[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Rules and Regulations]
[Pages 7533-7536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02746]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 80, No. 28 / Wednesday, February 11, 2015 /
Rules and Regulations
[[Page 7533]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG59
Advisory Small Business Size Decisions
AGENCY: Small Business Administration.
ACTION: Final rule.
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SUMMARY: This rule implements provisions of the National Defense
Authorization Act of 2013 (NDAA) pertaining to small business size.
This rule amends the U.S. Small Business Administration's (SBA or
Agency) program regulations to implement statutory provisions
establishing limitations of liability from fraud penalties for
individuals or firms that misrepresent business concerns as being small
for purposes of Federal procurement opportunities if they acted in good
faith reliance upon small business status advisory opinions received
from Small Business Development Centers (SBDCs) or Procurement
Technical Assistance Centers (PTACs). The rule also amends SBA's
regulations to establish the criteria small business status advisory
opinions must meet in order to be deemed adequate and specify the
review process for such opinions. Finally, the rule further amends
SBA's regulations to update the circumstances under which SBA may
initiate a formal size determination.
DATES: This rule is effective August 10, 2015.
FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, U.S. Small Business
Administration, Office of Policy, Planning & Liaison, 409 Third Street
SW., 8th Floor, Washington, DC 20416, (202) 205-7337,
[email protected].
SUPPLEMENTARY INFORMATION: On January 2, 2013, Congress amended the
Small Business Act to provide that the penalties created under 15
U.S.C. 645(d) for misrepresentation of a firm as a small business
concern do not apply to individuals or firms that act in good faith
reliance upon small business status advisory opinions they receive from
SBDCs or PTACs. Additionally, the Small Business Act was amended to
give responsibility for reviewing, accepting, or rejecting these small
business status advisory opinions to SBA's Office of General Counsel.
Finally, the Small Business Act was further amended to require that SBA
promulgate regulations to implement this provision no later than 270
days after the date of passage of the statutory amendment.
SBA published a proposed rule regarding these statutory provisions
in the Federal Register on June 25, 2014 (79 FR 35963), inviting the
public to submit comments on or before August 25, 2014.
Summary of Comments and SBA's Responses
SBA received and considered sixteen comments on the proposed rule.
Twelve commenters opposed the creation of the limitation on liability
in general and urged SBA not to adopt the proposed rule. As noted in
the preamble to the proposed rule, Congress has mandated via
legislation that SBA establish this limitation on liability protection
via regulation. With this rule, SBA is implementing that legislative
mandate. The remaining comments, as well as SBA's responses to them,
are discussed below.
Requiring SBDCs/PTACs To Provide Advisory Opinions
Two comments urged SBA to change the approach taken under the
proposed rule and require SBDCs and PTACs to provide small business
status advisory opinions to interested parties rather than giving them
the authority to do so. SBA notes that the statutory provision does not
mandate that SBDCs and PTACs perform such services. As such, SBA
believes that the approach taken in the proposed rule is consistent
with the authorizing legislation. Moreover, SBA notes that the PTAC
program is administered by the Department of Defense, not SBA. Absent
express statutory authority, SBA believes it lacks the power to impose
performance mandates on a program administered by another agency.
Additionally, with regard to SBDCs, 15 U.S.C. 648(a)(3)(A) requires
SBA to consult with the association representing SBDC grant recipients
prior to defining the scope of activities conducted under the SBDC
program. That provision further obligates SBA to develop, in
conjunction with that association, the rules governing the general
operations and administration of the SBDC program. Therefore, there are
statutory obstacles to SBA unilaterally requiring SBDCs to provide
these new advisory opinion services. Such new performance requirements
may only be established following the consultation required by 15
U.S.C. 648(a)(3)(A), which the Agency conducts with the association on
an annual basis. It is SBA's intention to address the topic of small
business status advisory opinions during the next annual consultation.
Liability of SBDCs/PTACs
SBA received two comments regarding the potential liability of
SBDCs or PTACs that issue small business status advisory opinions to
firms that subsequently turn out to be other than small. SBA notes that
Sec. 1681 of the enabling legislation expressly provides that an SBDC
or PTAC that issues a positive advisory opinion will not be liable to
that business concern in the event SBA subsequently declines to accept
the opinion. In cases where an SBDC or PTAC issues a negative advisory
opinion for a business concern that is subsequently determined to be
small, the issue of whether section 1681's grant of immunity from
liability would apply in those circumstances is one that SBA must leave
to the courts to determine.
With regard to the potential liability of an SBDC or PTAC to third
parties for advisory opinion it issued, while one commenter suggested
that section 1681 of the enabling legislation might also immunize an
SBDC or PTAC from liability in those circumstances, SBA must similarly
defer to the courts to determine the scope of the shield afforded under
section 1681.
Inherently Governmental Function
Two commenters objected to the use of SBDCs and PTACs as issuers of
small business status advisory opinions on the grounds that this
approach will result in the impermissible delegation of an
[[Page 7534]]
inherently governmental function. SBA notes that the legislation
requires the use of SBDCs and PTACs in this role and the Agency is
merely implementing that scheme. Moreover, SBA has historically
permitted outside organizations to act as private certifiers for its
contracting programs. Where private or outside certifiers are utilized,
ultimate decisionmaking authority as to whether a firm qualifies for
participation in its contracting programs, including small business
set-asides, still rests with SBA. In the case of small business status
advisory opinions, the regulations provide that SBA will review and
either accept or reject. As such, SBA does not believe the issuance of
small business status advisory opinions by SBDCs and PTACs will lead to
the delegation of an inherently governmental function. In addition, the
firm's size may always be challenged through a size protest in
connection with an actual procurement.
Evidence of Business Size
One commenter requested that SBA provide more detailed guidance and
specific examples regarding the type of evidence a firm could provide
to an SBDC or PTAC to adequately document its compliance with the size
standards. SBA concurs with this suggestion and has amended Sec.
121.109(b)(4) accordingly.
Qualifications of SBDC or PTAC Employees Issuing Advisory Opinions
One commenter alleged that the phrase ``counselor or similarly
qualified employee'' as used in Sec. 121.109(b)(3) may create
uncertainty or confusion on the part of SBDCs or PTACs. However, there
was insufficient information provided for SBA to create an alternative
term to describe these individuals. SBA does agree with the suggestion
that it would be beneficial to provide periodic training on SBA's size
rules to SBDCs and PTACs to enable them to better carry out their roles
under this rule. SBA is currently exploring the most effective method
of accomplishing that objective.
Timeframe for Issuing Advisory Opinions
One commenter suggested that SBA impose a deadline on the length of
time SBDCs and PTACs are allowed to take when preparing small business
status advisory opinions. SBA has no reason to doubt the capability or
responsiveness of SBDCs and PTACs in this area. SBA notes that the
performance of SBDCs and PTACs in carrying out their duties is already
being monitored and policed by the program offices charged with
administering their grant agreements. As such, the responsiveness and
timeliness of SBDCs and PTACs will be taken into account during the
regular grant recipient performance review process and any shortcomings
on their parts will be addressed during that process. However, SBA does
reserve the right to impose such a deadline if circumstances
subsequently demonstrate a need for it.
Review of Advisory Opinions
SBA concurs with one commenter's request that firms which receive
small business status advisory opinions holding that they are other
than small be permitted to seek review of those determinations.
Therefore, SBA is amending 13 CFR 121.1001 to permit a firm that
receives a negative advisory opinion (i.e., an opinion concluding that
it is other than small) from an SBDC or PTAC to request that SBA
conduct a formal size determination of it.
Furthermore, with regard to the review of advisory opinions
rejected by SBA, it is SBA's intention to immediately initiate a formal
size determination for each firm that is the subject of an advisory
opinion that is rejected by the Agency. Affected firms will thus be
able to avail themselves of the standard appeals process set forth in
13 CFR 121.1101.
Expiration of Advisory Opinions
One commenter suggested that small business status advisory
opinions issued by SBDCs and PTACs should expire, or that the
remoteness in time from when they were issued should be taken into
account when determining whether they are entitled to avail themselves
of the safe harbor provision. SBA rejects this suggestion. The enabling
statute does not include a provision calling for the expiration of
advisory opinions and does not envision that the safe harbor protection
is something that should be switched on or off. As the statute makes
clear, firms that receive positive advisory opinions are automatically
entitled to protection from liability. Of course, a firm's size status
can be protested in connection with an actual procurement.
Moreover, such an approach would be inconsistent with the treatment
given formal size determinations, which do not expire absent a material
change in circumstances. See 13 CFR 121.1009. However, SBA does believe
that Sec. 121.109 of the new rule should make clear that a firm is no
longer justified in relying upon a positive advisory opinion where it
has experienced a material change in circumstances with regard to its
average annual receipts or its number of employees. SBA has therefore
amended Sec. 121.109 accordingly.
Other Comments
In addition to the comments received from the public, SBA also
received comments during its internal review cycle which recommended
that the Agency simplify and streamline the process of issuing small
business status advisory opinions by requiring SBDCs and PTACs to
utilize the same form SBA relies upon when making size determinations.
These internal commenters also suggested that SBA clarify that SBDCs
and PTACs must take into account the principles of affiliation
established under 13 CFR 121.103 when issuing advisory opinions. SBA
concurs with these recommendations and has therefore amended Sec.
121.109 accordingly.
Compliance With Executive Orders 12866, 12988, 13132, 13175, 13563, the
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork
Reduction Act (44 U.S.C., Chapter 35)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
final rule is not a significant regulatory action under Executive Order
12866. This is also not a ``major'' rule under the Congressional Review
Act, 5 U.S.C. 801, et seq.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this
final rule will not have substantial direct effects on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government. Therefore, for the purpose of Executive Order 13132,
Federalism, SBA determines that this final rule has no federalism
implications warranting preparation of federal assessment.
Executive Order 13175
For purposes of Executive Order 12175, SBA has determined that this
final rule will not will not have substantial direct effects on one or
more Indian Tribes, on the relationship between the Federal Government
and
[[Page 7535]]
Indian Tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian Tribes. Therefore, for the
purpose of Executive Order 13175, Consultation and Coordination with
Indian Tribal Governments, SBA determines that this final rule does not
require consultations with tribal officials or warrant the publication
of a Tribal Summary Impact Statement.
Executive Order 13563
As part of its ongoing efforts to engage stakeholders in the
development of its regulations, SBA consulted with representatives from
the contracting community regarding the intent of this rule and the
various components related to it. No concerns or comments were raised
that needed to be addressed in this rule.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
At the proposed rule stage SBA concluded this rule imposed no
reporting or recordkeeping requirements. However, during review of this
final rule, SBA realized it erred in its conclusion. Specifically, as
outlined in section 121.109(b), in order to obtain an advisory opinion
on their size status, concerns must submit to SBDCs and PTACs
information to support their claims, including payroll records, time
sheets, federal income tax returns, or other documentation that would
show concerns annual receipts or number of employees. SBDCs and PTACS
will use submit this information to SBA as basis for their opinions.
The information to concerns will submit to SBDCs and PTACs is the same
information that concerns currently submit to SBA for a size
determination using SBA Form 355, Information for Small Business Size
Determination. Therefore, SBA will amend this information collection to
include this additional use and submit same to OMB for approval.
Regulatory Flexibility Analysis, 5 U.S.C. 601-612
SBA has determined that this rule may have a significant impact on
a substantial number of small entities within the meaning of the
Regulatory Flexibility Act, 5 U.S.C. 601-612. In accordance with 5
U.S.C. 603(b), SBA sets forth a regulatory flexibility analysis (RFA)
of this final rule addressing the following topics: (1) The legal
basis, need for, and objective of the rule; (2) a description and
estimate of the number of small entities to which the rule will apply;
(3) the projected reporting, record keeping, and other compliance
requirements of the rule; (4) the relevant Federal rules which may
duplicate, overlap or conflict with the rule; and (5) any significant
alternatives that would allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities.
1. What is the legal basis, need for, and objective of the rule?
Pursuant to section 1681 of Public Law 112-239, SBA is statutorily
required to publish a regulation granting an exemption from the
misrepresentation penalties imposed under 15 U.S.C. 645(d) in cases
where a party's erroneous claim to small business status stems from its
good faith reliance upon an advisory opinion issued by an SBDC or PTAC.
SBA is also obligated under Sec. 1681 to define via regulation what
constitutes an adequate advisory opinion and to review and accept or
reject all advisory opinions issued by SBDCs and PTACs. In addition to
giving effect to these statutory mandates, the final rule also
establishes the procedures and timeline by which SBA will review
advisory opinions.
2. What is SBA's description and estimate of the number of small
entities to which the rule will apply? Because SBA's programs do not
apply to small governmental jurisdictions or small organizations, only
small businesses will be affected by this final rule. Additionally, the
final rule will not apply to all small businesses generally, but only
to those firms that represent themselves as being small for purposes of
federal procurement opportunities.
The limitation on liability provision of the final rule will only
affect those firms that incorrectly claim status as small business
concerns after obtaining small business status advisory opinions from
SBDCs or PTACs. In Fiscal Year 2014, SBA determined that approximately
137 firms that had represented themselves as being small for purposes
of federal procurement opportunities were not small. Most of these
cases did not involve fraud, but instead were the result of errors or
misunderstandings of the size regulations. To date, SBA is unaware of
any firms being penalized under 15 U.S.C. 645(d) for fraudulently
misrepresenting themselves as small business concerns. Therefore, SBA
anticipates that the limitation on liability provision of the final
rule will impact very few concerns.
With regard to the small business status advisory opinion provision
of the final rule, SBA notes that neither SBDCs nor PTACs are required
to provide such opinions under the language of the statute. It is
currently unknown how many SBDCs and PTACs will elect to provide such
services, particularly given that no additional funding will be awarded
to them to cover the cost of these services. Moreover, it is unclear
how much demand there will be for such services from those SBDCs and
PTACs that offer them. While it is thus impossible to gauge the number
of small businesses that will obtain these services, SBA anticipates
that very few concerns will be affected by the small business status
advisory opinion provision of the final rule.
3. What are the projected reporting, record keeping, and other
compliance requirements of the rule and an estimate of the classes of
small entities which will be subject to the requirements? There would
be no additional reporting or recordkeeping requirements imposed by the
rule, but there would be certain minor compliance requirements.
Businesses that believe they are small and that wish to receive
advisory opinions to that effect from SBDCs or PTACs would be required
to provide information documenting the basis for that belief to SBDCs
or PTACs and attest to its accuracy.
4. What are the relevant Federal rules which may duplicate, overlap
or conflict with the rule? The Federal Acquisition Regulation (FAR)
defers to and incorporates the substance of the provisions set forth in
SBA's regulations for issues pertaining to business size. To the extent
the FAR is inconsistent with size rules implemented by SBA, the FAR
would need to be changed to be consistent.
5. Are there any significant alternatives that would allow the
Agency to accomplish its regulatory objectives while minimizing the
impact on small entities? SBA has considered a number of alternatives
to the final rule. One alternative SBA has considered would have
permitted firms to simply self-certify to SBDCs or PTACs that they are
small. Another alternative SBA considered would have had the General
Counsel review the SBDC or PTAC advisory opinions rather than the
Associate General Counsel, Office of Procurement Law. SBA has not
incorporated the first alternative in the final rule because it would
render any advisory opinion pro forma and would not provide the Agency
with any basis for accepting or rejecting the opinion. With regard to
the second alternative, SBA did not propose it given the substantial
time demands already placed upon the General Counsel. SBA believes that
delegating this responsibility to the Associate General Counsel, Office
of Procurement Law would permit the Agency to provide a
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quicker turnaround time for reviewing advisory opinions and would take
advantage of the established subject matter expertise of that official.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Reporting and recordkeeping
requirements, and Small Businesses.
For the reasons stated in the preamble, SBA amends 13 CFR part 121
as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).
0
2. Amend 121.108 by revising the section heading and adding paragraph
(e)(4) to read as follows:
Sec. 121.108 What are the penalties for misrepresentation of size
status?
* * * * *
(e) * * *
(4) Limitation on Liability. An individual or business concern will
not be subject to the penalties imposed under 15 U.S.C. 645(a) where it
acted in good faith reliance on a small business status advisory
opinion accepted by SBA under Sec. 121.109.
Sec. 121.109 [Redesignated as Sec. 121.110]
0
3. Redesignate Sec. 121.109 as Sec. 121.110.
0
4. Add new Sec. 121.109 to read as follows:
Sec. 121.109 What is a small business status advisory opinion?
(a) Defined. A small business status advisory opinion is a written
opinion issued by either a Small Business Development Center (SBDC)
operating under part 130 of this chapter or a Procurement Technical
Assistance Center (PTAC) operating under 10 U.S.C. chapter 142 which
concludes that a firm is entitled to represent itself as a small
business concern for purposes of federal government procurement
opportunities.
(b) Submission. An SBDC or PTAC must submit a copy of each small
business status advisory opinion it issues to the following Agency
official for review: Associate General Counsel, Office of Procurement
Law, U.S. Small Business Administration, 409 Third Street SW.,
Washington, DC 20416 or by fax to (202) 205-6390 marked Attn: Small
Business Status Advisory Opinion. A small business status advisory
opinion must:
(1) Provide a written analysis explaining the reasoning underlying
the SBDC or PTAC's determination that the covered concern, along with
its affiliates, either does or does not exceed the size standard(s).
This analysis must be dated and signed by an SBDC or PTAC business
counselor or similarly qualified individual.
(2) Include, as an attachment, a completed copy of an SBA Form 355
for the covered concern and its affiliates.
(3) Include, as an attachment, copies of the evidence (such as
payroll records, time sheets, federal income tax returns, etc.)
provided by the covered concern to the SBDC or PTAC clearly documenting
its annual receipts and/or number of employees as those terms are
defined by Sec. Sec. 121.104 and 121.106.
(c) Review. Unless a referral is made under paragraph (e) of this
section, SBA will decide within 10 business days of receiving a small
business status advisory opinion to accept or reject it based on its
consistency with part 121. SBA will provide written notification of
that decision to the SBDC or PTAC that issued the small business status
advisory opinion as well as to the covered concern.
(d) Reliance. A concern that receives a small business status
advisory opinion holding that it does not exceed the applicable size
standard(s) may rely upon that determination for purposes of responding
to Federal procurement opportunities from the date it is issued unless
and until that advisory opinion is rejected by SBA in accordance with
paragraph (c) of this section or the concern undergoes a significant
change in its ownership, management, or other factors bearing on its
status as a small business concern. However, the firm's size may be
protested by interested parties in connection with a specific
procurement.
(e) Referral for size determination. Nothing in this section
precludes the Associate General Counsel, Office of Procurement Law from
requesting a formal size determination for a concern that is the
subject of a small business status advisory opinion pursuant to Sec.
121.1001(b)(9).
(f) Penalties for misrepresentation--(1) Suspension or debarment.
The SBA suspension and debarment official may suspend or debar a person
or concern for misrepresenting a concern's size for purposes of
obtaining a small business size status advisory opinion pursuant to the
procedures set forth in 48 CFR subpart 9.4.
(2) Civil penalties. Persons or concerns are subject to severe
penalties under the False Claims Act, 31 U.S.C. 3729-3733, and under
the Program Fraud Civil Remedies Act, 331 U.S.C. 3801-3812, and any
other applicable laws.
(3) Criminal Penalties. Persons or concerns are subject to severe
criminal penalties for knowingly misrepresenting the small business
size status of a concern in connection with procurement programs
pursuant to section 16(d) of the Small Business Act, 15 U.S.C. 645(d),
as amended, 18 U.S.C. 1001, 18 U.S.C. 287, and any other applicable
laws. Persons or concerns are subject to criminal penalties for
knowingly making false statements or misrepresentations for the purpose
of influencing any actions of SBA pursuant to section 16(a) of the
Small Business Act, 15 U.S.C. 645(a), as amended, including failure to
correct ``continuing representations'' that are no longer true.
0
4. Amend Sec. 121.1001 by revising paragraph (b)(9), redesignating
paragraph (b)(10) as paragraph (b)(11), and adding new paragraph
(b)(10) to read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal
size determination?
* * * * *
(b) * * *
(9) For other purposes related to protecting the integrity of the
Federal procurement process, including validating that firms listed in
the System for Award Management database are small, the Government
Contracting Area Director or the Director, Office of Government
Contracting may initiate a formal size determination when sufficient
information exists that calls into question a firm's small business
status. The current date will be used to determine size, and SBA will
initiate the process to remove from the database the small business
designation of any firm found to be other than small.
(10) For purposes of determining compliance with small business
requirements for firms relying upon small business status advisory
opinions, the Associate General Counsel, Office of Procurement Law may
request a formal size determination. Additionally, any firm that is the
subject of a small business status advisory opinion holding that it is
other than small may request a formal size determination.
* * * * *
Dated: January 28, 2015.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2015-02746 Filed 2-10-15; 8:45 am]
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