Consolidation of Mentor-Protégé Programs and Other Government Contracting Amendments, 66146-66199 [2020-19428]
Download as PDF
<![CDATA[
66146
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127,
and 134
RIN 3245–AG94
Consolidation of Mentor-Prote´ge´
Programs and Other Government
Contracting Amendments
U.S. Small Business
Administration.
ACTION: Final rule.
AGENCY:
In response to President
Trump’s government-wide regulatory
reform initiative, the U.S. Small
Business Administration (SBA) initiated
a review of its regulations to determine
which might be revised or eliminated.
As a result, this rule merges the 8(a)
Business Development (BD) MentorProte´ge´ Program and the All Small
Mentor-Prote´ge´ Program to eliminate
confusion and remove unnecessary
duplication of functions within SBA.
This rule also eliminates the
requirement that 8(a) Participants
seeking to be awarded an 8(a) contract
as a joint venture submit the joint
venture agreement to SBA for review
and approval prior to contract award,
revises several 8(a) BD program
regulations to reduce unnecessary or
excessive burdens on 8(a) Participants,
and clarifies other related regulatory
provisions to eliminate confusion
among small businesses and procuring
activities. In addition, in response to
public comment, the rule requires a
business concern to recertify its size
and/or socioeconomic status for all setaside orders under unrestricted multiple
award contracts, unless the contract
authorized limited pools of concerns for
which size and/or status was required.
DATES: This rule is effective on
November 16, 2020, except for § 127.504
which is effective October 16, 2020.
FOR FURTHER INFORMATION CONTACT:
Mark Hagedorn, U.S. Small Business
Administration, Office of General
Counsel, 409 Third Street SW,
Washington, DC 20416; (202) 205–7625;
mark.hagedorn@sba.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
jbell on DSKJLSW7X2PROD with RULES4
I. Background Information
On January 30, 2017, President Trump
issued Executive Order 13771,
‘‘Reducing Regulation and Controlling
Regulatory Costs’’, which is designed to
reduce unnecessary and burdensome
regulations and to control costs
associated with regulations. In response
to the President’s directive to simplify
regulations, SBA initiated a review of its
regulations to determine which might be
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
revised or eliminated. Based on this
analysis, SBA identified provisions in
many areas of its regulations that can be
simplified or eliminated.
On November 8, 2019, SBA published
in the Federal Register a comprehensive
proposal to merge the 8(a) Business
Development (BD) Mentor-Prote´ge´
Program and the All Small MentorProte´ge´ Program to eliminate confusion
and remove unnecessary duplication of
functions within SBA; eliminate the
requirement that 8(a) Participants
seeking to be awarded an 8(a) contract
as a joint venture submit the joint
venture to SBA for review and approval
prior to contract award; revise several
8(a) BD program regulations to reduce
unnecessary or excessive burdens on
8(a) Participants; and clarify other
related regulatory provisions to
eliminate confusion among small
businesses and procuring activities. 84
FR 60846. Some of the proposed
changes involved technical issues.
Others were more substantive and
resulted from SBA’s experience in
implementing the current regulations.
The proposed rule initially called for a
70-day comment period, with comments
required to be made to SBA by January
17, 2020. SBA received several
comments in the first few weeks after
the publication to extend the comment
period. Commenters felt that the nature
of the issues raised in the rule and the
timing of comments during the holiday
season required more time for affected
businesses to adequately review the
proposal and prepare their comments.
In response to these comments, SBA
published a notice in the Federal
Register on January 10, 2020, extending
the comment period an additional 21
days to February 7, 2020. 85 FR 1289.
As part of the rulemaking process,
SBA also held tribal consultations
pursuant to Executive Order 13175,
Tribal Consultations, in Minneapolis,
MN, Anchorage, AK, Albuquerque, NM
and Oklahoma City, OK to provide
interested tribal representatives with an
opportunity to discuss their views on
various 8(a) BD-related issues. See 84
FR 66647. These consultations were in
addition to those held by SBA before
issuing the proposed rule in Anchorage,
AK (see 83 FR 17626), Albuquerque,
NM (see 83 FR 24684), and Oklahoma
City, OK (see 83 FR 24684). SBA
considers tribal consultation meetings a
valuable component of its deliberations
and believes that these tribal
consultation meetings allowed for
constructive dialogue with the Tribal
community, Tribal Leaders, Tribal
Elders, elected members of Alaska
Native Villages or their appointed
representatives, and principals of
PO 00000
Frm 00002
Fmt 4701
Sfmt 4700
tribally-owned and Alaska Native
Corporation (ANC) owned firms
participating in the 8(a) BD Program.
Additionally, SBA held a Listening
Session in Honolulu, HI to obtain
comments and input from key 8(a) BD
program stakeholders in the Hawaiian
small business community, including
8(a) applicants and Participants owned
by Native Hawaiian Organizations
(NHOs).
During the proposed rule’s 91-day
comment period, SBA received 189
timely comments, with a high
percentage of commenters favoring the
proposed changes. A substantial number
of commenters applauded SBA’s effort
to clarify and address misinterpretations
of the rules. For the most part, the
comments supported the substantive
changes proposed by SBA.
This rule merges the 8(a) BD MentorProte´ge´ Program and the All Small
Mentor-Prote´ge´ Program. The rule also
eliminates the requirement that 8(a)
Participants seeking to be awarded an
8(a) contract as a joint venture must
submit the joint venture to SBA for
review and approval prior to contract
award in every instance. Additionally,
the rule makes several other changes to
the 8(a) BD Program to eliminate or
reduce unnecessary or excessive
burdens on 8(a) Participants.
The rule combines the 8(a) BD
Mentor-Prote´ge´ Program and the All
Small Mentor-Prote´ge´ Program in order
to eliminate confusion regarding
perceived differences between the two
Programs, remove unnecessary
duplication of functions within SBA,
and establish one, unified staff to better
coordinate and process mentor-prote´ge´
applications. SBA originally established
a mentor-prote´ge´ program for 8(a)
Participants a little more than 20 years
ago. 63 FR 35726, 35764 (June 30, 1998).
The purpose of that program was to
encourage approved mentors to provide
various forms of business assistance to
eligible 8(a) Participants to aid in their
development. On September 27, 2010,
the Small Business Jobs Act of 2010
(Jobs Act), Public Law 111–240 was
enacted. The Jobs Act was designed to
protect the interests of small businesses
and increase opportunities in the
Federal marketplace. The Jobs Act was
drafted by Congress in recognition of the
fact that mentor-prote´ge´ programs serve
an important business development
function for small businesses and
therefore included language authorizing
SBA to establish separate mentorprote´ge´ programs for the ServiceDisabled Veteran-Owned Small
Business Concern (SDVO SBC) Program,
the HUBZone Program, and the WomenOwned Small Business (WOSB)
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
Program, each of which was modeled on
SBA’s existing mentor-prote´ge´ program
available to 8(a) Participants. See
section 1347(b)(3) of the Jobs Act.
Thereafter, on January 2, 2013, the
National Defense Authorization Act for
Fiscal Year 2013 (NDAA 2013), Public
Law 112–239 was enacted. Section 1641
of the NDAA 2013 authorized SBA to
establish a mentor-prote´ge´ program for
all small business concerns. This
section further provided that a small
business mentor-prote´ge´ program must
be identical to the 8(a) BD MentorProte´ge´ Program, except that SBA could
modify each program to the extent
necessary, given the types of small
business concerns to be included as
prote´ge´s.
Subsequently, SBA published a Final
Rule in the Federal Register combining
the authorities contained in the Jobs Act
and the NDAA 2013 to create a mentorprote´ge´ program for all small
businesses. 81 FR 48558 (July 25, 2016).
The mentor-prote´ge´ program available
to firms participating in the 8(a) BD
Program has been used as a business
development tool in which mentors
provide diverse types of business
assistance to eligible 8(a) BD prote´ge´s.
This assistance may include, among
other things, technical and/or
management assistance; financial
assistance in the form of equity
investments and/or loans; subcontracts;
and/or assistance in performing Federal
prime contracts through joint venture
arrangements. The explicit purpose of
the 8(a) BD Mentor-Prote´ge´ relationship
has been to enhance the capabilities of
prote´ge´s and to improve their ability to
successfully compete for both
government and commercial contracts.
Similarly, the All Small Mentor-Prote´ge´
Program is designed to require approved
mentors to aid prote´ge´ firms so that they
may enhance their capabilities, meet
their business goals, and improve their
ability to compete for contracts. The
purposes of the two programs are
identical. In addition, the benefits
available under both programs are
identical. Small businesses and 8(a)
Program Participants receive valuable
business development assistance and
any joint venture formed between a
prote´ge´ firm and its SBA-approved
mentor receives an exclusion from
affiliation, such that the joint venture
will qualify as a small business
provided the prote´ge´ individually
qualifies as small under the size
standard corresponding to the NAICS
code assigned to the procurement. A
prote´ge´ firm may enter a joint venture
with its SBA-approved mentor and be
eligible for any contract opportunity for
which the prote´ge´ qualifies. If a prote´ge´
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
firm is an 8(a) Program Participant, a
joint venture between the prote´ge´ and
its mentor could seek any 8(a) contract,
regardless of whether the mentorprote´ge´ agreement was approved
through the 8(a) BD Mentor-Prote´ge´
Program or the All Small MentorProte´ge´ Program. Moreover, a firm could
be certified as an 8(a) Participant after
its mentor-prote´ge´ relationship has been
approved by SBA through the All Small
Mentor-Prote´ge´ Program and be eligible
for 8(a) contracts as a joint venture with
its mentor once certified.
Because the benefits and purposes of
the two programs are identical, SBA
believes that having two separate
mentor-prote´ge´ programs is unnecessary
and causes needless confusion in the
small business community. As such,
this rule eliminates a separate 8(a) BD
Mentor-Prote´ge´ Program and continues
to allow any 8(a) Participant to enter a
mentor-prote´ge´ relationship through the
All Small Mentor-Prote´ge´ Program.
Specifically, the rule revises § 124.520
to merely recognize that an 8(a)
Participant, as any other small business,
may participate in SBA’s Small
Business Mentor-Prote´ge´ Program. In
merging the 8(a) BD Mentor-Prote´ge´
Program with the All Small MentorProte´ge´ Program, the rule also makes
conforming amendments to SBA’s size
regulations (13 CFR part 121), the joint
venture provisions (13 CFR 125.8), and
the All Small Mentor-Prote´ge´ Program
regulations (13 CFR 125.9).
A mentor-prote´ge´ relationship
approved by SBA through the 8(a) BD
Mentor-Prote´ge´ Program will continue
to operate as an SBA-approved mentorprote´ge´ relationship under the All Small
Mentor-Prote´ge´ Program. It will
continue to have the same remaining
time in the All Small Mentor-Prote´ge´
Program as it would have had under the
8(a) BD Mentor-Prote´ge´ Program if that
Program continued. Any mentor-prote´ge´
relationship approved under the 8(a) BD
Mentor-Prote´ge´ Program will count as
one of the two lifetime mentor-prote´ge´
relationships that a small business may
have under the All Small MentorProte´ge´ Program.
As stated previously, SBA has also
taken this action partly in response to
the President’s directive that each
agency review its regulations. Therefore,
this rule also revises regulations
pertaining to the 8(a) BD and size
programs in order to further reduce
unnecessary or excessive burdens on
small businesses and to eliminate
confusion or more clearly delineate
SBA’s intent in certain regulations.
Specifically, this rule makes additional
changes to the size and socioeconomic
status recertification requirements for
PO 00000
Frm 00003
Fmt 4701
Sfmt 4700
66147
orders issued against multiple award
contracts (MACs). A detailed discussion
of these changes is contained below in
the Section-by-Section Analysis.
II. Section-by-Section Analysis
Section 121.103(b)(6)
The rule amends the references to
SBA’s mentor-prote´ge´ programs in this
provision, specifying that a prote´ge´ firm
cannot be considered affiliated with its
mentor based solely on assistance
received by the prote´ge´ under the
mentor-prote´ge´ agreement. The rule
eliminates the cross-reference to the
regulation regarding the 8(a) BD MentorProte´ge´ Program (13 CFR 124.520),
leaving only the reference to the
regulation regarding the All Small
Business Mentor-Prote´ge´ Program.
Section 121.103(f)(2)(i)
Under § 121.103(f)(2), SBA may
presume an identity of interest (and
thus affiliate one concern with another)
based upon economic dependence if the
concern in question derived 70 percent
or more of its receipts from another
concern over the previous three fiscal
years. The proposed rule provided that
this presumption may be rebutted by a
showing that despite the contractual
relations with another concern, the
concern at issue is not solely dependent
on that other concern, such as where the
concern has been in business for a short
amount of time and has only been able
to secure a limited number of contracts
or where the contractual relations do
not restrict the concern in question from
selling the same type of products or
services to another purchaser.
Commenters supported this change,
appreciating that SBA seemed to be
making economic dependence more
about the issue of control, where they
thought it should be. SBA adopts this
language as final.
Section 121.103(g)
The rule amends the newly organized
concern rule contained in § 121.103(g)
by clarifying that affiliation may be
found where both former and ‘‘current’’
officers, directors, principal
stockholders, managing members, or key
employees of one concern organize a
new concern in the same or related
industry or field of operation, and serve
as the new concern’s officers, directors,
principal stockholders, managing
members, or key employees. The rule
merely adds the word ‘‘current’’ to the
regulatory text to ensure that affiliation
may arise where the key individuals are
still associated with the first company.
SBA believes that such a finding of
affiliation has always been authorized,
E:\FR\FM\16OCR4.SGM
16OCR4
66148
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
but merely seeks to clarify its intent to
make sure there is no confusion. Several
commenters were concerned that the
rule was not clear with respect to entityowned firms, specifically that the newly
organized concern rule should not apply
to tribes, ANCs and NHOs. SBA believes
that entities and entity-owned firms are
already excepted from affiliation under
the newly organized concern rule by
§ 121.103(b)(2). A few commenters
recommended that SBA put in clarifying
language to ensure that the rule cannot
be read to contradict § 124.109(c)(4)(iii),
which permits a manager of a triballyowned concern to manage no more than
two Program Participants at the same
time. The final rule adds such clarifying
language.
Section 121.103(h)
The proposed rule sought to amend
the introductory text to § 121.103(h) to
revise the requirements for joint
ventures. SBA believes that a joint
venture is not an on-going business
entity, but rather something that is
formed for a limited purpose and
duration. If two or more separate
business entities seek to join together
through another entity on a continuing,
unlimited basis, SBA views that as a
separate business concern with each
partner affiliated with each other. To
capture SBA’s intent on limited scope
and duration, SBA’s current regulations
provide that a joint venture is something
that can be formed for no more than
three contracts over a two-year period.
The proposed rule sought to eliminate
the three-contract limit for a joint
venture, but continue to prescribe that
a joint venture cannot exceed two years
from the date of its first award. In
addition, the proposed rule clarified
SBA’s current intent that a novation to
the joint venture would start the twoyear period if that were the first award
received by the joint venture.
Commenters generally supported the
proposal to eliminate the three-contract
limit, saying that the change will
eliminate significant and unnecessary
confusion. Commenters also believed
that requiring partners to form a second
or third joint venture after they received
three contract awards created an undue
administrative burden on joint ventures,
and they viewed this change as an
elimination of an unnecessary burden.
Several commenters recommended
further amending the rule to extend the
amount of time that a joint venture
could seek contracts to some point
greater than two years. These
commenters recommended two
approaches, either allowing all joint
ventures to seek contracts for a period
greater than two years or allowing only
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
joint ventures between a prote´ge´ and its
mentor to seek contracts beyond two
years. In the mentor-prote´ge´ context,
commenters reasoned that a joint
venture between a prote´ge´ and its
mentor should be either three years (the
length of the initial mentor-prote´ge´
agreement) or six years (the total
allowable length of time for a mentorprote´ge´ relationship to exist). It is SBA’s
view that the requirements for all joint
ventures should be consistent, and that
they should not be different with
respect to joint ventures between
prote´ge´ firms and their mentors. One of
the purposes of this final rule is to
remove inconsistencies and confusion
in the regulations. SBA believes that
having differing requirements for
different types of joint ventures would
add to, not reduce, the complexity and
confusion in the regulations. Regarding
extending the amount of time a joint
venture could operate and seek
additional contracts generally, SBA
opposes such an extension. As SBA
noted in the supplementary information
to the proposed rule, SBA believes that
a joint venture should not be an ongoing entity, but, rather, something
formed for a limited purpose with a
limited duration. SBA believes that
allowing a joint venture to operate as an
independent business entity for more
than two years erodes the limited
purpose and duration requirements of a
joint venture. If the parties intend to
jointly seek work beyond two years from
the date of the first award, the
regulations allow them to form a new
joint venture. That new entity would
then be able to seek additional contracts
over two years from the date of its first
award. Although requiring the
formation of several joint venture
entities, SBA believes that is the correct
approach. To do otherwise would be to
ignore what a joint venture is intended
to do.
In addition, one commenter sought
further clarification regarding novations.
The rule makes clear that where a joint
venture submits an offer prior to the
two-year period from the date of its first
award, the joint venture can be awarded
a contract emanating from that offer
where award occurs after the two-year
period expires. The commenter
recommended that SBA add clarifying
language that would similarly allow a
novation to occur after the two-year
period if the joint venture submits a
novation package for contracting officer
approval within the two-year period.
SBA agrees, and has added clarifying
language to one of the examples
accompanying the regulatory text.
In the proposed rule, SBA also asked
for comments regarding the exception to
PO 00000
Frm 00004
Fmt 4701
Sfmt 4700
affiliation for joint ventures composed
of multiple small businesses in which
firms enter and leave the joint venture
based on their size status. In this
scenario, in an effort to retain small
business status, joint venture partners
expel firms that have exceeded the size
standard and then possibly add firms
that qualify under the size standard.
This may be problematic where the joint
venture is awarded a Federal Supply
Schedule (FSS) contract or any other
MAC vehicle. A joint venture that is
awarded a MAC could receive many
orders beyond the two-year limitation
for joint venture awards (since the
contract was awarded within that twoyear period), and could remain small for
any order requiring recertification
simply by exchanging one joint venture
partner for another (i.e., a new small
business for one that has grown to be
other than small). SBA never intended
for the composition of joint ventures to
be fluid. The joint venture generally
should have the same partners
throughout its lifetime, unless one of the
partners is acquired. SBA considers a
joint venture composed of different
partners to be a different joint venture
than the original one. To reflect this
understanding, the proposed rule asked
for comments as to whether SBA should
specify that the size of a joint venture
outside of the mentor-prote´ge´ program
will be determined based on the current
size status and affiliations of all past
and present joint venture partners, even
if a partner has left the joint venture.
SBA received several comments
responding to this provision on both
sides of the issue. Several commenters
believed that SBA should not consider
the individual size of partners who have
left the joint venture in determining
whether the joint venture itself
continues to qualify as small. These
commenters thought that permitting
substitution of joint venture partners
allows small businesses to remain
competitive for orders under large,
complex MACs. Other commenters
acknowledged that SBA has accurately
recognized a problem that gives a
competitive advantage to joint ventures
over individual small businesses. They
agreed that SBA likely did not
contemplate a continuous turnover of
joint venture partners when it changed
its affiliation rules to allow a joint
venture to qualify as small provided that
each of its partners individually
qualified as small (instead of aggregating
the receipts or employees of all joint
venture partners as was previously the
case). SBA notes that this really is an
issue only with respect to MACs. For a
single award contract, size is
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
determined at one point in time—the
date on which an offeror submits its
initial offer including price. Where an
offeror is a joint venture, it qualifies as
small provided each of the partners to
the joint venture individually qualifies
as small on the date of the offer. The
size of the joint venture awardee does
not change if an individual member of
the joint venture grows to be other than
small during the performance of the
contract. As detailed elsewhere in this
rule, for a MAC that is not set-aside for
small business, however, size may be
determined as of the date a MAC holder
submits its offer for a specific order that
is set-aside for small business. In such
a case, if a partner to the joint venture
has grown to be other than small, the
joint venture would not be eligible as a
small business for the order. One
commenter recommended that once a
multi-small business joint venture wins
its first MAC, its size going forward (for
future contracts or any recertification
required under the awarded MAC)
should be determined based on the size
of the joint venture’s present members
and any former members that were
members as of the date the joint venture
received its first MAC. This would
allow a joint venture to remove
members for legitimate reasons before
the first award of the first MAC, but not
allow the joint venture to change
members after such an award just to be
able to recertify as small for an order
under the MAC. SBA thoroughly
considered all the comments in
response to this issue. After further
considering the issue, SBA does not
believe that reaching back to consider
the size of previous partners (who are
no longer connected to the joint
venture) would be workable. A concern
that is no longer connected to the joint
venture has no incentive to cooperate
and provide information relating to its
size, even if it still qualified
individually as small. Thus, SBA is not
making any changes to the regulatory
text to address this issue in this final
rule.
The rule also proposed to add
clarifying language to the introductory
text of § 121.103(h) to recognize that,
although a joint venture cannot be
populated with individuals intended to
perform contracts awarded to the joint
venture, the joint venture can directly
employ administrative personnel and
such personnel may specifically include
Facility Security Officers. SBA received
overwhelming support of this change
and adopts it as final in this rule.
The proposed rule also sought
comments on the broader issue of
facility clearances with respect to joint
ventures. SBA understands that some
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
procuring agencies will not award a
contract requiring a facility security
clearance to a joint venture if the joint
venture itself does not have such
clearance, even if both partners to the
joint venture individually have such
clearance. SBA does not believe that
such a restriction is appropriate. Under
SBA’s regulations, a joint venture
cannot hire individuals to perform on a
contract awarded to the joint venture
(the joint venture cannot be
‘‘populated’’). Rather, work must be
done individually by the partners to the
joint venture so that SBA can track who
does what and ensure that some benefit
flows back to the small business lead
partner to the joint venture. SBA
proposed allowing a joint venture to be
awarded a contract where either the
joint venture itself or the lead small
business partner to the joint venture has
the required facility security clearance.
In such a case, a joint venture lacking
its own separate facility security
clearance could still be awarded a
contract requiring such a clearance
provided the lead small business
partner to the joint venture had the
required facility security clearance and
committed to keep at its cleared facility
all records relating to the contract
awarded to the joint venture.
Additionally, if it is established that the
security portion of the contract
requiring a facility security clearance is
ancillary to the principal purpose of the
procurement, then the non-lead partner
to the joint venture (which may include
a large business mentor) could possess
such clearance. The majority of
commenters supported this proposal,
agreeing that it does not make sense to
require the joint venture to have the
necessary facility security clearance
where the joint venture entity itself is
not performing the contract. These
commenters believed that as long as the
joint venture partner(s) performing the
necessary security work had the
required facility security clearance, the
Government would be adequately
protected.
This rule also removes current
§ 121.103(h)(3)(iii), which provides that
a joint venture between a prote´ge´ firm
and its mentor that was approved
through the 8(a) BD Mentor-Prote´ge´
Program is considered small provided
the prote´ge´ qualifies as individually
small. Because this rule eliminates the
8(a) BD Mentor-Prote´ge´ Program as a
separate program, this provision is no
longer needed.
The proposed rule also clarified how
to account for joint venture receipts and
employees during the process of
determining size for a joint venture
partner. The joint venture partner must
PO 00000
Frm 00005
Fmt 4701
Sfmt 4700
66149
include its percentage share of joint
venture receipts and employees in its
own receipts or employees. The
proposed rule provided that the
appropriate percentage share is the same
percentage figure as the percentage
figure corresponding to the joint venture
partner’s share of work performed by
the joint venture. Commenters generally
agreed with the proposed treatment of
receipts. Several commenters sought
further clarification regarding
subcontractors, specifically asking how
to treat revenues generated through
subcontracts from the individual
partners. One commenter recommended
that the joint venture partner
responsible for a specific subcontract
should take on that revenue as its share
of the contract’s total revenues. As with
all contracts, SBA does not exclude
revenues generated by subcontractors
from the revenues deemed to be
received by the prime contractor. Where
a joint venture is the prime contractor,
100 percent of the revenues will be
apportioned to the joint venture
partners, regardless of how much work
is performed by other subcontractors.
The joint venture must perform a certain
percentage of the work between the
partners to the joint venture (generally
50 percent, but 15 percent for general
construction). SBA does not believe that
it matters which partner to the joint
venture the subcontract flows through.
Of the 50 percent of the total contract
that the joint venture partners must
perform, SBA will look at how much is
performed by each partner. That is the
percentage of total revenues that will be
attributed to each partner. This rule
makes clear that revenues will be
attributed to the joint venture in the
same percentage as that of the work
performed by each partner.
A few commenters thought that that
same approach should not be applied to
the apportionment of employees. They
noted that some or all of the joint
venture’s employees may also be
employed concurrently by a joint
venture partner. Without taking that
into account, the proposed methodology
would effectively double count
employees who were also employed by
one of the joint venture partners. In
response, SBA has amended this
paragraph to provide that for employees,
the appropriate way to apportion
individuals employed by the joint
venture is the same percentage of
employees as the joint venture partner’s
percentage ownership share in the joint
venture, after first subtracting any joint
venture employee already accounted for
in the employee count of one of the
partners.
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66150
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
Section 121.402
The proposed rule amended how
NAICS codes are applied to task orders
to ensure that the NAICS codes assigned
to specific procurement actions, and the
corresponding size standards, are an
accurate reflection of the contracts and
orders being awarded and performed.
Consistent with the final rule for FAR
Case 2014–002, 85 FR 11746 (Feb. 27,
2020), a contracting officer must assign
a single NAICS code for each order
issued against a MAC, and that NAICS
code must be a NAICS code that is
included in the underlying MAC and
represents the principal purpose of the
order. SBA believes that the NAICS
code assigned to a task order must
reflect the principal purpose of that
order. Currently, based on the business
rules of the Federal Procurement Data
System (FPDS) and the FAR, all
contracts including MACs are restricted
to only being assigned a single NAICS
code, and if a MAC is assigned a service
NAICS code, then that service NAICS
code flows down to each individual
order under that MAC. SBA does not
believe it is appropriate for a task order
that is nearly entirely for supplies to
have a service NAICS code. In such a
case, a firm being awarded such an
order would not have to comply with
the nonmanufacturer rule. In particular,
set-aside orders should be assigned a
manufacturing/supply NAICS code, so
that the nonmanufacturer rule will
apply to the order if it is awarded to a
nonmanufacturer. Additionally, the
current method for NAICS code
assignment can also be problematic
where a MAC is assigned a NAICS code
for supplies but a particular order under
that MAC is almost entirely for services.
In such a case, firms that qualified as
small for the larger employee-based size
standard associated with a
manufacturing/supply NAICS code may
not qualify as small businesses under a
smaller receipts-based services size
standard. As such, because the order is
assigned the manufacturing/supply
NAICS code associated with the MAC,
firms that should not qualify as small
for a particular procurement that is
predominantly for services may do so.
SBA recognizes that § 121.402(c) already
provides for a solution that will ensure
that NAICS codes assigned to task and
delivery orders accurately reflect the
work being done under the orders.
Specifically, the requirement for certain
MACs to be assigned more than one
NAICS code (e.g., service NAICS code
and supply NAICS code) will allow for
orders against those MACs to reflect
both a NAICS code assigned to the MAC
and also a NAICS code that accurately
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
reflects work under the order. The
requirement to assign certain MACs
more than one NAICS code has already
been implemented in the FAR at 48 CFR
19.102(b)(2)(ii) but it will not go into
effect until October 1, 2022. The future
effective date is when FPDS is expected
to implement the requirement and it
allows all the Federal agencies to budget
and plan for internal system updates
across their multiple contracting
systems to accommodate the
requirement. Thus, this rule makes only
minor revisions to the existing
regulations to ensure that the NAICS
codes assigned to specific procurement
actions, and the corresponding size
standards, are an accurate reflection of
the contracts and orders being awarded
and performed.
Commenters supported SBA’s intent.
They noted that allowing contracting
officers to assign a NAICS code to an
order that differs from the NAICS
code(s) already contained in the MAC
could unfairly disadvantage contractors
who did not compete for the MAC
because they did not know orders
would be placed under NAICS codes
not in the MAC’s solicitation. A
commenter noted, however, that the
proposed rule added a new
§ 121.402(c)(2)(ii) when it appears that a
revision to § 121.402(c)(2)(i) might be
more appropriate. SBA agrees and has
revised § 121.402(c)(2)(i) in this final
rule to clarify that orders must reflect a
NAICS code assigned to the underlying
MAC.
In addition, the rule makes a minor
change to § 121.402(e) by removing the
passive voice in the regulatory text. The
rule also clarifies that in connection
with a size determination or size appeal,
SBA may supply an appropriate NAICS
code designation, and accompanying
size standard, where the NAICS code
identified in the solicitation is
prohibited, such as for set-aside
procurements where a retail or
wholesale NAICS code is identified.
Sections 121.404(a)(1), 124.503(i),
125.18(d), and 127.504(c)
Size Status
SBA has been criticized for allowing
agencies to receive credit towards their
small business goals for awards made to
firms that no longer qualify as small.
SBA believes that much of this criticism
is misplaced. Where a small business
concern is awarded a small business setaside contract with a duration of not
more than five years and grows to be
other than small during the performance
of the contract, some have criticized the
exercise of an option as an award to an
other than small business. SBA
PO 00000
Frm 00006
Fmt 4701
Sfmt 4700
disagrees with such a characterization.
Small business set-aside contracts are
restricted only to firms that qualify as
small as of the date of a firm’s offer for
the contract. A firm’s status as a small
business is relevant to its qualifying for
the award of the contract. If a concern
qualifies as small for a contract with a
duration of not more than five years, it
is considered a small business
throughout the life of that contract. Even
for MACs that are set-aside for small
business, once a concern is awarded a
contract as a small business it is eligible
to receive orders under that contract and
perform as a small business. In such a
case, size was relevant to the initial
award of the contract. Any competitor
small business concern could protest
the size status of an apparent successful
offeror for a small business set-aside
contract (whether single award or
multiple award), and render a concern
ineligible for award where SBA finds
that the concern does not qualify as
small under the size standard
corresponding to the NAICS code
assigned to the contract. Furthermore,
firms awarded long-term small business
set-aside contracts must recertify their
size status at five years and every option
thereafter. Firms are eligible to receive
orders under that contract and perform
as a small business so long as they
continue to recertify as small at the
required times (e.g., at five years and
every option thereafter). Not allowing a
concern that legitimately qualified at
award and/or recertified later as small to
receive orders and continue
performance as a small business during
the base and option periods, even if it
has naturally grown to be other than
small, would discourage firms from
wanting to do business with the
Government, would be disruptive to the
procurement process, and would
disincentivize contracting officers from
using small business set-asides.
SBA believes, however, that there is a
legitimate concern where a concern selfcertifies as small for an unrestricted
MAC and at some point later in time
when the concern no longer qualifies as
small the contracting officer seeks to
award an order as a small business setaside and the firm uses its selfcertification as a small business for the
underlying unrestricted MAC. A firm’s
status as a small business does not
generally affect whether the firm does or
does not qualify for the award of an
unrestricted MAC contract. As such,
competitors are very unlikely to protest
the size of a concern that self-certifies as
small for an unrestricted MAC. In SBA’s
view, where a contracting officer sets
aside an order for small business under
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
an unrestricted MAC, the order is the
first time size status is important. That
is the first time that some firms will be
eligible to compete for the order while
others will be excluded from
competition because of their size status.
To allow a firm’s self-certification for
the underlying MAC to control whether
a firm is small at the time of an order
years after the MAC was awarded does
not make sense to SBA.
In considering the issue, SBA looked
at the data for orders that were awarded
as small business set-asides under
unrestricted base multiple award
vehicles in FY 2018. In total, 8,666
orders were awarded as small business
set-asides under unrestricted MACs in
FY 2018. Of those set-aside orders, 10
percent are estimated to have been
awarded to firms that were no longer
small in SAM under the NAICS code
size standard at the time of the order
award. Further, it is estimated that 7.0
percent of small business set-aside
orders under the FSS were awarded to
firms that were no longer small in SAM
under the NAICS code size standard at
the time of the order (510 out of 7,266
orders). That amounted to 12.6 percent
of the dollars set-aside for small
business under the FSS ($129.6 million
to firms that were no longer small in
SAM out of a total of $1.0723 billion in
small business set-aside orders).
Whereas, it is estimated that 49.4
percent of small business set-aside
orders under government-wide
acquisition contracts (GWACs) were
awarded to firms that were no longer
small in SAM under the NAICS code
size standard at the time of the order
(261 out of 528 orders). That amounted
to 67 percent of the dollars set-aside for
small business under GWACs ($119.6
million to firms that were no longer
small in SAM out of a total of $178.6
million in small business set-aside
orders). SBA then considered the
number and dollar value of new orders
that were awarded as small business setasides under unrestricted base multiple
award vehicles in FY 2018 using the
size standard ‘‘exceptions’’ that apply in
some of SBA’s size standards (e.g., the
IT Value-Added Reseller exception to
NAICS 541519). Taking into account all
current size standards exceptions,
which allow a firm to qualify under an
alternative size standard for certain
types of contracts, it is estimated that
6.4 percent of small business set-aside
orders under the FSS were awarded to
firms that were no longer small in SAM
at the time of the order (468 out of 7,266
orders). That amounted to 11.3 percent
of the dollars set-aside for small
business under the FSS ($120.7 million
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
to firms that were no longer small in
SAM out of a total of $1.0723 billion in
small business set-aside orders).
Considering exceptions for set-aside
orders under GWACs, it is estimated
that 11.6 percent were awarded to firms
that were no longer small in SAM at the
time of the order (61 out of 528 orders).
That amounted to 39.5 percent of the
dollars set-aside for small business
under GWACs ($70.5 million to firms
that were no longer small in SAM out
of a total of $178.6 million in small
business set-aside orders). It is not
possible to tell from FPDS whether the
‘‘exception’’ size standard applied to the
contract or whether the agency applied
the general size standard for the
identified NAICS code. Thus, all that
can be said with certainty is that for
small business set-aside orders under
the FSS, between 11.3 percent and 12.1
percent of the order dollars set-aside for
small business were awarded to firms
that were no longer small in SAM. This
amounted to somewhere between
$120.7 million and $129.6 that were
awarded to firms that were no longer
small in SAM. For GWACs, the
percentage of orders and order dollars
being awarded to firms that no longer
qualify as small is significantly greater.
Between 39.5 percent and 67.0 percent
of the order dollars set-aside for small
business under GWACs were awarded
to firms that were no longer small in
SAM. This amounted to somewhere
between $70.5 million and $119.6
million that were awarded to firms that
were no longer small in SAM.
Because discretionary set-asides
under the FSS programs have proven
effective in making awards to small
business under the program and SBA
did not want to add unnecessary
burdens to the program that might
discourage the use of set-asides, the
proposed rule provided that, except for
orders or Blanket Purchase Agreements
issued under any FSS contract, if an
order under an unrestricted MAC is setaside exclusively for small business
(i.e., small business set-aside, 8(a) small
business, service-disabled veteranowned small business, HUBZone small
business, or women-owned small
business), a concern must recertify its
size status and qualify as such at the
time it submits its initial offer, which
includes price, for the particular order.
SBA received a significant number of
comments on this issue. Many
commenters supported the proposed
language as a needed approach to
ensure that firms that are not small do
not receive orders set-aside for small
businesses and procuring agencies do
not inappropriately take credit for
awards to small business when the
PO 00000
Frm 00007
Fmt 4701
Sfmt 4700
66151
awardees are not in fact small. Many of
these commenters believed that it was
not fair to them as small businesses to
have to compete for small business setaside orders under unrestricted MACs
with concerns that did not currently
qualify as small and may not have done
so for several years. Other commenters
opposed the proposal for various
reasons. Some believed that the
regulations should be intended to foster
and promote growth in small businesses
and that the recertification requirement
could stifle that growth. Others believed
that the proposal undermines the
general rule that a concern maintains its
small business status for the life of a
contract. SBA does not believe that a
rule that requires a concern to actually
be what it claims to be (i.e., a small
business) in any way stifles growth. Of
course, SBA supports the growth of
small businesses generally. SBA
encourages concerns to grow naturally
and permits concerns that have been
awarded small business set-aside
contracts to continue to perform those
contracts as small businesses
throughout the life of those contracts
(i.e., for the base and up to four
additional option years). This rule
merely responds to perceptions that
SBA has permitted small business
awards to concerns that do not qualify
as small. As noted above, it is intended
to apply only to unrestricted
procurements where size and status
were not relevant to the award of the
underlying MAC. SBA also disagrees
that this provision is inconsistent with
the general rule that once a concern
qualifies as small for a contract it can
maintain its status as a small business
throughout the life of that contract. SBA
does not believe that a representation of
size or status that does not affect the
concern’s eligibility to be awarded a
contract should have the same
significance as one that does.
Several commenters agreed with
SBA’s intent but believed that the rule
needed to more accurately take into
account today’s complex acquisition
environment. These commenters noted
that many MACs now seek to make
awards to certain types of business
concerns (i.e., small, 8(a), HUBZone,
WOSB, SDVO) in various reserves or
‘‘pools,’’ and that concerns may be
excluded from a particular pool if they
do not qualify as eligible for the pool.
These commenters recommended that a
concern being awarded a MAC for a
particular pool should be able to carry
the size and/or status of that pool to
each order made to the pool. SBA
agrees. As noted above, SBA proposed
recertification in connection with orders
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66152
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
set-aside for small business under an
unrestricted MAC because that is the
first time that some firms will be eligible
to compete for the order while others
will be excluded from competition
because of their size and/or status.
However, where a MAC solicitation
seeks to make awards to reserves or
pools of specific types of small business
concerns, the concerns represent that
they are small or qualify for the status
designated by the pool and having that
status or not determines whether the
firm does or does not qualify for the
award of a MAC contract for the pool.
In such a case, SBA believes that size
and status should flow from the
underlying MAC to individual orders
issued under that MAC, and the firm
can continue to rely on its
representations for the MAC itself
unless a contracting officer requests
recertification of size and/or status with
respect to a specific order. SBA makes
that revision in this final rule.
Many commenters also believed that
there was no legitimate programmatic
reason for excluding the FSS program
from this recertification requirement.
The commenters, however, miss that the
FSS program operates under a separate
statutory authority and that set-asides
are discretionary, not mandatory under
this authority. SBA and GSA worked
closely together to stand up and create
this discretionary authority and it has
been very successful. This discretionary
set-aside authority was authorized by
the Small Business Jobs Act of 2010
(Pub. L. 111–240) and implemented in
FAR 8.405–5 in November 2011. As a
result, benefits to small businesses have
been significant. The small business
share of GSA Schedule sales rose from
30% in fiscal year 2010 (the last full
fiscal year before the authority was
implemented) to 39% in fiscal year
2019. That equates to an additional $1
billion going to small businesses in
fiscal year 2019. Although SBA again
considered applying the recertification
requirement to the FSS program (and
allow the FSS, as with any other MAC,
to establish reserves or pools for
business concerns with a specified size
or status), SBA believes that is
unworkable at this time. Consequently,
consistent with the proposed rule, this
final rule does not apply the modified
recertification requirement to the FSS
program. Doing so would pose an
unnecessary risk to a program currently
yielding good results for small business.
For a MAC that is set aside for small
business (i.e., small business set-aside,
8(a) small business, SDVO small
business, HUBZone small business, or
WOSB), the rule generally sets size
status as of the date of the offer for the
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
underlying MAC itself. A concern that
is small at the time of its offer for the
MAC will be considered small for each
order issued against the contract, unless
a contracting officer requests a size
recertification in connection with a
specific order. As is currently the case,
a contracting officer has the discretion
to request recertification of size status
on MAC orders. If that occurs, size
status would be determined at the time
of the order. That would not be a change
from the current regulations.
Socioeconomic Status
Where the required status for an order
differs from that of the underlying
contract (e.g., the MAC is a small
business set-aside award, and the
procuring agency seeks to restrict
competition on the order to only
certified HUBZone small business
concerns), SBA believes that a firm must
qualify for the socioeconomic status of
a set-aside order at the time it submits
an offer for that order. Although size
may flow down from the underlying
contract, status in this case cannot.
Similar to where a procuring agency
seeks to compete an order on an
unrestricted procurement as a small
business set-aside and SBA would
require offerors to qualify as small with
respect to that order, (except for orders
under FSS contracts),), SBA believes
that where the socioeconomic status is
first required at the order level, an
offeror seeking that order must qualify
for the socioeconomic status of the setaside order when it submits its offer for
the order.
Under current policy and regulations,
where a contracting officer seeks to
restrict competition of an order under
an unrestricted MAC to eligible 8(a)
Participants only, the contracting officer
must offer the order to SBA to be
awarded through the 8(a) program, and
SBA must accept the order for the 8(a)
program. In determining whether a
concern is eligible for such an 8(a)
order, SBA would apply the provisions
of the Small Business Act and its
current regulations which require a firm
to be an eligible Program Participant as
of the date set forth in the solicitation
for the initial receipt of offers for the
order.
This final rule makes these changes in
§ 121.404(a)(1) for size, § 124.503(i) for
8(a) BD eligibility, § 125.18(d) for SDVO
eligibility, and § 127.504(c) for WOSB
eligibility.
Several commenters voiced concern
with allowing the set-aside of orders to
a smaller group of firms than all holders
of a MAC. They noted that bid and
proposal preparation costs can be
significant and a concern that qualified
PO 00000
Frm 00008
Fmt 4701
Sfmt 4700
for the underlying MAC as a small
business or some other specified type of
small business could be harmed if every
order was further restricted to a subset
of small business. For example, where a
MAC is set-aside for small business and
every order issued under that MAC is
set-aside for 8(a) small business
concerns, SDVO small business
concerns, HUBZone small business
concerns and WOSBs, those firms that
qualified only as small business
concerns would be adversely affected.
In effect, they would be excluded from
competing for every order. SBA agrees
that is a problem. That is not what SBA
intended when it authorized orders
issued under small business set-aside
contracts to be further set-aside for a
specific type of small business. SBA
believes that an agency should not be
able to set-aside all of the orders issued
under a small business set-aside MAC
for a further limited specific type of
small business. As such, this final rule
provides that where a MAC is set-aside
for small business, the procuring agency
can set-aside orders issued under the
MAC to a more limited type of small
business. Contracting officers are
encouraged to review the award dollars
under the MAC and to aim to make
available for award at least 50 percent
of the award dollars under the MAC to
all contract holders of the underlying
MAC.
In addition, a few commenters asked
for further clarification as to whether
orders issued under a MAC set-aside for
8(a) Participants, HUBZone small
business concerns, SDVO small
business concerns or WOSBs/EDWOSBs
could be further set aside for a more
limited type of small business. These
commenters specifically did not believe
that allowing the further set-aside of
orders issued under a multiple award
set-aside contract should be permitted
in the 8(a) context. The commenters
noted that the 8(a) program is a business
development program of limited
duration (i.e., nine years), and felt that
it would be detrimental to the business
development of 8(a) Participants
generally if an agency could issue an
order set-aside exclusively for 8(a)
HUBZone small business concerns, 8(a)
SDVO small business concerns, or 8(a)
WOSBs. The current regulatory text of
§ 125.2(e)(6)(i) provides that a
‘‘contracting officer has the authority to
set aside orders against Multiple Award
Contracts, including contracts that were
set aside for small business,’’ for small
and subcategories of small businesses.
SBA intended to allow a contracting
officer to issue orders for subcategories
of small businesses only under small
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
business set-aside contracts. This rule
clarifies that intent.
Section 121.404
In addition to the revision to
§ 121.404(a)(1) identified above, the rule
makes several other changes or
clarifications to § 121.404. In order to
make this section easier to use and
understand, the rule adds headings to
each subsection, which identify the
subject matter of the subsection.
The proposed rule amended
§ 121.404(b), which requires a firm
applying to SBA’s programs to qualify
as a small business for its primary
industry classification as of the date of
its application. The proposed rule
eliminated references to SBA’s small
disadvantaged business (SDB) program
as obsolete, and added a reference to the
WOSB program. SBA received no
comments on these edits and adopts
them as final in this rule.
The proposed rule also amended
§ 121.404(d) to clarify that size status for
purposes of compliance with the
nonmanufacturer rule, the ostensible
subcontractor rule and joint venture
agreement requirements is determined
as of the date of the final proposal
revision for negotiated acquisitions and
final bid for sealed bidding. Currently,
only compliance with the
nonmanufacturer rule is specifically
addressed in this paragraph, but SBA’s
policy has been to apply the same rule
to determine size with respect to the
ostensible subcontractor rule and joint
venture agreement requirements. This
would not be a change in policy, but
rather a clarification of existing policy.
Several commenters misconstrued this
to be a change in policy or believed that
this would be a departure from the
snapshot in time rule for determining
size as of the date a concern submits its
initial offer including price. As noted,
SBA has intended this to be the current
policy and is merely clarifying it in the
regulatory text. In addition, SBA does
not view this as a departure from the
snapshot in time rule. The receipts/
employees are determined at one
specific point in time—the date on
which a concern submits its initial offer
including price. SBA believes that
compliance with the nonmanufacturer
rule, the ostensible subcontractor rule
and joint venture agreement
requirements can justifiably change
during the negotiation process. If an
offer changes during negotiations in a
way that would make a large business
mentor joint venture partner be in
control of performance, for example,
SBA does not believe that the joint
venture should be able to point back to
its initial offer in which the small
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
business prote´ge´ partner to the joint
venture appeared to be in control.
The proposed rule also added a
clarifying sentence to § 121.404(e) that
would recognize that prime contractors
may rely on the self-certifications of
their subcontractors provided they do
not have a reason to doubt any specific
self-certification. SBA believes that this
has always been the case, but has added
this clarifying sentence, nevertheless, at
the request of many prime contractors.
SBA received positive comments on this
change and adopts it as final in this rule.
The proposed rule made several
revisions to the size recertification
provisions in § 121.404(g). First, the
recertification rule pertaining to a joint
venture that had previously received a
contract as a small business was not
clear. If a partner to the joint venture
has been acquired, is acquiring or has
merged with another business entity,
the joint venture must recertify its size
status. In order to remain small,
however, it was not clear whether only
the partner which has been acquired, is
acquiring or has merged with another
business entity needed to recertify its
size status or whether all partners to the
joint venture had to do so. The proposed
rule clarified that only the partner to the
joint venture that has been acquired, is
acquiring, or has merged with another
business entity must recertify its size
status in order for the joint venture to
recertify its size. Commenters generally
supported this revision. One commenter
believed that a joint venture should be
required to recertify its size only where
the managing venture, or the small
business concern upon which the joint
venture’s eligibility for the contract was
based, is acquired by, is acquiring, or
has merged with another business
entity. SBA disagrees. SBA seeks to
make the size rules pertaining to joint
ventures similar to those for individual
small businesses. Where an individual
small business awardee grows to be
other than small, its performance on a
small business contract continues to
count as an award to small business.
Similarly, where a joint venture partner
grows to be other than small naturally,
that should not affect the size of the
joint venture. However, under SBA’s
size rules, in order for a joint venture to
be eligible as small, each partner to the
joint venture must individually qualify
as small. Size is not determined solely
by looking at the size of the managing
venture. Just as an individual small
business awardee must recertify its size
if it is acquired by, is acquiring, or has
merged with another business entity, so
too should the partner to a joint venture
that is acquired by, is acquiring, or has
merged with another business entity. As
PO 00000
Frm 00009
Fmt 4701
Sfmt 4700
66153
such, SBA adopts the proposed
language as final in this rule.
Additionally, the proposed rule
clarified that if a merger or acquisition
causes a firm to recertify as an other
than small business concern between
time of offer and award, then the
recertified firm is not considered a small
business for the solicitation. Under the
proposed rule, SBA would accept size
protests with specific facts showing that
an apparent awardee of a set-aside has
recertified or should have recertified as
other than small due to a merger or
acquisition before award. SBA received
comments on both sides of this issue.
Some commenters supported the
proposed provision as a way to ensure
that procuring agencies do not make
awards to firms who are other than
small. They thought that such awards
could be viewed as frustrating the
purpose of small business set-asides.
Other commenters opposed the
proposed change. A few of these
commenters believed that a firm should
remain small if it was small at the time
it submitted its proposal. SBA wants to
make it clear that is the general rule.
Size is generally determined only at the
date of offer. If a concern grows to be
other than small between the date of
offer and the date of award (e.g., another
fiscal year ended and the revenues for
that just completed fiscal year render
the concern other than small), it remains
small for the award and performance of
that contract. The proposed rule dealt
only with the situation where a concern
merged with or was acquired by another
concern after offer but before award. As
stated in the supplementary information
to the proposed rule, SBA believes that
situation is different than natural
growth. Several other commenters
opposing the proposed rule believed
such a policy could adversely affect
small businesses due to the often
lengthy contract award process.
Contract award can often occur 18
months or more after the closing date for
the receipt of offers. A concern could
submit an offer and have no plans to
merge or sell its business at that time.
If a lengthy amount of time passes, these
commenters argued that the concern
should not be put in the position of
declining to make a legitimate business
decision concerning the possible merger
or sale of the concern simply because
the concern is hopeful of receiving the
award of a contract as a small business.
Several commenters recommended an
intermediate position where
recertification must occur if the merger
or acquisition occurs within a certain
amount of time from either the
concern’s offer or the date for the receipt
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66154
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
of offers set forth in the solicitation.
This would allow SBA to prohibit
awards to concerns that may appear to
have simply delayed an action that was
contemplated prior to submitting their
offers, but at the same time not prohibit
legitimate business decisions that could
materialize months after submitting an
offer. Commenters recommended
requiring recertification when merger or
acquisition occurs within 30 days, 90
days and 6 months of the date of an
offer. SBA continues to believe that
recertification should be required when
it occurs close in time to a concern’s
offer, but agrees that it would not be
beneficial to discourage legitimate
business transactions that arise months
after an offer is submitted. In response,
the final rule continues to provide that
if a merger, sale or acquisition occurs
after offer but prior to award the offeror
must recertify its size to the contracting
officer prior to award. If the merger, sale
or acquisition (including agreements in
principal) occurs within 180 days of the
date of an offer, the concern will be
ineligible for the award of the contract.
If it occurs after 180 days, award can be
made, but it will not count as an award
to small business.
The proposed rule also clarified that
recertification is not required when the
ownership of a concern that is at least
51 percent owned by an entity (i.e.,
tribe, ANC, or Community Development
Corporation (CDC)) changes to or from
a wholly-owned business concern of the
same entity, as long as the ultimate
owner remains that entity. When the
small business continues to be owned to
the same extent by the tribe, ANC or
CDC, SBA does not believe that the real
ownership of the concern has changed,
and, therefore, that recertification is not
needed. Commenters overwhelmingly
supported this change, and SBA adopts
it as final in this rule. The rule makes
this same change to § 121.603 for 8(a)
contracts as well.
Finally, the proposed rule sought to
amend § 121.404(g)(3) to specifically
permit a contracting officer to request
size recertification as he or she deems
appropriate at any point in a long-term
contract. SBA believes that this
authority exists within the current
regulatory language but is merely
articulating it more clearly in this rule.
Several commenters opposed this
provision, believing that it would
undermine the general rule that a
concern’s size status should be
determined as of the date of its initial
offer. They believe that establishing size
at one point in time provides
predictability and consistency to the
procurement process. SBA agrees that
size for a single award contract that does
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
not exceed five years should not be
reexamined during the life of a contract.
SBA believes, however, that the current
regulations allow a contracting officer to
seek recertifications with respect to
MACs. Pursuant to § 121.404(g), ‘‘if a
business concern is small at the time of
offer for a Multiple Award Contract
. . ., then it will be considered small for
each order issued against the contract
with the same NAICS code and size
standard, unless a contracting officer
requests a new size certification in
connection with a specific order.’’
(Emphasis added). The regulations at
§ 121.404(g)(3) also provide that for a
MAC with a duration of more than five
years, a contracting officer must request
that a business concern recertify its
small business size status no more than
120 days prior to the end of the fifth
year of the contract, and no more than
120 days prior to exercising any option
thereafter. Under this provision, a
business concern is not required to
recertify its size status until prior to the
end of the fifth year of that contact.
However, SBA also interprets
§ 121.404(g)(3) as not prohibiting a
contracting officer from requesting size
recertification prior to the 120-day point
in the fifth year of the long-term
contract. As noted above, the general
language of § 121.404(g) allows a
contracting officer to request size
recertification with respect to each
order. SBA believes that the regulations
permit a contracting officer the
discretion to request size recertification
at the contract level prior to the end of
the fifth year if explicitly requested for
the contract at issue and if requested of
all contract holders. In this respect, the
authority to request size recertification
at the contract level prior to the fifth
year is an extension of the authority to
request recertification for subsequent
orders. As such, this final rule clarifies
that a contracting officer has the
discretion to request size recertification
as he or she deems appropriate at any
point only for a long-term MAC.
Section 121.406
The rule merely corrects a
typographical error by replacing the
word ‘‘provided’’ with the word
‘‘provide.’’
Section 121.702
The proposed rule clarified the size
requirements applicable to joint
ventures in the Small Business
Innovation Research (SBIR) program.
Although the current regulation
authorizes joint ventures in the SBIR
program and recognizes the exclusion
from affiliation afforded to joint
ventures between a prote´ge´ firm and its
PO 00000
Frm 00010
Fmt 4701
Sfmt 4700
SBA-approved mentor, it does not
specifically apply SBA’s general size
requirements for joint ventures to the
SBIR program. The proposed rule
merely sought to apply the general size
rule for joint ventures to the SBIR
program. In other words, a joint venture
for an SBIR award would be considered
a small business provided each partner
to the joint venture, including its
affiliates, meets the applicable size
standard. In the case of the SBIR
program, this means that each partner
does not have more than 500 employees.
Comments favored this proposal and
SBA adopts it as final in this rule.
Section 121.1001
SBA proposed to amend § 121.1001 to
provide authority to SBA’s Associate
General Counsel for Procurement Law to
independently initiate or file a size
protest, where appropriate. Commenters
supported this provision, and SBA
adopts it as final in this rule. In
response to a comment, the final rule
also revises § 121.1001(b) to reflect
which entities can request a formal size
determination. Specifically, a
commenter pointed out that although
§ 121.1001(b) gave applicants for and
participants in the HUBZone and 8(a)
BD programs the right to request formal
size determinations in connection with
applications and continued eligibility
for those programs, it did not provide
that same authority to WOSBs/
EDWOSBs and SDVO small business
concerns in connection with the WOSB
and SDVO programs. The final rule
harmonizes the procedures for SBA’s
various programs as part of the Agency’s
ongoing effort to promote regulatory
consistency.
Sections 121.1004, 125.28, 126.801, and
127.603
This rule adds clarifying language to
§ 121.1004, § 125.28, § 126.801, and
§ 127.603 regarding size and/or
socioeconomic status protests in
connection with orders issued against a
MAC. Currently, the provisions
authorize a size protest where an order
is issued against a MAC if the
contracting officer requested a
recertification in connection with that
order. This rule specifically authorizes a
size protest relating to an order issued
against a MAC where the order is setaside for small business and the
underlying MAC was awarded on an
unrestricted basis, except for orders or
Blanket Purchase Agreements issued
under any FSS contract. The rule also
specifically authorizes a socioeconomic
protest relating to set-aside orders based
on a different socioeconomic status from
the underlying set-aside MAC.
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
Section 121.1103
An explanation of the change is
provided with the explanation for
§ 134.318.
jbell on DSKJLSW7X2PROD with RULES4
Section 124.3
In response to concerns raised to SBA
by several Program Participants, the
proposed rule added a definition of
what a follow-on requirement or
contract is. Whether a procurement
requirement may be considered a
follow-on procurement is important in
several contexts related to the 8(a) BD
program. First, SBA’s regulations
provide that where a procurement is
awarded as an 8(a) contract, its followon or renewable acquisition must
remain in the 8(a) BD program unless
SBA agrees to release it for non-8(a)
competition. 13 CFR 124.504(d)(1).
SBA’s regulations also require SBA to
conduct an adverse impact analysis
when accepting requirements into the
8(a) BD program. However, an adverse
impact analysis is not required for
follow-on or renewal 8(a) acquisitions or
for new requirements. 13 CFR
124.504(c). Finally, SBA’s regulations
provide that once an applicant is
admitted to the 8(a) BD program, it may
not receive an 8(a) sole source contract
that is a follow-on procurement to an
8(a) contract that was performed
immediately previously by another
Participant (or former Participant)
owned by the same tribe, ANC, NHO, or
CDC. 13 CFR 124.109(c)(3)(ii),
124.110(e) and 124.111(d).
In order to properly assess what each
of these regulations requires, the
proposed rule defined the term ‘‘followon requirement or contract’’. The
definition identified certain factors that
must be considered in determining
whether a particular procurement is a
follow-on requirement or contract: (1)
Whether the scope has changed
significantly, requiring meaningful
different types of work or different
capabilities; (2) whether the magnitude
or value of the requirement has changed
by at least 25 percent; and (3) whether
the end user of the requirement has
changed. These considerations should
be a guide, and not necessarily
dispositive of whether a requirement
qualifies as ‘‘new.’’ Applying the 25
percent rule contained in this definition
rigidly could permit procuring agencies
and entity-owned firms to circumvent
the intent of release, sister company
restriction, and adverse impact rules.
For example, a procuring agency may
argue that two procurement
requirements that were previously
awarded as individual 8(a) contracts can
be removed from the 8(a) program
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
without requesting release from SBA
because the value of the combined
requirement would be at least 25
percent more than the value of either of
the two previously awarded individual
8(a) contracts, and thus would be
considered a new requirement. Such an
application of the new requirement
definition would permit an agency to
remove two requirements from the 8(a)
BD program without requesting and
receiving SBA’s permission for release
from the program. We believe that
would be inappropriate and that a
procuring agency in this scenario must
seek SBA’s approval to release the two
procurements previously awarded
through the 8(a) BD program. Likewise,
if an entity-owned 8(a) Participant
previously performed two sole source
8(a) contracts and a procuring agency
sought to offer a sole source requirement
to the 8(a) BD program on behalf of
another Participant owned by the same
entity (tribe, ANC, NHO, or CDC) that,
in effect, was a consolidation of the two
previously awarded 8(a) procurements,
we believe it would be inappropriate for
SBA to accept the offer on behalf of the
sister company. Similarly, if a small
business concern previously performed
two requirements outside the 8(a)
program and a procuring agency wanted
to combine those two requirements into
a larger requirement to be offered to the
8(a) program, SBA should perform an
adverse impact analysis with respect to
that small business even though the
combined requirement had a value that
was greater than 25 percent of either of
the previously awarded contracts.
SBA received a significant number of
comments regarding what a follow-on
requirement is and how SBA’s rules
regarding what a follow-on contract is
should be applied to the three situations
identified above. Many commenters
believed that the proposed language was
positive because it will help alleviate
confusion in determining whether a
requirement should be considered a
follow-on or not. In terms of taking
requirements or parts of requirements
that were previously performed through
the 8(a) program out of the program,
commenters overwhelmingly supported
SBA’s involvement in the release
process. Commenters were concerned
that agencies have increased the value
of procurement requirements marginally
by 25 percent merely to call the
procurements new and remove them
from the 8(a) program without going
through the release process. These
commenters were particularly
concerned where the primary and vital
requirements of a procurement
remained virtually identical and an
PO 00000
Frm 00011
Fmt 4701
Sfmt 4700
66155
agency merely intended to add ancillary
work in order to freely remove the
procurement from the 8(a) BD program.
A few commenters also recommended
that SBA provide clear guidance when
the contract term of the previously
awarded 8(a) contract is different than
that of a successor contracting action.
Specifically, these commenters believed
that an agency should not be able to
compare a contract with an overall $2.5
million value (consisting of a one year
base period and four one-year options
each with a $500,000 value) with a
successor contract with an overall value
of $1.5 million (consisting of a one year
base period and two one-year options
each with a $500,000 value) and claim
it to be new. In such a case, the yearly
requirement is identical and
commenters believed the requirement
should not be removed without going
through the release process. SBA agrees.
The final rule clarifies that equivalent
periods of performance relative to the
incumbent or previously-competed 8(a)
requirement should be compared.
Many commenters agreed that the 25
percent rule should not be applied
rigidly, as that may open the door for
the potential for (more) contracts to be
taken out of the 8(a) BD program.
Commenters also believed that SBA
should be more involved in the process,
noting that firms currently performing
8(a) contracts often do not discover a
procuring agency’s intent to reprocure
that work outside the 8(a) BD program
by combining it with other work and
calling it a new requirement until very
late in the procurement process. Once a
solicitation is issued that combines
work previously performed through an
8(a) contract with other work, it is it
difficult to reverse even where SBA
believes that the release process should
have been followed. Several
commenters recommended adding
language that would require a procuring
agency to obtain SBA concurrence that
a procurement containing work
previously performed through an 8(a)
contract does not represent a follow-on
requirement before issuing a solicitation
for the procurement. Although SBA
does not believe that concurrence
should be required, SBA does agree that
a procuring activity should notify SBA
if work previously performed through
the 8(a) program will be performed
through a different means. A contracting
officer will make the determination as to
whether a requirement is new, but SBA
should be given the opportunity to look
at the procuring activity’s strategy and
supply input where appropriate. SBA
has added such language to § 124.504(d)
in this final rule.
E:\FR\FM\16OCR4.SGM
16OCR4
66156
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
Several commenters supported the
proposed definition of a follow-on
procurement for release purposes where
they agreed that a procuring agency
should not be able to remove two
requirements from the 8(a) program
merely by combining them and calling
the consolidated requirement new
because it exceeds the 25 percent
increase in magnitude. These
commenters, however, recommended
that the 25 percent change in magnitude
be a ‘‘bright-line rule’’ with respect to
whether a requirement should be
considered a follow-on requirement to
an 8(a) contract that was performed
immediately previously by another
Participant (or former Participant)
owned by the same tribe, ANC, Native
Hawaiian Organization (NHO), or CDC.
SBA understands the desire to have
clear, objective rules. However, as noted
previously, SBA opposes a bright-line
25 percent change in magnitude rule in
connection with release. In addition,
because SBA does not believe that it is
good policy to have one definition of
what a follow-on requirement is for one
purpose and have a different definition
for another purpose, SBA opposes
having a bright-line 25 percent change
in magnitude rule in determining
whether to allow a sister company to
perform a particular sole source 8(a)
contract and then provide discretion
only in the context of whether certain
work can be removed from the 8(a)
program. SBA continues to believe that
the language as proposed that allows
discretion when appropriate is the
proper alternative. In the context of
determining whether to allow a sister
company to perform a particular sole
source 8(a) contract, SBA agrees that a
25 percent change in magnitude should
be sufficient for SBA to approve a sole
source contract to a sister company. It
would be the rare instance where that is
not the case.
Section 124.105
The proposed rule amended
§ 124.105(g) to provide more clarity
regarding situations in which an
applicant has an immediate family
member that has used his or her
disadvantaged status to qualify another
current or former Participant. The
purpose of the immediate family
member restriction is to ensure that one
individual does not unduly benefit from
the 8(a) BD program by participating in
the program beyond nine years, albeit
through a second firm. This most often
happens when a second family member
in the same or similar line of business
seeks 8(a) BD certification. However, it
is not necessarily the type of business
which is a problem, but, rather, the
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
involvement in the applicant firm of the
family member that previously
participated in the program. The current
regulatory language requires an
applicant firm to demonstrate that ‘‘no
connection exists’’ between the
applicant and the other current or
former Participant. SBA believes that
requiring no connections is a bit
extreme. If two brothers own two totally
separate businesses, one as a general
construction contractor and one as a
specialty trade construction contractor,
in normal circumstances it would be
completely reasonable for the brother of
the general construction firm to hire his
brother’s specialty trade construction
firm to perform work on contracts that
the general construction firm was doing.
Unfortunately, if either firm was a
current or former Participant, SBA’s
rules prevented SBA from certifying the
second firm for participation in the
program, even if the general
construction firm would pay the
specialty trade firm the exact same rate
that it would have to pay to any other
specialty trade construction firm. SBA
does not believe that makes sense. An
individual should not be required to
avoid all contact with the business of an
immediate family member. He or she
should merely have to demonstrate that
the two businesses are truly separate
and distinct entities.
To this end, SBA proposed that an
individual would not be able to use his
or her disadvantaged status to qualify a
concern for participation in the 8(a) BD
program if that individual has an
immediate family member who is using
or has used his or her disadvantaged
status to qualify another concern for the
8(a) BD program and the concerns are
connected by any common ownership
or management, regardless of amount or
position, or the concerns have a
contractual relationship that was not
conducted at arm’s length. In the first
instance, if one of the two family
members (or business entities owned by
the family member) owned any portion
of the business owned by the other
family member, the second in time
family member could not qualify his or
her business for the 8(a) BD program.
Similarly, if one of the two family
members had any role as a director,
officer or key employee in the business
owned by the other family member, the
second in time family member could not
qualify his or her business for the 8(a)
BD program. In the second instance, the
second in time family member could not
qualify his or her business for the 8(a)
BD program if it received or gave work
to the business owned by the other
family member at other than fair market
PO 00000
Frm 00012
Fmt 4701
Sfmt 4700
value. With these changes, SBA believes
that the rule more accurately captures
SBA’s intent not to permit one
individual from unduly benefitting from
the program, while at the same time
permitting normal business relations
between two firms. Commenters
generally supported this change. A few
commenters supported the provision
but believed that an additional basis for
disallowing a new immediate family
member applicant into the 8(a) BD
program should be where the applicant
shared common facilities with a current
or former Participant owned and
controlled by an immediate family
member. SBA agrees that an applicant
owned by an immediate family member
of a current or former Participant should
not be permitted to share facilities with
that current or former Participant. This
rule adds that situation as a basis for
declining an applicant. Several
commenters sought further clarification
as to whether a presumption against
immediate family members in the same
or similar line of business would
continue from the previous regulations
into this revised provision, and whether
some sort of waiver will be needed to
allow an immediate family member
applicant to be certified into the 8(a) BD
program. In particular, a few
commenters were concerned that if an
immediate family member attempted to
certify an applicant concern in the same
primary NAICS as the current or former
Participant and the individual applying
for certification has no management or
technical experience in that NAICS
code, that the owner/manager of the
current or former Participant would
play a significant role in the applicant
concern even though a formal role was
not identified. As noted above, SBA
believes that the rules pertaining to
immediate family members seeking to
participate in the 8(a) BD program have
been too harsh. The rule seeks to allow
an applicant owned and controlled by
an immediate family member of current
or former Participant into the program,
even in the same or similar line of
business, provided certain conditions
do not exist. SBA agrees with the
comments that an individual seeking to
certify an applicant concern in a
primary NAICS code that is the same
primary NAICS code of a current or
former Participant operated by an
immediate family member must have
management or technical experience in
that primary NAICS code. SBA agrees
that without such a requirement, there
is a risk that the owner/manager of the
current or former Participant would
have some role in the management or
control of the applicant concern. This
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
rule adds a requirement that an
individual applying in the same primary
NAICS code as an immediate family
member must have management or
technical experience in that primary
NAICS code, which would include
experience acquired from working for
an immediate family member’s current
or former Participant. Aside from that
refinement, there is no presumption
against such an applicant. The applicant
must, however, demonstrate that there
is no common ownership, control or
shared facilities with the current or
former Participant, and that any
contractual relations between the two
companies are arm’s length transactions.
One commenter questioned whether the
revised requirement in proposed
§ 124.105(g)(2) that SBA would annually
assess whether the two firms continue
to ‘‘operate independently’’ of one
another after being admitted to the
program was inconsistent with the
language in § 124.105(g)(1) that allows
fair market contractual relations
between the two firms. That language
was not meant to imply that those arm’s
length transactions cannot occur once
the second firm is admitted to the
program. As part of an annual review,
SBA will determine that ownership,
management, and facilities continue to
be separate and that any contractual
relations are at fair market value. SBA
would not initiate termination
proceedings merely because the two
firms entered into fair market value
contracts after the second firm is
admitted to the program. One
commenter recommended that SBA
should place a limit on the amount of
contractual, arm’s length transactions
that have occurred between the firms
(either dollar value or percentage of
revenue). SBA disagrees. SBA does not
believe a firm should be penalized for
having an immediate family member
participate in the 8(a) BD program. It
does not make sense that a business
concern owned by one family member
cannot hire the business concern owned
by another family member as a
subcontractor at the same rate that it
could hire any other business concern.
Business relationships are often built
upon trust. If a subcontractor has done
a good job at a fair price, it is likely that
the prime contractor will hire that firm
again when the need arises to do that
kind of work. Based upon the comments
received in response to proposed
§ 121.103(f) (which loosened the
presumption of economic dependence
where one concern derived at least 70
percent of its revenues from one other
business concern), most commenters
believed there should not be a hard
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
restriction on the amount of work one
business concern should be able to do
with another. SBA believes the same
should apply in the immediate family
member context as long as a clear line
of fracture exists between the two
business concerns. As such, SBA does
not adopt this recommendation in this
final rule.
The proposed rule also amended the
8(a) BD change of ownership
requirements in § 124.105(i). First, the
proposed rule lessened the burden on
8(a) Participants seeking minor changes
in ownership by providing that prior
SBA approval is not needed where a
previous owner held less than a 20
percent interest in the concern both
before and after the transaction. This is
a change from the previous requirement
which allows a Participant to change its
ownership without SBA’s prior
approval where the previous owner held
less than a 10 percent interest. This
change from 10 percent to 20 percent
permits Participants to make minor
changes in ownership more frequently
without requiring them to wait for SBA
approval.
In addition, the proposed rule
eliminated the requirement that all
changes of ownership affecting the
disadvantaged individual or entity must
receive SBA prior approval before they
can occur. Specifically, proposed
revisions to § 124.105(i)(2) provided that
prior SBA approval is not needed where
the disadvantaged individual (or entity)
in control of the Participant will
increase the percentage of his or her (its)
ownership interest. SBA believes that
prior approval is not needed in such a
case because if SBA determined that an
individual or entity owned and
controlled a Participant before a change
in ownership and the change in
ownership only increases the ownership
interest of that individual or entity,
there could be no question as to whether
the Participant continues to meet the
program’s ownership and control
requirements. This change will decrease
the amount of times and the time spent
by Participant firms seeking SBA
approval of a change in ownership. SBA
received unanimous support on these
provisions and adopts them as final in
this rule.
Section 124.109
In order to eliminate confusion, this
rule clarifies several provisions relating
to tribally-owned (and ANC-owned) 8(a)
applicants and Participants. First, SBA
amends § 124.109(a)(7) and
§ 124.109(c)(3)(iv) to clarify that a
Participant owned by an ANC or tribe
need not request a change of ownership
from SBA where the ANC or tribe
PO 00000
Frm 00013
Fmt 4701
Sfmt 4700
66157
merely reorganizes its ownership of a
Participant in the 8(a) BD program by
inserting or removing a wholly-owned
business entity between the ANC/tribe
and the Participant. SBA believes that a
tribe or ANC should be able to replace
one wholly-owned intermediary
company with another without going
through the change of ownership
process and obtaining prior SBA
approval. In each of these cases, SBA
believes that the underlying ownership
of the Participant is not changing
substantively and that requiring a
Participant to request approval from
SBA is unnecessary. The
recommendation and approval process
for a change of ownership can take
several months, so this change will
relieve Participants owned by tribes and
ANCs from this unnecessary burden and
allow them to proactively conduct
normal business operations without
interruption.
Second, the rule amends
§ 124.109(c)(3)(ii) to clarify the rules
pertaining to a tribe/ANC owning more
than one Participant in the 8(a) BD
program. The rule adds two
subparagraphs and an example to
§ 124.109(c)(3)(ii) for ease of use and
understanding. In addition, SBA
clarifies that if the primary NAICS code
of a tribally-owned Participant is
changed pursuant to § 124.112(e), the
tribe could immediately submit an
application to qualify another of its
firms for participation in the 8(a) BD
program under the primary NAICS code
that was previously held by the
Participant whose primary NAICS code
was changed. A change in a primary
NAICS code under § 124.112(e) should
occur only where SBA has determined
that the greatest portion of a
Participant’s revenues for the past three
years are in a NAICS code other than the
one identified as its primary NAICS
code. In such a case, SBA has
determined that in effect the second
NAICS code really has been the
Participant’s primary NAICS code for
the past three years. Commenters
supported these provisions, and SBA
adopts them as final.
The rule also clarifies SBA current
policy that because an individual may
be responsible for the management and
daily business operations of two
tribally-owned concerns, the full-time
devotion requirement does not apply to
tribally-owned applicants and
Participants. This flows directly from
the statutory provision which allows an
individual to manage two triballyowned firms. Commenters supported
this change, noting that if statutory and
regulatory requirements explicitly allow
an individual to manage two 8(a) firms,
E:\FR\FM\16OCR4.SGM
16OCR4
66158
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
then it would be illogical to impose the
full-time work requirement on such a
manager. This rule adopts the proposed
language as final.
Finally, the proposed rule clarified
the 8(a) BD program admission
requirements governing how a triballyowned applicant may demonstrate that
it possesses the necessary potential for
success. SBA’s regulations previously
permitted the tribe to make a firm
written commitment to support the
operations of the applicant concern to
demonstrate a tribally-owned firm’s
potential for success. Due to the
increased trend of tribes establishing
tribally-owned economic development
corporations to oversee tribally owned
businesses, SBA recognizes that in some
circumstances it may be adequate to
accept a letter of support from the
tribally-owned economic development
company rather than the tribal
leadership. The proposed rule permitted
a tribally-owned applicant to satisfy the
potential for success requirements by
submitting a letter of support from the
tribe itself, a tribally-owned economic
development corporation or another
relevant tribally-owned holding
company. In order for a letter of support
from the tribally-owned holding
company to be sufficient, there must be
sufficient evidence that the triballyowned holding company has the
financial resources to support the
applicant and that the tribally-owned
company is controlled by the tribe.
Commenters supported this change.
They noted that an economic
development corporation or triballyowned holding company is authorized
to act on behalf of the tribe and is
essentially an economic arm of the tribe,
and that oftentimes due to the size of
the tribe it can be difficult and take
significant amounts of time and
resources to obtain a commitment letter
from the tribe itself. SBA adopts this
provision as final in this rule.
jbell on DSKJLSW7X2PROD with RULES4
Section 124.110
The proposed rule would make some
of the same changes to § 124.110 for
applicants and Participants owned and
controlled by NHOs as it would to
§ 124.109 for tribally-owned applicants
and Participants. Specifically, the
proposed rule would subdivide
§ 124.110(e) for ease of use and
understanding and would clarify that if
the primary NAICS code of an NHOowned Participant is changed pursuant
to § 124.112(e), the NHO could submit
an application and qualify another firm
owned by the NHO for participation in
the 8(a) BD program under the NAICS
code that was the previous primary
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
NAICS code of the Participant whose
primary NAICS code was changed.
Section 124.111
The proposed rule made the same
change for CDCs and CDC-owned firms
as for tribes and ANCs mentioned
above. It clarified that a Participant
owned by a CDC need not request a
change of ownership from SBA where
the CDC merely reorganizes its
ownership of a Participant in the 8(a)
BD program by inserting or removing a
wholly-owned business entity between
the CDC and the Participant. It also
subdivided the current subparagraph (d)
into three smaller paragraphs for ease of
use and understanding, and clarified
that if the primary NAICS code of a
CDC-owned Participant is changed
pursuant to § 124.112(e), the CDC could
submit an application and qualify
another firm owned by the CDC for
participation in the 8(a) BD program
under the NAICS code that was the
previous primary NAICS code of the
Participant whose primary NAICS code
was changed. SBA did not receive any
comments in response to these changes.
As such, SBA adopts them as final in
this rule.
Section 124.112
SBA proposed to amend
§ 124.112(d)(5) regarding excessive
withdrawals in connection with entityowned 8(a) Participants. The proposed
rule permitted an 8(a) Participant that is
owned at least 51 percent by a tribe,
ANC, NHO or CDC to make a
distribution to a non-disadvantaged
individual that exceeds the applicable
excessive withdrawal limitation dollar
amount if it is made as part of a pro rata
distribution to all shareholders.
Commenters supported this change as a
needed clarification to allow an entityowned firm to increase its distribution
to the tribe, ANC, NHO or CDC, and
thus enable it to provide additional
resources to the tribal or disadvantaged
community. A few commenters were
concerned with having dollar numbers
in the examples set forth in the
regulatory text. They were concerned
that $1 million would become the
default unless done in pro rata share.
SBA believes these commenters
misunderstood the intent of this
provision. The example in the
regulation provides that where a
tribally-owned Participant pays
$1,000,000 to a non-disadvantaged
manager that was not part of a pro rata
distribution to all shareholders, SBA
would consider that to be an excessive
withdrawal. SBA continues to believe
that a $1 million payout to a nondisadvantaged individual in that context
PO 00000
Frm 00014
Fmt 4701
Sfmt 4700
is excessive. If a tribe, ANC, NHO, or
CDC owns 100 percent of an 8(a)
Participant and wants to give back to the
native or underserved community,
nothing in this regulation would
prohibit it from doing so. That
Participant could give a distribution of
$1 million or more back to the tribe,
ANC, NHO, or CDC in order to ensure
that the native or underserved
community receives substantial
benefits. The clarification regarding pro
rata distributions was intended to allow
greater distributions to tribal
communities, not to restrict such
distributions. The final rule adopts that
provision.
In 2016, SBA amended § 124.112(e) to
implement procedures to allow SBA to
change the primary NAICS code of a
Participant where SBA determined that
the greatest portion of the Participant’s
total revenues during a three-year
period have evolved from one NAICS
code to another. 81 FR 48558, 48581
(July 25, 2016). The procedures require
SBA to notify the Participant of its
intent to change the Participant’s
primary industry classification and
afford the Participant the opportunity to
submit information explaining why
such a change would be inappropriate.
The proposed rule authorized an appeal
process, whereby a Participant whose
primary NAICS code was changed by its
servicing district office could seek
further review of that determination at
a different level. Commenters supported
this provision and SBA adopts it as final
in this rule.
Section 124.201
The proposed rule did not amend
§ 124.201. However, SBA sought
comments as to whether SBA should
add a provision that would require a
small business concern that seeks to
apply for participation in the 8(a) BD
program to first take an SBA-sponsored
preparatory course regarding the
requirements and expectations of the
8(a) BD program. Commenters were split
on this proposal. Some felt it would be
helpful to those firms who did not have
a clear understanding of the
expectations of participating in the 8(a)
BD program. Others thought it would
merely delay their participation in the
program needlessly. Some commenters
were concerned that there might be time
commitments and travel expenses if a
live course were required and
recommended having the option to
provide such training via a web-based
platform. Commenters also noted that
for entity-owned applicants, this
requirement should not apply beyond
the entity’s first company to enter the
8(a) BD program. After reviewing the
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
comments, SBA believes that such a
preparatory course should be an option,
but not a requirement. As such, SBA
does not believe that the regulatory text
needs to be revised in this final rule.
Section 124.203
Section 124.203 requires applicants to
the 8(a) BD program to submit certain
specified supporting documentation,
including financial statements, copies of
signed Federal personal and business
tax returns and individual and business
bank statements. In 2016, SBA removed
the requirement that an applicant must
submit a signed Internal Revenue
Service (IRS) Form 4506T, Request for
Copy or Transcript of Tax Form, in all
cases. 81 FR 48558, 48569 (July 25,
2016). At that time, SBA agreed with a
commenter to the proposed rule that
questioned the need for every applicant
to submit IRS Form 4506T. In
eliminating that requirement for every
applicant, SBA reasoned that it always
has the right to request any applicant to
submit specific information that may be
needed in connection with a specific
application. As long as SBA’s
regulations clearly provide that SBA
may request any additional documents
SBA deems necessary to determine
whether a specific applicant is eligible
to participate in the 8(a) BD program,
SBA will be able to request that a
particular firm submit IRS Form 4506T
where SBA believes it to be appropriate.
SBA proposed to amend § 124.203 to
add back the requirement that every
applicant to the 8(a) BD program submit
IRS Form 4506T (or when available, IRS
Form 4506C) because not having the
Form readily available when needed has
unduly delayed the application process
for those affected applicants. In
addition, SBA believed that requiring
Form 4506T in every case would serve
as a deterrent to firms that may think it
is not necessary to fully disclose all
necessary financial information.
However, during the comment period
SBA determined that neither Form is a
viable option for independent personal
income verification purposes at this
time. On July 1, 2019, the IRS removed
the third-party mailing option from the
Form 4506T after it was determined that
this delivery method presents a risk to
sensitive taxpayer information. As a
result, the IRS will no longer send tax
return transcripts directly to SBA;
rather, transcripts must be mailed to the
taxpayer’s address of record. Because
SBA may not receive tax return
transcripts directly from the IRS under
Form 4506T, the Agency no longer
believes it is an effective tool for
independent income verification. In
addition, current IRS guidance indicates
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
that Form 4506C is available only to
industry lenders participating in the
Income Verification Express Service
program.
SBA nevertheless continues to
recognize the importance of obtaining
authorization to receive taxpayer
information at the time of application. It
is SBA’s understanding that the IRS is
currently developing a successor form
or program through which SBA and
other Federal agencies may directly
receive a taxpayer’s tax return
information for income verification
purposes. As such, the final rule
provides that each individual claiming
disadvantaged status must authorize
SBA to request and receive tax return
information directly from the IRS if
such authorization is required.
Although SBA does not anticipate using
this authorization often to verify an
applicant’s information, SBA believes
that this additional requirement
imposes a minimal burden on 8(a) BD
program applicants. Additionally, SBA
believes that this required authorization
will help to maintain the integrity of the
program.
Section 124.204
This rule provides that SBA will
suspend the time to process an 8(a)
application where SBA requests
clarifying, revised or other information
from the applicant. While SBA is
waiting on the applicant to provide
clarifying or responsive information, the
Agency is not continuing to process the
application. This is not a change in
policy, but rather a clarification of
existing policy. Commenters did not
have any issue with this change,
believing that it already is SBA’s
existing practice and that the regulatory
change will simply clarify/formalize
this practice. As such, SBA adopts it as
final in this rule.
Sections 124.205, 124.206 and 124.207
The proposed rule amended § 124.207
to allow a concern that has been
declined for 8(a) BD program
participation to submit a new
application 90 days after the date of the
Agency’s final decision to decline.
Under the current regulations, a firm is
required to wait 12 months from the
date of the final agency decision to
reapply. SBA believes that this change
will reduce the number of appeals to
SBA’s Office of Hearings and Appeals
(OHA) and greatly reduce the costs
associated with appeals borne by
disappointed applicants. In addition,
because a firm that is declined could
submit a new application 90 days after
the decline decision, SBA requested
comments on whether the current
PO 00000
Frm 00015
Fmt 4701
Sfmt 4700
66159
reconsideration process should be
eliminated. Commenters
enthusiastically supported the proposed
change to allow firms to remedy
eligibility deficits and reapply after 90
days instead of one year. In conjunction
with this proposed change, many
commenters supported eliminating the
reconsideration process as unnecessary
due to the shorter reapplication time
period. A few commenters supported
both the reduction in time to reapply
and elimination of the reconsideration
process, but asked SBA to ensure that
SBA provide comprehensive denial
letters to fully apprise applicants of any
issues or shortcomings with their
applications. SBA agrees that denial
letters must fully inform applicants of
any issues with their applications, and
will continue to explain as specifically
as possible the shortcomings in any
declined application. Several
commenters opposed changing the
current reconsideration process because
they believed that it could take longer
for an applicant to ultimately be
admitted to the program if all it had to
do was change one or two minor things,
and that doing so during
reconsideration would be quicker than
SBA looking at a re-application anew.
Contrary to what some commenters
believed, SBA looks at all eligibility
criteria during reconsideration and may
find additional reasons to decline an
application during reconsideration that
were not clearly identified in the initial
application process. Where that occurs,
a firm may be entitled to an additional
reconsideration process which may
potentially prolong the review process
even further. SBA believes reducing the
timeframe to address identified deficits
and reapply from one year to 90 days
will obviate the need for a separate,
possibly drawn-out reconsideration
process. One commenter believed that
allowing the shortened 90-day waiting
period to re-apply to the 8(a) BD
program would encourage concerns that
are clearly ineligible to repeatedly apply
for certification. Although SBA does not
believe that this would be a significant
problem, SBA does understand that its
limited resources could be
overburdened if clearly ineligible
business concerns are able to re-apply to
the program every 90 days. As such, this
final rule amends § 124.207 to
incorporate a 90-day wait period to
reapply generally, but adds language
that provides that where a concern has
been declined three times within 18
months of the date of the first final
agency decision finding the concern
ineligible, the concern cannot submit a
new application for admission to the
E:\FR\FM\16OCR4.SGM
16OCR4
66160
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
program until 12 months from the date
of the third final Agency decline
decision. The final rule also amends
§ 124.205 to eliminate a separate
reconsideration process and § 124.206 to
delete paragraph (b) as unnecessary.
jbell on DSKJLSW7X2PROD with RULES4
Section 124.300 and 124.301
The proposed rule redesignated the
current § 124.301 (which discusses the
various ways a business may leave the
8(a) BD program) as § 124.300 and
added a new § 124.301 to specifically
enunciate the voluntary withdrawal and
early graduation procedures. The rule
set forth SBA’s current policy that a
Participant may voluntarily withdraw
from the 8(a) BD program at any time
prior to the expiration of its program
term. In addition, where a Participant
believes it has substantially achieved
the goals and objectives set forth in its
business plan, the Participant may elect
to voluntarily early graduate from the
8(a) BD program. That too is SBA’s
current policy, and the proposed rule
merely captured it in SBA’s regulations.
The proposed rule, however, changed
the level at which voluntary withdrawal
and voluntary early graduation could be
finalized by SBA. Prior to this final rule,
a firm submitted its request to
voluntarily withdraw or early graduate
to its servicing SBA district office. Once
the district office concurs, the request
was sent to the Associate Administrator
for Business Development (AA/BD) for
final approval. SBA believes that
requiring several layers of review to
permit a concern to voluntarily exit the
8(a) BD program is unnecessary. SBA
proposed that a Participant must still
request voluntary withdrawal or
voluntary early graduation from its
servicing district office, but the action
would be complete once the District
Director recognizes the voluntary
withdrawal or voluntary early
graduation. SBA believes this will
eliminate unnecessary delay in
processing these actions. Commenters
supported giving voluntary withdrawal
and voluntary early graduation
decisions to the district office level,
agreeing with SBA that the change will
assist in reducing processing times. As
such, SBA adopts the proposed changes
as final.
Section 124.304
The proposed rule clarified the effect
of a decision made by the AA/BD to
terminate or early graduate a Program
Participant. Under SBA’s current
procedures, once the AA/BD renders a
decision to early graduate or terminate
a Participant from the 8(a) BD program,
the affected Participant has 45 days to
appeal that decision to SBA’s OHA. If
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
no appeal is made, the AA/BD’s
decision becomes the final agency
decision after that 45-day period. If the
Participant appeals to OHA, the final
agency decision will be the decision of
the administrative law judge at OHA.
There has been some confusion as to
what the effect of the AA/BD decision
is pending the decision becoming the
final agency decision. The proposed
rule clarified that where the AA/BD
issues a decision terminating or early
graduating a Participant, the Participant
would be immediately ineligible for
additional program benefits. SBA does
not believe that it would make sense to
allow a Participant to continue to
receive program benefits after the AA/
BD has terminated or early graduated
the firm from the program. If OHA
ultimately overrules the AA/BD
decision, SBA would treat the amount
of time between the AA/BD’s decision
and OHA’s decision on appeal similar to
how it treats a suspension. Upon OHA’s
decision overruling the AA/BD’s
determination, the Participant would
immediately be eligible for program
benefits and the length of time between
the AA/BD’s decision and OHA’s
decision on appeal would be added to
the Participant’s program term.
Commenters generally supported this
clarification. One commenter opposed
the change, believing ineligibility or
suspension should not be automatic, but
rather, occur only where SBA
‘‘determines that suspension is needed
to protect the interests of the Federal
Government, such as because where
information showing a clear lack of
program eligibility or conduct
indicating a lack of business integrity
exists’’ as set forth in § 124.305(a). SBA
believes this comment misses the point.
The suspension identified in
§ 124.305(a) is an interim determination
pending a final action by the AA/BD as
to whether a Participant should be
terminated from the program. The
suspension identified here flows from
the AA/BD’s final decision that
termination is appropriate. As noted
above, SBA believes it is contradictory
to allow a Participant to continue to
receive program benefits after the AA/
BD has terminated or early graduated
the firm from the program. As such,
SBA adopts the proposed language as
final in this rule.
Sections 124.305 and 124.402
Section 124.402 requires each firm
admitted to the 8(a) BD program to
develop a comprehensive business plan
and to submit that business plan to
SBA. Currently, § 124.402(b) provides
that a newly admitted Participant must
submit its business plan to SBA as soon
PO 00000
Frm 00016
Fmt 4701
Sfmt 4700
as possible after program admission and
that the Participant will not be eligible
for 8(a) BD benefits, including 8(a)
contracts, until SBA approves its
business plan. Several firms have
complained that they missed contract
opportunities because SBA did not
approve their business plans before
procuring agencies sought to award
contracts to fulfill certain requirements.
The proposed rule amended
§ 124.402(b) to eliminate the provision
that a Participant cannot receive any
8(a) BD benefits until SBA has approved
its business plan. Instead, the proposed
rule provided that SBA would suspend
a Participant from receiving 8(a) BD
program benefits if it has not submitted
its business plan to the servicing district
office and received SBA’s approval
within 60 days after program admission.
A firm coming in to the 8(a) BD program
with commitments from one or more
procuring agencies will immediately be
able to be awarded one or more 8(a)
contracts. Commenters appreciated
SBA’s recognition of the delays and
possible missed opportunities caused by
the current requirements and supported
this change. They believed that the
change will enable Participants to start
receiving the benefits of the program in
a more timely manner and enjoy their
full nine-year term. A few commenters
recommended that a new Participant
should not be suspended where it has
submitted its business plan within 60
days of being certified into the program
but SBA has not approved it within that
time. These commenters believed that a
Participant should be suspended in this
context only for actions within the
Participant’s control (i.e., where the
Participant did not submit its business
plan within 60 days, not where SBA has
not approved it within that time). That
is SBA’s intent. The proposed rule
provided that SBA will suspend a
Participant from receiving 8(a) BD
program benefits, including 8(a)
contracts, if it has not submitted its
business plan to the servicing district
office within 60 days after program
admission. As long as a Participant has
submitted its business plan to SBA
within the 60-day timeframe, it will not
be suspended. SBA believes that is clear
in the regulatory text as proposed and
that no further clarification is needed.
As such, SBA adopts the proposed
language as final in this rule.
This rule also corrects a typographical
error contained in § 124.305(h)(1)(ii).
Under § 124.305(h)(1)(ii), an 8(a)
Participant can elect to be suspended
from the 8(a) program where a
disadvantaged individual who is
involved in controlling the day-to-day
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
management and control of the
Participant is called to active military
duty by the United States. Currently, the
regulation states that the Participant
may elect to be suspended where the
individual’s participation in the firm’s
management and daily business
operations is critical to the firm’s
continued eligibility, and the
Participant elects not to designate a nondisadvantaged individual to control the
concern during the call-up period. That
should read where the Participant elects
not to designate another disadvantaged
individual to control the concern during
the call-up period. It was not SBA’s
intent to allow a non-disadvantaged
individual to control the firm during the
call-up period and permit the firm to
continue to be eligible for the program.
Finally, one commenter questioned why
SBA required a suspension action to
generally be initiated simultaneous with
or after the initiation of a BD program
termination action. The commenter
believed that if the Government’s
interests needed to be protected quickly,
SBA should be able to suspend a
particular Program Participant without
also simultaneously initiating a
termination proceeding. The commenter
argued that the Government should be
able to stop inappropriate or fraudulent
conduct immediately. Although SBA
envisions initiating a termination
proceeding simultaneously with a
suspension action in most cases, SBA
concurs that immediate suspension
without termination may be needed in
certain cases. As such, the final rule
amends § 124.305(a) to allow the AA/BD
to immediately suspend a Participant
when he or she determines that
suspension is needed to protect the
interests of the Federal Government.
Sections 124.501 and 124.507
Section 124.501 is entitled ‘‘What
general provisions apply to the award of
8(a) contracts?’’ SBA must determine
that a Participant is eligible for the
award of both competitive and sole
source 8(a) contracts. However, the
requirement that SBA determine
eligibility is currently contained only in
the 8(a) competitive procedures at
§ 124.507(b)(2). Although SBA
determines eligibility for sole source
8(a) awards at the time it accepts a
requirement for the 8(a) BD program,
that process is not specifically stated in
the regulations. The proposed rule
moved the eligibility determination
procedures for competitive 8(a)
contracts from § 124.507(b)(2) to the
general provisions of § 124.501 and
specifically addressed eligibility
determinations for sole source 8(a)
contracts. To accomplish this, the
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
proposed rule revised current
§ 124.501(g). Commenters did not object
to this clarification. One commenter
sought further clarification regarding
eligibility for 8(a) sole source contracts.
The commenter noted that for a sole
source 8(a) procurement, SBA
determines eligibility of a nominated
8(a) firm at the time of acceptance. The
commenter recommended that the
regulation clearly notify 8(a) firms and
procuring agencies that if a firm
graduates from the program before
award occurs, the award cannot be
made. Although SBA believes that is
currently included within § 124.501(g),
this final rule adds additional clarifying
language to remove any confusion. One
commenter also sought further
clarification for two-step competitive
procurements to be awarded through the
8(a) BD program. The commenter noted
that the solicitation has two dates, and
asked SBA to clarify which date
controls for eligibility for the 8(a)
competitive award. In response, this
final rule adds a new § 124.507(d)(3)
that provides that for a two-step designbuild procurement to be awarded
through the 8(a) BD program, a firm
must be a current Participant eligible for
award of the contract on the initial date
specified for receipt of phase one offers
contained in the contract solicitation.
Similarly, SBA believes that the
provisions requiring a bona fide place of
business within a particular geographic
area for 8(a) construction awards should
also appear in the general provisions
applying to 8(a) contracts set forth in
§ 124.501. Section 8(a)(11) of the Small
Business Act, 15 U.S.C. 637(a)(11),
requires that to the maximum extent
practicable 8(a) construction contracts
‘‘shall be awarded within the county or
State where the work is to be
performed.’’ SBA has implemented this
statutory provision by requiring a
Participant to have a bona fide place of
business within a specific geographic
location. Currently, the bona fide place
of business rules appear only in the
procedures applying to competitive 8(a)
procurements in § 124.507(c)(2). The
proposed rule moved those procedures
to a new § 124.501(k) to clearly make
them applicable to both sole source and
competitive 8(a) awards. Based on the
statutory language, SBA believes that
the requirement to have a bona fide
place of business in a particular
geographic area currently applies to
both sole source and competitive 8(a)
procurements, but moving the
requirement to the general applicability
section removes any doubt or confusion.
Commenters did not object to these
PO 00000
Frm 00017
Fmt 4701
Sfmt 4700
66161
changes and SBA adopts them as final
in this rule.
In response to concerns raised by
Participants, the proposed rule also
imposed time limits within which SBA
district offices should process requests
to add a bona fide place of business.
SBA has heard that several Participants
missed out on 8(a) procurement
opportunities because their requests for
SBA to verify their bona fide places of
business were not timely processed. In
order to alleviate this perceived
problem, SBA proposed to provide that
in connection with a specific 8(a)
competitive solicitation, the reviewing
office will make a determination
whether or not the Participant has a
bona fide place of business in its
geographical boundaries within 5
working days of a site visit or within 15
working days of its receipt of the request
from the servicing district office if a site
visit is not practical in that timeframe.
SBA also requested comments on
whether a Participant that has filed a
request to have a bona fide place of
business recognized by SBA in time for
a particular 8(a) construction
procurement may submit an offer for
that procurement where it has not
received a response from SBA before the
date offers are due. Commenters
supported imposing time limits in the
regulations for SBA to process requests
to establish bona fide places of business.
Commenters also supported Participants
being able to presume approval and
submit an offer as an eligible Participant
where SBA has not issued a decision
within the specified time limits. One
commenter asked SBA to clarify what
happens if a Participant submits an offer
based on this presumption and SBA
later does not verify the Participant’s
bona fide place of business. SBA does
not believe that verification will not
occur before award. The final rule
allows a Participant to presume that
SBA has approved its request for a bona
fide place of business if SBA does not
respond in the time identified. This
allows a Participant to submit an offer
where a bona fide place of business is
required. However, clarification is
added at 124.501(k)(2)(iii)(B) that in
order to be eligible for award, SBA must
approve the bona fide place of business
prior to award. If SBA has not acted
prior to the time that a Participant is
identified as the apparent successful
offeror, SBA will make such a
determination within 5 days of
receiving a procuring activity’s request
for an eligibility determination unless
the procuring activity grants additional
time for review.
Several commenters recommended
that SBA broaden the geographic
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66162
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
boundaries as to what it means to have
a bona fide place of business within a
particular area. As identified above, the
bona fide place of business concept
evolved from the statutory requirement
that to the maximum extent practicable
8(a) construction contracts must be
awarded within the county or State
where the work is to be performed.
Commenters believed that strict state
line boundaries may not be appropriate
where a given area is routinely served
by more than one state. A commenter
recommended that SBA use
Metropolitan Statistical Areas (MSAs) to
better define the area within which a
business should be located in order to
be deemed to have a bona fide place of
business in the area. The Office of
Management and Budget has defined an
MSA as ‘‘A Core Based Statistical Area
associated with at least one urbanized
area that has a population of at least
50,000. The MSA comprises the central
county or counties containing the core,
plus adjacent outlying counties having a
high degree of social and economic
integration with the central county or
counties as measured through
commuting.’’ 2010 Standards for
Delineating Metropolitan and
Micropolitan Statistical Areas, 75 FR
37246–37252 (June 28, 2010). The
commenter noted that metropolitan
areas frequently do not fit within one
state and believed that a state does not
always represent a single geography or
economy. As an example, the
commenter pointed to the Philadelphia,
Pennsylvania MSA, which includes
counties in four states, Delaware,
Maryland, New Jersey and
Pennsylvania. This MSA represents one
regional economy, but is serviced by
four different SBA District Offices:
Baltimore, Philadelphia, Delaware and
New Jersey. SBA believes that such an
expansion makes sense in today’s
complex business environment.
However, the use of MSAs will mostly
impact the more densely populated
coasts of the country, and not
necessarily more rural or less populated
areas. SBA believes the same rationale
could be used in those areas, but instead
use contiguous counties. A Participant
located on the other side of a state
border may be closer to the construction
site than a Participant located in the
same state as the construction site. It
does not make sense to exclude a
Participant immediately across the
border from where construction work is
to be done merely because that
Participant is serviced by a different
SBA district office, but to allow another
Participant that may be located on the
other side of the state where
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
construction work is to be done (and be
hundreds of miles further away from the
construction site than the Participant in
the other state) to be eligible because it
is serviced by the correct SBA district
office. As such this final rule defines
bona fide place of business to be the
geographic area serviced by the SBA
district office, a MSA, or a contiguous
county to (whether in the same or
different state) where the work will be
performed.
Section 124.503
The proposed rule amended
§ 124.503(e) to clarify SBA’s current
policy regarding what happens if after
SBA accepts a sole source requirement
on behalf of a particular Participant the
procuring agency determines, prior to
award, that the Participant cannot do
the work or the parties cannot agree on
price. In such a case, SBA allows the
agency to substitute one 8(a) Participant
for another if it believes another
Participant could fulfill its needs. If the
procuring agency and SBA agree that
another Participant cannot fulfill its
needs, the procuring agency may
withdraw the original offering letter and
fulfill its needs outside the 8(a) BD
program. This change to the regulatory
text was merely an attempt to codify
existing procedures to make the process
more transparent. No one objected to
this provision, and SBA adopts it as
final in this rule.
Currently, § 124.503(g) provides that a
Basic Ordering Agreement (BOA) is not
a contract under the Federal Acquisition
Regulation (FAR). Rather, each order to
be issued under the BOA is an
individual contract. As such, a
procuring activity must offer, and SBA
must accept, each task order under a
BOA in addition to offering and
accepting the BOA itself. Once a
Participant leaves the 8(a) BD program
or otherwise becomes ineligible for
future 8(a) contracts (e.g., becomes other
than small under the size standard
assigned to a particular contract) it
cannot receive further 8(a) orders under
a BOA. Similarly, a blanket purchase
agreement (BPA) is also not a contract.
A BPA under FAR part 13 is not a
contract because it neither obligates
funds nor requires placement of any
orders against it. Instead, it is an
understanding between an ordering
agency and a contractor that allows the
agency to place future orders more
quickly by identifying terms and
conditions applying to those orders, a
description of the supplies or services to
be provided, and methods for issuing
and pricing each order. The government
is not obligated to place any orders, and
PO 00000
Frm 00018
Fmt 4701
Sfmt 4700
either party may cancel a BPA at any
time.
Although current § 124.503(g)
addresses BOAs, it does not specifically
mention BPAs. This rule amends
§ 124.503 to merely specifically
recognize that BPAs are also not
contracts and should be afforded the
same treatment as BOAs.
Section 124.504
SBA proposed several changes to
§ 124.504.
The proposed rule amended
§ 124.504(b) to alter the provision
prohibiting SBA from accepting a
requirement into the 8(a) BD program
where a procuring activity competed a
requirement among 8(a) Participants
prior to offering the requirement to SBA
and receiving SBA’s formal acceptance
of the requirement. SBA believes that
the restriction as written is overly harsh
and burdensome to procuring agencies.
Several contracting officers have not
offered a follow-on procurement to the
8(a) program prior to conducting a
competition restricted to eligible 8(a)
Participants because they believed that
because a follow-on requirement must
be procured through the 8(a) program,
such offer and SBA’s acceptance were
not required. They issued solicitations
identifying them as competitive 8(a)
procurements, selected an apparent
successful offeror and then sought
SBA’s eligibility determination prior to
making an award. A strict interpretation
of the current regulatory language
would prohibit SBA from accepting
such a requirement. Such an
interpretation could adversely affect an
agency’s procurement strategy in a
significant way by unduly delaying the
award of a contract. That was never
SBA’s intent. As long as a procuring
agency clearly identified a requirement
as a competitive 8(a) procurement and
the public fully understood it to be
restricted only to eligible 8(a)
Participants, SBA should be able to
accept that requirement regardless of
when the offering occurred.
Commenters supported this change as a
logical remedy to an unintended
consequence, and SBA adopts it as final
in this rule.
The proposed rule clarified SBA’s
intent regarding the requirement that a
procuring agency must seek and obtain
SBA’s concurrence to release any
follow-on procurement from the 8(a) BD
program. This is not a change in policy,
but rather a clarification of SBA’s
current policy and the position SBA has
taken in several protests before the
Government Accountability Office.
Some agencies have attempted to
remove a follow-on procurement from
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
the incumbent 8(a) contractor and reprocure the requirement through a
different contract vehicle (a MAC or
Government-wide Acquisition Contract
(GWAC) that is not an 8(a) contract)
without seeking release by saying that
they intend to issue a competitive 8(a)
order off the other contract vehicle. In
other words, because the order under a
MAC or GWAC would be offered to and
accepted for award through the 8(a) BD
program and the follow-on work would
be performed through the 8(a) BD
program, some procuring agencies
believe that release is not needed. SBA
does not agree. In such a case, the
underlying contract is not an 8(a)
contract. The procuring agency may be
attempting to remove a requirement
from the 8(a) program to a contract that
is not an 8(a) contract. That is precisely
what release is intended to apply to.
Moreover, because § 124.504(d)(4)
provides that the requirement to seek
release of an 8(a) requirement from SBA
does not apply to orders offered to and
accepted for the 8(a) program where the
underlying MAC or GWAC is not itself
an 8(a) contract, allowing a procuring
agency to move an 8(a) contract to an
8(a) order under a non-8(a) contract
vehicle would allow the procuring
agency to then remove the next followon to the 8(a) order out of the 8(a)
program entirely without any input
from SBA. A procuring agency could
take an 8(a) contract with a base year
and four one-year option periods, turn
it into a one-year 8(a) order under a non8(a) contract vehicle, and then remove
it from the 8(a) program entirely after
that one-year performance period. That
was certainly not the intent of SBA’s
regulations.
SBA has received additional
comments recommending that release
should also apply even if the underlying
pre-existing MAC or GWAC to which a
procuring agency seeks to move a
follow-on requirement is itself an 8(a)
contract. These commenters argue that
an 8(a) incumbent contractor may be
seriously hurt by moving a procurement
from a general 8(a) competitive
procurement to an 8(a) MAC or GWAC
to which the incumbent is not a contract
holder. In such a case, the incumbent
would have no opportunity to win the
award for the follow-on contract, and,
would have no opportunity to
demonstrate that it would be adversely
impacted or to try to dissuade SBA from
agreeing to release the procurement.
Commenters believe that this directly
contradicts the business development
purposes of the 8(a) BD program. In
response, the rule provides that a
procuring activity must notify SBA
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
where it seeks to re-procure a follow-on
requirement through a limited
contracting vehicle which is not
available to all 8(a) BD Program
Participants (e.g., any multiple award or
Governmentwide acquisition contract,
whether or not the underlying MAC or
GWAC is itself an 8(a) contract). If an
agency seeks to re-procure a current 8(a)
requirement as a competitive 8(a) award
for a new 8(a) MAC or GWAC vehicle,
SBA’s concurrence will not be required
because such a competition would be
available to all 8(a) BD Program
Participants.
The proposed rule also clarified that
in all cases where a procuring agency
seeks to fulfill a follow-on requirement
outside of the 8(a) BD program, except
where it is statutorily or otherwise
required to use a mandatory source (see
FAR subpart 8.6 and 8.7), it must make
a written request to and receive the
concurrence of SBA to do so. In such a
case, the proposed rule would require a
procuring agency to notify SBA that it
will take a follow-on procurement out of
the 8(a) procurement because of a
mandatory source. Such notification
would be required at least 30 days
before the end of the contract period to
give the 8(a) Participant the opportunity
to make alternative plans.
In addition, SBA does not typically
consider the value of a bridge contract
when determining whether an offered
procurement is a new requirement. A
bridge contract is meant to be a
temporary stop-gap measure intended to
ensure the continuation of service while
an agency finalizes a long-term
procurement approach. As such, SBA
does not typically consider a bridge
contract as part of the new requirement
analysis, unless there is some basis to
believe that the agency is altering the
duration of the option periods to avoid
particular regulatory requirements.
Whether to consider the bridge contract
is determined on a case-by-case basis
given the facts of the procurement at
issue. SBA sought comments as to
whether this long-standing policy
should also be incorporated into the
regulations. Although SBA did not
receive many comments on this issue,
those who did comment believed it
made sense to clarify this in the
regulatory text. This final rule does so.
Section 124.505
As noted above, SBA received a
significant number of comments
recommending more transparency in the
process by which procuring agencies
seek to remove follow-on requirements
from the 8(a) BD program. In particular,
commenters believed SBA should be
able to question whether a requirement
PO 00000
Frm 00019
Fmt 4701
Sfmt 4700
66163
is new or a follow-on to a previously
awarded contract. In response, the final
rule adds language to § 124.505(a)
authorizing SBA to appeal a decision by
a contracting officer that a particular
procurement is a new requirement that
is not subject to the release
requirements set forth in § 124.504(d).
Section 124.509
The proposed rule revised
§ 124.509(e), regarding how a
Participant can obtain a waiver to the
requirement prohibiting it from
receiving further sole source 8(a)
contracts where the Participant does not
meet its applicable non-8(a) business
activity target. Currently, the regulations
require the AA/BD to process a
Participant’s request for a waiver in
every case. The proposed rule
substituted SBA for the AA/BD to allow
flexibility to SBA to determine the level
of processing in a standard operating
procedure outside the regulations. SBA
believes that at least at some level, the
district office should be able to process
such requests for waiver.
The current regulation also requires
the SBA Administrator on a nondelegable basis to decide requests for
waiver from a procuring agency. In
other words, if the Participant itself
does not request a waiver to the
requirement prohibiting it from
receiving further sole source 8(a)
contracts, but an agency does so because
it believes that the award of a sole
source contract to the identified
Participant is needed to achieve
significant interests of the Government,
the SBA Administrator must currently
make that determination. Requiring
such a request to be processed by
several levels of SBA reviewers and
then by the Administrator slows down
the processing. If a procuring agency
truly needs something quickly, it could
be harmed by the processing time. The
proposed rule changed the
Administrator from making these
determinations to SBA. Commenters
believed that waiver requests should be
processed at the district office level, as
adding additional layers of review
significantly delays the processing time,
which harms both the Participant and
the procuring agency and causes
additional work for SBA. SBA has
adopted these changes as final in this
rule. This should allow these requests to
be processed more quickly.
SBA also received a few comments
regarding the business activity targets
contained in § 124.509. Commenters
supported the proposed revisions that
changed requiring Participants to make
‘‘maximum efforts’’ to obtain business
outside the 8(a) BD program, and
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66164
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
‘‘substantial and sustained efforts’’ to
attain the targeted dollar levels of non8(a) revenue, to requiring them to make
good faith efforts. These commenters
also felt that the non-8(a) business
activity target percentages for firms in
the transitional stage of program
participation are too high. The
commenters noted that the Small
Business Act did not require any
specific percentages of non-8(a) work
and believed that SBA was free to adjust
them in order to promote the business
development purposes of the program.
They also believed that the current rules
rigidly apply sole source restrictions
without taking into account extenuating
circumstances such as a reduction in
government funding, continuing
resolutions and budget uncertainties,
increased competition driving prices
down, and having prime contractors
award less work to small business
subcontractors than originally
contemplated. They recommended that
the sole source restrictions should be
discretionary, depending upon
circumstances and efforts made by the
Participant to obtain non-8(a) revenues.
SBA first notes that although the Small
Business Act itself does not establish
specific non-8(a) business activity
targets, the conference report to the
Business Opportunity Development
Reform Act of 1988, Public Law 100–
656, which established the competitive
business mix requirement, did
recommend certain non-8(a) business
activity targets. That report noted that
Congress intended that the non-8(a)
business activity targets should
generally require about 25 percent of
revenues from sources other than 8(a)
contracts in the fifth and sixth years of
program participation and about 50
percent in the seventh and eighth years
of program participation. H. Rep. No.
100–1070, at 63 (1988), as reprinted in
1988 U.S.C.C.A.N. 5485, 5497. In
response to the comments, this rule
slightly adjusts the non-8(a) business
activity targets to be more in line with
the Congressional intent. In addition,
SBA believes that the strict application
of sole source restrictions may be
inappropriate in certain extenuating
circumstances. That same conference
report provides that SBA ‘‘should
consider a full range of options to
encourage firms to achieve the
competitive business targets,’’ and that
these options might ‘‘include
conditioning the award of future solesource contracts or business
development assistance on the firm’s
taking specified steps, such as changes
in marketing or financing strategies.’’ Id.
In addition, the conference report
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
provides that SBA should take
appropriate remedial actions,
‘‘including reductions in sole-source
contracting,’’ to ensure that firms
complete the program with optimum
prospects for success in a competitive
business environment. Id. Thus,
Congress intended SBA to place
conditions on firms to allow then to
continue to receive one or more future
8(a) contracts and that sole source
‘‘reductions’’ should be an alternative. It
appears that a strict ban on receiving
any future 8(a) contracts is not
appropriate in all instances. SBA
believes that may make sense as a
remedial measure if a particular
Participant has made no efforts to seek
non-8(a) awards, but it should not
automatically occur if a firm fails to
meet its applicable non-8(a) business
activity target. The final rule recognizes
that a strict prohibition on a Participant
receiving new sole source 8(a) contracts
should be imposed only where the
Participant has not made good faith
efforts to meet its applicable non-8(a)
business activity target. Where a
Participant has not met its applicable
non-8(a) business activity target,
however, SBA will condition the
eligibility for new sole source 8(a)
contracts on the Participant taking one
or more specific actions, which may
include obtaining business development
assistance from an SBA resource partner
such as a Small Business Development
Center. The final rule also rearranges
several current provisions for ease of
use.
Section 124.513
Currently, § 124.513(e) provides that
SBA must approve a joint venture
agreement prior to the award of an 8(a)
contract on behalf of the joint venture.
This requirement applies to both
competitive and sole source 8(a)
procurements. SBA does not approve
joint venture agreements in any other
context, including a joint venture
between an 8(a) Participant and its SBAapproved mentor (which may be other
than small) in connection with a non8(a) contract (i.e., small business setaside, HUBZone, SDVO small business,
or WOSB contract). In order to be
considered an award to a small
disadvantaged business (SDB) for a non8(a) contract, a joint venture between an
8(a) Participant and a non-8(a)
Participant must be controlled by the
8(a) partner to the joint venture and
otherwise meet the provisions of
§ 124.513(c) and (d). If the non-8(a)
partner to the joint venture is also a
small business under the size standard
corresponding to the NAICS code
assigned to the procurement, the joint
PO 00000
Frm 00020
Fmt 4701
Sfmt 4700
venture could qualify as small if the
provisions of § 124.513(c) and (d) were
not met (see § 121.103(h)(3)(i), where a
joint venture can qualify as small as
long as each party to the joint venture
individually qualifies as small), but the
joint venture could not qualify as an
award to an SDB in such case. If the
joint venture were between an 8(a)
Participant and its large business
mentor, the joint venture could not
qualify as small if the provisions of
§ 124.513(c) and (d) were not met. The
size of a joint venture between a small
business prote´ge´ and its large business
mentor is determined without looking at
the size of the mentor only when the
joint venture complies with SBA’s
regulations regarding control of the joint
venture. Where another offeror believes
that a joint venture between a prote´ge´
and its large business mentor has not
complied with the applicable control
regulations, it may protest the size of the
joint venture. The applicable Area
Office of SBA’s Office of Government
Contracting would then look at the joint
venture agreement to determine if the
small business is in control of the joint
venture within the meaning of SBA’s
regulations. If that Office determines
that the applicable regulations were not
followed, the joint venture would lose
its exclusion from affiliation, be found
to be other than small, and, thus,
ineligible for an award as a small
business. This size protest process has
worked well in ensuring that small
business joint venture partners do in
fact control non-8(a) contracts with their
large business mentors. Because size
protests are authorized for competitive
8(a) contracts, SBA believes that the size
protest process could work similarly for
competitive 8(a) contracts. As such, the
proposed rule eliminated the need for
8(a) Participants to seek and receive
approval from SBA of every initial joint
venture agreement and each addendum
to a joint venture agreement for
competitive 8(a) contracts. Commenters
supported this change, noting that this
will eliminate an unnecessary burden
and noting that this will also eliminate
the significant expense firms often incur
during the SBA approval process. SBA
believes that this will significantly
lessen the burden imposed on 8(a) small
business Participants. Participants will
not be required to submit additional
paperwork to SBA and will not have to
wait for SBA approval in order to seek
competitive 8(a) awards. This rule
finalizes that change.
Section 124.515
The proposed rule amended § 124.515
regarding the granting of a waiver to the
statutorily mandated termination for
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
convenience requirement where the
ownership or control of an 8(a)
Participant performing an 8(a) contract
changes. The statute and regulations
allow the ownership and control of an
8(a) Participant performing one or more
8(a) contracts to pass to another 8(a)
Participant that would otherwise be
eligible to receive the 8(a) contracts
directly. Specifically, the proposed rule
amended § 124.515(d) to provide that
SBA determines the eligibility of an
acquiring Participant by referring to the
items identified in § 124.501(g) and
deciding whether at the time of the
request for waiver (and prior to the
transaction) the acquiring Participant is
an eligible concern with respect to each
contract for which a waiver is sought.
As part of the waiver request, the
acquiring concern must certify that it is
a small business for the size standard
corresponding to the NAICS code
assigned to each contract for which a
waiver is sought. SBA will not grant a
waiver for any contract if the work to be
performed under the contract is not
similar to the type of work previously
performed by the acquiring concern. A
few commenters objected to this last
provision in the context of an entityowned firm seeking to acquire an 8(a)
Participant currently performing one or
more 8(a) contracts. These commenters
believed that this provision should not
apply to entity-owned Participants
because prior performance in a specific
industry is not required for entityowned firms seeking to enter the
program. SBA disagrees. Those are two
entirely separate requirements. In the
case of program entry, SBA allows an
entity-owned applicant to be eligible for
the program where the entity (tribe,
ANC, NHO or CDC) demonstrates a firm
commitment to back the applicant
concern. In other words, SBA will waive
the general potential for success
provision requiring an applicant to have
at least two years of business in its
primary NAICS code where the entity
represents that it will support the
applicant concern. In such case, SBA is
assured that the applicant concern will
be able to survive despite having little
or no experience in its designated
primary NAICS code. The termination
for convenience and waiver provisions
are statutory and serve an entirely
different purpose. The general rule is
that an 8(a) contract must be performed
by the 8(a) Participant to which that
contract was initially awarded. Where
the ownership or control of the
Participant awarded an 8(a) contract
changes, the statute requires a procuring
agency to terminate that contract unless
the SBA Administrator grants a waiver
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
based on one of five statutory reasons.
One of those reasons is where the
ownership and control of an 8(a)
Participant will pass to another
otherwise eligible 8(a) Participant. The
proposed rule merely clarifies SBA’s
current policy that in order to be an
‘‘eligible’’ Participant, the acquiring firm
must be responsible to perform the
contract, and responsibility is
determined prior to the transfer, just as
responsibility is determined prior to the
award of any contract. This has nothing
to do with the entity-owned firm’s
potential for success in the program,
but, rather, whether that firm would be
deemed a responsible contractor and
whether a procuring agency contracting
officer would find the firm capable of
performing the work required under the
contract before any change of ownership
or control occurs. Because SBA believes
that this responsibility issue is relevant
of all Participants acquiring another
Participant that has been awarded one
or more 8(a) contracts, the final rule
adopts the language as proposed.
Section 124.518
The final rule clarifies when one 8(a)
Participant can be substituted for
another in order to complete
performance of an 8(a) contract without
receiving a waiver to the termination for
convenience requirement set forth in of
§ 124.515. Specifically, the rule
provides that SBA may authorize
another Participant to complete
performance of an 8(a) contract and, in
conjunction with the procuring activity,
permit novation of the contract where a
procuring activity contracting officer
demonstrates to SBA that the
Participant that was awarded an 8(a)
contract is unable to complete
performance, where an 8(a) contract will
otherwise be terminated for default, or
where SBA determines that substitution
would serve the business development
needs of both 8(a) Participants.
Section 124.519
Section 124.519 limits the ability of
8(a) Participants to obtain additional
sole source 8(a) contracts once they
have reached a certain dollar level of
overall 8(a) contracts. Currently, for a
firm having a receipts-based size
standard corresponding to its primary
NAICS code, the limit above which a
Participant can no longer receive sole
source 8(a) contracts is five times the
size standard corresponding to its
primary NAICS code, or $100,000,000,
whichever is less. For a firm having an
employee-based size standard
corresponding to its primary NAICS
code, the limit is $100,000,000. In order
to simplify this requirement, this
PO 00000
Frm 00021
Fmt 4701
Sfmt 4700
66165
proposed rule provided that a
Participant may not receive sole source
8(a) contract awards where it has
received a combined total of
competitive and sole source 8(a)
contracts in excess of $100,000,000
during its participation in the 8(a) BD
program, regardless of its primary
NAICS code. In addition, the proposed
rule clarified that in determining
whether a Participant has reached the
$100 million limit, SBA would consider
only the 8(a) revenues a Participant has
actually received, not projected 8(a)
revenues that a Participant might
receive through an indefinite delivery or
indefinite quantity contract, a multiple
award contract, or options or
modifications. Finally, the proposed
rule amended what types of small dollar
value 8(a) contracts should not be
considered in determining whether a
Participant has reached the 8(a) revenue
limit. Currently, SBA does not consider
8(a) contracts awarded under $100,000
in determining whether a Participant
has reached the applicable 8(a) revenue
limit. The proposed rule replaced the
$100,000 amount with a reference to the
Simplified Acquisition Threshold
(SAT). SBA has delegated to procuring
agencies the ability to award sole source
8(a) contracts without offer and
acceptance for contracts valued at or
below the SAT. Because SBA does not
accept such procurements into the 8(a)
BD program, it is difficult for SBA to
monitor these awards. The proposed
rule merely aligned the 8(a) revenue
limit with that authority. Commenters
generally supported each of these
changes. SBA adopts them as final in
this rule.
Section 125.2
The proposed rule added a new
paragraph (g) requiring contracting
officers to consider the capabilities and
past performance of first tier
subcontractors in certain instances. This
consideration is statutorily required for
bundled or consolidated contracts (15
U.S.C. 644(e)(4)(B)(i)) and for multiple
award contracts valued above the
substantial bundling threshold of the
Federal agency (15 U.S.C. 644(q)(1)(B)).
Following the statutory provisions, the
proposed rule required a contracting
officer to consider the past performance
and experience of first tier
subcontractors in those two categories of
contracts. The proposed rule did not
require a contracting officer to consider
the past performance, capabilities and
experience of each first tier
subcontractor as the capabilities and
past performance of the small business
prime contractor in other instances.
Instead, it provided discretion to
E:\FR\FM\16OCR4.SGM
16OCR4
66166
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
contracting officers to consider such
past performance, capabilities and
experience of each first tier
subcontractor where appropriate. SBA
specifically requested comments as to
whether as a policy matter such
consideration should be required in all
cases, or limited only to the statutorily
required instances as proposed. The
comments overwhelmingly supported
the same treatment for all contracts.
Most commenters believed that there
was a valid policy reason to consider
the capabilities and past performance of
first tier subcontractors in every case
since it is clear that those identified
subcontractors will be responsible for
some performance of the contract
should the corresponding prime
contractor be awarded the contract.
Some commenters believed that small
businesses may have the necessary
capabilities, past performance and
experience to perform smaller, nonbundled contracts on their own.
Therefore, these commenters felt that it
may not be necessary for an agency to
consider the capabilities and past
performance of first tier subcontractors
in all cases. SBA believes that first tier
subcontractors should be considered if
the capabilities and past performance of
the small business prime contractor
does not demonstrate capabilities and
past performance for award. As such
this final rule adds language requiring a
procuring agency to consider the
capabilities and past performance of
first tier subcontractors where the firsttier subcontractors are specifically
identified in the proposal and the
capabilities and past performance of the
small business prime do not
independently demonstrate capabilities
and past performance necessary for
award.
Section 125.3
The Small Business Act explicitly
prohibits the Government from
requiring small businesses to submit
subcontracting plans. 15 U.S.C.
637(d)(8). This prohibition is set forth in
§ 125.3(b) of SBA’s regulations and in
FAR 19.702(b)(1). Under the Alaska
Native Claims Settlement Act (ANCSA),
a contractor receives credit towards the
satisfaction of its small or small
disadvantaged business subcontracting
goals when contracting with an ANCowned firm. 43 U.S.C. 1626(e)(4)(B).
There has been some confusion as to
whether an ANC-owned firm that does
not individually qualify as small but
counts as a small business or a small
disadvantaged business for
subcontracting goaling purposes under
43 U.S.C. 1626(e)(4)(B) must itself
submit a subcontracting plan. SBA
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
believes that such a firm is not currently
required to submit a subcontracting
plan, but proposed to add clarifying
language to § 125.3(b) to clear up any
confusion. The proposed rule clarified
that all firms considered to be small
businesses, whether the firm qualifies as
a small business concern for the size
standard corresponding to the NAICS
code assigned to the contract or is
deemed to be treated as a small business
concern by statute, are not be required
to submit subcontracting plans.
Commenters supported this provision
and this rule adopts it as final.
The final rule also fixes typographical
errors contained in paragraphs
125.3(c)(1)(viii) and 125.3(c)(1)(ix).
Section 125.5
The proposed rule clarified that SBA
does not use the certificate of
competency (COC) procedures for 8(a)
sole source contracts. This has long
been SBA’s policy. See 62 FR 43584,
43592 (Aug. 14, 1997). Instead of using
SBA COC procedures, an agency that
finds a potential 8(a) sole source
awardee to be non-responsible should
proceed through the substitution or
withdrawal procedures in the proposed
§ 124.503(e). SBA did not receive any
comments on this provision and adopts
it as final in this rule.
Section 125.6
The final rule first fixes a
typographical error contained in the
introductory text of § 125.6(a). It also
amends § 125.6(b). Section 125.6(b)
provides guidance on which limitation
on subcontracting requirement applies
to a ‘‘mixed contract.’’ The section
currently refers to a mixed contract as
one that combines both services and
supplies. SBA inadvertently did not
include the possibility that a mixed
contract could include construction
work, although in practice SBA has
applied this section to a contract
requiring, for example, both services
and construction work. The proposed
rule merely recognized that a mixed
contract is one that integrates any
combination of services, supplies, or
construction. A contracting officer
would then select the appropriate
NAICS code, and that NAICS code is
determinative as to which limitation on
subcontracting and performance
requirement applies. SBQ did not
receive any comments on this change,
and adopts it as final in this rule.
SBA also asked for comments in the
proposed rule regarding how the
nonmanufacturer rule should be applied
in multiple item procurements
(reference § 125.6(a)(2)(ii)). Currently,
for a multiple item procurement where
PO 00000
Frm 00022
Fmt 4701
Sfmt 4700
a nonmanufacturer waiver is granted for
one or more items, compliance with the
limitation on subcontracting
requirement will not consider the value
of items subject to a waiver. As such,
more than 50 percent of the value of the
products to be supplied by the
nonmanufacturer that are not subject to
a waiver must be the products of one or
more domestic small business
manufacturers or processors. The
regulation gives an example where a
contract is for $1,000,000 and calls for
the acquisition of 10 items. Market
research shows that nine of the items
can be sourced from small business
manufacturers and one item is subject to
an SBA class waiver. The projected
value of the item that is waived is
$10,000. Under the current regulatory
language, at least 50 percent of the value
of the items not subject to a waiver, or
$495,000 (50 percent of $990,000), must
be supplied by one or more domestic
small business manufacturers, and the
prime small business nonmanufacturer
may act as a manufacturer for one or
more items. Several small business
nonmanufacturers have disagreed with
this provision. They believe that in
order to qualify as a small business
nonmanufacturer, at least 50 percent of
the value of the contract must come
from either small business
manufacturers or from any businesses
for items which have been granted a
waiver (or that small business
manufacturers plus waiver must equal
at least 50 percent). In other words, in
the above example, $500,000 (50
percent of the value of the contract)
must come from small business
manufacturers or be subject to a waiver.
If items totaling $10,000 are subject to
a waiver, then only $490,000 worth of
items must come from small business
manufacturers, thus requiring $5,000
less from small business manufacturers.
The proposed rule asked for comments
on whether this approach makes sense.
Several commenters supported the
change outlined in the proposed rule,
believing that implementation of the
change will provide less confusion to
both small businesses and procuring
agencies as the math is easier to
understand. One commenter believed
that was how the nonmanufacturer rule
was already being applied in multiple
item procurements, was concerned
others too may have misinterpreted the
rule, and, thus, supported the change.
The final rule provides that a
procurement should be set aside where
at least 50 percent of the value of the
contract comes from either small
business manufacturers or from any
business where a nonmanufacturer rule
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
waiver has been granted (or, in other
words, a set aside should occur where
small plus waiver equals at least 50
percent).
Section 125.8
The proposed rule made conforming
changes to § 125.8 in order to take into
account merging the 8(a) BD MentorProte´ge´ Program with the All Small
Mentor-Prote´ge´ Program. The comments
supported these changes, and those
changes are finalized in this rule.
Proposed § 125.8(b)(2)(iv) permitted
the parties to a joint venture to agree to
distribute profits from the joint venture
so that the small business participant(s)
receive profits from the joint venture
that exceed the percentage
commensurate with the work performed
by them. Although several commenters
questioned whether mentors would be
willing to agree to distribute profits in
such a manner, most commenters
supported this proposed change. As
such, SBA adopts it as final in this rule.
In response to the proposed rule, SBA
also received comments seeking
clarification of certain other
requirements applicable to joint
ventures. First, commenters sought
guidance regarding the performance of
work or limitation on subcontracting
requirements in § 125.8(c). Specifically,
commenters questioned whether the
same rules as those set forth in § 125.6
apply to the calculation of work
performed by a prote´ge´ in a joint
venture and whether the 40 percent
performance requirement for a prote´ge´
firm could be met through performance
of work by a similarly situated
subcontractor. SBA has always intended
that the same rules as those set forth in
§ 125.6 should generally apply to the
calculation of a prote´ge´ firm’s
workshare in the context of a joint
venture. This means that the rules
concerning supplies, construction and
mixed contracts apply to the joint
venture situation and certain costs are
excluded from the limitation on
subcontracting calculation. For instance,
the cost of materials would first be
excluded in a contract for supplies or
products before determining whether
the joint venture is not subcontracting
more than 50 percent of the amount
paid by the Government. However, SBA
has never intended that a prote´ge´ firm
could subcontract its 40 percent
performance requirement to a similarly
situated entity. In other words, SBA has
always believed that the prote´ge´ itself
must perform at least 40 percent of the
work to be performed by a joint venture
between the prote´ge´ firm and its mentor,
and that it cannot subcontract such
work to a similarly situated entity. The
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
only reason that a large business mentor
is able to participate in a joint venture
with its prote´ge´ for a small business
contract is to promote the business
development of the prote´ge´ firm. Where
a prote´ge´ firm would subcontract some
or all of its requirement to perform at
least 40 percent of the work to be done
by the joint venture to a similarly
situated entity, SBA does not believe
that this purpose would be met. The
large business mentor is authorized to
participate in a joint venture as a small
business only because its prote´ge´ is
receiving valuable business
development assistance through the
performance of at least 40 percent of the
work performed by the joint venture.
Thus, although a similarly situated firm
can be used to meet the 50 percent
performance requirement, it cannot be
used to meet the 40 percent
performance requirement for the prote´ge´
itself. For example, if a joint venture
between a prote´ge´ firm and its mentor
were awarded a $10 million services
contract and a similarly situated entity
were to perform $2 million of the
required services, the joint venture
would be required to perform $3 million
of the services (i.e., to get to a total of
$5 million or 50 percent of the value of
the contract between the joint venture
and the similarly situated entity). If the
joint venture were to perform $3 million
of the services, the prote´ge´ firm, and
only the prote´ge´ firm, must perform at
least 40 percent of $3 million or $1.2
million. The final rule clarifies that
rules set forth in § 125.6 generally apply
to joint ventures and that a prote´ge´
cannot meet the 40 percent performance
requirement by subcontracting to one or
more similar situated entities.
Comments also requested further
guidance on the requirement in
§ 125.8(b)(2)(ii) that a joint venture must
designate an employee of the small
business managing venture as the
project manager responsible for
performance of the contract. These
commenters pointed out that many
contracts do not have a position labeled
‘‘project manager,’’ but instead have a
position named ‘‘program manager,’’
‘‘program director,’’ or some other term
to designate the individual responsible
for performance. SBA agrees that the
title of the individual is not the
important determination, but rather the
responsibilities. The provision seeks to
require that the individual responsible
for performance must come from the
small business managing venture, and
this rule makes that clarification. For
consistency purposes, SBA has made
these same changes to § 124.513(c) for
8(a) joint ventures, to § 125.18(b)(2) for
PO 00000
Frm 00023
Fmt 4701
Sfmt 4700
66167
SDVO small business joint ventures, to
§ 126.616(c) for HUBZone joint
ventures, and to § 127.506(c) for WOSB
joint ventures.
Several commenters sought additional
clarification to the rules pertaining to
joint ventures for the various small
business programs. Specifically, these
commenters believed that the rules
applicable to small business set-asides
in § 125.8(a) were not exactly the same
as those set forth in §§ 125.18(b)(1)(i)
(for SDVO joint ventures), 126.616(b)(1)
(for WOSB joint ventures) and
127.506(a)(1) (for HUBZone joint
ventures), and that a mentor-prote´ge´
joint venture might not be able to seek
the same type of contract, subcontract or
sale in one program as it can in another.
In response, SBA has added language to
§ 125.9(d)(1) to make clear that a joint
venture between a prote´ge´ and mentor
may seek a Federal prime contract,
subcontract or sale as a small business,
HUBZone small business, SDB, SDVO
small business, or WOSB provided the
prote´ge´ individually qualifies as such.
One commenter recommended a
change to proposed § 125.8(e) regarding
the past performance and experience of
joint venture partners. The proposed
rule provided that when evaluating the
past performance and experience of a
joint venture submitting an offer for a
contract set aside or reserved for small
business, a procuring activity must
consider work done and qualifications
held individually by each partner to the
joint venture as well as any work done
by the joint venture itself previously.
The commenter agreed with that
provision, but recommended that it be
further refined to prohibit a procuring
activity from requiring the prote´ge´ to
individually meet any evaluation or
responsibility criteria. SBA understands
the concern that some procuring
activities have required unreasonable
requirements of prote´ge´ small business
partners to mentor-prote´ge´ joint
ventures. SBA’s rules require a small
business prote´ge´ to have some
experience in the type of work to be
performed under the contract. However,
it is unreasonable to require the prote´ge´
concern itself to have the same level of
past performance and experience (either
in dollar value or number of previous
contracts performed, years of
performance, or otherwise) as its large
business mentor. The reason that any
small business joint ventures with
another business entity, whether a
mentor-prote´ge´ joint venture or a joint
venture with another small business
concern, is because it cannot meet all
performance requirements by itself and
seeks to gain experience through the
help of its joint venture partner. SBA
E:\FR\FM\16OCR4.SGM
16OCR4
66168
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
believes that a solicitation provision
that requires both a prote´ge´ firm and a
mentor to each have the same level of
past performance (e.g., each partner to
have individually previously performed
5 contracts of at least $10 million) is
unreasonable, and should not be
permitted. However, SBA disagrees that
a procuring activity should not be able
to require a prote´ge´ firm to individually
meet any evaluation or responsibility
criteria. SBA intends that the prote´ge´
firm gain valuable business
development assistance through the
joint venture relationship. The prote´ge´
must, however, bring something to the
table other than its size or socioeconomic status. The joint venture
should be a tool to enable it to win and
perform a contract in an area that it has
some experience but that it could not
have won on its own.
Section 125.9
This final rule first reorganizes some
of the current provisions in § 125.9 for
ease of use and understanding. The rule
reorganizes and clarifies § 125.9(b). It
clarifies that in order to qualify as a
mentor, SBA will look at three things,
whether the proposed mentor: Is
capable of carrying out its
responsibilities to assist the prote´ge´ firm
under the proposed mentor-prote´ge´
agreement; does not appear on the
Federal list of debarred or suspended
contractors; and can impart value to a
prote´ge´ firm. Instead of requiring SBA to
look at and determine that a proposed
mentor possesses good character in
every case, the rule amends this
provision to specify that SBA will
decline an application if SBA
determines that the mentor does not
possess good character. The rule also
clarifies that a mentor that has more
than one prote´ge´ cannot submit
competing offers in response to a
solicitation for a specific procurement
through separate joint ventures with
different prote´ge´s. That has always been
SBA’s intent (the current rule specifies
that a second mentor-prote´ge´
relationship cannot be a competitor of
the first), but SBA wants to make this
clear in response to questions SBA has
received regarding this issue.
Commenters generally supported these
clarifications. One commenter asked
SBA to clarify the provision prohibiting
a mentor that has more than one prote´ge´
from submitting competing offers in
response to a solicitation for a specific
procurement. Specifically, the
commenter noted that many multiple
award procurements have separate
pools of potential awardees. For
example, an agency may have a single
solicitation that calls for awarding
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
indefinite delivery indefinite quantity
(IDIQ) contracts in unrestricted, small
business, HUBZone, 8(a), WOSB, and
SDVO small business pools. All offerors
submit proposals in response to the
same solicitation and indicate the
pool(s) for which they are competing.
The commenter sought clarification as
to whether a mentor with two different
prote´ge´s could submit an offer as a joint
venture with one prote´ge´ for one pool
and another offer as a joint venture with
a second prote´ge´ for a different pool.
SBA first notes that in order for SBA to
approve a second mentor-prote´ge´
relationship for a specific mentor, the
mentor must demonstrate that the
additional mentor-prote´ge´ relationship
will not adversely affect the
development of either prote´ge´ firm. In
particular, the mentor must show that
the second prote´ge´ will not be a
competitor of the first prote´ge´. Thus, the
mentor has already assured SBA that the
two prote´ge´s would not be competitors.
If the two mentor-prote´ge´ relationships
were approved in the same NAICS code,
then the mentor must have already
made a commitment that the two firms
would not compete against each other.
This could include, for example, a
commitment that the one mentorprote´ge´ relationship would seek only
HUBZone and small business set-aside
contracts while the second would seek
only 8(a) contracts. That being the case,
the same mentor could submit an offer
as a joint venture with one prote´ge´ for
one pool and another offer as a joint
venture with a second prote´ge´ for a
different pool on the same solicitation
because they would not be deemed
competitors with respect to that
procurement. SBA does not believe,
however, that a change is needed from
the proposed regulatory text since that
is merely an interpretation of what
‘‘competing offers’’ means. SBA adopts
the proposed language as final in this
rule.
The proposed rule also sought
comments as to whether SBA should
limit mentors only to those firms having
average annual revenues of less than
$100 million. Currently, any concern
that demonstrates a commitment and
the ability to assist small business
concerns may act as a mentor. This
includes large businesses of any size.
This proposal was in response to
suggestions from ‘‘mid-size’’ companies
(i.e., those that no longer qualify as
small under their primary NAICS codes,
but believe that they cannot adequately
compete against the much larger
companies) that a mentor-prote´ge´
program that excluded very large
businesses would be beneficial to the
PO 00000
Frm 00024
Fmt 4701
Sfmt 4700
mid-size firms and allow them to more
effectively compete. This was the single
most commented-on issue in the
proposed rule. SBA received more than
150 comments in response to this
alternative. The vast majority of
commenters strongly opposed this
proposal. Commenters agreed with
SBA’s stated intent that the focus of the
mentor-prote´ge´ program should be on
the prote´ge´ firm, and how best valuable
business development assistance can be
provided to a prote´ge´ to enable that firm
to more effectively compete on its own
in the future. They believed that such a
restriction would harm small
businesses, as it would restrict the
universe of potential mentors which
could provide valuable business
assistance to them. Commenters
believed that the size of the mentor
should not matter as long as that entity
is providing needed business
development assistance to its prote´ge´.
Commenters believed that SBA’s
priority should be to ensure that needed
business development assistance will be
provided to prote´ge´ firms though a
mentor-prote´ge´ agreement, and the size
of the mentor should not be a relevant
consideration. All that should matter is
whether the proposed mentor
demonstrates a commitment and the
ability to assist small business concerns.
Several commenters believed that larger
business entities actually serve as better
mentors since they are involved in the
program to help the prote´ge´ firm and
not to gain further access to small
business contracting (through joint
ventures) for themselves. In response,
SBA will not adopt the proposal, but
rather will continue to allow any
business entity, regardless of size, that
demonstrates a commitment and the
ability to assist small business concerns
to act as a mentor.
This rule also implements Section 861
of the National Defense Authorization
Act (NDAA) of 2019, Public Law 115–
232, to make three changes to the
mentor-prote´ge´ program in order to
benefit Puerto Rican small businesses.
First, the rule amends § 125.9(b)
regarding the number of prote´ge´ firms
that one mentor can have at any one
time. Currently, the regulation provides
that under no circumstances can a
mentor have more than three prote´ge´s at
one time. Section 861 of the NDAA
provides that the restriction on the
number of prote´ge´ firms a mentor can
have shall not apply to up to two
mentor-protege relationships if such
relationships are with a small business
that has its principal office located in
the Commonwealth of Puerto Rico. As
such, § 125.9(b)(3)(ii) provides that a
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
mentor generally cannot have more than
three prote´ge´s at one time, but that the
first two mentor-prote´ge´ relationships
between a specific mentor and a small
business that has its principal office
located in the Commonwealth of Puerto
Rico will not count against the limit of
three prote´ge´s that a mentor can have at
one time. Thus, if a mentor did have
two prote´ge´s that had their principal
offices in Puerto Rico, it could have an
additional three prote´ge´s, or a total of
five prote´ge´s, and comply with SBA’s
requirements. The rule also adds a new
§ 125.9(d)(6) to implement a provision
of Section 861 of NDAA 2019, which
authorizes contracting incentives to
mentors that subcontract to prote´ge´
firms that are Puerto Rico businesses.
Specifically, § 125.9(d)(6) provides that
a mentor that provides a subcontract to
a prote´ge´ that has its principal office
located in Puerto Rico may (i) receive
positive consideration for the mentor’s
past performance evaluation, and (ii)
apply costs incurred for providing
training to such prote´ge´ toward the
subcontracting goals contained in the
subcontracting plan of the mentor.
Commenters supported these
provisions, and SBA adopts them as
final in this rule. A few commenters
asked for clarification as to whether
these provisions applied to entityowned firms located in Puerto Rico. The
statute and proposed regulatory text
notes that it applies to any business
concern that has its principal office in
Puerto Rico. If a tribally-owned or ANCowned firm has its principal office in
Puerto Rico, then the provision applies
to it. SBA does not believe further
clarification is needed. The principal
office requirement should be sufficient.
One commenter also questioned the
provision in the proposed rule allowing
mentor training costs to count toward a
mentor’s small subcontracting goals,
believing that training costs should
never be allowed as subcontracting
costs. That is not something SBA
proposed on its own. That provision
was specifically authorized by Section
861 of NDAA 2019. As such, that
provision is unchanged in this final
rule.
A few commenters also recommended
that SBA allow a mentor to have more
than three prote´ge´s at a time generally
(i.e., not only where small businesses in
Puerto Rico are involved). These
commenters noted that very large
business concerns operate under
multiple NAICS codes and have the
capability to mentor a large number of
small prote´ge´ firms that are not in
competition with each other. Although
SBA understands that many large
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
businesses have the capability to mentor
more than three small business concerns
at one time, SBA does not believe it is
good policy for anyone to perceive that
one or more large businesses are unduly
benefitting from small business
programs. The rules allow a mentor to
joint venture with its prote´ge´ and be
deemed small for any contract for which
the prote´ge´ individually qualifies as
small, and to perform 60 percent of
whatever work the joint venture
performs. Moreover, a mentor can also
own an equity interest of up to 40
percent in the prote´ge´ firm. If a large
business mentor were able to have five
(or more) prote´ge´s at one time, it could
have a joint venture with each of those
prote´ge´s and perform 60 percent of
every small business contract awarded
to the joint venture. It also could
(though unlikely) have a 40 percent
equity interest in each of those small
prote´ge´ firms. In such a case, SBA
believes that it would appear that the
large business mentor is unduly
benefitting from contracting programs
intended to be reserved for small
businesses. As such, this rule does not
increase the number of prote´ge´ firms
that one mentor can have.
The proposed rule clarified the
requirements for a firm seeking to form
a mentor-prote´ge´ relationship in a
NAICS code that is not the firm’s
primary NAICS code (§ 125.9(c)(1)(ii)).
SBA has always intended that a firm
seeking to be a prote´ge´ could choose to
establish a mentor-prote´ge´ relationship
to assist its business development in
any business area in which it has
performed work as long as the firm
qualifies as small for the work targeted
in the mentor-prote´ge´ agreement. The
proposed rule highlighted SBA’s belief
that a firm must have performed some
work in a secondary industry or NAICS
code in order for SBA to approve such
a mentor-prote´ge´ relationship. SBA does
not want a firm that has grown to be
other than small in its primary NAICS
codes to form a mentor-prote´ge´
relationship in a NAICS code in which
it had no experience simply because it
qualified as small in that other NAICS
code. SBA believes that such a situation
(i.e., having a prote´ge´ with no
experience in a secondary NAICS code)
could lead to abuse of the program. It
would be hard for a firm with no
experience in a secondary NAICS code
to be the lead on a joint venture with its
mentor. Similarly, a mentor with all the
experience could easily take control of
a joint venture and perform all of the
work required of the joint venture. The
proposed rule clarified that a firm may
seek to be a prote´ge´ in any NAICS code
PO 00000
Frm 00025
Fmt 4701
Sfmt 4700
66169
for which it qualifies as small and can
form a mentor-prote´ge´ relationship in a
secondary NAICS code if it qualifies as
small and has prior experience or
previously performed work in that
NAICS code. Several commenters
sought further clarification of this
provision. Commenters noted that a
procuring activity may assign different
NAICS codes to the same basic type of
work. These commenters questioned
whether a firm needed to demonstrate
that it performed work in a specific
NAICS code or could demonstrate that
it has performed the same type of work,
whatever NAICS code was assigned to
it. Similarly, other commenters again
questioned whether a firm must
demonstrate previous work performed
in a specific NAICS code, or whether
similar work that would logically lead
to work in a different NAICS code
would be permitted. SBA agrees with
these comments. SBA believes that
similar work performed by the
prospective prote´ge´ to that for which a
mentor-prote´ge´ relationship is sought
should be sufficient, even if the
previously performed work is in a
different NAICS code than that for
which a mentor-prote´ge´ agreement is
sought. In addition, if the NAICS code
in which a mentor-prote´ge´ relationship
is sought is a logical progression from
work previously performed by the
intended prote´ge´ firm, that too should
be permitted. SBA’s intent is to
encourage business development, and
any relationship that promotes a logical
business progression for the prote´ge´
firm fulfills that intent.
The proposed rule also responded to
concerns raised by small businesses
regarding the regulatory limit of
permitting only two mentor-prote´ge´
relationships even where the small
business prote´ge´ receives no or limited
assistance from its mentor through a
particular mentor-prote´ge´ agreement.
SBA believes that a relationship that
provides no business development
assistance or contracting opportunities
to a prote´ge´ should not be counted
against the firm, or that the firm should
not be restricted to having only one
additional mentor-prote´ge´ relationship
in such a case. However, SBA did not
want to impose additional burdens on
prote´ge´ firms that would require them to
document and demonstrate that they
did not receive benefits through their
mentor-prote´ge´ relationships. In order to
eliminate any disagreements as to
whether a firm did or did not receive
any assistance under its mentor-prote´ge´
agreement, SBA proposed to establish
an easily understandable and objective
basis for counting or not counting a
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66170
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
mentor-prote´ge´ relationship.
Specifically, the proposed rule amended
§ 125.9(e)(6) to not count any mentorprote´ge´ relationship toward a firm’s two
permitted lifetime mentor-prote´ge´
relationships where the mentor-prote´ge´
agreement is terminated within 18
months from the date SBA approved the
agreement. The vast majority of
commenters supported a specific,
objective amount of time within which
a prote´ge´ could end a mentor-prote´ge´
relationship without having it count
against the two in a lifetime limit.
Commenters pointed out, however, that
the supplementary information to and
the regulatory text in the proposed rule
were inconsistent (i.e., the
supplementary information saying 18
months and the regulatory text saying
one year). Several comments
recommended increasing the lifetime
number of mentor-prote´ge´ relationships
that a small business concern could
have. Finally, a few commenters
opposed the proposed exemption to the
two-in-lifetime rule because allowing
prote´ge´ firms such an easy out within 18
months, whether or not the prote´ge´
received beneficial business
development assistance, could act as a
detriment to firms that would otherwise
be willing to serve as mentors. One
commenter was concerned that if a
bright line 18-month test is all that is
required, nothing would prevent an
unscrupulous business from running
through an endless chain of relatively
short-lived mentor-prote´ge´
relationships. SBA does not believe that
will be a frequent occurrence.
Nevertheless, in response, the final rule
provides that if a specific small business
prote´ge´ appears to use the 18-month test
as a means of using many short-term
mentor-prote´ge´ relationships, SBA may
determine that the business concern has
exhausted its participation in the
mentor-prote´ge´ program and not
approve an additional mentor-prote´ge´
relationship.
The proposed rule also eliminated the
reconsideration process for declined
mentor-prote´ge´ agreements in § 125.9(f)
as unnecessary. Currently, if SBA
declines a mentor-prote´ge´ agreement,
the prospective small business prote´ge´
may make changes to its agreement and
seek reconsideration from SBA within
45 days of SBA’s decision to decline the
mentor-prote´ge´ relationship. The
current regulations also allow the small
business to submit a new (or revised)
mentor-prote´ge´ agreement to SBA at any
point after 60 days from the date of
SBA’s final decision declining a mentorprote´ge´ relationship. SBA believes that
this ability to submit a new or revised
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
mentor-prote´ge´ agreement after 60 days
is sufficient. Most commenters
supported this change, agreeing that a
separate reconsideration process is
unnecessary. A few commenters
disagreed, believing that requiring a
small business to wait 60 days to submit
a revised mentor-prote´ge´ agreement and
then start SBA’s processing time instead
of submitting a revised agreement
within a few days of a decline decision
could add an additional two months of
wait time to an ultimate approval. SBA
continues to believe that the small
amount of time a small business must
wait to resubmit a new/revised mentorprote´ge´ agreement to SBA for approval
makes the reconsideration process
unnecessary. As such, this rule finalizes
the elimination of a separate
reconsideration process.
The proposed rule added clarifying
language regarding the annual review of
mentor-prote´ge´ relationships. It is
important that SBA receive an honest
assessment from the prote´ge´ of how the
mentor-prote´ge´ relationship is working,
whether the prote´ge´ has received the
agreed-upon business development
assistance, and whether the prote´ge´
would recommend the mentor to be a
mentor for another small business in the
future. SBA needs to know if the mentor
is not providing the agreed-upon
business development assistance to the
prote´ge´. This would affect that firm’s
ability to be a mentor in the future.
Several commenters were also
concerned about mentors that did not
live up to their commitments. A few
commenters recommended that a
prote´ge´ firm should be able to ask SBA
to intervene if it thought it was not
receiving the assistance promised by the
mentor or if it thought that the
assistance provided was not of the
quality it anticipated. SBA believes that
makes sense and this rule adds a
provision allowing a prote´ge´ to request
SBA to intervene on its behalf with the
mentor. Such a request would cause
SBA to notify the mentor that SBA had
received adverse information regarding
its participation as a mentor and allow
the mentor to respond to that
information. If the mentor did not
overcome the allegations, SBA would
terminate the mentor-prote´ge´ agreement.
The final rule also adds a provision that
allows a prote´ge´ to substitute another
firm to be its mentor for the time
remaining in the mentor-prote´ge´
agreement without counting against the
two-mentor limit. If two years had
already elapsed in the mentor-prote´ge´
agreement, the prote´ge´ could substitute
another firm to be its mentor for a total
of four years.
PO 00000
Frm 00026
Fmt 4701
Sfmt 4700
Prior to the proposed rule, SBA had
also received several complaints from
small business prote´ge´s whose mentorprote´ge´ relationships were terminated
by the mentor soon after a joint venture
between the prote´ge´ and mentor
received a Government contract as a
small business. The proposed rule asked
for comments about the possibility of
adding a provision requiring a joint
venture between a prote´ge´ and its
mentor to recertify its size if the mentor
prematurely ended the mentor-prote´ge´
relationship. Commenters did not
support this possible approach,
believing that such a recertification
requirement would have a much more
serious impact on the prote´ge´ than on
the mentor. In effect, such a provision
would punish a prote´ge´ for its mentor’s
failure to meet its obligations under the
mentor-prote´ge´ agreement. Upon further
review, SBA believes that better options
are provided in current § 125.9(h),
which provides consequences for when
a mentor does not provide to the prote´ge´
firm the business development
assistance set forth in its mentor-prote´ge´
agreement. Under the current
regulations, where that occurs, the firm
will be ineligible to again act as a
mentor for a period of two years from
the date SBA terminates the mentorprote´ge´ agreement, SBA may
recommend to the relevant procuring
agency to issue a stop work order for
each Federal contract for which the
mentor and prote´ge´ are performing as a
small business joint venture, and SBA
may seek to substitute the prote´ge´ firm
for the joint venture if the prote´ge´ firm
is able to independently complete
performance of any joint venture
contract without the mentor. SBA
believes that provision should be
sufficient to dissuade mentors from
terminating mentor-prote´ge´ agreements
early.
Section 125.18
In addition to the revision to
§ 125.18(c) identified above, this rule
amends the language in § 125.18(a) to
clarify what representations and
certifications a business concern seeking
to be awarded a SDVO contract must
submit as part of its offer.
Section 126.602
On November 26, 2019, SBA
published a final rule amending the
HUBZone regulations. 84 FR 65222. As
part of that rule, SBA revised 13 CFR
126.200 by reorganizing the section to
make it more readable. However, SBA
inadvertently overlooked a crossreference to section 126.200 contained
in § 126.602(c). This rule merely fixes
the cross-reference in § 126.602(c).
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
Section 126.606
The final rule amends § 126.606 to
make it consistent with the release
requirements of § 124.504(d). Current
§ 126.606 authorizes SBA to release a
follow-on requirement previously
performed through the 8(a) BD program
for award as a HUBZone contract only
where neither the incumbent nor any
other 8(a) Participant can perform the
requirement. SBA believes that is overly
restrictive and inconsistent with the
release language contained in
§ 124.504(d). As such, the final rule
provides that a procuring activity may
request that SBA release an 8(a)
requirement for award as a HUBZone
contract under the procedures set forth
in § 124.504(d).
Sections 126.616 and 126.618
This rule makes minor revisions to
§§ 126.616 and 126.618 by merely
deleting references to the 8(a) BD
Mentor-Prote´ge´ Program, since that
program would no longer exist as a
separate program.
Sections 127.503(h) and 127.504
In addition to the revision to
§ 127.504(c) identified above, the
proposed rule made other changes or
clarifications to § 127.504. The proposed
rule renamed and revised § 127.504 for
better understanding and ease of use. It
changed the section heading to ‘‘What
requirements must an EDWOSB or
WOSB meet to be eligible for an
EDWOSB or WOSB contract?’’. SBA
received no comments on these changes
and adopts them as final in this rule.
This rule also moves the
recertification procedures for WOSBs
from § 127.503(h) to § 127.504(e).
jbell on DSKJLSW7X2PROD with RULES4
Sections 134.318 and 121.1103
This rule amends § 134.318 to make it
consistent with SBA’s size regulations.
In this regard, § 121.1103(c)(1)(i) of
SBA’s size regulations provides that
upon receipt of the service copy of a
NAICS code appeal, the contracting
officer must ‘‘stay the solicitation.’’
However, when that rule was
implemented, a corresponding change
was not made to the procedural rules for
SBA’s OHA contained in part 134. As
such, this rule simply requires that the
contracting officer must amend the
solicitation to reflect the new NAICS
code whenever OHA changes a NAICS
code in response to a NAICS code
appeal. In addition, for clarity purposes,
the rule revises § 121.1103(c)(1)(i) to
provide that a contracting officer must
stay the date of the closing of the receipt
of offers instead of requiring that he or
she must stay the solicitation.
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
III. Compliance With Executive Orders
12866, 12988, 13132, 13175, 13563,
13771, the Paperwork Reduction Act
(44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601–612)
Executive Order 12866
The Office of Management and Budget
(OMB) has determined that this rule is
a significant regulatory action for the
purposes of Executive Order 12866.
Accordingly, the next section contains
SBA’s Regulatory Impact Analysis. This
is not a major rule, however, under the
Congressional Review Act.
Regulatory Impact Analysis
1. Is there a need for the regulatory
action?
In combining the 8(a) BD MentorProte´ge´ Program and the All Small
Mentor-Prote´ge´ Program, SBA seeks to
eliminate confusion regarding perceived
differences between the two Programs,
remove unnecessary duplication of
functions within SBA, and establish
one, unified staff to better coordinate
and process mentor-prote´ge´
applications. In addition, eliminating
the requirement that SBA approve every
joint venture in connection with an 8(a)
contract will greatly reduce the time
required for 8(a) BD Participants to
come into and SBA to ensure
compliance with SBA’s joint venture
requirements.
SBA is also making several changes to
clarify its regulations. Through the
years, SBA has spoken with small
business and representatives and has
determined that several regulations
need further refinement so that they are
easier to understand and implement.
This rule makes several changes to
ensure that the rules pertaining to SBA’s
various small business procurement
programs are consistent. SBA believes
that making the programs as consistent
and similar as possible, where
practicable, will make it easier for small
businesses to understand what is
expected of them and to comply with
those requirements.
2. What is the baseline, and the
incremental benefits and costs of this
regulatory action?
This rule seeks to address or clarify
several issues, which will provide
clarity to small businesses and
contracting personnel. Further, SBA is
eliminating the burden that 8(a)
Participants seeking to be awarded a
competitive 8(a) contract as a joint
venture must submit the joint venture to
SBA for review and approval prior to
contract award. There are currently
approximately 4,500 8(a) BD
Participants in the portfolio. Of those,
PO 00000
Frm 00027
Fmt 4701
Sfmt 4700
66171
about 10 percent or roughly 450
Participants have entered a joint venture
agreement to seek the award of an 8(a)
contract. Under the current rules, SBA
must approve the initial joint venture
agreement itself and each addendum to
the joint venture agreement—identifying
the type of work and what percentage
each partner to the joint venture would
perform of a specific 8(a) procurement—
prior to contract award. SBA reviews
the terms of the joint venture agreement
for regulatory compliance and must also
assess the 8(a) BD Participant’s capacity
and whether the agreement is fair and
equitable and will be of substantial
benefit to the 8(a) concern. It is difficult
to calculate the costs associated with
submitting a joint venture agreement to
SBA because the review process is
highly fact-intensive and typically
requires that 8(a) firms provide
additional information and clarification.
However, in the Agency’s best
professional judgment, it is estimated
that an 8(a) Participant currently spends
approximately three hours submitting a
joint venture agreement to SBA and
responding to questions regarding that
submission. That equates to
approximately 1,350 hours at an
estimated rate of $44.06 per hour—the
median wage plus benefits for
accountants and auditors according to
2018 data from the Bureau of Labor
Statistics—for an annual total cost
savings to 8(a) Participants of about
$59,500. In addition to the initial joint
venture review and approval process,
each joint venture can be awarded two
more contracts which would require
additional submissions and
explanations for any such joint venture
addendum. Not every joint venture is
awarded more than one contract, but
those that do are often awarded the
maximum allowed of three contracts.
SBA estimates that Participants submit
an additional 300 addendum actions,
with each action taking about 1.5 hours
for the Participant. That equates to
approximately 450 hours at an
estimated rate of $44.06 per hour for an
annual total cost savings to 8(a)
Participants of about $19,800. Between
both initial and addendum actions, this
equates to an annual total cost savings
to 8(a) Participants of about $79,300.
In addition, merging the 8(a) BD
Mentor-Prote´ge´ Program into the All
Small Mentor-Prote´ge´ Program would
also provide cost savings. Firms seeking
a mentor-prote´ge´ relationship through
the All Small Mentor-Prote´ge´ Program
apply through an on-line, electronic
application system. 8(a) Participants
seeking SBA’s approval of a mentorprote´ge´ relationship through the 8(a) BD
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66172
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
program do not apply through an online, electronic system, but rather apply
manually through their servicing SBA
district office. In SBA’s best professional
judgment, the additional cost for
submitting a manual mentor-prote´ge´
agreement to SBA for review and
approval and responding manually to
questions regarding that submission is
estimated at two hours. SBA receives
approximately 150 applications for 8(a)
mentor-prote´ge´ relationships annually,
which equates to an annual savings to
prospective prote´ge´ firms of about 300
hours. At an estimated rate of $44.06 per
hour, the annual savings in costs related
to the reduced time for mentor-prote´ge´
applications through the All Small
Mentor Prote´ge´ process is about $13,000
per year. In a similar vein, eliminating
the manual review and approval process
for 8(a) BD Mentor-Prote´ge´ Program
applications will provide cost savings to
the Federal government. As previously
noted, an 8(a) Participant seeking SBA’s
approval of a mentor-prote´ge´
relationship through the 8(a) BD
program must submit an application
manually to its servicing district office.
The servicing district office likewise
conducts a manual review of each
application for completeness and for
regulatory compliance. This review
process can be cumbersome since the
analyst must first download and
organize all application materials by
hand. In contrast, the on-line, electronic
application system available to
prospective prote´ge´s in the All Small
Mentor-Prote´ge´ Program has
significantly streamlined SBA’s review
process in two ways. First, it logically
organizes application materials for the
reviewer, resulting in a more efficient
and consistent review of each
application. Second, all application
materials are housed in a central
document repository and are accessible
to the reviewer without the need to
download files. In the Agency’s best
professional judgment, this streamlined
application review process delivers
estimated savings of 30 percent per
application as compared to the manual
application review process under the
8(a) BD Mentor-Prote´ge´ Program. SBA
further estimates that it takes
approximately three hours to review an
application for the All Small Mentor
Prote´ge´ Program. That equates to
approximately 135 hours (i.e., 150
applications multiplied by three hours
multiplied by 30 percent) at an
estimated rate of $44.06 per hour for an
annual total cost savings to the Federal
government of about $5,900 per year.
The elimination of manual application
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
process creates a total cost savings of
$18,900 per year.
Moreover, eliminating the 8(a) BD
Mentor-Prote´ge´ Program as a separate
program and merging it with the All
Small Mentor-Prote´ge´ Program will
eliminate confusion between the two
programs for firms seeking a mentorprote´ge´ relationship. When SBA first
implemented the All Small MentorProte´ge´ Program, it intended to establish
a program substantively identical to the
8(a) BD Mentor-Prote´ge´ Program, as
required by Section 1641 of the NDAA
of 2013. Nevertheless, feedback from the
small business community reveals a
widespread misconception that the two
programs offer different benefits. By
merging the 8(a) BD Mentor-Prote´ge´
Program into the All Small-Mentor
Prote´ge´ Program, firms will not have to
read the requirements for both programs
and try to decipher perceived
differences. SBA estimates that having
one combined program will eliminate
about one hour of preparation time for
each firm seeking a mentor-prote´ge´
relationship. Based on approximately
600 mentor-prote´ge´ applications each
year (about 450 for the All Small
Mentor-Prote´ge´ Program and about 150
for the 8(a) BD Mentor-Prote´ge´
Program), this would equate to an
annual cost savings to prospective
prote´ge´ firms of about 600 hours. At an
estimated rate of $44.06 per hour, the
annual savings in costs related to the
elimination of confusion caused by
having two separate programs is about
$26,400.
Thus, in total, the merger of the 8(a)
BD mentor-prote´ge´ program into the All
Small Business Mentor-Prote´ge´ Program
would provide a cost savings of about
$45,300 per year.
In addition, it generally takes between
60 and 90 days for SBA to approve a
mentor-prote´ge´ relationship through the
8(a) BD program. Conversely, the
average time it takes to approve a
mentor-prote´ge´ relationship through the
All Small Mentor-Prote´ge´ Program is
about 20 working days. To firms seeking
to submit offers through a joint venture
with their mentors, this difference is
significant. Such joint ventures are only
eligible for the regulatory exclusion
from affiliation if they are formed after
SBA approves the underlying mentorprote´ge´ relationship. It follows that
firms applying through the 8(a) BD
Mentor-Prote´ge´ Program could miss out
on contract opportunities waiting for
their mentor-prote´ge´ relationships to be
approved. These contract opportunity
costs are inherently difficult to measure,
but are certainly significant to the firms
missing out on specific contract
opportunities. However, in SBA’s best
PO 00000
Frm 00028
Fmt 4701
Sfmt 4700
judgment, faster approval timeframes
will mitigate such costs by giving
program participants more certainty in
planning their proposal strategies.
This rule will also eliminate the
requirement that any specific joint
venture can be awarded no more than
three contracts over a two year period,
but will instead permit a joint venture
to be awarded an unlimited number of
contracts over a two year period. The
change removing the limit of three
awards to any joint venture will reduce
the burden of small businesses being
required to form additional joint venture
entities to perform a fourth contract
within that two-year period. SBA has
observed that joint ventures are often
established as separate legal entities—
specifically as limited liability
corporations—based on considerations
related to individual venture liability,
tax liability, regulatory requirements,
and exit strategies. Under the current
rule, joint venture partners must form a
new joint venture entity after receiving
three contracts lest they be deemed
affiliated for all purposes. The rule,
which allows a joint venture to continue
to seek and be awarded contracts
without requiring the partners to form a
new joint venture entity after receiving
its third contract, will save small
businesses significant legal costs in
establishing new joint ventures and
ensuring that those entities meet all
applicable regulatory requirements.
This rule also makes several changes
to reduce the burden of recertifying
small business status generally and
requesting changes of ownership in the
8(a) BD program. Specifically, the rule
clarifies that a concern that is at least 51
percent owned by an entity (i.e., tribe,
ANC, or Community Development
Corporation (CDC)) need not recertify its
status as a small business when the
ownership of the concern changes to or
from a wholly-owned business concern
of the same entity, as long as the
ultimate owner remains that entity. In
addition, the rule also provides that a
Participant in SBA’s 8(a) BD program
that is owned by an ANC or tribe need
not request a change of ownership from
SBA where the ANC or tribe merely
reorganizes its ownership of a
Participant in the 8(a) BD program by
inserting or removing a wholly-owned
business entity between the ANC/tribe
and the Participant. Both changes will
save entity-owned small business
concerns time and money. Similarly, the
rule provides that prior SBA approval is
not needed where the disadvantaged
individual (or entity) in control of a
Participant in the 8(a) BD program will
increase the percentage of his or her (its)
ownership interest.
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
The rule will also allow a concern
that has been declined for 8(a) BD
program participation to submit a new
application 90 days after the date of the
Agency’s final decision to decline. This
changes the current rule which requires
a concern to wait 12 months from the
date of the final Agency decision to
reapply. This will allow firms that have
been declined from participating in the
8(a) BD program the opportunity to
correct deficiencies, come into
compliance with program eligibility
requirements, reapply and be admitted
to the program and receive the benefits
of the program much more quickly. SBA
understands that by reducing the reapplication waiting period there is the
potential to strain the Agency’s
resources with higher application
volumes. In the Agency’s best judgment,
any costs associated with the increase in
application volume would be
outweighed by the potential benefit of
providing business development
assistance and contracting benefits
sooner to eligible firms.
This rule also clarifies SBA’s position
with respect to size and socioeconomic
status certifications on task orders under
MACs. Currently, size certifications at
the order level are not required unless
the contracting officer, in his or her
discretion, requests a recertification in
connection with a specific order. The
rule requires a concern to submit a
recertification or confirm its size and/or
socioeconomic status for all set-aside
orders (i.e., small business set-aside,
8(a) small business, service-disabled
veteran-owned small business,
HUBZone small business, or womenowned small business) under
unrestricted MACs, except for orders or
Blanket Purchase Agreements issued
under any FSS contracts. Additionally,
the rule requires a concern to submit a
recertification or confirm its
socioeconomic status for all set-aside
orders where the required
socioeconomic status for the order
differs from that of the underlying set
aside MAC. The rule does not require
recertification, however, if the agency
issues the order under a pool or a
reserve, and the pool or reserve already
was set aside in the same category as the
order.
If the firm’s size and status in SAM is
current and accurate when the firm
submits its offer, the concern will not
need to submit a new certification or
submit any additional documentation
with its offer. SBA recognizes that
confirming accurate size and
socioeconomic status imposes a burden
on a small business contract holder, but
the burden is minimal. SBA intends that
confirmation of size and status under
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
this rule will be satisfied by confirming
that the firm’s size and status in SAM
is currently accurate and qualifies the
firm for award.
FPDS–NG indicates that, in Fiscal
Year 2019, agencies set aside 1,800
orders under unrestricted MACs,
excluding orders under FSS contracts.
Agencies also set aside 15 pools or
reserves using already-established
MACs other than FSS contracts. SBA
adopts the assumption from FAR Case
2014–002 that on average there are three
offers per set-aside order. SBA also
assumes that agencies will award five
orders from each set-aside pool or setaside reserve per year, using the same
set-aside category as the pool or reserve.
These pool or reserve orders do not
require recertification at time of order;
therefore, SBA subtracts the pool or
reserve orders from the number of
orders subject to the rule, leaving 1,725
orders subject to the rule.
The annual number of set-aside orders
under unrestricted MACs, excluding
FSS orders and orders under set-aside
pools or reserves, therefore is calculated
as 1,725 orders × 3 offers per order =
5,175. The ease of complying with the
rule varies depending on the size of a
firm. If the firm’s size is not close to the
size standard, compliance is simple; the
firm merely confirms that it has a SAM
registration. SBA estimates those firms
spend 5 minutes per offer to comply
with this rule. For a firm whose size is
close to the size standard, compliance
requires determining whether the firm
presently qualifies for the set-aside—
primarily, whether the firm is presently
a small business. SBA adopts the
estimate from OMB Control No. 9000–
0163 that these firms spend 30 minutes
per offer to comply with this rule.
The share of small businesses that are
within 10 percent of the size standard
is 1.3 percent. Therefore, the annual
public burden of requiring present size
and socioeconomic status is (5,175
offers × 98.7 percent × 5 minutes ×
$44.06 cost per hour) + (5,175 offers ×
1.3 percent × 30 minutes × $44.06 cost
per hour) = $20,250.
FPDS–NG indicates that, in Fiscal
Year 2019, agencies set aside about 130
orders under set-aside MACs (other than
FSS contracts) in the categories covered
by this rule. These categories are WOSB
or EDWOSB set-aside/sole-source orders
under small business set-aside MACs;
SDVOSB set-aside/sole-source orders
under small business set-aside MACs;
and HUBZone set-aside/sole source
orders set-aside/sole-source orders
under small business set-aside MACs.
The ease of complying on these setaside within set-asides varies depending
on whether the firm has had any of
PO 00000
Frm 00029
Fmt 4701
Sfmt 4700
66173
these recent actions: (i) An ownership
change, (ii) a corporate change that
alters control of the firm, such as change
in bylaws or a change in corporate
officers, or (iii) for the HUBZone
program, a change in the firm’s
HUBZone certification status under
SBA’s recently revised HUBZone
program procedures. Although data is
not available, SBA estimates that up to
25 percent of firms would have any of
those recent actions. Firms in that
category will spend 30 minutes per offer
determining whether the firm presently
qualifies for a set-aside order. The
remaining 75 percent of firms will
spend 5 minutes merely confirming that
the firm has an active SAM registration.
Following the same calculations, the
annual cost of requiring present
socioeconomic status on set-aside orders
under set-aside MACs is calculated as
(130 orders × 3 offers/order × 75 percent
× 5 minutes × $44.06 cost per hour) +
(130 orders × 3 offers/order × 25 percent
× 30 minutes × $44.06 cost per hour).
This amounts to an annual cost of about
$3,220.
As reflected in the calculation, SBA
believes that being presently qualified
for the required size or socioeconomic
status on an order, where required,
would impose a burden on small
businesses. A concern already is
required by regulation to update its size
and status certifications in SAM at least
annually. As such, the added burden to
industry is limited to confirming that
the firm’s certification is current and
accurate. The Federal Government,
however, will receive greater accuracy
from renewed certification which will
enhance transparency in reporting and
making awards.
The added burden to ordering
agencies includes the act of checking a
firm’s size and status certification in
SAM at the time of order award. Since
ordering agencies are already familiar
with checking SAM information, such
as to ensure that an order awardee is not
debarred, suspended, or proposed for
debarment, this verification is minimal.
Further, checking SAM at the time of
order award replaces the check of the
offeror’s contract level certification.
SBA also recognizes that an agency’s
market research for the order level may
be impacted where the agency intends
to issue a set-aside order under an
unrestricted vehicle (or a socioeconomic
set-aside under a small business setaside vehicle) except under FSS
contracts. The ordering agency may
need to identify MAC-eligible vendors
and then find their status in SAM. This
is particularly the case where the agency
is applying the Rule of Two and
verifying that there are at least two
E:\FR\FM\16OCR4.SGM
16OCR4
66174
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
small businesses or small businesses
with the required status sufficient to set
aside the order. SBA does not believe
that conducting SAM research is
onerous.
Using the same set-aside order data,
the annual cost of checking
certifications and conducting additional
market research efforts is calculated as
(1725 orders off unrestricted + 130
orders off set-asides) × 30 minutes ×
$44.06/hours = $46,600 in annual
government burden.
Currently, recertification at the
contract level for long term contracts is
specifically identified only at specific
points. This rule makes clear that a
contracting officer has the discretion to
request size recertification as he or she
deems appropriate at any point for a
long-term MAC. FPDS–NG indicates
that, in Fiscal Year 2019, agencies
awarded 399 MACs to small businesses.
SBA estimates that procuring activities
will use their discretion to request
recertification at any point in a long
term contract approximately 10% of the
time. SBA adopts the estimate from
OMB Control No. 9000–0163 that
procuring activities will spend 30
minutes to comply with this rule. The
annual cost of allowing recertification at
any point on a long-term contract to
procuring activities is calculated as (399
MACs × 10%) × 30 minutes × $44.06
cost per hour. This amounts to an
estimated annual cost of $880. Where
requested, this recertification would
impose a burden on small businesses.
Following this same calculation, SBA
estimates that the impact to firms will
also be $880 ((399 number of MACs ×
10%) × 30 minutes × $44.06 per hour).
The total cost is $880 × 2 = $1,760.
The annual cost is partially offset by
the cost savings that result from other
changes in this rule. This change goes
more to accountability and ensuring that
small business contracting vehicles
truly benefit small business concerns. In
addition, commenters responding to the
costs associated with recertification
supported the proposed rule that
requires a firm to recertify its size and/
or socioeconomic status for set-aside
task orders under unrestricted MACs.
These commenters agreed that certifying
in the System for Award Management
(sam.gov) should meet this requirement.
3. What are the alternatives to this rule?
As noted above, this rule makes a
number of changes intended to reduce
unnecessary or excessive burdens on
small businesses, and clarifies other
regulatory provisions to eliminate
confusion among small businesses and
procuring activities. SBA has also
considered other alternative proposals
to achieve these ends. Concerning SBA’s
role in approving 8(a) joint venture
agreements, the Agency could also
eliminate the requirement that SBA
must approve joint ventures in
connection with sole source 8(a)
awards. However, as noted above, SBA
believes that such approval is an
important enforcement mechanism to
ensure that the joint venture rules are
followed. With respect to the
requirement that a concern must wait 90
days to re-apply to the 8(a) BD program
after the date of the Agency’s final
decline decision, SBA could instead
eliminate the application waiting period
altogether. This would allow a concern
to re-apply as soon as it reasonably
believed it had overcome the grounds
for decline. However, SBA believes that
such an alternative would encompass
significant administrative burden on
SBA.
Under the rule, if an order under an
unrestricted MAC is set-aside
exclusively for small business (i.e.,
small business set-aside, 8(a) small
business, service-disabled veteranowned small business, HUBZone small
business, or women-owned small
business), or the order is set aside in a
different category than was the set-aside
MAC, a concern must be qualified for
the required size and socioeconomic
status at the time it submits its initial
offer, which includes price, for the
particular order. In SBA’s view, the
order is the first time size or
socioeconomic status is important
where the underlying MAC is
unrestricted or set aside in a different
category than the set-aside MAC, and
therefore, that is the date at which
eligibility should be examined. SBA
considered maintaining the status quo;
namely, allowing a one-time
certification as to size and
socioeconomic status (i.e., at the time of
the initial offer for the underlying
contract) to control all orders under the
contract, unless one of recertification
requirements applies (see 121.404(g)).
SBA believes the current policy does
not properly promote the interests of
small business. Long-term contracting
vehicles that reward firms that once
were, but no longer qualify as, small or
a particular socioeconomic status
adversely affect truly small or otherwise
eligible businesses.
Another alternative is to require
business concerns to notify contracting
agencies when there is a change to a
concern’s socioeconomic status (e.g.,
HUBZone, WOSB, etc.), such that they
would no longer qualify for set-aside
orders. The contracting agency would
then be required to issue a contract
modification within 30 days, and from
that point forward, ordering agencies
would no longer be able to count
options or orders issued pursuant to the
contract for small business goaling
purposes. This could be less
burdensome than recertification of
socioeconomic status for each set-aside
order.
Summary of Costs and Cost Savings
Table 1: Summary of Incremental
Costs and Cost Savings, below, sets out
the estimated net incremental cost/(cost
saving) associated with this rule. Table
2: Detailed Breakdown of Incremental
Costs and Cost Savings, below, provides
a detailed explanation of the annual
cost/(cost saving) estimates associated
with this rule. This rule is an E.O. 13771
deregulatory action. The annualized
cost savings of this rule, discounted at
7% relative to 2016 over a perpetual
time horizon, is $37,166 in 2016 dollars
with a net present value of $530,947 in
2016 dollars.
jbell on DSKJLSW7X2PROD with RULES4
TABLE 1—SUMMARY OF INCREMENTAL COSTS AND COST SAVINGS
Annual cost/
(cost saving)
estimate
Item No.
Regulatory action item
1 .......................
Eliminating SBA approval of initial and addendums to joint venture agreements to perform competitive 8(a) contracts and eliminating approval for two additional contracts which would require additional submissions and explanations for any such joint venture addendum.
Merging the 8(a) BD Mentor-Prote´ge´ Program into the All Small Mentor-Prote´ge´ Program—Elimination of manual application process.
Merging the 8(a) BD Mentor-Prote´ge´ Program into the All Small Mentor-Prote´ge´ Program—Elimination of confusion among firms seeking a mentor-prote´ge´ relationship.
Requiring recertification for set-aside orders issued under unrestricted Multiple Award Contracts ....
2 .......................
3 .......................
4 .......................
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
PO 00000
Frm 00030
Fmt 4701
Sfmt 4700
E:\FR\FM\16OCR4.SGM
16OCR4
($79,300)
(18,900)
(26,400)
20,250
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
66175
TABLE 1—SUMMARY OF INCREMENTAL COSTS AND COST SAVINGS—Continued
Annual cost/
(cost saving)
estimate
Item No.
Regulatory action item
5 .......................
6 .......................
Requiring recertification for set-aside orders issued under set-aside Multiple Award Contracts .........
Additional Government detailed market research to identify qualified sources for set-aside orders
and verify status.
Contracting officer discretion to request size recertification at any point for a long-term MAC ...........
7 .......................
3,220
46,600
1,760
TABLE 2—DETAILED BREAKDOWN OF INCREMENTAL COSTS AND COST SAVINGS
Regulatory action item details
1 .......................
Regulatory change: SBA is eliminating the burden that 8(a) Participants seeking to be awarded an
8(a) contract as a joint venture must submit the joint venture to SBA for review and approval
prior to contract award. In addition, each joint venture can be awarded two more contracts which
would require additional submissions and explanations for any such joint venture addendum.
Estimated number of impacted entities: There are currently approximately 4,500 8(a) BD Participants in the portfolio. Of those, about 10% or roughly 450 Participants have entered a joint venture agreement to seek the award of an 8(a) contract. There are approximately 300 addendums
per year.
Estimated average impact * (labor hour): SBA estimates that an 8(a) BD Participant currently
spends approximately three hours submitting a joint venture agreement to SBA and responding
to questions regarding that submission. Each addendum requires 1.5 hours of time.
2018 Median Pay ** (per hour): Most 8(a) firms use an accountant or someone with similar skills
for this task.
Estimated Cost/(Cost Saving) ...............................................................................................................
Regulatory change: SBA is merging the 8(a) BD Mentor-Prote´ge´ Program into the All Small Mentor-Prote´ge´ Program and eliminating the manual application process. This will reduce the burden
on 8(a) Participants seeking a mentor-prote´ge´ agreement and on SBA to no longer process
paper applications.
Estimated number of impacted entities: SBA receives approximately 150 applications for 8(a) mentor-prote´ge´ relationships annually.
Estimated average impact * (labor hour): In SBA’s best professional judgment, the additional cost
for submitting a manual mentor-prote´ge´ agreement to SBA for review and approval and responding manually to questions regarding that submission is estimated at two hours. For SBA employees, reviewing the manual mentor-prote´ge´ agreements takes 3 hours and this change is expected to save SBA 30% of the time required.
2018 Median Pay ** (per hour): Most 8(a) firms use an accountant or someone with similar skills
for this task..
Estimated Cost/(Cost Saving) ...............................................................................................................
Regulatory change: SBA is merging the 8(a) BD Mentor-Prote´ge´ Program into the All Small Mentor-Prote´ge´ Program. In doing so, firms will not have to read the requirements for both programs
and try to decipher any perceived differences.
Estimated number of impacted entities: SBA receives approximately 600 mentor-prote´ge´ applications each year—about 450 for the All Small Mentor-Prote´ge´ Program and about 150 for the 8(a)
BD Mentor-Prote´ge´ Program.
Estimated average impact * (labor hour): SBA estimates that having one combined program will
eliminate about one hour of preparation time for each firm seeking a mentor-prote´ge´ relationship.
2018 Median Pay ** (per hour): Most small business concerns use an accountant or someone with
similar skills for this task.
Estimated Cost/(Cost Saving) ...............................................................................................................
Regulatory change: SBA is requiring that a firm be accurately certified and presently qualified as to
size and/or status for set-aside orders issued under Multiple Award Contracts that were not set
aside or set aside in a separate category, except for the Federal Supply Schedule.
Estimated number of impacted entities: Approximately 1,725 set-aside orders are issued annually
on Multiple Award Contracts that are not set aside in the same category, including the Federal
Supply Schedule, outside of set-aside pools. SBA estimates that three offers are submitted for
each order.
Estimated average impact * (labor hour): SBA estimates that a small business that is close to its
size standard will spend an average of 30 minutes confirming that size and status is accurate
prior to submitting an offer. A small business that is not close to its size standard will spend an
average of 5 minutes confirming that it has a SAM registration.
2 .......................
3 .......................
4 .......................
jbell on DSKJLSW7X2PROD with RULES4
Annual cost/
(cost saving) estimate
breakdown
Item No.
5 .......................
VerDate Sep<11>2014
2018 Median Pay ** (per hour): Most small business concerns use an accountant or someone with
similar skills for this task.
Estimated Cost/(Cost Saving) ...............................................................................................................
Regulatory change: SBA is requiring that a firm be accurately certified and presently qualified as to
socioeconomic status for set-aside orders issued under Multiple Award Contracts that were set
aside in a separate category, except for the Federal Supply Schedule contracts.
22:18 Oct 15, 2020
Jkt 253001
PO 00000
Frm 00031
Fmt 4701
Sfmt 4700
E:\FR\FM\16OCR4.SGM
16OCR4
450 entities and 300 additional addendums.
3 hours and 1.5 hours
per additional addendum.
$44.06 per hour.
($79,300).
150 entities.
2 hours for applicants
and less than 1 hour
for SBA.
44.06 per hour.
($18,900).
600 entities.
1 hour.
$44.06 per hour.
($26,400).
5,175 offers.
0.5 hours for firms within
10 percent of size
standard (1.3% of
firms); 5 minutes otherwise (98.7% of
firms).
$44.06 per hour.
$20,250.
66176
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
TABLE 2—DETAILED BREAKDOWN OF INCREMENTAL COSTS AND COST SAVINGS—Continued
Item No.
Annual cost/
(cost saving) estimate
breakdown
Regulatory action item details
Estimated number of impacted entities: Approximately 130 set-aside orders are issued annually on
Multiple Award Contracts that are not set aside in the same category, other than on the Federal
Supply Schedule, are affected by this rule. SBA estimates that three offers are submitted for
each order for a total of 390 offers.
Estimated average impact * (labor hour): SBA estimates that a small business will spend an average of 30 minutes confirming that size and status is accurate prior to submitting an offer, if it has
had a change in ownership, control, or certification. Otherwise, the small business will spend an
average of 5 minutes confirming that it has a SAM registration.
6 .......................
7 .......................
2018 Median Pay ** (per hour): Most small business concerns use an accountant or someone with
similar skills for this task.
Estimated Cost/(Cost Saving) ...............................................................................................................
Regulatory change: SBA is requiring that firms be accurately certified and presently qualified as to
size and socioeconomic status for certain set-aside orders issued under Multiple Award Contracts, except for the Federal Supply Schedule contracts. This change impacts the market research required by ordering activities to determine if a set-aside order for small business or for
any of the socioeconomic programs may be pursued and whether the awardee is qualified for
award.
Estimated number of impacted entities: Approximately 2,115 set-aside orders are issued annually
as described in the rule.
Estimated average impact* (labor hour): SBA estimates that ordering activities applying the Rule of
Two will spend an average of 30 additional minutes to locate contractors awarded Multiple
Award Contracts, looking up the current business size for each of the contractors in SAM to determine if a set-aside order can be pursued, and confirming the status of the awardee.
2018 Median Pay ** (per hour): Contracting officers typically perform the market research for the
acquisition plan.
Estimated Cost/(Cost Saving) ...............................................................................................................
Regulatory Change: Contracting officer discretion to request size recertification at any point for a
long-term MAC.
Estimated number of impacted entities: Approximately 400 long term MACs are awarded annually
to small businesses. SBA estimates that contracting officers will exercise this discretion 10% of
the time.
Estimated average impact * (labor hour): SBA estimates that ordering activities will spend an average of 30 additional minutes to request this recertification. Contractors will spend an average of
30 additional minutes to respond to the request.
2018 Median Pay ** (per hour): Contracting officers will request this recertification ...........................
Estimated Cost/(Cost Saving) ...............................................................................................................
390 offers.
0.5 hours for firms with
a change in ownership, control, or
HUBZone certification
(25% of firms); 5 minutes otherwise (75%
of firms).
$44.06 per hour.
$3,220.
2,115 orders.
0.5 hours.
$44.06 per hour.
$46,600.
40 contracts.
0.5 hours for agencies;
0.5 hours for businesses.
$44.06.
$1,760.
* This estimate is based on SBA’s best professional judgment.
** Source: Bureau of Labor Statistics, Accountants and Auditors.
Executive Order 12988
Executive Order 13175
This action meets applicable
standards set forth in Sections 3(a) and
3(b)(2) of Executive Order 12988, Civil
Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce
burden. The action does not have
retroactive or preemptive effect.
As part of this rulemaking process,
SBA held tribal consultations pursuant
to Executive Order 13175, Tribal
Consultations, in Minneapolis, MN,
Anchorage, AK, Albuquerque, NM and
Oklahoma City, OK to provide
interested tribal representatives with an
opportunity to discuss their views on
various 8(a) BD-related issues. See 84
FR 66647. These consultations were in
addition to those held by SBA in
Anchorage, AK (see 83 FR 17626),
Albuquerque, NM (see 83 FR 24684),
and Oklahoma City, OK (see 83 FR
24684) before issuing a proposed rule.
This executive order reaffirms the
Federal Government’s commitment to
tribal sovereignty and requires Federal
agencies to consult with Indian tribal
governments when developing policies
that would impact the tribal
community. The purpose of the above-
jbell on DSKJLSW7X2PROD with RULES4
Executive Order 13132
For the purposes of Executive Order
13132, SBA has determined that this
rule will not have substantial, direct
effects on the States, on the relationship
between the national government and
the States, or on the distribution of
power and responsibilities among the
various levels of government. Therefore,
for the purpose of Executive Order
13132, Federalism, SBA has determined
that this rule has no federalism
implications warranting preparation of a
federalism assessment.
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
PO 00000
Frm 00032
Fmt 4701
Sfmt 4700
referenced tribal consultation meetings
was to provide interested parties with
an opportunity to discuss their views on
the issues, and for SBA to obtain the
views of SBA’s stakeholders on
approaches to the 8(a) BD program
regulations. SBA has always considered
tribal consultation meetings a valuable
component of its deliberations and
believes that these tribal consultation
meetings allow for constructive dialogue
with the Tribal community, Tribal
Leaders, Tribal Elders, elected members
of Alaska Native Villages or their
appointed representatives, and
principals of tribally-owned and ANCowned firms participating in the 8(a) BD
program.
In general, tribal stakeholders were
supportive of SBA’s intent to implement
changes that will make it easier for
small business concerns to understand
and comply with the regulations
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
governing the 8(a) BD program, and
agreed that this rulemaking will make
the program more effective and
accessible to the small business
community. SBA received significant
comments on its approaches to the
proposed regulatory changes, as well as
several recommendations regarding the
8(a) BD program not initially
contemplated by this planned
rulemaking. SBA has taken these
discussions into account in drafting this
final rule.
Executive Order 13563
This executive order directs agencies
to, among other things: (a) Afford the
public a meaningful opportunity to
comment through the internet on
proposed regulations, with a comment
period that should generally consist of
not less than 60 days; (b) provide for an
‘‘open exchange’’ of information among
government officials, experts,
stakeholders, and the public; and (c)
seek the views of those who are likely
to be affected by the rulemaking, even
before issuing a notice of proposed
rulemaking. As far as practicable or
relevant, SBA considered these
requirements in developing this rule, as
discussed below.
jbell on DSKJLSW7X2PROD with RULES4
1. Did the agency use the best available
techniques to quantify anticipated
present and future costs when
responding to E.O. 12866 (e.g.,
identifying changing future compliance
costs that might result from
technological innovation or anticipated
behavioral changes)?
To the extent possible, the agency
utilized the most recent data available
in the Federal Procurement Data
System—Next Generation (FPDS–NG),
Dynamic Small Business Search (DSBS)
and System for Award Management
(SAM).
2. Public participation: Did the agency:
(a) Afford the public a meaningful
opportunity to comment through the
internet on any proposed regulation,
with a comment period that should
generally consist of not less than 60
days; (b) provide for an ‘‘open
exchange’’ of information among
government officials, experts,
stakeholders, and the public; (c) provide
timely online access to the rulemaking
docket on Regulations.gov; and (d) seek
the views of those who are likely to be
affected by rulemaking, even before
issuing a notice of proposed
rulemaking?
The proposed rule initially called for
a 70-day comment period, with
comments required to be made to SBA
by January 17, 2020. SBA received
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
several comments in the first few weeks
after the publication to extend the
comment period. Commenters felt that
the nature of the issues raised in the
rule and the timing of comments during
the holiday season required more time
for affected businesses to adequately
review the proposal and prepare their
comments. In response to these
comments, SBA published a notice in
the Federal Register on January 10,
2020, extending the comment period an
additional 21 days to February 7, 2020.
85 FR 1289. All comments received
were posted on www.regulations.gov to
provide transparency into the
rulemaking process. In addition, SBA
submitted the final rule to the Office of
Management and Budget for interagency
review.
3. Flexibility: Did the agency identify
and consider regulatory approaches that
reduce burdens and maintain flexibility
and freedom of choice for the public?
Yes, the rule is intended to reduce
unnecessary or excessive burdens on
8(a) Participants, and clarify other
regulatory-related provisions to
eliminate confusion among small
businesses and procuring activities.
Executive Order 13771
This rule is an E.O. 13771
deregulatory action. The annualized
cost savings of this rule is $37,166 in
2016 dollars with a net present value of
$530,947 over perpetuity, in 2016
dollars. A detailed discussion of the
estimated cost of this proposed rule can
be found in the above Regulatory Impact
Analysis.
Paperwork Reduction Act, 44 U.S.C. Ch.
35
This rule imposes additional
reporting or recordkeeping requirements
under the Paperwork Reduction Act, 44
U.S.C. Chapter 35. The rule provides a
number of size and/or socioeconomic
status recertification requirements for
set-aside orders under MACs. The
annual total public reporting burden for
this collection of information is
estimated to be 82 total hours ($3,625),
including the time for reviewing
instructions, searching existing data
sources, gathering and maintaining the
data needed, and completing
information reporting.
Respondents: 165.
Responses per respondent: 1.
Total annual responses: 165.
Preparation hours per response: 0.5
(30 min).
Total response burden hours: 82.
Cost per hour: $44.06.
Estimated cost burden to the public:
$3,625.
PO 00000
Frm 00033
Fmt 4701
Sfmt 4700
66177
Additionally, the rule adds procuring
agency discretion to request
recertification at any point for long term
MACs. The annual total public reporting
burden for this collection of information
is estimated to be 20 total hours ($880),
including the time for reviewing
instructions, searching existing data
sources, gathering and maintaining the
data needed, and completing
information reporting.
Respondents: 40.
Responses per respondent: 1.
Total annual responses: 40.
Preparation hours per response: 0.5
(30 min).
Total response burden hours: 20.
Cost per hour: $44.06.
Estimated cost burden to the public:
$880.This added information collection
burden will be officially reflected
through OMB Control Number 9000–
0163 when the rule is implemented.
SBA received no comments on the PRA
analysis set forth in the proposed rule.
SBA also has an information
collection for the Mentor-Prote´ge´
Program, OMB Control Number 3245–
0393. This collection is not affected by
these amendments.
Regulatory Flexibility Act, 5 U.S.C. 601–
612
The Regulatory Flexibility Act (RFA)
requires administrative agencies to
consider the effect of their actions on
small entities, small non-profit
enterprises, and small local
governments. Pursuant to the RFA,
when an agency issues a rulemaking,
the agency must prepare a regulatory
flexibility analysis which describes the
impact of the rule on small entities.
However, section 605 of the RFA allows
an agency to certify a rule, in lieu of
preparing an analysis, if the rulemaking
is not expected to have a significant
economic impact on a substantial
number of small entities. The RFA
defines ‘‘small entity’’ to include ‘‘small
businesses,’’ ‘‘small organizations,’’ and
‘‘small governmental jurisdictions.’’
This rule concerns aspects of SBA’s
8(a) BD program, the All Small MentorProte´ge´ Program, and various other
small business programs. As such, the
rule relates to small business concerns
but would not affect ‘‘small
organizations’’ or ‘‘small governmental
jurisdictions’’ because those programs
generally apply only to ‘‘business
concerns’’ as defined by SBA
regulations, in other words, to small
businesses organized for profit. ‘‘Small
organizations’’ or ‘‘small governmental
jurisdictions’’ are non-profits or
governmental entities and do not
generally qualify as ‘‘business concerns’’
E:\FR\FM\16OCR4.SGM
16OCR4
66178
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
within the meaning of SBA’s
regulations.
There are currently approximately
4,500 8(a) BD Participants in the
portfolio. Most of the changes are
clarifications of current policy or
designed to reduce unnecessary or
excessive burdens on 8(a) BD
Participants and therefore should not
impact many of these concerns. There
are about 385 Participants with 8(a) BD
mentor-prote´ge´ agreements and about
another 850 small businesses that have
SBA-approved mentor-prote´ge´
agreements through the All Small
Mentor-Prote´ge´ Program. The
consolidation of SBA’s two mentorprote´ge´ programs into one program will
not have a significant economic impact
on small businesses. In fact, it should
have no affect at all on those small
businesses that currently have or on
those that seek to have an SBAapproved mentor-prote´ge´ relationship.
The rule eliminates confusion regarding
perceived differences between the two
Programs, removes unnecessary
duplication of functions within SBA,
and establishes one unified staff to
better coordinate and process mentorprote´ge´ applications. The benefits of the
two programs are identical, and will not
change under the rule.
SBA is also requiring a business to be
qualified for the required size and status
when under consideration for a setaside order off a MAC that was awarded
outside of the same set-aside category.
Pursuant to the Small Business Goaling
Report (SBGR) Federal Procurement
Data System—Next Generation (FPDS–
NG) records, about 236,000 new orders
were awarded under MACs per year
from FY 2014 to FY 2018. Around
199,000, or 84.3 percent, were awarded
under MACs established without a
small business set aside. For this
analysis, small business set-asides
include all total or partial small
business set-asides, and all 8(a), WOSB,
SDVOSB, and HUBZone awards. There
were about 9,000 new orders awarded
annually with a small business set-aside
under unrestricted MACs. These orders
were issued to approximately 2,600
firms. The 9,000 new orders awarded
with a small business set-aside under a
MAC without a small business set aside
were 4.0 percent of the 236,000 new
orders under MACs in a year (Table 3).
TABLE 3—0.47% OF NEW MAC ORDERS IN A FY ARE NON-FSS ORDERS SET ASIDE FOR SMALL BUSINESS WHERE
UNDERLYING BASE CONTRACT NOT SET ASIDE FOR SMALL BUSINESS
FY014
jbell on DSKJLSW7X2PROD with RULES4
Total new orders under MACs in FY .......
Orders awarded with SB set aside under
unrestricted MAC ..................................
Non-FSS orders awarded with SB set
aside without MAC IDV SB set aside ..
Percent .....................................................
If all firms receiving a non-FSS small
business set-aside order under a MAC
that was not itself set aside for small
business were adversely affected by the
rule (i.e., every such firm receiving an
award as a small business had grown to
be other than a small business or no
longer qualified as 8(a), WOSB, SDVO,
or HUBZone), the rule requiring a
business to be certified as small for nonFSS small business set-aside orders
under MACs not set aside for small
business would impact only 0.47
percent of annual new MAC orders. The
proposed rule sought comments as to
whether the rule would have a
significant economic impact on a
substantial number of small entities.
SBA did not receive any comments
responding to such request. As such,
SBA certifies that this rule will not have
a significant economic impact on a
substantial number of small entities.
Nevertheless, throughout the
supplementary information to this
proposed rule, SBA has identified the
reasons why the changes are being
made, the objectives and basis for the
rule, a description of the number of
small entities to which the rule will
apply, and a description of alternatives
considered.
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
FY015
FY016
FY017
FY018
AVG
244,664
231,694
245,978
234,304
223,861
236,100
10,089
9,347
9,729
9,198
8,666
9,406
902
0.37
780
0.34
1,019
0.41
1,422
0.61
1,400
0.63
1,105
0.47
List of Subjects
13 CFR Part 121
Administrative practice and
procedure, Government procurement,
Government property, Grant programs—
business, Individuals with disabilities,
Loan programs—business, Small
businesses.
13 CFR Part 124
13 CFR Part 125
Government contracts, Government
procurement, Reporting and
recordkeeping requirements, Small
businesses, Technical assistance.
13 CFR Part 126
Administrative practice and
procedure, Government procurement,
Penalties, Reporting and recordkeeping
requirements, Small businesses.
13 CFR Part 127
Government contracts, Reporting and
recordkeeping requirements, Small
businesses.
13 CFR Part 134
Administrative practice and
procedure, Claims, Equal employment
Frm 00034
Fmt 4701
PART 121—SMALL BUSINESS SIZE
REGULATIONS
1. The authority citation for part 121
continues to read as follows:
■
Administrative practice and
procedure, Government procurement,
Government property, Small businesses.
PO 00000
opportunity, Lawyers, Organization and
functions (Government agencies).
Accordingly, for the reasons stated in
the preamble, SBA amends 13 CFR parts
121, 124, 125, 126, 127, and 134 as
follows:
Sfmt 4700
Authority: 15 U.S.C. 632, 634(b)(6),
636(a)(36), 662, and 694a(9); Pub. L. 116–136,
Section 1114.
2. Amend § 121.103 by:
a. Revising the first sentence of
paragraphs (b)(6) and (9);
■ b. Revising paragraph (f)(2)(i) and
Example 2 to paragraph (f);
■ c. Revising the first sentence of
paragraph (g);
■ d. Revising paragraph (h) introductory
text and Examples 1, 2, and 3 to
paragraph (h) introductory text;
■ e. Removing paragraphs (h)(1) and
(h)(2);
■ f. Redesignating paragraphs (h)(3)
through (h)(5) as paragraphs (h)(1)
through (h)(3), respectively;
■ g. Revising the paragraph heading for
the newly redesignated paragraph (h)(1)
and adding two sentences to the end of
newly redesignated paragraph (h)(1)(ii);
■
■
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
h. Removing newly redesignated
paragraph (h)(1)(iii);
■ i. Adding a paragraph heading for
redesignated paragraph (h)(2);
■ j. Revising newly redesignated
paragraph (h)(3); and
■ k. Adding paragraph (h)(4).
The revisions and additions read as
follows:
■
§ 121.103 How does SBA determine
affiliation?
jbell on DSKJLSW7X2PROD with RULES4
*
*
*
*
*
(b) * * *
(6) A firm that has an SBA-approved
mentor-prote´ge´ agreement authorized
under § 125.9 of this chapter is not
affiliated with its mentor or prote´ge´ firm
solely because the prote´ge´ firm receives
assistance from the mentor under the
agreement. * * *
*
*
*
*
*
(9) In the case of a solicitation for a
bundled contract or a Multiple Award
Contract with a value in excess of the
agency’s substantial bundling threshold,
a small business contractor may enter
into a Small Business Teaming
Arrangement with one or more small
business subcontractors and submit an
offer as a small business without regard
to affiliation, so long as each team
member is small for the size standard
assigned to the contract or subcontract.
* * *
*
*
*
*
*
(f) * * *
(2) * * *
(i) This presumption may be rebutted
by a showing that despite the
contractual relations with another
concern, the concern at issue is not
solely dependent on that other concern,
such as where the concern has been in
business for a short amount of time and
has only been able to secure a limited
number of contracts or where the
contractual relations do not restrict the
concern in question from selling the
same type of products or services to
another purchaser.
*
*
*
*
*
Example 2 to paragraph (f). Firm A
has been in business for five years and
has approximately 200 contracts. Of
those contracts, 195 are with Firm B.
The value of Firm A’s contracts with
Firm B is greater than 70% of its
revenue over the previous three years.
Unless Firm A can show that its
contractual relations with Firm B do not
restrict it from selling the same type of
products or services to another
purchaser, SBA would most likely find
the two firms affiliated.
(g) Affiliation based on the newly
organized concern rule. Except as
provided in § 124.109(c)(4)(iii),
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
affiliation may arise where former or
current officers, directors, principal
stockholders, managing members, or key
employees of one concern organize a
new concern in the same or related
industry or field of operation, and serve
as the new concern’s officers, directors,
principal stockholders, managing
members, or key employees, and the one
concern is furnishing or will furnish the
new concern with contracts, financial or
technical assistance, indemnification on
bid or performance bonds, and/or other
facilities, whether for a fee or otherwise.
* * *
(h) Affiliation based on joint ventures.
A joint venture is an association of
individuals and/or concerns with
interests in any degree or proportion
intending to engage in and carry out
business ventures for joint profit over a
two year period, for which purpose they
combine their efforts, property, money,
skill, or knowledge, but not on a
continuing or permanent basis for
conducting business generally. This
means that a specific joint venture
entity generally may not be awarded
contracts beyond a two-year period,
starting from the date of the award of
the first contract, without the partners to
the joint venture being deemed affiliated
for the joint venture. Once a joint
venture receives a contract, it may
submit additional offers for a period of
two years from the date of that first
award. An individual joint venture may
be awarded one or more contracts after
that two-year period as long as it
submitted an offer including price prior
to the end of that two-year period. SBA
will find joint venture partners to be
affiliated, and thus will aggregate their
receipts and/or employees in
determining the size of the joint venture
for all small business programs, where
the joint venture submits an offer after
two years from the date of the first
award. The same two (or more) entities
may create additional joint ventures,
and each new joint venture entity may
submit offers for a period of two years
from the date of the first contract to the
joint venture without the partners to the
joint venture being deemed affiliates. At
some point, however, such a
longstanding inter-relationship or
contractual dependence between the
same joint venture partners will lead to
a finding of general affiliation between
and among them. A joint venture: Must
be in writing; must do business under
its own name and be identified as a joint
venture in the System for Award
Management (SAM) for the award of a
prime contract; may be in the form of a
formal or informal partnership or exist
as a separate limited liability company
PO 00000
Frm 00035
Fmt 4701
Sfmt 4700
66179
or other separate legal entity; and, if it
exists as a formal separate legal entity,
may not be populated with individuals
intended to perform contracts awarded
to the joint venture (i.e., the joint
venture may have its own separate
employees to perform administrative
functions, including one or more
Facility Security Officer(s), but may not
have its own separate employees to
perform contracts awarded to the joint
venture). SBA may also determine that
the relationship between a prime
contractor and its subcontractor is a
joint venture pursuant to paragraph
(h)(4) of this section. For purposes of
this paragraph (h), contract refers to
prime contracts, novations of prime
contracts, and any subcontract in which
the joint venture is treated as a similarly
situated entity as the term is defined in
part 125 of this chapter.
Example 1 to paragraph (h)
introductory text. Joint Venture AB
receives a contract on April 2, year 1.
Joint Venture AB may receive additional
contracts through April 2, year 3. On
June 6, year 2, Joint Venture AB submits
an offer for Solicitation 1. On July 13,
year 2, Joint Venture AB submits an
offer for Solicitation 2. On May 27, year
3, Joint Venture AB is found to be the
apparent successful offeror for
Solicitation 1. On July 22, year 3, Joint
Venture AB is found to be the apparent
successful offeror for Solicitation 2.
Even though the award of the two
contracts emanating from Solicitations 1
and 2 would occur after April 2, year 3,
Joint Venture AB may receive those
awards without causing general
affiliation between its joint venture
partners because the offers occurred
prior to the expiration of the two-year
period.
Example 2 to paragraph (h)
introductory text. Joint Venture XY
receives a contract on August 10, year
1. It may receive two additional
contracts through August 10, year 3. On
March 19, year 2, XY receives a second
contract. It receives no other contract
awards through August 10, year 3 and
has submitted no additional offers prior
to August 10, year 3. Because two years
have passed since the date of the first
contract award, after August 10, year 3,
XY cannot receive an additional
contract award. The individual parties
to XY must form a new joint venture if
they want to seek and be awarded
additional contracts as a joint venture.
Example 3 to paragraph (h)
introductory text. Joint Venture XY
receives a contract on December 15, year
1. On May 22, year 3 XY submits an
offer for Solicitation S. On December 8,
year 3, XY submits a novation package
for contracting officer approval for
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66180
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
Contract C. In January, year 4 XY is
found to be the apparent successful
offeror for Solicitation S and the
relevant contracting officer seeks to
novate Contract C to XY. Because both
the offer for Solicitation S and the
novation package for Contract C were
submitted prior to December 15 year 3,
both contract award relating to
Solicitation S and novation of Contract
C may occur without a finding of
general affiliation.
(1) Size of joint ventures. (i) * * *
(ii) * * * Except for sole source 8(a)
awards, the joint venture must meet the
requirements of § 124.513(c) and (d),
§ 125.8(b) and (c), § 125.18(b)(2) and (3),
§ 126.616(c) and (d), or § 127.506(c) and
(d) of this chapter, as appropriate, at the
time it submits its initial offer including
price. For a sole source 8(a) award, the
joint venture must demonstrate that it
meets the requirements of § 124.513(c)
and (d) prior to the award of the
contract.
*
*
*
*
*
(2) Ostensible subcontractors. * * *
(3) Receipts/employees attributable to
joint venture partners. For size
purposes, a concern must include in its
receipts its proportionate share of joint
venture receipts, unless the
proportionate share already is
accounted for in receipts reflecting
transactions between the concern and
its joint ventures (e.g., subcontracts from
a joint venture entity to joint venture
partners). In determining the number of
employees, a concern must include in
its total number of employees its
proportionate share of joint venture
employees. For the calculation of
receipts, the appropriate proportionate
share is the same percentage of receipts
or employees as the joint venture
partner’s percentage share of the work
performed by the joint venture. For the
calculation of employees, the
appropriate share is the same percentage
of employees as the joint venture
partner’s percentage ownership share in
the joint venture, after first subtracting
any joint venture employee already
accounted for in one of the partner’s
employee count.
Example 1 to paragraph (h)(3). Joint
Venture AB is awarded a contract for
$10M. The joint venture will perform
50% of the work, with A performing
$2M (40% of the 50%, or 20% of the
total value of the contract) and B
performing $3M (60% of the 50% or
30% of the total value of the contract).
Since A will perform 40% of the work
done by the joint venture, its share of
the revenues for the entire contract is
40%, which means that the receipts
from the contract awarded to Joint
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
Venture AB that must be included in
A’s receipts for size purposes are $4M.
A must add $4M to its receipts for size
purposes, unless its receipts already
account for the $4M in transactions
between A and Joint Venture AB.
(4) Facility security clearances. A
joint venture may be awarded a contract
requiring a facility security clearance
where either the joint venture itself or
the individual partner(s) to the joint
venture that will perform the necessary
security work has (have) a facility
security clearance.
(i) Where a facility security clearance
is required to perform primary and vital
requirements of a contract, the lead
small business partner to the joint
venture must possess the required
facility security clearance.
(ii) Where the security portion of the
contract requiring a facility security
clearance is ancillary to the principal
purpose of the procurement, the partner
to the joint venture that will perform
that work must possess the required
facility security clearance.
*
*
*
*
*
■ 3. Amend § 121.402 by revising the
first sentence of paragraph (b)(2), and
paragraphs (c)(1)(i), (c)(2)(i), and (e) to
read as follows:
§ 121.402 What size standards are
applicable to Federal Government
Contracting programs?
*
*
*
*
*
(b) * * *
(2) A procurement is generally
classified according to the component
which accounts for the greatest
percentage of contract value. * * *
(c) * * *
(1) * * *
(i) Assign the solicitation a single
NAICS code and corresponding size
standard which best describes the
principal purpose of the acquisition as
set forth in paragraph (b) of this section,
only if the NAICS code will also best
describe the principal purpose of each
order to be placed under the Multiple
Award Contract; or
*
*
*
*
*
(2) * * *
(i) The contracting officer must assign
a single NAICS code for each order
issued against a Multiple Award
Contract. The NAICS code assigned to
an order must be a NAICS code
included in the underlying Multiple
Award Contract. When placing an order
under a Multiple Award Contract with
multiple NAICS codes, the contracting
officer must assign the NAICS code and
corresponding size standard that best
describes the principal purpose of each
order. In cases where an agency can
PO 00000
Frm 00036
Fmt 4701
Sfmt 4700
issue an order against multiple SINs
with different NAICS codes, the
contracting officer must select the single
NAICS code that best represents the
acquisition. If the NAICS code
corresponding to the principal purpose
of the order is not contained in the
underlying Multiple Award Contract,
the contracting officer may not use the
Multiple Award Contract to issue that
order.
*
*
*
*
*
(e) When a NAICS code designation or
size standard in a solicitation is unclear,
incomplete, missing, or prohibited, SBA
may clarify, complete, or supply a
NAICS code designation or size
standard, as appropriate, in connection
with a formal size determination or size
appeal.
*
*
*
*
*
■ 4. In § 121.404:
■ a. Amend paragraph (a) by:
■ i. Revising paragraphs (a) introductory
text and (a)(1); and
■ ii. Adding a paragraph heading to
paragraph (a)(2);
■ b. Revising paragraph (b);
■ c. Adding a paragraph heading to
paragraph (c);
■ d. Revising paragraph (d);
■ e. Adding a paragraph heading to
paragraph (e) and a sentence at the end
of the paragraph;
■ f. Adding a paragraph heading to
paragraph (f);
■ g. Amend paragraph (g) by:
■ i. Redesignating paragraph (g)(2)(ii)(D)
as paragraph (g)(2)(iii);
■ ii. Revising paragraphs (g)
introductory text, (g)(2)(ii)(C) and newly
redesignated paragraph(g)(2)(iii); and
■ iii. Adding paragraph (g)(2)(iv) and a
new third sentence to paragraph (g)(3)
introductory text; and
■ h. Adding a paragraph heading to
paragraph (h).
The additions and revisions read as
follows:
§ 121.404 When is the size status of a
business concern determined?
(a) Time of size—(1) Multiple award
contracts. With respect to Multiple
Award Contracts, orders issued against
a Multiple Award Contract, and Blanket
Purchase Agreements issued against a
Multiple Award Contract:
(i) Single NAICS. If a single NAICS
code is assigned as set forth in
§ 121.402(c)(1)(i), SBA determines size
status for the underlying Multiple
Award Contract at the time of initial
offer (or other formal response to a
solicitation), which includes price,
based upon the size standard set forth
in the solicitation for the Multiple
Award Contract, unless the concern was
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
required to recertify under paragraph
(g)(1), (2), or (3) of this section.
(A) Unrestricted Multiple Award
Contracts. For an unrestricted Multiple
Award Contract, if a business concern
(including a joint venture) is small at
the time of offer and contract-level
recertification for the Multiple Award
Contract, it is small for goaling purposes
for each order issued against the
contract, unless a contracting officer
requests a size recertification for a
specific order or Blanket Purchase
Agreement. Except for orders and
Blanket Purchase Agreements issued
under any Federal Supply Schedule
contract, if an order or a Blanket
Purchase Agreement under an
unrestricted Multiple Award Contract is
set-aside exclusively for small business
(i.e., small business set-aside, 8(a) small
business, service-disabled veteranowned small business, HUBZone small
business, or women-owned small
business), a concern must recertify its
size status and qualify as a small
business at the time it submits its initial
offer, which includes price, for the
particular order or Blanket Purchase
Agreement. However, where the
underlying Multiple Award Contract
has been awarded to a pool of concerns
for which small business status is
required, if an order or a Blanket
Purchase Agreement under that
Multiple Award Contract is set-aside
exclusively for concerns in the small
business pool, concerns need not
recertify their status as small business
concerns (unless a contracting officer
requests size certifications with respect
to a specific order or Blanket Purchase
Agreement).
(B) Set-aside Multiple Award
Contracts. For a Multiple Award
Contract that is set aside for small
business (i.e., small business set-aside,
8(a) small business, service-disabled
veteran-owned small business,
HUBZone small business, or womenowned small business), if a business
concern (including a joint venture) is
small at the time of offer and contractlevel recertification for the Multiple
Award Contract, it is small for each
order or Blanket Purchase Agreement
issued against the contract, unless a
contracting officer requests a size
recertification for a specific order or
Blanket Purchase Agreement.
(ii) Multiple NAICS. If multiple
NAICS codes are assigned as set forth in
§ 121.402(c)(1)(ii), SBA determines size
status at the time a business concern
submits its initial offer (or other formal
response to a solicitation) which
includes price for a Multiple Award
Contract based upon the size standard
set forth for each discrete category (e.g.,
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
CLIN, SIN, Sector, FA or equivalent) for
which the business concern submits an
offer and represents that it qualifies as
small for the Multiple Award Contract,
unless the business concern was
required to recertify under paragraph
(g)(1), (2), or (3) of this section. If the
business concern (including a joint
venture) submits an offer for the entire
Multiple Award Contract, SBA will
determine whether it meets the size
standard for each discrete category
(CLIN, SIN, Sector, FA or equivalent).
(A) Unrestricted Multiple Award
Contracts. For an unrestricted Multiple
Award Contract, if a business concern
(including a joint venture) is small at
the time of offer and contract-level
recertification for discrete categories on
the Multiple Award Contract, it is small
for goaling purposes for each order
issued against any of those categories,
unless a contracting officer requests a
size recertification for a specific order or
Blanket Purchase Agreement. Except for
orders or Blanket Purchase Agreements
issued under any Federal Supply
Schedule contract, if an order or Blanket
Purchase Agreement for a discrete
category under an unrestricted Multiple
Award Contract is set-aside exclusively
for small business (i.e., small business
set, 8(a) small business, service-disabled
veteran-owned small business,
HUBZone small business, or womenowned small business), a concern must
recertify its size status and qualify as a
small business at the time it submits its
initial offer, which includes price, for
the particular order or Agreement.
However, where the underlying
Multiple Award Contract for discrete
categories has been awarded to a pool of
concerns for which small business
status is required, if an order or a
Blanket Purchase Agreement under that
Multiple Award Contract is set-aside
exclusively for concerns in the small
business pool, concerns need not
recertify their status as small business
concerns (unless a contracting officer
requests size certifications with respect
to a specific order or Blanket Purchase
Agreement).
(B) Set-aside Multiple Award
Contracts. For a Multiple Award
Contract that is set aside for small
business (i.e., small business set-aside,
8(a) small business, service-disabled
veteran-owned small business,
HUBZone small business, or womenowned small business), if a business
concern (including a joint venture) is
small at the time of offer and contractlevel recertification for discrete
categories on the Multiple Award
Contract, it is small for each order or
Agreement issued against any of those
categories, unless a contracting officer
PO 00000
Frm 00037
Fmt 4701
Sfmt 4700
66181
requests a size recertification for a
specific order or Blanket Purchase.
(iii) SBA will determine size at the
time of initial offer (or other formal
response to a solicitation), which
includes price, for an order or
Agreement issued against a Multiple
Award Contract if the contracting officer
requests a new size certification for the
order or Agreement.
(2) Agreements. * * *
(b) Eligibility for SBA programs. A
concern applying to be certified as a
Participant in SBA’s 8(a) Business
Development program (under part 124,
subpart A, of this chapter), as a
HUBZone small business (under part
126 of this chapter), or as a womenowned small business concern (under
part 127 of this chapter) must qualify as
a small business for its primary industry
classification as of the date of its
application and, where applicable, the
date the SBA program office requests a
formal size determination in connection
with a concern that otherwise appears
eligible for program certification.
(c) Certificates of competency. * * *
(d) Nonmanufacturer rule, ostensible
subcontractor rule, and joint venture
agreements. Size status is determined as
of the date of the final proposal revision
for negotiated acquisitions and final bid
for sealed bidding for the following
purposes: compliance with the
nonmanufacturer rule set forth in
§ 121.406(b)(1), the ostensible
subcontractor rule set forth in
§ 121.103(h)(4), and the joint venture
agreement requirements in § 124.513(c)
and (d), § 125.8(b) and (c), § 125.18(b)(2)
and (3), § 126.616(c) and (d), or
§ 127.506(c) and (d) of this chapter, as
appropriate.
(e) Subcontracting. * * * A prime
contractor may rely on the selfcertification of subcontractor provided it
does not have a reason to doubt the
concern’s self-certification.
(f) Two-step procurements. * * *
(g) Effect of size certification and
recertification. A concern that
represents itself as a small business and
qualifies as small at the time it submits
its initial offer (or other formal response
to a solicitation) which includes price is
generally considered to be a small
business throughout the life of that
contract. Similarly, a concern that
represents itself as a small business and
qualifies as small after a required
recertification under paragraph (g)(1),
(2), or (3) of this section is generally
considered to be a small business until
throughout the life of that contract.
Where a concern grows to be other than
small, the procuring agency may
exercise options and still count the
award as an award to a small business,
E:\FR\FM\16OCR4.SGM
16OCR4
66182
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
except that a required recertification as
other than small under paragraph (g)(1),
(2), or (3) of this section changes the
firm’s status for future options and
orders. The following exceptions apply
to this paragraph (g):
*
*
*
*
*
(2) * * *
(ii) * * *
(C) In the context of a joint venture
that has been awarded a contract or
order as a small business, from any
partner to the joint venture that has
been acquired, is acquiring, or has
merged with another business entity.
(iii) If the merger, sale or acquisition
occurs after offer but prior to award, the
offeror must recertify its size to the
contracting officer prior to award. If the
merger, sale or acquisition (including
agreements in principal) occurs within
180 days of the date of an offer and the
offeror is unable to recertify as small, it
will not be eligible as a small business
to receive the award of the contract. If
the merger, sale or acquisition
(including agreements in principal)
occurs more than 180 days after the date
of an offer, award can be made, but it
will not count as an award to small
business.
(iv) Recertification is not required
when the ownership of a concern that
is at least 51% owned by an entity (i.e.,
tribe, Alaska Native Corporation, or
Community Development Corporation)
changes to or from a wholly-owned
business concern of the same entity, as
long as the ultimate owner remains that
entity.
Example 1 to paragraph (g)(2)(iii).
Indian Tribe X owns 100% of small
business ABC. ABC wins an award for
a small business set-aside contract. In
year two of contract performance, X
changes the ownership of ABC so that
X owns 100% of a holding company
XYZ, Inc., which in turn owns 100% of
ABC. This restructuring does not require
ABC to recertify its status as a small
business because it continues to be
100% owned (indirectly rather than
directly) by Indian Tribe X.
(3) * * * A contracting officer may
also request size recertification, as he or
she deems appropriate, prior to the 120day point in the fifth year of a long-term
multiple award contract. * * *
*
*
*
*
*
(h) Follow-on contracts. * * *
jbell on DSKJLSW7X2PROD with RULES4
§ 121.406
[Amended]
5. Amend § 121.406 by removing the
word ‘‘provided’’ and adding in its
place the word ‘‘provide’’ in paragraph
(a) introductory text.
■ 6. Amend § 121.603 by adding
paragraph (c)(3) to read as follows:
■
VerDate Sep<11>2014
23:28 Oct 15, 2020
Jkt 250001
§ 121.603 How does SBA determine
whether a Participant is small for a
particular 8(a) BD subcontract?
*
*
*
*
*
(c) * * *
(3) Recertification is not required
when the ownership of a concern that
is at least 51% owned by an entity (i.e.,
tribe, Alaska Native Corporation, or
Community Development Corporation)
changes to or from a wholly-owned
business concern of the same entity, as
long as the ultimate owner remains that
entity.
*
*
*
*
*
■ 7. Amend § 121.702 by revising
paragraph (c)(6) to read as follows:
§ 121.702 What size and eligibility
standards are applicable to the SBIR and
STTR programs?
*
*
*
*
*
(c) * * *
(6) Size requirement for joint ventures.
Two or more small business concerns
may submit an application as a joint
venture. The joint venture will qualify
as small as long as each concern is small
under the size standard for the SBIR
program, found at § 121.702(c), or the
joint venture meets the exception at
§ 121.103(h)(3)(ii) for two firms
approved to be a mentor and prote´ge´
under SBA’s All Small Mentor-Prote´ge´
Program.
*
*
*
*
*
■ 8. Amend § 121.1001 by revising
paragraphs (a)(1)(iii), (a)(2)(iii),
(a)(3)(iv), (a)(4)(iii), (a)(6)(iv), (a)(7)(iii),
(a)(8)(iv), (a)(9)(iv), (b)(7), and (b)(12) to
read as follows:
§ 121.1001 Who may initiate a size protest
or request a formal size determination?
(a) * * *
(1) * * *
(iii) The SBA Government Contracting
Area Director having responsibility for
the area in which the headquarters of
the protested offeror is located,
regardless of the location of a parent
company or affiliates, the Director,
Office of Government Contracting, or
the Associate General Counsel for
Procurement Law; and
*
*
*
*
*
(2) * * *
(iii) The SBA District Director, or
designee, in either the district office
serving the geographical area in which
the procuring activity is located or the
district office that services the apparent
successful offeror, the Associate
Administrator for Business
Development, or the Associate General
Counsel for Procurement Law.
(3) * * *
(iv) The responsible SBA Government
Contracting Area Director or the
PO 00000
Frm 00038
Fmt 4701
Sfmt 4700
Director, Office of Government
Contracting, or the SBA’s Associate
General Counsel for Procurement Law;
and
*
*
*
*
*
(4) * * *
(iii) The responsible SBA Government
Contracting Area Director; the Director,
Office of Government Contracting; the
Associate Administrator, Investment
Division, or the Associate General
Counsel for Procurement Law.
*
*
*
*
*
(6) * * *
(iv) The SBA Director, Office of
HUBZone, or designee, or the SBA
Associate General Counsel for
Procurement Law.
(7) * * *
(iii) The responsible SBA Government
Contracting Area Director, the Director,
Office of Government Contracting, the
Associate Administrator for Business
Development, or the Associate General
Counsel for Procurement Law.
(8) * * *
(iv) The Director, Office of
Government Contracting, or designee, or
the Associate General Counsel for
Procurement Law.
(9) * * *
(iv) The Director, Office of
Government Contracting, or designee, or
the Associate General Counsel for
Procurement Law.
(b) * * *
(7) In connection with initial or
continued eligibility for the WOSB
program, the following may request a
formal size determination:
(i) The applicant or WOSB/EDWOSB;
or
(ii) The Director of Government
Contracting or the Deputy Director,
Program and Resource Management, for
the Office of Government Contracting.
*
*
*
*
*
(12) In connection with eligibility for
the SDVO program, the following may
request a formal size determination:
(i) The SDVO business concern; or
(ii) The Director of Government
Contracting or designee.
*
*
*
*
*
■ 9. Amend § 121.1004 by revising
paragraph (a)(2)(ii) and adding
paragraph (a)(2)(iii) to read as follows:
§ 121.1004
protests?
What time limits apply to size
(a) * * *
(2) * * *
(ii) An order issued against a Multiple
Award Contract if the contracting officer
requested a size recertification in
connection with that order; or
(iii) Except for orders or Blanket
Purchase Agreements issued under any
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
Federal Supply Schedule contract, an
order or Blanket Purchase Agreement
set-aside for small business (i.e., small
business set-aside, 8(a) small business,
service-disabled veteran-owned small
business, HUBZone small business, or
women-owned small business) where
the underlying Multiple Award Contract
was awarded on an unrestricted basis.
*
*
*
*
*
10. Amend § 121.1103 by revising
paragraph (c)(1)(i) to read as follows:
■
§ 121.1103 What are the procedures for
appealing a NAICS code or size standard
designation?
*
*
*
*
*
(c) * * *
(1) * * *
(i) Stay the date for the closing of
receipt of offers;
*
*
*
*
*
PART 124—8(a) BUSINESS
DEVELOPMENT/SMALL
DISADVANTAGED BUSINESS STATUS
DETERMINATIONS
11. The authority citation for part 124
continues to read as follows:
■
Authority: 15 U.S.C. 634(b)(6), 636(j),
637(a), 637(d), 644 and Pub. L. 99–661, Pub.
L. 100–656, sec. 1207, Pub. L. 101–37, Pub.
L. 101–574, section 8021, Pub. L. 108–87,
and 42 U.S.C. 9815.
12. Amend § 124.3 by adding in
alphabetical order a definition for
‘‘Follow-on requirement or contract’’ to
read as follows:
■
§ 124.3 What definitions are important in
the 8(a) BD program?
jbell on DSKJLSW7X2PROD with RULES4
*
*
*
*
*
Follow-on requirement or contract.
The determination of whether a
particular requirement or contract is a
follow-on includes consideration of
whether the scope has changed
significantly, requiring meaningful
different types of work or different
capabilities; whether the magnitude or
value of the requirement has changed by
at least 25 percent for equivalent
periods of performance; and whether
the end user of the requirement has
changed. As a general guide, if the
procurement satisfies at least one of
these three conditions, it may be
considered a new requirement.
However, meeting any one of these
conditions is not dispositive that a
requirement is new. In particular, the 25
percent rule cannot be applied rigidly in
all cases. Conversely, if the requirement
satisfies none of these conditions, it is
considered a follow-on procurement.
*
*
*
*
*
VerDate Sep<11>2014
23:29 Oct 15, 2020
Jkt 250001
13. Amend § 124.105 by revising
paragraph (g) and paragraphs (i)(2) and
(4) to read as follows:
■
§ 124.105 What does it mean to be
unconditionally owned by one or more
disadvantaged individuals?
*
*
*
*
*
(g) Ownership of another current or
former Participant by an immediate
family member. (1) An individual may
not use his or her disadvantaged status
to qualify a concern if that individual
has an immediate family member who
is using or has used his or her
disadvantaged status to qualify another
concern for the 8(a) BD program and any
of the following circumstances exist:
(i) The concerns are connected by any
common ownership or management,
regardless of amount or position;
(ii) The concerns have a contractual
relationship that was not conducted at
arm’s length;
(iii) The concerns share common
facilities; or
(iv) The concerns operate in the same
primary NAICS code and the individual
seeking to qualify the applicant concern
does not have management or technical
experience in that primary NAICS code.
Example 1 to paragraph (g)(1). X
applies to the 8(a) BD program. X is
95% owned by A and 5% by B, A’s
father and the majority owner in a
former 8(a) Participant. Even though B
has no involvement in X, X would be
ineligible for the program.
Example 2 to paragraph (g)(1). Y
applies to the 8(a) BD program. C owns
100% of Y. However, D, C’s sister and
the majority owner in a former 8(a)
Participant, is acting as a Vice President
in Y. Y would be ineligible for the
program.
Example 3 to paragraph (g)(1). X
seeks to apply to the 8(a) BD program
with a primary NAICS code in
plumbing. X is 100% owned by A. Z, a
former 8(a) participant with a primary
industry in general construction, is
owned 100% by B, A’s brother. For
general construction jobs, Z has
subcontracted plumbing work to X in
the past at normal commercial rates.
Subcontracting work at normal
commercial rates would not preclude X
from being admitted to the 8(a) BD
program. X would be eligible for the
program.
(2) If the AA/BD approves an
application under paragraph (g)(1) of
this section, SBA will, as part of its
annual review, assess whether the firm
continues to operate independently of
the other current or former 8(a) concern
of an immediate family member. SBA
may initiate proceedings to terminate a
firm from further participation in the
PO 00000
Frm 00039
Fmt 4701
Sfmt 4700
66183
8(a) BD program if it is apparent that
there are connections between the two
firms that were not disclosed to the AA/
BD at the time of application or that
came into existence after program
admittance.
*
*
*
*
*
(i) * * *
(2) Prior approval by the AA/BD is not
needed where all non-disadvantaged
individual (or entity) owners involved
in the change of ownership own no
more than a 20 percent interest in the
concern both before and after the
transaction, the transfer results from the
death or incapacity due to a serious,
long-term illness or injury of a
disadvantaged principal, or the
disadvantaged individual or entity in
control of the Participant will increase
the percentage of its ownership interest.
The concern must notify SBA within 60
days of such a change in ownership.
Example 1 to paragraph (i)(2).
Disadvantaged individual A owns 90%
of 8(a) Participant X; non-disadvantaged
individual B owns 10% of X. In order
to raise additional capital, X seeks to
change its ownership structure such that
A would own 80%, B would own 10%
and C would own 10%. X can
accomplish this change in ownership
without prior SBA approval. Nondisadvantaged owner B is not involved
in the transaction and nondisadvantaged individual C owns less
than 20% of X both before and after the
transaction.
Example 2 to paragraph (i)(2).
Disadvantaged individual C owns 60%
of 8(a) Participant Y; non-disadvantaged
individual D owns 30% of Y; and nondisadvantaged individual E owns 10%
of Y. C seeks to transfer 5% of Y to E.
Prior SBA approval is not needed.
Although non-disadvantaged individual
D owns more than 20% of Y, D is not
involved in the transfer. Because the
only non-disadvantaged individual
involved in the transfer, E, owns less
than 20% of Y both before and after the
transaction, prior approval is not
needed.
Example 3 to paragraph (i)(2).
Disadvantaged individual A owns 85%
of 8(a) Participant X; non-disadvantaged
individual B owns 15% of X. A seeks to
transfer 15% of X to B. Prior SBA
approval is needed. Although B, the
non-disadvantaged owner of X, owns
less than 20% of X prior to the
transaction, prior approval is needed
because B would own more than 20%
after the transaction.
Example 4 to paragraph (i)(2). ANC A
owns 60% of 8(a) Participant X; nondisadvantaged individual B owns 40%
of X. B seeks to transfer 15%
E:\FR\FM\16OCR4.SGM
16OCR4
66184
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
to A. Prior SBA approval is not needed.
Although a non-disadvantaged
individual who is involved in the
transaction, B, owns more than 20% of
X both before and after the transaction,
SBA approval is not needed because the
change only increases the percentage of
A’s ownership interest in X.
*
*
*
*
*
(4) Where a Participant requests a
change of ownership or business
structure, and proceeds with the change
prior to receiving SBA approval (or
where a change of ownership results
from the death or incapacity of a
disadvantaged individual for which a
request prior to the change in ownership
could not occur), SBA may suspend the
Participant from program benefits
pending resolution of the request. If the
change is approved, the length of the
suspension will be restored to the
Participant’s program term in the case of
death or incapacity, or if the firm
requested prior approval and waited 60
days for SBA approval.
*
*
*
*
*
■ 14. Amend § 124.109 by:
■ a. Revising the section heading;
■ b. Adding paragraph (a)(7);
■ c. Revising paragraph (c)(3)(ii);
■ d. Adding paragraphs (c)(3)(iv) and
(c)(4)(iii)(C); and
■ e. Revising paragraphs (c)(6)(iii) and
(c)(7)(ii).
The revisions and additions to read as
follows:
jbell on DSKJLSW7X2PROD with RULES4
§ 124.109 Do Indian tribes and Alaska
Native Corporations have any special rules
for applying to and remaining eligible for
the 8(a) BD program?
(a) * * *
(7) Notwithstanding § 124.105(i),
where an ANC merely reorganizes its
ownership of a Participant in the 8(a)
BD program by inserting or removing a
wholly-owned business entity between
the ANC and the Participant, the
Participant need not request a change of
ownership from SBA. The Participant
must, however, notify SBA of the
change within 60 days of the transfer.
*
*
*
*
*
(c) * * *
(3) * * *
(ii) A Tribe may not own 51% or more
of another firm which, either at the time
of application or within the previous
two years, has been operating in the 8(a)
program under the same primary NAICS
code as the applicant. For purposes of
this paragraph, the same primary NAICS
code means the six-digit NAICS code
having the same corresponding size
standard. A Tribe may, however, own a
Participant or other applicant that
conducts or will conduct secondary
VerDate Sep<11>2014
23:31 Oct 15, 2020
Jkt 250001
business in the 8(a) BD program under
the NAICS code which is the primary
NAICS code of the applicant concern.
(A) Once an applicant is admitted to
the 8(a) BD program, it may not receive
an 8(a) sole source contract that is a
follow-on contract to an 8(a) contract
that was performed immediately
previously by another Participant (or
former Participant) owned by the same
Tribe. However, a tribally-owned
concern may receive a follow-on sole
source 8(a) contract to a requirement
that it performed through the 8(a)
program (either as a competitive or sole
source contract).
(B) If the primary NAICS code of a
tribally-owned Participant is changed
pursuant to § 124.112(e), the tribe can
submit an application and qualify
another firm owned by the tribe for
participation in the 8(a) BD program
under the NAICS code that was the
previous primary NAICS code of the
Participant whose primary NAICS code
was changed.
Example 1 to paragraph (c)(3)(ii)(B).
Tribe X owns 100% of 8(a) Participant
A. A entered the 8(a) BD program with
a primary NAICS code of 236115, New
Single-Family Housing Construction
(except For-Sale Builders). After four
years in the program, SBA noticed that
the vast majority of A’s revenues were
in NAICS Code 237310, Highway,
Street, and Bridge Construction, and
notified A that SBA intended to change
its primary NAICS code pursuant to
§ 124.112(e). A agreed to change its
primary NAICS Code to 237310. Once
the change is finalized, Tribe X can
immediately submit a new application
to qualify another firm that it owns for
participation in the 8(a) BD program
with a primary NAICS Code of 236115.
*
*
*
*
*
(iv) Notwithstanding § 124.105(i),
where a Tribe merely reorganizes its
ownership of a Participant in the 8(a)
BD program by inserting or removing a
wholly-owned business entity between
the Tribe and the Participant, the
Participant need not request a change of
ownership from SBA. The Participant
must, however, notify SBA of the
change within 30 days of the transfer.
(4) * * *
(iii) * * *
(C) Because an individual may be
responsible for the management and
daily business operations of two
tribally-owned concerns, the full-time
devotion requirement does not apply to
tribally-owned applicants and
Participants.
*
*
*
*
*
(6) * * *
(iii) The Tribe, a tribally-owned
economic development corporation, or
PO 00000
Frm 00040
Fmt 4701
Sfmt 4700
other relevant tribally-owned holding
company vested with the authority to
oversee tribal economic development or
business ventures has made a firm
written commitment to support the
operations of the applicant concern and
it has the financial ability to do so.
(7) * * *
(ii) The officers, directors, and all
shareholders owning an interest of 20%
or more (other than the tribe itself) of a
tribally-owned applicant or Participant
must demonstrate good character (see
§ 124.108(a)) and cannot fail to pay
significant Federal obligations owed to
the Federal Government (see
§ 124.108(e)).
■ 15. Amend § 124.110 by revising the
section heading and paragraph (e) to
read as follows:
§ 124.110 Do Native Hawaiian
Organizations (NHOs) have any special
rules for applying to and remaining eligible
for the 8(a) BD program?
*
*
*
*
*
(e) An NHO cannot own 51% or more
of another firm which, either at the time
of application or within the previous
two years, has been operating in the 8(a)
program under the same primary NAICS
code as the applicant. For purposes of
this paragraph, the same primary NAICS
code means the six-digit NAICS code
having the same corresponding size
standard. An NHO may, however, own
a Participant or an applicant that
conducts or will conduct secondary
business in the 8(a) BD program under
the same NAICS code that a current
Participant owned by the NHO operates
in the 8(a) BD program as its primary
NAICS code.
(1) Once an applicant is admitted to
the 8(a) BD program, it may not receive
an 8(a) sole source contract that is a
follow-on contract to an 8(a) contract
that was performed immediately
previously by another Participant (or
former Participant) owned by the same
NHO. However, an NHO-owned concern
may receive a follow-on sole source 8(a)
contract to a requirement that it
performed through the 8(a) program
(either as a competitive or sole source
contract).
(2) If the primary NAICS code of a
Participant owned by an NHO is
changed pursuant to § 124.112(e), the
NHO can submit an application and
qualify another firm owned by the NHO
for participation in the 8(a) BD program
under the NAICS code that was the
previous primary NAICS code of the
Participant whose primary NAICS code
was changed.
*
*
*
*
*
■ 16. Amend § 124.111 by revising the
section heading, adding paragraph
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
(c)(3), and revising paragraph (d) to read
as follows:
§ 124.112 What criteria must a business
meet to remain eligible to participate in the
8(a) BD program?
§ 124.111 Do Community Development
Corporations (CDCs) have any special rules
for applying to and remaining eligible for
the 8(a) BD program?
*
*
*
*
*
*
(c) * * *
(3) Notwithstanding § 124.105(i),
where a CDC merely reorganizes its
ownership of a Participant in the 8(a)
BD program by inserting or removing a
wholly-owned business entity between
the CDC and the Participant, the
Participant need not request a change of
ownership from SBA. The Participant
must, however, notify SBA of the
change within 30 days of the transfer.
(d) A CDC cannot own 51% or more
of another firm which, either at the time
of application or within the previous
two years, has been operating in the 8(a)
program under the same primary NAICS
code as the applicant. For purposes of
this paragraph, the same primary NAICS
code means the six-digit NAICS code
having the same corresponding size
standard. A CDC may, however, own a
Participant or an applicant that
conducts or will conduct secondary
business in the 8(a) BD program under
the same NAICS code that a current
Participant owned by the CDC operates
in the 8(a) BD program as its primary
SIC code.
(1) Once an applicant is admitted to
the 8(a) BD program, it may not receive
an 8(a) sole source contract that is a
follow-on contract to an 8(a) contract
that was performed immediately
previously by another Participant (or
former Participant) owned by the same
CDC. However, a CDC-owned concern
may receive a follow-on sole source 8(a)
contract to a requirement that it
performed through the 8(a) program.
(2) If the primary NAICS code of a
Participant owned by a CDC is changed
pursuant to § 124.112(e), the CDC can
submit an application and qualify
another firm owned by the CDC for
participation in the 8(a) BD program
under the NAICS code that was the
previous primary NAICS code of the
Participant whose primary NAICS code
was changed.
*
*
*
*
*
17. Amend § 124.112 by revising
paragraph (d)(5), redesignating
paragraph (e)(2)(iv) as paragraph
(e)(2)(v), and adding a new paragraph
(e)(2)(iv).
The revision and addition read as
follows:
jbell on DSKJLSW7X2PROD with RULES4
■
VerDate Sep<11>2014
23:31 Oct 15, 2020
Jkt 250001
*
*
*
*
(d) * * *
(5) The excessive withdrawal analysis
does not apply to Participants owned by
Tribes, ANCs, NHOs, or CDCs where a
withdrawal is made for the benefit of
the Tribe, ANC, NHO, CDC or the native
or shareholder community. It does,
however, apply to withdrawals from a
firm owned by a Tribe, ANC, NHO, or
CDC that do not benefit the relevant
entity or community. Thus, if funds or
assets are withdrawn from an entityowned Participant for the benefit of a
non-disadvantaged manager or owner
that exceed the withdrawal thresholds,
SBA may find that withdrawal to be
excessive. However, a nondisadvantaged minority owner may
receive a payout in excess of the
excessive withdrawal amount if it is a
pro rata distribution paid to all
shareholders (i.e., the only way to
increase the distribution to the Tribe,
ANC, NHO or CDC is to increase the
distribution to all shareholders) and it
does not adversely affect the business
development of the Participant.
Example 1 to paragraph (d)(5).
Tribally-owned Participant X pays
$1,000,000 to a non-disadvantaged
manager. If that was not part of a pro
rata distribution to all shareholders, that
would be deemed an excessive
withdrawal.
Example 2 to paragraph (d)(5). ANCowned Participant Y seeks to distribute
$550,000 to the ANC and $450,000 to
non-disadvantaged individual A based
on their 55%/45% ownership interests.
Because the distribution is based on the
pro rata share of ownership, this would
not be prohibited as an excessive
withdrawal unless SBA determined that
Y would be adversely affected.
(e) * * *
(2) * * *
(iv) A Participant may appeal a
district office’s decision to change its
primary NAICS code to SBA’s Associate
General Counsel for Procurement Law
(AGC/PL) within 10 business days of
receiving the district office’s final
determination. The AGC/PL will
examine the record, including all
information submitted by the
Participant in support of its position as
to why the primary NAICS code
contained in its business plan continues
to be appropriate despite performing
more work in another NAICS code, and
issue a final agency decision within 15
business days of receiving the appeal.
*
*
*
*
*
PO 00000
Frm 00041
Fmt 4701
Sfmt 4700
66185
18. Amend § 124.203 by revising the
first two sentences and adding a new
third sentence to read as follows:
■
§ 124.203 What must a concern submit to
apply to the 8(a) BD program?
Each 8(a) BD applicant concern must
submit information and supporting
documents required by SBA when
applying for admission to the 8(a) BD
program. This information may include,
but not be limited to, financial data and
statements, copies of filed Federal
personal and business tax returns,
individual and business bank
statements, personal history statements,
and any additional information or
documents SBA deems necessary to
determine eligibility. Each individual
claiming disadvantaged status must also
authorize SBA to request and receive tax
return information directly from the
Internal Revenue Service. * * *
■ 19. Amend § 124.204 by adding a
sentence to the end of paragraph (a) to
read as follows:
§ 124.204 How does SBA process
applications for 8(a) BD program
admission?
(a) * * * Where during its screening
or review SBA requests clarifying,
revised or other information from the
applicant, SBA’s processing time for the
application will be suspended pending
the receipt of such information.
*
*
*
*
*
■ 20. Revise § 124.205 to read as
follows:
§ 124.205 Can an applicant ask SBA to
reconsider SBA’s initial decision to decline
its application?
There is no reconsideration process
for applications that have been
declined. An applicant which has been
declined may file an appeal with SBA’s
Office of Hearings and Appeals
pursuant to § 124.206, or reapply to the
program pursuant to § 124.207.
§ 124.206
[Amended]
21. Revise § 124.206 by removing and
reserving paragraph (b) and
redesignating paragraphs (c) and (d) as
paragraphs (b) and (c), respectively.
■ 22. Revise § 124.207 to read as
follows:
■
§ 124.207 Can an applicant reapply for
admission to the 8(a) BD program?
A concern which has been declined
for 8(a) BD program participation may
submit a new application for admission
to the program at any time after 90 days
from the date of the Agency’s final
decision to decline. However, a concern
that has been declined three times
within 18 months of the date of the first
E:\FR\FM\16OCR4.SGM
16OCR4
66186
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
final Agency decision finding the
concern ineligible cannot submit a new
application for admission to the
program until 12 months from the date
of the third final Agency decision to
decline.
§ 124.301
[Redesignated as § 124.300]
23. Redesignate § 124.301 as
§ 124.300.
■ 24. Add new § 124.301 to read as
follows:
■
§ 124.301 Voluntary withdrawal or
voluntary early graduation.
(a) A Participant may voluntarily
withdraw from the 8(a) BD program at
any time prior to the expiration of its
program term. Where a Participant has
substantially achieved the goals and
objectives set forth in its business plan,
it may elect to voluntarily early graduate
from the 8(a) BD program.
(b) To initiate withdrawal or early
graduation from the 8(a) BD program, a
Participant must notify its servicing
SBA district office of its intent to do so
in writing. Once the SBA servicing
district office processes the request and
the District Director recognizes the
withdrawal or early graduation, the
Participant is no longer eligible to
receive any 8(a) BD program assistance.
■ 25. Amend § 124.304(d) by revising
the paragraph heading and adding a
sentence at the end of paragraph (d) to
read as follows:
§ 124.304 What are the procedures for
early graduation and termination?
jbell on DSKJLSW7X2PROD with RULES4
*
*
*
*
*
(d) Notice requirements and effect of
decision. * * * Once the AA/BD issues
a decision to early graduate or terminate
a Participant, the Participant will be
immediately ineligible to receive further
program assistance. If OHA overrules
the AA/BD’s decision on appeal, the
length of time between the AA/BD’s
decision and OHA’s decision on appeal
will be added to the Participant’s
program term.
*
*
*
*
*
■ 26. Amend § 124.305 by:
■ a. Revising paragraph (a);
■ b. Revising the introductory text of
paragraph (d);
■ c. Revising paragraph (d)(3);
■ d. Revising the introductory text of
paragraph (h)(1);
■ d. Revising paragraphs (h)(1)(ii) and
(iv);
■ e. Adding paragraph (h)(1)(v);
■ f. Redesignating paragraph (h)(6) as
(h)(7); and
■ g. Adding a new paragraph (h)(6).
The revisions and additions read as
follows:
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
§ 124.305 What is suspension and how is
a Participant suspended from the 8(a) BD
program?
(a) Except as set forth in paragraph (h)
of this section, the AA/BD may suspend
a Participant when he or she determines
that suspension is needed to protect the
interests of the Federal Government,
such as where information showing a
clear lack of program eligibility or
conduct indicating a lack of business
integrity exists, including where the
concern or one of its principals
submitted false statements to the
Federal Government. SBA will suspend
a Participant where SBA determines
that the Participant submitted false
information in its 8(a) BD application.
*
*
*
*
*
(d) SBA has the burden of showing
that adequate evidence exists that
protection of the Federal Government’s
interest requires suspension.
*
*
*
*
*
(3) OHA’s review is limited to
determining whether the Government’s
interests need to be protected, unless a
termination action has also been
initiated and the Administrative Law
Judge consolidates the suspension and
termination proceedings. In such a case,
OHA will also consider the merits of the
termination action.
*
*
*
*
*
(h)(1) Notwithstanding paragraph (a)
of this section, SBA will suspend a
Participant from receiving further 8(a)
BD program benefits where:
*
*
*
*
*
(ii) A disadvantaged individual who
is involved in controlling the day-to-day
management and control of the
Participant is called to active military
duty by the United States, his or her
participation in the firm’s management
and daily business operations is critical
to the firm’s continued eligibility, the
Participant does not designate another
disadvantaged individual to control the
concern during the call-up period, and
the Participant requests to be suspended
during the call-up period;
*
*
*
*
*
(iv) Federal appropriations for one or
more Federal departments or agencies
have lapsed, a Participant would lose an
8(a) sole source award due to the lapse
in appropriations (e.g., SBA has
previously accepted an offer for a sole
source 8(a) award on behalf of the
Participant or an agency could not offer
a sole source 8(a) requirement to the
program on behalf of the Participant due
to the lapse in appropriations, and the
Participant’s program term would end
during the lapse), and the Participant
elects to suspend its participation in the
PO 00000
Frm 00042
Fmt 4701
Sfmt 4700
8(a) BD program during the lapse in
Federal appropriations; or
(v) A Participant has not submitted a
business plan to its SBA servicing office
within 60 days after program admission.
*
*
*
*
*
(6) Where a Participant is suspended
pursuant to paragraph (h)(1)(iii) or
paragraph (h)(1)(v) of this section, the
length of the suspension will be added
to the concern’s program term.
*
*
*
*
*
■ 27. Amend § 124.402 by revising
paragraph (b) to read as follows:
§ 124.402 How does a Participant develop
a business plan?
*
*
*
*
*
(b) Submission of initial business
plan. Each Participant must submit a
business plan to its SBA servicing office
as soon as possible after program
admission. SBA will suspend a
Participant from receiving 8(a) BD
program benefits, including 8(a)
contracts, if it has not submitted its
business plan to the servicing district
office within 60 days after program
admission.
*
*
*
*
*
■ 28. Amend § 124.501 by redesignating
paragraphs (g) through (i) as paragraphs
(h) through (j), respectively, by adding
new paragraphs (g) and (k), and by
revising newly redesignated paragraph
(h) to read as follows:
§ 124.501 What general provisions apply
to the award of 8(a) contracts?
*
*
*
*
*
(g) Before a Participant may be
awarded either a sole source or
competitive 8(a) contract, SBA must
determine that the Participant is eligible
for award. SBA will determine
eligibility at the time of its acceptance
of the underlying requirement into the
8(a) BD program for a sole source 8(a)
contract, and after the apparent
successful offeror is identified for a
competitive 8(a) contract. Eligibility is
based on 8(a) BD program criteria,
including whether the Participant:
(1) Qualifies as a small business under
the size standard corresponding to the
NAICS code assigned to the
requirement;
(2) Is in compliance with any
applicable competitive business mix
targets established or remedial measure
imposed by § 124.509 that does not
include the denial of future sole source
8(a) contracts;
(3) Complies with the continued
eligibility reporting requirements set
forth in § 124.112(b);
(4) Has a bona fide place of business
in the applicable geographic area if the
procurement is for construction;
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
(5) Has not received 8(a) contracts in
excess of the dollar limits set forth in
§ 124.519 for a sole source 8(a)
procurement;
(6) Has complied with the provisions
of § 124.513(c) and (d) if it is seeking a
sole source 8(a) award through a joint
venture; and
(7) Can demonstrate that it, together
with any similarly situated entity, will
meet the limitations on subcontracting
provisions set forth in § 124.510.
(h) For a sole source 8(a)
procurement, a concern must be a
current Participant in the 8(a) BD
program at the time of award. If a firm’s
term of participation in the 8(a) BD
program ends (or the firm otherwise
exits the program) before a sole source
8(a) contract can be awarded, award
cannot be made to that firm. This
applies equally to sole source orders
issued under multiple award contracts.
For a competitive 8(a) procurement, a
firm must be a current Participant
eligible for award of the contract on the
initial date specified for receipt of offers
contained in the solicitation as provided
in § 124.507(d).
*
*
*
*
*
(k) In order to be awarded a sole
source or competitive 8(a) construction
contract, a Participant must have a bona
fide place of business within the
applicable geographic location
determined by SBA. This will generally
be the geographic area serviced by the
SBA district office, a Metropolitan
Statistical Area (MSA), or a contiguous
county to (whether in the same or
different state) where the work will be
performed. SBA may determine that a
Participant with a bona fide place of
business anywhere within the state (if
the state is serviced by more than one
SBA district office), one or more other
SBA district offices (in the same or
another state), or another nearby area is
eligible for the award of an 8(a)
construction contract.
(1) A Participant may have bona fide
places of business in more than one
location.
(2) In order for a Participant to
establish a bona fide place of business
in a particular geographic location, the
SBA district office serving the
geographic area of that location must
determine if the location in fact
qualifies as a bona fide place of business
under SBA’s requirements.
(i) A Participant must submit a
request for a bona fide business
determination to the SBA district office
servicing it. Such request may, but need
not, relate to a specific 8(a) requirement.
In order to apply to a specific
competitive 8(a) solicitation, such
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
request must be submitted at least 20
working days before initial offers that
include price are due.
(ii) The servicing district office will
immediately forward the request to the
SBA district office serving the
geographic area of the particular
location for processing. Within 10
working days of receipt of the
submission, the reviewing district office
will conduct a site visit, if practicable.
If not practicable, the reviewing district
office will contact the Participant within
such 10-day period to inform the
Participant that the reviewing office has
received the request and may ask for
additional documentation to support the
request.
(iii) In connection with a specific
competitive solicitation, the reviewing
office will make a determination
whether or not the Participant has a
bona fide place of business in its
geographical area within 5 working days
of a site visit or within 15 working days
of its receipt of the request from the
servicing district office if a site visit is
not practical in that timeframe. If the
request is not related to a specific
procurement, the reviewing office will
make a determination within 30
working days of its receipt of the request
from the servicing district office, if
practicable.
(A) Where SBA does not provide a
determination within the identified time
limit, a Participant may presume that
SBA has approved its request for a bona
fide place of business and submit an
offer for a competitive 8(a) procurement
that requires a bona fide place of
business in the requested area.
(B) In order to be eligible for award,
SBA must approve the bona fide place
of business prior to award. If SBA has
not provided a determination prior to
the time that a Participant is identified
as the apparent successful offeror, SBA
will make the bona fide place of
business determination as part of the
eligibility determination set forth in
paragraph (g)(4) of this section within 5
days of receiving a procuring activity’s
request for an eligibility determination,
unless the procuring activity grants
additional time for review. If, due to
deficiencies in a Participant’s request,
SBA cannot make a determination, and
the procuring activity does not grant
additional time for review, SBA will be
unable to verify the Participant’s
eligibility for award and the Participant
will be ineligible for award.
(3) The effective date of a bona fide
place of business is the date that the
evidence (paperwork) shows that the
business in fact regularly maintained its
business at the new geographic location.
PO 00000
Frm 00043
Fmt 4701
Sfmt 4700
66187
(4) Except as provided in paragraph
(k)(2)(iii) of this section, in order for a
Participant to be eligible to submit an
offer for an 8(a) procurement limited to
a specific geographic area, it must
receive from SBA a determination that
it has a bona fide place of business
within that area prior to submitting its
offer for the procurement.
(5) Once a Participant has established
a bona fide place of business, the
Participant may change the location of
the recognized office without prior SBA
approval. However, the Participant must
notify SBA and provide documentation
demonstrating an office at that new
location within 30 days after the move.
Failure to timely notify SBA will render
the Participant ineligible for new 8(a)
construction procurements limited to
that geographic area.
■ 29. Amend § 124.503 by:
■ a. Removing the phrase ‘‘in
§ 124.507(b)(2)’’ and adding in its place
the phrase ‘‘in § 124.501(g)’’ in
paragraph (a)(1);
■ b. Redesignating paragraphs (e)
through (j) as paragraphs (f) through (k),
respectively;
■ c. Adding a new paragraph (e);
■ d. Revising newly redesignated
paragraph (g);
■ e. Revising the introductory text of the
newly redesignated paragraph (h);
■ f. Adding the phrase ‘‘or BPA’’ after
the phrase ‘‘BOA’’, wherever it appears,
in the newly redesignated paragraphs
(h)(1) through (4);
■ g. Revising newly redesignated
paragraph (i)(1)(iii);
■ h. Adding a sentence at the end of
newly redesignated paragraph (i)(1)(iv);
and
■ i. Revising newly redesignated
paragraphs (i)(2)(ii) and (i)(2)(iv).
The additions and revisions read as
follows:
§ 124.503 How does SBA accept a
procurement for award through the 8(a) BD
program?
*
*
*
*
*
(e) Withdrawal/substitution of offered
requirement or Participant. After SBA
has accepted a requirement for award as
a sole source 8(a) contract on behalf of
a specific Participant (whether
nominated by the procuring agency or
identified by SBA for an open
requirement), if the procuring agency
believes that the identified Participant is
not a good match for the procurement—
including for such reasons as the
procuring agency finding the Participant
non-responsible or the negotiations
between the procuring agency and the
Participant otherwise failing—the
procuring agency may seek to substitute
another Participant for the originally
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66188
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
identified Participant. The procuring
agency must inform SBA of its concerns
regarding the originally identified
Participant and identify whether it
believes another Participant could fulfill
its needs.
(1) If the procuring agency and SBA
agree that another Participant can fulfill
its needs, the procuring agency will
withdraw the original offering and
reoffer the requirement on behalf of
another 8(a) Participant. SBA will then
accept the requirement on behalf of the
newly identified Participant and
authorize the procuring agency to
negotiate directly with that Participant.
(2) If the procuring agency and SBA
agree that another Participant cannot
fulfill its needs, the procuring agency
will withdraw the original offering letter
and fulfill its needs outside the 8(a) BD
program.
(3) If the procuring agency believes
that another Participant cannot fulfill its
needs, but SBA does not agree, SBA
may appeal that decision to the head of
the procuring agency pursuant to
§ 124.505(a)(2).
*
*
*
*
*
(g) Repetitive acquisitions. A
procuring activity contracting officer
must submit a new offering letter to
SBA where he or she intends to award
a follow-on or repetitive contract as an
8(a) award.
(1) This enables SBA to determine:
(i) Whether the requirement should be
a competitive 8(a) award;
(ii) A nominated firm’s eligibility,
whether or not it is the same firm that
performed the previous contract;
(iii) The affect that contract award
would have on the equitable
distribution of 8(a) contracts; and
(iv) Whether the requirement should
continue under the 8(a) BD program.
(2) Where a procuring agency seeks to
reprocure a follow-on requirement
through an 8(a) contracting vehicle
which is not available to all 8(a) BD
Program Participants (e.g., a multiple
award or Governmentwide acquisition
contract that is itself an 8(a) contract),
and the previous/current 8(a) award was
not so limited, SBA will consider the
business development purposes of the
program in determining how to accept
the requirement.
*
*
*
*
*
(h) Basic Ordering Agreements (BOAs)
and Blanket Purchase Agreements
(BPAs). Neither a Basic Ordering
Agreement (BOA) nor a Blanket
Purchase Agreement (BPA) is a contract
under the FAR. See 48 CFR 13.303 and
48 CFR 16.703(a). Each order to be
issued under a BOA or BPA is an
individual contract. As such, the
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
procuring activity must offer, and SBA
must accept, each order under a BOA or
BPA in addition to offering and
accepting the BOA or BPA itself.
*
*
*
*
*
(i)
(1) * * *
(iii) A concern awarded a task or
delivery order contract or Multiple
Award Contract that was set-aside
exclusively for 8(a) Program
Participants, partially set-aside for 8(a)
Program Participants or reserved solely
for 8(a) Program Participants may
generally continue to receive new orders
even if it has grown to be other than
small or has exited the 8(a) BD program,
and agencies may continue to take SDB
credit toward their prime contracting
goals for orders awarded to 8(a)
Participants. A procuring agency may
seek to award an order only to a concern
that is a current Participant in the 8(a)
program at the time of the order. In such
a case, the procuring agency will
announce its intent to limit the award
of the order to current 8(a) Participants
and verify a contract holder’s 8(a) BD
status prior to issuing the order. Where
a procuring agency seeks to award an
order to a concern that is a current 8(a)
Participant, a concern must be an
eligible Participant in accordance with
§ 124.501(g) as of the initial date
specified for the receipt of offers
contained in the order solicitation, or at
the date of award of the order if there
is no solicitation.
(iv) * * * To be eligible for the award
of a sole source order, a concern must
be a current Participant in the 8(a) BD
program at the time of award.
(2) * * *
(ii) The order must be competed
exclusively among only the 8(a)
awardees of the underlying multiple
award contract;
*
*
*
*
*
(iv) SBA must verify that a concern is
an eligible 8(a) Participant in
accordance with § 124.501(g) as of the
initial date specified for the receipt of
offers contained in the order
solicitation, or at the date of award of
the order if there is no solicitation. If a
concern has exited the 8(a) BD program
prior to that date, it will be ineligible for
the award of the order.
*
*
*
*
*
■ 30. Amend § 124.504 by:
■ a. Revising the section heading and
paragraph (b);
■ b. Removing the term ‘‘Simplified
Acquisition Procedures’’ and adding in
its place the phrase ‘‘the simplified
acquisition threshold (as defined in the
FAR at 48 CFR 2.101)’’ in paragraph (c)
introductory text;
PO 00000
Frm 00044
Fmt 4701
Sfmt 4700
c. Removing the word ‘‘will’’ and
adding in its place the word ‘‘may’’ in
paragraph (c)(1)(ii)(C);
■ d. Adding a paragraph (c)(4); and
■ e. Revising the paragraph heading for
paragraph (d) and paragraphs (d)(1)
introductory text and (d)(4).
The revisions and addition read as
follows:
■
§ 124.504 What circumstances limit SBA’s
ability to accept a procurement for award as
an 8(a) contract, and when can a
requirement be released from the 8(a) BD
program?
*
*
*
*
*
(b) Competition prior to offer and
acceptance. The procuring activity
competed a requirement among 8(a)
Participants prior to offering the
requirement to SBA and did not clearly
evidence its intent to conduct an 8(a)
competitive acquisition.
*
*
*
*
*
(c) * * *
(4) SBA does not typically consider
the value of a bridge contract when
determining whether an offered
procurement is a new requirement. A
bridge contract is meant to be a
temporary stop-gap measure intended to
ensure the continuation of service while
an agency finalizes a long-term
procurement approach.
(d) Release for non-8(a) or limited 8(a)
competition. (1) Except as set forth in
paragraph (d)(4) of this section, where a
procurement is awarded as an 8(a)
contract, its follow-on requirement must
remain in the 8(a) BD program unless
SBA agrees to release it for non-8(a)
competition. Where a procurement will
contain work currently performed under
one or more 8(a) contracts, and the
procuring agency determines that the
procurement should not be considered a
follow-on requirement to the 8(a)
contract(s), the procuring agency must
notify SBA that it intends to procure
such specified work outside the 8(a) BD
program through a requirement that it
considers to be new. Additionally, a
procuring agency must notify SBA
where it seeks to reprocure a follow-on
requirement through a pre-existing
limited contracting vehicle which is not
available to all 8(a) BD Program
Participants and the previous/current
8(a) award was not so limited. If a
procuring agency would like to fulfill a
follow-on requirement outside of the
8(a) BD program, it must make a written
request to and receive the concurrence
of the AA/BD to do so. In determining
whether to release a requirement from
the 8(a) BD program, SBA will consider:
*
*
*
*
*
(4) The requirement that a follow-on
procurement must be released from the
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
8(a) BD program in order for it to be
fulfilled outside the 8(a) BD program
does not apply:
(i) Where previous orders were
offered to and accepted for the 8(a) BD
program pursuant to § 124.503(i)(2); or
(ii) Where a procuring agency will use
a mandatory source (see FAR Subparts
8.6 and 8.7(48 CFR subparts 8.6 and
8.7)). In such a case, the procuring
agency should notify SBA at least 30
days prior to the end of the contract or
order.
■ 31. Amend § 124.505 by:
■ a. Removing the word ‘‘and’’ at the
end of paragraph (a)(2);
■ b. Redesignating paragraph (a)(3) as
paragraph (a)(4); and
■ c. Adding new paragraph (a)(3).
The addition reads as follows:
§ 124.505 When will SBA appeal the terms
or conditions of a particular 8(a) contract or
a procuring activity decision not to use the
8(a) BD program?
(a) * * *
(3) A decision by a contracting officer
that a particular procurement is a new
requirement that is not subject to the
release requirements set forth in
§ 124.504(d); and
*
*
*
*
*
■ 32. Amend § 124.507 by:
a. Revising paragraph (b)(2);
b. Removing paragraph (b)(3);
c. Redesignating paragraphs (b)(4)
through (6) as paragraphs (b)(3) through
(5), respectively;
■ d. Removing paragraph (c)(1);
■ e. Redesignating paragraphs (c)(2) and
(3) as paragraphs (c)(1) and (2),
respectively;
■ f. Revising newly redesignated
paragraph (c)(1); and
■ g. Adding a new paragraph (d)(3).
The revisions and addition read as
follows:
■
■
■
§ 124.507 What procedures apply to
competitive 8(a) procurements?
*
*
*
*
*
(b) * * *
(2) SBA determines a Participant’s
eligibility pursuant to § 124.501(g).
*
*
*
*
*
(c) * * *
(1) Construction competitions. Based
on its knowledge of the 8(a) BD
portfolio, SBA will determine whether a
competitive 8(a) construction
requirement should be competed among
only those Participants having a bona
fide place of business within the
geographical boundaries of one or more
SBA district offices, within a state, or
within the state and nearby areas. Only
66189
those Participants with bona fide places
of business within the appropriate
geographical boundaries are eligible to
submit offers.
*
*
*
*
*
(d) * * *
(3) For a two-step design-build
procurement to be awarded through the
8(a) BD program, a firm must be a
current Participant eligible for award of
the contract on the initial date specified
for receipt of phase one offers contained
in the contract solicitation.
■ 33. Amend § 124.509 by:
■ a. Removing the word ‘‘maximum’’
and adding in its place the words ‘‘good
faith’’ in paragraph (a)(1);
■ b. Removing the words ‘‘substantial
and sustained’’ and adding in their
place the words ‘‘good faith’’ in
paragraph (a)(2);
■ c. Revising the table in paragraph
(b)(2);
■ d. Revising paragraph (d); and
■ e. Revising paragraph (e).
The revisions read as follows:
§ 124.509 What are non-8(a) business
activity targets?
*
*
*
(b) * * *
*
*
TABLE 1 TO PARAGRAPH (b)
Non-8(a) business activity targets
(required minimum non-8(a) revenue as a percentage of total
revenue)
Participants year in the transitional stage
1
2
3
4
5
15
25
30
40
50
jbell on DSKJLSW7X2PROD with RULES4
*
*
*
*
*
(d) Consequences of not meeting
competitive business mix targets. (1)
Beginning at the end of the first year in
the transitional stage (the fifth year of
participation in the 8(a) BD program),
any firm that does not meet its
applicable competitive business mix
target for the just completed program
year must demonstrate to SBA the
specific efforts it made during that year
to obtain non-8(a) revenue.
(2) If SBA determines that an 8(a)
Participant has failed to meet its
applicable competitive business mix
target during any program year in the
transitional stage of program
participation, SBA will increase its
monitoring of the Participant’s
contracting activity during the ensuing
program year.
(3) As a condition of eligibility for
new 8(a) sole source contracts, SBA may
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
require a Participant that fails to achieve
the non-8(a) business activity targets to
take one or more specific actions. These
include requiring the Participant to
obtain management assistance, technical
assistance, and/or counseling from an
SBA resource partner or otherwise, and/
or attend seminars relating to
management assistance, business
development, financing, marketing,
accounting, or proposal preparation.
Where any such condition is imposed,
SBA will not accept a sole source
requirement offered to the 8(a) BD
program on behalf of the Participant
until the Participant demonstrates to
SBA that the condition has been met.
(4) If SBA determines that a
Participant has not made good faith
efforts to meet its applicable non-8(a)
business activity target, the Participant
will be ineligible for sole source 8(a)
contracts in the current program year.
PO 00000
Frm 00045
Fmt 4701
Sfmt 4700
SBA will notify the Participant in
writing that the Participant will not be
eligible for further 8(a) sole source
contract awards until it has
demonstrated to SBA that it has
complied with its non-8(a) business
activity requirements as described in
paragraphs (d)(4)(i) and (ii) of this
section. In order for a Participant to
come into compliance with the non-8(a)
business activity target and be eligible
for further 8(a) sole source contracts, it
may:
(i) Wait until the end of the current
program year and demonstrate to SBA
as part of the normal annual review
process that it has met the revised non8(a) business activity target; or
(ii) At its option, submit information
regarding its non-8(a) revenue to SBA
quarterly throughout the current
program year in an attempt to come into
compliance before the end of the current
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66190
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
program year. If the Participant satisfies
the requirements of paragraphs
(d)(2)(ii)(A) or (B) of this section, SBA
will reinstate the Participant’s ability to
get sole source 8(a) contracts prior to its
annual review.
(A) To qualify for reinstatement
during the first six months of the
current program year (i.e., at either the
first or second quarterly review), the
Participant must demonstrate that it has
received non-8(a) revenue and new non8(a) contract awards that are equal to or
greater than the dollar amount by which
it failed to meet its non-8(a) business
activity target for the just completed
program year. For this purpose, SBA
will not count options on existing non8(a) contracts in determining whether a
Participant has received new non-8(a)
contract awards.
(B) To qualify for reinstatement
during the last six months of the current
program year (i.e., at either the ninemonth or one year review), the
Participant must demonstrate that it has
achieved its non-8(a) business activity
target as of that point in the current
program year.
Example 1 to paragraph (d)(4). Firm
A had $10 million in total revenue
during year 2 in the transitional stage
(year 6 in the program), but failed to
meet the minimum non-8(a) business
activity target of 25 percent. It had 8(a)
revenues of $8.5 million and non-8(a)
revenues of $1.5 million (15 percent).
Based on total revenues of $10 million,
Firm A should have had at least $2.5
million in non-8(a) revenues. Thus,
Firm A missed its target by $1 million
(its target ($2.5 million) minus its actual
non-8(a) revenues ($1.5 million)).
Because Firm A did not achieve its non8(a) business activity target and SBA
determined that it did not make good
faith efforts to obtain non-8(a) revenue,
it cannot receive 8(a) sole source awards
until correcting that situation. The firm
may wait until the next annual review
to establish that it has met the revised
target, or it can choose to report contract
awards and other non-8(a) revenue to
SBA quarterly. Firm A elects to submit
information to SBA quarterly in year 3
of the transitional stage (year 7 in the
program). In order to be eligible for sole
source 8(a) contracts after either its 3
month or 6 month review, Firm A must
show that it has received non-8(a)
revenue and/or been awarded new non8(a) contracts totaling $1 million (the
amount by which it missed its target in
year 2 of the transitional stage).
Example 2 to paragraph (d)(4). Firm
B had $10 million in total revenue
during year 2 in the transitional stage
(year 6 in the program), of which $8.5
million were 8(a) revenues and $1.5
VerDate Sep<11>2014
23:32 Oct 15, 2020
Jkt 250001
million were non-8(a) revenues, and
SBA determined that Firm B did not
make good faith efforts to meet its non8(a) business activity target. At its first
two quarterly reviews during year 3 of
the transitional stage (year 7 in the
program), Firm B could not demonstrate
that it had received at least $1 million
in non-8(a) revenue and new non-8(a)
awards. In order to be eligible for sole
source 8(a) contracts after its 9 month or
1 year review, Firm B must show that
at least 35% (the non-8(a) business
activity target for year 3 in the
transitional stage) of all revenues
received during year 3 in the
transitional stage as of that point are
from non-8(a) sources.
(5) In determining whether a
Participant has achieved its required
non-8(a) business activity target at the
end of any program year in the
transitional stage, or whether a
Participant that failed to meet the target
for the previous program year has
achieved the required level of non-8(a)
business at its nine-month review, SBA
will measure 8(a) support by adding the
base year value of all 8(a) contracts
awarded during the applicable program
year to the value of all options and
modifications executed during that year.
(6) SBA may initiate proceedings to
terminate a Participant from the 8(a) BD
program where the firm makes no good
faith efforts to obtain non-8(a) revenues.
(e) Waiver of sole source prohibition.
(1) Despite a finding by SBA that a
Participant did not make good faith
efforts to meet its non-8(a) business
activity target, SBA may waive the
requirement prohibiting a Participant
from receiving further sole source 8(a)
contracts where a denial of a sole source
contract would cause severe economic
hardship on the Participant so that the
Participant’s survival may be
jeopardized, or where extenuating
circumstances beyond the Participant’s
control caused the Participant not to
meet its non-8(a) business activity
target.
(2) SBA may waive the requirement
prohibiting a Participant from receiving
further sole source 8(a) contracts when
the Participant does not meet its non8(a) business activity target where the
head of a procuring activity represents
to SBA that award of a sole source 8(a)
contract to the Participant is needed to
achieve significant interests of the
Government.
(3) The decision to grant or deny a
request for a waiver is at SBA’s
discretion, and no appeal may be taken
with respect to that decision.
(4) A waiver generally applies to a
specific sole source opportunity. If SBA
grants a waiver with respect to a specific
PO 00000
Frm 00046
Fmt 4701
Sfmt 4700
procurement, the firm will be able to
self-market its capabilities to the
applicable procuring activity with
respect to that procurement. If the
Participant seeks an additional sole
source opportunity, it must request a
waiver with respect to that specific
opportunity. Where, however, a
Participant can demonstrate that the
same extenuating circumstances beyond
its control affect its ability to receive
specific multiple 8(a) contracts, one
waiver can apply to those multiple
contract opportunities.
■ 34. Amend § 124.513 by revising
paragraphs (c)(2) and (4), the second
sentence of paragraph (c)(5), and
paragraph (e) to read as follows:
§ 124.513 Under what circumstances can a
joint venture be awarded an 8(a) contract?
*
*
*
*
*
(c) * * *
(2) Designating an 8(a) Participant as
the managing venturer of the joint
venture, and designating a named
employee of the 8(a) managing venturer
as the manager with ultimate
responsibility for performance of the
contract (the ‘‘Responsible Manager’’).
(i) The managing venturer is
responsible for controlling the day-today management and administration of
the contractual performance of the joint
venture, but other partners to the joint
venture may participate in all corporate
governance activities and decisions of
the joint venture as is commercially
customary.
(ii) The individual identified as the
Responsible Manager of the joint
venture need not be an employee of the
8(a) Participant at the time the joint
venture submits an offer, but, if he or
she is not, there must be a signed letter
of intent that the individual commits to
be employed by the 8(a) Participant if
the joint venture is the successful
offeror. The individual identified as the
Responsible Manager cannot be
employed by the mentor and become an
employee of the 8(a) Participant for
purposes of performance under the joint
venture.
(iii) Although the joint venture
managers responsible for orders issued
under an IDIQ contract need not be
employees of the prote´ge´, those
managers must report to and be
supervised by the joint venture’s
Responsible Manager;
*
*
*
*
*
(4) Stating that the 8(a) Participant(s)
must receive profits from the joint
venture commensurate with the work
performed by the 8(a) Participant(s), or
a percentage agreed to by the parties to
the joint venture whereby the 8(a)
Participant(s) receive profits from the
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
joint venture that exceed the percentage
commensurate with the work performed
by the 8(a) Participant(s);
(5) * * * This account must require
the signature or consent of all parties to
the joint venture for any payments made
by the joint venture to its members for
services performed. * * *
*
*
*
*
*
(e) Prior approval by SBA. (1) When
a joint venture between one or more 8(a)
Participants seeks a sole source 8(a)
award, SBA must approve the joint
venture prior to the award of the sole
source 8(a) contract. SBA will not
approve joint ventures in connection
with competitive 8(a) awards (but see
§ 124.501(g) for SBA’s determination of
Participant eligibility).
(2) Where a joint venture has been
established for one 8(a) contract, the
joint venture may receive additional 8(a)
contracts provided the parties create an
addendum to the joint venture
agreement setting forth the performance
requirements for each additional award
(and provided any contract is awarded
within two years of the first award as set
forth in § 121.103(h)). If an additional
8(a) contract is a sole source award, SBA
must also approve the addendum prior
to contract award.
*
*
*
*
*
■ 35. Amend § 124.514 by revising
paragraph (b) to read as follows:
§ 124.514 Exercise of 8(a) options and
modifications.
*
*
*
*
*
(b) Priced options. Except as set forth
in § 124.521(e)(2), the procuring activity
contracting officer may exercise a priced
option to an 8(a) contract whether the
concern that received the award has
graduated or been terminated from the
8(a) BD program or is no longer eligible
if to do so is in the best interests of the
Government.
*
*
*
*
*
■ 36. Amend § 124.515 by revising
paragraph (d) to read as follows:
§ 124.515 Can a Participant change its
ownership or control and continue to
perform an 8(a) contract, and can it transfer
performance to another firm?
jbell on DSKJLSW7X2PROD with RULES4
*
*
*
*
*
(d) SBA determines the eligibility of
an acquiring Participant under
paragraph (b)(2) of this section by
referring to the items identified in
§ 124.501(g) and deciding whether at the
time of the request for waiver (and prior
to the transaction) the acquiring
Participant is an eligible concern with
respect to each contract for which a
waiver is sought. As part of the waiver
request, the acquiring concern must
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
certify that it is a small business for the
size standard corresponding to the
NAICS code assigned to each contract
for which a waiver is sought. SBA will
not grant a waiver for any contract if the
work to be performed under the contract
is not similar to the type of work
previously performed by the acquiring
concern.
*
*
*
*
*
■ 37. Amend § 124.518 by revising
paragraph (c) to read as follows:
§ 124.518 How can an 8(a) contract be
terminated before performance is
completed?
*
*
*
*
*
(c) Substitution of one 8(a) contractor
for another. SBA may authorize another
Participant to complete performance
and, in conjunction with the procuring
activity, permit novation of an 8(a)
contract without invoking the
termination for convenience or waiver
provisions of § 124.515 where a
procuring activity contracting officer
demonstrates to SBA that the
Participant that was awarded the 8(a)
contract is unable to complete
performance, where an 8(a) contract will
otherwise be terminated for default, or
where SBA determines that substitution
would serve the business development
needs of both 8(a) Participants.
■ 38. Amend § 124.519 by:
■ a. Revising paragraph (a);
■ b. Removing paragraph (c);
■ c. Redesignating paragraph (b) as
paragraph (c); and
■ d. Adding a new paragraph (b).
The revision and addition read as
follows:
§ 124.519 Are there any dollar limits on the
amount of 8(a) contracts that a Participant
may receive?
(a) A Participant (other than one
owned by an Indian Tribe, ANC, NHO,
or CDC) may not receive sole source 8(a)
contract awards where it has received a
combined total of competitive and sole
source 8(a) contracts in excess of
$100,000,000 during its participation in
the 8(a) BD program.
(b) In determining whether a
Participant has reached the limit
identified in paragraph (a) of this
section, SBA:
(1) Looks at the 8(a) revenues a
Participant has actually received, not
projected 8(a) revenues that a
Participant might receive through an
indefinite delivery or indefinite quantity
contract, a multiple award contract, or
options or modifications; and
(2) Will not consider 8(a) contracts
awarded under the Simplified
Acquisition Threshold.
*
*
*
*
*
PO 00000
Frm 00047
Fmt 4701
Sfmt 4700
66191
39. Revise § 124.520 to read as
follows:
■
§ 124.520 Can 8(a) BD Program
Participants participate in SBA’s MentorProte´ge´ program?
(a) An 8(a) BD Program Participant, as
any other small business, may
participate in SBA’s All Small MentorProte´ge´ Program authorized under
§ 125.9 of this chapter.
(b) In order for a joint venture
between a prote´ge´ and its SBA-approved
mentor to receive the exclusion from
affiliation with respect to a sole source
or competitive 8(a) contract, the joint
venture must meet the requirements set
forth in § 124.513(c) and (d).
40. Amend § 124.521 by revising the
last sentence of paragraph (e)(1) to read
as follows:
■
§ 124.521 What are the requirements for
representing 8(a) status, and what are the
penalties for misrepresentation?
*
*
*
*
*
(e) Recertification. (1) * * * Except as
set forth in paragraph (e)(2) of this
section, where a concern later fails to
qualify as an 8(a) Participant, the
procuring agency may exercise options
and still count the award as an award
to a Small Disadvantaged Business
(SDB).
*
*
*
*
*
PART 125—GOVERNMENT
CONTRACTING PROGRAMS
41. The authority citation for part 125
continues to read as follows:
■
Authority: 15 U.S.C. 632(p), (q), 634(b)(6),
637, 644, 657(f), and 657r.
42. Amend § 125.2 by revising
paragraph (e)(6)(i) and adding a new
paragraph (g) to read as follows:
■
§ 125.2 What are SBA’s and the procuring
agency’s responsibilities when providing
contracting assistance to small
businesses?
*
*
*
*
*
(e) * * *
(6) * * *
(i) Notwithstanding the fair
opportunity requirements set forth in 10
U.S.C. 2304c and 41 U.S.C. 4106(c), a
contracting officer may set aside orders
for small businesses, eligible 8(a)
Participants, certified HUBZone small
business concerns, SDVO small
business concerns, WOSBs, and
EDWOSBs against full and open
Multiple Award Contracts. In addition,
a contracting officer may set aside
orders for eligible 8(a) Participants,
certified HUBZone small business
concerns, SDVO small business
concerns, WOSBs, and EDWOSBs
E:\FR\FM\16OCR4.SGM
16OCR4
66192
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
against total small business set-aside
Multiple Award Contracts, partial small
business set-aside Multiple Award
Contracts, and small business reserves
of Multiple Award Contracts awarded in
full and open competition. Although a
contracting officer can set aside orders
issued under a small business set-aside
Multiple Award Contract or reserve to
any subcategory of small businesses,
contracting officers are encouraged to
review the award dollars under the
Multiple Award Contract and aim to
make available for award at least 50%
of the award dollars under the Multiple
Award Contract to all contract holders
of the underlying small business setaside Multiple Award Contract or
reserve. However, a contracting officer
may not further set aside orders for
specific types of small business
concerns against Multiple Award
Contracts that are set-aside or reserved
for eligible 8(a) Participants, certified
HUBZone small business concerns,
SDVO small business concerns, WOSBs,
and EDWOSBs (e.g., a contracting
officer cannot set-aside an order for 8(a)
Participants that are also certified
HUBZone small business concerns
against an 8(a) Multiple Award
Contract).
*
*
*
*
*
(g) Capabilities, past performance,
and experience. When an offer of a
small business prime contractor
includes a proposed team of small
business subcontractors and specifically
identifies the first-tier subcontractor(s)
in the proposal, the head of the agency
must consider the capabilities, past
performance, and experience of each
first tier subcontractor that is part of the
team as the capabilities, past
performance, and experience of the
small business prime contractor if the
capabilities, past performance, and
experience of the small business prime
does not independently demonstrate
capabilities and past performance
necessary for award.
■ 43. Amend § 125.3 by adding a
sentence to the end of paragraph (b)(2),
and by revising the first sentence of
paragraph (c)(1)(viii) and paragraph
(c)(1)(ix) to read as follows:
§ 125.3 What types of subcontracting
assistance are available to small
businesses?
jbell on DSKJLSW7X2PROD with RULES4
*
*
*
*
*
(b) * * *
(2) * * * This applies whether the
firm qualifies as a small business
concern for the size standard
corresponding to the NAICS code
assigned to the contract, or is deemed to
be treated as a small business concern
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
by statute (see e.g., 43 U.S.C.
1626(e)(4)(B)).
*
*
*
*
*
(c) * * *
(1) * * *
(viii) The contractor must provide
pre-award written notification to
unsuccessful small business offerors on
all subcontracts over the simplified
acquisition threshold (as defined in the
FAR at 48 CFR 2.101) for which a small
business concern received a preference.
* * *
(ix) As a best practice, the contractor
may provide the pre-award written
notification cited in paragraph
(c)(1)(viii) of this section to
unsuccessful and small business
offerors on subcontracts at or below the
simplified acquisition threshold (as
defined in the FAR at 48 CFR 2.101) and
should do so whenever practical; and
*
*
*
*
*
44. Amend § 125.5 by:
a. Revising the third sentence of
paragraph (a)(1);
■ b. Redesignating paragraphs (f)(2) and
(f)(3) as paragraphs (f)(3) and (f)(4)
respectively;
■ c. Adding a new paragraph (f)(2);
■ d. Removing the phrase ‘‘$100,000 or
less, or in accordance with Simplified
Acquisition Threshold procedures’’ and
adding in its place the phrase ‘‘Less
than or equal to the Simplified
Acquisition Threshold’’ in paragraph
(g);
■ e. Removing the phrase ‘‘Between
$100,000 and $25 million’’ and adding
in its place the phrase ‘‘Above the
Simplified Acquisition Threshold and
less than or equal to $25 million’’ in
paragraph (g);
■ f. Removing the term ‘‘$100,000’’ and
adding in its place ‘‘the simplified
acquisition threshold’’ in paragraphs (h)
and (i).
The revision and addition read as
follows:
■
■
§ 125.5 What is the Certificate of
Competency Program?
(a) * * *
(1) * * * The COC Program is
applicable to all Government
procurement actions, with the exception
of 8(a) sole source awards but including
Multiple Award Contracts and orders
placed against Multiple Award
Contracts, where the contracting officer
has used any issues of capacity or credit
(responsibility) to determine suitability
for an award. * * *
*
*
*
*
*
(f) * * *
(2) An offeror seeking a COC has the
burden of proof to demonstrate that it
possesses all relevant elements of
PO 00000
Frm 00048
Fmt 4701
Sfmt 4700
responsibility and that it has overcome
the contracting officer’s objection(s).
*
*
*
*
*
45. Amend § 125.6 by:
a. Revising paragraph (a) introductory
text;
■ b. Revising paragraph (a)(2)(ii)(B);
■ c. Revising Examples 2, 3 and 4 to
paragraph (a)(2);
■ d. Revising the paragraph (b)
introductory text; and
■ e. Adding Example 3 to paragraph (b).
The revisions and addition read as
follows:
■
■
§ 125.6 What are the prime contractor’s
limitations on subcontracting?
(a) General. In order to be awarded a
full or partial small business set-aside
contract with a value greater than the
simplified acquisition threshold (as
defined in the FAR at 48 CFR 2.101), an
8(a) contract, an SDVO SBC contract, a
HUBZone contract, or a WOSB or
EDWOSB contract pursuant to part 127
of this chapter, a small business concern
must agree that:
*
*
*
*
*
(2) * * *
(ii) * * *
(B) For a multiple item procurement
where a waiver as described in
§ 121.406(b)(5) of this chapter is granted
for one or more items, compliance with
the limitation on subcontracting
requirement will be determined by
combining the value of the items
supplied by domestic small business
manufacturers or processors with the
value of the items subject to a waiver.
As such, as long as the value of the
items to be supplied by domestic small
business manufacturers or processors
plus the value of the items to be
supplied that are subject to a waiver
account for at least 50% of the value of
the contract, the limitations on
subcontracting requirement is met.
*
*
*
*
*
Example 2 to paragraph (a)(2). A
procurement is for $1,000,000 and calls
for the acquisition of 10 items. Market
research shows that nine of the items
can be sourced from small business
manufacturers and one item is subject to
an SBA class waiver. Since 100% of the
value of the contract can be procured
through domestic small business
manufacturers or processors plus
manufacturers or processors of the item
for which a waiver has been granted, the
procurement should be set aside for
small business. At least 50% of the
value of the contract, or 50% of
$1,000,000, must be supplied by one or
more domestic small business
manufacturers or manufacturers or
processors of the one item for which
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
class waiver has been granted. In
addition, the prime small business
nonmanufacturer may act as a
manufacturer for one or more items.
Example 3 to paragraph (a)(2). A
contract is for $1,000,000 and calls for
the acquisition of 10 items. Market
research shows that only four of these
items are manufactured by small
businesses. The value of the items
manufactured by small business is
estimated to be $400,000. The
contracting officer seeks and is granted
contract specific waivers on the other
six items. Since 100% of the value of
the contract can be procured through
domestic small business manufacturers
or processors plus manufacturers or
processors of the items for which a
waiver has been granted, the
procurement should be set aside for
small business. At least 50% of the
value of the contract, or 50% of
$1,000,000, must be supplied by one or
more domestic small business
manufacturers or manufacturers or
processors of the six items for which a
contract specific waiver has been
granted. In addition, the prime small
business nonmanufacturer may act as a
manufacturer for one or more items.
Example 4 to paragraph (a)(2). A
contract is for $1,000,000 and calls for
the acquisition of 10 items. Market
research shows that three of the items
can be sourced from small business
manufacturers at this particular time,
and the estimated value of these items
is $300,000. There are no class waivers
subject to the remaining seven items. In
order for this procurement to be set
aside for small business, a contracting
officer must seek and be granted a
contract specific waiver for one or more
items totaling $200,000 (so that
$300,000 plus $200,000 equals 50% of
the value of the entire procurement).
Once a contract specific waiver is
received for one or more items, at least
50% of the value of the contract, or 50%
of $1,000,000, must be supplied by one
or more domestic small business
manufacturers or processors or by
manufacturers or processors of the items
for which a contract specific waiver has
been granted. In addition, the prime
small business nonmanufacturer may
act as a manufacturer for one or more
items.
*
*
*
*
*
(b) Mixed contracts. Where a contract
integrates any combination of services,
supplies, or construction, the
contracting officer shall select the
appropriate NAICS code as prescribed
in § 121.402(b) of this chapter. The
contracting officer’s selection of the
applicable NAICS code is determinative
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
as to which limitation on subcontracting
and performance requirement applies.
Based on the NAICS code selected, the
relevant limitation on subcontracting
requirement identified in paragraphs
(a)(1) through (4) of this section will
apply only to that portion of the
contract award amount. In no case shall
more than one limitation on
subcontracting requirement apply to the
same contract.
*
*
*
*
*
Example 3 to paragraph (b). A
procuring activity is acquiring both
services and general construction
through a small business set-aside. The
total value of the requirement is
$10,000,000, with the construction
portion comprising $8,000,000, and the
services portion comprising $2,000,000.
The contracting officer appropriately
assigns a construction NAICS code to
the requirement. The 85% limitation on
subcontracting identified in paragraph
(a)(3) would apply to this procurement.
Because the services portion of the
contract is excluded from consideration,
the relevant amount for purposes of
calculating the limitation on
subcontracting requirement is
$8,000,000. As such, the prime
contractor cannot subcontract more than
$6,800,000 to non-similarly situated
entities, and the prime and/or similarly
situated entities must perform at least
$1,200,000.
*
*
*
*
*
46. Amend § 125.8 by:
a. Revising paragraphs (b)(2)(ii) and
(iv), the second sentence of paragraph
(b)(2)(v), and paragraphs (b)(2)(xi) and
(xii);
■ b. Adding a new sentence at the end
of paragraph (c)(1);
■ c. Adding paragraph (c)(4); and
■ d. Revising paragraphs (e), and (h)(2).
The revisions and additions read as
follows:
■
■
§ 125.8 What requirements must a joint
venture satisfy to submit an offer for a
procurement or sale set aside or reserved
for small business?
*
*
*
*
*
(b) * * *
(2) * * *
(ii) Designating a small business as
the managing venturer of the joint
venture, and designating a named
employee of the small business
managing venturer as the manager with
ultimate responsibility for performance
of the contract (the ‘‘Responsible
Manager’’).
(A) The managing venturer is
responsible for controlling the day-today management and administration of
the contractual performance of the joint
PO 00000
Frm 00049
Fmt 4701
Sfmt 4700
66193
venture, but other partners to the joint
venture may participate in all corporate
governance activities and decisions of
the joint venture as is commercially
customary.
(B) The individual identified as the
Responsible Manager of the joint
venture need not be an employee of the
small business at the time the joint
venture submits an offer, but, if he or
she is not, there must be a signed letter
of intent that the individual commits to
be employed by the small business if the
joint venture is the successful offeror.
The individual identified as the
Responsible Manager cannot be
employed by the mentor and become an
employee of the small business for
purposes of performance under the joint
venture.
(C) Although the joint venture
managers responsible for orders issued
under an IDIQ contract need not be
employees of the prote´ge´, those
managers must report to and be
supervised by the joint venture’s
Responsible Manager;
*
*
*
*
*
(iv) Stating that the small business
participant(s) must receive profits from
the joint venture commensurate with
the work performed by them, or a
percentage agreed to by the parties to
the joint venture whereby the small
business participant(s) receive profits
from the joint venture that exceed the
percentage commensurate with the work
performed by them, and that at the
conclusion of the joint venture
contract(s) and/or the termination of a
joint venture, any funds remaining in
the joint venture bank account shall
distributed at the discretion of the joint
venture members according to
percentage of ownership;
(v) * * * This account must require
the signature or consent of all parties to
the joint venture for any payments made
by the joint venture to its members for
services performed. * * *
*
*
*
*
*
(xi) Stating that annual performanceof-work statements required by
paragraph (h)(1) must be submitted to
SBA and the relevant contracting officer
not later than 45 days after each
operating year of the joint venture; and
(xii) Stating that the project-end
performance-of-work required by
paragraph (h)(2) must be submitted to
SBA and the relevant contracting officer
no later than 90 days after completion
of the contract.
*
*
*
*
*
(c) * * *
(1) * * * Except as set forth in
paragraph (c)(4) of this section, the 40%
calculation for prote´ge´ workshare
E:\FR\FM\16OCR4.SGM
16OCR4
66194
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES4
follows the same rules as those set forth
in § 125.6 concerning supplies,
construction, and mixed contracts,
including the exclusion of the same
costs from the limitation on
subcontracting calculation (e.g., cost of
materials excluded from the calculation
in construction contracts).
*
*
*
*
*
(4) Work performed by a similarly
situated entity will not count toward the
requirement that a prote´ge´ must perform
at least 40% of the work performed by
a joint venture.
*
*
*
*
*
(e) Capabilities, past performance and
experience. When evaluating the
capabilities, past performance,
experience, business systems and
certifications of an entity submitting an
offer for a contract set aside or reserved
for small business as a joint venture
established pursuant to this section, a
procuring activity must consider work
done and qualifications held
individually by each partner to the joint
venture as well as any work done by the
joint venture itself previously. A
procuring activity may not require the
prote´ge´ firm to individually meet the
same evaluation or responsibility
criteria as that required of other offerors
generally. The partners to the joint
venture in the aggregate must
demonstrate the past performance,
experience, business systems and
certifications necessary to perform the
contract.
*
*
*
*
*
(h) * * *
(2) At the completion of every
contract set aside or reserved for small
business that is awarded to a joint
venture between a prote´ge´ small
business and a mentor authorized by
§ 125.9, and upon request by SBA or the
relevant contracting officer, the small
business partner to the joint venture
must submit a report to the relevant
contracting officer and to SBA, signed
by an authorized official of each partner
to the joint venture, explaining how and
certifying that the performance of work
requirements were met for the contract,
and further certifying that the contract
was performed in accordance with the
provisions of the joint venture
agreement that are required under
paragraph (b) of this section.
*
*
*
*
*
47. Amend § 125.9 by:
a. Revising paragraphs (b), (c)(1)(ii),
and (c)(2) introductory text;
■ b. Removing paragraph (c)(4);
■ c. Revising paragraphs (d)(1)
introductory text, (d)(1)(iii) introductory
text, and (d)(1)(iii)(B);
■
■
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
d. Adding paragraph (d)(6);
e. Removing ‘‘(e.g., management and/
or technical assistance, loans and/or
equity investments, cooperation on joint
venture projects, or subcontracts under
prime contracts being performed by the
mentor)’’ in paragraph (e)(1)
introductory text, and adding in its
place ‘‘(e.g., management and or
technical assistance; loans and/or equity
investments; bonding; use of equipment;
export assistance; assistance as a
subcontractor under prime contracts
being performed by the prote´ge´;
cooperation on joint venture projects; or
subcontracts under prime contracts
being performed by the mentor)’’.
■ f. Revising paragraphs (e)(1)(i) and
(e)(5);
■ g. Redesignating paragraphs (e)(6)
through (8) as paragraphs (e)(7) through
(9), respectively;
■ h. Adding new paragraph (e)(6);
■ i. Revising paragraph (f);
■ j. Revising paragraph (g) introductory
text;
■ k. Revising paragraph (g)(4);
■ l. Adding paragraph (g)(5); and
■ m. Revising paragraph (h)(1)
introductory text.
The revisions and additions to read as
follows:
■
■
§ 125.9 What are the rules governing
SBA’s small business mentor-prote´ge´
program?
*
*
*
*
*
(b) Mentors. Any concern that
demonstrates a commitment and the
ability to assist small business concerns
may act as a mentor and receive benefits
as set forth in this section. This includes
other than small businesses.
(1) In order to qualify as a mentor, a
concern must demonstrate that it:
(i) Is capable of carrying out its
responsibilities to assist the prote´ge´ firm
under the proposed mentor-prote´ge´
agreement;
(ii) Does not appear on the Federal list
of debarred or suspended contractors;
and
(iii) Can impart value to a prote´ge´ firm
due to lessons learned and practical
experience gained or through its
knowledge of general business
operations and government contracting.
(2) SBA will decline an application if
SBA determines that the mentor does
not possess good character or a
favorable financial position, employs or
otherwise controls the managers of the
prote´ge´, or is otherwise affiliated with
the prote´ge´. Once approved, SBA may
terminate the mentor-prote´ge´ agreement
if the mentor does not possess good
character or a favorable financial
position, was affiliated with the prote´ge´
at time of application, or is affiliated
PO 00000
Frm 00050
Fmt 4701
Sfmt 4700
with the prote´ge´ for reasons other than
the mentor-prote´ge´ agreement or
assistance provided under the
agreement.
(3) In order for SBA to agree to allow
a mentor to have more than one prote´ge´
at time, the mentor and proposed
additional prote´ge´ must demonstrate
that the added mentor-prote´ge´
relationship will not adversely affect the
development of either prote´ge´ firm (e.g.,
the second firm may not be a competitor
of the first firm).
(i) A mentor that has more than one
prote´ge´ cannot submit competing offers
in response to a solicitation for a
specific procurement through separate
joint ventures with different prote´ge´s.
(ii) A mentor generally cannot have
more than three prote´ge´s at one time.
However, the first two mentor-prote´ge´
relationships approved by SBA between
a specific mentor and a small business
that has its principal office located in
the Commonwealth of Puerto Rico do
not count against the limit of three
proteges that a mentor can have at one
time.
(c) * * *
(1) * * *
(ii) Where a small business concern
seeks to qualify as a prote´ge´ in a
secondary NAICS code, the concern
must demonstrate how the mentorprote´ge´ relationship will help it further
develop or expand its current
capabilities in that secondary NAICS
code. SBA will not approve a mentorprote´ge´ relationship in a secondary
NAICS code in which the small
business concern has no prior
experience. SBA may approve a mentorprote´ge´ relationship where the small
business concern can demonstrate that
it has performed work in one or more
similar NAICS codes or where the
NAICS code in which the small
business concern seeks a mentor-prote´ge´
relationship is a logical business
progression to work previously
performed by the concern.
(2) A prote´ge´ firm may generally have
only one mentor at a time. SBA may
approve a second mentor for a particular
prote´ge´ firm where the second
relationship will not compete or
otherwise conflict with the first mentorprote´ge´ relationship, and:
*
*
*
*
*
(d) * * * (1) A prote´ge´ and mentor
may joint venture as a small business for
any government prime contract,
subcontract or sale, provided the
prote´ge´ qualifies as small for the
procurement or sale. Such a joint
venture may seek any type of small
business contract (i.e., small business
set-aside, 8(a), HUBZone, SDVO, or
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
WOSB) for which the prote´ge´ firm
qualifies (e.g., a prote´ge´ firm that
qualifies as a WOSB could seek a WOSB
set-aside as a joint venture with its SBAapproved mentor). Similarly, a joint
venture between a prote´ge´ and mentor
may seek a subcontract as a HUBZone
small business, small disadvantaged
business, SDVO small business, or
WOSB provided the prote´ge´
individually qualifies as such.
*
*
*
*
*
(iii) A joint venture between a prote´ge´
and its mentor will qualify as a small
business for any procurement for which
the prote´ge´ individually qualifies as
small. Once a prote´ge´ firm no longer
qualifies as a small business for the size
standard corresponding to the NAICS
code under which SBA approved its
mentor-prote´ge´ relationship, any joint
venture between the prote´ge´ and its
mentor will no longer be able to seek
additional contracts or subcontracts as a
small business for any NAICS code
having the same or lower size standard.
A joint venture between a prote´ge´ and
its mentor could seek additional
contract opportunities in NAICS codes
having a size standard for which the
prote´ge´ continues to qualify as small. A
change in the prote´ge´’s size status does
not generally affect contracts previously
awarded to a joint venture between the
prote´ge´ and its mentor.
*
*
*
*
*
(B) For contracts with durations of
more than five years (including
options), where size re-certification is
required under § 121.404(g)(3) of this
chapter no more than 120 days prior to
the end of the fifth year of the contract
and no more than 120 days prior to
exercising any option thereafter, once
the prote´ge´ no longer qualifies as small
for the size standard corresponding to
the NAICS code assigned to the
contract, the joint venture will not be
able re-certify itself to be a small
business for that contract. The rules set
forth in § 121.404(g)(3) of this chapter
apply in such circumstances.
*
*
*
*
*
(6) A mentor that provides a
subcontract to a prote´ge´ that has its
principal office located in the
Commonwealth of Puerto Rico may (i)
receive positive consideration for the
mentor’s past performance evaluation,
and (ii) apply costs incurred for
providing training to such protege
toward the subcontracting goals
contained in the subcontracting plan of
the mentor.
(e) * * *
(1) * * *
(i) Specifically identify the business
development assistance to be provided
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
and address how the assistance will
help the prote´ge´ enhance its growth
and/or foster or acquire needed
capabilities;
*
*
*
*
*
(5) The term of a mentor-prote´ge´
agreement may not exceed six years. If
an initial mentor-prote´ge´ agreement is
for less than six years, it may be
extended by mutual agreement prior to
the expiration date for an additional
amount of time that would total no more
than six years from its inception (e.g., if
the initial mentor-prote´ge´ agreement
was for two years, it could be extended
for an additional four years by consent
of the two parties; if the initial mentorprote´ge´ agreement was for three years, it
could be extended for an additional
three years by consent of the two
parties). Unless rescinded in writing as
a result of an SBA review, the mentorprote´ge´ relationship will automatically
renew without additional written notice
of continuation or extension to the
prote´ge´ firm.
(6) A prote´ge´ may generally have a
total of two mentor-prote´ge´ agreements
with different mentors.
(i) Each mentor-prote´ge´ agreement
may last for no more than six years, as
set forth in paragraph (e)(5) of this
section.
(ii) If a mentor-prote´ge´ agreement is
terminated within 18 months from the
date SBA approved the agreement, that
mentor-prote´ge´ relationship will
generally not count as one of the two
mentor-prote´ge´ relationships that a
small business may enter as a prote´ge´.
However, where a specific small
business prote´ge´ appears to enter into
many short-term mentor-prote´ge´
relationships as a means of extending its
program eligibility as a prote´ge´, SBA
may determine that the business
concern has exhausted its participation
in the mentor-prote´ge´ program and not
approve an additional mentor-prote´ge´
relationship.
(iii) If during the evaluation of the
mentor-prote´ge´ relationship pursuant to
paragraphs (g) and (h) of this section
SBA determines that a mentor has not
provided the business development
assistance set forth in its mentor-prote´ge´
agreement or that the quality of the
assistance provided was not satisfactory,
SBA may allow the prote´ge´ to substitute
another mentor for the time remaining
in the mentor-prote´ge´ agreement
without counting against the twomentor limit.
*
*
*
*
*
(f) Decision to decline mentor-prote´ge´
relationship. Where SBA declines to
approve a specific mentor-prote´ge´
agreement, SBA will issue a written
PO 00000
Frm 00051
Fmt 4701
Sfmt 4700
66195
decision setting forth its reason(s) for
the decline. The small business concern
seeking to be a prote´ge´ cannot attempt
to enter into another mentor-prote´ge´
relationship with the same mentor for a
period of 60 calendar days from the date
of the final decision. The small business
concern may, however, submit another
proposed mentor-prote´ge´ agreement
with a different proposed mentor at any
time after the SBA’s final decline
decision.
(g) Evaluating the mentor-prote´ge´
relationship. SBA will review the
mentor-prote´ge´ relationship annually.
SBA will ask the prote´ge´ for its
assessment of how the mentor-prote´ge´
relationship is working, whether or not
the prote´ge´ received the agreed upon
business development assistance, and
whether the prote´ge´ would recommend
the mentor to be a mentor for another
small business in the future. At any
point in the mentor-prote´ge´ relationship
where a prote´ge´ believes that a mentor
has not provided the business
development assistance set forth in its
mentor-prote´ge´ agreement or that the
quality of the assistance provided did
not meet its expectations, the prote´ge´
can ask SBA to intervene on its behalf
with the mentor.
*
*
*
*
*
(4) At any point in the mentor-prote´ge´
relationship where a prote´ge´ believes
that a mentor has not provided the
business development assistance set
forth in its mentor-prote´ge´ agreement or
that the quality of the assistance
provided did not meet its expectations,
the prote´ge´ can ask SBA to intervene on
its behalf with the mentor.
(5) SBA may decide not to approve
continuation of a mentor-prote´ge´
agreement where:
(i) SBA finds that the mentor has not
provided the assistance set forth in the
mentor-prote´ge´ agreement;
(ii) SBA finds that the assistance
provided by the mentor has not resulted
in any material benefits or
developmental gains to the prote´ge´; or
(iii) A prote´ge´ does not provide
information relating to the mentorprote´ge´ relationship, as set forth in
paragraph (g).
(h) Consequences of not providing
assistance set forth in the mentorprote´ge´ agreement. (1) Where SBA
determines that a mentor may not have
provided to the prote´ge´ firm the
business development assistance set
forth in its mentor-prote´ge´ agreement or
that the quality of the assistance
provided may not have been
satisfactory, SBA will notify the mentor
of such determination and afford the
mentor an opportunity to respond. The
E:\FR\FM\16OCR4.SGM
16OCR4
66196
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
mentor must respond within 30 days of
the notification, presenting information
demonstrating that it did satisfactorily
provide the assistance set forth in the
mentor-prote´ge´ agreement or explaining
why it has not provided the agreed upon
assistance and setting forth a definitive
plan as to when it will provide such
assistance. If the mentor fails to
respond, does not adequately provide
information demonstrating that it did
satisfactorily provide the assistance set
forth in the mentor-prote´ge´ agreement,
does not supply adequate reasons for its
failure to provide the agreed upon
assistance, or does not set forth a
definite plan to provide the assistance:
*
*
*
*
*
48. Amend § 125.18 by:
a. Revising paragraph (a);
b. Removing ‘‘(see §§ 125.9 and
124.520 of this chapter)’’ in paragraph
(b)(1)(ii) and adding in its place ‘‘(see
§ 125.9)’’;
■ c. Removing ‘‘§ 124.520 or § 125.9 of
this chapter’’ in paragraph (b)(2)
introductory text and adding in its place
‘‘§ 125.9’’;
■ d. Revising paragraphs (b)(2)(ii) and
(iv) and the second sentence of
paragraph (b)(2)(v);
■ e. Removing ‘‘or § 124.520 of this
chapter’’ in paragraph (b)(3)(i);
■ f. Redesignating paragraphs (d)(1)
through (4) as paragraphs (d)(2) through
(5), respectively; and
■ g. Adding a new paragraph (d)(1).
The revisions and addition read as
follows:
■
■
■
jbell on DSKJLSW7X2PROD with RULES4
§ 125.18 What requirements must an
SDVO SBC meet to submit an offer on a
contract?
(a) General. In order for a business
concern to submit an offer and be
eligible for the award of a specific SDVO
contract, the concern must submit the
appropriate representations and
certifications at the time it submits its
initial offer which includes price (or
other formal response to a solicitation)
to the contracting officer, including, but
not limited to, the fact that:
(1) It is small under the size standard
corresponding to the NAICS code(s)
assigned to the contract;
(2) It is an SDVO SBC; and
(3) There has been no material change
in any of its circumstances affecting its
SDVO SBC eligibility.
*
*
*
*
*
(b) * * *
(2) * * *
(ii) Designating an SDVO SBC as the
managing venturer of the joint venture,
and designating a named employee of
the SDVO SBC managing venturer as the
manager with ultimate responsibility for
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
performance of the contract (the
‘‘Responsible Manager’’).
(A) The managing venturer is
responsible for controlling the day-today management and administration of
the contractual performance of the joint
venture, but other partners to the joint
venture may participate in all corporate
governance activities and decisions of
the joint venture as is commercially
customary.
(B) The individual identified as the
Responsible Manager of the joint
venture need not be an employee of the
SDVO SBC at the time the joint venture
submits an offer, but, if he or she is not,
there must be a signed letter of intent
that the individual commits to be
employed by the SDVO SBC if the joint
venture is the successful offeror. The
individual identified as the Responsible
Manager cannot be employed by the
mentor and become an employee of the
SDVO SBC for purposes of performance
under the joint venture.
(C) Although the joint venture
managers responsible for orders issued
under an IDIQ contract need not be
employees of the prote´ge´, those
managers must report to and be
supervised by the joint venture’s
Responsible Manager.
*
*
*
*
*
(iv) Stating that the SDVO SBC must
receive profits from the joint venture
commensurate with the work performed
by the SDVO SBC, or a percentage
agreed to by the parties to the joint
venture whereby the SDVO SBC
receives profits from the joint venture
that exceed the percentage
commensurate with the work performed
by the SDVO SBC;
(v) * * * This account must require
the signature or consent of all parties to
the joint venture for any payments made
by the joint venture to its members for
services performed. * * *
*
*
*
*
*
(d) Multiple Award Contracts. (1)
SDVO status. With respect to Multiple
Award Contracts, orders issued against
a Multiple Award Contract, and Blanket
Purchase Agreements issued against a
Multiple Award Contract:
(i) SBA determines SDVO small
business eligibility for the underlying
Multiple Award Contract as of the date
a business concern certifies its status as
an SDVO small business concern as part
of its initial offer (or other formal
response to a solicitation), which
includes price, unless the firm was
required to recertify under paragraph (e)
of this section.
(A) Unrestricted Multiple Award
Contracts or Set-Aside Multiple Award
Contracts for Other than SDVO. For an
PO 00000
Frm 00052
Fmt 4701
Sfmt 4700
unrestricted Multiple Award Contract or
other Multiple Award Contract not
specifically set aside for SDVO, if a
business concern is an SDVO small
business concern at the time of offer and
contract-level recertification for the
Multiple Award Contract, it is an SDVO
small business concern for goaling
purposes for each order issued against
the contract, unless a contracting officer
requests recertification as an SDVO
small business for a specific order or
Blanket Purchase Agreement. Except for
orders and Blanket Purchase
Agreements issued under any Federal
Supply Schedule contract, if an order or
a Blanket Purchase Agreement under an
unrestricted Multiple Award Contract is
set-aside exclusively for SDVO small
business, a concern must recertify that
it qualifies as an SDVO small business
at the time it submits its initial offer,
which includes price, for the particular
order or Blanket Purchase Agreement.
However, where the underlying
Multiple Award Contract has been
awarded to a pool of concerns for which
SDVO small business status is required,
if an order or a Blanket Purchase
Agreement under that Multiple Award
Contract is set-aside exclusively for
concerns in the SDVO small business
pool, concerns need not recertify their
status as SDVO small business concerns
(unless a contracting officer requests
size certifications with respect to a
specific order or Blanket Purchase
Agreement).
(B) SDVO Set-Aside Multiple Award
Contracts. For a Multiple Award
Contract that is specifically set aside for
SDVO small business, if a business
concern is an SDVO small business at
the time of offer and contract-level
recertification for the Multiple Award
Contract, it is an SDVO small business
for each order issued against the
contract, unless a contracting officer
requests recertification as an SDVO
small business for a specific order or
Blanket Purchase Agreement.
(ii) SBA will determine SDVO small
business status at the time of initial offer
(or other formal response to a
solicitation), which includes price, for
an order or an Agreement issued against
a Multiple Award Contract if the
contracting officer requests a new SDVO
small business certification for the order
or Agreement.
*
*
*
*
*
49. Amend § 125.28 by revising the
section heading and adding a sentence
to the end of paragraph (d)(1) to read as
follows:
■
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
§ 125.28 What are the requirements for
filing a service-disabled veteran-owned
status protest?
*
*
*
*
*
(d) * * *
(1) * * * Except for an order or
Blanket Purchase Agreement issued
under any Federal Supply Schedule
contract, for an order or a Blanket
Purchase Agreement that is set-aside for
SDVO small business under a Multiple
Award Contract that is not itself set
aside for SDVO small business or have
a reserve for SDVO small business (or
any SDVO order where the contracting
officer has requested recertification of
SDVO status), an interested party must
submit its protest challenging the SDVO
status of a concern for the order or
Agreement by close of business on the
fifth business day after notification by
the contracting officer of the apparent
successful offeror.
*
*
*
*
*
PART 126—HUBZONE PROGRAM
50. The authority citation for part 126
continues to read as follows:
■
Authority: 15 U.S.C. 632(a), 632(j), 632(p),
644 and 657a.
§ 126.500
[Amended]
51. Amend § 126.500 by removing the
words ‘‘(whether by SBA or a thirdparty certifier)’’ in paragraph (b)
introductory text.
■
§ 126.602
[Amended]
52. Amend 126.602 in paragraph (c)
by removing ‘‘§ 126.200(a)’’ and adding
in its place ‘‘§ 126.200(c)(2)(ii)’’.
■
53. Revise § 126.606 to read as
follows:
■
§ 126.606 May a procuring activity request
that SBA release a requirement from the
8(a) BD program for award as a HUBZone
contract?
jbell on DSKJLSW7X2PROD with RULES4
A procuring activity may request that
SBA release an 8(a) requirement for
award as a HUBZone contract under the
procedures set forth in § 124.504(d).
■ 54. Amend § 126.616 by removing
‘‘(or, if also an 8(a) BD Participant, with
an approved mentor authorized by
§ 124.520 of this chapter)’’ in paragraph
(a), and by revising paragraphs (c)(2)
and (c)(4) and the second sentence of
paragraph (c)(5) to read as follows:
§ 126.616 What requirements must a joint
venture satisfy to submit an offer and be
eligible to perform on a HUBZone contract?
*
*
*
*
*
(c) * * *
(2) Designating a certified HUBZone
small business concern as the managing
venturer of the joint venture, and
VerDate Sep<11>2014
23:00 Oct 15, 2020
Jkt 253001
designating a named employee of the
certified HUBZone small business
managing venturer as the manager with
ultimate responsibility for performance
of the contract (the ‘‘Responsible
Manager’’).
(i) The managing venturer is
responsible for controlling the day-today management and administration of
the contractual performance of the joint
venture, but other partners to the joint
venture may participate in all corporate
governance activities and decisions of
the joint venture as is commercially
customary.
(ii) The individual identified as the
Responsible Manager of the joint
venture need not be an employee of the
certified HUBZone small business
concern at the time the joint venture
submits an offer, but, if he or she is not,
there must be a signed letter of intent
that the individual commits to be
employed by the certified HUBZone
small business concern if the joint
venture is the successful offeror. The
individual identified as the Responsible
Manager cannot be employed by the
mentor and become an employee of the
certified HUBZone small business
concern for purposes of performance
under the joint venture.
(iii) Although the joint venture
managers responsible for orders issued
under an IDIQ contract need not be
employees of the prote´ge´, those
managers must report to and be
supervised by the joint venture’s
Responsible Manager.
*
*
*
*
*
(4) Stating that the certified HUBZone
small business concern must receive
profits from the joint venture
commensurate with the work performed
by the certified HUBZone small
business concern, or a percentage agreed
to by the parties to the joint venture
whereby the certified HUBZone small
business concern receives profits from
the joint venture that exceed the
percentage commensurate with the work
performed by the certified HUBZone
small business concern;
(5) * * * This account must require
the signature or consent of all parties to
the joint venture for any payments made
by the joint venture to its members for
services performed. * * *
*
*
*
*
*
§ 126.618
[Amended]
55. Amend § 126.618 by removing
‘‘(or, if also an 8(a) BD Participant,
under § 124.520 of this chapter)’’ in
paragraph (a).
■ 56. Amend § 126.801 by adding a
sentence to the end of paragraph (d)(1)
to read as follows:
■
PO 00000
Frm 00053
Fmt 4701
Sfmt 4700
66197
§ 126.801 How does an interested party file
a HUBZone status protest?
*
*
*
*
*
(d) * * *
(1) * * * Except for an order or
Blanket Purchase Agreement issued
under any Federal Supply Schedule
contact, in connection with an order or
an Agreement that is set-aside for a
certified HUBZone small business
concern under a Multiple Award
Contract that is not itself set aside for
certified HUBZone small business
concerns or have a reserve for certified
HUBZone small business concerns, (or
any HUBZone set-aside order where the
contracting officer has requested
recertification of such status), an
interested party must submit its protest
challenging the HUBZone status of a
concern for the order or Agreement by
close of business on the fifth business
day after notification by the contracting
officer of the intended awardee of the
order or Agreement.
*
*
*
*
*
PART 127—WOMEN–OWNED SMALL
BUSINESS FEDERAL CONTRACT
PROGRAM
57. The authority citation for part 127
continues to read as follows:
■
Authority: 15 U.S.C. 632, 634(b)(6),
637(m), 644 and 657r.
§ 127.503
[Amended]
58. Amend § 127.503 by removing
paragraph (h).
■ 59. Revise § 127.504 to read as
follows:
■
§ 127.504 What requirements must an
EDWOSB or WOSB meet to be eligible for
an EDWOSB or WOSB requirement?
(a) General. In order for a concern to
submit an offer on a specific EDWOSB
or WOSB set-aside requirement, the
concern must qualify as a small
business concern under the size
standard corresponding to the NAICS
code assigned to the contract, and either
be a certified EDWOSB or WOSB
pursuant to § 127.300, or represent that
it has submitted a complete application
for WOSB or EDWOSB certification to
SBA or a third-party certifier and has
not received a negative determination
regarding that application from SBA or
the third party certifier.
(1) If a concern becomes the apparent
successful offeror while its application
for WOSB or EDWOSB certification is
pending, either at SBA or a third-party
certifier, the contracting officer for the
particular contract must immediately
inform SBA’s D/GC. SBA will then
prioritize the concern’s WOSB or
EDWOSB application and make a
E:\FR\FM\16OCR4.SGM
16OCR4
jbell on DSKJLSW7X2PROD with RULES4
66198
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
determination regarding the firm’s
status as a WOSB or EDWOSB within 15
calendar days from the date that SBA
received the contracting officer’s
notification. Where the application is
pending with a third-party certifier,
SBA will immediately contact the thirdparty certifier to require the third-party
certifier to complete its determination
within 15 calendar days.
(2) If the contracting officer does not
receive an SBA or third-party certifier
determination within 15 calendar days
after the SBA’s receipt of the
notification, the contracting officer may
presume that the apparently successful
offeror is not an eligible WOSB or
EDWOSB and may make award
accordingly, unless the contracting
officer grants an extension to the 15-day
response period.
(b) Sole source EDWOSB or WOSB
requirements. In order for a concern to
seek a specific sole source EDWOSB or
WOSB requirement, the concern must
be a certified EDWOSB or WOSB
pursuant to § 127.300 and qualify as
small under the size standard
corresponding to the requirement being
sought.
(c) Joint ventures. A business concern
seeking an EDWOSB or WOSB contract
as a joint venture may submit an offer
if the joint venture meets the
requirements as set forth in § 127.506.
(d) Multiple Award Contracts. With
respect to Multiple Award Contracts,
orders issued against a Multiple Award
Contract, and Blanket Purchase
Agreements issued against a Multiple
Award Contract:
(1) SBA determines EDWOSB or
WOSB eligibility for the underlying
Multiple Award Contract as of the date
a concern certifies its status as an
EDWOSB or WOSB as part of its initial
offer (or other formal response to a
solicitation), which includes price,
unless the concern was required to
recertify its status as a WOSB or
EDWOSB under paragraph (f) of this
section.
(i) Unrestricted Multiple Award
Contracts or Set-Aside Multiple Award
Contracts for Other than EDWOSB or
WOSB. For an unrestricted Multiple
Award Contract or other Multiple
Award Contract not set aside
specifically for EDWOSB or WOSB, if a
business concern is an EDWOSB or
WOSB at the time of offer and contractlevel recertification for the Multiple
Award Contract, it is an EDWOSB or
WOSB for goaling purposes for each
order issued against the contract, unless
a contracting officer requests
recertification as an EDWOSB or WOSB
for a specific order or Blanket Purchase
Agreement. Except for orders and
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
Blanket Purchase Agreements issued
under any Federal Supply Schedule
contract, if an order or a Blanket
Purchase Agreement under an
unrestricted Multiple Award Contract is
set aside exclusively for EDWOSB or
WOSB, a concern must recertify it
qualifies as an EDWOSB or WOSB at the
time it submits its initial offer, which
includes price, for the particular order
or Agreement. However, where the
underlying Multiple Award Contract
has been awarded to a pool of WOSB or
EDWOSB concerns for which WOSB or
EDWOSB status is required, if an order
or a Blanket Purchase Agreement under
that Multiple Award Contract is set
aside exclusively for concerns in the
WOSB or EDWOSB pool, concerns need
not recertify their status as WOSBs or
EDWOSBs (unless a contracting officer
requests size certifications with respect
to a specific order or Blanket Purchase
Agreement).
(ii) EDWOSB or WOSB Set-Aside
Multiple Award Contracts. For a
Multiple Award Contract that is set
aside specifically for EDWOSB or
WOSB, if a business concern is an
EDWOSB or WOSB at the time of offer
and contract-level recertification for the
Multiple Award Contract, it is an
EDWOSB or WOSB for each order
issued against the contract, unless a
contracting officer requests
recertification as an EDWOSB or WOSB
for a specific order or Blanket Purchase
Agreement.
(2) SBA will determine EDWOSB or
WOSB status at the time a business
concern submits its initial offer (or other
formal response to a solicitation) which
includes price for an order or an
Agreement issued against a Multiple
Award Contract if the contracting officer
requests a new EDWOSB or WOSB
certification for the order or Agreement.
(e) Limitations on subcontracting. A
business concern seeking an EDWOSB
or WOSB requirement must also meet
the applicable limitations on
subcontracting requirements as set forth
in § 125.6 of this chapter for the
performance of EDWOSB or WOSB
contracts (both sole source and those
totally set aside for EDWOSB or WOSB),
the performance of the set-aside portion
of a partial set-aside contract, or the
performance of orders set-aside for
EDWOSB or WOSB.
(f) Non-manufacturers. An EDWOSB
or WOSB that is a non-manufacturer, as
defined in § 121.406(b) of this chapter,
may submit an offer on an EDWOSB or
WOSB contract for supplies, if it meets
the requirements under the nonmanufacturer rule set forth in
§ 121.406(b) of this chapter.
PO 00000
Frm 00054
Fmt 4701
Sfmt 4700
(g) Ostensible subcontractor. Where a
subcontractor that is not similarly
situated performs primary and vital
requirements of a set-aside service
contract, or where a prime contractor is
unduly reliant on a small business that
is not similarly situated to perform the
set-aside service contract, the prime
contractor is not eligible for award of a
WOSB or EDWOSB contract.
(1) When the subcontractor is small
for the size standard assigned to the
procurement, this issue may be grounds
for a WOSB or EDWOSB status protest,
as described in subpart F of this part.
When the subcontractor is other than
small or alleged to be other than small
for the size standard assigned to the
procurement, this issue may be a ground
for a size protest, as described at
§ 121.103(h)(4) of this chapter.
(2) SBA will find that a prime WOSB
or EDWOSB contractor is performing
the primary and vital requirements of a
contract or order and is not unduly
reliant on one or more non-similarly
situated subcontracts where the prime
contractor can demonstrate that it,
together with any similarly situated
entity, will meet the limitations on
subcontracting provisions set forth in
§ 125.6.
(h) Recertification. (1) Where a
contract being performed by an
EDWOSB or WOSB is novated to
another business concern, the concern
that will continue performance on the
contract must recertify its status as an
EDWOSB or WOSB (or qualify as a
certified EDWOSB or WOSB for a
WOSB contract) to the procuring
agency, or inform the procuring agency
that it does not qualify as an EDWOSB
or WOSB, (or qualify as a certified
EDWOSB or WOSB for a WOSB
contract) within 30 days of the novation
approval. If the concern cannot recertify
its status as an EDWOSB or WOSB (or
qualify as a certified EDWOSB or WOSB
for a WOSB contract), the agency must
modify the contract to reflect the new
status, and may not count the options or
orders issued pursuant to the contract,
from that point forward, towards its
women-owned small business goals.
(2) Where an EDWOSB or WOSB
concern that is performing a contract
acquires, is acquired by, or merges with
another concern and contract novation
is not required, the concern must,
within 30 days of the transaction
becoming final, recertify its status as an
EDWOSB or WOSB (or qualify as a
certified EDWOSB or WOSB for a
WOSB contract) to the procuring
agency, or inform the procuring agency
that it no longer qualifies as an
EDWOSB or WOSB (or qualify as a
certified EDWOSB or WOSB for a
E:\FR\FM\16OCR4.SGM
16OCR4
Federal Register / Vol. 85, No. 201 / Friday, October 16, 2020 / Rules and Regulations
WOSB contract). If the concern is
unable to recertify its status as an
EDWOSB or WOSB (or qualify as a
certified EDWOSB or WOSB for a
WOSB contract), the agency must
modify the contract to reflect the new
status, and may not count the options or
orders issued pursuant to the contract,
from that point forward, towards its
women-owned small business goals.
(3) For purposes of contracts
(including Multiple Award Contracts)
with durations of more than five years
(including options), a contracting officer
must request that a business concern
recertify its status as an EDWOSB or
WOSB (or qualify as a certified
EDWOSB or WOSB for a WOSB
contract) no more than 120 days prior to
the end of the fifth year of the contract,
and no more than 120 days prior to
exercising any option. If the concern is
unable to recertify its status as an
EDWOSB or WOSB (or qualify as a
certified EDWOSB or WOSB for a
WOSB contract), the agency must
modify the contract to reflect the new
status, and may not count the options or
orders issued pursuant to the contract,
from that point forward, towards its
women-owned small business goals.
(4) A business concern that did not
certify as an EDWOSB or WOSB, either
initially or prior to an option being
exercised, may recertify as an EDWOSB
or WOSB (or qualify as a certified
EDWOSB or WOSB for a WOSB
contract) for a subsequent option period
if it meets the eligibility requirements at
that time. The agency must modify the
contract to reflect the new status, and
may count the options or orders issued
pursuant to the contract, from that point
forward, towards its women-owned
small business goals.
(5) Recertification does not change the
terms and conditions of the contract.
The limitations on subcontracting,
nonmanufacturer and subcontracting
plan requirements in effect at the time
of contract award remain in effect
throughout the life of the contract.
(6) A concern’s status will be
determined at the time of a response to
a solicitation for an Agreement and each
order issued pursuant to the Agreement.
60. Amend § 127.506 by revising
paragraphs (c)(2) and (c)(4) and the
second sentence of paragraph (c)(5) to
read as follows:
jbell on DSKJLSW7X2PROD with RULES4
■
VerDate Sep<11>2014
22:18 Oct 15, 2020
Jkt 253001
66199
§ 127.506 May a joint venture submit an
offer on an EDWOSB or WOSB
requirement?
to the end of paragraph (c)(1) to read as
follows:
*
§ 127.603 What are the requirements for
filing an EDWOSB or WOSB status protest?
*
*
*
*
(c) * * *
(2) Designating a WOSB or EDWOSB
as the managing venturer of the joint
venture, and designating a named
employee of the WOSB or EDWOSB
managing venturer as the manager with
ultimate responsibility for performance
of the contract (the ‘‘Responsible
Manager’’).
(i) The managing venturer is
responsible for controlling the day-today management and administration of
the contractual performance of the joint
venture, but other partners to the joint
venture may participate in all corporate
governance activities and decisions of
the joint venture as is commercially
customary.
(ii) The individual identified as the
Responsible Manager of the joint
venture need not be an employee of the
WOSB or EDWOSB at the time the joint
venture submits an offer, but, if he or
she is not, there must be a signed letter
of intent that the individual commits to
be employed by the WOSB or EDWOSB
if the joint venture is the successful
offeror. The individual identified as the
Responsible Manager cannot be
employed by the mentor and become an
employee of the WOSB or EDWOSB for
purposes of performance under the joint
venture.
(iii) Although the joint venture
managers responsible for orders issued
under an IDIQ contract need not be
employees of the prote´ge´, those
managers must report to and be
supervised by the joint venture’s
Responsible Manager.
*
*
*
*
*
(4) Stating that the WOSB or
EDWOSB must receive profits from the
joint venture commensurate with the
work performed by the WOSB or
EDWOSB, or a percentage agreed to by
the parties to the joint venture whereby
the WOSB or EDWOSB receives profits
from the joint venture that exceed the
percentage commensurate with the work
performed by the WOSB or EDWOSB;
(5) * * * This account must require
the signature or consent of all parties to
the joint venture for any payments made
by the joint venture to its members for
services performed. * * *
*
*
*
*
*
■ 61. Amend § 127.603 by revising the
section heading and adding a sentence
PO 00000
Frm 00055
Fmt 4701
Sfmt 9990
*
*
*
*
*
(c) * * *
(1) * * * Except for an order or
Blanket Purchase Agreement issued
under any Federal Supply Schedule
contact, for an order or a Blanket
Purchase Agreement that is set-aside for
EDWOSB or WOSB small business
under a Multiple Award Contract that is
not itself set aside for EDWOSB or
WOSB small business or have a reserve
for EDWOSB or WOSB small business
(or any EDWOSB or WOSB order where
the contracting officer has requested
recertification of such status), an
interested party must submit its protest
challenging the EDWOSB or WOSB
status of a concern for the order or
Blanket Purchase Agreement by close of
business on the fifth business day after
notification by the contracting officer of
the apparent successful offeror.
*
*
*
*
*
PART 134—RULES OF PROCEDURE
GOVERNING CASES BEFORE THE
OFFICE OF HEARINGS AND APPEALS
62. The authority citation for part 134
continues to read as follows:
■
Authority: 5 U.S.C. 504; 15 U.S.C. 632,
634(b)(6), 634(i), 637(a), 648(l), 656(i), 657t,
and 687(c); 38 U.S.C. 8127(f); E.O. 12549, 51
FR 6370, 3 CFR, 1986 Comp., p. 189.
Subpart J issued under 38 U.S.C.
8127(f)(8)(B).
Subpart K issued under 38 U.S.C.
8127(f)(8)(A).
63. Amend § 134.318 by adding a
paragraph heading to paragraph (a) and
revising paragraph (b) to read as follows:
■
§ 134.318
NAICS Appeals.
(a) General. * * *
(b) Effect of OHA’s decision. If OHA
grants the appeal (changes the NAICS
code), the contracting officer must
amend the solicitation to reflect the new
NAICS code. The decision will also
apply to future solicitations for the same
supplies or services.
*
*
*
*
*
Jovita Carranza,
Administrator.
[FR Doc. 2020–19428 Filed 10–15–20; 8:45 am]
BILLING CODE 8026–03–P
E:\FR\FM\16OCR4.SGM
16OCR4
]]>Agencies
[Federal Register Volume 85, Number 201 (Friday, October 16, 2020)]
[Rules and Regulations]
[Pages 66146-66199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19428]
[[Page 66145]]
Vol. 85
Friday,
No. 201
October 16, 2020
Part VI
Small Business Administration
-----------------------------------------------------------------------
13 CFR Parts 121, 124, 125, et al.
Consolidation of Mentor-Prot[eacute]g[eacute] Programs and Other
Government Contracting Amendments; Final Rule
Federal Register / Vol. 85 , No. 201 / Friday, October 16, 2020 /
Rules and Regulations
[[Page 66146]]
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127, and 134
RIN 3245-AG94
Consolidation of Mentor-Prot[eacute]g[eacute] Programs and Other
Government Contracting Amendments
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In response to President Trump's government-wide regulatory
reform initiative, the U.S. Small Business Administration (SBA)
initiated a review of its regulations to determine which might be
revised or eliminated. As a result, this rule merges the 8(a) Business
Development (BD) Mentor-Prot[eacute]g[eacute] Program and the All Small
Mentor-Prot[eacute]g[eacute] Program to eliminate confusion and remove
unnecessary duplication of functions within SBA. This rule also
eliminates the requirement that 8(a) Participants seeking to be awarded
an 8(a) contract as a joint venture submit the joint venture agreement
to SBA for review and approval prior to contract award, revises several
8(a) BD program regulations to reduce unnecessary or excessive burdens
on 8(a) Participants, and clarifies other related regulatory provisions
to eliminate confusion among small businesses and procuring activities.
In addition, in response to public comment, the rule requires a
business concern to recertify its size and/or socioeconomic status for
all set-aside orders under unrestricted multiple award contracts,
unless the contract authorized limited pools of concerns for which size
and/or status was required.
DATES: This rule is effective on November 16, 2020, except for Sec.
127.504 which is effective October 16, 2020.
FOR FURTHER INFORMATION CONTACT: Mark Hagedorn, U.S. Small Business
Administration, Office of General Counsel, 409 Third Street SW,
Washington, DC 20416; (202) 205-7625; [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
On January 30, 2017, President Trump issued Executive Order 13771,
``Reducing Regulation and Controlling Regulatory Costs'', which is
designed to reduce unnecessary and burdensome regulations and to
control costs associated with regulations. In response to the
President's directive to simplify regulations, SBA initiated a review
of its regulations to determine which might be revised or eliminated.
Based on this analysis, SBA identified provisions in many areas of its
regulations that can be simplified or eliminated.
On November 8, 2019, SBA published in the Federal Register a
comprehensive proposal to merge the 8(a) Business Development (BD)
Mentor-Prot[eacute]g[eacute] Program and the All Small Mentor-
Prot[eacute]g[eacute] Program to eliminate confusion and remove
unnecessary duplication of functions within SBA; eliminate the
requirement that 8(a) Participants seeking to be awarded an 8(a)
contract as a joint venture submit the joint venture to SBA for review
and approval prior to contract award; revise several 8(a) BD program
regulations to reduce unnecessary or excessive burdens on 8(a)
Participants; and clarify other related regulatory provisions to
eliminate confusion among small businesses and procuring activities. 84
FR 60846. Some of the proposed changes involved technical issues.
Others were more substantive and resulted from SBA's experience in
implementing the current regulations. The proposed rule initially
called for a 70-day comment period, with comments required to be made
to SBA by January 17, 2020. SBA received several comments in the first
few weeks after the publication to extend the comment period.
Commenters felt that the nature of the issues raised in the rule and
the timing of comments during the holiday season required more time for
affected businesses to adequately review the proposal and prepare their
comments. In response to these comments, SBA published a notice in the
Federal Register on January 10, 2020, extending the comment period an
additional 21 days to February 7, 2020. 85 FR 1289.
As part of the rulemaking process, SBA also held tribal
consultations pursuant to Executive Order 13175, Tribal Consultations,
in Minneapolis, MN, Anchorage, AK, Albuquerque, NM and Oklahoma City,
OK to provide interested tribal representatives with an opportunity to
discuss their views on various 8(a) BD-related issues. See 84 FR 66647.
These consultations were in addition to those held by SBA before
issuing the proposed rule in Anchorage, AK (see 83 FR 17626),
Albuquerque, NM (see 83 FR 24684), and Oklahoma City, OK (see 83 FR
24684). SBA considers tribal consultation meetings a valuable component
of its deliberations and believes that these tribal consultation
meetings allowed for constructive dialogue with the Tribal community,
Tribal Leaders, Tribal Elders, elected members of Alaska Native
Villages or their appointed representatives, and principals of
tribally-owned and Alaska Native Corporation (ANC) owned firms
participating in the 8(a) BD Program. Additionally, SBA held a
Listening Session in Honolulu, HI to obtain comments and input from key
8(a) BD program stakeholders in the Hawaiian small business community,
including 8(a) applicants and Participants owned by Native Hawaiian
Organizations (NHOs).
During the proposed rule's 91-day comment period, SBA received 189
timely comments, with a high percentage of commenters favoring the
proposed changes. A substantial number of commenters applauded SBA's
effort to clarify and address misinterpretations of the rules. For the
most part, the comments supported the substantive changes proposed by
SBA.
This rule merges the 8(a) BD Mentor-Prot[eacute]g[eacute] Program
and the All Small Mentor-Prot[eacute]g[eacute] Program. The rule also
eliminates the requirement that 8(a) Participants seeking to be awarded
an 8(a) contract as a joint venture must submit the joint venture to
SBA for review and approval prior to contract award in every instance.
Additionally, the rule makes several other changes to the 8(a) BD
Program to eliminate or reduce unnecessary or excessive burdens on 8(a)
Participants.
The rule combines the 8(a) BD Mentor-Prot[eacute]g[eacute] Program
and the All Small Mentor-Prot[eacute]g[eacute] Program in order to
eliminate confusion regarding perceived differences between the two
Programs, remove unnecessary duplication of functions within SBA, and
establish one, unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. SBA originally established a
mentor-prot[eacute]g[eacute] program for 8(a) Participants a little
more than 20 years ago. 63 FR 35726, 35764 (June 30, 1998). The purpose
of that program was to encourage approved mentors to provide various
forms of business assistance to eligible 8(a) Participants to aid in
their development. On September 27, 2010, the Small Business Jobs Act
of 2010 (Jobs Act), Public Law 111-240 was enacted. The Jobs Act was
designed to protect the interests of small businesses and increase
opportunities in the Federal marketplace. The Jobs Act was drafted by
Congress in recognition of the fact that mentor-prot[eacute]g[eacute]
programs serve an important business development function for small
businesses and therefore included language authorizing SBA to establish
separate mentor-prot[eacute]g[eacute] programs for the Service-Disabled
Veteran-Owned Small Business Concern (SDVO SBC) Program, the HUBZone
Program, and the Women-Owned Small Business (WOSB)
[[Page 66147]]
Program, each of which was modeled on SBA's existing mentor-
prot[eacute]g[eacute] program available to 8(a) Participants. See
section 1347(b)(3) of the Jobs Act. Thereafter, on January 2, 2013, the
National Defense Authorization Act for Fiscal Year 2013 (NDAA 2013),
Public Law 112-239 was enacted. Section 1641 of the NDAA 2013
authorized SBA to establish a mentor-prot[eacute]g[eacute] program for
all small business concerns. This section further provided that a small
business mentor-prot[eacute]g[eacute] program must be identical to the
8(a) BD Mentor-Prot[eacute]g[eacute] Program, except that SBA could
modify each program to the extent necessary, given the types of small
business concerns to be included as prot[eacute]g[eacute]s.
Subsequently, SBA published a Final Rule in the Federal Register
combining the authorities contained in the Jobs Act and the NDAA 2013
to create a mentor-prot[eacute]g[eacute] program for all small
businesses. 81 FR 48558 (July 25, 2016).
The mentor-prot[eacute]g[eacute] program available to firms
participating in the 8(a) BD Program has been used as a business
development tool in which mentors provide diverse types of business
assistance to eligible 8(a) BD prot[eacute]g[eacute]s. This assistance
may include, among other things, technical and/or management
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing Federal prime
contracts through joint venture arrangements. The explicit purpose of
the 8(a) BD Mentor-Prot[eacute]g[eacute] relationship has been to
enhance the capabilities of prot[eacute]g[eacute]s and to improve their
ability to successfully compete for both government and commercial
contracts. Similarly, the All Small Mentor-Prot[eacute]g[eacute]
Program is designed to require approved mentors to aid
prot[eacute]g[eacute] firms so that they may enhance their
capabilities, meet their business goals, and improve their ability to
compete for contracts. The purposes of the two programs are identical.
In addition, the benefits available under both programs are identical.
Small businesses and 8(a) Program Participants receive valuable
business development assistance and any joint venture formed between a
prot[eacute]g[eacute] firm and its SBA-approved mentor receives an
exclusion from affiliation, such that the joint venture will qualify as
a small business provided the prot[eacute]g[eacute] individually
qualifies as small under the size standard corresponding to the NAICS
code assigned to the procurement. A prot[eacute]g[eacute] firm may
enter a joint venture with its SBA-approved mentor and be eligible for
any contract opportunity for which the prot[eacute]g[eacute] qualifies.
If a prot[eacute]g[eacute] firm is an 8(a) Program Participant, a joint
venture between the prot[eacute]g[eacute] and its mentor could seek any
8(a) contract, regardless of whether the mentor-prot[eacute]g[eacute]
agreement was approved through the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program or the All Small Mentor-Prot[eacute]g[eacute] Program.
Moreover, a firm could be certified as an 8(a) Participant after its
mentor-prot[eacute]g[eacute] relationship has been approved by SBA
through the All Small Mentor-Prot[eacute]g[eacute] Program and be
eligible for 8(a) contracts as a joint venture with its mentor once
certified.
Because the benefits and purposes of the two programs are
identical, SBA believes that having two separate mentor-
prot[eacute]g[eacute] programs is unnecessary and causes needless
confusion in the small business community. As such, this rule
eliminates a separate 8(a) BD Mentor-Prot[eacute]g[eacute] Program and
continues to allow any 8(a) Participant to enter a mentor-
prot[eacute]g[eacute] relationship through the All Small Mentor-
Prot[eacute]g[eacute] Program. Specifically, the rule revises Sec.
124.520 to merely recognize that an 8(a) Participant, as any other
small business, may participate in SBA's Small Business Mentor-
Prot[eacute]g[eacute] Program. In merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program with the All Small Mentor-
Prot[eacute]g[eacute] Program, the rule also makes conforming
amendments to SBA's size regulations (13 CFR part 121), the joint
venture provisions (13 CFR 125.8), and the All Small Mentor-
Prot[eacute]g[eacute] Program regulations (13 CFR 125.9).
A mentor-prot[eacute]g[eacute] relationship approved by SBA through
the 8(a) BD Mentor-Prot[eacute]g[eacute] Program will continue to
operate as an SBA-approved mentor-prot[eacute]g[eacute] relationship
under the All Small Mentor-Prot[eacute]g[eacute] Program. It will
continue to have the same remaining time in the All Small Mentor-
Prot[eacute]g[eacute] Program as it would have had under the 8(a) BD
Mentor-Prot[eacute]g[eacute] Program if that Program continued. Any
mentor-prot[eacute]g[eacute] relationship approved under the 8(a) BD
Mentor-Prot[eacute]g[eacute] Program will count as one of the two
lifetime mentor-prot[eacute]g[eacute] relationships that a small
business may have under the All Small Mentor-Prot[eacute]g[eacute]
Program.
As stated previously, SBA has also taken this action partly in
response to the President's directive that each agency review its
regulations. Therefore, this rule also revises regulations pertaining
to the 8(a) BD and size programs in order to further reduce unnecessary
or excessive burdens on small businesses and to eliminate confusion or
more clearly delineate SBA's intent in certain regulations.
Specifically, this rule makes additional changes to the size and
socioeconomic status recertification requirements for orders issued
against multiple award contracts (MACs). A detailed discussion of these
changes is contained below in the Section-by-Section Analysis.
II. Section-by-Section Analysis
Section 121.103(b)(6)
The rule amends the references to SBA's mentor-
prot[eacute]g[eacute] programs in this provision, specifying that a
prot[eacute]g[eacute] firm cannot be considered affiliated with its
mentor based solely on assistance received by the prot[eacute]g[eacute]
under the mentor-prot[eacute]g[eacute] agreement. The rule eliminates
the cross-reference to the regulation regarding the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program (13 CFR 124.520), leaving only the
reference to the regulation regarding the All Small Business Mentor-
Prot[eacute]g[eacute] Program.
Section 121.103(f)(2)(i)
Under Sec. 121.103(f)(2), SBA may presume an identity of interest
(and thus affiliate one concern with another) based upon economic
dependence if the concern in question derived 70 percent or more of its
receipts from another concern over the previous three fiscal years. The
proposed rule provided that this presumption may be rebutted by a
showing that despite the contractual relations with another concern,
the concern at issue is not solely dependent on that other concern,
such as where the concern has been in business for a short amount of
time and has only been able to secure a limited number of contracts or
where the contractual relations do not restrict the concern in question
from selling the same type of products or services to another
purchaser. Commenters supported this change, appreciating that SBA
seemed to be making economic dependence more about the issue of
control, where they thought it should be. SBA adopts this language as
final.
Section 121.103(g)
The rule amends the newly organized concern rule contained in Sec.
121.103(g) by clarifying that affiliation may be found where both
former and ``current'' officers, directors, principal stockholders,
managing members, or key employees of one concern organize a new
concern in the same or related industry or field of operation, and
serve as the new concern's officers, directors, principal stockholders,
managing members, or key employees. The rule merely adds the word
``current'' to the regulatory text to ensure that affiliation may arise
where the key individuals are still associated with the first company.
SBA believes that such a finding of affiliation has always been
authorized,
[[Page 66148]]
but merely seeks to clarify its intent to make sure there is no
confusion. Several commenters were concerned that the rule was not
clear with respect to entity-owned firms, specifically that the newly
organized concern rule should not apply to tribes, ANCs and NHOs. SBA
believes that entities and entity-owned firms are already excepted from
affiliation under the newly organized concern rule by Sec.
121.103(b)(2). A few commenters recommended that SBA put in clarifying
language to ensure that the rule cannot be read to contradict Sec.
124.109(c)(4)(iii), which permits a manager of a tribally-owned concern
to manage no more than two Program Participants at the same time. The
final rule adds such clarifying language.
Section 121.103(h)
The proposed rule sought to amend the introductory text to Sec.
121.103(h) to revise the requirements for joint ventures. SBA believes
that a joint venture is not an on-going business entity, but rather
something that is formed for a limited purpose and duration. If two or
more separate business entities seek to join together through another
entity on a continuing, unlimited basis, SBA views that as a separate
business concern with each partner affiliated with each other. To
capture SBA's intent on limited scope and duration, SBA's current
regulations provide that a joint venture is something that can be
formed for no more than three contracts over a two-year period. The
proposed rule sought to eliminate the three-contract limit for a joint
venture, but continue to prescribe that a joint venture cannot exceed
two years from the date of its first award. In addition, the proposed
rule clarified SBA's current intent that a novation to the joint
venture would start the two-year period if that were the first award
received by the joint venture. Commenters generally supported the
proposal to eliminate the three-contract limit, saying that the change
will eliminate significant and unnecessary confusion. Commenters also
believed that requiring partners to form a second or third joint
venture after they received three contract awards created an undue
administrative burden on joint ventures, and they viewed this change as
an elimination of an unnecessary burden. Several commenters recommended
further amending the rule to extend the amount of time that a joint
venture could seek contracts to some point greater than two years.
These commenters recommended two approaches, either allowing all joint
ventures to seek contracts for a period greater than two years or
allowing only joint ventures between a prot[eacute]g[eacute] and its
mentor to seek contracts beyond two years. In the mentor-
prot[eacute]g[eacute] context, commenters reasoned that a joint venture
between a prot[eacute]g[eacute] and its mentor should be either three
years (the length of the initial mentor-prot[eacute]g[eacute]
agreement) or six years (the total allowable length of time for a
mentor-prot[eacute]g[eacute] relationship to exist). It is SBA's view
that the requirements for all joint ventures should be consistent, and
that they should not be different with respect to joint ventures
between prot[eacute]g[eacute] firms and their mentors. One of the
purposes of this final rule is to remove inconsistencies and confusion
in the regulations. SBA believes that having differing requirements for
different types of joint ventures would add to, not reduce, the
complexity and confusion in the regulations. Regarding extending the
amount of time a joint venture could operate and seek additional
contracts generally, SBA opposes such an extension. As SBA noted in the
supplementary information to the proposed rule, SBA believes that a
joint venture should not be an on-going entity, but, rather, something
formed for a limited purpose with a limited duration. SBA believes that
allowing a joint venture to operate as an independent business entity
for more than two years erodes the limited purpose and duration
requirements of a joint venture. If the parties intend to jointly seek
work beyond two years from the date of the first award, the regulations
allow them to form a new joint venture. That new entity would then be
able to seek additional contracts over two years from the date of its
first award. Although requiring the formation of several joint venture
entities, SBA believes that is the correct approach. To do otherwise
would be to ignore what a joint venture is intended to do.
In addition, one commenter sought further clarification regarding
novations. The rule makes clear that where a joint venture submits an
offer prior to the two-year period from the date of its first award,
the joint venture can be awarded a contract emanating from that offer
where award occurs after the two-year period expires. The commenter
recommended that SBA add clarifying language that would similarly allow
a novation to occur after the two-year period if the joint venture
submits a novation package for contracting officer approval within the
two-year period. SBA agrees, and has added clarifying language to one
of the examples accompanying the regulatory text.
In the proposed rule, SBA also asked for comments regarding the
exception to affiliation for joint ventures composed of multiple small
businesses in which firms enter and leave the joint venture based on
their size status. In this scenario, in an effort to retain small
business status, joint venture partners expel firms that have exceeded
the size standard and then possibly add firms that qualify under the
size standard. This may be problematic where the joint venture is
awarded a Federal Supply Schedule (FSS) contract or any other MAC
vehicle. A joint venture that is awarded a MAC could receive many
orders beyond the two-year limitation for joint venture awards (since
the contract was awarded within that two-year period), and could remain
small for any order requiring recertification simply by exchanging one
joint venture partner for another (i.e., a new small business for one
that has grown to be other than small). SBA never intended for the
composition of joint ventures to be fluid. The joint venture generally
should have the same partners throughout its lifetime, unless one of
the partners is acquired. SBA considers a joint venture composed of
different partners to be a different joint venture than the original
one. To reflect this understanding, the proposed rule asked for
comments as to whether SBA should specify that the size of a joint
venture outside of the mentor-prot[eacute]g[eacute] program will be
determined based on the current size status and affiliations of all
past and present joint venture partners, even if a partner has left the
joint venture. SBA received several comments responding to this
provision on both sides of the issue. Several commenters believed that
SBA should not consider the individual size of partners who have left
the joint venture in determining whether the joint venture itself
continues to qualify as small. These commenters thought that permitting
substitution of joint venture partners allows small businesses to
remain competitive for orders under large, complex MACs. Other
commenters acknowledged that SBA has accurately recognized a problem
that gives a competitive advantage to joint ventures over individual
small businesses. They agreed that SBA likely did not contemplate a
continuous turnover of joint venture partners when it changed its
affiliation rules to allow a joint venture to qualify as small provided
that each of its partners individually qualified as small (instead of
aggregating the receipts or employees of all joint venture partners as
was previously the case). SBA notes that this really is an issue only
with respect to MACs. For a single award contract, size is
[[Page 66149]]
determined at one point in time--the date on which an offeror submits
its initial offer including price. Where an offeror is a joint venture,
it qualifies as small provided each of the partners to the joint
venture individually qualifies as small on the date of the offer. The
size of the joint venture awardee does not change if an individual
member of the joint venture grows to be other than small during the
performance of the contract. As detailed elsewhere in this rule, for a
MAC that is not set-aside for small business, however, size may be
determined as of the date a MAC holder submits its offer for a specific
order that is set-aside for small business. In such a case, if a
partner to the joint venture has grown to be other than small, the
joint venture would not be eligible as a small business for the order.
One commenter recommended that once a multi-small business joint
venture wins its first MAC, its size going forward (for future
contracts or any recertification required under the awarded MAC) should
be determined based on the size of the joint venture's present members
and any former members that were members as of the date the joint
venture received its first MAC. This would allow a joint venture to
remove members for legitimate reasons before the first award of the
first MAC, but not allow the joint venture to change members after such
an award just to be able to recertify as small for an order under the
MAC. SBA thoroughly considered all the comments in response to this
issue. After further considering the issue, SBA does not believe that
reaching back to consider the size of previous partners (who are no
longer connected to the joint venture) would be workable. A concern
that is no longer connected to the joint venture has no incentive to
cooperate and provide information relating to its size, even if it
still qualified individually as small. Thus, SBA is not making any
changes to the regulatory text to address this issue in this final
rule.
The rule also proposed to add clarifying language to the
introductory text of Sec. 121.103(h) to recognize that, although a
joint venture cannot be populated with individuals intended to perform
contracts awarded to the joint venture, the joint venture can directly
employ administrative personnel and such personnel may specifically
include Facility Security Officers. SBA received overwhelming support
of this change and adopts it as final in this rule.
The proposed rule also sought comments on the broader issue of
facility clearances with respect to joint ventures. SBA understands
that some procuring agencies will not award a contract requiring a
facility security clearance to a joint venture if the joint venture
itself does not have such clearance, even if both partners to the joint
venture individually have such clearance. SBA does not believe that
such a restriction is appropriate. Under SBA's regulations, a joint
venture cannot hire individuals to perform on a contract awarded to the
joint venture (the joint venture cannot be ``populated''). Rather, work
must be done individually by the partners to the joint venture so that
SBA can track who does what and ensure that some benefit flows back to
the small business lead partner to the joint venture. SBA proposed
allowing a joint venture to be awarded a contract where either the
joint venture itself or the lead small business partner to the joint
venture has the required facility security clearance. In such a case, a
joint venture lacking its own separate facility security clearance
could still be awarded a contract requiring such a clearance provided
the lead small business partner to the joint venture had the required
facility security clearance and committed to keep at its cleared
facility all records relating to the contract awarded to the joint
venture. Additionally, if it is established that the security portion
of the contract requiring a facility security clearance is ancillary to
the principal purpose of the procurement, then the non-lead partner to
the joint venture (which may include a large business mentor) could
possess such clearance. The majority of commenters supported this
proposal, agreeing that it does not make sense to require the joint
venture to have the necessary facility security clearance where the
joint venture entity itself is not performing the contract. These
commenters believed that as long as the joint venture partner(s)
performing the necessary security work had the required facility
security clearance, the Government would be adequately protected.
This rule also removes current Sec. 121.103(h)(3)(iii), which
provides that a joint venture between a prot[eacute]g[eacute] firm and
its mentor that was approved through the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program is considered small provided the
prot[eacute]g[eacute] qualifies as individually small. Because this
rule eliminates the 8(a) BD Mentor-Prot[eacute]g[eacute] Program as a
separate program, this provision is no longer needed.
The proposed rule also clarified how to account for joint venture
receipts and employees during the process of determining size for a
joint venture partner. The joint venture partner must include its
percentage share of joint venture receipts and employees in its own
receipts or employees. The proposed rule provided that the appropriate
percentage share is the same percentage figure as the percentage figure
corresponding to the joint venture partner's share of work performed by
the joint venture. Commenters generally agreed with the proposed
treatment of receipts. Several commenters sought further clarification
regarding subcontractors, specifically asking how to treat revenues
generated through subcontracts from the individual partners. One
commenter recommended that the joint venture partner responsible for a
specific subcontract should take on that revenue as its share of the
contract's total revenues. As with all contracts, SBA does not exclude
revenues generated by subcontractors from the revenues deemed to be
received by the prime contractor. Where a joint venture is the prime
contractor, 100 percent of the revenues will be apportioned to the
joint venture partners, regardless of how much work is performed by
other subcontractors. The joint venture must perform a certain
percentage of the work between the partners to the joint venture
(generally 50 percent, but 15 percent for general construction). SBA
does not believe that it matters which partner to the joint venture the
subcontract flows through. Of the 50 percent of the total contract that
the joint venture partners must perform, SBA will look at how much is
performed by each partner. That is the percentage of total revenues
that will be attributed to each partner. This rule makes clear that
revenues will be attributed to the joint venture in the same percentage
as that of the work performed by each partner.
A few commenters thought that that same approach should not be
applied to the apportionment of employees. They noted that some or all
of the joint venture's employees may also be employed concurrently by a
joint venture partner. Without taking that into account, the proposed
methodology would effectively double count employees who were also
employed by one of the joint venture partners. In response, SBA has
amended this paragraph to provide that for employees, the appropriate
way to apportion individuals employed by the joint venture is the same
percentage of employees as the joint venture partner's percentage
ownership share in the joint venture, after first subtracting any joint
venture employee already accounted for in the employee count of one of
the partners.
[[Page 66150]]
Section 121.402
The proposed rule amended how NAICS codes are applied to task
orders to ensure that the NAICS codes assigned to specific procurement
actions, and the corresponding size standards, are an accurate
reflection of the contracts and orders being awarded and performed.
Consistent with the final rule for FAR Case 2014-002, 85 FR 11746 (Feb.
27, 2020), a contracting officer must assign a single NAICS code for
each order issued against a MAC, and that NAICS code must be a NAICS
code that is included in the underlying MAC and represents the
principal purpose of the order. SBA believes that the NAICS code
assigned to a task order must reflect the principal purpose of that
order. Currently, based on the business rules of the Federal
Procurement Data System (FPDS) and the FAR, all contracts including
MACs are restricted to only being assigned a single NAICS code, and if
a MAC is assigned a service NAICS code, then that service NAICS code
flows down to each individual order under that MAC. SBA does not
believe it is appropriate for a task order that is nearly entirely for
supplies to have a service NAICS code. In such a case, a firm being
awarded such an order would not have to comply with the nonmanufacturer
rule. In particular, set-aside orders should be assigned a
manufacturing/supply NAICS code, so that the nonmanufacturer rule will
apply to the order if it is awarded to a nonmanufacturer. Additionally,
the current method for NAICS code assignment can also be problematic
where a MAC is assigned a NAICS code for supplies but a particular
order under that MAC is almost entirely for services. In such a case,
firms that qualified as small for the larger employee-based size
standard associated with a manufacturing/supply NAICS code may not
qualify as small businesses under a smaller receipts-based services
size standard. As such, because the order is assigned the
manufacturing/supply NAICS code associated with the MAC, firms that
should not qualify as small for a particular procurement that is
predominantly for services may do so. SBA recognizes that Sec.
121.402(c) already provides for a solution that will ensure that NAICS
codes assigned to task and delivery orders accurately reflect the work
being done under the orders. Specifically, the requirement for certain
MACs to be assigned more than one NAICS code (e.g., service NAICS code
and supply NAICS code) will allow for orders against those MACs to
reflect both a NAICS code assigned to the MAC and also a NAICS code
that accurately reflects work under the order. The requirement to
assign certain MACs more than one NAICS code has already been
implemented in the FAR at 48 CFR 19.102(b)(2)(ii) but it will not go
into effect until October 1, 2022. The future effective date is when
FPDS is expected to implement the requirement and it allows all the
Federal agencies to budget and plan for internal system updates across
their multiple contracting systems to accommodate the requirement.
Thus, this rule makes only minor revisions to the existing regulations
to ensure that the NAICS codes assigned to specific procurement
actions, and the corresponding size standards, are an accurate
reflection of the contracts and orders being awarded and performed.
Commenters supported SBA's intent. They noted that allowing
contracting officers to assign a NAICS code to an order that differs
from the NAICS code(s) already contained in the MAC could unfairly
disadvantage contractors who did not compete for the MAC because they
did not know orders would be placed under NAICS codes not in the MAC's
solicitation. A commenter noted, however, that the proposed rule added
a new Sec. 121.402(c)(2)(ii) when it appears that a revision to Sec.
121.402(c)(2)(i) might be more appropriate. SBA agrees and has revised
Sec. 121.402(c)(2)(i) in this final rule to clarify that orders must
reflect a NAICS code assigned to the underlying MAC.
In addition, the rule makes a minor change to Sec. 121.402(e) by
removing the passive voice in the regulatory text. The rule also
clarifies that in connection with a size determination or size appeal,
SBA may supply an appropriate NAICS code designation, and accompanying
size standard, where the NAICS code identified in the solicitation is
prohibited, such as for set-aside procurements where a retail or
wholesale NAICS code is identified.
Sections 121.404(a)(1), 124.503(i), 125.18(d), and 127.504(c)
Size Status
SBA has been criticized for allowing agencies to receive credit
towards their small business goals for awards made to firms that no
longer qualify as small. SBA believes that much of this criticism is
misplaced. Where a small business concern is awarded a small business
set-aside contract with a duration of not more than five years and
grows to be other than small during the performance of the contract,
some have criticized the exercise of an option as an award to an other
than small business. SBA disagrees with such a characterization. Small
business set-aside contracts are restricted only to firms that qualify
as small as of the date of a firm's offer for the contract. A firm's
status as a small business is relevant to its qualifying for the award
of the contract. If a concern qualifies as small for a contract with a
duration of not more than five years, it is considered a small business
throughout the life of that contract. Even for MACs that are set-aside
for small business, once a concern is awarded a contract as a small
business it is eligible to receive orders under that contract and
perform as a small business. In such a case, size was relevant to the
initial award of the contract. Any competitor small business concern
could protest the size status of an apparent successful offeror for a
small business set-aside contract (whether single award or multiple
award), and render a concern ineligible for award where SBA finds that
the concern does not qualify as small under the size standard
corresponding to the NAICS code assigned to the contract. Furthermore,
firms awarded long-term small business set-aside contracts must
recertify their size status at five years and every option thereafter.
Firms are eligible to receive orders under that contract and perform as
a small business so long as they continue to recertify as small at the
required times (e.g., at five years and every option thereafter). Not
allowing a concern that legitimately qualified at award and/or
recertified later as small to receive orders and continue performance
as a small business during the base and option periods, even if it has
naturally grown to be other than small, would discourage firms from
wanting to do business with the Government, would be disruptive to the
procurement process, and would disincentivize contracting officers from
using small business set-asides.
SBA believes, however, that there is a legitimate concern where a
concern self-certifies as small for an unrestricted MAC and at some
point later in time when the concern no longer qualifies as small the
contracting officer seeks to award an order as a small business set-
aside and the firm uses its self-certification as a small business for
the underlying unrestricted MAC. A firm's status as a small business
does not generally affect whether the firm does or does not qualify for
the award of an unrestricted MAC contract. As such, competitors are
very unlikely to protest the size of a concern that self-certifies as
small for an unrestricted MAC. In SBA's view, where a contracting
officer sets aside an order for small business under
[[Page 66151]]
an unrestricted MAC, the order is the first time size status is
important. That is the first time that some firms will be eligible to
compete for the order while others will be excluded from competition
because of their size status. To allow a firm's self-certification for
the underlying MAC to control whether a firm is small at the time of an
order years after the MAC was awarded does not make sense to SBA.
In considering the issue, SBA looked at the data for orders that
were awarded as small business set-asides under unrestricted base
multiple award vehicles in FY 2018. In total, 8,666 orders were awarded
as small business set-asides under unrestricted MACs in FY 2018. Of
those set-aside orders, 10 percent are estimated to have been awarded
to firms that were no longer small in SAM under the NAICS code size
standard at the time of the order award. Further, it is estimated that
7.0 percent of small business set-aside orders under the FSS were
awarded to firms that were no longer small in SAM under the NAICS code
size standard at the time of the order (510 out of 7,266 orders). That
amounted to 12.6 percent of the dollars set-aside for small business
under the FSS ($129.6 million to firms that were no longer small in SAM
out of a total of $1.0723 billion in small business set-aside orders).
Whereas, it is estimated that 49.4 percent of small business set-aside
orders under government-wide acquisition contracts (GWACs) were awarded
to firms that were no longer small in SAM under the NAICS code size
standard at the time of the order (261 out of 528 orders). That
amounted to 67 percent of the dollars set-aside for small business
under GWACs ($119.6 million to firms that were no longer small in SAM
out of a total of $178.6 million in small business set-aside orders).
SBA then considered the number and dollar value of new orders that were
awarded as small business set-asides under unrestricted base multiple
award vehicles in FY 2018 using the size standard ``exceptions'' that
apply in some of SBA's size standards (e.g., the IT Value-Added
Reseller exception to NAICS 541519). Taking into account all current
size standards exceptions, which allow a firm to qualify under an
alternative size standard for certain types of contracts, it is
estimated that 6.4 percent of small business set-aside orders under the
FSS were awarded to firms that were no longer small in SAM at the time
of the order (468 out of 7,266 orders). That amounted to 11.3 percent
of the dollars set-aside for small business under the FSS ($120.7
million to firms that were no longer small in SAM out of a total of
$1.0723 billion in small business set-aside orders). Considering
exceptions for set-aside orders under GWACs, it is estimated that 11.6
percent were awarded to firms that were no longer small in SAM at the
time of the order (61 out of 528 orders). That amounted to 39.5 percent
of the dollars set-aside for small business under GWACs ($70.5 million
to firms that were no longer small in SAM out of a total of $178.6
million in small business set-aside orders). It is not possible to tell
from FPDS whether the ``exception'' size standard applied to the
contract or whether the agency applied the general size standard for
the identified NAICS code. Thus, all that can be said with certainty is
that for small business set-aside orders under the FSS, between 11.3
percent and 12.1 percent of the order dollars set-aside for small
business were awarded to firms that were no longer small in SAM. This
amounted to somewhere between $120.7 million and $129.6 that were
awarded to firms that were no longer small in SAM. For GWACs, the
percentage of orders and order dollars being awarded to firms that no
longer qualify as small is significantly greater. Between 39.5 percent
and 67.0 percent of the order dollars set-aside for small business
under GWACs were awarded to firms that were no longer small in SAM.
This amounted to somewhere between $70.5 million and $119.6 million
that were awarded to firms that were no longer small in SAM.
Because discretionary set-asides under the FSS programs have proven
effective in making awards to small business under the program and SBA
did not want to add unnecessary burdens to the program that might
discourage the use of set-asides, the proposed rule provided that,
except for orders or Blanket Purchase Agreements issued under any FSS
contract, if an order under an unrestricted MAC is set-aside
exclusively for small business (i.e., small business set-aside, 8(a)
small business, service-disabled veteran-owned small business, HUBZone
small business, or women-owned small business), a concern must
recertify its size status and qualify as such at the time it submits
its initial offer, which includes price, for the particular order.
SBA received a significant number of comments on this issue. Many
commenters supported the proposed language as a needed approach to
ensure that firms that are not small do not receive orders set-aside
for small businesses and procuring agencies do not inappropriately take
credit for awards to small business when the awardees are not in fact
small. Many of these commenters believed that it was not fair to them
as small businesses to have to compete for small business set-aside
orders under unrestricted MACs with concerns that did not currently
qualify as small and may not have done so for several years. Other
commenters opposed the proposal for various reasons. Some believed that
the regulations should be intended to foster and promote growth in
small businesses and that the recertification requirement could stifle
that growth. Others believed that the proposal undermines the general
rule that a concern maintains its small business status for the life of
a contract. SBA does not believe that a rule that requires a concern to
actually be what it claims to be (i.e., a small business) in any way
stifles growth. Of course, SBA supports the growth of small businesses
generally. SBA encourages concerns to grow naturally and permits
concerns that have been awarded small business set-aside contracts to
continue to perform those contracts as small businesses throughout the
life of those contracts (i.e., for the base and up to four additional
option years). This rule merely responds to perceptions that SBA has
permitted small business awards to concerns that do not qualify as
small. As noted above, it is intended to apply only to unrestricted
procurements where size and status were not relevant to the award of
the underlying MAC. SBA also disagrees that this provision is
inconsistent with the general rule that once a concern qualifies as
small for a contract it can maintain its status as a small business
throughout the life of that contract. SBA does not believe that a
representation of size or status that does not affect the concern's
eligibility to be awarded a contract should have the same significance
as one that does.
Several commenters agreed with SBA's intent but believed that the
rule needed to more accurately take into account today's complex
acquisition environment. These commenters noted that many MACs now seek
to make awards to certain types of business concerns (i.e., small,
8(a), HUBZone, WOSB, SDVO) in various reserves or ``pools,'' and that
concerns may be excluded from a particular pool if they do not qualify
as eligible for the pool. These commenters recommended that a concern
being awarded a MAC for a particular pool should be able to carry the
size and/or status of that pool to each order made to the pool. SBA
agrees. As noted above, SBA proposed recertification in connection with
orders
[[Page 66152]]
set-aside for small business under an unrestricted MAC because that is
the first time that some firms will be eligible to compete for the
order while others will be excluded from competition because of their
size and/or status. However, where a MAC solicitation seeks to make
awards to reserves or pools of specific types of small business
concerns, the concerns represent that they are small or qualify for the
status designated by the pool and having that status or not determines
whether the firm does or does not qualify for the award of a MAC
contract for the pool. In such a case, SBA believes that size and
status should flow from the underlying MAC to individual orders issued
under that MAC, and the firm can continue to rely on its
representations for the MAC itself unless a contracting officer
requests recertification of size and/or status with respect to a
specific order. SBA makes that revision in this final rule.
Many commenters also believed that there was no legitimate
programmatic reason for excluding the FSS program from this
recertification requirement. The commenters, however, miss that the FSS
program operates under a separate statutory authority and that set-
asides are discretionary, not mandatory under this authority. SBA and
GSA worked closely together to stand up and create this discretionary
authority and it has been very successful. This discretionary set-aside
authority was authorized by the Small Business Jobs Act of 2010 (Pub.
L. 111-240) and implemented in FAR 8.405-5 in November 2011. As a
result, benefits to small businesses have been significant. The small
business share of GSA Schedule sales rose from 30% in fiscal year 2010
(the last full fiscal year before the authority was implemented) to 39%
in fiscal year 2019. That equates to an additional $1 billion going to
small businesses in fiscal year 2019. Although SBA again considered
applying the recertification requirement to the FSS program (and allow
the FSS, as with any other MAC, to establish reserves or pools for
business concerns with a specified size or status), SBA believes that
is unworkable at this time. Consequently, consistent with the proposed
rule, this final rule does not apply the modified recertification
requirement to the FSS program. Doing so would pose an unnecessary risk
to a program currently yielding good results for small business.
For a MAC that is set aside for small business (i.e., small
business set-aside, 8(a) small business, SDVO small business, HUBZone
small business, or WOSB), the rule generally sets size status as of the
date of the offer for the underlying MAC itself. A concern that is
small at the time of its offer for the MAC will be considered small for
each order issued against the contract, unless a contracting officer
requests a size recertification in connection with a specific order. As
is currently the case, a contracting officer has the discretion to
request recertification of size status on MAC orders. If that occurs,
size status would be determined at the time of the order. That would
not be a change from the current regulations.
Socioeconomic Status
Where the required status for an order differs from that of the
underlying contract (e.g., the MAC is a small business set-aside award,
and the procuring agency seeks to restrict competition on the order to
only certified HUBZone small business concerns), SBA believes that a
firm must qualify for the socioeconomic status of a set-aside order at
the time it submits an offer for that order. Although size may flow
down from the underlying contract, status in this case cannot. Similar
to where a procuring agency seeks to compete an order on an
unrestricted procurement as a small business set-aside and SBA would
require offerors to qualify as small with respect to that order,
(except for orders under FSS contracts),), SBA believes that where the
socioeconomic status is first required at the order level, an offeror
seeking that order must qualify for the socioeconomic status of the
set-aside order when it submits its offer for the order.
Under current policy and regulations, where a contracting officer
seeks to restrict competition of an order under an unrestricted MAC to
eligible 8(a) Participants only, the contracting officer must offer the
order to SBA to be awarded through the 8(a) program, and SBA must
accept the order for the 8(a) program. In determining whether a concern
is eligible for such an 8(a) order, SBA would apply the provisions of
the Small Business Act and its current regulations which require a firm
to be an eligible Program Participant as of the date set forth in the
solicitation for the initial receipt of offers for the order.
This final rule makes these changes in Sec. 121.404(a)(1) for
size, Sec. 124.503(i) for 8(a) BD eligibility, Sec. 125.18(d) for
SDVO eligibility, and Sec. 127.504(c) for WOSB eligibility.
Several commenters voiced concern with allowing the set-aside of
orders to a smaller group of firms than all holders of a MAC. They
noted that bid and proposal preparation costs can be significant and a
concern that qualified for the underlying MAC as a small business or
some other specified type of small business could be harmed if every
order was further restricted to a subset of small business. For
example, where a MAC is set-aside for small business and every order
issued under that MAC is set-aside for 8(a) small business concerns,
SDVO small business concerns, HUBZone small business concerns and
WOSBs, those firms that qualified only as small business concerns would
be adversely affected. In effect, they would be excluded from competing
for every order. SBA agrees that is a problem. That is not what SBA
intended when it authorized orders issued under small business set-
aside contracts to be further set-aside for a specific type of small
business. SBA believes that an agency should not be able to set-aside
all of the orders issued under a small business set-aside MAC for a
further limited specific type of small business. As such, this final
rule provides that where a MAC is set-aside for small business, the
procuring agency can set-aside orders issued under the MAC to a more
limited type of small business. Contracting officers are encouraged to
review the award dollars under the MAC and to aim to make available for
award at least 50 percent of the award dollars under the MAC to all
contract holders of the underlying MAC.
In addition, a few commenters asked for further clarification as to
whether orders issued under a MAC set-aside for 8(a) Participants,
HUBZone small business concerns, SDVO small business concerns or WOSBs/
EDWOSBs could be further set aside for a more limited type of small
business. These commenters specifically did not believe that allowing
the further set-aside of orders issued under a multiple award set-aside
contract should be permitted in the 8(a) context. The commenters noted
that the 8(a) program is a business development program of limited
duration (i.e., nine years), and felt that it would be detrimental to
the business development of 8(a) Participants generally if an agency
could issue an order set-aside exclusively for 8(a) HUBZone small
business concerns, 8(a) SDVO small business concerns, or 8(a) WOSBs.
The current regulatory text of Sec. 125.2(e)(6)(i) provides that a
``contracting officer has the authority to set aside orders against
Multiple Award Contracts, including contracts that were set aside for
small business,'' for small and subcategories of small businesses. SBA
intended to allow a contracting officer to issue orders for
subcategories of small businesses only under small
[[Page 66153]]
business set-aside contracts. This rule clarifies that intent.
Section 121.404
In addition to the revision to Sec. 121.404(a)(1) identified
above, the rule makes several other changes or clarifications to Sec.
121.404. In order to make this section easier to use and understand,
the rule adds headings to each subsection, which identify the subject
matter of the subsection.
The proposed rule amended Sec. 121.404(b), which requires a firm
applying to SBA's programs to qualify as a small business for its
primary industry classification as of the date of its application. The
proposed rule eliminated references to SBA's small disadvantaged
business (SDB) program as obsolete, and added a reference to the WOSB
program. SBA received no comments on these edits and adopts them as
final in this rule.
The proposed rule also amended Sec. 121.404(d) to clarify that
size status for purposes of compliance with the nonmanufacturer rule,
the ostensible subcontractor rule and joint venture agreement
requirements is determined as of the date of the final proposal
revision for negotiated acquisitions and final bid for sealed bidding.
Currently, only compliance with the nonmanufacturer rule is
specifically addressed in this paragraph, but SBA's policy has been to
apply the same rule to determine size with respect to the ostensible
subcontractor rule and joint venture agreement requirements. This would
not be a change in policy, but rather a clarification of existing
policy. Several commenters misconstrued this to be a change in policy
or believed that this would be a departure from the snapshot in time
rule for determining size as of the date a concern submits its initial
offer including price. As noted, SBA has intended this to be the
current policy and is merely clarifying it in the regulatory text. In
addition, SBA does not view this as a departure from the snapshot in
time rule. The receipts/employees are determined at one specific point
in time--the date on which a concern submits its initial offer
including price. SBA believes that compliance with the nonmanufacturer
rule, the ostensible subcontractor rule and joint venture agreement
requirements can justifiably change during the negotiation process. If
an offer changes during negotiations in a way that would make a large
business mentor joint venture partner be in control of performance, for
example, SBA does not believe that the joint venture should be able to
point back to its initial offer in which the small business
prot[eacute]g[eacute] partner to the joint venture appeared to be in
control.
The proposed rule also added a clarifying sentence to Sec.
121.404(e) that would recognize that prime contractors may rely on the
self-certifications of their subcontractors provided they do not have a
reason to doubt any specific self-certification. SBA believes that this
has always been the case, but has added this clarifying sentence,
nevertheless, at the request of many prime contractors. SBA received
positive comments on this change and adopts it as final in this rule.
The proposed rule made several revisions to the size
recertification provisions in Sec. 121.404(g). First, the
recertification rule pertaining to a joint venture that had previously
received a contract as a small business was not clear. If a partner to
the joint venture has been acquired, is acquiring or has merged with
another business entity, the joint venture must recertify its size
status. In order to remain small, however, it was not clear whether
only the partner which has been acquired, is acquiring or has merged
with another business entity needed to recertify its size status or
whether all partners to the joint venture had to do so. The proposed
rule clarified that only the partner to the joint venture that has been
acquired, is acquiring, or has merged with another business entity must
recertify its size status in order for the joint venture to recertify
its size. Commenters generally supported this revision. One commenter
believed that a joint venture should be required to recertify its size
only where the managing venture, or the small business concern upon
which the joint venture's eligibility for the contract was based, is
acquired by, is acquiring, or has merged with another business entity.
SBA disagrees. SBA seeks to make the size rules pertaining to joint
ventures similar to those for individual small businesses. Where an
individual small business awardee grows to be other than small, its
performance on a small business contract continues to count as an award
to small business. Similarly, where a joint venture partner grows to be
other than small naturally, that should not affect the size of the
joint venture. However, under SBA's size rules, in order for a joint
venture to be eligible as small, each partner to the joint venture must
individually qualify as small. Size is not determined solely by looking
at the size of the managing venture. Just as an individual small
business awardee must recertify its size if it is acquired by, is
acquiring, or has merged with another business entity, so too should
the partner to a joint venture that is acquired by, is acquiring, or
has merged with another business entity. As such, SBA adopts the
proposed language as final in this rule.
Additionally, the proposed rule clarified that if a merger or
acquisition causes a firm to recertify as an other than small business
concern between time of offer and award, then the recertified firm is
not considered a small business for the solicitation. Under the
proposed rule, SBA would accept size protests with specific facts
showing that an apparent awardee of a set-aside has recertified or
should have recertified as other than small due to a merger or
acquisition before award. SBA received comments on both sides of this
issue. Some commenters supported the proposed provision as a way to
ensure that procuring agencies do not make awards to firms who are
other than small. They thought that such awards could be viewed as
frustrating the purpose of small business set-asides. Other commenters
opposed the proposed change. A few of these commenters believed that a
firm should remain small if it was small at the time it submitted its
proposal. SBA wants to make it clear that is the general rule. Size is
generally determined only at the date of offer. If a concern grows to
be other than small between the date of offer and the date of award
(e.g., another fiscal year ended and the revenues for that just
completed fiscal year render the concern other than small), it remains
small for the award and performance of that contract. The proposed rule
dealt only with the situation where a concern merged with or was
acquired by another concern after offer but before award. As stated in
the supplementary information to the proposed rule, SBA believes that
situation is different than natural growth. Several other commenters
opposing the proposed rule believed such a policy could adversely
affect small businesses due to the often lengthy contract award
process. Contract award can often occur 18 months or more after the
closing date for the receipt of offers. A concern could submit an offer
and have no plans to merge or sell its business at that time. If a
lengthy amount of time passes, these commenters argued that the concern
should not be put in the position of declining to make a legitimate
business decision concerning the possible merger or sale of the concern
simply because the concern is hopeful of receiving the award of a
contract as a small business. Several commenters recommended an
intermediate position where recertification must occur if the merger or
acquisition occurs within a certain amount of time from either the
concern's offer or the date for the receipt
[[Page 66154]]
of offers set forth in the solicitation. This would allow SBA to
prohibit awards to concerns that may appear to have simply delayed an
action that was contemplated prior to submitting their offers, but at
the same time not prohibit legitimate business decisions that could
materialize months after submitting an offer. Commenters recommended
requiring recertification when merger or acquisition occurs within 30
days, 90 days and 6 months of the date of an offer. SBA continues to
believe that recertification should be required when it occurs close in
time to a concern's offer, but agrees that it would not be beneficial
to discourage legitimate business transactions that arise months after
an offer is submitted. In response, the final rule continues to provide
that if a merger, sale or acquisition occurs after offer but prior to
award the offeror must recertify its size to the contracting officer
prior to award. If the merger, sale or acquisition (including
agreements in principal) occurs within 180 days of the date of an
offer, the concern will be ineligible for the award of the contract. If
it occurs after 180 days, award can be made, but it will not count as
an award to small business.
The proposed rule also clarified that recertification is not
required when the ownership of a concern that is at least 51 percent
owned by an entity (i.e., tribe, ANC, or Community Development
Corporation (CDC)) changes to or from a wholly-owned business concern
of the same entity, as long as the ultimate owner remains that entity.
When the small business continues to be owned to the same extent by the
tribe, ANC or CDC, SBA does not believe that the real ownership of the
concern has changed, and, therefore, that recertification is not
needed. Commenters overwhelmingly supported this change, and SBA adopts
it as final in this rule. The rule makes this same change to Sec.
121.603 for 8(a) contracts as well.
Finally, the proposed rule sought to amend Sec. 121.404(g)(3) to
specifically permit a contracting officer to request size
recertification as he or she deems appropriate at any point in a long-
term contract. SBA believes that this authority exists within the
current regulatory language but is merely articulating it more clearly
in this rule. Several commenters opposed this provision, believing that
it would undermine the general rule that a concern's size status should
be determined as of the date of its initial offer. They believe that
establishing size at one point in time provides predictability and
consistency to the procurement process. SBA agrees that size for a
single award contract that does not exceed five years should not be
reexamined during the life of a contract. SBA believes, however, that
the current regulations allow a contracting officer to seek
recertifications with respect to MACs. Pursuant to Sec. 121.404(g),
``if a business concern is small at the time of offer for a Multiple
Award Contract . . ., then it will be considered small for each order
issued against the contract with the same NAICS code and size standard,
unless a contracting officer requests a new size certification in
connection with a specific order.'' (Emphasis added). The regulations
at Sec. 121.404(g)(3) also provide that for a MAC with a duration of
more than five years, a contracting officer must request that a
business concern recertify its small business size status no more than
120 days prior to the end of the fifth year of the contract, and no
more than 120 days prior to exercising any option thereafter. Under
this provision, a business concern is not required to recertify its
size status until prior to the end of the fifth year of that contact.
However, SBA also interprets Sec. 121.404(g)(3) as not prohibiting a
contracting officer from requesting size recertification prior to the
120-day point in the fifth year of the long-term contract. As noted
above, the general language of Sec. 121.404(g) allows a contracting
officer to request size recertification with respect to each order. SBA
believes that the regulations permit a contracting officer the
discretion to request size recertification at the contract level prior
to the end of the fifth year if explicitly requested for the contract
at issue and if requested of all contract holders. In this respect, the
authority to request size recertification at the contract level prior
to the fifth year is an extension of the authority to request
recertification for subsequent orders. As such, this final rule
clarifies that a contracting officer has the discretion to request size
recertification as he or she deems appropriate at any point only for a
long-term MAC.
Section 121.406
The rule merely corrects a typographical error by replacing the
word ``provided'' with the word ``provide.''
Section 121.702
The proposed rule clarified the size requirements applicable to
joint ventures in the Small Business Innovation Research (SBIR)
program. Although the current regulation authorizes joint ventures in
the SBIR program and recognizes the exclusion from affiliation afforded
to joint ventures between a prot[eacute]g[eacute] firm and its SBA-
approved mentor, it does not specifically apply SBA's general size
requirements for joint ventures to the SBIR program. The proposed rule
merely sought to apply the general size rule for joint ventures to the
SBIR program. In other words, a joint venture for an SBIR award would
be considered a small business provided each partner to the joint
venture, including its affiliates, meets the applicable size standard.
In the case of the SBIR program, this means that each partner does not
have more than 500 employees. Comments favored this proposal and SBA
adopts it as final in this rule.
Section 121.1001
SBA proposed to amend Sec. 121.1001 to provide authority to SBA's
Associate General Counsel for Procurement Law to independently initiate
or file a size protest, where appropriate. Commenters supported this
provision, and SBA adopts it as final in this rule. In response to a
comment, the final rule also revises Sec. 121.1001(b) to reflect which
entities can request a formal size determination. Specifically, a
commenter pointed out that although Sec. 121.1001(b) gave applicants
for and participants in the HUBZone and 8(a) BD programs the right to
request formal size determinations in connection with applications and
continued eligibility for those programs, it did not provide that same
authority to WOSBs/EDWOSBs and SDVO small business concerns in
connection with the WOSB and SDVO programs. The final rule harmonizes
the procedures for SBA's various programs as part of the Agency's
ongoing effort to promote regulatory consistency.
Sections 121.1004, 125.28, 126.801, and 127.603
This rule adds clarifying language to Sec. 121.1004, Sec. 125.28,
Sec. 126.801, and Sec. 127.603 regarding size and/or socioeconomic
status protests in connection with orders issued against a MAC.
Currently, the provisions authorize a size protest where an order is
issued against a MAC if the contracting officer requested a
recertification in connection with that order. This rule specifically
authorizes a size protest relating to an order issued against a MAC
where the order is set-aside for small business and the underlying MAC
was awarded on an unrestricted basis, except for orders or Blanket
Purchase Agreements issued under any FSS contract. The rule also
specifically authorizes a socioeconomic protest relating to set-aside
orders based on a different socioeconomic status from the underlying
set-aside MAC.
[[Page 66155]]
Section 121.1103
An explanation of the change is provided with the explanation for
Sec. 134.318.
Section 124.3
In response to concerns raised to SBA by several Program
Participants, the proposed rule added a definition of what a follow-on
requirement or contract is. Whether a procurement requirement may be
considered a follow-on procurement is important in several contexts
related to the 8(a) BD program. First, SBA's regulations provide that
where a procurement is awarded as an 8(a) contract, its follow-on or
renewable acquisition must remain in the 8(a) BD program unless SBA
agrees to release it for non-8(a) competition. 13 CFR 124.504(d)(1).
SBA's regulations also require SBA to conduct an adverse impact
analysis when accepting requirements into the 8(a) BD program. However,
an adverse impact analysis is not required for follow-on or renewal
8(a) acquisitions or for new requirements. 13 CFR 124.504(c). Finally,
SBA's regulations provide that once an applicant is admitted to the
8(a) BD program, it may not receive an 8(a) sole source contract that
is a follow-on procurement to an 8(a) contract that was performed
immediately previously by another Participant (or former Participant)
owned by the same tribe, ANC, NHO, or CDC. 13 CFR 124.109(c)(3)(ii),
124.110(e) and 124.111(d).
In order to properly assess what each of these regulations
requires, the proposed rule defined the term ``follow-on requirement or
contract''. The definition identified certain factors that must be
considered in determining whether a particular procurement is a follow-
on requirement or contract: (1) Whether the scope has changed
significantly, requiring meaningful different types of work or
different capabilities; (2) whether the magnitude or value of the
requirement has changed by at least 25 percent; and (3) whether the end
user of the requirement has changed. These considerations should be a
guide, and not necessarily dispositive of whether a requirement
qualifies as ``new.'' Applying the 25 percent rule contained in this
definition rigidly could permit procuring agencies and entity-owned
firms to circumvent the intent of release, sister company restriction,
and adverse impact rules.
For example, a procuring agency may argue that two procurement
requirements that were previously awarded as individual 8(a) contracts
can be removed from the 8(a) program without requesting release from
SBA because the value of the combined requirement would be at least 25
percent more than the value of either of the two previously awarded
individual 8(a) contracts, and thus would be considered a new
requirement. Such an application of the new requirement definition
would permit an agency to remove two requirements from the 8(a) BD
program without requesting and receiving SBA's permission for release
from the program. We believe that would be inappropriate and that a
procuring agency in this scenario must seek SBA's approval to release
the two procurements previously awarded through the 8(a) BD program.
Likewise, if an entity-owned 8(a) Participant previously performed two
sole source 8(a) contracts and a procuring agency sought to offer a
sole source requirement to the 8(a) BD program on behalf of another
Participant owned by the same entity (tribe, ANC, NHO, or CDC) that, in
effect, was a consolidation of the two previously awarded 8(a)
procurements, we believe it would be inappropriate for SBA to accept
the offer on behalf of the sister company. Similarly, if a small
business concern previously performed two requirements outside the 8(a)
program and a procuring agency wanted to combine those two requirements
into a larger requirement to be offered to the 8(a) program, SBA should
perform an adverse impact analysis with respect to that small business
even though the combined requirement had a value that was greater than
25 percent of either of the previously awarded contracts.
SBA received a significant number of comments regarding what a
follow-on requirement is and how SBA's rules regarding what a follow-on
contract is should be applied to the three situations identified above.
Many commenters believed that the proposed language was positive
because it will help alleviate confusion in determining whether a
requirement should be considered a follow-on or not. In terms of taking
requirements or parts of requirements that were previously performed
through the 8(a) program out of the program, commenters overwhelmingly
supported SBA's involvement in the release process. Commenters were
concerned that agencies have increased the value of procurement
requirements marginally by 25 percent merely to call the procurements
new and remove them from the 8(a) program without going through the
release process. These commenters were particularly concerned where the
primary and vital requirements of a procurement remained virtually
identical and an agency merely intended to add ancillary work in order
to freely remove the procurement from the 8(a) BD program. A few
commenters also recommended that SBA provide clear guidance when the
contract term of the previously awarded 8(a) contract is different than
that of a successor contracting action. Specifically, these commenters
believed that an agency should not be able to compare a contract with
an overall $2.5 million value (consisting of a one year base period and
four one-year options each with a $500,000 value) with a successor
contract with an overall value of $1.5 million (consisting of a one
year base period and two one-year options each with a $500,000 value)
and claim it to be new. In such a case, the yearly requirement is
identical and commenters believed the requirement should not be removed
without going through the release process. SBA agrees. The final rule
clarifies that equivalent periods of performance relative to the
incumbent or previously-competed 8(a) requirement should be compared.
Many commenters agreed that the 25 percent rule should not be
applied rigidly, as that may open the door for the potential for (more)
contracts to be taken out of the 8(a) BD program. Commenters also
believed that SBA should be more involved in the process, noting that
firms currently performing 8(a) contracts often do not discover a
procuring agency's intent to reprocure that work outside the 8(a) BD
program by combining it with other work and calling it a new
requirement until very late in the procurement process. Once a
solicitation is issued that combines work previously performed through
an 8(a) contract with other work, it is it difficult to reverse even
where SBA believes that the release process should have been followed.
Several commenters recommended adding language that would require a
procuring agency to obtain SBA concurrence that a procurement
containing work previously performed through an 8(a) contract does not
represent a follow-on requirement before issuing a solicitation for the
procurement. Although SBA does not believe that concurrence should be
required, SBA does agree that a procuring activity should notify SBA if
work previously performed through the 8(a) program will be performed
through a different means. A contracting officer will make the
determination as to whether a requirement is new, but SBA should be
given the opportunity to look at the procuring activity's strategy and
supply input where appropriate. SBA has added such language to Sec.
124.504(d) in this final rule.
[[Page 66156]]
Several commenters supported the proposed definition of a follow-on
procurement for release purposes where they agreed that a procuring
agency should not be able to remove two requirements from the 8(a)
program merely by combining them and calling the consolidated
requirement new because it exceeds the 25 percent increase in
magnitude. These commenters, however, recommended that the 25 percent
change in magnitude be a ``bright-line rule'' with respect to whether a
requirement should be considered a follow-on requirement to an 8(a)
contract that was performed immediately previously by another
Participant (or former Participant) owned by the same tribe, ANC,
Native Hawaiian Organization (NHO), or CDC. SBA understands the desire
to have clear, objective rules. However, as noted previously, SBA
opposes a bright-line 25 percent change in magnitude rule in connection
with release. In addition, because SBA does not believe that it is good
policy to have one definition of what a follow-on requirement is for
one purpose and have a different definition for another purpose, SBA
opposes having a bright-line 25 percent change in magnitude rule in
determining whether to allow a sister company to perform a particular
sole source 8(a) contract and then provide discretion only in the
context of whether certain work can be removed from the 8(a) program.
SBA continues to believe that the language as proposed that allows
discretion when appropriate is the proper alternative. In the context
of determining whether to allow a sister company to perform a
particular sole source 8(a) contract, SBA agrees that a 25 percent
change in magnitude should be sufficient for SBA to approve a sole
source contract to a sister company. It would be the rare instance
where that is not the case.
Section 124.105
The proposed rule amended Sec. 124.105(g) to provide more clarity
regarding situations in which an applicant has an immediate family
member that has used his or her disadvantaged status to qualify another
current or former Participant. The purpose of the immediate family
member restriction is to ensure that one individual does not unduly
benefit from the 8(a) BD program by participating in the program beyond
nine years, albeit through a second firm. This most often happens when
a second family member in the same or similar line of business seeks
8(a) BD certification. However, it is not necessarily the type of
business which is a problem, but, rather, the involvement in the
applicant firm of the family member that previously participated in the
program. The current regulatory language requires an applicant firm to
demonstrate that ``no connection exists'' between the applicant and the
other current or former Participant. SBA believes that requiring no
connections is a bit extreme. If two brothers own two totally separate
businesses, one as a general construction contractor and one as a
specialty trade construction contractor, in normal circumstances it
would be completely reasonable for the brother of the general
construction firm to hire his brother's specialty trade construction
firm to perform work on contracts that the general construction firm
was doing. Unfortunately, if either firm was a current or former
Participant, SBA's rules prevented SBA from certifying the second firm
for participation in the program, even if the general construction firm
would pay the specialty trade firm the exact same rate that it would
have to pay to any other specialty trade construction firm. SBA does
not believe that makes sense. An individual should not be required to
avoid all contact with the business of an immediate family member. He
or she should merely have to demonstrate that the two businesses are
truly separate and distinct entities.
To this end, SBA proposed that an individual would not be able to
use his or her disadvantaged status to qualify a concern for
participation in the 8(a) BD program if that individual has an
immediate family member who is using or has used his or her
disadvantaged status to qualify another concern for the 8(a) BD program
and the concerns are connected by any common ownership or management,
regardless of amount or position, or the concerns have a contractual
relationship that was not conducted at arm's length. In the first
instance, if one of the two family members (or business entities owned
by the family member) owned any portion of the business owned by the
other family member, the second in time family member could not qualify
his or her business for the 8(a) BD program. Similarly, if one of the
two family members had any role as a director, officer or key employee
in the business owned by the other family member, the second in time
family member could not qualify his or her business for the 8(a) BD
program. In the second instance, the second in time family member could
not qualify his or her business for the 8(a) BD program if it received
or gave work to the business owned by the other family member at other
than fair market value. With these changes, SBA believes that the rule
more accurately captures SBA's intent not to permit one individual from
unduly benefitting from the program, while at the same time permitting
normal business relations between two firms. Commenters generally
supported this change. A few commenters supported the provision but
believed that an additional basis for disallowing a new immediate
family member applicant into the 8(a) BD program should be where the
applicant shared common facilities with a current or former Participant
owned and controlled by an immediate family member. SBA agrees that an
applicant owned by an immediate family member of a current or former
Participant should not be permitted to share facilities with that
current or former Participant. This rule adds that situation as a basis
for declining an applicant. Several commenters sought further
clarification as to whether a presumption against immediate family
members in the same or similar line of business would continue from the
previous regulations into this revised provision, and whether some sort
of waiver will be needed to allow an immediate family member applicant
to be certified into the 8(a) BD program. In particular, a few
commenters were concerned that if an immediate family member attempted
to certify an applicant concern in the same primary NAICS as the
current or former Participant and the individual applying for
certification has no management or technical experience in that NAICS
code, that the owner/manager of the current or former Participant would
play a significant role in the applicant concern even though a formal
role was not identified. As noted above, SBA believes that the rules
pertaining to immediate family members seeking to participate in the
8(a) BD program have been too harsh. The rule seeks to allow an
applicant owned and controlled by an immediate family member of current
or former Participant into the program, even in the same or similar
line of business, provided certain conditions do not exist. SBA agrees
with the comments that an individual seeking to certify an applicant
concern in a primary NAICS code that is the same primary NAICS code of
a current or former Participant operated by an immediate family member
must have management or technical experience in that primary NAICS
code. SBA agrees that without such a requirement, there is a risk that
the owner/manager of the current or former Participant would have some
role in the management or control of the applicant concern. This
[[Page 66157]]
rule adds a requirement that an individual applying in the same primary
NAICS code as an immediate family member must have management or
technical experience in that primary NAICS code, which would include
experience acquired from working for an immediate family member's
current or former Participant. Aside from that refinement, there is no
presumption against such an applicant. The applicant must, however,
demonstrate that there is no common ownership, control or shared
facilities with the current or former Participant, and that any
contractual relations between the two companies are arm's length
transactions. One commenter questioned whether the revised requirement
in proposed Sec. 124.105(g)(2) that SBA would annually assess whether
the two firms continue to ``operate independently'' of one another
after being admitted to the program was inconsistent with the language
in Sec. 124.105(g)(1) that allows fair market contractual relations
between the two firms. That language was not meant to imply that those
arm's length transactions cannot occur once the second firm is admitted
to the program. As part of an annual review, SBA will determine that
ownership, management, and facilities continue to be separate and that
any contractual relations are at fair market value. SBA would not
initiate termination proceedings merely because the two firms entered
into fair market value contracts after the second firm is admitted to
the program. One commenter recommended that SBA should place a limit on
the amount of contractual, arm's length transactions that have occurred
between the firms (either dollar value or percentage of revenue). SBA
disagrees. SBA does not believe a firm should be penalized for having
an immediate family member participate in the 8(a) BD program. It does
not make sense that a business concern owned by one family member
cannot hire the business concern owned by another family member as a
subcontractor at the same rate that it could hire any other business
concern. Business relationships are often built upon trust. If a
subcontractor has done a good job at a fair price, it is likely that
the prime contractor will hire that firm again when the need arises to
do that kind of work. Based upon the comments received in response to
proposed Sec. 121.103(f) (which loosened the presumption of economic
dependence where one concern derived at least 70 percent of its
revenues from one other business concern), most commenters believed
there should not be a hard restriction on the amount of work one
business concern should be able to do with another. SBA believes the
same should apply in the immediate family member context as long as a
clear line of fracture exists between the two business concerns. As
such, SBA does not adopt this recommendation in this final rule.
The proposed rule also amended the 8(a) BD change of ownership
requirements in Sec. 124.105(i). First, the proposed rule lessened the
burden on 8(a) Participants seeking minor changes in ownership by
providing that prior SBA approval is not needed where a previous owner
held less than a 20 percent interest in the concern both before and
after the transaction. This is a change from the previous requirement
which allows a Participant to change its ownership without SBA's prior
approval where the previous owner held less than a 10 percent interest.
This change from 10 percent to 20 percent permits Participants to make
minor changes in ownership more frequently without requiring them to
wait for SBA approval.
In addition, the proposed rule eliminated the requirement that all
changes of ownership affecting the disadvantaged individual or entity
must receive SBA prior approval before they can occur. Specifically,
proposed revisions to Sec. 124.105(i)(2) provided that prior SBA
approval is not needed where the disadvantaged individual (or entity)
in control of the Participant will increase the percentage of his or
her (its) ownership interest. SBA believes that prior approval is not
needed in such a case because if SBA determined that an individual or
entity owned and controlled a Participant before a change in ownership
and the change in ownership only increases the ownership interest of
that individual or entity, there could be no question as to whether the
Participant continues to meet the program's ownership and control
requirements. This change will decrease the amount of times and the
time spent by Participant firms seeking SBA approval of a change in
ownership. SBA received unanimous support on these provisions and
adopts them as final in this rule.
Section 124.109
In order to eliminate confusion, this rule clarifies several
provisions relating to tribally-owned (and ANC-owned) 8(a) applicants
and Participants. First, SBA amends Sec. 124.109(a)(7) and Sec.
124.109(c)(3)(iv) to clarify that a Participant owned by an ANC or
tribe need not request a change of ownership from SBA where the ANC or
tribe merely reorganizes its ownership of a Participant in the 8(a) BD
program by inserting or removing a wholly-owned business entity between
the ANC/tribe and the Participant. SBA believes that a tribe or ANC
should be able to replace one wholly-owned intermediary company with
another without going through the change of ownership process and
obtaining prior SBA approval. In each of these cases, SBA believes that
the underlying ownership of the Participant is not changing
substantively and that requiring a Participant to request approval from
SBA is unnecessary. The recommendation and approval process for a
change of ownership can take several months, so this change will
relieve Participants owned by tribes and ANCs from this unnecessary
burden and allow them to proactively conduct normal business operations
without interruption.
Second, the rule amends Sec. 124.109(c)(3)(ii) to clarify the
rules pertaining to a tribe/ANC owning more than one Participant in the
8(a) BD program. The rule adds two subparagraphs and an example to
Sec. 124.109(c)(3)(ii) for ease of use and understanding. In addition,
SBA clarifies that if the primary NAICS code of a tribally-owned
Participant is changed pursuant to Sec. 124.112(e), the tribe could
immediately submit an application to qualify another of its firms for
participation in the 8(a) BD program under the primary NAICS code that
was previously held by the Participant whose primary NAICS code was
changed. A change in a primary NAICS code under Sec. 124.112(e) should
occur only where SBA has determined that the greatest portion of a
Participant's revenues for the past three years are in a NAICS code
other than the one identified as its primary NAICS code. In such a
case, SBA has determined that in effect the second NAICS code really
has been the Participant's primary NAICS code for the past three years.
Commenters supported these provisions, and SBA adopts them as final.
The rule also clarifies SBA current policy that because an
individual may be responsible for the management and daily business
operations of two tribally-owned concerns, the full-time devotion
requirement does not apply to tribally-owned applicants and
Participants. This flows directly from the statutory provision which
allows an individual to manage two tribally-owned firms. Commenters
supported this change, noting that if statutory and regulatory
requirements explicitly allow an individual to manage two 8(a) firms,
[[Page 66158]]
then it would be illogical to impose the full-time work requirement on
such a manager. This rule adopts the proposed language as final.
Finally, the proposed rule clarified the 8(a) BD program admission
requirements governing how a tribally-owned applicant may demonstrate
that it possesses the necessary potential for success. SBA's
regulations previously permitted the tribe to make a firm written
commitment to support the operations of the applicant concern to
demonstrate a tribally-owned firm's potential for success. Due to the
increased trend of tribes establishing tribally-owned economic
development corporations to oversee tribally owned businesses, SBA
recognizes that in some circumstances it may be adequate to accept a
letter of support from the tribally-owned economic development company
rather than the tribal leadership. The proposed rule permitted a
tribally-owned applicant to satisfy the potential for success
requirements by submitting a letter of support from the tribe itself, a
tribally-owned economic development corporation or another relevant
tribally-owned holding company. In order for a letter of support from
the tribally-owned holding company to be sufficient, there must be
sufficient evidence that the tribally-owned holding company has the
financial resources to support the applicant and that the tribally-
owned company is controlled by the tribe. Commenters supported this
change. They noted that an economic development corporation or
tribally-owned holding company is authorized to act on behalf of the
tribe and is essentially an economic arm of the tribe, and that
oftentimes due to the size of the tribe it can be difficult and take
significant amounts of time and resources to obtain a commitment letter
from the tribe itself. SBA adopts this provision as final in this rule.
Section 124.110
The proposed rule would make some of the same changes to Sec.
124.110 for applicants and Participants owned and controlled by NHOs as
it would to Sec. 124.109 for tribally-owned applicants and
Participants. Specifically, the proposed rule would subdivide Sec.
124.110(e) for ease of use and understanding and would clarify that if
the primary NAICS code of an NHO-owned Participant is changed pursuant
to Sec. 124.112(e), the NHO could submit an application and qualify
another firm owned by the NHO for participation in the 8(a) BD program
under the NAICS code that was the previous primary NAICS code of the
Participant whose primary NAICS code was changed.
Section 124.111
The proposed rule made the same change for CDCs and CDC-owned firms
as for tribes and ANCs mentioned above. It clarified that a Participant
owned by a CDC need not request a change of ownership from SBA where
the CDC merely reorganizes its ownership of a Participant in the 8(a)
BD program by inserting or removing a wholly-owned business entity
between the CDC and the Participant. It also subdivided the current
subparagraph (d) into three smaller paragraphs for ease of use and
understanding, and clarified that if the primary NAICS code of a CDC-
owned Participant is changed pursuant to Sec. 124.112(e), the CDC
could submit an application and qualify another firm owned by the CDC
for participation in the 8(a) BD program under the NAICS code that was
the previous primary NAICS code of the Participant whose primary NAICS
code was changed. SBA did not receive any comments in response to these
changes. As such, SBA adopts them as final in this rule.
Section 124.112
SBA proposed to amend Sec. 124.112(d)(5) regarding excessive
withdrawals in connection with entity-owned 8(a) Participants. The
proposed rule permitted an 8(a) Participant that is owned at least 51
percent by a tribe, ANC, NHO or CDC to make a distribution to a non-
disadvantaged individual that exceeds the applicable excessive
withdrawal limitation dollar amount if it is made as part of a pro rata
distribution to all shareholders. Commenters supported this change as a
needed clarification to allow an entity-owned firm to increase its
distribution to the tribe, ANC, NHO or CDC, and thus enable it to
provide additional resources to the tribal or disadvantaged community.
A few commenters were concerned with having dollar numbers in the
examples set forth in the regulatory text. They were concerned that $1
million would become the default unless done in pro rata share. SBA
believes these commenters misunderstood the intent of this provision.
The example in the regulation provides that where a tribally-owned
Participant pays $1,000,000 to a non-disadvantaged manager that was not
part of a pro rata distribution to all shareholders, SBA would consider
that to be an excessive withdrawal. SBA continues to believe that a $1
million payout to a non-disadvantaged individual in that context is
excessive. If a tribe, ANC, NHO, or CDC owns 100 percent of an 8(a)
Participant and wants to give back to the native or underserved
community, nothing in this regulation would prohibit it from doing so.
That Participant could give a distribution of $1 million or more back
to the tribe, ANC, NHO, or CDC in order to ensure that the native or
underserved community receives substantial benefits. The clarification
regarding pro rata distributions was intended to allow greater
distributions to tribal communities, not to restrict such
distributions. The final rule adopts that provision.
In 2016, SBA amended Sec. 124.112(e) to implement procedures to
allow SBA to change the primary NAICS code of a Participant where SBA
determined that the greatest portion of the Participant's total
revenues during a three-year period have evolved from one NAICS code to
another. 81 FR 48558, 48581 (July 25, 2016). The procedures require SBA
to notify the Participant of its intent to change the Participant's
primary industry classification and afford the Participant the
opportunity to submit information explaining why such a change would be
inappropriate. The proposed rule authorized an appeal process, whereby
a Participant whose primary NAICS code was changed by its servicing
district office could seek further review of that determination at a
different level. Commenters supported this provision and SBA adopts it
as final in this rule.
Section 124.201
The proposed rule did not amend Sec. 124.201. However, SBA sought
comments as to whether SBA should add a provision that would require a
small business concern that seeks to apply for participation in the
8(a) BD program to first take an SBA-sponsored preparatory course
regarding the requirements and expectations of the 8(a) BD program.
Commenters were split on this proposal. Some felt it would be helpful
to those firms who did not have a clear understanding of the
expectations of participating in the 8(a) BD program. Others thought it
would merely delay their participation in the program needlessly. Some
commenters were concerned that there might be time commitments and
travel expenses if a live course were required and recommended having
the option to provide such training via a web-based platform.
Commenters also noted that for entity-owned applicants, this
requirement should not apply beyond the entity's first company to enter
the 8(a) BD program. After reviewing the
[[Page 66159]]
comments, SBA believes that such a preparatory course should be an
option, but not a requirement. As such, SBA does not believe that the
regulatory text needs to be revised in this final rule.
Section 124.203
Section 124.203 requires applicants to the 8(a) BD program to
submit certain specified supporting documentation, including financial
statements, copies of signed Federal personal and business tax returns
and individual and business bank statements. In 2016, SBA removed the
requirement that an applicant must submit a signed Internal Revenue
Service (IRS) Form 4506T, Request for Copy or Transcript of Tax Form,
in all cases. 81 FR 48558, 48569 (July 25, 2016). At that time, SBA
agreed with a commenter to the proposed rule that questioned the need
for every applicant to submit IRS Form 4506T. In eliminating that
requirement for every applicant, SBA reasoned that it always has the
right to request any applicant to submit specific information that may
be needed in connection with a specific application. As long as SBA's
regulations clearly provide that SBA may request any additional
documents SBA deems necessary to determine whether a specific applicant
is eligible to participate in the 8(a) BD program, SBA will be able to
request that a particular firm submit IRS Form 4506T where SBA believes
it to be appropriate. SBA proposed to amend Sec. 124.203 to add back
the requirement that every applicant to the 8(a) BD program submit IRS
Form 4506T (or when available, IRS Form 4506C) because not having the
Form readily available when needed has unduly delayed the application
process for those affected applicants. In addition, SBA believed that
requiring Form 4506T in every case would serve as a deterrent to firms
that may think it is not necessary to fully disclose all necessary
financial information.
However, during the comment period SBA determined that neither Form
is a viable option for independent personal income verification
purposes at this time. On July 1, 2019, the IRS removed the third-party
mailing option from the Form 4506T after it was determined that this
delivery method presents a risk to sensitive taxpayer information. As a
result, the IRS will no longer send tax return transcripts directly to
SBA; rather, transcripts must be mailed to the taxpayer's address of
record. Because SBA may not receive tax return transcripts directly
from the IRS under Form 4506T, the Agency no longer believes it is an
effective tool for independent income verification. In addition,
current IRS guidance indicates that Form 4506C is available only to
industry lenders participating in the Income Verification Express
Service program.
SBA nevertheless continues to recognize the importance of obtaining
authorization to receive taxpayer information at the time of
application. It is SBA's understanding that the IRS is currently
developing a successor form or program through which SBA and other
Federal agencies may directly receive a taxpayer's tax return
information for income verification purposes. As such, the final rule
provides that each individual claiming disadvantaged status must
authorize SBA to request and receive tax return information directly
from the IRS if such authorization is required. Although SBA does not
anticipate using this authorization often to verify an applicant's
information, SBA believes that this additional requirement imposes a
minimal burden on 8(a) BD program applicants. Additionally, SBA
believes that this required authorization will help to maintain the
integrity of the program.
Section 124.204
This rule provides that SBA will suspend the time to process an
8(a) application where SBA requests clarifying, revised or other
information from the applicant. While SBA is waiting on the applicant
to provide clarifying or responsive information, the Agency is not
continuing to process the application. This is not a change in policy,
but rather a clarification of existing policy. Commenters did not have
any issue with this change, believing that it already is SBA's existing
practice and that the regulatory change will simply clarify/formalize
this practice. As such, SBA adopts it as final in this rule.
Sections 124.205, 124.206 and 124.207
The proposed rule amended Sec. 124.207 to allow a concern that has
been declined for 8(a) BD program participation to submit a new
application 90 days after the date of the Agency's final decision to
decline. Under the current regulations, a firm is required to wait 12
months from the date of the final agency decision to reapply. SBA
believes that this change will reduce the number of appeals to SBA's
Office of Hearings and Appeals (OHA) and greatly reduce the costs
associated with appeals borne by disappointed applicants. In addition,
because a firm that is declined could submit a new application 90 days
after the decline decision, SBA requested comments on whether the
current reconsideration process should be eliminated. Commenters
enthusiastically supported the proposed change to allow firms to remedy
eligibility deficits and reapply after 90 days instead of one year. In
conjunction with this proposed change, many commenters supported
eliminating the reconsideration process as unnecessary due to the
shorter reapplication time period. A few commenters supported both the
reduction in time to reapply and elimination of the reconsideration
process, but asked SBA to ensure that SBA provide comprehensive denial
letters to fully apprise applicants of any issues or shortcomings with
their applications. SBA agrees that denial letters must fully inform
applicants of any issues with their applications, and will continue to
explain as specifically as possible the shortcomings in any declined
application. Several commenters opposed changing the current
reconsideration process because they believed that it could take longer
for an applicant to ultimately be admitted to the program if all it had
to do was change one or two minor things, and that doing so during
reconsideration would be quicker than SBA looking at a re-application
anew. Contrary to what some commenters believed, SBA looks at all
eligibility criteria during reconsideration and may find additional
reasons to decline an application during reconsideration that were not
clearly identified in the initial application process. Where that
occurs, a firm may be entitled to an additional reconsideration process
which may potentially prolong the review process even further. SBA
believes reducing the timeframe to address identified deficits and
reapply from one year to 90 days will obviate the need for a separate,
possibly drawn-out reconsideration process. One commenter believed that
allowing the shortened 90-day waiting period to re-apply to the 8(a) BD
program would encourage concerns that are clearly ineligible to
repeatedly apply for certification. Although SBA does not believe that
this would be a significant problem, SBA does understand that its
limited resources could be overburdened if clearly ineligible business
concerns are able to re-apply to the program every 90 days. As such,
this final rule amends Sec. 124.207 to incorporate a 90-day wait
period to reapply generally, but adds language that provides that where
a concern has been declined three times within 18 months of the date of
the first final agency decision finding the concern ineligible, the
concern cannot submit a new application for admission to the
[[Page 66160]]
program until 12 months from the date of the third final Agency decline
decision. The final rule also amends Sec. 124.205 to eliminate a
separate reconsideration process and Sec. 124.206 to delete paragraph
(b) as unnecessary.
Section 124.300 and 124.301
The proposed rule redesignated the current Sec. 124.301 (which
discusses the various ways a business may leave the 8(a) BD program) as
Sec. 124.300 and added a new Sec. 124.301 to specifically enunciate
the voluntary withdrawal and early graduation procedures. The rule set
forth SBA's current policy that a Participant may voluntarily withdraw
from the 8(a) BD program at any time prior to the expiration of its
program term. In addition, where a Participant believes it has
substantially achieved the goals and objectives set forth in its
business plan, the Participant may elect to voluntarily early graduate
from the 8(a) BD program. That too is SBA's current policy, and the
proposed rule merely captured it in SBA's regulations.
The proposed rule, however, changed the level at which voluntary
withdrawal and voluntary early graduation could be finalized by SBA.
Prior to this final rule, a firm submitted its request to voluntarily
withdraw or early graduate to its servicing SBA district office. Once
the district office concurs, the request was sent to the Associate
Administrator for Business Development (AA/BD) for final approval. SBA
believes that requiring several layers of review to permit a concern to
voluntarily exit the 8(a) BD program is unnecessary. SBA proposed that
a Participant must still request voluntary withdrawal or voluntary
early graduation from its servicing district office, but the action
would be complete once the District Director recognizes the voluntary
withdrawal or voluntary early graduation. SBA believes this will
eliminate unnecessary delay in processing these actions. Commenters
supported giving voluntary withdrawal and voluntary early graduation
decisions to the district office level, agreeing with SBA that the
change will assist in reducing processing times. As such, SBA adopts
the proposed changes as final.
Section 124.304
The proposed rule clarified the effect of a decision made by the
AA/BD to terminate or early graduate a Program Participant. Under SBA's
current procedures, once the AA/BD renders a decision to early graduate
or terminate a Participant from the 8(a) BD program, the affected
Participant has 45 days to appeal that decision to SBA's OHA. If no
appeal is made, the AA/BD's decision becomes the final agency decision
after that 45-day period. If the Participant appeals to OHA, the final
agency decision will be the decision of the administrative law judge at
OHA. There has been some confusion as to what the effect of the AA/BD
decision is pending the decision becoming the final agency decision.
The proposed rule clarified that where the AA/BD issues a decision
terminating or early graduating a Participant, the Participant would be
immediately ineligible for additional program benefits. SBA does not
believe that it would make sense to allow a Participant to continue to
receive program benefits after the AA/BD has terminated or early
graduated the firm from the program. If OHA ultimately overrules the
AA/BD decision, SBA would treat the amount of time between the AA/BD's
decision and OHA's decision on appeal similar to how it treats a
suspension. Upon OHA's decision overruling the AA/BD's determination,
the Participant would immediately be eligible for program benefits and
the length of time between the AA/BD's decision and OHA's decision on
appeal would be added to the Participant's program term. Commenters
generally supported this clarification. One commenter opposed the
change, believing ineligibility or suspension should not be automatic,
but rather, occur only where SBA ``determines that suspension is needed
to protect the interests of the Federal Government, such as because
where information showing a clear lack of program eligibility or
conduct indicating a lack of business integrity exists'' as set forth
in Sec. 124.305(a). SBA believes this comment misses the point. The
suspension identified in Sec. 124.305(a) is an interim determination
pending a final action by the AA/BD as to whether a Participant should
be terminated from the program. The suspension identified here flows
from the AA/BD's final decision that termination is appropriate. As
noted above, SBA believes it is contradictory to allow a Participant to
continue to receive program benefits after the AA/BD has terminated or
early graduated the firm from the program. As such, SBA adopts the
proposed language as final in this rule.
Sections 124.305 and 124.402
Section 124.402 requires each firm admitted to the 8(a) BD program
to develop a comprehensive business plan and to submit that business
plan to SBA. Currently, Sec. 124.402(b) provides that a newly admitted
Participant must submit its business plan to SBA as soon as possible
after program admission and that the Participant will not be eligible
for 8(a) BD benefits, including 8(a) contracts, until SBA approves its
business plan. Several firms have complained that they missed contract
opportunities because SBA did not approve their business plans before
procuring agencies sought to award contracts to fulfill certain
requirements. The proposed rule amended Sec. 124.402(b) to eliminate
the provision that a Participant cannot receive any 8(a) BD benefits
until SBA has approved its business plan. Instead, the proposed rule
provided that SBA would suspend a Participant from receiving 8(a) BD
program benefits if it has not submitted its business plan to the
servicing district office and received SBA's approval within 60 days
after program admission. A firm coming in to the 8(a) BD program with
commitments from one or more procuring agencies will immediately be
able to be awarded one or more 8(a) contracts. Commenters appreciated
SBA's recognition of the delays and possible missed opportunities
caused by the current requirements and supported this change. They
believed that the change will enable Participants to start receiving
the benefits of the program in a more timely manner and enjoy their
full nine-year term. A few commenters recommended that a new
Participant should not be suspended where it has submitted its business
plan within 60 days of being certified into the program but SBA has not
approved it within that time. These commenters believed that a
Participant should be suspended in this context only for actions within
the Participant's control (i.e., where the Participant did not submit
its business plan within 60 days, not where SBA has not approved it
within that time). That is SBA's intent. The proposed rule provided
that SBA will suspend a Participant from receiving 8(a) BD program
benefits, including 8(a) contracts, if it has not submitted its
business plan to the servicing district office within 60 days after
program admission. As long as a Participant has submitted its business
plan to SBA within the 60-day timeframe, it will not be suspended. SBA
believes that is clear in the regulatory text as proposed and that no
further clarification is needed. As such, SBA adopts the proposed
language as final in this rule.
This rule also corrects a typographical error contained in Sec.
124.305(h)(1)(ii). Under Sec. 124.305(h)(1)(ii), an 8(a) Participant
can elect to be suspended from the 8(a) program where a disadvantaged
individual who is involved in controlling the day-to-day
[[Page 66161]]
management and control of the Participant is called to active military
duty by the United States. Currently, the regulation states that the
Participant may elect to be suspended where the individual's
participation in the firm's management and daily business operations is
critical to the firm's continued eligibility, and the Participant
elects not to designate a non-disadvantaged individual to control the
concern during the call-up period. That should read where the
Participant elects not to designate another disadvantaged individual to
control the concern during the call-up period. It was not SBA's intent
to allow a non-disadvantaged individual to control the firm during the
call-up period and permit the firm to continue to be eligible for the
program. Finally, one commenter questioned why SBA required a
suspension action to generally be initiated simultaneous with or after
the initiation of a BD program termination action. The commenter
believed that if the Government's interests needed to be protected
quickly, SBA should be able to suspend a particular Program Participant
without also simultaneously initiating a termination proceeding. The
commenter argued that the Government should be able to stop
inappropriate or fraudulent conduct immediately. Although SBA envisions
initiating a termination proceeding simultaneously with a suspension
action in most cases, SBA concurs that immediate suspension without
termination may be needed in certain cases. As such, the final rule
amends Sec. 124.305(a) to allow the AA/BD to immediately suspend a
Participant when he or she determines that suspension is needed to
protect the interests of the Federal Government.
Sections 124.501 and 124.507
Section 124.501 is entitled ``What general provisions apply to the
award of 8(a) contracts?'' SBA must determine that a Participant is
eligible for the award of both competitive and sole source 8(a)
contracts. However, the requirement that SBA determine eligibility is
currently contained only in the 8(a) competitive procedures at Sec.
124.507(b)(2). Although SBA determines eligibility for sole source 8(a)
awards at the time it accepts a requirement for the 8(a) BD program,
that process is not specifically stated in the regulations. The
proposed rule moved the eligibility determination procedures for
competitive 8(a) contracts from Sec. 124.507(b)(2) to the general
provisions of Sec. 124.501 and specifically addressed eligibility
determinations for sole source 8(a) contracts. To accomplish this, the
proposed rule revised current Sec. 124.501(g). Commenters did not
object to this clarification. One commenter sought further
clarification regarding eligibility for 8(a) sole source contracts. The
commenter noted that for a sole source 8(a) procurement, SBA determines
eligibility of a nominated 8(a) firm at the time of acceptance. The
commenter recommended that the regulation clearly notify 8(a) firms and
procuring agencies that if a firm graduates from the program before
award occurs, the award cannot be made. Although SBA believes that is
currently included within Sec. 124.501(g), this final rule adds
additional clarifying language to remove any confusion. One commenter
also sought further clarification for two-step competitive procurements
to be awarded through the 8(a) BD program. The commenter noted that the
solicitation has two dates, and asked SBA to clarify which date
controls for eligibility for the 8(a) competitive award. In response,
this final rule adds a new Sec. 124.507(d)(3) that provides that for a
two-step design-build procurement to be awarded through the 8(a) BD
program, a firm must be a current Participant eligible for award of the
contract on the initial date specified for receipt of phase one offers
contained in the contract solicitation.
Similarly, SBA believes that the provisions requiring a bona fide
place of business within a particular geographic area for 8(a)
construction awards should also appear in the general provisions
applying to 8(a) contracts set forth in Sec. 124.501. Section 8(a)(11)
of the Small Business Act, 15 U.S.C. 637(a)(11), requires that to the
maximum extent practicable 8(a) construction contracts ``shall be
awarded within the county or State where the work is to be performed.''
SBA has implemented this statutory provision by requiring a Participant
to have a bona fide place of business within a specific geographic
location. Currently, the bona fide place of business rules appear only
in the procedures applying to competitive 8(a) procurements in Sec.
124.507(c)(2). The proposed rule moved those procedures to a new Sec.
124.501(k) to clearly make them applicable to both sole source and
competitive 8(a) awards. Based on the statutory language, SBA believes
that the requirement to have a bona fide place of business in a
particular geographic area currently applies to both sole source and
competitive 8(a) procurements, but moving the requirement to the
general applicability section removes any doubt or confusion.
Commenters did not object to these changes and SBA adopts them as final
in this rule.
In response to concerns raised by Participants, the proposed rule
also imposed time limits within which SBA district offices should
process requests to add a bona fide place of business. SBA has heard
that several Participants missed out on 8(a) procurement opportunities
because their requests for SBA to verify their bona fide places of
business were not timely processed. In order to alleviate this
perceived problem, SBA proposed to provide that in connection with a
specific 8(a) competitive solicitation, the reviewing office will make
a determination whether or not the Participant has a bona fide place of
business in its geographical boundaries within 5 working days of a site
visit or within 15 working days of its receipt of the request from the
servicing district office if a site visit is not practical in that
timeframe. SBA also requested comments on whether a Participant that
has filed a request to have a bona fide place of business recognized by
SBA in time for a particular 8(a) construction procurement may submit
an offer for that procurement where it has not received a response from
SBA before the date offers are due. Commenters supported imposing time
limits in the regulations for SBA to process requests to establish bona
fide places of business. Commenters also supported Participants being
able to presume approval and submit an offer as an eligible Participant
where SBA has not issued a decision within the specified time limits.
One commenter asked SBA to clarify what happens if a Participant
submits an offer based on this presumption and SBA later does not
verify the Participant's bona fide place of business. SBA does not
believe that verification will not occur before award. The final rule
allows a Participant to presume that SBA has approved its request for a
bona fide place of business if SBA does not respond in the time
identified. This allows a Participant to submit an offer where a bona
fide place of business is required. However, clarification is added at
124.501(k)(2)(iii)(B) that in order to be eligible for award, SBA must
approve the bona fide place of business prior to award. If SBA has not
acted prior to the time that a Participant is identified as the
apparent successful offeror, SBA will make such a determination within
5 days of receiving a procuring activity's request for an eligibility
determination unless the procuring activity grants additional time for
review.
Several commenters recommended that SBA broaden the geographic
[[Page 66162]]
boundaries as to what it means to have a bona fide place of business
within a particular area. As identified above, the bona fide place of
business concept evolved from the statutory requirement that to the
maximum extent practicable 8(a) construction contracts must be awarded
within the county or State where the work is to be performed.
Commenters believed that strict state line boundaries may not be
appropriate where a given area is routinely served by more than one
state. A commenter recommended that SBA use Metropolitan Statistical
Areas (MSAs) to better define the area within which a business should
be located in order to be deemed to have a bona fide place of business
in the area. The Office of Management and Budget has defined an MSA as
``A Core Based Statistical Area associated with at least one urbanized
area that has a population of at least 50,000. The MSA comprises the
central county or counties containing the core, plus adjacent outlying
counties having a high degree of social and economic integration with
the central county or counties as measured through commuting.'' 2010
Standards for Delineating Metropolitan and Micropolitan Statistical
Areas, 75 FR 37246-37252 (June 28, 2010). The commenter noted that
metropolitan areas frequently do not fit within one state and believed
that a state does not always represent a single geography or economy.
As an example, the commenter pointed to the Philadelphia, Pennsylvania
MSA, which includes counties in four states, Delaware, Maryland, New
Jersey and Pennsylvania. This MSA represents one regional economy, but
is serviced by four different SBA District Offices: Baltimore,
Philadelphia, Delaware and New Jersey. SBA believes that such an
expansion makes sense in today's complex business environment. However,
the use of MSAs will mostly impact the more densely populated coasts of
the country, and not necessarily more rural or less populated areas.
SBA believes the same rationale could be used in those areas, but
instead use contiguous counties. A Participant located on the other
side of a state border may be closer to the construction site than a
Participant located in the same state as the construction site. It does
not make sense to exclude a Participant immediately across the border
from where construction work is to be done merely because that
Participant is serviced by a different SBA district office, but to
allow another Participant that may be located on the other side of the
state where construction work is to be done (and be hundreds of miles
further away from the construction site than the Participant in the
other state) to be eligible because it is serviced by the correct SBA
district office. As such this final rule defines bona fide place of
business to be the geographic area serviced by the SBA district office,
a MSA, or a contiguous county to (whether in the same or different
state) where the work will be performed.
Section 124.503
The proposed rule amended Sec. 124.503(e) to clarify SBA's current
policy regarding what happens if after SBA accepts a sole source
requirement on behalf of a particular Participant the procuring agency
determines, prior to award, that the Participant cannot do the work or
the parties cannot agree on price. In such a case, SBA allows the
agency to substitute one 8(a) Participant for another if it believes
another Participant could fulfill its needs. If the procuring agency
and SBA agree that another Participant cannot fulfill its needs, the
procuring agency may withdraw the original offering letter and fulfill
its needs outside the 8(a) BD program. This change to the regulatory
text was merely an attempt to codify existing procedures to make the
process more transparent. No one objected to this provision, and SBA
adopts it as final in this rule.
Currently, Sec. 124.503(g) provides that a Basic Ordering
Agreement (BOA) is not a contract under the Federal Acquisition
Regulation (FAR). Rather, each order to be issued under the BOA is an
individual contract. As such, a procuring activity must offer, and SBA
must accept, each task order under a BOA in addition to offering and
accepting the BOA itself. Once a Participant leaves the 8(a) BD program
or otherwise becomes ineligible for future 8(a) contracts (e.g.,
becomes other than small under the size standard assigned to a
particular contract) it cannot receive further 8(a) orders under a BOA.
Similarly, a blanket purchase agreement (BPA) is also not a contract. A
BPA under FAR part 13 is not a contract because it neither obligates
funds nor requires placement of any orders against it. Instead, it is
an understanding between an ordering agency and a contractor that
allows the agency to place future orders more quickly by identifying
terms and conditions applying to those orders, a description of the
supplies or services to be provided, and methods for issuing and
pricing each order. The government is not obligated to place any
orders, and either party may cancel a BPA at any time.
Although current Sec. 124.503(g) addresses BOAs, it does not
specifically mention BPAs. This rule amends Sec. 124.503 to merely
specifically recognize that BPAs are also not contracts and should be
afforded the same treatment as BOAs.
Section 124.504
SBA proposed several changes to Sec. 124.504.
The proposed rule amended Sec. 124.504(b) to alter the provision
prohibiting SBA from accepting a requirement into the 8(a) BD program
where a procuring activity competed a requirement among 8(a)
Participants prior to offering the requirement to SBA and receiving
SBA's formal acceptance of the requirement. SBA believes that the
restriction as written is overly harsh and burdensome to procuring
agencies. Several contracting officers have not offered a follow-on
procurement to the 8(a) program prior to conducting a competition
restricted to eligible 8(a) Participants because they believed that
because a follow-on requirement must be procured through the 8(a)
program, such offer and SBA's acceptance were not required. They issued
solicitations identifying them as competitive 8(a) procurements,
selected an apparent successful offeror and then sought SBA's
eligibility determination prior to making an award. A strict
interpretation of the current regulatory language would prohibit SBA
from accepting such a requirement. Such an interpretation could
adversely affect an agency's procurement strategy in a significant way
by unduly delaying the award of a contract. That was never SBA's
intent. As long as a procuring agency clearly identified a requirement
as a competitive 8(a) procurement and the public fully understood it to
be restricted only to eligible 8(a) Participants, SBA should be able to
accept that requirement regardless of when the offering occurred.
Commenters supported this change as a logical remedy to an unintended
consequence, and SBA adopts it as final in this rule.
The proposed rule clarified SBA's intent regarding the requirement
that a procuring agency must seek and obtain SBA's concurrence to
release any follow-on procurement from the 8(a) BD program. This is not
a change in policy, but rather a clarification of SBA's current policy
and the position SBA has taken in several protests before the
Government Accountability Office. Some agencies have attempted to
remove a follow-on procurement from
[[Page 66163]]
the incumbent 8(a) contractor and re-procure the requirement through a
different contract vehicle (a MAC or Government-wide Acquisition
Contract (GWAC) that is not an 8(a) contract) without seeking release
by saying that they intend to issue a competitive 8(a) order off the
other contract vehicle. In other words, because the order under a MAC
or GWAC would be offered to and accepted for award through the 8(a) BD
program and the follow-on work would be performed through the 8(a) BD
program, some procuring agencies believe that release is not needed.
SBA does not agree. In such a case, the underlying contract is not an
8(a) contract. The procuring agency may be attempting to remove a
requirement from the 8(a) program to a contract that is not an 8(a)
contract. That is precisely what release is intended to apply to.
Moreover, because Sec. 124.504(d)(4) provides that the requirement to
seek release of an 8(a) requirement from SBA does not apply to orders
offered to and accepted for the 8(a) program where the underlying MAC
or GWAC is not itself an 8(a) contract, allowing a procuring agency to
move an 8(a) contract to an 8(a) order under a non-8(a) contract
vehicle would allow the procuring agency to then remove the next
follow-on to the 8(a) order out of the 8(a) program entirely without
any input from SBA. A procuring agency could take an 8(a) contract with
a base year and four one-year option periods, turn it into a one-year
8(a) order under a non-8(a) contract vehicle, and then remove it from
the 8(a) program entirely after that one-year performance period. That
was certainly not the intent of SBA's regulations.
SBA has received additional comments recommending that release
should also apply even if the underlying pre-existing MAC or GWAC to
which a procuring agency seeks to move a follow-on requirement is
itself an 8(a) contract. These commenters argue that an 8(a) incumbent
contractor may be seriously hurt by moving a procurement from a general
8(a) competitive procurement to an 8(a) MAC or GWAC to which the
incumbent is not a contract holder. In such a case, the incumbent would
have no opportunity to win the award for the follow-on contract, and,
would have no opportunity to demonstrate that it would be adversely
impacted or to try to dissuade SBA from agreeing to release the
procurement. Commenters believe that this directly contradicts the
business development purposes of the 8(a) BD program. In response, the
rule provides that a procuring activity must notify SBA where it seeks
to re-procure a follow-on requirement through a limited contracting
vehicle which is not available to all 8(a) BD Program Participants
(e.g., any multiple award or Governmentwide acquisition contract,
whether or not the underlying MAC or GWAC is itself an 8(a) contract).
If an agency seeks to re-procure a current 8(a) requirement as a
competitive 8(a) award for a new 8(a) MAC or GWAC vehicle, SBA's
concurrence will not be required because such a competition would be
available to all 8(a) BD Program Participants.
The proposed rule also clarified that in all cases where a
procuring agency seeks to fulfill a follow-on requirement outside of
the 8(a) BD program, except where it is statutorily or otherwise
required to use a mandatory source (see FAR subpart 8.6 and 8.7), it
must make a written request to and receive the concurrence of SBA to do
so. In such a case, the proposed rule would require a procuring agency
to notify SBA that it will take a follow-on procurement out of the 8(a)
procurement because of a mandatory source. Such notification would be
required at least 30 days before the end of the contract period to give
the 8(a) Participant the opportunity to make alternative plans.
In addition, SBA does not typically consider the value of a bridge
contract when determining whether an offered procurement is a new
requirement. A bridge contract is meant to be a temporary stop-gap
measure intended to ensure the continuation of service while an agency
finalizes a long-term procurement approach. As such, SBA does not
typically consider a bridge contract as part of the new requirement
analysis, unless there is some basis to believe that the agency is
altering the duration of the option periods to avoid particular
regulatory requirements. Whether to consider the bridge contract is
determined on a case-by-case basis given the facts of the procurement
at issue. SBA sought comments as to whether this long-standing policy
should also be incorporated into the regulations. Although SBA did not
receive many comments on this issue, those who did comment believed it
made sense to clarify this in the regulatory text. This final rule does
so.
Section 124.505
As noted above, SBA received a significant number of comments
recommending more transparency in the process by which procuring
agencies seek to remove follow-on requirements from the 8(a) BD
program. In particular, commenters believed SBA should be able to
question whether a requirement is new or a follow-on to a previously
awarded contract. In response, the final rule adds language to Sec.
124.505(a) authorizing SBA to appeal a decision by a contracting
officer that a particular procurement is a new requirement that is not
subject to the release requirements set forth in Sec. 124.504(d).
Section 124.509
The proposed rule revised Sec. 124.509(e), regarding how a
Participant can obtain a waiver to the requirement prohibiting it from
receiving further sole source 8(a) contracts where the Participant does
not meet its applicable non-8(a) business activity target. Currently,
the regulations require the AA/BD to process a Participant's request
for a waiver in every case. The proposed rule substituted SBA for the
AA/BD to allow flexibility to SBA to determine the level of processing
in a standard operating procedure outside the regulations. SBA believes
that at least at some level, the district office should be able to
process such requests for waiver.
The current regulation also requires the SBA Administrator on a
non-delegable basis to decide requests for waiver from a procuring
agency. In other words, if the Participant itself does not request a
waiver to the requirement prohibiting it from receiving further sole
source 8(a) contracts, but an agency does so because it believes that
the award of a sole source contract to the identified Participant is
needed to achieve significant interests of the Government, the SBA
Administrator must currently make that determination. Requiring such a
request to be processed by several levels of SBA reviewers and then by
the Administrator slows down the processing. If a procuring agency
truly needs something quickly, it could be harmed by the processing
time. The proposed rule changed the Administrator from making these
determinations to SBA. Commenters believed that waiver requests should
be processed at the district office level, as adding additional layers
of review significantly delays the processing time, which harms both
the Participant and the procuring agency and causes additional work for
SBA. SBA has adopted these changes as final in this rule. This should
allow these requests to be processed more quickly.
SBA also received a few comments regarding the business activity
targets contained in Sec. 124.509. Commenters supported the proposed
revisions that changed requiring Participants to make ``maximum
efforts'' to obtain business outside the 8(a) BD program, and
[[Page 66164]]
``substantial and sustained efforts'' to attain the targeted dollar
levels of non-8(a) revenue, to requiring them to make good faith
efforts. These commenters also felt that the non-8(a) business activity
target percentages for firms in the transitional stage of program
participation are too high. The commenters noted that the Small
Business Act did not require any specific percentages of non-8(a) work
and believed that SBA was free to adjust them in order to promote the
business development purposes of the program. They also believed that
the current rules rigidly apply sole source restrictions without taking
into account extenuating circumstances such as a reduction in
government funding, continuing resolutions and budget uncertainties,
increased competition driving prices down, and having prime contractors
award less work to small business subcontractors than originally
contemplated. They recommended that the sole source restrictions should
be discretionary, depending upon circumstances and efforts made by the
Participant to obtain non-8(a) revenues. SBA first notes that although
the Small Business Act itself does not establish specific non-8(a)
business activity targets, the conference report to the Business
Opportunity Development Reform Act of 1988, Public Law 100-656, which
established the competitive business mix requirement, did recommend
certain non-8(a) business activity targets. That report noted that
Congress intended that the non-8(a) business activity targets should
generally require about 25 percent of revenues from sources other than
8(a) contracts in the fifth and sixth years of program participation
and about 50 percent in the seventh and eighth years of program
participation. H. Rep. No. 100-1070, at 63 (1988), as reprinted in 1988
U.S.C.C.A.N. 5485, 5497. In response to the comments, this rule
slightly adjusts the non-8(a) business activity targets to be more in
line with the Congressional intent. In addition, SBA believes that the
strict application of sole source restrictions may be inappropriate in
certain extenuating circumstances. That same conference report provides
that SBA ``should consider a full range of options to encourage firms
to achieve the competitive business targets,'' and that these options
might ``include conditioning the award of future sole-source contracts
or business development assistance on the firm's taking specified
steps, such as changes in marketing or financing strategies.'' Id. In
addition, the conference report provides that SBA should take
appropriate remedial actions, ``including reductions in sole-source
contracting,'' to ensure that firms complete the program with optimum
prospects for success in a competitive business environment. Id. Thus,
Congress intended SBA to place conditions on firms to allow then to
continue to receive one or more future 8(a) contracts and that sole
source ``reductions'' should be an alternative. It appears that a
strict ban on receiving any future 8(a) contracts is not appropriate in
all instances. SBA believes that may make sense as a remedial measure
if a particular Participant has made no efforts to seek non-8(a)
awards, but it should not automatically occur if a firm fails to meet
its applicable non-8(a) business activity target. The final rule
recognizes that a strict prohibition on a Participant receiving new
sole source 8(a) contracts should be imposed only where the Participant
has not made good faith efforts to meet its applicable non-8(a)
business activity target. Where a Participant has not met its
applicable non-8(a) business activity target, however, SBA will
condition the eligibility for new sole source 8(a) contracts on the
Participant taking one or more specific actions, which may include
obtaining business development assistance from an SBA resource partner
such as a Small Business Development Center. The final rule also
rearranges several current provisions for ease of use.
Section 124.513
Currently, Sec. 124.513(e) provides that SBA must approve a joint
venture agreement prior to the award of an 8(a) contract on behalf of
the joint venture. This requirement applies to both competitive and
sole source 8(a) procurements. SBA does not approve joint venture
agreements in any other context, including a joint venture between an
8(a) Participant and its SBA-approved mentor (which may be other than
small) in connection with a non-8(a) contract (i.e., small business
set-aside, HUBZone, SDVO small business, or WOSB contract). In order to
be considered an award to a small disadvantaged business (SDB) for a
non-8(a) contract, a joint venture between an 8(a) Participant and a
non-8(a) Participant must be controlled by the 8(a) partner to the
joint venture and otherwise meet the provisions of Sec. 124.513(c) and
(d). If the non-8(a) partner to the joint venture is also a small
business under the size standard corresponding to the NAICS code
assigned to the procurement, the joint venture could qualify as small
if the provisions of Sec. 124.513(c) and (d) were not met (see Sec.
121.103(h)(3)(i), where a joint venture can qualify as small as long as
each party to the joint venture individually qualifies as small), but
the joint venture could not qualify as an award to an SDB in such case.
If the joint venture were between an 8(a) Participant and its large
business mentor, the joint venture could not qualify as small if the
provisions of Sec. 124.513(c) and (d) were not met. The size of a
joint venture between a small business prot[eacute]g[eacute] and its
large business mentor is determined without looking at the size of the
mentor only when the joint venture complies with SBA's regulations
regarding control of the joint venture. Where another offeror believes
that a joint venture between a prot[eacute]g[eacute] and its large
business mentor has not complied with the applicable control
regulations, it may protest the size of the joint venture. The
applicable Area Office of SBA's Office of Government Contracting would
then look at the joint venture agreement to determine if the small
business is in control of the joint venture within the meaning of SBA's
regulations. If that Office determines that the applicable regulations
were not followed, the joint venture would lose its exclusion from
affiliation, be found to be other than small, and, thus, ineligible for
an award as a small business. This size protest process has worked well
in ensuring that small business joint venture partners do in fact
control non-8(a) contracts with their large business mentors. Because
size protests are authorized for competitive 8(a) contracts, SBA
believes that the size protest process could work similarly for
competitive 8(a) contracts. As such, the proposed rule eliminated the
need for 8(a) Participants to seek and receive approval from SBA of
every initial joint venture agreement and each addendum to a joint
venture agreement for competitive 8(a) contracts. Commenters supported
this change, noting that this will eliminate an unnecessary burden and
noting that this will also eliminate the significant expense firms
often incur during the SBA approval process. SBA believes that this
will significantly lessen the burden imposed on 8(a) small business
Participants. Participants will not be required to submit additional
paperwork to SBA and will not have to wait for SBA approval in order to
seek competitive 8(a) awards. This rule finalizes that change.
Section 124.515
The proposed rule amended Sec. 124.515 regarding the granting of a
waiver to the statutorily mandated termination for
[[Page 66165]]
convenience requirement where the ownership or control of an 8(a)
Participant performing an 8(a) contract changes. The statute and
regulations allow the ownership and control of an 8(a) Participant
performing one or more 8(a) contracts to pass to another 8(a)
Participant that would otherwise be eligible to receive the 8(a)
contracts directly. Specifically, the proposed rule amended Sec.
124.515(d) to provide that SBA determines the eligibility of an
acquiring Participant by referring to the items identified in Sec.
124.501(g) and deciding whether at the time of the request for waiver
(and prior to the transaction) the acquiring Participant is an eligible
concern with respect to each contract for which a waiver is sought. As
part of the waiver request, the acquiring concern must certify that it
is a small business for the size standard corresponding to the NAICS
code assigned to each contract for which a waiver is sought. SBA will
not grant a waiver for any contract if the work to be performed under
the contract is not similar to the type of work previously performed by
the acquiring concern. A few commenters objected to this last provision
in the context of an entity-owned firm seeking to acquire an 8(a)
Participant currently performing one or more 8(a) contracts. These
commenters believed that this provision should not apply to entity-
owned Participants because prior performance in a specific industry is
not required for entity-owned firms seeking to enter the program. SBA
disagrees. Those are two entirely separate requirements. In the case of
program entry, SBA allows an entity-owned applicant to be eligible for
the program where the entity (tribe, ANC, NHO or CDC) demonstrates a
firm commitment to back the applicant concern. In other words, SBA will
waive the general potential for success provision requiring an
applicant to have at least two years of business in its primary NAICS
code where the entity represents that it will support the applicant
concern. In such case, SBA is assured that the applicant concern will
be able to survive despite having little or no experience in its
designated primary NAICS code. The termination for convenience and
waiver provisions are statutory and serve an entirely different
purpose. The general rule is that an 8(a) contract must be performed by
the 8(a) Participant to which that contract was initially awarded.
Where the ownership or control of the Participant awarded an 8(a)
contract changes, the statute requires a procuring agency to terminate
that contract unless the SBA Administrator grants a waiver based on one
of five statutory reasons. One of those reasons is where the ownership
and control of an 8(a) Participant will pass to another otherwise
eligible 8(a) Participant. The proposed rule merely clarifies SBA's
current policy that in order to be an ``eligible'' Participant, the
acquiring firm must be responsible to perform the contract, and
responsibility is determined prior to the transfer, just as
responsibility is determined prior to the award of any contract. This
has nothing to do with the entity-owned firm's potential for success in
the program, but, rather, whether that firm would be deemed a
responsible contractor and whether a procuring agency contracting
officer would find the firm capable of performing the work required
under the contract before any change of ownership or control occurs.
Because SBA believes that this responsibility issue is relevant of all
Participants acquiring another Participant that has been awarded one or
more 8(a) contracts, the final rule adopts the language as proposed.
Section 124.518
The final rule clarifies when one 8(a) Participant can be
substituted for another in order to complete performance of an 8(a)
contract without receiving a waiver to the termination for convenience
requirement set forth in of Sec. 124.515. Specifically, the rule
provides that SBA may authorize another Participant to complete
performance of an 8(a) contract and, in conjunction with the procuring
activity, permit novation of the contract where a procuring activity
contracting officer demonstrates to SBA that the Participant that was
awarded an 8(a) contract is unable to complete performance, where an
8(a) contract will otherwise be terminated for default, or where SBA
determines that substitution would serve the business development needs
of both 8(a) Participants.
Section 124.519
Section 124.519 limits the ability of 8(a) Participants to obtain
additional sole source 8(a) contracts once they have reached a certain
dollar level of overall 8(a) contracts. Currently, for a firm having a
receipts-based size standard corresponding to its primary NAICS code,
the limit above which a Participant can no longer receive sole source
8(a) contracts is five times the size standard corresponding to its
primary NAICS code, or $100,000,000, whichever is less. For a firm
having an employee-based size standard corresponding to its primary
NAICS code, the limit is $100,000,000. In order to simplify this
requirement, this proposed rule provided that a Participant may not
receive sole source 8(a) contract awards where it has received a
combined total of competitive and sole source 8(a) contracts in excess
of $100,000,000 during its participation in the 8(a) BD program,
regardless of its primary NAICS code. In addition, the proposed rule
clarified that in determining whether a Participant has reached the
$100 million limit, SBA would consider only the 8(a) revenues a
Participant has actually received, not projected 8(a) revenues that a
Participant might receive through an indefinite delivery or indefinite
quantity contract, a multiple award contract, or options or
modifications. Finally, the proposed rule amended what types of small
dollar value 8(a) contracts should not be considered in determining
whether a Participant has reached the 8(a) revenue limit. Currently,
SBA does not consider 8(a) contracts awarded under $100,000 in
determining whether a Participant has reached the applicable 8(a)
revenue limit. The proposed rule replaced the $100,000 amount with a
reference to the Simplified Acquisition Threshold (SAT). SBA has
delegated to procuring agencies the ability to award sole source 8(a)
contracts without offer and acceptance for contracts valued at or below
the SAT. Because SBA does not accept such procurements into the 8(a) BD
program, it is difficult for SBA to monitor these awards. The proposed
rule merely aligned the 8(a) revenue limit with that authority.
Commenters generally supported each of these changes. SBA adopts them
as final in this rule.
Section 125.2
The proposed rule added a new paragraph (g) requiring contracting
officers to consider the capabilities and past performance of first
tier subcontractors in certain instances. This consideration is
statutorily required for bundled or consolidated contracts (15 U.S.C.
644(e)(4)(B)(i)) and for multiple award contracts valued above the
substantial bundling threshold of the Federal agency (15 U.S.C.
644(q)(1)(B)). Following the statutory provisions, the proposed rule
required a contracting officer to consider the past performance and
experience of first tier subcontractors in those two categories of
contracts. The proposed rule did not require a contracting officer to
consider the past performance, capabilities and experience of each
first tier subcontractor as the capabilities and past performance of
the small business prime contractor in other instances. Instead, it
provided discretion to
[[Page 66166]]
contracting officers to consider such past performance, capabilities
and experience of each first tier subcontractor where appropriate. SBA
specifically requested comments as to whether as a policy matter such
consideration should be required in all cases, or limited only to the
statutorily required instances as proposed. The comments overwhelmingly
supported the same treatment for all contracts. Most commenters
believed that there was a valid policy reason to consider the
capabilities and past performance of first tier subcontractors in every
case since it is clear that those identified subcontractors will be
responsible for some performance of the contract should the
corresponding prime contractor be awarded the contract. Some commenters
believed that small businesses may have the necessary capabilities,
past performance and experience to perform smaller, non-bundled
contracts on their own. Therefore, these commenters felt that it may
not be necessary for an agency to consider the capabilities and past
performance of first tier subcontractors in all cases. SBA believes
that first tier subcontractors should be considered if the capabilities
and past performance of the small business prime contractor does not
demonstrate capabilities and past performance for award. As such this
final rule adds language requiring a procuring agency to consider the
capabilities and past performance of first tier subcontractors where
the first-tier subcontractors are specifically identified in the
proposal and the capabilities and past performance of the small
business prime do not independently demonstrate capabilities and past
performance necessary for award.
Section 125.3
The Small Business Act explicitly prohibits the Government from
requiring small businesses to submit subcontracting plans. 15 U.S.C.
637(d)(8). This prohibition is set forth in Sec. 125.3(b) of SBA's
regulations and in FAR 19.702(b)(1). Under the Alaska Native Claims
Settlement Act (ANCSA), a contractor receives credit towards the
satisfaction of its small or small disadvantaged business
subcontracting goals when contracting with an ANC-owned firm. 43 U.S.C.
1626(e)(4)(B). There has been some confusion as to whether an ANC-owned
firm that does not individually qualify as small but counts as a small
business or a small disadvantaged business for subcontracting goaling
purposes under 43 U.S.C. 1626(e)(4)(B) must itself submit a
subcontracting plan. SBA believes that such a firm is not currently
required to submit a subcontracting plan, but proposed to add
clarifying language to Sec. 125.3(b) to clear up any confusion. The
proposed rule clarified that all firms considered to be small
businesses, whether the firm qualifies as a small business concern for
the size standard corresponding to the NAICS code assigned to the
contract or is deemed to be treated as a small business concern by
statute, are not be required to submit subcontracting plans. Commenters
supported this provision and this rule adopts it as final.
The final rule also fixes typographical errors contained in
paragraphs 125.3(c)(1)(viii) and 125.3(c)(1)(ix).
Section 125.5
The proposed rule clarified that SBA does not use the certificate
of competency (COC) procedures for 8(a) sole source contracts. This has
long been SBA's policy. See 62 FR 43584, 43592 (Aug. 14, 1997). Instead
of using SBA COC procedures, an agency that finds a potential 8(a) sole
source awardee to be non-responsible should proceed through the
substitution or withdrawal procedures in the proposed Sec. 124.503(e).
SBA did not receive any comments on this provision and adopts it as
final in this rule.
Section 125.6
The final rule first fixes a typographical error contained in the
introductory text of Sec. 125.6(a). It also amends Sec. 125.6(b).
Section 125.6(b) provides guidance on which limitation on
subcontracting requirement applies to a ``mixed contract.'' The section
currently refers to a mixed contract as one that combines both services
and supplies. SBA inadvertently did not include the possibility that a
mixed contract could include construction work, although in practice
SBA has applied this section to a contract requiring, for example, both
services and construction work. The proposed rule merely recognized
that a mixed contract is one that integrates any combination of
services, supplies, or construction. A contracting officer would then
select the appropriate NAICS code, and that NAICS code is determinative
as to which limitation on subcontracting and performance requirement
applies. SBQ did not receive any comments on this change, and adopts it
as final in this rule.
SBA also asked for comments in the proposed rule regarding how the
nonmanufacturer rule should be applied in multiple item procurements
(reference Sec. 125.6(a)(2)(ii)). Currently, for a multiple item
procurement where a nonmanufacturer waiver is granted for one or more
items, compliance with the limitation on subcontracting requirement
will not consider the value of items subject to a waiver. As such, more
than 50 percent of the value of the products to be supplied by the
nonmanufacturer that are not subject to a waiver must be the products
of one or more domestic small business manufacturers or processors. The
regulation gives an example where a contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that nine
of the items can be sourced from small business manufacturers and one
item is subject to an SBA class waiver. The projected value of the item
that is waived is $10,000. Under the current regulatory language, at
least 50 percent of the value of the items not subject to a waiver, or
$495,000 (50 percent of $990,000), must be supplied by one or more
domestic small business manufacturers, and the prime small business
nonmanufacturer may act as a manufacturer for one or more items.
Several small business nonmanufacturers have disagreed with this
provision. They believe that in order to qualify as a small business
nonmanufacturer, at least 50 percent of the value of the contract must
come from either small business manufacturers or from any businesses
for items which have been granted a waiver (or that small business
manufacturers plus waiver must equal at least 50 percent). In other
words, in the above example, $500,000 (50 percent of the value of the
contract) must come from small business manufacturers or be subject to
a waiver. If items totaling $10,000 are subject to a waiver, then only
$490,000 worth of items must come from small business manufacturers,
thus requiring $5,000 less from small business manufacturers. The
proposed rule asked for comments on whether this approach makes sense.
Several commenters supported the change outlined in the proposed rule,
believing that implementation of the change will provide less confusion
to both small businesses and procuring agencies as the math is easier
to understand. One commenter believed that was how the nonmanufacturer
rule was already being applied in multiple item procurements, was
concerned others too may have misinterpreted the rule, and, thus,
supported the change. The final rule provides that a procurement should
be set aside where at least 50 percent of the value of the contract
comes from either small business manufacturers or from any business
where a nonmanufacturer rule
[[Page 66167]]
waiver has been granted (or, in other words, a set aside should occur
where small plus waiver equals at least 50 percent).
Section 125.8
The proposed rule made conforming changes to Sec. 125.8 in order
to take into account merging the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program with the All Small Mentor-Prot[eacute]g[eacute] Program. The
comments supported these changes, and those changes are finalized in
this rule.
Proposed Sec. 125.8(b)(2)(iv) permitted the parties to a joint
venture to agree to distribute profits from the joint venture so that
the small business participant(s) receive profits from the joint
venture that exceed the percentage commensurate with the work performed
by them. Although several commenters questioned whether mentors would
be willing to agree to distribute profits in such a manner, most
commenters supported this proposed change. As such, SBA adopts it as
final in this rule.
In response to the proposed rule, SBA also received comments
seeking clarification of certain other requirements applicable to joint
ventures. First, commenters sought guidance regarding the performance
of work or limitation on subcontracting requirements in Sec. 125.8(c).
Specifically, commenters questioned whether the same rules as those set
forth in Sec. 125.6 apply to the calculation of work performed by a
prot[eacute]g[eacute] in a joint venture and whether the 40 percent
performance requirement for a prot[eacute]g[eacute] firm could be met
through performance of work by a similarly situated subcontractor. SBA
has always intended that the same rules as those set forth in Sec.
125.6 should generally apply to the calculation of a
prot[eacute]g[eacute] firm's workshare in the context of a joint
venture. This means that the rules concerning supplies, construction
and mixed contracts apply to the joint venture situation and certain
costs are excluded from the limitation on subcontracting calculation.
For instance, the cost of materials would first be excluded in a
contract for supplies or products before determining whether the joint
venture is not subcontracting more than 50 percent of the amount paid
by the Government. However, SBA has never intended that a
prot[eacute]g[eacute] firm could subcontract its 40 percent performance
requirement to a similarly situated entity. In other words, SBA has
always believed that the prot[eacute]g[eacute] itself must perform at
least 40 percent of the work to be performed by a joint venture between
the prot[eacute]g[eacute] firm and its mentor, and that it cannot
subcontract such work to a similarly situated entity. The only reason
that a large business mentor is able to participate in a joint venture
with its prot[eacute]g[eacute] for a small business contract is to
promote the business development of the prot[eacute]g[eacute] firm.
Where a prot[eacute]g[eacute] firm would subcontract some or all of its
requirement to perform at least 40 percent of the work to be done by
the joint venture to a similarly situated entity, SBA does not believe
that this purpose would be met. The large business mentor is authorized
to participate in a joint venture as a small business only because its
prot[eacute]g[eacute] is receiving valuable business development
assistance through the performance of at least 40 percent of the work
performed by the joint venture. Thus, although a similarly situated
firm can be used to meet the 50 percent performance requirement, it
cannot be used to meet the 40 percent performance requirement for the
prot[eacute]g[eacute] itself. For example, if a joint venture between a
prot[eacute]g[eacute] firm and its mentor were awarded a $10 million
services contract and a similarly situated entity were to perform $2
million of the required services, the joint venture would be required
to perform $3 million of the services (i.e., to get to a total of $5
million or 50 percent of the value of the contract between the joint
venture and the similarly situated entity). If the joint venture were
to perform $3 million of the services, the prot[eacute]g[eacute] firm,
and only the prot[eacute]g[eacute] firm, must perform at least 40
percent of $3 million or $1.2 million. The final rule clarifies that
rules set forth in Sec. 125.6 generally apply to joint ventures and
that a prot[eacute]g[eacute] cannot meet the 40 percent performance
requirement by subcontracting to one or more similar situated entities.
Comments also requested further guidance on the requirement in
Sec. 125.8(b)(2)(ii) that a joint venture must designate an employee
of the small business managing venture as the project manager
responsible for performance of the contract. These commenters pointed
out that many contracts do not have a position labeled ``project
manager,'' but instead have a position named ``program manager,''
``program director,'' or some other term to designate the individual
responsible for performance. SBA agrees that the title of the
individual is not the important determination, but rather the
responsibilities. The provision seeks to require that the individual
responsible for performance must come from the small business managing
venture, and this rule makes that clarification. For consistency
purposes, SBA has made these same changes to Sec. 124.513(c) for 8(a)
joint ventures, to Sec. 125.18(b)(2) for SDVO small business joint
ventures, to Sec. 126.616(c) for HUBZone joint ventures, and to Sec.
127.506(c) for WOSB joint ventures.
Several commenters sought additional clarification to the rules
pertaining to joint ventures for the various small business programs.
Specifically, these commenters believed that the rules applicable to
small business set-asides in Sec. 125.8(a) were not exactly the same
as those set forth in Sec. Sec. 125.18(b)(1)(i) (for SDVO joint
ventures), 126.616(b)(1) (for WOSB joint ventures) and 127.506(a)(1)
(for HUBZone joint ventures), and that a mentor-prot[eacute]g[eacute]
joint venture might not be able to seek the same type of contract,
subcontract or sale in one program as it can in another. In response,
SBA has added language to Sec. 125.9(d)(1) to make clear that a joint
venture between a prot[eacute]g[eacute] and mentor may seek a Federal
prime contract, subcontract or sale as a small business, HUBZone small
business, SDB, SDVO small business, or WOSB provided the
prot[eacute]g[eacute] individually qualifies as such.
One commenter recommended a change to proposed Sec. 125.8(e)
regarding the past performance and experience of joint venture
partners. The proposed rule provided that when evaluating the past
performance and experience of a joint venture submitting an offer for a
contract set aside or reserved for small business, a procuring activity
must consider work done and qualifications held individually by each
partner to the joint venture as well as any work done by the joint
venture itself previously. The commenter agreed with that provision,
but recommended that it be further refined to prohibit a procuring
activity from requiring the prot[eacute]g[eacute] to individually meet
any evaluation or responsibility criteria. SBA understands the concern
that some procuring activities have required unreasonable requirements
of prot[eacute]g[eacute] small business partners to mentor-
prot[eacute]g[eacute] joint ventures. SBA's rules require a small
business prot[eacute]g[eacute] to have some experience in the type of
work to be performed under the contract. However, it is unreasonable to
require the prot[eacute]g[eacute] concern itself to have the same level
of past performance and experience (either in dollar value or number of
previous contracts performed, years of performance, or otherwise) as
its large business mentor. The reason that any small business joint
ventures with another business entity, whether a mentor-
prot[eacute]g[eacute] joint venture or a joint venture with another
small business concern, is because it cannot meet all performance
requirements by itself and seeks to gain experience through the help of
its joint venture partner. SBA
[[Page 66168]]
believes that a solicitation provision that requires both a
prot[eacute]g[eacute] firm and a mentor to each have the same level of
past performance (e.g., each partner to have individually previously
performed 5 contracts of at least $10 million) is unreasonable, and
should not be permitted. However, SBA disagrees that a procuring
activity should not be able to require a prot[eacute]g[eacute] firm to
individually meet any evaluation or responsibility criteria. SBA
intends that the prot[eacute]g[eacute] firm gain valuable business
development assistance through the joint venture relationship. The
prot[eacute]g[eacute] must, however, bring something to the table other
than its size or socio-economic status. The joint venture should be a
tool to enable it to win and perform a contract in an area that it has
some experience but that it could not have won on its own.
Section 125.9
This final rule first reorganizes some of the current provisions in
Sec. 125.9 for ease of use and understanding. The rule reorganizes and
clarifies Sec. 125.9(b). It clarifies that in order to qualify as a
mentor, SBA will look at three things, whether the proposed mentor: Is
capable of carrying out its responsibilities to assist the
prot[eacute]g[eacute] firm under the proposed mentor-
prot[eacute]g[eacute] agreement; does not appear on the Federal list of
debarred or suspended contractors; and can impart value to a
prot[eacute]g[eacute] firm. Instead of requiring SBA to look at and
determine that a proposed mentor possesses good character in every
case, the rule amends this provision to specify that SBA will decline
an application if SBA determines that the mentor does not possess good
character. The rule also clarifies that a mentor that has more than one
prot[eacute]g[eacute] cannot submit competing offers in response to a
solicitation for a specific procurement through separate joint ventures
with different prot[eacute]g[eacute]s. That has always been SBA's
intent (the current rule specifies that a second mentor-
prot[eacute]g[eacute] relationship cannot be a competitor of the
first), but SBA wants to make this clear in response to questions SBA
has received regarding this issue. Commenters generally supported these
clarifications. One commenter asked SBA to clarify the provision
prohibiting a mentor that has more than one prot[eacute]g[eacute] from
submitting competing offers in response to a solicitation for a
specific procurement. Specifically, the commenter noted that many
multiple award procurements have separate pools of potential awardees.
For example, an agency may have a single solicitation that calls for
awarding indefinite delivery indefinite quantity (IDIQ) contracts in
unrestricted, small business, HUBZone, 8(a), WOSB, and SDVO small
business pools. All offerors submit proposals in response to the same
solicitation and indicate the pool(s) for which they are competing. The
commenter sought clarification as to whether a mentor with two
different prot[eacute]g[eacute]s could submit an offer as a joint
venture with one prot[eacute]g[eacute] for one pool and another offer
as a joint venture with a second prot[eacute]g[eacute] for a different
pool. SBA first notes that in order for SBA to approve a second mentor-
prot[eacute]g[eacute] relationship for a specific mentor, the mentor
must demonstrate that the additional mentor-prot[eacute]g[eacute]
relationship will not adversely affect the development of either
prot[eacute]g[eacute] firm. In particular, the mentor must show that
the second prot[eacute]g[eacute] will not be a competitor of the first
prot[eacute]g[eacute]. Thus, the mentor has already assured SBA that
the two prot[eacute]g[eacute]s would not be competitors. If the two
mentor-prot[eacute]g[eacute] relationships were approved in the same
NAICS code, then the mentor must have already made a commitment that
the two firms would not compete against each other. This could include,
for example, a commitment that the one mentor-prot[eacute]g[eacute]
relationship would seek only HUBZone and small business set-aside
contracts while the second would seek only 8(a) contracts. That being
the case, the same mentor could submit an offer as a joint venture with
one prot[eacute]g[eacute] for one pool and another offer as a joint
venture with a second prot[eacute]g[eacute] for a different pool on the
same solicitation because they would not be deemed competitors with
respect to that procurement. SBA does not believe, however, that a
change is needed from the proposed regulatory text since that is merely
an interpretation of what ``competing offers'' means. SBA adopts the
proposed language as final in this rule.
The proposed rule also sought comments as to whether SBA should
limit mentors only to those firms having average annual revenues of
less than $100 million. Currently, any concern that demonstrates a
commitment and the ability to assist small business concerns may act as
a mentor. This includes large businesses of any size. This proposal was
in response to suggestions from ``mid-size'' companies (i.e., those
that no longer qualify as small under their primary NAICS codes, but
believe that they cannot adequately compete against the much larger
companies) that a mentor-prot[eacute]g[eacute] program that excluded
very large businesses would be beneficial to the mid-size firms and
allow them to more effectively compete. This was the single most
commented-on issue in the proposed rule. SBA received more than 150
comments in response to this alternative. The vast majority of
commenters strongly opposed this proposal. Commenters agreed with SBA's
stated intent that the focus of the mentor-prot[eacute]g[eacute]
program should be on the prot[eacute]g[eacute] firm, and how best
valuable business development assistance can be provided to a
prot[eacute]g[eacute] to enable that firm to more effectively compete
on its own in the future. They believed that such a restriction would
harm small businesses, as it would restrict the universe of potential
mentors which could provide valuable business assistance to them.
Commenters believed that the size of the mentor should not matter as
long as that entity is providing needed business development assistance
to its prot[eacute]g[eacute]. Commenters believed that SBA's priority
should be to ensure that needed business development assistance will be
provided to prot[eacute]g[eacute] firms though a mentor-
prot[eacute]g[eacute] agreement, and the size of the mentor should not
be a relevant consideration. All that should matter is whether the
proposed mentor demonstrates a commitment and the ability to assist
small business concerns. Several commenters believed that larger
business entities actually serve as better mentors since they are
involved in the program to help the prot[eacute]g[eacute] firm and not
to gain further access to small business contracting (through joint
ventures) for themselves. In response, SBA will not adopt the proposal,
but rather will continue to allow any business entity, regardless of
size, that demonstrates a commitment and the ability to assist small
business concerns to act as a mentor.
This rule also implements Section 861 of the National Defense
Authorization Act (NDAA) of 2019, Public Law 115-232, to make three
changes to the mentor-prot[eacute]g[eacute] program in order to benefit
Puerto Rican small businesses. First, the rule amends Sec. 125.9(b)
regarding the number of prot[eacute]g[eacute] firms that one mentor can
have at any one time. Currently, the regulation provides that under no
circumstances can a mentor have more than three prot[eacute]g[eacute]s
at one time. Section 861 of the NDAA provides that the restriction on
the number of prot[eacute]g[eacute] firms a mentor can have shall not
apply to up to two mentor-protege relationships if such relationships
are with a small business that has its principal office located in the
Commonwealth of Puerto Rico. As such, Sec. 125.9(b)(3)(ii) provides
that a
[[Page 66169]]
mentor generally cannot have more than three prot[eacute]g[eacute]s at
one time, but that the first two mentor-prot[eacute]g[eacute]
relationships between a specific mentor and a small business that has
its principal office located in the Commonwealth of Puerto Rico will
not count against the limit of three prot[eacute]g[eacute]s that a
mentor can have at one time. Thus, if a mentor did have two
prot[eacute]g[eacute]s that had their principal offices in Puerto Rico,
it could have an additional three prot[eacute]g[eacute]s, or a total of
five prot[eacute]g[eacute]s, and comply with SBA's requirements. The
rule also adds a new Sec. 125.9(d)(6) to implement a provision of
Section 861 of NDAA 2019, which authorizes contracting incentives to
mentors that subcontract to prot[eacute]g[eacute] firms that are Puerto
Rico businesses. Specifically, Sec. 125.9(d)(6) provides that a mentor
that provides a subcontract to a prot[eacute]g[eacute] that has its
principal office located in Puerto Rico may (i) receive positive
consideration for the mentor's past performance evaluation, and (ii)
apply costs incurred for providing training to such
prot[eacute]g[eacute] toward the subcontracting goals contained in the
subcontracting plan of the mentor. Commenters supported these
provisions, and SBA adopts them as final in this rule. A few commenters
asked for clarification as to whether these provisions applied to
entity-owned firms located in Puerto Rico. The statute and proposed
regulatory text notes that it applies to any business concern that has
its principal office in Puerto Rico. If a tribally-owned or ANC-owned
firm has its principal office in Puerto Rico, then the provision
applies to it. SBA does not believe further clarification is needed.
The principal office requirement should be sufficient. One commenter
also questioned the provision in the proposed rule allowing mentor
training costs to count toward a mentor's small subcontracting goals,
believing that training costs should never be allowed as subcontracting
costs. That is not something SBA proposed on its own. That provision
was specifically authorized by Section 861 of NDAA 2019. As such, that
provision is unchanged in this final rule.
A few commenters also recommended that SBA allow a mentor to have
more than three prot[eacute]g[eacute]s at a time generally (i.e., not
only where small businesses in Puerto Rico are involved). These
commenters noted that very large business concerns operate under
multiple NAICS codes and have the capability to mentor a large number
of small prot[eacute]g[eacute] firms that are not in competition with
each other. Although SBA understands that many large businesses have
the capability to mentor more than three small business concerns at one
time, SBA does not believe it is good policy for anyone to perceive
that one or more large businesses are unduly benefitting from small
business programs. The rules allow a mentor to joint venture with its
prot[eacute]g[eacute] and be deemed small for any contract for which
the prot[eacute]g[eacute] individually qualifies as small, and to
perform 60 percent of whatever work the joint venture performs.
Moreover, a mentor can also own an equity interest of up to 40 percent
in the prot[eacute]g[eacute] firm. If a large business mentor were able
to have five (or more) prot[eacute]g[eacute]s at one time, it could
have a joint venture with each of those prot[eacute]g[eacute]s and
perform 60 percent of every small business contract awarded to the
joint venture. It also could (though unlikely) have a 40 percent equity
interest in each of those small prot[eacute]g[eacute] firms. In such a
case, SBA believes that it would appear that the large business mentor
is unduly benefitting from contracting programs intended to be reserved
for small businesses. As such, this rule does not increase the number
of prot[eacute]g[eacute] firms that one mentor can have.
The proposed rule clarified the requirements for a firm seeking to
form a mentor-prot[eacute]g[eacute] relationship in a NAICS code that
is not the firm's primary NAICS code (Sec. 125.9(c)(1)(ii)). SBA has
always intended that a firm seeking to be a prot[eacute]g[eacute] could
choose to establish a mentor-prot[eacute]g[eacute] relationship to
assist its business development in any business area in which it has
performed work as long as the firm qualifies as small for the work
targeted in the mentor-prot[eacute]g[eacute] agreement. The proposed
rule highlighted SBA's belief that a firm must have performed some work
in a secondary industry or NAICS code in order for SBA to approve such
a mentor-prot[eacute]g[eacute] relationship. SBA does not want a firm
that has grown to be other than small in its primary NAICS codes to
form a mentor-prot[eacute]g[eacute] relationship in a NAICS code in
which it had no experience simply because it qualified as small in that
other NAICS code. SBA believes that such a situation (i.e., having a
prot[eacute]g[eacute] with no experience in a secondary NAICS code)
could lead to abuse of the program. It would be hard for a firm with no
experience in a secondary NAICS code to be the lead on a joint venture
with its mentor. Similarly, a mentor with all the experience could
easily take control of a joint venture and perform all of the work
required of the joint venture. The proposed rule clarified that a firm
may seek to be a prot[eacute]g[eacute] in any NAICS code for which it
qualifies as small and can form a mentor-prot[eacute]g[eacute]
relationship in a secondary NAICS code if it qualifies as small and has
prior experience or previously performed work in that NAICS code.
Several commenters sought further clarification of this provision.
Commenters noted that a procuring activity may assign different NAICS
codes to the same basic type of work. These commenters questioned
whether a firm needed to demonstrate that it performed work in a
specific NAICS code or could demonstrate that it has performed the same
type of work, whatever NAICS code was assigned to it. Similarly, other
commenters again questioned whether a firm must demonstrate previous
work performed in a specific NAICS code, or whether similar work that
would logically lead to work in a different NAICS code would be
permitted. SBA agrees with these comments. SBA believes that similar
work performed by the prospective prot[eacute]g[eacute] to that for
which a mentor-prot[eacute]g[eacute] relationship is sought should be
sufficient, even if the previously performed work is in a different
NAICS code than that for which a mentor-prot[eacute]g[eacute] agreement
is sought. In addition, if the NAICS code in which a mentor-
prot[eacute]g[eacute] relationship is sought is a logical progression
from work previously performed by the intended prot[eacute]g[eacute]
firm, that too should be permitted. SBA's intent is to encourage
business development, and any relationship that promotes a logical
business progression for the prot[eacute]g[eacute] firm fulfills that
intent.
The proposed rule also responded to concerns raised by small
businesses regarding the regulatory limit of permitting only two
mentor-prot[eacute]g[eacute] relationships even where the small
business prot[eacute]g[eacute] receives no or limited assistance from
its mentor through a particular mentor-prot[eacute]g[eacute] agreement.
SBA believes that a relationship that provides no business development
assistance or contracting opportunities to a prot[eacute]g[eacute]
should not be counted against the firm, or that the firm should not be
restricted to having only one additional mentor-prot[eacute]g[eacute]
relationship in such a case. However, SBA did not want to impose
additional burdens on prot[eacute]g[eacute] firms that would require
them to document and demonstrate that they did not receive benefits
through their mentor-prot[eacute]g[eacute] relationships. In order to
eliminate any disagreements as to whether a firm did or did not receive
any assistance under its mentor-prot[eacute]g[eacute] agreement, SBA
proposed to establish an easily understandable and objective basis for
counting or not counting a
[[Page 66170]]
mentor-prot[eacute]g[eacute] relationship. Specifically, the proposed
rule amended Sec. 125.9(e)(6) to not count any mentor-
prot[eacute]g[eacute] relationship toward a firm's two permitted
lifetime mentor-prot[eacute]g[eacute] relationships where the mentor-
prot[eacute]g[eacute] agreement is terminated within 18 months from the
date SBA approved the agreement. The vast majority of commenters
supported a specific, objective amount of time within which a
prot[eacute]g[eacute] could end a mentor-prot[eacute]g[eacute]
relationship without having it count against the two in a lifetime
limit. Commenters pointed out, however, that the supplementary
information to and the regulatory text in the proposed rule were
inconsistent (i.e., the supplementary information saying 18 months and
the regulatory text saying one year). Several comments recommended
increasing the lifetime number of mentor-prot[eacute]g[eacute]
relationships that a small business concern could have. Finally, a few
commenters opposed the proposed exemption to the two-in-lifetime rule
because allowing prot[eacute]g[eacute] firms such an easy out within 18
months, whether or not the prot[eacute]g[eacute] received beneficial
business development assistance, could act as a detriment to firms that
would otherwise be willing to serve as mentors. One commenter was
concerned that if a bright line 18-month test is all that is required,
nothing would prevent an unscrupulous business from running through an
endless chain of relatively short-lived mentor-prot[eacute]g[eacute]
relationships. SBA does not believe that will be a frequent occurrence.
Nevertheless, in response, the final rule provides that if a specific
small business prot[eacute]g[eacute] appears to use the 18-month test
as a means of using many short-term mentor-prot[eacute]g[eacute]
relationships, SBA may determine that the business concern has
exhausted its participation in the mentor-prot[eacute]g[eacute] program
and not approve an additional mentor-prot[eacute]g[eacute]
relationship.
The proposed rule also eliminated the reconsideration process for
declined mentor-prot[eacute]g[eacute] agreements in Sec. 125.9(f) as
unnecessary. Currently, if SBA declines a mentor-prot[eacute]g[eacute]
agreement, the prospective small business prot[eacute]g[eacute] may
make changes to its agreement and seek reconsideration from SBA within
45 days of SBA's decision to decline the mentor-prot[eacute]g[eacute]
relationship. The current regulations also allow the small business to
submit a new (or revised) mentor-prot[eacute]g[eacute] agreement to SBA
at any point after 60 days from the date of SBA's final decision
declining a mentor-prot[eacute]g[eacute] relationship. SBA believes
that this ability to submit a new or revised mentor-
prot[eacute]g[eacute] agreement after 60 days is sufficient. Most
commenters supported this change, agreeing that a separate
reconsideration process is unnecessary. A few commenters disagreed,
believing that requiring a small business to wait 60 days to submit a
revised mentor-prot[eacute]g[eacute] agreement and then start SBA's
processing time instead of submitting a revised agreement within a few
days of a decline decision could add an additional two months of wait
time to an ultimate approval. SBA continues to believe that the small
amount of time a small business must wait to resubmit a new/revised
mentor-prot[eacute]g[eacute] agreement to SBA for approval makes the
reconsideration process unnecessary. As such, this rule finalizes the
elimination of a separate reconsideration process.
The proposed rule added clarifying language regarding the annual
review of mentor-prot[eacute]g[eacute] relationships. It is important
that SBA receive an honest assessment from the prot[eacute]g[eacute] of
how the mentor-prot[eacute]g[eacute] relationship is working, whether
the prot[eacute]g[eacute] has received the agreed-upon business
development assistance, and whether the prot[eacute]g[eacute] would
recommend the mentor to be a mentor for another small business in the
future. SBA needs to know if the mentor is not providing the agreed-
upon business development assistance to the prot[eacute]g[eacute]. This
would affect that firm's ability to be a mentor in the future. Several
commenters were also concerned about mentors that did not live up to
their commitments. A few commenters recommended that a
prot[eacute]g[eacute] firm should be able to ask SBA to intervene if it
thought it was not receiving the assistance promised by the mentor or
if it thought that the assistance provided was not of the quality it
anticipated. SBA believes that makes sense and this rule adds a
provision allowing a prot[eacute]g[eacute] to request SBA to intervene
on its behalf with the mentor. Such a request would cause SBA to notify
the mentor that SBA had received adverse information regarding its
participation as a mentor and allow the mentor to respond to that
information. If the mentor did not overcome the allegations, SBA would
terminate the mentor-prot[eacute]g[eacute] agreement. The final rule
also adds a provision that allows a prot[eacute]g[eacute] to substitute
another firm to be its mentor for the time remaining in the mentor-
prot[eacute]g[eacute] agreement without counting against the two-mentor
limit. If two years had already elapsed in the mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] could
substitute another firm to be its mentor for a total of four years.
Prior to the proposed rule, SBA had also received several
complaints from small business prot[eacute]g[eacute]s whose mentor-
prot[eacute]g[eacute] relationships were terminated by the mentor soon
after a joint venture between the prot[eacute]g[eacute] and mentor
received a Government contract as a small business. The proposed rule
asked for comments about the possibility of adding a provision
requiring a joint venture between a prot[eacute]g[eacute] and its
mentor to recertify its size if the mentor prematurely ended the
mentor-prot[eacute]g[eacute] relationship. Commenters did not support
this possible approach, believing that such a recertification
requirement would have a much more serious impact on the
prot[eacute]g[eacute] than on the mentor. In effect, such a provision
would punish a prot[eacute]g[eacute] for its mentor's failure to meet
its obligations under the mentor-prot[eacute]g[eacute] agreement. Upon
further review, SBA believes that better options are provided in
current Sec. 125.9(h), which provides consequences for when a mentor
does not provide to the prot[eacute]g[eacute] firm the business
development assistance set forth in its mentor-prot[eacute]g[eacute]
agreement. Under the current regulations, where that occurs, the firm
will be ineligible to again act as a mentor for a period of two years
from the date SBA terminates the mentor-prot[eacute]g[eacute]
agreement, SBA may recommend to the relevant procuring agency to issue
a stop work order for each Federal contract for which the mentor and
prot[eacute]g[eacute] are performing as a small business joint venture,
and SBA may seek to substitute the prot[eacute]g[eacute] firm for the
joint venture if the prot[eacute]g[eacute] firm is able to
independently complete performance of any joint venture contract
without the mentor. SBA believes that provision should be sufficient to
dissuade mentors from terminating mentor-prot[eacute]g[eacute]
agreements early.
Section 125.18
In addition to the revision to Sec. 125.18(c) identified above,
this rule amends the language in Sec. 125.18(a) to clarify what
representations and certifications a business concern seeking to be
awarded a SDVO contract must submit as part of its offer.
Section 126.602
On November 26, 2019, SBA published a final rule amending the
HUBZone regulations. 84 FR 65222. As part of that rule, SBA revised 13
CFR 126.200 by reorganizing the section to make it more readable.
However, SBA inadvertently overlooked a cross-reference to section
126.200 contained in Sec. 126.602(c). This rule merely fixes the
cross-reference in Sec. 126.602(c).
[[Page 66171]]
Section 126.606
The final rule amends Sec. 126.606 to make it consistent with the
release requirements of Sec. 124.504(d). Current Sec. 126.606
authorizes SBA to release a follow-on requirement previously performed
through the 8(a) BD program for award as a HUBZone contract only where
neither the incumbent nor any other 8(a) Participant can perform the
requirement. SBA believes that is overly restrictive and inconsistent
with the release language contained in Sec. 124.504(d). As such, the
final rule provides that a procuring activity may request that SBA
release an 8(a) requirement for award as a HUBZone contract under the
procedures set forth in Sec. 124.504(d).
Sections 126.616 and 126.618
This rule makes minor revisions to Sec. Sec. 126.616 and 126.618
by merely deleting references to the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program, since that program would no longer exist
as a separate program.
Sections 127.503(h) and 127.504
In addition to the revision to Sec. 127.504(c) identified above,
the proposed rule made other changes or clarifications to Sec.
127.504. The proposed rule renamed and revised Sec. 127.504 for better
understanding and ease of use. It changed the section heading to ``What
requirements must an EDWOSB or WOSB meet to be eligible for an EDWOSB
or WOSB contract?''. SBA received no comments on these changes and
adopts them as final in this rule.
This rule also moves the recertification procedures for WOSBs from
Sec. 127.503(h) to Sec. 127.504(e).
Sections 134.318 and 121.1103
This rule amends Sec. 134.318 to make it consistent with SBA's
size regulations. In this regard, Sec. 121.1103(c)(1)(i) of SBA's size
regulations provides that upon receipt of the service copy of a NAICS
code appeal, the contracting officer must ``stay the solicitation.''
However, when that rule was implemented, a corresponding change was not
made to the procedural rules for SBA's OHA contained in part 134. As
such, this rule simply requires that the contracting officer must amend
the solicitation to reflect the new NAICS code whenever OHA changes a
NAICS code in response to a NAICS code appeal. In addition, for clarity
purposes, the rule revises Sec. 121.1103(c)(1)(i) to provide that a
contracting officer must stay the date of the closing of the receipt of
offers instead of requiring that he or she must stay the solicitation.
III. Compliance With Executive Orders 12866, 12988, 13132, 13175,
13563, 13771, the Paperwork Reduction Act (44 U.S.C. Ch. 35) and the
Regulatory Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
rule is a significant regulatory action for the purposes of Executive
Order 12866. Accordingly, the next section contains SBA's Regulatory
Impact Analysis. This is not a major rule, however, under the
Congressional Review Act.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
In combining the 8(a) BD Mentor-Prot[eacute]g[eacute] Program and
the All Small Mentor-Prot[eacute]g[eacute] Program, SBA seeks to
eliminate confusion regarding perceived differences between the two
Programs, remove unnecessary duplication of functions within SBA, and
establish one, unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. In addition, eliminating the
requirement that SBA approve every joint venture in connection with an
8(a) contract will greatly reduce the time required for 8(a) BD
Participants to come into and SBA to ensure compliance with SBA's joint
venture requirements.
SBA is also making several changes to clarify its regulations.
Through the years, SBA has spoken with small business and
representatives and has determined that several regulations need
further refinement so that they are easier to understand and implement.
This rule makes several changes to ensure that the rules pertaining to
SBA's various small business procurement programs are consistent. SBA
believes that making the programs as consistent and similar as
possible, where practicable, will make it easier for small businesses
to understand what is expected of them and to comply with those
requirements.
2. What is the baseline, and the incremental benefits and costs of this
regulatory action?
This rule seeks to address or clarify several issues, which will
provide clarity to small businesses and contracting personnel. Further,
SBA is eliminating the burden that 8(a) Participants seeking to be
awarded a competitive 8(a) contract as a joint venture must submit the
joint venture to SBA for review and approval prior to contract award.
There are currently approximately 4,500 8(a) BD Participants in the
portfolio. Of those, about 10 percent or roughly 450 Participants have
entered a joint venture agreement to seek the award of an 8(a)
contract. Under the current rules, SBA must approve the initial joint
venture agreement itself and each addendum to the joint venture
agreement--identifying the type of work and what percentage each
partner to the joint venture would perform of a specific 8(a)
procurement--prior to contract award. SBA reviews the terms of the
joint venture agreement for regulatory compliance and must also assess
the 8(a) BD Participant's capacity and whether the agreement is fair
and equitable and will be of substantial benefit to the 8(a) concern.
It is difficult to calculate the costs associated with submitting a
joint venture agreement to SBA because the review process is highly
fact-intensive and typically requires that 8(a) firms provide
additional information and clarification. However, in the Agency's best
professional judgment, it is estimated that an 8(a) Participant
currently spends approximately three hours submitting a joint venture
agreement to SBA and responding to questions regarding that submission.
That equates to approximately 1,350 hours at an estimated rate of
$44.06 per hour--the median wage plus benefits for accountants and
auditors according to 2018 data from the Bureau of Labor Statistics--
for an annual total cost savings to 8(a) Participants of about $59,500.
In addition to the initial joint venture review and approval process,
each joint venture can be awarded two more contracts which would
require additional submissions and explanations for any such joint
venture addendum. Not every joint venture is awarded more than one
contract, but those that do are often awarded the maximum allowed of
three contracts. SBA estimates that Participants submit an additional
300 addendum actions, with each action taking about 1.5 hours for the
Participant. That equates to approximately 450 hours at an estimated
rate of $44.06 per hour for an annual total cost savings to 8(a)
Participants of about $19,800. Between both initial and addendum
actions, this equates to an annual total cost savings to 8(a)
Participants of about $79,300.
In addition, merging the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program into the All Small Mentor-Prot[eacute]g[eacute] Program would
also provide cost savings. Firms seeking a mentor-prot[eacute]g[eacute]
relationship through the All Small Mentor-Prot[eacute]g[eacute] Program
apply through an on-line, electronic application system. 8(a)
Participants seeking SBA's approval of a mentor-prot[eacute]g[eacute]
relationship through the 8(a) BD
[[Page 66172]]
program do not apply through an on-line, electronic system, but rather
apply manually through their servicing SBA district office. In SBA's
best professional judgment, the additional cost for submitting a manual
mentor-prot[eacute]g[eacute] agreement to SBA for review and approval
and responding manually to questions regarding that submission is
estimated at two hours. SBA receives approximately 150 applications for
8(a) mentor-prot[eacute]g[eacute] relationships annually, which equates
to an annual savings to prospective prot[eacute]g[eacute] firms of
about 300 hours. At an estimated rate of $44.06 per hour, the annual
savings in costs related to the reduced time for mentor-
prot[eacute]g[eacute] applications through the All Small Mentor
Prot[eacute]g[eacute] process is about $13,000 per year. In a similar
vein, eliminating the manual review and approval process for 8(a) BD
Mentor-Prot[eacute]g[eacute] Program applications will provide cost
savings to the Federal government. As previously noted, an 8(a)
Participant seeking SBA's approval of a mentor-prot[eacute]g[eacute]
relationship through the 8(a) BD program must submit an application
manually to its servicing district office. The servicing district
office likewise conducts a manual review of each application for
completeness and for regulatory compliance. This review process can be
cumbersome since the analyst must first download and organize all
application materials by hand. In contrast, the on-line, electronic
application system available to prospective prot[eacute]g[eacute]s in
the All Small Mentor-Prot[eacute]g[eacute] Program has significantly
streamlined SBA's review process in two ways. First, it logically
organizes application materials for the reviewer, resulting in a more
efficient and consistent review of each application. Second, all
application materials are housed in a central document repository and
are accessible to the reviewer without the need to download files. In
the Agency's best professional judgment, this streamlined application
review process delivers estimated savings of 30 percent per application
as compared to the manual application review process under the 8(a) BD
Mentor-Prot[eacute]g[eacute] Program. SBA further estimates that it
takes approximately three hours to review an application for the All
Small Mentor Prot[eacute]g[eacute] Program. That equates to
approximately 135 hours (i.e., 150 applications multiplied by three
hours multiplied by 30 percent) at an estimated rate of $44.06 per hour
for an annual total cost savings to the Federal government of about
$5,900 per year. The elimination of manual application process creates
a total cost savings of $18,900 per year.
Moreover, eliminating the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program as a separate program and merging it with the All Small Mentor-
Prot[eacute]g[eacute] Program will eliminate confusion between the two
programs for firms seeking a mentor-prot[eacute]g[eacute] relationship.
When SBA first implemented the All Small Mentor-Prot[eacute]g[eacute]
Program, it intended to establish a program substantively identical to
the 8(a) BD Mentor-Prot[eacute]g[eacute] Program, as required by
Section 1641 of the NDAA of 2013. Nevertheless, feedback from the small
business community reveals a widespread misconception that the two
programs offer different benefits. By merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program into the All Small-Mentor
Prot[eacute]g[eacute] Program, firms will not have to read the
requirements for both programs and try to decipher perceived
differences. SBA estimates that having one combined program will
eliminate about one hour of preparation time for each firm seeking a
mentor-prot[eacute]g[eacute] relationship. Based on approximately 600
mentor-prot[eacute]g[eacute] applications each year (about 450 for the
All Small Mentor-Prot[eacute]g[eacute] Program and about 150 for the
8(a) BD Mentor-Prot[eacute]g[eacute] Program), this would equate to an
annual cost savings to prospective prot[eacute]g[eacute] firms of about
600 hours. At an estimated rate of $44.06 per hour, the annual savings
in costs related to the elimination of confusion caused by having two
separate programs is about $26,400.
Thus, in total, the merger of the 8(a) BD mentor-
prot[eacute]g[eacute] program into the All Small Business Mentor-
Prot[eacute]g[eacute] Program would provide a cost savings of about
$45,300 per year.
In addition, it generally takes between 60 and 90 days for SBA to
approve a mentor-prot[eacute]g[eacute] relationship through the 8(a) BD
program. Conversely, the average time it takes to approve a mentor-
prot[eacute]g[eacute] relationship through the All Small Mentor-
Prot[eacute]g[eacute] Program is about 20 working days. To firms
seeking to submit offers through a joint venture with their mentors,
this difference is significant. Such joint ventures are only eligible
for the regulatory exclusion from affiliation if they are formed after
SBA approves the underlying mentor-prot[eacute]g[eacute] relationship.
It follows that firms applying through the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program could miss out on contract opportunities
waiting for their mentor-prot[eacute]g[eacute] relationships to be
approved. These contract opportunity costs are inherently difficult to
measure, but are certainly significant to the firms missing out on
specific contract opportunities. However, in SBA's best judgment,
faster approval timeframes will mitigate such costs by giving program
participants more certainty in planning their proposal strategies.
This rule will also eliminate the requirement that any specific
joint venture can be awarded no more than three contracts over a two
year period, but will instead permit a joint venture to be awarded an
unlimited number of contracts over a two year period. The change
removing the limit of three awards to any joint venture will reduce the
burden of small businesses being required to form additional joint
venture entities to perform a fourth contract within that two-year
period. SBA has observed that joint ventures are often established as
separate legal entities--specifically as limited liability
corporations--based on considerations related to individual venture
liability, tax liability, regulatory requirements, and exit strategies.
Under the current rule, joint venture partners must form a new joint
venture entity after receiving three contracts lest they be deemed
affiliated for all purposes. The rule, which allows a joint venture to
continue to seek and be awarded contracts without requiring the
partners to form a new joint venture entity after receiving its third
contract, will save small businesses significant legal costs in
establishing new joint ventures and ensuring that those entities meet
all applicable regulatory requirements.
This rule also makes several changes to reduce the burden of
recertifying small business status generally and requesting changes of
ownership in the 8(a) BD program. Specifically, the rule clarifies that
a concern that is at least 51 percent owned by an entity (i.e., tribe,
ANC, or Community Development Corporation (CDC)) need not recertify its
status as a small business when the ownership of the concern changes to
or from a wholly-owned business concern of the same entity, as long as
the ultimate owner remains that entity. In addition, the rule also
provides that a Participant in SBA's 8(a) BD program that is owned by
an ANC or tribe need not request a change of ownership from SBA where
the ANC or tribe merely reorganizes its ownership of a Participant in
the 8(a) BD program by inserting or removing a wholly-owned business
entity between the ANC/tribe and the Participant. Both changes will
save entity-owned small business concerns time and money. Similarly,
the rule provides that prior SBA approval is not needed where the
disadvantaged individual (or entity) in control of a Participant in the
8(a) BD program will increase the percentage of his or her (its)
ownership interest.
[[Page 66173]]
The rule will also allow a concern that has been declined for 8(a)
BD program participation to submit a new application 90 days after the
date of the Agency's final decision to decline. This changes the
current rule which requires a concern to wait 12 months from the date
of the final Agency decision to reapply. This will allow firms that
have been declined from participating in the 8(a) BD program the
opportunity to correct deficiencies, come into compliance with program
eligibility requirements, reapply and be admitted to the program and
receive the benefits of the program much more quickly. SBA understands
that by reducing the re-application waiting period there is the
potential to strain the Agency's resources with higher application
volumes. In the Agency's best judgment, any costs associated with the
increase in application volume would be outweighed by the potential
benefit of providing business development assistance and contracting
benefits sooner to eligible firms.
This rule also clarifies SBA's position with respect to size and
socioeconomic status certifications on task orders under MACs.
Currently, size certifications at the order level are not required
unless the contracting officer, in his or her discretion, requests a
recertification in connection with a specific order. The rule requires
a concern to submit a recertification or confirm its size and/or
socioeconomic status for all set-aside orders (i.e., small business
set-aside, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned small business) under
unrestricted MACs, except for orders or Blanket Purchase Agreements
issued under any FSS contracts. Additionally, the rule requires a
concern to submit a recertification or confirm its socioeconomic status
for all set-aside orders where the required socioeconomic status for
the order differs from that of the underlying set aside MAC. The rule
does not require recertification, however, if the agency issues the
order under a pool or a reserve, and the pool or reserve already was
set aside in the same category as the order.
If the firm's size and status in SAM is current and accurate when
the firm submits its offer, the concern will not need to submit a new
certification or submit any additional documentation with its offer.
SBA recognizes that confirming accurate size and socioeconomic status
imposes a burden on a small business contract holder, but the burden is
minimal. SBA intends that confirmation of size and status under this
rule will be satisfied by confirming that the firm's size and status in
SAM is currently accurate and qualifies the firm for award.
FPDS-NG indicates that, in Fiscal Year 2019, agencies set aside
1,800 orders under unrestricted MACs, excluding orders under FSS
contracts. Agencies also set aside 15 pools or reserves using already-
established MACs other than FSS contracts. SBA adopts the assumption
from FAR Case 2014-002 that on average there are three offers per set-
aside order. SBA also assumes that agencies will award five orders from
each set-aside pool or set-aside reserve per year, using the same set-
aside category as the pool or reserve. These pool or reserve orders do
not require recertification at time of order; therefore, SBA subtracts
the pool or reserve orders from the number of orders subject to the
rule, leaving 1,725 orders subject to the rule.
The annual number of set-aside orders under unrestricted MACs,
excluding FSS orders and orders under set-aside pools or reserves,
therefore is calculated as 1,725 orders x 3 offers per order = 5,175.
The ease of complying with the rule varies depending on the size of a
firm. If the firm's size is not close to the size standard, compliance
is simple; the firm merely confirms that it has a SAM registration. SBA
estimates those firms spend 5 minutes per offer to comply with this
rule. For a firm whose size is close to the size standard, compliance
requires determining whether the firm presently qualifies for the set-
aside--primarily, whether the firm is presently a small business. SBA
adopts the estimate from OMB Control No. 9000-0163 that these firms
spend 30 minutes per offer to comply with this rule.
The share of small businesses that are within 10 percent of the
size standard is 1.3 percent. Therefore, the annual public burden of
requiring present size and socioeconomic status is (5,175 offers x 98.7
percent x 5 minutes x $44.06 cost per hour) + (5,175 offers x 1.3
percent x 30 minutes x $44.06 cost per hour) = $20,250.
FPDS-NG indicates that, in Fiscal Year 2019, agencies set aside
about 130 orders under set-aside MACs (other than FSS contracts) in the
categories covered by this rule. These categories are WOSB or EDWOSB
set-aside/sole-source orders under small business set-aside MACs;
SDVOSB set-aside/sole-source orders under small business set-aside
MACs; and HUBZone set-aside/sole source orders set-aside/sole-source
orders under small business set-aside MACs. The ease of complying on
these set-aside within set-asides varies depending on whether the firm
has had any of these recent actions: (i) An ownership change, (ii) a
corporate change that alters control of the firm, such as change in
bylaws or a change in corporate officers, or (iii) for the HUBZone
program, a change in the firm's HUBZone certification status under
SBA's recently revised HUBZone program procedures. Although data is not
available, SBA estimates that up to 25 percent of firms would have any
of those recent actions. Firms in that category will spend 30 minutes
per offer determining whether the firm presently qualifies for a set-
aside order. The remaining 75 percent of firms will spend 5 minutes
merely confirming that the firm has an active SAM registration.
Following the same calculations, the annual cost of requiring
present socioeconomic status on set-aside orders under set-aside MACs
is calculated as (130 orders x 3 offers/order x 75 percent x 5 minutes
x $44.06 cost per hour) + (130 orders x 3 offers/order x 25 percent x
30 minutes x $44.06 cost per hour). This amounts to an annual cost of
about $3,220.
As reflected in the calculation, SBA believes that being presently
qualified for the required size or socioeconomic status on an order,
where required, would impose a burden on small businesses. A concern
already is required by regulation to update its size and status
certifications in SAM at least annually. As such, the added burden to
industry is limited to confirming that the firm's certification is
current and accurate. The Federal Government, however, will receive
greater accuracy from renewed certification which will enhance
transparency in reporting and making awards.
The added burden to ordering agencies includes the act of checking
a firm's size and status certification in SAM at the time of order
award. Since ordering agencies are already familiar with checking SAM
information, such as to ensure that an order awardee is not debarred,
suspended, or proposed for debarment, this verification is minimal.
Further, checking SAM at the time of order award replaces the check of
the offeror's contract level certification. SBA also recognizes that an
agency's market research for the order level may be impacted where the
agency intends to issue a set-aside order under an unrestricted vehicle
(or a socioeconomic set-aside under a small business set-aside vehicle)
except under FSS contracts. The ordering agency may need to identify
MAC-eligible vendors and then find their status in SAM. This is
particularly the case where the agency is applying the Rule of Two and
verifying that there are at least two
[[Page 66174]]
small businesses or small businesses with the required status
sufficient to set aside the order. SBA does not believe that conducting
SAM research is onerous.
Using the same set-aside order data, the annual cost of checking
certifications and conducting additional market research efforts is
calculated as (1725 orders off unrestricted + 130 orders off set-
asides) x 30 minutes x $44.06/hours = $46,600 in annual government
burden.
Currently, recertification at the contract level for long term
contracts is specifically identified only at specific points. This rule
makes clear that a contracting officer has the discretion to request
size recertification as he or she deems appropriate at any point for a
long-term MAC. FPDS-NG indicates that, in Fiscal Year 2019, agencies
awarded 399 MACs to small businesses. SBA estimates that procuring
activities will use their discretion to request recertification at any
point in a long term contract approximately 10% of the time. SBA adopts
the estimate from OMB Control No. 9000-0163 that procuring activities
will spend 30 minutes to comply with this rule. The annual cost of
allowing recertification at any point on a long-term contract to
procuring activities is calculated as (399 MACs x 10%) x 30 minutes x
$44.06 cost per hour. This amounts to an estimated annual cost of $880.
Where requested, this recertification would impose a burden on small
businesses. Following this same calculation, SBA estimates that the
impact to firms will also be $880 ((399 number of MACs x 10%) x 30
minutes x $44.06 per hour). The total cost is $880 x 2 = $1,760.
The annual cost is partially offset by the cost savings that result
from other changes in this rule. This change goes more to
accountability and ensuring that small business contracting vehicles
truly benefit small business concerns. In addition, commenters
responding to the costs associated with recertification supported the
proposed rule that requires a firm to recertify its size and/or
socioeconomic status for set-aside task orders under unrestricted MACs.
These commenters agreed that certifying in the System for Award
Management (sam.gov) should meet this requirement.
3. What are the alternatives to this rule?
As noted above, this rule makes a number of changes intended to
reduce unnecessary or excessive burdens on small businesses, and
clarifies other regulatory provisions to eliminate confusion among
small businesses and procuring activities. SBA has also considered
other alternative proposals to achieve these ends. Concerning SBA's
role in approving 8(a) joint venture agreements, the Agency could also
eliminate the requirement that SBA must approve joint ventures in
connection with sole source 8(a) awards. However, as noted above, SBA
believes that such approval is an important enforcement mechanism to
ensure that the joint venture rules are followed. With respect to the
requirement that a concern must wait 90 days to re-apply to the 8(a) BD
program after the date of the Agency's final decline decision, SBA
could instead eliminate the application waiting period altogether. This
would allow a concern to re-apply as soon as it reasonably believed it
had overcome the grounds for decline. However, SBA believes that such
an alternative would encompass significant administrative burden on
SBA.
Under the rule, if an order under an unrestricted MAC is set-aside
exclusively for small business (i.e., small business set-aside, 8(a)
small business, service-disabled veteran-owned small business, HUBZone
small business, or women-owned small business), or the order is set
aside in a different category than was the set-aside MAC, a concern
must be qualified for the required size and socioeconomic status at the
time it submits its initial offer, which includes price, for the
particular order. In SBA's view, the order is the first time size or
socioeconomic status is important where the underlying MAC is
unrestricted or set aside in a different category than the set-aside
MAC, and therefore, that is the date at which eligibility should be
examined. SBA considered maintaining the status quo; namely, allowing a
one-time certification as to size and socioeconomic status (i.e., at
the time of the initial offer for the underlying contract) to control
all orders under the contract, unless one of recertification
requirements applies (see 121.404(g)). SBA believes the current policy
does not properly promote the interests of small business. Long-term
contracting vehicles that reward firms that once were, but no longer
qualify as, small or a particular socioeconomic status adversely affect
truly small or otherwise eligible businesses.
Another alternative is to require business concerns to notify
contracting agencies when there is a change to a concern's
socioeconomic status (e.g., HUBZone, WOSB, etc.), such that they would
no longer qualify for set-aside orders. The contracting agency would
then be required to issue a contract modification within 30 days, and
from that point forward, ordering agencies would no longer be able to
count options or orders issued pursuant to the contract for small
business goaling purposes. This could be less burdensome than
recertification of socioeconomic status for each set-aside order.
Summary of Costs and Cost Savings
Table 1: Summary of Incremental Costs and Cost Savings, below, sets
out the estimated net incremental cost/(cost saving) associated with
this rule. Table 2: Detailed Breakdown of Incremental Costs and Cost
Savings, below, provides a detailed explanation of the annual cost/
(cost saving) estimates associated with this rule. This rule is an E.O.
13771 deregulatory action. The annualized cost savings of this rule,
discounted at 7% relative to 2016 over a perpetual time horizon, is
$37,166 in 2016 dollars with a net present value of $530,947 in 2016
dollars.
Table 1--Summary of Incremental Costs and Cost Savings
----------------------------------------------------------------------------------------------------------------
Annual cost/ (cost saving)
Item No. Regulatory action item estimate
----------------------------------------------------------------------------------------------------------------
1............................. Eliminating SBA approval of initial and addendums to ($79,300)
joint venture agreements to perform competitive
8(a) contracts and eliminating approval for two
additional contracts which would require additional
submissions and explanations for any such joint
venture addendum.
2............................. Merging the 8(a) BD Mentor-Prot[eacute]g[eacute] (18,900)
Program into the All Small Mentor-
Prot[eacute]g[eacute] Program--Elimination of
manual application process.
3............................. Merging the 8(a) BD Mentor-Prot[eacute]g[eacute] (26,400)
Program into the All Small Mentor-
Prot[eacute]g[eacute] Program--Elimination of
confusion among firms seeking a mentor-
prot[eacute]g[eacute] relationship.
4............................. Requiring recertification for set-aside orders 20,250
issued under unrestricted Multiple Award Contracts.
[[Page 66175]]
5............................. Requiring recertification for set-aside orders 3,220
issued under set-aside Multiple Award Contracts.
6............................. Additional Government detailed market research to 46,600
identify qualified sources for set-aside orders and
verify status.
7............................. Contracting officer discretion to request size 1,760
recertification at any point for a long-term MAC.
----------------------------------------------------------------------------------------------------------------
Table 2--Detailed Breakdown of Incremental Costs and Cost Savings
----------------------------------------------------------------------------------------------------------------
Annual cost/ (cost saving)
Item No. Regulatory action item details estimate breakdown
----------------------------------------------------------------------------------------------------------------
1............................. Regulatory change: SBA is eliminating the burden
that 8(a) Participants seeking to be awarded an
8(a) contract as a joint venture must submit the
joint venture to SBA for review and approval prior
to contract award. In addition, each joint venture
can be awarded two more contracts which would
require additional submissions and explanations for
any such joint venture addendum.
Estimated number of impacted entities: There are 450 entities and 300
currently approximately 4,500 8(a) BD Participants additional addendums.
in the portfolio. Of those, about 10% or roughly
450 Participants have entered a joint venture
agreement to seek the award of an 8(a) contract.
There are approximately 300 addendums per year.
Estimated average impact * (labor hour): SBA 3 hours and 1.5 hours per
estimates that an 8(a) BD Participant currently additional addendum.
spends approximately three hours submitting a joint
venture agreement to SBA and responding to
questions regarding that submission. Each addendum
requires 1.5 hours of time.
2018 Median Pay ** (per hour): Most 8(a) firms use $44.06 per hour.
an accountant or someone with similar skills for
this task.
Estimated Cost/(Cost Saving)........................ ($79,300).
2............................. Regulatory change: SBA is merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program into the All Small
Mentor-Prot[eacute]g[eacute] Program and
eliminating the manual application process. This
will reduce the burden on 8(a) Participants seeking
a mentor-prot[eacute]g[eacute] agreement and on SBA
to no longer process paper applications.
Estimated number of impacted entities: SBA receives 150 entities.
approximately 150 applications for 8(a) mentor-
prot[eacute]g[eacute] relationships annually.
Estimated average impact * (labor hour): In SBA's 2 hours for applicants and
best professional judgment, the additional cost for less than 1 hour for SBA.
submitting a manual mentor-prot[eacute]g[eacute]
agreement to SBA for review and approval and
responding manually to questions regarding that
submission is estimated at two hours. For SBA
employees, reviewing the manual mentor-
prot[eacute]g[eacute] agreements takes 3 hours and
this change is expected to save SBA 30% of the time
required.
2018 Median Pay ** (per hour): Most 8(a) firms use 44.06 per hour.
an accountant or someone with similar skills for
this task..
Estimated Cost/(Cost Saving)........................ ($18,900).
3............................. Regulatory change: SBA is merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program into the All Small
Mentor-Prot[eacute]g[eacute] Program. In doing so,
firms will not have to read the requirements for
both programs and try to decipher any perceived
differences.
Estimated number of impacted entities: SBA receives 600 entities.
approximately 600 mentor-prot[eacute]g[eacute]
applications each year--about 450 for the All Small
Mentor-Prot[eacute]g[eacute] Program and about 150
for the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program.
Estimated average impact * (labor hour): SBA 1 hour.
estimates that having one combined program will
eliminate about one hour of preparation time for
each firm seeking a mentor-prot[eacute]g[eacute]
relationship.
2018 Median Pay ** (per hour): Most small business $44.06 per hour.
concerns use an accountant or someone with similar
skills for this task.
Estimated Cost/(Cost Saving)........................ ($26,400).
4............................. Regulatory change: SBA is requiring that a firm be
accurately certified and presently qualified as to
size and/or status for set-aside orders issued
under Multiple Award Contracts that were not set
aside or set aside in a separate category, except
for the Federal Supply Schedule.
Estimated number of impacted entities: Approximately 5,175 offers.
1,725 set-aside orders are issued annually on
Multiple Award Contracts that are not set aside in
the same category, including the Federal Supply
Schedule, outside of set-aside pools. SBA estimates
that three offers are submitted for each order.
Estimated average impact * (labor hour): SBA 0.5 hours for firms within
estimates that a small business that is close to 10 percent of size
its size standard will spend an average of 30 standard (1.3% of firms);
minutes confirming that size and status is accurate 5 minutes otherwise
prior to submitting an offer. A small business that (98.7% of firms).
is not close to its size standard will spend an
average of 5 minutes confirming that it has a SAM
registration.
2018 Median Pay ** (per hour): Most small business $44.06 per hour.
concerns use an accountant or someone with similar
skills for this task.
Estimated Cost/(Cost Saving)........................ $20,250.
5............................. Regulatory change: SBA is requiring that a firm be
accurately certified and presently qualified as to
socioeconomic status for set-aside orders issued
under Multiple Award Contracts that were set aside
in a separate category, except for the Federal
Supply Schedule contracts.
[[Page 66176]]
Estimated number of impacted entities: Approximately 390 offers.
130 set-aside orders are issued annually on
Multiple Award Contracts that are not set aside in
the same category, other than on the Federal Supply
Schedule, are affected by this rule. SBA estimates
that three offers are submitted for each order for
a total of 390 offers.
Estimated average impact * (labor hour): SBA 0.5 hours for firms with a
estimates that a small business will spend an change in ownership,
average of 30 minutes confirming that size and control, or HUBZone
status is accurate prior to submitting an offer, if certification (25% of
it has had a change in ownership, control, or firms); 5 minutes
certification. Otherwise, the small business will otherwise (75% of firms).
spend an average of 5 minutes confirming that it
has a SAM registration.
2018 Median Pay ** (per hour): Most small business $44.06 per hour.
concerns use an accountant or someone with similar
skills for this task.
Estimated Cost/(Cost Saving)........................ $3,220.
6............................. Regulatory change: SBA is requiring that firms be
accurately certified and presently qualified as to
size and socioeconomic status for certain set-aside
orders issued under Multiple Award Contracts,
except for the Federal Supply Schedule contracts.
This change impacts the market research required by
ordering activities to determine if a set-aside
order for small business or for any of the
socioeconomic programs may be pursued and whether
the awardee is qualified for award.
Estimated number of impacted entities: Approximately 2,115 orders.
2,115 set-aside orders are issued annually as
described in the rule.
Estimated average impact* (labor hour): SBA 0.5 hours.
estimates that ordering activities applying the
Rule of Two will spend an average of 30 additional
minutes to locate contractors awarded Multiple
Award Contracts, looking up the current business
size for each of the contractors in SAM to
determine if a set-aside order can be pursued, and
confirming the status of the awardee.
2018 Median Pay ** (per hour): Contracting officers $44.06 per hour.
typically perform the market research for the
acquisition plan.
Estimated Cost/(Cost Saving)........................ $46,600.
7............................. Regulatory Change: Contracting officer discretion to
request size recertification at any point for a
long-term MAC.
Estimated number of impacted entities: Approximately 40 contracts.
400 long term MACs are awarded annually to small
businesses. SBA estimates that contracting officers
will exercise this discretion 10% of the time.
Estimated average impact * (labor hour): SBA 0.5 hours for agencies;
estimates that ordering activities will spend an 0.5 hours for businesses.
average of 30 additional minutes to request this
recertification. Contractors will spend an average
of 30 additional minutes to respond to the request.
2018 Median Pay ** (per hour): Contracting officers $44.06.
will request this recertification.
Estimated Cost/(Cost Saving)........................ $1,760.
----------------------------------------------------------------------------------------------------------------
* This estimate is based on SBA's best professional judgment.
** Source: Bureau of Labor Statistics, Accountants and Auditors.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For the purposes of Executive Order 13132, SBA has determined that
this rule will not have substantial, direct effects on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government. Therefore, for the purpose of Executive Order 13132,
Federalism, SBA has determined that this rule has no federalism
implications warranting preparation of a federalism assessment.
Executive Order 13175
As part of this rulemaking process, SBA held tribal consultations
pursuant to Executive Order 13175, Tribal Consultations, in
Minneapolis, MN, Anchorage, AK, Albuquerque, NM and Oklahoma City, OK
to provide interested tribal representatives with an opportunity to
discuss their views on various 8(a) BD-related issues. See 84 FR 66647.
These consultations were in addition to those held by SBA in Anchorage,
AK (see 83 FR 17626), Albuquerque, NM (see 83 FR 24684), and Oklahoma
City, OK (see 83 FR 24684) before issuing a proposed rule. This
executive order reaffirms the Federal Government's commitment to tribal
sovereignty and requires Federal agencies to consult with Indian tribal
governments when developing policies that would impact the tribal
community. The purpose of the above-referenced tribal consultation
meetings was to provide interested parties with an opportunity to
discuss their views on the issues, and for SBA to obtain the views of
SBA's stakeholders on approaches to the 8(a) BD program regulations.
SBA has always considered tribal consultation meetings a valuable
component of its deliberations and believes that these tribal
consultation meetings allow for constructive dialogue with the Tribal
community, Tribal Leaders, Tribal Elders, elected members of Alaska
Native Villages or their appointed representatives, and principals of
tribally-owned and ANC-owned firms participating in the 8(a) BD
program.
In general, tribal stakeholders were supportive of SBA's intent to
implement changes that will make it easier for small business concerns
to understand and comply with the regulations
[[Page 66177]]
governing the 8(a) BD program, and agreed that this rulemaking will
make the program more effective and accessible to the small business
community. SBA received significant comments on its approaches to the
proposed regulatory changes, as well as several recommendations
regarding the 8(a) BD program not initially contemplated by this
planned rulemaking. SBA has taken these discussions into account in
drafting this final rule.
Executive Order 13563
This executive order directs agencies to, among other things: (a)
Afford the public a meaningful opportunity to comment through the
internet on proposed regulations, with a comment period that should
generally consist of not less than 60 days; (b) provide for an ``open
exchange'' of information among government officials, experts,
stakeholders, and the public; and (c) seek the views of those who are
likely to be affected by the rulemaking, even before issuing a notice
of proposed rulemaking. As far as practicable or relevant, SBA
considered these requirements in developing this rule, as discussed
below.
1. Did the agency use the best available techniques to quantify
anticipated present and future costs when responding to E.O. 12866
(e.g., identifying changing future compliance costs that might result
from technological innovation or anticipated behavioral changes)?
To the extent possible, the agency utilized the most recent data
available in the Federal Procurement Data System--Next Generation
(FPDS-NG), Dynamic Small Business Search (DSBS) and System for Award
Management (SAM).
2. Public participation: Did the agency: (a) Afford the public a
meaningful opportunity to comment through the internet on any proposed
regulation, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the public; (c)
provide timely online access to the rulemaking docket on
Regulations.gov; and (d) seek the views of those who are likely to be
affected by rulemaking, even before issuing a notice of proposed
rulemaking?
The proposed rule initially called for a 70-day comment period,
with comments required to be made to SBA by January 17, 2020. SBA
received several comments in the first few weeks after the publication
to extend the comment period. Commenters felt that the nature of the
issues raised in the rule and the timing of comments during the holiday
season required more time for affected businesses to adequately review
the proposal and prepare their comments. In response to these comments,
SBA published a notice in the Federal Register on January 10, 2020,
extending the comment period an additional 21 days to February 7, 2020.
85 FR 1289. All comments received were posted on www.regulations.gov to
provide transparency into the rulemaking process. In addition, SBA
submitted the final rule to the Office of Management and Budget for
interagency review.
3. Flexibility: Did the agency identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public?
Yes, the rule is intended to reduce unnecessary or excessive
burdens on 8(a) Participants, and clarify other regulatory-related
provisions to eliminate confusion among small businesses and procuring
activities.
Executive Order 13771
This rule is an E.O. 13771 deregulatory action. The annualized cost
savings of this rule is $37,166 in 2016 dollars with a net present
value of $530,947 over perpetuity, in 2016 dollars. A detailed
discussion of the estimated cost of this proposed rule can be found in
the above Regulatory Impact Analysis.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
This rule imposes additional reporting or recordkeeping
requirements under the Paperwork Reduction Act, 44 U.S.C. Chapter 35.
The rule provides a number of size and/or socioeconomic status
recertification requirements for set-aside orders under MACs. The
annual total public reporting burden for this collection of information
is estimated to be 82 total hours ($3,625), including the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing information reporting.
Respondents: 165.
Responses per respondent: 1.
Total annual responses: 165.
Preparation hours per response: 0.5 (30 min).
Total response burden hours: 82.
Cost per hour: $44.06.
Estimated cost burden to the public: $3,625.
Additionally, the rule adds procuring agency discretion to request
recertification at any point for long term MACs. The annual total
public reporting burden for this collection of information is estimated
to be 20 total hours ($880), including the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing information reporting.
Respondents: 40.
Responses per respondent: 1.
Total annual responses: 40.
Preparation hours per response: 0.5 (30 min).
Total response burden hours: 20.
Cost per hour: $44.06.
Estimated cost burden to the public: $880.This added information
collection burden will be officially reflected through OMB Control
Number 9000-0163 when the rule is implemented. SBA received no comments
on the PRA analysis set forth in the proposed rule.
SBA also has an information collection for the Mentor-
Prot[eacute]g[eacute] Program, OMB Control Number 3245-0393. This
collection is not affected by these amendments.
Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA) requires administrative
agencies to consider the effect of their actions on small entities,
small non-profit enterprises, and small local governments. Pursuant to
the RFA, when an agency issues a rulemaking, the agency must prepare a
regulatory flexibility analysis which describes the impact of the rule
on small entities. However, section 605 of the RFA allows an agency to
certify a rule, in lieu of preparing an analysis, if the rulemaking is
not expected to have a significant economic impact on a substantial
number of small entities. The RFA defines ``small entity'' to include
``small businesses,'' ``small organizations,'' and ``small governmental
jurisdictions.''
This rule concerns aspects of SBA's 8(a) BD program, the All Small
Mentor-Prot[eacute]g[eacute] Program, and various other small business
programs. As such, the rule relates to small business concerns but
would not affect ``small organizations'' or ``small governmental
jurisdictions'' because those programs generally apply only to
``business concerns'' as defined by SBA regulations, in other words, to
small businesses organized for profit. ``Small organizations'' or
``small governmental jurisdictions'' are non-profits or governmental
entities and do not generally qualify as ``business concerns''
[[Page 66178]]
within the meaning of SBA's regulations.
There are currently approximately 4,500 8(a) BD Participants in the
portfolio. Most of the changes are clarifications of current policy or
designed to reduce unnecessary or excessive burdens on 8(a) BD
Participants and therefore should not impact many of these concerns.
There are about 385 Participants with 8(a) BD mentor-
prot[eacute]g[eacute] agreements and about another 850 small businesses
that have SBA-approved mentor-prot[eacute]g[eacute] agreements through
the All Small Mentor-Prot[eacute]g[eacute] Program. The consolidation
of SBA's two mentor-prot[eacute]g[eacute] programs into one program
will not have a significant economic impact on small businesses. In
fact, it should have no affect at all on those small businesses that
currently have or on those that seek to have an SBA-approved mentor-
prot[eacute]g[eacute] relationship. The rule eliminates confusion
regarding perceived differences between the two Programs, removes
unnecessary duplication of functions within SBA, and establishes one
unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. The benefits of the two programs
are identical, and will not change under the rule.
SBA is also requiring a business to be qualified for the required
size and status when under consideration for a set-aside order off a
MAC that was awarded outside of the same set-aside category. Pursuant
to the Small Business Goaling Report (SBGR) Federal Procurement Data
System--Next Generation (FPDS-NG) records, about 236,000 new orders
were awarded under MACs per year from FY 2014 to FY 2018. Around
199,000, or 84.3 percent, were awarded under MACs established without a
small business set aside. For this analysis, small business set-asides
include all total or partial small business set-asides, and all 8(a),
WOSB, SDVOSB, and HUBZone awards. There were about 9,000 new orders
awarded annually with a small business set-aside under unrestricted
MACs. These orders were issued to approximately 2,600 firms. The 9,000
new orders awarded with a small business set-aside under a MAC without
a small business set aside were 4.0 percent of the 236,000 new orders
under MACs in a year (Table 3).
Table 3--0.47% of New MAC Orders in a FY Are Non-FSS Orders Set Aside for Small Business Where Underlying Base Contract Not Set Aside for Small Business
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY014 FY015 FY016 FY017 FY018 AVG
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total new orders under MACs in FY....................... 244,664 231,694 245,978 234,304 223,861 236,100
Orders awarded with SB set aside under unrestricted MAC. 10,089 9,347 9,729 9,198 8,666 9,406
Non-FSS orders awarded with SB set aside without MAC IDV 902 780 1,019 1,422 1,400 1,105
SB set aside...........................................
Percent................................................. 0.37 0.34 0.41 0.61 0.63 0.47
--------------------------------------------------------------------------------------------------------------------------------------------------------
If all firms receiving a non-FSS small business set-aside order
under a MAC that was not itself set aside for small business were
adversely affected by the rule (i.e., every such firm receiving an
award as a small business had grown to be other than a small business
or no longer qualified as 8(a), WOSB, SDVO, or HUBZone), the rule
requiring a business to be certified as small for non-FSS small
business set-aside orders under MACs not set aside for small business
would impact only 0.47 percent of annual new MAC orders. The proposed
rule sought comments as to whether the rule would have a significant
economic impact on a substantial number of small entities. SBA did not
receive any comments responding to such request. As such, SBA certifies
that this rule will not have a significant economic impact on a
substantial number of small entities. Nevertheless, throughout the
supplementary information to this proposed rule, SBA has identified the
reasons why the changes are being made, the objectives and basis for
the rule, a description of the number of small entities to which the
rule will apply, and a description of alternatives considered.
List of Subjects
13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Small businesses.
13 CFR Part 124
Administrative practice and procedure, Government procurement,
Government property, Small businesses.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Penalties, Reporting and recordkeeping requirements, Small businesses.
13 CFR Part 127
Government contracts, Reporting and recordkeeping requirements,
Small businesses.
13 CFR Part 134
Administrative practice and procedure, Claims, Equal employment
opportunity, Lawyers, Organization and functions (Government agencies).
Accordingly, for the reasons stated in the preamble, SBA amends 13
CFR parts 121, 124, 125, 126, 127, and 134 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and
694a(9); Pub. L. 116-136, Section 1114.
0
2. Amend Sec. 121.103 by:
0
a. Revising the first sentence of paragraphs (b)(6) and (9);
0
b. Revising paragraph (f)(2)(i) and Example 2 to paragraph (f);
0
c. Revising the first sentence of paragraph (g);
0
d. Revising paragraph (h) introductory text and Examples 1, 2, and 3 to
paragraph (h) introductory text;
0
e. Removing paragraphs (h)(1) and (h)(2);
0
f. Redesignating paragraphs (h)(3) through (h)(5) as paragraphs (h)(1)
through (h)(3), respectively;
0
g. Revising the paragraph heading for the newly redesignated paragraph
(h)(1) and adding two sentences to the end of newly redesignated
paragraph (h)(1)(ii);
[[Page 66179]]
0
h. Removing newly redesignated paragraph (h)(1)(iii);
0
i. Adding a paragraph heading for redesignated paragraph (h)(2);
0
j. Revising newly redesignated paragraph (h)(3); and
0
k. Adding paragraph (h)(4).
The revisions and additions read as follows:
Sec. 121.103 How does SBA determine affiliation?
* * * * *
(b) * * *
(6) A firm that has an SBA-approved mentor-prot[eacute]g[eacute]
agreement authorized under Sec. 125.9 of this chapter is not
affiliated with its mentor or prot[eacute]g[eacute] firm solely because
the prot[eacute]g[eacute] firm receives assistance from the mentor
under the agreement. * * *
* * * * *
(9) In the case of a solicitation for a bundled contract or a
Multiple Award Contract with a value in excess of the agency's
substantial bundling threshold, a small business contractor may enter
into a Small Business Teaming Arrangement with one or more small
business subcontractors and submit an offer as a small business without
regard to affiliation, so long as each team member is small for the
size standard assigned to the contract or subcontract. * * *
* * * * *
(f) * * *
(2) * * *
(i) This presumption may be rebutted by a showing that despite the
contractual relations with another concern, the concern at issue is not
solely dependent on that other concern, such as where the concern has
been in business for a short amount of time and has only been able to
secure a limited number of contracts or where the contractual relations
do not restrict the concern in question from selling the same type of
products or services to another purchaser.
* * * * *
Example 2 to paragraph (f). Firm A has been in business for five
years and has approximately 200 contracts. Of those contracts, 195 are
with Firm B. The value of Firm A's contracts with Firm B is greater
than 70% of its revenue over the previous three years. Unless Firm A
can show that its contractual relations with Firm B do not restrict it
from selling the same type of products or services to another
purchaser, SBA would most likely find the two firms affiliated.
(g) Affiliation based on the newly organized concern rule. Except
as provided in Sec. 124.109(c)(4)(iii), affiliation may arise where
former or current officers, directors, principal stockholders, managing
members, or key employees of one concern organize a new concern in the
same or related industry or field of operation, and serve as the new
concern's officers, directors, principal stockholders, managing
members, or key employees, and the one concern is furnishing or will
furnish the new concern with contracts, financial or technical
assistance, indemnification on bid or performance bonds, and/or other
facilities, whether for a fee or otherwise. * * *
(h) Affiliation based on joint ventures. A joint venture is an
association of individuals and/or concerns with interests in any degree
or proportion intending to engage in and carry out business ventures
for joint profit over a two year period, for which purpose they combine
their efforts, property, money, skill, or knowledge, but not on a
continuing or permanent basis for conducting business generally. This
means that a specific joint venture entity generally may not be awarded
contracts beyond a two-year period, starting from the date of the award
of the first contract, without the partners to the joint venture being
deemed affiliated for the joint venture. Once a joint venture receives
a contract, it may submit additional offers for a period of two years
from the date of that first award. An individual joint venture may be
awarded one or more contracts after that two-year period as long as it
submitted an offer including price prior to the end of that two-year
period. SBA will find joint venture partners to be affiliated, and thus
will aggregate their receipts and/or employees in determining the size
of the joint venture for all small business programs, where the joint
venture submits an offer after two years from the date of the first
award. The same two (or more) entities may create additional joint
ventures, and each new joint venture entity may submit offers for a
period of two years from the date of the first contract to the joint
venture without the partners to the joint venture being deemed
affiliates. At some point, however, such a longstanding inter-
relationship or contractual dependence between the same joint venture
partners will lead to a finding of general affiliation between and
among them. A joint venture: Must be in writing; must do business under
its own name and be identified as a joint venture in the System for
Award Management (SAM) for the award of a prime contract; may be in the
form of a formal or informal partnership or exist as a separate limited
liability company or other separate legal entity; and, if it exists as
a formal separate legal entity, may not be populated with individuals
intended to perform contracts awarded to the joint venture (i.e., the
joint venture may have its own separate employees to perform
administrative functions, including one or more Facility Security
Officer(s), but may not have its own separate employees to perform
contracts awarded to the joint venture). SBA may also determine that
the relationship between a prime contractor and its subcontractor is a
joint venture pursuant to paragraph (h)(4) of this section. For
purposes of this paragraph (h), contract refers to prime contracts,
novations of prime contracts, and any subcontract in which the joint
venture is treated as a similarly situated entity as the term is
defined in part 125 of this chapter.
Example 1 to paragraph (h) introductory text. Joint Venture AB
receives a contract on April 2, year 1. Joint Venture AB may receive
additional contracts through April 2, year 3. On June 6, year 2, Joint
Venture AB submits an offer for Solicitation 1. On July 13, year 2,
Joint Venture AB submits an offer for Solicitation 2. On May 27, year
3, Joint Venture AB is found to be the apparent successful offeror for
Solicitation 1. On July 22, year 3, Joint Venture AB is found to be the
apparent successful offeror for Solicitation 2. Even though the award
of the two contracts emanating from Solicitations 1 and 2 would occur
after April 2, year 3, Joint Venture AB may receive those awards
without causing general affiliation between its joint venture partners
because the offers occurred prior to the expiration of the two-year
period.
Example 2 to paragraph (h) introductory text. Joint Venture XY
receives a contract on August 10, year 1. It may receive two additional
contracts through August 10, year 3. On March 19, year 2, XY receives a
second contract. It receives no other contract awards through August
10, year 3 and has submitted no additional offers prior to August 10,
year 3. Because two years have passed since the date of the first
contract award, after August 10, year 3, XY cannot receive an
additional contract award. The individual parties to XY must form a new
joint venture if they want to seek and be awarded additional contracts
as a joint venture.
Example 3 to paragraph (h) introductory text. Joint Venture XY
receives a contract on December 15, year 1. On May 22, year 3 XY
submits an offer for Solicitation S. On December 8, year 3, XY submits
a novation package for contracting officer approval for
[[Page 66180]]
Contract C. In January, year 4 XY is found to be the apparent
successful offeror for Solicitation S and the relevant contracting
officer seeks to novate Contract C to XY. Because both the offer for
Solicitation S and the novation package for Contract C were submitted
prior to December 15 year 3, both contract award relating to
Solicitation S and novation of Contract C may occur without a finding
of general affiliation.
(1) Size of joint ventures. (i) * * *
(ii) * * * Except for sole source 8(a) awards, the joint venture
must meet the requirements of Sec. 124.513(c) and (d), Sec. 125.8(b)
and (c), Sec. 125.18(b)(2) and (3), Sec. 126.616(c) and (d), or Sec.
127.506(c) and (d) of this chapter, as appropriate, at the time it
submits its initial offer including price. For a sole source 8(a)
award, the joint venture must demonstrate that it meets the
requirements of Sec. 124.513(c) and (d) prior to the award of the
contract.
* * * * *
(2) Ostensible subcontractors. * * *
(3) Receipts/employees attributable to joint venture partners. For
size purposes, a concern must include in its receipts its proportionate
share of joint venture receipts, unless the proportionate share already
is accounted for in receipts reflecting transactions between the
concern and its joint ventures (e.g., subcontracts from a joint venture
entity to joint venture partners). In determining the number of
employees, a concern must include in its total number of employees its
proportionate share of joint venture employees. For the calculation of
receipts, the appropriate proportionate share is the same percentage of
receipts or employees as the joint venture partner's percentage share
of the work performed by the joint venture. For the calculation of
employees, the appropriate share is the same percentage of employees as
the joint venture partner's percentage ownership share in the joint
venture, after first subtracting any joint venture employee already
accounted for in one of the partner's employee count.
Example 1 to paragraph (h)(3). Joint Venture AB is awarded a
contract for $10M. The joint venture will perform 50% of the work, with
A performing $2M (40% of the 50%, or 20% of the total value of the
contract) and B performing $3M (60% of the 50% or 30% of the total
value of the contract). Since A will perform 40% of the work done by
the joint venture, its share of the revenues for the entire contract is
40%, which means that the receipts from the contract awarded to Joint
Venture AB that must be included in A's receipts for size purposes are
$4M. A must add $4M to its receipts for size purposes, unless its
receipts already account for the $4M in transactions between A and
Joint Venture AB.
(4) Facility security clearances. A joint venture may be awarded a
contract requiring a facility security clearance where either the joint
venture itself or the individual partner(s) to the joint venture that
will perform the necessary security work has (have) a facility security
clearance.
(i) Where a facility security clearance is required to perform
primary and vital requirements of a contract, the lead small business
partner to the joint venture must possess the required facility
security clearance.
(ii) Where the security portion of the contract requiring a
facility security clearance is ancillary to the principal purpose of
the procurement, the partner to the joint venture that will perform
that work must possess the required facility security clearance.
* * * * *
0
3. Amend Sec. 121.402 by revising the first sentence of paragraph
(b)(2), and paragraphs (c)(1)(i), (c)(2)(i), and (e) to read as
follows:
Sec. 121.402 What size standards are applicable to Federal Government
Contracting programs?
* * * * *
(b) * * *
(2) A procurement is generally classified according to the
component which accounts for the greatest percentage of contract value.
* * *
(c) * * *
(1) * * *
(i) Assign the solicitation a single NAICS code and corresponding
size standard which best describes the principal purpose of the
acquisition as set forth in paragraph (b) of this section, only if the
NAICS code will also best describe the principal purpose of each order
to be placed under the Multiple Award Contract; or
* * * * *
(2) * * *
(i) The contracting officer must assign a single NAICS code for
each order issued against a Multiple Award Contract. The NAICS code
assigned to an order must be a NAICS code included in the underlying
Multiple Award Contract. When placing an order under a Multiple Award
Contract with multiple NAICS codes, the contracting officer must assign
the NAICS code and corresponding size standard that best describes the
principal purpose of each order. In cases where an agency can issue an
order against multiple SINs with different NAICS codes, the contracting
officer must select the single NAICS code that best represents the
acquisition. If the NAICS code corresponding to the principal purpose
of the order is not contained in the underlying Multiple Award
Contract, the contracting officer may not use the Multiple Award
Contract to issue that order.
* * * * *
(e) When a NAICS code designation or size standard in a
solicitation is unclear, incomplete, missing, or prohibited, SBA may
clarify, complete, or supply a NAICS code designation or size standard,
as appropriate, in connection with a formal size determination or size
appeal.
* * * * *
0
4. In Sec. 121.404:
0
a. Amend paragraph (a) by:
0
i. Revising paragraphs (a) introductory text and (a)(1); and
0
ii. Adding a paragraph heading to paragraph (a)(2);
0
b. Revising paragraph (b);
0
c. Adding a paragraph heading to paragraph (c);
0
d. Revising paragraph (d);
0
e. Adding a paragraph heading to paragraph (e) and a sentence at the
end of the paragraph;
0
f. Adding a paragraph heading to paragraph (f);
0
g. Amend paragraph (g) by:
0
i. Redesignating paragraph (g)(2)(ii)(D) as paragraph (g)(2)(iii);
0
ii. Revising paragraphs (g) introductory text, (g)(2)(ii)(C) and newly
redesignated paragraph(g)(2)(iii); and
0
iii. Adding paragraph (g)(2)(iv) and a new third sentence to paragraph
(g)(3) introductory text; and
0
h. Adding a paragraph heading to paragraph (h).
The additions and revisions read as follows:
Sec. 121.404 When is the size status of a business concern
determined?
(a) Time of size--(1) Multiple award contracts. With respect to
Multiple Award Contracts, orders issued against a Multiple Award
Contract, and Blanket Purchase Agreements issued against a Multiple
Award Contract:
(i) Single NAICS. If a single NAICS code is assigned as set forth
in Sec. 121.402(c)(1)(i), SBA determines size status for the
underlying Multiple Award Contract at the time of initial offer (or
other formal response to a solicitation), which includes price, based
upon the size standard set forth in the solicitation for the Multiple
Award Contract, unless the concern was
[[Page 66181]]
required to recertify under paragraph (g)(1), (2), or (3) of this
section.
(A) Unrestricted Multiple Award Contracts. For an unrestricted
Multiple Award Contract, if a business concern (including a joint
venture) is small at the time of offer and contract-level
recertification for the Multiple Award Contract, it is small for
goaling purposes for each order issued against the contract, unless a
contracting officer requests a size recertification for a specific
order or Blanket Purchase Agreement. Except for orders and Blanket
Purchase Agreements issued under any Federal Supply Schedule contract,
if an order or a Blanket Purchase Agreement under an unrestricted
Multiple Award Contract is set-aside exclusively for small business
(i.e., small business set-aside, 8(a) small business, service-disabled
veteran-owned small business, HUBZone small business, or women-owned
small business), a concern must recertify its size status and qualify
as a small business at the time it submits its initial offer, which
includes price, for the particular order or Blanket Purchase Agreement.
However, where the underlying Multiple Award Contract has been awarded
to a pool of concerns for which small business status is required, if
an order or a Blanket Purchase Agreement under that Multiple Award
Contract is set-aside exclusively for concerns in the small business
pool, concerns need not recertify their status as small business
concerns (unless a contracting officer requests size certifications
with respect to a specific order or Blanket Purchase Agreement).
(B) Set-aside Multiple Award Contracts. For a Multiple Award
Contract that is set aside for small business (i.e., small business
set-aside, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned small business), if a
business concern (including a joint venture) is small at the time of
offer and contract-level recertification for the Multiple Award
Contract, it is small for each order or Blanket Purchase Agreement
issued against the contract, unless a contracting officer requests a
size recertification for a specific order or Blanket Purchase
Agreement.
(ii) Multiple NAICS. If multiple NAICS codes are assigned as set
forth in Sec. 121.402(c)(1)(ii), SBA determines size status at the
time a business concern submits its initial offer (or other formal
response to a solicitation) which includes price for a Multiple Award
Contract based upon the size standard set forth for each discrete
category (e.g., CLIN, SIN, Sector, FA or equivalent) for which the
business concern submits an offer and represents that it qualifies as
small for the Multiple Award Contract, unless the business concern was
required to recertify under paragraph (g)(1), (2), or (3) of this
section. If the business concern (including a joint venture) submits an
offer for the entire Multiple Award Contract, SBA will determine
whether it meets the size standard for each discrete category (CLIN,
SIN, Sector, FA or equivalent).
(A) Unrestricted Multiple Award Contracts. For an unrestricted
Multiple Award Contract, if a business concern (including a joint
venture) is small at the time of offer and contract-level
recertification for discrete categories on the Multiple Award Contract,
it is small for goaling purposes for each order issued against any of
those categories, unless a contracting officer requests a size
recertification for a specific order or Blanket Purchase Agreement.
Except for orders or Blanket Purchase Agreements issued under any
Federal Supply Schedule contract, if an order or Blanket Purchase
Agreement for a discrete category under an unrestricted Multiple Award
Contract is set-aside exclusively for small business (i.e., small
business set, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned small business), a
concern must recertify its size status and qualify as a small business
at the time it submits its initial offer, which includes price, for the
particular order or Agreement. However, where the underlying Multiple
Award Contract for discrete categories has been awarded to a pool of
concerns for which small business status is required, if an order or a
Blanket Purchase Agreement under that Multiple Award Contract is set-
aside exclusively for concerns in the small business pool, concerns
need not recertify their status as small business concerns (unless a
contracting officer requests size certifications with respect to a
specific order or Blanket Purchase Agreement).
(B) Set-aside Multiple Award Contracts. For a Multiple Award
Contract that is set aside for small business (i.e., small business
set-aside, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned small business), if a
business concern (including a joint venture) is small at the time of
offer and contract-level recertification for discrete categories on the
Multiple Award Contract, it is small for each order or Agreement issued
against any of those categories, unless a contracting officer requests
a size recertification for a specific order or Blanket Purchase.
(iii) SBA will determine size at the time of initial offer (or
other formal response to a solicitation), which includes price, for an
order or Agreement issued against a Multiple Award Contract if the
contracting officer requests a new size certification for the order or
Agreement.
(2) Agreements. * * *
(b) Eligibility for SBA programs. A concern applying to be
certified as a Participant in SBA's 8(a) Business Development program
(under part 124, subpart A, of this chapter), as a HUBZone small
business (under part 126 of this chapter), or as a women-owned small
business concern (under part 127 of this chapter) must qualify as a
small business for its primary industry classification as of the date
of its application and, where applicable, the date the SBA program
office requests a formal size determination in connection with a
concern that otherwise appears eligible for program certification.
(c) Certificates of competency. * * *
(d) Nonmanufacturer rule, ostensible subcontractor rule, and joint
venture agreements. Size status is determined as of the date of the
final proposal revision for negotiated acquisitions and final bid for
sealed bidding for the following purposes: compliance with the
nonmanufacturer rule set forth in Sec. 121.406(b)(1), the ostensible
subcontractor rule set forth in Sec. 121.103(h)(4), and the joint
venture agreement requirements in Sec. 124.513(c) and (d), Sec.
125.8(b) and (c), Sec. 125.18(b)(2) and (3), Sec. 126.616(c) and (d),
or Sec. 127.506(c) and (d) of this chapter, as appropriate.
(e) Subcontracting. * * * A prime contractor may rely on the self-
certification of subcontractor provided it does not have a reason to
doubt the concern's self-certification.
(f) Two-step procurements. * * *
(g) Effect of size certification and recertification. A concern
that represents itself as a small business and qualifies as small at
the time it submits its initial offer (or other formal response to a
solicitation) which includes price is generally considered to be a
small business throughout the life of that contract. Similarly, a
concern that represents itself as a small business and qualifies as
small after a required recertification under paragraph (g)(1), (2), or
(3) of this section is generally considered to be a small business
until throughout the life of that contract. Where a concern grows to be
other than small, the procuring agency may exercise options and still
count the award as an award to a small business,
[[Page 66182]]
except that a required recertification as other than small under
paragraph (g)(1), (2), or (3) of this section changes the firm's status
for future options and orders. The following exceptions apply to this
paragraph (g):
* * * * *
(2) * * *
(ii) * * *
(C) In the context of a joint venture that has been awarded a
contract or order as a small business, from any partner to the joint
venture that has been acquired, is acquiring, or has merged with
another business entity.
(iii) If the merger, sale or acquisition occurs after offer but
prior to award, the offeror must recertify its size to the contracting
officer prior to award. If the merger, sale or acquisition (including
agreements in principal) occurs within 180 days of the date of an offer
and the offeror is unable to recertify as small, it will not be
eligible as a small business to receive the award of the contract. If
the merger, sale or acquisition (including agreements in principal)
occurs more than 180 days after the date of an offer, award can be
made, but it will not count as an award to small business.
(iv) Recertification is not required when the ownership of a
concern that is at least 51% owned by an entity (i.e., tribe, Alaska
Native Corporation, or Community Development Corporation) changes to or
from a wholly-owned business concern of the same entity, as long as the
ultimate owner remains that entity.
Example 1 to paragraph (g)(2)(iii). Indian Tribe X owns 100% of
small business ABC. ABC wins an award for a small business set-aside
contract. In year two of contract performance, X changes the ownership
of ABC so that X owns 100% of a holding company XYZ, Inc., which in
turn owns 100% of ABC. This restructuring does not require ABC to
recertify its status as a small business because it continues to be
100% owned (indirectly rather than directly) by Indian Tribe X.
(3) * * * A contracting officer may also request size
recertification, as he or she deems appropriate, prior to the 120-day
point in the fifth year of a long-term multiple award contract. * * *
* * * * *
(h) Follow-on contracts. * * *
Sec. 121.406 [Amended]
0
5. Amend Sec. 121.406 by removing the word ``provided'' and adding in
its place the word ``provide'' in paragraph (a) introductory text.
0
6. Amend Sec. 121.603 by adding paragraph (c)(3) to read as follows:
Sec. 121.603 How does SBA determine whether a Participant is small
for a particular 8(a) BD subcontract?
* * * * *
(c) * * *
(3) Recertification is not required when the ownership of a concern
that is at least 51% owned by an entity (i.e., tribe, Alaska Native
Corporation, or Community Development Corporation) changes to or from a
wholly-owned business concern of the same entity, as long as the
ultimate owner remains that entity.
* * * * *
0
7. Amend Sec. 121.702 by revising paragraph (c)(6) to read as follows:
Sec. 121.702 What size and eligibility standards are applicable to
the SBIR and STTR programs?
* * * * *
(c) * * *
(6) Size requirement for joint ventures. Two or more small business
concerns may submit an application as a joint venture. The joint
venture will qualify as small as long as each concern is small under
the size standard for the SBIR program, found at Sec. 121.702(c), or
the joint venture meets the exception at Sec. 121.103(h)(3)(ii) for
two firms approved to be a mentor and prot[eacute]g[eacute] under SBA's
All Small Mentor-Prot[eacute]g[eacute] Program.
* * * * *
0
8. Amend Sec. 121.1001 by revising paragraphs (a)(1)(iii),
(a)(2)(iii), (a)(3)(iv), (a)(4)(iii), (a)(6)(iv), (a)(7)(iii),
(a)(8)(iv), (a)(9)(iv), (b)(7), and (b)(12) to read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal
size determination?
(a) * * *
(1) * * *
(iii) The SBA Government Contracting Area Director having
responsibility for the area in which the headquarters of the protested
offeror is located, regardless of the location of a parent company or
affiliates, the Director, Office of Government Contracting, or the
Associate General Counsel for Procurement Law; and
* * * * *
(2) * * *
(iii) The SBA District Director, or designee, in either the
district office serving the geographical area in which the procuring
activity is located or the district office that services the apparent
successful offeror, the Associate Administrator for Business
Development, or the Associate General Counsel for Procurement Law.
(3) * * *
(iv) The responsible SBA Government Contracting Area Director or
the Director, Office of Government Contracting, or the SBA's Associate
General Counsel for Procurement Law; and
* * * * *
(4) * * *
(iii) The responsible SBA Government Contracting Area Director; the
Director, Office of Government Contracting; the Associate
Administrator, Investment Division, or the Associate General Counsel
for Procurement Law.
* * * * *
(6) * * *
(iv) The SBA Director, Office of HUBZone, or designee, or the SBA
Associate General Counsel for Procurement Law.
(7) * * *
(iii) The responsible SBA Government Contracting Area Director, the
Director, Office of Government Contracting, the Associate Administrator
for Business Development, or the Associate General Counsel for
Procurement Law.
(8) * * *
(iv) The Director, Office of Government Contracting, or designee,
or the Associate General Counsel for Procurement Law.
(9) * * *
(iv) The Director, Office of Government Contracting, or designee,
or the Associate General Counsel for Procurement Law.
(b) * * *
(7) In connection with initial or continued eligibility for the
WOSB program, the following may request a formal size determination:
(i) The applicant or WOSB/EDWOSB; or
(ii) The Director of Government Contracting or the Deputy Director,
Program and Resource Management, for the Office of Government
Contracting.
* * * * *
(12) In connection with eligibility for the SDVO program, the
following may request a formal size determination:
(i) The SDVO business concern; or
(ii) The Director of Government Contracting or designee.
* * * * *
0
9. Amend Sec. 121.1004 by revising paragraph (a)(2)(ii) and adding
paragraph (a)(2)(iii) to read as follows:
Sec. 121.1004 What time limits apply to size protests?
(a) * * *
(2) * * *
(ii) An order issued against a Multiple Award Contract if the
contracting officer requested a size recertification in connection with
that order; or
(iii) Except for orders or Blanket Purchase Agreements issued under
any
[[Page 66183]]
Federal Supply Schedule contract, an order or Blanket Purchase
Agreement set-aside for small business (i.e., small business set-aside,
8(a) small business, service-disabled veteran-owned small business,
HUBZone small business, or women-owned small business) where the
underlying Multiple Award Contract was awarded on an unrestricted
basis.
* * * * *
0
10. Amend Sec. 121.1103 by revising paragraph (c)(1)(i) to read as
follows:
Sec. 121.1103 What are the procedures for appealing a NAICS code or
size standard designation?
* * * * *
(c) * * *
(1) * * *
(i) Stay the date for the closing of receipt of offers;
* * * * *
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
0
11. The authority citation for part 124 continues to read as follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d), 644 and
Pub. L. 99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L.
101-574, section 8021, Pub. L. 108-87, and 42 U.S.C. 9815.
0
12. Amend Sec. 124.3 by adding in alphabetical order a definition for
``Follow-on requirement or contract'' to read as follows:
Sec. 124.3 What definitions are important in the 8(a) BD program?
* * * * *
Follow-on requirement or contract. The determination of whether a
particular requirement or contract is a follow-on includes
consideration of whether the scope has changed significantly, requiring
meaningful different types of work or different capabilities; whether
the magnitude or value of the requirement has changed by at least 25
percent for equivalent periods of performance; and whether the end user
of the requirement has changed. As a general guide, if the procurement
satisfies at least one of these three conditions, it may be considered
a new requirement. However, meeting any one of these conditions is not
dispositive that a requirement is new. In particular, the 25 percent
rule cannot be applied rigidly in all cases. Conversely, if the
requirement satisfies none of these conditions, it is considered a
follow-on procurement.
* * * * *
0
13. Amend Sec. 124.105 by revising paragraph (g) and paragraphs (i)(2)
and (4) to read as follows:
Sec. 124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
* * * * *
(g) Ownership of another current or former Participant by an
immediate family member. (1) An individual may not use his or her
disadvantaged status to qualify a concern if that individual has an
immediate family member who is using or has used his or her
disadvantaged status to qualify another concern for the 8(a) BD program
and any of the following circumstances exist:
(i) The concerns are connected by any common ownership or
management, regardless of amount or position;
(ii) The concerns have a contractual relationship that was not
conducted at arm's length;
(iii) The concerns share common facilities; or
(iv) The concerns operate in the same primary NAICS code and the
individual seeking to qualify the applicant concern does not have
management or technical experience in that primary NAICS code.
Example 1 to paragraph (g)(1). X applies to the 8(a) BD program. X
is 95% owned by A and 5% by B, A's father and the majority owner in a
former 8(a) Participant. Even though B has no involvement in X, X would
be ineligible for the program.
Example 2 to paragraph (g)(1). Y applies to the 8(a) BD program. C
owns 100% of Y. However, D, C's sister and the majority owner in a
former 8(a) Participant, is acting as a Vice President in Y. Y would be
ineligible for the program.
Example 3 to paragraph (g)(1). X seeks to apply to the 8(a) BD
program with a primary NAICS code in plumbing. X is 100% owned by A. Z,
a former 8(a) participant with a primary industry in general
construction, is owned 100% by B, A's brother. For general construction
jobs, Z has subcontracted plumbing work to X in the past at normal
commercial rates. Subcontracting work at normal commercial rates would
not preclude X from being admitted to the 8(a) BD program. X would be
eligible for the program.
(2) If the AA/BD approves an application under paragraph (g)(1) of
this section, SBA will, as part of its annual review, assess whether
the firm continues to operate independently of the other current or
former 8(a) concern of an immediate family member. SBA may initiate
proceedings to terminate a firm from further participation in the 8(a)
BD program if it is apparent that there are connections between the two
firms that were not disclosed to the AA/BD at the time of application
or that came into existence after program admittance.
* * * * *
(i) * * *
(2) Prior approval by the AA/BD is not needed where all non-
disadvantaged individual (or entity) owners involved in the change of
ownership own no more than a 20 percent interest in the concern both
before and after the transaction, the transfer results from the death
or incapacity due to a serious, long-term illness or injury of a
disadvantaged principal, or the disadvantaged individual or entity in
control of the Participant will increase the percentage of its
ownership interest. The concern must notify SBA within 60 days of such
a change in ownership.
Example 1 to paragraph (i)(2). Disadvantaged individual A owns 90%
of 8(a) Participant X; non-disadvantaged individual B owns 10% of X. In
order to raise additional capital, X seeks to change its ownership
structure such that A would own 80%, B would own 10% and C would own
10%. X can accomplish this change in ownership without prior SBA
approval. Non-disadvantaged owner B is not involved in the transaction
and non-disadvantaged individual C owns less than 20% of X both before
and after the transaction.
Example 2 to paragraph (i)(2). Disadvantaged individual C owns 60%
of 8(a) Participant Y; non-disadvantaged individual D owns 30% of Y;
and non-disadvantaged individual E owns 10% of Y. C seeks to transfer
5% of Y to E. Prior SBA approval is not needed. Although non-
disadvantaged individual D owns more than 20% of Y, D is not involved
in the transfer. Because the only non-disadvantaged individual involved
in the transfer, E, owns less than 20% of Y both before and after the
transaction, prior approval is not needed.
Example 3 to paragraph (i)(2). Disadvantaged individual A owns 85%
of 8(a) Participant X; non-disadvantaged individual B owns 15% of X. A
seeks to transfer 15% of X to B. Prior SBA approval is needed. Although
B, the non-disadvantaged owner of X, owns less than 20% of X prior to
the transaction, prior approval is needed because B would own more than
20% after the transaction.
Example 4 to paragraph (i)(2). ANC A owns 60% of 8(a) Participant
X; non-disadvantaged individual B owns 40% of X. B seeks to transfer
15%
[[Page 66184]]
to A. Prior SBA approval is not needed. Although a non-disadvantaged
individual who is involved in the transaction, B, owns more than 20% of
X both before and after the transaction, SBA approval is not needed
because the change only increases the percentage of A's ownership
interest in X.
* * * * *
(4) Where a Participant requests a change of ownership or business
structure, and proceeds with the change prior to receiving SBA approval
(or where a change of ownership results from the death or incapacity of
a disadvantaged individual for which a request prior to the change in
ownership could not occur), SBA may suspend the Participant from
program benefits pending resolution of the request. If the change is
approved, the length of the suspension will be restored to the
Participant's program term in the case of death or incapacity, or if
the firm requested prior approval and waited 60 days for SBA approval.
* * * * *
0
14. Amend Sec. 124.109 by:
0
a. Revising the section heading;
0
b. Adding paragraph (a)(7);
0
c. Revising paragraph (c)(3)(ii);
0
d. Adding paragraphs (c)(3)(iv) and (c)(4)(iii)(C); and
0
e. Revising paragraphs (c)(6)(iii) and (c)(7)(ii).
The revisions and additions to read as follows:
Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any
special rules for applying to and remaining eligible for the 8(a) BD
program?
(a) * * *
(7) Notwithstanding Sec. 124.105(i), where an ANC merely
reorganizes its ownership of a Participant in the 8(a) BD program by
inserting or removing a wholly-owned business entity between the ANC
and the Participant, the Participant need not request a change of
ownership from SBA. The Participant must, however, notify SBA of the
change within 60 days of the transfer.
* * * * *
(c) * * *
(3) * * *
(ii) A Tribe may not own 51% or more of another firm which, either
at the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary NAICS code as the
applicant. For purposes of this paragraph, the same primary NAICS code
means the six-digit NAICS code having the same corresponding size
standard. A Tribe may, however, own a Participant or other applicant
that conducts or will conduct secondary business in the 8(a) BD program
under the NAICS code which is the primary NAICS code of the applicant
concern.
(A) Once an applicant is admitted to the 8(a) BD program, it may
not receive an 8(a) sole source contract that is a follow-on contract
to an 8(a) contract that was performed immediately previously by
another Participant (or former Participant) owned by the same Tribe.
However, a tribally-owned concern may receive a follow-on sole source
8(a) contract to a requirement that it performed through the 8(a)
program (either as a competitive or sole source contract).
(B) If the primary NAICS code of a tribally-owned Participant is
changed pursuant to Sec. 124.112(e), the tribe can submit an
application and qualify another firm owned by the tribe for
participation in the 8(a) BD program under the NAICS code that was the
previous primary NAICS code of the Participant whose primary NAICS code
was changed.
Example 1 to paragraph (c)(3)(ii)(B). Tribe X owns 100% of 8(a)
Participant A. A entered the 8(a) BD program with a primary NAICS code
of 236115, New Single-Family Housing Construction (except For-Sale
Builders). After four years in the program, SBA noticed that the vast
majority of A's revenues were in NAICS Code 237310, Highway, Street,
and Bridge Construction, and notified A that SBA intended to change its
primary NAICS code pursuant to Sec. 124.112(e). A agreed to change its
primary NAICS Code to 237310. Once the change is finalized, Tribe X can
immediately submit a new application to qualify another firm that it
owns for participation in the 8(a) BD program with a primary NAICS Code
of 236115.
* * * * *
(iv) Notwithstanding Sec. 124.105(i), where a Tribe merely
reorganizes its ownership of a Participant in the 8(a) BD program by
inserting or removing a wholly-owned business entity between the Tribe
and the Participant, the Participant need not request a change of
ownership from SBA. The Participant must, however, notify SBA of the
change within 30 days of the transfer.
(4) * * *
(iii) * * *
(C) Because an individual may be responsible for the management and
daily business operations of two tribally-owned concerns, the full-time
devotion requirement does not apply to tribally-owned applicants and
Participants.
* * * * *
(6) * * *
(iii) The Tribe, a tribally-owned economic development corporation,
or other relevant tribally-owned holding company vested with the
authority to oversee tribal economic development or business ventures
has made a firm written commitment to support the operations of the
applicant concern and it has the financial ability to do so.
(7) * * *
(ii) The officers, directors, and all shareholders owning an
interest of 20% or more (other than the tribe itself) of a tribally-
owned applicant or Participant must demonstrate good character (see
Sec. 124.108(a)) and cannot fail to pay significant Federal
obligations owed to the Federal Government (see Sec. 124.108(e)).
0
15. Amend Sec. 124.110 by revising the section heading and paragraph
(e) to read as follows:
Sec. 124.110 Do Native Hawaiian Organizations (NHOs) have any special
rules for applying to and remaining eligible for the 8(a) BD program?
* * * * *
(e) An NHO cannot own 51% or more of another firm which, either at
the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary NAICS code as the
applicant. For purposes of this paragraph, the same primary NAICS code
means the six-digit NAICS code having the same corresponding size
standard. An NHO may, however, own a Participant or an applicant that
conducts or will conduct secondary business in the 8(a) BD program
under the same NAICS code that a current Participant owned by the NHO
operates in the 8(a) BD program as its primary NAICS code.
(1) Once an applicant is admitted to the 8(a) BD program, it may
not receive an 8(a) sole source contract that is a follow-on contract
to an 8(a) contract that was performed immediately previously by
another Participant (or former Participant) owned by the same NHO.
However, an NHO-owned concern may receive a follow-on sole source 8(a)
contract to a requirement that it performed through the 8(a) program
(either as a competitive or sole source contract).
(2) If the primary NAICS code of a Participant owned by an NHO is
changed pursuant to Sec. 124.112(e), the NHO can submit an application
and qualify another firm owned by the NHO for participation in the 8(a)
BD program under the NAICS code that was the previous primary NAICS
code of the Participant whose primary NAICS code was changed.
* * * * *
0
16. Amend Sec. 124.111 by revising the section heading, adding
paragraph
[[Page 66185]]
(c)(3), and revising paragraph (d) to read as follows:
Sec. 124.111 Do Community Development Corporations (CDCs) have any
special rules for applying to and remaining eligible for the 8(a) BD
program?
* * * * *
(c) * * *
(3) Notwithstanding Sec. 124.105(i), where a CDC merely
reorganizes its ownership of a Participant in the 8(a) BD program by
inserting or removing a wholly-owned business entity between the CDC
and the Participant, the Participant need not request a change of
ownership from SBA. The Participant must, however, notify SBA of the
change within 30 days of the transfer.
(d) A CDC cannot own 51% or more of another firm which, either at
the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary NAICS code as the
applicant. For purposes of this paragraph, the same primary NAICS code
means the six-digit NAICS code having the same corresponding size
standard. A CDC may, however, own a Participant or an applicant that
conducts or will conduct secondary business in the 8(a) BD program
under the same NAICS code that a current Participant owned by the CDC
operates in the 8(a) BD program as its primary SIC code.
(1) Once an applicant is admitted to the 8(a) BD program, it may
not receive an 8(a) sole source contract that is a follow-on contract
to an 8(a) contract that was performed immediately previously by
another Participant (or former Participant) owned by the same CDC.
However, a CDC-owned concern may receive a follow-on sole source 8(a)
contract to a requirement that it performed through the 8(a) program.
(2) If the primary NAICS code of a Participant owned by a CDC is
changed pursuant to Sec. 124.112(e), the CDC can submit an application
and qualify another firm owned by the CDC for participation in the 8(a)
BD program under the NAICS code that was the previous primary NAICS
code of the Participant whose primary NAICS code was changed.
* * * * *
0
17. Amend Sec. 124.112 by revising paragraph (d)(5), redesignating
paragraph (e)(2)(iv) as paragraph (e)(2)(v), and adding a new paragraph
(e)(2)(iv).
The revision and addition read as follows:
Sec. 124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
* * * * *
(d) * * *
(5) The excessive withdrawal analysis does not apply to
Participants owned by Tribes, ANCs, NHOs, or CDCs where a withdrawal is
made for the benefit of the Tribe, ANC, NHO, CDC or the native or
shareholder community. It does, however, apply to withdrawals from a
firm owned by a Tribe, ANC, NHO, or CDC that do not benefit the
relevant entity or community. Thus, if funds or assets are withdrawn
from an entity-owned Participant for the benefit of a non-disadvantaged
manager or owner that exceed the withdrawal thresholds, SBA may find
that withdrawal to be excessive. However, a non-disadvantaged minority
owner may receive a payout in excess of the excessive withdrawal amount
if it is a pro rata distribution paid to all shareholders (i.e., the
only way to increase the distribution to the Tribe, ANC, NHO or CDC is
to increase the distribution to all shareholders) and it does not
adversely affect the business development of the Participant.
Example 1 to paragraph (d)(5). Tribally-owned Participant X pays
$1,000,000 to a non-disadvantaged manager. If that was not part of a
pro rata distribution to all shareholders, that would be deemed an
excessive withdrawal.
Example 2 to paragraph (d)(5). ANC-owned Participant Y seeks to
distribute $550,000 to the ANC and $450,000 to non-disadvantaged
individual A based on their 55%/45% ownership interests. Because the
distribution is based on the pro rata share of ownership, this would
not be prohibited as an excessive withdrawal unless SBA determined that
Y would be adversely affected.
(e) * * *
(2) * * *
(iv) A Participant may appeal a district office's decision to
change its primary NAICS code to SBA's Associate General Counsel for
Procurement Law (AGC/PL) within 10 business days of receiving the
district office's final determination. The AGC/PL will examine the
record, including all information submitted by the Participant in
support of its position as to why the primary NAICS code contained in
its business plan continues to be appropriate despite performing more
work in another NAICS code, and issue a final agency decision within 15
business days of receiving the appeal.
* * * * *
0
18. Amend Sec. 124.203 by revising the first two sentences and adding
a new third sentence to read as follows:
Sec. 124.203 What must a concern submit to apply to the 8(a) BD
program?
Each 8(a) BD applicant concern must submit information and
supporting documents required by SBA when applying for admission to the
8(a) BD program. This information may include, but not be limited to,
financial data and statements, copies of filed Federal personal and
business tax returns, individual and business bank statements, personal
history statements, and any additional information or documents SBA
deems necessary to determine eligibility. Each individual claiming
disadvantaged status must also authorize SBA to request and receive tax
return information directly from the Internal Revenue Service. * * *
0
19. Amend Sec. 124.204 by adding a sentence to the end of paragraph
(a) to read as follows:
Sec. 124.204 How does SBA process applications for 8(a) BD program
admission?
(a) * * * Where during its screening or review SBA requests
clarifying, revised or other information from the applicant, SBA's
processing time for the application will be suspended pending the
receipt of such information.
* * * * *
0
20. Revise Sec. 124.205 to read as follows:
Sec. 124.205 Can an applicant ask SBA to reconsider SBA's initial
decision to decline its application?
There is no reconsideration process for applications that have been
declined. An applicant which has been declined may file an appeal with
SBA's Office of Hearings and Appeals pursuant to Sec. 124.206, or
reapply to the program pursuant to Sec. 124.207.
Sec. 124.206 [Amended]
0
21. Revise Sec. 124.206 by removing and reserving paragraph (b) and
redesignating paragraphs (c) and (d) as paragraphs (b) and (c),
respectively.
0
22. Revise Sec. 124.207 to read as follows:
Sec. 124.207 Can an applicant reapply for admission to the 8(a) BD
program?
A concern which has been declined for 8(a) BD program participation
may submit a new application for admission to the program at any time
after 90 days from the date of the Agency's final decision to decline.
However, a concern that has been declined three times within 18 months
of the date of the first
[[Page 66186]]
final Agency decision finding the concern ineligible cannot submit a
new application for admission to the program until 12 months from the
date of the third final Agency decision to decline.
Sec. 124.301 [Redesignated as Sec. 124.300]
0
23. Redesignate Sec. 124.301 as Sec. 124.300.
0
24. Add new Sec. 124.301 to read as follows:
Sec. 124.301 Voluntary withdrawal or voluntary early graduation.
(a) A Participant may voluntarily withdraw from the 8(a) BD program
at any time prior to the expiration of its program term. Where a
Participant has substantially achieved the goals and objectives set
forth in its business plan, it may elect to voluntarily early graduate
from the 8(a) BD program.
(b) To initiate withdrawal or early graduation from the 8(a) BD
program, a Participant must notify its servicing SBA district office of
its intent to do so in writing. Once the SBA servicing district office
processes the request and the District Director recognizes the
withdrawal or early graduation, the Participant is no longer eligible
to receive any 8(a) BD program assistance.
0
25. Amend Sec. 124.304(d) by revising the paragraph heading and adding
a sentence at the end of paragraph (d) to read as follows:
Sec. 124.304 What are the procedures for early graduation and
termination?
* * * * *
(d) Notice requirements and effect of decision. * * * Once the AA/
BD issues a decision to early graduate or terminate a Participant, the
Participant will be immediately ineligible to receive further program
assistance. If OHA overrules the AA/BD's decision on appeal, the length
of time between the AA/BD's decision and OHA's decision on appeal will
be added to the Participant's program term.
* * * * *
0
26. Amend Sec. 124.305 by:
0
a. Revising paragraph (a);
0
b. Revising the introductory text of paragraph (d);
0
c. Revising paragraph (d)(3);
0
d. Revising the introductory text of paragraph (h)(1);
0
d. Revising paragraphs (h)(1)(ii) and (iv);
0
e. Adding paragraph (h)(1)(v);
0
f. Redesignating paragraph (h)(6) as (h)(7); and
0
g. Adding a new paragraph (h)(6).
The revisions and additions read as follows:
Sec. 124.305 What is suspension and how is a Participant suspended
from the 8(a) BD program?
(a) Except as set forth in paragraph (h) of this section, the AA/BD
may suspend a Participant when he or she determines that suspension is
needed to protect the interests of the Federal Government, such as
where information showing a clear lack of program eligibility or
conduct indicating a lack of business integrity exists, including where
the concern or one of its principals submitted false statements to the
Federal Government. SBA will suspend a Participant where SBA determines
that the Participant submitted false information in its 8(a) BD
application.
* * * * *
(d) SBA has the burden of showing that adequate evidence exists
that protection of the Federal Government's interest requires
suspension.
* * * * *
(3) OHA's review is limited to determining whether the Government's
interests need to be protected, unless a termination action has also
been initiated and the Administrative Law Judge consolidates the
suspension and termination proceedings. In such a case, OHA will also
consider the merits of the termination action.
* * * * *
(h)(1) Notwithstanding paragraph (a) of this section, SBA will
suspend a Participant from receiving further 8(a) BD program benefits
where:
* * * * *
(ii) A disadvantaged individual who is involved in controlling the
day-to-day management and control of the Participant is called to
active military duty by the United States, his or her participation in
the firm's management and daily business operations is critical to the
firm's continued eligibility, the Participant does not designate
another disadvantaged individual to control the concern during the
call-up period, and the Participant requests to be suspended during the
call-up period;
* * * * *
(iv) Federal appropriations for one or more Federal departments or
agencies have lapsed, a Participant would lose an 8(a) sole source
award due to the lapse in appropriations (e.g., SBA has previously
accepted an offer for a sole source 8(a) award on behalf of the
Participant or an agency could not offer a sole source 8(a) requirement
to the program on behalf of the Participant due to the lapse in
appropriations, and the Participant's program term would end during the
lapse), and the Participant elects to suspend its participation in the
8(a) BD program during the lapse in Federal appropriations; or
(v) A Participant has not submitted a business plan to its SBA
servicing office within 60 days after program admission.
* * * * *
(6) Where a Participant is suspended pursuant to paragraph
(h)(1)(iii) or paragraph (h)(1)(v) of this section, the length of the
suspension will be added to the concern's program term.
* * * * *
0
27. Amend Sec. 124.402 by revising paragraph (b) to read as follows:
Sec. 124.402 How does a Participant develop a business plan?
* * * * *
(b) Submission of initial business plan. Each Participant must
submit a business plan to its SBA servicing office as soon as possible
after program admission. SBA will suspend a Participant from receiving
8(a) BD program benefits, including 8(a) contracts, if it has not
submitted its business plan to the servicing district office within 60
days after program admission.
* * * * *
0
28. Amend Sec. 124.501 by redesignating paragraphs (g) through (i) as
paragraphs (h) through (j), respectively, by adding new paragraphs (g)
and (k), and by revising newly redesignated paragraph (h) to read as
follows:
Sec. 124.501 What general provisions apply to the award of 8(a)
contracts?
* * * * *
(g) Before a Participant may be awarded either a sole source or
competitive 8(a) contract, SBA must determine that the Participant is
eligible for award. SBA will determine eligibility at the time of its
acceptance of the underlying requirement into the 8(a) BD program for a
sole source 8(a) contract, and after the apparent successful offeror is
identified for a competitive 8(a) contract. Eligibility is based on
8(a) BD program criteria, including whether the Participant:
(1) Qualifies as a small business under the size standard
corresponding to the NAICS code assigned to the requirement;
(2) Is in compliance with any applicable competitive business mix
targets established or remedial measure imposed by Sec. 124.509 that
does not include the denial of future sole source 8(a) contracts;
(3) Complies with the continued eligibility reporting requirements
set forth in Sec. 124.112(b);
(4) Has a bona fide place of business in the applicable geographic
area if the procurement is for construction;
[[Page 66187]]
(5) Has not received 8(a) contracts in excess of the dollar limits
set forth in Sec. 124.519 for a sole source 8(a) procurement;
(6) Has complied with the provisions of Sec. 124.513(c) and (d) if
it is seeking a sole source 8(a) award through a joint venture; and
(7) Can demonstrate that it, together with any similarly situated
entity, will meet the limitations on subcontracting provisions set
forth in Sec. 124.510.
(h) For a sole source 8(a) procurement, a concern must be a current
Participant in the 8(a) BD program at the time of award. If a firm's
term of participation in the 8(a) BD program ends (or the firm
otherwise exits the program) before a sole source 8(a) contract can be
awarded, award cannot be made to that firm. This applies equally to
sole source orders issued under multiple award contracts. For a
competitive 8(a) procurement, a firm must be a current Participant
eligible for award of the contract on the initial date specified for
receipt of offers contained in the solicitation as provided in Sec.
124.507(d).
* * * * *
(k) In order to be awarded a sole source or competitive 8(a)
construction contract, a Participant must have a bona fide place of
business within the applicable geographic location determined by SBA.
This will generally be the geographic area serviced by the SBA district
office, a Metropolitan Statistical Area (MSA), or a contiguous county
to (whether in the same or different state) where the work will be
performed. SBA may determine that a Participant with a bona fide place
of business anywhere within the state (if the state is serviced by more
than one SBA district office), one or more other SBA district offices
(in the same or another state), or another nearby area is eligible for
the award of an 8(a) construction contract.
(1) A Participant may have bona fide places of business in more
than one location.
(2) In order for a Participant to establish a bona fide place of
business in a particular geographic location, the SBA district office
serving the geographic area of that location must determine if the
location in fact qualifies as a bona fide place of business under SBA's
requirements.
(i) A Participant must submit a request for a bona fide business
determination to the SBA district office servicing it. Such request
may, but need not, relate to a specific 8(a) requirement. In order to
apply to a specific competitive 8(a) solicitation, such request must be
submitted at least 20 working days before initial offers that include
price are due.
(ii) The servicing district office will immediately forward the
request to the SBA district office serving the geographic area of the
particular location for processing. Within 10 working days of receipt
of the submission, the reviewing district office will conduct a site
visit, if practicable. If not practicable, the reviewing district
office will contact the Participant within such 10-day period to inform
the Participant that the reviewing office has received the request and
may ask for additional documentation to support the request.
(iii) In connection with a specific competitive solicitation, the
reviewing office will make a determination whether or not the
Participant has a bona fide place of business in its geographical area
within 5 working days of a site visit or within 15 working days of its
receipt of the request from the servicing district office if a site
visit is not practical in that timeframe. If the request is not related
to a specific procurement, the reviewing office will make a
determination within 30 working days of its receipt of the request from
the servicing district office, if practicable.
(A) Where SBA does not provide a determination within the
identified time limit, a Participant may presume that SBA has approved
its request for a bona fide place of business and submit an offer for a
competitive 8(a) procurement that requires a bona fide place of
business in the requested area.
(B) In order to be eligible for award, SBA must approve the bona
fide place of business prior to award. If SBA has not provided a
determination prior to the time that a Participant is identified as the
apparent successful offeror, SBA will make the bona fide place of
business determination as part of the eligibility determination set
forth in paragraph (g)(4) of this section within 5 days of receiving a
procuring activity's request for an eligibility determination, unless
the procuring activity grants additional time for review. If, due to
deficiencies in a Participant's request, SBA cannot make a
determination, and the procuring activity does not grant additional
time for review, SBA will be unable to verify the Participant's
eligibility for award and the Participant will be ineligible for award.
(3) The effective date of a bona fide place of business is the date
that the evidence (paperwork) shows that the business in fact regularly
maintained its business at the new geographic location.
(4) Except as provided in paragraph (k)(2)(iii) of this section, in
order for a Participant to be eligible to submit an offer for an 8(a)
procurement limited to a specific geographic area, it must receive from
SBA a determination that it has a bona fide place of business within
that area prior to submitting its offer for the procurement.
(5) Once a Participant has established a bona fide place of
business, the Participant may change the location of the recognized
office without prior SBA approval. However, the Participant must notify
SBA and provide documentation demonstrating an office at that new
location within 30 days after the move. Failure to timely notify SBA
will render the Participant ineligible for new 8(a) construction
procurements limited to that geographic area.
0
29. Amend Sec. 124.503 by:
0
a. Removing the phrase ``in Sec. 124.507(b)(2)'' and adding in its
place the phrase ``in Sec. 124.501(g)'' in paragraph (a)(1);
0
b. Redesignating paragraphs (e) through (j) as paragraphs (f) through
(k), respectively;
0
c. Adding a new paragraph (e);
0
d. Revising newly redesignated paragraph (g);
0
e. Revising the introductory text of the newly redesignated paragraph
(h);
0
f. Adding the phrase ``or BPA'' after the phrase ``BOA'', wherever it
appears, in the newly redesignated paragraphs (h)(1) through (4);
0
g. Revising newly redesignated paragraph (i)(1)(iii);
0
h. Adding a sentence at the end of newly redesignated paragraph
(i)(1)(iv); and
0
i. Revising newly redesignated paragraphs (i)(2)(ii) and (i)(2)(iv).
The additions and revisions read as follows:
Sec. 124.503 How does SBA accept a procurement for award through the
8(a) BD program?
* * * * *
(e) Withdrawal/substitution of offered requirement or Participant.
After SBA has accepted a requirement for award as a sole source 8(a)
contract on behalf of a specific Participant (whether nominated by the
procuring agency or identified by SBA for an open requirement), if the
procuring agency believes that the identified Participant is not a good
match for the procurement--including for such reasons as the procuring
agency finding the Participant non-responsible or the negotiations
between the procuring agency and the Participant otherwise failing--the
procuring agency may seek to substitute another Participant for the
originally
[[Page 66188]]
identified Participant. The procuring agency must inform SBA of its
concerns regarding the originally identified Participant and identify
whether it believes another Participant could fulfill its needs.
(1) If the procuring agency and SBA agree that another Participant
can fulfill its needs, the procuring agency will withdraw the original
offering and reoffer the requirement on behalf of another 8(a)
Participant. SBA will then accept the requirement on behalf of the
newly identified Participant and authorize the procuring agency to
negotiate directly with that Participant.
(2) If the procuring agency and SBA agree that another Participant
cannot fulfill its needs, the procuring agency will withdraw the
original offering letter and fulfill its needs outside the 8(a) BD
program.
(3) If the procuring agency believes that another Participant
cannot fulfill its needs, but SBA does not agree, SBA may appeal that
decision to the head of the procuring agency pursuant to Sec.
124.505(a)(2).
* * * * *
(g) Repetitive acquisitions. A procuring activity contracting
officer must submit a new offering letter to SBA where he or she
intends to award a follow-on or repetitive contract as an 8(a) award.
(1) This enables SBA to determine:
(i) Whether the requirement should be a competitive 8(a) award;
(ii) A nominated firm's eligibility, whether or not it is the same
firm that performed the previous contract;
(iii) The affect that contract award would have on the equitable
distribution of 8(a) contracts; and
(iv) Whether the requirement should continue under the 8(a) BD
program.
(2) Where a procuring agency seeks to reprocure a follow-on
requirement through an 8(a) contracting vehicle which is not available
to all 8(a) BD Program Participants (e.g., a multiple award or
Governmentwide acquisition contract that is itself an 8(a) contract),
and the previous/current 8(a) award was not so limited, SBA will
consider the business development purposes of the program in
determining how to accept the requirement.
* * * * *
(h) Basic Ordering Agreements (BOAs) and Blanket Purchase
Agreements (BPAs). Neither a Basic Ordering Agreement (BOA) nor a
Blanket Purchase Agreement (BPA) is a contract under the FAR. See 48
CFR 13.303 and 48 CFR 16.703(a). Each order to be issued under a BOA or
BPA is an individual contract. As such, the procuring activity must
offer, and SBA must accept, each order under a BOA or BPA in addition
to offering and accepting the BOA or BPA itself.
* * * * *
(i)
(1) * * *
(iii) A concern awarded a task or delivery order contract or
Multiple Award Contract that was set-aside exclusively for 8(a) Program
Participants, partially set-aside for 8(a) Program Participants or
reserved solely for 8(a) Program Participants may generally continue to
receive new orders even if it has grown to be other than small or has
exited the 8(a) BD program, and agencies may continue to take SDB
credit toward their prime contracting goals for orders awarded to 8(a)
Participants. A procuring agency may seek to award an order only to a
concern that is a current Participant in the 8(a) program at the time
of the order. In such a case, the procuring agency will announce its
intent to limit the award of the order to current 8(a) Participants and
verify a contract holder's 8(a) BD status prior to issuing the order.
Where a procuring agency seeks to award an order to a concern that is a
current 8(a) Participant, a concern must be an eligible Participant in
accordance with Sec. 124.501(g) as of the initial date specified for
the receipt of offers contained in the order solicitation, or at the
date of award of the order if there is no solicitation.
(iv) * * * To be eligible for the award of a sole source order, a
concern must be a current Participant in the 8(a) BD program at the
time of award.
(2) * * *
(ii) The order must be competed exclusively among only the 8(a)
awardees of the underlying multiple award contract;
* * * * *
(iv) SBA must verify that a concern is an eligible 8(a) Participant
in accordance with Sec. 124.501(g) as of the initial date specified
for the receipt of offers contained in the order solicitation, or at
the date of award of the order if there is no solicitation. If a
concern has exited the 8(a) BD program prior to that date, it will be
ineligible for the award of the order.
* * * * *
0
30. Amend Sec. 124.504 by:
0
a. Revising the section heading and paragraph (b);
0
b. Removing the term ``Simplified Acquisition Procedures'' and adding
in its place the phrase ``the simplified acquisition threshold (as
defined in the FAR at 48 CFR 2.101)'' in paragraph (c) introductory
text;
0
c. Removing the word ``will'' and adding in its place the word ``may''
in paragraph (c)(1)(ii)(C);
0
d. Adding a paragraph (c)(4); and
0
e. Revising the paragraph heading for paragraph (d) and paragraphs
(d)(1) introductory text and (d)(4).
The revisions and addition read as follows:
Sec. 124.504 What circumstances limit SBA's ability to accept a
procurement for award as an 8(a) contract, and when can a requirement
be released from the 8(a) BD program?
* * * * *
(b) Competition prior to offer and acceptance. The procuring
activity competed a requirement among 8(a) Participants prior to
offering the requirement to SBA and did not clearly evidence its intent
to conduct an 8(a) competitive acquisition.
* * * * *
(c) * * *
(4) SBA does not typically consider the value of a bridge contract
when determining whether an offered procurement is a new requirement. A
bridge contract is meant to be a temporary stop-gap measure intended to
ensure the continuation of service while an agency finalizes a long-
term procurement approach.
(d) Release for non-8(a) or limited 8(a) competition. (1) Except as
set forth in paragraph (d)(4) of this section, where a procurement is
awarded as an 8(a) contract, its follow-on requirement must remain in
the 8(a) BD program unless SBA agrees to release it for non-8(a)
competition. Where a procurement will contain work currently performed
under one or more 8(a) contracts, and the procuring agency determines
that the procurement should not be considered a follow-on requirement
to the 8(a) contract(s), the procuring agency must notify SBA that it
intends to procure such specified work outside the 8(a) BD program
through a requirement that it considers to be new. Additionally, a
procuring agency must notify SBA where it seeks to reprocure a follow-
on requirement through a pre-existing limited contracting vehicle which
is not available to all 8(a) BD Program Participants and the previous/
current 8(a) award was not so limited. If a procuring agency would like
to fulfill a follow-on requirement outside of the 8(a) BD program, it
must make a written request to and receive the concurrence of the AA/BD
to do so. In determining whether to release a requirement from the 8(a)
BD program, SBA will consider:
* * * * *
(4) The requirement that a follow-on procurement must be released
from the
[[Page 66189]]
8(a) BD program in order for it to be fulfilled outside the 8(a) BD
program does not apply:
(i) Where previous orders were offered to and accepted for the 8(a)
BD program pursuant to Sec. 124.503(i)(2); or
(ii) Where a procuring agency will use a mandatory source (see FAR
Subparts 8.6 and 8.7(48 CFR subparts 8.6 and 8.7)). In such a case, the
procuring agency should notify SBA at least 30 days prior to the end of
the contract or order.
0
31. Amend Sec. 124.505 by:
0
a. Removing the word ``and'' at the end of paragraph (a)(2);
0
b. Redesignating paragraph (a)(3) as paragraph (a)(4); and
0
c. Adding new paragraph (a)(3).
The addition reads as follows:
Sec. 124.505 When will SBA appeal the terms or conditions of a
particular 8(a) contract or a procuring activity decision not to use
the 8(a) BD program?
(a) * * *
(3) A decision by a contracting officer that a particular
procurement is a new requirement that is not subject to the release
requirements set forth in Sec. 124.504(d); and
* * * * *
0
32. Amend Sec. 124.507 by:
0
a. Revising paragraph (b)(2);
0
b. Removing paragraph (b)(3);
0
c. Redesignating paragraphs (b)(4) through (6) as paragraphs (b)(3)
through (5), respectively;
0
d. Removing paragraph (c)(1);
0
e. Redesignating paragraphs (c)(2) and (3) as paragraphs (c)(1) and
(2), respectively;
0
f. Revising newly redesignated paragraph (c)(1); and
0
g. Adding a new paragraph (d)(3).
The revisions and addition read as follows:
Sec. 124.507 What procedures apply to competitive 8(a) procurements?
* * * * *
(b) * * *
(2) SBA determines a Participant's eligibility pursuant to Sec.
124.501(g).
* * * * *
(c) * * *
(1) Construction competitions. Based on its knowledge of the 8(a)
BD portfolio, SBA will determine whether a competitive 8(a)
construction requirement should be competed among only those
Participants having a bona fide place of business within the
geographical boundaries of one or more SBA district offices, within a
state, or within the state and nearby areas. Only those Participants
with bona fide places of business within the appropriate geographical
boundaries are eligible to submit offers.
* * * * *
(d) * * *
(3) For a two-step design-build procurement to be awarded through
the 8(a) BD program, a firm must be a current Participant eligible for
award of the contract on the initial date specified for receipt of
phase one offers contained in the contract solicitation.
0
33. Amend Sec. 124.509 by:
0
a. Removing the word ``maximum'' and adding in its place the words
``good faith'' in paragraph (a)(1);
0
b. Removing the words ``substantial and sustained'' and adding in their
place the words ``good faith'' in paragraph (a)(2);
0
c. Revising the table in paragraph (b)(2);
0
d. Revising paragraph (d); and
0
e. Revising paragraph (e).
The revisions read as follows:
Sec. 124.509 What are non-8(a) business activity targets?
* * * * *
(b) * * *
Table 1 to Paragraph (b)
----------------------------------------------------------------------------------------------------------------
Non-8(a) business activity targets (required minimum
Participants year in the transitional stage non-8(a) revenue as a percentage of total revenue)
----------------------------------------------------------------------------------------------------------------
1 15
2 25
3 30
4 40
5 50
----------------------------------------------------------------------------------------------------------------
* * * * *
(d) Consequences of not meeting competitive business mix targets.
(1) Beginning at the end of the first year in the transitional stage
(the fifth year of participation in the 8(a) BD program), any firm that
does not meet its applicable competitive business mix target for the
just completed program year must demonstrate to SBA the specific
efforts it made during that year to obtain non-8(a) revenue.
(2) If SBA determines that an 8(a) Participant has failed to meet
its applicable competitive business mix target during any program year
in the transitional stage of program participation, SBA will increase
its monitoring of the Participant's contracting activity during the
ensuing program year.
(3) As a condition of eligibility for new 8(a) sole source
contracts, SBA may require a Participant that fails to achieve the non-
8(a) business activity targets to take one or more specific actions.
These include requiring the Participant to obtain management
assistance, technical assistance, and/or counseling from an SBA
resource partner or otherwise, and/or attend seminars relating to
management assistance, business development, financing, marketing,
accounting, or proposal preparation. Where any such condition is
imposed, SBA will not accept a sole source requirement offered to the
8(a) BD program on behalf of the Participant until the Participant
demonstrates to SBA that the condition has been met.
(4) If SBA determines that a Participant has not made good faith
efforts to meet its applicable non-8(a) business activity target, the
Participant will be ineligible for sole source 8(a) contracts in the
current program year. SBA will notify the Participant in writing that
the Participant will not be eligible for further 8(a) sole source
contract awards until it has demonstrated to SBA that it has complied
with its non-8(a) business activity requirements as described in
paragraphs (d)(4)(i) and (ii) of this section. In order for a
Participant to come into compliance with the non-8(a) business activity
target and be eligible for further 8(a) sole source contracts, it may:
(i) Wait until the end of the current program year and demonstrate
to SBA as part of the normal annual review process that it has met the
revised non-8(a) business activity target; or
(ii) At its option, submit information regarding its non-8(a)
revenue to SBA quarterly throughout the current program year in an
attempt to come into compliance before the end of the current
[[Page 66190]]
program year. If the Participant satisfies the requirements of
paragraphs (d)(2)(ii)(A) or (B) of this section, SBA will reinstate the
Participant's ability to get sole source 8(a) contracts prior to its
annual review.
(A) To qualify for reinstatement during the first six months of the
current program year (i.e., at either the first or second quarterly
review), the Participant must demonstrate that it has received non-8(a)
revenue and new non-8(a) contract awards that are equal to or greater
than the dollar amount by which it failed to meet its non-8(a) business
activity target for the just completed program year. For this purpose,
SBA will not count options on existing non-8(a) contracts in
determining whether a Participant has received new non-8(a) contract
awards.
(B) To qualify for reinstatement during the last six months of the
current program year (i.e., at either the nine-month or one year
review), the Participant must demonstrate that it has achieved its non-
8(a) business activity target as of that point in the current program
year.
Example 1 to paragraph (d)(4). Firm A had $10 million in total
revenue during year 2 in the transitional stage (year 6 in the
program), but failed to meet the minimum non-8(a) business activity
target of 25 percent. It had 8(a) revenues of $8.5 million and non-8(a)
revenues of $1.5 million (15 percent). Based on total revenues of $10
million, Firm A should have had at least $2.5 million in non-8(a)
revenues. Thus, Firm A missed its target by $1 million (its target
($2.5 million) minus its actual non-8(a) revenues ($1.5 million)).
Because Firm A did not achieve its non-8(a) business activity target
and SBA determined that it did not make good faith efforts to obtain
non-8(a) revenue, it cannot receive 8(a) sole source awards until
correcting that situation. The firm may wait until the next annual
review to establish that it has met the revised target, or it can
choose to report contract awards and other non-8(a) revenue to SBA
quarterly. Firm A elects to submit information to SBA quarterly in year
3 of the transitional stage (year 7 in the program). In order to be
eligible for sole source 8(a) contracts after either its 3 month or 6
month review, Firm A must show that it has received non-8(a) revenue
and/or been awarded new non-8(a) contracts totaling $1 million (the
amount by which it missed its target in year 2 of the transitional
stage).
Example 2 to paragraph (d)(4). Firm B had $10 million in total
revenue during year 2 in the transitional stage (year 6 in the
program), of which $8.5 million were 8(a) revenues and $1.5 million
were non-8(a) revenues, and SBA determined that Firm B did not make
good faith efforts to meet its non-8(a) business activity target. At
its first two quarterly reviews during year 3 of the transitional stage
(year 7 in the program), Firm B could not demonstrate that it had
received at least $1 million in non-8(a) revenue and new non-8(a)
awards. In order to be eligible for sole source 8(a) contracts after
its 9 month or 1 year review, Firm B must show that at least 35% (the
non-8(a) business activity target for year 3 in the transitional stage)
of all revenues received during year 3 in the transitional stage as of
that point are from non-8(a) sources.
(5) In determining whether a Participant has achieved its required
non-8(a) business activity target at the end of any program year in the
transitional stage, or whether a Participant that failed to meet the
target for the previous program year has achieved the required level of
non-8(a) business at its nine-month review, SBA will measure 8(a)
support by adding the base year value of all 8(a) contracts awarded
during the applicable program year to the value of all options and
modifications executed during that year.
(6) SBA may initiate proceedings to terminate a Participant from
the 8(a) BD program where the firm makes no good faith efforts to
obtain non-8(a) revenues.
(e) Waiver of sole source prohibition. (1) Despite a finding by SBA
that a Participant did not make good faith efforts to meet its non-8(a)
business activity target, SBA may waive the requirement prohibiting a
Participant from receiving further sole source 8(a) contracts where a
denial of a sole source contract would cause severe economic hardship
on the Participant so that the Participant's survival may be
jeopardized, or where extenuating circumstances beyond the
Participant's control caused the Participant not to meet its non-8(a)
business activity target.
(2) SBA may waive the requirement prohibiting a Participant from
receiving further sole source 8(a) contracts when the Participant does
not meet its non-8(a) business activity target where the head of a
procuring activity represents to SBA that award of a sole source 8(a)
contract to the Participant is needed to achieve significant interests
of the Government.
(3) The decision to grant or deny a request for a waiver is at
SBA's discretion, and no appeal may be taken with respect to that
decision.
(4) A waiver generally applies to a specific sole source
opportunity. If SBA grants a waiver with respect to a specific
procurement, the firm will be able to self-market its capabilities to
the applicable procuring activity with respect to that procurement. If
the Participant seeks an additional sole source opportunity, it must
request a waiver with respect to that specific opportunity. Where,
however, a Participant can demonstrate that the same extenuating
circumstances beyond its control affect its ability to receive specific
multiple 8(a) contracts, one waiver can apply to those multiple
contract opportunities.
0
34. Amend Sec. 124.513 by revising paragraphs (c)(2) and (4), the
second sentence of paragraph (c)(5), and paragraph (e) to read as
follows:
Sec. 124.513 Under what circumstances can a joint venture be awarded
an 8(a) contract?
* * * * *
(c) * * *
(2) Designating an 8(a) Participant as the managing venturer of the
joint venture, and designating a named employee of the 8(a) managing
venturer as the manager with ultimate responsibility for performance of
the contract (the ``Responsible Manager'').
(i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(ii) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the 8(a) Participant at the
time the joint venture submits an offer, but, if he or she is not,
there must be a signed letter of intent that the individual commits to
be employed by the 8(a) Participant if the joint venture is the
successful offeror. The individual identified as the Responsible
Manager cannot be employed by the mentor and become an employee of the
8(a) Participant for purposes of performance under the joint venture.
(iii) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager;
* * * * *
(4) Stating that the 8(a) Participant(s) must receive profits from
the joint venture commensurate with the work performed by the 8(a)
Participant(s), or a percentage agreed to by the parties to the joint
venture whereby the 8(a) Participant(s) receive profits from the
[[Page 66191]]
joint venture that exceed the percentage commensurate with the work
performed by the 8(a) Participant(s);
(5) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
(e) Prior approval by SBA. (1) When a joint venture between one or
more 8(a) Participants seeks a sole source 8(a) award, SBA must approve
the joint venture prior to the award of the sole source 8(a) contract.
SBA will not approve joint ventures in connection with competitive 8(a)
awards (but see Sec. 124.501(g) for SBA's determination of Participant
eligibility).
(2) Where a joint venture has been established for one 8(a)
contract, the joint venture may receive additional 8(a) contracts
provided the parties create an addendum to the joint venture agreement
setting forth the performance requirements for each additional award
(and provided any contract is awarded within two years of the first
award as set forth in Sec. 121.103(h)). If an additional 8(a) contract
is a sole source award, SBA must also approve the addendum prior to
contract award.
* * * * *
0
35. Amend Sec. 124.514 by revising paragraph (b) to read as follows:
Sec. 124.514 Exercise of 8(a) options and modifications.
* * * * *
(b) Priced options. Except as set forth in Sec. 124.521(e)(2), the
procuring activity contracting officer may exercise a priced option to
an 8(a) contract whether the concern that received the award has
graduated or been terminated from the 8(a) BD program or is no longer
eligible if to do so is in the best interests of the Government.
* * * * *
0
36. Amend Sec. 124.515 by revising paragraph (d) to read as follows:
Sec. 124.515 Can a Participant change its ownership or control and
continue to perform an 8(a) contract, and can it transfer performance
to another firm?
* * * * *
(d) SBA determines the eligibility of an acquiring Participant
under paragraph (b)(2) of this section by referring to the items
identified in Sec. 124.501(g) and deciding whether at the time of the
request for waiver (and prior to the transaction) the acquiring
Participant is an eligible concern with respect to each contract for
which a waiver is sought. As part of the waiver request, the acquiring
concern must certify that it is a small business for the size standard
corresponding to the NAICS code assigned to each contract for which a
waiver is sought. SBA will not grant a waiver for any contract if the
work to be performed under the contract is not similar to the type of
work previously performed by the acquiring concern.
* * * * *
0
37. Amend Sec. 124.518 by revising paragraph (c) to read as follows:
Sec. 124.518 How can an 8(a) contract be terminated before
performance is completed?
* * * * *
(c) Substitution of one 8(a) contractor for another. SBA may
authorize another Participant to complete performance and, in
conjunction with the procuring activity, permit novation of an 8(a)
contract without invoking the termination for convenience or waiver
provisions of Sec. 124.515 where a procuring activity contracting
officer demonstrates to SBA that the Participant that was awarded the
8(a) contract is unable to complete performance, where an 8(a) contract
will otherwise be terminated for default, or where SBA determines that
substitution would serve the business development needs of both 8(a)
Participants.
0
38. Amend Sec. 124.519 by:
0
a. Revising paragraph (a);
0
b. Removing paragraph (c);
0
c. Redesignating paragraph (b) as paragraph (c); and
0
d. Adding a new paragraph (b).
The revision and addition read as follows:
Sec. 124.519 Are there any dollar limits on the amount of 8(a)
contracts that a Participant may receive?
(a) A Participant (other than one owned by an Indian Tribe, ANC,
NHO, or CDC) may not receive sole source 8(a) contract awards where it
has received a combined total of competitive and sole source 8(a)
contracts in excess of $100,000,000 during its participation in the
8(a) BD program.
(b) In determining whether a Participant has reached the limit
identified in paragraph (a) of this section, SBA:
(1) Looks at the 8(a) revenues a Participant has actually received,
not projected 8(a) revenues that a Participant might receive through an
indefinite delivery or indefinite quantity contract, a multiple award
contract, or options or modifications; and
(2) Will not consider 8(a) contracts awarded under the Simplified
Acquisition Threshold.
* * * * *
0
39. Revise Sec. 124.520 to read as follows:
Sec. 124.520 Can 8(a) BD Program Participants participate in SBA's
Mentor-Prot[eacute]g[eacute] program?
(a) An 8(a) BD Program Participant, as any other small business,
may participate in SBA's All Small Mentor-Prot[eacute]g[eacute] Program
authorized under Sec. 125.9 of this chapter.
(b) In order for a joint venture between a prot[eacute]g[eacute]
and its SBA-approved mentor to receive the exclusion from affiliation
with respect to a sole source or competitive 8(a) contract, the joint
venture must meet the requirements set forth in Sec. 124.513(c) and
(d).
0
40. Amend Sec. 124.521 by revising the last sentence of paragraph
(e)(1) to read as follows:
Sec. 124.521 What are the requirements for representing 8(a) status,
and what are the penalties for misrepresentation?
* * * * *
(e) Recertification. (1) * * * Except as set forth in paragraph
(e)(2) of this section, where a concern later fails to qualify as an
8(a) Participant, the procuring agency may exercise options and still
count the award as an award to a Small Disadvantaged Business (SDB).
* * * * *
PART 125--GOVERNMENT CONTRACTING PROGRAMS
0
41. The authority citation for part 125 continues to read as follows:
Authority: 15 U.S.C. 632(p), (q), 634(b)(6), 637, 644, 657(f),
and 657r.
0
42. Amend Sec. 125.2 by revising paragraph (e)(6)(i) and adding a new
paragraph (g) to read as follows:
Sec. 125.2 What are SBA's and the procuring agency's responsibilities
when providing contracting assistance to small businesses?
* * * * *
(e) * * *
(6) * * *
(i) Notwithstanding the fair opportunity requirements set forth in
10 U.S.C. 2304c and 41 U.S.C. 4106(c), a contracting officer may set
aside orders for small businesses, eligible 8(a) Participants,
certified HUBZone small business concerns, SDVO small business
concerns, WOSBs, and EDWOSBs against full and open Multiple Award
Contracts. In addition, a contracting officer may set aside orders for
eligible 8(a) Participants, certified HUBZone small business concerns,
SDVO small business concerns, WOSBs, and EDWOSBs
[[Page 66192]]
against total small business set-aside Multiple Award Contracts,
partial small business set-aside Multiple Award Contracts, and small
business reserves of Multiple Award Contracts awarded in full and open
competition. Although a contracting officer can set aside orders issued
under a small business set-aside Multiple Award Contract or reserve to
any subcategory of small businesses, contracting officers are
encouraged to review the award dollars under the Multiple Award
Contract and aim to make available for award at least 50% of the award
dollars under the Multiple Award Contract to all contract holders of
the underlying small business set-aside Multiple Award Contract or
reserve. However, a contracting officer may not further set aside
orders for specific types of small business concerns against Multiple
Award Contracts that are set-aside or reserved for eligible 8(a)
Participants, certified HUBZone small business concerns, SDVO small
business concerns, WOSBs, and EDWOSBs (e.g., a contracting officer
cannot set-aside an order for 8(a) Participants that are also certified
HUBZone small business concerns against an 8(a) Multiple Award
Contract).
* * * * *
(g) Capabilities, past performance, and experience. When an offer
of a small business prime contractor includes a proposed team of small
business subcontractors and specifically identifies the first-tier
subcontractor(s) in the proposal, the head of the agency must consider
the capabilities, past performance, and experience of each first tier
subcontractor that is part of the team as the capabilities, past
performance, and experience of the small business prime contractor if
the capabilities, past performance, and experience of the small
business prime does not independently demonstrate capabilities and past
performance necessary for award.
0
43. Amend Sec. 125.3 by adding a sentence to the end of paragraph
(b)(2), and by revising the first sentence of paragraph (c)(1)(viii)
and paragraph (c)(1)(ix) to read as follows:
Sec. 125.3 What types of subcontracting assistance are available to
small businesses?
* * * * *
(b) * * *
(2) * * * This applies whether the firm qualifies as a small
business concern for the size standard corresponding to the NAICS code
assigned to the contract, or is deemed to be treated as a small
business concern by statute (see e.g., 43 U.S.C. 1626(e)(4)(B)).
* * * * *
(c) * * *
(1) * * *
(viii) The contractor must provide pre-award written notification
to unsuccessful small business offerors on all subcontracts over the
simplified acquisition threshold (as defined in the FAR at 48 CFR
2.101) for which a small business concern received a preference. * * *
(ix) As a best practice, the contractor may provide the pre-award
written notification cited in paragraph (c)(1)(viii) of this section to
unsuccessful and small business offerors on subcontracts at or below
the simplified acquisition threshold (as defined in the FAR at 48 CFR
2.101) and should do so whenever practical; and
* * * * *
0
44. Amend Sec. 125.5 by:
0
a. Revising the third sentence of paragraph (a)(1);
0
b. Redesignating paragraphs (f)(2) and (f)(3) as paragraphs (f)(3) and
(f)(4) respectively;
0
c. Adding a new paragraph (f)(2);
0
d. Removing the phrase ``$100,000 or less, or in accordance with
Simplified Acquisition Threshold procedures'' and adding in its place
the phrase ``Less than or equal to the Simplified Acquisition
Threshold'' in paragraph (g);
0
e. Removing the phrase ``Between $100,000 and $25 million'' and adding
in its place the phrase ``Above the Simplified Acquisition Threshold
and less than or equal to $25 million'' in paragraph (g);
0
f. Removing the term ``$100,000'' and adding in its place ``the
simplified acquisition threshold'' in paragraphs (h) and (i).
The revision and addition read as follows:
Sec. 125.5 What is the Certificate of Competency Program?
(a) * * *
(1) * * * The COC Program is applicable to all Government
procurement actions, with the exception of 8(a) sole source awards but
including Multiple Award Contracts and orders placed against Multiple
Award Contracts, where the contracting officer has used any issues of
capacity or credit (responsibility) to determine suitability for an
award. * * *
* * * * *
(f) * * *
(2) An offeror seeking a COC has the burden of proof to demonstrate
that it possesses all relevant elements of responsibility and that it
has overcome the contracting officer's objection(s).
* * * * *
0
45. Amend Sec. 125.6 by:
0
a. Revising paragraph (a) introductory text;
0
b. Revising paragraph (a)(2)(ii)(B);
0
c. Revising Examples 2, 3 and 4 to paragraph (a)(2);
0
d. Revising the paragraph (b) introductory text; and
0
e. Adding Example 3 to paragraph (b).
The revisions and addition read as follows:
Sec. 125.6 What are the prime contractor's limitations on
subcontracting?
(a) General. In order to be awarded a full or partial small
business set-aside contract with a value greater than the simplified
acquisition threshold (as defined in the FAR at 48 CFR 2.101), an 8(a)
contract, an SDVO SBC contract, a HUBZone contract, or a WOSB or EDWOSB
contract pursuant to part 127 of this chapter, a small business concern
must agree that:
* * * * *
(2) * * *
(ii) * * *
(B) For a multiple item procurement where a waiver as described in
Sec. 121.406(b)(5) of this chapter is granted for one or more items,
compliance with the limitation on subcontracting requirement will be
determined by combining the value of the items supplied by domestic
small business manufacturers or processors with the value of the items
subject to a waiver. As such, as long as the value of the items to be
supplied by domestic small business manufacturers or processors plus
the value of the items to be supplied that are subject to a waiver
account for at least 50% of the value of the contract, the limitations
on subcontracting requirement is met.
* * * * *
Example 2 to paragraph (a)(2). A procurement is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that nine
of the items can be sourced from small business manufacturers and one
item is subject to an SBA class waiver. Since 100% of the value of the
contract can be procured through domestic small business manufacturers
or processors plus manufacturers or processors of the item for which a
waiver has been granted, the procurement should be set aside for small
business. At least 50% of the value of the contract, or 50% of
$1,000,000, must be supplied by one or more domestic small business
manufacturers or manufacturers or processors of the one item for which
[[Page 66193]]
class waiver has been granted. In addition, the prime small business
nonmanufacturer may act as a manufacturer for one or more items.
Example 3 to paragraph (a)(2). A contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that only
four of these items are manufactured by small businesses. The value of
the items manufactured by small business is estimated to be $400,000.
The contracting officer seeks and is granted contract specific waivers
on the other six items. Since 100% of the value of the contract can be
procured through domestic small business manufacturers or processors
plus manufacturers or processors of the items for which a waiver has
been granted, the procurement should be set aside for small business.
At least 50% of the value of the contract, or 50% of $1,000,000, must
be supplied by one or more domestic small business manufacturers or
manufacturers or processors of the six items for which a contract
specific waiver has been granted. In addition, the prime small business
nonmanufacturer may act as a manufacturer for one or more items.
Example 4 to paragraph (a)(2). A contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that three
of the items can be sourced from small business manufacturers at this
particular time, and the estimated value of these items is $300,000.
There are no class waivers subject to the remaining seven items. In
order for this procurement to be set aside for small business, a
contracting officer must seek and be granted a contract specific waiver
for one or more items totaling $200,000 (so that $300,000 plus $200,000
equals 50% of the value of the entire procurement). Once a contract
specific waiver is received for one or more items, at least 50% of the
value of the contract, or 50% of $1,000,000, must be supplied by one or
more domestic small business manufacturers or processors or by
manufacturers or processors of the items for which a contract specific
waiver has been granted. In addition, the prime small business
nonmanufacturer may act as a manufacturer for one or more items.
* * * * *
(b) Mixed contracts. Where a contract integrates any combination of
services, supplies, or construction, the contracting officer shall
select the appropriate NAICS code as prescribed in Sec. 121.402(b) of
this chapter. The contracting officer's selection of the applicable
NAICS code is determinative as to which limitation on subcontracting
and performance requirement applies. Based on the NAICS code selected,
the relevant limitation on subcontracting requirement identified in
paragraphs (a)(1) through (4) of this section will apply only to that
portion of the contract award amount. In no case shall more than one
limitation on subcontracting requirement apply to the same contract.
* * * * *
Example 3 to paragraph (b). A procuring activity is acquiring both
services and general construction through a small business set-aside.
The total value of the requirement is $10,000,000, with the
construction portion comprising $8,000,000, and the services portion
comprising $2,000,000. The contracting officer appropriately assigns a
construction NAICS code to the requirement. The 85% limitation on
subcontracting identified in paragraph (a)(3) would apply to this
procurement. Because the services portion of the contract is excluded
from consideration, the relevant amount for purposes of calculating the
limitation on subcontracting requirement is $8,000,000. As such, the
prime contractor cannot subcontract more than $6,800,000 to non-
similarly situated entities, and the prime and/or similarly situated
entities must perform at least $1,200,000.
* * * * *
0
46. Amend Sec. 125.8 by:
0
a. Revising paragraphs (b)(2)(ii) and (iv), the second sentence of
paragraph (b)(2)(v), and paragraphs (b)(2)(xi) and (xii);
0
b. Adding a new sentence at the end of paragraph (c)(1);
0
c. Adding paragraph (c)(4); and
0
d. Revising paragraphs (e), and (h)(2).
The revisions and additions read as follows:
Sec. 125.8 What requirements must a joint venture satisfy to submit
an offer for a procurement or sale set aside or reserved for small
business?
* * * * *
(b) * * *
(2) * * *
(ii) Designating a small business as the managing venturer of the
joint venture, and designating a named employee of the small business
managing venturer as the manager with ultimate responsibility for
performance of the contract (the ``Responsible Manager'').
(A) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(B) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the small business at the time
the joint venture submits an offer, but, if he or she is not, there
must be a signed letter of intent that the individual commits to be
employed by the small business if the joint venture is the successful
offeror. The individual identified as the Responsible Manager cannot be
employed by the mentor and become an employee of the small business for
purposes of performance under the joint venture.
(C) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager;
* * * * *
(iv) Stating that the small business participant(s) must receive
profits from the joint venture commensurate with the work performed by
them, or a percentage agreed to by the parties to the joint venture
whereby the small business participant(s) receive profits from the
joint venture that exceed the percentage commensurate with the work
performed by them, and that at the conclusion of the joint venture
contract(s) and/or the termination of a joint venture, any funds
remaining in the joint venture bank account shall distributed at the
discretion of the joint venture members according to percentage of
ownership;
(v) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
(xi) Stating that annual performance-of-work statements required by
paragraph (h)(1) must be submitted to SBA and the relevant contracting
officer not later than 45 days after each operating year of the joint
venture; and
(xii) Stating that the project-end performance-of-work required by
paragraph (h)(2) must be submitted to SBA and the relevant contracting
officer no later than 90 days after completion of the contract.
* * * * *
(c) * * *
(1) * * * Except as set forth in paragraph (c)(4) of this section,
the 40% calculation for prot[eacute]g[eacute] workshare
[[Page 66194]]
follows the same rules as those set forth in Sec. 125.6 concerning
supplies, construction, and mixed contracts, including the exclusion of
the same costs from the limitation on subcontracting calculation (e.g.,
cost of materials excluded from the calculation in construction
contracts).
* * * * *
(4) Work performed by a similarly situated entity will not count
toward the requirement that a prot[eacute]g[eacute] must perform at
least 40% of the work performed by a joint venture.
* * * * *
(e) Capabilities, past performance and experience. When evaluating
the capabilities, past performance, experience, business systems and
certifications of an entity submitting an offer for a contract set
aside or reserved for small business as a joint venture established
pursuant to this section, a procuring activity must consider work done
and qualifications held individually by each partner to the joint
venture as well as any work done by the joint venture itself
previously. A procuring activity may not require the
prot[eacute]g[eacute] firm to individually meet the same evaluation or
responsibility criteria as that required of other offerors generally.
The partners to the joint venture in the aggregate must demonstrate the
past performance, experience, business systems and certifications
necessary to perform the contract.
* * * * *
(h) * * *
(2) At the completion of every contract set aside or reserved for
small business that is awarded to a joint venture between a
prot[eacute]g[eacute] small business and a mentor authorized by Sec.
125.9, and upon request by SBA or the relevant contracting officer, the
small business partner to the joint venture must submit a report to the
relevant contracting officer and to SBA, signed by an authorized
official of each partner to the joint venture, explaining how and
certifying that the performance of work requirements were met for the
contract, and further certifying that the contract was performed in
accordance with the provisions of the joint venture agreement that are
required under paragraph (b) of this section.
* * * * *
0
47. Amend Sec. 125.9 by:
0
a. Revising paragraphs (b), (c)(1)(ii), and (c)(2) introductory text;
0
b. Removing paragraph (c)(4);
0
c. Revising paragraphs (d)(1) introductory text, (d)(1)(iii)
introductory text, and (d)(1)(iii)(B);
0
d. Adding paragraph (d)(6);
0
e. Removing ``(e.g., management and/or technical assistance, loans and/
or equity investments, cooperation on joint venture projects, or
subcontracts under prime contracts being performed by the mentor)'' in
paragraph (e)(1) introductory text, and adding in its place ``(e.g.,
management and or technical assistance; loans and/or equity
investments; bonding; use of equipment; export assistance; assistance
as a subcontractor under prime contracts being performed by the
prot[eacute]g[eacute]; cooperation on joint venture projects; or
subcontracts under prime contracts being performed by the mentor)''.
0
f. Revising paragraphs (e)(1)(i) and (e)(5);
0
g. Redesignating paragraphs (e)(6) through (8) as paragraphs (e)(7)
through (9), respectively;
0
h. Adding new paragraph (e)(6);
0
i. Revising paragraph (f);
0
j. Revising paragraph (g) introductory text;
0
k. Revising paragraph (g)(4);
0
l. Adding paragraph (g)(5); and
0
m. Revising paragraph (h)(1) introductory text.
The revisions and additions to read as follows:
Sec. 125.9 What are the rules governing SBA's small business mentor-
prot[eacute]g[eacute] program?
* * * * *
(b) Mentors. Any concern that demonstrates a commitment and the
ability to assist small business concerns may act as a mentor and
receive benefits as set forth in this section. This includes other than
small businesses.
(1) In order to qualify as a mentor, a concern must demonstrate
that it:
(i) Is capable of carrying out its responsibilities to assist the
prot[eacute]g[eacute] firm under the proposed mentor-
prot[eacute]g[eacute] agreement;
(ii) Does not appear on the Federal list of debarred or suspended
contractors; and
(iii) Can impart value to a prot[eacute]g[eacute] firm due to
lessons learned and practical experience gained or through its
knowledge of general business operations and government contracting.
(2) SBA will decline an application if SBA determines that the
mentor does not possess good character or a favorable financial
position, employs or otherwise controls the managers of the
prot[eacute]g[eacute], or is otherwise affiliated with the
prot[eacute]g[eacute]. Once approved, SBA may terminate the mentor-
prot[eacute]g[eacute] agreement if the mentor does not possess good
character or a favorable financial position, was affiliated with the
prot[eacute]g[eacute] at time of application, or is affiliated with the
prot[eacute]g[eacute] for reasons other than the mentor-
prot[eacute]g[eacute] agreement or assistance provided under the
agreement.
(3) In order for SBA to agree to allow a mentor to have more than
one prot[eacute]g[eacute] at time, the mentor and proposed additional
prot[eacute]g[eacute] must demonstrate that the added mentor-
prot[eacute]g[eacute] relationship will not adversely affect the
development of either prot[eacute]g[eacute] firm (e.g., the second firm
may not be a competitor of the first firm).
(i) A mentor that has more than one prot[eacute]g[eacute] cannot
submit competing offers in response to a solicitation for a specific
procurement through separate joint ventures with different
prot[eacute]g[eacute]s.
(ii) A mentor generally cannot have more than three
prot[eacute]g[eacute]s at one time. However, the first two mentor-
prot[eacute]g[eacute] relationships approved by SBA between a specific
mentor and a small business that has its principal office located in
the Commonwealth of Puerto Rico do not count against the limit of three
proteges that a mentor can have at one time.
(c) * * *
(1) * * *
(ii) Where a small business concern seeks to qualify as a
prot[eacute]g[eacute] in a secondary NAICS code, the concern must
demonstrate how the mentor-prot[eacute]g[eacute] relationship will help
it further develop or expand its current capabilities in that secondary
NAICS code. SBA will not approve a mentor-prot[eacute]g[eacute]
relationship in a secondary NAICS code in which the small business
concern has no prior experience. SBA may approve a mentor-
prot[eacute]g[eacute] relationship where the small business concern can
demonstrate that it has performed work in one or more similar NAICS
codes or where the NAICS code in which the small business concern seeks
a mentor-prot[eacute]g[eacute] relationship is a logical business
progression to work previously performed by the concern.
(2) A prot[eacute]g[eacute] firm may generally have only one mentor
at a time. SBA may approve a second mentor for a particular
prot[eacute]g[eacute] firm where the second relationship will not
compete or otherwise conflict with the first mentor-
prot[eacute]g[eacute] relationship, and:
* * * * *
(d) * * * (1) A prot[eacute]g[eacute] and mentor may joint venture
as a small business for any government prime contract, subcontract or
sale, provided the prot[eacute]g[eacute] qualifies as small for the
procurement or sale. Such a joint venture may seek any type of small
business contract (i.e., small business set-aside, 8(a), HUBZone, SDVO,
or
[[Page 66195]]
WOSB) for which the prot[eacute]g[eacute] firm qualifies (e.g., a
prot[eacute]g[eacute] firm that qualifies as a WOSB could seek a WOSB
set-aside as a joint venture with its SBA-approved mentor). Similarly,
a joint venture between a prot[eacute]g[eacute] and mentor may seek a
subcontract as a HUBZone small business, small disadvantaged business,
SDVO small business, or WOSB provided the prot[eacute]g[eacute]
individually qualifies as such.
* * * * *
(iii) A joint venture between a prot[eacute]g[eacute] and its
mentor will qualify as a small business for any procurement for which
the prot[eacute]g[eacute] individually qualifies as small. Once a
prot[eacute]g[eacute] firm no longer qualifies as a small business for
the size standard corresponding to the NAICS code under which SBA
approved its mentor-prot[eacute]g[eacute] relationship, any joint
venture between the prot[eacute]g[eacute] and its mentor will no longer
be able to seek additional contracts or subcontracts as a small
business for any NAICS code having the same or lower size standard. A
joint venture between a prot[eacute]g[eacute] and its mentor could seek
additional contract opportunities in NAICS codes having a size standard
for which the prot[eacute]g[eacute] continues to qualify as small. A
change in the prot[eacute]g[eacute]'s size status does not generally
affect contracts previously awarded to a joint venture between the
prot[eacute]g[eacute] and its mentor.
* * * * *
(B) For contracts with durations of more than five years (including
options), where size re-certification is required under Sec.
121.404(g)(3) of this chapter no more than 120 days prior to the end of
the fifth year of the contract and no more than 120 days prior to
exercising any option thereafter, once the prot[eacute]g[eacute] no
longer qualifies as small for the size standard corresponding to the
NAICS code assigned to the contract, the joint venture will not be able
re-certify itself to be a small business for that contract. The rules
set forth in Sec. 121.404(g)(3) of this chapter apply in such
circumstances.
* * * * *
(6) A mentor that provides a subcontract to a prot[eacute]g[eacute]
that has its principal office located in the Commonwealth of Puerto
Rico may (i) receive positive consideration for the mentor's past
performance evaluation, and (ii) apply costs incurred for providing
training to such protege toward the subcontracting goals contained in
the subcontracting plan of the mentor.
(e) * * *
(1) * * *
(i) Specifically identify the business development assistance to be
provided and address how the assistance will help the
prot[eacute]g[eacute] enhance its growth and/or foster or acquire
needed capabilities;
* * * * *
(5) The term of a mentor-prot[eacute]g[eacute] agreement may not
exceed six years. If an initial mentor-prot[eacute]g[eacute] agreement
is for less than six years, it may be extended by mutual agreement
prior to the expiration date for an additional amount of time that
would total no more than six years from its inception (e.g., if the
initial mentor-prot[eacute]g[eacute] agreement was for two years, it
could be extended for an additional four years by consent of the two
parties; if the initial mentor-prot[eacute]g[eacute] agreement was for
three years, it could be extended for an additional three years by
consent of the two parties). Unless rescinded in writing as a result of
an SBA review, the mentor-prot[eacute]g[eacute] relationship will
automatically renew without additional written notice of continuation
or extension to the prot[eacute]g[eacute] firm.
(6) A prot[eacute]g[eacute] may generally have a total of two
mentor-prot[eacute]g[eacute] agreements with different mentors.
(i) Each mentor-prot[eacute]g[eacute] agreement may last for no
more than six years, as set forth in paragraph (e)(5) of this section.
(ii) If a mentor-prot[eacute]g[eacute] agreement is terminated
within 18 months from the date SBA approved the agreement, that mentor-
prot[eacute]g[eacute] relationship will generally not count as one of
the two mentor-prot[eacute]g[eacute] relationships that a small
business may enter as a prot[eacute]g[eacute]. However, where a
specific small business prot[eacute]g[eacute] appears to enter into
many short-term mentor-prot[eacute]g[eacute] relationships as a means
of extending its program eligibility as a prot[eacute]g[eacute], SBA
may determine that the business concern has exhausted its participation
in the mentor-prot[eacute]g[eacute] program and not approve an
additional mentor-prot[eacute]g[eacute] relationship.
(iii) If during the evaluation of the mentor-prot[eacute]g[eacute]
relationship pursuant to paragraphs (g) and (h) of this section SBA
determines that a mentor has not provided the business development
assistance set forth in its mentor-prot[eacute]g[eacute] agreement or
that the quality of the assistance provided was not satisfactory, SBA
may allow the prot[eacute]g[eacute] to substitute another mentor for
the time remaining in the mentor-prot[eacute]g[eacute] agreement
without counting against the two-mentor limit.
* * * * *
(f) Decision to decline mentor-prot[eacute]g[eacute] relationship.
Where SBA declines to approve a specific mentor-prot[eacute]g[eacute]
agreement, SBA will issue a written decision setting forth its
reason(s) for the decline. The small business concern seeking to be a
prot[eacute]g[eacute] cannot attempt to enter into another mentor-
prot[eacute]g[eacute] relationship with the same mentor for a period of
60 calendar days from the date of the final decision. The small
business concern may, however, submit another proposed mentor-
prot[eacute]g[eacute] agreement with a different proposed mentor at any
time after the SBA's final decline decision.
(g) Evaluating the mentor-prot[eacute]g[eacute] relationship. SBA
will review the mentor-prot[eacute]g[eacute] relationship annually. SBA
will ask the prot[eacute]g[eacute] for its assessment of how the
mentor-prot[eacute]g[eacute] relationship is working, whether or not
the prot[eacute]g[eacute] received the agreed upon business development
assistance, and whether the prot[eacute]g[eacute] would recommend the
mentor to be a mentor for another small business in the future. At any
point in the mentor-prot[eacute]g[eacute] relationship where a
prot[eacute]g[eacute] believes that a mentor has not provided the
business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance
provided did not meet its expectations, the prot[eacute]g[eacute] can
ask SBA to intervene on its behalf with the mentor.
* * * * *
(4) At any point in the mentor-prot[eacute]g[eacute] relationship
where a prot[eacute]g[eacute] believes that a mentor has not provided
the business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance
provided did not meet its expectations, the prot[eacute]g[eacute] can
ask SBA to intervene on its behalf with the mentor.
(5) SBA may decide not to approve continuation of a mentor-
prot[eacute]g[eacute] agreement where:
(i) SBA finds that the mentor has not provided the assistance set
forth in the mentor-prot[eacute]g[eacute] agreement;
(ii) SBA finds that the assistance provided by the mentor has not
resulted in any material benefits or developmental gains to the
prot[eacute]g[eacute]; or
(iii) A prot[eacute]g[eacute] does not provide information relating
to the mentor-prot[eacute]g[eacute] relationship, as set forth in
paragraph (g).
(h) Consequences of not providing assistance set forth in the
mentor-prot[eacute]g[eacute] agreement. (1) Where SBA determines that a
mentor may not have provided to the prot[eacute]g[eacute] firm the
business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance
provided may not have been satisfactory, SBA will notify the mentor of
such determination and afford the mentor an opportunity to respond. The
[[Page 66196]]
mentor must respond within 30 days of the notification, presenting
information demonstrating that it did satisfactorily provide the
assistance set forth in the mentor-prot[eacute]g[eacute] agreement or
explaining why it has not provided the agreed upon assistance and
setting forth a definitive plan as to when it will provide such
assistance. If the mentor fails to respond, does not adequately provide
information demonstrating that it did satisfactorily provide the
assistance set forth in the mentor-prot[eacute]g[eacute] agreement,
does not supply adequate reasons for its failure to provide the agreed
upon assistance, or does not set forth a definite plan to provide the
assistance:
* * * * *
0
48. Amend Sec. 125.18 by:
0
a. Revising paragraph (a);
0
b. Removing ``(see Sec. Sec. 125.9 and 124.520 of this chapter)'' in
paragraph (b)(1)(ii) and adding in its place ``(see Sec. 125.9)'';
0
c. Removing ``Sec. 124.520 or Sec. 125.9 of this chapter'' in
paragraph (b)(2) introductory text and adding in its place ``Sec.
125.9'';
0
d. Revising paragraphs (b)(2)(ii) and (iv) and the second sentence of
paragraph (b)(2)(v);
0
e. Removing ``or Sec. 124.520 of this chapter'' in paragraph
(b)(3)(i);
0
f. Redesignating paragraphs (d)(1) through (4) as paragraphs (d)(2)
through (5), respectively; and
0
g. Adding a new paragraph (d)(1).
The revisions and addition read as follows:
Sec. 125.18 What requirements must an SDVO SBC meet to submit an
offer on a contract?
(a) General. In order for a business concern to submit an offer and
be eligible for the award of a specific SDVO contract, the concern must
submit the appropriate representations and certifications at the time
it submits its initial offer which includes price (or other formal
response to a solicitation) to the contracting officer, including, but
not limited to, the fact that:
(1) It is small under the size standard corresponding to the NAICS
code(s) assigned to the contract;
(2) It is an SDVO SBC; and
(3) There has been no material change in any of its circumstances
affecting its SDVO SBC eligibility.
* * * * *
(b) * * *
(2) * * *
(ii) Designating an SDVO SBC as the managing venturer of the joint
venture, and designating a named employee of the SDVO SBC managing
venturer as the manager with ultimate responsibility for performance of
the contract (the ``Responsible Manager'').
(A) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(B) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the SDVO SBC at the time the
joint venture submits an offer, but, if he or she is not, there must be
a signed letter of intent that the individual commits to be employed by
the SDVO SBC if the joint venture is the successful offeror. The
individual identified as the Responsible Manager cannot be employed by
the mentor and become an employee of the SDVO SBC for purposes of
performance under the joint venture.
(C) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager.
* * * * *
(iv) Stating that the SDVO SBC must receive profits from the joint
venture commensurate with the work performed by the SDVO SBC, or a
percentage agreed to by the parties to the joint venture whereby the
SDVO SBC receives profits from the joint venture that exceed the
percentage commensurate with the work performed by the SDVO SBC;
(v) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
(d) Multiple Award Contracts. (1) SDVO status. With respect to
Multiple Award Contracts, orders issued against a Multiple Award
Contract, and Blanket Purchase Agreements issued against a Multiple
Award Contract:
(i) SBA determines SDVO small business eligibility for the
underlying Multiple Award Contract as of the date a business concern
certifies its status as an SDVO small business concern as part of its
initial offer (or other formal response to a solicitation), which
includes price, unless the firm was required to recertify under
paragraph (e) of this section.
(A) Unrestricted Multiple Award Contracts or Set-Aside Multiple
Award Contracts for Other than SDVO. For an unrestricted Multiple Award
Contract or other Multiple Award Contract not specifically set aside
for SDVO, if a business concern is an SDVO small business concern at
the time of offer and contract-level recertification for the Multiple
Award Contract, it is an SDVO small business concern for goaling
purposes for each order issued against the contract, unless a
contracting officer requests recertification as an SDVO small business
for a specific order or Blanket Purchase Agreement. Except for orders
and Blanket Purchase Agreements issued under any Federal Supply
Schedule contract, if an order or a Blanket Purchase Agreement under an
unrestricted Multiple Award Contract is set-aside exclusively for SDVO
small business, a concern must recertify that it qualifies as an SDVO
small business at the time it submits its initial offer, which includes
price, for the particular order or Blanket Purchase Agreement. However,
where the underlying Multiple Award Contract has been awarded to a pool
of concerns for which SDVO small business status is required, if an
order or a Blanket Purchase Agreement under that Multiple Award
Contract is set-aside exclusively for concerns in the SDVO small
business pool, concerns need not recertify their status as SDVO small
business concerns (unless a contracting officer requests size
certifications with respect to a specific order or Blanket Purchase
Agreement).
(B) SDVO Set-Aside Multiple Award Contracts. For a Multiple Award
Contract that is specifically set aside for SDVO small business, if a
business concern is an SDVO small business at the time of offer and
contract-level recertification for the Multiple Award Contract, it is
an SDVO small business for each order issued against the contract,
unless a contracting officer requests recertification as an SDVO small
business for a specific order or Blanket Purchase Agreement.
(ii) SBA will determine SDVO small business status at the time of
initial offer (or other formal response to a solicitation), which
includes price, for an order or an Agreement issued against a Multiple
Award Contract if the contracting officer requests a new SDVO small
business certification for the order or Agreement.
* * * * *
0
49. Amend Sec. 125.28 by revising the section heading and adding a
sentence to the end of paragraph (d)(1) to read as follows:
[[Page 66197]]
Sec. 125.28 What are the requirements for filing a service-disabled
veteran-owned status protest?
* * * * *
(d) * * *
(1) * * * Except for an order or Blanket Purchase Agreement issued
under any Federal Supply Schedule contract, for an order or a Blanket
Purchase Agreement that is set-aside for SDVO small business under a
Multiple Award Contract that is not itself set aside for SDVO small
business or have a reserve for SDVO small business (or any SDVO order
where the contracting officer has requested recertification of SDVO
status), an interested party must submit its protest challenging the
SDVO status of a concern for the order or Agreement by close of
business on the fifth business day after notification by the
contracting officer of the apparent successful offeror.
* * * * *
PART 126--HUBZONE PROGRAM
0
50. The authority citation for part 126 continues to read as follows:
Authority: 15 U.S.C. 632(a), 632(j), 632(p), 644 and 657a.
Sec. 126.500 [Amended]
0
51. Amend Sec. 126.500 by removing the words ``(whether by SBA or a
third-party certifier)'' in paragraph (b) introductory text.
Sec. 126.602 [Amended]
0
52. Amend 126.602 in paragraph (c) by removing ``Sec. 126.200(a)'' and
adding in its place ``Sec. 126.200(c)(2)(ii)''.
0
53. Revise Sec. 126.606 to read as follows:
Sec. 126.606 May a procuring activity request that SBA release a
requirement from the 8(a) BD program for award as a HUBZone contract?
A procuring activity may request that SBA release an 8(a)
requirement for award as a HUBZone contract under the procedures set
forth in Sec. 124.504(d).
0
54. Amend Sec. 126.616 by removing ``(or, if also an 8(a) BD
Participant, with an approved mentor authorized by Sec. 124.520 of
this chapter)'' in paragraph (a), and by revising paragraphs (c)(2) and
(c)(4) and the second sentence of paragraph (c)(5) to read as follows:
Sec. 126.616 What requirements must a joint venture satisfy to
submit an offer and be eligible to perform on a HUBZone contract?
* * * * *
(c) * * *
(2) Designating a certified HUBZone small business concern as the
managing venturer of the joint venture, and designating a named
employee of the certified HUBZone small business managing venturer as
the manager with ultimate responsibility for performance of the
contract (the ``Responsible Manager'').
(i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(ii) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the certified HUBZone small
business concern at the time the joint venture submits an offer, but,
if he or she is not, there must be a signed letter of intent that the
individual commits to be employed by the certified HUBZone small
business concern if the joint venture is the successful offeror. The
individual identified as the Responsible Manager cannot be employed by
the mentor and become an employee of the certified HUBZone small
business concern for purposes of performance under the joint venture.
(iii) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager.
* * * * *
(4) Stating that the certified HUBZone small business concern must
receive profits from the joint venture commensurate with the work
performed by the certified HUBZone small business concern, or a
percentage agreed to by the parties to the joint venture whereby the
certified HUBZone small business concern receives profits from the
joint venture that exceed the percentage commensurate with the work
performed by the certified HUBZone small business concern;
(5) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
Sec. 126.618 [Amended]
0
55. Amend Sec. 126.618 by removing ``(or, if also an 8(a) BD
Participant, under Sec. 124.520 of this chapter)'' in paragraph (a).
0
56. Amend Sec. 126.801 by adding a sentence to the end of paragraph
(d)(1) to read as follows:
Sec. 126.801 How does an interested party file a HUBZone status
protest?
* * * * *
(d) * * *
(1) * * * Except for an order or Blanket Purchase Agreement issued
under any Federal Supply Schedule contact, in connection with an order
or an Agreement that is set-aside for a certified HUBZone small
business concern under a Multiple Award Contract that is not itself set
aside for certified HUBZone small business concerns or have a reserve
for certified HUBZone small business concerns, (or any HUBZone set-
aside order where the contracting officer has requested recertification
of such status), an interested party must submit its protest
challenging the HUBZone status of a concern for the order or Agreement
by close of business on the fifth business day after notification by
the contracting officer of the intended awardee of the order or
Agreement.
* * * * *
PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM
0
57. The authority citation for part 127 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 637(m), 644 and 657r.
Sec. 127.503 [Amended]
0
58. Amend Sec. 127.503 by removing paragraph (h).
0
59. Revise Sec. 127.504 to read as follows:
Sec. 127.504 What requirements must an EDWOSB or WOSB meet to be
eligible for an EDWOSB or WOSB requirement?
(a) General. In order for a concern to submit an offer on a
specific EDWOSB or WOSB set-aside requirement, the concern must qualify
as a small business concern under the size standard corresponding to
the NAICS code assigned to the contract, and either be a certified
EDWOSB or WOSB pursuant to Sec. 127.300, or represent that it has
submitted a complete application for WOSB or EDWOSB certification to
SBA or a third-party certifier and has not received a negative
determination regarding that application from SBA or the third party
certifier.
(1) If a concern becomes the apparent successful offeror while its
application for WOSB or EDWOSB certification is pending, either at SBA
or a third-party certifier, the contracting officer for the particular
contract must immediately inform SBA's D/GC. SBA will then prioritize
the concern's WOSB or EDWOSB application and make a
[[Page 66198]]
determination regarding the firm's status as a WOSB or EDWOSB within 15
calendar days from the date that SBA received the contracting officer's
notification. Where the application is pending with a third-party
certifier, SBA will immediately contact the third-party certifier to
require the third-party certifier to complete its determination within
15 calendar days.
(2) If the contracting officer does not receive an SBA or third-
party certifier determination within 15 calendar days after the SBA's
receipt of the notification, the contracting officer may presume that
the apparently successful offeror is not an eligible WOSB or EDWOSB and
may make award accordingly, unless the contracting officer grants an
extension to the 15-day response period.
(b) Sole source EDWOSB or WOSB requirements. In order for a concern
to seek a specific sole source EDWOSB or WOSB requirement, the concern
must be a certified EDWOSB or WOSB pursuant to Sec. 127.300 and
qualify as small under the size standard corresponding to the
requirement being sought.
(c) Joint ventures. A business concern seeking an EDWOSB or WOSB
contract as a joint venture may submit an offer if the joint venture
meets the requirements as set forth in Sec. 127.506.
(d) Multiple Award Contracts. With respect to Multiple Award
Contracts, orders issued against a Multiple Award Contract, and Blanket
Purchase Agreements issued against a Multiple Award Contract:
(1) SBA determines EDWOSB or WOSB eligibility for the underlying
Multiple Award Contract as of the date a concern certifies its status
as an EDWOSB or WOSB as part of its initial offer (or other formal
response to a solicitation), which includes price, unless the concern
was required to recertify its status as a WOSB or EDWOSB under
paragraph (f) of this section.
(i) Unrestricted Multiple Award Contracts or Set-Aside Multiple
Award Contracts for Other than EDWOSB or WOSB. For an unrestricted
Multiple Award Contract or other Multiple Award Contract not set aside
specifically for EDWOSB or WOSB, if a business concern is an EDWOSB or
WOSB at the time of offer and contract-level recertification for the
Multiple Award Contract, it is an EDWOSB or WOSB for goaling purposes
for each order issued against the contract, unless a contracting
officer requests recertification as an EDWOSB or WOSB for a specific
order or Blanket Purchase Agreement. Except for orders and Blanket
Purchase Agreements issued under any Federal Supply Schedule contract,
if an order or a Blanket Purchase Agreement under an unrestricted
Multiple Award Contract is set aside exclusively for EDWOSB or WOSB, a
concern must recertify it qualifies as an EDWOSB or WOSB at the time it
submits its initial offer, which includes price, for the particular
order or Agreement. However, where the underlying Multiple Award
Contract has been awarded to a pool of WOSB or EDWOSB concerns for
which WOSB or EDWOSB status is required, if an order or a Blanket
Purchase Agreement under that Multiple Award Contract is set aside
exclusively for concerns in the WOSB or EDWOSB pool, concerns need not
recertify their status as WOSBs or EDWOSBs (unless a contracting
officer requests size certifications with respect to a specific order
or Blanket Purchase Agreement).
(ii) EDWOSB or WOSB Set-Aside Multiple Award Contracts. For a
Multiple Award Contract that is set aside specifically for EDWOSB or
WOSB, if a business concern is an EDWOSB or WOSB at the time of offer
and contract-level recertification for the Multiple Award Contract, it
is an EDWOSB or WOSB for each order issued against the contract, unless
a contracting officer requests recertification as an EDWOSB or WOSB for
a specific order or Blanket Purchase Agreement.
(2) SBA will determine EDWOSB or WOSB status at the time a business
concern submits its initial offer (or other formal response to a
solicitation) which includes price for an order or an Agreement issued
against a Multiple Award Contract if the contracting officer requests a
new EDWOSB or WOSB certification for the order or Agreement.
(e) Limitations on subcontracting. A business concern seeking an
EDWOSB or WOSB requirement must also meet the applicable limitations on
subcontracting requirements as set forth in Sec. 125.6 of this chapter
for the performance of EDWOSB or WOSB contracts (both sole source and
those totally set aside for EDWOSB or WOSB), the performance of the
set-aside portion of a partial set-aside contract, or the performance
of orders set-aside for EDWOSB or WOSB.
(f) Non-manufacturers. An EDWOSB or WOSB that is a non-
manufacturer, as defined in Sec. 121.406(b) of this chapter, may
submit an offer on an EDWOSB or WOSB contract for supplies, if it meets
the requirements under the non-manufacturer rule set forth in Sec.
121.406(b) of this chapter.
(g) Ostensible subcontractor. Where a subcontractor that is not
similarly situated performs primary and vital requirements of a set-
aside service contract, or where a prime contractor is unduly reliant
on a small business that is not similarly situated to perform the set-
aside service contract, the prime contractor is not eligible for award
of a WOSB or EDWOSB contract.
(1) When the subcontractor is small for the size standard assigned
to the procurement, this issue may be grounds for a WOSB or EDWOSB
status protest, as described in subpart F of this part. When the
subcontractor is other than small or alleged to be other than small for
the size standard assigned to the procurement, this issue may be a
ground for a size protest, as described at Sec. 121.103(h)(4) of this
chapter.
(2) SBA will find that a prime WOSB or EDWOSB contractor is
performing the primary and vital requirements of a contract or order
and is not unduly reliant on one or more non-similarly situated
subcontracts where the prime contractor can demonstrate that it,
together with any similarly situated entity, will meet the limitations
on subcontracting provisions set forth in Sec. 125.6.
(h) Recertification. (1) Where a contract being performed by an
EDWOSB or WOSB is novated to another business concern, the concern that
will continue performance on the contract must recertify its status as
an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB
contract) to the procuring agency, or inform the procuring agency that
it does not qualify as an EDWOSB or WOSB, (or qualify as a certified
EDWOSB or WOSB for a WOSB contract) within 30 days of the novation
approval. If the concern cannot recertify its status as an EDWOSB or
WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB contract),
the agency must modify the contract to reflect the new status, and may
not count the options or orders issued pursuant to the contract, from
that point forward, towards its women-owned small business goals.
(2) Where an EDWOSB or WOSB concern that is performing a contract
acquires, is acquired by, or merges with another concern and contract
novation is not required, the concern must, within 30 days of the
transaction becoming final, recertify its status as an EDWOSB or WOSB
(or qualify as a certified EDWOSB or WOSB for a WOSB contract) to the
procuring agency, or inform the procuring agency that it no longer
qualifies as an EDWOSB or WOSB (or qualify as a certified EDWOSB or
WOSB for a
[[Page 66199]]
WOSB contract). If the concern is unable to recertify its status as an
EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB
contract), the agency must modify the contract to reflect the new
status, and may not count the options or orders issued pursuant to the
contract, from that point forward, towards its women-owned small
business goals.
(3) For purposes of contracts (including Multiple Award Contracts)
with durations of more than five years (including options), a
contracting officer must request that a business concern recertify its
status as an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB
for a WOSB contract) no more than 120 days prior to the end of the
fifth year of the contract, and no more than 120 days prior to
exercising any option. If the concern is unable to recertify its status
as an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a
WOSB contract), the agency must modify the contract to reflect the new
status, and may not count the options or orders issued pursuant to the
contract, from that point forward, towards its women-owned small
business goals.
(4) A business concern that did not certify as an EDWOSB or WOSB,
either initially or prior to an option being exercised, may recertify
as an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a
WOSB contract) for a subsequent option period if it meets the
eligibility requirements at that time. The agency must modify the
contract to reflect the new status, and may count the options or orders
issued pursuant to the contract, from that point forward, towards its
women-owned small business goals.
(5) Recertification does not change the terms and conditions of the
contract. The limitations on subcontracting, nonmanufacturer and
subcontracting plan requirements in effect at the time of contract
award remain in effect throughout the life of the contract.
(6) A concern's status will be determined at the time of a response
to a solicitation for an Agreement and each order issued pursuant to
the Agreement.
0
60. Amend Sec. 127.506 by revising paragraphs (c)(2) and (c)(4) and
the second sentence of paragraph (c)(5) to read as follows:
Sec. 127.506 May a joint venture submit an offer on an EDWOSB or
WOSB requirement?
* * * * *
(c) * * *
(2) Designating a WOSB or EDWOSB as the managing venturer of the
joint venture, and designating a named employee of the WOSB or EDWOSB
managing venturer as the manager with ultimate responsibility for
performance of the contract (the ``Responsible Manager'').
(i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(ii) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the WOSB or EDWOSB at the time
the joint venture submits an offer, but, if he or she is not, there
must be a signed letter of intent that the individual commits to be
employed by the WOSB or EDWOSB if the joint venture is the successful
offeror. The individual identified as the Responsible Manager cannot be
employed by the mentor and become an employee of the WOSB or EDWOSB for
purposes of performance under the joint venture.
(iii) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager.
* * * * *
(4) Stating that the WOSB or EDWOSB must receive profits from the
joint venture commensurate with the work performed by the WOSB or
EDWOSB, or a percentage agreed to by the parties to the joint venture
whereby the WOSB or EDWOSB receives profits from the joint venture that
exceed the percentage commensurate with the work performed by the WOSB
or EDWOSB;
(5) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
0
61. Amend Sec. 127.603 by revising the section heading and adding a
sentence to the end of paragraph (c)(1) to read as follows:
Sec. 127.603 What are the requirements for filing an EDWOSB or WOSB
status protest?
* * * * *
(c) * * *
(1) * * * Except for an order or Blanket Purchase Agreement issued
under any Federal Supply Schedule contact, for an order or a Blanket
Purchase Agreement that is set-aside for EDWOSB or WOSB small business
under a Multiple Award Contract that is not itself set aside for EDWOSB
or WOSB small business or have a reserve for EDWOSB or WOSB small
business (or any EDWOSB or WOSB order where the contracting officer has
requested recertification of such status), an interested party must
submit its protest challenging the EDWOSB or WOSB status of a concern
for the order or Blanket Purchase Agreement by close of business on the
fifth business day after notification by the contracting officer of the
apparent successful offeror.
* * * * *
PART 134--RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF
HEARINGS AND APPEALS
0
62. The authority citation for part 134 continues to read as follows:
Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), 634(i),
637(a), 648(l), 656(i), 657t, and 687(c); 38 U.S.C. 8127(f); E.O.
12549, 51 FR 6370, 3 CFR, 1986 Comp., p. 189.
Subpart J issued under 38 U.S.C. 8127(f)(8)(B).
Subpart K issued under 38 U.S.C. 8127(f)(8)(A).
0
63. Amend Sec. 134.318 by adding a paragraph heading to paragraph (a)
and revising paragraph (b) to read as follows:
Sec. 134.318 NAICS Appeals.
(a) General. * * *
(b) Effect of OHA's decision. If OHA grants the appeal (changes the
NAICS code), the contracting officer must amend the solicitation to
reflect the new NAICS code. The decision will also apply to future
solicitations for the same supplies or services.
* * * * *
Jovita Carranza,
Administrator.
[FR Doc. 2020-19428 Filed 10-15-20; 8:45 am]
BILLING CODE 8026-03-P
