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[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]
=20
                TITLE 13--BUSINESS CREDIT AND ASSISTANCE
=20
                CHAPTER I--SMALL BUSINESS ADMINISTRATION
=20
PART 124_8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED =
BUSINESS STATUS=20
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=20
          program?
124.3 What definitions are important in the 8(a) BD =
program?

    Eligibility Requirements for Participation in the 8(a) Business=20
                           Development Program

124.101 What are the basic requirements a concern must =
meet for the 8(a)=20
          BD program?
124.102 What size business is eligible to participate =
in the 8(a) BD=20
          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=20
          disadvantaged individuals?
124.106 When do disadvantaged individuals control an =
applicant or=20
          Participant?
124.107 What is potential for success?
124.108 What other eligibility requirements apply for =
individuals or=20
          businesses?
124.109 Do Indian tribes and Alaska Native Corporations =
have any special=20
          rules for applying to the 8(a) BD program?
124.110 Do Native Hawaiian Organizations have any =
special rules for=20
          applying to the 8(a) BD program?
124.111 Do Community Development Corporations (CDCs) =
have any special=20
          rules for applying to the 8(a) BD program?
124.112 What criteria must a business meet to remain =
eligible to=20
          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=20
          decline its application?
124.206 What appeal rights are available to an =
applicant that has been=20
          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=20
          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=20
          Participants during the two stages of participation in the=20
          8(a) BD program?
124.405 How does a Participant obtain Federal =
Government surplus=20
          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=20
          the 8(a) BD program?
124.503 How does SBA accept a procurement for award =
through the 8(a) BD=20
          program?
124.504 What circumstances limit SBA's ability to =
accept a procurement=20
          for award as an 8(a) contract?
124.505 When will SBA appeal the terms or conditions of =
a particular=20
          8(a) contract or a procuring activity decision not to reserve=20
          a requirement for the 8(a) BD program?
124.506 At what dollar threshold must an 8(a) =
procurement be competed=20
          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)=20
          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)=20
          contract?
124.514 Exercise of 8(a) options and modifications.
124.515 Can a Participant change its ownership or =
control and continue=20
          to perform an 8(a) contract, and can it transfer performance=20
          to another firm?
124.516 Who decides contract disputes arising between a =
Participant and=20
          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=20
          8(a) contract be questioned?
124.518 How can an 8(a) contract be terminated before =
performance is=20
          completed?
124.519 Are there any dollar limits on the amount of =
8(a) contracts that=20
          a Participant may receive?
124.520 Mentor/Protege program.

                  Miscellaneous Reporting Requirements

124.601 What reports does SBA require concerning =
parties who assist=20
          Participants in obtaining federal contracts?
124.602 What kind of annual financial statement must a =
Participant=20
          submit to SBA?
124.603 What reports regarding the continued business =
operations of=20
          former Participants does SBA require?

               Management and Technical Assistance Program

124.701 What is the purpose of the 7(j) management and =
technical=20
          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=20
          exclusively for concerns eligible to receive 8(a) contracts?

 Subpart B_Eligibility, Certification, and Protests Relating to Federal=20
                  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=20
          Certifier?
124.1005 Can a fee be charged to a firm to process the =
firm's=20
          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=20
          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=20
          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=20
          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=20
          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=20
          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.=20
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=20
          program?

    Sections 8(a) and 7(j) of the Small Business Act authorize a=20
Minority Small Business and Capital Ownership Development program=20
(designated the 8(a) Business Development or ``8(a) BD'' program for=20
purposes of the regulations in this part). The purpose of the 8(a) BD=20
program is to assist eligible small disadvantaged business concerns=20
compete in the American economy through business development.

Sec. 124.2  What length of time may a business =
participate in the 8(a)=20
          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=20
in the program and must inform SBA of any changes that would adversely=20
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=20
program. The nine year program term may be shortened only by=20
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=20
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=20
of proof of a minimum blood quantum, any citizen whom a Native village=20
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,=20
Village Corporation, Urban Corporation, or Group Corporation organized=20
under the laws of the State of Alaska in accordance with the Alaska=20
Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.)
    Bona fide place of business, for purposes of 8(a) construction=20
procurements, means a location where a Participant regularly maintains=20
an office which employs at least one full-time individual within the=20
appropriate geographical boundary. The term does not include=20
construction trailers or other temporary construction sites.
    Community Development Corporation or CDC means a nonprofit=20
organization responsible to residents of the area it serves which has=20
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,=20
sales, and administrative functions of the firm.
    Immediate family member means father, mother, husband, wife, son,=20
daughter, brother, sister, grandfather, grandmother, grandson,=20
granddaughter, father-in-law, and mother-in-law.
    Indian tribe means any Indian tribe, band, nation, or other=20
organized group or community of Indians, including any ANC, which is=20
recognized as eligible for the special programs and services provided by =

the United States to Indians because of their status as Indians, or is=20
recognized as such by the State in which the tribe, band, nation,

[[Page 364]]

group, or community resides. See definition of ``tribally-owned=20
concern.''
    Native Hawaiian means any individual whose ancestors were natives,=20
prior to 1778, of the area which now comprises the State of Hawaii.
    Native Hawaiian Organization means any community service=20
organization serving Native Hawaiians in the State of Hawaii which is a=20
not-for-profit organization chartered by the State of Hawaii, is=20
controlled by Native Hawaiians, and whose business activities will=20
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=20
disadvantaged status an applicant or Participant does not rely in=20
qualifying for 8(a) BD program participation.
    Participant means a small business concern admitted to participate=20
in the 8(a) BD program.
    Primary industry classification means the four digit Standard=20
Industrial Classification (SIC) code designation which best describes=20
the primary business activity of the 8(a) BD applicant or Participant.=20
The SIC code designations are described in the Standard Industrial=20
Classification Manual published by the U.S. Office of Management and=20
Budget.
    Principal place of business means the business location where the=20
individuals who manage the concern's day-to-day operations spend most=20
working hours and where top management's business records are kept. If=20
the offices from which management is directed and where the business=20
records are kept are in different locations, SBA will determine the=20
principal place of business for program purposes.
    Program year means a 12-month period of an 8(a) BD Participant's=20
program participation. The first program year begins on the date that=20
the concern is certified to participate in the 8(a) BD program and ends=20
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=20
the same two-digit ``Major Group'' of the SIC Manual as the primary=20
industry classification of the applicant or Participant. The phrase=20
``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,=20
through its marketing efforts, causes the procuring activity to offer=20
that specific requirement to the 8(a) BD program on the Participant's=20
behalf. A firm which identifies and markets a requirement which is=20
subsequently offered to the 8(a) BD program as an open requirement or on =

behalf of another Participant has not ``self-marketed'' the requirement=20
within the meaning of this part.
    Tribally-owned concern means any concern at least 51 percent owned=20
by an Indian tribe as defined in this section.
    Unconditional ownership means ownership that is not subject to=20
conditions precedent, conditions subsequent, executory agreements,=20
voting trusts, restrictions on or assignments of voting rights, or other =

arrangements causing or potentially causing ownership benefits to go to=20
another (other than after death or incapacity). The pledge or=20
encumbrance of stock or other ownership interest as collateral,=20
including seller-financed transactions, does not affect the=20
unconditional nature of ownership if the terms follow normal commercial=20
practices and the owner retains control absent violations of the terms.

    Eligibility Requirements for Participation in the 8(a) Business=20
                           Development Program

Sec. 124.101  What are the basic requirements a concern =
must meet for=20
          the 8(a) BD program?

    Generally, a concern meets the basic requirements for admission to=20
the 8(a) BD program if it is a small business which is unconditionally=20
owned and controlled by one or more socially and economically=20
disadvantaged individuals who are of good character and citizens of the=20
United States, and which demonstrates potential for success.

[[Page 365]]

Sec. 124.102  What size business is eligible to =
participate in the 8(a)=20
          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=20
one for its primary industry classification. The rules for calculating=20
the size of a tribally-owned concern, a concern owned by an Alaska=20
Native Corporation, a concern owned by a Native Hawaiian Organization,=20
or a concern owned by a Community Development Corporation are=20
additionally affected by Sec. Sec. 124.109, =
124.110, and 124.111,=20
respectively.
    (b) If 8(a) BD program officials determine that a concern may not=20
qualify as small, they may deny an application for 8(a) BD program=20
admission or may request a formal size determination under part 121 of=20
this title.
    (c) A concern whose application is denied due to size by 8(a) BD=20
program officials may request a formal size determination under part 121 =

of this title. A favorable determination will enable the firm to=20
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=20
been subjected to racial or ethnic prejudice or cultural bias within=20
American society because of their identities as members of groups and=20
without regard to their individual qualities. The social disadvantage=20
must stem from circumstances beyond their control.
    (b) Members of designated groups. (1) There is a rebuttable=20
presumption that the following individuals are socially disadvantaged:=20
Black Americans; Hispanic Americans; Native Americans (American Indians, =

Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans (persons=20
with origins from Burma, Thailand, Malaysia, Indonesia, Singapore,=20
Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia=20
(Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of=20
the Pacific Islands (Republic of Palau), Republic of the Marshall=20
Islands, Federated States of Micronesia, the Commonwealth of the=20
Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati,=20
Tuvalu, or Nauru); Subcontinent Asian Americans (persons with origins=20
from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives=20
Islands or Nepal); and members of other groups designated from time to=20
time by SBA according to procedures set forth at paragraph (d) of this=20
section. Being born in a country does not, by itself, suffice to make=20
the birth country an individual's country of origin for purposes of=20
being included within a designated group.
    (2) An individual must demonstrate that he or she has held himself=20
or herself out, and is currently identified by others, as a member of a=20
designated group if SBA requires it.
    (3) The presumption of social disadvantage may be overcome with=20
credible evidence to the contrary. Individuals possessing or knowing of=20
such evidence should submit the information in writing to the Associate=20
Administrator for 8(a) BD (AA/8(a)BD) for consideration.
    (c) Individuals not members of designated groups. (1) An individual=20
who is not a member of one of the groups presumed to be socially=20
disadvantaged in paragraph (b)(1) of this section must establish=20
individual social disadvantage by a preponderance of the evidence.
    (2) Evidence of individual social disadvantage must include the=20
following elements:
    (i) At least one objective distinguishing feature that has=20
contributed to social disadvantage, such as race, ethnic origin, gender, =

physical handicap, long-term residence in an environment isolated from=20
the mainstream of American society, or other similar causes not common=20
to individuals who are not socially disadvantaged;
    (ii) Personal experiences of substantial and chronic social=20
disadvantage in American society, not in other countries; and
    (iii) Negative impact on entry into or advancement in the business=20
world because of the disadvantage. SBA will consider any relevant=20
evidence in assessing this element. In every case, however, SBA will=20
consider education, employment and business history, where applicable,=20
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=20
to institutions of higher education, exclusion from social and=20
professional association with students or teachers, denial of=20
educational honors rightfully earned, and social patterns or pressures=20
which discouraged the individual from pursuing a professional or=20
business education.
    (B) Employment. SBA considers such factors as unequal treatment in=20
hiring, promotions and other aspects of professional advancement, pay=20
and fringe benefits, and other terms and conditions of employment;=20
retaliatory or discriminatory behavior by an employer; and social=20
patterns or pressures which have channelled the individual into=20
nonprofessional or non-business fields.
    (C) Business history. SBA considers such factors as unequal access=20
to credit or capital, acquisition of credit or capital under=20
commercially unfavorable circumstances, unequal treatment in=20
opportunities for government contracts or other work, unequal treatment=20
by potential customers and business associates, and exclusion from=20
business or professional organizations.
    (d) Socially disadvantaged group inclusion--(1) General.=20
Representatives of an identifiable group whose members believe that the=20
group has suffered chronic racial or ethnic prejudice or cultural bias=20
may petition SBA to be included as a presumptively socially=20
disadvantaged group under paragraph (b)(1) of this section. Upon=20
presentation of substantial evidence that members of the group have been =

subjected to racial or ethnic prejudice or cultural bias because of=20
their identity as group members and without regard to their individual=20
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=20
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=20
prejudice or cultural bias for the purposes of this section, SBA must=20
determine that:
    (i) The group has suffered prejudice, bias, or discriminatory=20
practices;
    (ii) Those conditions have resulted in economic deprivation for the=20
group of the type which Congress has found exists for the groups named=20
in the Small Business Act; and
    (iii) Those conditions have produced impediments in the business=20
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=20
section will authorize a specified period for the receipt of public=20
comments supporting or opposing the petition for socially disadvantaged=20
group status. If appropriate, SBA may hold hearings. SBA may also=20
conduct its own research relative to the group's petition.
    (4) Decision. In making a final decision that a group should be=20
considered presumptively disadvantaged, SBA must find that a=20
preponderance of the evidence demonstrates that the group has met the=20
standards set forth in paragraph (d)(2) of this section based on SBA's=20
consideration of the group petition, the comments from the public, and=20
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=20
disadvantaged individuals whose ability to compete in the free=20
enterprise system has been impaired due to diminished capital and credit =

opportunities as compared to others in the same or similar line of=20
business who are not socially disadvantaged.
    (b) Submission of narrative and financial information. (1) Each=20
individual claiming economic disadvantage must describe it in a=20
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=20
credit opportunities, SBA will examine factors relating to the personal=20
financial condition of any individual claiming disadvantaged status,=20
including personal income for the past two years (including bonuses and=20
the value of company stock given in lieu of cash), personal net worth,=20
and the fair market value of all assets, whether encumbered or not. SBA=20
will also consider the financial condition of the applicant compared to=20
the financial profiles of small businesses in the same primary industry=20
classification, or, if not available, in similar lines of business,=20
which are not owned and controlled by socially and economically=20
disadvantaged individuals in evaluating the individual's access to=20
credit and capital. The financial profiles that SBA compares include=20
total assets, net sales, pre tax profit, sales/working capital ratio,=20
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=20
immediate family member, for less than fair market value, within two=20
years prior to a concern's application for participation in the 8(a) BD=20
program or within two years of a Participant's annual program review,=20
unless the individual claiming disadvantaged status can demonstrate that =

the transfer is to or on behalf of an immediate family member for that=20
individual's education, medical expenses, or some other form of=20
essential support.
    (ii) SBA will not attribute to an individual claiming disadvantaged=20
status any assets transferred by that individual to an immediate family=20
member that are consistent with the customary recognition of special=20
occasions, such as birthdays, graduations, anniversaries, and=20
retirements.
    (iii) In determining an individual's access to capital and credit,=20
SBA may consider any assets that the individual transferred within such=20
two-year period described by paragraph (c)(1)(i) of this section that=20
SBA does not consider in evaluating the individual's assets and net=20
worth (e.g., transfers to charities).
    (2) Net worth. For initial 8(a) BD eligibility, the net worth of an=20
individual claiming disadvantage must be less than $250,000. For=20
continued 8(a) BD eligibility after admission to the program, net worth=20
must be less than $750,000. In determining such net worth, SBA will=20
exclude the ownership interest in the applicant or Participant and the=20
equity in the primary personal residence (except any portion of such=20
equity which is attributable to excessive withdrawals from the applicant =

or Participant). Exclusions for net worth purposes are not exclusions=20
for asset valuation or access to capital and credit purposes.
    (i) A contingent liability does not reduce an individual's net=20
worth.
    (ii) The personal net worth of an individual claiming to be an=20
Alaska Native will include assets and income from sources other than an=20
Alaska Native Corporation and exclude any of the following which the=20
individual receives from any Alaska Native Corporation: cash (including=20
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=20
(including stock issued or distributed by an ANC as a dividend or=20
distribution on stock); a partnership interest; land or an interest in=20
land (including land or an interest in land received from an ANC as a=20
dividend or distribution on stock); and an interest in a settlement=20
trust.

Sec. 124.105  What does it mean to be unconditionally =
owned by one or=20
          more disadvantaged individuals?

    An applicant or Participant must be at least 51 percent=20
unconditionally and directly owned by one or more socially and=20
economically disadvantaged individuals who are citizens of the United=20
States, except for concerns owned by Indian tribes, Alaska Native=20
Corporations, Native Hawaiian Organizations, or Community Development=20
Corporations (CDCs). See Sec. 124.3 for definition of =
unconditional=20
ownership; and Sec. Sec. 124.109,

[[Page 368]]

124.110, and 124.111, respectively, =
for special ownership requirements=20
for concerns owned by Indian tribes, ANCs, Native Hawaiian=20
Organizations, and CDCs.
    (a) Ownership must be direct. Ownership by one or more disadvantaged =

individuals must be direct ownership. An applicant or Participant owned=20
principally by another business entity or by a trust (including employee =

stock ownership trusts) that is in turn owned and controlled by one or=20
more disadvantaged individuals does not meet this requirement. However,=20
ownership by a trust, such as a living trust, may be treated as the=20
functional equivalent of ownership by a disadvantaged individual where=20
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=20
partnership, at least 51 percent of every class of partnership interest=20
must be unconditionally owned by one or more individuals determined by=20
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=20
concern which is a limited liability company, at least 51 percent of=20
each class of member interest must be unconditionally owned by one or=20
more individuals determined by SBA to be socially and economically=20
disadvantaged.
    (d) Ownership of a corporation. In the case of a concern which is a=20
corporation, at least 51 percent of each class of voting stock=20
outstanding and 51 percent of the aggregate of all stock outstanding=20
must be unconditionally owned by one or more individuals determined by=20
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=20
agreements held by disadvantaged individuals. However, any unexercised=20
stock options or similar agreements (including rights to convert non-
voting stock or debentures into voting stock) held by non-disadvantaged=20
individuals will be treated as exercised, except for any ownership=20
interests which are held by investment companies licensed under the=20
Small Business Investment Act of 1958.
    (f) Dividends and distributions. One or more disadvantaged=20
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=20
100 percent of the unencumbered value of each share of stock owned in=20
the event of dissolution of the corporation.
    (g) Ownership of another Participant. The individuals determined to=20
be disadvantaged for purposes of one Participant, their immediate family =

members, and the Participant itself, may not hold, in the aggregate,=20
more than a 20 percent equity ownership interest in any other single=20
Participant.
    (h) Ownership restrictions for non-disadvantaged individuals and=20
concerns. (1) A non-disadvantaged individual (in the aggregate with all=20
immediate family members) or a non-Participant concern that is a general =

partner or stockholder with at least a 10 percent ownership interest in=20
one Participant may not own more than a 10 percent interest in another=20
Participant that is in the developmental stage or more than a 20 percent =

interest in another Participant in the transitional stage of the=20
program. This restriction does not apply to financial institutions=20
licensed or chartered by Federal, state or local government, including=20
investment companies which are licensed under the Small Business=20
Investment Act of 1958.
    (2) A non-Participant concern in the same or similar line of=20
business may not own more than a 10 percent interest in a Participant=20
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=20
former Participant or a principal of a former Participant (except those=20
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=20
up to 20 percent in a current Participant

[[Page 369]]

in the developmental stage of the program or up to 30 percent in a=20
transitional stage Participant, in the same or similar line of business.
    (i) Change of ownership. A Participant may change its ownership or=20
business structure so long as one or more disadvantaged individuals own=20
and control it after the change and SBA approves the transaction in=20
writing prior to the change. The decision to approve or deny a=20
Participant's request for a change in ownership or business structure=20
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=20
lapse without a decision from SBA, the Participant cannot presume that=20
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=20
grounds for program termination where the change is made nevertheless.
    (1) Any Participant that was awarded one or more 8(a) contracts may=20
substitute one disadvantaged individual for another disadvantaged=20
individual without requiring the termination of those contracts or a=20
request for waiver under Sec. 124.515, as long as it =
receives SBA's=20
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,=20
prior approval is not required, but the concern must notify SBA within=20
60 days.
    (3) Continued participation of the Participant with new ownership=20
and the award of any new 8(a) contracts requires SBA's determination=20
that all eligibility requirements are met by the concern and the new=20
owners.
    (4) Where a Participant requests a change of ownership or business=20
structure, and proceeds with the change prior to receiving SBA approval=20
(or where a change of ownership results from the death or incapacity of=20
a disadvantaged individual for which a request prior to the change in=20
ownership could not occur), SBA will suspend the Participant from=20
program benefits pending resolution of the request. If the change is=20
approved, the length of the suspension will be restored to the=20
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=20
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=20
owner will have four years remaining until program graduation.
    (j) Public offering. A Participant's request for SBA's approval for=20
the issuance of a public offering will be treated as a request for a=20
change of ownership. Such request will cause SBA to examine the=20
concern's continued need for access to the business development=20
resources of the 8(a) BD program.
    (k) Community property laws given effect. In determining ownership=20
interests when an owner resides in any of the community property states=20
or territories of the United States (Arizona, California, Idaho,=20
Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and=20
Wisconsin), SBA considers applicable state community property laws. If=20
only one spouse claims disadvantaged status, that spouse's ownership=20
interest will be considered unconditionally held only to the extent it=20
is vested by the community property laws. A transfer or relinquishment=20
of interest by the non-disadvantaged spouse may be necessary in some=20
cases to establish eligibility.

Sec. 124.106  When do disadvantaged individuals control =
an applicant or=20
          Participant?

    Control is not the same as ownership, although both may reside in=20
the same person. SBA regards control as including both the strategic=20
policy setting exercised by boards of directors and the day-to-day=20
management and administration of business operations. An applicant or=20
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=20
Community Development Corporations (CDCs). (See Sec. Sec. =
124.109,=20
124.110, and 124.111, respectively, =
for the requirements for concerns=20
owned by Indian tribes or ANCs, for concerns owned by Native Hawaiian=20
Organizations, and for CDC-owned concerns.) Disadvantaged individuals=20
managing the concern must have managerial experience of the extent and=20
complexity needed to run the concern. A disadvantaged individual need=20
not have the technical expertise or possess a required license to be=20
found to control an applicant or Participant if he or she can=20
demonstrate that he or she has ultimate managerial and supervisory=20
control over those who possess the required licenses or technical=20
expertise. However, where a critical license is held by a non-
disadvantaged individual having an equity interest in the applicant or=20
Participant firm, the non-disadvantaged individual may be found to=20
control the firm.
    (a)(1) An applicant or Participant must be managed on a full-time=20
basis by one or more disadvantaged individuals who possess requisite=20
management capabilities.
    (2) A disadvantaged full-time manager must hold the highest officer=20
position (usually President or Chief Executive Officer) in the applicant =

or Participant.
    (3) One or more disadvantaged individuals who manage the applicant=20
or Participant must devote full-time to the business during the normal=20
working hours of firms in the same or similar line of business. Work in=20
a wholly-owned subsidiary of the applicant or participant may be=20
considered to meet the requirement of full-time devotion. This applies=20
only to a subsidiary owned by the 8(a) firm, and not to firms in which=20
the disadvantaged individual has an ownership interest.
    (4) Any disadvantaged manager who wishes to engage in outside=20
employment must notify SBA of the nature and anticipated duration of the =

outside employment and obtain the prior written approval of SBA. SBA=20
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=20
disadvantaged owner's unexercised right to cause a change in the control =

or management of the applicant concern does not in itself constitute=20
disadvantaged control and management, regardless of how quickly or=20
easily the right could be exercised.
    (b) In the case of a partnership, one or more disadvantaged=20
individuals must serve as general partners, with control over all=20
partnership decisions. A partnership in which no disadvantaged=20
individual is a general partner will be ineligible for participation.
    (c) In the case of a limited liability company, one or more=20
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=20
Directors of a corporate applicant or Participant.
    (1) SBA will deem disadvantaged individuals to control the Board of=20
Directors where:
    (i) A single disadvantaged individual owns 100% of all voting stock=20
of an applicant or Participant concern;
    (ii) A single disadvantaged individual owns at least 51% of all=20
voting stock of an applicant or Participant concern, the individual is=20
on the Board of Directors and no super majority voting requirements=20
exist for shareholders to approve corporation actions. Where super=20
majority voting requirements are provided for in the concern's articles=20
of incorporation, its by-laws, or by state law, the disadvantaged=20
individual must own at least the percent of the voting stock needed to=20
overcome any such super majority voting requirements; or
    (iii) More than one disadvantaged shareholder seeks to qualify the=20
concern (i.e., no one individual owns 51%), each such individual is on=20
the Board of Directors, together they own at least 51% of all voting=20
stock of the concern, no super majority voting requirements exist, and=20
the disadvantaged shareholders can demonstrate that they have made=20
enforceable arrangements to permit one of them to vote the stock of all=20
as a block without a shareholder

[[Page 371]]

meeting. Where the concern has super majority voting requirements, the=20
disadvantaged shareholders must own at least that percentage of voting=20
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=20
individual(s) upon whom eligibility is based must control the Board of=20
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=20
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=20
8(a) participation). Where a concern seeks to comply with this=20
paragraph:
    (i) Provisions for the establishment of a quorum cannot permit non-
disadvantaged Directors to control the Board of Directors, directly or=20
indirectly;
    (ii) Any Executive Committee of Directors must be controlled by=20
disadvantaged directors unless the Executive Committee can only make=20
recommendations to and cannot independently exercise the authority of=20
the Board of Directors.
    (3) An applicant must inform SBA of any super majority voting=20
requirements provided for in its articles of incorporation, its by-laws, =

by state law, or otherwise. Similarly, after being admitted to the=20
program, a Participant must inform SBA of changes regarding super=20
majority voting requirements.
    (4) Non-voting, advisory, or honorary Directors may be appointed=20
without affecting disadvantaged individuals' control of the Board of=20
Directors.
    (5) Arrangements regarding the structure and voting rights of the=20
Board of Directors must comply with applicable state law.
    (e) Non-disadvantaged individuals may be involved in the management=20
of an applicant or Participant, and may be stockholders, partners,=20
limited liability members, officers, and/or directors of the applicant=20
or Participant. However, no such non-disadvantaged individual or=20
immediate family member may:
    (1) Exercise actual control or have the power to control the=20
applicant or Participant;
    (2) Be a former employer or a principal of a former employer of any=20
disadvantaged owner of the applicant or Participant, unless it is=20
determined by the AA/8(a)BD that the relationship between the former=20
employer or principal and the disadvantaged individual or applicant=20
concern does not give the former employer actual control or the=20
potential to control the applicant or Participant and such relationship=20
is in the best interests of the 8(a) BD firm; or
    (3) Receive compensation from the applicant or Participant in any=20
form as directors, officers or employees, including dividends, that=20
exceeds the compensation to be received by the highest officer (usually=20
CEO or President). The highest ranking officer may elect to take a lower =

salary than a non-disadvantaged individual only upon demonstrating that=20
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=20
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=20
ownership or control of the firm to an immediate family member within=20
two years prior to the application and remain involved in the firm as a=20
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=20
the operation of the firm.
    (g) Non-disadvantaged individuals or entities may be found to=20
control or have the power to control in any of the following=20
circumstances, which are illustrative only and not all inclusive:
    (1) In circumstances where an applicant or Participant seeks to=20
establish disadvantaged control of the Board of Directors through=20
paragraph (d)(2) of this section, non-disadvantaged individuals control=20
the Board of Directors of the applicant or Participant, either

[[Page 372]]

directly through majority voting membership, or indirectly, where the=20
by-laws allow non-disadvantaged individuals effectively to prevent a=20
quorum or block actions proposed by the disadvantaged individuals.
    (2) A non-disadvantaged individual or entity, having an equity=20
interest in the applicant or participant, provides critical financial or =

bonding support or a critical license to the applicant or Participant=20
which directly or indirectly allows the non-disadvantaged individual=20
significantly to influence business decisions of the Participant.
    (3) A non-disadvantaged individual or entity controls the applicant=20
or Participant or an individual disadvantaged owner through loan=20
arrangements. Providing a loan guaranty on commercially reasonable terms =

does not, by itself, give a non-disadvantaged individual or entity the=20
power to control a firm.
    (4) Business relationships exist with non-disadvantaged individuals=20
or entities which cause such dependence that the applicant or=20
Participant cannot exercise independent business judgment without great=20
economic risk.

Sec. 124.107  What is potential for success?

    The applicant concern must possess reasonable prospects for success=20
in competing in the private sector if admitted to the 8(a) BD program.=20
To do so, it must be in business in its primary industry classification=20
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=20
show operating revenues in the primary industry in which the applicant=20
is seeking 8(a) BD certification.
    (b)(1) SBA may waive the two years in business requirement if each=20
of the following five conditions are met:
    (i) The individual or individuals upon whom eligibility is based=20
have substantial business management experience;
    (ii) The applicant has demonstrated technical experience to carry=20
out its business plan with a substantial likelihood for success if=20
admitted to the 8(a) BD program;
    (iii) The applicant has adequate capital to sustain its operations=20
and carry out its business plan as a Participant;
    (iv) The applicant has a record of successful performance on=20
contracts from governmental or nongovernmental sources in its primary=20
industry category; and
    (v) The applicant has, or can demonstrate its ability to timely=20
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=20
information on governmental and nongovernmental contracts in progress=20
and completed (including letters of reference) in order to establish=20
successful contract performance, and must demonstrate how it otherwise=20
meets the five conditions for waiver. SBA considers an applicant's=20
performance on both government and private sector contracts in=20
determining whether the firm has an overall successful performance=20
record. If, however, the applicant has performed only government=20
contracts or only private sector contracts, SBA will review its=20
performance on those contracts alone to determine whether the applicant=20
possesses a record of successful performance.
    (c) In assessing potential for success, SBA considers the concern's=20
access to credit and capital, including, but not limited to, access to=20
long-term financing, access to working capital financing, equipment=20
trade credit, access to raw materials and supplier trade credit, and=20
bonding capability.
    (d) In assessing potential for success, SBA will also consider the=20
technical and managerial experience of the applicant concern's managers, =

the operating history of the concern, the concern's record of=20
performance on previous Federal and private sector contracts in the=20
primary industry in which the concern is seeking 8(a) BD certification,=20
and its financial capacity. The applicant concern as a whole must=20
demonstrate both technical knowledge in its primary industry category=20
and management experience sufficient to run its day-to-day operations.
    (e) The Participant or individuals employed by the Participant must=20
hold all requisite licenses if the concern is

[[Page 373]]

engaged in an industry requiring professional licensing (e.g., public=20
accountancy, law, professional engineering).
    (f) An applicant will not be denied admission into the 8(a) BD=20
program due solely to a determination that potential 8(a) contract=20
opportunities are unavailable to assist in the development of the=20
concern unless:
    (1) The Government has not previously procured and is unlikely to=20
procure the types of products or services offered by the concern; or
    (2) The purchase of such products or services by the Federal=20
Government will not be in quantities sufficient to support the=20
developmental needs of the applicant and other Participants providing=20
the same or similar items or services.

Sec. 124.108  What other eligibility requirements apply =
for individuals=20
          or businesses?

    (a) Good character. The applicant or Participant and all its=20
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=20
criminal conduct by the applicant or any of its principals, no further=20
action will be taken on the application until SBA's Inspector General=20
has collected relevant information and has advised the AA/8(a)BD of his=20
or her findings. The AA/8(a)BD will consider those findings when=20
evaluating the application.
    (2) Violations of any of SBA's regulations may result in denial of=20
participation in the 8(a) BD program. The AA/8(a)BD will consider the=20
nature and severity of the violation in making an eligibility=20
determination.
    (3) Debarred or suspended concerns or concerns owned by debarred or=20
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=20
if the applicant concern or a proprietor, partner, limited liability=20
member, director, officer, or holder of at least 10 percent of its=20
stock, or another person (including key employees) with significant=20
authority over the concern:
    (i) Lacks business integrity as demonstrated by information related=20
to an indictment or guilty plea, conviction, civil judgment, or=20
settlement; or
    (ii) Is currently incarcerated, or on parole or probation pursuant=20
to a pre-trial diversion or following conviction for a felony or any=20
crime involving business integrity.
    (5) If, during the processing of an application, SBA determines that =

an applicant has knowingly submitted false information, regardless of=20
whether correct information would cause SBA to deny the application, and =

regardless of whether correct information was given to SBA in=20
accompanying documents, SBA will deny the application. If, after=20
admission to the program, SBA discovers that false information has been=20
knowingly submitted by a firm, SBA will initiate termination proceedings =

and suspend the firm under Sec. Sec. 124.304 and =
124.305. Whenever SBA=20
determines that the applicant submitted false information, the matter=20
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=20
appropriate SBA forms to qualify an applicant has participated in the=20
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=20
qualify a concern for the 8(a) BD program will be considered a non-
disadvantaged individual for ownership or control purposes of another=20
applicant or Participant. The criteria restricting participation by non-
disadvantaged individuals will apply to such an individual. See=20
Sec. Sec. 124.105 and 124.106.
    (4) When at least 50% of the assets of a concern are the same as=20
those of a former Participant, the concern will not be eligible for=20
entry into the program.

[[Page 374]]

    (5) Participants which change their form of business organization=20
and transfer their assets and liabilities to the new organization may do =

so without affecting the eligibility of the new organization provided=20
the previous business is dissolved and all other eligibility criteria=20
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=20
business form will be treated as a change of ownership under Sec.=20
124.105(i).
    (c) Wholesalers. An applicant concern seeking admission to the 8(a)=20
BD program as a wholesaler need not demonstrate that it is capable of=20
meeting the requirements of the nonmanufacturer rule for its primary=20
industry classification.
    (d) Brokers. Brokers are ineligible to participate in the 8(a) BD=20
program. A broker is a concern that adds no material value to an item=20
being supplied to a procuring activity or which does not take ownership=20
or possession of or handle the item being procured with its own=20
equipment or facilities.
    (e) Federal financial obligations. Neither a firm nor any of its=20
principals that fails to pay significant financial obligations owed to=20
the Federal Government, including unresolved tax liens and defaults on=20
Federal loans or other Federally assisted financing, is eligible for=20
admission to or participation in the 8(a) BD program.
    (f) Achievement of benchmarks. Where actual participation by=20
disadvantaged businesses in a particular SIC Major Group exceeds the=20
benchmark limitations established by the Department of Commerce, SBA, in =

its discretion, may decide not to accept an application for 8(a) BD=20
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=20
          special rules for applying to the 8(a) BD program?

    (a) Special rules for ANCs. Small business concerns owned and=20
controlled by ANCs are eligible for participation in the 8(a) program=20
and must meet the eligibility criteria set forth in Sec. =
124.112 to the=20
extent the criteria are not inconsistent with this section. ANC-owned=20
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=20
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=20
directors of the ANC through their holdings of settlement common stock.=20
Settlement common stock means stock of an ANC issued pursuant to 43=20
U.S.C. 1606(g)(1), which is subject to the rights and restrictions=20
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.=20
1626(e), and need not establish economic disadvantage as required by=20
paragraph (b)(2) of this section.
    (3) Even though an ANC can be either for profit or non-profit, a=20
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=20
and controlled by the ANC where both the majority of stock or other=20
ownership interest and total voting power are held by the ANC and=20
holders of its settlement common stock.
    (4) The Alaska Native Claims Settlement Act provides that a concern=20
which is majority owned by an ANC shall be deemed to be both owned and=20
controlled by Alaska Natives and an economically disadvantaged business. =

Therefore, an individual responsible for control and management of an=20
ANC-owned applicant or Participant need not establish personal social=20
and economic disadvantage.
    (5) Paragraphs (b)(3)(i), (ii) and (iv) of this section are not=20
applicable to an ANC, provided its status as an ANC is clearly shown in=20
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=20
immunity or a ``sue and be sued'' clause.

[[Page 375]]

    (b) Tribal eligibility. In order to qualify a concern which it owns=20
and controls for participation in the 8(a) BD program, an Indian tribe=20
must establish its own economic disadvantaged status under paragraph=20
(b)(2) of this section. Thereafter, it need not reestablish such status=20
in order to have other businesses that it owns certified for 8(a) BD=20
program participation, unless specifically required to do so by the AA/
8(a)BD or designee. Each tribally-owned concern seeking to be certified=20
for 8(a) BD participation must comply with the provisions of paragraph=20
(c) of this section.
    (1) Social disadvantage. An Indian tribe as defined in Sec. =
124.3=20
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=20
tribe itself is economically disadvantaged. This must involve the=20
consideration of available data showing the tribe's economic condition,=20
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=20
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=20
statement. The statement must list all assets including those which are=20
encumbered or held in trust, but the status of those encumbered or in=20
trust must be clearly delineated.
    (vii) A list of all wholly or partially owned tribal enterprises or=20
affiliates and the primary industry classification of each. The list=20
must also specify the members of the tribe who manage or control such=20
enterprises by serving as officers or directors.
    (3) Forms and documents required to be submitted. Except as=20
otherwise provided in this section, the Indian tribe generally must=20
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=20
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=20
residence.
    (iii) Copies of its articles of incorporation and bylaws as filed=20
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=20
disadvantaged status as described in paragraph (b)(2) of this section.
    (c) Business eligibility. In order to be eligible to participate in=20
the 8(a) BD program, a concern which is owned by an eligible Indian=20
tribe (or wholly owned business entities of such tribe) must meet the=20
conditions set forth in paragraphs (c)(1) through (c)(7) of this=20
section.
    (1) Legal business entity organized for profit and susceptible to=20
suit. The applicant or participating concern must be a separate and=20
distinct legal entity organized or chartered by the tribe, or Federal or =

state authorities. The concern's articles of incorporation, partnership=20
agreement or limited liability company articles of organization must=20
contain express sovereign immunity waiver language, or a ``sue and be=20
sued'' clause which designates United States Federal Courts to be among=20
the courts of competent jurisdiction for all matters relating to SBA's=20
programs including, but not limited to, 8(a) BD program participation,=20
loans, and contract performance. Also, the concern must be organized for =

profit, and the tribe must possess economic development powers in the=20
tribe's governing documents.
    (2) Size. (i) A tribally-owned applicant concern must qualify as a=20
small business concern as defined for purposes of Federal Government=20
procurement in part 121 of this title. The particular size standard to=20
be applied is based on the primary industry classification of the=20
applicant concern.
    (ii) A tribally-owned Participant must certify to SBA that it is a=20
small business pursuant to the provisions of part 121 of this title for=20
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=20
business entity of such tribe) for either 8(a) BD program entry or=20
contract award, the firm's size shall be determined independently=20
without regard to its affiliation with the tribe, any entity of the=20
tribal government, or any other business enterprise owned by the tribe,=20
unless the Administrator determines that one or more such tribally-owned =

business concerns have obtained, or are likely to obtain, a substantial=20
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=20
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=20
operating in the 8(a) program under the same primary SIC code as the=20
applicant. A tribe may, however, own a Participant or an applicant that=20
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;=20
they do, however, apply to non disadvantaged individuals or other=20
business concerns that are partial owners of a tribally-owned concern.
    (4) Control and management. (i) The management and daily business=20
operations of a tribally-owned concern must be controlled by the tribe,=20
through one or more disadvantaged individual members who possess=20
sufficient management experience of an extent and complexity needed to=20
run the concern, or through management as follows:
    (A) Management may be provided by committees, teams, or Boards of=20
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=20
determines that such management is required to assist the concern's=20
development, that the tribe will retain control of all management=20
decisions common to boards of directors, including strategic planning,=20
budget approval, and the employment and compensation of officers, and=20
that a written management development plan exists which shows how=20
disadvantaged tribal members will develop managerial skills sufficient=20
to manage the concern or similar tribally-owned concerns in the future.
    (ii) Members of the management team, business committee members,=20
officers, and directors are precluded from engaging in any outside=20
employment or other business interests which conflict with the=20
management of the concern or prevent the concern from achieving the=20
objectives set forth in its business development plan. This is not=20
intended to preclude participation in tribal or other activities which=20
do not interfere with such individual's responsibilities in the=20
operation of the applicant concern.
    (5) Individual eligibility limitation. SBA does not deem an=20
individual involved in the management or daily business operations of a=20
tribally-owned concern to have used his or her individual eligibility=20
within the meaning of Sec. 124.108(b).
    (6) Potential for success. (i) A tribally-owned applicant concern=20
must be in business for at least two years, as evidenced by income tax=20
returns for each of the two previous tax years showing operating=20
revenues in the primary industry in which the applicant is seeking 8(a)=20
BD certification, or demonstrate potential for success as set forth in=20
paragraph (c)(6)(ii) of this section.
    (ii) In determining whether a tribally-owned concern has the=20
potential for success, SBA will look at a number of factors including,=20
but not limited to:
    (A) The technical and managerial experience and competency of the=20
individual(s) who will manage and control the daily operation of the=20
concern;
    (B) The financial capacity of the concern; and

[[Page 377]]

    (C) The concern's record of performance on any previous Federal or=20
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=20
8(a) program due solely to a determination that specific contract=20
opportunities are unavailable to assist the development of the concern=20
unless:
    (A) The Government has not previously procured and is unlikely to=20
procure the types of products or services offered by the concern; or
    (B) The purchase of such products or services by the Federal=20
Government will not be in quantities sufficient to support the=20
developmental needs of the applicant and other program participants=20
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=20
good character. See Sec. 124.108(a).

Sec. 124.110  Do Native Hawaiian Organizations have any =
special rules=20
          for applying to the 8(a) BD program?

    (a) Concerns owned by economically disadvantaged Native Hawaiian=20
Organizations, as defined in Sec. 124.3, are eligible =
for participation=20
in the 8(a) program and other federal programs requiring SBA to=20
determine social and economic disadvantage as a condition of=20
eligibility. Such concerns must meet all eligibility criteria set forth=20
in Sec. Sec. 124.101 through 124.108 =
and Sec. 124.112 to the extent=20
that they are not inconsistent with this section.
    (b) A concern owned by a Native Hawaiian Organization must qualify=20
as a small business concern as defined in part 121 of this title. The=20
size standard corresponding to the primary industry classification of=20
the applicant concern applies for determining size. SBA will determine=20
the concern's size independently, without regard to its affiliation with =

the Native Hawaiian Organization or any other business enterprise owned=20
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=20
a Participant or an applicant that conducts or will conduct secondary=20
business in the 8(a) BD program under the same SIC code that a current=20
Participant owned by the Native Hawaiian Organization operates in the=20
8(a) BD program as its primary SIC code.
    (d) SBA does not deem an individual involved in the management or=20
daily business operations of a Participant owned by a Native Hawaiian=20
Organization to have used his or her individual eligibility within the=20
meaning of Sec. 124.108(b).
    (e)(1) An applicant concern owned by a Native Hawaiian Organization=20
must be in business for at least two years, as evidenced by income tax=20
returns for each of the two previous tax years showing operating=20
revenues in the primary industry in which the applicant is seeking 8(a)=20
BD certification, or demonstrate potential for success as set forth in=20
paragraph (e)(2) of this section.
    (2) In determining whether a concern owned by a Native Hawaiian=20
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=20
individual(s) who will manage and control the daily operation of the=20
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=20
          special rules for applying to the 8(a) BD program?

    (a) Concerns owned at least 51 percent by CDCs (or a wholly owned=20
business entity of a CDC) are eligible for participation in the 8(a) BD=20
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.=20
124.108 and Sec. 124.112 to the extent =
that they are not inconsistent=20
with this section.
    (b) A concern that is at least 51 percent owned by a CDC (or a=20
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=20
section and its management and daily business operations are conducted=20
by one or more individuals determined to have managerial experience of=20
an extent and complexity needed to run the concern.
    (c) A concern that is at least 51 percent owned by a CDC (or a=20
wholly owned business entity of a CDC) must qualify as a small business=20
concern as defined in part 121 of this title. The size standard=20
corresponding to the primary industry classification of the applicant=20
concern applies for determining size. SBA will determine the concern's=20
size independently, without regard to its affiliation with the CDC or=20
any other business enterprise owned by the CDC, unless the Administrator =

determines that one or more such concerns owned by the CDC have=20
obtained, or are likely to obtain, a substantial unfair competitive=20
advantage within an industry category.
    (d) A CDC cannot own 51% or more of another firm which, either at=20
the time of application or within the previous two years, has been=20
operating in the 8(a) program under the same primary SIC code as the=20
applicant. A CDC may, however, own a Participant or an applicant that=20
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=20
in the 8(a) BD program as its primary SIC code.
    (e) SBA does not deem an individual involved in the management or=20
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=20
least two years, as evidenced by income tax returns for each of the two=20
previous tax years showing operating revenues in the primary industry in =

which the applicant is seeking 8(a) BD certification, or demonstrate=20
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=20
individual(s) who will manage and control the daily operation of the=20
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=20
character as set forth in Sec. 124.108(a).

Sec. 124.112  What criteria must a business meet to =
remain eligible to=20
          participate in the 8(a) BD program?

    (a) Standards. In order for a concern (except those owned by Indian=20
tribes, ANCs, Native Hawaiian Organizations or CDCs) to remain eligible=20
for 8(a) BD program participation, it must continue to meet all=20
eligibility criteria contained in Sec. 124.101 through =
Sec. 124.108.=20
For concerns owned by Indian tribes, ANCs, Native Hawaiian Organizations =

or CDCs to remain eligible, they must meet the criteria set forth in=20
this Sec. 124.112 to the extent that they are not =
inconsistent with=20
Sec. 124.109, Sec. 124.110 and Sec. =
124.111, respectively. The=20
concern must inform SBA in writing of any changes in circumstances which =

would adversely affect its program eligibility, especially economic=20
disadvantage and ownership and control. Any concern

[[Page 379]]

that fails to meet the eligibility requirements after being admitted to=20
the program will be subject to termination or early graduation under=20
Sec. Sec. 124.302 through 124.304, as =
appropriate.
    (b) Submissions supporting continued eligibility. As part of an=20
annual review, each Participant must annually submit to the servicing=20
district office the following:
    (1) A certification that it meets the 8(a) BD program eligibility=20
requirements as set forth in Sec. 124.101 through Sec. =
124.108 and=20
paragraph (a) of this section;
    (2) A certification that there have been no changed circumstances=20
which could adversely affect the Participant's program eligibility. If=20
the Participant is unable to provide such certification, the Participant =

must inform SBA of any changes and provide relevant supporting=20
documentation.
    (3) Personal financial information for each disadvantaged owner;
    (4) A record from each individual claiming disadvantaged status=20
regarding the transfer of assets for less than fair market value to any=20
immediate family member, or to a trust any beneficiary of which is an=20
immediate family member, within two years of the date of the annual=20
review. The record must provide the name of the recipient(s) and family=20
relationship, and the difference between the fair market value of the=20
asset transferred and the value received by the disadvantaged=20
individual.
    (5) A record of all payments, compensation, and distributions=20
(including loans, advances, salaries and dividends) made by the=20
Participant to each of its owners, officers or directors, or to any=20
person or entity affiliated with such individuals;
    (6) If it is an approved protege, a narrative report detailing the=20
contacts it has had with its mentor and benefits it has received from=20
the mentor/protege relationship. See Sec. 124.520(b)(4) =
for additional=20
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=20
required annual submissions, see Sec. Sec. 124.601 =
through 124.603.
    (c) Eligibility reviews. (1) Upon receipt of specific and credible=20
information alleging that a Participant no longer meets the eligibility=20
requirements for continued program eligibility, SBA will review the=20
concern's eligibility for continued participation in the program.
    (2) Sufficient reasons for SBA to conclude that a socially=20
disadvantaged individual is no longer economically disadvantaged=20
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=20
consider access by the Participant firm to a significant new source of=20
capital or loans since the financial condition of the Participant is=20
considered in evaluating the disadvantaged individual's economic status.
    (d) Excessive withdrawals. (1) The term withdrawal includes, but is=20
not limited to, the following: officer's salary; cash dividends;=20
distributions in excess of amounts needed to pay S Corporation taxes;=20
cash and property withdrawals; bonuses; loans; advances; payments to=20
immediate family members; investments on behalf of an owner, officer, or =

key employee; acquisition of a business not merged with the 8(a)=20
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=20
124.304 where the withdrawals detrimentally affect the =
achievement of=20
the Participant's targets, objectives and goals set forth in its=20
business plan, or its overall business development;
    (ii) Initiate early graduation proceedings under Sec. Sec. =
124.302=20
and 124.303 where the withdrawals do not adversely =
affect the=20
Participant's business development; or
    (iii) Require an appropriate reinvestment of funds or other assets,=20
as well as any other actions SBA deems necessary to counteract the=20
detrimental effects of the withdrawals, as a condition of the=20
Participant maintaining program eligibility.

[[Page 380]]

    (3) Withdrawals are excessive if during any fiscal year of the=20
Participant they exceed (i) $150,000 for firms with sales up to=20
$1,000,000; (ii) $200,000 for firms with sales between $1,000,000 and=20
$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=20
withdrawals that are deemed excessive will not preclude SBA from=20
determining that such withdrawals were detrimental to the attainment of=20
the concern's business objectives or to its overall business=20
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=20
to apply for 8(a) BD program participation whether or not there is an=20
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=20
SBA Division of Program Certification and Eligibility (DPCE) field=20
office serving the territory in which the principal place of business is =

located. The SBA district office will provide an applicant concern with=20
information regarding the 8(a) BD program and with all required=20
application forms.

Sec. 124.203  What must a concern submit to apply to =
the 8(a) BD=20
          program?

    Each 8(a) BD applicant concern must submit those forms and=20
attachments required by SBA when applying for admission to the 8(a) BD=20
program. These forms and attachments will include, but not be limited=20
to, financial statements, Federal personal and business tax returns, and =

personal history statements. An applicant must also submit IRS Form=20
4506, Request for Copy or Transcript of Tax Form, to SBA. The=20
application package may be in the form of an electronic application.

Sec. 124.204  How does SBA process applications for =
8(a) BD program=20
          admission?

    (a) The AA/8(a)BD is authorized to approve or decline applications=20
for admission to the 8(a) BD program. The appropriate DPCE field office=20
will receive, review and evaluate all 8(a) BD applications except those=20
from ANC-owned applicants. SBA's Anchorage District Office will receive=20
all applications from ANC-owned applicants and review them for=20
completeness before sending them to the AA/8(a)BD for further=20
processing. The appropriate field office will advise each program=20
applicant within 15 days after the receipt of an application whether the =

application is complete and suitable for evaluation and, if not, what=20
additional information or clarification is required to complete the=20
application. SBA will process an application for 8(a) BD program=20
participation within 90 days of receipt of a complete application=20
package by the DPCE field office. Incomplete application packages will=20
not be processed.
    (b) SBA, in its sole discretion, may request clarification of=20
information contained in the application at any time in the application=20
process. SBA will take into account any clarifications made by an=20
applicant in response to a request for such by SBA.
    (c) An applicant concern's eligibility will be based on=20
circumstances existing on the date of application, except where=20
clarification is made pursuant to paragraph (b) of this section or as=20
provided in paragraph (d) of this section.
    (d) Changed circumstances for an applicant concern occurring=20
subsequent to its application and which adversely affect eligibility=20
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=20
ownership and control) during its application review. Failure to inform=20
SBA of any such changed circumstances constitutes good cause for which=20
SBA may terminate the Participant if non-compliance is discovered after=20
admittance.
    (e) The decision of the AA/8(a)BD to approve or deny an application=20
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=20
approval letter is the date of program certification for purposes of=20
determining the concern's program term.

Sec. 124.205  Can an applicant ask SBA to reconsider =
SBA's initial=20
          decision to decline its application?

    (a) An applicant may request the AA/8(a)BD to reconsider his or her=20
initial decline decision by filing a request for reconsideration with=20
the SBA field office that originally processed its application. Filing=20
means submission by personal delivery, first-class mail, express mail,=20
fascimile transmission followed by first-class mail, or commercial=20
delivery service. The applicant must submit its request for=20
reconsideration within 45 days of receiving notice that its application=20
was declined. The applicant must provide any additional information and=20
documentation pertinent to overcoming the reason(s) for the initial=20
decline.
    (b) The AA/8(a)BD will issue a written decision within 45 days of=20
the regional DPCE's receipt of the applicant's request. The AA/8(a)BD=20
may either approve the application, deny it on the same grounds as the=20
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=20
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=20
          been denied admission?

    (a) An applicant may appeal a denial of program admission to SBA's=20
Office of Hearings and Appeals (OHA), if it is based solely on a=20
negative finding of social disadvantage, economic disadvantage,=20
ownership, control, or any combination of these four criteria. A denial=20
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=20
SBA.
    (b) The applicant may appeal an initial decision of the AA/8(a)BD=20
without requesting reconsideration, or may appeal the decision of the=20
AA/8(a)BD on reconsideration.
    (c) The applicant may initiate an appeal by filing a petition in=20
accordance with part 134 of this chapter with OHA within 45 days after=20
the applicant receives the Agency decision.
    (d) If an appeal is filed with OHA, the written decision of the=20
Administrative Law Judge is the final Agency decision. If an appealable=20
decision is not appealed, the decision of the AA/8(a)BD is the final=20
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=20
          program?

    A concern which has been declined for 8(a) BD program admission may=20
submit a new application for admission to the program 12 months after=20
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=20
          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=20
pursuant to Sec. 124.2;
    (b) Voluntary early graduation;
    (c) Early graduation pursuant to the provisions of Sec. Sec.=20
124.302 and 124.304; or
    (d) Termination pursuant to the provisions of Sec. Sec. =
124.303 and=20
124.304.

Sec. 124.302  What is early graduation?

    (a) General. SBA may graduate a firm from the 8(a) BD program prior=20
to the expiration of its Program Term where SBA determines that:
    (1) The concern has successfully completed the 8(a) BD program by=20
substantially achieving the targets, objectives, and goals set forth in=20
its business plan prior to the expiration of its program term, and has=20
demonstrated the ability to compete in the marketplace without=20
assistance under the 8(a) BD program; or
    (2) One or more of the disadvantaged owners upon whom the=20
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=20
achieved the targets, objectives and goals of its business plan and in=20
assessing the overall competitive strength and viability of a=20
Participant, SBA considers the totality of circumstances, including the=20
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,=20
capitalization, and access to credit and capital;
    (4) Current ability to obtain bonding;
    (5) A comparison of the Participant's business and financial=20
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;=20
and
    (7) Ability to operate successfully without 8(a) contracts.
    (c) Excessive withdrawals. SBA may graduate a Participant prior to=20
the expiration of its program term where excessive funds or other assets =

have been withdrawn from the Participant (see Sec. =
124.112(d)(3)),=20
causing SBA to determine that the Participant has demonstrated the=20
ability to compete in the marketplace without assistance under the 8(a)=20
BD program.
    (d) Benchmark achievement. SBA may graduate a Participant prior to=20
the expiration of its program term where the Participant has=20
substantially achieved the targets, objectives and goals of its business =

plan as adjusted under Sec. 124.403(d) and its primary =
industry=20
classification falls within a SIC Major Group in which the benchmarks=20
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=20
program prior to the expiration of the concern's Program Term for good=20
cause. Examples of good cause include, but are not limited to, the=20
following:
    (1) Submission of false information in the concern's 8(a) BD=20
application, regardless of whether correct information would have caused =

the concern to be denied admission to the program, and regardless of=20
whether correct information was given to SBA in accompanying documents=20
or by other means.
    (2) Failure by the concern to maintain its eligibility for program=20
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=20
control pursuant to Sec. Sec. 124.105 and =
124.106.
    (5) Failure by the concern to disclose to SBA the extent to which=20
non-disadvantaged persons or firms participate in the management of the=20
Participant business concern.
    (6) Failure by the concern or one or more of the concern's=20
principals to maintain good character.
    (7) A pattern of failure to make required submissions or responses=20
to SBA in a timely manner, including a failure to provide required=20
financial statements, requested tax returns, reports, updated business=20
plans, information requested by SBA's Office of Inspector General, or=20
other requested information or data within 30 days of the date of=20
request.
    (8) Cessation of business operations by the concern.
    (9) Failure by the concern to pursue competitive and commercial=20
business in accordance with its business plan, or failure in other ways=20
to make reasonable efforts to develop and achieve competitive viability.
    (10) A pattern of inadequate performance by the concern of awarded=20
section 8(a) contracts.
    (11) Failure by the concern to pay or repay significant financial=20
obligations owed to the Federal Government.
    (12) Failure by the concern to obtain and keep current any and all=20
required permits, licenses, and charters, including suspension or=20
revocation of any

[[Page 383]]

professional license required to operate the business.
    (13) Excessive withdrawals, including transfers of funds or other=20
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=20
the development of the concern (see Sec. 124.112(d).
    (14) Unauthorized use of SBA direct or guaranteed loan proceeds or=20
violation of an SBA loan agreement.
    (15) Submission by or on behalf of a Participant of false=20
information to SBA, including false certification of compliance with=20
non-8(a) business activity targets under Sec. 124.507 =
or failure to=20
report changes that adversely affect the program eligibility of an=20
applicant or program participant under Sec. 124.204 and =
Sec. 124.112,=20
where responsible officials of the 8(a) BD Participant knew or should=20
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=20
subpart 9.4 (48 CFR part 9, subpart 9.4).
    (17) Conduct by the concern, or any of its principals, indicating a=20
lack of business integrity. Such conduct may be demonstrated by=20
information related to a criminal indictment or guilty plea, a criminal=20
conviction, or a judgment or settlement in a civil case.
    (18) Willful failure by the Participant business concern to comply=20
with applicable labor standards and obligations.
    (19) Material breach of any terms and conditions of the 8(a) BD=20
Program Participation Agreement.
    (20) Willful violation by a concern, or any of its principals, of=20
any SBA regulation pertaining to material issues.
    (b) The examples of good cause listed in paragraph (a) of this=20
section are intended to be illustrative only. Other grounds for=20
terminating a Participant from the 8(a) BD program for cause may exist=20
and may be used by SBA.

Sec. 124.304  What are the procedures for early =
graduation and=20
          termination?

    (a) General. The same procedures apply to both early graduation and=20
termination of Participants from the 8(a) BD program.
    (b) Letter of Intent to Terminate or Graduate Early. When SBA=20
believes that a Participant should be terminated or graduated prior to=20
the expiration of its program term, SBA will notify the concern in=20
writing. The Letter of Intent to Terminate or Graduate Early will set=20
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=20
submit a written response to SBA explaining why the proposed ground(s)=20
should not justify termination or early graduation.
    (c) Recommendation and decision. Following the 30-day response=20
period, the Assistant Administrator for DPCE (AA/DPCE) or designee will=20
consider the proposed early graduation or termination and any=20
information submitted in response by the concern. Upon determining that=20
early graduation or termination is not warranted, the AA/DPCE or=20
designee will notify the Participant in writing. If early graduation or=20
termination appears warranted, the AA/DPCE will make such a=20
recommendation to the AA/8(a)BD, who will then make a decision whether=20
to early graduate or terminate the concern. SBA will act in a timely=20
manner in processing early graduation and termination actions.
    (d) Notice requirements. Upon deciding that early graduation or=20
termination is warranted, the AA/8(a)BD will issue a Notice of Early=20
Graduation or Termination. The Notice will set forth the specific facts=20
and reasons for the decision, and will advise the concern that it may=20
appeal the decision in accordance with the provisions of part 134 of=20
this title.
    (e) Appeal to OHA. Procedures governing appeals of early graduation=20
or termination to SBA's OHA are set forth in part 134. If a Participant=20
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=20
appeal right expired.
    (f) Effect of early graduation or termination. After the effective=20
date of early graduation or termination, a Participant is no longer=20
eligible to receive any

[[Page 384]]

8(a) BD program assistance. However, such concern is obligated to=20
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=20
          from the 8(a) BD program?

    (a) At any time after SBA issues a Letter of Intent to Terminate=20
pursuant to Sec. 124.304, the AA/8(a)BD may suspend =
8(a) contract=20
support and all other forms of 8(a) BD program assistance to that=20
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=20
determines that suspension is needed to protect the interests of the=20
Federal Government, such as where information showing a clear lack of=20
program eligibility or conduct indicating a lack of business integrity=20
exists, including where the concern or one of its principals submitted=20
false statements to the Federal Government. SBA will suspend a=20
Participant where SBA determines that the Participant submitted false=20
information in its 8(a) BD application.
    (b) SBA will issue a Notice of Suspension to the Participant's last=20
known address by certified mail, return receipt requested. Suspension is =

effective as of the date of the issuance of the Notice. The Notice will=20
provide the following information:
    (1) The basis for the suspension;
    (2) A statement that the suspension will continue pending the=20
completion of further investigation, a final program termination=20
determination, or some other specified period of time;
    (3) A statement that awards of competitive and non-competitive 8(a)=20
contracts, including those which have been ``self-marketed'' by a=20
Participant, will not be made during the pendency of the suspension=20
unless it is determined by the head of the relevant procuring agency or=20
an authorized representative to be in the best interest of the=20
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=20
throughout SBA;
    (6) A statement that a request for a hearing on the suspension will=20
be considered by an Administrative Law Judge at OHA, and granted or=20
denied as a matter of discretion.
    (7) A statement that the firm's participation in the program is=20
suspended effective on the date the Notice is served, and that the=20
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=20
petition in accordance with part 134 of this chapter with OHA within 45=20
days after the concern receives the Notice of Suspension pursuant to=20
paragraph (b) of this section. It is contemplated that in most cases a=20
hearing on the issue of the suspension will be afforded if the=20
Participant requests one, but authority to grant a hearing is within the =

discretion of the Administrative Law Judge in OHA. A suspension remains=20
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=20
before OHA or the AA/8(a)BD makes a final determination regarding the=20
termination action.
    (1) The term ``adequate evidence'' means information contained in=20
the record before the AA/8(a)BD at the time of his or her suspension=20
decision that is sufficient to support the reasonable belief that the=20
Government's interests need to be protected.
    (2) SBA need not demonstrate that an act or omission actually=20
occurred in order for OHA to uphold a suspension. SBA's burden in a=20
suspension proceeding is limited to demonstrating that it had a=20
reasonable belief that a particular act or omission occurred, and that=20
that act or omission requires suspension to protect the interests of the =

Government.
    (3) Unless the Administrative Law Judge consolidates the suspension=20
and termination proceedings, OHA's review is limited to determining=20
whether the

[[Page 385]]

Government's interests need to be protected, and will not consider the=20
merits of the termination action.
    (e) If there is a timely appeal, the decision of the Administrative=20
Law Judge is the final SBA decision. If there is not a timely appeal,=20
the decision of the AA/8(a)BD is the final Agency decision.
    (f) Upon the request of SBA, OHA may consolidate suspension and=20
termination proceedings when the issues presented are identical.
    (g) Any program suspension which occurs under this section is=20
effective until such time as SBA lifts the suspension or the=20
Participant's participation in the program is fully terminated. If the=20
concern is ultimately not terminated from the 8(a) BD program, the=20
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=20
change of ownership or business structure has been requested if=20
ownership or control of the participant changed prior to SBA's approval=20
pending resolution of the request to change its ownership or control. If =

the change of ownership is approved, the length of the suspension will=20
be added to the firm's program term where the change in ownership=20
results from the death or incapacity of a disadvantaged individual or=20
where the firm requested prior approval and waited 60 days for SBA=20
approval before making the change. The suspension will be commenced by=20
the issuance of a notice similar to that required for termination-
related suspensions under paragraph (b) of this section, except that a=20
change of ownership suspension is not appealable.
    (i) SBA does not recognize the concept of de facto suspension.=20
Adding time to the end of a Participant's program term equal to the=20
length of a suspension will occur only where a concern's program=20
participation has been formally suspended in accordance with the=20
procedures set forth in this section.
    (j) A suspension from 8(a) BD participation under this section has=20
no effect on a concern's eligibility for non-8(a) Federal Government=20
contracts. However, a debarment or suspension under the Federal=20
Acquisition Regulation (48 CFR, chapter 1) will disqualify a concern=20
from receiving all Federal Government contracts, including 8(a)=20
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=20
where a Participant's principal place of business is located normally=20
will service the concern during its participation in the 8(a) BD=20
program.

Sec. 124.402  How does a Participant develop a business =
plan?

    (a) General. In order to assist the SBA servicing office in=20
determining the business development needs of its portfolio=20
Participants, each Participant must develop a comprehensive business=20
plan setting forth its business targets, objectives, and goals.
    (b) Submission of initial business plan. Each Participant must=20
submit a business plan to its SBA servicing office as soon as possible=20
after program admission. The Participant will not be eligible for 8(a)=20
BD program benefits, including 8(a) contracts, until SBA approves its=20
business plan.
    (c) Contents of business plan. The business plan must contain at=20
least the following:
    (1) A detailed description of any products currently being produced=20
and any services currently being performed by the concern, as well as=20
any future plans to enter into one or more new markets;
    (2) The applicant's designation of its primary industry=20
classification, as defined in Sec. 124.3;
    (3) An analysis of market potential, competitive environment, and=20
the concern's prospects for profitable operations during and after its=20
participation in the 8(a) BD program;
    (4) An analysis of the concern's strengths and weaknesses, with=20
particular attention on ways to correct any financial, managerial,=20
technical, or work force conditions which could impede the concern from=20
receiving and performing non-8(a) contracts;

[[Page 386]]

    (5) Specific targets, objectives, and goals for the business=20
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=20
business plan with its assigned Business Opportunity Specialist (BOS),=20
and modify the plan as appropriate. The Participant must submit a=20
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=20
statement describing its current contract performance capabilities as=20
part of its updated business plan.
    (b) Contract forecast. As part of the annual review of its business=20
plan, each Participant must annually forecast in writing its needs for=20
contract awards for the next program year. The forecast must include:
    (1) The aggregate dollar value of 8(a) contracts to be sought,=20
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=20
product or service; and
    (4) Such other information as SBA may request to aid in providing=20
effective business development assistance to the Participant.
    (c) Transition management strategy. Beginning in the first year of=20
the transitional stage of program participation, each Participant must=20
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)=20
business activity target imposed by Sec. 124.507 during =
the=20
transitional stage of participation; and
    (2) The specific steps the Participant intends to take to continue=20
its business growth and promote profitable business operations after the =

expiration of its program term.
    (d) Benchmark achievement. Where actual participation by=20
disadvantaged businesses in a particular SIC Major Group exceeds the=20
benchmark limitations established by the Department of Commerce for that =

Major Group, SBA may adjust the targets, objectives and goals contained=20
in the business plans of Participants whose primary industry=20
classification falls within that Major Group. Any adjustment will take=20
into account projected decreases in 8(a) and SDB contracting=20
opportunities.

[63 FR 35739, 35772, June 30, 1998]

Sec. 124.404  What business development assistance is =
available to=20
          Participants during the two stages of participation in the=20
          8(a) BD program?

    (a) General. Participation in the 8(a) BD program is divided into=20
two stages, a developmental stage and a transitional stage. The=20
developmental stage will last four years, and the transitional stage=20
will last five years, unless the concern has exited the program by one=20
of the means set forth in Sec. 124.301 prior to the =
expiration of its=20
program term.
    (b) Developmental stage of program participation. A Participant, if=20
otherwise eligible, may receive the following assistance during the=20
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=20
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=20
otherwise eligible, may receive the following assistance during the=20
transitional stage of program participation:
    (1) The same assistance as that provided to Participants in the=20
developmental stage;

[[Page 387]]

    (2) Assistance from procuring agencies (in cooperation with SBA) in=20
forming joint ventures, leader-follower arrangements, and teaming=20
agreements between the concern and other Participants or other business=20
concerns with respect to contracting opportunities outside the 8(a) BD=20
program for research, development, or full scale engineering or=20
production of major systems (these arrangements must comply with all=20
relevant statutes and regulations, including applicable size standard=20
requirements); and
    (3) Training and technical assistance in transitional business=20
planning.

Sec. 124.405  How does a Participant obtain Federal =
Government surplus=20
          property?

    (a) General. (1) Pursuant to 15 U.S.C. 636(j)(13)(F), eligible=20
Participants may receive surplus Federal Government property from State=20
Agencies for Surplus Property (SASPs). The procedures set forth in 41=20
CFR Part 101-44 and this section will be used to transfer surplus=20
property to eligible Participants.
    (2) The property which may be transferred to SASPs for further=20
transfer to eligible Participants includes all personal property which=20
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=20
to receive Federal surplus property, on the date of transfer a concern=20
must:
    (1) Be in the 8(a) BD program;
    (2) Be in compliance with all program requirements, including any=20
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=20
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=20
acquire surplus Federal property from any SASP located in any state,=20
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)=20
business plan;
    (ii) That it will use the property to be acquired in the normal=20
conduct of its business activities or be liable for the fair rental=20
value from the date of its receipt;
    (iii) That it will not sell or transfer the property to be acquired=20
to any party other than the Federal Government during its term of=20
participation in the 8(a) program and for one year after it leaves the=20
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=20
because it has not used the property as intended within one year of=20
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=20
market value or the sale price, whichever is greater, of the property=20
sold or transferred; and
    (vi) That it will give SBA access to inspect the property and all=20
records pertaining to it.
    (2) A firm receiving surplus property pursuant to this section=20
assumes all liability associated with or stemming from the use of the=20
property.
    (3) If the property is not placed in use for the purposes for which=20
it was intended within one year of its receipt, SBA may direct the=20
concern to deliver the property to another Participant or to the SASP=20
from which it was acquired.
    (4) Failure to comply with any of the commitments made under=20
paragraph (c)(1) of this section constitutes a basis for termination=20
from the 8(a) program.
    (d) Procedures for acquiring Federal Government surplus property.=20
(1) Participants may participate in the surplus property distribution=20
program administered by the SASPs to the same extent, but with no=20
special priority over, other authorized transferees. See 41 CFR subpart=20
101-44.2.
    (2) Each Participant seeking to acquire Federal Government surplus=20
property from a SASP must:

[[Page 388]]

    (i) Certify in writing to the SASP that it is eligible to receive=20
the property pursuant to paragraph (b) of this section;
    (ii) Make the written representations and agreement required by=20
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,=20
agreement, and information set forth in paragraph (d)(2) of this=20
section, the SASP must contact the appropriate SBA field office and=20
obtain SBA's verification that the concern seeking to acquire the=20
surplus property is eligible, and that the identified use of the=20
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=20
market value of the surplus property at the time of the transfer to the=20
Participant. The SASP must provide to SBA a written record, including=20
the agreed upon fair market value, of each transaction to a Participant=20
when any property has been transferred.
    (e) Costs. Participants acquiring surplus property from a SASP must=20
pay a service fee to the SASP which is equal to the SASP's direct costs=20
of locating, inspecting, and transporting the surplus property. If a=20
Participant elects to incur the responsibility and the expense for=20
transporting the acquired property, the concern may do so and no=20
transportation costs will be charged by the SASP. In addition, the SASP=20
may charge a reasonable fee to cover its costs of administering the=20
program. In no instance will any SASP charge a Participant more for any=20
service than their established fees charged to other transferees.
    (f) Title. The title to surplus property acquired from a SASP will=20
pass to the Participant when the Participant executes the applicable=20
SASP distribution documents and takes possession of the property.
    (g) Compliance. (1) SBA will periodically review whether=20
Participants that have received surplus property have used and=20
maintained the property as agreed. This review may include site visits=20
to visually inspect the property to ensure that it is being used in a=20
manner consistent with the terms of its transfer.
    (2) Participants must provide SBA with access to all relevant=20
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=20
claim to determine its validity.
    (4) SBA may take any action to correct any noncompliance involving=20
the use of transferred property still in possession of the Participant=20
or to enforce any terms, conditions, reservations, or restrictions=20
imposed on the property by the distribution document. Actions to enforce =

compliance, or which may be taken as a result of noncompliance, include=20
the following:
    (i) Requiring that the property be placed in proper use within a=20
specified time;
    (ii) Requiring that the property be transferred to another=20
Participant having a need and use for the property, returned to the SASP =

serving the area where the property is located for distribution to=20
another eligible transferee or to another SASP, or transferred through=20
GSA to another Federal agency;
    (iii) Recovery of the fair rental value of the property from the=20
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=20
of the acquired surplus property in violation of the agreement covering=20
sale and disposal, the Participant is liable for the agreed upon fair=20
market value of the property at the time of the transfer, or the sale=20
price, whichever is greater. However, a Participant need not repay any=20
amount where it can demonstrate to SBA's satisfaction that the property=20
is no longer useful for the purpose for which it was transferred and=20
receives SBA's prior written consent to transfer the property. For=20
example, if a piece of equipment breaks down beyond repair, it may be=20
disposed of without being

[[Page 389]]

subject to the repayment provision, so long as the concern receives=20
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=20
receipts.

                         Contractual Assistance

Sec. 124.501  What general provisions apply to the =
award of 8(a)=20
          contracts?

    (a) Pursuant to section 8(a) of the Small Business Act, SBA is=20
authorized to enter into all types of contracts with other Federal=20
agencies, including contracts to furnish equipment, supplies, services,=20
leased real property, or materials to them or to perform construction=20
work for them, and to contract the performance of these contracts to=20
qualified Participants. Where practicable, simplified acquisition=20
procedures should be used for 8(a) contracts at or below the simplified=20
acquisition threshold. Where appropriate, SBA will delegate the contract =

execution function to procuring activities. In order to receive and=20
retain a delegation of SBA's contract execution and review functions, a=20
procuring activity must report all 8(a) contract awards, modifications,=20
and options to SBA.
    (b) 8(a) contracts may either be sole source awards or awards won=20
through competition with other Participants.
    (c) Admission into the 8(a) BD program does not guarantee that a=20
Participant will receive 8(a) contracts.
    (d) A requirement for possible award may be identified by SBA, a=20
particular Participant or the procuring activity itself. SBA will submit =

the capability statements provided to SBA annually under Sec. =
124.403=20
to appropriate procuring activities for the purpose of matching=20
requirements with Participants.
    (e) Participants should market their capabilities to appropriate=20
procuring activities to increase their prospects of receiving sole=20
source 8(a) contracts.
    (f) An 8(a) participant that identifies a requirement that appears=20
suitable for award through the 8(a) BD program may request SBA to=20
contact the procuring activity to request that the requirement be=20
offered to the 8(a) BD program.
    (g) A concern must be a current Participant in the 8(a) BD program=20
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)=20
contract. 8(a) BD program personnel will verify size prior to award of=20
an 8(a) contract. If the Participant is not verified as small, it may=20
request a formal size determination from the appropriate General=20
Contracting Area Office under part 121 of this title.
    (i) Any person or entity that misrepresents its status as a ``small=20
business concern owned and controlled by socially and economically=20
disadvantaged individuals'' in order to obtain any 8(a) contracting=20
opportunity will be subject to possible criminal, civil and=20
administrative penalties, including those imposed by section 16(d) of=20
the Small Business Act, 15 U.S.C. 645(d).

Sec. 124.502  How does an agency offer a procurement to =
SBA for award=20
          through the 8(a) BD program?

    (a) A procuring activity contracting officer indicates his or her=20
formal intent to award a procurement requirement as an 8(a) contract by=20
submitting a written offering letter to SBA. The procuring activity may=20
transmit the offering letter to SBA by electronic mail, if available, or =

by facsimile transmission, as well as by mail or commercial delivery=20
service.
    (b) Contracting officers must submit offering letters to the=20
following locations:
    (1) For competitive 8(a) requirements and those sole source=20
requirements for which no specific Participant is nominated (i.e., open=20
requirements) other than construction requirements, to the SBA district=20
office serving the geographical area in which the procuring activity is=20
located;
    (2) For competitive and open construction requirements, to the SBA=20
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=20
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=20
acquisition;
    (4) The anticipated dollar value of the requirement, including=20
options, if any;
    (5) Any special restrictions or geographical limitations on the=20
requirement;
    (6) The location of the work to be performed for construction=20
procurements;
    (7) Any special capabilities or disciplines needed for contract=20
performance;
    (8) The type of contract to be awarded, such as firm fixed price,=20
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=20
specific acquisition has been issued as a small business set-aside, or=20
as a small disadvantaged business set-aside if applicable, and that no=20
other public communication (such as a notice in the Commerce Business=20
Daily) has been made showing the procuring activity's clear intent to=20
use any of these means of procurement;
    (12) Identification of any specific Participant that the procuring=20
activity contracting officer nominates for award of a sole source 8(a)=20
contract, if appropriate, including a brief justification for the=20
nomination, such as one of the following:
    (i) The Participant, through its own efforts, marketed the=20
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=20
nominated concern is the incumbent;
    (13) Bonding requirements, if applicable;
    (14) Identification of all Participants which have expressed an=20
interest in being considered for the acquisition;
    (15) Identification of all SBA field offices which have requested=20
that the requirement be awarded through the 8(a) BD program;
    (16) A request, if appropriate, that a requirement whose estimated=20
contract value is under the applicable competitive threshold be awarded=20
as an 8(a) competitive contract; and
    (17) Any other information that the procuring activity deems=20
relevant or which SBA requests.

Sec. 124.503  How does SBA accept a procurement for =
award through the=20
          8(a) BD program?

    (a) Acceptance of the requirement. Upon receipt of the procuring=20
activity's offer of a procurement requirement, SBA will determine=20
whether it will accept the requirement for the 8(a) BD program. SBA's=20
decision whether to accept the requirement will be sent to the procuring =

activity in writing within 10 working days of receipt of the written=20
offering letter if the contract is valued at more than the simplified=20
acquisition threshold, and within two days of receipt of the offering=20
letter if the contract is valued at or below the simplified acquisition=20
threshold, unless SBA requests, and the procuring activity grants, an=20
extension. SBA is not required to accept any particular procurement=20
offered to the 8(a) BD program.
    (1) Where SBA decides to accept an offering of a sole source 8(a)=20
procurement, SBA will accept the offer both on behalf of the 8(a) BD=20
program and in support of a specific Participant.
    (2) Where SBA decides to accept an offering of a competitive 8(a)=20
procurement, SBA will accept the offer on behalf of the 8(a) BD program.
    (3) Where SBA has delegated its contract execution functions to a=20
procuring activity, the procuring activity may assume that SBA accepts=20
its offer for the 8(a) program if the procuring activity does not=20
receive a reply to its offer within five days.

[[Page 391]]

    (4) In the case of procurement requirements valued at or below the=20
Simplified Acquisition Procedures threshold:
    (i) Where a procuring activity makes an offer to the 8(a) program on =

behalf of a specific Program Participant and does not receive a reply to =

its offer within two days, the procuring activity may assume the offer=20
is accepted and proceed with award of an 8(a) contract;
    (ii) Where SBA has delegated its 8(a) contract execution functions=20
to an agency, SBA may authorize the procuring activity to award an 8(a)=20
contract without requiring an offer and acceptance of the requirement=20
for the 8(a) program. In such a case, the procuring activity must notify =

SBA of all 8(a) awards made under this authority.
    (5) Where SBA does not respond to an offering letter within the=20
normal 10-day time period, the procuring activity may seek SBA's=20
acceptance through the AA/8(a)BD. The procuring activity may assume that =

SBA accepts its offer for the 8(a) program if it does not receive a=20
reply from the AA/8(a)BD within 5 days of his or her receipt of the=20
procuring activity request.
    (b) Verification of SIC code. As part of the acceptance process, SBA =

will verify the appropriateness of the SIC code designation assigned to=20
the requirement by the procuring activity contracting officer.
    (1) SBA will accept the SIC code assigned to the requirement by the=20
procuring activity contracting officer as long as it is reasonable, even =

though other SIC codes may also be reasonable.
    (2) If SBA and the procuring activity are unable to agree as to the=20
proper SIC code designation for the requirement, SBA may either refuse=20
to accept the requirement for the 8(a) BD program, appeal the=20
contracting officer's determination to the head of the agency pursuant=20
to Sec. 124.505, or appeal the SIC code designation to =
OHA under part=20
134 of this title.
    (c) Sole source award where procuring activity nominates a specific=20
Participant. SBA will determine whether an appropriate match exists=20
where the procuring activity identifies a particular Participant for a=20
sole source award.
    (1) Once SBA determines that a procurement is suitable to be=20
accepted as an 8(a) sole source contract, SBA will normally accept it on =

behalf of the Participant recommended by the procuring activity,=20
provided that:
    (i) The procurement is consistent with the Participant's business=20
plan;
    (ii) The Participant complies with its applicable non-8(a) business=20
activity target imposed by Sec. 124.509(d);
    (iii) The Participant is small for the size standard corresponding=20
to the SIC code assigned to the requirement by the procuring activity=20
contracting officer; and
    (iv) The Participant has submitted required financial statements to=20
SBA.
    (2) If an appropriate match exists, SBA will advise the procuring=20
activity whether SBA will participate in contract negotiations or=20
whether SBA will authorize the procuring activity to negotiate directly=20
with the identified Participant. Where SBA has delegated its contract=20
execution functions to a procuring activity, SBA will also identify that =

delegation in its acceptance letter.
    (3) If an appropriate match does not exist, SBA will notify the=20
Participant and the procuring activity, and may then nominate an=20
alternate Participant.
    (d) Open requirements. When a procuring activity does not nominate a =

particular concern for performance of a sole source 8(a) contract (open=20
requirement), the following additional procedures will apply:
    (1) If the procurement is a construction requirement, SBA will=20
examine the portfolio of Participants that have a bona fide place of=20
business within the geographical boundaries served by the SBA district=20
office where the work is to be performed to select a qualified=20
Participant. If none is found to be qualified or a match for a concern=20
in that district is determined to be impossible or inappropriate, SBA=20
may nominate a Participant with a bona fide place of business within the =

geographical boundaries served by another district office within the=20
same state, or may nominate a Participant having a bona fide place of=20
business out of state but within a reasonable proximity to

[[Page 392]]

the work site. SBA's decision will ensure that the nominated Participant =

is close enough to the work site to keep costs of performance=20
reasonable.
    (2) If the procurement is not a construction requirement, SBA may=20
select any eligible, responsible Participant nationally to perform the=20
contract.
    (3) In cases in which SBA selects a Participant for possible award=20
from among two or more eligible and qualified Participants, the=20
selection will be based upon relevant factors, including business=20
development needs, compliance with competitive business mix requirements =

(if applicable), financial condition, management ability, technical=20
capability, and whether award will promote the equitable distribution of =

8(a) contracts.
    (e) Formal technical evaluations. Except for requirements for=20
architectural and engineering services, SBA will not authorize formal=20
technical evaluations for sole source 8(a) requirements. A procuring=20
activity:
    (1) Must request that a procurement be a competitive 8(a) award if=20
it requires formal technical evaluations of more than one Participant=20
for a requirement below the applicable competitive threshold amount; and
    (2) May conduct informal assessments of several Participants'=20
capabilities to perform a specific requirement, so long as the statement =

of work for the requirement is not released to any of the Participants=20
being assessed.
    (f) Repetitive acquisitions. A procuring activity contracting=20
officer must submit a new offering letter to SBA where he or she intends =

to award a follow-on or repetitive contract as an 8(a) award. This=20
enables SBA to determine:
    (1) Whether the requirement should be a competitive 8(a) award;
    (2) A nominated firm's eligibility, whether or not it is the same=20
firm that performed the previous contract;
    (3) The affect that contract award would have on the equitable=20
distribution of 8(a) contracts; and
    (4) Whether the requirement should continue under the 8(a) BD=20
program.
    (g) Basic Ordering Agreements (BOAs). A Basic Ordering Agreement=20
(BOA) is not a contract under the FAR. See 48 CFR 16.703(a). Each order=20
to be issued under the BOA is an individual contract. As such, the=20
procuring activity must offer, and SBA must accept, each task order=20
under a BOA in addition to offering and accepting the BOA itself.
    (1) SBA will not accept for award on a sole source basis any task=20
order under a BOA that would cause the total dollar amount of task=20
orders issued to exceed the applicable competitive threshold amount set=20
forth in Sec. 124.506(a).
    (2) Where a procuring activity believes that task orders to be=20
issued under a proposed BOA will exceed the applicable competitive=20
threshold amount set forth in Sec. 124.506(a), the =
procuring activity=20
must offer the requirement to the program to be competed among eligible=20
Participants.
    (3) Once a concern's program term expires, the concern otherwise=20
exits the 8(a) BD program, or becomes other than small for the SIC code=20
assigned under the BOA, new orders will not be accepted for the concern.
    (h) Multiple Award and Federal Supply Schedule Contracts. Unlike=20
Basic Ordering Agreements, Multiple Award and Federal Supply Schedule=20
contracts are contracts. Orders issued under these contracts are not=20
considered separate contracts. As such, SBA's acceptance of the original =

Multiple Award or Federal Supply Schedule contract is valid for the=20
duration of the contract. Separate offers and acceptances will not be=20
made for individual task orders under these contracts.
    (1) Task orders are not required to be competed where the value of=20
the task order will exceed the competitive threshold as long as the=20
original contract was competed.
    (2) A concern may continue to accept new orders under a Multiple=20
Award or Federal Supply Schedule contract even where a concern's program =

term expires, the concern otherwise exits the 8(a) BD program, or the=20
concern becomes other than small for the SIC code assigned under the=20
contract subsequent to award of the contract.
    (i) Requirements where SBA has delegated contract execution=20
authority. Except as provided in paragraph (a)(4)(i) of this section,=20
where SBA has delegated its 8(a) contract execution authority to the=20
procuring activity, the procuring activity must still offer

[[Page 393]]

and SBA must still accept all requirements intended to be awarded as=20
8(a) contracts.
    (j) The contracting officer should consider setting aside the=20
requirement for HUBZone, 8(a) or SDVO SBC participation before=20
considering to set aside the requirement as a small business set-aside.

[63 FR 35739, June 30, 1998, as amended at 70 FR 51248, Aug. 30, 2005]

Sec. 124.504  What circumstances limit SBA's ability to =
accept a=20
          procurement for award as an 8(a) contract?

    SBA will not accept a procurement for award as an 8(a) contract if=20
the circumstances identified in paragraphs (a) through (d) of this=20
section exist.
    (a) Reservation as small business or SDB set-aside. The procuring=20
activity issued a solicitation for or otherwise expressed publicly a=20
clear intent to reserve the procurement as a small business or small=20
disadvantaged business (SDB) set-aside prior to offering the requirement =

to SBA for award as an 8(a) contract. The AA/8(a)BD may permit the=20
acceptance of the requirement, however, under extraordinary=20
circumstances.

    Example to paragraph (a). SBA may accept a requirement where a=20
procuring activity made a decision to offer the requirement to the 8(a)=20
BD program before the solicitation was sent out and the procuring=20
activity acknowledges and documents that the solicitation was in error.

    (b) Competition prior to offer and acceptance. The procuring=20
activity competed a requirement among Participants prior to offering the =

requirement to SBA and receiving SBA's formal acceptance of the=20
requirement.
    (1) Any competition conducted without first obtaining SBA's formal=20
acceptance of the procurement for the 8(a) BD program will not be=20
considered an 8(a) competitive requirement.
    (2) SBA may accept the requirement for the 8(a) BD program as a=20
competitive 8(a) requirement, but only if the procuring activity agrees=20
to resolicit the requirement using appropriate competitive 8(a)=20
procedures.
    (c) Adverse impact. SBA has made a written determination that=20
acceptance of the procurement for 8(a) award would have an adverse=20
impact on an individual small business, a group of small businesses=20
located in a specific geographical location, or other small business=20
programs. The adverse impact concept is designed to protect small=20
business concerns which are performing Government contracts awarded=20
outside the 8(a) BD program, and does not apply to follow-on or renewal=20
8(a) acquisitions. SBA will not consider adverse impact with respect to=20
any requirement offered to the 8(a) program under Simplified Acquisition =

Procedures.
    (1) In determining whether the acceptance of a requirement would=20
have an adverse impact on an individual small business, SBA will=20
consider all relevant factors.
    (i) In connection with a specific small business, SBA presumes=20
adverse impact to exist where:
    (A) The small business concern has performed the specific=20
requirement for at least 24 months;
    (B) The small business is performing the requirement at the time it=20
is offered to the 8(a) BD program, or its performance of the requirement =

ended within 30 days of the procuring activity's offer of the=20
requirement to the 8(a) BD program; and
    (C) The dollar value of the requirement that the small business is=20
or was performing is 25 percent or more of its most recent annual gross=20
sales (including those of its affiliates). For a multi-year requirement, =

the dollar value of the last 12 months of the requirement will be used=20
to determine whether a small business would be adversely affected by=20
SBA's acceptance.
    (ii) Except as provided in paragraph (c)(2) of this section, adverse =

impact does not apply to ``new'' requirements. A new requirement is one=20
which has not been previously procured by the relevant procuring=20
activity.
    (A) Where a requirement is new, no small business could have=20
previously performed the requirement and, thus, SBA's acceptance of the=20
requirement for the 8(a) BD program will not adversely impact any small=20
business.
    (B) Construction contracts, by their very nature (e.g., the building =

of a specific structure), are deemed new requirements.

[[Page 394]]

    (C) The expansion or modification of an existing requirement will be =

considered a new requirement where the magnitude of change is=20
significant enough to cause a price adjustment of at least 25 percent=20
(adjusted for inflation) or to require significant additional or=20
different types of capabilities or work.
    (D) SBA need not perform an impact determination where a new=20
requirement is offered to the 8(a) BD program.
    (2) In determining whether the acceptance of a requirement would=20
have an adverse impact on a group of small businesses, SBA will consider =

the effects of combining or consolidating various requirements being=20
performed by two or more small business concerns into a single contract=20
which would be considered a ``new'' requirement as compared to any of=20
the previous smaller requirements. SBA may find adverse impact to exist=20
if one of the existing small business contractors meets the presumption=20
set forth in paragraph (c)(1)(i) of this section.
    (3) In determining whether the acceptance of a requirement would=20
have an adverse impact on other small business programs, SBA will=20
consider all relevant factors, including but not limited to, the number=20
and value of contracts in the subject industry reserved for the 8(a) BD=20
program as compared with other small business programs.
    (d) Benchmark achievement. Where actual participation by=20
disadvantaged businesses in a SIC Major Group exceeds the benchmark=20
limitations established by the Department of Commerce for that Major=20
Group, SBA may elect not to accept a requirement having a SIC code=20
within the Major Group that is offered to SBA for award as an 8(a)=20
contract. In determining whether to accept a requirement in such a case, =

SBA will consider the developmental needs of Participants and other=20
anticipated contracting opportunities available to them.
    (e) Release for non-8(a) competition. In limited instances, SBA may=20
decline to accept the offer of a follow-on or renewal 8(a) acquisition=20
to give a concern previously awarded the contract that is leaving or has =

left the 8(a) BD program the opportunity to compete for the requirement=20
outside the 8(a) BD program.
    (1) SBA will consider release only where:
    (i) The procurement awarded through the 8(a) BD program is being or=20
was performed by either a Participant whose program term will expire=20
prior to contract completion, or, by a former Participant whose program=20
term expired within one year of the date of the offering letter;
    (ii) The concern requests in writing that SBA decline to accept the=20
offer prior to SBA's acceptance of the requirement for award as an 8(a)=20
contract; and
    (iii) The concern qualifies as a small business for the requirement=20
now offered to the 8(a) BD program.
    (2) In considering release, SBA will balance the importance of the=20
requirement to the concern's business development needs against the=20
business development needs of other Participants that are qualified to=20
perform the requirement. This determination will include consideration=20
of whether rejection of the requirement would seriously reduce the pool=20
of similar types of contracts available for award as 8(a) contracts. SBA =

will seek the views of the procuring activity.
    (3) If SBA declines to accept the offer and releases the=20
requirement, it will recommend to the procuring activity that the=20
requirement be procured as a small business or, if authorized, an SDB=20
set-aside.

[63 FR 35739, 35772, June 30, 1998]

Sec. 124.505  When will SBA appeal the terms or =
conditions of a=20
          particular 8(a) contract or a procuring activity decision not=20
          to reserve a requirement for the 8(a) BD program?

    (a) What SBA may appeal. The Administrator of SBA may appeal the=20
following matters to the head of the procuring agency:
    (1) A contracting officer's decision not to make a particular=20
procurement available for award as an 8(a) contract;
    (2) A contracting officer's decision to reject a specific=20
Participant for award of an 8(a) contract after SBA's acceptance of the=20
requirement for the 8(a) BD program; and

[[Page 395]]

    (3) The terms and conditions of a proposed 8(a) contract, including=20
the procuring activity's SIC code designation and estimate of the fair=20
market price.
    (b) Procedures for appeal. (1) SBA must notify the contracting=20
officer of the SBA Administrator's intent to appeal an adverse decision=20
within 5 working days of SBA's receipt of the decision.
    (2) Upon receipt of the notice of intent to appeal, the procuring=20
activity must suspend further action regarding the procurement until the =

head of the procuring agency issues a written decision on the appeal,=20
unless the head of the procuring agency makes a written determination=20
that urgent and compelling circumstances which significantly affect=20
interests of the United States will not permit waiting for a=20
consideration of the appeal.
    (3) The SBA Administrator must send a written appeal of the adverse=20
decision to the head of the procuring agency within 15 working days of=20
SBA's notification of intent to appeal or the appeal may be considered=20
withdrawn.
    (4) By statute (15 U.S.C. 637(a)(1)(A)), the procuring agency head=20
must specify in writing the reasons for a denial of an appeal brought by =

the Administrator under this section.

Sec. 124.506  At what dollar threshold must an 8(a) =
procurement be=20
          competed among eligible Participants?

    (a) Competitive thresholds. (1) A procurement offered and accepted=20
for the 8(a) BD program must be competed among eligible Participants if:
    (i) There is a reasonable expectation that at least two eligible=20
Participants will submit offers at a fair market price;
    (ii) The anticipated award price of the contract, including options, =

will exceed $5,000,000 for contracts assigned manufacturing SIC codes=20
and $3,000,000 for all other contracts; and
    (iii) The requirement has not been accepted by SBA for award as a=20
sole source 8(a) procurement on behalf of a tribally-owned or ANC-owned=20
concern.
    (2) For all types of contracts, the applicable competitive threshold =

amounts will be applied to the procuring activity estimate of the total=20
value of the contract, including all options. For indefinite delivery or =

indefinite quantity type contracts, the thresholds are applied to the=20
maximum order amount authorized.
    (3) Where the estimate of the total value of a proposed 8(a)=20
contract is less than the applicable competitive threshold amount and=20
the requirement is accepted as a sole source requirement on that basis,=20
award may be made even though the contract price arrived at through=20
negotiations exceeds the competitive threshold, provided that the=20
contract price is not more than ten percent greater than the competitive =

threshold amount.

    Example to paragraph (a)(3). If the anticipated award price for a=20
professional services requirement is determined to be $2.7 million and=20
it is accepted as a sole source 8(a) requirement on that basis, a sole=20
source award will be valid even if the contract price arrived at after=20
negotiation is $3.1 million.

    (4) A proposed 8(a) requirement with an estimated value exceeding=20
the applicable competitive threshold amount may not be divided into=20
several separate procurement actions for lesser amounts in order to use=20
8(a) sole source procedures to award to a single contractor.
    (b) Exemption from competitive thresholds for Participants owned by=20
Indian tribes. SBA may award a sole source 8(a) contract to a=20
Participant concern owned and controlled by an Indian tribe or an ANC=20
where the anticipated value of the procurement exceeds the applicable=20
competitive threshold if SBA has not accepted the requirement into the=20
8(a) BD program as a competitive procurement. There is no requirement=20
that a procurement must be competed whenever possible before it can be=20
accepted on a sole source basis for a tribally-owned or ANC-owned=20
concern, but a procurement may not be removed from competition to award=20
it to a tribally-owned or ANC-owned concern on a sole source basis.
    (c) Competition below thresholds. The AA/8(a)BD, on a nondelegable=20
basis, may approve a request from a procuring activity to compete a=20
requirement that is below the applicable competitive threshold amount=20
among eligible Participants.
    (1) This authority will be used primarily when technical=20
competitions

[[Page 396]]

are appropriate or when a large number of potential awardees exist.
    (2) The AA/8(a)BD may consider whether the procuring activity has=20
made and will continue to make available a significant number of its=20
contracts to the 8(a) BD program on a noncompetitive basis.
    (3) The AA/8(a)BD may deny a request if the procuring activity=20
previously offered the requirement to the 8(a) BD program on a=20
noncompetitive basis and the request is made following the inability of=20
the procuring activity and the potential sole source awardee to reach an =

agreement on price or some other material term or condition.
    (d) Sole source above thresholds. Where a contract opportunity=20
exceeds the applicable threshold amount and there is not a reasonable=20
expectation that at least two eligible 8(a) Participants will submit=20
offers at a fair price, the AA/8(a)BD may accept the requirement for a=20
sole source 8(a) award if he or she determines that an eligible=20
Participant in the 8(a) portfolio is capable of performing the=20
requirement at a fair price.

Sec. 124.507  What procedures apply to competitive 8(a) =
procurements?

    (a) FAR procedures. Procuring activities will conduct competitions=20
among and evaluate offers received from Participants in accordance with=20
the Federal Acquisition Regulation (48 CFR, chapter 1).
    (b) Eligibility determination by SBA. In either a negotiated or=20
sealed bid competitive 8(a) acquisition, the procuring activity will=20
request that the SBA district office servicing the apparent successful=20
offeror determine that firm's eligibility for award.
    (1) Within 5 working days after receipt of a procuring activity's=20
request for an eligibility determination, SBA will determine whether the =

firm identified by the procuring activity is eligible for award.
    (2) Eligibility is based on 8(a) BD program criteria, including=20
whether the Participant is:
    (i) A small business under the SIC code assigned to the requirement;
    (ii) In compliance with any applicable competitive business mix=20
target established or remedial measure imposed by Sec. =
124.509 that=20
does not include the denial of future 8(a) contracts;
    (iii) In the developmental stage of program participation if the=20
solicitation restricts offerors to the developmental stage of=20
participation; and
    (iv) A concern with a bona fide place of business in the applicable=20
geographic area if the procurement is for construction.
    (3) If SBA determines that the apparent successful offeror is=20
ineligible, SBA will notify the procuring activity. The procuring=20
activity will then send to SBA the identity of the next highest=20
evaluated firm for an eligibility determination. The process is repeated =

until SBA determines that an identified offeror is eligible for award.
    (4) Except to the extent set forth in paragraph (d) of this section, =

SBA determines whether a Participant is eligible for a specific 8(a)=20
competitive requirement as of the date that the Participant submitted=20
its initial offer which includes price.
    (5) If the procuring activity contracting officer believes that the=20
apparent successful offeror is not responsible to perform the contract,=20
he or she must refer the concern to SBA for a possible Certificate of=20
Competency in accord with Sec. 125.5 of this title.
    (c) Restricted competition--(1) Competition within stages of program =

participation. SBA may accept a competitive 8(a) requirement that is=20
limited to Participants in the developmental stage of program=20
participation, or may accept a requirement to be competed among firms=20
both in the developmental and transitional stages of program=20
participation.
    (2) Construction competitions. Based on its knowledge of the 8(a) BD =

portfolio, SBA will determine whether a competitive 8(a) construction=20
requirement should be competed among only those Participants having a=20
bona fide place of business within the geographical boundaries of one or =

more SBA district offices, within a state, or within the state and=20
nearby areas. Only those Participants with bona fide places of business=20
within the appropriate geographical boundaries are eligible to submit=20
offers.
    (3) Competition for all non-construction requirements. Except for=20
construction

[[Page 397]]

requirements, all eligible Participants regardless of location may=20
submit offers in response to competitive 8(a) solicitations. The only=20
geographic restrictions pertaining to 8(a) competitive requirements,=20
other than those for construction requirements, are any imposed by the=20
solicitations themselves.
    (d) Award to firms whose program terms have expired. A concern that=20
has completed its term of participation in the 8(a) BD program may be=20
awarded a competitive 8(a) contract if it was a Participant eligible for =

award of the contract on the initial date specified for receipt of=20
offers contained in the contract solicitation, and if it continues to=20
meet all other applicable eligibility criteria.
    (1) Amendments to the solicitation extending the date for=20
submissions of offers will be disregarded.
    (2) For a negotiated procurement, a Participant may submit revised=20
offers, including a best and final offer, and be awarded a competitive=20
8(a) contract if it was eligible as of the initial date specified for=20
the receipt of offers in the solicitation, even though its program term=20
may expire after that date.

Sec. 124.508  How is an 8(a) contract executed?

    (a) An 8(a) contract can be awarded in the following ways:
    (1) As a tripartite agreement in which the procuring activity, SBA=20
and the Participant all sign the appropriate contract documents. There=20
may be separate prime and subcontract documents (i.e., a prime contract=20
between the procuring activity and SBA and a subcontract between SBA and =

the selected 8(a) concern) or a combined contract document representing=20
both the prime and subcontract relationships; or
    (2) Where SBA has delegated contract execution authority to the=20
procuring activity, directly by the procuring activity through a=20
contract between the procuring activity and the Participant.
    (b) Where SBA receives a contract for signature valued at or below=20
the simplified acquisition threshold, it will sign the contract and=20
return it to the procuring activity within three (3) days of receipt.
    (c) In order to be eligible to receive a sole source 8(a) contract,=20
a firm must be a current Participant on the date of award. (See Sec.=20
124.507(d) for competitive 8(a) awards.)

Sec. 124.509  What are non-8(a) business activity =
targets?

    (a) General. (1) To ensure that Participants do not develop an=20
unreasonable reliance on 8(a) awards, and to ease their transition into=20
the competitive marketplace after graduating from the 8(a) BD program,=20
Participants must make maximum efforts to obtain business outside the=20
8(a) BD program.
    (2) During both the developmental and transitional stages of the=20
8(a) BD program, a Participant must make substantial and sustained=20
efforts, including following a reasonable marketing strategy, to attain=20
the targeted dollar levels of non-8(a) revenue established in its=20
business plan. It must attempt to use the 8(a) BD program as a resource=20
to strengthen the firm for economic viability when program benefits are=20
no longer available.
    (b) Required non-8(a) business activity targets during transitional=20
stage--(1) General. During the transitional stage of the 8(a) BD=20
program, a Participant must achieve certain targets of non-8(a) contract =

revenue (i.e., revenue from other than sole source or competitive 8(a)=20
contracts). These targets are called non-8(a) business activity targets=20
and are expressed as a percentage of total revenue. The targets call for =

an increase in non-8(a) revenue over time.
    (2) Non-8(a) business activity targets. During their transitional=20
stage of program participation, Participants must meet the following=20
non-8(a) business activity targets each year:

------------------------------------------------------------------------
                                                       Non-8(a) business
                                                        activity targets
                                                       (required minimum
     Participant's year in the transitional stage       non-8(a) revenue
                                                        as a percentage
                                                       of total revenue)
------------------------------------------------------------------------
1....................................................                 15
2....................................................                 25
3....................................................                 35
4....................................................                 45
5....................................................                 55
------------------------------------------------------------------------

    (3) Compliance with non-8(a) business activity targets. SBA will=20
measure the Participant's compliance with the applicable non-8(a)=20
business activity target at the end of each program year in

[[Page 398]]

the transitional stage based on the Participant's latest fiscal year-end =

total revenue. Thus, at the end of the first year in the transitional=20
stage of program participation, SBA will compare the Participant's non-
8(a) revenue to its total revenue during that first year. If=20
appropriate, SBA will require remedial measures during the subsequent=20
program year. Thus, for example, non-compliance with the required non-
8(a) business activity target in year one of the transitional stage=20
would cause SBA to initiate remedial measures under paragraph (d) of=20
this section for year two in the transitional stage.
    (4) Certification of compliance. A Participant must certify as part=20
of its offer that it complies with the applicable non-8(a) business=20
activity target or with the measures imposed by SBA under paragraph (d)=20
of this section before it can receive any 8(a) contract during the=20
transitional stage of the 8(a) BD program.
    (c) Reporting and verification of business activity. (1) Once=20
admitted to the 8(a) BD program, a Participant must provide to SBA as=20
part of its annual review:
    (i) Annual financial statements with a breakdown of 8(a) and non-
8(a) revenue in accord with Sec. 124.602; and
    (ii) An annual report within 30 days from the end of the program=20
year of all non-8(a) contracts, options, and modifications affecting=20
price executed during the program year.
    (2) At the end of each year of participation in the transitional=20
stage, the BOS assigned to work with the Participant will review the=20
Participant's total revenues to determine whether the non-8(a) revenues=20
have met the applicable target. In determining compliance, SBA will=20
compare all 8(a) revenues received during the year, including those from =

options and modifications, to all non-8(a) revenues received during the=20
year.
    (d) Consequences of not meeting competitive business mix targets.=20
(1) Except as set forth in paragraph (e) of this section, beginning at=20
the end of the first year in the transitional stage (the fifth year of=20
participation in the 8(a) BD program), any firm that does not meet its=20
applicable competitive business mix target for the just completed=20
program year will be ineligible for sole source 8(a) contracts in the=20
current program year, unless and until the Participant corrects the=20
situation as described in paragraph (d)(2) of this section.
    (2) If SBA determines that an 8(a) Participant has failed to meet=20
its applicable competitive business mix target during any program year=20
in the transitional stage of program participation, SBA may increase its =

monitoring of the Participant's contracting activity during the ensuing=20
program year. SBA will also notify the Participant in writing that the=20
Participant will not be eligible for further 8(a) sole source contract=20
awards until it has demonstrated to SBA that it has complied with its=20
non-8(a) business activity requirements as described in paragraphs=20
(d)(2)(i) and (d)(2)(ii) of this section. In order for a Participant to=20
come into compliance with the non-8(a) business activity target and be=20
eligible for further 8(a) sole source contracts, it may:
    (i) Wait until the end of the current program year and demonstrate=20
to SBA as part of the normal annual review process that it has met the=20
revised non-8(a) business activity target; or
    (ii) At its option, submit information regarding its non-8(a)=20
revenue to SBA quarterly throughout the current program year in an=20
attempt to come into compliance before the end of the current program=20
year. If the Participant satisfies the requirements of paragraphs=20
(d)(2)(ii)(A) or (d)(2)(ii)(B) of this section, SBA will reinstate the=20
Participant's ability to get sole source 8(a) contracts prior to its=20
annual review.
    (A) To qualify for reinstatement during the first six months of the=20
current program year (i.e., at either the first or second quarterly=20
review), the Participant must demonstrate that it has received non-8(a)=20
revenue and new non-8(a) contract awards that are equal to or greater=20
than the dollar amount by which it failed to meet its non-8(a) business=20
activity target for the just completed program year. For this purpose,=20
SBA will not count options on existing non-8(a) contracts in determining =

whether a Participant has received new non-8(a) contract awards.

[[Page 399]]

    (B) To qualify for reinstatement during the last six months of the=20
current program year (i.e., at either the nine-month or one year=20
review), the Participant must demonstrate that it has achieved its non-
8(a) business activity target as of that point in the current program=20
year.

    Example 1 to paragraph (d)(2). Firm A had $10 million in total=20
revenue during year 2 in the transitional stage (year 6 in the program), =

but failed to meet the minimum non-8(a) business activity target of 25=20
percent. It had 8(a) revenues of $8.5 million and non-8(a) revenues of=20
$1.5 million (15 percent). Based on total revenues of $10 million, Firm=20
A should have had at least $2.5 million in non-8(a) revenues. Thus, Firm =

A missed its target by $1 million (its target ($2.5 million) minus its=20
actual non-8(a) revenues ($1.5 million)). Because Firm A did not achieve =

its non-8(a) business activity target, it cannot receive 8(a) sole=20
source awards until correcting that situation. The firm may wait until=20
the next annual review to establish that it has met the revised target,=20
or it can choose to report contract awards and other non-8(a) revenue to =

SBA quarterly. Firm A elects to submit information to SBA quarterly in=20
year 3 of the transitional stage (year 7 in the program). In order to be =

eligible for sole source 8(a) contracts after either its 3 month or 6=20
month review, Firm A must show that it has received non-8(a) revenue=20
and/or been awarded new non-8(a) contracts totaling $1 million (the=20
amount by which it missed its target in year 2 of the transitional=20
stage).
    Example 2 to paragraph (d)(2). Firm B had $10 million in total=20
revenue during year 2 in the transitional stage (year 6 in the program), =

of which $8.5 million were 8(a) revenues and $1.5 million were non-8(a)=20
revenues. At its first two quarterly reviews during year 3 of the=20
transitional stage (year 7 in the program), Firm B could not demonstrate =

that it had received at least $1 million in non-8(a) revenue and new=20
non-8(a) awards. In order to be eligible for sole source 8(a) contracts=20
after its 9 month or 1 year review, Firm B must show that at least 35%=20
(the non-8(a) business activity target for year 3 in the transitional=20
stage) of all revenues received during year 3 in the transitional stage=20
as of that point are from non-8(a) sources.

    (3) In determining whether a Participant has achieved its required=20
non-8(a) business activity target at the end of any program year in the=20
transitional stage, or whether a Participant that failed to meet the=20
target for the previous program year has achieved the required level of=20
non-8(a) business at its nine-month review, SBA will measure 8(a)=20
support by adding the base year value of all 8(a) contracts awarded=20
during the applicable program year to the value of all options and=20
modifications executed during that year.
    (4) As a condition of eligibility for new 8(a) contracts, SBA may=20
also impose other requirements on a Participant that fails to achieve=20
the non-8(a) business activity targets. These include requiring the=20
Participant to obtain management assistance, technical assistance, and/
or counseling, and/or attend seminars relating to management assistance, =

business development, financing, marketing, accounting, or proposal=20
preparation.
    (5) SBA may initiate proceedings to terminate a Participant from the =

8(a) BD program where the firm makes no good faith efforts to obtain=20
non-8(a) revenues.
    (e) Waiver of sole source prohibition. (1) The AA/8(a)BD, or his or=20
her designee, may waive the requirement prohibiting a Participant from=20
receiving further sole source 8(a) contracts when a Participant does not =

meet its non-8(a) business activity target where a denial of a sole=20
source contract would cause severe economic hardship on the Participant=20
so that the Participant's survival may be jeopardized, or where=20
extenuating circumstances beyond the Participant's control caused the=20
Participant not to meet its non-8(a) business activity target. The=20
decision to grant or deny a request for a waiver is at SBA's discretion, =

and no appeal may be taken with respect to that decision.
    (2) The SBA Administrator on a non-delegable basis may waive the=20
requirement prohibiting a Participant from receiving further sole source =

8(a) contracts when the Participant does not meet its non-8(a) business=20
activity target where the head of a procuring activity represents to the =

SBA Administrator that award of a sole source 8(a) contract to the=20
Participant is needed to achieve significant interests of the=20
Government.

Sec. 124.510  What percentage of work must a =
Participant perform on an=20
          8(a) contract?

    (a) To assist the business development of Participants in the 8(a)=20
BD

[[Page 400]]

program, an 8(a) contractor must perform certain percentages of work=20
with its own employees. These percentages and the requirements relating=20
to them are the same as those established for small business set-aside=20
prime contractors, and are set forth in Sec. 125.6 of this title.
    (b) A Participant must certify in its offer that it will meet the=20
applicable percentage of work requirement. SBA will determine whether=20
the firm will be in compliance as of the date of award of the contract=20
for both sealed bid and negotiated procurements.
    (c) Indefinite quantity contracts. (1) In order to ensure that the=20
required percentage of costs on an indefinite quantity 8(a) award is=20
performed by the Participant, the Participant must demonstrate=20
semiannually that it has performed the required percentage to that date. =

For a service or supply contract, this does not mean that the=20
Participant must perform 50 percent of the applicable costs for each=20
task order with its own force, or that a Participant must have performed =

50 percent of the applicable costs at any point in time during the=20
contract's life. Rather, the Participant must perform 50 percent of the=20
applicable costs for the combined total of all task orders issued to=20
date at six month intervals.

    Example to paragraph (c)(1). Two task orders are issued under an=20
8(a) indefinite quantity service contract during the first six months of =

the contract. If $100,000 in personnel costs are incurred on the first=20
task order, 90% of those costs ($90,000) are incurred for performance by =

the Participant's own work force, and the second task order also=20
requires $100,000 in personnel costs, the Participant would have to=20
perform only 10 percent of the personnel costs on the second task order=20
because it would still have performed 50% of the total personnel costs=20
at the end of the six-month period ($100,000 out of $200,000).

    (2) Where there is a guaranteed minimum condition in an indefinite=20
quantity 8(a) award, the required performance of work percentage need=20
not be met on task orders issued during the first six months of the=20
contract. In such a case, however, the percentage of work that a=20
Participant may further contract to other concerns during the first six=20
months of the contract may not exceed 50 percent of the total guaranteed =

minimum dollar value to be provided by the contract. Once the guaranteed =

minimum amount is met, the general rule for indefinite quantity=20
contracts set forth in paragraph (c)(1) of this section applies.

    Example to paragraph (c)(2). Where a contract guarantees a minimum=20
of $100,000 in professional services and the first task order is for=20
$60,000 in such services, the Participant may perform as little as=20
$10,000 of the personnel costs for that order. In such a case, however,=20
the Participant must perform all of the next task order(s) up to $40,000 =

to ensure that it performs 50% of the $100,000 guaranteed minimum=20
($10,000 + $40,000 =3D $50,000 or 50% of the $100,000).

    (3) The applicable SBA District Director may waive the provisions in =

paragraphs (c)(1) and (c)(2) of this section requiring a Participant to=20
meet the applicable performance of work requirement at the end of any=20
six-month period where he or she makes a written determination that=20
larger amounts of subcontracting are essential during certain stages of=20
performance, provided that there are written assurances from both the=20
Participant and the procuring activity that the contract will ultimately =

comply with the requirements of this section. Where SBA authorizes a=20
Participant to exceed the subcontracting limitations and the Participant =

does not ultimately comply with the performance of work requirements by=20
the end of the contract, SBA will not grant future waivers for the=20
Participant.

Sec. 124.511  How is fair market price determined for =
an 8(a) contract?

    (a) The procuring activity determines what constitutes a ``fair=20
market price'' for an 8(a) contract.
    (1) The procuring activity must derive the estimate of a current=20
fair market price for a new requirement, or a requirement that does not=20
have a satisfactory procurement history, from a price or cost analysis.=20
This analysis may take into account prevailing market conditions,=20
commercial prices for similar products or services, or data obtained=20
from any other agency. The analysis must also consider any cost or=20
pricing data that is timely submitted by SBA.

[[Page 401]]

    (2) The procuring activity must base the estimate of a current fair=20
market price for a requirement that has a satisfactory procurement=20
history on recent award prices adjusted to ensure comparability.=20
Adjustments will take into account differences in quantities,=20
performance, times, plans, specifications, transportation costs,=20
packaging and packing costs, labor and material costs, overhead costs,=20
and any other additional costs which may be appropriate.
    (b) Upon the request of SBA, a procuring activity will provide to=20
SBA a written statement detailing the method it has used to estimate the =

current fair market price for the 8(a) requirement. This statement must=20
be submitted within 10 working days of SBA's request. The procuring=20
activity must identify the information, studies, analyses, and other=20
data it used in making its estimate.
    (c) The procuring activity's estimate of fair market price and any=20
supporting data may not be disclosed by SBA to any Participant or=20
potential contractor.
    (d) The concern selected to perform an 8(a) contract may request SBA =

to protest the procuring activity's estimate of current fair market=20
price to the Secretary of the Department or head of the agency in=20
accordance with Sec. 124.505.

Sec. 124.512  Delegation of contract administration to =
procuring=20
          agencies.

    (a) SBA may delegate, by the use of special clauses in the 8(a)=20
contract documents or by a separate agreement with the procuring=20
activity, all responsibilities for administering an 8(a) contract to the =

procuring activity except the approval of novation agreements under 48=20
CFR 42.302(a)(25).
    (b) This delegation of contract administration authorizes a=20
contracting officer to execute any priced option or in scope=20
modification without SBA's concurrence. The contracting officer must,=20
however, notify SBA of all modifications and options exercised.

Sec. 124.513  Under what circumstances can a joint =
venture be awarded=20
          an 8(a) contract?

    (a) General. (1) If approved by SBA, a Participant may enter into a=20
joint venture agreement with one or more other small business concerns,=20
whether or not 8(a) Participants, for the purpose of performing one or=20
more specific 8(a) contracts.
    (2) A joint venture agreement is permissible only where an 8(a)=20
concern lacks the necessary capacity to perform the contract on its own, =

and the agreement is fair and equitable and will be of substantial=20
benefit to the 8(a) concern. However, where SBA concludes that an 8(a)=20
concern brings very little to the joint venture relationship in terms of =

resources and expertise other than its 8(a) status, SBA will not approve =

the joint venture arrangement.
    (b) Size of concerns to an 8(a) joint venture. (1) A joint venture=20
of at least one 8(a) Participant and one or more other business concerns =

may submit an offer as a small business for a competitive 8(a)=20
procurement so long as each concern is small under the size standard=20
corresponding to the SIC code assigned to the contract, provided:
    (i) The size of at least one 8(a) Participant to the joint venture=20
is less than one half the size standard corresponding to the SIC code=20
assigned to the contract; and
    (ii)(A) For a procurement having a revenue-based size standard, the=20
procurement exceeds half the size standard corresponding to the SIC code =

assigned to the contract; or
    (B) For a procurement having an employee-based size standard, the=20
procurement exceeds $10 million;
    (2) For sole source and competitive 8(a) procurements that do not=20
exceed the dollar levels identified in paragraph (b)(1) of this section, =

an 8(a) Participant entering into a joint venture agreement with another =

concern is considered to be affiliated for size purposes with the other=20
concern with respect to performance of the 8(a) contract. The combined=20
annual receipts or employees of the concerns entering into the joint=20
venture must meet the size standard for the SIC code assigned to the=20
8(a) contract.

[[Page 402]]

    (3) Notwithstanding the provisions of paragraphs (b)(1) and (b)(2)=20
of this section, a joint venture between a protege firm and its approved =

mentor (see Sec. 124.520) will be deemed small provided =
the protege=20
qualifies as small for the size standard corresponding to the SIC code=20
assigned to the procurement and has not reached the dollar limit set=20
forth in Sec. 124.519.
    (c) Contents of joint venture agreement. Every joint venture=20
agreement to perform an 8(a) contract, including those between mentors=20
and proteges authorized by Sec. 124.520, must contain a =
provision:
    (1) Setting forth the purpose of the joint venture;
    (2) Designating an 8(a) Participant as the managing venturer of the=20
joint venture, and an employee of the managing venturer as the project=20
manager responsible for performance of the 8(a) contract;
    (3) Stating that not less than 51 percent of the net profits earned=20
by the joint venture will be distributed to the 8(a) Participant(s);
    (4) Providing for the establishment and administration of a special=20
bank account in the name of the joint venture. This account must require =

the signature of all parties to the joint venture or designees for=20
withdrawal purposes. All payments due the joint venture for performance=20
on an 8(a) contract will be deposited in the special account; all=20
expenses incurred under the contract will be paid from the account as=20
well;
    (5) Itemizing all major equipment, facilities, and other resources=20
to be furnished by each party to the joint venture, with a detailed=20
schedule of cost or value of each;
    (6) Specifying the responsibilities of the parties with regard to=20
contract performance, source of labor and negotiation of the 8(a)=20
contract;
    (7) Obligating all parties to the joint venture to ensure=20
performance of the 8(a) contract and to complete performance despite the =

withdrawal of any member;
    (8) Designating that accounting and other administrative records=20
relating to the joint venture be kept in the office of the managing=20
venturer, unless approval to keep them elsewhere is granted by the=20
District Director or his/her designee upon written request;
    (9) Requiring the final original records be retained by the managing =

venturer upon completion of the 8(a) contract performed by the joint=20
venture;
    (10) Stating that quarterly financial statements showing cumulative=20
contract receipts and expenditures (including salaries of the joint=20
venture's principals) must be submitted to SBA not later than 45 days=20
after each operating quarter of the joint venture; and
    (11) Stating that a project-end profit and loss statement, including =

a statement of final profit distribution, must be submitted to SBA no=20
later than 90 days after completion of the contract.
    (d) Performance of work. For any 8(a) contract, including those=20
between mentors and proteges authorized by Sec. =
124.520, the joint=20
venture must perform the applicable percentage of work required by Sec.=20
124.510, and the 8(a) partner(s) to the joint venture =
must perform a=20
significant portion of the contract.
    (e) Prior approval by SBA. SBA must approve a joint venture=20
agreement prior to the award of an 8(a) contract on behalf of the joint=20
venture.
    (f) Contract execution. Where SBA has approved a joint venture, the=20
procuring activity will execute an 8(a) contract in the name of the=20
joint venture entity.
    (g) Amendments to joint venture agreement. All amendments to the=20
joint venture agreement must be approved by SBA.
    (h) Inspection of records. SBA may inspect the records of the joint=20
venture without notice at any time deemed necessary.

[63 FR 35739, June 30, 1998, as amended at 69 FR 29208, May 21, 2004]

Sec. 124.514  Exercise of 8(a) options and =
modifications.

    (a) Unpriced options. The exercise of an unpriced option is=20
considered to be a new contracting action.
    (1) If a concern has graduated or been terminated from the 8(a) BD=20
program or is no longer small under the size standard corresponding to=20
the SIC code for the requirement, negotiations to price the option=20
cannot be entered into and the option cannot be exercised.

[[Page 403]]

    (2) If the concern is still a Participant and otherwise eligible for =

the requirement on a sole source basis, the procuring activity=20
contracting officer may negotiate price and exercise the option provided =

the option, considered a new contracting action, meets all regulatory=20
requirements, including the procuring activity's offering and SBA's=20
acceptance of the requirement for the 8(a) BD program.
    (3) If the estimated fair market price of the option exceeds the=20
applicable threshold amount set forth in Sec. 124.506, =
the requirement=20
must be competed as a new contract among eligible Participants.
    (b) Priced options. The procuring activity contracting officer may=20
exercise a priced option to an 8(a) contract whether the concern that=20
received the award has graduated or been terminated from the 8(a) BD=20
program or is no longer eligible if to do so is in the best interests of =

the Government.
    (c) Modifications beyond the scope. A modification beyond the scope=20
of the initial 8(a) contract award is considered to be a new contracting =

action. It will be treated the same as an unpriced option as described=20
in paragraph (a) of this section.
    (d) Modifications within the scope. The procuring activity=20
contracting officer may exercise a modification within the scope of the=20
initial 8(a) contract whether the concern that received the award has=20
graduated or been terminated from the 8(a) BD program or is no longer=20
eligible if to do so is in the best interests of the Government.

Sec. 124.515  Can a Participant change its ownership or =
control and=20
          continue to perform an 8(a) contract, and can it transfer=20
          performance to another firm?

    (a) An 8(a) contract must be performed by the Participant that=20
initially received it unless a waiver is granted under paragraph (b) of=20
this section.
    (1) An 8(a) contract, whether in the base or an option year, must be =

terminated for the convenience of the Government if:
    (i) One or more of the individuals upon whom eligibility for the=20
8(a) BD program was based relinquishes or enters into any agreement to=20
relinquish ownership or control of the Participant such that the=20
Participant would no longer be controlled or at least 51% owned by=20
disadvantaged individuals; or
    (ii) The contract is transferred or novated for any reason to=20
another firm.
    (2) The procuring activity may not assess repurchase costs or other=20
damages against the Participant due solely to the provisions of this=20
section.
    (b) The SBA Administrator may waive the requirements of paragraph=20
(a)(1) of this section if requested to do so by the 8(a) contractor=20
when:
    (1) It is necessary for the owners of the concern to surrender=20
partial control of such concern on a temporary basis in order to obtain=20
equity financing;
    (2) Ownership and control of the concern that is performing the 8(a) =

contract will pass to another Participant, but only if the acquiring=20
firm would otherwise be eligible to receive the award directly as an=20
8(a) contract;
    (3) Any individual upon whom eligibility was based is no longer able =

to exercise control of the concern due to physical or mental incapacity=20
or death;
    (4) The head of the procuring agency, or an official with delegated=20
authority from the agency head, certifies that termination of the=20
contract would severely impair attainment of the agency's program=20
objectives or missions; or
    (5) It is necessary for the disadvantaged owners of the initial 8(a) =

awardee to relinquish ownership of a majority of the voting stock of the =

concern in order to raise equity capital, but only if--
    (i) The concern has graduated from the 8(a) BD program;
    (ii) The disadvantaged owners will maintain ownership of the largest =

single outstanding block of voting stock (including stock held by=20
affiliated parties); and
    (iii) The disadvantaged owners will maintain control of the daily=20
business operations of the concern.
    (c) The 8(a) contractor must request a waiver in writing prior to=20
the change of ownership and control except in the case of death or=20
incapacity. A request for waiver due to incapacity or death must be=20
submitted within 60 days after such occurrence. The Participant seeking=20
to change ownership or control

[[Page 404]]

must specify the grounds upon which it requests a waiver, and must=20
demonstrate that the proposed transaction would meet such grounds.
    (d) SBA determines the eligibility of an acquiring Participant under =

paragraph (b)(2) of this section by referring to the items identified in =

Sec. 124.507(b)(2) and deciding whether at the time of =
the request for=20
waiver (and prior to the transaction) the acquiring Participant is a=20
responsible and eligible concern with respect to each contract for which =

a waiver is sought. As part of the waiver request, the acquiring firm=20
must certify that it is a small business for the size standard=20
corresponding to the SIC code assigned to each contract for which a=20
waiver is sought.
    (e) Anyone other than a procuring agency head who submits a=20
certification regarding the impairment of the agency's objectives under=20
paragraph (b)(4) of this section, must also certify delegated authority=20
to make the certification.
    (f) In processing a request for a waiver under paragraph (b)(2) of=20
this section, SBA will treat a transfer of all a Participant's operating =

assets to another Participant the same as the transfer of an ownership=20
interest, provided the Participant that transfers its assets to another=20
eligible Participant:
    (1) Voluntarily graduates from the 8(a) BD program; and
    (2) Ceases its business operations, or presents a plan to SBA for=20
its orderly dissolution.
    (g) A concern performing an 8(a) contract must notify SBA in writing =

immediately upon entering into an agreement or agreement in principle=20
(either oral or written) to transfer all or part of its stock or other=20
ownership interest or assets to any other party. Such an agreement could =

include an oral agreement to enter into a transaction to transfer=20
interests in the future.
    (h) The Administrator has discretion to decline a request for waiver =

even though legal authority exists to grant the waiver.
    (i) The 8(a) contractor may appeal SBA's denial of a waiver request=20
by filing a petition with OHA pursuant to part 134 of this chapter=20
within 45 days after the contractor receives the Administrator's=20
decision.

[63 FR 35739, June 30, 1998, as amended at 67 FR 47246, July 18, 2002]

Sec. 124.516  Who decides contract disputes arising =
between a=20
          Participant and a procuring activity after the award of an=20
          8(a) contract?

    For purposes of the Disputes Clause of a specific 8(a) contract, the =

contracting officer is that of the procuring activity. A dispute arising =

between an 8(a) contractor and the procuring activity contracting=20
officer will be decided by the procuring activity, and appeals may be=20
taken by the 8(a) contractor without SBA involvement.

Sec. 124.517  Can the eligibility or size of a =
Participant for award of=20
          an 8(a) contract be questioned?

    (a) The eligibility of a Participant for a sole source or=20
competitive 8(a) requirement may not be challenged by another=20
Participant or any other party, either to SBA or any administrative=20
forum as part of a bid or other contract protest.
    (b) The size status of the apparent successful offeror for a=20
competitive 8(a) procurement may be protested pursuant to Sec.=20
121.1001(a)(2) of this chapter. The size status of a nominated=20
Participant for a sole source 8(a) procurement may not be protested by=20
another Participant or any other party.
    (c) A Participant cannot appeal SBA's determination not to award it=20
a specific 8(a) contract because the concern lacks an element of=20
responsibility or is ineligible for the contract, other than the right=20
set forth in Sec. 124.501(h) to request a formal size =
determination=20
where SBA cannot verify it to be small.
    (d)(1) The SIC code assigned to a sole source 8(a) requirement may=20
not be challenged by another Participant or any other party either to=20
SBA or any administrative forum as part of a bid or contract protest.=20
Only the AA/8(a)BD may appeal a SIC code designation with respect to a=20
sole source 8(a) requirement.
    (2) In connection with a competitive 8(a) procurement, any=20
interested party who has been adversely affected by a SIC code=20
designation may appeal the

[[Page 405]]

designation to SBA's OHA pursuant to Sec. 121.1103 of this title.
    (e) Anyone with information questioning the eligibility of a=20
Participant to continue participation in the 8(a) BD program or for=20
purposes of a specific 8(a) contract may submit such information to SBA=20
under Sec. 124.112(c).

Sec. 124.518  How can an 8(a) contract be terminated =
before performance=20
          is completed?

    (a) Termination for default. A decision to terminate a specific 8(a) =

contract for default can be made by the procuring activity contracting=20
officer after consulting with SBA. The contracting officer must advise=20
SBA of any intent to terminate an 8(a) contract for default in writing=20
before doing so. SBA may provide to the Participant any program benefits =

reasonably available in order to assist it in avoiding termination for=20
default. SBA will advise the contracting officer of this effort. Any=20
procuring activity contracting officer who believes grounds for=20
termination continue to exist may terminate the 8(a) contract for=20
default, in accordance with the Federal Acquisition Regulations (48 CFR=20
chapter 1). SBA will have no liability for termination costs or=20
reprocurement costs.
    (b) Termination for convenience. After consulting with SBA, the=20
procuring activity contracting officer may terminate an 8(a) contract=20
for convenience when it is in the best interests of the Government to do =

so. A termination for convenience is appropriate if any disadvantaged=20
owner of the Participant performing the contract relinquishes ownership=20
or control of such concern, or enters into any agreement to relinquish=20
such ownership or control, unless a waiver is granted pursuant to Sec.=20
124.515.
    (c) Substitution of one 8(a) contractor for another. Where a=20
procuring activity contracting officer demonstrates to SBA that an 8(a)=20
contract will otherwise be terminated for default, SBA may authorize=20
another Participant to complete performance and, in conjunction with the =

procuring activity, permit novation of the contract without invoking the =

termination for convenience or waiver provisions of Sec. =
124.515.

Sec. 124.519  Are there any dollar limits on the amount =
of 8(a)=20
          contracts that a Participant may receive?

    (a) A Participant (other than one owned by an Indian tribe or an=20
ANC) may not receive sole source 8(a) contract awards where it has=20
received a combined total of competitive and sole source 8(a) contracts=20
in excess of the dollar amount set forth in this section during its=20
participation in the 8(a) BD program.
    (1) For a firm having a revenue-based primary SIC code at time of=20
program entry, the limit above which it can no longer receive sole=20
source 8(a) contracts is five times the size standard corresponding to=20
that SIC code as of the date of SBA's acceptance of the requirement for=20
the 8(a) BD program or $100,000,000, whichever is less.
    (2) For a firm having an employee-based primary SIC code at time of=20
program entry, the limit above which it can no longer receive sole=20
source 8(a) contracts is $100,000,000.
    (3) SBA will not consider 8(a) contracts awarded under $100,000 in=20
determining whether a Participant has reached the limit identified in=20
paragraphs (a)(1) and (a)(2) of this section.
    (b) Once the limit is reached, a firm may not receive any more 8(a)=20
sole source contracts, but may remain eligible for competitive 8(a)=20
awards.
    (c) The limitation set forth in paragraph (a) of this section will=20
not apply for firms that are current Participants in the 8(a) BD program =

as of December 31, 1997.
    (d) SBA includes the dollar value of 8(a) options and modifications=20
in determining whether a Participant has reached the limit identified in =

paragraph (a) of this section. If an option is not exercised or the=20
contract value is reduced by modification, SBA will deduct those values.
    (e) A Participant's eligibility for a sole source award in terms of=20
whether it has exceeded the dollar limit for 8(a) contracts is measured=20
as of the date that the requirement is accepted for the 8(a) program=20
without taking into account whether the value of that award will cause=20
the limit to be exceeded.

[[Page 406]]

    (f) The SBA Administrator on a non-delegable basis may waive the=20
requirement prohibiting a Participant from receiving sole source 8(a)=20
contracts in excess of the dollar amount set forth in this section where =

the head of a procuring activity represents to the SBA Administrator=20
that award of a sole source 8(a) contract to the Participant is needed=20
to achieve significant interests of the Government.

Sec. 124.520  Mentor/protege program.

    (a) General. The mentor/protege program is designed to encourage=20
approved mentors to provide various forms of assistance to eligible=20
Participants. This assistance may include technical and/or management=20
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing prime contracts=20
with the Government in the form of joint venture arrangements. The=20
purpose of the mentor/protege relationship is to enhance the=20
capabilities of the protege and to improve its ability to successfully=20
compete for contracts.
    (b) Mentors. Any concern that demonstrates a commitment and the=20
ability to assist developing 8(a) Participants may act as a mentor and=20
receive benefits as set forth in this section. This includes businesses=20
that have graduated from the 8(a) BD program, firms that are in the=20
transitional stage of program participation, other small businesses, and =

large businesses.
    (1) In order to qualify as a mentor, a concern must demonstrate that =

it:
    (i) Possesses favorable financial health, including profitability=20
for at least the last two years;
    (ii) Possesses good character;
    (iii) Does not appear on the federal list of debarred or suspended=20
contractors; and
    (iv) Can impart value to a protege firm due to lessons learned and=20
practical experience gained because of the 8(a) BD program, or through=20
its general knowledge of government contracting.
    (2) Generally, a mentor will have no more than one protege at a=20
time. However, the AA/8(a)BD may authorize a concern to mentor more than =

one protege at a time where the concern can demonstrate that the=20
additional mentor/protege relationship will not adversely affect the=20
development of either protege firm (e.g., the second firm cannot be a=20
competitor of the first firm).
    (3) In order to demonstrate its favorable financial health, a firm=20
seeking to be a mentor must submit its federal tax returns for the last=20
two years to SBA for review.
    (4) Once approved, a mentor must annually certify that it continues=20
to possess good character and a favorable financial position.
    (c) Proteges. (1) In order to initially qualify as a protege firm, a =

Participant must:
    (i) Be in the developmental stage of program participation;
    (ii) Have never received an 8(a) contract; or
    (ii) Have a size that is less than half the size standard=20
corresponding to its primary SIC code.
    (2) Only firms that are in good standing in the 8(a) BD program=20
(e.g., firms that do not have termination or suspension proceedings=20
against them, and are up to date with all reporting requirements) may=20
qualify as a protege.
    (3) A protege firm may have only one mentor at a time.
    (d) Benefits. (1) A mentor and prot[eacute]g[eacute] may joint=20
venture as a small business for any government procurement, including=20
procurements with a dollar value less than half the size standard=20
corresponding to the assigned NAICS code and 8(a) sole source contracts, =

provided the prot[eacute]g[eacute] qualifies as small for the=20
procurement and, for purposes of 8(a) sole source requirements, the=20
prot[eacute]g[eacute] has not reached the dollar limit set forth in=20
Sec. 124.519.
    (2) Notwithstanding the requirements set forth in Sec. Sec.=20
124.105(g) and (h), in order to raise capital for the =
protege firm, the=20
mentor may own an equity interest of up to 40% in the protege firm.
    (3) Notwithstanding the mentor/protege relationship, a protege firm=20
may qualify for other assistance as a small business, including SBA=20
financial assistance.
    (4) No determination of affiliation or control may be found between=20
a protege firm and its mentor based on the

[[Page 407]]

mentor/protege agreement or any assistance provided pursuant to the=20
agreement.
    (e) Written agreement. (1) The mentor and protege firms must enter a =

written agreement setting forth an assessment of the protege's needs and =

describing the assistance the mentor commits to provide to address those =

needs (e.g., management and/or technical assistance, loans and/or equity =

investments, cooperation on joint venture projects, or subcontracts=20
under prime contracts being performed by the mentor). The agreement must =

also provide that the mentor will provide such assistance to the protege =

firm for at least one year.
    (2) The written agreement must be approved by the AA/8(a)BD. The=20
agreement will not be approved if SBA determines that the assistance to=20
be provided is not sufficient to promote any real developmental gains to =

the protege, or if SBA determines that the agreement is merely a vehicle =

to enable a non-8(a) participant to receive 8(a) contracts.
    (3) The agreement must provide that either the protege or the mentor =

may terminate the agreement with 30 days advance notice to the other=20
party to the mentor/protege relationship and to SBA.
    (4) SBA will review the mentor/protege relationship annually to=20
determine whether to approve its continuation for another year.
    (5) SBA must approve all changes to a mentor/protege agreement in=20
advance.
    (f) Evaluating the mentor/protege relationship. (1) In its annual=20
business plan update required by Sec. 124.403(a,) the =
protege must=20
report to SBA for the protege's preceding program year:
    (i) All technical and/or management assistance provided by the=20
mentor to the protege;
    (ii) All loans to and/or equity investments made by the mentor in=20
the protege;
    (iii) All subcontracts awarded to the protege by the mentor, and the =

value of each subcontract;
    (iv) All federal contracts awarded to the mentor/protege=20
relationship as a joint venture (designating each as an 8(a), small=20
business set aside, or unrestricted procurement), the value of each=20
contract, and the percentage of the contract performed and the=20
percentage of revenue accruing to each party to the joint venture; and
    (v) A narrative describing the success such assistance has had in=20
addressing the developmental needs of the protege and addressing any=20
problems encountered.
    (2) The protege must annually certify to SBA whether there has been=20
any change in the terms of the agreement.
    (3) SBA will review the protege's report on the mentor/protege=20
relationship as part of its annual review of the firm's business plan=20
pursuant to Sec. 124.403. SBA may decide not to approve =
continuation of=20
the agreement if it finds that the mentor has not provided the=20
assistance set forth in the mentor/protege agreement or that the=20
assistance has not resulted in any material benefits or developmental=20
gains to the protege.

[63 FR 35739, June 30, 1998, as amended at 69 FR 29208, May 21, 2004]

                  Miscellaneous Reporting Requirements

Sec. 124.601  What reports does SBA require concerning =
parties who=20
          assist Participants in obtaining federal contracts?

    (a) Each Participant must submit annually a written report to its=20
assigned BOS that includes a listing of any agents, representatives,=20
attorneys, accountants, consultants and other parties (other than=20
employees) receiving fees, commissions, or compensation of any kind to=20
assist such participant in obtaining a Federal contract. The listing=20
must indicate the amount of compensation paid and a description of the=20
activities performed for such compensation.
    (b) Failure to submit the report is good cause for the initiation of =

a termination proceeding pursuant to Sec. Sec. 124.303 =
and 124.304.

Sec. 124.602  What kind of annual financial statement =
must a=20
          Participant submit to SBA?

    (a) Participants with gross annual receipts of more than $5,000,000=20
must submit to SBA audited annual financial

[[Page 408]]

statements prepared by a licensed independent public accountant within=20
120 days after the close of the concern's fiscal year.
    (1) The servicing SBA District Director may waive the requirement=20
for audited financial statements for good cause shown by the=20
Participant.
    (2) Circumstances where waivers of audited financial statements may=20
be granted include, but are not limited to, the following:
    (i) The concern has an unexpected increase in sales towards the end=20
of its fiscal year that creates an unforeseen requirement for audited=20
statements;
    (ii) The concern unexpectedly experiences severe financial=20
difficulties which would make the cost of audited financial statements a =

particular burden; and
    (iii) The concern has been a Participant less than 12 months.
    (b) Participants with gross annual receipts between $1,000,000 and=20
$5,000,000 must submit to SBA reviewed annual financial statements=20
prepared by a licensed independent public accountant within 90 days=20
after the close of the concern's fiscal year.
    (c) Participants with gross annual receipts of less than $1,000,000=20
must submit to SBA an annual statement prepared in-house or a=20
compilation statement prepared by a licensed independent public=20
accountant, verified as to accuracy by an authorized officer, partner,=20
limited liability member, or sole proprietor of the Participant,=20
including signature and date, within 90 days after the close of the=20
concern's fiscal year.
    (d) Any audited or reviewed financial statements submitted to SBA=20
pursuant to paragraphs (a) or (b) of this section must be prepared in=20
accordance with Generally Accepted Accounting Principles.
    (e) While financial statements need not be submitted until 90 or 120 =

days after the close of a Participant's fiscal year, depending on the=20
receipts of the concern, a Participant seeking to be awarded an 8(a)=20
contract between the close of its fiscal year and such 90 or 120-day=20
time period must submit a final sales report signed by the CEO or=20
President to SBA in order for SBA to determine the concern's eligibility =

for the 8(a) contract. This report must show a breakdown of 8(a) and=20
non-8(a) sales.
    (f) Notwithstanding the amount of a Participant's gross annual=20
receipts, SBA may require audited or reviewed statements whenever they=20
are needed to obtain more complete information as to a concern's assets, =

liabilities, income or expenses, such as when the concern's capacity to=20
perform a specific 8(a) contract must be determined, or when they are=20
needed to determine continued program eligibility.

Sec. 124.603  What reports regarding the continued =
business operations=20
          of former Participants does SBA require?

    Former Participants must provide such information as SBA may request =

concerning the former Participant's continued business operations,=20
contracts, and financial condition for a period of three years following =

the date on which the concern graduates or is terminated from the=20
program. Failure to provide such information when requested will=20
constitute a violation of the regulations set forth in this part, and=20
may result in the nonexercise of options on or termination of contracts=20
awarded through the 8(a) BD program, debarment, or other legal recourse.

               Management and Technical Assistance Program

Sec. 124.701  What is the purpose of the 7(j) =
management and technical=20
          assistance program?

    Section 7(j)(1) of the Small Business Act, 15 U.S.C. 636(j)(1),=20
authorizes SBA to enter into grants, cooperative agreements, or=20
contracts with public or private organizations to pay all or part of the =

cost of technical or management assistance for individuals or concerns=20
eligible for assistance under sections 7(a)(11), 7(j)(10), or 8(a) of=20
the Small Business Act.

Sec. 124.702  What types of assistance are available =
through the 7(j)=20
          program?

    Through its private sector service providers, SBA may provide a wide =

variety of management and technical assistance to eligible individuals=20
or concerns to meet their specific needs, including:

[[Page 409]]

    (a) Counseling and training in the areas of financing, management,=20
accounting, bookkeeping, marketing, and operation of small business=20
concerns; and
    (b) The identification and development of new business=20
opportunities.

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

    The following businesses are eligible to receive assistance from SBA =

through its service providers:
    (a) Businesses which qualify as small under part 121 of this title,=20
and which are located in urban or rural areas with a high proportion of=20
unemployed or low-income individuals, or which are owned by such low-
income individuals; and
    (b) Businesses eligible to receive 8(a) contracts.

Sec. 124.704  What additional management and technical =
assistance is=20
          reserved exclusively for concerns eligible to receive 8(a)=20
          contracts?

    In addition to the management and technical assistance available=20
under Sec. 124.702, Section 7(j)(10) of the Small =
Business Act=20
authorizes SBA to provide additional management and technical assistance =

through its service providers exclusively to small business concerns=20
eligible to receive 8(a) contracts, including:
    (a) Assistance to develop comprehensive business plans with specific =

business targets, objectives, and goals;
    (b) Other nonfinancial services necessary for a Participant's growth =

and development, including loan packaging; and
    (c) Assistance in obtaining equity and debt financing.

 Subpart B_Eligibility, Certification, and Protests Relating to Federal=20
                  Small Disadvantaged Business Programs

    Source: 63 FR 35772, June 30, 1998, unless otherwise noted.

Sec. 124.1001  General applicability.

    (a) This subpart defines a Small Disadvantaged Business (SDB). It=20
also sets forth procedures by which a firm can apply to be recognized as =

an SDB, including procedures to be used by private sector entities=20
approved by SBA for determining whether a particular concern is owned=20
and controlled by one or more disadvantaged individuals or Alaska Native =

Corporations (ANCs), Community Development Corporations (CDCs), Indian=20
tribes (tribes) or Native Hawaiian Organizations (NHOs). Finally, this=20
subpart establishes procedures by which SBA determines whether a=20
particular concern qualifies as an SDB in response to a protest=20
challenging the concern's status as disadvantaged. Unless specifically=20
stated otherwise, the phrase ``socially and economically disadvantaged=20
individuals'' in this subpart includes tribes, ANCs, CDCs, and NHOs.
    (b) Only small firms that are owned and controlled by socially and=20
economically disadvantaged individuals are eligible to participate in=20
Federal SDB price evaluation adjustment, evaluation factor or subfactor, =

monetary subcontracting incentive, or set-aside programs, or SBA's=20
section 8(d) subcontracting program.
    (c) In order for a concern to represent that it is an SDB as a prime =

contractor for purposes of a Federal Government procurement, it must=20
have:
    (1) Received a certification from SBA that it qualifies as an SDB;=20
or
    (2) Submitted an application for SDB certification to SBA or a=20
Private Certifier, and must not have received a negative determination=20
regarding that application from SBA or the Private Certifier.
    (d) A firm cannot represent itself to be an SDB concern in order to=20
receive a preference as an SDB for any Federal subcontracting program if =

it is not on the SBA-maintained list of qualified SDBs.

Sec. 124.1002  What is a Small Disadvantaged Business =
(SDB)?

    (a) Reliance on 8(a) criteria. In determining whether a firm=20
qualifies as an SDB, the criteria of social and economic disadvantage=20
and other eligibility requirements established in subpart A of this part =

apply, including the requirements of ownership and control and=20
disadvantaged status, unless otherwise provided in this subpart.=20
Qualified

[[Page 410]]

Private Certifiers must use the 8(a) criteria applicable to ownership=20
and control in determining whether a particular firm is actually owned=20
and controlled by one or more individuals claiming disadvantaged status.
    (b) SDB eligibility criteria. A small disadvantaged business (SDB)=20
is a concern:
    (1) Which qualifies as small under part 121 of this title for the=20
size standard corresponding to the applicable four digit Standard=20
Industrial Classification (SIC) code.
    (i) For purposes of SDB certification, the applicable SIC code is=20
that which relates to the primary business activity of the concern;
    (ii) For purposes related to a specific Federal Government contract, =

the applicable SIC code is that assigned by the contracting officer to=20
the procurement at issue;
    (2) Which is at least 51 percent unconditionally owned by one or=20
more socially and economically disadvantaged individuals as set forth in =

Sec. 124.105. For the requirements relating to tribes =
and ANCs, NHOs,=20
or CDCs, see Sec. Sec. 124.109, =
124.110, and 124.111, respectively.
    (3) Except for tribes, ANCs, NHOs, and CDCs, whose management and=20
daily business operations are controlled by one or more socially and=20
economically disadvantaged individuals. For the requirements relating to =

tribes and ANCs, NHOs, or CDCs, see Sec. Sec. 124.109, =
124.110, and=20
124.111, respectively.
    (4) Which, for purposes of SDB procurement mechanisms authorized by=20
10 U.S.C. 2323 (such as price evaluation adjustments, evaluation factors =

or subfactors, monetary subcontracting incentives, or SDB set-asides)=20
relating to the Department of Defense, NASA and the Coast Guard only,=20
has the majority of its earnings accruing directly to the socially and=20
economically disadvantaged individuals.
    (c) Disadvantaged status. In assessing the personal financial=20
condition of an individual claiming economic disadvantage, his or her=20
net worth must be less than $750,000 after taking into account the=20
exclusions set forth in Sec. 124.104(c)(2).
    (d) Additional eligibility criteria. Except for tribes, ANCs, CDCs=20
and NHOs, each individual claiming disadvantaged status must be a=20
citizen of the United States.
    (e) Potential for success not required. The potential for success=20
requirement set forth in Sec. 124.107 does not apply as =
an eligibility=20
requirement for an SDB.
    (f) Joint ventures. Joint ventures are permitted for SDB procurement =

mechanisms (such as price evaluation adjustments, evaluation factors or=20
subfactors, monetary subcontracting incentives, or SDB set-asides),=20
provided that the requirements set forth in this paragraph are met.
    (1) The disadvantaged participant(s) to the joint venture must have:
    (i) Received an SDB certification from SBA; or
    (ii) Submitted an application for SDB certification to SBA or a=20
Private Certifier, and must not have received a negative determination=20
regarding that application.
    (2) For purposes of this paragraph, the term joint venture means two =

or more concerns forming an association to engage in and carry out a=20
single, specific business venture for joint profit. Two or more concerns =

that form an ongoing relationship to conduct business would not be=20
considered ``joint venturers'' within the meaning of this paragraph, and =

would also not be eligible to be certified as an SDB. The entity created =

by such a relationship would not be owned and controlled by one or more=20
socially and economically disadvantaged individuals. Each contract for=20
which a joint venture submits an offer will be evaluated on a case by=20
case basis.
    (3) Except as set forth in 13 CFR 121.103(h)(3), a concern that is=20
owned and controlled by one or more socially and economically=20
disadvantaged individuals entering into a joint venture agreement with=20
one or more other business concerns is considered to be affiliated with=20
such other concern(s) for size purposes. If the exception does not=20
apply, the combined annual receipts or employees of the concerns=20
entering into the joint venture must meet the applicable size standard=20
corresponding to the SIC code designated for the contract.
    (4) An SDB must be the managing venturer of the joint venture, and=20
an employee of the managing venturer

[[Page 411]]

must be the project manager responsible for performance of the contract.
    (5) The joint venture must perform any applicable percentage of work =

required of SDB offerors, and the SDB joint venturer(s) must perform a=20
significant portion of the contract.
    (g) Ownership restrictions for non-disadvantaged individuals. The=20
ownership restrictions set forth in Sec. 124.105 (g) =
and (h) for non-
disadvantaged individuals and concerns do not apply for purposes of=20
determining SDB eligibility.

[63 FR 35772, June 30, 1998, as amended at 69 FR 29208, May 21, 2004]

Sec. 124.1003  What is a Private Certifier?

    A Private Certifier is an organization or business concern approved=20
by SBA to determine whether firms are owned and controlled by one or=20
more individuals claiming disadvantaged status. SBA may elect to arrange =

for one or more Private Certifiers to perform certain functions in the=20
SDB Certification process. When that election is made, the provisions of =

Sec. Sec. 124.1004 through 124.1007 =
will apply. SBA will establish more=20
detailed standards regarding qualifications, monitoring, procedures and=20
use, if any, of Private Certifiers in specific contracts or agreements=20
between SBA and the Private Certifiers.

Sec. 124.1004  How does an organization or business =
concern become a=20
          Private Certifier?

    (a) SBA may execute contracts or agreements with organizations or=20
business concerns seeking to become Private Certifiers. Any such=20
contract or agreement will include provisions for the oversight,=20
monitoring, and evaluation of all certification activities by SBA.
    (b) The organization or business concern must demonstrate a=20
knowledge of SBA's regulations regarding ownership and control, as well=20
as business organizations and the legal principles affecting their=20
ownership and control generally, including stock issuances, voting=20
rights, convertability of debt to equity, options, and powers and=20
responsibilities of officers and directors, general and limited=20
partners, and limited liability members.
    (c) The organization or concern must also, along with its=20
principals, demonstrate good character. Good character does not exist=20
for these purposes if the organization or concern or any of its=20
principals:
    (1) Is debarred or suspended under any Federal procurement or non-
procurement debarment and suspension regulations; or
    (2) Has been indicted or convicted for any criminal offense or=20
suffered a civil judgment indicating a lack of business integrity.
    (d) As a condition of approval, SBA may require that appropriate=20
officers and/or key employees of the concern attend a training session=20
on SBA's rules and requirements.
    (e) An organization or concern seeking to become a Private Certifier =

must agree to provide access to SBA of its books and records when=20
requested, including records pertaining to its certification activities. =

Once SBA approves the organization or concern to be a Private Certifier, =

SBA may review this information, as well as the decisions of the Private =

Certifier, in determining whether it will renew or extend the term of=20
the Private Certifier, or terminate the Private Certifier for cause.
    (f) SBA will include in any contract or agreement document=20
authorizing an entity to act as a Private Certifier appropriate=20
conditions to prohibit conflicts of interests between the Private=20
Certifier and the firms for which it processes SDB applications and to=20
protect the integrity of the decision-making process.

Sec. 124.1005  Can a fee be charged to a firm to =
process the firm's=20
          application for SDB certification?

    (a) With SBA's approval, a Private Certifier may charge a reasonable =

fee to a firm in order to screen the firm's application for completeness =

and to process a determination of ownership and control. The fee must be =

for actual services rendered and must not be related to whether or not=20
the business concern is found to be owned and controlled by one or more=20
individuals or entities claiming disadvantaged status.
    (b) Where SBA makes the determination of ownership and control, SBA=20
may collect a fee comparable to that which would be charged by a Private

[[Page 412]]

Certifier. From time to time, SBA will publish a Notice in the Federal=20
Register identifying any fee that SBA will charge to process a firm's=20
determination of ownership and control. SBA will promptly remit any=20
funds received pursuant to this section to the Treasury of the United=20
States as miscellaneous receipts.

Sec. 124.1006  Is there a list of Private Certifiers?

    SBA will maintain a list of approved Private Certifiers on SBA's=20
Home Page on the Internet. Any interested person may also obtain a copy=20
of the list from the local SBA district office.

Sec. 124.1007  How long may an organization or business =
concern be a=20
          Private Certifier?

    (a) SBA's approval document will specify how long the organization=20
or concern may be a Private Certifier. The initial contract or agreement =

will have a base period of one year, and may include option years or=20
renewal provisions.
    (b) SBA may terminate a contract or agreement with an organization=20
or business concern which is a Private Certifier for the convenience of=20
the Government at any time, and may terminate the contract or agreement=20
for default where appropriate. Specific grounds for termination for=20
default include, but are not limited to:
    (1) Charging improper, unreasonable or contingent fees in violation=20
of Sec. 124.1005;
    (2) Engaging in prohibited business transactions with the firms for=20
which it processes SDB applications in violation of Sec. =
124.1004(f);=20
or
    (3) A demonstrated record of ownership and control determinations=20
that are overturned on appeal by SBA's Office of Hearings and Appeals=20
(OHA) or by SBA as part of an SDB protest.

Sec. 124.1008  How does a firm become certified as an =
SDB?

    Any firm may apply to be certified as an SDB. SBA's field offices=20
will provide further information and required application forms to any=20
firm interested in SDB certification. In order to become certified as an =

SDB, a firm must apply to SBA or, if directed by SBA, to a Private=20
Certifier. The application must include evidence demonstrating that the=20
firm is owned and controlled by one or more individuals claiming=20
disadvantaged status, along with certifications or narratives regarding=20
the disadvantaged status of such individuals. See paragraph (e)(1) of=20
this section. The firm also must submit information necessary for a size =

determination. See Sec. 121.1008. Current 8(a) BD Participants do not=20
need to submit applications for SDB status. These concerns automatically =

qualify as SDBs by virtue of their status as 8(a) BD concerns. An 8(a)=20
Participant's continuing eligibility as an SDB will be reviewed as part=20
of the concern's 8(a) annual review.
    (a) Filing an SDB application. (1) An interested firm must first=20
submit a complete application to SBA's Assistant Administrator for Small =

Disadvantaged Business Certification and Eligibility (AA/SDBCE), Small=20
Business Administration, 409 3rd Street, SW, Washington, DC 20416, or to =

a specific SBA field office or an approved Private Certifier if directed =

by SBA.
    (2) The firm must identify which individual(s) or entities are=20
claiming disadvantaged status.
    (b) Required forms. Each firm seeking to be certified as an SDB must =

submit those forms and attachments required by SBA when applying for=20
admission to the 8(a) BD program. These forms and attachments may=20
include, but not be limited to, financial statements, Federal personal=20
and business tax returns and personal history statements. The=20
application package may be in the form of an electronic application.
    (c) Application processing. (1) SBA or a Private Certifier will=20
advise each applicant generally within 15 days after the receipt of an=20
application whether the application is complete and suitable for=20
evaluation and, if not, what additional information or clarification is=20
required. If the application is not complete, SBA or the Private=20
Certifier will return the application to the firm, and will notify the=20
firm that it may reapply when its application is complete.
    (2) The burden is on the applicant to demonstrate that those=20
individuals claiming disadvantaged status own and control the concern.

[[Page 413]]

    (d) Ownership and control decision. SBA or a Private Certifier will=20
determine whether those individuals claiming disadvantaged status own=20
and control the applicant firm within 30 days of receipt of a complete=20
application package, whenever practicable.
    (1) Where a Private Certifier determines ownership and control, the=20
Private Certifier will issue a written decision as to whether the=20
applicant is owned and controlled by the individuals identified as=20
claiming disadvantaged status.
    (i) If the Private Certifier finds that the applicant is owned and=20
controlled by the individuals claiming disadvantaged status, the Private =

Certifier will forward the application to SBA along with a copy of its=20
ownership and control determination and the information required by=20
paragraph (e)(2)(ii) of this section, where appropriate.
    (ii) If the Private Certifier finds that the applicant is not owned=20
and controlled by the individuals claiming disadvantaged status, its=20
decision must state the specific reasons for the finding, and inform the =

applicant of its right to appeal the decision to SBA pursuant to Sec.=20
124.1009.
    (2) Where SBA determines ownership and control, SBA will first=20
determine whether the applicant is owned and controlled by the=20
individual(s) claiming to be disadvantaged. If SBA determines that the=20
applicant is not owned and controlled by the individual(s) claiming=20
disadvantaged status, SBA will issue a written decision addressing only=20
the ownership and control issues. If SBA determines that the applicant=20
is owned and controlled by the individual(s) claiming disadvantaged=20
status, SBA will issue a single written decision as to whether the=20
applicant qualifies as an SDB. Such a determination will include the=20
ownership and control of the firm, the size status of the firm, and the=20
disadvantaged status of those individuals claiming to be disadvantaged.
    (3) In its sole discretion, SBA may analyze and determine whether a=20
firm is owned and controlled by one or more individuals claiming=20
disadvantaged status notwithstanding the availability of a Private=20
Certifier to make such a decision.
    (4) SBA reserves the right to re-evaluate an approved decision on=20
ownership and control by a Private Certifier in a case where it has=20
credible evidence that the Private Certifier has substantially=20
disregarded the eligibility criteria.
    (e) Disadvantaged determination. Once a concern receives a decision=20
finding that it is owned and controlled by those individuals or entities =

claiming disadvantaged status (either through an initial determination=20
or on appeal), SBA will determine whether the other eligibility criteria =

are met, and, if so, will include the SDB on the SBA-maintained list of=20
qualified SDBs. SBA will make this determination within 30 days of=20
receiving an SDB application, if practicable.
    (1) Members of designated groups. (i) Those individuals claiming=20
disadvantaged status that are members of the same designated groups that =

are presumed to be socially disadvantaged for purposes of SBA's 8(a) BD=20
program (see Sec. 124.103(b)) are presumed to be =
socially and=20
economically disadvantaged for purposes of SDB certification. These=20
individuals must represent that they are members of one of the=20
designated groups, that they are identified as a member of one of the=20
designated groups, that their net worth is less than $750,000 after=20
taking into account the exclusions set forth in Sec. =
124.104(c)(2), and=20
that they are citizens of the United States.
    (ii) Absent credible evidence to the contrary, SBA may accept these=20
representations as true and certify the firm as an SDB.
    (2) Individuals not members of designated groups. (i) Each=20
individual claiming disadvantaged status who is not a member of one of=20
the designated groups must submit a statement identifying personally how =

his or her entry into or advancement in the business world has been=20
impaired because of personally specific factors (see Sec. =
124.103(c)),=20
and how his or her ability to compete in the free enterprise system has=20
been impaired due to diminished capital and credit opportunities (see=20
Sec. Sec. 124.103(c) and 124.104).

[[Page 414]]

    (ii) Where a Private Certifier determines ownership and control, the =

Private Certifier must also review the disadvantaged status submission=20
and any other required information, and send to SBA the following:
    (A) An executive summary and analysis of the disadvantaged status=20
submission;
    (B) The application and all supporting documentation; and
    (C) A certification that the application is complete and suitable=20
for evaluation.
    (3) Concerns owned by tribes, ANCs, CDCs, or NHOs: SBA will process=20
SDB applications from concerns owned and controlled by tribes, ANCs,=20
CDCs, or NHOs in the same way as those from concerns owned by=20
individuals who are members of designated groups.
    (f) SDB Determination. (1) If SBA's AA/SDBCE determines that the=20
individual(s) claiming disadvantage are disadvantaged and other=20
eligibility criteria are met, he or she will certify the firm as an SDB.
    (2) If SBA's AA/SDBCE determines that one or more of the individuals =

claiming to be disadvantaged is not disadvantaged and their=20
disadvantaged status is required to establish disadvantaged ownership=20
and control of the applicant, or any of the other eligibility criteria=20
are not met, he or she will reject the firm's application for SDB=20
certification. The AA/SDBCE will issue a written decision setting forth=20
SBA's reasons for decline.
    (3)(i) If the AA/SDBCE declines the firm's application for SDB=20
certification, the firm may request that the AA/SDBCE reconsider his or=20
her initial decline by submitting a written request to the AA/SDBCE=20
within 45 days of the date of the AA/SDBCE's decision. The applicant may =

provide any additional information and documentation pertinent to=20
overcoming the reason(s) for the initial decline.
    (ii) The AA/SDBCE will issue a written decision within 30 days of=20
receiving the applicant's request for reconsideration, if practicable.=20
The AA/SDBCE may either approve the application, deny it on one or more=20
of the same grounds as the initial decision, or deny it on other=20
grounds. If the application is denied, the AA/SDBCE will explain why the =

applicant is not eligible for SDB certification and give specific=20
reasons for the decline. If the AA/SDBCE declines the application solely =

on issues not raised in the initial decline, the applicant may request=20
another reconsideration as if it were an initial decline. If the AA/
SDBCE declines the application for one or more of the same reasons as=20
addressed in the initial decline, the applicant is not entitled to a=20
second reconsideration.
    (4) Pursuant to part 134 of this title, a firm may appeal to OHA the =

AA/SDBCE's decision that one or more of the individuals claiming=20
disadvantaged status is not disadvantaged, or, where SBA determines=20
ownership and control, that those claiming disadvantaged status do not=20
own and control the applicant. (See Sec. 124.1009 for =
appeals from=20
decisions by Private Certifiers.)
    (i) The firm must serve SBA's Associate General Counsel for=20
Procurement Law with a copy of the appeal.
    (ii) OHA will determine whether SBA's decision in either case was=20
arbitrary, capricious, or contrary to law. OHA's review is limited to=20
the facts that were before SBA at the time of its decision and any=20
arguments submitted in or in response to the appeal. OHA will not=20
consider any facts beyond those that were already presented to SBA=20
unless the administrative judge determines that manifest injustice would =

occur if the appeal were limited to the record.
    (5) A firm may also request a formal size determination pursuant to=20
part 121 of this title where SBA finds that the firm is not small.
    (g) Current 8(a) BD program participants. Any firm that is currently =

a Participant in SBA's 8(a) BD program need not seek an ownership and=20
control determination or apply to SBA for a separate certification as an =

SDB. SBA will certify current 8(a) BD Participants as SDBs, and=20
automatically include them on the list of qualified SDBs.
    (h) 8(a) BD graduates. SBA will automatically certify a firm that=20
has graduated from the SBA's 8(a) BD program to be an SDB, provided SBA=20
determined that the firm continued to be eligible for the 8(a) BD=20
program as part of an annual review within the last three years. (See=20
Sec. 124.1014(b)).

[[Page 415]]

    (i) Certification by DOT recipient. If a firm applying for SDB=20
certification has a current, valid certification as a disadvantaged=20
business enterprise (DBE) from a Department of Transportation (DOT)=20
recipient, SBA may adopt the DBE certification as an SDB certification=20
when determined by the AA/SDBCE or designee to be appropriate.

[63 FR 35772, June 30, 1998, as amended at 65 FR 33250, May 23, 2000; 65 =

FR 57542, Sept. 25, 2000]

Sec. 124.1009  How does a firm appeal a decision of a =
Private=20
          Certifier?

    Where a Private Certifier performs an ownership and control=20
determination and finds that a firm is not owned and controlled by the=20
individual(s) claiming disadvantaged status, the firm may appeal that=20
decision to OHA pursuant to part 134 of this title. The firm must serve=20
SBA's Associate General Counsel for Procurement Law and the applicable=20
Private Certifier with a copy of the appeal.
    (a) The Private Certifier must submit to OHA the full record upon=20
which its decision was based within two days of receiving notification=20
that an appeal has been filed.
    (b) The Private Certifier and SBA may each elect to appear or not=20
appear in an appeal proceeding.
    (c) OHA's review is limited to the facts that were before the=20
Private Certifier at the time of its final decision and any arguments=20
submitted in or in response to the appeal. OHA will not consider any=20
facts beyond those that were already presented to the Private Certifier=20
unless the administrative judge determines that manifest injustice would =

occur if the appeal were limited to the record.
    (d) OHA will decide whether it believes that the facts are supported =

by a preponderance of the evidence the Private Certifier's determination =

regarding ownership and control.
    (e) Where the facts presented in the record leave significant doubt=20
as to whether the petitioner is or is not owned and controlled by one or =

more individuals claiming to be disadvantaged, the administrative judge=20
may remand the case to the Private Certifier for reconsideration in=20
accord with his or her remand order.
    (f) If OHA finds that the firm is owned and controlled by the=20
individual(s) claiming disadvantaged status, OHA will refer the=20
application to SBA for further processing. If OHA finds that the firm is =

not owned and controlled by such individual(s), the administrative judge =

will state the reasons for that decision, which will be the final=20
decision of the Agency.

[63 FR 35772, June 30, 1998, as amended at 65 FR 57542, Sept. 25, 2000]

Sec. 124.1010  Can a firm represent itself to be an SDB =
if it has not=20
          yet been certified as an SDB?

    (a) General rule. Except as set forth in paragraph (d) of this=20
section, a firm may represent itself to be an SDB concern in order to=20
receive a preference as an SDB for any Federal procurement program if it =

has submitted a complete application for SDB certification to SBA or a=20
Private Certifier and it has not received a negative determination=20
regarding that application from SBA or the Private Certifier. A firm=20
that has received a negative determination of ownership and control or a =

negative determination regarding its disadvantaged status and is=20
awaiting the resolution of its appeal of that determination may not=20
represent itself to be an SDB.
    (b) Where applicant becomes successful offeror. If a concern becomes =

the apparent successful offeror on a contract for which it would receive =

a benefit for being an SDB while its application for SDB certification=20
is pending, either at SBA or a Private Certifier, the contracting=20
officer for the particular contract must immediately inform SBA's AA/
SDBCE. SBA will then prioritize the firm's SDB application and make a=20
determination regarding the firm's status as an SDB within 15 days from=20
the date that SBA received the contracting officer's notification.
    (1) Where the apparent successful offeror's completed application is =

pending an ownership and control determination with a Private Certifier, =

the concern must inform SBA which Private Certifier has its application. =

SBA will immediately contact the Private Certifier to require the=20
Private Certifier to complete its ownership and control determination=20
within 5 days of

[[Page 416]]

SBA's notification. In appropriate circumstances, SBA may undertake to=20
make the determination itself, and may recoup the cost of the=20
determination from the Private Certifier.
    (2) If requested to do so by the procuring activity contracting=20
officer, SBA will determine whether other offerors are SDBs where they=20
have represented that their completed applications for SDB status are=20
pending at SBA or a Private Certifier and they could receive the award=20
if SBA determines that the apparently successful offeror is not an SDB.
    (3) If the contracting officer does not receive an SBA determination =

within 15 calendar days after the SBA's receipt of the notification, the =

contracting officer will presume that the apparently successful offeror, =

and any other offerors referred to SBA in connection with the same=20
procurement by the contracting officer, are not disadvantaged, and will=20
make award accordingly, unless the contracting officer grants an=20
extension to the 15-day response period.
    (c) Representation as SDB for statistical purposes. A firm may=20
represent itself as an SDB concern for general statistical purposes=20
without regard to any application for SDB certification or its inclusion =

on the SBA-maintained list of qualified SDB's.
    (d) Subcontracting programs. Only firms that are on the SBA-
maintained list of qualified SDBs may represent themselves as SDB=20
concerns in order to receive a preference as an SDB for any Federal=20
subcontracting program.

Sec. 124.1011  What is a misrepresentation of SDB =
status?

    (a) Any person or entity that misrepresents a firm's status as a=20
``small business concern owned and controlled by socially and=20
economically disadvantaged individuals'' (``SDB status'') in order to=20
obtain an 8(d) or SDB contracting opportunity or preference will be=20
subject to the penalties imposed by section 16(d) of the Small Business=20
Act, 15 U.S.C. 645(d), as well as any other penalty authorized by law.
    (b) A representation of SDB status by any firm that SBA has found=20
not to be an SDB (either in connection with an SDB application or=20
protest) will be deemed a misrepresentation of SDB status, unless and=20
until the firm reapplies for and obtains SDB certification.

Sec. 124.1012  Can a firm reapply for SDB =
certification?

    (a) A concern which has been denied SDB certification may reapply=20
for certification at any time 12 months or more after the date of the=20
most recent final decision of SBA to decline its application (either on=20
appeal of an ownership and control determination, or a negative finding=20
of disadvantaged status).
    (b) A concern which received a decision that it was not owned and=20
controlled by the individual(s) claiming disadvantaged status from a=20
Private Certifier and does not appeal that decision to OHA may apply for =

a new ownership and control determination at any time.

Sec. 124.1013  Is there a list of certified SDBs?

    (a) If SBA certifies a firm to be an SDB, SBA will enter the name of =

the firm into an SBA-maintained central on-line register, such as PRO-
Net.
    (b) The register of SDBs will contain the names of all firms that=20
are currently certified to be SDBs, including the names of all firms=20
currently participating in SBA's 8(a) BD program.
    (c) On a continuing basis, SBA will delete from the on-line register =

those firms that have:
    (1) Graduated or been terminated from SBA's 8(a) BD program for any=20
reason and have not otherwise received SDB certification (see,=20
Sec. Sec. 124.1008(h) and 124.1014(b) =
for treatment of 8(a) graduates);
    (2) Been determined not to be an SDB in response to an SDB protest=20
brought under Sec. 124.1017; or
    (3) Other than current 8(a) Participants, not received a renewed SDB =

certification after being on the register for three years (see Sec.=20
124.1014(c)).

Sec. 124.1014  How long does an SDB certification last?

    (a) Once SBA certifies a firm to be an SDB by placing it on the list =

of qualified SDBs, the firm will generally remain on the SBA-maintained=20
list of

[[Page 417]]

certified SDBs for a period of three years from the date of its=20
certification.
    (1) A firm's SDB certification will extend beyond three years where=20
SBA finds the firm to be an SDB:
    (i) On the merits in connection with a particular protest (see Sec.=20
124.1023(h)(2));
    (ii) In connection with an SBA-initiated SDB determination (see=20
Sec. 124.1016(a)(2)); or
    (iii) As part of an 8(a) BD annual review.
    (2) Where SBA finds a firm not to be an SDB in connection with an=20
SDB protest, an SBA-initiated SDB determination, or an 8(a) BD annual=20
review, SBA will immediately decertify the firm as an SDB and remove it=20
from the qualified list of SDBs.
    (b) A firm that graduates from the 8(a) BD program will remain on=20
the list of certified SDBs for a period of three years from the date of=20
its last annual review.
    (c) To remain on the SDB register after three years, a firm whose=20
status as an SDB has not been upheld in connection with a protest or an=20
SBA-initiated SDB determination, or has not been certified as an=20
eligible 8(a) Participant as part of an annual review, must submit a new =

application and receive a new certification.

Sec. 124.1015  What is the effect of receiving an SDB =
certification?

    (a) A firm that is certified to be an SDB may represent itself as an =

SDB for such purposes as Federal price evaluation adjustments,=20
evaluation factors or subfactors, monetary subcontracting incentive=20
programs, section 8(d) subcontracts, SDB set-asides, or any other=20
programs which accept an SBA certification. A contracting officer may=20
award a contract based on a firm's representation that it is a certified =

SDB absent a protest that the protested concern's circumstances have=20
materially changed since SBA certified it as an SDB, or that the=20
protested concern's SDB application contained false or misleading=20
information (see Sec. 124.1018(d)).
    (b) For purposes of a particular Federal procurement, the firm must=20
represent that it is both disadvantaged and small at the time it submits =

its initial offer including price (see part 121 of this title). At the=20
same time, the firm must also represent that no material change has=20
occurred in its SDB status since its SDB certification, or from the date =

of its application for SDB certification if its application has not yet=20
been processed, and must specifically represent that the net worth of=20
the disadvantaged individuals (not including concerns owned by tribes,=20
ANCs, CDCs, or NHOs) upon whom the SDB certification was based still=20
does not exceed $750,000.
    (c) A firm's status as ``disadvantaged'' or ``small'' may be=20
protested pursuant to Sec. Sec. 124.1017 through =
124.1021 and=20
Sec. Sec. 121.1001 through 121.1005, respectively, despite the presence=20
of the firm on the SDB register, provided the protest contains specific=20
allegations that the firm's circumstances have materially changed since=20
SBA certified it as an SDB, or that the firm's SDB application contained =

false or misleading information.

Sec. 124.1016  Can SBA re-evaluate the SDB status of a =
firm after SBA=20
          certifies it to be SDB?

    (a) SBA may initiate an SDB determination whenever it receives=20
credible information calling into the question a firm's eligibility as=20
an SDB, including an adverse determination from a DOT recipient of the=20
firm's status as a DBE. Upon its completion of an SDB determination, SBA =

will issue a written decision regarding the SDB status of the questioned =

firm.
    (1) If SBA finds that the firm does not qualify as an SDB, SBA will=20
decertify the firm as an SDB, and immediately remove the firm from the=20
list of qualified SDBs. The firm may appeal SBA's decision to OHA=20
consistent with the provisions of Sec. 124.1008(f) and =
part 134 of this=20
chapter.
    (2) If SBA finds that the firm continues to qualify as an SDB, the=20
determination remains in effect for three years from the date of the=20
decision under the same conditions as if the concern had been granted=20
SDB certification under Sec. 124.1008.
    (b) An SDB firm must report within 10 days to the AA/SDBCE any=20
changes in ownership and control or any other circumstances which could=20
adversely affect its eligibility as an SDB.

[[Page 418]]

Sec. 124.1017  Who may protest the disadvantaged status =
of a concern?

    (a) In connection with a requirement for which the apparent=20
successful offeror has invoked an SDB evaluation adjustment or an SDB=20
set-aside, the following entities may protest the disadvantaged status=20
of the apparent successful offeror:
    (1) Any other concern which submitted an offer for that requirement, =

unless the contracting officer has found the concern to be non-
responsive or outside the competitive range, or SBA has previously found =

the protesting concern to be ineligible for the requirement at issue;
    (2) The procuring activity contracting officer; or
    (3) SBA.
    (b) In connection with an 8(d) subcontract, or a requirement for=20
which the apparent successful offeror received an evaluation adjustment=20
for proposing one or more SDB subcontractors, the procuring activity=20
contracting officer or SBA may protest the disadvantaged status of a=20
proposed subcontractor. Other interested parties may submit information=20
to the contracting officer or SBA in an effort to persuade the=20
contracting officer or SBA to initiate a protest.
    (c) An interested party seeking to protest both the disadvantaged=20
status and size of an apparent successful SDB offeror must submit two=20
separate protests, one as to disadvantaged status pursuant to this=20
subpart, and one as to size pursuant to part 121 of this title. An=20
interested party seeking to protest only size of an apparent successful=20
SDB offeror must submit a size protest to the contracting officer=20
pursuant to part 121.

Sec. 124.1018  When will SBA not decide an SDB protest?

    (a) SBA will not decide a protest as to disadvantaged status of any=20
concern other than the apparent successful offeror.
    (b) SBA will not normally consider a post award protest. SBA may=20
consider a post award protest in its discretion where it determines that =

a protest decision after award would have a practical effect (e.g.,=20
where the contracting officer agrees to terminate the contract if the=20
protest is sustained).
    (c) SBA will not decide an untimely protest (see Sec. =
124.1020(c)).
    (d) SBA will not decide a non-specific protest or one that does not=20
present credible evidence that the protested concern's circumstances=20
have materially changed since SBA certified it as an SDB, or that the=20
protested concern's SDB application contained false or misleading=20
information (see Sec. 124.1021).
    (e) An interested party may appeal SBA's dismissal of a protest for=20
lack of specificity, timeliness, or a basis upon which SBA will consider =

a protest to SBA's Deputy Associate Deputy Administrator for Government=20
Contracting and Minority Enterprise Development (DADA/GC&MED) =
pursuant=20
to Sec. 124.1024.

Sec. 124.1019  Who decides disadvantaged status =
protests?

    In response to a protest challenging the disadvantaged status of a=20
concern, the SBA's AA/SDBCE will determine whether the concern is=20
disadvantaged.

Sec. 124.1020  What procedures apply to disadvantaged =
status protests?

    (a) General. The protest procedures described in this section are=20
separate and distinct from those governing size protests and appeals.=20
All protests relating to whether a concern is a ``small'' business for=20
purposes of any Federal program, including SDB set-asides and SDB=20
evaluation adjustments, must be filed and processed pursuant to part 121 =

of this title.
    (b) Filing. (1) All protests challenging the disadvantaged status of =

a concern with respect to a particular Federal procurement requirement=20
must be submitted in writing to the procuring activity contracting=20
officer, except in cases where the contracting officer or SBA initiates=20
a protest.
    (2) Any contracting officer who initiates a protest must submit the=20
protest in writing to SBA in accord with paragraph (c) of this section.
    (3) In cases where SBA initiates a protest, the protest must be=20
submitted in writing to the AA/SDBCE and notification provided in accord =

with Sec. 124.1022(a).

[[Page 419]]

    (c) Timeliness of protest--(1) SDB evaluation adjustment and set-
aside protests--(i) General. In order for a protest to be timely, it=20
must be received by the contracting officer prior to the close of=20
business on the fifth day, exclusive of Saturdays, Sundays and legal=20
holidays, after the bid opening date for sealed bids, or after the=20
receipt from the contracting officer of notification of the identity of=20
the prospective awardee in negotiated acquisitions.
    (ii) Oral protests. An oral protest relating to an SDB set-aside or=20
SDB evaluation adjustment made to the contracting officer within the=20
allotted 5-day period will be considered a timely protest only if the=20
contracting officer receives a confirming letter postmarked, FAXed, or=20
delivered no later than one calendar day after the date of such oral=20
protest.
    (iii) Protests of contracting officers or SBA. The time limitations=20
in paragraph (c)(1)(i) of this section do not apply to contracting=20
officers or SBA, and they may file protests before or after awards,=20
except to the extent set forth in paragraph (c)(3) of this section.
    (iv) Untimely protests. A protest received after the time limits set =

forth in this paragraph (c)(1) will be dismissed by SBA.
    (2) Section 8(d) protests. In connection with an 8(d) subcontract,=20
the contracting officer or SBA must submit a protest to the AA/SDBCE=20
prior to the completion of performance by the intended 8(d)=20
subcontractor.
    (3) Premature protests. A protest in connection with any procurement =

which is submitted by any person, including the contracting officer,=20
before bid opening or notification of intended award, whichever applies, =

will be considered premature, and will be returned to the protestor=20
without action. A contracting officer that receives a premature protest=20
must return it to the protestor without submitting it to the SBA.
    (d) Referral to SBA. (1) Any contracting officer who receives a=20
protest that is not premature must promptly forward it to the SBA's AA/
SDBCE, 409 3rd Street, SW, Washington, DC 20416.
    (2) A contracting officer's referral of a protest to SBA must=20
contain the following:
    (i) The written protest and any accompanying materials;
    (ii) The date on which the protest was received by the contracting=20
officer;
    (iii) A copy of the protested concern's selfrepresentation as an=20
SDB, and the date of such self-representation; and
    (iv) The date of bid opening or the date on which notification of=20
the apparent successful offeror was sent to all unsuccessful offerors,=20
as applicable.

Sec. 124.1021  What format, degree of specificity, and =
basis does SBA=20
          require to consider an SDB protest?

    (a) Format. An SDB protest need not be in any specific format in=20
order for SBA to consider it.
    (b) Specificity. A protest must be sufficiently specific to provide=20
reasonable notice as to all grounds upon which the protested concern's=20
disadvantaged status is challenged.
    (1) SBA will dismiss a protest that merely asserts that the=20
protested concern is not disadvantaged, without setting forth specific=20
facts or allegations.
    (2) The contracting officer must forward to SBA any non-premature=20
protest received, notwithstanding whether he or she believes it is=20
sufficiently specific or timely.
    (c) Basis. SBA will consider a protest challenging whether the=20
apparent successful offeror is owned and controlled by one or more=20
socially and economically disadvantaged individuals, including whether=20
one or more of the individuals claiming disadvantaged status is in fact=20
socially or economically disadvantaged, only if the protest presents=20
credible evidence that the firm's circumstances have materially changed=20
since SBA certified it as an SDB, or that the firm's SDB application=20
contained false or misleading information.

Sec. 124.1022  What will SBA do when it receives an SDB =
protest?

    (a) Upon receipt of a protest challenging the disadvantaged status=20
of a concern, the AA/SDBCE, or designee, will immediately notify the=20
protestor and the contracting officer of the date the protest was=20
received and whether it will be processed or dismissed for lack of=20
timeliness or specificity.

[[Page 420]]

    (b) In cases where the protest is timely and sufficiently specific,=20
the AA/SDBCE, or designee, will also immediately advise the protested=20
concern of the protest and forward a copy of it to the protested=20
concern.
    (1) The AA/SDBCE, or designee, is authorized to ask the protested=20
concern to provide any or all of the following information and=20
documentation, completed so as to show the circumstances existing on the =

date of self-representation: SBA Form 1010A, ``Statement of Personal=20
Eligibility'' for each individual claiming disadvantaged status; SBA=20
Form 1010B, ``Statement of Business Eligibility;'' SBA Form 413,=20
``Personal Financial Statement,'' for each individual claiming=20
disadvantaged status; information as to whether the protested concern,=20
or any of its owners, officers or directors, have applied for admission=20
to or participated in the SBA's 8(a) BD program and if so, the name of=20
the company which applied or participated and the date of the=20
application or entry into the program; business tax returns for the last =

two completed fiscal years prior to the date of self-representation;=20
personal tax returns for the last two years prior to the date of self-
representation for all individuals claiming disadvantaged status, all=20
officers, all directors and for any individual owning at least 10% of=20
the business entity; annual business financial statements for the last=20
two completed fiscal years prior to the date of self-representation; a=20
current monthly or quarterly business financial statement no older than=20
90 days; articles of incorporation; corporate by-laws; partnership=20
agreements; limited liability company articles of organization; and any=20
other relevant information as to whether the protested concern is=20
disadvantaged.
    (2) SBA's disadvantaged status determination need not be limited to=20
consideration only of the issues raised in the protest. SBA may consider =

other applicable criteria.
    (3) Unless the protest presents specific credible information which=20
calls into question the veracity of application or other documents=20
previously submitted to SBA by a current Participant in SBA's 8(a) BD=20
program, SBA will allow the Participant to submit, in lieu of the=20
information specified in paragraph (b)(1) of this section, a sworn=20
affidavit or declaration that circumstances concerning the ownership and =

control of the business and the disadvantaged status of its principals=20
have not changed since its application or entry into the program or its=20
most recent annual review, and a copy of its most recently completed=20
annual review.
    (i) If the ownership or control of the business or the disadvantaged =

status of any principals have changed, the protested concern must comply =

with paragraph (b)(1) of this section.
    (ii) An affidavit or declaration may be allowed only if SBA admitted =

the protested concern to the 8(a) BD program, or conducted an annual=20
review of the protested concern, during the 12month period preceding the =

date on which SBA receives the protest, and if proceedings to suspend,=20
terminate or early graduate the concern from the 8(a) BD program are not =

pending.
    (c) Within 10 working days of the date that notification of the=20
protest was received from the AA/SDBCE or designee, the protested=20
concern must submit to the AA/SDBCE or designee, by personal delivery,=20
FAX, or mail, the information and documentation requested pursuant to=20
paragraph (b)(1) of this section or the affidavit permitted by paragraph =

(b)(2) of this section. Materials submitted must be received by the=20
close of business on the 10th working day.
    (1) SBA will consider only materials submitted timely, and the late=20
or non-submission of materials needed to make a disadvantaged status=20
determination may result in sustaining the protest.
    (2) The burden is on the protested concern to demonstrate its=20
disadvantaged status, whether or not it is currently shown on the list=20
of qualified SDBs.
    (3) The protested concern must timely submit to SBA any information=20
it deems relevant to a determination of its disadvantaged status.

[[Page 421]]

Sec. 124.1023  How does SBA make disadvantaged status =
determinations in=20
          considering an SDB protest?

    (a) General. The AA/SDBCE, or designee, will determine a protested=20
concern's disadvantaged status within 15 working days after receipt of a =

protest. If the procuring activity contracting officer does not receive=20
an SBA determination within 15 working days after the SBA's receipt of=20
the protest, the contracting officer may presume that the challenged=20
offeror is disadvantaged, unless the SBA requests and the contracting=20
officer grants an extension to the 15-day response period.
    (b) Award after protest. (1) After receiving a protest involving an=20
offeror being considered for award, the contracting officer shall not=20
award the contract until:
    (i) The SBA has made an SDB determination, or
    (ii) 15 working days have expired since SBA's receipt of a protest=20
and the contracting officer has not agreed to an extension of the 15-day =

response period.
    (2) Notwithstanding paragraph (b)(1) of this section, the=20
contracting officer may award a contract after the receipt of an SDB=20
protest where he or she determines in writing that an award must be made =

to protect the public interest.
    (c) Withdrawal of protest. If a protest is withdrawn, SBA will not=20
complete a new disadvantaged status determination, and a previous SDB=20
certification will stand.
    (d) Basis for determination. (1) Except with respect to a concern=20
which is a current Participant in SBA's 8(a) BD program and is=20
authorized under Sec. 124.1022(b)(3) to submit an =
affidavit concerning=20
its disadvantaged status, the disadvantaged status determination will be =

based on the protest record, including reasonable inferences therefrom,=20
as supplied by the protestor, protested concern, SBA or others.
    (2) SBA may in its discretion make a part of the protest record=20
information already in its files, and information submitted by the=20
protestor, the protested concern, the contracting officer, or other=20
persons contacted for additional specific information.
    (e) Disadvantaged status. In evaluating the social and economic=20
disadvantage of individuals claiming disadvantaged status, SBA will=20
consider the same information and factors set forth in Sec. Sec.=20
124.103 and 124.104. As provided in =
Sec. 124.1002(c), individuals=20
claiming disadvantaged status must have a net worth that is less than=20
$750,000, after taking into account the exclusions set forth in Sec.=20
124.104(c)(2).
    (f) Disadvantaged status determination. SBA will render a written=20
determination including the basis for its findings and conclusions.
    (g) Notification of determination. After making its disadvantaged=20
status determination, the SBA will immediately notify the contracting=20
officer, the protestor, and the protested concern of its determination.=20
SBA will promptly provide by certified mail, return receipt requested, a =

copy of its written determination to the same entities, consistent with=20
law.
    (h) Results of an SBA disadvantaged status determination. A=20
disadvantaged status determination becomes effective immediately.
    (1) If the concern is found not to be disadvantaged, the=20
determination remains in full force and effect unless reversed upon=20
appeal by SBA's DADA/GC&MED, or designee, pursuant to Sec. =
124.1024, or=20
the concern is certified to be an SDB under Sec. =
124.1008. The concern=20
is precluded from applying for SDB certification for 12 months from the=20
date of the final agency decision (whether by the AA/SDBCE, or designee, =

without an appeal, or by the DADA/GC&MED, or designee, on appeal).
    (2) If the concern is found to be disadvantaged, the determination=20
remains in full force and effect unless and until reversed upon appeal=20
by SBA's DADA/GC&MED, or designee, pursuant to Sec. =
124.1024. A final=20
Agency decision (whether by the AA/SDBCE, or designee, without an=20
appeal, or by the DADA/GC&MED, or designee, on appeal) finding the=20
protested concern to be an SDB remains in effect for three years from=20
the date of the decision under the same conditions as if the concern had =

been granted SDB certification under Sec. 124.1008.

[[Page 422]]

Sec. 124.1024  Appeals of disadvantaged status =
determinations.

    (a) Who may appeal. Appeals of protest determinations may be filed=20
with the SBA's DADA/GC&MED by the protested concern, the protestor, =
or=20
the contracting officer.
    (b) Timeliness of appeal. An appeal must be in writing and must be=20
received by the DADA/GC&MED no later than 5 working days after the =
date=20
of receipt of the protest determination. SBA will dismiss any appeal=20
received after the five-day time period.
    (c) Notice of appeal. Notice of the appeal must be provided by the=20
party bringing an appeal to the procuring activity contracting officer=20
and either the protested concern or original protestor, as appropriate.
    (d) Grounds for appeal. SBA will reexamine a protest determination=20
only if there was a clear and significant error in the processing of the =

protest, or if the AA/SDBCE, or designee, failed to consider a=20
significant material fact contained within the information supplied by=20
the protestor or the protested concern. SBA will not consider protest=20
determination appeals based on additional information or changed=20
circumstances which were not disclosed at the time of the decision of=20
the AA/SDBCE or designee, or which are based on disagreement with the=20
findings and conclusions contained in the determination.
    (e) Contents of appeal. No specific format is required for the=20
appeal. However, the appeal must identify the protest determination=20
which is appealed, and set forth a full and specific statement as to why =

the determination is erroneous under paragraph (c) of this section.
    (f) Completion of appeal after award. An appeal may proceed to=20
completion even though an award of the SDB acquisition or other=20
procurement requirement which prompted the protest has been made, if so=20
desired by the protested concern, or where SBA determines that a=20
decision on appeal would have a material impact on contracting=20
decisions, such as where the contracting officer agrees:
    (1) In the case where an award is made to a concern other than the=20
protested concern, to terminate the contract and award to the protested=20
concern if the appeal finds that the protested concern is disadvantaged; =

or
    (2) In the case where an award is made to the protested concern, to=20
terminate the contract if the appeal finds that the protested concern is =

not disadvantaged.
    (g) The appeal will be decided by the DADA/GC&MED, within 5 =
working=20
days of its receipt, if practicable.
    (h) The appeal decision will be based only on the information and=20
documentation in the protest record as supplemented by the appeal. SBA=20
will provide a copy of the decision to the contracting officer, the=20
protestor, and the protested concern, consistent with law.
    (i) The decision of the DADA/GC&MED, is the final decision of =
the=20
SBA, and cannot be further appealed to OHA.