
former and ``current'' officers, directors, principal stockholders, 
managing members, or key employees of one concern organize a new 
concern in the same or related industry or field of operation, and 
serve as the new concern's officers, directors, principal stockholders, 
managing members, or key employees. The rule merely adds the word 
``current'' to the regulatory text to ensure that affiliation may arise 
where the key individuals are still associated with the first company. 
SBA believes that such a finding of affiliation has always been 
authorized,

[[Page 66148]]

but merely seeks to clarify its intent to make sure there is no 
confusion. Several commenters were concerned that the rule was not 
clear with respect to entity-owned firms, specifically that the newly 
organized concern rule should not apply to tribes, ANCs and NHOs. SBA 
believes that entities and entity-owned firms are already excepted from 
affiliation under the newly organized concern rule by Sec.  
121.103(b)(2). A few commenters recommended that SBA put in clarifying 
language to ensure that the rule cannot be read to contradict Sec.  
124.109(c)(4)(iii), which permits a manager of a tribally-owned concern 
to manage no more than two Program Participants at the same time. The 
final rule adds such clarifying language.

Section 121.103(h)

    The proposed rule sought to amend the introductory text to Sec.  
121.103(h) to revise the requirements for joint ventures. SBA believes 
that a joint venture is not an on-going business entity, but rather 
something that is formed for a limited purpose and duration. If two or 
more separate business entities seek to join together through another 
entity on a continuing, unlimited basis, SBA views that as a separate 
business concern with each partner affiliated with each other. To 
capture SBA's intent on limited scope and duration, SBA's current 
regulations provide that a joint venture is something that can be 
formed for no more than three contracts over a two-year period. The 
proposed rule sought to eliminate the three-contract limit for a joint 
venture, but continue to prescribe that a joint venture cannot exceed 
two years from the date of its first award. In addition, the proposed 
rule clarified SBA's current intent that a novation to the joint 
venture would start the two-year period if that were the first award 
received by the joint venture. Commenters generally supported the 
proposal to eliminate the three-contract limit, saying that the change 
will eliminate significant and unnecessary confusion. Commenters also 
believed that requiring partners to form a second or third joint 
venture after they received three contract awards created an undue 
administrative burden on joint ventures, and they viewed this change as 
an elimination of an unnecessary burden. Several commenters recommended 
further amending the rule to extend the amount of time that a joint 
venture could seek contracts to some point greater than two years. 
These commenters recommended two approaches, either allowing all joint 
ventures to seek contracts for a period greater than two years or 
allowing only joint ventures between a prot[eacute]g[eacute] and its 
mentor to seek contracts beyond two years. In the mentor-
prot[eacute]g[eacute] context, commenters reasoned that a joint venture 
between a prot[eacute]g[eacute] and its mentor should be either three 
years (the length of the initial mentor-prot[eacute]g[eacute] 
agreement) or six years (the total allowable length of time for a 
mentor-prot[eacute]g[eacute] relationship to exist). It is SBA's view 
that the requirements for all joint ventures should be consistent, and 
that they should not be different with respect to joint ventures 
between prot[eacute]g[eacute] firms and their mentors. One of the 
purposes of this final rule is to remove inconsistencies and confusion 
in the regulations. SBA believes that having differing requirements for 
different types of joint ventures would add to, not reduce, the 
complexity and confusion in the regulations. Regarding extending the 
amount of time a joint venture could operate and seek additional 
contracts generally, SBA opposes such an extension. As SBA noted in the 
supplementary information to the proposed rule, SBA believes that a 
joint venture should not be an on-going entity, but, rather, something 
formed for a limited purpose with a limited duration. SBA believes that 
allowing a joint venture to operate as an independent business entity 
for more than two years erodes the limited purpose and duration 
requirements of a joint venture. If the parties intend to jointly seek 
work beyond two years from the date of the first award, the regulations 
allow them to form a new joint venture. That new entity would then be 
able to seek additional contracts over two years from the date of its 
first award. Although requiring the formation of several joint venture 
entities, SBA believes that is the correct approach. To do otherwise 
would be to ignore what a joint venture is intended to do.
    In addition, one commenter sought further clarification regarding 
novations. The rule makes clear that where a joint venture submits an 
offer prior to the two-year period from the date of its first award, 
the joint venture can be awarded a contract emanating from that offer 
where award occurs after the two-year period expires. The commenter 
recommended that SBA add clarifying language that would similarly allow 
a novation to occur after the two-year period if the joint venture 
submits a novation package for contracting officer approval within the 
two-year period. SBA agrees, and has added clarifying language to one 
of the examples accompanying the regulatory text.
    In the proposed rule, SBA also asked for comments regarding the 
exception to affiliation for joint ventures composed of multiple small 
businesses in which firms enter and leave the joint venture based on 
their size status. In this scenario, in an effort to retain small 
business status, joint venture partners expel firms that have exceeded 
the size standard and then possibly add firms that qualify under the 
size standard. This may be problematic where the joint venture is 
awarded a Federal Supply Schedule (FSS) contract or any other MAC 
vehicle. A joint venture that is awarded a MAC could receive many 
orders beyond the two-year limitation for joint venture awards (since 
the contract was awarded within that two-year period), and could remain 
small for any order requiring recertification simply by exchanging one 
joint venture partner for another (i.e., a new small business for one 
that has grown to be other than small). SBA never intended for the 
composition of joint ventures to be fluid. The joint venture generally 
should have the same partners throughout its lifetime, unless one of 
the partners is acquired. SBA considers a joint venture composed of 
different partners to be a different joint venture than the original 
one. To reflect this understanding, the proposed rule asked for 
comments as to whether SBA should specify that the size of a joint 
venture outside of the mentor-prot[eacute]g[eacute] program will be 
determined based on the current size status and affiliations of all 
past and present joint venture partners, even if a partner has left the 
joint venture. SBA received several comments responding to this 
provision on both sides of the issue. Several commenters believed that 
SBA should not consider the individual size of partners who have left 
the joint venture in determining whether the joint venture itself 
continues to qualify as small. These commenters thought that permitting 
substitution of joint venture partners allows small businesses to 
remain competitive for orders under large, complex MACs. Other 
commenters acknowledged that SBA has accurately recognized a problem 
that gives a competitive advantage to joint ventures over individual 
small businesses. They agreed that SBA likely did not contemplate a 
continuous turnover of joint venture partners when it changed its 
affiliation rules to allow a joint venture to qualify as small provided 
that each of its partners individually qualified as small (instead of 
aggregating the receipts or employees of all joint venture partners as 
was previously the case). SBA notes that this really is an issue only 
with respect to MACs. For a single award contract, size is

[[Page 66149]]

determined at one point in time--the date on which an offeror submits 
its initial offer including price. Where an offeror is a joint venture, 
it qualifies as small provided each of the partners to the joint 
venture individually qualifies as small on the date of the offer. The 
size of the joint venture awardee does not change if an individual 
member of the joint venture grows to be other than small during the 
performance of the contract. As detailed elsewhere in this rule, for a 
MAC that is not set-aside for small business, however, size may be 
determined as of the date a MAC holder submits its offer for a specific 
order that is set-aside for small business. In such a case, if a 
partner to the joint venture has grown to be other than small, the 
joint venture would not be eligible as a small business for the order. 
One commenter recommended that once a multi-small business joint 
venture wins its first MAC, its size going forward (for future 
contracts or any recertification required under the awarded MAC) should 
be determined based on the size of the joint venture's present members 
and any former members that were members as of the date the joint 
venture received its first MAC. This would allow a joint venture to 
remove members for legitimate reasons before the first award of the 
first MAC, but not allow the joint venture to change members after such 
an award just to be able to recertify as small for an order under the 
MAC. SBA thoroughly considered all the comments in response to this 
issue. After further considering the issue, SBA does not believe that 
reaching back to consider the size of previous partners (who are no 
longer connected to the joint venture) would be workable. A concern 
that is no longer connected to the joint venture has no incentive to 
cooperate and provide information relating to its size, even if it 
still qualified individually as small. Thus, SBA is not making any 
changes to the regulatory text to address this issue in this final 
rule.
    The rule also proposed to add clarifying language to the 
introductory text of Sec.  121.103(h) to recognize that, although a 
joint venture cannot be populated with individuals intended to perform 
contracts awarded to the joint venture, the joint venture can directly 
employ administrative personnel and such personnel may specifically 
include Facility Security Officers. SBA received overwhelming support 
of this change and adopts it as final in this rule.
    The proposed rule also sought comments on the broader issue of 
facility clearances with respect to joint ventures. SBA understands 
that some procuring agencies will not award a contract requiring a 
facility security clearance to a joint venture if the joint venture 
itself does not have such clearance, even if both partners to the joint 
venture individually have such clearance. SBA does not believe that 
such a restriction is appropriate. Under SBA's regulations, a joint 
venture cannot hire individuals to perform on a contract awarded to the 
joint venture (the joint venture cannot be ``populated''). Rather, work 
must be done individually by the partners to the joint venture so that 
SBA can track who does what and ensure that some benefit flows back to 
the small business lead partner to the joint venture. SBA proposed 
allowing a joint venture to be awarded a contract where either the 
joint venture itself or the lead small business partner to the joint 
venture has the required facility security clearance. In such a case, a 
joint venture lacking its own separate facility security clearance 
could still be awarded a contract requiring such a clearance provided 
the lead small business partner to the joint venture had the required 
facility security clearance and committed to keep at its cleared 
facility all records relating to the contract awarded to the joint 
venture. Additionally, if it is established that the security portion 
of the contract requiring a facility security clearance is ancillary to 
the principal purpose of the procurement, then the non-lead partner to 
the joint venture (which may include a large business mentor) could 
possess such clearance. The majority of commenters supported this 
proposal, agreeing that it does not make sense to require the joint 
venture to have the necessary facility security clearance where the 
joint venture entity itself is not performing the contract. These 
commenters believed that as long as the joint venture partner(s) 
performing the necessary security work had the required facility 
security clearance, the Government would be adequately protected.
    This rule also removes current Sec.  121.103(h)(3)(iii), which 
provides that a joint venture between a prot[eacute]g[eacute] firm and 
its mentor that was approved through the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program is considered small provided the 
prot[eacute]g[eacute] qualifies as individually small. Because this 
rule eliminates the 8(a) BD Mentor-Prot[eacute]g[eacute] Program as a 
separate program, this provision is no longer needed.
    The proposed rule also clarified how to account for joint venture 
receipts and employees during the process of determining size for a 
joint venture partner. The joint venture partner must include its 
percentage share of joint venture receipts and employees in its own 
receipts or employees. The proposed rule provided that the appropriate 
percentage share is the same percentage figure as the percentage figure 
corresponding to the joint venture partner's share of work performed by 
the joint venture. Commenters generally agreed with the proposed 
treatment of receipts. Several commenters sought further clarification 
regarding subcontractors, specifically asking how to treat revenues 
generated through subcontracts from the individual partners. One 
commenter recommended that the joint venture partner responsible for a 
specific subcontract should take on that revenue as its share of the 
contract's total revenues. As with all contracts, SBA does not exclude 
revenues generated by subcontractors from the revenues deemed to be 
received by the prime contractor. Where a joint venture is the prime 
contractor, 100 percent of the revenues will be apportioned to the 
joint venture partners, regardless of how much work is performed by 
other subcontractors. The joint venture must perform a certain 
percentage of the work between the partners to the joint venture 
(generally 50 percent, but 15 percent for general construction). SBA 
does not believe that it matters which partner to the joint venture the 
subcontract flows through. Of the 50 percent of the total contract that 
the joint venture partners must perform, SBA will look at how much is 
performed by each partner. That is the percentage of total revenues 
that will be attributed to each partner. This rule makes clear that 
revenues will be attributed to the joint venture in the same percentage 
as that of the work performed by each partner.
    A few commenters thought that that same approach should not be 
applied to the apportionment of employees. They noted that some or all 
of the joint venture's employees may also be employed concurrently by a 
joint venture partner. Without taking that into account, the proposed 
methodology would effectively double count employees who were also 
employed by one of the joint venture partners. In response, SBA has 
amended this paragraph to provide that for employees, the appropriate 
way to apportion individuals employed by the joint venture is the same 
percentage of employees as the joint venture partner's percentage 
ownership share in the joint venture, after first subtracting any joint 
venture employee already accounted for in the employee count of one of 
the partners.

[[Page 66150]]

Section 121.402

    The proposed rule amended how NAICS codes are applied to task 
orders to ensure that the NAICS codes assigned to specific procurement 
actions, and the corresponding size standards, are an accurate 
reflection of the contracts and orders being awarded and performed. 
Consistent with the final rule for FAR Case 2014-002, 85 FR 11746 (Feb. 
27, 2020), a contracting officer must assign a single NAICS code for 
each order issued against a MAC, and that NAICS code must be a NAICS 
code that is included in the underlying MAC and represents the 
principal purpose of the order. SBA believes that the NAICS code 
assigned to a task order must reflect the principal purpose of that 
order. Currently, based on the business rules of the Federal 
Procurement Data System (FPDS) and the FAR, all contracts including 
MACs are restricted to only being assigned a single NAICS code, and if 
a MAC is assigned a service NAICS code, then that service NAICS code 
flows down to each individual order under that MAC. SBA does not 
believe it is appropriate for a task order that is nearly entirely for 
supplies to have a service NAICS code. In such a case, a firm being 
awarded such an order would not have to comply with the nonmanufacturer 
rule. In particular, set-aside orders should be assigned a 
manufacturing/supply NAICS code, so that the nonmanufacturer rule will 
apply to the order if it is awarded to a nonmanufacturer. Additionally, 
the current method for NAICS code assignment can also be problematic 
where a MAC is assigned a NAICS code for supplies but a particular 
order under that MAC is almost entirely for services. In such a case, 
firms that qualified as small for the larger employee-based size 
standard associated with a manufacturing/supply NAICS code may not 
qualify as small businesses under a smaller receipts-based services 
size standard. As such, because the order is assigned the 
manufacturing/supply NAICS code associated with the MAC, firms that 
should not qualify as small for a particular procurement that is 
predominantly for services may do so. SBA recognizes that Sec.  
121.402(c) already provides for a solution that will ensure that NAICS 
codes assigned to task and delivery orders accurately reflect the work 
being done under the orders. Specifically, the requirement for certain 
MACs to be assigned more than one NAICS code (e.g., service NAICS code 
and supply NAICS code) will allow for orders against those MACs to 
reflect both a NAICS code assigned to the MAC and also a NAICS code 
that accurately reflects work under the order. The requirement to 
assign certain MACs more than one NAICS code has already been 
implemented in the FAR at 48 CFR 19.102(b)(2)(ii) but it will not go 
into effect until October 1, 2022. The future effective date is when 
FPDS is expected to implement the requirement and it allows all the 
Federal agencies to budget and plan for internal system updates across 
their multiple contracting systems to accommodate the requirement. 
Thus, this rule makes only minor revisions to the existing regulations 
to ensure that the NAICS codes assigned to specific procurement 
actions, and the corresponding size standards, are an accurate 
reflection of the contracts and orders being awarded and performed.
    Commenters supported SBA's intent. They noted that allowing 
contracting officers to assign a NAICS code to an order that differs 
from the NAICS code(s) already contained in the MAC could unfairly 
disadvantage contractors who did not compete for the MAC because they 
did not know orders would be placed under NAICS codes not in the MAC's 
solicitation. A commenter noted, however, that the proposed rule added 
a new Sec.  121.402(c)(2)(ii) when it appears that a revision to Sec.  
121.402(c)(2)(i) might be more appropriate. SBA agrees and has revised 
Sec.  121.402(c)(2)(i) in this final rule to clarify that orders must 
reflect a NAICS code assigned to the underlying MAC.
    In addition, the rule makes a minor change to Sec.  121.402(e) by 
removing the passive voice in the regulatory text. The rule also 
clarifies that in connection with a size determination or size appeal, 
SBA may supply an appropriate NAICS code designation, and accompanying 
size standard, where the NAICS code identified in the solicitation is 
prohibited, such as for set-aside procurements where a retail or 
wholesale NAICS code is identified.

Sections 121.404(a)(1), 124.503(i), 125.18(d), and 127.504(c)

Size Status
    SBA has been criticized for allowing agencies to receive credit 
towards their small business goals for awards made to firms that no 
longer qualify as small. SBA believes that much of this criticism is 
misplaced. Where a small business concern is awarded a small business 
set-aside contract with a duration of not more than five years and 
grows to be other than small during the performance of the contract, 
some have criticized the exercise of an option as an award to an other 
than small business. SBA disagrees with such a characterization. Small 
business set-aside contracts are restricted only to firms that qualify 
as small as of the date of a firm's offer for the contract. A firm's 
status as a small business is relevant to its qualifying for the award 
of the contract. If a concern qualifies as small for a contract with a 
duration of not more than five years, it is considered a small business 
throughout the life of that contract. Even for MACs that are set-aside 
for small business, once a concern is awarded a contract as a small 
business it is eligible to receive orders under that contract and 
perform as a small business. In such a case, size was relevant to the 
initial award of the contract. Any competitor small business concern 
could protest the size status of an apparent successful offeror for a 
small business set-aside contract (whether single award or multiple 
award), and render a concern ineligible for award where SBA finds that 
the concern does not qualify as small under the size standard 
corresponding to the NAICS code assigned to the contract. Furthermore, 
firms awarded long-term small business set-aside contracts must 
recertify their size status at five years and every option thereafter. 
Firms are eligible to receive orders under that contract and perform as 
a small business so long as they continue to recertify as small at the 
required times (e.g., at five years and every option thereafter). Not 
allowing a concern that legitimately qualified at award and/or 
recertified later as small to receive orders and continue performance 
as a small business during the base and option periods, even if it has 
naturally grown to be other than small, would discourage firms from 
wanting to do business with the Government, would be disruptive to the 
procurement process, and would disincentivize contracting officers from 
using small business set-asides.
    SBA believes, however, that there is a legitimate concern where a 
concern self-certifies as small for an unrestricted MAC and at some 
point later in time when the concern no longer qualifies as small the 
contracting officer seeks to award an order as a small business set-
aside and the firm uses its self-certification as a small business for 
the underlying unrestricted MAC. A firm's status as a small business 
does not generally affect whether the firm does or does not qualify for 
the award of an unrestricted MAC contract. As such, competitors are 
very unlikely to protest the size of a concern that self-certifies as 
small for an unrestricted MAC. In SBA's view, where a contracting 
officer sets aside an order for small business under

[[Page 66151]]

an unrestricted MAC, the order is the first time size status is 
important. That is the first time that some firms will be eligible to 
compete for the order while others will be excluded from competition 
because of their size status. To allow a firm's self-certification for 
the underlying MAC to control whether a firm is small at the time of an 
order years after the MAC was awarded does not make sense to SBA.
    In considering the issue, SBA looked at the data for orders that 
were awarded as small business set-asides under unrestricted base 
multiple award vehicles in FY 2018. In total, 8,666 orders were awarded 
as small business set-asides under unrestricted MACs in FY 2018. Of 
those set-aside orders, 10 percent are estimated to have been awarded 
to firms that were no longer small in SAM under the NAICS code size 
standard at the time of the order award. Further, it is estimated that 
7.0 percent of small business set-aside orders under the FSS were 
awarded to firms that were no longer small in SAM under the NAICS code 
size standard at the time of the order (510 out of 7,266 orders). That 
amounted to 12.6 percent of the dollars set-aside for small business 
under the FSS ($129.6 million to firms that were no longer small in SAM 
out of a total of $1.0723 billion in small business set-aside orders). 
Whereas, it is estimated that 49.4 percent of small business set-aside 
orders under government-wide acquisition contracts (GWACs) were awarded 
to firms that were no longer small in SAM under the NAICS code size 
standard at the time of the order (261 out of 528 orders). That 
amounted to 67 percent of the dollars set-aside for small business 
under GWACs ($119.6 million to firms that were no longer small in SAM 
out of a total of $178.6 million in small business set-aside orders). 
SBA then considered the number and dollar value of new orders that were 
awarded as small business set-asides under unrestricted base multiple 
award vehicles in FY 2018 using the size standard ``exceptions'' that 
apply in some of SBA's size standards (e.g., the IT Value-Added 
Reseller exception to NAICS 541519). Taking into account all current 
size standards exceptions, which allow a firm to qualify under an 
alternative size standard for certain types of contracts, it is 
estimated that 6.4 percent of small business set-aside orders under the 
FSS were awarded to firms that were no longer small in SAM at the time 
of the order (468 out of 7,266 orders). That amounted to 11.3 percent 
of the dollars set-aside for small business under the FSS ($120.7 
million to firms that were no longer small in SAM out of a total of 
$1.0723 billion in small business set-aside orders). Considering 
exceptions for set-aside orders under GWACs, it is estimated that 11.6 
percent were awarded to firms that were no longer small in SAM at the 
time of the order (61 out of 528 orders). That amounted to 39.5 percent 
of the dollars set-aside for small business under GWACs ($70.5 million 
to firms that were no longer small in SAM out of a total of $178.6 
million in small business set-aside orders). It is not possible to tell 
from FPDS whether the ``exception'' size standard applied to the 
contract or whether the agency applied the general size standard for 
the identified NAICS code. Thus, all that can be said with certainty is 
that for small business set-aside orders under the FSS, between 11.3 
percent and 12.1 percent of the order dollars set-aside for small 
business were awarded to firms that were no longer small in SAM. This 
amounted to somewhere between $120.7 million and $129.6 that were 
awarded to firms that were no longer small in SAM. For GWACs, the 
percentage of orders and order dollars being awarded to firms that no 
longer qualify as small is significantly greater. Between 39.5 percent 
and 67.0 percent of the order dollars set-aside for small business 
under GWACs were awarded to firms that were no longer small in SAM. 
This amounted to somewhere between $70.5 million and $119.6 million 
that were awarded to firms that were no longer small in SAM.
    Because discretionary set-asides under the FSS programs have proven 
effective in making awards to small business under the program and SBA 
did not want to add unnecessary burdens to the program that might 
discourage the use of set-asides, the proposed rule provided that, 
except for orders or Blanket Purchase Agreements issued under any FSS 
contract, if an order under an unrestricted MAC is set-aside 
exclusively for small business (i.e., small business set-aside, 8(a) 
small business, service-disabled veteran-owned small business, HUBZone 
small business, or women-owned small business), a concern must 
recertify its size status and qualify as such at the time it submits 
its initial offer, which includes price, for the particular order.
    SBA received a significant number of comments on this issue. Many 
commenters supported the proposed language as a needed approach to 
ensure that firms that are not small do not receive orders set-aside 
for small businesses and procuring agencies do not inappropriately take 
credit for awards to small business when the awardees are not in fact 
small. Many of these commenters believed that it was not fair to them 
as small businesses to have to compete for small business set-aside 
orders under unrestricted MACs with concerns that did not currently 
qualify as small and may not have done so for several years. Other 
commenters opposed the proposal for various reasons. Some believed that 
the regulations should be intended to foster and promote growth in 
small businesses and that the recertification requirement could stifle 
that growth. Others believed that the proposal undermines the general 
rule that a concern maintains its small business status for the life of 
a contract. SBA does not believe that a rule that requires a concern to 
actually be what it claims to be (i.e., a small business) in any way 
stifles growth. Of course, SBA supports the growth of small businesses 
generally. SBA encourages concerns to grow naturally and permits 
concerns that have been awarded small business set-aside contracts to 
continue to perform those contracts as small businesses throughout the 
life of those contracts (i.e., for the base and up to four additional 
option years). This rule merely responds to perceptions that SBA has 
permitted small business awards to concerns that do not qualify as 
small. As noted above, it is intended to apply only to unrestricted 
procurements where size and status were not relevant to the award of 
the underlying MAC. SBA also disagrees that this provision is 
inconsistent with the general rule that once a concern qualifies as 
small for a contract it can maintain its status as a small business 
throughout the life of that contract. SBA does not believe that a 
representation of size or status that does not affect the concern's 
eligibility to be awarded a contract should have the same significance 
as one that does.
    Several commenters agreed with SBA's intent but believed that the 
rule needed to more accurately take into account today's complex 
acquisition environment. These commenters noted that many MACs now seek 
to make awards to certain types of business concerns (i.e., small, 
8(a), HUBZone, WOSB, SDVO) in various reserves or ``pools,'' and that 
concerns may be excluded from a particular pool if they do not qualify 
as eligible for the pool. These commenters recommended that a concern 
being awarded a MAC for a particular pool should be able to carry the 
size and/or status of that pool to each order made to the pool. SBA 
agrees. As noted above, SBA proposed recertification in connection with 
orders

[[Page 66152]]

set-aside for small business under an unrestricted MAC because that is 
the first time that some firms will be eligible to compete for the 
order while others will be excluded from competition because of their 
size and/or status. However, where a MAC solicitation seeks to make 
awards to reserves or pools of specific types of small business 
concerns, the concerns represent that they are small or qualify for the 
status designated by the pool and having that status or not determines 
whether the firm does or does not qualify for the award of a MAC 
contract for the pool. In such a case, SBA believes that size and 
status should flow from the underlying MAC to individual orders issued 
under that MAC, and the firm can continue to rely on its 
representations for the MAC itself unless a contracting officer 
requests recertification of size and/or status with respect to a 
specific order. SBA makes that revision in this final rule.
    Many commenters also believed that there was no legitimate 
programmatic reason for excluding the FSS program from this 
recertification requirement. The commenters, however, miss that the FSS 
program operates under a separate statutory authority and that set-
asides are discretionary, not mandatory under this authority. SBA and 
GSA worked closely together to stand up and create this discretionary 
authority and it has been very successful. This discretionary set-aside 
authority was authorized by the Small Business Jobs Act of 2010 (Pub. 
L. 111-240) and implemented in FAR 8.405-5 in November 2011. As a 
result, benefits to small businesses have been significant. The small 
business share of GSA Schedule sales rose from 30% in fiscal year 2010 
(the last full fiscal year before the authority was implemented) to 39% 
in fiscal year 2019. That equates to an additional $1 billion going to 
small businesses in fiscal year 2019. Although SBA again considered 
applying the recertification requirement to the FSS program (and allow 
the FSS, as with any other MAC, to establish reserves or pools for 
business concerns with a specified size or status), SBA believes that 
is unworkable at this time. Consequently, consistent with the proposed 
rule, this final rule does not apply the modified recertification 
requirement to the FSS program. Doing so would pose an unnecessary risk 
to a program currently yielding good results for small business.
    For a MAC that is set aside for small business (i.e., small 
business set-aside, 8(a) small business, SDVO small business, HUBZone 
small business, or WOSB), the rule generally sets size status as of the 
date of the offer for the underlying MAC itself. A concern that is 
small at the time of its offer for the MAC will be considered small for 
each order issued against the contract, unless a contracting officer 
requests a size recertification in connection with a specific order. As 
is currently the case, a contracting officer has the discretion to 
request recertification of size status on MAC orders. If that occurs, 
size status would be determined at the time of the order. That would 
not be a change from the current regulations.
Socioeconomic Status
    Where the required status for an order differs from that of the 
underlying contract (e.g., the MAC is a small business set-aside award, 
and the procuring agency seeks to restrict competition on the order to 
only certified HUBZone small business concerns), SBA believes that a 
firm must qualify for the socioeconomic status of a set-aside order at 
the time it submits an offer for that order. Although size may flow 
down from the underlying contract, status in this case cannot. Similar 
to where a procuring agency seeks to compete an order on an 
unrestricted procurement as a small business set-aside and SBA would 
require offerors to qualify as small with respect to that order, 
(except for orders under FSS contracts),), SBA believes that where the 
socioeconomic status is first required at the order level, an offeror 
seeking that order must qualify for the socioeconomic status of the 
set-aside order when it submits its offer for the order.
    Under current policy and regulations, where a contracting officer 
seeks to restrict competition of an order under an unrestricted MAC to 
eligible 8(a) Participants only, the contracting officer must offer the 
order to SBA to be awarded through the 8(a) program, and SBA must 
accept the order for the 8(a) program. In determining whether a concern 
is eligible for such an 8(a) order, SBA would apply the provisions of 
the Small Business Act and its current regulations which require a firm 
to be an eligible Program Participant as of the date set forth in the 
solicitation for the initial receipt of offers for the order.
    This final rule makes these changes in Sec.  121.404(a)(1) for 
size, Sec.  124.503(i) for 8(a) BD eligibility, Sec.  125.18(d) for 
SDVO eligibility, and Sec.  127.504(c) for WOSB eligibility.
    Several commenters voiced concern with allowing the set-aside of 
orders to a smaller group of firms than all holders of a MAC. They 
noted that bid and proposal preparation costs can be significant and a 
concern that qualified for the underlying MAC as a small business or 
some other specified type of small business could be harmed if every 
order was further restricted to a subset of small business. For 
example, where a MAC is set-aside for small business and every order 
issued under that MAC is set-aside for 8(a) small business concerns, 
SDVO small business concerns, HUBZone small business concerns and 
WOSBs, those firms that qualified only as small business concerns would 
be adversely affected. In effect, they would be excluded from competing 
for every order. SBA agrees that is a problem. That is not what SBA 
intended when it authorized orders issued under small business set-
aside contracts to be further set-aside for a specific type of small 
business. SBA believes that an agency should not be able to set-aside 
all of the orders issued under a small business set-aside MAC for a 
further limited specific type of small business. As such, this final 
rule provides that where a MAC is set-aside for small business, the 
procuring agency can set-aside orders issued under the MAC to a more 
limited type of small business. Contracting officers are encouraged to 
review the award dollars under the MAC and to aim to make available for 
award at least 50 percent of the award dollars under the MAC to all 
contract holders of the underlying MAC.
    In addition, a few commenters asked for further clarification as to 
whether orders issued under a MAC set-aside for 8(a) Participants, 
HUBZone small business concerns, SDVO small business concerns or WOSBs/
EDWOSBs could be further set aside for a more limited type of small 
business. These commenters specifically did not believe that allowing 
the further set-aside of orders issued under a multiple award set-aside 
contract should be permitted in the 8(a) context. The commenters noted 
that the 8(a) program is a business development program of limited 
duration (i.e., nine years), and felt that it would be detrimental to 
the business development of 8(a) Participants generally if an agency 
could issue an order set-aside exclusively for 8(a) HUBZone small 
business concerns, 8(a) SDVO small business concerns, or 8(a) WOSBs. 
The current regulatory text of Sec.  125.2(e)(6)(i) provides that a 
``contracting officer has the authority to set aside orders against 
Multiple Award Contracts, including contracts that were set aside for 
small business,'' for small and subcategories of small businesses. SBA 
intended to allow a contracting officer to issue orders for 
subcategories of small businesses only under small

[[Page 66153]]

business set-aside contracts. This rule clarifies that intent.

Section 121.404

    In addition to the revision to Sec.  121.404(a)(1) identified 
above, the rule makes several other changes or clarifications to Sec.  
121.404. In order to make this section easier to use and understand, 
the rule adds headings to each subsection, which identify the subject 
matter of the subsection.
    The proposed rule amended Sec.  121.404(b), which requires a firm 
applying to SBA's programs to qualify as a small business for its 
primary industry classification as of the date of its application. The 
proposed rule eliminated references to SBA's small disadvantaged 
business (SDB) program as obsolete, and added a reference to the WOSB 
program. SBA received no comments on these edits and adopts them as 
final in this rule.
    The proposed rule also amended Sec.  121.404(d) to clarify that 
size status for purposes of compliance with the nonmanufacturer rule, 
the ostensible subcontractor rule and joint venture agreement 
requirements is determined as of the date of the final proposal 
revision for negotiated acquisitions and final bid for sealed bidding. 
Currently, only compliance with the nonmanufacturer rule is 
specifically addressed in this paragraph, but SBA's policy has been to 
apply the same rule to determine size with respect to the ostensible 
subcontractor rule and joint venture agreement requirements. This would 
not be a change in policy, but rather a clarification of existing 
policy. Several commenters misconstrued this to be a change in policy 
or believed that this would be a departure from the snapshot in time 
rule for determining size as of the date a concern submits its initial 
offer including price. As noted, SBA has intended this to be the 
current policy and is merely clarifying it in the regulatory text. In 
addition, SBA does not view this as a departure from the snapshot in 
time rule. The receipts/employees are determined at one specific point 
in time--the date on which a concern submits its initial offer 
including price. SBA believes that compliance with the nonmanufacturer 
rule, the ostensible subcontractor rule and joint venture agreement 
requirements can justifiably change during the negotiation process. If 
an offer changes during negotiations in a way that would make a large 
business mentor joint venture partner be in control of performance, for 
example, SBA does not believe that the joint venture should be able to 
point back to its initial offer in which the small business 
prot[eacute]g[eacute] partner to the joint venture appeared to be in 
control.
    The proposed rule also added a clarifying sentence to Sec.  
121.404(e) that would recognize that prime contractors may rely on the 
self-certifications of their subcontractors provided they do not have a 
reason to doubt any specific self-certification. SBA believes that this 
has always been the case, but has added this clarifying sentence, 
nevertheless, at the request of many prime contractors. SBA received 
positive comments on this change and adopts it as final in this rule.
    The proposed rule made several revisions to the size 
recertification provisions in Sec.  121.404(g). First, the 
recertification rule pertaining to a joint venture that had previously 
received a contract as a small business was not clear. If a partner to 
the joint venture has been acquired, is acquiring or has merged with 
another business entity, the joint venture must recertify its size 
status. In order to remain small, however, it was not clear whether 
only the partner which has been acquired, is acquiring or has merged 
with another business entity needed to recertify its size status or 
whether all partners to the joint venture had to do so. The proposed 
rule clarified that only the partner to the joint venture that has been 
acquired, is acquiring, or has merged with another business entity must 
recertify its size status in order for the joint venture to recertify 
its size. Commenters generally supported this revision. One commenter 
believed that a joint venture should be required to recertify its size 
only where the managing venture, or the small business concern upon 
which the joint venture's eligibility for the contract was based, is 
acquired by, is acquiring, or has merged with another business entity. 
SBA disagrees. SBA seeks to make the size rules pertaining to joint 
ventures similar to those for individual small businesses. Where an 
individual small business awardee grows to be other than small, its 
performance on a small business contract continues to count as an award 
to small business. Similarly, where a joint venture partner grows to be 
other than small naturally, that should not affect the size of the 
joint venture. However, under SBA's size rules, in order for a joint 
venture to be eligible as small, each partner to the joint venture must 
individually qualify as small. Size is not determined solely by looking 
at the size of the managing venture. Just as an individual small 
business awardee must recertify its size if it is acquired by, is 
acquiring, or has merged with another business entity, so too should 
the partner to a joint venture that is acquired by, is acquiring, or 
has merged with another business entity. As such, SBA adopts the 
proposed language as final in this rule.
    Additionally, the proposed rule clarified that if a merger or 
acquisition causes a firm to recertify as an other than small business 
concern between time of offer and award, then the recertified firm is 
not considered a small business for the solicitation. Under the 
proposed rule, SBA would accept size protests with specific facts 
showing that an apparent awardee of a set-aside has recertified or 
should have recertified as other than small due to a merger or 
acquisition before award. SBA received comments on both sides of this 
issue. Some commenters supported the proposed provision as a way to 
ensure that procuring agencies do not make awards to firms who are 
other than small. They thought that such awards could be viewed as 
frustrating the purpose of small business set-asides. Other commenters 
opposed the proposed change. A few of these commenters believed that a 
firm should remain small if it was small at the time it submitted its 
proposal. SBA wants to make it clear that is the general rule. Size is 
generally determined only at the date of offer. If a concern grows to 
be other than small between the date of offer and the date of award 
(e.g., another fiscal year ended and the revenues for that just 
completed fiscal year render the concern other than small), it remains 
small for the award and performance of that contract. The proposed rule 
dealt only with the situation where a concern merged with or was 
acquired by another concern after offer but before award. As stated in 
the supplementary information to the proposed rule, SBA believes that 
situation is different than natural growth. Several other commenters 
opposing the proposed rule believed such a policy could adversely 
affect small businesses due to the often lengthy contract award 
process. Contract award can often occur 18 months or more after the 
closing date for the receipt of offers. A concern could submit an offer 
and have no plans to merge or sell its business at that time. If a 
lengthy amount of time passes, these commenters argued that the concern 
should not be put in the position of declining to make a legitimate 
business decision concerning the possible merger or sale of the concern 
simply because the concern is hopeful of receiving the award of a 
contract as a small business. Several commenters recommended an 
intermediate position where recertification must occur if the merger or 
acquisition occurs within a certain amount of time from either the 
concern's offer or the date for the receipt

[[Page 66154]]

of offers set forth in the solicitation. This would allow SBA to 
prohibit awards to concerns that may appear to have simply delayed an 
action that was contemplated prior to submitting their offers, but at 
the same time not prohibit legitimate business decisions that could 
materialize months after submitting an offer. Commenters recommended 
requiring recertification when merger or acquisition occurs within 30 
days, 90 days and 6 months of the date of an offer. SBA continues to 
believe that recertification should be required when it occurs close in 
time to a concern's offer, but agrees that it would not be beneficial 
to discourage legitimate business transactions that arise months after 
an offer is submitted. In response, the final rule continues to provide 
that if a merger, sale or acquisition occurs after offer but prior to 
award the offeror must recertify its size to the contracting officer 
prior to award. If the merger, sale or acquisition (including 
agreements in principal) occurs within 180 days of the date of an 
offer, the concern will be ineligible for the award of the contract. If 
it occurs after 180 days, award can be made, but it will not count as 
an award to small business.
    The proposed rule also clarified that recertification is not 
required when the ownership of a concern that is at least 51 percent 
owned by an entity (i.e., tribe, ANC, or Community Development 
Corporation (CDC)) changes to or from a wholly-owned business concern 
of the same entity, as long as the ultimate owner remains that entity. 
When the small business continues to be owned to the same extent by the 
tribe, ANC or CDC, SBA does not believe that the real ownership of the 
concern has changed, and, therefore, that recertification is not 
needed. Commenters overwhelmingly supported this change, and SBA adopts 
it as final in this rule. The rule makes this same change to Sec.  
121.603 for 8(a) contracts as well.
    Finally, the proposed rule sought to amend Sec.  121.404(g)(3) to 
specifically permit a contracting officer to request size 
recertification as he or she deems appropriate at any point in a long-
term contract. SBA believes that this authority exists within the 
current regulatory language but is merely articulating it more clearly 
in this rule. Several commenters opposed this provision, believing that 
it would undermine the general rule that a concern's size status should 
be determined as of the date of its initial offer. They believe that 
establishing size at one point in time provides predictability and 
consistency to the procurement process. SBA agrees that size for a 
single award contract that does not exceed five years should not be 
reexamined during the life of a contract. SBA believes, however, that 
the current regulations allow a contracting officer to seek 
recertifications with respect to MACs. Pursuant to Sec.  121.404(g), 
``if a business concern is small at the time of offer for a Multiple 
Award Contract . . ., then it will be considered small for each order 
issued against the contract with the same NAICS code and size standard, 
unless a contracting officer requests a new size certification in 
connection with a specific order.'' (Emphasis added). The regulations 
at Sec.  121.404(g)(3) also provide that for a MAC with a duration of 
more than five years, a contracting officer must request that a 
business concern recertify its small business size status no more than 
120 days prior to the end of the fifth year of the contract, and no 
more than 120 days prior to exercising any option thereafter. Under 
this provision, a business concern is not required to recertify its 
size status until prior to the end of the fifth year of that contact. 
However, SBA also interprets Sec.  121.404(g)(3) as not prohibiting a 
contracting officer from requesting size recertification prior to the 
120-day point in the fifth year of the long-term contract. As noted 
above, the general language of Sec.  121.404(g) allows a contracting 
officer to request size recertification with respect to each order. SBA 
believes that the regulations permit a contracting officer the 
discretion to request size recertification at the contract level prior 
to the end of the fifth year if explicitly requested for the contract 
at issue and if requested of all contract holders. In this respect, the 
authority to request size recertification at the contract level prior 
to the fifth year is an extension of the authority to request 
recertification for subsequent orders. As such, this final rule 
clarifies that a contracting officer has the discretion to request size 
recertification as he or she deems appropriate at any point only for a 
long-term MAC.

Section 121.406

    The rule merely corrects a typographical error by replacing the 
word ``provided'' with the word ``provide.''

Section 121.702

    The proposed rule clarified the size requirements applicable to 
joint ventures in the Small Business Innovation Research (SBIR) 
program. Although the current regulation authorizes joint ventures in 
the SBIR program and recognizes the exclusion from affiliation afforded 
to joint ventures between a prot[eacute]g[eacute] firm and its SBA-
approved mentor, it does not specifically apply SBA's general size 
requirements for joint ventures to the SBIR program. The proposed rule 
merely sought to apply the general size rule for joint ventures to the 
SBIR program. In other words, a joint venture for an SBIR award would 
be considered a small business provided each partner to the joint 
venture, including its affiliates, meets the applicable size standard. 
In the case of the SBIR program, this means that each partner does not 
have more than 500 employees. Comments favored this proposal and SBA 
adopts it as final in this rule.

Section 121.1001

    SBA proposed to amend Sec.  121.1001 to provide authority to SBA's 
Associate General Counsel for Procurement Law to independently initiate 
or file a size protest, where appropriate. Commenters supported this 
provision, and SBA adopts it as final in this rule. In response to a 
comment, the final rule also revises Sec.  121.1001(b) to reflect which 
entities can request a formal size determination. Specifically, a 
commenter pointed out that although Sec.  121.1001(b) gave applicants 
for and participants in the HUBZone and 8(a) BD programs the right to 
request formal size determinations in connection with applications and 
continued eligibility for those programs, it did not provide that same 
authority to WOSBs/EDWOSBs and SDVO small business concerns in 
connection with the WOSB and SDVO programs. The final rule harmonizes 
the procedures for SBA's various programs as part of the Agency's 
ongoing effort to promote regulatory consistency.

Sections 121.1004, 125.28, 126.801, and 127.603

    This rule adds clarifying language to Sec.  121.1004, Sec.  125.28, 
Sec.  126.801, and Sec.  127.603 regarding size and/or socioeconomic 
status protests in connection with orders issued against a MAC. 
Currently, the provisions authorize a size protest where an order is 
issued against a MAC if the contracting officer requested a 
recertification in connection with that order. This rule specifically 
authorizes a size protest relating to an order issued against a MAC 
where the order is set-aside for small business and the underlying MAC 
was awarded on an unrestricted basis, except for orders or Blanket 
Purchase Agreements issued under any FSS contract. The rule also 
specifically authorizes a socioeconomic protest relating to set-aside 
orders based on a different socioeconomic status from the underlying 
set-aside MAC.

[[Page 66155]]

Section 121.1103

    An explanation of the change is provided with the explanation for 
Sec.  134.318.

Section 124.3

    In response to concerns raised to SBA by several Program 
Participants, the proposed rule added a definition of what a follow-on 
requirement or contract is. Whether a procurement requirement may be 
considered a follow-on procurement is important in several contexts 
related to the 8(a) BD program. First, SBA's regulations provide that 
where a procurement is awarded as an 8(a) contract, its follow-on or 
renewable acquisition must remain in the 8(a) BD program unless SBA 
agrees to release it for non-8(a) competition. 13 CFR 124.504(d)(1). 
SBA's regulations also require SBA to conduct an adverse impact 
analysis when accepting requirements into the 8(a) BD program. However, 
an adverse impact analysis is not required for follow-on or renewal 
8(a) acquisitions or for new requirements. 13 CFR 124.504(c). Finally, 
SBA's regulations provide that once an applicant is admitted to the 
8(a) BD program, it may not receive an 8(a) sole source contract that 
is a follow-on procurement to an 8(a) contract that was performed 
immediately previously by another Participant (or former Participant) 
owned by the same tribe, ANC, NHO, or CDC. 13 CFR 124.109(c)(3)(ii), 
124.110(e) and 124.111(d).
    In order to properly assess what each of these regulations 
requires, the proposed rule defined the term ``follow-on requirement or 
contract''. The definition identified certain factors that must be 
considered in determining whether a particular procurement is a follow-
on requirement or contract: (1) Whether the scope has changed 
significantly, requiring meaningful different types of work or 
different capabilities; (2) whether the magnitude or value of the 
requirement has changed by at least 25 percent; and (3) whether the end 
user of the requirement has changed. These considerations should be a 
guide, and not necessarily dispositive of whether a requirement 
qualifies as ``new.'' Applying the 25 percent rule contained in this 
definition rigidly could permit procuring agencies and entity-owned 
firms to circumvent the intent of release, sister company restriction, 
and adverse impact rules.
    For example, a procuring agency may argue that two procurement 
requirements that were previously awarded as individual 8(a) contracts 
can be removed from the 8(a) program without requesting release from 
SBA because the value of the combined requirement would be at least 25 
percent more than the value of either of the two previously awarded 
individual 8(a) contracts, and thus would be considered a new 
requirement. Such an application of the new requirement definition 
would permit an agency to remove two requirements from the 8(a) BD 
program without requesting and receiving SBA's permission for release 
from the program. We believe that would be inappropriate and that a 
procuring agency in this scenario must seek SBA's approval to release 
the two procurements previously awarded through the 8(a) BD program. 
Likewise, if an entity-owned 8(a) Participant previously performed two 
sole source 8(a) contracts and a procuring agency sought to offer a 
sole source requirement to the 8(a) BD program on behalf of another 
Participant owned by the same entity (tribe, ANC, NHO, or CDC) that, in 
effect, was a consolidation of the two previously awarded 8(a) 
procurements, we believe it would be inappropriate for SBA to accept 
the offer on behalf of the sister company. Similarly, if a small 
business concern previously performed two requirements outside the 8(a) 
program and a procuring agency wanted to combine those two requirements 
into a larger requirement to be offered to the 8(a) program, SBA should 
perform an adverse impact analysis with respect to that small business 
even though the combined requirement had a value that was greater than 
25 percent of either of the previously awarded contracts.
    SBA received a significant number of comments regarding what a 
follow-on requirement is and how SBA's rules regarding what a follow-on 
contract is should be applied to the three situations identified above. 
Many commenters believed that the proposed language was positive 
because it will help alleviate confusion in determining whether a 
requirement should be considered a follow-on or not. In terms of taking 
requirements or parts of requirements that were previously performed 
through the 8(a) program out of the program, commenters overwhelmingly 
supported SBA's involvement in the release process. Commenters were 
concerned that agencies have increased the value of procurement 
requirements marginally by 25 percent merely to call the procurements 
new and remove them from the 8(a) program without going through the 
release process. These commenters were particularly concerned where the 
primary and vital requirements of a procurement remained virtually 
identical and an agency merely intended to add ancillary work in order 
to freely remove the procurement from the 8(a) BD program. A few 
commenters also recommended that SBA provide clear guidance when the 
contract term of the previously awarded 8(a) contract is different than 
that of a successor contracting action. Specifically, these commenters 
believed that an agency should not be able to compare a contract with 
an overall $2.5 million value (consisting of a one year base period and 
four one-year options each with a $500,000 value) with a successor 
contract with an overall value of $1.5 million (consisting of a one 
year base period and two one-year options each with a $500,000 value) 
and claim it to be new. In such a case, the yearly requirement is 
identical and commenters believed the requirement should not be removed 
without going through the release process. SBA agrees. The final rule 
clarifies that equivalent periods of performance relative to the 
incumbent or previously-competed 8(a) requirement should be compared.
    Many commenters agreed that the 25 percent rule should not be 
applied rigidly, as that may open the door for the potential for (more) 
contracts to be taken out of the 8(a) BD program. Commenters also 
believed that SBA should be more involved in the process, noting that 
firms currently performing 8(a) contracts often do not discover a 
procuring agency's intent to reprocure that work outside the 8(a) BD 
program by combining it with other work and calling it a new 
requirement until very late in the procurement process. Once a 
solicitation is issued that combines work previously performed through 
an 8(a) contract with other work, it is it difficult to reverse even 
where SBA believes that the release process should have been followed. 
Several commenters recommended adding language that would require a 
procuring agency to obtain SBA concurrence that a procurement 
containing work previously performed through an 8(a) contract does not 
represent a follow-on requirement before issuing a solicitation for the 
procurement. Although SBA does not believe that concurrence should be 
required, SBA does agree that a procuring activity should notify SBA if 
work previously performed through the 8(a) program will be performed 
through a different means. A contracting officer will make the 
determination as to whether a requirement is new, but SBA should be 
given the opportunity to look at the procuring activity's strategy and 
supply input where appropriate. SBA has added such language to Sec.  
124.504(d) in this final rule.

[[Page 66156]]

    Several commenters supported the proposed definition of a follow-on 
procurement for release purposes where they agreed that a procuring 
agency should not be able to remove two requirements from the 8(a) 
program merely by combining them and calling the consolidated 
requirement new because it exceeds the 25 percent increase in 
magnitude. These commenters, however, recommended that the 25 percent 
change in magnitude be a ``bright-line rule'' with respect to whether a 
requirement should be considered a follow-on requirement to an 8(a) 
contract that was performed immediately previously by another 
Participant (or former Participant) owned by the same tribe, ANC, 
Native Hawaiian Organization (NHO), or CDC. SBA understands the desire 
to have clear, objective rules. However, as noted previously, SBA 
opposes a bright-line 25 percent change in magnitude rule in connection 
with release. In addition, because SBA does not believe that it is good 
policy to have one definition of what a follow-on requirement is for 
one purpose and have a different definition for another purpose, SBA 
opposes having a bright-line 25 percent change in magnitude rule in 
determining whether to allow a sister company to perform a particular 
sole source 8(a) contract and then provide discretion only in the 
context of whether certain work can be removed from the 8(a) program. 
SBA continues to believe that the language as proposed that allows 
discretion when appropriate is the proper alternative. In the context 
of determining whether to allow a sister company to perform a 
particular sole source 8(a) contract, SBA agrees that a 25 percent 
change in magnitude should be sufficient for SBA to approve a sole 
source contract to a sister company. It would be the rare instance 
where that is not the case.

Section 124.105

    The proposed rule amended Sec.  124.105(g) to provide more clarity 
regarding situations in which an applicant has an immediate family 
member that has used his or her disadvantaged status to qualify another 
current or former Participant. The purpose of the immediate family 
member restriction is to ensure that one individual does not unduly 
benefit from the 8(a) BD program by participating in the program beyond 
nine years, albeit through a second firm. This most often happens when 
a second family member in the same or similar line of business seeks 
8(a) BD certification. However, it is not necessarily the type of 
business which is a problem, but, rather, the involvement in the 
applicant firm of the family member that previously participated in the 
program. The current regulatory language requires an applicant firm to 
demonstrate that ``no connection exists'' between the applicant and the 
other current or former Participant. SBA believes that requiring no 
connections is a bit extreme. If two brothers own two totally separate 
businesses, one as a general construction contractor and one as a 
specialty trade construction contractor, in normal circumstances it 
would be completely reasonable for the brother of the general 
construction firm to hire his brother's specialty trade construction 
firm to perform work on contracts that the general construction firm 
was doing. Unfortunately, if either firm was a current or former 
Participant, SBA's rules prevented SBA from certifying the second firm 
for participation in the program, even if the general construction firm 
would pay the specialty trade firm the exact same rate that it would 
have to pay to any other specialty trade construction firm. SBA does 
not believe that makes sense. An individual should not be required to 
avoid all contact with the business of an immediate family member. He 
or she should merely have to demonstrate that the two businesses are 
truly separate and distinct entities.
    To this end, SBA proposed that an individual would not be able to 
use his or her disadvantaged status to qualify a concern for 
participation in the 8(a) BD program if that individual has an 
immediate family member who is using or has used his or her 
disadvantaged status to qualify another concern for the 8(a) BD program 
and the concerns are connected by any common ownership or management, 
regardless of amount or position, or the concerns have a contractual 
relationship that was not conducted at arm's length. In the first 
instance, if one of the two family members (or business entities owned 
by the family member) owned any portion of the business owned by the 
other family member, the second in time family member could not qualify 
his or her business for the 8(a) BD program. Similarly, if one of the 
two family members had any role as a director, officer or key employee 
in the business owned by the other family member, the second in time 
family member could not qualify his or her business for the 8(a) BD 
program. In the second instance, the second in time family member could 
not qualify his or her business for the 8(a) BD program if it received 
or gave work to the business owned by the other family member at other 
than fair market value. With these changes, SBA believes that the rule 
more accurately captures SBA's intent not to permit one individual from 
unduly benefitting from the program, while at the same time permitting 
normal business relations between two firms. Commenters generally 
supported this change. A few commenters supported the provision but 
believed that an additional basis for disallowing a new immediate 
family member applicant into the 8(a) BD program should be where the 
applicant shared common facilities with a current or former Participant 
owned and controlled by an immediate family member. SBA agrees that an 
applicant owned by an immediate family member of a current or former 
Participant should not be permitted to share facilities with that 
current or former Participant. This rule adds that situation as a basis 
for declining an applicant. Several commenters sought further 
clarification as to whether a presumption against immediate family 
members in the same or similar line of business would continue from the 
previous regulations into this revised provision, and whether some sort 
of waiver will be needed to allow an immediate family member applicant 
to be certified into the 8(a) BD program. In particular, a few 
commenters were concerned that if an immediate family member attempted 
to certify an applicant concern in the same primary NAICS as the 
current or former Participant and the individual applying for 
certification has no management or technical experience in that NAICS 
code, that the owner/manager of the current or former Participant would 
play a significant role in the applicant concern even though a formal 
role was not identified. As noted above, SBA believes that the rules 
pertaining to immediate family members seeking to participate in the 
8(a) BD program have been too harsh. The rule seeks to allow an 
applicant owned and controlled by an immediate family member of current 
or former Participant into the program, even in the same or similar 
line of business, provided certain conditions do not exist. SBA agrees 
with the comments that an individual seeking to certify an applicant 
concern in a primary NAICS code that is the same primary NAICS code of 
a current or former Participant operated by an immediate family member 
must have management or technical experience in that primary NAICS 
code. SBA agrees that without such a requirement, there is a risk that 
the owner/manager of the current or former Participant would have some 
role in the management or control of the applicant concern. This

[[Page 66157]]

rule adds a requirement that an individual applying in the same primary 
NAICS code as an immediate family member must have management or 
technical experience in that primary NAICS code, which would include 
experience acquired from working for an immediate family member's 
current or former Participant. Aside from that refinement, there is no 
presumption against such an applicant. The applicant must, however, 
demonstrate that there is no common ownership, control or shared 
facilities with the current or former Participant, and that any 
contractual relations between the two companies are arm's length 
transactions. One commenter questioned whether the revised requirement 
in proposed Sec.  124.105(g)(2) that SBA would annually assess whether 
the two firms continue to ``operate independently'' of one another 
after being admitted to the program was inconsistent with the language 
in Sec.  124.105(g)(1) that allows fair market contractual relations 
between the two firms. That language was not meant to imply that those 
arm's length transactions cannot occur once the second firm is admitted 
to the program. As part of an annual review, SBA will determine that 
ownership, management, and facilities continue to be separate and that 
any contractual relations are at fair market value. SBA would not 
initiate termination proceedings merely because the two firms entered 
into fair market value contracts after the second firm is admitted to 
the program. One commenter recommended that SBA should place a limit on 
the amount of contractual, arm's length transactions that have occurred 
between the firms (either dollar value or percentage of revenue). SBA 
disagrees. SBA does not believe a firm should be penalized for having 
an immediate family member participate in the 8(a) BD program. It does 
not make sense that a business concern owned by one family member 
cannot hire the business concern owned by another family member as a 
subcontractor at the same rate that it could hire any other business 
concern. Business relationships are often built upon trust. If a 
subcontractor has done a good job at a fair price, it is likely that 
the prime contractor will hire that firm again when the need arises to 
do that kind of work. Based upon the comments received in response to 
proposed Sec.  121.103(f) (which loosened the presumption of economic 
dependence where one concern derived at least 70 percent of its 
revenues from one other business concern), most commenters believed 
there should not be a hard restriction on the amount of work one 
business concern should be able to do with another. SBA believes the 
same should apply in the immediate family member context as long as a 
clear line of fracture exists between the two business concerns. As 
such, SBA does not adopt this recommendation in this final rule.
    The proposed rule also amended the 8(a) BD change of ownership 
requirements in Sec.  124.105(i). First, the proposed rule lessened the 
burden on 8(a) Participants seeking minor changes in ownership by 
providing that prior SBA approval is not needed where a previous owner 
held less than a 20 percent interest in the concern both before and 
after the transaction. This is a change from the previous requirement 
which allows a Participant to change its ownership without SBA's prior 
approval where the previous owner held less than a 10 percent interest. 
This change from 10 percent to 20 percent permits Participants to make 
minor changes in ownership more frequently without requiring them to 
wait for SBA approval.
    In addition, the proposed rule eliminated the requirement that all 
changes of ownership affecting the disadvantaged individual or entity 
must receive SBA prior approval before they can occur. Specifically, 
proposed revisions to Sec.  124.105(i)(2) provided that prior SBA 
approval is not needed where the disadvantaged individual (or entity) 
in control of the Participant will increase the percentage of his or 
her (its) ownership interest. SBA believes that prior approval is not 
needed in such a case because if SBA determined that an individual or 
entity owned and controlled a Participant before a change in ownership 
and the change in ownership only increases the ownership interest of 
that individual or entity, there could be no question as to whether the 
Participant continues to meet the program's ownership and control 
requirements. This change will decrease the amount of times and the 
time spent by Participant firms seeking SBA approval of a change in 
ownership. SBA received unanimous support on these provisions and 
adopts them as final in this rule.

Section 124.109

    In order to eliminate confusion, this rule clarifies several 
provisions relating to tribally-owned (and ANC-owned) 8(a) applicants 
and Participants. First, SBA amends Sec.  124.109(a)(7) and Sec.  
124.109(c)(3)(iv) to clarify that a Participant owned by an ANC or 
tribe need not request a change of ownership from SBA where the ANC or 
tribe merely reorganizes its ownership of a Participant in the 8(a) BD 
program by inserting or removing a wholly-owned business entity between 
the ANC/tribe and the Participant. SBA believes that a tribe or ANC 
should be able to replace one wholly-owned intermediary company with 
another without going through the change of ownership process and 
obtaining prior SBA approval. In each of these cases, SBA believes that 
the underlying ownership of the Participant is not changing 
substantively and that requiring a Participant to request approval from 
SBA is unnecessary. The recommendation and approval process for a 
change of ownership can take several months, so this change will 
relieve Participants owned by tribes and ANCs from this unnecessary 
burden and allow them to proactively conduct normal business operations 
without interruption.
    Second, the rule amends Sec.  124.109(c)(3)(ii) to clarify the 
rules pertaining to a tribe/ANC owning more than one Participant in the 
8(a) BD program. The rule adds two subparagraphs and an example to 
Sec.  124.109(c)(3)(ii) for ease of use and understanding. In addition, 
SBA clarifies that if the primary NAICS code of a tribally-owned 
Participant is changed pursuant to Sec.  124.112(e), the tribe could 
immediately submit an application to qualify another of its firms for 
participation in the 8(a) BD program under the primary NAICS code that 
was previously held by the Participant whose primary NAICS code was 
changed. A change in a primary NAICS code under Sec.  124.112(e) should 
occur only where SBA has determined that the greatest portion of a 
Participant's revenues for the past three years are in a NAICS code 
other than the one identified as its primary NAICS code. In such a 
case, SBA has determined that in effect the second NAICS code really 
has been the Participant's primary NAICS code for the past three years. 
Commenters supported these provisions, and SBA adopts them as final.
    The rule also clarifies SBA current policy that because an 
individual may be responsible for the management and daily business 
operations of two tribally-owned concerns, the full-time devotion 
requirement does not apply to tribally-owned applicants and 
Participants. This flows directly from the statutory provision which 
allows an individual to manage two tribally-owned firms. Commenters 
supported this change, noting that if statutory and regulatory 
requirements explicitly allow an individual to manage two 8(a) firms,

[[Page 66158]]

then it would be illogical to impose the full-time work requirement on 
such a manager. This rule adopts the proposed language as final.
    Finally, the proposed rule clarified the 8(a) BD program admission 
requirements governing how a tribally-owned applicant may demonstrate 
that it possesses the necessary potential for success. SBA's 
regulations previously permitted the tribe to make a firm written 
commitment to support the operations of the applicant concern to 
demonstrate a tribally-owned firm's potential for success. Due to the 
increased trend of tribes establishing tribally-owned economic 
development corporations to oversee tribally owned businesses, SBA 
recognizes that in some circumstances it may be adequate to accept a 
letter of support from the tribally-owned economic development company 
rather than the tribal leadership. The proposed rule permitted a 
tribally-owned applicant to satisfy the potential for success 
requirements by submitting a letter of support from the tribe itself, a 
tribally-owned economic development corporation or another relevant 
tribally-owned holding company. In order for a letter of support from 
the tribally-owned holding company to be sufficient, there must be 
sufficient evidence that the tribally-owned holding company has the 
financial resources to support the applicant and that the tribally-
owned company is controlled by the tribe. Commenters supported this 
change. They noted that an economic development corporation or 
tribally-owned holding company is authorized to act on behalf of the 
tribe and is essentially an economic arm of the tribe, and that 
oftentimes due to the size of the tribe it can be difficult and take 
significant amounts of time and resources to obtain a commitment letter 
from the tribe itself. SBA adopts this provision as final in this rule.

Section 124.110

    The proposed rule would make some of the same changes to Sec.  
124.110 for applicants and Participants owned and controlled by NHOs as 
it would to Sec.  124.109 for tribally-owned applicants and 
Participants. Specifically, the proposed rule would subdivide Sec.  
124.110(e) for ease of use and understanding and would clarify that if 
the primary NAICS code of an NHO-owned Participant is changed pursuant 
to Sec.  124.112(e), the NHO could submit an application and qualify 
another firm owned by the NHO for participation in the 8(a) BD program 
under the NAICS code that was the previous primary NAICS code of the 
Participant whose primary NAICS code was changed.

Section 124.111

    The proposed rule made the same change for CDCs and CDC-owned firms 
as for tribes and ANCs mentioned above. It clarified that a Participant 
owned by a CDC need not request a change of ownership from SBA where 
the CDC merely reorganizes its ownership of a Participant in the 8(a) 
BD program by inserting or removing a wholly-owned business entity 
between the CDC and the Participant. It also subdivided the current 
subparagraph (d) into three smaller paragraphs for ease of use and 
understanding, and clarified that if the primary NAICS code of a CDC-
owned Participant is changed pursuant to Sec.  124.112(e), the CDC 
could submit an application and qualify another firm owned by the CDC 
for participation in the 8(a) BD program under the NAICS code that was 
the previous primary NAICS code of the Participant whose primary NAICS 
code was changed. SBA did not receive any comments in response to these 
changes. As such, SBA adopts them as final in this rule.

Section 124.112

    SBA proposed to amend Sec.  124.112(d)(5) regarding excessive 
withdrawals in connection with entity-owned 8(a) Participants. The 
proposed rule permitted an 8(a) Participant that is owned at least 51 
percent by a tribe, ANC, NHO or CDC to make a distribution to a non-
disadvantaged individual that exceeds the applicable excessive 
withdrawal limitation dollar amount if it is made as part of a pro rata 
distribution to all shareholders. Commenters supported this change as a 
needed clarification to allow an entity-owned firm to increase its 
distribution to the tribe, ANC, NHO or CDC, and thus enable it to 
provide additional resources to the tribal or disadvantaged community. 
A few commenters were concerned with having dollar numbers in the 
examples set forth in the regulatory text. They were concerned that $1 
million would become the default unless done in pro rata share. SBA 
believes these commenters misunderstood the intent of this provision. 
The example in the regulation provides that where a tribally-owned 
Participant pays $1,000,000 to a non-disadvantaged manager that was not 
part of a pro rata distribution to all shareholders, SBA would consider 
that to be an excessive withdrawal. SBA continues to believe that a $1 
million payout to a non-disadvantaged individual in that context is 
excessive. If a tribe, ANC, NHO, or CDC owns 100 percent of an 8(a) 
Participant and wants to give back to the native or underserved 
community, nothing in this regulation would prohibit it from doing so. 
That Participant could give a distribution of $1 million or more back 
to the tribe, ANC, NHO, or CDC in order to ensure that the native or 
underserved community receives substantial benefits. The clarification 
regarding pro rata distributions was intended to allow greater 
distributions to tribal communities, not to restrict such 
distributions. The final rule adopts that provision.
    In 2016, SBA amended Sec.  124.112(e) to implement procedures to 
allow SBA to change the primary NAICS code of a Participant where SBA 
determined that the greatest portion of the Participant's total 
revenues during a three-year period have evolved from one NAICS code to 
another. 81 FR 48558, 48581 (July 25, 2016). The procedures require SBA 
to notify the Participant of its intent to change the Participant's 
primary industry classification and afford the Participant the 
opportunity to submit information explaining why such a change would be 
inappropriate. The proposed rule authorized an appeal process, whereby 
a Participant whose primary NAICS code was changed by its servicing 
district office could seek further review of that determination at a 
different level. Commenters supported this provision and SBA adopts it 
as final in this rule.

Section 124.201

    The proposed rule did not amend Sec.  124.201. However, SBA sought 
comments as to whether SBA should add a provision that would require a 
small business concern that seeks to apply for participation in the 
8(a) BD program to first take an SBA-sponsored preparatory course 
regarding the requirements and expectations of the 8(a) BD program. 
Commenters were split on this proposal. Some felt it would be helpful 
to those firms who did not have a clear understanding of the 
expectations of participating in the 8(a) BD program. Others thought it 
would merely delay their participation in the program needlessly. Some 
commenters were concerned that there might be time commitments and 
travel expenses if a live course were required and recommended having 
the option to provide such training via a web-based platform. 
Commenters also noted that for entity-owned applicants, this 
requirement should not apply beyond the entity's first company to enter 
the 8(a) BD program. After reviewing the

[[Page 66159]]

comments, SBA believes that such a preparatory course should be an 
option, but not a requirement. As such, SBA does not believe that the 
regulatory text needs to be revised in this final rule.

Section 124.203

    Section 124.203 requires applicants to the 8(a) BD program to 
submit certain specified supporting documentation, including financial 
statements, copies of signed Federal personal and business tax returns 
and individual and business bank statements. In 2016, SBA removed the 
requirement that an applicant must submit a signed Internal Revenue 
Service (IRS) Form 4506T, Request for Copy or Transcript of Tax Form, 
in all cases. 81 FR 48558, 48569 (July 25, 2016). At that time, SBA 
agreed with a commenter to the proposed rule that questioned the need 
for every applicant to submit IRS Form 4506T. In eliminating that 
requirement for every applicant, SBA reasoned that it always has the 
right to request any applicant to submit specific information that may 
be needed in connection with a specific application. As long as SBA's 
regulations clearly provide that SBA may request any additional 
documents SBA deems necessary to determine whether a specific applicant 
is eligible to participate in the 8(a) BD program, SBA will be able to 
request that a particular firm submit IRS Form 4506T where SBA believes 
it to be appropriate. SBA proposed to amend Sec.  124.203 to add back 
the requirement that every applicant to the 8(a) BD program submit IRS 
Form 4506T (or when available, IRS Form 4506C) because not having the 
Form readily available when needed has unduly delayed the application 
process for those affected applicants. In addition, SBA believed that 
requiring Form 4506T in every case would serve as a deterrent to firms 
that may think it is not necessary to fully disclose all necessary 
financial information.
    However, during the comment period SBA determined that neither Form 
is a viable option for independent personal income verification 
purposes at this time. On July 1, 2019, the IRS removed the third-party 
mailing option from the Form 4506T after it was determined that this 
delivery method presents a risk to sensitive taxpayer information. As a 
result, the IRS will no longer send tax return transcripts directly to 
SBA; rather, transcripts must be mailed to the taxpayer's address of 
record. Because SBA may not receive tax return transcripts directly 
from the IRS under Form 4506T, the Agency no longer believes it is an 
effective tool for independent income verification. In addition, 
current IRS guidance indicates that Form 4506C is available only to 
industry lenders participating in the Income Verification Express 
Service program.
    SBA nevertheless continues to recognize the importance of obtaining 
authorization to receive taxpayer information at the time of 
application. It is SBA's understanding that the IRS is currently 
developing a successor form or program through which SBA and other 
Federal agencies may directly receive a taxpayer's tax return 
information for income verification purposes. As such, the final rule 
provides that each individual claiming disadvantaged status must 
authorize SBA to request and receive tax return information directly 
from the IRS if such authorization is required. Although SBA does not 
anticipate using this authorization often to verify an applicant's 
information, SBA believes that this additional requirement imposes a 
minimal burden on 8(a) BD program applicants. Additionally, SBA 
believes that this required authorization will help to maintain the 
integrity of the program.

Section 124.204

    This rule provides that SBA will suspend the time to process an 
8(a) application where SBA requests clarifying, revised or other 
information from the applicant. While SBA is waiting on the applicant 
to provide clarifying or responsive information, the Agency is not 
continuing to process the application. This is not a change in policy, 
but rather a clarification of existing policy. Commenters did not have 
any issue with this change, believing that it already is SBA's existing 
practice and that the regulatory change will simply clarify/formalize 
this practice. As such, SBA adopts it as final in this rule.

Sections 124.205, 124.206 and 124.207

    The proposed rule amended Sec.  124.207 to allow a concern that has 
been declined for 8(a) BD program participation to submit a new 
application 90 days after the date of the Agency's final decision to 
decline. Under the current regulations, a firm is required to wait 12 
months from the date of the final agency decision to reapply. SBA 
believes that this change will reduce the number of appeals to SBA's 
Office of Hearings and Appeals (OHA) and greatly reduce the costs 
associated with appeals borne by disappointed applicants. In addition, 
because a firm that is declined could submit a new application 90 days 
after the decline decision, SBA requested comments on whether the 
current reconsideration process should be eliminated. Commenters 
enthusiastically supported the proposed change to allow firms to remedy 
eligibility deficits and reapply after 90 days instead of one year. In 
conjunction with this proposed change, many commenters supported 
eliminating the reconsideration process as unnecessary due to the 
shorter reapplication time period. A few commenters supported both the 
reduction in time to reapply and elimination of the reconsideration 
process, but asked SBA to ensure that SBA provide comprehensive denial 
letters to fully apprise applicants of any issues or shortcomings with 
their applications. SBA agrees that denial letters must fully inform 
applicants of any issues with their applications, and will continue to 
explain as specifically as possible the shortcomings in any declined 
application. Several commenters opposed changing the current 
reconsideration process because they believed that it could take longer 
for an applicant to ultimately be admitted to the program if all it had 
to do was change one or two minor things, and that doing so during 
reconsideration would be quicker than SBA looking at a re-application 
anew. Contrary to what some commenters believed, SBA looks at all 
eligibility criteria during reconsideration and may find additional 
reasons to decline an application during reconsideration that were not 
clearly identified in the initial application process. Where that 
occurs, a firm may be entitled to an additional reconsideration process 
which may potentially prolong the review process even further. SBA 
believes reducing the timeframe to address identified deficits and 
reapply from one year to 90 days will obviate the need for a separate, 
possibly drawn-out reconsideration process. One commenter believed that 
allowing the shortened 90-day waiting period to re-apply to the 8(a) BD 
program would encourage concerns that are clearly ineligible to 
repeatedly apply for certification. Although SBA does not believe that 
this would be a significant problem, SBA does understand that its 
limited resources could be overburdened if clearly ineligible business 
concerns are able to re-apply to the program every 90 days. As such, 
this final rule amends Sec.  124.207 to incorporate a 90-day wait 
period to reapply generally, but adds language that provides that where 
a concern has been declined three times within 18 months of the date of 
the first final agency decision finding the concern ineligible, the 
concern cannot submit a new application for admission to the

[[Page 66160]]

program until 12 months from the date of the third final Agency decline 
decision. The final rule also amends Sec.  124.205 to eliminate a 
separate reconsideration process and Sec.  124.206 to delete paragraph 
(b) as unnecessary.

Section 124.300 and 124.301

    The proposed rule redesignated the current Sec.  124.301 (which 
discusses the various ways a business may leave the 8(a) BD program) as 
Sec.  124.300 and added a new Sec.  124.301 to specifically enunciate 
the voluntary withdrawal and early graduation procedures. The rule set 
forth SBA's current policy that a Participant may voluntarily withdraw 
from the 8(a) BD program at any time prior to the expiration of its 
program term. In addition, where a Participant believes it has 
substantially achieved the goals and objectives set forth in its 
business plan, the Participant may elect to voluntarily early graduate 
from the 8(a) BD program. That too is SBA's current policy, and the 
proposed rule merely captured it in SBA's regulations.
    The proposed rule, however, changed the level at which voluntary 
withdrawal and voluntary early graduation could be finalized by SBA. 
Prior to this final rule, a firm submitted its request to voluntarily 
withdraw or early graduate to its servicing SBA district office. Once 
the district office concurs, the request was sent to the Associate 
Administrator for Business Development (AA/BD) for final approval. SBA 
believes that requiring several layers of review to permit a concern to 
voluntarily exit the 8(a) BD program is unnecessary. SBA proposed that 
a Participant must still request voluntary withdrawal or voluntary 
early graduation from its servicing district office, but the action 
would be complete once the District Director recognizes the voluntary 
withdrawal or voluntary early graduation. SBA believes this will 
eliminate unnecessary delay in processing these actions. Commenters 
supported giving voluntary withdrawal and voluntary early graduation 
decisions to the district office level, agreeing with SBA that the 
change will assist in reducing processing times. As such, SBA adopts 
the proposed changes as final.

Section 124.304

    The proposed rule clarified the effect of a decision made by the 
AA/BD to terminate or early graduate a Program Participant. Under SBA's 
current procedures, once the AA/BD renders a decision to early graduate 
or terminate a Participant from the 8(a) BD program, the affected 
Participant has 45 days to appeal that decision to SBA's OHA. If no 
appeal is made, the AA/BD's decision becomes the final agency decision 
after that 45-day period. If the Participant appeals to OHA, the final 
agency decision will be the decision of the administrative law judge at 
OHA. There has been some confusion as to what the effect of the AA/BD 
decision is pending the decision becoming the final agency decision. 
The proposed rule clarified that where the AA/BD issues a decision 
terminating or early graduating a Participant, the Participant would be 
immediately ineligible for additional program benefits. SBA does not 
believe that it would make sense to allow a Participant to continue to 
receive program benefits after the AA/BD has terminated or early 
graduated the firm from the program. If OHA ultimately overrules the 
AA/BD decision, SBA would treat the amount of time between the AA/BD's 
decision and OHA's decision on appeal similar to how it treats a 
suspension. Upon OHA's decision overruling the AA/BD's determination, 
the Participant would immediately be eligible for program benefits and 
the length of time between the AA/BD's decision and OHA's decision on 
appeal would be added to the Participant's program term. Commenters 
generally supported this clarification. One commenter opposed the 
change, believing ineligibility or suspension should not be automatic, 
but rather, occur only where SBA ``determines that suspension is needed 
to protect the interests of the Federal Government, such as because 
where information showing a clear lack of program eligibility or 
conduct indicating a lack of business integrity exists'' as set forth 
in Sec.  124.305(a). SBA believes this comment misses the point. The 
suspension identified in Sec.  124.305(a) is an interim determination 
pending a final action by the AA/BD as to whether a Participant should 
be terminated from the program. The suspension identified here flows 
from the AA/BD's final decision that termination is appropriate. As 
noted above, SBA believes it is contradictory to allow a Participant to 
continue to receive program benefits after the AA/BD has terminated or 
early graduated the firm from the program. As such, SBA adopts the 
proposed language as final in this rule.

Sections 124.305 and 124.402

    Section 124.402 requires each firm admitted to the 8(a) BD program 
to develop a comprehensive business plan and to submit that business 
plan to SBA. Currently, Sec.  124.402(b) provides that a newly admitted 
Participant must submit its business plan to SBA as soon as possible 
after program admission and that the Participant will not be eligible 
for 8(a) BD benefits, including 8(a) contracts, until SBA approves its 
business plan. Several firms have complained that they missed contract 
opportunities because SBA did not approve their business plans before 
procuring agencies sought to award contracts to fulfill certain 
requirements. The proposed rule amended Sec.  124.402(b) to eliminate 
the provision that a Participant cannot receive any 8(a) BD benefits 
until SBA has approved its business plan. Instead, the proposed rule 
provided that SBA would suspend a Participant from receiving 8(a) BD 
program benefits if it has not submitted its business plan to the 
servicing district office and received SBA's approval within 60 days 
after program admission. A firm coming in to the 8(a) BD program with 
commitments from one or more procuring agencies will immediately be 
able to be awarded one or more 8(a) contracts. Commenters appreciated 
SBA's recognition of the delays and possible missed opportunities 
caused by the current requirements and supported this change. They 
believed that the change will enable Participants to start receiving 
the benefits of the program in a more timely manner and enjoy their 
full nine-year term. A few commenters recommended that a new 
Participant should not be suspended where it has submitted its business 
plan within 60 days of being certified into the program but SBA has not 
approved it within that time. These commenters believed that a 
Participant should be suspended in this context only for actions within 
the Participant's control (i.e., where the Participant did not submit 
its business plan within 60 days, not where SBA has not approved it 
within that time). That is SBA's intent. The proposed rule provided 
that SBA will suspend a Participant from receiving 8(a) BD program 
benefits, including 8(a) contracts, if it has not submitted its 
business plan to the servicing district office within 60 days after 
program admission. As long as a Participant has submitted its business 
plan to SBA within the 60-day timeframe, it will not be suspended. SBA 
believes that is clear in the regulatory text as proposed and that no 
further clarification is needed. As such, SBA adopts the proposed 
language as final in this rule.
    This rule also corrects a typographical error contained in Sec.  
124.305(h)(1)(ii). Under Sec.  124.305(h)(1)(ii), an 8(a) Participant 
can elect to be suspended from the 8(a) program where a disadvantaged 
individual who is involved in controlling the day-to-day

[[Page 66161]]

management and control of the Participant is called to active military 
duty by the United States. Currently, the regulation states that the 
Participant may elect to be suspended where the individual's 
participation in the firm's management and daily business operations is 
critical to the firm's continued eligibility, and the Participant 
elects not to designate a non-disadvantaged individual to control the 
concern during the call-up period. That should read where the 
Participant elects not to designate another disadvantaged individual to 
control the concern during the call-up period. It was not SBA's intent 
to allow a non-disadvantaged individual to control the firm during the 
call-up period and permit the firm to continue to be eligible for the 
program. Finally, one commenter questioned why SBA required a 
suspension action to generally be initiated simultaneous with or after 
the initiation of a BD program termination action. The commenter 
believed that if the Government's interests needed to be protected 
quickly, SBA should be able to suspend a particular Program Participant 
without also simultaneously initiating a termination proceeding. The 
commenter argued that the Government should be able to stop 
inappropriate or fraudulent conduct immediately. Although SBA envisions 
initiating a termination proceeding simultaneously with a suspension 
action in most cases, SBA concurs that immediate suspension without 
termination may be needed in certain cases. As such, the final rule 
amends Sec.  124.305(a) to allow the AA/BD to immediately suspend a 
Participant when he or she determines that suspension is needed to 
protect the interests of the Federal Government.

Sections 124.501 and 124.507

    Section 124.501 is entitled ``What general provisions apply to the 
award of 8(a) contracts?'' SBA must determine that a Participant is 
eligible for the award of both competitive and sole source 8(a) 
contracts. However, the requirement that SBA determine eligibility is 
currently contained only in the 8(a) competitive procedures at Sec.  
124.507(b)(2). Although SBA determines eligibility for sole source 8(a) 
awards at the time it accepts a requirement for the 8(a) BD program, 
that process is not specifically stated in the regulations. The 
proposed rule moved the eligibility determination procedures for 
competitive 8(a) contracts from Sec.  124.507(b)(2) to the general 
provisions of Sec.  124.501 and specifically addressed eligibility 
determinations for sole source 8(a) contracts. To accomplish this, the 
proposed rule revised current Sec.  124.501(g). Commenters did not 
object to this clarification. One commenter sought further 
clarification regarding eligibility for 8(a) sole source contracts. The 
commenter noted that for a sole source 8(a) procurement, SBA determines 
eligibility of a nominated 8(a) firm at the time of acceptance. The 
commenter recommended that the regulation clearly notify 8(a) firms and 
procuring agencies that if a firm graduates from the program before 
award occurs, the award cannot be made. Although SBA believes that is 
currently included within Sec.  124.501(g), this final rule adds 
additional clarifying language to remove any confusion. One commenter 
also sought further clarification for two-step competitive procurements 
to be awarded through the 8(a) BD program. The commenter noted that the 
solicitation has two dates, and asked SBA to clarify which date 
controls for eligibility for the 8(a) competitive award. In response, 
this final rule adds a new Sec.  124.507(d)(3) that provides that for a 
two-step design-build procurement to be awarded through the 8(a) BD 
program, a firm must be a current Participant eligible for award of the 
contract on the initial date specified for receipt of phase one offers 
contained in the contract solicitation.
    Similarly, SBA believes that the provisions requiring a bona fide 
place of business within a particular geographic area for 8(a) 
construction awards should also appear in the general provisions 
applying to 8(a) contracts set forth in Sec.  124.501. Section 8(a)(11) 
of the Small Business Act, 15 U.S.C. 637(a)(11), requires that to the 
maximum extent practicable 8(a) construction contracts ``shall be 
awarded within the county or State where the work is to be performed.'' 
SBA has implemented this statutory provision by requiring a Participant 
to have a bona fide place of business within a specific geographic 
location. Currently, the bona fide place of business rules appear only 
in the procedures applying to competitive 8(a) procurements in Sec.  
124.507(c)(2). The proposed rule moved those procedures to a new Sec.  
124.501(k) to clearly make them applicable to both sole source and 
competitive 8(a) awards. Based on the statutory language, SBA believes 
that the requirement to have a bona fide place of business in a 
particular geographic area currently applies to both sole source and 
competitive 8(a) procurements, but moving the requirement to the 
general applicability section removes any doubt or confusion. 
Commenters did not object to these changes and SBA adopts them as final 
in this rule.
    In response to concerns raised by Participants, the proposed rule 
also imposed time limits within which SBA district offices should 
process requests to add a bona fide place of business. SBA has heard 
that several Participants missed out on 8(a) procurement opportunities 
because their requests for SBA to verify their bona fide places of 
business were not timely processed. In order to alleviate this 
perceived problem, SBA proposed to provide that in connection with a 
specific 8(a) competitive solicitation, the reviewing office will make 
a determination whether or not the Participant has a bona fide place of 
business in its geographical boundaries within 5 working days of a site 
visit or within 15 working days of its receipt of the request from the 
servicing district office if a site visit is not practical in that 
timeframe. SBA also requested comments on whether a Participant that 
has filed a request to have a bona fide place of business recognized by 
SBA in time for a particular 8(a) construction procurement may submit 
an offer for that procurement where it has not received a response from 
SBA before the date offers are due. Commenters supported imposing time 
limits in the regulations for SBA to process requests to establish bona 
fide places of business. Commenters also supported Participants being 
able to presume approval and submit an offer as an eligible Participant 
where SBA has not issued a decision within the specified time limits. 
One commenter asked SBA to clarify what happens if a Participant 
submits an offer based on this presumption and SBA later does not 
verify the Participant's bona fide place of business. SBA does not 
believe that verification will not occur before award. The final rule 
allows a Participant to presume that SBA has approved its request for a 
bona fide place of business if SBA does not respond in the time 
identified. This allows a Participant to submit an offer where a bona 
fide place of business is required. However, clarification is added at 
124.501(k)(2)(iii)(B) that in order to be eligible for award, SBA must 
approve the bona fide place of business prior to award. If SBA has not 
acted prior to the time that a Participant is identified as the 
apparent successful offeror, SBA will make such a determination within 
5 days of receiving a procuring activity's request for an eligibility 
determination unless the procuring activity grants additional time for 
review.
    Several commenters recommended that SBA broaden the geographic

[[Page 66162]]

boundaries as to what it means to have a bona fide place of business 
within a particular area. As identified above, the bona fide place of 
business concept evolved from the statutory requirement that to the 
maximum extent practicable 8(a) construction contracts must be awarded 
within the county or State where the work is to be performed. 
Commenters believed that strict state line boundaries may not be 
appropriate where a given area is routinely served by more than one 
state. A commenter recommended that SBA use Metropolitan Statistical 
Areas (MSAs) to better define the area within which a business should 
be located in order to be deemed to have a bona fide place of business 
in the area. The Office of Management and Budget has defined an MSA as 
``A Core Based Statistical Area associated with at least one urbanized 
area that has a population of at least 50,000. The MSA comprises the 
central county or counties containing the core, plus adjacent outlying 
counties having a high degree of social and economic integration with 
the central county or counties as measured through commuting.'' 2010 
Standards for Delineating Metropolitan and Micropolitan Statistical 
Areas, 75 FR 37246-37252 (June 28, 2010). The commenter noted that 
metropolitan areas frequently do not fit within one state and believed 
that a state does not always represent a single geography or economy. 
As an example, the commenter pointed to the Philadelphia, Pennsylvania 
MSA, which includes counties in four states, Delaware, Maryland, New 
Jersey and Pennsylvania. This MSA represents one regional economy, but 
is serviced by four different SBA District Offices: Baltimore, 
Philadelphia, Delaware and New Jersey. SBA believes that such an 
expansion makes sense in today's complex business environment. However, 
the use of MSAs will mostly impact the more densely populated coasts of 
the country, and not necessarily more rural or less populated areas. 
SBA believes the same rationale could be used in those areas, but 
instead use contiguous counties. A Participant located on the other 
side of a state border may be closer to the construction site than a 
Participant located in the same state as the construction site. It does 
not make sense to exclude a Participant immediately across the border 
from where construction work is to be done merely because that 
Participant is serviced by a different SBA district office, but to 
allow another Participant that may be located on the other side of the 
state where construction work is to be done (and be hundreds of miles 
further away from the construction site than the Participant in the 
other state) to be eligible because it is serviced by the correct SBA 
district office. As such this final rule defines bona fide place of 
business to be the geographic area serviced by the SBA district office, 
a MSA, or a contiguous county to (whether in the same or different 
state) where the work will be performed.

Section 124.503

    The proposed rule amended Sec.  124.503(e) to clarify SBA's current 
policy regarding what happens if after SBA accepts a sole source 
requirement on behalf of a particular Participant the procuring agency 
determines, prior to award, that the Participant cannot do the work or 
the parties cannot agree on price. In such a case, SBA allows the 
agency to substitute one 8(a) Participant for another if it believes 
another Participant could fulfill its needs. If the procuring agency 
and SBA agree that another Participant cannot fulfill its needs, the 
procuring agency may withdraw the original offering letter and fulfill 
its needs outside the 8(a) BD program. This change to the regulatory 
text was merely an attempt to codify existing procedures to make the 
process more transparent. No one objected to this provision, and SBA 
adopts it as final in this rule.
    Currently, Sec.  124.503(g) provides that a Basic Ordering 
Agreement (BOA) is not a contract under the Federal Acquisition 
Regulation (FAR). Rather, each order to be issued under the BOA is an 
individual contract. As such, a procuring activity must offer, and SBA 
must accept, each task order under a BOA in addition to offering and 
accepting the BOA itself. Once a Participant leaves the 8(a) BD program 
or otherwise becomes ineligible for future 8(a) contracts (e.g., 
becomes other than small under the size standard assigned to a 
particular contract) it cannot receive further 8(a) orders under a BOA. 
Similarly, a blanket purchase agreement (BPA) is also not a contract. A 
BPA under FAR part 13 is not a contract because it neither obligates 
funds nor requires placement of any orders against it. Instead, it is 
an understanding between an ordering agency and a contractor that 
allows the agency to place future orders more quickly by identifying 
terms and conditions applying to those orders, a description of the 
supplies or services to be provided, and methods for issuing and 
pricing each order. The government is not obligated to place any 
orders, and either party may cancel a BPA at any time.
    Although current Sec.  124.503(g) addresses BOAs, it does not 
specifically mention BPAs. This rule amends Sec.  124.503 to merely 
specifically recognize that BPAs are also not contracts and should be 
afforded the same treatment as BOAs.

Section 124.504

    SBA proposed several changes to Sec.  124.504.
    The proposed rule amended Sec.  124.504(b) to alter the provision 
prohibiting SBA from accepting a requirement into the 8(a) BD program 
where a procuring activity competed a requirement among 8(a) 
Participants prior to offering the requirement to SBA and receiving 
SBA's formal acceptance of the requirement. SBA believes that the 
restriction as written is overly harsh and burdensome to procuring 
agencies. Several contracting officers have not offered a follow-on 
procurement to the 8(a) program prior to conducting a competition 
restricted to eligible 8(a) Participants because they believed that 
because a follow-on requirement must be procured through the 8(a) 
program, such offer and SBA's acceptance were not required. They issued 
solicitations identifying them as competitive 8(a) procurements, 
selected an apparent successful offeror and then sought SBA's 
eligibility determination prior to making an award. A strict 
interpretation of the current regulatory language would prohibit SBA 
from accepting such a requirement. Such an interpretation could 
adversely affect an agency's procurement strategy in a significant way 
by unduly delaying the award of a contract. That was never SBA's 
intent. As long as a procuring agency clearly identified a requirement 
as a competitive 8(a) procurement and the public fully understood it to 
be restricted only to eligible 8(a) Participants, SBA should be able to 
accept that requirement regardless of when the offering occurred. 
Commenters supported this change as a logical remedy to an unintended 
consequence, and SBA adopts it as final in this rule.
    The proposed rule clarified SBA's intent regarding the requirement 
that a procuring agency must seek and obtain SBA's concurrence to 
release any follow-on procurement from the 8(a) BD program. This is not 
a change in policy, but rather a clarification of SBA's current policy 
and the position SBA has taken in several protests before the 
Government Accountability Office. Some agencies have attempted to 
remove a follow-on procurement from

[[Page 66163]]

the incumbent 8(a) contractor and re-procure the requirement through a 
different contract vehicle (a MAC or Government-wide Acquisition 
Contract (GWAC) that is not an 8(a) contract) without seeking release 
by saying that they intend to issue a competitive 8(a) order off the 
other contract vehicle. In other words, because the order under a MAC 
or GWAC would be offered to and accepted for award through the 8(a) BD 
program and the follow-on work would be performed through the 8(a) BD 
program, some procuring agencies believe that release is not needed. 
SBA does not agree. In such a case, the underlying contract is not an 
8(a) contract. The procuring agency may be attempting to remove a 
requirement from the 8(a) program to a contract that is not an 8(a) 
contract. That is precisely what release is intended to apply to. 
Moreover, because Sec.  124.504(d)(4) provides that the requirement to 
seek release of an 8(a) requirement from SBA does not apply to orders 
offered to and accepted for the 8(a) program where the underlying MAC 
or GWAC is not itself an 8(a) contract, allowing a procuring agency to 
move an 8(a) contract to an 8(a) order under a non-8(a) contract 
vehicle would allow the procuring agency to then remove the next 
follow-on to the 8(a) order out of the 8(a) program entirely without 
any input from SBA. A procuring agency could take an 8(a) contract with 
a base year and four one-year option periods, turn it into a one-year 
8(a) order under a non-8(a) contract vehicle, and then remove it from 
the 8(a) program entirely after that one-year performance period. That 
was certainly not the intent of SBA's regulations.
    SBA has received additional comments recommending that release 
should also apply even if the underlying pre-existing MAC or GWAC to 
which a procuring agency seeks to move a follow-on requirement is 
itself an 8(a) contract. These commenters argue that an 8(a) incumbent 
contractor may be seriously hurt by moving a procurement from a general 
8(a) competitive procurement to an 8(a) MAC or GWAC to which the 
incumbent is not a contract holder. In such a case, the incumbent would 
have no opportunity to win the award for the follow-on contract, and, 
would have no opportunity to demonstrate that it would be adversely 
impacted or to try to dissuade SBA from agreeing to release the 
procurement. Commenters believe that this directly contradicts the 
business development purposes of the 8(a) BD program. In response, the 
rule provides that a procuring activity must notify SBA where it seeks 
to re-procure a follow-on requirement through a limited contracting 
vehicle which is not available to all 8(a) BD Program Participants 
(e.g., any multiple award or Governmentwide acquisition contract, 
whether or not the underlying MAC or GWAC is itself an 8(a) contract). 
If an agency seeks to re-procure a current 8(a) requirement as a 
competitive 8(a) award for a new 8(a) MAC or GWAC vehicle, SBA's 
concurrence will not be required because such a competition would be 
available to all 8(a) BD Program Participants.
    The proposed rule also clarified that in all cases where a 
procuring agency seeks to fulfill a follow-on requirement outside of 
the 8(a) BD program, except where it is statutorily or otherwise 
required to use a mandatory source (see FAR subpart 8.6 and 8.7), it 
must make a written request to and receive the concurrence of SBA to do 
so. In such a case, the proposed rule would require a procuring agency 
to notify SBA that it will take a follow-on procurement out of the 8(a) 
procurement because of a mandatory source. Such notification would be 
required at least 30 days before the end of the contract period to give 
the 8(a) Participant the opportunity to make alternative plans.
    In addition, SBA does not typically consider the value of a bridge 
contract when determining whether an offered procurement is a new 
requirement. A bridge contract is meant to be a temporary stop-gap 
measure intended to ensure the continuation of service while an agency 
finalizes a long-term procurement approach. As such, SBA does not 
typically consider a bridge contract as part of the new requirement 
analysis, unless there is some basis to believe that the agency is 
altering the duration of the option periods to avoid particular 
regulatory requirements. Whether to consider the bridge contract is 
determined on a case-by-case basis given the facts of the procurement 
at issue. SBA sought comments as to whether this long-standing policy 
should also be incorporated into the regulations. Although SBA did not 
receive many comments on this issue, those who did comment believed it 
made sense to clarify this in the regulatory text. This final rule does 
so.

Section 124.505

    As noted above, SBA received a significant number of comments 
recommending more transparency in the process by which procuring 
agencies seek to remove follow-on requirements from the 8(a) BD 
program. In particular, commenters believed SBA should be able to 
question whether a requirement is new or a follow-on to a previously 
awarded contract. In response, the final rule adds language to Sec.  
124.505(a) authorizing SBA to appeal a decision by a contracting 
officer that a particular procurement is a new requirement that is not 
subject to the release requirements set forth in Sec.  124.504(d).

Section 124.509

    The proposed rule revised Sec.  124.509(e), regarding how a 
Participant can obtain a waiver to the requirement prohibiting it from 
receiving further sole source 8(a) contracts where the Participant does 
not meet its applicable non-8(a) business activity target. Currently, 
the regulations require the AA/BD to process a Participant's request 
for a waiver in every case. The proposed rule substituted SBA for the 
AA/BD to allow flexibility to SBA to determine the level of processing 
in a standard operating procedure outside the regulations. SBA believes 
that at least at some level, the district office should be able to 
process such requests for waiver.
    The current regulation also requires the SBA Administrator on a 
non-delegable basis to decide requests for waiver from a procuring 
agency. In other words, if the Participant itself does not request a 
waiver to the requirement prohibiting it from receiving further sole 
source 8(a) contracts, but an agency does so because it believes that 
the award of a sole source contract to the identified Participant is 
needed to achieve significant interests of the Government, the SBA 
Administrator must currently make that determination. Requiring such a 
request to be processed by several levels of SBA reviewers and then by 
the Administrator slows down the processing. If a procuring agency 
truly needs something quickly, it could be harmed by the processing 
time. The proposed rule changed the Administrator from making these 
determinations to SBA. Commenters believed that waiver requests should 
be processed at the district office level, as adding additional layers 
of review significantly delays the processing time, which harms both 
the Participant and the procuring agency and causes additional work for 
SBA. SBA has adopted these changes as final in this rule. This should 
allow these requests to be processed more quickly.
    SBA also received a few comments regarding the business activity 
targets contained in Sec.  124.509. Commenters supported the proposed 
revisions that changed requiring Participants to make ``maximum 
efforts'' to obtain business outside the 8(a) BD program, and

[[Page 66164]]

``substantial and sustained efforts'' to attain the targeted dollar 
levels of non-8(a) revenue, to requiring them to make good faith 
efforts. These commenters also felt that the non-8(a) business activity 
target percentages for firms in the transitional stage of program 
participation are too high. The commenters noted that the Small 
Business Act did not require any specific percentages of non-8(a) work 
and believed that SBA was free to adjust them in order to promote the 
business development purposes of the program. They also believed that 
the current rules rigidly apply sole source restrictions without taking 
into account extenuating circumstances such as a reduction in 
government funding, continuing resolutions and budget uncertainties, 
increased competition driving prices down, and having prime contractors 
award less work to small business subcontractors than originally 
contemplated. They recommended that the sole source restrictions should 
be discretionary, depending upon circumstances and efforts made by the 
Participant to obtain non-8(a) revenues. SBA first notes that although 
the Small Business Act itself does not establish specific non-8(a) 
business activity targets, the conference report to the Business 
Opportunity Development Reform Act of 1988, Public Law 100-656, which 
established the competitive business mix requirement, did recommend 
certain non-8(a) business activity targets. That report noted that 
Congress intended that the non-8(a) business activity targets should 
generally require about 25 percent of revenues from sources other than 
8(a) contracts in the fifth and sixth years of program participation 
and about 50 percent in the seventh and eighth years of program 
participation. H. Rep. No. 100-1070, at 63 (1988), as reprinted in 1988 
U.S.C.C.A.N. 5485, 5497. In response to the comments, this rule 
slightly adjusts the non-8(a) business activity targets to be more in 
line with the Congressional intent. In addition, SBA believes that the 
strict application of sole source restrictions may be inappropriate in 
certain extenuating circumstances. That same conference report provides 
that SBA ``should consider a full range of options to encourage firms 
to achieve the competitive business targets,'' and that these options 
might ``include conditioning the award of future sole-source contracts 
or business development assistance on the firm's taking specified 
steps, such as changes in marketing or financing strategies.'' Id. In 
addition, the conference report provides that SBA should take 
appropriate remedial actions, ``including reductions in sole-source 
contracting,'' to ensure that firms complete the program with optimum 
prospects for success in a competitive business environment. Id. Thus, 
Congress intended SBA to place conditions on firms to allow then to 
continue to receive one or more future 8(a) contracts and that sole 
source ``reductions'' should be an alternative. It appears that a 
strict ban on receiving any future 8(a) contracts is not appropriate in 
all instances. SBA believes that may make sense as a remedial measure 
if a particular Participant has made no efforts to seek non-8(a) 
awards, but it should not automatically occur if a firm fails to meet 
its applicable non-8(a) business activity target. The final rule 
recognizes that a strict prohibition on a Participant receiving new 
sole source 8(a) contracts should be imposed only where the Participant 
has not made good faith efforts to meet its applicable non-8(a) 
business activity target. Where a Participant has not met its 
applicable non-8(a) business activity target, however, SBA will 
condition the eligibility for new sole source 8(a) contracts on the 
Participant taking one or more specific actions, which may include 
obtaining business development assistance from an SBA resource partner 
such as a Small Business Development Center. The final rule also 
rearranges several current provisions for ease of use.

Section 124.513

    Currently, Sec.  124.513(e) provides that SBA must approve a joint 
venture agreement prior to the award of an 8(a) contract on behalf of 
the joint venture. This requirement applies to both competitive and 
sole source 8(a) procurements. SBA does not approve joint venture 
agreements in any other context, including a joint venture between an 
8(a) Participant and its SBA-approved mentor (which may be other than 
small) in connection with a non-8(a) contract (i.e., small business 
set-aside, HUBZone, SDVO small business, or WOSB contract). In order to 
be considered an award to a small disadvantaged business (SDB) for a 
non-8(a) contract, a joint venture between an 8(a) Participant and a 
non-8(a) Participant must be controlled by the 8(a) partner to the 
joint venture and otherwise meet the provisions of Sec.  124.513(c) and 
(d). If the non-8(a) partner to the joint venture is also a small 
business under the size standard corresponding to the NAICS code 
assigned to the procurement, the joint venture could qualify as small 
if the provisions of Sec.  124.513(c) and (d) were not met (see Sec.  
121.103(h)(3)(i), where a joint venture can qualify as small as long as 
each party to the joint venture individually qualifies as small), but 
the joint venture could not qualify as an award to an SDB in such case. 
If the joint venture were between an 8(a) Participant and its large 
business mentor, the joint venture could not qualify as small if the 
provisions of Sec.  124.513(c) and (d) were not met. The size of a 
joint venture between a small business prot[eacute]g[eacute] and its 
large business mentor is determined without looking at the size of the 
mentor only when the joint venture complies with SBA's regulations 
regarding control of the joint venture. Where another offeror believes 
that a joint venture between a prot[eacute]g[eacute] and its large 
business mentor has not complied with the applicable control 
regulations, it may protest the size of the joint venture. The 
applicable Area Office of SBA's Office of Government Contracting would 
then look at the joint venture agreement to determine if the small 
business is in control of the joint venture within the meaning of SBA's 
regulations. If that Office determines that the applicable regulations 
were not followed, the joint venture would lose its exclusion from 
affiliation, be found to be other than small, and, thus, ineligible for 
an award as a small business. This size protest process has worked well 
in ensuring that small business joint venture partners do in fact 
control non-8(a) contracts with their large business mentors. Because 
size protests are authorized for competitive 8(a) contracts, SBA 
believes that the size protest process could work similarly for 
competitive 8(a) contracts. As such, the proposed rule eliminated the 
need for 8(a) Participants to seek and receive approval from SBA of 
every initial joint venture agreement and each addendum to a joint 
venture agreement for competitive 8(a) contracts. Commenters supported 
this change, noting that this will eliminate an unnecessary burden and 
noting that this will also eliminate the significant expense firms 
often incur during the SBA approval process. SBA believes that this 
will significantly lessen the burden imposed on 8(a) small business 
Participants. Participants will not be required to submit additional 
paperwork to SBA and will not have to wait for SBA approval in order to 
seek competitive 8(a) awards. This rule finalizes that change.

Section 124.515

    The proposed rule amended Sec.  124.515 regarding the granting of a 
waiver to the statutorily mandated termination for

[[Page 66165]]

convenience requirement where the ownership or control of an 8(a) 
Participant performing an 8(a) contract changes. The statute and 
regulations allow the ownership and control of an 8(a) Participant 
performing one or more 8(a) contracts to pass to another 8(a) 
Participant that would otherwise be eligible to receive the 8(a) 
contracts directly. Specifically, the proposed rule amended Sec.  
124.515(d) to provide that SBA determines the eligibility of an 
acquiring Participant by referring to the items identified in Sec.  
124.501(g) and deciding whether at the time of the request for waiver 
(and prior to the transaction) the acquiring Participant is an eligible 
concern with respect to each contract for which a waiver is sought. As 
part of the waiver request, the acquiring concern must certify that it 
is a small business for the size standard corresponding to the NAICS 
code assigned to each contract for which a waiver is sought. SBA will 
not grant a waiver for any contract if the work to be performed under 
the contract is not similar to the type of work previously performed by 
the acquiring concern. A few commenters objected to this last provision 
in the context of an entity-owned firm seeking to acquire an 8(a) 
Participant currently performing one or more 8(a) contracts. These 
commenters believed that this provision should not apply to entity-
owned Participants because prior performance in a specific industry is 
not required for entity-owned firms seeking to enter the program. SBA 
disagrees. Those are two entirely separate requirements. In the case of 
program entry, SBA allows an entity-owned applicant to be eligible for 
the program where the entity (tribe, ANC, NHO or CDC) demonstrates a 
firm commitment to back the applicant concern. In other words, SBA will 
waive the general potential for success provision requiring an 
applicant to have at least two years of business in its primary NAICS 
code where the entity represents that it will support the applicant 
concern. In such case, SBA is assured that the applicant concern will 
be able to survive despite having little or no experience in its 
designated primary NAICS code. The termination for convenience and 
waiver provisions are statutory and serve an entirely different 
purpose. The general rule is that an 8(a) contract must be performed by 
the 8(a) Participant to which that contract was initially awarded. 
Where the ownership or control of the Participant awarded an 8(a) 
contract changes, the statute requires a procuring agency to terminate 
that contract unless the SBA Administrator grants a waiver based on one 
of five statutory reasons. One of those reasons is where the ownership 
and control of an 8(a) Participant will pass to another otherwise 
eligible 8(a) Participant. The proposed rule merely clarifies SBA's 
current policy that in order to be an ``eligible'' Participant, the 
acquiring firm must be responsible to perform the contract, and 
responsibility is determined prior to the transfer, just as 
responsibility is determined prior to the award of any contract. This 
has nothing to do with the entity-owned firm's potential for success in 
the program, but, rather, whether that firm would be deemed a 
responsible contractor and whether a procuring agency contracting 
officer would find the firm capable of performing the work required 
under the contract before any change of ownership or control occurs. 
Because SBA believes that this responsibility issue is relevant of all 
Participants acquiring another Participant that has been awarded one or 
more 8(a) contracts, the final rule adopts the language as proposed.

Section 124.518

    The final rule clarifies when one 8(a) Participant can be 
substituted for another in order to complete performance of an 8(a) 
contract without receiving a waiver to the termination for convenience 
requirement set forth in of Sec.  124.515. Specifically, the rule 
provides that SBA may authorize another Participant to complete 
performance of an 8(a) contract and, in conjunction with the procuring 
activity, permit novation of the contract where a procuring activity 
contracting officer demonstrates to SBA that the Participant that was 
awarded an 8(a) contract is unable to complete performance, where an 
8(a) contract will otherwise be terminated for default, or where SBA 
determines that substitution would serve the business development needs 
of both 8(a) Participants.

Section 124.519

    Section 124.519 limits the ability of 8(a) Participants to obtain 
additional sole source 8(a) contracts once they have reached a certain 
dollar level of overall 8(a) contracts. Currently, for a firm having a 
receipts-based size standard corresponding to its primary NAICS code, 
the limit above which a Participant can no longer receive sole source 
8(a) contracts is five times the size standard corresponding to its 
primary NAICS code, or $100,000,000, whichever is less. For a firm 
having an employee-based size standard corresponding to its primary 
NAICS code, the limit is $100,000,000. In order to simplify this 
requirement, this proposed rule provided that a Participant may not 
receive sole source 8(a) contract awards where it has received a 
combined total of competitive and sole source 8(a) contracts in excess 
of $100,000,000 during its participation in the 8(a) BD program, 
regardless of its primary NAICS code. In addition, the proposed rule 
clarified that in determining whether a Participant has reached the 
$100 million limit, SBA would consider only the 8(a) revenues a 
Participant has actually received, not projected 8(a) revenues that a 
Participant might receive through an indefinite delivery or indefinite 
quantity contract, a multiple award contract, or options or 
modifications. Finally, the proposed rule amended what types of small 
dollar value 8(a) contracts should not be considered in determining 
whether a Participant has reached the 8(a) revenue limit. Currently, 
SBA does not consider 8(a) contracts awarded under $100,000 in 
determining whether a Participant has reached the applicable 8(a) 
revenue limit. The proposed rule replaced the $100,000 amount with a 
reference to the Simplified Acquisition Threshold (SAT). SBA has 
delegated to procuring agencies the ability to award sole source 8(a) 
contracts without offer and acceptance for contracts valued at or below 
the SAT. Because SBA does not accept such procurements into the 8(a) BD 
program, it is difficult for SBA to monitor these awards. The proposed 
rule merely aligned the 8(a) revenue limit with that authority. 
Commenters generally supported each of these changes. SBA adopts them 
as final in this rule.

Section 125.2

    The proposed rule added a new paragraph (g) requiring contracting 
officers to consider the capabilities and past performance of first 
tier subcontractors in certain instances. This consideration is 
statutorily required for bundled or consolidated contracts (15 U.S.C. 
644(e)(4)(B)(i)) and for multiple award contracts valued above the 
substantial bundling threshold of the Federal agency (15 U.S.C. 
644(q)(1)(B)). Following the statutory provisions, the proposed rule 
required a contracting officer to consider the past performance and 
experience of first tier subcontractors in those two categories of 
contracts. The proposed rule did not require a contracting officer to 
consider the past performance, capabilities and experience of each 
first tier subcontractor as the capabilities and past performance of 
the small business prime contractor in other instances. Instead, it 
provided discretion to

[[Page 66166]]

contracting officers to consider such past performance, capabilities 
and experience of each first tier subcontractor where appropriate. SBA 
specifically requested comments as to whether as a policy matter such 
consideration should be required in all cases, or limited only to the 
statutorily required instances as proposed. The comments overwhelmingly 
supported the same treatment for all contracts. Most commenters 
believed that there was a valid policy reason to consider the 
capabilities and past performance of first tier subcontractors in every 
case since it is clear that those identified subcontractors will be 
responsible for some performance of the contract should the 
corresponding prime contractor be awarded the contract. Some commenters 
believed that small businesses may have the necessary capabilities, 
past performance and experience to perform smaller, non-bundled 
contracts on their own. Therefore, these commenters felt that it may 
not be necessary for an agency to consider the capabilities and past 
performance of first tier subcontractors in all cases. SBA believes 
that first tier subcontractors should be considered if the capabilities 
and past performance of the small business prime contractor does not 
demonstrate capabilities and past performance for award. As such this 
final rule adds language requiring a procuring agency to consider the 
capabilities and past performance of first tier subcontractors where 
the first-tier subcontractors are specifically identified in the 
proposal and the capabilities and past performance of the small 
business prime do not independently demonstrate capabilities and past 
performance necessary for award.

Section 125.3

    The Small Business Act explicitly prohibits the Government from 
requiring small businesses to submit subcontracting plans. 15 U.S.C. 
637(d)(8). This prohibition is set forth in Sec.  125.3(b) of SBA's 
regulations and in FAR 19.702(b)(1). Under the Alaska Native Claims 
Settlement Act (ANCSA), a contractor receives credit towards the 
satisfaction of its small or small disadvantaged business 
subcontracting goals when contracting with an ANC-owned firm. 43 U.S.C. 
1626(e)(4)(B). There has been some confusion as to whether an ANC-owned 
firm that does not individually qualify as small but counts as a small 
business or a small disadvantaged business for subcontracting goaling 
purposes under 43 U.S.C. 1626(e)(4)(B) must itself submit a 
subcontracting plan. SBA believes that such a firm is not currently 
required to submit a subcontracting plan, but proposed to add 
clarifying language to Sec.  125.3(b) to clear up any confusion. The 
proposed rule clarified that all firms considered to be small 
businesses, whether the firm qualifies as a small business concern for 
the size standard corresponding to the NAICS code assigned to the 
contract or is deemed to be treated as a small business concern by 
statute, are not be required to submit subcontracting plans. Commenters 
supported this provision and this rule adopts it as final.
    The final rule also fixes typographical errors contained in 
paragraphs 125.3(c)(1)(viii) and 125.3(c)(1)(ix).

Section 125.5

    The proposed rule clarified that SBA does not use the certificate 
of competency (COC) procedures for 8(a) sole source contracts. This has 
long been SBA's policy. See 62 FR 43584, 43592 (Aug. 14, 1997). Instead 
of using SBA COC procedures, an agency that finds a potential 8(a) sole 
source awardee to be non-responsible should proceed through the 
substitution or withdrawal procedures in the proposed Sec.  124.503(e). 
SBA did not receive any comments on this provision and adopts it as 
final in this rule.

Section 125.6

    The final rule first fixes a typographical error contained in the 
introductory text of Sec.  125.6(a). It also amends Sec.  125.6(b). 
Section 125.6(b) provides guidance on which limitation on 
subcontracting requirement applies to a ``mixed contract.'' The section 
currently refers to a mixed contract as one that combines both services 
and supplies. SBA inadvertently did not include the possibility that a 
mixed contract could include construction work, although in practice 
SBA has applied this section to a contract requiring, for example, both 
services and construction work. The proposed rule merely recognized 
that a mixed contract is one that integrates any combination of 
services, supplies, or construction. A contracting officer would then 
select the appropriate NAICS code, and that NAICS code is determinative 
as to which limitation on subcontracting and performance requirement 
applies. SBQ did not receive any comments on this change, and adopts it 
as final in this rule.
    SBA also asked for comments in the proposed rule regarding how the 
nonmanufacturer rule should be applied in multiple item procurements 
(reference Sec.  125.6(a)(2)(ii)). Currently, for a multiple item 
procurement where a nonmanufacturer waiver is granted for one or more 
items, compliance with the limitation on subcontracting requirement 
will not consider the value of items subject to a waiver. As such, more 
than 50 percent of the value of the products to be supplied by the 
nonmanufacturer that are not subject to a waiver must be the products 
of one or more domestic small business manufacturers or processors. The 
regulation gives an example where a contract is for $1,000,000 and 
calls for the acquisition of 10 items. Market research shows that nine 
of the items can be sourced from small business manufacturers and one 
item is subject to an SBA class waiver. The projected value of the item 
that is waived is $10,000. Under the current regulatory language, at 
least 50 percent of the value of the items not subject to a waiver, or 
$495,000 (50 percent of $990,000), must be supplied by one or more 
domestic small business manufacturers, and the prime small business 
nonmanufacturer may act as a manufacturer for one or more items. 
Several small business nonmanufacturers have disagreed with this 
provision. They believe that in order to qualify as a small business 
nonmanufacturer, at least 50 percent of the value of the contract must 
come from either small business manufacturers or from any businesses 
for items which have been granted a waiver (or that small business 
manufacturers plus waiver must equal at least 50 percent). In other 
words, in the above example, $500,000 (50 percent of the value of the 
contract) must come from small business manufacturers or be subject to 
a waiver. If items totaling $10,000 are subject to a waiver, then only 
$490,000 worth of items must come from small business manufacturers, 
thus requiring $5,000 less from small business manufacturers. The 
proposed rule asked for comments on whether this approach makes sense. 
Several commenters supported the change outlined in the proposed rule, 
believing that implementation of the change will provide less confusion 
to both small businesses and procuring agencies as the math is easier 
to understand. One commenter believed that was how the nonmanufacturer 
rule was already being applied in multiple item procurements, was 
concerned others too may have misinterpreted the rule, and, thus, 
supported the change. The final rule provides that a procurement should 
be set aside where at least 50 percent of the value of the contract 
comes from either small business manufacturers or from any business 
where a nonmanufacturer rule

[[Page 66167]]

waiver has been granted (or, in other words, a set aside should occur 
where small plus waiver equals at least 50 percent).

Section 125.8

    The proposed rule made conforming changes to Sec.  125.8 in order 
to take into account merging the 8(a) BD Mentor-Prot[eacute]g[eacute] 
Program with the All Small Mentor-Prot[eacute]g[eacute] Program. The 
comments supported these changes, and those changes are finalized in 
this rule.
    Proposed Sec.  125.8(b)(2)(iv) permitted the parties to a joint 
venture to agree to distribute profits from the joint venture so that 
the small business participant(s) receive profits from the joint 
venture that exceed the percentage commensurate with the work performed 
by them. Although several commenters questioned whether mentors would 
be willing to agree to distribute profits in such a manner, most 
commenters supported this proposed change. As such, SBA adopts it as 
final in this rule.
    In response to the proposed rule, SBA also received comments 
seeking clarification of certain other requirements applicable to joint 
ventures. First, commenters sought guidance regarding the performance 
of work or limitation on subcontracting requirements in Sec.  125.8(c). 
Specifically, commenters questioned whether the same rules as those set 
forth in Sec.  125.6 apply to the calculation of work performed by a 
prot[eacute]g[eacute] in a joint venture and whether the 40 percent 
performance requirement for a prot[eacute]g[eacute] firm could be met 
through performance of work by a similarly situated subcontractor. SBA 
has always intended that the same rules as those set forth in Sec.  
125.6 should generally apply to the calculation of a 
prot[eacute]g[eacute] firm's workshare in the context of a joint 
venture. This means that the rules concerning supplies, construction 
and mixed contracts apply to the joint venture situation and certain 
costs are excluded from the limitation on subcontracting calculation. 
For instance, the cost of materials would first be excluded in a 
contract for supplies or products before determining whether the joint 
venture is not subcontracting more than 50 percent of the amount paid 
by the Government. However, SBA has never intended that a 
prot[eacute]g[eacute] firm could subcontract its 40 percent performance 
requirement to a similarly situated entity. In other words, SBA has 
always believed that the prot[eacute]g[eacute] itself must perform at 
least 40 percent of the work to be performed by a joint venture between 
the prot[eacute]g[eacute] firm and its mentor, and that it cannot 
subcontract such work to a similarly situated entity. The only reason 
that a large business mentor is able to participate in a joint venture 
with its prot[eacute]g[eacute] for a small business contract is to 
promote the business development of the prot[eacute]g[eacute] firm. 
Where a prot[eacute]g[eacute] firm would subcontract some or all of its 
requirement to perform at least 40 percent of the work to be done by 
the joint venture to a similarly situated entity, SBA does not believe 
that this purpose would be met. The large business mentor is authorized 
to participate in a joint venture as a small business only because its 
prot[eacute]g[eacute] is receiving valuable business development 
assistance through the performance of at least 40 percent of the work 
performed by the joint venture. Thus, although a similarly situated 
firm can be used to meet the 50 percent performance requirement, it 
cannot be used to meet the 40 percent performance requirement for the 
prot[eacute]g[eacute] itself. For example, if a joint venture between a 
prot[eacute]g[eacute] firm and its mentor were awarded a $10 million 
services contract and a similarly situated entity were to perform $2 
million of the required services, the joint venture would be required 
to perform $3 million of the services (i.e., to get to a total of $5 
million or 50 percent of the value of the contract between the joint 
venture and the similarly situated entity). If the joint venture were 
to perform $3 million of the services, the prot[eacute]g[eacute] firm, 
and only the prot[eacute]g[eacute] firm, must perform at least 40 
percent of $3 million or $1.2 million. The final rule clarifies that 
rules set forth in Sec.  125.6 generally apply to joint ventures and 
that a prot[eacute]g[eacute] cannot meet the 40 percent performance 
requirement by subcontracting to one or more similar situated entities.
    Comments also requested further guidance on the requirement in 
Sec.  125.8(b)(2)(ii) that a joint venture must designate an employee 
of the small business managing venture as the project manager 
responsible for performance of the contract. These commenters pointed 
out that many contracts do not have a position labeled ``project 
manager,'' but instead have a position named ``program manager,'' 
``program director,'' or some other term to designate the individual 
responsible for performance. SBA agrees that the title of the 
individual is not the important determination, but rather the 
responsibilities. The provision seeks to require that the individual 
responsible for performance must come from the small business managing 
venture, and this rule makes that clarification. For consistency 
purposes, SBA has made these same changes to Sec.  124.513(c) for 8(a) 
joint ventures, to Sec.  125.18(b)(2) for SDVO small business joint 
ventures, to Sec.  126.616(c) for HUBZone joint ventures, and to Sec.  
127.506(c) for WOSB joint ventures.
    Several commenters sought additional clarification to the rules 
pertaining to joint ventures for the various small business programs. 
Specifically, these commenters believed that the rules applicable to 
small business set-asides in Sec.  125.8(a) were not exactly the same 
as those set forth in Sec. Sec.  125.18(b)(1)(i) (for SDVO joint 
ventures), 126.616(b)(1) (for WOSB joint ventures) and 127.506(a)(1) 
(for HUBZone joint ventures), and that a mentor-prot[eacute]g[eacute] 
joint venture might not be able to seek the same type of contract, 
subcontract or sale in one program as it can in another. In response, 
SBA has added language to Sec.  125.9(d)(1) to make clear that a joint 
venture between a prot[eacute]g[eacute] and mentor may seek a Federal 
prime contract, subcontract or sale as a small business, HUBZone small 
business, SDB, SDVO small business, or WOSB provided the 
prot[eacute]g[eacute] individually qualifies as such.
    One commenter recommended a change to proposed Sec.  125.8(e) 
regarding the past performance and experience of joint venture 
partners. The proposed rule provided that when evaluating the past 
performance and experience of a joint venture submitting an offer for a 
contract set aside or reserved for small business, a procuring activity 
must consider work done and qualifications held individually by each 
partner to the joint venture as well as any work done by the joint 
venture itself previously. The commenter agreed with that provision, 
but recommended that it be further refined to prohibit a procuring 
activity from requiring the prot[eacute]g[eacute] to individually meet 
any evaluation or responsibility criteria. SBA understands the concern 
that some procuring activities have required unreasonable requirements 
of prot[eacute]g[eacute] small business partners to mentor-
prot[eacute]g[eacute] joint ventures. SBA's rules require a small 
business prot[eacute]g[eacute] to have some experience in the type of 
work to be performed under the contract. However, it is unreasonable to 
require the prot[eacute]g[eacute] concern itself to have the same level 
of past performance and experience (either in dollar value or number of 
previous contracts performed, years of performance, or otherwise) as 
its large business mentor. The reason that any small business joint 
ventures with another business entity, whether a mentor-
prot[eacute]g[eacute] joint venture or a joint venture with another 
small business concern, is because it cannot meet all performance 
requirements by itself and seeks to gain experience through the help of 
its joint venture partner. SBA

[[Page 66168]]

believes that a solicitation provision that requires both a 
prot[eacute]g[eacute] firm and a mentor to each have the same level of 
past performance (e.g., each partner to have individually previously 
performed 5 contracts of at least $10 million) is unreasonable, and 
should not be permitted. However, SBA disagrees that a procuring 
activity should not be able to require a prot[eacute]g[eacute] firm to 
individually meet any evaluation or responsibility criteria. SBA 
intends that the prot[eacute]g[eacute] firm gain valuable business 
development assistance through the joint venture relationship. The 
prot[eacute]g[eacute] must, however, bring something to the table other 
than its size or socio-economic status. The joint venture should be a 
tool to enable it to win and perform a contract in an area that it has 
some experience but that it could not have won on its own.

Section 125.9

    This final rule first reorganizes some of the current provisions in 
Sec.  125.9 for ease of use and understanding. The rule reorganizes and 
clarifies Sec.  125.9(b). It clarifies that in order to qualify as a 
mentor, SBA will look at three things, whether the proposed mentor: Is 
capable of carrying out its responsibilities to assist the 
prot[eacute]g[eacute] firm under the proposed mentor-
prot[eacute]g[eacute] agreement; does not appear on the Federal list of 
debarred or suspended contractors; and can impart value to a 
prot[eacute]g[eacute] firm. Instead of requiring SBA to look at and 
determine that a proposed mentor possesses good character in every 
case, the rule amends this provision to specify that SBA will decline 
an application if SBA determines that the mentor does not possess good 
character. The rule also clarifies that a mentor that has more than one 
prot[eacute]g[eacute] cannot submit competing offers in response to a 
solicitation for a specific procurement through separate joint ventures 
with different prot[eacute]g[eacute]s. That has always been SBA's 
intent (the current rule specifies that a second mentor-
prot[eacute]g[eacute] relationship cannot be a competitor of the 
first), but SBA wants to make this clear in response to questions SBA 
has received regarding this issue. Commenters generally supported these 
clarifications. One commenter asked SBA to clarify the provision 
prohibiting a mentor that has more than one prot[eacute]g[eacute] from 
submitting competing offers in response to a solicitation for a 
specific procurement. Specifically, the commenter noted that many 
multiple award procurements have separate pools of potential awardees. 
For example, an agency may have a single solicitation that calls for 
awarding indefinite delivery indefinite quantity (IDIQ) contracts in 
unrestricted, small business, HUBZone, 8(a), WOSB, and SDVO small 
business pools. All offerors submit proposals in response to the same 
solicitation and indicate the pool(s) for which they are competing. The 
commenter sought clarification as to whether a mentor with two 
different prot[eacute]g[eacute]s could submit an offer as a joint 
venture with one prot[eacute]g[eacute] for one pool and another offer 
as a joint venture with a second prot[eacute]g[eacute] for a different 
pool. SBA first notes that in order for SBA to approve a second mentor-
prot[eacute]g[eacute] relationship for a specific mentor, the mentor 
must demonstrate that the additional mentor-prot[eacute]g[eacute] 
relationship will not adversely affect the development of either 
prot[eacute]g[eacute] firm. In particular, the mentor must show that 
the second prot[eacute]g[eacute] will not be a competitor of the first 
prot[eacute]g[eacute]. Thus, the mentor has already assured SBA that 
the two prot[eacute]g[eacute]s would not be competitors. If the two 
mentor-prot[eacute]g[eacute] relationships were approved in the same 
NAICS code, then the mentor must have already made a commitment that 
the two firms would not compete against each other. This could include, 
for example, a commitment that the one mentor-prot[eacute]g[eacute] 
relationship would seek only HUBZone and small business set-aside 
contracts while the second would seek only 8(a) contracts. That being 
the case, the same mentor could submit an offer as a joint venture with 
one prot[eacute]g[eacute] for one pool and another offer as a joint 
venture with a second prot[eacute]g[eacute] for a different pool on the 
same solicitation because they would not be deemed competitors with 
respect to that procurement. SBA does not believe, however, that a 
change is needed from the proposed regulatory text since that is merely 
an interpretation of what ``competing offers'' means. SBA adopts the 
proposed language as final in this rule.
    The proposed rule also sought comments as to whether SBA should 
limit mentors only to those firms having average annual revenues of 
less than $100 million. Currently, any concern that demonstrates a 
commitment and the ability to assist small business concerns may act as 
a mentor. This includes large businesses of any size. This proposal was 
in response to suggestions from ``mid-size'' companies (i.e., those 
that no longer qualify as small under their primary NAICS codes, but 
believe that they cannot adequately compete against the much larger 
companies) that a mentor-prot[eacute]g[eacute] program that excluded 
very large businesses would be beneficial to the mid-size firms and 
allow them to more effectively compete. This was the single most 
commented-on issue in the proposed rule. SBA received more than 150 
comments in response to this alternative. The vast majority of 
commenters strongly opposed this proposal. Commenters agreed with SBA's 
stated intent that the focus of the mentor-prot[eacute]g[eacute] 
program should be on the prot[eacute]g[eacute] firm, and how best 
valuable business development assistance can be provided to a 
prot[eacute]g[eacute] to enable that firm to more effectively compete 
on its own in the future. They believed that such a restriction would 
harm small businesses, as it would restrict the universe of potential 
mentors which could provide valuable business assistance to them. 
Commenters believed that the size of the mentor should not matter as 
long as that entity is providing needed business development assistance 
to its prot[eacute]g[eacute]. Commenters believed that SBA's priority 
should be to ensure that needed business development assistance will be 
provided to prot[eacute]g[eacute] firms though a mentor-
prot[eacute]g[eacute] agreement, and the size of the mentor should not 
be a relevant consideration. All that should matter is whether the 
proposed mentor demonstrates a commitment and the ability to assist 
small business concerns. Several commenters believed that larger 
business entities actually serve as better mentors since they are 
involved in the program to help the prot[eacute]g[eacute] firm and not 
to gain further access to small business contracting (through joint 
ventures) for themselves. In response, SBA will not adopt the proposal, 
but rather will continue to allow any business entity, regardless of 
size, that demonstrates a commitment and the ability to assist small 
business concerns to act as a mentor.
    This rule also implements Section 861 of the National Defense 
Authorization Act (NDAA) of 2019, Public Law 115-232, to make three 
changes to the mentor-prot[eacute]g[eacute] program in order to benefit 
Puerto Rican small businesses. First, the rule amends Sec.  125.9(b) 
regarding the number of prot[eacute]g[eacute] firms that one mentor can 
have at any one time. Currently, the regulation provides that under no 
circumstances can a mentor have more than three prot[eacute]g[eacute]s 
at one time. Section 861 of the NDAA provides that the restriction on 
the number of prot[eacute]g[eacute] firms a mentor can have shall not 
apply to up to two mentor-protege relationships if such relationships 
are with a small business that has its principal office located in the 
Commonwealth of Puerto Rico. As such, Sec.  125.9(b)(3)(ii) provides 
that a

[[Page 66169]]

mentor generally cannot have more than three prot[eacute]g[eacute]s at 
one time, but that the first two mentor-prot[eacute]g[eacute] 
relationships between a specific mentor and a small business that has 
its principal office located in the Commonwealth of Puerto Rico will 
not count against the limit of three prot[eacute]g[eacute]s that a 
mentor can have at one time. Thus, if a mentor did have two 
prot[eacute]g[eacute]s that had their principal offices in Puerto Rico, 
it could have an additional three prot[eacute]g[eacute]s, or a total of 
five prot[eacute]g[eacute]s, and comply with SBA's requirements. The 
rule also adds a new Sec.  125.9(d)(6) to implement a provision of 
Section 861 of NDAA 2019, which authorizes contracting incentives to 
mentors that subcontract to prot[eacute]g[eacute] firms that are Puerto 
Rico businesses. Specifically, Sec.  125.9(d)(6) provides that a mentor 
that provides a subcontract to a prot[eacute]g[eacute] that has its 
principal office located in Puerto Rico may (i) receive positive 
consideration for the mentor's past performance evaluation, and (ii) 
apply costs incurred for providing training to such 
prot[eacute]g[eacute] toward the subcontracting goals contained in the 
subcontracting plan of the mentor. Commenters supported these 
provisions, and SBA adopts them as final in this rule. A few commenters 
asked for clarification as to whether these provisions applied to 
entity-owned firms located in Puerto Rico. The statute and proposed 
regulatory text notes that it applies to any business concern that has 
its principal office in Puerto Rico. If a tribally-owned or ANC-owned 
firm has its principal office in Puerto Rico, then the provision 
applies to it. SBA does not believe further clarification is needed. 
The principal office requirement should be sufficient. One commenter 
also questioned the provision in the proposed rule allowing mentor 
training costs to count toward a mentor's small subcontracting goals, 
believing that training costs should never be allowed as subcontracting 
costs. That is not something SBA proposed on its own. That provision 
was specifically authorized by Section 861 of NDAA 2019. As such, that 
provision is unchanged in this final rule.
    A few commenters also recommended that SBA allow a mentor to have 
more than three prot[eacute]g[eacute]s at a time generally (i.e., not 
only where small businesses in Puerto Rico are involved). These 
commenters noted that very large business concerns operate under 
multiple NAICS codes and have the capability to mentor a large number 
of small prot[eacute]g[eacute] firms that are not in competition with 
each other. Although SBA understands that many large businesses have 
the capability to mentor more than three small business concerns at one 
time, SBA does not believe it is good policy for anyone to perceive 
that one or more large businesses are unduly benefitting from small 
business programs. The rules allow a mentor to joint venture with its 
prot[eacute]g[eacute] and be deemed small for any contract for which 
the prot[eacute]g[eacute] individually qualifies as small, and to 
perform 60 percent of whatever work the joint venture performs. 
Moreover, a mentor can also own an equity interest of up to 40 percent 
in the prot[eacute]g[eacute] firm. If a large business mentor were able 
to have five (or more) prot[eacute]g[eacute]s at one time, it could 
have a joint venture with each of those prot[eacute]g[eacute]s and 
perform 60 percent of every small business contract awarded to the 
joint venture. It also could (though unlikely) have a 40 percent equity 
interest in each of those small prot[eacute]g[eacute] firms. In such a 
case, SBA believes that it would appear that the large business mentor 
is unduly benefitting from contracting programs intended to be reserved 
for small businesses. As such, this rule does not increase the number 
of prot[eacute]g[eacute] firms that one mentor can have.
    The proposed rule clarified the requirements for a firm seeking to 
form a mentor-prot[eacute]g[eacute] relationship in a NAICS code that 
is not the firm's primary NAICS code (Sec.  125.9(c)(1)(ii)). SBA has 
always intended that a firm seeking to be a prot[eacute]g[eacute] could 
choose to establish a mentor-prot[eacute]g[eacute] relationship to 
assist its business development in any business area in which it has 
performed work as long as the firm qualifies as small for the work 
targeted in the mentor-prot[eacute]g[eacute] agreement. The proposed 
rule highlighted SBA's belief that a firm must have performed some work 
in a secondary industry or NAICS code in order for SBA to approve such 
a mentor-prot[eacute]g[eacute] relationship. SBA does not want a firm 
that has grown to be other than small in its primary NAICS codes to 
form a mentor-prot[eacute]g[eacute] relationship in a NAICS code in 
which it had no experience simply because it qualified as small in that 
other NAICS code. SBA believes that such a situation (i.e., having a 
prot[eacute]g[eacute] with no experience in a secondary NAICS code) 
could lead to abuse of the program. It would be hard for a firm with no 
experience in a secondary NAICS code to be the lead on a joint venture 
with its mentor. Similarly, a mentor with all the experience could 
easily take control of a joint venture and perform all of the work 
required of the joint venture. The proposed rule clarified that a firm 
may seek to be a prot[eacute]g[eacute] in any NAICS code for which it 
qualifies as small and can form a mentor-prot[eacute]g[eacute] 
relationship in a secondary NAICS code if it qualifies as small and has 
prior experience or previously performed work in that NAICS code. 
Several commenters sought further clarification of this provision. 
Commenters noted that a procuring activity may assign different NAICS 
codes to the same basic type of work. These commenters questioned 
whether a firm needed to demonstrate that it performed work in a 
specific NAICS code or could demonstrate that it has performed the same 
type of work, whatever NAICS code was assigned to it. Similarly, other 
commenters again questioned whether a firm must demonstrate previous 
work performed in a specific NAICS code, or whether similar work that 
would logically lead to work in a different NAICS code would be 
permitted. SBA agrees with these comments. SBA believes that similar 
work performed by the prospective prot[eacute]g[eacute] to that for 
which a mentor-prot[eacute]g[eacute] relationship is sought should be 
sufficient, even if the previously performed work is in a different 
NAICS code than that for which a mentor-prot[eacute]g[eacute] agreement 
is sought. In addition, if the NAICS code in which a mentor-
prot[eacute]g[eacute] relationship is sought is a logical progression 
from work previously performed by the intended prot[eacute]g[eacute] 
firm, that too should be permitted. SBA's intent is to encourage 
business development, and any relationship that promotes a logical 
business progression for the prot[eacute]g[eacute] firm fulfills that 
intent.
    The proposed rule also responded to concerns raised by small 
businesses regarding the regulatory limit of permitting only two 
mentor-prot[eacute]g[eacute] relationships even where the small 
business prot[eacute]g[eacute] receives no or limited assistance from 
its mentor through a particular mentor-prot[eacute]g[eacute] agreement. 
SBA believes that a relationship that provides no business development 
assistance or contracting opportunities to a prot[eacute]g[eacute] 
should not be counted against the firm, or that the firm should not be 
restricted to having only one additional mentor-prot[eacute]g[eacute] 
relationship in such a case. However, SBA did not want to impose 
additional burdens on prot[eacute]g[eacute] firms that would require 
them to document and demonstrate that they did not receive benefits 
through their mentor-prot[eacute]g[eacute] relationships. In order to 
eliminate any disagreements as to whether a firm did or did not receive 
any assistance under its mentor-prot[eacute]g[eacute] agreement, SBA 
proposed to establish an easily understandable and objective basis for 
counting or not counting a

[[Page 66170]]

mentor-prot[eacute]g[eacute] relationship. Specifically, the proposed 
rule amended Sec.  125.9(e)(6) to not count any mentor-
prot[eacute]g[eacute] relationship toward a firm's two permitted 
lifetime mentor-prot[eacute]g[eacute] relationships where the mentor-
prot[eacute]g[eacute] agreement is terminated within 18 months from the 
date SBA approved the agreement. The vast majority of commenters 
supported a specific, objective amount of time within which a 
prot[eacute]g[eacute] could end a mentor-prot[eacute]g[eacute] 
relationship without having it count against the two in a lifetime 
limit. Commenters pointed out, however, that the supplementary 
information to and the regulatory text in the proposed rule were 
inconsistent (i.e., the supplementary information saying 18 months and 
the regulatory text saying one year). Several comments recommended 
increasing the lifetime number of mentor-prot[eacute]g[eacute] 
relationships that a small business concern could have. Finally, a few 
commenters opposed the proposed exemption to the two-in-lifetime rule 
because allowing prot[eacute]g[eacute] firms such an easy out within 18 
months, whether or not the prot[eacute]g[eacute] received beneficial 
business development assistance, could act as a detriment to firms that 
would otherwise be willing to serve as mentors. One commenter was 
concerned that if a bright line 18-month test is all that is required, 
nothing would prevent an unscrupulous business from running through an 
endless chain of relatively short-lived mentor-prot[eacute]g[eacute] 
relationships. SBA does not believe that will be a frequent occurrence. 
Nevertheless, in response, the final rule provides that if a specific 
small business prot[eacute]g[eacute] appears to use the 18-month test 
as a means of using many short-term mentor-prot[eacute]g[eacute] 
relationships, SBA may determine that the business concern has 
exhausted its participation in the mentor-prot[eacute]g[eacute] program 
and not approve an additional mentor-prot[eacute]g[eacute] 
relationship.
    The proposed rule also eliminated the reconsideration process for 
declined mentor-prot[eacute]g[eacute] agreements in Sec.  125.9(f) as 
unnecessary. Currently, if SBA declines a mentor-prot[eacute]g[eacute] 
agreement, the prospective small business prot[eacute]g[eacute] may 
make changes to its agreement and seek reconsideration from SBA within 
45 days of SBA's decision to decline the mentor-prot[eacute]g[eacute] 
relationship. The current regulations also allow the small business to 
submit a new (or revised) mentor-prot[eacute]g[eacute] agreement to SBA 
at any point after 60 days from the date of SBA's final decision 
declining a mentor-prot[eacute]g[eacute] relationship. SBA believes 
that this ability to submit a new or revised mentor-
prot[eacute]g[eacute] agreement after 60 days is sufficient. Most 
commenters supported this change, agreeing that a separate 
reconsideration process is unnecessary. A few commenters disagreed, 
believing that requiring a small business to wait 60 days to submit a 
revised mentor-prot[eacute]g[eacute] agreement and then start SBA's 
processing time instead of submitting a revised agreement within a few 
days of a decline decision could add an additional two months of wait 
time to an ultimate approval. SBA continues to believe that the small 
amount of time a small business must wait to resubmit a new/revised 
mentor-prot[eacute]g[eacute] agreement to SBA for approval makes the 
reconsideration process unnecessary. As such, this rule finalizes the 
elimination of a separate reconsideration process.
    The proposed rule added clarifying language regarding the annual 
review of mentor-prot[eacute]g[eacute] relationships. It is important 
that SBA receive an honest assessment from the prot[eacute]g[eacute] of 
how the mentor-prot[eacute]g[eacute] relationship is working, whether 
the prot[eacute]g[eacute] has received the agreed-upon business 
development assistance, and whether the prot[eacute]g[eacute] would 
recommend the mentor to be a mentor for another small business in the 
future. SBA needs to know if the mentor is not providing the agreed-
upon business development assistance to the prot[eacute]g[eacute]. This 
would affect that firm's ability to be a mentor in the future. Several 
commenters were also concerned about mentors that did not live up to 
their commitments. A few commenters recommended that a 
prot[eacute]g[eacute] firm should be able to ask SBA to intervene if it 
thought it was not receiving the assistance promised by the mentor or 
if it thought that the assistance provided was not of the quality it 
anticipated. SBA believes that makes sense and this rule adds a 
provision allowing a prot[eacute]g[eacute] to request SBA to intervene 
on its behalf with the mentor. Such a request would cause SBA to notify 
the mentor that SBA had received adverse information regarding its 
participation as a mentor and allow the mentor to respond to that 
information. If the mentor did not overcome the allegations, SBA would 
terminate the mentor-prot[eacute]g[eacute] agreement. The final rule 
also adds a provision that allows a prot[eacute]g[eacute] to substitute 
another firm to be its mentor for the time remaining in the mentor-
prot[eacute]g[eacute] agreement without counting against the two-mentor 
limit. If two years had already elapsed in the mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] could 
substitute another firm to be its mentor for a total of four years.
    Prior to the proposed rule, SBA had also received several 
complaints from small business prot[eacute]g[eacute]s whose mentor-
prot[eacute]g[eacute] relationships were terminated by the mentor soon 
after a joint venture between the prot[eacute]g[eacute] and mentor 
received a Government contract as a small business. The proposed rule 
asked for comments about the possibility of adding a provision 
requiring a joint venture between a prot[eacute]g[eacute] and its 
mentor to recertify its size if the mentor prematurely ended the 
mentor-prot[eacute]g[eacute] relationship. Commenters did not support 
this possible approach, believing that such a recertification 
requirement would have a much more serious impact on the 
prot[eacute]g[eacute] than on the mentor. In effect, such a provision 
would punish a prot[eacute]g[eacute] for its mentor's failure to meet 
its obligations under the mentor-prot[eacute]g[eacute] agreement. Upon 
further review, SBA believes that better options are provided in 
current Sec.  125.9(h), which provides consequences for when a mentor 
does not provide to the prot[eacute]g[eacute] firm the business 
development assistance set forth in its mentor-prot[eacute]g[eacute] 
agreement. Under the current regulations, where that occurs, the firm 
will be ineligible to again act as a mentor for a period of two years 
from the date SBA terminates the mentor-prot[eacute]g[eacute] 
agreement, SBA may recommend to the relevant procuring agency to issue 
a stop work order for each Federal contract for which the mentor and 
prot[eacute]g[eacute] are performing as a small business joint venture, 
and SBA may seek to substitute the prot[eacute]g[eacute] firm for the 
joint venture if the prot[eacute]g[eacute] firm is able to 
independently complete performance of any joint venture contract 
without the mentor. SBA believes that provision should be sufficient to 
dissuade mentors from terminating mentor-prot[eacute]g[eacute] 
agreements early.

Section 125.18

    In addition to the revision to Sec.  125.18(c) identified above, 
this rule amends the language in Sec.  125.18(a) to clarify what 
representations and certifications a business concern seeking to be 
awarded a SDVO contract must submit as part of its offer.

Section 126.602

    On November 26, 2019, SBA published a final rule amending the 
HUBZone regulations. 84 FR 65222. As part of that rule, SBA revised 13 
CFR 126.200 by reorganizing the section to make it more readable. 
However, SBA inadvertently overlooked a cross-reference to section 
126.200 contained in Sec.  126.602(c). This rule merely fixes the 
cross-reference in Sec.  126.602(c).

[[Page 66171]]

Section 126.606

    The final rule amends Sec.  126.606 to make it consistent with the 
release requirements of Sec.  124.504(d). Current Sec.  126.606 
authorizes SBA to release a follow-on requirement previously performed 
through the 8(a) BD program for award as a HUBZone contract only where 
neither the incumbent nor any other 8(a) Participant can perform the 
requirement. SBA believes that is overly restrictive and inconsistent 
with the release language contained in Sec.  124.504(d). As such, the 
final rule provides that a procuring activity may request that SBA 
release an 8(a) requirement for award as a HUBZone contract under the 
procedures set forth in Sec.  124.504(d).

Sections 126.616 and 126.618

    This rule makes minor revisions to Sec. Sec.  126.616 and 126.618 
by merely deleting references to the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program, since that program would no longer exist 
as a separate program.

Sections 127.503(h) and 127.504

    In addition to the revision to Sec.  127.504(c) identified above, 
the proposed rule made other changes or clarifications to Sec.  
127.504. The proposed rule renamed and revised Sec.  127.504 for better 
understanding and ease of use. It changed the section heading to ``What 
requirements must an EDWOSB or WOSB meet to be eligible for an EDWOSB 
or WOSB contract?''. SBA received no comments on these changes and 
adopts them as final in this rule.
    This rule also moves the recertification procedures for WOSBs from 
Sec.  127.503(h) to Sec.  127.504(e).

Sections 134.318 and 121.1103

    This rule amends Sec.  134.318 to make it consistent with SBA's 
size regulations. In this regard, Sec.  121.1103(c)(1)(i) of SBA's size 
regulations provides that upon receipt of the service copy of a NAICS 
code appeal, the contracting officer must ``stay the solicitation.'' 
However, when that rule was implemented, a corresponding change was not 
made to the procedural rules for SBA's OHA contained in part 134. As 
such, this rule simply requires that the contracting officer must amend 
the solicitation to reflect the new NAICS code whenever OHA changes a 
NAICS code in response to a NAICS code appeal. In addition, for clarity 
purposes, the rule revises Sec.  121.1103(c)(1)(i) to provide that a 
contracting officer must stay the date of the closing of the receipt of 
offers instead of requiring that he or she must stay the solicitation.

III. Compliance With Executive Orders 12866, 12988, 13132, 13175, 
13563, 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 
rule is a significant regulatory action for the purposes of Executive 
Order 12866. Accordingly, the next section contains SBA's Regulatory 
Impact Analysis. This is not a major rule, however, under the 
Congressional Review Act.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
    In combining the 8(a) BD Mentor-Prot[eacute]g[eacute] Program and 
the All Small Mentor-Prot[eacute]g[eacute] Program, SBA seeks to 
eliminate confusion regarding perceived differences between the two 
Programs, remove unnecessary duplication of functions within SBA, and 
establish one, unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. In addition, eliminating the 
requirement that SBA approve every joint venture in connection with an 
8(a) contract will greatly reduce the time required for 8(a) BD 
Participants to come into and SBA to ensure compliance with SBA's joint 
venture requirements.
    SBA is also making several changes to clarify its regulations. 
Through the years, SBA has spoken with small business and 
representatives and has determined that several regulations need 
further refinement so that they are easier to understand and implement. 
This rule makes several changes to ensure that the rules pertaining to 
SBA's various small business procurement programs are consistent. SBA 
believes that making the programs as consistent and similar as 
possible, where practicable, will make it easier for small businesses 
to understand what is expected of them and to comply with those 
requirements.
2. What is the baseline, and the incremental benefits and costs of this 
regulatory action?
    This rule seeks to address or clarify several issues, which will 
provide clarity to small businesses and contracting personnel. Further, 
SBA is eliminating the burden that 8(a) Participants seeking to be 
awarded a competitive 8(a) contract as a joint venture must submit the 
joint venture to SBA for review and approval prior to contract award. 
There are currently approximately 4,500 8(a) BD Participants in the 
portfolio. Of those, about 10 percent or roughly 450 Participants have 
entered a joint venture agreement to seek the award of an 8(a) 
contract. Under the current rules, SBA must approve the initial joint 
venture agreement itself and each addendum to the joint venture 
agreement--identifying the type of work and what percentage each 
partner to the joint venture would perform of a specific 8(a) 
procurement--prior to contract award. SBA reviews the terms of the 
joint venture agreement for regulatory compliance and must also assess 
the 8(a) BD Participant's capacity and whether the agreement is fair 
and equitable and will be of substantial benefit to the 8(a) concern. 
It is difficult to calculate the costs associated with submitting a 
joint venture agreement to SBA because the review process is highly 
fact-intensive and typically requires that 8(a) firms provide 
additional information and clarification. However, in the Agency's best 
professional judgment, it is estimated that an 8(a) Participant 
currently spends approximately three hours submitting a joint venture 
agreement to SBA and responding to questions regarding that submission. 
That equates to approximately 1,350 hours at an estimated rate of 
$44.06 per hour--the median wage plus benefits for accountants and 
auditors according to 2018 data from the Bureau of Labor Statistics--
for an annual total cost savings to 8(a) Participants of about $59,500. 
In addition to the initial joint venture review and approval process, 
each joint venture can be awarded two more contracts which would 
require additional submissions and explanations for any such joint 
venture addendum. Not every joint venture is awarded more than one 
contract, but those that do are often awarded the maximum allowed of 
three contracts. SBA estimates that Participants submit an additional 
300 addendum actions, with each action taking about 1.5 hours for the 
Participant. That equates to approximately 450 hours at an estimated 
rate of $44.06 per hour for an annual total cost savings to 8(a) 
Participants of about $19,800. Between both initial and addendum 
actions, this equates to an annual total cost savings to 8(a) 
Participants of about $79,300.
    In addition, merging the 8(a) BD Mentor-Prot[eacute]g[eacute] 
Program into the All Small Mentor-Prot[eacute]g[eacute] Program would 
also provide cost savings. Firms seeking a mentor-prot[eacute]g[eacute] 
relationship through the All Small Mentor-Prot[eacute]g[eacute] Program 
apply through an on-line, electronic application system. 8(a) 
Participants seeking SBA's approval of a mentor-prot[eacute]g[eacute] 
relationship through the 8(a) BD

[[Page 66172]]

program do not apply through an on-line, electronic system, but rather 
apply manually through their servicing SBA district office. In SBA's 
best professional judgment, the additional cost for submitting a manual 
mentor-prot[eacute]g[eacute] agreement to SBA for review and approval 
and responding manually to questions regarding that submission is 
estimated at two hours. SBA receives approximately 150 applications for 
8(a) mentor-prot[eacute]g[eacute] relationships annually, which equates 
to an annual savings to prospective prot[eacute]g[eacute] firms of 
about 300 hours. At an estimated rate of $44.06 per hour, the annual 
savings in costs related to the reduced time for mentor-
prot[eacute]g[eacute] applications through the All Small Mentor 
Prot[eacute]g[eacute] process is about $13,000 per year. In a similar 
vein, eliminating the manual review and approval process for 8(a) BD 
Mentor-Prot[eacute]g[eacute] Program applications will provide cost 
savings to the Federal government. As previously noted, an 8(a) 
Participant seeking SBA's approval of a mentor-prot[eacute]g[eacute] 
relationship through the 8(a) BD program must submit an application 
manually to its servicing district office. The servicing district 
office likewise conducts a manual review of each application for 
completeness and for regulatory compliance. This review process can be 
cumbersome since the analyst must first download and organize all 
application materials by hand. In contrast, the on-line, electronic 
application system available to prospective prot[eacute]g[eacute]s in 
the All Small Mentor-Prot[eacute]g[eacute] Program has significantly 
streamlined SBA's review process in two ways. First, it logically 
organizes application materials for the reviewer, resulting in a more 
efficient and consistent review of each application. Second, all 
application materials are housed in a central document repository and 
are accessible to the reviewer without the need to download files. In 
the Agency's best professional judgment, this streamlined application 
review process delivers estimated savings of 30 percent per application 
as compared to the manual application review process under the 8(a) BD 
Mentor-Prot[eacute]g[eacute] Program. SBA further estimates that it 
takes approximately three hours to review an application for the All 
Small Mentor Prot[eacute]g[eacute] Program. That equates to 
approximately 135 hours (i.e., 150 applications multiplied by three 
hours multiplied by 30 percent) at an estimated rate of $44.06 per hour 
for an annual total cost savings to the Federal government of about 
$5,900 per year. The elimination of manual application process creates 
a total cost savings of $18,900 per year.
    Moreover, eliminating the 8(a) BD Mentor-Prot[eacute]g[eacute] 
Program as a separate program and merging it with the All Small Mentor-
Prot[eacute]g[eacute] Program will eliminate confusion between the two 
programs for firms seeking a mentor-prot[eacute]g[eacute] relationship. 
When SBA first implemented the All Small Mentor-Prot[eacute]g[eacute] 
Program, it intended to establish a program substantively identical to 
the 8(a) BD Mentor-Prot[eacute]g[eacute] Program, as required by 
Section 1641 of the NDAA of 2013. Nevertheless, feedback from the small 
business community reveals a widespread misconception that the two 
programs offer different benefits. By merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program into the All Small-Mentor 
Prot[eacute]g[eacute] Program, firms will not have to read the 
requirements for both programs and try to decipher perceived 
differences. SBA estimates that having one combined program will 
eliminate about one hour of preparation time for each firm seeking a 
mentor-prot[eacute]g[eacute] relationship. Based on approximately 600 
mentor-prot[eacute]g[eacute] applications each year (about 450 for the 
All Small Mentor-Prot[eacute]g[eacute] Program and about 150 for the 
8(a) BD Mentor-Prot[eacute]g[eacute] Program), this would equate to an 
annual cost savings to prospective prot[eacute]g[eacute] firms of about 
600 hours. At an estimated rate of $44.06 per hour, the annual savings 
in costs related to the elimination of confusion caused by having two 
separate programs is about $26,400.
    Thus, in total, the merger of the 8(a) BD mentor-
prot[eacute]g[eacute] program into the All Small Business Mentor-
Prot[eacute]g[eacute] Program would provide a cost savings of about 
$45,300 per year.
    In addition, it generally takes between 60 and 90 days for SBA to 
approve a mentor-prot[eacute]g[eacute] relationship through the 8(a) BD 
program. Conversely, the average time it takes to approve a mentor-
prot[eacute]g[eacute] relationship through the All Small Mentor-
Prot[eacute]g[eacute] Program is about 20 working days. To firms 
seeking to submit offers through a joint venture with their mentors, 
this difference is significant. Such joint ventures are only eligible 
for the regulatory exclusion from affiliation if they are formed after 
SBA approves the underlying mentor-prot[eacute]g[eacute] relationship. 
It follows that firms applying through the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program could miss out on contract opportunities 
waiting for their mentor-prot[eacute]g[eacute] relationships to be 
approved. These contract opportunity costs are inherently difficult to 
measure, but are certainly significant to the firms missing out on 
specific contract opportunities. However, in SBA's best judgment, 
faster approval timeframes will mitigate such costs by giving program 
participants more certainty in planning their proposal strategies.
    This rule will also eliminate the requirement that any specific 
joint venture can be awarded no more than three contracts over a two 
year period, but will instead permit a joint venture to be awarded an 
unlimited number of contracts over a two year period. The change 
removing the limit of three awards to any joint venture will reduce the 
burden of small businesses being required to form additional joint 
venture entities to perform a fourth contract within that two-year 
period. SBA has observed that joint ventures are often established as 
separate legal entities--specifically as limited liability 
corporations--based on considerations related to individual venture 
liability, tax liability, regulatory requirements, and exit strategies. 
Under the current rule, joint venture partners must form a new joint 
venture entity after receiving three contracts lest they be deemed 
affiliated for all purposes. The rule, which allows a joint venture to 
continue to seek and be awarded contracts without requiring the 
partners to form a new joint venture entity after receiving its third 
contract, will save small businesses significant legal costs in 
establishing new joint ventures and ensuring that those entities meet 
all applicable regulatory requirements.
    This rule also makes several changes to reduce the burden of 
recertifying small business status generally and requesting changes of 
ownership in the 8(a) BD program. Specifically, the rule clarifies that 
a concern that is at least 51 percent owned by an entity (i.e., tribe, 
ANC, or Community Development Corporation (CDC)) need not recertify its 
status as a small business when the ownership of the concern changes to 
or from a wholly-owned business concern of the same entity, as long as 
the ultimate owner remains that entity. In addition, the rule also 
provides that a Participant in SBA's 8(a) BD program that is owned by 
an ANC or tribe need not request a change of ownership from SBA where 
the ANC or tribe merely reorganizes its ownership of a Participant in 
the 8(a) BD program by inserting or removing a wholly-owned business 
entity between the ANC/tribe and the Participant. Both changes will 
save entity-owned small business concerns time and money. Similarly, 
the rule provides that prior SBA approval is not needed where the 
disadvantaged individual (or entity) in control of a Participant in the 
8(a) BD program will increase the percentage of his or her (its) 
ownership interest.

[[Page 66173]]

    The rule will also allow a concern that has been declined for 8(a) 
BD program participation to submit a new application 90 days after the 
date of the Agency's final decision to decline. This changes the 
current rule which requires a concern to wait 12 months from the date 
of the final Agency decision to reapply. This will allow firms that 
have been declined from participating in the 8(a) BD program the 
opportunity to correct deficiencies, come into compliance with program 
eligibility requirements, reapply and be admitted to the program and 
receive the benefits of the program much more quickly. SBA understands 
that by reducing the re-application waiting period there is the 
potential to strain the Agency's resources with higher application 
volumes. In the Agency's best judgment, any costs associated with the 
increase in application volume would be outweighed by the potential 
benefit of providing business development assistance and contracting 
benefits sooner to eligible firms.
    This rule also clarifies SBA's position with respect to size and 
socioeconomic status certifications on task orders under MACs. 
Currently, size 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. The rule requires 
a concern to submit a recertification or confirm its size and/or 
socioeconomic status for all set-aside orders (i.e., small business 
set-aside, 8(a) small business, service-disabled veteran-owned small 
business, HUBZone small business, or women-owned small business) under 
unrestricted MACs, except for orders or Blanket Purchase Agreements 
issued under any FSS contracts. Additionally, the rule requires a 
concern to submit a recertification or confirm its socioeconomic status 
for all set-aside orders where the required socioeconomic status for 
the order differs from that of the underlying set aside MAC. The rule 
does not require recertification, however, if the agency issues the 
order under a pool or a reserve, and the pool or reserve already was 
set aside in the same category as the order.
    If the firm's size and status in SAM is current and accurate when 
the firm submits its offer, the concern will not need to submit a new 
certification or submit any additional documentation with its offer. 
SBA recognizes that confirming accurate size and socioeconomic status 
imposes a burden on a small business contract holder, but the burden is 
minimal. SBA intends that confirmation of size and status under this 
rule will be satisfied by confirming that the firm's size and status in 
SAM is currently accurate and qualifies the firm for award.
    FPDS-NG indicates that, in Fiscal Year 2019, agencies set aside 
1,800 orders under unrestricted MACs, excluding orders under FSS 
contracts. Agencies also set aside 15 pools or reserves using already-
established MACs other than FSS contracts. SBA adopts the assumption 
from FAR Case 2014-002 that on average there are three offers per set-
aside order. SBA also assumes that agencies will award five orders from 
each set-aside pool or set-aside reserve per year, using the same set-
aside category as the pool or reserve. These pool or reserve orders do 
not require recertification at time of order; therefore, SBA subtracts 
the pool or reserve orders from the number of orders subject to the 
rule, leaving 1,725 orders subject to the rule.
    The annual number of set-aside orders under unrestricted MACs, 
excluding FSS orders and orders under set-aside pools or reserves, 
therefore is calculated as 1,725 orders x 3 offers per order = 5,175. 
The ease of complying with the rule varies depending on the size of a 
firm. If the firm's size is not close to the size standard, compliance 
is simple; the firm merely confirms that it has a SAM registration. SBA 
estimates those firms spend 5 minutes per offer to comply with this 
rule. For a firm whose size is close to the size standard, compliance 
requires determining whether the firm presently qualifies for the set-
aside--primarily, whether the firm is presently a small business. SBA 
adopts the estimate from OMB Control No. 9000-0163 that these firms 
spend 30 minutes per offer to comply with this rule.
    The share of small businesses that are within 10 percent of the 
size standard is 1.3 percent. Therefore, the annual public burden of 
requiring present size and socioeconomic status is (5,175 offers x 98.7 
percent x 5 minutes x $44.06 cost per hour) + (5,175 offers x 1.3 
percent x 30 minutes x $44.06 cost per hour) = $20,250.
    FPDS-NG indicates that, in Fiscal Year 2019, agencies set aside 
about 130 orders under set-aside MACs (other than FSS contracts) in the 
categories covered by this rule. These categories are WOSB or EDWOSB 
set-aside/sole-source orders under small business set-aside MACs; 
SDVOSB set-aside/sole-source orders under small business set-aside 
MACs; and HUBZone set-aside/sole source orders set-aside/sole-source 
orders under small business set-aside MACs. The ease of complying on 
these set-aside within set-asides varies depending on whether the firm 
has had any of these recent actions: (i) An ownership change, (ii) a 
corporate change that alters control of the firm, such as change in 
bylaws or a change in corporate officers, or (iii) for the HUBZone 
program, a change in the firm's HUBZone certification status under 
SBA's recently revised HUBZone program procedures. Although data is not 
available, SBA estimates that up to 25 percent of firms would have any 
of those recent actions. Firms in that category will spend 30 minutes 
per offer determining whether the firm presently qualifies for a set-
aside order. The remaining 75 percent of firms will spend 5 minutes 
merely confirming that the firm has an active SAM registration.
    Following the same calculations, the annual cost of requiring 
present socioeconomic status on set-aside orders under set-aside MACs 
is calculated as (130 orders x 3 offers/order x 75 percent x 5 minutes 
x $44.06 cost per hour) + (130 orders x 3 offers/order x 25 percent x 
30 minutes x $44.06 cost per hour). This amounts to an annual cost of 
about $3,220.
    As reflected in the calculation, SBA believes that being presently 
qualified for the required size or socioeconomic status on an order, 
where required, would impose a burden on small businesses. A concern 
already is required by regulation to update its size and status 
certifications in SAM at least annually. As such, the added burden to 
industry is limited to confirming that the firm's certification is 
current and accurate. The Federal Government, however, will receive 
greater accuracy from renewed certification which will enhance 
transparency in reporting and making awards.
    The added burden to ordering agencies includes the act of checking 
a firm's size and status certification 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 minimal. 
Further, checking SAM at the time of order award replaces the check of 
the offeror's contract level certification. SBA also recognizes that an 
agency's market research for the order level may be impacted where the 
agency intends to issue a set-aside order under an unrestricted vehicle 
(or a socioeconomic set-aside under a small business set-aside vehicle) 
except under FSS contracts. 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

[[Page 66174]]

small businesses or small businesses with the required status 
sufficient to set aside the order. SBA does not believe that conducting 
SAM research is onerous.
    Using the same set-aside order data, the annual cost of checking 
certifications and conducting additional market research efforts is 
calculated as (1725 orders off unrestricted + 130 orders off set-
asides) x 30 minutes x $44.06/hours = $46,600 in annual government 
burden.
    Currently, recertification at the contract level for long term 
contracts is specifically identified only at specific points. This rule 
makes clear that a contracting officer has the discretion to request 
size recertification as he or she deems appropriate at any point for a 
long-term MAC. FPDS-NG indicates that, in Fiscal Year 2019, agencies 
awarded 399 MACs to small businesses. SBA estimates that procuring 
activities will use their discretion to request recertification at any 
point in a long term contract approximately 10% of the time. SBA adopts 
the estimate from OMB Control No. 9000-0163 that procuring activities 
will spend 30 minutes to comply with this rule. The annual cost of 
allowing recertification at any point on a long-term contract to 
procuring activities is calculated as (399 MACs x 10%) x 30 minutes x 
$44.06 cost per hour. This amounts to an estimated annual cost of $880. 
Where requested, this recertification would impose a burden on small 
businesses. Following this same calculation, SBA estimates that the 
impact to firms will also be $880 ((399 number of MACs x 10%) x 30 
minutes x $44.06 per hour). The total cost is $880 x 2 = $1,760.
    The annual cost is partially offset by the cost savings that result 
from other changes in this rule. This change goes more to 
accountability and ensuring that small business contracting vehicles 
truly benefit small business concerns. In addition, commenters 
responding to the costs associated with recertification supported the 
proposed rule that requires a firm to recertify its size and/or 
socioeconomic status for set-aside task orders under unrestricted MACs. 
These commenters agreed that certifying in the System for Award 
Management (sam.gov) should meet this requirement.
3. What are the alternatives to this rule?
    As noted above, this rule makes a number of changes intended to 
reduce unnecessary or excessive burdens on small businesses, and 
clarifies other regulatory provisions to eliminate confusion among 
small businesses and procuring activities. SBA has also considered 
other alternative proposals to achieve these ends. Concerning SBA's 
role in approving 8(a) joint venture agreements, the Agency could also 
eliminate the requirement that SBA must approve joint ventures in 
connection with sole source 8(a) awards. However, as noted above, SBA 
believes that such approval is an important enforcement mechanism to 
ensure that the joint venture rules are followed. With respect to the 
requirement that a concern must wait 90 days to re-apply to the 8(a) BD 
program after the date of the Agency's final decline decision, SBA 
could instead eliminate the application waiting period altogether. This 
would allow a concern to re-apply as soon as it reasonably believed it 
had overcome the grounds for decline. However, SBA believes that such 
an alternative would encompass significant administrative burden on 
SBA.
    Under the rule, if an order under an unrestricted MAC is set-aside 
exclusively for small business (i.e., small business set-aside, 8(a) 
small business, service-disabled veteran-owned small business, HUBZone 
small business, or women-owned small business), or the order is set 
aside in a different category than was the set-aside MAC, a concern 
must be qualified for the required size and socioeconomic status at the 
time it submits its initial offer, which includes price, for the 
particular order. In SBA's view, the order is the first time size or 
socioeconomic status is important where the underlying MAC is 
unrestricted or set aside in a different category than the set-aside 
MAC, and therefore, that is the date at which eligibility should be 
examined. SBA considered maintaining the status quo; namely, allowing a 
one-time certification as to size and socioeconomic status (i.e., at 
the time of the initial offer for the underlying contract) to control 
all orders under the contract, unless one of recertification 
requirements applies (see 121.404(g)). SBA believes the current policy 
does not properly promote the interests of small business. Long-term 
contracting vehicles that reward firms that once were, but no longer 
qualify as, small or a particular socioeconomic status adversely affect 
truly small or otherwise eligible businesses.
    Another alternative is to require business concerns to notify 
contracting agencies when there is a change to a concern's 
socioeconomic status (e.g., HUBZone, WOSB, etc.), such that they would 
no longer qualify for set-aside orders. The contracting agency would 
then be required to issue a contract modification within 30 days, and 
from that point forward, ordering agencies would no longer be able to 
count options or orders issued pursuant to the contract for small 
business goaling purposes. This could be less burdensome than 
recertification of socioeconomic status for each set-aside order.

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 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 rule. This rule is an E.O. 
13771 deregulatory action. The annualized cost savings of this rule, 
discounted at 7% relative to 2016 over a perpetual time horizon, is 
$37,166 in 2016 dollars with a net present value of $530,947 in 2016 
dollars.

                             Table 1--Summary of Incremental Costs and Cost Savings
----------------------------------------------------------------------------------------------------------------
                                                                                      Annual cost/ (cost saving)
           Item No.                            Regulatory action item                          estimate
----------------------------------------------------------------------------------------------------------------
1.............................  Eliminating SBA approval of initial and addendums to  ($79,300)
                                 joint venture agreements to perform competitive
                                 8(a) contracts and eliminating approval for two
                                 additional contracts which would require additional
                                 submissions and explanations for any such joint
                                 venture addendum.
2.............................  Merging the 8(a) BD Mentor-Prot[eacute]g[eacute]      (18,900)
                                 Program into the All Small Mentor-
                                 Prot[eacute]g[eacute] Program--Elimination of
                                 manual application process.
3.............................  Merging the 8(a) BD Mentor-Prot[eacute]g[eacute]      (26,400)
                                 Program into the All Small Mentor-
                                 Prot[eacute]g[eacute] Program--Elimination of
                                 confusion among firms seeking a mentor-
                                 prot[eacute]g[eacute] relationship.
4.............................  Requiring recertification for set-aside orders        20,250
                                 issued under unrestricted Multiple Award Contracts.

[[Page 66175]]

 
5.............................  Requiring recertification for set-aside orders        3,220
                                 issued under set-aside Multiple Award Contracts.
6.............................  Additional Government detailed market research to     46,600
                                 identify qualified sources for set-aside orders and
                                 verify status.
7.............................  Contracting officer discretion to request size        1,760
                                 recertification at any point for a long-term MAC.
----------------------------------------------------------------------------------------------------------------


                        Table 2--Detailed Breakdown of Incremental Costs and Cost Savings
----------------------------------------------------------------------------------------------------------------
                                                                                      Annual cost/ (cost saving)
           Item No.                        Regulatory action item details                 estimate breakdown
----------------------------------------------------------------------------------------------------------------
1.............................  Regulatory change: SBA is eliminating the burden
                                 that 8(a) Participants seeking to be awarded an
                                 8(a) contract as a joint venture must submit the
                                 joint venture to SBA for review and approval prior
                                 to contract award. In addition, each joint venture
                                 can be awarded two more contracts which would
                                 require additional submissions and explanations for
                                 any such joint venture addendum.
                                Estimated number of impacted entities: There are      450 entities and 300
                                 currently approximately 4,500 8(a) BD Participants    additional addendums.
                                 in the portfolio. Of those, about 10% or roughly
                                 450 Participants have entered a joint venture
                                 agreement to seek the award of an 8(a) contract.
                                 There are approximately 300 addendums per year.
                                Estimated average impact * (labor hour): SBA          3 hours and 1.5 hours per
                                 estimates that an 8(a) BD Participant currently       additional addendum.
                                 spends approximately three hours submitting a joint
                                 venture agreement to SBA and responding to
                                 questions regarding that submission. Each addendum
                                 requires 1.5 hours of time.
                                2018 Median Pay ** (per hour): Most 8(a) firms use    $44.06 per hour.
                                 an accountant or someone with similar skills for
                                 this task.
                                Estimated Cost/(Cost Saving)........................  ($79,300).
2.............................  Regulatory change: SBA is merging the 8(a) BD Mentor-
                                 Prot[eacute]g[eacute] Program into the All Small
                                 Mentor-Prot[eacute]g[eacute] Program and
                                 eliminating the manual application process. This
                                 will reduce the burden on 8(a) Participants seeking
                                 a mentor-prot[eacute]g[eacute] agreement and on SBA
                                 to no longer process paper applications.
                                Estimated number of impacted entities: SBA receives   150 entities.
                                 approximately 150 applications for 8(a) mentor-
                                 prot[eacute]g[eacute] relationships annually.
                                Estimated average impact * (labor hour): In SBA's     2 hours for applicants and
                                 best professional judgment, the additional cost for   less than 1 hour for SBA.
                                 submitting a manual mentor-prot[eacute]g[eacute]
                                 agreement to SBA for review and approval and
                                 responding manually to questions regarding that
                                 submission is estimated at two hours. For SBA
                                 employees, reviewing the manual mentor-
                                 prot[eacute]g[eacute] agreements takes 3 hours and
                                 this change is expected to save SBA 30% of the time
                                 required.
                                2018 Median Pay ** (per hour): Most 8(a) firms use    44.06 per hour.
                                 an accountant or someone with similar skills for
                                 this task..
                                Estimated Cost/(Cost Saving)........................  ($18,900).
3.............................  Regulatory change: SBA is merging the 8(a) BD Mentor-
                                 Prot[eacute]g[eacute] Program into the All Small
                                 Mentor-Prot[eacute]g[eacute] Program. In doing so,
                                 firms will not have to read the requirements for
                                 both programs and try to decipher any perceived
                                 differences.
                                Estimated number of impacted entities: SBA receives   600 entities.
                                 approximately 600 mentor-prot[eacute]g[eacute]
                                 applications each year--about 450 for the All Small
                                 Mentor-Prot[eacute]g[eacute] Program and about 150
                                 for the 8(a) BD Mentor-Prot[eacute]g[eacute]
                                 Program.
                                Estimated average impact * (labor hour): SBA          1 hour.
                                 estimates that having one combined program will
                                 eliminate about one hour of preparation time for
                                 each firm seeking a mentor-prot[eacute]g[eacute]
                                 relationship.
                                2018 Median Pay ** (per hour): Most small business    $44.06 per hour.
                                 concerns use an accountant or someone with similar
                                 skills for this task.
                                Estimated Cost/(Cost Saving)........................  ($26,400).
4.............................  Regulatory change: SBA is requiring that a firm be
                                 accurately certified and presently qualified as to
                                 size and/or status for set-aside orders issued
                                 under Multiple Award Contracts that were not set
                                 aside or set aside in a separate category, except
                                 for the Federal Supply Schedule.
                                Estimated number of impacted entities: Approximately  5,175 offers.
                                 1,725 set-aside orders are issued annually on
                                 Multiple Award Contracts that are not set aside in
                                 the same category, including the Federal Supply
                                 Schedule, outside of set-aside pools. SBA estimates
                                 that three offers are submitted for each order.
                                Estimated average impact * (labor hour): SBA          0.5 hours for firms within
                                 estimates that a small business that is close to      10 percent of size
                                 its size standard will spend an average of 30         standard (1.3% of firms);
                                 minutes confirming that size and status is accurate   5 minutes otherwise
                                 prior to submitting an offer. A small business that   (98.7% of firms).
                                 is not close to its size standard will spend an
                                 average of 5 minutes confirming that it has a SAM
                                 registration.
                                2018 Median Pay ** (per hour): Most small business    $44.06 per hour.
                                 concerns use an accountant or someone with similar
                                 skills for this task.
                                Estimated Cost/(Cost Saving)........................  $20,250.
5.............................  Regulatory change: SBA is requiring that a firm be
                                 accurately certified and presently qualified as to
                                 socioeconomic status for set-aside orders issued
                                 under Multiple Award Contracts that were set aside
                                 in a separate category, except for the Federal
                                 Supply Schedule contracts.

[[Page 66176]]

 
                                Estimated number of impacted entities: Approximately  390 offers.
                                 130 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, are affected by this rule. SBA estimates
                                 that three offers are submitted for each order for
                                 a total of 390 offers.
                                Estimated average impact * (labor hour): SBA          0.5 hours for firms with a
                                 estimates that a small business will spend an         change in ownership,
                                 average of 30 minutes confirming that size and        control, or HUBZone
                                 status is accurate prior to submitting an offer, if   certification (25% of
                                 it has had a change in ownership, control, or         firms); 5 minutes
                                 certification. Otherwise, the small business will     otherwise (75% of firms).
                                 spend an average of 5 minutes confirming that it
                                 has a SAM registration.
                                2018 Median Pay ** (per hour): Most small business    $44.06 per hour.
                                 concerns use an accountant or someone with similar
                                 skills for this task.
                                Estimated Cost/(Cost Saving)........................  $3,220.
6.............................  Regulatory change: SBA is requiring that firms be
                                 accurately certified and presently qualified as to
                                 size and socioeconomic status for certain set-aside
                                 orders issued under Multiple Award Contracts,
                                 except for the Federal Supply Schedule contracts.
                                 This change impacts the market research required by
                                 ordering activities to determine if a set-aside
                                 order for small business or for any of the
                                 socioeconomic programs may be pursued and whether
                                 the awardee is qualified for award.
                                Estimated number of impacted entities: Approximately  2,115 orders.
                                 2,115 set-aside orders are issued annually as
                                 described in the rule.
                                Estimated average impact* (labor hour): SBA           0.5 hours.
                                 estimates that ordering activities applying the
                                 Rule of Two will spend an average of 30 additional
                                 minutes to locate contractors awarded Multiple
                                 Award Contracts, looking up the current business
                                 size for each of the contractors in SAM to
                                 determine if a set-aside order can be pursued, and
                                 confirming the status of the awardee.
                                2018 Median Pay ** (per hour): Contracting officers   $44.06 per hour.
                                 typically perform the market research for the
                                 acquisition plan.
                                Estimated Cost/(Cost Saving)........................  $46,600.
7.............................  Regulatory Change: Contracting officer discretion to
                                 request size recertification at any point for a
                                 long-term MAC.
                                Estimated number of impacted entities: Approximately  40 contracts.
                                 400 long term MACs are awarded annually to small
                                 businesses. SBA estimates that contracting officers
                                 will exercise this discretion 10% of the time.
                                Estimated average impact * (labor hour): SBA          0.5 hours for agencies;
                                 estimates that ordering activities will spend an      0.5 hours for businesses.
                                 average of 30 additional minutes to request this
                                 recertification. Contractors will spend an average
                                 of 30 additional minutes to respond to the request.
                                2018 Median Pay ** (per hour): Contracting officers   $44.06.
                                 will request this recertification.
                                Estimated Cost/(Cost Saving)........................  $1,760.
----------------------------------------------------------------------------------------------------------------
* This estimate is based on SBA's best professional judgment.
** Source: Bureau of Labor Statistics, Accountants and Auditors.

Executive Order 12988

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

Executive Order 13132

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

Executive Order 13175

    As part of this rulemaking process, SBA held tribal consultations 
pursuant to Executive Order 13175, Tribal Consultations, in 
Minneapolis, MN, Anchorage, AK, Albuquerque, NM and Oklahoma City, OK 
to provide interested tribal representatives with an opportunity to 
discuss their views on various 8(a) BD-related issues. See 84 FR 66647. 
These consultations were in addition to those held by SBA in Anchorage, 
AK (see 83 FR 17626), Albuquerque, NM (see 83 FR 24684), and Oklahoma 
City, OK (see 83 FR 24684) before issuing a proposed rule. This 
executive order reaffirms the Federal Government's commitment to tribal 
sovereignty and requires Federal agencies to consult with Indian tribal 
governments when developing policies that would impact the tribal 
community. The purpose of the above-referenced tribal consultation 
meetings was to provide interested parties with an opportunity to 
discuss their views on the issues, and for SBA to obtain the views of 
SBA's stakeholders on approaches to the 8(a) BD program regulations. 
SBA has always considered tribal consultation meetings a valuable 
component of its deliberations and believes that these tribal 
consultation meetings allow 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 ANC-owned firms participating in the 8(a) BD 
program.
    In general, tribal stakeholders were supportive of SBA's intent to 
implement changes that will make it easier for small business concerns 
to understand and comply with the regulations

[[Page 66177]]

governing the 8(a) BD program, and agreed that this rulemaking will 
make the program more effective and accessible to the small business 
community. SBA received significant comments on its approaches to the 
proposed regulatory changes, as well as several recommendations 
regarding the 8(a) BD program not initially contemplated by this 
planned rulemaking. SBA has taken these discussions into account in 
drafting this final rule.

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 E.O. 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 
(FPDS-NG), Dynamic Small Business Search (DSBS) and System for Award 
Management (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?
    The proposed rule initially called for a 70-day comment period, 
with comments required to be made to SBA by January 17, 2020. SBA 
received several comments in the first few weeks after the publication 
to extend the comment period. Commenters felt that the nature of the 
issues raised in the rule and the timing of comments during the holiday 
season required more time for affected businesses to adequately review 
the proposal and prepare their comments. In response to these comments, 
SBA published a notice in the Federal Register on January 10, 2020, 
extending the comment period an additional 21 days to February 7, 2020. 
85 FR 1289. All comments received were posted on www.regulations.gov to 
provide transparency into the rulemaking process. In addition, SBA 
submitted the final rule to the Office of Management and Budget for 
interagency review.
3. Flexibility: Did the agency identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public?
    Yes, the rule is intended to reduce unnecessary or excessive 
burdens on 8(a) Participants, and clarify other regulatory-related 
provisions to eliminate confusion among small businesses and procuring 
activities.

Executive Order 13771

    This rule is an E.O. 13771 deregulatory action. The annualized cost 
savings of this rule is $37,166 in 2016 dollars with a net present 
value of $530,947 over perpetuity, in 2016 dollars. A detailed 
discussion of the estimated cost of this proposed rule can be found in 
the above Regulatory Impact Analysis.

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

    This rule imposes additional reporting or recordkeeping 
requirements under the Paperwork Reduction Act, 44 U.S.C. Chapter 35. 
The rule provides a number of size and/or socioeconomic status 
recertification requirements for set-aside orders under MACs. The 
annual total public reporting burden for this collection of information 
is estimated to be 82 total hours ($3,625), including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing information reporting.
    Respondents: 165.
    Responses per respondent: 1.
    Total annual responses: 165.
    Preparation hours per response: 0.5 (30 min).
    Total response burden hours: 82.
    Cost per hour: $44.06.
    Estimated cost burden to the public: $3,625.
    Additionally, the rule adds procuring agency discretion to request 
recertification at any point for long term MACs. The annual total 
public reporting burden for this collection of information is estimated 
to be 20 total hours ($880), including the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing information reporting.
    Respondents: 40.
    Responses per respondent: 1.
    Total annual responses: 40.
    Preparation hours per response: 0.5 (30 min).
    Total response burden hours: 20.
    Cost per hour: $44.06.
    Estimated cost burden to the public: $880.This added information 
collection burden will be officially reflected through OMB Control 
Number 9000-0163 when the rule is implemented. SBA received no comments 
on the PRA analysis set forth in the proposed rule.
    SBA also has an information collection for the Mentor-
Prot[eacute]g[eacute] Program, OMB Control Number 3245-0393. This 
collection is not affected by these amendments.

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

    The Regulatory Flexibility Act (RFA) requires administrative 
agencies to consider the effect of their actions on small entities, 
small non-profit enterprises, and small local governments. Pursuant to 
the RFA, when an agency issues a rulemaking, the agency must prepare a 
regulatory flexibility analysis which describes the impact of the rule 
on small entities. However, section 605 of the RFA allows an agency to 
certify a rule, in lieu of preparing an analysis, if the rulemaking is 
not expected to have a significant economic impact on a substantial 
number of small entities. The RFA defines ``small entity'' to include 
``small businesses,'' ``small organizations,'' and ``small governmental 
jurisdictions.''
    This rule concerns aspects of SBA's 8(a) BD program, the All Small 
Mentor-Prot[eacute]g[eacute] Program, and various other small business 
programs. As such, the rule relates to small business concerns but 
would not affect ``small organizations'' or ``small governmental 
jurisdictions'' because those programs generally apply only to 
``business concerns'' as defined by SBA regulations, in other words, to 
small businesses organized for profit. ``Small organizations'' or 
``small governmental jurisdictions'' are non-profits or governmental 
entities and do not generally qualify as ``business concerns''

[[Page 66178]]

within the meaning of SBA's regulations.
    There are currently approximately 4,500 8(a) BD Participants in the 
portfolio. Most of the changes are clarifications of current policy or 
designed to reduce unnecessary or excessive burdens on 8(a) BD 
Participants and therefore should not impact many of these concerns. 
There are about 385 Participants with 8(a) BD mentor-
prot[eacute]g[eacute] agreements and about another 850 small businesses 
that have SBA-approved mentor-prot[eacute]g[eacute] agreements through 
the All Small Mentor-Prot[eacute]g[eacute] Program. The consolidation 
of SBA's two mentor-prot[eacute]g[eacute] programs into one program 
will not have a significant economic impact on small businesses. In 
fact, it should have no affect at all on those small businesses that 
currently have or on those that seek to have an SBA-approved mentor-
prot[eacute]g[eacute] relationship. The rule eliminates confusion 
regarding perceived differences between the two Programs, removes 
unnecessary duplication of functions within SBA, and establishes one 
unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. The benefits of the two programs 
are identical, and will not change under the rule.
    SBA is also requiring a business to be qualified for the required 
size and status when under consideration for a set-aside order off a 
MAC that was awarded outside of the same set-aside category. Pursuant 
to the Small Business Goaling Report (SBGR) Federal Procurement Data 
System--Next Generation (FPDS-NG) records, about 236,000 new orders 
were awarded under MACs per year from FY 2014 to FY 2018. Around 
199,000, or 84.3 percent, were awarded under MACs established without a 
small business set aside. For this analysis, small business set-asides 
include all total or partial small business set-asides, and all 8(a), 
WOSB, SDVOSB, and HUBZone awards. There were about 9,000 new orders 
awarded annually with a small business set-aside under unrestricted 
MACs. These orders were issued to approximately 2,600 firms. The 9,000 
new orders awarded with a small business set-aside under a MAC without 
a small business set aside were 4.0 percent of the 236,000 new orders 
under MACs in a year (Table 3).

Table 3--0.47% of New MAC Orders in a FY Are Non-FSS Orders Set Aside for Small Business Where Underlying Base Contract Not Set Aside for Small Business
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               FY014           FY015           FY016           FY017           FY018            AVG
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total new orders under MACs in FY.......................         244,664         231,694         245,978         234,304         223,861         236,100
Orders awarded with SB set aside under unrestricted MAC.          10,089           9,347           9,729           9,198           8,666           9,406
Non-FSS orders awarded with SB set aside without MAC IDV             902             780           1,019           1,422           1,400           1,105
 SB set aside...........................................
Percent.................................................            0.37            0.34            0.41            0.61            0.63            0.47
--------------------------------------------------------------------------------------------------------------------------------------------------------

    If all firms receiving a non-FSS small business set-aside order 
under a MAC that was not itself set aside for small business were 
adversely affected by the rule (i.e., every such firm receiving an 
award as a small business had grown to be other than a small business 
or no longer qualified as 8(a), WOSB, SDVO, or HUBZone), the rule 
requiring a business to be certified as small for non-FSS small 
business set-aside orders under MACs not set aside for small business 
would impact only 0.47 percent of annual new MAC orders. The proposed 
rule sought comments as to whether the rule would have a significant 
economic impact on a substantial number of small entities. SBA did not 
receive any comments responding to such request. As such, SBA certifies 
that this rule will not have a significant economic impact on a 
substantial number of small entities. Nevertheless, throughout the 
supplementary information to this proposed rule, SBA has identified the 
reasons why the changes are being made, the objectives and basis for 
the rule, a description of the number of small entities to which the 
rule will apply, and a description of alternatives considered.

List of Subjects

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 124

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

13 CFR Part 125

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

13 CFR Part 126

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

13 CFR Part 127

    Government contracts, Reporting and recordkeeping requirements, 
Small businesses.

13 CFR Part 134

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Lawyers, Organization and functions (Government agencies).

    Accordingly, for the reasons stated in the preamble, SBA amends 13 
CFR parts 121, 124, 125, 126, 127, and 134 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

    Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and 
694a(9); Pub. L. 116-136, Section 1114.


0
2. Amend Sec.  121.103 by:
0
a. Revising the first sentence of paragraphs (b)(6) and (9);
0
b. Revising paragraph (f)(2)(i) and Example 2 to paragraph (f);
0
c. Revising the first sentence of paragraph (g);
0
d. Revising paragraph (h) introductory text and Examples 1, 2, and 3 to 
paragraph (h) introductory text;
0
e. Removing paragraphs (h)(1) and (h)(2);
0
f. Redesignating paragraphs (h)(3) through (h)(5) as paragraphs (h)(1) 
through (h)(3), respectively;
0
g. Revising the paragraph heading for the newly redesignated paragraph 
(h)(1) and adding two sentences to the end of newly redesignated 
paragraph (h)(1)(ii);

[[Page 66179]]

0
h. Removing newly redesignated paragraph (h)(1)(iii);
0
i. Adding a paragraph heading for redesignated paragraph (h)(2);
0
j. Revising newly redesignated paragraph (h)(3); and
0
k. Adding paragraph (h)(4).
    The revisions and additions read as follows:


Sec.  121.103   How does SBA determine affiliation?

* * * * *
    (b) * * *
    (6) A firm that has an SBA-approved mentor-prot[eacute]g[eacute] 
agreement authorized under Sec.  125.9 of this chapter is not 
affiliated with its mentor or prot[eacute]g[eacute] firm solely because 
the prot[eacute]g[eacute] firm receives assistance from the mentor 
under the agreement. * * *
* * * * *
    (9) In the case of a solicitation for a bundled contract or a 
Multiple Award Contract with a value in excess of the agency's 
substantial bundling threshold, a small business contractor may enter 
into a Small Business Teaming Arrangement with one or more small 
business subcontractors and submit an offer as a small business without 
regard to affiliation, so long as each team member is small for the 
size standard assigned to the contract or subcontract. * * *
* * * * *
    (f) * * *
    (2) * * *
    (i) This presumption may be rebutted by a showing that despite the 
contractual relations with another concern, the concern at issue is not 
solely dependent on that other concern, such as where the concern has 
been in business for a short amount of time and has only been able to 
secure a limited number of contracts or where the contractual relations 
do not restrict the concern in question from selling the same type of 
products or services to another purchaser.
* * * * *
    Example 2 to paragraph (f). Firm A has been in business for five 
years and has approximately 200 contracts. Of those contracts, 195 are 
with Firm B. The value of Firm A's contracts with Firm B is greater 
than 70% of its revenue over the previous three years. Unless Firm A 
can show that its contractual relations with Firm B do not restrict it 
from selling the same type of products or services to another 
purchaser, SBA would most likely find the two firms affiliated.
    (g) Affiliation based on the newly organized concern rule. Except 
as provided in Sec.  124.109(c)(4)(iii), affiliation may arise where 
former or current officers, directors, principal stockholders, managing 
members, or key employees of one concern organize a new concern in the 
same or related industry or field of operation, and serve as the new 
concern's officers, directors, principal stockholders, managing 
members, or key employees, and the one concern is furnishing or will 
furnish the new concern with contracts, financial or technical 
assistance, indemnification on bid or performance bonds, and/or other 
facilities, whether for a fee or otherwise. * * *
    (h) Affiliation based on joint ventures. A joint venture is an 
association of individuals and/or concerns with interests in any degree 
or proportion intending to engage in and carry out business ventures 
for joint profit over a two year period, for which purpose they combine 
their efforts, property, money, skill, or knowledge, but not on a 
continuing or permanent basis for conducting business generally. This 
means that a specific joint venture entity generally may not be awarded 
contracts beyond a two-year period, starting from the date of the award 
of the first contract, without the partners to the joint venture being 
deemed affiliated for the joint venture. Once a joint venture receives 
a contract, it may submit additional offers for a period of two years 
from the date of that first award. An individual joint venture may be 
awarded one or more contracts after that two-year period as long as it 
submitted an offer including price prior to the end of that two-year 
period. SBA will find joint venture partners to be affiliated, and thus 
will aggregate their receipts and/or employees in determining the size 
of the joint venture for all small business programs, where the joint 
venture submits an offer after two years from the date of the first 
award. The same two (or more) entities may create additional joint 
ventures, and each new joint venture entity may submit offers for a 
period of two years from the date of the first contract to the joint 
venture without the partners to the joint venture being deemed 
affiliates. At some point, however, such a longstanding inter-
relationship or contractual dependence between the same joint venture 
partners will lead to a finding of general affiliation between and 
among them. A joint venture: Must be in writing; must do business under 
its own name and be identified as a joint venture in the System for 
Award Management (SAM) for the award of a prime contract; may be in the 
form of a formal or informal partnership or exist as a separate limited 
liability company or other separate legal entity; and, if it exists as 
a formal separate legal entity, may not be populated with individuals 
intended to perform contracts awarded to the joint venture (i.e., the 
joint venture may have its own separate employees to perform 
administrative functions, including one or more Facility Security 
Officer(s), but may not have its own separate employees to perform 
contracts awarded to the joint venture). SBA may also determine that 
the relationship between a prime contractor and its subcontractor is a 
joint venture pursuant to paragraph (h)(4) of this section. For 
purposes of this paragraph (h), contract refers to prime contracts, 
novations of prime contracts, and any subcontract in which the joint 
venture is treated as a similarly situated entity as the term is 
defined in part 125 of this chapter.
    Example 1 to paragraph (h) introductory text. Joint Venture AB 
receives a contract on April 2, year 1. Joint Venture AB may receive 
additional contracts through April 2, year 3. On June 6, year 2, Joint 
Venture AB submits an offer for Solicitation 1. On July 13, year 2, 
Joint Venture AB submits an offer for Solicitation 2. On May 27, year 
3, Joint Venture AB is found to be the apparent successful offeror for 
Solicitation 1. On July 22, year 3, Joint Venture AB is found to be the 
apparent successful offeror for Solicitation 2. Even though the award 
of the two contracts emanating from Solicitations 1 and 2 would occur 
after April 2, year 3, Joint Venture AB may receive those awards 
without causing general affiliation between its joint venture partners 
because the offers occurred prior to the expiration of the two-year 
period.
    Example 2 to paragraph (h) introductory text. Joint Venture XY 
receives a contract on August 10, year 1. It may receive two additional 
contracts through August 10, year 3. On March 19, year 2, XY receives a 
second contract. It receives no other contract awards through August 
10, year 3 and has submitted no additional offers prior to August 10, 
year 3. Because two years have passed since the date of the first 
contract award, after August 10, year 3, XY cannot receive an 
additional contract award. The individual parties to XY must form a new 
joint venture if they want to seek and be awarded additional contracts 
as a joint venture.
    Example 3 to paragraph (h) introductory text. Joint Venture XY 
receives a contract on December 15, year 1. On May 22, year 3 XY 
submits an offer for Solicitation S. On December 8, year 3, XY submits 
a novation package for contracting officer approval for

[[Page 66180]]

Contract C. In January, year 4 XY is found to be the apparent 
successful offeror for Solicitation S and the relevant contracting 
officer seeks to novate Contract C to XY. Because both the offer for 
Solicitation S and the novation package for Contract C were submitted 
prior to December 15 year 3, both contract award relating to 
Solicitation S and novation of Contract C may occur without a finding 
of general affiliation.
    (1) Size of joint ventures. (i) * * *
    (ii) * * * Except for sole source 8(a) awards, the joint venture 
must meet the requirements of Sec.  124.513(c) and (d), Sec.  125.8(b) 
and (c), Sec.  125.18(b)(2) and (3), Sec.  126.616(c) and (d), or Sec.  
127.506(c) and (d) of this chapter, as appropriate, at the time it 
submits its initial offer including price. For a sole source 8(a) 
award, the joint venture must demonstrate that it meets the 
requirements of Sec.  124.513(c) and (d) prior to the award of the 
contract.
* * * * *
    (2) Ostensible subcontractors. * * *
    (3) Receipts/employees attributable to joint venture partners. For 
size purposes, a concern must include in its receipts its proportionate 
share of joint venture receipts, unless the proportionate share already 
is accounted for in receipts reflecting transactions between the 
concern and its joint ventures (e.g., subcontracts from a joint venture 
entity to joint venture partners). In determining the number of 
employees, a concern must include in its total number of employees its 
proportionate share of joint venture employees. For the calculation of 
receipts, the appropriate proportionate share is the same percentage of 
receipts or employees as the joint venture partner's percentage share 
of the work performed by the joint venture. For the calculation of 
employees, the appropriate share is the same percentage of employees as 
the joint venture partner's percentage ownership share in the joint 
venture, after first subtracting any joint venture employee already 
accounted for in one of the partner's employee count.
    Example 1 to paragraph (h)(3). Joint Venture AB is awarded a 
contract for $10M. The joint venture will perform 50% of the work, with 
A performing $2M (40% of the 50%, or 20% of the total value of the 
contract) and B performing $3M (60% of the 50% or 30% of the total 
value of the contract). Since A will perform 40% of the work done by 
the joint venture, its share of the revenues for the entire contract is 
40%, which means that the receipts from the contract awarded to Joint 
Venture AB that must be included in A's receipts for size purposes are 
$4M. A must add $4M to its receipts for size purposes, unless its 
receipts already account for the $4M in transactions between A and 
Joint Venture AB.
    (4) Facility security clearances. A joint venture may be awarded a 
contract requiring a facility security clearance where either the joint 
venture itself or the individual partner(s) to the joint venture that 
will perform the necessary security work has (have) a facility security 
clearance.
    (i) Where a facility security clearance is required to perform 
primary and vital requirements of a contract, the lead small business 
partner to the joint venture must possess the required facility 
security clearance.
    (ii) Where the security portion of the contract requiring a 
facility security clearance is ancillary to the principal purpose of 
the procurement, the partner to the joint venture that will perform 
that work must possess the required facility security clearance.
* * * * *

0
3. Amend Sec.  121.402 by revising the first sentence of paragraph 
(b)(2), and paragraphs (c)(1)(i), (c)(2)(i), and (e) to read as 
follows:


Sec.  121.402  What size standards are applicable to Federal Government 
Contracting programs?

* * * * *
    (b) * * *
    (2) A procurement is generally classified according to the 
component which accounts for the greatest percentage of contract value. 
* * *
    (c) * * *
    (1) * * *
    (i) Assign the solicitation a single NAICS code and corresponding 
size standard which best describes the principal purpose of the 
acquisition as set forth in paragraph (b) of this section, only if the 
NAICS code will also best describe the principal purpose of each order 
to be placed under the Multiple Award Contract; or
* * * * *
    (2) * * *
    (i) The contracting officer must assign a single NAICS code for 
each order issued against a Multiple Award Contract. The NAICS code 
assigned to an order must be a NAICS code included in the underlying 
Multiple Award Contract. When placing an order under a Multiple Award 
Contract with multiple NAICS codes, the contracting officer must assign 
the NAICS code and corresponding size standard that best describes the 
principal purpose of each order. In cases where an agency can issue an 
order against multiple SINs with different NAICS codes, the contracting 
officer must select the single NAICS code that best represents the 
acquisition. If the NAICS code corresponding to the principal purpose 
of the order is not contained in the underlying Multiple Award 
Contract, the contracting officer may not use the Multiple Award 
Contract to issue that order.
* * * * *
    (e) When a NAICS code designation or size standard in a 
solicitation is unclear, incomplete, missing, or prohibited, SBA may 
clarify, complete, or supply a NAICS code designation or size standard, 
as appropriate, in connection with a formal size determination or size 
appeal.
* * * * *

0
4. In Sec.  121.404:
0
a. Amend paragraph (a) by:
0
i. Revising paragraphs (a) introductory text and (a)(1); and
0
ii. Adding a paragraph heading to paragraph (a)(2);
0
b. Revising paragraph (b);
0
c. Adding a paragraph heading to paragraph (c);
0
d. Revising paragraph (d);
0
e. Adding a paragraph heading to paragraph (e) and a sentence at the 
end of the paragraph;
0
f. Adding a paragraph heading to paragraph (f);
0
g. Amend paragraph (g) by:
0
i. Redesignating paragraph (g)(2)(ii)(D) as paragraph (g)(2)(iii);
0
ii. Revising paragraphs (g) introductory text, (g)(2)(ii)(C) and newly 
redesignated paragraph(g)(2)(iii); and
0
iii. Adding paragraph (g)(2)(iv) and a new third sentence to paragraph 
(g)(3) introductory text; and
0
h. Adding a paragraph heading to paragraph (h).
    The additions and revisions read as follows:


Sec.  121.404  When is the size status of a business concern 
determined?

    (a) Time of size--(1) Multiple award contracts. With respect to 
Multiple Award Contracts, orders issued against a Multiple Award 
Contract, and Blanket Purchase Agreements issued against a Multiple 
Award Contract:
    (i) Single NAICS. If a single NAICS code is assigned as set forth 
in Sec.  121.402(c)(1)(i), SBA determines size status for the 
underlying Multiple Award Contract at the time of initial offer (or 
other formal response to a solicitation), which includes price, based 
upon the size standard set forth in the solicitation for the Multiple 
Award Contract, unless the concern was

[[Page 66181]]

required to recertify under paragraph (g)(1), (2), or (3) of this 
section.
    (A) Unrestricted Multiple Award Contracts. For an unrestricted 
Multiple Award Contract, if a business concern (including a joint 
venture) is small at the time of offer and contract-level 
recertification for the Multiple Award Contract, it is small for 
goaling purposes for each order issued against the contract, unless a 
contracting officer requests a size recertification for a specific 
order or Blanket Purchase Agreement. Except for orders and Blanket 
Purchase Agreements issued under any Federal Supply Schedule contract, 
if an order or a Blanket Purchase Agreement under an unrestricted 
Multiple Award Contract is set-aside exclusively for small business 
(i.e., small business set-aside, 8(a) small business, service-disabled 
veteran-owned small business, HUBZone small business, or women-owned 
small business), a concern must recertify its size status and qualify 
as a small business at the time it submits its initial offer, which 
includes price, for the particular order or Blanket Purchase Agreement. 
However, where the underlying Multiple Award Contract has been awarded 
to a pool of concerns for which small business status is required, if 
an order or a Blanket Purchase Agreement under that Multiple Award 
Contract is set-aside exclusively for concerns in the small business 
pool, concerns need not recertify their status as small business 
concerns (unless a contracting officer requests size certifications 
with respect to a specific order or Blanket Purchase Agreement).
    (B) Set-aside Multiple Award Contracts. For a Multiple Award 
Contract that is set aside for small business (i.e., small business 
set-aside, 8(a) small business, service-disabled veteran-owned small 
business, HUBZone small business, or women-owned small business), if a 
business concern (including a joint venture) is small at the time of 
offer and contract-level recertification for the Multiple Award 
Contract, it is small for each order or Blanket Purchase Agreement 
issued against the contract, unless a contracting officer requests a 
size recertification for a specific order or Blanket Purchase 
Agreement.
    (ii) Multiple NAICS. If multiple NAICS codes are assigned as set 
forth in Sec.  121.402(c)(1)(ii), SBA determines size status at the 
time a business concern submits its initial offer (or other formal 
response to a solicitation) which includes price for a Multiple Award 
Contract based upon the size standard set forth for each discrete 
category (e.g., CLIN, SIN, Sector, FA or equivalent) for which the 
business concern submits an offer and represents that it qualifies as 
small for the Multiple Award Contract, unless the business concern was 
required to recertify under paragraph (g)(1), (2), or (3) of this 
section. If the business concern (including a joint venture) submits an 
offer for the entire Multiple Award Contract, SBA will determine 
whether it meets the size standard for each discrete category (CLIN, 
SIN, Sector, FA or equivalent).
    (A) Unrestricted Multiple Award Contracts. For an unrestricted 
Multiple Award Contract, if a business concern (including a joint 
venture) is small at the time of offer and contract-level 
recertification for discrete categories on the Multiple Award Contract, 
it is small for goaling purposes for each order issued against any of 
those categories, unless a contracting officer requests a size 
recertification for a specific order or Blanket Purchase Agreement. 
Except for orders or Blanket Purchase Agreements issued under any 
Federal Supply Schedule contract, if an order or Blanket Purchase 
Agreement for a discrete category under an unrestricted Multiple Award 
Contract is set-aside exclusively for small business (i.e., small 
business set, 8(a) small business, service-disabled veteran-owned small 
business, HUBZone small business, or women-owned small business), a 
concern must recertify its size status and qualify as a small business 
at the time it submits its initial offer, which includes price, for the 
particular order or Agreement. However, where the underlying Multiple 
Award Contract for discrete categories has been awarded to a pool of 
concerns for which small business status is required, if an order or a 
Blanket Purchase Agreement under that Multiple Award Contract is set-
aside exclusively for concerns in the small business pool, concerns 
need not recertify their status as small business concerns (unless a 
contracting officer requests size certifications with respect to a 
specific order or Blanket Purchase Agreement).
    (B) Set-aside Multiple Award Contracts. For a Multiple Award 
Contract that is set aside for small business (i.e., small business 
set-aside, 8(a) small business, service-disabled veteran-owned small 
business, HUBZone small business, or women-owned small business), if a 
business concern (including a joint venture) is small at the time of 
offer and contract-level recertification for discrete categories on the 
Multiple Award Contract, it is small for each order or Agreement issued 
against any of those categories, unless a contracting officer requests 
a size recertification for a specific order or Blanket Purchase.
    (iii) SBA will determine size at the time of initial offer (or 
other formal response to a solicitation), which includes price, for an 
order or Agreement issued against a Multiple Award Contract if the 
contracting officer requests a new size certification for the order or 
Agreement.
    (2) Agreements. * * *
    (b) Eligibility for SBA programs. A concern applying to be 
certified as a Participant in SBA's 8(a) Business Development program 
(under part 124, subpart A, of this chapter), as a HUBZone small 
business (under part 126 of this chapter), or as a women-owned small 
business concern (under part 127 of this chapter) must qualify as a 
small business for its primary industry classification as of the date 
of its application and, where applicable, the date the SBA program 
office requests a formal size determination in connection with a 
concern that otherwise appears eligible for program certification.
    (c) Certificates of competency. * * *
    (d) Nonmanufacturer rule, ostensible subcontractor rule, and joint 
venture agreements. Size status is determined as of the date of the 
final proposal revision for negotiated acquisitions and final bid for 
sealed bidding for the following purposes: compliance with the 
nonmanufacturer rule set forth in Sec.  121.406(b)(1), the ostensible 
subcontractor rule set forth in Sec.  121.103(h)(4), and the joint 
venture agreement requirements in Sec.  124.513(c) and (d), Sec.  
125.8(b) and (c), Sec.  125.18(b)(2) and (3), Sec.  126.616(c) and (d), 
or Sec.  127.506(c) and (d) of this chapter, as appropriate.
    (e) Subcontracting. * * * A prime contractor may rely on the self-
certification of subcontractor provided it does not have a reason to 
doubt the concern's self-certification.
    (f) Two-step procurements. * * *
    (g) Effect of size certification and recertification. A concern 
that represents itself as a small business and qualifies as small at 
the time it submits its initial offer (or other formal response to a 
solicitation) which includes price is generally considered to be a 
small business throughout the life of that contract. Similarly, a 
concern that represents itself as a small business and qualifies as 
small after a required recertification under paragraph (g)(1), (2), or 
(3) of this section is generally considered to be a small business 
until throughout the life of that contract. Where a concern grows to be 
other than small, the procuring agency may exercise options and still 
count the award as an award to a small business,

[[Page 66182]]

except that a required recertification as other than small under 
paragraph (g)(1), (2), or (3) of this section changes the firm's status 
for future options and orders. The following exceptions apply to this 
paragraph (g):
* * * * *
    (2) * * *
    (ii) * * *
    (C) In the context of a joint venture that has been awarded a 
contract or order as a small business, from any partner to the joint 
venture that has been acquired, is acquiring, or has merged with 
another business entity.
    (iii) If the merger, sale or acquisition occurs after offer but 
prior to award, the offeror must recertify its size to the contracting 
officer prior to award. If the merger, sale or acquisition (including 
agreements in principal) occurs within 180 days of the date of an offer 
and the offeror is unable to recertify as small, it will not be 
eligible as a small business to receive the award of the contract. If 
the merger, sale or acquisition (including agreements in principal) 
occurs more than 180 days after the date of an offer, award can be 
made, but it will not count as an award to small business.
    (iv) Recertification is not required when the ownership of a 
concern that is at least 51% owned by an entity (i.e., tribe, Alaska 
Native Corporation, or Community Development Corporation) changes to or 
from a wholly-owned business concern of the same entity, as long as the 
ultimate owner remains that entity.
    Example 1 to paragraph (g)(2)(iii). Indian Tribe X owns 100% of 
small business ABC. ABC wins an award for a small business set-aside 
contract. In year two of contract performance, X changes the ownership 
of ABC so that X owns 100% of a holding company XYZ, Inc., which in 
turn owns 100% of ABC. This restructuring does not require ABC to 
recertify its status as a small business because it continues to be 
100% owned (indirectly rather than directly) by Indian Tribe X.
    (3) * * * A contracting officer may also request size 
recertification, as he or she deems appropriate, prior to the 120-day 
point in the fifth year of a long-term multiple award contract. * * *
* * * * *
    (h) Follow-on contracts. * * *


Sec.  121.406  [Amended]

0
5. Amend Sec.  121.406 by removing the word ``provided'' and adding in 
its place the word ``provide'' in paragraph (a) introductory text.

0
6. Amend Sec.  121.603 by adding paragraph (c)(3) to read as follows:


Sec.  121.603  How does SBA determine whether a Participant is small 
for a particular 8(a) BD subcontract?

* * * * *
    (c) * * *
    (3) Recertification is not required when the ownership of a concern 
that is at least 51% owned by an entity (i.e., tribe, Alaska Native 
Corporation, or Community Development Corporation) changes to or from a 
wholly-owned business concern of the same entity, as long as the 
ultimate owner remains that entity.
* * * * *

0
7. Amend Sec.  121.702 by revising paragraph (c)(6) to read as follows:


Sec.  121.702  What size and eligibility standards are applicable to 
the SBIR and STTR programs?

* * * * *
    (c) * * *
    (6) Size requirement for joint ventures. Two or more small business 
concerns may submit an application as a joint venture. The joint 
venture will qualify as small as long as each concern is small under 
the size standard for the SBIR program, found at Sec.  121.702(c), or 
the joint venture meets the exception at Sec.  121.103(h)(3)(ii) for 
two firms approved to be a mentor and prot[eacute]g[eacute] under SBA's 
All Small Mentor-Prot[eacute]g[eacute] Program.
* * * * *

0
8. Amend Sec.  121.1001 by revising paragraphs (a)(1)(iii), 
(a)(2)(iii), (a)(3)(iv), (a)(4)(iii), (a)(6)(iv), (a)(7)(iii), 
(a)(8)(iv), (a)(9)(iv), (b)(7), and (b)(12) to read as follows:


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

    (a) * * *
    (1) * * *
    (iii) The SBA Government Contracting Area Director having 
responsibility for the area in which the headquarters of the protested 
offeror is located, regardless of the location of a parent company or 
affiliates, the Director, Office of Government Contracting, or the 
Associate General Counsel for Procurement Law; and
* * * * *
    (2) * * *
    (iii) The SBA District Director, or designee, in either the 
district office serving the geographical area in which the procuring 
activity is located or the district office that services the apparent 
successful offeror, the Associate Administrator for Business 
Development, or the Associate General Counsel for Procurement Law.
    (3) * * *
    (iv) The responsible SBA Government Contracting Area Director or 
the Director, Office of Government Contracting, or the SBA's Associate 
General Counsel for Procurement Law; and
* * * * *
    (4) * * *
    (iii) The responsible SBA Government Contracting Area Director; the 
Director, Office of Government Contracting; the Associate 
Administrator, Investment Division, or the Associate General Counsel 
for Procurement Law.
* * * * *
    (6) * * *
    (iv) The SBA Director, Office of HUBZone, or designee, or the SBA 
Associate General Counsel for Procurement Law.
    (7) * * *
    (iii) The responsible SBA Government Contracting Area Director, the 
Director, Office of Government Contracting, the Associate Administrator 
for Business Development, or the Associate General Counsel for 
Procurement Law.
    (8) * * *
    (iv) The Director, Office of Government Contracting, or designee, 
or the Associate General Counsel for Procurement Law.
    (9) * * *
    (iv) The Director, Office of Government Contracting, or designee, 
or the Associate General Counsel for Procurement Law.
    (b) * * *
    (7) In connection with initial or continued eligibility for the 
WOSB program, the following may request a formal size determination:
    (i) The applicant or WOSB/EDWOSB; or
    (ii) The Director of Government Contracting or the Deputy Director, 
Program and Resource Management, for the Office of Government 
Contracting.
* * * * *
    (12) In connection with eligibility for the SDVO program, the 
following may request a formal size determination:
    (i) The SDVO business concern; or
    (ii) The Director of Government Contracting or designee.
* * * * *

0
9. Amend Sec.  121.1004 by revising paragraph (a)(2)(ii) and adding 
paragraph (a)(2)(iii) to read as follows:


Sec.  121.1004  What time limits apply to size protests?

    (a) * * *
    (2) * * *
    (ii) An order issued against a Multiple Award Contract if the 
contracting officer requested a size recertification in connection with 
that order; or
    (iii) Except for orders or Blanket Purchase Agreements issued under 
any

[[Page 66183]]

Federal Supply Schedule contract, an order or Blanket Purchase 
Agreement set-aside for small business (i.e., small business set-aside, 
8(a) small business, service-disabled veteran-owned small business, 
HUBZone small business, or women-owned small business) where the 
underlying Multiple Award Contract was awarded on an unrestricted 
basis.
* * * * *

0
10. Amend Sec.  121.1103 by revising paragraph (c)(1)(i) to read as 
follows:


Sec.  121.1103  What are the procedures for appealing a NAICS code or 
size standard designation?

* * * * *
    (c) * * *
    (1) * * *
    (i) Stay the date for the closing of receipt of offers;
* * * * *

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

0
11. The authority citation for part 124 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.


0
12. Amend Sec.  124.3 by adding in alphabetical order a definition for 
``Follow-on requirement or contract'' to read as follows:


Sec.  124.3  What definitions are important in the 8(a) BD program?

* * * * *
    Follow-on requirement or contract. The determination of whether a 
particular requirement or contract is a follow-on includes 
consideration of whether the scope has changed significantly, requiring 
meaningful different types of work or different capabilities; whether 
the magnitude or value of the requirement has changed by at least 25 
percent for equivalent periods of performance; and whether the end user 
of the requirement has changed. As a general guide, if the procurement 
satisfies at least one of these three conditions, it may be considered 
a new requirement. However, meeting any one of these conditions is not 
dispositive that a requirement is new. In particular, the 25 percent 
rule cannot be applied rigidly in all cases. Conversely, if the 
requirement satisfies none of these conditions, it is considered a 
follow-on procurement.
* * * * *

0
13. Amend Sec.  124.105 by revising paragraph (g) and paragraphs (i)(2) 
and (4) to read as follows:


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

* * * * *
    (g) Ownership of another current or former Participant by an 
immediate family member. (1) An individual may not use his or her 
disadvantaged status to qualify a concern if that individual has an 
immediate family member who is using or has used his or her 
disadvantaged status to qualify another concern for the 8(a) BD program 
and any of the following circumstances exist:
    (i) The concerns are connected by any common ownership or 
management, regardless of amount or position;
    (ii) The concerns have a contractual relationship that was not 
conducted at arm's length;
    (iii) The concerns share common facilities; or
    (iv) The concerns operate in the same primary NAICS code and the 
individual seeking to qualify the applicant concern does not have 
management or technical experience in that primary NAICS code.
    Example 1 to paragraph (g)(1). X applies to the 8(a) BD program. X 
is 95% owned by A and 5% by B, A's father and the majority owner in a 
former 8(a) Participant. Even though B has no involvement in X, X would 
be ineligible for the program.
    Example 2 to paragraph (g)(1). Y applies to the 8(a) BD program. C 
owns 100% of Y. However, D, C's sister and the majority owner in a 
former 8(a) Participant, is acting as a Vice President in Y. Y would be 
ineligible for the program.
    Example 3 to paragraph (g)(1). X seeks to apply to the 8(a) BD 
program with a primary NAICS code in plumbing. X is 100% owned by A. Z, 
a former 8(a) participant with a primary industry in general 
construction, is owned 100% by B, A's brother. For general construction 
jobs, Z has subcontracted plumbing work to X in the past at normal 
commercial rates. Subcontracting work at normal commercial rates would 
not preclude X from being admitted to the 8(a) BD program. X would be 
eligible for the program.
    (2) If the AA/BD approves an application under paragraph (g)(1) of 
this section, SBA will, as part of its annual review, assess whether 
the firm continues to operate independently of the other current or 
former 8(a) concern of an immediate family member. SBA may initiate 
proceedings to terminate a firm from further participation in the 8(a) 
BD program if it is apparent that there are connections between the two 
firms that were not disclosed to the AA/BD at the time of application 
or that came into existence after program admittance.
* * * * *
    (i) * * *
    (2) Prior approval by the AA/BD is not needed where all non-
disadvantaged individual (or entity) owners involved in the change of 
ownership own no more than a 20 percent interest in the concern both 
before and after the transaction, the transfer results from the death 
or incapacity due to a serious, long-term illness or injury of a 
disadvantaged principal, or the disadvantaged individual or entity in 
control of the Participant will increase the percentage of its 
ownership interest. The concern must notify SBA within 60 days of such 
a change in ownership.
    Example 1 to paragraph (i)(2). Disadvantaged individual A owns 90% 
of 8(a) Participant X; non-disadvantaged individual B owns 10% of X. In 
order to raise additional capital, X seeks to change its ownership 
structure such that A would own 80%, B would own 10% and C would own 
10%. X can accomplish this change in ownership without prior SBA 
approval. Non-disadvantaged owner B is not involved in the transaction 
and non-disadvantaged individual C owns less than 20% of X both before 
and after the transaction.
    Example 2 to paragraph (i)(2). Disadvantaged individual C owns 60% 
of 8(a) Participant Y; non-disadvantaged individual D owns 30% of Y; 
and non-disadvantaged individual E owns 10% of Y. C seeks to transfer 
5% of Y to E. Prior SBA approval is not needed. Although non-
disadvantaged individual D owns more than 20% of Y, D is not involved 
in the transfer. Because the only non-disadvantaged individual involved 
in the transfer, E, owns less than 20% of Y both before and after the 
transaction, prior approval is not needed.
    Example 3 to paragraph (i)(2). Disadvantaged individual A owns 85% 
of 8(a) Participant X; non-disadvantaged individual B owns 15% of X. A 
seeks to transfer 15% of X to B. Prior SBA approval is needed. Although 
B, the non-disadvantaged owner of X, owns less than 20% of X prior to 
the transaction, prior approval is needed because B would own more than 
20% after the transaction.
    Example 4 to paragraph (i)(2). ANC A owns 60% of 8(a) Participant 
X; non-disadvantaged individual B owns 40% of X. B seeks to transfer 
15%

[[Page 66184]]

to A. Prior SBA approval is not needed. Although a non-disadvantaged 
individual who is involved in the transaction, B, owns more than 20% of 
X both before and after the transaction, SBA approval is not needed 
because the change only increases the percentage of A's ownership 
interest in X.
* * * * *
    (4) Where a Participant requests a change of ownership or business 
structure, and proceeds with the change prior to receiving SBA approval 
(or where a change of ownership results from the death or incapacity of 
a disadvantaged individual for which a request prior to the change in 
ownership could not occur), SBA may suspend the Participant from 
program benefits pending resolution of the request. If the change is 
approved, the length of the suspension will be restored to the 
Participant's program term in the case of death or incapacity, or if 
the firm requested prior approval and waited 60 days for SBA approval.
* * * * *

0
14. Amend Sec.  124.109 by:
0
a. Revising the section heading;
0
b. Adding paragraph (a)(7);
0
c. Revising paragraph (c)(3)(ii);
0
d. Adding paragraphs (c)(3)(iv) and (c)(4)(iii)(C); and
0
e. Revising paragraphs (c)(6)(iii) and (c)(7)(ii).
    The revisions and additions to read as follows:


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

    (a) * * *
    (7) Notwithstanding Sec.  124.105(i), where an ANC merely 
reorganizes its ownership of a Participant in the 8(a) BD program by 
inserting or removing a wholly-owned business entity between the ANC 
and the Participant, the Participant need not request a change of 
ownership from SBA. The Participant must, however, notify SBA of the 
change within 60 days of the transfer.
* * * * *
    (c) * * *
    (3) * * *
    (ii) A Tribe may not own 51% or more of another firm which, either 
at the time of application or within the previous two years, has been 
operating in the 8(a) program under the same primary NAICS code as the 
applicant. For purposes of this paragraph, the same primary NAICS code 
means the six-digit NAICS code having the same corresponding size 
standard. A Tribe may, however, own a Participant or other applicant 
that conducts or will conduct secondary business in the 8(a) BD program 
under the NAICS code which is the primary NAICS code of the applicant 
concern.
    (A) Once an applicant is admitted to the 8(a) BD program, it may 
not receive an 8(a) sole source contract that is a follow-on contract 
to an 8(a) contract that was performed immediately previously by 
another Participant (or former Participant) owned by the same Tribe. 
However, a tribally-owned concern may receive a follow-on sole source 
8(a) contract to a requirement that it performed through the 8(a) 
program (either as a competitive or sole source contract).
    (B) If the primary NAICS code of a tribally-owned Participant is 
changed pursuant to Sec.  124.112(e), the tribe can submit an 
application and qualify another firm owned by the tribe for 
participation in the 8(a) BD program under the NAICS code that was the 
previous primary NAICS code of the Participant whose primary NAICS code 
was changed.
    Example 1 to paragraph (c)(3)(ii)(B). Tribe X owns 100% of 8(a) 
Participant A. A entered the 8(a) BD program with a primary NAICS code 
of 236115, New Single-Family Housing Construction (except For-Sale 
Builders). After four years in the program, SBA noticed that the vast 
majority of A's revenues were in NAICS Code 237310, Highway, Street, 
and Bridge Construction, and notified A that SBA intended to change its 
primary NAICS code pursuant to Sec.  124.112(e). A agreed to change its 
primary NAICS Code to 237310. Once the change is finalized, Tribe X can 
immediately submit a new application to qualify another firm that it 
owns for participation in the 8(a) BD program with a primary NAICS Code 
of 236115.
* * * * *
    (iv) Notwithstanding Sec.  124.105(i), where a Tribe merely 
reorganizes its ownership of a Participant in the 8(a) BD program by 
inserting or removing a wholly-owned business entity between the Tribe 
and the Participant, the Participant need not request a change of 
ownership from SBA. The Participant must, however, notify SBA of the 
change within 30 days of the transfer.
    (4) * * *
    (iii) * * *
    (C) Because an individual may be responsible for the management and 
daily business operations of two tribally-owned concerns, the full-time 
devotion requirement does not apply to tribally-owned applicants and 
Participants.
* * * * *
    (6) * * *
    (iii) The Tribe, a tribally-owned economic development corporation, 
or other relevant tribally-owned holding company vested with the 
authority to oversee tribal economic development or business ventures 
has made a firm written commitment to support the operations of the 
applicant concern and it has the financial ability to do so.
    (7) * * *
    (ii) The officers, directors, and all shareholders owning an 
interest of 20% or more (other than the tribe itself) of a tribally-
owned applicant or Participant must demonstrate good character (see 
Sec.  124.108(a)) and cannot fail to pay significant Federal 
obligations owed to the Federal Government (see Sec.  124.108(e)).

0
15. Amend Sec.  124.110 by revising the section heading and paragraph 
(e) to read as follows:


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

* * * * *
    (e) An NHO cannot own 51% or more of another firm which, either at 
the time of application or within the previous two years, has been 
operating in the 8(a) program under the same primary NAICS code as the 
applicant. For purposes of this paragraph, the same primary NAICS code 
means the six-digit NAICS code having the same corresponding size 
standard. An NHO may, however, own a Participant or an applicant that 
conducts or will conduct secondary business in the 8(a) BD program 
under the same NAICS code that a current Participant owned by the NHO 
operates in the 8(a) BD program as its primary NAICS code.
    (1) Once an applicant is admitted to the 8(a) BD program, it may 
not receive an 8(a) sole source contract that is a follow-on contract 
to an 8(a) contract that was performed immediately previously by 
another Participant (or former Participant) owned by the same NHO. 
However, an NHO-owned concern may receive a follow-on sole source 8(a) 
contract to a requirement that it performed through the 8(a) program 
(either as a competitive or sole source contract).
    (2) If the primary NAICS code of a Participant owned by an NHO is 
changed pursuant to Sec.  124.112(e), the NHO can submit an application 
and qualify another firm owned by the NHO for participation in the 8(a) 
BD program under the NAICS code that was the previous primary NAICS 
code of the Participant whose primary NAICS code was changed.
* * * * *

0
16. Amend Sec.  124.111 by revising the section heading, adding 
paragraph

[[Page 66185]]

(c)(3), and revising paragraph (d) to read as follows:


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

* * * * *
    (c) * * *
    (3) Notwithstanding Sec.  124.105(i), where a CDC merely 
reorganizes its ownership of a Participant in the 8(a) BD program by 
inserting or removing a wholly-owned business entity between the CDC 
and the Participant, the Participant need not request a change of 
ownership from SBA. The Participant must, however, notify SBA of the 
change within 30 days of the transfer.
    (d) A CDC cannot own 51% or more of another firm which, either at 
the time of application or within the previous two years, has been 
operating in the 8(a) program under the same primary NAICS code as the 
applicant. For purposes of this paragraph, the same primary NAICS code 
means the six-digit NAICS code having the same corresponding size 
standard. A CDC may, however, own a Participant or an applicant that 
conducts or will conduct secondary business in the 8(a) BD program 
under the same NAICS code that a current Participant owned by the CDC 
operates in the 8(a) BD program as its primary SIC code.
    (1) Once an applicant is admitted to the 8(a) BD program, it may 
not receive an 8(a) sole source contract that is a follow-on contract 
to an 8(a) contract that was performed immediately previously by 
another Participant (or former Participant) owned by the same CDC. 
However, a CDC-owned concern may receive a follow-on sole source 8(a) 
contract to a requirement that it performed through the 8(a) program.
    (2) If the primary NAICS code of a Participant owned by a CDC is 
changed pursuant to Sec.  124.112(e), the CDC can submit an application 
and qualify another firm owned by the CDC for participation in the 8(a) 
BD program under the NAICS code that was the previous primary NAICS 
code of the Participant whose primary NAICS code was changed.
* * * * *

0
17. Amend Sec.  124.112 by revising paragraph (d)(5), redesignating 
paragraph (e)(2)(iv) as paragraph (e)(2)(v), and adding a new paragraph 
(e)(2)(iv).
    The revision and addition read as follows:


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

* * * * *
    (d) * * *
    (5) The excessive withdrawal analysis does not apply to 
Participants owned by Tribes, ANCs, NHOs, or CDCs where a withdrawal is 
made for the benefit of the Tribe, ANC, NHO, CDC or the native or 
shareholder community. It does, however, apply to withdrawals from a 
firm owned by a Tribe, ANC, NHO, or CDC that do not benefit the 
relevant entity or community. Thus, if funds or assets are withdrawn 
from an entity-owned Participant for the benefit of a non-disadvantaged 
manager or owner that exceed the withdrawal thresholds, SBA may find 
that withdrawal to be excessive. However, a non-disadvantaged minority 
owner may receive a payout in excess of the excessive withdrawal amount 
if it is a pro rata distribution paid to all shareholders (i.e., the 
only way to increase the distribution to the Tribe, ANC, NHO or CDC is 
to increase the distribution to all shareholders) and it does not 
adversely affect the business development of the Participant.
    Example 1 to paragraph (d)(5). Tribally-owned Participant X pays 
$1,000,000 to a non-disadvantaged manager. If that was not part of a 
pro rata distribution to all shareholders, that would be deemed an 
excessive withdrawal.
    Example 2 to paragraph (d)(5). ANC-owned Participant Y seeks to 
distribute $550,000 to the ANC and $450,000 to non-disadvantaged 
individual A based on their 55%/45% ownership interests. Because the 
distribution is based on the pro rata share of ownership, this would 
not be prohibited as an excessive withdrawal unless SBA determined that 
Y would be adversely affected.
    (e) * * *
    (2) * * *
    (iv) A Participant may appeal a district office's decision to 
change its primary NAICS code to SBA's Associate General Counsel for 
Procurement Law (AGC/PL) within 10 business days of receiving the 
district office's final determination. The AGC/PL will examine the 
record, including all information submitted by the Participant in 
support of its position as to why the primary NAICS code contained in 
its business plan continues to be appropriate despite performing more 
work in another NAICS code, and issue a final agency decision within 15 
business days of receiving the appeal.
* * * * *

0
18. Amend Sec.  124.203 by revising the first two sentences and adding 
a new third sentence to read as follows:


Sec.  124.203  What must a concern submit to apply to the 8(a) BD 
program?

    Each 8(a) BD applicant concern must submit information and 
supporting documents required by SBA when applying for admission to the 
8(a) BD program. This information may include, but not be limited to, 
financial data and statements, copies of filed Federal personal and 
business tax returns, individual and business bank statements, personal 
history statements, and any additional information or documents SBA 
deems necessary to determine eligibility. Each individual claiming 
disadvantaged status must also authorize SBA to request and receive tax 
return information directly from the Internal Revenue Service. * * *

0
19. Amend Sec.  124.204 by adding a sentence to the end of paragraph 
(a) to read as follows:


Sec.  124.204  How does SBA process applications for 8(a) BD program 
admission?

    (a) * * * Where during its screening or review SBA requests 
clarifying, revised or other information from the applicant, SBA's 
processing time for the application will be suspended pending the 
receipt of such information.
* * * * *

0
20. Revise Sec.  124.205 to read as follows:


Sec.  124.205  Can an applicant ask SBA to reconsider SBA's initial 
decision to decline its application?

    There is no reconsideration process for applications that have been 
declined. An applicant which has been declined may file an appeal with 
SBA's Office of Hearings and Appeals pursuant to Sec.  124.206, or 
reapply to the program pursuant to Sec.  124.207.


Sec.  124.206  [Amended]

0
21. Revise Sec.  124.206 by removing and reserving paragraph (b) and 
redesignating paragraphs (c) and (d) as paragraphs (b) and (c), 
respectively.

0
22. Revise Sec.  124.207 to read as follows:


Sec.  124.207  Can an applicant reapply for admission to the 8(a) BD 
program?

    A concern which has been declined for 8(a) BD program participation 
may submit a new application for admission to the program at any time 
after 90 days from the date of the Agency's final decision to decline. 
However, a concern that has been declined three times within 18 months 
of the date of the first

[[Page 66186]]

final Agency decision finding the concern ineligible cannot submit a 
new application for admission to the program until 12 months from the 
date of the third final Agency decision to decline.


Sec.  124.301   [Redesignated as Sec.  124.300]

0
23. Redesignate Sec.  124.301 as Sec.  124.300.

0
24. Add new Sec.  124.301 to read as follows:


Sec.  124.301  Voluntary withdrawal or voluntary early graduation.

    (a) A Participant may voluntarily withdraw from the 8(a) BD program 
at any time prior to the expiration of its program term. Where a 
Participant has substantially achieved the goals and objectives set 
forth in its business plan, it may elect to voluntarily early graduate 
from the 8(a) BD program.
    (b) To initiate withdrawal or early graduation from the 8(a) BD 
program, a Participant must notify its servicing SBA district office of 
its intent to do so in writing. Once the SBA servicing district office 
processes the request and the District Director recognizes the 
withdrawal or early graduation, the Participant is no longer eligible 
to receive any 8(a) BD program assistance.

0
25. Amend Sec.  124.304(d) by revising the paragraph heading and adding 
a sentence at the end of paragraph (d) to read as follows:


Sec.  124.304  What are the procedures for early graduation and 
termination?

* * * * *
    (d) Notice requirements and effect of decision. * * * Once the AA/
BD issues a decision to early graduate or terminate a Participant, the 
Participant will be immediately ineligible to receive further program 
assistance. If OHA overrules the AA/BD's decision on appeal, the length 
of time between the AA/BD's decision and OHA's decision on appeal will 
be added to the Participant's program term.
* * * * *

0
26. Amend Sec.  124.305 by:
0
a. Revising paragraph (a);
0
b. Revising the introductory text of paragraph (d);
0
c. Revising paragraph (d)(3);
0
d. Revising the introductory text of paragraph (h)(1);
0
d. Revising paragraphs (h)(1)(ii) and (iv);
0
e. Adding paragraph (h)(1)(v);
0
f. Redesignating paragraph (h)(6) as (h)(7); and
0
g. Adding a new paragraph (h)(6).
    The revisions and additions read as follows:


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

    (a) Except as set forth in paragraph (h) of this section, the AA/BD 
may suspend a Participant when he or she determines that suspension is 
needed to protect the interests of the Federal Government, such as 
where information showing a clear lack of program eligibility or 
conduct indicating a lack of business integrity exists, including where 
the concern or one of its principals submitted false statements to the 
Federal Government. SBA will suspend a Participant where SBA determines 
that the Participant submitted false information in its 8(a) BD 
application.
* * * * *
    (d) SBA has the burden of showing that adequate evidence exists 
that protection of the Federal Government's interest requires 
suspension.
* * * * *
    (3) OHA's review is limited to determining whether the Government's 
interests need to be protected, unless a termination action has also 
been initiated and the Administrative Law Judge consolidates the 
suspension and termination proceedings. In such a case, OHA will also 
consider the merits of the termination action.
* * * * *
    (h)(1) Notwithstanding paragraph (a) of this section, SBA will 
suspend a Participant from receiving further 8(a) BD program benefits 
where:
* * * * *
    (ii) A disadvantaged individual who is involved in controlling the 
day-to-day management and control of the Participant is called to 
active military duty by the United States, his or her participation in 
the firm's management and daily business operations is critical to the 
firm's continued eligibility, the Participant does not designate 
another disadvantaged individual to control the concern during the 
call-up period, and the Participant requests to be suspended during the 
call-up period;
* * * * *
    (iv) Federal appropriations for one or more Federal departments or 
agencies have lapsed, a Participant would lose an 8(a) sole source 
award due to the lapse in appropriations (e.g., SBA has previously 
accepted an offer for a sole source 8(a) award on behalf of the 
Participant or an agency could not offer a sole source 8(a) requirement 
to the program on behalf of the Participant due to the lapse in 
appropriations, and the Participant's program term would end during the 
lapse), and the Participant elects to suspend its participation in the 
8(a) BD program during the lapse in Federal appropriations; or
    (v) A Participant has not submitted a business plan to its SBA 
servicing office within 60 days after program admission.
* * * * *
    (6) Where a Participant is suspended pursuant to paragraph 
(h)(1)(iii) or paragraph (h)(1)(v) of this section, the length of the 
suspension will be added to the concern's program term.
* * * * *

0
27. Amend Sec.  124.402 by revising paragraph (b) to read as follows:


Sec.  124.402  How does a Participant develop a business plan?

* * * * *
    (b) Submission of initial business plan. Each Participant must 
submit a business plan to its SBA servicing office as soon as possible 
after program admission. SBA will suspend a Participant from receiving 
8(a) BD program benefits, including 8(a) contracts, if it has not 
submitted its business plan to the servicing district office within 60 
days after program admission.
* * * * *

0
28. Amend Sec.  124.501 by redesignating paragraphs (g) through (i) as 
paragraphs (h) through (j), respectively, by adding new paragraphs (g) 
and (k), and by revising newly redesignated paragraph (h) to read as 
follows:


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

* * * * *
    (g) Before a Participant may be awarded either a sole source or 
competitive 8(a) contract, SBA must determine that the Participant is 
eligible for award. SBA will determine eligibility at the time of its 
acceptance of the underlying requirement into the 8(a) BD program for a 
sole source 8(a) contract, and after the apparent successful offeror is 
identified for a competitive 8(a) contract. Eligibility is based on 
8(a) BD program criteria, including whether the Participant:
    (1) Qualifies as a small business under the size standard 
corresponding to the NAICS code assigned to the requirement;
    (2) Is in compliance with any applicable competitive business mix 
targets established or remedial measure imposed by Sec.  124.509 that 
does not include the denial of future sole source 8(a) contracts;
    (3) Complies with the continued eligibility reporting requirements 
set forth in Sec.  124.112(b);
    (4) Has a bona fide place of business in the applicable geographic 
area if the procurement is for construction;

[[Page 66187]]

    (5) Has not received 8(a) contracts in excess of the dollar limits 
set forth in Sec.  124.519 for a sole source 8(a) procurement;
    (6) Has complied with the provisions of Sec.  124.513(c) and (d) if 
it is seeking a sole source 8(a) award through a joint venture; and
    (7) Can demonstrate that it, together with any similarly situated 
entity, will meet the limitations on subcontracting provisions set 
forth in Sec.  124.510.
    (h) For a sole source 8(a) procurement, a concern must be a current 
Participant in the 8(a) BD program at the time of award. If a firm's 
term of participation in the 8(a) BD program ends (or the firm 
otherwise exits the program) before a sole source 8(a) contract can be 
awarded, award cannot be made to that firm. This applies equally to 
sole source orders issued under multiple award contracts. For a 
competitive 8(a) procurement, a firm must be a current Participant 
eligible for award of the contract on the initial date specified for 
receipt of offers contained in the solicitation as provided in Sec.  
124.507(d).
* * * * *
    (k) In order to be awarded a sole source or competitive 8(a) 
construction contract, a Participant must have a bona fide place of 
business within the applicable geographic location determined by SBA. 
This will generally be the geographic area serviced by the SBA district 
office, a Metropolitan Statistical Area (MSA), or a contiguous county 
to (whether in the same or different state) where the work will be 
performed. SBA may determine that a Participant with a bona fide place 
of business anywhere within the state (if the state is serviced by more 
than one SBA district office), one or more other SBA district offices 
(in the same or another state), or another nearby area is eligible for 
the award of an 8(a) construction contract.
    (1) A Participant may have bona fide places of business in more 
than one location.
    (2) In order for a Participant to establish a bona fide place of 
business in a particular geographic location, the SBA district office 
serving the geographic area of that location must determine if the 
location in fact qualifies as a bona fide place of business under SBA's 
requirements.
    (i) A Participant must submit a request for a bona fide business 
determination to the SBA district office servicing it. Such request 
may, but need not, relate to a specific 8(a) requirement. In order to 
apply to a specific competitive 8(a) solicitation, such request must be 
submitted at least 20 working days before initial offers that include 
price are due.
    (ii) The servicing district office will immediately forward the 
request to the SBA district office serving the geographic area of the 
particular location for processing. Within 10 working days of receipt 
of the submission, the reviewing district office will conduct a site 
visit, if practicable. If not practicable, the reviewing district 
office will contact the Participant within such 10-day period to inform 
the Participant that the reviewing office has received the request and 
may ask for additional documentation to support the request.
    (iii) In connection with a specific competitive solicitation, the 
reviewing office will make a determination whether or not the 
Participant has a bona fide place of business in its geographical area 
within 5 working days of a site visit or within 15 working days of its 
receipt of the request from the servicing district office if a site 
visit is not practical in that timeframe. If the request is not related 
to a specific procurement, the reviewing office will make a 
determination within 30 working days of its receipt of the request from 
the servicing district office, if practicable.
    (A) Where SBA does not provide a determination within the 
identified time limit, a Participant may presume that SBA has approved 
its request for a bona fide place of business and submit an offer for a 
competitive 8(a) procurement that requires a bona fide place of 
business in the requested area.
    (B) In order to be eligible for award, SBA must approve the bona 
fide place of business prior to award. If SBA has not provided a 
determination prior to the time that a Participant is identified as the 
apparent successful offeror, SBA will make the bona fide place of 
business determination as part of the eligibility determination set 
forth in paragraph (g)(4) of this section within 5 days of receiving a 
procuring activity's request for an eligibility determination, unless 
the procuring activity grants additional time for review. If, due to 
deficiencies in a Participant's request, SBA cannot make a 
determination, and the procuring activity does not grant additional 
time for review, SBA will be unable to verify the Participant's 
eligibility for award and the Participant will be ineligible for award.
    (3) The effective date of a bona fide place of business is the date 
that the evidence (paperwork) shows that the business in fact regularly 
maintained its business at the new geographic location.
    (4) Except as provided in paragraph (k)(2)(iii) of this section, in 
order for a Participant to be eligible to submit an offer for an 8(a) 
procurement limited to a specific geographic area, it must receive from 
SBA a determination that it has a bona fide place of business within 
that area prior to submitting its offer for the procurement.
    (5) Once a Participant has established a bona fide place of 
business, the Participant may change the location of the recognized 
office without prior SBA approval. However, the Participant must notify 
SBA and provide documentation demonstrating an office at that new 
location within 30 days after the move. Failure to timely notify SBA 
will render the Participant ineligible for new 8(a) construction 
procurements limited to that geographic area.

0
29. Amend Sec.  124.503 by:
0
a. Removing the phrase ``in Sec.  124.507(b)(2)'' and adding in its 
place the phrase ``in Sec.  124.501(g)'' in paragraph (a)(1);
0
b. Redesignating paragraphs (e) through (j) as paragraphs (f) through 
(k), respectively;
0
c. Adding a new paragraph (e);
0
d. Revising newly redesignated paragraph (g);
0
e. Revising the introductory text of the newly redesignated paragraph 
(h);
0
f. Adding the phrase ``or BPA'' after the phrase ``BOA'', wherever it 
appears, in the newly redesignated paragraphs (h)(1) through (4);
0
g. Revising newly redesignated paragraph (i)(1)(iii);
0
h. Adding a sentence at the end of newly redesignated paragraph 
(i)(1)(iv); and
0
i. Revising newly redesignated paragraphs (i)(2)(ii) and (i)(2)(iv).
    The additions and revisions read as follows:


Sec.  124.503  How does SBA accept a procurement for award through the 
8(a) BD program?

* * * * *
    (e) Withdrawal/substitution of offered requirement or Participant. 
After SBA has accepted a requirement for award as a sole source 8(a) 
contract on behalf of a specific Participant (whether nominated by the 
procuring agency or identified by SBA for an open requirement), if the 
procuring agency believes that the identified Participant is not a good 
match for the procurement--including for such reasons as the procuring 
agency finding the Participant non-responsible or the negotiations 
between the procuring agency and the Participant otherwise failing--the 
procuring agency may seek to substitute another Participant for the 
originally

[[Page 66188]]

identified Participant. The procuring agency must inform SBA of its 
concerns regarding the originally identified Participant and identify 
whether it believes another Participant could fulfill its needs.
    (1) If the procuring agency and SBA agree that another Participant 
can fulfill its needs, the procuring agency will withdraw the original 
offering and reoffer the requirement on behalf of another 8(a) 
Participant. SBA will then accept the requirement on behalf of the 
newly identified Participant and authorize the procuring agency to 
negotiate directly with that Participant.
    (2) If the procuring agency and SBA agree that another Participant 
cannot fulfill its needs, the procuring agency will withdraw the 
original offering letter and fulfill its needs outside the 8(a) BD 
program.
    (3) If the procuring agency believes that another Participant 
cannot fulfill its needs, but SBA does not agree, SBA may appeal that 
decision to the head of the procuring agency pursuant to Sec.  
124.505(a)(2).
* * * * *
    (g) Repetitive acquisitions. A procuring activity contracting 
officer must submit a new offering letter to SBA where he or she 
intends to award a follow-on or repetitive contract as an 8(a) award.
    (1) This enables SBA to determine:
    (i) Whether the requirement should be a competitive 8(a) award;
    (ii) A nominated firm's eligibility, whether or not it is the same 
firm that performed the previous contract;
    (iii) The affect that contract award would have on the equitable 
distribution of 8(a) contracts; and
    (iv) Whether the requirement should continue under the 8(a) BD 
program.
    (2) Where a procuring agency seeks to reprocure a follow-on 
requirement through an 8(a) contracting vehicle which is not available 
to all 8(a) BD Program Participants (e.g., a multiple award or 
Governmentwide acquisition contract that is itself an 8(a) contract), 
and the previous/current 8(a) award was not so limited, SBA will 
consider the business development purposes of the program in 
determining how to accept the requirement.
* * * * *
    (h) Basic Ordering Agreements (BOAs) and Blanket Purchase 
Agreements (BPAs). Neither a Basic Ordering Agreement (BOA) nor a 
Blanket Purchase Agreement (BPA) is a contract under the FAR. See 48 
CFR 13.303 and 48 CFR 16.703(a). Each order to be issued under a BOA or 
BPA is an individual contract. As such, the procuring activity must 
offer, and SBA must accept, each order under a BOA or BPA in addition 
to offering and accepting the BOA or BPA itself.
* * * * *
    (i)
    (1) * * *
    (iii) A concern awarded a task or delivery order contract or 
Multiple Award Contract that was set-aside exclusively for 8(a) Program 
Participants, partially set-aside for 8(a) Program Participants or 
reserved solely for 8(a) Program Participants may generally continue to 
receive new orders even if it has grown to be other than small or has 
exited the 8(a) BD program, and agencies may continue to take SDB 
credit toward their prime contracting goals for orders awarded to 8(a) 
Participants. A procuring agency may seek to award an order only to a 
concern that is a current Participant in the 8(a) program at the time 
of the order. In such a case, the procuring agency will announce its 
intent to limit the award of the order to current 8(a) Participants and 
verify a contract holder's 8(a) BD status prior to issuing the order. 
Where a procuring agency seeks to award an order to a concern that is a 
current 8(a) Participant, a concern must be an eligible Participant in 
accordance with Sec.  124.501(g) as of the initial date specified for 
the receipt of offers contained in the order solicitation, or at the 
date of award of the order if there is no solicitation.
    (iv) * * * To be eligible for the award of a sole source order, a 
concern must be a current Participant in the 8(a) BD program at the 
time of award.
    (2) * * *
    (ii) The order must be competed exclusively among only the 8(a) 
awardees of the underlying multiple award contract;
* * * * *
    (iv) SBA must verify that a concern is an eligible 8(a) Participant 
in accordance with Sec.  124.501(g) as of the initial date specified 
for the receipt of offers contained in the order solicitation, or at 
the date of award of the order if there is no solicitation. If a 
concern has exited the 8(a) BD program prior to that date, it will be 
ineligible for the award of the order.
* * * * *

0
30. Amend Sec.  124.504 by:
0
a. Revising the section heading and paragraph (b);
0
b. Removing the term ``Simplified Acquisition Procedures'' and adding 
in its place the phrase ``the simplified acquisition threshold (as 
defined in the FAR at 48 CFR 2.101)'' in paragraph (c) introductory 
text;
0
c. Removing the word ``will'' and adding in its place the word ``may'' 
in paragraph (c)(1)(ii)(C);
0
d. Adding a paragraph (c)(4); and
0
e. Revising the paragraph heading for paragraph (d) and paragraphs 
(d)(1) introductory text and (d)(4).
    The revisions and addition read as follows:


Sec.  124.504  What circumstances limit SBA's ability to accept a 
procurement for award as an 8(a) contract, and when can a requirement 
be released from the 8(a) BD program?

* * * * *
    (b) Competition prior to offer and acceptance. The procuring 
activity competed a requirement among 8(a) Participants prior to 
offering the requirement to SBA and did not clearly evidence its intent 
to conduct an 8(a) competitive acquisition.
* * * * *
    (c) * * *
    (4) SBA does not typically consider the value of a bridge contract 
when determining whether an offered procurement is a new requirement. A 
bridge contract is meant to be a temporary stop-gap measure intended to 
ensure the continuation of service while an agency finalizes a long-
term procurement approach.
    (d) Release for non-8(a) or limited 8(a) competition. (1) Except as 
set forth in paragraph (d)(4) of this section, where a procurement is 
awarded as an 8(a) contract, its follow-on requirement must remain in 
the 8(a) BD program unless SBA agrees to release it for non-8(a) 
competition. Where a procurement will contain work currently performed 
under one or more 8(a) contracts, and the procuring agency determines 
that the procurement should not be considered a follow-on requirement 
to the 8(a) contract(s), the procuring agency must notify SBA that it 
intends to procure such specified work outside the 8(a) BD program 
through a requirement that it considers to be new. Additionally, a 
procuring agency must notify SBA where it seeks to reprocure a follow-
on requirement through a pre-existing limited contracting vehicle which 
is not available to all 8(a) BD Program Participants and the previous/
current 8(a) award was not so limited. If a procuring agency would like 
to fulfill a follow-on requirement outside of the 8(a) BD program, it 
must make a written request to and receive the concurrence of the AA/BD 
to do so. In determining whether to release a requirement from the 8(a) 
BD program, SBA will consider:
* * * * *
    (4) The requirement that a follow-on procurement must be released 
from the

[[Page 66189]]

8(a) BD program in order for it to be fulfilled outside the 8(a) BD 
program does not apply:
    (i) Where previous orders were offered to and accepted for the 8(a) 
BD program pursuant to Sec.  124.503(i)(2); or
    (ii) Where a procuring agency will use a mandatory source (see FAR 
Subparts 8.6 and 8.7(48 CFR subparts 8.6 and 8.7)). In such a case, the 
procuring agency should notify SBA at least 30 days prior to the end of 
the contract or order.

0
31. Amend Sec.  124.505 by:
0
a. Removing the word ``and'' at the end of paragraph (a)(2);
0
b. Redesignating paragraph (a)(3) as paragraph (a)(4); and
0
c. Adding new paragraph (a)(3).
    The addition reads as follows:


Sec.  124.505  When will SBA appeal the terms or conditions of a 
particular 8(a) contract or a procuring activity decision not to use 
the 8(a) BD program?

    (a) * * *
    (3) A decision by a contracting officer that a particular 
procurement is a new requirement that is not subject to the release 
requirements set forth in Sec.  124.504(d); and
* * * * *

0
32. Amend Sec.  124.507 by:
0
a. Revising paragraph (b)(2);
0
b. Removing paragraph (b)(3);
0
c. Redesignating paragraphs (b)(4) through (6) as paragraphs (b)(3) 
through (5), respectively;
0
d. Removing paragraph (c)(1);
0
e. Redesignating paragraphs (c)(2) and (3) as paragraphs (c)(1) and 
(2), respectively;
0
f. Revising newly redesignated paragraph (c)(1); and
0
g. Adding a new paragraph (d)(3).
    The revisions and addition read as follows:


Sec.  124.507  What procedures apply to competitive 8(a) procurements?

* * * * *
    (b) * * *
    (2) SBA determines a Participant's eligibility pursuant to Sec.  
124.501(g).
* * * * *
    (c) * * *
    (1) Construction competitions. Based on its knowledge of the 8(a) 
BD portfolio, SBA will determine whether a competitive 8(a) 
construction requirement should be competed among only those 
Participants having a bona fide place of business within the 
geographical boundaries of one or more SBA district offices, within a 
state, or within the state and nearby areas. Only those Participants 
with bona fide places of business within the appropriate geographical 
boundaries are eligible to submit offers.
* * * * *
    (d) * * *
    (3) For a two-step design-build procurement to be awarded through 
the 8(a) BD program, a firm must be a current Participant eligible for 
award of the contract on the initial date specified for receipt of 
phase one offers contained in the contract solicitation.

0
33. Amend Sec.  124.509 by:
0
a. Removing the word ``maximum'' and adding in its place the words 
``good faith'' in paragraph (a)(1);
0
b. Removing the words ``substantial and sustained'' and adding in their 
place the words ``good faith'' in paragraph (a)(2);
0
c. Revising the table in paragraph (b)(2);
0
d. Revising paragraph (d); and
0
e. Revising paragraph (e).
    The revisions read as follows:


Sec.  124.509  What are non-8(a) business activity targets?

* * * * *
    (b) * * *

                                            Table 1 to Paragraph (b)
----------------------------------------------------------------------------------------------------------------
                                                          Non-8(a) business activity targets  (required minimum
      Participants year in the transitional stage          non-8(a) revenue as a percentage of total revenue)
----------------------------------------------------------------------------------------------------------------
1                                                                                                             15
2                                                                                                             25
3                                                                                                             30
4                                                                                                             40
5                                                                                                             50
----------------------------------------------------------------------------------------------------------------

* * * * *
    (d) Consequences of not meeting competitive business mix targets. 
(1) Beginning at the end of the first year in the transitional stage 
(the fifth year of participation in the 8(a) BD program), any firm that 
does not meet its applicable competitive business mix target for the 
just completed program year must demonstrate to SBA the specific 
efforts it made during that year to obtain non-8(a) revenue.
    (2) If SBA determines that an 8(a) Participant has failed to meet 
its applicable competitive business mix target during any program year 
in the transitional stage of program participation, SBA will increase 
its monitoring of the Participant's contracting activity during the 
ensuing program year.
    (3) As a condition of eligibility for new 8(a) sole source 
contracts, SBA may require a Participant that fails to achieve the non-
8(a) business activity targets to take one or more specific actions. 
These include requiring the Participant to obtain management 
assistance, technical assistance, and/or counseling from an SBA 
resource partner or otherwise, and/or attend seminars relating to 
management assistance, business development, financing, marketing, 
accounting, or proposal preparation. Where any such condition is 
imposed, SBA will not accept a sole source requirement offered to the 
8(a) BD program on behalf of the Participant until the Participant 
demonstrates to SBA that the condition has been met.
    (4) If SBA determines that a Participant has not made good faith 
efforts to meet its applicable non-8(a) business activity target, the 
Participant will be ineligible for sole source 8(a) contracts in the 
current program year. SBA will notify the Participant in writing that 
the Participant will not be eligible for further 8(a) sole source 
contract awards until it has demonstrated to SBA that it has complied 
with its non-8(a) business activity requirements as described in 
paragraphs (d)(4)(i) and (ii) of this section. In order for a 
Participant to come into compliance with the non-8(a) business activity 
target and be eligible for further 8(a) sole source contracts, it may:
    (i) Wait until the end of the current program year and demonstrate 
to SBA as part of the normal annual review process that it has met the 
revised non-8(a) business activity target; or
    (ii) At its option, submit information regarding its non-8(a) 
revenue to SBA quarterly throughout the current program year in an 
attempt to come into compliance before the end of the current

[[Page 66190]]

program year. If the Participant satisfies the requirements of 
paragraphs (d)(2)(ii)(A) or (B) of this section, SBA will reinstate the 
Participant's ability to get sole source 8(a) contracts prior to its 
annual review.
    (A) To qualify for reinstatement during the first six months of the 
current program year (i.e., at either the first or second quarterly 
review), the Participant must demonstrate that it has received non-8(a) 
revenue and new non-8(a) contract awards that are equal to or greater 
than the dollar amount by which it failed to meet its non-8(a) business 
activity target for the just completed program year. For this purpose, 
SBA will not count options on existing non-8(a) contracts in 
determining whether a Participant has received new non-8(a) contract 
awards.
    (B) To qualify for reinstatement during the last six months of the 
current program year (i.e., at either the nine-month or one year 
review), the Participant must demonstrate that it has achieved its non-
8(a) business activity target as of that point in the current program 
year.
    Example 1 to paragraph (d)(4). Firm A had $10 million in total 
revenue during year 2 in the transitional stage (year 6 in the 
program), but failed to meet the minimum non-8(a) business activity 
target of 25 percent. It had 8(a) revenues of $8.5 million and non-8(a) 
revenues of $1.5 million (15 percent). Based on total revenues of $10 
million, Firm A should have had at least $2.5 million in non-8(a) 
revenues. Thus, Firm A missed its target by $1 million (its target 
($2.5 million) minus its actual non-8(a) revenues ($1.5 million)). 
Because Firm A did not achieve its non-8(a) business activity target 
and SBA determined that it did not make good faith efforts to obtain 
non-8(a) revenue, it cannot receive 8(a) sole source awards until 
correcting that situation. The firm may wait until the next annual 
review to establish that it has met the revised target, or it can 
choose to report contract awards and other non-8(a) revenue to SBA 
quarterly. Firm A elects to submit information to SBA quarterly in year 
3 of the transitional stage (year 7 in the program). In order to be 
eligible for sole source 8(a) contracts after either its 3 month or 6 
month review, Firm A must show that it has received non-8(a) revenue 
and/or been awarded new non-8(a) contracts totaling $1 million (the 
amount by which it missed its target in year 2 of the transitional 
stage).
    Example 2 to paragraph (d)(4). Firm B had $10 million in total 
revenue during year 2 in the transitional stage (year 6 in the 
program), of which $8.5 million were 8(a) revenues and $1.5 million 
were non-8(a) revenues, and SBA determined that Firm B did not make 
good faith efforts to meet its non-8(a) business activity target. At 
its first two quarterly reviews during year 3 of the transitional stage 
(year 7 in the program), Firm B could not demonstrate that it had 
received at least $1 million in non-8(a) revenue and new non-8(a) 
awards. In order to be eligible for sole source 8(a) contracts after 
its 9 month or 1 year review, Firm B must show that at least 35% (the 
non-8(a) business activity target for year 3 in the transitional stage) 
of all revenues received during year 3 in the transitional stage as of 
that point are from non-8(a) sources.
    (5) In determining whether a Participant has achieved its required 
non-8(a) business activity target at the end of any program year in the 
transitional stage, or whether a Participant that failed to meet the 
target for the previous program year has achieved the required level of 
non-8(a) business at its nine-month review, SBA will measure 8(a) 
support by adding the base year value of all 8(a) contracts awarded 
during the applicable program year to the value of all options and 
modifications executed during that year.
    (6) SBA may initiate proceedings to terminate a Participant from 
the 8(a) BD program where the firm makes no good faith efforts to 
obtain non-8(a) revenues.
    (e) Waiver of sole source prohibition. (1) Despite a finding by SBA 
that a Participant did not make good faith efforts to meet its non-8(a) 
business activity target, SBA may waive the requirement prohibiting a 
Participant from receiving further sole source 8(a) contracts where a 
denial of a sole source contract would cause severe economic hardship 
on the Participant so that the Participant's survival may be 
jeopardized, or where extenuating circumstances beyond the 
Participant's control caused the Participant not to meet its non-8(a) 
business activity target.
    (2) SBA may waive the requirement prohibiting a Participant from 
receiving further sole source 8(a) contracts when the Participant does 
not meet its non-8(a) business activity target where the head of a 
procuring activity represents to SBA that award of a sole source 8(a) 
contract to the Participant is needed to achieve significant interests 
of the Government.
    (3) The decision to grant or deny a request for a waiver is at 
SBA's discretion, and no appeal may be taken with respect to that 
decision.
    (4) A waiver generally applies to a specific sole source 
opportunity. If SBA grants a waiver with respect to a specific 
procurement, the firm will be able to self-market its capabilities to 
the applicable procuring activity with respect to that procurement. If 
the Participant seeks an additional sole source opportunity, it must 
request a waiver with respect to that specific opportunity. Where, 
however, a Participant can demonstrate that the same extenuating 
circumstances beyond its control affect its ability to receive specific 
multiple 8(a) contracts, one waiver can apply to those multiple 
contract opportunities.

0
34. Amend Sec.  124.513 by revising paragraphs (c)(2) and (4), the 
second sentence of paragraph (c)(5), and paragraph (e) to read as 
follows:


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

* * * * *
    (c) * * *
    (2) Designating an 8(a) Participant as the managing venturer of the 
joint venture, and designating a named employee of the 8(a) managing 
venturer as the manager with ultimate responsibility for performance of 
the contract (the ``Responsible Manager'').
    (i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of 
the joint venture, but other partners to the joint venture may 
participate in all corporate governance activities and decisions of the 
joint venture as is commercially customary.
    (ii) The individual identified as the Responsible Manager of the 
joint venture need not be an employee of the 8(a) Participant at the 
time the joint venture submits an offer, but, if he or she is not, 
there must be a signed letter of intent that the individual commits to 
be employed by the 8(a) Participant if the joint venture is the 
successful offeror. The individual identified as the Responsible 
Manager cannot be employed by the mentor and become an employee of the 
8(a) Participant for purposes of performance under the joint venture.
    (iii) Although the joint venture managers responsible for orders 
issued under an IDIQ contract need not be employees of the 
prot[eacute]g[eacute], those managers must report to and be supervised 
by the joint venture's Responsible Manager;
* * * * *
    (4) Stating that the 8(a) Participant(s) must receive profits from 
the joint venture commensurate with the work performed by the 8(a) 
Participant(s), or a percentage agreed to by the parties to the joint 
venture whereby the 8(a) Participant(s) receive profits from the

[[Page 66191]]

joint venture that exceed the percentage commensurate with the work 
performed by the 8(a) Participant(s);
    (5) * * * This account must require the signature or consent of all 
parties to the joint venture for any payments made by the joint venture 
to its members for services performed. * * *
* * * * *
    (e) Prior approval by SBA. (1) When a joint venture between one or 
more 8(a) Participants seeks a sole source 8(a) award, SBA must approve 
the joint venture prior to the award of the sole source 8(a) contract. 
SBA will not approve joint ventures in connection with competitive 8(a) 
awards (but see Sec.  124.501(g) for SBA's determination of Participant 
eligibility).
    (2) Where a joint venture has been established for one 8(a) 
contract, the joint venture may receive additional 8(a) contracts 
provided the parties create an addendum to the joint venture agreement 
setting forth the performance requirements for each additional award 
(and provided any contract is awarded within two years of the first 
award as set forth in Sec.  121.103(h)). If an additional 8(a) contract 
is a sole source award, SBA must also approve the addendum prior to 
contract award.
* * * * *

0
35. Amend Sec.  124.514 by revising paragraph (b) to read as follows:


Sec.  124.514  Exercise of 8(a) options and modifications.

* * * * *
    (b) Priced options. Except as set forth in Sec.  124.521(e)(2), the 
procuring activity contracting officer may exercise a priced option to 
an 8(a) contract whether the concern that received the award has 
graduated or been terminated from the 8(a) BD program or is no longer 
eligible if to do so is in the best interests of the Government.
* * * * *

0
36. Amend Sec.  124.515 by revising paragraph (d) to read as follows:


Sec.  124.515  Can a Participant change its ownership or control and 
continue to perform an 8(a) contract, and can it transfer performance 
to another firm?

* * * * *
    (d) SBA determines the eligibility of an acquiring Participant 
under paragraph (b)(2) of this section by referring to the items 
identified in Sec.  124.501(g) and deciding whether at the time of the 
request for waiver (and prior to the transaction) the acquiring 
Participant is an eligible concern with respect to each contract for 
which a waiver is sought. As part of the waiver request, the acquiring 
concern must certify that it is a small business for the size standard 
corresponding to the NAICS code assigned to each contract for which a 
waiver is sought. SBA will not grant a waiver for any contract if the 
work to be performed under the contract is not similar to the type of 
work previously performed by the acquiring concern.
* * * * *


0
37. Amend Sec.  124.518 by revising paragraph (c) to read as follows:


Sec.  124.518  How can an 8(a) contract be terminated before 
performance is completed?

* * * * *
    (c) Substitution of one 8(a) contractor for another. SBA may 
authorize another Participant to complete performance and, in 
conjunction with the procuring activity, permit novation of an 8(a) 
contract without invoking the termination for convenience or waiver 
provisions of Sec.  124.515 where a procuring activity contracting 
officer demonstrates to SBA that the Participant that was awarded the 
8(a) contract is unable to complete performance, where an 8(a) contract 
will otherwise be terminated for default, or where SBA determines that 
substitution would serve the business development needs of both 8(a) 
Participants.


0
38. Amend Sec.  124.519 by:
0
a. Revising paragraph (a);
0
b. Removing paragraph (c);
0
c. Redesignating paragraph (b) as paragraph (c); and
0
d. Adding a new paragraph (b).
    The revision and addition read as follows:


Sec.  124.519   Are there any dollar limits on the amount of 8(a) 
contracts that a Participant may receive?

    (a) A Participant (other than one owned by an Indian Tribe, ANC, 
NHO, or CDC) may not receive sole source 8(a) contract awards where it 
has received a combined total of competitive and sole source 8(a) 
contracts in excess of $100,000,000 during its participation in the 
8(a) BD program.
    (b) In determining whether a Participant has reached the limit 
identified in paragraph (a) of this section, SBA:
    (1) Looks at the 8(a) revenues a Participant has actually received, 
not projected 8(a) revenues that a Participant might receive through an 
indefinite delivery or indefinite quantity contract, a multiple award 
contract, or options or modifications; and
    (2) Will not consider 8(a) contracts awarded under the Simplified 
Acquisition Threshold.
* * * * *


0
39. Revise Sec.  124.520 to read as follows:


Sec.  124.520   Can 8(a) BD Program Participants participate in SBA's 
Mentor-Prot[eacute]g[eacute] program?

    (a) An 8(a) BD Program Participant, as any other small business, 
may participate in SBA's All Small Mentor-Prot[eacute]g[eacute] Program 
authorized under Sec.  125.9 of this chapter.
    (b) In order for a joint venture between a prot[eacute]g[eacute] 
and its SBA-approved mentor to receive the exclusion from affiliation 
with respect to a sole source or competitive 8(a) contract, the joint 
venture must meet the requirements set forth in Sec.  124.513(c) and 
(d).


0
40. Amend Sec.  124.521 by revising the last sentence of paragraph 
(e)(1) to read as follows:


Sec.  124.521   What are the requirements for representing 8(a) status, 
and what are the penalties for misrepresentation?

* * * * *
    (e) Recertification. (1) * * * Except as set forth in paragraph 
(e)(2) of this section, where a concern later fails to qualify as an 
8(a) Participant, the procuring agency may exercise options and still 
count the award as an award to a Small Disadvantaged Business (SDB).
* * * * *

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
41. The authority citation for part 125 continues to read as follows:

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


0
42. Amend Sec.  125.2 by revising paragraph (e)(6)(i) and adding a new 
paragraph (g) to read as follows:


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

* * * * *
    (e) * * *
    (6) * * *
    (i) Notwithstanding the fair opportunity requirements set forth in 
10 U.S.C. 2304c and 41 U.S.C. 4106(c), a contracting officer may set 
aside orders for small businesses, eligible 8(a) Participants, 
certified HUBZone small business concerns, SDVO small business 
concerns, WOSBs, and EDWOSBs against full and open Multiple Award 
Contracts. In addition, a contracting officer may set aside orders for 
eligible 8(a) Participants, certified HUBZone small business concerns, 
SDVO small business concerns, WOSBs, and EDWOSBs

[[Page 66192]]

against total small business set-aside Multiple Award Contracts, 
partial small business set-aside Multiple Award Contracts, and small 
business reserves of Multiple Award Contracts awarded in full and open 
competition. Although a contracting officer can set aside orders issued 
under a small business set-aside Multiple Award Contract or reserve to 
any subcategory of small businesses, contracting officers are 
encouraged to review the award dollars under the Multiple Award 
Contract and aim to make available for award at least 50% of the award 
dollars under the Multiple Award Contract to all contract holders of 
the underlying small business set-aside Multiple Award Contract or 
reserve. However, a contracting officer may not further set aside 
orders for specific types of small business concerns against Multiple 
Award Contracts that are set-aside or reserved for eligible 8(a) 
Participants, certified HUBZone small business concerns, SDVO small 
business concerns, WOSBs, and EDWOSBs (e.g., a contracting officer 
cannot set-aside an order for 8(a) Participants that are also certified 
HUBZone small business concerns against an 8(a) Multiple Award 
Contract).
* * * * *
    (g) Capabilities, past performance, and experience. When an offer 
of a small business prime contractor includes a proposed team of small 
business subcontractors and specifically identifies the first-tier 
subcontractor(s) in the proposal, the head of the agency must consider 
the capabilities, past performance, and experience of each first tier 
subcontractor that is part of the team as the capabilities, past 
performance, and experience of the small business prime contractor if 
the capabilities, past performance, and experience of the small 
business prime does not independently demonstrate capabilities and past 
performance necessary for award.

0
43. Amend Sec.  125.3 by adding a sentence to the end of paragraph 
(b)(2), and by revising the first sentence of paragraph (c)(1)(viii) 
and paragraph (c)(1)(ix) to read as follows:


Sec.  125.3   What types of subcontracting assistance are available to 
small businesses?

* * * * *
    (b) * * *
    (2) * * * This applies whether the firm qualifies as a small 
business concern for the size standard corresponding to the NAICS code 
assigned to the contract, or is deemed to be treated as a small 
business concern by statute (see e.g., 43 U.S.C. 1626(e)(4)(B)).
* * * * *
    (c) * * *
    (1) * * *
    (viii) The contractor must provide pre-award written notification 
to unsuccessful small business offerors on all subcontracts over the 
simplified acquisition threshold (as defined in the FAR at 48 CFR 
2.101) for which a small business concern received a preference. * * *
    (ix) As a best practice, the contractor may provide the pre-award 
written notification cited in paragraph (c)(1)(viii) of this section to 
unsuccessful and small business offerors on subcontracts at or below 
the simplified acquisition threshold (as defined in the FAR at 48 CFR 
2.101) and should do so whenever practical; and
* * * * *


0
44. Amend Sec.  125.5 by:
0
a. Revising the third sentence of paragraph (a)(1);
0
b. Redesignating paragraphs (f)(2) and (f)(3) as paragraphs (f)(3) and 
(f)(4) respectively;
0
c. Adding a new paragraph (f)(2);
0
d. Removing the phrase ``$100,000 or less, or in accordance with 
Simplified Acquisition Threshold procedures'' and adding in its place 
the phrase ``Less than or equal to the Simplified Acquisition 
Threshold'' in paragraph (g);
0
e. Removing the phrase ``Between $100,000 and $25 million'' and adding 
in its place the phrase ``Above the Simplified Acquisition Threshold 
and less than or equal to $25 million'' in paragraph (g);
0
f. Removing the term ``$100,000'' and adding in its place ``the 
simplified acquisition threshold'' in paragraphs (h) and (i).
    The revision and addition read as follows:


Sec.  125.5   What is the Certificate of Competency Program?

    (a) * * *
    (1) * * * The COC Program is applicable to all Government 
procurement actions, with the exception of 8(a) sole source awards but 
including Multiple Award Contracts and orders placed against Multiple 
Award Contracts, where the contracting officer has used any issues of 
capacity or credit (responsibility) to determine suitability for an 
award. * * *
* * * * *
    (f) * * *
    (2) An offeror seeking a COC has the burden of proof to demonstrate 
that it possesses all relevant elements of responsibility and that it 
has overcome the contracting officer's objection(s).
* * * * *


0
45. Amend Sec.  125.6 by:
0
a. Revising paragraph (a) introductory text;
0
b. Revising paragraph (a)(2)(ii)(B);
0
c. Revising Examples 2, 3 and 4 to paragraph (a)(2);
0
d. Revising the paragraph (b) introductory text; and
0
e. Adding Example 3 to paragraph (b).
    The revisions and addition read as follows:


Sec.  125.6  What are the prime contractor's limitations on 
subcontracting?

    (a) General. In order to be awarded a full or partial small 
business set-aside contract with a value greater than the simplified 
acquisition threshold (as defined in the FAR at 48 CFR 2.101), an 8(a) 
contract, an SDVO SBC contract, a HUBZone contract, or a WOSB or EDWOSB 
contract pursuant to part 127 of this chapter, a small business concern 
must agree that:
* * * * *
    (2) * * *
    (ii) * * *
    (B) For a multiple item procurement where a waiver as described in 
Sec.  121.406(b)(5) of this chapter is granted for one or more items, 
compliance with the limitation on subcontracting requirement will be 
determined by combining the value of the items supplied by domestic 
small business manufacturers or processors with the value of the items 
subject to a waiver. As such, as long as the value of the items to be 
supplied by domestic small business manufacturers or processors plus 
the value of the items to be supplied that are subject to a waiver 
account for at least 50% of the value of the contract, the limitations 
on subcontracting requirement is met.
* * * * *
    Example 2 to paragraph (a)(2). A procurement is for $1,000,000 and 
calls for the acquisition of 10 items. Market research shows that nine 
of the items can be sourced from small business manufacturers and one 
item is subject to an SBA class waiver. Since 100% of the value of the 
contract can be procured through domestic small business manufacturers 
or processors plus manufacturers or processors of the item for which a 
waiver has been granted, the procurement should be set aside for small 
business. At least 50% of the value of the contract, or 50% of 
$1,000,000, must be supplied by one or more domestic small business 
manufacturers or manufacturers or processors of the one item for which

[[Page 66193]]

class waiver has been granted. In addition, the prime small business 
nonmanufacturer may act as a manufacturer for one or more items.
    Example 3 to paragraph (a)(2). A contract is for $1,000,000 and 
calls for the acquisition of 10 items. Market research shows that only 
four of these items are manufactured by small businesses. The value of 
the items manufactured by small business is estimated to be $400,000. 
The contracting officer seeks and is granted contract specific waivers 
on the other six items. Since 100% of the value of the contract can be 
procured through domestic small business manufacturers or processors 
plus manufacturers or processors of the items for which a waiver has 
been granted, the procurement should be set aside for small business. 
At least 50% of the value of the contract, or 50% of $1,000,000, must 
be supplied by one or more domestic small business manufacturers or 
manufacturers or processors of the six items for which a contract 
specific waiver has been granted. In addition, the prime small business 
nonmanufacturer may act as a manufacturer for one or more items.
    Example 4 to paragraph (a)(2). A contract is for $1,000,000 and 
calls for the acquisition of 10 items. Market research shows that three 
of the items can be sourced from small business manufacturers at this 
particular time, and the estimated value of these items is $300,000. 
There are no class waivers subject to the remaining seven items. In 
order for this procurement to be set aside for small business, a 
contracting officer must seek and be granted a contract specific waiver 
for one or more items totaling $200,000 (so that $300,000 plus $200,000 
equals 50% of the value of the entire procurement). Once a contract 
specific waiver is received for one or more items, at least 50% of the 
value of the contract, or 50% of $1,000,000, must be supplied by one or 
more domestic small business manufacturers or processors or by 
manufacturers or processors of the items for which a contract specific 
waiver has been granted. In addition, the prime small business 
nonmanufacturer may act as a manufacturer for one or more items.
* * * * *
    (b) Mixed contracts. Where a contract integrates any combination of 
services, supplies, or construction, the contracting officer shall 
select the appropriate NAICS code as prescribed in Sec.  121.402(b) of 
this chapter. The contracting officer's selection of the applicable 
NAICS code is determinative as to which limitation on subcontracting 
and performance requirement applies. Based on the NAICS code selected, 
the relevant limitation on subcontracting requirement identified in 
paragraphs (a)(1) through (4) of this section will apply only to that 
portion of the contract award amount. In no case shall more than one 
limitation on subcontracting requirement apply to the same contract.
* * * * *
    Example 3 to paragraph (b). A procuring activity is acquiring both 
services and general construction through a small business set-aside. 
The total value of the requirement is $10,000,000, with the 
construction portion comprising $8,000,000, and the services portion 
comprising $2,000,000. The contracting officer appropriately assigns a 
construction NAICS code to the requirement. The 85% limitation on 
subcontracting identified in paragraph (a)(3) would apply to this 
procurement. Because the services portion of the contract is excluded 
from consideration, the relevant amount for purposes of calculating the 
limitation on subcontracting requirement is $8,000,000. As such, the 
prime contractor cannot subcontract more than $6,800,000 to non-
similarly situated entities, and the prime and/or similarly situated 
entities must perform at least $1,200,000.
* * * * *


0
46. Amend Sec.  125.8 by:
0
a. Revising paragraphs (b)(2)(ii) and (iv), the second sentence of 
paragraph (b)(2)(v), and paragraphs (b)(2)(xi) and (xii);
0
b. Adding a new sentence at the end of paragraph (c)(1);
0
c. Adding paragraph (c)(4); and
0
d. Revising paragraphs (e), and (h)(2).
    The revisions and additions read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (ii) Designating a small business as the managing venturer of the 
joint venture, and designating a named employee of the small business 
managing venturer as the manager with ultimate responsibility for 
performance of the contract (the ``Responsible Manager'').
    (A) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of 
the joint venture, but other partners to the joint venture may 
participate in all corporate governance activities and decisions of the 
joint venture as is commercially customary.
    (B) The individual identified as the Responsible Manager of the 
joint venture need not be an employee of the small business at the time 
the joint venture submits an offer, but, if he or she is not, there 
must be a signed letter of intent that the individual commits to be 
employed by the small business if the joint venture is the successful 
offeror. The individual identified as the Responsible Manager cannot be 
employed by the mentor and become an employee of the small business for 
purposes of performance under the joint venture.
    (C) Although the joint venture managers responsible for orders 
issued under an IDIQ contract need not be employees of the 
prot[eacute]g[eacute], those managers must report to and be supervised 
by the joint venture's Responsible Manager;
* * * * *
    (iv) Stating that the small business participant(s) must receive 
profits from the joint venture commensurate with the work performed by 
them, or a percentage agreed to by the parties to the joint venture 
whereby the small business participant(s) receive profits from the 
joint venture that exceed the percentage commensurate with the work 
performed by them, and that at the conclusion of the joint venture 
contract(s) and/or the termination of a joint venture, any funds 
remaining in the joint venture bank account shall distributed at the 
discretion of the joint venture members according to percentage of 
ownership;
    (v) * * * This account must require the signature or consent of all 
parties to the joint venture for any payments made by the joint venture 
to its members for services performed. * * *
* * * * *
    (xi) Stating that annual performance-of-work statements required by 
paragraph (h)(1) must be submitted to SBA and the relevant contracting 
officer not later than 45 days after each operating year of the joint 
venture; and
    (xii) Stating that the project-end performance-of-work required by 
paragraph (h)(2) must be submitted to SBA and the relevant contracting 
officer no later than 90 days after completion of the contract.
* * * * *
    (c) * * *
    (1) * * * Except as set forth in paragraph (c)(4) of this section, 
the 40% calculation for prot[eacute]g[eacute] workshare

[[Page 66194]]

follows the same rules as those set forth in Sec.  125.6 concerning 
supplies, construction, and mixed contracts, including the exclusion of 
the same costs from the limitation on subcontracting calculation (e.g., 
cost of materials excluded from the calculation in construction 
contracts).
* * * * *
    (4) Work performed by a similarly situated entity will not count 
toward the requirement that a prot[eacute]g[eacute] must perform at 
least 40% of the work performed by a joint venture.
* * * * *
    (e) Capabilities, past performance and experience. When evaluating 
the capabilities, past performance, experience, business systems and 
certifications of an entity submitting an offer for a contract set 
aside or reserved for small business as a joint venture established 
pursuant to this section, a procuring activity must consider work done 
and qualifications held individually by each partner to the joint 
venture as well as any work done by the joint venture itself 
previously. A procuring activity may not require the 
prot[eacute]g[eacute] firm to individually meet the same evaluation or 
responsibility criteria as that required of other offerors generally. 
The partners to the joint venture in the aggregate must demonstrate the 
past performance, experience, business systems and certifications 
necessary to perform the contract.
* * * * *
    (h) * * *
    (2) At the completion of every contract set aside or reserved for 
small business that is awarded to a joint venture between a 
prot[eacute]g[eacute] small business and a mentor authorized by Sec.  
125.9, and upon request by SBA or the relevant contracting officer, the 
small business partner to the joint venture must submit a report to the 
relevant contracting officer and to SBA, signed by an authorized 
official of each partner to the joint venture, explaining how and 
certifying that the performance of work requirements were met for the 
contract, and further certifying that the contract was performed in 
accordance with the provisions of the joint venture agreement that are 
required under paragraph (b) of this section.
* * * * *


0
47. Amend Sec.  125.9 by:
0
a. Revising paragraphs (b), (c)(1)(ii), and (c)(2) introductory text;
0
b. Removing paragraph (c)(4);
0
c. Revising paragraphs (d)(1) introductory text, (d)(1)(iii) 
introductory text, and (d)(1)(iii)(B);
0
d. Adding paragraph (d)(6);
0
e. Removing ``(e.g., management and/or technical assistance, loans and/
or equity investments, cooperation on joint venture projects, or 
subcontracts under prime contracts being performed by the mentor)'' in 
paragraph (e)(1) introductory text, and adding in its place ``(e.g., 
management and or technical assistance; loans and/or equity 
investments; bonding; use of equipment; export assistance; assistance 
as a subcontractor under prime contracts being performed by the 
prot[eacute]g[eacute]; cooperation on joint venture projects; or 
subcontracts under prime contracts being performed by the mentor)''.
0
f. Revising paragraphs (e)(1)(i) and (e)(5);
0
g. Redesignating paragraphs (e)(6) through (8) as paragraphs (e)(7) 
through (9), respectively;
0
h. Adding new paragraph (e)(6);
0
i. Revising paragraph (f);
0
j. Revising paragraph (g) introductory text;
0
k. Revising paragraph (g)(4);
0
l. Adding paragraph (g)(5); and
0
m. Revising paragraph (h)(1) introductory text.
    The revisions and additions to read as follows:


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

* * * * *
    (b) Mentors. Any concern that demonstrates a commitment and the 
ability to assist small business concerns may act as a mentor and 
receive benefits as set forth in this section. This includes other than 
small businesses.
    (1) In order to qualify as a mentor, a concern must demonstrate 
that it:
    (i) Is capable of carrying out its responsibilities to assist the 
prot[eacute]g[eacute] firm under the proposed mentor-
prot[eacute]g[eacute] agreement;
    (ii) Does not appear on the Federal list of debarred or suspended 
contractors; and
    (iii) Can impart value to a prot[eacute]g[eacute] firm due to 
lessons learned and practical experience gained or through its 
knowledge of general business operations and government contracting.
    (2) SBA will decline an application if SBA determines that the 
mentor does not possess good character or a favorable financial 
position, employs or otherwise controls the managers of the 
prot[eacute]g[eacute], or is otherwise affiliated with the 
prot[eacute]g[eacute]. Once approved, SBA may terminate the mentor-
prot[eacute]g[eacute] agreement if the mentor does not possess good 
character or a favorable financial position, was affiliated with the 
prot[eacute]g[eacute] at time of application, or is affiliated with the 
prot[eacute]g[eacute] for reasons other than the mentor-
prot[eacute]g[eacute] agreement or assistance provided under the 
agreement.
    (3) In order for SBA to agree to allow a mentor to have more than 
one prot[eacute]g[eacute] at time, the mentor and proposed additional 
prot[eacute]g[eacute] must demonstrate that the added mentor-
prot[eacute]g[eacute] relationship will not adversely affect the 
development of either prot[eacute]g[eacute] firm (e.g., the second firm 
may not be a competitor of the first firm).
    (i) A mentor that has more than one prot[eacute]g[eacute] cannot 
submit competing offers in response to a solicitation for a specific 
procurement through separate joint ventures with different 
prot[eacute]g[eacute]s.
    (ii) A mentor generally cannot have more than three 
prot[eacute]g[eacute]s at one time. However, the first two mentor-
prot[eacute]g[eacute] relationships approved by SBA between a specific 
mentor and a small business that has its principal office located in 
the Commonwealth of Puerto Rico do not count against the limit of three 
proteges that a mentor can have at one time.
    (c) * * *
    (1) * * *
    (ii) Where a small business concern seeks to qualify as a 
prot[eacute]g[eacute] in a secondary NAICS code, the concern must 
demonstrate how the mentor-prot[eacute]g[eacute] relationship will help 
it further develop or expand its current capabilities in that secondary 
NAICS code. SBA will not approve a mentor-prot[eacute]g[eacute] 
relationship in a secondary NAICS code in which the small business 
concern has no prior experience. SBA may approve a mentor-
prot[eacute]g[eacute] relationship where the small business concern can 
demonstrate that it has performed work in one or more similar NAICS 
codes or where the NAICS code in which the small business concern seeks 
a mentor-prot[eacute]g[eacute] relationship is a logical business 
progression to work previously performed by the concern.
    (2) A prot[eacute]g[eacute] firm may generally have only one mentor 
at a time. SBA may approve a second mentor for a particular 
prot[eacute]g[eacute] firm where the second relationship will not 
compete or otherwise conflict with the first mentor-
prot[eacute]g[eacute] relationship, and:
* * * * *
    (d) * * * (1) A prot[eacute]g[eacute] and mentor may joint venture 
as a small business for any government prime contract, subcontract or 
sale, provided the prot[eacute]g[eacute] qualifies as small for the 
procurement or sale. Such a joint venture may seek any type of small 
business contract (i.e., small business set-aside, 8(a), HUBZone, SDVO, 
or

[[Page 66195]]

WOSB) for which the prot[eacute]g[eacute] firm qualifies (e.g., a 
prot[eacute]g[eacute] firm that qualifies as a WOSB could seek a WOSB 
set-aside as a joint venture with its SBA-approved mentor). Similarly, 
a joint venture between a prot[eacute]g[eacute] and mentor may seek a 
subcontract as a HUBZone small business, small disadvantaged business, 
SDVO small business, or WOSB provided the prot[eacute]g[eacute] 
individually qualifies as such.
* * * * *
    (iii) A joint venture between a prot[eacute]g[eacute] and its 
mentor will qualify as a small business for any procurement for which 
the prot[eacute]g[eacute] individually qualifies as small. Once a 
prot[eacute]g[eacute] firm no longer qualifies as a small business for 
the size standard corresponding to the NAICS code under which SBA 
approved its mentor-prot[eacute]g[eacute] relationship, any joint 
venture between the prot[eacute]g[eacute] and its mentor will no longer 
be able to seek additional contracts or subcontracts as a small 
business for any NAICS code having the same or lower size standard. A 
joint venture between a prot[eacute]g[eacute] and its mentor could seek 
additional contract opportunities in NAICS codes having a size standard 
for which the prot[eacute]g[eacute] continues to qualify as small. A 
change in the prot[eacute]g[eacute]'s size status does not generally 
affect contracts previously awarded to a joint venture between the 
prot[eacute]g[eacute] and its mentor.
* * * * *
    (B) For contracts with durations of more than five years (including 
options), where size re-certification is required under Sec.  
121.404(g)(3) of this chapter no more than 120 days prior to the end of 
the fifth year of the contract and no more than 120 days prior to 
exercising any option thereafter, once the prot[eacute]g[eacute] no 
longer qualifies as small for the size standard corresponding to the 
NAICS code assigned to the contract, the joint venture will not be able 
re-certify itself to be a small business for that contract. The rules 
set forth in Sec.  121.404(g)(3) of this chapter apply in such 
circumstances.
* * * * *
    (6) A mentor that provides a subcontract to a prot[eacute]g[eacute] 
that has its principal office located in the Commonwealth of Puerto 
Rico may (i) receive positive consideration for the mentor's past 
performance evaluation, and (ii) apply costs incurred for providing 
training to such protege toward the subcontracting goals contained in 
the subcontracting plan of the mentor.
    (e) * * *
    (1) * * *
    (i) Specifically identify the business development assistance to be 
provided and address how the assistance will help the 
prot[eacute]g[eacute] enhance its growth and/or foster or acquire 
needed capabilities;
* * * * *
    (5) The term of a mentor-prot[eacute]g[eacute] agreement may not 
exceed six years. If an initial mentor-prot[eacute]g[eacute] agreement 
is for less than six years, it may be extended by mutual agreement 
prior to the expiration date for an additional amount of time that 
would total no more than six years from its inception (e.g., if the 
initial mentor-prot[eacute]g[eacute] agreement was for two years, it 
could be extended for an additional four years by consent of the two 
parties; if the initial mentor-prot[eacute]g[eacute] agreement was for 
three years, it could be extended for an additional three years by 
consent of the two parties). Unless rescinded in writing as a result of 
an SBA review, the mentor-prot[eacute]g[eacute] relationship will 
automatically renew without additional written notice of continuation 
or extension to the prot[eacute]g[eacute] firm.
    (6) A prot[eacute]g[eacute] may generally have a total of two 
mentor-prot[eacute]g[eacute] agreements with different mentors.
    (i) Each mentor-prot[eacute]g[eacute] agreement may last for no 
more than six years, as set forth in paragraph (e)(5) of this section.
    (ii) If a mentor-prot[eacute]g[eacute] agreement is terminated 
within 18 months from the date SBA approved the agreement, that mentor-
prot[eacute]g[eacute] relationship will generally not count as one of 
the two mentor-prot[eacute]g[eacute] relationships that a small 
business may enter as a prot[eacute]g[eacute]. However, where a 
specific small business prot[eacute]g[eacute] appears to enter into 
many short-term mentor-prot[eacute]g[eacute] relationships as a means 
of extending its program eligibility as a prot[eacute]g[eacute], SBA 
may determine that the business concern has exhausted its participation 
in the mentor-prot[eacute]g[eacute] program and not approve an 
additional mentor-prot[eacute]g[eacute] relationship.
    (iii) If during the evaluation of the mentor-prot[eacute]g[eacute] 
relationship pursuant to paragraphs (g) and (h) of this section SBA 
determines that a mentor has not provided the business development 
assistance set forth in its mentor-prot[eacute]g[eacute] agreement or 
that the quality of the assistance provided was not satisfactory, SBA 
may allow the prot[eacute]g[eacute] to substitute another mentor for 
the time remaining in the mentor-prot[eacute]g[eacute] agreement 
without counting against the two-mentor limit.
* * * * *
    (f) Decision to decline mentor-prot[eacute]g[eacute] relationship. 
Where SBA declines to approve a specific mentor-prot[eacute]g[eacute] 
agreement, SBA will issue a written decision setting forth its 
reason(s) for the decline. The small business concern seeking to be a 
prot[eacute]g[eacute] cannot attempt to enter into another mentor-
prot[eacute]g[eacute] relationship with the same mentor for a period of 
60 calendar days from the date of the final decision. The small 
business concern may, however, submit another proposed mentor-
prot[eacute]g[eacute] agreement with a different proposed mentor at any 
time after the SBA's final decline decision.
    (g) Evaluating the mentor-prot[eacute]g[eacute] relationship. SBA 
will review the mentor-prot[eacute]g[eacute] relationship annually. SBA 
will ask the prot[eacute]g[eacute] for its assessment of how the 
mentor-prot[eacute]g[eacute] relationship is working, whether or not 
the prot[eacute]g[eacute] received the agreed upon business development 
assistance, and whether the prot[eacute]g[eacute] would recommend the 
mentor to be a mentor for another small business in the future. At any 
point in the mentor-prot[eacute]g[eacute] relationship where a 
prot[eacute]g[eacute] believes that a mentor has not provided the 
business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance 
provided did not meet its expectations, the prot[eacute]g[eacute] can 
ask SBA to intervene on its behalf with the mentor.
* * * * *
    (4) At any point in the mentor-prot[eacute]g[eacute] relationship 
where a prot[eacute]g[eacute] believes that a mentor has not provided 
the business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance 
provided did not meet its expectations, the prot[eacute]g[eacute] can 
ask SBA to intervene on its behalf with the mentor.
    (5) SBA may decide not to approve continuation of a mentor-
prot[eacute]g[eacute] agreement where:
    (i) SBA finds that the mentor has not provided the assistance set 
forth in the mentor-prot[eacute]g[eacute] agreement;
    (ii) SBA finds that the assistance provided by the mentor has not 
resulted in any material benefits or developmental gains to the 
prot[eacute]g[eacute]; or
    (iii) A prot[eacute]g[eacute] does not provide information relating 
to the mentor-prot[eacute]g[eacute] relationship, as set forth in 
paragraph (g).
    (h) Consequences of not providing assistance set forth in the 
mentor-prot[eacute]g[eacute] agreement. (1) Where SBA determines that a 
mentor may not have provided to the prot[eacute]g[eacute] firm the 
business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance 
provided may not have been satisfactory, SBA will notify the mentor of 
such determination and afford the mentor an opportunity to respond. The

[[Page 66196]]

mentor must respond within 30 days of the notification, presenting 
information demonstrating that it did satisfactorily provide the 
assistance set forth in the mentor-prot[eacute]g[eacute] agreement or 
explaining why it has not provided the agreed upon assistance and 
setting forth a definitive plan as to when it will provide such 
assistance. If the mentor fails to respond, does not adequately provide 
information demonstrating that it did satisfactorily provide the 
assistance set forth in the mentor-prot[eacute]g[eacute] agreement, 
does not supply adequate reasons for its failure to provide the agreed 
upon assistance, or does not set forth a definite plan to provide the 
assistance:
* * * * *


0
48. Amend Sec.  125.18 by:
0
a. Revising paragraph (a);
0
b. Removing ``(see Sec. Sec.  125.9 and 124.520 of this chapter)'' in 
paragraph (b)(1)(ii) and adding in its place ``(see Sec.  125.9)'';
0
c. Removing ``Sec.  124.520 or Sec.  125.9 of this chapter'' in 
paragraph (b)(2) introductory text and adding in its place ``Sec.  
125.9'';
0
d. Revising paragraphs (b)(2)(ii) and (iv) and the second sentence of 
paragraph (b)(2)(v);
0
e. Removing ``or Sec.  124.520 of this chapter'' in paragraph 
(b)(3)(i);
0
f. Redesignating paragraphs (d)(1) through (4) as paragraphs (d)(2) 
through (5), respectively; and
0
g. Adding a new paragraph (d)(1).
    The revisions and addition read as follows:


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

    (a) General. In order for a business concern to submit an offer and 
be eligible for the award of a specific SDVO contract, the concern must 
submit the appropriate representations and certifications at the time 
it submits its initial offer which includes price (or other formal 
response to a solicitation) to the contracting officer, including, but 
not limited to, the fact that:
    (1) It is small under the size standard corresponding to the NAICS 
code(s) assigned to the contract;
    (2) It is an SDVO SBC; and
    (3) There has been no material change in any of its circumstances 
affecting its SDVO SBC eligibility.
* * * * *
    (b) * * *
    (2) * * *
    (ii) Designating an SDVO SBC as the managing venturer of the joint 
venture, and designating a named employee of the SDVO SBC managing 
venturer as the manager with ultimate responsibility for performance of 
the contract (the ``Responsible Manager'').
    (A) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of 
the joint venture, but other partners to the joint venture may 
participate in all corporate governance activities and decisions of the 
joint venture as is commercially customary.
    (B) The individual identified as the Responsible Manager of the 
joint venture need not be an employee of the SDVO SBC at the time the 
joint venture submits an offer, but, if he or she is not, there must be 
a signed letter of intent that the individual commits to be employed by 
the SDVO SBC if the joint venture is the successful offeror. The 
individual identified as the Responsible Manager cannot be employed by 
the mentor and become an employee of the SDVO SBC for purposes of 
performance under the joint venture.
    (C) Although the joint venture managers responsible for orders 
issued under an IDIQ contract need not be employees of the 
prot[eacute]g[eacute], those managers must report to and be supervised 
by the joint venture's Responsible Manager.
* * * * *
    (iv) Stating that the SDVO SBC must receive profits from the joint 
venture commensurate with the work performed by the SDVO SBC, or a 
percentage agreed to by the parties to the joint venture whereby the 
SDVO SBC receives profits from the joint venture that exceed the 
percentage commensurate with the work performed by the SDVO SBC;
    (v) * * * This account must require the signature or consent of all 
parties to the joint venture for any payments made by the joint venture 
to its members for services performed. * * *
* * * * *
    (d) Multiple Award Contracts. (1) SDVO status. With respect to 
Multiple Award Contracts, orders issued against a Multiple Award 
Contract, and Blanket Purchase Agreements issued against a Multiple 
Award Contract:
    (i) SBA determines SDVO small business eligibility for the 
underlying Multiple Award Contract as of the date a business concern 
certifies its status as an SDVO small business concern as part of its 
initial offer (or other formal response to a solicitation), which 
includes price, unless the firm was required to recertify under 
paragraph (e) of this section.
    (A) Unrestricted Multiple Award Contracts or Set-Aside Multiple 
Award Contracts for Other than SDVO. For an unrestricted Multiple Award 
Contract or other Multiple Award Contract not specifically set aside 
for SDVO, if a business concern is an SDVO small business concern at 
the time of offer and contract-level recertification for the Multiple 
Award Contract, it is an SDVO small business concern for goaling 
purposes for each order issued against the contract, unless a 
contracting officer requests recertification as an SDVO small business 
for a specific order or Blanket Purchase Agreement. Except for orders 
and Blanket Purchase Agreements issued under any Federal Supply 
Schedule contract, if an order or a Blanket Purchase Agreement under an 
unrestricted Multiple Award Contract is set-aside exclusively for SDVO 
small business, a concern must recertify that it qualifies as an SDVO 
small business at the time it submits its initial offer, which includes 
price, for the particular order or Blanket Purchase Agreement. However, 
where the underlying Multiple Award Contract has been awarded to a pool 
of concerns for which SDVO small business status is required, if an 
order or a Blanket Purchase Agreement under that Multiple Award 
Contract is set-aside exclusively for concerns in the SDVO small 
business pool, concerns need not recertify their status as SDVO small 
business concerns (unless a contracting officer requests size 
certifications with respect to a specific order or Blanket Purchase 
Agreement).
    (B) SDVO Set-Aside Multiple Award Contracts. For a Multiple Award 
Contract that is specifically set aside for SDVO small business, if a 
business concern is an SDVO small business at the time of offer and 
contract-level recertification for the Multiple Award Contract, it is 
an SDVO small business for each order issued against the contract, 
unless a contracting officer requests recertification as an SDVO small 
business for a specific order or Blanket Purchase Agreement.
    (ii) SBA will determine SDVO small business status at the time of 
initial offer (or other formal response to a solicitation), which 
includes price, for an order or an Agreement issued against a Multiple 
Award Contract if the contracting officer requests a new SDVO small 
business certification for the order or Agreement.
* * * * *


0
49. Amend Sec.  125.28 by revising the section heading and adding a 
sentence to the end of paragraph (d)(1) to read as follows:

[[Page 66197]]

Sec.  125.28  What are the requirements for filing a service-disabled 
veteran-owned status protest?

* * * * *
    (d) * * *
    (1) * * * Except for an order or Blanket Purchase Agreement issued 
under any Federal Supply Schedule contract, for an order or a Blanket 
Purchase Agreement that is set-aside for SDVO small business under a 
Multiple Award Contract that is not itself set aside for SDVO small 
business or have a reserve for SDVO small business (or any SDVO order 
where the contracting officer has requested recertification of SDVO 
status), an interested party must submit its protest challenging the 
SDVO status of a concern for the order or Agreement by close of 
business on the fifth business day after notification by the 
contracting officer of the apparent successful offeror.
* * * * *

PART 126--HUBZONE PROGRAM

0
50. 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.  126.500  [Amended]

0
51. Amend Sec.  126.500 by removing the words ``(whether by SBA or a 
third-party certifier)'' in paragraph (b) introductory text.


Sec.  126.602  [Amended]

0
52. Amend 126.602 in paragraph (c) by removing ``Sec.  126.200(a)'' and 
adding in its place ``Sec.  126.200(c)(2)(ii)''.


0
53. Revise Sec.  126.606 to read as follows:


Sec.  126.606  May a procuring activity request that SBA release a 
requirement from the 8(a) BD program for award as a HUBZone contract?

    A procuring activity may request that SBA release an 8(a) 
requirement for award as a HUBZone contract under the procedures set 
forth in Sec.  124.504(d).
0
54. Amend Sec.  126.616 by removing ``(or, if also an 8(a) BD 
Participant, with an approved mentor authorized by Sec.  124.520 of 
this chapter)'' in paragraph (a), and by revising paragraphs (c)(2) and 
(c)(4) and the second sentence of paragraph (c)(5) to 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?

* * * * *
    (c) * * *
    (2) Designating a certified HUBZone small business concern as the 
managing venturer of the joint venture, and designating a named 
employee of the certified HUBZone small business managing venturer as 
the manager with ultimate responsibility for performance of the 
contract (the ``Responsible Manager'').
    (i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of 
the joint venture, but other partners to the joint venture may 
participate in all corporate governance activities and decisions of the 
joint venture as is commercially customary.
    (ii) The individual identified as the Responsible Manager of the 
joint venture need not be an employee of the certified HUBZone small 
business concern at the time the joint venture submits an offer, but, 
if he or she is not, there must be a signed letter of intent that the 
individual commits to be employed by the certified HUBZone small 
business concern if the joint venture is the successful offeror. The 
individual identified as the Responsible Manager cannot be employed by 
the mentor and become an employee of the certified HUBZone small 
business concern for purposes of performance under the joint venture.
    (iii) Although the joint venture managers responsible for orders 
issued under an IDIQ contract need not be employees of the 
prot[eacute]g[eacute], those managers must report to and be supervised 
by the joint venture's Responsible Manager.
* * * * *
    (4) Stating that the certified HUBZone small business concern must 
receive profits from the joint venture commensurate with the work 
performed by the certified HUBZone small business concern, or a 
percentage agreed to by the parties to the joint venture whereby the 
certified HUBZone small business concern receives profits from the 
joint venture that exceed the percentage commensurate with the work 
performed by the certified HUBZone small business concern;
    (5) * * * This account must require the signature or consent of all 
parties to the joint venture for any payments made by the joint venture 
to its members for services performed. * * *
* * * * *


Sec.  126.618  [Amended]

0
55. Amend Sec.  126.618 by removing ``(or, if also an 8(a) BD 
Participant, under Sec.  124.520 of this chapter)'' in paragraph (a).


0
56. Amend Sec.  126.801 by adding a sentence to the end of paragraph 
(d)(1) to read as follows:


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

* * * * *
    (d) * * *
    (1) * * * Except for an order or Blanket Purchase Agreement issued 
under any Federal Supply Schedule contact, in connection with an order 
or an Agreement that is set-aside for a certified HUBZone small 
business concern under a Multiple Award Contract that is not itself set 
aside for certified HUBZone small business concerns or have a reserve 
for certified HUBZone small business concerns, (or any HUBZone set-
aside order where the contracting officer has requested recertification 
of such status), an interested party must submit its protest 
challenging the HUBZone status of a concern for the order or Agreement 
by close of business on the fifth business day after notification by 
the contracting officer of the intended awardee of the order or 
Agreement.
* * * * *

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

0
57. 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.


Sec.  127.503   [Amended]

0
58. Amend Sec.  127.503 by removing paragraph (h).


0
59. Revise Sec.  127.504 to read as follows:


Sec.  127.504   What requirements must an EDWOSB or WOSB meet to be 
eligible for an EDWOSB or WOSB requirement?

    (a) General. In order for a concern to submit an offer on a 
specific EDWOSB or WOSB set-aside requirement, the concern must qualify 
as a small business concern under the size standard corresponding to 
the NAICS code assigned to the contract, and either be a certified 
EDWOSB or WOSB pursuant to Sec.  127.300, or represent that it has 
submitted a complete application for WOSB or EDWOSB certification to 
SBA or a third-party certifier and has not received a negative 
determination regarding that application from SBA or the third party 
certifier.
    (1) If a concern becomes the apparent successful offeror while its 
application for WOSB or EDWOSB certification is pending, either at SBA 
or a third-party certifier, the contracting officer for the particular 
contract must immediately inform SBA's D/GC. SBA will then prioritize 
the concern's WOSB or EDWOSB application and make a

[[Page 66198]]

determination regarding the firm's status as a WOSB or EDWOSB within 15 
calendar days from the date that SBA received the contracting officer's 
notification. Where the application is pending with a third-party 
certifier, SBA will immediately contact the third-party certifier to 
require the third-party certifier to complete its determination within 
15 calendar days.
    (2) If the contracting officer does not receive an SBA or third-
party certifier determination within 15 calendar days after the SBA's 
receipt of the notification, the contracting officer may presume that 
the apparently successful offeror is not an eligible WOSB or EDWOSB and 
may make award accordingly, unless the contracting officer grants an 
extension to the 15-day response period.
    (b) Sole source EDWOSB or WOSB requirements. In order for a concern 
to seek a specific sole source EDWOSB or WOSB requirement, the concern 
must be a certified EDWOSB or WOSB pursuant to Sec.  127.300 and 
qualify as small under the size standard corresponding to the 
requirement being sought.
    (c) Joint ventures. A business concern seeking an EDWOSB or WOSB 
contract as a joint venture may submit an offer if the joint venture 
meets the requirements as set forth in Sec.  127.506.
    (d) Multiple Award Contracts. With respect to Multiple Award 
Contracts, orders issued against a Multiple Award Contract, and Blanket 
Purchase Agreements issued against a Multiple Award Contract:
    (1) SBA determines EDWOSB or WOSB eligibility for the underlying 
Multiple Award Contract as of the date a concern certifies its status 
as an EDWOSB or WOSB as part of its initial offer (or other formal 
response to a solicitation), which includes price, unless the concern 
was required to recertify its status as a WOSB or EDWOSB under 
paragraph (f) of this section.
    (i) Unrestricted Multiple Award Contracts or Set-Aside Multiple 
Award Contracts for Other than EDWOSB or WOSB. For an unrestricted 
Multiple Award Contract or other Multiple Award Contract not set aside 
specifically for EDWOSB or WOSB, if a business concern is an EDWOSB or 
WOSB at the time of offer and contract-level recertification for the 
Multiple Award Contract, it is an EDWOSB or WOSB for goaling purposes 
for each order issued against the contract, unless a contracting 
officer requests recertification as an EDWOSB or WOSB for a specific 
order or Blanket Purchase Agreement. Except for orders and Blanket 
Purchase Agreements issued under any Federal Supply Schedule contract, 
if an order or a Blanket Purchase Agreement under an unrestricted 
Multiple Award Contract is set aside exclusively for EDWOSB or WOSB, a 
concern must recertify it qualifies as an EDWOSB or WOSB at the time it 
submits its initial offer, which includes price, for the particular 
order or Agreement. However, where the underlying Multiple Award 
Contract has been awarded to a pool of WOSB or EDWOSB concerns for 
which WOSB or EDWOSB status is required, if an order or a Blanket 
Purchase Agreement under that Multiple Award Contract is set aside 
exclusively for concerns in the WOSB or EDWOSB pool, concerns need not 
recertify their status as WOSBs or EDWOSBs (unless a contracting 
officer requests size certifications with respect to a specific order 
or Blanket Purchase Agreement).
    (ii) EDWOSB or WOSB Set-Aside Multiple Award Contracts. For a 
Multiple Award Contract that is set aside specifically for EDWOSB or 
WOSB, if a business concern is an EDWOSB or WOSB at the time of offer 
and contract-level recertification for the Multiple Award Contract, it 
is an EDWOSB or WOSB for each order issued against the contract, unless 
a contracting officer requests recertification as an EDWOSB or WOSB for 
a specific order or Blanket Purchase Agreement.
    (2) SBA will determine EDWOSB or WOSB status at the time a business 
concern submits its initial offer (or other formal response to a 
solicitation) which includes price for an order or an Agreement issued 
against a Multiple Award Contract if the contracting officer requests a 
new EDWOSB or WOSB certification for the order or Agreement.
    (e) Limitations on subcontracting. A business concern seeking an 
EDWOSB or WOSB requirement must also meet the applicable limitations on 
subcontracting requirements as set forth in Sec.  125.6 of this chapter 
for the performance of EDWOSB or WOSB contracts (both sole source and 
those totally set aside for EDWOSB or WOSB), the performance of the 
set-aside portion of a partial set-aside contract, or the performance 
of orders set-aside for EDWOSB or WOSB.
    (f) Non-manufacturers. An EDWOSB or WOSB that is a non-
manufacturer, as defined in Sec.  121.406(b) of this chapter, may 
submit an offer on an EDWOSB or WOSB contract for supplies, if it meets 
the requirements under the non-manufacturer rule set forth in Sec.  
121.406(b) of this chapter.
    (g) Ostensible subcontractor. Where a subcontractor that is not 
similarly situated performs primary and vital requirements of a set-
aside service contract, or where a prime contractor is unduly reliant 
on a small business that is not similarly situated to perform the set-
aside service contract, the prime contractor is not eligible for award 
of a WOSB or EDWOSB contract.
    (1) When the subcontractor is small for the size standard assigned 
to the procurement, this issue may be grounds for a WOSB or EDWOSB 
status protest, as described in subpart F of this part. When the 
subcontractor is other than small or alleged to be other than small for 
the size standard assigned to the procurement, this issue may be a 
ground for a size protest, as described at Sec.  121.103(h)(4) of this 
chapter.
    (2) SBA will find that a prime WOSB or EDWOSB contractor is 
performing the primary and vital requirements of a contract or order 
and is not unduly reliant on one or more non-similarly situated 
subcontracts where the prime contractor can demonstrate that it, 
together with any similarly situated entity, will meet the limitations 
on subcontracting provisions set forth in Sec.  125.6.
    (h) Recertification. (1) Where a contract being performed by an 
EDWOSB or WOSB is novated to another business concern, the concern that 
will continue performance on the contract must recertify its status as 
an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB 
contract) to the procuring agency, or inform the procuring agency that 
it does not qualify as an EDWOSB or WOSB, (or qualify as a certified 
EDWOSB or WOSB for a WOSB contract) within 30 days of the novation 
approval. If the concern cannot recertify its status as an EDWOSB or 
WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB contract), 
the agency must modify the contract to reflect the new status, and may 
not count the options or orders issued pursuant to the contract, from 
that point forward, towards its women-owned small business goals.
    (2) Where an EDWOSB or WOSB concern that is performing a 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 an EDWOSB or WOSB 
(or qualify as a certified EDWOSB or WOSB for a WOSB contract) to the 
procuring agency, or inform the procuring agency that it no longer 
qualifies as an EDWOSB or WOSB (or qualify as a certified EDWOSB or 
WOSB for a

[[Page 66199]]

WOSB contract). If the concern is unable to recertify its status as an 
EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB 
contract), the agency must modify the contract to reflect the new 
status, and may not count the options or orders issued pursuant to the 
contract, from that point forward, towards its women-owned small 
business goals.
    (3) For 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 an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB 
for a WOSB contract) 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. If the concern is unable to recertify its status 
as an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a 
WOSB contract), the agency must modify the contract to reflect the new 
status, and may not count the options or orders issued pursuant to the 
contract, from that point forward, towards its women-owned small 
business goals.
    (4) A business concern that did not certify as an EDWOSB or WOSB, 
either initially or prior to an option being exercised, may recertify 
as an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a 
WOSB contract) for a subsequent option period if it meets the 
eligibility requirements at that time. The agency must modify the 
contract to reflect the new status, and may count the options or orders 
issued pursuant to the contract, from that point forward, towards its 
women-owned small business goals.
    (5) 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.
    (6) A concern's status will be determined at the time of a response 
to a solicitation for an Agreement and each order issued pursuant to 
the Agreement.


0
60. Amend Sec.  127.506 by revising paragraphs (c)(2) and (c)(4) and 
the second sentence of paragraph (c)(5) to read as follows:


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

* * * * *
    (c) * * *
    (2) Designating a WOSB or EDWOSB as the managing venturer of the 
joint venture, and designating a named employee of the WOSB or EDWOSB 
managing venturer as the manager with ultimate responsibility for 
performance of the contract (the ``Responsible Manager'').
    (i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of 
the joint venture, but other partners to the joint venture may 
participate in all corporate governance activities and decisions of the 
joint venture as is commercially customary.
    (ii) The individual identified as the Responsible Manager of the 
joint venture need not be an employee of the WOSB or EDWOSB at the time 
the joint venture submits an offer, but, if he or she is not, there 
must be a signed letter of intent that the individual commits to be 
employed by the WOSB or EDWOSB if the joint venture is the successful 
offeror. The individual identified as the Responsible Manager cannot be 
employed by the mentor and become an employee of the WOSB or EDWOSB for 
purposes of performance under the joint venture.
    (iii) Although the joint venture managers responsible for orders 
issued under an IDIQ contract need not be employees of the 
prot[eacute]g[eacute], those managers must report to and be supervised 
by the joint venture's Responsible Manager.
* * * * *
    (4) Stating that the WOSB or EDWOSB must receive profits from the 
joint venture commensurate with the work performed by the WOSB or 
EDWOSB, or a percentage agreed to by the parties to the joint venture 
whereby the WOSB or EDWOSB receives profits from the joint venture that 
exceed the percentage commensurate with the work performed by the WOSB 
or EDWOSB;
    (5) * * * This account must require the signature or consent of all 
parties to the joint venture for any payments made by the joint venture 
to its members for services performed. * * *
* * * * *


0
61. Amend Sec.  127.603 by revising the section heading and adding a 
sentence to the end of paragraph (c)(1) to read as follows:


Sec.  127.603   What are the requirements for filing an EDWOSB or WOSB 
status protest?

* * * * *
    (c) * * *
    (1) * * * Except for an order or Blanket Purchase Agreement issued 
under any Federal Supply Schedule contact, for an order or a Blanket 
Purchase Agreement that is set-aside for EDWOSB or WOSB small business 
under a Multiple Award Contract that is not itself set aside for EDWOSB 
or WOSB small business or have a reserve for EDWOSB or WOSB small 
business (or any EDWOSB or WOSB order where the contracting officer has 
requested recertification of such status), an interested party must 
submit its protest challenging the EDWOSB or WOSB status of a concern 
for the order or Blanket Purchase Agreement by close of business on the 
fifth business day after notification by the contracting officer of the 
apparent successful offeror.
* * * * *

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

0
62. The authority citation for part 134 continues to read as follows:

    Authority:  5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), 634(i), 
637(a), 648(l), 656(i), 657t, and 687(c); 38 U.S.C. 8127(f); E.O. 
12549, 51 FR 6370, 3 CFR, 1986 Comp., p. 189.

    Subpart J issued under 38 U.S.C. 8127(f)(8)(B).
    Subpart K issued under 38 U.S.C. 8127(f)(8)(A).


0
63. Amend Sec.  134.318 by adding a paragraph heading to paragraph (a) 
and revising paragraph (b) to read as follows:


Sec.  134.318   NAICS Appeals.

    (a) General. * * *
    (b) Effect of OHA's decision. If OHA grants the appeal (changes the 
NAICS code), the contracting officer must amend the solicitation to 
reflect the new NAICS code. The decision will also apply to future 
solicitations for the same supplies or services.
* * * * *

Jovita Carranza,
Administrator.
[FR Doc. 2020-19428 Filed 10-15-20; 8:45 am]
BILLING CODE 8026-03-P