[Federal Register Volume 80, Number 24 (Thursday, February 5, 2015)]
[Proposed Rules]
[Pages 6618-6644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01548]
[[Page 6617]]
Vol. 80
Thursday,
No. 24
February 5, 2015
Part III
Small Business Administration
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13 CFR Parts 121, 124, 125, et al.
Small Business Mentor Prot[eacute]g[eacute] Program; Small Business
Size Regulations; Government Contracting Programs; 8(a) Business
Development/Small Disadvantaged Business Status Determinations; HUBZone
Program; Women-Owned Small Business Federal Contract Program; Rules of
Procedure Governing Cases Before the Office of Hearings and Appeals;
Proposed Rule
Federal Register / Vol. 80 , No. 24 / Thursday, February 5, 2015 /
Proposed Rules
[[Page 6618]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127, 134
RIN 3245-AG24
Small Business Mentor Prot[eacute]g[eacute] Program; Small
Business Size Regulations; Government Contracting Programs; 8(a)
Business Development/Small Disadvantaged Business Status
Determinations; HUBZone Program; Women-Owned Small Business Federal
Contract Program; Rules of Procedure Governing Cases Before the Office
of Hearings and Appeals
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is
proposing to amend its regulations to implement provisions of the Small
Business Jobs Act of 2010 and the National Defense Authorization Act
for Fiscal Year 2013. Based on authorities provided in these two
statutes, the proposed rule would establish a Government-wide mentor-
prot[eacute]g[eacute] program for all small business concerns,
consistent with SBA's mentor-prot[eacute]g[eacute] program for
Participants in SBA's 8(a) Business Development (BD) program. The
proposed rule would also make minor changes to the mentor-
prot[eacute]g[eacute] provisions for the 8(a) Business Development
program in order to make the mentor-prot[eacute]g[eacute] rules for
each of the programs as consistent as possible. The proposed rule would
amend the current joint venture provisions to clarify the conditions
for creating and operating joint venture partnerships, including the
effect of such partnerships on any mentor-prot[eacute]g[eacute]
relationships. Finally, the proposed rule would make several additional
changes to current size, 8(a) Office of Hearings and Appeals or HUBZone
regulations, concerning among other things, ownership and control,
changes in primary industry, standards of review and interested party
status for some appeals.
DATES: Comments must be received on or before April 6, 2015.
ADDRESSES: You may submit comments, identified by RIN: 3245-AG24, by
any of the following methods: (1) Federal eRulemaking Portal, available
at www.regulations.gov, follow the instructions for submitting
comments; or (2) Mail/Hand Delivery/Courier: Brenda Fernandez, U.S.
Small Business Administration, Office of Government Contracting, 409
3rd Street SW., 8th Floor, Washington, DC 20416. SBA will not accept
comments to this proposed rule submitted by email.
FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, U.S. Small Business
Administration, Office of Government Contracting, 409 3rd Street SW.,
8th Floor, Washington, DC 20416; (202) 205-7337;
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
On September 27, 2010, the President signed into law the Small
Business Jobs Act of 2010 (Jobs Act), Public Law 111-240, which was
designed to protect the interests of small businesses and increase
opportunities in the Federal marketplace. In April 2010, prior to the
enactment of the Jobs Act, President Obama established an Interagency
Task Force on Federal Contracting Opportunities for Small Businesses in
order to coordinate executive departments' and agencies' efforts
towards ensuring that all small businesses have a fair chance to
participate in Federal contracting opportunities. The task force was
ordered to produce proposals and recommendations for: (i) Using
innovative strategies, such as teaming, to increase opportunities for
small business contractors and utilizing and expanding mentorship
programs, such as the mentor-prot[eacute]g[eacute] program; (ii)
removing barriers to participation by small businesses in the Federal
marketplace by unbundling large projects, improving training of Federal
acquisition officials with respect to strategies for increasing small
business contracting opportunities, and utilizing new technologies to
enhance the effectiveness and efficiency of Federal program managers,
acquisition officials, and the Directors of Offices of Small Business
Programs and Offices of Small and Disadvantaged Business Utilization,
their managers, and procurement center representatives in identifying
and providing access to these opportunities; (iii) expanding outreach
strategies to match small businesses, including firms located in
HUBZones and firms owned and controlled by women, minorities, socially
and economically disadvantaged individuals, and service-disabled
veterans, with contracting and subcontracting opportunities; and (iv)
establishing policies, including revision or clarification of existing
legislation, regulations, or policies, that are necessary or
appropriate to effectuate these objectives.
In September 2010, the task force issued a preliminary report and
announced three priority objectives for assisting small businesses in
Federal contracting,: stronger rules; a better equipped, informed and
accountable acquisition work force; and improved outreach and better
use of technology and data. Among other recommendations, the task force
determined that mentor-prot[eacute]g[eacute] programs should be
promoted through a new government-wide framework to give small
businesses the opportunity to develop their capabilities with the
assistance of experienced businesses in an expanded Federal procurement
arena.
With the enactment of the Jobs Act, Congress recognized that
mentor-prot[eacute]g[eacute] programs serve an important business
development function for small business and authorized SBA to establish
separate mentor-prot[eacute]g[eacute] programs for the Service-Disabled
Veteran-Owned Small Business Concern (SDVO SBC) Program, the HUBZone
Program, and the Women-Owned Small Business (WOSB) Program, each
modeled on SBA's existing mentor-prot[eacute]g[eacute] program
available to 8(a) Business Development (BD) program participants. See
section 1347(b)(3) of the Jobs Act.
On January 2, 2013, the President signed into law the National
Defense Authorization Act for Fiscal Year 2013 (NDAA), Public Law 112-
239. Section 1641 of the NDAA authorized SBA to establish a mentor-
prot[eacute]g[eacute] program for all small business concerns. This
section further provides that a small business mentor-
prot[eacute]g[eacute] program must be identical to the 8(a) BD mentor-
prot[eacute]g[eacute] program, except that SBA may modify the program
to the extent necessary, given the types of small business concerns to
be included as prot[eacute]g[eacute]s. Section 1641 also provides that
a Federal department or agency could not carry out its own agency
specific mentor-prot[eacute]g[eacute] program for small businesses
unless the head of the department or agency submitted a plan for such a
program to SBA and received the SBA Administrator's approval of the
plan. Finally, section 1641 requires the head of each Federal
department or agency carrying out an agency-specific mentor-
prot[eacute]g[eacute] program to report annually to SBA the
participants in its mentor-prot[eacute]g[eacute] program, the
assistance provided to small businesses through the program, and the
progress of prot[eacute]g[eacute] firms to compete for Federal prime
contracts and subcontracts.
Instead of implementing four new separate small business mentor-
prot[eacute]g[eacute] programs (i.e., having a separate mentor-
prot[eacute]g[eacute] program for SDVO SBCs, HUBZone SBCs, WOSB
concerns, and all other small business concerns, in addition to the
current mentor-prot[eacute]g[eacute]
[[Page 6619]]
program for 8(a) BD Participants), this rule proposes to implement one
additional mentor-prot[eacute]g[eacute] program for all small
businesses since the other three types of small businesses (SDVO,
HUBZone and women-owned) would be necessarily included within any
mentor-prot[eacute]g[eacute] program targeting all small business
concerns. Approved mentor-prot[eacute]g[eacute] relationships would
then be able to seek to perform joint ventures for any contracts for
which the prot[eacute]g[eacute] firm qualifies as eligible (e.g.,
women-owned set aside where the prot[eacute]g[eacute] firm qualifies as
a WOSB concern). Although the NDAA language authorizing a mentor-
prot[eacute]g[eacute] program for all small businesses could to be read
as specifically authorizing a fifth separate mentor-
prot[eacute]g[eacute] program for certain types of small businesses
(i.e., one for small businesses not already covered by SBA's current
8(a) BD mentor-prot[eacute]g[eacute] program and not previously
contained in the Jobs Act provisions authorizing mentor-
prot[eacute]g[eacute] programs for HUBZone, SDVO or women-owned small
businesses), SBA believes that having five separate small business
mentor-prot[eacute]g[eacute] programs could become confusing to the
public and procuring agencies and hard to implement by SBA.
Currently, the mentor-prot[eacute]g[eacute] program available to
firms participating in the 8(a) BD program is used as a business
development tool in which mentors provide diverse types of business
assistance to eligible 8(a) BD prot[eacute]g[eacute]s. This assistance
may include, among other things, technical and/or management
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing Federal prime
contracts through joint venture arrangements. The explicit purpose of
the 8(a) BD mentor-prot[eacute]g[eacute] relationship is to enhance the
capabilities of prot[eacute]g[eacute]s and to improve their ability to
successfully compete for both government and commercial contracts.
Similarly, the proposed mentor-prot[eacute]g[eacute] program for all
small business concerns is designed to require approved mentors to
provide assistance to prot[eacute]g[eacute] firms in order to enhance
the capabilities of prot[eacute]g[eacute]s, to assist
prot[eacute]g[eacute]s with meeting their business goals, and to
improve the ability of prot[eacute]g[eacute]s to compete for contracts.
Instead of providing one mentor-prot[eacute]g[eacute] program for
all small business concerns, SBA also considered authorizing separate
mentor-prot[eacute]g[eacute] programs for each of the specific types of
small businesses (i.e., to have five separate mentor-
prot[eacute]g[eacute] programs, including the current one for 8(a) BD
program). SBA believes that it should not make a difference which way
the regulations are written. In either approach, a mentor-
prot[eacute]g[eacute] relationship will be able to perform any small
business contract through a joint venture for which the
prot[eacute]g[eacute] firm is qualified to perform. SBA proposed one
program for all small businesses because SBA believed it would be
easier for the small business and acquisition communities to use and
understand. However, SBA specifically requests comments as to whether
SBA should finalize one small business mentor-prot[eacute]g[eacute]
program, as proposed, or, rather, five separate mentor-
prot[eacute]g[eacute] programs for the various small business entities.
In addition, the rule would revise the joint venture provisions
contained in Sec. 125.15(b) (for SDVO SBCs, and which would now be
contained in proposed Sec. 125.18(b)), Sec. 126.616 (for HUBZone
SBCs), and Sec. 127.506 (for WOSB and EDOSB concerns) to more fully
align those requirements to the requirements of the 8(a) BD program.
The proposed rule would also add a new Sec. 125.8 to specify
requirements for joint ventures between small business
prot[eacute]g[eacute] firms and their mentors. The rule would also make
several additional changes to current size, 8(a) BD and HUBZone
regulations that are needed to clarify certain provisions or correct
interpretations of the regulations that were inconsistent with SBA's
intent. These changes are set forth more fully below.
II. Proposed Changes
Definition of Joint Venture (13 CFR 121.103(h)).
This rule proposes to amend Sec. 121.103(h) regarding the
definition of what constitutes a joint venture for all of SBA's
programs. Currently, the rule recognizes that a joint venture may be an
informal arrangement that exists between two (or more) parties through
a written document, or may be a formal written arrangement existing as
a separate legal entity. The current language has caused some confusion
as to what an informal joint venture arrangement means. The proposed
rule attempts to clarify SBA's intent. As with the current regulation,
the proposed rule explicitly requires that any joint venture be in
writing. SBA never meant that an informal joint venture arrangement
could exist without a formal written document setting forth the
responsibilities of all parties to the joint venture. SBA merely
intended to recognize that a joint venture need not be established as a
limited liability company or other formal separate legal entity. The
proposed rule attempts to clarify that distinction. In all instances
where two (or more) parties execute a written document setting forth
their responsibilities as joint venture partners, it is SBA's view that
the parties have formed a partnership. It may not be a formal
partnership, but the responsibilities of the parties are as partners.
The proposed rule specifies that a joint venture may be a formal or
informal partnership or exist as a separate limited liability company
or other separate legal entity. However, regardless of form, the joint
venture must be reduced to a written agreement.
In addition, the proposed rule would specify that if a joint
venture exists as a formal separate legal entity, it may not be
populated with individuals intended to perform contracts awarded to the
joint venture. This is a change from the current regulation which
allows a separate legal entity joint venture to be unpopulated, to be
populated with administrative personnel only, or to be populated with
its own separate employees that are intended to perform contracts
awarded to the joint venture. In the mentor-prot[eacute]g[eacute] joint
venture context, if SBA continued to allow populated joint ventures,
SBA is concerned that it will be difficult to definitively determine
that a small prot[eacute]g[eacute] firm directly benefits from, and in
fact controls, a joint venture with a large business mentor where that
joint venture formed a limited liability company that hired its own
employees to perform contracts for the joint venture. SBA believes that
the benefits received by a prot[eacute]g[eacute] from a joint venture
are more readily identifiable where the work done on behalf of the
joint venture is performed by the prot[eacute]g[eacute] and the mentor
separately. In such a case, it is much easier to determine that the
prot[eacute]g[eacute] firm performed at least 40% of all work done by
the joint venture, performed more than merely ministerial or
administrative work, and otherwise gained experience that could be used
to perform a future contract independently. Thus, the rule proposes to
allow a separate legal entity joint venture to have its own separate
employees to perform administrative functions, but not to have its own
separate employees to perform contracts awarded to the joint venture.
SBA also requests comments regarding whether SBA should require all
joint ventures formed under mentor-prot[eacute]g[eacute] agreements to
be formed as separate legal entities. SBA believes that such a
requirement would significantly enhance SBA's ability to monitor and
[[Page 6620]]
track awards to mentor-prot[eacute]g[eacute] joint ventures.
HUBZone Joint Ventures (13 CFR 126.616)
The HUBZone program is a community growth and development program
in which businesses are incentivized to establish principal office
locations in, and employ individuals from, areas of chronically high
unemployment and/or low income in order to stimulate economic
development. To further this purpose, the HUBZone program regulations
currently permit a joint venture only between a HUBZone SBC and another
HUBZone SBC. Joint ventures are not permitted with any non-HUBZone SBC.
In authorizing a mentor-prot[eacute]g[eacute] relationship for HUBZone
qualified SBCs, SBA considered whether this policy should be re-visited
for joint ventures between HUBZone prot[eacute]g[eacute] firms and
their SBA-approved mentors. SBA believes that if it continued to
require that joint ventures in the HUBZone program could be between
only two or more HUBZone qualified SBCs, then the business development
assistance sought to be provided through the mentor-
prot[eacute]g[eacute] program to HUBZone SBCs would be minimal. Large
businesses and non-HUBZone small businesses would not be encouraged to
participate in mentor-prot[eacute]g[eacute] relationships with HUBZone
SBCs and HUBZone SBCs would not significantly benefit from such a
program. For this reason, this rule proposes to allow joint ventures
for HUBZone contracts between a HUBZone prot[eacute]g[eacute] firm and
its mentor.
Under the proposed rule, the HUBZone program would be consistent
with the other small business programs and would allow a joint venture
between a qualified HUBZone SBC and one or more other SBCs. As with the
other small business programs, the HUBZone SBC would be required to be
the project manager and otherwise control the performance of a HUBZone
joint venture contract. The joint venture would be required to perform
the specified percentage of work of the contract, and the HUBZone firm
would be required to perform at least 40% of the work done by the joint
venture. SBA specifically requests comments as to whether allowing a
joint venture between a HUBZone firm and a non-HUBZone firm (other than
the HUBZone firm's mentor) makes sense in light of the purposes of the
HUBZone program.
SBA requests comments on whether the purposes of the HUBZone
program would be appropriately served by allowing non-HUBZone firms to
act as mentors and joint venture with prot[eacute]g[eacute] HUBZone
firms, and whether SBA should allow any joint ventures with non-HUBZone
firms.
Joint Venture Certifications and Performance of Work Reports (13 CFR
125.8, 125.18, 126.616, 127.506)
The proposed rule would require all partners to a joint venture
agreement that perform a SDVO, HUBZone, WOSB/EDWOSB, or small business
set-aside contract to certify to the contracting officer and SBA prior
to performing any such contract that it will perform the contract in
compliance with the joint venture regulations and with the joint
venture agreement. In addition, the parties to the joint venture are
required to report to the contracting officer and to SBA how they are
meeting or have met the applicable performance of work requirements for
each SDVO/HUBZone/WOSB/EDWOSB or small business set-aside contract they
perform as a joint venture. Specifically, the joint venture must
annually submit a report to the relevant contracting officer and to SBA
certifying compliance with the regulations and joint venture agreement,
and explaining how the performance of work requirements are being met,
and once the contract is completed, a report certifying compliance and
explaining how the performance of work requirements were met for the
contract (see proposed Sec. 125.8(h) for joint ventures between small
business prot[eacute]g[eacute]s and their SBA-approved mentors,
proposed Sec. 125.18(b)(8) for SDVO SBCs, proposed Sec. 126.616(i)
for HUBZone SBCs, and proposed Sec. 127.506(j) for WOSBs/EDWOSBs). For
SDVO SBCs, HUBZone SBCs, and WOSBs/EDWOSBs, this requirement would
apply to all joint ventures.
SBA believes that joint ventures permitted by SBA's regulations
must benefit small businesses, and must not be used as vehicles to
allow companies to fraudulently or improperly benefit from SBA
contracting programs. The required certifications will help to ensure
accountability within these programs, and assist the Government's
ability to deter wrongdoing through criminal and civil fraud
prosecutions as well as other administrative remedies such as
suspension and debarment. In this regard, the proposed rule would
specify that the Government may consider the failure to comply with the
joint venture regulations or to submit the required certifications and
reports to be a ground for suspension or debarment.
Tracking Joint Venture Awards
SBA also believes that it is important to be able to track awards
to the joint ventures permitted by SBA's regulations, and is
considering various methods of tracking awards. Possible approaches
include: requiring all joint ventures permitted by these regulations to
include in their names ``small business joint venture,'' and if a
mentor-prot[eacute]g[eacute] joint venture to include in their names
``mentor-prot[eacute]g[eacute] small business joint venture;''
requiring contracting officers to identify awards as going to small
business joint ventures or to mentor-prot[eacute]g[eacute] small
business joint ventures; requiring SBCs to amend their System for Award
Management (SAM) entries to specify that they have formed a joint
venture; requiring each joint venture to get a separate DUNS number; or
a combination of all of these actions. Ensuring that governmental
agencies and members of the public can track joint venture awards will
promote transparency and accountability, and thereby deter fraudulent
or improper conduct, and promote compliance with SBA's regulations. SBA
seeks comments from interested parties on how best to accomplish this
and whether these alternatives should be implemented in a final rule.
Applications for SBA's Small Business Mentor-Prot[eacute]g[eacute]
Program (13 CFR 125.9)
As noted above, SBA has proposed implementing one universal small
business mentor-prot[eacute]g[eacute] program instead of a separate
mentor-prot[eacute]g[eacute] program for each type of small business
(i.e., HUBZone, SDVO, WOSB, and small business). In addition, the
proposed rule would continue to authorize SBA's separate mentor-
prot[eacute]g[eacute] program for eligible 8(a) BD Program
Participants. A small business seeking a mentor-prot[eacute]g[eacute]
relationship would be required to submit information to SBA in
accordance with this proposed rule. SBA's Director of Government
Contracting (D/GC) would review and either approve or decline small
business mentor-prot[eacute]g[eacute] agreements. SBA's Associate
Administrator for BD (AA/BD) would continue to review and approve or
decline mentor-prot[eacute]g[eacute] relationships in the 8(a) BD
program. An eligible 8(a) BD Program Participant could choose to seek
SBA's approval of a mentor-prot[eacute]g[eacute] relationship through
the 8(a) BD program, or could seek a small business mentor-
prot[eacute]g[eacute] relationship through SBA's D/GC. As noted above,
SBA is considering having one office review and either approve or
decline all mentor-prot[eacute]g[eacute] agreements to ensure
[[Page 6621]]
consistency in the process, and specifically seeks comments as to
whether that approach should be implemented.
SBA is uncertain of the number of various small businesses that
will seek a mentor-prot[eacute]g[eacute] relationship through SBA once
these regulations are finalized. If the number of firms seeking SBA to
approve their mentor-prot[eacute]g[eacute] relationships becomes
unwieldy, SBA may institute certain ``open'' and ``closed'' periods for
the receipt of further mentor-prot[eacute]g[eacute] applications. In
such a case, SBA would then accept mentor-prot[eacute]g[eacute]
applications only in ``open'' periods.
Mentors (13 CFR 124.520 and 125.9)
Under the proposed small business mentor-prot[eacute]g[eacute]
program, any for-profit business concern that demonstrates a commitment
and the ability to assist small business concerns may be approved to
act as a mentor and receive the benefits of the mentor-
prot[eacute]g[eacute] relationship. Pursuant to the authority contained
in the NDAA, SBA is attempting to make the small business mentor-
prot[eacute]g[eacute] program identical to the 8(a) mentor-
prot[eacute]g[eacute] program. Specifically, section 45(a)(2) of the
Small Business Act, 15 U.S.C. 657r(a)(2), which was added by section
1641 of the NDAA, requires the mentor-prot[eacute]g[eacute] program for
small businesses to be ``identical to the [8(a)] mentor-
prot[eacute]g[eacute] program . . . as in effect on the date of
enactment of this section. . . '' Although the current rules for the
8(a) mentor-prot[eacute]g[eacute] program allow non-profit entities to
act as mentors, this rule proposes to not allow non-profit mentors
(i.e., to require mentors to be for-profit business concerns) for the
small business mentor-prot[eacute]g[eacute] program due to the
definition of the term mentor contained in the NDAA. In this regard,
section 1641 of the NDAA added section 45(d)(1) of the Small Business
Act, 15 U.S.C. 657r(d)(1), which defines the term mentor to be ``a for-
profit business concern of any size.'' These two provisions of the NDAA
are in conflict. The small business mentor-prot[eacute]g[eacute]
program cannot be ``identical'' to the current 8(a) mentor-
prot[eacute]g[eacute] program while at the same time excluding non-
profit entities from being mentors. Because the NDAA definition may be
read to apply only to the small business mentor-prot[eacute]g[eacute]
program, and not the 8(a) BD mentor-prot[eacute]g[eacute] program (or
to mentor-prot[eacute]g[eacute] programs for SDVOs, HUBZone SBCs, or
WOSBs if SBA had chosen to implement separate mentor-
prot[eacute]g[eacute] programs under the Jobs Act authority), SBA could
have prohibited non-profit mentors only in the small business mentor-
prot[eacute]g[eacute] program. SBA has not done that in this proposed
rule because SBA seeks to have as much consistency between the various
programs as possible. As such, this rule proposes not to allow non-
profit mentors in any mentor-prot[eacute]g[eacute] program, including
the 8(a) mentor-prot[eacute]g[eacute] program. For the 8(a) mentor-
prot[eacute]g[eacute] program, this definition requires, and this rule
proposes, a change to the current 8(a) regulations. See proposed Sec.
124.520(b)(2).
Generally, a mentor participating in any SBA-approved mentor-
prot[eacute]g[eacute] program will have no more than one
prot[eacute]g[eacute] at a time. However, SBA may authorize a concern
to mentor more than one prot[eacute]g[eacute] at a time where it can
demonstrate that the additional mentor-prot[eacute]g[eacute]
relationship will not adversely affect the development of either
prot[eacute]g[eacute] firm (e.g., the second firm may not be a
competitor of the first firm). Under no circumstances will a mentor be
permitted to have more than three prot[eacute]g[eacute]s in the
aggregate at one time under either of the mentor-prot[eacute]g[eacute]
programs authorized by Sec. 124.520 or Sec. 125.9. A mentor may
choose to have: up to three prot[eacute]g[eacute]s in the 8(a) BD
program; or up to three prot[eacute]g[eacute]s in the small business
program; or one or more prot[eacute]g[eacute]s in one program and one
or more in another program, but no more than three
prot[eacute]g[eacute]s in the aggregate. In proposing this limitation,
SBA did not believe it was good policy to allow one large business
mentor to conceivably have up to three prot[eacute]g[eacute]s in each
of the two programs, or a total of possibly six prot[eacute]g[eacute]
firms. If that were allowed, large businesses might benefit more from
small business programs than the intended beneficiaries, the small
business proteges. In reviewing a mentor-prot[eacute]g[eacute]
agreement where a mentor has more than one prot[eacute]g[eacute], SBA
will determine whether the mentor has demonstrated that its
prot[eacute]g[eacute]s will not compete against each other.
In addition, consistent with the 8(a) mentor-prot[eacute]g[eacute]
program, a prot[eacute]g[eacute] in the small business mentor-
prot[eacute]g[eacute] program may not become a mentor and retain its
prot[eacute]g[eacute] status. The prot[eacute]g[eacute] must terminate
the mentor-prot[eacute]g[eacute] agreement with its mentor before it
will be approved as a mentor to another small business concern. SBA
requests comments regarding whether this policy makes sense in the
small business mentor-prot[eacute]g[eacute] program, whether it
continues to make sense in the 8(a) mentor-prot[eacute]g[eacute]
program, or whether a firm should be permitted to be both a
prot[eacute]g[eacute] and mentor in both programs in appropriate
circumstances.
Prot[eacute]g[eacute]s (13 CFR 124.520 and 125.9)
Currently, in order to qualify as a prot[eacute]g[eacute] for the
8(a) BD mentor-prot[eacute]g[eacute] program, an 8(a) Program
Participant must: have a size that is less than half the size standard
corresponding to its primary NAICS code; or be in the developmental
stage of its 8(a) program participation; or not have received an 8(a)
contract. There is no doubt that the second and third reasons
permitting a firm to qualify as a prot[eacute]g[eacute] in the 8(a) BD
mentor-prot[eacute]g[eacute] program (i.e., the firm must be in the
developmental stage of its 8(a) participation, or the firm has not
received an 8(a) contract) do not apply to a separately authorized
small business mentor-prot[eacute]g[eacute] program. As such, SBA
immediately eliminated those bases from consideration as criteria to
qualify a prot[eacute]g[eacute] for the small business mentor-
prot[eacute]g[eacute] program. The question then becomes whether these
criteria continue to make sense in the 8(a) BD program. The 8(a) BD
mentor-prot[eacute]g[eacute] program was designed to be an additional
tool to assist in the business development of 8(a) BD Program
Participants. Although it is true that the three types of firms
identified as eligible to qualify as a prot[eacute]g[eacute] in the
8(a) BD mentor-prot[eacute]g[eacute] program would be the firms in most
need of business development assistance, SBA questions whether 8(a) BD
Participants that do not meet one of those three criteria could also
substantially benefit from participating as a prot[eacute]g[eacute] in
a mentor-prot[eacute]g[eacute] program. A Participant may have a size
that slightly exceeds one-half the size standard corresponding to its
primary NAICS code, be in its first year of the transitional stage of
program participation, and have received one small 8(a) contract.
Currently, that firm would be ineligible to be a prot[eacute]g[eacute]
in the 8(a) BD program, even though it could substantially benefit from
the assistance provided by a mentor and might not otherwise be able to
advance its business development beyond its current level. And,
considering that an 8(a) BD Participant that was not in the
developmental stage of program participation or had received an 8(a)
contract could nevertheless qualify as a prot[eacute]g[eacute] under
the small business mentor-prot[eacute]g[eacute] program, SBA believes
that it makes sense to have consistent rules between the mentor-
prot[eacute]g[eacute] programs and, therefore, is proposing to
eliminate those restrictions on qualifying as a prot[eacute]g[eacute]
for the 8(a) BD mentor-prot[eacute]g[eacute] program as well.
SBA then considered whether the final restriction to qualify as a
prot[eacute]g[eacute] for the 8(a) BD mentor-prot[eacute]g[eacute]
program (i.e., the requirement that a firm be less
[[Page 6622]]
than half the size standard corresponding to its primary NAICS code)
continues to make sense in the 8(a) BD program, whether it makes sense
for the new small business mentor-prot[eacute]g[eacute] program, and if
not, what, if any, restriction should be imposed in its place. SBA
recognizes that many small businesses may need some specific form of
business development assistance, and that a mentor-
prot[eacute]g[eacute] program may be the best vehicle for the small
business to obtain such assistance. In addition, many small businesses
may lack the tools necessary to advance to the next level. As such,
this rule proposes to allow any firm that qualifies as a small business
for the size standard corresponding to its primary NAICS code to also
qualify as a prot[eacute]g[eacute] in either the small business or 8(a)
BD mentor-prot[eacute]g[eacute] program. In the 8(a) BD program,
however, the firm would also have to demonstrate how the business
development assistance to be received through its proposed mentor-
prot[eacute]g[eacute] relationship would advance the goals and
objectives set forth in its business plan.
Although SBA has proposed to eliminate the less than half the size
standard requirement from the 8(a) BD mentor-prot[eacute]g[eacute]
program and not apply it to the small business mentor-
prot[eacute]g[eacute] program, SBA specifically requests comments as to
whether the focus of a mentor-prot[eacute]g[eacute] program should be
restricted to smaller firms or whether, as proposed, the benefits of a
mentor-prot[eacute]g[eacute] program should be open to any firm that
qualifies as small.
A prot[eacute]g[eacute] participating in either of the mentor-
prot[eacute]g[eacute] programs generally will have no more than one
mentor at a time. However, a prot[eacute]g[eacute] may have two mentors
where the two relationships will not compete or otherwise conflict with
each other and the prot[eacute]g[eacute] demonstrates that the second
relationship pertains to an unrelated, secondary NAICS code, or the
first mentor does not possess the specific expertise that is the
subject of the mentor-prot[eacute]g[eacute] agreement with the second
mentor. SBA asks for comments regarding whether there should be a
maximum of two mentors per prot[eacute]g[eacute] or another maximum.
SBA wants to ensure that only firms that truly qualify as small
businesses under their primary NAICS code participate as
prot[eacute]g[eacute]s in the small business mentor-
prot[eacute]g[eacute] program. Unlike the 8(a) BD program (where firms
apply and SBA affirmatively certifies firms as eligible to participate
in the program), there is no formal process by which a firm is
certified as a ``small'' business. Status as a small business is based
on a firm's self-certification, and SBA understands that some firms may
in good faith believe that they qualify as small but may not fully
understand all of the affiliation issues required to be considered
small. To ensure that only qualified firms participate as
prot[eacute]g[eacute] firms, the proposed rule would require that SBA
verify that a firm qualifies as a small business before approving that
firm to act as a prot[eacute]g[eacute] in a small business mentor-
prot[eacute]g[eacute] relationship. See proposed Sec. 125.9(c)(1).
Only those firms that are affirmatively determined to be small
businesses and have not received a negative determination from SBA
pursuant to a size protest may qualify as a prot[eacute]g[eacute]. SBA
proposes that this affirmative determination may take place either as
part of a firm's request for participation in the small business
mentor-prot[eacute]g[eacute] program, or as part of a size protest
determination prior to that time. Where SBA previously found a firm to
qualify as small as part of a formal size determination or size appeal,
the firm would be required to certify that there has been no change in
its small business status since that determination. In addition, for
the two self-certification programs (SDVO and WOSB), SBA may examine
status eligibility as part of its prot[eacute]g[eacute] approval
process.
Mentor-Prot[eacute]g[eacute] Programs of Other Departments and Agencies
(13 CFR 125.10)
As noted above, section 1641 of the NDAA provided that a Federal
department or agency cannot carry out its own agency specific mentor-
prot[eacute]g[eacute] program for small businesses unless the head of
the department or agency submitted a plan for such a program to SBA and
received the SBA Administrator's approval of the plan. The NDAA
specifically excluded the Department of Defense's mentor-
prot[eacute]g[eacute] program, but included all other current mentor-
prot[eacute]g[eacute] programs of other agencies. Under its provisions,
a department or agency that is currently conducting a mentor-
prot[eacute]g[eacute] program (except the Department of Defense) may
continue to operate that program for one year but must then go through
the SBA approval process in order for the program to continue after one
year. Thus, in order to continue to operate any current mentor-
prot[eacute]g[eacute] program beyond one year after SBA's mentor-
prot[eacute]g[eacute] regulations are final, each department or agency
would be required to obtain the SBA Administrator's approval. These
statutory provisions are proposed to be implemented in new Sec. 125.10
of SBA's regulations.
Finally, proposed Sec. 125.10(d) would implement statutory
reporting requirements imposed on each Federal department or agency
that has its own mentor-prot[eacute]g[eacute] program. Specifically,
the head of each Federal department or agency carrying out an agency-
specific mentor-prot[eacute]g[eacute] program would be required to
report annually to SBA the participants in its mentor-
prot[eacute]g[eacute] program (broken out by various small business
categories), the assistance provided to small businesses through the
program, and the progress of prot[eacute]g[eacute] firms to compete for
Federal prime contracts and subcontracts. These proposed changes may
require corresponding revisions to agency contract reporting systems
and the Government's contract reporting system, FPDS-NG.
Because the SBA's 8(a) BD and small business mentor-
prot[eacute]g[eacute] programs will apply to all Government small
business contracts, and thus to all Federal departments and agencies,
conceivably other agency-specific mentor-prot[eacute]g[eacute] programs
for small business would not be needed. For example, SBA notes that the
Department of Veterans Affairs (VA) has separate Veteran-Owned Small
Business (VOSB) and Service-Disabled Veteran-Owned Small Business
(SDVOSB) mentor-prot[eacute]g[eacute] programs. Although this proposed
rule would establish a government-wide small business mentor-
prot[eacute]g[eacute] program, it would not establish mentor-
prot[eacute]g[eacute] programs specific to either VOSBs or SDVOSBs. The
question becomes whether either of those separate mentor-
prot[eacute]g[eacute] programs would be necessary after SBA's small
business mentor-prot[eacute]g[eacute] program is established. A VOSB or
SDVOSB could obtain a small business mentor-prot[eacute]g[eacute]
relationship through SBA and then participate in programs specific to
VA if VA determined that the firm did indeed qualify as a VOSB or an
SDVOSB under VA's rules. SBA requests comments as to whether the VA's
VOSB and SDVO mentor-prot[eacute]g[eacute] programs should continue
after the one-year grace period expires.
SBA also specifically requests comments on whether there would be a
continuing need for other small business mentor-prot[eacute]g[eacute]
programs once SBA's various mentor-prot[eacute]g[eacute] programs are
implemented. SBA understands that many of the agency-specific mentor-
prot[eacute]g[eacute] programs incentivize mentors to utilize their
prot[eacute]g[eacute]s as subcontractors. For instance, some agencies
provide additional evaluation points to a large business submitting an
offer on an unrestricted procurement where the business has an active
mentor-prot[eacute]g[eacute]
[[Page 6623]]
agreement, where the business has used the prot[eacute]g[eacute] firm
as a subcontractor previously, or where the mentor and
prot[eacute]g[eacute] are submitting an offer as a joint venture. In
addition, some mentor-prot[eacute]g[eacute] programs give additional
credit to a large business mentor toward its subcontracting plan goals
when the mentor uses the prot[eacute]g[eacute] as a subcontractor on
the mentor's prime contract(s) with the given agency. SBA's mentor-
prot[eacute]g[eacute] programs assume more of a prime contractor role
for prot[eacute]g[eacute]s, but would also encourage subcontracts from
mentors to prot[eacute]g[eacute]s as part of the developmental
assistance that prot[eacute]g[eacute]s receive from their mentors.
Because one or more mentor-prot[eacute]g[eacute] programs of other
agencies ultimately may not be continued after SBA's various mentor-
prot[eacute]g[eacute] programs are finalized, SBA requests comments as
to whether the subcontracting incentives authorized by mentor-
prot[eacute]g[eacute] programs of other agencies should specifically be
incorporated into SBA's mentor-prot[eacute]g[eacute] programs.
Benefits of Mentor-Prot[eacute]g[eacute] Relationships (13 CFR 124.520
and 125.9)
As with the 8(a) BD program, under the proposed small business
mentor-prot[eacute]g[eacute] program, a prot[eacute]g[eacute] may joint
venture with its SBA-approved mentor and qualify as a small business
for any Federal government contract or subcontract, provided the
prot[eacute]g[eacute] qualifies as small for the size standard
corresponding to the NAICS code assigned to the procurement. In
revising its 8(a) regulations in 2011, SBA considered allowing the
exclusion from affiliation between a prot[eacute]g[eacute] and its
mentor to apply only to 8(a) contracts. Comments to SBA's proposed 8(a)
rule argued that 8(a) prot[eacute]g[eacute] firms receive important
developmental benefits in performing non-8(a) contracts and that many
of these benefits would be missed if a prot[eacute]g[eacute] could not
joint venture with a large business mentor. SBA agreed and decided to
continue to allow the exclusion from affiliation for all contracts so
that a joint venture between a prot[eacute]g[eacute] in the 8(a) BD
program and its mentor equally qualifies as small for 8(a) and non-8(a)
contracts so long as the prot[eacute]g[eacute] qualifies as small. That
same rationale has been applied in this proposed rule to the small
business mentor-prot[eacute]g[eacute] program. This means that a joint
venture between a prot[eacute]g[eacute] and its approved mentor in the
small business mentor-prot[eacute]g[eacute] program would be deemed to
be a small business concern for any Federal contract or subcontract. It
does not mean that such a joint venture affirmatively qualifies for any
other small business program. For example, a joint venture between a
small business prot[eacute]g[eacute] firm and its SBA-approved mentor
would be deemed a small business concern for any Federal contract or
subcontract for which the prot[eacute]g[eacute] qualified as small, but
the joint venture would not qualify for a contract reserved or set-
aside for eligible 8(a) BD, HUBZone SBCs, SDVO SBCs or WOSBs/EDWOSBs
unless the prot[eacute]g[eacute] firm met those program-specific
requirements as well.
Consistent with the 8(a) BD program, the proposed rule would permit
a mentor to a small business to own an equity interest of up to 40% in
the prot[eacute]g[eacute] firm in order to raise capital for the
prot[eacute]g[eacute] firm. See proposed Sec. 125.9(d)(2). SBA
requests comments on whether this 40% ownership interest should be a
temporary interest, being authorized only as long as the mentor-
prot[eacute]g[eacute] relationship exists, or whether it should be able
to survive the termination of the mentor-prot[eacute]g[eacute]
relationship. Although the proposed rule allows the ownership interest
to survive the termination of a mentor-prot[eacute]g[eacute]
relationship, SBA is concerned that such a rule may allow far-reaching
influence by large businesses that act as mentors and enable them to
receive long-term benefits from programs designed to assist only small
businesses.
Written Mentor-Prot[eacute]g[eacute] Agreement (13 CFR 124.520 and
125.9)
The proposed rule requires that all mentor-prot[eacute]g[eacute]
agreements be in writing, identifying specifically the benefits
intended to be derived by the projected prot[eacute]g[eacute] firms.
Under the proposed rule, SBA must approve any mentor-
prot[eacute]g[eacute] agreement prior to the firms receiving any
benefits through the mentor-prot[eacute]g[eacute] program. SBA will not
approve the agreement if SBA determines that the assistance to be
provided is not sufficient to promote any real developmental gains to
the prot[eacute]g[eacute], or if SBA determines that the agreement is
merely a vehicle to enable the mentor to receive small business
contracts. The proposed rule would also require a firm seeking approval
to be a prot[eacute]g[eacute] in either the 8(a) BD or small business
mentor-prot[eacute]g[eacute] programs to identify any other mentor-
prot[eacute]g[eacute] relationship it has through another federal
agency or SBA and provide a copy of each such mentor-
prot[eacute]g[eacute] agreement to SBA. The mentor-
prot[eacute]g[eacute] agreement submitted to SBA for approval must
identify how the assistance to be provided by the proposed mentor is
different from assistance provided to the prot[eacute]g[eacute] through
another mentor-prot[eacute]g[eacute] relationship, either with the same
or a different mentor. For example, if a firm is a
prot[eacute]g[eacute] in a mentor-prot[eacute]g[eacute] relationship
approved by another agency and seeks to enter a mentor-
prot[eacute]g[eacute] relationship with the same mentor firm through
one of SBA's programs, it cannot merely duplicate the same mentor-
prot[eacute]g[eacute] agreement. It must demonstrate that the
assistance to be provided to the prot[eacute]g[eacute] firm is
different and in addition to the assistance provided to the firm
through the other mentor-prot[eacute]g[eacute] relationship.
SBA requests comments regarding whether SBA should consider
limiting its review and approval of mentor-prot[eacute]g[eacute]
agreements to a certain timeframe each year (i.e., allow submissions of
agreements only during certain specified months), or allow submissions
of agreements at any time, but limit the number of mentor-
prot[eacute]g[eacute] agreements it will review and/or approve each
year.
The proposed rule also provides that SBA will review a mentor-
prot[eacute]g[eacute] relationship annually to determine whether to
approve its continuation for another year. SBA will evaluate the
relationship and determine whether the mentor provided the agreed-upon
business development assistance, and whether the assistance provided
appears to be worthwhile. SBA proposes to limit the duration of a
mentor-prot[eacute]g[eacute] agreement to three years. The proposed
rule also permits a prot[eacute]g[eacute] to have one three-year
mentor-prot[eacute]g[eacute] agreement with one entity and one three-
year mentor-prot[eacute]g[eacute] agreement with another entity, or two
three-year mentor-prot[eacute]g[eacute] agreements (successive or
otherwise) with the same entity. SBA invites comments regarding whether
three years is an appropriate length of time and whether SBA should
allow a mentor and prot[eacute]g[eacute] to enter into an additional
mentor-prot[eacute]g[eacute] agreement upon the expiration of the
original agreement.
In addition, SBA proposes to add clarifying language not currently
contained in the 8(a) mentor-prot[eacute]g[eacute] regulations
authorizing the continuation of a mentor-prot[eacute]g[eacute]
relationship where control or ownership of the mentor changes during
the term of the mentor-prot[eacute]g[eacute] agreement. Specifically,
the proposed rule would provide (for the 8(a) BD and small business
mentor-prot[eacute]g[eacute] programs) that if control of the mentor
changes (through a stock sale or otherwise), the previously approved
mentor-prot[eacute]g[eacute] relationship may continue provided that,
after the change in control, the mentor expresses in writing to SBA
that it acknowledges the mentor-prot[eacute]g[eacute] agreement and
that it continues its commitment to fulfill its obligations under the
agreement. This is
[[Page 6624]]
current SBA policy for the 8(a) BD program, but SBA believes that
setting it forth in the regulatory text would eliminate any confusion.
Size of 8(a) Joint Venture (13 CFR 124.513)
The proposed rule would amend Sec. 124.513 to clarify that
interested parties may protest the size of an SBA-approved 8(a) joint
venture that is the apparent successful offeror for a competitive 8(a)
contract. This change alters the rule expressed in Size Appeal of Goel
Services, Inc. and Grunley/Goel Joint Venture D LLC, SBA No. SIZ-5320
(2012), which concluded that the size of an SBA-approved 8(a) joint
venture could not be protested because SBA had, in effect, determined
the joint venture to qualify as small when it approved the joint
venture pursuant to Sec. 124.513(e). Approval of a joint venture by
its Office of Business Development should not immunize the awardee of
an 8(a) competitive contract from a size protest. This revision would
make clear that unsuccessful offerors on a competitive 8(a) set aside
contract may challenge the size of an apparently successful joint
venture offeror.
Establishing Social Disadvantage for the 8(a) BD Program (13 CFR
124.103)
The proposed rule would amend Sec. 124.103(c) to clarify that an
individual claiming social disadvantage must present a combination of
facts and evidence which by itself establishes that the individual has
suffered social disadvantage that has negatively impacted his or her
entry into or advancement in the business world. This change would
alter the rule expressed in several SBA OHA decisions that allowed an
individual to establish social disadvantage despite the record lacking
sufficient evidence supporting a discriminatory basis for the alleged
misconduct. See Matter of Tootle Construction, LLC, SBA No. BDP-420
(2012), StretegyGen Co., SBA No. BDPE-460 (2012). SBA believes that the
burden of establishing eligibility for the 8(a) BD program is on the
applicant. Absent any facts or statements as to the qualifications of
the individual claiming social disadvantage or those of another
individual offered as evidence of discrimination in a statement, it is
no more likely that an action or inaction was based on discriminatory
conduct than it was based on a legitimate alternative reason. The
individual claiming social disadvantage bears the burden of making his
or her claims of social disadvantage more likely than possible non-
discriminatory reasons for the same outcomes by providing additional
facts.
As such, the proposed rule clarifies that SBA may disregard a claim
of social disadvantage where a legitimate alternative ground for an
adverse action exists and the individual has not presented evidence
that would render his/her claim any more likely than the alternative
ground. It is the responsibility of the applicant to establish all
aspects of eligibility. A statement that a male co-worker received
higher compensation or was promoted over a woman does not amount to an
incident of social disadvantage by itself.
In addition, when SBA asks for evidence corroborating an
individual's claims of social disadvantage, what SBA is really
requesting is for the individual to provide additional facts to make
his or her claims of discriminatory conduct more likely than possible
non-discriminatory reasons for the same outcomes. Because SBA usually
has no way to verify the statements made by an individual claiming
social disadvantage, and SBA recognizes that documentary evidence is
often not available to support the statements, it is vitally important
that the narrative contain sufficient detail (i.e., names, dates,
location or other specific details) in order to be credible. To
constitute sufficient detail to establish social disadvantage, the
description of the individual's claims of discriminatory conduct must
generally include: (1) when and where the discrimination occurred; (2)
who committed the discrimination; (3) how the discrimination took
place; and (4) how the individual was adversely affected by such acts.
See Ace Technical, SBA No. SDBA-178, at 4-5 (2008) (citing Matter of
Seacoast Asphalt Servs., Inc., SBA No. SDBA-151, at 8 (2001)).
In addition, SBA maintains that it needs the discretion to request
corroborating evidence in certain circumstances. Such requests do not
raise the evidentiary burden placed on an 8(a) applicant above the
preponderance of the evidence standard. SBA is not seeking definitive
proof, but rather additional facts to support the claim that a negative
outcome (e.g., failure to receive a promotion or needed training) was
based on discriminatory conduct instead of one or more legitimate non-
discriminatory reasons. SBA expects an individual claiming social
disadvantage to provide the level of detail consistent with someone
with first-hand knowledge of the discriminatory conduct claimed. The
proposed rule would add language to the regulations to specifically
recognize SBA's right to seek corroborating evidence where appropriate.
Finally, the proposed rule would clarify that each instance of
alleged discriminatory conduct must be accompanied by a description of
the negative impact of the conduct on the individual's entry into or
advancement in the business world in order for it to constitute an
instance of social disadvantage. This clarification would alter the
rule expressed in Matter of Bartkowski Life Safety Corp., SBA No. BDPE-
516 (2014), in which OHA ruled that ``a petitioner's claims can each be
offered as evidence of social disadvantage, negative impact, or both.''
SBA maintains that each claim of discriminatory conduct or bias
experienced by an individual must also include negative impact on the
individual's entry into or advancement in the business world in order
for it to constitute an instance of social disadvantage within the
meaning of SBA's regulations. This proposed change clarifies that
point.
Substantial Unfair Competitive Advantage Within an Industry Category
(13 CFR 124.109, 124.110, and 124.111)
Pursuant to section 7(j)(10)(J)(ii)(II) of the Small Business Act,
15 U.S.C. 636(j)(10)(J)(ii)(II), ``[i]n determining the size of a small
business concern owned by a socially and economically disadvantaged
Indian tribe (or a wholly owned business entity of such tribe) [for
purposes of 8(a) BD program entry and 8(a) BD contract award], each
firm's size shall be independently determined without regard to its
affiliation with the tribe, any entity of the tribal government, or any
other business enterprise owned by the tribe, unless the Administrator
determines that one or more such tribally owned business concerns have
obtained, or are likely to obtain, a substantial unfair competitive
advantage within an industry category.'' For purposes of the 8(a) BD
program, the term ``Indian tribe'' includes any Alaska Native village
or regional or village corporation (within the meaning of the Alaska
Native Claims Settlement Act). 15 U.S.C. 637(a)(13). SBA's regulations
have extended this broad exclusion from affiliation to the other
entity-owned firms authorized to participate in the 8(a) BD program
(i.e., firms owned by Native Hawaiian Organizations (NHOs) and
Community Development Corporations (CDCs)). See Sec. Sec. 124.109(a),
124.109(c)(2)(iii), 124.110(b), and 124.111(c). This proposed rule will
provide guidance as to how SBA will determine whether a firm has
obtained or is likely to obtain ``a substantial
[[Page 6625]]
unfair competitive advantage within an industry category.''
First, in determining how best to define the term ``industry
category,'' SBA considered how it has defined other similar terms in
its regulations. In this regard, Sec. 124.3 defines ``primary industry
classification'' to mean ``the six digit North American Industry
Classification System (NAICS) code designation which best describes the
primary business activity of the 8(a) BD applicant or Participant.''
Further, Sec. 124.109(c)(3)(ii) defines the ``same primary NAICS
code'' to mean the six digit NAICS code having the same corresponding
size standard. SBA believes that it makes sense to apply this same
limitation when defining an industry category. Thus, the proposed rule
would provide that an entity-owned business concern is not subject to
the broad exemption to affiliation set forth in 13 CFR part 124 where
one or more entity-owned firms are found to have obtained, or are
likely to obtain, a substantial unfair competitive advantage in a
particular NAICS code with a particular size standard.
In addition, SBA believes that entity-owned concerns may be found
affiliated only if they have obtained, or are likely to obtain, a
substantial unfair competitive advantage within a particular industry
category on a national scale. Because NAICS codes and their associated
size standards are established on a national basis, it is reasonable to
conclude that Congress intended SBA to look at ``an industry category''
nationally to determine whether a particular firm has obtained or is
likely to obtain a substantial unfair competitive advantage. In making
this assessment, SBA will consider a firm's percentage share of the
national market and other relevant factors to determine whether a firm
is dominant in a specific six-digit NAICS code with a particular size
standard. SBA anticipates that it will review Federal Procurement Data
System data to compare the firm's share of the industry as compared to
overall small business participation in that industry to determine
whether there is a an unfair competitive advantage. The proposed rule
does not contemplate a finding of affiliation where an entity-owned
concern appears to have obtained an unfair competitive advantage in a
local market, but remains competitive, but not dominant, on a national
basis.
Management of Tribally-Owned 8(a) Program Participants (13 CFR 124.109)
The proposed rule would add language to Sec. 124.109(c)(4)
specifying that the individuals responsible for the management and
daily operations of a tribally-owned concern cannot manage more than
two Program Participants at the same time. This language is taken
directly from section 7(j)(11)(B)(iii)(II) of the Small Business Act
(15 U.S.C. 636(j)(11)(B)(iii)(II)), but did not also appear in SBA's
8(a) BD regulations. SBA believes it is necessary to incorporate this
provision into the regulations to more fully apprise tribally-owned
8(a) applicants and Participants of the control requirements applicable
to them.
Native Hawaiian Organizations (NHOs) (13 CFR 124.110)
The proposed rule would add language to Sec. 124.110(d) to clarify
the control requirements applicable to NHO-owned firms for 8(a) BD
program participation. Specifically, the rule would clarify that the
members or directors of an NHO need not have the technical expertise or
possess a required license to be found to control an applicant or
Participant owned by the NHO. Rather, the NHO, through its members and
directors, must merely have managerial experience of the extent and
complexity needed to run the concern. As with individually owned 8(a)
applicants and Participants, individual NHO members may be required to
demonstrate more specific industry-related experience in appropriate
circumstances to ensure that the NHO in fact controls the day-to-day
operations of the firm. This would be particularly true where a non-
disadvantaged owner (or former owner) who has experience related to the
industry is actively involved in the day-to-day management of the firm.
Proposed Sec. 124.110(g) would clarify that an NHO-owned firm's
eligibility for 8(a) BD participation is separate and distinct from the
eligibility of individual members, directors or managers. As such, an
individual Hawaiian Native who previously qualified his or her own
business for 8(a) BD participation could be counted as a Native
Hawaiian for NHO eligibility and could use his or her individual
economic disadvantage to help qualify the NHO as economically
disadvantage even if he or she previously used his or her disadvantaged
status to qualify an individually-owned 8(a) applicant or Participant.
Finally, although the rule does not propose to change the way in
which SBA determines whether an NHO is economically disadvantaged, SBA
specifically requests comments regarding whether an alternative
approach is more suitable. Section 8(a)(4)(A) of the Small Business
Act, 15 U.S.C. 637(a)(4)(A), requires that an NHO be economically
disadvantaged in order to establish 8(a) eligibility for a concern
owned by the NHO. Neither the statute nor its legislative history
provide any guidance on how to determine whether an NHO is economically
disadvantaged. Currently, Sec. 124.110(c)(1) provides that in
determining whether an NHO is economically disadvantaged, SBA will look
at the individual economic status of the NHO's members. The NHO must
establish that a majority of its members qualify as economically
disadvantaged under the rules that apply to individuals as set forth in
Sec. 124.104. SBA has received several inquiries from NHOs asking if
this is the most sensible approach to establishing economic
disadvantage. They have recommended that NHOs establish economic
disadvantage in the same way that tribes currently do so for the 8(a)
BD program: that is, by providing information relating to members,
including the tribal unemployment rate, the per capita income of tribal
members, and the percentage of tribal members below the poverty level.
SBA asks for specific comments as to whether SBA should adopt for NHOs
the same criteria used for determining whether a tribe is economically
disadvantaged. One of the concerns SBA has in adopting such an approach
is how to define the community for an NHO that would correspond to the
tribal population for a specific tribe. Would the same Native Hawaiian
community be used to establish the economic disadvantage of each NHO?
If so, would that diminish the entire economic disadvantage requirement
for NHOs? After reviewing comments received in response to this issue,
SBA will determine how best to proceed in a final rule.
Change in Primary Industry Classification (13 CFR 124.112)
On February 11, 2011, SBA published a final rule in the Federal
Register implementing comprehensive revisions to its 8(a) BD program.
76 FR 8221. Included within these revisions was an amendment to the
definition of the term ``primary industry classification'' and
provisions authorizing an 8(a) Participant to change its primary
industry classification where it can demonstrate to SBA that the
majority of its total revenues during a three-year period have evolved
from one NAICS code to another. The supplementary information to that
final rule stated that it was not SBA's intent that SBA would be able
to change a firm's primary NAICS code on its own. 76 FR 8221. At that
time, SBA did not recognize a need
[[Page 6626]]
to require a Participant to change the primary industry classification
contained in its business plan. SBA's views have changed. In the
context of an entity-owned Participant, SBA believes that it needs to
have to ability to change the Participant's primary industry
classification in appropriate circumstances. An entity-owned applicant
to the 8(a) BD program (i.e., one owned by an Indian tribe, Alaska
Native Corporation (ANC), Native Hawaiian Organization (NHO), or
Community Development Corporation (CDC)) cannot own more than 49% of
another firm which, either at the time of application or within the
previous two years, has been participating in the 8(a) BD program under
the same primary NAICS code as the applicant. As such, an entity-owned
applicant must select a primary business classification (as represented
by a six digit NAICS code) that is different from the primary business
classification of any other Participant owned by that same entity.
After being certified to participate in the 8(a) BD program, however,
there is no current requirement that the newly admitted Participant
actually perform most, or any, work in the six digit NAICS code
selected as its primary business classification in its application. SBA
believes that this inconsistency could permit a firm to circumvent the
intent of SBA's regulations by selecting a primary business
classification that is different from the primary business
classification of any other Participant owned by that same entity
merely to get admitted to the 8(a) BD program, and then performing the
majority, or even all, of its work in the identical primary NAICS code
as another Participant owned by the entity. In order to make the
regulations more consistent, this rule proposes to allow SBA to change
the primary industry classification contained in a Participant's
business plan where the greatest portion of the Participant's total
revenues during a three-year period have evolved from one NAICS code to
another. See proposed Sec. 124.112(e). The proposed language is not
intended to imply that revenues from its primary NAICS code must
account for at least 50% of the firm's total revenues, but rather that
revenues from its primary NAICS code must exceed revenues generated
from any other NAICS code. The proposed language also provides
discretion to SBA in deciding whether to change a Participant's primary
industry classification because SBA recognizes that whether the
greatest portion of a firm's revenues is derived from one NAICS code,
as opposed to one or more other NAICS codes, is a snapshot in time that
is ever changing. The proposed rule would require SBA to notify the
Participant of its intent to change the Participant's primary industry
classification and afford the Participant the opportunity to submit
information explaining why such a change would be inappropriate. Where
the Participant provides information demonstrating that it has received
one or more additional contracts in its primary NAICS code since the
end of its most recently completed fiscal year, and such revenue would
cause the revenue from its primary NAICS code to exceed the revenue
generated from any other NAICS code, SBA would not change the
Participant's primary industry classification. Where the revenue
generated under its primary NAICS code is close to but less than the
revenue generated under another NAICS code, the Participant can
demonstrate that it has made good faith efforts to obtain contracts in
its primary NAICS code. For example, where a Participant details
contract opportunities under its primary NAICS code that it submitted
offers for in the last year, but was not successful in winning, and its
concrete plans to continue to seek additional opportunities in that
NAICS code, SBA may not change the Participant's primary industry
classification. SBA requests comments on whether a change in primary
industry should instead be automatic, based on FPDS data.
8(a) BD Program Suspensions (13 CFR 124.305)
SBA is also proposing to add two additional bases for allowing a
Participant to elect to be suspended from 8(a) BD program
participation: where the Participant's principal office is located in
an area declared a major disaster area or where there is a lapse in
Federal appropriations.
President Obama signed an Executive Order on December 7, 2012
creating the Hurricane Sandy Rebuilding Task Force. The President
charged the Task Force with identifying and working to remove obstacles
to rebuilding while taking into account existing and future risks and
promoting the long-term sustainability of communities. The Final Task
Force Implementation Plan made 69 recommendations to implement an
effective Rebuilding Strategy, including several relating to small
business. In particular, the Task Force recommended authorizing 8(a) BD
program suspensions for Participants located in major disaster areas.
The Task Force specifically recommended that, upon the request of a
certified 8(a) firm in a major declared disaster area, SBA will suspend
the eligibility of the firm for up to a one year period while they
recover from the disaster to ensure they are able to take full
advantage of the 8(a) BD program, rather than being impacted by lack of
capacity or contracting opportunities due to disaster-induced
disruptions. During such a suspension, a Participant would not be
eligible for 8(a) BD Program benefits, including set-asides, however,
but would not ``lose time'' in its program term due to the extenuating
circumstances wrought by a disaster. This rule proposes to implement
that recommendation into SBA's 8(a) BD regulations.
In addition, SBA proposes to allow a firm-initiated suspension
where there is a lapse in Federal appropriations that could adversely
affect a Participant's ability to be awarded one or more 8(a)
contracts. The need for such a suspension was brought to light during
the Government shutdown at the beginning of fiscal year 2014. During
the lapse of federal appropriations at the end of fiscal year 2013,
several Program Participants' term of participation in the 8(a) program
ended, and they were unable to finalize 8(a) contracts because there
was no funding during the shutdown and they were no longer in the 8(a)
BD program (because their term of program participation had ended) by
the time the shutdown ended and appropriations were available.
Therefore, this rule proposes to allow a Participant to elect to
suspend its participation in the 8(a) BD program where: Federal
appropriations for one or more federal departments or agencies have
expired without being extended via continuing resolution or other means
and no new appropriations have been enacted (i.e., during a lapse in
appropriations); SBA has previously accepted an offer for a sole source
8(a) award on behalf of the Participant; and award of the 8(a) sole
source contract is pending. A Participant could not elect a partial
suspension of 8(a) BD program benefits; if it elects to be suspended
during a lapse in Federal appropriations, the Participant would be
ineligible to receive any new 8(a) BD program benefits during the
suspension. For example, if Department X was funded during a partial
Government shutdown but Agency Y was not, a Participant could not elect
to be suspended for purposes of executing 8(a) contracts with Agency Y,
but not be suspended for purposes of executing 8(a) contracts with
Department X. The suspension would start immediately upon the date
requested by a Participant and would last the length of the lapse in
Federal appropriations. However,
[[Page 6627]]
once the Government is fully funded and the suspension is lifted, the
contracts from both Department X and Agency Y could be finalized.
Benefits Reporting Requirement (13 CFR 124.602)
The proposed rule amends the time frame for the reporting of
benefits for entity-owned Participants in the 8(a) BD program. SBA's
current regulations require an entity-owned Participant to report
benefits as part of its annual review submission. See Sec. 124.604.
SBA believes it is more appropriate that this information be submitted
as part of a Participant's submission of its annual financial
statements pursuant to Sec. 124.602. SBA wants to make clear that
benefits reporting should not be tied to continued eligibility, as may
be assumed where such reporting is part of SBA's annual review
analysis. In response to comments to the proposed rule which initially
placed benefits reporting in the continued eligibility section of SBA's
regulations (Sec. 124.112), see 74 FR 55694 (Oct. 28, 2009), SBA moved
the benefits reporting requirement to a new section (Sec. 124.604)
under miscellaneous reporting requirements contained in SBA's 8(a) BD
regulations to evidence SBA's intent that benefits reporting not be
considered a part of continued eligibility. 76 FR 8221 (Feb. 11, 2011).
Although SBA changed the place in the regulations where the benefits
reporting requirement appeared, it still collected that information
with other information relating to a firm's annual review and believed
that a perception could still exist that benefits reporting was,
nevertheless, somehow tied to continued 8(a) BD eligibility. In order
to further clarify SBA's intent and eliminate any doubt that benefits
reporting is not in any way tied to continued 8(a) BD eligibility for
any entity-owned Program Participant, this proposed rule changes the
timing of benefits reporting from the time of a Participant's annual
review submission to the time of a Participant's annual financial
statement submission. In addition, SBA believes that the data collected
by certain Participants in preparing their financial statements
submissions may help them report some of the benefits that flow to the
native or other community. The regulatory change will continue to
require the submission of the data on an annual basis but within 120
days after the close of the concern's fiscal year instead of as part of
the annual submission.
Reverse Auctions (13 CFR 125.2 and 125.5)
SBA is also proposing to amend Sec. Sec. 125.2(a) and 125.5(a)(1)
to address reverse auctions. Specifically, SBA is proposing to
reinforce the principle that all of SBA's regulations, including those
relating to set-asides and referrals for a Certificate of Competency,
apply to reverse auctions. With a reverse auction, the Government is
buying a product or service, but the businesses are bidding against
each other, which tends to drive the price down (hence the name reverse
auction). In a reverse auction, the bidders actually get to see all of
the other bidders' prices and can ``outbid'' them by offering a lower
price. Although SBA believes that the small business rules apply to
reverse auctions, the proposed rule is intended to make it clear to
contracting officials that there are no exceptions to SBA's small
business regulations for reverse auctions. Thus, the ``rule of two,''
which directs whether a small business set-aside is appropriate,
applies equally to reverse auctions as it does to regular procurement
actions.
Processing Applications for HUBZone Certification (13 CFR 126.306)
SBA is proposing to amend Sec. 126.306, which addresses how SBA
processes HUBZone applications. SBA is clarifying that the burden to
prove eligibility is on the small business applying for certification
into the program. Finally, SBA is proposing to amend the regulation to
state that SBA will process the application within 90 days, if
practicable, to more accurately reflect the amount of time it takes to
process a HUBZone application along with all of the documents needed to
verify eligibility and to make that process consistent with the 8(a) BD
application process.
Reconsideration of Decisions of SBA's OHA (13 CFR 134.227)
The proposed rule would add clarifying language to Sec. 134.227(c)
to permit SBA to file a request for reconsideration in an OHA
proceeding in which it has not previously participated. This provision
alters the rule expressed in Size Appeal of Goel Services, Inc. and
Grunley/Goel JVD LLC, SBA No. SIZ-5356 (2012), which held SBA could not
request reconsideration where SBA did not appear as a party in the
original appeal.
Administrative Record in 8(a) Appeals (13 CFR 134.406)
The proposed rule incorporates language from a line of OHA cases
regarding SBA 8(a) decisions and the administrative record. In
reviewing 8(a) cases on appeal, SBA's regulations require the
Administrative Law Judge to review SBA's decision to determine whether
the Agency's determination is arbitrary, capricious, or contrary to
law. As long as the Agency's determination is reasonable, the
Administrative Law Judge must uphold it on appeal. OHA cases have
stated that so long as SBA's path of reasoning may reasonably be
discerned, OHA will uphold a decision of less than ideal clarity. See,
e.g., Matter of Alloy Specialties, Inc., No. SDBA-108 at 6 (1999). The
proposed rule would include this language in the regulatory text of
Sec. 134.406 in order to more fully apprise the public how OHA must
review an 8(a) case on appeal.
Compliance With Executive Orders 12866, 13563, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a significant regulatory action for purposes of
Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. This is not a major rule, however, under
the Congressional Review Act.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
The proposed regulations implement section 1347(b)(3) of the Small
Business Jobs Act of 2010, Public Law 111-240, 124 Stat. 2504, which
authorizes the Agency to establish mentor-prot[eacute]g[eacute]
programs for SDVO SBCs, HUBZone SBCs, and WOSB concerns, modeled on the
Agency's mentor-prot[eacute]g[eacute] program for small business
concerns participating in programs under section 8(a) of the Small
Business Act (15 U.S.C. 637(a)). In addition, the proposed rule
implements section 1641 of the NDAA, Public Law 112-239, which
authorized SBA to establish a mentor-prot[eacute]g[eacute] program for
all small business concerns. SBA is also updating its rules to clarify
areas where small business concerns may have been confused or where
OHA's interpretations of SBA rules do not conform to SBA's
interpretation or intent.
2. What are the alternatives to this rule?
As noted above in the supplementary information, this rule proposes
to implement the Jobs Act and NDAA authorities by creating one new
mentor-prot[eacute]g[eacute] program for which any small
[[Page 6628]]
business could participate instead of implementing four new separate
small business mentor-prot[eacute]g[eacute] programs (i.e., having a
separate mentor-prot[eacute]g[eacute] program for SDVO SBCs, HUBZone
SBCs, WOSB concerns, and all other small business concerns, in addition
to the current mentor-prot[eacute]g[eacute] program for 8(a) BD
Participants). SBA proposed one program for all small businesses
because SBA believed it would be easier for the small business and
acquisition communities to use and understand. The statutory authority
for this rule specifically mandates that the new mentor-
prot[eacute]g[eacute] programs be modeled on the existing mentor-
prot[eacute]g[eacute] program for small business concerns participating
in the 8(a) BD program. Thus, to the extent practicable, SBA attempted
to adopt the regulations governing the 8(a) mentor-
prot[eacute]g[eacute] program in establishing the mentor-
prot[eacute]g[eacute] program for SBCs.
3. What are the potential benefits and costs of this regulatory action?
The proposed regulatory action would enhance the ability of small
business concerns to obtain larger prime contracts that would be
normally out of the reach of these businesses. The proposed small
business mentor-prot[eacute]g[eacute] program would allow all small
businesses to tap into the expertise and capital of larger firms, which
in turn would help small business concerns become more knowledgeable,
stable, and competitive in the Federal procurement arena.
SBA estimates that under the proposed rule, approximately 2,000
SBCs, could become active in the proposed mentor-prot[eacute]g[eacute]
program, and prot[eacute]g[eacute] firms may obtain Federal contracts
totaling possibly $2 billion per year. SBA notes that these estimates
represent an extrapolation from data on the percentage of 8(a) BD
program participants with signed mentor-prot[eacute]g[eacute]
agreements and joint venture agreements, and are based on the dollars
awarded to SBCs in FY 2012 according to data retrieved from the Federal
Procurement Data System--Next Generation (FPDS-NG). With SBCs able to
compete for larger contracts and thus a greater number of contracts in
general, Federal agencies may choose to set aside more contracts for
competition among small businesses, SDVO SBCs, HUBZone SBCs, and WOSB
concerns, rather than using full and open competition. The movement
from unrestricted to set-aside contracting might result in competition
among fewer total bidders, although there will be more small businesses
eligible to submit offers. The added competition for many of these
procurements could result in lower prices to the Government for
procurements reserved for SBCs, HUBZone SBCs, WOSB concerns, and SDVO
SBCs, although SBA cannot quantify this benefit. To the extent that
more than two thousand SBCs could become active in the proposed mentor-
prot[eacute]g[eacute] program, this might entail some additional
administrative costs to the Federal Government associated with
additional bidders for Federal small business procurement
opportunities.
The proposed mentor-prot[eacute]g[eacute] program may have some
distributional effects among large and small businesses. Although SBA
cannot estimate with certainty the actual outcome of the gains and
losses among small and large businesses, it can identify several
probable impacts. There may be a transfer of some Federal contracts
from large businesses to SBC prot[eacute]g[eacute]s. Large businesses
may have fewer Federal prime contract opportunities as Federal agencies
decide to set aside more Federal contracts for SBCs, SDVO SBCs, HUBZone
SBCs, and WOSB concerns. In addition, some Federal contracts may be
awarded to HUBZone prot[eacute]g[eacute]s instead of large businesses
since these firms may be eligible for an evaluation adjustment for
contracts when they compete on a full and open basis. This transfer may
be offset by a greater number of contracts being set aside for small
businesses, SDVO SBCs, HUBZone SBCs, and WOSB concerns. SBA cannot
estimate the potential distributional impacts of these transfers with
any degree of precision.
The proposed mentor-prot[eacute]g[eacute] program is consistent
with SBA's statutory mandate to assist small businesses, and this
regulatory action promotes the Administration's objectives. One of
SBA's goals in support of the Administration's objectives is to help
individual small businesses, including SDVO SBCs, HUBZone SBCs, and
WOSB concerns, succeed through fair and equitable access to capital and
credit, Federal contracts, and management and technical assistance.
Executive Order 13563
A description of the need for this regulatory action and the
benefits and costs associated with this action, including possible
distributional impacts that relate to Executive Order 13563, is
included above in the Regulatory Impact Analysis under
Executive Order 12866
In an effort to engage interested parties in this action, SBA met
with representatives from various agencies to obtain their feedback on
SBA's proposed mentor-prot[eacute]g[eacute] program. For example, SBA
participated in a government-wide meeting involving Office of Small and
Disadvantaged Business Utilization (OSDBU) representatives responsible
for mentor-prot[eacute]g[eacute] programs in their respective agencies.
It was generally agreed upon that SBA's proposed mentor-
prot[eacute]g[eacute] program would complement the already existing
Federal programs due in part to the differing incentives offered to the
mentors under the various programs. SBA also presented proposed small
business mentor-prot[eacute]g[eacute] programs to businesses in
thirteen cities in the U.S. and sought their input as part of the Jobs
Act tours. In developing this proposed rule, SBA considered all input,
suggestions, recommendations, and relevant information obtained from
industry groups, individual businesses, and Federal agencies.
Executive Order 12988
For purposes of Executive Order 12988, SBA has drafted this
proposed rule, to the extent practicable, in accordance with the
standards set forth in sections 3(a) and 3(b)(2) of that Executive
Order, to minimize litigation, eliminate ambiguity, and reduce burden.
This rule has no preemptive or retroactive effect.
Executive Order 13132
For the purpose of Executive Order 13132, SBA has determined that
this proposed rule will not have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, SBA has determined that this
proposed rule has no federalism implications warranting preparation of
a federalism assessment.
Paperwork Reduction Act
For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35,
SBA has determined that this proposed rule would impose new reporting
requirements. These proposed collections of information include the
following: (1) Information necessary for SBA to evaluate the success of
a mentor-prot[eacute]g[eacute] relationship; (2) information necessary
for SBA to determine whether a prospective mentor possesses a good
financial condition (i.e., whether the mentor is capable of carrying
out its responsibilities to assist the prot[eacute]g[eacute] firm under
the proposed mentor-prot[eacute]g[eacute] agreement); (3) information
necessary for SBA to evaluate compliance with
[[Page 6629]]
performance of work requirements; and (4) information detailing the
proposed relationship between the mentor and prot[eacute]g[eacute].
Finally, the proposed rule also amends an existing information
collection (SBA Form 1450, 8(a) Annual Update--OMB Control Number 3245-
0205) by making a minor change to the benefits reporting schedule from
the time of an 8(a) Participant's annual review submission to when the
Participant submits its financial statement as required by Sec.
124.602; specifically, within 120 days after the close of the
Participant's fiscal year. There are no substantive changes to the
information to be submitted.
The title, summary of each information collection, description of
respondents, and an estimate of the reporting burden are discussed
below. Included in the estimate is the time for reviewing instructions,
searching existing data needed, and completing and reviewing each
collection of information.
1. Title and Description: Mentor-prot[eacute]g[eacute] annual
report [Form number to be determined]. Prot[eacute]g[eacute]s
participating in the proposed small business mentor-
prot[eacute]g[eacute] program would be required to submit to SBA annual
reports on their mentor-prot[eacute]g[eacute] relationships. The
information to be included in these annual reports is the same type of
information that is currently required of prot[eacute]g[eacute]s
participating in SBA's 8(a) Business Development program, and as such
would be modeled on the mentor-prot[eacute]g[eacute] annual reporting
requirements in Attachment B of SBA Form 1450 (OMB Control Number 3245-
0205). Such information includes identification of the technical,
management and/or financial assistance provided by mentors to
prot[eacute]g[eacute]s; and a description of how that assistance has
impacted the development of the prot[eacute]g[eacute]s.
Need and Purpose: This information collection is necessary for SBA
to, among other things, evaluate whether and to what extent the
prot[eacute]g[eacute]s are benefiting from the relationship and
determine whether to approve the continuation of the mentor-
prot[eacute]g[eacute] agreement or take other actions as necessary to
protect against fraud, waste, or abuse in SBA's mentor-
prot[eacute]g[eacute] programs.
OMB Control Number: New Collection.
Description of and Estimated Number of Respondents: This
information will be collected from small business
prot[eacute]g[eacute]s pursuant to proposed Sec. 125.9(g). SBA
estimates this number to be 2,000.
Estimated Response Time: 2 hours.
Total Estimated Annual Hour Burden: 4,000.
2. Title and Description: Mentor financial information [Form number
to be determined]. The proposed rule requires concerns seeking to
benefit from the proposed small business mentor-prot[eacute]g[eacute]
program as mentors to submit to SBA information to demonstrate that
they possess a good financial condition, including either copies of
Federal tax returns or audited financial statements, or, if applicable,
filings required by the Securities and Exchange Commission.
Need and Purpose: The information requested is necessary for SBA to
determine whether prospective mentors are in good financial condition
and capable of providing assistance to prot[eacute]g[eacute]s and
enhance their ability to successfully compete for Federal contracts.
SBA believes that any additional burden imposed by this requirement
would be minimal since the firms would maintain the information in
their general course of business.
OMB Control Number: New Collection.
Description of and Estimated Number of Respondents: Pursuant to
proposed Sec. 125.9(b)(2), this information will be collected from
concerns seeking to benefit as mentors from SBA's mentor-
prot[eacute]g[eacute] programs under proposed Sec. 125.9. SBA
estimates this number to be 600.
Estimated Response Time: 1 hour.
Total Estimated Annual Hour Burden: 600.
3. Title and Description: Joint venture performance of work report
[Form number to be determined]. The proposed rule imposes a requirement
on SBC joint venture partners to submit to SBA annually performance of
work reports demonstrating their compliance with performance of work
requirements. SBA requests comments addressing possible formats with
which the information should be transmitted to SBA.
Need and Purpose: This requirement will greatly enhance SBA's
ability to monitor compliance with performance of work requirements in
its effort to reduce fraud, waste, and abuse. SBA believes that any
additional burden imposed by this recordkeeping requirement would be
minimal because firms are already required to track their compliance
with the performance of work requirements.
OMB Control Number: New Collection.
Description and Estimated Number of Respondents: This information
will be collected from SBC, SDVO SBC, HUBZone SBC, and WOSB joint
venture partners under proposed Sec. 125.8(h), Sec. 125.18(b),
proposed Sec. 126.616(i), and proposed Sec. 127.506(j). SBA estimates
this number to be 2,000.
Estimated Response Time: 1 hour.
Total Estimated Annual Hour Burden: 2,000.
4. Title and Description: Mentor-prot[eacute]g[eacute] agreement
[no SBA form number]. As proposed, the agreement between a mentor and
prot[eacute]g[eacute] would include an assessment of the
prot[eacute]g[eacute]'s needs and goals; a description of the how the
mentor intends to assist prot[eacute]g[eacute] in meeting its goals;
and the timeline for delivery of such assistance.
Need and Purpose: The agreement must be submitted to SBA for review
and approval, to help the Agency to determine whether the proposed
assistance would enhance the development of the prot[eacute]g[eacute]
and not merely further the interest of the mentor. The information
would also be beneficial to SBA's efforts to reduce fraud, waste, and
abuse in federal contracting programs.
OMB Control Number: New Collection.
Description and Estimated Number of Respondents: This information
will be collected from small business prot[eacute]g[eacute]s pursuant
to proposed Sec. 125.9(e). SBA estimates this number to be 2,000.
Estimated Response Time: 1 hour.
Total Estimated Annual Hour Burden: 2,000.
SBA requests comments on how these requirements could best be
implemented without imposing an undue burden on firms that wish to
participate in SBA's small business mentor-prot[eacute]g[eacute]
program. In addition, SBA invites comments on: (1) Whether the proposed
collection of information is necessary for the proper performance of
SBA's functions, including whether the information will have a
practical utility; (2) the accuracy of SBA's estimate of the burden of
the proposed collection of information, including the validity of the
methodology and assumptions used; (3) ways to enhance the quality,
utility, and clarity of the information to be collected; and (4) ways
to minimize the burden of the collection of information on respondents,
including through the use of automated collection techniques, when
appropriate, and other forms of information technology.
Regulatory Flexibility Act 5 U.S.C., 601-612
Under the Regulatory Flexibility Act (RFA), this proposed rule may
have a significant impact on a substantial
[[Page 6630]]
number of small businesses. Immediately below, SBA sets forth an
initial regulatory flexibility analysis (IRFA) addressing the impact of
the proposed rule in accordance with section 603, Title 5, of the
United States Code. The IRFA examines the objectives and legal basis
for this proposed rule; the kind and number of small entities that may
be affected; the projected recordkeeping, reporting, and other
requirements; whether there are any Federal rules that may duplicate,
overlap, or conflict with this proposed rule; and whether there are any
significant alternatives to this proposed rule.
1. What are the need for and objective of the rule?
This proposed regulatory action would implement section 1347(b)(3)
of the Small Business Jobs Act of 2010, Public Law 111-240, and section
1641 of the National Defense Authorization Act for Fiscal Year 2013
(NDAA), Public Law 112-239. As discussed above, the Small Business Jobs
Act tasked the Agency with establishing mentor-prot[eacute]g[eacute]
programs for SDVO SBCs, HUBZone SBCs, and WOSB concerns, modeled on the
Agency's mentor-prot[eacute]g[eacute] program for small business
concerns participating in programs under section 8(a) of the Small
Business Act (13 U.S.C. 637(a)), commonly known as the 8(a) Business
Development program. Similarly, section 1641 of NDAA authorized SBA to
establish a mentor-prot[eacute]g[eacute] program for all small business
concerns that is identical to the 8(a) BD mentor-prot[eacute]g[eacute]
program, except that SBA may modify the program to the extent necessary
given the types of small business concerns included as
prot[eacute]g[eacute]s.
2. What are SBA's description and estimate of the number of small
entities to which the rule will apply?
If the proposed rule is adopted in its present form, the rule would
be applicable to all small business concerns participating in the
Federal procurement market that seek to form mentor/
prot[eacute]g[eacute] relationships. SBA estimates this number to be
between twenty and thirty thousand, which represents between five and
nine percent of total firms in the small business community, based on
the number of small business concerns listed in the Dynamic Small
Business Search database.
3. What are the projected reporting, recordkeeping, and other
compliance requirements of the rule and an estimate of the classes of
small entities which will be subject to the requirements?
The proposed rule imposes the following reporting and recordkeeping
requirements: (1) Information necessary for SBA to evaluate the success
of a mentor-prot[eacute]g[eacute] relationship; (2) information
necessary for SBA to determine whether a prospective mentor possesses a
good financial condition; and (3) information necessary for SBA to
evaluate compliance with performance of work requirements. SDVO SBC,
HUBZone SBC, and WOSB joint venture partners would be required to
submit to SBA performance of work reports demonstrating their
compliance with performance of work requirements. SBA estimates this
number to be approximately 2,000.
The Paperwork Reduction Act requirements are addressed further
above. SBA welcomes any comments on the requirements described.
4. What are the relevant Federal rules which may duplicate, overlap or
conflict with the rule?
Thirteen Federal agencies, including SBA, currently offer mentor-
prot[eacute]g[eacute] programs aimed at assisting small businesses to
gain the technical and business skills necessary to successfully
compete in the Federal procurement market. While the mentor-
prot[eacute]g[eacute] programs offered by other agencies share SBA's
goal of increasing the participation of small businesses in Government
contracts, the other Federal mentor-prot[eacute]g[eacute] programs are
structured differently than SBA's proposed mentor-prot[eacute]g[eacute]
programs, particularly in terms of the incentives offered to mentors.
For example, some agencies offer additional points to a bidder who has
a signed mentor-prot[eacute]g[eacute] agreement in place, while other
agencies offer the benefit of reimbursing mentors for certain costs
associated with prot[eacute]g[eacute]s' business development. SBA, as
the agency authorized to determine small business size status, is
uniquely qualified to offer mentor-prot[eacute]g[eacute] program
participants the distinctive benefit of an exclusion from affiliation.
Thus, SBA believes that the small business mentor-prot[eacute]g[eacute]
program proposed by this rule would complement rather than duplicate,
overlap or conflict with the existing Federal mentor-
prot[eacute]g[eacute] programs by offering to small businesses an
additional and unique avenue through which to enhance their Federal
procurement capabilities.
5. What alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
Section 1347(b)(3) of the Jobs Act authorizes SBA to establish
mentor-prot[eacute]g[eacute] programs for SDVO SBCs, HUBZone SBCs, and
WOSB concerns, modeled on the Agency's mentor-prot[eacute]g[eacute]
program for small business concerns participating in the 8(a) BD
program. Section 1641 of the NDAA authorized SBA to establish a mentor-
prot[eacute]g[eacute] program for all small business concerns. An
alternative to implementing one small business mentor-
prot[eacute]g[eacute] program would be to implement the various mentor-
prot[eacute]g[eacute] programs separately in each of the specific
substantive area regulations (i.e., SDVO, HUBZone, WOSB, 8(a), and
small business).
List of Subjects
13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Individuals with disabilities, Loan programs--
business, Reporting and recordkeeping requirements, Small businesses.
13 CFR Part 124
Administrative practice and procedures, Government procurement,
Hawaiian natives, Indians--business and finance, Minority businesses,
Reporting and recordkeeping requirements, Tribally-owned concerns,
Technical assistance.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Penalties, Reporting and recordkeeping requirements, Small businesses.
13 CFR Part 127
Government procurement, Reporting and recordkeeping requirements,
Small businesses.
13 CFR Part 134
Administrative practice and procedure, Organization and functions
(Government agencies).
For the reasons set forth in the preamble, SBA proposes to amend 13
CFR parts 121, 124, 125, 126, 127, and 134 as follows:
[[Page 6631]]
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for 13 CFR part 121 continues to read as
follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 662, and 694a(9).
0
2. Amend Sec. 121.103 by revising paragraphs (b)(2)(ii), (b)(6), the
last two sentences of the introductory text of paragraph (h), and
paragraph (h)(3)(ii) to read as follows.
Sec. 121.103 How does SBA determine affiliation?
* * * * *
(b) * * *
(2) * * *
(ii) Business concerns owned and controlled by Indian Tribes, ANCs,
NHOs, CDCs, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or
CDCs are not considered to be affiliated with other concerns owned by
these entities because of their common ownership or common management.
In addition, affiliation will not be found based upon the performance
of common administrative services so long as adequate payment is
provided for those services. Affiliation may be found for other
reasons.
(A) Common administrative services which are subject to the
exception to affiliation include, bookkeeping, payroll, recruiting,
other human resource support, cleaning services, and other duties which
are otherwise unrelated to contract performance or management and can
be reasonably pooled or otherwise performed by a holding company or
parent entity without interfering with the control of the subject firm.
(B) Contract administration services include both services that
could be considered ``common administrative services'' under the
exception to affiliation and those that could not.
(1) Contract administration services that encompass actual and
direct day-to-day oversight and control of the performance of a
contract/project are not shared common administrative services, and
would include tasks or functions such as negotiating directly with the
government agency regarding proposal terms, contract terms, scope and
modifications, project scheduling, hiring and firing of employees, and
overall responsibility for the day-to-day and overall project and
contract completion.
(2) Contract administration services that are administrative in
nature may constitute administrative services that can be shared, and
would fall within the exception to affiliation. These administrative
services include tasks such as record retention not related to a
specific contract (e.g., employee time and attendance records),
maintenance of databases for awarded contracts, monitoring for
regulatory compliance, template development, and assisting accounting
with invoice preparation as needed.
(C) Business development may include both services that could be
considered ``common administrative services'' under the exception to
affiliation and those that could not. Efforts at the holding company or
parent level to identify possible procurement opportunities for
specific subsidiary companies may properly be considered ``common
administrative services'' under the exception to affiliation. However,
at some point the opportunity identified by the holding company's or
parent entity's business development efforts becomes concrete enough to
assign to a subsidiary and at that point the subsidiary must be
involved in the business development efforts for such opportunity. At
the proposal or bid preparation stage of business development, the
appropriate subsidiary company for the opportunity has been identified
and a representative of that company must be involved in preparing an
appropriate offer. This does not mean to imply that one or more
representatives of a holding company or parent entity cannot also be
involved in preparing an offer. They may be involved in assisting with
preparing the generic part of an offer, but the specific subsidiary
that intends to ultimately perform the contract must control the
technical and contract specific portions of preparing an offer. In
addition, once award is made, employee assignments and the logistics
for contract performance must be controlled by the specific subsidiary
company and should not be performed at a holding company or parent
entity level.
* * * * *
(6) A firm that has an SBA-approved mentor-prot[eacute]g[eacute]
agreement authorized under Sec. 124.520 or Sec. 125.9 of this chapter
is not affiliated with its mentor firm solely because the
prot[eacute]g[eacute] firm receives assistance from the mentor under
the agreement. Similarly, a prot[eacute]g[eacute] firm is not
affiliated with its mentor solely because the prot[eacute]g[eacute]
firm receives assistance from the mentor under a federal mentor-
prot[eacute]g[eacute] program where an exception to affiliation is
specifically authorized by statute or by SBA under the procedures set
forth in Sec. 121.903. Affiliation may be found in either case for
other reasons as set forth in this section.
* * * * *
(h) * * * For purposes of this provision and in order to facilitate
tracking of the number of contract awards made to a joint venture, a
joint venture: must be in writing and must do business under its own
name; may be in the form of a formal or informal partnership or exist
as a separate limited liability company or other separate legal entity;
and, if it exists as a formal separate legal entity, may not be
populated with individuals intended to perform contracts awarded to the
joint venture (i.e., the joint venture may have its own separate
employees to perform administrative functions, but may not have its own
separate employees to perform contracts awarded to the joint venture).
SBA may also determine that the relationship between a prime contractor
and its subcontractor is a joint venture, and that affiliation between
the two exists, pursuant to paragraph (h)(5) of this section.
* * * * *
(3) * * *
(ii) Two firms approved by SBA to be a mentor and
prot[eacute]g[eacute] under Sec. 125.9 of this chapter may joint
venture as a small business for any Federal government prime contract
or subcontract, provided the prot[eacute]g[eacute] qualifies as small
for the size standard corresponding to the NAICS code assigned to the
procurement, and the joint venture meets the requirements of Sec.
125.18(b)(2) and (3), Sec. 126.616(c) and (d), or Sec. 127.506(c) and
(d) of this chapter, as appropriate.
* * * * *
Sec. 121.406 [Amended]
0
3. Amend Sec. 121.406(b)(5) introductory text by removing the phrase
``paragraph (b)(1)(iii)'' and adding in its place the phrase
``paragraph (b)(1)(iv).''
0
4. Amend Sec. 121.1001 by redesignating paragraph (b)(10) as paragraph
(b)(11) and by adding a new paragraph (b)(10) to read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal
size determination?
* * * * *
(b) * * *
(10) A firm seeking to establish a mentor-prot[eacute]g[eacute]
relationship pursuant to Sec. 125.9 of this chapter (based on its
status as a small business for its primary NAICS code) may request a
formal size determination in order to verify its eligibility as a
prot[eacute]g[eacute] firm.
* * * * *
[[Page 6632]]
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
0
5. The authority citation for part 124 continues to read as follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), and 637(d);
Pub. L. 99-661; Pub. L. 100-656, sec. 1207; Pub. L. 101-37; Pub. L.
101-574, section 8021; Pub. L. 108-87; and 42 U.S.C. 9815.
0
6. Amend Sec. 124.103 as follows:
0
a. Add a sentence at the end of paragraph (c)(1);
0
b. Revise paragraph (c)(2)(ii);
0
c. Redesignate paragraph (c)(2)(iii) as (c)(2)(iv);
0
d. Add a new paragraph (c)(2)(iii);
0
e. Revise the introductory text of newly redesignated paragraph
(c)(2)(iv); and
0
d. Add paragraphs (c)(3) through (6).
The additions and revisions read as follows:
Sec. 124.103 Who is socially disadvantaged?
* * * * *
(c) * * * (1) * * * Such individual should present corroborating
evidence to support his or her claim(s) of social disadvantage where
readily available.
(2) * * *
(ii) The individual's social disadvantage must be rooted in
treatment which he or she has experienced in American society, not in
other countries;
(iii) The individual's social disadvantage must be chronic and
substantial, not fleeting or insignificant; and
(iv) The individual's social disadvantage must have negatively
impacted on his or her entry into or advancement in the business world.
SBA will consider any relevant evidence in assessing this element,
including experiences relating to education, employment and business
history (including experiences relating to both the applicant firm and
any other previous firm owned and/or controlled by the individual),
where applicable.
* * * * *
(3) An individual claiming social disadvantage must present facts
and evidence that by themselves establish that the individual has
suffered social disadvantage that has negatively impacted his or her
entry into or advancement in the business world.
(i) Each instance of alleged discriminatory conduct must be
accompanied by a negative impact on the individual's entry into or
advancement in the business world in order for it to constitute an
instance of social disadvantage.
(ii) SBA may disregard a claim of social disadvantage where a
legitimate alternative ground for an adverse employment action or other
perceived adverse action exists and the individual has not presented
evidence that would render his/her claim any more likely than the
alternative ground.
Example 1 to paragraph (c)(3)(ii). A woman who is not a member
of a designated group attempts to establish her individual social
disadvantage based on gender. She certifies that while working for
company X, she received less compensation than her male counterpart.
Without additional facts, that claim is insufficient to establish an
incident of gender bias that could lead to a finding of social
disadvantage. Without additional facts, it is no more likely that
the individual claiming disadvantage was paid less than her male
counterpart because he had superior qualifications or because he had
greater responsibilities in his employment position. She must
identify her qualifications (education, experience, years of
employment, supervisory functions) as being equal or superior to
that of her male counterpart in order for SBA to consider that
particular incident may be the result of discriminatory conduct.
Example 2 to paragraph (c)(3)(ii). A woman who is not a member
of a designated group attempts to establish her individual social
disadvantage based on gender. She certifies that while working for
company Y, she was not permitted to attend a professional
development conference, even though male employees were allowed to
attend similar conferences in the past. Without additional facts,
that claim is insufficient to establish an incident of gender bias
that could lead to a finding of social disadvantage. It is no more
likely that she was not permitted to attend the conference based on
gender bias than based on non-discriminatory reasons. She must
identify that she was in the same professional position and level as
the male employees who were permitted to attend similar conferences
in the past, and she must identify that funding for training or
professional development was available at the time she requested to
attend the conference.
(iii) SBA may disregard a claim of social disadvantage where an
individual presents evidence of discriminatory conduct, but fails to
connect the discriminatory conduct to consequences that negatively
impact his or her entry into or advancement in the business world.
Example to paragraph (c)(3)(iii). A woman who is not a member
of a designated group attempts to establish her individual social
disadvantage based on gender. She provides instances where one or
more male business clients utter derogatory statements about her
because she is a woman. After each instance, however, she
acknowledges that the clients gave her contracts or otherwise
continued to do business with her. Despite suffering discriminatory
conduct, this individual has not established social disadvantage
because the discriminatory conduct did not have an adverse effect on
her business.
(4) SBA may request an applicant to provide additional facts to
support his or her claim of social disadvantage to substantiate that a
negative outcome was based on discriminatory conduct instead of one or
more legitimate non-discriminatory reasons.
(5) SBA will discount or disbelieve statements made by an
individual seeking to establish his or her individual social
disadvantage where such statements are inconsistent with other evidence
contained in the record.
(6) In determining whether an individual claiming social
disadvantage meets the requirements set forth in paragraph (c) of this
section, SBA will determine whether:
(i) Each specific claim establishes an incident of bias or
discriminatory conduct;
(ii) Each incident of bias or discriminatory conduct negatively
impacted the individual's entry into or advancement in the business
world; and
(iii) In the totality, the incidents of bias or discriminatory
conduct that negatively impacted the individual's entry into or
advancement in the business world establish chronic and substantial
social disadvantage.
* * * * *
0
7. Amend Sec. 124.105 by revising the introductory text of paragraph
(h)(2) to read as follows:
Sec. 124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
* * * * *
(h) * * *
(2) A non-Participant concern in the same or similar line of
business or a principal of such concern may not own more than a 10
percent interest in a Participant that is in the developmental stage or
more than a 20 percent interest in a Participant in the transitional
stage of the program, except that a former Participant in the same or
similar line of business or a principal of such a former Participant
(except those that have been terminated from 8(a) BD program
participation pursuant to Sec. Sec. 124.303 and 124.304) may have an
equity ownership interest of up to 20 percent in a current Participant
in the developmental stage of the program or up to 30 percent in a
transitional stage Participant.
* * * * *
Sec. 124.108 [Amended]
0
8. Amend Sec. 124.108 by removing ``10 percent'' in paragraph (a)(4)
and adding in its place ``20 percent.''
[[Page 6633]]
0
9. Amend Sec. 124.109 by adding paragraphs (c)(2)(iv) and (c)(4)(iii)
to read as follows:
Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any
special rules for applying to the 8(a) BD program?
* * * * *
(c) * * *
(2) * * *
(iv) In determining whether a tribally-owned concern has obtained,
or is likely to obtain, a substantial unfair competitive advantage
within an industry category, SBA will examine the firm's participation
in the relevant six digit NAICS code nationally as compared to the
overall small business share of that industry.
(A) SBA will consider the firm's percentage share of the national
market and other relevant factors to determine whether the firm is
dominant in a specific six-digit NAICS code with a particular size
standard.
(B) SBA does not contemplate a finding of affiliation where a
tribally-owned concern appears to have obtained an unfair competitive
advantage in a local market, but remains competitive, but not dominant,
on a national basis.
* * * * *
(4) * * *
(iii) The individuals responsible for the management and daily
operations of a tribally-owned concern cannot manage more than two
Program Participants at the same time.
(A) An individual's officer position, membership on the board of
directors or position as a tribal leader does not necessarily imply
that the individual is responsible for the management and daily
operations of a given concern. SBA looks beyond these corporate
formalities and examines the totality of the information submitted by
the applicant to determine which individual(s) manage the actual day-
to-day operations of the applicant concern.
(B) Officers, board members, and/or tribal leaders may control a
holding company overseeing several tribally-owned or ANC-owned
companies, provided they do not actually control the day-to-day
management of more than two current 8(a) BD Program Participant firms.
* * * * *
0
10. Amend Sec. 124.110 as follows:
0
a. Add a sentence to the end of the introductory text of paragraph (b);
0
b. Add paragraphs (b)(1) and (2);
0
c. Revise paragraph (d);
0
d. Redesignate paragraph (g) as paragraph (h); and
0
e. Add a new paragraph (g).
The additions and revisions read as follows:
Sec. 124.110 Do Native Hawaiian Organizations have any special rules
for applying to the 8(a) BD program?
* * * * *
(b) * * * In determining whether an NHO-owned concern has obtained,
or is likely to obtain, a substantial unfair competitive advantage
within an industry category, SBA will examine the firm's participation
in the relevant six digit NAICS code nationally.
(1) SBA will consider the firm's percentage share of the national
market and other relevant factors to determine whether the firm is
dominant in a specific six-digit NAICS code with a particular size
standard.
(2) SBA does not contemplate a finding of affiliation where an NHO-
owned concern appears to have obtained an unfair competitive advantage
in a local market, but remains competitive, but not dominant, on a
national basis.
* * * * *
(d) An NHO must control the applicant or Participant firm. To
establish that it is controlled by an NHO, an applicant or Participant
must demonstrate that the NHO controls its board of directors, managing
members, managers or managing partners.
(1) The NHO need not possess the technical expertise necessary to
run the NHO-owned applicant or Participant firm. The NHO must have
managerial experience of the extent and complexity needed to run the
concern. Management experience need not be related to the same or
similar industry as the primary industry classification of the
applicant or Participant.
(2) An individual responsible for the day-to-day management of an
NHO-owned firm need not establish personal social and economic
disadvantage.
* * * * *
(g) An NHO-owned firm's eligibility for 8(a) BD participation is
separate and distinct from the individual eligibility of the NHO's
members, directors, or managers.
(1) The eligibility of an NHO-owned concern is not affected by the
former 8(a) BD participation of one or more of the NHO's individual
members.
(2) In determining whether an NHO is economically disadvantaged,
SBA may consider the individual economic status of an NHO member or
director even if the member or director previously used his or her
disadvantaged status to qualify an individually owned 8(a) applicant or
Participant.
* * * * *
0
11. Amend Sec. 124.111 by adding a sentence to the end of the
introductory text of paragraph (c), and by adding paragraphs (c)(1) and
(2) to read as follows:
Sec. 124.111 Do Community Development Corporations (CDCs) have any
special rules for applying to the 8(a) BD program?
* * * * *
(c) * * * In determining whether a CDC-owned concern has obtained,
or is likely to obtain, a substantial unfair competitive advantage
within an industry category, SBA will examine the firm's participation
in the relevant six digit NAICS code nationally.
(1) SBA will consider the firm's percentage share of the national
market and other relevant factors to determine whether the firm is
dominant in a specific six-digit NAICS code with a particular size
standard.
(2) SBA does not contemplate a finding of affiliation where a CDC-
owned concern appears to have obtained an unfair competitive advantage
in a local market, but remains competitive, but not dominant, on a
national basis.
* * * * *
0
12. Amend Sec. 124.112 by designating the text of paragraph (e) as
paragraph (e)(1), and adding paragraph (e)(2) to read as follows:
Sec. 124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
* * * * *
(e) Change in primary industry classification. (1) * * *
(2) SBA may change the primary industry classification contained in
a Participant's business plan where the greatest portion of the
Participant's total revenues during a three-year period have evolved
from one NAICS code to another. As part of its annual review, SBA will
consider whether the primary NAICS code contained in a Participant's
business plan continues to be appropriate.
(i) Where SBA believes that the primary industry classification
contained in a Participant's business plan does not match the
Participant's actual revenues over the Participant's most recently
completed three fiscal years, SBA may notify the Participant of its
intent to change the Participant's primary industry classification.
(ii) A Participant may challenge SBA's intent to change its primary
industry classification by demonstrating why it believes the primary
industry classification contained in its business plan continues to be
appropriate, despite an increase in revenues in a secondary NAICS code
beyond those
[[Page 6634]]
received in its designated primary industry classification.
* * * * *
0
13. Amend Sec. 124.305 by removing the ``.'' at the end of paragraph
(h)(1)(ii) and adding in its place ``; or'', adding paragraphs
(h)(1)(iii) and (h)(1)(iv), designating paragraph (h)(5) as (h)(6) and
adding a new paragraph (h)(5) to read as follows:
Sec. 124.305 What is suspension and how is a Participant suspended
from the 8(a) BD program?
* * * * *
(h)(1) * * *
(iii) A Participant has a principal place of business located in a
Federally declared disaster area and elects to suspend its
participation in the 8(a) BD program for a period of up to one-year
from the date of the disaster declaration to allow the firm to recover
from the disaster and take full advantage of the program. A Participant
that elects to be suspended may request that the suspension be lifted
prior to the end date of the original request; or
(iv) Federal appropriations for one or more federal departments or
agencies have lapsed, SBA has previously accepted an offer for a sole
source 8(a) award on behalf of the Participant, award is pending, and
the Participant elects to suspend its participation in the 8(a) BD
program during the lapse in federal appropriations.
* * * * *
(5) Where a Participant is suspended pursuant to (h)(1)(iv) of this
section, the Participant must notify SBA when the lapse in
appropriation ends so that SBA can immediately lift the suspension.
When the suspension is lift, the length of the suspension will be added
to the concern's program term.
* * * * *
0
14. Amend Sec. 124.501 by revising the first sentence of paragraph (a)
and by adding two sentences to the end of paragraph (b) to read as
follows:
Sec. 124.501 What general provisions apply to the award of 8(a)
contracts?
(a) Pursuant to section 8(a) of the Small Business Act, SBA is
authorized to enter into all types of contracts with other Federal
agencies regardless of the place of performance, including contracts to
furnish equipment, supplies, services, leased real property, or
materials to them or to perform construction work for them, and to
contract the performance of these contracts to qualified Participants.
* * *
(b) * * * In addition, for multiple award contracts not set-aside
for the 8(a) BD program, a procuring agency may set-aside specific
orders to be competed only among eligible 8(a) Participants, regardless
of the place of performance. Such an order may be awarded as an 8(a)
award where the order was offered to and accepted by SBA as an 8(a)
award and the order specifies that the performance of work and/or non-
manufacturer rule requirements apply as appropriate.
* * * * *
0
15. Amend Sec. 124.513 as follows:
0
a. Add paragraph (b)(4);
0
b. Revise paragraphs (c)(2), (d) and (e)(1);
0
c. Add paragraphs (e)(2)(iii) and (e)(3);
0
d. Redesignate paragraphs (f), (g), (h) and (i) as paragraphs (g), (h),
(i) and (k), respectively;
0
e. Add new paragraph (f);
0
f. Revise newly redesignated paragraphs (g) and (i); and
0
g. Add paragraph (j) and (l).
The additions and revisions read as follows:
Sec. 124.513 Under what circumstances can a joint venture be awarded
an 8(a) contract?
* * * * *
(b) * * *
(4) SBA approval of a joint venture agreement pursuant to paragraph
(e) of this section does not equate to a formal size determination. As
such, despite SBA's approval of a joint venture, the size status of a
joint venture that is the apparent successful offeror for a competitive
8(a) contract may be protested pursuant to Sec. 121.1001(a)(2) of this
chapter. See Sec. 124.517(b).
(c) * * *
(2) Designating an 8(a) Participant as the managing venturer of the
joint venture and an employee of an 8(a) Participant as the project
manager responsible for performance of the contract.
* * * * *
(d) Performance of work. (1) For any 8(a) contract, including those
between a prot[eacute]g[eacute] and a mentor authorized by Sec.
124.520, the joint venture must perform the applicable percentage of
work required by Sec. 124.510 of this chapter.
(2) The 8(a) partner(s) to the joint venture must perform at least
40% of the work performed by the joint venture.
(i) The work performed by the 8(a) partner(s) to a joint venture
must be more than administrative or ministerial functions so that the
8(a) partners gain substantive experience.
(ii) The amount of work done by the partners will be aggregated and
the work done by the 8(a) partner(s) must be at least 40% of the total
done by all partners. In determining the amount of work done by a non-
8(a) partner, all work done by the non-8(a) partner and any of its
affiliates at any subcontracting tier will be counted.
(e) * * * (1) SBA must approve a joint venture agreement prior to
the award of an 8(a) contract on behalf of the joint venture. A
Participant may submit a joint venture agreement to SBA for approval at
any time, whether or not in connection with a specific 8(a)
procurement.
(2) * * *
(iii) If a second or third contract to be awarded a joint venture
is not an 8(a) contract, the Participant would not have to submit an
addendum setting forth contract performance for the non-8(a)
contract(s) to SBA for approval.
(3) Where a joint venture has been established and approved by SBA
without a corresponding specific 8(a) contract award (including where a
joint venture is established in connection with a blanket purchase
agreement (BPA), basic agreement (BA), or basic ordering agreement
(BOA)), the Participant must submit an addendum to the joint venture
agreement, setting forth the performance requirements, to SBA for
approval for each of the three 8(a) contracts authorized to be awarded
to the joint venture. In the case of a BPA, BA or BOA, each order
issued under the agreement would count as a separate contract award,
and SBA would need to approve the addendum for each order prior to
award of the order to the joint venture.
(f) Past performance. When evaluating the past performance of an
entity submitting an offer for an 8(a) contract as a joint venture
approved by SBA pursuant to this section, a procuring activity must
consider work done individually by each partner to the joint venture as
well as any work done by the joint venture itself previously.
(g) Contract execution. Where SBA has approved a joint venture, the
procuring activity will execute an 8(a) contract in the name of the
joint venture entity or the 8(a) Participant, but in either case will
identify the award as one to an 8(a) joint venture or an 8(a) mentor-
prot[eacute]g[eacute] joint venture, as appropriate.
* * * * *
(i) Inspection of records. The joint venture partners must allow
SBA's authorized representatives, including representatives authorized
by the SBA Inspector General, during normal business hours, access to
its files to inspect and copy all records and documents.
(j) Certification of compliance. Prior to the performance of any
8(a) contract by a joint venture, the 8(a) BD
[[Page 6635]]
Participant to the joint venture must submit a written certification to
the contracting officer and SBA, signed by an authorized official of
each partner to the joint venture, stating as follows:
(i) The parties have entered into a joint venture agreement that
fully complies with paragraph (c) of this section;
(ii) The parties will perform the contract in compliance with the
joint venture agreement and with the performance of work requirements
set forth in paragraph (d) of this section.
(iii) The parties have obtained SBA's approval of the joint venture
agreement and any addendum to that agreement and that there have been
no modifications to the agreement that SBA has not approved.
* * * * *
(l) Basis for suspension or debarment. The Government may consider
the following as a ground for suspension or debarment as a willful
violation of a regulatory provision or requirement applicable to a
public agreement or transaction:
(1) Failure to enter a joint venture agreement that complies with
paragraph (c) of this section;
(2) Failure to perform a contract in accordance with the joint
venture agreement or performance of work requirements in paragraph (d)
of this section; or
(3) Failure to submit the certification required by paragraph (e)
of this section or comply with paragraph (i) of this section.
0
16. Amend Sec. 124.520 as follows:
0
a. Remove the words ``or non-profit entity'' from the first sentence of
the introductory text of paragraph (b) and from the second sentence of
paragraph (b)(2);
0
b. Revise the last sentence of paragraph (b)(2);
0
c. Revise paragraph (c)(1);
0
d. Revise paragraph (d)(1)(iii);
0
e. Redesignate paragraphs (e)(2) through(e)(5) as paragraphs (e)(3)
through (e)(6), respectively; and
0
f. Add a new paragraph (e)(2) and add paragraphs (e)(7), and (e)(8).
The revisions and additions read as follows:
Sec. 124.520 What are the rules governing SBA's 8(a) mentor-
prot[eacute]g[eacute] program?
* * * * *
(b) * * *
(2) * * * Under no circumstances will a mentor be permitted to have
more than three prot[eacute]g[eacute]s at one time in the aggregate
under the mentor-prot[eacute]g[eacute] programs authorized by
Sec. Sec. 124.520 and 125.9 of this chapter.
* * * * *
* * * * *
(c) * * * (1) In order to initially qualify as a
prot[eacute]g[eacute] firm, a concern must:
(i) Qualify as small for the size standard corresponding to its
primary NAICS code; and
(ii) Demonstrate how the business development assistance to be
received through its proposed mentor-prot[eacute]g[eacute] relationship
would advance the goals and objectives set forth in its business plan.
* * * * *
(d) * * *
(1) * * *
(iii) Once a prot[eacute]g[eacute] firm graduates or otherwise
leaves the 8(a) BD program or grows to be other than small for its
primary NAICS code, it will not be eligible for any further 8(a)
contracting benefits from its 8(a) BD mentor-prot[eacute]g[eacute]
relationship. Leaving the 8(a) BD program, growing to be other than
small for its primary NAICS code, or terminating the mentor-
prot[eacute]g[eacute] relationship while a prot[eacute]g[eacute] is
still in the program, does not, however, generally affect contracts
previously awarded to a joint venture between the prot[eacute]g[eacute]
and its mentor. A prot[eacute]g[eacute] firm that graduates or
otherwise leaves the 8(a) BD program but continues to qualify as a
small business may transfer its 8(a) mentor-prot[eacute]g[eacute]
relationship to a small business mentor-prot[eacute]g[eacute]
relationship.
(A) A joint venture between a prot[eacute]g[eacute] firm that
continues to qualify as small and its mentor may certify its status as
small for any Government contract or subcontract so long as the
prot[eacute]g[eacute] (and/or the joint venture) has not been
determined to be other than small for the size standard corresponding
to the procurement at issue (or any lessor size standard).
(B) Where the prot[eacute]g[eacute] firm no longer qualifies as
small, the receipts and/or employees of the prot[eacute]g[eacute] and
mentor would generally be aggregated in determining the size of any
joint venture between the mentor and prot[eacute]g[eacute] after that
date.
(C) Except for contracts with durations of more than five years
(including options), a contract awarded to a joint venture between a
prot[eacute]g[eacute] and a mentor as a small business continues to
qualify as an award to small business for the life of that contract and
the joint venture remains obligated to continue performance on that
contract.
(D) For contracts with durations of more than five years (including
options), where size re-certification is required no more than 120 days
prior to the end of the fifth year of the contract and no more than 120
days prior to exercising any option thereafter, once the
prot[eacute]g[eacute] firm no longer qualifies as small for its primary
NAICS code, the joint venture must aggregate the receipts/employees of
the partners to the joint venture in determining whether it continues
to qualify as and can re-certify itself to be a small business under
the size standard corresponding to the NAICS code assigned to that
contract. The rules set forth in Sec. 121.404(g)(3) of this chapter
apply in such circumstances.
* * * * *
(e) * * *
(2) A firm seeking SBA's approval to be a prot[eacute]g[eacute]
must identify any other mentor-prot[eacute]g[eacute] relationship it
has through another federal agency or SBA and provide a copy of each
such mentor-prot[eacute]g[eacute] agreement to SBA. The 8(a) BD mentor-
prot[eacute]g[eacute] agreement must identify how the assistance to be
provided by the proposed mentor is different from assistance provided
to the prot[eacute]g[eacute] through another mentor-
prot[eacute]g[eacute] relationship, either with the same or a different
mentor.
* * * * *
(7) If control of the mentor changes (through a stock sale or
otherwise), the previously approved mentor-prot[eacute]g[eacute]
relationship may continue provided that, after the change in control,
the mentor expresses in writing to SBA that it acknowledges the mentor-
prot[eacute]g[eacute] agreement and certifies that it will continue to
abide by its terms.
(8) SBA may terminate the mentor-prot[eacute]g[eacute] agreement at
any time if it determines that the prot[eacute]g[eacute] is not
benefiting from the relationship or that the parties are not complying
with any term or condition of the mentor prot[eacute]g[eacute]
agreement. In the event SBA terminates the relationship, the mentor-
prot[eacute]g[eacute] joint venture is obligated to complete any
previously awarded contracts unless the procuring agency issues a stop
work order.
* * * * *
Sec. 124.604 [Amended]
0
17. Amend Sec. 124.604 by removing the phrase ``annual review
submission'' and adding in its place the phrase ``annual financial
statement submission (see Sec. 124.602)'' in the first sentence.
Sec. 124.520 [Amended]
0
18. Amend Sec. 124.1002 by removing paragraph (b)(4).
[[Page 6636]]
PART 125--GOVERNMENT CONTRACTING PROGRAMS
0
19. The authority citation for part 125 is revised to read as follows:
Authority: 15 U.S.C. 632(p), (q); 634(b)(6); 637; 644; 657f;
657r; Pub. L. 111-240, 124 Stat. 2504.
0
20. Amend Sec. 125.2 by revising the third sentence of the
introductory text to paragraph (a) to read as follows:
Sec. 125.2 What are SBA's and the procuring agency's responsibilities
when providing contracting assistance to small businesses?
(a) General. * * * Small business concerns must receive any award
(including orders, and orders placed against Multiple Award Contracts)
or contract, part of any such award or contract, any contract for the
sale of Government property, or any contract resulting from a reverse
auction, regardless of the place of performance, which SBA and the
procuring or disposal agency determine to be in the interest of: * * *
* * * * *
0
21. Amend Sec. 125.5 by revising the second and third sentences of
paragraph (a)(1) to read as follows:
Sec. 125.5 What is the Certificate of Competency Program?
(a) General. (1) * * * A COC is a written instrument issued by SBA
to a Government contracting officer, certifying that one or more named
small business concerns possess the responsibility to perform a
specific Government procurement (or sale) contract, including any
contract deriving from a reverse auction. The COC Program is applicable
to all Government procurement actions, including Multiple Award
Contracts and orders placed against Multiple Award Contracts, where the
contracting officer has used any issues of capacity or credit
(responsibility) to determine suitability for an award. * * *
* * * * *
Sec. 125.6 [Amended]
0
22. Amend Sec. 125.6 by removing ``Sec. 125.15'' from the
introductory text of paragraph (b) and adding in its place ``Sec.
125.18'', and by removing ``Sec. 125.15(b)(3)'' from paragraph (b)(5)
and adding in its place ``Sec. 125.18(b)(3)''.
Sec. Sec. 125.8 through 125.30 [Redesignated as Sec. Sec. 125.11
through 125.33]
0
23. Amend part 125 by redesignating Sec. Sec. 125.8 through 125.30 as
Sec. Sec. 125.11 through 125.33, respectively.
0
24. Add new Sec. Sec. 125.8, 125.9 and 125.10 to the undesignated
sections preceding Subpart A to read as follows:
Sec. 125.8 What requirements must a joint venture satisfy to submit
an offer for a procurement or sale set aside or reserved for small
business?
(a) General. A joint venture may qualify as a small business as
long as the partners to the joint venture in the aggregate meet the
applicable size standard or qualify as small under one of the
exceptions to affiliation set forth in Sec. 121.103(h)(3) of this
chapter.
(b) Contents of joint venture agreement. (1) A joint venture
agreement between two or more entities that individually qualify as
small need not be in any specific form or contain any specific
conditions in order for the joint venture to qualify as a small
business.
(2) Any joint venture agreement to perform a contract set aside or
reserved for small business between a prot[eacute]g[eacute] small
business and a mentor authorized by Sec. 125.9 or Sec. 124.520 of
this chapter must contain a provision:
(i) Setting forth the purpose of the joint venture;
(ii) Designating a small business as the managing venturer of the
joint venture, and an employee of the small business managing venturer
as the project manager responsible for performance of the contract;
(iii) Stating that with respect to a separate legal entity joint
venture, the small business must own at least 51% of the joint venture
entity;
(iv) Stating that the small business must receive profits from the
joint venture commensurate with the work performed by the small
business, or in the case of a separate legal entity joint venture,
commensurate with their ownership interests in the joint venture;
(v) Providing for the establishment and administration of a special
bank account in the name of the joint venture. This account must
require the signature of all parties to the joint venture or designees
for withdrawal purposes. All payments due the joint venture for
performance on a contract set aside or reserved for small business will
be deposited in the special account; all expenses incurred under the
contract will be paid from the account as well;
(vi) Itemizing all major equipment, facilities, and other resources
to be furnished by each party to the joint venture, with a detailed
schedule of cost or value of each;
(vii) Specifying the responsibilities of the parties with regard to
negotiation of the contract, source of labor, and contract performance,
including ways that the parties to the joint venture will ensure that
the joint venture and the small business partner to the joint venture
will meet the performance of work requirements set forth in paragraph
(c) of this section;
(viii) Obligating all parties to the joint venture to ensure
performance of a contract set aside or reserved for small business and
to complete performance despite the withdrawal of any member;
(ix) Designating that accounting and other administrative records
relating to the joint venture be kept in the office of the small
business managing venturer, unless approval to keep them elsewhere is
granted by the District Director or his/her designee upon written
request;
(x) Requiring that the final original records be retained by the
small business managing venturer upon completion of any contract set
aside or reserved for small business that was performed by the joint
venture;
(xi) Stating that quarterly financial statements showing cumulative
contract receipts and expenditures (including salaries of the joint
venture's principals) must be submitted to SBA not later than 45 days
after each operating quarter of the joint venture; and
(xii) Stating that a project-end profit and loss statement,
including a statement of final profit distribution, must be submitted
to SBA no later than 90 days after completion of the contract.
(c) Performance of work. (1) For any contract set aside or reserved
for small business that is to be performed by a joint venture between a
small business prot[eacute]g[eacute] and its SBA-approved mentor
authorized by Sec. 125.9, the joint venture must perform the
applicable percentage of work required by Sec. 125.6, and the small
business partner to the joint venture must perform at least 40% of the
work performed by the joint venture.
(2) The work performed by the small business partner to a joint
venture must be more than administrative or ministerial functions so
that it gains substantive experience.
(3) The amount of work done by the partners will be aggregated and
the work done by the small business prot[eacute]g[eacute] partner must
be at least 40% of the total done by the partners. In determining the
amount of work done by a mentor participating in a joint venture with a
small business prot[eacute]g[eacute], all work done by the mentor and
any of its affiliates at any subcontracting tier will be counted.
(d) Certification of compliance. Prior to the performance of any
contract set aside or reserved for small business by a joint venture
between a prot[eacute]g[eacute] small business and a mentor authorized
by Sec. 125.9, the small business partner to the joint venture must
submit a written certification to the contracting officer and SBA,
signed by an authorized official of each partner to the joint venture,
stating as follows:
[[Page 6637]]
(i) The parties have entered into a joint venture agreement that
fully complies with paragraph (b) of this section;
(ii) The parties will perform the contract in compliance with the
joint venture agreement and with the performance of work requirements
set forth in paragraph (c) of this section.
(e) Past performance. When evaluating the past performance of an
entity submitting an offer for a contract set aside or reserved for
small business as a joint venture established pursuant to this section,
a procuring activity must consider work done individually by each
partner to the joint venture as well as any work done by the joint
venture itself previously.
(f) Contract execution. The procuring activity will execute a
contract set aside or reserved for small business in the name of the
joint venture entity or a small business partner to the joint venture,
but in either case will identify the award as one to a small business
joint venture or a small business mentor-prot[eacute]g[eacute] joint
venture, as appropriate.
(g) Inspection of records. The joint venture partners must allow
SBA's authorized representatives, including representatives authorized
by the SBA Inspector General, during normal business hours, access to
its files to inspect and copy all records and documents.
(h) Performance of work reports. In connection with any contract
set aside or reserved for small business that is awarded to a joint
venture between a prot[eacute]g[eacute] small business and a mentor
authorized by Sec. 125.9, the small business partner must describe how
it is meeting or has met the applicable performance of work
requirements for each contract set aside or reserved for small business
that it performs as a joint venture.
(1) The small business partner to the joint venture must annually
submit a report to the relevant contracting officer and to the SBA,
signed by an authorized official of each partner to the joint venture,
explaining how the performance of work requirements are being met for
each contract set aside or reserved for small business that is
performed during the year.
(2) At the completion of every contract set aside or reserved for
small business that is awarded to a joint venture between a
prot[eacute]g[eacute] small business and a mentor authorized by Sec.
125.9, the small business partner to the joint venture must submit a
report to the relevant contracting officer and to the SBA, signed by an
authorized official of each partner to the joint venture, explaining
how and certifying that the performance of work requirements were met
for the contract, and further certifying that the contract was
performed in accordance with the provisions of the joint venture
agreement that are required under paragraph (b) of this section.
(i) Basis for suspension or debarment. For any joint venture
between a prot[eacute]g[eacute] small business and a mentor authorized
by Sec. 125.9, the Government may consider the following as a ground
for suspension or debarment as a willful violation of a regulatory
provision or requirement applicable to a public agreement or
transaction:
(1) Failure to enter a joint venture agreement that complies with
paragraph (b) of this section;
(2) Failure to perform a contract in accordance with the joint
venture agreement or performance of work requirements in paragraph (c)
of this section; or
(3) Failure to submit the certification required by paragraph (d)
of this section or comply with paragraph (g) of this section.
(j) Any person with information concerning a joint venture's
compliance with the performance of work requirements may report that
information to SBA and/or the SBA Office of Inspector General.
Sec. 125.9 What are the rules governing SBA's small business mentor-
prot[eacute]g[eacute] program?
(a) General. The small business mentor-prot[eacute]g[eacute]
program is designed to enhance the capabilities of
prot[eacute]g[eacute] firms by requiring approved mentors to provide
business development assistance to prot[eacute]g[eacute] firms and to
improve the prot[eacute]g[eacute] firms' ability to successfully
compete for federal contracts. This assistance may include technical
and/or management assistance; financial assistance in the form of
equity investments and/or loans; subcontracts; and/or assistance in
performing prime contracts with the Government through joint venture
arrangements. Mentors are encouraged to provide assistance relating to
the performance of contracts set-aside or reserved for small business
so that prot[eacute]g[eacute] firms may more fully develop their
capabilities.
(b) Mentors. Any concern that demonstrates a commitment and the
ability to assist small business concerns may act as a mentor and
receive benefits as set forth in this section. This includes other than
small businesses.
(1) In order to qualify as a mentor, a concern must demonstrate
that it:
(i) Possesses a good financial condition;
(ii) Possesses good character;
(iii) Does not appear on the federal list of debarred or suspended
contractors; and
(iv) Can impart value to a prot[eacute]g[eacute] firm due to
lessons learned and practical experience gained or through its
knowledge of general business operations and government contracting.
(2) In order to demonstrate that it possesses a good financial
condition, a firm seeking to be a mentor must submit to the SBA copies
of the federal tax returns it submitted to the IRS, or audited
financial statements, including any notes, or in the case of publicly
traded concerns, the filings required by the Securities and Exchange
Commission (SEC), for the past three years.
(3) Once approved, a mentor must annually certify that it continues
to possess good character and a favorable financial position.
(4) Generally, a mentor will have no more than one
prot[eacute]g[eacute] at a time. However, the Director of Government
Contracting (D/GC), or designee, may authorize a concern to mentor more
than one prot[eacute]g[eacute] at a time where it can demonstrate that
the additional mentor-prot[eacute]g[eacute] relationship will not
adversely affect the development of either prot[eacute]g[eacute] firm
(e.g., the second firm may not be a competitor of the first firm).
Under no circumstances will a mentor be permitted to have more than
three prot[eacute]g[eacute]s at one time in the aggregate under the
mentor-prot[eacute]g[eacute] programs authorized by Sec. Sec. 124.520
and 125.9 of this chapter.
(c) Prot[eacute]g[eacute]s. (1) In order to initially qualify as a
prot[eacute]g[eacute] firm, a concern must qualify as small for the
size standard corresponding to its primary NAICS code. SBA will verify
that a firm qualifies as a small business under its primary NAICS code
before approving that firm to act as a prot[eacute]g[eacute]. This
verification may take place either as part of a firm's request for
participation in the small business mentor-prot[eacute]g[eacute]
program, or as part of a size protest determination relating to the
size standard corresponding to the NAICS code for its primary NAICS
code prior to that time.
(i) Where SBA has previously found the firm to qualify as small
pursuant to a size protest relating to the size standard corresponding
to the NAICS code for its primary NAICS code (or with respect to a size
standard that is smaller than that associated with its primary NAICS
code), the firm must certify that there has been no change in its size
status since that determination.
[[Page 6638]]
(ii) Where SBA has not previously found the firm to qualify as
small pursuant to a size protest relating to the size standard
corresponding to the NAICS code for its primary NAICS code (or with
respect to a size standard that is smaller than that associated with
its primary NAICS code), the firm must request a formal size
determination pursuant to Sec. 121.1001(b)(10) of this chapter.
(2) A prot[eacute]g[eacute] firm may generally have only one mentor
at a time. The D/GC, or designee, may approve a second mentor for a
particular prot[eacute]g[eacute] firm where the second relationship
will not compete or otherwise conflict with the assistance set forth in
the first mentor-prot[eacute]g[eacute] relationship and:
(i) The second relationship pertains to an unrelated NAICS code; or
(ii) The prot[eacute]g[eacute] firm is seeking to acquire a
specific expertise that the first mentor does not possess.
(3) A prot[eacute]g[eacute] may not become a mentor and retain its
prot[eacute]g[eacute] status. The prot[eacute]g[eacute] must terminate
the mentor-prot[eacute]g[eacute] agreement with its mentor before it
will be approved as a mentor to another small business concern.
(4) SBA may examine the Service Disabled Veteran Owned status or
Women Owned Small Business status of an applicant concern that claims
such status in any Federal procurement database.
(d) Benefits. (1) A prot[eacute]g[eacute] and mentor may joint
venture as a small business for any government prime contract or
subcontract, provided the prot[eacute]g[eacute] qualifies as small for
the procurement. Such a joint venture may seek any type of small
business contract (i.e., small business set-aside, 8(a), HUBZone, SDVO,
or WOSB/EDWOSB) for which the prot[eacute]g[eacute] firm qualifies.
(i) SBA must approve the mentor-prot[eacute]g[eacute] agreement
before the two firms may submit an offer as a joint venture on a
particular government prime contract or subcontract in order for the
joint venture to receive the exclusion from affiliation.
(ii) In order to receive the exclusion from affiliation, the joint
venture must meet the requirements set forth in Sec. 125.8(b)(2), (c)
and (d).
(iii) Once a prot[eacute]g[eacute] firm no longer qualifies as a
small business for the size standard corresponding to its primary NAICS
code, it will not be eligible for any further contracting benefits from
its mentor-prot[eacute]g[eacute] relationship. However, a change in the
prot[eacute]g[eacute]'s size status does not generally affect contracts
previously awarded to a joint venture between the prot[eacute]g[eacute]
and its mentor.
(A) Except for contracts with durations of more than five years
(including options), a contract awarded to a joint venture between a
prot[eacute]g[eacute] and a mentor as a small business continues to
qualify as an award to small business for the life of that contract and
the joint venture remains obligated to continue performance on that
contract.
(B) For contracts with durations of more than five years (including
options), where size re-certification is required under Sec.
121.404(g)(3) of this chapter no more than 120 days prior to the end of
the fifth year of the contract and no more than 120 days prior to
exercising any option thereafter, once the prot[eacute]g[eacute] no
longer qualifies as small for the size standard corresponding to its
primary NAICS code, the joint venture must aggregate the receipts/
employees of the partners to the joint venture in determining whether
it continues to qualify as and can re-certify itself to be a small
business under the size standard corresponding to the NAICS code
assigned to that contract. The rules set forth in Sec. 121.404(g)(3)
of this chapter apply in such circumstances.
(2) In order to raise capital, the prot[eacute]g[eacute] firm may
agree to sell or otherwise convey to the mentor an equity interest of
up to 40% in the prot[eacute]g[eacute] firm.
(3) Notwithstanding the mentor-prot[eacute]g[eacute] relationship,
a prot[eacute]g[eacute] firm may qualify for other assistance as a
small business, including SBA financial assistance.
(4) No determination of affiliation or control may be found between
a prot[eacute]g[eacute] firm and its mentor based solely on the mentor-
prot[eacute]g[eacute] agreement or any assistance provided pursuant to
the agreement. However, affiliation may be found for other reasons set
forth in Sec. 121.103 of this chapter.
(e) Written agreement. (1) The mentor and prot[eacute]g[eacute]
firms must enter a written agreement setting forth an assessment of the
prot[eacute]g[eacute]'s needs and providing a detailed description and
timeline for the delivery of the assistance the mentor commits to
provide to address those needs (e.g., management and/or technical
assistance, loans and/or equity investments, cooperation on joint
venture projects, or subcontracts under prime contracts being performed
by the mentor). The mentor-prot[eacute]g[eacute] agreement must:
(i) Address how the assistance to be provided through the agreement
will help the prot[eacute]g[eacute] firm meet its goals as defined in
its business plan;
(ii) Establish a single point of contact in the mentor concern who
is responsible for managing and implementing the mentor-
prot[eacute]g[eacute] agreement; and
(iii) Provide that the mentor will provide such assistance to the
prot[eacute]g[eacute] firm for at least one year.
(2) A firm seeking SBA's approval to be a prot[eacute]g[eacute]
must identify any other mentor-prot[eacute]g[eacute] relationship it
has through another federal agency or SBA and provide a copy of each
such mentor-prot[eacute]g[eacute] agreement to SBA. The small business
mentor-prot[eacute]g[eacute] agreement must identify how the assistance
to be provided by the proposed mentor is different from assistance
provided to the prot[eacute]g[eacute] through another mentor-
prot[eacute]g[eacute] relationship, either with the same or a different
mentor.
(3) The written agreement must be approved by the D/GC or designee.
The agreement will not be approved if SBA determines that the
assistance to be provided is not sufficient to promote any real
developmental gains to the prot[eacute]g[eacute], or if SBA determines
that the agreement is merely a vehicle to enable the mentor to receive
small business contracts.
(4) The agreement must provide that either the
prot[eacute]g[eacute] or the mentor may terminate the agreement with 30
days advance notice to the other party to the mentor-
prot[eacute]g[eacute] relationship and to SBA.
(5) SBA will review the mentor-prot[eacute]g[eacute] relationship
annually to determine whether to approve its continuation for another
year. The term of a mentor-prot[eacute]g[eacute] agreement may not
exceed three years. A prot[eacute]g[eacute] may have one three-year
mentor-prot[eacute]g[eacute] agreement with one entity and one three-
year mentor-prot[eacute]g[eacute] agreement with another entity, or two
three-year mentor-prot[eacute]g[eacute] agreements (successive or
otherwise) with the same entity.
(6) SBA must approve all changes to a mentor-prot[eacute]g[eacute]
agreement in advance, and any changes made to the agreement must be
provided in writing. If the parties to the mentor-prot[eacute]g[eacute]
relationship change the mentor-prot[eacute]g[eacute] agreement without
prior approval by SBA, SBA shall terminate the mentor-
prot[eacute]g[eacute] relationship and may also propose suspension or
debarment of one or both of the firms pursuant to paragraph (h) of this
section where appropriate.
(7) If control of the mentor changes (through a stock sale or
otherwise), the previously approved mentor-prot[eacute]g[eacute]
relationship may continue provided that, after the change in control,
the mentor expresses in writing to SBA that it acknowledges the mentor-
prot[eacute]g[eacute] agreement and certifies that it will continue to
abide by its terms.
(8) SBA may terminate the mentor-prot[eacute]g[eacute] agreement at
any time if it determines that the prot[eacute]g[eacute] is not
[[Page 6639]]
benefiting from the relationship or that the parties are not complying
with any term or condition of the mentor prot[eacute]g[eacute]
agreement. In the event SBA terminates the relationship, the mentor-
prot[eacute]g[eacute] joint venture is obligated to complete any
previously awarded contracts unless the procuring agency issues a stop
work order.
(f) Decision to decline mentor-prot[eacute]g[eacute] relationship.
(1) Where SBA declines to approve a specific mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] may request
the D/GC to reconsider the Agency's initial decline decision by filing
a request for reconsideration within 45 calendar days of receiving
notice that its mentor-prot[eacute]g[eacute] agreement was declined.
The prot[eacute]g[eacute] may revise the proposed mentor-
prot[eacute]g[eacute] agreement and provide any additional information
and documentation pertinent to overcoming the reason(s) for the initial
decline.
(2) The D/GC, or designee, will issue a written decision within 45
calendar days of receipt of the prot[eacute]g[eacute]'s request. The D/
GC may approve the mentor-prot[eacute]g[eacute] agreement, deny it on
the same grounds as the original decision, or deny it on other grounds.
(3) If the D/GC declines the mentor-prot[eacute]g[eacute] agreement
solely on issues not raised in the initial decline, the
prot[eacute]g[eacute] can ask for reconsideration as if it were an
initial decline.
(4) If SBA's final decision is to decline a specific mentor-
prot[eacute]g[eacute] agreement, the small business concern seeking to
be a prot[eacute]g[eacute] cannot attempt to enter into another mentor-
prot[eacute]g[eacute] relationship with the same mentor for a period of
60 calendar days from the date of the final decision. The small
business concern may, however, submit another proposed mentor-
prot[eacute]g[eacute] agreement with a different proposed mentor at any
time after the SBA's final decline decision.
(g) Evaluating the mentor-prot[eacute]g[eacute] relationship. (1)
Within 30 days of the anniversary of SBA's approval of the mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] must report
to SBA for the preceding year:
(i) All technical and/or management assistance provided by the
mentor to the prot[eacute]g[eacute];
(ii) All loans to and/or equity investments made by the mentor in
the prot[eacute]g[eacute];
(iii) All subcontracts awarded to the prot[eacute]g[eacute] by the
mentor, and the value of each subcontract;
(iv) All federal contracts awarded to the mentor-
prot[eacute]g[eacute] relationship as a joint venture (designating each
as a small business set-aside, small business reserve, or unrestricted
procurement), the value of each contract, and the percentage of the
contract performed and the percentage of revenue accruing to each party
to the joint venture; and
(v) A narrative describing the success such assistance has had in
addressing the developmental needs of the prot[eacute]g[eacute] and
addressing any problems encountered.
(2) The prot[eacute]g[eacute] must report the mentoring services it
receives by category and hours.
(3) The prot[eacute]g[eacute] must annually certify to SBA whether
there has been any change in the terms of the agreement.
(4) SBA will review the prot[eacute]g[eacute]'s report on the
mentor-prot[eacute]g[eacute] relationship, and may decide not to
approve continuation of the agreement if it finds that the mentor has
not provided the assistance set forth in the mentor-
prot[eacute]g[eacute] agreement or that the assistance has not resulted
in any material benefits or developmental gains to the
prot[eacute]g[eacute].
(h) Consequences of not providing assistance set forth in the
mentor-prot[eacute]g[eacute] agreement. (1) Where SBA determines that a
mentor has not provided to the prot[eacute]g[eacute] firm the business
development assistance set forth in its mentor-prot[eacute]g[eacute]
agreement, SBA will notify the mentor of such determination and afford
the mentor an opportunity to respond. The mentor must respond within 30
days of the notification, explaining why it has not provided the agreed
upon assistance and setting forth a definitive plan as to when it will
provide such assistance. If the mentor fails to respond, does not
supply adequate reasons for its failure to provide the agreed upon
assistance, or does not set forth a definite plan to provide the
assistance:
(i) SBA will terminate the mentor-prot[eacute]g[eacute] agreement;
(ii) The firm will be ineligible to again act as a mentor for a
period of two years from the date SBA terminates the mentor-
prot[eacute]g[eacute] agreement; and
(iii) SBA may recommend to the relevant procuring agency to issue a
stop work order for each federal contract for which the mentor and
prot[eacute]g[eacute] are performing as a small business joint venture
in order to encourage the mentor to comply with its mentor-
prot[eacute]g[eacute] agreement. Where a prot[eacute]g[eacute] firm is
able to independently complete performance of any such contract, SBA
may recommend to the procuring agency to authorize a substitution of
the prot[eacute]g[eacute] firm for the joint venture.
(2) SBA may consider a mentor's failure to comply with the terms
and conditions of an SBA-approved mentor-prot[eacute]g[eacute]
agreement as a basis for debarment on the grounds, including but not
limited to, that the mentor has not complied with the terms of a public
agreement under 2 CFR 180.800(b).
Sec. 125.10 Mentor-Prot[eacute]g[eacute] programs of other agencies.
(a) Except as provided in paragraph (c) of this section, a Federal
department or agency may not carry out a mentor-prot[eacute]g[eacute]
program for small business unless the head of the department or agency
submits a plan to the SBA Administrator for the program and the SBA
Administrator approves the plan. Before starting a new mentor
prot[eacute]g[eacute] program, the head of a department or agency must
submit a plan to the SBA Administrator. Within one year of the
effective date of this section, the head of a department or agency must
submit a plan to the SBA for any previously existing mentor-
prot[eacute]g[eacute] program that the department or agency seeks to
continue.
(b) The SBA Administrator will approve or disapprove a plan
submitted under paragraph (a) of this section based on whether the
proposed program:
(1) Will assist prot[eacute]g[eacute]s to compete for Federal prime
contracts and subcontracts; and
(2) Complies with the provisions set forth in Sec. Sec. 125.9 and
124.520 of this chapter, as applicable.
(c) Paragraph (a) of this section does not apply to:
(1) Any mentor-prot[eacute]g[eacute] program of the Department of
Defense;
(2) Any mentoring assistance provided under a Small Business
Innovation Research Program or a Small Business Technology Transfer
Program; and
(3) A mentor-prot[eacute]g[eacute] program operated by a Department
or agency on January 2, 2013, for a period of one year after the
effective date of this section.
(d) The head of each Federal department or agency carrying out an
agency-specific mentor-prot[eacute]g[eacute] program must report
annually to SBA:
(1) The participants (both prot[eacute]g[eacute] firms and their
approved mentors) in its mentor-prot[eacute]g[eacute] program. This
includes identifying the number of participants that are:
(i) Small business concerns;
(ii) Small business concerns owned and controlled by service-
disabled veterans;
(iii) Small business concerns owned and controlled by socially and
economically disadvantaged individuals;
(iv) Small business concerns owned and controlled by Indian tribes,
Alaska Native Corporations, native Hawaiian Organizations, and
Community Development Corporations; and
(v) Small business concerns owned and controlled by women;
[[Page 6640]]
(2) The assistance provided to small businesses through the
program; and
(3) The progress of prot[eacute]g[eacute] firms under the program
to compete for Federal prime contracts and subcontracts.
0
25. Amend newly redesignated Sec. 125.18 by adding paragraph
(b)(1)(iii), revising paragraphs (b)(2) through (6), and adding
paragraphs (b)(7) through (10) to read as follows:
Sec. 125.18 What requirements must an SDVO SBC meet to submit an
offer on a contract?
* * * * *
(b) * * *
(1) * * *
(iii) A joint venture between a prot[eacute]g[eacute] firm that
qualifies as an SDVO SBC and its SBA-approved mentor (see Sec. Sec.
125.9 and 124.520 of this chapter) will be deemed small provided the
prot[eacute]g[eacute] qualifies as small for the size standard
corresponding to the NAICS code assigned to the SDVO procurement.
(2) Contents of joint venture agreement. Every joint venture
agreement to perform an SDVO contract, including those between a
prot[eacute]g[eacute] firm that qualifies as an SDVO SBC and its SBA-
approved mentor (see Sec. Sec. 125.9 and 124.520 of this chapter) must
contain a provision:
(i) Setting forth the purpose of the joint venture;
(ii) Designating an SDVO SBC as the managing venturer of the joint
venture, and an employee of the SDVO SBC managing venturer as the
project manager responsible for performance of the contract;
(iii) Stating that with respect to a separate legal entity joint
venture, the SDVO SBC must own at least 51% of the joint venture
entity;
(iv) Stating that the SDVO SBC must receive profits from the joint
venture commensurate with the work performed by the SDVO SBC, or in the
case of a separate legal entity joint venture, commensurate with their
ownership interests in the joint venture;
(v) Providing for the establishment and administration of a special
bank account in the name of the joint venture. This account must
require the signature of all parties to the joint venture or designees
for withdrawal purposes. All payments due the joint venture for
performance on an SDVO contract will be deposited in the special
account; all expenses incurred under the contract will be paid from the
account as well;
(vi) Itemizing all major equipment, facilities, and other resources
to be furnished by each party to the joint venture, with a detailed
schedule of cost or value of each;
(vii) Specifying the responsibilities of the parties with regard to
negotiation of the contract, source of labor, and contract performance,
including ways that the parties to the joint venture will ensure that
the joint venture and the SDVO SBC partner to the joint venture will
meet the performance of work requirements set forth in paragraph (b)(3)
of this section;
(viii) Obligating all parties to the joint venture to ensure
performance of the SDVO contract and to complete performance despite
the withdrawal of any member;
(ix) Designating that accounting and other administrative records
relating to the joint venture be kept in the office of the SDVO SBC
managing venturer, unless approval to keep them elsewhere is granted by
the District Director or his/her designee upon written request;
(x) Requiring that the final original records be retained by the
SDVO SBC managing venturer upon completion of the SDVO contract
performed by the joint venture;
(xi) Stating that quarterly financial statements showing cumulative
contract receipts and expenditures (including salaries of the joint
venture's principals) must be submitted to SBA not later than 45 days
after each operating quarter of the joint venture; and
(xii) Stating that a project-end profit and loss statement,
including a statement of final profit distribution, must be submitted
to SBA no later than 90 days after completion of the contract.
(3) Performance of work. (i) For any SDVO contract, including those
between a prot[eacute]g[eacute] and a mentor authorized by Sec. 125.9
or Sec. 124.520 of this chapter, the joint venture must perform the
applicable percentage of work required by Sec. 125.6.
(ii) The SDVO SBC partner(s) to the joint venture must perform at
least 40% of the work performed by the joint venture.
(A) The work performed by the SDVO SBC partner(s) to a joint
venture must be more than administrative or ministerial functions so
that they gain substantive experience.
(B) The amount of work done by the partners will be aggregated and
the work done by the SDVO SBC partner(s) must be at least 40% of the
total done by all partners. In determining the amount of work done by a
non-SDVO SBC partner, all work done by the non-SDVO SBC partner and any
of its affiliates at any subcontracting tier will be counted.
(4) Certification of Compliance. Prior to the performance of any
SDVO contract as a joint venture, the SDVO SBC partner to the joint
venture must submit a written certification to the contracting officer
and SBA, signed by an authorized official of each partner to the joint
venture, stating as follows:
(i) The parties have entered into a joint venture agreement that
fully complies with paragraph (b)(2) of this section;
(ii) The parties will perform the contract in compliance with the
joint venture agreement and with the performance of work requirements
set forth in paragraph (b)(3) of this section.
(5) Past performance. When evaluating the past performance of an
entity submitting an offer for an SDVO contract as a joint venture
established pursuant to this section, a procuring activity must
consider work done individually by each partner to the joint venture as
well as any work done by the joint venture itself previously.
(6) Contract execution. The procuring activity will execute an SDVO
contract in the name of the joint venture entity or the SDVO SBC, but
in either case will identify the award as one to an SDVO joint venture
or an SDVO mentor-prot[eacute]g[eacute] joint venture, as appropriate.
(7) Inspection of records. The joint venture partners must allow
SBA's authorized representatives, including representatives authorized
by the SBA Inspector General, during normal business hours, access to
its files to inspect and copy all records and documents.
(8) Performance of work reports. An SDVO SBC partner to a joint
venture must describe how it is meeting or has met the applicable
performance of work requirements for each SDVO contract it performs as
a joint venture.
(i) The SDVO SBC partner to the joint venture must annually submit
a report to the relevant contracting officer and to the SBA, signed by
an authorized official of each partner to the joint venture, explaining
how and certifying that the performance of work requirements are being
met.
(ii) At the completion of every SDVO contract awarded to a joint
venture, the SDVO SBC partner to the joint venture must submit a report
to the relevant contracting officer and to the SBA, signed by an
authorized official of each partner to the joint venture, explaining
how and certifying that the performance of work requirements were met
for the contract, and further certifying that the contract was
performed in accordance with the provisions of the joint venture
agreement that are required under paragraph (b)(2) of this section.
(9) Basis for suspension or debarment. The Government may consider
the following as a ground for suspension or debarment as a willful
violation of a regulatory provision or requirement
[[Page 6641]]
applicable to a public agreement or transaction:
(i) Failure to enter a joint venture agreement that complies with
paragraph (b)(2) of this section;
(ii) Failure to perform a contract in accordance with the joint
venture agreement or performance of work requirements in paragraph
(b)(3) of this section; or
(iii) Failure to submit the certification required by paragraph
(b)(4) of this section or comply with paragraph (b)(7) of this section.
(10) Any person with information concerning a joint venture's
compliance with the performance of work requirements may report that
information to SBA and/or the SBA Office of Inspector General.
Sec. 125.22 [Amended]
0
26. Amend newly redesignated Sec. 125.22 by adding the phrase ``,
regardless of the place of performance,'' in the first sentence of
paragraphs (b)(1) and (b)(2)(i) after the words ``for small business
concerns'' and before the words ``when there is a reasonable
expectation''.
PART 126--HUBZONE PROGRAM
0
27. The authority citation for part 126 is revised to read as follows:
Authority: 15 U.S.C. 632(a), 632(j), 632(p), and 657a; Pub. L.
111-240, 24 Stat. 2504.
0
28. Amend Sec. 126.306 as follows:
0
a. Revise paragraphs (a) and (b);
0
b. Redesignate paragraphs (c) and (d) as paragraphs (f) and (g),
respectively; and
0
c. Add new paragraphs (c) and (d) and add paragraph (e).
The revisions and additions read as follows:
Sec. 126.306 How will SBA process the certification?
(a) The D/HUB or designee is authorized to approve or decline
applications for certification. SBA will receive and review all
applications and request supporting documents. SBA must receive all
required information, supporting documents, and completed HUBZone
representation before it will begin processing a concern's application.
SBA will not process incomplete packages. SBA will make its
determination within ninety (90) calendar days after receipt of a
complete package whenever practicable. The decision of the D/HUB or
designee is the final agency decision.
(b) SBA may request additional information or clarification of
information contained in an application or document submission at any
time.
(c) The burden of proof to demonstrate eligibility is on the
applicant concern. If a concern does not provide requested information
within the allotted time provided by SBA, or if it submits incomplete
information, SBA may presume that disclosure of the missing information
would adversely affect the business concern or demonstrate a lack of
eligibility in the area or areas to which the information relates.
(d) The applicant must be eligible as of the date it submitted its
application and up until and at the time the D/HUB issues a decision.
The decision will be based on the facts set forth in the application,
any information received in response to SBA's request for
clarification, and any changed circumstances since the date of
application.
(e) Any changed circumstance occurring after it has submitted an
application will be considered and may constitute grounds for decline.
After submitting the application and signed representation, an
applicant must notify SBA of any changes that could affect its
eligibility. The D/HUB may propose for decertification any HUBZone SBC
that failed to inform SBA of any changed circumstances that affected
its eligibility for the program during the processing of the
application.
0
29. Amend Sec. 126.600 by revising the introductory text to read as
follows:
Sec. 126.600 What are HUBZone contracts?
HUBZone contracts are contracts awarded to a qualified HUBZone SBC,
regardless of the place of performance, through any of the following
procurement methods:
* * * * *
0
30. Revise Sec. 126.615 to read as follows:
Sec. 126.615 May a large business participate on a HUBZone contract?
Except as provided in Sec. 126.618(d), a large business may not
participate as a prime contractor on a HUBZone award, but may
participate as a subcontractor to an otherwise qualified HUBZone SBC,
subject to the contract performance requirements set forth in Sec.
126.700.
0
31. Revise Sec. 126.616 to read as follows:
Sec. 126.616 What requirements must a joint venture satisfy to submit
an offer on a HUBZone contract?
(a) General. A qualified HUBZone SBC may enter into a joint venture
agreement with one or more other SBCs, or with an approved mentor
authorized by Sec. 125.9 of this chapter (or, if also an 8(a) BD
Participant, with an approved mentor authorized by Sec. 124.520 of
this chapter), for the purpose of submitting an offer for a HUBZone
contract. The joint venture itself need not be certified as a qualified
HUBZone SBC.
(b) Size. (1) A joint venture of at least one qualified HUBZone SBC
and one or more other business concerns may submit an offer as a small
business for a HUBZone contract so long as the firms in the aggregate
are small under the size standard corresponding to the NAICS code
assigned to the contract, unless the contract qualifies under the
exception in Sec. 121.103(h)(3) of this chapter. If the contract
qualifies under the exception in Sec. 121.103(h)(3) of this chapter,
each firm must be small under the size standard corresponding to the
NAICS code assigned to the contract.
(2) A joint venture between a prot[eacute]g[eacute] firm and its
SBA-approved mentor (see Sec. 125.9 of this chapter) will be deemed
small provided the prot[eacute]g[eacute] qualifies as small for the
size standard corresponding to the NAICS code assigned to the HUBZone
contract.
(c) Contents of joint venture agreement. Any joint venture
agreement to perform a HUBZone contract between a prot[eacute]g[eacute]
and a mentor authorized by Sec. 125.9 of this chapter must contain a
provision:
(1) Setting forth the purpose of the joint venture;
(2) Designating a HUBZone SBC as the managing venturer of the joint
venture, and an employee of the HUBZone SBC managing venturer as the
project manager responsible for performance of the contract;
(3) Stating that with respect to a separate legal entity joint
venture, the HUBZone SBC must own at least 51% of the joint venture
entity;
(4) Stating that the HUBZone SBC must receive profits from the
joint venture commensurate with the work performed by the HUBZone SBC,
or in the case of a separate legal entity joint venture, commensurate
with their ownership interests in the joint venture;
(5) Providing for the establishment and administration of a special
bank account in the name of the joint venture. This account must
require the signature of all parties to the joint venture or designees
for withdrawal purposes. All payments due the joint venture for
performance on a HUBZone contract will be deposited in the special
account; all expenses incurred under the contract will be paid from the
account as well;
(6) Itemizing all major equipment, facilities, and other resources
to be furnished by each party to the joint venture, with a detailed
schedule of cost or value of each;
[[Page 6642]]
(7) Specifying the responsibilities of the parties with regard to
negotiation of the contract, source of labor, and contract performance,
including ways that the parties to the joint venture will ensure that
the joint venture and the HUBZone SBC partner to the joint venture will
meet the performance of work requirements set forth in paragraph (d) of
this section;
(8) Obligating all parties to the joint venture to ensure
performance of the HUBZone contract and to complete performance despite
the withdrawal of any member;
(9) Designating that accounting and other administrative records
relating to the joint venture be kept in the office of the HUBZone SBC
managing venturer, unless approval to keep them elsewhere is granted by
the District Director or his/her designee upon written request;
(10) Requiring that the final original records be retained by the
HUBZone SBC managing venturer upon completion of the HUBZone contract
performed by the joint venture;
(11) Stating that quarterly financial statements showing cumulative
contract receipts and expenditures (including salaries of the joint
venture's principals) must be submitted to SBA not later than 45 days
after each operating quarter of the joint venture; and
(12) Stating that a project-end profit and loss statement,
including a statement of final profit distribution, must be submitted
to SBA no later than 90 days after completion of the contract.
(d) Performance of work. (1) For any HUBZone contract to be
performed by a joint venture between a qualified HUBZone SBC and
another qualified HUBZone SBC, the aggregate of the qualified HUBZone
SBCs to the joint venture, not each concern separately, must perform
the applicable percentage of work required by Sec. 125.6 of this
chapter.
(2) For any HUBZone contract to be performed by a joint venture
between a qualified HUBZone prot[eacute]g[eacute] and its SBA-approved
mentor authorized by Sec. 125.9 or Sec. 124.520 of this chapter, the
joint venture must perform the applicable percentage of work required
by Sec. 125.6 of this chapter, and the HUBZone SBC partner to the
joint venture must perform at least 40% of the work performed by the
joint venture.
(i) The work performed by the HUBZone SBC partner to a joint
venture must be more than administrative or ministerial functions so
that it gains substantive experience.
(ii) The amount of work done by the partners will be aggregated and
the work done by the HUBZone prot[eacute]g[eacute] partner must be at
least 40% of the total done by the partners. In determining the amount
of work done by a mentor participating in a joint venture with a
HUBZone qualified prot[eacute]g[eacute], all work done by the mentor
and any of its affiliates at any subcontracting tier will be counted.
(e) Certification of compliance. Prior to the performance of any
HUBZone contract as a joint venture, the HUBZone SBC partner to the
joint venture must submit a written certification to the contracting
officer and SBA, signed by an authorized official of each partner to
the joint venture, stating as follows:
(i) The parties have entered into a joint venture agreement that
fully complies with paragraph (c) of this section;
(ii) The parties will perform the contract in compliance with the
joint venture agreement and with the performance of work requirements
set forth in paragraph (d) of this section.
(f) Past performance. When evaluating the past performance of an
entity submitting an offer for a HUBZone contract as a joint venture
established pursuant to this section, a procuring activity must
consider work done individually by each partner to the joint venture as
well as any work done by the joint venture itself previously.
(g) Contract execution. The procuring activity will execute a
HUBZone contract in the name of the joint venture entity or the HUBZone
SBC, but in either case will identify the award as one to a HUBZone
joint venture or a HUBZone mentor-prot[eacute]g[eacute] joint venture,
as appropriate.
(h) Inspection of records. The joint venture partners must allow
SBA's authorized representatives, including representatives authorized
by the SBA Inspector General, during normal business hours, access to
its files to inspect and copy all records and documents.
(i) Performance of work reports. The HUBZone SBC partner to a joint
venture must describe how it is meeting or has met the applicable
performance of work requirements for each HUBZone contract it performs
as a joint venture.
(1) The HUBZone SBC partner to the joint venture must annually
submit a report to the relevant contracting officer and to the SBA,
signed by an authorized official of each partner to the joint venture,
explaining how the performance of work requirements are being met for
each HUBZone contract performed during the year.
(2) At the completion of every HUBZone contract awarded to a joint
venture, the HUBZone SBC partner to the joint venture must submit a
report to the relevant contracting officer and to the SBA, signed by an
authorized official of each partner to the joint venture, explaining
how and certifying that the performance of work requirements were met
for the contract, and further certifying that the contract was
performed in accordance with the provisions of the joint venture
agreement that are required under paragraph (c) of this section.
(j) Basis for suspension or debarment. The Government may consider
the following as a ground for suspension or debarment as a willful
violation of a regulatory provision or requirement applicable to a
public agreement or transaction:
(1) Failure to enter a joint venture agreement that complies with
paragraph (c) of this section;
(2) Failure to perform a contract in accordance with the joint
venture agreement or performance of work requirements in paragraph (d)
of this section; or
(3) Failure to submit the certification required by paragraph (e)
of this section or comply with paragraph (h) of this section.
(k) Any person with information concerning a joint venture's
compliance with the performance of work requirements may report that
information to SBA and/or the SBA Office of Inspector General.
0
32. Revise Sec. 126.618 to read as follows:
Sec. 126.618 How does a HUBZone SBC's participation in a Mentor-
Prot[eacute]g[eacute] relationship affect its participation in the
HUBZone Program?
(a) A qualified HUBZone SBC may enter into a mentor-
prot[eacute]g[eacute] relationship under Sec. 125.9 of this chapter
(or, if also an 8(a) BD Participant, under Sec. 124.520 of this
chapter) or in connection with a mentor-prot[eacute]g[eacute] program
of another agency, provided that such relationships do not conflict
with the underlying HUBZone requirements.
(b) For purposes of determining whether an applicant to the HUBZone
Program or a HUBZone SBC qualifies as small under part 121 of this
chapter, SBA will not find affiliation between the applicant or
qualified HUBZone SBC and the firm that is its mentor in an SBA or
other Federally-approved mentor-prot[eacute]g[eacute] relationship
(including a mentor that is other than small) on the basis of the
mentor-prot[eacute]g[eacute] agreement or the assistance provided to
the prot[eacute]g[eacute] firm under the agreement. As such, SBA will
not consider the employees of the mentor in determining whether the
applicant or qualified HUBZone SBC meets (or continues to meet) the 35%
[[Page 6643]]
HUBZone residency requirement, or in determining the size of the
applicant or qualified HUBZone SBC for any employee-based size
standard.
(c) A qualified HUBZone SBC that is a prime contractor on a HUBZone
contract may subcontract work to its mentor.
(1) The HUBZone SBC must meet the applicable performance of work
requirements set forth in Sec. 125.6(c) of this chapter.
(2) SBA may find affiliation between a prime HUBZone contractor and
its mentor subcontractor where the mentor will perform primary and
vital requirements of the contract. See Sec. 121.103(h)(4) of this
chapter.
(d) A qualified HUBZone SBC that has an SBA-approved mentor-
prot[eacute]g[eacute] relationship pursuant to Sec. 125.9 or Sec.
124.520 of this chapter may joint venture with its mentor (whether or
not the mentor is small) on a HUBZone contract.
(1) A joint venture between a qualified HUBZone SBC and its SBA-
approved mentor will qualify as a small business provided the
prot[eacute]g[eacute] individually qualifies as small for the size
standard corresponding to the NAICS code assigned to the procurement,
and the joint venture meets the requirements of Sec. 126.616(c) and
(d).
(2) A qualified HUBZone SBC may not joint venture with any mentor
that has not been approved by SBA pursuant to Sec. 125.9 or Sec.
124.520 of this chapter unless the mentor is also a qualified HUBZone
SBC.
PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM
0
33. The authority citation for part 127 is revised to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 637(m), and 644; Pub. L.
111-240, 24 Stat. 2504.
Sec. 127.500 [Amended]
0
34. Amend Sec. 127.500 by adding the words ``, regardless of the place
of performance'' to the end of the sentence.
0
35. Amend Sec. 127.506 as follows:
0
a. Revise the section introductory text and paragraphs (a), add an
italic subject head to paragraph (c), and revise paragraphs (c)(2) and
(3);
0
b. Redesignate paragraph (c)(4) as (c)(7) and paragraph (c)(5) as
(c)(10) respectively;
0
c. Add new paragraphs (c)(4) and (c)(5) and add paragraph (c)(6);
0
d. Revise newly redesignated paragraph (c)(7);
0
e. Add paragraphs (c)(8), (c)(9), (c)(11), and (c)(12);
0
f. Revise paragraphs (d), (e) and (f); and
0
g. Add paragraphs (g), (h), (i), (j), (k) and (l).
The revisions and additions read as follows:
Sec. 127.506 May a joint venture submit an offer on an EDWOSB or WOSB
requirement?
A joint venture, including those between a prot[eacute]g[eacute]
and a mentor under Sec. 125.9 of this chapter (or, if also an 8(a) BD
Participant, under Sec. 124.520 of this chapter), may submit an offer
on an EDWOSB or WOSB contract if the joint venture meets all of the
following requirements:
(a)(1) A joint venture of at least one EDWOSB or WOSB and one or
more other business concerns may submit an offer as a small business
for a EDWOSB or WOSB contract so long as the firms in the aggregate are
small under the size standard corresponding to the NAICS code assigned
to the contract, unless the contract qualifies under the exception in
121.103(h)(3). If the contract qualifies under the exception in
121.103(h)(3), each firm must be small under the size standard
corresponding to the NAICS code assigned to the contract.
(2) A joint venture between a prot[eacute]g[eacute] firm and its
SBA-approved mentor (see Sec. 125.9 and Sec. 124.520 of this chapter)
will be deemed small provided the prot[eacute]g[eacute] qualifies as
small for the size standard corresponding to the NAICS code assigned to
the EDWOSB or WOSB procurement.
* * * * *
(c) Contents of joint venture agreement. * * *
(1) * * *
(2) Designating a WOSB as the managing venturer of the joint
venture, and an employee of the WOSB managing venturer as the project
manager responsible for performance of the contract;
(3) Stating that with respect to a separate legal entity joint
venture, the WOSB must own at least 51% of the joint venture entity;
(4) Stating that the WOSB must receive profits from the joint
venture commensurate with the work performed by the WOSB, or in the
case of a separate legal entity joint venture, commensurate with their
ownership interests in the joint venture;
(5) Providing for the establishment and administration of a special
bank account in the name of the joint venture. This account must
require the signature of all parties to the joint venture or designees
for withdrawal purposes. All payments due the joint venture for
performance on a WOSB or EDWOSB contract will be deposited in the
special account; all expenses incurred under the contract will be paid
from the account as well;
(6) Itemizing all major equipment, facilities, and other resources
to be furnished by each party to the joint venture, with a detailed
schedule of cost or value of each;
(7) Specifying the responsibilities of the parties with regard to
negotiation of the contract, source of labor, and contract performance,
including ways that the parties to the joint venture will ensure that
the joint venture and the WOSB partner to the joint venture will meet
the performance of work requirements set forth in paragraph (d) of this
section;
(8) Obligating all parties to the joint venture to ensure
performance of the WOSB contract and to complete performance despite
the withdrawal of any member;
(9) Designating that accounting and other administrative records
relating to the joint venture be kept in the office of the WOSB
managing venturer, unless approval to keep them elsewhere is granted by
the District Director or his/her designee upon written request;
(10) Requiring that the final original records be retained by the
WOSB managing venturer upon completion of the EDWOSB or WOSB contract
performed by the joint venture;
(11) Stating that quarterly financial statements showing cumulative
contract receipts and expenditures (including salaries of the joint
venture's principals) must be submitted to SBA not later than 45 days
after each operating quarter of the joint venture; and
(12) Stating that a project-end profit and loss statement,
including a statement of final profit distribution, must be submitted
to SBA no later than 90 days after completion of the contract.
(d) Performance of work. (1) For any EDWOSB or WOSB contract, the
joint venture (including one between a prot[eacute]g[eacute] and a
mentor authorized by Sec. 125.9 or Sec. 124.520 of this chapter) must
perform the applicable percentage of work required by Sec. 125.6 of
this chapter.
(2) The WOSB partner(s) to the joint venture must perform at least
40% of the work performed by the joint venture.
(i) The work performed by the WOSB partner(s) to a joint venture
must be more than administrative or ministerial functions so that they
gain substantive experience.
(ii) The amount of work done by the partners will be aggregated and
the work done by the WOSB partner(s) must be at least 40% of the total
done by all partners. In determining the amount of
[[Page 6644]]
work done by the non-WOSB partner, all work done by the non-WOSB
partner and any of its affiliates at any subcontracting tier will be
counted.
(e) Certification of compliance. Prior to the performance of any
WOSB or EDWOSB contract as a joint venture, the WOSB or EDWOSB SBC
partner to the joint venture must submit a written certification to the
contracting officer and SBA, signed by an authorized official of each
partner to the joint venture, stating as follows:
(i) The parties have entered into a joint venture agreement that
fully complies with paragraph (c) of this section;
(ii) The parties will perform the contract in compliance with the
joint venture agreement and with the performance of work requirements
set forth in paragraph (d) of this section.
(f) Past performance. When evaluating the past performance of an
entity submitting an offer for a WOSB or EDWOSB contract as a joint
venture established pursuant to this section, a procuring activity must
consider work done individually by each partner to the joint venture as
well as any work done by the joint venture itself previously.
(g) Contract execution. The procuring activity will execute a WOSB
or EDWOSB contract in the name of the joint venture entity or the WOSB
or EDWOSB SBC, but in either case will identify the award as one to a
WOSB or ESWOSB joint venture or a WOSB or EDWOSB mentor-
prot[eacute]g[eacute] joint venture, as appropriate.
(h) Submission of joint venture agreement. The WOSB or EDWOSB must
provide a copy of the joint venture agreement to the contracting
officer.
(i) Inspection of records. The joint venture partners must allow
SBA's authorized representatives, including representatives authorized
by the SBA Inspector General, during normal business hours, access to
its files to inspect and copy all records and documents.
(j) Performance of work reports. The WOSB or EDWOSB SBC partner to
a joint venture must describe how it is meeting or has met the
applicable performance of work requirements for each WOSB or EDWOSB
contract it performs as a joint venture.
(1) The WOSB or EDWOSB SBC partner to the joint venture must
annually submit a report to the relevant contracting officer and to the
SBA, signed by an authorized official of each partner to the joint
venture, explaining how the performance of work requirements are being
met for each WOSB or EDWOSB contract performed during the year.
(2) At the completion of every WOSB or EDWOSB contract awarded to a
joint venture, the WOSB or EDWOSB SBC partner to the joint venture must
submit a report to the relevant contracting officer and to the SBA,
signed by an authorized official of each partner to the joint venture,
explaining how and certifying that the performance of work requirements
were met for the contract, and further certifying that the contract was
performed in accordance with the provisions of the joint venture
agreement that are required under paragraph (c) of this section.
(k) Basis for suspension or debarment. The Government may consider
the following as a ground for suspension or debarment as a willful
violation of a regulatory provision or requirement applicable to a
public agreement or transaction:
(1) Failure to enter a joint venture agreement that complies with
paragraph (c) of this section;
(2) Failure to perform a contract in accordance with the joint
venture agreement or performance of work requirements in paragraph (d)
of this section; or
(3) Failure to submit the certification required by paragraph (e)
or comply with paragraph (i) of this section.
(l) Any person with information concerning a joint venture's
compliance with the performance of work requirements may report that
information to SBA and/or the SBA Office of Inspector General.
PART 134--RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF
HEARINGS AND APPEALS
0
36. The authority citation for part 134 continues to read as follows:
Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), 637(a),
648(l), 656(i), and 687(c); E.O. 12549, 51 FR 6370, 3 CFR, 1986
Comp., p. 189.
0
37. Amend Sec. 134.227 by revising paragraph (c) to read as follows:
Sec. 134.227 Finality of decisions.
* * * * *
(c) Reconsideration. Except as otherwise provided by statute, the
applicable program regulations in this chapter, or this part 134, an
initial or final decision of the Judge may be reconsidered. Any party
in interest, including SBA where SBA did not appear as a party during
the proceeding that led to the issuance of the Judge's decision, may
request reconsideration by filing with the Judge and serving a petition
for reconsideration within 20 days after service of the written
decision, upon a clear showing of an error of fact or law material to
the decision. The Judge also may reconsider a decision on his or her
own initiative.
0
38. Amend Sec. 134.406 by revising paragraph (b) to read as follows:
Sec. 134.406 Review of the administrative record.
* * * * *
(b) Except in suspension appeals, the Administrative Law Judge's
review is limited to determining whether the Agency's determination is
arbitrary, capricious, or contrary to law. As long as the Agency's
determination is not arbitrary, capricious or contrary to law, the
Administrative Law Judge must uphold it on appeal.
(1) The Administrative Law Judge must consider whether the decision
was based on a consideration of the relevant factors and whether there
has been a clear error of judgment.
(2) If the SBA's path of reasoning may reasonably be discerned, the
Administrative Law Judge will uphold a decision of less than ideal
clarity.
* * * * *
Sec. 134.501 [Amended]
0
39. Amend Sec. 134.501 by removing ``Sec. 125.26'' from paragraph
(a), and by adding ``Sec. 125.29'' in its place.
Sec. 134.515 [Amended]
0
40. Amend Sec. 134.515 by removing ``13 CFR 125.28'' from paragraph
(a), and by adding ``Sec. 125.31 of this chapter'' in its place.
Dated: December 19, 2014.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2015-01548 Filed 2-4-15; 8:45 am]
BILLING CODE 8025-01-P