Small Business Mentor Protégé Programs, 48557-48595 [2016-16399]

Download as PDF Vol. 81 Monday, No. 142 July 25, 2016 Part III Small Business Administration mstockstill on DSK3G9T082PROD with RULES3 13 CFR Parts 121, 124, 125, et al. ´ ´ Small Business Mentor Protege Programs; Final Rule VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\25JYR3.SGM 25JYR3 48558 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations SMALL BUSINESS ADMINISTRATION 13 CFR Parts 121, 124, 125, 126, 127, and 134 RIN 3245–AG24 ´ ´ Small Business Mentor Protege Programs U.S. Small Business Administration. ACTION: Final rule. AGENCY: The U.S. Small Business Administration (SBA or Agency) is amending its regulations to implement provisions of the Small Business Jobs Act of 2010, and the National Defense Authorization Act for Fiscal Year 2013. Based on authorities provided in these two statutes, the rule establishes a ´ ´ Government-wide mentor-protege program for all small business concerns, ´ ´ consistent with SBA’s mentor-protege program for Participants in SBA’s 8(a) Business Development (BD) program. The rule also makes minor changes to ´ ´ the mentor-protege provisions for the 8(a) BD program in order to make the ´ ´ mentor-protege rules for each of the programs as consistent as possible. The rule also amends the current joint venture provisions to clarify the conditions for creating and operating joint venture partnerships, including the effect of such partnerships on any ´ ´ mentor-protege relationships. In addition, the rule makes several additional changes to current size, 8(a) Office of Hearings and Appeals and HUBZone regulations, concerning among other things, ownership and control, changes in primary industry, standards of review and interested party status for some appeals. Finally, SBA notes that the title of this rule has been changed. DATES: This rule is effective August 24, 2016. FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, U.S. Small Business Administration, Office of Government Contracting, 409 3rd Street SW., 8th Floor, Washington, DC 20416; (202) 205–7337; brenda.fernandez@sba.gov. SUPPLEMENTARY INFORMATION: This rule initially appeared in the Regulatory Agenda of Fall 2010 with the title ‘‘Small Business Jobs Act: Small ´ ´ Business Mentor-Protege Programs.’’ SBA carried this rule title until the Regulatory Agenda of Spring 2013 when the reference to the Jobs Act was taken out, and the title changed to ‘‘Small ´ ´ Business Mentor-Protege Programs.’’ This change reflected the statutory amendments in section 1641 of NDAA 2013. However, when the proposed rule mstockstill on DSK3G9T082PROD with RULES3 SUMMARY: VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 annually to SBA the participants in its ´ ´ mentor-protege program, the assistance provided to small businesses through ´ ´ the program, and the progress of protege firms to compete for Federal prime contracts and subcontracts. On February 5, 2015, SBA published in the Federal Register a comprehensive proposal to implement a new ´ ´ Government-wide mentor-protege program for all small businesses. 80 FR 6618. SBA decided to implement one ´ ´ new small business mentor-protege program instead of four new mentor´ ´ protege programs (one for small businesses, one for SDVO small businesses, one for WOSBs and one for HUBZone small businesses) since the other three types of small businesses I. Background (SDVO, HUBZone and women-owned) On September 27, 2010, the President would be necessarily included within signed into law the Small Business Jobs any mentor-protege program targeting ´ ´ Act of 2010 (Jobs Act), Public Law 111– all small business concerns. SBA did 240, 124 Stat. 2504, which was designed not eliminate the 8(a) BD mentorto protect the interests of small ´ ´ protege program. Thus, the intent was to businesses and increase opportunities in propose two separate mentor-protege ´ ´ the Federal marketplace. With the programs, one for 8(a) BD Participants enactment of the Jobs Act, Congress and one for all small businesses ´ ´ recognized that mentor-protege (including 8(a) Participants if they programs serve an important business choose to create a small business development function for small ´ ´ mentor-protege relationship instead of a business and authorized SBA to ´ ´ mentor-protege relationship under the ´ ´ establish separate mentor-protege 8(a) BD program). The small business programs for the Service-Disabled ´ ´ mentor-protege program was drafted to Veteran-Owned Small Business Concern be as similar to the 8(a) mentor-protege ´ ´ (SDVO SBC) Program, the HUBZone program as possible. Program, and the Women-Owned Small The proposed rule called for a 60-day Business (WOSB) Program, each comment period, with comments modeled on SBA’s existing mentorrequired to be made to SBA by April 6, ´ ´ protege program available to 8(a) 2015. The overriding comment SBA Business Development (BD Program received in the first few weeks after the Participants. See section 1347(b)(3) of publication was to extend the comment the Jobs Act. period. In response to these comments, On January 2, 2013, the President SBA published a notice in the Federal signed into law the National Defense Register on April 7, 2015, extending the Authorization Act for Fiscal Year 2013 comment period an additional 30 days (NDAA 2013), Public Law 112–239, 126 to May 6, 2015. 80 FR 18556. In Stat. 1632. Section 1641 of the NDAA addition to providing a 90-day comment 2013 authorized SBA to establish a period, SBA also conducted a series of ´ ´ mentor-protege program for all small tribal consultations pursuant to business concerns. This section further Executive Order 13175, Tribal provides that a small business mentorConsultations. SBA conducted three in´ ´ protege program must be identical to the person tribal consultations (in ´ ´ 8(a) BD mentor-protege program, except Washington, DC on February 26, 2015, that SBA may modify the program to the in Tulsa, Oklahoma on April 21, 2015, extent necessary, given the types of and in Anchorage, Alaska on April 23, small business concerns to be included 2015) and two telephonic tribal ´ ´ as proteges. Section 1641 also provides consultations (one on April 7, 2015, and that a Federal department or agency a Hawaii/Native Hawaiian Organization could not carry out its own agency specific one on April 8, 2015). ´ ´ ´ ´ Currently, the mentor-protege specific mentor-protege program for program available to firms participating small businesses unless the head of the in the 8(a) BD program is used as a department or agency submitted a plan for such a program to SBA and received business development tool in which the SBA Administrator’s approval of the mentors provide diverse types of business assistance to eligible 8(a) BD plan. Finally, section 1641 requires the ´ ´ proteges. This assistance may include, head of each Federal department or among other things, technical and/or agency carrying out an agency-specific ´ ´ management assistance; financial mentor-protege program to report was published, the title had been changed to: ‘‘Small Business Mentor ´ ´ Protege Program; Small Business Size Regulations; Government Contracting Programs; 8(a) Business Development/ Small Disadvantaged Business Status Determinations; HUBZone Program; Women-Owned Small Business Federal Contract Program; Rules of Procedure Governing Cases Before the Office of Hearings and Appeals.’’ In drafting this final rule, SBA concluded that the simpler current title (‘‘Small Business ´ ´ Mentor Protege Programs’’) is easier for the public to understand and would be consistent with the title that has been publicly reported in the Regulatory Agenda since 2013. PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations assistance in the form of equity investments and/or loans; subcontracts; and/or assistance in performing Federal prime contracts through joint venture arrangements. The explicit purpose of ´ ´ the 8(a) BD mentor-protege relationship ´ ´ is to enhance the capabilities of proteges and to improve their ability to successfully compete for both government and commercial contracts. ´ ´ Similarly, the mentor-protege program for all small business concerns is designed to require approved mentors to ´ ´ provide assistance to protege firms in order to enhance the capabilities of ´ ´ ´ ´ proteges, to assist proteges with meeting their business goals, and to improve the ´ ´ ability of proteges to compete for contracts. One commenter opposed expanding ´ ´ the mentor-protege program beyond the 8(a) BD program. The commenter believed that it has not been established ´ ´ that the 8(a) mentor-protege program is bestowing a substantial benefit on 8(a) Participants, and, therefore, SBA should perform additional research and analysis before expanding the program. SBA disagrees. In the current 8(a) BD ´ ´ mentor-protege program, in order for ´ ´ any mentor-protege relationship to ´ ´ continue, the 8(a) protege firm must demonstrate annually what benefits it ´ ´ has derived from the mentor-protege relationship. Where the benefits ´ ´ provided to the protege firm are minimal or where it appears that the relationship has been used primarily to permit a non–8(a) (oftentimes, large) mentor to benefit from contracts with its ´ ´ approved protege, through one or more joint ventures, that it would otherwise not be eligible for, SBA will terminate ´ ´ the mentor-protege relationship. The proposed rule also provided that SBA ´ ´ may terminate the mentor-protege agreement (MPA) where it determines that the parties are not complying with any term or condition of the MPA. This rule requires similar reporting of ´ ´ benefits for non–8(a) protege firms and similar consequences where the benefits ´ ´ provided to the protege firm do not ´ ´ adequately justify the mentor-protege relationship. One commenter requested clarification as to when and how SBA would cancel a MPA. SBA’s analysis as ´ ´ to whether a protege firm is adequately benefitting from the relationship or whether non-compliance with one or more specific terms or conditions of the MPA should warrant termination of the agreement is a fact specific determination to be made based on the totality of the circumstances. SBA would not terminate a particular MPA where there are de minimus or inadvertent violations of the agreement. VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 In addition, it is not SBA’s intent to terminate a particular MPA without ´ ´ considering the views of the protege firm. However, the mere fact that a ´ ´ ´ ´ protege wants the mentor-protege relationship to continue will not be dispositive if SBA believes that termination is justified. Conversely, SBA received a significant number of comments supporting a small business mentor´ ´ protege program. These commenters believed that a small business mentor´ ´ protege program would enable firms that are not in the 8(a) BD program to receive critical business development assistance that would otherwise not be available to them. Many of these commenters expressed support for the opportunity to gain meaningful expertise that would help them to independently perform more complex and higher value contracts in the future. This rule implements a mentor´ ´ protege program similar to the 8(a) BD ´ ´ mentor-protege program for all small business concerns. The rule adds this program to a new § 125.9 of SBA’s regulations. SBA proposed one program for all small businesses because SBA believed it would be easier for the small business and acquisition communities to use and understand. However, SBA specifically requested comments as to whether SBA should finalize one small ´ ´ business mentor-protege program, as proposed, or, rather, five separate ´ ´ mentor-protege programs for the various small business entities. Most commenters supported having one new ´ ´ small business mentor-protege program ´ ´ instead of four new mentor-protege programs (one for SDVO small businesses, one for HUBZone small businesses, one for WOSBs, and one for small businesses not falling into one of the other categories). They agreed that it would be less confusing to deal with one new program, rather than four new programs, and that it was not necessary ´ ´ to have four separate mentor-protege programs since the three subcategories of small business are necessarily included within the overall category of small business. Many of the commenters were concerned, however, that changes could be made to the current 8(a) BD ´ ´ mentor-protege program. Specifically, commenters were concerned that SBA might want to eliminate the 8(a) BD ´ ´ mentor-protege program as a separate program and instead roll it into the ´ ´ small business mentor-protege program. SBA has considered those concerns and has decided to keep the 8(a) BD mentor´ ´ protege program as a separate program. That program has independently operated successfully for a number of years and SBA believes that it serves PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 48559 important business development purposes that should continue to be coordinated through SBA’s Office of Business Development, rather than ´ ´ through a separate mentor-protege office managed elsewhere within the Agency. As such, this final rule makes no changes as to how MPAs are processed for the 8(a) BD program. In addition, the final rule revises the joint venture provisions contained in § 125.15(b) (for SDVO SBCs, and which are now contained in § 125.18(b)), § 126.616 (for HUBZone SBCs), and § 127.506 (for WOSB and Economically Disadvantaged Women-Owned Small Business (EDWOSB) concerns) to more fully align those requirements to the requirements of the 8(a) BD program. The rule also adds a new § 125.8 to specify requirements for joint ventures ´ ´ between small business protege firms and their mentors. The rule also makes several additional changes to current size, 8(a) BD and HUBZone regulations that are needed to clarify certain provisions or correct interpretations of the regulations that were inconsistent with SBA’s intent. These changes, the comments to the proposed rule, and SBA’s response to the comments are set forth more fully below. In response to the 90-day comment period, SBA received 113 comments, with most of the commenters commenting on multiple proposed provisions. With the exception of comments that did not set forth any rationale or make suggestions, SBA discusses and responds fully to all the comments below. Summary of Comments and SBA’s Response Definition of Joint Venture (13 CFR 121.103(h)) SBA’s size regulations recognize that joint ventures may be formal or informal. The proposed rule amended § 121.103(h) to clarify that every joint venture, whether a separate legal entity or an ‘‘informal’’ arrangement that exists between two (or more) parties, must be in writing. SBA never meant that an informal joint venture arrangement could exist without a formal written document setting forth the responsibilities of all parties to the joint venture. SBA merely intended to recognize that a joint venture need not be established as a limited liability company or other formal separate legal entity. A few comments opposed that provision of the proposed rule that identified informal joint ventures as partnerships, believing that entering into a formal or informal partnership E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 48560 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations often comes with certain obligations that may not be intended under a joint venture. For example, partners generally have fiduciary duties to each other, bind one another with their actions, and are jointly and severally liable for the debts of the business. One commenter recommended that SBA should replace the phrase ‘‘formal or informal partnership’’ with the words ‘‘contractual affiliation.’’ SBA does not agree that this recommended change would be beneficial. First, SBA believes that the term ‘‘contractual affiliation’’ is not precise and would cause confusion. Moreover, SBA continues to believe that state law would recognize an ‘‘informal’’ joint venture with a written document setting forth the responsibilities of the joint venture partners as some sort of partnership. As such, this rule merely identifies the consequences of forming an informal joint venture and should assist firms in determining what type of joint venture meets the parties’ needs in each case. If the joint venture partners do not want the associated consequences of being considered a partnership, then it might be beneficial for the joint venture to be formed as a limited liability company. Therefore, this final rule adopts the proposed language and specifies that a joint venture may be a formal or informal partnership or exist as a separate limited liability company or other separate legal entity. However, regardless of form, the joint venture must be reduced to a written agreement. In addition, the proposed rule specified that if a joint venture exists as a formal separate legal entity, it may not be populated with individuals intended to perform contracts awarded to the joint venture. This is a change from the current regulation that allows a separate legal entity joint venture to be unpopulated, to be populated with administrative personnel only, or to be populated with its own separate employees that are intended to perform contracts awarded to the joint venture. SBA explained that it is concerned that allowing populated joint ventures ´ ´ between a mentor and protege would ´ ´ not ensure that the protege firm and its employees benefit by developing new expertise, experience, and past performance. The separate joint venture entity would gain those things. If the individuals hired by the joint venture to perform the work under the contract did ´ ´ not come from the protege firm, there is no guarantee that they would ultimately ´ ´ end up working for the protege firm after the contract is completed. In such ´ ´ a case, the protege firm would have gained nothing out of that contract. The VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 company itself did not perform work under the contract and the individual employees who performed work did not ´ ´ at any point work for the protege firm. SBA received comments on both sides of this issue. Several commenters supported the proposed change, noting that forming a separate legal entity is an undue burden, and questioned whether the firm admitted to the 8(a) program ´ ´ (the protege small business) would gain any direct benefits if all the work was performed by a separate legal entity. In addition, several of the commenters appreciated SBA’s attempt to simplify these regulatory requirements. Several other commenters opposed the elimination of populated joint ventures. Many of these commenters believed that populated joint venture companies are an important mechanism for an entityowned firm to remain competitive. They argued that this method of business organization facilitates the development of the disadvantaged small business because it makes the company more competitive in the marketplace. Specifically, these commenters pointed out that a populated joint venture has its own lower indirect costs, which, in turn, lowers the cost to the Government. Although SBA understands the benefit of using lower indirect costs from a populated joint venture, SBA continues ´ ´ to believe that a small protege firm does not adequately enhance its expertise or ability to perform larger and more complex contracts on its own in the future when all the work through a joint venture is performed by a populated separate legal entity. A joint venture ´ ´ between a protege firm and its mentor is intended to promote the business ´ ´ development of the protege firm. SBA questions how that can be accomplished ´ ´ where the protege itself performs no work on a particular joint venture contract, and the employees who do the work for the separate legal entity may or may not have any present or future ´ ´ connection to the protege firm. In the 8(a) BD context, the purpose is to promote the business development of the firm that was admitted to the 8(a) ´ ´ BD program, the protege firm, not a separate legal entity that is not itself a certified 8(a) Participant. In addition, populated joint ventures create unique problems in the HUBZone program. HUBZone’s unique requirements with regard to employees, principal office, and residency make maintaining HUBZone status while participating in populated joint ventures difficult. In determining whether an individual should be determined an employee, the HUBZone program utilizes the totality of the circumstances approach and PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 oftentimes a firm will have some individuals not on its payroll considered an employee for HUBZone eligibility purposes. Populated joint ventures present a problem because it can be difficult for firms to determine whom should be counted as an employee at any given time. SBA continues to believe that the ´ ´ benefits received by a protege from a joint venture are more readily identifiable where the work done on behalf of the joint venture is performed ´ ´ by the protege and the mentor separately. In such a case, it is much ´ ´ easier to determine that the protege firm performed at least 40% of all work done by the joint venture, performed more than merely ministerial or administrative work, and otherwise gained experience that could be used to perform a future contract independently. Thus, this rule adopts the proposed language to allow a separate legal entity joint venture to have its own separate employees to perform administrative functions, but not to have its own separate employees to perform contracts awarded to the joint venture. SBA also proposed to require joint venture partners to allow SBA’s authorized representatives, including representatives authorized by the SBA Inspector General, to access its files and inspect and copy records and documents when necessary. Several commenters requested SBA to clarify that the access should be limited to documents and records relating to the joint venture, not to unrelated documents of the joint venture partners themselves. SBA agrees and has amended §§ 124.513(i), 125.8(h), 125.18(b)(8), 126.616(h), and 127.506(i) to clarify that SBA’s access would be related to files, records and documents of the joint venture. A few commenters also recommended that SBA should provide reasonable notice before it sought access to such records. SBA disagrees. SBA’s Office of Inspector General must be able to have unlimited access when investigating potential violations of SBA’s regulations. In a potential fraud case, providing notice could cause a destruction of records or provide time for a party to create the appearance of complying with applicable requirements. As such, this final rule does not require SBA to provide reasonable notice before seeking access to joint venture files, records and documents. SBA notes, however, that in its normal oversight responsibilities not related to any investigation of alleged wrongdoing, SBA would generally provide reasonable notice. E:\FR\FM\25JYR3.SGM 25JYR3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations Place of Performance In the case of Latvian Connection General Trading and Construction LLC, B–408633, Sept. 18, 2013, 2013 CPD ¶ 224, GAO ruled that § 19.000(b) of the Federal Acquisition Regulation (FAR) limits the application of FAR part 19 (dealing with SBA’s small business programs) to acquisitions conducted in the United States (and its outlying areas). The basis for GAO’s ruling was that SBA’s regulations were silent on this issue and therefore, the more specific FAR regulation controlled. Heeding this advice, SBA promulgated regulations to address this issue. Specifically, SBA made wholesale changes to 13 CFR 125.2 on October 2, 2013. As a result, SBA issued a final rule recognizing that small business contracting could be used ‘‘regardless of the place of performance.’’ 13 CFR 125.2(a) and (c). The February 5, 2015 proposed rule proposed to add similar language to §§ 124.501, 125.22(b), 126.600, and 127.500, thus specifically authorizing contracting in the 8(a) BD, SDVO, HUBZone and WOSB programs regardless of the place of performance, where appropriate. Although SBA believes that the authority to use those programs in appropriate circumstances overseas already exists, the proposed rule merely sought to make that authority clear. Nothing in the Small Business Act would prohibit the use of those programs in appropriate circumstances overseas. SBA received a few comments on this issue. The commenters supported clarification of the current authority. The regulatory text merely highlights contracting officers’ discretionary authority to use these programs where appropriate regardless of the place of performance. mstockstill on DSK3G9T082PROD with RULES3 HUBZone Joint Ventures (13 CFR 126.616) The HUBZone program is a community growth and development program in which businesses are incentivized to establish principal office locations in, and employ individuals from, areas of chronically high unemployment and/or low income in order to stimulate economic development. To further this purpose, the HUBZone program regulations permitted a joint venture only between a HUBZone SBC and another HUBZone ´ ´ SBC. In authorizing a mentor-protege relationship for HUBZone qualified SBCs, the proposed rule provided language to allow joint ventures for HUBZone contracts between a ´ ´ HUBZone protege firm and its mentor, VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 regardless of whether the mentor was itself a HUBZone qualified SBC. SBA received a significant number of comments on this provision. The commenters overwhelmingly supported allowing a HUBZone qualified SBC that obtained an SBA-approved small ´ ´ business mentor-protege relationship to be able to joint venture with its mentor ´ ´ on all contracts for which the protege individually qualified, including HUBZone contracts. The commenters felt that such a provision would allow ´ ´ proteges to perform contracts that they otherwise could not have obtained and truly provide them with expertise and past performance that would help them to individually perform additional contracts in the future. The commenters expressed that they felt that the purposes of the HUBZone program would be appropriately served by allowing non-HUBZone firms to act as mentors and joint venture with ´ ´ protege HUBZone firms because the HUBZone firm itself would be developed and would necessarily be required to hire additional HUBZone employees if it sought to remain eligible for future HUBZone contracts. Joint Venture Certifications and Performance of Work Reports (13 CFR 125.8, 125.18, 126.616, 127.506) The proposed rule required all partners to a joint venture agreement that perform a SDVO, HUBZone, WOSB, or small business set-aside contract to certify to the contracting officer and SBA prior to performing any such contract that they will perform the contract in compliance with the joint venture regulations and with the joint venture agreement. In addition, the parties to the joint venture are required to report to the contracting officer and to SBA how they are meeting or have met the applicable performance of work requirements for each SDVO, HUBZone, WOSB or small business set-aside contract they perform as a joint venture. SBA received comments both supporting and opposing this approach. One commenter suggested use of an honor system for the reporting. SBA did not view this as a viable alternative. Others believed that certifications in the System for Award Management (SAM) should be sufficient. Other commenters supported the proposed approach as a reasonable way to ensure compliance. SBA believes that affirmative reporting by the joint venture parties to both the contracting officer and SBA will provide the necessary information to track the use and performance of joint ventures. SBA also believes that the certification and reporting requirements implemented in this rule will assist the PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 48561 Government in its ability to deter wrongdoing. Regular reporting and monitoring of the limitations on subcontracting requirements will allow all parties to know where the joint venture stands with respect to those requirements and what must be done to come into compliance in the future if the joint venture’s performance is below the required amount at any point in time. A contracting officer will be able to more closely oversee the performance of a contract where the reports show inadequate performance to date. As such, the final rule adopts the proposed language requiring joint venture partners to annually report compliance to both the contracting officer and SBA. Tracking Joint Venture Awards The proposed rule announced that SBA was considering various methods of tracking awards to the joint ventures permitted by SBA’s regulations. The possible approaches included: Requiring all joint ventures permitted by the regulations to include in their names ‘‘small business joint venture,’’ ´ ´ and, if a mentor-protege joint venture, to ´ ´ include in their names ‘‘mentor-protege small business joint venture;’’ requiring contracting officers to identify awards as going to small business joint ventures or ´ ´ to mentor-protege small business joint ventures; requiring SBCs to amend their SAM entries to specify that they have formed a joint venture; requiring each joint venture to get a separate DUNS number; or a combination of all of these actions. SBA sought to ensure that governmental agencies and members of the public could track joint venture awards, which would promote transparency and accountability. SBA specifically asked for comments on how best to track awards to joint ventures. SBA believes a tracking approach will deter fraudulent or improper conduct, and promote compliance with SBA’s regulations. SBA received numerous comments on these proposals both in support and in opposition to the alternate approaches contemplated. Several commenters opposed the naming requirement, expressing concern about the administrative burden on the participating firms to change names, establish duns numbers and meet other compliance requirements in order to meet this requirement. Other commenters recommended that the cleanest way to track awards to joint ventures would in fact be to require a joint venture to form a new entity in SAM and identity itself to be a joint venture in SAM. Several commenters suggested the SAM system adopt a E:\FR\FM\25JYR3.SGM 25JYR3 48562 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations certification for joint ventures, or alternatively contracting officers designate in SAM that an award was made to a joint venture. In response to the comments, SBA first notes that any SAM certification process is beyond SBA’s authority and outside the scope of this rule. SBA also notes that current participants in the 8(a) BD program annually report to SBA the joint venture awards they have received and how they are meeting the limitations on subcontracting requirements. To track small business joint venture awards, SBA could require similar reporting. However, SBA does not seek to impose any unnecessary burdens on small business. With that in mind, SBA believes that additional reporting is not necessary, but continues to believe that some sort of joint venture identification is required. Thus, this final rule requires joint ventures to be separately identified in SAM so that awards to joint ventures can be properly accounted for. A joint venture must be identified as a joint venture in SAM, with a separate DUNS number and CAGE number than those of the individual parties to the joint venture. In addition, the Entity Type in SAM must be identified as a joint venture, and the individual joint venture partners should also be listed. mstockstill on DSK3G9T082PROD with RULES3 Applications for SBA’s Small Business ´ ´ Mentor-Protege Program (13 CFR 125.9) As noted above, SBA proposed implementing one universal small ´ ´ business mentor-protege program ´ ´ instead of a separate mentor-protege program for each type of small business (i.e., HUBZone, SDVO, WOSB program, and small business). In addition, the proposed rule indicated that SBA intended to maintain a separate mentor´ ´ protege program for eligible 8(a) BD Program Participants. The proposed rule provided that a small business seeking ´ ´ a mentor-protege relationship would be required to submit an application to SBA and that SBA’s Director of Government Contracting (D/GC) would review and either approve or decline small business MPAs. SBA’s Associate Administrator for BD (AA/BD) would continue to review and approve or ´ ´ decline mentor-protege relationships in the 8(a) BD program. Under the proposed language, an eligible 8(a) BD Program Participant could choose to ´ ´ seek SBA’s approval of a mentor-protege relationship through the 8(a) BD program, or could seek a small business ´ ´ mentor-protege relationship through ´ ´ SBA’s mentor-protege program for all small businesses. SBA announced it was considering having one office review and either approve or decline all MPAs VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 to ensure consistency in the process, and specifically sought comments as to whether that approach should be implemented. Finally, the supplementary information to the proposed rule provided that SBA may institute certain ‘‘open’’ and ‘‘closed’’ ´ ´ periods for the receipt of mentor-protege applications if the number of firms seeking SBA to approve their mentor´ ´ protege relationships becomes unwieldy. In such a case, SBA would ´ ´ then accept mentor-protege applications only in ‘‘open’’ periods. SBA received a significant number of comments regarding applications for ´ ´ mentor-protege relationships. Commenters applauded SBA’s proposal ´ ´ to keep the 8(a) BD mentor-protege program separate from the small ´ ´ business mentor-protege program. Commenters also supported establishing a separate office to process applications ´ ´ for the small business mentor-protege program. The commenters were concerned, however, about the administrative burden the additional ´ ´ small business mentor-protege program will have on SBA’s resources. They felt that the volume of firms seeking mentor´ ´ protege relationships could excessively delay SBA’s processing of applications. Commenters also opposed the proposal to have open enrollment periods to ´ ´ receive small business mentor-protege applications. They thought that such a process would cause significant delays in allowing firms to benefit from the ´ ´ mentor-protege program. They also felt that open enrollment periods could cause firms to miss out on developmental procurement opportunities if they had to wait several months before they could apply to participate in the program. If there were open enrollment periods, then commenters believed that firms should be processed on a first come first served basis, and different types of small businesses should not be given priority or processed first over other types of small businesses. SBA understands the concerns raised by the commenters. It is not SBA’s intent to delay participation in the small ´ ´ business mentor-protege program. In order to reduce the processing time for ´ ´ a small business mentor-protege application, SBA considered changing final approval from the D/GC to six senior SBA district directors. SBA thought that six decision makers instead of one might speed up the processing time for applications and eliminate the need for open enrollment periods. However, such a structure could also cause inconsistent results and could require more overall resources (by requiring additional staff in six different PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 locations) than simply providing adequate staff at one location. SBA recognizes that the D/GC is responsible for many other functions, and understands several commenters’ ´ ´ concerns that mentor-protege applications might not be the highest priority of that office. Therefore, SBA intends to establish a separate unit within the Office of Business Development whose sole function ´ ´ would be to process mentor-protege applications and review the MPAs and the assistance provided under them once approved. This final rule provides that this new unit will process and make determinations with respect to all small business MPAs, with the ultimate decision to be made by the AA/BD or his/her designee. SBA believes that the efficiencies gained by having a dedicated staff for the small business ´ ´ mentor-protege program will allow SBA to timely process applications for ´ ´ mentor-protege status, and that the need for open and closed enrollment periods will be reduced. Of course, it is still possible that the number of applications could overwhelm the dedicated small ´ ´ business mentor-protege unit. If that is the case, open enrollment periods could still be a possibility. Several commenters suggested that SBA may have an enormous volume of applications, and others suggested otherwise. SBA believes that additional information is needed before a decision to control the acceptance of applications is necessary. If the need arises, SBA will provide advance notice to allow potential applicants the opportunity to properly plan. Mentors (13 CFR 124.520 and 125.9) The proposed rule permitted any forprofit business concern that demonstrates a commitment and the ability to assist small business concerns to be approved to act as a mentor and receive the benefits of the mentor´ ´ protege relationship. SBA also proposed to limit mentors to for-profit business entities based on the language contained in the NDAA 2013. Section 1641 of the NDAA 2013 added section 45(d)(1) of the Small Business Act, 15 U.S.C. 657r(d)(1), which defines the term mentor to be ‘‘a for-profit business concern of any size.’’ In order to make ´ ´ the 8(a) BD mentor-protege program consistent with the small business ´ ´ mentor-protege program, SBA proposed that mentors in the 8(a) BD mentor´ ´ protege program must be for profit businesses as well. This was a change for the 8(a) BD program, which previously allowed non-profit entities to be mentors. SBA felt that the change to the 8(a) BD program made sense because E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations Congress intended the new mentor´ ´ protege program for small businesses to be as similar to the 8(a) BD mentor´ ´ protege program as possible. A small number of commenters disagreed with having a small business ´ ´ mentor-protege program at all, and argued that the statutory authorities were discretionary and did not require SBA to implement additional small ´ ´ business mentor-protege programs. A few of these commenters also felt that if there were such a program, the mentors should be limited to other small businesses. They expressed the view that individual small businesses could be harmed competing against joint ventures in which a large business mentor was a partner. Although SBA understands that the small business ´ ´ mentor-protege programs authorized by the Jobs Act and the NDAA 2013 are discretionary, SBA believes that they will serve an important developmental function that will enable many small businesses to grow to be able to independently perform procurements that they otherwise would not have been able to perform. In addition, the vast majority of commenters supported ´ ´ a small business mentor-protege program and many of those comments believed that it would be critical in helping them to advance and be able to perform larger and more complex contracts on their own. SBA agrees with the majority of commenters on this issue and this final rule implements a small ´ ´ business mentor-protege program. Because the language of section 45(d)(1) of the Small Business Act, 15 U.S.C. 657r(d)(1), specifies a mentor in the ´ ´ small business mentor-protege program to be ‘‘a for-profit business concern of any size’’ and section 45(a)(2) of the Small Business Act, 15 U.S.C. ´ ´ 657r(a)(2), requires the mentor-protege program for small businesses to be ‘‘identical to the [8(a) BD] mentor´ ´ protege program . . . as in effect on the date of enactment of this section . . .,’’ which authorized large business mentors, this final rule authorizes only other than small businesses that are organized for profit to be mentors. Specifically, the final rule authorizes any ‘‘concern,’’ regardless of size, to be a mentor, and the term ‘‘concern’’ has historically been defined in SBA’s size regulations to mean a business entity organized for profit. The proposed rule also required a firm seeking to be a mentor to demonstrate that it ‘‘possesses a good financial condition.’’ Several commenters urged SBA to clarify what it means to possess good financial condition. In addition, during the tribal consultations, several individuals spoke VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 of situations where SBA denied a large multi-national firm from being a mentor because one or more financial documents indicated a loss. These individuals believed SBA did not take the proper approach when considering whether a business concern should be a mentor. They stressed that SBA should look only at whether the proposed mentor can deliver what it has said it ´ ´ will bring to the protege. They believed that anything beyond that was not necessary. SBA agrees that the ‘‘good financial condition’’ requirement has caused some confusion. SBA believes that the key issue is whether a proposed mentor can meet its obligations under its MPA. If a proposed mentor can fulfill those obligations and has the financial wherewithal to provide all of the business development assistance to the ´ ´ protege firm as described in its MPA, SBA should not otherwise care about the proposed mentor’s financial condition. SBA wants to ensure that the ´ ´ protege firm receives needed business development assistance through the ´ ´ mentor-protege relationship. If that can be demonstrated, SBA will be satisfied with the arrangement. As such, this final rule changes the requirement that a mentor have good financial condition to one requiring that the mentor must demonstrate that it can fulfill its obligations under the MPA. In addition, the proposed rule provided that a mentor participating in ´ ´ any SBA-approved mentor-protege program would generally have no more ´ ´ than one protege at a time. It also provided that SBA could authorize a concern to mentor more than one ´ ´ protege at a time where it can demonstrate that the additional mentor´ ´ protege relationship would not adversely affect the development of ´ ´ either protege firm (e.g., the second firm may not be a competitor of the first firm). The rule also proposed, however, that no firm could be a mentor of more ´ ´ than three proteges in the aggregate at one time under either of the mentor´ ´ protege programs authorized by § 124.520 or § 125.9. A mentor could ´ ´ choose to have: Up to three proteges in the 8(a) BD program; or up to three ´ ´ proteges in the small business program; ´ ´ or one or more proteges in one program and one or more in another program, but ´ ´ no more than three proteges in the aggregate. SBA received comments on both sides of this issue. A few commenters believed that all SBA should care about is whether a mentor can adequately provide needed business development assistance to a proposed ´ ´ protege. If they could, these commenters believed that a specific firm could be a PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 48563 ´ ´ mentor for more than three protege firms. They argued that some of the best potential mentors could be large firms that were already mentoring other small businesses, and by limiting the number ´ ´ of proteges that a mentor could have could deprive a particular firm of a mentor that could be an ideal partner. Conversely, several other commenters agreed with SBA that allowing one firm to mentor an unlimited number of ´ ´ protege firms could allow a large business to unduly benefit from contracts that are intended to primarily benefit small business. One commenter ´ ´ believed that allowing three proteges at the same time for one mentor was too much, and recommended restricting it ´ ´ to two protege firms at one time. SBA continues to believe that there must be a limit on the number of firms that one business, particularly one that is other than small, can mentor. Although SBA believes that the small business mentor´ ´ protege program will certainly afford business development opportunities to many small businesses, SBA remains concerned about large businesses benefitting disproportionately. If one firm could be a mentor for an unlimited number (or even a larger limited ´ ´ number) of proteges, that firm would ´ ´ receive benefits from the mentor-protege program through joint ventures and possible stock ownership far beyond the benefits to be derived by any individual ´ ´ protege. In addition, the 8(a) BD program in effect at the time that the Jobs Act and the NDAA 2013, also limited mentors to having no more than ´ ´ three protege firms. Since those authorities permitted SBA to implement ´ ´ a small business mentor-protege program as similar as possible to the ´ ´ 8(a) BD mentor-protege program, it makes sense that SBA should limit any ´ ´ mentor to a total of three protege firms. Therefore, this final rule adopts the language of the proposed rule, which permits any mentor to have up to a total ´ ´ of three protege firms at one time. One commenter requested that SBA clarify that a mentor can have no more than ´ ´ three protege firms at one time, not three firms in the mentor’s entire existence. SBA believes that is adequately spelled out in the regulatory text and does not further clarify that provision in this final rule. Finally, the proposed rule provided ´ ´ that a protege in the small business ´ ´ mentor-protege program may not ´ ´ become a mentor and retain its protege status. That proposal was patterned off ´ ´ the 8(a) BD mentor-protege program. SBA received several comments opposing this proposal. The commenters felt that firms that have E:\FR\FM\25JYR3.SGM 25JYR3 48564 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations mstockstill on DSK3G9T082PROD with RULES3 ´ ´ themselves been proteges may be in the best position to act as mentors. In addition, they argued that just because a firm can act as a mentor to smaller or less experienced firms does not mean that they too don’t need help getting to the next level. They did not believe that it would make sense to require a current ´ ´ protege to terminate the MPA with its mentor before it will be approved as a mentor to another small business concern. The commenters believed that in both the 8(a) BD and small business ´ ´ mentor-protege programs a firm should ´ ´ be permitted to be both a protege and mentor in appropriate circumstances. SBA agrees with this position; thus, this final rule provides that SBA may authorize a small business to be both a ´ ´ protege and a mentor at the same time where the firm can demonstrate that the second relationship will not compete or otherwise conflict with the first mentor´ ´ protege relationship. ´ ´ Proteges (13 CFR 124.520 and 125.9) ´ ´ In order to qualify as a protege, the proposed rule required a business concern to qualify as small for the size standard corresponding to its primary NAICS code. This was a departure for ´ ´ the current 8(a) BD mentor-protege program, which required an 8(a) Program Participant to: Have a size that is less than half the size standard corresponding to its primary NAICS code; or be in the developmental stage of its 8(a) program participation; or not have received an 8(a) contract. SBA received a significant number of comments supporting the change to loosen the requirements to qualify as a ´ ´ ´ ´ protege for the 8(a) BD mentor-protege program. These commenters supported consistency between the two programs and believed that allowing more mature small businesses to participate as ´ ´ ´ ´ proteges in the 8(a) BD mentor-protege program would facilitate more dynamic developmental assistance and strengthen the contractor base for government procurements. Several commenters also felt that the proposed change made the requirement clearer to understand and implement. Conversely, a few commenters did not support ´ ´ changes to the size of the protege for the ´ ´ 8(a) BD mentor-protege program. These commenters believed that the 8(a) ´ ´ mentor-protege program should not be made available to larger, or successful, or experienced 8(a) Participants, and that allowing participation by firms that are close to exceeding their applicable size standard would thwart the purpose of the program. SBA also received several comments recommending that a firm should be able to form a mentor´ ´ protege relationship as long as it VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 qualified as small for the particular type ´ ´ of work for which a mentor-protege relationship is sought, even if the firm no longer qualified as small for its primary business activity. These commenters believed that there would be no harm in allowing such a mentor´ ´ ´ ´ protege relationship because the protege firm would still have to qualify as a small business for any contract opportunity requiring status as a small business that it sought. In other words, ´ ´ if SBA approved a mentor-protege relationship that focused on assisting a firm to gain access to or expand its experience in a particular industry or ´ ´ NAICS code where the proposed protege firm qualified as a small business for the size standard corresponding to that NAICS code but not for the size standard corresponding to its primary ´ ´ industry, the protege firm could form a joint venture with its mentor and be considered small for a contract ´ ´ opportunity only where the protege firm qualified as small. It could not take that ´ ´ mentor-protege relationship, form a joint venture and be considered small for contract opportunities in the ´ ´ ´ ´ protege’s primary industry if the protege did not qualify as small for that NAICS code. SBA believes that consistency ´ ´ between the 8(a) BD mentor-protege program and the small business mentor´ ´ protege program is critical, particularly where this final rule authorizes an 8(a) ´ ´ mentor-protege relationship to transition to a small business mentor´ ´ protege relationship when the 8(a) ´ ´ protege graduates from or otherwise leaves the 8(a) BD program. Therefore, SBA believes that it does not make sense to have different rules regarding ´ ´ who can qualify as a protege for the two ´ ´ mentor-protege programs. As such, SBA does not agree with the commenters who recommended that SBA continue ´ ´ to limit proteges in the 8(a) BD mentor´ ´ protege program only to Participants whose size was less than half the size standard corresponding to their primary industry. Moreover, SBA feels that any small business could gain valuable business development assistance ´ ´ through the mentor-protege program. For this reason, SBA agrees with the commenters who recommended that a firm that does not qualify as small for its primary NAICS code should be able ´ ´ to form a mentor-protege relationship in a secondary NAICS code for which it does qualify as small. However, SBA ´ ´ would not authorize mentor-protege relationships in secondary NAICS codes where the firm had never performed any work in that NAICS code previously or ´ ´ where the protege would bring nothing PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 to a potential joint venture with its mentor other than its status as a small business. The intent of allowing joint ´ ´ ventures between a protege firm and its ´ ´ mentor is to provide a protege firm the opportunity to further develop its expertise and enhance its ability to independently perform similar contracts ´ ´ in the future. The mentor-protege program is not intended to enable firms that have outgrown a particular size standard to find another industry in which they have no expertise or past performance merely to be able to continue to receive additional contracts as a small business. As long as the firm can demonstrate how the mentor´ ´ protege relationship is a logical progression for the firm and will further develop current capabilities, SBA ´ ´ believes that a mentor-protege relationship may be appropriate. Thus, the final rule provides that a concern must qualify as small for the size standard corresponding to its primary NAICS code or identify that it is seeking business development assistance with respect to a secondary NAICS code and qualify as small for the size standard corresponding to that NAICS code. The proposed rule provided that a ´ ´ protege participating in either of the ´ ´ mentor-protege programs generally would have no more than one mentor at ´ ´ a time. However, it authorized a protege to have two mentors where the two relationships would not compete or otherwise conflict with each other and ´ ´ the protege demonstrates that the second relationship pertains to an unrelated, secondary NAICS code, or the first mentor does not possess the specific expertise that is the subject of the MPA with the second mentor. The comments supported this provision and, therefore, SBA adopts it in this final rule. In addition, § 125.9(c)(1) of the proposed rule required that SBA verify that a firm qualifies as a small business before approving that firm to act as a ´ ´ protege in a small business mentor´ ´ protege relationship. SBA was attempting to make eligibility for the ´ ´ small business mentor-protege program similar to that of the 8(a) BD mentor´ ´ protege program. Just as only firms that have been certified to be eligible to participate in the 8(a) BD program and verified to meet at least one of the three requirements set forth in the prior 8(a) ´ ´ BD regulations could be a protege, the proposed rule would have permitted only those firms that have been affirmatively determined to be small to ´ ´ qualify as proteges for the small ´ ´ business mentor-protege program. Several commenters believed that such a requirement was overly burdensome. E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations These commenters did not believe that size and 8(a) BD status were comparable. They argued that size has always been a self-certification process that is open to review and protest in connection with any individual procurement, and that the same should ´ ´ be true in the mentor-protege context. They felt that SBA should be able to rely on the size self-certification of a firm seeking to qualify as small for a small ´ ´ business mentor-protege relationship. The commenters believed that a firm ´ ´ approved to be a small business protege would not gain any undue benefit from the program merely by entering a ´ ´ mentor-protege relationship. If a firm ´ ´ that was approved to be a protege was not in fact small and was awarded a joint venture contract with its mentor ´ ´ based solely on its status as a protege, of course that would be objectionable. However, because the size protest procedures permit any interested party to protest the size of any apparent successful offeror, the commenters ´ ´ believed that a protege that was not small would ultimately be found ineligible for award of the contract and, thus, would not unduly benefit from its ´ ´ mentor-protege relationship. SBA agrees, and as long as it is clear that ´ ´ SBA’s approval of a mentor-protege relationship does not amount to a formal determination of size eligibility, SBA believes that the size protest procedures would in fact be sufficient to protect the integrity of the program. The proposed rule provided that a ´ ´ protege firm that graduates or otherwise leaves the 8(a) BD program but continues to qualify as a small business ´ ´ may transfer its 8(a) mentor-protege relationship to a small business mentor´ ´ protege relationship. Several commenters supported this proposal as a natural extension of SBA’s implementation of a small business ´ ´ mentor-protege program. A few commenters sought clarification, however, as to whether the transfer from ´ ´ an 8(a) BD mentor-protege relationship ´ ´ to a small business mentor-protege relationship would be automatic or ´ ´ whether the protege firm would have to apply and again receive SBA approval. It was not SBA’s intent to require a firm to apply to transfer its 8(a) BD mentor´ ´ protege relationship to a small business ´ ´ mentor-protege relationship. SBA intended that a firm merely inform SBA of its intent to transfer its mentor´ ´ protege relationship. There would be no SBA review or approval required of such a transfer. As such, this final rule adopts the language of the proposed rule and adds clarifying language that a firm ´ ´ seeking to transfer its mentor-protege VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 relationship could do so by notification, without applying to and receiving approval from SBA to do so. In light of that change, the final rule also deletes § 124.520(d)(5) as unnecessary. That provision provided that SBA would not ´ ´ approve an 8(a) BD mentor-protege ´ ´ relationship where the proposed protege firm had less than six months remaining in its 8(a) program term. Because SBA ´ ´ will now permit an 8(a) protege to ´ ´ transfer its mentor-protege relationship ´ ´ to a small business mentor-protege relationship after it leaves the 8(a) BD program (provided the firm continues to qualify as a small business), it does not make sense that SBA would not approve ´ ´ a mentor-protege relationship for a ´ ´ proposed 8(a) protege that has less than six months remaining in its program term. SBA will give such a firm the option of pursuing an 8(a) mentor´ ´ protege relationship during its last six months in the 8(a) BD program, and then transferring that relationship to a ´ ´ small business mentor-protege ´ ´ relationship when the protege firm leaves the 8(a) BD program, or pursuing ´ ´ a small business mentor-protege relationship during that same time frame. 48565 departments and agencies, conceivably ´ ´ other agency-specific mentor-protege programs for small business would not be needed. In the proposed rule, SBA specifically requested comments as to ´ ´ whether other Federal mentor-protege programs should continue after the oneyear grace period expires. SBA understands that many of the agency´ ´ specific mentor-protege programs incentivize mentors to utilize their ´ ´ proteges as subcontractors. For instance, some agencies provide additional evaluation points to a large business submitting an offer on an unrestricted procurement where the business has an active MPA, where the business has ´ ´ used the protege firm as a subcontractor previously, or where the mentor and ´ ´ protege are submitting an offer as a joint venture. In addition, some mentor´ ´ protege programs give additional credit to a large business mentor toward its subcontracting plan goals when the ´ ´ mentor uses the protege as a subcontractor on the mentor’s prime contract(s) with the given agency. SBA’s ´ ´ mentor-protege programs assume more ´ ´ of a prime contractor role for proteges, but would also encourage subcontracts ´ ´ from mentors to proteges as part of the ´ ´ developmental assistance that proteges ´ ´ Mentor-Protege Programs of Other receive from their mentors. Because one Departments and Agencies (13 CFR ´ ´ or more mentor-protege programs of 125.10) other agencies ultimately may not be As noted above, section 1641 of the continued after SBA’s various mentorNDAA 2013 provided that a Federal ´ ´ protege programs are finalized, SBA department or agency cannot carry out requested comments as to whether the ´ ´ its own agency specific mentor-protege subcontracting incentives authorized by program for small businesses unless the mentor-protege programs of other ´ ´ head of the department or agency agencies should specifically be submitted a plan for such a program to ´ ´ incorporated into SBA’s mentor-protege SBA and received the SBA programs. Administrator’s approval of the plan. SBA received only a few comments The NDAA 2013 specifically excluded regarding this proposed new section. the Department of Defense’s mentorThese commenters agreed with the ´ ´ protege program, but included all other statutory provisions in questioning the ´ ´ current mentor-protege programs of ´ ´ utility of other Federal mentor-protege other agencies. Under its provisions, a programs. Their only concern was department or agency that is currently whether SBA would have the necessary ´ ´ conducting a mentor-protege program ´ ´ resources to handle mentor-protege (except the Department of Defense) may applications for the entire government. continue to operate that program for one SBA is working to assure that it can year but must then go through the SBA ´ ´ adequately process mentor-protege approval process in order for the applications, but, as noted above, if the program to continue after one year. number of firms seeking SBA to approve Thus, in order to continue to operate ´ ´ their mentor-protege relationships ´ ´ any current mentor-protege program becomes unwieldy, SBA may institute beyond one year after SBA’s mentorcertain ‘‘open’’ and ‘‘closed’’ periods for ´ ´ protege regulations are final, each ´ ´ the receipt of further mentor-protege department or agency would be required applications. In such a case, SBA would ´ ´ to obtain the SBA Administrator’s then accept mentor-protege applications approval. These statutory provisions only in ‘‘open’’ periods. Assuming that many agencies will were proposed to be implemented in decide not to continue their own new § 125.10 of SBA’s regulations. ´ ´ Because the SBA’s 8(a) BD and small mentor-protege programs, one ´ ´ commenter recommended that SBA business mentor-protege programs will apply to all Government small business should incorporate the subcontracting incentives found in other mentorcontracts, and thus to all Federal PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 E:\FR\FM\25JYR3.SGM 25JYR3 48566 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations mstockstill on DSK3G9T082PROD with RULES3 ´ ´ protege programs to ensure that these useful benefits are not eliminated. Although SBA believes that it is up to individual procuring agencies whether to provide subcontracting incentives for any specific procurement, SBA also believes that these incentives should be authorized and used, where appropriate. As such, this final rule identifies subcontracting incentives as a possible benefit to be provided by procuring activities in appropriate circumstances. The final rule authorizes procuring activities to provide incentives in the contract evaluation process to a firm that will provide significant subcontracting work to its SBA´ ´ approved protege firm. SBA does not intend that a mentor receive an ´ ´ incentive where it lists the protege as a subcontractor that would perform merely ministerial functions that would ´ ´ not enhance the protege’s business development. Any such incentive would be at the discretion of the procuring activity. ´ ´ Benefits of Mentor-Protege Relationships (13 CFR 124.520 and 125.9) As with the 8(a) BD program, under the proposed small business mentor´ ´ ´ ´ protege program, a protege may joint venture with its SBA-approved mentor and qualify as a small business for any Federal government contract or ´ ´ subcontract, provided the protege qualifies as small for the size standard corresponding to the NAICS code assigned to the procurement. Commenters supported this provision. They believed that it provides incentives to firms to become mentors and encourages meaningful business ´ ´ development assistance to proteges on any small business contracts for which they qualify as small. As such, SBA adopts the proposed language in this final rule. This means that a joint venture ´ ´ between a protege and its approved mentor in the small business mentor´ ´ protege program will be deemed to be a small business concern for any Federal contract or subcontract. It does not mean that such a joint venture affirmatively qualifies for any other small business program. For example, a joint venture between a small business ´ ´ protege firm and its SBA-approved mentor will be deemed a small business concern for any Federal contract or ´ ´ subcontract for which the protege qualified as small, but the joint venture will qualify for a contract reserved or set-aside for eligible 8(a) BD, HUBZone SBCs, SDVO SBCs, or WOSBs only if ´ ´ the protege firm meets the particular program-specific requirements as well. VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 Several commenters sought clarification of the requirement that the project manager of a joint venture ´ ´ between a protege firm and its SBAapproved mentor must be an employee ´ ´ of the protege firm. These comments pointed out that many times a firm that is awarded a contract will hire many, if not all, of the individuals currently performing the work under the contract for a different firm. These commenters recommended that SBA clarify that an individual identified as the project manager need not be an employee of the ´ ´ protege firm at the time the joint venture makes an offer, as long as there is a commitment by the individual to work ´ ´ for the protege if the joint venture wins the award. SBA agrees and has clarified that the individual identified as the project manager of the joint venture ´ ´ need not be an employee of the protege firm at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to be ´ ´ employed by the protege firm if the joint venture is the successful offeror. The final rule also clarifies that the individual identified as the project manager cannot be employed by the mentor and become an employee of the ´ ´ protege firm for purposes of performance under the joint venture. SBA is concerned that such an ´ ´ ‘‘employee’’ of the protege has no ties to ´ ´ the protege, is not bound to stay with ´ ´ the protege after performance of the contract is complete, and could easily go back to the mentor at that time. If that happens, the business development of ´ ´ the protege firm would be diminished. Consistent with the 8(a) BD program, the proposed rule permitted a mentor to a small business to own an equity ´ ´ interest of up to 40% in the protege firm ´ ´ in order to raise capital for the protege firm. SBA requested comments as to whether this 40% ownership interest should be a temporary interest, being authorized only as long as the mentor´ ´ protege relationship exists, or whether it should be able to survive the ´ ´ termination of the mentor-protege relationship. SBA was concerned that allowing a mentor to own 40% of a ´ ´ small business protege after the mentor´ ´ protege relationship ends may allow farreaching influence by large businesses that act as mentors and enable them to receive long-term benefits from programs designed to assist only small businesses. Several commenters believed that mentors should not be required to divest themselves of their ´ ´ ownership interest in a protege firm ´ ´ once the mentor-protege relationship ends. They noted that, outside the 8(a) PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 BD program (which has ownership restrictions on firms in the same or similar line of business), a large business may currently own a substantial ownership interest in a small business (up to 49% where one individual owns the remaining 51%) without a finding of affiliation, and that the affiliation rules are sufficient to protect against a large business from unduly benefitting from small business contracting programs. After further consideration, SBA agrees. During the ´ ´ ´ ´ mentor-protege relationship, the protege firm is shielded from a finding of affiliation where a large business mentor ´ ´ owns 40% of the protege. Once the ´ ´ mentor-protege relationship ends, any protection from a finding of affiliation also ends. As such, if the large business mentor’s 40% ownership interest is controlling (or deemed to be controlling under SBA’s affiliation rules), the two firms will be affiliated and the former ´ ´ protege would not qualify as a small business. For this reason, there is no need to require a former mentor to divest itself of its 40% ownership ´ ´ interest in the former protege after the ´ ´ mentor-protege relationship ends. If it ´ ´ does not divest, the former protege will be found to be ineligible for any contract as a small business where the 40% ownership interest causes affiliation under SBA’s size rules. As such, this final rule does not add any language requiring a mentor to divest itself of its ´ ´ ownership interest in a protege firm ´ ´ once the mentor-protege relationship ends. ´ ´ Written Mentor-Protege Agreement (13 CFR 124.520 and 125.9) ´ ´ The key to any mentor-protege relationship is the benefits to be ´ ´ received by the proposed protege firm from the proposed mentor. It is essential that such benefits be identified as clearly and specifically as possible. To this end, the proposed rule required that all MPAs be in writing, identifying specifically the benefits intended to be ´ ´ derived by the projected protege firms. Commenters universally supported requiring a written MPA and that the benefits to be provided through a MPA must be clearly identified. Specifically, they felt that the proposed provision requiring that there be a detailed timeline for the delivery of the assistance in the MPA was critical to ensuring that assistance was timely ´ ´ provided to protege firms. They understood that without clear and identifiable deliverables set forth in ´ ´ MPAs, both protege firms and SBA would lack the ability to require mentors to provide specific business development assistance. One E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations commenter noted that the proposed regulatory language identified ´ ´ subcontracts as a benefit that a protege can receive through its MPA. The commenter agreed that subcontracts are an important developmental benefit, but requested clarification that business development assistance can be gained ´ ´ by a protege both by receiving a subcontract from its mentor and by subcontracting specific work to its mentor. SBA agrees that a subcontract in either direction can be beneficial to the ´ ´ protege and that a subcontract from a ´ ´ protege to its mentor should not, by itself, give rise to a finding of affiliation as something outside the MPA. As such, this final rule clarifies that a subcontract ´ ´ from a protege to a mentor can be developmental assistance authorized by a MPA. The proposed rule also required a ´ ´ firm seeking approval to be a protege in either the 8(a) BD or small business ´ ´ mentor-protege programs to identify any ´ ´ other mentor-protege relationship it has through another Federal agency or SBA and provide a copy of each such MPA to SBA. The proposed rule required that the MPA submitted to SBA for approval must identify how the assistance to be provided by the proposed mentor is different from assistance provided to the ´ ´ ´ ´ protege through another mentor-protege relationship, either with the same or a different mentor. Several commenters opposed this requirement. They thought that the requirement might cause disputes as to whether the proposed MPA was different enough from a MPA with another agency. One commenter questioned whether a MPA of another agency could be transferred into the SBA’s 8(a) BD or small business mentor´ ´ protege program. This commenter reasoned that if one or more mentor´ ´ protege programs of other agencies cease because of the new Government-wide ´ ´ SBA small business mentor-protege program, a firm should be able to use that agreement, or at least the assistance that had been committed but not yet provided through the agreement, in the SBA’s program. SBA continues to believe that assistance that has already been provided or pledged in a MPA of another agency should not be used as the basis for an SBA MPA. The intent ´ ´ is that a protege firm gain business development assistance that it otherwise would not be able to obtain. SBA agrees, however, that if certain specified assistance was identified in a MPA of another agency, but that assistance had not yet been provided, a firm should be able to choose to terminate the mentor´ ´ protege relationship with the other agency and use the not yet provided VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 assistance as part of the assistance that will be provided through the 8(a) BD or ´ ´ small business mentor-protege relationship. Therefore, SBA has clarified the regulatory text to better implement its intent in this final rule. The proposed rule also provided that ´ ´ SBA will review a mentor-protege relationship annually to determine whether to approve its continuation for another year. SBA intended to evaluate the relationship and determine whether the mentor provided the agreed-upon business development assistance, and whether the assistance provided appears to be worthwhile. SBA also proposed to limit the duration of a MPA to three ´ ´ years and to permit a protege to have one three-year MPA with one entity and one three-year MPA with another entity, or two three-year MPAs (successive or otherwise) with the same entity. SBA invited comments regarding whether three years is an appropriate length of time and whether SBA should allow a ´ ´ mentor and protege to enter into an additional MPA upon the expiration of the original agreement. Several commenters did not believe that three years was an appropriate length to ´ ´ authorize a mentor-protege relationship. A few commenters disagreed with any specific limit on the number of years that a MPA may be in place. They ´ ´ believed that as long as the protege continues to qualify as a small business and to receive developmental assistance, and the mentor is capable of and actually providing the assistance, ´ ´ then the mentor-protege relationship should be allowed to continue. A few other commenters thought that three years was too short and recommended a longer length. They believed that in many instances it takes several years in ´ ´ order for both the mentor and protege to understand how best to work with each other, and three years is not sufficient to allow that process to develop. They felt that the proposed rule would, in ´ ´ effect, limit a protege to one mentor throughout its life as a small business. Although the rule proposed to authorize two three-year MPAs with two separate mentors, the commenters felt that because it takes a few years to get one ´ ´ mentor-protege relationship to operate ´ ´ smoothly, most proteges would elect to keep the first MPA for a second three years instead of seeking a new threeyear MPA with a different mentor. ´ ´ SBA believes that the mentor-protege program serves an important business development function for 8(a) Participants and other small businesses. However, SBA does not believe that any ´ ´ mentor-protege relationship should last indefinitely (i.e., for as long as the ´ ´ protege qualifies as a small business). PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 48567 ´ ´ The mentor-protege program should be a boost to a small business’s development that enables the small business to independently perform larger and more complex contracts in the future. It should not be a crutch that prevents small businesses from seeking and performing those larger and more complex contracts on their own. SBA understands that it may take longer than three years to develop a meaningful ´ ´ mentor-protege relationship. Therefore, the final rule will continue to authorize two three-year MPAs with different mentors, but will allow each to be extended for a second three years ´ ´ provided the protege has received the agreed-upon business development assistance and will continue to receive additional assistance. SBA intends to limit all small businesses, including 8(a) Participants, to having two mentors. Although an 8(a) Participant can ´ ´ transfer its 8(a) mentor-protege relationship to a small business mentor´ ´ protege relationship after it leaves the 8(a) BD program, it can have only two ´ ´ mentor-protege relationships in total. If ´ ´ it transfers its 8(a) mentor-protege relationship to a small business mentor´ ´ protege relationship after it leaves the program, it may enter into one ´ ´ additional mentor-protege relationship. It cannot enter into two additional small ´ ´ business mentor-protege relationships. The proposed rule also solicited comments on clarifying language not currently contained in the 8(a) mentor´ ´ protege regulations authorizing the ´ ´ continuation of a mentor-protege relationship where control or ownership of the mentor changes during the term of the MPA. Specifically, the proposed rule provided (for the 8(a) BD and small ´ ´ business mentor-protege programs) that if control of the mentor changes (through a stock sale or otherwise), the ´ ´ previously approved mentor-protege relationship may continue provided that, after the change in control, the mentor expresses in writing to SBA that it acknowledges the MPA and that it continues its commitment to fulfill its obligations under the agreement. Commenters supported this provision, and it is not changed in this final rule. Size of 8(a) Joint Venture (13 CFR 124.513). The rule also proposed to amend § 124.513 to clarify that interested parties may protest the size of an SBAapproved 8(a) joint venture that is the apparent successful offeror for a competitive 8(a) contract. This change alters the rule expressed in Size Appeal of Goel Services, Inc. and Grunley/Goel Joint Venture D LLC, SBA No. SIZ–5320 (2012), which concluded that the size of E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 48568 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations an SBA-approved 8(a) joint venture could not be protested because SBA had, in effect, determined the joint venture to qualify as small when it approved the joint venture pursuant to § 124.513(e). SBA’s decision to authorize a joint venture between a current 8(a) Program Participant and another party by its Office of Business Development was never intended to act as a formal size determination. Only SBA’s Office of Government Contracting may issue formal size determinations. SBA received a few comments supporting this proposed change, believing that the size protest procedures should be available with respect to any apparent successful offeror in a competitive 8(a) procurement, including joint ventures. Accordingly, this revision makes clear that unsuccessful offerors on a competitive 8(a) set-aside contract may challenge the size of an apparently successful joint venture offeror. One commenter encouraged SBA to add additional language to clarify that the only issue that may be challenged is size, and not the underlying terms, conditions, or structure of the joint venture agreement itself. SBA believes such a clarification is not necessary. As part of a size protest, an SBA Office of Government Contracting Area Office will review a joint venture agreement to make sure that the agreement complies with § 124.513, but in no way would that office seek or have the authority to invalidate certain terms or conditions of the joint venture. A few commenters also sought clarification of SBA’s regulations regarding when SBA will determine the eligibility of an 8(a) joint venture. They questioned whether approval would occur as part of the offer and acceptance process or at some later point in time. SBA’s regulations provide that SBA approval of an 8(a) joint venture must occur prior to the award of an 8(a) contract. § 124.513(e)(1). That being the case, requiring an eligibility determination for a joint venture as part of the offer and acceptance process would make that requirement meaningless. SBA believes that a district office has flexibility to determine the eligibility of a particular 8(a) joint venture depending upon its workload. As long as that determination occurs any time prior to award, SBA has complied with the regulatory requirement. For a competitive 8(a) procurement, SBA does not receive an offering letter on behalf of any particular 8(a) Participant or potential offeror. As such, requiring SBA to determine the eligibility of a potential joint venture offeror at the time of acceptance would VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 not make any sense. There is no certainty that the joint venture will submit an offer, and, if it does, that it will be the apparent successful offeror. Section 124.507(e) provides that within five working days after being notified by a contracting officer of the apparent successful offeror, SBA will verify the 8(a) eligibility of that entity. If the apparent successful offeror is a joint venture and SBA has not yet approved the joint venture, the five-day period for determining general eligibility would then apply to the joint venture also. If the SBA district office has asked for clarifications or changes with respect to the joint venture and has not received them by the end of this five-day period (and the contracting officer has not granted SBA additional time to conduct an eligibility determination), SBA will have to say that it was unable to verify the eligibility of the apparent successful offeror joint venture. Agency Consideration of the Past Performance and Capabilities of Team Members (13 CFR 124.513(f), 125.8(e), 125.18(b)(5), 126.616(f), and 127.506(f)) In the proposed rule, SBA proposed that an Agency must consider the past performance of the members of a joint venture when considering the past performance of an entity submitting an offer as a joint venture. SBA proposed this for both 8(a) joint ventures (proposed § 124.513(f)) and small business joint ventures (proposed § 125.8(e)). This proposal was in response to agencies that were considering only the past performance of a joint venture entity, and not considering the past performance of the very entities that created the joint venture entity. Where an agency required the specific joint venture entity itself to have experience and past performance, it made it extremely hard for newly established (and impossible for first-time) joint venture partners to demonstrate positive past performance. Each partner to a joint venture may have individually performed on one or more similar contracts previously, but the joint venture would not be credited with any experience or past performance of its individual partners. Commenters generally supported these changes. A few commenters recommended that SBA clarify that the same policy should also apply to joint ventures in the SDVO, HUBZone and WOSB programs, arguing that joint ventures in those programs could also be hurt where a procuring agency did not consider the experience and past performance of the individual partners to a joint venture. SBA agrees. As such, this final rule adds similar language to that proposed for PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 8(a) and small business joint ventures to SDVO joint ventures (§ 125.18(b)(5)), HUBZone joint ventures (§ 126.616(f)), and WOSB joint ventures (§ 127.506(f)). Recertification When an Affiliate Acquires Another Concern (13 CFR 121.404(g)(2)(ii)(A)) In the final rule, SBA is clarifying its position that recertification is required when an affiliate of an entity acquires another concern. Under SBA’s general principles of affiliation, if a firm is an affiliate it means that one entity controls or has the power to control the other or a third party controls both, and SBA aggregates the receipts or employees of the concern in question and its affiliates. In our view, an acquisition by an affiliate must be deemed an acquisition by the concern in question. Otherwise, firms could easily circumvent SBA’s recertification rules by simply creating affiliates to acquire or merge with other firms. The clear intent of SBA’s recertification rule was to require recertification when an entity exceeds the size standard due to acquisition, merger or novation, and there is no public policy rationale for not requiring recertification based on the whether it is the entity in question that acquires another concern, or an affiliate of the entity in question. The bottom line is the entity, including its affiliates, no longer qualifies as small and agencies should not receive future small business credit for dollars awarded to the concern in question, or its affiliates. Establishing Social Disadvantage for the 8(a) BD Program (13 CFR 124.103) SBA also proposed amendments to § 124.103(c) in order to clarify that an individual claiming social disadvantage must present a combination of facts and evidence which by itself establishes that the individual has suffered social disadvantage that has negatively impacted his or her entry into or advancement in the business world. Under the proposed rule, SBA could disregard a claim of social disadvantage where a legitimate alternative ground for an adverse action exists and the individual has not presented evidence that would render his/her claim any more likely than the alternative ground. A statement that a male co-worker received higher compensation or was promoted over a woman does not amount to an incident of social disadvantage by itself. Additional facts are necessary to establish an instance of social disadvantage. A statement that a male co-worker received higher compensation or was promoted over a woman and that the woman had the E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations same or superior qualifications and responsibilities would constitute an incident of social disadvantage. A few commenters opposed this proposed change. They did not believe that it would be appropriate to require proof of certain events that are not easily documented. One commenter noted that SBA currently permits individuals to prove social disadvantage with affidavits and sworn statements attesting to events in their lives that they believe were motivated by bias or discrimination, and questioned how an individual could in fact present additional evidence to prove his or her claim of alleged discriminatory conduct. SBA believes that these commenters misunderstood SBA’s intent. SBA does not intend that individuals provide additional supporting documentation or evidence. Rather, SBA is merely looking for the individual’s statement to contain a more complete picture. As noted in the proposed rule, the example of a man being promoted over a woman without additional facts does not lead to a more likely than not conclusion of discriminatory conduct. If the man had 10 years of experience to the woman’s 3 years of experience, there could be a legitimate reason for his promotion over the woman. However, if she can say that the two had similar experience and qualifications and yet he was promoted and she was not, her claim of discriminatory conduct would have merit. All SBA is looking for is the complete picture, or additional facts, that would make an individual’s claim of bias or discriminatory conduct more likely than not. Absent any evidence to the contrary, SBA would continue to rely on affidavits and sworn statements, and as long as those statements presented a clear picture, they would be sufficient to establish an instance of social disadvantage. SBA is not intending to raise the evidentiary burden placed on an 8(a) applicant above the preponderance of the evidence standard. SBA is not seeking definitive proof, but rather additional facts to support the claim that a negative outcome (e.g., failure to receive a promotion or needed training) was based on discriminatory conduct instead of one or more legitimate nondiscriminatory reasons. It is not SBA’s intent to disbelieve an applicant. In fact, SBA intends to rely on personal narratives to support claims of social disadvantage. As long as those claims are complete and are not contradictory, SBA will depend solely on the narratives, and consider them to be instances of social disadvantage. VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 Control of an 8(a) BD Applicant or Participant Section 124.106 of SBA’s regulations currently provides that one or more disadvantaged individuals must control the daily business operations of an 8(a) BD applicant or Participant. In determining whether the experience of one or more disadvantaged individuals claiming to manage the applicant or Participant is sufficient for SBA to determine that control exists, SBA’s regulations require that the individuals must have managerial experience ‘‘of the extent and complexity needed to run the concern.’’ Although the regulations also provide that a ‘‘disadvantaged individual need not have the technical expertise or possess a required license to be found to control an applicant or Participant,’’ several comments indicated that there is confusion as to what type of managerial experience is needed to satisfy SBA’s requirements. SBA did not intend to require in all instances that a disadvantaged individual must have managerial experience in the same or similar line of work as the applicant or Participant. A middle manager in a multi-million dollar large business or a vice president in a concern qualifying as small but nevertheless substantial may have gained sufficient managerial experience in a totally unrelated business field. The words ‘‘of the extent and complexity needed to run the concern’’ were meant to look at the degree of management experience, not the field in which that experience was gained. For example, an individual who has been a middle manager of a large aviation firm for 20 years and can demonstrate overseeing the work of a substantial number of employees may be deemed to have managerial experience of the extent and complexity needed to run a fiveemployee applicant firm whose primary industry category was in emergency management consulting even though that individual had no technical knowledge relating to the emergency management consulting field. SBA believes, however, that more specific industry-related experience may be needed in appropriate circumstances to ensure that the disadvantaged individual(s) claiming to control the day-to-day operations of the firm do so in fact. This would be particularly true where a non-disadvantaged owner (or former owner) who has experience related to the industry is actively involved in the day-to-day management of the firm. In order to clarify SBA’s intent, this rule adds language to § 124.106 to specify that management experience need not be related to the PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 48569 same or similar industry as the primary industry classification of the applicant or Participant. 8(a) BD Application Processing (13 CFR 124.202, 124.203, 124.104(b), and 124.108(a)) SBA’s regulations require applicants to the 8(a) BD program to submit certain specified supporting documentation, including financial statements, copies of signed Federal personal and business tax returns and individual and business bank statements. The regulations also required that an applicant must submit a signed IRS Form 4506T, Request for Copy or Transcript of Tax Form, in all cases. A commenter questioned the need for every applicant to submit IRS Form 4506T. SBA agrees that this form is not needed in every case. SBA always has the right to request any applicant to submit specific information that may be needed in connection with a specific application. As long as SBA’s regulations clearly provide that SBA may request any additional documents SBA deems necessary to determine whether a specific applicant is eligible to participate in the 8(a) BD program, SBA will be able to request that a particular firm submit IRS Form 4506T where SBA believes it to be appropriate. As such, this final rule eliminates the requirement from § 124.203 that an applicant must submit IRS Form 4506T in very case, and clarifies that SBA may request additional documentation when necessary. In addition, a commenter noted that SBA’s regulations provide that applications for the 8(a) BD program must generally be filed electronically, and questioned the need to allow hard copy applications at all. The commenter was concerned that there is a greater possibility for one or more attachments to be misplaced when an applicant files a hard copy application, that SBA staff could incorrectly transpose information when putting it into an electronic format, and that in today’s business world there is no excuse for not having access to the internet and SBA’s electronic application. SBA agrees. As such, this final rule amends § 124.202 to require applications to be filed electronically, with the understanding that certain supporting documentation may also be required under § 124.203. Section 124.203 also requires that an applicant must provide a wet signature from each individual claiming social disadvantage status. Several commenters questioned the need for ‘‘wet’’ signatures, arguing that this requirement placed a significant burden on applicants. These commenters noted that an applicant that files an electronic E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 48570 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations 8(a) BD application must also sign and manually send a wet signature to SBA. They argued that such a requirement did not make sense, as long as the individual(s) upon whom eligibility is based take responsibility for any information submitted on behalf of the applicant. SBA agrees and has eliminated the requirement for a wet signature. Any electronic signing protocol must ensure the Agency is able to specifically identify the individual making the representation in an electronic system. As long as applicants know that the individual(s) upon whom eligibility is based take responsibility for the accuracy and truthfulness of any information submitted on behalf of the applicant, an electronic, uploaded signature should be sufficient. SBA’s regulations also provided that if during the processing of an application, SBA receives adverse information regarding possible criminal conduct by the applicant or any of its principals, SBA would automatically suspend further processing of the application and refer it to SBA’s Office of Inspector General (OIG) for review. Commenters believed that both of these provisions unnecessarily delayed SBA’s processing of 8(a) applications. These commenters believed that referral to SBA’s OIG should not occur in every instance, such as where a minor infraction occurred many years ago, but that SBA should have the discretion to refer matters to SBA’s OIG in appropriate instances. SBA is committed to reducing the processing time for 8(a) applications and agrees that mandatory OIG referral may be unnecessary. SBA agrees that an application evidencing a 20 year old disorderly conduct offense for an individual claiming disadvantaged status when that individual was in college should not be referred to the OIG where that is the only instance of anything concerning the individual’s good character. Such an offense has nothing to do with the individual’s business integrity. In addition, even if it did, an offense that was that old (with no other instances of such misconduct) could also be determined not to be relevant for a present good character determination, and thus, not be one that caused SBA to suspend an 8(a) application and refer the matter to the OIG for review. This final rule provides necessary discretion to SBA to allow SBA to determine when to refer a matter to the OIG. In addition, SBA’s regulations provide that each individual claiming economic disadvantage must describe such economic disadvantage in a narrative statement, and must submit personal VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 financial information to SBA. SBA believes that the written narrative on economic disadvantage is an unnecessary burden imposed on applicants to the 8(a) BD program. SBA’s determination as to whether an individual qualifies as economically disadvantaged is based solely on an analysis of objective financial data relating to the individual’s net worth, income and total assets. As such, this final rule eliminates the requirement that each individual claiming economic disadvantage must submit a narrative statement in support of his or her claim of economic disadvantage. Substantial Unfair Competitive Advantage Within an Industry Category (13 CFR 124.109, 124.110, and 124.111) Pursuant to section 7(j)(10)(J)(ii)(II) of the Small Business Act, 15 U.S.C. 636(j)(10)(J)(ii)(II), ‘‘[i]n determining the size of a small business concern owned by a socially and economically disadvantaged Indian tribe (or a wholly owned business entity of such tribe) [for purposes of 8(a) BD program entry and 8(a) BD contract award], each firm’s size shall be independently determined without regard to its affiliation with the tribe, any entity of the tribal government, or any other business enterprise owned by the tribe, unless the Administrator determines that one or more such tribally owned business concerns have obtained, or are likely to obtain, a substantial unfair competitive advantage within an industry category.’’ For purposes of the 8(a) BD program, the term ‘‘Indian tribe’’ includes any Alaska Native village or regional or village corporation (within the meaning of the Alaska Native Claims Settlement Act). 15 U.S.C. 637(a)(13). SBA’s regulations have extended this broad exclusion from affiliation to the other entityowned firms authorized to participate in the 8(a) BD program (i.e., firms owned by Native Hawaiian Organizations (NHOs) and Community Development Corporations (CDCs)). See §§ 124.109(a), 124.109(c)(2)(iii), 124.110(b), and 124.111(c). The proposed rule attempted to provide guidance as to how SBA will determine whether a firm has obtained or is likely to obtain ‘‘a substantial unfair competitive advantage within an industry category.’’ SBA received a significant number of comments supporting the clarifying language of the proposed rule. Commenters agreed that the term ‘‘industry category’’ should be defined by six digit NAICS code, as that application would be consistent with other similar terms in SBA’s regulations. They also agreed that an industry category should be looked at nationally PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 since size standards are established on a national basis. Thus, the final rule provides that an entity-owned business concern is not subject to the broad exemption to affiliation set forth in 13 CFR part 124 where one or more entityowned firms are found to have obtained, or are likely to obtain, a substantial unfair competitive advantage on a national basis in a particular NAICS code with a particular size standard. In making this assessment, SBA will consider a firm’s percentage share of the national market and other relevant factors to determine whether a firm is dominant in a specific six-digit NAICS code with a particular size standard. SBA will review Federal Procurement Data System (FPDS) data to compare the firm’s share of the industry as compared to overall small business participation in that industry to determine whether there is an unfair competitive advantage. The rule does not contemplate a finding of affiliation where an entity-owned concern appears to have obtained an unfair competitive advantage in a local market, but remains competitive, but not dominant, on a national basis. Management of Tribally-Owned 8(a) Program Participants (13 CFR 124.109) The proposed rule sought to add language to § 124.109(c)(4) specifying that the individuals responsible for the management and daily operations of a tribally-owned concern cannot manage more than two Program Participants at the same time. This language is taken directly from section 7(j)(11)(B)(iii)(II) of the Small Business Act (15 U.S.C. 636(j)(11)(B)(iii)(II)), but does not currently appear in SBA’s 8(a) BD regulations. The proposed rule provided that SBA believes it is necessary to incorporate this provision into the regulations to more fully apprise tribally-owned 8(a) applicants and Participants of the control requirements applicable to them. Those commenting on this provision understood the change and supported it. Thus, this final rule adopts the proposed language. Native Hawaiian Organizations (NHOs) (13 CFR 124.110) The proposed rule also sought to add language to § 124.110(d) to clarify that the members or directors of an NHO need not have the technical expertise or possess a required license to be found to control an applicant or Participant owned by the NHO. Rather, the NHO, through its members and directors, must merely have managerial experience of the extent and complexity needed to run the concern. As with individually owned 8(a) applicants and Participants, E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations individual NHO members may be required to demonstrate more specific industry-related experience in appropriate circumstances to ensure that the NHO in fact controls the dayto-day operations of the firm. This is particularly true where a nondisadvantaged owner (or former owner) who has experience related to the industry is actively involved in the dayto-day management of the firm. Commenters supported this change as a needed clarification to the control requirements for NHOs. They believed that this change will allow NHOs with significant management experience to participate in and branch out into diverse industries, and that such a change will have a positive effect on the Native Hawaiian community. The final rule adopts the language as proposed. The Small Business Act authorizes small business concerns owned by ‘‘economically disadvantaged’’ NHOs to participate in the 8(a) BD program. 15 U.S.C. 637(a)(4)(A)(i)(III). Neither the statute nor its legislative history provides any guidance on how to determine whether an NHO is economically disadvantaged. Currently, § 124.110(c)(1) provides that in determining whether an NHO is economically disadvantaged, SBA will look at the individual economic status of the NHO’s members. The NHO must establish that a majority of its members qualify as economically disadvantaged under the rules that apply to individuals as set forth in § 124.104. The proposed rule solicited comments as to whether this is the most sensible approach to establishing economic disadvantage for NHOs. SBA received a significant number of comments from the Native Hawaiian community on this issue, including several commenters who appeared at one or more of the tribal consultations. These commenters recommended that NHOs should establish economic disadvantage in the same way that tribes currently do for the 8(a) BD program: that is, by providing information relating to members, including the tribal unemployment rate, the per capita income of tribal members, and the percentage of tribal members below the poverty level. For the Native Hawaiian community, this would mean that an NHO would have to describe the individuals to be served by the NHO and provide the economic data regarding those individuals. SBA agrees that basing the economic disadvantage status of an NHO on individual Native Hawaiians who control the NHO does not seem to be the most appropriate way to do so. The Small Business Act defines the term ‘‘Native Hawaiian VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 Organization’’ to mean ‘‘any community service organization serving Native Hawaiians in the State of Hawaii which (A) is a nonprofit corporation . . ., (B) is controlled by Native Hawaiians, and (C) whose business activities will principally benefit such Native Hawaiians.’’ 15 U.S.C. 637(a)(15). The crucial point is that an NHO must be a community service organization that benefits Native Hawaiians. It is certainly understood that an NHO must serve economically disadvantaged Native Hawaiians, but nowhere is there any hint that economically disadvantaged Native Hawaiians must control the NHO. The statutory language merely requires that an NHO must be controlled by Native Hawaiians. In order to maximize benefits to the Native Hawaiian community, SBA believes that it makes sense that an NHO should be able to attract the most qualified Native Hawaiians to run and control the NHO. If the most qualified Native Hawaiians cannot be part of the team that controls an NHO because they may not qualify individually as economically disadvantaged, SBA believes that is a disservice to the Native Hawaiian community. As such, this final rule changes the way that SBA will determine whether an NHO qualifies as economically disadvantaged. It makes NHOs similar to Indian tribes by requiring an NHO to present information relating to the economic disadvantaged status of Native Hawaiians, including the unemployment rate of Native Hawaiians and the per capita income of Native Hawaiians. The difference between tribes and NHOs, however, is that one tribe serves and intends to benefit one distinct group of people (i.e., its specific tribal members), and multiple NHOs may be established to serve and benefit the same group of people (i.e., the entire Native Hawaiian community). As with economic disadvantage for tribes, once an NHO establishes that it is economically disadvantaged in connection with the application of one firm owned and controlled by the NHO because the intended beneficiaries are economically disadvantaged, it need not reestablish its economic disadvantage for another firm owned by the NHO. In addition, unless a second NHO intends to serve and benefit a different population than that of the first NHO that established its economic disadvantage status, the second NHO also need not submit information to establish its economic disadvantage. Of course, in any case, the AA/BD may request an NHO to reestablish/establish its economic disadvantage status where PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 48571 the AA/BD believes that circumstances of the Native Hawaiian community may have changed. Sole Source 8(a) Awards Pursuant to § 8(a)(1)(D) of the Small Business Act, 8(a) procurements that exceed $7.0 million for those assigned a manufacturing NAICS code and $4.0 million for all others must generally be competed among eligible 8(a) Program Participants. 15 U.S.C. 637(a)(1)(D). However, pursuant to section 303 of the Business Opportunity Reform Act of 1988 (Pub. L. 100–656), 102 Stat. 3853, 3887–3888, 8(a) Program Participants owned by Indian tribes and Alaska Native Corporations (ANCs) are exempt from those competitive threshold limitations. As such, a Participant owned by an Indian tribe or ANC can receive an 8(a) sole source award in any amount under the Small Business Act. Section 811 of the National Defense Authorization Act for Fiscal Year 2010 (NDAA 2010) (Section 811), Public Law 111–84, imposed justification and approval requirements on any 8(a) sole source contract that exceeds $20 million. 123 Stat. 2190, 2405. Specifically, section 811 provides that the head of an agency may not award a sole source 8(a) contract for an amount exceeding $20 million ‘‘unless the contracting officer for the contract justifies the use of a sole-source contract in writing’’ and ‘‘the justification is approved by the appropriate official designated to approve contract awards for dollar amounts that are comparable to the amount of the sole-source contract. . .’’ Id. This provision has been implemented in FAR 19.808–1(a) and 6.303–1(b), which currently provide that SBA cannot accept for negotiation a sole-source 8(a) contract that exceeds $22 million unless the requesting agency has completed a justification in accordance with the requirements of FAR 6.303. The FAR recently increased the $20 million amount to $22 million in order to take into account inflation. Several commenters to the proposed rule noted that SBA’s regulations do not take into account section 811 or FAR 19.808–1, and requested that SBA amend its regulations to be consistent with the FAR. This final rule merely incorporates the section 811 and FAR requirements into SBA’s regulations. In addition, it requires a procuring agency that is offering a sole source requirement that exceeds $22 million for award through the 8(a) BD to provide a statement in its offering letter that the necessary justification and approval under the FAR has occurred. SBA will not question and does not need to obtain a copy of the justification and E:\FR\FM\25JYR3.SGM 25JYR3 48572 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations mstockstill on DSK3G9T082PROD with RULES3 approval, but merely ensure that it has been done. SBA believes that there is some confusion in the 8(a) and procurement communities regarding the requirements of section 811. There is a misconception by some that there can be no 8(a) sole source awards that exceed $22 million. That is not true. Nothing in either section 811 or the FAR prohibits 8(a) sole source awards to Program Participants owned by Indian tribes and ANCs above $22 million. All that is required is that a contracting officer justify the award and have that justification approved at the proper level. In addition, there is no statutory or regulatory requirement that would support prohibiting 8(a) sole source awards above any specific dollar amount, higher or lower than $22 million. As noted above, 8(a) procurements that exceed $7.0 million for those assigned a manufacturing NAICS code and $4.0 million for all others must generally be competed among eligible 8(a) Program Participants. This final rule also amends § 124.506(a)(2)(ii) regarding the competitive threshold amounts to make it consistent with the inflationary adjustment made to the FAR. As such, the final rule replaces the outdated $6.5 million competitive threshold for procurements assigned a manufacturing NAICS, and replaces it with the $7.0 million competitive threshold currently contained in § 19.805–1(a)(2) of the FAR. Change in Primary Industry Classification (13 CFR 124.112) The proposed rule sought to authorize SBA to change the primary industry classification contained in a Participant’s business plan where the greatest portion of the Participant’s total revenues during a three-year period have evolved from one NAICS code to another. It also provided discretion to SBA in deciding whether to change a Participant’s primary industry classification because SBA recognized that whether the greatest portion of a firm’s revenues is derived from one NAICS code, as opposed to one or more other NAICS codes, is a snapshot in time that is ever changing. The rule also proposed to require SBA to notify the Participant of its intent to change the Participant’s primary industry classification and afford the Participant the opportunity to submit information explaining why such a change would be inappropriate. Although the language of the proposed rule specifically authorized the opportunity for a Participant to dispute any intent to change its primary NAICS code, the VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 supplementary information to the proposed rule also requested comments as to whether an alternative that would permit SBA to change a Participant’s primary industry automatically, based on FPDS data, should be considered instead. SBA received a vast number of comments on this particular provision, both as formal written comments and as part of the various tribal consultations. In fact, this was the most heavily commented on provision of the proposed rule. Commenters focused on the alternative to allow SBA to change a Participant’s primary industry unilaterally and strenuously opposed that alternative. Commenters presented many reasons why they opposed any automatic change in Participants’ primary industry category. They felt that it would inappropriately impose a significant change on a firm based on inherently incomplete date in FPDS, which does not take all revenue streams into consideration. Commenters also noted that firms are not limited to pursuing work only in their primary NAICS code, and naturally pursue work in multiple NAICS codes. They believed that it would be contrary to the business development purposes of the program to discourage firms from branching out into several related industry categories. In addition, commenters noted that the work to be performed for a particular requirement may often be classified under more than one NAICS code. Commenters argued that if there are several reasonable NAICS codes that could be assigned to a requirement and a procuring agency selects one code (that happens to be a Participant’s secondary NAICS code) instead of another (which is the Participant’s primary NAICS code), the Participant should not be penalized for not performing work in its identified primary NAICS code. Commenters also felt that a unilateral change by SBA would deny a Participant due process rights and argued that there definitely should be dialogue between SBA and the Participant before any change is made to the Participant’s primary NAICS code. Finally, although several commenters supported SBA’s belief that it needed the ability to change a Participant’s primary NAICS code in appropriate circumstances, a few different commenters opposed any change to a Participant’s primary NAICS code. SBA continues to believe that it should have the ability to change a Participant’s primary NAICS code in appropriate circumstances. Because an entity-owned applicant need not have a track record of past performance to be PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 eligible to participate in the 8(a) BD program (i.e., it can meet the potential for success requirement simply by having the entity make a firm written commitment to support the operations of the applicant), the applicant has wide latitude in selecting its primary NAICS code. If the applicant selects a primary NAICS code merely to avoid the primary NAICS code of another Participant owned by the entity and has no intention of doing any work in that NAICS code, SBA believes that it should be able to change that Participant’s primary NAICS code. Without such ability, there would be no requirement that the newly admitted Participant actually perform most, or any, work in the six digit NAICS code selected as its primary business classification in its application after being certified to participate in the 8(a) BD program. A firm could circumvent the intent of SBA’s regulations by selecting a primary business classification that is different from the primary business classification of any other Participant owned by that same entity merely to get admitted to the 8(a) BD program, and then perform the majority, or even all, of its work in the identical primary NAICS code as another Participant owned by the entity. That should not be permitted to occur. However, SBA agrees with the commenters that SBA should not change a Participant’s primary NAICS code without discussion back and forth between SBA and the Participant. SBA merely wants to ensure that the Participant has made and will continue to make good faith efforts to receive contracts (either Federal or non-Federal) in the NAICS code it identified as its primary NAICS code. For example, where a Participant details contract opportunities under its primary NAICS code that it submitted offers for in the last year, but was not successful in winning, and its concrete plans to continue to seek additional opportunities in that NAICS code, SBA would not change the Participant’s primary industry classification. SBA understands the cyclical nature of business and that different factors may affect what type of contract opportunities are available. SBA does not expect a Participant to do no business when there is a downward turn in the industry identified as its primary NAICS code. Where SBA believes that a Participant’s revenues for a secondary NAICS code exceed those of its identified primary NAICS code over the Participant’s last three completed fiscal years, SBA would notify the Participant of its belief and ask the firm for input as to what its primary NAICS code is. E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations At that point, SBA would be looking for a reasonable explanation as to why the identified primary NAICS code should remain as the Participant’s primary NAICS code. The Participant should identify: all non-Federal work that it has performed in its primary NAICS code; any efforts it has made to obtain contracts in the primary NAICS code; all contracts that it was awarded that it believes could have been classified under its primary NAICS code, but which a contracting officer assigned another reasonable NAICS code; and any other information that it believes has a bearing on why its primary NAICS code should not be changed despite performing more work in another NAICS code. The proposed rule also provided that if SBA determined that a change in a Participant’s primary NAICS code was appropriate and that Participant was an entity-owned firm that could not have two Participants in the program with the same primary NAICS code, the entity (tribe, ANC, NHO, or CDC) would be required to choose which Participant should leave the 8(a) BD program if the change in NAICS codes caused it to have two Participants with the same primary NAICS code. Several commenters opposed requiring an entity to terminate the continued participation of one of its 8(a) BD Participants where it would have two Participants having the same primary NAICS code after SBA changes the primary NAICS of one of the firms. Instead, these commenters recommended that the second, newer firm be permitted to continue to participate in the 8(a) BD program, but not be permitted to receive any additional 8(a) contracts in the six-digit NAICS code that is the primary NAICS code of the other 8(a) Participant. SBA agrees that that would be a more suitable approach. The second firm is the one that should not have been able to have been admitted to the 8(a) BD program to perform most of its work in a NAICS code that was the primary NAICS code of another Participant owned by the same entity. Allowing the entity to choose to end the participation of the first firm, which may already be near the end of its program term, while allowing the second firm to continue to receive 8(a) contracts in a primary NAICS code that it never should have had would not appear to be much of a deterrent to others to continue this practice, and would not in any way penalize the second Participant that made no reasonable attempt to perform work in the NAICS code that it identified as its primary NAICS code to SBA. Thus, SBA adopts the VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 recommendation and incorporates it into this final rule. 8(a) BD Program Suspensions (13 CFR 124.305) SBA proposed to add two additional bases for allowing a Participant to elect to be suspended from 8(a) BD program participation: Where the Participant’s principal office is located in an area declared a major disaster area or where there is a lapse in Federal appropriations. The changes were intended to allow a firm to suspend its term of participation in the 8(a) BD program in order to not miss out on contract opportunities that the firm might otherwise have lost due to a disaster or a lapse in Federal funding. SBA received only comments in support of these two new bases to allow a Participant to elect suspension from 8(a) BD program participation. As such, the final rule adopts the language contained in the proposed rule. Upon the request of a certified 8(a) firm in a major declared disaster area, SBA will be able to suspend the eligibility of the firm for up to a one year period while the firm recovers from the disaster to ensure that it is able to take full advantage of the 8(a) BD program, rather than being impacted by lack of capacity or contracting opportunities due to disaster-induced disruptions. During such a suspension, a Participant would not be eligible for 8(a) BD program benefits, including set-asides, however, but would not ‘‘lose time’’ in its program term due to the extenuating circumstances wrought by a disaster. Similarly, this rule will allow a Participant to elect to suspend its participation in the 8(a) BD program where: Federal appropriations for one or more Federal departments or agencies have expired without being extended via continuing resolution or other means and no new appropriations have been enacted (i.e., during a lapse in appropriations); SBA has previously accepted an offer for a sole source 8(a) award on behalf of the Participant; and award of the 8(a) sole source contract is pending. A Participant could not elect a partial suspension of 8(a) BD program benefits. If it elects to be suspended during a lapse in Federal appropriations, the Participant would be ineligible to receive any new 8(a) BD program benefits during the suspension. Benefits Reporting Requirement (13 CFR 124.602) The proposed rule included an amendment to the time frame for the reporting of benefits for entity-owned Participants in the 8(a) BD program. Previously, SBA required an entity- PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 48573 owned Participant to report benefits as part of its annual review submission. SBA believes it is more appropriate that this information be submitted as part of a Participant’s submission of its annual financial statements pursuant to § 124.602. SBA wants to make clear that benefits reporting should not be tied to continued eligibility, as may be assumed where such reporting is part of SBA’s annual review analysis. The proposed rule changed the timing of benefits reporting from the time of a Participant’s annual review submission to the time of a Participant’s annual financial statement submission. SBA believes that the data collected by certain Participants in preparing their financial statements submissions may also help them report some of the benefits that flow to the native or other community. The regulatory change will continue to require the submission of the data on an annual basis but within 120 days after the close of the concern’s fiscal year instead of as part of the annual submission. Commenters supported this change, believing that it was important to remove any doubt that benefits reporting should not in any way be tied to continued eligibility. Although a few commenters opposed the reporting of benefits flowing back to the native or other community entirely, most commenters understood that this requirement was generated in response to a GAO audit and was intended to support the continued need for the tribal 8(a) program. The final rule adopts the proposed language. Reverse Auctions (13 CFR 125.2 and 125.5) SBA also proposed to amend §§ 125.2(a) and 125.5(a)(1) to address reverse auctions. Specifically, SBA proposed to reinforce the principle that all of SBA’s regulations, including those relating to set-asides and referrals for a Certificate of Competency, apply to reverse auctions. With a reverse auction, the Government is buying a product or service, but the businesses are bidding against each other, which tends to drive the price down (hence the name reverse auction). In a reverse auction, the bidders actually get to see all of the other bidders’ prices and can ‘‘outbid’’ them by offering a lower price. Although SBA believes that the small business rules currently apply to reverse auctions, the proposed rule intended to make it clear to contracting officials that there are no exceptions to SBA’s small business regulations for reverse auctions. SBA received no adverse comments in response to this provision. E:\FR\FM\25JYR3.SGM 25JYR3 48574 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations As such, the final rule makes no changes from the proposed rule. Reconsideration of Decisions of SBA’s OHA (13 CFR 134.227) The proposed rule added clarifying language to § 134.227(c) to recognize SBA as a party that may file a request for reconsideration in an OHA proceeding in which it has not previously participated. The final rule adopts the language as proposed. This provision is intended to alter the rule expressed in Size Appeal of Goel Services, Inc. and Grunley/Goel JVD LLC, SBA No. SIZ–5356 (2012), which held that SBA could not request reconsideration where SBA did not appear as a party in the original appeal. The SBA believes that it is axiomatic that SBA is always an interested party regarding an appeal of an SBA decision to OHA, and that SBA may request reconsideration of an OHA appeal decision even where SBA chose not to or otherwise did not file a response to the initial appeal petition. Compliance With Executive Orders 12866, 13563, 12988, and 13132, the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 601–612) Executive Order 12866 The Office of Management and Budget (OMB) has determined that this proposed rule is a significant regulatory action for purposes of Executive Order 12866. Accordingly, the next section contains SBA’s Regulatory Impact Analysis. This is not a major rule, however, under the Congressional Review Act. mstockstill on DSK3G9T082PROD with RULES3 Regulatory Impact Analysis 1. Is there a need for the regulatory action? The final rule implements section 1347(b)(3) of the Small Business Jobs Act of 2010, Public Law 111–240, 124 Stat. 2504, which authorizes the Agency ´ ´ to establish mentor-protege programs for SDVO SBCs, HUBZone SBCs, and WOSB concerns, modeled on the ´ ´ Agency’s mentor-protege program for small business concerns participating in programs under section 8(a) of the Small Business Act (15 U.S.C. 637(a)). In addition, the final rule implements section 1641 of the NDAA 2013, Public Law 112–239, which authorized SBA to ´ ´ establish a mentor-protege program for all small business concerns. SBA is also updating its rules to clarify areas where small business concerns may have been confused or where OHA’s interpretations of SBA rules do not VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 conform to SBA’s interpretation or intent. 2. What are the alternatives to this rule? As noted above in the supplementary information, this rule seeks to implement the Jobs Act of 2010 and NDAA 2013 authorities by creating one ´ ´ new mentor-protege program in which any small business could participate instead of implementing four new ´ ´ separate small business mentor-protege programs (i.e., having a separate mentor´ ´ protege program for SDVO SBCs, HUBZone SBCs, WOSB concerns, and all other small business concerns, in ´ ´ addition to the current mentor-protege program for 8(a) BD Participants). SBA decided to implement one program for all small businesses because SBA believed it would be easier for the small business and acquisition communities to use and understand. The statutory authority for this rule specifically ´ ´ mandates that the new mentor-protege programs be modeled on the existing ´ ´ mentor-protege program for small business concerns participating in the 8(a) BD program. Thus, to the extent practicable, SBA has attempted to adopt the regulations governing the 8(a) ´ ´ mentor-protege program in establishing ´ ´ the mentor-protege program for SBCs. 3. What are the potential benefits and costs of this regulatory action? The final rule enhances the ability of small business concerns to obtain larger prime contracts that would be normally out of the reach of these businesses. The ´ ´ small business mentor-protege program should allow all small businesses to tap into the expertise and capital of larger firms, which in turn should help small business concerns become more knowledgeable, stable, and competitive in the Federal procurement arena. SBA estimates that under the final rule, approximately 2,000 SBCs, will become active in the small business ´ ´ ´ ´ mentor-protege program, and protege firms may obtain Federal contracts totaling possibly $2 billion per year. SBA notes that these estimates represent an extrapolation from data on the percentage of 8(a) BD Program Participants with signed MPAs and joint venture agreements, and are based on the dollars awarded to SBCs in FY 2012 according to data retrieved from the Federal Procurement Data System— Next Generation (FPDS–NG). With SBCs able to compete for larger contracts and thus a greater number of contracts in general, Federal agencies may choose to set aside more contracts for competition among small businesses, SDVO SBCs, HUBZone SBCs, and WOSB concerns, rather than using full and open competition. The movement from PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 unrestricted to set-aside contracting might result in competition among fewer total bidders, although there will be more small businesses eligible to submit offers. The added competition for many of these procurements could result in lower prices to the Government for procurements reserved for SBCs, HUBZone SBCs, WOSB concerns, and SDVO SBCs, although SBA cannot quantify this benefit. To the extent that more than two thousand SBCs could become active in the small business ´ ´ mentor-protege program, this might entail some additional administrative costs to the Federal Government associated with additional bidders for Federal small business procurement opportunities. ´ ´ The small business mentor-protege program may have some distributional effects among large and small businesses. Although SBA cannot estimate with certainty the actual outcome of the gains and losses among small and large businesses, it can identify several probable impacts. There may be a transfer of some Federal contracts from large businesses to SBC ´ ´ proteges. However, large business mentors will be able to joint venture ´ ´ with protege firms for contracts reserved for small business and be eligible to perform contracts that they would otherwise be ineligible to perform. Large businesses may have fewer Federal prime contract opportunities as Federal agencies decide to set aside more Federal contracts for SBCs, SDVO SBCs, HUBZone SBCs, and WOSB concerns. In addition, some Federal contracts may ´ ´ be awarded to HUBZone proteges instead of large businesses since these firms may be eligible for an evaluation adjustment for contracts when they compete on a full and open basis. This transfer may be offset by a greater number of contracts being set aside for SBCs, SDVO SBCs, HUBZone SBCs, and WOSB concerns. SBA cannot estimate the potential distributional impacts of these transfers with any degree of precision. ´ ´ The small business mentor-protege program is consistent with SBA’s statutory mandate to assist small businesses, and this regulatory action promotes the Administration’s objectives. One of SBA’s goals in support of the Administration’s objectives is to help individual small businesses, including SDVO SBCs, HUBZone SBCs, and WOSB concerns, succeed through fair and equitable access to capital and credit, Federal contracts, and management and technical assistance. E:\FR\FM\25JYR3.SGM 25JYR3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations Executive Order 13563 Executive Order 13132 A description of the need for this regulatory action and the benefits and costs associated with this action, including possible distributional impacts that relate to Executive Order 13563, is included above in the Regulatory Impact Analysis. For the purpose of Executive Order 13132, SBA has determined that this final rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, SBA has determined that this final rule has no federalism implications warranting preparation of a federalism assessment. Executive Order 12866 In an effort to engage interested parties in this action, SBA met with representatives from various agencies to obtain their feedback on SBA’s ´ ´ proposed mentor-protege program. For example, SBA participated in a Government-wide meeting involving Office of Small and Disadvantaged Business Utilization (OSDBU) representatives responsible for mentor´ ´ protege programs in their respective agencies. It was generally agreed upon ´ ´ that SBA’s proposed mentor-protege program would complement the already existing Federal programs due in part to the differing incentives offered to the mentors under the various programs. SBA also presented proposed small ´ ´ business mentor-protege programs to businesses in thirteen cities in the U.S. and sought their input as part of the Jobs Act tours. In developing the proposed rule, SBA considered all input, suggestions, recommendations, and relevant information obtained from industry groups, individual businesses, and Federal agencies. Finally, SBA also conducted a series of tribal consultations pursuant to Executive Order 13175, Tribal Consultations. SBA conducted three inperson tribal consultations (in Washington, DC on February 26, 2015, in Tulsa, Oklahoma on April 21, 2015, and in Anchorage, Alaska on April 23, 2015) and two telephonic tribal consultations (one on April 7, 2015, and a Hawaii/Native Hawaiian Organization specific one on April 8, 2015). These consultations highlighted those issues specifically relevant to the tribal, ANC, and NHO communities, but also solicited comments regarding all of the provisions of the proposed rule. SBA considered the statements and recommendations received during the consultation process in finalizing this rule. mstockstill on DSK3G9T082PROD with RULES3 Executive Order 12988 For purposes of Executive Order 12988, SBA has drafted this final rule, to the extent practicable, in accordance with the standards set forth in sections 3(a) and 3(b)(2) of that Executive Order, to minimize litigation, eliminate ambiguity, and reduce burden. This rule has no preemptive or retroactive effect. VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 Paperwork Reduction Act For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35, SBA has determined that this final rule would impose new reporting requirements. These collections of information include the following: (1) Information necessary for SBA to ´ ´ evaluate the success of a mentor-protege relationship; (2) information necessary for SBA to determine whether a prospective mentor is capable of carrying out its responsibilities to assist ´ ´ the protege firm under the proposed ´ ´ mentor-protege agreement; (3) information necessary for SBA to evaluate compliance with performance of work requirements, including work performed by the joint venture; and (4) information detailing the proposed relationship between the mentor and ´ ´ protege. The rule also eliminates the collection of information currently contained in SBA’s regulations. Specifically, the final rule eliminates the requirement that each individual claiming economic disadvantage for purposes of 8(a) eligibility must submit a narrative statement in support of his or her claim of economic disadvantage. SBA eliminated this requirement because SBA believes it to be burdensome and unnecessary. Finally, the final rule also makes a minor change to the benefits reporting schedule from the time of an 8(a) Participant’s annual review submission to when the Participant submits its financial statement as required by § 124.602; specifically, within 120 days after the close of the Participant’s fiscal year. The 8(a) Participants Benefits Report form has been approved by OMB (OMB Control No. 3245–0391). This rule makes no substantive changes to the benefits information to be reported to SBA, it merely adjusts the reporting date. The title, summary of each information collection, description of respondents, and an estimate of the reporting burden are discussed below. Included in the estimate is the time for reviewing instructions, searching existing data needed, and completing PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 48575 and reviewing each collection of information. SBA solicited public comments on these collections of information at the proposed rule stage. Except as discussed below, there was very little feedback on these changes. SBA will submit the final information collections to OMB for approval. 1. Title and Description: Mentor´ ´ Protege Agreement [SBA Form 2459]. The agreement between a mentor and ´ ´ protege will include an assessment of ´ ´ the protege’s needs and goals; a description of the how the mentor ´ ´ intends to assist protege in meeting its goals; and the timeline for delivery of such assistance. Need and Purpose: The agreement must be submitted to SBA for review and approval, to help the Agency to determine whether the proposed assistance will enhance the ´ ´ development of the protege and not merely further the interest of the mentor. The information will also be beneficial to SBA’s efforts to reduce fraud, waste, and abuse in Federal contracting programs. OMB Control Number: New Collection. Description and Estimated Number of Respondents: This information will be ´ ´ collected from small business proteges pursuant to § 125.9(e). SBA estimates this number to be 2,000. Estimated Response Time: 1 hour. Total Estimated Annual Hour Burden: 2,000. Overall, commenters agreed that the collection of information identified in the proposed rule is necessary for the proper performance of SBA’s functions, and would not be overly burdensome for affected business concerns. 2. Title and Description: Mentor´ ´ Protege Financial and Other Information. [Form number not applicable] The final rule requires concerns seeking to participate in the ´ ´ small business mentor-protege program to submit certain financial information to SBA, including copies of Federal tax returns or audited financial statements, if applicable, filings required by the Securities and Exchange Commission, as well as payroll records. Need and Purpose: The information requested is necessary for SBA to determine whether prospective mentors are in good financial condition and capable of meeting their obligations ´ ´ under the mentor–protege agreement to ´ ´ provide assistance to proteges and enhance their ability to successfully compete for Federal contracts. SBA will use the information to help determine whether the mentor can meet its obligations to provide business E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 48576 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations development assistance under the ´ ´ mentor-protege agreement, and also ´ ´ whether the protege is an appropriate participant in the program. This information is to be submitted along ´ ´ with the mentor-protege agreement as part of the program approval process. SBA believes that any additional burden imposed by this requirement would be minimal since the firms maintain the information in their general course of business. OMB Control Number: New Collection. Description of and Estimated Number of Respondents: Pursuant to § 125.9(b)(2), this information will be collected from concerns seeking to benefit as mentors from SBA’s mentor´ ´ protege programs under § 125.9. SBA estimates this number to be between 1500 and 2000, since SBA has estimated ´ ´ the number of proteges to be 2,000. Estimated Response Time: 1 hour. Total Estimated Annual Hour Burden: 1,500–2,000. 3. Title and Description: Mentor´ ´ Protege Benefits Report [SBA Form ´ ´ number 2460]. Proteges participating in ´ ´ the small business mentor-protege program are required to submit to SBA ´ ´ annual reports on their mentor-protege relationships. The information to be included in these annual reports is the same type of information that is ´ ´ currently required of proteges participating in SBA’s 8(a) Business Development program, and as such will ´ ´ be modeled on the mentor-protege annual reporting requirements in Attachment B of SBA Form 1450 (OMB Control Number 3245–0205). Such information includes identification of the technical, management and/or financial assistance provided by ´ ´ mentors to proteges; and a description of how that assistance has impacted the ´ ´ development of the proteges. Once a ´ ´ mentor-protege relationship ends, the ´ ´ protege must submit a close out report ´ ´ to SBA on whether the protege believed ´ ´ the mentor-protege relationship was beneficial and describe any lasting benefits it received. Need and Purpose: This information collection is necessary for SBA to, among other things, evaluate whether ´ ´ and to what extent the proteges are benefiting or have benefitted from the relationship and in general, the effectiveness of the program in meeting its objectives. The information will also help SBA to determine whether to approve the continuation of the mentor´ ´ protege agreement, approve a second ´ ´ mentor-protege agreement with the same parties, or take other actions as necessary to protect against fraud, VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 ´ ´ waste, or abuse in SBA’s mentor-protege programs. OMB Control Number: New Collection. Description of and Estimated Number of Respondents: This information will be collected from small business ´ ´ proteges pursuant to proposed § 125.9(g). SBA estimates this number to be 2,000. Estimated Response Time: 2 hours. Total Estimated Annual Hour Burden: 4,000 4. Title and Description: Joint venture agreement. [Form number not applicable] The final rule requires participants to enter into a joint venture agreement that contains certain required provisions, pertaining to ownership, profits, bank accounts, itemization of equipment and specification of responsibilities. Commenters recommended that no specific format should be required for this agreement; therefore no specific format is mandated. However, the agreement must include the information outlined in § 125.8; § 125.18 ; § 126.616; and § 127.506. Need and Purpose: This information collection is necessary to ensure that joint venture agreements contain the provisions and information required by regulation, including ownership, distribution of profits, bank accounts, itemization of equipment, and specification of responsibilities. OMB Control Number: New Collection. Description and Estimated Number of Respondents: This information will be collected from SBC, SDVO SBC, HUBZone SBC, and WOSB joint venture partners SBA estimates this number to be between 1,500 and 2,000. Estimated Response Time: 1 hour. Total Estimated Annual Hour Burden: 1,500–2,000 5. Title and Description: Joint venture performance of work report [Form number not applicable]. The final rule imposes a requirement on SBC joint venture partners to annually submit to the applicable contracting officers and SBA performance of work reports demonstrating their how they are meeting or have met (for completed contracts), the applicable performance of work requirements for each SDVO, HUBZone, WOSB or small business setaside contract they perform as a joint venture. Commenters recommended that no specific format should be required by which the information should be transmitted to SBA. Thus, SBA will permit any format that is easiest for the joint venture partners. Need and Purpose: This requirement will greatly enhance SBA’s ability to PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 monitor compliance with the limitations on subcontracting requirements in its effort to reduce fraud, waste, and abuse. SBA believes that any additional burden imposed by this recordkeeping requirement would be minimal because firms are already required to track their compliance with these requirements. OMB Control Number: New Collection. Description and Estimated Number of Respondents: This information will be collected from SBC, SDVO SBC, HUBZone SBC, and WOSB joint venture partners under § 125.8(i), § 125.18(b), § 126.616(i), and § 127.506(j). SBA estimates this number to be between 1,500 and 2,000. Estimated Response Time: 1 hour. Total Estimated Annual Hour Burden: 1,500–2,000. Regulatory Flexibility Act 5 U.S.C., 601– 612 Under the Regulatory Flexibility Act (RFA), this final rule may have a significant impact on a substantial number of small businesses. Immediately below, SBA sets forth a final regulatory flexibility analysis (FRFA) addressing the impact of this final rule in accordance with section 604, Title 5, of the United States Code. The FRFA examines the need and objectives for this final rule; the significant issues raised by public comment and SBA’s responses thereto; kind and number of small entities that may be affected; the projected recordkeeping, reporting, and other requirements; and a description of the steps SBA has taken to minimize the significant economic impact on small entities. 1. What are the need for and objective of the rule? This final rule implements section 1347(b)(3) of the Small Business Jobs Act of 2010, Public Law 111–240, and section 1641 of the NDAA 2013, Public Law 112–239. As discussed above, the Small Business Jobs Act tasked the Agency with establishing mentor´ ´ protege programs for SDVO SBCs, HUBZone SBCs, and WOSB concerns, modeled on the Agency’s mentor´ ´ protege program for small business concerns participating in programs under section 8(a) of the Small Business Act (13 U.S.C. 637(a)), commonly known as the 8(a) Business Development program. Similarly, section 1641 of NDAA 2013 authorized ´ ´ SBA to establish a mentor-protege program for all small business concerns that is identical to the 8(a) BD mentor´ ´ protege program, except that SBA may modify the program to the extent necessary given the types of small E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations ´ ´ business concerns included as proteges. SBA chose to implement one small ´ ´ business mentor-protege program, in ´ ´ addition to the 8(a) BD mentor-protege program. 2. What are the significant issues raised by the public comments, SBA’s assessment of such issues, and any changes made in the proposed rule as a result of such comments? As noted above, SBA received 113 comments in response to the proposed rule, with most of the commenters commenting on multiple proposed provisions. A description of the comments received, SBA’s response to such comments, and the changes made to the final rule in response to the comments is identified in detail in the supplementary information section of this final rule. The most heavily commented on provision of the proposed rule was the provision authorizing SBA to change the primary NAICS code of an 8(a) BD Program Participant in appropriate circumstances. SBA believed that many of the commenters misconstrued SBA’s intent. SBA alleviated the concern that SBA would unilaterally change a firm’s primary NAICS code without input from the firm by clarifying in the final rule that there will be a dialogue between SBA and the affected Participant before any NAICS code change is made, and that a change will not occur where the firm provides a reasonable explanation as to why the identified primary NAICS code should remain as the Participant’s primary NAICS code. SBA received a significant number of comments supporting a small business ´ ´ mentor-protege program. These commenters believed that a small ´ ´ business mentor-protege program would enable firms that are not in the 8(a) BD program to receive critical business development assistance that would otherwise not be available to them. Many of these commenters expressed support for the opportunity to gain meaningful expertise that would help them to independently perform more complex and higher value contracts in the future. 3. What are SBA’s description and estimate of the number of small entities to which the rule will apply? The final rule will apply to all small business concerns participating in the Federal procurement market that seek to ´ ´ form mentor-protege relationships. SBA estimates this number to be about two thousand, based upon the number of 8(a) Participants that have established ´ ´ mentor-protege relationships in that program. 4. What are the projected reporting, recordkeeping, and other compliance VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 requirements of the rule and an estimate of the classes of small entities which will be subject to the requirements? The final rule imposes the following reporting and recordkeeping requirements: (1) Information necessary for SBA to evaluate the success of a ´ ´ mentor-protege relationship; (2) information necessary for SBA to determine whether a prospective mentor is meeting its obligations under its MPA; and (3) information necessary for SBA to evaluate compliance with performance of work requirements. SDVO SBC, HUBZone SBC, and WOSB joint venture partners would be required to submit to SBA performance of work reports demonstrating their compliance with the limitations on subcontracting requirements. SBA estimates this number to be approximately 2,000. The Paperwork Reduction Act requirements are addressed further above. 5. What steps has SBA taken to minimize the significant economic impact on small entities? Thirteen Federal agencies, including ´ ´ SBA, currently offer mentor-protege programs aimed at assisting small businesses to gain the technical and business skills necessary to successfully compete in the Federal procurement ´ ´ market. While the mentor-protege programs offered by other agencies share SBA’s goal of increasing the participation of small businesses in Government contracts, the other Federal ´ ´ mentor-protege programs are structured differently than SBA’s proposed mentor´ ´ protege programs, particularly in terms of the incentives offered to mentors. For example, some agencies offer additional points to a bidder who has a signed ´ ´ mentor-protege agreement in place, while other agencies offer the benefit of reimbursing mentors for certain costs ´ ´ associated with proteges’ business development. SBA, as the agency authorized to determine small business size status, is uniquely qualified to offer ´ ´ mentor-protege program participants the distinctive benefit of an exclusion from affiliation. This incentive makes SBA’s ´ ´ mentor-protege programs particularly attractive to potential mentors. Having a larger and more robust mentor pool increases the likelihood that small ´ ´ business proteges will indeed obtain valuable business development assistance. SBA decided to implement one new ´ ´ small business mentor-protege program ´ ´ instead of four new mentor-protege programs (one for small businesses, one for SDVO small businesses, one for WOSBs and one for HUBZone small businesses) since the other three types of small businesses (SDVO, HUBZone PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 48577 and women-owned) would be necessarily included within any mentor´ ´ protege program targeting all small business concerns. Having one additional program instead of four additional programs will be easier for small business concerns to use and understand, and cause less of a burden on them. In addition, where the benefits ´ ´ provided to a protege firm are minimal or where it appears that the relationship has been used primarily to permit a large mentor to benefit from contracts ´ ´ with its approved protege, through one or more joint ventures, that it would otherwise not be eligible for, SBA will ´ ´ terminate the mentor-protege relationship. This will allow a small ´ ´ protege firm to get out of a bad mentor´ ´ protege relationship that may have a negative impact on its economic development and seek and enter a new ´ ´ mentor-protege relationship that will prove to be more beneficial to the small ´ ´ protege firm. Throughout this final rule, SBA has attempted to minimize any costs to small business. SBA believes that the benefits to be gained through a ´ ´ productive mentor-protege relationship will far outweigh any administrative ´ ´ costs associated with the mentor-protege program. In addition, the provisions of the final rule attempt to impose safeguards that ensure that small businesses receive meaningful business development assistance, while at the same time ensuring that large businesses do not unduly benefit from small business contracts for which they would otherwise be ineligible to perform. List of Subjects 13 CFR Part 121 Administrative practice and procedure, Government procurement, Government property, Individuals with disabilities, Loan programs-business, Reporting and recordkeeping requirements, Small businesses. 13 CFR Part 124 Administrative practice and procedures, Government procurement, Hawaiian natives, Indians—business and finance, Minority businesses, Reporting and recordkeeping requirements, Tribally-owned concerns, Technical assistance. 13 CFR Part 125 Government contracts, Government procurement, Reporting and recordkeeping requirements, Small businesses, Technical assistance. E:\FR\FM\25JYR3.SGM 25JYR3 48578 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations 13 CFR Part 126 Administrative practice and procedure, Government procurement, Penalties, Reporting and recordkeeping requirements, Small businesses. 13 CFR Part 127 Government contracts, Reporting and recordkeeping requirements, Small businesses. 13 CFR Part 134 Administrative practice and procedure, Organization and functions (Government agencies). For the reasons set forth in the preamble, SBA amends 13 CFR parts 121, 124, 125, 126, 127, and 134 as follows: PART 121—SMALL BUSINESS SIZE REGULATIONS 1. The authority citation for part 121 continues to read as follows: ■ Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 662, and 694a(9). 2. Amend § 121.103 by revising paragraphs (b)(2)(ii), (b)(6), the last two sentences of paragraph (h) introductory text, and paragraph (h)(3)(ii) to read as follows: ■ § 121.103 How does SBA determine affiliation? mstockstill on DSK3G9T082PROD with RULES3 * * * * * (b) * * * (2) * * * (ii) Business concerns owned and controlled by Indian Tribes, ANCs, NHOs, CDCs, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs, are not considered to be affiliated with other concerns owned by these entities because of their common ownership or common management. In addition, affiliation will not be found based upon the performance of common administrative services so long as adequate payment is provided for those services. Affiliation may be found for other reasons. (A) Common administrative services which are subject to the exception to affiliation include, bookkeeping, payroll, recruiting, other human resource support, cleaning services, and other duties which are otherwise unrelated to contract performance or management and can be reasonably pooled or otherwise performed by a holding company, parent entity, or sister business concern without interfering with the control of the subject firm. (B) Contract administration services include both services that could be considered ‘‘common administrative VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 services’’ under the exception to affiliation and those that could not. (1) Contract administration services that encompass actual and direct day-today oversight and control of the performance of a contract/project are not shared common administrative services, and would include tasks or functions such as negotiating directly with the government agency regarding proposal terms, contract terms, scope and modifications, project scheduling, hiring and firing of employees, and overall responsibility for the day-to-day and overall project and contract completion. (2) Contract administration services that are administrative in nature may constitute administrative services that can be shared, and would fall within the exception to affiliation. These administrative services include tasks such as record retention not related to a specific contract (e.g., employee time and attendance records), maintenance of databases for awarded contracts, monitoring for regulatory compliance, template development, and assisting accounting with invoice preparation as needed. (C) Business development may include both services that could be considered ‘‘common administrative services’’ under the exception to affiliation and those that could not. Efforts at the holding company or parent level to identify possible procurement opportunities for specific subsidiary companies may properly be considered ‘‘common administrative services’’ under the exception to affiliation. However, at some point the opportunity identified by the holding company’s or parent entity’s business development efforts becomes concrete enough to assign to a subsidiary and at that point the subsidiary must be involved in the business development efforts for such opportunity. At the proposal or bid preparation stage of business development, the appropriate subsidiary company for the opportunity has been identified and a representative of that company must be involved in preparing an appropriate offer. This does not mean to imply that one or more representatives of a holding company or parent entity cannot also be involved in preparing an offer. They may be involved in assisting with preparing the generic part of an offer, but the specific subsidiary that intends to ultimately perform the contract must control the technical and contract specific portions of preparing an offer. In addition, once award is made, employee assignments and the logistics for contract performance must be controlled by the specific subsidiary company and should PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 not be performed at a holding company or parent entity level. * * * * * (6) A firm that has an SBA-approved ´ ´ mentor-protege agreement authorized under § 124.520 or § 125.9 of this chapter is not affiliated with its mentor ´ ´ firm solely because the protege firm receives assistance from the mentor under the agreement. Similarly, a ´ ´ protege firm is not affiliated with its ´ ´ mentor solely because the protege firm receives assistance from the mentor ´ ´ under a federal mentor-protege program where an exception to affiliation is specifically authorized by statute or by SBA under the procedures set forth in § 121.903. Affiliation may be found in either case for other reasons as set forth in this section. * * * * * (h) * * * For purposes of this provision and in order to facilitate tracking of the number of contract awards made to a joint venture, a joint venture: must be in writing and must do business under its own name; must be identified as a joint venture in the System for Award Management (SAM); may be in the form of a formal or informal partnership or exist as a separate limited liability company or other separate legal entity; and, if it exists as a formal separate legal entity, may not be populated with individuals intended to perform contracts awarded to the joint venture (i.e., the joint venture may have its own separate employees to perform administrative functions, but may not have its own separate employees to perform contracts awarded to the joint venture). SBA may also determine that the relationship between a prime contractor and its subcontractor is a joint venture, and that affiliation between the two exists, pursuant to paragraph (h)(5) of this section. * * * * * (3) * * * (ii) Two firms approved by SBA to be ´ ´ a mentor and protege under § 125.9 of this chapter may joint venture as a small business for any Federal government prime contract or subcontract, provided ´ ´ the protege qualifies as small for the size standard corresponding to the NAICS code assigned to the procurement, and the joint venture meets the requirements of § 125.18(b)(2) and (3), § 126.616(c) and (d), or § 127.506(c) and (d) of this chapter, as appropriate. * * * * * 3. Amend § 121.404 by revising paragraph (g)(2)(ii)(A) to read as follows: ■ E:\FR\FM\25JYR3.SGM 25JYR3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations § 121.404 When is the size status of a business concern determined? The additions and revisions read as follows: * * * * * (g) * * * (2) * * * (ii) * * * (A) When a concern, or an affiliate of the concern, acquires or is acquired by another concern; * * * * * § 121.406 [Amended] 4. Amend § 121.406(b)(5) introductory text by removing the phrase ‘‘paragraph (b)(1)(iii)’’ and adding in its place the phrase ‘‘paragraph (b)(1)(iv)’’. ■ § 121.702 [Amended] 5. Amend § 121.702(a)(1)(i) by adding the words ‘‘an Indian tribe, ANC or NHO (or a wholly owned business entity of such tribe, ANC or NHO),’’ before the words ‘‘or any combination of these’’. ■ 6. Amend § 121.1001 by redesignating paragraph (b)(10) through (12) as paragraphs (b)(11) through (13), respectively, and by adding a new paragraph (b)(10) to read as follows: ■ § 121.1001 Who may initiate a size protest or request a formal size determination? * * * * * (b) * * * (10) For purposes of the small ´ ´ business mentor-protege program authorized pursuant to § 125.9 of this chapter (based on its status as a small business for its primary or identified secondary NAICS code), the business ´ ´ concern seeking to be a protege or SBA may request a formal size determination. * * * * * PART 124—8(A) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS STATUS DETERMINATIONS 7. 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) and 644; Pub. L. 99–661; Pub. L. 100–656, sec. 1207; Pub. L. 101–37; Pub. L. 101–574, section 8021; Pub. L. 108–87; and 42 U.S.C. 9815. 8. Amend § 124.103 as follows: a. Add a sentence at the end of paragraph (c)(1); ■ b. Revise paragraph (c)(2)(ii); ■ c. Redesignate paragraph (c)(2)(iii) as (c)(2)(iv); ■ d. Add a new paragraph (c)(2)(iii); ■ e. Revise newly redesignated paragraph (c)(2)(iv) introductory text; and ■ f. Add paragraphs (c)(3) through (6). mstockstill on DSK3G9T082PROD with RULES3 ■ ■ VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 § 124.103 Who is socially disadvantaged? * * * * * (c) * * * (1) * * * Such individual should present corroborating evidence to support his or her claim(s) of social disadvantage where readily available. (2) * * * (ii) The individual’s social disadvantage must be rooted in treatment which he or she has experienced in American society, not in other countries; (iii) The individual’s social disadvantage must be chronic and substantial, not fleeting or insignificant; and (iv) The individual’s social disadvantage must have negatively impacted on his or her entry into or advancement in the business world. SBA will consider any relevant evidence in assessing this element, including experiences relating to education, employment and business history (including experiences relating to both the applicant firm and any other previous firm owned and/or controlled by the individual), where applicable. * * * * * (3) An individual claiming social disadvantage must present facts and evidence that by themselves establish that the individual has suffered social disadvantage that has negatively impacted his or her entry into or advancement in the business world. (i) Each instance of alleged discriminatory conduct must be accompanied by a negative impact on the individual’s entry into or advancement in the business world in order for it to constitute an instance of social disadvantage. (ii) SBA may disregard a claim of social disadvantage where a legitimate alternative ground for an adverse employment action or other perceived adverse action exists and the individual has not presented evidence that would render his/her claim any more likely than the alternative ground. Example 1 to paragraph (c)(3)(ii). A woman who is not a member of a designated group attempts to establish her individual social disadvantage based on gender. She certifies that while working for company X, she received less compensation than her male counterpart. Without additional facts, that claim is insufficient to establish an incident of gender bias that could lead to a finding of social disadvantage. Without additional facts, it is no more likely that the individual claiming disadvantage was paid less than her male counterpart because he had superior qualifications or because he had greater responsibilities in his employment PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 48579 position. She must identify her qualifications (education, experience, years of employment, supervisory functions) as being equal or superior to that of her male counterpart in order for SBA to consider that particular incident may be the result of discriminatory conduct. Example 2 to paragraph (c)(3)(ii). A woman who is not a member of a designated group attempts to establish her individual social disadvantage based on gender. She certifies that while working for company Y, she was not permitted to attend a professional development conference, even though male employees were allowed to attend similar conferences in the past. Without additional facts, that claim is insufficient to establish an incident of gender bias that could lead to a finding of social disadvantage. It is no more likely that she was not permitted to attend the conference based on gender bias than based on nondiscriminatory reasons. She must identify that she was in the same professional position and level as the male employees who were permitted to attend similar conferences in the past, and she must identify that funding for training or professional development was available at the time she requested to attend the conference. (iii) SBA may disregard a claim of social disadvantage where an individual presents evidence of discriminatory conduct, but fails to connect the discriminatory conduct to consequences that negatively impact his or her entry into or advancement in the business world. Example to paragraph (c)(3)(iii). A woman who is not a member of a designated group attempts to establish her individual social disadvantage based on gender. She provides instances where one or more male business clients utter derogatory statements about her because she is a woman. After each instance, however, she acknowledges that the clients gave her contracts or otherwise continued to do business with her. Despite suffering discriminatory conduct, this individual has not established social disadvantage because the discriminatory conduct did not have an adverse effect on her business. (4) SBA may request an applicant to provide additional facts to support his or her claim of social disadvantage to substantiate that a negative outcome was based on discriminatory conduct instead of one or more legitimate nondiscriminatory reasons. (5) SBA will discount or disbelieve statements made by an individual seeking to establish his or her individual social disadvantage where such statements are inconsistent with other evidence contained in the record. (6) In determining whether an individual claiming social disadvantage meets the requirements set forth in this paragraph (c), SBA will determine whether: E:\FR\FM\25JYR3.SGM 25JYR3 48580 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations § 124.104 Who is economically disadvantaged? * * * * * (b) Submission of financial information. (1) Each individual claiming economic disadvantage must submit personal financial information. * * * * * ■ 10. Amend § 124.105 by revising paragraph (h)(2) introductory text to read as follows: § 124.105 What does it mean to be unconditionally owned by one or more disadvantaged individuals? * * * * * (h) * * * (2) A non-Participant concern in the same or similar line of business or a principal of such concern may not 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, except that a former Participant in the same or similar line of business or a principal of such a former Participant (except those that have been terminated from 8(a) BD program participation pursuant to §§ 124.303 and 124.304) may have an equity ownership interest of up to 20 percent in a current Participant in the developmental stage of the program or up to 30 percent in a transitional stage Participant. * * * * * ■ 11. Amend § 124.106 introductory text by adding a new fifth sentence to read as follows: mstockstill on DSK3G9T082PROD with RULES3 § 124.106 When do disadvantaged individuals control an applicant or Participant? * * * Management experience need not be related to the same or similar industry as the primary industry classification of the applicant or Participant. * * * * * * * * ■ 12. Amend § 124.108 by revising paragraph (a)(1) and by removing ‘‘10 VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 percent’’ in paragraph (a)(4) and adding in its place ‘‘20 percent’’. The revision reads as follows: (a) * * * (1) If during the processing of an application, SBA receives adverse information from the applicant or a credible source regarding possible criminal conduct by the applicant or any of its principals, SBA may suspend further processing of the application and refer it to SBA’s Office of Inspector General (OIG) for review. If the SBA suspends the application, but does not hear back from OIG within 45 days, SBA may proceed with application processing. The AA/BD will consider any findings of the OIG when evaluating the application. * * * * * ■ 13. Amend § 124.109 by adding paragraphs (c)(2)(iv) and (c)(4)(iii) to read as follows: SBA looks beyond these corporate formalities and examines the totality of the information submitted by the applicant to determine which individual(s) manage the actual day-today operations of the applicant concern. (B) Officers, board members, and/or tribal leaders may control a holding company overseeing several triballyowned or ANC-owned companies, provided they do not actually control the day-to-day management of more than two current 8(a) BD Program Participant firms. * * * * * ■ 14. Amend § 124.110 as follows: ■ a. Add a sentence to the end of paragraph (b) introductory text; ■ b. Add paragraphs (b)(1) and (2); ■ c. Revise paragraph (c) introductory text and paragraph (c)(1); ■ d. Revise paragraph (d); ■ e. Redesignate paragraph (g) as paragraph (h); and ■ f. Add a new paragraph (g). The additions and revisions read as follows: § 124.109 Do Indian tribes and Alaska Native Corporations have any special rules for applying to the 8(a) BD program? § 124.110 Do Native Hawaiian Organizations have any special rules for applying to the 8(a) BD program? * (i) Each specific claim establishes an incident of bias or discriminatory conduct; (ii) Each incident of bias or discriminatory conduct negatively impacted the individual’s entry into or advancement in the business world; and (iii) In the totality, the incidents of bias or discriminatory conduct that negatively impacted the individual’s entry into or advancement in the business world establish chronic and substantial social disadvantage. * * * * * ■ 9. Amend § 124.104 by revising paragraph (b)(1) to read as follows: * § 124.108 What other eligibility requirements apply for individuals or businesses? * * * * (c) * * * (2) * * * (iv) In determining whether a triballyowned concern has obtained, or is likely to obtain, a substantial unfair competitive advantage within an industry category, SBA will examine the firm’s participation in the relevant six digit NAICS code nationally as compared to the overall small business share of that industry. (A) SBA will consider the firm’s percentage share of the national market and other relevant factors to determine whether the firm is dominant in a specific six-digit NAICS code with a particular size standard. (B) SBA does not contemplate a finding of affiliation where a triballyowned concern appears to have obtained an unfair competitive advantage in a local market, but remains competitive, but not dominant, on a national basis. * * * * * (4) * * * (iii) The individuals responsible for the management and daily operations of a tribally-owned concern cannot manage more than two Program Participants at the same time. (A) An individual’s officer position, membership on the board of directors or position as a tribal leader does not necessarily imply that the individual is responsible for the management and daily operations of a given concern. PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 * * * * (b) * * * In determining whether an NHO-owned concern has obtained, or is likely to obtain, a substantial unfair competitive advantage within an industry category, SBA will examine the firm’s participation in the relevant six digit NAICS code nationally. (1) SBA will consider the firm’s percentage share of the national market and other relevant factors to determine whether the firm is dominant in a specific six-digit NAICS code with a particular size standard. (2) SBA does not contemplate a finding of affiliation where an NHOowned concern appears to have obtained an unfair competitive advantage in a local market, but remains competitive, but not dominant, on a national basis. (c) An NHO must establish that it is economically disadvantaged and that its business activities will principally benefit Native Hawaiians. Once an NHO establishes that it is economically disadvantaged in connection with the application of one NHO-owned firm, it need not reestablish such status in order to have other businesses that it owns certified for 8(a) BD program participation, unless specifically requested to do so by the AA/BD. If a different NHO identifies that it will serve and benefit the same Native Hawaiian community as an NHO that has already established its economic disadvantage status, that NHO need not E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations establish its economic disadvantage status in connection with an 8(a) BD application of a business concern that it owns, unless specifically requested to do so by the AA/BD. (1) In order to establish that an NHO is economically disadvantaged, it must demonstrate that it will principally benefit economically disadvantaged Native Hawaiians. To do this, the NHO must provide data showing the economic condition of the Native Hawaiian community that it intends to serve, including: (i) The number of Native Hawaiians in the community that the NHO intends to serve; (ii) The present Native Hawaiian unemployment rate of those individuals; (iii) The per capita income of those Native Hawaiians, excluding judgment awards; (iv) The percentage of those Native Hawaiians below the poverty level; and (v) The access to capital of those Native Hawaiians. * * * * * (d) An NHO must control the applicant or Participant firm. To establish that it is controlled by an NHO, an applicant or Participant must demonstrate that the NHO controls its board of directors, managing members, managers or managing partners. (1) The NHO need not possess the technical expertise necessary to run the NHO-owned applicant or Participant firm. The NHO must have managerial experience of the extent and complexity needed to run the concern. Management experience need not be related to the same or similar industry as the primary industry classification of the applicant or Participant. (2) An individual responsible for the day-to-day management of an NHOowned firm need not establish personal social and economic disadvantage. * * * * * (g) An NHO-owned firm’s eligibility for 8(a) BD participation is separate and distinct from the individual eligibility of the NHO’s members, directors, or managers. (1) The eligibility of an NHO-owned concern is not affected by the former 8(a) BD participation of one or more of the NHO’s individual members. (2) In determining whether an NHO is economically disadvantaged, SBA may consider the individual economic status of an NHO member or director even if the member or director previously used his or her disadvantaged status to qualify an individually owned 8(a) applicant or Participant. * * * * * VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 15. Amend § 124.111 by adding a sentence to the end of paragraph (c) and by adding paragraphs (c)(1) and (2) to read as follows: ■ § 124.111 Do Community Development Corporations (CDCs) have any special rules for applying to the 8(a) BD program? * * * * * (c) * * * In determining whether a CDC-owned concern has obtained, or is likely to obtain, a substantial unfair competitive advantage within an industry category, SBA will examine the firm’s participation in the relevant six digit NAICS code nationally. (1) SBA will consider the firm’s percentage share of the national market and other relevant factors to determine whether the firm is dominant in a specific six-digit NAICS code with a particular size standard. (2) SBA does not contemplate a finding of affiliation where a CDCowned concern appears to have obtained an unfair competitive advantage in a local market, but remains competitive, but not dominant, on a national basis. * * * * * ■ 16. Amend § 124.112 by designating the text of paragraph (e) as paragraph (e)(1), and adding paragraph (e)(2) to read as follows: § 124.112 What criteria must a business meet to remain eligible to participate in the 8(a) BD program? * * * * * (e) * * * (2) SBA may change the primary industry classification contained in a Participant’s business plan where the greatest portion of the Participant’s total revenues during the Participant’s last three completed fiscal years has evolved from one NAICS code to another. As part of its annual review, SBA will consider whether the primary NAICS code contained in a Participant’s business plan continues to be appropriate. (i) Where SBA believes that the primary industry classification contained in a Participant’s business plan does not match the Participant’s actual revenues over the Participant’s most recently completed three fiscal years, SBA may notify the Participant of its intent to change the Participant’s primary industry classification and afford the Participant the opportunity to respond. (ii) A Participant may challenge SBA’s intent to change its primary industry classification by demonstrating why it believes the primary industry classification contained in its business plan continues to be appropriate, PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 48581 despite an increase in revenues in a secondary NAICS code beyond those received in its designated primary industry classification. The Participant should identify: All non-federal work that it has performed in its primary NAICS code; any efforts it has made and any plans it has to make to receive contracts to obtain contracts in its primary NAICS code; all contracts that it was awarded that it believes could have been classified under its primary NAICS code, but which a contracting officer assigned another reasonable NAICS code; and any other information that it believes has a bearing on why its primary NAICS code should not be changed despite performing more work in another NAICS code. (iii) As long as the Participant provides a reasonable explanation as to why the identified primary NAICS code continues to be its primary NAICS code, SBA will not change the Participant’s primary NAICS code. (iv) Where an SBA change in the primary NAICS code of an entity-owned firm results in the entity having two Participants with the same primary NAICS code, the second, newer Participant will not be able to receive any 8(a) contracts in the six-digit NAICS code that is the primary NAICS code of the first, older Participant for a period of time equal to two years after the first Participant leaves the 8(a) BD program. * * * * * ■ 17. Revise § 124.202 to read as follows: § 124.202 filed? How must an application be An application for 8(a) BD program admission must be filed in an electronic format. An electronic application can be found by going to the 8(a) BD page of SBA’s Web site (https://www.sba.gov). The SBA district office will provide an applicant with information regarding the 8(a) BD program. ■ 18. Revise § 124.203 to read as follows: § 124.203 What must a concern submit to apply to the 8(a) BD program? Each 8(a) BD applicant concern must submit those forms and attachments required by SBA when applying for admission to the 8(a) BD program. These forms and attachments may include, but not be limited to, financial statements, copies of signed Federal personal and business tax returns, individual and business bank statements, personal history statements, and any additional documents SBA deems necessary to determine eligibility. In all cases, the applicant must provide a signature from each individual claiming social and E:\FR\FM\25JYR3.SGM 25JYR3 48582 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations economic disadvantage status. The electronic signing protocol will ensure the Agency is able to specifically identify the individual making the representation. The individual(s) upon whom eligibility is based take responsibility for the accuracy of all information submitted on behalf of the applicant. ■ 19. Amend § 124.305 by removing the period at the end of paragraph (h)(1)(ii) and adding in its place ‘‘; or’’, adding paragraphs (h)(1)(iii) and (iv), redesignating paragraph (h)(5) as (h)(6) and adding a new paragraph (h)(5). The additions read as follows: § 124.305 What is suspension and how is a Participant suspended from the 8(a) BD program? * * * * * (h)(1) * * * (iii) A Participant has a principal place of business located in a federally declared disaster area and elects to suspend its participation in the 8(a) BD program for a period of up to one year from the date of the disaster declaration to allow the firm to recover from the disaster and take full advantage of the program. A Participant that elects to be suspended may request that the suspension be lifted prior to the end date of the original request; or (iv) Federal appropriations for one or more federal departments or agencies have lapsed, SBA has previously accepted an offer for a sole source 8(a) award on behalf of the Participant, award is pending, and the Participant elects to suspend its participation in the 8(a) BD program during the lapse in federal appropriations. * * * * * (5) Where a Participant is suspended pursuant to (h)(1)(iv) of this section, the Participant must notify SBA when the lapse in appropriation ends so that SBA can immediately lift the suspension. When the suspension is lifted, the length of the suspension will be added to the concern’s program term. * * * * * ■ 20. Amend § 124.501 by revising the first sentence of paragraph (a) and by adding two sentences to the end of paragraph (b) to read as follows: mstockstill on DSK3G9T082PROD with RULES3 § 124.501 What general provisions apply to the award of 8(a) contracts? (a) Pursuant to section 8(a) of the Small Business Act, SBA is authorized to enter into all types of contracts with other Federal agencies regardless of the place of performance, including contracts to furnish equipment, supplies, services, leased real property, or materials to them or to perform construction work for them, and to VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 contract the performance of these contracts to qualified Participants. * * * (b) * * * In addition, for multiple award contracts not set aside for the 8(a) BD program, a procuring agency may set aside specific orders to be competed only among eligible 8(a) Participants, regardless of the place of performance. Such an order may be awarded as an 8(a) award where the order was offered to and accepted by SBA as an 8(a) award and the order specifies that the performance of work and/or nonmanufacturer rule requirements apply as appropriate. * * * * * ■ 21. Amend § 124.502 by revising paragraph (c)(9), by removing ‘‘and’’ at the end of paragraph (c)(16), by redesignating paragraph (c)(17) as (c)(18), and by adding a new paragraph (c)(17). The revision and addition read as follows: § 124.502 How does an agency offer a procurement to SBA for award through the 8(a) BD program? * * * * * (c) * * * (9) The acquisition history, if any, of the requirement, including specifically whether the requirement is a follow-on requirement, and whether any portion of the contract was previously performed by a small business outside of the 8(a) BD program; * * * * * (17) A statement that the necessary justification and approval under the Federal Acquisition Regulation has occurred where a requirement whose estimated contract value exceeds $22,000,000 is offered to SBA as a sole source requirement on behalf of a specific Participant; and * * * * * ■ 22. Amend § 124.503 by adding two sentences to the end of paragraph (a)(1), by adding one sentence to the end of paragraph (a)(2), and by adding paragraph (g)(4) to read as follows: § 124.503 How does SBA accept a procurement for award through the 8(a) BD program? (a) * * * (1) * * * As part of its acceptance of a sole source requirement, SBA will determine the eligibility of the Participant identified in the offering letter, using the same analysis set forth in § 124.507(b)(2). Where a procuring agency offers a sole source 8(a) procurement on behalf of a joint venture, SBA will conduct an eligibility review of the lead 8(a) party to the joint venture as part of its acceptance, and PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 will approve the joint venture prior to award pursuant to § 124.513(e). (2) * * * For a competitive 8(a) procurement, SBA will determine the eligibility of the apparent successful offeror pursuant to § 124.507(b). * * * * * (g) * * * (4) A procuring agency may offer, and SBA may accept, an order issued under a BOA to be awarded through the 8(a) BD program where the BOA itself was not accepted for the 8(a) BD program, but rather was awarded on an unrestricted basis. * * * * * § 124.504 [Amended] 23. Amend § 124.504 by removing the reference to ‘‘§ 124.503(h)’’ in paragraph (d)(4) and adding in its place ‘‘§ 124.50(3)(h)(2)’’. ■ 24. Amend § 124.506 by removing ‘‘$6,500,000’’ in paragraph (a)(2)(ii) and adding in its place ‘‘$7,000,000’’, and adding paragraph (b)(5). The addition reads as follows: ■ § 124.506 At what dollar threshold must an 8(a) procurement be competed among eligible Participants? * * * * * (b) * * * (5) An agency may not award an 8(a) sole source contract for an amount exceeding $22,000,000 unless the contracting officer justifies the use of a sole source contract in writing and has obtained the necessary approval under the Federal Acquisition Regulation. * * * * * ■ 25. Amend § 124.507 by redesignating paragraphs (b)(3) through (5) as paragraphs (b)(4) through (6), respectively, and by adding new paragraph (b)(3) to read as follows: § 124.507 What procedures apply to competitive 8(a) procurements? * * * * * (b) * * * (3) Where the apparent successful offeror is a joint venture and SBA has not approved the joint venture prior to receiving notification of the apparent successful offeror, review of the joint venture will be part of the eligibility determination conducted under this paragraph (b). If SBA cannot approve the joint venture within 5 days of receiving a procuring activity’s request for an eligibility determination, and the procuring activity does not grant additional time for review, SBA will be unable to verify the eligibility of the joint venture for award. * * * * * ■ 26. Amend § 124.513 as follows: E:\FR\FM\25JYR3.SGM 25JYR3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations a. Add paragraph (b)(3); b. Revise paragraphs (c)(2), (c)(6) and (7), (d), and (e)(1); ■ c. Add paragraphs (e)(2)(iii) and (e)(3); ■ d. Redesignate paragraphs (f), (g), (h), and (i) as paragraphs (g), (h), (i) and (k), respectively; ■ e. Add new paragraph (f); ■ f. Revise newly redesignated paragraphs (g) and (i); and ■ g. Add paragraph (j) and (l). The additions and revisions read as follows: ■ ■ § 124.513 Under what circumstances can a joint venture be awarded an 8(a) contract? mstockstill on DSK3G9T082PROD with RULES3 * * * * * (b) * * * (3) SBA approval of a joint venture agreement pursuant to paragraph (e) of this section does not equate to a formal size determination. As such, despite SBA’s approval of a joint venture, the size status of a joint venture that is the apparent successful offeror for a competitive 8(a) contract may be protested pursuant to § 121.1001(a)(2) of this chapter. See § 124.517(b). (c) * * * (2) Designating an 8(a) Participant as the managing venturer of the joint venture and an employee of an 8(a) Participant as the project manager responsible for performance of the contract. The individual identified as the project manager of the joint venture need not be an employee of the 8(a) Participant at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the 8(a) Participant if the joint venture is the successful offeror. The individual identified as the project manager cannot be employed by the mentor and become an employee of the 8(a) Participant for purposes of performance under the joint venture; * * * * * (6) Itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available; VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 (7) Specifying the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to the joint venture will ensure that the joint venture and the 8(a) partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, not including the ways that the parties to the joint venture will ensure that the joint venture and the 8(a) partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, or in the alternative, specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available; * * * * * (d) Performance of work. (1) For any 8(a) contract, including those between a ´ ´ protege and a mentor authorized by § 124.520, the joint venture must perform the applicable percentage of work required by § 124.510 of this chapter. (2) The 8(a) partner(s) to the joint venture must perform at least 40% of the work performed by the joint venture. (i) The work performed by the 8(a) partner(s) to a joint venture must be more than administrative or ministerial functions so that the 8(a) partners gain substantive experience. (ii) The amount of work done by the partners will be aggregated and the work done by the 8(a) partner(s) must be at least 40% of the total done by all partners. In determining the amount of work done by a non-8(a) partner, all work done by the non-8(a) partner and any of its affiliates at any subcontracting tier will be counted. (e) * * * (1) SBA must approve a joint venture agreement prior to the award of an 8(a) contract on behalf of the joint venture. A Participant may submit a joint venture agreement to SBA for approval at any time, whether or not in connection with a specific 8(a) procurement. (2) * * * (iii) If a second or third contract to be awarded a joint venture is not an 8(a) contract, the Participant would not have PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 48583 to submit an addendum setting forth contract performance for the non-8(a) contract(s) to SBA for approval. (3) Where a joint venture has been established and approved by SBA without a corresponding specific 8(a) contract award (including where a joint venture is established in connection with a blanket purchase agreement (BPA), basic agreement (BA), or basic ordering agreement (BOA)), the Participant must submit an addendum to the joint venture agreement, setting forth the performance requirements, to SBA for approval for each of the three 8(a) contracts authorized to be awarded to the joint venture. In the case of a BPA, BA or BOA, each order issued under the agreement would count as a separate contract award, and SBA would need to approve the addendum for each order prior to award of the order to the joint venture. (f) Past performance and experience. When evaluating the past performance and experience of an entity submitting an offer for an 8(a) contract as a joint venture approved by SBA pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously. (g) Contract execution. Where SBA has approved a joint venture, the procuring activity will execute an 8(a) contract in the name of the joint venture entity or the 8(a) Participant, but in either case will identify the award as one to an 8(a) joint venture or an 8(a) ´ ´ mentor-protege joint venture, as appropriate. * * * * * (i) Inspection of records. The joint venture partners must allow SBA’s authorized representatives, including representatives authorized by the SBA Inspector General, during normal business hours, access to its files to inspect and copy all records and documents relating to the joint venture. (j) Certification of compliance. Prior to the performance of any 8(a) contract by a joint venture, the 8(a) BD Participant to the joint venture must submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the joint venture, stating as follows: (i) The parties have entered into a joint venture agreement that fully complies with paragraph (c) of this section; (ii) The parties will perform the contract in compliance with the joint venture agreement and with the performance of work requirements set forth in paragraph (d) of this section. E:\FR\FM\25JYR3.SGM 25JYR3 48584 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations (iii) The parties have obtained SBA’s approval of the joint venture agreement and any addendum to that agreement and that there have been no modifications to the agreement that SBA has not approved. * * * * * (l) Basis for suspension or debarment. The Government may consider the following as a ground for suspension or debarment as a willful violation of a regulatory provision or requirement applicable to a public agreement or transaction: (1) Failure to enter a joint venture agreement that complies with paragraph (c) of this section; (2) Failure to perform a contract in accordance with the joint venture agreement or performance of work requirements in paragraph (d) of this section; or (3) Failure to submit the certification required by paragraph (e) of this section or comply with paragraph (i) of this section. ■ 27. Amend § 124.515 by revising paragraph (a) introductory text and by removing the words ‘‘An 8(a) contract’’ in paragraph (a)(1) introductory text and adding in their place the words ‘‘An 8(a) contract or order’’. The revision reads as follows: mstockstill on DSK3G9T082PROD with RULES3 § 124.515 Can a Participant change its ownership or control and continue to perform an 8(a) contract, and can it transfer performance to another firm? (a) An 8(a) contract (or 8(a) order where the underlying contract is not an 8(a) contract) must be performed by the Participant that initially received it unless a waiver is granted under paragraph (b) of this section. * * * * * ■ 28. Amend § 124.520 as follows: ■ a. Revise the second sentence of paragraph (a); ■ b. Revise paragraph (b)(1)(i); ■ c. Remove the words ‘‘or non-profit entity’’ from the first sentence of paragraph (b) introductory text and from the second sentence of paragraph (b)(2); ■ d. Revise the last sentence of paragraph (b)(2); ■ e. Revise paragraph (b)(3); ■ f. Revise paragraphs (c)(1) and (4); ■ g. Remove paragraph (c)(5); ■ h. Revise paragraph (d)(1)(iii); ■ i. Add paragraph (d)(5); ■ j. Redesignate paragraphs (e)(2) through (5) as paragraphs (e)(3) through (6), respectively; ■ k. Add a new paragraph (e)(2); ■ l. Revise newly designated paragraph (e)(5); ■ m. Add paragraphs (e)(7) and (8); and ■ n. Add paragraph (i). VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 ´ ´ (iii) Once a protege firm graduates or otherwise leaves the 8(a) BD program or grows to be other than small for its § 124.520 What are the rules governing primary NAICS code, it will not be ´ ´ SBA’s 8(a) Mentor-Protege program? eligible for any further 8(a) contracting (a) * * * This assistance may include benefits from its 8(a) BD mentor-protege ´ ´ technical and/or management relationship. Leaving the 8(a) BD assistance; financial assistance in the program, growing to be other than small form of equity investments and/or loans; for its primary NAICS code, or subcontracts (either from the mentor to ´ ´ terminating the mentor-protege ´ ´ ´ ´ the protege or from the protege to the ´ ´ relationship while a protege is still in mentor); trade education; and/or the program, does not, however, assistance in performing prime contracts generally affect contracts previously with the Government through joint awarded to a joint venture between the venture arrangements. * * * ´ ´ ´ ´ protege and its mentor. A protege firm (b) * * * that graduates or otherwise leaves the (1) * * * 8(a) BD program but continues to (i) Is capable of carrying out its qualify as a small business may transfer ´ ´ responsibilities to assist the protege firm its 8(a) mentor-protege relationship to a ´ ´ ´ ´ under the proposed mentor-protege ´ ´ small business mentor-protege agreement; relationship. In order to effectuate such a transfer, a firm must notify SBA of its * * * * * ´ ´ intent to transfer its 8(a) mentor-protege (2) * * * Under no circumstances will a mentor be permitted to have more relationship to a small business mentor´ ´ protege relationship. The transfer will ´ ´ than three proteges at one time in the occur without any application or ´ ´ aggregate under the mentor-protege approval process. programs authorized by §§ 124.520 and ´ ´ (A) A joint venture between a protege 125.9 of this chapter. firm that continues to qualify as small (3) In order to demonstrate that it is and its mentor may certify its status as capable of carrying out its ´ ´ responsibilities to assist the protege firm small for any Government contract or ´ ´ subcontract so long as the protege (and/ ´ ´ under the proposed mentor-protege agreement, a firm seeking to be a mentor or the joint venture) has not been determined to be other than small for may submit to the SBA copies of the the size standard corresponding to the federal tax returns it submitted to the procurement at issue (or any higher size IRS, or audited financial statements, standard). including any notes, or in the case of ´ ´ (B) Where the protege firm no longer publicly traded concerns, the filings qualifies as small, the receipts and/or required by the Securities and Exchange ´ ´ employees of the protege and mentor Commission (SEC), for the past three would generally be aggregated in years. determining the size of any joint venture * * * * * ´ ´ between the mentor and protege after (c) * * * that date. (1) In order to initially qualify as a (C) Except for contracts with ´ ´ protege firm, a concern must: durations of more than five years (i) Qualify as small for the size (including options), a contract awarded standard corresponding to its primary ´ ´ to a joint venture between a protege and NAICS code or identify that it is seeking a mentor as a small business continues business development assistance with to qualify as an award to small business respect to a secondary NAICS code and for the life of that contract and the joint qualify as small for the size standard venture remains obligated to continue corresponding to that NAICS code; and performance on that contract. (ii) Demonstrate how the business (D) For contracts with durations of development assistance to be received more than five years (including ´ ´ through its proposed mentor-protege options), where size re-certification is relationship would advance the goals required no more than 120 days prior to and objectives set forth in its business the end of the fifth year of the contract plan. and no more than 120 days prior to exercising any option thereafter, once * * * * * ´ ´ the protege firm no longer qualifies as (4) The AA/BD may authorize a ´ ´ small for its primary NAICS code, the Participant to be both a protege and a joint venture must aggregate the mentor at the same time where the receipts/employees of the partners to Participant can demonstrate that the second relationship will not compete or the joint venture in determining otherwise conflict with the first mentor- whether it continues to qualify as and ´ ´ can re-certify itself to be a small protege relationship. business under the size standard (d) * * * corresponding to the NAICS code (1) * * * The revisions and additions read as follows: PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations assigned to that contract. The rules set forth in § 121.404(g)(3) of this chapter apply in such circumstances. * * * * * (5) Where appropriate, procuring activities may provide incentives in the contract evaluation process to a firm that will provide significant subcontracting work to its SBA´ ´ approved protege firm. (e) * * * (2) A firm seeking SBA’s approval to ´ ´ be a protege must identify any other ´ ´ mentor-protege relationship it has through another federal agency or SBA and provide a copy of each such ´ ´ mentor-protege agreement to SBA. ´ ´ (i) The 8(a) BD mentor-protege agreement must identify how the assistance to be provided by the proposed mentor is different from ´ ´ assistance provided to the protege ´ ´ through another mentor-protege relationship, either with the same or a different mentor. (ii) A firm seeking SBA’s approval to ´ ´ be a protege may terminate a mentor´ ´ protege relationship it has through another agency and use any not yet provided assistance identified in the ´ ´ other mentor-protege agreement as part of the assistance that will be provided ´ ´ through the 8(a) BD mentor-protege relationship. Any assistance that has already been provided through another ´ ´ mentor-protege relationship cannot be identified as assistance that will be provided through the 8(a) BD mentor´ ´ protege relationship. * * * * * (5) SBA will review the mentor´ ´ protege relationship annually during the ´ ´ protege firm’s annual review to determine whether to approve its continuation for another year. Unless rescinded in writing at that time, the ´ ´ mentor-protege relationship will automatically renew without additional written notice of continuation or ´ ´ extension to the protege firm. The term ´ ´ of a mentor-protege agreement may not exceed three years, but may be extended ´ ´ for a second three years. A protege may ´ ´ have two three-year mentor-protege agreements with different mentors, and each may be extended an additional ´ ´ three years provided the protege has received the agreed-upon business development assistance and will continue to receive additional assistance ´ ´ through the extended mentor-protege agreement. * * * * * (7) If control of the mentor changes (through a stock sale or otherwise), the ´ ´ previously approved mentor-protege relationship may continue provided that, after the change in control, the VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 mentor expresses in writing to SBA that ´ ´ it acknowledges the mentor-protege agreement and certifies that it will continue to abide by its terms. (8) SBA may terminate the mentor´ ´ protege agreement at any time if it ´ ´ determines that the protege is not adequately benefiting from the relationship or that the parties are not complying with any term or condition ´ ´ of the mentor protege agreement. In the event SBA terminates the relationship, ´ ´ the mentor-protege joint venture is obligated to complete any previously awarded contracts unless the procuring agency issues a stop work order. * * * * * ´ ´ (i) Results of mentor-protege relationship. (1) In order to assess the ´ ´ results of a mentor-protege relationship ´ ´ upon its completion, the protege must report to SBA whether it believed the ´ ´ mentor-protege relationship was beneficial and describe any lasting ´ ´ benefits to the protege. ´ ´ (2) Where a protege does not report ´ ´ the results of a mentor-protege relationship upon its completion, SBA will not approve a second mentor´ ´ protege relationship either under this section or under § 125.9 of this chapter. § 124.604 [Amended] 29. Amend § 124.604 by removing the phrase ‘‘annual review submission’’ and adding in its place the phrase ‘‘annual financial statement submission (see § 124.602)’’ in the first sentence. ■ § 124.1002 30. Amend § 124.1002 by removing paragraph (b)(4). PART 125—GOVERNMENT CONTRACTING PROGRAMS 31. The authority citation for part 125 is revised to read as follows: ■ Authority: 15 U.S.C. 632(p), (q); 634(b)(6); 637; 644; 657f; 657r. 32. Amend § 125.2 by revising the third sentence of paragraph (a) introductory text to read as follows: ■ § 125.2 What are SBA’s and the procuring agency’s responsibilities when providing contracting assistance to small businesses? (a) General. * * * Small business concerns must receive any award (including orders, and orders placed against Multiple Award Contracts) or contract, part of any such award or contract, any contract for the sale of Government property, or any contract resulting from a reverse auction, regardless of the place of performance, which SBA and the procuring or Frm 00029 Fmt 4701 Sfmt 4700 disposal agency determine to be in the interest of: * * * * * ■ 33. Amend § 125.5 by revising the second and third sentences of paragraph (a)(1) to read as follows: § 125.5 What is the Certificate of Competency Program? (a) General. (1) * * * A COC is a written instrument issued by SBA to a Government contracting officer, certifying that one or more named small business concerns possess the responsibility to perform a specific Government procurement (or sale) contract, including any contract deriving from a reverse auction. The COC Program is applicable to all Government procurement actions, including Multiple Award Contracts and orders placed against Multiple Award Contracts, where the contracting officer has used any issues of capacity or credit (responsibility) to determine suitability for an award. * * * * * * * * § 125.6 [Amended] 34. Amend § 125.6 by removing ‘‘§ 125.15’’ from paragraph (b) introductory text and adding in its place ‘‘§ 125.18’’, and by removing ‘‘§ 125.15(b)(3)’’ from paragraph (b)(5) and adding in its place ‘‘§ 125.18(b)(3)’’. ■ §§ 125.8 through 125.30 [Redesignated as §§ 125.11 through 125.33] 35. Redesignate §§ 125.8 through 125.30 as §§ 125.11 through 125.33, respectively, and locate them in the subparts as indicated in the following list: ■ i. Section 125.11 in subpart A; ■ ii. Sections 125.12 through 125.16 in subpart B; ■ iii. Sections 125.17 through 125.26 in subpart C; ■ iv. Sections 125.27 through 125.31 in subpart D; and ■ v. Sections 125.32 and 125.33 in subpart E. ■ 36. Add new §§ 125.8, 125.9 and 125.10 to precede subpart A to read as follows: ■ [Amended] ■ PO 00000 48585 § 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? (a) General. A joint venture of two or more business concerns may submit an offer as a small business for a Federal procurement, subcontract or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract, or qualify as small under one of the exceptions to E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 48586 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations affiliation set forth in § 121.103(h)(3) of this chapter. (b) Contents of joint venture agreement. (1) A joint venture agreement between two or more entities that individually qualify as small need not be in any specific form or contain any specific conditions in order for the joint venture to qualify as a small business. (2) Every joint venture agreement to perform a contract set aside or reserved ´ ´ for small business between a protege small business and its SBA-approved mentor authorized by § 125.9 or § 124.520 of this chapter must contain a provision: (i) Setting forth the purpose of the joint venture; (ii) Designating a small business as the managing venturer of the joint venture, and an employee of the small business managing venturer as the project manager responsible for performance of the contract. The individual identified as the project manager of the joint venture need not be an employee of the small business at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the small business if the joint venture is the successful offeror. The individual identified as the project manager cannot be employed by the mentor and become an employee of the small business for purposes of performance under the joint venture; (iii) Stating that with respect to a separate legal entity joint venture, the small business must own at least 51% of the joint venture entity; (iv) Stating that the small business must receive profits from the joint venture commensurate with the work performed by the small business, or in the case of a separate legal entity joint venture, commensurate with their ownership interests in the joint venture; (v) Providing for the establishment and administration of a special bank account in the name of the joint venture. This account must require the signature of all parties to the joint venture or designees for withdrawal purposes. All payments due the joint venture for performance on a contract set aside or reserved for small business will be deposited in the special account; all expenses incurred under the contract will be paid from the account as well; (vi) Itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available; (vii) Specifying the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to the joint venture will ensure that the joint venture and the small business partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, not including the ways that the parties to the joint venture will ensure that the joint venture and the small business partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, or in the alternative, specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available; (viii) Obligating all parties to the joint venture to ensure performance of a contract set aside or reserved for small business and to complete performance despite the withdrawal of any member; (ix) Designating that accounting and other administrative records relating to the joint venture be kept in the office of the small business managing venturer, unless approval to keep them elsewhere is granted by the District Director or his/ her designee upon written request; (x) Requiring that the final original records be retained by the small business managing venturer upon completion of any contract set aside or reserved for small business that was performed by the joint venture; (xi) Stating that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to SBA not later than 45 days after each operating quarter of the joint venture; and PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 (xii) Stating that a project-end profit and loss statement, including a statement of final profit distribution, must be submitted to SBA no later than 90 days after completion of the contract. (c) Performance of work. (1) For any contract set aside or reserved for small business that is to be performed by a joint venture between a small business ´ ´ protege and its SBA-approved mentor authorized by § 125.9, the joint venture must perform the applicable percentage of work required by § 125.6, and the small business partner to the joint venture must perform at least 40% of the work performed by the joint venture. (2) The work performed by the small business partner to a joint venture must be more than administrative or ministerial functions so that it gains substantive experience. (3) The amount of work done by the partners will be aggregated and the work ´ ´ done by the small business protege partner must be at least 40% of the total done by the partners. In determining the amount of work done by a mentor participating in a joint venture with a ´ ´ small business protege, all work done by the mentor and any of its affiliates at any subcontracting tier will be counted. (d) Certification of compliance. Prior to the performance of any contract set aside or reserved for small business by ´ ´ a joint venture between a protege small business and a mentor authorized by § 125.9, the small business partner to the joint venture must submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the joint venture, stating as follows: (1) The parties have entered into a joint venture agreement that fully complies with paragraph (b) of this section; (2) The parties will perform the contract in compliance with the joint venture agreement and with the performance of work requirements set forth in paragraph (c) of this section. (e) Past performance and experience. When evaluating the past performance and experience of an entity submitting an offer for a contract set aside or reserved for small business as a joint venture established pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously. (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 or a small business partner to the joint venture, but in either case will identify the award as one to a small business E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations joint venture or a small business ´ ´ mentor-protege joint venture, as appropriate. (g) Inspection of records. The joint venture partners must allow SBA’s authorized representatives, including representatives authorized by the SBA Inspector General, during normal business hours, access to its files to inspect and copy all records and documents relating to the joint venture. (h) Performance of work reports. In connection with any contract set aside or reserved for small business that is awarded to a joint venture between a ´ ´ protege small business and a mentor authorized by § 125.9, the small business partner must describe how it is meeting or has met the applicable performance of work requirements for each contract set aside or reserved for small business that it performs as a joint venture. (1) The small business partner to the joint venture must annually submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how the performance of work requirements are being met for each contract set aside or reserved for small business that is performed during the year. (2) At the completion of every contract set aside or reserved for small business that is awarded to a joint ´ ´ venture between a protege small business and a mentor authorized by § 125.9, the small business partner to the joint venture must submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how and certifying that the performance of work requirements were met for the contract, and further certifying that the contract was performed in accordance with the provisions of the joint venture agreement that are required under paragraph (b) of this section. (i) Basis for suspension or debarment. ´ ´ For any joint venture between a protege small business and a mentor authorized by § 125.9, the Government may consider the following as a ground for suspension or debarment as a willful violation of a regulatory provision or requirement applicable to a public agreement or transaction: (1) Failure to enter a joint venture agreement that complies with paragraph (b) of this section; (2) Failure to perform a contract in accordance with the joint venture agreement or performance of work requirements in paragraph (c) of this section; or VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 (3) Failure to submit the certification required by paragraph (d) of this section or comply with paragraph (g) of this section. (j) Compliance with performance of work requirements. Any person with information concerning a joint venture’s compliance with the performance of work requirements may report that information to SBA and/or the SBA Office of Inspector General. § 125.9 What are the rules governing ´ ´ SBA’s small business mentor-protege program? (a) General. The small business ´ ´ mentor-protege program is designed to ´ ´ enhance the capabilities of protege firms by requiring approved mentors to provide business development ´ ´ assistance to protege firms and to ´ ´ improve the protege firms’ ability to successfully compete for federal contracts. This assistance may include technical and/or management assistance; financial assistance in the form of equity investments and/or loans; subcontracts (either from the mentor to ´ ´ ´ ´ the protege or from the protege to the mentor); trade education; and/or assistance in performing prime contracts with the Government through joint venture arrangements. Mentors are encouraged to provide assistance relating to the performance of contracts set aside or reserved for small business ´ ´ so that protege firms may more fully develop their capabilities. (b) Mentors. Any concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor and receive benefits as set forth in this section. This includes other than small businesses. (1) In order to qualify as a mentor, a concern must demonstrate that it: (i) Is capable of carrying out its ´ ´ responsibilities to assist the protege firm ´ ´ under the proposed mentor-protege agreement; (ii) Possesses good character; (iii) Does not appear on the federal list of debarred or suspended contractors; and ´ ´ (iv) Can impart value to a protege firm due to lessons learned and practical experience gained or through its knowledge of general business operations and government contracting. (2) In order to demonstrate that it is capable of carrying out its ´ ´ responsibilities to assist the protege firm ´ ´ under the proposed mentor-protege agreement, a firm seeking to be a mentor may submit to the SBA copies of the federal tax returns it submitted to the IRS, or audited financial statements, including any notes, or in the case of publicly traded concerns, the filings PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 48587 required by the Securities and Exchange Commission (SEC), for the past three years. (3) Once approved, a mentor must annually certify that it continues to possess good character and a favorable financial position. (4) Generally, a mentor will have no ´ ´ more than one protege at a time. However, SBA may authorize a concern ´ ´ to mentor more than one protege at a time where it can demonstrate that the ´ ´ additional mentor-protege relationship will not adversely affect the ´ ´ development of either protege firm (e.g., the second firm may not be a competitor of the first firm). Under no circumstances will a mentor be permitted to have more than three ´ ´ proteges at one time in the aggregate ´ ´ under the mentor-protege programs authorized by §§ 124.520 and 125.9 of this chapter. ´ ´ (c) Proteges. (1) In order to initially ´ ´ qualify as a protege firm, a concern must qualify as small for the size standard corresponding to its primary NAICS code or identify that it is seeking business development assistance with respect to a secondary NAICS code and qualify as small for the size standard corresponding to that NAICS code. (i) A firm may self-certify that it qualifies as small for its primary or identified secondary NAICS code. (ii) Where a firm is other than small for the size standard corresponding to its primary NAICS code and seeks to ´ ´ qualify as a small business protege in a secondary NAICS code, the firm must ´ ´ demonstrate how the mentor-protege relationship is a logical business progression for the firm and will further develop or expand current capabilities. ´ ´ SBA will not approve a mentor-protege relationship in a secondary NAICS code in which the firm has no prior experience. ´ ´ (2) A protege firm may generally have only one mentor at a time. SBA may approve a second mentor for a particular ´ ´ protege firm where the second relationship will not compete or otherwise conflict with the assistance ´ ´ set forth in the first mentor-protege relationship and: (i) The second relationship pertains to an unrelated NAICS code; or ´ ´ (ii) The protege firm is seeking to acquire a specific expertise that the first mentor does not possess. (3) SBA may authorize a small ´ ´ business to be both a protege and a mentor at the same time where the small business can demonstrate that the second relationship will not compete or otherwise conflict with the first mentor´ ´ protege relationship. E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 48588 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations (4) Where appropriate, SBA may examine the Service-Disabled VeteranOwned Small Business status or Women-Owned Small Business status of ´ ´ a concern seeking to be a protege that claims such status in any Federal procurement database. ´ ´ (d) Benefits. (1) A protege and mentor may joint venture as a small business for any government prime contract or ´ ´ subcontract, provided the protege qualifies as small for the procurement. Such a joint venture may seek any type of small business contract (i.e., small business set-aside, 8(a), HUBZone, ´ ´ SDVO, or WOSB) for which the protege ´ ´ firm qualifies (e.g., a protege firm that qualifies as a WOSB could seek a WOSB set-aside as a joint venture with its SBAapproved mentor). (i) SBA must approve the mentor´ ´ protege agreement before the two firms may submit an offer as a joint venture on a particular government prime contract or subcontract in order for the joint venture to receive the exclusion from affiliation. (ii) In order to receive the exclusion from affiliation, the joint venture must meet the requirements set forth in § 125.8(b)(2), (c), and (d). ´ ´ (iii) Once a protege firm no longer qualifies as a small business for the size standard corresponding to its primary NAICS code, it will not be eligible for any further contracting benefits from its ´ ´ mentor-protege relationship. However, a ´ ´ change in the protege’s size status does not generally affect contracts previously awarded to a joint venture between the ´ ´ protege and its mentor. (A) Except for contracts with durations of more than five years (including options), a contract awarded ´ ´ to a joint venture between a protege and a mentor as a small business continues to qualify as an award to small business for the life of that contract and the joint venture remains obligated to continue performance on that contract. (B) For contracts with durations of more than five years (including options), where size re-certification is required under § 121.404(g)(3) of this chapter no more than 120 days prior to the end of the fifth year of the contract and no more than 120 days prior to exercising any option thereafter, once ´ ´ the protege no longer qualifies as small for the size standard corresponding to its primary NAICS code, the joint venture must aggregate the receipts/ employees of the partners to the joint venture in determining whether it continues to qualify as and can recertify itself to be a small business under the size standard corresponding to the NAICS code assigned to that contract. The rules set forth in VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 § 121.404(g)(3) of this chapter apply in such circumstances. (2) In order to raise capital, the ´ ´ protege firm may agree to sell or otherwise convey to the mentor an equity interest of up to 40% in the ´ ´ protege firm. (3) Notwithstanding the mentor´ ´ ´ ´ protege relationship, a protege firm may qualify for other assistance as a small business, including SBA financial assistance. (4) No determination of affiliation or ´ ´ control may be found between a protege firm and its mentor based solely on the ´ ´ mentor-protege agreement or any assistance provided pursuant to the agreement. However, affiliation may be found for other reasons set forth in § 121.103 of this chapter. (5) Where appropriate, procuring activities may provide incentives in the contract evaluation process to a firm that will provide significant subcontracting work to its SBA´ ´ approved protege firm. (e) Written agreement. (1) The mentor ´ ´ and protege firms must enter a written agreement setting forth an assessment of ´ ´ the protege’s needs and providing a detailed description and timeline for the delivery of the assistance the mentor commits to provide to address those needs (e.g., management and/or technical assistance, loans and/or equity investments, cooperation on joint venture projects, or subcontracts under prime contracts being performed by the ´ ´ mentor). The mentor-protege agreement must: (i) Address how the assistance to be provided through the agreement will ´ ´ help the protege firm meet its goals as defined in its business plan; (ii) Establish a single point of contact in the mentor concern who is responsible for managing and ´ ´ implementing the mentor-protege agreement; and (iii) Provide that the mentor will ´ ´ provide such assistance to the protege firm for at least one year. (2) A firm seeking SBA’s approval to ´ ´ be a protege must identify any other ´ ´ mentor-protege relationship it has through another federal agency or SBA and provide a copy of each such ´ ´ mentor-protege agreement to SBA. ´ ´ (i) The small business mentor-protege agreement must identify how the assistance to be provided by the proposed mentor is different from ´ ´ assistance provided to the protege ´ ´ through another mentor-protege relationship, either with the same or a different mentor. (ii) A firm seeking SBA’s approval to ´ ´ be a protege may terminate a mentor´ ´ protege relationship it has through PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 another agency and use any not yet provided assistance identified in the ´ ´ other mentor-protege agreement as part of the assistance that will be provided through the small business mentor´ ´ protege relationship. Any assistance that has already been provided through ´ ´ another mentor-protege relationship cannot be identified as assistance that will be provided through the small ´ ´ business mentor-protege relationship. (3) The written agreement must be approved by the Associate Administrator for Business Development (AA/BD) or his/her designee. The agreement will not be approved if SBA determines that the assistance to be provided is not sufficient to promote any real ´ ´ developmental gains to the protege, or if SBA determines that the agreement is merely a vehicle to enable the mentor to receive small business contracts. (4) The agreement must provide that ´ ´ either the protege or the mentor may terminate the agreement with 30 days advance notice to the other party to the ´ ´ mentor-protege relationship and to SBA. (5) SBA will review the mentor´ ´ protege relationship annually to determine whether to approve its continuation for another year. Unless rescinded in writing as a result of the ´ ´ review, the mentor-protege relationship will automatically renew without additional written notice of ´ ´ continuation or extension to the protege ´ ´ firm. The term of a mentor-protege agreement may not exceed three years, but may be extended for a second three ´ ´ years. A protege may have two three´ ´ year mentor-protege agreements with different mentors, and each may be extended an additional three years ´ ´ provided the protege has received the agreed-upon business development assistance and will continue to receive additional assistance through the ´ ´ extended mentor-protege agreement. (6) SBA must approve all changes to ´ ´ a mentor-protege agreement in advance, and any changes made to the agreement must be provided in writing. If the ´ ´ parties to the mentor-protege ´ ´ relationship change the mentor-protege agreement without prior approval by SBA, SBA shall terminate the mentor´ ´ protege relationship and may also propose suspension or debarment of one or both of the firms pursuant to paragraph (h) of this section where appropriate. (7) If control of the mentor changes (through a stock sale or otherwise), the ´ ´ previously approved mentor-protege relationship may continue provided that, after the change in control, the mentor expresses in writing to SBA that ´ ´ it acknowledges the mentor-protege E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations agreement and certifies that it will continue to abide by its terms. (8) SBA may terminate the mentor´ ´ protege agreement at any time if it ´ ´ determines that the protege is not benefiting from the relationship or that the parties are not complying with any ´ ´ term or condition of the mentor protege agreement. In the event SBA terminates ´ ´ the relationship, the mentor-protege joint venture is obligated to complete any previously awarded contracts unless the procuring agency issues a stop work order. ´ ´ (f) Decision to decline mentor-protege relationship. (1) Where SBA declines to ´ ´ approve a specific mentor-protege ´ ´ agreement, the protege may request the AA/BD or designee to reconsider the Agency’s initial decline decision by filing a request for reconsideration within 45 calendar days of receiving ´ ´ notice that its mentor-protege agreement ´ ´ was declined. The protege may revise ´ ´ the proposed mentor-protege agreement and provide any additional information and documentation pertinent to overcoming the reason(s) for the initial decline. (2) SBA will issue a written decision within 45 calendar days of receipt of the ´ ´ protege’s request. SBA may approve the ´ ´ mentor-protege agreement, deny it on the same grounds as the original decision, or deny it on other grounds. ´ ´ (3) If SBA declines the mentor-protege agreement solely on issues not raised in ´ ´ the initial decline, the protege can ask for reconsideration as if it were an initial decline. (4) If SBA’s final decision is to decline ´ ´ a specific mentor-protege agreement, the small business concern seeking to be a ´ ´ protege cannot attempt to enter into ´ ´ another mentor-protege relationship with the same mentor for a period of 60 calendar days from the date of the final decision. The small business concern may, however, submit another proposed ´ ´ mentor-protege agreement with a different proposed mentor at any time after the SBA’s final decline decision. ´ ´ (g) Evaluating the mentor-protege relationship. (1) Within 30 days of the anniversary of SBA’s approval of the ´ ´ ´ ´ mentor-protege agreement, the protege must report to SBA for the preceding year: (i) All technical and/or management assistance provided by the mentor to the ´ ´ protege; (ii) All loans to and/or equity investments made by the mentor in the ´ ´ protege; (iii) All subcontracts awarded to the ´ ´ protege by the mentor and all subcontracts awarded to the mentor by ´ ´ the protege, and the value of each subcontract; VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 (iv) All federal contracts awarded to ´ ´ the mentor-protege relationship as a joint venture (designating each as a small business set-aside, small business reserve, or unrestricted procurement), the value of each contract, and the percentage of the contract performed and the percentage of revenue accruing to each party to the joint venture; and (v) A narrative describing the success such assistance has had in addressing ´ ´ the developmental needs of the protege and addressing any problems encountered. ´ ´ (2) The protege must report the mentoring services it receives by category and hours. ´ ´ (3) The protege must annually certify to SBA whether there has been any change in the terms of the agreement. ´ ´ (4) SBA will review the protege’s ´ ´ report on the mentor-protege relationship, and may decide not to approve continuation of the agreement if it finds that the mentor has not provided the assistance set forth in the ´ ´ mentor-protege agreement or that the assistance has not resulted in any material benefits or developmental gains ´ ´ to the protege. (h) Consequences of not providing assistance set forth in the mentor´ ´ protege agreement. (1) Where SBA determines that a mentor has not ´ ´ provided to the protege firm the business development assistance set ´ ´ forth in its mentor-protege agreement, SBA will notify the mentor of such determination and afford the mentor an opportunity to respond. The mentor must respond within 30 days of the notification, explaining why it has not provided the agreed upon assistance and setting forth a definitive plan as to when it will provide such assistance. If the mentor fails to respond, does not supply adequate reasons for its failure to provide the agreed upon assistance, or does not set forth a definite plan to provide the assistance: (i) SBA will terminate the mentor´ ´ protege agreement; (ii) The firm will be ineligible to again act as a mentor for a period of two years from the date SBA terminates the ´ ´ mentor-protege agreement; and (iii) SBA may recommend to the relevant procuring agency to issue a stop work order for each federal contract ´ ´ for which the mentor and protege are performing as a small business joint venture in order to encourage the mentor to comply with its mentor´ ´ ´ ´ protege agreement. Where a protege firm is able to independently complete performance of any such contract, SBA may recommend to the procuring agency to authorize a substitution of the ´ ´ protege firm for the joint venture. PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 48589 (2) SBA may consider a mentor’s failure to comply with the terms and conditions of an SBA-approved mentor´ ´ protege agreement as a basis for debarment on the grounds, including but not limited to, that the mentor has not complied with the terms of a public agreement under 2 CFR 180.800(b). ´ ´ (i) Results of mentor-protege relationship. (1) In order to assess the ´ ´ results of a mentor-protege relationship ´ ´ upon its completion, the protege must report to SBA whether it believed the ´ ´ mentor-protege relationship was beneficial and describe any lasting ´ ´ benefits to the protege. ´ ´ (2) Where a protege does not report ´ ´ the results of a mentor-protege relationship upon its completion, SBA will not approve a second mentor´ ´ protege relationship either under this section or under § 124.520 of this chapter. ´ ´ § 125.10 Mentor-Protege programs of other agencies. (a) Except as provided in paragraph (c) of this section, a Federal department or agency may not carry out a mentor´ ´ protege program for small business unless the head of the department or agency submits a plan to the SBA Administrator for the program and the SBA Administrator approves the plan. ´ ´ Before starting a new mentor protege program, the head of a department or agency must submit a plan to the SBA Administrator. Within one year of the effective date of this section, the head of a department or agency must submit a plan to the SBA for any previously ´ ´ existing mentor-protege program that the department or agency seeks to continue. (b) The SBA Administrator will approve or disapprove a plan submitted under paragraph (a) of this section based on whether the proposed program: ´ ´ (1) Will assist proteges to compete for Federal prime contracts and subcontracts; and (2) Complies with the provisions set forth in §§ 125.9 and 124.520 of this chapter, as applicable. (c) Paragraph (a) of this section does not apply to: ´ ´ (1) Any mentor-protege program of the Department of Defense; (2) Any mentoring assistance provided under a Small Business Innovation Research Program or a Small Business Technology Transfer Program; and ´ ´ (3) A mentor-protege program operated by a Department or agency on January 2, 2013, for a period of one year after the effective date of this section. (d) The head of each Federal department or agency carrying out an E:\FR\FM\25JYR3.SGM 25JYR3 48590 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations ´ ´ agency-specific mentor-protege program must report annually to SBA: ´ ´ (1) The participants (both protege firms and their approved mentors) in its ´ ´ mentor-protege program. This includes identifying the number of participants that are: (i) Small business concerns; (ii) Small business concerns owned and controlled by service-disabled veterans; (iii) Small business concerns owned and controlled by socially and economically disadvantaged individuals; (iv) Small business concerns owned and controlled by Indian tribes, Alaska Native Corporations, Native Hawaiian Organizations, and Community Development Corporations; and (v) Small business concerns owned and controlled by women; (2) The assistance provided to small businesses through the program; and ´ ´ (3) The progress of protege firms under the program to compete for Federal prime contracts and subcontracts. ■ 37. Amend newly redesignated § 125.18 by revising paragraph (b) to read as follows: § 125.18 What requirements must an SDVO SBC meet to submit an offer on a contract? mstockstill on DSK3G9T082PROD with RULES3 * * * * * (b) Joint ventures. An SDVO SBC may enter into a joint venture agreement with one or more other SBCs or its SBAapproved mentor for the purpose of performing an SDVO contract. (1) Size of concerns to an SDVO SBC joint venture. (i) A joint venture of at least one SDVO SBC and one or more other business concerns may submit an offer as a small business for a competitive SDVO SBC procurement or sale, or be awarded a sole source SDVO contract, so long as each concern is small under the size standard corresponding to the NAICS code assigned to the procurement or sale. ´ ´ (ii) A joint venture between a protege firm that qualifies as an SDVO SBC and its SBA-approved mentor (see §§ 125.9 and 124.520 of this chapter) will be ´ ´ deemed small provided the protege qualifies as small for the size standard corresponding to the NAICS code assigned to the SDVO procurement or sale. (2) Contents of joint venture agreement. Every joint venture agreement to perform an SDVO contract, ´ ´ including those between a protege firm that qualifies as an SDVO SBC and its SBA-approved mentor authorized by § 124.520 or § 125.9 of this chapter, must contain a provision: VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 (i) Setting forth the purpose of the joint venture; (ii) Designating an SDVO SBC as the managing venturer of the joint venture, and an employee of the SDVO SBC managing venturer as the project manager responsible for performance of the contract; (iii) Stating that with respect to a separate legal entity joint venture, the SDVO SBC must own at least 51% of the joint venture entity; (iv) Stating that the SDVO SBC must receive profits from the joint venture commensurate with the work performed by the SDVO SBC, or in the case of a separate legal entity joint venture, commensurate with their ownership interests in the joint venture; (v) Providing for the establishment and administration of a special bank account in the name of the joint venture. This account must require the signature of all parties to the joint venture or designees for withdrawal purposes. All payments due the joint venture for performance on an SDVO contract will be deposited in the special account; all expenses incurred under the contract will be paid from the account as well; (vi) Itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available; (vii) Specifying the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to the joint venture will ensure that the joint venture and the SDVO small business partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (b)(3) of this section, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 performance, not including the ways that the parties to the joint venture will ensure that the joint venture and the SDVO small business partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, or in the alternative, specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available; (viii) Obligating all parties to the joint venture to ensure performance of the SDVO contract and to complete performance despite the withdrawal of any member; (ix) Designating that accounting and other administrative records relating to the joint venture be kept in the office of the SDVO SBC managing venturer, unless approval to keep them elsewhere is granted by the District Director or his/ her designee upon written request; (x) Requiring that the final original records be retained by the SDVO SBC managing venturer upon completion of the SDVO contract performed by the joint venture; (xi) Stating that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to SBA not later than 45 days after each operating quarter of the joint venture; and (xii) Stating that a project-end profit and loss statement, including a statement of final profit distribution, must be submitted to SBA no later than 90 days after completion of the contract. (3) Performance of work. (i) For any SDVO contract, including those between ´ ´ a protege and a mentor authorized by § 125.9 or § 124.520 of this chapter, the joint venture must perform the applicable percentage of work required by § 125.6. (ii) The SDVO SBC partner(s) to the joint venture must perform at least 40% of the work performed by the joint venture. (A) The work performed by the SDVO SBC partner(s) to a joint venture must be more than administrative or ministerial functions so that they gain substantive experience. (B) The amount of work done by the partners will be aggregated and the work done by the SDVO SBC partner(s) must be at least 40% of the total done by all partners. In determining the amount of work done by a non-SDVO SBC partner, all work done by the non-SDVO SBC partner and any of its affiliates at any subcontracting tier will be counted. (4) Certification of Compliance. Prior to the performance of any SDVO contract as a joint venture, the SDVO SBC partner to the joint venture must E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the joint venture, stating as follows: (i) The parties have entered into a joint venture agreement that fully complies with paragraph (b)(2) of this section; (ii) The parties will perform the contract in compliance with the joint venture agreement and with the performance of work requirements set forth in paragraph (b)(3) of this section. (5) Past performance and experience. When evaluating the past performance and experience of an entity submitting an offer for an SDVO contract as a joint venture established pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously. (6) Contract execution. The procuring activity will execute an SDVO contract in the name of the joint venture entity or the SDVO SBC, but in either case will identify the award as one to an SDVO joint venture or an SDVO mentor´ ´ protege joint venture, as appropriate. (7) Inspection of records. The joint venture partners must allow SBA’s authorized representatives, including representatives authorized by the SBA Inspector General, during normal business hours, access to its files to inspect and copy all records and documents relating to the joint venture. (8) Performance of work reports. An SDVO SBC partner to a joint venture must describe how it is meeting or has met the applicable performance of work requirements for each SDVO contract it performs as a joint venture. (i) The SDVO SBC partner to the joint venture must annually submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how and certifying that the performance of work requirements are being met. (ii) At the completion of every SDVO contract awarded to a joint venture, the SDVO SBC partner to the joint venture must submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how and certifying that the performance of work requirements were met for the contract, and further certifying that the contract was performed in accordance with the provisions of the joint venture agreement that are required under paragraph (b)(2) of this section. (9) Basis for suspension or debarment. The Government may consider the following as a ground for suspension or VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 debarment as a willful violation of a regulatory provision or requirement applicable to a public agreement or transaction: (i) Failure to enter a joint venture agreement that complies with paragraph (b)(2) of this section; (ii) Failure to perform a contract in accordance with the joint venture agreement or performance of work requirements in paragraph (b)(3) of this section; or (iii) Failure to submit the certification required by paragraph (b)(4) of this section or comply with paragraph (b)(7) of this section. (10) Any person with information concerning a joint venture’s compliance with the performance of work requirements may report that information to SBA and/or the SBA Office of Inspector General. § 125.22 [Amended] 38. Amend newly redesignated § 125.22 by adding the phrase ‘‘, regardless of the place of performance,’’ in the first sentence of paragraphs (b)(1) and (b)(2)(i) after the words ‘‘for small business concerns’’ and before the words ‘‘when there is a reasonable expectation’’. ■ PART 126—HUBZONE PROGRAM 39. The authority citation for part 126 is revised to read as follows: ■ Authority: 15 U.S.C. 632(a), 632(j), 632(p), 644, and 657a; Pub. L. 111–240, 24 Stat. 2504. 40. Amend § 126.306 as follows: a. Revise paragraphs (a) and (b); b. Redesignate paragraphs (c) and (d) as paragraphs (f) and (g), respectively; and ■ c. Add new paragraphs (c), (d) and (e). The revisions and additions read as follows: ■ ■ ■ § 126.306 How will SBA process the certification? (a) The D/HUB or designee is authorized to approve or decline applications for certification. SBA will receive and review all applications and request supporting documents. SBA must receive all required information, supporting documents, and completed HUBZone representation before it will begin processing a concern’s application. SBA will not process incomplete packages. SBA will make its determination within ninety (90) calendar days after receipt of a complete package whenever practicable. The decision of the D/HUB or designee is the final agency decision. (b) SBA may request additional information or clarification of PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 48591 information contained in an application or document submission at any time. (c) The burden of proof to demonstrate eligibility is on the applicant concern. If a concern does not provide requested information within the allotted time provided by SBA, or if it submits incomplete information, SBA may presume that disclosure of the missing information would adversely affect the business concern or demonstrate a lack of eligibility in the area or areas to which the information relates. (d) The applicant must be eligible as of the date it submitted its application and up until and at the time the D/HUB issues a decision. The decision will be based on the facts set forth in the application, any information received in response to SBA’s request for clarification, and any changed circumstances since the date of application. (e) Any changed circumstance occurring after an applicant has submitted an application will be considered and may constitute grounds for decline. After submitting the application and signed representation, an applicant must notify SBA of any changes that could affect its eligibility. The D/HUB may propose decertification for any HUBZone SBC that failed to inform SBA of any changed circumstances that affected its eligibility for the program during the processing of the application. * * * * * ■ 41. Amend § 126.600 by revising the introductory text to read as follows: § 126.600 What are HUBZone contracts? HUBZone contracts are contracts awarded to a qualified HUBZone SBC, regardless of the place of performance, through any of the following procurement methods: * * * * * ■ 42. Revise § 126.615 to read as follows: § 126.615 May a large business participate on a HUBZone contract? Except as provided in § 126.618(d), a large business may not participate as a prime contractor on a HUBZone award, but may participate as a subcontractor to an otherwise qualified HUBZone SBC, subject to the contract performance requirements set forth in § 126.700. ■ 43. Revise § 126.616 to read as follows: § 126.616 What requirements must a joint venture satisfy to submit an offer on a HUBZone contract? (a) General. A qualified HUBZone SBC may enter into a joint venture E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 48592 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations agreement with one or more other SBCs, or with an approved mentor authorized by § 125.9 of this chapter (or, if also an 8(a) BD Participant, with an approved mentor authorized by § 124.520 of this chapter), for the purpose of submitting an offer for a HUBZone contract. The joint venture itself need not be certified as a qualified HUBZone SBC. (b) Size. (1) A joint venture of at least one qualified HUBZone SBC and one or more other business concerns may submit an offer as a small business for a HUBZone procurement or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the procurement or sale. ´ ´ (2) A joint venture between a protege firm and its SBA-approved mentor (see § 125.9 of this chapter) will be deemed ´ ´ small provided the protege qualifies as small for the size standard corresponding to the NAICS code assigned to the HUBZone procurement or sale. (c) Contents of joint venture agreement. Every joint venture agreement to perform a HUBZone contract, including those between a ´ ´ protege firm that is a certified HUBZone SBC and its SBA-approved mentor authorized by § 124.520 or § 125.9 of this chapter, must contain a provision: (1) Setting forth the purpose of the joint venture; (2) Designating a HUBZone SBC as the managing venturer of the joint venture, and an employee of the HUBZone SBC managing venturer as the project manager responsible for performance of the contract. The individual identified as the project manager of the joint venture need not be an employee of the HUBZone SBC at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the HUBZone SBC if the joint venture is the successful offeror. The individual identified as the project manager cannot be employed by the mentor and become an employee of the HUBZone SBC for purposes of performance under the joint venture; (3) Stating that with respect to a separate legal entity joint venture, the HUBZone SBC must own at least 51% of the joint venture entity; (4) Stating that the HUBZone SBC must receive profits from the joint venture commensurate with the work performed by the HUBZone SBC, or in the case of a separate legal entity joint venture, commensurate with their ownership interests in the joint venture; (5) Providing for the establishment and administration of a special bank account in the name of the joint venture. VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 This account must require the signature of all parties to the joint venture or designees for withdrawal purposes. All payments due the joint venture for performance on a HUBZone contract will be deposited in the special account; all expenses incurred under the contract will be paid from the account as well; (6) Itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available; (7) Specifying the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to the joint venture will ensure that the joint venture and the HUBZone partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, not including the ways that the parties to the joint venture will ensure that the joint venture and the HUBZone partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, or in the alternative, specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available; (8) Obligating all parties to the joint venture to ensure performance of the HUBZone contract and to complete performance despite the withdrawal of any member; (9) Designating that accounting and other administrative records relating to the joint venture be kept in the office of the HUBZone SBC managing venturer, unless approval to keep them elsewhere PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 is granted by the District Director or his/ her designee upon written request; (10) Requiring that the final original records be retained by the HUBZone SBC managing venturer upon completion of the HUBZone contract performed by the joint venture; (11) Stating that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to SBA not later than 45 days after each operating quarter of the joint venture; and (12) Stating that a project-end profit and loss statement, including a statement of final profit distribution, must be submitted to SBA no later than 90 days after completion of the contract. (d) Limitations on subcontracting. (1) For any HUBZone contract to be performed by a joint venture between a qualified HUBZone SBC and another qualified HUBZone SBC, the aggregate of the qualified HUBZone SBCs to the joint venture, not each concern separately, must perform the applicable percentage of work required by § 125.6 of this chapter. (2) For any HUBZone contract to be performed by a joint venture between a ´ ´ qualified HUBZone protege and a small business concern or its SBA-approved mentor authorized by § 125.9 or § 124.520 of this chapter, the joint venture must perform the applicable percentage of work required by § 125.6 of this chapter, and the HUBZone SBC partner to the joint venture must perform at least 40% of the work performed by the joint venture. (i) The work performed by the HUBZone SBC partner to a joint venture must be more than administrative or ministerial functions so that it gains substantive experience. (ii) The amount of work done by the partners will be aggregated and the work ´ ´ done by the HUBZone protege partner must be at least 40% of the total done by the partners. In determining the amount of work done by a mentor participating in a joint venture with a ´ ´ HUBZone qualified protege, all work done by the mentor and any of its affiliates at any subcontracting tier will be counted. (e) Certification of compliance. Prior to the performance of any HUBZone contract as a joint venture, the HUBZone SBC partner to the joint venture must submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the joint venture, stating as follows: (i) The parties have entered into a joint venture agreement that fully E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations complies with paragraph (c) of this section; (ii) The parties will perform the contract in compliance with the joint venture agreement and with the performance of work requirements set forth in paragraph (d) of this section. (f) Past performance and experience. When evaluating the past performance and experience of an entity submitting an offer for a HUBZone contract as a joint venture established pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously. (g) Contract execution. The procuring activity will execute a HUBZone contract in the name of the joint venture entity or the HUBZone SBC, but in either case will identify the award as one to a HUBZone joint venture or a ´ ´ HUBZone mentor-protege joint venture, as appropriate. (h) Inspection of records. The joint venture partners must allow SBA’s authorized representatives, including representatives authorized by the SBA Inspector General, during normal business hours, access to its files to inspect and copy all records and documents relating to the joint venture. (i) Performance of work reports. The HUBZone SBC partner to a joint venture must describe how it is meeting or has met the applicable performance of work requirements for each HUBZone contract it performs as a joint venture. (1) The HUBZone SBC partner to the joint venture must annually submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how the performance of work requirements are being met for each HUBZone contract performed during the year. (2) At the completion of every HUBZone contract awarded to a joint venture, the HUBZone SBC partner to the joint venture must submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how and certifying that the performance of work requirements were met for the contract, and further certifying that the contract was performed in accordance with the provisions of the joint venture agreement that are required under paragraph (c) of this section. (j) Basis for suspension or debarment. The Government may consider the following as a ground for suspension or debarment as a willful violation of a regulatory provision or requirement VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 applicable to a public agreement or transaction: (1) Failure to enter a joint venture agreement that complies with paragraph (c) of this section; (2) Failure to perform a contract in accordance with the joint venture agreement or performance of work requirements in paragraph (d) of this section; or (3) Failure to submit the certification required by paragraph (e) of this section or comply with paragraph (h) of this section. (k) Any person with information concerning a joint venture’s compliance with the performance of work requirements may report that information to SBA and/or the SBA Office of Inspector General. ■ 44. Revise § 126.618 to read as follows: § 126.618 How does a HUBZone SBC’s ´ ´ participation in a Mentor-Protege relationship affect its participation in the HUBZone Program? (a) A qualified HUBZone SBC may ´ ´ enter into a mentor-protege relationship under § 125.9 of this chapter (or, if also an 8(a) BD Participant, under § 124.520 of this chapter) or in connection with a ´ ´ mentor-protege program of another agency, provided that such relationships do not conflict with the underlying HUBZone requirements. (b) For purposes of determining whether an applicant to the HUBZone Program or a HUBZone SBC qualifies as small under part 121 of this chapter, SBA will not find affiliation between the applicant or qualified HUBZone SBC and the firm that is its mentor in ´ ´ an SBA-approved mentor-protege relationship (including a mentor that is other than small) on the basis of the ´ ´ mentor-protege agreement or the ´ ´ assistance provided to the protege firm under the agreement. SBA will not consider the employees of the mentor in determining whether the applicant or qualified HUBZone SBC meets (or continues to meet) the 35% HUBZone residency requirement or the principal office requirement, or in determining the size of the applicant or qualified HUBZone SBC for any employee-based size standard. (c) A qualified HUBZone SBC that is a prime contractor on a HUBZone contract may subcontract work to its mentor. (1) The HUBZone SBC must meet the applicable performance of work requirements set forth in § 125.6(c) of this chapter. (2) SBA may find affiliation between a prime HUBZone contractor and its mentor subcontractor where the mentor PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 48593 will perform primary and vital requirements of the contract. See § 121.103(h)(4) of this chapter. PART 127—WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM 45. The authority citation for part 127 is revised to read as follows: ■ Authority: 15 U.S.C. 632, 634(b)(6), 637(m), 644 and 657r. § 127.500 [Amended] 46. Amend § 127.500 by adding the words ‘‘, regardless of the place of performance’’ to the end of the sentence. ■ 47. Amend § 127.506 as follows: ■ a. Revise the section introductory text and paragraph (a), add an italic subject head to paragraph (c) introductory text, and revise paragraphs (c)(2) and (3); ■ b. Redesignate paragraph (c)(4) as (c)(7) and paragraph (c)(5) as (c)(10) respectively; ■ c. Add new paragraphs (c)(4) through (6); ■ d. Revise newly redesignated paragraphs (c)(7) and (c)(10); ■ e. Add paragraphs (c)(8) and (9) and (c)(11) and (12); ■ f. Revise paragraphs (d), (e), and (f); and ■ g. Add paragraphs (g) through (l). The revisions and additions read as follows: ■ § 127.506 May a joint venture submit an offer on an EDWOSB or WOSB requirement? A joint venture, including those ´ ´ between a protege and a mentor under § 125.9 of this chapter (or, if also an 8(a) BD Participant, under § 124.520 of this chapter), may submit an offer on a WOSB Program contract if the joint venture meets all of the following requirements: (a)(1) A joint venture of at least one WOSB or EDWOSB and one or more other business concerns may submit an offer as a small business for a WOSB Program procurement or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the procurement or sale. ´ ´ (2) A joint venture between a protege firm and its SBA-approved mentor (see § 125.9 and § 124.520 of this chapter) will be deemed small provided the ´ ´ protege qualifies as small for the size standard corresponding to the NAICS code assigned to the WOSB Program procurement or sale. * * * * * (c) Contents of joint venture agreement.* * * * * * * * E:\FR\FM\25JYR3.SGM 25JYR3 mstockstill on DSK3G9T082PROD with RULES3 48594 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations (2) Designating a WOSB as the managing venturer of the joint venture, and an employee of the WOSB managing venturer as the project manager responsible for performance of the contract. The individual identified as the project manager of the joint venture need not be an employee of the WOSB at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the WOSB if the joint venture is the successful offeror. The individual identified as the project manager cannot be employed by the mentor and become an employee of the WOSB for purposes of performance under the joint venture; (3) Stating that with respect to a separate legal entity joint venture, the WOSB must own at least 51% of the joint venture entity; (4) Stating that the WOSB must receive profits from the joint venture commensurate with the work performed by the WOSB, or in the case of a separate legal entity joint venture, commensurate with their ownership interests in the joint venture; (5) Providing for the establishment and administration of a special bank account in the name of the joint venture. This account must require the signature of all parties to the joint venture or designees for withdrawal purposes. All payments due the joint venture for performance on a WOSB Program contract will be deposited in the special account; all expenses incurred under the contract will be paid from the account as well; (6) Itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available; (7) Specifying the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to the joint venture will ensure that the joint venture and the WOSB Program participant(s) in the VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, not including the ways that the parties to the joint venture will ensure that the joint venture and the WOSB Program participant(s) in the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, or in the alternative, specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available; (8) Obligating all parties to the joint venture to ensure performance of the WOSB contract and to complete performance despite the withdrawal of any member; (9) Designating that accounting and other administrative records relating to the joint venture be kept in the office of the WOSB managing venturer, unless approval to keep them elsewhere is granted by the District Director or his/ her designee upon written request; (10) Requiring that the final original records be retained by the WOSB managing venturer upon completion of the WOSB Program contract performed by the joint venture; (11) Stating that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to SBA not later than 45 days after each operating quarter of the joint venture; and (12) Stating that a project-end profit and loss statement, including a statement of final profit distribution, must be submitted to SBA no later than 90 days after completion of the contract. (d) Performance of work. (1) For any WOSB Program contract, the joint venture (including one between a ´ ´ protege and a mentor authorized by § 125.9 or § 124.520 of this chapter) must perform the applicable percentage of work required by § 125.6 of this chapter. (2) The WOSB partner(s) to the joint venture must perform at least 40% of the work performed by the joint venture. (i) The work performed by the WOSB partner(s) to a joint venture must be more than administrative or ministerial functions so that they gain substantive experience. PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 (ii) The amount of work done by the partners will be aggregated and the work done by the WOSB partner(s) must be at least 40% of the total done by all partners. In determining the amount of work done by the non-WOSB partner, all work done by the non-WOSB partner and any of its affiliates at any subcontracting tier will be counted. (e) Certification of compliance. Prior to the performance of any WOSB Program contract as a joint venture, the WOSB Program participant in the joint venture must submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the joint venture, stating as follows: (i) The parties have entered into a joint venture agreement that fully complies with paragraph (c) of this section; (ii) The parties will perform the contract in compliance with the joint venture agreement and with the performance of work requirements set forth in paragraph (d) of this section. (f) Past performance and experience. When evaluating the past performance and experience of an entity submitting an offer for a WOSB Program contract as a joint venture established pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously. (g) Contract execution. The procuring activity will execute a WOSB Program contract in the name of the joint venture entity or the WOSB, but in either case will identify the award as one to a WOSB Program joint venture or a WOSB ´ ´ Program mentor-protege joint venture, as appropriate. (h) Submission of joint venture agreement. The WOSB Program participant must provide a copy of the joint venture agreement to the contracting officer. (i) Inspection of records. The joint venture partners must allow SBA’s authorized representatives, including representatives authorized by the SBA Inspector General, during normal business hours, access to its files to inspect and copy all records and documents relating to the joint venture. (j) Performance of work reports. The WOSB Program participant in the joint venture must describe how it is meeting or has met the applicable performance of work requirements for each WOSB Program contract it performs as a joint venture. (1) The WOSB partner to the joint venture must annually submit a report to the relevant contracting officer and to the SBA, signed by an authorized E:\FR\FM\25JYR3.SGM 25JYR3 Federal Register / Vol. 81, No. 142 / Monday, July 25, 2016 / Rules and Regulations mstockstill on DSK3G9T082PROD with RULES3 official of each partner to the joint venture, explaining how the performance of work requirements are being met for each WOSB Program contract performed during the year. (2) At the completion of every WOSB Program contract awarded to a joint venture, the WOSB partner to the joint venture must submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how and certifying that the performance of work requirements were met for the contract, and further certifying that the contract was performed in accordance with the provisions of the joint venture agreement that are required under paragraph (c) of this section. (k) Basis for suspension or debarment. The Government may consider the following as a ground for suspension or debarment as a willful violation of a regulatory provision or requirement applicable to a public agreement or transaction: (1) Failure to enter a joint venture agreement that complies with paragraph (c) of this section; (2) Failure to perform a contract in accordance with the joint venture agreement or performance of work requirements in paragraph (d) of this section; or (3) Failure to submit the certification required by paragraph (e) or comply with paragraph (i) of this section. (l) Any person with information concerning a joint venture’s compliance VerDate Sep<11>2014 19:00 Jul 22, 2016 Jkt 238001 with the performance of work requirements may report that information to SBA and/or the SBA Office of Inspector General. PART 134—RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF HEARINGS AND APPEALS 48. 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), 637(a), 648(l), 656(i), and 687(c); E.O. 12549, 51 FR 6370, 3 CFR, 1986 Comp., p. 189. 49. Amend § 134.227 by revising paragraph (c) to read as follows: ■ § 134.227 Finality of decisions. * * * * * (c) Reconsideration. Except as otherwise provided by statute, the applicable program regulations in this chapter, or this part 134, an initial or final decision of the Judge may be reconsidered. Any party in interest, including SBA where SBA did not appear as a party during the proceeding that led to the issuance of the Judge’s decision, may request reconsideration by filing with the Judge and serving a petition for reconsideration within 20 days after service of the written decision, upon a clear showing of an error of fact or law material to the decision. The Judge also may reconsider a decision on his or her own initiative. 50. Amend § 134.406 by revising paragraph (b) to read as follows: ■ PO 00000 Frm 00039 Fmt 4701 Sfmt 9990 § 134.406 record. 48595 Review of the administrative * * * * * (b) Except in suspension appeals, the Administrative Law Judge’s review is limited to determining whether the Agency’s determination is arbitrary, capricious, or contrary to law. As long as the Agency’s determination is not arbitrary, capricious or contrary to law, the Administrative Law Judge must uphold it on appeal. (1) The Administrative Law Judge must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. (2) If the SBA’s path of reasoning may reasonably be discerned, the Administrative Law Judge will uphold a decision of less than ideal clarity. * * * * * § 134.501 [Amended] 51. Amend § 134.501 by removing ‘‘§ 125.26’’ from paragraph (a) and by adding ‘‘§ 125.29’’ in its place. ■ § 134.515 [Amended] 52. Amend § 134.515 by removing ‘‘13 CFR 125.28’’ from paragraph (a) and by adding ‘‘§ 125.31 of this chapter’’ in its place. ■ Dated: July 1, 2016. Maria Contreras-Sweet, Administrator. [FR Doc. 2016–16399 Filed 7–22–16; 8:45 am] BILLING CODE 8025–01–P E:\FR\FM\25JYR3.SGM 25JYR3

Agencies

SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 81, Number 142 (Monday, July 25, 2016)]
[Rules and Regulations]
[Pages 48557-48595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16399]



[[Page 48557]]

Vol. 81

Monday,

No. 142

July 25, 2016

Part III





Small Business Administration





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





 Small Business Mentor Prot[eacute]g[eacute] Programs; Final Rule

Federal Register / Vol. 81 , No. 142 / Monday, July 25, 2016 / Rules 
and Regulations

[[Page 48558]]


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SMALL BUSINESS ADMINISTRATION

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

RIN 3245-AG24


Small Business Mentor Prot[eacute]g[eacute] Programs

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
amending its regulations to implement provisions of the Small Business 
Jobs Act of 2010, and the National Defense Authorization Act for Fiscal 
Year 2013. Based on authorities provided in these two statutes, the 
rule establishes a Government-wide mentor-prot[eacute]g[eacute] program 
for all small business concerns, consistent with SBA's mentor-
prot[eacute]g[eacute] program for Participants in SBA's 8(a) Business 
Development (BD) program. The rule also makes minor changes to the 
mentor-prot[eacute]g[eacute] provisions for the 8(a) BD program in 
order to make the mentor-prot[eacute]g[eacute] rules for each of the 
programs as consistent as possible. The rule also amends the current 
joint venture provisions to clarify the conditions for creating and 
operating joint venture partnerships, including the effect of such 
partnerships on any mentor-prot[eacute]g[eacute] relationships. In 
addition, the rule makes several additional changes to current size, 
8(a) Office of Hearings and Appeals and HUBZone regulations, concerning 
among other things, ownership and control, changes in primary industry, 
standards of review and interested party status for some appeals. 
Finally, SBA notes that the title of this rule has been changed.

DATES: This rule is effective August 24, 2016.

FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, U.S. Small Business 
Administration, Office of Government Contracting, 409 3rd Street SW., 
8th Floor, Washington, DC 20416; (202) 205-7337; 
brenda.fernandez@sba.gov.

SUPPLEMENTARY INFORMATION: This rule initially appeared in the 
Regulatory Agenda of Fall 2010 with the title ``Small Business Jobs 
Act: Small Business Mentor-Prot[eacute]g[eacute] Programs.'' SBA 
carried this rule title until the Regulatory Agenda of Spring 2013 when 
the reference to the Jobs Act was taken out, and the title changed to 
``Small Business Mentor-Prot[eacute]g[eacute] Programs.'' This change 
reflected the statutory amendments in section 1641 of NDAA 2013. 
However, when the proposed rule was published, the title had been 
changed to: ``Small Business Mentor Prot[eacute]g[eacute] Program; 
Small Business Size Regulations; Government Contracting Programs; 8(a) 
Business Development/Small Disadvantaged Business Status 
Determinations; HUBZone Program; Women-Owned Small Business Federal 
Contract Program; Rules of Procedure Governing Cases Before the Office 
of Hearings and Appeals.'' In drafting this final rule, SBA concluded 
that the simpler current title (``Small Business Mentor 
Prot[eacute]g[eacute] Programs'') is easier for the public to 
understand and would be consistent with the title that has been 
publicly reported in the Regulatory Agenda since 2013.

I. Background

    On September 27, 2010, the President signed into law the Small 
Business Jobs Act of 2010 (Jobs Act), Public Law 111-240, 124 Stat. 
2504, which was designed to protect the interests of small businesses 
and increase opportunities in the Federal marketplace. With the 
enactment of the Jobs Act, Congress recognized that mentor-
prot[eacute]g[eacute] programs serve an important business development 
function for small business and authorized SBA to establish separate 
mentor-prot[eacute]g[eacute] programs for the Service-Disabled Veteran-
Owned Small Business Concern (SDVO SBC) Program, the HUBZone Program, 
and the Women-Owned Small Business (WOSB) Program, each modeled on 
SBA's existing mentor-prot[eacute]g[eacute] program available to 8(a) 
Business Development (BD Program Participants. See section 1347(b)(3) 
of the Jobs Act.
    On January 2, 2013, the President signed into law the National 
Defense Authorization Act for Fiscal Year 2013 (NDAA 2013), Public Law 
112-239, 126 Stat. 1632. Section 1641 of the NDAA 2013 authorized SBA 
to establish a mentor-prot[eacute]g[eacute] program for all small 
business concerns. This section further provides that a small business 
mentor-prot[eacute]g[eacute] program must be identical to the 8(a) BD 
mentor-prot[eacute]g[eacute] program, except that SBA may modify the 
program to the extent necessary, given the types of small business 
concerns to be included as prot[eacute]g[eacute]s. Section 1641 also 
provides that a Federal department or agency could not carry out its 
own agency specific mentor-prot[eacute]g[eacute] program for small 
businesses unless the head of the department or agency submitted a plan 
for such a program to SBA and received the SBA Administrator's approval 
of the plan. Finally, section 1641 requires the head of each Federal 
department or agency carrying out an agency-specific mentor-
prot[eacute]g[eacute] program to report annually to SBA the 
participants in its mentor-prot[eacute]g[eacute] program, the 
assistance provided to small businesses through the program, and the 
progress of prot[eacute]g[eacute] firms to compete for Federal prime 
contracts and subcontracts.
    On February 5, 2015, SBA published in the Federal Register a 
comprehensive proposal to implement a new Government-wide mentor-
prot[eacute]g[eacute] program for all small businesses. 80 FR 6618. SBA 
decided to implement one new small business mentor-
prot[eacute]g[eacute] program instead of four new mentor-
prot[eacute]g[eacute] programs (one for small businesses, one for SDVO 
small businesses, one for WOSBs and one for HUBZone small businesses) 
since the other three types of small businesses (SDVO, HUBZone and 
women-owned) would be necessarily included within any mentor-
prot[eacute]g[eacute] program targeting all small business concerns. 
SBA did not eliminate the 8(a) BD mentor-prot[eacute]g[eacute] program. 
Thus, the intent was to propose two separate mentor-
prot[eacute]g[eacute] programs, one for 8(a) BD Participants and one 
for all small businesses (including 8(a) Participants if they choose to 
create a small business mentor-prot[eacute]g[eacute] relationship 
instead of a mentor-prot[eacute]g[eacute] relationship under the 8(a) 
BD program). The small business mentor-prot[eacute]g[eacute] program 
was drafted to be as similar to the 8(a) mentor-prot[eacute]g[eacute] 
program as possible.
    The proposed rule called for a 60-day comment period, with comments 
required to be made to SBA by April 6, 2015. The overriding comment SBA 
received in the first few weeks after the publication was to extend the 
comment period. In response to these comments, SBA published a notice 
in the Federal Register on April 7, 2015, extending the comment period 
an additional 30 days to May 6, 2015. 80 FR 18556. In addition to 
providing a 90-day comment period, SBA also conducted a series of 
tribal consultations pursuant to Executive Order 13175, Tribal 
Consultations. SBA conducted three in-person tribal consultations (in 
Washington, DC on February 26, 2015, in Tulsa, Oklahoma on April 21, 
2015, and in Anchorage, Alaska on April 23, 2015) and two telephonic 
tribal consultations (one on April 7, 2015, and a Hawaii/Native 
Hawaiian Organization specific one on April 8, 2015).
    Currently, the mentor-prot[eacute]g[eacute] program available to 
firms participating in the 8(a) BD program is used as a business 
development tool in which mentors provide diverse types of business 
assistance to eligible 8(a) BD prot[eacute]g[eacute]s. This assistance 
may include, among other things, technical and/or management 
assistance; financial

[[Page 48559]]

assistance in the form of equity investments and/or loans; 
subcontracts; and/or assistance in performing Federal prime contracts 
through joint venture arrangements. The explicit purpose of the 8(a) BD 
mentor-prot[eacute]g[eacute] relationship is to enhance the 
capabilities of prot[eacute]g[eacute]s and to improve their ability to 
successfully compete for both government and commercial contracts. 
Similarly, the mentor-prot[eacute]g[eacute] program for all small 
business concerns is designed to require approved mentors to provide 
assistance to prot[eacute]g[eacute] firms in order to enhance the 
capabilities of prot[eacute]g[eacute]s, to assist 
prot[eacute]g[eacute]s with meeting their business goals, and to 
improve the ability of prot[eacute]g[eacute]s to compete for contracts.
    One commenter opposed expanding the mentor-prot[eacute]g[eacute] 
program beyond the 8(a) BD program. The commenter believed that it has 
not been established that the 8(a) mentor-prot[eacute]g[eacute] program 
is bestowing a substantial benefit on 8(a) Participants, and, 
therefore, SBA should perform additional research and analysis before 
expanding the program. SBA disagrees. In the current 8(a) BD mentor-
prot[eacute]g[eacute] program, in order for any mentor-
prot[eacute]g[eacute] relationship to continue, the 8(a) 
prot[eacute]g[eacute] firm must demonstrate annually what benefits it 
has derived from the mentor-prot[eacute]g[eacute] relationship. Where 
the benefits provided to the prot[eacute]g[eacute] firm are minimal or 
where it appears that the relationship has been used primarily to 
permit a non-8(a) (oftentimes, large) mentor to benefit from contracts 
with its approved prot[eacute]g[eacute], through one or more joint 
ventures, that it would otherwise not be eligible for, SBA will 
terminate the mentor-prot[eacute]g[eacute] relationship. The proposed 
rule also provided that SBA may terminate the mentor-
prot[eacute]g[eacute] agreement (MPA) where it determines that the 
parties are not complying with any term or condition of the MPA. This 
rule requires similar reporting of benefits for non-8(a) 
prot[eacute]g[eacute] firms and similar consequences where the benefits 
provided to the prot[eacute]g[eacute] firm do not adequately justify 
the mentor-prot[eacute]g[eacute] relationship. One commenter requested 
clarification as to when and how SBA would cancel a MPA. SBA's analysis 
as to whether a prot[eacute]g[eacute] firm is adequately benefitting 
from the relationship or whether non-compliance with one or more 
specific terms or conditions of the MPA should warrant termination of 
the agreement is a fact specific determination to be made based on the 
totality of the circumstances. SBA would not terminate a particular MPA 
where there are de minimus or inadvertent violations of the agreement. 
In addition, it is not SBA's intent to terminate a particular MPA 
without considering the views of the prot[eacute]g[eacute] firm. 
However, the mere fact that a prot[eacute]g[eacute] wants the mentor-
prot[eacute]g[eacute] relationship to continue will not be dispositive 
if SBA believes that termination is justified.
    Conversely, SBA received a significant number of comments 
supporting a small business mentor-prot[eacute]g[eacute] program. These 
commenters believed that a small business mentor-prot[eacute]g[eacute] 
program would enable firms that are not in the 8(a) BD program to 
receive critical business development assistance that would otherwise 
not be available to them. Many of these commenters expressed support 
for the opportunity to gain meaningful expertise that would help them 
to independently perform more complex and higher value contracts in the 
future.
    This rule implements a mentor-prot[eacute]g[eacute] program similar 
to the 8(a) BD mentor-prot[eacute]g[eacute] program for all small 
business concerns. The rule adds this program to a new Sec.  125.9 of 
SBA's regulations. SBA proposed one program for all small businesses 
because SBA believed it would be easier for the small business and 
acquisition communities to use and understand. However, SBA 
specifically requested comments as to whether SBA should finalize one 
small business mentor-prot[eacute]g[eacute] program, as proposed, or, 
rather, five separate mentor-prot[eacute]g[eacute] programs for the 
various small business entities. Most commenters supported having one 
new small business mentor-prot[eacute]g[eacute] program instead of four 
new mentor-prot[eacute]g[eacute] programs (one for SDVO small 
businesses, one for HUBZone small businesses, one for WOSBs, and one 
for small businesses not falling into one of the other categories). 
They agreed that it would be less confusing to deal with one new 
program, rather than four new programs, and that it was not necessary 
to have four separate mentor-prot[eacute]g[eacute] programs since the 
three subcategories of small business are necessarily included within 
the overall category of small business. Many of the commenters were 
concerned, however, that changes could be made to the current 8(a) BD 
mentor-prot[eacute]g[eacute] program. Specifically, commenters were 
concerned that SBA might want to eliminate the 8(a) BD mentor-
prot[eacute]g[eacute] program as a separate program and instead roll it 
into the small business mentor-prot[eacute]g[eacute] program. SBA has 
considered those concerns and has decided to keep the 8(a) BD mentor-
prot[eacute]g[eacute] program as a separate program. That program has 
independently operated successfully for a number of years and SBA 
believes that it serves important business development purposes that 
should continue to be coordinated through SBA's Office of Business 
Development, rather than through a separate mentor-
prot[eacute]g[eacute] office managed elsewhere within the Agency. As 
such, this final rule makes no changes as to how MPAs are processed for 
the 8(a) BD program.
    In addition, the final rule revises the joint venture provisions 
contained in Sec.  125.15(b) (for SDVO SBCs, and which are now 
contained in Sec.  125.18(b)), Sec.  126.616 (for HUBZone SBCs), and 
Sec.  127.506 (for WOSB and Economically Disadvantaged Women-Owned 
Small Business (EDWOSB) concerns) to more fully align those 
requirements to the requirements of the 8(a) BD program. The rule also 
adds a new Sec.  125.8 to specify requirements for joint ventures 
between small business prot[eacute]g[eacute] firms and their mentors. 
The rule also makes several additional changes to current size, 8(a) BD 
and HUBZone regulations that are needed to clarify certain provisions 
or correct interpretations of the regulations that were inconsistent 
with SBA's intent. These changes, the comments to the proposed rule, 
and SBA's response to the comments are set forth more fully below.
    In response to the 90-day comment period, SBA received 113 
comments, with most of the commenters commenting on multiple proposed 
provisions. With the exception of comments that did not set forth any 
rationale or make suggestions, SBA discusses and responds fully to all 
the comments below.

Summary of Comments and SBA's Response

Definition of Joint Venture (13 CFR 121.103(h))
    SBA's size regulations recognize that joint ventures may be formal 
or informal. The proposed rule amended Sec.  121.103(h) to clarify that 
every joint venture, whether a separate legal entity or an ``informal'' 
arrangement that exists between two (or more) parties, must be in 
writing. SBA never meant that an informal joint venture arrangement 
could exist without a formal written document setting forth the 
responsibilities of all parties to the joint venture. SBA merely 
intended to recognize that a joint venture need not be established as a 
limited liability company or other formal separate legal entity.
    A few comments opposed that provision of the proposed rule that 
identified informal joint ventures as partnerships, believing that 
entering into a formal or informal partnership

[[Page 48560]]

often comes with certain obligations that may not be intended under a 
joint venture. For example, partners generally have fiduciary duties to 
each other, bind one another with their actions, and are jointly and 
severally liable for the debts of the business. One commenter 
recommended that SBA should replace the phrase ``formal or informal 
partnership'' with the words ``contractual affiliation.'' SBA does not 
agree that this recommended change would be beneficial. First, SBA 
believes that the term ``contractual affiliation'' is not precise and 
would cause confusion. Moreover, SBA continues to believe that state 
law would recognize an ``informal'' joint venture with a written 
document setting forth the responsibilities of the joint venture 
partners as some sort of partnership. As such, this rule merely 
identifies the consequences of forming an informal joint venture and 
should assist firms in determining what type of joint venture meets the 
parties' needs in each case. If the joint venture partners do not want 
the associated consequences of being considered a partnership, then it 
might be beneficial for the joint venture to be formed as a limited 
liability company. Therefore, this final rule adopts the proposed 
language and specifies that a joint venture may be a formal or informal 
partnership or exist as a separate limited liability company or other 
separate legal entity. However, regardless of form, the joint venture 
must be reduced to a written agreement.
    In addition, the proposed rule specified that if a joint venture 
exists as a formal separate legal entity, it may not be populated with 
individuals intended to perform contracts awarded to the joint venture. 
This is a change from the current regulation that allows a separate 
legal entity joint venture to be unpopulated, to be populated with 
administrative personnel only, or to be populated with its own separate 
employees that are intended to perform contracts awarded to the joint 
venture. SBA explained that it is concerned that allowing populated 
joint ventures between a mentor and prot[eacute]g[eacute] would not 
ensure that the prot[eacute]g[eacute] firm and its employees benefit by 
developing new expertise, experience, and past performance. The 
separate joint venture entity would gain those things. If the 
individuals hired by the joint venture to perform the work under the 
contract did not come from the prot[eacute]g[eacute] firm, there is no 
guarantee that they would ultimately end up working for the 
prot[eacute]g[eacute] firm after the contract is completed. In such a 
case, the prot[eacute]g[eacute] firm would have gained nothing out of 
that contract. The company itself did not perform work under the 
contract and the individual employees who performed work did not at any 
point work for the prot[eacute]g[eacute] firm.
    SBA received comments on both sides of this issue. Several 
commenters supported the proposed change, noting that forming a 
separate legal entity is an undue burden, and questioned whether the 
firm admitted to the 8(a) program (the prot[eacute]g[eacute] small 
business) would gain any direct benefits if all the work was performed 
by a separate legal entity. In addition, several of the commenters 
appreciated SBA's attempt to simplify these regulatory requirements. 
Several other commenters opposed the elimination of populated joint 
ventures. Many of these commenters believed that populated joint 
venture companies are an important mechanism for an entity-owned firm 
to remain competitive. They argued that this method of business 
organization facilitates the development of the disadvantaged small 
business because it makes the company more competitive in the 
marketplace. Specifically, these commenters pointed out that a 
populated joint venture has its own lower indirect costs, which, in 
turn, lowers the cost to the Government. Although SBA understands the 
benefit of using lower indirect costs from a populated joint venture, 
SBA continues to believe that a small prot[eacute]g[eacute] firm does 
not adequately enhance its expertise or ability to perform larger and 
more complex contracts on its own in the future when all the work 
through a joint venture is performed by a populated separate legal 
entity. A joint venture between a prot[eacute]g[eacute] firm and its 
mentor is intended to promote the business development of the 
prot[eacute]g[eacute] firm. SBA questions how that can be accomplished 
where the prot[eacute]g[eacute] itself performs no work on a particular 
joint venture contract, and the employees who do the work for the 
separate legal entity may or may not have any present or future 
connection to the prot[eacute]g[eacute] firm. In the 8(a) BD context, 
the purpose is to promote the business development of the firm that was 
admitted to the 8(a) BD program, the prot[eacute]g[eacute] firm, not a 
separate legal entity that is not itself a certified 8(a) Participant. 
In addition, populated joint ventures create unique problems in the 
HUBZone program. HUBZone's unique requirements with regard to 
employees, principal office, and residency make maintaining HUBZone 
status while participating in populated joint ventures difficult. In 
determining whether an individual should be determined an employee, the 
HUBZone program utilizes the totality of the circumstances approach and 
oftentimes a firm will have some individuals not on its payroll 
considered an employee for HUBZone eligibility purposes. Populated 
joint ventures present a problem because it can be difficult for firms 
to determine whom should be counted as an employee at any given time.
    SBA continues to believe that the benefits received by a 
prot[eacute]g[eacute] from a joint venture are more readily 
identifiable where the work done on behalf of the joint venture is 
performed by the prot[eacute]g[eacute] and the mentor separately. In 
such a case, it is much easier to determine that the 
prot[eacute]g[eacute] firm performed at least 40% of all work done by 
the joint venture, performed more than merely ministerial or 
administrative work, and otherwise gained experience that could be used 
to perform a future contract independently. Thus, this rule adopts the 
proposed language to allow a separate legal entity joint venture to 
have its own separate employees to perform administrative functions, 
but not to have its own separate employees to perform contracts awarded 
to the joint venture.
    SBA also proposed to require joint venture partners to allow SBA's 
authorized representatives, including representatives authorized by the 
SBA Inspector General, to access its files and inspect and copy records 
and documents when necessary. Several commenters requested SBA to 
clarify that the access should be limited to documents and records 
relating to the joint venture, not to unrelated documents of the joint 
venture partners themselves. SBA agrees and has amended Sec. Sec.  
124.513(i), 125.8(h), 125.18(b)(8), 126.616(h), and 127.506(i) to 
clarify that SBA's access would be related to files, records and 
documents of the joint venture. A few commenters also recommended that 
SBA should provide reasonable notice before it sought access to such 
records. SBA disagrees. SBA's Office of Inspector General must be able 
to have unlimited access when investigating potential violations of 
SBA's regulations. In a potential fraud case, providing notice could 
cause a destruction of records or provide time for a party to create 
the appearance of complying with applicable requirements. As such, this 
final rule does not require SBA to provide reasonable notice before 
seeking access to joint venture files, records and documents. SBA 
notes, however, that in its normal oversight responsibilities not 
related to any investigation of alleged wrongdoing, SBA would generally 
provide reasonable notice.

[[Page 48561]]

Place of Performance
    In the case of Latvian Connection General Trading and Construction 
LLC, B-408633, Sept. 18, 2013, 2013 CPD ] 224, GAO ruled that Sec.  
19.000(b) of the Federal Acquisition Regulation (FAR) limits the 
application of FAR part 19 (dealing with SBA's small business programs) 
to acquisitions conducted in the United States (and its outlying 
areas). The basis for GAO's ruling was that SBA's regulations were 
silent on this issue and therefore, the more specific FAR regulation 
controlled. Heeding this advice, SBA promulgated regulations to address 
this issue. Specifically, SBA made wholesale changes to 13 CFR 125.2 on 
October 2, 2013. As a result, SBA issued a final rule recognizing that 
small business contracting could be used ``regardless of the place of 
performance.'' 13 CFR 125.2(a) and (c).
    The February 5, 2015 proposed rule proposed to add similar language 
to Sec. Sec.  124.501, 125.22(b), 126.600, and 127.500, thus 
specifically authorizing contracting in the 8(a) BD, SDVO, HUBZone and 
WOSB programs regardless of the place of performance, where 
appropriate. Although SBA believes that the authority to use those 
programs in appropriate circumstances overseas already exists, the 
proposed rule merely sought to make that authority clear. Nothing in 
the Small Business Act would prohibit the use of those programs in 
appropriate circumstances overseas. SBA received a few comments on this 
issue. The commenters supported clarification of the current authority. 
The regulatory text merely highlights contracting officers' 
discretionary authority to use these programs where appropriate 
regardless of the place of performance.
HUBZone Joint Ventures (13 CFR 126.616)
    The HUBZone program is a community growth and development program 
in which businesses are incentivized to establish principal office 
locations in, and employ individuals from, areas of chronically high 
unemployment and/or low income in order to stimulate economic 
development. To further this purpose, the HUBZone program regulations 
permitted a joint venture only between a HUBZone SBC and another 
HUBZone SBC. In authorizing a mentor-prot[eacute]g[eacute] relationship 
for HUBZone qualified SBCs, the proposed rule provided language to 
allow joint ventures for HUBZone contracts between a HUBZone 
prot[eacute]g[eacute] firm and its mentor, regardless of whether the 
mentor was itself a HUBZone qualified SBC.
    SBA received a significant number of comments on this provision. 
The commenters overwhelmingly supported allowing a HUBZone qualified 
SBC that obtained an SBA-approved small business mentor-
prot[eacute]g[eacute] relationship to be able to joint venture with its 
mentor on all contracts for which the prot[eacute]g[eacute] 
individually qualified, including HUBZone contracts. The commenters 
felt that such a provision would allow prot[eacute]g[eacute]s to 
perform contracts that they otherwise could not have obtained and truly 
provide them with expertise and past performance that would help them 
to individually perform additional contracts in the future.
    The commenters expressed that they felt that the purposes of the 
HUBZone program would be appropriately served by allowing non-HUBZone 
firms to act as mentors and joint venture with prot[eacute]g[eacute] 
HUBZone firms because the HUBZone firm itself would be developed and 
would necessarily be required to hire additional HUBZone employees if 
it sought to remain eligible for future HUBZone contracts.
Joint Venture Certifications and Performance of Work Reports (13 CFR 
125.8, 125.18, 126.616, 127.506)
    The proposed rule required all partners to a joint venture 
agreement that perform a SDVO, HUBZone, WOSB, or small business set-
aside contract to certify to the contracting officer and SBA prior to 
performing any such contract that they will perform the contract in 
compliance with the joint venture regulations and with the joint 
venture agreement. In addition, the parties to the joint venture are 
required to report to the contracting officer and to SBA how they are 
meeting or have met the applicable performance of work requirements for 
each SDVO, HUBZone, WOSB or small business set-aside contract they 
perform as a joint venture.
    SBA received comments both supporting and opposing this approach. 
One commenter suggested use of an honor system for the reporting. SBA 
did not view this as a viable alternative. Others believed that 
certifications in the System for Award Management (SAM) should be 
sufficient. Other commenters supported the proposed approach as a 
reasonable way to ensure compliance. SBA believes that affirmative 
reporting by the joint venture parties to both the contracting officer 
and SBA will provide the necessary information to track the use and 
performance of joint ventures. SBA also believes that the certification 
and reporting requirements implemented in this rule will assist the 
Government in its ability to deter wrongdoing. Regular reporting and 
monitoring of the limitations on subcontracting requirements will allow 
all parties to know where the joint venture stands with respect to 
those requirements and what must be done to come into compliance in the 
future if the joint venture's performance is below the required amount 
at any point in time. A contracting officer will be able to more 
closely oversee the performance of a contract where the reports show 
inadequate performance to date.
    As such, the final rule adopts the proposed language requiring 
joint venture partners to annually report compliance to both the 
contracting officer and SBA.
Tracking Joint Venture Awards
    The proposed rule announced that SBA was considering various 
methods of tracking awards to the joint ventures permitted by SBA's 
regulations. The possible approaches included: Requiring all joint 
ventures permitted by the regulations to include in their names ``small 
business joint venture,'' and, if a mentor-prot[eacute]g[eacute] joint 
venture, to include in their names ``mentor-prot[eacute]g[eacute] small 
business joint venture;'' requiring contracting officers to identify 
awards as going to small business joint ventures or to mentor-
prot[eacute]g[eacute] small business joint ventures; requiring SBCs to 
amend their SAM entries to specify that they have formed a joint 
venture; requiring each joint venture to get a separate DUNS number; or 
a combination of all of these actions. SBA sought to ensure that 
governmental agencies and members of the public could track joint 
venture awards, which would promote transparency and accountability. 
SBA specifically asked for comments on how best to track awards to 
joint ventures. SBA believes a tracking approach will deter fraudulent 
or improper conduct, and promote compliance with SBA's regulations.
    SBA received numerous comments on these proposals both in support 
and in opposition to the alternate approaches contemplated. Several 
commenters opposed the naming requirement, expressing concern about the 
administrative burden on the participating firms to change names, 
establish duns numbers and meet other compliance requirements in order 
to meet this requirement. Other commenters recommended that the 
cleanest way to track awards to joint ventures would in fact be to 
require a joint venture to form a new entity in SAM and identity itself 
to be a joint venture in SAM. Several commenters suggested the SAM 
system adopt a

[[Page 48562]]

certification for joint ventures, or alternatively contracting officers 
designate in SAM that an award was made to a joint venture.
    In response to the comments, SBA first notes that any SAM 
certification process is beyond SBA's authority and outside the scope 
of this rule. SBA also notes that current participants in the 8(a) BD 
program annually report to SBA the joint venture awards they have 
received and how they are meeting the limitations on subcontracting 
requirements. To track small business joint venture awards, SBA could 
require similar reporting. However, SBA does not seek to impose any 
unnecessary burdens on small business. With that in mind, SBA believes 
that additional reporting is not necessary, but continues to believe 
that some sort of joint venture identification is required. Thus, this 
final rule requires joint ventures to be separately identified in SAM 
so that awards to joint ventures can be properly accounted for. A joint 
venture must be identified as a joint venture in SAM, with a separate 
DUNS number and CAGE number than those of the individual parties to the 
joint venture. In addition, the Entity Type in SAM must be identified 
as a joint venture, and the individual joint venture partners should 
also be listed.
Applications for SBA's Small Business Mentor-Prot[eacute]g[eacute] 
Program (13 CFR 125.9)
    As noted above, SBA proposed implementing one universal small 
business mentor-prot[eacute]g[eacute] program instead of a separate 
mentor-prot[eacute]g[eacute] program for each type of small business 
(i.e., HUBZone, SDVO, WOSB program, and small business). In addition, 
the proposed rule indicated that SBA intended to maintain a separate 
mentor-prot[eacute]g[eacute] program for eligible 8(a) BD Program 
Participants. The proposed rule provided that a small business seeking 
a mentor-prot[eacute]g[eacute] relationship would be required to submit 
an application to SBA and that SBA's Director of Government Contracting 
(D/GC) would review and either approve or decline small business MPAs. 
SBA's Associate Administrator for BD (AA/BD) would continue to review 
and approve or decline mentor-prot[eacute]g[eacute] relationships in 
the 8(a) BD program. Under the proposed language, an eligible 8(a) BD 
Program Participant could choose to seek SBA's approval of a mentor-
prot[eacute]g[eacute] relationship through the 8(a) BD program, or 
could seek a small business mentor-prot[eacute]g[eacute] relationship 
through SBA's mentor-prot[eacute]g[eacute] program for all small 
businesses. SBA announced it was considering having one office review 
and either approve or decline all MPAs to ensure consistency in the 
process, and specifically sought comments as to whether that approach 
should be implemented. Finally, the supplementary information to the 
proposed rule provided that SBA may institute certain ``open'' and 
``closed'' periods for the receipt of mentor-prot[eacute]g[eacute] 
applications if the number of firms seeking SBA to approve their 
mentor-prot[eacute]g[eacute] relationships becomes unwieldy. In such a 
case, SBA would then accept mentor-prot[eacute]g[eacute] applications 
only in ``open'' periods.
    SBA received a significant number of comments regarding 
applications for mentor-prot[eacute]g[eacute] relationships. Commenters 
applauded SBA's proposal to keep the 8(a) BD mentor-
prot[eacute]g[eacute] program separate from the small business mentor-
prot[eacute]g[eacute] program. Commenters also supported establishing a 
separate office to process applications for the small business mentor-
prot[eacute]g[eacute] program. The commenters were concerned, however, 
about the administrative burden the additional small business mentor-
prot[eacute]g[eacute] program will have on SBA's resources. They felt 
that the volume of firms seeking mentor-prot[eacute]g[eacute] 
relationships could excessively delay SBA's processing of applications. 
Commenters also opposed the proposal to have open enrollment periods to 
receive small business mentor-prot[eacute]g[eacute] applications. They 
thought that such a process would cause significant delays in allowing 
firms to benefit from the mentor-prot[eacute]g[eacute] program. They 
also felt that open enrollment periods could cause firms to miss out on 
developmental procurement opportunities if they had to wait several 
months before they could apply to participate in the program. If there 
were open enrollment periods, then commenters believed that firms 
should be processed on a first come first served basis, and different 
types of small businesses should not be given priority or processed 
first over other types of small businesses.
    SBA understands the concerns raised by the commenters. It is not 
SBA's intent to delay participation in the small business mentor-
prot[eacute]g[eacute] program. In order to reduce the processing time 
for a small business mentor-prot[eacute]g[eacute] application, SBA 
considered changing final approval from the D/GC to six senior SBA 
district directors. SBA thought that six decision makers instead of one 
might speed up the processing time for applications and eliminate the 
need for open enrollment periods. However, such a structure could also 
cause inconsistent results and could require more overall resources (by 
requiring additional staff in six different locations) than simply 
providing adequate staff at one location. SBA recognizes that the D/GC 
is responsible for many other functions, and understands several 
commenters' concerns that mentor-prot[eacute]g[eacute] applications 
might not be the highest priority of that office. Therefore, SBA 
intends to establish a separate unit within the Office of Business 
Development whose sole function would be to process mentor-
prot[eacute]g[eacute] applications and review the MPAs and the 
assistance provided under them once approved. This final rule provides 
that this new unit will process and make determinations with respect to 
all small business MPAs, with the ultimate decision to be made by the 
AA/BD or his/her designee. SBA believes that the efficiencies gained by 
having a dedicated staff for the small business mentor-
prot[eacute]g[eacute] program will allow SBA to timely process 
applications for mentor-prot[eacute]g[eacute] status, and that the need 
for open and closed enrollment periods will be reduced. Of course, it 
is still possible that the number of applications could overwhelm the 
dedicated small business mentor-prot[eacute]g[eacute] unit. If that is 
the case, open enrollment periods could still be a possibility. Several 
commenters suggested that SBA may have an enormous volume of 
applications, and others suggested otherwise. SBA believes that 
additional information is needed before a decision to control the 
acceptance of applications is necessary. If the need arises, SBA will 
provide advance notice to allow potential applicants the opportunity to 
properly plan.
Mentors (13 CFR 124.520 and 125.9)
    The proposed rule permitted any for-profit business concern that 
demonstrates a commitment and the ability to assist small business 
concerns to be approved to act as a mentor and receive the benefits of 
the mentor-prot[eacute]g[eacute] relationship. SBA also proposed to 
limit mentors to for-profit business entities based on the language 
contained in the NDAA 2013. Section 1641 of the NDAA 2013 added section 
45(d)(1) of the Small Business Act, 15 U.S.C. 657r(d)(1), which defines 
the term mentor to be ``a for-profit business concern of any size.'' In 
order to make the 8(a) BD mentor-prot[eacute]g[eacute] program 
consistent with the small business mentor-prot[eacute]g[eacute] 
program, SBA proposed that mentors in the 8(a) BD mentor-
prot[eacute]g[eacute] program must be for profit businesses as well. 
This was a change for the 8(a) BD program, which previously allowed 
non-profit entities to be mentors. SBA felt that the change to the 8(a) 
BD program made sense because

[[Page 48563]]

Congress intended the new mentor-prot[eacute]g[eacute] program for 
small businesses to be as similar to the 8(a) BD mentor-
prot[eacute]g[eacute] program as possible.
    A small number of commenters disagreed with having a small business 
mentor-prot[eacute]g[eacute] program at all, and argued that the 
statutory authorities were discretionary and did not require SBA to 
implement additional small business mentor-prot[eacute]g[eacute] 
programs. A few of these commenters also felt that if there were such a 
program, the mentors should be limited to other small businesses. They 
expressed the view that individual small businesses could be harmed 
competing against joint ventures in which a large business mentor was a 
partner. Although SBA understands that the small business mentor-
prot[eacute]g[eacute] programs authorized by the Jobs Act and the NDAA 
2013 are discretionary, SBA believes that they will serve an important 
developmental function that will enable many small businesses to grow 
to be able to independently perform procurements that they otherwise 
would not have been able to perform. In addition, the vast majority of 
commenters supported a small business mentor-prot[eacute]g[eacute] 
program and many of those comments believed that it would be critical 
in helping them to advance and be able to perform larger and more 
complex contracts on their own. SBA agrees with the majority of 
commenters on this issue and this final rule implements a small 
business mentor-prot[eacute]g[eacute] program. Because the language of 
section 45(d)(1) of the Small Business Act, 15 U.S.C. 657r(d)(1), 
specifies a mentor in the small business mentor-prot[eacute]g[eacute] 
program to be ``a for-profit business concern of any size'' and section 
45(a)(2) of the Small Business Act, 15 U.S.C. 657r(a)(2), requires the 
mentor-prot[eacute]g[eacute] program for small businesses to be 
``identical to the [8(a) BD] mentor-prot[eacute]g[eacute] program . . . 
as in effect on the date of enactment of this section . . .,'' which 
authorized large business mentors, this final rule authorizes only 
other than small businesses that are organized for profit to be 
mentors. Specifically, the final rule authorizes any ``concern,'' 
regardless of size, to be a mentor, and the term ``concern'' has 
historically been defined in SBA's size regulations to mean a business 
entity organized for profit.
    The proposed rule also required a firm seeking to be a mentor to 
demonstrate that it ``possesses a good financial condition.'' Several 
commenters urged SBA to clarify what it means to possess good financial 
condition. In addition, during the tribal consultations, several 
individuals spoke of situations where SBA denied a large multi-national 
firm from being a mentor because one or more financial documents 
indicated a loss. These individuals believed SBA did not take the 
proper approach when considering whether a business concern should be a 
mentor. They stressed that SBA should look only at whether the proposed 
mentor can deliver what it has said it will bring to the 
prot[eacute]g[eacute]. They believed that anything beyond that was not 
necessary. SBA agrees that the ``good financial condition'' requirement 
has caused some confusion. SBA believes that the key issue is whether a 
proposed mentor can meet its obligations under its MPA. If a proposed 
mentor can fulfill those obligations and has the financial wherewithal 
to provide all of the business development assistance to the 
prot[eacute]g[eacute] firm as described in its MPA, SBA should not 
otherwise care about the proposed mentor's financial condition. SBA 
wants to ensure that the prot[eacute]g[eacute] firm receives needed 
business development assistance through the mentor-
prot[eacute]g[eacute] relationship. If that can be demonstrated, SBA 
will be satisfied with the arrangement. As such, this final rule 
changes the requirement that a mentor have good financial condition to 
one requiring that the mentor must demonstrate that it can fulfill its 
obligations under the MPA.
    In addition, the proposed rule provided that a mentor participating 
in any SBA-approved mentor-prot[eacute]g[eacute] program would 
generally have no more than one prot[eacute]g[eacute] at a time. It 
also provided that SBA could authorize a concern to mentor more than 
one prot[eacute]g[eacute] at a time where it can demonstrate that the 
additional mentor-prot[eacute]g[eacute] relationship would not 
adversely affect the development of either prot[eacute]g[eacute] firm 
(e.g., the second firm may not be a competitor of the first firm). The 
rule also proposed, however, that no firm could be a mentor of more 
than three prot[eacute]g[eacute]s in the aggregate at one time under 
either of the mentor-prot[eacute]g[eacute] programs authorized by Sec.  
124.520 or Sec.  125.9. A mentor could choose to have: Up to three 
prot[eacute]g[eacute]s in the 8(a) BD program; or up to three 
prot[eacute]g[eacute]s in the small business program; or one or more 
prot[eacute]g[eacute]s in one program and one or more in another 
program, but no more than three prot[eacute]g[eacute]s in the 
aggregate. SBA received comments on both sides of this issue. A few 
commenters believed that all SBA should care about is whether a mentor 
can adequately provide needed business development assistance to a 
proposed prot[eacute]g[eacute]. If they could, these commenters 
believed that a specific firm could be a mentor for more than three 
prot[eacute]g[eacute] firms. They argued that some of the best 
potential mentors could be large firms that were already mentoring 
other small businesses, and by limiting the number of 
prot[eacute]g[eacute]s that a mentor could have could deprive a 
particular firm of a mentor that could be an ideal partner. Conversely, 
several other commenters agreed with SBA that allowing one firm to 
mentor an unlimited number of prot[eacute]g[eacute] firms could allow a 
large business to unduly benefit from contracts that are intended to 
primarily benefit small business. One commenter believed that allowing 
three prot[eacute]g[eacute]s at the same time for one mentor was too 
much, and recommended restricting it to two prot[eacute]g[eacute] firms 
at one time. SBA continues to believe that there must be a limit on the 
number of firms that one business, particularly one that is other than 
small, can mentor. Although SBA believes that the small business 
mentor-prot[eacute]g[eacute] program will certainly afford business 
development opportunities to many small businesses, SBA remains 
concerned about large businesses benefitting disproportionately. If one 
firm could be a mentor for an unlimited number (or even a larger 
limited number) of prot[eacute]g[eacute]s, that firm would receive 
benefits from the mentor-prot[eacute]g[eacute] program through joint 
ventures and possible stock ownership far beyond the benefits to be 
derived by any individual prot[eacute]g[eacute]. In addition, the 8(a) 
BD program in effect at the time that the Jobs Act and the NDAA 2013, 
also limited mentors to having no more than three prot[eacute]g[eacute] 
firms. Since those authorities permitted SBA to implement a small 
business mentor-prot[eacute]g[eacute] program as similar as possible to 
the 8(a) BD mentor-prot[eacute]g[eacute] program, it makes sense that 
SBA should limit any mentor to a total of three prot[eacute]g[eacute] 
firms. Therefore, this final rule adopts the language of the proposed 
rule, which permits any mentor to have up to a total of three 
prot[eacute]g[eacute] firms at one time. One commenter requested that 
SBA clarify that a mentor can have no more than three 
prot[eacute]g[eacute] firms at one time, not three firms in the 
mentor's entire existence. SBA believes that is adequately spelled out 
in the regulatory text and does not further clarify that provision in 
this final rule.
    Finally, the proposed rule provided that a prot[eacute]g[eacute] in 
the small business mentor-prot[eacute]g[eacute] program may not become 
a mentor and retain its prot[eacute]g[eacute] status. That proposal was 
patterned off the 8(a) BD mentor-prot[eacute]g[eacute] program. SBA 
received several comments opposing this proposal. The commenters felt 
that firms that have

[[Page 48564]]

themselves been prot[eacute]g[eacute]s may be in the best position to 
act as mentors. In addition, they argued that just because a firm can 
act as a mentor to smaller or less experienced firms does not mean that 
they too don't need help getting to the next level. They did not 
believe that it would make sense to require a current 
prot[eacute]g[eacute] to terminate the MPA with its mentor before it 
will be approved as a mentor to another small business concern. The 
commenters believed that in both the 8(a) BD and small business mentor-
prot[eacute]g[eacute] programs a firm should be permitted to be both a 
prot[eacute]g[eacute] and mentor in appropriate circumstances. SBA 
agrees with this position; thus, this final rule provides that SBA may 
authorize a small business to be both a prot[eacute]g[eacute] and a 
mentor at the same time where the firm can demonstrate that the second 
relationship will not compete or otherwise conflict with the first 
mentor-prot[eacute]g[eacute] relationship.
Prot[eacute]g[eacute]s (13 CFR 124.520 and 125.9)
    In order to qualify as a prot[eacute]g[eacute], the proposed rule 
required a business concern to qualify as small for the size standard 
corresponding to its primary NAICS code. This was a departure for the 
current 8(a) BD mentor-prot[eacute]g[eacute] program, which required an 
8(a) Program Participant to: Have a size that is less than half the 
size standard corresponding to its primary NAICS code; or be in the 
developmental stage of its 8(a) program participation; or not have 
received an 8(a) contract. SBA received a significant number of 
comments supporting the change to loosen the requirements to qualify as 
a prot[eacute]g[eacute] for the 8(a) BD mentor-prot[eacute]g[eacute] 
program. These commenters supported consistency between the two 
programs and believed that allowing more mature small businesses to 
participate as prot[eacute]g[eacute]s in the 8(a) BD mentor-
prot[eacute]g[eacute] program would facilitate more dynamic 
developmental assistance and strengthen the contractor base for 
government procurements. Several commenters also felt that the proposed 
change made the requirement clearer to understand and implement. 
Conversely, a few commenters did not support changes to the size of the 
prot[eacute]g[eacute] for the 8(a) BD mentor-prot[eacute]g[eacute] 
program. These commenters believed that the 8(a) mentor-
prot[eacute]g[eacute] program should not be made available to larger, 
or successful, or experienced 8(a) Participants, and that allowing 
participation by firms that are close to exceeding their applicable 
size standard would thwart the purpose of the program. SBA also 
received several comments recommending that a firm should be able to 
form a mentor-prot[eacute]g[eacute] relationship as long as it 
qualified as small for the particular type of work for which a mentor-
prot[eacute]g[eacute] relationship is sought, even if the firm no 
longer qualified as small for its primary business activity. These 
commenters believed that there would be no harm in allowing such a 
mentor-prot[eacute]g[eacute] relationship because the 
prot[eacute]g[eacute] firm would still have to qualify as a small 
business for any contract opportunity requiring status as a small 
business that it sought. In other words, if SBA approved a mentor-
prot[eacute]g[eacute] relationship that focused on assisting a firm to 
gain access to or expand its experience in a particular industry or 
NAICS code where the proposed prot[eacute]g[eacute] firm qualified as a 
small business for the size standard corresponding to that NAICS code 
but not for the size standard corresponding to its primary industry, 
the prot[eacute]g[eacute] firm could form a joint venture with its 
mentor and be considered small for a contract opportunity only where 
the prot[eacute]g[eacute] firm qualified as small. It could not take 
that mentor-prot[eacute]g[eacute] relationship, form a joint venture 
and be considered small for contract opportunities in the 
prot[eacute]g[eacute]'s primary industry if the prot[eacute]g[eacute] 
did not qualify as small for that NAICS code.
    SBA believes that consistency between the 8(a) BD mentor-
prot[eacute]g[eacute] program and the small business mentor-
prot[eacute]g[eacute] program is critical, particularly where this 
final rule authorizes an 8(a) mentor-prot[eacute]g[eacute] relationship 
to transition to a small business mentor-prot[eacute]g[eacute] 
relationship when the 8(a) prot[eacute]g[eacute] graduates from or 
otherwise leaves the 8(a) BD program. Therefore, SBA believes that it 
does not make sense to have different rules regarding who can qualify 
as a prot[eacute]g[eacute] for the two mentor-prot[eacute]g[eacute] 
programs. As such, SBA does not agree with the commenters who 
recommended that SBA continue to limit prot[eacute]g[eacute]s in the 
8(a) BD mentor-prot[eacute]g[eacute] program only to Participants whose 
size was less than half the size standard corresponding to their 
primary industry. Moreover, SBA feels that any small business could 
gain valuable business development assistance through the mentor-
prot[eacute]g[eacute] program. For this reason, SBA agrees with the 
commenters who recommended that a firm that does not qualify as small 
for its primary NAICS code should be able to form a mentor-
prot[eacute]g[eacute] relationship in a secondary NAICS code for which 
it does qualify as small. However, SBA would not authorize mentor-
prot[eacute]g[eacute] relationships in secondary NAICS codes where the 
firm had never performed any work in that NAICS code previously or 
where the prot[eacute]g[eacute] would bring nothing to a potential 
joint venture with its mentor other than its status as a small 
business. The intent of allowing joint ventures between a 
prot[eacute]g[eacute] firm and its mentor is to provide a 
prot[eacute]g[eacute] firm the opportunity to further develop its 
expertise and enhance its ability to independently perform similar 
contracts in the future. The mentor-prot[eacute]g[eacute] program is 
not intended to enable firms that have outgrown a particular size 
standard to find another industry in which they have no expertise or 
past performance merely to be able to continue to receive additional 
contracts as a small business. As long as the firm can demonstrate how 
the mentor-prot[eacute]g[eacute] relationship is a logical progression 
for the firm and will further develop current capabilities, SBA 
believes that a mentor-prot[eacute]g[eacute] relationship may be 
appropriate. Thus, the final rule provides that a concern must qualify 
as small for the size standard corresponding to its primary NAICS code 
or identify that it is seeking business development assistance with 
respect to a secondary NAICS code and qualify as small for the size 
standard corresponding to that NAICS code.
    The proposed rule provided that a prot[eacute]g[eacute] 
participating in either of the mentor-prot[eacute]g[eacute] programs 
generally would have no more than one mentor at a time. However, it 
authorized a prot[eacute]g[eacute] to have two mentors where the two 
relationships would not compete or otherwise conflict with each other 
and the prot[eacute]g[eacute] demonstrates that the second relationship 
pertains to an unrelated, secondary NAICS code, or the first mentor 
does not possess the specific expertise that is the subject of the MPA 
with the second mentor. The comments supported this provision and, 
therefore, SBA adopts it in this final rule.
    In addition, Sec.  125.9(c)(1) of the proposed rule required that 
SBA verify that a firm qualifies as a small business before approving 
that firm to act as a prot[eacute]g[eacute] in a small business mentor-
prot[eacute]g[eacute] relationship. SBA was attempting to make 
eligibility for the small business mentor-prot[eacute]g[eacute] program 
similar to that of the 8(a) BD mentor-prot[eacute]g[eacute] program. 
Just as only firms that have been certified to be eligible to 
participate in the 8(a) BD program and verified to meet at least one of 
the three requirements set forth in the prior 8(a) BD regulations could 
be a prot[eacute]g[eacute], the proposed rule would have permitted only 
those firms that have been affirmatively determined to be small to 
qualify as prot[eacute]g[eacute]s for the small business mentor-
prot[eacute]g[eacute] program. Several commenters believed that such a 
requirement was overly burdensome.

[[Page 48565]]

These commenters did not believe that size and 8(a) BD status were 
comparable. They argued that size has always been a self-certification 
process that is open to review and protest in connection with any 
individual procurement, and that the same should be true in the mentor-
prot[eacute]g[eacute] context. They felt that SBA should be able to 
rely on the size self-certification of a firm seeking to qualify as 
small for a small business mentor-prot[eacute]g[eacute] relationship. 
The commenters believed that a firm approved to be a small business 
prot[eacute]g[eacute] would not gain any undue benefit from the program 
merely by entering a mentor-prot[eacute]g[eacute] relationship. If a 
firm that was approved to be a prot[eacute]g[eacute] was not in fact 
small and was awarded a joint venture contract with its mentor based 
solely on its status as a prot[eacute]g[eacute], of course that would 
be objectionable. However, because the size protest procedures permit 
any interested party to protest the size of any apparent successful 
offeror, the commenters believed that a prot[eacute]g[eacute] that was 
not small would ultimately be found ineligible for award of the 
contract and, thus, would not unduly benefit from its mentor-
prot[eacute]g[eacute] relationship. SBA agrees, and as long as it is 
clear that SBA's approval of a mentor-prot[eacute]g[eacute] 
relationship does not amount to a formal determination of size 
eligibility, SBA believes that the size protest procedures would in 
fact be sufficient to protect the integrity of the program.
    The proposed rule provided that a prot[eacute]g[eacute] firm that 
graduates or otherwise leaves the 8(a) BD program but continues to 
qualify as a small business may transfer its 8(a) mentor-
prot[eacute]g[eacute] relationship to a small business mentor-
prot[eacute]g[eacute] relationship. Several commenters supported this 
proposal as a natural extension of SBA's implementation of a small 
business mentor-prot[eacute]g[eacute] program. A few commenters sought 
clarification, however, as to whether the transfer from an 8(a) BD 
mentor-prot[eacute]g[eacute] relationship to a small business mentor-
prot[eacute]g[eacute] relationship would be automatic or whether the 
prot[eacute]g[eacute] firm would have to apply and again receive SBA 
approval. It was not SBA's intent to require a firm to apply to 
transfer its 8(a) BD mentor-prot[eacute]g[eacute] relationship to a 
small business mentor-prot[eacute]g[eacute] relationship. SBA intended 
that a firm merely inform SBA of its intent to transfer its mentor-
prot[eacute]g[eacute] relationship. There would be no SBA review or 
approval required of such a transfer. As such, this final rule adopts 
the language of the proposed rule and adds clarifying language that a 
firm seeking to transfer its mentor-prot[eacute]g[eacute] relationship 
could do so by notification, without applying to and receiving approval 
from SBA to do so. In light of that change, the final rule also deletes 
Sec.  124.520(d)(5) as unnecessary. That provision provided that SBA 
would not approve an 8(a) BD mentor-prot[eacute]g[eacute] relationship 
where the proposed prot[eacute]g[eacute] firm had less than six months 
remaining in its 8(a) program term. Because SBA will now permit an 8(a) 
prot[eacute]g[eacute] to transfer its mentor-prot[eacute]g[eacute] 
relationship to a small business mentor-prot[eacute]g[eacute] 
relationship after it leaves the 8(a) BD program (provided the firm 
continues to qualify as a small business), it does not make sense that 
SBA would not approve a mentor-prot[eacute]g[eacute] relationship for a 
proposed 8(a) prot[eacute]g[eacute] that has less than six months 
remaining in its program term. SBA will give such a firm the option of 
pursuing an 8(a) mentor-prot[eacute]g[eacute] relationship during its 
last six months in the 8(a) BD program, and then transferring that 
relationship to a small business mentor-prot[eacute]g[eacute] 
relationship when the prot[eacute]g[eacute] firm leaves the 8(a) BD 
program, or pursuing a small business mentor-prot[eacute]g[eacute] 
relationship during that same time frame.
Mentor-Prot[eacute]g[eacute] Programs of Other Departments and Agencies 
(13 CFR 125.10)
    As noted above, section 1641 of the NDAA 2013 provided that a 
Federal department or agency cannot carry out its own agency specific 
mentor-prot[eacute]g[eacute] program for small businesses unless the 
head of the department or agency submitted a plan for such a program to 
SBA and received the SBA Administrator's approval of the plan. The NDAA 
2013 specifically excluded the Department of Defense's mentor-
prot[eacute]g[eacute] program, but included all other current mentor-
prot[eacute]g[eacute] programs of other agencies. Under its provisions, 
a department or agency that is currently conducting a mentor-
prot[eacute]g[eacute] program (except the Department of Defense) may 
continue to operate that program for one year but must then go through 
the SBA approval process in order for the program to continue after one 
year. Thus, in order to continue to operate any current mentor-
prot[eacute]g[eacute] program beyond one year after SBA's mentor-
prot[eacute]g[eacute] regulations are final, each department or agency 
would be required to obtain the SBA Administrator's approval. These 
statutory provisions were proposed to be implemented in new Sec.  
125.10 of SBA's regulations.
    Because the SBA's 8(a) BD and small business mentor-
prot[eacute]g[eacute] programs will apply to all Government small 
business contracts, and thus to all Federal departments and agencies, 
conceivably other agency-specific mentor-prot[eacute]g[eacute] programs 
for small business would not be needed. In the proposed rule, SBA 
specifically requested comments as to whether other Federal mentor-
prot[eacute]g[eacute] programs should continue after the one-year grace 
period expires. SBA understands that many of the agency-specific 
mentor-prot[eacute]g[eacute] programs incentivize mentors to utilize 
their prot[eacute]g[eacute]s as subcontractors. For instance, some 
agencies provide additional evaluation points to a large business 
submitting an offer on an unrestricted procurement where the business 
has an active MPA, where the business has used the 
prot[eacute]g[eacute] firm as a subcontractor previously, or where the 
mentor and prot[eacute]g[eacute] are submitting an offer as a joint 
venture. In addition, some mentor-prot[eacute]g[eacute] programs give 
additional credit to a large business mentor toward its subcontracting 
plan goals when the mentor uses the prot[eacute]g[eacute] as a 
subcontractor on the mentor's prime contract(s) with the given agency. 
SBA's mentor-prot[eacute]g[eacute] programs assume more of a prime 
contractor role for prot[eacute]g[eacute]s, but would also encourage 
subcontracts from mentors to prot[eacute]g[eacute]s as part of the 
developmental assistance that prot[eacute]g[eacute]s receive from their 
mentors. Because one or more mentor-prot[eacute]g[eacute] programs of 
other agencies ultimately may not be continued after SBA's various 
mentor-prot[eacute]g[eacute] programs are finalized, SBA requested 
comments as to whether the subcontracting incentives authorized by 
mentor-prot[eacute]g[eacute] programs of other agencies should 
specifically be incorporated into SBA's mentor-prot[eacute]g[eacute] 
programs.
    SBA received only a few comments regarding this proposed new 
section. These commenters agreed with the statutory provisions in 
questioning the utility of other Federal mentor-prot[eacute]g[eacute] 
programs. Their only concern was whether SBA would have the necessary 
resources to handle mentor-prot[eacute]g[eacute] applications for the 
entire government. SBA is working to assure that it can adequately 
process mentor-prot[eacute]g[eacute] applications, but, as noted above, 
if the number of firms seeking SBA to approve their mentor-
prot[eacute]g[eacute] relationships becomes unwieldy, SBA may institute 
certain ``open'' and ``closed'' periods for the receipt of further 
mentor-prot[eacute]g[eacute] applications. In such a case, SBA would 
then accept mentor-prot[eacute]g[eacute] applications only in ``open'' 
periods.
    Assuming that many agencies will decide not to continue their own 
mentor-prot[eacute]g[eacute] programs, one commenter recommended that 
SBA should incorporate the subcontracting incentives found in other 
mentor-

[[Page 48566]]

prot[eacute]g[eacute] programs to ensure that these useful benefits are 
not eliminated. Although SBA believes that it is up to individual 
procuring agencies whether to provide subcontracting incentives for any 
specific procurement, SBA also believes that these incentives should be 
authorized and used, where appropriate. As such, this final rule 
identifies subcontracting incentives as a possible benefit to be 
provided by procuring activities in appropriate circumstances. The 
final rule authorizes procuring activities to provide incentives in the 
contract evaluation process to a firm that will provide significant 
subcontracting work to its SBA-approved prot[eacute]g[eacute] firm. SBA 
does not intend that a mentor receive an incentive where it lists the 
prot[eacute]g[eacute] as a subcontractor that would perform merely 
ministerial functions that would not enhance the 
prot[eacute]g[eacute]'s business development. Any such incentive would 
be at the discretion of the procuring activity.
Benefits of Mentor-Prot[eacute]g[eacute] Relationships (13 CFR 124.520 
and 125.9)
    As with the 8(a) BD program, under the proposed small business 
mentor-prot[eacute]g[eacute] program, a prot[eacute]g[eacute] may joint 
venture with its SBA-approved mentor and qualify as a small business 
for any Federal government contract or subcontract, provided the 
prot[eacute]g[eacute] qualifies as small for the size standard 
corresponding to the NAICS code assigned to the procurement. Commenters 
supported this provision. They believed that it provides incentives to 
firms to become mentors and encourages meaningful business development 
assistance to prot[eacute]g[eacute]s on any small business contracts 
for which they qualify as small. As such, SBA adopts the proposed 
language in this final rule.
    This means that a joint venture between a prot[eacute]g[eacute] and 
its approved mentor in the small business mentor-prot[eacute]g[eacute] 
program will be deemed to be a small business concern for any Federal 
contract or subcontract. It does not mean that such a joint venture 
affirmatively qualifies for any other small business program. For 
example, a joint venture between a small business prot[eacute]g[eacute] 
firm and its SBA-approved mentor will be deemed a small business 
concern for any Federal contract or subcontract for which the 
prot[eacute]g[eacute] qualified as small, but the joint venture will 
qualify for a contract reserved or set-aside for eligible 8(a) BD, 
HUBZone SBCs, SDVO SBCs, or WOSBs only if the prot[eacute]g[eacute] 
firm meets the particular program-specific requirements as well.
    Several commenters sought clarification of the requirement that the 
project manager of a joint venture between a prot[eacute]g[eacute] firm 
and its SBA-approved mentor must be an employee of the 
prot[eacute]g[eacute] firm. These comments pointed out that many times 
a firm that is awarded a contract will hire many, if not all, of the 
individuals currently performing the work under the contract for a 
different firm. These commenters recommended that SBA clarify that an 
individual identified as the project manager need not be an employee of 
the prot[eacute]g[eacute] firm at the time the joint venture makes an 
offer, as long as there is a commitment by the individual to work for 
the prot[eacute]g[eacute] if the joint venture wins the award. SBA 
agrees and has clarified that the individual identified as the project 
manager of the joint venture need not be an employee of the 
prot[eacute]g[eacute] firm at the time the joint venture submits an 
offer, but, if he or she is not, there must be a signed letter of 
intent that the individual commits to be employed by the 
prot[eacute]g[eacute] firm if the joint venture is the successful 
offeror. The final rule also clarifies that the individual identified 
as the project manager cannot be employed by the mentor and become an 
employee of the prot[eacute]g[eacute] firm for purposes of performance 
under the joint venture. SBA is concerned that such an ``employee'' of 
the prot[eacute]g[eacute] has no ties to the prot[eacute]g[eacute], is 
not bound to stay with the prot[eacute]g[eacute] after performance of 
the contract is complete, and could easily go back to the mentor at 
that time. If that happens, the business development of the 
prot[eacute]g[eacute] firm would be diminished.
    Consistent with the 8(a) BD program, the proposed rule permitted a 
mentor to a small business to own an equity interest of up to 40% in 
the prot[eacute]g[eacute] firm in order to raise capital for the 
prot[eacute]g[eacute] firm. SBA requested comments as to whether this 
40% ownership interest should be a temporary interest, being authorized 
only as long as the mentor-prot[eacute]g[eacute] relationship exists, 
or whether it should be able to survive the termination of the mentor-
prot[eacute]g[eacute] relationship. SBA was concerned that allowing a 
mentor to own 40% of a small business prot[eacute]g[eacute] after the 
mentor-prot[eacute]g[eacute] relationship ends may allow far-reaching 
influence by large businesses that act as mentors and enable them to 
receive long-term benefits from programs designed to assist only small 
businesses. Several commenters believed that mentors should not be 
required to divest themselves of their ownership interest in a 
prot[eacute]g[eacute] firm once the mentor-prot[eacute]g[eacute] 
relationship ends. They noted that, outside the 8(a) BD program (which 
has ownership restrictions on firms in the same or similar line of 
business), a large business may currently own a substantial ownership 
interest in a small business (up to 49% where one individual owns the 
remaining 51%) without a finding of affiliation, and that the 
affiliation rules are sufficient to protect against a large business 
from unduly benefitting from small business contracting programs. After 
further consideration, SBA agrees. During the mentor-
prot[eacute]g[eacute] relationship, the prot[eacute]g[eacute] firm is 
shielded from a finding of affiliation where a large business mentor 
owns 40% of the prot[eacute]g[eacute]. Once the mentor-
prot[eacute]g[eacute] relationship ends, any protection from a finding 
of affiliation also ends. As such, if the large business mentor's 40% 
ownership interest is controlling (or deemed to be controlling under 
SBA's affiliation rules), the two firms will be affiliated and the 
former prot[eacute]g[eacute] would not qualify as a small business. For 
this reason, there is no need to require a former mentor to divest 
itself of its 40% ownership interest in the former 
prot[eacute]g[eacute] after the mentor-prot[eacute]g[eacute] 
relationship ends. If it does not divest, the former 
prot[eacute]g[eacute] will be found to be ineligible for any contract 
as a small business where the 40% ownership interest causes affiliation 
under SBA's size rules. As such, this final rule does not add any 
language requiring a mentor to divest itself of its ownership interest 
in a prot[eacute]g[eacute] firm once the mentor-prot[eacute]g[eacute] 
relationship ends.
Written Mentor-Prot[eacute]g[eacute] Agreement (13 CFR 124.520 and 
125.9)
    The key to any mentor-prot[eacute]g[eacute] relationship is the 
benefits to be received by the proposed prot[eacute]g[eacute] firm from 
the proposed mentor. It is essential that such benefits be identified 
as clearly and specifically as possible. To this end, the proposed rule 
required that all MPAs be in writing, identifying specifically the 
benefits intended to be derived by the projected prot[eacute]g[eacute] 
firms. Commenters universally supported requiring a written MPA and 
that the benefits to be provided through a MPA must be clearly 
identified. Specifically, they felt that the proposed provision 
requiring that there be a detailed timeline for the delivery of the 
assistance in the MPA was critical to ensuring that assistance was 
timely provided to prot[eacute]g[eacute] firms. They understood that 
without clear and identifiable deliverables set forth in MPAs, both 
prot[eacute]g[eacute] firms and SBA would lack the ability to require 
mentors to provide specific business development assistance. One

[[Page 48567]]

commenter noted that the proposed regulatory language identified 
subcontracts as a benefit that a prot[eacute]g[eacute] can receive 
through its MPA. The commenter agreed that subcontracts are an 
important developmental benefit, but requested clarification that 
business development assistance can be gained by a 
prot[eacute]g[eacute] both by receiving a subcontract from its mentor 
and by subcontracting specific work to its mentor. SBA agrees that a 
subcontract in either direction can be beneficial to the 
prot[eacute]g[eacute] and that a subcontract from a 
prot[eacute]g[eacute] to its mentor should not, by itself, give rise to 
a finding of affiliation as something outside the MPA. As such, this 
final rule clarifies that a subcontract from a prot[eacute]g[eacute] to 
a mentor can be developmental assistance authorized by a MPA.
    The proposed rule also required a firm seeking approval to be a 
prot[eacute]g[eacute] in either the 8(a) BD or small business mentor-
prot[eacute]g[eacute] programs to identify any other mentor-
prot[eacute]g[eacute] relationship it has through another Federal 
agency or SBA and provide a copy of each such MPA to SBA. The proposed 
rule required that the MPA submitted to SBA for approval must identify 
how the assistance to be provided by the proposed mentor is different 
from assistance provided to the prot[eacute]g[eacute] through another 
mentor-prot[eacute]g[eacute] relationship, either with the same or a 
different mentor. Several commenters opposed this requirement. They 
thought that the requirement might cause disputes as to whether the 
proposed MPA was different enough from a MPA with another agency. One 
commenter questioned whether a MPA of another agency could be 
transferred into the SBA's 8(a) BD or small business mentor-
prot[eacute]g[eacute] program. This commenter reasoned that if one or 
more mentor-prot[eacute]g[eacute] programs of other agencies cease 
because of the new Government-wide SBA small business mentor-
prot[eacute]g[eacute] program, a firm should be able to use that 
agreement, or at least the assistance that had been committed but not 
yet provided through the agreement, in the SBA's program. SBA continues 
to believe that assistance that has already been provided or pledged in 
a MPA of another agency should not be used as the basis for an SBA MPA. 
The intent is that a prot[eacute]g[eacute] firm gain business 
development assistance that it otherwise would not be able to obtain. 
SBA agrees, however, that if certain specified assistance was 
identified in a MPA of another agency, but that assistance had not yet 
been provided, a firm should be able to choose to terminate the mentor-
prot[eacute]g[eacute] relationship with the other agency and use the 
not yet provided assistance as part of the assistance that will be 
provided through the 8(a) BD or small business mentor-
prot[eacute]g[eacute] relationship. Therefore, SBA has clarified the 
regulatory text to better implement its intent in this final rule.
    The proposed rule also provided that SBA will review a mentor-
prot[eacute]g[eacute] relationship annually to determine whether to 
approve its continuation for another year. SBA intended to evaluate the 
relationship and determine whether the mentor provided the agreed-upon 
business development assistance, and whether the assistance provided 
appears to be worthwhile. SBA also proposed to limit the duration of a 
MPA to three years and to permit a prot[eacute]g[eacute] to have one 
three-year MPA with one entity and one three-year MPA with another 
entity, or two three-year MPAs (successive or otherwise) with the same 
entity. SBA invited comments regarding whether three years is an 
appropriate length of time and whether SBA should allow a mentor and 
prot[eacute]g[eacute] to enter into an additional MPA upon the 
expiration of the original agreement. Several commenters did not 
believe that three years was an appropriate length to authorize a 
mentor-prot[eacute]g[eacute] relationship. A few commenters disagreed 
with any specific limit on the number of years that a MPA may be in 
place. They believed that as long as the prot[eacute]g[eacute] 
continues to qualify as a small business and to receive developmental 
assistance, and the mentor is capable of and actually providing the 
assistance, then the mentor-prot[eacute]g[eacute] relationship should 
be allowed to continue. A few other commenters thought that three years 
was too short and recommended a longer length. They believed that in 
many instances it takes several years in order for both the mentor and 
prot[eacute]g[eacute] to understand how best to work with each other, 
and three years is not sufficient to allow that process to develop. 
They felt that the proposed rule would, in effect, limit a 
prot[eacute]g[eacute] to one mentor throughout its life as a small 
business. Although the rule proposed to authorize two three-year MPAs 
with two separate mentors, the commenters felt that because it takes a 
few years to get one mentor-prot[eacute]g[eacute] relationship to 
operate smoothly, most prot[eacute]g[eacute]s would elect to keep the 
first MPA for a second three years instead of seeking a new three-year 
MPA with a different mentor.
    SBA believes that the mentor-prot[eacute]g[eacute] program serves 
an important business development function for 8(a) Participants and 
other small businesses. However, SBA does not believe that any mentor-
prot[eacute]g[eacute] relationship should last indefinitely (i.e., for 
as long as the prot[eacute]g[eacute] qualifies as a small business). 
The mentor-prot[eacute]g[eacute] program should be a boost to a small 
business's development that enables the small business to independently 
perform larger and more complex contracts in the future. It should not 
be a crutch that prevents small businesses from seeking and performing 
those larger and more complex contracts on their own. SBA understands 
that it may take longer than three years to develop a meaningful 
mentor-prot[eacute]g[eacute] relationship. Therefore, the final rule 
will continue to authorize two three-year MPAs with different mentors, 
but will allow each to be extended for a second three years provided 
the prot[eacute]g[eacute] has received the agreed-upon business 
development assistance and will continue to receive additional 
assistance. SBA intends to limit all small businesses, including 8(a) 
Participants, to having two mentors. Although an 8(a) Participant can 
transfer its 8(a) mentor-prot[eacute]g[eacute] relationship to a small 
business mentor-prot[eacute]g[eacute] relationship after it leaves the 
8(a) BD program, it can have only two mentor-prot[eacute]g[eacute] 
relationships in total. If it transfers its 8(a) mentor-
prot[eacute]g[eacute] relationship to a small business mentor-
prot[eacute]g[eacute] relationship after it leaves the program, it may 
enter into one additional mentor-prot[eacute]g[eacute] relationship. It 
cannot enter into two additional small business mentor-
prot[eacute]g[eacute] relationships.
    The proposed rule also solicited comments on clarifying language 
not currently contained in the 8(a) mentor-prot[eacute]g[eacute] 
regulations authorizing the continuation of a mentor-
prot[eacute]g[eacute] relationship where control or ownership of the 
mentor changes during the term of the MPA. Specifically, the proposed 
rule provided (for the 8(a) BD and small business mentor-
prot[eacute]g[eacute] programs) that if control of the mentor changes 
(through a stock sale or otherwise), the previously approved mentor-
prot[eacute]g[eacute] relationship may continue provided that, after 
the change in control, the mentor expresses in writing to SBA that it 
acknowledges the MPA and that it continues its commitment to fulfill 
its obligations under the agreement. Commenters supported this 
provision, and it is not changed in this final rule.
Size of 8(a) Joint Venture (13 CFR 124.513).
    The rule also proposed to amend Sec.  124.513 to clarify that 
interested parties may protest the size of an SBA-approved 8(a) joint 
venture that is the apparent successful offeror for a competitive 8(a) 
contract. This change alters the rule expressed in Size Appeal of Goel 
Services, Inc. and Grunley/Goel Joint Venture D LLC, SBA No. SIZ-5320 
(2012), which concluded that the size of

[[Page 48568]]

an SBA-approved 8(a) joint venture could not be protested because SBA 
had, in effect, determined the joint venture to qualify as small when 
it approved the joint venture pursuant to Sec.  124.513(e). SBA's 
decision to authorize a joint venture between a current 8(a) Program 
Participant and another party by its Office of Business Development was 
never intended to act as a formal size determination. Only SBA's Office 
of Government Contracting may issue formal size determinations. SBA 
received a few comments supporting this proposed change, believing that 
the size protest procedures should be available with respect to any 
apparent successful offeror in a competitive 8(a) procurement, 
including joint ventures. Accordingly, this revision makes clear that 
unsuccessful offerors on a competitive 8(a) set-aside contract may 
challenge the size of an apparently successful joint venture offeror.
    One commenter encouraged SBA to add additional language to clarify 
that the only issue that may be challenged is size, and not the 
underlying terms, conditions, or structure of the joint venture 
agreement itself. SBA believes such a clarification is not necessary. 
As part of a size protest, an SBA Office of Government Contracting Area 
Office will review a joint venture agreement to make sure that the 
agreement complies with Sec.  124.513, but in no way would that office 
seek or have the authority to invalidate certain terms or conditions of 
the joint venture.
    A few commenters also sought clarification of SBA's regulations 
regarding when SBA will determine the eligibility of an 8(a) joint 
venture. They questioned whether approval would occur as part of the 
offer and acceptance process or at some later point in time. SBA's 
regulations provide that SBA approval of an 8(a) joint venture must 
occur prior to the award of an 8(a) contract. Sec.  124.513(e)(1). That 
being the case, requiring an eligibility determination for a joint 
venture as part of the offer and acceptance process would make that 
requirement meaningless. SBA believes that a district office has 
flexibility to determine the eligibility of a particular 8(a) joint 
venture depending upon its workload. As long as that determination 
occurs any time prior to award, SBA has complied with the regulatory 
requirement. For a competitive 8(a) procurement, SBA does not receive 
an offering letter on behalf of any particular 8(a) Participant or 
potential offeror. As such, requiring SBA to determine the eligibility 
of a potential joint venture offeror at the time of acceptance would 
not make any sense. There is no certainty that the joint venture will 
submit an offer, and, if it does, that it will be the apparent 
successful offeror. Section 124.507(e) provides that within five 
working days after being notified by a contracting officer of the 
apparent successful offeror, SBA will verify the 8(a) eligibility of 
that entity. If the apparent successful offeror is a joint venture and 
SBA has not yet approved the joint venture, the five-day period for 
determining general eligibility would then apply to the joint venture 
also. If the SBA district office has asked for clarifications or 
changes with respect to the joint venture and has not received them by 
the end of this five-day period (and the contracting officer has not 
granted SBA additional time to conduct an eligibility determination), 
SBA will have to say that it was unable to verify the eligibility of 
the apparent successful offeror joint venture.
Agency Consideration of the Past Performance and Capabilities of Team 
Members (13 CFR 124.513(f), 125.8(e), 125.18(b)(5), 126.616(f), and 
127.506(f))
    In the proposed rule, SBA proposed that an Agency must consider the 
past performance of the members of a joint venture when considering the 
past performance of an entity submitting an offer as a joint venture. 
SBA proposed this for both 8(a) joint ventures (proposed Sec.  
124.513(f)) and small business joint ventures (proposed Sec.  
125.8(e)). This proposal was in response to agencies that were 
considering only the past performance of a joint venture entity, and 
not considering the past performance of the very entities that created 
the joint venture entity. Where an agency required the specific joint 
venture entity itself to have experience and past performance, it made 
it extremely hard for newly established (and impossible for first-time) 
joint venture partners to demonstrate positive past performance. Each 
partner to a joint venture may have individually performed on one or 
more similar contracts previously, but the joint venture would not be 
credited with any experience or past performance of its individual 
partners. Commenters generally supported these changes. A few 
commenters recommended that SBA clarify that the same policy should 
also apply to joint ventures in the SDVO, HUBZone and WOSB programs, 
arguing that joint ventures in those programs could also be hurt where 
a procuring agency did not consider the experience and past performance 
of the individual partners to a joint venture. SBA agrees. As such, 
this final rule adds similar language to that proposed for 8(a) and 
small business joint ventures to SDVO joint ventures (Sec.  
125.18(b)(5)), HUBZone joint ventures (Sec.  126.616(f)), and WOSB 
joint ventures (Sec.  127.506(f)).
Recertification When an Affiliate Acquires Another Concern (13 CFR 
121.404(g)(2)(ii)(A))
    In the final rule, SBA is clarifying its position that 
recertification is required when an affiliate of an entity acquires 
another concern. Under SBA's general principles of affiliation, if a 
firm is an affiliate it means that one entity controls or has the power 
to control the other or a third party controls both, and SBA aggregates 
the receipts or employees of the concern in question and its 
affiliates. In our view, an acquisition by an affiliate must be deemed 
an acquisition by the concern in question. Otherwise, firms could 
easily circumvent SBA's recertification rules by simply creating 
affiliates to acquire or merge with other firms. The clear intent of 
SBA's recertification rule was to require recertification when an 
entity exceeds the size standard due to acquisition, merger or 
novation, and there is no public policy rationale for not requiring 
recertification based on the whether it is the entity in question that 
acquires another concern, or an affiliate of the entity in question. 
The bottom line is the entity, including its affiliates, no longer 
qualifies as small and agencies should not receive future small 
business credit for dollars awarded to the concern in question, or its 
affiliates.
Establishing Social Disadvantage for the 8(a) BD Program (13 CFR 
124.103)
    SBA also proposed amendments to Sec.  124.103(c) in order to 
clarify that an individual claiming social disadvantage must present a 
combination of facts and evidence which by itself establishes that the 
individual has suffered social disadvantage that has negatively 
impacted his or her entry into or advancement in the business world. 
Under the proposed rule, SBA could disregard a claim of social 
disadvantage where a legitimate alternative ground for an adverse 
action exists and the individual has not presented evidence that would 
render his/her claim any more likely than the alternative ground. A 
statement that a male co-worker received higher compensation or was 
promoted over a woman does not amount to an incident of social 
disadvantage by itself. Additional facts are necessary to establish an 
instance of social disadvantage. A statement that a male co-worker 
received higher compensation or was promoted over a woman and that the 
woman had the

[[Page 48569]]

same or superior qualifications and responsibilities would constitute 
an incident of social disadvantage.
    A few commenters opposed this proposed change. They did not believe 
that it would be appropriate to require proof of certain events that 
are not easily documented. One commenter noted that SBA currently 
permits individuals to prove social disadvantage with affidavits and 
sworn statements attesting to events in their lives that they believe 
were motivated by bias or discrimination, and questioned how an 
individual could in fact present additional evidence to prove his or 
her claim of alleged discriminatory conduct. SBA believes that these 
commenters misunderstood SBA's intent. SBA does not intend that 
individuals provide additional supporting documentation or evidence. 
Rather, SBA is merely looking for the individual's statement to contain 
a more complete picture. As noted in the proposed rule, the example of 
a man being promoted over a woman without additional facts does not 
lead to a more likely than not conclusion of discriminatory conduct. If 
the man had 10 years of experience to the woman's 3 years of 
experience, there could be a legitimate reason for his promotion over 
the woman. However, if she can say that the two had similar experience 
and qualifications and yet he was promoted and she was not, her claim 
of discriminatory conduct would have merit. All SBA is looking for is 
the complete picture, or additional facts, that would make an 
individual's claim of bias or discriminatory conduct more likely than 
not. Absent any evidence to the contrary, SBA would continue to rely on 
affidavits and sworn statements, and as long as those statements 
presented a clear picture, they would be sufficient to establish an 
instance of social disadvantage.
    SBA is not intending to raise the evidentiary burden placed on an 
8(a) applicant above the preponderance of the evidence standard. SBA is 
not seeking definitive proof, but rather additional facts to support 
the claim that a negative outcome (e.g., failure to receive a promotion 
or needed training) was based on discriminatory conduct instead of one 
or more legitimate non-discriminatory reasons. It is not SBA's intent 
to disbelieve an applicant. In fact, SBA intends to rely on personal 
narratives to support claims of social disadvantage. As long as those 
claims are complete and are not contradictory, SBA will depend solely 
on the narratives, and consider them to be instances of social 
disadvantage.
Control of an 8(a) BD Applicant or Participant
    Section 124.106 of SBA's regulations currently provides that one or 
more disadvantaged individuals must control the daily business 
operations of an 8(a) BD applicant or Participant. In determining 
whether the experience of one or more disadvantaged individuals 
claiming to manage the applicant or Participant is sufficient for SBA 
to determine that control exists, SBA's regulations require that the 
individuals must have managerial experience ``of the extent and 
complexity needed to run the concern.'' Although the regulations also 
provide that a ``disadvantaged individual need not have the technical 
expertise or possess a required license to be found to control an 
applicant or Participant,'' several comments indicated that there is 
confusion as to what type of managerial experience is needed to satisfy 
SBA's requirements. SBA did not intend to require in all instances that 
a disadvantaged individual must have managerial experience in the same 
or similar line of work as the applicant or Participant. A middle 
manager in a multi-million dollar large business or a vice president in 
a concern qualifying as small but nevertheless substantial may have 
gained sufficient managerial experience in a totally unrelated business 
field. The words ``of the extent and complexity needed to run the 
concern'' were meant to look at the degree of management experience, 
not the field in which that experience was gained. For example, an 
individual who has been a middle manager of a large aviation firm for 
20 years and can demonstrate overseeing the work of a substantial 
number of employees may be deemed to have managerial experience of the 
extent and complexity needed to run a five-employee applicant firm 
whose primary industry category was in emergency management consulting 
even though that individual had no technical knowledge relating to the 
emergency management consulting field. SBA believes, however, that more 
specific industry-related experience may be needed in appropriate 
circumstances to ensure that the disadvantaged individual(s) claiming 
to control the day-to-day operations of the firm do so in fact. This 
would be particularly true where a non-disadvantaged owner (or former 
owner) who has experience related to the industry is actively involved 
in the day-to-day management of the firm. In order to clarify SBA's 
intent, this rule adds language to Sec.  124.106 to specify that 
management experience need not be related to the same or similar 
industry as the primary industry classification of the applicant or 
Participant.
8(a) BD Application Processing (13 CFR 124.202, 124.203, 124.104(b), 
and 124.108(a))
    SBA's regulations require applicants to the 8(a) BD program to 
submit certain specified supporting documentation, including financial 
statements, copies of signed Federal personal and business tax returns 
and individual and business bank statements. The regulations also 
required that an applicant must submit a signed IRS Form 4506T, Request 
for Copy or Transcript of Tax Form, in all cases. A commenter 
questioned the need for every applicant to submit IRS Form 4506T. SBA 
agrees that this form is not needed in every case. SBA always has the 
right to request any applicant to submit specific information that may 
be needed in connection with a specific application. As long as SBA's 
regulations clearly provide that SBA may request any additional 
documents SBA deems necessary to determine whether a specific applicant 
is eligible to participate in the 8(a) BD program, SBA will be able to 
request that a particular firm submit IRS Form 4506T where SBA believes 
it to be appropriate. As such, this final rule eliminates the 
requirement from Sec.  124.203 that an applicant must submit IRS Form 
4506T in very case, and clarifies that SBA may request additional 
documentation when necessary.
    In addition, a commenter noted that SBA's regulations provide that 
applications for the 8(a) BD program must generally be filed 
electronically, and questioned the need to allow hard copy applications 
at all. The commenter was concerned that there is a greater possibility 
for one or more attachments to be misplaced when an applicant files a 
hard copy application, that SBA staff could incorrectly transpose 
information when putting it into an electronic format, and that in 
today's business world there is no excuse for not having access to the 
internet and SBA's electronic application. SBA agrees. As such, this 
final rule amends Sec.  124.202 to require applications to be filed 
electronically, with the understanding that certain supporting 
documentation may also be required under Sec.  124.203.
    Section 124.203 also requires that an applicant must provide a wet 
signature from each individual claiming social disadvantage status. 
Several commenters questioned the need for ``wet'' signatures, arguing 
that this requirement placed a significant burden on applicants. These 
commenters noted that an applicant that files an electronic

[[Page 48570]]

8(a) BD application must also sign and manually send a wet signature to 
SBA. They argued that such a requirement did not make sense, as long as 
the individual(s) upon whom eligibility is based take responsibility 
for any information submitted on behalf of the applicant. SBA agrees 
and has eliminated the requirement for a wet signature. Any electronic 
signing protocol must ensure the Agency is able to specifically 
identify the individual making the representation in an electronic 
system. As long as applicants know that the individual(s) upon whom 
eligibility is based take responsibility for the accuracy and 
truthfulness of any information submitted on behalf of the applicant, 
an electronic, uploaded signature should be sufficient.
    SBA's regulations also provided that if during the processing of an 
application, SBA receives adverse information regarding possible 
criminal conduct by the applicant or any of its principals, SBA would 
automatically suspend further processing of the application and refer 
it to SBA's Office of Inspector General (OIG) for review. Commenters 
believed that both of these provisions unnecessarily delayed SBA's 
processing of 8(a) applications. These commenters believed that 
referral to SBA's OIG should not occur in every instance, such as where 
a minor infraction occurred many years ago, but that SBA should have 
the discretion to refer matters to SBA's OIG in appropriate instances. 
SBA is committed to reducing the processing time for 8(a) applications 
and agrees that mandatory OIG referral may be unnecessary. SBA agrees 
that an application evidencing a 20 year old disorderly conduct offense 
for an individual claiming disadvantaged status when that individual 
was in college should not be referred to the OIG where that is the only 
instance of anything concerning the individual's good character. Such 
an offense has nothing to do with the individual's business integrity. 
In addition, even if it did, an offense that was that old (with no 
other instances of such misconduct) could also be determined not to be 
relevant for a present good character determination, and thus, not be 
one that caused SBA to suspend an 8(a) application and refer the matter 
to the OIG for review. This final rule provides necessary discretion to 
SBA to allow SBA to determine when to refer a matter to the OIG.
    In addition, SBA's regulations provide that each individual 
claiming economic disadvantage must describe such economic disadvantage 
in a narrative statement, and must submit personal financial 
information to SBA. SBA believes that the written narrative on economic 
disadvantage is an unnecessary burden imposed on applicants to the 8(a) 
BD program. SBA's determination as to whether an individual qualifies 
as economically disadvantaged is based solely on an analysis of 
objective financial data relating to the individual's net worth, income 
and total assets. As such, this final rule eliminates the requirement 
that each individual claiming economic disadvantage must submit a 
narrative statement in support of his or her claim of economic 
disadvantage.
Substantial Unfair Competitive Advantage Within an Industry Category 
(13 CFR 124.109, 124.110, and 124.111)
    Pursuant to section 7(j)(10)(J)(ii)(II) of the Small Business Act, 
15 U.S.C. 636(j)(10)(J)(ii)(II), ``[i]n determining the size of a small 
business concern owned by a socially and economically disadvantaged 
Indian tribe (or a wholly owned business entity of such tribe) [for 
purposes of 8(a) BD program entry and 8(a) BD contract award], each 
firm's size shall be independently determined without regard to its 
affiliation with the tribe, any entity of the tribal government, or any 
other business enterprise owned by the tribe, unless the Administrator 
determines that one or more such tribally owned business concerns have 
obtained, or are likely to obtain, a substantial unfair competitive 
advantage within an industry category.'' For purposes of the 8(a) BD 
program, the term ``Indian tribe'' includes any Alaska Native village 
or regional or village corporation (within the meaning of the Alaska 
Native Claims Settlement Act). 15 U.S.C. 637(a)(13). SBA's regulations 
have extended this broad exclusion from affiliation to the other 
entity-owned firms authorized to participate in the 8(a) BD program 
(i.e., firms owned by Native Hawaiian Organizations (NHOs) and 
Community Development Corporations (CDCs)). See Sec. Sec.  124.109(a), 
124.109(c)(2)(iii), 124.110(b), and 124.111(c). The proposed rule 
attempted to provide guidance as to how SBA will determine whether a 
firm has obtained or is likely to obtain ``a substantial unfair 
competitive advantage within an industry category.''
    SBA received a significant number of comments supporting the 
clarifying language of the proposed rule. Commenters agreed that the 
term ``industry category'' should be defined by six digit NAICS code, 
as that application would be consistent with other similar terms in 
SBA's regulations. They also agreed that an industry category should be 
looked at nationally since size standards are established on a national 
basis. Thus, the final rule provides that an entity-owned business 
concern is not subject to the broad exemption to affiliation set forth 
in 13 CFR part 124 where one or more entity-owned firms are found to 
have obtained, or are likely to obtain, a substantial unfair 
competitive advantage on a national basis in a particular NAICS code 
with a particular size standard.
    In making this assessment, SBA will consider a firm's percentage 
share of the national market and other relevant factors to determine 
whether a firm is dominant in a specific six-digit NAICS code with a 
particular size standard. SBA will review Federal Procurement Data 
System (FPDS) data to compare the firm's share of the industry as 
compared to overall small business participation in that industry to 
determine whether there is an unfair competitive advantage. The rule 
does not contemplate a finding of affiliation where an entity-owned 
concern appears to have obtained an unfair competitive advantage in a 
local market, but remains competitive, but not dominant, on a national 
basis.
Management of Tribally-Owned 8(a) Program Participants (13 CFR 124.109)
    The proposed rule sought to add language to Sec.  124.109(c)(4) 
specifying that the individuals responsible for the management and 
daily operations of a tribally-owned concern cannot manage more than 
two Program Participants at the same time. This language is taken 
directly from section 7(j)(11)(B)(iii)(II) of the Small Business Act 
(15 U.S.C. 636(j)(11)(B)(iii)(II)), but does not currently appear in 
SBA's 8(a) BD regulations. The proposed rule provided that SBA believes 
it is necessary to incorporate this provision into the regulations to 
more fully apprise tribally-owned 8(a) applicants and Participants of 
the control requirements applicable to them. Those commenting on this 
provision understood the change and supported it. Thus, this final rule 
adopts the proposed language.
Native Hawaiian Organizations (NHOs) (13 CFR 124.110)
    The proposed rule also sought to add language to Sec.  124.110(d) 
to clarify that the members or directors of an NHO need not have the 
technical expertise or possess a required license to be found to 
control an applicant or Participant owned by the NHO. Rather, the NHO, 
through its members and directors, must merely have managerial 
experience of the extent and complexity needed to run the concern. As 
with individually owned 8(a) applicants and Participants,

[[Page 48571]]

individual NHO members may be required to demonstrate more specific 
industry-related experience in appropriate circumstances to ensure that 
the NHO in fact controls the day-to-day operations of the firm. This is 
particularly true where a non-disadvantaged owner (or former owner) who 
has experience related to the industry is actively involved in the day-
to-day management of the firm. Commenters supported this change as a 
needed clarification to the control requirements for NHOs. They 
believed that this change will allow NHOs with significant management 
experience to participate in and branch out into diverse industries, 
and that such a change will have a positive effect on the Native 
Hawaiian community. The final rule adopts the language as proposed.
    The Small Business Act authorizes small business concerns owned by 
``economically disadvantaged'' NHOs to participate in the 8(a) BD 
program. 15 U.S.C. 637(a)(4)(A)(i)(III). Neither the statute nor its 
legislative history provides any guidance on how to determine whether 
an NHO is economically disadvantaged. Currently, Sec.  124.110(c)(1) 
provides that in determining whether an NHO is economically 
disadvantaged, SBA will look at the individual economic status of the 
NHO's members. The NHO must establish that a majority of its members 
qualify as economically disadvantaged under the rules that apply to 
individuals as set forth in Sec.  124.104. The proposed rule solicited 
comments as to whether this is the most sensible approach to 
establishing economic disadvantage for NHOs.
    SBA received a significant number of comments from the Native 
Hawaiian community on this issue, including several commenters who 
appeared at one or more of the tribal consultations. These commenters 
recommended that NHOs should establish economic disadvantage in the 
same way that tribes currently do for the 8(a) BD program: that is, by 
providing information relating to members, including the tribal 
unemployment rate, the per capita income of tribal members, and the 
percentage of tribal members below the poverty level. For the Native 
Hawaiian community, this would mean that an NHO would have to describe 
the individuals to be served by the NHO and provide the economic data 
regarding those individuals. SBA agrees that basing the economic 
disadvantage status of an NHO on individual Native Hawaiians who 
control the NHO does not seem to be the most appropriate way to do so. 
The Small Business Act defines the term ``Native Hawaiian 
Organization'' to mean ``any community service organization serving 
Native Hawaiians in the State of Hawaii which (A) is a nonprofit 
corporation . . ., (B) is controlled by Native Hawaiians, and (C) whose 
business activities will principally benefit such Native Hawaiians.'' 
15 U.S.C. 637(a)(15). The crucial point is that an NHO must be a 
community service organization that benefits Native Hawaiians. It is 
certainly understood that an NHO must serve economically disadvantaged 
Native Hawaiians, but nowhere is there any hint that economically 
disadvantaged Native Hawaiians must control the NHO. The statutory 
language merely requires that an NHO must be controlled by Native 
Hawaiians. In order to maximize benefits to the Native Hawaiian 
community, SBA believes that it makes sense that an NHO should be able 
to attract the most qualified Native Hawaiians to run and control the 
NHO. If the most qualified Native Hawaiians cannot be part of the team 
that controls an NHO because they may not qualify individually as 
economically disadvantaged, SBA believes that is a disservice to the 
Native Hawaiian community. As such, this final rule changes the way 
that SBA will determine whether an NHO qualifies as economically 
disadvantaged. It makes NHOs similar to Indian tribes by requiring an 
NHO to present information relating to the economic disadvantaged 
status of Native Hawaiians, including the unemployment rate of Native 
Hawaiians and the per capita income of Native Hawaiians. The difference 
between tribes and NHOs, however, is that one tribe serves and intends 
to benefit one distinct group of people (i.e., its specific tribal 
members), and multiple NHOs may be established to serve and benefit the 
same group of people (i.e., the entire Native Hawaiian community). As 
with economic disadvantage for tribes, once an NHO establishes that it 
is economically disadvantaged in connection with the application of one 
firm owned and controlled by the NHO because the intended beneficiaries 
are economically disadvantaged, it need not reestablish its economic 
disadvantage for another firm owned by the NHO. In addition, unless a 
second NHO intends to serve and benefit a different population than 
that of the first NHO that established its economic disadvantage 
status, the second NHO also need not submit information to establish 
its economic disadvantage. Of course, in any case, the AA/BD may 
request an NHO to reestablish/establish its economic disadvantage 
status where the AA/BD believes that circumstances of the Native 
Hawaiian community may have changed.
Sole Source 8(a) Awards
    Pursuant to Sec.  8(a)(1)(D) of the Small Business Act, 8(a) 
procurements that exceed $7.0 million for those assigned a 
manufacturing NAICS code and $4.0 million for all others must generally 
be competed among eligible 8(a) Program Participants. 15 U.S.C. 
637(a)(1)(D). However, pursuant to section 303 of the Business 
Opportunity Reform Act of 1988 (Pub. L. 100-656), 102 Stat. 3853, 3887-
3888, 8(a) Program Participants owned by Indian tribes and Alaska 
Native Corporations (ANCs) are exempt from those competitive threshold 
limitations. As such, a Participant owned by an Indian tribe or ANC can 
receive an 8(a) sole source award in any amount under the Small 
Business Act. Section 811 of the National Defense Authorization Act for 
Fiscal Year 2010 (NDAA 2010) (Section 811), Public Law 111-84, imposed 
justification and approval requirements on any 8(a) sole source 
contract that exceeds $20 million. 123 Stat. 2190, 2405. Specifically, 
section 811 provides that the head of an agency may not award a sole 
source 8(a) contract for an amount exceeding $20 million ``unless the 
contracting officer for the contract justifies the use of a sole-source 
contract in writing'' and ``the justification is approved by the 
appropriate official designated to approve contract awards for dollar 
amounts that are comparable to the amount of the sole-source contract. 
. .'' Id. This provision has been implemented in FAR 19.808-1(a) and 
6.303-1(b), which currently provide that SBA cannot accept for 
negotiation a sole-source 8(a) contract that exceeds $22 million unless 
the requesting agency has completed a justification in accordance with 
the requirements of FAR 6.303. The FAR recently increased the $20 
million amount to $22 million in order to take into account inflation. 
Several commenters to the proposed rule noted that SBA's regulations do 
not take into account section 811 or FAR 19.808-1, and requested that 
SBA amend its regulations to be consistent with the FAR. This final 
rule merely incorporates the section 811 and FAR requirements into 
SBA's regulations. In addition, it requires a procuring agency that is 
offering a sole source requirement that exceeds $22 million for award 
through the 8(a) BD to provide a statement in its offering letter that 
the necessary justification and approval under the FAR has occurred. 
SBA will not question and does not need to obtain a copy of the 
justification and

[[Page 48572]]

approval, but merely ensure that it has been done.
    SBA believes that there is some confusion in the 8(a) and 
procurement communities regarding the requirements of section 811. 
There is a misconception by some that there can be no 8(a) sole source 
awards that exceed $22 million. That is not true. Nothing in either 
section 811 or the FAR prohibits 8(a) sole source awards to Program 
Participants owned by Indian tribes and ANCs above $22 million. All 
that is required is that a contracting officer justify the award and 
have that justification approved at the proper level. In addition, 
there is no statutory or regulatory requirement that would support 
prohibiting 8(a) sole source awards above any specific dollar amount, 
higher or lower than $22 million.
    As noted above, 8(a) procurements that exceed $7.0 million for 
those assigned a manufacturing NAICS code and $4.0 million for all 
others must generally be competed among eligible 8(a) Program 
Participants. This final rule also amends Sec.  124.506(a)(2)(ii) 
regarding the competitive threshold amounts to make it consistent with 
the inflationary adjustment made to the FAR. As such, the final rule 
replaces the outdated $6.5 million competitive threshold for 
procurements assigned a manufacturing NAICS, and replaces it with the 
$7.0 million competitive threshold currently contained in Sec.  19.805-
1(a)(2) of the FAR.
Change in Primary Industry Classification (13 CFR 124.112)
    The proposed rule sought to authorize SBA to change the primary 
industry classification contained in a Participant's business plan 
where the greatest portion of the Participant's total revenues during a 
three-year period have evolved from one NAICS code to another. It also 
provided discretion to SBA in deciding whether to change a 
Participant's primary industry classification because SBA recognized 
that whether the greatest portion of a firm's revenues is derived from 
one NAICS code, as opposed to one or more other NAICS codes, is a 
snapshot in time that is ever changing. The rule also proposed to 
require SBA to notify the Participant of its intent to change the 
Participant's primary industry classification and afford the 
Participant the opportunity to submit information explaining why such a 
change would be inappropriate. Although the language of the proposed 
rule specifically authorized the opportunity for a Participant to 
dispute any intent to change its primary NAICS code, the supplementary 
information to the proposed rule also requested comments as to whether 
an alternative that would permit SBA to change a Participant's primary 
industry automatically, based on FPDS data, should be considered 
instead.
    SBA received a vast number of comments on this particular 
provision, both as formal written comments and as part of the various 
tribal consultations. In fact, this was the most heavily commented on 
provision of the proposed rule. Commenters focused on the alternative 
to allow SBA to change a Participant's primary industry unilaterally 
and strenuously opposed that alternative. Commenters presented many 
reasons why they opposed any automatic change in Participants' primary 
industry category. They felt that it would inappropriately impose a 
significant change on a firm based on inherently incomplete date in 
FPDS, which does not take all revenue streams into consideration. 
Commenters also noted that firms are not limited to pursuing work only 
in their primary NAICS code, and naturally pursue work in multiple 
NAICS codes. They believed that it would be contrary to the business 
development purposes of the program to discourage firms from branching 
out into several related industry categories. In addition, commenters 
noted that the work to be performed for a particular requirement may 
often be classified under more than one NAICS code. Commenters argued 
that if there are several reasonable NAICS codes that could be assigned 
to a requirement and a procuring agency selects one code (that happens 
to be a Participant's secondary NAICS code) instead of another (which 
is the Participant's primary NAICS code), the Participant should not be 
penalized for not performing work in its identified primary NAICS code. 
Commenters also felt that a unilateral change by SBA would deny a 
Participant due process rights and argued that there definitely should 
be dialogue between SBA and the Participant before any change is made 
to the Participant's primary NAICS code. Finally, although several 
commenters supported SBA's belief that it needed the ability to change 
a Participant's primary NAICS code in appropriate circumstances, a few 
different commenters opposed any change to a Participant's primary 
NAICS code.
    SBA continues to believe that it should have the ability to change 
a Participant's primary NAICS code in appropriate circumstances. 
Because an entity-owned applicant need not have a track record of past 
performance to be eligible to participate in the 8(a) BD program (i.e., 
it can meet the potential for success requirement simply by having the 
entity make a firm written commitment to support the operations of the 
applicant), the applicant has wide latitude in selecting its primary 
NAICS code. If the applicant selects a primary NAICS code merely to 
avoid the primary NAICS code of another Participant owned by the entity 
and has no intention of doing any work in that NAICS code, SBA believes 
that it should be able to change that Participant's primary NAICS code. 
Without such ability, there would be no requirement that the newly 
admitted Participant actually perform most, or any, work in the six 
digit NAICS code selected as its primary business classification in its 
application after being certified to participate in the 8(a) BD 
program. A firm could circumvent the intent of SBA's regulations by 
selecting a primary business classification that is different from the 
primary business classification of any other Participant owned by that 
same entity merely to get admitted to the 8(a) BD program, and then 
perform the majority, or even all, of its work in the identical primary 
NAICS code as another Participant owned by the entity. That should not 
be permitted to occur. However, SBA agrees with the commenters that SBA 
should not change a Participant's primary NAICS code without discussion 
back and forth between SBA and the Participant. SBA merely wants to 
ensure that the Participant has made and will continue to make good 
faith efforts to receive contracts (either Federal or non-Federal) in 
the NAICS code it identified as its primary NAICS code. For example, 
where a Participant details contract opportunities under its primary 
NAICS code that it submitted offers for in the last year, but was not 
successful in winning, and its concrete plans to continue to seek 
additional opportunities in that NAICS code, SBA would not change the 
Participant's primary industry classification. SBA understands the 
cyclical nature of business and that different factors may affect what 
type of contract opportunities are available. SBA does not expect a 
Participant to do no business when there is a downward turn in the 
industry identified as its primary NAICS code. Where SBA believes that 
a Participant's revenues for a secondary NAICS code exceed those of its 
identified primary NAICS code over the Participant's last three 
completed fiscal years, SBA would notify the Participant of its belief 
and ask the firm for input as to what its primary NAICS code is.

[[Page 48573]]

At that point, SBA would be looking for a reasonable explanation as to 
why the identified primary NAICS code should remain as the 
Participant's primary NAICS code. The Participant should identify: all 
non-Federal work that it has performed in its primary NAICS code; any 
efforts it has made to obtain contracts in the primary NAICS code; all 
contracts that it was awarded that it believes could have been 
classified under its primary NAICS code, but which a contracting 
officer assigned another reasonable NAICS code; and any other 
information that it believes has a bearing on why its primary NAICS 
code should not be changed despite performing more work in another 
NAICS code.
    The proposed rule also provided that if SBA determined that a 
change in a Participant's primary NAICS code was appropriate and that 
Participant was an entity-owned firm that could not have two 
Participants in the program with the same primary NAICS code, the 
entity (tribe, ANC, NHO, or CDC) would be required to choose which 
Participant should leave the 8(a) BD program if the change in NAICS 
codes caused it to have two Participants with the same primary NAICS 
code. Several commenters opposed requiring an entity to terminate the 
continued participation of one of its 8(a) BD Participants where it 
would have two Participants having the same primary NAICS code after 
SBA changes the primary NAICS of one of the firms. Instead, these 
commenters recommended that the second, newer firm be permitted to 
continue to participate in the 8(a) BD program, but not be permitted to 
receive any additional 8(a) contracts in the six-digit NAICS code that 
is the primary NAICS code of the other 8(a) Participant. SBA agrees 
that that would be a more suitable approach. The second firm is the one 
that should not have been able to have been admitted to the 8(a) BD 
program to perform most of its work in a NAICS code that was the 
primary NAICS code of another Participant owned by the same entity. 
Allowing the entity to choose to end the participation of the first 
firm, which may already be near the end of its program term, while 
allowing the second firm to continue to receive 8(a) contracts in a 
primary NAICS code that it never should have had would not appear to be 
much of a deterrent to others to continue this practice, and would not 
in any way penalize the second Participant that made no reasonable 
attempt to perform work in the NAICS code that it identified as its 
primary NAICS code to SBA. Thus, SBA adopts the recommendation and 
incorporates it into this final rule.
8(a) BD Program Suspensions (13 CFR 124.305)
    SBA proposed to add two additional bases for allowing a Participant 
to elect to be suspended from 8(a) BD program participation: Where the 
Participant's principal office is located in an area declared a major 
disaster area or where there is a lapse in Federal appropriations. The 
changes were intended to allow a firm to suspend its term of 
participation in the 8(a) BD program in order to not miss out on 
contract opportunities that the firm might otherwise have lost due to a 
disaster or a lapse in Federal funding.
    SBA received only comments in support of these two new bases to 
allow a Participant to elect suspension from 8(a) BD program 
participation. As such, the final rule adopts the language contained in 
the proposed rule. Upon the request of a certified 8(a) firm in a major 
declared disaster area, SBA will be able to suspend the eligibility of 
the firm for up to a one year period while the firm recovers from the 
disaster to ensure that it is able to take full advantage of the 8(a) 
BD program, rather than being impacted by lack of capacity or 
contracting opportunities due to disaster-induced disruptions. During 
such a suspension, a Participant would not be eligible for 8(a) BD 
program benefits, including set-asides, however, but would not ``lose 
time'' in its program term due to the extenuating circumstances wrought 
by a disaster. Similarly, this rule will allow a Participant to elect 
to suspend its participation in the 8(a) BD program where: Federal 
appropriations for one or more Federal departments or agencies have 
expired without being extended via continuing resolution or other means 
and no new appropriations have been enacted (i.e., during a lapse in 
appropriations); SBA has previously accepted an offer for a sole source 
8(a) award on behalf of the Participant; and award of the 8(a) sole 
source contract is pending. A Participant could not elect a partial 
suspension of 8(a) BD program benefits. If it elects to be suspended 
during a lapse in Federal appropriations, the Participant would be 
ineligible to receive any new 8(a) BD program benefits during the 
suspension.
Benefits Reporting Requirement (13 CFR 124.602)
    The proposed rule included an amendment to the time frame for the 
reporting of benefits for entity-owned Participants in the 8(a) BD 
program. Previously, SBA required an entity-owned Participant to report 
benefits as part of its annual review submission. SBA believes it is 
more appropriate that this information be submitted as part of a 
Participant's submission of its annual financial statements pursuant to 
Sec.  124.602. SBA wants to make clear that benefits reporting should 
not be tied to continued eligibility, as may be assumed where such 
reporting is part of SBA's annual review analysis. The proposed rule 
changed the timing of benefits reporting from the time of a 
Participant's annual review submission to the time of a Participant's 
annual financial statement submission. SBA believes that the data 
collected by certain Participants in preparing their financial 
statements submissions may also help them report some of the benefits 
that flow to the native or other community. The regulatory change will 
continue to require the submission of the data on an annual basis but 
within 120 days after the close of the concern's fiscal year instead of 
as part of the annual submission.
    Commenters supported this change, believing that it was important 
to remove any doubt that benefits reporting should not in any way be 
tied to continued eligibility. Although a few commenters opposed the 
reporting of benefits flowing back to the native or other community 
entirely, most commenters understood that this requirement was 
generated in response to a GAO audit and was intended to support the 
continued need for the tribal 8(a) program. The final rule adopts the 
proposed language.
Reverse Auctions (13 CFR 125.2 and 125.5)
    SBA also proposed to amend Sec. Sec.  125.2(a) and 125.5(a)(1) to 
address reverse auctions. Specifically, SBA proposed to reinforce the 
principle that all of SBA's regulations, including those relating to 
set-asides and referrals for a Certificate of Competency, apply to 
reverse auctions. With a reverse auction, the Government is buying a 
product or service, but the businesses are bidding against each other, 
which tends to drive the price down (hence the name reverse auction). 
In a reverse auction, the bidders actually get to see all of the other 
bidders' prices and can ``outbid'' them by offering a lower price. 
Although SBA believes that the small business rules currently apply to 
reverse auctions, the proposed rule intended to make it clear to 
contracting officials that there are no exceptions to SBA's small 
business regulations for reverse auctions. SBA received no adverse 
comments in response to this provision.

[[Page 48574]]

As such, the final rule makes no changes from the proposed rule.
Reconsideration of Decisions of SBA's OHA (13 CFR 134.227)
    The proposed rule added clarifying language to Sec.  134.227(c) to 
recognize SBA as a party that may file a request for reconsideration in 
an OHA proceeding in which it has not previously participated. The 
final rule adopts the language as proposed. This provision is intended 
to alter the rule expressed in Size Appeal of Goel Services, Inc. and 
Grunley/Goel JVD LLC, SBA No. SIZ-5356 (2012), which held that SBA 
could not request reconsideration where SBA did not appear as a party 
in the original appeal. The SBA believes that it is axiomatic that SBA 
is always an interested party regarding an appeal of an SBA decision to 
OHA, and that SBA may request reconsideration of an OHA appeal decision 
even where SBA chose not to or otherwise did not file a response to the 
initial appeal petition.

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

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a significant regulatory action for purposes of 
Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. This is not a major rule, however, under 
the Congressional Review Act.

Regulatory Impact Analysis

    1. Is there a need for the regulatory action?
    The final rule implements section 1347(b)(3) of the Small Business 
Jobs Act of 2010, Public Law 111-240, 124 Stat. 2504, which authorizes 
the Agency to establish mentor-prot[eacute]g[eacute] programs for SDVO 
SBCs, HUBZone SBCs, and WOSB concerns, modeled on the Agency's mentor-
prot[eacute]g[eacute] program for small business concerns participating 
in programs under section 8(a) of the Small Business Act (15 U.S.C. 
637(a)). In addition, the final rule implements section 1641 of the 
NDAA 2013, Public Law 112-239, which authorized SBA to establish a 
mentor-prot[eacute]g[eacute] program for all small business concerns. 
SBA is also updating its rules to clarify areas where small business 
concerns may have been confused or where OHA's interpretations of SBA 
rules do not conform to SBA's interpretation or intent.
    2. What are the alternatives to this rule?
    As noted above in the supplementary information, this rule seeks to 
implement the Jobs Act of 2010 and NDAA 2013 authorities by creating 
one new mentor-prot[eacute]g[eacute] program in which any small 
business could participate instead of implementing four new separate 
small business mentor-prot[eacute]g[eacute] programs (i.e., having a 
separate mentor-prot[eacute]g[eacute] program for SDVO SBCs, HUBZone 
SBCs, WOSB concerns, and all other small business concerns, in addition 
to the current mentor-prot[eacute]g[eacute] program for 8(a) BD 
Participants). SBA decided to implement one program for all small 
businesses because SBA believed it would be easier for the small 
business and acquisition communities to use and understand. The 
statutory authority for this rule specifically mandates that the new 
mentor-prot[eacute]g[eacute] programs be modeled on the existing 
mentor-prot[eacute]g[eacute] program for small business concerns 
participating in the 8(a) BD program. Thus, to the extent practicable, 
SBA has attempted to adopt the regulations governing the 8(a) mentor-
prot[eacute]g[eacute] program in establishing the mentor-
prot[eacute]g[eacute] program for SBCs.
    3. What are the potential benefits and costs of this regulatory 
action?
    The final rule enhances the ability of small business concerns to 
obtain larger prime contracts that would be normally out of the reach 
of these businesses. The small business mentor-prot[eacute]g[eacute] 
program should allow all small businesses to tap into the expertise and 
capital of larger firms, which in turn should help small business 
concerns become more knowledgeable, stable, and competitive in the 
Federal procurement arena.
    SBA estimates that under the final rule, approximately 2,000 SBCs, 
will become active in the small business mentor-prot[eacute]g[eacute] 
program, and prot[eacute]g[eacute] firms may obtain Federal contracts 
totaling possibly $2 billion per year. SBA notes that these estimates 
represent an extrapolation from data on the percentage of 8(a) BD 
Program Participants with signed MPAs and joint venture agreements, and 
are based on the dollars awarded to SBCs in FY 2012 according to data 
retrieved from the Federal Procurement Data System--Next Generation 
(FPDS-NG). With SBCs able to compete for larger contracts and thus a 
greater number of contracts in general, Federal agencies may choose to 
set aside more contracts for competition among small businesses, SDVO 
SBCs, HUBZone SBCs, and WOSB concerns, rather than using full and open 
competition. The movement from unrestricted to set-aside contracting 
might result in competition among fewer total bidders, although there 
will be more small businesses eligible to submit offers. The added 
competition for many of these procurements could result in lower prices 
to the Government for procurements reserved for SBCs, HUBZone SBCs, 
WOSB concerns, and SDVO SBCs, although SBA cannot quantify this 
benefit. To the extent that more than two thousand SBCs could become 
active in the small business mentor-prot[eacute]g[eacute] program, this 
might entail some additional administrative costs to the Federal 
Government associated with additional bidders for Federal small 
business procurement opportunities.
    The small business mentor-prot[eacute]g[eacute] program may have 
some distributional effects among large and small businesses. Although 
SBA cannot estimate with certainty the actual outcome of the gains and 
losses among small and large businesses, it can identify several 
probable impacts. There may be a transfer of some Federal contracts 
from large businesses to SBC prot[eacute]g[eacute]s. However, large 
business mentors will be able to joint venture with 
prot[eacute]g[eacute] firms for contracts reserved for small business 
and be eligible to perform contracts that they would otherwise be 
ineligible to perform. Large businesses may have fewer Federal prime 
contract opportunities as Federal agencies decide to set aside more 
Federal contracts for SBCs, SDVO SBCs, HUBZone SBCs, and WOSB concerns. 
In addition, some Federal contracts may be awarded to HUBZone 
prot[eacute]g[eacute]s instead of large businesses since these firms 
may be eligible for an evaluation adjustment for contracts when they 
compete on a full and open basis. This transfer may be offset by a 
greater number of contracts being set aside for SBCs, SDVO SBCs, 
HUBZone SBCs, and WOSB concerns. SBA cannot estimate the potential 
distributional impacts of these transfers with any degree of precision.
    The small business mentor-prot[eacute]g[eacute] program is 
consistent with SBA's statutory mandate to assist small businesses, and 
this regulatory action promotes the Administration's objectives. One of 
SBA's goals in support of the Administration's objectives is to help 
individual small businesses, including SDVO SBCs, HUBZone SBCs, and 
WOSB concerns, succeed through fair and equitable access to capital and 
credit, Federal contracts, and management and technical assistance.

[[Page 48575]]

Executive Order 13563

    A description of the need for this regulatory action and the 
benefits and costs associated with this action, including possible 
distributional impacts that relate to Executive Order 13563, is 
included above in the Regulatory Impact Analysis.

Executive Order 12866

    In an effort to engage interested parties in this action, SBA met 
with representatives from various agencies to obtain their feedback on 
SBA's proposed mentor-prot[eacute]g[eacute] program. For example, SBA 
participated in a Government-wide meeting involving Office of Small and 
Disadvantaged Business Utilization (OSDBU) representatives responsible 
for mentor-prot[eacute]g[eacute] programs in their respective agencies. 
It was generally agreed upon that SBA's proposed mentor-
prot[eacute]g[eacute] program would complement the already existing 
Federal programs due in part to the differing incentives offered to the 
mentors under the various programs. SBA also presented proposed small 
business mentor-prot[eacute]g[eacute] programs to businesses in 
thirteen cities in the U.S. and sought their input as part of the Jobs 
Act tours. In developing the proposed rule, SBA considered all input, 
suggestions, recommendations, and relevant information obtained from 
industry groups, individual businesses, and Federal agencies.
    Finally, SBA also conducted a series of tribal consultations 
pursuant to Executive Order 13175, Tribal Consultations. SBA conducted 
three in-person tribal consultations (in Washington, DC on February 26, 
2015, in Tulsa, Oklahoma on April 21, 2015, and in Anchorage, Alaska on 
April 23, 2015) and two telephonic tribal consultations (one on April 
7, 2015, and a Hawaii/Native Hawaiian Organization specific one on 
April 8, 2015). These consultations highlighted those issues 
specifically relevant to the tribal, ANC, and NHO communities, but also 
solicited comments regarding all of the provisions of the proposed 
rule. SBA considered the statements and recommendations received during 
the consultation process in finalizing this rule.

Executive Order 12988

    For purposes of Executive Order 12988, SBA has drafted this final 
rule, to the extent practicable, in accordance with the standards set 
forth in sections 3(a) and 3(b)(2) of that Executive Order, to minimize 
litigation, eliminate ambiguity, and reduce burden. This rule has no 
preemptive or retroactive effect.

Executive Order 13132

    For the purpose of Executive Order 13132, SBA has determined that 
this final rule will not have substantial direct effects on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. Therefore, SBA has determined that this final 
rule has no federalism implications warranting preparation of a 
federalism assessment.

Paperwork Reduction Act

    For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35, 
SBA has determined that this final rule would impose new reporting 
requirements. These collections of information include the following: 
(1) Information necessary for SBA to evaluate the success of a mentor-
prot[eacute]g[eacute] relationship; (2) information necessary for SBA 
to determine whether a prospective mentor is capable of carrying out 
its responsibilities to assist the prot[eacute]g[eacute] firm under the 
proposed mentor-prot[eacute]g[eacute] agreement; (3) information 
necessary for SBA to evaluate compliance with performance of work 
requirements, including work performed by the joint venture; and (4) 
information detailing the proposed relationship between the mentor and 
prot[eacute]g[eacute]. The rule also eliminates the collection of 
information currently contained in SBA's regulations. Specifically, the 
final rule eliminates the requirement that each individual claiming 
economic disadvantage for purposes of 8(a) eligibility must submit a 
narrative statement in support of his or her claim of economic 
disadvantage. SBA eliminated this requirement because SBA believes it 
to be burdensome and unnecessary.
    Finally, the final rule also makes a minor change to the benefits 
reporting schedule from the time of an 8(a) Participant's annual review 
submission to when the Participant submits its financial statement as 
required by Sec.  124.602; specifically, within 120 days after the 
close of the Participant's fiscal year. The 8(a) Participants Benefits 
Report form has been approved by OMB (OMB Control No. 3245-0391). This 
rule makes no substantive changes to the benefits information to be 
reported to SBA, it merely adjusts the reporting date. The title, 
summary of each information collection, description of respondents, and 
an estimate of the reporting burden are discussed below. Included in 
the estimate is the time for reviewing instructions, searching existing 
data needed, and completing and reviewing each collection of 
information.
    SBA solicited public comments on these collections of information 
at the proposed rule stage. Except as discussed below, there was very 
little feedback on these changes. SBA will submit the final information 
collections to OMB for approval.
    1. Title and Description: Mentor-Prot[eacute]g[eacute] Agreement 
[SBA Form 2459]. The agreement between a mentor and 
prot[eacute]g[eacute] will include an assessment of the 
prot[eacute]g[eacute]'s needs and goals; a description of the how the 
mentor intends to assist prot[eacute]g[eacute] in meeting its goals; 
and the timeline for delivery of such assistance.
    Need and Purpose: The agreement must be submitted to SBA for review 
and approval, to help the Agency to determine whether the proposed 
assistance will enhance the development of the prot[eacute]g[eacute] 
and not merely further the interest of the mentor. The information will 
also be beneficial to SBA's efforts to reduce fraud, waste, and abuse 
in Federal contracting programs.
    OMB Control Number: New Collection.
    Description and Estimated Number of Respondents: This information 
will be collected from small business prot[eacute]g[eacute]s pursuant 
to Sec.  125.9(e). SBA estimates this number to be 2,000.
    Estimated Response Time: 1 hour.
    Total Estimated Annual Hour Burden: 2,000.
    Overall, commenters agreed that the collection of information 
identified in the proposed rule is necessary for the proper performance 
of SBA's functions, and would not be overly burdensome for affected 
business concerns.
    2. Title and Description: Mentor-Prot[eacute]g[eacute] Financial 
and Other Information. [Form number not applicable] The final rule 
requires concerns seeking to participate in the small business mentor-
prot[eacute]g[eacute] program to submit certain financial information 
to SBA, including copies of Federal tax returns or audited financial 
statements, if applicable, filings required by the Securities and 
Exchange Commission, as well as payroll records.
    Need and Purpose: The information requested is necessary for SBA to 
determine whether prospective mentors are in good financial condition 
and capable of meeting their obligations under the mentor-
prot[eacute]g[eacute] agreement to provide assistance to 
prot[eacute]g[eacute]s and enhance their ability to successfully 
compete for Federal contracts. SBA will use the information to help 
determine whether the mentor can meet its obligations to provide 
business

[[Page 48576]]

development assistance under the mentor-prot[eacute]g[eacute] 
agreement, and also whether the prot[eacute]g[eacute] is an appropriate 
participant in the program. This information is to be submitted along 
with the mentor-prot[eacute]g[eacute] agreement as part of the program 
approval process. SBA believes that any additional burden imposed by 
this requirement would be minimal since the firms maintain the 
information in their general course of business.
    OMB Control Number: New Collection.
    Description of and Estimated Number of Respondents: Pursuant to 
Sec.  125.9(b)(2), this information will be collected from concerns 
seeking to benefit as mentors from SBA's mentor-prot[eacute]g[eacute] 
programs under Sec.  125.9. SBA estimates this number to be between 
1500 and 2000, since SBA has estimated the number of 
prot[eacute]g[eacute]s to be 2,000.
    Estimated Response Time: 1 hour.
    Total Estimated Annual Hour Burden: 1,500-2,000.
    3. Title and Description: Mentor-Prot[eacute]g[eacute] Benefits 
Report [SBA Form number 2460]. Prot[eacute]g[eacute]s participating in 
the small business mentor-prot[eacute]g[eacute] program are required to 
submit to SBA annual reports on their mentor-prot[eacute]g[eacute] 
relationships. The information to be included in these annual reports 
is the same type of information that is currently required of 
prot[eacute]g[eacute]s participating in SBA's 8(a) Business Development 
program, and as such will be modeled on the mentor-
prot[eacute]g[eacute] annual reporting requirements in Attachment B of 
SBA Form 1450 (OMB Control Number 3245-0205). Such information includes 
identification of the technical, management and/or financial assistance 
provided by mentors to prot[eacute]g[eacute]s; and a description of how 
that assistance has impacted the development of the 
prot[eacute]g[eacute]s. Once a mentor-prot[eacute]g[eacute] 
relationship ends, the prot[eacute]g[eacute] must submit a close out 
report to SBA on whether the prot[eacute]g[eacute] believed the mentor-
prot[eacute]g[eacute] relationship was beneficial and describe any 
lasting benefits it received.
    Need and Purpose: This information collection is necessary for SBA 
to, among other things, evaluate whether and to what extent the 
prot[eacute]g[eacute]s are benefiting or have benefitted from the 
relationship and in general, the effectiveness of the program in 
meeting its objectives. The information will also help SBA to determine 
whether to approve the continuation of the mentor-prot[eacute]g[eacute] 
agreement, approve a second mentor-prot[eacute]g[eacute] agreement with 
the same parties, or take other actions as necessary to protect against 
fraud, waste, or abuse in SBA's mentor-prot[eacute]g[eacute] programs.
    OMB Control Number: New Collection.
    Description of and Estimated Number of Respondents: This 
information will be collected from small business 
prot[eacute]g[eacute]s pursuant to proposed Sec.  125.9(g). SBA 
estimates this number to be 2,000.
    Estimated Response Time: 2 hours.
    Total Estimated Annual Hour Burden: 4,000
    4. Title and Description: Joint venture agreement. [Form number not 
applicable] The final rule requires participants to enter into a joint 
venture agreement that contains certain required provisions, pertaining 
to ownership, profits, bank accounts, itemization of equipment and 
specification of responsibilities. Commenters recommended that no 
specific format should be required for this agreement; therefore no 
specific format is mandated. However, the agreement must include the 
information outlined in Sec.  125.8; Sec.  125.18 ; Sec.  126.616; and 
Sec.  127.506.
    Need and Purpose: This information collection is necessary to 
ensure that joint venture agreements contain the provisions and 
information required by regulation, including ownership, distribution 
of profits, bank accounts, itemization of equipment, and specification 
of responsibilities.
    OMB Control Number: New Collection.
    Description and Estimated Number of Respondents: This information 
will be collected from SBC, SDVO SBC, HUBZone SBC, and WOSB joint 
venture partners SBA estimates this number to be between 1,500 and 
2,000.
    Estimated Response Time: 1 hour.
    Total Estimated Annual Hour Burden: 1,500-2,000
    5. Title and Description: Joint venture performance of work report 
[Form number not applicable]. The final rule imposes a requirement on 
SBC joint venture partners to annually submit to the applicable 
contracting officers and SBA performance of work reports demonstrating 
their how they are meeting or have met (for completed contracts), the 
applicable performance of work requirements for each SDVO, HUBZone, 
WOSB or small business set-aside contract they perform as a joint 
venture. Commenters recommended that no specific format should be 
required by which the information should be transmitted to SBA. Thus, 
SBA will permit any format that is easiest for the joint venture 
partners.
    Need and Purpose: This requirement will greatly enhance SBA's 
ability to monitor compliance with the limitations on subcontracting 
requirements in its effort to reduce fraud, waste, and abuse. SBA 
believes that any additional burden imposed by this recordkeeping 
requirement would be minimal because firms are already required to 
track their compliance with these requirements.
    OMB Control Number: New Collection.
    Description and Estimated Number of Respondents: This information 
will be collected from SBC, SDVO SBC, HUBZone SBC, and WOSB joint 
venture partners under Sec.  125.8(i), Sec.  125.18(b), Sec.  
126.616(i), and Sec.  127.506(j). SBA estimates this number to be 
between 1,500 and 2,000.
    Estimated Response Time: 1 hour.
    Total Estimated Annual Hour Burden: 1,500-2,000.

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

    Under the Regulatory Flexibility Act (RFA), this final rule may 
have a significant impact on a substantial number of small businesses. 
Immediately below, SBA sets forth a final regulatory flexibility 
analysis (FRFA) addressing the impact of this final rule in accordance 
with section 604, Title 5, of the United States Code. The FRFA examines 
the need and objectives for this final rule; the significant issues 
raised by public comment and SBA's responses thereto; kind and number 
of small entities that may be affected; the projected recordkeeping, 
reporting, and other requirements; and a description of the steps SBA 
has taken to minimize the significant economic impact on small 
entities.
    1. What are the need for and objective of the rule?
    This final rule implements section 1347(b)(3) of the Small Business 
Jobs Act of 2010, Public Law 111-240, and section 1641 of the NDAA 
2013, Public Law 112-239. As discussed above, the Small Business Jobs 
Act tasked the Agency with establishing mentor-prot[eacute]g[eacute] 
programs for SDVO SBCs, HUBZone SBCs, and WOSB concerns, modeled on the 
Agency's mentor-prot[eacute]g[eacute] program for small business 
concerns participating in programs under section 8(a) of the Small 
Business Act (13 U.S.C. 637(a)), commonly known as the 8(a) Business 
Development program. Similarly, section 1641 of NDAA 2013 authorized 
SBA to establish a mentor-prot[eacute]g[eacute] program for all small 
business concerns that is identical to the 8(a) BD mentor-
prot[eacute]g[eacute] program, except that SBA may modify the program 
to the extent necessary given the types of small

[[Page 48577]]

business concerns included as prot[eacute]g[eacute]s. SBA chose to 
implement one small business mentor-prot[eacute]g[eacute] program, in 
addition to the 8(a) BD mentor-prot[eacute]g[eacute] program.
    2. What are the significant issues raised by the public comments, 
SBA's assessment of such issues, and any changes made in the proposed 
rule as a result of such comments?
    As noted above, SBA received 113 comments in response to the 
proposed rule, with most of the commenters commenting on multiple 
proposed provisions. A description of the comments received, SBA's 
response to such comments, and the changes made to the final rule in 
response to the comments is identified in detail in the supplementary 
information section of this final rule. The most heavily commented on 
provision of the proposed rule was the provision authorizing SBA to 
change the primary NAICS code of an 8(a) BD Program Participant in 
appropriate circumstances. SBA believed that many of the commenters 
misconstrued SBA's intent. SBA alleviated the concern that SBA would 
unilaterally change a firm's primary NAICS code without input from the 
firm by clarifying in the final rule that there will be a dialogue 
between SBA and the affected Participant before any NAICS code change 
is made, and that a change will not occur where the firm provides a 
reasonable explanation as to why the identified primary NAICS code 
should remain as the Participant's primary NAICS code.
    SBA received a significant number of comments supporting a small 
business mentor-prot[eacute]g[eacute] program. These commenters 
believed that a small business mentor-prot[eacute]g[eacute] program 
would enable firms that are not in the 8(a) BD program to receive 
critical business development assistance that would otherwise not be 
available to them. Many of these commenters expressed support for the 
opportunity to gain meaningful expertise that would help them to 
independently perform more complex and higher value contracts in the 
future.
    3. What are SBA's description and estimate of the number of small 
entities to which the rule will apply?
    The final rule will apply to all small business concerns 
participating in the Federal procurement market that seek to form 
mentor-prot[eacute]g[eacute] relationships. SBA estimates this number 
to be about two thousand, based upon the number of 8(a) Participants 
that have established mentor-prot[eacute]g[eacute] relationships in 
that program.
    4. What are the projected reporting, recordkeeping, and other 
compliance requirements of the rule and an estimate of the classes of 
small entities which will be subject to the requirements?
    The final rule imposes the following reporting and recordkeeping 
requirements: (1) Information necessary for SBA to evaluate the success 
of a mentor-prot[eacute]g[eacute] relationship; (2) information 
necessary for SBA to determine whether a prospective mentor is meeting 
its obligations under its MPA; and (3) information necessary for SBA to 
evaluate compliance with performance of work requirements. SDVO SBC, 
HUBZone SBC, and WOSB joint venture partners would be required to 
submit to SBA performance of work reports demonstrating their 
compliance with the limitations on subcontracting requirements. SBA 
estimates this number to be approximately 2,000.
    The Paperwork Reduction Act requirements are addressed further 
above.
    5. What steps has SBA taken to minimize the significant economic 
impact on small entities?
    Thirteen Federal agencies, including SBA, currently offer mentor-
prot[eacute]g[eacute] programs aimed at assisting small businesses to 
gain the technical and business skills necessary to successfully 
compete in the Federal procurement market. While the mentor-
prot[eacute]g[eacute] programs offered by other agencies share SBA's 
goal of increasing the participation of small businesses in Government 
contracts, the other Federal mentor-prot[eacute]g[eacute] programs are 
structured differently than SBA's proposed mentor-prot[eacute]g[eacute] 
programs, particularly in terms of the incentives offered to mentors. 
For example, some agencies offer additional points to a bidder who has 
a signed mentor-prot[eacute]g[eacute] agreement in place, while other 
agencies offer the benefit of reimbursing mentors for certain costs 
associated with prot[eacute]g[eacute]s' business development. SBA, as 
the agency authorized to determine small business size status, is 
uniquely qualified to offer mentor-prot[eacute]g[eacute] program 
participants the distinctive benefit of an exclusion from affiliation. 
This incentive makes SBA's mentor-prot[eacute]g[eacute] programs 
particularly attractive to potential mentors. Having a larger and more 
robust mentor pool increases the likelihood that small business 
prot[eacute]g[eacute]s will indeed obtain valuable business development 
assistance.
    SBA decided to implement one new small business mentor-
prot[eacute]g[eacute] program instead of four new mentor-
prot[eacute]g[eacute] programs (one for small businesses, one for SDVO 
small businesses, one for WOSBs and one for HUBZone small businesses) 
since the other three types of small businesses (SDVO, HUBZone and 
women-owned) would be necessarily included within any mentor-
prot[eacute]g[eacute] program targeting all small business concerns. 
Having one additional program instead of four additional programs will 
be easier for small business concerns to use and understand, and cause 
less of a burden on them.
    In addition, where the benefits provided to a prot[eacute]g[eacute] 
firm are minimal or where it appears that the relationship has been 
used primarily to permit a large mentor to benefit from contracts with 
its approved prot[eacute]g[eacute], through one or more joint ventures, 
that it would otherwise not be eligible for, SBA will terminate the 
mentor-prot[eacute]g[eacute] relationship. This will allow a small 
prot[eacute]g[eacute] firm to get out of a bad mentor-
prot[eacute]g[eacute] relationship that may have a negative impact on 
its economic development and seek and enter a new mentor-
prot[eacute]g[eacute] relationship that will prove to be more 
beneficial to the small prot[eacute]g[eacute] firm.
    Throughout this final rule, SBA has attempted to minimize any costs 
to small business. SBA believes that the benefits to be gained through 
a productive mentor-prot[eacute]g[eacute] relationship will far 
outweigh any administrative costs associated with the mentor-
prot[eacute]g[eacute] program. In addition, the provisions of the final 
rule attempt to impose safeguards that ensure that small businesses 
receive meaningful business development assistance, while at the same 
time ensuring that large businesses do not unduly benefit from small 
business contracts for which they would otherwise be ineligible to 
perform.

List of Subjects

13 CFR Part 121

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

13 CFR Part 124

    Administrative practice and procedures, Government procurement, 
Hawaiian natives, Indians--business and finance, Minority businesses, 
Reporting and recordkeeping requirements, Tribally-owned concerns, 
Technical assistance.

13 CFR Part 125

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

[[Page 48578]]

13 CFR Part 126

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

13 CFR Part 127

    Government contracts, Reporting and recordkeeping requirements, 
Small businesses.

13 CFR Part 134

    Administrative practice and procedure, Organization and functions 
(Government agencies).

    For the reasons set forth in the preamble, SBA amends 13 CFR parts 
121, 124, 125, 126, 127, and 134 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

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


0
2. Amend Sec.  121.103 by revising paragraphs (b)(2)(ii), (b)(6), the 
last two sentences of paragraph (h) introductory text, and paragraph 
(h)(3)(ii) to read as follows:


Sec.  121.103  How does SBA determine affiliation?

* * * * *
    (b) * * *
    (2) * * *
    (ii) Business concerns owned and controlled by Indian Tribes, ANCs, 
NHOs, CDCs, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or 
CDCs, are not considered to be affiliated with other concerns owned by 
these entities because of their common ownership or common management. 
In addition, affiliation will not be found based upon the performance 
of common administrative services so long as adequate payment is 
provided for those services. Affiliation may be found for other 
reasons.
    (A) Common administrative services which are subject to the 
exception to affiliation include, bookkeeping, payroll, recruiting, 
other human resource support, cleaning services, and other duties which 
are otherwise unrelated to contract performance or management and can 
be reasonably pooled or otherwise performed by a holding company, 
parent entity, or sister business concern without interfering with the 
control of the subject firm.
    (B) Contract administration services include both services that 
could be considered ``common administrative services'' under the 
exception to affiliation and those that could not.
    (1) Contract administration services that encompass actual and 
direct day-to-day oversight and control of the performance of a 
contract/project are not shared common administrative services, and 
would include tasks or functions such as negotiating directly with the 
government agency regarding proposal terms, contract terms, scope and 
modifications, project scheduling, hiring and firing of employees, and 
overall responsibility for the day-to-day and overall project and 
contract completion.
    (2) Contract administration services that are administrative in 
nature may constitute administrative services that can be shared, and 
would fall within the exception to affiliation. These administrative 
services include tasks such as record retention not related to a 
specific contract (e.g., employee time and attendance records), 
maintenance of databases for awarded contracts, monitoring for 
regulatory compliance, template development, and assisting accounting 
with invoice preparation as needed.
    (C) Business development may include both services that could be 
considered ``common administrative services'' under the exception to 
affiliation and those that could not. Efforts at the holding company or 
parent level to identify possible procurement opportunities for 
specific subsidiary companies may properly be considered ``common 
administrative services'' under the exception to affiliation. However, 
at some point the opportunity identified by the holding company's or 
parent entity's business development efforts becomes concrete enough to 
assign to a subsidiary and at that point the subsidiary must be 
involved in the business development efforts for such opportunity. At 
the proposal or bid preparation stage of business development, the 
appropriate subsidiary company for the opportunity has been identified 
and a representative of that company must be involved in preparing an 
appropriate offer. This does not mean to imply that one or more 
representatives of a holding company or parent entity cannot also be 
involved in preparing an offer. They may be involved in assisting with 
preparing the generic part of an offer, but the specific subsidiary 
that intends to ultimately perform the contract must control the 
technical and contract specific portions of preparing an offer. In 
addition, once award is made, employee assignments and the logistics 
for contract performance must be controlled by the specific subsidiary 
company and should not be performed at a holding company or parent 
entity level.
* * * * *
    (6) A firm that has an SBA-approved mentor-prot[eacute]g[eacute] 
agreement authorized under Sec.  124.520 or Sec.  125.9 of this chapter 
is not affiliated with its mentor firm solely because the 
prot[eacute]g[eacute] firm receives assistance from the mentor under 
the agreement. Similarly, a prot[eacute]g[eacute] firm is not 
affiliated with its mentor solely because the prot[eacute]g[eacute] 
firm receives assistance from the mentor under a federal mentor-
prot[eacute]g[eacute] program where an exception to affiliation is 
specifically authorized by statute or by SBA under the procedures set 
forth in Sec.  121.903. Affiliation may be found in either case for 
other reasons as set forth in this section.
* * * * *
    (h) * * * For purposes of this provision and in order to facilitate 
tracking of the number of contract awards made to a joint venture, a 
joint venture: must be in writing and must do business under its own 
name; must be identified as a joint venture in the System for Award 
Management (SAM); may be in the form of a formal or informal 
partnership or exist as a separate limited liability company or other 
separate legal entity; and, if it exists as a formal separate legal 
entity, may not be populated with individuals intended to perform 
contracts awarded to the joint venture (i.e., the joint venture may 
have its own separate employees to perform administrative functions, 
but may not have its own separate employees to perform contracts 
awarded to the joint venture). SBA may also determine that the 
relationship between a prime contractor and its subcontractor is a 
joint venture, and that affiliation between the two exists, pursuant to 
paragraph (h)(5) of this section.
* * * * *
    (3) * * *
    (ii) Two firms approved by SBA to be a mentor and 
prot[eacute]g[eacute] under Sec.  125.9 of this chapter may joint 
venture as a small business for any Federal government prime contract 
or subcontract, provided the prot[eacute]g[eacute] qualifies as small 
for the size standard corresponding to the NAICS code assigned to the 
procurement, and the joint venture meets the requirements of Sec.  
125.18(b)(2) and (3), Sec.  126.616(c) and (d), or Sec.  127.506(c) and 
(d) of this chapter, as appropriate.
* * * * *

0
3. Amend Sec.  121.404 by revising paragraph (g)(2)(ii)(A) to read as 
follows:

[[Page 48579]]

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

* * * * *
    (g) * * *
    (2) * * *
    (ii) * * *
    (A) When a concern, or an affiliate of the concern, acquires or is 
acquired by another concern;
* * * * *


Sec.  121.406  [Amended]

0
4. Amend Sec.  121.406(b)(5) introductory text by removing the phrase 
``paragraph (b)(1)(iii)'' and adding in its place the phrase 
``paragraph (b)(1)(iv)''.


Sec.  121.702  [Amended]

0
5. Amend Sec.  121.702(a)(1)(i) by adding the words ``an Indian tribe, 
ANC or NHO (or a wholly owned business entity of such tribe, ANC or 
NHO),'' before the words ``or any combination of these''.

0
6. Amend Sec.  121.1001 by redesignating paragraph (b)(10) through (12) 
as paragraphs (b)(11) through (13), respectively, and by adding a new 
paragraph (b)(10) to read as follows:


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

* * * * *
    (b) * * *
    (10) For purposes of the small business mentor-
prot[eacute]g[eacute] program authorized pursuant to Sec.  125.9 of 
this chapter (based on its status as a small business for its primary 
or identified secondary NAICS code), the business concern seeking to be 
a prot[eacute]g[eacute] or SBA may request a formal size determination.
* * * * *

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

0
7. 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) and 644; 
Pub. L. 99-661; Pub. L. 100-656, sec. 1207; Pub. L. 101-37; Pub. L. 
101-574, section 8021; Pub. L. 108-87; and 42 U.S.C. 9815.


0
8. Amend Sec.  124.103 as follows:
0
a. Add a sentence at the end of paragraph (c)(1);
0
b. Revise paragraph (c)(2)(ii);
0
c. Redesignate paragraph (c)(2)(iii) as (c)(2)(iv);
0
d. Add a new paragraph (c)(2)(iii);
0
e. Revise newly redesignated paragraph (c)(2)(iv) introductory text; 
and
0
f. Add paragraphs (c)(3) through (6).
    The additions and revisions read as follows:


Sec.  124.103  Who is socially disadvantaged?

* * * * *
    (c) * * *
    (1) * * * Such individual should present corroborating evidence to 
support his or her claim(s) of social disadvantage where readily 
available.
    (2) * * *
    (ii) The individual's social disadvantage must be rooted in 
treatment which he or she has experienced in American society, not in 
other countries;
    (iii) The individual's social disadvantage must be chronic and 
substantial, not fleeting or insignificant; and
    (iv) The individual's social disadvantage must have negatively 
impacted on his or her entry into or advancement in the business world. 
SBA will consider any relevant evidence in assessing this element, 
including experiences relating to education, employment and business 
history (including experiences relating to both the applicant firm and 
any other previous firm owned and/or controlled by the individual), 
where applicable.
* * * * *
    (3) An individual claiming social disadvantage must present facts 
and evidence that by themselves establish that the individual has 
suffered social disadvantage that has negatively impacted his or her 
entry into or advancement in the business world.
    (i) Each instance of alleged discriminatory conduct must be 
accompanied by a negative impact on the individual's entry into or 
advancement in the business world in order for it to constitute an 
instance of social disadvantage.
    (ii) SBA may disregard a claim of social disadvantage where a 
legitimate alternative ground for an adverse employment action or other 
perceived adverse action exists and the individual has not presented 
evidence that would render his/her claim any more likely than the 
alternative ground.

    Example 1 to paragraph (c)(3)(ii).  A woman who is not a member 
of a designated group attempts to establish her individual social 
disadvantage based on gender. She certifies that while working for 
company X, she received less compensation than her male counterpart. 
Without additional facts, that claim is insufficient to establish an 
incident of gender bias that could lead to a finding of social 
disadvantage. Without additional facts, it is no more likely that 
the individual claiming disadvantage was paid less than her male 
counterpart because he had superior qualifications or because he had 
greater responsibilities in his employment position. She must 
identify her qualifications (education, experience, years of 
employment, supervisory functions) as being equal or superior to 
that of her male counterpart in order for SBA to consider that 
particular incident may be the result of discriminatory conduct.
    Example 2 to paragraph (c)(3)(ii).  A woman who is not a member 
of a designated group attempts to establish her individual social 
disadvantage based on gender. She certifies that while working for 
company Y, she was not permitted to attend a professional 
development conference, even though male employees were allowed to 
attend similar conferences in the past. Without additional facts, 
that claim is insufficient to establish an incident of gender bias 
that could lead to a finding of social disadvantage. It is no more 
likely that she was not permitted to attend the conference based on 
gender bias than based on non-discriminatory reasons. She must 
identify that she was in the same professional position and level as 
the male employees who were permitted to attend similar conferences 
in the past, and she must identify that funding for training or 
professional development was available at the time she requested to 
attend the conference.

    (iii) SBA may disregard a claim of social disadvantage where an 
individual presents evidence of discriminatory conduct, but fails to 
connect the discriminatory conduct to consequences that negatively 
impact his or her entry into or advancement in the business world.

    Example to paragraph (c)(3)(iii).  A woman who is not a member 
of a designated group attempts to establish her individual social 
disadvantage based on gender. She provides instances where one or 
more male business clients utter derogatory statements about her 
because she is a woman. After each instance, however, she 
acknowledges that the clients gave her contracts or otherwise 
continued to do business with her. Despite suffering discriminatory 
conduct, this individual has not established social disadvantage 
because the discriminatory conduct did not have an adverse effect on 
her business.

    (4) SBA may request an applicant to provide additional facts to 
support his or her claim of social disadvantage to substantiate that a 
negative outcome was based on discriminatory conduct instead of one or 
more legitimate non-discriminatory reasons.
    (5) SBA will discount or disbelieve statements made by an 
individual seeking to establish his or her individual social 
disadvantage where such statements are inconsistent with other evidence 
contained in the record.
    (6) In determining whether an individual claiming social 
disadvantage meets the requirements set forth in this paragraph (c), 
SBA will determine whether:

[[Page 48580]]

    (i) Each specific claim establishes an incident of bias or 
discriminatory conduct;
    (ii) Each incident of bias or discriminatory conduct negatively 
impacted the individual's entry into or advancement in the business 
world; and
    (iii) In the totality, the incidents of bias or discriminatory 
conduct that negatively impacted the individual's entry into or 
advancement in the business world establish chronic and substantial 
social disadvantage.
* * * * *

0
9. Amend Sec.  124.104 by revising paragraph (b)(1) to read as follows:


Sec.  124.104  Who is economically disadvantaged?

* * * * *
    (b) Submission of financial information. (1) Each individual 
claiming economic disadvantage must submit personal financial 
information.
* * * * *

0
10. Amend Sec.  124.105 by revising paragraph (h)(2) introductory text 
to read as follows:


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

* * * * *
    (h) * * *
    (2) A non-Participant concern in the same or similar line of 
business or a principal of such concern may not 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, except that a former Participant in the same or 
similar line of business or a principal of such a former Participant 
(except those that have been terminated from 8(a) BD program 
participation pursuant to Sec. Sec.  124.303 and 124.304) may have an 
equity ownership interest of up to 20 percent in a current Participant 
in the developmental stage of the program or up to 30 percent in a 
transitional stage Participant.
* * * * *

0
11. Amend Sec.  124.106 introductory text by adding a new fifth 
sentence to read as follows:


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

    * * * Management experience need not be related to the same or 
similar industry as the primary industry classification of the 
applicant or Participant. * * *
* * * * *

0
12. Amend Sec.  124.108 by revising paragraph (a)(1) and by removing 
``10 percent'' in paragraph (a)(4) and adding in its place ``20 
percent''.
    The revision reads as follows:


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

    (a) * * *
    (1) If during the processing of an application, SBA receives 
adverse information from the applicant or a credible source regarding 
possible criminal conduct by the applicant or any of its principals, 
SBA may suspend further processing of the application and refer it to 
SBA's Office of Inspector General (OIG) for review. If the SBA suspends 
the application, but does not hear back from OIG within 45 days, SBA 
may proceed with application processing. The AA/BD will consider any 
findings of the OIG when evaluating the application.
* * * * *

0
13. Amend Sec.  124.109 by adding paragraphs (c)(2)(iv) and (c)(4)(iii) 
to read as follows:


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

* * * * *
    (c) * * *
    (2) * * *
    (iv) In determining whether a tribally-owned concern has obtained, 
or is likely to obtain, a substantial unfair competitive advantage 
within an industry category, SBA will examine the firm's participation 
in the relevant six digit NAICS code nationally as compared to the 
overall small business share of that industry.
    (A) SBA will consider the firm's percentage share of the national 
market and other relevant factors to determine whether the firm is 
dominant in a specific six-digit NAICS code with a particular size 
standard.
    (B) SBA does not contemplate a finding of affiliation where a 
tribally-owned concern appears to have obtained an unfair competitive 
advantage in a local market, but remains competitive, but not dominant, 
on a national basis.
* * * * *
    (4) * * *
    (iii) The individuals responsible for the management and daily 
operations of a tribally-owned concern cannot manage more than two 
Program Participants at the same time.
    (A) An individual's officer position, membership on the board of 
directors or position as a tribal leader does not necessarily imply 
that the individual is responsible for the management and daily 
operations of a given concern. SBA looks beyond these corporate 
formalities and examines the totality of the information submitted by 
the applicant to determine which individual(s) manage the actual day-
to-day operations of the applicant concern.
    (B) Officers, board members, and/or tribal leaders may control a 
holding company overseeing several tribally-owned or ANC-owned 
companies, provided they do not actually control the day-to-day 
management of more than two current 8(a) BD Program Participant firms.
* * * * *

0
14. Amend Sec.  124.110 as follows:
0
a. Add a sentence to the end of paragraph (b) introductory text;
0
b. Add paragraphs (b)(1) and (2);
0
c. Revise paragraph (c) introductory text and paragraph (c)(1);
0
d. Revise paragraph (d);
0
e. Redesignate paragraph (g) as paragraph (h); and
0
f. Add a new paragraph (g).
    The additions and revisions read as follows:


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

* * * * *
    (b) * * * In determining whether an NHO-owned concern has obtained, 
or is likely to obtain, a substantial unfair competitive advantage 
within an industry category, SBA will examine the firm's participation 
in the relevant six digit NAICS code nationally.
    (1) SBA will consider the firm's percentage share of the national 
market and other relevant factors to determine whether the firm is 
dominant in a specific six-digit NAICS code with a particular size 
standard.
    (2) SBA does not contemplate a finding of affiliation where an NHO-
owned concern appears to have obtained an unfair competitive advantage 
in a local market, but remains competitive, but not dominant, on a 
national basis.
    (c) An NHO must establish that it is economically disadvantaged and 
that its business activities will principally benefit Native Hawaiians. 
Once an NHO establishes that it is economically disadvantaged in 
connection with the application of one NHO-owned firm, it need not 
reestablish such status in order to have other businesses that it owns 
certified for 8(a) BD program participation, unless specifically 
requested to do so by the AA/BD. If a different NHO identifies that it 
will serve and benefit the same Native Hawaiian community as an NHO 
that has already established its economic disadvantage status, that NHO 
need not

[[Page 48581]]

establish its economic disadvantage status in connection with an 8(a) 
BD application of a business concern that it owns, unless specifically 
requested to do so by the AA/BD.
    (1) In order to establish that an NHO is economically 
disadvantaged, it must demonstrate that it will principally benefit 
economically disadvantaged Native Hawaiians. To do this, the NHO must 
provide data showing the economic condition of the Native Hawaiian 
community that it intends to serve, including:
    (i) The number of Native Hawaiians in the community that the NHO 
intends to serve;
    (ii) The present Native Hawaiian unemployment rate of those 
individuals;
    (iii) The per capita income of those Native Hawaiians, excluding 
judgment awards;
    (iv) The percentage of those Native Hawaiians below the poverty 
level; and
    (v) The access to capital of those Native Hawaiians.
* * * * *
    (d) An NHO must control the applicant or Participant firm. To 
establish that it is controlled by an NHO, an applicant or Participant 
must demonstrate that the NHO controls its board of directors, managing 
members, managers or managing partners.
    (1) The NHO need not possess the technical expertise necessary to 
run the NHO-owned applicant or Participant firm. The NHO must have 
managerial experience of the extent and complexity needed to run the 
concern. Management experience need not be related to the same or 
similar industry as the primary industry classification of the 
applicant or Participant.
    (2) An individual responsible for the day-to-day management of an 
NHO-owned firm need not establish personal social and economic 
disadvantage.
* * * * *
    (g) An NHO-owned firm's eligibility for 8(a) BD participation is 
separate and distinct from the individual eligibility of the NHO's 
members, directors, or managers.
    (1) The eligibility of an NHO-owned concern is not affected by the 
former 8(a) BD participation of one or more of the NHO's individual 
members.
    (2) In determining whether an NHO is economically disadvantaged, 
SBA may consider the individual economic status of an NHO member or 
director even if the member or director previously used his or her 
disadvantaged status to qualify an individually owned 8(a) applicant or 
Participant.
* * * * *

0
15. Amend Sec.  124.111 by adding a sentence to the end of paragraph 
(c) and by adding paragraphs (c)(1) and (2) to read as follows:


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

* * * * *
    (c) * * * In determining whether a CDC-owned concern has obtained, 
or is likely to obtain, a substantial unfair competitive advantage 
within an industry category, SBA will examine the firm's participation 
in the relevant six digit NAICS code nationally.
    (1) SBA will consider the firm's percentage share of the national 
market and other relevant factors to determine whether the firm is 
dominant in a specific six-digit NAICS code with a particular size 
standard.
    (2) SBA does not contemplate a finding of affiliation where a CDC-
owned concern appears to have obtained an unfair competitive advantage 
in a local market, but remains competitive, but not dominant, on a 
national basis.
* * * * *

0
16. Amend Sec.  124.112 by designating the text of paragraph (e) as 
paragraph (e)(1), and adding paragraph (e)(2) to read as follows:


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

* * * * *
    (e) * * *
    (2) SBA may change the primary industry classification contained in 
a Participant's business plan where the greatest portion of the 
Participant's total revenues during the Participant's last three 
completed fiscal years has evolved from one NAICS code to another. As 
part of its annual review, SBA will consider whether the primary NAICS 
code contained in a Participant's business plan continues to be 
appropriate.
    (i) Where SBA believes that the primary industry classification 
contained in a Participant's business plan does not match the 
Participant's actual revenues over the Participant's most recently 
completed three fiscal years, SBA may notify the Participant of its 
intent to change the Participant's primary industry classification and 
afford the Participant the opportunity to respond.
    (ii) A Participant may challenge SBA's intent to change its primary 
industry classification by demonstrating why it believes the primary 
industry classification contained in its business plan continues to be 
appropriate, despite an increase in revenues in a secondary NAICS code 
beyond those received in its designated primary industry 
classification. The Participant should identify: All non-federal work 
that it has performed in its primary NAICS code; any efforts it has 
made and any plans it has to make to receive contracts to obtain 
contracts in its primary NAICS code; all contracts that it was awarded 
that it believes could have been classified under its primary NAICS 
code, but which a contracting officer assigned another reasonable NAICS 
code; and any other information that it believes has a bearing on why 
its primary NAICS code should not be changed despite performing more 
work in another NAICS code.
    (iii) As long as the Participant provides a reasonable explanation 
as to why the identified primary NAICS code continues to be its primary 
NAICS code, SBA will not change the Participant's primary NAICS code.
    (iv) Where an SBA change in the primary NAICS code of an entity-
owned firm results in the entity having two Participants with the same 
primary NAICS code, the second, newer Participant will not be able to 
receive any 8(a) contracts in the six-digit NAICS code that is the 
primary NAICS code of the first, older Participant for a period of time 
equal to two years after the first Participant leaves the 8(a) BD 
program.
* * * * *

0
17. Revise Sec.  124.202 to read as follows:


Sec.  124.202  How must an application be filed?

    An application for 8(a) BD program admission must be filed in an 
electronic format. An electronic application can be found by going to 
the 8(a) BD page of SBA's Web site (https://www.sba.gov). The SBA 
district office will provide an applicant with information regarding 
the 8(a) BD program.

0
18. Revise Sec.  124.203 to read as follows:


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

    Each 8(a) BD applicant concern must submit those forms and 
attachments required by SBA when applying for admission to the 8(a) BD 
program. These forms and attachments may include, but not be limited 
to, financial statements, copies of signed Federal personal and 
business tax returns, individual and business bank statements, personal 
history statements, and any additional documents SBA deems necessary to 
determine eligibility. In all cases, the applicant must provide a 
signature from each individual claiming social and

[[Page 48582]]

economic disadvantage status. The electronic signing protocol will 
ensure the Agency is able to specifically identify the individual 
making the representation. The individual(s) upon whom eligibility is 
based take responsibility for the accuracy of all information submitted 
on behalf of the applicant.

0
19. Amend Sec.  124.305 by removing the period at the end of paragraph 
(h)(1)(ii) and adding in its place ``; or'', adding paragraphs 
(h)(1)(iii) and (iv), redesignating paragraph (h)(5) as (h)(6) and 
adding a new paragraph (h)(5).
    The additions read as follows:


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

* * * * *
    (h)(1) * * *
    (iii) A Participant has a principal place of business located in a 
federally declared disaster area and elects to suspend its 
participation in the 8(a) BD program for a period of up to one year 
from the date of the disaster declaration to allow the firm to recover 
from the disaster and take full advantage of the program. A Participant 
that elects to be suspended may request that the suspension be lifted 
prior to the end date of the original request; or
    (iv) Federal appropriations for one or more federal departments or 
agencies have lapsed, SBA has previously accepted an offer for a sole 
source 8(a) award on behalf of the Participant, award is pending, and 
the Participant elects to suspend its participation in the 8(a) BD 
program during the lapse in federal appropriations.
* * * * *
    (5) Where a Participant is suspended pursuant to (h)(1)(iv) of this 
section, the Participant must notify SBA when the lapse in 
appropriation ends so that SBA can immediately lift the suspension. 
When the suspension is lifted, the length of the suspension will be 
added to the concern's program term.
* * * * *

0
20. Amend Sec.  124.501 by revising the first sentence of paragraph (a) 
and by adding two sentences to the end of paragraph (b) to read as 
follows:


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

    (a) Pursuant to section 8(a) of the Small Business Act, SBA is 
authorized to enter into all types of contracts with other Federal 
agencies regardless of the place of performance, including contracts to 
furnish equipment, supplies, services, leased real property, or 
materials to them or to perform construction work for them, and to 
contract the performance of these contracts to qualified Participants. 
* * *
    (b) * * * In addition, for multiple award contracts not set aside 
for the 8(a) BD program, a procuring agency may set aside specific 
orders to be competed only among eligible 8(a) Participants, regardless 
of the place of performance. Such an order may be awarded as an 8(a) 
award where the order was offered to and accepted by SBA as an 8(a) 
award and the order specifies that the performance of work and/or non-
manufacturer rule requirements apply as appropriate.
* * * * *

0
21. Amend Sec.  124.502 by revising paragraph (c)(9), by removing 
``and'' at the end of paragraph (c)(16), by redesignating paragraph 
(c)(17) as (c)(18), and by adding a new paragraph (c)(17).
    The revision and addition read as follows:


Sec.  124.502  How does an agency offer a procurement to SBA for award 
through the 8(a) BD program?

* * * * *
    (c) * * *
    (9) The acquisition history, if any, of the requirement, including 
specifically whether the requirement is a follow-on requirement, and 
whether any portion of the contract was previously performed by a small 
business outside of the 8(a) BD program;
* * * * *
    (17) A statement that the necessary justification and approval 
under the Federal Acquisition Regulation has occurred where a 
requirement whose estimated contract value exceeds $22,000,000 is 
offered to SBA as a sole source requirement on behalf of a specific 
Participant; and
* * * * *

0
22. Amend Sec.  124.503 by adding two sentences to the end of paragraph 
(a)(1), by adding one sentence to the end of paragraph (a)(2), and by 
adding paragraph (g)(4) to read as follows:


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

    (a) * * *
    (1) * * * As part of its acceptance of a sole source requirement, 
SBA will determine the eligibility of the Participant identified in the 
offering letter, using the same analysis set forth in Sec.  
124.507(b)(2). Where a procuring agency offers a sole source 8(a) 
procurement on behalf of a joint venture, SBA will conduct an 
eligibility review of the lead 8(a) party to the joint venture as part 
of its acceptance, and will approve the joint venture prior to award 
pursuant to Sec.  124.513(e).
    (2) * * * For a competitive 8(a) procurement, SBA will determine 
the eligibility of the apparent successful offeror pursuant to Sec.  
124.507(b).
* * * * *
    (g) * * *
    (4) A procuring agency may offer, and SBA may accept, an order 
issued under a BOA to be awarded through the 8(a) BD program where the 
BOA itself was not accepted for the 8(a) BD program, but rather was 
awarded on an unrestricted basis.
* * * * *


Sec.  124.504  [Amended]

0
23. Amend Sec.  124.504 by removing the reference to ``Sec.  
124.503(h)'' in paragraph (d)(4) and adding in its place ``Sec.  
124.50(3)(h)(2)''.

0
24. Amend Sec.  124.506 by removing ``$6,500,000'' in paragraph 
(a)(2)(ii) and adding in its place ``$7,000,000'', and adding paragraph 
(b)(5).
    The addition reads as follows:


Sec.  124.506  At what dollar threshold must an 8(a) procurement be 
competed among eligible Participants?

* * * * *
    (b) * * *
    (5) An agency may not award an 8(a) sole source contract for an 
amount exceeding $22,000,000 unless the contracting officer justifies 
the use of a sole source contract in writing and has obtained the 
necessary approval under the Federal Acquisition Regulation.
* * * * *

0
25. Amend Sec.  124.507 by redesignating paragraphs (b)(3) through (5) 
as paragraphs (b)(4) through (6), respectively, and by adding new 
paragraph (b)(3) to read as follows:


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

* * * * *
    (b) * * *
    (3) Where the apparent successful offeror is a joint venture and 
SBA has not approved the joint venture prior to receiving notification 
of the apparent successful offeror, review of the joint venture will be 
part of the eligibility determination conducted under this paragraph 
(b). If SBA cannot approve the joint venture within 5 days of receiving 
a procuring activity's request for an eligibility determination, and 
the procuring activity does not grant additional time for review, SBA 
will be unable to verify the eligibility of the joint venture for 
award.
* * * * *

0
26. Amend Sec.  124.513 as follows:

[[Page 48583]]

0
a. Add paragraph (b)(3);
0
b. Revise paragraphs (c)(2), (c)(6) and (7), (d), and (e)(1);
0
c. Add paragraphs (e)(2)(iii) and (e)(3);
0
d. Redesignate paragraphs (f), (g), (h), and (i) as paragraphs (g), 
(h), (i) and (k), respectively;
0
e. Add new paragraph (f);
0
f. Revise newly redesignated paragraphs (g) and (i); and
0
g. Add paragraph (j) and (l).
    The additions and revisions read as follows:


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

* * * * *
    (b) * * *
    (3) SBA approval of a joint venture agreement pursuant to paragraph 
(e) of this section does not equate to a formal size determination. As 
such, despite SBA's approval of a joint venture, the size status of a 
joint venture that is the apparent successful offeror for a competitive 
8(a) contract may be protested pursuant to Sec.  121.1001(a)(2) of this 
chapter. See Sec.  124.517(b).
    (c) * * *
    (2) Designating an 8(a) Participant as the managing venturer of the 
joint venture and an employee of an 8(a) Participant as the project 
manager responsible for performance of the contract. The individual 
identified as the project manager of the joint venture need not be an 
employee of the 8(a) Participant at the time the joint venture submits 
an offer, but, if he or she is not, there must be a signed letter of 
intent that the individual commits to be employed by the 8(a) 
Participant if the joint venture is the successful offeror. The 
individual identified as the project manager cannot be employed by the 
mentor and become an employee of the 8(a) Participant for purposes of 
performance under the joint venture;
* * * * *
    (6) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each, where practical. If a contract is 
indefinite in nature, such as an indefinite quantity contract or a 
multiple award contract where the level of effort or scope of work is 
not known, the joint venture must provide a general description of the 
anticipated major equipment, facilities, and other resources to be 
furnished by each party to the joint venture, without a detailed 
schedule of cost or value of each, or in the alternative, specify how 
the parties to the joint venture will furnish such resources to the 
joint venture once a definite scope of work is made publicly available;
    (7) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the 8(a) partner(s) to the joint venture will 
meet the performance of work requirements set forth in paragraph (d) of 
this section, where practical. If a contract is indefinite in nature, 
such as an indefinite quantity contract or a multiple award contract 
where the level of effort or scope of work is not known, the joint 
venture must provide a general description of the anticipated 
responsibilities of the parties with regard to negotiation of the 
contract, source of labor, and contract performance, not including the 
ways that the parties to the joint venture will ensure that the joint 
venture and the 8(a) partner(s) to the joint venture will meet the 
performance of work requirements set forth in paragraph (d) of this 
section, or in the alternative, specify how the parties to the joint 
venture will define such responsibilities once a definite scope of work 
is made publicly available;
* * * * *
    (d) Performance of work. (1) For any 8(a) contract, including those 
between a prot[eacute]g[eacute] and a mentor authorized by Sec.  
124.520, the joint venture must perform the applicable percentage of 
work required by Sec.  124.510 of this chapter.
    (2) The 8(a) partner(s) to the joint venture must perform at least 
40% of the work performed by the joint venture.
    (i) The work performed by the 8(a) partner(s) to a joint venture 
must be more than administrative or ministerial functions so that the 
8(a) partners gain substantive experience.
    (ii) The amount of work done by the partners will be aggregated and 
the work done by the 8(a) partner(s) must be at least 40% of the total 
done by all partners. In determining the amount of work done by a non-
8(a) partner, all work done by the non-8(a) partner and any of its 
affiliates at any subcontracting tier will be counted.
    (e) * * *
    (1) SBA must approve a joint venture agreement prior to the award 
of an 8(a) contract on behalf of the joint venture. A Participant may 
submit a joint venture agreement to SBA for approval at any time, 
whether or not in connection with a specific 8(a) procurement.
    (2) * * *
    (iii) If a second or third contract to be awarded a joint venture 
is not an 8(a) contract, the Participant would not have to submit an 
addendum setting forth contract performance for the non-8(a) 
contract(s) to SBA for approval.
    (3) Where a joint venture has been established and approved by SBA 
without a corresponding specific 8(a) contract award (including where a 
joint venture is established in connection with a blanket purchase 
agreement (BPA), basic agreement (BA), or basic ordering agreement 
(BOA)), the Participant must submit an addendum to the joint venture 
agreement, setting forth the performance requirements, to SBA for 
approval for each of the three 8(a) contracts authorized to be awarded 
to the joint venture. In the case of a BPA, BA or BOA, each order 
issued under the agreement would count as a separate contract award, 
and SBA would need to approve the addendum for each order prior to 
award of the order to the joint venture.
    (f) Past performance and experience. When evaluating the past 
performance and experience of an entity submitting an offer for an 8(a) 
contract as a joint venture approved by SBA pursuant to this section, a 
procuring activity must consider work done individually by each partner 
to the joint venture as well as any work done by the joint venture 
itself previously.
    (g) Contract execution. Where SBA has approved a joint venture, the 
procuring activity will execute an 8(a) contract in the name of the 
joint venture entity or the 8(a) Participant, but in either case will 
identify the award as one to an 8(a) joint venture or an 8(a) mentor-
prot[eacute]g[eacute] joint venture, as appropriate.
* * * * *
    (i) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents relating to the 
joint venture.
    (j) Certification of compliance. Prior to the performance of any 
8(a) contract by a joint venture, the 8(a) BD Participant to the joint 
venture must submit a written certification to the contracting officer 
and SBA, signed by an authorized official of each partner to the joint 
venture, stating as follows:
    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (c) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (d) of this section.

[[Page 48584]]

    (iii) The parties have obtained SBA's approval of the joint venture 
agreement and any addendum to that agreement and that there have been 
no modifications to the agreement that SBA has not approved.
* * * * *
    (l) Basis for suspension or debarment. The Government may consider 
the following as a ground for suspension or debarment as a willful 
violation of a regulatory provision or requirement applicable to a 
public agreement or transaction:
    (1) Failure to enter a joint venture agreement that complies with 
paragraph (c) of this section;
    (2) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph (d) 
of this section; or
    (3) Failure to submit the certification required by paragraph (e) 
of this section or comply with paragraph (i) of this section.

0
27. Amend Sec.  124.515 by revising paragraph (a) introductory text and 
by removing the words ``An 8(a) contract'' in paragraph (a)(1) 
introductory text and adding in their place the words ``An 8(a) 
contract or order''.
    The revision reads as follows:


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

    (a) An 8(a) contract (or 8(a) order where the underlying contract 
is not an 8(a) contract) must be performed by the Participant that 
initially received it unless a waiver is granted under paragraph (b) of 
this section.
* * * * *

0
28. Amend Sec.  124.520 as follows:
0
a. Revise the second sentence of paragraph (a);
0
b. Revise paragraph (b)(1)(i);
0
c. Remove the words ``or non-profit entity'' from the first sentence of 
paragraph (b) introductory text and from the second sentence of 
paragraph (b)(2);
0
d. Revise the last sentence of paragraph (b)(2);
0
e. Revise paragraph (b)(3);
0
f. Revise paragraphs (c)(1) and (4);
0
g. Remove paragraph (c)(5);
0
h. Revise paragraph (d)(1)(iii);
0
i. Add paragraph (d)(5);
0
j. Redesignate paragraphs (e)(2) through (5) as paragraphs (e)(3) 
through (6), respectively;
0
k. Add a new paragraph (e)(2);
0
l. Revise newly designated paragraph (e)(5);
0
m. Add paragraphs (e)(7) and (8); and
0
n. Add paragraph (i).
    The revisions and additions read as follows:


Sec.  124.520  What are the rules governing SBA's 8(a) Mentor-
Prot[eacute]g[eacute] program?

    (a) * * * This assistance may include technical and/or management 
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts (either from the mentor to the 
prot[eacute]g[eacute] or from the prot[eacute]g[eacute] to the mentor); 
trade education; and/or assistance in performing prime contracts with 
the Government through joint venture arrangements. * * *
    (b) * * *
    (1) * * *
    (i) Is capable of carrying out its responsibilities to assist the 
prot[eacute]g[eacute] firm under the proposed mentor-
prot[eacute]g[eacute] agreement;
* * * * *
    (2) * * * Under no circumstances will a mentor be permitted to have 
more than three prot[eacute]g[eacute]s at one time in the aggregate 
under the mentor-prot[eacute]g[eacute] programs authorized by 
Sec. Sec.  124.520 and 125.9 of this chapter.
    (3) In order to demonstrate that it is capable of carrying out its 
responsibilities to assist the prot[eacute]g[eacute] firm under the 
proposed mentor-prot[eacute]g[eacute] agreement, a firm seeking to be a 
mentor may submit to the SBA copies of the federal tax returns it 
submitted to the IRS, or audited financial statements, including any 
notes, or in the case of publicly traded concerns, the filings required 
by the Securities and Exchange Commission (SEC), for the past three 
years.
* * * * *
    (c) * * *
    (1) In order to initially qualify as a prot[eacute]g[eacute] firm, 
a concern must:
    (i) Qualify as small for the size standard corresponding to its 
primary NAICS code or identify that it is seeking business development 
assistance with respect to a secondary NAICS code and qualify as small 
for the size standard corresponding to that NAICS code; and
    (ii) Demonstrate how the business development assistance to be 
received through its proposed mentor-prot[eacute]g[eacute] relationship 
would advance the goals and objectives set forth in its business plan.
* * * * *
    (4) The AA/BD may authorize a Participant to be both a 
prot[eacute]g[eacute] and a mentor at the same time where the 
Participant can demonstrate that the second relationship will not 
compete or otherwise conflict with the first mentor-
prot[eacute]g[eacute] relationship.
    (d) * * *
    (1) * * *
    (iii) Once a prot[eacute]g[eacute] firm graduates or otherwise 
leaves the 8(a) BD program or grows to be other than small for its 
primary NAICS code, it will not be eligible for any further 8(a) 
contracting benefits from its 8(a) BD mentor-prot[eacute]g[eacute] 
relationship. Leaving the 8(a) BD program, growing to be other than 
small for its primary NAICS code, or terminating the mentor-
prot[eacute]g[eacute] relationship while a prot[eacute]g[eacute] is 
still in the program, does not, however, generally affect contracts 
previously awarded to a joint venture between the prot[eacute]g[eacute] 
and its mentor. A prot[eacute]g[eacute] firm that graduates or 
otherwise leaves the 8(a) BD program but continues to qualify as a 
small business may transfer its 8(a) mentor-prot[eacute]g[eacute] 
relationship to a small business mentor-prot[eacute]g[eacute] 
relationship. In order to effectuate such a transfer, a firm must 
notify SBA of its intent to transfer its 8(a) mentor-
prot[eacute]g[eacute] relationship to a small business mentor-
prot[eacute]g[eacute] relationship. The transfer will occur without any 
application or approval process.
    (A) A joint venture between a prot[eacute]g[eacute] firm that 
continues to qualify as small and its mentor may certify its status as 
small for any Government contract or subcontract so long as the 
prot[eacute]g[eacute] (and/or the joint venture) has not been 
determined to be other than small for the size standard corresponding 
to the procurement at issue (or any higher size standard).
    (B) Where the prot[eacute]g[eacute] firm no longer qualifies as 
small, the receipts and/or employees of the prot[eacute]g[eacute] and 
mentor would generally be aggregated in determining the size of any 
joint venture between the mentor and prot[eacute]g[eacute] after that 
date.
    (C) Except for contracts with durations of more than five years 
(including options), a contract awarded to a joint venture between a 
prot[eacute]g[eacute] and a mentor as a small business continues to 
qualify as an award to small business for the life of that contract and 
the joint venture remains obligated to continue performance on that 
contract.
    (D) For contracts with durations of more than five years (including 
options), where size re-certification is required no more than 120 days 
prior to the end of the fifth year of the contract and no more than 120 
days prior to exercising any option thereafter, once the 
prot[eacute]g[eacute] firm no longer qualifies as small for its primary 
NAICS code, the joint venture must aggregate the receipts/employees of 
the partners to the joint venture in determining whether it continues 
to qualify as and can re-certify itself to be a small business under 
the size standard corresponding to the NAICS code

[[Page 48585]]

assigned to that contract. The rules set forth in Sec.  121.404(g)(3) 
of this chapter apply in such circumstances.
* * * * *
    (5) Where appropriate, procuring activities may provide incentives 
in the contract evaluation process to a firm that will provide 
significant subcontracting work to its SBA-approved 
prot[eacute]g[eacute] firm.
    (e) * * *
    (2) A firm seeking SBA's approval to be a prot[eacute]g[eacute] 
must identify any other mentor-prot[eacute]g[eacute] relationship it 
has through another federal agency or SBA and provide a copy of each 
such mentor-prot[eacute]g[eacute] agreement to SBA.
    (i) The 8(a) BD mentor-prot[eacute]g[eacute] agreement must 
identify how the assistance to be provided by the proposed mentor is 
different from assistance provided to the prot[eacute]g[eacute] through 
another mentor-prot[eacute]g[eacute] relationship, either with the same 
or a different mentor.
    (ii) A firm seeking SBA's approval to be a prot[eacute]g[eacute] 
may terminate a mentor-prot[eacute]g[eacute] relationship it has 
through another agency and use any not yet provided assistance 
identified in the other mentor-prot[eacute]g[eacute] agreement as part 
of the assistance that will be provided through the 8(a) BD mentor-
prot[eacute]g[eacute] relationship. Any assistance that has already 
been provided through another mentor-prot[eacute]g[eacute] relationship 
cannot be identified as assistance that will be provided through the 
8(a) BD mentor-prot[eacute]g[eacute] relationship.
* * * * *
    (5) SBA will review the mentor-prot[eacute]g[eacute] relationship 
annually during the prot[eacute]g[eacute] firm's annual review to 
determine whether to approve its continuation for another year. Unless 
rescinded in writing at that time, the mentor-prot[eacute]g[eacute] 
relationship will automatically renew without additional written notice 
of continuation or extension to the prot[eacute]g[eacute] firm. The 
term of a mentor-prot[eacute]g[eacute] agreement may not exceed three 
years, but may be extended for a second three years. A 
prot[eacute]g[eacute] may have two three-year mentor-
prot[eacute]g[eacute] agreements with different mentors, and each may 
be extended an additional three years provided the 
prot[eacute]g[eacute] has received the agreed-upon business development 
assistance and will continue to receive additional assistance through 
the extended mentor-prot[eacute]g[eacute] agreement.
* * * * *
    (7) If control of the mentor changes (through a stock sale or 
otherwise), the previously approved mentor-prot[eacute]g[eacute] 
relationship may continue provided that, after the change in control, 
the mentor expresses in writing to SBA that it acknowledges the mentor-
prot[eacute]g[eacute] agreement and certifies that it will continue to 
abide by its terms.
    (8) SBA may terminate the mentor-prot[eacute]g[eacute] agreement at 
any time if it determines that the prot[eacute]g[eacute] is not 
adequately benefiting from the relationship or that the parties are not 
complying with any term or condition of the mentor 
prot[eacute]g[eacute] agreement. In the event SBA terminates the 
relationship, the mentor-prot[eacute]g[eacute] joint venture is 
obligated to complete any previously awarded contracts unless the 
procuring agency issues a stop work order.
* * * * *
    (i) Results of mentor-prot[eacute]g[eacute] relationship. (1) In 
order to assess the results of a mentor-prot[eacute]g[eacute] 
relationship upon its completion, the prot[eacute]g[eacute] must report 
to SBA whether it believed the mentor-prot[eacute]g[eacute] 
relationship was beneficial and describe any lasting benefits to the 
prot[eacute]g[eacute].
    (2) Where a prot[eacute]g[eacute] does not report the results of a 
mentor-prot[eacute]g[eacute] relationship upon its completion, SBA will 
not approve a second mentor-prot[eacute]g[eacute] relationship either 
under this section or under Sec.  125.9 of this chapter.


Sec.  124.604  [Amended]

0
29. Amend Sec.  124.604 by removing the phrase ``annual review 
submission'' and adding in its place the phrase ``annual financial 
statement submission (see Sec.  124.602)'' in the first sentence.


Sec.  124.1002  [Amended]

0
30. Amend Sec.  124.1002 by removing paragraph (b)(4).

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
31. The authority citation for part 125 is revised to read as follows:

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


0
32. Amend Sec.  125.2 by revising the third sentence of paragraph (a) 
introductory text to read as follows:


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

    (a) General. * * * Small business concerns must receive any award 
(including orders, and orders placed against Multiple Award Contracts) 
or contract, part of any such award or contract, any contract for the 
sale of Government property, or any contract resulting from a reverse 
auction, regardless of the place of performance, which SBA and the 
procuring or disposal agency determine to be in the interest of:
* * * * *

0
33. Amend Sec.  125.5 by revising the second and third sentences of 
paragraph (a)(1) to read as follows:


Sec.  125.5  What is the Certificate of Competency Program?

    (a) General. (1) * * * A COC is a written instrument issued by SBA 
to a Government contracting officer, certifying that one or more named 
small business concerns possess the responsibility to perform a 
specific Government procurement (or sale) contract, including any 
contract deriving from a reverse auction. The COC Program is applicable 
to all Government procurement actions, including Multiple Award 
Contracts and orders placed against Multiple Award Contracts, where the 
contracting officer has used any issues of capacity or credit 
(responsibility) to determine suitability for an award. * * *
* * * * *


Sec.  125.6  [Amended]

0
34. Amend Sec.  125.6 by removing ``Sec.  125.15'' from paragraph (b) 
introductory text and adding in its place ``Sec.  125.18'', and by 
removing ``Sec.  125.15(b)(3)'' from paragraph (b)(5) and adding in its 
place ``Sec.  125.18(b)(3)''.


Sec. Sec.  125.8 through 125.30  [Redesignated as Sec. Sec.  125.11 
through 125.33]

0
35. Redesignate Sec. Sec.  125.8 through 125.30 as Sec. Sec.  125.11 
through 125.33, respectively, and locate them in the subparts as 
indicated in the following list:
0
i. Section 125.11 in subpart A;
0
ii. Sections 125.12 through 125.16 in subpart B;
0
iii. Sections 125.17 through 125.26 in subpart C;
0
iv. Sections 125.27 through 125.31 in subpart D; and
0
v. Sections 125.32 and 125.33 in subpart E.
0
36. Add new Sec. Sec.  125.8, 125.9 and 125.10 to precede subpart A to 
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?

    (a) General. A joint venture of two or more business concerns may 
submit an offer as a small business for a Federal procurement, 
subcontract or sale so long as each concern is small under the size 
standard corresponding to the NAICS code assigned to the contract, or 
qualify as small under one of the exceptions to

[[Page 48586]]

affiliation set forth in Sec.  121.103(h)(3) of this chapter.
    (b) Contents of joint venture agreement. (1) A joint venture 
agreement between two or more entities that individually qualify as 
small need not be in any specific form or contain any specific 
conditions in order for the joint venture to qualify as a small 
business.
    (2) Every joint venture agreement to perform a contract set aside 
or reserved for small business between a prot[eacute]g[eacute] small 
business and its SBA-approved mentor authorized by Sec.  125.9 or Sec.  
124.520 of this chapter must contain a provision:
    (i) Setting forth the purpose of the joint venture;
    (ii) Designating a small business as the managing venturer of the 
joint venture, and an employee of the small business managing venturer 
as the project manager responsible for performance of the contract. The 
individual identified as the project manager of the joint venture need 
not be an employee of the small business at the time the joint venture 
submits an offer, but, if he or she is not, there must be a signed 
letter of intent that the individual commits to be employed by the 
small business if the joint venture is the successful offeror. The 
individual identified as the project manager cannot be employed by the 
mentor and become an employee of the small business for purposes of 
performance under the joint venture;
    (iii) Stating that with respect to a separate legal entity joint 
venture, the small business must own at least 51% of the joint venture 
entity;
    (iv) Stating that the small business must receive profits from the 
joint venture commensurate with the work performed by the small 
business, or in the case of a separate legal entity joint venture, 
commensurate with their ownership interests in the joint venture;
    (v) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on a contract set aside or reserved for small business will 
be deposited in the special account; all expenses incurred under the 
contract will be paid from the account as well;
    (vi) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each, where practical. If a contract is 
indefinite in nature, such as an indefinite quantity contract or a 
multiple award contract where the level of effort or scope of work is 
not known, the joint venture must provide a general description of the 
anticipated major equipment, facilities, and other resources to be 
furnished by each party to the joint venture, without a detailed 
schedule of cost or value of each, or in the alternative, specify how 
the parties to the joint venture will furnish such resources to the 
joint venture once a definite scope of work is made publicly available;
    (vii) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the small business partner(s) to the joint 
venture will meet the performance of work requirements set forth in 
paragraph (d) of this section, where practical. If a contract is 
indefinite in nature, such as an indefinite quantity contract or a 
multiple award contract where the level of effort or scope of work is 
not known, the joint venture must provide a general description of the 
anticipated responsibilities of the parties with regard to negotiation 
of the contract, source of labor, and contract performance, not 
including the ways that the parties to the joint venture will ensure 
that the joint venture and the small business partner(s) to the joint 
venture will meet the performance of work requirements set forth in 
paragraph (d) of this section, or in the alternative, specify how the 
parties to the joint venture will define such responsibilities once a 
definite scope of work is made publicly available;
    (viii) Obligating all parties to the joint venture to ensure 
performance of a contract set aside or reserved for small business and 
to complete performance despite the withdrawal of any member;
    (ix) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the small 
business managing venturer, unless approval to keep them elsewhere is 
granted by the District Director or his/her designee upon written 
request;
    (x) Requiring that the final original records be retained by the 
small business managing venturer upon completion of any contract set 
aside or reserved for small business that was performed by the joint 
venture;
    (xi) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (xii) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (c) Performance of work. (1) For any contract set aside or reserved 
for small business that is to be performed by a joint venture between a 
small business prot[eacute]g[eacute] and its SBA-approved mentor 
authorized by Sec.  125.9, the joint venture must perform the 
applicable percentage of work required by Sec.  125.6, and the small 
business partner to the joint venture must perform at least 40% of the 
work performed by the joint venture.
    (2) The work performed by the small business partner to a joint 
venture must be more than administrative or ministerial functions so 
that it gains substantive experience.
    (3) The amount of work done by the partners will be aggregated and 
the work done by the small business prot[eacute]g[eacute] partner must 
be at least 40% of the total done by the partners. In determining the 
amount of work done by a mentor participating in a joint venture with a 
small business prot[eacute]g[eacute], all work done by the mentor and 
any of its affiliates at any subcontracting tier will be counted.
    (d) Certification of compliance. Prior to the performance of any 
contract set aside or reserved for small business by a joint venture 
between a prot[eacute]g[eacute] small business and a mentor authorized 
by Sec.  125.9, the small business partner to the joint venture must 
submit a written certification to the contracting officer and SBA, 
signed by an authorized official of each partner to the joint venture, 
stating as follows:
    (1) The parties have entered into a joint venture agreement that 
fully complies with paragraph (b) of this section;
    (2) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (c) of this section.
    (e) Past performance and experience. When evaluating the past 
performance and experience of an entity submitting an offer for a 
contract set aside or reserved for small business as a joint venture 
established pursuant to this section, a procuring activity must 
consider work done individually by each partner to the joint venture as 
well as any work done by the joint venture itself previously.
    (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 or a small business partner to the joint venture, 
but in either case will identify the award as one to a small business

[[Page 48587]]

joint venture or a small business mentor-prot[eacute]g[eacute] joint 
venture, as appropriate.
    (g) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents relating to the 
joint venture.
    (h) Performance of work reports. In connection with any contract 
set aside or reserved for small business that is awarded to a joint 
venture between a prot[eacute]g[eacute] small business and a mentor 
authorized by Sec.  125.9, the small business partner must describe how 
it is meeting or has met the applicable performance of work 
requirements for each contract set aside or reserved for small business 
that it performs as a joint venture.
    (1) The small business partner to the joint venture must annually 
submit a report to the relevant contracting officer and to the SBA, 
signed by an authorized official of each partner to the joint venture, 
explaining how the performance of work requirements are being met for 
each contract set aside or reserved for small business that is 
performed during the year.
    (2) At the completion of every contract set aside or reserved for 
small business that is awarded to a joint venture between a 
prot[eacute]g[eacute] small business and a mentor authorized by Sec.  
125.9, the small business partner to the joint venture must submit a 
report to the relevant contracting officer and to the SBA, signed by an 
authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements were met 
for the contract, and further certifying that the contract was 
performed in accordance with the provisions of the joint venture 
agreement that are required under paragraph (b) of this section.
    (i) Basis for suspension or debarment. For any joint venture 
between a prot[eacute]g[eacute] small business and a mentor authorized 
by Sec.  125.9, the Government may consider the following as a ground 
for suspension or debarment as a willful violation of a regulatory 
provision or requirement applicable to a public agreement or 
transaction:
    (1) Failure to enter a joint venture agreement that complies with 
paragraph (b) of this section;
    (2) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph (c) 
of this section; or
    (3) Failure to submit the certification required by paragraph (d) 
of this section or comply with paragraph (g) of this section.
    (j) Compliance with performance of work requirements. Any person 
with information concerning a joint venture's compliance with the 
performance of work requirements may report that information to SBA 
and/or the SBA Office of Inspector General.


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

    (a) General. The small business 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. This assistance may include technical 
and/or management assistance; financial assistance in the form of 
equity investments and/or loans; subcontracts (either from the mentor 
to the prot[eacute]g[eacute] or from the prot[eacute]g[eacute] to the 
mentor); trade education; and/or assistance in performing prime 
contracts with the Government through joint venture arrangements. 
Mentors are encouraged to provide assistance relating to the 
performance of contracts set aside or reserved for small business so 
that prot[eacute]g[eacute] firms may more fully develop their 
capabilities.
    (b) Mentors. Any concern that demonstrates a commitment and the 
ability to assist small business concerns may act as a mentor and 
receive benefits as set forth in this section. This includes other than 
small businesses.
    (1) In order to qualify as a mentor, a concern must demonstrate 
that it:
    (i) Is capable of carrying out its responsibilities to assist the 
prot[eacute]g[eacute] firm under the proposed mentor-
prot[eacute]g[eacute] agreement;
    (ii) Possesses good character;
    (iii) Does not appear on the federal list of debarred or suspended 
contractors; and
    (iv) Can impart value to a prot[eacute]g[eacute] firm due to 
lessons learned and practical experience gained or through its 
knowledge of general business operations and government contracting.
    (2) In order to demonstrate that it is capable of carrying out its 
responsibilities to assist the prot[eacute]g[eacute] firm under the 
proposed mentor-prot[eacute]g[eacute] agreement, a firm seeking to be a 
mentor may submit to the SBA copies of the federal tax returns it 
submitted to the IRS, or audited financial statements, including any 
notes, or in the case of publicly traded concerns, the filings required 
by the Securities and Exchange Commission (SEC), for the past three 
years.
    (3) Once approved, a mentor must annually certify that it continues 
to possess good character and a favorable financial position.
    (4) Generally, a mentor will have no more than one 
prot[eacute]g[eacute] at a time. However, SBA may authorize a concern 
to mentor more than one prot[eacute]g[eacute] at a time where it can 
demonstrate that the additional mentor-prot[eacute]g[eacute] 
relationship will not adversely affect the development of either 
prot[eacute]g[eacute] firm (e.g., the second firm may not be a 
competitor of the first firm). Under no circumstances will a mentor be 
permitted to have more than three prot[eacute]g[eacute]s at one time in 
the aggregate under the mentor-prot[eacute]g[eacute] programs 
authorized by Sec. Sec.  124.520 and 125.9 of this chapter.
    (c) Prot[eacute]g[eacute]s. (1) In order to initially qualify as a 
prot[eacute]g[eacute] firm, a concern must qualify as small for the 
size standard corresponding to its primary NAICS code or identify that 
it is seeking business development assistance with respect to a 
secondary NAICS code and qualify as small for the size standard 
corresponding to that NAICS code.
    (i) A firm may self-certify that it qualifies as small for its 
primary or identified secondary NAICS code.
    (ii) Where a firm is other than small for the size standard 
corresponding to its primary NAICS code and seeks to qualify as a small 
business prot[eacute]g[eacute] in a secondary NAICS code, the firm must 
demonstrate how the mentor-prot[eacute]g[eacute] relationship is a 
logical business progression for the firm and will further develop or 
expand current capabilities. SBA will not approve a mentor-
prot[eacute]g[eacute] relationship in a secondary NAICS code in which 
the firm has no prior experience.
    (2) A prot[eacute]g[eacute] firm may generally have only one mentor 
at a time. SBA may approve a second mentor for a particular 
prot[eacute]g[eacute] firm where the second relationship will not 
compete or otherwise conflict with the assistance set forth in the 
first mentor-prot[eacute]g[eacute] relationship and:
    (i) The second relationship pertains to an unrelated NAICS code; or
    (ii) The prot[eacute]g[eacute] firm is seeking to acquire a 
specific expertise that the first mentor does not possess.
    (3) SBA may authorize a small business to be both a 
prot[eacute]g[eacute] and a mentor at the same time where the small 
business can demonstrate that the second relationship will not compete 
or otherwise conflict with the first mentor-prot[eacute]g[eacute] 
relationship.

[[Page 48588]]

    (4) Where appropriate, SBA may examine the Service-Disabled 
Veteran-Owned Small Business status or Women-Owned Small Business 
status of a concern seeking to be a prot[eacute]g[eacute] that claims 
such status in any Federal procurement database.
    (d) Benefits. (1) A prot[eacute]g[eacute] and mentor may joint 
venture as a small business for any government prime contract or 
subcontract, provided the prot[eacute]g[eacute] qualifies as small for 
the procurement. Such a joint venture may seek any type of small 
business contract (i.e., small business set-aside, 8(a), HUBZone, SDVO, 
or WOSB) for which the prot[eacute]g[eacute] firm qualifies (e.g., a 
prot[eacute]g[eacute] firm that qualifies as a WOSB could seek a WOSB 
set-aside as a joint venture with its SBA-approved mentor).
    (i) SBA must approve the mentor-prot[eacute]g[eacute] agreement 
before the two firms may submit an offer as a joint venture on a 
particular government prime contract or subcontract in order for the 
joint venture to receive the exclusion from affiliation.
    (ii) In order to receive the exclusion from affiliation, the joint 
venture must meet the requirements set forth in Sec.  125.8(b)(2), (c), 
and (d).
    (iii) Once a prot[eacute]g[eacute] firm no longer qualifies as a 
small business for the size standard corresponding to its primary NAICS 
code, it will not be eligible for any further contracting benefits from 
its mentor-prot[eacute]g[eacute] relationship. However, a change in the 
prot[eacute]g[eacute]'s size status does not generally affect contracts 
previously awarded to a joint venture between the prot[eacute]g[eacute] 
and its mentor.
    (A) Except for contracts with durations of more than five years 
(including options), a contract awarded to a joint venture between a 
prot[eacute]g[eacute] and a mentor as a small business continues to 
qualify as an award to small business for the life of that contract and 
the joint venture remains obligated to continue performance on that 
contract.
    (B) For contracts with durations of more than five years (including 
options), where size re-certification is required under Sec.  
121.404(g)(3) of this chapter no more than 120 days prior to the end of 
the fifth year of the contract and no more than 120 days prior to 
exercising any option thereafter, once the prot[eacute]g[eacute] no 
longer qualifies as small for the size standard corresponding to its 
primary NAICS code, the joint venture must aggregate the receipts/
employees of the partners to the joint venture in determining whether 
it continues to qualify as and can re-certify itself to be a small 
business under the size standard corresponding to the NAICS code 
assigned to that contract. The rules set forth in Sec.  121.404(g)(3) 
of this chapter apply in such circumstances.
    (2) In order to raise capital, the prot[eacute]g[eacute] firm may 
agree to sell or otherwise convey to the mentor an equity interest of 
up to 40% in the prot[eacute]g[eacute] firm.
    (3) Notwithstanding the mentor-prot[eacute]g[eacute] relationship, 
a prot[eacute]g[eacute] firm may qualify for other assistance as a 
small business, including SBA financial assistance.
    (4) No determination of affiliation or control may be found between 
a prot[eacute]g[eacute] firm and its mentor based solely on the mentor-
prot[eacute]g[eacute] agreement or any assistance provided pursuant to 
the agreement. However, affiliation may be found for other reasons set 
forth in Sec.  121.103 of this chapter.
    (5) Where appropriate, procuring activities may provide incentives 
in the contract evaluation process to a firm that will provide 
significant subcontracting work to its SBA-approved 
prot[eacute]g[eacute] firm.
    (e) Written agreement. (1) The mentor and prot[eacute]g[eacute] 
firms must enter a written agreement setting forth an assessment of the 
prot[eacute]g[eacute]'s needs and providing a detailed description and 
timeline for the delivery of the assistance the mentor commits to 
provide to address those needs (e.g., management and/or technical 
assistance, loans and/or equity investments, cooperation on joint 
venture projects, or subcontracts under prime contracts being performed 
by the mentor). The mentor-prot[eacute]g[eacute] agreement must:
    (i) Address how the assistance to be provided through the agreement 
will help the prot[eacute]g[eacute] firm meet its goals as defined in 
its business plan;
    (ii) Establish a single point of contact in the mentor concern who 
is responsible for managing and implementing the mentor-
prot[eacute]g[eacute] agreement; and
    (iii) Provide that the mentor will provide such assistance to the 
prot[eacute]g[eacute] firm for at least one year.
    (2) A firm seeking SBA's approval to be a prot[eacute]g[eacute] 
must identify any other mentor-prot[eacute]g[eacute] relationship it 
has through another federal agency or SBA and provide a copy of each 
such mentor-prot[eacute]g[eacute] agreement to SBA.
    (i) The small business mentor-prot[eacute]g[eacute] agreement must 
identify how the assistance to be provided by the proposed mentor is 
different from assistance provided to the prot[eacute]g[eacute] through 
another mentor-prot[eacute]g[eacute] relationship, either with the same 
or a different mentor.
    (ii) A firm seeking SBA's approval to be a prot[eacute]g[eacute] 
may terminate a mentor-prot[eacute]g[eacute] relationship it has 
through another agency and use any not yet provided assistance 
identified in the other mentor-prot[eacute]g[eacute] agreement as part 
of the assistance that will be provided through the small business 
mentor-prot[eacute]g[eacute] relationship. Any assistance that has 
already been provided through another mentor-prot[eacute]g[eacute] 
relationship cannot be identified as assistance that will be provided 
through the small business mentor-prot[eacute]g[eacute] relationship.
    (3) The written agreement must be approved by the Associate 
Administrator for Business Development (AA/BD) or his/her designee. The 
agreement will not be approved if SBA determines that the assistance to 
be provided is not sufficient to promote any real developmental gains 
to the prot[eacute]g[eacute], or if SBA determines that the agreement 
is merely a vehicle to enable the mentor to receive small business 
contracts.
    (4) The agreement must provide that either the 
prot[eacute]g[eacute] or the mentor may terminate the agreement with 30 
days advance notice to the other party to the mentor-
prot[eacute]g[eacute] relationship and to SBA.
    (5) SBA will review the mentor-prot[eacute]g[eacute] relationship 
annually to determine whether to approve its continuation for another 
year. Unless rescinded in writing as a result of the review, the 
mentor-prot[eacute]g[eacute] relationship will automatically renew 
without additional written notice of continuation or extension to the 
prot[eacute]g[eacute] firm. The term of a mentor-prot[eacute]g[eacute] 
agreement may not exceed three years, but may be extended for a second 
three years. A prot[eacute]g[eacute] may have two three-year mentor-
prot[eacute]g[eacute] agreements with different mentors, and each may 
be extended an additional three years provided the 
prot[eacute]g[eacute] has received the agreed-upon business development 
assistance and will continue to receive additional assistance through 
the extended mentor-prot[eacute]g[eacute] agreement.
    (6) SBA must approve all changes to a mentor-prot[eacute]g[eacute] 
agreement in advance, and any changes made to the agreement must be 
provided in writing. If the parties to the mentor-prot[eacute]g[eacute] 
relationship change the mentor-prot[eacute]g[eacute] agreement without 
prior approval by SBA, SBA shall terminate the mentor-
prot[eacute]g[eacute] relationship and may also propose suspension or 
debarment of one or both of the firms pursuant to paragraph (h) of this 
section where appropriate.
    (7) If control of the mentor changes (through a stock sale or 
otherwise), the previously approved mentor-prot[eacute]g[eacute] 
relationship may continue provided that, after the change in control, 
the mentor expresses in writing to SBA that it acknowledges the mentor-
prot[eacute]g[eacute]

[[Page 48589]]

agreement and certifies that it will continue to abide by its terms.
    (8) SBA may terminate the mentor-prot[eacute]g[eacute] agreement at 
any time if it determines that the prot[eacute]g[eacute] is not 
benefiting from the relationship or that the parties are not complying 
with any term or condition of the mentor prot[eacute]g[eacute] 
agreement. In the event SBA terminates the relationship, the mentor-
prot[eacute]g[eacute] joint venture is obligated to complete any 
previously awarded contracts unless the procuring agency issues a stop 
work order.
    (f) Decision to decline mentor-prot[eacute]g[eacute] relationship. 
(1) Where SBA declines to approve a specific mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] may request 
the AA/BD or designee to reconsider the Agency's initial decline 
decision by filing a request for reconsideration within 45 calendar 
days of receiving notice that its mentor-prot[eacute]g[eacute] 
agreement was declined. The prot[eacute]g[eacute] may revise the 
proposed mentor-prot[eacute]g[eacute] agreement and provide any 
additional information and documentation pertinent to overcoming the 
reason(s) for the initial decline.
    (2) SBA will issue a written decision within 45 calendar days of 
receipt of the prot[eacute]g[eacute]'s request. SBA may approve the 
mentor-prot[eacute]g[eacute] agreement, deny it on the same grounds as 
the original decision, or deny it on other grounds.
    (3) If SBA declines the mentor-prot[eacute]g[eacute] agreement 
solely on issues not raised in the initial decline, the 
prot[eacute]g[eacute] can ask for reconsideration as if it were an 
initial decline.
    (4) If SBA's final decision is to decline a specific mentor-
prot[eacute]g[eacute] agreement, the small business concern seeking to 
be a prot[eacute]g[eacute] cannot attempt to enter into another mentor-
prot[eacute]g[eacute] relationship with the same mentor for a period of 
60 calendar days from the date of the final decision. The small 
business concern may, however, submit another proposed mentor-
prot[eacute]g[eacute] agreement with a different proposed mentor at any 
time after the SBA's final decline decision.
    (g) Evaluating the mentor-prot[eacute]g[eacute] relationship. (1) 
Within 30 days of the anniversary of SBA's approval of the mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] must report 
to SBA for the preceding year:
    (i) All technical and/or management assistance provided by the 
mentor to the prot[eacute]g[eacute];
    (ii) All loans to and/or equity investments made by the mentor in 
the prot[eacute]g[eacute];
    (iii) All subcontracts awarded to the prot[eacute]g[eacute] by the 
mentor and all subcontracts awarded to the mentor by the 
prot[eacute]g[eacute], and the value of each subcontract;
    (iv) All federal contracts awarded to the mentor-
prot[eacute]g[eacute] relationship as a joint venture (designating each 
as a small business set-aside, small business reserve, or unrestricted 
procurement), the value of each contract, and the percentage of the 
contract performed and the percentage of revenue accruing to each party 
to the joint venture; and
    (v) A narrative describing the success such assistance has had in 
addressing the developmental needs of the prot[eacute]g[eacute] and 
addressing any problems encountered.
    (2) The prot[eacute]g[eacute] must report the mentoring services it 
receives by category and hours.
    (3) The prot[eacute]g[eacute] must annually certify to SBA whether 
there has been any change in the terms of the agreement.
    (4) SBA will review the prot[eacute]g[eacute]'s report on the 
mentor-prot[eacute]g[eacute] relationship, and may decide not to 
approve continuation of the agreement if it finds that the mentor has 
not provided the assistance set forth in the mentor-
prot[eacute]g[eacute] agreement or that the assistance has not resulted 
in any material benefits or developmental gains to the 
prot[eacute]g[eacute].
    (h) Consequences of not providing assistance set forth in the 
mentor-prot[eacute]g[eacute] agreement. (1) Where SBA determines that a 
mentor has not provided to the prot[eacute]g[eacute] firm the business 
development assistance set forth in its mentor-prot[eacute]g[eacute] 
agreement, SBA will notify the mentor of such determination and afford 
the mentor an opportunity to respond. The mentor must respond within 30 
days of the notification, explaining why it has not provided the agreed 
upon assistance and setting forth a definitive plan as to when it will 
provide such assistance. If the mentor fails to respond, does not 
supply adequate reasons for its failure to provide the agreed upon 
assistance, or does not set forth a definite plan to provide the 
assistance:
    (i) SBA will terminate the mentor-prot[eacute]g[eacute] agreement;
    (ii) The firm will be ineligible to again act as a mentor for a 
period of two years from the date SBA terminates the mentor-
prot[eacute]g[eacute] agreement; and
    (iii) SBA may recommend to the relevant procuring agency to issue a 
stop work order for each federal contract for which the mentor and 
prot[eacute]g[eacute] are performing as a small business joint venture 
in order to encourage the mentor to comply with its mentor-
prot[eacute]g[eacute] agreement. Where a prot[eacute]g[eacute] firm is 
able to independently complete performance of any such contract, SBA 
may recommend to the procuring agency to authorize a substitution of 
the prot[eacute]g[eacute] firm for the joint venture.
    (2) SBA may consider a mentor's failure to comply with the terms 
and conditions of an SBA-approved mentor-prot[eacute]g[eacute] 
agreement as a basis for debarment on the grounds, including but not 
limited to, that the mentor has not complied with the terms of a public 
agreement under 2 CFR 180.800(b).
    (i) Results of mentor-prot[eacute]g[eacute] relationship. (1) In 
order to assess the results of a mentor-prot[eacute]g[eacute] 
relationship upon its completion, the prot[eacute]g[eacute] must report 
to SBA whether it believed the mentor-prot[eacute]g[eacute] 
relationship was beneficial and describe any lasting benefits to the 
prot[eacute]g[eacute].
    (2) Where a prot[eacute]g[eacute] does not report the results of a 
mentor-prot[eacute]g[eacute] relationship upon its completion, SBA will 
not approve a second mentor-prot[eacute]g[eacute] relationship either 
under this section or under Sec.  124.520 of this chapter.


Sec.  125.10  Mentor-Prot[eacute]g[eacute] programs of other agencies.

    (a) Except as provided in paragraph (c) of this section, a Federal 
department or agency may not carry out a mentor-prot[eacute]g[eacute] 
program for small business unless the head of the department or agency 
submits a plan to the SBA Administrator for the program and the SBA 
Administrator approves the plan. Before starting a new mentor 
prot[eacute]g[eacute] program, the head of a department or agency must 
submit a plan to the SBA Administrator. Within one year of the 
effective date of this section, the head of a department or agency must 
submit a plan to the SBA for any previously existing mentor-
prot[eacute]g[eacute] program that the department or agency seeks to 
continue.
    (b) The SBA Administrator will approve or disapprove a plan 
submitted under paragraph (a) of this section based on whether the 
proposed program:
    (1) Will assist prot[eacute]g[eacute]s to compete for Federal prime 
contracts and subcontracts; and
    (2) Complies with the provisions set forth in Sec. Sec.  125.9 and 
124.520 of this chapter, as applicable.
    (c) Paragraph (a) of this section does not apply to:
    (1) Any mentor-prot[eacute]g[eacute] program of the Department of 
Defense;
    (2) Any mentoring assistance provided under a Small Business 
Innovation Research Program or a Small Business Technology Transfer 
Program; and
    (3) A mentor-prot[eacute]g[eacute] program operated by a Department 
or agency on January 2, 2013, for a period of one year after the 
effective date of this section.
    (d) The head of each Federal department or agency carrying out an

[[Page 48590]]

agency-specific mentor-prot[eacute]g[eacute] program must report 
annually to SBA:
    (1) The participants (both prot[eacute]g[eacute] firms and their 
approved mentors) in its mentor-prot[eacute]g[eacute] program. This 
includes identifying the number of participants that are:
    (i) Small business concerns;
    (ii) Small business concerns owned and controlled by service-
disabled veterans;
    (iii) Small business concerns owned and controlled by socially and 
economically disadvantaged individuals;
    (iv) Small business concerns owned and controlled by Indian tribes, 
Alaska Native Corporations, Native Hawaiian Organizations, and 
Community Development Corporations; and
    (v) Small business concerns owned and controlled by women;
    (2) The assistance provided to small businesses through the 
program; and
    (3) The progress of prot[eacute]g[eacute] firms under the program 
to compete for Federal prime contracts and subcontracts.

0
37. Amend newly redesignated Sec.  125.18 by revising paragraph (b) to 
read as follows:


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

* * * * *
    (b) Joint ventures. An SDVO SBC may enter into a joint venture 
agreement with one or more other SBCs or its SBA-approved mentor for 
the purpose of performing an SDVO contract.
    (1) Size of concerns to an SDVO SBC joint venture. (i) A joint 
venture of at least one SDVO SBC and one or more other business 
concerns may submit an offer as a small business for a competitive SDVO 
SBC procurement or sale, or be awarded a sole source SDVO contract, so 
long as each concern is small under the size standard corresponding to 
the NAICS code assigned to the procurement or sale.
    (ii) A joint venture between a prot[eacute]g[eacute] firm that 
qualifies as an SDVO SBC and its SBA-approved mentor (see Sec. Sec.  
125.9 and 124.520 of this chapter) will be deemed small provided the 
prot[eacute]g[eacute] qualifies as small for the size standard 
corresponding to the NAICS code assigned to the SDVO procurement or 
sale.
    (2) Contents of joint venture agreement. Every joint venture 
agreement to perform an SDVO contract, including those between a 
prot[eacute]g[eacute] firm that qualifies as an SDVO SBC and its SBA-
approved mentor authorized by Sec.  124.520 or Sec.  125.9 of this 
chapter, must contain a provision:
    (i) Setting forth the purpose of the joint venture;
    (ii) Designating an SDVO SBC as the managing venturer of the joint 
venture, and an employee of the SDVO SBC managing venturer as the 
project manager responsible for performance of the contract;
    (iii) Stating that with respect to a separate legal entity joint 
venture, the SDVO SBC must own at least 51% of the joint venture 
entity;
    (iv) Stating that the SDVO SBC must receive profits from the joint 
venture commensurate with the work performed by the SDVO SBC, or in the 
case of a separate legal entity joint venture, commensurate with their 
ownership interests in the joint venture;
    (v) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on an SDVO contract will be deposited in the special 
account; all expenses incurred under the contract will be paid from the 
account as well;
    (vi) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each, where practical. If a contract is 
indefinite in nature, such as an indefinite quantity contract or a 
multiple award contract where the level of effort or scope of work is 
not known, the joint venture must provide a general description of the 
anticipated major equipment, facilities, and other resources to be 
furnished by each party to the joint venture, without a detailed 
schedule of cost or value of each, or in the alternative, specify how 
the parties to the joint venture will furnish such resources to the 
joint venture once a definite scope of work is made publicly available;
    (vii) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the SDVO small business partner(s) to the joint 
venture will meet the performance of work requirements set forth in 
paragraph (b)(3) of this section, where practical. If a contract is 
indefinite in nature, such as an indefinite quantity contract or a 
multiple award contract where the level of effort or scope of work is 
not known, the joint venture must provide a general description of the 
anticipated responsibilities of the parties with regard to negotiation 
of the contract, source of labor, and contract performance, not 
including the ways that the parties to the joint venture will ensure 
that the joint venture and the SDVO small business partner(s) to the 
joint venture will meet the performance of work requirements set forth 
in paragraph (d) of this section, or in the alternative, specify how 
the parties to the joint venture will define such responsibilities once 
a definite scope of work is made publicly available;
    (viii) Obligating all parties to the joint venture to ensure 
performance of the SDVO contract and to complete performance despite 
the withdrawal of any member;
    (ix) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the SDVO SBC 
managing venturer, unless approval to keep them elsewhere is granted by 
the District Director or his/her designee upon written request;
    (x) Requiring that the final original records be retained by the 
SDVO SBC managing venturer upon completion of the SDVO contract 
performed by the joint venture;
    (xi) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (xii) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (3) Performance of work. (i) For any SDVO contract, including those 
between a prot[eacute]g[eacute] and a mentor authorized by Sec.  125.9 
or Sec.  124.520 of this chapter, the joint venture must perform the 
applicable percentage of work required by Sec.  125.6.
    (ii) The SDVO SBC partner(s) to the joint venture must perform at 
least 40% of the work performed by the joint venture.
    (A) The work performed by the SDVO SBC partner(s) to a joint 
venture must be more than administrative or ministerial functions so 
that they gain substantive experience.
    (B) The amount of work done by the partners will be aggregated and 
the work done by the SDVO SBC partner(s) must be at least 40% of the 
total done by all partners. In determining the amount of work done by a 
non-SDVO SBC partner, all work done by the non-SDVO SBC partner and any 
of its affiliates at any subcontracting tier will be counted.
    (4) Certification of Compliance. Prior to the performance of any 
SDVO contract as a joint venture, the SDVO SBC partner to the joint 
venture must

[[Page 48591]]

submit a written certification to the contracting officer and SBA, 
signed by an authorized official of each partner to the joint venture, 
stating as follows:
    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (b)(2) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (b)(3) of this section.
    (5) Past performance and experience. When evaluating the past 
performance and experience of an entity submitting an offer for an SDVO 
contract as a joint venture established pursuant to this section, a 
procuring activity must consider work done individually by each partner 
to the joint venture as well as any work done by the joint venture 
itself previously.
    (6) Contract execution. The procuring activity will execute an SDVO 
contract in the name of the joint venture entity or the SDVO SBC, but 
in either case will identify the award as one to an SDVO joint venture 
or an SDVO mentor-prot[eacute]g[eacute] joint venture, as appropriate.
    (7) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents relating to the 
joint venture.
    (8) Performance of work reports. An SDVO SBC partner to a joint 
venture must describe how it is meeting or has met the applicable 
performance of work requirements for each SDVO contract it performs as 
a joint venture.
    (i) The SDVO SBC partner to the joint venture must annually submit 
a report to the relevant contracting officer and to the SBA, signed by 
an authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements are being 
met.
    (ii) At the completion of every SDVO contract awarded to a joint 
venture, the SDVO SBC partner to the joint venture must submit a report 
to the relevant contracting officer and to the SBA, signed by an 
authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements were met 
for the contract, and further certifying that the contract was 
performed in accordance with the provisions of the joint venture 
agreement that are required under paragraph (b)(2) of this section.
    (9) Basis for suspension or debarment. The Government may consider 
the following as a ground for suspension or debarment as a willful 
violation of a regulatory provision or requirement applicable to a 
public agreement or transaction:
    (i) Failure to enter a joint venture agreement that complies with 
paragraph (b)(2) of this section;
    (ii) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph 
(b)(3) of this section; or
    (iii) Failure to submit the certification required by paragraph 
(b)(4) of this section or comply with paragraph (b)(7) of this section.
    (10) Any person with information concerning a joint venture's 
compliance with the performance of work requirements may report that 
information to SBA and/or the SBA Office of Inspector General.


Sec.  125.22  [Amended]

0
38. Amend newly redesignated Sec.  125.22 by adding the phrase ``, 
regardless of the place of performance,'' in the first sentence of 
paragraphs (b)(1) and (b)(2)(i) after the words ``for small business 
concerns'' and before the words ``when there is a reasonable 
expectation''.

PART 126--HUBZONE PROGRAM

0
39. The authority citation for part 126 is revised to read as follows:

    Authority:  15 U.S.C. 632(a), 632(j), 632(p), 644, and 657a; 
Pub. L. 111-240, 24 Stat. 2504.


0
40. Amend Sec.  126.306 as follows:
0
a. Revise paragraphs (a) and (b);
0
b. Redesignate paragraphs (c) and (d) as paragraphs (f) and (g), 
respectively; and
0
c. Add new paragraphs (c), (d) and (e).
    The revisions and additions read as follows:


Sec.  126.306  How will SBA process the certification?

    (a) The D/HUB or designee is authorized to approve or decline 
applications for certification. SBA will receive and review all 
applications and request supporting documents. SBA must receive all 
required information, supporting documents, and completed HUBZone 
representation before it will begin processing a concern's application. 
SBA will not process incomplete packages. SBA will make its 
determination within ninety (90) calendar days after receipt of a 
complete package whenever practicable. The decision of the D/HUB or 
designee is the final agency decision.
    (b) SBA may request additional information or clarification of 
information contained in an application or document submission at any 
time.
    (c) The burden of proof to demonstrate eligibility is on the 
applicant concern. If a concern does not provide requested information 
within the allotted time provided by SBA, or if it submits incomplete 
information, SBA may presume that disclosure of the missing information 
would adversely affect the business concern or demonstrate a lack of 
eligibility in the area or areas to which the information relates.
    (d) The applicant must be eligible as of the date it submitted its 
application and up until and at the time the D/HUB issues a decision. 
The decision will be based on the facts set forth in the application, 
any information received in response to SBA's request for 
clarification, and any changed circumstances since the date of 
application.
    (e) Any changed circumstance occurring after an applicant has 
submitted an application will be considered and may constitute grounds 
for decline. After submitting the application and signed 
representation, an applicant must notify SBA of any changes that could 
affect its eligibility. The D/HUB may propose decertification for any 
HUBZone SBC that failed to inform SBA of any changed circumstances that 
affected its eligibility for the program during the processing of the 
application.
* * * * *

0
41. Amend Sec.  126.600 by revising the introductory text to read as 
follows:


Sec.  126.600  What are HUBZone contracts?

    HUBZone contracts are contracts awarded to a qualified HUBZone SBC, 
regardless of the place of performance, through any of the following 
procurement methods:
* * * * *

0
42. 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.  126.618(d), a large business may not 
participate as a prime contractor on a HUBZone award, but may 
participate as a subcontractor to an otherwise qualified HUBZone SBC, 
subject to the contract performance requirements set forth in Sec.  
126.700.

0
43. Revise Sec.  126.616 to read as follows:


Sec.  126.616  What requirements must a joint venture satisfy to submit 
an offer on a HUBZone contract?

    (a) General. A qualified HUBZone SBC may enter into a joint venture

[[Page 48592]]

agreement with one or more other SBCs, or with an approved mentor 
authorized by Sec.  125.9 of this chapter (or, if also an 8(a) BD 
Participant, with an approved mentor authorized by Sec.  124.520 of 
this chapter), for the purpose of submitting an offer for a HUBZone 
contract. The joint venture itself need not be certified as a qualified 
HUBZone SBC.
    (b) Size. (1) A joint venture of at least one qualified HUBZone SBC 
and one or more other business concerns may submit an offer as a small 
business for a HUBZone procurement or sale so long as each concern is 
small under the size standard corresponding to the NAICS code assigned 
to the procurement or sale.
    (2) A joint venture between a prot[eacute]g[eacute] firm and its 
SBA-approved mentor (see Sec.  125.9 of this chapter) will be deemed 
small provided the prot[eacute]g[eacute] qualifies as small for the 
size standard corresponding to the NAICS code assigned to the HUBZone 
procurement or sale.
    (c) Contents of joint venture agreement. Every joint venture 
agreement to perform a HUBZone contract, including those between a 
prot[eacute]g[eacute] firm that is a certified HUBZone SBC and its SBA-
approved mentor authorized by Sec.  124.520 or Sec.  125.9 of this 
chapter, must contain a provision:
    (1) Setting forth the purpose of the joint venture;
    (2) Designating a HUBZone SBC as the managing venturer of the joint 
venture, and an employee of the HUBZone SBC managing venturer as the 
project manager responsible for performance of the contract. The 
individual identified as the project manager of the joint venture need 
not be an employee of the HUBZone SBC at the time the joint venture 
submits an offer, but, if he or she is not, there must be a signed 
letter of intent that the individual commits to be employed by the 
HUBZone SBC if the joint venture is the successful offeror. The 
individual identified as the project manager cannot be employed by the 
mentor and become an employee of the HUBZone SBC for purposes of 
performance under the joint venture;
    (3) Stating that with respect to a separate legal entity joint 
venture, the HUBZone SBC must own at least 51% of the joint venture 
entity;
    (4) Stating that the HUBZone SBC must receive profits from the 
joint venture commensurate with the work performed by the HUBZone SBC, 
or in the case of a separate legal entity joint venture, commensurate 
with their ownership interests in the joint venture;
    (5) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on a HUBZone contract will be deposited in the special 
account; all expenses incurred under the contract will be paid from the 
account as well;
    (6) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each, where practical. If a contract is 
indefinite in nature, such as an indefinite quantity contract or a 
multiple award contract where the level of effort or scope of work is 
not known, the joint venture must provide a general description of the 
anticipated major equipment, facilities, and other resources to be 
furnished by each party to the joint venture, without a detailed 
schedule of cost or value of each, or in the alternative, specify how 
the parties to the joint venture will furnish such resources to the 
joint venture once a definite scope of work is made publicly available;
    (7) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the HUBZone partner(s) to the joint venture will 
meet the performance of work requirements set forth in paragraph (d) of 
this section, where practical. If a contract is indefinite in nature, 
such as an indefinite quantity contract or a multiple award contract 
where the level of effort or scope of work is not known, the joint 
venture must provide a general description of the anticipated 
responsibilities of the parties with regard to negotiation of the 
contract, source of labor, and contract performance, not including the 
ways that the parties to the joint venture will ensure that the joint 
venture and the HUBZone partner(s) to the joint venture will meet the 
performance of work requirements set forth in paragraph (d) of this 
section, or in the alternative, specify how the parties to the joint 
venture will define such responsibilities once a definite scope of work 
is made publicly available;
    (8) Obligating all parties to the joint venture to ensure 
performance of the HUBZone contract and to complete performance despite 
the withdrawal of any member;
    (9) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the HUBZone SBC 
managing venturer, unless approval to keep them elsewhere is granted by 
the District Director or his/her designee upon written request;
    (10) Requiring that the final original records be retained by the 
HUBZone SBC managing venturer upon completion of the HUBZone contract 
performed by the joint venture;
    (11) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (12) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (d) Limitations on subcontracting. (1) For any HUBZone contract to 
be performed by a joint venture between a qualified HUBZone SBC and 
another qualified HUBZone SBC, the aggregate of the qualified HUBZone 
SBCs to the joint venture, not each concern separately, must perform 
the applicable percentage of work required by Sec.  125.6 of this 
chapter.
    (2) For any HUBZone contract to be performed by a joint venture 
between a qualified HUBZone prot[eacute]g[eacute] and a small business 
concern or its SBA-approved mentor authorized by Sec.  125.9 or Sec.  
124.520 of this chapter, the joint venture must perform the applicable 
percentage of work required by Sec.  125.6 of this chapter, and the 
HUBZone SBC partner to the joint venture must perform at least 40% of 
the work performed by the joint venture.
    (i) The work performed by the HUBZone SBC partner to a joint 
venture must be more than administrative or ministerial functions so 
that it gains substantive experience.
    (ii) The amount of work done by the partners will be aggregated and 
the work done by the HUBZone prot[eacute]g[eacute] partner must be at 
least 40% of the total done by the partners. In determining the amount 
of work done by a mentor participating in a joint venture with a 
HUBZone qualified prot[eacute]g[eacute], all work done by the mentor 
and any of its affiliates at any subcontracting tier will be counted.
    (e) Certification of compliance. Prior to the performance of any 
HUBZone contract as a joint venture, the HUBZone SBC partner to the 
joint venture must submit a written certification to the contracting 
officer and SBA, signed by an authorized official of each partner to 
the joint venture, stating as follows:
    (i) The parties have entered into a joint venture agreement that 
fully

[[Page 48593]]

complies with paragraph (c) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (d) of this section.
    (f) Past performance and experience. When evaluating the past 
performance and experience of an entity submitting an offer for a 
HUBZone contract as a joint venture established pursuant to this 
section, a procuring activity must consider work done individually by 
each partner to the joint venture as well as any work done by the joint 
venture itself previously.
    (g) Contract execution. The procuring activity will execute a 
HUBZone contract in the name of the joint venture entity or the HUBZone 
SBC, but in either case will identify the award as one to a HUBZone 
joint venture or a HUBZone mentor-prot[eacute]g[eacute] joint venture, 
as appropriate.
    (h) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents relating to the 
joint venture.
    (i) Performance of work reports. The HUBZone SBC partner to a joint 
venture must describe how it is meeting or has met the applicable 
performance of work requirements for each HUBZone contract it performs 
as a joint venture.
    (1) The HUBZone SBC partner to the joint venture must annually 
submit a report to the relevant contracting officer and to the SBA, 
signed by an authorized official of each partner to the joint venture, 
explaining how the performance of work requirements are being met for 
each HUBZone contract performed during the year.
    (2) At the completion of every HUBZone contract awarded to a joint 
venture, the HUBZone SBC partner to the joint venture must submit a 
report to the relevant contracting officer and to the SBA, signed by an 
authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements were met 
for the contract, and further certifying that the contract was 
performed in accordance with the provisions of the joint venture 
agreement that are required under paragraph (c) of this section.
    (j) Basis for suspension or debarment. The Government may consider 
the following as a ground for suspension or debarment as a willful 
violation of a regulatory provision or requirement applicable to a 
public agreement or transaction:
    (1) Failure to enter a joint venture agreement that complies with 
paragraph (c) of this section;
    (2) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph (d) 
of this section; or
    (3) Failure to submit the certification required by paragraph (e) 
of this section or comply with paragraph (h) of this section.
    (k) Any person with information concerning a joint venture's 
compliance with the performance of work requirements may report that 
information to SBA and/or the SBA Office of Inspector General.

0
44. Revise Sec.  126.618 to read as follows:


Sec.  126.618  How does a HUBZone SBC's participation in a Mentor-
Prot[eacute]g[eacute] relationship affect its participation in the 
HUBZone Program?

    (a) A qualified HUBZone SBC may enter into a mentor-
prot[eacute]g[eacute] relationship under Sec.  125.9 of this chapter 
(or, if also an 8(a) BD Participant, under Sec.  124.520 of this 
chapter) or in connection with a mentor-prot[eacute]g[eacute] program 
of another agency, provided that such relationships do not conflict 
with the underlying HUBZone requirements.
    (b) For purposes of determining whether an applicant to the HUBZone 
Program or a HUBZone SBC qualifies as small under part 121 of this 
chapter, SBA will not find affiliation between the applicant or 
qualified HUBZone SBC and the firm that is its mentor in an SBA-
approved mentor-prot[eacute]g[eacute] relationship (including a mentor 
that is other than small) on the basis of the mentor-
prot[eacute]g[eacute] agreement or the assistance provided to the 
prot[eacute]g[eacute] firm under the agreement. SBA will not consider 
the employees of the mentor in determining whether the applicant or 
qualified HUBZone SBC meets (or continues to meet) the 35% HUBZone 
residency requirement or the principal office requirement, or in 
determining the size of the applicant or qualified HUBZone SBC for any 
employee-based size standard.
    (c) A qualified HUBZone SBC that is a prime contractor on a HUBZone 
contract may subcontract work to its mentor.
    (1) The HUBZone SBC must meet the applicable performance of work 
requirements set forth in Sec.  125.6(c) of this chapter.
    (2) SBA may find affiliation between a prime HUBZone contractor and 
its mentor subcontractor where the mentor will perform primary and 
vital requirements of the contract. See Sec.  121.103(h)(4) of this 
chapter.

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

0
45. The authority citation for part 127 is revised to read as follows:

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

Sec.  127.500  [Amended]

0
46. Amend Sec.  127.500 by adding the words ``, regardless of the place 
of performance'' to the end of the sentence.
0
47. Amend Sec.  127.506 as follows:
0
a. Revise the section introductory text and paragraph (a), add an 
italic subject head to paragraph (c) introductory text, and revise 
paragraphs (c)(2) and (3);
0
b. Redesignate paragraph (c)(4) as (c)(7) and paragraph (c)(5) as 
(c)(10) respectively;
0
c. Add new paragraphs (c)(4) through (6);
0
d. Revise newly redesignated paragraphs (c)(7) and (c)(10);
0
e. Add paragraphs (c)(8) and (9) and (c)(11) and (12);
0
f. Revise paragraphs (d), (e), and (f); and
0
g. Add paragraphs (g) through (l).
    The revisions and additions read as follows:


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

    A joint venture, including those between a prot[eacute]g[eacute] 
and a mentor under Sec.  125.9 of this chapter (or, if also an 8(a) BD 
Participant, under Sec.  124.520 of this chapter), may submit an offer 
on a WOSB Program contract if the joint venture meets all of the 
following requirements:
    (a)(1) A joint venture of at least one WOSB or EDWOSB and one or 
more other business concerns may submit an offer as a small business 
for a WOSB Program procurement or sale so long as each concern is small 
under the size standard corresponding to the NAICS code assigned to the 
procurement or sale.
    (2) A joint venture between a prot[eacute]g[eacute] firm and its 
SBA-approved mentor (see Sec.  125.9 and Sec.  124.520 of this chapter) 
will be deemed small provided the prot[eacute]g[eacute] qualifies as 
small for the size standard corresponding to the NAICS code assigned to 
the WOSB Program procurement or sale.
* * * * *
    (c) Contents of joint venture agreement.* * *
* * * * *

[[Page 48594]]

    (2) Designating a WOSB as the managing venturer of the joint 
venture, and an employee of the WOSB managing venturer as the project 
manager responsible for performance of the contract. The individual 
identified as the project manager of the joint venture need not be an 
employee of the WOSB at the time the joint venture submits an offer, 
but, if he or she is not, there must be a signed letter of intent that 
the individual commits to be employed by the WOSB if the joint venture 
is the successful offeror. The individual identified as the project 
manager cannot be employed by the mentor and become an employee of the 
WOSB for purposes of performance under the joint venture;
    (3) Stating that with respect to a separate legal entity joint 
venture, the WOSB must own at least 51% of the joint venture entity;
    (4) Stating that the WOSB must receive profits from the joint 
venture commensurate with the work performed by the WOSB, or in the 
case of a separate legal entity joint venture, commensurate with their 
ownership interests in the joint venture;
    (5) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on a WOSB Program contract will be deposited in the special 
account; all expenses incurred under the contract will be paid from the 
account as well;
    (6) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each, where practical. If a contract is 
indefinite in nature, such as an indefinite quantity contract or a 
multiple award contract where the level of effort or scope of work is 
not known, the joint venture must provide a general description of the 
anticipated major equipment, facilities, and other resources to be 
furnished by each party to the joint venture, without a detailed 
schedule of cost or value of each, or in the alternative, specify how 
the parties to the joint venture will furnish such resources to the 
joint venture once a definite scope of work is made publicly available;
    (7) Specifying the responsibilities of the parties with regard to 
negotiation of the contract, source of labor, and contract performance, 
including ways that the parties to the joint venture will ensure that 
the joint venture and the WOSB Program participant(s) in the joint 
venture will meet the performance of work requirements set forth in 
paragraph (d) of this section, where practical. If a contract is 
indefinite in nature, such as an indefinite quantity contract or a 
multiple award contract where the level of effort or scope of work is 
not known, the joint venture must provide a general description of the 
anticipated responsibilities of the parties with regard to negotiation 
of the contract, source of labor, and contract performance, not 
including the ways that the parties to the joint venture will ensure 
that the joint venture and the WOSB Program participant(s) in the joint 
venture will meet the performance of work requirements set forth in 
paragraph (d) of this section, or in the alternative, specify how the 
parties to the joint venture will define such responsibilities once a 
definite scope of work is made publicly available;
    (8) Obligating all parties to the joint venture to ensure 
performance of the WOSB contract and to complete performance despite 
the withdrawal of any member;
    (9) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the WOSB 
managing venturer, unless approval to keep them elsewhere is granted by 
the District Director or his/her designee upon written request;
    (10) Requiring that the final original records be retained by the 
WOSB managing venturer upon completion of the WOSB Program contract 
performed by the joint venture;
    (11) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (12) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (d) Performance of work. (1) For any WOSB Program contract, the 
joint venture (including one between a prot[eacute]g[eacute] and a 
mentor authorized by Sec.  125.9 or Sec.  124.520 of this chapter) must 
perform the applicable percentage of work required by Sec.  125.6 of 
this chapter.
    (2) The WOSB partner(s) to the joint venture must perform at least 
40% of the work performed by the joint venture.
    (i) The work performed by the WOSB partner(s) to a joint venture 
must be more than administrative or ministerial functions so that they 
gain substantive experience.
    (ii) The amount of work done by the partners will be aggregated and 
the work done by the WOSB partner(s) must be at least 40% of the total 
done by all partners. In determining the amount of work done by the 
non-WOSB partner, all work done by the non-WOSB partner and any of its 
affiliates at any subcontracting tier will be counted.
    (e) Certification of compliance. Prior to the performance of any 
WOSB Program contract as a joint venture, the WOSB Program participant 
in the joint venture must submit a written certification to the 
contracting officer and SBA, signed by an authorized official of each 
partner to the joint venture, stating as follows:
    (i) The parties have entered into a joint venture agreement that 
fully complies with paragraph (c) of this section;
    (ii) The parties will perform the contract in compliance with the 
joint venture agreement and with the performance of work requirements 
set forth in paragraph (d) of this section.
    (f) Past performance and experience. When evaluating the past 
performance and experience of an entity submitting an offer for a WOSB 
Program contract as a joint venture established pursuant to this 
section, a procuring activity must consider work done individually by 
each partner to the joint venture as well as any work done by the joint 
venture itself previously.
    (g) Contract execution. The procuring activity will execute a WOSB 
Program contract in the name of the joint venture entity or the WOSB, 
but in either case will identify the award as one to a WOSB Program 
joint venture or a WOSB Program mentor-prot[eacute]g[eacute] joint 
venture, as appropriate.
    (h) Submission of joint venture agreement. The WOSB Program 
participant must provide a copy of the joint venture agreement to the 
contracting officer.
    (i) Inspection of records. The joint venture partners must allow 
SBA's authorized representatives, including representatives authorized 
by the SBA Inspector General, during normal business hours, access to 
its files to inspect and copy all records and documents relating to the 
joint venture.
    (j) Performance of work reports. The WOSB Program participant in 
the joint venture must describe how it is meeting or has met the 
applicable performance of work requirements for each WOSB Program 
contract it performs as a joint venture.
    (1) The WOSB partner to the joint venture must annually submit a 
report to the relevant contracting officer and to the SBA, signed by an 
authorized

[[Page 48595]]

official of each partner to the joint venture, explaining how the 
performance of work requirements are being met for each WOSB Program 
contract performed during the year.
    (2) At the completion of every WOSB Program contract awarded to a 
joint venture, the WOSB partner to the joint venture must submit a 
report to the relevant contracting officer and to the SBA, signed by an 
authorized official of each partner to the joint venture, explaining 
how and certifying that the performance of work requirements were met 
for the contract, and further certifying that the contract was 
performed in accordance with the provisions of the joint venture 
agreement that are required under paragraph (c) of this section.
    (k) Basis for suspension or debarment. The Government may consider 
the following as a ground for suspension or debarment as a willful 
violation of a regulatory provision or requirement applicable to a 
public agreement or transaction:
    (1) Failure to enter a joint venture agreement that complies with 
paragraph (c) of this section;
    (2) Failure to perform a contract in accordance with the joint 
venture agreement or performance of work requirements in paragraph (d) 
of this section; or
    (3) Failure to submit the certification required by paragraph (e) 
or comply with paragraph (i) of this section.
    (l) Any person with information concerning a joint venture's 
compliance with the performance of work requirements may report that 
information to SBA and/or the SBA Office of Inspector General.

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

0
48. 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), 637(a), 
648(l), 656(i), and 687(c); E.O. 12549, 51 FR 6370, 3 CFR, 1986 
Comp., p. 189.


0
49. Amend Sec.  134.227 by revising paragraph (c) to read as follows:


Sec.  134.227  Finality of decisions.

* * * * *
    (c) Reconsideration. Except as otherwise provided by statute, the 
applicable program regulations in this chapter, or this part 134, an 
initial or final decision of the Judge may be reconsidered. Any party 
in interest, including SBA where SBA did not appear as a party during 
the proceeding that led to the issuance of the Judge's decision, may 
request reconsideration by filing with the Judge and serving a petition 
for reconsideration within 20 days after service of the written 
decision, upon a clear showing of an error of fact or law material to 
the decision. The Judge also may reconsider a decision on his or her 
own initiative.

0
50. Amend Sec.  134.406 by revising paragraph (b) to read as follows:


Sec.  134.406  Review of the administrative record.

* * * * *
    (b) Except in suspension appeals, the Administrative Law Judge's 
review is limited to determining whether the Agency's determination is 
arbitrary, capricious, or contrary to law. As long as the Agency's 
determination is not arbitrary, capricious or contrary to law, the 
Administrative Law Judge must uphold it on appeal.
    (1) The Administrative Law Judge must consider whether the decision 
was based on a consideration of the relevant factors and whether there 
has been a clear error of judgment.
    (2) If the SBA's path of reasoning may reasonably be discerned, the 
Administrative Law Judge will uphold a decision of less than ideal 
clarity.
* * * * *


Sec.  134.501  [Amended]

0
51. Amend Sec.  134.501 by removing ``Sec.  125.26'' from paragraph (a) 
and by adding ``Sec.  125.29'' in its place.

Sec.  134.515  [Amended]

0
52. Amend Sec.  134.515 by removing ``13 CFR 125.28'' from paragraph 
(a) and by adding ``Sec.  125.31 of this chapter'' in its place.

    Dated: July 1, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-16399 Filed 7-22-16; 8:45 am]
 BILLING CODE 8025-01-P

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