[Federal Register Volume 63, Number 112 (Thursday, June 11, 1998)]
[Rules and Regulations]
[Pages 31896-31916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15581]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 125, and 126
HUBZone Empowerment Contracting Program
AGENCY: Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The HUBZone Act of 1997, Title VI of Public Law 105-135,
enacted on December 2, 1997 (111 Stat. 2592), created the HUBZone
Empowerment Contracting Program (hereinafter ``the HUBZone Program'').
This final rule adds a new Part 126 to Title 13 of the Code of Federal
Regulations to implement the HUBZone program.
DATES: The effective date of this rule is September 9, 1998. However,
at the conclusion of the congressional review, if the effective date
has been changed, the Small Business Administration (SBA) will publish
a document in the Federal Register to establish the actual effective
date or to terminate the rule.
FOR FURTHER INFORMATION CONTACT: Michael McHale, Assistant
Administrator, Office of Procurement Policy and Liaison, 409 Third
Street, SW, Washington, DC 20416, (202) 205-6731.
SUPPLEMENTARY INFORMATION: On April 2, 1998, SBA published a proposed
rule to implement the HUBZone program. See 63 FR 16148. The proposed
rule set forth the program requirements for qualification as a HUBZone
small business concern (HUBZone SBC), the federal contracting
assistance available to qualified HUBZone SBCs, and other aspects of
this program. SBA published a technical correction on April 14, 1998.
See 63 FR 18150.
The public comment period closed on May 4, 1998. SBA received 35
comment letters on the proposed rule. This final rule includes changes
based on some of the comments received.
Section-by-Section Analysis
The conforming amendments to Part 121 of this title remain as
proposed. However, SBA has added a second conforming amendment to Part
125 of this title. Section 125.2 of this title must be amended to
include HUBZone contracts in the contracts reviewed by SBA's
procurement center representatives.
A new part 126 is added to Title 13 of the Code of Federal
Regulations to implement the HUBZone program.
Section 126.100 explains that the purpose of the HUBZone program is
to provide federal contracting assistance for qualified small business
concerns (SBC) located in historically underutilized business zones in
an effort to increase employment opportunities and investment in those
areas. SBA received no comments concerning this section and it remains
as proposed.
Section 126.101 lists the departments and agencies affected
directly by the HUBZone program. SBA received no comments concerning
this section and it remains as proposed.
Section 126.102 describes the effect the HUBZone program will have
on the 8(d) subcontracting program. The HUBZone Act of 1997 amended
section 8(d) of the Small Business Act, 15 U.S.C. 637(d), to include
qualified HUBZone SBCs in the formal subcontracting plans required by
8(d) of the Small Business Act and described in section 125.3 of this
title. Two comments on this section stated that SBA has not adequately
addressed how SBA will implement the inclusion of qualified HUBZone
SBCs in the 8(d) subcontracting assistance program. SBA refers
commenters to changes made to section 125.3 of this title, concerning
SBA's 8(d) subcontracting program, to implement the inclusion of
qualified HUBZone SBCs in this program. Changes to the Federal
Acquisition Regulation also will need to be made to further implement
these changes. This section remains as proposed.
Section 126.103 defines terms that are important to the HUBZone
program. SBA received comments regarding several of the proposed
definitions.
In defining some terms essential to the HUBZone program, the
HUBZone Act of 1997 relied upon definitions provided by other federal
agencies. This final rule cross-references those definitions for use in
connection with the HUBZone program.
HUBZone definition: The HUBZone Act defines a HUBZone as ``a
historically underutilized business zone which is in an area located
within one or more qualified census tracts, qualified non-metropolitan
counties, or lands within the external boundaries of an Indian
reservation.'' Further, the HUBZone Act states that the term
``qualified census tract'' has the meaning given that term in
Sec. 42(d)(5)(C)(ii)(I) of the Internal Revenue Code. This section of
the Internal Revenue Code refers to the low-income housing credit
program maintained by the Department of Housing and Urban Development
(HUD). The Secretary of HUD designates the qualified census tracts by
Notice published periodically in the Federal Register. These notices
are titled ``Statutorily Mandated Designation of Qualified Census
Tracts and Difficult Development Areas for Section 42 of the Internal
Revenue Code of 1986.'' The most recent Notice may be found at 59 FR
53518 (1994). The rule includes a cross-reference to
Sec. 42(d)(5)(C)(ii)(I) of the Internal Revenue Code.
Qualified non-metropolitan counties definition: The term qualified
non-metropolitan counties is based on the most recent data available
concerning median household income and unemployment rates. The Bureau
of Census of the Department of Commerce gathers the data regarding
median household income and the Bureau of Labor Statistics of the
Department of Labor gathers the data regarding unemployment rates. The
public can find the information from the Bureau of Census at any local
Federal Depository Library. To find the nearest Federal Depository
Library, call toll-free (888) 293-6498. The information from the Bureau
of Labor Statistics is available for public inspection at the U.S.
Department of Labor, Bureau of Labor Statistics, Division of Local Area
Unemployment Statistics office in Washington, D.C. (the text of the
rule lists the complete address). Again, the rule cross-references this
information to provide guidance in determining whether or not a small
business concern is located in a HUBZone.
Qualified census tract definition: The terms qualified census tract
and qualified non-metropolitan counties are based on statistics
gathered periodically by various federal agencies. The census reflects
changes every 10 years, while unemployment statistics are calculated
[[Page 31897]]
annually. Changes in either can generate changes in the areas that
qualify as HUBZones--even as often as annually.
Several commenters requested that SBA make various changes to these
definitions that create HUBZones. Several comments stated that the
definitions are unfair because communities that need the assistance of
the HUBZone program will not get it because they do not fall within one
of the definitions of HUBZone, especially small rural states and rural
counties. One commenter stated that the criteria should include actual
population and employment trends in a particular area. Another
commenter stated that a definition based on poverty rates would be more
appropriate in an inner-city community that does not contain low income
housing. Some commenters suggested alternative definitions. For
example, one comment suggested that SBA use Department of Commerce's
Economic Development Administration's designation of ``Long Term
Economic Deteriorated Areas'' as one definition of HUBZone. Two
comments suggested that areas in which an active SBA Certified
Development Company operates should be considered HUBZones. The
definition of HUBZone is based on statutory language in the HUBZone Act
of 1997 and, therefore, SBA has no authority to modify it. The
definitions remain as proposed.
Lands within the external boundaries of an Indian reservation
definition: The HUBZone Act of 1997 does not define ``lands within the
external boundaries of an Indian reservation.'' For purposes of the
HUBZone program, SBA proposed a definition of ``Indian reservation''
used in the Bureau of Indian Affairs'' (BIA) regulations and the rule
includes a cross-reference to 25 CFR 151.2(f). The BIA definition of
``Indian reservation'' includes ``that area of land over which the
tribe is recognized by the United States as having governmental
jurisdiction, except that, in the State of Oklahoma or where there has
been a final judicial determination that a reservation has been
disestablished or diminished, Indian reservation means that area of
land constituting the former reservation of the tribe as defined by the
Secretary [of the Interior or authorized representative].'' 25 CFR
151.2(f). BIA's definition of ``tribe'' includes Alaska Native
entities. See 25 CFR 81.1(w).
Indian reservation definition: Several commenters objected to the
proposed definition of ``Indian reservation'' by reference to a Bureau
of Indian Affairs regulation. One commenter said that using BIA's
definition is inappropriate because it includes only federally
recognized Indian tribes and that SBA should include in the definition
state-recognized tribes and individual Indians residing on ``former
Indian lands.'' One comment stated that the BIA definition should not
control because it restricts the definition to lands over which the
tribes exercise governmental jurisdiction and there are pockets of land
within the outermost boundaries of a reservation that were allotted to
individual Indians and therefore passed out of tribal ownership and
control, creating a ``checkerboard'' pattern. This commenter suggested
that the phrase ``lands within the external boundaries of an Indian
reservation'' includes those pockets of land, even though those pockets
are not considered part of the reservation itself.
SBA has decided to keep the definition of ``Indian reservation'' as
proposed. SBA believes that its use of a definition of ``Indian
reservation'' created by the Federal agency responsible for Indian
affairs is appropriate. SBA believes that if Congress had intended to
include other than federally recognized Indian tribes or Indian land
not part of an Indian reservation, Congress would have expressly stated
that in the HUBZone Act of 1997.
However, to accommodate the ``checkerboard'' pattern of ownership,
SBA has added a definition for the term ``lands within the external
boundaries of an Indian reservation.'' The definition states that all
lands within the outside perimeter of an Indian reservation, whether
tribally owned and governed or not, are included in the scope of
``lands within the external boundaries of an Indian reservation'' and,
therefore, are in a HUBZone.
Contract opportunity definition: SBA has redefined contract
opportunity in light of several comments received which point out
practical difficulties with the proposed rule and its reliance on goal
achievement statistics. After further consideration of the issue, SBA
has chosen to eliminate goaling statistics to define HUBZone
contracting opportunities. That approach was considered impractical by
procuring agencies and, therefore, was not likely to encourage the use
of HUBZone contracting. In resolving this issue, SBA balanced HUBZone
contracting with the stated Congressional purpose in the Small Business
Act of maximizing 8(a) contracting, where practicable. In effect, SBA
has replaced the three percent limitation on HUBZone set-aside
contracting with revised provisions at Sec. 126.607 which create a
priority for HUBZone firms which are also 8(a) participants and other
8(a) participants. No limitation on the amount of HUBZone contracting
would then apply. This approach is also consistent with comments asking
for a clear order of precedence regarding HUBZone contracting. In terms
of priority, this approach would also retain consistency with the
existing Defense Federal Acquisition Regulation Supplement. SBA
anticipates that the HUBZone statutory goals will be readily achieved
by this approach, and that there will now be no regulatory impediment
to exceeding those goals.
County definition: SBA has added a definition of ``county'' to make
clear that county equivalents are considered counties for purposes of
the ``non-metropolitan county'' definition of HUBZone.
Employee definition: Two commenters suggested alternative
definitions for ``employee.'' One stated that the proposed definition
is limiting and should be expanded to include temporary employees.
Another commenter recommended that SBA use the term ``full-time
equivalent'' in lieu of ``employee.'' The purpose behind the definition
as proposed was to focus on those jobs that best fulfill the statutory
purpose of the HUBZone Act of 1997. This is why SBA specifically
excluded temporary and leased employees and independent contractors
from the definition. SBA also sought to encourage the maximum number of
jobs by allowing companies to count part-time employees but only where
their combined hours added up to at least 40 hours per week. This
definition remains as proposed.
HUBZone small business concern definition: One commenter objected
that the 100 percent ownership requirement is too rigid. Two commenters
noted that this requirement may be especially difficult for publicly-
held corporations to meet. SBA considers that the statutory language in
the HUBZone Act of 1997 requires that the HUBZone SBC be 100 percent
owned and controlled by U.S. citizens. This definition remains as
proposed.
HUBZone 8(a) concern definition: SBA has added a definition for
HUBZone 8(a) concerns to provide guidance in applying Sec. 126.607.
Principal office definition: The six comments received on this
definition stated either that: (1) the ``principal office'' may change
contract-by-contract for certain types of businesses with on-site
contract performance (e.g., construction, trash removal); or (2) the
term ``principal office'' is generally understood to mean the central
headquarters or center of operations of the business, not where most of
the businesses' employees are located.
[[Page 31898]]
Suggestions for alternative definitions included ``where the company
performs its general and administrative business functions,'' ``central
headquarters or center of operations,'' and ``where the greatest
proportion of the concern's labor cost is incurred.''
According to the HUBZone Act of 1997, a HUBZone SBC's principal
office must be located in a HUBZone. SBA crafted the definition to
fulfill the statutory purpose of hiring residents in HUBZones by
encouraging businesses to move to or expand their business operations
in a HUBZone (as opposed to just their headquarters, which may be where
only a few employees work). As a result, SBA declines to accept these
suggested changes. SBA acknowledges that for some types of businesses,
their ``principal office'' may change contract by contract. However,
this should not prevent those businesses from meeting the terms of this
definition and participating in the HUBZone program. SBA has retained
the definition as proposed.
Reside definition: Several comments stated that it is unclear how
SBA or the qualified HUBZone SBC will determine an employee's intent to
reside in a HUBZone indefinitely. One commenter suggested that the
criteria be more stringent than voter registration, noting that persons
may have a voter registration in a state where they have not lived for
some time. Another commenter stated that it will be a burden on SBA to
check on residency and voting registration.
SBA has retained the definition as proposed. According to the
HUBZone Act of 1997, at least 35 percent of a qualified HUBZone SBC's
employees must reside in a HUBZone. SBA's definition requires either of
two means of indicating a permanent residence in the HUBZone (living
there for 180 days or more or being a registered voter), along with
``intent to remain there indefinitely.'' SBA believes that the HUBZone
SBC can readily obtain documentation regarding its employees' length of
residency or voting registration in order to meet this definition. SBA
also believes that a HUBZone SBC reasonably may rely on its employees'
representation of their intent to remain in the HUBZone indefinitely.
Section 126.200 contains the HUBZone eligibility requirements. In
general, as described in the regulations, the company must be a small
business concern; the company must be owned and controlled by one or
more persons each of whom is a citizen of the United States; the
principal office of the concern must be located in a HUBZone; at least
35 percent of the concern's employees must reside in a HUBZone; the
concern must attempt to maintain this percentage during the performance
of any HUBZone contract; and the concern must comply with certain
contract performance requirements in connection with HUBZone contracts.
To be counted as residing in the HUBZone, an employee either must be
registered to vote in the HUBZone or have resided in the HUBZone for a
period of not less than 180 days.
SBA received two general comments on this section. One commenter
recommended that large businesses be included in the HUBZone program in
order to encourage further economic growth within HUBZones. SBA
considers the statutory language in the HUBZone Act of 1997 to include
only small business concerns in the HUBZone program. Another commenter
suggested that the 35-percent residency requirement will have a
disproportionately adverse affect on smaller HUBZones which may not
have an adequate pool of individuals residing within the HUBZone to
hire as employees in order to meet the 35-percent requirement. SBA does
not consider the statutory language in the HUBZone Act of 1997 to allow
any exception to this 35-percent requirement. As a result, SBA did not
incorporate either of these suggestions.
In addition, SBA received six comments suggesting that the phrase
``attempt to maintain'' the appropriate percentage of employees who
reside in a HUBZone is not appropriate language. Commenters suggested
that SBA should strengthen the language to make it mandatory. SBA
declines to accept this recommendation because the phrase ``attempt to
maintain'' comes directly from section 3(p)(5)(A)(i)(II) of the Small
Business Act, as amended by section 602(a) of the HUBZone Act of 1997.
This language remains the same as in the proposed section.
For additional clarity and to ensure consistency with section
126.304, SBA has inserted all of the statutory requirements into this
section.
Section 126.201 describes who is considered to own a HUBZone SBC.
SBA received no comments concerning this section and it remains as
proposed.
Section 126.202 explains who is considered to control a HUBZone
SBC. SBA received no comments on this section and it remains as
proposed.
Section 126.203 states that a HUBZone SBC must meet SBA's size
standards for its primary industry classification as defined in Part
121 of this title. SBA asked for comments on a proposal to set a
minimum size standard of at least 16 employees and a maximum size
standard of one-half of the procurement assistance size standard for
initial qualification only. SBA received 22 comments addressing these
issues.
Minimum size standard of 16 employees: SBA received two comments in
support of this idea and 13 comments in opposition. The reasons behind
the opposition were primarily that the size standard would (1) be an
unnecessary barrier to start-up businesses; (2) unduly burden rural
states where many businesses are under 16 employees; (3) eliminate
opportunities for businesses most likely to create new jobs; (4)
negatively affect some types of businesses that do not carry 16 full-
time employees (e.g., retailers, service providers); and (5) eliminate
from eligibility those businesses with fewer than 16 employees that
already are located in HUBZones. One commenter noted that SBA's own
statistics show that about 80 percent of small business concerns have
fewer than 10 employees, so the overwhelming majority of small
businesses would be excluded from the program under this minimum size
standard. The commenter further noted that the impact would be even
greater on minority- and women-owned concerns which tend to be smaller
and have fewer employees. The commenter stated that the HUBZone statute
did not give SBA discretion to add limitations to the statutory
definition. Other commenters stated that HUBZones could benefit from
businesses of any size.
Maximum size standard at time of initial qualification of one-half
of the procurement assistance size standard: SBA received two comments
in support and five in opposition. One opposing commenter stated that
this approach would reduce the number of contracts available for award
to qualified HUBZone SBCs. This reduction would hinder procuring
agencies' ability to reach the HUBZone contracting goal and reduce the
benefit to HUBZone communities. Additionally, this commenter believed
that there are certain industries in which most of the businesses would
be over one-half of the size standard for that industry. The commenter
observed that SBA's rationale stated that the HUBZone program is not a
business development program so SBA should not be concerned with
whether a firm grows out of its size standard due to receiving HUBZone
contracts. Rather, SBA should be concerned primarily with accomplishing
the statutory purpose of job creation and investment in HUBZones.
Two commenters believed that providing an exception to the one-half
[[Page 31899]]
size standard for 8(a) participants and women-owned businesses (WOBs)
might not survive legal challenge. SBA also received four comments in
support of including Indian-owned businesses as another exception to a
one-half size standard. SBA received another comment stating that SBA
should deem Indian-owned businesses 8(a) participants for purposes of
this program. This commenter also stated that 8(a) participants owned
by white women or white men and WOBs owned by white women should not
receive the benefit of this exception to the maximum one-half size
standard.
SBA has carefully considered all of these comments on this issue
and has decided not to impose either a minimum size standard of 16
employees or a maximum one-half size standard for initial qualification
for the program. As a result, Sec. 126.203 remains as proposed with
regard to what size standards apply to HUBZone SBCs.
Under Sec. 126.203(a), if SBA cannot verify that a concern is
small, SBA may deny the concern status as a qualified HUBZone SBC or
request a formal size determination from the responsible Government
Contracting Area Director or designee. SBA received no comments on this
section and it remains as proposed.
Section 126.204 provides that qualified HUBZone SBCs may have
affiliates so long as the affiliates are qualified HUBZone SBCs, 8(a)
participants, or WOBs. SBA received two comments in opposition to the
proposed rule regarding affiliation. Both commenters opposed
restricting allowable affiliation to only specified types of SBCs. One
commenter noted that there is no similar restriction under the 8(a)
program. Another commenter suggested expanding allowable affiliation to
include any other SBC. SBA has considered these comments but has
declined to accept these recommendations. For the reasons stated in the
preamble to the proposed rule, SBA continues to believe the regulation
as proposed is appropriate. The regulation remains as proposed.
Section 126.205 explains that WOBs, 8(a) participants, and small
disadvantaged business concerns (SDBs) also can qualify as HUBZone SBCs
if they meet the requirements set forth in this part. SBA received two
comments on this section. One stated that the section adds nothing
substantive. The other stated that allowing firms to qualify under more
than one ``preference'' program likely will result in higher
contracting costs to the government. SBA believes that the HUBZone Act
of 1997 does not permit excluding any other types of SBCs (i.e., SDBs,
WOBs, 8(a) participants, etc.) from participating in the HUBZone
program. As a result, SBA retains the section as proposed.
Section 126.206 states the conditions under which non-manufacturers
can qualify as HUBZone SBCs. SBA received five comments concerning this
section. Three stated that the section does not specifically require
that the HUBZone SBC non-manufacturer supply the products of a
manufacturer that is located in a HUBZone and that meets the employee
residency requirement. Four comments stated that the term ``regular
dealer'' is obsolete and suggested SBA use the term ``non-
manufacturer'' or ``dealer'' instead.
SBA has modified the section to state that the non-manufacturer
must use a manufacturer that is a qualified HUBZone SBC. SBA believes
this requirement will further enhance the impact of HUBZone contracting
on job creation in HUBZones. Also, SBA has replaced the term ``regular
dealer'' with ``non-manufacturer'' throughout Part 126. This term is
consistent with current law and practice in government contracting,
including Sec. 121.406(b) of this title (SBA's non-manufacturer rule).
To show an equivalency, SBA notes in this section that the HUBZone Act
of 1997 uses the term ``regular dealer.''
Section 126.207 explains that a qualified HUBZone SBC may have
offices or facilities located in another HUBZone or even outside a
HUBZone. However, in order to qualify as a HUBZone SBC, the concern's
principal office must be located in a HUBZone. SBA addresses the
comments it received referring to this section under other sections.
This section remains as proposed.
Sections 126.300 through 126.306 describe how a concern is
certified as a qualified HUBZone SBC. Those sections explain how SBA
certifies a concern for the program, when the certification takes
place, and whether a concern can certify itself.
Several commenters addressed the certification process as a whole.
One commenter suggested that the mere existence of a certification
process might discourage participation in the program. Another feared
that self-certification risked fraud and abuse and asked SBA to specify
when it would seek further information or pursue verification. A third
commenter suggested that the period between self-certifications should
be three years, not one year. That commenter believed that annual re-
certification would be burdensome to the HUBZone SBCs.
SBA has retained these sections essentially as proposed. Both the
self-certification and the verification portions of the HUBZone program
are based upon the HUBZone Act of 1997. SBA modeled its annual
certification process on the 8(a) program where experience has
demonstrated that waiting longer than one year postpones addressing too
many significant changes in a concern's eligibility. A longer period
would allow too many substantive changes to occur, whether voluntary or
involuntary, without SBA's knowledge. Although there may be qualified
HUBZone SBCs that do not experience changes in the course of a three-
year period, SBA's program experience suggests that one year is the
optimum period between self-certifications.
Section 126.300 describes how SBA will certify a concern as a
qualified HUBZone SBC. One comment suggested that SBA should not rely
solely on the submitter's information and should modify its procedure
based upon a review of various state and local empowerment programs'
certification processes. This commenter believed that lack of
verification might result in protests.
SBA has retained the section as proposed. SBA believes that the
application process, including an applicant's representations and SBA's
ability to request additional information to verify those
representations, along with the program examination process, adequately
addresses the commenter's concerns.
Section 126.301 states that only SBA may certify a qualified
HUBZone SBC. Section 126.302 prescribes when a concern may apply for
certification and section 126.303 provides the address where concerns
must file their certifications. SBA received no comments on these
sections and therefore they are retained without change.
Section 126.304 sets forth what a concern must submit to be
certified by SBA as a qualified HUBZone SBC. Two commenters raised
concerns about the language governing a concern's application and
submissions to SBA. The first commenter observed that SBA should move
paragraphs (a)(4) and (a)(5) of this section (setting forth the ``good
faith efforts'' requirement to maintain the 35 percent residence
standard and ensuring that limitations on subcontracting are met,
respectively) to other sections. SBA has not adopted this
recommendation because paragraphs (a)(4) or (a)(5) contain
representations that the concern is required to make in the application
process. The second
[[Page 31900]]
commenter was concerned with the substantive requirements. Those are
dealt with in the discussion of Sec. 126.500 and Sec. 126.700,
respectively.
SBA has revised Sec. 126.304(a) to eliminate unnecessary verbiage
and to add a cross-reference to Sec. 126.700 for more complete details
regarding contract performance requirements.
Section 126.304(b) explains that if a concern is applying for
certification based on a location ``within the external boundaries of
an Indian reservation,'' it must submit official documentation from the
Bureau of Indian Affairs Land Titles and Records Office governing their
area that confirms that the concern is located within the external
boundaries of an Indian reservation. This additional requirement is
necessary because, although the qualified census tracts and qualified
non-metropolitan counties are contained in databases available in an
electronic format, the data concerning Indian reservations is available
only through the BIA Land Titles and Records Offices, not in an
electronic format. Consequently, concerns applying for HUBZone status
based on location within the external boundaries of an Indian
reservation must submit the additional documentation. SBA has added a
sentence to this subsection stating that if BIA is unable to verify
whether a business is located within the external boundaries of an
Indian reservation, applicants should contact SBA.
SBA intends to develop electronic data for lands within the
external boundaries of an Indian reservation. If SBA succeeds in this
effort, it may be able to eliminate this requirement in the future'.
One commenter recommended that ``a letter signed by an official''
of BIA be required instead of ``official documentation from the
appropriate Bureau of Indian Affairs (BIA) Land Titles and Records
Office with jurisdiction over the concern's area * * *.'' The commenter
suggested that the proposed provision was more complex than necessary
and would create potential delays and hindrances for Alaska Native
applicants. Another commenter noted that specifying a particular BIA
office might create problems if BIA reorganized.
SBA has retained the section as proposed. The section requires
``official documentation,'' which may include a letter. BIA, in
consultation with SBA, will decide what documentation best meets this
requirement, provides efficient service for applicants, and protects
the government against fraud and abuse. SBA does not expect Alaska
Native applicants to encounter unusual or unexpected delays and
hindrances in obtaining BIA approval and, therefore, has not modified
the section. Although BIA may restructure itself, the function which
that office provides to HUBZone applicants would be transferred to a
successor office. SBA believes that specifying the name of the BIA
office is the most accurate procedure.
Another commenter recommended adding the Form 912 (``Statement of
Personal History'') to the list of required items in Sec. 126.304(c).
SBA declined to adopt this recommendation for three reasons. First, any
listing of forms runs the risk of omitting others. Moreover, as
presently worded, the subsection already requires the concern to
``submit the forms, attachments, and any additional information
required by SBA.'' Thus, SBA already is authorized to request any form
it may deem appropriate. Finally, specifying a form by its number would
necessitate another formal rulemaking procedure to modify the section
in the event a form number changes.
Section 126.305 explains the format for certifications to SBA and
Sec. 126.306 describes how SBA will process the certifications. Section
126.307 states where SBA will maintain the List and Sec. 126.308
explains what a concern can do in the event SBA inadvertently omits a
qualified HUBZone SBC from the List. SBA received no comments on any of
these sections and therefore they remain as proposed.
Section 126.309 provides a procedure for declined or de-certified
concerns to seek certification at a later date. One commenter objected
that the certification process lacks the procedural due process
safeguards (rights of appeals and reconsideration) that are present in
the 8(a) program. SBA has retained this section as proposed (except for
a clarifying word) because a firm does not enter or depart, or
participate in the HUBZone program in the same way it does with the
8(a) program. The 8(a) program not only helps program participants to
obtain federal contracts but also provides ongoing support from SBA
program staff to assist participants in their business development.
There is a definite entry date, normally a nine-year term, and there is
a termination. The HUBZone program merely determines a concern's
eligibility to be placed on a list that may permit it to obtain federal
contracts. There is no other SBA support available to HUBZone SBCs
through the HUBZone program; Congress designed the program to foster
community development, not the development of individual concerns.
Four commenters addressed the one-year waiting period imposed on
declined or de-certified concerns. One recommended that ``reservation-
based concerns'' be exempt from the one-year waiting period before
reapplying. Another suggested that a 30-60 day period was more
appropriate. Two other commenters believed a one-year period might be
appropriate for intentional misrepresentations or fraud but not for
unintentional or minor technical errors.
SBA will not decline applicants for technical errors or problems
easily remedied by supplying clarifying information. Instead, SBA will
screen out such errors and problems during the application process and
will work with applicants who wish to overcome the errors or omissions.
SBA is aware that difficulties might arise and Sec. 126.306(b)
specifically authorizes SBA to request that the concern provide
additional information or that it clarify the information contained in
its submission.
SBA considered the comments received and has decided to retain the
one-year waiting period. SBA chose the one-year period to give HUBZone
SBCs a reasonable period of time within which to make the changes or
modifications that are necessary to enable them to qualify for the
HUBZone program, and at the same time to allow SBA to administer the
HUBZone program effectively with available resources.
Sections 126.400 through 126.405 discuss program examinations,
including who will conduct program exams, what the examiners will
review, and when examinations will be conducted. In addition, these
sections set out the action SBA may take when it cannot verify a
concern's eligibility and what action SBA will take once it has
verified a concern's eligibility. Qualified HUBZone SBCs have an
obligation to maintain relevant documentation for six years.
Proposed Sec. 126.401(b) required that qualified HUBZone SBCs
retain all documentation demonstrating that it satisfied program
qualifying requirements for six years. One commenter believed that SBA
should require HUBZone concerns to maintain relevant documents for
three years. SBA has decided to retain this section as proposed in
order not to hinder enforcement. Many relevant statutes have statutes
of limitation much longer than three years.
Sections 126.402 and 126.403 set forth when SBA may conduct program
examinations and state that SBA may require additional information from
a HUBZone SBC. SBA received no
[[Page 31901]]
comments on these sections and has retained them as proposed.
Section 126.404 discusses the action SBA may take if it is unable
to verify a HUBZone SBC's eligibility. One commenter suggested adding
language to make clear that the AA/HUB's decision on de-certification
is final. SBA has adopted this recommendation and inserted language in
Sec. 126.404(c) stating that the AA/HUB's decision is the final Agency
decision. Although SBA received no comments on Sec. 126.404(b) (which
governs the situation when SBA is unable to verify a qualified HUBZone
SBC's eligibility), it added language to clarify the rule. Subsection
(a) provides that SBA will notify the concern in writing that it is no
longer eligible and subsection (b) granted the concern ``10 business
days to respond to the notification.'' SBA has modified subsection (b)
to make clear that the 10-day period runs from the date the concern
receives SBA's letter of notification.
Sections 126.500 through 126.503 set forth how a concern maintains
its qualified HUBZone SBC status; a qualified HUBZone SBC's ongoing
obligation to SBA and the consequences for failure to uphold that
obligation; the length of time a concern may qualify as a HUBZone SBC;
and when SBA may remove a concern from the List. Specifically, a
concern wishing to remain on the List must self-certify annually to SBA
that it remains a qualified HUBZone SBC. This self-certification must
take place within 30 days after each annual anniversary of their date
of certification.
One commenter pointed out that two sentences in Secs. 126.500 and
126.502 are inconsistent. SBA has modified the language in
Secs. 126.500(a) and 126.502 to clarify how long a concern may remain
on the List. SBA eliminated the second sentence in Sec. 126.500(a)
because it answered a question that is not posed in this section and
there is a more complete and correct answer in Sec. 126.502. Section
126.500(a) only addresses a HUBZone SBCs responsibilities for
maintaining its status whereas Sec. 126.502 speaks directly to the time
limit for inclusion on SBA's List. SBA also corrects the cross-
references listed in Sec. 126.502 by adding Sec. 126.200 and
eliminating Sec. 126.503.
Section 126.500 states the requirements for a qualified HUBZone SBC
to maintain its status. Two commenters objected that the proposed
regulations did not adequately address the situation when an area that
had previously qualified as a HUBZone ceases to be a HUBZone. Both
commenters noted that the regulations do not indicate how or when the
HUBZone SBCs in that area would be notified. One also suggested that
the three-year grandfathering period should be extended to a five-year
minimum.
SBA has eliminated the ``grandfathering'' provision (in section
126.502) after careful re-examination. SBA believes that it is
consistent with congressional intent to not afford HUBZone program
benefits to concerns in a location when that location no longer meets
the definition of ``HUBZone.'' Congress elected to tie the HUBZone
definition to data which is well-known to be vulnerable to change.
Therefore, the SBA website will endeavor to provide detailed
statistical data to aid concerns in assessing the likelihood of a
change in designation in the future.
In the proposed rule, Sec. 126.600 through 126.616 explained the
general conditions applicable to HUBZone contracts. Based on the
comments received regarding these sections, SBA has revised some of
these regulations. Section 126.600 states that HUBZone contracts are
contracts awarded to a qualified HUBZone SBC through sole source
awards, set-aside awards based on competition restricted to qualified
HUBZone SBCs, or awards to qualified HUBZone SBCs through full and open
competition after a price evaluation preference in favor of qualified
HUBZone SBCs. SBA received no comments on this section; therefore, the
section remains as proposed.
Section 126.601 provides the additional requirements that a
qualified HUBZone SBC must meet in order to bid on a HUBZone contract.
SBA received comments with different views on this section. Two
commenters suggested that SBA does not have the authority to require a
certification to the contracting officer in order to bid on a HUBZone
contract. Additionally, the commenters observed that the certifications
required appear contrary to Sec. 4301, ``Elimination of Certain
Certification Requirements,'' in the Clinger-Cohen Act of 1996. The
HUBZone Act of 1997 gives the Administrator the authority to establish
appropriate certification procedures by regulation. Furthermore, the
Clinger-Cohen Act of 1996 eliminated certain, but not all,
certifications and none of those eliminated relate to small business
concerns. Finally, the certifications required by this section are
consistent with other SBA programs for federal contracting assistance
(8(a), SDB, and WOB).
One commenter was concerned that Sec. 126.601(c) implies that each
party to a HUBZone joint venture must itself be a qualified HUBZone
SBC. This is not the case. As stated in Sec. 126.616(a), a qualified
HUBZone SBC may enter into a joint venture with one or more other
qualified HUBZone SBCs, 8(a) participants, or women-owned businesses,
for the purpose of performing a specific HUBZone contract. Section
126.601(c) simply requires that each qualified HUBZone SBC that is a
party to a joint venture make the applicable certifications separately.
The List includes the names of individual concerns that SBA has
certified as qualified HUBZone SBCs--not joint ventures. In order for
the contracting officer to ensure that each qualified HUBZone SBC that
is a party to the joint venture is on the List, each concern must
certify under its own name.
Finally, one commenter suggested that manufacturers that will
provide a product to non-manufacturers and meet the requirements of
Sec. 126.601(d) should be on the List of Qualified HUBZone SBCs. SBA
has changed this section to specify that manufacturers must also be
qualified HUBZone SBCs. Consequently, such firms are listed.
Section 126.602 clarifies that a qualified HUBZone SBC must
``attempt to maintain'' the employee residency percentage during
performance of any HUBZone contract.
SBA received a comment stating that the limitation originally
listed in Sec. 126.602(b) also is listed in Sec. 126.700, but the other
subcontracting limitations listed in Sec. 126.700 are not listed here.
Additionally, numerous commenters challenged the authority and the
ability of contracting officers to effectively monitor and enforce the
requirements in proposed Sec. 126.602 (a) and (b). Proposed
Sec. 126.602(c) set forth that requirement. Many comments indicated
that SBA is in a better position than the contracting officer to
monitor and enforce these requirements. Further, requiring the
contracting officer to enforce these requirements is inconsistent with
other SBA programs (including 8(a) and small business set-asides).
After considering these comments, SBA has revised this section to
provide that enforcement of Sec. 126.602 will be the responsibility of
SBA and SBA will monitor compliance in accordance with Secs. 126.400-
126.505 of this title. Violations of Sec. 126.700 may be grounds for
termination of the contract at the election of the contracting officer.
The contracting officer's responsibility can generally be met by
obtaining an appropriate representation from the potential awardee. SBA
will propose modifications to the FAR that will add this requirement as
a new contract
[[Page 31902]]
clause, making it a requirement of contract performance. As revised,
this section is consistent with other SBA programs. SBA has further
revised this section by eliminating proposed Sec. 126.602(c).
Section 126.603 states that HUBZone certification does not
guarantee receipt of HUBZone contracts. SBA received no comments on
this section; therefore, it remains as proposed.
Section 126.604 provides that the contracting officer determines
whether a HUBZone contract opportunity exists. Two commenters suggested
that SBA revise this section to add that the contacting officer will
make this decision with the advice and recommendation of the procuring
agency's Director, Office of Small and Disadvantaged Business
Utilization and either the agency's small business technical advisor or
SBA's procurement center representative (PCR). Existing provisions of
the FAR already require the contracting officer to work with those
individuals, consequently, this section remains as proposed.
One commenter expressed concern that such decisions by the
contracting officers should be tracked for the first two years of
program implementation. SBA will track the number and dollar amounts of
contracts awarded to qualified HUBZone SBCs for the duration of the
program. Additionally, as discussed further in connection with
Sec. 126.611, if a contracting officer receives a recommendation from
SBA's PCR and decides not to make an award to a qualified HUBZone SBC
either on a HUBZone sole source or set-aside basis, the contracting
officer must notify SBA's PCR or the AA/HUB, and ultimately the
Administrator may appeal the contracting officer's decision.
Section 126.605 lists those requirements which are not available as
HUBZone contracts. One commenter recommended that SBA amend
Sec. 126.605 to exclude all acquisitions at or under the simplified
acquisition threshold including all procurements with an estimated
value under $2,500 (micro-purchases). SBA does not agree completely
with this suggestion. SBA has reconsidered the proposed exclusion as to
requirements between $2,500 and $100,000. SBA now believes, after
further review, that only contracting actions below the micropurchase
threshold should not be available for HUBZone set-aside procedures
because to include them would be impractical and would likely cause no
meaningful impact in terms of job creation. Moreover, it would
discourage the use of purchase cards to make small purchases. This does
not mean that HUBZone firms could not provide goods and services at the
micropurchase level, only that their HUBZone status would be incidental
to the contracting action.
Additionally, SBA has determined that the proposed exclusion of
contracts above $2,500 and at or below $100,000 should be changed. SBA
believes these contracts represent too significant a block of potential
HUBZone contracting actions to exclude them from the program. At the
same time, SBA is mindful of the significant benefits of simplified
acquisition procedures which also include a reservation for small
business. Accordingly, the final rule does not exclude contracts above
the micropurchase threshold and below the simplified acquisition
threshold, but makes the use of HUBZone contracting optional for such
contracts. Revised Sec. 126.608 makes this clear.
Two commenters recommended that small business set-asides be
excluded from HUBZone contracts. SBA declines to accept this
recommendation since a very significant segment of government
contracting requirements would be lost to HUBZones. As indicated, only
contracts below the micropurchase threshold have been excluded in the
final rule.
Finally, one commenter asked what the effect of the HUBZone program
would be on the Small Business Competitiveness Demonstration program.
SBA has reviewed this issue and has decided to include requirements
which fall within the Small Business Competitiveness Demonstration
Program in Sec. 126.605. Exclusion of such procurements from the
HUBZone program would result in a significant loss of contract
requirements in many labor intensive industries, including
construction, refuse collection and non-nuclear ship repair.
SBA has retained Sec. 126.605 (a) and (b) as proposed, amended
subsection (c) to exclude contracts below the micropurchase threshold,
and deleted Sec. 126.605(d) as no longer necessary in light of the
changed definition of contract opportunity in Sec. 126.103.
Section 126.606 states that a contracting officer may request that
SBA release an 8(a) requirement for award as a HUBZone contract. SBA
will release only where neither the incumbent nor any other 8(a)
participant can perform the requirement and where the 8(a) program will
not be adversely affected. One commenter suggested that SBA release an
8(a) requirement if a HUBZone SBC can perform the work as an 8(a)
participant would. SBA believes such a modification would adversely
affect the 8(a) program. Furthermore, the legislative history includes
numerous statements of congressional intent indicating that the HUBZone
program should not adversely affect the 8(a) program. SBA declines to
accept this recommendation and this section is retained as proposed.
Section 126.607 describes when a contracting officer must set aside
a requirement for qualified HUBZone SBCs. SBA has changed the heading
for Sec. 126.607 to now apply more generally to HUBZone contracting.
For the reasons discussed above in connection with the changes to the
``contract opportunity'' definition, this section now establishes a
priority first for qualified HUBZone 8(a) concerns and then other 8(a)
concerns. After these preferences, the contracting officer must use a
HUBZone set-aside competition when possible. Section 126.607 has been
revised to accomplish these changes, while preserving the guidance to
contracting officers with respect to consulting SBA's List of Qualified
HUBZone SBCs to locate at least two such firms which are likely to
compete.
One commenter suggested that SBA add the term ``responsible''
before ``qualified HUBZone SBCs'' in subsection (c)(1) (proposed
subsection (a)(1)). The comment describes this as a ``vital element.''
The HUBZone Act of 1997 does not include the term ``responsible'' in
the applicable provision. However, SBA agrees that responsibility is a
vital element in the contracting officer's decision and has revised the
section to include the term.
SBA has eliminated the proposed Sec. 126.608 and has created a new
Sec. 126.608 to address commenters' concerns with respect to Simplified
Acquisition Threshold procedures. As indicated above, the new
Sec. 126.608 clarifies that Simplified Acquisition Threshold procedures
can be used for HUBZone contracting. SBA eliminated the proposed
Sec. 126.608 because it was merely restating general procurement
practices. SBA did not intend to create special rules to be followed in
the HUBZone context where a competition results in only one or no
acceptable offer received.
Section 126.609 now explains what the contracting officer must do
if a contracting opportunity does not exist for competition among
qualified HUBZone SBCs. SBA has clarified this section. Section 126.609
now refers specifically to Sec. 126.607, and provides guidance to
contracting officers if a contract opportunity does not exist for
competition among qualified HUBZone SBCs. SBA received numerous
[[Page 31903]]
comments on the issue of order of precedence generally.
Sixteen commenters stated that SBA exceeded its authority in
proposed Secs. 126.608 and 126.609 by creating an order of precedence
among SBA programs and directing the contracting officer to make
certain types of awards (either sole source or full and open
competition). The commenters also stated that the two provisions are
``confusing,'' ``contradictory,'' and ``inconsistent.'' However, many
of the commenters stated that SBA has the authority to create an order
of precedence within SBA programs, but the implementation of any such
order should be left to the FAR. One commenter endorsed the order of
precedence as proposed and another commenter suggested a priority for
8(a).
SBA believes that it is within its authority to create an order of
precedence among SBA's programs; therefore SBA has made the order of
precedence in this rule mandatory. However, SBA agrees that the
procurement methods a contracting officer uses in other respects should
be left to the contracting officer in accordance with existing
procedures set out in the FAR. As indicated, Sec. 126.608 has been
eliminated in its proposed form. SBA has revised Sec. 126.609 to be
consistent with that approach. SBA has revised Sec. 126.609 to make the
order of precedence mandatory. In light of revisions to Sec. 126.607,
that section is now simply referred to, and the remaining priorities
are identified in Sec. 126.609.
Section 126.610 states that SBA may appeal a contracting officer's
decision not to reserve a procurement for award as a HUBZone contract.
One commenter recommended that SBA expand this right of appeal to
include contracting officer decisions that adversely affect 8(a)
participants. However, the right of the Administrator to appeal the
contracting officer's decision not to reserve a requirement for award
as a HUBZone contract is the only appeal right provided by the HUBZone
Act of 1997. Thus, the text remains as proposed.
Section 126.611 describes the process for SBA's appeal of a
contracting officer's decision not to reserve a procurement for award
as a HUBZone contract. One commenter indicated that this section did
not clearly identify when a contracting officer must notify SBA of such
a decision. Also, five commenters suggested that requiring the
contracting officers to notify SBA every time they decided not to
reserve a procurement for award as a HUBZone contract imposes a
``significant administrative burden'' on the procurement process and on
contracting officers. One commenter suggested including the HUBZone
notification requirement in the documentation reviewed by SBA's PCR.
The commenter felt that if an acquisition is not reviewed by a PCR, a
separate HUBZone notification should not be required. Another commenter
suggested that the contracting officer should notify the PCR only if
she or he decides not to set aside a contract opportunity.
Presently, both the FAR and Sec. 125.2 of this title discuss the
process by which the contracting officer notifies SBA of such decisions
in other small business set-aside programs. SBA has modified slightly
subsection 126.611(a). It now provides that the contracting officer
must notify the SBA's PCR of a decision not to reserve a procurement
for award as a HUBZone contract when the contracting officer rejects a
PCR's recommendation to make a requirement available. As previously
proposed, if SBA intends to appeal the decision, SBA must notify the
contracting officer within five days of receipt of the notification.
SBA expects this notification to be in accordance with the procedures
that presently exist in the FAR and 13 CFR 125.2. Sections 126.611(b),
(c) and (d) are unchanged.
Section 126.612 states when a contracting officer may award a sole
source contract to a qualified HUBZone SBC. One comment suggested that
SBA add a new paragraph to this section to provide that where
unemployment exceeds 20 percent on an Indian reservation, the
anticipated contract award price limits in subsections (b)(1) and (2)
do not apply. Three other commenters argued that the limits in
subsections (b)(1) and (2) should not apply to Indian reservation-based
businesses. The limitations on sole source requirements set out in
subsections (b)(1) and (2) of this section are taken directly from
section 31(b)(2)(A) of the Small Business Act, as amended by section
602(b)(1) of the HUBZone Act of 1997. The statute did not include any
exceptions to these limitations. Consequently, SBA does not have the
authority to provide such an exception. Section 126.612 remains
essentially as proposed (there are some minor clarifying word changes).
SBA received 18 comments addressing proposed Secs. 126.613 and
126.614. The comments focused on two issues: (1) SBA's interpretation
of the HUBZone price evaluation preference as flawed, and (2) whether
concerns should be allowed to take advantage of ``dual status''
(HUBZone SBC and SDB).
Proposed Sec. 126.613 explains how the HUBZone price evaluation
preference affects the bid of a qualified HUBZone SBC in full and open
competition. In a full and open competition, a contracting officer must
deem the price offered by a qualified HUBZone SBC to be lower than the
price offered by another offeror (other than another small business
concern) if the price offered by the qualified HUBZone SBC is not more
than 10 percent higher than the price offered by the otherwise lowest,
responsive, and responsible offeror. This section includes an example
of the application of the HUBZone price evaluation preference. The
example has been revised to make it more clear that the preference
applies to benefit HUBZone SBCs only where the HUBZone SBC would
receive the award.
The comments regarding the HUBZone price evaluation preference
suggested that according to the HUBZone Act of 1997, the preference
should never displace the offer of another small business concern.
Commenters suggested that in the example included in this section, the
small business concern submitting the $100 offer should receive the
award. In other words, the HUBZone price evaluation preference should
do no more than eliminate the lowest, responsive, responsible offeror
that is a large business, leaving the small business concern as the new
lowest, responsive, responsible offeror which would receive the award.
One commenter suggested using the term ``apparent successful offeror''
instead of ``lowest, responsive, and responsible offeror.''
Responsibility is determined later in the acquisition process and not
at the time the offers are evaluated. SBA did not change the term. The
term ``lowest, responsive, and responsible offeror'' is taken directly
from the statute.
SBA does not interpret section 31(b)(3) of the Small Business Act,
as amended by section 602(b) of the HUBZone Act of 1997, in this way.
SBA interprets this statutory language to require that the lowest offer
from a qualified HUBZone SBC displace the lowest, responsive,
responsible offeror that is a large business, and replace that offeror
with that HUBZone SBC. This would result in the HUBZone SBC receiving
the award, in the example included in this section of the rule.
SBA does not agree that a small business concern that is not a
qualified HUBZone SBC can benefit from the HUBZone price evaluation
preference. SBA believes that this result is contrary to the intent and
goals of the HUBZone program.
[[Page 31904]]
Proposed Sec. 126.614 described how a contracting officer must
apply both HUBZone and SDB price evaluation preferences in a full and
open competition in some detail and with an example. The comments SBA
received on this section generally agreed that SBA's ``methodology is
flawed'' and that the proposed application would result in an award to
a qualified HUBZone/SDB at a ``differential above 20 percent.'' Two
comments suggested that statutory authority does not allow payment of
differentials above 20 percent. Commenters also stated that SBA's
methodology does not take into account exceptions to the application of
the SDB price evaluation preference (e.g., otherwise successful offers
of eligible products under the Trade Agreements Act when the
acquisition meets or exceeds a certain dollar threshold). The consensus
of the commenters concerned with process was that SBA regulations
should contain a broad policy statement regarding the HUBZone price
evaluation preference and SBA should leave the actual implementation to
the FAR.
In addition, SBA also received numerous comments dealing with the
substance of the issue and whether dual status should be permitted at
all. There were four in favor of allowing dual status and seven
against. The comments in favor stated that dual status will encourage
more minority-owned concerns to compete for federal contracts in
HUBZones and create jobs; will assist SDBs in competing against
qualified HUBZone SBCs; and would avoid harm to the SDB program. The
opposing comments stated that concerns should be required to select one
status or the other at the time they submit their offer on a contract
because the application of multiple preferences is too confusing; would
not work with negotiated procurements; would make it extremely
difficult for a contracting officer to declare a price to be fair and
reasonable; and would provide an unfair competitive advantage in favor
of the ``dual status'' concerns.
SBA has considered these comments carefully and has decided not to
change its position in the final rule. As a result, SBA has eliminated
proposed Sec. 126.614 from the final rule. Nothing in the HUBZone Act
requires that the HUBZone program displace a contracting activity's
authority or responsibilities regarding any other programs designed to
promote the development of small, small disadvantaged, or women-owned
small businesses. Therefore, SBA has implemented the HUBZone program in
such a way that any preference a concern receives under this program
must be added to the preference it may receive pursuant to other
statutory or regulatory programs.
However, SBA has decided not to prescribe how a contracting officer
must apply the two types of preferences in a full and open competition,
leaving the mechanics for implementation in the FAR.
As a result, SBA has revised Sec. 126.614 to merely state the
principle that firms which are both qualified HUBZone SBCs and SDBs
must receive the benefit of both.
Section 126.615 states that a large business may not participate as
a prime contractor on a HUBZone contract but may participate as a
subcontractor to an otherwise qualified HUBZone SBC. SBA received no
comments on this section and it remains as proposed.
Section 126.616 describes the circumstances in which a contracting
officer may award a HUBZone contract to a joint venture. This section
also explains that a qualified HUBZone SBC may enter into a joint
venture with one or more qualified HUBZone SBCs, 8(a) participants, or
WOBs for the purpose of performing a specific HUBZone contract. One
commenter argued that SBA should allow qualified HUBZone SBCs to joint
venture with large businesses because the ability to joint venture with
``big business'' will bring jobs to HUBZones more rapidly. SBA declines
to accept this recommendation because the HUBZone program is intended
to provide contracting assistance to small, not large, business. If
qualified HUBZone SBCs joint venture with large businesses, then the
benefits of the program would flow to large businesses in addition to
small. Additionally, SBA has found that in recent history small
businesses create more jobs annually than large businesses. Thus, SBA
has not modified this section in the final rule.
In the proposed rule, SBA specifically requested comments on
whether HUBZone contract opportunities should be limited to certain
types of contracts. For example, should HUBZone contracts only be
available for industries that are considered ``labor intensive''? Three
commenters specifically addressed the issue. One commenter stated that,
based on the intention of the program (creating jobs in HUBZones),
restricting the types of contracts to labor intensive industries would
be reasonable and would ensure that the HUBZone program is targeted at
contracts with the greatest potential for creating jobs. However, the
other commenters adamantly opposed the idea. These commenters argued
that such a limitation would exclude participation by small business
concerns that Congress intended to include in the program. Further, the
commenters stated that there appears to be no statutory justification
for imposing any limit on the types of industries involved in the
program. Finally, the commenters noted that the term ``labor
intensive'' is subjective and such a limitation would be problematic
both in administration of the program and enforcement. As a result, SBA
has not included any such limitation in the final rule.
SBA also asked commenters to discuss whether HUBZone contract
opportunities should be limited to those not now awarded to SBCs and to
make suggestions for ways in which HUBZone implementation can better
help government contracting activities meet their SDB and WOB goals.
SBA received no comments specifically addressing these issues.
SBA has retained Secs. 126.700 through 127.703, as proposed. SBA
received four comments on Sec. 126.700 which addressed the amount of
subcontracting that is allowed by general construction and special
trade contractors. Specifically, three commenters questioned the
provisions in the proposed rule that requires general construction
firms to spend at least 15 percent of the cost of contract performance
for personnel on the concern's employees or the employees of other
qualified HUBZone SBCs. Special trade contractors have the same
requirement except that their performance percentage is 25 percent.
Although these percentages are less than the standards applied for
servicing and manufacturing firms, these standards represent
conventional industry practices and, therefore, remain unchanged.
One commenter proposed that large firms be authorized to perform up
to 75 percent of manufacturing as a subcontractor on contracts that are
performed on Indian reservations. This proposal is inconsistent with
the clear language of the HUBZone legislation which states that not
less than 50 percent of the cost of manufacturing supplies (not
including the cost of materials) will be incurred in connection with
the performance of the contract in a HUBZone by one or more HUBZone
small business concerns.
Section 126.702 provides a process by which representatives of
national trade or industry groups may request a change in
subcontracting percentage for specific industry groups (as defined by
two-digit major group industry codes). One commenter suggested that SBA
revise
[[Page 31905]]
Sec. 126.702 to permit individual businesses to request changes in the
subcontracting percentage limitations. SBA declines to accept this
recommendation. SBA wants to insure that such requests reflect the
views of a large number of businesses before invoking the procedures
for changing the percentages. SBA received no comments regarding
proposed Secs. 126.701 and 126.703; however, as stated above, SBA has
eliminated the subcontracting percentage and has modified these
sections accordingly.
Section 126.800 addresses protests relating to a small business
concern's HUBZone status. This section explains who may file a protest;
what the protest must contain; how and where a protest must be filed;
who decides the protest; and what appeal rights are available. One
commenter recommended that the SDB language in the 8(a) program should
be applied to the HUBZone program to forestall frivolous protests under
Sec. 126.800. SBA has declined to accept this recommendation as
unnecessary. Although the SDB and the HUBZone provisions in this title
are organized differently, there is little substantive difference
between them. Section 126.800(b) permits any ``interested party'' to
protest a HUBZone SBC's status. As defined in Sec. 126.103, an
``interested party'' may be any of the same three entities which are
listed in Sec. 124.603, the SDB provision. Although expressed
differently, the effect of the two provisions is the same. The
difference between the SDB and HUBZone procedures lies in the fact that
the HUBZone regulations separate out sole source procurements for
different treatment. HUBZone regulations permit only the SBA or the
contracting officer to file protests in those cases. The SDB protest
procedures do not do so because there are no SDB sole source contracts.
Three commenters urged that the protest procedures set forth in
Sec. 126.800 should permit any small business that is prevented from
competing for a sole source contract to protest the proposed awardee's
qualified HUBZone status. (SBA changed ``apparent successful offeror''
to ``proposed awardee'' to more accurately reflect the fact that there
is no competition in a sole source procurement.) SBA has retained the
section as proposed. Third parties may not protest a sole source award
because they have no stake in the contract, or ``standing.'' In other
types of procurements, a competitor who protests an award may have
standing to get the award if its protest is successful. In sole source
procurements, however, there are no ``competitors'' because of the
nature of the procurement.
Although other concerns may not ``protest'' an award, they may
notify SBA if they have information that a HUBZone SBC is not qualified
for any reason. SBA, in its sole discretion, may pursue a program
examination of that concern pursuant to Sec. 126.402. Although that
course of action might not halt an award, third parties with pertinent
information about a proposed awardee also are encouraged to notify the
contracting officer or SBA directly to urge that a formal protest be
filed.
Section 126.801 sets forth the procedure for submitting a protest
of a HUBZone SBC's status. Three commenters asked whether a protestor
may combine concurrent size and status protests in a single letter and
rely upon SBA to divide up the protests procedurally. SBA has added a
phrase to make clear that existing size regulations require a protestor
to file a size protest with the contracting officer. Protestors must
direct protests relating to HUBZone status to SBA.
One commenter suggested replacing the phrase ``unsuccessful
offeror'' in Sec. 126.801(c)(1) with the phrase ``interested party'' to
conform to the language used in Sec. 126.800. SBA accepts this
recommendation and makes this change. SBA notes that Sec. 126.800(b)
authorizes ``any interested party'' to protest the status of a
qualified HUBZone SBC. SBA believes it is internally consistent as well
as substantively correct to change ``unsuccessful offeror'' to
``interested party'' in Sec. 126.801(c)(1).
Section 126.802 states who decides a HUBZone status protest. SBA
received no comments on this section and has decided to keep the
section as proposed. SBA received one comment on Sec. 126.803, which
explains SBA's processing of protests. The commenter suggested that SBA
define ``public interest'' and that the award decision should be made,
or approved, at a higher level than contracting officer. SBA based this
section on the FAR (Secs. 12.302(h)(1) and 19.505(f)) and it is
consistent with the recently proposed SDB protest procedures. As a
result, SBA declines to accept this recommendation.
Section 126.804 notes that SBA will decide all protests not
otherwise dismissed and Sec. 126.805 sets forth the appeal rights that
are available. SBA received no comments on either of these sections and
has retained them as proposed.
Section 126.900 prescribes the penalties applicable under the
HUBZone program including procurement and non-procurement suspension or
debarment, as well as applicable civil and criminal penalties. SBA
received one comment which observed that HUBZone SBCs would not be
penalized under Sec. 126.900 during the year they are certified. This
commenter stated further that SBA appeared to have no ability to halt
contract performance by a HUBZone SBC losing its certification during
the year. SBA has retained the section as proposed. This section allows
the imposition of substantial penalties on a concern at any time that
SBA discovers the concern has made misrepresentations about its status
as a qualified HUBZone SBC. In addition, SBA has authority to notify a
contracting agency that a HUBZone SBC is no longer qualified but SBA
does not have authority to require that agency to terminate the
contract. Contract termination (whether for convenience or default) is
governed by the FAR.
Compliance With Executive Orders 12612, 12778, and 12866, the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and the
Paperwork Reduction Act (44 U.S.C. Ch. 35)
SBA certifies that this rule is a major rule within the meaning of
Executive Order 12866, and has a significant economic impact on a
substantial number of small entities within the meaning of the
Regulatory Flexibility Act, 5 U.S.C. 601 et seq. SBA submits the
following economic analysis prepared pursuant to Executive Order 12866
and Initial Regulatory Flexibility Analysis (IRFA) prepared pursuant to
the Regulatory Flexibility Act.
In making its determination that this rule is a major rule and has
a significant economic impact on a substantial number of small
entities, SBA used the definition of small business set forth in 13 CFR
Part 121.
The HUBZone Act of 1997, Title VI of Public Law 105-135, 111 Stat.
2592 (December 2, 1997), creates the HUBZone program and directs the
Administrator of SBA to promulgate regulations to implement it. The
rule sets forth the program requirements for qualification as a HUBZone
SBC, the federal contracting assistance available to qualified HUBZone
SBCs, and other aspects of this program.
The HUBZone program will benefit SBCs by increasing the number of
federal government contracts awarded to them. There is a statutory
requirement that HUBZone SBCs receive three percent of contract
dollars. SBA received no additional information from the public during
the comment period on the impact of the proposed rule on all small
businesses. The
[[Page 31906]]
program also will benefit HUBZone communities by providing much needed
jobs and investment in those communities.
Prior to submitting an offer on a HUBZone contract, an interested
small business must apply to SBA for certification as a qualified
HUBZone SBC. The concern must submit information relating to its
eligibility for the program, including supporting documentation. Once a
concern is certified as a qualified HUBZone SBC, it must self-certify
annually to SBA that there has been no material change in its
circumstances that would affect eligibility. The information required
for certification consists of general information about the business.
The Paperwork Reduction Act aspect of this certification is that each
concern will be able to complete the certification application in one
hour or less.
The HUBZone program is different from existing government
contracting programs because it focuses on job creation in high
unemployment and poverty-level communities. Commenters requested that
SBA discuss the impact of the HUBZone program on other contracting/
procurement assistance programs. One commenter specifically raised the
issue of the interaction between the HUBZone program and the previously
proposed Empowerment Contracting program by the Department of Commerce
in May 1997. The Department of Commerce did not and will not publish a
final rule which would implement the empowerment contracting program.
Two commenters raised the issue of the competition between HUBZone
concerns and 8(a) participants owned by Community Development
Companies. These 8(a) participants will be treated as any other 8(a)
participant.
The small entities affected by this rule are those who fit within
the definition of a small business concern as defined by SBA in 13 CFR
part 121 and new part 126 and who participate in government
contracting. Because the program is new, SBA cannot estimate precisely
the number or classes of small entities that this rule will affect.
However, as explained below, SBA estimates that more than 30,000 SBCs
will apply for certification as qualified HUBZone SBCs.
Based on 1992 census data and making reasonable extrapolations to
account for growth in recent years, SBA estimates that there are
approximately five million businesses with employees in the United
States; of this number, approximately 4.9 million--or 98 percent--are
considered small. Clearly, not all of the businesses who are considered
small seek to participate in federal government contracting or will
seek to participate in the HUBZone program. Currently, there are
approximately 170,000 SBCs registered on PRO-Net, SBA's database of
SBCs actively seeking federal government contracts. While PRO-Net is
not a perfect measure of businesses that may be interested in
contracting with the government, it is the most accurate measure
currently available to SBA.
The number of entities that seek certification as qualified HUBZone
SBCs will depend, first, on the number of businesses located in
HUBZones. The potential number of HUBZones is significant. Based on the
data available, there are approximately 61,000 census tracts in the
United States; of those tracts, about 7,000--or 11 percent--are
qualified census tracts for purposes of the HUBZone program. In
addition, there are approximately 3,000 non-metropolitan counties in
the United States; of those counties, about 900--or 30 percent--are
qualified non-metropolitan counties for purposes of the HUBZone
program. SBA believes that there are 310 Indian reservations and 217
Alaska Native villages. Based on combining the qualified census tract
and qualified non-metropolitan county data, SBA estimates that
approximately 12 percent of the census tracts and non-metropolitan
counties in the United States will qualify as HUBZones.
If all small businesses interested in Federal procurement were
evenly distributed geographically, then approximately 12 percent of the
170,000 SBCs registered on PRO-Net--or 20,000--would be located in
HUBZones. However, SBA believes that a much higher number of small
business are located in qualified census tracts than in qualified non-
metropolitan counties; therefore, SBA adjusts this number upward and
estimates that 25,000 SBCs (or 15 percent of all SBCs) will be both
interested in Federal procurement and located in HUBZones. However, as
stated above, the number of concerns registered on PRO-Net may not
reflect the entire universe of small businesses that are interested in
contracting with the government.
The incentives available through participation in the program
could, moreover, result in additional SBCs relocating to HUBZone areas.
SBA is unable to predict the impact of this factor on the total number
of qualified HUBZone SBCs, but estimates that roughly 30,000 concerns
that are either now HUBZone SBCs or will become HUBZone SBCs as a
result of these incentive effects will apply for certification. As
discussed above, these 30,000 HUBZone SBCs will be spread over about
7000 census tracts, about 900 non-metropolitan counties, 310 Indian
reservations and 217 Alaska Native villages.
Because the HUBZone program is new, SBA also cannot estimate
precisely the economic impact the rule may have on the economy.
According to the Congressional Budget Office (CBO), in 1996 the federal
agencies specified in the HUBZone Act contracted for more than 90
percent of all federal procurement obligations. (143 Cong. Rec. S8976
(daily ed. September 9, 1997)). In FY 1996, the federal government
spent $197.6 billion on the procurement of goods and services. The
government awarded small businesses $41.1 billion in direct contract
actions--21 percent of the total $197.6 billion in federal procurement.
The HUBZone Act of 1997 amends the Small Business Act to increase
the Government-wide federal contracting goal for SBCs from 20 percent
to 23 percent of all federal prime contracts. In addition, the HUBZone
Act sets the government contracting goal for HUBZone SBCs initially at
one percent of all federal prime contracts with a gradual increase to
three percent by the year 2003. Thus, by 2003, assuming the
participating agencies reach the three percent contracting goal,
HUBZone SBCs may be awarded approximately $6 billion in federal
contract actions (three percent of the approximately $200 billion
procurement budget).
Contracts for the purchase of Federal Government goods and services
under the HUBZone program would operate in the following three ways:
(1) a contract award to a qualified HUBZone small business concern can
be made by a procuring agency if a contracting opportunity exists and
it determines that two or more qualified HUBZone small business
concerns will submit offers for the contract and the award can be made
at a fair market price; (2) consistent with other criteria, a
contracting officer can award a sole source contract to a qualified
HUBZone small business concern if it submits a reasonable and
responsive offer and is determined by the appropriate agency
contracting officer to be a responsible contractor. Sole-source
contracts cannot exceed $5 million for manufacturing contracts and $3
million for all other contract opportunities; and (3) a 10 percent
Price Evaluation Preference in full and open competition can be made on
behalf of the Qualified HUBZone small business concern if its offer is
not more than 10 percent higher than the other offeror, so long as it
is not a small business concern.
[[Page 31907]]
In addition to the procurement contract awards available to
qualified HUBZone concerns, the HUBZone program will have other effects
on the economy including the possibility of increased costs to the
government. CBO anticipates that implementation of the HUBZone program
will increase the incidence of sole source contracting. According to
CBO, about 19 percent of federal procurement is awarded through sole
source contracts. It is not possible to project any increase in sole
source awards at this time, and there might not be any increase in sole
source awards at all. Instead, qualified HUBZone SBCs might receive
sole source awards that would otherwise go to large businesses or other
small businesses.
CBO also estimates that implementing the HUBZone program would
significantly increase discretionary spending for the federal agencies
affected by the program. According to CBO, ``[s]uch costs could total
tens of millions of dollars each year, but CBO cannot estimate such
costs precisely.'' (143 Cong. Rec. S8976 (daily ed. September 9,
1997)). CBO anticipated that these additional costs would stem from
both additional administrative responsibilities for SBA and other
federal agencies, as well as the likely increased use of sole source
contracting. SBA is not in a position to shed much additional light on
this subject. SBA has received an appropriation of $2 million in FY
1998 to begin implementing the program and has requested $4 million for
FY 1999. No other cost information is available at the present time.
Assessing whether the government will have a net cost from this program
is very subjective. It is at least possible that increased competition
from HUBZone SBCs will cause competing concerns to lower prices thereby
reducing government procurement costs (perhaps substantially).
While it is at least possible that increased competition from
HUBZone SBCs will cause competing concerns, it is useful to perform an
informal sensitivity analysis on the possible implications for
increased Federal Government contracting costs that derive from the
description of contracting procedures under the HUBZone program.
Calculations here assume that the program is fully in effect in the
year 2003 and that HUBZone contracts are at the level (from above) of
$6 billion. If all HUBZone contracts are awarded to qualified HUBZone
SBCs in competitions in which two or more qualified HUBZone SBCs submit
offers and the award is made at a fair market price, then the
additional cost to the Federal Government could be close to zero. But,
as noted above, there are expected to be about 30,000 HUBZone SBCs
competing for contracts and they are expected to be spread over about
7000 census tracts and about 900 non-metropolitan counties, so the
likelihood of this always happening is not large. The second
possibility is that all HUBZone contracts would be awarded as sole
source contracts to qualified HUBZone SBCs that submit reasonable and
responsive offers and are determined by the appropriate contracting
officer to be responsible contractors. (The sole-source contracts could
not exceed $5 million for manufacturing contracts and $3 million for
all other contract opportunities.) The extra costs to the Federal
Government in this case would be the additional costs over competitive
awards to the Federal Government that are usually associated with sole
source contracting. The third possibility is that all HUBZone contracts
would be awarded at a 10 percent Price Evaluation Preference in full
and open competition. One could assume that the SBC offer is exactly 10
percent higher than other (non SBC) offers. In this unlikely case, the
additional cost to the Federal Government is $600 million per year or
10 percent of $6 billion, the amount by which the SBC offer would
exceed other non-SBC offers that did not receive preference.
Under all of these circumstances, SBA has determined that this
final rule is a major rule within the meaning of E.O. 12866, and has a
significant impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
certifies that this final rule imposes new reporting or recordkeeping
requirements on concerns applying to be certified as qualified HUBZone
SBCs. The rule requires such concerns to submit evidence that they meet
the eligibility requirements set forth in the rule; once certified, in
order to remain on the List a concern must self-certify annually to SBA
that it remains qualified; and qualified HUBZone SBCs must notify SBA
immediately of any material change in circumstances which could affect
their eligibility.
For purposes of Executive Order 12612, SBA certifies that this rule
has no federalism implications warranting the preparation of a
Federalism Assessment.
For purposes of Executive Order 12778, SBA certifies that it has
drafted this rule, to the extent practicable, in accordance with the
standards set forth in section 2 of that Order.
(Catalog of Federal Domestic Assistance Programs, No. 59.009)
List of Subjects
13 CFR Part 121
Government procurement, Government property, Grant programs-
business, Individuals with disabilities, Loan programs-business, Small
businesses.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Research, Small businesses, Technical
assistance.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Reporting and recordkeeping requirements, Small businesses.
Accordingly, for the reasons set forth above, SBA amends Title 13,
Code of Federal Regulations (CFR), as follows:
PART 121--[AMENDED]
1. The authority citation for 13 CFR part 121 is revised 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,
106 Stat. 2776, 3133.
Sec. 121.401 [Amended]
2. Section 121.401 is amended by deleting the word ``and'' before
``Federal Small Disadvantaged Business Programs,'' adding a comma after
``Federal Small Disadvantaged Business Programs,'' and adding the
following language at the end of the sentence: ``and SBA's HUBZone
program''.
3. Section 121.1001 is amended by redesignating paragraph (a)(5) as
(a)(6) and by adding the following new paragraph (a)(5) to read as
follows:
Sec. 121.1001 Who may initiate a size protest or a request for formal
size determination?
(a) Size Status Protests. * * *
(5) For SBA's HUBZone program, the following entities may protest
in connection with a particular HUBZone procurement:
(i) Any concern that submits an offer for a specific HUBZone set-
aside contract;
(ii) Any concern that submitted an offer in full and open
competition and its opportunity for award will be affected by a price
evaluation preference given a qualified HUBZone SBC;
(iii) The contracting officer; and
(iv) The Associate Administrator for Government Contracting, or
designee.
* * * * *
4. Section 121.1008 is amended by revising paragraph (a) to read as
follows:
[[Page 31908]]
Sec. 121.1008 What happens after SBA receives a size protest or a
request for a formal size determination?
(a) When a size protest is received, the SBA Government Contracting
Area Director, or designee, will promptly notify the contracting
officer, the protested concern, and the protestor that a protest has
been received. In the event the size protest pertains to a requirement
involving SBA's HUBZone Program, the Government Contracting Area
Director will advise the AA/HUB of receipt of the protest. In the event
the size protest pertains to a requirement involving SBA's SBIR
Program, the Government Contracting Area Director will advise the
Assistant Administrator for Technology of the receipt of the protest.
SBA will provide a copy of the protest to the protested concern along
with a blank SBA Application for Small Business Size Determination (SBA
Form 355) by certified mail, return receipt requested, or by any
overnight delivery service that provides proof of receipt. SBA will ask
the protested concern to respond to the allegations of the protestor.
* * * * *
PART 125--[AMENDED]
5. The authority section for 13 CFR part 125 is revised to read as
follows:
Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15
U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 9792.
6. Section 125.2 is amended by revising the second sentence in
paragraph (a)(1) to read as follows:
Sec. 125.2 Prime contracting assistance.
(a) * * *
(1) * * * PCRs review all acquisitions not set aside for small
businesses, including HUBZone small business concerns, to determine
whether a set-aside would be appropriate. * * *
* * * * *
7. Section 125.3 is amended by revising paragraphs (b) and (c) and
by revising the last sentence of paragraph (d) to read as follows:
Sec. 125.3 Subcontracting assistance.
(a) * * *
(b) Upon determination of the successful subcontract offeror on a
subcontract for which a small business, small disadvantaged business,
and/or a HUBZone small business received a preference, but prior to
award, the prime contractor must inform each unsuccessful offeror in
writing of the name and location of the apparent successful offeror and
if the successful offeror was a small business, small disadvantaged
business, or HUBZone business. This applies to all subcontracts over
$10,000.
(c) SBA Commercial Market Representatives (CMRs) facilitate the
process of matching large prime contractors with small, small
disadvantaged, and HUBZone subcontractors. CMRs identify, develop, and
market small businesses to the prime contractors and assist the small
concerns in obtaining subcontracts.
(d) * * * Source identification means identifying those small,
small disadvantaged, and HUBZone concerns which can fulfill the needs
assessed from the opportunity development process.
PART 126--[ADDED]
8. Add a new part 126 to read as follows:
PART 126--HUBZONE PROGRAM
Subpart A--Provisions of General Applicability
126.100 What is the purpose of the HUBZone program?
126.101 Which government departments or agencies are affected
directly by the HUBZone program?
126.102 What is the effect of the HUBZone program on the section
8(d) subcontracting program?
126.103 What definitions are important in the HUBZone program?
Subpart B--Requirements to be a Qualified Hubzone SBC
126.200 What requirements must a concern meet to receive SBA
certification as a qualified HUBZone SBC?
126.201 For this purpose, who does SBA consider to own a HUBZone
SBC?
126.202 Who does SBA consider to control a HUBZone SBC?
126.203 What size standards apply to HUBZone SBCs?
126.204 May a qualified HUBZone SBC have affiliates?
126.205 May WOBs, 8(a) participants or SDBs be qualified HUBZone
SBCs?
126.206 May non-manufacturers be qualified HUBZone SBCs?
126.207 May a qualified HUBZone SBC have offices or facilities in
another HUBZone or outside a HUBZone?
Subpart C--Certification
126.300 How may a concern be certified as a qualified HUBZone SBC?
126.301 Is there any other way for a concern to obtain
certification?
126.302 When may a concern apply for certification?
126.303 Where must a concern file its certification?
126.304 What must a concern submit to SBA?
126.305 What format must the certification to SBA take?
126.306 How will SBA process the certification?
126.307 Where will SBA maintain the List of qualified HUBZone SBCs?
126.308 What happens if SBA inadvertently omits a qualified HUBZone
SBC from the List?
126.309 How may a declined or de-certified concern seek
certification at a later date?
Subpart D--Program Examinations
126.400 Who will conduct program examinations?
126.401 What will SBA examine?
126.402 When may SBA conduct program examinations?
126.403 May SBA require additional information from a HUBZone SBC?
126.404 What happens if SBA is unable to verify a qualified HUBZone
SBC's eligibility?
126.405 What happens if SBA verifies eligibility?
Subpart E--Maintaining Hubzone Status
126.500 How does a qualified HUBZone SBC maintain HUBZone status?
126.501 What are a qualified HUBZone SBC's ongoing obligations to
SBA?
126.502 Is there a limit to the length of time a qualified HUBZone
SBC may be on the List?
126.503 When is a concern removed from the List?
Subpart F--Contractual Assistance
126.600 What are HUBZone contracts?
126.601 What additional requirements must a qualified HUBZone SBC
meet to bid on a contract?
126.602 Must a qualified HUBZone SBC maintain the employee
residency percentage during contract performance?
126.603 Does HUBZone certification guarantee receipt of HUBZone
contracts?
126.604 Who decides if a contract opportunity for HUBZone set-aside
competition exists?
126.605 What requirements are not available for HUBZone contracts?
126.606 May a contracting officer request that SBA release an 8(a)
requirement for award as a HUBZone contract?
126.607 When must a contracting officer set aside a requirement for
qualified HUBZone SBCs?
126.608 Are there HUBZone contracting opportunities below the
simplified acquisition threshold?
126.609 What must the contracting officer do if a contracting
opportunity does not exist for competition among qualified HUBZone
SBCs?
126.610 May SBA appeal a contracting officer's decision not to
reserve a procurement for award as a HUBZone contract?
126.611 What is the process for such an appeal?
126.612 When may a contracting officer award sole source contracts
to a qualified HUBZone SBC?
126.613 How does a price evaluation preference affect the bid of a
qualified HUBZone SBC in full and open competition?
[[Page 31909]]
126.614 How does a contracting officer treat a concern that is both
a qualified HUBZone SBC and an SDB in a full and open competition?
126.615 May a large business participate on a HUBZone contract?
126.616 What requirements must a joint venture satisfy to bid on a
HUBZone contract?
Subpart G--Contract Performance Requirements
126.700 What are the subcontracting percentages requirements under
this program?
126.701 Can these subcontracting percentages requirements change?
126.702 How can the subcontracting percentages requirements be
changed?
126.703 What are the procedures for requesting changes in
subcontracting percentages?
Subpart H--Protests
126.800 Who may protest the status of a qualified HUBZone SBC?
126.801 How does one file a HUBZone status protest?
126.802 Who decides a HUBZone status protest?
126.803 How will SBA process a HUBZone status protest?
126.804 Will SBA decide all HUBZone status protests?
126.805 What are the procedures for appeals of HUBZone status
determinations?
Subpart I--Penalties
126.900 What penalties may be imposed under this part?
Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15
U.S.C. 632(a).
Subpart A--Provisions of General Applicability
Sec. 126.100 What is the purpose of the HUBZone program?
The purpose of the HUBZone program is to provide federal
contracting assistance for qualified SBCs located in historically
underutilized business zones in an effort to increase employment
opportunities, investment, and economic development in such areas.
Sec. 126.101 Which government departments or agencies are affected
directly by the HUBZone program?
(a) Until September 30, 2000, the HUBZone program applies only to
procurements by the following departments and agencies:
(1) Department of Agriculture;
(2) Department of Defense;
(3) Department of Energy;
(4) Department of Health and Human Services;
(5) Department of Housing and Urban Development;
(6) Department of Transportation;
(7) Department of Veterans Affairs;
(8) Environmental Protection Agency;
(9) General Services Administration; and
(10) National Aeronautics and Space Administration.
(b) After September 30, 2000, the HUBZone program will apply to all
federal departments and agencies which employ one or more contracting
officers as defined by 41 U.S.C. 423(f)(5).
Sec. 126.102 What is the effect of the HUBZone program on the section
8(d) subcontracting program?
The HUBZone Act of 1997 amended the section 8(d) subcontracting
program to include qualified HUBZone SBCs in the formal subcontracting
plans described in Sec. 125.3 of this title.
Sec. 126.103 What definitions are important in the HUBZone program?
Administrator means the Administrator of the United States Small
Business Administration (SBA).
AA/8(a)BD means SBA's Associate Administrator for 8(a) Business
Development.
AA/HUB means SBA's Associate Administrator for the HUBZone Program.
ADA/GC&8(a)BD means SBA's Associate Deputy Administrator for
Government Contracting and 8(a) Business Development.
Certify means the process by which SBA determines that a HUBZone
SBC is qualified for the HUBZone program and entitled to be included in
SBA's ``List of Qualified HUBZone SBCs.''
Citizen means a person born or naturalized in the United States.
SBA does not consider holders of permanent visas and resident aliens to
be citizens.
Concern means a firm which satisfies the requirements in
Secs. 121.105(a) and (b) of this title.
Contract opportunity means a situation in which a requirement for a
procurement exists, none of the exclusions from Sec. 126.605 applies,
and any applicable conditions in Sec. 126.607 are met.
County means the political subdivisions recognized as a county by a
state or commonwealth or which is an equivalent political subdivision
such as a parish, borough, independent city, or municipio, where such
subdivisions are not subdivisions within counties.
County unemployment rate is the rate of unemployment for a county
based on the most recent data available from the United States
Department of Labor, Bureau of Labor Statistics. The appropriate data
may be found in the DOL/BLS publication titled ``Supplement 2,
Unemployment in States and Local Areas.'' This publication is available
for public inspection at the Department of Labor, Bureau of Labor
Statistics, Division of Local Area Unemployment Statistics located at 2
Massachusetts Ave., NE, Room 4675, Washington D.C. 20212. A copy is
also available at SBA, Office of AA/HUB, 409 3rd Street, SW, Washington
D.C. 20416.
De-certify means the process by which SBA determines that a concern
is no longer a qualified HUBZone SBC and removes that concern from its
List.
Employee means a person (or persons) employed by a HUBZone SBC on a
full-time (or full-time equivalent), permanent basis. Full-time
equivalent includes employees who work 30 hours per week or more. Full-
time equivalent also includes the aggregate of employees who work less
than 30 hours a week, where the work hours of such employees add up to
at least a 40 hour work week. The totality of the circumstances,
including factors relevant for tax purposes, will determine whether
persons are employees of a concern. Temporary employees, independent
contractors or leased employees are not employees for these purposes.
Example 1: 4 employees each work 20 hours per week; SBA will
regard that circumstance as 2 full-time equivalent employees.
Example 2: 1 employee works 20 hours per week and 1 employee
works 15 hours per week; SBA will regard that circumstance as not a
full-time equivalent.
Example 3: 1 employee works 15 hours per week, 1 employee works
10 hours per week, and 1 employee works 20 hours per week; SBA will
regard that circumstance as 1 full-time equivalent employee.
Example 4: 1 employee works 30 hours per week and 2 employees
each work 15 hours per week; SBA will regard that circumstance as 1
full-time equivalent employee.
HUBZone means a historically underutilized business zone, which is
an area located within one or more qualified census tracts, qualified
non-metropolitan counties, or lands within the external boundaries of
an Indian reservation. See other definitions in this section for
further details.
HUBZone small business concern (HUBZone SBC) means a concern that
is small as defined by Sec. 126.203, is exclusively owned and
controlled by persons who are United States citizens, and has its
principal office located in a HUBZone.
HUBZone 8(a) concern means a concern that is certified as an 8(a)
program participant and which is also a qualified HUBZone SBC.
Indian reservation has the meaning used by the Bureau of Indian
Affairs in 25 CFR 151.2(f). This definition refers
[[Page 31910]]
generally to land over which a ``tribe'' has jurisdiction, and
``tribe'' includes Alaska Native entities under 25 CFR 81.1(w).
Interested party means any concern that submits an offer for a
specific HUBZone sole source or set-aside contract, any concern that
submitted an offer in full and open competition and its opportunity for
award will be affected by a price evaluation preference given a
qualified HUBZone SBC, the contracting activity's contracting officer,
or SBA.
Lands within the external boundaries of an Indian reservation
includes all lands within the outside perimeter of an Indian
reservation, whether tribally owned and governed or not. For example,
land that is individually owned and located within the outside
perimeter of an Indian reservation is ``lands within the external
boundaries of an Indian reservation.'' By contrast, an Indian-owned
parcel of land that is located outside the perimeter of an Indian
reservation is not ``lands within the external boundaries of an Indian
reservation.''
List refers to the database of qualified HUBZone SBCs that SBA has
certified.
Median household income has the meaning used by the Bureau of the
Census, United States Department of Commerce, in its publication
titled, ``1990 Census of Population, Social and Economic
Characteristics,'' Report Number CP-2, pages B-14 and B-17. This
publication is available for inspection at any local Federal Depository
Library. For the location of a Federal Depository library, call toll-
free (888) 293-6498 or contact the Bureau of the Census, Income
Statistics Branch, Housing and Economic Statistics Division, Washington
D.C. 20233-8500.
Metropolitan statistical area means an area as defined in section
143(k)(2)(B) of the Internal Revenue Code of 1986, (Title 26 of the
United States Code).
Non-metropolitan has the meaning used by the Bureau of the Census,
United States Department of Commerce, in its publication titled, ``1990
Census of Population, Social and Economic Characteristics,'' Report
Number CP-2, page A-9. This publication is available for inspection at
any local Federal Depository Library. For the location of a Federal
Depository Library, call toll-free (888) 293-6498 or contact the Bureau
of the Census, Population Distribution Branch, Population Division,
Washington D.C. 20233-8800.
Person means a natural person. Pursuant to the Alaska Native Claims
Settlement Act, 43 U.S.C. 1626(e), Alaska Native Corporations and any
direct or indirect subsidiary corporations, joint ventures, and
partnerships of a Native Corporation are deemed to be owned and
controlled by Natives, and are thus persons.
Principal office means the location where the greatest number of
the concern's employees at any one location perform their work.
Qualified census tract has the meaning given that term in section
42(d)(5)(C)(ii)(I) of the Internal Revenue Code (Title 26 of the United
States Code).
Qualified HUBZone SBC means a HUBZone SBC that SBA certifies as
qualified for federal contracting assistance under the HUBZone program.
Qualified non-metropolitan county means any county that:
(1) Based on the most recent data available from the Bureau of the
Census of the Department of Commerce--
(i) Is not located in a metropolitan statistical area; and
(ii) In which the median household income is less than 80 percent
of the non-metropolitan State median household income; or
(2) Based on the most recent data available from the Secretary of
Labor, has an unemployment rate that is not less than 140 percent of
the statewide average unemployment rate for the State in which the
county is located.
Reside means to live in a primary residence at a place for at least
180 days, or as a currently registered voter, and with intent to live
there indefinitely.
Small disadvantaged business (SDB) means a concern that is small
pursuant to part 121 of this title, and is owned and controlled by
socially and economically disadvantaged individuals, tribes, Alaska
Native Corporations, Native Hawaiian Organizations, or Community
Development Corporations.
Statewide average unemployment rate is the rate based on the most
recent data available from the Bureau of Labor Statistics, United
States Department of Labor, Division of Local Area Unemployment
Statistics, 2 Massachusetts Ave., NE., Room 4675, Washington, D.C.
20212. A copy is also available at SBA, Office of AA/HUB, 409 3rd
Street, SW., Washington DC 20416.
Women-owned business (WOB) means a concern that is small pursuant
to part 121 of this title, and is at least 51 percent owned and
controlled by women.
Subpart B--Requirements to be a Qualified HUBZone SBC
Sec. 126.200 What requirements must a concern meet to receive SBA
certification as a qualified HUBZone SBC?
(a) The concern must be a HUBZone SBC as defined in Sec. 126.103;
and
(b) At least 35 percent of the concern's employees must reside in a
HUBZone, and the HUBZone SBC must certify that it will attempt to
maintain this percentage during the performance of any HUBZone contract
it receives. When determining the percentage of employees that reside
in a HUBZone, if the percentage results in a fraction round up to the
nearest whole number,
Example 1: A concern has 25 employees, 35 percent or 8.75
employees must reside in a HUBZone. Thus, 9 employees must reside in
a HUBZone.
Example 2: A concern has 95 employees, 35 percent or 33.25
employees must reside in a HUBZone. Thus, 34 employees must reside
in a HUBZone.
and
(c) The HUBZone SBC must certify that it will ensure that it will
comply with certain contract performance requirements in connection
with contracts awarded to it as a qualified HUBZone SBC, as set forth
in Sec. 126.700.
Sec. 126.201 For this purpose, who does SBA consider to own a HUBZone
SBC?
An owner of a HUBZone SBC is a person who owns any legal or
equitable interest in such HUBZone SBC. More specifically:
(a) Corporations. SBA will consider any person who owns stock,
whether voting or non-voting, to be an owner. SBA will consider options
to purchase stock to have been exercised. SBA will consider the right
to convert debentures into voting stock to have been exercised.
(b) Partnerships. SBA will consider a partner, whether general or
limited, to be an owner if that partner owns an equitable interest in
the partnership.
(c) Sole proprietorships. The proprietor is the owner.
(d) Limited liability companies. SBA will consider each member to
be an owner of a limited liability company.
Example 1: All stock of a corporation is owned by U.S. citizens.
The president of the corporation, a non-U.S. citizen, owns no stock
in the corporation, but owns options to purchase stock in the
corporation. SBA will consider the option exercised, and the
corporation is not eligible to be a qualified HUBZone SBC.
Example 2: A partnership is owned 99.9 percent by persons who
are U.S. citizens, and 0.1 percent by someone who is not. The
partnership is not eligible because it is not 100 percent owned by
U.S. citizens.
[[Page 31911]]
Sec. 126.202 Who does SBA consider to control a HUBZone SBC?
Control means both the day-to-day management and long-term
decisionmaking authority for the HUBZone SBC. Many persons share
control of a concern, including each of those occupying the following
positions: officer, director, general partner, managing partner, and
manager. In addition, key employees who possess critical licenses,
expertise or responsibilities related to the concern's primary economic
activity may share significant control of the concern. SBA will
consider the control potential of such key employees on a case by case
basis.
Sec. 126.203 What size standards apply to HUBZone SBCs?
(a) At time of application for certification. A HUBZone SBC must
meet SBA's size standards for its primary industry classification as
defined in Sec. 121.201 of this title. If SBA is unable to verify that
a concern is small, SBA may deny the concern status as a qualified
HUBZone SBC, or SBA may request a formal size determination from the
responsible Government Contracting Area Director or designee.
(b) At time of contract offer. A HUBZone SBC must be small within
the size standard corresponding to the SIC code assigned to the
contract.
Sec. 126.204 May a qualified HUBZone SBC have affiliates?
Yes. A qualified HUBZone SBC may have affiliates so long as the
affiliates are also qualified HUBZone SBCs, 8(a) participants, or WOBs.
Sec. 126.205 May WOBs, 8(a) participants or SDBs be qualified HUBZone
SBCs?
Yes. WOBs, 8(a) participants, and SDBs can qualify as HUBZone SBCs
if they meet the additional requirements in this part.
Sec. 126.206 May non-manufacturers be qualified HUBZone SBCs?
Yes. Non-manufacturers (referred to in the HUBZone Act of 1997 as
``regular dealers'') may be certified as qualified HUBZone SBCs if they
meet all the requirements set forth in Sec. 126.200 and they can
demonstrate that they can provide the product or products manufactured
by qualified HUBZone SBCs. ``Non-manufacturer'' is defined in
Sec. 121.406(b)(1) of this title.
Sec. 126.207 May a qualified HUBZone SBC have offices or facilities in
another HUBZone or outside a HUBZone?
Yes. A qualified HUBZone SBC may have offices or facilities in
another HUBZone or even outside a HUBZone and still be a qualified
HUBZone SBC. However, in order to qualify, the concern's principal
office must be located in a HUBZone.
Subpart C--Certification
Sec. 126.300 How may a concern be certified as a qualified HUBZone
SBC?
A concern must apply to SBA for certification. The application must
include a representation that it meets the eligibility requirements
described in Sec. 126.200 and must submit relevant supporting
information. SBA will consider the information provided by the concern
in order to determine whether the concern qualifies. SBA, in its sole
discretion, may rely solely upon the information submitted to establish
eligibility, or may request additional information, or may verify the
information before making a determination. If SBA determines that the
concern is a qualified HUBZone SBC, it will issue a certification to
that effect and add the concern to the List.
Sec. 126.301 Is there any other way for a concern to obtain
certification?
No. SBA certification is the only way to qualify for HUBZone
program status.
Sec. 126.302 When may a concern apply for certification?
A concern may apply to SBA and submit the required information
whenever it can represent that it meets the eligibility requirements,
subject to Sec. 126.309. All representations and supporting information
contained in the application must be complete and accurate as of the
date of submission. The application must be signed by an officer of the
concern who is authorized to represent the concern.
Sec. 126.303 Where must a concern file its certification?
The concern must file its certification with the AA/HUB, U.S. Small
Business Administration, 409 Third Street, SW, Washington, DC 20416.
Sec. 126.304 What must a concern submit to SBA?
(a) To be certified by SBA as a qualified HUBZone SBC, a concern
must represent to SBA that under the definitions set forth in
Sec. 126.103:
(1) It is a small business concern that is both owned only by
United States citizens and controlled only by United States citizens;
(2) Its principal office is located in a HUBZone;
(3) Not less than 35 percent of its employees reside in a HUBZone;
(4) It will use good faith efforts to ensure that a minimum
percentage of 35 percent of its employees continue to reside in a
HUBZone so long as SBA certifies it as qualified and during the
performance of any contract awarded to it on the basis of its status as
a qualified HUBZone SBC; and
(5) It will ensure that, where it enters into subcontracts to aid
in performance of any prime contracts awarded to it because of its
status as a qualified HUBZone SBC, it will incur not less than a
certain minimum percentage of certain contract costs as set forth in
Sec. 126.700.
(b) If the concern is applying for HUBZone status based on a
location within the external boundaries of an Indian reservation, the
concern must submit with its application for certification official
documentation from the appropriate Bureau of Indian Affairs (BIA) Land
Titles and Records Office with jurisdiction over the concern's area,
confirming that it is located within the external boundaries of an
Indian reservation. BIA lists the Land Titles and Records Offices and
their jurisdiction in 25 CFR 150.4 and 150.5. In cases where BIA is
unable to verify whether the business is located within the external
boundaries of an Indian reservation, applicants should contact the AA/
HUB and SBA will assist them.
(c) In addition to these representations, the concern must submit
the forms, attachments, and any additional information required by SBA.
Sec. 126.305 What format must the certification to SBA take?
A concern must submit the required information in either a written
or electronic application form provided by SBA. An electronic
application must be sufficiently authenticated for enforcement
purposes.
Sec. 126.306 How will SBA process the certification?
(a) The AA/HUB is authorized to approve or decline certifications.
SBA will receive and review all certifications, but SBA will not
process incomplete packages. SBA will make its determination within 30
calendar days after receipt of a complete package whenever practicable.
The decision of the AA/HUB is the final agency decision.
(b) SBA will base its certification on facts existing on the date
of submission. SBA, in its sole discretion, may request additional
information or clarification of information contained in the submission
at any time.
(c) If SBA approves the application, SBA will send a written notice
to the
[[Page 31912]]
concern and automatically enter it on the List described in
Sec. 126.307.
(d) A decision to deny eligibility must be in writing and state the
specific reasons for denial.
Sec. 126.307 Where will SBA maintain the List of qualified HUBZone
SBCs?
SBA maintains the List at its Internet website at http://
www.sba.gov/HUB. Requesters also may obtain a copy of the List by
writing to the AA/HUB at U.S. Small Business Administration, 409 Third
Street, SW, Washington, DC 20416 or via e-mail at [email protected].
Sec. 126.308 What happens if SBA inadvertently omits a qualified
HUBZone SBC from the List?
A HUBZone SBC that has received SBA's notice of certification, but
is not on the List within 10 business days thereafter should
immediately notify the AA/HUB in writing at U.S. Small Business
Administration, 409 Third Street, SW, Washington, DC 20416 or via e-
mail at [email protected]. The concern must appear on the List to be
eligible for HUBZone contracts.
Sec. 126.309 How may a declined or de-certified concern seek
certification at a later date?
A concern that SBA has declined or de-certified may seek
certification no sooner than one year from the date of decline or de-
certification if it believes that it has overcome all reasons for
decline through changed circumstances, and is currently eligible.
Subpart D--Program Examinations
Sec. 126.400 Who will conduct program examinations?
SBA field staff or others designated by the AA/HUB will conduct
program examinations.
Sec. 126.401 What will SBA examine?
(a) Eligibility. Examiners will verify that the qualified HUBZone
SBC met the requirements set forth in Sec. 126.200 at the time of its
application for certification and at the time of examination.
(b) Scope of review. Examiners may review any information related
to the HUBZone SBC qualifying requirements, including documentation
related to the location and ownership of the concern, the employee
percentage requirements, and the concern's attempt to maintain this
percentage. The qualified HUBZone SBC must document each employee's
residence address through employment records. The examiner also may
review property tax, public utility or postal records, and other
relevant documents. The concern must retain documentation demonstrating
satisfaction of the employee residence and other qualifying
requirements for 6 years from date of submission to SBA.
Sec. 126.402 When may SBA conduct program examinations?
SBA may conduct a program examination at the time the concern
certifies to SBA that it meets the requirements of the program or at
any other time while the concern is on the List or subsequent to
receipt of HUBZone contract benefits. For example, SBA may conduct a
program examination to verify eligibility upon notification of a
material change under Sec. 126.501. Additionally, SBA, in its sole
discretion, may perform random program examinations to determine
continuing compliance with program requirements, or it may conduct a
program examination in response to credible information calling into
question the HUBZone status of a small business concern. For protests
to the HUBZone status of a small business concern in regard to a
particular procurement, see Sec. 126.800.
Sec. 126.403 May SBA require additional information from a HUBZone
SBC?
Yes. At the discretion of the AA/HUB, SBA has the right to require
that a HUBZone SBC submit additional information as part of the
certification process, or at any time thereafter. If SBA finds a
HUBZone SBC is not qualified, SBA will de-certify the concern and
delete its name from the List. SBA may choose to pursue penalties
against any concern that has made material misrepresentations in its
submissions to SBA in accordance with Sec. 126.900.
Sec. 126.404 What happens if SBA is unable to verify a qualified
HUBZone SBC's eligibility?
(a) Authorized SBA headquarters personnel will first notify the
concern in writing of the reasons why it is no longer eligible.
(b) The concern will have 10 business days from the date that it
receives notification to respond.
(c) The AA/HUB will consider the reasons for proposed de-
certification and the concern's response before making a decision
whether to de-certify. The AA/HUB's decision is the final agency
decision.
Sec. 126.405 What happens if SBA verifies eligibility?
If SBA verifies that the concern is eligible, it will amend the
date of certification on the List to reflect the date of verification.
Subpart E--Maintaining Hubzone Status
Sec. 126.500 How does a qualified HUBZone SBC maintain HUBZone status?
(a) Any qualified HUBZone SBC wishing to remain on the List must
self-certify annually to SBA that it remains a qualified HUBZone SBC.
(b) Concerns wishing to remain in the program without any
interruption must self-certify their continued eligibility to SBA
within 30 calendar days after each annual anniversary of their date of
certification. Failure to do so will result in SBA de-certifying the
concern. The concern then would have to submit a new application for
certification under Secs. 126.300 through 126.306.
(c) The self-certification to SBA must be in writing and must
represent that the circumstances relative to eligibility which existed
on the date of certification showing on the List have not materially
changed.
Sec. 126.501 What are a qualified HUBZone SBC's ongoing obligations to
SBA?
The concern must immediately notify SBA of any material change
which could affect its eligibility. The notification must be in
writing, and must be sent or delivered to the AA/HUB to comply with
this requirement. Failure of a qualified HUBZone SBC to notify SBA of
such a material change will result in immediate de-certification and
removal from the List, and SBA may seek the imposition of penalties
under Sec. 126.900. If the concern later becomes eligible for the
program, the concern must apply for certification pursuant to
Secs. 126.300 through 126.309 and must include with its application for
certification a full explanation of why it failed to notify SBA of the
material change. If SBA is not satisfied with the explanation provided,
SBA may decline to certify the concern pursuant to Sec. 126.306.
Sec. 126.502 Is there a limit to the length of time a qualified
HUBZone SBC may be on the List?
There is no limit to the length of time a qualified HUBZone SBC may
remain on the List so long as it continues to follow the provisions of
Secs. 126.200, 126.500, and 126.501.
Sec. 126.503 When is a concern removed from the List?
If SBA determines at any time that a HUBZone SBC is not qualified,
SBA may de-certify the HUBZone SBC, remove the concern from the List,
and seek imposition of penalties pursuant to Sec. 126.900. An adverse
finding in the resolution of a protest also may result in de-
certification and removal from the
[[Page 31913]]
List, and the imposition of penalties pursuant to Sec. 126.900. Failure
to notify SBA of a material change which could affect a concern's
eligibility will result in immediate de-certification, removal from the
List, and SBA may seek the imposition of penalties under Sec. 126.900.
Subpart F--Contractual Assistance
Sec. 126.600 What are HUBZone contracts?
HUBZone contracts are contracts awarded to a qualified HUBZone SBC
through any of the following procurement methods:
(a) Sole source awards to qualified HUBZone SBCs;
(b) Set-aside awards based on competition restricted to qualified
HUBZone SBCs; or
(c) Awards to qualified HUBZone SBCs through full and open
competition after a price evaluation preference in favor of qualified
HUBZone SBCs.
Sec. 126.601 What additional requirements must a qualified HUBZone SBC
meet to bid on a contract?
(a) In order to submit an offer on a specific HUBZone contract, a
concern must be small under the size standard corresponding to the SIC
code assigned to the contract.
(b) At the time a qualified HUBZone SBC submits its offer on a
specific contract, it must certify to the contracting officer that
(1) It is a qualified HUBZone SBC which appears on SBA's List;
(2) There has been no material change in its circumstances since
the date of certification shown on the List which could affect its
HUBZone eligibility; and
(3) It is small under the SIC code assigned to the procurement.
(c) If bidding as a joint venture, each qualified HUBZone SBC must
make the certifications in paragraphs (b)(1), (2), and (3) of this
section separately under its own name.
(d) A qualified HUBZone SBC which is a non-manufacturer may submit
an offer on a contract for supplies if it meets the requirements under
the non-manufacturer rule as defined in Sec. 121.406(b) of this title
and if the small manufacturer is also a qualified HUBZone SBC.
Sec. 126.602 Must a qualified HUBZone SBC maintain the employee
residency percentage during contract performance?
The qualified HUBZone SBC must attempt to maintain the required
percentage of employees who reside in a HUBZone during the performance
of any contract awarded to the concern on the basis of HUBZone status.
``Attempt to maintain'' means making substantive and documented efforts
to maintain that percentage such as written offers of employment,
published advertisements seeking employees, and attendance at job
fairs. HUBZone contracts are described more fully in Sec. 126.600.
Enforcement of this paragraph will be the responsibility of SBA, which
will monitor the requirement in accordance with Secs. 126.400 through
126.405.
Sec. 126.603 Does HUBZone certification guarantee receipt of HUBZone
contracts?
No. Qualified HUBZone SBCs should market their capabilities to
appropriate procuring agencies in order to increase their prospects of
having a requirement set aside for HUBZone contract award.
Sec. 126.604 Who decides if a contract opportunity for HUBZone set-
aside competition exists?
The contracting officer for the contracting activity makes this
decision.
Sec. 126.605 What requirements are not available for HUBZone
contracts?
A contracting activity may not make a requirement available for a
HUBZone contract if:
(a) The contracting activity otherwise would fulfill that
requirement through award to Federal Prison Industries, Inc. under 18
U.S.C. 4124 or 4125, or to Javits-Wagner-O'Day Act participating non-
profit agencies for the blind and severely disabled, under 41 U.S.C. 46
et seq., as amended; or
(b) An 8(a) participant currently is performing that requirement or
SBA has accepted that requirement for performance under the authority
of the section 8(a) program, unless SBA has consented to release of the
requirement from the section 8(a) program; or
(c) The requirement is at or below the micropurchase threshold.
Sec. 126.606 May a contracting officer request that SBA release an
8(a) requirement for award as a HUBZone contract?
Yes. However, SBA will grant its consent only where neither the
incumbent nor any other 8(a) participant(s) can perform the
requirement, and where the section 8(a) program will not be adversely
affected. The SBA official authorized to grant such consent is the AA/
8(a)BD.
Sec. 126.607 When must a contracting officer set aside a requirement
for qualified HUBZone SBCs?
(a) The contracting officer first must review a requirement to
determine whether it is excluded from HUBZone contracting pursuant to
Sec. 126.605.
(b) The contracting officer must identify qualified HUBZone 8(a)
concerns and other 8(a) concerns. The contracting officer must give
first priority to qualified HUBZone 8(a) concerns.
(c) After determining that neither paragraph (a) or (b) of this
section apply, the contracting officer must set aside the requirement
for competition restricted to qualified HUBZone SBCs if the contracting
officer:
(1) Has a reasonable expectation, after reviewing SBA's list of
qualified HUBZone SBCs that at least two responsible qualified HUBZone
SBCs will submit offers; and
(2) Determines that award can be made at fair market price.
Sec. 126.608 Are there HUBZone contracting opportunities below the
simplified acquisition threshold?
Yes. If the requirement is below the simplified acquisition
threshold, the contracting officer should set-aside the requirement for
consideration among qualified HUBZone SBCs using simplified acquisition
procedures.
Sec. 126.609 What must the contracting officer do if a contracting
opportunity does not exist for competition among qualified HUBZone
SBCs?
If a contract opportunity for competition among qualified SBCs does
not exist under the provisions of Sec. 126.607, the contracting officer
must first consider the possibility of making an award to a qualified
HUBZone SBC on a sole source basis, and then to a small business under
small business set-aside procedures, in that order of precedence. If
the criteria are not met for any of these special contracting
authorities, then the contracting officer may solicit the procurement
through another appropriate contracting method.
Sec. 126.610 May SBA appeal a contracting officer's decision not to
reserve a procurement for award as a HUBZone contract?
The Administrator may appeal a contracting officer's decision not
to make a particular requirement available for award as a HUBZone sole
source or a HUBZone set-aside contract.
Sec. 126.611 What is the process for such an appeal?
(a) Notice of appeal. When the contracting officer rejects a
recommendation by SBA's Procurement Center Representative to make a
requirement available for award as a HUBZone contract, he or she must
notify the Procurement Center Representative as soon as practicable. If
the Administrator intends to appeal the decision, SBA must notify the
contracting officer no later than five business days after receiving
notice of the contracting officer's decision.
[[Page 31914]]
(b) Suspension of action. Upon receipt of notice of SBA's intent to
appeal, the contracting officer must suspend further action regarding
the procurement until the head of the contracting activity issues a
written decision on the appeal, unless the head of the contracting
activity makes a written determination that urgent and compelling
circumstances which significantly affect the interests of the United
States compel award of the contract.
(c) Deadline for appeal. Within 15 business days of SBA's
notification to the contracting officer, SBA must file its formal
appeal with the head of the contracting activity or that agency may
consider the appeal withdrawn.
(d) Decision. The contracting activity must specify in writing the
reasons for a denial of an appeal brought under this section.
Sec. 126.612 When may a contracting officer award sole source
contracts to a qualified HUBZone SBC?
A contracting officer may award a sole source contract to a
qualified HUBZone SBC only when the contracting officer determines
that:
(a) None of the provisions of Secs. 126.605 or 126.607 apply;
(b) The anticipated award price of the contract, including options,
will not exceed:
(1) $5,000,000 for a requirement within the SIC codes for
manufacturing; or
(2) $3,000,000 for a requirement within all other SIC codes;
(c) Two or more qualified HUBZone SBCs are not likely to submit
offers;
(d) A qualified HUBZone SBC is a responsible contractor able to
perform the contract; and
(e) Contract award can be made at a fair and reasonable price.
Sec. 126.613 How does a price evaluation preference affect the bid of
a qualified HUBZone SBC in full and open competition?
Where a contracting officer will award a contract on the basis of
full and open competition, the contracting officer must deem the price
offered by a qualified HUBZone SBC to be lower than the price offered
by another offeror (other than another small business concern) if the
price offered by the qualified HUBZone SBC is not more than 10 percent
higher than the price offered by the otherwise lowest, responsive, and
responsible offeror.
Example: In a full and open competition, a qualified HUBZone SBC
submits an offer of $98; another small business concern submits an
offer of $100; and a large business submits an offer of $93. The
lowest, responsive, responsible offeror would be the large business.
However, the contracting officer must apply the HUBZone price
evaluation preference. If the qualified HUBZone SBC's offer is not
more than 10 percent higher than the large business's offer, the
contracting officer must deem the qualified HUBZone SBC's price as
lower than the price of the large business. In this example, the
qualified HUBZone SBC's price is not more than 10 percent higher
than the large business's price and, consequently, the qualified
HUBZone SBC displaces the large business as the lowest, responsive,
and responsible offeror. If the HUBZone SBC offer were $101, the
award would go to the large business at $93. If the HUBZone SBC will
not benefit from the preference, the preference is not applied to
change an offer.
Sec. 126.614 How does a contracting officer treat a concern that is
both a qualified HUBZone SBC and an SDB in a full and open competition?
A concern that is both a qualified HUBZone SBC and an SDB must
receive the benefit of both the HUBZone price evaluation preference
described in Sec. 126.614 and the SDB price evaluation preference
described in 10 U.S.C. 2323 and the Federal Acquisition Streamlining
Act, section 7102(a)(1)(B), Public Law 103-355, in a full and open
competition.
Sec. 126.615 May a large business participate on a HUBZone contract?
A large business may not participate as a prime contractor on a
HUBZone award but may participate as a subcontractor to an otherwise
qualified HUBZone SBC, subject to the contract performance requirements
set forth in Sec. 126.700.
Sec. 126.616 What requirements must a joint venture satisfy to bid on
a HUBZone contract?
A joint venture may bid on a HUBZone contract if the joint venture
meets all of the following requirements:
(a) HUBZone joint venture. A qualified HUBZone SBC may enter into a
joint venture with one or more other qualified HUBZone SBCs, 8(a)
participants, or WOBs for the purpose of performing a specific HUBZone
contract.
(b) Size of concerns. A joint venture of at least one qualified
HUBZone SBC and an 8(a) participant or a woman-owned small business
concern may submit an offer for a HUBZone contract so long as each
concern is small under the size standard corresponding to the SIC code
assigned to the contract, provided:
(1) For a procurement having a revenue-based size standard, the
procurement exceeds half the size standard corresponding to the SIC
code assigned to the contract; and
(2) For a procurement having an employee-based size standard, the
procurement exceeds $10 million.
(c) Performance of work. The aggregate of the qualified HUBZone
SBCs to the joint venture, not each concern separately, must perform
the applicable percentage of work required by Sec. 126.700.
Subpart G--Contract Performance Requirements
Sec. 126.700 What are the subcontracting percentages requirements
under this program?
(a) Subcontracting percentage requirements. A qualified HUBZone SBC
prime contractor can subcontract part of a HUBZone contract provided:
(1) In the case of a contract for services (except construction),
the qualified HUBZone SBC spends at least 50 percent of the cost of the
contract performance incurred for personnel on the concern's employees
or on the employees of other qualified HUBZone SBCs;
(2) In the case of a contract for general construction, the
qualified HUBZone SBC spends at least 15 percent of the cost of
contract performance incurred for personnel on the concern's employees
or the employees of other qualified HUBZone SBCs;
(3) In the case of a contract for construction by special trade
contractors, the qualified HUBZone SBC spends at least 25 percent of
the cost of contract performance incurred for personnel on the
concerns' employees or the employees of other qualified HUBZone SBCs;
and
(4) In the case of a contract for procurement of supplies (other
than a procurement from a regular dealer in such supplies) the
qualified HUBZone SBC spends at least 50 percent of the manufacturing
cost (excluding the cost of materials) on performing the contract in a
HUBZone. One or more qualified HUBZone SBCs may combine to meet this
subcontracting percentage requirement.
(b) Definitions. Many definitions applicable to this section can be
found in Sec. 125.6 of this title.
Sec. 126.701 Can these subcontracting percentages requirements
change?
Yes. The Administrator may change the subcontracting percentage
requirements if the Administrator determines that such action is
necessary to reflect conventional industry practices.
[[Page 31915]]
Sec. 126.702 How can the subcontracting percentage requirements be
changed?
Representatives of a national trade or industry group (as defined
by two-digit Major Group industry codes) may request a change in
subcontracting percentage requirements for that industry. Changes in
subcontracting percentage requirements may be requested only for
categories defined by two-digit Major Group industry codes in the
Standard Industry Classification (SIC) Code system. SBA will not
consider requests from anyone other than a representative of a national
trade or industry group or requests for changes for four-digit SIC Code
categories.
Sec. 126.703 What are the procedures for requesting changes in
subcontracting percentages?
(a) Format of request. There is no prescribed format, but the
requester should try to demonstrate to the Administrator that a change
in percentage is necessary to reflect conventional industry practices,
and should support its request with information including, but not
limited to:
(1) Information relative to the economic conditions and structure
of the entire national industry;
(2) Market data, technical changes in the industry and industry
trends;
(3) Specific reasons and justifications for the change in the
subcontracting percentage;
(4) The effect such a change would have on the federal procurement
process; and
(5) Information demonstrating how the proposed change would promote
the purposes of the HUBZone Program.
(b) Notice to public. Upon an adequate preliminary showing to SBA,
SBA will publish in the Federal Register a notice of its receipt of a
request that it consider a change in the subcontracting percentage
requirements for a particular industry for HUBZone contracts. The
notice will identify the group making the request, and give the public
an opportunity to submit to the Administrator information and arguments
in both support and opposition.
(c) Comments. Once SBA has published a notice in the Federal
Register, it will afford a period of not less than 60 days for public
comment.
(d) Decision. SBA will render its decision after the close of the
comment period. If it decides against a change, it will publish notice
of its decision in the Federal Register. Concurrent with the notice,
SBA will advise the requester of its decision in writing. If it decides
in favor of a change, SBA will propose an appropriate change to this
part in accordance with proper rulemaking procedures.
Subpart H--Protests
Sec. 126.800 Who may protest the status of a qualified HUBZone SBC?
(a) For sole source procurements. SBA or the contracting officer
may protest the proposed awardee's qualified HUBZone SBC status.
(b) For all other procurements. Any interested party may protest
the apparent successful offeror's qualified HUBZone SBC status.
Sec. 126.801 How does one file a HUBZone status protest?
(a) General. The protest procedures described in this part are
separate from those governing size protests and appeals. All protests
relating to whether a qualified HUBZone SBC is a ``small'' business for
purposes of any Federal program are subject to part 121 of this title
and must be filed in accordance with that part. If a protester protests
both the size of the HUBZone SBC and whether the concern meets the
HUBZone qualifying requirements set forth in Sec. 126.200, SBA will
process each protest concurrently, under the procedures set forth in
part 121 of this title and this part.
(b) Format. Protests must be in writing and state all specific
grounds for the protest. A protest merely asserting that the protested
concern is not a qualified HUBZone SBC, without setting forth specific
facts or allegations, is insufficient.
(c) Filing. (1) An interested party other than a contracting
officer or SBA must submit its written protest to the contracting
officer.
(2) A contracting officer and SBA must submit their protest to the
AA/HUB.
(3) Protestors may deliver their protests in person, by facsimile,
by express delivery service, or by U.S. mail (postmarked within the
applicable time period).
(d) Timeliness. (1) An interested party must submit its protest by
close of business on the fifth business day after bid opening (in
sealed bid acquisitions) or by close of business on the fifth business
day after notification by the contracting officer of the apparent
successful offeror (in negotiated acquisitions).
(2) Any protest received after the time limits is untimely.
(3) Any protest received prior to bid opening or notification of
intended award, whichever applies, is premature.
(e) Referral to SBA. The contracting officer must forward to SBA
any non-premature protest received, notwithstanding whether he or she
believes it is sufficiently specific or timely. The contracting officer
must send protests to AA/HUB, U.S. Small Business Administration, 409
3rd Street, SW, Washington, DC 20416.
Sec. 126.802 Who decides a HUBZone status protest?
The AA/HUB or designee will determine whether the concern has
qualified HUBZone status.
Sec. 126.803 How will SBA process a HUBZone status protest?
(a) Notice of receipt of protest. (1) SBA immediately will notify
the contracting officer and the protestor of the date SBA receives a
protest and whether SBA will process the protest or dismiss it in
accordance with Sec. 126.804.
(2) If SBA determines the protest is timely and sufficiently
specific, SBA will notify the protested HUBZone SBC of the protest and
the identity of the protestor. The protested HUBZone SBC may submit
information responsive to the protest within 5 business days.
(b) Time period for determination. (1) SBA will determine the
HUBZone status of the protested HUBZone SBC within 15 business days
after receipt of a protest.
(2) If SBA does not contact the contracting officer within 15
business days, the contracting officer may award the contract, unless
the contracting officer has granted SBA an extension.
(3) The contracting officer may award the contract after receipt of
a protest if the contracting officer determines in writing that an
award must be made to protect the public interest.
(c) Notice of determination. SBA will notify the contracting
officer, the protestor, and the protested concern of its determination.
(d) Effect of determination. The determination is effective
immediately and is final unless overturned on appeal by the ADA/
GC&8(a)BD, pursuant to Sec. 126.805. If SBA upholds the protest, SBA
will de-certify the concern as a qualified HUBZone SBC. If SBA denies
the protest, after considering the merits of the protest, SBA will
amend the date of certification on the List to reflect the date of
protest decision.
Sec. 126.804 Will SBA decide all HUBZone status protests?
SBA will decide all protests not dismissed as premature, untimely
or non-specific.
[[Page 31916]]
Sec. 126.805 What are the procedures for appeals of HUBZone status
determinations?
(a) Who may appeal. The protested HUBZone SBC, the protestor, or
the contracting officer may file appeals of protest determinations with
SBA's ADA/GC&8(a)BD.
(b) Timeliness of appeal. SBA's ADA/GC&8(a)BD must receive the
appeal no later than 5 business days after the date of receipt of the
protest determination. SBA will dismiss any appeal received after the
five-day period.
(c) Method of Submission. The party appealing the decision may
deliver its appeal in person, by facsimile, by express delivery
service, or by U.S. mail (postmarked within the applicable time
period).
(d) Notice of appeal. The party bringing an appeal must provide
notice of the appeal to the contracting activity contracting officer
and either the protested HUBZone SBC or original protestor, as
appropriate.
(e) Grounds for appeal. (1) SBA will re-examine a protest
determination only if there was a clear and significant error in the
processing of the protest or if the AA/HUB failed completely to
consider a significant fact contained within the information supplied
by the protestor or the protested HUBZone SBC.
(2) SBA will not consider additional information or changed
circumstances that were not disclosed at the time of the AA/HUB's
decision or that are based on disagreement with the findings and
conclusions contained in the determination.
(f) Contents of appeal. The appeal must be in writing. The appeal
must identify the protest determination being appealed and set forth a
full and specific statement as to why the decision is erroneous or what
significant fact the AA/HUB failed to consider.
(g) Completion of appeal after award. An appeal may proceed to
completion even after award of the contract that prompted the protest,
if so desired by the protested HUBZone SBC, or where SBA determines
that a decision on appeal is meaningful.
(h) Decision. The ADA/GC&8(a)BD will make its decision within 5
business days of its receipt, if practicable, and will base its
decision only on the information and documentation in the protest
record as supplemented by the appeal. SBA will provide a copy of the
decision to the contracting officer, the protestor, and the protested
HUBZone SBC, consistent with law. The ADA/GC&8(a)BD's decision is the
final agency decision.
Subpart I--Penalties
Sec. 126.900 What penalties may be imposed under this part?
(a) Suspension or debarment. The Agency debarring official may
suspend or debar a person or concern pursuant to the procedures set
forth in part 145 of this title. The contracting agency debarring
official may debar or suspend a person or concern under the Federal
Acquisition Regulation, 48 CFR Part 9, subpart 9.4.
(b) Civil penalties. Persons or concerns are subject to civil
remedies under the False Claims Act, 31 U.S.C. 3729-3733, and under the
Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, and any other
applicable laws.
(c) Criminal penalties. Persons or concerns are subject to severe
criminal penalties for knowingly misrepresenting the HUBZone status of
a small business concern in connection with procurement programs
pursuant to section 16(d) of the Small Business Act, 15 U.S.C. 645(d),
as amended; 18 U.S.C. 1001; and 31 U.S.C. 3729-3733. Persons or
concerns also are subject to criminal penalties for knowingly making
false statements or misrepresentations to SBA for the purpose of
influencing any actions of SBA pursuant to section 16(a) of the Small
Business Act, 15 U.S.C. 645(a), as amended, including failure to
correct ``continuing representations'' that are no longer true.
Dated: June 5, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 98-15581 Filed 6-10-98; 8:45 am]
BILLING CODE 8025-01-P