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Proposed Rule 8(a) Program


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The U.S. Small Business Administration has proposed changes to the 8(a) Business Development Program. Public comment period is 60 days.

The U.S. Small Business Administration has proposed changes to the 8(a) Business Development Program. Public comment period is 60 days.

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  • 1. Wednesday, October 28, 2009 Part IV Small Business Administration 13 CFR Parts 121 and 124 Small Business Size Regulations; 8(a) Business Development/Small Disadvantaged Business Status Determinations; Proposed Rule mstockstill on DSKH9S0YB1PROD with PROPOSALS2 VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:FRFM28OCP2.SGM 28OCP2
  • 2. 55694 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules SMALL BUSINESS ADMINISTRATION Notice at, please and other Federal mentor/protege ´ ´ submit the information to LeAnn programs that specifically authorize an 13 CFR Parts 121 and 124 Delaney, Deputy Associate exception to affiliation in their Administrator, Office of Business authorizing statute. Because of the RIN 3245–AF53 Development, 409 Third Street, SW., business development purposes of the Small Business Size Regulations; 8(a) Washington, DC 20416, or send an 8(a) BD program, SBA administratively Business Development/Small e-mail to established an exception to affiliation Disadvantaged Business Status Highlight the information that you ´ ´ ´ ´ for protege firms. Specifically, protege Determinations consider to be CBI and explain why you firms are not affiliated with their believe SBA should hold this mentors based on assistance received AGENCY: U.S. Small Business information as confidential. SBA will from their mentors through an SBA- Administration. review the information and make the approved 8(a) BD mentor/protege ´ ´ ACTION: Proposed rule. final determination of whether it will agreement. That exception exists in the publish the information or not. current rule and remains in this SUMMARY: This rule proposes to make FOR FURTHER INFORMATION CONTACT: proposed rule. The proposed rule changes to the regulations governing the LeAnn Delaney, Deputy Associate merely spells out more explicitly the 8(a) Business Development (8(a) BD) Administrator, Office of Business affiliation exception for clarity and Small Disadvantaged Business Development, at (202) 205–5852, or purposes. (SDB) programs, and to the U.S. Small In addition, the proposed rule makes Business Administration’s (SBA or clear that an exception to affiliation for Agency) size regulations. Some of the SUPPLEMENTARY INFORMATION: ´ ´ proteges in other Federal mentor/ changes involve technical issues such as This rule proposes to make a number ´ ´ protege programs will be recognized by changing the term ‘‘SIC code’’ to of changes to the regulations governing SBA only where specifically authorized ‘‘NAICS code’’ to reflect the national the 8(a) BD and SDB programs, and by statute (e.g., the Department of conversion to the North American several changes to SBA’s size ´ ´ Defense mentor/protege program) or Industry Classification System. Other regulations. Some of the changes where SBA has authorized an exception changes are more substantive and result involve technical issues. Other changes ´ ´ to affiliation for a mentor/protege from SBA’s experience in implementing are more substantive and result from program of another Federal agency the current regulations. For example, SBA’s experience in implementing the under the procedures set forth in SBA has learned through experience current regulations. § 121.903. By statute, SBA is the sole that certain of its rules governing the The following specific changes are agency responsible for determining size 8(a) BD program are too restrictive and being proposed to SBA’s regulations. for purposes of any Federal assistance. serve to unfairly preclude firms from There are six proposed changes to SBA’s SBA does not believe that another being admitted to the program. In other size regulations, two dealing with agency should be able to exempt firms ´ ´ mentor/protege situations, one from SBA’s affiliation rules (and in cases, SBA has determined that a rule is too expansive or indefinite and has amending requirements for joint effect make program-specific size rules) sought to restrict or clarify that rule. In ventures, one clarifying how a by itself. There is a formal process one case wording changes are being procurement should be classified, one spelled out in § 121.903 that an agency proposed to correct past public or further explaining the nonmanufacturer must use if it would like to deviate from agency misinterpretation. Also, new rule, and one relating to who may SBA’s size rules, including those situations have arisen that were not request a formal size determination. The relating to affiliation. This process must anticipated when the current rules were remaining proposed changes are to the be followed and SBA must specifically drafted and the proposed rule seeks to regulations governing SBA’s 8(a) BD and authorize an exception to affiliation for cover those situations. Finally, one of SDB programs. It is noted that all ´ ´ another Federal mentor/protege program the changes, involving Native Hawaiian regulations governing the 8(a) program in order for SBA to recognize the Organizations (NHO’s), implements a apply to the SDB program, unless exception. SBA does not anticipate statutory change. otherwise specified. While the SDB approving exceptions to affiliation to program no longer has an application agencies seeking to have such an DATES: Comments must be received on and certification component, the exception for their mentor/protege ´ ´ or before December 28, 2009. provisions specifying what constitutes programs except in limited ADDRESSES: You may submit comments, an SDB are still needed for self- circumstances. SBA believes that the identified by RIN: 3245–AF53, by any of certification and protest purposes. 8(a) BD program is a unique business the following methods: development program that is unlike • Federal eRulemaking Portal: http:// Exception to Affiliation for Mentor/ ´ ´ other Federal programs. If a program of Follow the Protege Programs another agency is also intended to assist instructions for submitting comments. The first proposed change would business development and an exclusion • Mail, for paper, disk, or CD/ROM clarify when SBA would consider a from affiliation for joint ventures submissions: Joseph Loddo, Associate ´ ´ protege firm not to be affiliated with its conducted under that agency’s mentor/ Administrator, Office of Business mentor based on assistance received ´ ´ protege program would promote such Development, 409 Third Street, SW., from the mentor through a mentor/ business development, SBA would be mstockstill on DSKH9S0YB1PROD with PROPOSALS2 Mail Code, Washington, DC 20416. ´ ´ protege agreement. The current inclined to grant an exclusion from • Hand Delivery/Courier: Joseph regulation may be misconstrued to affiliation because it would serve the Loddo, Associate Administrator, Office allow other Federal agencies to establish same purpose as the exclusion from of Business Development, 409 Third ´ ´ mentor/protege programs and exempt ´ ´ affiliation for 8(a) mentor/protege Street, SW., Washington, DC 20416. ´ ´ proteges from SBA’s size affiliation relationships. SBA will post all comments on rules. That was never SBA’s intent. The If you wish to exception to affiliation contained in Joint Ventures submit confidential business § 121.103(b)(6) was meant to apply to The second proposed change to the information (CBI) as defined in the User ´ ´ SBA’s 8(a) BD mentor/protege program size rules pertains to joint ventures. VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 3. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55695 Under current § 121.103(h), a joint could form a second joint venture and individual firms. Because of this venture is an entity with limited be awarded three additional contracts, affiliation, the revenues or employees duration. Specifically, the current and a third joint venture to be awarded would be aggregated even where one of regulation limits a specific joint venture three more. At some point, however, the firms sought a contract opportunity to submitting no more than three offers such a longstanding relationship or individually. over a two year period. Two firms contractual dependence would lead to a The proposed rule also clarifies the ´ ´ (including an 8(a) protege firm and its finding of general affiliation, even in the time at which SBA will determine mentor) are limited to pursuing three ´ ´ 8(a) mentor/protege joint venture whether this three in two years contract opportunities under one joint context. As an alternative, SBA also requirement has been met. SBA venture, but there is nothing in the considered revising this provision to understands that any offeror, including regulations prohibiting the same two limit the number of contract awards that a joint venture offeror, may seek more firms from forming a second joint the same partners to one or more joint than one contract opportunity at the venture and pursuing three additional ventures could receive without the same time. Under SBA’s regulations, contract opportunities. The rule limiting partners being deemed affiliates for all size is determined as of the date a the number of contract opportunities purposes. SBA thought that three concern submits a written self- any single joint venture can pursue was awards might be too restrictive and certification that it is small as part of its actually intended to loosen the considered limiting the number of initial offer including price. See 13 CFR requirements of the prior regulations. contracts that the same joint venture 121.404(a). As long as a concern is small SBA’s previous regulations defined a partners could be awarded to five. as of that date, it may be awarded a joint venture to be an entity that was Under this approach, the identical contract as a small business even if it ‘‘formed * * * to engage in and carry partners could form one joint venture has grown to be other than small as of out a single, specific business venture and receive five contracts or form the date of award. In other words, even for joint profit * * *’’ The genesis for several joint ventures and receive five if a concern has received additional the change initially came from 8(a) contracts in total before SBA would find revenues which would render it other firms, which complained that it was the partners to be affiliated for all than small after it certifies itself to be hard and costly for them to go out and purposes. SBA specifically requests small as part of its initial offer including form a new joint venture entity (usually comments on this approach, specifically price, it may be awarded a contract as in the form of a limited liability addressing whether this approach is a small business. Having one specific company (LLC)) for every contract preferable to the one proposed. point in time to determine size gives opportunity that they sought. SBA In drafting the current three offers certainty to the procurement process for agreed, and decided to provide more over two years requirement, SBA did both the concern and the procuring flexibility. SBA did so by changing the not intend to limit the number of agency. SBA believes that compliance size regulations, the place in SBA’s contracting opportunities that two (or with the three awards in two years rule regulations where the term joint venture more) firms could seek or contracts that should be treated similarly. As such, was defined. Because the provision they could be awarded through a joint SBA proposes to determine compliance appears in part 121 of SBA’s regulations, it applies to all of SBA’s venture relationship. As noted above, with the three in two years rule as of the programs, including the 8(a) BD SBA believes that a ‘‘joint venture’’ is an date of initial offer including price. An program (as intended). entity of limited duration. If SBA did individual joint venture may have This provision, however, has caused not limit the number of contracting submitted offers to perform two, three or confusion. Some firms misunderstood opportunities, or under this proposed more procurements before it finds out that the limitation contained in the rule the number of contract awards, that that it has won any specific regulation was on the number of offers a specific joint venture could receive, competition. If at the time of offer the submitted by the joint venture instead of then the joint venture could be an joint venture had not yet received three the number of contracts awarded to the ongoing entity with unlimited duration. contract awards, then the joint venture joint venture. As such, some joint In determining the size of a joint would be able to submit offers for ventures continued to submit offers venture, the receipts or employees of the several procurement opportunities and beyond the three permitted by the joint venture partners are generally ultimately be awarded any contract for regulation and were determined not to aggregated (unless an exclusion from which it submitted an offer before be eligible for award where the joint affiliation applies). If the aggregated receiving a third contract. For example, venture was otherwise the apparent receipts or employees are less than the Joint Venture AB has received two successful offeror, but the offer was a size standard assigned to the relevant contracts. On April 2, Joint Venture AB fourth (or more) offer. Firms have procurement, the joint venture qualifies submits an offer for Solicitation 1. On recommended to SBA that if there is as a small business. If one of the joint June 6, Joint Venture AB submits an such a limit, it should be on contracts, venture partners seeks a different offer for Solicitation 2. On July 13, Joint not offers. Upon further reflection, SBA contract opportunity apart from the joint Venture AB submits an offer for agrees and proposes to change the limit venture, its size is generally considered Solicitation 3. In September, Joint of three offers to a limit of three contract individually (unless there are other Venture AB is found to be the apparent awards under one joint venture bases for finding affiliation). If a specific successful offeror for all three agreement. ‘‘joint venture’’ could seek unlimited solicitations. Even though the award of mstockstill on DSKH9S0YB1PROD with PROPOSALS2 The proposed rule would clarify that contracting opportunities and be the three contracts would give Joint three contract awards is not an absolute awarded unlimited contracts, then the Venture AB a total of five contract limit for a specific joint venture parties to the joint venture would awards, it could receive those awards agreement. A joint venture could choose necessarily be deemed affiliates for all without causing general affiliation to pursue and be awarded a fourth (or purposes because of their between its joint venture partners more) contract award, but in doing so interdependent contractual relations. because Joint Venture AB had not yet would cause the partners to the joint This is the case because in effect the received three contract awards as of the venture to be deemed affiliated for all ‘‘joint venture’’ would be a new ongoing dates of the offers for each of three purposes. Again, the two (or more) firms business entity that is owned by two solicitations at issue. VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 4. 55696 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules The proposed rule also clarifies that this end, the 8(a) Participant to the joint access to Federal procurements while a joint venture may or may not be venture must submit to SBA an intended for small business. While this a separate legal entity (e.g., an LLC), it addendum to the joint venture is not a change to how SBA has must exist through a written document. agreement explaining how the work will interpreted this regulation, SBA believes Thus, even an ‘‘informal’’ joint venture be performed on the contract, specifying that it should be spelled out in the must have a written agreement between what resources will be provided by each regulation to avoid any further the partners. In addition, the rule joint venture partner, and providing any confusion and, thus, clarifying language clarifies SBA’s current policy that a other information necessary to fulfill the has been added to § 121.103(h)(3)(iii). joint venture may or may not be requirements set forth in 13 CFR SBA is also considering whether to limit populated (i.e., have its own separate 124.512(c). If the second (and/or third) the exclusion to affiliation for a joint employees). Whether a joint venture contract to be awarded to a specific joint venture that is comprised of a protege´ ´ needs to be populated or have separate venture is not an 8(a) contract, the joint firm and its SBA-approved mentor only employees depends upon the legal venture entity would not be required to to 8(a) contracts. If this proposal were structure of the joint venture. If a joint submit an addendum to SBA prior to ´ ´ adopted, mentor/protege joint ventures venture is a separate legal entity, then award, but would, as explained in the for small business set aside contracts (or it must have its own employees. If a following paragraph, be required to other small business contracts) would joint venture merely exists through a meet the general 8(a) joint venture not receive an exclusion from affiliation. written agreement between two or more requirements. As such, if the mentor were a large individual business entities, then it business, the joint venture would be Exclusion from Affiliation for Mentor/ need not have its own separate ´ ´ large and, thus, ineligible for a small Protege Joint Ventures employees and employees of each of the business set aside contract. Proponents individual business entities may The third proposed change to the size of this view believe that benefits for 8(a) perform work for the joint venture. regulations also pertains to exceptions firms should be limited to contracts There has also been confusion as to to affiliation. Currently, SBA’s obtained through the 8(a) program, and whether this three in two year rule regulations authorize an exception to not extended to other small business applies to the 8(a) BD program. Some affiliation where two firms approved by programs. They believe that it is unfair individuals mistakenly believed that it ´ ´ SBA to be a mentor and protege under for non-8(a) small business concerns to did not apply to joint ventures between the 8(a) BD program seek to joint have to compete against a joint venture ´ ´ mentors and protege firms in the 8(a) BD venture and perform a contract as a ´ ´ involving a protege firm and a large program. This is not the case. Because small business concern for any Federal mentor for small business contracts the rule appears in SBA’s size Government procurement. For a outside the 8(a) program. SBA regulations, it applies to all of SBA’s procurement to be awarded through the specifically requests comments on programs. That is, it applies to all 8(a) BD program, SBA’s regulations at whether this policy should be changed situations in which a joint venture seeks § 124.513 require SBA to approve the in a subsequent final rule. to qualify as a ‘‘small business joint venture agreement prior to award concern.’’ Because this confusion is and specify what must be included in Classification of a Procurement for limited and SBA believes that the size the joint venture agreement. There has Supplies regulations clearly apply the three in been some confusion as to whether the SBA’s current regulations provide that two year rule to all joint venture requirements for 8(a) joint venture acquisitions for supplies must be situations, SBA does not believe that a agreements apply to non-8(a) classified under the appropriate regulatory change is necessary to procurements. SBA believes that any manufacturing NAICS code, not under a specifically apply the rule to the 8(a) BD joint venture seeking to use the 8(a) wholesale trade NAICS code. The fourth program. ´ ´ mentor/protege status as a basis for an proposed change to the size regulations This proposed rule would also amend exception to affiliation requirements would clarify that a procurement for § 124.513(e) to clarify the requirement must follow the 8(a) requirements (i.e., supplies also cannot be classified under that SBA approve 8(a) joint ventures it must meet the content requirements a retail trade NAICS code. prior to award for a second or third 8(a) set forth in § 124.513(c) and the Application of the Nonmanufacturer contract award to a specific joint performance of work requirements set Rule venture. The current regulation states forth in § 124.513(d)). Although SBA that SBA must approve a joint venture does not approve joint venture The fifth proposed change to the size for an 8(a) contract prior to contract agreements for procurements outside regulations would provide further award. There has been some confusion the 8(a) program, if the size of a joint guidance to the current about how this requirement relates to venture claiming an exception to nonmanufacturer rule (i.e., the rule that the size provision which would now affiliation is protested, the requirements requires, in pertinent part, a firm that is allow three contract awards over a two of § 124.513(c) and (d) must be met in not itself the manufacturer of the end year period to a specific joint venture. order for the exception to affiliation to item being procured to provide the Prior to the first contract award, SBA apply. The reason SBA’s 8(a) regulations product of a small business would have to approve the joint permit exceptions to affiliation on small manufacturer). Several procuring venture. SBA’s review would examine business contracts outside the 8(a) agencies have misconstrued when to the structure of the joint venture and the program (e.g., small business set asides, apply the nonmanufacturer rule. The mstockstill on DSKH9S0YB1PROD with PROPOSALS2 work each joint venture partner would HUBZone set asides, service disabled proposed rule would explicitly state perform on the proposed 8(a) contract. veteran owned small business set that the nonmanufacturer rule applies For the second (and third) 8(a) contract, ´ ´ asides) is to further assist protege 8(a) only where the procuring agency has SBA would not need to examine the BD Participants in their business classified a procurement as a structure of the joint venture again, but development. If the requirements manufacturing procurement by would need to determine that the work ensuring control and performance of assigning the procurement a NAICS to be done by the joint venture partners ´ ´ work by the 8(a) protege firm are not code under Sectors 31–33. It would also on the proposed second (or third) 8(a) enforced, a large business would be able clarify that the nonmanufacturer rule contract meets SBA’s requirements. To to have unchecked and inappropriate does not apply to supply contracts that VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 5. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55697 do not involve manufacturing. For equipment or facilities in a manner SBA would determine whether the firm example, the nonmanufacturer rule consistent with industry practice. This has met the targets and objectives set would not apply to situations where a change is primarily in response to forth in its business plan. procuring agency is acquiring situations where SBA has waived the Definitional Changes agricultural commodities that are not nonmanufacturer rule and the prime processed or changed and the procuring contractor essentially subcontracts all This rule would amend Section 124.3, agency classifies the contract as crop services, such as warehousing or to add a definition of NAICS code. production under NAICS Subsector 111. delivery, to a large business. Such an Additionally, the term ‘‘SIC code’’ arrangement, where the prime would be changed to ‘‘NAICS code’’ In addition, the rule applies only to contractor can legally provide the everywhere it appears in part 124 to the manufacturing or supply component product of a large business and then take into account the replacement of the of a manufacturing procurement. The subcontract all tangential services to a Standard Industry Classification (SIC) rule provides two examples to clarify large business, is contrary to the intent code system with the North American SBA’s position regarding the rule. and purpose of the Small Business Act, Industry Classification System. The Where a procuring agency has classified i.e., providing small businesses with an NAICS code system is used to classify a procurement as a manufacturing opportunity to perform prime contracts. businesses for size purposes. procurement and is also acquiring Such an arrangement inflates the cost to Specifically, the term ‘‘NAICS code’’ services, the nonmanufacturer rule the Government of contract performance would replace the term ‘‘SIC code’’ in would apply to the supply component §§ 124.110(c), 124.111(d), 124.502(c)(3), of that procurement only. In other and inflates the statistics for prime contracting dollars awarded to small 124.503(b), 124.503(b)(1), 124.503(b)(2), words, a firm seeking to qualify as a 124.503(c)(1)(iii), 124.503(g)(3), small business nonmanufacturer must business, which is detrimental to other small businesses that are willing and 124.505(a)(3), 124.507(b)(2)(i), supply the product of a small business 124.513(b)(1), 124.513(b)(1)(i), manufacturer (unless a able to perform Government contracts. 124.513(b)(1)(ii)(A), 124.513(b)(2), nonmanufacturer waiver applies), but Request for Formal Size Determination 124.513(b)(3), 124.514(a)(1), 124.515(d), need not perform any specific portion of The sixth proposed change to the size 124.517(d)(1), 124.517(d)(2), the accompanying services. Since the regulations would amend § 121.1001(b) 124.519(a)(1), 124.519(a)(2), procurement is classified under a to give the SBA’s Office of Inspector 124.1002(b)(1), 124.1002(b)(1)(i), manufacturing NAICS code, it cannot General (OIG) the authority to ask for a 124.1002(b)(1)(ii), and 124.1002(f)(3). also be considered a services formal size determination. Because the The rule also proposes to amend the procurement and, thus, the 50% OIG is not currently listed in the definition of primary industry performance of work requirement set regulations as an individual who can classification to specifically recognize forth in § 125.6 for services does not request a formal size determination, the that a Participant may change its apply to that procurement. In classifying OIG must currently seek a formal size primary industry classification over the procurement as a manufacturing/ determination through the relevant SBA time. The rule would allow a Participant supply procurement, the procuring program office. SBA believes that the to change its primary industry agency must have determined that the Inspector General should be able to seek classification from one NAICS code to ‘‘principal nature’’ of the procurement a formal size determination when another where it can demonstrate that was supplies. As a result, any work questions about a concern’s size arise in the majority of its revenues during a done by a subcontractor on the services the context of an investigation or other two-year period have evolved from its portion of the contract cannot rise to the review of SBA programs by the Office of former primary NAICS code to another level of being ‘‘primary and vital’’ Inspector General. NAICS code. The proposed rule would requirements of the procurement, and also add a new § 124.112(e) to permit a therefore cannot be the basis or Completion of Program Term Participant to request a change in its affiliation as an ostensible The first proposed change to SBA’s primary industry classification with its subcontractor. Conversely, if a 8(a) BD regulations is an amendment to servicing SBA district office where it procuring agency determines that the the current rule to specify that a firm can demonstrate that its revenues have ‘‘principal nature’’ of the procurement is that merely completes its program term in fact evolved from one NAICS code to services, only the requirements relating is not deemed to ‘‘graduate’’ from the another. to services contracts apply. The 8(a) program. Pursuant to the Small The rule would also add a definition nonmanufacturer rule, which applies Business Act, a Participant is of the term ‘‘regularly maintains an only to manufacturing/supply contracts, considered to graduate only if it office.’’ This definition is important in would not apply. Thus, although a firm successfully completes the program by determining whether a participant has a seeking to qualify as a small business substantially achieving the targets, bona fide place of business in a with respect to such a contract must objectives, and goals contained in the particular geographic location. While certify that it will perform at least 50% concern’s business plan, thereby the definition proposed is not a change of the cost of the contract incurred for demonstrating its ability to compete in in current SBA policy, SBA believes personnel with its own employees, it the marketplace without 8(a) assistance. that the definition should be added to need not supply the product of a small 15 U.S.C. 636(j)(10)(H). Sections 124.2, the regulations for clarity purposes. business manufacturer on the supply 124.301 and 124.302 would be amended Under the proposed rule, a Participant mstockstill on DSKH9S0YB1PROD with PROPOSALS2 component of the contract. In order to to effect this change. In addition, the would be deemed to regularly maintain qualify as a nonmanufacturer, a firm proposed rule would add a new an office in a particular location if it must be primarily engaged in the retail § 124.112(f) to require SBA to determine conducts business activities as an on- or wholesale trade and normally sell the if a firm should be deemed to graduate going business concern from a fixed type of item being supplied. We are from the 8(a) BD program at the end of location on a daily basis. The rule proposing to further define this its nine-year program term. As part of would also provide that the best statutory requirement to mean that the the final annual review performed by evidence of the regular maintenance of firm takes ownership or possession of SBA prior to the expiration of a an office is documentation that shows the item(s) with its personnel, Participant’s nine-year program term, that third parties routinely transact VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 6. 55698 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules business with a participant at that majority of its revenues during a two- the inclusion of IRA’s and other location. Such evidence includes year period have evolved from its retirement accounts in the calculation of advertisements, bills, correspondence, former primary NAICS code to another an individual’s net worth does not serve lease agreements, land records, and NAICS code. As such, SBA may early to disqualify wealthy individuals from evidence that the participant has graduate a firm from the 8(a) BD participation in the program; rather, it complied with all local requirements program if the firm exceeds the size has worked to make middle and lower concerning registering, licensing, or standard corresponding to its primary income individuals ineligible to the filing with the State or County where NAICS code (whether its initial primary extent they have invested prudently in the place of business is located. This NAICS code or a revised primary NAICS accounts to ensure income at a time in means that a firm would generally be code) for two successive program years. their lives that they are no longer required to have a license to do business working. SBA is cognizant of the Economic Disadvantage in a particular location in order to potential for abuse of this proposed ‘‘regularly maintain an office’’ there. SBA proposes to amend § 124.104 provision, with individuals attempting The firm would not, however, be Who is Economically Disadvantaged? to to hide current assets in funds labeled required to have a construction license incorporate into the regulations certain ‘‘retirement accounts.’’ Obviously, SBA or other specific type of license in order interpretations and policies that have does not believe such attempts to to regularly maintain an office and thus been followed informally by SBA. Some remove certain assets from an have a bona fide place of business in a of these policies and regulatory individual’s economic disadvantage specific location. SBA’s bona fide place interpretations are currently set forth in determination would be appropriate. of business requirement is met with a SBA’s Standard Operating Procedures Therefore, it has added the condition license to do business generally. (SOPs) or in decisions rendered by the that in order for funds not to be counted Whether a firm is or is not able to get SBA Office of Hearings and Appeals in an economic disadvantage a specific type of contract because it (OHA). A sentence would be added to determination, the funds cannot be does not possess an additional license is paragraph (b)(2) to clarify that SBA does currently withdrawn from the account not a bona fide place of business issue. not take community property laws into without a significant penalty. A account when determining economic significant penalty would be one equal Size for Primary NAICS Code disadvantage. This means that property or similar to the penalty assessed by the This rule proposes to amend that is legally in the name of one spouse Internal Revenue Service for early § 124.102(a) to require that a firm would be considered wholly that withdrawal. In order for SBA to remain small for its primary NAICS spouse’s property, whether or not the determine whether funds invested in a code during its term of participation in couple lived in a community property specific account labeled a ‘‘retirement the 8(a) BD program, and state. Since community property laws account’’ may be excluded from an correspondingly to revise § 124.302 to are usually applied when a couple individual’s net worth calculation, the permit SBA to graduate a Participant separates and since spouses in individual must provide to SBA prior to the expiration of its program community states generally have the information about the terms and term where the firm exceeds the size freedom to keep their property separate conditions of the account. SBA is standard corresponding to its primary while they are married, SBA has interested in hearing from the public NAICS code for two successive program decided to treat property owned solely concerning this proposed revision, and years. SBA has historically permitted a by one spouse as that spouse’s property firm to remain in the 8(a) program and for economic disadvantage specifically requests comments on how receive 8(a) contracts in secondary determinations. This policy also results best to exclude legitimate retirement NAICS codes as long as it remains small in equal treatment for applicants in accounts without affording others a for such secondary codes. SBA has community and non-community mechanism to circumvent the economic reexamined this policy and concluded property states. Community property disadvantage criterion. that if a firm has grown to be other than laws will continue to be applied in SBA is also proposing to amend small in its primary NAICS code, it can § 124.105(k) for purposes of determining paragraph (c)(2) to exempt income from reasonably be said that the firm has ownership of an applicant or Participant an S Corporation from the calculation of achieved its goals and objectives. firm, but they will not be applied for both income and net worth to the extent Understanding that the size of a firm any other purpose. Paragraph (b)(2) such income is reinvested in the firm or can vary from year to year based on the would also be amended to provide that used to pay taxes arising from the receipts/number of employees in any SBA may consider a spouse’s financial normal course of operations of an S given year, SBA is proposing that a firm situation in determining an individual’s corporation. Therefore, while the be graduated early only where it access to capital and credit. This income of an S corporation flows exceeds the size standard for its primary addition reflects current practice. through and is taxed to individual NAICS code in two successive program Paragraph (c)(2) would be amended to shareholders in accordance with their years. SBA believes that it would be exempt funds in Individual Retirement interest in the S corporation for Federal unfair to early graduate a firm from the Accounts (IRAs) and other official tax purposes, SBA will take such 8(a) program where it has one very retirement accounts from the calculation income into account for economic successful program year that may not of net worth provided that the funds disadvantage purposes only if it is again be repeated. This does not mean cannot currently be withdrawn from the actually distributed to the particular mstockstill on DSKH9S0YB1PROD with PROPOSALS2 that a firm cannot change its primary account prior to retirement age without shareholder. This change would result NAICS code during its participation in a significant penalty. Retirement in equal treatment of corporate income the program. As noted in the accounts are not assets to be currently for C and S corporations. In cases where Supplementary Information enjoyed, rather they are held for that income is reinvested in the firm or corresponding to the definition of purposes of ensuring future income used to pay taxes arising from the primary industry classification in when an individual is no longer normal course of operations of the S § 124.3, the proposed rule would working. SBA believes it is unfair to corporation and not retained by the authorize a firm to change its primary count those assets as current assets. individual, SBA believes it should be NAICS code by demonstrating that the Through experience SBA has found that treated the same as C corporation VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 7. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55699 income for purposes of determining income may seem unduly high as a income. Again, while the income of an economic disadvantage. In order to be benchmark, we note that this amount is S corporation flows through and is excluded, the owner of the S being used only to presume, without taxed to individual shareholders in corporation would be required to clearly more information, that the individual is accordance with their interest in the S demonstrate that he or she paid taxes of not economically disadvantaged. We corporation, SBA will take such income the S corporation or reinvested certain also note that average income for a small into account only if it is actually funds into the S corporation within 12 business owner is higher than average distributed to the particular months of the distribution of income. income for the population at large. SBA shareholder. Conversely, the owner of an S may consider incomes lower than This rule also proposes to amend corporation could not subtract S $200,000 as indicative of lack of § 124.104(c) to establish an objective corporation losses from the income paid economic disadvantage. However, it standard by which an individual can by the S corporation to him/her or from would not presume lack of economic qualify as economically disadvantaged the individual’s total income from disadvantage in that case. It may also based on his or her total assets. The whatever source. S corporation losses, consider income in connection with regulations have historically authorized like C corporation losses, are losses to other factors when determining an SBA to use total assets as a basis for the company only, not losses to the individual’s access to capital. SBA determining economic disadvantage, but individual, and based upon the legal specifically requests comments on both did not identify a specific level below structure of the corporation and the the straight line approach proposed and which an individual would be protections affording the principals the current comparison of income levels considered disadvantaged. The through this structure, the individual is to the IRS statistics. The rule also regulations also did not spell out a not personally liable for the debts proposes to establish a two year average specific level of total assets above which representing any of those liabilities. income level of $250,000 for continued an individual would not qualify as Thus, it is inappropriate to consider 8(a) BD program eligibility. SBA economically disadvantaged. Although these personal losses and individuals believes that a higher income level may SBA has used total assets as a basis for should not be able to use them to reduce be more appropriate as a firm becomes denying an individual participation in their personal incomes. more developed, but does not want to the 8(a) BD program based on a lack of sanction too high a level. SBA requests economic disadvantage, the precise A new paragraph (c)(3) would be comments on the $250,000 level, level at which an individual no longer added to provide that SBA would qualifies as economically disadvantaged presume that an individual is not including whether the same $200,000 level should be used for both initial and is not certain. SBA’s findings that an economically disadvantaged if his or her individual was not economically adjusted gross income averaged over the continued 8(a) BD eligibility and whether some other level (e.g., disadvantaged with total asset levels of past two years exceeds $200,000. SBA $4.1 million and $4.6 million have been considered incorporating into the $225,000) should be used for continued eligibility. upheld as reasonable. See Matter of regulation the present policy that an Pride Technologies, SBA No. 557 (1996), individual is not economically The proposed regulation would and SRS Technologies v. U.S., 843 F. disadvantaged if his or her adjusted permit applicants to rebut the Supp. 740 (D.D.C. 1994). Alternatively, gross income exceeds that for the top presumption of lack of economic SBA’s finding that an individual was two percent of all wage earners disadvantage upon a showing that the not economically disadvantaged with according to Internal Revenue Service income is not indicative of lack of total assets of $1.26 million was (IRS) statistics. Under the current economic disadvantage. For example, overturned. See Matter of Tower approach, SBA compares the income of the presumption could be rebutted by a Communications, SBA No. 587 (1997). the individual claiming disadvantage to showing that the income was unusual This rule proposes to eliminate any the most currently available final IRS (inheritance) and is unlikely to occur confusion as to what level of total assets income tax return data. In some cases, again or that the earnings were offset by qualifies as economic disadvantage for SBA may be comparing IRS information losses as in the case of winnings and 8(a) BD purposes. Under the proposed relating to one tax year to an losses from gambling resulting in a net rule, an individual would not be individual’s income from a succeeding gain far less than the actual income considered economically disadvantaged tax year because final IRS information is received. SBA may still consider any if the fair market value of all his or her not available for that succeeding tax unusual earnings or windfalls as part of assets exceeds $3 million at the time of year. Although that policy has been its review of total assets. Thus, although 8(a) application and $4 million for upheld by SBA’s OHA and the Federal an inheritance of $5 million, for purposes of continued 8(a) BD program courts (see SRS Technologies v. United example, may be unusual income and participation. While the proposed rule States, 894 F. Supp. 8 (D.D.C. 1995); excluded from SBA’s determination of would exclude retirement accounts from Matter of Pride Technologies, Inc., SBA economic disadvantage based on an individual’s net worth in No. 557 (1996) SBA No. MSB–557), SBA income, it would not be excluded from determining economic disadvantage, it believes that a straight line numerical SBA’s determination of economic would not exclude such amounts from figure is more understandable, easier to disadvantage based on total assets. In the individual’s total assets in implement, and avoids any appearance such a case, a $5 million inheritance determining economic disadvantage on of unfair treatment when statistics for would render the individual not that basis. mstockstill on DSKH9S0YB1PROD with PROPOSALS2 one tax year are compared to an income economically disadvantaged based on level for another tax year. SBA is total assets. This paragraph would also Changes to Ownership Requirements proposing an income level of $200,000 provide that S corporation income will SBA is proposing to amend because that figure closely approximates not be considered in determining an § 124.105(g) governing ownership to the income level corresponding to the individual’s average income if the S provide more flexibility in determining top two percent of all wage earners, corporation owner submits evidence whether to admit to the 8(a) program which has been upheld as a reasonable that such income was reinvested in the companies owned by individuals where indicator of a lack of economic firm or used to pay corporate taxes such individuals have immediate family disadvantage. Although a $200,000 within 12 months of the distribution of members who are owners of current or VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 8. 55700 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules former 8(a) concerns. The current rule to operate the firm. If a firm seeking a Changes to Control Requirements provides that ‘‘the individuals waiver is in the same or similar line of SBA also proposes to amend determined to be disadvantaged for business as a current or former 8(a) § 124.106, which addresses control of an purposes of one Participant, their Participant of a family member, there 8(a) applicant or Participant. SBA immediate family members, and the would be a presumption against proposes to add an additional Participant itself, may not hold, in the granting a waiver. The applicant must requirement to this section that the aggregate, more than a 20 percent equity provide clear and compelling evidence disadvantaged manager of an 8(a) ownership interest in any other single that no connection exists between the applicant or Participant must reside in Participant.’’ Because of the wording of two firms. the United States and spend part of that provision, SBA has been forced to every month physically present at the SBA believes that this narrow deny 8(a) program admission to primary offices of the applicant or exception to the general prohibition companies solely because the owners of Participant. This change is being against family members owning 8(a) those firms have family members who proposed in response to a recent Small are disadvantaged owners of other 8(a) concerns in the same or similar line of business will permit the Agency Disadvantaged Business (SDB) concerns. In some cases, the two firms eligibility appeal before SBA’s Office of are in different industries and are sufficient flexibility to admit firms where they are clearly operating Hearings and Appeals. In OHA’s located in different parts of the country. decision on that case, which was SBA believes that it serves no purpose separately and independently from the relative’s firm. SBA also proposes to add vacated on other grounds, the to automatically disqualify a firm a provision specifying that it may Administrative Judge held that a simply because the individual seeking terminate an 8(a) concern for which it disadvantaged owner of a firm seeking to qualify the firm has an immediate family member already participating in had granted a waiver if connections SDB status controlled the firm from her the program. Although there may be between the two firms become apparent residence in Paris, France. SBA believes situations in which SBA would choose (e.g., sharing of employees, contractual that an individual seeking to qualify as to deny admission to a firm based on a relationships between the two firms) or eligible for the SBA’s 8(a) BD program family member’s program participation, if that firm begins to operate in the same must reside in the United States. There such a decision must necessarily be or a similar line of business as the is a presumption in the regulations for made on a case-by-case basis. For current or former 8(a) concern owned by such residency, but it is not explicit. example, SBA may wish to deny the disadvantaged immediate family The regulations require an individual admission to the program to a member. seeking 8(a) eligibility to be a citizen of construction firm owned by a woman the United States and individuals who SBA also proposes to amend are non-designated group members are whose father owns an 8(a) firm in the § 124.105 to add a phrase that was construction industry where the required to establish their individual inadvertently omitted from the current social disadvantage based on instances program term of the father’s firm is rule. The words ‘‘or a principal of such about to end, if it appears that the of bias or discrimination ‘‘in American firm’’ were inadvertently omitted from society, not in other countries.’’ In daughter does not have sufficient § 124.105(h)(2) after the words ‘‘A non- management experience to manage the addition, SBA believes that in order for Participant concern.’’ That provision an individual to exercise the requisite firm and there are indications that the prohibits concerns in the same or a applicant is simply a front for the degree of control of an 8(a) firm, such similar line of business as an 8(a) individual must be physically present at current firm. concern from owning more than a 10 the offices of the firm at least part of In order to prevent disadvantaged individuals from using family members percent interest in an 8(a) concern in the every month. In SBA’s view, the to extend their program terms and to developmental stage of program potential for negative control is great prevent fronts, SBA proposes to amend participation or more than a 20 percent when an individual on-site manager is § 124.105(g) to provide that an interest in a Participant in the relied on by an absent chief executive. individual may not use his or her transitional stage of the program. The The proposed rule would also add a disadvantaged status to qualify a firm if intent was to also prohibit principals of conforming change to the general such individual has an immediate such concerns from owning these same requirements for 8(a) BD eligibility family member who has used his or her percentages. However, the necessary contained in § 124.104(a) to recognize disadvantaged status to qualify another language to effect this was inadvertently the residency requirement. firm for participation in the 8(a) BD omitted. This omission is made The Agency recognizes that the 21st program. However, the proposed rule particularly evident by the rule century has created new opportunities will permit the SBA’s Associate permitting former Participants and for off-site management through the Administrator for Business principals of former Participants to own increased use of e-mail and overnight Development (AA/BD) to waive this up to 20 percent of a program express and decreasing interstate and prohibition under certain Participant in the developmental stage international telephone costs, and that circumstances. Those circumstances are of program participation and up to 30 these new and improved technologies similar to the clear line of fracture percent of a Participant in the enable managers to maintain control exception to the identity of interest rule transitional stage. The anomalous result over the operations of their businesses in the size regulations. of the omission was to permit principals without the need for a constant or mstockstill on DSKH9S0YB1PROD with PROPOSALS2 SBA would waive the prohibition of non-8(a) concerns to own greater consistent physical presence. where there are no or negligible percentages of 8(a) firms in the same or Nevertheless, SBA believes that in order connections between the two firms, similar line of business than principals to prevent negative control and to either in the form of ownership, control of former 8(a) concerns even though the ensure that the disadvantaged majority or contractual relations, and where the clear intent of the rule was to afford owner(s) are the true managers of the individual seeking to use his or her former 8(a) firms and their principals 8(a) concern or applicant, the disadvantaged status to qualify the firm greater ownership rights. SBA has disadvantaged manager must generally can demonstrate he or she has sufficient corrected that error in this proposed be present in the firm’s primary offices management and technical experience rule. at least part of every month and must be VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 9. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55701 able to physically reach the firm in a The proposed rule would also add a tribe (or a wholly owned business entity matter of a few hours from his or her new § 124.106(h) regarding control of an of such tribe).’’ 15 U.S.C. residence should the need arise. SBA 8(a) BD Participant where a 637(a)(4)(A)(i)(II). The term Indian tribe considered requiring physical presence disadvantaged individual upon whom includes any Alaska Native village or by the individual(s) claiming eligibility is based is a reserve regional corporation. 15 U.S.C. disadvantaged status in the component member in the United States 637(a)(13). Pursuant to the Alaska headquarters of the applicant or military who has been called to active Native Claims Settlement Act, a concern participant firm for a minimum amount duty. Currently, there is no statutory or which is majority owned by an Alaska of time each month (e.g., 10 hours, 20 regulatory authority to permit such a Native Corporation (ANC) is deemed to hours, or some other higher number of firm to stay in the 8(a) BD program, be both owned and controlled by Alaska hours) and specifically asks for whether on an active or inactive basis, Natives and an economically comments on whether such a while the individual upon whom disadvantaged business. As such, ANCs requirement makes sense in today’s eligibility is based is away from the firm do not have to establish that they are world (and, if so, what should the for an extended period of time. Some ‘‘economically disadvantaged.’’ minimum number of hours be) or have even questioned whether SBA Conversely, Indian tribes are not whether control should be determined should in fact terminate such a firm afforded the same automatic statutory on a case-by-case basis. SBA also from the 8(a) BD program for failure to economic disadvantage designation. understands that any provision maintain control by one or more Current § 124.109(b) requires tribes to requiring presence in every month may disadvantaged individuals. SBA demonstrate their economic be unworkable. With such a strict believes that termination in these disadvantage through the submission of requirement, a disadvantaged owner circumstances would be inappropriate. data, including information relating to who took a month-long vacation one Specifically, the proposed rule would tribal unemployment rate, per capita year would be ineligible for continued permit a Participant to designate one or income of tribal members, and the 8(a) BD participation. As such, the more individuals to control its daily percentage of the tribal population proposed rule has the requirement that business operations during the time that below the poverty level. SBA requests a disadvantaged owner must a disadvantaged individual upon whom comments on how best to determine ‘‘generally’’ spend part of every month eligibility has been called to active duty whether a tribe should be considered at the firm’s principal office, imposing in the United States military. The ‘‘economically disadvantaged.’’ Some a monthly presence requirement while proposed rule would also amend have advocated a bright line assets or at the same time allowing for unusual § 124.305 to authorize the Participant to net worth test for tribes. SBA is not circumstances in any given month. suspend its 8(a) BD participation during convinced that such a test truly captures the active duty call-up period. If the the economic disadvantage status of a Section 124.106 would also be Participant elects to designate one or tribe. SBA continues to believe that the amended by deleting the word ‘‘such’’ more individuals to control the concern factors set forth in current from the second sentence in the on behalf of the disadvantaged § 124.109(b)(2) paint a truer picture, but preamble of paragraph (e) so as to make individual during the active duty call- clear that paragraphs (e)(1) and (e)(2) specifically requests comments from up period, the concern will continue to tribes on this issue. The current apply to all non-disadvantaged be treated as an eligible 8(a) Participant individuals and not just to those non- regulation also requires a tribe to and no additional time will be added to demonstrate its economic disadvantage disadvantaged individuals involved in its program term. If the Participant the management of an applicant or only once. SBA also requests comments elects to suspend its status as an eligible regarding whether this one time Participant or who are stockholders, 8(a) Participant, the Participant’s partners, limited liability members, demonstration of economic program term would be extended by the disadvantage makes sense. officers, or directors of the applicant or length of the suspension when the Participant. This change is needed to individual returns from active duty. The proposed rule would also amend correct a misinterpretation of this § 124.109(c)(3)(ii) to more clearly define regulation by SBA’s Office of Hearings Benchmarks the type of work that a tribally-owned and Appeals (OHA). That decision, In The proposed rule would remove firm may perform in the 8(a) program. the Matter of Avasar Corporation, No. § 124.108(f), as well as other references One of the goals of the 8(a) BD program 209 (August 24, 2004), incorrectly held to the achievement of benchmarks is to develop businesses to the point that paragraphs (a)(1), (a)(2), and (a)(3) contained in §§ 124.302(d), 124.403(d), where they can be independent, viable as well as paragraph (g) of § 124.106 and 124.504(d). When these regulations businesses when they graduate or concerning non-disadvantaged control, were first implemented, the Department otherwise leave the 8(a) BD program. In applied only to non-disadvantaged of Commerce was supposed to update order to encourage a tribally-owned firm individuals involved in the management industry codes every few years to to continue to operate as an of an applicant or Participant, or determine those industries which independent business after it leaves the stockholders, partners, limited liability minority contractors were 8(a) BD program, SBA has prohibited for members, officers, and/or directors of underrepresented in the Federal market. many years a tribally-owned applicant the applicant or Participant. The result It is SBA’s view that because these from having the same primary NAICS of that decision was that under certain industry categories have never been code as another firm in the 8(a) BD mstockstill on DSKH9S0YB1PROD with PROPOSALS2 circumstances, non-disadvantaged revised since the initial publication, program owned by the same tribe or one individuals would be permitted to references to them are outdated and that has left the program within the last control an 8(a) concern. This is an should be removed. two years. It could perform secondary absurd result and contrary to statute. work in such a NAICS code, but it could The proposed change makes it clear that Changes Applying Specifically to not duplicate the primary NAICS code the above paragraphs apply to all non- Tribally-Owned Firms of another or recently former tribally- disadvantaged individuals, regardless of The Small Business Act permits 8(a) owned 8(a) Participant. SBA believed their current or former relationship to Participants to be owned by ‘‘an that this requirement would encourage the applicant or Participant. economically disadvantaged Indian tribes to expand their business activities VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 10. 55702 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules by having two or more viable businesses tribally-owned concern should be The Government Accountability doing separate and distinct work. In members of the tribe that owns the Office (GAO) and SBA’s Office of some cases, however, SBA admitted a concern or, in the alternative, whether Inspector General have recently second tribally-owned firm into the 8(a) membership in any tribe should suffice. reviewed participation in the 8(a) BD BD program under one primary NAICS Currently, the regulations generally program by firms owned by ANCs. code and it immediately began to require management by individuals who These reviews questioned certain perform all or most of its work in a are members of the tribe that owns the aspects of SBA’s oversight of ANC- NAICS code that was the primary concern. SBA requests comments on owned firms. In particular, there was a NAICS code of a firm owned by the tribe whether that is too restrictive for the concern that SBA did not adequately that recently graduated from the 8(a) BD tribal community. track the extent to which the benefits of program. This is not what SBA This rule also proposes to clarify the the 8(a) BD program reached individual envisioned. Again, the purpose of the potential for success requirement for Alaska natives or the native community. 8(a) BD program is to promote business tribally-owned applicants contained in As such, SBA proposes to amend the development. Having one business take § 124.109(c)(6). SBA believes that the requirements for annual reviews over work previously performed by current regulation does not adequately contained in § 124.112(b) to require the another does not advance the business capture the realities of tribally-owned submission of such information. SBA development of two distinct firms. In firms. In substantial part, the current also believes that the same reporting order to further encourage the regulation for potential for success requirements should apply to 8(a) continued, long-term viability of two applicable to tribally-owned firms is the Participants owned by tribes, Native separate businesses, this rule proposes same as that applicable to firms owned Hawaiian Organizations (NHOs), and that a newly certified tribally-owned by socially and economically Community Development Corporations Participant cannot receive an 8(a) disadvantaged individuals. Under the (CDCs). Specifically, the proposed rule contract in a secondary NAICS code that current rule, the firm must generally be would require each Participant owned is the primary NAICS code of another in business for two years and have by a tribe, ANC, NHO or CDC to submit Participant (or former participant that revenues in its primary industry information showing how its 8(a) has left the program within two years of participation has benefited the tribal or classification. A firm that is in business the date of application) owned by the native members and/or the tribal, native for less than two years may be deemed tribe for a period of two years from the or other community as part of its annual to possess the necessary potential for date of admission to the program. SBA review submission. The firm should success if the individuals who manage also considered allowing such submit information relating to funding and control its daily operations have secondary work on a limited basis (e.g., cultural programs, employment substantial technical and managerial no more than 20% or 30% of its 8(a) assistance, jobs, scholarships, experience, the applicant has a record of work could be in a NAICS code that internships, subsistence activities, and successful performance on contracts in was/is the primary NAICS code of a other services to the affected its primary industry category, and the former/other tribally-owned community. applicant has adequate capital to sustain Participant). SBA seeks comments on its business operations. SBA believes Excessive Withdrawals both approaches. that those two approaches continue to The proposed rule would also amend SBA also proposes to delete the word be valid ways to find that a tribally- § 124.112(d) requiring what amounts ‘‘disadvantaged’’ in § 124.109(c)(4) to owned firm meets the potential for should be considered excessive make clear that any tribal member may success requirement. In addition, SBA withdrawals, and thus a basis for participate in the management of a believes that a third basis to find possible termination or early tribally-owned firm and need not potential for success should be made graduation. SBA believes that the individually qualify as economically available to tribally-owned firms. It is current definition of withdrawal disadvantaged. Under current rules, a undisputed that a firm owned by a tribe unreasonably restricts Participants. For tribal member would generally have to may have financial and physical example, by including the income of all qualify as economically disadvantaged resources available to it that a firm officers and all bonuses, a Participant is to run the daily business operations of owned by one or more disadvantaged hampered in its ability to recruit and a tribally-owned concern. Tribal individuals may not have. While a firm retain key employees or to pay fair representatives emphasized the need for owned by disadvantaged individuals is wages to its officers. Under the current this change to enable them to attract the designed to make a profit and its regulation, if the income of all officers most qualified tribal members to assist survivability depends on its ability to do in the aggregate exceeds $300,000 for a in running tribal businesses and further so, that is not necessarily the case for a multimillion dollar firm, the income allow them to assist economic and tribally-owned concern. The purpose of alone would be deemed ‘‘excessive’’ and community development through their a tribally-owned concern may be to could be a basis for termination or early tribally-owned concerns. SBA agrees increase tribal employment, assist in graduation. SBA believes that this does that the current rule is overly restrictive tribal community development, or serve not make sense, particularly in light of and proposes this change. This change other tribal needs. If a tribe pledges to the income level permitted in would also eliminate the requirement use the resources of the tribe to support determining economic disadvantage. In that directors and officers must submit an applicant concern and to not allow determining whether an individual is mstockstill on DSKH9S0YB1PROD with PROPOSALS2 copies of their individual tax returns to that concern to cease its operations, economically disadvantaged, SBA has establish their economic disadvantage. SBA believes that the concern should be determined that individuals claiming If, however, there is a question as to deemed to meet the potential for success disadvantage may earn income of up to whether an individual filed taxes, SBA requirement. As such, this rule proposes $200,000 without jeopardizing their could request proof of payment of taxes to find potential for success where a economic disadvantage status for initial to satisfy the good character tribe has made a firm written eligibility, and as noted above, up to requirement. SBA also requests specific commitment to support the operations $250,000 for continued 8(a) BD program comments on whether the individuals of the applicant concern and the tribe eligibility. As such, a firm could pay involved in the management of a has the financial ability to do so. two officers $175,000 each and those VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 11. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55703 officers would be deemed economically submitted in an electronic format. The requested but not submitted would be disadvantaged under the regulations, use of the electronic application not adverse. Under the proposed regulation, but in doing so, the firm would also be only reduces the administrative burden if SBA makes a specific request for deemed to have made excessive on SBA, but is reflective of a relevant information and that withdrawals to those two individuals government-wide shift to use electronic information is not provided, SBA may and be a possible basis for termination applications and forms whenever presume that the information would be or early graduation. SBA also believes possible. Entering the application online adverse to the firm and conclude that that the definition of withdrawal is the most efficient method to apply for the firm has not demonstrated eligibility restricts a Participant from exercising 8(a) BD program participation since it in the area to which the information business judgment in the operation of allows SBA to promptly process the relates. A similar provision has existed the concern. SBA’s intent when the application once the supporting as part of SBA’s size regulations for definition was initially promulgated documentation is received. Most many years and is cited regularly in was to prevent a ‘‘cashing out’’ of importantly, prior to entering the SBA size determinations. earnings from the Participant by its information into the online 8(a) BD Graduation owners or managers. Thus, this rule application, the system reminds the proposes to modify the definition of applicant to enter/update the firm’s Section 124.301 and 124.302 would withdrawal to generally eliminate the Central Contractors Registration (CCR) be amended to utilize the terms ‘‘early inclusion of officers’ salaries within the and Dynamic Small Business Search graduation’’ and ‘‘graduation’’ in a way definition of the term withdrawal. The (DSBS) profiles. The information in that matches the statutory meaning of rule also proposes to generally exclude these databases ensures that the firm’s those terms. See amendment to § 124.2, other items currently included within capabilities are advertised to any explained above. the definition of withdrawal. SBA Federal, State or local government, Termination From the 8(a) BD Program acknowledges, however, that some firms prime contractor, or other business may try to circumvent the excessive organization looking for the capabilities The proposed rule would amend three withdrawal limitations through the the firm offers. The proposed rule paragraphs in § 124.303 regarding distribution of salary or by other means. permits a concern that does not have termination from the 8(a) BD program. To take that possibility into account, the access to the electronic format or does Section 124.303(a)(2) would be proposed rule would authorize SBA to not wish to file an electronic application amended to specifically clarify that a look at the totality of the circumstances to request a hard copy application from Participant could be terminated from in determining whether to include a the AA/BD. The rule also clarifies that the program where an individual owner specific amount as a ‘‘withdrawal.’’ If in all cases (whether an electronic or or manager exceeds any of the SBA believes that a firm is attempting hard copy application is filed) those thresholds for economic disadvantage to get around the excessive withdrawal individuals claiming disadvantage (i.e., net worth, personal income or total limitations though the payment of status must submit wet signatures as assets), or is otherwise determined not officers’ salaries, SBA would count part of the application. to be economically disadvantaged, those salaries as withdrawals in such a The proposed rule would also change where such status is needed for the situation. the location for SBA’s initial review of Participant to remain eligible, and The rule also would amend applications from ANC-owned firms. where the Participant has not met the § 124.112(d)(3) pertaining to withdrawal The current regulation specifies that targets and objectives set forth in its thresholds for purposes of determining SBA’s Anchorage, Alaska District Office business plan. This regulatory change is whether the withdrawal is in fact would initially review all applications needed to rectify a decision made by excessive. The proposed rule would from ANC-owned applicants. SBA SBA’s OHA in the case of Digital amend § 124.112(d)(3) to increase the believes that the San Francisco DPCE Management, Inc., SBA No. BDP–288 current ‘‘excessive’’ amounts by $50,000 unit is better suited to receive and (2008). The Small Business Act at the two lower levels, and by $100,000 review applications from ANC-owned provides, in pertinent part, that ‘‘[i]f the for the highest level. Thus, for firms applicants because it has more [SBA] determines * * * that a Program with sales of less than $1,000,000 the knowledge of SBA’s eligibility Participant and its disadvantaged excessive withdrawal amount would be requirements, in addition to having owners are no longer economically $200,000 instead of $150,000, for firms knowledge of issues specific to ANC- disadvantaged for the purpose of with sales between $1,000,000 and owned firms. As such, the proposed rule receiving assistance * * * the Program $2,000,000 the excessive withdrawal would provide that applications for 8(a) Participant shall be graduated’’ from the amount would be $250,000 instead of BD certification from ANC-owned firms 8(a) BD program. 15 U.S.C. $200,000, and for firms with sales will be reviewed and processed by the 637(a)(6)(C)(ii). In addition, as noted exceeding $2,000,000 the excessive San Francisco DPCE unit. SBA would above, the Small Business Act provides withdrawal amount would be $400,000 have the discretion to require an ANC- that ‘‘the term ‘graduated’ or instead of $300,000. SBA also asks for owned applicant to submit its ‘graduation’ means that the Program comments as to whether the excessive application to the Philadelphia DPCE Participant is recognized as successfully withdrawal level for higher revenue unit in appropriate circumstances, such completing the program by substantially firms should be tied to each owner or as where there is an uneven distribution achieving the targets, objectives, and officer of the firm instead of to the firm of applications and the San Francisco goals contained in the concern’s mstockstill on DSKH9S0YB1PROD with PROPOSALS2 as a whole, and, if so, what level should DPCE unit as a backlog of cases while business plan thereby demonstrating its be deemed excessive for an individual. the Philadelphia DPCE unit does not. ability to compete in the marketplace SBA is also proposing to add a new without assistance * * *’’ 15 U.S.C. Applications to the 8(a) BD Program paragraph to § 124.204, which governs 636(j)(10)(H). In Digital Management, The proposed rule would make minor application processing, to clarify that the individual upon whom 8(a) BD changes to §§ 124.202, 124.203, 124.204 the burden of proof to demonstrate eligibility was based no longer qualified and 124.205 to emphasize SBA’s eligibility for participation in the 8(a) as economically disadvantaged. Because preference that applications for BD program is on the applicant and to the Participant firm had not yet met the participation in the 8(a) BD program be permit SBA to presume that information targets, objectives, and goals contained VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 12. 55704 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules in its business plan, SBA did not believe that SBA early graduated or terminated competition for certain orders will be that early ‘‘graduation’’ was required, the firm from the 8(a) BD program. The limited based on socio-economic status, and instead commenced proceedings to firm must also demonstrate either that including status as an 8(a) concern. terminate the Participant from the 8(a) the grounds upon which the early Historically, agencies could count an BD program. The basis for the graduation or termination was based do order towards their 8(a) prime termination action was the Participant’s not affect its status as an SDB, or that contracting goals only if the contract failure to maintain its eligibility for the circumstances upon which the early under which the order was placed was program participation, as set forth in graduation or termination was based awarded either sole source or based on current § 124.303(a)(2). OHA ruled that have changed and the firm would now competition limited exclusively to 8(a) termination was inappropriate and that qualify as an SDB. For example, if SBA concerns. Over the years, the 8(a) BD the SBA should have utilized the early terminates a firm from the 8(a) BD program office has received numerous graduation procedures. SBA believes program for a persistent pattern of requests from procuring agencies to that early graduation was not mandated failing to provide required financial receive 8(a) credit for orders awarded to under 15 U.S.C. 637(a)(6)(C)(ii) because information, the reason for termination 8(a) concerns under contracts that were SBA had not determined that both the would not be connected to ownership, not set aside for exclusive competition Program Participant and its control, social disadvantage or among 8(a) concerns. On June 7, 2000, disadvantaged owners were no longer economic disadvantage. As such, the SBA entered into a Memorandum of economically disadvantaged, but rather firm could continue to qualify as an Understanding (MOU) with the General that only the disadvantaged owner was SDB, without making any changes to its Services Administration which allowed no longer economically disadvantaged. business structure or management. The SBA’s early graduation regulations Whenever a firm notifies a contracting ordering agencies to receive 8(a) credit at § 124.302(a)(2) authorize early officer that it has been terminated or for orders awarded to 8(a) concerns graduation where one or more early graduated by SBA along with its under full and open Multiple Award disadvantaged owners upon whom SDB certification, the contracting officer Schedule contracts. That MOU expired eligibility is based are no longer must protest the SDB status of the firm on September 30, 2003. SBA had economically disadvantaged, but do not so that SBA can make a formal concerns with renewing the MOU as require it. While SBA must early eligibility determination. written because it did not provide for graduate a firm from the 8(a) BD competition solely among eligible 8(a) Suspensions for Call-Ups to Active Duty firms as required by the Small Business program where one or more disadvantaged individuals upon whom As noted above, the proposed rule Act for 8(a) competitive awards. SBA eligibility is no longer economically would amend § 124.305 to permit SBA has also authorized other agencies to disadvantaged and where the firm has to suspend an 8(a) Participant where the take 8(a) credit for orders placed with met the targets, objectives and goals set individual upon whom eligibility is 8(a) concerns under full and open forth in its business plan, SBA believes based can no longer control the day-to- multiple award contracts, based on the that it has the discretion to either day operations of the firm because the procedures applicable to the particular terminate or early graduate a firm where individual is a reserve component multiple award procurement. In order to one or more owners claiming member in the United States military help 8(a) concerns compete in the disadvantaged status are no longer who has been called to active duty. current multiple-award contracting economically disadvantaged, but the Suspension in these circumstances is environment, SBA is proposing to firm has not met the targets, objectives intended to preserve the firm’s full term amend § 124.503(h) to allow agencies to and goals set forth in its business plan. in the program by adding the time of the receive 8(a) credit for orders placed with This proposed change would more suspension to the end of the 8(a) concerns under contracts that were clearly provide for that discretion. Participant’s program term when the not set aside for 8(a) concerns as long as Section 124.303(a)(13) would be individual returns to control its daily the order is offered to and accepted for amended to be consistent with the business operations. Suspension would the 8(a) BD program and competed proposed changes to § 124.112(d)(13) not be needed where one or more exclusively among eligible 8(a) regarding excessive withdrawals being a additional disadvantaged individuals concerns, and as long as the limitations basis for termination. remain to control the Participant after on subcontracting provisions apply to Section 124.303(a)(16) would be the reservist’s call-up to active duty, or the individual order. To be an ‘‘eligible’’ amended to remove the reference to part where the Participant elects to designate 145, a regulatory provision that a non-disadvantaged individual to 8(a) concern, the firm must be a current addresses nonprocurement debarment control the concern during the call-up Participant in the 8(a) BD program as of and suspension that was moved to 2 period pursuant to proposed the date specified for receipt of offers CFR parts 180 and 2700. § 124.106(h). In such a case, the firm contained in the solicitation for the would remain an active Participant in order and otherwise meet the Effect of Early Graduation or requirements set forth in § 124.507(b)(2). the 8(a) BD program and could continue Termination This proposed change would merely to receive new 8(a) contracts and other SBA also proposes to amend program assistance. allow contracting officers the discretion § 124.304(f) regarding the effect an early to reserve orders for 8(a) concerns if graduation or termination would have. Task and Delivery Order Contracts they so choose. This rule would not mstockstill on DSKH9S0YB1PROD with PROPOSALS2 When SBA early graduates or terminates SBA is proposing to amend require any contracting officer to make a firm from the 8(a) BD program, § 124.503(h), which addresses task and such a reservation. If a contracting proposed § 124.304(f)(2) would delivery order contracts. Agencies are officer chose not to reserve a specific generally not permit the firm to self increasingly reserving prime contract order for 8(a) concerns (e.g., if a certify that it qualifies as an SDB for awards for small business concerns contracting officer went to an 8(a) firm, future procurement actions. If the firm under multiple award solicitations that a small business, and a large business believes that it does qualify as an SDB are competed on a full and open basis. off a schedule or otherwise competed an and seeks to certify itself as an SDB, the Agencies are also awarding multiple order among 8(a) and one or more non- firm must notify the contracting officer award contracts that provide that 8(a) concerns), the contracting officer VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 13. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55705 could continue to take SDB credit for from the 8(a) BD program in order for owned 8(a) firms. The perception of the award of an order to an 8(a) firm. it to be fulfilled outside the 8(a) BD impropriety has been even greater program would not apply to orders where the joint venture partner is a large Barriers to Acceptance and Release offered to and accepted for the 8(a) BD business that performs a significant From the 8(a) BD Program program pursuant to § 124.503(h). portion of the 8(a) contract. Under Current § 124.504(a) provides that SBA’s regulations, a joint venture SBA will not accept a procurement for Competitive Threshold Amounts between an 8(a) firm and any business award through the 8(a) BD program SBA is also proposing to amend that SBA has approved as the 8(a) firm’s where a procuring activity has issued a § 124.506. That regulation addresses the ‘‘mentor’’ is considered to be small for solicitation for or otherwise expressed dollar threshold for competing 8(a) a particular contract opportunity if the publicly a clear intent to reserve the procurements among eligible ´ ´ 8(a) firm (i.e., the protege) qualifies as procurement as a small business or SDB Participants and provides generally that small for the size standard set-aside prior to offering the a procurement offered and accepted for corresponding to the requirement. Thus, requirement to SBA for award as an 8(a) award through the 8(a) BD program a joint venture between a large business contract. This regulation was written must be competed among eligible ´ ´ mentor and an 8(a) protege is prior to legislation authorizing Program Participants if the anticipated considered to be a small business for HUBZone and service disabled veteran- award price of the contract, including any contract for which the protege´ ´ owned (SDVO) small business contracts, options, will exceed $5,000,000 for qualifies as small. This provision either through set-asides or where manufacturing contracts and $3,000,000 currently applies to all Government appropriate on a sole source basis. As for all other contracts. In 2004, Congress contracts, including sole source 8(a) such, this rule proposes to add a passed new legislation requiring an contracts above the competitive provision limiting SBA’s ability to inflationary adjustment of statutory threshold amounts where the protege ´ ´ accept a requirement for the 8(a) BD acquisition-related dollar thresholds firm is a tribally-owned or ANC-owned program where a procuring agency every five years. See 41 U.S.C. § 431a. concern. expresses a clear intent to make a On September 28, 2006, the Federal HUBZone or SDVO small business Acquisition Regulation (FAR) Council In addition, pursuant to SBA’s current award. In addition, the reference to SDB published in the Federal Register a final regulations, where SBA approves a joint set-asides would be eliminated as that rule implementing 41 U.S.C. § 431a 71 venture for a particular 8(a) contract, the provision is no longer applicable. Fed. Reg. 57363. With respect to the 8(a) joint venture, and not the individual This rule also proposes to amend BD competitive threshold, the final rule 8(a) Participant(s), must meet the § 124.504(e), regarding the release of amended FAR § 19.805–1 by ‘‘removing applicable performance of work follow-on procurements from the 8(a) from paragraph (a)(2) ‘$5,000,000’ and requirement (e.g., the joint venture as a BD program. It has always been SBA’s ‘$3,000,000’ and adding ‘$5.5 million’ whole must perform at least 50% of the policy, and implicit in the regulations, and ‘$3.5 million’, respectively, in their contract), and the 8(a) Participant(s) that once a requirement is awarded as place.’’ This rule would incorporate the must perform ‘‘a significant portion’’ of an 8(a) contract, any follow-on FAR changes into SBA’s regulations, so the contract. In the context of a joint procurement should generally also be that the revised SBA regulation would venture between a tribally-owned or awarded as an 8(a) contract. SBA’s also set the competitive threshold ´ ´ ANC-owned protege and its large regulations for both the HUBZone and amounts at $5,500,000 and $3,500,000, business mentor for a sole source service disabled veteran-owned small respectively. contract above the competitive business programs address the release of Based on statute, the regulation threshold amounts, there is a perception requirements from the 8(a) BD program further provides an exemption from the that large businesses may be unduly to those programs where no 8(a) firm competition requirement for 8(a) benefiting from the 8(a) program where can currently perform the contract. The Participants owned and controlled by the large business is performing a 8(a) BD regulations did not specifically Indian tribes and Alaska Native significant amount of work under the address release of requirements other Corporations (ANCs). Contracts may be contract. This is particularly true where than those where a firm is graduating awarded through the 8(a) BD program a large business mentor also acts as a from the program and needs the follow- on a sole source basis to tribally or subcontractor to the prime joint venture on contract to further its business ANC-owned concerns above the contractor in addition to its role as joint development. As such, the proposed competitive threshold amounts if the venture partner. In such a case, a joint rule would require that follow-on or procuring agency believes the firm is ´ ´ venture between a protege firm and its repetitive 8(a) procurements would responsible to perform the contract and large business mentor could agree to generally remain in the 8(a) BD program SBA has not already accepted the perform 50% of the work through the unless SBA agrees to release them for requirement into the 8(a) program as a joint venture entity (with the 8(a) non-8(a) competition. If a procuring competitive procurement, and adverse ´ ´ protege firm performing close to half of agency would like to fulfill a follow-on impact analyses, as appropriate, have that work) and then subcontract the or repetitive acquisition outside of the been conducted. See 13 CFR 124.506(b). remaining 50% to the large business 8(a) BD program, it must make a written Historically, SBA has permitted sole mentor in its individual capacity. In this request to and receive the concurrence source 8(a) contracts above the scenario, a large business would be of the AA/BD to do so. Release may be competitive threshold amounts both performing 70–80% of a large 8(a) mstockstill on DSKH9S0YB1PROD with PROPOSALS2 based on an agency’s achievement of its directly to 8(a) Participants owned and ´ ´ contract, while the protege firm would SDB goal, but failure to achieve its controlled by tribes or ANCs and to joint be performing somewhere in the 20– HUBZone or SDVO goal, where the ventures with one or more tribally or 30% range of the contract. Even though requirement is not critical to the ANC-owned 8(a) Participants. There that 20–30% could be a significant business development of the 8(a) have been complaints that non-8(a) amount of work for a developing protege ´ ´ Participant that is currently performing firms have received substantial benefits firm, SBA does not believe that it is the requirement or another 8(a) BD through the performance of large sole appropriate for a large business to Participant. The requirement that a source 8(a) contracts as joint venture benefit to such an extent through an 8(a) follow-on procurement must be released partners with tribally-owned and ANC- contract, particularly where that VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 14. 55706 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules contract is awarded on a sole source to address the perceived abuse without place of business will then contact the basis. unduly limiting this important business Participant and may ask for further SBA recognizes that the mentor/ development tool. SBA specifically information in support of the ´ ´ protege aspect of the 8(a) BD program requests comments on how best to limit Participant’s claim. In order for a can be an important component to the sole source awards to ensure that Participant to establish a bona fide place overall business development of 8(a) program benefits flow to the intended of business in a particular geographic small businesses. However, SBA does beneficiaries, including comments on location, the SBA district office serving not believe that non-8(a) businesses, each of the three identified alternatives. the geographic area of that location must particularly non-8(a) large businesses, SBA also requests comments on determine if that location in fact should benefit more from an 8(a) whether it should extend the qualifies as a bona fide place of business ´ ´ contract than 8(a) protege firms prohibition against non-8(a) joint under SBA’s requirements. A themselves. As such, this rule proposes venture partners from also being Participant cannot submit an offer for an that non-8(a) joint venture partners to subcontractors under the joint venture 8(a) procurement limited to a specific 8(a) sole source contracts cannot also be prime contract beyond sole source geographic area unless it has received subcontractors under the joint venture contracts and whether it should be from SBA a determination that it has a prime contract. If a non-8(a) joint applied to all 8(a) contracts awarded to bona fide place of business within that venture partner seeks to perform more any joint venture. area. In other words, eligibility in terms work under the contract, then the SBA proposes to further amend of having a bona fide place of business amount of work done by the 8(a) partner § 124.506(b) to implement a provision in a particular geographic location will to the joint venture must also increase. contained in § 8021 of the Department be determined at the time a Participant Because of the proposed change to of Defense (DoD) appropriations act for submits its offer. This coincides with § 124.513(d) contained in this rule fiscal year (FY) 2004. That provision the time at which size status is (which would require the 8(a) partner(s) gave DoD agencies the authority to make determined. to a joint venture to perform at least sole source awards for 8(a) contracts 40% of the work performed by the joint above the competitive threshold Competitive Business Mix venture), the additional amount of work amounts to 8(a) concerns owned and Section 124.509(a)(1) would also be required to be performed by the 8(a) controlled by Native Hawaiian amended to clarify that work performed partner(s) to a joint venture would be Organizations (NHOs). See Public Law by an 8(a) Participant for any Federal spelled out. 108–87, 117 Stat. 1054. However, the department or agency other than The proposed change to disallow statute limited the exemption to through an 8(a) contract, including work subcontracts to non-8(a) joint venture contracts issued by DoD. This authority performed on orders under the General partners is not meant to penalize tribal was initially tied to specific Services Administration (GSA) Multiple and ANC 8(a) firms, but, rather, to appropriations, and hence limited in Award Schedule program, and work ensure that the benefits of the program duration. The words ‘‘and hereafter’’ performed as a subcontractor, including flow to its intended beneficiaries. SBA were included in Section 8020 of the work performed as a subcontractor to consulted with ANC and tribal groups, DoD Emergency Supplemental another 8(a) Participant on an 8(a) both informally and formally, in Appropriation to Address Hurricanes in contract, qualifies as work performed drafting this proposal. These groups felt the Gulf of Mexico, and Pandemic outside the 8(a) BD program. Several that both the 8(a) program generally and Influenza Act, 2006, Pub. L. 109–148, 8(a) Participants specifically questioned tribal and ANC-owned Participants in 119 Stat. 2680, 2702, making this whether orders off the GSA Schedule particular had received unfair criticism, authority permanent. The proposed and subcontracts on 8(a) contracts but understood the negative perception addition to § 124.506(b) implements the counted against their competitive surrounding the performance of 8(a) statutory authority. business mix requirement. SBA believes contracts where the majority of the that the current regulation clearly contract is ultimately performed by a Bona Fide Place of Business provides that only 8(a) contract awards non-8(a), large business. While they The proposed rule would also amend count against a Participant’s competitive supported some change to eliminate the bona fide place of business business mix. Nevertheless, to avoid any abuse in the program, they felt strongly requirements set forth in § 124.507. confusion, SBA has clarified that all ´ ´ that the mentor/protege joint venture Certain 8(a) contracts are restricted to Federal contracts other than 8(a) program served an important function. 8(a) Participants having a ‘‘bona fide contracts, and any subcontract to a ´ ´ They believed that protege firms gained place of business’’ within a particular Federal contract, including a invaluable developmental assistance geographic location. There has been subcontract to an 8(a) contract, do not through this program and did not want some confusion regarding the count against the firm’s competitive to see it unduly restricted or eliminated. procedures a Participant must follow to business mix. Such revenue is not an SBA considered several other establish a bona fide place of business 8(a) award to the Participant and, thus, alternatives to this proposal, including in a new location. This rule clarifies that cannot act to limit further sole source eliminating joint ventures on sole a Participant must first submit its 8(a) awards. source awards above the competitive request to be recognized as having a threshold amounts, requiring a majority bona fide place of business in a different Administration of 8(a) Contracts of subcontract dollars under a sole location to the SBA district office that The proposed rule would also add mstockstill on DSKH9S0YB1PROD with PROPOSALS2 source 8(a) joint venture contract normally services it. This will ensure clarifying language to § 124.512. ´ ´ between a protege firm and its mentor that there is proper coordination Administration of 8(a) contracts has to be performed by small businesses, between the two SBA district offices. been delegated to procuring agencies. and allowing sole source joint venture The servicing district office will forward The current regulation specifies that the contracts above the competitive the request to the SBA district office procuring activity is accountable for ‘‘all threshold amounts only where the 8(a) serving the geographic area of the responsibilities for administering an 8(a) partner(s) to the joint venture performed particular location for processing. The contract.’’ Despite this broad language, a specified percent (e.g., 40%) of the SBA district office in the geographic the Government Accountability Office entire contract itself. SBA has attempted location of the purported bona fide (GAO) and others have asked what role VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 15. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55707 SBA plays in tracking whether an 8(a) understands the concern that 8(a) firms Sole Source Limits for NHO-Owned firm has met the performance of work should receive their fair share of the Concerns requirements set forth in § 124.510 profits from such a joint venture, and SBA proposes to amend § 124.519, throughout the life of an 8(a) contract. believes that profits commensurate with which imposes limits to the amount of As part of contract administration, the work performed should ensure this 8(a) contract dollars a Participant may compliance with the performance of result. receive on a sole source basis. The work requirements is a responsibility of current rule exempts ANC and tribally the procuring activity. While SBA SBA also proposes to amend the requirement setting forth the amount of owned concerns from the limitations set believed that was clear from the current forth in the rule. The amendment would broad regulatory language, the proposed work that an 8(a) Participant must perform as part of a joint venture. add NHO-owned concerns to the list of rule would specifically recognize that Sections 124.510 and 125.6 of SBA’s 8(a) concerns exempted from the tracking compliance with the regulations require that the 8(a) limitations. SBA believes that all three performance of work requirements is a Participant being awarded an 8(a) of these types of firms should be treated contract administration function which contract must perform a specific amount consistently, and the failure to include is performed by the procuring activity. NHO-owned concerns in the exemption Also included within the delegation of of work on the contract (generally at in the current regulation was an contract administration is the authority least 50%). For a joint venture on an inadvertent omission. The proposed to exercise priced options and issue 8(a) contract, § 124.513(d) requires that rule would also change the SBA official appropriate modifications. The the joint venture perform the applicable authorized to waive the requirement regulation has required contracting percentage of work set forth in § 124.510 officers who issued modifications or prohibiting a Participant from receiving and that the 8(a) Participant(s) to the sole source 8(a) contracts in excess of exercised options on 8(a) contracts to joint venture must perform a notify SBA of these actions. Because the dollar amount set forth in § 124.519. ‘‘significant portion’’ of the contract. Under the current regulations, only the there was no clear guidance as to when The term ‘‘significant portion’’ was not SBA must be notified, there was often SBA Administrator, on a non-delegable defined in SBA’s regulations. As such, basis, may grant such a waiver. SBA a delay between the issuance of a various procuring agencies and SBA believes that such waivers have been modification (or exercise of an option) field offices interpreted this requirement requested and acted on sparingly and notification being supplied to SBA. This proposal would require contracting differently. This rule proposes to because of the high level approval officers to submit copies of impose a more objective requirement. required. While SBA continues to modifications and options to SBA Specifically, the rule proposes that the believe that such waivers should not be within 10 days of their issuance or 8(a) Participant(s) to a joint venture for commonplace, SBA does believe that a exercise. If SBA has a question an 8(a) contract must perform at least change from the Administrator to the regarding whether a particular 8(a) 40% of the work done by the joint AA/BD is warranted in order to contractor has complied with applicable venture. So, for example, if the joint facilitate waivers where appropriate. regulatory requirements, the proposed venture proposes to perform 50% of the ´ ´ Changes to Mentor/Protege Program rule would specifically authorize SBA contract, the 8(a) Participant(s) must to review the procuring activity’s 8(a) perform at least 40% of the 50% or at The proposed rule would make contracting files. several changes to § 124.520, governing least 20% of the entire contract. ´ ´ SBA’s mentor/protege program. The rule Changes to Joint Venture Requirements The proposed rule would also add a would specifically require that This rule would also amend new paragraph 124.513(i) to require 8(a) assistance to be provided through a § 124.513(c)(3) to provide that the 8(a) firms that joint venture to perform an ´ ´ mentor/protege relationship be tied to Participant(s) to an 8(a) joint venture 8(a) contract to report on contract ´ ´ the protege firm’s SBA-approved must receive profits from the joint performance at the conclusion of the business plan. Although SBA believed venture commensurate with the work contract. Specifically, each 8(a) firm that that this was implicit in the current performed by the 8(a) Participant(s). performs an 8(a) contract through a joint regulations, SBA feels that it is Currently, SBA’s regulations provide venture would be required to report to important to reinforce that the mentor/ that the 8(a) Participant(s) must receive SBA how the performance of work ´ ´ protege program is but one tool that can at least 51% of the net profits of the requirements (i.e., that the joint venture be used to help the business joint venture. SBA believes that such a performed at least 50% of the work of development of 8(a) Participants in requirement may be untenable where the contract and that the 8(a) participant accordance with their business plans. more work is done by a non-8(a) joint to the joint venture performed at least Section 125.520(b)(2) would be venture partner than the 8(a) Participant 40% of the work done by the joint amended to provide for an absolute partner(s). Under current regulations, ´ ´ limit of three proteges per mentor. SBA venture) were met on the contract. This the joint venture must perform at least requirement is needed to reinforce the is proposing this rule to prevent mentor 50% of an 8(a) contract and the 8(a) firms from being able to take advantage performance of work requirements. Participants must perform a significant ´ ´ of the program by collecting proteges in Several audits performed by SBA’s portion of the amount performed by the order to benefit from 8(a) contracts. SBA Office of Inspector General have is interested in hearing from the public joint venture. If, for example, a joint revealed that the performance of work mstockstill on DSKH9S0YB1PROD with PROPOSALS2 venture will perform 60% of an 8(a) on this proposed limitation. In addition, contract, with the 8(a) partner requirements are not always met. SBA § 124.520(b)(3) would be amended to performing 25% of the contract and the needs to know when and why the allow a firm seeking to be a mentor to non-8(a) partner performing 35% of the requirements are not met. This could submit Federal income tax returns or contract, it does not make sense that the affect the firm’s future responsibility to audited financial statements, including 8(a) partner should receive at least 51% perform additional contracts and, any notes, or other evidence from the of the net profits of the joint venture depending upon the circumstance, mentor in order to demonstrate the where it is performing less than the non- could be cause for termination from the firm’s favorable financial health. The 8(a) firm on the contract. SBA 8(a) BD program. current regulation requires the VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 16. 55708 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules submission of Federal tax returns only. participation. Thus, the regulation experience to be a mentor, it no longer SBA believes that it may be unnecessary would be amended to make clear that a has the need for a mentor itself. This in all cases to require the Federal tax ´ ´ firm may qualify as a protege if it is in amendment is intended to reduce the returns of the proposed mentor, the developmental stage of program risks of questionable mentor/protege´ ´ provided the firm submits audited participation, or has never received an relationships entered into solely to financial statements, including any 8(a) contract, or has a size standard that enable mentors to take advantage of 8(a) notes, or in the case of publicly traded is less than half the size standard contracts. concerns the filings required by the corresponding to its primary NAICS The proposed rule would also add a Securities and Exchange Commission code. new § 124.520(c)(5), which would (SEC) for the past three years, or other This rule would also add clarifying prohibit SBA from approving a mentor/ relevant documentation to SBA for language to § 124.520(c)(2) to make it ´ ´ protege agreement if the proposed review. SBA’s concern is to ensure that clear that the benefits derived from the ´ ´ protege firm has less than one year the firm seeking to be a mentor ´ ´ mentor/protege relationship end once remaining in its program term. Recently, evidences its financial wherewithal. ´ ´ the protege firm graduates from or SBA received a request to approve a SBA is also considering amending otherwise leaves the 8(a) BD program. ´ ´ mentor/protege agreement for a firm who may be a mentor under the 8(a) BD While this is implicit in the current whose program term was ending within ´ ´ mentor/protege program. SBA’s current regulations which provide that ‘‘[o]nly weeks. It appeared that the real reason regulation states that a mentor can be firms that are in good standing in the ´ ´ that the mentor/protege relationship ‘‘[a]ny concern that demonstrates a 8(a) BD program * * * may qualify as was proposed was to pursue a particular commitment and the ability to assist ´ ´ a protege,’’ SBA wanted to specifically ´ ´ 8(a) contract for which the protege developing 8(a) Participants * * *’’ make clear that the exclusion from sought to joint venture with the Section 121.105 of SBA’s size affiliation enjoyed by joint ventures proposed mentor. With the firm’s regulations defines the word ‘‘concern’’ ´ ´ between proteges and their mentors program term and SBA’s oversight of the to be a for profit entity. As such, non- ´ ´ generally ends when the protege leaves firm ending, there was no assurance that profit businesses have not been eligible the 8(a) BD program. Of course, a joint ´ ´ the protege firm would ever receive the to be mentors under the mentor/protege ´ ´ venture between a mentor and protege ´ ´ business development assistance program. SBA is considering making a would be expected to complete any identified in the mentor/protege´ ´ change to § 124.520(b) to specifically contract awarded to the joint venture agreement. In such a case, the mentor/ allow non-profit business entities to be ´ ´ while the protege was a Participant in ´ ´ protege relationship becomes more of a mentors, and seeks public comment on the 8(a) BD program and a contracting convenient contracting tool (by which this issue. officer could continue to count such the mentor can largely benefit) than a Section 124.520(c)(1) would be contract as an award to an 8(a) or small business development tool. To ensure amended for clarity purposes. There business concern, as the case may be. ´ ´ that protege firms actually receive appears to be some confusion regarding Section 124.520(c)(3) currently identified business development the use of the conjunction ‘‘or’’ at the ´ ´ provides that a protege firm can have assistance, SBA is proposing not to end of paragraph (ii) in SBA’s current only one mentor. As part of SBA’s tribal ´ ´ approve any mentor/protege agreement regulation. Some have questioned consultation under Executive Order ´ ´ where the proposed protege has less whether the current regulation requires 13175, Consultation and Coordination than one year remaining on its program a firm to be in the developmental stage with Tribal Governments, SBA received term. SBA asks for comments as to what of program participation in all instances comments that this provision was too the appropriate length of time before the and either have never received an 8(a) restrictive, not just for tribally owned end of a firm’s program term should be contract or have half the applicable size 8(a) firms, but for all 8(a) firms. While for SBA not to permit new mentor/ standard. That was not SBA’s intent. SBA continues to believe that the norm ´ ´ protege agreements (e.g., 6 months, 9 The intent of the 8(a) mentor/protege ´ ´ should continue to be one mentor for months, 1 year, 18 months). program is to assist Participants that are ´ ´ any given protege firm, SBA concedes The proposed rule would amend in the early stages of the 8(a) BD that there may be unusual § 124.520(d)(1) to allow a joint venture program (i.e., thus, paragraph (i) allows circumstances where a second mentor/ ´ ´ between a mentor and protege to be any firm in the developmental stage of ´ ´ protege relationship is warranted. This small for Federal subcontracts. A similar ´ ´ program participation to be a protege) or proposed rule would allow the AA/BD change would also be made to need additional assistance in their to approve a second mentor for a § 121.103(h)(3)(iii) of SBA’s size business development (i.e., paragraphs ´ ´ protege firm in limited circumstances. regulations to ensure consistent (ii) and (iii) allow a firm that has never Specifically, a second mentor may be implementation throughout SBA’s received an 8(a) contract or one that has ´ ´ approved where the protege firm regulations. Currently, SBA’s a size standard that is less than half the demonstrates that the second regulations permit such a joint venture size standard corresponding to its relationship pertains to an unrelated, to be small for any ‘‘government primary NAICS code to be a protege, ´ ´ secondary NAICS code, the first mentor procurement.’’ This provision has been respectively). A firm that has never does not possess the specific expertise interpreted as applying solely to Federal received an 8(a) contract or has a size ´ ´ that is the subject of the mentor/protege prime contracts. SBA believes that if standard less than half the size standard agreement with the second mentor, and this benefit applies to all Federal corresponding to its primary NAICS the two relationships will not compete contracts it should also be available mstockstill on DSKH9S0YB1PROD with PROPOSALS2 code may need developmental or otherwise conflict with each other. with respect to subcontracts. SBA assistance regardless of the number of Section 124.520 would also be believes that the current interpretation years it has spent in the 8(a) BD amended to preclude 8(a) firms from is particularly onerous for the program. In fact, a firm that is in the ´ ´ being mentors and proteges at the same Department of Energy (DOE), which has transitional stage of program time. The amendment would provide a significant amount of contracting participation that has never received an that an 8(a) concern must give up its activity go through government owned 8(a) contract may very well need greater ´ ´ status as a protege if it becomes a contractor operated (GOCO) facilities, assistance than a similar firm in the mentor. SBA believes that if an 8(a) and the contracts between the GOCO developmental stage of program concern has the expertise and and a contractor technically are VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 17. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55709 government subcontracts for which the agreements should not be specifically non-8(a) contracts. For example, the exclusion from affiliation for a mentor/ connected with procurements. Size performance of work requirement (i.e., ´ ´ protege joint venture do not apply. SBA benefits for purposes of joint ventures 50% rule) applies equally to small initially considered allowing mentor/ are a benefit of engaging in a mentor/ business set-aside and 8(a) contracts. ´ ´ protege joint ventures to qualify as small ´ ´ protege agreement, not the reason for SBA believes that it would not make businesses only for DOE subcontracts, the relationship. Therefore, there are no sense for the requirement that the but felt that the business development strict time limitations at issue. Because ´ ´ protege firm perform a ‘‘significant ´ ´ afforded to proteges would be beneficial it is possible that SBA might not portion’’ of the procurement not apply government-wide. SBA specifically ´ ´ approve a mentor/protege agreement in to small business set-aside contracts. requests comments on both the a given situation, it believes that it is The whole purpose of the mentor/ proposed language and a provision important that approval occur prior to a ´ ´ ´ ´ protege program is to help protege firms which would limit its applicability joint venture’s submission of its bid or develop so that they can better compete solely to DOE subcontracts. SBA also offer. for future contracts on their own. If they understands concerns raised with Under SBA’s size regulations, size is are not required to perform a significant applying the exclusion from affiliation determined at a fixed point in time (i.e., portion of or be the project manager on ´ ´ for mentor/protege joint ventures to as of the date of the initial offer, a contract, the development purposes of contracts that are not Federal contracts including price). See 13 CFR 121.504. If ´ ´ the mentor/protege program would not and seeks input as to whether an the entity submitting an offer is small as be served. extension of the affiliation exclusion is of that date, it will qualify as small for The proposed rule would also clarify appropriate. In addition, as mentioned the procurement even if it grows to be procedures for requesting in the supplementary information other than small at the date of award. If reconsideration of SBA’s decision to regarding changes to § 121.103(h)(3), the entity submitting an offer does not deny a proposed mentor/protege ´ ´ SBA is also considering allowing an qualify as small as of the date it submits agreement. Where SBA declines to exclusion to affiliation only for mentor/ its initial offer, it cannot later come into approve a specific mentor/protege ´ ´ ´ ´ protege joint ventures for 8(a) contracts. compliance and qualify as small for that ´ ´ agreement, the protege may request the SBA specifically requests comments on procurement. Thus, in order for a joint AA/BD to reconsider the Agency’s such a proposal. venture to be eligible as a small initial decline decision by filing a business, it must be small at the time it request for reconsideration with its SBA also proposes to clarify that if a submits its offer including price. servicing SBA district office within 45 ´ ´ mentor and a protege joint venture on a Generally, the revenues or employees of calendar days of receiving notice that its procurement, in order to take advantage joint venture partners are aggregated ´ ´ mentor/protege agreement was declined. of the special exception to the size when determining whether a joint ´ ´ The protege should revise its mentor/ requirements for that procurement, the venture qualifies as small. However, ´ ´ protege agreement to more fully detail ´ ´ mentor/protege agreement must be where there is an SBA-approved 8(a) the business development assistance approved by SBA prior to the ´ ´ mentor/protege relationship, the that the mentor will provide and submission of the bid or offer on the receipts or revenues of the two joint provide any additional information and procurement. One of the benefits of the venture partners are not aggregated. In documentation pertinent to overcoming ´ ´ mentor/protege relationship is that such a case, size for the joint venture the reason(s) for the initial decline. If ´ ´ mentors and proteges are permitted to ´ ´ depends on the size of the protege firm the AA/BD declines to approve the joint venture on 8(a) procurements and by itself. It seems obvious to SBA that ´ ´ mentor/protege agreement on procurements set aside for small if SBA has not yet approved a mentor/ reconsideration, the 8(a) firm seeking to ´ ´ business as long as the protege qualifies ´ ´ protege agreement, a joint venture ´ ´ become a protege could not submit a as small for the procurement. This ´ ´ between proposed protege and mentor ´ ´ new mentor/protege agreement with change clarifies that the mentors and firms is not entitled to receive the that same mentor for one year. It may, ´ ´ proteges may take advantage of this size benefits of the 8(a) mentor/protege ´ ´ however, submit a proposed mentor/ advantage only if the mentor/protege´ ´ program, including the exclusion from ´ ´ protege agreement with a different agreement is approved by SBA prior to affiliation. proposed mentor at any time after the the submission of the bid or offer on the In addition, the proposed rule would SBA’s final decline decision. procurement. Although this is the add a provision making it clear that in The rule also proposes to add a new current practice, SBA felt it was useful order to receive the exclusion from § 124.520(h) which would set forth to make this practice clear in its affiliation for both 8(a) and non-8(a) consequences for a mentor that fails to regulations, as some companies have procurements, the joint venture must provide the assistance it agreed to mistakenly assumed that, like joint comply with the requirements set forth provide in its mentor/protege´ ´ ventures between mentors and proteges ´ ´ in § 124.513(a). This has been SBA agreement. This recommendation was on 8(a) procurements, a mentor/protege ´ ´ policy, but may not have been as clearly also received in response to SBA’s tribal agreement could be approved after identified as SBA had hoped. There consultations to ensure that protege ´ ´ submission of an offer as long as it was never has been any doubt or confusion firms do obtain beneficial business approved prior to the date of award. as to the application of § 124.513(a) to development assistance through their This is not the case. Joint ventures are 8(a) contracts. Unfortunately, not all ´ ´ mentor/protege relationships. Under the tied to procurements and often there is contracting officers and 8(a) Participants proposal, where SBA determines that a mstockstill on DSKH9S0YB1PROD with PROPOSALS2 insufficient time to obtain SBA’s understood that the § 124.513(a) joint mentor has not provided to the protege ´ ´ approval between the issuance of a venture requirements applied to non- firm the business development solicitation and the submission of an 8(a) contracts as well. It is SBA’s view assistance set forth in its mentor/protege ´ ´ offer. Therefore, SBA has permitted that in order to obtain a benefit derived agreement, SBA will afford the mentor joint ventures to be approved on 8(a) from the 8(a) program (i.e., the exclusion an opportunity to respond. The procurements after the submission of from affiliation for joint ventures response must explain why the offers, as long as the approval takes ´ ´ between approved proteges and assistance set forth in the mentor/ place prior to the actual award. Unlike mentors), the same restrictions that are ´ ´ protege agreement has not been ´ ´ joint ventures, mentor/protege applicable to 8(a) contracts apply to provided to date and must set forth a VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 18. 55710 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules definitive plan as to when it will submitted annually. This change is SBA proposes to permit SDB owners to provide such assistance. If the mentor needed in order to bring the regulation devote fewer than 40 hours per week to fails to respond, does not supply into compliance with the statutory their SDB firms provided that the adequate reasons for its failure to requirement. disadvantaged manager works for the provide the agreed upon assistance, or The proposed rule would also amend firm during all the hours that the firm does not set forth a definite plan to § 124.602 regarding the submission of operates. For example, if a firm is only provide the assistance SBA will audited and reviewed financial in operation 20 hours per week, the recommend to the relevant procuring statements. As the cost for audited and disadvantaged manager of the firm agency to issue a stop work order for reviewed financial statements increases, would be considered to devote full time each Federal contract for which the those costs are becoming more of a to the firm if the individual was ´ ´ mentor and protege are performing as a burden on developing disadvantaged available and working for the firm small business joint venture and small businesses. As such, SBA believes during the 20 hours the firm was received the exclusion from affiliation that audited financial statements should operating. This definition is not being authorized by § 124.520(d)(1). The stop be required only for larger firms. SBA extended to 8(a) firms as those firms are work order could be withdrawn when proposes to raise the level above which expected to operate 40 or more hours SBA is satisfied that the assistance has audited financial statements are per week. SBA is interested in the ´ ´ been or will be provided to the protege. required from Participants with gross public’s comments on this proposed If the work is critical to and any delay annual receipts of more than $5,000,000 change. in contract performance would harm the to Participants with gross annual Compliance with Executive Orders procuring activity, SBA may request receipts of more than $10,000,000. 12866, 12988, 13175, and 13132, the that another Participant be substituted Reviewed financial statements would be Regulatory Flexibility Act (5 U.S.C. 601– for the joint venture to continue required of all Participants with gross 612), and the Paperwork Reduction Act performance. Where SBA terminates a annual receipts between $2,000,000 and (44 U.S.C., Ch. 35). ´ ´ mentor/protege agreement because the $10,000,000, instead of between mentor has failed to provide the agreed $1,000,000 and $5,000,000. SBA Executive Order 12866 upon developmental assistance, the firm requests comments as to whether these The Office of Management and Budget would be ineligible to again act as a levels are appropriate. Specifically, SBA (OMB) has determined that based on the mentor for a period of two years from considered changing the level above revision to § 124.506(b)(4), this rule the date SBA terminates the mentor/ which audited financial statements are constitutes a significant regulatory ´ ´ protege agreement. If SBA believes that required to Participants with gross action for purposes of Executive Order the mentor entered into the mentor/ annual receipts in excess of $6,000,000 12866, and as a result a regulatory ´ ´ protege relationship solely to obtain one or $7,500,000, and requests comments impact analysis is required. or more Federal contracts as a joint on those alternatives vis a vis the ´ ´ venture partner with the protege and $10,000,000 level contained in the Regulatory Impact Analysis had no intent to provide developmental proposed rule. Is there a need for the regulation action? ´ ´ assistance to the protege, SBA could Requirements Relating to SDBs As stated above, the revision to initiate proceedings to debar the mentor from Federal contracting. Similarly, if Finally, SBA is proposing to amend § 124.506 would limit the amount of ´ ´ SBA believes that a protege firm entered § 124.1002, which defines what is an work that a non-8(a) business, ´ ´ a mentor/protege agreement in order to SDB. SBA first proposes to add a particularly a non-8(a) large business in be awarded joint venture contracts with provision to § 124.1002(d) to make it ´ ´ the context of a mentor/protege its mentor knowing that it would bring clear that the ‘‘other eligibility relationship, could perform on an 8(a) little or no value to the joint venture, requirements’’ set forth in § 124.108 for sole source contract above the SBA could initiate proceedings to 8(a) BD program participation do not competitive threshold amounts. terminate the firm from 8(a) apply to SDBs. As part of an SDB Specifically, a joint venture between a participation or debar the firm from protest, SBA would merely be tribally or ANC-owned concern and a Federal contracting. determining whether a concern is non-8(a) business concern could be owned and controlled by one or more awarded a sole source contract above Reporting Requirement and Submission individuals who qualify as socially and the applicable competitive threshold of Financial Statements economically disadvantaged. SBA amount only where the non-8(a) joint The proposed rule would also amend would not consider whether the concern venture partner does not receive any § 124.601, which addresses a statutorily is a responsible business for the work on the contract as a subcontract to required reporting requirement for 8(a) particular contract. As such, issues such the joint venture prime contractor. Participants. Small business concerns as good character and failure to pay SBA believes this rule is needed to participating in the 8(a) BD program are Federal financial obligations should not prevent large businesses as well as other required by statute to semiannually be part of SBA’s determination as to non-8(a) firms from being able to reap submit a written report to their assigned whether a firm qualifies as an SDB. If a the benefits of sole source contracts BDS that includes a listing of any firm does not have good character, for intended for tribally-owned or ANC- agents, representatives, attorneys, example, a procuring agency should owned 8(a) Participants. When these accountants, consultants and other take that into account as an issue of large contracts are awarded on a sole mstockstill on DSKH9S0YB1PROD with PROPOSALS2 parties (other than employees) receiving responsibility prior to contract award. source basis to joint ventures, the fees, commissions, or compensation of SBA is also proposing to add a new contracts are not available for any kind to assist such participant in paragraph to § 124.1002 to define full competition among other 8(a) firms. obtaining a Federal contract. The listing time management as it applies to the Thus, large firms and other non-8(a) must indicate the amount of SDB program. Since the SDB program is firms joint venturing with tribally compensation paid and a description of a contracts program and not a business owned or ANC owned firms are the activities performed for such development program, and since there realizing the benefits of sole source 8(a) compensation. The current regulation is no good policy reason to exclude part- contracts to the detriment of 8(a) firms incorrectly required this report to be time companies from the SDB program, who might otherwise compete for these VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 19. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55711 contracts. This is particularly true when tribally owned or ANC-owned firms and competed among all small businesses, the non-8(a) joint venture partner is also firms which are not tribally owned or or competed among all firms on an a subcontractor on the same 8(a) ANC owned were awarded contracts unrestricted basis. contract. In such a case, a non-8(a) above the competitive threshold It is difficult to estimate the costs and concern could conceivably be amounts based on the current benefits to the various classes of firms performing 70–80% of the entire application of the statutory exception. as it is impossible to foresee which contract. SBA believes that such an The dollar amounts of these contracts future contracts above the competitive outcome should not be possible under ranged from $3 million to $600 million thresholds would be awarded based on the 8(a) program. and the total contract dollars awarded the various options (sole source to Other proposed changes in this rule was approximately $2.5 billion. It is tribally-owned or ANC-owned firms, are needed to clarify SBA’s estimated based on past experience that competition among 8(a) firms, requirements and remove confusion. For each joint venture partner performs competition among small businesses, example, the proposed change to approximately one half of the contract unrestricted competition). It is likely § 121.103(h) to permit a specific joint awarded the joint venture, with the 8(a) that large firms and firms not in the 8(a) venture to be formed for three contract concern performing slightly more based program will get smaller proportionate awards over a two-year period, instead on regulatory requirements that more shares of these contracts; however, we of an entity that can seek three contract than half the profits from the contract be note that Congress clearly intended the opportunities over a two-year period, is distributed to the 8(a) firm. See 13 CFR exception from the competition proposed because the current 124.513(c)(3). Thus, under this requirements to be for the benefit of requirement has caused confusion and assumption, in the past five years an ANC-owned and tribally-owned firms resulted in some firms being ineligible estimated $1.25 billion has been and not to large and non-8(a) firms. for certain small business awards due to awarded to firms that are not tribally- Therefore, any impact on large or non- that confusion. Similarly, the proposed owned or ANC-owned as a result of the 8(a) firms is of little consequence for change to § 124.104(c)(2) to exempt current regulatory scheme and purposes of this rule. The benefits to income from an S corporation from the approximately $1.25 billion was large and non-8(a) firms are incidental calculation of both the individual awarded to tribally or ANC-owned to the purpose of the rule and are owner’s income and net worth to the firms. (Contracts awarded to joint arguably at the expense of other 8(a) extent such income is reinvested in the ventures between tribally owned firms. firm or used to pay corporate taxes is concerns and other tribally owned Although ANC-owned and tribally- designed to treat an individual owner of concerns were not counted as these owned 8(a) firms may receive fewer an S corporation the same as an contracts would still be allowed under contract dollars if mentors are individual owner of a C corporation. dissuaded from participating as joint the proposed rule.) Under the above The current rule has caused confusion venture partners under the proposed assumptions and based on the data as to whether such income should be rule, we note that those firms will compiled approximately $500 million included in an individual’s income or nevertheless be permitted to bid on all (approximately half of 25 contracts) net worth for purposes of determining the contracts that are no longer available went to large businesses and $750 economic disadvantage. to them on a sole source basis as joint million (approximately half of 37 Finally, several changes in this rule venture partners. We also note that contracts) went to small businesses not are being proposed to eliminate or ease these firms may still be awarded these tribally or ANC-owned. We also believe restrictions that SBA believes are contracts as prime contractors bidding that a significant percentage of non-8(a) unnecessary. For example, the proposed alone or as joint venture partners with joint venture partners also acted as change to § 124.105(g) would provide other tribally or ANC-owned firms, and more flexibility in determining whether subcontractors on the same 8(a) that such firms will still be able to to admit to the 8(a) program companies contracts for which they were joint subcontract substantial portions of the owned by individuals where such venturers. If non-8(a) joint venture contracts to other non-8(a) firms. We individuals have immediate family partners can no longer act as also reference the recent report issued members who are owners of current or subcontractors, the only way for them to by the GAO entitled ‘‘CONTRACT former 8(a) concerns. SBA believes that perform additional work on an 8(a) MANAGEMENT Increased Use of the current rule, which broadly contract is to increase the percentage of Alaska Native Corporations’ Special 8(a) prohibits such ownership, is too strict work performed by the joint venture. Provisions Calls for Tailored Oversight’’, and needs to be revised to recognize This will necessarily have the beneficial GAO–06–399, April 2006 (‘‘GAO separate business ownership in more effect of increasing the amount of work Report’’). That report noted that 8(a) than one immediate family member. In performed by tribally and ANC-owned obligations to firms owned by ANCs addition, SBA believes that the 8(a) firms. This change, in concert with increased from $265 million in FY 2000 proposed change to § 124.104(c)(2) to the change to require the 8(a) partner(s) to $1.1 billion in 2004 and that in FY exempt funds in Individual Retirement to a joint venture on an 8(a) contract to 2004, obligations to ANC firms Accounts (IRAs) and other official perform at least 40% of the work represented 13 percent of total 8(a) retirement accounts from the calculation performed by the joint venture, should dollars (GAO Report, p. 6). This sharp of an individual’s net worth in enable 8(a) joint venture partners to increase in 8(a) dollars awarded to ANC determining his or her economic perform not only more work, but more firms from 2000 to 2004 draws into meaningful work on 8(a) joint venture mstockstill on DSKH9S0YB1PROD with PROPOSALS2 disadvantage is needed so that those question the need for such firms to individuals who have wisely invested in contracts. utilize joint venture vehicles to take retirement accounts should not be If this change dissuades large mentors advantage of 8(a) sole source penalized. from participating as joint venture opportunities above the competitive partners with tribally or ANC-owned threshold amounts. What are the potential benefits and firms on sole source 8(a) contracts, Finally, SBA notes that the rule costs of this regulatory action? many of these contracts may not be requiring the 8(a) member of a joint During the past five years, an offered to the 8(a) program at all. These venture to receive the majority of the estimated 62 joint ventures between contracts would then be either joint venture’s profits is easily VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 20. 55712 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules manipulated and difficult to monitor. own workforce. The first alternative is Native Corporations (ANCs) and Indian Thus, it would not be difficult for a joint not being proposed because of the tribes, both informally and formally, venture to manipulate its numbers so difficulty of enforcing the performance pursuant to Executive Order 13175, that less than 51 percent of the actual of work requirements. It is not clear primarily to discuss potential changes to profits from a contract in fact go to the whether a firm is meeting the required ´ ´ the mentor/protege requirements. SBA tribally-owned or ANC-owned 8(a) percentages of work requirements until met informally with tribal and ANC concern. On the other hand, the firm (or joint venture) is well along representatives in Washington, DC on performance of work is more easily in the performance of the contract. It is July 19, 2007, and more formally in measured and thus easier to monitor. If difficult to enforce these provisions at Fairbanks, Alaska on October 24, 2007, a contract is awarded to an ANC-owned this point and often the only recourse if 72 FR 57889, and in Denver, Colorado or tribally-owned firm and more than the requirements are not met is to on November 11, 2007, 72 FR 60702. A the allowed percentage is subcontracted, terminate the contract, a solution that vast majority of the comments received this fact is more difficult to hide and creates numerous problems for the from these discussions were concerned easier to track. Therefore, it is expected procuring activity. The second that SBA would overreact to negative that instances of abuse and the use of alternative is not being proposed at this publicity regarding one or two 8(a) fronts will decrease as a result of the time because it would still result in Participants and would change the proposed change. granting a significant portion of an 8(a) ´ ´ mentor/protege program in a way that For all of the reasons listed above, contract to a non-8(a) concern. Finally, would take away an important business SBA believes that the benefits of the the elimination of all joint ventures development tool to tribal and ANC- proposed rule far exceed its costs and above the competitive thresholds owned firms. Tribal representative after far exceed the benefits of continuing the approach is not being proposed because tribal representative talked about the status quo. SBA was persuaded by tribal and ANC Regarding other proposed changes set importance of the 8(a) BD program to representatives that joint ventures serve the tribal and ANC communities. They forth in this rule, SBA believes that an important function in the overall increased clarity and easing of stressed that the 8(a) BD program works, business development of ANC and providing the government with a restrictions is overall beneficial to 8(a) tribally-owned Participants. applicants and Participants. contracting option that is efficient and SBA is very interested in comments cost effective while permitting the Alternatives to the Regulatory Action from the public on these issues. government to achieve its policy of SBA has considered a number of Executive Order 12988 supporting disadvantaged small alternatives to the proposed rule and is businesses and providing benefits to This action meets applicable interested in hearing from the public some of the most underemployed standards set forth in Sec. 3(a) and concerning these alternatives. One people in America. They explained that 3(b)(2) of Executive Order 12988, Civil alternative SBA has considered is to they have been trying to dispel program Justice Reform, to minimize litigation, continue to allow joint ventures on misperceptions caused by eliminate ambiguity, and reduce contracts above the competitive unsubstantiated allegations of burden. The action does not have thresholds between ANC or tribally- misconduct and abuse, when they retroactive or preemptive effect. owned concerns and other concerns would rather be devoting their efforts to with the condition that the ANC or Executive Order 13132 business and community development. tribally owned concern be required to This rule does not have federalism Several tribal representatives felt that meet the performance of work implications as defined in Executive relatively few tribes have realized the requirements set forth in 13 CFR Order 13132, Federalism. It will not ´ ´ benefits of the mentor/protege 124.510 with its own workforce. Also have substantial direct effects on the component of the 8(a) program, and see 13 125.6. Section 13 CFR 124.510 States, on the relationship between the were concerned that SBA would be requires a prime contractor on an 8(a) national government and the States, or closing this business development contract to perform certain percentages on the distribution of power and option just as they are getting to the of work with its own workforce (50 responsibilities among the various point where they would use it. percent for service and manufacturing levels of government, as specified in the Representatives also were concerned contracts, 15 percent for general Executive Order. As such it does not that SBA would propose changes that construction and 25 percent for special warrant the preparation of a Federalism would restrict the participation of trades). Another alternative being Assessment. mentors in the program. That is not considered is to permit joint ventures SBA’s intent. SBA too believes that the above the threshold amounts with other Executive Order 13175, Tribal 8(a) BD program is a much-needed and 8(a) concerns or with other small Summary Impact Statement beneficial program, and that the tribal businesses, but not with large For the purposes of Executive Order and ANC component of the program businesses. Finally, SBA also 13175, Consultation and Coordination serves a valuable economic and considered disallowing any joint with Indian Tribal Governments, the community development purpose in ventures on 8(a) sole source contracts SBA’s General Counsel has determined addition to its business development above the competitive threshold that the requirements of this order have purpose. It is not SBA’s intent to shut amounts. Under this approach, ANC been met in a meaningful and timely down any component of the 8(a) mstockstill on DSKH9S0YB1PROD with PROPOSALS2 and tribally-owned Participants could manner. This rule complies with the program that truly assists the still receive 8(a) sole source contracts standards set forth in the Executive development of any small above the competitive threshold Order and SBA has provided the tribal disadvantaged businesses. Specifically, amounts, they just could not perform officials with an opportunity to provide SBA is not proposing to close this those contracts through a joint venture. meaningful and timely input on business development option to tribes This would force ANC and tribally- regulatory policies that have tribal and ANCs as some tribal representatives owned Participants to be the prime implications. were concerned. SBA does not seek to contractor and meet the performance of In drafting this proposed rule, SBA make it more difficult for tribally-owned work (i.e., 50%) requirement with their consulted with representatives of Alaska and ANC-owned firms to participate in VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 21. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55713 the 8(a) BD program, and merely looks in detail in the Regulatory Impact required for continued 8(a) BD for ways to help ensure that the benefits Analysis above. participation. As the cost for audited of the program flow to those who are SBA believes that the proposed and reviewed financial statements truly eligible to participate. SBA has requirement that the disadvantaged increases, those costs are becoming carefully reviewed both the testimony manager of an 8(a) applicant or more of a burden on developing given at the tribal consultation meetings Participant must reside in the United disadvantaged small businesses. In and the formal comments submitted in States and spend part of every month addition, SBA notes that while size response thereto. SBA welcomes the physically present at the primary offices standards have increased due to opportunity to discuss its proposals of the applicant or Participant is needed inflation over time, the levels of revenue with the tribal and ANC communities in to reduce the potential abuse of ‘‘front’’ above which audited and reviewed more detail during the public comment companies in which a non- financial statements are required for the period. disadvantaged individual actually runs 8(a) program have not. As such, SBA the day-to-day operations of the believes that it makes sense to increase Initial Regulatory Flexibility Analysis business. these levels and alleviate the burden on This rule, if finalized, may have a SBA believes that a change is needed smaller firms. significant impact on a substantial to exclude qualified individual 2. What is SBA’s description and number of small entities within the retirement accounts from the calculation estimate of the number of small entities meaning of the Regulatory Flexibility of an individual’s net worth when to which the rule will apply? In FY 2007, Act, 5 U.S.C. 601–612. As such, SBA considering economic disadvantage. As SBA approved 60 mentor/protege ´ ´ sets forth an initial regulatory flexibility noted in the supplementary information agreements. In FY 2006, SBA approved analysis (IRFA) of this proposed rule above, SBA has found that the inclusion ´ ´ 173 mentor/protege agreements. There addressing the following questions: (1) of individual retirement accounts in the are currently more than 300 approved What is the need for and objective of the calculation of an individual’s net worth ´ ´ mentor/protege agreements. The rule, (2) what is SBA’s description and does not serve to disqualify wealthy proposed changes to the mentor/protege ´ ´ estimate of the number of small entities individuals from participation in the program would not affect all small firms to which the rule will apply, (3) what program, but has worked to make that are currently SBA-approved middle and lower income individuals ´ ´ proteges. The significant proposed is the projected reporting, record ineligible to the extent they have restriction on the program would keeping, and other compliance invested prudently in accounts to prohibit a joint venture between a requirements of the rule, (4) what are ensure income at a time in their lives ´ ´ protege firm and its SBA-approved the relevant Federal rules which may that they are no longer working. SBA mentor to subcontract additional work duplicate, overlap or conflict with the believes that it should not penalize an on the contract to the mentor. Thus, it rule, and (5) what alternatives will individual who has invested in a would affect only those mentor/protege ´ ´ allow the Agency to accomplish its qualified retirement account. relationships in which the mentor and regulatory objectives while minimizing SBA believes that it is necessary to ´ ´ protege firms joint venture for one or the impact on small entities? SBA will put into the regulations provisions more government contracts and the specifically address six provisions of the establishing objective criteria for income mentor wants to also act as a proposed rule which may have a and total assets in determining subcontractor on the contract. While the significant impact on a substantial economic disadvantage to publicize number of these situations is not great, number of small businesses. They are: SBA’s current policies in this area. the potential for abuse without the (1) The provisions relating to joint While the proposed rule establishing proposed change is. ´ ´ ventures between protege firms and $200,000 in income and $3,000,000 in The average number of applications their SBA-approved mentors; (2) the total assets as the levels above which an for the 8(a) BD program for the past five requirement that the disadvantaged individual is deemed not to be fiscal years (FYs 2003 to 2007) is 3,682. manager of an 8(a) applicant or economically disadvantaged for There are approximately 6–10 declines Participant must reside in the United purposes of initial 8(a) eligibility is not based solely on control issues per 100 States and spend part of every month a change in SBA policy, these standards declines. For this time period, there physically present at the primary offices are currently contained only in were 1,583 total declines for the 8(a) of the applicant or Participant; (3) the decisions rendered by SBA’s OHA. program. Based on the estimated provision excluding qualified Including these standards in the number of declines due to control individual retirement accounts from an regulatory text will aid all applications issues, this would translate as between individual’s net worth in determining in more fully understanding SBA’s 95 and 158 declines for control for the economic disadvantage; (4) the eligibility requirements. past five fiscal years, or an average of 19 provisions establishing objective criteria SBA believes that it makes sense to to 30 per year. The number of firms for determining economic disadvantage early graduate a firm from the 8(a) BD declined for control reasons because the in terms of income and total assets; (5) program where it no longer qualifies as individual claiming disadvantaged the provision requiring SBA to early small for its primary NAICS code for status lived outside the United States is graduate a firm from the 8(a) program if two consecutive years because it is miniscule. We know of only two cases the firm becomes large for the size reasonable to conclude that at that point during the five year period where SBA standard corresponding to its primary the firm has substantially achieved the declined a firm on that basis. mstockstill on DSKH9S0YB1PROD with PROPOSALS2 NAICS code; and (6) the provisions targets, objectives and goals contained For the last five fiscal years, there are relating to what size 8(a) Participants in its business plan, and thus, has met approximately 3–5 declines per 100 must annually submit either audited or the standard set forth in § 7(j)(10)(H) of declines based solely on issues relating reviewed financial statements to SBA. the Small Business Act, 15 U.S.C. to economic disadvantage. This would 1. What is the need for and objective 636(j)(10(H), for graduation. translate into between 48 and 80 of the rule? The need for and objective SBA also believes it makes sense to declines based on economic of the provisions relating to joint raise the revenue levels above which disadvantage during the last five fiscal ´ ´ ventures between protege firms and audited financial statements and years, or an average of 9 to 16 per year. their SBA-approved mentors is set forth reviewed financial statements should be SBA believes that the number of firms VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 22. 55714 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules declined due solely to significant assets Paperwork Reduction Act § 121.903. Affiliation may be found in in an IRA or other qualifying retirement either case for other reasons. account is very small. SBA anticipates For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA * * * * * that 1 or 2 firms per year which would (h) * * * This means that a specific have been found not to be economically has determined that this proposed rule, joint venture entity generally may not be disadvantaged, and thus ineligible for if adopted in final form, would contain awarded more than three contracts over the 8(a) BD program, will be eligible no new reporting or recordkeeping a two year period, starting from the date because of the proposed change. Of the requirements. of the award of the first contract, 9 to 16 declines per year due to List of Subjects without the partners to the joint venture economic disadvantage, less than half being deemed affiliated for all purposes. were due to excessive income or total 13 CFR Part 121 Because SBA determines size and assets. As such, the provisions Administrative practice and affiliation as of the date an offeror establishing objective criteria for income procedure, Government procurement, submits its initial offer including price and total assets would affect no more Government property, Grant programs— to a procuring agency, SBA will also than 8 8(a) applicants each year. business, Individuals with disabilities, determine compliance with this three During the last three fiscal years (FYs awards in two years rule as of the date Loan programs—business, Reporting 2005 to 2007), a total of 591 firms were of initial offer including price. As such, and recordkeeping requirements, Small terminated from the 8(a) BD program an individual joint venture may be businesses. (143 in FY 2007, 318 in FY 2006, and awarded more than three contracts 130 in FY 2005), 342 firms voluntarily 13 CFR Part 124 without SBA finding general affiliation withdrew from the program (149 in FY between the joint venture partners 2007, 95 in FY 2006, and 98 in FY Administrative practice and procedures, Government procurement, where the joint venture had received 2005), and 42 firms left the program due two or fewer contracts as of the date it to early graduation (12 in FY 2007, 12 Hawaiian natives, Indians—business and finance, Minority businesses, submitted one or more additional offers in FY 2006, and 18 in FY 2005). which thereafter result in one or more As reported in the Dynamic Small Reporting and recordkeeping requirements, Tribally-owned concerns, additional contract awards. The same Business Search, there are currently Technical assistance. two (or more) entities may create 9,609 Participants in the 8(a) BD additional joint ventures, and each new program. Of those firms, 5,876 firms For the reasons set forth above, the have less than $10 million in annual joint venture entity may be awarded up Small Business Administration to three contracts in accordance with revenue, and 5,365 firms have less than proposes to amend parts 121 and 124 of $5 million in annual revenue. Thus, the this section. At some point, however, title 13 of the Code of Federal such a longstanding inter-relationship proposed change to raise the revenue Regulations as follows: level under which Participants must or contractual dependence between the submit audited or reviewed financial same joint venture partners will lead to PART 121—SMALL BUSINESS SIZE statements to SBA would ease the a finding of general affiliation between REGULATIONS regulatory burden on these firms. and among them. For purposes of this 3. What are the projected reporting, Subpart A—Size Eligibility Provisions provision and in order to facilitate recordkeeping, and other compliance and Standards tracking of the number of contract requirements of the rule and an estimate awards made to a joint venture, a joint of the classes of small entities which 1. The authority citation for part 121 venture must be in writing and must do will be subject to the requirements? continues to read as follows: business under its own name, and it There would be no additional reporting may (but need not) be in the form of a Authority: 15 U.S.C. 632, 634(b)(6), 636(b), or recordkeeping requirements imposed 637(a), 644 and 662(5); and, Pub. L. 105–135, separate legal entity, and it may (but by the rule. The rule would ease the sec. 401 et seq., 111 Stat. 2592. need not) be populated. * * * regulatory burden on smaller 8(a) firms. * * * * * Specifically, SBA proposes to raise the 2. Amend § 121.103 by revising (3) * * * level above which audited financial paragraph (b)(6), by revising the second (iii) Two firms approved by SBA to be statements are required from and third sentences of paragraph (h) ´ ´ a mentor and protege under 13 CFR Participants with gross annual receipts introductory text, and by revising 124.520 may joint venture as a small of more than $5,000,000 to Participants paragraph (h)(3)(iii) to read as follows: business for any Federal government with gross annual receipts of more than § 121.103 How does SBA determine prime contract or subcontract, provided $10,000,000. Reviewed financial affiliation? ´ ´ the protege qualifies as small for the size statements would be required of all standard corresponding to the NAICS * * * * * Participants with gross annual receipts code assigned to the procurement and, between $2,000,000 and $10,000,000, (b) * * * for purposes of 8(a) sole source instead of between $1,000,000 and (6) An 8(a) BD Participant that has an requirements, has not reached the dollar $5,000,000. SBA-approved mentor/protege ´ ´ limit set forth in 13 CFR 124.519. If the 4. What are the relevant Federal rules agreement is not affiliated with a mentor procurement is to be awarded through which may duplicate, overlap or conflict ´ ´ firm solely because the protege firm the 8(a) BD program, SBA must approve mstockstill on DSKH9S0YB1PROD with PROPOSALS2 with the rule? The Federal Acquisition receives assistance from the mentor the joint venture pursuant to § 124.513. Regulation (FAR) defers to and under the agreement. Similarly, a If the procurement is to be awarded incorporates the substance of the ´ ´ protege firm is not affiliated with its other than through the 8(a) BD program provisions set forth in SBA’s regulations ´ ´ mentor solely because the protege firm (e.g., small business set aside, HUBZone for issues pertaining to the 8(a) program. receives assistance from the mentor set aside), SBA need not approve the To the extent the FAR is inconsistent ´ ´ under a Federal Mentor-Protege program joint venture prior to award, but if the with 8(a) rules implemented by SBA, where an exception to affiliation is size status of the joint venture is the FAR would need to be changed to specifically authorized by statute or by protested, the provisions of be consistent. SBA under the procedures set forth in §§ 124.513(c) and (d) will apply. This VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 23. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55715 means that the joint venture must meet (3) The nonmanufacturer rule applies PART 124—8(a) BUSINESS the requirements of §§ 124.513(c) and only to procurements that have been DEVELOPMENT/SMALL (d) in order to receive the exception to assigned a manufacturing NAICS code, DISADVANTAGED BUSINESS STATUS affiliation authorized by this paragraph. Sectors 31–33. It does not apply to DETERMINATIONS * * * * * supply contracts that do not primarily 3. Amend § 121.402(b) by revising the consist of manufacturing. 6. The authority citation for part 124 last sentence and adding a new sentence is revised to read as follows: (4) The nonmanufacturer rule applies at the end thereof to read as follows: only to the supply component of a Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub. L. 99–661, Pub. L. § 121.402 What size standards are requirement classified as a 100–656, sec. 1207, Pub. L. 101–37, Pub. L. applicable to Federal Government manufacturing contract. If a requirement 101–574, section 8021, Pub. L. 108–87, and contracting programs? is classified as a service contract, but 42 U.S.C. 9815. * * * * * also has a supply component, the nonmanufacturer rule does not apply to 7. Remove the term ‘‘SIC’’ and add, in (b) * * * Acquisitions for supplies its place, the term ‘‘NAICS,’’ in the must be classified under the appropriate the supply component of the requirement. following places: manufacturing NAICS code, not under a a. § 124.110(c); wholesale trade or retail trade NAICS Example 1 to paragraph (b)(4). A b. § 124.111(d); code. A concern that submits an offer or procuring agency seeks to acquire computer c. § 124.502(c)(3); quote for a contract or subcontract integration and maintenance services. d. § 124.503(b); where the NAICS code assigned to the Included within that requirement, the agency e. § 124.503(b)(1); contract or subcontract is one for also seeks to acquire some computer f. § 124.503(b)(2); supplies, and furnishes a product it did hardware. If the procuring agency determines g. § 124.503(c)(1)(iii); not itself manufacture or produce, is that the principal nature of the procurement h. § 124.503(g)(3); categorized as a nonmanufacturer and is services and classifies the procurement as i. § 124.505(a)(3); a services procurement, the nonmanufacturer deemed small if it meets the j. § 124.507(b)(2)(i); rule does not apply to the computer requirements set forth in § 121.406(b). k. § 124.513(b)(1), (b)(1)(i), and hardware portion of the requirement. This * * * * * means that while a contractor must meet the (b)(1)(ii)(A); 4. Amend § 121.406 by revising applicable performance of work requirement l. § 124.513(b)(2); paragraph (a) introductory text, (a)(1) set forth in § 125.6 for the services portion of m. § 124.513(b)(3); (b)(1) introductory text, revising the contract, the contractor does not have to n. § 124.514(a)(1); paragraphs (b)(1)(ii) and (b)(1)(iii), by supply the computer hardware of a small o. § 124.515(d); business manufacturer. p. § 124.517(d)(1); redesignating paragraphs (b)(3), (b)(4) Example 2 to paragraph (b)(4). A q. § 124.517(d)(2); and (b)(5) as paragraphs (b)(5), (b)(6), r. § 124.519(a)(1); and (b)(7), respectively, by adding new procuring agency seeks to acquire computer hardware, as well as computer integration s. § 124.519(a)(2); paragraphs (b)(3) and (b)(4), and by t. § 124.1002(b)(1), (b)(1)(i), and and maintenance services. If the procuring revising newly redesignated paragraph agency determines that the principal nature (b)(1)(ii); and (b)(6) to read as follows: of the procurement is for supplies and u. § 124.1002(f)(3). § 121.406 How does a small business classifies the procurement as a supply 8. Revise § 124.2 to read as follows: concern qualify to provide manufactured procurement, the nonmanufacturer rule applies to the computer hardware portion of § 124.2 For what length of time may a products or other supply items under small business participate in the 8(a) BD business set-aside or 8(a) contracts? the requirement. A firm seeking to qualify as a small business nonmanufacturer must program? (a) General. In order to qualify as a supply the computer hardware manufactured A Participant receives a program term small business concern for a small by a small business. Because the requirement of nine years from the date of SBA’s business set-aside or 8(a) contract to is classified as a supply contract, the approval letter certifying the concern’s provide manufactured products or other contractor does not have to meet the admission to the program. The supply items, an offeror must either: performance of work requirement set forth in Participant must maintain its program (1) Be the manufacturer or producer of § 125.6 for the services portion of the contract. eligibility during its tenure in the the end item being procured (and the program and must inform SBA of any end item must be manufactured or * * * * * changes that would adversely affect its produced in the United States); or (6) The two waiver possibilities program eligibility. The nine year * * * * * identified in paragraph (b)(5) of this program term may be shortened only by (b) Nonmanufacturers. (1) A concern section are called ‘‘individual’’ and termination, early graduation or may qualify as a small business concern ‘‘class’’ waivers respectively, and the voluntary withdrawal as provided for in for a requirement to provide procedures for requesting and granting this subpart. manufactured products or other supply them are contained in § 121.1204. 9. In § 124.3, add new definitions for items as a nonmanufacturer if it: ‘‘NAICS code,’’ and ‘‘Regularly * * * * * * * * * * maintains an office’’ in alphabetical (ii) Takes ownership or possession of 5. In § 121.1001, add a new paragraph order, and revise the definitions of the item(s) with its personnel, (b)(10) to read as follows: ‘‘Primary industry classification’’ and mstockstill on DSKH9S0YB1PROD with PROPOSALS2 equipment or facilities in a manner § 121.1001 Who may initiate a size protest ‘‘Same or similar line of business,’’ to consistent with industry practice; and or request a formal size determination? read as follows: (iii) Will supply the end item of a * * * * * small business manufacturer, processor § 124.3 What definitions are important in or producer made in the United States, (b) * * * the 8(a) BD program? or obtains a waiver of such requirement (10) The SBA Inspector General may * * * * * pursuant to paragraph (b)(5) of this request a formal size determination with NAICS code means North American section. respect to any of the programs identified Industry Classification System code. * * * * * in paragraph (b) of this section. * * * * * VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 24. 55716 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules Primary industry classification means § 124.102 What size business is eligible to presume that such individual is not the six digit North American Industry participate in the 8(a) BD program? economically disadvantaged. For Classification System (NAICS) code (a)(1) * * * continued 8(a) BD eligibility, SBA will designation which best describes the (2) In order to remain eligible to presume that an individual is not primary business activity of the 8(a) BD participate in the 8(a) BD program after economically disadvantaged if his or her applicant or Participant. The NAICS certification, a firm must generally adjusted gross income averaged over the code designations are described in the remain small for its primary industry two preceding years exceeds $250,000. North American Industry Classification classification, as adjusted during the The presumption may be rebutted by a System book published by the U.S. program. SBA may graduate a showing that this income level was Office of Management and Budget. SBA participant prior to the expiration of its unusual and not likely to occur in the utilizes § 121.107 of this chapter in program term where the firm exceeds future, that losses commensurate with determining a firm’s primary industry the size standard corresponding to its and directly related to the earnings were classification. SBA may permit a primary NAICS code for two successive suffered, or by evidence that the income Participant to change its primary program years. is not indicative of lack of economic industry classification if the Participant * * * * * disadvantage. Income earned by S can demonstrate that the majority of its 12. Amend § 124.104 by revising corporations which is reinvested in or revenues during a two-year period have paragraph (b)(2); redesignating used to pay taxes arising in the normal evolved from one NAICS code to paragraph (c)(2)(ii) as paragraph course of operations of the firm is another. (c)(2)(iv), adding new paragraphs exempted from income for purposes of (c)(2)(ii) and (c)(2)(iii), and by adding this section provided that documentary * * * * * new paragraphs (c)(3) and (c)(4) to read evidence is submitted demonstrating Regularly maintains an office means as follows: this use. Likewise, S corporation losses conducting business activities as an on- may not be subtracted from an going business concern from a fixed § 124.104 Who is economically individual’s income to reduce that location on a daily basis. The best disadvantaged? income. evidence of the regular maintenance of * * * * * (4) Fair market value of all assets. An an office is documentation that shows (b) * * * individual will generally not be that third parties routinely transact (2) When married, an individual considered economically disadvantaged business with a Participant at a location claiming economic disadvantage must if the fair market value of all his or her within a particular geographical area. submit separate financial information assets (including his or her primary Such evidence includes advertisements, for his or her spouse, unless the residence and the value of the bills, correspondence, lease agreements, individual and the spouse are legally applicant/Participant firm) exceeds $3 land records, and evidence that the separated. SBA may consider a spouse’s million for an applicant concern and $4 Participant has complied with all local financial situation in determining an million for continued 8(a) BD eligibility. requirements concerning registering, individual’s access to credit and capital. The only assets excluded from this licensing, or filing with the State or SBA does not take into consideration determination are funds excluded under County where the place of business is community property laws when paragraph (c)(2)(ii) of this section as located. determining economic disadvantage. being invested in a qualified IRA Same or similar line of business * * * * * account. (c) * * * 13. Amend § 124.105 by revising means business activities within the (2) * * * paragraphs (g) and (h)(2) to read as same four-digit ‘‘Industry Group’’ of the (ii) Funds invested in an Individual follows: NAICS Manual as the primary industry classification of the applicant or Retirement Account (IRA) or other § 124.105 What does it mean to be Participant. The phrase ‘‘same business official retirement account that are unconditionally owned by one or more area’’ is synonymous with this unavailable to an individual until disadvantaged individuals? definition. retirement age without a significant * * * * * penalty will not be considered in (g) Ownership of another Participant * * * * * determining an individual’s net worth. in the same or similar line of business. 10. Revise § 124.101 to read as In order to properly assess whether (1) An individual may not use his or follows: funds invested in a retirement account her disadvantaged status to qualify a may be excluded from an individual’s concern if that individual has an § 124.101 What are the basic requirements a concern must meet for the 8(a) BD net worth, the individual must provide immediate family member who is using program? information about the terms and or has used his or her disadvantaged restrictions of the account to SBA. status to qualify another concern for the Generally, a concern meets the basic (iii) Income received from an S 8(a) BD program. The AA/BD may waive requirements for admission to the 8(a) corporation will be excluded from net this prohibition if the two concerns BD program if it is a small business worth where the applicant or have no connections, either in the form which is unconditionally owned and Participant provides documentary of ownership, control or contractual controlled by one or more socially and evidence demonstrating that the income relationships, and provided the economically disadvantaged individuals was reinvested in the firm or used to mstockstill on DSKH9S0YB1PROD with PROPOSALS2 individual seeking to qualify the second who are of good character and citizens pay taxes arising in the normal course concern has management and technical of and residing in the United States, and of operations of the firm. experience in the industry. Where the which demonstrates potential for * * * * * concern seeking a waiver is in the same success. (3) Personal income for the past two or similar line of business as the current 11. Amend § 124.102 by redesignating years. If an individual’s adjusted gross or former 8(a) concern, there is a paragraph (a) as paragraph (a)(1), and by income averaged over the two years presumption against granting the adding a new paragraph (a)(2) to read as preceding submission of the 8(a) waiver. The applicant must provide follows: application exceeds $200,000, SBA will clear and compelling evidence that no VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 25. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55717 connection exists between the two members, officers, and/or directors of through one or more individual firms. the applicant or Participant. However, members who possess sufficient (2) If the AA/BD grants a waiver no non-disadvantaged individual or management experience of an extent under paragraph (g)(1) of this section, immediate family member may: * * * and complexity needed to run the SBA will, as part of its annual review, * * * * * concern, or through management as assess whether the firm continues to (h) Notwithstanding the provisions of follows: operate independently of the other this section requiring a disadvantaged * * * * * current or former 8(a) concern of an owner to control the daily business (6) Potential for success. A tribally- immediate family member. SBA may operations and long-term strategic owned applicant concern must possess initiate proceedings to terminate a firm planning of an 8(a) BD Participant, reasonable prospects for success in for which a waiver was granted from where a disadvantaged individual upon competing in the private sector if further participation in the 8(a) BD whom eligibility is based is a reserve admitted to the 8(a) BD program. A program if it is apparent that there are component member in the United States tribally-owned applicant may establish connections between the two firms that military who has been called to active potential for success by demonstrating were not disclosed to the AA/BD when duty, the Participant may elect to that: the waiver was granted or that came into designate one or more individuals to (i) It has been in business for at least existence after the waiver was granted. control the Participant on behalf of the two years, as evidenced by income tax SBA may also initiate termination disadvantaged individual during the returns for each of the two previous tax proceedings if the firm begins to operate active duty call-up period. If such an years showing operating revenues in the in the same or similar line of business election is made, the Participant will primary industry in with the applicant as the current or former 8(a) concern of continue to be treated as an eligible 8(a) is seeking 8(a) BD certification; or the immediate family member and the Participant and no additional time will (ii) The individual(s) who will firm did not operate in the same or be added to its program term. manage and control the daily business similar line of business at the time the Alternatively, the Participant may elect operations of the firm have substantial waiver was granted. to suspend its 8(a) BD participation technical and management experience, (h) * * * during the active duty call-up period (2) A non-Participant concern in the the applicant has a record of successful pursuant to §§ 124.305(h)(1)(ii) and performance on contracts from same or similar line of business or a 124.305(h)(4). governmental or nongovernmental principal of such concern may not own more than a 10 percent interest in a sources in its primary industry category, § 124.108 [Amended] Participant that is in the developmental and the applicant has adequate capital 15. Amend § 124.108 by removing to sustain its operations and carry out stage or more than a 20 percent interest paragraph (f). in a Participant in a transitional stage of its business plan as a Participant; or 16. Amend § 124.109 by revising (iii) The tribe has made a firm written the program, except that a former paragraphs (c)(3)(ii), (c)(4)(i) Participant or a principal of a former commitment to support the operations introductory text, and (c)(6) to read as of the applicant concern and it has the Participant (except those that have been follows: terminated from 8(a) BD program financial ability to do so. participation pursuant to §§ 124.303 and § 124.109 Do Indian tribes and Alaska * * * * * 124.304) may have an equity ownership Native Corporations have any special rules 17. Amend § 124.112 by removing the for applying to the 8(a) BD program? word ‘‘and’’ at the end of paragraph interest of up to 20 percent in a current Participant in the developmental stage * * * * * (b)(7), by redesignating paragraph (b)(8) of the program or up to 30 percent in a (c) * * * as paragraph (b)(9), by adding a new transitional stage Participant, in the (3) * * * paragraph (b)(8), by revising paragraphs (ii) A tribe may not own 51% or more (d)(1) and (d)(3), and by adding new same or similar line of business. of another firm which, either at the time paragraphs (e) and (f) to read as follows: * * * * * of application or within the previous 14. Amend § 124.106 by revising two years, has been operating in the 8(a) § 124.112 What criteria must a business paragraph (a)(2), and (e) introductory program under the same primary NAICS meet to remain eligible to participate in the text, and by adding a new paragraph (h) code as the applicant. A tribe may, 8(a) BD program? to read as follows: however, own a Participant or other * * * * * § 124.106 When do disadvantaged applicant that conducts or will conduct (b) * * * individuals control an applicant or secondary business in the 8(a) BD (8) For each Participant owned by a Participant? program under the NAICS code which tribe, ANC, NHO or CDC, information * * * * * is the primary NAICS code of the showing how its 8(a) participation has (a)(1) * * * applicant concern. In addition, once an benefited the tribal or native members (2) A disadvantaged full-time manager applicant is admitted to the 8(a) BD and/or the tribal, native or other must hold the highest officer position program, it may not receive an 8(a) community. This data includes (usually President or Chief Executive contract in a secondary NAICS code that information relating to funding cultural Officer) in the applicant or Participant. is the primary NAICS code of another programs, employment assistance, jobs, Such manager must reside in the United Participant (or former participant that scholarships, internships, subsistence activities, and other services to the mstockstill on DSKH9S0YB1PROD with PROPOSALS2 States, and must generally spend at least has left the program within two years of part of every month physically present the date of application) owned by the affected community; and in the primary offices of the applicant tribe for a period of two years from the * * * * * or Participant. date of admission to the program. (d) Excessive withdrawals. (1) The * * * * * * * * * * term withdrawal includes, but is not (e) Non-disadvantaged individuals (4) * * * limited to, the following: cash may be involved in the management of (i) The management and daily dividends; distributions in excess of an applicant or Participant, and may be business operations of a tribally-owned amounts needed to pay S Corporation stockholders, partners, limited liability concern must be controlled by the tribe, taxes; cash and property withdrawals; VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 26. 55718 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules payments to immediate family members forms and attachments may include, but mail, or commercial delivery service. not employed by the Participant; not be limited to, financial statements, The applicant must submit its request bonuses to officers; and investments on Federal personal and business tax for reconsideration within 45 days of its behalf of an owner. SBA will look at the returns, and personal history receipt of written notice that its totality of the circumstances in statements. An applicant must also application was declined. If the date of determining whether to include a submit IRS Form 4506T, Request for actual receipt of such written notice specific amount as a withdrawal under Copy or Transcript of Tax Form, to SBA. cannot be determined, SBA will this paragraph. In all cases, the applicant must provide presume receipt to have occurred ten * * * * * a wet signature from each individual calendar days after the date the notice (3) Withdrawals are excessive if claiming social and economic was sent to the applicant. The applicant during any fiscal year of the Participant disadvantage status. must provide any additional they exceed: 20. Amend § 124.204 by revising information and documentation (i) $200,000 for firms with sales up to paragraph (a), redesignating paragraphs pertinent to overcoming the reason(s) $1,000,000; (c), (d) (e) and (f) as paragraphs (d), (e), for the initial decline, including (ii) $250,000 for firms with sales (f) and (g), and adding new paragraph information and documentation between $1,000,000 and $2,000,000; and (c) to read as follows: regarding changed circumstances. (iii) $400,000 for firms with sales (b) The AA/BD will issue a written § 124.204 How does SBA process exceeding $2,000,000. decision within 45 days of SBA’s receipt applications for 8(a) BD program * * * * * admission? of the applicant’s request. The AA/BD (e) Change in primary industry (a) The AA/BD is authorized to may either approve the application, classification. A Participant may request approve or decline applications for deny it on the same grounds as the that the primary industry classification admission to the 8(a) BD program. The original decision, or deny it on other contained in its business plan be DPCE will receive, review and evaluate grounds. If denied, the AA/BD will changed by filing such a request with its all 8(a) BD applications. Applications explain why the applicant is not eligible servicing SBA district office. SBA will submitted by firms owned by ANCs will for admission to the 8(a) BD program grant such a request only where the be initially reviewed by SBA’s San and give specific reasons for the decline. Participant can demonstrate that the Francisco DPCE unit. SBA will advise * * * * * majority of its revenues during a two- each program applicant within 15 days 22. Revise § 124.301 to read as year period have evolved from one after the receipt of an application follows: NAICS code to another. whether the application is complete and (f) Graduation determination. As part § 124.301 What are the ways a business suitable for evaluation and, if not, what may leave the 8(a) BD program? of the final annual review performed by additional information or clarification is SBA prior to the expiration of a required to complete the application. A concern participating in the 8(a) BD Participant’s nine-year program term, SBA will process an application for 8(a) program may leave the program by any SBA will determine if the Participant BD program participation within 90 of the following means: has met the targets and objectives set days of receipt of a complete application (a) Expiration of the program term forth in its business plan and, thus, package by the DPCE. Incomplete established pursuant to § 124.2; whether the Participant will be packages will not be processed. (b) Voluntary withdrawal; considered to have graduated from the (c) Graduation pursuant to § 124.302; 8(a) BD program at the expiration of its * * * * * (c) The burden of proof to (d) Early graduation pursuant to the program term. provisions of §§ 124.302 and 124.304; or 18. Revise § 124.202 to read as demonstrate eligibility is on the applicant concern. If a concern does not (e) Termination pursuant to the follows: provisions of §§ 124.303 and 124.304. provide requested information within § 124.202 How must an application be the allotted time provided by SBA, or if 23. Amend § 124.302 by revising the filed? it submits incomplete information, SBA heading, by revising paragraphs (a) An application for 8(a) BD program may presume that disclosure of the introductory text and (a)(1), by admission must generally be filed in an missing information would adversely removing paragraph (d), by electronic format. An electronic affect the firm or would demonstrate redesignating paragraph (c) as paragraph application can be found by going to the lack of eligibility in the area to which (d), and by adding a new paragraph (c) 8(a) BD page of SBA’s Web site the information relates. to read as follows: ( An applicant concern * * * * * § 124.302 What is graduation and what is that does not have access to the 21. Revise § 124.205 (a) and (b) to read early graduation? electronic format or does not wish to file as follows: (a) General. SBA may graduate a firm an electronic application may request in from the 8(a) BD program at the writing a hard copy application from the § 124.205 Can an applicant ask SBA to reconsider SBA’s initial decision to decline expiration of its program term AA/BD. The SBA district office will (graduation) or prior to the expiration of its application? provide an applicant concern with its program term (early graduation) information regarding the 8(a) BD (a) An applicant may request the AA/ BD to reconsider his or her initial where SBA determines that: program. (1) The concern has successfully mstockstill on DSKH9S0YB1PROD with PROPOSALS2 19. Revise § 124.203 to read as decline decision by filing a request for reconsideration with SBA. The completed the 8(a) BD program by follows: substantially achieving the targets, applicant may submit a revised § 124.203 What must a concern submit to electronic application or submit its objectives, and goals set forth in its apply to the 8(a) BD program? request for reconsideration to the SBA business plan, and has demonstrated the Each 8(a) BD applicant concern must field office that originally processed its ability to compete in the marketplace submit those forms and attachments application by personal delivery, first without assistance under the 8(a) BD required by SBA when applying for class mail, express mail, facsimile program; or admission to the 8(a) BD program. These transmission followed by first class * * * * * VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 27. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55719 (c) Exceeding the size standard (3) Where a concern certifies that it section, the Participant must notify SBA corresponding to the primary NAICS qualifies as an SDB pursuant to when the disadvantaged individual code. SBA may graduate a participant paragraph (f)(2) of this section, the returns to control the firm so that SBA prior to the expiration of its program procuring activity contracting officer can immediately lift the suspension. term where the firm exceeds the size shall protest the SDB status of the firm When the suspension is lifted, the standard corresponding to its primary to SBA pursuant to § 124.1010. length of the suspension will be added NAICS code for two successive program 26. Amend § 124.305 by revising the to the concern’s program term. years. first sentence of paragraph (a), and by * * * * * * * * * * revising paragraph (h) to read as 24. Amend § 124.303 by revising follows: § 124.403 [Amended] paragraphs (a)(2), (a)(13) and (a)(16) to 27. Amend § 124.403 by removing § 124.305 What is suspension and how is read as follows: a Participant suspended from the 8(a) BD paragraph (d). § 124.303 What is termination? program? 28. Amend § 124.501 by revising the (a) Except as set forth in paragraph (h) first sentence of paragraph (h) to read as (a) * * * (2) Failure by the concern to maintain of this section, at any time after SBA follows: its eligibility for program participation, issues a Letter of Intent to Terminate an § 124.501 What general provisions apply including failure by an individual 8(a) Participant pursuant to § 124.304, to the award of 8(a) contracts? owner or manager to continue to meet the AA/BD may suspend 8(a) contract * * * * * the requirements for economic support and all other forms of 8(a) BD program assistance to that Participant (h) A Participant must certify that it disadvantage set forth in § 124.104 qualifies as a small business under the where such status is needed for until the issue of the Participant’s termination from the program is finally size standard corresponding to the eligibility and the Participant has not NAICS code assigned to each 8(a) met the targets and objectives set forth determined. * * * contract. * * *? in its business plan. * * * * * (h)(1) SBA will suspend a Participant * * * * * * * * * * (13) Excessive withdrawals, including from receiving further 8(a) BD program 29. Amend § 124.503 by revising transfers of funds or other business benefits when termination proceedings paragraph (h) to read as follows: assets, from the concern for the personal have not been commenced pursuant to § 124.503 How does SBA accept a benefit of any of its owners or any § 124.304 where: procurement for award through the 8(a) BD person or entity affiliated with the (i) A Participant requests a change of program? owners that hinder the development of ownership and/or control and SBA * * * * * the concern (see § 124.112(d)). discovers that a change of ownership or (h) Task or Delivery Order Contracts— * * * * * control has in fact occurred prior to (1) Contracts set aside for exclusive (16) Debarment, suspension, SBA’s approval; or (ii) A disadvantaged individual who competition among 8(a) Participants. (i) voluntary exclusion, or ineligibility of A task or delivery order contract that is the concern or its principals pursuant to is involved in the ownership and/or control of the Participant is called to reserved exclusively for 8(a) Program 2 CFR parts 180 and 2700 or FAR Participants must follow the normal 8(a) subpart 9.4 (48 CFR part 9, subpart 9.4). active military duty by the United States, his or her participation in the competitive procedures, including an * * * * * offering to and acceptance into the 8(a) firm’s management and daily business 25. Revise § 124.304(f) to read as program, SBA eligibility verification of operations is critical to the firm’s follows: the apparent successful offerors prior to continued eligibility, and the § 124.304 What are the procedures for Participant elects not to designate a non- contract award, and application of the early graduation and termination? disadvantaged individual to control the performance of work requirements set concern during the call-up period forth in § 124.510, and the * * * * * (f) Effect or early graduation or pursuant to proposed § 124.106(h). nonmanufacturer rule, if applicable, (see termination. (1) After the effective date (2) A suspension initiated under § 121.406(b). of early graduation or termination, a paragraph (h) of this section will be (ii) Individual orders need not be Participant is no longer eligible to commenced by the issuance of a notice offered to or accepted into the 8(a) BD receive any 8(a) BD program assistance. similar to that required for termination- program. However, such concern is obligated to related suspensions under paragraph (b) (iii) A concern awarded such a complete previously awarded 8(a) of this section, except that a suspension contract may generally continue to contracts, including any priced options issued under paragraph (h) not receive new orders even if it has grown which may be exercised. appealable. to be other than small or has exited the (2) When SBA early graduates or (3) Where a Participant is suspended 8(a) BD program, and agencies may terminates a firm from the 8(a) BD pursuant to paragraph (h)(1)(i) of this continue to take credit toward their program, the firm will generally not section and SBA approves the change of prime contracting goals for orders qualify as an SDB for future ownership and/or control, the length of awarded to 8(a) Participants. However, procurement actions. If the firm believes the suspension will be added to the a concern may not receive, and agencies mstockstill on DSKH9S0YB1PROD with PROPOSALS2 that it does qualify as an SDB and seeks firm’s program term only where the may not take 8(a), SDB or small business to certify itself as an SDB, as part of its change in ownership or control results credit, for an order where the concern SDB certification the firm must identify: from the death or incapacity of a has been asked by the procuring agency (i) That it has been early graduated or disadvantaged individual or where the to re-certify its size status and is unable terminated; and firm requested prior approval and to do so (see § 121.404(g)), or where (ii) The circumstances that have waited at least 60 days for SBA approval ownership or control of the concern has changed since the early graduation or before making the change. changed and SBA has granted a waiver termination or that do not prevent it (4) Where a Participant is suspended to allow performance to continue (see from qualifying as an SDB. pursuant to paragraph (h)(1)(ii) of this § 124.515). VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 28. 55720 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules (2) 8(a) credit for orders issued under (iii) Whether the requirement is (ii) The anticipated award price of the multiple award contracts that were not critical to the business development of contract, including options, will exceed set aside for exclusive competition the 8(a) Participant that is currently $5,500,000 for contracts assigned among eligible 8(a) Participants. In performing it. manufacturing NAICS codes and order to receive 8(a) credit for orders (2) SBA may decline to accept the $3,500,000 for all other contracts; and placed under multiple award contracts offer of a follow-on or renewable 8(a) * * * that were not initially set aside for acquisition in order to give a concern * * * * * exclusive competition among 8(a) previously awarded the contract that is (3) * * * Participants: leaving or has left the 8(a) BD program Example to paragraph (a)(3). If the (i) The order must be offered to and the opportunity to compete for the anticipated award price for a professional accepted into the 8(a) BD program; requirement outside of the 8(a) BD services requirement is determined to be $3.2 (ii) The order must be competed program. million and it is accepted as a sole source exclusively among 8(a) concerns; (i) SBA will consider release under 8(a) requirement on that basis, a sole source (iii) The order must require the this paragraph (d)(2) only where: award will be valid even if the contract price (A) The procurement awarded arrived at after negotiation is $3.6 million. concern comply with applicable limitations on subcontracting provisions through the 8(a) BD program is being or * * * * * (see § 125.6 of this chapter) and the was performed by either a Participant (b) Exemption from competitive nonmanufacturer rule, if applicable, (see whose program term will expire prior to thresholds for Participants owned by § 121.406(b) of this chapter) in the contract completion, or by a former Indian tribes, ANCs and NHOs. (1) SBA performance of the individual order; Participant whose program term expired may award a sole source 8(a) contract to and within one year of the date of the a Participant concern owned and (iv) SBA must verify that a concern is offering letter; controlled by an Indian tribe or an ANC an eligible 8(a) concern prior to award (B) The concern requests in writing where the anticipated value of the of the order in accordance with that SBA decline to accept the offer procurement exceeds the applicable § 124.507; prior to SBA’s acceptance of the competitive threshold if SBA has not requirement for award as an 8(a) accepted the requirement into the 8(a) * * * * * contract; and BD program as a competitive 30–31. Amend § 124.504 by revising (C) The concern qualifies as a small procurement. the first sentence of paragraph (a), by business for the requirement now (2) SBA may award a sole source 8(a) removing paragraph (d), by offered to the 8(a) BD program. contract to a Participant concern owned redesignating paragraph (e) as paragraph (ii) In considering release under this (d), and by revising redesignated and controlled by an NHO on behalf of paragraph (d)(2), SBA will balance the DoD where the anticipated value of the paragraph (d) to read as follows: importance of the requirement to the procurement exceeds the applicable § 124.504 What circumstances limit SBA’s concern’s business development needs competitive threshold if SBA has not ability to accept a procurement for award as against the business development needs accepted the requirement into the 8(a) an 8(a) contract? of other Participants that are qualified to BD program as a competitive (a) Reservation as small business set- perform the requirement. This procurement. aside, or HUBZone or service disabled determination will include (3) There is no requirement that a veteran-owned small business award. consideration of whether rejection of the procurement must be competed The procuring activity issued a requirement would seriously reduce the whenever possible before it can be solicitation for or otherwise expressed pool of similar types of contracts accepted on a sole source basis for a publicly a clear intent to reserve the available for award as 8(a) contracts. tribally-owned or ANC-owned concern, procurement as a small business set- SBA will seek the views of the or a concern owned by an NHO for aside or a HUBZone or service disabled procuring agency. contracts accepted on behalf of DoD, but veteran-owned award prior to offering (3) SBA will release a requirement a procurement may not be removed the requirement to SBA for award as an under this paragraph only where the from competition to award it to a 8(a) contract. * * * procuring activity agrees to procure the tribally-owned, ANC-owned or NHO- * * * * * requirement as a small business, owned concern on a sole source basis. (d) Release for non-8(a) competition. HUBZone, service disabled veteran- (4) A joint venture between one or (1) Except as set forth in paragraph owned small business, or women- more eligible tribally-owned, ANC- (d)(4) of this section, where a owned small business set-aside. owned or NHO-owned Participants and (4) The requirement that a follow-on one or more non-8(a) business concerns procurement is awarded as an 8(a) procurement need must be released may be awarded sole source 8(a) contract, its follow-on or renewable from the 8(a) BD program in order for contracts above the competitive acquisition must remain in the 8(a) BD it to be fulfilled outside the 8(a) BD threshold amount, provided that no program unless SBA agrees to release it program does not apply to orders non-8(a) joint venture partner also acts for non-8(a) competition. If a procuring offered to and accepted for the 8(a) BD as a subcontractor to the joint venture agency would like to fulfill a follow-on program pursuant to § 124.503(h). awardee. or renewable acquisition outside of the 32. Amend § 124.506 by revising 8(a) BD program, it must make a written * * * * * paragraph (a)(2)(ii), the example in mstockstill on DSKH9S0YB1PROD with PROPOSALS2 request to and receive the concurrence 33. Amend § 124.507 by adding paragraph (a) (3), and paragraph (b) to of the AA/BD to do so. In determining paragraphs (c)(2)(i), (c)(2)(ii) and read as follows: whether to release a requirement from (c)(2)(iii) to read as follows: the 8(a) BD program, SBA will consider: § 124.506 At what dollar threshold must an (i) Whether the agency has achieved 8(a) procurement be competed among § 124.507 What procedures apply to its SDB goal; eligible Participants? competitive procurements? (ii) Where the agency is in achieving * * * * * * * * * * its HUBZone, SDVO, WOSB, or small (a) * * * (c) * * * business goal, as appropriate; and (2) * * * (2) * * * VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 29. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55721 (i) A Participant may have bona fide (c) SBA may conduct periodic § 124.519 Are there any dollar limits on the places of business in more than one compliance on-site agency reviews of amount of 8(a) contracts that a Participant location. the files of all contracts awarded may receive? (ii) In order for a Participant to pursuant to Section 8(a) authority. (a) A Participant (other than one establish a bona fide place of business 36. Amend § 124.513 by revising owned by an Indian tribe, ANC or NHO) in a particular geographic location, the paragraphs (c)(3), (c)(6), (d), and (e), and may not receive sole source 8(a) contract SBA district office serving the adding a new paragraph (i) to read as awards where it has received a geographic area of that location must follows: combined total of competitive and sole determine if that location in fact source 8(a) contracts in excess of the qualifies as a bona fide place of business § 124.513 Under what circumstances can a dollar amount set forth in this section under SBA’s requirements. joint venture be awarded an 8(a) contract? during its participation in the 8(a) BD (A) A Participant must submit a * * * * * program. request for a bona fide business (c) * * * * * * * * determination to the SBA district office (3) Stating that the 8(a) Participant(s) (f) The AA/BD may waive the servicing it. must receive profits from the joint requirement prohibiting a Participant (B) The servicing district office will venture commensurate with the work from receiving sole source 8(a) contracts forward the request to the SBA district performed by the 8(a) Participant(s); in excess of the dollar amount set forth office serving the geographic area of the * * * * * in this section where the head of a particular location for processing. procuring activity represents that award (iii) In order for a Participant to be (6) Specifying the responsibilities of the parties with regard to negotiation of of a sole source 8(a) contract to the eligible to submit an offer for a 8(a) Participant is needed to achieve procurement limited to a specific the contract, source of labor, and contract performance, including ways significant interests of the Government. geographic area, it must receive from 38. Amend § 124.520 by: SBA a determination that it has a bona that the parties to the joint venture will ensure that the joint venture and the A. Revising the heading, fide place of business within that area B. Revising the first and last sentences prior to submitting its offer for the 8(a) partner(s) to the joint venture will meet the performance of work of paragraph (a), procurement. C. Revising paragraphs (b)(1)(i) and requirements set forth in paragraph (d) * * * * * (iv), (b)(2), and (b)(3), of this section. 34. Amend § 124.509(a)(1) by adding D. Revising paragraph (c)(1), a new sentence at the end thereof to * * * * * E. Adding a new sentence to the end read as follows: (d) Performance of work. For any 8(a) of paragraph (c)(2), contract, including those between F. Revising paragraph (c)(3), § 124.509 What are non-8(a) business ´ ´ mentors and proteges authorized by G. Adding new paragraphs (c)(4) and activity targets? § 124.520, the joint venture must (5), (a) General. (1) * * * Work perform the applicable percentage of H. Revising paragraph (d)(1), performed by an 8(a) Participant for any work required by § 124.510, and the 8(a) I. Revising paragraph (e)(1), and the Federal department or agency other than partner(s) to the joint venture must second sentence of (e)(2), through an 8(a) contract, including work perform at least 40% of the work J. Redesignating paragraph (f) as performed on orders under the General performed by the joint venture. The paragraph (g), Services Administration Multiple work performed by 8(a) partners to a K. Adding a new paragraph (f), Award Schedule program, and work joint venture must be more than L. Redesignating newly designated performed as a subcontractor, including administrative or ministerial functions paragraphs (g)(2) and (g)(3) as work performed as a subcontractor to so that they gain substantive experience. paragraphs (g)(3) and (g)(4), another 8(a) Participant on an 8(a) (e) Prior approval by SBA. (1) SBA M. Adding a new paragraph (g)(2), contract, qualifies as work performed must approve a joint venture agreement and outside the 8(a) BD program. prior to the award of an 8(a) contract on N. Adding a new paragraph (h) * * * * * behalf of the joint venture. The additions and revisions read as 35. Amend § 124.512 by adding a new follows: (2) Where a joint venture has been sentence at the end of paragraph (a), by established and approved by SBA for § 124.520 What are the rules governing revising paragraph (b), and by adding a one 8(a) contract, a second or third 8(a) ´ ´ SBA’s Mentor/Protege program? new paragraph (c) to read as follows: contract may be awarded to that joint (a) General. The mentor/protege´ ´ § 124.512 Delegation of contract venture provided an addendum to the program is designed to encourage administration to procuring agencies. joint venture agreement, setting forth approved mentors to provide various the performance requirements on that forms of business development (a) * * * Tracking compliance with second or third contract, is provided to ´ ´ assistance to protege firms. * * * The the performance of work requirements and approved by SBA prior to contract purpose of the mentor/protege´ ´ set forth in § 124.510 is included within award. relationship is to enhance the the functions performed by the procuring activity as part of contract * * * * * ´ ´ capabilities of the protege, assist the administration. (i) Performance of work report. At the ´ ´ protege with meeting the goals established in its SBA-approved mstockstill on DSKH9S0YB1PROD with PROPOSALS2 (b) This delegation of contract completion of every 8(a) contract administration authorizes a contracting awarded to a joint venture, the 8(a) business plan, and to improve its ability officer to execute any priced option or Participant(s) to the joint venture must to successfully compete for contracts. in scope modification without SBA’s submit a report to the local SBA district * * * * * concurrence. The contracting officer office explaining how the performance (b) * * * must, however, submit copies to SBA of of work requirements were met for the (1) * * * all modifications and options exercised contract. (i) Possesses favorable financial within 10 business days of their 37. Amend § 124.519 by revising health; occurrence. paragraphs (a) and (f) to read as follows: * * * * * VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 30. 55722 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules ´ ´ (iv) Can impart value to a protege firm (5) SBA will not approve a mentor/ AA/BD to reconsider the Agency’s due to lessons learned and practical ´ ´ protege relationship for an 8(a) initial decline decision by filing a experience gained because of the 8(a) Participant with less than one year request for reconsideration with its BD program, or through its knowledge remaining in its program term. servicing SBA district office within 45 of general business operations and (d) Benefits. (1) A mentor and protege ´ ´ calendar days of receiving notice that its government contracting. may joint venture as a small business for ´ ´ mentor/protege agreement was declined. (2) Generally a mentor will have no any government prime contract or ´ ´ The protege may revise the proposed ´ ´ more than one protege at a time. subcontract, including procurements ´ ´ mentor/protege agreement and provide However, the AA/BD may authorize a with a dollar value less than half the any additional information and concern to mentor more than one size standard corresponding to the documentation pertinent to overcoming ´ ´ protege at a time where the concern can assigned NAICS code and 8(a) sole the reason(s) for the initial decline to its demonstrate that the additional mentor/ source contracts, provided the protege ´ ´ servicing district office. ´ ´ protege relationship will not adversely qualifies as small for the procurement (2) The AA/BD will issue a written affect the development of either protege ´ ´ and, for purposes of 8(a) sole source decision within 45 calendar days of firm (e.g., the second firm may not be ´ ´ requirements, the protege has not ´ ´ receipt of the protege’s request. The AA/ a competitor of the first firm). Under no reached the dollar limit set forth in BD may either approve the mentor/ circumstances will a mentor be § 124.519. ´ ´ protege agreement, deny it on the same permitted to have more than three (i) SBA must approve the mentor/ grounds as the original decision, or ´ ´ proteges at one time. ´ ´ protege agreement before the two firms deny it on other grounds. If denied, the (3) In order to demonstrate its may submit an offer as a joint venture AA/BD will explain why the mentor/ favorable financial health, a firm on a particular government prime ´ ´ protege agreement does not meet the seeking to be a mentor must submit to contract or subcontract and receive the requirements of § 124.520 and give SBA for review copies of the Federal tax exclusion from affiliation. specific reasons for the decline. returns it submitted to the IRS, or (ii) In order to receive the exclusion (3) If the AA/BD declines the mentor/ audited financial statements, including from affiliation for both 8(a) and non- ´ ´ protege agreement solely on issues not any notes, or in the case of publicly 8(a) procurements, the joint venture ´ ´ raised in the initial decline, the protege traded concerns the filings required by must meet the requirements set forth in can ask for reconsideration as if it were the Securities and Exchange § 124.513(c). an initial decline. Commission for the past three years. (e) Written agreement. (1) The mentor (4) If SBA’s final decision (either by * * * * * ´ ´ and protege firms must enter a written allowing 45 calendar days to pass from ´ ´ (c) Proteges. (1) In order to initially agreement setting forth an assessment of receiving the initial decision or the ´ ´ qualify as a protege firm, a Participant ´ ´ the protege’s needs and providing a decision by the AA/BD on must: detailed description and timeline for the reconsideration) is to decline a specific (i) Be in the developmental stage of delivery of the assistance the mentor ´ ´ mentor/protege agreement, the 8(a) firm program participation; or commits to provide to address those ´ ´ seeking to be a protege cannot attempt (ii) Have never received an 8(a) ´ ´ needs (e.g., management and/or to enter another mentor/protege contract; or (iii) Have a size that is less than half technical assistance, loans and/or equity relationship with the same mentor for a the size standard corresponding to its investments, cooperation on joint period of one year from the date of the primary NAICS code. venture projects, or subcontracts under final decision. The 8(a) firm may, (2) * * * Once a firm graduates from prime contracts being performed by the however, submit another proposed or otherwise leaves the 8(a) BD program, ´ ´ mentor). The mentor/protege agreement ´ ´ mentor/protege agreement with a it will not be eligible for any further must: different proposed mentor at any time benefits from its mentor/protege ´ ´ (i) Address how the assistance to be after the SBA’s final decline decision. relationship (i.e., the receipts and/or provided through the agreement will (g) * * * ´ ´ employees of the protege and mentor ´ ´ help the protege firm meet the goals ´ ´ (2) The protege must report the will generally be aggregated in established in its SBA-approved mentoring services it receives by determining size for any joint venture business plan; category and hours. ´ ´ between the mentor and protege after (ii) Establish a single point of contact * * * * * ´ ´ the protege leaves the 8(a) BD program). in the mentor concern who is (h) Consequences of not providing ´ ´ (3) A protege firm may generally have responsible for managing and assistance set forth in the mentor/ only one mentor at a time. The AA/BD implementing the mentor/protege ´ ´ ´ ´ protege agreement. (1) Where SBA may approve a second mentor for a agreement; and determines that a mentor has not ´ ´ particular protege firm where (i) the (iii) Provide that the mentor will ´ ´ provided to the protege firm the second relationship pertains to an provide such assistance to the protege ´ ´ business development assistance set unrelated, secondary NAICS code; (ii) firm for at least one year. ´ ´ forth in its mentor/protege agreement, ´ ´ the protege firm is seeking to acquire a (2) * * * The agreement will not be SBA will notify the mentor of such specific expertise that the first mentor approved if SBA determines that the determination and afford the mentor an does not possess; and (iii) the second assistance to be provided is not opportunity to respond. The mentor relationship will not compete or sufficient to promote any real must respond within 30 days of the ´ ´ developmental gains to the protege, or if mstockstill on DSKH9S0YB1PROD with PROPOSALS2 otherwise conflict with the business notification, explaining why it has not development assistance set forth in the SBA determines that the agreement is provided the agreed upon assistance ´ ´ first mentor/protege relationship. merely a vehicle to enable the mentor to and setting forth a definitive plan as to ´ ´ (4) A protege may not become a receive 8(a) contracts. when it will provide such assistance. If ´ ´ mentor and retain its protege status. The * * * * * the mentor fails to respond, does not ´ ´ protege must terminate its mentor/ (f) Decision to decline mentor/protege ´ ´ supply adequate reasons for its failure to ´ ´ protege agreement with its mentor relationship. (1) Where SBA declines to provide the agreed upon assistance, or before it will be approved as a mentor approve a specific mentor/protege ´ ´ does not set forth a definite plan to to another 8(a) Participant. ´ ´ agreement, the protege may request the provide the assistance: VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2
  • 31. Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Proposed Rules 55723 (i) SBA will recommend to the compensation paid and a description of days after the close of the concern’s relevant procuring agency to issue a the activities performed for such fiscal year. stop work order for each Federal compensation. 41. Amend § 124.1002 by revising contract for which the mentor and * * * * * paragraph (d) and adding a new ´ ´ protege are performing as a small 40. Amend § 124.602 by revising paragraph (h) to read as follows: business joint venture pursuant to paragraphs (a) introductory text, (b), and paragraph (d)(1) of this section; § 124.1002 What is a Small Disadvantaged (c) to read as follows: Business (SDB)? (ii) SBA will terminate its mentor/ ´ ´ protege agreement; and § 124.602 What kind of annual financial * * * * * (iii) The firm will be ineligible to statement must a Participant submit to (d) Additional eligibility criteria. (1) again act as a mentor for a period of two SBA? Except for tribes, ANCs, CDCs, and years from the date SBA terminates the (a) Participants with gross annual NHOs, each individual claiming ´ ´ mentor/protege agreement. receipts of more than $10,000,000 must disadvantaged status must be a citizen (2) SBA may consider a mentor’s submit to SBA audited annual financial of the United States. failure to comply with the terms and statements prepared by a licensed (2) The other eligibility requirements conditions of an SBA-approved mentor/ independent public accountant within set forth in § 124.108 for 8(a) BD ´ ´ protege agreement as a basis for 120 days after the close of the concern’s program participation do not apply to debarment on the grounds, including fiscal year. SDB eligibility. but not limited to, that the mentor has * * * * * * * * * * not complied with the terms of a public (b) Participants with gross annual agreement under 2 CFR 180.800(b). (h) Full-time requirement for SDB receipts between $2,000,000 and purposes. An SDB is considered to be 39. Amend § 124.601 by revising $10,000,000 must submit to SBA managed on a full-time basis by a paragraph (a) to read as follows: reviewed annual financial statements disadvantaged individual if such § 124.601 What reports does SBA require prepared by a licensed independent individual works for the concern during concerning parties who assist Participants public accountant within 90 days after all of the hours the concern operates. in obtaining Federal contracts? the close of the concern’s fiscal year For example, if a concern operates 20 (a) Each Participant must submit (c) Participants with gross annual hours per week and the disadvantaged semi-annually a written report to its receipts of less than $2,000,000 must manager works for the firm during those assigned BOS that includes a listing of submit to SBA an annual statement twenty hours, that individual will be any agents, representatives, attorneys, prepared in-house or a compilation considered as working full time for the accountants, consultants and other statement prepared by a licensed firm. parties (other than employees) receiving independent public accountant, verified fees, commissions, or compensation of as to accuracy by an authorized officer, Karen G. Mills, any kind to assist such participant in partner, limited liability member, or Administrator. obtaining a Federal contract. The listing sole proprietor of the Participant, [FR Doc. E9–25416 Filed 10–27–09; 8:45 am] must indicate the amount of including signature and date, within 90 BILLING CODE 8025–01–P mstockstill on DSKH9S0YB1PROD with PROPOSALS2 VerDate Nov<24>2008 17:39 Oct 27, 2009 Jkt 220001 PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 E:FRFM28OCP2.SGM 28OCP2