[Federal Register Volume 89, Number 164 (Friday, August 23, 2024)]
[Proposed Rules]
[Pages 68274-68319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18325]



[[Page 68273]]

Vol. 89

Friday,

No. 164

August 23, 2024

Part III





 Small Business Administration





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





HUBZone Program Updates and Clarifications, and Clarifications to Other 
Small Business Programs; Proposed Rule

  Federal Register / Vol. 89 , No. 164 / Friday, August 23, 2024 / 
Proposed Rules  

[[Page 68274]]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, 125, 126, 127, 128, 134

[Docket ID SBA-2024-0007]
RIN 3245-AH68


HUBZone Program Updates and Clarifications, and Clarifications to 
Other Small Business Programs

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) 
proposes to amend its regulations governing the Historically 
Underutilized Business Zone (HUBZone) Program to clarify certain 
policies. In 2019, SBA published a comprehensive revision to the 
HUBZone Program regulations, which implemented changes intended to make 
the HUBZone Program more efficient and effective. This proposed rule is 
intended to clarify and improve policies surrounding some of those 
changes. In particular, the rule proposes to require any certified 
HUBZone small business to be eligible as of the date of offer for any 
HUBZone contract. SBA also proposes to make several changes to SBA's 
size and 8(a) Business Development (BD) regulations, as well as some 
technical changes to the Women-Owned Small Business (WOSB) and Veteran 
Small Business Certification (VetCert) programs. Of note, the proposed 
rule would delete the program specific recertification requirements 
contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert 
and move them to a new section that would cover all size and status 
recertification requirements. This should ensure that the size and 
status requirements will be uniformly applied.

DATES: Comments must be received on or before October 7, 2024.

ADDRESSES: You may submit comments, identified by Docket No. SBA-2024-
0007 or RIN 3245-AH68, by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov and 
follow the instructions for submitting comments.
     Mail (for paper submissions): Laura Maas, HUBZone Program, 
409 Third Street SW, Washington, DC 20416.
    Instructions: All submissions received must include the agency name 
and docket number or Regulatory Information Number (RIN) for this 
rulemaking. All comments received will be posted on http://www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at http://www.regulations.gov, please submit the comments to Laura Maas and 
highlight the information that you consider to be CBI and explain why 
you believe this information should be held confidential. SBA will make 
a final determination as to whether the comments will be published or 
not.

FOR FURTHER INFORMATION CONTACT: Laura Maas, Deputy Director, Office of 
HUBZone, (202) 205-7341, [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On November 26, 2019, SBA published the first comprehensive 
revision of the HUBZone Program regulations since the program's 
implementation more than 20 years ago. 84 FR 65222. The revisions were 
intended to clarify current HUBZone Program policies and procedures and 
implement changes to make the HUBZone Program more efficient and 
effective. This proposed rule would make additional clarifications to 
the program regulations to reflect SBA policies established in response 
to feedback received in the time since the publication of the 
comprehensive revision.
    SBA also made a number of revisions to the HUBZone regulations as 
part of its implementation of section 1701 of the National Defense 
Authorization Act for Fiscal Year 2018 (NDAA 2018), Public Law 115-91, 
Dec. 12, 2017. Included within that rulemaking were revisions freezing 
the HUBZone map until the results of the 2020 census were released; 
authorizing ``legacy HUBZone employees''; requiring annual 
recertification; implementing one-year certification and requiring 
HUBZone firms to be eligible on each anniversary of their HUBZone 
certification date; and requiring HUBZone firms to be HUBZone-certified 
at the time of offer for any HUBZone contract, with eligibility 
relating back to their certification anniversary date and removing the 
requirement for HUBZone small businesses to be eligible at the time of 
award of a HUBZone contract.
    In the time since SBA published the comprehensive revision, the 
Office of the HUBZone Program has received questions and information 
that prompted refinement and clarification of policies contained in 
that revision, which SBA published in ``Frequently Asked Questions'' in 
February 2020 and in subsequent updates. This proposed rule would 
incorporate some of those clarifications and make other refinements in 
the HUBZone regulations, including requiring HUBZone firms to be 
eligible on the date of offer for a HUBZone contract and relieving the 
burden of annual recertification by moving to a triennial 
recertification requirement. In addition, this proposed rule would 
clarify policies related to ``Governor-designated covered areas,'' 
which were authorized by the NDAA 2018 and implemented through a direct 
final rule published by SBA on November 15, 2019. 84 FR 62447.
    Further, in response to concerns related to potential fraud and 
abuse in the program, SBA is proposing to amend the definition of the 
term ``employee'' by raising the minimum number of work hours necessary 
for an individual to count as an employee for HUBZone program purposes.
    The proposed rule would also make several changes to SBA's size and 
8(a) business development (BD) regulations, as well as some technical 
changes to the women-owned small business (WOSB) and the Veteran Small 
Business Certification (VetCert) programs. Of note, the proposed rule 
would delete the program specific recertification requirements 
contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert 
and move them to a new section that would cover all size and status 
recertification requirements. Currently, there is some language 
contained in the program specific recertification rules that is not 
identical in each of the programs. This has caused some confusion as to 
whether SBA intended the rules to be different in certain cases. That 
was not SBA's intent. Moving all size and recertification to new Sec.  
125.12 should alleviate any confusion between the different programs 
and ensure that the size and status requirements will be uniformly 
applied.

II. Section-by-Section Analysis

Sections 121.103(a)(3), 124.106(h), 127.202(h) and 128.203(j)(6)

    SBA proposes to amend its rules on affiliation in the size 
regulations and control in the 8(a) BD, WOSB and VetCert program 
regulations regarding negative control. Specifically, this proposed 
rule would make the negative-control rules consistent across SBA's 
various programs. The negative control provision states that a concern 
may be deemed controlled by, and therefore affiliated with, a minority 
shareholder that has the ability to prevent a quorum or otherwise block 
action by the board of directors or shareholders. The rule does not 
include any specific exceptions, though some have

[[Page 68275]]

developed through caselaw at SBA's Office of Hearings and Appeals 
(OHA). See, e.g., Southern Contracting Solutions III, LLC, SBA No. SIZ-
5956 (Aug. 30, 2018).
    This proposed rule would first amend Sec.  121.103(a)(3) by adding 
language currently contained in the VetCert rules that developed from 
OHA case law to clarify that there are certain ``extraordinary 
circumstances'' under which a minority shareholder may have some 
decision-making authority without a finding of negative control. 
Specifically, SBA will not find that a lack of control exists where a 
qualifying individual or business does not have the unilateral power 
and authority to make decisions regarding: (1) adding a new equity 
stakeholder; (2) dissolution of the company; (3) sale of the company or 
all assets of the company; (4) the merger of the company; (5) the 
company declaring bankruptcy; and (g) amendment of the company's 
governance documents to remove the shareholder's authority to block any 
of (1) through (5). These exceptions to negative control are being 
implemented to promote consistency with other SBA contracting programs 
(see Sec.  128.203(j)).
    This rule proposes to add the same language to a new Sec.  
124.106(h) for the 8(a) BD program and to Sec.  127.202(h) for the WOSB 
program. Finally, since the current VetCert regulations have only the 
first five exceptions for control and this rule would add six to the 
size, 8(a) BD and WOSB regulations, the proposed rule would add that 
same sixth exception to the VetCert regulations also. That addition 
would be a new Sec.  128.203(j)(6). Through this proposed rule, SBA 
would add explicit exceptions to the negative-control provision for all 
programs for which control is an eligibility element. This would permit 
all small businesses to seek equity funding without becoming affiliated 
with the investors solely because of a broad interpretation of the 
negative-control rule. SBA specifically requests comments as to whether 
the six identified exceptions are sufficient or whether one or more 
additional exceptions should also be included in the regulations.

Section 121.103(h)

    Section 121.103(h)(3) sets forth SBA's ``ostensible subcontractor'' 
rule, which may find a prime contractor ineligible for the award of any 
small business contract or order where a subcontractor that is not 
similarly situated (as that term is defined in Sec.  125.1) performs 
primary and vital requirements of a contract, order, or agreement, or 
where the prime contractor is unusually reliant on such a 
subcontractor. The current regulatory text provides that a contractor 
and its ostensible subcontractor are treated as joint venturers for 
size determination purposes, and as long as each concern is small under 
the size standard corresponding to the relevant North American Industry 
Classification System (NAICS) code or the prime contractor is small and 
the subcontractor is its SBA-approved mentor, the arrangement will 
qualify as a small business. That language has caused some confusion. 
In the context of a subcontractor that is an SBA-approved mentor of the 
prime contractor, in treating the relationship ``as a joint venture'', 
SBA intended to allow the relationship to qualify as a small business 
only if all the joint venture requirements were met. That would mean 
that the prot[eacute]g[eacute] and mentor have an underlying joint 
venture agreement that meets the requirements of Sec.  125.8(b), the 
prot[eacute]g[eacute] will direct and have ultimate responsibility for 
the contract, and the performance of work requirements set forth in 
Sec.  125.8(c) will be met. In a prime-subcontractor relationship, 
those requirements are not present and SBA would aggregate the 
revenues/employees of such ``joint ventures'' in determining size. 
Unfortunately, without clearly specifying SBA's intent, the current 
regulation could be read to allow mentors to be found to be ostensible 
subcontractors while not meeting the normal joint venture requirements. 
That was not SBA's intent. This proposed rule would simplify Sec.  
121.103(h) by eliminating the reference to a joint venture and instead 
specify that an offeror is ineligible as a small business concern, an 
8(a) small business concern, a certified HUBZone small business 
concern, a WOSB/EDWOSB, or a VO/SDVO small business concern where SBA 
determines there to be an ostensible subcontractor relationship.
    This proposed rule would also make a corresponding change to Sec.  
121.702(c)(7) for the SBIR program. That change would provide that a 
concern with an other than small ostensible subcontractor cannot be 
considered a small business concern for SBIR and STTR awards.

Section 121.104

    Section 121.104 defines the term annual receipts to mean all 
revenue in whatever form received or accrued from whatever source, 
including from the sales of products or services, interest, dividends, 
rents, royalties, fees, or commissions, reduced by returns and 
allowances. It goes on to state that generally, receipts are considered 
``total income'' plus ``cost of goods sold'' as these terms are defined 
and reported on Internal Revenue Service (IRS) tax return forms. The 
section also provides that Federal income tax must be used to determine 
the size status of a concern. There has been some confusion as to 
whether SBA is restricted in all circumstances to examining only a 
concern's tax returns or whether SBA may look at other information if 
it appears or there is other information suggesting that the tax 
returns do not adequately capture a concern's total revenue. The 
proposed rule clarifies that SBA will always consider a concern's tax 
returns, but may also consider other relevant information in 
appropriate circumstances in determining whether the concern qualifies 
as small.

Section 121.404

    SBA proposes to simplify and reorganize Sec.  121.404, which 
addresses the date used to determine size for size certifications and 
determinations. The proposed changes would not alter the substance of 
SBA's rules regarding the date to determine size, but rather seek to 
clarify the current rules and make them easier to understand and apply. 
In addition to these clarifications, SBA is proposing substantive 
changes to the rules regarding size recertification and proposes to 
remove paragraph (g) on size recertification and relocate that 
paragraph to new section 125.12, which addresses size and small 
business program status recertification.
    Generally, a concern (including its affiliates) must qualify as 
small under the NAICS code assigned to a contract as of the date the 
concern submits a self-certification that it is small to the procuring 
activity as part of its initial offer or response which includes price. 
Once awarded a contract as a small business, a concern is generally 
considered to be a small business throughout the life of that contract. 
For orders and agreements issued under multiple award contracts, the 
date that size is determined depends on whether the underlying multiple 
award contract was awarded on an unrestricted basis or whether it was 
set aside or reserved 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/economically 
disadvantaged women-owned small business).
    Where an order or agreement is to be set aside for small business 
under an unrestricted multiple award contract, size is determined as of 
the date of initial offer (or other formal response to a solicitation), 
including price, for each

[[Page 68276]]

order or agreement placed against the multiple award contract. In that 
scenario, the order or agreement is the first time that size status is 
important to eligibility. That is the first time that only some 
contract holders will be eligible to compete for the order or agreement 
while others will be excluded from competition because of their size 
status. SBA repeats here its view that SBA never intended to allow a 
firm's self-certification for the underlying unrestricted multiple 
award contract to control whether a firm is small at the time an order 
or agreement is set-aside for small business years after the multiple 
award contract was awarded.
    Where the underlying multiple award contract was set aside or 
reserved for small business, size status will generally flow down from 
the underlying contract to the order or agreement, unless 
recertification is requested by a contracting officer with respect to 
an agreement or order. As such, size status for an order or agreement 
under a multiple award contract that itself was set aside or reserved 
for small business is determined as of the date of initial offer, 
including price, for the multiple award contract, unless size 
recertification is requested by the contracting officer in connection 
with a specific order or agreement.
    This rule proposes to also clarify that where a contracting officer 
requests size recertification with respect to a specific order or 
agreement, size is determined as of the date of initial offer (or other 
formal response to a solicitation), including price, for that specific 
order or agreement only. The requirement to recertify applies only to 
the order or agreement for which a contracting officer requested 
recertification. The recertification does not apply to the underlying 
contract. Where an initially-small contract holder has naturally grown 
to be other than small and could not recertify as small for a specific 
order or agreement for which a contracting officer requested 
recertification, it may continue to qualify as small for other orders 
or agreements where a contracting officer does not request 
recertification.
    If size recertification is triggered by a merger, sale, or 
acquisition; or because it is a long-term contract in the fifth year of 
performance, size will be determined as of the date of the merger, 
sale, or acquisition occurred, or the date of the size recertification 
in the case of a recertification in the fifth year of a long-term 
contract. The impact of a disqualifying recertification, the events 
that require recertification, and the timing of recertification, are 
discussed in detail in 125.12, which is a new proposed section of SBA's 
regulations.
    To summarize and clarify, there are three, narrow exceptions to the 
general rule that the date on which size is determined for an order or 
agreement against a multiple award contract is dependent on whether the 
underlying multiple award contract was set aside for small business or 
unrestricted. The first exception is for set-aside orders or agreements 
to be placed against GSA's Federal Supply Schedule (FSS) Multiple Award 
Schedule (MAS) contracts, which is an unrestricted vehicle. Unlike set-
side and reserved orders issued under unrestricted multiple award 
contracts where size status is determined at the date of the offer for 
the order, for FSS orders size status is determined as of the date of 
offer for the underlying FSS contract. This exception does not apply 
when any trigger for size recertification occurs under Sec.  125.12, 
including when a contracting officer requests a size recertification 
with the offer for a specific order or agreement that is set-aside for 
small businesses against the FSS MAS.
    SBA provides this clarification in response to a recent decision of 
the Government Accountability Office (GAO) in Washington Business 
Dynamics, LLC, B-421953, B-421953.2 (Dec. 18, 2023), which cites to 
several OHA decisions. SBA believes both GAO and OHA misinterpret SBA's 
regulations. In its decision, GAO extended the FSS exception to apply 
to size recertifications for orders placed under other multiple award 
contracts. When a contracting officer requests recertification of size 
with respect to an order or agreement, the FSS exception does not 
apply. If there is a disqualifying size recertification in response to 
any event in 125.12, including a merger, sale, or acquisition, the 
concern must notify the contracting officer for the underlying multiple 
award contract and the contracting officer for all existing orders, and 
update its SAM.gov profile to reflect its current size status. The 
concern is no longer eligible for set-aside orders or agreements 
against the FSS MAS. In those instances, size is determined as of the 
date that the triggering event occurred or offer for the particular 
order or agreement, depending on the cause for recertification.
    The second exception is for 8(a) sole source awards issued against 
multiple award contracts, regardless of whether the underlying multiple 
award contract is unrestricted, set-aside (even if the underlying 
multiple award contract itself was set-aside or reserved as an 8(a) 
award), or under the GSA's FSS MAS contracts. SBA has always required 
an 8(a) Participant to qualify as eligible (to still be an active 
Participant in the 8(a) program, qualify as small, and meet all other 
eligibility criteria) at the time of any 8(a) sole source award. In 
terms of size for a specific 8(a) sole source order or agreement under 
a multiple award contract, including GSA's FSS MAS contracts, the 
concern must qualify as small for the size standard corresponding to 
the NAICS code assigned to the order or agreement on the date of 
initial offer for and award of the order or agreement.
    The third exception applies when size recertification is triggered 
pursuant to any scenario outlined in new Sec.  125.12, including when a 
contracting officer requests recertification of size for a particular 
order or agreement against a multiple award contract. To be clear, when 
a recertification of size is triggered, the date to determine size is 
outlined in new section 125.12, and is typically the date of the 
triggering event, but may be the date of initial offer for a particular 
order or agreement if a contracting officer requested recertification 
with the offer. Size recertification is an essential tool that ensures 
small business awards continue to be entered into with entities that 
are small at the time of offer for a particular award. As such, when 
the requirement for recertification is triggered, the date to determine 
size shifts to a date that coincides with either the triggering event 
or the date of initial offer for a particular award (except for sole 
source 8(a) awards as noted above).

Section 121.1001

    Section 121.1001 identifies who may initiate a size protest or 
request a formal size determination in different instances. Paragraph 
121.1001(b)(2)(ii) identifies who may request a formal size 
determination where SBA cannot verify that an 8(a) Participant is small 
for a specific sole source or competitive 8(a) contract. There have 
been a few cases where SBA initially determined that a Participant 
qualified as small for a sole source 8(a) contract, but later received 
information that questioned that determination. Under a strict reading 
of Sec.  121.1001(b)(2)(ii), SBA could not then request a formal size 
determination because the wording of Sec.  121.1001(b)(2)(ii) 
authorized such a request only where SBA ``cannot verify the 
eligibility of the apparent successful offeror because SBA finds the 
concern to be other than small.'' Since verification, albeit initial 
verification only, had already occurred, some have questioned whether 
SBA could request a formal size determination at all in that

[[Page 68277]]

context. SBA notes that it was never SBA's intent to prohibit further 
analysis of an 8(a) Participant's size eligibility when new information 
becomes available to SBA that questions the firm's eligibility at any 
point prior to award. SBA seeks to ensure that only firms that qualify 
as small receive 8(a) contracts. This proposed rule would add a new 
Sec.  121.1001(b)(2)(iii) to specifically authorize SBA to request a 
formal size determination where SBA initially verified the eligibility 
of an 8(a) Participant for the award of an 8(a) contract but then 
subsequently receives specific information that the Participant may be 
other than small and consequently ineligible.
    This rule also proposes to add a new Sec.  121.1001(b)(12) to 
specifically authorize requests for formal size determinations relating 
to size recertifications required by Sec.  125.12. Section 125.12 
requires a concern to recertify its size when there is a merger, 
acquisition, or sale and prior to the sixth year and every option 
thereafter of a long-term contract. Although SBA and the relevant 
contracting officer may file a size protest before or after the award 
of a contract (see Sec.  121.1004(b)), the regulations do not currently 
specifically authorize a protest or a request for a formal size 
determination in connection with a size recertification. More 
importantly, there currently is no mechanism to allow a protest or 
request for a formal size determination from another interested small 
business concern who believes that a size recertification is incorrect. 
For example, on a multiple award contract, if after a merger or 
acquisition a concern re-certifies itself to be small, another contract 
holder on that multiple award contract could not currently challenge 
that recertification. Because the proposed rule would render a concern 
ineligible for orders set aside for small business or set aside for a 
specific type of small business under a multiple award contract where 
the concern submits a disqualifying recertification (see Sec.  125.12 
below), SBA believes that other contract holders should have the 
ability to question a size recertification. The proposed rule would 
specifically authorize the contracting officer, the relevant SBA 
program manager, or the Associate General Counsel for Procurement Law 
to request a formal size determination. The relevant SBA program 
manager is that individual overseeing the program relating to the 
contract at issue. For an 8(a) contract, that would be the Associate 
Administrator for Business Development; for a HUBZone contract, that 
would be the Director of HUBZones; and for a small business set-aside, 
WOSB/EDWOSB or SDVOSB contract, that would be the Director of 
Government Contracting. The proposed rule would also specify that in 
connection with a size recertification relating to a multiple award 
contract, any contract holder on that multiple award contract could 
request a formal size determination in addition to the contracting 
officer, the relevant SBA program manager, or the Associate General 
Counsel for Procurement Law. As with a size protest, a request for a 
formal size determination questioning the size of a concern after its 
size recertification must be sufficiently specific to provide 
reasonable notice as to the grounds upon which the recertifying 
concern's size is questioned.
    SBA is also considering allowing a size protest in connection with 
the award of an order issued under a multi-agency multiple award 
contract where the protest relates to the ostensible subcontractor 
rule. Whether a large business subcontractor will perform primary and 
vital requirements or whether a small business prime contractor will be 
unduly reliant on a large business subcontractor will not be an issue 
at the time of award of an underlying small business multiple award 
contract. It is at the order level where undue reliance may become an 
issue. SBA requests comments regarding whether SBA should implement a 
regulatory provision authorizing such a protest.

Section 121.1010

    Section 121.1010 explains how a concern can become recertified as a 
small business after receiving an adverse size determination. This 
proposed rule would make slight wording changes to Sec.  121.1010(b) to 
make clear that size recertification is not required and the 
prohibition against future self-certification does not apply if the 
adverse SBA size determination is based solely on a finding of 
affiliation limited to a particular Government procurement or property 
sale, such as an ostensible subcontracting relationship or non-
compliance with the nonmanufacturer rule.

Section 124.3

    Section 124.3 sets forth the definitions that are important in the 
8(a) BD program. Included within this section is the definition of the 
term Community Development Corporation or CDC. In 1981, Congress 
enacted the Omnibus Reconciliation Act. Included within Title VI of 
this Act was Sec.  626(a)(2), codified at 42 U.S.C. 9815(a)(2), which 
required SBA to ``promulgate regulations to ensure the availability to 
community development corporations of such programs as shall further 
the purposes of this subchapter, including programs under section 8(a) 
of the Small Business Act.'' Pursuant to 42 U.S.C. 9802, a CDC is 
defined as a non-profit organization responsible to the residents of 
the area it serves which is receiving financial assistance under 42 
U.S.C. 9805, et seq. Under 42 U.S.C. 9806 the Secretary of Health and 
Human Services (HHS) has the authority to provide financial assistance 
in the form of grants to nonprofit and for-profit community development 
corporations. The program authorized by 42 U.S.C. 9805, et seq. is the 
Department of Health and Human Services (HHS) Urban and Rural Special 
Impact Program. In 1998, as part of Community Opportunities, 
Accountability, and Training and Educational Act of 1998, Public Law 
105-285, 202(b)(1), 112 Stat. 2702, 2755 (1998), Congress moved HHS' 
funding authority for the Urban and Rural Special Impact Program from 
42 U.S.C. 9803 to 42 U.S.C. 9921. Thus, after that date CDCs could not 
receive funding under 42 U.S.C. 9805, et seq. CDCs that have been in 
existence for a long time may still be able to demonstrate that they 
have received funding under 42 U.S.C. 9805, et seq. However, those 
forming after 1998 could not do so. In order for such a CDC seeking to 
participate in the 8(a) BD program after that date, SBA has required 
the CDC to obtain a letter from HHS confirming that the CDC has 
received funding through the successor program to that authorized by 42 
U.S.C. 9805, et seq. However, SBA's regulations have not been changed 
to acknowledge eligibility for a CDC-owned firm through that process. 
The proposed rule would recognize that process. The proposed rule would 
also make the same change to the definition of the term Community 
Development Corporation or CDC contained in Sec.  126.103 for the 
HUBZone program.

Sections 124.105(b), 127.202(d) and 128.202(c)

    Sections 124.105(b) (for the 8(a) BD program), 127.202(d) (for the 
WOSB program), and 128.202(c) (for VetCert program) set forth ownership 
requirements pertaining to partnerships. The language of the three 
sections is not consistent. SBA seeks to harmonize the provisions so 
that a firm simultaneously applying to be certified in more than one 
program must meet the same requirements. SBA does not want possible 
contradictory determinations based on the same facts. In other words, 
SBA believes that it would be

[[Page 68278]]

inappropriate to find that a qualifying individual controls a 
partnership firm for purposes of one certification program but not to 
control the same partnership firm for purposes of another certification 
program. This rule would revise the ownership requirements for 
partnership to be identical for the 8(a) BD, WOSB and VetCert programs.

Section 124.105

    Section 124.105 sets forth the ownership requirements that an 
applicant to or Participant in the 8(a) BD program must meet in order 
to be and remain eligible for the program. Paragraph 124.105(h) 
provides certain ownership restrictions that are applicable to non-
disadvantaged individuals and concerns that seek to have an ownership 
interest in an applicant or Participant. The regulation currently 
provides that a non-disadvantaged individual or another business 
concern in the same or similar line of business generally cannot own 
more than a 10 percent interest in a Participant that is in the 
developmental stage or more than a 20 percent interest in a Participant 
in the transitional stage of the program. The proposed rule would 
increase the allowable ownership percentages for non-disadvantaged 
individuals and business concerns in the same or similar line of 
business from 10 and 20 percent to 20 and 30 percent. By changing 10 
percent to 20 percent, the proposed rule would make this ownership 
restriction consistent with that contained in Sec.  124.108(a)(4). It 
then follows that the current 20 percent ownership restriction for the 
transitional stage would also be correspondingly increased, which is 
why the proposed rule would raise that restriction to 30 percent.
    Paragraph (i) sets forth the requirements relating to changes of 
ownership. Generally, a Participant may change its ownership or 
business structure so long as one or more disadvantaged individuals own 
and control it after the change and SBA approves the transaction in 
writing prior to the change. Paragraph 124.105(i)(2) authorizes three 
exceptions as to when prior SBA approval of a change of ownership is 
not needed and provides four examples implementing the change of 
ownership requirements, one showing when prior SBA approval is required 
and three showing when it is not. Prior SBA approval 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. To be consistent with 
the proposed change to Sec.  124.105(h) above, the proposed rule would 
require prior approval only where a non-disadvantaged individual owns 
more than a 30 percent interest in the 8(a) Participant either before 
or after the transaction. The proposed rule would also add a fourth 
exception as to when prior SBA approval is not required. Specifically, 
the proposed rule would specify that prior SBA approval is not required 
where the 8(a) Participant has never received an 8(a) contract. The 
rule would then clarify that where prior approval is not required, the 
Participant must notify SBA within 60 days of such a change in 
ownership, or before it submits an offer for an 8(a) contract, 
whichever occurs first. SBA must be able to determine the continued 
eligibility of the Participant before it accepts a sole source 8(a) 
procurement on behalf of or authorizes the award of a competitive 8(a) 
award to the Participant. Finally, the rule would make changes to the 
examples set forth in Sec.  124.105(i)(2) to reflect the change from 20 
percent to 30 percent and would add a fifth example highlighting that 
prior SBA approval is not required where a Participant has never 
received an 8(a) contract.
    Paragraph 124.105(k) currently provides generally that SBA 
considers applicable state community property laws in determining 
ownership interests when an owner resides in a community property 
state. Under that provision, a transfer or relinquishment of interest 
by the non-disadvantaged spouse may be necessary in some cases to 
establish eligibility for the 8(a) BD program. SBA initially 
promulgated this provision in order to comply with the statutory 
requirement that an 8(a) concern must be at least 51 percent 
``unconditionally'' owned one or more socially and economically 
disadvantaged individuals. Upon reexamination, SBA believes that it may 
not be necessary to consider community property laws when determining 
that a specific individual does in fact ``unconditionally'' own an 
applicant or Participant. In order to align the 8(a) BD ownership 
requirements with those applicable in the WOSB and VetCert programs, 
SBA proposes to eliminate Sec.  124.105(k). SBA requests comments as to 
whether not considering community property laws complies with the 
unconditional ownership requirement and whether previously required 
transmutation agreements (i.e., agreements between spouses 
relinquishing some percentage of his or her community property 
ownership rights in an applicant or Participant) are permissible under 
state law.
    The proposed rule would add a new Sec.  124.105(k) to allow a right 
of first refusal granting a non-disadvantaged individual the 
contractual right to purchase the ownership interests of a 
disadvantaged individual without affecting the unconditional nature of 
ownership, if the terms follow normal commercial practices. This would 
align 8(a) ownership requirements with those set forth in the VetCert 
program. Of course, if those rights are exercised by a non-
disadvantaged individual after certification that result in 
disadvantaged individuals owning less than 51% of the concern, SBA will 
initiate termination proceedings. This same provision would be added to 
Sec.  127.201(b) to conform the WOSB unconditional ownership 
requirements as well.
    The proposed rule would also align the language in Sec.  
124.105(f)(1) (for the 8(a) BD program), Sec.  127. (for the WOSB 
program), and Sec.  128.202(g) (for the VetCert program) regarding the 
distribution of profits. There was a slight wording difference in the 
8(a) BD and VetCert regulations and the proposed rule would make the 
wording consistent. The same provision would also be added to the WOSB 
regulations.

Sections 124.106(e), 127.202(g) and 128.203(h)

    Sections 124.106(e) (for the 8(a) BD program), 127.202(g) (for the 
WOSB program), and 128.203(h) (for VetCert program) address limitations 
on the involvement of non-qualifying individuals that can affect a 
business concern's eligibility for participation in the 8(a) BD, WOSB, 
and VetCert programs based on a qualifying individual's lack of 
control. Basically, each of these provisions generally prohibit a non-
qualifying individual from unduly influencing the day-to-day management 
and control of qualifying individuals. The language of the three 
provisions, however, is not entirely consistent. This has led to 
questions as to whether SBA intended different application of the 
control requirements for different programs. In order to clear up any 
confusion, this rule proposes to change the wording of the three 
provisions to bring them more in line with each other to ensure that 
the control requirement is consistently applied. For example, the WOSB 
regulations did not previously contain a provision that generally 
required a qualifying woman to be the highest compensated individual in 
the business concern unless the concern demonstrates that the 
compensation to be received by a non-qualifying woman is commercially 
reasonable or that the qualifying woman has elected to take

[[Page 68279]]

lower compensation to benefit the concern. Such a provision was 
contained previously in both the 8(a) BD and VetCert regulations, and 
the proposed rule would add a similar provision for the WOSB program. 
In connection with the 8(a) BD program, the proposed rule would change 
the requirement that an 8(a) Participant must obtain the prior written 
consent of SBA before changing the compensation paid to the highest-
ranking officer to be below that paid to a non-disadvantaged individual 
to a requirement that the Participant must notify SBA within 30 
calendar days of such an occurrence. SBA believes that notification is 
preferable to prior approval because SBA does not want a Participant to 
lose an individual with a particular expertise where the approval 
process is lengthy. SBA would then have to determine that the 
compensation to be received by the non-disadvantaged individual is 
commercially reasonable or that the highest-ranking officer has elected 
to take lower compensation to benefit the Participant before SBA may 
determine that the Participant is eligible for an 8(a) award.

Section 124.107

    Section 124.107(a) currently provides that an applicant's income 
tax returns for each of the two previous tax years must show operating 
revenues in the primary industry in which the applicant is seeking 8(a) 
BD certification. The proposed rule would revise this provision to 
require merely that an applicant's income tax returns for each of the 
two previous tax years must show operating revenues. Revenue on an 
income tax return may not be aligned by industry or NAICS code and SBA 
does not seek to deny entry to the 8(a) program to a firm that has 
performed work in its projected primary industry but that work may not 
have been properly captured on its tax return.
    Section 124.107(e) requires that, as a condition to show an 8(a) 
applicant's potential for success, the applicant or individuals 
employed by the applicant must hold all requisite licenses if the 
concern is engaged in an industry requiring professional licensing 
(e.g., public accountancy, law, professional engineering). Generally, 
the potential-for-success requirements carry out the requirement in 
section 8(a)(7)(A) of the Small Business Act, 15 U.S.C. 637(a)(7)(A), 
that SBA determine that an 8(a) applicant have reasonable prospects for 
success in competing in the private sector. That same statutory 
provision, however, requires SBA to determine that with contract, 
financial, technical, and management support the applicant will be able 
to perform contracts which may be awarded to it. As such, SBA believes 
that issues of current responsibility should not prevent an applicant 
from being eligible for the 8(a) BD program where SBA believes that the 
business concern will be able to perform contracts awarded to it with 
certain contract, financial, technical, or management support. Although 
a business concern applying to the 8(a) BD program that does not have a 
required professional license may not currently be responsible to be 
awarded certain 8(a) contracts, as long as SBA determines that the 
concern would be able to perform such contracts with appropriate 
support, SBA believes that the concern should be eligible for 
participation in the 8(a) BD program. The current section 124.107(e) 
affects relatively few businesses because it applies only to those in 
an industry requiring a professional license. This rule proposes to 
remove this professional-licensing requirement. It is not only 
inapplicable to most applicants, it also can be overcome before any 
8(a) contract opportunity is sought by those concerns to which it 
applies. SBA also considered changing the current license provision to 
requiring an applicant to acknowledge that a license is needed for its 
primary business and to certify that it has such a license or will 
obtain a license when performing a contract. SBA requests comments on 
both alternatives.

Section 124.108

    Section 124.108 sets forth other eligibility requirements that 
apply to 8(a) applicants and Participants. One of those requirements is 
that SBA must determine that an applicant or Participant and all of its 
principals possess good character. The 8(a) BD program is one of 
several certification programs to help small businesses win federal 
contracting awards, but the scope of the 8(a) BD program is different. 
For the WOSB and VetCert programs, SBA only determines whether a small 
business applicant is owned and controlled by one or more qualifying 
individuals. SBA does not look at character or business integrity in 
determining whether a small business is owned and controlled by 
qualifying individuals. Similarly, for the HUBZone program, SBA only 
determines whether the small business applicant is located in and 
employs residents of a historically underutilized business zone. SBA 
certification of these qualifications allows the certified small 
businesses to compete for certain federal contracts. These are not 
business development programs. Although SBA determines whether an 8(a) 
small business applicant is owned and controlled by one or more 
qualifying individuals, the program is not limited to this 
certification. Its scope is broader and includes a multi-year business 
development program with eligibility for specific management and 
technical assistance from SBA to support the business's successful 
competition in the marketplace. SBA requires ``good character'' to be 
admitted to this development program.
    The proposed rule would limit the grounds that would serve as an 
automatic, mandatory bar from participation in the 8(a) BD program 
based on good character (i.e., either an application denied or possible 
termination action commenced against a current Participant). It would 
remove the automatic bar for ``possible criminal conduct'' and amend 
the lack of business integrity bar to lack of business integrity as 
demonstrated by conduct that could be grounds for suspension or 
debarment. Expanding access to the 8(a) BD program aids the federal 
government's goal of helping small businesses win at least 23% of 
federal contracting dollars each year. The 8(a) BD program gives 
socially and economically disadvantaged small businesses access to 
important tools and training to help them become stronger competitors 
in the marketplace. The proposed rule also will facilitate employment 
opportunities for individuals with criminal history records. Research 
demonstrates that employment increases success during reentry, 
decreases the risk of recidivism, and strengthens both public safety 
and economic opportunity. Research also demonstrates that 
entrepreneurship provides an important and distinct avenue for economic 
stability given persistent stigma from employers who may decline to 
hire people with criminal history records. Notably, SBA found several 
studies showing the difficulty of obtaining employment for formerly 
incarcerated people (see, e.g., Investigating Prisoner Reentry: The 
Impact of Conviction Status on the Employment Prospects of Young Men; 
\1\ from the Department of Justice's National Institute of Justice 
Grant) and a positive link between employment and successful reentry, 
including preventing recidivism (see, e.g., Local Labor Markets and 
Criminal

[[Page 68280]]

Recidivism \2\ in the Journal of Public Economics). Moreover, because 
individuals with criminal history records may face barriers in 
obtaining employment, entrepreneurship can be a productive option, and 
SBA found several studies showing the potential for entrepreneurship 
among individuals with criminal records (see, e.g., From Prison to 
Entrepreneurship \3\ in the American Academy of Political and Social 
Science).
---------------------------------------------------------------------------

    \1\ Investigating Prisoner Reentry: The Impact of Conviction 
Status on the Employment Prospects of Young Men. Investigating 
Prisoner Reentry National Institute of Justice Grant, Final Report., 
October 2009.
    \2\ Local Labor Markets and Criminal Recidivism, ScienceDirect, 
Journal of Public Economics, Volume 147, March 2017, Pages 16-29
    \3\ From Prison to Entrepreneurship: Can Entrepreneurship be a 
Reentry Strategy for Justice-Impacted Individuals? https://doi.org/10.1177/00027162221115378, Sage Journals, Volume 701, Issue 1, 
September 14, 2022.
---------------------------------------------------------------------------

    SBA will continue to conduct internal checks related to an 
applicant's business integrity that includes the applicant's criminal 
history, and consider all factors in evaluating whether an applicant 
would be a good candidate to participate in the 8(a) BD program. SBA 
will consider each application individually. The proposed rule does not 
change business integrity requirements of procuring agency contracting 
officers or any business integrity evaluations done by them. Procuring 
agency contracting officers evaluate offerors' responsibility to 
perform federal contracts prior to award, a process that can include an 
evaluation of business integrity.
    Where fraudulent activity occurs after a firm is admitted to the 
8(a) BD program, whether that activity results in an indictment, 
conviction, civil judgment or not, SBA may immediately move to protect 
the Government's interests. This could be through suspension/
termination from the 8(a) BD program or through a Government-wide 
suspension/debarment action. The existence of a cause for suspension, 
termination or debarment, however, does not necessarily require that 
the Participant be suspended, terminated or debarred. SBA will consider 
the seriousness of the Participant's acts or omissions and any remedial 
measures or mitigating factors made by the Participant.

Sections 124.108(e), 126.200(h), 127.200(h), and 128.201(b)

    Sections 124.108(e) (for the 8(a) BD program) and 128.201(b) (for 
the VetCert program) provide generally that a small business concern is 
ineligible for certification if the concern or any of its principals 
has failed to pay significant financial obligations owed to the Federal 
Government. A similar provision is not currently contained in the WOSB 
or HUBZone eligibility requirements. This rule proposes to apply that 
restriction to the WOSB and HUBZone programs as well. To ensure 
consistency among the programs, the rule would also revise the language 
in Sec. Sec.  124.108(e) and 128.201(b) so that the regulatory language 
applying to all four programs is the same.

Sections 124.204(d), 126.306(d), 127.304(d), and 128.302

    Sections 124.204(d) (for the 8(a) BD program), 126.306(d) (for the 
HUBZone program), 127.304(d) (for the WOSB program), and 128.302 (for 
the VetCert program) set forth the date at which at applicant must be 
eligible for each certification program. The wording of the regulations 
is not consistent. Section 124.204(d) specifies that an applicant must 
be eligible as of the date SBA issues a decision. Section 126.306(d) 
specifies that an applicant must be eligible as of the date it 
submitted its application and at the time SBA issues a decision. 
Section 127.304(d) specifies that an applicant must be eligible as of 
the date it submitted its application and up until the time SBA issues 
a decision. Section 128.302 details how SBA processes applications for 
VOSB and SDVOSB certification, but does not specifically address the 
point at which eligibility is determined. SBA is in the process of 
establishing a uniform application processing system. That system will 
allow a firm to simultaneously apply for multiple certifications for 
which it believes it is eligible. SBA believes that it is critical that 
eligibility be determined at the same point in time for all 
certification programs. If, for example, a firm amends a corporate 
document to come into compliance with a specific control requirement 
after initially submitting its application for the 8(a) BD program and 
the WOSB program, the current regulations would support a finding that 
a qualifying individual did control the applicant for 8(a) BD purposes 
but did not control the applicant for WOSB purposes. SBA believes that 
would be an inappropriate result. Therefore, this proposed rule amends 
each of these sections to require consistent wording that an applicant 
must be eligible as of the date SBA issues a decision. Although the 
proposed rule would specify that an applicant must be eligible as of 
the date SBA issues a decision, implicitly a small business must 
believe that it is eligible at the time it applies for certification 
for any program. For purposes of applying for HUBZone certification, an 
applicant must submit payroll records for the four-week period 
immediately prior to its application date. It would be impossible to 
require payroll records for some unknown future date. After submitting 
an application for any program, a concern must immediately notify SBA 
of any changes that could affect its eligibility and provide 
information and documents to verify the changes.

Sections 124.303(c), 126.503(c), 127.405(f), and 128.310(g)

    The proposed rule would add a new provision to Sec.  124.303(c) 
(for the 8(a) BD program), to Sec.  126.503 (for the HUBZone program), 
to Sec.  127.405(f) (for the WOSB program), and to Sec.  128.310(g) 
(for the VetCert program) providing that a firm that is decertified or 
terminated from one SBA certification program due to the submission of 
false or misleading information may be removed from SBA's other small 
business contracting programs. In addition, the proposed rule would 
provide that SBA may require the firm to enter into an administrative 
agreement as a condition of admission or re-admission to one of the SBA 
certification programs. SBA believes that a firm that submits false 
information to obtain a certification in one program is more likely to 
submit false information to other SBA programs, and SBA needs a 
mechanism by which to investigate whether this has occurred and remove 
non-responsible firms from its programs expeditiously.

Section 124.207

    Section 124.207 provides that 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. It also provides that a concern 
that has been declined three times within 18 months of the date of the 
first 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. The 
proposed rule would remove that second provision. No other program has 
such a restriction and SBA does not seek to thwart firms who have made 
legitimate attempts to overcome deficiencies from again applying to the 
8(a) BD program.

Section 124.503

    Section 124.503 addresses how SBA will accept a procurement offered 
for award through the 8(a) BD program. An agency may offer a sole 
source procurement to SBA nominating a particular 8(a) Participant for 
performance based on the firm's self-

[[Page 68281]]

marketing efforts, or may offer it as an open requirement (i.e., an 
offering to the program generally, but not in support of a particular 
8(a) Participant). SBA's acceptance policies for such offerings are 
contained in Sec. Sec.  124.503(c) and (d), respectively. SBA has long 
recognized the importance of self-marketing in a Participant's business 
development and continued viability. Thus, where an agency offers a 
sole source 8(a) procurement in support of a particular Participant as 
a result of self-marketing and SBA deems it suitable for the program, 
SBA will normally accept it on behalf of the Participant recommended by 
the agency as long as specified eligibility criteria are met. This 
policy was first incorporated in SBA regulations in 1986, 51 FR 36132 
at 36149, but had been previously part of the standard operating 
procedure for the 8(a) BD program.
    Section 303 of the Business Opportunity Development Reform Act of 
1988 (BODRA), Public Law No. 100-656, tit. III, Sec.  303, 102 Stat. 
3865 (1988), adopted and expanded SBA's sole source contract acceptance 
procedures, mandating that SBA shall award a sole source 8(a) contract 
to the 8(a) firm nominated by the offering agency, provided the 
following three statutory criteria are met: (i) the Program Participant 
is determined to be a responsible contractor with respect to 
performance of such contract opportunity; (ii) the award of such 
contract would be consistent with the Program Participant's business 
plan; and (iii) the award of the contract would not result in the 
Program Participant exceeding its 8(a) competitive business mix. This 
mandate is codified in Section 8(a)(16)(A) of the Small Business Act, 
15 U.S.C. 637(a)(16)(A). BODRA also directed SBA to promote--to the 
maximum extent practicable--the equitable geographic distribution of 
sole source 8(a) contracts. In response to BODRA, SBA promulgated a 
rule stating that it would consider, among other things, equitable 
geographic distribution for open 8(a) sole source contracts offered to 
the 8(a) BD program. This policy is currently set forth in paragraph 
124.503(d)(3).
    There has been some confusion as to whether SBA considers equitable 
contract distribution for a follow-on to an 8(a) procurement offered to 
SBA on behalf of a specific 8(a) Participant. In SBA's view, the 
imperative statutory command of Section 8(a)(16)(A) restricts its 
authority to affirmatively deny a contract offering made on behalf of a 
specific Participant based on considerations related to the equitable 
distribution of sole source 8(a) contracts, irrespective of whether the 
procurement is a ``new'' or repetitive 8(a) requirement. The proposed 
rule would clarify this position by providing that Sec.  
124.503(g)(1)(iii) applies only to open sole source 8(a) offerings.

Sections 124.504(a)

    Section 124.504 identifies several reasons why SBA will not accept 
a particular requirement for award through the 8(a) BD program. One of 
those reasons is where the procuring activity issued a solicitation for 
or otherwise expressed publicly a clear intent to award a contract as a 
small business set-aside, or to use the HUBZone, VetCert, or WOSB 
programs prior to offering the requirement to SBA for award as an 8(a) 
contract. This rule proposes to authorize SBA to accept a requirement 
for the 8(a) program where the AA/BD determines that there is a 
reasonable basis to cancel the initial solicitation or, if a 
solicitation had not yet been issued, a reasonable basis for the 
procuring agency to change its initial clear expression of intent to 
procure outside the 8(a) BD program. This would happen, for example, 
where the procuring agency's needs have changed since the initial 
solicitation was issued such that the solicitation no longer represents 
its current need, or where appropriations are no longer available for 
the requirement as anticipated, and the solicitation must be cancelled 
until a following fiscal year where funds are available. A change in 
strategy only (i.e., an agency seeks to solicit through the 8(a) BD 
program instead of through another previously identified program) would 
never constitute a reasonable basis for SBA to accept the requirement 
into the 8(a) BD program.

Section 124.509

    Section 124.509 establishes non-8(a) business activity targets 
(BATs) to ensure that Participants do not develop an unreasonable 
reliance on 8(a) awards. The reason for requiring a certain percentage 
of non-8(a) revenue during a Participant's last five years in the 8(a) 
BD program is to strengthen the Participant's ability to prosper once 
it exits the program. Congress believed that firms that were totally 
reliant on the 8(a) BD program for their revenues would be ill prepared 
to survive as on-going business concerns after leaving the program. As 
such, Congress required a certain percentage of non-8(a) revenue during 
the transitional stage of program participation to bolster 
Participants' continued viability. SBA amended Sec.  124.509 as part of 
a comprehensive final rule in October 2020. See 85 FR 66146, 66189 
(Oct. 16, 2020). In that final rule, SBA recognized 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. SBA 
sought to provide guidance regarding what SBA considers to be good 
faith efforts in a final rule published in April 2023. See 88 FR 26164, 
26208 (April 27, 2023). This rule proposes to provide further guidance 
on how SBA considers unsuccessful offers in determining whether good 
faith efforts have been made. Specifically, in determining the 
projected revenue that SBA will consider in determining whether one or 
more unsuccessful offers submitted by a Participant would have given 
the Participant sufficient revenues to achieve the applicable non-8(a) 
business activity target, the proposed rule would first provide that 
SBA will consider only procurements for which the Participant had 
reasonable prospects of success. The proposed regulatory text would 
include an example showing how revenue for an unsuccessful offer would 
be considered. Where a Participant has never received a contract in 
excess of a relatively small amount (the example cites $5M), SBA would 
not count any revenue from an unsuccessful offer for a contract that 
greatly exceeds what the Participant has previously performed (the 
example points to $100M contract). In such a case, the Participant 
would not have a reasonable prospect of success in submitting an offer 
for a contract that was substantially higher than anything it had 
performed in the past. The proposed rule would also clarify that only 
the value of the base year of the contract for which the Participant's 
offer was unsuccessful would be considered in determining whether the 
Participant made good faith efforts to achieve its non-8(a) BAT. There 
has been some confusion as to whether the value of the entire contract 
or only the value of the base year should be considered in determining 
whether the revenues from that contract, if received, would have 
brought the Participant back into compliance with its BAT. SBA believes 
that it does not make sense to consider more than the revenues from the 
base year of the contract. If the Participant had been successful and 
was awarded that contract, pursuant to Sec.  124.509(b)(3) SBA would 
measure the Participant's compliance with the applicable BAT by 
comparing the Participant's non-8(a) revenue to its total revenue 
during the program year just completed. Thus, SBA would look at the 
non-8(a) revenues

[[Page 68282]]

received, not the total value of the non-8(a) contract that a 
Participant is performing. SBA believes the same should happen when 
considering whether a Participant has made good faith efforts to meet 
its BAT.

Section 124.514(a)(1)

    Section 124.514 provides guidance regarding the exercise of 8(a) 
options and modifications. Paragraph 124.514(a)(1) currently states 
that if a concern has graduated or been terminated from the 8(a) BD 
program or is no longer small under the size standard corresponding to 
the NAICS code for the requirement, negotiations to price the option 
cannot be entered into and the option cannot be exercised. Because the 
regulatory language specifies graduation and termination from the 
program, SBA has received a few inquiries as to whether this provision 
applies to firms that have voluntarily exited the program. SBA has 
always intended this provision to apply to all firms that are no longer 
active Participants in the program. The proposed rule would merely make 
that intent clear by specifically providing that this provision applies 
to all firms whose term of participation in the 8(a) BD program has 
ended or who have otherwise exited the program through any means.

Section 124.518

    Section 124.518(c) 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 that 
contract without invoking the termination for convenience or waiver 
provisions of Sec.  124.515 where SBA determines that substitution 
would serve the business development needs of both 8(a) Participants. 
SBA has seen several instances where a joint venture between an 8(a) 
Participant and a non-8(a) business concern was awarded an 8(a) 
contract and for whatever reason the two firms seek to terminate the 
joint venture and novate the 8(a) contract individually to the 8(a) 
Participant that was the lead partner of the joint venture. If novation 
would occur, performance of the 8(a) contract would remain with an 8(a) 
Participant (i.e., the 8(a) Participant that was the lead partner of 
the joint venture). As such the intent of the program would be 
furthered. It could be argued that the current Sec.  124.518(c) 
authority could be used to novate the 8(a) contract in this instance; 
substitution would serve the business development needs of both the 
initial 8(a) awardee (the joint venture) and the substituting 8(a) 
Participant (the former lead 8(a) partner to the joint venture). 
However, in order to more specifically authorize such a substitution, 
the proposed rule would add a new Sec.  124.518(d). SBA also seeks 
comments on whether it should further define how substitution ``would 
serve the business development needs of both 8(a) Participants.'' For 
example, where a Participant was not in compliance with its applicable 
business activity target, sought to transfer an 8(a) contract to 
another eligible 8(a) Participant through the substitution process and 
then sought to perform a significant portion of that contract as a 
subcontractor to the new 8(a) Participant (to then count the revenue 
from the subcontract as non-8(a) revenue), SBA would not determine that 
such a transfer was in the best interests of the program or serve the 
business development needs of both 8(a) Participants.

Section 124.602

    Section 124.602 sets forth the kind of annual financial statement 
an 8(a) BD Participant submits to SBA, depending upon its gross annual 
receipts. Currently, Participants with gross annual receipts of more 
than $10 million must submit to SBA audited annual financial statements 
prepared by a licensed independent public accountant; Participants with 
gross annual receipts between $2 million and $10 million must submit to 
SBA reviewed annual financial statements prepared by a licensed 
independent public accountant; and Participants with gross annual 
receipts of less than $2 million must submit to SBA an annual statement 
prepared in-house or a compilation statement prepared by a licensed 
independent public accountant. SBA believes that with the value of 
federal contracts greatly increasing over the last few years, the top 
dollar threshold of $10 million is being met by most Participants far 
more frequently. Recognizing that requiring an audited financial 
statement can be a significant cost to many small businesses, this rule 
proposes to require audited financial statements for those Participants 
exceeding $20 million, reviewed financial statements for those 
Participants with gross annual receipts between $5 million and $20 
million, and in-house financial statements for those Participants with 
less than $5 million in annual receipts.

Section 125.2

    SBA's regulations currently make clear that a contracting activity 
cannot conduct a competition requiring multiple socioeconomic 
certifications. In this regard, Sec.  124.501(b) prohibits a 
contracting activity from restricting an 8(a) competition to 
Participants that are also certified HUBZone small businesses, 
certified WOSBs or certified SDVO small businesses. There is a similar 
restriction for the HUBZone program in Sec.  126.609, for the WOSB 
program in Sec.  127.503(e), and for the VetCert program in Sec.  
128.404(d). However, there is no similar specific restriction for small 
business set-asides and reserves. Where a contracting activity seeks to 
require 8(a), HUBZone, WOSB or SDVO certification in addition to status 
as a small business, in essence the contracting activity would be 
soliciting as an 8(a), HUBZone, WOSB or SDVO small business contract. 
That is permissible. Similarly, current Sec.  125.2(e)(6) specifies 
that a contracting officer may set aside orders for eligible 8(a) 
Participants, certified HUBZone small business concerns, SDVO small 
business concerns, WOSBs, and EDWOSBs against total small business set-
aside multiple award contracts. As such, there should be no doubt that 
there can be an order or agreement set-aside or reserved for a specific 
type of small business (i.e., 8(a), HUBZone, WOSB/EDWOSB, or SDVO) 
under a multiple award contract that itself was set aside for small 
business. SBA has been asked whether a contracting activity could 
require multiple certifications through ``a small business set aside''. 
SBA believes that the current program specific regulations identified 
above would prohibit that. In order to eliminate any misinterpretation, 
the proposed rule would add a new Sec.  125.2(c)(6) that would clarify 
that a procuring activity cannot restrict a small business set-aside or 
reserve (for either a contract or order) to require multiple 
socioeconomic program certifications in addition to a size 
certification.

Section 125.3

    Section 125.3 governs subcontracting plans and reporting of 
subcontracting achievements. SBA proposes to extend the due dates for 
subcontracting reports by 15 days, from 30 days to 45 days. SBA also 
would extend the time period for reviewing such reports by 15 days, 
from 60 days to 75 days. These extended time periods recognize that 
prime contractors are under increased reporting burdens because of 
order-level subcontract reporting.

Section 125.6(d)

    Section 125.6 sets forth the limitations on subcontracting that 
apply to a small business prime contractor. A small business prime 
contractor, together with any similarly situated entity, must perform a 
certain specified

[[Page 68283]]

amount of a small business contract and cannot subcontract more than 
that amount to another than similarly qualified small business. 
Paragraph 125.6(d) provides that for a multi-agency set aside contract 
where more than one agency can issue orders under the contract, the 
ordering agency must use the period of performance for each order to 
determine compliance. A question has arisen as to who should monitor 
compliance with such an order, the contracting officer for the 
underlying multi-agency contract or the contracting officer for the 
ordering agency. SBA believes that the contracting officer for the 
ordering agency is in the best position to monitor compliance with the 
limitations on subcontracting for a specific order. As such, the 
ordering contracting officer should monitor compliance throughout 
performance. At the end of performance of the order, the ordering 
contracting officer should inform the contracting officer for the 
underlying multi-agency contract if the ordering contracting officer 
knows that the contractor has failed to meet the applicable limitations 
on subcontracting requirement.
    Additionally, there has been some confusion as to how work 
performed by leased employees is considered in determining compliance 
with the applicable limitation on subcontracting. Paragraph 125.6(d)(3) 
explains that work performed by an independent contractor shall be 
considered a subcontract and will therefore count against the prime 
contractor's limitation on subcontracting unless the independent 
contractor qualifies as a similarly situated entity. Unlike independent 
contractors, employees obtained from a temporary employee agency, 
professional employee organization, or leasing concern perform work 
under the primary direction and control of the recipient concern. For 
this reason, such individuals are treated as employees of the recipient 
concern for purposes of determining that concern's employee count under 
Section 121.106(a). SBA believes the same logic should apply when 
determining a recipient prime contractor's compliance with the 
limitations on subcontracting. Work performed by employees leased to 
the small business prime contractor shall be considered the prime 
contractor's self performance, and therefore will not count against the 
prime contractor's limitation on subcontracting. The proposed rule 
would clarify this position in Sec.  125.6(d)(3).

Section 125.8

    Section 125.8(e) covers how agencies evaluate the capabilities, 
past performance, and experience of joint ventures, including SBA 
mentor-prot[eacute]g[eacute] joint ventures. For SBA mentor-
prot[eacute]g[eacute] joint ventures, section 125.8(e) provides that 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. This provision recognizes 
that prot[eacute]g[eacute]s may be less experienced when submitting an 
offer but, if they win the award, will gain experience and capabilities 
while performing with the mentor. SBA does not require, however, that 
every contract competition include special evaluation criteria for 
prot[eacute]g[eacute]s.
    A recent decision by the Court of Federal Claims has caused some 
confusion as to what past performance a procuring activity can require 
of a prot[eacute]g[eacute] joint venture partner and how that past 
performance should be evaluated. See SH Synergy, LLC v. United States, 
165 Fed. Cl. 745 (2023). The SBA's mentor-prot[eacute]g[eacute] program 
is designed to enhance the capabilities of prot[eacute]g[eacute] firms 
by requiring approved mentors to provide business development 
assistance to prot[eacute]g[eacute] firms and to improve the 
prot[eacute]g[eacute] firms' ability to successfully compete for 
federal contracts. The program recognizes that many small businesses 
may not have the necessary past performance and experience to 
individually compete successfully for certain larger contracts. Thus, 
it allows joint ventures between a prot[eacute]g[eacute] firm and a 
large business mentor to qualify as small to allow 
prot[eacute]g[eacute] firms to gain valuable experience overseeing and 
performing larger contracts. While the joint venture as a whole must 
meet the applicable limitation on subcontracting (or in other words 
perform a certain percentage of the contract), the 
prot[eacute]g[eacute] firm must perform at least 40% of all the work 
done by the joint venture partners in the aggregate. Because of that 
40% requirement, some procuring activities require 
prot[eacute]g[eacute] joint venture partners to demonstrate some level 
of past performance as part of a joint venture's offer. Although SBA's 
current regulation provides that 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, it does not provide guidance on what a procuring activity 
could require. This rule proposes to provide such guidance. 
Specifically, the rule proposes to permit a procuring activity to 
require some past performance at a dollar level below what would be 
required of joint venture mentor partners or of individual offerors. 
The rule would provide an example of how this could work. In the 
example, where offerors must generally demonstrate successful 
performance on five contracts with a value of at least $20 million, a 
procuring activity could require a prot[eacute]g[eacute] joint venture 
partner to demonstrate one or two contracts valued at $10 million or $8 
million. In addition, if a procuring activity requires a 
prot[eacute]g[eacute] joint venture partner to demonstrate successful 
performance on two contracts valued at $10 million or more, successful 
performance by the prot[eacute]g[eacute] firm on those $10 million 
contracts shall be rated equivalently to successful performance by the 
mentor partner to the joint venture or any other individual offeror on 
$20 million contracts.
    Where a joint venture is the apparent successful offeror for a 
contract set aside or reserved for small business, Sec.  125.8(f) 
currently authorizes the procuring activity to execute a contract in 
the name of the joint venture entity or a small business partner to the 
joint venture. There has been some confusion as to whether a procuring 
activity can choose to either execute the contract in the name of the 
joint venture entity or to a small business partner to the joint 
venture. SBA did not intend such discretion. SBA's joint venture rules 
set forth in Sec.  121.103(h)(1) provide that a joint venture may be in 
the form of a formal or informal partnership or exist as a separate 
limited liability company or other separate legal entity. Where a joint 
venture exists as a separate legal entity, SBA intended a contract to 
be executed in the name of the joint venture. SBA intended to allow 
contracts successfully won by a joint venture to be awarded in the name 
of the small business partner only where the joint venture was not a 
separate legal entity, but rather an informal arrangement that had a 
written joint venture agreement that complied with SBA's regulations. 
The proposed rule would clarify SBA's intent.

Section 125.9

    Section 125.9 sets forth the requirements relating to SBA's mentor-
prot[eacute]g[eacute] program. Paragraph 125.9(b) specifies rules 
pertaining to firms seeking to become mentors and to firms which have 
been approved as mentors in the program. The introductory language to 
that paragraph provides that any concern that demonstrates a commitment 
and the ability to assist small business concerns may act as a mentor, 
including other than small businesses. There has been some confusion as 
to whether no-profit

[[Page 68284]]

entities may act as mentors. The statutory authority for the mentor-
prot[eacute]g[eacute] program specifies that the term ``mentor'' means 
a for-profit business concern, of any size, that has the ability to 
assist and commits to assisting a protege to compete for Federal prime 
contracts and subcontracts. 15 U.S.C. 657r(d). Although Sec.  125.9(b) 
does not specifically state that a mentor must be a for-profit entity, 
it requires a mentor to be a ``concern'' and that term is defined in 
SBA's regulations as a business entity organized for profit under Sec.  
121.105(1)(1). To eliminate any confusion, this rule proposes to 
clarify that only for-profit business concerns may be mentors.
    Paragraph 125.9(b)(3)(ii)(B) authorizes a mentor to purchase 
another business entity that is also an SBA-approved mentor of one or 
more prot[eacute]g[eacute] small business concerns where the purchasing 
mentor commits to honoring the obligations under the seller's mentor-
prot[eacute]g[eacute] agreement. Paragraph 125.9(b)(3)(i) provides 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. However, it is possible that the initial or 
selling mentor may be a contract holder as a joint venture with a 
prot[eacute]g[eacute] on the same multiple award contract where the 
acquiring mentor is also a contract holder as a joint venture with its 
prot[eacute]g[eacute]. In such a case, after the purchase and the 
purchasing mentor committing to fulfill the obligations of the selling 
mentor's mentor-prot[eacute]g[eacute] agreement, the purchasing mentor 
could then have two different joint ventures as contract holders on the 
same multiple award contract. This could allow the mentor to dictate 
which joint venture could compete for any specific order under the 
multiple award contract. SBA does not believe that the mentor should be 
able to choose one prot[eacute]g[eacute] over another to compete for an 
order. In order to clarify SBA's intent, the proposed rule would 
provide that where a mentor purchases another business entity that is 
also an SBA-approved mentor that is a contract holder as a joint 
venture with a prot[eacute]g[eacute] small business and the mentor is 
also a contract holder with a prot[eacute]g[eacute] small business on 
that same multiple award contract, the mentor must exit one of those 
joint venture relationships. SBA understands that this could adversely 
affect one of the prot[eacute]g[eacute] firms involved in a joint 
venture. To alleviate any harm to a prot[eacute]g[eacute], the proposed 
rule would also permit the prot[eacute]g[eacute] firm connected to the 
joint venture from which the mentor exits to seek to acquire the new 
mentor's interest in the underlying multiple award contract or reserve 
and work with the contracting officer to determine whether novation of 
such contract or reserve to itself only may be appropriate where it is 
consistent with 41 U.S.C. 6305 and FAR 42.1204. The 
prot[eacute]g[eacute] may also seek to replace the new mentor with 
another business in the joint venture such that the revised joint 
venture continues to qualify as small. Similarly, the proposed rule 
would also add a new Sec.  125.9(d)(1)(iv) which would give a 
prot[eacute]g[eacute] firm a right of first refusal to purchase a 
mentor's interest in a mentor-prot[eacute]g[eacute] joint venture where 
the mentor seeks to sell its interest in the joint venture.
    The proposed rule would also redesignate current Sec.  125.9(e)(6) 
as Sec.  125.9(c)(4). This provision relates to rules affecting 
prot[eacute]g[eacute] firms and SBA believes it should more 
appropriately be located in Sec.  125.9(c), which has a heading 
entitled ``Proteges.'' The proposed rule would add clarifying language 
to redesignated Sec.  125.9(c)(4)(iv) to make clear that a concern 
cannot be a prot[eacute]g[eacute] for a total of more than 12 years. 
There has been some confusion that if a prot[eacute]g[eacute] elects to 
extend its mentor-prot[eacute]g[eacute] relationship with the same 
mentor for an additional six-year period that the prot[eacute]g[eacute] 
could somehow be able to participate in the mentor-
prot[eacute]g[eacute] program as a prot[eacute]g[eacute] for more than 
12 years. SBA believes that the current regulations clearly restrict 
such participation to a total of 12 years. Nevertheless, in order to 
dispel any possible contrary interpretation, the proposed rule would 
specify that a firm could be a prot[eacute]g[eacute] for up to 12 
years, whether the concern has a mentor-prot[eacute]g[eacute] 
relationship with two different mentors or the same mentor for second 
six-year period.
    Finally, the proposed rule would add a new Sec.  125.9(c)(5). 
Within the provisions relating to mentors in Sec.  125.9(b), the 
current regulations authorize a firm to purchase another firm that is 
currently an approved mentor in SBA's mentor-prot[eacute]g[eacute] 
program and to continue that mentor-prot[eacute]g[eacute] relationship 
if the purchasing firm commits to honoring the obligations under the 
seller's mentor-prot[eacute]g[eacute] agreement. The regulations do 
not, however, currently address any rights a prot[eacute]g[eacute] may 
have where such a sale occurs. There are times that the former mentor-
prot[eacute]g[eacute] agreement would not be a good fit with the 
purchasing business concern. The purchasing concern may have different 
capabilities than the selling concern and may not be the best business 
concern to carry out the previous mentor's commitments. Where the 
purchasing concern is not able to fulfill the requirements of the 
existing mentor-prot[eacute]g[eacute] agreements as written, SBA 
believes that the prot[eacute]g[eacute] firm should be able to either 
negotiate a revised mentor-prot[eacute]g[eacute] agreement with the 
buying concern or terminate the mentor-prot[eacute]g[eacute] agreement 
if the prot[eacute]g[eacute] believes the buying concern is not a good 
fit for it. This right of the prot[eacute]g[eacute] would be limited to 
where the new mentor would not fulfill the former mentor-
prot[eacute]g[eacute] agreement. SBA would have to approve any revised 
mentor-prot[eacute]g[eacute] agreement. If the mentor-
prot[eacute]g[eacute] agreement is terminated, the 
prot[eacute]g[eacute] firm could seek another business concern to enter 
a mentor-prot[eacute]g[eacute] relationship for a duration not to 
exceed six years minus the length of the mentor-prot[eacute]g[eacute] 
relationship with the former mentor.

Sections 125.12, 126.619, 127.504(h), and 128.401(e)

    SBA proposes to relocate size recertification and small business 
program status recertification to new Sec.  125.12. Historically, size 
and status recertification have been separately addressed in parts 121 
(for size), 124 (for 8(a) BD), 126 (for HUBZone), 127 (for WOSB), and 
128 (for service-disabled veteran-owned small business or SDVOSB) of 
SBA's regulations. Differences in the regulatory text are an unintended 
result of placing the size and status recertification rules across 
multiple sections of title 13. SBA believes that the rules regarding 
recertification should be the same for size and status, across all SBA 
small business government contracting and business development 
programs. The consolidation of the rules into one section that is 
cross-referenced in each small business program regulation would 
simplify the text and ensure easier, more consistent interpretation and 
application of the regulations. The requirements for recertification 
currently contained in Sec.  121.404(g) (for size), Sec.  126.619 (for 
HUBZone status), Sec.  127.504(h) (for WOSB/EDWOSB status), and Sec.  
128.401(e) (for SDVOSB status) would be amended to reference the 
provisions contained in Sec.  125.12. This change would ensure that all 
recertification requirements pertaining to size and status would be 
identical.
    Size and status recertification is a complex area of SBA's 
regulations that requires simplification and clarity, especially in the 
context of exceptions to recertification and the impact of 
recertification. SBA's proposed

[[Page 68285]]

consolidation and relocation of size and status recertification would 
make several clarifications to how SBA always intended recertification 
to operate, but which may be unclear from the existing regulatory text. 
First, a concern that recertifies as other than the size or status 
required for an award that it is currently performing may continue to 
perform that particular period of performance. Whether it can continue 
to receive future orders under an underlying contract or agreement 
after it submitted a disqualifying recertification depends upon whether 
the underlying contract or agreement is a single award or a multiple 
award vehicle. A concern that has recertified as other than small or 
other than a qualified program participant still may receive orders or 
agreements issued under a single award small business contract or 
agreement or unrestricted orders issued under an unrestricted multiple 
award contract. In either case, a procuring agency could not count the 
order as an award to small business or to the specific type of small 
business (i.e., 8(a), WOSB, SDVOSB, or HUBZone). For any multiple award 
contract or agreement, the concern would not be eligible for orders set 
aside for small business or set aside for a specific type of small 
business.
    Similarly, for a single award small business contract or any 
unrestricted contract, a concern that recertified as other than small 
or other than the required small business program status remains 
eligible to receive options. The procuring agency cannot count the 
option period as an award to a small business or small business program 
participant for goaling purposes. Such a concern may recertify as small 
or as the required small business program status for a subsequent 
option period if it meets the applicable size standard or becomes a 
certified small business program participant at that time. Conversely, 
for a multiple award small business set-aside or reserve, a concern 
that recertified as other than small or other than the required small 
business program would be ineligible to receive options.
    The proposed rule would also clarify SBA's intent as to the effect 
of a disqualifying recertification that occurs after an offer is 
submitted but prior to award. For an award set aside or reserved for 
small business, a concern must recertify its size and, where 
appropriate, status if a merger, sale or acquisition occurs after an 
offer is submitted but prior to award. If the concern submits a 
disqualifying recertification, it may or may not be eligible for the 
award depending on when the sale, merger or acquisition occurred. If 
the merger, sale, or acquisition occurs within 180 days of offer 
submission and before award, the concern is ineligible for the award. 
If the merger, sale, or acquisition occurs after 180 days of its offer 
and before award, the concern would continue to be eligible for the 
award.
    These proposed changes are needed to overcome several recent 
decisions from the GAO and SBA's Office of Hearings and Appeals (OHA). 
SBA believes that GAO and OHA adopted incorrect interpretations in 
these cases, resulting in the misapplication of SBA's size 
recertification regulations. SBA provides clarification through this 
preamble and proposed changes to the regulatory text to avoid confusion 
from courts or administrative venues regarding the proper and 
reasonable interpretation of SBA's size recertification rules.
    In 2021, OHA issued a decision in Size Appeal of Odyssey Systems 
Consulting Group, Ltd., SBA No. SIZ-6135 (2021). Odyssey involved a 
small business set-aside task order that was awarded against the 
General Services Administration's (GSA) OASIS multiple award contract. 
Specifically, the task order was solicited against the small business 
pool that was established for the OASIS multiple award contract. The 
protested firm had allegedly exceeded the size standard assigned to a 
task order solicitation, following an acquisition by another entity. 
The issue on appeal was whether SBA had properly dismissed the size 
protest as untimely.
    SBA filed comments in response to the appeal that distinguished 
between size recertifications requested by a contracting officer and 
recertifications following a merger, sale, or acquisition, only as that 
distinction relates to timeliness for size protests. Over the years, 
the distinction was misinterpreted to be broader than SBA intended and 
to impact eligibility for future set-aside orders against unrestricted 
multiple award contracts. SBA's OHA has issued several subsequent 
decisions to the Odyssey case that relate to this issue with the most 
recent in January 2024, confirming that if a concern recertifies as 
other than small following a merger, sale, or acquisition, the concern 
may remain eligible for future set-aside orders under an unrestricted 
multiple award contract, but not provide goaling credit. See Size 
Appeal of Saalex Corp. d/b/a Saalex Solutions, Inc., SBA No. SIZ-6274 
at 11 (2024). This was not SBA's intended interpretation of a size 
recertification following a merger, sale, or acquisition, or following 
the requirement to recertify size in the fifth year of a long-term 
contract.
    Any disqualifying size or status recertification precipitated by 
Sec.  125.12(a) or Sec.  125.12(b) (except for the 180-day rule 
discussed above), renders a concern ineligible for future set-aside or 
reserved awards, including awards of set-aside or reserved orders 
against pre-existing unrestricted or set-aside multiple award 
contracts. Additionally, in support of this interpretation, SBA 
proposes to allow requests for size determinations following any size 
recertification made in Sec. Sec.  125.12(a) and (b) as well as those 
is requested by a contracting officer as set forth in Sec.  125.12(c).
    SBA notes that the requirement for size recertification has always 
been interpreted by SBA to apply to Blanket Purchase Agreements in 
addition to all other small business set-aside or reserved awards, 
whether those awards are executed in the form of task orders, 
contracts, or any other type of procurement mechanism. Following a 2022 
bid protest decision from GAO, SBA explicitly added the word 
``agreement'' at 13 CFR 121.404(g)(2)(iii).

Sections 125.13 and 124.4

    The proposed rule would add a new Sec.  125.13 explaining the 
restrictions on fees for representatives of applicants to and 
participants in the 8(a) BD, HUBZone, WOSB, and VetCert programs. These 
restrictions are currently contained in Sec.  124.4 for the 8(a) BD 
program. The proposed rule takes the language currently contained in 
Sec.  124.4 for the 8(a) BD program and adds it to a new Sec.  125.13 
that would be applicable to the 8(a) BD, HUBZone, WOSB and VetCert 
programs. SBA considered making revisions to part 126, 127 and 128 of 
this title adopting the same language contained in Sec.  124.4 for the 
WOSB, HUBZone and VetCert programs. Instead, SBA believes that it would 
be more expedient to add a new Sec.  125.13 that would apply to all of 
SBA's certification programs than it would be to repeat the same 
language in each of the specific program area's regulations.

Section 126.103

    The proposed rule would revise the definitions for the following 
terms: ``Certify'', ``Contracting Officer (CO)'', ``Decertify'', 
``Dynamic Small Business Search (DSBS)'', ``Employee'', ``HUBZone Small 
Business Concern'', ``Indian Tribal Government'', ``Interested party'', 
``Principal office'', ``Qualified Disaster Area'', ``Redesignated 
Area'', ``Reside'', and

[[Page 68286]]

``Small business concern (SBC)''. The proposed rule would add 
definitions for the terms ``HUBZone Certification Date'', ``HUBZone 
Map'', ``HUBZone Resident Employee'', and ``System for Award Management 
(SAM)''. The proposed rule would delete the definition for the term 
``AA/BD'' because this term no longer appears in Part 126.
    The proposed rule would clarify that ``Certification'' and 
``Certify'' both mean the process by which SBA determines that a 
concern is qualified for the HUBZone program and eligible to be 
designated by SBA as a certified HUBZone small business concern in DSBS 
(or successor system).
    The proposed rule would add a new definition for the term 
``Certification''.
    The proposed rule would amend the definition of ``Contracting 
Officer'' to correct an outdated citation.
    The proposed rule would amend the definition of ``decertify'' to 
clarify that a firm may voluntarily withdraw from the program without 
SBA needing to approve such withdrawal.
    The proposed rule would amend the definition of ``Dynamic Small 
Business Search (DSBS)'' to reference ``SAM, as defined in this 
section'' rather than ``the System for Award Management (SAM)''. SBA 
proposes to remove the words ``the Dynamic Small Business Search 
(DSBS)'' wherever they appear and add in their place the acronym 
``DSBS''.
    The proposed rule would amend the definition of ``employee'' to 
prevent abuse and strengthen the integrity of the program. The HUBZone 
program was intended to provide meaningful work experiences to 
individuals who reside in some of the nation's most economically 
distressed communities to help them gain valuable skills, on-the-job 
experience, and upward mobility. In 2021, SBA HUBZone analysts 
identified a pattern in which firms put on their payroll HUBZone 
residents who did not perform work for those companies in order to 
claim them as employees and appear to qualify for the program. This has 
never been permitted under the HUBZone regulations because allowing 
this practice would undermine the purpose of the HUBZone program.
    In response to the discovery of this practice and to prevent fraud 
and abuse in the program, this proposed rule would increase the number 
of hours that an individual must work to be considered an employee for 
HUBZone purposes to 80 hours per month. Under SBA's current 
regulations, an employee is defined as an individual ``employed on a 
full-time, part-time, or other basis, so long as that individual works 
a minimum of 40 hours during the four-week period immediately prior to 
the relevant date of review . . .'' 13 CFR 126.103. SBA believes that 
the minimum 40 hours per month is not sufficient to promote the purpose 
of the program. Furthermore, under the current 40 hour per month 
requirement, an individual could work 40 hours in one week and be off 
the remaining three weeks of the month. If all HUBZone employees did 
the same, the ``principal office'' could be empty and closed for the 
remaining three weeks of the month. SBA believes that there needs to be 
a legitimate presence in the HUBZone, and this includes occupying the 
principal office and requiring that office to be open during normal 
business hours, and requiring employees to work significantly at that 
office. SBA does not believe that a firm that can close its ``principal 
office'' three weeks every month meets that legitimate presence, but 
rather that there should be a consistent presence at the principal 
office. SBA also notes that an 80 hour per month requirement would be 
consistent with how the 8(a) BD program treats employees establishing a 
bona fide place of business. In that context, Sec.  124.3 defines the 
term bona fide place of business for 8(a) construction contracts to 
mean a location where an 8(a) BD Participant regularly maintains an 
office within the appropriate geographical boundary which employs at 
least one individual who works at least 20 hours per week at that 
location. The 80 hours per month requirement in this proposed rule 
would be in line with that 20 hours per week requirement. SBA requests 
comments on whether 80 hours per month is an appropriate threshold and 
whether there should be a minimum number of hours per week. SBA also 
seeks comments on whether there should be an exception to the 80 hours 
per month threshold for a limited number (or percentage) of individuals 
where such individuals are working at least 40 hours per month.
    In addition, the proposed rule would clarify the existing 
requirement that an individual must be performing work for the concern 
in order to be considered an employee for HUBZone purposes. This 
proposed rule would provide that in order to ensure that an individual 
is performing work for the business concern, SBA may request a 
combination of job descriptions, resumes, detailed timesheets, sample 
work product and other relevant documentation.
    The proposed rule also would delete the provision providing that 
individuals who receive in-kind compensation may be considered 
employees. The current regulations provide that someone receiving in-
kind compensation may be considered an employee, where the compensation 
is commensurate with the work performed by the individual and provides 
a demonstrable financial value to the individual, and where the 
arrangement is compliant with all relevant federal and state laws, such 
as federal tax laws. SBA is proposing to eliminate this provision 
because SBA has found that little to no firms are able to meet these 
requirements. The process of requesting and reviewing documentation 
that is ultimately insufficient has only served to slow down 
application processing.
    Finally, SBA is requesting comments on when reservists should be 
considered employees for HUBZone purposes. When reservists are called 
up for active duty, companies may be required to hold their positions 
for them, which may mean those individuals appear on the company's 
payroll with zero hours listed. SBA requests feedback on whether there 
are scenarios when such individuals should be treated as employees for 
HUBZone purposes.
    The proposed rule would provide that individuals who are obtained 
``from a concern primarily engaged in leasing employees'' (emphasis 
added) are generally considered employees. The current regulations 
provide that individuals obtained from a ``leasing concern'' are 
generally considered employees, however it has been SBA's policy for a 
number of years that leased employees will only be considered employees 
for HUBZone purposes where they are leased from a concern that is 
primarily engaged in leasing employees. This policy is consistent with 
SBA's size regulations at Sec.  121.103(b)(4), which provide: 
``Business concerns which lease employees from concerns primarily 
engaged in leasing employees to other businesses . . . are not 
affiliated with the leasing company . . . solely on the basis of a 
leasing agreement.''
    The proposed rule would add a new definition for the term ``HUBZone 
Certification Date'' providing that this is the date on which SBA 
approves a concern's application for HUBZone certification and is the 
date specified in the concern's certification letter. The proposed 
definition would provide that if a concern leaves the HUBZone program 
and reapplies for certification, their HUBZone certification date is 
the date SBA approves the concern's most recent application.
    The proposed rule would add a new definition for the term ``HUBZone 
Map'' providing that the HUBZone Map is a

[[Page 68287]]

publicly accessible online tool that depicts HUBZones.
    The proposed rule would add a new definition for the term ``HUBZone 
Resident Employee'' providing that this means an individual who meets 
the definition of an employee and who SBA has determined resides in a 
HUBZone.''
    The proposed rule would amend the definition of the term ``HUBZone 
small business concern'' by deleting the last sentence, which provides: 
``A concern that was a certified HUBZone small business concern as of 
December 12, 2017, and that had its principal office located in a 
Redesignated Area set to expire prior to January 1, 2020, shall remain 
a certified HUBZone small business concern until June 30, 2023, so long 
as all other HUBZone eligibility requirements are met.'' This is a 
reference to the previous map freeze, and since the map freeze ended on 
June 30, 2023, this language is no longer a necessary.
    The proposed rule would amend the definition of ``Indian Tribal 
Government'' to make it consistent with the definition of the term 
``Indian tribe'' in the 8(a) BD Program regulations at Sec.  124.3 of 
this chapter. Specifically, the proposed rule revises the definition to 
explicitly allow participation by State-recognized tribes.
    The proposed rule would amend the definition of ``interested 
party'' to prevent non-HUBZone firms from filing a HUBZone protest on a 
HUBZone set-aside procurement. Currently, an interested party is 
defined as any concern that submits an offer for a specific HUBZone 
set-aside contract or order, or any concern that submitted an offer in 
full and open competition and its opportunity for award will be 
affected by a price evaluation preference given a qualified HUBZone 
small business concern. In the context of a HUBZone set-aside contract, 
SBA does not believe that a firm that is not itself a qualified HUBZone 
small business concern should be able to submit a protest. In other 
words, a large business or a small business which is not a qualified 
HUBZone small business should not be able to protest the HUBZone status 
of the apparent successful offeror on a HUBZone set aside contract 
merely because it submitted an offer for that contract or order. The 
large business or small business which is not a qualified HUBZone small 
business is not harmed by an award to the apparent successful offeror 
since it has no right itself to that award. It is ineligible for that 
award. Only firms that are capable of winning the HUBZone set-aside 
contract or order should be able to protest the HUBZone status of an 
apparent successful offeror. SBA has seen situations where a non-
eligible firm has submitted an offer and then protested the HUBZone 
status of the apparent successful offeror. SBA believes this is not the 
intent of the protest process and causes unnecessary delays. If such a 
``protest'' raises a genuine concern, SBA can always adopt it as an 
SBA-initiated protest. However, often this is a delay tactic used by an 
incumbent contractor protesting the apparent successful offeror in 
order to continue to perform the underlying work while the protest is 
resolved. This change would not affect the ability of a large business 
to protest the HUBZone status of an apparent successful offeror where 
the apparent successful offeror received the benefit of the HUBZone 
price evaluation preference in an unrestricted competition and the 
large business submitted an offer for that contract. In such a case, a 
large business could otherwise be eligible for the award of the 
contract. SBA is proposing a similar change to the WOSB regulations 
through a separate rulemaking.
    The proposed rule would amend the definition of ``principal 
office'' to make several changes and clarifications. First, the 
proposed rule would require firms to provide a lease that commenced at 
least 30 days prior to the date of SBA's review and ends at least 60 
days after the date of SBA's review. Second, the proposed rule would 
clarify the requirement that a firm must conduct business from the 
location identified as the firm's principal office and may be required 
to demonstrate that it is doing so by providing documentation such as 
photos and/or providing a live or virtual walk-through of the space. 
The proposed rule would also provide that for shared working spaces (or 
``coworking'' spaces), firms will need to provide evidence that the 
firm has dedicated space within any shared location, and that such 
dedicated space contains sufficient work surface area, furniture, and 
equipment to accommodate the number of employees claimed to work from 
this location. The proposed rule would specify that a virtual office 
(or other location where a firm only receives mail and/or occasionally 
performs business) does not qualify as a principal office. Third, the 
proposed rule would add a provision stating that if 100% of a firm's 
employees telework (i.e., work the majority of the time from their 
homes), then at least 51% of its employees must work from HUBZone 
locations and the firm's principal office would be the location where 
its records are kept. One of the purposes of the principal office 
requirement is to provide an infusion of capital into the HUBZone area 
with employees utilizing the services of other business concerns 
located near the principal office is situated. Where all of a firm's 
employees telework, that intent cannot be fulfilled. However, SBA 
understands that in today's business environment, firms are utilizing 
telework employees more and more. With that understanding, SBA proposes 
to allow 100% of a firm's employees to telework, but where that occurs 
would require the firm to have 51% of its employees reside in a HUBZone 
instead of the normal 35%. SBA believes that such an additional 
requirement would make up for the lack of additional capital infusion 
caused by not having a traditional office located in a HUBZone. In 
addition, SBA seeks comments on whether SBA could allow teleworking 
employees who reside and work within the same census tract as the 
firm's claimed principal office (or an adjacent census tract) to be 
counted as working from the principal office. If permitted, SBA 
believes this should be limited to firms with commercial leases and/or 
firms with only a single office location but seeks comments on this and 
other changes SBA should consider in response to the shift to telework.
    The proposed rule would revise the definition of ``Qualified 
Disaster Area'' to provide that a census tract or non-metropolitan 
county shall be considered to be a Qualified Disaster Area for the 
period of time starting on the date on which the President declared the 
major disaster for the area in which the census tract or non-
metropolitan county, as applicable, is located (or in the case of a 
catastrophic incident, on the date on which the catastrophic incident 
occurred in the area in which the census tract or non-metropolitan 
county, as applicable, is located) and ending on the date when SBA next 
updates the HUBZone Map in accordance with Sec.  126.104(a). This is 
SBA's current interpretation of the statutory definition of ``Qualified 
Disaster Area'' and the proposed rule would only make that 
interpretation clearer.
    The proposed rule would amend the definition of ``Redesignated 
Area'' to delete the last sentence, which currently reads: ``However, 
an area that was a redesignated area on or after December 12, 2017, 
shall remain a redesignated area until June 30, 2023.'' This is a 
reference to the previous map freeze, and since the map freeze ended on 
June 30, 2023, this language is no longer necessary.
    The proposed rule would revise the definition of ``reside'' to 
provide that to

[[Page 68288]]

determine residence, SBA will first look to an individual's address 
identified on his or her driver's license ``or other government-issued 
identification.'' The current regulation provides that SBA will rely on 
an individual's voter registration card. However, voter registration 
cards generally do not specify the date that they were issued and thus 
SBA cannot rely on them to determine how long an individual has resided 
at a location. In addition, SBA is proposing to change the requirement 
for an individual to have lived at a location for 180 calendar days 
immediately prior to the relevant date of review. The proposed rule 
would decrease this to 90 calendar days because it would allow firms to 
enter the program more quickly where they have employees who have 
resided in HUBZones for less than 180 days.
    The proposed rule would amend the definition of ``Small business 
concern (SBC)'' to make it consistent with the definition contained in 
Sec.  126.200(b)(1). In order to be eligible for the HUBZone program, 
SBA previously required that a concern qualify as small for the size 
standard corresponding to its primary industry. That requirement was 
contained both in Sec.  126.103 and Sec.  126.200(b)(1). SBA amended 
Sec.  126.200(b)(1) to require that a concern must qualify as small 
under the size standard corresponding to any NAICS code listed in its 
profile in the System for Award Management. 88 FR 26164, 26212 (Apr. 
27, 2023). SBA inadvertently did not make a corresponding change to the 
definition of small business concern contained in Sec.  126.103. The 
proposed rule would adjust Sec.  126.103 to be consistent with Sec.  
126.200(b)(1).
    The proposed rule would define ``System for Award Management 
(SAM)'' as having the same meaning as that which is in FAR 2.101. SBA 
also proposes to remove the words ``System for Award Management 
(SAM.gov)'' wherever they appear in this part and add in their place 
the acronym ``SAM''.
    Finally, SBA proposes to remove the word ``SBC'' wherever it 
appears in this part and add in its place the phrase ``small business 
concern''.

Section 126.104

    The proposed rule would make several amendments to Sec.  126.104, 
which explains how Governor-designated covered areas become designated. 
First, the proposed rule would insert language providing that a State 
Governor may annually submit a petition to the SBA Office of the 
HUBZone Program requesting that certain covered areas be designated as 
Governor-designated covered areas. This is not a change from current 
policy, but rather a restatement of that policy in a more clear and 
direct way. Second, the proposed rule also would clarify that a 
petition need not seek SBA approval for those covered areas previously 
designated as Governor-designated covered areas. Third, the proposed 
rule would provide that a Governor-designated covered area will be 
treated as a HUBZone until SBA next updates the HUBZone Map in 
accordance with Sec.  126.104(a), or one year after the petition is 
approved, whichever is later. Fourth, the proposed rule would authorize 
the Associate Administrator for Government Contracting and Business 
Development or designee, instead of the SBA Administrator, to approve 
specific covered areas to be considered as Governor-designated covered 
areas. SBA believes that this will reduce the amount of time to approve 
a petition, which will allow small businesses located in such areas the 
opportunity to participate more expeditiously in the HUBZone Program.
    Finally, the proposed rule would remove the term ``urbanized area'' 
in the definition of ``covered area'' in Sec.  126.104(d)(1). The 
HUBZone statute and the current regulations provide that only certain 
areas are eligible to become Governor-Designated Covered Areas. Such 
areas are referred to as ``covered areas.'' A ``covered area'' is 
defined in the statute and regulations as ``an area in a State . . . 
(i) [t]hat is located outside of an urbanized area, as determined by 
the Bureau of the Census; (ii) [w]ith a population of not more than 
50,000; and (iii) [f]or which the average unemployment rate is not less 
than 120 percent of the average unemployment rate of the United States 
or of the State in which the covered area is located, whichever is 
less, based on the most recent data available from the American 
Community Survey conducted by the Bureau of the Census.'' 15 U.S.C. 
657a(b)(3)(F)(v)(I); 13 CFR 126.104(d)(1). Thus, the statute and 
implementing regulations provide that ``covered areas'' must be located 
outside of ``urbanized areas.'' At the time this provision was 
implemented, the Census Bureau defined ``urbanized areas'' as ``urban 
areas'' with populations of 50,000 or more. In addition, the Census 
Bureau defined ``urban clusters'' as ``urban areas'' with populations 
of more than 2,500 and less than 50,000. Given these definitions, SBA 
interpreted the statute to mean that areas located in ``urban 
clusters'' could be eligible for Governor's designation if they also 
met the unemployment requirement. In addition, SBA interpreted ``area'' 
to mean either a census tract or a county.
    Following the 2020 census, the Census Bureau changed the definition 
of ``urban area'' in several ways, including by removing the 
distinction between ``urbanized areas'' and ``urban clusters'' and 
discontinuing the use of those terms. As a result, areas that 
previously were known as urbanized areas or urban clusters are both now 
simply designated as urban areas. In a Federal Register notice 
published on December 29, 2022, the Census Bureau noted: ``Agencies 
using the [urban area] classification for their programs are 
responsible for ensuring that the classification is appropriate for 
their use.'' To be consistent with Congressional intent, this proposed 
rule would amend the definition of ``covered area'' to remove the term 
``urbanized area'' and instead provide that the term ``covered area'' 
means a census tract or a county ``that is located outside of an urban 
area, as determined by the Bureau of the Census, with a population of 
not more than 50,000.''

Section 126.105

    The proposed rule would add a new Sec.  126.105, explaining when 
the HUBZone Map will be updated in accordance with statutory 
requirements. Proposed Sec.  126.105 would provide that Qualified 
Census Tracts and Qualified Non-Metropolitan Counties will be updated 
every 5 years. This is consistent with the statutory requirement for 
SBA to update these designations on a 5-year cycle. The proposed rule 
would provide that Redesignated Areas will be added to the HUBZone Map 
when areas cease to be designated as Qualified Census Tracts or 
Qualified Non-Metropolitan Counties, in accordance with the 5-year 
cycle, and will expire after 3 years. The proposed rule would provide 
that Qualified Base Closure Areas will be added to the HUBZone Map 
after SBA receives information that the Department of Defense has 
created a new base closure area and will expire after 8 years. The 
proposed rule would provide that Qualified Disaster Areas generally 
will be added to the HUBZone Map on a monthly basis, based on data 
received by SBA from the Federal Emergency Management Agency (FEMA), 
and generally will expire on the effective date of the 5-year HUBZone 
Map update following the declaration. Finally, the proposed rule would 
provide that Governor-designated covered areas will be added to the 
HUBZone Map after SBA approves a petition in accordance with Sec.  
126.104 and will expire on the effective date of the 5-year HUBZone Map 
update

[[Page 68289]]

following the approval, or one year after the petition is approved, 
whichever is later.

Sections 126.200(b)(1), 127.200(e), and 128.204(a)

    Section 126.200 sets forth the requirements a concern must meet to 
be eligible as a certified HUBZone small business concern. Pursuant to 
Sec.  126.200(b)(1), a concern, together with its affiliates, must 
qualify as a small business concern under the size standard 
corresponding to any NAICS code listed in its profile in SAM. This 
paragraph does not, however, explain how SBA will determine whether a 
business concern qualifies as small. Some have questioned whether SBA 
performs a formal size determination with respect to each application. 
That is not the case. In determining whether a concern seeking to be a 
certified HUBZone small business qualifies as small under the size 
standard corresponding to a specific NAICS code, SBA will accept the 
concern's size representation in SAM, unless there is evidence to the 
contrary. SBA will request a formal size determination pursuant to 
Sec.  121.1001(b)(8) of this chapter where any information it possesses 
calls into question the concern's SAM size representation. The proposed 
rule would clarify SBA's intent in this regard. The proposed rule would 
also provide the same guidance for WOSB/EDWOSB certifications by adding 
a new Sec.  127.200(e) and to VOSB/SDVOSB certifications by revising 
Sec.  128.204(a).

Section 126.200

    The proposed rule would revise Sec.  126.200(c)(1) to incorporate 
policy updates to the ``long-term investment'' provision, which was 
implemented through SBA's final rule published on November 26, 2019 (84 
FR 65222). This provision incentivizes firms to make long-term 
investments in qualifying HUBZones by allowing them to maintain their 
principal office for up to 10 years and continue to be considered to 
meet the principal office requirement even if the area loses its 
HUBZone designation.
    First, the proposed rule would provide that the 10-year ``clock'' 
starts to run on the firm's HUBZone certification date (if the 
investment was made prior to the firm's certification) or on the firm's 
recertification date that follows the execution of the lease or deed 
(if the investment was made after the firm's certification). For 
example, if a firm was certified on May 1, 2020, and purchased a 
building on December 1, 2020, the 10-year clock would start when the 
firm recertifies prior to May 1, 2023.
    Second, the proposed rule would clarify SBA's current policy that a 
firm is not eligible to take advantage of the long-term investment 
provision if its principal office is in a Redesignated Area or a 
Qualified Disaster Area at the time of the investment. Redesignated 
Areas and Qualified Disaster Areas are areas that have already lost 
their designation as Qualified Census Tracts or Qualified Non-
Metropolitan Counties because the income, poverty, and/or unemployment 
levels of those tracts/counties have improved beyond the statutory 
levels necessary to qualify as HUBZones. SBA does not believe it would 
be in line with the purpose of the HUBZone program--to encourage 
investment in low-income and high-unemployment areas--to encourage 
firms to invest in areas that have already surpassed the HUBZone 
thresholds for these socioeconomic indicators. SBA notes that if a 
firm's principal office is in a location that falls within both a 
qualifying area (i.e., Qualified Census Tract, Qualified Non-
Metropolitan County, Governor-Designated Covered Area, Qualified Base 
Closure Area) and a non-qualifying area (e.g., Redesignated Area that 
was previously a Qualified Non-Metropolitan County) at the time of the 
investment, the firm would be eligible for this provision. In addition, 
the proposed rule would provide that this provision would not apply to 
an investment made within 180 days of the expiration of an area's 
designation as a Qualified Census Tract, Qualified Non-Metropolitan 
County, Governor-Designated Covered Area, or Qualified Base Closure 
Area.
    Third, the proposed rule would provide that a firm is not eligible 
for this provision if its principal office is owner-occupied (e.g., a 
location that also serves as a residence). In such a case, SBA does not 
believe that the investment in the HUBZone was primarily to develop a 
certified HUBZone small business.
    The proposed rule would revise Sec.  126.200(d)(1) to clarify that 
if a firm has one employee, that employee must reside in a HUBZone for 
the firm to be eligible for HUBZone certification. That has always been 
SBA's interpretation of the HUBZone requirements, and the proposed rule 
merely makes that explicit.
    The proposed rule would revise Sec.  126.200(d)(3), which addresses 
``Legacy HUBZone Employees'' to: clarify the amount of time an 
individual must reside in a HUBZone in order to qualify as a Legacy 
HUBZone Employee; specify that residence in a Redesignated Area does 
not qualify someone for this provision; and to implement limits on the 
number of Legacy HUBZone Employees a firm may have.
    First, the proposed rule would provide that a Legacy HUBZone 
Employee is an individual who: (a) resided in a HUBZone (other than a 
Redesignated Area) for at least 90 days preceding, and 180 days 
following, the concern's HUBZone certification date or most recent 
recertification date, and (b) remains an employee at the time of the 
concern's current recertification date.
    Second, the proposed rule would clarify that an individual cannot 
reside in a Redesignated Area and qualify as a Legacy HUBZone Employee. 
This does not mean to imply that an individual who resided in a HUBZone 
when a firm was first certified as a HUBZone eligible firm and 
continued to live at that same location while the area transitioned to 
a Redesignated Area cannot be considered a Legacy HUBZone Employee if 
that individual moves to a non-HUBZone area. The proposed rule intends 
to clarify that an individual who qualifies as a HUBZone employee for 
the first time while living in a Redesignated Area cannot later be 
deemed a Legacy HUBZone Employee.
    Third, the proposed rule would provide that a certified HUBZone 
small business may only have one legacy HUBZone employee at a given 
time. SBA supports the growth of individual HUBZone employees and 
allowing such employees to improve their personal residential 
situation. However, SBA is concerned that the Legacy HUBZone Employee 
concept could be abused. Without a limit on the number of Legacy 
HUBZone Employees permitted by SBA, a firm could potentially move all 
individuals into a HUBZone for a one-year period and qualify all of 
those individuals as Legacy HUBZone Employees without those individuals 
ever intending to live long-term in the HUBZone area. SBA seeks 
comments on what the limit on Legacy HUBZone Employees should be and 
whether there should be any other limitations. Specifically, SBA 
requests comments on the following: whether SBA should limit the 
duration of Legacy HUBZone employee status to a certain number of 
years, and if so, how many years would be appropriate; whether 
individuals who were students when they resided in a HUBZone should be 
eligible for treatment as Legacy HUBZone Employees; whether Legacy 
Employees should be limited to full-time employees only; and whether an 
owner of the concern should be able to qualify as a Legacy HUBZone 
Employee. SBA is concerned that not imposing some

[[Page 68290]]

restrictions on Legacy Employees could open the provision to abuse. The 
purpose of this provision is to allow HUBZone firms to retain employees 
who have managed to improve their position and move out of a HUBZone. 
This purpose is not relevant to many owners of HUBZones because they 
are not at risk of being fired for moving out of a HUBZone.
    The proposed rule would revise Sec.  126.200(e), which addresses 
the ``attempt to maintain'' requirement. The proposed rule would 
clarify when HUBZone firms must certify that they will attempt to 
maintain compliance with the 35% HUBZone residency requirement during 
the performance of a HUBZone contract. The rule would provide that 
firms must make this certification when they apply for HUBZone 
certification, at the time they complete their recertification, and at 
the time of offer for any HUBZone contract.
    Similarly, the proposed rule would amend Sec.  126.200(f) to 
provide that HUBZone firms must certify that they will comply with the 
applicable limitations on subcontracting requirements when they apply 
for HUBZone certification, and at the time they complete their annual 
recertification. Certified HUBZone small business concerns also agree 
to comply with the limitations on subcontracting requirements under FAR 
clause 52.219-14, Limitations on Subcontracting, by submitting an 
offeror for and executing a HUBZone contract.
    Finally, the proposed rule would revise Sec.  126.200(g) to clarify 
that neither a concern nor any of its owners may have an active 
exclusion in SAM at the time of application or at any time while the 
concern is HUBZone-certified.

Section 126.201

    The proposed rule would amend Sec.  126.201 by rephrasing the 
language explaining the ownership requirements for HUBZone small 
business concerns. The current regulations provide: ``An owner of a SBC 
seeking HUBZone certification or a qualified HUBZone SBC is a person 
who owns any legal or equitable interest in such SBC.'' The proposed 
rule would rephrase this sentence to read: ``For purposes of qualifying 
for HUBZone certification, SBA considers any person who owns any legal 
or equitable interest in a concern to be an owner of the concern.'' 
This change is intended only to make this section clearer and easier to 
read, without changing the meaning or intent of the provision.

Section 126.204

    The proposed rule would revise Sec.  126.204(a) to specify that a 
HUBZone firm can have affiliates, so long as the firm and its 
affiliates in the aggregate qualify as small in at least one NAICS code 
listed in the HUBZone firm's SAM profile. This clarification is 
necessary because the current regulation says only that the firm and 
its affiliates in the aggregate must be small--without specifying that 
the firms, together, must be small in at least one NAICS code listed in 
the HUBZone-certified firm's SAM profile.
    The proposed rule would amend Sec.  126.204(c) to clarify that SBA 
reviews the ``totality of circumstances'' when determining whether to 
aggregate the employees of affiliated companies for purposes of 
calculating a firm's compliance with the 35% HUBZone residency and 
principal office requirements. In addition, the proposed rule would add 
a new paragraph (c)(4) clarifying SBA's current policy that if firms 
are not considered affiliated for size purposes, their employees 
generally will not be aggregated for HUBZone purposes.

Sections 124.203, 126.302, 126.303, 127.301, 127.302, 128.301

    Sections 126.302 and 126.303 provide general guidance on applying 
to SBA to be certified as a HUBZone small business concern. Section 
124.203 provides similar guidance for applying to the 8(a) BD program; 
sections 127.301 and 127.302 do so for the WOSB program and section 
128.301 does the same for applying to the VetCert program. The current 
regulations for the 8(a) BD, HUBZone and WOSB programs require that an 
application must be electronically signed by a specified individual (by 
each individual claiming social and economic disadvantage status for 
the 8(a) BD program and by an officer of the concern who is authorized 
to represent the concern for the HUBZone and WOSB programs). This 
proposed rule would change that language to provide instead that the 
individual(s) upon whom eligibility is based take responsibility for 
the accuracy of all information submitted on behalf of the applicant. 
The proposed rule would also add similar language to Sec.  128.301 for 
the VetCert program.

Section 126.304(e)

    The proposed rule would amend Sec.  126.304(e) to clarify the 
records that HUBZone participants must maintain to ensure continued 
eligibility. Specifically, the proposed rule would provide that HUBZone 
small business concerns must retain documentation related to any 
``Legacy HUBZone employees'' in order to demonstrate that individuals 
being claimed as Legacy HUBZone employees meet the requirements (i.e., 
180 days of HUBZone residence after the firm's certification or 
recertification date, and uninterrupted employment).

Section 126.306(h)

    The proposed rule would amend Sec.  126.306 by adding a new 
paragraph (h) to make clear that the D/HUB's decision to approve or 
deny an application to the HUBZone program is the final agency 
decision. This has been SBA's long-standing policy. There is no 
reconsideration or appeal process because declined applicants are 
permitted to reapply to the HUBZone program 90 days after receiving the 
decline decision.

Sections 126.309, 126.803, 127.305, and 128.305

    The proposed rule would revise Sec.  126.309, which describes when 
a declined or decertified firm can re-apply for HUBZone certification. 
The proposed rule would keep the 90-day wait period for firms whose 
application has been declined, but would eliminate that wait period for 
firms that have been decertified. When the HUBZone regulations were 
first implemented, declined or decertified firms were required to wait 
one year to reapply to the HUBZone program. At that time, SBA chose the 
one-year period to give small businesses a reasonable period of time 
within which to make the changes or modifications that are necessary to 
enable them to qualify for the HUBZone program, and at the same time to 
allow SBA to administer the HUBZone program effectively with available 
resources. However, SBA found that in many cases, a small business only 
had to hire a few additional HUBZone residents to come back into 
compliance. SBA also found that after the 2010 census, many small 
businesses had principal offices in HUBZone areas that were expiring 
and some such businesses may be planning to move to newly-designated 
HUBZone areas. SBA found that it would not serve the purposes of the 
program to make such small businesses wait one year to reapply. Thus, 
in 2011, SBA reduced the wait period to ninety (90) calendar days, to 
encourage businesses to move into newly designated HUBZones and hire 
HUBZone residents, which are the two purposes of the statute. SBA also 
believed that it would create an incentive for small businesses that no 
longer meet the HUBZone program

[[Page 68291]]

requirements to voluntarily decertify and then seek eligibility when 
they come back into compliance.
    At the present time, the HUBZone portfolio is once again being 
significantly impacted by changes to the HUBZone Map caused by the 
decennial census. When the HUBZone Map was updated on July 1, 2023, 
many Redesignated Areas lost their HUBZone status, and thus many small 
businesses with principal offices in those Redesignated Areas have 
faced (or are facing) the decision to either relocate their principal 
office or withdraw from the program. Given how many small businesses 
are being affected by the expiration of the Redesignated Areas--whether 
as a result of its principal office no longer being located in a 
HUBZone or employees no longer residing in a HUBZone--SBA believes it 
is best to eliminate the waiting period that currently applies after 
decertification.
    This rule proposes a corresponding change to Sec.  126.803, to 
provide that a firm that is decertified for any reason (including based 
on a protest or due to voluntarily withdrawing) can reapply immediately 
after the decertification is effective.
    In order to promote consistency across SBA's programs, the proposed 
rule would make similar changes in Sec.  127.305 for the WOSB program 
and in Sec.  128.305 for the VetCert program to eliminate the 90-day 
wait time to reapply for certification in those programs after it has 
been decertified.

Section 126.401

    The proposed rule would revise Sec.  126.401, which explains what 
program examinations are. The proposed rule would provide that a 
program examination is an investigation by SBA officials, which 
verifies the accuracy of any certification made or information provided 
as part of the HUBZone application process, as part of the 
recertification process, or in connection with a HUBZone contract. The 
current regulation does not specify that program examinations may be 
conducted to verify the accuracy of certifications made in connection 
with HUBZone contracts. This proposed change would be necessary if SBA 
implemented the proposed changes requiring a HUBZone small business 
concern to meet the 35% HUBZone residency and principal office 
requirements on the date it submits an offer for a HUBZone contract. In 
light of this proposed requirement, proposed Sec.  126.401 would 
provide that during a program examination, SBA ``may verify that the 
concern met the program's eligibility requirements at the time of its 
application for certification, at the time of any recertification, or 
at the time of its offer for a HUBZone contract.''

Section 126.403

    The proposed rule would amend Sec.  126.403(a) to clarify that a 
program examination may include a site visit. The current regulations 
describing program examinations provide that ``SBA may conduct a 
program examination, or parts of an examination, at one or more of the 
concern's offices.'' It is true that SBA may conduct a site visit to 
one or more of a HUBZone concern's offices as part of a program 
examination. However, site visits are just one potential facet of a 
program examination and not all program examinations include site 
visits.

Section 126.404

    The proposed rule would amend Sec.  126.404 to clarify that where a 
firm is found ineligible pursuant to a program examination, SBA will 
decertify the firm by removing the firm's certification in DSBS for a 
period of 30 calendar days, during which time the firm is ineligible to 
submit offers for or be awarded HUBZone contracts. SBA may also 
identify such decertification actions on its website to ensure that 
relevant contracting officers are aware of any such decertification. 
Decertification in this instance is a statutory requirement under 
section 31(d)(6) of the Small Business Act. Prior to this rule, SBA has 
not formally removed firms' HUBZone status in DSBS during this 30-day 
period. However, SBA has determined that in order for the statutory 
requirement to be enforceable, SBA must remove a firm's certification 
in DSBS during the 30-day suspension period. In addition, the proposed 
rule would provide that the firm must provide written notice of the 
concern's ineligibility to the contracting officer for any pending 
HUBZone award. During this 30-day period, the firm may submit 
documentation showing that it was in fact eligible on its 
recertification date. If the concern failed to submit documentation 
sufficient to demonstrate its eligibility by the last day of the 30-day 
period, the concern would remain decertified. If SBA overturned its 
determination, SBA would reverse the firm's decertification and 
reinstate its certification.

Sections 126.500 and 126.601

    The proposed rule would revise Sec. Sec.  126.500 and 126.601 to 
eliminate the one-year certification rule and instead require firms to 
be eligible on the date of offer for HUBZone contracts and only 
recertify once every three years. Currently, the HUBZone rules require 
firms to annually recertify their HUBZone status to SBA. Under the 
current rules, once a firm annually recertifies its HUBZone status, it 
generally can submit offers for HUBZone contracts for one year without 
being required to meet the 35% HUBZone residency and principal office 
requirements at the time of offer. Thus, SBA's current regulations set 
one point in time--the date of certification or the certification 
anniversary date--as the time at which a firm must be eligible for a 
HUBZone contract. Under the current regulations, if a firm is eligible 
as of its certification or certification anniversary date, it remains 
eligible for HUBZone contracts for a period of one year from that date 
regardless of whether the firm falls out of compliance with the HUBZone 
eligibility requirements throughout the year. SBA believes that the 
current process can permit abuses that were not intended for the 
program. A firm could hire one or more individuals who reside in a 
HUBZone for four weeks prior to its application for certification and 
immediately dismiss those individuals from its employ after becoming 
certified and be eligible throughout the year for HUBZone contracts. 
Similarly, a firm could again re-hire one or more individuals who 
reside in a HUBZone for four weeks prior to its certification 
anniversary date and immediately release those individuals after the 
certification anniversary date and be eligible for additional HUBZone 
contracts for another year. SBA believes that that was not the intent 
of the program. Thus, proposed Sec.  126.601(a) would require a firm to 
be both a certified HUBZone small business and one that continues to be 
eligible as of the date of its offer for a HUBZone contract.
    In light of this change, the rule also proposes to amend Sec.  
126.500 to require firms to recertify to SBA every three years, rather 
than annually. SBA believes annual recertification is not necessary, 
and would impose undue burdens on HUBZone small businesses, if firms 
are also required to be eligible at the time they submit offers on any 
HUBZone contracts. Moreover, SBA believes that uniformity among its 
contracting programs is an important goal, and SBA's WOSB and VetCert 
programs require firms to be eligible at the time of offer for 
contracts and to recertify to SBA every three years. Thus, returning to 
triennial recertification, combined with the change to require HUBZone 
firms to be eligible on the date of offer for HUBZone contracts, would 
bring the HUBZone program

[[Page 68292]]

more in line with SBA's other socioeconomic contracting programs.
    The proposed rule would clarify that an offeror on a competitively 
awarded HUBZone contract need not be eligible on the date of award of 
such contract. Prior to 2020, SBA's regulations required eligibility 
for a competitively awarded HUBZone contract both at time of offer and 
time of award. That caused problems with the procurement process where 
a HUBZone employee that was counted on for HUBZone eligibility left the 
firm in the time between the firm's offer and the date of award. The 
firm could be in the process of hiring a new employee from a HUBZone 
but if it had not done so by the date of award the firm would be 
ineligible for award. SBA continues to believe that determining such a 
firm ineligible for award is inappropriate. There must be certainty to 
eligibility when a firm submits an offer. The proposed rule, however, 
would provide that certainty. As long as a firm is eligible as of the 
date of its offer for a competitively awarded HUBZone contract, it will 
be eligible for award. This is similar to the size requirement where a 
firm must also be small on the date of its offer but may grow to be 
other than small between the date of its offer and the date of award. 
However, the proposed rule would specify that there is an exception to 
this rule for HUBZone sole source awards, for which a firm must be 
HUBZone-certified at the time of award. SBA believes that sole source 
procurements require stricter eligibility rules. In order to be 
eligible for a sole source HUBZone award, a procuring activity must 
conclude that the firm receiving the award is the only certified 
HUBZone small business concern that is capable of performing the 
contract. That by itself is very restrictive, and SBA believes that 
eligibility should also be restrictive. SBA does not believe that 
Congress intended to allow a firm that no longer qualifies as a HUBZone 
small business concern prior to award to be elevated to a status as the 
only certified HUBZone small business concern that is capable of 
performing the contract. In addition, this change would align HUBZone 
sole source awards with how SBA treats sole source awards in the 8(a) 
BD program.
    The proposed rule would clarify that an offeror under a competitive 
HUBZone contract must be identified as HUBZone-certified in DSBS when 
it submits its initial offer. SBA proposes to add this to clarify that 
for the HUBZone program, unlike the WOSB Program, a firm cannot submit 
an offer on HUBZone contract while its application is still pending. 
That is, a concern is only eligible to submit offers for HUBZone 
contracts after SBA has formally approved its application and updated 
DSBS (or successor system) showing that the concern is a certified 
HUBZone small business concern. In addition, the proposed rule would 
clarify that for a multiple award contract, where concerns are not 
required to submit price as part of the offer for the contract, an 
offeror must be identified as a certified HUBZone small business 
concern in DSBS (or successor system) and meet the HUBZone requirements 
in Sec.  126.200 on the date of initial offer, which may not include 
price. This is consistent with SBA's size regulations at Sec.  
121.404(a)(1)(iv).
    SBA has also found that the HUBZone Program goals are not 
sufficiently fulfilled by how the ``attempt to maintain'' requirement 
is currently being implemented. Under the current rules, a HUBZone firm 
can have less than 35% HUBZone residents at the time of its annual 
recertification if the firm is performing a HUBZone contract. This 
means that a firm being awarded HUBZone contracts in essence never has 
to demonstrate that it is employing at least 35% HUBZone residents. SBA 
believes this is contrary to the purpose of the HUBZone Program. SBA 
believes it would make more sense to give firms a specific ``grace 
period'' after they are awarded a HUBZone contract during which time 
they can take the necessary steps to hire enough HUBZone residents to 
get back up to 35% HUBZone residency. If a firm's recertification falls 
within this grace period, then such firm's recertification would 
require the firm to represent that it is ``attempting to maintain'' 
compliance with the 35% HUBZone residency requirement. After the grace 
period, then such firm would have to be back up to 35% HUBZone 
residency at the time of any recertification. This rule proposes that 
the grace period be 12 months following the award of a HUBZone 
contract. To implement this proposed change, proposed Sec.  
126.500(a)(1)(i) would provide that, in order to recertify, a HUBZone 
firm that did not receive a HUBZone contract during the year preceding 
its recertification date must represent that, at the time of its 
recertification, at least 35% of its employees reside in HUBZones and 
the concern's principal office is located in a HUBZone. Proposed Sec.  
126.500(a)(1)(ii), on the other hand, would provide that a HUBZone firm 
that was awarded a HUBZone contract during the year preceding its 
recertification date would have to represent that, at the time of its 
recertification, it is attempting to maintain compliance with the 35% 
HUBZone residency requirement and the concern's principal office is 
located in a HUBZone.
    Proposed Sec.  126.500(a)(2) would provide that a concern's 
recertification must be submitted within 90 calendar days before the 
triennial anniversary of its HUBZone certification date. This 90-day 
window mirrors the VetCert regulations and thus creates additional 
uniformity among SBA's programs.
    Proposed Sec.  126.500(a)(3) would provide that a firm that fails 
to recertify will be proposed for decertification. However, SBA is 
seeking comments on whether such firms should be decertified 
automatically within a certain timeframe (such as 30 days) of failing 
to recertify.
    Proposed Sec.  126.500(b) would explain that SBA will conduct a 
program examination of each certified HUBZone small business concern at 
least once every three years to ensure continued program eligibility, 
using a risk-based analysis. The proposed rule would further provide 
that SBA may conduct more frequent program examinations using a risk-
based analysis to select which concerns are examined. This is SBA's 
current policy, and this rule would make these policies clearer.

Section 126.501

    The proposed rule would revise Sec.  126.501 in its entirety. The 
proposed section would address a certified HUBZone small business 
concern's ongoing obligations to SBA (which is what this section 
addressed prior to the 2019 rule change). First, the proposed rule 
would provide that a certified HUBZone small business concern that 
acquires, is acquired by, or merges with another business entity must 
provide evidence to SBA, within 30 calendar days of the transaction 
becoming final, that the concern continues to meet the HUBZone 
eligibility requirements. The proposed section would provide that a 
concern that no longer meets the requirements may voluntarily withdraw 
from the program or it will be removed by SBA pursuant to program 
decertification procedures. This is SBA's current policy, but the 
current regulations only require a firm to notify SBA via email where 
it is involved in a merger or acquisition and do not explain what 
happens after such notification.
    Second, proposed Sec.  126.501(b) would provide that a certified 
HUBZone small business concern that is performing a HUBZone contract 
and fails to ``attempt to maintain'' the minimum employee HUBZone 
residency requirement must notify SBA notify SBA via email to

[[Page 68293]]

[email protected] within 30 calendar days of such occurrence. A concern 
that cannot meet the requirement may voluntarily withdraw from the 
program or it will be removed by SBA pursuant to program 
decertification procedures.

Section 126.503

    The proposed rule would add a new paragraph (d) to Sec.  126.503, 
clarifying that SBA will decertify a HUBZone small business concern 
that is debarred from federal contracting without first proposing the 
firm for decertification. This is merely a clarification of an existing 
policy. Once a firm has been debarred, it is ineligible for all federal 
contracts and subcontracts and thus there is no benefit to being 
HUBZone-certified.

Section 126.504

    The proposed rule would amend Sec.  126.504(a) to add that SBA will 
remove a firm's HUBZone designation if the firm has been debarred from 
government contracting pursuant to the procedures in FAR 9.4. This 
change would be consistent with the addition of a new paragraph (d) to 
Sec.  126.503, discussed above.
    The proposed rule would revise Sec.  126.504(c) by renumbering the 
introductory language as paragraph (c)(1), changing paragraph (c)(1) to 
paragraph (c)(2), and eliminating current paragraph (c)(2) as 
unnecessary. The proposed rule would then amend renumbered Sec.  
126.504(c)(1) by clarifying that a firm is ineligible to submit offers 
for HUBZone contracts at the time SBA decertifies the firm. The current 
regulations provide that a firm is ineligible when it is ``removed as a 
certified HUBZone small business concern in DSBS.'' However, there are 
occasional lags between SBA's decertification action and updates to 
DSBS, as well as potential errors in updates to DSBS. SBA may identify 
such decertification actions on its website to address the occasional 
lags.
    The proposed rule would amend renumbered Sec.  126.504(c)(2) by 
clarifying that a firm must be HUBZone-certified at the time of its 
initial offer for a HUBZone contract, and it must be able to 
demonstrate its compliance with the HUBZone requirements (e.g., the 35% 
HUBZone residency requirement and the principal office requirement) as 
of the date of its offer. This provision would continue to provide that 
HUBZone eligibility is determined at the time of offer, and not at the 
time of award, but eligibility would no longer relate back to the 
firm's certification anniversary date.

Section 126.600

    The proposed rule would amend Sec.  126.600 to clarify that 
qualifying joint ventures may be considered HUBZone small business 
concerns for HUBZone contracts and to clarify that the rules in Part 
126 apply to HUBZone prime contracts, not subcontracts awarded to 
HUBZone small businesses. The proposed rule would add a new paragraph 
(e) clarifying that orders awarded to certified HUBZone small business 
concerns under set-aside Multiple Award Contracts are HUBZone 
contracts.

Section 126.602

    The proposed rule would amend the requirements relating to how a 
certified HUBZone small business concern ``attempts to maintain'' 
having at least 35% of its employees reside in a HUBZone during the 
performance of a HUBZone contract. Specifically, the proposed rule 
would revise Sec.  126.602 to provide that a certified HUBZone small 
business concern that has received a HUBZone contract must be 
``attempting to maintain'' the 35% HUBZone residency requirement 
(including by having at least 20% of its employees reside in a HUBZone) 
on the first certification anniversary date after being awarded a 
HUBZone contract and at least 35% of its employees reside in a HUBZone 
on each certification anniversary date thereafter. SBA does not believe 
that the 35% HUBZone residency requirement should be watered down to as 
low as 20% over the course of a firm's participation in the HUBZone 
program merely because a HUBZone small business concern received one or 
more HUBZone contracts. However, SBA also believes that it must give 
some meaning to the ``attempt to maintain'' statutory language, which 
is why allowing a firm to drop below the 35% residency requirement (but 
no lower than 20%) for a year makes sense to SBA. SBA believes that 
giving a firm an additional year to come back into compliance with the 
35% residency requirement after being awarded a HUBZone contract is a 
good balance between the two statutory requirements. However, SBA 
requests comments on how to implement this requirement where a HUBZone 
firm receives multiple HUBZone awards in successive years.

Section 126.605

    The proposed rule would amend Sec.  126.605 to clarify that this 
section describes circumstances under which a contracting officer is 
prohibited from soliciting a requirement as a HUBZone contract. The 
proposed rule changes the words ``may not'' to ``shall not'' to clarify 
that a contracting officer does not have discretion to award a HUBZone 
contract in those specified instances.

Section 126.612

    The proposed rule would amend Sec.  126.612 by adding a new 
paragraph (f) providing that the awardee of a HUBZone sole source 
contract must be a certified HUBZone small business concern on the date 
of award. This has always been the policy for the 8(a) Business 
Development program (see Sec.  124.501(h)), and SBA is trying to make 
its socioeconomic programs as consistent as possible.

Section 126.613

    The proposed rule would amend Sec.  126.613, which addresses the 
HUBZone price evaluation preference (PEP), to clarify how the HUBZone 
PEP should be applied. The proposed rule would revise paragraph (a) and 
the examples. The proposed rule would provide that to apply the HUBZone 
PEP, a contracting officer must add 10% to the offer of the otherwise 
successful large business offeror. Then, if the certified HUBZone small 
business concern's offer is lower than that of the large business after 
the HUBZone PEP is applied, the certified HUBZone small business 
concern must be deemed the lowest-priced offeror. The proposed rule 
would add a sentence specifying that the HUBZone price evaluation 
preference does not apply where the initial lowest responsive and 
responsible offeror is a small business concern.
    The proposed rule would add clarifying language to Example 1 
explaining that a non-HUBZone small business concern is not affected by 
the application of the HUBZone PEP where such non-HUBZone small 
business is not the lowest offeror prior to the application of the 
preference. This is because the HUBZone PEP is intended neither to harm 
nor to benefit a non-HUBZone small business.
    The proposed rule would amend Example 2 by specifying that, in the 
example, after the application of the HUBZone PEP, the HUBZone small 
business concern's offer is not lower than the offer of the large 
business (i.e., $103 is not lower than $102.3 ($93 x 110%)).
    The proposed rule would amend Example 3 to clarify that a 
contracting officer should not apply the HUBZone PEP where the lowest, 
responsive, responsible offeror is a small business concern, even if a 
large business concern submitted an offer.

[[Page 68294]]

    In addition, the proposed rule would clarify how the PEP should be 
applied to a procurement using trade off procedures. The proposed rule 
would provide that for a procurement using trade off procedures, the CO 
must first apply the 10% price preference to the offers of any large 
businesses and then determine which offeror represents the best value 
to the Government, in accordance with the terms of the solicitation. 
Where, after considering the price adjustment, the total evaluation 
points received by a certified HUBZone small business concern is equal 
to or greater than the total evaluation points received by a large 
business, award shall be made to the certified HUBZone small business 
concern.

Section 126.615

    The proposed rule would amend Sec.  126.615 by adding a reference 
to Sec.  125.9, to clarify that large businesses may participate in 
HUBZone procurements by serving as SBA-approved mentors under SBA's 
mentor-prot[eacute]g[eacute] program, and by correcting the cross-
reference to the limitations on subcontracting.

Section 126.616

    The proposed rule would amend Sec.  126.616, which describes the 
circumstances under which a joint venture can be awarded a HUBZone 
contract. The proposed rule would delete language from current Sec.  
126.616(a)(1) stating that a ``joint venture itself need not be a 
certified HUBZone small business concern.'' SBA proposes to delete this 
language because it implies that a joint venture could be HUBZone-
certified, when in fact the HUBZone program does not certify joint 
ventures under any circumstances. Instead, proposed Sec.  126.616(a)(1) 
would clarify that SBA does not certify HUBZone joint ventures, but 
provide that a joint venture should be designated as a HUBZone joint 
venture in SAM (or successor system), with the HUBZone-certified joint 
venture partner identified. The proposed rule would add a new paragraph 
(k) to provide that a procuring agency may only receive HUBZone credit 
for an award to a HUBZone joint venture where the joint venture 
complies with the requirements in Sec.  126.616.

Section 126.619

    As noted above, this rule proposes to move recertification 
requirements for size and socioeconomic status to a new Sec.  125.12. A 
revised Sec.  126.12 would refer to the requirements set forth inSec.  
125.12 as applying to recertifications of HUBZone status.

Section 126.701

    The proposed rule would amend Sec.  126.701 by removing the words 
``these subcontracting percentages'' in the section heading and adding 
in their place the words ``the limitations on subcontracting'' to 
clarify the content of the section.

Section 126.800

    The proposed rule would amend Sec.  126.800 by removing the 
paragraph subheadings and incorporating them into the text of the 
regulation, to make the section more readable. In addition, the 
proposed rule would clarify that interested parties may protest a 
HUBZone joint venture offeror's eligibility for award of a HUBZone 
contract. Finally, the proposed rule would add a new paragraph (c) 
providing that for contracts other than HUBZone contracts, SBA may 
protest an apparent successful offeror's status as a certified HUBZone 
small business concern. SBA believes that where there is evidence that 
the prospective awardee does not meet the HUBZone requirements, the 
agency needs to be able to protest a firm's HUBZone status, even for a 
non-HUBZone award. This would prevent an agency from receiving HUBZone 
credit where the awardee is not eligible for the program.

Section 126.801

    In response to the change made to Sec.  126.601(a) requiring a 
HUBZone small business to be eligible for a HUBZone contract as of the 
date of its initial offer including price, the proposed rule would 
first align the protest procedures to recognize that the date of offer 
would be the relevant date for protesting a HUBZone small business 
concern's eligibility for award of a HUBZone contract.

Section 126.803

    SBA proposes to amend Sec.  126.803 by revising paragraph (a), 
which explains the date that will be used to determine a firm's HUBZone 
eligibility if it is the subject of a HUBZone status protest. As 
explained above, this proposed rule would require HUBZone firms to be 
eligible at the time of offer for competitively awarded HUBZone 
contracts. Consistent with this proposed change, proposed Sec.  
126.803(a) would provide that for all HUBZone contracts other than 
HUBZone sole source awards, SBA shall determine a protested firm's 
HUBZone eligibility as of the date of its initial offer that includes 
price. For HUBZone sole source awards, SBA would determine a protested 
firm's HUBZone eligibility as of the date of award.
    SBA also proposes to redesignate paragraphs (c), (d), and (e) as 
paragraphs (d), (e), and (f), and to add a new paragraph (c) to Sec.  
126.803. Proposed Sec.  126.803(c) would provide that the burden of 
proof to demonstrate eligibility is on the protested concern. The 
section would explain that if a concern does not provide information 
requested by SBA within the allotted time provided, or if it submits 
incomplete information, SBA may draw an adverse inference and presume 
that the information that the applicant failed to provide would 
demonstrate ineligibility and sustain the protest on that basis. These 
policies are explained in SBA's protest notification letters, and SBA 
believes it makes sense to add them to the protest regulations.

Section 126.900

    The proposed rule would amend Sec.  126.900 by adding a new 
paragraph (e)(4) providing that if SBA discovers that false or 
misleading information has been knowingly submitted by a certified 
small business concern in order to obtain or maintain HUBZone 
certification, the D/HUB will propose the firm for decertification.

Sections 127.200 and 128.200

    In order to be eligible for the 8(a) BD program, SBA requires 
socially and economically disadvantaged individuals to reside in the 
United States. See 13 CFR 124.101. There currently is not a similar 
requirement for the WOSB or VetCert programs. SBA believes that 
qualifying individuals should reside in the United States to more 
adequately advance the purposes of the programs. The proposed rule 
would add a United States residency requirement for qualifying 
individuals in the WOSB and VetCert programs.

Section 127.400

    Section 127.400 provides guidance as to how a concern can maintain 
its WOSB or EDWOSB certification. Current Sec.  127.400(b) specifies 
that a concern must either request a program examination from SBA or 
notify SBA that it has requested a program examination from a third-
party certifier no later than 30 days prior to its certification 
anniversary. In order to provide consistency between the programs, the 
proposed rule would state that a concern must either recertify with SBA 
or notify SBA that it has completed a program examination from a third 
party certifier in the 90 calendar days prior to its certification 
anniversary. The

[[Page 68295]]

proposed rule would also revise the example set forth in the 
regulations to take into account the change from 30 days to 90 days.

Section 134.1104

    Section 134.1104 sets forth the time limits a VOSB or SDVOSB must 
appeal an adverse determination finding it ineligible for the VetCert 
program to SBA's Office of Hearings and Appeals (OHA). Currently, Sec.  
134.1104 requires an appeal to be filed within 10 business days of 
receipt of the denial. When an application for the 8(a) BD program is 
denied, a firm has 45 days from the date it receives the Agency 
decision to file an appeal with OHA. See 13 CFR 124.206(b). SBA is in 
the process of establishing a uniform application processing system. 
That system will allow a firm to simultaneously apply for multiple 
certifications for which it believes it is eligible. If a firm applied 
for 8(a) and VetCert certification at the same time and was denied for 
both programs, the current regulations would require the firm to appeal 
its VetCert denial withing 10 days while not being required to file its 
8(a) eligibility appeal for 45 days. SBA believes that may be confusing 
to affected applicants and that there should be consistency in the 
appeal process. As such, this proposed rule would change the time to 
file an appeal for the VetCert program to 45 days.

Compliance With Executive Orders 12866, 12988, 13132, 13563, the 
Congressional Review Act (5 U.S.C. 801-808), the Paperwork Reduction 
Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 
601-612)

Executive Orders 12866, 13563 and 14904

    Executive Order 12866, ``Regulatory Planning and Review,'' directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, if regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). Executive Order 13563, ``Improving Regulation and 
Regulatory Review,'' emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. Executive Order 14094, ``Modernizing Regulatory 
Review,'' amends section 3(f) of Executive Order 12866 and supplements 
and reaffirms the principles, structures and definitions governing 
contemporary regulatory review established in Executive Order 12866 and 
Executive Order 13563. The OMB Office of Information and Regulatory 
Affairs (OIRA) has determined that this rule is a significant 
regulatory action and, therefore, it was reviewed under subsection 6(b) 
of E.O. 12866.

Regulatory Impact Analysis

1. Is there a need for the regulatory action?
    This regulatory action clarifies and streamlines SBA's regulations 
governing the HUBZone Program and other contracting assistance 
programs. In 2019, SBA published a comprehensive revision to the 
HUBZone Program regulations, which implemented changes intended to make 
these regulations easier to understand and implement. This proposed 
rule is intended to further clarify and improve policies surrounding 
some of those changes to ensure that the HUBZone program fulfills its 
statutory purpose. In addition, SBA has heard from small businesses of 
a desire for consistency among its contracting assistance programs in 
order to relieve burdens associated with compliance with multiple 
programs. As a result, the proposed rule would make several 
improvements to create uniformity among the programs, including 
deleting the program-specific recertification requirements contained 
separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and 
moving them to a new section that would cover all size and status 
recertification requirements.
2. What are the incremental benefits and costs of this regulatory 
action?
    The proposed rule benefits program participants by reducing burdens 
and increasing consistency with other contracting programs while 
changing or adding some compliance requirements that strengthen the 
program's impact and reduce the potential for business policies and 
practices that are contrary to the goals of the HUBZone program. The 
reduction of burdens includes the decrease in the time of proof of 
residence for employees, removal of the 90-day wait period for 
reapplication after decertification, revisions to the part of the rule 
that addresses Governor-designated covered areas, a change in the 
negative-control rule in SBA's affiliation rule, deletion of program-
specific requirements for certification, and triennial instead of 
annual recertification. Additionally, the proposed rule adds a telework 
provision. Proposed compliance requirements include limits on the 
number of Legacy Employees, revised requirements for the use of the 
``attempt to maintain'' statutory language, possible minimum thresholds 
for number of hours worked, and proof of eligibility at the time of 
offer of a HUBZone contract. These proposed compliance measures are 
consistent with the program's goal of promotion of growth and impact of 
small businesses in historically underutilized areas and SBA believes, 
as outlined below, that they are not substantial burdens.
Benefits
    The decrease from 180 days to 90 days for proof of employees' 
residency allows for firms to enter the HUBZone program more quickly 
and increases opportunities for newly-hired employees. Both of these 
results increase accessibility of the program's opportunities. Removal 
of the 90-day wait period for decertified firms also promotes the 
program's accessibility because SBA has found that a shorter wait 
period is consistent with firms' ability to qualify or return to 
compliance by hiring HUBZone residents or by moving to a newly-
designated HUBZone.
    The restatement of Sec.  126.104 clarifies existing policy on 
Governor-designated covered areas, including the condition for annual 
petitions and a statement of no need for SBA's approval of previously 
designated covered areas. This restatement decreases uncertainty for 
firms that participate or plan to participate in the program. The 
restatement also authorizes the Associate Administrator for Government 
Contracting and Business Development, or designee, instead of the 
Administrator to approve covered areas, which SBA believes would reduce 
time to approve a petition and facilitate entry into the program.
    Amendments to regulations on affiliation will remove 
inconsistencies with other programs' regulations. The benefit of the 
amendments is more certainty on measures that minority-share investors 
can include to protect their investments without a finding of control. 
This proposed rule further reduces uncertainty in this matter by 
applying the same language to the 8(a) BD, WOSB and VetCert programs. 
SBA expects the changes in regulations on affiliation and control and 
increased consistency among programs to improve the environment for 
access to capital for small businesses in contracting assistance 
programs.
    The proposed rule returns the HUBZone program to triennial 
recertification and deletes program-specific recertification 
requirements. Both of these changes alleviate the burden associated 
with recertification.

[[Page 68296]]

With recertification taking about an hour to complete, SBA estimates 
that the change to triennial recertification will result in an annual 
reduction in the time burden from recertification of approximately 
2,468 hours and about $326,911 in annual savings.\4\ SBA has seen a 
downward trend in the number of HUBZone firms over the years, with 
lateness in annual recertification as one reason for the trend, so a 
reduction in this recertification burden may increase the number of 
HUBZone program participants and, consequently, the savings from this 
change in the future, in addition to the wider economic benefits 
generated by more HUBZone firms in communities. Deletion of program-
specific recertification requirements would also reduce time in 
recertification. In 2023, SBA sampled several years of data to estimate 
that about 10% of the firms in the HUBZone program were also in the 
WOSB program and 15% in the 8(a) program. The eliminated 
recertification procedures from uniform certification could reduce the 
time burden by an estimated 617 hours and generate an additional 
$81,728 in annual savings.\5\
---------------------------------------------------------------------------

    \4\ The calculation assumes that with triennial recertification, 
two-thirds of the number of program participants, which is now 3,700 
firms, will not recertify each year. Using 3,700 for this 
calculation, with the value of an hour at $132.46 per hour, which is 
the mean hourly wage of $66.23 plus 100 percent for overhead and 
benefits for Management Occupation (from Management Occupations 
(bls.gov), retrieved April 16, 2024), savings for about 2,468 small 
business is $326,912.
    \5\ The calculation assumes that with triennial recertification, 
two-thirds of the 10 percent of HUBZone firms that are in WOSB and 
15% of the HUBZone firms that are in 8(a) will not engage in 
program-specific recertification procedures in a given year. A small 
number of firms participated in all three of these contracting 
programs. Using the current number of about 3,700 small businesses 
in the HUBZone program, with the value of an hour at $132.46 per 
hour, which is the mean hourly wage of $66.23 plus 100 percent for 
overhead and benefits for Management Occupation (from Management 
Occupations (bls.gov), retrieved April 16, 2024), savings for about 
247 small business in HUBZone program and WOSB and 370 small 
business in HUBZone and 8(a) amounts to $81,728. SBA notes that this 
would be a low estimate of relief of recertification burden because 
it does not include HUBZone firms that also participate in other 
contracting programs like VetCert.
---------------------------------------------------------------------------

    The proposed rule recognizes the increased importance of telework 
and allows small businesses with 100 percent of its employees to 
participate in the HUBZone program but with the condition that at least 
51 percent of the employees work from HUBZone locations. This provision 
enables program participants to use the benefits of telework for 
recruitment and flexibility while addressing the program's goals of 
stimulating economic activity in HUBZone areas.
Revisions in Compliance Measures
    The proposed rule revises Sec.  126.200(d)(3) to allow HUBZone 
firms to retain employees who have move out of a HUBZone but proposes a 
limitation on the number of these Legacy HUBZone Employees. This is an 
attempt to balance the needs of employees who move for personal reasons 
or for professional development with the aims of the program to promote 
business activity in specific areas. The limitation is a potential 
source of burden on small business entities and SBA is seeking comments 
on aspects of limiting the number of Legacy Employees.
    SBA is also adjusting the threshold of 20 percent of employees for 
``attempt to maintain'' currently in Sec.  126.500(a)(2) with 35 
percent. This increased threshold is a stronger standard but the 
procedures for demonstrating compliance are not different. Any 
resulting costs should be balanced against SBA's assessment that 
HUBZone goals are not sufficiently fulfilled by implementation of the 
current requirement of 20 percent.
    Currently, Sec.  126.103 specifies that an individual who works 40 
hours in a four-week period is an employee. SBA proposes to increase 
the number of hours worked to 80 but seeks comments on whether this 
level is appropriate. This proposal is a revised and stricter 
compliance requirement but is one that SBA believes better promotes the 
purpose of the program and the need for a firm's legitimate presence in 
the HUBZone area. SBA expects that the increase in hours of gainful 
employment would be matched with increased output and therefore the 
additional hours would not impose a burden on employers. Recognizing 
some employers' and employees' needs for fewer hours per period, SBA 
seeks comments on a minimum number of hours for some individuals.
    This rule proposes to require any certified HUBZone small business 
to be eligible as of the date of offer for any HUBZone contract. In 
Federal Procurement Data System (FPDS) data from previous years, 
approximately 2,100 new HUBZone contracts were awarded in a fiscal 
year. SBA estimates it takes approximately 1 hour for a firm to gather 
proof that it is eligible at the time of offer. Thus, this proposed 
rule will increase the burden on HUBZone small business concerns by 
approximately 2,100 hours for an estimated annual cost of $278,166.\6\ 
SBA notes that the number of firms in the program has decreased over 
the past few years and this number of 2,100 may therefore be too high. 
SBA also notes that a specific small business entity incurs this burden 
only when a contract is offered and that, in the aggregate, the burden 
is balanced by the benefits of consistency of this provision with other 
contracting programs and maintenance of standards for the integrity of 
the HUBZone program.
---------------------------------------------------------------------------

    \6\ This calculation is 2,100 multiplied by the value of an hour 
of $132.46 per hour, which is the mean hourly wage of $66.23 for 
Management Occupation (from Management Occupations (bls.gov), 
retrieved April 16, 2024) plus 100 percent for overhead and 
benefits.
---------------------------------------------------------------------------

Summary

    The proposed changes clarify and streamline regulations and 
increase consistency with other contracting programs. Many of the 
benefits are not quantifiable, but SBA estimates annual savings of 
about $408,639 from reduced frequency of recertification. Benefits from 
the proposed changes regarding affiliation and control reduce 
uncertainty for investors and may therefore have a significant impact 
on access to capital. The rule contains measures that introduce or 
strengthen some compliance requirements but these are balanced by the 
need to maintain the goals and integrity of the program. The one 
quantifiable burden noted in these proposed compliance measures is 
proof of eligibility at the time of offer and this is a cost only when 
the benefit of the offer is present.
3. What are the alternatives to this rule?
    SBA considered alternatives to each of the significant changes made 
by this rule. Instead of requiring HUBZone firms to recertify every 
three years and be eligible at the time of offer, SBA considered 
maintaining the current requirement where annual recertification allows 
a concern to seek and be eligible for HUBZone contracts for a year. 
However, SBA has found that the annual recertification requirement does 
not fulfill the purposes of the HUBZone program as effectively as 
requiring firms to be eligible at the time of offer for HUBZone 
contracts. Moreover, SBA believes that uniformity among its contracting 
programs is an important goal, and returning to triennial 
recertification and eligibility determinations based on the date of 
offer would bring the HUBZone program much more in line with SBA's 
other small business and socioeconomic contracting programs.
    This regulatory action is needed to clarify and improve SBA's 
regulations governing the HUBZone Program and SBA's other socioeconomic 
contracting programs. In 2019, SBA published a

[[Page 68297]]

comprehensive revision to the HUBZone Program regulations, which 
implemented changes intended to make the HUBZone Program more efficient 
and effective. This proposed rule is intended to clarify and improve 
policies surrounding some of those changes. The clarifications and 
improvements are needed to ensure that the rules governing the HUBZone 
program fulfill its statutory purpose. In addition, SBA has heard from 
the small business community that improvements are needed to make its 
socioeconomic contracting programs more uniform, in order to relieve 
burdens associated with compliance with multiple programs. As a result, 
the proposed rule would make several improvements to create uniformity 
among the programs, including deleting the program specific 
recertification requirements contained separately in SBA's size, 8(a) 
BD, HUBZone, WOSB, and VetCert and moving them to a new section that 
would cover all size and status recertification requirements.

Executive Order 13132

    For the purposes of Executive Order 13132, Federalism, SBA has 
determined that this rule would 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.

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

    This rule does not impose additional reporting or recordkeeping 
requirements under the Paperwork Reduction Act, 44 U.S.C. Chapter 35.
    In 2019, SBA revised its regulations to give contracting officers 
discretion to request information demonstrating compliance with the 
limitations on subcontracting requirements. See 84 FR 65647 (Nov. 29, 
2019). In conjunction with this revision, SBA requested an Information 
Collection Review by OMB (Limitations on Subcontracting Reporting, OMB 
Control Number 3245-0400). OMB approved the Information Collection. The 
proposed rule would not alter the contracting officer's discretion to 
require a contractor to demonstrate its compliance with the limitations 
on subcontracting at any time during performance and upon completion of 
a contract. The estimated number of respondents, burden hours, and 
costs remain the same as that identified by SBA in the previous 
Information Collection. As such, SBA believes this provision is covered 
by its existing Information Collection, Limitations on Subcontracting 
Reporting.

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

    According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601, 
when an agency issues a rulemaking, it must prepare a regulatory 
flexibility analysis to address the impact of the rule on small 
entities. However, section 605 of the RFA allows an agency to certify a 
rule, in lieu of preparing an analysis, if the rulemaking is not 
expected to have a significant economic impact on a substantial number 
of small entities. The RFA defines ``small entity'' to include ``small 
businesses,'' ``small organizations,'' and ``small governmental 
jurisdictions.'' This proposed rule concerns various aspects of SBA's 
HUBZone program, as well as its size, 8(a) BD, WOSB, and VetCert 
programs. As such, the rule relates to small businesses but would not 
affect ``small organizations'' or ``small governmental jurisdictions.''
    The proposed changes clarify and streamline regulations and 
increase consistency with other contracting programs. Many of the 
benefits are not quantifiable, but SBA estimates annual savings of 
about $408,639 from reduced frequency of HUBZone recertification. There 
are approximately 5,000 small businesses that are listed as certified 
HUBZone small businesses in DSBS, and under the proposed rule, these 
firms would only need to recertify every three years, rather than every 
year. Benefits from the proposed changes regarding affiliation and 
control reduce uncertainty for investors and may therefore improve 
access to capital. The rule contains measures that introduce or 
strengthen some compliance requirements, but these are balanced by the 
need to maintain the goals and integrity of the program. The one 
quantifiable burden noted in these proposed compliance measures is 
proof of HUBZone eligibility at the time of offer and this is a cost 
only when the benefit of the offer is present. Moreover, this burden is 
counterweighed by the benefit of making the HUBZone program more 
consistent with SBA's other socioeconomic contracting programs, which 
decreases the amount of regulations that small businesses must learn 
and understand in order to participate in SBA's programs. The other 
changes that make the programs more consistent, such as consolidating 
the regulations related to recertification of size and status, only 
serve to benefit the small businesses that participate in these 
programs. Based on the foregoing, SBA does not believe that the 
proposed amendments would have a disparate impact on small businesses 
or would impose any additional significant costs. For the reasons 
discussed, SBA certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities.

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 128

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

13 CFR Part 134

    Administrative practice and procedure; Claims Confidential business 
information; Equal access to justice; Equal employment opportunity; 
Lawyers; Organization and function (Government agencies).

    Accordingly, for the reasons stated in the preamble, SBA proposes 
to amend 13 CFR parts 121, 124, 125, 126, 127, 128, and 134 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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


[[Page 68298]]


    Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and 
694a(9).

0
2. Amend Sec.  121.103 by revising paragraphs (a)(3), (h)(3) 
introductory text, and (h)(3)(i), and adding a new adding paragraph 
(h)(3)(v), to read as follows:


Sec.  121.103  How does SBA determine affiliation?

    (a) * * *
    (3) Control may be affirmative or negative. Negative control 
includes, but is not limited to, instances where a minority shareholder 
has the ability, under the concern's charter, by-laws, or shareholder's 
agreement, to prevent a quorum or otherwise block action by the board 
of directors or shareholders. However, SBA will not find that a 
minority shareholder has negative control where such minority 
shareholder has the authority to block action by the board of directors 
or shareholders regarding the following extraordinary circumstances:
    (i) Adding a new equity stakeholder;
    (ii) Dissolution of the company;
    (iii) Sale of the company or all assets of the company;
    (iv) The merger of the company;
    (v) The company declaring bankruptcy; and
    (vi) Amendment of the company's corporate governance documents to 
remove the shareholder's authority to block any of (1) through (5).
* * * * *
    (h) * * *
    (3) Ostensible subcontractors and unduly reliant managing joint 
venture partners. (i) An offeror is ineligible as a small business 
concern, an 8(a) small business concern, a certified HUBZone small 
business concern, a WOSB/EDWOSB concern, or a VOSB/SDVOSB concern where 
SBA determines there to be an ostensible subcontractor. An ostensible 
subcontractor is a subcontractor that is not a similarly situated 
entity, as that term is defined in Sec.  125.1 of this chapter, and 
performs primary and vital requirements of a contract, or of an order, 
or is a subcontractor upon which the prime contractor is unusually 
reliant.
* * * * *
    (v) A joint venture offeror is ineligible as a small business 
concern, an 8(a) small business concern, a certified HUBZone small 
business concern, a WOSB/EDWOSB concern, or a VO/SDVO small business 
concern where SBA determines that the managing joint venture partner 
will not perform 40% of the work to be performed by the joint venture, 
where a joint venture partner that is not similarly situated to the 
managing venturer performs primary and vital requirements of a 
contract, or of an order, or where the managing venturer is unusually 
reliant on such a joint venture partner.
* * * * *
0
3. Amend Sec.  121.104 by revising paragraph (a)(1) to read as follows:


Sec.  121.104  How does SBA calculate annual receipts?

    (a) * * *
    (1) SBA will consider a concern's Federal income tax return and any 
amendments filed with the IRS on or before the date of self-
certification to determine the size status of the concern. SBA may also 
consider other relevant information where it appears that the tax 
return does not properly capture a concern's total revenue.
* * * * *
0
4. Revise Sec.  121.404 to read as follows:


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

    (a) General. A concern, including its affiliates, must qualify as 
small under the NAICS code assigned to a contract as of the date the 
concern submits a written self-certification that it is small to the 
procuring activity as part of its initial offer or response which 
includes price. Once awarded a contract as a small business, a firm is 
generally considered to be a small business throughout the life of that 
contract.
    (b) Multiple Award Contracts. (1) If a single NAICS code is 
assigned to a multiple award contract as set forth in Sec.  
121.402(c)(1)(i), SBA determines size status for the underlying 
multiple award contract as of the date a business concern submits its 
initial offer (or other formal response to a solicitation), which 
includes price, for the contract based upon the size standard set forth 
in the solicitation for the multiple award contract.
    (2) When multiple NAICS codes are assigned to a multiple award 
contract as set forth in Sec.  121.402(c)(1)(ii), SBA determines size 
status for the underlying multiple award contract for each discrete 
category for which an offer is submitted, by applying the size standard 
corresponding to each discrete category, as of the date a business 
concern submits its initial offer which includes price for the 
contract.
    (3) Where concerns are not required to submit price as part of the 
initial offer for a multiple award contract, SBA determines size status 
for the underlying multiple award contract as of the date a business 
concern submits its initial offer for the contract, which may not 
include price.
    (c) Orders and Agreements Established Against Multiple Award 
Contracts. (1) Unrestricted Contracts. Where an order is set-aside for 
small business under an unrestricted multiple award contract, SBA 
determines size status for each order placed against the multiple award 
contract as of the date a business concern submits its initial offer 
(or other formal response to a solicitation), which includes price, for 
each order.
    (2) Set-Aside or Reserved Contracts. Where an order is issued under 
a multiple award contract that itself was set aside or reserved 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/economically-disadvantaged women-owned small business), 
SBA determines size status as of the date a business concern submits 
its initial offer, which includes price, for the set-aside or reserved 
multiple award contract, unless a contracting officer requests size 
recertification with respect to a specific order.
    (i) Where a contracting officer requests size recertification with 
respect to a specific order, size is determined as of the date the 
business concern submits its initial offer (or other formal response to 
a solicitation), which includes price, for the order.
    (ii) Where a contracting officer requests size recertification with 
respect to a specific order, size is determined only with respect to 
that order. Where a contract holder has grown to be other than small 
and cannot recertify as small for a specific order for which a 
contracting officer requested recertification, it may continue to 
qualify as small for other orders issued under the contract where a 
contracting officer does not request recertification.
    (3) Agreements. With respect to agreements established under FAR 
part 13, size is determined as of the date the business concern submits 
its initial offer, which includes price, for the agreement. Because an 
agreement is not a contract, the concern must also qualify as small as 
of the date the concern submits of its initial offer, which includes 
price, for each order issued pursuant to the agreement to be considered 
small for the order.
    (4) Exceptions. (i) For orders or BPAs to be placed against the GSA 
Federal Supply Schedule (FSS) Multiple Award Schedule (MAS) contract, 
size is determined as of the date the business concern submits its 
initial offer, which includes price, for the GSA FSS MAS contract.

[[Page 68299]]

    (ii) For 8(a) sole source orders issued under a multiple award 
contract, size is determined in accordance with Sec.  124.503(i)(1)(iv) 
of this chapter, as of the date the order is offered to the 8(a) BD 
program, regardless of whether the multiple award contract is 
unrestricted, set-aside, or the GSA FSS MAS contract.
    (iii) Size is determined on the date of recertification when a 
recertification is required pursuant to Sec. Sec.  125.12(a) and (b) of 
this chapter, or on the date of initial offer which includes price if 
requested by a contracting officer pursuant to Sec.  125.12(c). This 
exception applies to all provisions of paragraphs 121.404(a), (b), (c), 
and (d).
    (d) 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 concern (under part 126 of this chapter), as a women-owned 
small business concern (under part 127 of this chapter), or as a 
service-disabled veteran-owned small business concern (under part 128 
of this chapter) must qualify as a small business 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. For the 8(a) 
Business Development program, a concern must qualify as small under the 
size standard corresponding to its primary industry classification. For 
all other certification programs, a concern must qualify as small under 
the size standard corresponding to any NAICS code listed in its SAM 
profile. SBA will accept a concern's size representation in SAM, or 
successor system, unless there is evidence indicating that the concern 
is other than small. SBA will request a formal size determination 
pursuant to Sec.  121.1001(b)(8) where any information it possesses 
calls into question the SAM.gov size representation.
    (e) Certificates of competency. The size status of an applicant for 
a Certificate of Competency (COC) relating to an unrestricted 
procurement is determined as of the date of the concern's application 
for the COC.
    (f) Nonmanufacturer rule, ostensible subcontractor rule, and joint 
venture agreements. Compliance with the nonmanufacturer rule set forth 
in Sec.  121.406(b)(1), the ostensible subcontractor rule set forth in 
Sec.  121.103(h)(3), and the joint venture agreement requirements in 
Sec. Sec.  124.513(c) and (d), Sec. Sec.  126.616(c) and (d), Sec.  
127.506(c) and (d), and Sec. Sec.  125.8(b) and (c) of this chapter, as 
appropriate, is determined as of the date of the final proposal 
revision for negotiated acquisitions and final bid for sealed bidding.
    (g) Subcontracting. For subcontracting purposes, a concern must 
qualify as small as of the date that it certifies that it is small for 
the subcontract. The applicable size standard is that which is set 
forth in Sec.  121.410 and which is in effect at the time the concern 
self-certifies that it is small for the subcontract. A prime contractor 
may rely on the self-certification of a subcontractor provided it does 
not have a reason to doubt the concern's self-certification.
    (h) Two-step procurements. For purposes of architect-engineering, 
design/build or two-step sealed bidding procurements, a concern must 
qualify as small as of the date that it certifies that it is small as 
part of its initial bid or proposal (which may or may not include 
price).
    (i) Recertification. See Sec.  125.12 for information on 
recertification of size and status, and the effect of recertification. 
None of the exceptions set forth in paragraph (c)(4) of this section 
have an effect or serve as an exception to whether recertification is 
required under Sec.  125.12.
    (j) Follow-on contracts. A follow-on or renewal contract is a new 
contracting action. As such, size is determined as of the date the 
concern submits a written self-certification that it is small to the 
procuring agency as part of its initial offer including price for the 
follow-on or renewal contract.
0
5. Amend Sec.  121.702 by revising paragraph (c)(7) to read as follows:


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

* * * * *
    (c) * * *
    (7) Affiliation based on the ostensible subcontractor rule. A 
concern with an other than small ostensible subcontractor cannot be 
considered a small business concern for SBIR and STTR awards. An 
ostensible subcontractor is a subcontractor or subgrantee that performs 
primary and vital requirements of a funding agreement (i.e., those 
requirements associated with the principal purpose of the funding 
agreement), or a subcontractor or subgrantee upon which the concern is 
unusually reliant.
    (i) All aspects of the relationship between the concern and the 
subcontractor are considered, including, but not limited to, the terms 
of the proposal (such as management, technical responsibilities, and 
the percentage of subcontracted work) and agreements between the 
concern and subcontractor or subgrantee (such as bonding assistance or 
the teaming agreement).
    (ii) To determine whether a subcontractor performs primary and 
vital requirements of a funding agreement, SBA will also consider 
whether the concern's proposal complies with the performance 
requirements of the SBIR or STTR program.
    (iii) The prime and any small business ostensible subcontractor 
both must comply individually with the ownership and control 
requirements in paragraphs (a) and (b) of this section, as applicable.
* * * * *
0
6. Amend Sec.  121.1001 by:
0
a. Adding paragraph (b)(2)(iii);
0
b. Redesignating paragraphs (b)(12) and (b)(13) as paragraphs (b)(14) 
and (b)(15), respectively; and
0
c. Adding new paragraphs (b)(12) and (b)(13).
    The revision and additions read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (iii) Where SBA initially verified the eligibility of an 8(a) 
Participant for the award of an 8(a) contract but subsequently receives 
specific information that the Participant may be other than small and 
consequently ineligible, the Associate Administrator for Business 
Development or the Associate General Counsel for Procurement Law may 
request a formal size determination.
* * * * *
    (12) In connection with a size recertification relating to a 
contract required by Sec.  125.12 of this chapter, the contracting 
officer, the SBA program manager relating to the contract at issue 
(i.e., the Director of Government Contracting, the Associate 
Administrator for Business Development, or the Director of HUBZone, as 
appropriate), or the Associate General Counsel for Procurement Law may 
request a formal size determination.
    (13) In connection with a size recertification relating to a 
multiple award contract required by Sec.  125.12 of this chapter, any 
contract holder on that multiple award contract may also request a 
formal size determination concerning a recertifying concern's status as 
a small business.
    (i) A request for a formal size determination made by another 
contract

[[Page 68300]]

holder on a multiple award contract must be sufficiently specific to 
provide reasonable notice as to the grounds upon which the recertifying 
concern's size is questioned. Some basis for the belief or allegation 
that the recertifying concern does not continue to qualify as small 
must be given.
    (ii) SBA will dismiss as not sufficiently specific any request for 
a formal size determination alleging merely that the recertifying 
concern is not small or is affiliated with unnamed other concerns.
* * * * *
0
7. Amend Sec.  121.1010 by revising paragraph (b) to read as follows:


Sec.  121.1010  How does a concern become recertified as a small 
business?

* * * * *
    (b) Recertification will not be required nor will the prohibition 
against future self-certification apply if the adverse SBA size 
determination is based solely on a finding of affiliation limited to a 
particular Government procurement or property sale, such as an 
ostensible subcontracting relationship or non-compliance with the 
nonmanufacturer rule.
* * * * *

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

0
8. 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, 42 
U.S.C. 9815; and Pub. L. 99-661, 100 Stat. 3816; Sec. 1207, Pub. L. 
100-656, 102 Stat. 3853; Pub. L. 101-37, 103 Stat. 70; Pub. L. 101-
574, 104 Stat. 2814; Sec. 8021, Pub. L. 108-87, 117 Stat. 1054; and 
Sec. 330, Pub. L. 116-260.
0
9. Amend Sec.  124.3 by revising the definition of ``Community 
Development Corporation or CDC'' to read as follows:


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

* * * * *
    Community Development Corporation or CDC means a nonprofit 
organization responsible to residents of the area it serves which has 
received financial assistance under 42 U.S.C. 9805, et seq. or has 
received a letter from the Department of Health and Human Services 
affirming that it has received assistance under a successor program to 
that authorized by 42 U.S.C. 9805.
* * * * *


Sec.  124.4  [Removed]

0
10. Remove Sec.  124.4.
0
11. Amend Sec.  124.102 by adding the following sentence to the end of 
paragraph (a)(1) to read as follows:


Sec.  124.102  What size business is eligible to participate in the 
8(a) BD program?

    (a) * * *
    (1) * * * In determining whether a concern applying to be certified 
for the 8(a) BD program qualifies as a small business concern under the 
size standard corresponding to its primary industry classification, SBA 
will accept the concern's size representation in the System for Award 
Management (SAM.gov), or successor system, unless there is evidence 
indicating that the concern is other than small. SBA will request a 
formal size determination pursuant to Sec.  121.1001(b)(8) of this 
chapter where any information it possesses calls into question the 
concern's SAM.gov size representation.
* * * * *
0
12. Amend Sec.  124.105 by:
0
a. Revising paragraph (b);
0
b. Revising paragraph (f)(1);
0
c. Removing the words ``10 percent'' wherever they appear in paragraph 
(h)(1) and adding in their place the words ``20 percent'';
0
d. Removing the words ``20 percent'' in paragraph (h)(1) and adding in 
their place the words ``30 percent''; and
0
e. Revising paragraphs (h)(2), (i)(2), and (k).
    The revisions read as follows:


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

* * * * *
    (b) Ownership of a partnership. In the case of a concern which is a 
partnership, one or more individuals determined by SBA to be socially 
and economically disadvantaged must serve as general partners, with 
control over all partnership decisions. At least 51 percent of every 
class of partnership interest must be unconditionally owned by one or 
more individuals determined by SBA to be socially and economically 
disadvantaged. The ownership must be reflected in the concern's 
partnership agreement.
* * * * *
    (f) * * *
    (1) At least 51 percent of any distribution of profits paid to the 
owners of a corporation, partnership, or limited liability company 
concern, and a disadvantaged individual's ability to share in the 
profits of the concern must be commensurate with the extent of his or 
her ownership interest in that concern;
* * * * *
    (h) * * *
    (2) A non-Participant business concern in the same or similar line 
of business or a principal of such concern may generally not own more 
than a 20 percent interest in an 8(a) Participant that is in the 
developmental stage or more than a 30 percent interest in an 8(a) 
Participant in the transitional stage of the program, except that a 
business concern approved by SBA to be a mentor pursuant to Sec.  125.9 
of this chapter may own up to 40 percent of its 8(a) Participant 
prot[eacute]g[eacute] as set forth in Sec.  125.9(d)(2), whether or not 
that concern is in the same or similar line of business as the 
Participant.
    (i) * * *
    (2) (i) Prior approval by the AA/BD is not needed where:
    (A) All non-disadvantaged individual (or entity) owners involved in 
the change of ownership own no more than a 30 percent interest in the 
concern both before and after the transaction;
    (B) The transfer results from the death or incapacity due to a 
serious, long-term illness or injury of a disadvantaged principal;
    (C) The disadvantaged individual or entity in control of the 
Participant will increase the percentage of its ownership interest; or
    (D) The Participant has never received an 8(a) contract.
    (ii) In determining whether a non-disadvantaged individual involved 
in a change of ownership has more than a 30 percent interest in the 
concern, SBA will aggregate the interests of all immediate family 
members as set forth in Sec.  124.3, as well as any individuals who are 
affiliated based on an identity of interest under Sec.  121.103(f).
    (iii) Where prior approval is not required, the concern must notify 
SBA within 60 days of such a change in ownership, or before it submits 
an offer for an 8(a) contract, whichever occurs first.
    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 75%, B would own 10% and C would own 
15%. 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 30% 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 35% of Y; 
and non-disadvantaged individual E owns 5% of

[[Page 68301]]

Y. C seeks to transfer 5% of Y to E. Prior SBA approval is not needed. 
Although non-disadvantaged individual D owns more than 30% of Y, D is 
not involved in the transfer. Because the only non-disadvantaged 
individual involved in the transfer, E, owns less than 30% of Y both 
before and after the transaction, prior approval is not needed.
    Example 3 to paragraph (i)(2). Disadvantaged individual A owns 80% 
of 8(a) Participant X; non-disadvantaged individual B owns 20% of X. A 
seeks to transfer 15% of X to B. SBA approval is needed. Although B, 
the non-disadvantaged owner of X, owns less than 30% of X prior to the 
transaction, prior approval is needed because B would own more than 30% 
after the transaction.
    Example 4 to paragraph (i)(2). ANC A owns 55% of 8(a) Participant 
X; non-disadvantaged individual B owns 45% of X. B seeks to transfer 
10% to A. Prior SBA approval is not needed. Although a non-
disadvantaged individual who is involved in the transaction, B, owns 
more than 30% 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.
    Example 5 to paragraph (i)(2). Disadvantaged individual C owns 65% 
of 8(a) Participant Z and non-disadvantaged individual D owns 35% of Z. 
Z has been in the 8(a) BD program for 2 years but has not yet been 
awarded an 8(a) contract. C seeks to transfer 10% to D. Although a non-
disadvantaged individual who is involved in the transaction, D, owns 
more than 30% of Z both before and after the transaction, prior SBA 
approval is not needed because Z has never received an 8(a) contract.
* * * * *
    (k) Right of first refusal. A right of first refusal granting a 
non-disadvantaged individual or other entity the contractual right to 
purchase the ownership interests of a qualifying disadvantaged 
individual does not affect the unconditional nature of ownership, if 
the terms follow normal commercial practices. If those rights are 
exercised by a non-disadvantaged individual or other entity after 
certification, the Participant must notify SBA. If the exercise of 
those rights results in disadvantaged individuals owning less than 51% 
of the concern, SBA will initiate termination pursuant to Sec. Sec.  
124.303 and 124.304.
0
13. Amend Sec.  124.106 by:
0
a. Removing paragraph (d)(3);
0
b. Redesignating paragraphs (d)(4) and (d)(5) as paragraphs (d)(3) and 
(d)(4), respectively;
0
c. Revising paragraph (e)(3);
0
d. Removing the text ``director, or key employee'' in paragraph (f) and 
adding in its place the text ``or director'';
0
e. Redesignating paragraph (h) as paragraph (i); and
0
f. Adding new paragraph (h).
    The revision and addition to read as follows:


Sec.  124.106  When do disadvantaged individuals control an applicant 
or Participant?

* * * * *
    (e) * * *
    (3) Receive compensation from the applicant or Participant in any 
form as a director, officer or employee, that exceeds the compensation 
to be received by the highest ranking officer (usually CEO or 
President), unless the concern demonstrates that the compensation to be 
received by the non-disadvantaged individual is commercially reasonable 
or that the highest-ranking officer has elected to take lower 
compensation to benefit the applicant or Participant. A Participant 
must notify SBA within 30 calendar days if the compensation paid to the 
highest-ranking officer of the Participant falls below that paid to a 
non-disadvantaged individual. In such a case, SBA must determine that 
that the compensation to be received by the non-disadvantaged 
individual is commercially reasonable or that the highest-ranking 
officer has elected to take lower compensation to benefit the 
Participant before SBA may determine that the Participant is eligible 
for an 8(a) award.
* * * * *
    (h) Exception for extraordinary circumstances. SBA will not find 
that a lack of control exists where a socially and economically 
disadvantaged individual does not have the unilateral power and 
authority to make decisions regarding the following extraordinary 
circumstances:
    (1) Adding a new equity stakeholder;
    (2) Dissolution of the company;
    (3) Sale of the company or all assets of the company;
    (4) The merger of the company;
    (5) The company declaring bankruptcy; and
    (6) Amendment of the company's corporate governance documents to 
remove the shareholder's authority to block any of (1) through (5).
* * * * *
0
14. Amend Sec.  124.107 by:
0
a. Revising the first sentence of the introductory text;
0
b. Revising paragraph (a);
0
c. Removing paragraph (e); and
0
d. Redesignating paragraph (f) as paragraph (e).
    The revisions read as follows:


Sec.  124.107  What is potential for success?

    SBA must determine that with contract, financial, technical, and 
management support from the 8(a) BD program, from contractors or from 
others assisting with business operations, the applicant concern is 
able to perform 8(a) contracts and possess reasonable prospects for 
success in competing in the private sector. * * *
    (a) Income tax returns for each of the two previous tax years must 
show operating revenues.
* * * * *
0
15. Amend Sec.  124.108 by:
0
a. Removing paragraph (a)(1);
0
b. Redesignating paragraphs (a)(2), (a)(3), (a)(4) and (a)(5) as 
paragraphs (a)(1), (a)(2), (a)(3), and (a)(4), respectively; and
0
c. Revising newly redesignated paragraph (a)(3) and paragraph (e).
    The revision to read as follows:


Sec.  124.108  What other eligibility requirements apply for 
individuals or businesses?

* * * * *
    (a) * * *
    (3) An applicant is ineligible for admission to the 8(a) BD program 
if the applicant concern or a proprietor, partner, limited liability 
member, director, officer, or holder of at least 20 percent of its 
stock, or another person (including key employees) with significant 
authority over the concern lacks business integrity as demonstrated by 
conduct that could be grounds for suspension or debarment;
* * * * *
    (e) Federal financial obligations. A business concern is ineligible 
for admission to or participation in the 8(a) BD program if either the 
concern or any of its principals has failed to pay significant 
financial obligations owed to the Federal Government, including 
unresolved tax liens and defaults on Federal loans or other Federally 
assisted financing. However, a small business concern may be eligible 
if the concern or the affected principals can demonstrate that they are 
current on an approved repayment plan or the financial obligations owed 
have been settled and discharged/forgiven by the Federal Government.
0
16. Amend Sec.  124.203 by removing the last three sentences and adding 
a sentence in their place to read as follows:


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

    * * * The majority socially and economically disadvantaged owner

[[Page 68302]]

must take responsibility for the accuracy of all information submitted 
on behalf of the applicant.
0
17. Amend Sec.  124.204 by revising paragraph (d) to read as follows:


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

* * * * *
    (d) An applicant must be eligible as of the date SBA issues a 
decision. An applicant's eligibility will be based on the totality of 
circumstances, including facts set forth in the application, supporting 
documentation, any information received in response to any SBA request 
for clarification, and any changed circumstances.
* * * * *
0
18. 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 calendar days from the date of the Agency's final decision to 
decline.
0
19. Amend Sec.  124.303 by adding paragraph (c) to read as follows:


Sec.  124.303  What is termination?

* * * * *
    (c) Termination based on false or misleading information. (1) A 
firm that is terminated from the 8(a) BD Program due to the submission 
of false or misleading information may be removed from SBA's other 
small business contracting programs, including the HUBZone Program, the 
Women-Owned Small Business (WOSB) Program, the Veteran Small Business 
Certification (VetCert) Program, and SBA's Mentor-Prot[eacute]g[eacute] 
Program.
    (2) A firm that is decertified from the HUBZone Program, the WOSB 
Program, or the VetCert Program due to the submission of false or 
misleading information may be terminated from the 8(a) BD Program.
    (3) SBA may require a firm that is decertified from the HUBZone 
Program, the WOSB Program, or the VetCert Program due to the submission 
of false or misleading information to enter into an administrative 
agreement with SBA as a condition of admission to the 8(a) BD program.


Sec.  124.403  [Amended]

0
20. Amend Sec.  124.403 by removing the text ``within thirty (30) days 
after'' from paragraph (a) and adding, in its place, the text ``in the 
90 days prior to''.
0
21. Amend Sec.  124.503 by revising paragraph (g)(1)(iii) to read as 
follows:


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

* * * * *
    (g) * * *
    (1) * * *
    (iii) For open requirements, the effect that contract would have on 
the equitable distribution of 8(a) contracts; and
* * * * *
0
22. Amend Sec.  124.504 by revising paragraph (a) to 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?

* * * * *
    (a) Prior intent to award as a small business set-aside, or use the 
HUBZone, VetCert, or Women-Owned Small Business programs. A procuring 
activity, for itself or for another end user, issued a solicitation for 
or otherwise expressed publicly a clear intent to award the contract as 
a small business set-aside, or to use the HUBZone, VetCert, or Women-
Owned Small Business programs prior to offering the requirement to SBA 
for award as an 8(a) contract. However, SBA may accept the requirement 
into the 8(a) BD program where the AA/BD determines that there is a 
reasonable basis to cancel the initial solicitation or, if a 
solicitation had not yet been issued, a reasonable basis for the 
procuring agency to change its initial clear expression of intent to 
procure outside the 8(a) BD program (e.g., the procuring agency's needs 
have changed since the initial solicitation was issued such that the 
solicitation no longer represents its current needs; or appropriations 
are no longer available for the requirement as anticipated). A change 
in strategy only (i.e., an agency seeking to solicit through the 8(a) 
BD program instead of through another previously identified program) 
will not constitute a reasonable basis for SBA to accept the 
requirement into the 8(a) BD program.
* * * * *
0
23. Amend Sec.  124.509 by:
0
a. Removing the text ``within 30 days from'' in paragraph (c)(1) and 
adding in its place the text ``in the 90 days prior to'';
0
b. Redesignating paragraph (d)(1)(ii) as paragraph (d)(1)(iii); and
0
c. Adding new paragraph (d)(1)(ii).
    The addition to read as follows:


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

* * * * *
    (d) * * *
    (1) * * *
    (ii) In determining the projected revenue SBA should consider in 
determining whether one or more unsuccessful offers submitted by the 
Participant would have given the Participant sufficient revenues to 
achieve the applicable non-8(a) business activity target under 
paragraph (d)(1)(i)(A) of this section, SBA will consider:
    (A) Only procurements for which the Participant had reasonable 
prospects of success; and
    (B) Only the base year of the procurement at issue and not the 
projected full value of the procurement.
    Example 1 to paragraph (d)(1)(ii): Participant X is in year 2 of 
the transitional stage (or year 6 of the 8(a) BD program). It has never 
received a contract in excess of $5M. X received $20M in total revenue 
and $3M in non-8(a) revenue during program year 6. X failed to meet its 
applicable non-8(a) business activity target (BAT) of 25% ($20M x 0.25 
= $5M). To demonstrate its good efforts to achieve non-8(a) revenue, X 
submits evidence that it submitted two offers: one for a five-year 
contract valued at $100M and one for a five-year contract valued at 
$5M. SBA would not consider the first offer to qualify as a ``good 
faith effort'' since there was no reasonable prospect for success in 
submitting an offer for a $100M contract where the firm had never 
performed a contract in excess of $5M. The second offer would count as 
a good faith effort since its overall value was in line with previous 
contracts X had performed. However, because SBA considers only the 
projected revenue for the base year of the contract (or $1M), 
considering this offer does not bring X into compliance with its BAT 
($3M + $1M = $4M, which is less than the $5M required to be in 
compliance).
* * * * *
0
24. Amend Sec.  124.514 by revising paragraph (a)(1) to read as 
follows:


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

    (a) * * *
    (1) If a firm's term of participation in the 8(a) BD program has 
ended (or the firm has otherwise exited the program) or is no longer 
small under the size standard corresponding to the NAICS code for the 
requirement, negotiations to price the option cannot be entered into 
and the option cannot be exercised.
* * * * *
0
25. Amend Sec.  124.518 by revising the section heading and adding 
paragraph (d) to read as follows:

[[Page 68303]]

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

* * * * *
    (d) Novation to the lead partner to an 8(a) joint venture. A joint 
venture that was awarded an 8(a) contract may seek to novate the 8(a) 
contract to the lead 8(a) Participant to the joint venture, provided 
each member of the joint venture agrees to such novation. In order for 
SBA to authorize novation, SBA must determine that the 8(a) Participant 
seeking to be novated the contract continues to meet all 8(a) 
eligibility requirements as if for a new 8(a) contract at the time of 
novation and the procuring agency must determine that the 8(a) firm is 
capable and responsible to perform the contract.


Sec.  124.602  [Amended]

0
26. Amend Sec.  124.602 by:
0
a. Removing the word ``$10,000,000'' in paragraphs (a)(1) and (a)(2) 
and adding in its place the word ``$20,000,000'';
0
b. Removing the words ``$2,000,000 and $10,000,000'' in paragraph 
(b)(1) and adding in their place the words ``5,000,000 and 
$20,000,000''; and
0
c. Removing the word ``$2,000,000'' in paragraph (c) and adding in its 
place the word ``$5,000,000''.


Sec.  124.603  [Amended]

0
27. Amend Sec.  124.603 by removing the word ``Former'' and adding in 
its place the words ``If requested by the SBA, former''.

PART 125--GOVERNMENT CONTRACTING PROGRAMS

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

    Authority:  15 U.S.C. 632(p), (q), 634(b)(6), 637, 644, 657f, 
657q, 657r, and 657s; 38 U.S.C. 501 and 8127.

0
29. Amend Sec.  125.1 by adding, in alphabetical order, the definitions 
of ``Agreement'', ``Disqualifying Recertification'', ``Qualifying 
Recertification'', and ``Set-Aside or Reserved Award'' to read as 
follows:


Sec.  125.1  What definitions are important to SBA's Government 
Contracting Programs?

    Agreement means a Blanket Purchase Agreement, Basic Agreement, or a 
Basic Ordering Agreement.
* * * * *
    Disqualifying recertification means a recertification as either 
other than small or other than a qualified small business program 
participant that is required for eligibility to participate in a Set 
Aside or Reserved Award.
* * * * *
    Qualifying recertification means a recertification as small or as a 
qualified small business program participant that is required for 
eligibility to participate in a Set Aside or Reserved Award.
* * * * *
    Set Aside or Reserved Award means a contract, including multiple 
award contracts, agreements, or orders against contracts or agreements, 
that are set aside, partially set aside, or reserved for small business 
or any socio-economic small business program participants.
* * * * *
0
30. Amend Sec.  125.2 by redesignating paragraph (c)(6) as paragraph 
(c)(7) and adding new paragraph (c)(6) to read as follows:


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

* * * * *
    (c) * * *
    (6) Prohibition on competitions requiring or favoring additional 
socioeconomic certifications. A procuring activity cannot create a 
small business set-aside or reserve (for either a contract, order or 
agreement) that requires one or more socioeconomic certifications in 
addition to a size certification (i.e., a competition cannot be limited 
only to small business concerns that are also 8(a), HUBZone, WOSB, or 
SDVOSB certified) or give evaluation preferences to concerns having one 
or more socioeconomic certifications.
* * * * *
0
31. Amend Sec.  125.3 by:
0
a. Adding paragraphs (a)(4) and (b)(4);
0
b. Removing from paragraph (d)(1) the text ``30 days'' and ``October 
30th'' and adding in their place ``45 days'' and ``November 14th'', 
respectively; and
0
c. Removing from paragraph (d)(2) the text ``60 days'' and ``November 
30th'' and adding in their place ``75 days'' and ``December 14th'', 
respectively.
    The additions read as follows:


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

    (a) * * *
    (4) For subcontracting purposes, a concern must qualify as a small 
business concern and a socioeconomic small business concern as of the 
date that it certifies that it is small or that it qualifies as a 
socioeconomic small business concern for the subcontract.
    (b) * * *
    (4) Except for HUBZone and SDVO small business subcontractors, a 
prime contractor may rely on the socioeconomic self-certification of a 
subcontractor provided the prime contractor does not have a reason to 
doubt the subcontractor's self-certification.
* * * * *
0
32. Amend Sec.  125.6 by revising the second sentence and adding a new 
third sentence in paragraph (d) introductory text and adding two 
sentences to the end of paragraph (d)(3) to read as follows:


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

* * * * *
    (d) * * * However, for a multi-agency set aside contract where more 
than one agency can issue orders under the contract, the ordering 
agency must use the period of performance for each order to determine 
compliance and monitor compliance with the limitations on 
subcontracting for that specific order. At the end of performance of 
the order, the ordering contracting officer should then inform the 
contracting officer for the underlying multi-agency contract if the 
ordering contracting officer knows that the contractor has failed to 
meet the applicable limitations on subcontracting requirement. * * *
* * * * *
    (3) * * * Work performed by an employee obtained from a temporary 
employee agency, professional employee organization, or leasing concern 
shall be treated as the recipient concern's self-performance. The work 
performed by employees leased to the small business prime contractor 
will therefore not count against the applicable limitation on 
subcontracting.
* * * * *
0
33. Amend Sec.  125.8 by:
0
a. Removing the second sentence in paragraph (e) and adding in its 
place two sentences;
0
b. Adding an Example 1 to paragraph (e); and
0
c. Revising paragraph (f).
    The additions and revision 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?

* * * * *
    (e) * * * A procuring activity has discretion whether to require a 
prot[eacute]g[eacute] member of a joint venture to demonstrate some 
level of past performance and/or experience. Where it does so, the 
procuring activity may not require a prot[eacute]g[eacute] firm to 
individually meet all the same evaluation or responsibility criteria as 
that required of other offerors generally. * * *

[[Page 68304]]

    Example 1 to paragraph (e). A solicitation requires offerors to 
demonstrate successful performance on five similar contracts valued at 
$20 million or more. Because a prot[eacute]g[eacute] joint venture 
partner must perform at least 40% of the work to be done by a 
successful joint venture offeror, the procuring activity seeks to 
require a prot[eacute]g[eacute] joint venture partner to demonstrate 
some past performance. The procuring activity may require a 
prot[eacute]g[eacute] joint venture partner to demonstrate one or two 
contracts valued at $10 million or $8 million, but may not require the 
prot[eacute]g[eacute] to demonstrate successful performance on five 
similar contracts and may not require the prot[eacute]g[eacute] to 
demonstrate successful performance on contracts valued at $20 million. 
In addition, if a procuring activity requires a prot[eacute]g[eacute] 
joint venture partner to demonstrate successful performance on two 
contracts valued at $10 million or more, successful performance by the 
prot[eacute]g[eacute] firm on those $10 million contracts shall be 
rated equivalently to successful performance by the mentor partner to 
the joint venture or any other individual offeror on $20 million 
contracts.
    (f) Contract execution. The procuring activity will execute a 
contract set aside or reserved for small business in the name of the 
joint venture entity where there is a separate legal entity joint 
venture or the name of a small business partner to the joint venture 
where there is an informal joint venture, but in either case will 
identify the award as one to a small business joint venture or a small 
business mentor-prot[eacute]g[eacute] joint venture, as appropriate.
* * * * *
0
34. Amend Sec.  125.9 by:
0
a. Revising paragraph (b) introductory text;
0
b. Revising paragraph (b)(2);
0
c. Adding the word ``a'' after the words ``more than one 
prot[eacute]g[eacute] at'' and before the word ``time'' in paragraph 
(b)(3) introductory text;
0
d. Adding paragraph (b)(4);
0
e. Redesignating paragraph (e)(6) as paragraph (c)(4);
0
f. Revising newly redesignated paragraph (c)(4)(iv);
0
g. Adding paragraph (c)(5);
0
h. Adding paragraph (d)(1)(iv); and
0
i. Redesignating paragraphs (e)(7), (8) and (9) as paragraphs (e)(6), 
(7) and (8), respectively.
    The revisions and additions read as follows:


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

* * * * *
    (b) Mentors. Any for-profit business 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.
* * * * *
    (2) (i) 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 or key employees 
of the prot[eacute]g[eacute], or is otherwise affiliated with the 
prot[eacute]g[eacute].
    (ii) SBA may terminate the mentor-prot[eacute]g[eacute] agreement 
if:
    (A) SBA determines that the mentor does not possess good character 
or a favorable financial position;
    (B) SBA determines that the mentor was affiliated with the 
prot[eacute]g[eacute] at the time of application or becomes affiliated 
with the prot[eacute]g[eacute] for reasons other than the mentor-
prot[eacute]g[eacute] agreement or assistance provided under the 
agreement; or
    (C) Key managers or personnel become employees of both the mentor 
and prot[eacute]g[eacute] firms at the same time.
* * * * *
    (4) A mentor cannot be a contract holder through joint ventures 
with two prot[eacute]g[eacute] small business concerns on the same 
small business multiple award contract or small business reserve on a 
multiple award contract at the same time.
    (i) Where a mentor purchases another business entity that is also 
an SBA-approved mentor that is a contract holder as a joint venture 
with a prot[eacute]g[eacute] small business and the mentor is also a 
contract holder with a prot[eacute]g[eacute] small business on that 
same multiple award contract, the mentor must exit one of those joint 
venture relationships.
    (ii) The prot[eacute]g[eacute] firm connected to the joint venture 
from which the mentor exits may seek to:
    (A) Acquire the new mentor's interest in the small business 
multiple award contract or reserve and, where necessary and 
appropriate, novate such contract or reserve to itself only pursuant to 
FAR 42.1204; or
    (B) Replace the new mentor with another business in the joint 
venture such that the revised joint venture continues to qualify as 
small, and, where necessary and appropriate, novate such contract or 
reserve pursuant to FAR 42.1204.
* * * * *
    (c) * * *
    (4) * * *
    (iv) Instead of having a six-year mentor-prot[eacute]g[eacute] 
relationship with two separate mentors, a prot[eacute]g[eacute] may 
seek to extend or renew a mentor-prot[eacute]g[eacute] relationship 
with the same mentor for a second six-year term. In order for SBA to 
approve an extension or renewal of a mentor-prot[eacute]g[eacute] 
relationship with the same mentor, the mentor must commit to providing 
additional business development assistance to the 
prot[eacute]g[eacute]. Whether a prot[eacute]g[eacute] has a mentor-
prot[eacute]g[eacute] relationship with two different mentors or the 
same mentor for a second six-year period, a concern cannot be a 
prot[eacute]g[eacute] for a total of more than 12 years.
    (5) Where a business concern purchases another business concern 
that is currently the mentor of a prot[eacute]g[eacute] firm, that 
business concern can become the new mentor of the prot[eacute]g[eacute] 
if it commits to honoring the obligations under the seller's mentor-
prot[eacute]g[eacute] agreement or the purchasing business concern and 
the prot[eacute]g[eacute] negotiate a new mentor-prot[eacute]g[eacute] 
agreement that SBA approves. Where that occurs, that new mentor-
prot[eacute]g[eacute] relationship will be effective for no longer than 
six years minus the length of the mentor-prot[eacute]g[eacute] 
relationship with the seller mentor.
    (i) If the purchasing business concern and the 
prot[eacute]g[eacute] firm cannot agree on either continuing with the 
previous mentor-prot[eacute]g[eacute] agreement or negotiating a new 
mentor-prot[eacute]g[eacute] agreement that is acceptable to SBA, the 
prot[eacute]g[eacute] firm can terminate its mentor-
prot[eacute]g[eacute] relationship.
    (ii) Where a mentor-prot[eacute]g[eacute] relationship is 
terminated, the prot[eacute]g[eacute] firm may seek another business 
concern to enter a mentor-prot[eacute]g[eacute] relationship for a 
duration not to exceed six years minus the length of the mentor-
prot[eacute]g[eacute] relationship with the former mentor.
    Example 1 to paragraph (c)(5). 8(a) Participant A enters a mentor-
prot[eacute]g[eacute] relationship with business concern X. After 3 
years, business concern Y purchases X. A and Y agree to continue to 
abide by the mentor-prot[eacute]g[eacute] agreement between A and X. 
The mentor-prot[eacute]g[eacute] relationship between A and Y can last 
no longer than 3 years (6 years minus the length of the A and X mentor-
prot[eacute]g[eacute] relationship). At the end of that agreement A and 
Y could seek to renew the mentor-prot[eacute]g[eacute] relationship for 
another 6 years if this is A's first mentor-prot[eacute]g[eacute] 
relationship.
    Example 2 to paragraph (c)(5). 8(a) Participant Z enters a mentor-
prot[eacute]g[eacute] relationship with business concern B. After 3 
years, business concern C purchases B. If either C is unwilling to 
abide by the terms of the Z/B mentor-prot[eacute]g[eacute] agreement or 
Z does not want to extend a mentor prot[eacute]g[eacute] relationship 
with C and the mentor-prot[eacute]g[eacute] agreement is terminated, Z 
may seek a

[[Page 68305]]

new business concern to enter a mentor-prot[eacute]g[eacute] 
relationship. If business concern D agrees to enter into a mentor-
prot[eacute]g[eacute] relationship with Z and SBA approves that 
relationship, the Z/D mentor-prot[eacute]g[eacute] relationship can 
last for no longer than 3 years (6 years minus the length of the Z/B 
mentor-prot[eacute]g[eacute] relationship). If that was Z's first 
mentor-prot[eacute]g[eacute] relationship, Z may seek to extend the Z/D 
mentor-prot[eacute]g[eacute] relationship for an additional 6 years or 
may seek a new mentor-prot[eacute]g[eacute] relationship with another 
firm for up to 6 years. In no case can a prot[eacute]g[eacute] firm 
have mentor-prot[eacute]g[eacute] relationships lasting more than 12 
years.
    (d) * * *
    (1) * * *
    (iv) Where a mentor seeks to sell its interest in a mentor-
prot[eacute]g[eacute] joint venture, the prot[eacute]g[eacute] firm 
shall have a right of first refusal to purchase that interest.
* * * * *
0
35. Add Sec.  125.12 to read as follows:


Sec.  125.12  Recertification of Size and Small Business Program 
Status.

    (a) General. Recertification of size and small business program 
status (i.e., 8(a), HUBZone, WOSB/EDWOSB, or SDVOSB) is required within 
30 calendar days of an approved novation, merger, acquisition, or sale, 
including agreements in principle, of or by a concern or an affiliate 
of the concern, which results in a change in controlling interest.
    (1) A concern and the acquiring concern must recertify if each has 
received an award as a small business or small business program 
participant.
    (2) In the context of a joint venture, recertification is required 
from any partner to the joint venture that has merged or is party to 
the sale or acquisition.
    (3) Recertification does not change the terms and conditions of the 
award. The limitations on subcontracting, non-manufacturer and 
subcontracting plan requirements in effect at the time of award remain 
in effect throughout the life of the award regardless of whether a 
recertification is qualifying or disqualifying. However, a contracting 
officer may require a subcontracting plan if a prime contractor's size 
status changes from small to other than small as a result of a size 
recertification.
    (4) A size re-certification shall relate to the size standard in 
effect at the time of re-certification that corresponds to the NAICS 
code that was initially assigned to the award.
    (b) Long term contracts. For contracts (including multiple award 
contracts) and orders with durations of more than five years (including 
options), a concern must recertify its size and status no more than 120 
days prior to the end of the fifth year of the award, and no more than 
120 days prior to exercising any option thereafter. A contracting 
officer may also request size and/or status recertification, as he or 
she deems appropriate, prior to the 120-day point in the fifth year of 
a long-term contract or order. The agency and the contractor must 
immediately revise all applicable Federal contract databases to reflect 
the new size status.
    (c) Request by contracting officer. Recertification of size and 
small business program status is required where the contracting officer 
explicitly requires concerns to recertify their size or status in 
response to a solicitation for a set aside or reserved order or 
agreement.
    (d) Change in structure of entity-owned concern. Size or status 
recertification is not required when the ownership of a concern that is 
at least 51% owned by an Indian 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 (d). 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.
    (e) Effect of Recertification.
    (1) Qualifying Recertification. A concern that has a qualifying 
recertification is generally considered to be a small business or small 
business program participant for up to five years from the date of the 
recertification and remains eligible for set-aside or reserved awards 
unless there is a subsequent disqualifying recertification.
    (2) Disqualifying Recertification.
    (i) Pending Set Aside or Reserved Award. If events triggering a 
disqualifying recertification under paragraph (a) of this section occur 
within 180 days after the date of an offer but prior to award, the 
concern is ineligible to receive the pending small business set aside 
or reserved award. The concern must notify the contracting officer of 
the change in its size or status. If events triggering a disqualifying 
recertification under paragraph (a) of this section occur more than 180 
days after the date of an offer but prior to award, the concern is 
eligible to receive a pending single award or reserve and the award 
will count as an award to a small business or small business program 
participant for goaling purposes for up to five years from the date of 
the award unless there is a disqualifying recertification. However, 
where the underlying award is a multiple award small business set aside 
or reserve the concern is ineligible for the pending award because the 
concern would not be eligible for orders set aside for small business 
or set aside for a specific type of small business. See paragraph 
(e)(2)(ii)(B) of this section.
    (ii) Future Set Aside or Reserved Award.
    (A) Request for Recertification on a Specific Order or Agreement. 
If a concern has a disqualifying recertification in response to a 
contracting officer request for recertification on a specific order or 
agreement, the concern is ineligible for the specific order or 
agreement but remains eligible for other set aside or reserved awards 
and unrestricted awards.
    (B) Other Events Triggering Recertification. If a concern has a 
disqualifying recertification in response to any triggering event for 
recertification, aside from a contracting officer request for 
recertification on a specific order or agreement, the concern is 
ineligible to submit an offer for a set aside or reserved award under a 
multiple award contract after the triggering event occurs. The concern 
remains eligible for unrestricted awards under a multiple award 
contract and orders issued under a single award small business 
contract. In either case, a procuring agency could not count the order 
as an award to small business or to the specific type of small business 
(i.e., 8(a), WOSB, SDVOSB, or HUBZone).
    (iii) Options.
    (A) For a single award small business set-aside or reserve award or 
any unrestricted award, a concern that submits a disqualifying 
recertification remains eligible to receive options. The procuring 
agency cannot count the option period as an award to a small business 
or small business program participant for goaling purposes. Such a 
concern may make a qualifying recertification for a subsequent option 
period if it meets the applicable size standard or becomes a certified 
small business program participant.
    (B) For a multiple award small business set-aside or reserve award, 
a concern that submits a disqualifying

[[Page 68306]]

recertification is ineligible to receive options.
    (f) Joint venture recertifications. Where a joint venture must 
recertify its small business size status under paragraph (a) of this 
section, the joint venture can recertify as small where all parties to 
the joint venture qualify as small at the time of recertification, or 
the prot[eacute]g[eacute] small business in a still active mentor-
prot[eacute]g[eacute] joint venture qualifies as small at the time of 
recertification. A joint venture can recertify as small even though the 
date of recertification occurs more than two years after the joint 
venture received its first contract award (i.e., recertification is not 
considered a new contract award under Sec.  121.103(h).
0
36. Add Sec.  125.13 to read as follows:


Sec.  125.13  What restrictions apply to fees for representatives of 
applicants and participants in SBA's 8(a) BD, HUBZone, WOSB and VetCert 
programs?

    (a) The compensation received by any packager, agent, or 
representative of a concern applying for 8(a) BD, HUBZone, WOSB/EDWOSB, 
or VOSB/SDVOSB certification in exchange for assisting the applicant in 
obtaining such certification must be reasonable in light of the 
service(s) performed by the packager, agent, or representative.
    (b) The compensation received by any packager, agent, or 
representative of a certified 8(a) BD, HUBZone small business concern, 
WOSB/EDWOSB, or VOSB/SDVOSB in exchange for assisting the concern in 
obtaining any small business contracts, orders, BPAs, BAs, or BOAs must 
be reasonable in light of the service(s) performed by the packager, 
agent, or representative, and cannot be a fee that is a percentage of 
the gross value of the contract, order, BPA, BA or BOA.
    (c) For good cause, SBA may initiate proceedings to suspend or 
revoke a packager's, agent's, or representative's privilege to assist 
applicants obtain SBA certification and assist certified small business 
concerns obtain contracts, orders, or any other assistance to support 
participation in the 8(a) BD, HUBZone, WOSB or VetCert programs. Good 
cause is defined in Sec.  103.4 of this chapter.
    (1) SBA may send a ``show cause'' letter requesting the agent or 
representative to demonstrate why the agent or representative should 
not be suspended or proposed for revocation, or may immediately send a 
written notice suspending or proposing revocation, depending upon the 
evidence in the administrative record. The notice will include a 
discussion of the relevant facts and the reason(s) why SBA believes 
that good cause exists.
    (2) Unless SBA specifies a different time in the notice, the agent 
or representative must respond to the notice within 30 calendar days of 
the date of the notice with any facts or arguments showing why good 
cause does not exist. The agent or representative may request 
additional time to respond, which SBA may grant in its discretion.
    (3) After considering the agent's or representative's response, SBA 
will issue a final determination, setting forth the reasons for this 
decision and, if a suspension continues to be effective or a revocation 
is implemented, the term of the suspension or revocation.
    (d) The relevant SBA program office may refer a packager, agent, or 
other representative to SBA's Suspension and Debarment Official for 
possible Government-wide suspension or debarment where appropriate, 
including where it appears that the packager, agent, or representative 
assisted an applicant or certified small business concern to submit 
information to SBA that the packager, agent, or representative knew to 
be false or materially misleading.

PART 126--HUBZONE PROGRAM

0
37. 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.  126.100  [Amended]

0
38. Amend Sec.  126.100 by removing the words ``qualified SBCs'' and 
adding in their place the words ``small business concerns''.


Sec.  126.102  [Amended]

0
39. Amend Sec.  126.102 by removing the words ``qualified HUBZone 
SBCs'' and adding in their place the words ``certified HUBZone small 
business concerns''.
0
40. Amend Sec.  126.103 by:
0
a, Removing the definition for ``AA/BD'';
0
b. Revising the definitions for ``Certify'', ``Community Development 
Corporation (CDC)'', ``Contracting Officer (CO)'', ``Decertify'', 
``Dynamic Small Business Search (DSBS)'', ``Employee'', ``Governor-
Designated Covered Area'', ``HUBZone small business concern or 
certified HUBZone small business concern'', ``Indian Tribal 
Government'', ``Interested party'', ``Principal office'', ``Qualified 
Disaster Area'', ``Redesignated Area'', ``Reside'', and ``Small 
business concern'';
0
c. Removing paragraph (3) in the definition of ``Qualified Census 
Tract'';
0
d. Removing paragraph (4) in the definition of ``Qualified Non-
Metropolitan County'';
0
e. Adding definitions for ``HUBZone certification date'', ``HUBZone 
Map'', ``HUBZone resident employee'', and ``System for Award Management 
(SAM)'', in alphabetical order.
    The revisions and additions read as follows:


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

* * * * *
    Certification or Certify means the process by which SBA determines 
that a concern is qualified for the HUBZone program and eligible to be 
designated by SBA as a certified HUBZone small business concern in DSBS 
(or successor system).
* * * * *
    Community Development Corporation or CDC means a nonprofit 
organization responsible to residents of the area it serves which has 
received financial assistance under 42 U.S.C. 9805, et seq. or has 
received a letter from the Department of Health and Human Services 
affirming that it has received assistance under a successor program to 
that authorized by 42 U.S.C. 9805.
* * * * *
    Contracting Officer (CO) has the meaning given that term in 41 
U.S.C. 2101(1), which defines a CO as a person who, by appointment in 
accordance with applicable regulations, has the authority to enter into 
a Federal agency procurement contract on behalf of the Government and 
to make determinations and findings with respect to such a contract.
* * * * *
    Decertify means the process by which SBA removes a concern as a 
certified HUBZone small business concern from DSBS (or successor 
system) upon a finding that the firm does not meet the HUBZone 
eligibility requirements or after a firm voluntarily withdraws from the 
HUBZone program.
    Dynamic Small Business Search (DSBS) means the database that 
government agencies use to find small business contractors for upcoming 
contracts. The information a business provides when registering in SAM, 
as defined in this section, is used to populate DSBS. For HUBZone 
Program purposes, a concern's DSBS profile will indicate whether it is 
a certified HUBZone small business concern, and if so, the date it was 
certified.
    Employee means an individual employed on a full-time, part-time, or 
other basis, so long as that individual works a minimum of 80 hours 
during

[[Page 68307]]

the four-week period immediately prior to the relevant date of review.
    (1) To determine the number of hours worked by each individual 
employed by the firm, SBA will review a concern's payroll records for 
the most recently completed pay periods that account for the four-week 
period immediately prior to the relevant date of review. To determine 
if an individual is an employee, SBA reviews the totality of 
circumstances, including criteria used by the Internal Revenue Service 
(IRS) for Federal income tax purposes and the factors set forth in 
SBA's Size Policy Statement No. 1 (51 FR 6099, February 20, 1986).
    (2) In general, the following are considered employees:
    (i) Individuals obtained from a temporary employee agency, from a 
concern primarily engaged in leasing employees, or through a union 
agreement, or co-employed pursuant to a Professional Employer 
Organization agreement;
    (ii) An individual who has an ownership interest in the concern and 
who works for the concern 80 hours or more during the four-week period 
immediately prior to the relevant date of review, whether or not the 
individual receives compensation;
    (iii) An owner who works less than 80 hours during the four-week 
period immediately prior to the relevant date of review, where another 
individual has not been hired to manage and direct the actions of the 
concern's employee(s).
    (3) In general, the following are not considered employees:
    (i) Individuals who are not owners and receive no compensation 
(including no in-kind compensation) for work performed;
    (ii) Individuals who receive deferred compensation for work 
performed;
    (iii) Independent contractors to whom payments are reported via IRS 
Form 1099 and who are not otherwise considered employees under SBA's 
Size Policy Statement No. 1; and
    (iv) Subcontractors.
    (3) Employees of an affiliate may be considered employees, if the 
totality of the circumstances shows that there is no clear line of 
fracture between the HUBZone applicant (or certified HUBZone small 
business concern) and its affiliate(s) (see Sec.  126.204).
    (4) An individual must perform work for the concern to be 
considered an employee for HUBZone purposes. SBA may require evidence 
that an individual is performing work, including but not limited to the 
following: a job description; the individual's resume; timesheets; 
proof of onboarding and/or training; evidence of regular communication 
assigning work to the individual and responses to such communication; 
examples of work product commensurate with hours worked; documentation 
demonstrating the individual's participation in online or telephonic 
meetings with supervisors or colleagues, such as meeting invitations, 
notes from meetings, post-meeting questions or assignments; written 
attestations; and other relevant documentation.
    Governor-Designated Covered Area means an area that SBA has 
designated as a HUBZone by approving a Governor-generated petition 
pursuant to the procedures described in Sec.  126.104.
* * * * *
    HUBZone certification date means the date on which SBA approves a 
concern's application for HUBZone certification and is the date 
specified in the concern's certification letter. If a concern leaves 
the HUBZone program and reapplies for certification, their HUBZone 
certification date is the date SBA approves the concern's most recent 
application.
    HUBZone Map means a publicly accessible online tool that depicts 
HUBZones.
    HUBZone resident employee means an individual who meets the 
definition of an employee and who SBA has determined resides in a 
HUBZone.
    HUBZone small business concern or certified HUBZone small business 
concern means a small business concern that meets the requirements 
described in Sec.  126.200 and that SBA has certified as eligible for 
federal contracting assistance under the HUBZone program.
* * * * *
    Indian Tribal Government means the governing body of any Indian 
tribe, band, nation, pueblo, or other organized group or community 
which is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians, or is recognized as such by the State in which the tribe, 
band, nation, group, or community resides.
    Interested party means any certified HUBZone small business concern 
that submits an offer for a specific HUBZone set-aside contract 
(including a multiple award contract) or order, any concern that 
submitted an offer in full and open competition and its opportunity for 
award will be affected by a price evaluation preference given to a 
certified HUBZone small business concern or by a reserve of an award 
given to a certified HUBZone small business concern, the contracting 
activity's contracting officer, or SBA.
* * * * *
    Principal Office means the location where the greatest number of 
the concern's employees at any one location perform their work.
    (1) In order for a location to be considered the principal office, 
the concern must provide a deed or an active lease that includes a 
start date that was at least 30 calendar days prior to the relevant 
date of review, and an end date that is at least 60 calendar days after 
the relevant date of review, as well as any other documentation 
requested by SBA;
    (2) In order for a location to be considered the principal office, 
the concern must conduct business at this location. The concern may be 
required to demonstrate that it is doing so by submitting evidence 
including but not limited to the following:
    (i) Photos and/or a live or virtual walk-through of the space; and
    (ii) For shared working spaces, evidence that the firm has 
dedicated space within any shared location, and that such dedicated 
space contains sufficient work surface area, furniture, and equipment 
to accommodate the number of employees claimed to work from this 
location;
    (3) If an employee works at multiple locations, then the employee 
will be deemed to work at the location where the employee spends more 
than 50% of his or her time. If an employee does not spend more than 
50% of his or her time at any one location and at least one of those 
locations is a non-HUBZone location, then the employee will be deemed 
to work at a non-HUBZone location.
    (4) If 100% of a firm's employees telework, at least 51% of its 
employees must work from HUBZone locations to meet the principal office 
requirement.
    (5) For those concerns whose ``primary industry classification'' is 
services or construction (see Sec.  121.201 of this chapter), the 
determination of principal office excludes the concern's employees who 
perform more than 50% of their work at job-site locations to fulfill 
specific contract obligations. If all of a concern's employees perform 
more than 50% of their work at job sites, the concern does not comply 
with the principal office requirement.
    (i) Example 1: A business concern whose primary industry is 
construction has a total of 78 employees, including the owners. The 
business concern has one office (Office A), which is located in a 
HUBZone, with 3 employees working at that location. The business

[[Page 68308]]

concern also has a job-site for a current contract, where 75 employees 
perform more than 50% of their work. The 75 job-site employees are 
excluded for purposes of determining principal office. Since the 
remaining 3 employees all work at Office A, Office A is the concern's 
principal office. Since Office A is in a HUBZone, the business concern 
complies with the principal office requirement.
    (ii) Example 2: A business concern whose primary industry is 
services has a total of 4 employees, including the owner. The business 
concern has one office located in a HUBZone (Office A), where 2 
employees perform more than 50% of their work, and a second office not 
located in a HUBZone (Office B), where 2 employees perform more than 
50% of their work. Since there is not one location where the greatest 
number of the concern's employees at any one location perform their 
work, the business concern would not have a principal office in a 
HUBZone.
    (iii) Example 3: A business concern whose primary industry is 
services has a total of 6 employees, including the owner. Five of the 
employees perform all of their work at job-sites fulfilling specific 
contract obligations. The business concern's owner performs 45% of her 
work at job-sites, and 55% of her work at an office located in a 
HUBZone (Office A) conducting tasks such as writing proposals, 
generating payroll, and responding to emails. Office A would be 
considered the principal office of the concern since it is the only 
location where any employees of the concern work that is not a job site 
and the 1 individual working there spends more than 50% of her time at 
Office A. Since Office A is located in a HUBZone, the small business 
concern would meet the principal office requirement.
* * * * *
    Qualified Disaster Area. (1) Qualified Disaster Area means any 
census tract or non-metropolitan county located in an area where a 
major disaster declared by the President under section 401 of the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 
U.S.C. 5170) has occurred or an area in which a catastrophic incident 
has occurred if such census tract or non-metropolitan county ceased to 
be a Qualified Census Tract or Qualified Non-Metropolitan County during 
the period beginning 5 years before the date on which the President 
declared the major disaster or the catastrophic incident occurred.
    (2) A census tract or non-metropolitan county shall be considered 
to be a Qualified Disaster Area for the period of time starting on the 
date on which the President declared the major disaster for the area in 
which the census tract or non-metropolitan county, as applicable, is 
located (or in the case of a catastrophic incident, on the date on 
which the catastrophic incident occurred in the area in which the 
census tract or non-metropolitan county, as applicable, is located) and 
ending on the date when SBA next updates the HUBZone Map in accordance 
with Sec.  126.104(a).
* * * * *
    Redesignated Area means any census tract that ceases to be a 
Qualified Census Tract or any non-metropolitan county that ceases to be 
a Qualified Non-Metropolitan County. A Redesignated Area generally 
shall be treated as a HUBZone for a period of three years, starting 
from the date on which the area ceased to be a Qualified Census Tract 
or a Qualified Non-Metropolitan County. The date on which the census 
tract or non-metropolitan county ceases to be qualified is the date on 
which the official government data affecting the eligibility of the 
HUBZone is released to the public.
    Reside means to live at a location full-time and for at least 90 
calendar days immediately prior to the relevant date of review.
    (1) To determine residence, SBA will first look to an individual's 
address identified on his or her driver's license or other government-
issued identification card.
    (i) Where such documentation is not available (or where the address 
on the individual's driver's license it outdated), SBA will require 
other specific proof of residency, such as deeds, leases, and/or 
utility bills, as well as a signed statement explaining why a driver's 
license is unavailable and attesting to an individual's dates of 
residency.
    (ii) Where such documentation does not demonstrate 90 days of 
residency, SBA will require a signed statement attesting to an 
individual's dates of residency.
    (2) For HUBZone purposes, SBA will consider individuals temporarily 
residing overseas in connection with the performance of a contract to 
reside at their U.S. residence.
    (i) Example 1: A person possesses the deed to a residential 
property and pays utilities and property taxes for that property. 
However, the person does not live at this property, but instead rents 
out this property to another individual. For HUBZone purposes, the 
person does not reside at the address listed on the deed.
    (ii) Example 2: A person moves into an apartment under a month-to-
month lease and lives in that apartment full-time. SBA would consider 
the person to reside at the address listed on the lease if the person 
can show that he or she has lived at that address for at least 90 
calendar days immediately prior to the relevant date of review (i.e., 
date of application, date of recertification, or date of offer for a 
HUBZone contract).
    (iii) Example 3: A person is working overseas on a contract for the 
small business and is therefore temporarily living abroad. The employee 
can provide documents showing he has paid rent for an apartment located 
in a HUBZone for at least 90 calendar days immediately prior to the 
relevant date of review. That person is deemed to reside in a HUBZone.
* * * * *
    Small business concern means a concern that, with its affiliates, 
meets the size standard corresponding to any NAICS code listed in its 
profile in the System for Award Management (SAM or SAM.gov), pursuant 
to part 121 of this chapter.
    System for Award Management (SAM) has the same meaning as in FAR 
2.101.
0
41. Revise Sec.  126.104 as follows:


Sec.  126.104  How can a Governor petition for the designation of a 
Governor-designated cover area?

    (a) Petition. Each calendar year, the Governor of a State may 
submit a petition to the SBA Office of the HUBZone Program requesting 
that certain covered areas be designated as Governor-designated covered 
areas. For a specific covered area to receive a designation as a 
Governor-designated covered area, the Governor of the State in which 
the identified covered area is wholly contained shall include such area 
in a petition to SBA requesting such a designation.
    (1) A Governor may submit not more than 1 petition described in 
this section per calendar year.
    (2) The petition described in this section shall include all 
covered areas in a State for which the Governor seeks designation as a 
Governor-designated covered area. The total number of covered areas 
included in such petition may not exceed 10 percent of the total number 
of covered areas in the State.
    (3)(i) The total number of covered areas in a State shall be 
calculated by aggregating the number of census tracts and counties that 
qualify as covered areas as described in (d) of this section.
    (ii) A petition need not seek SBA approval for those covered areas 
previously designated as Governor-designated covered areas.

[[Page 68309]]

    (b) SBA Review. In reviewing a request for designation included in 
such a petition, the Administrator may consider:
    (1) The potential for job creation and investment in the covered 
area;
    (2) The demonstrated interest of small business concerns in the 
covered area to be designated as a Governor-designated covered area;
    (3) How State and local government officials have incorporated the 
covered area into an economic development strategy; and
    (4) If the covered area was a HUBZone before becoming the subject 
of the petition, the impact on the covered area if the Administrator 
did not approve the petition.
    (c) SBA Decision. The AA/GCBD (or designee) is authorized to grant 
the petitions described in this section. If the AA/GCBD (or designee) 
grants a petition described in this section, SBA will issue a written 
notice to the petitioning Governor and add the newly designated 
Governor-designated covered areas to the HUBZone Map.
    (d) Length of designation. A Governor-designated covered area will 
be treated as a HUBZone until SBA next updates the HUBZone Map in 
accordance with Sec.  126.104(a), or one year after the petition is 
approved, whichever is later.
    (e) Definitions. In this section:
    (1) The term ``covered area'' means a census tract or county in a 
State--
    (i) That is located outside of an urban area, as determined by the 
Bureau of the Census, with a population of not more than 50,000; and
    (ii) For which the average unemployment rate is at least 120 
percent of the average unemployment rate of the United States or of the 
State in which the covered area is located, whichever is less, based on 
the most recent data available from the American Community Survey 
conducted by the Bureau of the Census.
    (2) The term ``Governor'' means the chief executive of a State.
    (3) The term ``State'' means each of the States of the United 
States, the District of Columbia, the Commonwealth of Puerto Rico, the 
United States Virgin Islands, Guam, the Commonwealth of the Northern 
Mariana Islands, or American Samoa.
0
42. Add Sec.  126.105 to read as follows:


Sec.  126.105  How often will the HUBZone Map be updated?

    The HUBZone Map will be updated as follows:
    (a) Qualified Census Tracts and Qualified Non-Metropolitan Counties 
will be updated every 5 years.
    (b) Redesignated Areas will be added to the HUBZone Map when areas 
cease to be designated as Qualified Census Tracts or Qualified Non-
Metropolitan Counties, in accordance with the 5-year cycle described in 
paragraph (a), and will be removed after 3 years.
    (c) Qualified Base Closure Areas will be added to the HUBZone Map 
after SBA receives information from the Department of Defense that a 
new base closure area has been created and will be removed after 8 
years.
    (d) Qualified Disaster Areas generally will be added to the HUBZone 
Map on a monthly basis, based on data received by SBA from the Federal 
Emergency Management Agency (FEMA), and generally will be removed on 
the effective date of the 5-year HUBZone Map update following the 
declaration.
    (e) Governor-Designated Covered Areas will be added to the HUBZone 
Map after SBA approves a petition in accordance with Sec.  126.104 and 
will be removed on the effective date of the 5-year HUBZone Map update 
following the approval, or one year after the petition is approved, 
whichever is later.
0
43. Amend Sec.  126.200 by:
0
a. Adding two sentences to the end of paragraph (b)(1);
0
b. Revising paragraph (c)(1);
0
c. Adding paragraph headings in paragraphs (c)(2) and (d)(2);
0
d. Removing the words ``Example to paragraph (d)(3)'' in paragraph 
(d)(3)(i) and adding in their place the words ``Example 1 to paragraph 
(d)(3)'';
0
e. Revising paragraphs (d)(1) and (d)(3);
0
f. Revising paragraphs (e), (f), and (g); and
0
g. Adding paragraph (h).
    The revisions and additions read as follows:


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

* * * * *
    (b) * * *
    (1) * * * In determining whether a concern qualifies as small under 
the size standard corresponding to a specific NAICS code, SBA will 
accept the concern's size representation in SAM, or successor system, 
unless there is evidence indicating that the concern is other than 
small. SBA will request a formal size determination pursuant to Sec.  
121.1001(b)(8) of this chapter where any information it possesses calls 
into question the concern's SAM.gov size representation.
* * * * *
    (c) * * *
    (1) Long-term investment. (i) General. A concern that has purchased 
a building or entered a long-term lease of at least 10 years for a 
property in a HUBZone (other than in a Redesignated Area) will be 
deemed to have its principal office located in a HUBZone for up to 10 
years from the date of the investment, as long as that building or 
property qualifies as the concern's principal office and continues to 
qualify as the concern's principal office, and as long as the firm 
maintains the long-term lease or continues to be the sole owner of the 
property.
    (ii) Commencement of 10-year period. The 10-year principal office 
long-term investment protection period starts to run on the firm's 
HUBZone certification date (if the investment was made prior to the 
firm's certification) or on the date of the investment (if the 
investment was made after the firm's HUBZone certification date).
    Example 1 to paragraph (d)(2)(i): If a firm was certified on March 
31, 2020, and purchased a building on July 20, 2020, the 10-year clock 
would begin when the firm recertifies as of May 1, 2021.
    (iii) Exceptions. The following do not qualify for this provision:
    (A) An office located in a Redesignated Area at the time of initial 
HUBZone certification;
    (B) An office that is shared with one or more other concerns or 
individuals;
    (C) Any location being used as a personal residence; or
    (D) An investment made within 180 calendar days of the expiration 
of an area's designation as a Qualified Census Tract, Qualified Non-
Metropolitan County, Governor-Designated Covered Area, or Qualified 
Base Closure Area.
    (2) Tribally-owned concerns. * * *
* * * * *
    (d) Employees. (1) General. In order to be eligible for HUBZone 
certification, at least 35% of a concern's employees must qualify as 
HUBZone Resident Employees. When determining the percentage of 
employees that must reside in a HUBZone to meet the 35% HUBZone 
residency requirement, if the percentage results in a fraction, SBA 
rounds to the nearest whole number, except for a firm with only one 
employee. For firms with only one employee, that one employee must 
reside in a HUBZone.
    Example 1 to paragraph (d)(1): A concern has 25 employees; 35% of 
25, or 8.75, employees must reside in a HUBZone. The number 8.75 
rounded to the nearest whole number is 9. Thus, 9 employees must reside 
in a HUBZone.
    Example 2 to paragraph (d)(1): A concern has 95 employees; 35% of 
95, or 33.25, employees must reside in a HUBZone. The number 33.25 
rounded to the nearest whole number is 33.

[[Page 68310]]

Thus, 33 employees must reside in a HUBZone.
    (2) Tribally-owned concerns. * * *
    (3) Legacy HUBZone Employees. (i) An individual will be considered 
a Legacy HUBZone Employee and count as a HUBZone Resident Employee even 
if the employee subsequently moves to a location that is not in a 
HUBZone or the area in which the employee's residence is located no 
longer qualifies as a HUBZone if the individual:
    (A) Continues to live in a HUBZone for at least 180 calendar days 
immediately after the firm's HUBZone certification date (or 
recertification date); and
    (B) Continues to meet the definition of ``employee'' in Sec.  
126.103 continuously and without interruption.
    (ii) An individual who initially qualified as a HUBZone Resident 
Employee by living in a Redesignated Area or a Qualified Disaster Area 
will not qualify as a Legacy HUBZone Employee.
    (iii) A certified HUBZone small business concern may have up to one 
Legacy HUBZone Employee at a given time.
    (iv) The certified HUBZone small business concern must maintain 
records of the Legacy HUBZone Employee's original HUBZone address, as 
well as records of any HUBZone other address in which the individual 
resided, as well as records of the individual's continuous and 
uninterrupted employment by the HUBZone small business concern, for the 
duration of the concern's participation in the HUBZone program. In 
order to demonstrate that an individual resided in a HUBZone for 180 
days after certification (or recertification), the concern must submit 
to SBA copies of leases, utility bills, or property tax records.
    (v) The certification date or recertification date being used to 
establish the HUBZone residency of the employee must be after December 
26, 2019.
    Example 1 to paragraph (d)(3): As part of its application for 
HUBZone certification, a concern provides documentation showing that it 
has 10 employees, 4 of which reside in HUBZones. SBA certifies the 
concern as a certified HUBZone small business concern. More than 180 
days after being certified, two individuals who qualified as HUBZone 
Resident Employees, and were critical to the concern's meeting the 35% 
residency requirement, move out of the HUBZone area but continuously 
remain employees of the concern. Only one of these individuals may be 
treated as a Legacy Employee and count as a HUBZone Resident Employee 
for purposes of recertification.
    (e) Attempt to maintain. (1) At the time of application and each 
recertification, a concern must certify that it will ``attempt to 
maintain'' (see Sec.  126.103) having at least 35% of its employees 
reside in a HUBZone during the performance of any HUBZone contract it 
receives.
    (2) If the concern is owned in whole or in part by one or more 
Indian Tribal Governments (or by a corporation that is wholly owned by 
one or more Indian Tribal Governments), the concern must certify at the 
time of application and at each recertification that it will ``attempt 
to maintain'' (see Sec.  126.103) the applicable employment percentage 
described in paragraph (c)(2) of this section during the performance of 
any HUBZone contract it receives.
    (3) At the time of offer for a HUBZone contract, a concern must 
certify that it will ``attempt to maintain'' compliance with the 35% 
HUBZone residency requirement.
    (f) Subcontracting. (i) At the time of application and each 
recertification, a concern must certify that it will comply with the 
applicable limitations on subcontracting requirements in connection 
with any HUBZone contract it receives (see Sec. Sec.  125.6 and 
126.700).
    (ii) In connection with a HUBZone contract, certified HUBZone small 
business concerns also agree to comply with the limitations on 
subcontracting requirements under FAR clause 52.219-14 by submitting an 
offeror for and executing a HUBZone contract.
    (g) Suspension and Debarment. At the time of application and at all 
times while a concern is HUBZone-certified, such concern and any of its 
owners must not have an active exclusion in SAM.
    (h) Federal financial obligations. A business concern is ineligible 
to be certified as a HUBZone small business concern or to participate 
in the HUBZone program if either the concern or any of its principals 
has failed to pay significant financial obligations owed to the Federal 
Government, including unresolved tax liens and defaults on Federal 
loans or other Federally assisted financing. However, a small business 
concern may be eligible if the concern or the affected principals can 
demonstrate that they are current on an approved repayment plan, or the 
financial obligations owed have been settled and discharged/forgiven by 
the Federal Government.
0
44. Amend Sec.  126.201 by revising the section heading, and the first 
sentence of the introductory text to read as follows:


Sec.  126.201  Who does SBA consider to be an owner of a HUBZone small 
business concern?

    For purposes of qualifying for HUBZone certification, SBA considers 
any person who owns any legal or equitable interest in a concern to be 
an owner of the concern. * * *
* * * * *


Sec.  126.202  [Amended]

0
45. Amend Sec.  126.202 by removing the word ``SBC'' in the section 
heading and in the first sentence and adding in its place the words 
``small business concern'', and removing the third and fourth 
sentences.
0
46. Amend Sec.  126.204 by:
0
a. Revising paragraph (a);
0
b. Removing the words ``all information'' in the introductory text of 
paragraph (c) and adding in their place the words ``the totality of 
circumstances'';
0
c. Revising paragraph (c)(3); and
0
d. Adding paragraph (c)(4).
    The revisions and addition read as follows:


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

    (a) A HUBZone small business concern may have affiliates, provided 
that the HUBZone small business concern, together with its affiliates, 
qualifies as a small business concern as defined in part 121 of this 
chapter under the size standard corresponding to any NAICS code listed 
in its profile in SAM.
* * * * *
    (c) * * *
    (3) Minimal business activity between the concern and its affiliate 
alone will not result in an affiliate's employees being counted as 
employees of the HUBZone applicant or HUBZone small business concern.
    (4) SBA will not treat the employees of one company as employees of 
another for HUBZone program purposes if the two firms would not be 
considered affiliated for size purposes under Part 121 of this chapter.
    Example 1 to paragraph (c): X owns 100% of Company A and 51% of 
Company B. Based on X's common ownership of A and B, the two companies 
are affiliated under SBA's size regulations. SBA will look at the 
totality of circumstances to determine whether it would be reasonable 
to treat the employees of B as employees of A for HUBZone program 
purposes. If both companies do construction work and share office space 
and equipment, then SBA would find that there is not a clear line of 
fracture between the two concerns and would treat the employees of B as 
employees of A for HUBZone

[[Page 68311]]

program purposes. In order to be eligible for the HUBZone program, at 
least 35% of the combined employees of A and B must reside in a 
HUBZone.


Sec.  126.302  [Amended]

0
47. Amend Sec.  126.302 by removing the last sentence.
0
48. Revise Sec.  126.303 to read as follows:


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

    A concern seeking certification as a HUBZone small business concern 
must submit an electronic application to SBA's HUBZone Program Office 
via SBA's web page at www.SBA.gov. The majority owner must take 
responsibility for the accuracy of all information submitted on behalf 
of the applicant.
0
49. Amend Sec.  126.304 by revising paragraph (e) to read as follows:


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

* * * * *
    (e) Records maintenance. (1) HUBZone small business concerns must 
retain documentation demonstrating satisfaction of all qualifying 
requirements for 6 years from the date of submission of all initial and 
continuing eligibility actions.
    (2) HUBZone small business concerns must retain documentation 
related to ``Legacy HUBZone employees,'' as described in Sec.  
126.200(d)(3).
0
50. Amend Sec.  126.306 by:
0
a. Revising paragraph (d);
0
b. Removing the words ``System for Award Management'' in paragraph (g) 
and adding in their place the word ``SAM''; and
0
c. Adding paragraph (h).
    The revision and addition read as follows:


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

* * * * *
    (d) An applicant must be eligible as of the date SBA issues a 
decision.
* * * * *
    (h) The D/HUB's decision is the final agency decision.


Sec.  126.308  [Amended]

0
51. Amend Sec.  126.308 by removing the words ``System for Award 
Management'' in paragraph (b) and adding in their place the word 
``SAM''.
0
52. Revise Sec.  126.309 to read as follows:


Sec.  126.309  May a declined or decertified concern apply for 
certification at a later date?

    (a) A concern that SBA has declined may apply for certification 
after ninety (90) calendar days from the date of decline if it believes 
that it has overcome all reasons for decline through changed 
circumstances and is currently eligible.
    (b) A concern that SBA has decertified may apply for certification 
immediately after the date of decertification, if it believes that it 
has overcome all reasons for decertification through changed 
circumstances and is currently eligible.
    (c) A concern that voluntarily withdraws from the HUBZone program 
may immediately re-apply for certification, if it believes that it is 
currently eligible.
0
53. Revise Sec.  126.401 to read as follows:


Sec.  126.401  What is a program examination?

    A program examination is an investigation by SBA officials, which 
verifies the accuracy of any certification made or information provided 
as part of the HUBZone application process, as part of the 
recertification process, or in connection with a HUBZone contract.
0
54. Amend Sec.  126.403 by revising paragraphs (a) and (b) to read as 
follows:


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

    (a) SBA will determine the scope of a program examination and may 
review any information related to the concern's HUBZone eligibility 
including, but not limited to, documentation related to the concern's 
size, principal office, ownership, compliance with the 35% HUBZone 
residency requirement, and compliance with the ``attempt to maintain'' 
(see Sec.  126.103) requirement. A representative from SBA may visit 
one or more of a concern's offices as part of a program examination.
    (b) SBA may require that a HUBZone small business concern submit 
additional information as part of the program examination. If SBA 
requests additional information, SBA will presume that written notice 
of the request was provided when SBA sends such request to the concern 
at an email address provided in the concern's profile in DSBS or 
SAM.gov (or successor systems). The burden of proof to demonstrate 
eligibility is on the concern. If a concern does not provide requested 
information within the allotted time provided by SBA, or if it submits 
incomplete information, SBA may draw an adverse inference and presume 
that the information that the concern failed to provide would 
demonstrate ineligibility and decertify the concern (or deny 
certification) on this basis.
* * * * *
0
55. Amend Sec.  126.404 by revising paragraphs (b) and (c) to read as 
follows:


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

* * * * *
    (b) If the D/HUB (or designee) determines that the concern is 
eligible, SBA will send a written notice to the HUBZone small business 
concern and continue to designate the concern as a certified HUBZone 
small business concern in DSBS (or successor system).
    (c) If the D/HUB (or designee) determines that the concern is not 
eligible, the firm will be suspended from the HUBZone program. The 
concern will have 30 calendar days to submit sufficient documentation 
showing that it was in fact eligible on the date of review. During the 
suspension period, such concern may not compete for or be awarded a 
HUBZone contract and must provide written notice of the concern's 
ineligibility to the contracting officer for any pending HUBZone award. 
If such concern fails to submit documentation sufficient to demonstrate 
its eligibility, the concern will be decertified. If SBA overturns its 
determination, SBA will reverse the firm's decertification and 
reinstate its certification.
0
56. Revise Sec.  126.500 to read as follows:


Sec.  126.500  How does a concern maintain HUBZone certification?

    (a) Recertification. (1) Any concern seeking to remain a certified 
HUBZone small business concern in DSBS (or successor system) must 
recertify to SBA that it continues to meet all HUBZone eligibility 
criteria (see Sec.  126.200) every three years. In order to recertify--
    (i) A certified HUBZone small business concern that was not awarded 
a HUBZone contract during the 12-month period preceding its 
recertification must represent that, at the time of its 
recertification, at least 35% of its employees reside in HUBZones and 
the concern's principal office is located in a HUBZone.
    (ii) A certified HUBZone small business concern that was awarded a 
HUBZone contract during the 12-month period preceding its 
recertification must represent that, at the time of its 
recertification, it is attempting to maintain compliance with the 35% 
HUBZone residency requirement and the concern's principal office is 
located in a HUBZone.
    (2) The concern's recertification must be submitted in the 90 
calendar days before the triennial anniversary of its HUBZone 
certification date.

[[Page 68312]]

    (3) If a concern fails to recertify, SBA will propose the concern 
for decertification pursuant to Sec.  126.503.
    (b) Program examinations. SBA will conduct program examinations of 
certified HUBZone small business concerns to ensure continued program 
eligibility using a risk-based analysis to select which concerns are 
examined.
0
57. Revise Sec.  126.501 to read as follows:


Sec.  126.501  What are a certified HUBZone small business concern's 
ongoing obligations to SBA?

    (a) A certified HUBZone small business concern that acquires, is 
acquired by, or merges with another business entity must provide 
evidence to SBA, within 30 calendar days of the transaction becoming 
final, that the concern continues to meet the HUBZone eligibility 
requirements. A concern that no longer meets the requirements may 
voluntarily withdraw from the program or it will be removed by SBA 
pursuant to program decertification procedures.
    (b) A certified HUBZone small business concern that is performing a 
HUBZone contract and fails to ``attempt to maintain'' the minimum 
employee HUBZone residency requirement (see Sec.  126.103) must notify 
SBA notify SBA via email to [email protected] within 30 calendar days of 
such occurrence. A concern that cannot meet the requirement may 
voluntarily withdraw from the program or it will be removed by SBA 
pursuant to program decertification procedures.


Sec.  126.502  [Amended]

0
58. Amend Sec.  126.502 by removing the words ``Sec. Sec.  126.200, 
126.500, and 126.501'' and adding in their place the words ``Sec. Sec.  
126.200, 126.500, and 126.501, and all other requirements described in 
this part''.
0
59. Amend Sec.  126.503 by:
0
a. Revising paragraphs (a) and (c);
0
b. Redesignating paragraph (d) as paragraph (e); and
0
c. Adding new paragraph (d).
    The revisions and addition read as follows:


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

    (a) Proposed decertification. If SBA is unable to verify a 
certified HUBZone small business concern's eligibility or has 
information indicating that a concern may not meet the eligibility 
requirements of this part, SBA may propose decertification of the 
concern. In addition, if SBA has information indicating that a HUBZone 
small business concern that is performing a HUBZone contract is not 
attempting to maintain (see Sec.  126.103) compliance with the 35% 
HUBZone residency requirement, SBA will propose the concern for 
decertification.
    (1) Notice of proposed decertification. SBA will notify the HUBZone 
small business concern in writing that SBA is proposing to decertify it 
and state the reasons for the proposed decertification. The notice of 
proposed decertification will notify the concern that it has 30 
calendar days from the date it receives the letter to submit a written 
response to SBA explaining why the proposed ground(s) should not 
justify decertification. SBA will consider that written notice was 
provided if SBA sends the notice of proposed decertification to the 
concern at a mailing address, email address, or fax number provided in 
the concern's profile in DSBS (or successor system).
    (2) Response to notice of proposed decertification. The HUBZone 
small business concern must submit a written response to the notice of 
proposed decertification within the timeframe specified in the notice. 
In this response, the concern must rebut each of the reasons set forth 
by SBA in the notice of proposed decertification, and where 
appropriate, the rebuttal must include documents showing that the 
concern is eligible for the HUBZone program as of the date specified in 
the notice.
    (3) Adverse inference. If a HUBZone small business concern fails to 
cooperate with SBA or fails to provide the information requested, the 
D/HUB may draw an adverse inference and assume that the information 
that the concern failed to provide would demonstrate ineligibility.
    (4) SBA's decision. SBA will determine whether the HUBZone small 
business concern remains eligible for the program within 90 calendar 
days after receiving all requested information, when practicable. The 
D/HUB will provide written notice to the concern stating the basis for 
the determination.
    (i) If SBA finds that the concern is not eligible, the D/HUB will 
decertify the concern and remove its designation as a certified HUBZone 
small business concern in DSBS (or successor system).
    (ii) If SBA finds that the concern is eligible, the concern will 
continue to be designated as a certified HUBZone small business concern 
in DSBS (or successor system).
* * * * *
    (c) Decertification based on false or misleading information. (1) 
If SBA discovers that a certified HUBZone small business concern or its 
representative submitted false, inconsistent, or misleading 
information, SBA will propose the firm for decertification. In 
addition, SBA will refer the matter to the SBA Office of Inspector 
General for review and may request that Government-wide debarment or 
suspension proceedings be initiated by the agency.
    (2) A firm that is decertified from the HUBZone program due to the 
submission of false or misleading information may be removed from SBA's 
other small business contracting programs, including the 8(a) Business 
Development Program, the Women-Owned Small Business (WOSB) Program, the 
Veteran Small Business Certification (VetCert) Program, and SBA's 
Mentor-Prot[eacute]g[eacute] Program.
    (3) A firm that is decertified or terminated from the 8(a) BD 
Program, the WOSB Program, or the VetCert Program due to the submission 
of false or misleading information may be decertified from the HUBZone 
Program.
    (4) SBA may require a firm that is decertified or terminated from 
the HUBZone Program, 8(a) BD Program, the WOSB Program, or the VetCert 
Program due to the submission of false or misleading information to 
enter into an administrative agreement with SBA as a condition of 
admission or re-admission to the HUBZone program.
    (d) Decertification due to debarment. If a certified HUBZone small 
business concern is debarred from federal contracting, SBA will 
decertify the HUBZone small business concern immediately and change the 
concern's status in DSBS (or successor system) to reflect that it no 
longer qualifies as a certified HUBZone small business concern, without 
first proposing it for decertification.
* * * * *
0
60. Amend Sec.  126.504 by:
0
a. Removing the word ``or'' at the end of paragraph (a)(2);
0
b. Redesignating paragraph (a)(3) as (a)(4);
0
c. Adding new paragraph (a)(3);
0
d. Removing the words ``pursuant to Sec.  126.501(b)'' in newly 
redesignated paragraph (a)(4); and
0
e. Revising paragraph (c).
    The additions and revisions read as follows:


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

    (a) * * *
    (3) Been debarred pursuant to the procedures in FAR 9.4; or
* * * * *

[[Page 68313]]

    (c)(1) After a concern has been decertified by SBA, it is 
ineligible for the HUBZone program and may not submit an offer for a 
HUBZone contract.
    (2) As long as a concern was a certified HUBZone small business and 
met the HUBZone requirements as of the date of its initial offer for a 
HUBZone contract, it may be awarded a HUBZone contract even if it no 
longer appears as a certified HUBZone small business concern on DSBS or 
no longer qualifies as an eligible HUBZone small business on the date 
of award.
0
61. Revise Sec.  126.600 to read as follows:


Sec.  126.600  What are HUBZone contracts?

    HUBZone contracts are prime contracts awarded to a certified 
HUBZone small business concern (or a HUBZone joint venture that 
complies with the requirements of Sec.  126.616), regardless of the 
place of performance, through any of the following procurement methods:
    (a) Sole source awards awarded pursuant to Sec.  126.612 to 
certified HUBZone small business concerns (or HUBZone joint ventures 
that comply with the requirements of Sec.  126.616);
    (b) Set-aside awards (including partial set-asides and set-aside 
multiple award contracts) based on competition restricted to certified 
HUBZone small business concerns;
    (c) Awards to certified HUBZone small business concerns (or HUBZone 
joint ventures that comply with the requirements of Sec.  126.616) 
through full and open competition after the HUBZone price evaluation 
preference is applied to an other than small business in favor of a 
certified HUBZone small business concern (or a HUBZone joint venture 
that complies with the requirements of Sec.  126.616);
    (d) Awards based on a reserve for certified HUBZone small business 
concerns (or HUBZone joint ventures that comply with the requirements 
of Sec.  126.616) in an unrestricted solicitation;
    (e) Orders awarded to certified HUBZone small business concerns (or 
HUBZone joint ventures that comply with the requirements of Sec.  
126.616) under a multiple award contract that was set-aside for 
certified HUBZone small business concerns; or
    (f) Orders set-aside for certified HUBZone small business concerns 
(or HUBZone joint ventures that comply with the requirements of Sec.  
126.616) under a multiple award contract that was awarded in full and 
open competition.
0
62. Amend Sec.  126.601 by revising paragraphs (a) and (b)(1) and 
adding paragraph (f) to read as follows:


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

    (a) Only certified HUBZone small business concerns are eligible to 
submit offers for a HUBZone contract or to receive a price evaluation 
preference under Sec.  126.613.
    (i) An offeror on a HUBZone contract must be identified as a 
certified HUBZone small business concern in DSBS (or successor system) 
and meet the HUBZone requirements in Sec.  126.200 as of the date it 
submits its initial offer that includes price.
    (ii) For a multiple award contract, where concerns are not required 
to submit price as part of the offer for the contract, an offeror must 
be identified as a certified HUBZone small business concern in DSBS (or 
successor system) and meet the HUBZone requirements in Sec.  126.200 as 
of the date it submits its initial offer, which may not include price.
    (iii) A HUBZone joint venture must have its joint venture agreement 
in place that complies with the requirements in Sec.  126.616 as of its 
final offer.
    (b) * * *
    (1) Is a certified HUBZone small business concern in DSBS (or 
successor system) and meets the HUBZone requirements in Sec.  126.200, 
including having 35% of its employees residing in HUBZones and having 
its principal office located in a HUBZone;
* * * * *
    (f) In general, an offeror on a HUBZone contract is not required to 
be HUBZone-certified on the date the contract is awarded. However, for 
HUBZone sole source contracts, the concern must be a certified HUBZone 
small business concern and meet the requirements in Sec.  126.200 at 
the time of award and must qualify as small as of that date under the 
size standard corresponding to the NAICS code assigned to the 
procurement.
0
63. Revise Sec.  126.602 to read as follows:


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

    (a) A certified HUBZone small business concern that has been 
awarded a HUBZone contract must ``attempt to maintain'' (see Sec.  
126.103) having 35% of its employees residing in a HUBZone during the 
performance of any HUBZone contract. If a certified HUBZone small 
business concern is awarded a HUBZone contract within 12 months prior 
to the due date for its triennial recertification, then such concern 
must be attempting to maintain compliance with the 35% HUBZone 
residency requirement at the time of such recertification. However, 
such a concern must have at least 35% of its employees residing in 
HUBZones at the time of each recertification thereafter, even if the 
concern is still performing that HUBZone contract.
    (b) For orders under indefinite delivery, indefinite quantity 
contracts (including orders under multiple award contracts), a 
certified HUBZone small business concern must ``attempt to maintain'' 
the HUBZone residency requirement during the performance of each order 
that is set aside for HUBZone small business concerns.
    (c) A certified HUBZone small business concern that is tribally-
owned, and made the certification in Sec.  126.200(c)(2)(ii) at the 
time of its HUBZone certification (or at the time of its most recent 
recertification), must have at least 35% of its employees engaged in 
performing a HUBZone contract residing within any Indian reservation 
governed by one or more of the concern's Indian Tribal Government 
owners, or residing within any HUBZone adjoining any such Indian 
reservation.
    (d) A certified HUBZone small business concern that has less than 
20% of its total employees residing in a HUBZone during the performance 
of a HUBZone contract has failed to attempt to maintain the HUBZone 
residency requirement. Such failure will result in proposed 
decertification pursuant to Sec.  126.503.


Sec.  126.603  [Amended]

0
64. Amend Sec.  126.603 by removing the word ``concernwill'' and adding 
in its place the words ``concern will''.


Sec.  126.604  [Amended]

0
65. Amend Sec.  126.604 by removing the words ``makes this decision'' 
and adding in their place the words ``determines if a contract 
opportunity for HUBZone set-aside competition exists''.


Sec.  126.605  [Amended]

0
66. Amend Sec.  126.605 by removing the word ``may'' in the 
introductory text and adding in its place the word ``shall''.


Sec.  126.607  [Amended]

0
67. Amend Sec.  126.607 by:
0
a. Removing the word ``must'' in the section heading and adding in its 
place the word ``may'';

[[Page 68314]]

0
b. Removing the words ``SDVO SBC'' wherever they appear in paragraphs 
(b)(1) and (b)(2) and adding in their place the words ``Veteran Small 
Business Certification''; and
0
c. Removing the words ``qualified HUBZone SBCs'' in paragraph (c)(1) 
and adding in their place the words ``certified HUBZone small business 
concerns''.
0
68. Amend Sec.  126.612 by:
0
a. Revising the section heading;
0
b. Removing the word ``and'' at the end of paragraph (d);
0
c. Removing the punctuation mark ``.'' at the end of paragraph (e) and 
adding in its place the text ``; and''; and
0
d. Adding paragraph (f).
    The addition to read as follows:


Sec.  126.612  When may a contracting officer award a sole source 
contract to a HUBZone small business concern?

* * * * *
    (f) The intended awardee is a certified HUBZone small business 
concern at the time of its initial offer and on the date of award.
0
69. Amend Sec.  126.613 by revising paragraph (a) and adding a 
paragraph heading in paragraph (b).
    The revisions and additions read as follows:


Sec.  126.613  How does a price evaluation preference affect the bid of 
a certified HUBZone small business concern in full and open 
competition?

    (a) In general. (1) Where a CO will award a contract on the basis 
of full and open competition, the CO must deem the price offered by a 
certified HUBZone small business concern to be lower than the price 
offered by an offeror that is not a small business concern if: the 
large business initially is the lowest responsive and responsible 
offeror, and the price offered by the certified HUBZone small business 
concern is not more than 10% higher than the price offered by the large 
business.
    (2) The HUBZone price evaluation preference does not apply where 
the initial lowest responsive and responsible offeror is a small 
business concern.
    (3) The HUBZone price evaluation preference does not apply if the 
certified HUBZone small business concern will receive the contract as 
part of a reserve for certified HUBZone small business concerns.
    (4) To apply the HUBZone price evaluation preference, the CO must 
add 10% to the offer of the otherwise successful large business 
offeror. If the certified HUBZone small business concern's offer is 
lower than that of the large business after the preference is applied, 
the certified HUBZone small business concern must be deemed the lowest-
priced offeror. For a best value procurement, the CO must first apply 
the 10% price preference to the offers of any large businesses and then 
determine which offeror represents the best value to the Government, in 
accordance with the terms of the solicitation. Where, after considering 
the price evaluation adjustment, the price offered by a certified 
HUBZone small business concern is equal to the price offered by a large 
business (or, in a best value procurement, the total evaluation points 
received by a certified HUBZone small business concern is equal to or 
greater than the total evaluation points received by a large business), 
award shall be made to the certified HUBZone small business concern.
    Example 1 to paragraph (a): In a full and open competition, a 
certified HUBZone small business concern submits an offer of $98, a 
non-HUBZone small business concern submits an offer of $95, and a large 
business submits an offer of $93. The initial lowest, responsive, 
responsible offeror is the large business. The CO must then apply the 
HUBZone price evaluation preference because an offer was received from 
a certified HUBZone small business concern. After the application of 
the price preference, the HUBZone small business concern's offer is 
considered to be lower than the offer of the large business (i.e., $98 
is lower than $102.3 ($93 x 110%)). Since the certified HUBZone small 
business concern's offer is not more than 10% higher than the large 
business' offer, the certified HUBZone small business concern displaces 
the large business as the lowest, responsive, and responsible offeror. 
The non-HUBZone small business concern is unaffected by the preference 
because it was not the lowest offeror prior to the application of the 
preference.
    Example 2 to paragraph (a): In a full and open competition, a 
certified HUBZone small business concern submits an offer of $103, a 
non-HUBZone small business concern submits an offer of $100, and a 
large business submits an offer of $93. The initial lowest responsive 
and responsible offeror is the large business. The CO must then apply 
the HUBZone price evaluation preference. After the application of the 
price preference, the HUBZone small business concern's offer is not 
lower than the offer of the large business (i.e., $103 is not lower 
than $102.3 ($93 x 110%)). Since the certified HUBZone small business 
concern's offer is more than 10% higher than the large business' offer, 
the certified HUBZone small business concern does not displace the 
large business as the lowest offeror. In addition, the non-HUBZone 
small business concern's offer at $100 does not displace the large 
business' offer because a price evaluation preference is not applied to 
change an offer and benefit a non-HUBZone small business concern.
    Example 3 to paragraph (a): In a full and open competition, a 
certified HUBZone small business concern submits an offer of $98, a 
large business submits an offer of $95, and a non-HUBZone small 
business concern submits an offer of $93. The CO would not apply the 
price evaluation preference in this procurement because the lowest, 
responsive, responsible offeror is a small business concern.
    Example 4 to paragraph (a): In a full and open competition, a 
certified HUBZone small business concern submits an offer of $98 and a 
large business submits an offer of $93. The contracting officer has 
stated in the solicitation that one contract will be reserved for a 
certified HUBZone small business concern. The contracting officer would 
not apply the price evaluation preference when determining which 
HUBZone small business concern would receive the contract reserved for 
HUBZone small business concerns but would apply the price evaluation 
preference when determining the awardees for the non-reserved portion.
    (b) Agricultural commodities. * * *
* * * * *
0
70. Revise Sec.  126.615 to read as follows:


Sec.  126.615  May a large business participate on a HUBZone contract?

    Except as provided in Sec. Sec.  126.618 and 125.9, a large 
business may not participate as a prime contractor on a HUBZone award 
but may participate as a subcontractor to a certified HUBZone small 
business concern, subject to the limitations on subcontracting set 
forth in Sec.  125.6.
0
71. Amend Sec.  126.616 by revising paragraphs (a)(1) and (e)(1)(i), 
and adding paragraph (l) to read as follows:


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

    (a) * * *
    (1) SBA does not certify HUBZone joint ventures, but the joint 
venture should be designated as a HUBZone joint venture in SAM.gov (or 
successor system) with the HUBZone-certified joint venture partner 
identified.
* * * * *
    (e) * * *
    (1) * * *

[[Page 68315]]

    (i) It is a certified HUBZone small business concern that appears 
in DSBS (or successor system) as a certified HUBZone small business 
concern and it meets the eligibility requirements in Sec.  126.200;
* * * * *
    (l) For a procuring agency to receive HUBZone credit for goaling 
purposes, the joint venture awardee must comply with the requirements 
of this section and Sec.  125.8.
0
72. Revise Sec.  126.619 to read as follows:


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

    A prime contractor that receives an award as a certified HUBZone 
small business concern must comply with the recertification 
requirements set forth in Sec.  125.12 of this chapter regarding its 
status as a certified HUBZone small business.
0
73. Revise the subpart heading for subpart G to read as follows:

Subpart G--Limitations on Subcontracting Requirements


Sec.  126.701  [Amended]

0
74. Amend Sec.  126.701 by:
0
a. Removing the words ``these subcontracting percentages'' in the 
section heading and adding in their place the words ``the limitations 
on subcontracting''.
0
b. Removing the words ``the subcontracting percentage'' in the 
paragraph and adding in their place the words ``the limitations on 
subcontracting''.
0
75. Revise Sec.  126.800 to read as follows:


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

    (a) For a HUBZone sole source procurement, SBA or the contracting 
officer may protest the intended awardee's status as a certified 
HUBZone small business concern.
    (b) For HUBZone contracts other than sole source procurements, 
including multiple award contracts (see Sec.  125.1 of this chapter), 
SBA, the contracting officer, or any other interested party may protest 
the apparent successful offeror's status as a certified HUBZone small 
business concern (or the HUBZone joint venture offeror's compliance 
with Sec.  126.616).
    (c) For contracts other than HUBZone contracts, SBA may protest an 
apparent successful offeror's status as a certified HUBZone small 
business concern.


Sec.  126.801  [Amended]

0
76. Amend Sec.  126.801 by:
0
a. Removing the words ``should not qualify'' in the introductory text 
to paragraph (b)(1) and adding in their place the words ``did not 
qualify'';
0
b. Removing the words ``, on the anniversary date of its initial 
HUBZone certification,'' in paragraph (b)(1)(iv); and
0
c. Removing the words ``at the time the concern applied for 
certification or on the anniversary of such certification'' in 
paragraph (b)(3)(i) and adding in their place the words ``at the time 
of offer''.
0
77. Amend Sec.  126.803 by:
0
a. Revising paragraph (a);
0
b. Redesignating paragraphs (c), (d), and (e) as paragraphs (d), (e), 
and (f), respectively;
0
c. Adding new paragraph (c); and
0
d. Revising newly redesignated paragraph (f)(3).
    The revisions and additions read as follows:


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

    (a) Date at which eligibility determined. (1) For competitively 
awarded HUBZone contracts, SBA will determine the eligibility of a 
concern subject to a HUBZone status protest as of the date of its 
initial offer that includes price. For sole source HUBZone contracts, 
SBA will determine the eligibility of a concern subject to a HUBZone 
status protest as of the date of the award or intended award.
    (2) For protests filed against a HUBZone joint venture alleging 
that the joint venture does not comply with the requirements in Sec.  
126.616, SBA will determine the eligibility of the joint venture as of 
its final offer for the procurement.
    (3) For protests alleging undue reliance on one or more non-HUBZone 
subcontractors or alleging that such subcontractor(s) will perform the 
primary and vital requirements of the contract, SBA will determine the 
HUBZone small business concern's eligibility as of the date of its 
final offer for the procurement.
* * * * *
    (c) Burden of proof. In the event of a protest, the burden of proof 
to demonstrate eligibility is on the protested concern. If a concern 
does not provide requested information within the allotted time 
provided by SBA, or if it submits incomplete information, SBA may draw 
an adverse inference and presume that the information that the concern 
failed to provide would demonstrate ineligibility and sustain the 
protest on that basis.
* * * * *
    (f) * * *
    (3) A concern found to be ineligible may apply for HUBZone 
certification immediately after its decline if it believes that it has 
overcome all reasons for ineligibility through changed circumstances 
and is currently eligible.
0
78. Amend Sec.  126.900 by:
0
a. Removing the word ``SBCs'' in paragraphs (a) and (b)(1) and adding 
in its place the phrase ``small business concerns'';
0
b. Removing the word ``SBC'' in paragraphs (a), (b)(2), (b)(3), (d), 
and (e)(1) and adding in its place the phrase ``small business 
concern'';
0
c. Removing the word ``SBC'' in the introductory text of paragraph (b) 
and in paragraph (c);
0
d. Removing the phrase ``agency suspension'' in paragraph (e)(1) and 
adding in its place the phrase ``procuring agency's suspension'';
0
e. Adding paragraph (e)(4).
    The addition reads as follows:


Sec.  126.900  What are the requirements for representing HUBZone 
status, and what are the penalties for misrepresentation?

* * * * *
    (e) * * *
    (4) If SBA discovers that false or misleading information has been 
knowingly submitted by a certified small business concern in order to 
obtain or maintain HUBZone certification, the D/HUB will propose the 
firm for decertification.

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

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

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

0
80. Amend Sec.  127.200 by:
0
a. Revising paragraphs (a)(2) and (b)(2);
0
b. Redesignating paragraph (d) as paragraph (f); and
0
c. Adding new paragraphs (d) and (e).
    The revisions and additions read as follows:


Sec.  127.200  What are the requirements a concern must meet to qualify 
as an EDWOSB or WOSB?

    (a) * * *
    (2) Not less than 51 percent unconditionally and directly owned and 
controlled by one or more economically disadvantaged women who are 
citizens of and reside in the United States.
    (b) * * *
    (2) Not less than 51 percent unconditionally and directly owned and 
controlled by one or more women who

[[Page 68316]]

are citizens of and reside in the United States.
* * * * *
    (d) Size. In determining whether a concern qualifies as small under 
the size standard corresponding to a specific NAICS code, SBA will 
accept the concern's size representation in the System for Award 
Management (SAM.gov), or successor system, unless there is evidence 
indicating that the concern is other than small. SBA will request a 
formal size determination pursuant to Sec.  121.1001(b)(7) of this 
chapter where any information it possesses calls into question the 
concern's SAM.gov size representation.
    (e) Federal financial obligations. A business concern is ineligible 
to be certified as a WOSB or EDWOSB or to participate in the WOSB 
program if either the concern or any of its principals has failed to 
pay significant financial obligations owed to the Federal Government, 
including unresolved tax liens and defaults on Federal loans or other 
Federally assisted financing. However, a small business concern may be 
eligible if the concern or the affected principals can demonstrate that 
they are current on an approved repayment plan, or the financial 
obligations owed have been settled and discharged/forgiven by the 
Federal Government.
* * * * *
0
81. Amend Sec.  127.201 by revising paragraph (b) and adding paragraph 
(g) to read as follows:


Sec.  127.201  What are the requirements for ownership of an EDWOSB and 
WOSB?

* * * * *
    (b) Unconditional ownership. To be considered unconditional, 
ownership must not be subject to any conditions, executory agreements, 
voting trusts, restrictions on or assignments of voting rights, or 
other arrangements causing or potentially causing ownership benefits to 
go to another (other than after death or incapacity).
    (1) The pledge or encumbrance of stock or other ownership interest 
as collateral, including seller-financed transactions, does not affect 
the unconditional nature of ownership if the terms follow normal 
commercial practices and the owner retains control absent violations of 
the terms.
    (2) In determining unconditional ownership, SBA will disregard any 
unexercised stock options or similar agreements held by qualifying 
women. However, any unexercised stock options or similar agreements 
(including rights to convert non-voting stock or debentures into voting 
stock) held by men or other entities will be treated as exercised, 
except for any ownership interests which are held by investment 
companies licensed under 15 U.S.C. 681 et. seq.
    (3) A right of first refusal granting a man or other entity the 
contractual right to purchase the ownership interests of the qualifying 
woman, does not affect the unconditional nature of ownership, if the 
terms follow normal commercial practices. If those rights are exercised 
by a man or other entity after certification, the WOSB/EDWOSB must 
notify SBA. If the exercise of those rights results in qualifying women 
owning less than 51% of the concern, SBA will initiate decertification 
pursuant to Sec.  127.405.
* * * * *
    (g) Dividends and distributions. One or more qualifying women must 
be entitled to receive:
    (1) At least 51 percent of any distribution of profits paid to the 
owners of a corporation, partnership, or limited liability company 
concern, and a qualifying woman's ability to share in the profits of 
the concern must be commensurate with the extent of her ownership 
interest in that concern;
    (2) 100 percent of the value of each share of stock owned by them 
in the event that the stock is sold; and
    (3) At least 51 percent of the retained earnings of the concern and 
100 percent of the unencumbered value of each share of stock or member 
interest owned in the event of dissolution of the corporation, 
partnership, or limited liability company.
0
82. Amend Sec.  127.202 by revising paragraphs (d) and (g) and adding 
paragraph (h) to read as follows:


Sec.  127.202  What are the requirements for control of an EDWOSB or 
WOSB?

* * * * *
    (d) Ownership of a partnership. In the case of a concern which is a 
partnership, one or more qualifying women, or in the case of an EDWOSB, 
economically disadvantaged women, must serve as general partners, with 
control over all partnership decisions. At least 51 percent of every 
class of partnership interest must be unconditionally owned by one or 
more qualifying women or economically disadvantaged women. The 
ownership must be reflected in the concern's partnership agreement.
* * * * *
    (g) Involvement in the concern by other individuals or entities. 
Men or other entities may be involved in the management of the concern 
and may be stockholders, partners or limited liability members of the 
concern. However, no males or other entities may:
    (1) Exercise actual control or have the power to control the 
concern;
    (2) Have business relationships that cause such dependence that the 
qualifying woman cannot exercise independent business judgment without 
great economic risk;
    (3) Control the concern through loan arrangements (which does not 
include providing a loan guaranty on commercially reasonable terms);
    (4) Provide critical financial or bonding support or a critical 
license to the concern, which directly or indirectly allows the male or 
other entity to significantly influence business decisions of the 
qualifying woman.
    (5) Be a former employer, or a principal of a former employer, of 
any qualifying woman, unless the concern demonstrates that the 
relationship between the former employer or principal and the 
qualifying woman does not give the former employer actual control or 
the potential to control the concern and such relationship is in the 
best interests of the concern; or
    (6) Receive compensation from the concern in any form as a 
director, officer, or employee, that exceeds the compensation to be 
received by the qualifying woman who holds the highest officer position 
(usually Chief Executive Officer or President), unless the concern 
demonstrates that the compensation to be received by non-qualifying 
woman is commercially reasonable or that the qualifying woman has 
elected to take lower compensation to benefit the concern.
    (h) Exception for extraordinary circumstances. SBA will not find 
that a lack of control exists where a woman or an economically 
disadvantaged woman does not have the unilateral power and authority to 
make decisions regarding the following extraordinary circumstances:
    (1) Adding a new equity stakeholder;
    (2) Dissolution of the company;
    (3) Sale of the company or all assets of the company;
    (4) The merger of the company;
    (5) The company declaring bankruptcy; and
    (6) Amendment of the company's corporate governance documents to 
remove the shareholder's authority to block any of (1) through (5).


Sec.  127.301  [Amended]

0
83. Amend Sec.  127.301 by removing the last sentence.
0
84. Revise Sec.  127.302 to read as follows:


Sec.  127.302  Where can a concern apply for certification?

    A concern seeking certification as a WOSB or EDWOSB must submit an

[[Page 68317]]

electronic application to SBA via www.certify.sba.gov or any successor 
system. The majority woman or economically disadvantaged woman owner 
must take responsibility for the accuracy of all information submitted 
on behalf of the applicant.
0
85. Amend Sec.  127.304 by revising paragraph (d) to read as follows:


Sec.  127.304  How is an application for certification processed?

* * * * *
    (d) An applicant must be eligible as of the date SBA issues a 
decision. An applicant's eligibility will be based on the totality of 
circumstances, including facts set forth in the application, supporting 
documentation, any information received in response to any SBA request 
for clarification, and any changed circumstances.
* * * * *
0
86. Revise Sec.  127.305 to read as follows:


Sec.  127.305  May declined or decertified concerns apply for 
certification at a later date?

    (a) A concern that SBA or a third-party certifier has declined may 
apply for certification after ninety (90) calendar days from the date 
of decline if it believes that it has overcome all of the reasons for 
decline and is currently eligible. A concern that has been declined may 
seek certification by any of the certification options listed in Sec.  
127.300.
    (b) A concern that SBA has decertified may apply for certification 
immediately after the date of decertification, if it believes that it 
has overcome all reasons for decertification through changed 
circumstances and is currently eligible.
    (c) A concern that voluntarily withdraws from the WOSB program may 
immediately apply for certification, if it believes that it is 
currently eligible.
0
87. Amend Sec.  127.400 by revising paragraph (b) to read as follows:


Sec.  127.400  How does a concern maintain its WOSB or EDWOSB 
certification?

* * * * *
    (b) The concern must either recertify with SBA or notify SBA that 
it has completed a program examination from a third party certifier in 
the 90 calendar days prior to its certification anniversary. Failure to 
do so will result in the concern being decertified.
    Example 1 to paragraph (b). Concern B is certified by a third-party 
certifier to be eligible for the WOSB Program on July 20, 2024. Concern 
B is considered a certified WOSB that is eligible to receive WOSB 
contracts (as long as it is small for the size standard corresponding 
to the NAICS code assigned to the contract) through July 19, 2027. 
Concern B must request a program examination from SBA or notify SBA 
that it has completed a program examination from a third-party 
certifier, by April 21, 2027, to continue participating in the WOSB 
Program after July 19, 2027.
* * * * *
0
88. Amend Sec.  127.405 by redesignating paragraph (f) as paragraph (g) 
and adding new paragraph (f) to read as follows:


Sec.  127.405  What happens if SBA determines that the concern is no 
longer eligible for the program?

* * * * *
    (f) Decertification based on false or misleading information. (1) A 
firm that is decertified from the WOSB program due to the submission of 
false or misleading information may be removed from SBA's other small 
business contracting programs, including the 8(a) Business Development 
Program, the HUBZone Program, the Veteran Small Business Certification 
(VetCert) Program, and SBA's Mentor-Prot[eacute]g[eacute] Program.
    (2) A firm that is decertified or terminated from the 8(a) BD 
Program, the HUBZone Program, or the VetCert Program due to the 
submission of false or misleading information may be decertified from 
the WOSB Program.
    (3) SBA may require a firm that is decertified or terminated from 
the WOSB Program, 8(a) BD Program, the HUBZone Program, or the VetCert 
Program due to the submission of false or misleading information to 
enter into an administrative agreement with SBA as a condition of 
admission or re-admission to the WOSB program.
* * * * *
0
89. Amend Sec.  127.504 by:
0
a. Revising paragraph (a);
0
b. Removing the words ``under paragraph (f) of this section'' in 
paragraph (d)(1) and adding in their place the words ``under Sec.  
125.12 of this chapter''; and
0
c. Revising paragraph (h).
    The revisions 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, at the 
time of its initial offer that includes price:
    (1) Qualify as a small business concern under the size standard 
corresponding to the NAICS code assigned to the contract;
    (2) Meet the eligibility requirements of an EDWOSB or WOSB in Sec.  
127.200; and
    (3) Either be a certified EDWOSB or WOSB pursuant to Sec.  127.300, 
or represent that the concern 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.
    (i) 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 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.
    (ii) 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.
* * * * *
    (h) Recertification. A prime contractor that receives an award as a 
certified WOSB or EDWOSB must comply with the recertification 
requirements set forth in Sec.  125.12 of this chapter regarding its 
status as a certified WOSB or EDWOSB.

PART 128--VETERAN SMALL BUSINESS CERTIFICATION PROGRAM

0
90. The authority citation for part 128 continues to read as follows:

    Authority:  15 U.S.C. 632(q), 634(b)(6), 644, 645, 657f, 657f-1.


Sec.  128.100  [Amended]

0
91. Amend Sec.  128.100 by removing the words ``Veteran Small Business 
Certification Program'' and adding in their place the words ``Veteran 
Small Business Certification Program (VetCert)''.
0
92. Amend Sec.  128.200 by revising paragraphs (a)(2) and (b)(2) to 
read as follows:

[[Page 68318]]

Sec.  128.200  What are the requirements a concern must meet to qualify 
as a VOSB or SDVOSB?

    (a) * * *
    (2) Not less than 51 percent owned and controlled by one or more 
veterans who reside in the United States.
    (b) * * *
    (2) Not less than 51 percent owned and controlled by one or more 
service-disabled veterans who reside in the United States or, in the 
case of a veteran with a disability that is rated by the Secretary of 
Veterans Affairs as a permanent and total disability who are unable to 
manage the daily business operations of such concern, the spouse or 
permanent caregiver of such veteran who resides in the United States.
* * * * *
0
93. Amend Sec.  128.201 by revising paragraph (b) to read as follows:


Sec.  128.201  What other eligibility requirements apply for 
certification as a VOSB or SDVOSB?

* * * * *
    (b) Federal financial obligations. A business concern is ineligible 
to be certified as a VOSB or SDVOSB or to participate in the VetCert 
program if either the concern or any of its principals has failed to 
pay significant financial obligations owed to the Federal Government, 
including unresolved tax liens and defaults on Federal loans or other 
Federally assisted financing. However, a small business concern may be 
eligible if the concern or the affected principals can demonstrate that 
they are current on an approved repayment plan, or the financial 
obligations owed have been settled and discharged/forgiven by the 
Federal Government.
0
94. Amend Sec.  128.202 by revising paragraph (c) and removing the 
words ``the annual distribution'' in paragraph (g) and adding in their 
place the words ``any distribution'' to read as follows:


Sec.  128.202  Who does SBA consider to own a VOSB or SDVOSB?

* * * * *
    (c) Ownership of a partnership. In the case of a concern which is a 
partnership, one or more qualifying veterans must serve as general 
partners, with control over all partnership decisions. At least 51 
percent of every class of partnership interest must be unconditionally 
owned by one or more qualifying veterans. The ownership must be 
reflected in the concern's partnership agreement.
* * * * *
0
95. Amend Sec.  128.203 by:
0
a. Removing the second and third sentences in paragraph (f);
0
b. Revising paragraphs (g) and (h);
0
c. Removing the word ``and'' at the end of paragraph (j)(4);
0
d. Removing the punctuation mark ``.'' at the end of paragraph (j)(5) 
and adding in its place the text ``; and''; and
0
e. Adding paragraph (j)(6).
    The revision and addition read as follows:


Sec.  128.203  Who does SBA consider to control a VOSB or SDVOSB?

* * * * *
    (g) Unexercised rights. Except as set forth in paragraph (e)(1) of 
this section, a qualifying veteran's unexercised right to cause a 
change in the control or management of the concern does not in itself 
constitute control, regardless of how quickly or easily the right could 
be exercised.
    (h) Limitations on control by non-qualifying-veterans. Non-
qualifying-veterans may be involved in the management of the concern 
and may be stockholders, partners or limited liability members of the 
concern. However, no non-qualifying veteran may:
    (1) Exercise actual control or have the power to control the 
concern;
    (2) Have business relationships that cause such dependence that the 
qualifying veteran cannot exercise independent business judgment 
without great economic risk;
    (3) Control the concern through loan arrangements (which does not 
include providing a loan guaranty on commercially reasonable terms);
    (4) Provide critical financial or bonding support or a critical 
license to the concern, which directly or indirectly allows the non-
qualifying veteran to significantly influence business decisions of the 
qualifying veteran.
    (5) Be a former employer, or a principal of a former employer, of 
any qualifying veteran, unless the concern demonstrates that the 
relationship between the former employer or principal and the 
qualifying veteran does not give the former employer actual control or 
the potential to control the concern and such relationship is in the 
best interests of the concern; or
    (6) Receive compensation from the concern in any form as a 
director, officer, or employee, that exceeds the compensation to be 
received by the qualifying veteran who holds the highest officer 
position (usually Chief Executive Officer or President), unless the 
concern demonstrates that the compensation to be received by non-
qualifying veteran is commercially reasonable or that the qualifying 
veteran has elected to take lower compensation to benefit the concern.
* * * * *
    (j) * * *
    (6) Amendment of the company's corporate governance documents to 
remove the shareholder's authority to block any of (1) through (5).
* * * * *
0
96. Amend Sec.  128.204 by revising paragraph (a) to read as follows:


Sec.  128.204  What size standards apply to VOSBs and SDVOSBs?

    (a) Time of certification. At the time of certification or 
recertification, a VOSB or SDVOSB must be a small business under the 
size standard corresponding to any NAICS code listed in its System for 
Award Management (SAM.gov), or successor system, profile. In 
determining whether a concern applying to be certified as a VOSB or 
SDVOSB qualifies as small under the size standard corresponding to a 
specific NAICS code, SBA will accept the concern's size representation 
in SAM, unless there is evidence indicating that the concern is other 
than small. SBA will request a formal size determination pursuant to 
Sec.  121.1001(b)(12) of this chapter where any information it 
possesses calls into question the concern's SAM.gov size 
representation.
* * * * *
0
97. Revise Sec.  128.301 to read as follows:


Sec.  128.301  Where must an application be filed?

    An application for certification as a VOSB or SDVOSB must be 
electronically filed according to the instructions on SBA's website at 
www.sba.gov. The qualifying veteran must take responsibility for the 
accuracy of all information submitted on behalf of the applicant.
0
98. Amend Sec.  128.302 by:
0
a. Adding a sentence to the end of paragraph (a); and
0
b. Removing from the introductory text to paragraph (d) the text ``any 
independent research conducted by SBA,''.
    The addition reads as follows:


Sec.  128.302  How does SBA process applications for certification?

    (a) * * * An applicant must be eligible as of the date SBA issues a 
decision.
* * * * *
0
99. Revise Sec.  128.305 to read as follows:

[[Page 68319]]

Sec.  128.305  May declined or decertified concerns apply for 
recertification at a later date?

    (a) A concern that SBA has declined may apply for certification 
after ninety (90) calendar days from the date of decline, if it 
believes that it has overcome all of the reasons for decline and is 
currently eligible.
    (b) A concern that SBA has decertified may apply for certification 
immediately after the date of decertification, if it believes that it 
has overcome all reasons for decertification through changed 
circumstances and is currently eligible.
    (c) A concern that voluntarily withdraws from the VetCert program 
may immediately apply for certification, if it believes that it is 
currently eligible.


Sec.  128.306  [Amended]

0
100. Amend Sec.  128.306 by removing the text ``120 calendar days'' 
from paragraph (a) and adding, in its place, the text ``the 90 calendar 
days''.


Sec.  128.309  [Amended]

0
101. Amend Sec.  128.309 by removing the third and fourth sentences of 
paragraph (a), the second and third sentences of paragraph (b), and the 
second and third sentences of paragraph (c).
0
102. Amend Sec.  128.310 by adding paragraph (g) to read as follows:


Sec.  128.310  What are the procedures for decertification?

* * * * *
    (g) Decertification based on false or misleading information. (1) A 
firm that is decertified from the VetCert Program due to the submission 
of false or misleading information may be removed from SBA's other 
small business contracting programs, including the 8(a) Business 
Development Program, the HUBZone Program, the Women-Owned Small 
Business (WOSB) Program, and SBA's Mentor-Prot[eacute]g[eacute] 
Program.
    (2) A firm that is decertified or terminated from the 8(a) BD 
Program, the HUBZone Program, or the WOSB Program due to the submission 
of false or misleading information may be decertified from the VetCert 
Program.
    (3) SBA may require a firm that is decertified or terminated from 
the VetCert Program, the 8(a) BD Program, the HUBZone Program, or the 
WOSB Program due to the submission of false or misleading information 
to enter into an administrative agreement with SBA as a condition of 
admission or re-admission to the VetCert program.
0
103. Amend Sec.  128.401 by:
0
a. Revising paragraph (a);
0
b. Removing the words ``under paragraph (e) of this section'' in 
paragraph (d)(1)(i) and adding in their place the words ``under Sec.  
125.12 of this chapter''; and
0
c. Revising paragraph (e).
    The revisions read as follows:


Sec.  128.401  What requirements must a VOSB or SDVOSB meet to submit 
an offer on a contract?

    (a) Certification requirement. Only certified VOSBs and SDVOSBs are 
eligible to submit an offer on a specific VOSB or SDVOSB requirement. 
For a competitively awarded VOSB/SDVOSB contract, order, or agreement, 
the concern must qualify as a small business concern under the size 
standard corresponding to the NAICS code assigned to the contract, 
order or agreement, and be a certified VOSB or SDVOSB and meet the 
eligibility requirements of a VOSB or SDVOSB in Sec.  128.200 at the 
time of initial offer or response which includes price. For any sole 
source VOSB or SDVOSB award, the concern must qualify as a small 
business concern under the size standard corresponding to the 
applicable NAICS code, and be a certified VOSB or SDVOSB and meet the 
eligibility requirements of a VOSB or SDVOSB in Sec.  128.200 on the 
date of award.
* * * * *
    (e) Recertification. A prime contractor that receives an award as a 
certified SDVOSB must comply with the recertification requirements set 
forth in Sec.  125.12 of this chapter regarding its status as a 
certified SDVOSB.
* * * * *
0
104. Amend Sec.  128.402 by revising the second sentence of the 
introductory text of paragraph (a) and adding paragraph (k) to read as 
follows:


Sec.  128.402  When may a joint venture submit an offer on a VOSB or 
SDVOSB contract?

    (a) * * * SBA does not certify VOSB or SDVOSB joint ventures, but 
the joint venture should be designated as a VOSB or SDVOSB joint 
venture in SAM.gov with the VOSB or SDVOSB-certified joint venture 
partner identified. * * *
* * * * *
    (k) For a procuring agency to receive VOSB or SDVOSB credit for 
goaling purposes, the joint venture awardee must comply with the 
requirements of this section and Sec.  125.8.


Sec.  128.500  [Amended]

0
105. Amend Sec.  128.500 by removing the text ``128.402(c)'' in 
paragraph (c) and adding in its place ``128.402''.

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

0
106. 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); E.O. 12549, 51 FR 6370, 3 
CFR, 1986 Comp., p. 189.
    Subpart J issued under 15 U.S.C. 657f.
    Subpart K issued under 15 U.S.C. 657f.
    Subpart L issued under 15 U.S.C. 636(a)(36); Pub. L. 116-136, 
134 Stat. 281; Pub. L. 116-139, 134 Stat. 620; Pub. L. 116-142, 134 
Stat. 641; and Pub. L. 116-147, 134 Stat. 660.
    Subpart M issued under 15 U.S.C. 657a; Pub. L. 117-81, 135 Stat. 
1541.

0
107. Amend Sec.  134.1003 by revising the first sentence of paragraph 
(e)(1) to read as follows:


Sec.  134.1003  Grounds for filing a VOSB or SDVOSB status protest.

* * * * *
    (e) * * *
    (1) If the VOSB or SDVOSB status protest pertains to a procurement, 
the Judge will determine a protested concern's eligibility as a VOSB or 
SDVOSB as of the date of its initial offer or response which includes 
price for a competitively awarded VOSB/SDVOSB contract, order, or 
agreement, and as of the date of award for any sole source VOSB or 
SDVOSB award. * * *
* * * * *


Sec.  134.1104  [Amended]

0
108. Amend Sec.  134.1104 by removing the words ``10 business days'' in 
paragraph (a) and adding in their place the words ``45 business days''.

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-18325 Filed 8-22-24; 8:45 am]
BILLING CODE 8026-09-P