Business Development/Small Disadvantaged Business Status... [PDF

35726 Federal Register / Vol. 63, No. 125 / Tuesday, June 30, 1998 / Rules and Regulations

the contracting officer] percent to the price ofall offers, except—

(i) Offers from small disadvantagedbusiness concerns that have not waived theadjustment;

(ii) For DOD, NASA, and Coast Guardacquisitions, otherwise successful offers fromhistorically black colleges or universities orminority institutions;

(iii) Otherwise successful offers of eligibleproducts under the Trade Agreements Actwhen the dollar threshold for application ofthe Act is equaled or exceeded (see section25.402 of the Federal Acquisition Regulation(FAR));

(iv) Otherwise successful offers whereapplication of the factor would beinconsistent with a Memorandum ofUnderstanding or other internationalagreement with a foreign government; and

(v) For DOD acquisitions, otherwisesuccessful offers of qualifying country endproducts (see sections 225.000–70 and252.225–7001 of the Defense FARSupplement).

(2) The factor shall be applied on a lineitem basis or to any group of items on whichaward may be made. Other evaluation factorsdescribed in the solicitation shall be appliedbefore application of the factor. The factormay not be applied if using the adjustmentwould cause the contract award to be madeat a price that exceeds the fair market priceby more than the factor in paragraph (b)(1)of this clause.

(c) Waiver of evaluation adjustment. Asmall disadvantaged business concern mayelect to waive the adjustment, in which casethe factor will be added to its offer forevaluation purposes. The agreements inparagraph (d) of this clause do not apply tooffers that waive the adjustment.

llOfferor elects to waive the adjustment.(d) Agreements. (1) A small disadvantaged

business concern, that did not waive theadjustment, agrees that in performance of thecontract, in the case of a contract for—

(i) Services, except construction, at least 50percent of the cost of personnel for contractperformance will be spent for employees ofthe concern;

(ii) Supplies (other than procurement froma nonmanufacturer of such supplies), at least50 percent of the cost of manufacturing,excluding the cost of materials, will beperformed by the concern;

(iii) General construction, at least 15percent of the cost of the contract, excludingthe cost of materials, will be performed byemployees of the concern; or

(iv) Construction by special tradecontractors, at least 25 percent of the cost ofthe contract, excluding the cost of materials,will be performed by employees of theconcern.

(2) A small disadvantaged businessconcern submitting an offer in its own nameagrees to furnish in performing this contractonly end items manufactured or produced bysmall disadvantaged business concerns in theUnited States. This paragraph does not applyin connection with construction or servicecontracts.(End of clause)

Alternate I (Oct 1998). As prescribed in19.1104, substitute the following paragraph(d)(2) for paragraph (d)(2) of the basic clause:

(2) A small disadvantaged businessconcern submitting an offer in its own nameagrees to furnish in performing this contractonly end items manufactured or produced bysmall business concerns in the United States.This paragraph does not apply in connectionwith construction or service contracts.

[FR Doc. 98–17197 Filed 6–26–98; 8:45 am]BILLING CODE 6820–EP–P

DEPARTMENT OF DEFENSE

GENERAL SERVICESADMINISTRATION

NATIONAL AERONAUTICS ANDSPACE ADMINISTRATION

48 CFR Chapter 1

Federal Acquisition Regulation; SmallEntity Compliance Guide

AGENCIES: Department of Defense (DOD),General Services Administration (GSA),and National Aeronautics and SpaceAdministration (NASA).ACTION: Small Entity Compliance Guide.

SUMMARY: This document is issuedunder the joint authority of theSecretary of Defense, the Administratorof General Services, and theAdministrator for the NationalAeronautics and Space Administrationas the Federal Acquisition RegulatoryCouncil. This Small Entity ComplianceGuide has been prepared in accordancewith Section 212 of the Small BusinessRegulatory Enforcement Fairness Act of1996 (Public Law 104–121). It consistsof a summary of the rule appearing inFederal Acquisition Circular (FAC) 97–06 which amends the FederalAcquisition Regulation (FAR). Furtherinformation regarding this rule may beobtained by referring to FAC 97–06which precedes this document. Thisdocument may be obtained from theInternet at http://www.arnet.gov/far.FOR FURTHER INFORMATION CONTACT: TheFAR Secretariat, (202) 501–4755.

Reform of Affirmative Action inFederal Procurement

FAC 97–06/FAR Case 97–004A. Theinterim rule amends FAR Parts 1, 12, 14,15, 19, 33, and 52 to establish amechanism to benefit smalldisadvantaged business concerns at theprime contract level. This mechanism isa price evaluation adjustment of up toten percent in certain StandardIndustrial Classification (SIC) MajorGroups as determined by theDepartment of Commerce. This priceevaluation adjustment conforms to theDepartment of Justice proposal to reformaffirmative action in Federal

procurement and to regulations issuedby the Small Business Administrationregarding small disadvantaged businessprograms. This price evaluationadjustment is mandatory for thosecompetitive procurements to which itapplies. It does not, however, apply toseveral major categories of acquisition,including, for example, acquisitionswithin the simplified acquisitionthreshold, acquisitions set aside forsmall business, and acquisitionsconducted pursuant to the 8(a) program.

Dated: June 23, 1998.Edward C. Loeb,Director, Federal Acquisition Policy Division.[FR Doc. 98–17198 Filed 6–26–98; 8:45 am]BILLING CODE 6820–EP–P

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, and 134

Small Business Size Regulations; 8(a)Business Development/SmallDisadvantaged Business StatusDeterminations; Rules of ProcedureGoverning Cases Before the Office ofHearings and Appeals

AGENCY: Small Business Administration.ACTION: Final rule.

SUMMARY: In response to PresidentClinton’s government-wide regulatoryreform initiative, the Small BusinessAdministration (SBA) amends both theeligibility requirements for, andcontractual assistance provisionswithin, the SBA’s 8(a) BusinessDevelopment (8(a) BD) program. Thisfinal rule changes the name of theprogram from the Minority SmallBusiness and Capital OwnershipDevelopment program to the 8(a) BDprogram to better reflect the purpose ofthe program. This rule streamlines theoperation of the 8(a) BD program, easescertain restrictions perceived to beburdensome on Program Participants,clarifies certain eligibility requirements,and deletes obsolete regulations.DATES: Effective Date: This rule iseffective on July 30, 1998.

Compliance Dates: Subpart A appliesto all applications for the 8(a) BusinessDevelopment program pending as ofJuly 30, 1998 and all 8(a) procurementrequirements accepted by SBA on orafter July 30, 1998. These rules do notapply to any appeals pending beforeSBA’s Office of Hearings and Appeals.The revisions to 13 CFR part 121 applywith respect to all solicitations issuedon or after June 30, 1998. Except for 13CFR 134.408(c), the proceduralrevisions to 13 CFR part 134 apply to allappeals served or filed on or after June

35727Federal Register / Vol. 63, No. 125 / Tuesday, June 30, 1998 / Rules and Regulations

30, 1998. 13 CFR 134.408(c) applies asof the publication to all pending appealsbefore SBA’s Office of Hearings andAppeals.FOR FURTHER INFORMATION CONTACT:William A. Fisher, Acting AssociateAdministrator for Minority EnterpriseDevelopment, at (202) 205–6412.SUPPLEMENTARY INFORMATION: On March4, 1995, President Clinton issued aMemorandum to federal agencies,directing them to simplify theirregulations. In response to thisdirective, SBA completed a page-by-page, line-by-line review of all of itsthen existing regulations to determinewhich might be revised or eliminated.Revisions to 13 CFR Part 124 awaited areview by the Department of Justice(DOJ) of all Federal procurementaffirmative action programs. On May 23,1996, DOJ published in the FederalRegister a comprehensive proposal fortailoring affirmative action programs inthe Federal procurement arena (see 61FR 26042), and on May 9, 1997 theDepartment of Defense, the GeneralServices Administration, and theNational Aeronautics and SpaceAdministration proposed amendmentsto the Federal Acquisition Regulation(FAR) concerning programs for smalldisadvantaged business (SDB) concerns.In response to and in conjunction withthe DOJ and FAR reform proposals, onAugust 14, 1997, SBA published in theFederal Register, 62 FR 43584, aproposed rule to amend 13 CFR part124. Subpart A of the proposed part 124dealt with changes pertaining to the 8(a)Business Development (8(a) BD)program which is authorized by sections7(j)(10) and 8(a) of the Small BusinessAct, 15 U.S.C. 636(j)(10), 637(a). SubpartB of proposed part 124 dealt with SBA’srole in the certification and protest ofsmall disadvantaged businesses, ascontemplated by the DOJ and FARproposals. During the proposed rule’s60-day comment period, SBA received95 timely comments, the majority ofwhich favored the proposed changes.This rule finalizes subpart A of 13 CFRpart 124 (its regulations relating to theSBA’s 8(a) Business DevelopmentProgram. SBA continues to considerissues relating to subpart B of 13 CFRpart 124, and will finalize thoseregulations at a later time. This ruledoes not address any comments maderegarding subpart B of part 124 or SBA’sresponse thereto.

A substantial number of commentersapplauded SBA’s effort to removeduplicative provisions, and rewritethose that appeared wordy or unclearlywritten. For the most part, thecomments also supported the

substantive changes proposed by SBA.SBA received comments on manyaspects of the proposed rule. With theexception of comments which did notset forth any rationale or makesuggestions, SBA discusses andresponds fully to all the commentsbelow.

In addition to the changes to 13 CFRpart 124, the final rule also makeschanges to SBA’s size regulations (part121) to permit size protests and appealsof Standard Industrial Classification(SIC) code designations in connectionwith 8(a) competitive procurements,and to exclude certain joint venturearrangements from SBA’s affiliationrules. These changes should increasethe potential pool of small businessesavailable to compete for particularprocurements and should encouragecontracting officers to consider smallbusiness contractors more closely beforedetermining a procurement strategy.The final rule also transfers theprocedures relating to certain statutorilyauthorized appeals in the 8(a) programfrom part 124 to part 134 of 13 CFR.

This final rule streamlines theoperation of the 8(a) BD program, easescertain restrictions perceived to beburdensome on Participants, amendscertain eligibility procedures, anddeletes obsolete regulations. Itreorganizes the regulations intoidentifiable substantive areas for ease ofuse and clarity. It also changes allreferences to SBA’s Office of MinoritySmall Business and Capital OwnershipDevelopment to the Office of 8(a)Business Development to emphasizethat individuals participating in theprogram need not be members ofminority groups and to stress theimportance of assisting participatingfirms in their overall businessdevelopment.

SBA has attempted to rewrite theregulations in plain English whereverpossible. To this end, SBA has writtensection headings in question format forease of use, and has eliminatedunnecessary verbiage from theregulations.

This rule amends eligibilityprocedures for admission to the 8(a) BDprogram and also amends contractualassistance provisions within the 8(a) BDprogram. It eliminates the requirementthat a Participant must have specifiedSIC codes approved by SBA in itsbusiness plan in order to be eligible for8(a) contracts, establishes consistentremedial measures for firms that do notmeet their non-8(a) business activitytargets, eases certain joint venturerestrictions, and establishes a mentor/protege program for developing 8(a)Participants. This rule also liberalizes

the standard of review for non-groupmembers seeking disadvantaged statusfrom a clear and convincing evidencetest to a preponderance of the evidencestandard.

Summary of Comments and SBA’sResponse

Part 121: SBA received a substantialnumber of comments agreeing withSBA’s proposal to exclude certain jointventure arrangements from the normalaffiliation rules. This provision willencourage contracting officers to usesmall business contractors to a greaterextent. With the consolidation ofprocurements becoming an increasingreality, some contracting officers mayfeel that requirements are too big for asmall business to perform successfully.The proposed rule would havepermitted two or more small businessconcerns to joint venture for a particularprocurement and be considered a smallbusiness concern so long as eachconcern individually was small. Severalcommenters recommended that thisprovision be broadened to excludeaffiliation rules where there are‘‘teaming’’ agreements as well. SBAconcurs with this recommendation, andhas changed the rule accordingly.

Part 124, subpart A: Most of thecomments received by SBA focused onsubpart A of part 124. The followinganalysis discusses each of thesignificant comments received.

The proposed rule contained noprovision for reporting changes thatwould adversely affect a firm’seligibility, either during the applicationstage or during a Participant’s tenure inthe program. As a result of a number ofcomments, several new provisions havebeen included in the regulation. Section124.2 requires, in part, that a Participantmust maintain its program eligibilitythroughout its tenure in the programand is obligated to inform SBA of anychanges that would adversely affect itsprogram eligibility. To continue a firm’sparticipation in the program, § 124.112specifically reasserts this obligation and§ 124.112(b)(2) requires programParticipants as part of their annualreview to represent that no adversechange occurred or, in the alternative, todescribe any adverse changes that haveoccurred. During the application stage,the 8(a) applicant is obligated to informSBA of any adverse changes that mayhave occurred since the actualapplication.

Section 124.103(c) of the proposedrule stated that individuals who are notmembers of designated sociallydisadvantaged groups must establishindividual social disadvantage by a‘‘preponderance of the evidence.’’


Previously, individuals not members ofa designated group needed to proveindividual social disadvantage by ‘‘clearand convincing’’ evidence. SBAreceived many comments regarding theproposed change in the evidentiarystandard. The majority of commentersdid not favor changing the standard.SBA believes that all individuals whocan show that they have personallysuffered social disadvantage, includingwomen and handicapped individuals,should be admitted to the 8(a) BDprogram, and that the change in theevidentiary standard is necessary forconstitutional reasons. In response tothe Supreme Court’s decision inAdarand Constructors, Inc. v. Pena, 115Sup. Ct. 2097 (1995), which requiresprograms to provide a race-basedremedy to be ‘‘narrowly tailored,’’ theDepartment of Justice recommended the‘‘preponderance of the evidence’’standard for government-widedisadvantaged business programs. SBAbased the ‘‘preponderance of theevidence’’ standard on the Departmentof Justice proposal, and continues tobelieve that the use of this standardstrengthens the defense of the 8(a) BDprogram. Therefore, SBA retains the‘‘preponderance of the evidence’’standard in the final rule. While thecriteria for a case of individual socialdisadvantage remains basically thesame, the final rule changes theevidentiary standard that must beshown to demonstrate an individualcase of social disadvantage. In assessinga claim of individual socialdisadvantage, SBA will consider allrelevant information submitted by anapplicant. Evidence which tends toshow generalized patterns ofdiscrimination against a non-designatedgroup or statistical data showing thatbusinesses owned by a specific non-designated group are disproportionatelyunderrepresented in a particularindustry may be used to augment anindividual’s case. Statistics andgeneralized patterns are not sufficientby themselves to establish a case ofindividual social disadvantage.However, an individual’s statement ofpersonal experiences in combinationwith the generalized evidence may besufficient to demonstrate socialdisadvantage.

Proposed § 124.103(d) stated thatrepresentatives of an identifiable groupwhose members believe that the grouphas suffered chronic racial or ethnicprejudice or cultural bias may petitionSBA to be included as a grouppresumed to be socially disadvantaged.One commenter asked what theevidentiary standard should be for

approval of a designated group. As aresult of this comment, § 124.103(d)(1)of the final rule provides that apreliminary showing must be made thatsubstantial evidence exists that a groupmeets the criteria to be determinedpresumptively socially disadvantaged.Once this showing is made, SBA willpublish a notice for comment and,where deemed appropriate, holdhearings and/or conduct its ownresearch. After completion of theprocess, SBA will determine whether apreponderance of the evidence showsthat the group meets the necessarycriteria to be considered presumptivelydisadvantaged.

Proposed § 124.104, which set forththe factors to be reviewed to determinethe economic status of sociallydisadvantaged individuals, clarified thata contingent liability does not reduce anindividual’s net worth. A commenterremarked that contingent liabilitiesreduce capital and credit opportunitiesand should be considered as reducingnet worth. SBA understands thispossibility, but does not adopt thecomment. There are wide varieties ofcontingencies and their impacts oncredit opportunities. Moreover,individuals should not be permitted tosatisfy the net worth criterion byoffering guarantees and indemnitieswith remote possibilities of becomingactual liabilities.

Another commenter felt that § 124.104needed to set forth in greater detail thecriteria SBA uses to determine whetheran individual is economicallydisadvantaged. SBA will study thisissue for possible later revision.

Another commenter suggested thatunder § 124.104, review of the financialstatus of individuals claiming economicdisadvantage should be performed goingback two years prior to application. Thisis already addressed in two subsectionsof this section and no further provisionsare needed. Proposed § 124.104(c)provides that SBA will take into accountthe individual’s personal income for theprevious two years. Proposed§ 124.104(c)(1) provides that SBA willattribute to an individual claimingdisadvantaged status any assets whichthat individual has transferred to animmediate family member, or to a trusta or beneficiary of which is animmediate family member, for less thanfair market value, within two years priorto a concern’s application forparticipation in the 8(a) BD program orwithin two years of a Participant’sannual program review, unless theindividual claiming disadvantagedstatus can demonstrate that the transferis to or on behalf of an immediate familymember for that individual’s education,

medical expenses, or some other form ofessential support.

One commenter expressed concernthat transfers of assets to familymembers within two years prior toapplication should be objectionableeven if the transfer was ‘‘for fair marketvalue.’’ The commenter felt that shamtransfers would be made to enableindividuals to qualify as economicallydisadvantaged under the thresholds.SBA has not adopted this commentsince, if a transferee received fair marketvalue for an asset, the transfer would bea sale, not a sham. As such, the transferwould not distort a calculation of thetransferor’s net worth.

SBA had specifically requestedcomments on proposed § 124.105,seeking input on whether and underwhat circumstances trust arrangementsmight be considered permissiblewithout violating the statutoryrequirement that an applicant orParticipant must be at least 51 percentunconditionally owned by one or moresocially and economicallydisadvantaged individuals. SBAreceived several comments on thisissue. Upon further reflection, SBA hasdetermined that ownership of an 8(a)applicant or Participant by trusts thatare the functional equivalent ofindividuals, like living trusts, aretantamount to individual ownershipand should be permitted in the program.One commenter noted that the IRS treatsliving trusts as individuals for thepurposes of income tax calculation, andurged SBA to do the same. The SBArecognizes that an increasing number ofentrepreneurs are using such vehiclesfor tax and estate planning purposes.Therefore, a provision making certaintrusts eligible for 8(a) participation hasbeen included in § 124.105(a). The newprovision states that an 8(a) BD concernowned by a trust is considered to bedirectly owned by a disadvantagedindividual if the trust is revocable andthe disadvantaged individual is also thegrantor, a trustee and the sole currentbeneficiary of the trust.

Section 124.105(h) of the proposedrule set forth certain ownershiprestrictions for non-disadvantagedindividuals and concerns. Proposed§ 124.105(h)(1) stated that a non-disadvantaged individual or a non-Participant concern that owns a 10percent or greater interest in aParticipant as a general partner orstockholder may not own more than a10 percent interest in anotherParticipant. Proposed § 124.105(h)(2)stated that a non-Participant concern inthe same or similar line of business maynot own more than 10 percent in acurrent Participant, and a former


Participant in the same or similar lineof business may not own more than 20percent in a current Participant. Fivecommenters disagreed with theserestrictions. They felt they wereunnecessary and would place extraburdens on 8(a) firms that non-8(a) firmsdo not have. Most felt that if SBAdetermines that the firm is 51 percentowned, managed and controlled by adisadvantaged individual, no otherownership restrictions should apply.Two commenters pointed out that theregulation as proposed would hinderthe firm’s access to capital. Thecommenters pointed out that access tomoney is necessary to make thetransition into the competitive marketplace. In response to these comments,the SBA has revised its regulations toraise the percentages that non-disadvantaged individuals, non-disadvantaged firms and former 8(a)firms may own in an 8(a) Participant inthe transitional stage of programparticipation. With respect to a firm inthe transitional stage of 8(a) programparticipation, the final rule states that(1) a non-disadvantaged individual or anon-Participant concern with at least a10 percent ownership interest inanother Participant may own up to a 20percent interest; (2) a non-disadvantaged individual or concern inthe same or similar line of business mayown up to a 20 percent interest; and (3)a former 8(a) Participant may own up toa 30 percent interest. Percentages ofownership for firms in thedevelopmental stage of programparticipation are not changed in thisrule. SBA’s decision to ease the currentrestrictions on ownership of an 8(a) BDconcern should improve access tosources of capital. SBA decided not toraise the percentages higher than 20 and30 percent at this time due to itscontinued concern over program abusethrough the possible establishment offronts. SBA will continue to monitorthis section of the rule and may adjustthe percentages further in the future ifit deems it appropriate to do so.

Section 124.105(i) contains standardsfor obtaining SBA approval of a changein a Participant’s ownership. Severalcommenters expressed concern that atime limit should be imposed on SBA toapprove or decline change of ownershiprequests. The final rule provides that theAA/8(a)BD will issue a decision within60 days of receipt by the Agency of arequest containing all necessarydocumentation, and that the decision ofthe AA/8(a)BD will be the final Agencydecision. The final rule further providesthat the denial of a request for a changeof ownership may be grounds for

program termination if the change isnonetheless completed.

The preamble to the proposed rulesolicited comments on a proposal to usesuspension as a tool to allow time for anSBA inquiry into a Participant’s changeof ownership or control. No negativecomments were received relating to thisissue. Commenters who did address thematter approved of such use, providingthat SBA would restore the length of thesuspension to the firm’s program term ifthe change is ultimately approved. As aresult of the comments, SBA has revised§ 124.105(i). As revised, § 124.105(i)provides that, where a Participantrequests a change of ownership orbusiness sture, and the che change hasalready occurred, SBA will suspend theParticipant pending a decision on therequest. If the change is approved, theSBA will restore the length of thesuspension to the Participant’s programterm where the change in ownershipresults from the death or incapacity ofa disadvantaged individual, or wherethe firm requested prior approval andwaited 60 days for SBA approval beforemaking the change. SBA will not restorethe length of a suspension for any firmthat did not request a change inownership prior to making the change(except, as noted, for a change due todeath or incapacity). This provision hasalso been added to § 124.305 governingsuspensions.

The proposed regulation regardingsuspension (§ 124.305) has beenmodified to clarify the jurisdiction ofthe Office of Hearings and Appeals andthe standard of evidence necessary forSBA to sustain its suspension action.The proposed rule stated that SBA hasthe burden of showing that‘‘substantial’’ evidence exists in supportof at least one of the grounds fortermination cited in the Letter of Intentto Terminate. SBA has decided not toadopt this new standard in the finalrule. The final rule provides that SBA isrequired to show only that ‘‘adequate’’evidence exists in support of a least oneof the grounds for termination. The finalrule defines the term ‘‘adequateevidence’’ as information sufficient tosupport the reasonable belief that aparticular act or omission has occurred.This definition is adopted from § 9.403of Title 48 of the Code of FederalRegulations.

Section 124.305 has also beenamended to provide that, unless theAdministrative Law Judge consolidatesthe suspension and terminationproceedings, the review must be limitedto determining whether thegovernment’s interest needs protection.SBA’s Office of Hearings and Appeals

(OHA) may not review the grounds fortermination under a suspension action.

A commenter questioned whetherproposed § 124.105(i) conflicts with therequirement in § 124.515 that a changein ownership of an 8(a) BD concernrequires a waiver from SBA for theParticipant to continue performing onan 8(a) contract. Section 124.105(i)allows continued performance of acontract without a waiver if adisadvantaged individual is substitutedfor another, with SBA approval beforethe change is implemented. SBArequires waivers under § 124.515 onlywhere ownership of an 8(a) Participantwould be changed to an extent that the8(a) BD concern would be no longer atleast 51 percent owned by one or moredisadvantaged individuals. If SBA doesnot approve a change in ownershipbecause it determines that the acquiringindividual is not disadvantaged or thatthe firm as structured after the changeis no longer owned and controlled bydisadvantaged individuals, then thefirm must seek a waiver under § 124.515in order to continue to perform any ofits 8(a) contracts.

Proposed § 124.106 explained theconcept of control and the factors whichSBA looks at to determine who controlsan 8(a) BD concern. Several commentersraised issues of control where a non-disadvantaged individual held a criticallicense. SBA does not believe that themere fact that a non-disadvantagedemployee who is not also an equityowner of the firm holds a critical licensewould cause the disadvantagedprincipal(s) to lose control. In such acase, the disadvantaged principal(s)must demonstrate their managementexpertise and the right to replace thenon-disadvantaged employee at anytime with another technical employee.However, SBA agrees that the situationis much more complicated where thenon-disadvantaged individual whoholds a critical license is also an equityowner of the firm. The final rule permitsSBA to find negative control where anon-disadvantaged owner holds acritical license. The burden is on theapplicant or Participant to demonstratethat control is in the hands of one ormore disadvantaged individuals. Thefinal rule provides that an individualneed not have the technical expertise orpossess a required license to be foundto control an applicant or Participant ifhe or she can demonstrate that he or shehas ultimate managerial and supervisorycontrol over those who possess therequired licenses or technical expertise.SBA recognizes that failure to possesstechnical expertise or a required licenseare factors that may be considered inevaluating the disadvantaged


individual’s control of the concern, butthat such circumstances are notdispositive.

One commenter suggested that 8(a)concerns be allowed to own subsidiaryconcerns without being in violation ofthe requirement under proposed§ 124.106(a)(3) that an owner of an 8(a)concern devote full time to managementof the concern. SBA’s policy is to allowsuch ownership since working with thesubsidiary indirectly advances theinterests of the 8(a) concern. Therefore,a provision expressly allowing suchownership has been added to§ 124.106(a)(3). However, this exceptiondoes not change the general requirementthat an owner of an 8(a) concern devotefull time to manage the concern.

A few commenters requested thatsome flexibility be given to therequirement under § 124.106(a)(3) that adisadvantaged individual who managesthe Participant concern must devotefull-time to the business during normalworking hours. As stated in thepreamble to the proposed regulations,this requirement is not intended toprevent such individual from spendingnormal business hours away from thepremises in such areas as marketing andoutreach that benefit the concern. Therule does not imply that businessactivities could not be conducted bysuch individual outside the office. Itdoes, however, prohibit such individualfrom being physically located at a siteon a continuing basis which is separateand distinct from the Participantconcern during normal business hours,despite any claim that he or she ismanaging the concern from thatlocation. SBA believes it is importantfor the growth and development of the8(a) BD concern that the disadvantagedindividual who manages the concerndevote full time to such management.Therefore, SBA makes no change to thefinal rule.

The proposed regulations continuedSBA’s current approach and requiredthat disadvantaged individuals havemajority control of the board ofdirectors. Some commenters felt thatthis requirement did not reflect businesspractice in the corporate world. Onecommenter felt that, particularly insmaller corporations, the soleshareholder or the majority shareholdervirtually always controls the board ofdirectors. This control stems from his orher ability to replace directors at will.The commenter recognized, however,that in rare situations the sole ormajority owner might not control theboard, such as where directors havefixed terms and cannot be removedbefore the end of such terms. Inaddition, SBA notes that cumulative

voting practices and super majorityrequirements (i.e., any provisionsrequiring more than a simple majorityvote) may make it difficult for ashareholder owning only 51% of acorporate concern to control the boardof directors of that concern. Likewise,where more than one disadvantagedowner is involved, voting rights andcontrol of the board of directors isharder to pinpoint. As such, SBAaccepts this comment to a point. Thefinal rule gives several alternatives forfinding control by disadvantagedindividuals of the board of directors.Where a single disadvantagedindividual owns 100% of an applicantor Participant, SBA deems thatindividual to control the board ofdirectors, and no further analysis isneeded. Where a single disadvantagedindividual owning less than 100% seeksto qualify a concern, SBA deems thatindividual to control the board ofdirectors where he or she owns at least51% of the concern or, where theconcern has super majority votingrequirements, that percentage ofownership needed to overcome anysuch super majority ownershiprequirements, and he or she is on theboard of directors. The applicant will berequired to inform SBA of any supermajority voting requirements providedfor in its articles of incorporation, its by-laws, or by state law. Thus, thedisadvantaged owner is able to convenea shareholder’s meeting, changecorporate by-laws and articles ofincorporation, and change directors onthe board at will. In such a case, SBAwill not look at the makeup of the boardof directors for determining control ofthe firm (although SBA will continue toexamine the character of directors).Where more than one disadvantagedowner seeks to qualify an applicant orParticipant (i.e., no one individual owns51%) and each such individual is on theboard of directors, SBA deems thoseindividuals to control the board ofdirectors where together they own atleast 51% of the concern or, where theconcern has super majority votingrequirements, that percentage ofownership needed to overcome anysuch super majority ownershiprequirements, and they can demonstratethat they have made arrangements toovercome any potential stalemates andthat they have the comparable ability ofa single majority owner to act quickly.For example, where a concern has threedisadvantaged individuals each owning17%, SBA will deem the individuals tocontrol the board of directors withoutlooking at the board’s make-up if two ofthe three individuals have given their

voting rights to the third individual.Where an applicant or Participantcannot demonstrate the ability for adisadvantaged individual to act quicklyto replace members of the board ofdirectors, SBA will look at thecomposition of the board of directorsand will apply the current board ofdirectors control requirements to theconcern. The concern must meet thecurrent requirement that one or moredisadvantaged individuals must controlthe board of directors through numbersof individuals on the board or, wherepermitted by state law, throughweighted voting.

Numerous commenters expressedconcern that, with the lowering of theevidentiary standard for eligibility incases of individual social disadvantage,there would be a greater need to policefraud in the program applicationprocess. Many warned of potential frontsituations involving the transfer ofownership and/or control of theapplicant firm from one family memberto another. This final rule addressesthese issues at several points. Section124.106(f) provides that if a non-disadvantaged individual transfersmajority ownership or control of theapplicant firm to a family memberwithin two years of the date ofapplication while remaining an owner,officer, director or key employee of thecompany, the non-disadvantagedindividual will be presumed to controlthe company. As noted above, the finalrule also requires program applicants(§ 124.204(d)) and Participants(§ 124.112(b)) to inform SBA of anychanges that would adversely affecttheir eligibility. Failure to inform SBAof these adverse changes, or falselycertifying that no adverse changes exist,are grounds for denial of entry into theprogram or, if concern is a already aprogram Participant, grounds fortermination from the program.

Proposed § 124.107 set forth therequirement that an 8(a) BD applicantmust possess potential for success incompeting in the private sector. Onecommenter questioned whether an 8(a)applicant that can meet therequirements under § 124.107(b)(iii) and(iv), needs 8(a) BD assistance. Thesesubsections provide that if an applicantto the 8(a) BD program does not meetthe requirement that it has been inbusiness in its primary industryclassification for at least two full yearsprior to applying, this requirement maybe waived if certain conditions are met.In 1990, Congress passed legislation thatwould allow concerns to waive the twoyear rule after satisfying five conditions.See The Small Business AdministrationReauthorization and Amendments Act


of 1990, Pub. L. No. 101–574 § 203(b)(1),104 Stat. 2814, 2818–2819 (1990). SBAadopted the same five conditions forwaiver in the 8(a) regulations, but hasclarified that applicants will be assessedin the context of their proposedparticipation in the program.

As indicated above, severalcommenters expressed a need for greateroversight by SBA during the applicationprocess to prevent fraud. SBA notes thatprovisions included in the proposedregulations at § 124.108(a)(5) providethat SBA may decline an applicationdue to the submission of falseinformation. SBA may also terminate afirm from the program under§ 124.303(a)(1)(15) if it discovers laterthat the Participant falsified informationin its application. SBA retains theseprovisions in the final rule.

Proposed § 124.108(a) provided thatSBA could exclude firms from programparticipation for lack of good characterin circumstances where there wascredible evidence of criminal activity.Upon further internal deliberation, thefinal rule significantly expands andclarifies § 124.108(a). SBA will also finda firm ineligible for the 8(a) BD programif it or one of its principals (1) lacksintegrity as demonstrated byinformation related to an indictment,guilty plea, conviction, civil judgmentor settlement; (2) is currentlyincarcerated, or on parole or probationpursuant to a pre-trial diversion orfollowing conviction for a felony or anycrime involving business integrity; or (3)has knowingly submitted falseinformation as part of the applicationfor program admission. Thisclarification and expansion of thedefinition of good character reinforcesthe concept of business character as arequirement for program eligibility. Italso promotes greater consistencybetween the eligibility requirements inthis section and the grounds fortermination in § 124.303(a).

Several commenters believed thatpayment of obligations to the Federalgovernment should be included as anelement of good business characterunder § 124.108(a). Failure to paysignificant obligations owed to theFederal Government is already a basisfor program termination under§ 124.303(a)(11). Additionally, theexistence of defaults resulting in a losson a federal loan or federally assistedfinancing has long been a reason fordenying financial assistance in otherSBA programs. See 13 CFR § 120.110.For these reasons, SBA has added a newparagraph (e) to § 124.108, providingthat any firm or principal that fails topay significant financial obligationsowed to the Federal Government is not

eligible for admission to the 8(a) BDprogram.

Section 124.108(f) of the proposedrule defined a ‘‘broker’’ as a concernthat adds no value to an item beingsupplied to a procuring activity. Onecommenter suggested that the definitionof broker be expanded to provide that acompany would not be considered abroker if it purchased and shipped anitem, despite the fact that purchasingand shipping do not technically ‘‘addvalue’’ to an item. SBA concurs that theproposed language did not adequatelycapture the meaning of the term‘‘broker.’’ SBA has, therefore, addedlanguage to § 124.108 to refine thedefinition of a broker. The final rule(§ 124.108(d)) provides that a broker isa concern that adds no material value toan item being supplied to a procuringactivity or which does not takeownership or possession of or handlethe item being procured with its ownequipment or facilities. This definitionof ‘‘broker’’ is specific to this rule. Somefirms which refer to themselves asbrokers in their line of business may notbe ineligible for 8(a) participation as‘‘brokers’’ under this rule.

The final rule also clarifies theprovision restricting a tribe’s (or anANC’s) ability to own more than onefirm in the 8(a) program doing the samework. Section 124.109(c)(3)(ii) specifiesthat a tribe may own a Participant or anapplicant that conducts or will conductsecondary business in the 8(a) BDprogram under the same SIC code thata current Participant owned by the tribeoperates in the 8(a) BD program as itsprimary SIC code. In other words, SBAwill not deny an application from atribally-owned concern where theapplication plans to do some work (butnot its primary work) in the same SICas another 8(a) firm owned by the tribe.The final rule makes this sameclarification for CDCs and NativeHawaiian Organizations as well. See§§ 124.110(c) and 124.111(d),respectively.

Proposed § 124.112 listed the criteriaParticipants must meet in order toremain eligible for the 8(a) BD program.One commenter suggested that if SBAdetermines that a Participant is nolonger eligible for the 8(a) BD programunder § 124.112, that the Participant beallowed to respond to the factorssupporting ineligibility even before SBAinitiates early graduation or terminationproceedings under § 124.302 and§ 124.303, respectively. If SBA initiatessuch proceedings, the Participant nowhas 30 days to respond to SBA under§ 124.304(b). SBA believes theseprocedures give the Participant an

adequate opportunity to respond on theissue of continued eligibility.

Another commenter recommendedthat a Participant which obtains an SBAloan should not thereby be consideredto have ‘‘access to credit’’ under§ 124.112 such that the sociallydisadvantaged individuals are no longerconsidered economically disadvantaged.Since this is already SBA’s policy, nochange to the regulation is necessary.

One commenter felt that requiringcertification of the transfer of assets tofamily members under § 124.112(b)(4)would penalize individuals for makinggifts to their families and would serveno legitimate purpose. SBA does notintend that each disadvantaged ownerreport every gift made to his or herfamily members. SBA is merely trying todetermine if an individual hastransferred significant assets to his orher family members in order to remaineligible for the program (i.e., in order toremain ‘‘economically disadvantaged’’).Where the individual retains some useor enjoyment of the asset transferred(e.g., real estate is ‘‘transferred’’ to aspouse and the individual continues tohave access to it; a piece of art is‘‘transferred’’ to a family member, butcontinues to be displayed in theindividual’s residence), SBA willattribute the asset back to thedisadvantaged individual for purposesof determining his or her continuedeconomic disadvantage status. Wherethe individual demonstrates that thetransfer is an irrevocable transfer as towhich the disadvantaged individualretains no use or enjoyment (e.g., theone-time transfer of funds to an adultchild to assist the child’s purchase of aresidence), the asset will not beattributed back to the disadvantagedindividual. In addition,§ 124.104(c)(1)(ii) of the final rulespecifies that SBA will not attribute toan individual claiming disadvantagedstatus any assets transferred by thatindividual to an immediate familymember that are consistent with thecustomary recognition of specialoccasions, such as birthdays,graduations, anniversaries, andretirements. This does not mean that anindividual claiming disadvantagedstatus may transfer unreasonably largefunds or other assets to an immediatefamily member and claim that it shouldnot be attributed back to him or herbecause the transfer was, for example, abirthday present. The funds or assetstransferred must be reasonable andwithin customary limits for theoccasion.

Another commenter suggested thatSBA also attribute back to thedisadvantaged transferor all transfers to


non-family members for less than fairmarket value. SBA does not adopt thissuggestion. Such a rule coulddiscourage, for example, an irrevocablecharitable transfer of assets. SBA notesthat if an asset is transferred subject toa retained interest or a remainder, thenthe present value of the retained interestwill continue to be counted as an assetin determining the donor’s net worth.As such, there is no need to imposefurther restrictions or requirements onthese transfers.

A few commenters noted thatlanguage in proposed § 124.112,concerning the continuing eligibility ofbusinesses in the 8(a) BD program,inadvertently requires concerns ownedby Alaska Native Corporations (ANCs)to comply with §§ 124.101 through124.108. SBA has revised § 124.112 tocorrect this error. In addition, thissection has been revised to address thecontinuing eligibility of concerns ownedby Indian tribes, Native HawaiianOrganizations and CommunityDevelopment Corporations (CDCs).

With respect to the new mentor/protege program, one commentersuggested that SBA should measure theperformance of the mentor and benefitsof the program. SBA has adopted thissuggestion by revising § 124.112(b) torequire from protege firms a narrativereport on the program as part of theirannual report. SBA has also revised§ 124.520 to provide specific standardsfor SBA reviews of mentor/protegerelationships.

Proposed § 124.112(c) set forthexamples under which SBA maydetermine that a socially disadvantagedindividual is no longer economicallydisadvantaged. One commenter notedthat the proposed rule referred to theeconomic status of the 8(a) BDParticipant, rather than thedisadvantaged individual. This error hasbeen corrected in the final regulations,and language has been added to clarifythat the economic status of theParticipant may be considered inanalyzing the status of the individual.

Proposed § 124.204 set forth theprocess of applying to the 8(a) BDprogram. Proposed § 124.204(b) statedthat eligibility for the program is basedon the circumstances existing on thedate of application, but that SBA mayrequest clarification of information inthe application. Several commenters feltthat this was too harsh and thatconcerns which might easily be eligiblefor the program would not be allowedthe chance to make simple changes inorder to be eligible. While SBAunderstands the desire an applicantwould have to be able to change itsapplication at any point in time in order

to come into compliance with SBA’srequirements during the applicationprocess, SBA believes that it is moreimportant for reviewers not to have anapplication that is an ever-changingmoving target. In addition, SBA notesthat the applicant still has its right torequest reconsideration of an initialdecline letter and it is free to make anychanges in its application at that time.

Proposed § 124.302 of the regulationsset forth the criteria for early graduation.A Participant could be graduated earlyif it either successfully completes theprogram prior to the end of its programterm or if one or more of thedisadvantaged owners are no longereconomically disadvantaged. Somecommenters felt that successful firmswould be penalized for their success ifthey were graduated before theexpiration of their 9 year term. AlthoughSBA is authorized to graduate firms thatmeet their business objectives early, thisprocess is at the discretion of theAdministrator. Early graduation is notan automatic process. Only Participantsthat show sufficient competitivestrength and viability to competesuccessfully outside the program will besubject to early graduation. Once theyshow such strength and viability, theirneed for continued participation in theprogram has ended. Accordingly, SBAhas retained these provisions in thefinal rule.

One commenter suggested that SBAshould graduate Participants early whenthe Participants have demonstrated theability to compete in the marketplacewithout assistance under the 8(a) BDprogram, whether or not they haveachieved the targets, goals andobjectives set forth in their businessplans. SBA believes that thisrecommendation is contrary to theSmall Business Act. The Small BusinessAct authorizes SBA to graduateParticipants early only under limitedcircumstances, among them where aParticipant has successfully completedthe program by substantially achievingits targets, goals and objectives. SBAunderstands the concerns of thecommenter, and will take efforts toensure that the targets, goals andobjectives in the business plans arerealistic and appropriate.

Section 124.303(a) of the proposedrule provides for early termination fromthe 8(a) program prior to the expirationof a concern’s Program Term for goodcause. Section 124.303(a)(13) lists, as anexample of good cause, excessivetransfers of funds or other businessassets hindering development of theconcern, and excessive withdrawalsfrom the concern for the personalbenefit of any of its owners or any entity

affiliated with the owners. Severalcommenters were concerned with SBAlabeling withdrawals ‘‘excessive’’without reviewing the totality of thecircumstances. Section 124.112(d)(3)defines as excessive those withdrawalsduring any one fiscal year of aParticipant that exceed $150,000 forfirms with sales up to $1,000,000;$200,000 for firms with sales between$1,000,000 and $2,000,000; and$300,000 for firms with sales over$2,000,000. The regulation permits SBAto terminate the concern for good causefor such withdrawals. However, it doesnot state that SBA will automaticallyterminate the concern. SBA realizes thatsome withdrawals above the‘‘excessive’’ guidelines are not excessivein light of the totality of thecircumstances. SBA decidesterminations on a case-by-case basis andalways considers the totality of thecircumstances beforehand. Nonetheless,the final rule clarifies that SBA willpresume to be excessive all withdrawalsexceeding the specified amounts.

The final rule changes § 124.303 toadd clarity and to eliminateredundancy. Proposed § 124.303(a)(18)stated that a suspension or revocation ofany license required to run the businessis good cause for termination. SBA hasdeleted this paragraph and transferredits substance to § 124.303(a)(12). Section124.303(a)(12) of the final rule now listsas a ground for termination the failureto keep licenses, charters and permitscurrent.

SBA received several commentsconcerning the application ofbenchmarks to the 8(a) BD program.This application is based on the DOJreview of Federal procurementaffirmative action programs and theGovernment-wide SDB program.Because this rule is not finalizing SBA’simplementation of the SDB program atthis time, it eliminates all references tobenchmarks from the 8(a) regulations(i.e, subpart A).

SBA has changed many of the 8(a)contracting sections as a result of thecomments. It has amended the generalprovisions in proposed § 124.501 inseveral respects. The final ruleeliminates proposed paragraph (d) of§ 124.501 as unnecessary, andrenumbers proposed paragraphs (e) and(f) as paragraphs (d) and (e) respectively.That paragraph had clarified that aconcern’s success in meeting its supportlevel would not preclude future 8(a) BDcontract awards. Although SBA thoughtthis clarification necessary at the timethe regulations were originally amendedto permit 8(a) concerns to exceed theirsupport levels, SBA believes that thatneed no longer exists.


One commenter requestedclarification concerning the purpose ofdelegating contract execution authority.The primary purpose behind suchdelegation is improved efficiency.Procuring activities can award contractsmuch more quickly and efficiently withsuch authority and may, therefore, seemore opportunities for making use ofthe 8(a) BD program.

A sentence was added to proposed§ 124.501 to provide that, wherepracticable, simplified acquisitionprocedures should be used for 8(a)contracts at or below the simplifiedacquisition threshold. This changeconforms SBA’s regulations to theFederal Acquisition Regulation (FAR)governing simplified acquisitionprocedures (48 CFR Part 13) andpromotes efficiency and economy. SBAhas also amended its rule, including§ 124.501(e), to change the term‘‘procuring agency’’ to ‘‘procuringactivity,’’ thus identifying correctly theGovernment contracting entityreferenced. Since Federal contracting isfrequently performed at the sub-Agencylevel, using the term ‘‘procuringagency’’ did not cover every entity thatmay enter into an 8(a) contract.

As a result of the comments, SBAadded a new paragraph (f) to providethat an 8(a) Participant that identifies arequirement should request SBA tocontact the procuring activity to requestthat the requirement be offered to the8(a) program.

Proposed § 124.502 addressed offersof procurements to the 8(a) BD Program.SBA has amended its proposed§ 124.502(a) to provide that a procuringactivity may transmit an offering letterto SBA by electronic mail, if available,or by facsimile transmission, mail orcommercial delivery service. Thisconforms the rule to the simplifiedacquisition procedures contained in theFAR and helps ensure that procuringactivities can award small contractsexpeditiously. SBA has amended itsproposed § 124.502(b) to provide that, incases where performance of aconstruction contract is to take placeoverseas, the contract should be offeredto the Office of 8(a) BD located in SBAHeadquarters.

One commenter asked why SBAverified the size of an 8(a) concern priorto accepting a sole source contract on itsbehalf since self-certification is acceptedin every other case. SBA performs thisfunction for sole source awards sincethere is no mechanism in place forprotesting a concern’s size in referenceto a sole source award. Thus, there is noother check to ensure that concerns inline for award of sole source contractsare in fact small for such contracts.

Moreover, since sole source awards aresignificant benefits, enabling firms toreceive contracts without having tocompete with other firms, it isparticularly important that eligibility,including size, is verified.

Proposed § 124.503 set forth theprocedures for accepting a requirementfor the 8(a) BD Program. This ruleamends § 124.503(a) to provide that,where a contract is valued at or belowthe simplified acquisition threshold,SBA will accept or reject therequirement within two days of receiptof the offer. In cases where the offer ismade on behalf of a particular ProgramParticipant, if SBA does not accept orreject the requirement or request anextension within two days, theprocuring activity may assume that theoffer has been approved and go forwardwith the award. SBA intends thischange to conform to the simplifiedacquisition procedures contained in Part13 of the FAR and to promote efficiency.This final rule also makes a significantchange to promote efficiency whereSBA has delegated its 8(a) contractexecution functions to an agency and aprocuring activity within that agencyhas a procurement requirement whosevalue is less than the SimplifiedAcquisition Procedures (SAP) thresholdamount. In such case, this ruleauthorizes SBA, in its discretion, topermit the procuring activity to awardan 8(a) contract under the SAPthreshold amount without sending anoffering letter to SBA and withoutreceiving SBA’s official acceptance ofthe requirement for the 8(a) program.

A number of comments requestedclarification of the treatment of multipleaward and federal supply schedulecontracts. SBA has added a paragraph to§ 124.503 setting forth the standards tobe applied to these types of contracts.Since, unlike Basic OrderingAgreements (BOA’s), multiple awardschedule contracts and federal supplyschedule contracts are contracts, a newtask order under such a contract will notrequire a new offer and acceptance.Likewise, if a concern qualifies foraward of a multiple award schedule orfederal supply schedule contract interms of eligibility and size, it will notbe denied future task orders on thatcontract if it subsequently grows large.Finally, if a multiple award schedule orfederal supply schedule contract wascompeted when awarded, subsequenttask orders under such contract will notrequire further competition under§ 124.506.

As a result of the comments, SBA hasadded a new paragraph (i) to clarify thatwhere SBA has delegated its 8(a)contract execution authority to a

procuring activity, the procuringactivity must still offer and SBA mustaccept all requirements intended to beawarded as 8(a) contracts. The onlyexception to the normal offer andacceptance process is that identifiedabove where a procurement requirementis less than the SAP threshold amountand SBA has specifically authorized(through the Memorandum ofUnderstanding delegating its contractexecution functions or otherwise) aprocuring activity to dispense with offerand acceptance.

Proposed § 124.504 set forth thecircumstances limiting SBA’s ability toaccept a procurement for award as an8(a) contract. In response to commentsidentified below, this final rulespecifically authorizes the use of SAP inconnection with 8(a) contract awards,and requires SBA to review offeringletters for requirements under SAP in anexpedited two-day time frame. In orderto meet this quick acceptance turnaround, SBA has decided not toconsider adverse impact in connectionwith a requirement offered under SAP.It is not feasible for SBA to obtaincurrent financial statements fromaffected small businesses and to makeadverse impact determinations withintwo days. However, because the SAPthreshold is $100,000, SBA believes thatadverse impact should not be a realfactor with these smaller contracts, andthat this change should not have aharmful effect.

Proposed § 124.504(e) (§ 124.504(d) inthe final rule) concerned the release ofa procurement for non-8(a) competition.One commenter pointed out that thelanguage in proposed § 124.504(e)(3)was misleading. That language providedthat if SBA declines to accept an offerand releases the requirement, it willrecommend to the procuring agency thatthe requirement be procured as a smallbusiness or SDB set-aside. Thecommenter correctly pointed out thatSDB set-asides are not authorized at thistime. SBA has, therefore, amended thisparagraph to provide that if SBAdeclines to accept an offer for the 8(a)program, it will recommend that therequirement be procured as a smallbusiness or, if authorized, SDB set-aside.

One commenter suggested thatindustries for which SBA has electednot to accept requirements should belisted on SBA’s website. SBA isconsidering adopting this idea;however, it need not revise itsregulations to adopt this policy. Anothercommenter recommended that firmsthat have graduated be permitted tocompete for follow-on contracts wherethe firm had been awarded the original


contract. Applicable law precludes SBAfrom making this change.

A number of commenters requestedadditional procedures to protect therights of small firms which could beadversely impacted by a decision toaccept an award for the 8(a) BDprogram. SBA carefully consideredthese comments and weighed themagainst the need of procuring activitiesfor prompt award of contracts. SBAdetermined that the current procedureswere sufficient to ensure that smallbusinesses performing contracts are notunduly harmed by the acceptance of anaward for the 8(a) program.

Proposed § 124.506 provided that 8(a)procurements above certain dollarthresholds must be competed amongeligible Participants. A number ofcommenters requested that thecompetitive thresholds be lowered.These thresholds were set by statuteand, therefore, may not be lowered bySBA.

One commenter requestedclarification concerning how thethresholds are applied to indefinitedelivery/indefinite quantity (ID/IQ)contracts. The commenter askedwhether the total value of such contractswould be the value of what theprocuring activity actually expects toorder or the maximum ordering amountit may order. SBA considers themaximum ordering amount to be thetotal value of the contract for purposesof determining whether a particular ID/IQ contract must be competed. As aresult of this comment, § 124.506(a)(2)has been amended to provide that forindefinite delivery or indefinite quantitytype contracts, the thresholds areapplied to the maximum order amountauthorized.

Language was mistakenly included inproposed § 124.507(c) which referred tolimiting competitions to the transitionalstage of program participation. SBA haseliminated this language in the finalrule, since it does not restrictcompetitions to the transitional stage.

One commenter objected to thelanguage in proposed § 124.506(c)(3)requiring SBA to deny a request tocompete a requirement under thecompetitive thresholds where therequest is made following the inabilityof the procuring activity and thepotential sole source awardee to reachan agreement on price or some othermaterial term or condition. Thecommenter pointed out that thisprovision unnecessarily restricts theflexibility of the Federal Government.SBA agrees with this comment and hasamended this paragraph to provide onlythat SBA may deny a request undersuch circumstances.

A number of commenters objected toSBA’s proposal to eliminate itsauthority to award an 8(a) contractabove the competitive threshold on asole-source basis where there is onlyone eligible firm capable of performingthe requirement. As a result of thecomments, SBA has added thisprovision back to the regulations at§ 124.506(d).

Proposed § 124.507 set forth theprocedures applicable to competitive8(a) contracts. One commenter objectedto the elimination of the requirementthat a firm must obtain SBA approval todo business under a particular SIC code.SBA has considered this comment, buthas rejected it. After several years ofexperience, SBA believes that theburden on an 8(a) Participant to obtainSBA approval for every SIC code underwhich the Participant might want toperform contracts hinders more thanhelps the Participant’s businessdevelopment. Moreover, the procuringactivity’s determination that a particular8(a) Participant is responsible toperform a given contract should sufficeto prevent firms from brokeringcontracts or from competing forcontracts for which they are notqualified.

One commenter correctly pointed outthat Certificate of Competency (COC)procedures should not be inapplicablein cases where SBA has delegatedcontract execution authority to theprocuring activity as provided inproposed § 124.507(b)(7). SBA agrees.SBA did not intend to make the COCprocedures inapplicable where contractexecution authority has been delegated.In addition, the final rule transfers thesubstance of proposed § 124.507(b)(6)(dealing with the execution ofcompetitive 8(a) contracts) to a new§ 124.508. The correction regarding theavailability of COCs where SBA hasdelegated its 8(a) contract executionfunctions to a procuring activity and thetransfer of proposed § 124.507(b)(6) to anew section make proposed§ 124.507(b)(7) unnecessary. Thus, SBAhas eliminated that provision in thisfinal rule.

A number of commenters objected tothe special geographic requirements forconstruction contracts in proposed§ 124.507(c)(2). These requirements aremandated by the Small Business Actand, therefore, may not be eliminated.One commenter correctly pointed outthat the reference to principal places ofbusiness in proposed § 124.507(c)(2) isincorrect and should be bona fide placesof business. SBA agrees with thiscomment and has made this correction.

This final rule adds a new § 124.508governing execution of 8(a) contracts.

This new section clarifies that SBA, theprocuring activity and the 8(a) firm maysign a tripartite agreement or, whereSBA has delegated contract executionauthority, the procuring activity and theParticipant alone may sign an 8(a)contract. This section also provides that,where SBA receives a contract forsignature valued at or below thesimplified acquisition threshold, it willsign the contract and return it to theprocuring activity within three (3) daysof receipt. This addition was made toconform to the simplified acquisitionprocedures in the FAR and to promoteexpeditious award of smaller contracts.

Pursuant to proposed § 124.508(§ 124.509 in the final rule), aParticipant could not receive sole source8(a) contracts where it was not incompliance with its non-8(a) businessactivity targets. A commenterrecommended that SBA allow moreflexibility to permit sole source awardswhere the firm can demonstrate goodfaith efforts to obtain non-8(a) revenue.SBA agrees that a waiver to therequirement prohibiting further solesource contracts when a Participantdoes not meet its non-8(a) businessactivity target may be appropriate inlimited, extraordinary circumstances.The final rule permits the AA/8(a)BD, orhis or her designee, to allow one ormore sole source contracts to aParticipant that is not in compliancewith its non-8(a) business activity targetwhere a denial of a sole source contractwould cause severe economic hardshipto the Participant so that theParticipant’s survival may bejeopardized, or where extenuatingcircumstances beyond the Participant’scontrol caused the Participant not tomeet its non-8(a) business activitytarget. For example, a Participant mightdemonstrate that it was the apparentsuccessful offeror for a non-8(a) contractthat was cancelled by the procuringactivity, and that a loss of that projectedrevenue caused the Participant not tomeet its non-8(a) business activitytarget. However, loss of additional profitor other normal business consequenceswill not be grounds for granting awaiver. SBA believes that a moreextensive waiver is not needed becausethe rule permits sufficient flexibility byallowing a firm to come into complianceduring authorized quarterly reviews.The rule authorizes no appeal right fordecisions not to grant a waiver, andsuch a waiver is totally at SBA’sdiscretion. The final rule also adds aprovision authorizing the SBAAdministrator to waive the requirementthat a Participant cannot receive an 8(a)sole source award when it is not in


compliance with its non-8(a) businessactivity targets where the head of theprocuring activity requests that awardbe made for the best interests of theGovernment.

Proposed § 124.509 (§ 124.510 in thefinal rule) set forth the requirement thatcertain percentages of work beperformed by the 8(a) BD concern on an8(a) BD contract. One commenterpointed out that compliance with thepercentage of work requirements is anelement of responsibility and, therefore,should be determined as of the date ofaward. SBA agrees with this commentand has amended this section to providethat SBA will determine whether thefirm will be capable of complying withthe percentage of work requirements bythe time of award of the contract forboth sealed bid and negotiatedprocurements.

Another commenter correctly pointedout that the example in the regulationconflicts with the requirements set forthin 13 CFR § 125.6, which refer to thework required as a percentage of totallabor rather than as a percentage of thetotal value of the contract. SBA agreeswith this comment and has changedexample 1 as well as some of thelanguage in § 124.510(c) of the final ruleto conform to the language in § 125.6.(The legislation on which theperformance of work requirements arebased states the percentage of workrequired as a percentage of total laborand not total value.) Example 2 was notchanged because the example does notconflict with either § 125.6 or thelegislation. Example 2 merely clarifiesapplication of the rule in the earlystages of performance of an ID/IQcontract.

One commenter pointed out thatapplication of the subcontractinglimitations at all times duringperformance of an ID/IQ contract wouldkeep many contractors from proposingon task orders. SBA agrees that theregulation is not flexible enough in thisregard and has amended the language inparagraph (c) to provide that SBA mayapprove in writing an 8(a) BD firm’srequest to subcontract out more than therequired percentage where it receivesassurances from both the contractor andthe procuring activity that thepercentages will be met by the timeperformance is completed. SBA believesthat this addition will provide firmswith the necessary flexibility withoutundermining the purposes of the rule.Where a firm has received permission tosubcontract out more than the requiredpercentage and does not comply withthe percentage requirements by the endof the contract, SBA will not grantfuture waivers.

There were a number of comments onproposed § 124.512 governing jointventures. Several commenters objectedto the requirement in proposed§ 124.512(e) that a contract be awardedin the name of the 8(a) BD participantor participants, even though the contractis to be performed by the joint venture.The commenters argued that thecontract should be in the name of thejoint venture to assure that all parties tothe joint venture are obligated toperform. SBA agrees with this view andhas amended this section to provide thatthe procuring activity will execute an8(a) contract in the name of the jointventure entity. With respect to thestatutory requirement that all 8(a)contracts be performed by participantconcerns, SBA interprets the AA/8(a)BD’s acceptance of Participants intothe program to extend to approved jointventures in which the Participant is thelead joint venture partner. In otherwords, for purposes of contracting,admission into the program includesboth a concern in its own capacity andany approved joint venture in which theconcern is the lead entity. Forcontracting purposes, SBA will considerthe joint venture to be the Participantwhere the joint venture meets allapplicable requirements and isapproved by SBA.

Paragraph (f) requiring all parties tothe joint venture to sign suchdocuments as are necessary to obligatethemselves to ensure performance of thecontract was deleted as unnecessarywhere the contract is entered into in thejoint venture’s name. However, aprovision was added requiring the jointventure agreement to obligate each partyto the venture to complete performanceof the contract even if one of themembers withdraws. (See§ 124.513(c)(7))

A number of commenters felt that theprovision requiring the 8(a) members ofthe joint venture to perform theapplicable percentages of work underthe performance of work requirements(§ 124.510) would undermine thebenefits derived from the joint venturearrangement. SBA considered thiscomment and agrees that many of theadvantages of performing a particularcontract as a joint venture would be lostif the 8(a) BD concern is required toperform as much of the contract as itwould have had to perform had it beenawarded the contract directly. ThereforeSBA has amended paragraph (b)(1)(iv)of this section to provide that the jointventure must perform the applicablepercentage of work. Paragraph (g) wasalso eliminated in light of this change.

SBA made a number of othertechnical changes to the joint venture

provisions (§ 124.513 in the final rule)as a result of the comments. The term‘‘lead entity’’ was changed to ‘‘managingventurer’’ to comport with currentterminology. One commenter requestedclarification of the term ‘‘very little’’ inproposed § 124.512(a) which states thatSBA will not approve a joint venturearrangement where the 8(a) concernbrings ‘‘very little’’ to the relationship.That provision has been clarified toprovide that SBA will not approve thejoint venture if the 8(a) concern bringsvery little in terms of resources andexpertise to the relationship. A moreprecise definition would not leave SBAsufficient discretion to judge each caseon its own merits.

Proposed § 124.514 (§ 124.515 in thefinal rule) set forth the provisionsrequiring an 8(a) contract to beperformed by the Participant that wasinitially awarded it, and requiring thecontract to be terminated forconvenience if there is a change in theownership or control of the concern.SBA received several commentsregarding the authority for a waiverwhere one Participant transfersownership and control to anothereligible Participant. The commentersbelieved that a bulk transfer of all orsubstantially all of one 8(a) concern’sassets to another 8(a) concern shouldsatisfy the requirement thisrequirement. SBA carefully consideredthe legal requirements of the SmallBusiness Act as it pertains to thisprovision. Upon further deliberation,SBA agrees that a transfer of all aParticipant’s operating assets to anotherParticipant should be treated the sameas a transfer of stock or anotherownership interest, provided theParticipant that transfers its assets toanother eligible Participant withdrawsfrom the 8(a) BD program, and it ceasesits business operations, or presents aplan to SBA for its orderly dissolution.The requirement that all ‘‘operatingassets’’ be transferred excludes accountsreceivable and cash. SBA will requiredissolution or a plan to dissolve as acondition for the waiver because SBAdoes not believe that it is appropriate forthe transferor to remain a separate legalentity that could restart operations andseek to obtain 8(a) contracts after thetransfer of all of its operating assets.

SBA received three comments onproposed § 124.516 (§ 124.517 in thefinal rule) concerning protests of 8(a)contract awards. All three commentersrecommended extending this provisionto permit protests of the size of aconcern in line for a sole source award.SBA rejected this comment since it isdifficult for other firms to find out aboutsole source awards and only a few, if


any, firms would have standing toprotest the award of a sole-sourcecontract under SBA’s size regulations.SBA has historically verified the size ofeach potential awardee of a sole-sourcecontract since the benefits of receivinga contract without having to competeare so significant. Moreover, if anyconcern or individual believes a firm inline for a sole-source award does notmeet the size standard for the SIC codefor the contract, such firm may contactSBA and explain why it believes thatthe firm is not small. SBA will considersuch information in verifying the size ofthat concern for the award provided theinformation is specific and credible.While SBA makes no changes to allowsize protests and SIC code appeals inconnection with sole source 8(a)contracts at this time, SBA will continueto examine this issue and may makeadditional changes at a later date.

Proposed § 124.518 (§ 124.519 in thefinal rule), authorized Participants(other than firms owned by an Indiantribe or an ANC) to receive anycombination of 8(a) sole source and 8(a)competitive contracts up to a specifieddollar amount (excluding contracts of$100,000 or less). Once that dollaramount of 8(a) contracts is reached, thefirm will not be eligible to receive anymore 8(a) sole source contracts, but willremain eligible for competitive 8(a)awards. The proposed rule set the dollarlimit above which a firm could notreceive sole source 8(a) awards at fivetimes the size standard for the firm’sprimary SIC code or $100,000,000,whichever was less. SBA receivedcomments on both sides of this issue.Several thought the cap was set at toohigh a level, while others thought thatit should be set even higher. Nocommenters presented persuasivereasons for setting the cap at a levelother than that set forth in the proposedrule. As such, the final rule continuesthe five times the size standard or$100,000,000 language. If the sizestandard for a particular SIC codeincreases over time, the correspondingcap amount will also increase. Onecomment suggested that after a firmreaches the specified dollar thresholdamount, SBA should require it to useother 8(a) concerns that have notreceived contracts as subcontractors inorder to receive additional sole sourceawards. SBA considered this comment,but decided not to adopt it. It isimportant to remember that SBA willnot restrict all 8(a) contract support aftera Participant receives total 8(a) contractsupport equaling at least five times thesize standard for its primary SIC code or$100,000,000. A firm will be unable to

receive only sole source 8(a) contractsafter reaching the cap amount. Thealternative suggested by the commenterseeks to have a Participant that hasexceeded the cap subcontract 8(a) solesource contracts to other Participantsthat have not received an 8(a) contract.SBA believes that enforcing the capshould enable more of those same firms(i.e., the Participants that have notreceived an 8(a) contract) to receive 8(a)contracts directly. While both would aidin distributing the performance of 8(a)contracts to more Participants, from theperspective of a Participant that has notreceived an 8(a) contract, receiving asole source contract directly ispreferable to getting a piece of an 8(a)contract as another Participant’ssubcontractor. In addition, SBA believesthat the alternative cap amounts aresufficiently high so that a Participantthat reaches the cap amount should beable to compete effectively for 8(a)competitive contracts. That, in turn,should assist such firms in reachingviability after leaving the 8(a) program.

Upon further reflection, SBA alsoamended the date at which aParticipant’s eligibility for a sole sourcecontract is measured. The proposed rulestated that such eligibility would bemeasured as of the date of contractaward, without taking into accountwhether the value of that award wouldcause the limit to be exceeded. SBAbelieves that such a requirement couldcause an undue hardship for both 8(a)Participants and procuring activities. Asproposed, SBA could accept a solesource requirement on behalf of aparticular Participant (because theParticipant had not yet receivedcontracts in excess of the cap amount),the Participant and the procuringactivity could enter into protractednegotiations, and SBA could be requiredlater to deny the award of the contractbecause eligibility would be determinedas of the date of award and theParticipant may have received one ormore competitive 8(a) contracts betweenthe acceptance and award dates. Thus,this final rule changes the date that afirm’s eligibility for a sole source award,in terms of whether the firm hasexceeded the dollar limit for 8(a)contracts, from the date of award to thedate that the requirement is accepted bySBA. This does not in any way implythat all eligibility for an 8(a) sole sourcecontract will now be measured at theacceptance date. In other words, thisfinal rule will continue to require thata firm be a current Participant in the8(a) program on the date of contractaward in order to receive an 8(a) solesource award. See § 124.508(c).

Finally, similar to the provisionidentified above when a Participant failsto achieve its non-8(a) business activitytargets, the final rule adds a provisionauthorizing the SBA Administrator towaive the requirement that a Participantcannot receive an 8(a) sole source awardin excess of the cap amount where thehead of the procuring activity requeststhat award be made for the best interestsof the Government.

Proposed § 124.519 (§ 124.520 in thefinal rule) set forth the standards for thementor/protege program. Most of thecommenters were in favor of this newprogram, although several warned thatthe potential existed for abuse.Numerous commenters requestedgreater detail in this section. Some ofthe commenters felt that a sectionexplaining the purpose of the programwould be helpful. In response to thosecomments, SBA has amended paragraph(a) of this section to clarify that theprogram is designed to encourageapproved mentors to provide variousforms of assistance to eligibleParticipants, with examples of theassistance contemplated.

SBA received varying views regardingthe type of business that should be ableto act as a mentor. The commentsranged from recommendations that anybusiness, large or small, disadvantaged-owned or not, should be able to be amentor, to only small businesses, tosupport for the proposed rule whichlimited mentors to former 8(a)Participants and current 8(a)Participants in the transitional stage ofthe program. Upon further deliberation,SBA believes that the focus should notbe on who the mentor is, but what theconcern acting as a mentor will provideto the protege. For that reason, the finalrule permits any business, large orsmall, to be a mentor if it candemonstrate the commitment andability to assist small, developing 8(a)Participants. Under the final rule, amentor generally will have no morethan one protege at a time. The AA/8(a)BD may, however, authorize aconcern to mentor more than oneprotege at a time where the concern candemonstrate that the additional mentor/protege relationship will not adverselyaffect the development of either protegefirm. SBA does not believe that it wouldbe appropriate to authorize a concern tobe a mentor in a second mentor/protegerelationship if that relationship wouldharm or compete with the protege of thefirst mentor/protege relationshipapproved by SBA.

Some of the commenters felt that theamount of a contract the protege couldperform should be limited. Afterconsidering this comment, SBA has


decided not to adopt it at this time. SBAdoes not want to impose additionalrequirements on mentor/protege jointventures that do not apply to jointventures between 8(a) BD concerns andother entities.

Many of the commenters requestedguidelines so that the mentor does nottake control of the contracts or thecompany. SBA will monitor the mentor/protege arrangement on a regular basisto help ensure that this does not occur.

Some commenters requested that theprogram be expanded to enablecompanies which have never been inthe 8(a) BD program to become proteges.SBA has not adopted thisrecommendation. It must beremembered that SBA’s mentor/protegeprogram is designed to be an additionaldevelopmental tool for Participants inthe 8(a) BD program. Only firms thatSBA has certified to participate in the8(a) BD program are statutorily eligibleto receive any of the benefits of theprogram.

One commenter suggested that aprovision be added clarifying that amentor and protege will not bedetermined to be affiliated based on thementor/protege agreement or assistanceprovided pursuant to the agreement.SBA agrees with this comment and hasamended paragraph (d) of this section toadd a new subparagraph (4) to thiseffect.

Several commenters suggestedstandards for SBA monitoring of therelationship and the adoption ofobjective standards by which to measurethe success of a mentor/protegerelationship. In response to thesecomments, SBA has added a newparagraph (f) to impose specificreporting requirements on the protegeand to provide standards under whichSBA will review the mentor/protegerelationship. The final rule also amendsparagraph (e) of this section(§ 124.519(d) in the proposed rule) toprovide that SBA will review thementor/protege relationship annually todetermine whether to approve itscontinuation for another year. As setforth in the rule, the mentor/protegeprogram is designed to assist thedevelopment of Participants in thedevelopmental stage of the program,Participants that have not received an8(a) contract, and Participants having asize that is less than half the sizestandard corresponding to its primarySIC code. Where a Participant leaves thedevelopmental stage of the program,receives several significant 8(a)contracts, or has a size that exceeds halfthe size standard corresponding to itsprimary SIC code, the firm may nolonger need the assistance provided by

the mentor/protege relationship, and theAA/8(a)BD may decide not to authorizeits continuation.

SBA received no comments toproposed §§ 124.601 through 124.603and §§ 124.701 through 124.704. Assuch, this rule makes no changes tothose sections from the proposed rule.

Part 124, subpart B: Subpart B of theproposed rule defined a SmallDisadvantaged Business (SDB) and setforth the procedures by which a firmcan be recognized as an SDB. As notedabove, SBA will discuss the commentsto subpart B and finalize its provisionsin a later rulemaking action.

Part 134: The proposed new SubpartD of Part 134 contained the rules ofprocedure applying to appeals ofdenials of 8(a) BD program admissionbased solely on the negative finding(s)of social disadvantage, economicdisadvantage, ownership or controlpursuant to § 124.206; early graduationpursuant to § 124.302 and 124.304;termination pursuant to § 124.303 and124.304; and denials of requests to issuea waiver of the performance of work/termination for conveniencerequirements pursuant to § 124.513.

The proposed rules transferred therules of procedure governing the 8(a)program from § 124.210 to Part 134 sothat all procedures related to appealsbefore OHA are contained in one part ofSBA’s regulations.

SBA received one comment regardingthe proposed revisions to Part 134. Themajority of these comments dealt withstreamlining the regulations governingthe appeals of denials of 8(a) BDprogram admission and protectingappellant rights.

The proposed rule did not change§ 134.202 and § 134.203 of the formerregulations. The commenter requestedthat SBA amend § 134.202 to requirethat the appeal petition include the SBAdetermination. SBA agrees that theappeal petition should include the SBAdetermination and modified § 134.203,which specifies the requirements of apetition, to include the submission ofthe SBA determination. This provisionwill allow the Administrative Law Judgeto determine, without further delay,whether the appeal was timely filed.

This rule does not finalize theproposed amendment to § 134.206(a)that would have changed the date onwhich the SBA’s 45-day period to file ananswer would run. The proposed rulewould have changed that date from thedate that an appeal is served on SBA tothe date that an appeal is filed at OHA.Upon further consideration, SBA doesnot believe that this change isappropriate. The proposed rule wasconcerned about SBA not having the

allotted time to answer an appeal wherethe appeal was incorrectly served onSBA’s Office of General Counsel. SBAhas addressed this concern by clarifyingthe service requirements for 8(a)-relatedappeals set forth in § 134.403.

Proposed § 134.401, which outlinedthe scope of the rules in Subpart D, hadno provision for appeals to OHA fromsuspensions pursuant to § 124.305. Acommenter stated that the inclusion ofappeals related to suspension wasnecessary pursuant to § 124.305(b)which provides that notice ofsuspension includes a statement that arequest for hearing on the suspensionwill be considered by an AdministrativeLaw Judge at OHA and granted ordenied as a matter of discretion. SBAagreed with the comment and added§ 134.401(e) in response to it.

A commenter noted that proposed§ 134.405, which deals withjurisdiction, failed to include aprovision for the jurisdiction ofsuspension cases pursuant to § 124.305.SBA added subsection (c) to proposed§ 134.405 in response to this comment.Subsection (c) provides that thejurisdiction of OHA in suspension casesis limited to determining whether theprotection of the Government’s interestrequires suspension pending resolutionof the termination action, unless theAdministrative Law Judge hasconsolidated the suspension appealwith the corresponding terminationappeal.

Proposed § 134.406 dealt with reviewof the administrative record andreplaced § 124.210. A commenterrequested that an appellant be permittedto object to the absence of a documentin the administrative record. Since§ 134.406(c) provides that theadministrative record need not containall documents pertaining to theappellant, SBA decided that§ 134.406(c) should be amended inresponse to this request. Revised§ 134.406(c) allows an appellant toobject to the absence of a document heor she believes was erroneously omittedfrom the administrative record, therebyhelping to ensure that theAdministrative Law Judge has all of theinformation needed to decide the case.

Proposed § 134.406(e) limited remandto situations where ‘‘due to the absencein the written administrative record ofthe reasons upon which thedetermination was based, theadministrative record is insufficientlycomplete to decide’’ the case. Acommenter requested that remand beextended to include cases in which SBAmade an erroneous analysis of facts.SBA determined that SBA error isproperly handled on appeal under


proposed § 134.408 and, therefore, didnot adopt this comment.

Proposed § 134.408, which dealt withdecisions on appeal, replaced § 124.210.A commenter requested that the term‘‘re-examine’’ be changed to‘‘reconsider,’’ and that a time limit beplaced on when the decision is final.SBA determined that for claritypurposes the term ‘‘re-examine’’ shouldbe changed to ‘‘reconsider.’’ SBA furtherdetermined that, in response to thecommenter’s request for a reasonabletime period after which the decision isfinal, a period of 20 days should beinserted into the proposed regulationafter which time the decision is final.

Compliance With Executive Orders12612, 12778, and 12866, theRegulatory Flexibility Act (5 U.S.C. 601,et seq.), and the Paperwork ReductionAct (44 U.S.C. Ch. 35)

SBA certifies that this rule is not amajor rule within the meaning ofExecutive Order 12866 and will nothave a significant economic impact ona substantial number of small entitieswithin the meaning of the RegulatoryFlexibility Act, 5 U.S.C. 601, et seq.

The rule addresses changes in theSBA’s 8(a) BD program. The overallimpact of the changes to the 8(a) BDprogram will be beneficial to smallbusinesses. The rule also makes severalchanges to SBA’s size regulations thatwill have an impact beyond thatprogram, and should result in moreprocurement opportunities for smallbusiness generally. No definitive dataexist that would allow SBA to concludethat the proposed rule will have asubstantial impact on a significantnumber of small businesses.

Specifically, the rule improves andstrengthens the 8(a) BD program. Itresponds to the challenges posed by thefindings in the Adarand Constructors,Inc. v. Pena, 115 Sup. Ct. 2097 (1995)(Adarand), and are designed to improvethe success rates for firms after theirterms of participation in the 8(a) BDprogram end. The rule changes fallwithin three major categories. They are:(1) measures designed to more equitablydistribute 8(a) contracts; (2) smallbusiness affiliation rule revisions; and(3) a new mentor/protege program.

The changes that exclude certain jointventure and teaming arrangements fromSBA’s affiliation rules and the 8(a)mentor/protege program are designed toenable small businesses to effectivelycompete for contracts that werepreviously too large for a single smallbusiness to perform as a primecontractor. By allowing small businessesto form joint venture and teamingrelationships without regard toaffiliation, they can be considered

responsible contractors for ‘‘bundled’’and other large contracts which exceedthe capability of any of the individualsmall businesses to perform as primecontractors. Likewise, 8(a) Participantswill be able to submit offers for and beconsidered responsible businesses forlarger contracts than they would be ableto obtain individually without thenewly established mentor/protegeprogram. Expanding the number anddollar amount of contracts available foraward through the 8(a) BD program mayresult in a shift of dollars to smallbusiness.

In fiscal year (FY) 1996, the federalgovernment spent $197.6 billion on theprocurement of goods and services.Small businesses were awarded $41.1billion in prime contracts, representingabout a 21 percent share of the totalcontract dollars. There areapproximately 180,000 small firmsregistered on PRO-Net, SBA’s databaseof small businesses actively seekingfederal government contracts. Bycomparison, there are approximately5,800 small firms certified as eligible8(a) Participants. In FY 1996, $6.4billion or 3.2 percent of the totalgovernment prime contracts wereawarded to less than 2,000 8(a) certifiedsmall businesses. SBA believes that thechanges set forth in this rule will benefitsmall firms, but not increase the netnumber of current 8(a) Participants bymore than 500 to 800 businesses, or lessthan 1 percent of the total universe ofsmall firms seeking federal governmentcontracts.

Similarly, the changes regardingaffiliation eligibility and the mentor/protege program will benefit smallbusiness contractors, but impact arelatively small number of businessesand dollars, when compared to totalgovernment spending and the universeof small firms seeking federalgovernment contracts. Because ofconsolidation, contracts are becominglarger and fewer in number. It hasbecome increasingly more difficult forsmall business to possess thewherewithal to individually performthese larger contracts. The changes insmall business affiliation rules aredesigned to counter the growing trend ofcontract consolidation and allow smallfirms to compete for larger contracts.

For purposes of the PaperworkReduction Act of 1995 (Public Law 104–13), SBA certifies that this final rulecontains no new reporting orrecordkeeping requirements.

For purposes of Executive Order12612, SBA certifies that this rule hasno federalism implications warrantingthe preparation of a FederalismAssessment.

For purposes of Executive Order12778, SBA certifies that this rule isdrafted, to the extent practicable, inaccordance with the standards set forthin Section 2 of that Order.

List of Subjects

13 CFR Part 121

Government procurement,Government property, Grant programs—business, Individuals with disabilities,Loan programs—business, Smallbusinesses.

13 CFR Part 124

Government procurement, HawaiianNatives, Minority businesses, Reportingand recordkeeping requirements,Technical assistance, Tribally-ownedconcerns.

13 CFR Part 134

Administrative practice andprocedure, Organization and functions(Government agencies).

Accordingly, for the reasons set forthabove, SBA amends Title 13, Code ofFederal Regulations (CFR), as follows:

PART 121—[AMENDED]

1. The authority citation for 13 CFRpart 121 continues to read as follows:

Authority: Pub. L. 105–135 sec. 601 et seq.,111 Stat. 2592; 15 U.S.C. 632(a), 634(b)(6),637(a) and 644(c); and Pub. L. 102–486, 106Stat. 2776, 3133.

2. Section 121.103 is amended byredesignating paragraphs (f)(3) and (f)(4)as paragraphs (f)(4) and (f)(5),respectively, by revising paragraph (f)(2)and by adding a new paragraph (f)(3) toread as follows:

§ 121.103 What is affiliation?* * * * *

(f) * * *(2) Except as provided in paragraph

(f)(3) of this section, concernssubmitting offers on a particularprocurement or property sale as jointventurers are affiliated with each otherwith regard to the performance of thatcontract.

(3) Exclusion from affiliation. (i) Ajoint venture or teaming arrangement oftwo or more business concerns maysubmit an offer as a small business fora non-8(a) Federal procurement withoutregard to affiliation under paragraph (f)of this section so long as each concernis small under the size standardcorresponding to the SIC code assignedto the contract, provided:

(A) For a procurement having arevenue-based size standard, theprocurement exceeds half the sizestandard corresponding to the SIC codeassigned to the contract; or


(B) For a procurement having anemployee-based size standard, theprocurement exceeds $10 million.

(ii) A joint venture or teamingarrangement of at least one 8(a)Participant and one or more otherbusiness concerns may submit an offerfor a competitive 8(a) procurementwithout regard to affiliation underparagraph (f) of this section so long asthe requirements of 13 CFR124.513(b)(1) are met.

(iii) Two firms approved by SBA to bea mentor and protege under 13 CFR124.520 may joint venture as a smallbusiness for any Federal Governmentprocurement, provided the protegequalifies as small for the size standardcorresponding to the SIC code assignedto the procurement and, for purposes of8(a) sole source requirements, has notreached the dollar limit set forth in 13CFR 124.519.* * * * *

3. Section 121.1001 is amended byredesignating paragraphs (a)(2) through(a)(6) as paragraphs (a)(3) through (a)(7),by adding the following new paragraph(a)(2), and by revising paragraph (b)(2)to read as follows:

§ 121.1001 Who may initiate a size protestor request a formal size determination?

(a) * * *(2) For competitive 8(a) contracts, the

following entities may protest:(i) Any offeror;(ii) The contracting officer; or(iii) The SBA District Director, or

designee, in either the district officeserving the geographical area in whichthe procuring activity is located or thedistrict office that services the apparentsuccessful offeror, or the AssociateAdministrator for 8(a) BusinessDevelopment.* * * * *

(b) * * *(2) For SBA’s 8(a) BD program:(i) Concerning initial or continued

8(a) BD eligibility, the following entitiesmay request a formal sizedetermination:

(A) The 8(a) BD applicant concern orParticipant; or

(B) The Assistant Administrator of theDivision of Program Certification andEligibility or the AssociateAdministrator for 8(a)BD.

(ii) Concerning individual sole source8(a) contract awards, the followingentities may request a formal sizedetermination:

(A) The Participant nominated foraward of the particular sole sourcecontract;

(B) The SBA program official withauthority to execute the 8(a) contract; or

(C) The SBA District Director in thedistrict office that services the

Participant, or the AssociateAdministrator for 8(a)BD.* * * * *

4. Section 121.1103 is amended byrevising paragraph (a) to read as follows:

§ 121.1103 What are the procedures forappealing a SIC code designation?

(a) Generally, any interested partywho has been adversely affected by aSIC code designation may appeal thedesignation to OHA. However, withrespect to a particular sole source 8(a)contract, only the AssociateAdministrator for 8(a)BD may appeal.* * * * *


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

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

6. In part 124, subpart B consisting of§§ 124.601 through 124.610 isredesignated as subpart B, §§ 124.1001through 124.1010, and subpart A isrevised to read as follows:

PART 124—8(A) BUSINESSDEVELOPMENT/SMALLDISADVANTAGED BUSINESS STATUSDETERMINATIONS

Subpart A—8(a) Business Development

Provisions of General Applicability

124.1 What is the purpose of the 8(a)Business Development program?

124.2 What length of time may a businessparticipate in the 8(a) BD program?

124.3 What definitions are important in the8(a) BD program?

Eligibility Requirements for Participation inthe 8(a) Business Development Program

124.101 What are the basic requirements aconcern must meet for the 8(a) BDprogram?

124.102 What size business is eligible toparticipate in the 8(a) BD program?

124.103 Who is socially disadvantaged?124.104 Who is economically

disadvantaged?124.105 What does it mean to be

unconditionally owned by one or moredisadvantaged individuals?

124.106 When do disadvantagedindividuals control an applicant orParticipant?

124.107 What is potential for success?124.108 What other eligibility requirements

apply for individuals or businesses?124.109 Do Indian tribes and Alaska Native

Corporations have any special rules forapplying to the 8(a) BD program?

124.110 Do Native Hawaiian Organizationshave any special rules for applying to the8(a) BD program?

124.111 Do Community DevelopmentCorporations (CDCs) have any specialrules for applying to the 8(a) BDprogram?

124.112 What criteria must a business meetto remain eligible to participate in the8(a) BD program?

Applying to the 8(a) BD Program

124.201 May any business submit anapplication?

124.202 Where must an application befiled?

124.203 What must a concern submit toapply to the 8(a) BD program?

124.204 How does SBA processapplications for 8(a) BD programadmission?

124.205 Can an applicant ask SBA toreconsider SBA’s initial decision todecline its application?

124.206 What appeal rights are available toan applicant that has been deniedadmission?

124.207 Can an applicant reapply foradmission to the 8(a) BD program?

Exiting the 8(a) BD Program

124.301 What are the ways a business mayleave the 8(a) BD program?

124.302 What is early graduation?124.303 What is termination?124.304 What are the procedures for early

graduation and termination?124.305 What is suspension and how is a

Participant suspended from the 8(a) BDprogram?

Business Development

124.401 Which SBA field office services aParticipant?

124.402 How does a Participant develop abusiness plan?

124.403 How is a business plan updatedand modified?

124.404 What business developmentassistance is available to Participantsduring the two stages of participation inthe 8(a) BD program?

124.405 How does a Participant obtainFederal Government surplus property?

Contractual Assistance

124.501 What general provisions apply tothe award of 8(a) contracts?

124.502 How does an agency offer aprocurement to SBA for award throughthe 8(a) BD program?

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

124.504 What circumstances limit SBA’sability to accept a procurement for awardas an 8(a) contract?

124.505 When will SBA appeal the termsand conditions of a particular 8(a)contract or a procuring activity decisionnot to reserve a procurement for the 8(a)BD program?

124.506 At what dollar threshold must an8(a) procurement be competed amongeligible Participants?

124.507 What procedures apply tocompetitive 8(a) procurements?

124.508 How is an 8(a) contract executed?124.509 What are non-8(a) business activity

targets?


124.510 What percentage of work must aParticipant perform on an 8(a) contract?

124.511 How is fair market pricedetermined for an 8(a) contract?

124.512 Delegation of contractadministration to procuring agencies.

124.513 Under what circumstances can ajoint venture be awarded an 8(a)contract?

124.514 Exercise of 8(a) options andmodifications.

124.515 Can a Participant change itsownership or control and continue toperform an 8(a) contract, and can ittransfer performance to another firm?

124.516 Who decides contract disputesarising between a Participant and aprocuring activity after the award of an8(a) contract?

124.517 Can the eligibility or size of aParticipant for award of an 8(a) contractbe questioned?

124.518 How can an 8(a) contract beterminated before performance iscompleted?

124.519 Are there any dollar limits on theamount of 8(a) contracts that aParticipant may receive?

124.520 Mentor/Protege program.

Miscellaneous Reporting Requirements

124.601 What reports does SBA requireconcerning parties who assistParticipants in obtaining federalcontracts?

124.602 What kind of annual financialstatement must a Participant submit toSBA?

124.603 What reports regarding thecontinued business operations of formerParticipants does SBA require?

Management and Technical AssistanceProgram

124.701 What is the purpose of the 7(j)management and technical assistanceprogram?

124.702 What types of assistance areavailable through the 7(j) program?

124.703 Who is eligible to receive 7(j)assistance?

124.704 What additional management andtechnical assistance is reservedexclusively for concerns eligible toreceive 8(a) contracts?

Subpart A—8(a) BusinessDevelopment

Provisions of General Applicability

§ 124.1 What is the purpose of the 8(a)Business Development program?

Sections 8(a) and 7(j) of the SmallBusiness Act authorize a Minority SmallBusiness and Capital OwnershipDevelopment program (designated the8(a) Business Development or ‘‘8(a) BD’’program for purposes of the regulationsin this part). The purpose of the 8(a) BDprogram is to assist eligible smalldisadvantaged business concernscompete in the American economythrough business development.

§ 124.2 What length of time may abusiness participate in the 8(a) BDprogram?

A Participant receives a program termof nine years from the date of SBA’sapproval letter certifying the concern’sadmission to the program. TheParticipant must maintain its programeligibility during its tenure in theprogram and must inform SBA of anychanges that would adversely affect itsprogram eligibility. A firm thatcompletes its nine year term ofparticipation in the 8(a) BD program isdeemed to graduate from the program.The nine year program term may beshortened only by termination, earlygraduation or voluntary graduation asprovided for in this subpart.

§ 124.3 What definitions are important inthe 8(a) BD Program?

Alaska Native means a citizen of theUnited States who is a person of one-fourth degree or more Alaskan Indian(including Tsimshian Indians notenrolled in the Metlaktla IndianCommunity), Eskimo, or Aleut blood, ora combination of those bloodlines. Theterm includes, in the absence of proof ofa minimum blood quantum, any citizenwhom a Native village or Native groupregards as an Alaska Native if theirfather or mother is regarded as anAlaska Native.

Alaska Native Corporation or ANCmeans any Regional Corporation,Village Corporation, Urban Corporation,or Group Corporation organized underthe laws of the State of Alaska inaccordance with the Alaska NativeClaims Settlement Act, as amended (43U.S.C. 1601, et seq.)

Bona fide place of business, forpurposes of 8(a) constructionprocurements, means a location where aParticipant regularly maintains an officewhich employs at least one full-timeindividual within the appropriategeographical boundary. The term doesnot include construction trailers orother temporary construction sites.

Community Development Corporationor CDC means a nonprofit organizationresponsible to residents of the area itserves which has received financialassistance under 42 U.S.C. 9805, et seq.

Concern is defined in part 121 of thistitle.

Days means calendar days unlessotherwise specified.

Day-to-day operations of a firm meansthe marketing, production, sales, andadministrative functions of the firm.

Immediate family member meansfather, mother, husband, wife, son,daughter, brother, sister, grandfather,grandmother, grandson, granddaughter,father-in-law, and mother-in-law.

Indian tribe means any Indian tribe,band, nation, or other organized groupor community of Indians, including anyANC, which is recognized as eligible forthe special programs and servicesprovided by the United States to Indiansbecause of their status as Indians, or isrecognized as such by the State inwhich the tribe, band, nation, group, orcommunity resides. See definition of‘‘tribally-owned concern.’’

Native Hawaiian means anyindividual whose ancestors werenatives, prior to 1778, of the area whichnow comprises the State of Hawaii.

Native Hawaiian Organization meansany community service organizationserving Native Hawaiians in the State ofHawaii which is a not-for-profitorganization chartered by the State ofHawaii, is controlled by NativeHawaiians, and whose businessactivities will principally benefit suchNative Hawaiians.

Negative control is defined in part 121of this title.

Non-disadvantaged individual meansany individual who does not claimdisadvantaged status, does not qualifyas disadvantaged, or upon whosedisadvantaged status an applicant orParticipant does not rely in qualifyingfor 8(a) BD program participation.

Participant means a small businessconcern admitted to participate in the8(a) BD program.

Primary industry classification meansthe four digit Standard IndustrialClassification (SIC) code designationwhich best describes the primarybusiness activity of the 8(a) BDapplicant or Participant. The SIC codedesignations are described in theStandard Industrial ClassificationManual published by the U.S. Office ofManagement and Budget.

Principal place of business means thebusiness location where the individualswho manage the concern’s day-to-dayoperations spend most working hoursand where top management’s businessrecords are kept. If the offices fromwhich management is directed andwhere the business records are kept arein different locations, SBA willdetermine the principal place ofbusiness for program purposes.

Program year means a 12-monthperiod of an 8(a) BD Participant’sprogram participation. The first programyear begins on the date that the concernis certified to participate in the 8(a) BDprogram and ends one year later. Eachsubsequent program year begins on theParticipant’s anniversary of programcertification and runs for one 12-monthperiod.

Same or similar line of businessmeans business activities within the


same two-digit ‘‘Major Group’’ of theSIC Manual as the primary industryclassification of the applicant orParticipant. The phrase ‘‘same businessarea’’ is synonymous with thisdefinition.

Self-marketing of a requirementoccurs when a Participant identifies arequirement that has not beencommitted to the 8(a) BD program and,through its marketing efforts, causes theprocuring activity to offer that specificrequirement to the 8(a) BD program onthe Participant’s behalf. A firm whichidentifies and markets a requirementwhich is subsequently offered to the 8(a)BD program as an open requirement oron behalf of another Participant has not‘‘self-marketed’’ the requirement withinthe meaning of this part.

Tribally-owned concern means anyconcern at least 51 percent owned by anIndian tribe as defined in this section.

Unconditional ownership meansownership that is not subject toconditions precedent, conditionssubsequent, executory agreements,voting trusts, restrictions on orassignments of voting rights, or otherarrangements causing or potentiallycausing ownership benefits to go toanother (other than after death orincapacity). The pledge or encumbranceof stock or other ownership interest ascollateral, including seller-financedtransactions, does not affect theunconditional nature of ownership ifthe terms follow normal commercialpractices and the owner retains controlabsent violations of the terms.

Eligibility Requirements forParticipation in the 8(a) BusinessDevelopment Program

§ 124.101 What are the basic requirementsa concern must meet for the 8(a) BDprogram?

Generally, a concern meets the basicrequirements for admission to the 8(a)BD program if it is a small businesswhich is unconditionally owned andcontrolled by one or more socially andeconomically disadvantaged individualswho are of good character and citizensof the United States, and whichdemonstrates potential for success.

§ 124.102 What size business is eligible toparticipate in the 8(a) BD program?

(a) An applicant concern must qualifyas a small business concern as definedin part 121 of this title. The applicablesize standard is the one for its primaryindustry classification. The rules forcalculating the size of a tribally-ownedconcern, a concern owned by an AlaskaNative Corporation, a concern owned bya Native Hawaiian Organization, or aconcern owned by a Community

Development Corporation areadditionally affected by §§ 124.109,124.110, and 124.111, respectively.

(b) If 8(a) BD program officialsdetermine that a concern may notqualify as small, they may deny anapplication for 8(a) BD programadmission or may request a formal sizedetermination under part 121 of thistitle.

(c) A concern whose application isdenied due to size by 8(a) BD programofficials may request a formal sizedetermination under part 121 of thistitle. A favorable determination willenable the firm to immediately submita new 8(a) BD application withoutwaiting one year.

§ 124.103 Who is socially disadvantaged?(a) General. Socially disadvantaged

individuals are those who have beensubjected to racial or ethnic prejudice orcultural bias within American societybecause of their identities as members ofgroups and without regard to theirindividual qualities. The socialdisadvantage must stem fromcircumstances beyond their control.

(b) Members of designated groups. (1)There is a rebuttable presumption thatthe following individuals are sociallydisadvantaged: Black Americans;Hispanic Americans; Native Americans(American Indians, Eskimos, Aleuts, orNative Hawaiians); Asian PacificAmericans (persons with origins fromBurma, Thailand, Malaysia, Indonesia,Singapore, Brunei, Japan, China(including Hong Kong), Taiwan, Laos,Cambodia (Kampuchea), Vietnam,Korea, The Philippines, U.S. TrustTerritory of the Pacific Islands (Republicof Palau), Republic of the MarshallIslands, Federated States of Micronesia,the Commonwealth of the NorthernMariana Islands, Guam, Samoa, Macao,Fiji, Tonga, Kiribati, Tuvalu, or Nauru);Subcontinent Asian Americans (personswith origins from India, Pakistan,Bangladesh, Sri Lanka, Bhutan, theMaldives Islands or Nepal); andmembers of other groups designatedfrom time to time by SBA according toprocedures set forth at paragraph (d) ofthis section. Being born in a countrydoes not, by itself, suffice to make thebirth country an individual’s country oforigin for purposes of being includedwithin a designated group.

(2) An individual must demonstratethat he or she has held himself orherself out, and is currently identifiedby others, as a member of a designatedgroup if SBA requires it.

(3) The presumption of socialdisadvantage may be overcome withcredible evidence to the contrary.Individuals possessing or knowing of

such evidence should submit theinformation in writing to the AssociateAdministrator for 8(a) BD (AA/8(a)BD)for consideration.

(c) Individuals not members ofdesignated groups. (1) An individualwho is not a member of one of thegroups presumed to be sociallydisadvantaged in paragraph (b)(1) of thissection must establish individual socialdisadvantage by a preponderance of theevidence.

(2) Evidence of individual socialdisadvantage must include thefollowing elements:

(i) At least one objectivedistinguishing feature that hascontributed to social disadvantage, suchas race, ethnic origin, gender, physicalhandicap, long-term residence in anenvironment isolated from themainstream of American society, orother similar causes not common toindividuals who are not sociallydisadvantaged;

(ii) Personal experiences ofsubstantial and chronic socialdisadvantage in American society, notin other countries; and

(iii) Negative impact on entry into oradvancement in the business worldbecause of the disadvantage. SBA willconsider any relevant evidence inassessing this element. In every case,however, SBA will consider education,employment and business history,where applicable, to see if the totality ofcircumstances shows disadvantage inentering into or advancing in thebusiness world.

(A) Education. SBA considers suchfactors as denial of equal access toinstitutions of higher education,exclusion from social and professionalassociation with students or teachers,denial of educational honors rightfullyearned, and social patterns or pressureswhich discouraged the individual frompursuing a professional or businesseducation.

(B) Employment. SBA considers suchfactors as unequal treatment in hiring,promotions and other aspects ofprofessional advancement, pay andfringe benefits, and other terms andconditions of employment; retaliatory ordiscriminatory behavior by anemployer; and social patterns orpressures which have channelled theindividual into nonprofessional or non-business fields.

(C) Business history. SBA considerssuch factors as unequal access to creditor capital, acquisition of credit orcapital under commercially unfavorablecircumstances, unequal treatment inopportunities for government contractsor other work, unequal treatment bypotential customers and business


associates, and exclusion from businessor professional organizations.

(d) Socially disadvantaged groupinclusion. (1) General. Representativesof an identifiable group whose membersbelieve that the group has sufferedchronic racial or ethnic prejudice orcultural bias may petition SBA to beincluded as a presumptively sociallydisadvantaged group under paragraph(b)(1) of this section. Upon presentationof substantial evidence that members ofthe group have been subjected to racialor ethnic prejudice or cultural biasbecause of their identity as groupmembers and without regard to theirindividual qualities, SBA will publish anotice in the Federal Register that it hasreceived and is considering such arequest, and that it will consider publiccomments.

(2) Standards to be applied. Indetermining whether a group has madean adequate showing that it has sufferedchronic racial or ethnic prejudice orcultural bias for the purposes of thissection, SBA must determine that:

(i) The group has suffered prejudice,bias, or discriminatory practices;

(ii) Those conditions have resulted ineconomic deprivation for the group ofthe type which Congress has foundexists for the groups named in the SmallBusiness Act; and

(iii) Those conditions have producedimpediments in the business world formembers of the group over which theyhave no control and which are notcommon to small business ownersgenerally.

(3) Procedure. The notice publishedunder paragraph (d)(1) of this sectionwill authorize a specified period for thereceipt of public comments supportingor opposing the petition for sociallydisadvantaged group status. Ifappropriate, SBA may hold hearings.SBA may also conduct its own researchrelative to the group’s petition.

(4) Decision. In making a finaldecision that a group should beconsidered presumptivelydisadvantaged, SBA must find that apreponderance of the evidencedemonstrates that the group has met thestandards set forth in paragraph (d)(2) ofthis section based on SBA’sconsideration of the group petition, thecomments from the public, and anyindependent research it performs. SBAwill advise the petitioners of its finaldecision in writing, and publish itsconclusion as a notice in the FederalRegister. If appropriate, SBA willamend paragraph (b)(1) of this section toinclude a new group.

§ 124.104 Who is economicallydisadvantaged?

(a) General. Economicallydisadvantaged individuals are sociallydisadvantaged individuals whose abilityto compete in the free enterprise systemhas been impaired due to diminishedcapital and credit opportunities ascompared to others in the same orsimilar line of business who are notsocially disadvantaged.

(b) Submission of narrative andfinancial information. (1) Eachindividual claiming economicdisadvantage must describe it in anarrative statement, and must submitpersonal financial information.

(2) When married, an individualclaiming economic disadvantage alsomust submit separate financialinformation for his or her spouse, unlessthe individual and the spouse arelegally separated.

(c) Factors to be considered. Inconsidering diminished capital andcredit opportunities, SBA will examinefactors relating to the personal financialcondition of any individual claimingdisadvantaged status, includingpersonal income for the past two years(including bonuses and the value ofcompany stock given in lieu of cash),personal net worth, and the fair marketvalue of all assets, whether encumberedor not. SBA will also consider thefinancial condition of the applicantcompared to the financial profiles ofsmall businesses in the same primaryindustry classification, or, if notavailable, in similar lines of business,which are not owned and controlled bysocially and economicallydisadvantaged individuals in evaluatingthe individual’s access to credit andcapital. The financial profiles that SBAcompares include total assets, net sales,pre tax profit, sales/working capitalratio, and net worth.

(1) Transfers within two years. (i)Except as set forth in paragraph (c)(1)(ii)of this section, SBA will attribute to anindividual claiming disadvantagedstatus any assets which that individualhas transferred to an immediate familymember, or to a trust a beneficiary ofwhich is an immediate family member,for less than fair market value, withintwo years prior to a concern’sapplication for participation in the 8(a)BD program or within two years of aParticipant’s annual program review,unless the individual claimingdisadvantaged status can demonstratethat the transfer is to or on behalf of animmediate family member for thatindividual’s education, medicalexpenses, or some other form ofessential support.

(ii) SBA will not attribute to anindividual claiming disadvantagedstatus any assets transferred by thatindividual to an immediate familymember that are consistent with thecustomary recognition of specialoccasions, such as birthdays,graduations, anniversaries, andretirements.

(iii) In determining an individual’saccess to capital and credit, SBA mayconsider any assets that the individualtransferred within such two-year perioddescribed by paragraph (c)(1)(i) of thissection that SBA does not consider inevaluating the individual’s assets andnet worth (e.g., transfers to charities).

(2) Net worth. For initial 8(a) BDeligibility, the net worth of anindividual claiming disadvantage mustbe less than $250,000. For continued8(a) BD eligibility after admission to theprogram, net worth must be less than$750,000. In determining such networth, SBA will exclude the ownershipinterest in the applicant or Participantand the equity in the primary personalresidence (except any portion of suchequity which is attributable to excessivewithdrawals from the applicant orParticipant). Exclusions for net worthpurposes are not exclusions for assetvaluation or access to capital and creditpurposes.

(i) A contingent liability does notreduce an individual’s net worth.

(ii) The personal net worth of anindividual claiming to be an AlaskaNative will include assets and incomefrom sources other than an AlaskaNative Corporation and exclude any ofthe following which the individualreceives from any Alaska NativeCorporation: cash (including cashdividends on stock received from anANC) to the extent that it does not, inthe aggregate, exceed $2,000 perindividual per annum; stock (includingstock issued or distributed by an ANCas a dividend or distribution on stock);a partnership interest; land or aninterest in land (including land or aninterest in land received from an ANCas a dividend or distribution on stock);and an interest in a settlement trust.

§ 124.105 What does it mean to beunconditionally owned by one or moredisadvantaged individuals?

An applicant or Participant must be atleast 51 percent unconditionally anddirectly owned by one or more sociallyand economically disadvantagedindividuals who are citizens of theUnited States, except for concernsowned by Indian tribes, Alaska NativeCorporations, Native HawaiianOrganizations, or CommunityDevelopment Corporations (CDCs). See


§ 124.3 for definition of unconditionalownership; and §§ 124.109, 124.110,and 124.111, respectively, for specialownership requirements for concernsowned by Indian tribes, ANCs, NativeHawaiian Organizations, and CDCs.

(a) Ownership must be direct.Ownership by one or moredisadvantaged individuals must bedirect ownership. An applicant orParticipant owned principally byanother business entity or by a trust(including employee stock ownershiptrusts) that is in turn owned andcontrolled by one or moredisadvantaged individuals does notmeet this requirement. However,ownership by a trust, such as a livingtrust, may be treated as the functionalequivalent of ownership by adisadvantaged individual where thetrust is revocable, and thedisadvantaged individual is the grantor,a trustee, and the sole currentbeneficiary of the trust.

(b) Ownership of a partnership. In thecase of a concern which is apartnership, at least 51 percent of everyclass of partnership interest must beunconditionally owned by one or moreindividuals determined by SBA to besocially and economicallydisadvantaged. The ownership must bereflected in the concern’s partnershipagreement.

(c) Ownership of a limited liabilitycompany. In the case of a concernwhich is a limited liability company, atleast 51 percent of each class of memberinterest must be unconditionally ownedby one or more individuals determinedby SBA to be socially and economicallydisadvantaged.

(d) Ownership of a corporation. In thecase of a concern which is acorporation, at least 51 percent of eachclass of voting stock outstanding and 51percent of the aggregate of all stockoutstanding must be unconditionallyowned by one or more individualsdetermined by SBA to be socially andeconomically disadvantaged.

(e) Stock options’ effect on ownership.In determining unconditionalownership, SBA will disregard anyunexercised stock options or similaragreements held by disadvantagedindividuals. However, any unexercisedstock options or similar agreements(including rights to convert non-votingstock or debentures into voting stock)held by non-disadvantaged individualswill be treated as exercised, except forany ownership interests which are heldby investment companies licensedunder the Small Business InvestmentAct of 1958.

(f) Dividends and distributions. Oneor more disadvantaged individuals mustbe entitled to receive:

(1) At least 51 percent of the annualdistribution of dividends paid on thestock of a corporate applicant concern;

(2) 100 percent of the value of eachshare of stock owned by them in theevent that the stock is sold; and

(3) At least 51 percent of the retainedearnings of the concern and 100 percentof the unencumbered value of eachshare of stock owned in the event ofdissolution of the corporation.

(g) Ownership of another Participant.The individuals determined to bedisadvantaged for purposes of oneParticipant, their immediate familymembers, and the Participant itself, maynot hold, in the aggregate, more than a20 percent equity ownership interest inany other single Participant.

(h) Ownership restrictions for non-disadvantaged individuals andconcerns. (1) A non-disadvantagedindividual (in the aggregate with allimmediate family members) or a non-Participant concern that is a generalpartner or stockholder with at least a 10percent ownership interest in oneParticipant may not own more than a 10percent interest in another Participantthat is in the developmental stage ormore than a 20 percent interest inanother Participant in the transitionalstage of the program. This restrictiondoes not apply to financial institutionslicensed or chartered by Federal, state orlocal government, including investmentcompanies which are licensed under theSmall Business Investment Act of 1958.

(2) A non-Participant concern in thesame or similar line of business may notown more than a 10 percent interest ina Participant that is in thedevelopmental stage or more than a 20percent interest in a Participant in atransitional stage of the program, exceptthat a former Participant or a principalof a former Participant (except thosethat have been terminated from 8(a) BDprogram participation pursuant to§§ 124.303 and 124.304) may have anequity ownership interest of up to 20percent in a current Participant in thedevelopmental stage of the program orup to 30 percent in a transitional stageParticipant, in the same or similar lineof business.

(i) Change of ownership. A Participantmay change its ownership or businessstructure so long as one or moredisadvantaged individuals own andcontrol it after the change and SBAapproves the transaction in writing priorto the change. The decision to approveor deny a Participant’s request for achange in ownership or businessstructure will be made and

communicated to the firm by the AA/8(a)BD. The decision of the AA/8(a)BDis the final decision of the Agency. TheAA/8(a)BD will issue a decision within60 days from receipt of a requestcontaining all necessary documentation,or as soon thereafter as possible. If 60days lapse without a decision from SBA,the Participant cannot presume that itcan complete the change withoutwritten approval from SBA. A decisionto deny a request for change ofownership or business structure may begrounds for program termination wherethe change is made nevertheless.

(1) Any Participant that was awardedone or more 8(a) contracts maysubstitute one disadvantaged individualfor another disadvantaged individualwithout requiring the termination ofthose contracts or a request for waiverunder § 124.515, as long as it receivesSBA’s approval prior to the change.

(2) Where the previous owner heldless than a 10 percent interest in theconcern, or the transfer results from thedeath or incapacity due to a serious,long-term illness or injury of adisadvantaged principal, prior approvalis not required, but the concern mustnotify SBA within 60 days.

(3) Continued participation of theParticipant with new ownership and theaward of any new 8(a) contracts requiresSBA’s determination that all eligibilityrequirements are met by the concernand the new owners.

(4) Where a Participant requests achange of ownership or businessstructure, and proceeds with the changeprior to receiving SBA approval (orwhere a change of ownership resultsfrom the death or incapacity of adisadvantaged individual for which arequest prior to the change in ownershipcould not occur), SBA will suspend theParticipant from program benefitspending resolution of the request. If thechange is approved, the length of thesuspension will be restored to theParticipant’s program term in the case ofdeath or incapacity, or if the firmrequested prior approval and waited 60days for SBA approval.

(5) A change in ownership does notprovide the new owner(s) with a new8(a) BD program term. For example, ifa concern has been in the 8(a) BDprogram for five years when a change inownership occurs, the new owner willhave four years remaining until programgraduation.

(j) Public offering. A Participant’srequest for SBA’s approval for theissuance of a public offering will betreated as a request for a change ofownership. Such request will cause SBAto examine the concern’s continuedneed for access to the business


development resources of the 8(a) BDprogram.

(k) Community property laws giveneffect. In determining ownershipinterests when an owner resides in anyof the community property states orterritories of the United States (Arizona,California, Idaho, Louisiana, Nevada,New Mexico, Puerto Rico, Texas,Washington and Wisconsin), SBAconsiders applicable state communityproperty laws. If only one spouse claimsdisadvantaged status, that spouse’sownership interest will be consideredunconditionally held only to the extentit is vested by the community propertylaws. A transfer or relinquishment ofinterest by the non-disadvantagedspouse may be necessary in some casesto establish eligibility.

§ 124.106 When do disadvantagedindividuals control an applicant orParticipant?

Control is not the same as ownership,although both may reside in the sameperson. SBA regards control asincluding both the strategic policysetting exercised by boards of directorsand the day-to-day management andadministration of business operations.An applicant or Participant’smanagement and daily businessoperations must be conducted by one ormore disadvantaged individuals, exceptfor concerns owned by Indian tribes,ANCs, Native Hawaiian Organizations,or Community DevelopmentCorporations (CDCs). (See §§ 124.109,124.110, and 124.111, respectively, forthe requirements for concerns owned byIndian tribes or ANCs, for concernsowned by Native HawaiianOrganizations, and for CDC-ownedconcerns.) Disadvantaged individualsmanaging the concern must havemanagerial experience of the extent andcomplexity needed to run the concern.A disadvantaged individual need nothave the technical expertise or possessa required license to be found to controlan applicant or Participant if he or shecan demonstrate that he or she hasultimate managerial and supervisorycontrol over those who possess therequired licenses or technical expertise.However, where a critical license is heldby a non-disadvantaged individualhaving an equity interest in theapplicant or Participant firm, the non-disadvantaged individual may be foundto control the firm.

(a)(1) An applicant or Participantmust be managed on a full-time basis byone or more disadvantaged individualswho possess requisite managementcapabilities.

(2) A disadvantaged full-time managermust hold the highest officer position

(usually President or Chief ExecutiveOfficer) in the applicant or Participant.

(3) One or more disadvantagedindividuals who manage the applicantor Participant must devote full-time tothe business during the normal workinghours of firms in the same or similarline of business. Work in a wholly-owned subsidiary of the applicant orparticipant may be considered to meetthe requirement of full-time devotion.This applies only to a subsidiary ownedby the 8(a) firm, and not to firms inwhich the disadvantaged individual hasan ownership interest.

(4) Any disadvantaged manager whowishes to engage in outside employmentmust notify SBA of the nature andanticipated duration of the outsideemployment and obtain the priorwritten approval of SBA. SBA will denya request for outside employment whichcould conflict with the management ofthe firm or could hinder it in achievingthe objectives of its businessdevelopment plan.

(5) Except as provided in paragraph(d)(1) of this section, a disadvantagedowner’s unexercised right to cause achange in the control or management ofthe applicant concern does not in itselfconstitute disadvantaged control andmanagement, regardless of how quicklyor easily the right could be exercised.

(b) In the case of a partnership, one ormore disadvantaged individuals mustserve as general partners, with controlover all partnership decisions. Apartnership in which no disadvantagedindividual is a general partner will beineligible for participation.

(c) In the case of a limited liabilitycompany, one or more disadvantagedindividuals must serve as managementmembers, with control over alldecisions of the limited liabilitycompany.

(d) One or more disadvantagedindividuals must control the Board ofDirectors of a corporate applicant orParticipant.

(1) SBA will deem disadvantagedindividuals to control the Board ofDirectors where:

(i) A single disadvantaged individualowns 100% of all voting stock of anapplicant or Participant concern;

(ii) A single disadvantaged individualowns at least 51% of all voting stock ofan applicant or Participant concern, theindividual is on the Board of Directorsand no super majority votingrequirements exist for shareholders toapprove corporation actions. Wheresuper majority voting requirements areprovided for in the concern’s articles ofincorporation, its by-laws, or by statelaw, the disadvantaged individual mustown at least the percent of the voting

stock needed to overcome any suchsuper majority voting requirements; or

(iii) More than one disadvantagedshareholder seeks to qualify the concern(i.e., no one individual owns 51%), eachsuch individual is on the Board ofDirectors, together they own at least51% of all voting stock of the concern,no super majority voting requirementsexist, and the disadvantagedshareholders can demonstrate that theyhave made enforceable arrangements topermit one of them to vote the stock ofall as a block without a shareholdermeeting. Where the concern has supermajority voting requirements, thedisadvantaged shareholders must ownat least that percentage of voting stockneeded to overcome any such supermajority ownership requirements.

(2) Where an applicant or Participantdoes not meet the requirements set forthin paragraph (d)(1) of this section, thedisadvantaged individual(s) upon whomeligibility is based must control theBoard of Directors through actualnumbers of voting directors or, wherepermitted by state law, throughweighted voting (e.g., in a concernhaving a two-person Board of Directorswhere one individual on the Board isdisadvantaged and one is not, thedisadvantaged vote must be weighted—worth more than one vote—in order forthe concern to be eligible for 8(a)participation). Where a concern seeks tocomply with this paragraph:

(i) Provisions for the establishment ofa quorum cannot permit non-disadvantaged Directors to control theBoard of Directors, directly orindirectly;

(ii) Any Executive Committee ofDirectors must be controlled bydisadvantaged directors unless theExecutive Committee can only makerecommendations to and cannotindependently exercise the authority ofthe Board of Directors.

(3) An applicant must inform SBA ofany super majority voting requirementsprovided for in its articles ofincorporation, its by-laws, by state law,or otherwise. Similarly, after beingadmitted to the program, a Participantmust inform SBA of changes regardingsuper majority voting requirements.

(4) Non-voting, advisory, or honoraryDirectors may be appointed withoutaffecting disadvantaged individuals’control of the Board of Directors.

(5) Arrangements regarding thestructure and voting rights of the Boardof Directors must comply withapplicable state law.

(e) Non-disadvantaged individualsmay be involved in the management ofan applicant or Participant, and may bestockholders, partners, limited liability


members, officers, and/or directors ofthe applicant or Participant. However,no such non-disadvantaged individualor immediate family member may:

(1) Exercise actual control or have thepower to control the applicant orParticipant;

(2) Be a former employer or aprincipal of a former employer of anydisadvantaged owner of the applicant orParticipant, unless it is determined bythe AA/8(a)BD that the relationshipbetween the former employer orprincipal and the disadvantagedindividual or applicant concern doesnot give the former employer actualcontrol or the potential to control theapplicant or Participant and suchrelationship is in the best interests ofthe 8(a) BD firm; or

(3) Receive compensation from theapplicant or Participant in any form asdirectors, officers or employees,including dividends, that exceeds thecompensation to be received by thehighest officer (usually CEO orPresident). The highest ranking officermay elect to take a lower salary than anon-disadvantaged individual onlyupon demonstrating that it helps theapplicant or Participant. In the case ofa Participant, the Participant must alsoobtain the prior written consent of theAA/8(a)BD or designee before changingthe compensation paid to the highestranking officer to be below that paid toa non-disadvantaged individual.

(f) Non-disadvantaged individualswho transfer majority stock ownershipor control of the firm to an immediatefamily member within two years prior tothe application and remain involved inthe firm as a stockholder, officer,director, or key employee of the firm arepresumed to control the firm. Thepresumption may be rebutted byshowing that the transferee hasindependent management experiencenecessary to control the operation of thefirm.

(g) Non-disadvantaged individuals orentities may be found to control or havethe power to control in any of thefollowing circumstances, which areillustrative only and not all inclusive:

(1) In circumstances where anapplicant or Participant seeks toestablish disadvantaged control of theBoard of Directors through paragraph(d)(2) of this section, non-disadvantagedindividuals control the Board ofDirectors of the applicant or Participant,either directly through majority votingmembership, or indirectly, where theby-laws allow non-disadvantagedindividuals effectively to prevent aquorum or block actions proposed bythe disadvantaged individuals.

(2) A non-disadvantaged individual orentity, having an equity interest in theapplicant or participant, providescritical financial or bonding support ora critical license to the applicant orParticipant which directly or indirectlyallows the non-disadvantagedindividual significantly to influencebusiness decisions of the Participant.

(3) A non-disadvantaged individual orentity controls the applicant orParticipant or an individualdisadvantaged owner through loanarrangements. Providing a loan guarantyon commercially reasonable terms doesnot, by itself, give a non-disadvantagedindividual or entity the power to controla firm.

(4) Business relationships exist withnon-disadvantaged individuals orentities which cause such dependencethat the applicant or Participant cannotexercise independent business judgmentwithout great economic risk.

§ 124.107 What is potential for success?The applicant concern must possess

reasonable prospects for success incompeting in the private sector ifadmitted to the 8(a) BD program. To doso, it must be in business in its primaryindustry classification for at least twofull years immediately prior to the dateof its 8(a) BD application, unless awaiver for this requirement is grantedpursuant to paragraph (b) of this section.

(a) Income tax returns for each of thetwo previous tax years must showoperating revenues in the primaryindustry in which the applicant isseeking 8(a) BD certification.

(b)(1) SBA may waive the two yearsin business requirement if each of thefollowing five conditions are met:

(i) The individual or individuals uponwhom eligibility is based havesubstantial business managementexperience;

(ii) The applicant has demonstratedtechnical experience to carry out itsbusiness plan with a substantiallikelihood for success if admitted to the8(a) BD program;

(iii) The applicant has adequatecapital to sustain its operations andcarry out its business plan as aParticipant;

(iv) The applicant has a record ofsuccessful performance on contractsfrom governmental or nongovernmentalsources in its primary industry category;and

(v) The applicant has, or candemonstrate its ability to timely obtain,the personnel, facilities, equipment, andany other requirements needed toperform contracts as a Participant.

(2) The concern seeking a waiverunder paragraph (b) must provide

information on governmental andnongovernmental contracts in progressand completed (including letters ofreference) in order to establishsuccessful contract performance, andmust demonstrate how it otherwisemeets the five conditions for waiver.SBA considers an applicant’sperformance on both government andprivate sector contracts in determiningwhether the firm has an overallsuccessful performance record. If,however, the applicant has performedonly government contracts or onlyprivate sector contracts, SBA willreview its performance on thosecontracts alone to determine whetherthe applicant possesses a record ofsuccessful performance.

(c) In assessing potential for success,SBA considers the concern’s access tocredit and capital, including, but notlimited to, access to long-termfinancing, access to working capitalfinancing, equipment trade credit,access to raw materials and suppliertrade credit, and bonding capability.

(d) In assessing potential for success,SBA will also consider the technicaland managerial experience of theapplicant concern’s managers, theoperating history of the concern, theconcern’s record of performance onprevious Federal and private sectorcontracts in the primary industry inwhich the concern is seeking 8(a) BDcertification, and its financial capacity.The applicant concern as a whole mustdemonstrate both technical knowledgein its primary industry category andmanagement experience sufficient torun its day-to-day operations.

(e) The Participant or individualsemployed by the Participant must holdall requisite licenses if the concern isengaged in an industry requiringprofessional licensing (e.g., publicaccountancy, law, professionalengineering).

(f) An applicant will not be deniedadmission into the 8(a) BD program duesolely to a determination that potential8(a) contract opportunities areunavailable to assist in the developmentof the concern unless:

(1) The Government has notpreviously procured and is unlikely toprocure the types of products or servicesoffered by the concern; or

(2) The purchase of such products orservices by the Federal Government willnot be in quantities sufficient to supportthe developmental needs of theapplicant and other Participantsproviding the same or similar items orservices.


§ 124.108 What other eligibilityrequirements apply for individuals orbusinesses?

(a) Good character. The applicant orParticipant and all its principals musthave good character.

(1) If, during the processing of anapplication, adverse information isobtained from the applicant or acredible source regarding possiblecriminal conduct by the applicant orany of its principals, no further actionwill be taken on the application untilSBA’s Inspector General has collectedrelevant information and has advisedthe AA/8(a)BD of his or her findings.The AA/8(a)BD will consider thosefindings when evaluating theapplication.

(2) Violations of any of SBA’sregulations may result in denial ofparticipation in the 8(a) BD program.The AA/8(a)BD will consider the natureand severity of the violation in makingan eligibility determination.

(3) Debarred or suspended concernsor concerns owned by debarred orsuspended persons are ineligible foradmission to the 8(a) BD program.

(4) An applicant is ineligible foradmission to the 8(a) BD program if theapplicant concern or a proprietor,partner, limited liability member,director, officer, or holder of at least 10percent of its stock, or another person(including key employees) withsignificant authority over the concern:

(i) Lacks business integrity asdemonstrated by information related toan indictment or guilty plea, conviction,civil judgment, or settlement; or

(ii) Is currently incarcerated, or onparole or probation pursuant to a pre-trial diversion or following convictionfor a felony or any crime involvingbusiness integrity.

(5) If, during the processing of anapplication, SBA determines that anapplicant has knowingly submitted falseinformation, regardless of whethercorrect information would cause SBA todeny the application, and regardless ofwhether correct information was givento SBA in accompanying documents,SBA will deny the application. If, afteradmission to the program, SBAdiscovers that false information hasbeen knowingly submitted by a firm,SBA will initiate terminationproceedings and suspend the firm under§§ 124.304 and 124.305. Whenever SBAdetermines that the applicant submittedfalse information, the matter will bereferred to SBA’s Office of InspectorGeneral for review.

(b) One-time eligibility. Once aconcern or disadvantaged individualupon whom eligibility was based hasparticipated in the 8(a) BD program,

neither the concern nor that individualwill be eligible again.

(1) An individual who claimsdisadvantage and completes theappropriate SBA forms to qualify anapplicant has participated in the 8(a) BDprogram if SBA approves theapplication.

(2) Use of eligibility will take effect onthe date of the concern’s approval foradmission into the program.

(3) An individual who uses his or herone-time eligibility to qualify a concernfor the 8(a) BD program will beconsidered a non-disadvantagedindividual for ownership or controlpurposes of another applicant orParticipant. The criteria restrictingparticipation by non-disadvantagedindividuals will apply to such anindividual. See §§ 124.105 and 124.106.

(4) When at least 50% of the assets ofa concern are the same as those of aformer Participant, the concern will notbe eligible for entry into the program.

(5) Participants which change theirform of business organization andtransfer their assets and liabilities to thenew organization may do so withoutaffecting the eligibility of the neworganization provided the previousbusiness is dissolved and all othereligibility criteria are met. In such acase, the new organization maycomplete the remaining program term ofthe previous organization. A request fora change in business form will betreated as a change of ownership under§ 124.105(i).

(c) Wholesalers. An applicant concernseeking admission to the 8(a) BDprogram as a wholesaler need notdemonstrate that it is capable of meetingthe requirements of thenonmanufacturer rule for its primaryindustry classification.

(d) Brokers. Brokers are ineligible toparticipate in the 8(a) BD program. Abroker is a concern that adds nomaterial value to an item being suppliedto a procuring activity or which doesnot take ownership or possession of orhandle the item being procured with itsown equipment or facilities.

(e) Federal financial obligations.Neither a firm nor any of its principalsthat fails to pay significant financialobligations owed to the FederalGovernment, including unresolved taxliens and defaults on Federal loans orother Federally assisted financing, iseligible for admission to or participationin the 8(a) BD program.

§ 124.109 Do Indian tribes and AlaskaNative Corporations have any special rulesfor applying to the 8(a) BD program?

(a) Special rules for ANCs. Smallbusiness concerns owned and

controlled by ANCs are eligible forparticipation in the 8(a) program andmust meet the eligibility criteria setforth in § 124.112 to the extent thecriteria are not inconsistent with thissection. ANC-owned concerns aresubject to the same conditions thatapply to tribally-owned concerns, asdescribed in paragraphs (b) and (c) ofthis section, except that the followingprovisions and exceptions apply only toANC-owned concerns:

(1) Alaska Natives and descendants ofNatives must own a majority of both thetotal equity of the ANC and the totalvoting powers to elect directors of theANC through their holdings ofsettlement common stock. Settlementcommon stock means stock of an ANCissued pursuant to 43 U.S.C. 1606(g)(1),which is subject to the rights andrestrictions listed in 43 U.S.C.1606(h)(1).

(2) An ANC that meets therequirements set forth in paragraph(a)(1) of this section is deemedeconomically disadvantaged under 43U.S.C. 1626(e), and need not establisheconomic disadvantage as required byparagraph (b)(2) of this section.

(3) Even though an ANC can be eitherfor profit or non-profit, a small businessconcern owned and controlled by anANC must be for profit to be eligible forthe 8(a) program. The concern will bedeemed owned and controlled by theANC where both the majority of stock orother ownership interest and totalvoting power are held by the ANC andholders of its settlement common stock.

(4) The Alaska Native ClaimsSettlement Act provides that a concernwhich is majority owned by an ANCshall be deemed to be both owned andcontrolled by Alaska Natives and aneconomically disadvantaged business.Therefore, an individual responsible forcontrol and management of an ANC-owned applicant or Participant need notestablish personal social and economicdisadvantage.

(5) Paragraphs (b)(3)(i), (ii) and (iv) ofthis section are not applicable to anANC, provided its status as an ANC isclearly shown in its articles ofincorporation.

(6) Paragraph (c)(1) of this section isnot applicable to an ANC-ownedconcern to the extent it requires anexpress waiver of sovereign immunityor a ‘‘sue and be sued’’ clause.

(b) Tribal eligibility. In order toqualify a concern which it owns andcontrols for participation in the 8(a) BDprogram, an Indian tribe must establishits own economic disadvantaged statusunder paragraph (b)(2) of this section.Thereafter, it need not reestablish suchstatus in order to have other businesses


that it owns certified for 8(a) BDprogram participation, unlessspecifically required to do so by the AA/8(a)BD or designee. Each tribally-ownedconcern seeking to be certified for 8(a)BD participation must comply with theprovisions of paragraph (c) of thissection.

(1) Social disadvantage. An Indiantribe as defined in § 124.3 is consideredto be socially disadvantaged.

(2) Economic disadvantage. In orderto be eligible to participate in the 8(a)BD program, the Indian tribe mustdemonstrate to SBA that the tribe itselfis economically disadvantaged. Thismust involve the consideration ofavailable data showing the tribe’seconomic condition, including but notlimited to, the following information:

(i) The number of tribal members.(ii) The present tribal unemployment

rate.(iii) The per capita income of tribal

members, excluding judgment awards.(iv) The percentage of the local Indian

population below the poverty level.(v) The tribe’s access to capital.(vi) The tribal assets as disclosed in a

current tribal financial statement. Thestatement must list all assets includingthose which are encumbered or held intrust, but the status of those encumberedor in trust must be clearly delineated.

(vii) A list of all wholly or partiallyowned tribal enterprises or affiliates andthe primary industry classification ofeach. The list must also specify themembers of the tribe who manage orcontrol such enterprises by serving asofficers or directors.

(3) Forms and documents required tobe submitted. Except as otherwiseprovided in this section, the Indian tribegenerally must submit the forms anddocuments required of 8(a) BDapplicants as well as the followingmaterial:

(i) A copy of all governing documentssuch as the tribe’s constitution orbusiness charter.

(ii) Evidence of its recognition as atribe eligible for the special programsand services provided by the UnitedStates or by its state of residence.

(iii) Copies of its articles ofincorporation and bylaws as filed withthe organizing or chartering authority,or similar documents needed toestablish and govern a non-corporatelegal entity.

(iv) Documents or materials needed toshow the tribe’s economicallydisadvantaged status as described inparagraph (b)(2) of this section.

(c) Business eligibility. In order to beeligible to participate in the 8(a) BDprogram, a concern which is owned byan eligible Indian tribe (or wholly

owned business entities of such tribe)must meet the conditions set forth inparagraphs (c)(1) through (c)(7) of thissection.

(1) Legal business entity organized forprofit and susceptible to suit. Theapplicant or participating concern mustbe a separate and distinct legal entityorganized or chartered by the tribe, orFederal or state authorities. Theconcern’s articles of incorporation,partnership agreement or limitedliability company articles oforganization must contain expresssovereign immunity waiver language, ora ‘‘sue and be sued’’ clause whichdesignates United States Federal Courtsto be among the courts of competentjurisdiction for all matters relating toSBA’s programs including, but notlimited to, 8(a) BD programparticipation, loans, and contractperformance. Also, the concern must beorganized for profit, and the tribe mustpossess economic development powersin the tribe’s governing documents.

(2) Size. (i) A tribally-ownedapplicant concern must qualify as asmall business concern as defined forpurposes of Federal Governmentprocurement in part 121 of this title.The particular size standard to beapplied is based on the primaryindustry classification of the applicantconcern.

(ii) A tribally-owned Participant mustcertify to SBA that it is a small businesspursuant to the provisions of part 121 ofthis title for the purpose of performingeach individual contract which it isawarded.

(iii) In determining the size of a smallbusiness concern owned by a sociallyand economically disadvantaged Indiantribe (or a wholly owned business entityof such tribe) for either 8(a) BD programentry or contract award, the firm’s sizeshall be determined independentlywithout regard to its affiliation with thetribe, any entity of the tribalgovernment, or any other businessenterprise owned by the tribe, unlessthe Administrator determines that oneor more such tribally-owned businessconcerns have obtained, or are likely toobtain, a substantial unfair competitiveadvantage within an industry category.

(3) Ownership. (i) For corporateentities, a tribe must own at least 51percent of the voting stock and at least51 percent of the aggregate of all classesof stock. For non-corporate entities, atribe must own at least a 51 percentinterest.

(ii) A tribe cannot own 51% or moreof another firm which, either at the timeof application or within the previoustwo years, has been operating in the 8(a)program under the same primary SIC

code as the applicant. A tribe may,however, own a Participant or anapplicant that conducts or will conductsecondary business in the 8(a) BDprogram under the same SIC code thata current Participant owned by the tribeoperates in the 8(a) BD program as itsprimary SIC code.

(iii) The restrictions of § 124.105(h) donot apply to tribes; they do, however,apply to non disadvantaged individualsor other business concerns that arepartial owners of a tribally-ownedconcern.

(4) Control and management. (i) Themanagement and daily businessoperations of a tribally-owned concernmust be controlled by the tribe, throughone or more disadvantaged individualmembers who possess sufficientmanagement experience of an extentand complexity needed to run theconcern, or through management asfollows:

(A) Management may be provided bycommittees, teams, or Boards ofDirectors which are controlled by one ormore members of an economicallydisadvantaged tribe, or

(B) Management may be provided bynon-tribal members if SBA determinesthat such management is required toassist the concern’s development, thatthe tribe will retain control of allmanagement decisions common toboards of directors, including strategicplanning, budget approval, and theemployment and compensation ofofficers, and that a written managementdevelopment plan exists which showshow disadvantaged tribal members willdevelop managerial skills sufficient tomanage the concern or similar tribally-owned concerns in the future.

(ii) Members of the management team,business committee members, officers,and directors are precluded fromengaging in any outside employment orother business interests which conflictwith the management of the concern orprevent the concern from achieving theobjectives set forth in its businessdevelopment plan. This is not intendedto preclude participation in tribal orother activities which do not interferewith such individual’s responsibilitiesin the operation of the applicantconcern.

(5) Individual eligibility limitation.SBA does not deem an individualinvolved in the management or dailybusiness operations of a tribally-ownedconcern to have used his or herindividual eligibility within themeaning of § 124.108(b).

(6) Potential for success. (i) A tribally-owned applicant concern must be inbusiness for at least two years, asevidenced by income tax returns for


each of the two previous tax yearsshowing operating revenues in theprimary industry in which the applicantis seeking 8(a) BD certification, ordemonstrate potential for success as setforth in paragraph (c)(6)(ii) of thissection.

(ii) In determining whether a tribally-owned concern has the potential forsuccess, SBA will look at a number offactors including, but not limited to:

(A) The technical and managerialexperience and competency of theindividual(s) who will manage andcontrol the daily operation of theconcern;

(B) The financial capacity of theconcern; and

(C) The concern’s record ofperformance on any previous Federal orprivate sector contracts in the primaryindustry in which the concern isseeking 8(a) certification.

(7) Other eligibility criteria. (i) As withother 8(a) applicants, a tribally-ownedapplicant concern shall not be deniedadmission into the 8(a) program duesolely to a determination that specificcontract opportunities are unavailable toassist the development of the concernunless:

(A) The Government has notpreviously procured and is unlikely toprocure the types of products or servicesoffered by the concern; or

(B) The purchase of such products orservices by the Federal Government willnot be in quantities sufficient to supportthe developmental needs of theapplicant and other programparticipants providing the same orsimilar items or services.

(ii) Except for the tribe itself, theconcern’s officers, directors, and allshareholders owning an interest of 20%or more must demonstrate goodcharacter. See § 124.108(a).

§ 124.110 Do Native HawaiianOrganizations have any special rules forapplying to the 8(a) BD program?

(a) Concerns owned by economicallydisadvantaged Native HawaiianOrganizations, as defined in § 124.3, areeligible for participation in the 8(a)program and other federal programsrequiring SBA to determine social andeconomic disadvantage as a condition ofeligibility. Such concerns must meet alleligibility criteria set forth in §§ 124.101through 124.108 and § 124.112 to theextent that they are not inconsistentwith this section.

(b) A concern owned by a NativeHawaiian Organization must qualify asa small business concern as defined inpart 121 of this title. The size standardcorresponding to the primary industryclassification of the applicant concern

applies for determining size. SBA willdetermine the concern’s sizeindependently, without regard to itsaffiliation with the Native HawaiianOrganization or any other businessenterprise owned by the NativeHawaiian Organization, unless theAdministrator determines that one ormore such concerns owned by theNative Hawaiian Organization haveobtained, or are likely to obtain, asubstantial unfair competitive advantagewithin an industry category.

(c) A Native Hawaiian Organizationcannot own 51% or more of anotherfirm which, either at the time ofapplication or within the previous twoyears, has been operating in the 8(a)program under the same primary SICcode as the applicant. A NativeHawaiian Organization may, however,own a Participant or an applicant thatconducts or will conduct secondarybusiness in the 8(a) BD program underthe same SIC code that a currentParticipant owned by the NativeHawaiian Organization operates in the8(a) BD program as its primary SIC code.

(d) SBA does not deem an individualinvolved in the management or dailybusiness operations of a Participantowned by a Native HawaiianOrganization to have used his or herindividual eligibility within themeaning of § 124.108(b).

(e)(1) An applicant concern owned bya Native Hawaiian Organization must bein business for at least two years, asevidenced by income tax returns foreach of the two previous tax yearsshowing operating revenues in theprimary industry in which the applicantis seeking 8(a) BD certification, ordemonstrate potential for success as setforth in paragraph (e)(2) of this section.

(2) In determining whether a concernowned by a Native HawaiianOrganization has the potential forsuccess, SBA will look at a number offactors including, but not limited to:

(i) The technical and managerialexperience and competence of theindividual(s) who will manage andcontrol the daily operation of theconcern.

(ii) The financial capacity of theconcern; and

(iii) The concern’s record ofperformance on any previous Federal orprivate sector contracts in the primaryindustry in which the concern isseeking 8(a) certification.

§ 124.111 Do Community DevelopmentCorporations (CDCs) have any special rulesfor applying to the 8(a) BD program?

(a) Concerns owned at least 51percent by CDCs (or a wholly ownedbusiness entity of a CDC) are eligible for

participation in the 8(a) BD program andother federal programs requiring SBA todetermine social and economicdisadvantage as a condition ofeligibility. These concerns must meet alleligibility criteria set forth in § 124.101through § 124.108 and § 124.112 to theextent that they are not inconsistentwith this section.

(b) A concern that is at least 51percent owned by a CDC (or a whollyowned business entity of a CDC) isconsidered to be controlled by suchCDC and eligible for participation in the8(a) BD program, provided it meets alleligibility criteria set forth or referred toin this section and its management anddaily business operations are conductedby one or more individuals determinedto have managerial experience of anextent and complexity needed to run theconcern.

(c) A concern that is at least 51percent owned by a CDC (or a whollyowned business entity of a CDC) mustqualify as a small business concern asdefined in part 121 of this title. The sizestandard corresponding to the primaryindustry classification of the applicantconcern applies for determining size.SBA will determine the concern’s sizeindependently, without regard to itsaffiliation with the CDC or any otherbusiness enterprise owned by the CDC,unless the Administrator determinesthat one or more such concerns ownedby the CDC have obtained, or are likelyto obtain, a substantial unfaircompetitive advantage within anindustry category.

(d) A CDC cannot own 51% or moreof another firm which, either at the timeof application or within the previoustwo years, has been operating in the 8(a)program under the same primary SICcode as the applicant. A CDC may,however, own a Participant or anapplicant that conducts or will conductsecondary business in the 8(a) BDprogram under the same SIC code thata current Participant owned by the CDCoperates in the 8(a) BD program as itsprimary SIC code.

(e) SBA does not deem an individualinvolved in the management or dailybusiness operations of a CDC-ownedconcern to have used his or herindividual eligibility within themeaning of § 124.108(b).

(f)(1) A CDC-owned applicant concernmust be in business for at least twoyears, as evidenced by income taxreturns for each of the two previous taxyears showing operating revenues in theprimary industry in which the applicantis seeking 8(a) BD certification, ordemonstrate potential for success as setforth in paragraph (e)(2) of this section.


(2) In determining whether a CDC-owned concern has the potential forsuccess, SBA will look at a number offactors including, but not limited to:

(i) The technical and managerialexperience and competence of theindividual(s) who will manage andcontrol the daily operation of theconcern;

(ii) The financial capacity of theconcern; and

(iii) The concern’s record ofperformance on any previous Federal orprivate sector contracts in the primaryindustry in which the concern isseeking 8(a) certification.

(g) A CDC-owned applicant and all ofits principals must have good characteras set forth in § 124.108(a).

§ 124.112 What criteria must a businessmeet to remain eligible to participate in the8(a) BD program?

(a) Standards. In order for a concern(except those owned by Indian tribes,ANCs, Native Hawaiian Organizationsor CDCs) to remain eligible for 8(a) BDprogram participation, it must continueto meet all eligibility criteria containedin § 124.101 through § 124.108. Forconcerns owned by Indian tribes, ANCs,Native Hawaiian Organizations or CDCsto remain eligible, they must meet thecriteria set forth in this § 124.112 to theextent that they are not inconsistentwith § 124.109, § 124.110 and § 124.111,respectively. The concern must informSBA in writing of any changes incircumstances which would adverselyaffect its program eligibility, especiallyeconomic disadvantage and ownershipand control. Any concern that fails tomeet the eligibility requirements afterbeing admitted to the program will besubject to termination or earlygraduation under §§ 124.302 through124.304, as appropriate.

(b) Submissions supporting continuedeligibility. As part of an annual review,each Participant must annually submitto the servicing district office thefollowing:

(1) A certification that it meets the8(a) BD program eligibility requirementsas set forth in § 124.101 through§ 124.108 and paragraph (a) of thissection;

(2) A certification that there have beenno changed circumstances which couldadversely affect the Participant’sprogram eligibility. If the Participant isunable to provide such certification, theParticipant must inform SBA of anychanges and provide relevantsupporting documentation.

(3) Personal financial information foreach disadvantaged owner;

(4) A record from each individualclaiming disadvantaged status regarding

the transfer of assets for less than fairmarket value to any immediate familymember, or to a trust any beneficiary ofwhich is an immediate family member,within two years of the date of theannual review. The record must providethe name of the recipient(s) and familyrelationship, and the difference betweenthe fair market value of the assettransferred and the value received bythe disadvantaged individual.

(5) A record of all payments,compensation, and distributions(including loans, advances, salaries anddividends) made by the Participant toeach of its owners, officers or directors,or to any person or entity affiliated withsuch individuals;

(6) If it is an approved protege, anarrative report detailing the contacts ithas had with its mentor and benefits ithas received from the mentor/protegerelationship. See § 124.520(b)(4) foradditional annual requirements;

(7) IRS Form 4506, Request for Copyor Transcript of Tax Form; and

(8) Such other information as SBAmay deem necessary. For other requiredannual submissions, see §§ 124.601through 124.603.

(c) Eligibility reviews. (1) Upon receiptof specific and credible informationalleging that a Participant no longermeets the eligibility requirements forcontinued program eligibility, SBA willreview the concern’s eligibility forcontinued participation in the program.

(2) Sufficient reasons for SBA toconclude that a socially disadvantagedindividual is no longer economicallydisadvantaged include, but are notlimited to, excessive withdrawals offunds or other assets withdrawn fromthe concern by its owners, or substantialpersonal assets, income or net worth ofany disadvantaged owner. SBA may alsoconsider access by the Participant firmto a significant new source of capital orloans since the financial condition ofthe Participant is considered inevaluating the disadvantagedindividual’s economic status.

(d) Excessive withdrawals. (1) Theterm withdrawal includes, but is notlimited to, the following: officer’s salary;cash dividends; distributions in excessof amounts needed to pay S Corporationtaxes; cash and property withdrawals;bonuses; loans; advances; payments toimmediate family members; investmentson behalf of an owner, officer, or keyemployee; acquisition of a business notmerged with the 8(a) Participant;charitable contributions; andspeculative ventures.

(2) If SBA determines that excessivefunds or other assets have beenwithdrawn from the Participant, SBAmay:

(i) Initiate termination proceedingsunder §§ 124.303 and 124.304 where thewithdrawals detrimentally affect theachievement of the Participant’s targets,objectives and goals set forth in itsbusiness plan, or its overall businessdevelopment;

(ii) Initiate early graduationproceedings under §§ 124.302 and124.303 where the withdrawals do notadversely affect the Participant’sbusiness development; or

(iii) Require an appropriatereinvestment of funds or other assets, aswell as any other actions SBA deemsnecessary to counteract the detrimentaleffects of the withdrawals, as acondition of the Participant maintainingprogram eligibility.

(3) Withdrawals are excessive ifduring any fiscal year of the Participantthey exceed (i) $150,000 for firms withsales up to $1,000,000; (ii) $200,000 forfirms with sales between $1,000,000 and$2,000,000; and (iii) $300,000 for firmswith sales over $2,000,000.

(4) The fact that a concern’s net worthhas increased despite withdrawals thatare deemed excessive will not precludeSBA from determining that suchwithdrawals were detrimental to theattainment of the concern’s businessobjectives or to its overall businessdevelopment.

Applying to the 8(a) BD Program

§ 124.201 May any business submit anapplication?

Any concern or any individual onbehalf of a business has the right toapply for 8(a) BD program participationwhether or not there is an appearance ofeligibility.

§ 124.202 Where must an application befiled?

An application for 8(a) BD programadmission must be filed in the SBADivision of Program Certification andEligibility (DPCE) field office serving theterritory in which the principal place ofbusiness is located. The SBA districtoffice will provide an applicant concernwith information regarding the 8(a) BDprogram and with all requiredapplication forms.

§ 124.203 What must a concern submit toapply to the 8(a) BD program?

Each 8(a) BD applicant concern mustsubmit those forms and attachmentsrequired by SBA when applying foradmission to the 8(a) BD program. Theseforms and attachments will include, butnot be limited to, financial statements,Federal personal and business taxreturns, and personal historystatements. An applicant must alsosubmit IRS Form 4506, Request for Copy


or Transcript of Tax Form, to SBA. Theapplication package may be in the formof an electronic application.

§ 124.204 How does SBA processapplications for 8(a) BD programadmission?

(a) The AA/8(a)BD is authorized toapprove or decline applications foradmission to the 8(a) BD program. Theappropriate DPCE field office willreceive, review and evaluate all 8(a) BDapplications except those from ANC-owned applicants. SBA’s AnchorageDistrict Office will receive allapplications from ANC-ownedapplicants and review them forcompleteness before sending them tothe AA/8(a)BD for further processing.The appropriate field office will adviseeach program applicant within 15 daysafter the receipt of an applicationwhether the application is complete andsuitable for evaluation and, if not, whatadditional information or clarification isrequired to complete the application.SBA will process an application for 8(a)BD program participation within 90days of receipt of a complete applicationpackage by the DPCE field office.Incomplete application packages willnot be processed.

(b) SBA, in its sole discretion, mayrequest clarification of informationcontained in the application at any timein the application process. SBA willtake into account any clarificationsmade by an applicant in response to arequest for such by SBA.

(c) An applicant concern’s eligibilitywill be based on circumstances existingon the date of application, except whereclarification is made pursuant toparagraph (b) of this section or asprovided in paragraph (d) of thissection.

(d) Changed circumstances for anapplicant concern occurring subsequentto its application and which adverselyaffect eligibility will be considered andmay constitute grounds for decline. Theapplicant must inform SBA of anychanged circumstances that couldadversely affect its eligibility for theprogram (particularly economicdisadvantage and ownership andcontrol) during its application review.Failure to inform SBA of any suchchanged circumstances constitutes goodcause for which SBA may terminate theParticipant if non-compliance isdiscovered after admittance.

(e) The decision of the AA/8(a)BD toapprove or deny an application will bein writing. A decision to denyadmission will state the specific reasonsfor denial, and will inform the applicantof any appeal rights.

(f) If the AA/8(a)BD approves theapplication, the date of the approvalletter is the date of program certificationfor purposes of determining theconcern’s program term.

§ 124.205 Can an applicant ask SBA toreconsider SBA’s initial decision to declineits application?

(a) An applicant may request the AA/8(a)BD to reconsider his or her initialdecline decision by filing a request forreconsideration with the SBA fieldoffice that originally processed itsapplication. Filing means submission bypersonal delivery, first-class mail,express mail, fascimile transmissionfollowed by first-class mail, orcommercial delivery service. Theapplicant must submit its request forreconsideration within 45 days ofreceiving notice that its application wasdeclined. The applicant must provideany additional information anddocumentation pertinent to overcomingthe reason(s) for the initial decline.

(b) The AA/8(a)BD will issue awritten decision within 45 days of theregional DPCE’s receipt of theapplicant’s request. The AA/8(a)BD mayeither approve the application, deny iton the same grounds as the originaldecision, or deny it on other grounds. Ifdenied, the AA/8(a)BD will explain whythe applicant is not eligible foradmission to the 8(a) BD program andgive specific reasons for the decline.

(c) If the AA/8(a)BD declines theapplication solely on issues not raisedin the initial decline, the applicant canask for reconsideration as if it were aninitial decline.

§ 124.206 What appeal rights are availableto an applicant that has been deniedadmission?

(a) An applicant may appeal a denialof program admission to SBA’s Office ofHearings and Appeals (OHA), if it isbased solely on a negative finding ofsocial disadvantage, economicdisadvantage, ownership, control, orany combination of these four criteria. Adenial decision that is based at least inpart on the failure to meet any othereligibility criterion is not appealableand is the final decision of SBA.

(b) The applicant may appeal aninitial decision of the AA/8(a)BDwithout requesting reconsideration, ormay appeal the decision of the AA/8(a)BD on reconsideration.

(c) The applicant may initiate anappeal by filing a petition in accordancewith part 134 of this title with OHAwithin 45 days of the date of service (asdefined in § 134.204) of the Agencydecision.

(d) If an appeal is filed with OHA, thewritten decision of the Administrative

Law Judge is the final Agency decision.If an appealable decision is notappealed, the decision of the AA/8(a)BDis the final Agency decision.

§ 124.207 Can an applicant reapply foradmission to the 8(a) BD program?

A concern which has been declinedfor 8(a) BD program admission maysubmit a new application for admissionto the program 12 months after the dateof the final Agency decision to decline.

Exiting the 8(a) BD Program

§ 124.301 What are the ways a businessmay leave the 8(a) BD program?

A concern participating in the 8(a) BDprogram may leave the program by anyof the following means:

(a) Graduation upon the expiration ofthe program term established pursuantto § 124.2;

(b) Voluntary early graduation;(c) Early graduation pursuant to the

provisions of §§ 124.302 and 124.304; or(d) Termination pursuant to the

provisions of §§ 124.303 and 124.304.

§ 124.302 What is early graduation?(a) General. SBA may graduate a firm

from the 8(a) BD program prior to theexpiration of its Program Term whereSBA determines that:

(1) The concern has successfullycompleted the 8(a) BD program bysubstantially achieving the targets,objectives, and goals set forth in itsbusiness plan prior to the expiration ofits program term, and has demonstratedthe ability to compete in themarketplace without assistance underthe 8(a) BD program; or

(2) One or more of the disadvantagedowners upon whom the Participant’seligibility is based are no longereconomically disadvantaged.

(b) Criteria for determining whether aParticipant has met its goals andobjectives. In determining whether aParticipant has substantially achievedthe targets, objectives and goals of itsbusiness plan and in assessing theoverall competitive strength andviability of a Participant, SBA considersthe totality of circumstances, includingthe following factors:

(1) Degree of sustained profitability;(2) Sales trends, including improved

ratio of non-8(a) sales to 8(a) sales sinceprogram entry;

(3) Business net worth, financialratios, working capital, capitalization,and access to credit and capital;

(4) Current ability to obtain bonding;(5) A comparison of the Participant’s

business and financial profiles withprofiles of non-8(a) BD businesseshaving the same primary four-digit SICcode as the Participant;


(6) Strength of managementexperience, capability, and expertise;and

(7) Ability to operate successfullywithout 8(a) contracts.

(c) Excessive withdrawals. SBA maygraduate a Participant prior to theexpiration of its program term whereexcessive funds or other assets havebeen withdrawn from the Participant(see § 124.112(d)(3)), causing SBA todetermine that the Participant hasdemonstrated the ability to compete inthe marketplace without assistanceunder the 8(a) BD program.

§ 124.303 What is termination?(a) SBA may terminate the

participation of a concern in the 8(a) BDprogram prior to the expiration of theconcern’s Program Term for good cause.Examples of good cause include, but arenot limited to, the following:

(1) Submission of false information inthe concern’s 8(a) BD application,regardless of whether correctinformation would have caused theconcern to be denied admission to theprogram, and regardless of whethercorrect information was given to SBA inaccompanying documents or by othermeans.

(2) Failure by the concern to maintainits eligibility for program participation.

(3) Failure by the concern for anyreason, including the death of anindividual upon whom eligibility wasbased, to maintain ownership, full-timeday-to-day management, and control bydisadvantaged individuals.

(4) Failure by the concern to obtainprior written approval from SBA for anychanges in ownership or businessstructure, management or controlpursuant to §§ 124.105 and 124.106.

(5) Failure by the concern to discloseto SBA the extent to which non-disadvantaged persons or firmsparticipate in the management of theParticipant business concern.

(6) Failure by the concern or one ormore of the concern’s principals tomaintain good character.

(7) A pattern of failure to makerequired submissions or responses toSBA in a timely manner, including afailure to provide required financialstatements, requested tax returns,reports, updated business plans,information requested by SBA’s Officeof Inspector General, or other requestedinformation or data within 30 days ofthe date of request.

(8) Cessation of business operationsby the concern.

(9) Failure by the concern to pursuecompetitive and commercial business inaccordance with its business plan, orfailure in other ways to make reasonable

efforts to develop and achievecompetitive viability.

(10) A pattern of inadequateperformance by the concern of awardedsection 8(a) contracts.

(11) Failure by the concern to pay orrepay significant financial obligationsowed to the Federal Government.

(12) Failure by the concern to obtainand keep current any and all requiredpermits, licenses, and charters,including suspension or revocation ofany professional license required tooperate the business.

(13) Excessive withdrawals, includingtransfers of funds or other businessassets, from the concern for the personalbenefit of any of its owners or anyperson or entity affiliated with theowners that hinder the development ofthe concern (see § 124.112(d).

(14) Unauthorized use of SBA director guaranteed loan proceeds or violationof an SBA loan agreement.

(15) Submission by or on behalf of aParticipant of false information to SBA,including false certification ofcompliance with non-8(a) businessactivity targets under § 124.507 orfailure to report changes that adverselyaffect the program eligibility of anapplicant or program participant under§ 124.204 and § 124.112, whereresponsible officials of the 8(a) BDParticipant knew or should have knownthe submission to be false.

(16) Debarment, suspension,voluntary exclusion, or ineligibility ofthe concern or its principals pursuant topart 145 of this title or FAR subpart 9.4(48 CFR part 9, subpart 9.4).

(17) Conduct by the concern, or anyof its principals, indicating a lack ofbusiness integrity. Such conduct may bedemonstrated by information related toa criminal indictment or guilty plea, acriminal conviction, or a judgment orsettlement in a civil case.

(18) Willful failure by the Participantbusiness concern to comply withapplicable labor standards andobligations.

(19) Material breach of any terms andconditions of the 8(a) BD ProgramParticipation Agreement.

(20) Willful violation by a concern, orany of its principals, of any SBAregulation pertaining to material issues.

(b) The examples of good cause listedin paragraph (a) of this section areintended to be illustrative only. Othergrounds for terminating a Participantfrom the 8(a) BD program for cause mayexist and may be used by SBA.

§ 124.304 What are the procedures forearly graduation and termination?

(a) General. The same proceduresapply to both early graduation and

termination of Participants from the 8(a)BD program.

(b) Letter of Intent to Terminate orGraduate Early. When SBA believes thata Participant should be terminated orgraduated prior to the expiration of itsprogram term, SBA will notify theconcern in writing. The Letter of Intentto Terminate or Graduate Early will setforth the specific facts and reasons forSBA’s findings, and will notify theconcern that it has 30 days from the dateof service (as defined in § 134.204 ofthis title) of the letter to submit awritten response to SBA explaining whythe proposed ground(s) should notjustify termination or early graduation.Service is defined in § 134.204.

(c) Recommendation and decision.Following the 30-day response period,the Assistant Administrator for DPCE(AA/DPCE) or designee will considerthe proposed early graduation ortermination and any informationsubmitted in response by the concern.Upon determining that early graduationor termination is not warranted, the AA/DPCE or designee will notify theParticipant in writing. If earlygraduation or termination appearswarranted, the AA/DPCE will makesuch a recommendation to the AA/8(a)BD, who will then make a decisionwhether to early graduate or terminatethe concern. SBA will act in a timelymanner in processing early graduationand termination actions.

(d) Notice requirements. Upondeciding that early graduation ortermination is warranted, the AA/8(a)BD will issue a Notice of EarlyGraduation or Termination. The Noticewill set forth the specific facts andreasons for the decision, and will advisethe concern that it may appeal thedecision in accordance with theprovisions of part 134 of this title.

(e) Appeal to OHA. Proceduresgoverning appeals of early graduation ortermination to SBA’s OHA are set forthin part 134. If a Participant does notappeal a Notification of EarlyGraduation or Termination within 45days of the date of service (as definedin § 134.204), the decision of the AA/8(a)BD is the final agency decisioneffective on the date the appeal rightexpired.

(f) Effect of early graduation ortermination. After the effective date ofearly graduation or termination, aParticipant is no longer eligible toreceive any 8(a) BD program assistance.However, such concern is obligated tocomplete previously awarded 8(a)contracts, including any priced optionswhich may be exercised.


§ 124.305 What is suspension and how isa Participant suspended from the 8(a) BDprogram?

(a) At any time after SBA issues aLetter of Intent to Terminate pursuant to§ 124.304, the AA/8(a)BD may suspend8(a) contract support and all other formsof 8(a) BD program assistance to thatconcern until the issue of the concern’stermination from the program is finallydecided. The AA/8(a)BD may suspend aParticipant when he or she determinesthat suspension is needed to protect theinterests of the Federal Government,such as where information showing aclear lack of program eligibility orconduct indicating a lack of businessintegrity exists, including where theconcern or one of its principalssubmitted false statements to theFederal Government. SBA will suspenda Participant where SBA determinesthat the Participant submitted falseinformation in its 8(a) BD application.

(b) SBA will issue a Notice ofSuspension to the Participant’s lastknown address by certified mail, returnreceipt requested. Suspension iseffective as of the date of the issuanceof the Notice. The Notice will providethe following information:

(1) The basis for the suspension;(2) A statement that the suspension

will continue pending the completion offurther investigation, a final programtermination determination, or someother specified period of time;

(3) A statement that awards ofcompetitive and non-competitive 8(a)contracts, including those which havebeen ‘‘self-marketed’’ by a Participant,will not be made during the pendencyof the suspension unless it isdetermined by the head of the relevantprocuring agency or an authorizedrepresentative to be in the best interestof the Government to do so, and SBAadopts that determination;

(4) A statement that the concern isobligated to complete previouslyawarded section 8(a) contracts;

(5) A statement that the suspension iseffective nationally throughout SBA;

(6) A statement that a request for ahearing on the suspension will beconsidered by an Administrative LawJudge at OHA, and granted or denied asa matter of discretion.

(7) A statement that the firm’sparticipation in the program issuspended effective on the date theNotice is served, and that the programterm will resume only if the suspensionis lifted or the firm is not terminated.

(c) The applicant concern may appeala Notice of Suspension by filing apetition in accordance with part 134 ofthis title with OHA within 45 days ofthe date of service (as defined in

§ 134.204) of a Notice of Suspensionpursuant to paragraph (b) of this section.It is contemplated that in most cases ahearing on the issue of the suspensionwill be afforded if the Participantrequests one, but authority to grant ahearing is within the discretion of theAdministrative Law Judge in OHA. Asuspension remains in effect pendingthe result of its appeal.

(d) SBA has the burden of showingthat adequate evidence exists thatprotection of the Federal Government’sinterest requires suspension before OHAor the AA/8(a)BD makes a finaldetermination regarding the terminationaction.

(1) The term ‘‘adequate evidence’’means information contained in therecord before the AA/8(a)BD at the timeof his or her suspension decision that issufficient to support the reasonablebelief that the Government’s interestsneed to be protected.

(2) SBA need not demonstrate that anact or omission actually occurred inorder for OHA to uphold a suspension.SBA’s burden in a suspensionproceeding is limited to demonstratingthat it had a reasonable belief that aparticular act or omission occurred, andthat that act or omission requiressuspension to protect the interests of theGovernment.

(3) Unless the Administrative LawJudge consolidates the suspension andtermination proceedings, OHA’s reviewis limited to determining whether theGovernment’s interests need to beprotected, and will not consider themerits of the termination action.

(e) If there is a timely appeal, thedecision of the Administrative LawJudge is the final SBA decision. If thereis not a timely appeal, the decision ofthe AA/8(a)BD is the final Agencydecision.

(f) Upon the request of SBA, OHAmay consolidate suspension andtermination proceedings when theissues presented are identical.

(g) Any program suspension whichoccurs under this section is effectiveuntil such time as SBA lifts thesuspension or the Participant’sparticipation in the program is fullyterminated. If the concern is ultimatelynot terminated from the 8(a) BDprogram, the suspension will be liftedand the length of the suspension will beadded to the concern’s program term.

(h) SBA may suspend a Participantfrom program benefits where a changeof ownership or business structure hasbeen requested if ownership or controlof the participant changed prior toSBA’s approval pending resolution ofthe request to change its ownership orcontrol. If the change of ownership is

approved, the length of the suspensionwill be added to the firm’s program termwhere the change in ownership resultsfrom the death or incapacity of adisadvantaged individual or where thefirm requested prior approval andwaited 60 days for SBA approval beforemaking the change. The suspension willbe commenced by the issuance of anotice similar to that required fortermination-related suspensions underparagraph (b) of this section, except thata change of ownership suspension is notappealable.

(i) SBA does not recognize theconcept of de facto suspension. Addingtime to the end of a Participant’sprogram term equal to the length of asuspension will occur only where aconcern’s program participation hasbeen formally suspended in accordancewith the procedures set forth in thissection.

(j) A suspension from 8(a) BDparticipation under this section has noeffect on a concern’s eligibility for non-8(a) Federal Government contracts.However, a debarment or suspensionunder the Federal AcquisitionRegulation (48 CFR, chapter 1) willdisqualify a concern from receiving allFederal Government contracts,including 8(a) contracts.

Business Development

§ 124.401 Which SBA field office servicesa Participant?

The SBA district office which servesthe geographical territory where aParticipant’s principal place of businessis located normally will service theconcern during its participation in the8(a) BD program.

§ 124.402 How does a Participant developa business plan?

(a) General. In order to assist the SBAservicing office in determining thebusiness development needs of itsportfolio Participants, each Participantmust develop a comprehensive businessplan setting forth its business targets,objectives, and goals.

(b) Submission of initial businessplan. Each Participant must submit abusiness plan to its SBA servicing officeas soon as possible after programadmission. The Participant will not beeligible for 8(a) BD program benefits,including 8(a) contracts, until SBAapproves its business plan.

(c) Contents of business plan. Thebusiness plan must contain at least thefollowing:

(1) A detailed description of anyproducts currently being produced andany services currently being performedby the concern, as well as any future


plans to enter into one or more newmarkets;

(2) The applicant’s designation of itsprimary industry classification, asdefined in § 124.3;

(3) An analysis of market potential,competitive environment, and theconcern’s prospects for profitableoperations during and after itsparticipation in the 8(a) BD program;

(4) An analysis of the concern’sstrengths and weaknesses, withparticular attention on ways to correctany financial, managerial, technical, orwork force conditions which couldimpede the concern from receiving andperforming non-8(a) contracts;

(5) Specific targets, objectives, andgoals for the business development ofthe concern during the next two years;

(6) Estimates of both 8(a) and non-8(a)contract awards that will be needed tomeet its targets, objectives and goals;and

(7) Such other information as SBAmay require.

§ 124.403 How is a business plan updatedand modified?

(a) Annual review. Each Participantmust annually review its business planwith its assigned Business OpportunitySpecialist (BOS), and modify the plan asappropriate. The Participant mustsubmit a modified plan and updatedinformation to its BOS within thirty (30)days after the close of each programyear. It also must submit a capabilitystatement describing its current contractperformance capabilities as part of itsupdated business plan.

(b) Contract forecast. As part of theannual review of its business plan, eachParticipant must annually forecast inwriting its needs for contract awards forthe next program year. The forecastmust include:

(1) The aggregate dollar value of 8(a)contracts to be sought, broken down bysole source and competitiveopportunities where possible;

(2) The aggregate dollar value of non-8(a) contracts to be sought;

(3) The types of contract opportunitiesto be sought, identified by product orservice; and

(4) Such other information as SBAmay request to aid in providing effectivebusiness development assistance to theParticipant.

(c) Transition management strategy.Beginning in the first year of thetransitional stage of programparticipation, each Participant mustannually submit a transitionmanagement strategy to be incorporatedinto its business plan. The transitionmanagement strategy must describe:

(1) How the Participant intends tomeet the applicable non-8(a) business

activity target imposed by § 124.507during the transitional stage ofparticipation; and

(2) The specific steps the Participantintends to take to continue its businessgrowth and promote profitable businessoperations after the expiration of itsprogram term.

§ 124.404 What business developmentassistance is available to Participantsduring the two stages of participation in the8(a) BD program?

(a) General. Participation in the 8(a)BD program is divided into two stages,a developmental stage and a transitionalstage. The developmental stage will lastfour years, and the transitional stagewill last five years, unless the concernhas exited the program by one of themeans set forth in § 124.301 prior to theexpiration of its program term.

(b) Developmental stage of programparticipation. A Participant, if otherwiseeligible, may receive the followingassistance during the developmentalstage of program participation:

(1) Sole source and competitive 8(a)contract support;

(2) Financial assistance pursuant to§ 120.375 of this title;

(3) The transfer of technology orsurplus property owned by the UnitedStates pursuant to § 124.405; and

(4) Training to aid in developingbusiness principles and strategies toenhance their ability to competesuccessfully for both 8(a) and non-8(a)contracts.

(c) Transitional stage of programparticipation. A Participant, if otherwiseeligible, may receive the followingassistance during the transitional stageof program participation:

(1) The same assistance as thatprovided to Participants in thedevelopmental stage;

(2) Assistance from procuringagencies (in cooperation with SBA) informing joint ventures, leader-followerarrangements, and teaming agreementsbetween the concern and otherParticipants or other business concernswith respect to contractingopportunities outside the 8(a) BDprogram for research, development, orfull scale engineering or production ofmajor systems (these arrangements mustcomply with all relevant statutes andregulations, including applicable sizestandard requirements); and

(3) Training and technical assistancein transitional business planning.

§ 124.405 How does a Participant obtainFederal Government surplus property?

(a) General. (1) Pursuant to 15 U.S.C.636(j)(13)(F), eligible Participants mayreceive surplus Federal Government

property from State Agencies forSurplus Property (SASPs). Theprocedures set forth in 41 CFR Part 101–44 and this section will be used totransfer surplus property to eligibleParticipants.

(2) The property which may betransferred to SASPs for further transferto eligible Participants includes allpersonal property which has beendetermined to be ‘‘donable’’ as definedin 41 CFR 101–44.001–3.

(b) Eligibility to receive Federalsurplus property. To be eligible toreceive Federal surplus property, on thedate of transfer a concern must:

(1) Be in the 8(a) BD program;(2) Be in compliance with all program

requirements, including any reportingrequirements;

(3) Not be debarred, suspended, ordeclared ineligible under part 9, subpart9.4 of the Federal AcquisitionRegulations, Title 48 of the Code ofFederal Regulations;

(4) Not be under a pending 8(a) BDprogram suspension, termination orearly graduation proceeding; and

(5) Be engaged or expect to be engagedin business activities making the itemuseful to it.

(c) Use of acquired surplus property.(1) Eligible Participants may acquiresurplus Federal property from any SASPlocated in any state, provided theconcern represents and agrees inwriting:

(i) As to what the intended use of thesurplus property is to be and that thisuse is consistent with the objectives ofthe concern’s 8(a) business plan;

(ii) That it will use the property to beacquired in the normal conduct of itsbusiness activities or be liable for thefair rental value from the date of itsreceipt;

(iii) That it will not sell or transfer theproperty to be acquired to any partyother than the Federal Governmentduring its term of participation in the8(a) program and for one year after itleaves the program;

(iv) That, at its own expense, it willreturn the property to a SASP or transferit to another Participant if directed to doso by SBA because it has not used theproperty as intended within one year ofreceipt;

(v) That, should it breach itsagreement not to sell or transfer theproperty, it will be liable to theGovernment for the established fairmarket value or the sale price,whichever is greater, of the propertysold or transferred; and

(vi) That it will give SBA access toinspect the property and all recordspertaining to it.


(2) A firm receiving surplus propertypursuant to this section assumes allliability associated with or stemmingfrom the use of the property.

(3) If the property is not placed in usefor the purposes for which it wasintended within one year of its receipt,SBA may direct the concern to deliverthe property to another Participant or tothe SASP from which it was acquired.

(4) Failure to comply with any of thecommitments made under paragraph(c)(1) of this section constitutes a basisfor termination from the 8(a) program.

(d) Procedures for acquiring FederalGovernment surplus property. (1)Participants may participate in thesurplus property distribution programadministered by the SASPs to the sameextent, but with no special priority over,other authorized transferees. See 41 CFRsubpart 101–44.2.

(2) Each Participant seeking to acquireFederal Government surplus propertyfrom a SASP must:

(i) Certify in writing to the SASP thatit is eligible to receive the propertypursuant to paragraph (b) of this section;

(ii) Make the written representationsand agreement required by paragraph(c)(1) of this section; and

(iii) Identify to the SASP its servicingSBA field office.

(3) Upon receipt of the requiredcertification, representations,agreement, and information set forth inparagraph (d)(2) of this section, theSASP must contact the appropriate SBAfield office and obtain SBA’sverification that the concern seeking toacquire the surplus property is eligible,and that the identified use of theproperty is consistent with theconcern’s business activities. SASPsmay not release property to a Participantwithout this verification.

(4) The SASP and the Participantmust agree on and record the fair marketvalue of the surplus property at the timeof the transfer to the Participant. TheSASP must provide to SBA a writtenrecord, including the agreed upon fairmarket value, of each transaction to aParticipant when any property has beentransferred.

(e) Costs. Participants acquiringsurplus property from a SASP must paya service fee to the SASP which is equalto the SASP’s direct costs of locating,inspecting, and transporting the surplusproperty. If a Participant elects to incurthe responsibility and the expense fortransporting the acquired property, theconcern may do so and notransportation costs will be charged bythe SASP. In addition, the SASP maycharge a reasonable fee to cover its costsof administering the program. In noinstance will any SASP charge a

Participant more for any service thantheir established fees charged to othertransferees.

(f) Title. The title to surplus propertyacquired from a SASP will pass to theParticipant when the Participantexecutes the applicable SASPdistribution documents and takespossession of the property.

(g) Compliance. (1) SBA willperiodically review whetherParticipants that have received surplusproperty have used and maintained theproperty as agreed. This review mayinclude site visits to visually inspect theproperty to ensure that it is being usedin a manner consistent with the termsof its transfer.

(2) Participants must provide SBAwith access to all relevant records uponrequest.

(3) Where SBA receives credibleinformation that transferred surplusproperty may have been disposed of orotherwise used in a manner that is notconsistent with the terms of the transfer,SBA may investigate such claim todetermine its validity.

(4) SBA may take any action to correctany noncompliance involving the use oftransferred property still in possessionof the Participant or to enforce anyterms, conditions, reservations, orrestrictions imposed on the property bythe distribution document. Actions toenforce compliance, or which may betaken as a result of noncompliance,include the following:

(i) Requiring that the property beplaced in proper use within a specifiedtime;

(ii) Requiring that the property betransferred to another Participant havinga need and use for the property,returned to the SASP serving the areawhere the property is located fordistribution to another eligibletransferee or to another SASP, ortransferred through GSA to anotherFederal agency;

(iii) Recovery of the fair rental valueof the property from the date of itsreceipt by the Participant; and

(iv) Initiation of proceedings toterminate the Participant from the 8(a)BD program.

(5) Where SBA finds that a recipienthas sold or otherwise disposed of theacquired surplus property in violationof the agreement covering sale anddisposal, the Participant is liable for theagreed upon fair market value of theproperty at the time of the transfer, orthe sale price, whichever is greater.However, a Participant need not repayany amount where it can demonstrate toSBA’s satisfaction that the property isno longer useful for the purpose forwhich it was transferred and receives

SBA’s prior written consent to transferthe property. For example, if a piece ofequipment breaks down beyond repair,it may be disposed of without beingsubject to the repayment provision, solong as the concern receives SBA’s priorconsent.

(6) Any funds received by SBA inenforcement of this section will beremitted promptly to the Treasury of theUnited States as miscellaneous receipts.

Contractual Assistance

§ 124.501 What general provisions applyto the award of 8(a) contracts?

(a) Pursuant to section 8(a) of theSmall Business Act, SBA is authorizedto enter into all types of contracts withother Federal agencies, includingcontracts to furnish equipment,supplies, services, leased real property,or materials to them or to performconstruction work for them, and tocontract the performance of thesecontracts to qualified Participants.Where practicable, simplifiedacquisition procedures should be usedfor 8(a) contracts at or below thesimplified acquisition threshold. Whereappropriate, SBA will delegate thecontract execution function to procuringactivities. In order to receive and retaina delegation of SBA’s contract executionand review functions, a procuringactivity must report all 8(a) contractawards, modifications, and options toSBA.

(b) 8(a) contracts may either be solesource awards or awards won throughcompetition with other Participants.

(c) Admission into the 8(a) BDprogram does not guarantee that aParticipant will receive 8(a) contracts.

(d) A requirement for possible awardmay be identified by SBA, a particularParticipant or the procuring activityitself. SBA will submit the capabilitystatements provided to SBA annuallyunder § 124.403 to appropriateprocuring activities for the purpose ofmatching requirements withParticipants.

(e) Participants should market theircapabilities to appropriate procuringactivities to increase their prospects ofreceiving sole source 8(a) contracts.

(f) An 8(a) participant that identifiesa requirement that appears suitable foraward through the 8(a) BD program mayrequest SBA to contact the procuringactivity to request that the requirementbe offered to the 8(a) BD program.

(g) A concern must be a currentParticipant in the 8(a) BD program at thetime of award, except as provided in§ 124.507(d).

(h) A Participant must certify that itis a small business under the size


standard corresponding to the SIC codeassigned to each 8(a) contract. 8(a) BDprogram personnel will verify size priorto award of an 8(a) contract. If theParticipant is not verified as small, itmay request a formal size determinationfrom the appropriate GeneralContracting Area Office under part 121of this title.

(i) Any person or entity thatmisrepresents its status as a ‘‘smallbusiness concern owned and controlledby socially and economicallydisadvantaged individuals’’ in order toobtain any 8(a) contracting opportunitywill be subject to possible criminal, civiland administrative penalties, includingthose imposed by section 16(d) of theSmall Business Act, 15 U.S.C. 645(d).

§ 124.502 How does an agency offer aprocurement to SBA for award through the8(a) BD program?

(a) A procuring activity contractingofficer indicates his or her formal intentto award a procurement requirement asan 8(a) contract by submitting a writtenoffering letter to SBA. The procuringactivity may transmit the offering letterto SBA by electronic mail, if available,or by facsimile transmission, as well asby mail or commercial delivery service.

(b) Contracting officers must submitoffering letters to the followinglocations:

(1) For competitive 8(a) requirementsand those sole source requirements forwhich no specific Participant isnominated (i.e., open requirements)other than construction requirements, tothe SBA district office serving thegeographical area in which theprocuring activity is located;

(2) For competitive and openconstruction requirements, to the SBAdistrict office serving the geographicalarea in which the work is to beperformed or, in the case of suchcontracts to be performed overseas, tothe Office of 8(a) BD located in SBAHeadquarters;

(3) For sole source requirementsoffered on behalf of a specificParticipant, to the SBA district officeservicing that concern.

(c) An offering letter must contain thefollowing information:

(1) A description of the work to beperformed;

(2) The estimated period ofperformance;

(3) The SIC code that applies to theprincipal nature of the acquisition;

(4) The anticipated dollar value of therequirement, including options, if any;

(5) Any special restrictions orgeographical limitations on therequirement;

(6) The location of the work to beperformed for constructionprocurements;

(7) Any special capabilities ordisciplines needed for contractperformance;

(8) The type of contract to beawarded, such as firm fixed price, costreimbursement, or time and materials;

(9) The acquisition history, if any, ofthe requirement;

(10) The names and addresses of anysmall business contractors which haveperformed on this requirement duringthe previous 24 months;

(11) A statement that prior to theoffering no solicitation for the specificacquisition has been issued as a smallbusiness set-aside, or as a smalldisadvantaged business set-aside ifapplicable, and that no other publiccommunication (such as a notice in theCommerce Business Daily) has beenmade showing the procuring activity’sclear intent to use any of these meansof procurement;

(12) Identification of any specificParticipant that the procuring activitycontracting officer nominates for awardof a sole source 8(a) contract, ifappropriate, including a briefjustification for the nomination, such asone of the following:

(i) The Participant, through its ownefforts, marketed the requirement andcaused it to be reserved for the 8(a) BDprogram; or

(ii) The acquisition is a follow-on orrenewal contract and the nominatedconcern is the incumbent;

(13) Bonding requirements, ifapplicable;

(14) Identification of all Participantswhich have expressed an interest inbeing considered for the acquisition;

(15) Identification of all SBA fieldoffices which have requested that therequirement be awarded through the8(a) BD program;

(16) A request, if appropriate, that arequirement whose estimated contractvalue is under the applicablecompetitive threshold be awarded as an8(a) competitive contract; and

(17) Any other information that theprocuring activity deems relevant orwhich SBA requests.

§ 124.503 How does SBA accept aprocurement for award through the 8(a) BDprogram?

(a) Acceptance of the requirement.Upon receipt of the procuring activity’soffer of a procurement requirement,SBA will determine whether it willaccept the requirement for the 8(a) BDprogram. SBA’s decision whether toaccept the requirement will be sent tothe procuring activity in writing within

10 working days of receipt of the writtenoffering letter if the contract is valued atmore than the simplified acquisitionthreshold, and within two days ofreceipt of the offering letter if thecontract is valued at or below thesimplified acquisition threshold, unlessSBA requests, and the procuring activitygrants, an extension. SBA is notrequired to accept any particularprocurement offered to the 8(a) BDprogram.

(1) Where SBA decides to accept anoffering of a sole source 8(a)procurement, SBA will accept the offerboth on behalf of the 8(a) BD programand in support of a specific Participant.

(2) Where SBA decides to accept anoffering of a competitive 8(a)procurement, SBA will accept the offeron behalf of the 8(a) BD program.

(3) Where SBA has delegated itscontract execution functions to aprocuring activity, the procuringactivity may assume that SBA acceptsits offer for the 8(a) program if theprocuring activity does not receive areply to its offer within five days.

(4) In the case of procurementrequirements valued at or below theSimplified Acquisition Proceduresthreshold:

(i) Where a procuring activity makesan offer to the 8(a) program on behalf ofa specific Program Participant and doesnot receive a reply to its offer withintwo days, the procuring activity mayassume the offer is accepted andproceed with award of an 8(a) contract;

(ii) Where SBA has delegated its 8(a)contract execution functions to anagency, SBA may authorize theprocuring activity to award an 8(a)contract without requiring an offer andacceptance of the requirement for the8(a) program. In such a case, theprocuring activity must notify SBA ofall 8(a) awards made under thisauthority.

(5) Where SBA does not respond to anoffering letter within the normal 10-daytime period, the procuring activity mayseek SBA’s acceptance through the AA/8(a)BD. The procuring activity mayassume that SBA accepts its offer for the8(a) program if it does not receive areply from the AA/8(a)BD within 5 daysof his or her receipt of the procuringactivity request.

(b) Verification of SIC code. As part ofthe acceptance process, SBA will verifythe appropriateness of the SIC codedesignation assigned to the requirementby the procuring activity contractingofficer.

(1) SBA will accept the SIC codeassigned to the requirement by theprocuring activity contracting officer as


long as it is reasonable, even thoughother SIC codes may also be reasonable.

(2) If SBA and the procuring activityare unable to agree as to the proper SICcode designation for the requirement,SBA may either refuse to accept therequirement for the 8(a) BD program,appeal the contracting officer’sdetermination to the head of the agencypursuant to § 124.505, or appeal the SICcode designation to OHA under part 134of this title.

(c) Sole source award where procuringactivity nominates a specificParticipant. SBA will determinewhether an appropriate match existswhere the procuring activity identifies aparticular Participant for a sole sourceaward.

(1) Once SBA determines that aprocurement is suitable to be acceptedas an 8(a) sole source contract, SBA willnormally accept it on behalf of theParticipant recommended by theprocuring activity, provided that:

(i) The procurement is consistent withthe Participant’s business plan;

(ii) The Participant complies with itsapplicable non-8(a) business activitytarget imposed by § 124.509(d);

(iii) The Participant is small for thesize standard corresponding to the SICcode assigned to the requirement by theprocuring activity contracting officer;and

(iv) The Participant has submittedrequired financial statements to SBA.

(2) If an appropriate match exists,SBA will advise the procuring activitywhether SBA will participate in contractnegotiations or whether SBA willauthorize the procuring activity tonegotiate directly with the identifiedParticipant. Where SBA has delegatedits contract execution functions to aprocuring activity, SBA will alsoidentify that delegation in its acceptanceletter.

(3) If an appropriate match does notexist, SBA will notify the Participantand the procuring activity, and maythen nominate an alternate Participant.

(d) Open requirements. When aprocuring activity does not nominate aparticular concern for performance of asole source 8(a) contract (openrequirement), the following additionalprocedures will apply:

(1) If the procurement is aconstruction requirement, SBA willexamine the portfolio of Participantsthat have a bona fide place of businesswithin the geographical boundariesserved by the SBA district office wherethe work is to be performed to select aqualified Participant. If none is found tobe qualified or a match for a concern inthat district is determined to beimpossible or inappropriate, SBA may

nominate a Participant with a bona fideplace of business within thegeographical boundaries served byanother district office within the samestate, or may nominate a Participanthaving a bona fide place of business outof state but within a reasonableproximity to the work site. SBA’sdecision will ensure that the nominatedParticipant is close enough to the worksite to keep costs of performancereasonable.

(2) If the procurement is not aconstruction requirement, SBA mayselect any eligible, responsibleParticipant nationally to perform thecontract.

(3) In cases in which SBA selects aParticipant for possible award fromamong two or more eligible andqualified Participants, the selection willbe based upon relevant factors,including business development needs,compliance with competitive businessmix requirements (if applicable),financial condition, management ability,technical capability, and whether awardwill promote the equitable distributionof 8(a) contracts.

(e) Formal technical evaluations.Except for requirements for architecturaland engineering services, SBA will notauthorize formal technical evaluationsfor sole source 8(a) requirements. Aprocuring activity:

(1) Must request that a procurementbe a competitive 8(a) award if it requiresformal technical evaluations of morethan one Participant for a requirementbelow the applicable competitivethreshold amount; and

(2) May conduct informal assessmentsof several Participants’ capabilities toperform a specific requirement, so longas the statement of work for therequirement is not released to any of theParticipants being assessed.

(f) Repetitive acquisitions. Aprocuring activity contracting officermust submit a new offering letter toSBA where he or she intends to awarda follow-on or repetitive contract as an8(a) award. This enables SBA todetermine:

(1) Whether the requirement shouldbe a competitive 8(a) award;

(2) A nominated firm’s eligibility,whether or not it is the same firm thatperformed the previous contract;

(3) The affect that contract awardwould have on the equitabledistribution of 8(a) contracts; and

(4) Whether the requirement shouldcontinue under the 8(a) BD program.

(g) Basic Ordering Agreements(BOAs). A Basic Ordering Agreement(BOA) is not a contract under the FAR.See 48 CFR 16.703(a). Each order to beissued under the BOA is an individual

contract. As such, the procuring activitymust offer, and SBA must accept, eachtask order under a BOA in addition tooffering and accepting the BOA itself.

(1) SBA will not accept for award ona sole source basis any task order undera BOA that would cause the total dollaramount of task orders issued to exceedthe applicable competitive thresholdamount set forth in § 124.506(a).

(2) Where a procuring activitybelieves that task orders to be issuedunder a proposed BOA will exceed theapplicable competitive thresholdamount set forth in § 124.506(a), theprocuring activity must offer therequirement to the program to becompeted among eligible Participants.

(3) Once a concern’s program termexpires, the concern otherwise exits the8(a) BD program, or becomes other thansmall for the SIC code assigned underthe BOA, new orders will not beaccepted for the concern.

(h) Multiple Award and FederalSupply Schedule Contracts. UnlikeBasic Ordering Agreements, MultipleAward and Federal Supply Schedulecontracts are contracts. Orders issuedunder these contracts are not consideredseparate contracts. As such, SBA’sacceptance of the original MultipleAward or Federal Supply Schedulecontract is valid for the duration of thecontract. Separate offers andacceptances will not be made forindividual task orders under thesecontracts.

(1) Task orders are not required to becompeted where the value of the taskorder will exceed the competitivethreshold as long as the original contractwas competed.

(2) A concern may continue to acceptnew orders under a Multiple Award orFederal Supply Schedule contract evenwhere a concern’s program term expires,the concern otherwise exits the 8(a) BDprogram, or the concern becomes otherthan small for the SIC code assignedunder the contract subsequent to awardof the contract.

(i) Requirements where SBA hasdelegated contract execution authority.Except as provided in paragraph (a)(4)(i)of this section, where SBA has delegatedits 8(a) contract execution authority tothe procuring activity, the procuringactivity must still offer and SBA muststill accept all requirements intended tobe awarded as 8(a) contracts.

§ 124.504 What circumstances limit SBA’sability to accept a procurement for award asan 8(a) contract?

SBA will not accept a procurement foraward as an 8(a) contract if thecircumstances identified in paragraphs(a) through (d) of this section exist.


(a) Reservation as small business orSDB set-aside. The procuring activityissued a solicitation for or otherwiseexpressed publicly a clear intent toreserve the procurement as a smallbusiness or small disadvantagedbusiness (SDB) set-aside prior tooffering the requirement to SBA foraward as an 8(a) contract. The AA/8(a)BD may permit the acceptance of therequirement, however, underextraordinary circumstances.

Example to paragraph (a). SBA may accepta requirement where a procuring activitymade a decision to offer the requirement tothe 8(a) BD program before the solicitationwas sent out and the procuring activityacknowledges and documents that thesolicitation was in error.

(b) Competition prior to offer andacceptance. The procuring activitycompeted a requirement amongParticipants prior to offering therequirement to SBA and receiving SBA’sformal acceptance of the requirement.

(1) Any competition conductedwithout first obtaining SBA’s formalacceptance of the procurement for the8(a) BD program will not be consideredan 8(a) competitive requirement.

(2) SBA may accept the requirementfor the 8(a) BD program as a competitive8(a) requirement, but only if theprocuring activity agrees to resolicit therequirement using appropriatecompetitive 8(a) procedures.

(c) Adverse impact. SBA has made awritten determination that acceptance ofthe procurement for 8(a) award wouldhave an adverse impact on anindividual small business, a group ofsmall businesses located in a specificgeographical location, or other smallbusiness programs. The adverse impactconcept is designed to protect smallbusiness concerns which are performingGovernment contracts awarded outsidethe 8(a) BD program, and does not applyto follow-on or renewal 8(a)acquisitions. SBA will not consideradverse impact with respect to anyrequirement offered to the 8(a) programunder Simplified AcquisitionProcedures.

(1) In determining whether theacceptance of a requirement would havean adverse impact on an individualsmall business, SBA will consider allrelevant factors.

(i) In connection with a specific smallbusiness, SBA presumes adverse impactto exist where:

(A) The small business concern hasperformed the specific requirement forat least 24 months;

(B) The small business is performingthe requirement at the time it is offeredto the 8(a) BD program, or itsperformance of the requirement ended

within 30 days of the procuringactivity’s offer of the requirement to the8(a) BD program; and

(C) The dollar value of therequirement that the small business is orwas performing is 25 percent or more ofits most recent annual gross sales(including those of its affiliates). For amulti-year requirement, the dollar valueof the last 12 months of the requirementwill be used to determine whether asmall business would be adverselyaffected by SBA’s acceptance.

(ii) Except as provided in paragraph(c)(2) of this section, adverse impactdoes not apply to ‘‘new’’ requirements.A new requirement is one which has notbeen previously procured by therelevant procuring activity.

(A) Where a requirement is new, nosmall business could have previouslyperformed the requirement and, thus,SBA’s acceptance of the requirement forthe 8(a) BD program will not adverselyimpact any small business.

(B) Construction contracts, by theirvery nature (e.g., the building of aspecific structure), are deemed newrequirements.

(C) The expansion or modification ofan existing requirement will beconsidered a new requirement wherethe magnitude of change is significantenough to cause a price adjustment of atleast 25 percent (adjusted for inflation)or to require significant additional ordifferent types of capabilities or work.

(D) SBA need not perform an impactdetermination where a new requirementis offered to the 8(a) BD program.

(2) In determining whether theacceptance of a requirement would havean adverse impact on a group of smallbusinesses, SBA will consider theeffects of combining or consolidatingvarious requirements being performedby two or more small business concernsinto a single contract which would beconsidered a ‘‘new’’ requirement ascompared to any of the previous smallerrequirements. SBA may find adverseimpact to exist if one of the existingsmall business contractors meets thepresumption set forth in paragraph(c)(1)(i) of this section.

(3) In determining whether theacceptance of a requirement would havean adverse impact on other smallbusiness programs, SBA will considerall relevant factors, including but notlimited to, the number and value ofcontracts in the subject industryreserved for the 8(a) BD program ascompared with other small businessprograms.

(d) Release for non-8(a) competition.In limited instances, SBA may declineto accept the offer of a follow-on orrenewal 8(a) acquisition to give a

concern previously awarded thecontract that is leaving or has left the8(a) BD program the opportunity tocompete for the requirement outside the8(a) BD program.

(1) SBA will consider release onlywhere:

(i) The procurement awarded throughthe 8(a) BD program is being or wasperformed by either a Participant whoseprogram term will expire prior tocontract completion, or, by a formerParticipant whose program term expiredwithin one year of the date of theoffering letter;

(ii) The concern requests in writingthat SBA decline to accept the offerprior to SBA’s acceptance of therequirement for award as an 8(a)contract; and

(iii) The concern qualifies as a smallbusiness for the requirement nowoffered to the 8(a) BD program.

(2) In considering release, SBA willbalance the importance of therequirement to the concern’s businessdevelopment needs against the businessdevelopment needs of other Participantsthat are qualified to perform therequirement. This determination willinclude consideration of whetherrejection of the requirement wouldseriously reduce the pool of similartypes of contracts available for award as8(a) contracts. SBA will seek the viewsof the procuring activity.

(3) If SBA declines to accept the offerand releases the requirement, it willrecommend to the procuring activitythat the requirement be procured as asmall business or, if authorized, an SDBset-aside.

§ 124.505 When will SBA appeal the termsor conditions of a particular 8(a) contract ora procuring activity decision not to reservea requirement for the 8(a) BD program?

(a) What SBA may appeal. TheAdministrator of SBA may appeal thefollowing matters to the head of theprocuring agency:

(1) A contracting officer’s decision notto make a particular procurementavailable for award as an 8(a) contract;

(2) A contracting officer’s decision toreject a specific Participant for award ofan 8(a) contract after SBA’s acceptanceof the requirement for the 8(a) BDprogram; and

(3) The terms and conditions of aproposed 8(a) contract, including theprocuring activity’s SIC codedesignation and estimate of the fairmarket price.

(b) Procedures for appeal. (1) SBAmust notify the contracting officer of theSBA Administrator’s intent to appeal anadverse decision within 5 working daysof SBA’s receipt of the decision.


(2) Upon receipt of the notice of intentto appeal, the procuring activity mustsuspend further action regarding theprocurement until the head of theprocuring agency issues a writtendecision on the appeal, unless the headof the procuring agency makes a writtendetermination that urgent andcompelling circumstances whichsignificantly affect interests of theUnited States will not permit waiting fora consideration of the appeal.

(3) The SBA Administrator must senda written appeal of the adverse decisionto the head of the procuring agencywithin 15 working days of SBA’snotification of intent to appeal or theappeal may be considered withdrawn.

(4) By statute (15 U.S.C. 637(a)(1)(A)),the procuring agency head must specifyin writing the reasons for a denial of anappeal brought by the Administratorunder this section.

§ 124.506 At what dollar threshold must an8(a) procurement be competed amongeligible Participants?

(a) Competitive thresholds. (1) Aprocurement offered and accepted forthe 8(a) BD program must be competedamong eligible Participants if:

(i) There is a reasonable expectationthat at least two eligible Participantswill submit offers at a fair market price;

(ii) The anticipated award price of thecontract, including options, will exceed$5,000,000 for contracts assignedmanufacturing SIC codes and$3,000,000 for all other contracts; and

(iii) The requirement has not beenaccepted by SBA for award as a solesource 8(a) procurement on behalf of atribally-owned or ANC-owned concern.

(2) For all types of contracts, theapplicable competitive thresholdamounts will be applied to theprocuring activity estimate of the totalvalue of the contract, including alloptions. For indefinite delivery orindefinite quantity type contracts, thethresholds are applied to the maximumorder amount authorized.

(3) Where the estimate of the totalvalue of a proposed 8(a) contract is lessthan the applicable competitivethreshold amount and the requirementis accepted as a sole source requirementon that basis, award may be made eventhough the contract price arrived atthrough negotiations exceeds thecompetitive threshold, provided that thecontract price is not more than tenpercent greater than the competitivethreshold amount.

Example to paragraph (a)(3). If theanticipated award price for a professionalservices requirement is determined to be $2.7million and it is accepted as a sole source8(a) requirement on that basis, a sole source

award will be valid even if the contract pricearrived at after negotiation is $3.1 million.

(4) A proposed 8(a) requirement withan estimated value exceeding theapplicable competitive thresholdamount may not be divided into severalseparate procurement actions for lesseramounts in order to use 8(a) sole sourceprocedures to award to a singlecontractor.

(b) Exemption from competitivethresholds for Participants owned byIndian tribes. SBA may award a solesource 8(a) contract to a Participantconcern owned and controlled by anIndian tribe or an ANC where theanticipated value of the procurementexceeds the applicable competitivethreshold if SBA has not accepted therequirement into the 8(a) BD program asa competitive procurement. There is norequirement that a procurement must becompeted whenever possible before itcan be accepted on a sole source basisfor a tribally-owned or ANC-ownedconcern, but a procurement may not beremoved from competition to award it toa tribally-owned or ANC-owned concernon a sole source basis.

(c) Competition below thresholds. TheAA/8(a)BD, on a nondelegable basis,may approve a request from a procuringactivity to compete a requirement that isbelow the applicable competitivethreshold amount among eligibleParticipants.

(1) This authority will be usedprimarily when technical competitionsare appropriate or when a large numberof potential awardees exist.

(2) The AA/8(a)BD may considerwhether the procuring activity has madeand will continue to make available asignificant number of its contracts to the8(a) BD program on a noncompetitivebasis.

(3) The AA/8(a)BD may deny arequest if the procuring activitypreviously offered the requirement tothe 8(a) BD program on anoncompetitive basis and the request ismade following the inability of theprocuring activity and the potential solesource awardee to reach an agreementon price or some other material term orcondition.

(d) Sole source above thresholds.Where a contract opportunity exceedsthe applicable threshold amount andthere is not a reasonable expectationthat at least two eligible 8(a)Participants will submit offers at a fairprice, the AA/8(a)BD may accept therequirement for a sole source 8(a) awardif he or she determines that an eligibleParticipant in the 8(a) portfolio iscapable of performing the requirementat a fair price.

§ 124.507 What procedures apply tocompetitive 8(a) procurements?

(a) FAR procedures. Procuringactivities will conduct competitionsamong and evaluate offers received fromParticipants in accordance with theFederal Acquisition Regulation (48 CFR,chapter 1).

(b) Eligibility determination by SBA.In either a negotiated or sealed bidcompetitive 8(a) acquisition, theprocuring activity will request that theSBA district office servicing theapparent successful offeror determinethat firm’s eligibility for award.

(1) Within 5 working days afterreceipt of a procuring activity’s requestfor an eligibility determination, SBAwill determine whether the firmidentified by the procuring activity iseligible for award.

(2) Eligibility is based on 8(a) BDprogram criteria, including whether theParticipant is:

(i) A small business under the SICcode assigned to the requirement;

(ii) In compliance with any applicablecompetitive business mix targetestablished or remedial measureimposed by § 124.509 that does notinclude the denial of future 8(a)contracts;

(iii) In the developmental stage ofprogram participation if the solicitationrestricts offerors to the developmentalstage of participation; and

(iv) A concern with a bona fide placeof business in the applicable geographicarea if the procurement is forconstruction.

(3) If SBA determines that theapparent successful offeror is ineligible,SBA will notify the procuring activity.The procuring activity will then send toSBA the identity of the next highestevaluated firm for an eligibilitydetermination. The process is repeateduntil SBA determines that an identifiedofferor is eligible for award.

(4) Except to the extent set forth inparagraph (d) of this section, SBAdetermines whether a Participant iseligible for a specific 8(a) competitiverequirement as of the date that theParticipant submitted its initial offerwhich includes price.

(5) If the procuring activitycontracting officer believes that theapparent successful offeror is notresponsible to perform the contract, heor she must refer the concern to SBA fora possible Certificate of Competency inaccord with § 125.5 of this title.

(c) Restricted competition. (1)Competition within stages of programparticipation. SBA may accept acompetitive 8(a) requirement that islimited to Participants in thedevelopmental stage of program


participation, or may accept arequirement to be competed amongfirms both in the developmental andtransitional stages of programparticipation.

(2) Construction competitions. Basedon its knowledge of the 8(a) BDportfolio, SBA will determine whether acompetitive 8(a) constructionrequirement should be competed amongonly those Participants having a bonafide place of business within thegeographical boundaries of one or moreSBA district offices, within a state, orwithin the state and nearby areas. Onlythose Participants with bona fide placesof business within the appropriategeographical boundaries are eligible tosubmit offers.

(3) Competition for all non-construction requirements. Except forconstruction requirements, all eligibleParticipants regardless of location maysubmit offers in response to competitive8(a) solicitations. The only geographicrestrictions pertaining to 8(a)competitive requirements, other thanthose for construction requirements, areany imposed by the solicitationsthemselves.

(d) Award to firms whose programterms have expired. A concern that hascompleted its term of participation inthe 8(a) BD program may be awarded acompetitive 8(a) contract if it was aParticipant eligible for award of thecontract on the initial date specified forreceipt of offers contained in thecontract solicitation, and if it continuesto meet all other applicable eligibilitycriteria.

(1) Amendments to the solicitationextending the date for submissions ofoffers will be disregarded.

(2) For a negotiated procurement, aParticipant may submit revised offers,including a best and final offer, and beawarded a competitive 8(a) contract if itwas eligible as of the initial datespecified for the receipt of offers in thesolicitation, even though its programterm may expire after that date.

§ 124.508 How is an 8(a) contractexecuted?

(a) An 8(a) contract can be awarded inthe following ways:

(1) As a tripartite agreement in whichthe procuring activity, SBA and theParticipant all sign the appropriatecontract documents. There may beseparate prime and subcontractdocuments (i.e., a prime contractbetween the procuring activity and SBAand a subcontract between SBA and theselected 8(a) concern) or a combinedcontract document representing both theprime and subcontract relationships; or

(2) Where SBA has delegated contractexecution authority to the procuringactivity, directly by the procuringactivity through a contract between theprocuring activity and the Participant.

(b) Where SBA receives a contract forsignature valued at or below thesimplified acquisition threshold, it willsign the contract and return it to theprocuring activity within three (3) daysof receipt.

(c) In order to be eligible to receive asole source 8(a) contract, a firm must bea current Participant on the date ofaward. (See § 124.507(d) for competitive8(a) awards.)

§ 124.509 What are non-8(a) businessactivity targets?

(a) General. (1) To ensure thatParticipants do not develop anunreasonable reliance on 8(a) awards,and to ease their transition into thecompetitive marketplace aftergraduating from the 8(a) BD program,Participants must make maximumefforts to obtain business outside the8(a) BD program.

(2) During both the developmentaland transitional stages of the 8(a) BDprogram, a Participant must makesubstantial and sustained efforts,including following a reasonablemarketing strategy, to attain the targeteddollar levels of non-8(a) revenueestablished in its business plan. It mustattempt to use the 8(a) BD program asa resource to strengthen the firm foreconomic viability when programbenefits are no longer available.

(b) Required non-8(a) business activitytargets during transitional stage. (1)General. During the transitional stage ofthe 8(a) BD program, a Participant mustachieve certain targets of non-8(a)contract revenue (i.e., revenue fromother than sole source or competitive8(a) contracts). These targets are callednon-8(a) business activity targets andare expressed as a percentage of totalrevenue. The targets call for an increasein non-8(a) revenue over time.

(2) Non-8(a) business activity targets.During their transitional stage ofprogram participation, Participants mustmeet the following non-8(a) businessactivity targets each year:

Participant’s year in thetransitional stage

Non-8(a) businessactivity targets (re-

quired minimumnon-8(a) revenueas a percentageof total revenue)

1 ...................................... 152 ...................................... 253 ...................................... 354 ...................................... 455 ...................................... 55

(3) Compliance with non-8(a) businessactivity targets. SBA will measure theParticipant’s compliance with theapplicable non-8(a) business activitytarget at the end of each program yearin the transitional stage based on theParticipant’s latest fiscal year-end totalrevenue. Thus, at the end of the firstyear in the transitional stage of programparticipation, SBA will compare theParticipant’s non-8(a) revenue to itstotal revenue during that first year. Ifappropriate, SBA will require remedialmeasures during the subsequentprogram year. Thus, for example, non-compliance with the required non-8(a)business activity target in year one ofthe transitional stage would cause SBAto initiate remedial measures underparagraph (d) of this section for year twoin the transitional stage.

(4) Certification of compliance. AParticipant must certify as part of itsoffer that it complies with theapplicable non-8(a) business activitytarget or with the measures imposed bySBA under paragraph (d) of this sectionbefore it can receive any 8(a) contractduring the transitional stage of the 8(a)BD program.

(c) Reporting and verification ofbusiness activity. (1) Once admitted tothe 8(a) BD program, a Participant mustprovide to SBA as part of its annualreview:

(i) Annual financial statements with abreakdown of 8(a) and non-8(a) revenuein accord with § 124.602; and

(ii) An annual report within 30 daysfrom the end of the program year of allnon-8(a) contracts, options, andmodifications affecting price executedduring the program year.

(2) At the end of each year ofparticipation in the transitional stage,the BOS assigned to work with theParticipant will review the Participant’stotal revenues to determine whether thenon-8(a) revenues have met theapplicable target. In determiningcompliance, SBA will compare all 8(a)revenues received during the year,including those from options andmodifications, to all non-8(a) revenuesreceived during the year.

(d) Consequences of not meetingcompetitive business mix targets. (1)Except as set forth in paragraph (e) ofthis section, beginning at the end of thefirst year in the transitional stage (thefifth year of participation in the 8(a) BDprogram), any firm that does not meetits applicable competitive business mixtarget for the just completed programyear will be ineligible for sole source8(a) contracts in the current programyear, unless and until the Participantcorrects the situation as described inparagraph (d)(2) of this section.


(2) If SBA determines that an 8(a)Participant has failed to meet itsapplicable competitive business mixtarget during any program year in thetransitional stage of programparticipation, SBA may increase itsmonitoring of the Participant’scontracting activity during the ensuingprogram year. SBA will also notify theParticipant in writing that theParticipant will not be eligible forfurther 8(a) sole source contract awardsuntil it has demonstrated to SBA that ithas complied with its non-8(a) businessactivity requirements as described inparagraphs (d)(2)(i) and (d)(2)(ii) of thissection. In order for a Participant tocome into compliance with the non-8(a)business activity target and be eligiblefor further 8(a) sole source contracts, itmay:

(i) Wait until the end of the currentprogram year and demonstrate to SBAas part of the normal annual reviewprocess that it has met the revised non-8(a) business activity target; or

(ii) At its option, submit informationregarding its non-8(a) revenue to SBAquarterly throughout the currentprogram year in an attempt to come intocompliance before the end of the currentprogram year. If the Participant satisfiesthe requirements of paragraphs(d)(2)(ii)(A) or (d)(2)(ii)(B) of thissection, SBA will reinstate theParticipant’s ability to get sole source8(a) contracts prior to its annual review.

(A) To qualify for reinstatementduring the first six months of thecurrent program year (i.e., at either thefirst or second quarterly review), theParticipant must demonstrate that it hasreceived non-8(a) revenue and new non-8(a) contract awards that are equal to orgreater than the dollar amount by whichit failed to meet its non-8(a) businessactivity target for the just completedprogram year. For this purpose, SBAwill not count options on existing non-8(a) contracts in determining whether aParticipant has received new non-8(a)contract awards.

(B) To qualify for reinstatementduring the last six months of the currentprogram year (i.e., at either the nine-month or one year review), theParticipant must demonstrate that it hasachieved its non-8(a) business activitytarget as of that point in the currentprogram year.

Example 1 to paragraph (d)(2). Firm A had$10 million in total revenue during year 2 inthe transitional stage (year 6 in the program),but failed to meet the minimum non-8(a)business activity target of 25 percent. It had8(a) revenues of $8.5 million and non-8(a)revenues of $1.5 million (15 percent). Basedon total revenues of $10 million, Firm Ashould have had at least $2.5 million in non-

8(a) revenues. Thus, Firm A missed its targetby $1 million (its target ($2.5 million) minusits actual non-8(a) revenues ($1.5 million)).Because Firm A did not achieve its non-8(a)business activity target, it cannot receive 8(a)sole source awards until correcting thatsituation. The firm may wait until the nextannual review to establish that it has met therevised target, or it can choose to reportcontract awards and other non-8(a) revenueto SBA quarterly. Firm A elects to submitinformation to SBA quarterly in year 3 of thetransitional stage (year 7 in the program). Inorder to be eligible for sole source 8(a)contracts after either its 3 month or 6 monthreview, Firm A must show that it hasreceived non-8(a) revenue and/or beenawarded new non-8(a) contracts totaling $1million (the amount by which it missed itstarget in year 2 of the transitional stage).

Example 2 to paragraph (d)(2). Firm B had$10 million in total revenue during year 2 inthe transitional stage (year 6 in the program),of which $8.5 million were 8(a) revenues and$1.5 million were non-8(a) revenues. At itsfirst two quarterly reviews during year 3 ofthe transitional stage (year 7 in the program),Firm B could not demonstrate that it hadreceived at least $1 million in non-8(a)revenue and new non-8(a) awards. In orderto be eligible for sole source 8(a) contractsafter its 9 month or 1 year review, Firm Bmust show that at least 35% (the non-8(a)business activity target for year 3 in thetransitional stage) of all revenues receivedduring year 3 in the transitional stage as ofthat point are from non-8(a) sources.

(3) In determining whether aParticipant has achieved its requirednon-8(a) business activity target at theend of any program year in thetransitional stage, or whether aParticipant that failed to meet the targetfor the previous program year hasachieved the required level of non-8(a)business at its nine-month review, SBAwill measure 8(a) support by adding thebase year value of all 8(a) contractsawarded during the applicable programyear to the value of all options andmodifications executed during that year.

(4) As a condition of eligibility fornew 8(a) contracts, SBA may alsoimpose other requirements on aParticipant that fails to achieve the non-8(a) business activity targets. Theseinclude requiring the Participant toobtain management assistance, technicalassistance, and/or counseling, and/orattend seminars relating to managementassistance, business development,financing, marketing, accounting, orproposal preparation.

(5) SBA may initiate proceedings toterminate a Participant from the 8(a) BDprogram where the firm makes no goodfaith efforts to obtain non-8(a) revenues.

(e) Waiver of sole source prohibition.(1) The AA/8(a)BD, or his or herdesignee, may waive the requirementprohibiting a Participant from receivingfurther sole source 8(a) contracts when

a Participant does not meet its non-8(a)business activity target where a denialof a sole source contract would causesevere economic hardship on theParticipant so that the Participant’ssurvival may be jeopardized, or whereextenuating circumstances beyond theParticipant’s control caused theParticipant not to meet its non-8(a)business activity target. The decision togrant or deny a request for a waiver isat SBA’s discretion, and no appeal maybe taken with respect to that decision.

(2) The SBA Administrator on a non-delegable basis may waive therequirement prohibiting a Participantfrom receiving further sole source 8(a)contracts when the Participant does notmeet its non-8(a) business activity targetwhere the head of a procuring activityrepresents to the SBA Administratorthat award of a sole source 8(a) contractto the Participant is needed to achievesignificant interests of the Government.

§ 124.510 What percentage of work must aParticipant perform on an 8(a) contract?

(a) To assist the business developmentof Participants in the 8(a) BD program,an 8(a) contractor must perform certainpercentages of work with its ownemployees. These percentages and therequirements relating to them are thesame as those established for smallbusiness set-aside prime contractors,and are set forth in § 125.6 of this title.

(b) A Participant must certify in itsoffer that it will meet the applicablepercentage of work requirement. SBAwill determine whether the firm will bein compliance as of the date of award ofthe contract for both sealed bid andnegotiated procurements.

(c) Indefinite quantity contracts. (1) Inorder to ensure that the requiredpercentage of costs on an indefinitequantity 8(a) award is performed by theParticipant, the Participant mustdemonstrate semiannually that it hasperformed the required percentage tothat date. For a service or supplycontract, this does not mean that theParticipant must perform 50 percent ofthe applicable costs for each task orderwith its own force, or that a Participantmust have performed 50 percent of theapplicable costs at any point in timeduring the contract’s life. Rather, theParticipant must perform 50 percent ofthe applicable costs for the combinedtotal of all task orders issued to date atsix month intervals.

Example to paragraph (c)(1). Two taskorders are issued under an 8(a) indefinitequantity service contract during the first sixmonths of the contract. If $100,000 inpersonnel costs are incurred on the first taskorder, 90% of those costs ($90,000) areincurred for performance by the Participant’s


own work force, and the second task orderalso requires $100,000 in personnel costs, theParticipant would have to perform only 10percent of the personnel costs on the secondtask order because it would still haveperformed 50% of the total personnel costsat the end of the six-month period ($100,000out of $200,000).

(2) Where there is a guaranteedminimum condition in an indefinitequantity 8(a) award, the requiredperformance of work percentage neednot be met on task orders issued duringthe first six months of the contract. Insuch a case, however, the percentage ofwork that a Participant may furthercontract to other concerns during thefirst six months of the contract may notexceed 50 percent of the totalguaranteed minimum dollar value to beprovided by the contract. Once theguaranteed minimum amount is met,the general rule for indefinite quantitycontracts set forth in paragraph (c)(1) ofthis section applies.

Example to paragraph (c)(2). Where acontract guarantees a minimum of $100,000in professional services and the first taskorder is for $60,000 in such services, theParticipant may perform as little as $10,000of the personnel costs for that order. In sucha case, however, the Participant mustperform all of the next task order(s) up to$40,000 to ensure that it performs 50% of the$100,000 guaranteed minimum ($10,000 +$40,000 = $50,000 or 50% of the $100,000).

(3) The applicable SBA DistrictDirector may waive the provisions inparagraphs (c)(1) and (c)(2) of thissection requiring a Participant to meetthe applicable performance of workrequirement at the end of any six-monthperiod where he or she makes a writtendetermination that larger amounts ofsubcontracting are essential duringcertain stages of performance, providedthat there are written assurances fromboth the Participant and the procuringactivity that the contract will ultimatelycomply with the requirements of thissection. Where SBA authorizes aParticipant to exceed the subcontractinglimitations and the Participant does notultimately comply with the performanceof work requirements by the end of thecontract, SBA will not grant futurewaivers for the Participant.

§ 124.511 How is fair market pricedetermined for an 8(a) contract?

(a) The procuring activity determineswhat constitutes a ‘‘fair market price’’for an 8(a) contract.

(1) The procuring activity must derivethe estimate of a current fair marketprice for a new requirement, or arequirement that does not have asatisfactory procurement history, from aprice or cost analysis. This analysis maytake into account prevailing market

conditions, commercial prices forsimilar products or services, or dataobtained from any other agency. Theanalysis must also consider any cost orpricing data that is timely submitted bySBA.

(2) The procuring activity must basethe estimate of a current fair marketprice for a requirement that has asatisfactory procurement history onrecent award prices adjusted to ensurecomparability. Adjustments will takeinto account differences in quantities,performance, times, plans,specifications, transportation costs,packaging and packing costs, labor andmaterial costs, overhead costs, and anyother additional costs which may beappropriate.

(b) Upon the request of SBA, aprocuring activity will provide to SBAa written statement detailing the methodit has used to estimate the current fairmarket price for the 8(a) requirement.This statement must be submittedwithin 10 working days of SBA’srequest. The procuring activity mustidentify the information, studies,analyses, and other data it used inmaking its estimate.

(c) The procuring activity’s estimateof fair market price and any supportingdata may not be disclosed by SBA toany Participant or potential contractor.

(d) The concern selected to performan 8(a) contract may request SBA toprotest the procuring activity’s estimateof current fair market price to theSecretary of the Department or head ofthe agency in accordance with§ 124.505.

§ 124.512 Delegation of contractadministration to procuring agencies.

(a) SBA may delegate, by the use ofspecial clauses in the 8(a) contractdocuments or by a separate agreementwith the procuring activity, allresponsibilities for administering an 8(a)contract to the procuring activity exceptthe approval of novation agreementsunder 48 CFR 42.302(a)(25).

(b) This delegation of contractadministration authorizes a contractingofficer to execute any priced option orin scope modification without SBA’sconcurrence. The contracting officermust, however, notify SBA of allmodifications and options exercised.

§ 124.513 Under what circumstances can ajoint venture be awarded an 8(a) contract?

(a) General. (1) If approved by SBA, aParticipant may enter into a jointventure agreement with one or moreother small business concerns, whetheror not 8(a) Participants, for the purposeof performing a specific 8(a) contract.

(2) A joint venture agreement ispermissible only where an 8(a) concern

lacks the necessary capacity to performthe contract on its own, and theagreement is fair and equitable and willbe of substantial benefit to the 8(a)concern. However, where SBAconcludes that an 8(a) concern bringsvery little to the joint venturerelationship in terms of resources andexpertise other than its 8(a) status, SBAwill not approve the joint venturearrangement.

(b) Size of concerns to an 8(a) jointventure. (1) A joint venture of at leastone 8(a) Participant and one or moreother business concerns may submit anoffer as a small business for acompetitive 8(a) procurement so long aseach concern is small under the sizestandard corresponding to the SIC codeassigned to the contract, provided:

(i) The size of at least one 8(a)Participant to the joint venture is lessthan one half the size standardcorresponding to the SIC code assignedto the contract; and

(ii)(A) For a procurement having arevenue-based size standard, theprocurement exceeds half the sizestandard corresponding to the SIC codeassigned to the contract; or

(B) For a procurement having anemployee-based size standard, theprocurement exceeds $10 million;

(2) For sole source and competitive8(a) procurements that do not exceedthe dollar levels identified in paragraph(b)(1) of this section, an 8(a) Participantentering into a joint venture agreementwith another concern is considered tobe affiliated for size purposes with theother concern with respect toperformance of the 8(a) contract. Thecombined annual receipts or employeesof the concerns entering into the jointventure must meet the size standard forthe SIC code assigned to the 8(a)contract.

(3) Notwithstanding the provisions ofparagraphs (b)(1) and (b)(2) of thissection, a joint venture between aprotege firm and its approved mentor(see § 124.520) will be deemed smallprovided the protege qualifies as smallfor the size standard corresponding tothe SIC code assigned to theprocurement and has not reached thedollar limit set forth in § 124.519.

(c) Contents of joint ventureagreement. Every joint ventureagreement to perform an 8(a) contract,including those between mentors andproteges authorized by § 124.520, mustcontain a provision:

(1) Setting forth the purpose of thejoint venture;

(2) Designating an 8(a) Participant asthe managing venturer of the jointventure, and an employee of themanaging venturer as the project


manager responsible for performance ofthe 8(a) contract;

(3) Stating that not less than 51percent of the net profits earned by thejoint venture will be distributed to the8(a) Participant(s);

(4) Providing for the establishmentand administration of a special bankaccount in the name of the joint venture.This account must require the signatureof all parties to the joint venture ordesignees for withdrawal purposes. Allpayments due the joint venture forperformance on an 8(a) contract will bedeposited in the special account; allexpenses incurred under the contractwill be paid from the account as well;

(5) Itemizing all major equipment,facilities, and other resources to befurnished by each party to the jointventure, with a detailed schedule of costor value of each;

(6) Specifying the responsibilities ofthe parties with regard to contractperformance, source of labor andnegotiation of the 8(a) contract;

(7) Obligating all parties to the jointventure to ensure performance of the8(a) contract and to completeperformance despite the withdrawal ofany member;

(8) Designating that accounting andother administrative records relating tothe joint venture be kept in the office ofthe managing venturer, unless approvalto keep them elsewhere is granted bythe District Director or his/her designeeupon written request;

(9) Requiring the final original recordsbe retained by the managing venturerupon completion of the 8(a) contractperformed by the joint venture;

(10) Stating that quarterly financialstatements showing cumulative contractreceipts and expenditures (includingsalaries of the joint venture’s principals)must be submitted to SBA not later than45 days after each operating quarter ofthe joint venture; and

(11) Stating that a project-end profitand loss statement, including astatement of final profit distribution,must be submitted to SBA no later than90 days after completion of the contract.

(d) Performance of work. For any 8(a)contract, including those betweenmentors and proteges authorized by§ 124.520, the joint venture mustperform the applicable percentage ofwork required by § 124.510, and the 8(a)partner(s) to the joint venture mustperform a significant portion of thecontract.

(e) Prior approval by SBA. SBA mustapprove a joint venture agreement priorto the award of an 8(a) contract onbehalf of the joint venture.

(f) Contract execution. Where SBAhas approved a joint venture, the

procuring activity will execute an 8(a)contract in the name of the joint ventureentity.

(g) Amendments to joint ventureagreement. All amendments to the jointventure agreement must be approved bySBA.

(h) Inspection of records. SBA mayinspect the records of the joint venturewithout notice at any time deemednecessary.

§ 124.514 Exercise of 8(a) options andmodifications.

(a) Unpriced options. The exercise ofan unpriced option is considered to bea new contracting action.

(1) If a concern has graduated or beenterminated from the 8(a) BD program oris no longer small under the sizestandard corresponding to the SIC codefor the requirement, negotiations toprice the option cannot be entered intoand the option cannot be exercised.

(2) If the concern is still a Participantand otherwise eligible for therequirement on a sole source basis, theprocuring activity contracting officermay negotiate price and exercise theoption provided the option, considereda new contracting action, meets allregulatory requirements, including theprocuring activity’s offering and SBA’sacceptance of the requirement for the8(a) BD program.

(3) If the estimated fair market priceof the option exceeds the applicablethreshold amount set forth in § 124.506,the requirement must be competed as anew contract among eligibleParticipants.

(b) Priced options. The procuringactivity contracting officer may exercisea priced option to an 8(a) contractwhether the concern that received theaward has graduated or been terminatedfrom the 8(a) BD program or is no longereligible if to do so is in the best interestsof the Government.

(c) Modifications beyond the scope. Amodification beyond the scope of theinitial 8(a) contract award is consideredto be a new contracting action. It will betreated the same as an unpriced optionas described in paragraph (a) of thissection.

(d) Modifications within the scope.The procuring activity contractingofficer may exercise a modificationwithin the scope of the initial 8(a)contract whether the concern thatreceived the award has graduated orbeen terminated from the 8(a) BDprogram or is no longer eligible if to doso is in the best interests of theGovernment.

§ 124.515 Can a Participant change itsownership or control and continue toperform an 8(a) contract, and can it transferperformance to another firm?

(a) An 8(a) contract must beperformed by the Participant thatinitially received it unless a waiver isgranted under paragraph (b) of thissection.

(1) An 8(a) contract, whether in thebase or an option year, must beterminated for the convenience of theGovernment if:

(i) One or more of the individualsupon whom eligibility for the 8(a) BDprogram was based relinquishes orenters into any agreement to relinquishownership or control of the Participantsuch that the Participant would nolonger be controlled or at least 51%owned by disadvantaged individuals; or

(ii) The contract is transferred ornovated for any reason to another firm.

(2) The procuring activity may notassess repurchase costs or otherdamages against the Participant duesolely to the provisions of this section.

(b) The SBA Administrator may waivethe requirements of paragraph (a)(1) ofthis section if requested to do so by the8(a) contractor when:

(1) It is necessary for the owners ofthe concern to surrender partial controlof such concern on a temporary basis inorder to obtain equity financing;

(2) Ownership and control of theconcern that is performing the 8(a)contract will pass to another Participant,but only if the acquiring firm wouldotherwise be eligible to receive theaward directly as an 8(a) contract;

(3) Any individual upon whomeligibility was based is no longer able toexercise control of the concern due tophysical or mental incapacity or death;

(4) The head of the procuring agency,or an official with delegated authorityfrom the agency head, certifies thattermination of the contract wouldseverely impair attainment of theagency’s program objectives or missions;or

(5) It is necessary for thedisadvantaged owners of the initial 8(a)awardee to relinquish ownership of amajority of the voting stock of theconcern in order to raise equity capital,but only if—

(i) The concern has graduated fromthe 8(a) BD program;

(ii) The disadvantaged owners willmaintain ownership of the largest singleoutstanding block of voting stock(including stock held by affiliatedparties); and

(iii) The disadvantaged owners willmaintain control of the daily businessoperations of the concern.

(c) The 8(a) contractor must request awaiver in writing prior to the change of


ownership and control except in thecase of death or incapacity. A requestfor waiver due to incapacity or deathmust be submitted within 60 days aftersuch occurrence. The Participantseeking to change ownership or controlmust specify the grounds upon which itrequests a waiver, and mustdemonstrate that the proposedtransaction would meet such grounds.

(d) SBA determines the eligibility ofan acquiring Participant underparagraph (b)(2) of this section byreferring to the items identified in§ 124.507(b)(2) and deciding whether atthe time of the request for waiver (andprior to the transaction) the acquiringParticipant is a responsible and eligibleconcern with respect to each contractfor which a waiver is sought. As part ofthe waiver request, the acquiring firmmust certify that it is a small businessfor the size standard corresponding tothe SIC code assigned to each contractfor which a waiver is sought.

(e) Anyone other than a procuringagency head who submits a certificationregarding the impairment of theagency’s objectives under paragraph(b)(4) of this section, must also certifydelegated authority to make thecertification.

(f) In processing a request for a waiverunder paragraph (b)(2) of this section,SBA will treat a transfer of all aParticipant’s operating assets to anotherParticipant the same as the transfer of anownership interest, provided theParticipant that transfers its assets toanother eligible Participant:

(1) Voluntarily graduates from the 8(a)BD program; and

(2) Ceases its business operations, orpresents a plan to SBA for its orderlydissolution.

(g) A concern performing an 8(a)contract must notify SBA in writingimmediately upon entering into anagreement or agreement in principle(either oral or written) to transfer all orpart of its stock or other ownershipinterest or assets to any other party.Such an agreement could include anoral agreement to enter into atransaction to transfer interests in thefuture.

(h) The Administrator has discretionto decline a request for waiver eventhough legal authority exists to grant thewaiver.

(i) The 8(a) contractor may appealSBA’s denial of a waiver request byfiling a petition with OHA pursuant topart 134 of this title within 45 days ofthe date of service (as defined in§ 134.204) of the Administrator’sdecision.

§ 124.516 Who decides contract disputesarising between a Participant and aprocuring activity after the award of an 8(a)contract?

For purposes of the Disputes Clause ofa specific 8(a) contract, the contractingofficer is that of the procuring activity.A dispute arising between an 8(a)contractor and the procuring activitycontracting officer will be decided bythe procuring activity, and appeals maybe taken by the 8(a) contractor withoutSBA involvement.

§ 124.517 Can the eligibility or size of aParticipant for award of an 8(a) contract bequestioned?

(a) The eligibility of a Participant fora sole source or competitive 8(a)requirement may not be challenged byanother Participant or any other party,either to SBA or any administrativeforum as part of a bid or other contractprotest.

(b) The size status of the apparentsuccessful offeror for a competitive 8(a)procurement may be protested pursuantto § 121.1001(a)(2) of this chapter. Thesize status of a nominated Participantfor a sole source 8(a) procurement maynot be protested by another Participantor any other party.

(c) A Participant cannot appeal SBA’sdetermination not to award it a specific8(a) contract because the concern lacksan element of responsibility or isineligible for the contract, other than theright set forth in § 124.501(h) to requesta formal size determination where SBAcannot verify it to be small.

(d)(1) The SIC code assigned to a solesource 8(a) requirement may not bechallenged by another Participant or anyother party either to SBA or anyadministrative forum as part of a bid orcontract protest. Only the AA/8(a)BDmay appeal a SIC code designation withrespect to a sole source 8(a)requirement.

(2) In connection with a competitive8(a) procurement, any interested partywho has been adversely affected by aSIC code designation may appeal thedesignation to SBA’s OHA pursuant to§ 121.1103 of this title.

(e) Anyone with informationquestioning the eligibility of aParticipant to continue participation inthe 8(a) BD program or for purposes ofa specific 8(a) contract may submit suchinformation to SBA under § 124.112(c).

§ 124.518 How can an 8(a) contract beterminated before performance iscompleted?

(a) Termination for default. Adecision to terminate a specific 8(a)contract for default can be made by theprocuring activity contracting officerafter consulting with SBA. The

contracting officer must advise SBA ofany intent to terminate an 8(a) contractfor default in writing before doing so.SBA may provide to the Participant anyprogram benefits reasonably available inorder to assist it in avoiding terminationfor default. SBA will advise thecontracting officer of this effort. Anyprocuring activity contracting officerwho believes grounds for terminationcontinue to exist may terminate the 8(a)contract for default, in accordance withthe Federal Acquisition Regulations (48CFR chapter 1). SBA will have noliability for termination costs orreprocurement costs.

(b) Termination for convenience. Afterconsulting with SBA, the procuringactivity contracting officer mayterminate an 8(a) contract forconvenience when it is in the bestinterests of the Government to do so. Atermination for convenience isappropriate if any disadvantaged ownerof the Participant performing thecontract relinquishes ownership orcontrol of such concern, or enters intoany agreement to relinquish suchownership or control, unless a waiver isgranted pursuant to § 124.515.

(c) Substitution of one 8(a) contractorfor another. Where a procuring activitycontracting officer demonstrates to SBAthat an 8(a) contract will otherwise beterminated for default, SBA mayauthorize another Participant tocomplete performance and, inconjunction with the procuring activity,permit novation of the contract withoutinvoking the termination forconvenience or waiver provisions of§ 124.515.

§ 124.519 Are there any dollar limits on theamount of 8(a) contracts that a Participantmay receive?

(a) A Participant (other than oneowned by an Indian tribe or an ANC)may not receive sole source 8(a) contractawards where it has received acombined total of competitive and solesource 8(a) contracts in excess of thedollar amount set forth in this sectionduring its participation in the 8(a) BDprogram.

(1) For a firm having a revenue-basedprimary SIC code at time of programentry, the limit above which it can nolonger receive sole source 8(a) contractsis five times the size standardcorresponding to that SIC code as of thedate of SBA’s acceptance of therequirement for the 8(a) BD program or$100,000,000, whichever is less.

(2) For a firm having an employee-based primary SIC code at time ofprogram entry, the limit above which itcan no longer receive sole source 8(a)contracts is $100,000,000.


(3) SBA will not consider 8(a)contracts awarded under $100,000 indetermining whether a Participant hasreached the limit identified inparagraphs (a)(1) and (a)(2) of thissection.

(b) Once the limit is reached, a firmmay not receive any more 8(a) solesource contracts, but may remaineligible for competitive 8(a) awards.

(c) The limitation set forth inparagraph (a) of this section will notapply for firms that are currentParticipants in the 8(a) BD program asof December 31, 1997.

(d) SBA includes the dollar value of8(a) options and modifications indetermining whether a Participant hasreached the limit identified inparagraph (a) of this section. If an optionis not exercised or the contract value isreduced by modification, SBA willdeduct those values.

(e) A Participant’s eligibility for a solesource award in terms of whether it hasexceeded the dollar limit for 8(a)contracts is measured as of the date thatthe requirement is accepted for the 8(a)program without taking into accountwhether the value of that award willcause the limit to be exceeded.

(f) The SBA Administrator on a non-delegable basis may waive therequirement prohibiting a Participantfrom receiving sole source 8(a) contractsin excess of the dollar amount set forthin this section where the head of aprocuring activity represents to the SBAAdministrator that award of a solesource 8(a) contract to the Participant isneeded to achieve significant interestsof the Government.

§ 124.520 Mentor/protege program.(a) General. The mentor/protege

program is designed to encourageapproved mentors to provide variousforms of assistance to eligibleParticipants. This assistance mayinclude technical and/or managementassistance; financial assistance in theform of equity investments and/or loans;subcontracts; and/or assistance inperforming prime contracts with theGovernment in the form of joint venturearrangements. The purpose of thementor/protege relationship is toenhance the capabilities of the protegeand to improve its ability to successfullycompete for contracts.

(b) Mentors. Any concern thatdemonstrates a commitment and theability to assist developing 8(a)Participants may act as a mentor andreceive benefits as set forth in thissection. This includes businesses thathave graduated from the 8(a) BDprogram, firms that are in thetransitional stage of program

participation, other small businesses,and large businesses.

(1) In order to qualify as a mentor, aconcern must demonstrate that it:

(i) Possesses favorable financialhealth, including profitability for atleast the last two years;

(ii) Possesses good character;(iii) Does not appear on the federal list

of debarred or suspended contractors;and

(iv) Can impart value to a protege firmdue to lessons learned and practicalexperience gained because of the 8(a)BD program, or through its generalknowledge of government contracting.

(2) Generally, a mentor will have nomore than one protege at a time.However, the AA/8(a)BD may authorizea concern to mentor more than oneprotege at a time where the concern candemonstrate that the additional mentor/protege relationship will not adverselyaffect the development of either protegefirm (e.g., the second firm cannot be acompetitor of the first firm).

(3) In order to demonstrate itsfavorable financial health, a firmseeking to be a mentor must submit itsfederal tax returns for the last two yearsto SBA for review.

(4) Once approved, a mentor mustannually certify that it continues topossess good character and a favorablefinancial position.

(c) Proteges. (1) In order to initiallyqualify as a protege firm, a Participantmust:

(i) Be in the developmental stage ofprogram participation;

(ii) Have never received an 8(a)contract; or

(ii) Have a size that is less than halfthe size standard corresponding to itsprimary SIC code.

(2) Only firms that are in goodstanding in the 8(a) BD program (e.g.,firms that do not have termination orsuspension proceedings against them,and are up to date with all reportingrequirements) may qualify as a protege.

(3) A protege firm may have only onementor at a time.

(d) Benefits. (1) A mentor and protegemay joint venture as a small business forany government procurement, includingprocurements less than half the sizestandard corresponding to the assignedSIC code and 8(a) sole source contracts,provided both the mentor and theprotege qualify as small for theprocurement and, for purposes of 8(a)sole source requirements, the protegehas not reached the dollar limit set forthin § 124.519.

(2) Notwithstanding the requirementsset forth in §§ 124.105(g) and (h), inorder to raise capital for the protegefirm, the mentor may own an equity

interest of up to 40% in the protegefirm.

(3) Notwithstanding the mentor/protege relationship, a protege firm mayqualify for other assistance as a smallbusiness, including SBA financialassistance.

(4) No determination of affiliation orcontrol may be found between a protegefirm and its mentor based on thementor/protege agreement or anyassistance provided pursuant to theagreement.

(e) Written agreement. (1) The mentorand protege firms must enter a writtenagreement setting forth an assessment ofthe protege’s needs and describing theassistance the mentor commits toprovide to address those needs (e.g.,management and/or technicalassistance, loans and/or equityinvestments, cooperation on jointventure projects, or subcontracts underprime contracts being performed by thementor). The agreement must alsoprovide that the mentor will providesuch assistance to the protege firm forat least one year.

(2) The written agreement must beapproved by the AA/8(a)BD. Theagreement will not be approved if SBAdetermines that the assistance to beprovided is not sufficient to promoteany real developmental gains to theprotege, or if SBA determines that theagreement is merely a vehicle to enablea non-8(a) participant to receive 8(a)contracts.

(3) The agreement must provide thateither the protege or the mentor mayterminate the agreement with 30 daysadvance notice to the other party to thementor/protege relationship and to SBA.

(4) SBA will review the mentor/protege relationship annually todetermine whether to approve itscontinuation for another year.

(5) SBA must approve all changes toa mentor/protege agreement in advance.

(f) Evaluating the mentor/protegerelationship. (1) In its annual businessplan update required by § 124.403(a,)the protege must report to SBA for theprotege’s preceding program year:

(i) All technical and/or managementassistance provided by the mentor to theprotege;

(ii) All loans to and/or equityinvestments made by the mentor in theprotege;

(iii) All subcontracts awarded to theprotege by the mentor, and the value ofeach subcontract;

(iv) All federal contracts awarded tothe mentor/protege relationship as ajoint venture (designating each as an8(a), small business set aside, orunrestricted procurement), the value ofeach contract, and the percentage of the


contract performed and the percentageof revenue accruing to each party to thejoint venture; and

(v) A narrative describing the successsuch assistance has had in addressingthe developmental needs of the protegeand addressing any problemsencountered.

(2) The protege must annually certifyto SBA whether there has been anychange in the terms of the agreement.

(3) SBA will review the protege’sreport on the mentor/protegerelationship as part of its annual reviewof the firm’s business plan pursuant to§ 124.403. SBA may decide not toapprove continuation of the agreementif it finds that the mentor has notprovided the assistance set forth in thementor/protege agreement or that theassistance has not resulted in anymaterial benefits or developmental gainsto the protege.

Miscellaneous Reporting Requirements

§ 124.601 What reports does SBA requireconcerning parties who assist Participantsin obtaining federal contracts?

(a) Each Participant must submitannually a written report to its assignedBOS that includes a listing of anyagents, representatives, attorneys,accountants, consultants and otherparties (other than employees) receivingfees, commissions, or compensation ofany kind to assist such participant inobtaining a Federal contract. The listingmust indicate the amount ofcompensation paid and a description ofthe activities performed for suchcompensation.

(b) Failure to submit the report isgood cause for the initiation of atermination proceeding pursuant to§§ 124.303 and 124.304.

§ 124.602 What kind of annual financialstatement must a Participant submit toSBA?

(a) Participants with gross annualreceipts of more than $5,000,000 mustsubmit to SBA audited annual financialstatements prepared by a licensedindependent public accountant within120 days after the close of the concern’sfiscal year.

(1) The servicing SBA DistrictDirector may waive the requirement foraudited financial statements for goodcause shown by the Participant.

(2) Circumstances where waivers ofaudited financial statements may begranted include, but are not limited to,the following:

(i) The concern has an unexpectedincrease in sales towards the end of itsfiscal year that creates an unforeseenrequirement for audited statements;

(ii) The concern unexpectedlyexperiences severe financial difficultieswhich would make the cost of auditedfinancial statements a particular burden;and

(iii) The concern has been aParticipant less than 12 months.

(b) Participants with gross annualreceipts between $1,000,000 and$5,000,000 must submit to SBAreviewed annual financial statementsprepared by a licensed independentpublic accountant within 90 days afterthe close of the concern’s fiscal year.

(c) Participants with gross annualreceipts of less than $1,000,000 mustsubmit to SBA an annual statementprepared in-house or a compilationstatement prepared by a licensedindependent public accountant, verifiedas to accuracy by an authorized officer,partner, limited liability member, orsole proprietor of the Participant,including signature and date, within 90days after the close of the concern’sfiscal year.

(d) Any audited or reviewed financialstatements submitted to SBA pursuantto paragraphs (a) or (b) of this sectionmust be prepared in accordance withGenerally Accepted AccountingPrinciples.

(e) While financial statements neednot be submitted until 90 or 120 daysafter the close of a Participant’s fiscalyear, depending on the receipts of theconcern, a Participant seeking to beawarded an 8(a) contract between theclose of its fiscal year and such 90 or120-day time period must submit a finalsales report signed by the CEO orPresident to SBA in order for SBA todetermine the concern’s eligibility forthe 8(a) contract. This report must showa breakdown of 8(a) and non-8(a) sales.

(f) Notwithstanding the amount of aParticipant’s gross annual receipts, SBAmay require audited or reviewedstatements whenever they are needed toobtain more complete information as toa concern’s assets, liabilities, income orexpenses, such as when the concern’scapacity to perform a specific 8(a)contract must be determined, or whenthey are needed to determine continuedprogram eligibility.

§ 124.603 What reports regarding thecontinued business operations of formerParticipants does SBA require?

Former Participants must providesuch information as SBA may requestconcerning the former Participant’scontinued business operations,contracts, and financial condition for aperiod of three years following the dateon which the concern graduates or isterminated from the program. Failure toprovide such information when

requested will constitute a violation ofthe regulations set forth in this part, andmay result in the nonexercise of optionson or termination of contracts awardedthrough the 8(a) BD program,debarment, or other legal recourse.

Management and Technical AssistanceProgram

§ 124.701 What is the purpose of the 7(j)management and technical assistanceprogram?

Section 7(j)(1) of the Small BusinessAct, 15 U.S.C. 636(j)(1), authorizes SBAto enter into grants, cooperativeagreements, or contracts with public orprivate organizations to pay all or partof the cost of technical or managementassistance for individuals or concernseligible for assistance under sections7(a)(11), 7(j)(10), or 8(a) of the SmallBusiness Act.

§ 124.702 What types of assistance areavailable through the 7(j) program?

Through its private sector serviceproviders, SBA may provide a widevariety of management and technicalassistance to eligible individuals orconcerns to meet their specific needs,including:

(a) Counseling and training in theareas of financing, management,accounting, bookkeeping, marketing,and operation of small businessconcerns; and

(b) The identification anddevelopment of new businessopportunities.

§ 124.703 Who is eligible to receive 7(j)assistance?

The following businesses are eligibleto receive assistance from SBA throughits service providers:

(a) Businesses which qualify as smallunder part 121 of this title, and whichare located in urban or rural areas witha high proportion of unemployed orlow-income individuals, or which areowned by such low-income individuals;and

(b) Businesses eligible to receive 8(a)contracts.

§ 124.704 What additional managementand technical assistance is reservedexclusively for concerns eligible to receive8(a) contracts?

In addition to the management andtechnical assistance available under§ 124.702, Section 7(j)(10) of the SmallBusiness Act authorizes SBA to provideadditional management and technicalassistance through its service providersexclusively to small business concernseligible to receive 8(a) contracts,including:

(a) Assistance to developcomprehensive business plans with


specific business targets, objectives, andgoals;

(b) Other nonfinancial servicesnecessary for a Participant’s growth anddevelopment, including loan packaging;and

(c) Assistance in obtaining equity anddebt financing.


7. The authority citation for 13 CFRpart 134 continues to read as follows:

Authority: 5 U.S.C. 504; 15 U.S.C. 632,634(b)(6) and 637(a).

7a. Section 134.201 is amended byrevising the second and third sentencesto read as follows:

§ 134.201 Scope of the rules in thissubpart B.

* * * Specific procedural rulespertaining to 8(a) program appeals andto proceedings under the Program FraudCivil Remedies Act are set forth,respectively in subpart D of this partand part 142 of this chapter. In the caseof a conflict between a particular rule inthis subpart and a rule of procedurepertaining to OHA appearing in anothersubpart of this part or another part ofthis chapter, the latter rule shall govern.

8. Section 134.202 is amended inparagraph (c) by removing the referenceto ‘‘subpart D of this part’’ and insertingin its place the phrase ‘‘subpart E of thispart,’’ and in paragraph (d) by removingthe phrase ‘‘§ 124.211’’ and inserting inits place the phrase ‘‘§ 134.305.’’

9. Section 134.203 is amended byredesignating paragraphs (a)(2) through(4) as paragraphs (a)(3) through (5) andadding the following new paragraph(a)(2):

§ 134.203 The petition.

(a) * * *(2) The SBA determination being

appealed.* * * * *

10. Section 134.211 is amended byadding the following new paragraph (d):

§ 134.211 Motions.

* * * * *(d) Stay. A motion to dismiss stays the

time to answer. The Judge will establishthe time for serving and filing an answerin the order determining the motion todismiss.

§ 134.213 [Amended]

11. Section 134.213(a) is amended byremoving the second sentence.

§ 134.222 [Amended]

12. Section 134.222 is amended byremoving the ‘‘;’’ and the word ‘‘or’’ atthe end of paragraph (a)(2), by inserting

a ‘‘.’’ at the end of paragraph (a)(2), andby removing paragraph (a)(3).

13. Subpart D is redesignated asSubpart E, §§ 134.401 through 134.418are redesignated as §§ 134.501 through134.518, and the following new SubpartD is added:

Subpart D—Rules of Practice for AppealsUnder the 8(a) Program134.401 Scope of the rules in this subpart

D.134.402 Appeal petition.134.403 Service of appeal petition.134.404 Decision by Administrative Law

Judge.134.405 Jurisdiction.134.406 Review of administrative record.134.407 Evidence beyond the record and

discovery.134.408 Decision on appeal.

Subpart D—Rules of Practice forAppeals Under the 8(a) Program

§ 134.401 Scope of the rules in thissubpart D.

The rules of practice in this subpartD apply to all appeals to OHA from:

(a) Denials of 8(a) BD programadmission based solely on a negativefinding(s) of social disadvantage,economic disadvantage, ownership orcontrol pursuant to § 124.206 of thistitle;

(b) Early graduation pursuant to§§ 124.302 and 124.304;

(c) Termination pursuant to§§ 124.303 and 124.304;

(d) Denials of requests to issue awaiver pursuant to § 124.515; and

(e) Suspensions pursuant to§ 124.305(a).

§ 134.402 Appeal petition.In addition to the requirements of

§ 134.203, an appeal petition must state,with specific reference to thedetermination and the recordsupporting such determination, thereasons why the determination isalleged to be arbitrary, capricious orcontrary to law.

§ 134.403 Service of appeal petition.(a) Concurrent with its filing with

OHA, a concern must also serve SBA’sAA/8(a)BD and the appropriateAssociate General Counsel in SBA’sOffice of General Counsel with a copyof the petition, including attachments.

(1) For appeals relating to denials ofprogram admission pursuant to§ 124.206 of this title, suspensions ofprogram assistance pursuant to§ 124.305, or denials of requests forwaivers pursuant to § 124.515, apetitioner must serve the SBA’sAssociate General Counsel for GeneralLaw.

(2) For appeals relating to earlygraduation pursuant to §§ 124.302 and

124.304 or termination pursuant to§§ 124.303 and 124.304, a petitionermust serve the SBA’s Associate GeneralCounsel for Litigation.

(3) Service on SBA’s Office of GeneralCounsel generally or the SBA GeneralCounsel do not meet the servicerequirements of this section.

(b) Service should be addressed to theAA/8(a)BD and the applicable AssociateGeneral Counsel at the Small BusinessAdministration, 409 3rd Street, SW,Washington, DC 20416.

§ 134.404 Decision by Administrative LawJudge.

Appeal proceedings brought underthis subpart will be conducted by anAdministrative Law Judge.

§ 134.405 Jurisdiction.(a) The Administrative Law Judge

selected to preside over an appeal shalldecline to accept jurisdiction over anymatter if:

(1) The appeal does not, on its face,allege facts that, if proven to be true,would warrant reversal or modificationof the determination, including appealsof denials of 8(a) BD program admissionbased in whole or in part on groundsother than a negative finding of socialdisadvantage, economic disadvantage,ownership or control;

(2) The appeal is untimely filed under§ 134.202 or is not otherwise filed inaccordance with the requirements ofthis subpart or the requirements insubparts A and B of this part; or

(3) The matter has been decided or isthe subject of an adjudication before acourt of competent jurisdiction oversuch matters.

(b) Once the Administrative LawJudge accepts jurisdiction over anappeal, subsequent initiation of anadjudication of the matter by a court ofcompetent jurisdiction will not precludethe Administrative Law Judge fromrendering a final decision on the matter.

(c) Jurisdiction of the AdministrativeLaw Judge in a suspension case islimited to the issue of whether theprotection of the Government’s interestrequires suspension pending resolutionof the termination action, unless theAdministrative Law Judge hasconsolidated the suspension appealwith the corresponding terminationappeal.

§ 134.406 Review of the administrativerecord.

(a) Except as provided in § 134.407,any proceeding conducted under thissubpart shall be decided solely on areview of the written administrativerecord.

(b) The Administrative Law Judge’sreview is limited to determining


whether the Agency’s determination isarbitrary, capricious, or contrary to law.As long as the Agency’s determinationis reasonable, the Administrative LawJudge must uphold it on appeal.

(c) The administrative record mustcontain all documents that are relevantto the determination on appeal beforethe Administrative Law Judge and uponwhich the SBA decision-maker relied.The administrative record, however,need not contain all documentspertaining to the petitioner. Forexample, the administrative record in atermination proceeding need notinclude the Participant’s entire businessplan file, documents pertaining tospecific 8(a) contracts, or the firm’sapplication for participation in the 8(a)BD program if they are unrelated to thetermination action. The petitioner mayobject to the absence of a document,previously submitted to or sent by SBA,which the petitioner believes waserroneously omitted from theadministrative record.

(d) Where the Agency files its answerto the appeal petition after the datespecified in § 134.206, theAdministrative Law Judge may declineto consider the answer and base his orher decision solely on a review of theadministrative record.

(e) The Administrative Law Judgemay remand a case to the AA/8(a)BD(or, in the case of a denial of a requestfor waiver under § 124.515 of this title,to the Administrator) for furtherconsideration if he or she determinesthat, due to the absence in the writtenadministrative record of the reasonsupon which the determination wasbased, the administrative record isinsufficiently complete to decidewhether the determination is arbitrary,capricious or contrary to law, or whereit is clearly apparent from the recordthat SBA made an erroneous factualfinding (e.g., SBA double counted anasset of an individual claimingdisadvantaged status) or a mistake oflaw (e.g., SBA applied the wrongregulatory provision in evaluating thecase). Such a remand will be for aperiod of 10 working days.

§ 134.407 Evidence beyond the record anddiscovery.

(a) The Administrative Law Judgemay not admit evidence beyond thewritten administrative record nor permitany form of discovery unless he or shefirst determines that the petitioner,upon written submission, has made asubstantial showing, based on credibleevidence and not mere allegation, thatthe Agency determination in questionmay have resulted from bad faith orimproper behavior.

(1) Prior to any such determination,the Administrative Law Judge mustpermit SBA to respond in writing to anyallegations of bad faith or improperbehavior.

(2) Upon a determination by theAdministrative Law Judge that thepetitioner has made such a substantialshowing, the Administrative Law Judgemay permit appropriate discovery, andaccept relevant evidence beyond thewritten administrative record, which isspecifically limited to the alleged badfaith or improper behavior.

(b) A determination by theAdministrative Law Judge that therequired showing set forth in paragraph(a) of this section has been made doesnot shift the burden of proof, whichcontinues to rest with the petitioner.

§ 134.408 Decision on appeal.(a) A decision of the Administrative

Law Judge under this subpart is the finalagency decision, and is binding on theparties.

(b) The Administrative Law Judgeshall issue a decision, insofar aspracticable, within 90 days after anappeal petition is filed. If theAdministrative Law Judge does notissue a decision within 90 days after anappeal petition is filed, he or she mustindicate the reason that the 90-day timelimit has not been met in the decision,when issued.

(c) The Administrative Law Judgemay reconsider an appeal decisionwithin 20 days of the decision if thereis a clear showing of an error of fact orlaw material to the decision.

Dated: February 13, 1998.Aida Alvarez,Administrator.[FR Doc. 98–17196 Filed 6–26–98; 8:45 am]BILLING CODE 8025–01–P

SMALL BUSINESS ADMINISTRATION

13 CFR Part 124

8(a) Business Development/SmallDisadvantaged Business StatusDeterminations

AGENCY: Small Business Administration.ACTION: Final rule.

SUMMARY: In response to the Departmentof Justice’s review of Federalprocurement affirmative actionprograms and amendments to theFederal Acquisition Regulation toimplement a government-wide smalldisadvantaged business (SDB) program,the Small Business Administration(SBA) issues this final rule establishingthe procedural framework for certifying

firms as SDBs and for processingprotests challenging the disadvantagedstatus of a firm claiming to be an SDB.DATES: Effectove Dates. Theamendments made by this rule tosubpart A of 13 CFR part 124 areeffective on June 30, 1998. Sections124.1001 through 124.1016 of subpart Bof 13 CFR part 124 are effective onAugust 24, 1998. With the exeptions of§§ 124.1017(b) and 124.1020(c)(2),§§ 124.1017 through 124.1024 of subpartB of 13 CFR part 124 are effective onOctober 1, 1998. Sections 124.1017(b)and 124.1020(c)(2) of subpart B of 13CFR part 124 are effective on January 1,1999.

Compliance Dates. SBA will begin toaccept and process applications for SDBcertifications as of August 24, 1998.FOR FURTHER INFORMATION CONTACT:Calvin Jenkins, Deputy AssociateDeputy Administrator for GovernmentContracting and Minority EnterpriseDevelopment, at (202) 205–6459.SUPPLEMENTARY INFORMATION: On May 9,1997, the Department of Defense (DOD),the General Services Administration(GSA), and the National Aeronauticsand Space Administration (NASA)proposed amendments to the FederalAcquisition Regulation (FAR)concerning programs for smalldisadvantaged business concerns. 62 FR25786. The amendments were intendedto conform to a Department of Justice(DOJ) proposal to reform affirmativeaction in Federal procurement (see 61FR 26042) and to comply with theconstitutional standards established bythe Supreme Court in AdarandConstructors, Inc. v. Pena, 115 S.Ct.2097 (1995). The proposed amendmentsto the FAR included procedures bywhich a firm claiming to be owned andcontrolled by one or moredisadvantaged individuals could certifyits status as a small disadvantagedbusiness (SDB) concern for purposes ofreceiving a benefit as an SDB inconnection with a Federal procurement.The proposed FAR change alsocontained procedures by which aninterested party may protest a smallbusiness concern’s disadvantaged statusto the Small Business Administration(SBA). In response to and inconjunction with the DOJ and FARreform proposals, on August 14, 1997,SBA published in the Federal Register,62 FR 43584, a proposed rule to amend13 CFR part 124. Subpart A of theproposed part 124 dealt with changespertaining to the 8(a) BusinessDevelopment (8(a) BD) program whichis authorized by sections 7(j)(10) and8(a) of the Small Business Act, 15 U.S.C.636(j)(10), 637(a). Subpart B of proposed

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