[Federal Register Volume 87, Number 3 (Wednesday, January 5, 2022)]
[Rules and Regulations]
[Pages 380-381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28256]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG94


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

AGENCY: U.S. Small Business Administration.

ACTION: Correcting amendment.

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SUMMARY: The U.S. Small Business Administration (SBA) is correcting a 
final rule that was published in the Federal Register on October 16, 
2020. The rule merged 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 document is 
making a correction to the final regulations.

DATES: Effective January 5, 2022.

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: On October 16, 2020, SBA published a final 
rule revising the regulations pertaining to the 8(a) BD and size 
programs in order to further reduce unnecessary or excessive burdens on 
small businesses and to more clearly delineate SBA's

[[Page 381]]

intent in certain regulations (85 FR 66146). This is the fifth set of 
corrections. The first set of corrections was published in the Federal 
Register on November 16, 2020 (85 FR 72916). The second set of 
corrections was published in the Federal Register on January 14, 2021 
(86 FR 2957). The third set of corrections was published in the Federal 
Register on February 23, 2021 (86 FR 10732). The fourth set of 
corrections was published in the Federal Register on July 22, 2021 (86 
FR 38538). This document augments those corrections.
    It is well established that business concerns are not affiliates of 
joint ventures of which they are members for size purposes. However, 
SBA regulations have long provided that when determining a concern's 
size SBA will consider all revenue in whatever form received or accrued 
from whatever source. Therefore, since 2004 SBA regulations have 
required a joint venture partner to include its proportionate share of 
joint venture receipts and employees in its own receipts and employee 
count, respectively. (69 FR 29192). The final rule of October 16, 2020, 
revised Sec.  121.103(h) to clarify how a joint venture partner must 
calculate its proportionate share of joint venture receipts and 
employees for purposes of determining its own size status. 
Specifically, the final rule provided that the joint venture partner 
must include its percentage share of joint venture receipts and 
employees in its own receipts or employees. 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. For employee-based size standards, 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.
    It has come to SBA's attention that some have misinterpreted the 
intent of the final rule. Specifically, because the regulations no 
longer allow joint ventures to be populated with individuals intended 
to perform small business set-aside contracts awarded to the joint 
venture, some have reasoned that a joint venture populated with its own 
separate contracting-performing employees does not qualify as a joint 
venture for all SBA program purposes. From this logic it ostensibly 
follows that a joint venture partner need not include in its own 
receipts its proportionate share of receipts and employees from 
populated joint ventures. This was not SBA's intent.
    When SBA revised its regulations to 2016 to prohibit populated 
joint ventures on small business contracts, it did so in response to 
programmatic concerns that allowing populated joint ventures between a 
mentor and its prot[eacute]g[eacute] would not ensure that the 
prot[eacute]g[eacute] firm and its employees benefit by developing new 
expertise, experience, and past performance. (81 FR 48558). As SBA 
explained, if the individuals hired by the joint venture to perform the 
work under the contract did not come from the prot[eacute]g[eacute] 
firm, there is no guarantee that they would ultimately end up working 
for the prot[eacute]g[eacute] firm after the contract is completed. In 
such a case, the prot[eacute]g[eacute] firm would have gained nothing 
out of that contract. The prot[eacute]g[eacute] itself did not perform 
work under the contract and the individual employees who performed work 
did not at any point work for the prot[eacute]g[eacute] firm. 
Additionally, SBA believed that requiring joint ventures to be 
unpopulated ensures that the lead small business partner to the joint 
venture will meet its performance of work requirements and will 
actually benefit from the joint venture arrangement. This is especially 
important for joint ventures between a mentor and its 
prot[eacute]g[eacute] as well as joint ventures to perform socio-
economic set-aside contracts, where the lead joint venture partner has 
the necessary size or socio-economic status and the non-lead partner 
does not. Nothing, however, in the final rule or the 2016 rulemaking 
signaled a change in policy concerning the treatment of receipts and 
employees from populated joint ventures for purposes of determining a 
joint venture partner's size. SBA never intended to change how revenues 
earned by a joint venture should be counted for size purposes. As noted 
above, a joint venture partner of any kind must include its 
proportionate share of joint venture receipts and employees in its own 
receipts and employee count to ensure that all its revenues and 
employees are properly considered in determining that partner's size. 
In this context it is irrelevant whether the joint venture partner's 
proportionate share of receipts and employees are from populated or 
unpopulated joint ventures. Thus, while populated joint ventures are no 
longer eligible to submit offers for small business contracts, receipts 
and employees from populated joint ventures are still attributable to 
the underlying joint venture partners for size purposes. This rule 
corrects the above misconception by clarifying that a concern must 
include in its receipts and employee count its proportionate share of 
joint venture receipts and joint venture employees, respectively, 
regardless of whether the joint venture is populated or unpopulated.

List of Subjects in 13 CFR Part 121

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

    Accordingly, 13 CFR part 121 is corrected by making the following 
correcting amendment:

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 revising the paragraph heading and the first 
and second sentences of paragraph (h) introductory text to read as 
follows:


Sec.  121.103   How does SBA determine affiliation?

* * * * *
    (h) Receipts/employees attributable to joint venture partners. For 
size purposes, a concern must include in its receipts its proportionate 
share of joint venture receipts (whether that joint venture is 
populated or unpopulated), 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 (whether the joint venture is 
populated or unpopulated). * * *
* * * * *

Antonio Doss,
Deputy Associate Administrator, Office of Government Contracting and 
Business Development.
[FR Doc. 2021-28256 Filed 1-4-22; 8:45 am]
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