[Federal Register Volume 66, Number 12 (Thursday, January 18, 2001)]
[Rules and Regulations]
[Pages 4643-4645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1543]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 126
HUBZone Program
AGENCY: Small Business Administration.
ACTION: Final rule.
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SUMMARY: This final rule amends the regulations governing the HUBZone
Empowerment Contracting Program (HUBZone program). In particular, this
rule clarifies the application of the HUBZone program to state and
local governments, revises the definition of the term ``principal
office,'' eliminates the program eligibility restrictions on allowable
affiliations of HUBZone small business concerns, and eases the program
eligibility requirements and procurement restrictions concerning
qualified HUBZone small business concerns that operate as non-
manufacturers.
DATES: This rule is effective on February 20, 2001.
FOR FURTHER INFORMATION CONTACT: Michael McHale, Associate
Administrator for the HUBZone Program, (202) 205-6731 or
[email protected].
SUPPLEMENTARY INFORMATION: On October 3, 2000, the Small Business
Administration (SBA) published in the Federal Register, 65 FR 58963, a
proposed rule to amend its regulations governing the HUBZone program.
The rule proposed to update the list of Federal agencies covered by the
HUBZone program and clarify that the program does not apply to
contracts awarded by state and local governments. In addition, the rule
proposed to amend the definition of the term principal office to
accommodate service and construction concerns, and to eliminate the
program eligibility restrictions on allowable affiliations of HUBZone
small business concerns (SBCs). Finally, the rule proposed to ease the
program eligibility requirements and procurement restrictions
concerning qualified HUBZone small business concerns that operate as
non-manufacturers. The proposed regulatory amendments were intended to
improve the efficiency and effectiveness of the program in light of
SBA's experience since the effective date of the final regulations
implementing the HUBZone Act of 1997, Title VI of the Small Business
Reauthorization Act of 1997, Public Law 105-135.
Discussion of Comments on the Proposed Rule
SBA received 22 timely comments concerning the proposed amendments.
The vast majority of the comments supported the proposed regulatory
amendments and applauded SBA's efforts to improve and clarify the
HUBZone regulations. In addition to expressing support for the
amendments, a few commenters also recommended some modifications to two
of the
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proposed amendments. As discussed below, SBA carefully considered the
comments and recommendations in developing this final rule. SBA
received a few comments addressing other sections of the HUBZone
regulations. Because this final rule does not involve any of those
sections, SBA does not discuss those comments here but will consider
them for future amendments to the HUBZone regulations.
Four comments addressed SBA's proposal to revise Sec. 126.101, to
add three additional Federal agencies to the list of agencies covered
by the HUBZone Act and to clarify that the program does not apply to
state and local governments. Three of those comments supported those
amendments. One of the four commenters, however, pointed out that
Section 212 of Public Law 106-113, which extended the HUBZone program
to the three Federal agencies that SBA proposed to add to the list, was
effective for the fiscal year ending September 30, 2000. That commenter
also noted that although the current Sec. 126.101(b) makes clear that
after September 30, 2000, the HUBZone program applies to all federal
agencies that hire one or more contracting officers, it may be useful
to retain the current list of covered agencies under Sec. 126.101(a)
because it spells out the program's applicability to HUBZone contracts
awarded prior to September 30, 2000. SBA concurs with that
recommendation and therefore has retained the original Sec. 126.101(a)
without change and has adopted in full a new paragraph (c) to
Sec. 126.101, as proposed on October 3, 2000.
The comments concerning the definition of ``principle office,''
were all supportive of the proposed amendment of that definition in
Sec. 126.103. Under the proposed definition, ``principle office'' would
continue to be defined as the location where the greatest number of the
concern's employees perform their work, except that for concerns whose
primary industry is service or construction, the determination of
``principal office'' would exclude the concern's employees who perform
their work at separate job-site locations to fulfill specific contract
obligations.
In the preamble to the proposed rule, SBA specifically requested
public comments on the proposed employee exclusion provision for the
construction and service industries. Responding commenters strongly
supported that exclusion for firms engaged in the construction and
service industries. They agreed that the current definition of
``principal office'' is appropriate for manufacturing concerns, because
such firms tend to operate with fixed plant, equipment and personnel
tied to one location, but that it did not make sense for service or
construction industries. Accordingly, this final rule adopts the
definition of ``principal office'' as proposed.
With one notable exception, commenters likewise endorsed the
proposed amendment of Sec. 126.204, to eliminate the current
restriction on allowable affiliations of HUBZone SBCs to other
qualified HUBZone SBCs, 8(a) Business Development program participants
and women-owned small businesses. The one objecting commenter expressed
concern that the proposed change would make it easier for large
businesses to set up ``store-front'' affiliates to abuse the program.
SBA disagrees. The proposed amendment to Sec. 126.204 makes clear that
the size of the HUBZone SBCs when combined with the size of all its
affiliates must qualify as small under part 121 of title 13 of the Code
of Federal Regulations. That requirement safeguards against possible
abuse by large businesses in that regard.
Although supporting the proposed elimination of the existing
restrictions on allowable affiliations, another commenter recommended
that SBA relax the requirements of Sec. 126.204 further by revising the
directive for aggregating the size of the HUBZone SBC and its
affiliates. That commenter suggested that SBA should only aggregate the
``business activity resulting from'' the affiliation. SBA declines to
accept that recommendation. Given the broad definition of affiliation
under Sec. 121.103 of title 13 of the Code of Federal Regulations, it
is not feasible to aggregate only the ``business activity resulting
from'' the affiliation. Further, combining the size of a HUBZone
concern with all its affiliates is consistent with governing size
regulations under part 121, and does not impose undue burden on
otherwise qualified HUBZone SBCs. SBA believes that a finding of
affiliation should have the same consequences in each of SBA's
programs. In other words, a finding of affiliation causes SBA to
aggregate all of the receipts or employees of each of the affiliates.
SBA does not look only at certain types of receipts of a firm's
affiliates, but rather, combines all receipts of an affiliate from
whatever source. SBA believes that that general rule is equally
applicable to the HUBZone program. Consequently, the requirement for
aggregating the size of a HUBZone SBC and all its affiliates is
retained in this final rule.
Finally, SBA received several comments which were supportive of the
proposed amendment to Sec. 126.206 to eliminate the eligibility
requirement that a non-manufacturer demonstrate that it can provide
products manufactured by a qualified HUBZone SBC, and the proposed
amendment to Sec. 126.601(d) to allow qualified HUBZone SBCs that are
non-manufacturers to supply the product of any business for HUBZone
contracts at or below $25,000 in total value. Three of those
commenters, however, requested that SBA adopt a higher maximum
threshold of as high as $100,000 and $250,000. SBA does not believe
that an increase in the proposed $25,000 threshold is justified at this
time, since it would unfairly impact qualified HUBZone SBCs that are
manufacturers. The $25,000 threshold also parallels the regulatory
scheme of the Federal Acquisition Regulation, 48 CFR 19.502-2(c), which
permits small businesses in small business set-asides where the
anticipated cost of the procurement will not exceed $25,000, to provide
the product or products of any domestic firm.
As suggested by one commenter, the final rule makes one
clarification to the provisions regarding HUBZone non-manufacturers. In
both Sec. 126.206 and Sec. 126.601(d), the final rule specifically
references 13 CFR 121.406(b)(1)(i) and (ii), as the applicable
definition of non-manufacturer. Other than that clarification, this
final rule adopts without change the proposed amendments pertaining to
HUBZone non-manufacturers.
Application of the Final Rule
As indicated above, this rule is effective thirty days from the
date of publication. To ensure that applicants to and participants in
the HUBZone program are subject to the same regulatory requirements,
this final rule applies to all HUBZone applications submitted on or
after the effective date of this rule, to all pending HUBZone
applications, and to all currently certified HUBZone SBCs.
Compliance With Executive Orders 12866, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-602)
The Office of Management and Budget (OMB) reviewed this final rule
as a ``significant'' regulatory action under Executive Order 12866.
For purposes of Executive Order 12988, SBA has drafted this rule,
to the extent practicable, in accordance with the standards set forth
in section 3 of that Order.
For purposes of Executive Order 13132, SBA has determined that this
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final rule has no federalism implications warranting the preparation of
a Federalism Assessment.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
has determined that this rule does not impose new reporting or
recordkeeping requirements.
SBA has determined that this final rule may have a significant
beneficial economic impact on a substantial number of small entities
within the meaning of the Regulatory Flexibility Act (RFA), 5 U.S.C.
Sec. 601, et seq. This rule involves revising the definition of
``principal office'' and eliminating certain requirements governing the
allowable affiliations of qualified HUBZone SBCs and SBCs that operate
as non-manufacturers. The rule will affect a large percentage of the
over 30,000 SBCs that SBA believes are now eligible or will become
eligible for certification as qualified HUBZone SBCs over the life of
the program.
Pursuant to the requirements of the RFA, SBA prepared an Initial
Regulatory Flexibility Analysis (IRFA), fully discussing the economic
impact of the amendments on small entities. SBA submitted a copy of the
IRFA to the Chief Counsel for Advocacy of the Small Business
Administration. No comments were submitted in response to the IRFA.
Since this final rule implements the amendments without significant
substantive change, this final rule does not change the nature of the
economic impact of the amendments on small entities, nor alter the
basis of SBA's IRFA. Accordingly, this Final Regulatory Flexibility
Analysis incorporates by reference the entire IRFA. A copy of the Final
Regulatory Flexibility Analysis and IRFA may be obtained by contacting
the Chief Counsel for Advocacy of the Small Business Administration,
(202) 205-6533.
The amendments that are the subject of this rule will affect
primarily those SBCs that participate in Federal procurements, that
have affiliates, or that are non-manufacturers. The amendments will
make it easier for qualified SBCs to participate in the program because
it provides a definition of ``principal office'' that accommodates the
fluid nature of the construction and service industries and it allows
qualified HUBZone SBCs to have any affiliates provided that they,
together with their affiliates, do not exceed their applicable size
standard under part 121 of title 13 of the Code of Federal Regulations.
This final rule also will facilitate the certification of qualified
HUBZone SBCs and open the door to more HUBZone contracts by eliminating
the eligibility requirement that non-manufacturers must demonstrate
that they can supply the goods of a qualified SBC as a prerequisite for
program certification, and by exempting non-manufacturers from making
that showing when submitting offers to supply goods for HUBZone
contracts with a total value of $25,000 or less.
In addition, this final rule does not duplicate, overlap or
conflict with relevant Federal regulations. SBA reviewed several
alternatives to the amendments implemented by this rule and believes
that the amendments are in the best interest of SBCs and the HUBZone
Program.
(Catalog of Federal Domestic Assistance Programs, No. 59,009)
List of Subjects in 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 13 CFR
part 126, as follows:
PART 126--HUBZONE PROGRAM [AMENDED]
1. Revise the authority citation for 13 CFR part 126 to read as
follows:
Authority: 15 U.S.C. 632(a); Pub. L. 105-135 sec. 601 et seq.,
111 Stat. 2592.
2. Amend Sec. 126.101 by adding a new paragraph (c) to read as
follows:
Sec. 126.101 Which government departments or agencies are affected
directly by the HUBZone program?
* * * * *
(c) The HUBZone program does not apply to contracts awarded by
state and local governments. However, state and local governments may
use the List of qualified HUBZone SBCs to identify qualified HUBZone
SBCs for similar programs authorized under state or local law.
3. Amend Sec. 126.103 to revise the definition of ``principal
office'' to read as follows:
Sec. 126.103 What definitions are important in the HUBZone program?
* * * * *
Principal office means the location where the greatest number of
the concern's employees at any one location perform their work.
However, for those concerns whose ``primary industry'' (see 13 CFR
121.107) is service or construction (see 13 CFR 121.201), the
determination of principal office excludes the concern's employees who
perform the majority of their work at job-site locations to fulfill
specific contract obligations.
* * * * *
4. Revise Sec. 126.204 to read as follows:
Sec. 126.204 May a qualified HUBZone SBC have affiliates?
A concern may have affiliates provided that the aggregate size of
the concern and all its affiliates is small as defined in part 121 of
this title.
5. Revise Sec. 126.206 to read as follows:
Sec. 126.206 May non-manufacturers be certified as qualified HUBZone
SBCs?
Non-manufacturers (referred to in the HUBZone Act of 1997 as
``regular dealers'') may be certified as qualified HUBZone SBCs if they
meet all of the requirements set forth in Sec. 126.200. For purposes of
this part, a ``non-manufacturer'' is defined in Sec. 121.406(b)(1)(i)
and (ii) of this title.
6. Amend Sec. 126.601 by revising paragraph (d) to read as follows:
Sec. 126.601 What additional requirements must a qualified HUBZone SBC
meet to bid on a contract?
* * * * *
(d) A qualified HUBZone SBC which is a non-manufacturer may submit
an offer on a HUBZone contract for supplies if it meets the
requirements of the non-manufacturer rule set forth at
Sec. 121.406(b)(1)(i) and (ii) of this title, and if the small
manufacturer providing the end item for the contract is also a
qualified HUBZone SBC. However, for HUBZone contracts at or below
$25,000 in total value, a qualified HUBZone SBC may supply the end item
of any manufacturer, including a large business.
Dated: January 10, 2001.
Aida Alvarez,
Administrator.
[FR Doc. 01-1543 Filed 1-17-01; 8:45 am]
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