[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR124]
[Page 361-422]
TITLE 13--BUSINESS CREDIT AND ASSISTANCE
CHAPTER I--SMALL BUSINESS ADMINISTRATION
PART 124_8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS STATUS
DETERMINATIONS
Subpart A_8(a) Business Development
Provisions of General Applicability
Sec.
124.1 What is the purpose of the 8(a) Business Development program?
124.2 What length of time may a business participate in the 8(a) BD
program?
124.3 What definitions are important in the 8(a) BD program?
Eligibility Requirements for Participation in the 8(a) Business
Development Program
124.101 What are the basic requirements a concern must meet for the 8(a)
BD program?
124.102 What size business is eligible to participate in the 8(a) BD
program?
124.103 Who is socially disadvantaged?
124.104 Who is economically disadvantaged?
124.105 What does it mean to be unconditionally owned by one or more
disadvantaged individuals?
124.106 When do disadvantaged individuals control an applicant or
Participant?
124.107 What is potential for success?
124.108 What other eligibility requirements apply for individuals or
businesses?
124.109 Do Indian tribes and Alaska Native Corporations have any special
rules for applying to the 8(a) BD program?
124.110 Do Native Hawaiian Organizations have any special rules for
applying to the 8(a) BD program?
124.111 Do Community Development Corporations (CDCs) have any special
rules for applying to the 8(a) BD program?
124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
Applying to the 8(a) BD Program
124.201 May any business submit an application?
124.202 Where must an application be filed?
124.203 What must a concern submit to apply to the 8(a) BD program?
124.204 How does SBA process applications for 8(a) BD program admission?
124.205 Can an applicant ask SBA to reconsider SBA's initial decision to
decline its application?
124.206 What appeal rights are available to an applicant that has been
denied admission?
124.207 Can an applicant reapply for admission to the 8(a) BD program?
Exiting the 8(a) BD Program
124.301 What are the ways a business may leave the 8(a) BD program?
124.302 What is early graduation?
124.303 What is termination?
124.304 What are the procedures for early graduation and termination?
124.305 What is suspension and how is a Participant suspended from the
8(a) BD program?
Business Development
124.401 Which SBA field office services a Participant?
[[Page 362]]
124.402 How does a Participant develop a business plan?
124.403 How is a business plan updated and modified?
124.404 What business development assistance is available to
Participants during the two stages of participation in the
8(a) BD program?
124.405 How does a Participant obtain Federal Government surplus
property?
Contractual Assistance
124.501 What general provisions apply to the award of 8(a) contracts?
124.502 How does an agency offer a procurement to SBA for award through
the 8(a) BD program?
124.503 How does SBA accept a procurement for award through the 8(a) BD
program?
124.504 What circumstances limit SBA's ability to accept a procurement
for award as an 8(a) contract?
124.505 When will SBA appeal the terms or conditions of a particular
8(a) contract or a procuring activity decision not to reserve
a requirement for the 8(a) BD program?
124.506 At what dollar threshold must an 8(a) procurement be competed
among eligible Participants?
124.507 What procedures apply to competitive 8(a) procurements?
124.508 How is an 8(a) contract executed?
124.509 What are non-8(a) business activity targets?
124.510 What percentage of work must a Participant perform on an 8(a)
contract?
124.511 How is fair market price determined for an 8(a) contract?
124.512 Delegation of contract administration to procuring agencies.
124.513 Under what circumstances can a joint venture be awarded an 8(a)
contract?
124.514 Exercise of 8(a) options and modifications.
124.515 Can a Participant change its ownership or control and continue
to perform an 8(a) contract, and can it transfer performance
to another firm?
124.516 Who decides contract disputes arising between a Participant and
a procuring activity after the award of an 8(a) contract?
124.517 Can the eligibility or size of a Participant for award of an
8(a) contract be questioned?
124.518 How can an 8(a) contract be terminated before performance is
completed?
124.519 Are there any dollar limits on the amount of 8(a) contracts that
a Participant may receive?
124.520 Mentor/Protege program.
Miscellaneous Reporting Requirements
124.601 What reports does SBA require concerning parties who assist
Participants in obtaining federal contracts?
124.602 What kind of annual financial statement must a Participant
submit to SBA?
124.603 What reports regarding the continued business operations of
former Participants does SBA require?
Management and Technical Assistance Program
124.701 What is the purpose of the 7(j) management and technical
assistance program?
124.702 What types of assistance are available through the 7(j) program?
124.703 Who is eligible to receive 7(j) assistance?
124.704 What additional management and technical assistance is reserved
exclusively for concerns eligible to receive 8(a) contracts?
Subpart B_Eligibility, Certification, and Protests Relating to Federal
Small Disadvantaged Business Programs
124.1001 General applicability.
124.1002 What is a Small Disadvantaged Business (SDB)?
124.1003 What is a Private Certifier?
124.1004 How does an organization or business concern become a Private
Certifier?
124.1005 Can a fee be charged to a firm to process the firm's
application for SDB certification?
124.1006 Is there a list of Private Certifiers?
124.1007 How long may an organization or business concern be a Private
Certifier?
124.1008 How does a firm become certified as an SDB?
124.1009 How does a firm appeal a decision of a Private Certifier?
124.1010 Can a firm represent itself to be an SDB if it has not yet been
certified as an SDB?
124.1011 What is a misrepresentation of SDB status?
124.1012 Can a firm reapply for SDB certification?
124.1013 Is there a list of certified SDBs?
124.1014 How long does an SDB certification last?
124.1015 What is the effect of receiving an SDB certification?
124.1016 Can SBA re-evaluate the SDB status of a firm after SBA
certifies it to be SDB?
124.1017 Who may protest the disadvantaged status of a concern?
124.1018 When will SBA not decide an SDB protest?
124.1019 Who decides disadvantaged status protests?
[[Page 363]]
124.1020 What procedures apply to disadvantaged status protests?
124.1021 What format, degree of specificity, and basis does SBA require
to consider an SDB protest?
124.1022 What will SBA do when it receives an SDB protest?
124.1023 How does SBA make disadvantaged status determinations in
considering an SDB protest?
124.1024 Appeals of disadvantaged status determinations.
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub. L.
99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L. 101-574, and
42 U.S.C. 9815.
Subpart A_8(a) Business Development
Source: 63 FR 35739, June 30, 1998, unless otherwise noted.
Provisions of General Applicability
Sec. 124.1 What is the purpose of the 8(a) Business Development
program?
Sections 8(a) and 7(j) of the Small Business Act authorize a
Minority Small Business and Capital Ownership Development program
(designated the 8(a) Business Development or ``8(a) BD'' program for
purposes of the regulations in this part). The purpose of the 8(a) BD
program is to assist eligible small disadvantaged business concerns
compete in the American economy through business development.
Sec. 124.2 What length of time may a business participate in the 8(a)
BD program?
A Participant receives a program term of nine years from the date of
SBA's approval letter certifying the concern's admission to the program.
The Participant must maintain its program eligibility during its tenure
in the program and must inform SBA of any changes that would adversely
affect its program eligibility. A firm that completes its nine year term
of participation in the 8(a) BD program is deemed to graduate from the
program. The nine year program term may be shortened only by
termination, early graduation or voluntary graduation as provided for in
this subpart.
Sec. 124.3 What definitions are important in the 8(a) BD program?
Alaska Native means a citizen of the United States who is a person
of one-fourth degree or more Alaskan Indian (including Tsimshian Indians
not enrolled in the Metlaktla Indian Community), Eskimo, or Aleut blood,
or a combination of those bloodlines. The term includes, in the absence
of proof of a minimum blood quantum, any citizen whom a Native village
or Native group regards as an Alaska Native if their father or mother is
regarded as an Alaska Native.
Alaska Native Corporation or ANC means any Regional Corporation,
Village Corporation, Urban Corporation, or Group Corporation organized
under the laws of the State of Alaska in accordance with the Alaska
Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.)
Bona fide place of business, for purposes of 8(a) construction
procurements, means a location where a Participant regularly maintains
an office which employs at least one full-time individual within the
appropriate geographical boundary. The term does not include
construction trailers or other temporary construction sites.
Community Development Corporation or CDC means a nonprofit
organization responsible to residents of the area it serves which has
received financial assistance under 42 U.S.C. 9805, et seq.
Concern is defined in part 121 of this title.
Days means calendar days unless otherwise specified.
Day-to-day operations of a firm means the marketing, production,
sales, and administrative functions of the firm.
Immediate family member means father, mother, husband, wife, son,
daughter, brother, sister, grandfather, grandmother, grandson,
granddaughter, father-in-law, and mother-in-law.
Indian tribe means any Indian tribe, band, nation, or other
organized group or community of Indians, including any ANC, which is
recognized as eligible for the special programs and services provided by
the United States to Indians because of their status as Indians, or is
recognized as such by the State in which the tribe, band, nation,
[[Page 364]]
group, or community resides. See definition of ``tribally-owned
concern.''
Native Hawaiian means any individual whose ancestors were natives,
prior to 1778, of the area which now comprises the State of Hawaii.
Native Hawaiian Organization means any community service
organization serving Native Hawaiians in the State of Hawaii which is a
not-for-profit organization chartered by the State of Hawaii, is
controlled by Native Hawaiians, and whose business activities will
principally benefit such Native Hawaiians.
Negative control is defined in part 121 of this title.
Non-disadvantaged individual means any individual who does not claim
disadvantaged status, does not qualify as disadvantaged, or upon whose
disadvantaged status an applicant or Participant does not rely in
qualifying for 8(a) BD program participation.
Participant means a small business concern admitted to participate
in the 8(a) BD program.
Primary industry classification means the four digit Standard
Industrial Classification (SIC) code designation which best describes
the primary business activity of the 8(a) BD applicant or Participant.
The SIC code designations are described in the Standard Industrial
Classification Manual published by the U.S. Office of Management and
Budget.
Principal place of business means the business location where the
individuals who manage the concern's day-to-day operations spend most
working hours and where top management's business records are kept. If
the offices from which management is directed and where the business
records are kept are in different locations, SBA will determine the
principal place of business for program purposes.
Program year means a 12-month period of an 8(a) BD Participant's
program participation. The first program year begins on the date that
the concern is certified to participate in the 8(a) BD program and ends
one year later. Each subsequent program year begins on the Participant's
anniversary of program certification and runs for one 12-month period.
Same or similar line of business means business activities within
the same two-digit ``Major Group'' of the SIC Manual as the primary
industry classification of the applicant or Participant. The phrase
``same business area'' is synonymous with this definition.
Self-marketing of a requirement occurs when a Participant identifies
a requirement that has not been committed to the 8(a) BD program and,
through its marketing efforts, causes the procuring activity to offer
that specific requirement to the 8(a) BD program on the Participant's
behalf. A firm which identifies and markets a requirement which is
subsequently offered to the 8(a) BD program as an open requirement or on
behalf of another Participant has not ``self-marketed'' the requirement
within the meaning of this part.
Tribally-owned concern means any concern at least 51 percent owned
by an Indian tribe as defined in this section.
Unconditional ownership means ownership that is not subject to
conditions precedent, conditions subsequent, executory agreements,
voting trusts, restrictions on or assignments of voting rights, or other
arrangements causing or potentially causing ownership benefits to go to
another (other than after death or incapacity). The pledge or
encumbrance of stock or other ownership interest as collateral,
including seller-financed transactions, does not affect the
unconditional nature of ownership if the terms follow normal commercial
practices and the owner retains control absent violations of the terms.
Eligibility Requirements for Participation in the 8(a) Business
Development Program
Sec. 124.101 What are the basic requirements a concern must meet for
the 8(a) BD program?
Generally, a concern meets the basic requirements for admission to
the 8(a) BD program if it is a small business which is unconditionally
owned and controlled by one or more socially and economically
disadvantaged individuals who are of good character and citizens of the
United States, and which demonstrates potential for success.
[[Page 365]]
Sec. 124.102 What size business is eligible to participate in the 8(a)
BD program?
(a) An applicant concern must qualify as a small business concern as
defined in part 121 of this title. The applicable size standard is the
one for its primary industry classification. The rules for calculating
the size of a tribally-owned concern, a concern owned by an Alaska
Native Corporation, a concern owned by a Native Hawaiian Organization,
or a concern owned by a Community Development Corporation are
additionally affected by Sec. Sec. 124.109, 124.110, and 124.111,
respectively.
(b) If 8(a) BD program officials determine that a concern may not
qualify as small, they may deny an application for 8(a) BD program
admission or may request a formal size determination under part 121 of
this title.
(c) A concern whose application is denied due to size by 8(a) BD
program officials may request a formal size determination under part 121
of this title. A favorable determination will enable the firm to
immediately submit a new 8(a) BD application without waiting one year.
Sec. 124.103 Who is socially disadvantaged?
(a) General. Socially disadvantaged individuals are those who have
been subjected to racial or ethnic prejudice or cultural bias within
American society because of their identities as members of groups and
without regard to their individual qualities. The social disadvantage
must stem from circumstances beyond their control.
(b) Members of designated groups. (1) There is a rebuttable
presumption that the following individuals are socially disadvantaged:
Black Americans; Hispanic Americans; Native Americans (American Indians,
Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans (persons
with origins from Burma, Thailand, Malaysia, Indonesia, Singapore,
Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia
(Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of
the Pacific Islands (Republic of Palau), Republic of the Marshall
Islands, Federated States of Micronesia, the Commonwealth of the
Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati,
Tuvalu, or Nauru); Subcontinent Asian Americans (persons with origins
from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives
Islands or Nepal); and members of other groups designated from time to
time by SBA according to procedures set forth at paragraph (d) of this
section. Being born in a country does not, by itself, suffice to make
the birth country an individual's country of origin for purposes of
being included within a designated group.
(2) An individual must demonstrate that he or she has held himself
or herself out, and is currently identified by others, as a member of a
designated group if SBA requires it.
(3) The presumption of social disadvantage may be overcome with
credible evidence to the contrary. Individuals possessing or knowing of
such evidence should submit the information in writing to the Associate
Administrator for 8(a) BD (AA/8(a)BD) for consideration.
(c) Individuals not members of designated groups. (1) An individual
who is not a member of one of the groups presumed to be socially
disadvantaged in paragraph (b)(1) of this section must establish
individual social disadvantage by a preponderance of the evidence.
(2) Evidence of individual social disadvantage must include the
following elements:
(i) At least one objective distinguishing feature that has
contributed to social disadvantage, such as race, ethnic origin, gender,
physical handicap, long-term residence in an environment isolated from
the mainstream of American society, or other similar causes not common
to individuals who are not socially disadvantaged;
(ii) Personal experiences of substantial and chronic social
disadvantage in American society, not in other countries; and
(iii) Negative impact on entry into or advancement in the business
world because of the disadvantage. SBA will consider any relevant
evidence in assessing this element. In every case, however, SBA will
consider education, employment and business history, where applicable,
to see if the totality
[[Page 366]]
of circumstances shows disadvantage in entering into or advancing in the
business world.
(A) Education. SBA considers such factors as denial of equal access
to institutions of higher education, exclusion from social and
professional association with students or teachers, denial of
educational honors rightfully earned, and social patterns or pressures
which discouraged the individual from pursuing a professional or
business education.
(B) Employment. SBA considers such factors as unequal treatment in
hiring, promotions and other aspects of professional advancement, pay
and fringe benefits, and other terms and conditions of employment;
retaliatory or discriminatory behavior by an employer; and social
patterns or pressures which have channelled the individual into
nonprofessional or non-business fields.
(C) Business history. SBA considers such factors as unequal access
to credit or capital, acquisition of credit or capital under
commercially unfavorable circumstances, unequal treatment in
opportunities for government contracts or other work, unequal treatment
by potential customers and business associates, and exclusion from
business or professional organizations.
(d) Socially disadvantaged group inclusion--(1) General.
Representatives of an identifiable group whose members believe that the
group has suffered chronic racial or ethnic prejudice or cultural bias
may petition SBA to be included as a presumptively socially
disadvantaged group under paragraph (b)(1) of this section. Upon
presentation of substantial evidence that members of the group have been
subjected to racial or ethnic prejudice or cultural bias because of
their identity as group members and without regard to their individual
qualities, SBA will publish a notice in the Federal Register that it has
received and is considering such a request, and that it will consider
public comments.
(2) Standards to be applied. In determining whether a group has made
an adequate showing that it has suffered chronic racial or ethnic
prejudice or cultural bias for the purposes of this section, SBA must
determine that:
(i) The group has suffered prejudice, bias, or discriminatory
practices;
(ii) Those conditions have resulted in economic deprivation for the
group of the type which Congress has found exists for the groups named
in the Small Business Act; and
(iii) Those conditions have produced impediments in the business
world for members of the group over which they have no control and which
are not common to small business owners generally.
(3) Procedure. The notice published under paragraph (d)(1) of this
section will authorize a specified period for the receipt of public
comments supporting or opposing the petition for socially disadvantaged
group status. If appropriate, SBA may hold hearings. SBA may also
conduct its own research relative to the group's petition.
(4) Decision. In making a final decision that a group should be
considered presumptively disadvantaged, SBA must find that a
preponderance of the evidence demonstrates that the group has met the
standards set forth in paragraph (d)(2) of this section based on SBA's
consideration of the group petition, the comments from the public, and
any independent research it performs. SBA will advise the petitioners of
its final decision in writing, and publish its conclusion as a notice in
the Federal Register. If appropriate, SBA will amend paragraph (b)(1) of
this section to include a new group.
Sec. 124.104 Who is economically disadvantaged?
(a) General. Economically disadvantaged individuals are socially
disadvantaged individuals whose ability to compete in the free
enterprise system has been impaired due to diminished capital and credit
opportunities as compared to others in the same or similar line of
business who are not socially disadvantaged.
(b) Submission of narrative and financial information. (1) Each
individual claiming economic disadvantage must describe it in a
narrative statement, and must submit personal financial information.
(2) When married, an individual claiming economic disadvantage also
[[Page 367]]
must submit separate financial information for his or her spouse, unless
the individual and the spouse are legally separated.
(c) Factors to be considered. In considering diminished capital and
credit opportunities, SBA will examine factors relating to the personal
financial condition of any individual claiming disadvantaged status,
including personal income for the past two years (including bonuses and
the value of company stock given in lieu of cash), personal net worth,
and the fair market value of all assets, whether encumbered or not. SBA
will also consider the financial condition of the applicant compared to
the financial profiles of small businesses in the same primary industry
classification, or, if not available, in similar lines of business,
which are not owned and controlled by socially and economically
disadvantaged individuals in evaluating the individual's access to
credit and capital. The financial profiles that SBA compares include
total assets, net sales, pre tax profit, sales/working capital ratio,
and net worth.
(1) Transfers within two years. (i) Except as set forth in paragraph
(c)(1)(ii) of this section, SBA will attribute to an individual claiming
disadvantaged status any assets which that individual has transferred to
an immediate family member, or to a trust a beneficiary of which is an
immediate family member, for less than fair market value, within two
years prior to a concern's application for participation in the 8(a) BD
program or within two years of a Participant's annual program review,
unless the individual claiming disadvantaged status can demonstrate that
the transfer is to or on behalf of an immediate family member for that
individual's education, medical expenses, or some other form of
essential support.
(ii) SBA will not attribute to an individual claiming disadvantaged
status any assets transferred by that individual to an immediate family
member that are consistent with the customary recognition of special
occasions, such as birthdays, graduations, anniversaries, and
retirements.
(iii) In determining an individual's access to capital and credit,
SBA may consider any assets that the individual transferred within such
two-year period described by paragraph (c)(1)(i) of this section that
SBA does not consider in evaluating the individual's assets and net
worth (e.g., transfers to charities).
(2) Net worth. For initial 8(a) BD eligibility, the net worth of an
individual claiming disadvantage must be less than $250,000. For
continued 8(a) BD eligibility after admission to the program, net worth
must be less than $750,000. In determining such net worth, SBA will
exclude the ownership interest in the applicant or Participant and the
equity in the primary personal residence (except any portion of such
equity which is attributable to excessive withdrawals from the applicant
or Participant). Exclusions for net worth purposes are not exclusions
for asset valuation or access to capital and credit purposes.
(i) A contingent liability does not reduce an individual's net
worth.
(ii) The personal net worth of an individual claiming to be an
Alaska Native will include assets and income from sources other than an
Alaska Native Corporation and exclude any of the following which the
individual receives from any Alaska Native Corporation: cash (including
cash dividends on stock received from an ANC) to the extent that it does
not, in the aggregate, exceed $2,000 per individual per annum; stock
(including stock issued or distributed by an ANC as a dividend or
distribution on stock); a partnership interest; land or an interest in
land (including land or an interest in land received from an ANC as a
dividend or distribution on stock); and an interest in a settlement
trust.
Sec. 124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
An applicant or Participant must be at least 51 percent
unconditionally and directly owned by one or more socially and
economically disadvantaged individuals who are citizens of the United
States, except for concerns owned by Indian tribes, Alaska Native
Corporations, Native Hawaiian Organizations, or Community Development
Corporations (CDCs). See Sec. 124.3 for definition of unconditional
ownership; and Sec. Sec. 124.109,
[[Page 368]]
124.110, and 124.111, respectively, for special ownership requirements
for concerns owned by Indian tribes, ANCs, Native Hawaiian
Organizations, and CDCs.
(a) Ownership must be direct. Ownership by one or more disadvantaged
individuals must be direct ownership. An applicant or Participant owned
principally by another business entity or by a trust (including employee
stock ownership trusts) that is in turn owned and controlled by one or
more disadvantaged individuals does not meet this requirement. However,
ownership by a trust, such as a living trust, may be treated as the
functional equivalent of ownership by a disadvantaged individual where
the trust is revocable, and the disadvantaged individual is the grantor,
a trustee, and the sole current beneficiary of the trust.
(b) Ownership of a partnership. In the case of a concern which is a
partnership, at least 51 percent of every class of partnership interest
must be unconditionally owned by one or more individuals determined by
SBA to be socially and economically disadvantaged. The ownership must be
reflected in the concern's partnership agreement.
(c) Ownership of a limited liability company. In the case of a
concern which is a limited liability company, at least 51 percent of
each class of member interest must be unconditionally owned by one or
more individuals determined by SBA to be socially and economically
disadvantaged.
(d) Ownership of a corporation. In the case of a concern which is a
corporation, at least 51 percent of each class of voting stock
outstanding and 51 percent of the aggregate of all stock outstanding
must be unconditionally owned by one or more individuals determined by
SBA to be socially and economically disadvantaged.
(e) Stock options' effect on ownership. In determining unconditional
ownership, SBA will disregard any unexercised stock options or similar
agreements held by disadvantaged individuals. However, any unexercised
stock options or similar agreements (including rights to convert non-
voting stock or debentures into voting stock) held by non-disadvantaged
individuals will be treated as exercised, except for any ownership
interests which are held by investment companies licensed under the
Small Business Investment Act of 1958.
(f) Dividends and distributions. One or more disadvantaged
individuals must be entitled to receive:
(1) At least 51 percent of the annual distribution of dividends paid
on the stock of a corporate applicant concern;
(2) 100 percent of the value of each share of stock owned by them in
the event that the stock is sold; and
(3) At least 51 percent of the retained earnings of the concern and
100 percent of the unencumbered value of each share of stock owned in
the event of dissolution of the corporation.
(g) Ownership of another Participant. The individuals determined to
be disadvantaged for purposes of one Participant, their immediate family
members, and the Participant itself, may not hold, in the aggregate,
more than a 20 percent equity ownership interest in any other single
Participant.
(h) Ownership restrictions for non-disadvantaged individuals and
concerns. (1) A non-disadvantaged individual (in the aggregate with all
immediate family members) or a non-Participant concern that is a general
partner or stockholder with at least a 10 percent ownership interest in
one Participant may not own more than a 10 percent interest in another
Participant that is in the developmental stage or more than a 20 percent
interest in another Participant in the transitional stage of the
program. This restriction does not apply to financial institutions
licensed or chartered by Federal, state or local government, including
investment companies which are licensed under the Small Business
Investment Act of 1958.
(2) A non-Participant concern in the same or similar line of
business may not own more than a 10 percent interest in a Participant
that is in the developmental stage or more than a 20 percent interest in
a Participant in a transitional stage of the program, except that a
former Participant or a principal of a former Participant (except those
that have been terminated from 8(a) BD program participation pursuant to
Sec. Sec. 124.303 and 124.304) may have an equity ownership interest of
up to 20 percent in a current Participant
[[Page 369]]
in the developmental stage of the program or up to 30 percent in a
transitional stage Participant, in the same or similar line of business.
(i) Change of ownership. A Participant may change its ownership or
business structure so long as one or more disadvantaged individuals own
and control it after the change and SBA approves the transaction in
writing prior to the change. The decision to approve or deny a
Participant's request for a change in ownership or business structure
will be made and communicated to the firm by the AA/8(a)BD. The decision
of the AA/8(a)BD is the final decision of the Agency. The AA/8(a)BD will
issue a decision within 60 days from receipt of a request containing all
necessary documentation, or as soon thereafter as possible. If 60 days
lapse without a decision from SBA, the Participant cannot presume that
it can complete the change without written approval from SBA. A decision
to deny a request for change of ownership or business structure may be
grounds for program termination where the change is made nevertheless.
(1) Any Participant that was awarded one or more 8(a) contracts may
substitute one disadvantaged individual for another disadvantaged
individual without requiring the termination of those contracts or a
request for waiver under Sec. 124.515, as long as it receives SBA's
approval prior to the change.
(2) Where the previous owner held less than a 10 percent interest in
the concern, or the transfer results from the death or incapacity due to
a serious, long-term illness or injury of a disadvantaged principal,
prior approval is not required, but the concern must notify SBA within
60 days.
(3) Continued participation of the Participant with new ownership
and the award of any new 8(a) contracts requires SBA's determination
that all eligibility requirements are met by the concern and the new
owners.
(4) Where a Participant requests a change of ownership or business
structure, and proceeds with the change prior to receiving SBA approval
(or where a change of ownership results from the death or incapacity of
a disadvantaged individual for which a request prior to the change in
ownership could not occur), SBA will suspend the Participant from
program benefits pending resolution of the request. If the change is
approved, the length of the suspension will be restored to the
Participant's program term in the case of death or incapacity, or if the
firm requested prior approval and waited 60 days for SBA approval.
(5) A change in ownership does not provide the new owner(s) with a
new 8(a) BD program term. For example, if a concern has been in the 8(a)
BD program for five years when a change in ownership occurs, the new
owner will have four years remaining until program graduation.
(j) Public offering. A Participant's request for SBA's approval for
the issuance of a public offering will be treated as a request for a
change of ownership. Such request will cause SBA to examine the
concern's continued need for access to the business development
resources of the 8(a) BD program.
(k) Community property laws given effect. In determining ownership
interests when an owner resides in any of the community property states
or territories of the United States (Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and
Wisconsin), SBA considers applicable state community property laws. If
only one spouse claims disadvantaged status, that spouse's ownership
interest will be considered unconditionally held only to the extent it
is vested by the community property laws. A transfer or relinquishment
of interest by the non-disadvantaged spouse may be necessary in some
cases to establish eligibility.
Sec. 124.106 When do disadvantaged individuals control an applicant or
Participant?
Control is not the same as ownership, although both may reside in
the same person. SBA regards control as including both the strategic
policy setting exercised by boards of directors and the day-to-day
management and administration of business operations. An applicant or
Participant's management and daily business operations must be conducted
by one or more disadvantaged individuals, except for concerns
[[Page 370]]
owned by Indian tribes, ANCs, Native Hawaiian Organizations, or
Community Development Corporations (CDCs). (See Sec. Sec. 124.109,
124.110, and 124.111, respectively, for the requirements for concerns
owned by Indian tribes or ANCs, for concerns owned by Native Hawaiian
Organizations, and for CDC-owned concerns.) Disadvantaged individuals
managing the concern must have managerial experience of the extent and
complexity needed to run the concern. A disadvantaged individual need
not have the technical expertise or possess a required license to be
found to control an applicant or Participant if he or she can
demonstrate that he or she has ultimate managerial and supervisory
control over those who possess the required licenses or technical
expertise. However, where a critical license is held by a non-
disadvantaged individual having an equity interest in the applicant or
Participant firm, the non-disadvantaged individual may be found to
control the firm.
(a)(1) An applicant or Participant must be managed on a full-time
basis by one or more disadvantaged individuals who possess requisite
management capabilities.
(2) A disadvantaged full-time manager must hold the highest officer
position (usually President or Chief Executive Officer) in the applicant
or Participant.
(3) One or more disadvantaged individuals who manage the applicant
or Participant must devote full-time to the business during the normal
working hours of firms in the same or similar line of business. Work in
a wholly-owned subsidiary of the applicant or participant may be
considered to meet the requirement of full-time devotion. This applies
only to a subsidiary owned by the 8(a) firm, and not to firms in which
the disadvantaged individual has an ownership interest.
(4) Any disadvantaged manager who wishes to engage in outside
employment must notify SBA of the nature and anticipated duration of the
outside employment and obtain the prior written approval of SBA. SBA
will deny a request for outside employment which could conflict with the
management of the firm or could hinder it in achieving the objectives of
its business development plan.
(5) Except as provided in paragraph (d)(1) of this section, a
disadvantaged owner's unexercised right to cause a change in the control
or management of the applicant concern does not in itself constitute
disadvantaged control and management, regardless of how quickly or
easily the right could be exercised.
(b) In the case of a partnership, one or more disadvantaged
individuals must serve as general partners, with control over all
partnership decisions. A partnership in which no disadvantaged
individual is a general partner will be ineligible for participation.
(c) In the case of a limited liability company, one or more
disadvantaged individuals must serve as management members, with control
over all decisions of the limited liability company.
(d) One or more disadvantaged individuals must control the Board of
Directors of a corporate applicant or Participant.
(1) SBA will deem disadvantaged individuals to control the Board of
Directors where:
(i) A single disadvantaged individual owns 100% of all voting stock
of an applicant or Participant concern;
(ii) A single disadvantaged individual owns at least 51% of all
voting stock of an applicant or Participant concern, the individual is
on the Board of Directors and no super majority voting requirements
exist for shareholders to approve corporation actions. Where super
majority voting requirements are provided for in the concern's articles
of incorporation, its by-laws, or by state law, the disadvantaged
individual must own at least the percent of the voting stock needed to
overcome any such super majority voting requirements; or
(iii) More than one disadvantaged shareholder seeks to qualify the
concern (i.e., no one individual owns 51%), each such individual is on
the Board of Directors, together they own at least 51% of all voting
stock of the concern, no super majority voting requirements exist, and
the disadvantaged shareholders can demonstrate that they have made
enforceable arrangements to permit one of them to vote the stock of all
as a block without a shareholder
[[Page 371]]
meeting. Where the concern has super majority voting requirements, the
disadvantaged shareholders must own at least that percentage of voting
stock needed to overcome any such super majority ownership requirements.
(2) Where an applicant or Participant does not meet the requirements
set forth in paragraph (d)(1) of this section, the disadvantaged
individual(s) upon whom eligibility is based must control the Board of
Directors through actual numbers of voting directors or, where permitted
by state law, through weighted voting (e.g., in a concern having a two-
person Board of Directors where one individual on the Board is
disadvantaged and one is not, the disadvantaged vote must be weighted--
worth more than one vote--in order for the concern to be eligible for
8(a) participation). Where a concern seeks to comply with this
paragraph:
(i) Provisions for the establishment of a quorum cannot permit non-
disadvantaged Directors to control the Board of Directors, directly or
indirectly;
(ii) Any Executive Committee of Directors must be controlled by
disadvantaged directors unless the Executive Committee can only make
recommendations to and cannot independently exercise the authority of
the Board of Directors.
(3) An applicant must inform SBA of any super majority voting
requirements provided for in its articles of incorporation, its by-laws,
by state law, or otherwise. Similarly, after being admitted to the
program, a Participant must inform SBA of changes regarding super
majority voting requirements.
(4) Non-voting, advisory, or honorary Directors may be appointed
without affecting disadvantaged individuals' control of the Board of
Directors.
(5) Arrangements regarding the structure and voting rights of the
Board of Directors must comply with applicable state law.
(e) Non-disadvantaged individuals may be involved in the management
of an applicant or Participant, and may be stockholders, partners,
limited liability members, officers, and/or directors of the applicant
or Participant. However, no such non-disadvantaged individual or
immediate family member may:
(1) Exercise actual control or have the power to control the
applicant or Participant;
(2) Be a former employer or a principal of a former employer of any
disadvantaged owner of the applicant or Participant, unless it is
determined by the AA/8(a)BD that the relationship between the former
employer or principal and the disadvantaged individual or applicant
concern does not give the former employer actual control or the
potential to control the applicant or Participant and such relationship
is in the best interests of the 8(a) BD firm; or
(3) Receive compensation from the applicant or Participant in any
form as directors, officers or employees, including dividends, that
exceeds the compensation to be received by the highest officer (usually
CEO or President). The highest ranking officer may elect to take a lower
salary than a non-disadvantaged individual only upon demonstrating that
it helps the applicant or Participant. In the case of a Participant, the
Participant must also obtain the prior written consent of the AA/8(a)BD
or designee before changing the compensation paid to the highest ranking
officer to be below that paid to a non-disadvantaged individual.
(f) Non-disadvantaged individuals who transfer majority stock
ownership or control of the firm to an immediate family member within
two years prior to the application and remain involved in the firm as a
stockholder, officer, director, or key employee of the firm are presumed
to control the firm. The presumption may be rebutted by showing that the
transferee has independent management experience necessary to control
the operation of the firm.
(g) Non-disadvantaged individuals or entities may be found to
control or have the power to control in any of the following
circumstances, which are illustrative only and not all inclusive:
(1) In circumstances where an applicant or Participant seeks to
establish disadvantaged control of the Board of Directors through
paragraph (d)(2) of this section, non-disadvantaged individuals control
the Board of Directors of the applicant or Participant, either
[[Page 372]]
directly through majority voting membership, or indirectly, where the
by-laws allow non-disadvantaged individuals effectively to prevent a
quorum or block actions proposed by the disadvantaged individuals.
(2) A non-disadvantaged individual or entity, having an equity
interest in the applicant or participant, provides critical financial or
bonding support or a critical license to the applicant or Participant
which directly or indirectly allows the non-disadvantaged individual
significantly to influence business decisions of the Participant.
(3) A non-disadvantaged individual or entity controls the applicant
or Participant or an individual disadvantaged owner through loan
arrangements. Providing a loan guaranty on commercially reasonable terms
does not, by itself, give a non-disadvantaged individual or entity the
power to control a firm.
(4) Business relationships exist with non-disadvantaged individuals
or entities which cause such dependence that the applicant or
Participant cannot exercise independent business judgment without great
economic risk.
Sec. 124.107 What is potential for success?
The applicant concern must possess reasonable prospects for success
in competing in the private sector if admitted to the 8(a) BD program.
To do so, it must be in business in its primary industry classification
for at least two full years immediately prior to the date of its 8(a) BD
application, unless a waiver for this requirement is granted pursuant to
paragraph (b) of this section.
(a) Income tax returns for each of the two previous tax years must
show operating revenues in the primary industry in which the applicant
is seeking 8(a) BD certification.
(b)(1) SBA may waive the two years in business requirement if each
of the following five conditions are met:
(i) The individual or individuals upon whom eligibility is based
have substantial business management experience;
(ii) The applicant has demonstrated technical experience to carry
out its business plan with a substantial likelihood for success if
admitted to the 8(a) BD program;
(iii) The applicant has adequate capital to sustain its operations
and carry out its business plan as a Participant;
(iv) The applicant has a record of successful performance on
contracts from governmental or nongovernmental sources in its primary
industry category; and
(v) The applicant has, or can demonstrate its ability to timely
obtain, the personnel, facilities, equipment, and any other requirements
needed to perform contracts as a Participant.
(2) The concern seeking a waiver under paragraph (b) must provide
information on governmental and nongovernmental contracts in progress
and completed (including letters of reference) in order to establish
successful contract performance, and must demonstrate how it otherwise
meets the five conditions for waiver. SBA considers an applicant's
performance on both government and private sector contracts in
determining whether the firm has an overall successful performance
record. If, however, the applicant has performed only government
contracts or only private sector contracts, SBA will review its
performance on those contracts alone to determine whether the applicant
possesses a record of successful performance.
(c) In assessing potential for success, SBA considers the concern's
access to credit and capital, including, but not limited to, access to
long-term financing, access to working capital financing, equipment
trade credit, access to raw materials and supplier trade credit, and
bonding capability.
(d) In assessing potential for success, SBA will also consider the
technical and managerial experience of the applicant concern's managers,
the operating history of the concern, the concern's record of
performance on previous Federal and private sector contracts in the
primary industry in which the concern is seeking 8(a) BD certification,
and its financial capacity. The applicant concern as a whole must
demonstrate both technical knowledge in its primary industry category
and management experience sufficient to run its day-to-day operations.
(e) The Participant or individuals employed by the Participant must
hold all requisite licenses if the concern is
[[Page 373]]
engaged in an industry requiring professional licensing (e.g., public
accountancy, law, professional engineering).
(f) An applicant will not be denied admission into the 8(a) BD
program due solely to a determination that potential 8(a) contract
opportunities are unavailable to assist in the development of the
concern unless:
(1) The Government has not previously procured and is unlikely to
procure the types of products or services offered by the concern; or
(2) The purchase of such products or services by the Federal
Government will not be in quantities sufficient to support the
developmental needs of the applicant and other Participants providing
the same or similar items or services.
Sec. 124.108 What other eligibility requirements apply for individuals
or businesses?
(a) Good character. The applicant or Participant and all its
principals must have good character.
(1) If, during the processing of an application, adverse information
is obtained from the applicant or a credible source regarding possible
criminal conduct by the applicant or any of its principals, no further
action will be taken on the application until SBA's Inspector General
has collected relevant information and has advised the AA/8(a)BD of his
or her findings. The AA/8(a)BD will consider those findings when
evaluating the application.
(2) Violations of any of SBA's regulations may result in denial of
participation in the 8(a) BD program. The AA/8(a)BD will consider the
nature and severity of the violation in making an eligibility
determination.
(3) Debarred or suspended concerns or concerns owned by debarred or
suspended persons are ineligible for admission to the 8(a) BD program.
(4) An applicant is ineligible for admission to the 8(a) BD program
if the applicant concern or a proprietor, partner, limited liability
member, director, officer, or holder of at least 10 percent of its
stock, or another person (including key employees) with significant
authority over the concern:
(i) Lacks business integrity as demonstrated by information related
to an indictment or guilty plea, conviction, civil judgment, or
settlement; or
(ii) Is currently incarcerated, or on parole or probation pursuant
to a pre-trial diversion or following conviction for a felony or any
crime involving business integrity.
(5) If, during the processing of an application, SBA determines that
an applicant has knowingly submitted false information, regardless of
whether correct information would cause SBA to deny the application, and
regardless of whether correct information was given to SBA in
accompanying documents, SBA will deny the application. If, after
admission to the program, SBA discovers that false information has been
knowingly submitted by a firm, SBA will initiate termination proceedings
and suspend the firm under Sec. Sec. 124.304 and 124.305. Whenever SBA
determines that the applicant submitted false information, the matter
will be referred to SBA's Office of Inspector General for review.
(b) One-time eligibility. Once a concern or disadvantaged individual
upon whom eligibility was based has participated in the 8(a) BD program,
neither the concern nor that individual will be eligible again.
(1) An individual who claims disadvantage and completes the
appropriate SBA forms to qualify an applicant has participated in the
8(a) BD program if SBA approves the application.
(2) Use of eligibility will take effect on the date of the concern's
approval for admission into the program.
(3) An individual who uses his or her one-time eligibility to
qualify a concern for the 8(a) BD program will be considered a non-
disadvantaged individual for ownership or control purposes of another
applicant or Participant. The criteria restricting participation by non-
disadvantaged individuals will apply to such an individual. See
Sec. Sec. 124.105 and 124.106.
(4) When at least 50% of the assets of a concern are the same as
those of a former Participant, the concern will not be eligible for
entry into the program.
[[Page 374]]
(5) Participants which change their form of business organization
and transfer their assets and liabilities to the new organization may do
so without affecting the eligibility of the new organization provided
the previous business is dissolved and all other eligibility criteria
are met. In such a case, the new organization may complete the remaining
program term of the previous organization. A request for a change in
business form will be treated as a change of ownership under Sec.
124.105(i).
(c) Wholesalers. An applicant concern seeking admission to the 8(a)
BD program as a wholesaler need not demonstrate that it is capable of
meeting the requirements of the nonmanufacturer rule for its primary
industry classification.
(d) Brokers. Brokers are ineligible to participate in the 8(a) BD
program. A broker is a concern that adds no material value to an item
being supplied to a procuring activity or which does not take ownership
or possession of or handle the item being procured with its own
equipment or facilities.
(e) Federal financial obligations. Neither a firm nor any of its
principals that fails to pay significant financial obligations owed to
the Federal Government, including unresolved tax liens and defaults on
Federal loans or other Federally assisted financing, is eligible for
admission to or participation in the 8(a) BD program.
(f) Achievement of benchmarks. Where actual participation by
disadvantaged businesses in a particular SIC Major Group exceeds the
benchmark limitations established by the Department of Commerce, SBA, in
its discretion, may decide not to accept an application for 8(a) BD
participation from a concern whose primary industry classification falls
within that Major Group.
[63 FR 35739, 35772, June 30, 1998]
Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any
special rules for applying to the 8(a) BD program?
(a) Special rules for ANCs. Small business concerns owned and
controlled by ANCs are eligible for participation in the 8(a) program
and must meet the eligibility criteria set forth in Sec. 124.112 to the
extent the criteria are not inconsistent with this section. ANC-owned
concerns are subject to the same conditions that apply to tribally-owned
concerns, as described in paragraphs (b) and (c) of this section, except
that the following provisions and exceptions apply only to ANC-owned
concerns:
(1) Alaska Natives and descendants of Natives must own a majority of
both the total equity of the ANC and the total voting powers to elect
directors of the ANC through their holdings of settlement common stock.
Settlement common stock means stock of an ANC issued pursuant to 43
U.S.C. 1606(g)(1), which is subject to the rights and restrictions
listed in 43 U.S.C. 1606(h)(1).
(2) An ANC that meets the requirements set forth in paragraph (a)(1)
of this section is deemed economically disadvantaged under 43 U.S.C.
1626(e), and need not establish economic disadvantage as required by
paragraph (b)(2) of this section.
(3) Even though an ANC can be either for profit or non-profit, a
small business concern owned and controlled by an ANC must be for profit
to be eligible for the 8(a) program. The concern will be deemed owned
and controlled by the ANC where both the majority of stock or other
ownership interest and total voting power are held by the ANC and
holders of its settlement common stock.
(4) The Alaska Native Claims Settlement Act provides that a concern
which is majority owned by an ANC shall be deemed to be both owned and
controlled by Alaska Natives and an economically disadvantaged business.
Therefore, an individual responsible for control and management of an
ANC-owned applicant or Participant need not establish personal social
and economic disadvantage.
(5) Paragraphs (b)(3)(i), (ii) and (iv) of this section are not
applicable to an ANC, provided its status as an ANC is clearly shown in
its articles of incorporation.
(6) Paragraph (c)(1) of this section is not applicable to an ANC-
owned concern to the extent it requires an express waiver of sovereign
immunity or a ``sue and be sued'' clause.
[[Page 375]]
(b) Tribal eligibility. In order to qualify a concern which it owns
and controls for participation in the 8(a) BD program, an Indian tribe
must establish its own economic disadvantaged status under paragraph
(b)(2) of this section. Thereafter, it need not reestablish such status
in order to have other businesses that it owns certified for 8(a) BD
program participation, unless specifically required to do so by the AA/
8(a)BD or designee. Each tribally-owned concern seeking to be certified
for 8(a) BD participation must comply with the provisions of paragraph
(c) of this section.
(1) Social disadvantage. An Indian tribe as defined in Sec. 124.3
is considered to be socially disadvantaged.
(2) Economic disadvantage. In order to be eligible to participate in
the 8(a) BD program, the Indian tribe must demonstrate to SBA that the
tribe itself is economically disadvantaged. This must involve the
consideration of available data showing the tribe's economic condition,
including but not limited to, the following information:
(i) The number of tribal members.
(ii) The present tribal unemployment rate.
(iii) The per capita income of tribal members, excluding judgment
awards.
(iv) The percentage of the local Indian population below the poverty
level.
(v) The tribe's access to capital.
(vi) The tribal assets as disclosed in a current tribal financial
statement. The statement must list all assets including those which are
encumbered or held in trust, but the status of those encumbered or in
trust must be clearly delineated.
(vii) A list of all wholly or partially owned tribal enterprises or
affiliates and the primary industry classification of each. The list
must also specify the members of the tribe who manage or control such
enterprises by serving as officers or directors.
(3) Forms and documents required to be submitted. Except as
otherwise provided in this section, the Indian tribe generally must
submit the forms and documents required of 8(a) BD applicants as well as
the following material:
(i) A copy of all governing documents such as the tribe's
constitution or business charter.
(ii) Evidence of its recognition as a tribe eligible for the special
programs and services provided by the United States or by its state of
residence.
(iii) Copies of its articles of incorporation and bylaws as filed
with the organizing or chartering authority, or similar documents needed
to establish and govern a non-corporate legal entity.
(iv) Documents or materials needed to show the tribe's economically
disadvantaged status as described in paragraph (b)(2) of this section.
(c) Business eligibility. In order to be eligible to participate in
the 8(a) BD program, a concern which is owned by an eligible Indian
tribe (or wholly owned business entities of such tribe) must meet the
conditions set forth in paragraphs (c)(1) through (c)(7) of this
section.
(1) Legal business entity organized for profit and susceptible to
suit. The applicant or participating concern must be a separate and
distinct legal entity organized or chartered by the tribe, or Federal or
state authorities. The concern's articles of incorporation, partnership
agreement or limited liability company articles of organization must
contain express sovereign immunity waiver language, or a ``sue and be
sued'' clause which designates United States Federal Courts to be among
the courts of competent jurisdiction for all matters relating to SBA's
programs including, but not limited to, 8(a) BD program participation,
loans, and contract performance. Also, the concern must be organized for
profit, and the tribe must possess economic development powers in the
tribe's governing documents.
(2) Size. (i) A tribally-owned applicant concern must qualify as a
small business concern as defined for purposes of Federal Government
procurement in part 121 of this title. The particular size standard to
be applied is based on the primary industry classification of the
applicant concern.
(ii) A tribally-owned Participant must certify to SBA that it is a
small business pursuant to the provisions of part 121 of this title for
the purpose of
[[Page 376]]
performing each individual contract which it is awarded.
(iii) In determining the size of a small business concern owned by a
socially and economically disadvantaged Indian tribe (or a wholly owned
business entity of such tribe) for either 8(a) BD program entry or
contract award, the firm's size shall be determined independently
without regard to its affiliation with the tribe, any entity of the
tribal government, or any other business enterprise owned by the tribe,
unless the Administrator determines that one or more such tribally-owned
business concerns have obtained, or are likely to obtain, a substantial
unfair competitive advantage within an industry category.
(3) Ownership. (i) For corporate entities, a tribe must own at least
51 percent of the voting stock and at least 51 percent of the aggregate
of all classes of stock. For non-corporate entities, a tribe must own at
least a 51 percent interest.
(ii) A tribe cannot own 51% or more of another firm which, either at
the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary SIC code as the
applicant. A tribe may, however, own a Participant or an applicant that
conducts or will conduct secondary business in the 8(a) BD program under
the same SIC code that a current Participant owned by the tribe operates
in the 8(a) BD program as its primary SIC code.
(iii) The restrictions of Sec. 124.105(h) do not apply to tribes;
they do, however, apply to non disadvantaged individuals or other
business concerns that are partial owners of a tribally-owned concern.
(4) Control and management. (i) The management and daily business
operations of a tribally-owned concern must be controlled by the tribe,
through one or more disadvantaged individual members who possess
sufficient management experience of an extent and complexity needed to
run the concern, or through management as follows:
(A) Management may be provided by committees, teams, or Boards of
Directors which are controlled by one or more members of an economically
disadvantaged tribe, or
(B) Management may be provided by non-tribal members if SBA
determines that such management is required to assist the concern's
development, that the tribe will retain control of all management
decisions common to boards of directors, including strategic planning,
budget approval, and the employment and compensation of officers, and
that a written management development plan exists which shows how
disadvantaged tribal members will develop managerial skills sufficient
to manage the concern or similar tribally-owned concerns in the future.
(ii) Members of the management team, business committee members,
officers, and directors are precluded from engaging in any outside
employment or other business interests which conflict with the
management of the concern or prevent the concern from achieving the
objectives set forth in its business development plan. This is not
intended to preclude participation in tribal or other activities which
do not interfere with such individual's responsibilities in the
operation of the applicant concern.
(5) Individual eligibility limitation. SBA does not deem an
individual involved in the management or daily business operations of a
tribally-owned concern to have used his or her individual eligibility
within the meaning of Sec. 124.108(b).
(6) Potential for success. (i) A tribally-owned applicant concern
must be in business for at least two years, as evidenced by income tax
returns for each of the two previous tax years showing operating
revenues in the primary industry in which the applicant is seeking 8(a)
BD certification, or demonstrate potential for success as set forth in
paragraph (c)(6)(ii) of this section.
(ii) In determining whether a tribally-owned concern has the
potential for success, SBA will look at a number of factors including,
but not limited to:
(A) The technical and managerial experience and competency of the
individual(s) who will manage and control the daily operation of the
concern;
(B) The financial capacity of the concern; and
[[Page 377]]
(C) The concern's record of performance on any previous Federal or
private sector contracts in the primary industry in which the concern is
seeking 8(a) certification.
(7) Other eligibility criteria. (i) As with other 8(a) applicants, a
tribally-owned applicant concern shall not be denied admission into the
8(a) program due solely to a determination that specific contract
opportunities are unavailable to assist the development of the concern
unless:
(A) The Government has not previously procured and is unlikely to
procure the types of products or services offered by the concern; or
(B) The purchase of such products or services by the Federal
Government will not be in quantities sufficient to support the
developmental needs of the applicant and other program participants
providing the same or similar items or services.
(ii) Except for the tribe itself, the concern's officers, directors,
and all shareholders owning an interest of 20% or more must demonstrate
good character. See Sec. 124.108(a).
Sec. 124.110 Do Native Hawaiian Organizations have any special rules
for applying to the 8(a) BD program?
(a) Concerns owned by economically disadvantaged Native Hawaiian
Organizations, as defined in Sec. 124.3, are eligible for participation
in the 8(a) program and other federal programs requiring SBA to
determine social and economic disadvantage as a condition of
eligibility. Such concerns must meet all eligibility criteria set forth
in Sec. Sec. 124.101 through 124.108 and Sec. 124.112 to the extent
that they are not inconsistent with this section.
(b) A concern owned by a Native Hawaiian Organization must qualify
as a small business concern as defined in part 121 of this title. The
size standard corresponding to the primary industry classification of
the applicant concern applies for determining size. SBA will determine
the concern's size independently, without regard to its affiliation with
the Native Hawaiian Organization or any other business enterprise owned
by the Native Hawaiian Organization, unless the Administrator determines
that one or more such concerns owned by the Native Hawaiian Organization
have obtained, or are likely to obtain, a substantial unfair competitive
advantage within an industry category.
(c) A Native Hawaiian Organization cannot own 51% or more of another
firm which, either at the time of application or within the previous two
years, has been operating in the 8(a) program under the same primary SIC
code as the applicant. A Native Hawaiian Organization may, however, own
a Participant or an applicant that conducts or will conduct secondary
business in the 8(a) BD program under the same SIC code that a current
Participant owned by the Native Hawaiian Organization operates in the
8(a) BD program as its primary SIC code.
(d) SBA does not deem an individual involved in the management or
daily business operations of a Participant owned by a Native Hawaiian
Organization to have used his or her individual eligibility within the
meaning of Sec. 124.108(b).
(e)(1) An applicant concern owned by a Native Hawaiian Organization
must be in business for at least two years, as evidenced by income tax
returns for each of the two previous tax years showing operating
revenues in the primary industry in which the applicant is seeking 8(a)
BD certification, or demonstrate potential for success as set forth in
paragraph (e)(2) of this section.
(2) In determining whether a concern owned by a Native Hawaiian
Organization has the potential for success, SBA will look at a number of
factors including, but not limited to:
(i) The technical and managerial experience and competence of the
individual(s) who will manage and control the daily operation of the
concern.
(ii) The financial capacity of the concern; and
(iii) The concern's record of performance on any previous Federal or
private sector contracts in the primary industry in which the concern is
seeking 8(a) certification.
[[Page 378]]
Sec. 124.111 Do Community Development Corporations (CDCs) have any
special rules for applying to the 8(a) BD program?
(a) Concerns owned at least 51 percent by CDCs (or a wholly owned
business entity of a CDC) are eligible for participation in the 8(a) BD
program and other federal programs requiring SBA to determine social and
economic disadvantage as a condition of eligibility. These concerns must
meet all eligibility criteria set forth in Sec. 124.101 through Sec.
124.108 and Sec. 124.112 to the extent that they are not inconsistent
with this section.
(b) A concern that is at least 51 percent owned by a CDC (or a
wholly owned business entity of a CDC) is considered to be controlled by
such CDC and eligible for participation in the 8(a) BD program, provided
it meets all eligibility criteria set forth or referred to in this
section and its management and daily business operations are conducted
by one or more individuals determined to have managerial experience of
an extent and complexity needed to run the concern.
(c) A concern that is at least 51 percent owned by a CDC (or a
wholly owned business entity of a CDC) must qualify as a small business
concern as defined in part 121 of this title. The size standard
corresponding to the primary industry classification of the applicant
concern applies for determining size. SBA will determine the concern's
size independently, without regard to its affiliation with the CDC or
any other business enterprise owned by the CDC, unless the Administrator
determines that one or more such concerns owned by the CDC have
obtained, or are likely to obtain, a substantial unfair competitive
advantage within an industry category.
(d) A CDC cannot own 51% or more of another firm which, either at
the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary SIC code as the
applicant. A CDC may, however, own a Participant or an applicant that
conducts or will conduct secondary business in the 8(a) BD program under
the same SIC code that a current Participant owned by the CDC operates
in the 8(a) BD program as its primary SIC code.
(e) SBA does not deem an individual involved in the management or
daily business operations of a CDC-owned concern to have used his or her
individual eligibility within the meaning of Sec. 124.108(b).
(f)(1) A CDC-owned applicant concern must be in business for at
least two years, as evidenced by income tax returns for each of the two
previous tax years showing operating revenues in the primary industry in
which the applicant is seeking 8(a) BD certification, or demonstrate
potential for success as set forth in paragraph (e)(2) of this section.
(2) In determining whether a CDC-owned concern has the potential for
success, SBA will look at a number of factors including, but not limited
to:
(i) The technical and managerial experience and competence of the
individual(s) who will manage and control the daily operation of the
concern;
(ii) The financial capacity of the concern; and
(iii) The concern's record of performance on any previous Federal or
private sector contracts in the primary industry in which the concern is
seeking 8(a) certification.
(g) A CDC-owned applicant and all of its principals must have good
character as set forth in Sec. 124.108(a).
Sec. 124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
(a) Standards. In order for a concern (except those owned by Indian
tribes, ANCs, Native Hawaiian Organizations or CDCs) to remain eligible
for 8(a) BD program participation, it must continue to meet all
eligibility criteria contained in Sec. 124.101 through Sec. 124.108.
For concerns owned by Indian tribes, ANCs, Native Hawaiian Organizations
or CDCs to remain eligible, they must meet the criteria set forth in
this Sec. 124.112 to the extent that they are not inconsistent with
Sec. 124.109, Sec. 124.110 and Sec. 124.111, respectively. The
concern must inform SBA in writing of any changes in circumstances which
would adversely affect its program eligibility, especially economic
disadvantage and ownership and control. Any concern
[[Page 379]]
that fails to meet the eligibility requirements after being admitted to
the program will be subject to termination or early graduation under
Sec. Sec. 124.302 through 124.304, as appropriate.
(b) Submissions supporting continued eligibility. As part of an
annual review, each Participant must annually submit to the servicing
district office the following:
(1) A certification that it meets the 8(a) BD program eligibility
requirements as set forth in Sec. 124.101 through Sec. 124.108 and
paragraph (a) of this section;
(2) A certification that there have been no changed circumstances
which could adversely affect the Participant's program eligibility. If
the Participant is unable to provide such certification, the Participant
must inform SBA of any changes and provide relevant supporting
documentation.
(3) Personal financial information for each disadvantaged owner;
(4) A record from each individual claiming disadvantaged status
regarding the transfer of assets for less than fair market value to any
immediate family member, or to a trust any beneficiary of which is an
immediate family member, within two years of the date of the annual
review. The record must provide the name of the recipient(s) and family
relationship, and the difference between the fair market value of the
asset transferred and the value received by the disadvantaged
individual.
(5) A record of all payments, compensation, and distributions
(including loans, advances, salaries and dividends) made by the
Participant to each of its owners, officers or directors, or to any
person or entity affiliated with such individuals;
(6) If it is an approved protege, a narrative report detailing the
contacts it has had with its mentor and benefits it has received from
the mentor/protege relationship. See Sec. 124.520(b)(4) for additional
annual requirements;
(7) IRS Form 4506, Request for Copy or Transcript of Tax Form; and
(8) Such other information as SBA may deem necessary. For other
required annual submissions, see Sec. Sec. 124.601 through 124.603.
(c) Eligibility reviews. (1) Upon receipt of specific and credible
information alleging that a Participant no longer meets the eligibility
requirements for continued program eligibility, SBA will review the
concern's eligibility for continued participation in the program.
(2) Sufficient reasons for SBA to conclude that a socially
disadvantaged individual is no longer economically disadvantaged
include, but are not limited to, excessive withdrawals of funds or other
assets withdrawn from the concern by its owners, or substantial personal
assets, income or net worth of any disadvantaged owner. SBA may also
consider access by the Participant firm to a significant new source of
capital or loans since the financial condition of the Participant is
considered in evaluating the disadvantaged individual's economic status.
(d) Excessive withdrawals. (1) The term withdrawal includes, but is
not limited to, the following: officer's salary; cash dividends;
distributions in excess of amounts needed to pay S Corporation taxes;
cash and property withdrawals; bonuses; loans; advances; payments to
immediate family members; investments on behalf of an owner, officer, or
key employee; acquisition of a business not merged with the 8(a)
Participant; charitable contributions; and speculative ventures.
(2) If SBA determines that excessive funds or other assets have been
withdrawn from the Participant, SBA may:
(i) Initiate termination proceedings under Sec. Sec. 124.303 and
124.304 where the withdrawals detrimentally affect the achievement of
the Participant's targets, objectives and goals set forth in its
business plan, or its overall business development;
(ii) Initiate early graduation proceedings under Sec. Sec. 124.302
and 124.303 where the withdrawals do not adversely affect the
Participant's business development; or
(iii) Require an appropriate reinvestment of funds or other assets,
as well as any other actions SBA deems necessary to counteract the
detrimental effects of the withdrawals, as a condition of the
Participant maintaining program eligibility.
[[Page 380]]
(3) Withdrawals are excessive if during any fiscal year of the
Participant they exceed (i) $150,000 for firms with sales up to
$1,000,000; (ii) $200,000 for firms with sales between $1,000,000 and
$2,000,000; and (iii) $300,000 for firms with sales over $2,000,000.
(4) The fact that a concern's net worth has increased despite
withdrawals that are deemed excessive will not preclude SBA from
determining that such withdrawals were detrimental to the attainment of
the concern's business objectives or to its overall business
development.
Applying to the 8(a) BD Program
Sec. 124.201 May any business submit an application?
Any concern or any individual on behalf of a business has the right
to apply for 8(a) BD program participation whether or not there is an
appearance of eligibility.
Sec. 124.202 Where must an application be filed?
An application for 8(a) BD program admission must be filed in the
SBA Division of Program Certification and Eligibility (DPCE) field
office serving the territory in which the principal place of business is
located. The SBA district office will provide an applicant concern with
information regarding the 8(a) BD program and with all required
application forms.
Sec. 124.203 What must a concern submit to apply to the 8(a) BD
program?
Each 8(a) BD applicant concern must submit those forms and
attachments required by SBA when applying for admission to the 8(a) BD
program. These forms and attachments will include, but not be limited
to, financial statements, Federal personal and business tax returns, and
personal history statements. An applicant must also submit IRS Form
4506, Request for Copy or Transcript of Tax Form, to SBA. The
application package may be in the form of an electronic application.
Sec. 124.204 How does SBA process applications for 8(a) BD program
admission?
(a) The AA/8(a)BD is authorized to approve or decline applications
for admission to the 8(a) BD program. The appropriate DPCE field office
will receive, review and evaluate all 8(a) BD applications except those
from ANC-owned applicants. SBA's Anchorage District Office will receive
all applications from ANC-owned applicants and review them for
completeness before sending them to the AA/8(a)BD for further
processing. The appropriate field office will advise each program
applicant within 15 days after the receipt of an application whether the
application is complete and suitable for evaluation and, if not, what
additional information or clarification is required to complete the
application. SBA will process an application for 8(a) BD program
participation within 90 days of receipt of a complete application
package by the DPCE field office. Incomplete application packages will
not be processed.
(b) SBA, in its sole discretion, may request clarification of
information contained in the application at any time in the application
process. SBA will take into account any clarifications made by an
applicant in response to a request for such by SBA.
(c) An applicant concern's eligibility will be based on
circumstances existing on the date of application, except where
clarification is made pursuant to paragraph (b) of this section or as
provided in paragraph (d) of this section.
(d) Changed circumstances for an applicant concern occurring
subsequent to its application and which adversely affect eligibility
will be considered and may constitute grounds for decline. The applicant
must inform SBA of any changed circumstances that could adversely affect
its eligibility for the program (particularly economic disadvantage and
ownership and control) during its application review. Failure to inform
SBA of any such changed circumstances constitutes good cause for which
SBA may terminate the Participant if non-compliance is discovered after
admittance.
(e) The decision of the AA/8(a)BD to approve or deny an application
will be in writing. A decision to deny admission will state the specific
reasons for denial, and will inform the applicant of any appeal rights.
[[Page 381]]
(f) If the AA/8(a)BD approves the application, the date of the
approval letter is the date of program certification for purposes of
determining the concern's program term.
Sec. 124.205 Can an applicant ask SBA to reconsider SBA's initial
decision to decline its application?
(a) An applicant may request the AA/8(a)BD to reconsider his or her
initial decline decision by filing a request for reconsideration with
the SBA field office that originally processed its application. Filing
means submission by personal delivery, first-class mail, express mail,
fascimile transmission followed by first-class mail, or commercial
delivery service. The applicant must submit its request for
reconsideration within 45 days of receiving notice that its application
was declined. The applicant must provide any additional information and
documentation pertinent to overcoming the reason(s) for the initial
decline.
(b) The AA/8(a)BD will issue a written decision within 45 days of
the regional DPCE's receipt of the applicant's request. The AA/8(a)BD
may either approve the application, deny it on the same grounds as the
original decision, or deny it on other grounds. If denied, the AA/8(a)BD
will explain why the applicant is not eligible for admission to the 8(a)
BD program and give specific reasons for the decline.
(c) If the AA/8(a)BD declines the application solely on issues not
raised in the initial decline, the applicant can ask for reconsideration
as if it were an initial decline.
Sec. 124.206 What appeal rights are available to an applicant that has
been denied admission?
(a) An applicant may appeal a denial of program admission to SBA's
Office of Hearings and Appeals (OHA), if it is based solely on a
negative finding of social disadvantage, economic disadvantage,
ownership, control, or any combination of these four criteria. A denial
decision that is based at least in part on the failure to meet any other
eligibility criterion is not appealable and is the final decision of
SBA.
(b) The applicant may appeal an initial decision of the AA/8(a)BD
without requesting reconsideration, or may appeal the decision of the
AA/8(a)BD on reconsideration.
(c) The applicant may initiate an appeal by filing a petition in
accordance with part 134 of this chapter with OHA within 45 days after
the applicant receives the Agency decision.
(d) If an appeal is filed with OHA, the written decision of the
Administrative Law Judge is the final Agency decision. If an appealable
decision is not appealed, the decision of the AA/8(a)BD is the final
Agency decision.
[63 FR 35739, June 30, 1998, as amended at 67 FR 47246, July 18, 2002]
Sec. 124.207 Can an applicant reapply for admission to the 8(a) BD
program?
A concern which has been declined for 8(a) BD program admission may
submit a new application for admission to the program 12 months after
the date of the final Agency decision to decline.
Exiting the 8(a) BD Program
Sec. 124.301 What are the ways a business may leave the 8(a) BD
program?
A concern participating in the 8(a) BD program may leave the program
by any of the following means:
(a) Graduation upon the expiration of the program term established
pursuant to Sec. 124.2;
(b) Voluntary early graduation;
(c) Early graduation pursuant to the provisions of Sec. Sec.
124.302 and 124.304; or
(d) Termination pursuant to the provisions of Sec. Sec. 124.303 and
124.304.
Sec. 124.302 What is early graduation?
(a) General. SBA may graduate a firm from the 8(a) BD program prior
to the expiration of its Program Term where SBA determines that:
(1) The concern has successfully completed the 8(a) BD program by
substantially achieving the targets, objectives, and goals set forth in
its business plan prior to the expiration of its program term, and has
demonstrated the ability to compete in the marketplace without
assistance under the 8(a) BD program; or
(2) One or more of the disadvantaged owners upon whom the
Participant's
[[Page 382]]
eligibility is based are no longer economically disadvantaged.
(b) Criteria for determining whether a Participant has met its goals
and objectives. In determining whether a Participant has substantially
achieved the targets, objectives and goals of its business plan and in
assessing the overall competitive strength and viability of a
Participant, SBA considers the totality of circumstances, including the
following factors:
(1) Degree of sustained profitability;
(2) Sales trends, including improved ratio of non-8(a) sales to 8(a)
sales since program entry;
(3) Business net worth, financial ratios, working capital,
capitalization, and access to credit and capital;
(4) Current ability to obtain bonding;
(5) A comparison of the Participant's business and financial
profiles with profiles of non-8(a) BD businesses having the same primary
four-digit SIC code as the Participant;
(6) Strength of management experience, capability, and expertise;
and
(7) Ability to operate successfully without 8(a) contracts.
(c) Excessive withdrawals. SBA may graduate a Participant prior to
the expiration of its program term where excessive funds or other assets
have been withdrawn from the Participant (see Sec. 124.112(d)(3)),
causing SBA to determine that the Participant has demonstrated the
ability to compete in the marketplace without assistance under the 8(a)
BD program.
(d) Benchmark achievement. SBA may graduate a Participant prior to
the expiration of its program term where the Participant has
substantially achieved the targets, objectives and goals of its business
plan as adjusted under Sec. 124.403(d) and its primary industry
classification falls within a SIC Major Group in which the benchmarks
described in Sec. 124.403(d) have been achieved.
[63 FR 35739, 35772, June 30, 1998]
Sec. 124.303 What is termination?
(a) SBA may terminate the participation of a concern in the 8(a) BD
program prior to the expiration of the concern's Program Term for good
cause. Examples of good cause include, but are not limited to, the
following:
(1) Submission of false information in the concern's 8(a) BD
application, regardless of whether correct information would have caused
the concern to be denied admission to the program, and regardless of
whether correct information was given to SBA in accompanying documents
or by other means.
(2) Failure by the concern to maintain its eligibility for program
participation.
(3) Failure by the concern for any reason, including the death of an
individual upon whom eligibility was based, to maintain ownership, full-
time day-to-day management, and control by disadvantaged individuals.
(4) Failure by the concern to obtain prior written approval from SBA
for any changes in ownership or business structure, management or
control pursuant to Sec. Sec. 124.105 and 124.106.
(5) Failure by the concern to disclose to SBA the extent to which
non-disadvantaged persons or firms participate in the management of the
Participant business concern.
(6) Failure by the concern or one or more of the concern's
principals to maintain good character.
(7) A pattern of failure to make required submissions or responses
to SBA in a timely manner, including a failure to provide required
financial statements, requested tax returns, reports, updated business
plans, information requested by SBA's Office of Inspector General, or
other requested information or data within 30 days of the date of
request.
(8) Cessation of business operations by the concern.
(9) Failure by the concern to pursue competitive and commercial
business in accordance with its business plan, or failure in other ways
to make reasonable efforts to develop and achieve competitive viability.
(10) A pattern of inadequate performance by the concern of awarded
section 8(a) contracts.
(11) Failure by the concern to pay or repay significant financial
obligations owed to the Federal Government.
(12) Failure by the concern to obtain and keep current any and all
required permits, licenses, and charters, including suspension or
revocation of any
[[Page 383]]
professional license required to operate the business.
(13) Excessive withdrawals, including transfers of funds or other
business assets, from the concern for the personal benefit of any of its
owners or any person or entity affiliated with the owners that hinder
the development of the concern (see Sec. 124.112(d).
(14) Unauthorized use of SBA direct or guaranteed loan proceeds or
violation of an SBA loan agreement.
(15) Submission by or on behalf of a Participant of false
information to SBA, including false certification of compliance with
non-8(a) business activity targets under Sec. 124.507 or failure to
report changes that adversely affect the program eligibility of an
applicant or program participant under Sec. 124.204 and Sec. 124.112,
where responsible officials of the 8(a) BD Participant knew or should
have known the submission to be false.
(16) Debarment, suspension, voluntary exclusion, or ineligibility of
the concern or its principals pursuant to part 145 of this title or FAR
subpart 9.4 (48 CFR part 9, subpart 9.4).
(17) Conduct by the concern, or any of its principals, indicating a
lack of business integrity. Such conduct may be demonstrated by
information related to a criminal indictment or guilty plea, a criminal
conviction, or a judgment or settlement in a civil case.
(18) Willful failure by the Participant business concern to comply
with applicable labor standards and obligations.
(19) Material breach of any terms and conditions of the 8(a) BD
Program Participation Agreement.
(20) Willful violation by a concern, or any of its principals, of
any SBA regulation pertaining to material issues.
(b) The examples of good cause listed in paragraph (a) of this
section are intended to be illustrative only. Other grounds for
terminating a Participant from the 8(a) BD program for cause may exist
and may be used by SBA.
Sec. 124.304 What are the procedures for early graduation and
termination?
(a) General. The same procedures apply to both early graduation and
termination of Participants from the 8(a) BD program.
(b) Letter of Intent to Terminate or Graduate Early. When SBA
believes that a Participant should be terminated or graduated prior to
the expiration of its program term, SBA will notify the concern in
writing. The Letter of Intent to Terminate or Graduate Early will set
forth the specific facts and reasons for SBA's findings, and will notify
the concern that it has 30 days from the date it receives the letter to
submit a written response to SBA explaining why the proposed ground(s)
should not justify termination or early graduation.
(c) Recommendation and decision. Following the 30-day response
period, the Assistant Administrator for DPCE (AA/DPCE) or designee will
consider the proposed early graduation or termination and any
information submitted in response by the concern. Upon determining that
early graduation or termination is not warranted, the AA/DPCE or
designee will notify the Participant in writing. If early graduation or
termination appears warranted, the AA/DPCE will make such a
recommendation to the AA/8(a)BD, who will then make a decision whether
to early graduate or terminate the concern. SBA will act in a timely
manner in processing early graduation and termination actions.
(d) Notice requirements. Upon deciding that early graduation or
termination is warranted, the AA/8(a)BD will issue a Notice of Early
Graduation or Termination. The Notice will set forth the specific facts
and reasons for the decision, and will advise the concern that it may
appeal the decision in accordance with the provisions of part 134 of
this title.
(e) Appeal to OHA. Procedures governing appeals of early graduation
or termination to SBA's OHA are set forth in part 134. If a Participant
does not appeal a Notification of Early Graduation or Termination within
45 days after the Participant receives the Notification, the decision of
the AA/8(a)BD is the final agency decision effective on the date the
appeal right expired.
(f) Effect of early graduation or termination. After the effective
date of early graduation or termination, a Participant is no longer
eligible to receive any
[[Page 384]]
8(a) BD program assistance. However, such concern is obligated to
complete previously awarded 8(a) contracts, including any priced options
which may be exercised.
[63 FR 35739, June 30, 1998, as amended at 67 FR 47246, July 18, 2002]
Sec. 124.305 What is suspension and how is a Participant suspended
from the 8(a) BD program?
(a) At any time after SBA issues a Letter of Intent to Terminate
pursuant to Sec. 124.304, the AA/8(a)BD may suspend 8(a) contract
support and all other forms of 8(a) BD program assistance to that
concern until the issue of the concern's termination from the program is
finally decided. The AA/8(a)BD may suspend a Participant when he or she
determines that suspension is needed to protect the interests of the
Federal Government, such as where information showing a clear lack of
program eligibility or conduct indicating a lack of business integrity
exists, including where the concern or one of its principals submitted
false statements to the Federal Government. SBA will suspend a
Participant where SBA determines that the Participant submitted false
information in its 8(a) BD application.
(b) SBA will issue a Notice of Suspension to the Participant's last
known address by certified mail, return receipt requested. Suspension is
effective as of the date of the issuance of the Notice. The Notice will
provide the following information:
(1) The basis for the suspension;
(2) A statement that the suspension will continue pending the
completion of further investigation, a final program termination
determination, or some other specified period of time;
(3) A statement that awards of competitive and non-competitive 8(a)
contracts, including those which have been ``self-marketed'' by a
Participant, will not be made during the pendency of the suspension
unless it is determined by the head of the relevant procuring agency or
an authorized representative to be in the best interest of the
Government to do so, and SBA adopts that determination;
(4) A statement that the concern is obligated to complete previously
awarded section 8(a) contracts;
(5) A statement that the suspension is effective nationally
throughout SBA;
(6) A statement that a request for a hearing on the suspension will
be considered by an Administrative Law Judge at OHA, and granted or
denied as a matter of discretion.
(7) A statement that the firm's participation in the program is
suspended effective on the date the Notice is served, and that the
program term will resume only if the suspension is lifted or the firm is
not terminated.
(c) The Participant may appeal a Notice of Suspension by filing a
petition in accordance with part 134 of this chapter with OHA within 45
days after the concern receives the Notice of Suspension pursuant to
paragraph (b) of this section. It is contemplated that in most cases a
hearing on the issue of the suspension will be afforded if the
Participant requests one, but authority to grant a hearing is within the
discretion of the Administrative Law Judge in OHA. A suspension remains
in effect pending the result of its appeal.
(d) SBA has the burden of showing that adequate evidence exists that
protection of the Federal Government's interest requires suspension
before OHA or the AA/8(a)BD makes a final determination regarding the
termination action.
(1) The term ``adequate evidence'' means information contained in
the record before the AA/8(a)BD at the time of his or her suspension
decision that is sufficient to support the reasonable belief that the
Government's interests need to be protected.
(2) SBA need not demonstrate that an act or omission actually
occurred in order for OHA to uphold a suspension. SBA's burden in a
suspension proceeding is limited to demonstrating that it had a
reasonable belief that a particular act or omission occurred, and that
that act or omission requires suspension to protect the interests of the
Government.
(3) Unless the Administrative Law Judge consolidates the suspension
and termination proceedings, OHA's review is limited to determining
whether the
[[Page 385]]
Government's interests need to be protected, and will not consider the
merits of the termination action.
(e) If there is a timely appeal, the decision of the Administrative
Law Judge is the final SBA decision. If there is not a timely appeal,
the decision of the AA/8(a)BD is the final Agency decision.
(f) Upon the request of SBA, OHA may consolidate suspension and
termination proceedings when the issues presented are identical.
(g) Any program suspension which occurs under this section is
effective until such time as SBA lifts the suspension or the
Participant's participation in the program is fully terminated. If the
concern is ultimately not terminated from the 8(a) BD program, the
suspension will be lifted and the length of the suspension will be added
to the concern's program term.
(h) SBA may suspend a Participant from program benefits where a
change of ownership or business structure has been requested if
ownership or control of the participant changed prior to SBA's approval
pending resolution of the request to change its ownership or control. If
the change of ownership is approved, the length of the suspension will
be added to the firm's program term where the change in ownership
results from the death or incapacity of a disadvantaged individual or
where the firm requested prior approval and waited 60 days for SBA
approval before making the change. The suspension will be commenced by
the issuance of a notice similar to that required for termination-
related suspensions under paragraph (b) of this section, except that a
change of ownership suspension is not appealable.
(i) SBA does not recognize the concept of de facto suspension.
Adding time to the end of a Participant's program term equal to the
length of a suspension will occur only where a concern's program
participation has been formally suspended in accordance with the
procedures set forth in this section.
(j) A suspension from 8(a) BD participation under this section has
no effect on a concern's eligibility for non-8(a) Federal Government
contracts. However, a debarment or suspension under the Federal
Acquisition Regulation (48 CFR, chapter 1) will disqualify a concern
from receiving all Federal Government contracts, including 8(a)
contracts.
[63 FR 35739, June 30, 1998, as amended at 67 FR 47246, July 18, 2002]
Business Development
Sec. 124.401 Which SBA field office services a Participant?
The SBA district office which serves the geographical territory
where a Participant's principal place of business is located normally
will service the concern during its participation in the 8(a) BD
program.
Sec. 124.402 How does a Participant develop a business plan?
(a) General. In order to assist the SBA servicing office in
determining the business development needs of its portfolio
Participants, each Participant must develop a comprehensive business
plan setting forth its business targets, objectives, and goals.
(b) Submission of initial business plan. Each Participant must
submit a business plan to its SBA servicing office as soon as possible
after program admission. The Participant will not be eligible for 8(a)
BD program benefits, including 8(a) contracts, until SBA approves its
business plan.
(c) Contents of business plan. The business plan must contain at
least the following:
(1) A detailed description of any products currently being produced
and any services currently being performed by the concern, as well as
any future plans to enter into one or more new markets;
(2) The applicant's designation of its primary industry
classification, as defined in Sec. 124.3;
(3) An analysis of market potential, competitive environment, and
the concern's prospects for profitable operations during and after its
participation in the 8(a) BD program;
(4) An analysis of the concern's strengths and weaknesses, with
particular attention on ways to correct any financial, managerial,
technical, or work force conditions which could impede the concern from
receiving and performing non-8(a) contracts;
[[Page 386]]
(5) Specific targets, objectives, and goals for the business
development of the concern during the next two years;
(6) Estimates of both 8(a) and non-8(a) contract awards that will be
needed to meet its targets, objectives and goals; and
(7) Such other information as SBA may require.
Sec. 124.403 How is a business plan updated and modified?
(a) Annual review. Each Participant must annually review its
business plan with its assigned Business Opportunity Specialist (BOS),
and modify the plan as appropriate. The Participant must submit a
modified plan and updated information to its BOS within thirty (30) days
after the close of each program year. It also must submit a capability
statement describing its current contract performance capabilities as
part of its updated business plan.
(b) Contract forecast. As part of the annual review of its business
plan, each Participant must annually forecast in writing its needs for
contract awards for the next program year. The forecast must include:
(1) The aggregate dollar value of 8(a) contracts to be sought,
broken down by sole source and competitive opportunities where possible;
(2) The aggregate dollar value of non-8(a) contracts to be sought;
(3) The types of contract opportunities to be sought, identified by
product or service; and
(4) Such other information as SBA may request to aid in providing
effective business development assistance to the Participant.
(c) Transition management strategy. Beginning in the first year of
the transitional stage of program participation, each Participant must
annually submit a transition management strategy to be incorporated into
its business plan. The transition management strategy must describe:
(1) How the Participant intends to meet the applicable non-8(a)
business activity target imposed by Sec. 124.507 during the
transitional stage of participation; and
(2) The specific steps the Participant intends to take to continue
its business growth and promote profitable business operations after the
expiration of its program term.
(d) Benchmark achievement. Where actual participation by
disadvantaged businesses in a particular SIC Major Group exceeds the
benchmark limitations established by the Department of Commerce for that
Major Group, SBA may adjust the targets, objectives and goals contained
in the business plans of Participants whose primary industry
classification falls within that Major Group. Any adjustment will take
into account projected decreases in 8(a) and SDB contracting
opportunities.
[63 FR 35739, 35772, June 30, 1998]
Sec. 124.404 What business development assistance is available to
Participants during the two stages of participation in the
8(a) BD program?
(a) General. Participation in the 8(a) BD program is divided into
two stages, a developmental stage and a transitional stage. The
developmental stage will last four years, and the transitional stage
will last five years, unless the concern has exited the program by one
of the means set forth in Sec. 124.301 prior to the expiration of its
program term.
(b) Developmental stage of program participation. A Participant, if
otherwise eligible, may receive the following assistance during the
developmental stage of program participation:
(1) Sole source and competitive 8(a) contract support;
(2) Financial assistance pursuant to Sec. 120.375 of this title;
(3) The transfer of technology or surplus property owned by the
United States pursuant to Sec. 124.405; and
(4) Training to aid in developing business principles and strategies
to enhance their ability to compete successfully for both 8(a) and non-
8(a) contracts.
(c) Transitional stage of program participation. A Participant, if
otherwise eligible, may receive the following assistance during the
transitional stage of program participation:
(1) The same assistance as that provided to Participants in the
developmental stage;
[[Page 387]]
(2) Assistance from procuring agencies (in cooperation with SBA) in
forming joint ventures, leader-follower arrangements, and teaming
agreements between the concern and other Participants or other business
concerns with respect to contracting opportunities outside the 8(a) BD
program for research, development, or full scale engineering or
production of major systems (these arrangements must comply with all
relevant statutes and regulations, including applicable size standard
requirements); and
(3) Training and technical assistance in transitional business
planning.
Sec. 124.405 How does a Participant obtain Federal Government surplus
property?
(a) General. (1) Pursuant to 15 U.S.C. 636(j)(13)(F), eligible
Participants may receive surplus Federal Government property from State
Agencies for Surplus Property (SASPs). The procedures set forth in 41
CFR Part 101-44 and this section will be used to transfer surplus
property to eligible Participants.
(2) The property which may be transferred to SASPs for further
transfer to eligible Participants includes all personal property which
has been determined to be ``donable'' as defined in 41 CFR 101-44.001-3.
(b) Eligibility to receive Federal surplus property. To be eligible
to receive Federal surplus property, on the date of transfer a concern
must:
(1) Be in the 8(a) BD program;
(2) Be in compliance with all program requirements, including any
reporting requirements;
(3) Not be debarred, suspended, or declared ineligible under part 9,
subpart 9.4 of the Federal Acquisition Regulations, Title 48 of the Code
of Federal Regulations;
(4) Not be under a pending 8(a) BD program suspension, termination
or early graduation proceeding; and
(5) Be engaged or expect to be engaged in business activities making
the item useful to it.
(c) Use of acquired surplus property. (1) Eligible Participants may
acquire surplus Federal property from any SASP located in any state,
provided the concern represents and agrees in writing:
(i) As to what the intended use of the surplus property is to be and
that this use is consistent with the objectives of the concern's 8(a)
business plan;
(ii) That it will use the property to be acquired in the normal
conduct of its business activities or be liable for the fair rental
value from the date of its receipt;
(iii) That it will not sell or transfer the property to be acquired
to any party other than the Federal Government during its term of
participation in the 8(a) program and for one year after it leaves the
program;
(iv) That, at its own expense, it will return the property to a SASP
or transfer it to another Participant if directed to do so by SBA
because it has not used the property as intended within one year of
receipt;
(v) That, should it breach its agreement not to sell or transfer the
property, it will be liable to the Government for the established fair
market value or the sale price, whichever is greater, of the property
sold or transferred; and
(vi) That it will give SBA access to inspect the property and all
records pertaining to it.
(2) A firm receiving surplus property pursuant to this section
assumes all liability associated with or stemming from the use of the
property.
(3) If the property is not placed in use for the purposes for which
it was intended within one year of its receipt, SBA may direct the
concern to deliver the property to another Participant or to the SASP
from which it was acquired.
(4) Failure to comply with any of the commitments made under
paragraph (c)(1) of this section constitutes a basis for termination
from the 8(a) program.
(d) Procedures for acquiring Federal Government surplus property.
(1) Participants may participate in the surplus property distribution
program administered by the SASPs to the same extent, but with no
special priority over, other authorized transferees. See 41 CFR subpart
101-44.2.
(2) Each Participant seeking to acquire Federal Government surplus
property from a SASP must:
[[Page 388]]
(i) Certify in writing to the SASP that it is eligible to receive
the property pursuant to paragraph (b) of this section;
(ii) Make the written representations and agreement required by
paragraph (c)(1) of this section; and
(iii) Identify to the SASP its servicing SBA field office.
(3) Upon receipt of the required certification, representations,
agreement, and information set forth in paragraph (d)(2) of this
section, the SASP must contact the appropriate SBA field office and
obtain SBA's verification that the concern seeking to acquire the
surplus property is eligible, and that the identified use of the
property is consistent with the concern's business activities. SASPs may
not release property to a Participant without this verification.
(4) The SASP and the Participant must agree on and record the fair
market value of the surplus property at the time of the transfer to the
Participant. The SASP must provide to SBA a written record, including
the agreed upon fair market value, of each transaction to a Participant
when any property has been transferred.
(e) Costs. Participants acquiring surplus property from a SASP must
pay a service fee to the SASP which is equal to the SASP's direct costs
of locating, inspecting, and transporting the surplus property. If a
Participant elects to incur the responsibility and the expense for
transporting the acquired property, the concern may do so and no
transportation costs will be charged by the SASP. In addition, the SASP
may charge a reasonable fee to cover its costs of administering the
program. In no instance will any SASP charge a Participant more for any
service than their established fees charged to other transferees.
(f) Title. The title to surplus property acquired from a SASP will
pass to the Participant when the Participant executes the applicable
SASP distribution documents and takes possession of the property.
(g) Compliance. (1) SBA will periodically review whether
Participants that have received surplus property have used and
maintained the property as agreed. This review may include site visits
to visually inspect the property to ensure that it is being used in a
manner consistent with the terms of its transfer.
(2) Participants must provide SBA with access to all relevant
records upon request.
(3) Where SBA receives credible information that transferred surplus
property may have been disposed of or otherwise used in a manner that is
not consistent with the terms of the transfer, SBA may investigate such
claim to determine its validity.
(4) SBA may take any action to correct any noncompliance involving
the use of transferred property still in possession of the Participant
or to enforce any terms, conditions, reservations, or restrictions
imposed on the property by the distribution document. Actions to enforce
compliance, or which may be taken as a result of noncompliance, include
the following:
(i) Requiring that the property be placed in proper use within a
specified time;
(ii) Requiring that the property be transferred to another
Participant having a need and use for the property, returned to the SASP
serving the area where the property is located for distribution to
another eligible transferee or to another SASP, or transferred through
GSA to another Federal agency;
(iii) Recovery of the fair rental value of the property from the
date of its receipt by the Participant; and
(iv) Initiation of proceedings to terminate the Participant from the
8(a) BD program.
(5) Where SBA finds that a recipient has sold or otherwise disposed
of the acquired surplus property in violation of the agreement covering
sale and disposal, the Participant is liable for the agreed upon fair
market value of the property at the time of the transfer, or the sale
price, whichever is greater. However, a Participant need not repay any
amount where it can demonstrate to SBA's satisfaction that the property
is no longer useful for the purpose for which it was transferred and
receives SBA's prior written consent to transfer the property. For
example, if a piece of equipment breaks down beyond repair, it may be
disposed of without being
[[Page 389]]
subject to the repayment provision, so long as the concern receives
SBA's prior consent.
(6) Any funds received by SBA in enforcement of this section will be
remitted promptly to the Treasury of the United States as miscellaneous
receipts.
Contractual Assistance
Sec. 124.501 What general provisions apply to the award of 8(a)
contracts?
(a) Pursuant to section 8(a) of the Small Business Act, SBA is
authorized to enter into all types of contracts with other Federal
agencies, including contracts to furnish equipment, supplies, services,
leased real property, or materials to them or to perform construction
work for them, and to contract the performance of these contracts to
qualified Participants. Where practicable, simplified acquisition
procedures should be used for 8(a) contracts at or below the simplified
acquisition threshold. Where appropriate, SBA will delegate the contract
execution function to procuring activities. In order to receive and
retain a delegation of SBA's contract execution and review functions, a
procuring activity must report all 8(a) contract awards, modifications,
and options to SBA.
(b) 8(a) contracts may either be sole source awards or awards won
through competition with other Participants.
(c) Admission into the 8(a) BD program does not guarantee that a
Participant will receive 8(a) contracts.
(d) A requirement for possible award may be identified by SBA, a
particular Participant or the procuring activity itself. SBA will submit
the capability statements provided to SBA annually under Sec. 124.403
to appropriate procuring activities for the purpose of matching
requirements with Participants.
(e) Participants should market their capabilities to appropriate
procuring activities to increase their prospects of receiving sole
source 8(a) contracts.
(f) An 8(a) participant that identifies a requirement that appears
suitable for award through the 8(a) BD program may request SBA to
contact the procuring activity to request that the requirement be
offered to the 8(a) BD program.
(g) A concern must be a current Participant in the 8(a) BD program
at the time of award, except as provided in Sec. 124.507(d).
(h) A Participant must certify that it is a small business under the
size standard corresponding to the SIC code assigned to each 8(a)
contract. 8(a) BD program personnel will verify size prior to award of
an 8(a) contract. If the Participant is not verified as small, it may
request a formal size determination from the appropriate General
Contracting Area Office under part 121 of this title.
(i) Any person or entity that misrepresents its status as a ``small
business concern owned and controlled by socially and economically
disadvantaged individuals'' in order to obtain any 8(a) contracting
opportunity will be subject to possible criminal, civil and
administrative penalties, including those imposed by section 16(d) of
the Small Business Act, 15 U.S.C. 645(d).
Sec. 124.502 How does an agency offer a procurement to SBA for award
through the 8(a) BD program?
(a) A procuring activity contracting officer indicates his or her
formal intent to award a procurement requirement as an 8(a) contract by
submitting a written offering letter to SBA. The procuring activity may
transmit the offering letter to SBA by electronic mail, if available, or
by facsimile transmission, as well as by mail or commercial delivery
service.
(b) Contracting officers must submit offering letters to the
following locations:
(1) For competitive 8(a) requirements and those sole source
requirements for which no specific Participant is nominated (i.e., open
requirements) other than construction requirements, to the SBA district
office serving the geographical area in which the procuring activity is
located;
(2) For competitive and open construction requirements, to the SBA
district office serving the geographical area in which the work is to be
performed or, in the case of such contracts to be performed overseas, to
the Office of 8(a) BD located in SBA Headquarters;
[[Page 390]]
(3) For sole source requirements offered on behalf of a specific
Participant, to the SBA district office servicing that concern.
(c) An offering letter must contain the following information:
(1) A description of the work to be performed;
(2) The estimated period of performance;
(3) The SIC code that applies to the principal nature of the
acquisition;
(4) The anticipated dollar value of the requirement, including
options, if any;
(5) Any special restrictions or geographical limitations on the
requirement;
(6) The location of the work to be performed for construction
procurements;
(7) Any special capabilities or disciplines needed for contract
performance;
(8) The type of contract to be awarded, such as firm fixed price,
cost reimbursement, or time and materials;
(9) The acquisition history, if any, of the requirement;
(10) The names and addresses of any small business contractors which
have performed on this requirement during the previous 24 months;
(11) A statement that prior to the offering no solicitation for the
specific acquisition has been issued as a small business set-aside, or
as a small disadvantaged business set-aside if applicable, and that no
other public communication (such as a notice in the Commerce Business
Daily) has been made showing the procuring activity's clear intent to
use any of these means of procurement;
(12) Identification of any specific Participant that the procuring
activity contracting officer nominates for award of a sole source 8(a)
contract, if appropriate, including a brief justification for the
nomination, such as one of the following:
(i) The Participant, through its own efforts, marketed the
requirement and caused it to be reserved for the 8(a) BD program; or
(ii) The acquisition is a follow-on or renewal contract and the
nominated concern is the incumbent;
(13) Bonding requirements, if applicable;
(14) Identification of all Participants which have expressed an
interest in being considered for the acquisition;
(15) Identification of all SBA field offices which have requested
that the requirement be awarded through the 8(a) BD program;
(16) A request, if appropriate, that a requirement whose estimated
contract value is under the applicable competitive threshold be awarded
as an 8(a) competitive contract; and
(17) Any other information that the procuring activity deems
relevant or which SBA requests.
Sec. 124.503 How does SBA accept a procurement for award through the
8(a) BD program?
(a) Acceptance of the requirement. Upon receipt of the procuring
activity's offer of a procurement requirement, SBA will determine
whether it will accept the requirement for the 8(a) BD program. SBA's
decision whether to accept the requirement will be sent to the procuring
activity in writing within 10 working days of receipt of the written
offering letter if the contract is valued at more than the simplified
acquisition threshold, and within two days of receipt of the offering
letter if the contract is valued at or below the simplified acquisition
threshold, unless SBA requests, and the procuring activity grants, an
extension. SBA is not required to accept any particular procurement
offered to the 8(a) BD program.
(1) Where SBA decides to accept an offering of a sole source 8(a)
procurement, SBA will accept the offer both on behalf of the 8(a) BD
program and in support of a specific Participant.
(2) Where SBA decides to accept an offering of a competitive 8(a)
procurement, SBA will accept the offer on behalf of the 8(a) BD program.
(3) Where SBA has delegated its contract executio