National Defense Authorization Acts of 2016 and 2017, Recovery Improvements for Small Entities After Disaster Act of 2015, and Other Small Business Government Contracting, 62516-62532 [2018-25705]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Proposed Rules]
[Pages 62516-62532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25705]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 83, No. 233 / Tuesday, December 4, 2018 / 
Proposed Rules

[[Page 62516]]



SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, 125, 126, 127, and 129

RIN 3245-AG86


National Defense Authorization Acts of 2016 and 2017, Recovery 
Improvements for Small Entities After Disaster Act of 2015, and Other 
Small Business Government Contracting

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
proposing to amend its regulations to implement several provisions of 
the National Defense Authorization Acts (NDAA) of 2016 and 2017 and the 
Recovery Improvements for Small Entities After Disaster Act of 2015 
(RISE Act), as well as implementing other clarifying amendments. The 
proposed rule would clarify that contracting officers have the 
authority to request information in connection with a contractor's 
compliance with applicable limitations on subcontracting clauses; 
provide exclusions for purposes of compliance with the limitations on 
subcontracting for certain contracts performed outside of the United 
States, environmental remediation contracts, and information technology 
service acquisitions that require substantial cloud computing; require 
a prime contractor with a commercial subcontracting plan to include 
indirect costs in its subcontracting goals; establish that failure to 
provide timely subcontracting reports may constitute a material breach 
of the contract; clarify the requirements for size and status 
recertification; and limit the scope of Procurement Center 
Representative reviews of Department of Defense acquisitions performed 
outside of the United States and its territories. The proposed rule 
would also authorize agencies to receive double credit for small 
business goaling achievements as announced in SBA's scorecard for local 
area small business set asides in connection with a disaster. Finally, 
SBA is proposing to remove the kit assembler exception to the non-
manufacturer rule.

DATES: Comments must be received on or before February 4, 2019.

ADDRESSES: You may submit comments, identified by RIN 3245-AG86, by any 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     For mail, paper, disk, or CD-ROM submissions: Brenda 
Fernandez, U.S. Small Business Administration, Office of Policy, 
Planning and Liaison, 409 Third Street SW, 8th Floor, Washington, DC 
20416.
     Hand Delivery/Courier: Brenda Fernandez, U.S. Small 
Business Administration, Office of Policy, Planning and Liaison, 409 
Third Street SW, 8th Floor, Washington, DC 20416.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please submit the information to Brenda 
Fernandez, U.S. Small Business Administration, Office of Policy, 
Planning and Liaison, 409 Third Street SW, 8th Floor, Washington, DC 
20416, or send an email to [email protected]. Highlight the 
information that you consider to be CBI and explain why you believe SBA 
should hold this information as confidential. SBA will review the 
information and make the final determination on whether it will publish 
the information.

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

SUPPLEMENTARY INFORMATION: 

I. National Defense Authorization Act for Fiscal Year 2016, Public Law 
114-92, 129 Stat. 726, November 25, 2015 (NDAA of 2016)

Posting Notice of Substantial Bundling

    Section 863 of the NDAA of 2016 amended section 15(e)(3) of the 
Small Business Act (15 U.S.C. 644(e)(3)) to provide that if the head of 
a contracting agency determines that an acquisition plan involves a 
substantial bundling of contract requirements, the head of the 
contracting agency shall publish a notice of such determination on a 
public website within 7 days of making such determination. Section 863 
also amended section 44(c)(2) of the Small Business Act (15 U.S.C. 
657q(c)(2)) to provide that upon determining that a consolidation of 
contract requirements is necessary and justified, the Senior 
Procurement Executive (SPE) or Chief Acquisition Officer (CAO) shall 
publish a notice on a public website that such determination has been 
made. An agency may not issue the solicitation any earlier than 7 days 
after publication of the notice. The SPE or CAO must also publish the 
justification along with the solicitation. The requirement may be 
delegated. SBA proposes to amend Sec.  125.2(d) by adding new 
paragraphs (d)(1)(v) and (d)(7) to implement these changes.

II. National Defense Authorization Act for Fiscal Year 2017, Public Law 
114-328, 130 Stat. 2000, December 23, 2016 (NDAA of 2017)

Procurement Center Representative Reviews

    Section 1811 of the NDAA of 2017 amended section 15(l) of the Small 
Business Act (15 U.S.C. 644(l)) to provide that Procurement Center 
Representatives (PCRs) may review any acquisition, even those where the 
acquisition is set aside, partially set aside or reserved for small 
business. SBA's current rules provide that PCRs will review all 
acquisitions that are not set aside or reserved for small business. 
These rules were intended to focus limited resources on acquisitions 
that were not already going to small business, but were not intended to 
prohibit a PCR from reviewing any acquisition as part of the PCR's role 
as an advocate for small business. SBA proposes to amend Sec.  
125.2(b)(1)(i) to provide that PCRs may review any acquisition 
regardless of whether it is set aside, partially set aside, or reserved 
for small business or other socioeconomic categories. SBA believes that 
this change will enable PCRs to advocate for total set asides, or 
partial set asides, when appropriate and necessary.
    Section 1811 of the NDAA of 2017 also amended section 15(l) of the 
Small Business Act to limit the scope of PCR review of solicitations 
for contracts or orders by or for the Department of

[[Page 62517]]

Defense if the acquisition is conducted pursuant to the Arms Control 
Export Act (22 U.S.C. 2762), is a humanitarian operation as defined in 
10 U.S.C. 401(e), is for a contingency operation as defined in 10 
U.S.C. 101(a)(13), is to be awarded pursuant to an agreement with the 
government of a foreign country in which Armed Forces of the United 
States are deployed, or where both the place of award and place of 
performance are outside of the United States and its territories. SBA 
is proposing to amend Sec.  125.2(b)(1)(i) to implement these 
amendments. PCRs may still review acquisitions awarded in the United 
States and its territories but performed outside of the United States 
and its territories, or awarded outside of the United States and its 
territories for performance in the United States or its territories, if 
the acquisition is not a foreign military sales, or in connection with 
a contingency operation, humanitarian operation or status of forces 
agreement. SBA considers performance to be outside of the United States 
and its territories if the acquisition is awarded and performed or 
delivered outside of the United States and its territories. If the 
acquisition is awarded in the United States and its territories or some 
performance or delivery occurs in the United States and its 
territories, SBA considers that to be performed in the United States 
and its territories.

Material Breach of Subcontracting Plan

    Section 1821 of the NDAA of 2017 amended section 8(d)(9) of the 
Small Business Act (15 U.S.C. 637(d)(9)) to provide that it shall be a 
material breach of a contract or subcontract when the contractor or 
subcontractor with a subcontracting plan fails to comply in good faith 
with the requirement to provide assurances that the offeror shall 
submit such periodic reports or cooperate in any studies or surveys as 
may be required by the Federal agency or the Administration in order to 
determine the extent of compliance by the offeror with the 
subcontracting plan. Such a breach may be considered in any past 
performance evaluation of the contractor. SBA is proposing to revise 
Sec.  125.3(d) to implement this provision.
    Section 1821 also provides that SBA must provide examples of 
activities that would be considered a failure to make a good faith 
effort to comply with a small business subcontracting plan. Good faith 
effort considers a totality of the contractor's actions to provide the 
maximum practicable opportunity to small businesses to participate as 
subcontractors (including those in the socio-economic small business 
areas), consistent with the information and assurances provided in the 
subcontracting plan. A failure to exert good faith effort is first 
predicated upon evidence that an other-than-small-business (OTSB) 
federal prime contractor, required to have a subcontracting plan with 
negotiated Small Business Concern (SBC) goals approved by a federal 
contracting officer, has failed to attain these goals and this failure 
may be attributable to a lack of good faith effort by the OTSB prime 
contractor. The term SBC for purposes of this rule includes all 
categories of small business socio-economic concerns including small 
business, small disadvantaged businesses, veteran owned small 
businesses, service disabled veteran owned small businesses, women 
owned small businesses, small businesses in historically underutilized 
business zones, Historically Black Colleges and Universities (HBCU/
Minority Institutions (MI)) (NASA only) and any successor small 
business designations. A failure to exert good faith efforts must take 
into account all actions, or lack thereof, the contractor made to 
promote subcontracting opportunity to small businesses to the extent 
agreed upon in the approved subcontracting plan. SBA is reorganizing 
this section to reflect these new examples in proposed Sec.  
125.3(d)(3)(ii). SBA is proposing to renumber current Sec.  
125.3(d)(3)(i) through (iii) as Sec.  125.3(d)(3)(i)(A) through (C) to 
better organize this section for clarity and ease of understanding . 
This rule does not add a new requirement for supporting documentation 
for the subcontracting plan.

III. Recovery Improvements for Small Entities After Disaster Act of 
2015, Public Law 114-88, 129 Stat. 686, November 25, 2015 (RISE Act)

    Section 2108 of the RISE Act authorizes SBA to establish 
contracting preferences for small business concerns located in disaster 
areas, and provide agencies with double credit for awards to small 
business concerns located in disaster areas. In order to implement the 
changes made by section 2108 of the RISE Act, SBA is proposing to add a 
new part 129 to title 13 of the Code of Federal Regulations. SBA will 
implement section 2105 in a separate rulemaking.
    Section 2108 of the RISE Act amends section 15 of the Small 
Business Act (15 U.S.C. 644) by adding a subsection (f), which 
authorizes procuring agencies to provide contracting preferences for 
small business concerns located in areas for which the President has 
declared a major disaster, during the period of the declaration. 
Section 2108 provides that this contracting preference shall be 
available for small business concerns located in disaster areas if the 
small business will perform the work required under the contract in the 
disaster area. Under Sec.  6.208 of Federal Acquisition Regulation 
(FAR), title 48 of the Code of Federal Regulations, contracting 
officers may set aside solicitations to allow only offerors residing or 
doing business in the area affected by a major disaster. Under existing 
FAR 26.202-1, such local area set asides may be further set aside for 
small business concerns. SBA is proposing to use the existing FAR 
definitions to provide that an agency will receive credit for an 
``emergency response contract'' awarded to a ``local firm'' that 
qualifies as a small business concern under the applicable size 
standard for a ``Major disaster or emergency area.'' FAR 26.201.
    Section 2108 also provides that if an agency awards a contract to a 
small business located in a disaster area through a contracting 
preference, the value of the contract shall be doubled for purposes of 
determining compliance with the small business contracting goals 
described in section 15(g)(1)(A) of the Small Business Act. Proposed 
Sec.  129.300 states that agencies shall receive double credit for 
awarding a contract through the use of a local small business or 
socioeconomic set aside authorized by proposed Sec.  129.200, i.e., a 
set-aside restricted to SBCs, 8(a) Business Development (BD) Program 
Participants, Women-Owned, Service-Disabled Veteran-Owned or HUBZone 
SBCs located in a disaster area. It is SBA's intent that agencies will 
enter accurate data into the Federal Procurement Data System (FPDS). 
SBA will provide the extra credit through the agency scorecard process. 
Local area set aside and small business contract designations already 
exist in FPDS, and implementation has already occurred in FY 2017.

IV. Other Small Business Government Contracting Amendments

Clarification That the Non-Manufacturer 500 Employee Size Standard Does 
Not Apply to Information Technology Value Added Resellers

    On September 10, 2014, SBA proposed to eliminate the information 
technology value added reseller (ITVAR) exception to NAICS 541519, 
which had a size standard of 150 employees. 79 FR 53646. In the 
proposed rule, SBA specifically noted that elimination of the exception 
would

[[Page 62518]]

result in these acquisitions, which are primarily for supplies, being 
subject to the non-manufacturer rule (NMR), which has a size standard 
of 500 employees. As a result of public comment, SBA altered the 
language in the ITVAR exception (13 CFR 121.201, footnote 18) to make 
it clear that the manufacturing performance or limitations on 
subcontracting requirements and the NMR apply to acquisitions under the 
ITVAR exception, but retained the 150 employee size standard. 81 FR 
4436 (January 26, 2016). By definition, contractors under the ITVAR 
exception are non-manufacturers, and it would make no sense for SBA to 
retain a 150 employee size standard if concerns could also qualify 
under the NMR 500 employee size standard. In a size appeal before the 
SBA Office of Hearings and Appeals, a firm tried to argue that the size 
standard under the ITVAR exception was the 500 employee non-
manufacturer size standard. Size Appeal of York Telecom Corporation, 
SBA No. SIZ-5742 (May 18, 2016). The appeal was denied, and this rule 
proposes to clarify in Sec.  121.406(b)(1)(i) that the NMR size 
standard of 500 employees does not apply to acquisitions that have been 
assigned the ITVAR NAICS code 541519 exception, footnote 18. The size 
standard for any acquisition under 541519, footnote 18 is 150 employees 
for all offerors.

Setting Aside an Order Under a Multiple Award Set Aside Contract

    In the final rule implementing 15 U.S.C. 644(r), SBA contemplated 
the set aside of orders for certain types of SBCs, such as HUBZone 
SBCs, 8(a) BD Program Participants, SDVO SBCs, or WOSBs. 78 FR 61114, 
61124 (October 2, 2013). SBA noted that at the time, the small business 
programs had major differences with respect to application of the 
limitations on subcontracting (LOS) and NMR, and therefore it would be 
difficult for SBCs and agencies to determine the rules that applied to 
a particular order. SBA was also concerned about the possibility that 
SBCs could be deprived of an opportunity to compete for orders under a 
set aside contract if an agency repeatedly set aside orders for other 
socioeconomic categories. Since that time, SBA has attempted to 
harmonize the application of the LOS and NMR for each of the various 
types of small business contracts. The concerns identified in the SBA 
final rule have since been addressed to enable fair and proper 
implementation of order set asides. Specifically, the SBA final rule 
standardized the LOS and NMR across the socioeconomic programs. 81 FR 
34243. In addition, some agencies have pursued the strategy of allowing 
order set asides against set aside multiple award contracts, including 
notification and incorporation of the clause at FAR 52.219-13, and 
agencies have reported that they have not encountered any industry 
concerns. SBA is requesting comment on whether SBA should allow 
agencies to set aside orders for a socioeconomic small business program 
(8(a), HUBZone, SDVO, WOSB) under a multiple award contract that was 
originally conducted as a total small business set-aside. Because SBA 
believes that a change is appropriate at this time, SBA is proposing to 
remove the term ``Full and Open'' from Sec.  125.2(e)(6) to 
specifically afford discretion to an agency to set-aside one or more 
particular orders for HUBZone SBCs, 8(a) BD SBCs, SDVO SBCs or WOSBs, 
as appropriate, where the underlying multiple award contract was 
initially set-aside for small business. Set asides under multiple award 
set-aside contracts may be implemented by agencies in different ways, 
including: (1) Establishing set asides to socioeconomic programs at the 
order solicitation level under multiple award small business set-aside 
contracts, and (2) establishing socioeconomic set-aside pools at the 
master contract solicitation level for a multiple award small business 
set-aside contract. SBA is requesting comments on any burden or adverse 
impact associated with each of these two approaches. In addition, SBA 
is specifically interested in whether these two approaches impact the 
ability for all types of small businesses (e.g. 8(a), HUBZone, WOSB, 
SDVOSB) to compete and receive orders.

Recertification of Size and Status

    SBA's rules require recertification of size and status for all 
long-term (over 5 years) contracts. This includes indefinite delivery 
contracts under which orders will be placed at a future date and 
contracts that had not been set-aside for small business, but were 
awarded to a small business. Thus, SBA is proposing to amend Sec. Sec.  
125.18(e), 126.601(h), and 127.503(h) to clarify that a concern must 
recertify its status on full and open contracts. In addition, SBA is 
adding a new paragraph to Sec. Sec.  124.521 and 124.1015 to reflect 
the status recertification requirements for 8(a) participants and SDB 
concerns, which are already present in the SDVO, HUBZone, and WOSB 
regulations. This change provides greater consistency among the status 
recertification requirements for small business program contracts. One 
result of these proposed changes, is that a prime contractor relying on 
similarly situated entities (an SDVOSB prime with an SDVOSB 
subcontractor, for example) to meet the applicable performance 
requirements may not count the subcontractor towards its performance 
requirements if the subcontractor recertifies as an entity other than 
that which it had previously certified.

Indirect Costs in Commercial Subcontracting Plans

    Other than small business concerns that have a commercial 
subcontracting plan report on performance through a summary 
subcontracting report (SSR), and SBA's rules currently require that a 
contractor using a commercial subcontracting plan must include all 
indirect costs in its SSR. However, SBA's rules do not require 
contractors to include indirect costs in their commercial 
subcontracting plan goals, which leads to inconsistencies when 
comparing the SSR to the commercial subcontracting plan. SBA is 
proposing to revise Sec.  125.3(c)(1)(iv) to require that prime 
contractors with commercial subcontracting plans must include indirect 
costs in the commercial subcontracting plan goals. This will allow 
agencies to negotiate more realistic commercial subcontracting plans 
and monitor performance through the SSR.

Subcontracting Compliance Reviews

    SBA is also proposing to change the nomenclature that applies to 
subcontracting compliance reviews. Instead of rating firms as 
``Outstanding,'' ``Highly Successful,'' or ``Acceptable,'' SBA will 
utilize the terminology ``Exceptional,'' ``Very Good,'' and 
``Satisfactory.'' SBA proposes to revise Sec.  125.3(f)(3) to implement 
these changes to align title 13 of the CFR and the FAR to rectify 
ambiguity in terminology which causes confusion by Government personnel 
and industry partners when attempting to ascertain the value and 
differences of the SBA's rating under Sec.  125.3(f)(3) in an SBA 
Compliance Review and the ratings in FAR 42.1503 under a Subcontracting 
Evaluation when FAR 52.219-9 is used and made part of the firm's past 
performance record.

Independent Contractors--Employees/Subcontractors

    SBA's size regulations provide that SBA considers ``all individuals 
employed on a full-time, part-time, or other basis'' to be employees of 
the firm whose size is at issue. 13 CFR 121.106(a). ``This includes 
employees obtained from a temporary employee

[[Page 62519]]

agency, professional employee organization or leasing concern.'' Id. 
Further, ``SBA will consider the totality of the circumstances, 
including criteria used by the IRS for Federal income tax purposes, in 
determining whether individuals are employees of a concern.'' Id. In 
determining what it means to be employed on an ``other'' basis, SBA 
issued Size Policy Statement No. 1. 51 FR 6099-01 (February 20, 1986). 
The Size Policy Statement sets forth 11 criteria SBA will consider in 
determining whether an individual should be treated as an employee. If 
an individual meets one or more of the criteria they may be treated as 
an employee. Pursuant to this guidance, an individual contractor paid 
through a 1099 may be properly treated as an employee for purposes of 
SBA's regulations (including SBA's regulations governing performance of 
work or LOS requirements). The reason for such treatment was to prevent 
a firm that exceeded an applicable employee-based size standard from 
``firing'' a specific number of employees in order to get below the 
size standard, but to then hire them back or ``subcontract'' to them as 
independent contractors. SBA did not want to encourage firms to attempt 
to evade SBA's size regulations.
    Historically, SBA has said that if an individual qualifies as an 
``employee'' under part 121 of SBA's regulations for purposes of 
determining size, then SBA should consider that individual to be an 
employee of the firm for the performance of work (or now LOS) 
requirements of 13 CFR 125.6 (or 124.510). It would not be equitable to 
say that a given individual counts against a firm in determining size 
(because he/she is considered an ``employee'' of the firm) and then to 
say that that same individual also counts against the firm for the LOS 
requirements (because he/she is not considered an ``employee'' of the 
firm). Thus, for a contract that is assigned a NAICS code having an 
employee-based size standard, an independent contractor could be deemed 
an ``employee'' of the concern for which he/she is doing work. If such 
an individual is considered an employee for size purposes, he/she would 
also be considered an employee for LOS purposes.
    It appears that SBA's regulation at 13 CFR 125.6(e)(3) has caused 
some confusion as to how to properly treat independent contractors for 
purposes of the LOS provisions. That provision provides that ``Work 
performed by an independent contractor shall be considered a 
subcontract, and may count toward meeting the applicable LOS where the 
independent contractor qualifies as a similarly situated entity.'' 
(Emphasis added). This provision was meant to apply to service or 
construction contracts. For service contracts, work performed by an 
independent contractor would always be considered a subcontract, so 
that a service contractor could not claim that a non-similarly situated 
entity independent contractor should be considered an employee of the 
service contractor. For example, for a WOSB service contract, SBA did 
not want a WOSB prime contractor to pass performance of the contract to 
one or more independent contractors that would not themselves qualify 
as WOSBs. The provision identifies that an independent contractor could 
qualify as a ``similarly situated entity'' and meet the LOS that way, 
but would not permit a service contractor to effectively avoid meeting 
the LOS by claiming that independent contractors were in fact employees 
of the firm.
    This proposed rule revises Sec.  125.6(e)(3) to clarify SBA's 
intent regarding both contracts assigned a NAICS code with an employee-
based size standard and those assigned a NAICS code with a receipts-
based size standard. Where a contract is assigned a NAICS code with an 
employee-based size standard, an independent contractor may be deemed 
an employee of the firm under the terms of the Size Policy Statement. 
Where a contract is assigned a NAICS code with a receipts-based size 
standard, an independent contractor could not be considered an employee 
of the firm for which he or she is performing work, but, rather, would 
always be deemed a subcontractor. In either case, as a subcontractor, 
an independent contractor may be considered a ``similarly situated 
entity'' and work performed by the independent contractor would then 
count toward meeting the applicable limitation on subcontracting.

Limitation on Subcontracting Compliance

    Congress has expressed its strong support for small business 
government contracting, and has provided agencies with numerous tools 
to set aside acquisitions for exclusive competition among, or in some 
cases award contracts on a sole source basis to, SBCs, 8(a) BD Program 
Participants, HUBZone SBCs, WOSBs, Economically Disadvantaged Women-
Owned (EDWOSB) SBCs, and SDVO SBCs. 15 U.S.C. 631(a), 637(a), (m), 
644(a), (j), 657a, 657f. As a condition of these preferences, small 
businesses are limited in their ability to subcontract to other than 
small business concerns, so that small businesses actually perform a 
certain percentage of the work. These LOS appear in solicitations and 
contract clauses for small business set aside and sole source awards. 
Like with all contract administration, it is the responsibility of the 
contracting officer to monitor compliance with terms and conditions of 
a contract. (FAR 1.602-2), including the LOS clause. SBA is proposing 
language to clarify that contracting officers have the discretion to 
request information from contractors to demonstrate compliance with LOS 
clauses. The Government Accountability Office (GAO) has noted in 
reports that contracting officers have not been monitoring compliance 
with the limitations on subcontracting. ``Contract Management; 
Increased Use of Alaska Native Corporations' Special 8(a) Provisions 
Calls for Tailored Oversight,'' GAO-06-39, April 2006; ``8(a) 
Subcontracting Limitations, Continued Noncompliance with Monitoring 
Requirements Signals Need for Regulatory Change,'' GAO-14-706, 
September 2014; and ``Federal Contracting Monitoring and Oversight of 
Tribal 8(a) Firms Need Attention,'' GAO-12-84, January 2012. The type 
of information that small business prime contractors may be requested 
to provide to demonstrate compliance with the LOS could be copies of 
subcontracts for a particular procurement or an email that lists the 
amount that the prime contractor has paid to its subcontractors for a 
particular procurement and whether those subcontractors are similarly 
situated entities. In addition, SBA proposed to require information 
demonstrating compliance with the applicable LOS from all prime 
contractors performing set-aside and sole-source contracts awarded 
through SBA's small business programs when the prime contractor intends 
to rely on similarly situated subcontractors to comply with the LOS. 79 
FR 77955 (December 29, 2014). SBA did not adopt such a requirement in 
the final rule, but indicated that it intended to seek comment on this 
issue. 81 FR 34243 (May 31, 2016).
    SBA is proposing to add new Sec.  125.6(e)(4) to clarify that 
contracting officers may request information regarding LOS compliance, 
and to clarify that it is not required for every contract. SBA is 
requesting comment on whether all small business prime contractors 
performing set-aside or sole source contracts should be required to 
demonstrate compliance with LOS to the contracting officer, and if so, 
how

[[Page 62520]]

often should this be required, such as annually or quarterly. What 
salient data would best provide assurance of compliance? Should 
demonstrating compliance depend on the length of the contract or the 
type of contract? Whether it is for commercial products and services? 
Whether the contract is fixed price? Whether the contract is above the 
SAT or the TINA threshold? What other considerations should there be 
when applying the requirement for a contractor to document LOS 
compliance? We are requesting that industry provide comment on what 
information can be efficiently requested and provided.

Exclusions From the Limitations on Subcontracting

    SBA's LOS regulations provide that for a set aside service 
contract, the prime contractor must agree that it will not pay more 
than 50% of the amount paid from the government to firms that are not 
similarly situated. 13 CFR 125.6(a)(1). Unlike supply and construction 
contracts, where materials are excluded, no costs are specifically 
excluded under a service contract, other than for mixed contracts where 
the non-service portion, such as incidental supplies, are excluded. SBA 
has received several requests from industry for exclusions related to 
specific types of contracts, and one related to all industries. Some 
have advocated that certain direct costs, such as airline tickets and 
hotel costs, be excluded from the calculation of the amount paid under 
the contract. In addition, in certain types of contracts or industries, 
there are factors that may complicate compliance with the LOS, 
potentially hindering agencies from setting aside acquisitions for 
small business concerns.
    For example, for certain contracts performed outside of the United 
States, contractors must use non-U.S. local organizations or 
independent contractors to perform consulting services regarding a 
particular foreign country. These individuals are not located in the 
United States, do not reside in the United States, and are not likely 
to be employees of a United States SBC. SBA is proposing to further 
clarify how to determine whether an individual is an employee or 
independent contractor.
    In the environmental remediation industry (NAICS 562910), a large 
part of the cost of the contract is tied to the transportation and 
disposal of hazardous, toxic and radiological waste. According to some 
SBCs in this industry that have contacted SBA, given the fact that 
these services are highly regulated and capital intensive, these 
particular transportation services can generally be performed only by 
other than small business concerns. For example, all of the disposal 
facilities in the United States are large businesses, and most 
railroads and shipping companies that transport hazardous waste are 
other than small concerns. This rule proposes to exclude transportation 
and disposal services from the LOS compliance determination where small 
business concerns cannot provide the disposal or transportation 
services. Similarly, where the government acquires media services from 
small business concerns, the placement of the content in the media may 
require large payments to the other than small business concerns, even 
though that is not the principal purpose of the acquisition. SBA is 
proposing to exclude these media purchases from the LOS determination.
    In a prior rulemaking, SBA determined that remote hosting on 
servers or networks, or cloud computing, should be considered a service 
and therefore the NMR would not apply. 13 CFR 121.1203(d)(3). Due to 
the costs and scale involved, cloud computing is generally provided by 
other than small business concerns. SBA is proposing to exclude cloud 
computing from the LOS calculation, where the small business concern 
will perform other services that are the primary purpose of the 
acquisition. Alternatively, SBA is requesting comment on whether it 
should treat cloud computing as a supply, and therefore the NMR would 
apply, which would allow SBA to issue individual or class waivers of 
the NMR for cloud computing. SBA is also requesting comment on the 
definition of cloud computing, such as the definition in National 
Institute of Standards and Technology Special Publication 800-145, so 
that we can ensure the definition is not used to allow other than small 
businesses to provide an excessive portion of services on small 
business set aside contracts.
    SBA is requesting comment on whether these types of costs should be 
excluded from the calculation for purposes of compliance with the LOS. 
For example, some have suggested that travel costs should be excluded. 
However, SBA is also concerned about abuse of such exceptions. For 
example, SBA does not want agencies to receive credit for a small 
business contract award where the principal purpose of the acquisition 
is to obtain services from an other than small business concern. If 
that is the norm for a particular type of contract, perhaps that type 
of contract should not be set aside for small business concerns. The 
intent of the LOS is to prevent other than small business concerns from 
benefitting more than small business concerns on small business set 
aside contracts. SBA is requesting comment from industry on these 
issues.

Subcontracting to a Small Business Under a Socioeconomic Program Set 
Aside

    In the context of socioeconomic set aside or sole source service 
contracts, the ostensible subcontractor rule applies when a small 
business is unduly reliant on an other than small subcontractor, or 
when the other than small subcontractor will perform primary and vital 
parts of the contract. In such cases, assuming that an exception to 
joint venture affiliation does not apply, SBA will treat the small 
business prime contractor and its subcontractor as joint venturers, and 
therefore affiliates. If the subcontractor is other than small, the 
prime contractor is ineligible for award due to this affiliation. SBA 
has become aware of service contract set asides for the SDVO, HUBZone, 
8(a) or WOSB programs, where the prime contractor subcontracts most or 
all of the actual performance to a small business that is small for the 
applicable NAICS code but not eligible to compete for award of the 
prime contract, and thus not a similarly situated entity as that term 
is defined at Sec.  125.1.
    Under SBA's recently amended joint venture rules (81 FR 34243, May 
31, 2016; 13 CFR 121.103(h)(3)(i)), a joint venture can qualify as 
small as long as each member of the joint venture is small. In the 
scenario described above, the joint venture regulation prevents SBA 
from performing an analysis under the ostensible subcontractor rule 
because both the prime contractor and subcontractor are small for the 
size standard that applies to the contract and thus subject to the 
exception from affiliation for joint venture partners that are each 
small for the size standard. There is no existing regulatory mechanism 
for an unsuccessful offeror, SBA, or contracting officer to protest a 
socioeconomic set aside or sole source award to a prime contractor that 
is unduly reliant on a small, but not similarly situated entity 
subcontractor. The underlying premise that ostensible subcontractors 
and their prime contractors should be treated as joint ventures is 
still SBA's policy. Firms that are performing contracts in a manner 
more consistent with a joint venture than a prime/sub relationship 
should follow the requirements of SBA's regulations regarding 
socioeconomic joint ventures.

[[Page 62521]]

    The performance of a set-aside or sole source service contract by a 
small business concern that is not eligible to compete for the prime 
contract is contrary to the intent and purpose of the statutory 
authorities for socioeconomic category set-aside and sole source 
procurements. Thus, SBA is proposing language at Sec. Sec.  
124.507(b)(2), 125.18(f), 125.29(c), 126.601(i), 126.801(a), 
127.504(c), and 127.602, which will allow SBA to make a determination 
concerning a small business program participant's overreliance on a 
non-similarly situated subcontractor as part of an eligibility or 
status protest determination. SBA will evaluate these contractor 
relationships under the established ostensible subcontractor test. If 
SBA finds that the subcontractor is an ostensible subcontractor, SBA 
will treat the arrangement between the contractors as a joint venture 
that does not comply with the formal requirements necessary to receive 
and perform the socioeconomic program set aside or sole source award as 
a joint venture.
    This rulemaking will not apply to non-service contracts, such as 
construction contracts or contracts involving non-manufacturers. Due to 
the nature of the industry, SBA's rules allow small businesses to 
subcontract large amounts of performance on construction contracts. The 
Small Business Act, and SBA's regulations generally provide that for 
set aside supply contracts, a non-manufacturer must supply the product 
of a small business, unless SBA has issued a waiver. This means that 
for an SDVO, HUBZone, 8(a), or WOSB set aside or sole source supply 
contract, the prime contractor that is a non-manufacturer must qualify 
as an SDVO, HUBZone, 8(a) or WOSB, but the product can be made by a 
small business that does not qualify as SDVO, HUBZone, 8(a), or WOSB. 
When the non-manufacturer rule applies to a small business program 
contract, it is considered an exception to the limitations on 
subcontracting. Where a waiver of the non-manufacturer rule has been 
issued that applies to a small business program set-aside or sole 
source contract, the prime contractor may supply a product manufactured 
by any size business, also without regard to whether the subcontractor 
qualifies for the applicable small business program set-aside or sole 
source contract.

Kit Assemblers

    SBA is proposing to remove specific rules related to kit assemblers 
and the NMR, which are currently contained at 13 CFR 121.406(c). The 
existing kit assembler rule requires that 50 percent of the total value 
of the items in the kit must be manufactured by small business 
concerns, but excludes items manufactured by other than small business 
concerns if the contracting officer specifies the item for the kit. 
This rule has led to confusion concerning how to calculate total value, 
and whether a waiver of the non-manufacturer rule can or must be 
requested in order to supply items manufactured by other than small 
concerns. SBA recently amended its rules to address the NMR and 
multiple item acquisitions. If the majority of items in a kit are made 
by small business concerns, then the acquisition can be set aside for 
small business without the need to request a waiver. If the majority of 
items in a kit are not made by small business concerns, then an 
individual or class waiver of one or more of the items is necessary for 
the acquisition to be set aside for small business concerns for 
acquisitions above the simplified acquisition threshold or for all 
other socioeconomic set-asides, regardless of value. SBA is proposing 
to delete the kit assembler exception, and instead apply the multiple 
item rule in Sec.  121.406(e) to kit assembler acquisitions. Like all 
other acquisitions, the NMR will not apply to small business set-asides 
with a value at or below the simplified acquisition threshold.

Clarification on Size Determinations

    SBA is also proposing to amend its regulations to remove language 
that has caused confusion on when size is determined. The general rule 
is that size is determined at the time of initial offer including 
price, with the understanding that there are some exceptions such as 
architecture and engineering procurements, and certain unpriced 
indefinite delivery indefinite quantity (IDIQ) contracts. However, 
Sec.  121.404(a) also contains the parenthetical, ``(or other formal 
response to the solicitation).'' Some parties have misread this to mean 
formal responses that are after the initial offer, such as final 
proposal revisions. The clear intent of SBA's general rule is to give 
both firms and the government certainty as to when size will be 
determined, the initial response, including price, because in the 
current government contracting environment a vast amount of time may 
pass between initial offer and award. Offer covers bids and proposals, 
and SBA recognizes that in simplified acquisitions the initial response 
may be acceptance of the government's offer. Thus, SBA is proposing to 
amend Sec.  121.404(a) to make it clear that size is generally 
determined at the time of initial offer or response including price. 
SBA is also proposing to add a paragraph at Sec.  121.404(a)(1)(iv), to 
articulate an exception to the general rule for when size is 
determined. When an agency uses an IDIQ multiple award contract that 
does not require offers for the contract to include price, size will be 
determined on the date of initial offer for the IDIQ contract, which 
may not include price. This proposed change reflects the statutory 
change found at section 825 of the National Defense Authorization Act 
for Fiscal Year 2017, 114 Public Law 328, (December 23, 2016), and 
section 876 of the John S. McCain National Defense Authorization Act 
for Fiscal Year 2019, 115 Public Law 232, (August 13, 2018). SBA is 
also proposing to remove the last sentence of paragraph Sec.  
121.404(g)(5), because it conflicts with recent rules that provide that 
a firm may rely on similarly situated entities to meet the applicable 
LOS. The last sentence of (g)(5) is unnecessary, as Sec.  121.103(h) is 
controlling with respect to the affiliation.
    SBA proposes to amend Sec.  121.103(h)(4) to clarify that when two 
or more small businesses either form a joint venture or are treated as 
joint venturers due to their relationship as prime and subcontractor, 
the joint venture exception to affiliation found at Sec.  
121.103(h)(3)(i) applies if both firms are considered small for the 
size standard associated with the procurement. SBA proposes to remove 
the phrase ``and therefore affiliates'' from the ostensible 
subcontractor rule at Sec.  121.103(h)(4) to clarify this point. To 
allow affiliation between firms that are considered joint venturers 
because of their ostensible subcontracting relationship, even when each 
firm is individually small for the size standard associated with the 
procurement, would negate the purpose of Sec.  121.103(h)(3)(i), which 
explicitly provides an exception to affiliation for such joint 
ventures.
    The purpose of the ostensible subcontractor rule is to treat the 
relationship between a prime contractor and its subcontractor as a 
joint venture where the subcontractor performs primary and vital work 
for the procurement. SBA's current joint venture rules do not aggregate 
the partners to a joint venture in determining the size of the joint 
venture, but rather permit a joint venture to qualify as small as long 
as each partner to the joint venture is individually small. Thus, a 
rule that equates a prime-sub relationship to that of a joint venture 
because the subcontractor is performing primary and vital work and then 
affiliates the two

[[Page 62522]]

parties (i.e., requiring them to aggregate their revenues or employees) 
is inconsistent with the joint venture size rules themselves. The 
phrase ``and therefore affiliates'' that SBA proposes to delete was a 
holdover from previous regulations that aggregated the receipts or 
employees of joint venture partners when determining whether a joint 
venture qualified as a small business. When SBA changed its size 
regulations to broaden the exclusion from affiliation for small 
business to allow two or more small businesses to joint venture for any 
procurement without being affiliated (i.e., the joint venture would be 
considered small provided each of the joint venture partners 
individually qualified as small and SBA would not aggregate the 
receipts or employees of joint venture partners), SBA amended Sec.  
121.103(h)(3), but did not make a correspondingly similar change in 
Sec.  121.103(h)(4). See 81 FR 34243, 34258 (May 31, 2016). This 
proposed rule intends to make it clear that if a prime-sub relationship 
is deemed to be a joint venture because of the ostensible subcontractor 
rule, then all of the rules pertaining to joint ventures would apply. 
As already noted, a prime-sub relationship where both parties 
individually qualified as small would be considered an award to small 
business. Similarly, if the ostensible subcontractor were a large 
business that was the SBA-approved mentor of the prime contractor, then 
the award could qualify as an award to small business if the prime 
contractor/prot[eacute]g[eacute] firm qualifies as small and the 
relationship (treated as a joint venture) meets the normal requirements 
for a joint venture. See Sec. Sec.  124.513(c) and (d); 125.18(b)(2) 
and (3); 126.616(c) and (d); and 127.506(c) and (d). Although SBA 
recognizes that it is unlikely that a prime-subcontractor relationship 
would meet the necessary joint venture requirements of those 
paragraphs, it is possible, and a prime-sub/joint venture that did in 
fact meet those requirements could qualify as small.
    In addition, the proposed rule further clarifies in Sec.  
121.103(h)(4) to provide that the ostensible subcontractor rule does 
not apply to similarly situated entities, as that term is defined at 
Sec.  125.1. SBA notes, however, that when both partners to a joint 
venture are small for the assigned NAICS code but the subcontractor 
partner is not a similarly situated entity, the prime alone is 
responsible for compliance with the applicable LOS and cannot rely on 
its subcontractors to satisfy the LOS requirement.

Clarification Where One Acceptable Offer Is Received on a Set Aside

    SBA is proposing to add new Sec.  125.2(e)(5) to clarify that a 
contracting officer may make an award under a small business or 
socioeconomic set-aside where only one acceptable offer is received. 
The decision to conduct a set aside is based on the contracting 
officer's expectation based on market research that he or she will 
obtain two or more fair market price offers from capable small business 
concerns. Pursuant to the FAR, the contracting officer must perform 
market research before issuing a solicitation to determine whether 
there are small businesses (including 8(a), HUBZone, SDVO SBCs, WOSBs) 
that can perform the requirement. 48 CFR 10.001(a)(2); 19.202-2. A 
contracting officer's ``rule of two'' determination is prospective. 
Whether there appear to be at least two small businesses that can 
perform a procurement at a fair price is an analysis that is done 
during acquisition strategy planning and prior to the issuance of a 
solicitation. As long as the market research leads a contracting 
officer to conclude that the agency will receive offers from at least 
two small business concerns that are technically acceptable and award 
will be made at a fair market price, the ``rule of two'' is satisfied, 
no matter how many offers are actually received or how many offers 
remain after evaluations are conducted, a competitive range is 
established, or offerors are eliminated in some other fashion.
    The FAR currently addresses small business set-asides below 
$150,000, and provides, ``If the contracting officer receives only one 
acceptable offer from a responsible small business concern in response 
to a set-aside, the contracting officer should make an award to that 
firm.'' FAR 19.502-2(a). There is no reason this policy should not 
apply to all set-asides above or below $150,000. The contracting 
officer must determine that an offeror is responsible and price is fair 
and reasonable before awarding any contract. FAR 9.103(a); 9.104-1; 
14.408-2; and 15.304(c)(1). It would be inefficient and detrimental to 
the Government and offerors to arbitrarily prevent an award where a 
competition was conducted but only one offer was received. Such a 
policy would unreasonably prolong the procurement process, requiring a 
procuring agency to cancel one solicitation and reprocure using another 
where only one small business offer is received, and could cause 
contracting officers to limit the use of set-asides.

Compliance With Executive Orders 12866, 13563, 12988, 13132, 13771, the 
Unfunded Mandates Reform Act of 1995, 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. The benefits to small business from this 
proposed rule far outweigh any associated costs. The proposed rule 
makes several other changes needed to clarify ambiguities in or remedy 
perceived problems with the current regulations. These proposed changes 
should make SBA's regulations easier for SBCs to use and understand. 
The proposed change to Sec.  121.404 clarifies when size for a 
government contract is determined, which will reduce confusion for 
small business concerns. The proposed change to Sec.  121.406 clarifies 
that the size standard for information technology value added resellers 
is 150 employees, again to eliminate confusion among small business 
concerns. The proposed changes to Sec.  125.2(a) will benefit small 
business by clarifying that a contracting officer can award a contract 
to a small business under a set-aside if only one offer is received. 
The proposed changes to Sec.  125.2(b) implement section 1811 of the 
NDAA of 2017, and govern what acquisitions PCRs can review and would 
not impact small business concerns. The proposed changes to Sec.  
125.2(d) implement section 863 of the NDAA of 2016 and direct 
contracting officers on how to notify the public about consolidation 
and substantial bundling, and will not impact small business concerns. 
The proposed changes to Sec.  125.2(e) authorize agencies to set aside 
orders for socioeconomic programs where the contract was set aside for 
small business, and will benefit firms that qualify for those set 
asides. The proposed changes to Sec.  125.3 implement section 1821 of 
the NDAA of 2017 by providing examples of a failure to make a good 
faith effort to comply with small business subcontracting plans, and 
will benefit small businesses by providing such examples so that 
contracting officers can hold other than small prime contractors 
accountable for failing to make a good faith effort to comply with 
their small business subcontracting plan. The proposed changes to Sec.  
125.3 also implement section 1821 by providing that the contracting 
officer should evaluate whether an other than small business complied 
with the requirement to report

[[Page 62523]]

on small business subcontracting plan performance. The proposed changes 
to Sec.  125.6(a) will benefit small business concerns by allowing 
small businesses to exclude certain costs from the calculation of the 
limitations on subcontracting. Without these changes, some agencies 
will not be able to set contracts aside for small business, because 
certain costs attributable to other than small concerns are too high. 
The proposed changes to Sec.  125.6 also help small businesses by 
clarifying the difference between an employee and an independent 
contractor. The proposed changes to Sec.  125.6 will impose some 
requirements on small business concerns to demonstrate compliance with 
the LOS, but only to the extent the information is not already in the 
possession of the government. Contractors may have this information 
readily available since it pertains to contract performance and 
subcontracting of that performance. These information requests are not 
mandatory, as the contracting officer simply has the discretion to 
request such information. Contracting officers already have the 
authority to request information on performance, and this proposed 
change simply clarifies that the authority exists. Finally, the 
benefits to small business concerns of this proposed rule substantially 
outweigh any minor costs imposed by the exercise of existing 
contracting authority. The proposed addition of part 129 implements 
section 2108 of the RISE Act and benefits small businesses by providing 
agencies with an incentive to set aside contracts for small business 
concerns located in a disaster area. Accordingly, the next section 
contains SBA's Regulatory Impact Analysis. However, this is not a major 
rule under the Congressional Review Act, 5 U.S.C. 801, et seq.

Regulatory Impact Analysis

1. Is there a need for the regulatory action?
    The proposed rule implements section 863 of the National Defense 
Authorization Act of 2016, Public Law 114-92, 129 Stat. 726 (15 U.S.C. 
644(e)(3)); section 2108 of the Recovery Improvements for Small 
Entities After Disaster Act of 2015 (RISE Act), Public Law 114-88, 129 
Stat. 686 (15 U.S.C. 644(f)); and sections 1811 and 1821 of the 
National Defense Authorization Act of 2017, Public Law 114-328, 130 
Stat. 2000 (15 U.S.C. 637(d), 644(l)). In addition, it makes several 
other changes needed to clarify ambiguities in or remedy perceived 
problems with the current regulations. These proposed changes should 
make SBA's regulations easier to use and understand. With respect to 
contractors demonstrating compliance with the limitations on 
subcontracting, for decades the general rule has been that on a set 
aside contract, a small business or socioeconomic small business must 
generally perform some of the work (services, construction, or 
manufacturing). This helps ensure that the benefits of a small business 
set-aside contract flow to the recipients whom Congress intends to help 
by creating the set aside authority. If performance of a set-aside 
contract is passed through to other-than-small business concerns, there 
may not be a need for set-asides in the first place, and the government 
may be paying more for a good or service without any value added. These 
limitations on subcontracting appear as a clause in a set aside 
contract and help to ensure that the intended beneficiaries of set 
aside contracts are receiving those benefits. The contracting officer 
is responsible for monitoring compliance with clauses in a contract. 
FAR 1.602. Nothing in SBA's regulations or the FAR prohibits a 
contracting officer from requesting documents demonstrating compliance 
with the limitations on subcontracting clause. It is SBA's view that 
such authority exists, but that the authority is not clear or express. 
Without clarifying the authority or process, some contracting officers 
simply are not monitoring compliance. The result is that there may be 
increased fraud, waste, and abuse, in the performance of contracts that 
are set aside for small business concerns, because subcontractors that 
are not eligible to receive the prime contract may be performing more 
work than section 46 of the Small Business Act (15 U.S.C. 657s), SBA 
regulations at 13 CFR 125.6, and FAR clause 52.219-14 permit. This type 
of fraud frustrates the policy goals associated with awarding contracts 
set aside for small business concerns.
    In this proposed rule, SBA proposes to clarify, by expressly 
stating, that the contracting officer may request information to 
demonstrate a contractor's compliance with the limitations on 
subcontracting clause. SBA proposes to clarify that it is within the 
contracting officers' discretion to request such a showing of 
compliance, because in some cases it will not be necessary, such as 
when a small business performs the contract itself without the use of 
subcontractors or when information regarding compliance is already 
available to the Government. Through this proposed rule, SBA intends to 
deter and reduce potential fraud, waste, and abuse, due to 
noncompliance with the limitations on subcontracting. Additionally, 
clarifying a contracting officer's authority to request that a small 
business concern demonstrate compliance with the limitations on 
subcontracting is consistent with recommendations made by the U.S. 
Government Accountability Office (GAO) in several reports: ``Contract 
Management; Increased Use of Alaska Native Corporations' Special 8(a) 
Provisions Calls for Tailored Oversight,'' GAO-06-39, April 2006; 
``8(a) Subcontracting Limitations, Continued Noncompliance with 
Monitoring Requirements Signals Need for Regulatory Change,'' GAO-14-
706, September 2014; and ``Federal Contracting Monitoring and Oversight 
of Tribal 8(a) Firms Need Attention,'' GAO-12-84, January 2012.
2. What are the potential benefits and costs of this regulatory action?
    The majority of the proposed changes in this rule will have de 
minimis costs and qualitative benefits that are difficult to quantity: 
Protecting the integrity of the small business procurement system. The 
rule proposes to provide exceptions to the LOS in certain service 
contracts where small businesses must use the services of other than 
small subcontractors in substantial amounts in order to fully perform a 
set aside service contract. This will help small business by making 
acquisitions available for small business set-asides that would not 
otherwise be available. Many of the other clarifications in this rule 
will benefit small businesses, by reducing confusion in the 
marketplace, but this benefit is difficult to quantify. The proposed 
rule allowing agencies to receive double credit toward its small 
business procurement goals for awards to local small business concerns 
in the event of a disaster is intended to benefit local small 
businesses and provide employment and revenue to concerns located in an 
area devastated by a disaster. While the authority for contracting 
preferences for businesses located in a disaster area already exists in 
FAR subpart 26.2, small businesses located in these areas may receive a 
greater benefit under this proposed rule due to the incentive for the 
procuring agency to receive double credit toward its small business 
procurement goals by utilizing this authority.
    SBA is proposing to clarify that the contracting officer may 
require the prime contractor to demonstrate compliance with the LOS. We 
believe that contracting officers already possesses the authority to 
request

[[Page 62524]]

information from a contractor concerning compliance with a clause in 
the contract pursuant to FAR 1.602-2. In addition, on some contracts, 
compliance can already be reviewed or monitored by reviewing invoices. 
The proposed rule would clarify that contracting officers have the 
authority to request information in connection with a contractor's 
compliance with applicable limitations on subcontracting clauses. 
Approximately 56,000 firms received approximately 180,000 sole source 
or set aside awards in FY 2016. SBA is proposing that a contracting 
officer may request information regarding compliance with prime 
contractors' limitations on subcontracting. In some cases this 
information may not be necessary based on the nature of the contract 
and the invoices submitted. SBA estimates that less than ten percent of 
small business concerns and contracts would be subject to a request for 
this information (5,600 small business concerns and 18,000 contracts), 
and compliance should take on average less than an hour. Small 
businesses that do not issue subcontracts will not have anything to 
report. Small businesses may be able to easily report on any 
subcontracts, as information on subcontracting and paying 
subcontractors is routinely compiled as part of the normal accounting 
procedures for any business concern. Accounting or contract management 
personnel should be able to determine whether the firm issued any 
subcontracts in connection with the prime contract. SBA estimates that 
this rule will be finalized in FY 2019. SBA estimates an overall annual 
cost of approximately $600,120 for small businesses to provide 
information on compliance with the limitations on subcontracting, as 
requested by the contracting officer.
    This proposed rule will require an other than small prime 
contractor with a commercial subcontracting plan to include indirect 
costs in its subcontracting goals. Based on data from the Electronic 
Subcontracting Reporting System (eSRS), in FY 2017 approximately 700 
firms had commercial subcontracting plans. SBA estimates that 
approximately 95% of those 700 firms include indirect costs in their 
subcontracting goals. Thus, this proposal would impact approximately 35 
firms. The burden would be de minimis, as the accounting or contract 
manager would know the firm's indirect costs. The benefit of requiring 
that indirect costs be included in subcontracting goals where a 
commercial subcontracting plan is utilized, is that it will increase 
the small business subcontracting goal and thus increase the amount of 
funds the prime contractor will subcontract to small business concerns. 
Increasing the value and number of awards to small business concerns 
provides financial benefits to those firms, who may hire more staff and 
invest in more resources to support the increased demand. Furthermore, 
increasing the number and value of awards to small business concerns 
has macroeconomic and qualitative benefits to the national economy 
because small businesses are the foundation of the country's economic 
success.
    This proposed rule will establish that failure to provide timely 
subcontracting reports may constitute a material breach of the 
contract. These reports are already required by law at 13 CFR 125.3(a). 
This rule will make failure to provide the report a material breach of 
the contract, which could subject other than small business concerns to 
liquidated damages. SBA is not aware of any case where a firm has been 
subject to liquidated damages for failure to comply with a 
subcontracting plan. Thus any costs would be de minimis. The benefit of 
this proposed rule is that it will assist SBA and contracting officers 
with oversight of prime contractor compliance with subcontracting plans 
and may result in increased compliance with subcontracting plans.
    This proposed rule requires recertification of status on full and 
open contracts. SBA intended for recertification to occur whenever an 
agency receives credit for an award towards it goals, and this proposed 
rule is just a clarification that socioeconomic recertification is 
required on all contracts, including full and open contracts. We 
estimate that approximately 150 firms a year recertify on full and open 
contracts. This will only impact firms that are acquired, merged, or 
where there is a novation or the firm grows to be other than small on a 
long term contract. Agencies have goals for the award of prime 
contractor dollars to small and socioeconomic concerns. The purpose of 
recertification is to ensure that an agency does not receive small 
business credit for an award to an other-than-small concern.
    This proposed rule will limit the scope of Procurement Center 
Representative reviews of Department of Defense acquisitions performed 
outside of the United States and its territories. This applies to the 
government and will not impose costs or burdens on the public.
    This proposed rule will remove the kit assembler exception to the 
non-manufacturer rule. This clarification requires agencies to request 
a waiver of the non-manufacturer rule for kits, in accordance with 
existing regulations. This will reduce confusion, by having only one 
non-manufacturer rule procedure for purposes of multi-item 
procurements.
3. What are the alternatives to this rule?
    Many of the proposed regulations are required to implement 
statutory provisions, thus there are no apparent alternatives for these 
regulations. With respect to the proposal clarifying that contracting 
officers may request information on compliance with the limitations on 
subcontracting, SBA considered whether prime contractors should be 
required to provide this information on compliance with the LOS on all 
set aside or sole source contracts. However, that may unnecessarily 
burden small businesses, if compliance is already readily apparent to 
the contracting officer based on the type of contract, invoicing, or 
observation. We estimate the alternative considered, having all small 
businesses provide information on compliance, would have an annual cost 
of $1,867,040. SBA decided to clarify instead that the contracting 
officer has the discretion to request such information to the extent 
such information is not already available. This will enable the 
contracting officer to request this information as he or she sees fit, 
in order to ensure that the benefits of the small business programs are 
flowing to the intended recipients. However, SBA is requesting comment 
on whether all small businesses should provide information on 
compliance with the LOS for set aside or sole source contracts.

Executive Order 13563

    This executive order directs agencies to, among other things: (a) 
Afford the public a meaningful opportunity to comment through the 
internet on proposed regulations, with a comment period that should 
generally consist of not less than 60 days; (b) provide for an ``open 
exchange'' of information among government officials, experts, 
stakeholders, and the public; and (c) seek the views of those who are 
likely to be affected by the rulemaking, even before issuing a notice 
of proposed rulemaking. As far as practicable or relevant, SBA 
considered these requirements in developing this rule, as discussed 
below.
    1. Did the agency use the best available techniques to quantify 
anticipated present and future costs when responding to E.O. 12866 
(e.g.,

[[Page 62525]]

identifying changing future compliance costs that might result from 
technological innovation or anticipated behavioral changes)?
    To the extent possible, the agency utilized the most recent data 
available in the Federal Procurement Data System--Next Generation, 
System for Award Management and Electronic Subcontracting Reporting 
System.
    2. Public participation: Did the agency: (a) Afford the public a 
meaningful opportunity to comment through the internet on any proposed 
regulation, with a comment period that should generally consist of not 
less than 60 days; (b) provide for an ``open exchange'' of information 
among government officials, experts, stakeholders, and the public; (c) 
provide timely online access to the rulemaking docket on 
Regulations.gov; and (d) seek the views of those who are likely to be 
affected by rulemaking, even before issuing a notice of proposed 
rulemaking?
    The proposed rule will have a 60 day comment period and will be 
posted on www.regulations.gov to allow the public to comment 
meaningfully on its provisions. In addition, the proposed rule was 
discussed with the Small Business Procurement Advisory Council, which 
consists of the Directors of the Office of Small and Disadvantaged 
Business Utilization. SBA also submitted the rule to multiple agencies 
with representatives on the FAR Small Business Subcommittee prior to 
submitting the rule to the Office of Management and Budget for 
interagency review.
    3. Flexibility: Did the agency identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public?
    Yes, the proposed rule implements statutory provisions and will 
provide clarification to rules that were requested by agencies and 
stakeholders. In addition, SBA is proposing to make clear that 
contracting officers may request information from their contractors in 
order to determine whether the contractor is complying with the LOS. 
This information may already be provided as part of invoicing under 
certain contracts, and in any event, the information should be readily 
provided by the contractor, as it simply pertains to what extent the 
prime contractor is subcontracting work under the contract. Clarifying 
that the contracting officer has the authority to request this 
information, instead of requiring all small businesses to submit 
reports, significantly reduces cost and burden.

Executive Order 12988

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

Unfunded Mandates Reform Act

    This rule will not result in an unfunded mandate that will result 
in expenditures by State governments of $100 million or more (adjusted 
annually for inflation since 1995).

Executive Order 13132

    SBA has determined that this proposed 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.

Executive Order 13771

    This proposed rule is expected to be an Executive Order 13771 
regulatory action. Details on the estimated costs of this proposed rule 
can be found in the rule's economic analysis.

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

    Small businesses, such as 8(a) BD Program Participants, HUBZone 
SBCs, WOSBs, Economically Disadvantaged Women-Owned (EDWOSBCs, and SDVO 
SBCs, are eligible to receive set-aside or sole source contracts. 15 
U.S.C. 631(a), 637(a), (m), 644(a), (j), 657a, 657f. As a condition of 
these preferences, and to help ensure that small businesses actually 
perform a certain percentage of the work on a contract, the recipients 
of set-aside or sole source contracts are limited in their ability to 
subcontract to other-than-small business concerns by the limitations on 
subcontracting (LOS) clauses in the particular contract. See, 48 CFR 
52.219-3, 52.219-4, 52.219-7, 52.219-14, 52.219-18, 52.219-27, 52.219-
29, 52.219-30. Contracting officers are responsible for ensuring 
contractor compliance with the terms of a contract (FAR 1.602-2). The 
SBA proposed rule will provide express authority for contracting 
officers to request information on contractor's compliance with the 
LOS. Therefore, SBA will seek PRA review and approval from the Office 
of Management and Budget (OMB) to cover contracting officers' requests 
for information from small businesses regarding their LOS compliance.
    A summary description of the reporting requirement, description of 
respondents, and estimate of the annual burden is described below. 
Included in the estimate is the time for reviewing requirements, 
gathering and maintaining the data needed, and submitting the report to 
the contracting officer.
    Title: Compliance with the Limitations on Subcontracting.
    OMB Control Number: (To be determined; new collection).
    Summary Description of Compliance Information: In order to show 
that it is in compliance with the limitations on subcontracting terms 
that are included in its set-aside or sole source contract, a small 
business concern may be required to submit certain information to the 
contracting officer. The specific information relevant to a particular 
contract will be identified by the contracting officer but could 
include, where applicable, identification of subcontractor, dollar 
amount of subcontract, and costs to be excluded from the LOS 
calculation (e.g., for contracts for supplies, materials).
    Description of and Estimated Number of Respondents: Small business 
concerns that are awarded set-aside or sole source contracts. Based on 
FPDS data, SBA estimates that approximately 56,000 concerns receive 
approximately 180,000 small business sole source or set-aside awards in 
a fiscal year and that no more than ten percent (5,600) of concerns 
will be asked to provide information on compliance with the limitations 
on subcontracting for no more than ten percent (18,000) of the awards 
that have been received.
    Estimated Annual Responses: 18,000.
    Estimated Response Time per Respondent: 1 hour.
    Total Estimated Annual Hour Burden: 18,000.
    Estimated costs based on officer's salary: $33.34/hour (based on 
median pay for accountants and auditors, Bureau of Labor Statistics).
    Total estimated hour annual cost burden: 18,000 hours x $33.34/hour 
= $600,120.
    SBA will submit this new information collection (reporting 
requirement) to the Office of Management and Budget (OMB) for review, 
and invites the public to comment on: (1) Whether the reporting 
requirement is necessary for the proper performance of SBA programs, 
including whether the information will have a practical utility; (2) 
the accuracy of SBA's estimate of the burden for the reporting 
requirement; (3) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (4) ways to minimize the

[[Page 62526]]

burden imposed as a result of the reporting requirement on the 
respondents, including the use of automated collection techniques, when 
appropriate, and other forms of information technology.
    Comments must be received by the deadline stated in the DATES 
section of this rule. Refer to the ADDRESS section for instructions on 
how and where to submit comments.

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

    Under the Regulatory Flexibility Act (RFA), this proposed rule may 
have a significant impact on a substantial number of small businesses. 
Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) addressing the impact of the proposed rule in 
accordance with section 603, Title 5, of the United States Code. The 
IRFA examines the objectives and legal basis for this proposed rule; 
the kind and number of small entities that may be affected; the 
projected recordkeeping, reporting, and other requirements; whether 
there are any Federal rules that may duplicate, overlap, or conflict 
with this proposed rule; and whether there are any significant 
alternatives to this proposed rule.
1. What are the need for and objective of the rule?
    The proposed rule implements section 863 of the National Defense 
Authorization Act of 2016, Public Law 114-92, 129 Stat. 726 (15 U.S.C. 
644(e)(3)); section 2108 of the Recovery Improvements for Small 
Entities After Disaster Act of 2015 (RISE Act), Public Law 114-88, 129 
Stat. 686 (15 U.S.C. 644(f)); and sections 1811 and 1821 of the 
National Defense Authorization Act of 2017, Public Law 114-328, 130 
Stat. 2000 (15 U.S.C. 637(d), 644(l)). In addition, the proposed rule 
makes several other changes needed to clarify ambiguities in or remedy 
perceived problems with the current regulations. These proposed changes 
should make SBA's regulations easier to use and understand. The 
proposed rule will make it easier for agencies to award set aside 
contracts to SBCs. Failure to promulgate this rule could result in a 
loss of set aside opportunities for SBCs.
    The proposed change to Sec.  121.404 clarifies when size for a 
government contract is determined, which will reduce confusion for 
small business concerns. The proposed change to Sec.  121.406 clarifies 
that the size standard for information technology value added resellers 
is 150 employees, again to eliminate confusion among small business 
concerns. The proposed changes to Sec.  125.2(a) will benefit small 
business by clarifying that a contracting officer can award a contract 
to a small business under a set aside if only one offer is received. 
The proposed changes to Sec.  125.2(b) implement section 1811 of the 
NDAA 2017, and govern what acquisitions PCRs can review and would not 
impact small business concerns. The proposed changes to Sec.  125.2(d) 
implement section 863 of the NDAA of 2016 and direct contracting 
officers on how to notify the public about consolidation and 
substantial bundling, and will not impact small business concerns. The 
proposed changes to Sec.  125.2(e) authorize agencies to set aside 
orders for socioeconomic programs where the contract was set aside for 
small business, and will benefit firms that qualify for those set 
asides. The proposed changes to Sec.  125.3 implement section 1821 of 
the NDAA of 2017 by providing examples of a failure to make a good 
faith effort to comply with small business subcontracting plans, and 
will benefit small businesses by providing such examples so that 
contracting officers can hold other than small prime contractors 
accountable for failing to make a good faith effort to comply with 
their small business subcontracting plan. The proposed changes to Sec.  
125.3 also implement section 1821 by providing that the contracting 
officer should evaluate whether an other than small business complied 
with the requirement to report on small business subcontracting plan 
performance. The proposed changes to Sec.  125.6(a) will benefit small 
business concerns by allowing small businesses to exclude certain costs 
from the calculation of the limitations on subcontracting. Without 
these changes, some agencies will not be able to set contracts aside 
for small business, because certain costs attributable to other than 
small concerns are too high. The proposed changes to Sec.  125.6 also 
help small businesses by clarifying the difference between an employee 
and an independent contractor. The proposed changes to Sec.  125.6 will 
impose some information production requirements on small business 
concerns, but only to the extent the information is not already in the 
possession of the government. Further, this information is readily 
available since it pertains to contract performance and subcontracting 
of that performance. These reports are not mandatory, as the 
contracting officer simply has the discretion to request such reports. 
Contracting officers already have the authority to request information 
demonstrating performance, and this proposed change simply clarifies 
that the authority exists. Finally, the benefits to small business 
concerns of this proposed rule substantially outweigh any minor costs 
imposed by the reporting authority. The proposed addition of part 129 
implements section 2108 of the RISE Act and benefits small businesses 
by providing agencies with an incentive to set aside contracts for 
small business concerns located in a disaster area.
    With respect to the limitation on subcontracting to an ineligible 
small business under a socioeconomic set aside (proposed 13 CFR 
124.507(b)(2)(vi), 125.29(c), 126.601(i), and 127.504(c)), the rule 
will impact very few firms. The vast majority of small business prime 
contractors self-perform the required percentage of work, or will 
subcontract to a similarly situated entity, as is allowed under FAR 
52.219-3 (Notice of HUBZone Set-Aside or Sole Source Award), 52-219-27 
(Notice of Service-Disabled Veteran-Owned Small Business Set-Aside), 
and as will be allowed when SBA's rules on similarly situated entities 
(13 CFR 125.6) are implemented in the FAR. The benefits that will flow 
to the intended beneficiaries of a socio-economic set-aside far 
outweigh any impact on firms that have no intention of performing the 
contract or are not eligible to bid on that contract.
2. What are SBA's description and estimate of the number of small 
entities to which the rule will apply?
    If the proposed rule is adopted in its present form, the rule would 
be applicable to all small business concerns participating in the 
Federal procurement market that seek to perform government prime 
contracts or to perform subcontracts awarded by other than small 
concerns. SBA estimates that there are approximately 320,000 firms 
identified as small business concerns in the Dynamic Small Business 
Search database.
3. 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 proposed rule does not impose new recordkeeping requirements. 
Contractors already keep records on contract performance and 
subcontracting. Information may be required, but only to the extent the 
information is not available through invoices or existing progress 
reports. The proposed rule would clarify that contracting officers may 
request access to information in connection with a

[[Page 62527]]

contractor's compliance with applicable limitations on subcontracting 
clauses. Approximately 56,000 firms received sole source or set aside 
awards in FY 2016. SBA is clarifying that a contracting officer may 
request information to assure compliance with the LOS clause, and in 
some cases this information may not be necessary based on the nature of 
the contract and the invoices submitted. We estimate that less than ten 
percent of contracts would be subject to a request to provide this 
information (18,000), and compliance should take less than an hour for 
each of those contracts. Accounting or contract management personnel 
should be able to determine whether the firm issued any subcontracts in 
connection with the prime contract. We estimate the SBA rule will be 
finalized in FY 2019. We estimate an overall annual cost of 
approximately $600,120.
4. What are the relevant Federal rules which may duplicate, overlap or 
conflict with the rule?
    We are not aware of any rules that duplicate, overlap or conflict 
with this rule. The FAR will have to be amended to implement portions 
of this rule. That will be done through a separate rulemaking.
5. What alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?
    Many of the proposed changes are required to implement statute, and 
impose requirements on contracting personnel, agencies or other than 
small concerns, and do not impact small business concerns. Further, 
many of the proposed changes will benefit small business concerns by 
clarifying areas where there is confusion and by making it easier for 
agencies to set aside contracts and orders for small business and small 
socioeconomic concerns. As an alternative, SBA considered whether prime 
contractors should be required to provide information on compliance 
with the LOS on all set aside or sole source contracts. However, that 
may unnecessarily burden small businesses, if compliance is already 
readily apparent to the contracting officer based on the type of 
contract, invoicing, or observation.

List of Subjects

13 CFR Part 121

    Government procurement; Government property; Grant programs--
business, Individuals with disabilities; Loan programs--business; Small 
businesses.

13 CFR Part 124

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

13 CFR Part 125

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

13 CFR Part 126

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

13 CFR Part 127

    Government contracts, Reporting and recordkeeping requirements, 
Small businesses.

13 CFR Part 129

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

    Accordingly, for the reasons stated in the preamble, SBA proposes 
to amend 13 CFR parts 121, 124, 125, 126, and 127 and to add 13 CFR 
part 129 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), 662, and 694a(9).

0
2. Amend Sec.  121.103 by revising the first sentence of paragraph 
(h)(4) to read as follows:


Sec.  121.103  How does SBA determine affiliation?

* * * * *
    (h) * * *
    (4) A contractor and its ostensible subcontractor are treated as 
joint venturers for size determination purposes. * * *
* * * * *
0
3. Amend Sec.  121.404 by revising paragraph (a) introductory text, 
adding paragraph (a)(1)(iv), and revising paragraph (g)(5) to read as 
follows:


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

    (a) SBA determines the size status of a concern, including its 
affiliates, as of the date the concern submits a written self-
certification that it is small to the procuring activity as part of its 
initial offer or response which includes price.
    (1) * * *
    (iv) For an indefinite delivery, indefinite quantity (IDIQ), 
Multiple Award Contract, where concerns are not required to submit 
price as part of the offer for the IDIQ contract, size will be 
determined as of the date of initial offer, which may not include 
price.
* * * * *
    (g) * * *
    (5) If during contract performance a subcontractor that is not a 
similarly situated entity performs primary and vital requirements of a 
contract, the contractor and its ostensible subcontractor will be 
treated as joint venturers. See Sec.  121.103(h)(4).
* * * * *
0
4. Amend Sec.  121.406 by:
0
a. Revising paragraph (b)(1)(i);
0
b. Removing paragraph (c); and
0
c. Redesignating paragraphs (d) through (f) as paragraphs (c) through 
(e) respectively.
    The revision to read as follows:


Sec.  121.406  How does a small business concern qualify to provide 
manufactured products or other supply items under a small business set-
aside, service-disabled veteran-owned small business, HUBZone, WOSB or 
EDWOSB, or 8(a) contract?

* * * * *
    (b) * * *
    (1) * * *
    (i) Does not exceed 500 employees (or 150 employees for the 
Information Technology Value Added Reseller exception to NAICS Code 
541519, which is found at Sec.  121.201, footnote 18);
* * * * *

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

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

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

0
6. Amend Sec.  124.503 by revising paragraphs (c)(1)(iii) and (iv) and 
adding paragraph (c)(1)(v) to read as follows:


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

* * * * *
    (c) * * *
    (1) * * *
    (iii) The Participant is small for the size standard corresponding 
to the NAICS code assigned to the requirement by the procuring activity 
contracting officer;
    (iv) The Participant has submitted required financial statements to 
SBA; and

[[Page 62528]]

    (v) The Participant is performing the primary and vital 
requirements of the service contract, or of an order, and is not 
unusually reliant on a subcontractor that is not similarly situated, as 
that term is defined at Sec.  125.1.
0
7. In Sec.  124.507, add paragraph (b)(2)(vi) to read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (vi) Performing the primary and vital requirements of the service 
contract, or of an order, or is unusually reliant on a subcontractor 
that is not a similarly situated entity, as that term is defined at 
Sec.  125.1.
0
8. In Sec.  124.521, add paragraph (e) to read as follows:


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

* * * * *
    (e) Recertification. (1) Generally, a concern that represents 
itself and qualifies as an 8(a) Participant at the time of initial 
offer (or other formal response to a solicitation), which includes 
price, including a Multiple Award Contract, is considered an 8(a) 
Participant throughout the life of that contract. For an indefinite 
delivery, indefinite quantity (IDIQ), Multiple Award Contract, where 
concerns are not required to submit price as part of the offer for the 
contract, a concern that represents itself and qualifies as an 8(a) 
Participant at the time of initial offer, which may not include price, 
is considered an 8(a) Participant throughout the life of that contract. 
This means that if an 8(a) Participant is qualified at the time of 
initial offer for a Multiple Award Contract, then it will be considered 
an 8(a) Participant for each order issued against the contract, unless 
a contracting officer requests a new 8(a) certification in connection 
with a specific order. Where a concern later fails to qualify as an 
8(a) Participant, the procuring agency may exercise options and still 
count the award as an award to an SDB. However, the following 
exceptions apply:
    (i) Where an 8(a) contract is novated to another business concern, 
or where the concern performing the 8(a) contract is acquired by, 
acquires, or merges with another concern and contract novation is not 
required, the concern must comply with the process outlined at 
Sec. Sec.  124.105(i) and 124.515.
    (ii) Where an 8(a) Participant receives a non-8(a) contract that is 
novated to another business concern, the concern that will continue 
performance on the contract must certify its status as an 8(a) 
Participant to the procuring agency, or inform the procuring agency 
that it does not qualify as an 8(a) Participant, within 30 days of the 
novation approval. If the concern is not an 8(a) Participant, the 
agency can no longer count the options or orders issued pursuant to the 
contract, from that point forward, towards its SDB goals.
    (iii) Where an 8(a) Participant receives a non-8(a) contract, and 
that Participant acquires, is acquired by, or merges with another 
concern and contract novation is not required, the concern must, within 
30 days of the transaction becoming final, recertify its 8(a) status to 
the procuring agency, or inform the procuring agency that it no longer 
qualifies as an 8(a) Participant. If the contractor is not an 8(a) 
Participant, the agency can no longer count the options or orders 
issued pursuant to the contract, from that point forward, towards its 
SDB goals. The agency and the contractor must immediately revise all 
applicable Federal contract databases to reflect the new status.
    (2) For the purposes of contracts (including Multiple Award 
Contracts) with durations of more than five years (including options), 
a contracting officer must request that a business concern recertify 
its 8(a) status no more than 120 days prior to the end of the fifth 
year of the contract, and no more than 120 days prior to exercising any 
option. Where a concern fails to recertify its 8(a) status during the 
120 days prior to the end of the fifth year of the contract, the option 
shall not be exercised.
    (3) Recertification does not change the terms and conditions of the 
contract. The limitations on subcontracting, nonmanufacturer and 
subcontracting plan requirements in effect at the time of contract 
award remain in effect throughout the life of the contract.
    (4) Where the contracting officer explicitly requires concerns to 
recertify their status in response to a solicitation for an order, SBA 
will determine eligibility as of the date the concern submits its self-
representation as part of its response to the solicitation for the 
order.
    (5) A concern's status may be determined at the time of a response 
to a solicitation for an basic ordering agreement (BOA), basic 
agreement (BA), or blanket purchase agreement (BPA) and each order 
issued pursuant to the BPA, BOA, or BA.
0
9. In Sec.  124.1015, add paragraph (f) to read as follows:


Sec.  124.1015  What are the requirements for representing SDB status, 
and what are the penalties for misrepresentation?

* * * * *
    (f) Recertification. (1) Generally, a concern that represents 
itself and qualifies as an SDB at the time of initial offer (or other 
formal response to a solicitation), which includes price, including a 
Multiple Award Contract, is considered an SDB throughout the life of 
that contract. For an indefinite delivery indefinite quantity (IDIQ), 
Multiple Award Contract, where concerns are not required to submit 
price as part of their offer for the contract, a concern that 
represents itself and qualifies as an SDB at the time of initial offer, 
which may not include price, is considered an SDB throughout the life 
of that contract. This means that if an SDB is qualified at the time of 
initial offer for a Multiple Award Contract, then it will be considered 
an SDB for each order issued against the contract, unless a contracting 
officer requests a new SDB certification in connection with a specific 
order. Where a concern later fails to qualify as an SDB, the procuring 
agency may exercise options and still count the award as an award to an 
SDB. However, the following exceptions apply:
    (i) Where a contract is novated to another business concern, the 
concern that will continue performance on the contract must certify its 
status as an SDB to the procuring agency, or inform the procuring 
agency that it does not qualify as an SDB, within 30 days of the 
novation approval. If the concern is not an SDB, the agency can no 
longer count the options or orders issued pursuant to the contract, 
from that point forward, towards its SDB goals.
    (ii) Where a concern that is performing a contract acquires, is 
acquired by, or merges with another concern and contract novation is 
not required, the concern must, within 30 days of the transaction 
becoming final, recertify its SDB status to the procuring agency, or 
inform the procuring agency that it no longer qualifies as an SDB. If 
the contractor is not an SDB, the agency can no longer count the 
options or orders issued pursuant to the contract, from that point 
forward, towards its SDB goals. The agency and the contractor must 
immediately revise all applicable Federal contract databases to reflect 
the new status.
    (2) For the purposes of contracts (including Multiple Award 
Contracts) with durations of more than five years (including options), 
a contracting officer must request that a business concern recertify 
its SDB status no more than 120 days prior to the end of the fifth

[[Page 62529]]

year of the contract, and no more than 120 days prior to exercising any 
option.
    (3) A business concern that did not certify itself as an SDB, 
either initially or prior to an option being exercised, may recertify 
itself as an SDB for a subsequent option period if it meets the 
eligibility requirements at that time.
    (4) Recertification does not change the terms and conditions of the 
contract. The limitations on subcontracting, nonmanufacturer and 
subcontracting plan requirements in effect at the time of contract 
award remain in effect throughout the life of the contract.
    (5) Where the contracting officer explicitly requires concerns to 
recertify their status in response to a solicitation for an order, SBA 
will determine eligibility as of the date the concern submits its self-
representation as part of its response to the solicitation for the 
order.
    (6) A concern's status may be determined at the time of a response 
to a solicitation for an Agreement and each order issued pursuant to 
the Agreement.

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
9. 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
10. Amend Sec.  125.2 by:
0
a. Revising paragraph (a);
0
b. In paragraph (b)(1)(i)(A):
0
i. Revising the second sentence; and
0
ii. Adding a sentence at the end of the paragraph;
0
c. Adding paragraph (d)(1)(v);
0
d. Redesignating paragraph (d)(7) as paragraph (d)(8);
0
e. Adding new paragraph (d)(7); and
0
f. Revising paragraph (e)(6).
    The revisions and additions 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)(1) The objective of the SBA's contracting programs is to assist 
small business concerns, including 8(a) BD Participants, HUBZone small 
business concerns, Service Disabled Veteran-Owned Small Business 
Concerns, Women-Owned Small Businesses and Economically Disadvantaged 
Women-Owned Small Businesses, in obtaining a fair share of Federal 
Government prime contracts, subcontracts, orders, and property sales. 
Therefore, these regulations apply to all types of Federal Government 
contracts, including Multiple Award Contracts, and contracts for 
architectural and engineering services, research, development, test and 
evaluation. 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:
    (i) Maintaining or mobilizing the Nation's full productive 
capacity;
    (ii) War or national defense programs;
    (iii) Assuring that a fair proportion of the total purchases and 
contracts for property, services and construction for the Government in 
each industry category are placed with small business concerns; or
    (iv) Assuring that a fair proportion of the total sales of 
Government property is made to small business concerns.
    (2) If the contracting officer receives only one acceptable offer 
from a responsible small business concern in response to any small or 
socioeconomic set-aside, the contracting officer should make an award 
to that firm.
    (b) * * *
    (1) * * *
    (i) * * * (A) * * * At the SBA's discretion, PCRs may review any 
acquisition to determine whether a set aside or sole source award to a 
small business under one of SBA's programs is appropriate and to 
identify alternative strategies to maximize the participation of small 
businesses in the procurement. * * * Unless the contracting agency 
requests a review, PCRs will not review an acquisition by or on behalf 
of the Department of Defense if the acquisition is conducted for a 
foreign government pursuant to section 22 of the Arms Control Export 
Act (22 U.S.C. 2762), is a humanitarian operation as defined in 10 
U.S.C. 401(e), is for a contingency operation as defined in 10 U.S.C. 
101(a)(13), is to be awarded pursuant to an agreement with the 
government of a foreign country in which Armed Forces of the United 
States are deployed, or where both the place of award and place of 
performance are entirely outside of the United States and its 
territories.
* * * * *
    (d) * * *
    (1) * * *
    (v) Not later than 7 days after making a determination that an 
acquisition strategy involving a consolidation of contract requirements 
is necessary and justified under subparagraph (d)(1)(i) of this 
section, the Senior Procurement Executive (SPE) or Chief Acquisition 
Officer (CAO), or designee, shall publish a notice on the agency's 
website that such determination has been made. Any solicitation for a 
procurement related to the acquisition strategy shall not be issued 
earlier than 7 days after such notice is published. Along with the 
publication of the solicitation, the SPE or CAO (or designee) must 
publish in the Government-wide Point of Entry (GPE) the justification 
for the determination, which shall include the information in 
paragraphs (d)(1)(i)(A) through (E) of this section.
* * * * *
    (7) Notification to Public of Rationale for Substantial Bundling. 
If the head of a contracting agency determines that an acquisition plan 
for a procurement involves a substantial bundling of contract 
requirements, the head of a contracting agency shall publish a notice 
on the agency's website that such determination has been made not later 
than 7 days after making such determination. Any solicitation for a 
procurement related to the acquisition plan may not be published 
earlier than 7 days after such notice is published. Along with the 
publication of the solicitation, the head of a contracting agency shall 
publish in the GPE a justification for the determination, which shall 
include the following information:
    (i) The specific benefits anticipated to be derived from the 
bundling of contract requirements and a determination that such 
benefits justify the bundling.
    (ii) An identification of any alternative contracting approaches 
that would involve a lesser degree of bundling of contract 
requirements.
    (iii) An assessment of--the specific impediments to participation 
by small business concerns as prime contractors that result from the 
bundling of contract requirements; and
    (iv) The specific actions designed to maximize participation of 
small business concerns as subcontractors (including suppliers) at 
various tiers under the contract or contracts that are awarded to meet 
the requirements.
* * * * *
    (e) * * *
    (6) * * *
    (i) Notwithstanding the fair opportunity requirements set forth in 
10 U.S.C. 2304c and 41 U.S.C. 253j, the contracting officer has the 
authority to set aside orders against Multiple Award Contracts, 
including contracts that were set aside for small business. This 
includes order set asides for 8(a) Participants, HUBZone SBCs, SDVO 
SBCs and WOSBs.
* * * * *

[[Page 62530]]

0
11. Amend Sec.  125.3 by:
0
a. Revising the last sentence of paragraph (c)(1)(iv);
0
b. Revising paragraph (d)(3);
0
c. Adding paragraph (d)(11); and
0
d. Revising the first sentence of paragraph (f)(3).
    The revisions and addition to read as follows:


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

* * * * *
    (c) * * *
    (1) * * *
    (iv) * * * A contractor authorized to use a commercial 
subcontracting plan must include all indirect costs in its 
subcontracting goals and in its SSR;
* * * * *
    (d) * * *
    (3) Evaluating whether the prime contractor made a good faith 
effort to comply with its small business subcontracting plan.
    (i) Evidence that a large business prime contractor has made a good 
faith effort to comply with its subcontracting plan or other 
subcontracting responsibilities includes supporting documentation that:
    (A) The contractor performed one or more of the actions described 
in paragraph (b) of this section, as appropriate for the procurement;
    (B) Although the contractor may have failed to achieve its goal in 
one socioeconomic category, it over-achieved its goal by an equal or 
greater amount in one or more of the other categories; or
    (C) The contractor fulfilled all of the requirements of its 
subcontracting plan.
    (ii) Examples of activities reflective of a failure to make a good 
faith effort to comply with a subcontracting plan include, but are not 
limited, to:
    (A) Failure to submit the acceptable individual or summary 
subcontracting reports in eSRS by the report due dates or as provided 
by other agency regulations within prescribed time frames;
    (B) Failure to pay small business concern subcontractors in 
accordance with the terms of the contract with the prime;
    (C) Failure to designate and maintain a company official to 
administer the subcontracting program and monitor and enforce 
compliance with the plan;
    (D) Failure to maintain records or otherwise demonstrate procedures 
adopted to comply with the plan including subcontracting flow-down 
requirements;
    (E) Adoption of company policies or documented procedures that have 
as their objectives the frustration of the objectives of the plan;
    (F) Failure to correct substantiated findings from federal 
subcontracting compliance reviews or participate in subcontracting plan 
management training offered by the government;
    (G) Failure to conduct market research identifying potential small 
business concern subcontractors through all reasonable means including 
outreach, industry days, or the use of federal database marketing 
systems such as SBA's Dynamic Small Business Search (DSBS) or SUBNet 
Systems or any successor federal systems;
    (H) Failure to comply with regulations requiring approval by the 
contracting officer to change small business concern subcontractors 
that were used in preparing offers; or
    (I) Falsifying records of subcontracting awards to SBCs.
* * * * *
    (11) Evaluating whether the contractor or subcontractor complied in 
good faith with the requirement to provide periodic reports and 
cooperate in any studies or surveys as may be required by the Federal 
agency or the Administration in order to determine the extent of 
compliance by the contractor or subcontractor with the subcontracting 
plan. Failure to make a good faith effort shall be a material breach of 
such contract or subcontract and may be considered in any past 
performance evaluation of the contractor.
* * * * *
    (f) * * *
    (3) Upon completion of the review and evaluation of a contractor's 
performance and efforts to achieve the requirements in its 
subcontracting plans, the contractor's performance will be assigned one 
of the following ratings: Exceptional, Very Good, Satisfactory, 
Marginal or Unsatisfactory. * * *
* * * * *
0
12. Amend Sec.  125.6 by:
0
a. Adding two sentences at the end of paragraph (a)(1);
0
b. Adding a sentence at the end of paragraph (c);
0
c. Revising paragraph (e)(3); and
0
d. Adding paragraph (e)(4).
    The revision and additions to read as follows:


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

    (a) * * *
    (1) * * * Other direct costs may be excluded to the extent they are 
not the principal purpose of the acquisition and small business 
concerns do not provide the service, such as airline travel, work 
performed by a transportation or disposal entity under a contract 
assigned the environmental remediation NAICS code (562910), cloud 
computing services, or mass media purchases. In addition, work 
performed by an independent contractor under a contract that was 
awarded pursuant to the Foreign Assistance Act of 1961 may also be 
excluded.
* * * * *
    (c) * * * A prime contractor may no longer count a similarly 
situated entity towards compliance with the limitations on 
subcontracting where the subcontractor ceases to qualify as small or 
under the relevant socioeconomic status.
* * * * *
    (e) * * *
    (3)(i) For contracts assigned a NAICS code with an employee-based 
size standard, where an independent contractor is not otherwise treated 
as an employee of the concern for which he/she is performing work for 
size purposes under Sec.  121.106(a) of this chapter, work performed by 
the independent contractor shall be considered a subcontract. Such work 
will count toward meeting the applicable limitation on subcontracting 
where the independent contractor qualifies as a similarly situated 
entity.
    (ii) For contracts assigned a NAICS code with a revenue-based size 
standard, work performed by an independent contractor shall be 
considered a subcontract, and will count toward meeting the applicable 
limitation on subcontracting where the independent contractor qualifies 
as a similarly situated entity. A firm's treatment and reporting of an 
individual for tax purposes governs whether that individual should be 
treated as an employee or independent contractor for limitations on 
subcontracting purposes.
    (4) The contracting officer may require the contractor to 
demonstrate its compliance with the limitations on subcontracting, if 
the information regarding such compliance is not already available to 
the contracting officer (e.g., invoices).
* * * * *
0
13. Amend Sec.  125.18 by:
0
a. In paragraph (e)(1)(i), removing the phrase ``an SDVO contract'' and 
adding in its place the phrase ``a contract'';
0
b. In paragraph (e)(1)(ii), removing the phrase ``an SDVO SBC 
contract'' and adding in its place the phrase ``a contract''; and
0
c. Adding paragraph (f).
    The addition to read as follows:

[[Page 62531]]

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

* * * * *
    (f) Ostensible subcontractor. Where a subcontractor that is not 
similarly situated performs primary and vital requirements of a set 
aside or sole source service contract or order, or where a prime 
contractor is unduly reliant on a small business that is not similarly 
situated to perform the set aside service or sole source contract or 
order, the prime contractor is not eligible for award of an SDVO 
contract. When the subcontractor is small for the size standard 
assigned to the procurement, this issue may be grounds for an SDVO 
status protest, as described in subpart D of this part. When the 
subcontractor is other than small, or alleged to be other than small 
for the size standard assigned to the procurement, this issue may be 
grounds for a size protest subject to the ostensible subcontractor 
rule, as described at Sec.  121.103(h)(4) of this chapter.
0
14. In Sec.  125.29, add paragraph (c) to read as follows:


Sec.  125.29  What are the grounds for filing an SDVO SBC protest?

* * * * *
    (c) Ostensible subcontractor. In cases where the prime contractor 
appears unduly reliant on a small, non-similarly situated entity 
subcontractor or where the small non-similarly situated entity is 
performing the primary and vital requirements of the contract, the 
Director, Office of Government Contracting will consider a protest only 
if the protester presents credible evidence of the alleged undue 
reliance or credible evidence that the primary and vital requirements 
will be performed by the subcontractor.

PART 126--HUBZONE PROGRAM

0
15. 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
16. Amend Sec.  126.601 by:
0
 a. In paragraph (h)(1)(i), removing the phrase ``HUBZone contract (or 
a HUBZone contract awarded through full and open competition based on 
the HUBZone price evaluation preference'' and adding in its place the 
word ``contract'';
0
 b. In paragraph (h)(1)(ii), removing the phrase ``HUBZone contract'' 
and adding in its place the word ``contract''; and
0
 c. Adding paragraph (i).
    The addition to read as follows:


Sec.  126.601  What additional requirements must a qualified HUBZone 
SBC meet to bid on a contract?

* * * * *
    (i) Ostensible subcontractor. Where a subcontractor that is not 
similarly situated performs primary and vital requirements of a set 
aside service contract, or where a prime contractor is unduly reliant 
on a small business that is not similarly situated to perform the set 
aside service contract, the prime contractor is not eligible for award 
of a HUBZone contract. When the subcontractor is small for the size 
standard assigned to the procurement, this issue may be grounds for a 
HUBZone status protest, as described in subpart H of this part. When 
the subcontractor is alleged to be other than small for the size 
standard assigned to the procurement, this issue may be grounds for a 
size protest under the ostensible subcontractor rule, as described at 
Sec.  121.103(h)(4) of this chapter.
0
17. Amend Sec.  126.801 by adding in paragraph (a) a sentence after the 
third sentence to read as follows:


Sec.  126.801  How does one file a HUBZone status protest?

    (a) * * * SBA will also consider a protest challenging whether a 
HUBZone prime contractor is unduly reliant on a small, non-similarly 
situated entity subcontractor or if such subcontractor performs the 
primary and vital requirements of the contract. * * *
* * * * *

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

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

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


Sec.  127.503  [Amended]

0
 19. In Sec.  127.503, amend paragraphs (h)(1)(i) and (ii) by removing 
the phrase ``WOSB/EDWOSB contract'' wherever it appears and adding in 
its place the word ``contract''.
0
20. In Sec.  127.504, add paragraph (c) to read as follows:


Sec.  127.504  What additional requirements must a concern satisfy to 
submit an offer on an EDWOSB or WOSB requirement?

* * * * *
    (c) Where a subcontractor that is not similarly situated performs 
primary and vital requirements of a set aside service contract, or 
where a prime contractor is unduly reliant on a small business that is 
not similarly situated to perform the set aside service contract, the 
prime contractor is not eligible for award of a WOSB or EDWOSB 
contract. When the subcontractor is small for the size standard 
assigned to the procurement, this issue may be grounds for a WOSB or 
EDWOSB status protest, as described in subpart F of this part. When the 
subcontractor is other than small, or alleged to be other than small, 
for the size standard assigned to the procurement, this issue may be a 
ground for a size protest, as described at Sec.  121.103(h)(4) of this 
chapter.
0
 21. Amend Sec.  127.602 by revising the second sentence and adding a 
new third sentence to read as follows:


Sec.  127.602  What are the grounds for filing an EDWOSB or WOSB status 
protest?

    * * * SBA will also consider a protest challenging the status of a 
concern as an EDWOSB or WOSB if the contracting officer has protested 
because the WOSB or EDWOSB apparent successful offeror has failed to 
provide all of the required documents, as set forth in Sec.  127.300. 
In addition, when sufficient credible evidence is presented, SBA will 
consider a protest challenging whether the prime contractor is 
unusually reliant on a small, non-similarly situated entity 
subcontractor, as defined in Sec.  125.1 of this chapter, or a protest 
alleging that such subcontractor is performing the primary and vital 
requirements of a set aside or sole source WOSB or EDWOSB contract.
0
22. Add part 129 to read as follows:

PART 129--CONTRACTS FOR SMALL BUSINESSES LOCATED IN DISASTER AREAS

Sec.
129.100 What definitions are important in this part?
129.200 What contracting preferences are available for small 
business concerns located in disaster areas?
129.300 What small business goaling credit do agencies receive for 
awarding a contract to a small business concern under this part?
129.400 What are the applicable performance requirements?
129.500 What are the penalties of misrepresentation of size or 
status?

    Authority: 15 U.S.C. 636(j)(13)(F)(ii), 644(f).


Sec.  129.100  What definitions are important in this part?

    For the purposes of this part:
    Concern located in a disaster area is a firm that during the last 
twelve months--
    (1)(i) Had its main operating office in the area; and

[[Page 62532]]

    (ii) That office generated at least half of the firm's gross 
revenues and employed at least half of the offeror's permanent 
employees.
    (2) If the firm does not meet the criteria in paragraph (1) of this 
definition, factors to be considered in determining whether a firm 
resides or primarily does business in the disaster area include--
    (i) Physical location(s) of the firm's permanent office(s) and date 
any office in the disaster area(s) was established;
    (ii) Current state licenses;
    (iii) Record of past work in the disaster area(s) (e.g., how much 
and for how long);
    (iv) Contractual history the firm has had with subcontractors and/
or suppliers in the disaster area;
    (v) Percentage of the firm's gross revenues attributable to work 
performed in the disaster area;
    (vi) Number of permanent employees the firm employs in the disaster 
area;
    (vii) Membership in local and state organizations in the disaster 
area; and
    (viii) Other evidence that establishes the firm resides or 
primarily does business in the disaster area. For example, sole 
proprietorships may submit utility bills and bank statements.
    Disaster area means the area for which the President has declared a 
major disaster under section 401 of the Robert T. Stafford Disaster 
Relief and Assistance Act (42 U.S.C. 5170), during the period of the 
declaration.
    Emergency response contract means a contract with private entities 
that supports assistance activities in a disaster area, such as debris 
cleanup, distribution of supplies, or reconstruction.


Sec.  129.200   What contracting preferences are available for small 
business concerns located in disaster areas?

    Contracting officers may set aside solicitations for emergency 
response contracts to allow only small businesses located in the 
disaster area to compete.


Sec.  129.300   What small business goaling credit do agencies receive 
for awarding an emergency response contract to a small business concern 
under this part?

    If an agency awards an emergency response contract to a local small 
business concern through the use of a local area set aside that is also 
set aside under a small business or socioeconomic set-aside (8(a), 
HUBZone, SDVO, WOSB, EDWOSB), the value of the contract shall be 
doubled for purposes of determining compliance with the goals for 
procurement contracts under section 15(g)(1)(A) of the Small Business 
Act (15 U.S.C. 644(g)(1)(A)). The procuring agency shall enter the 
actual contract value, not the doubled contract value in the required 
contract reporting systems, and appropriately code the contract action 
to receive the credit. SBA will provide the double credit as part of 
the Scorecard process.


Sec.  129.400  What are the applicable performance requirements?

    The performance requirements of Sec.  125.6 of this chapter apply 
to small and socioeconomic set asides under this part. A similarly 
situated entity as that term is used in Sec.  125.6 of this chapter 
must qualify as a concern located in a disaster area.


Sec.  129.500  What are the penalties of misrepresentation of size or 
status?

    The penalties relevant to the particular size or socioeconomic 
status representation under title 13 Sec. Sec.  121.108, 125.32, 
126.900, and 127.700 of this chapter are applicable to set asides under 
this part.

    Dated: November 8, 2018.
Linda E. McMahon,
Administrator.
[FR Doc. 2018-25705 Filed 12-3-18; 8:45 am]
 BILLING CODE 8025-01-P