Small Business Administration

Laws and Regulations

SBA Program Office

[Code of Federal Regulations]

[Title 13, Volume 1]

[Revised as of January 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 13CFR124]

[Page 361-422]

TITLE 13--BUSINESS CREDIT AND ASSISTANCE

CHAPTER I--SMALL BUSINESS ADMINISTRATION

PART 124_8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS STATUS

DETERMINATIONS

Subpart A_8(a) Business Development

Provisions of General Applicability

Sec.

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

124.2 What length of time may a business participate in the 8(a) BD

program?

124.3 What definitions are important in the 8(a) BD program?

Eligibility Requirements for Participation in the 8(a) Business

Development Program

124.101 What are the basic requirements a concern must meet for the 8(a)

BD program?

124.102 What size business is eligible to participate in the 8(a) BD

program?

124.103 Who is socially disadvantaged?

124.104 Who is economically disadvantaged?

124.105 What does it mean to be unconditionally owned by one or more

disadvantaged individuals?

124.106 When do disadvantaged individuals control an applicant or

Participant?

124.107 What is potential for success?

124.108 What other eligibility requirements apply for individuals or

businesses?

124.109 Do Indian tribes and Alaska Native Corporations have any special

rules for applying to the 8(a) BD program?

124.110 Do Native Hawaiian Organizations have any special rules for

applying to the 8(a) BD program?

124.111 Do Community Development Corporations (CDCs) have any special

rules for applying to the 8(a) BD program?

124.112 What criteria must a business meet to remain eligible to

participate in the 8(a) BD program?

Applying to the 8(a) BD Program

124.201 May any business submit an application?

124.202 Where must an application be filed?

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

124.204 How does SBA process applications for 8(a) BD program admission?

124.205 Can an applicant ask SBA to reconsider SBA's initial decision to

decline its application?

124.206 What appeal rights are available to an applicant that has been

denied admission?

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

Exiting the 8(a) BD Program

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

124.302 What is early graduation?

124.303 What is termination?

124.304 What are the procedures for early graduation and termination?

124.305 What is suspension and how is a Participant suspended from the

8(a) BD program?

Business Development

124.401 Which SBA field office services a Participant?

[[Page 362]]

124.402 How does a Participant develop a business plan?

124.403 How is a business plan updated and modified?

124.404 What business development assistance is available to

Participants during the two stages of participation in the

8(a) BD program?

124.405 How does a Participant obtain Federal Government surplus

property?

Contractual Assistance

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

124.502 How does an agency offer a procurement to SBA for award through

the 8(a) BD program?

124.503 How does SBA accept a procurement for award through the 8(a) BD

program?

124.504 What circumstances limit SBA's ability to accept a procurement

for award as an 8(a) contract?

124.505 When will SBA appeal the terms or conditions of a particular

8(a) contract or a procuring activity decision not to reserve

a requirement for the 8(a) BD program?

124.506 At what dollar threshold must an 8(a) procurement be competed

among eligible Participants?

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

124.508 How is an 8(a) contract executed?

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

124.510 What percentage of work must a Participant perform on an 8(a)

contract?

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

124.512 Delegation of contract administration to procuring agencies.

124.513 Under what circumstances can a joint venture be awarded an 8(a)

contract?

124.514 Exercise of 8(a) options and modifications.

124.515 Can a Participant change its ownership or control and continue

to perform an 8(a) contract, and can it transfer performance

to another firm?

124.516 Who decides contract disputes arising between a Participant and

a procuring activity after the award of an 8(a) contract?

124.517 Can the eligibility or size of a Participant for award of an

8(a) contract be questioned?

124.518 How can an 8(a) contract be terminated before performance is

completed?

124.519 Are there any dollar limits on the amount of 8(a) contracts that

a Participant may receive?

124.520 Mentor/Protege program.

Miscellaneous Reporting Requirements

124.601 What reports does SBA require concerning parties who assist

Participants in obtaining federal contracts?

124.602 What kind of annual financial statement must a Participant

submit to SBA?

124.603 What reports regarding the continued business operations of

former Participants does SBA require?

Management and Technical Assistance Program

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

assistance program?

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

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

124.704 What additional management and technical assistance is reserved

exclusively for concerns eligible to receive 8(a) contracts?

Subpart B_Eligibility, Certification, and Protests Relating to Federal

Small Disadvantaged Business Programs

124.1001 General applicability.

124.1002 What is a Small Disadvantaged Business (SDB)?

124.1003 What is a Private Certifier?

124.1004 How does an organization or business concern become a Private

Certifier?

124.1005 Can a fee be charged to a firm to process the firm's

application for SDB certification?

124.1006 Is there a list of Private Certifiers?

124.1007 How long may an organization or business concern be a Private

Certifier?

124.1008 How does a firm become certified as an SDB?

124.1009 How does a firm appeal a decision of a Private Certifier?

124.1010 Can a firm represent itself to be an SDB if it has not yet been

certified as an SDB?

124.1011 What is a misrepresentation of SDB status?

124.1012 Can a firm reapply for SDB certification?

124.1013 Is there a list of certified SDBs?

124.1014 How long does an SDB certification last?

124.1015 What is the effect of receiving an SDB certification?

124.1016 Can SBA re-evaluate the SDB status of a firm after SBA

certifies it to be SDB?

124.1017 Who may protest the disadvantaged status of a concern?

124.1018 When will SBA not decide an SDB protest?

124.1019 Who decides disadvantaged status protests?

[[Page 363]]

124.1020 What procedures apply to disadvantaged status protests?

124.1021 What format, degree of specificity, and basis does SBA require

to consider an SDB protest?

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

124.1023 How does SBA make disadvantaged status determinations in

considering an SDB protest?

124.1024 Appeals of disadvantaged status determinations.

Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub. L.

99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L. 101-574, and

42 U.S.C. 9815.

Subpart A_8(a) Business Development

Source: 63 FR 35739, June 30, 1998, unless otherwise noted.

Provisions of General Applicability

Sec. 124.1 What is the purpose of the 8(a) Business Development

program?

Sections 8(a) and 7(j) of the Small Business Act authorize a

Minority Small Business and Capital Ownership Development program

(designated the 8(a) Business Development or ``8(a) BD'' program for

purposes of the regulations in this part). The purpose of the 8(a) BD

program is to assist eligible small disadvantaged business concerns

compete in the American economy through business development.

Sec. 124.2 What length of time may a business participate in the 8(a)

BD program?

A Participant receives a program term of nine years from the date of

SBA's approval letter certifying the concern's admission to the program.

The Participant must maintain its program eligibility during its tenure

in the program and must inform SBA of any changes that would adversely

affect its program eligibility. A firm that completes its nine year term

of participation in the 8(a) BD program is deemed to graduate from the

program. The nine year program term may be shortened only by

termination, early graduation or voluntary graduation as provided for in

this subpart.

Sec. 124.3 What definitions are important in the 8(a) BD program?

Alaska Native means a citizen of the United States who is a person

of one-fourth degree or more Alaskan Indian (including Tsimshian Indians

not enrolled in the Metlaktla Indian Community), Eskimo, or Aleut blood,

or a combination of those bloodlines. The term includes, in the absence

of proof of a minimum blood quantum, any citizen whom a Native village

or Native group regards as an Alaska Native if their father or mother is

regarded as an Alaska Native.

Alaska Native Corporation or ANC means any Regional Corporation,

Village Corporation, Urban Corporation, or Group Corporation organized

under the laws of the State of Alaska in accordance with the Alaska

Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.)

Bona fide place of business, for purposes of 8(a) construction

procurements, means a location where a Participant regularly maintains

an office which employs at least one full-time individual within the

appropriate geographical boundary. The term does not include

construction trailers or other temporary construction sites.

Community Development Corporation or CDC means a nonprofit

organization responsible to residents of the area it serves which has

received financial assistance under 42 U.S.C. 9805, et seq.

Concern is defined in part 121 of this title.

Days means calendar days unless otherwise specified.

Day-to-day operations of a firm means the marketing, production,

sales, and administrative functions of the firm.

Immediate family member means father, mother, husband, wife, son,

daughter, brother, sister, grandfather, grandmother, grandson,

granddaughter, father-in-law, and mother-in-law.

Indian tribe means any Indian tribe, band, nation, or other

organized group or community of Indians, including any ANC, which is

recognized as eligible for the special programs and services provided by

the United States to Indians because of their status as Indians, or is

recognized as such by the State in which the tribe, band, nation,

[[Page 364]]

group, or community resides. See definition of ``tribally-owned

concern.''

Native Hawaiian means any individual whose ancestors were natives,

prior to 1778, of the area which now comprises the State of Hawaii.

Native Hawaiian Organization means any community service

organization serving Native Hawaiians in the State of Hawaii which is a

not-for-profit organization chartered by the State of Hawaii, is

controlled by Native Hawaiians, and whose business activities will

principally benefit such Native Hawaiians.

Negative control is defined in part 121 of this title.

Non-disadvantaged individual means any individual who does not claim

disadvantaged status, does not qualify as disadvantaged, or upon whose

disadvantaged status an applicant or Participant does not rely in

qualifying for 8(a) BD program participation.

Participant means a small business concern admitted to participate

in the 8(a) BD program.

Primary industry classification means the four digit Standard

Industrial Classification (SIC) code designation which best describes

the primary business activity of the 8(a) BD applicant or Participant.

The SIC code designations are described in the Standard Industrial

Classification Manual published by the U.S. Office of Management and

Budget.

Principal place of business means the business location where the

individuals who manage the concern's day-to-day operations spend most

working hours and where top management's business records are kept. If

the offices from which management is directed and where the business

records are kept are in different locations, SBA will determine the

principal place of business for program purposes.

Program year means a 12-month period of an 8(a) BD Participant's

program participation. The first program year begins on the date that

the concern is certified to participate in the 8(a) BD program and ends

one year later. Each subsequent program year begins on the Participant's

anniversary of program certification and runs for one 12-month period.

Same or similar line of business means business activities within

the same two-digit ``Major Group'' of the SIC Manual as the primary

industry classification of the applicant or Participant. The phrase

``same business area'' is synonymous with this definition.

Self-marketing of a requirement occurs when a Participant identifies

a requirement that has not been committed to the 8(a) BD program and,

through its marketing efforts, causes the procuring activity to offer

that specific requirement to the 8(a) BD program on the Participant's

behalf. A firm which identifies and markets a requirement which is

subsequently offered to the 8(a) BD program as an open requirement or on

behalf of another Participant has not ``self-marketed'' the requirement

within the meaning of this part.

Tribally-owned concern means any concern at least 51 percent owned

by an Indian tribe as defined in this section.

Unconditional ownership means ownership that is not subject to

conditions precedent, conditions subsequent, executory agreements,

voting trusts, restrictions on or assignments of voting rights, or other

arrangements causing or potentially causing ownership benefits to go to

another (other than after death or incapacity). The pledge or

encumbrance of stock or other ownership interest as collateral,

including seller-financed transactions, does not affect the

unconditional nature of ownership if the terms follow normal commercial

practices and the owner retains control absent violations of the terms.

Eligibility Requirements for Participation in the 8(a) Business

Development Program

Sec. 124.101 What are the basic requirements a concern must meet for

the 8(a) BD program?

Generally, a concern meets the basic requirements for admission to

the 8(a) BD program if it is a small business which is unconditionally

owned and controlled by one or more socially and economically

disadvantaged individuals who are of good character and citizens of the

United States, and which demonstrates potential for success.

[[Page 365]]

Sec. 124.102 What size business is eligible to participate in the 8(a)

BD program?

(a) An applicant concern must qualify as a small business concern as

defined in part 121 of this title. The applicable size standard is the

one for its primary industry classification. The rules for calculating

the size of a tribally-owned concern, a concern owned by an Alaska

Native Corporation, a concern owned by a Native Hawaiian Organization,

or a concern owned by a Community Development Corporation are

additionally affected by Sec. Sec. 124.109, 124.110, and 124.111,

respectively.

(b) If 8(a) BD program officials determine that a concern may not

qualify as small, they may deny an application for 8(a) BD program

admission or may request a formal size determination under part 121 of

this title.

program officials may request a formal size determination under part 121

of this title. A favorable determination will enable the firm to

immediately submit a new 8(a) BD application without waiting one year.

Sec. 124.103 Who is socially disadvantaged?

(a) General. Socially disadvantaged individuals are those who have

been subjected to racial or ethnic prejudice or cultural bias within

American society because of their identities as members of groups and

without regard to their individual qualities. The social disadvantage

must stem from circumstances beyond their control.

(b) Members of designated groups. (1) There is a rebuttable

presumption that the following individuals are socially disadvantaged:

Black Americans; Hispanic Americans; Native Americans (American Indians,

Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans (persons

with origins from Burma, Thailand, Malaysia, Indonesia, Singapore,

Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia

(Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of

the Pacific Islands (Republic of Palau), Republic of the Marshall

Islands, Federated States of Micronesia, the Commonwealth of the

Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati,

Tuvalu, or Nauru); Subcontinent Asian Americans (persons with origins

from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives

Islands or Nepal); and members of other groups designated from time to

time by SBA according to procedures set forth at paragraph (d) of this

section. Being born in a country does not, by itself, suffice to make

the birth country an individual's country of origin for purposes of

being included within a designated group.

(2) An individual must demonstrate that he or she has held himself

or herself out, and is currently identified by others, as a member of a

designated group if SBA requires it.

(3) The presumption of social disadvantage may be overcome with

credible evidence to the contrary. Individuals possessing or knowing of

such evidence should submit the information in writing to the Associate

Administrator for 8(a) BD (AA/8(a)BD) for consideration.

who is not a member of one of the groups presumed to be socially

disadvantaged in paragraph (b)(1) of this section must establish

individual social disadvantage by a preponderance of the evidence.

(2) Evidence of individual social disadvantage must include the

following elements:

(i) At least one objective distinguishing feature that has

contributed to social disadvantage, such as race, ethnic origin, gender,

physical handicap, long-term residence in an environment isolated from

the mainstream of American society, or other similar causes not common

to individuals who are not socially disadvantaged;

(ii) Personal experiences of substantial and chronic social

disadvantage in American society, not in other countries; and

(iii) Negative impact on entry into or advancement in the business

world because of the disadvantage. SBA will consider any relevant

evidence in assessing this element. In every case, however, SBA will

consider education, employment and business history, where applicable,

to see if the totality

[[Page 366]]

of circumstances shows disadvantage in entering into or advancing in the

business world.

(A) Education. SBA considers such factors as denial of equal access

to institutions of higher education, exclusion from social and

professional association with students or teachers, denial of

educational honors rightfully earned, and social patterns or pressures

which discouraged the individual from pursuing a professional or

business education.

(B) Employment. SBA considers such factors as unequal treatment in

hiring, promotions and other aspects of professional advancement, pay

and fringe benefits, and other terms and conditions of employment;

retaliatory or discriminatory behavior by an employer; and social

patterns or pressures which have channelled the individual into

nonprofessional or non-business fields.

to credit or capital, acquisition of credit or capital under

commercially unfavorable circumstances, unequal treatment in

opportunities for government contracts or other work, unequal treatment

by potential customers and business associates, and exclusion from

business or professional organizations.

(d) Socially disadvantaged group inclusion--(1) General.

Representatives of an identifiable group whose members believe that the

group has suffered chronic racial or ethnic prejudice or cultural bias

may petition SBA to be included as a presumptively socially

disadvantaged group under paragraph (b)(1) of this section. Upon

presentation of substantial evidence that members of the group have been

subjected to racial or ethnic prejudice or cultural bias because of

their identity as group members and without regard to their individual

qualities, SBA will publish a notice in the Federal Register that it has

received and is considering such a request, and that it will consider

public comments.

(2) Standards to be applied. In determining whether a group has made

an adequate showing that it has suffered chronic racial or ethnic

prejudice or cultural bias for the purposes of this section, SBA must

determine that:

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

practices;

(ii) Those conditions have resulted in economic deprivation for the

group of the type which Congress has found exists for the groups named

in the Small Business Act; and

(iii) Those conditions have produced impediments in the business

world for members of the group over which they have no control and which

are not common to small business owners generally.

(3) Procedure. The notice published under paragraph (d)(1) of this

section will authorize a specified period for the receipt of public

comments supporting or opposing the petition for socially disadvantaged

group status. If appropriate, SBA may hold hearings. SBA may also

conduct its own research relative to the group's petition.

(4) Decision. In making a final decision that a group should be

considered presumptively disadvantaged, SBA must find that a

preponderance of the evidence demonstrates that the group has met the

standards set forth in paragraph (d)(2) of this section based on SBA's

consideration of the group petition, the comments from the public, and

any independent research it performs. SBA will advise the petitioners of

its final decision in writing, and publish its conclusion as a notice in

the Federal Register. If appropriate, SBA will amend paragraph (b)(1) of

this section to include a new group.

Sec. 124.104 Who is economically disadvantaged?

(a) General. Economically disadvantaged individuals are socially

disadvantaged individuals whose ability to compete in the free

enterprise system has been impaired due to diminished capital and credit

opportunities as compared to others in the same or similar line of

business who are not socially disadvantaged.

(b) Submission of narrative and financial information. (1) Each

individual claiming economic disadvantage must describe it in a

narrative statement, and must submit personal financial information.

(2) When married, an individual claiming economic disadvantage also

[[Page 367]]

must submit separate financial information for his or her spouse, unless

the individual and the spouse are legally separated.

credit opportunities, SBA will examine factors relating to the personal

financial condition of any individual claiming disadvantaged status,

including personal income for the past two years (including bonuses and

the value of company stock given in lieu of cash), personal net worth,

and the fair market value of all assets, whether encumbered or not. SBA

will also consider the financial condition of the applicant compared to

the financial profiles of small businesses in the same primary industry

classification, or, if not available, in similar lines of business,

which are not owned and controlled by socially and economically

disadvantaged individuals in evaluating the individual's access to

credit and capital. The financial profiles that SBA compares include

total assets, net sales, pre tax profit, sales/working capital ratio,

and net worth.

(1) Transfers within two years. (i) Except as set forth in paragraph

(c)(1)(ii) of this section, SBA will attribute to an individual claiming

disadvantaged status any assets which that individual has transferred to

an immediate family member, or to a trust a beneficiary of which is an

immediate family member, for less than fair market value, within two

years prior to a concern's application for participation in the 8(a) BD

program or within two years of a Participant's annual program review,

unless the individual claiming disadvantaged status can demonstrate that

the transfer is to or on behalf of an immediate family member for that

individual's education, medical expenses, or some other form of

essential support.

(ii) SBA will not attribute to an individual claiming disadvantaged

status any assets transferred by that individual to an immediate family

member that are consistent with the customary recognition of special

occasions, such as birthdays, graduations, anniversaries, and

retirements.

(iii) In determining an individual's access to capital and credit,

SBA may consider any assets that the individual transferred within such

two-year period described by paragraph (c)(1)(i) of this section that

SBA does not consider in evaluating the individual's assets and net

worth (e.g., transfers to charities).

(2) Net worth. For initial 8(a) BD eligibility, the net worth of an

individual claiming disadvantage must be less than $250,000. For

continued 8(a) BD eligibility after admission to the program, net worth

must be less than $750,000. In determining such net worth, SBA will

exclude the ownership interest in the applicant or Participant and the

equity in the primary personal residence (except any portion of such

equity which is attributable to excessive withdrawals from the applicant

or Participant). Exclusions for net worth purposes are not exclusions

for asset valuation or access to capital and credit purposes.

(i) A contingent liability does not reduce an individual's net

worth.

(ii) The personal net worth of an individual claiming to be an

Alaska Native will include assets and income from sources other than an

Alaska Native Corporation and exclude any of the following which the

individual receives from any Alaska Native Corporation: cash (including

cash dividends on stock received from an ANC) to the extent that it does

not, in the aggregate, exceed $2,000 per individual per annum; stock

(including stock issued or distributed by an ANC as a dividend or

distribution on stock); a partnership interest; land or an interest in

land (including land or an interest in land received from an ANC as a

dividend or distribution on stock); and an interest in a settlement

trust.

Sec. 124.105 What does it mean to be unconditionally owned by one or

more disadvantaged individuals?

An applicant or Participant must be at least 51 percent

unconditionally and directly owned by one or more socially and

economically disadvantaged individuals who are citizens of the United

States, except for concerns owned by Indian tribes, Alaska Native

Corporations, Native Hawaiian Organizations, or Community Development

Corporations (CDCs). See Sec. 124.3 for definition of unconditional

ownership; and Sec. Sec. 124.109,

[[Page 368]]

124.110, and 124.111, respectively, for special ownership requirements

for concerns owned by Indian tribes, ANCs, Native Hawaiian

Organizations, and CDCs.

(a) Ownership must be direct. Ownership by one or more disadvantaged

individuals must be direct ownership. An applicant or Participant owned

principally by another business entity or by a trust (including employee

stock ownership trusts) that is in turn owned and controlled by one or

more disadvantaged individuals does not meet this requirement. However,

ownership by a trust, such as a living trust, may be treated as the

functional equivalent of ownership by a disadvantaged individual where

the trust is revocable, and the disadvantaged individual is the grantor,

a trustee, and the sole current beneficiary of the trust.

(b) Ownership of a partnership. In the case of a concern which is a

partnership, at least 51 percent of every class of partnership interest

must be unconditionally owned by one or more individuals determined by

SBA to be socially and economically disadvantaged. The ownership must be

reflected in the concern's partnership agreement.

concern which is a limited liability company, at least 51 percent of

each class of member interest must be unconditionally owned by one or

more individuals determined by SBA to be socially and economically

disadvantaged.

(d) Ownership of a corporation. In the case of a concern which is a

corporation, at least 51 percent of each class of voting stock

outstanding and 51 percent of the aggregate of all stock outstanding

must be unconditionally owned by one or more individuals determined by

SBA to be socially and economically disadvantaged.

(e) Stock options' effect on ownership. In determining unconditional

ownership, SBA will disregard any unexercised stock options or similar

agreements held by disadvantaged individuals. However, any unexercised

stock options or similar agreements (including rights to convert non-

voting stock or debentures into voting stock) held by non-disadvantaged

individuals will be treated as exercised, except for any ownership

interests which are held by investment companies licensed under the

Small Business Investment Act of 1958.

(f) Dividends and distributions. One or more disadvantaged

individuals must be entitled to receive:

(1) At least 51 percent of the annual distribution of dividends paid

on the stock of a corporate applicant concern;

(2) 100 percent of the value of each share of stock owned by them in

the event that the stock is sold; and

(3) At least 51 percent of the retained earnings of the concern and

100 percent of the unencumbered value of each share of stock owned in

the event of dissolution of the corporation.

(g) Ownership of another Participant. The individuals determined to

be disadvantaged for purposes of one Participant, their immediate family

members, and the Participant itself, may not hold, in the aggregate,

more than a 20 percent equity ownership interest in any other single

Participant.

(h) Ownership restrictions for non-disadvantaged individuals and

concerns. (1) A non-disadvantaged individual (in the aggregate with all

immediate family members) or a non-Participant concern that is a general

partner or stockholder with at least a 10 percent ownership interest in

one Participant may not own more than a 10 percent interest in another

Participant that is in the developmental stage or more than a 20 percent

interest in another Participant in the transitional stage of the

program. This restriction does not apply to financial institutions

licensed or chartered by Federal, state or local government, including

investment companies which are licensed under the Small Business

Investment Act of 1958.

(2) A non-Participant concern in the same or similar line of

business may not own more than a 10 percent interest in a Participant

that is in the developmental stage or more than a 20 percent interest in

a Participant in a transitional stage of the program, except that a

former Participant or a principal of a former Participant (except those

that have been terminated from 8(a) BD program participation pursuant to

Sec. Sec. 124.303 and 124.304) may have an equity ownership interest of

up to 20 percent in a current Participant

[[Page 369]]

in the developmental stage of the program or up to 30 percent in a

transitional stage Participant, in the same or similar line of business.

(i) Change of ownership. A Participant may change its ownership or

business structure so long as one or more disadvantaged individuals own

and control it after the change and SBA approves the transaction in

writing prior to the change. The decision to approve or deny a

Participant's request for a change in ownership or business structure

will be made and communicated to the firm by the AA/8(a)BD. The decision

of the AA/8(a)BD is the final decision of the Agency. The AA/8(a)BD will

issue a decision within 60 days from receipt of a request containing all

necessary documentation, or as soon thereafter as possible. If 60 days

lapse without a decision from SBA, the Participant cannot presume that

it can complete the change without written approval from SBA. A decision

to deny a request for change of ownership or business structure may be

grounds for program termination where the change is made nevertheless.

(1) Any Participant that was awarded one or more 8(a) contracts may

substitute one disadvantaged individual for another disadvantaged

individual without requiring the termination of those contracts or a

request for waiver under Sec. 124.515, as long as it receives SBA's

approval prior to the change.

(2) Where the previous owner held less than a 10 percent interest in

the concern, or the transfer results from the death or incapacity due to

a serious, long-term illness or injury of a disadvantaged principal,

prior approval is not required, but the concern must notify SBA within

60 days.

(3) Continued participation of the Participant with new ownership

and the award of any new 8(a) contracts requires SBA's determination

that all eligibility requirements are met by the concern and the new

owners.

(4) Where a Participant requests a change of ownership or business

structure, and proceeds with the change prior to receiving SBA approval

(or where a change of ownership results from the death or incapacity of

a disadvantaged individual for which a request prior to the change in

ownership could not occur), SBA will suspend the Participant from

program benefits pending resolution of the request. If the change is

approved, the length of the suspension will be restored to the

Participant's program term in the case of death or incapacity, or if the

firm requested prior approval and waited 60 days for SBA approval.

(5) A change in ownership does not provide the new owner(s) with a

new 8(a) BD program term. For example, if a concern has been in the 8(a)

BD program for five years when a change in ownership occurs, the new

owner will have four years remaining until program graduation.

(j) Public offering. A Participant's request for SBA's approval for

the issuance of a public offering will be treated as a request for a

change of ownership. Such request will cause SBA to examine the

concern's continued need for access to the business development

resources of the 8(a) BD program.

(k) Community property laws given effect. In determining ownership

interests when an owner resides in any of the community property states

or territories of the United States (Arizona, California, Idaho,

Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and

Wisconsin), SBA considers applicable state community property laws. If

only one spouse claims disadvantaged status, that spouse's ownership

interest will be considered unconditionally held only to the extent it

is vested by the community property laws. A transfer or relinquishment

of interest by the non-disadvantaged spouse may be necessary in some

cases to establish eligibility.

Sec. 124.106 When do disadvantaged individuals control an applicant or

Participant?

Control is not the same as ownership, although both may reside in

the same person. SBA regards control as including both the strategic

policy setting exercised by boards of directors and the day-to-day

management and administration of business operations. An applicant or

Participant's management and daily business operations must be conducted

by one or more disadvantaged individuals, except for concerns

[[Page 370]]

owned by Indian tribes, ANCs, Native Hawaiian Organizations, or

Community Development Corporations (CDCs). (See Sec. Sec. 124.109,

124.110, and 124.111, respectively, for the requirements for concerns

owned by Indian tribes or ANCs, for concerns owned by Native Hawaiian

Organizations, and for CDC-owned concerns.) Disadvantaged individuals

managing the concern must have managerial experience of the extent and

complexity needed to run the concern. A disadvantaged individual need

not have the technical expertise or possess a required license to be

found to control an applicant or Participant if he or she can

demonstrate that he or she has ultimate managerial and supervisory

control over those who possess the required licenses or technical

expertise. However, where a critical license is held by a non-

disadvantaged individual having an equity interest in the applicant or

Participant firm, the non-disadvantaged individual may be found to

control the firm.

(a)(1) An applicant or Participant must be managed on a full-time

basis by one or more disadvantaged individuals who possess requisite

management capabilities.

(2) A disadvantaged full-time manager must hold the highest officer

position (usually President or Chief Executive Officer) in the applicant

or Participant.

(3) One or more disadvantaged individuals who manage the applicant

or Participant must devote full-time to the business during the normal

working hours of firms in the same or similar line of business. Work in

a wholly-owned subsidiary of the applicant or participant may be

considered to meet the requirement of full-time devotion. This applies

only to a subsidiary owned by the 8(a) firm, and not to firms in which

the disadvantaged individual has an ownership interest.

(4) Any disadvantaged manager who wishes to engage in outside

employment must notify SBA of the nature and anticipated duration of the

outside employment and obtain the prior written approval of SBA. SBA

will deny a request for outside employment which could conflict with the

management of the firm or could hinder it in achieving the objectives of

its business development plan.

(5) Except as provided in paragraph (d)(1) of this section, a

disadvantaged owner's unexercised right to cause a change in the control

or management of the applicant concern does not in itself constitute

disadvantaged control and management, regardless of how quickly or

easily the right could be exercised.

(b) In the case of a partnership, one or more disadvantaged

individuals must serve as general partners, with control over all

partnership decisions. A partnership in which no disadvantaged

individual is a general partner will be ineligible for participation.

disadvantaged individuals must serve as management members, with control

over all decisions of the limited liability company.

(d) One or more disadvantaged individuals must control the Board of

Directors of a corporate applicant or Participant.

(1) SBA will deem disadvantaged individuals to control the Board of

Directors where:

(i) A single disadvantaged individual owns 100% of all voting stock

of an applicant or Participant concern;

(ii) A single disadvantaged individual owns at least 51% of all

voting stock of an applicant or Participant concern, the individual is

on the Board of Directors and no super majority voting requirements

exist for shareholders to approve corporation actions. Where super

majority voting requirements are provided for in the concern's articles

of incorporation, its by-laws, or by state law, the disadvantaged

individual must own at least the percent of the voting stock needed to

overcome any such super majority voting requirements; or

(iii) More than one disadvantaged shareholder seeks to qualify the

concern (i.e., no one individual owns 51%), each such individual is on

the Board of Directors, together they own at least 51% of all voting

stock of the concern, no super majority voting requirements exist, and

the disadvantaged shareholders can demonstrate that they have made

enforceable arrangements to permit one of them to vote the stock of all

as a block without a shareholder

[[Page 371]]

meeting. Where the concern has super majority voting requirements, the

disadvantaged shareholders must own at least that percentage of voting

stock needed to overcome any such super majority ownership requirements.

(2) Where an applicant or Participant does not meet the requirements

set forth in paragraph (d)(1) of this section, the disadvantaged

individual(s) upon whom eligibility is based must control the Board of

Directors through actual numbers of voting directors or, where permitted

by state law, through weighted voting (e.g., in a concern having a two-

person Board of Directors where one individual on the Board is

disadvantaged and one is not, the disadvantaged vote must be weighted--

worth more than one vote--in order for the concern to be eligible for

8(a) participation). Where a concern seeks to comply with this

paragraph:

(i) Provisions for the establishment of a quorum cannot permit non-

disadvantaged Directors to control the Board of Directors, directly or

indirectly;

(ii) Any Executive Committee of Directors must be controlled by

disadvantaged directors unless the Executive Committee can only make

recommendations to and cannot independently exercise the authority of

the Board of Directors.

(3) An applicant must inform SBA of any super majority voting

requirements provided for in its articles of incorporation, its by-laws,

by state law, or otherwise. Similarly, after being admitted to the

program, a Participant must inform SBA of changes regarding super

majority voting requirements.

(4) Non-voting, advisory, or honorary Directors may be appointed

without affecting disadvantaged individuals' control of the Board of

Directors.

(5) Arrangements regarding the structure and voting rights of the

Board of Directors must comply with applicable state law.

(e) Non-disadvantaged individuals may be involved in the management

of an applicant or Participant, and may be stockholders, partners,

limited liability members, officers, and/or directors of the applicant

or Participant. However, no such non-disadvantaged individual or

immediate family member may:

(1) Exercise actual control or have the power to control the

applicant or Participant;

(2) Be a former employer or a principal of a former employer of any

disadvantaged owner of the applicant or Participant, unless it is

determined by the AA/8(a)BD that the relationship between the former

employer or principal and the disadvantaged individual or applicant

concern does not give the former employer actual control or the

potential to control the applicant or Participant and such relationship

is in the best interests of the 8(a) BD firm; or

(3) Receive compensation from the applicant or Participant in any

form as directors, officers or employees, including dividends, that

exceeds the compensation to be received by the highest officer (usually

CEO or President). The highest ranking officer may elect to take a lower

salary than a non-disadvantaged individual only upon demonstrating that

it helps the applicant or Participant. In the case of a Participant, the

Participant must also obtain the prior written consent of the AA/8(a)BD

or designee before changing the compensation paid to the highest ranking

officer to be below that paid to a non-disadvantaged individual.

(f) Non-disadvantaged individuals who transfer majority stock

ownership or control of the firm to an immediate family member within

two years prior to the application and remain involved in the firm as a

stockholder, officer, director, or key employee of the firm are presumed

to control the firm. The presumption may be rebutted by showing that the

transferee has independent management experience necessary to control

the operation of the firm.

(g) Non-disadvantaged individuals or entities may be found to

control or have the power to control in any of the following

circumstances, which are illustrative only and not all inclusive:

(1) In circumstances where an applicant or Participant seeks to

establish disadvantaged control of the Board of Directors through

paragraph (d)(2) of this section, non-disadvantaged individuals control

the Board of Directors of the applicant or Participant, either

[[Page 372]]

directly through majority voting membership, or indirectly, where the

by-laws allow non-disadvantaged individuals effectively to prevent a

quorum or block actions proposed by the disadvantaged individuals.

(2) A non-disadvantaged individual or entity, having an equity

interest in the applicant or participant, provides critical financial or

bonding support or a critical license to the applicant or Participant

which directly or indirectly allows the non-disadvantaged individual

significantly to influence business decisions of the Participant.

(3) A non-disadvantaged individual or entity controls the applicant

or Participant or an individual disadvantaged owner through loan

arrangements. Providing a loan guaranty on commercially reasonable terms

does not, by itself, give a non-disadvantaged individual or entity the

power to control a firm.

(4) Business relationships exist with non-disadvantaged individuals

or entities which cause such dependence that the applicant or

Participant cannot exercise independent business judgment without great

economic risk.

Sec. 124.107 What is potential for success?

The applicant concern must possess reasonable prospects for success

in competing in the private sector if admitted to the 8(a) BD program.

To do so, it must be in business in its primary industry classification

for at least two full years immediately prior to the date of its 8(a) BD

application, unless a waiver for this requirement is granted pursuant to

paragraph (b) of this section.

(a) Income tax returns for each of the two previous tax years must

show operating revenues in the primary industry in which the applicant

is seeking 8(a) BD certification.

(b)(1) SBA may waive the two years in business requirement if each

of the following five conditions are met:

(i) The individual or individuals upon whom eligibility is based

have substantial business management experience;

(ii) The applicant has demonstrated technical experience to carry

out its business plan with a substantial likelihood for success if

admitted to the 8(a) BD program;

(iii) The applicant has adequate capital to sustain its operations

and carry out its business plan as a Participant;

(iv) The applicant has a record of successful performance on

contracts from governmental or nongovernmental sources in its primary

industry category; and

(v) The applicant has, or can demonstrate its ability to timely

obtain, the personnel, facilities, equipment, and any other requirements

needed to perform contracts as a Participant.

(2) The concern seeking a waiver under paragraph (b) must provide

information on governmental and nongovernmental contracts in progress

and completed (including letters of reference) in order to establish

successful contract performance, and must demonstrate how it otherwise

meets the five conditions for waiver. SBA considers an applicant's

performance on both government and private sector contracts in

determining whether the firm has an overall successful performance

record. If, however, the applicant has performed only government

contracts or only private sector contracts, SBA will review its

performance on those contracts alone to determine whether the applicant

possesses a record of successful performance.

access to credit and capital, including, but not limited to, access to

long-term financing, access to working capital financing, equipment

trade credit, access to raw materials and supplier trade credit, and

bonding capability.

(d) In assessing potential for success, SBA will also consider the

technical and managerial experience of the applicant concern's managers,

the operating history of the concern, the concern's record of

performance on previous Federal and private sector contracts in the

primary industry in which the concern is seeking 8(a) BD certification,

and its financial capacity. The applicant concern as a whole must

demonstrate both technical knowledge in its primary industry category

and management experience sufficient to run its day-to-day operations.

(e) The Participant or individuals employed by the Participant must

hold all requisite licenses if the concern is

[[Page 373]]

engaged in an industry requiring professional licensing (e.g., public

accountancy, law, professional engineering).

(f) An applicant will not be denied admission into the 8(a) BD

program due solely to a determination that potential 8(a) contract

opportunities are unavailable to assist in the development of the

concern unless:

(1) The Government has not previously procured and is unlikely to

procure the types of products or services offered by the concern; or

(2) The purchase of such products or services by the Federal

Government will not be in quantities sufficient to support the

developmental needs of the applicant and other Participants providing

the same or similar items or services.

Sec. 124.108 What other eligibility requirements apply for individuals

or businesses?

(a) Good character. The applicant or Participant and all its

principals must have good character.

(1) If, during the processing of an application, adverse information

is obtained from the applicant or a credible source regarding possible

criminal conduct by the applicant or any of its principals, no further

action will be taken on the application until SBA's Inspector General

has collected relevant information and has advised the AA/8(a)BD of his

or her findings. The AA/8(a)BD will consider those findings when

evaluating the application.

(2) Violations of any of SBA's regulations may result in denial of

participation in the 8(a) BD program. The AA/8(a)BD will consider the

nature and severity of the violation in making an eligibility

determination.

(3) Debarred or suspended concerns or concerns owned by debarred or

suspended persons are ineligible for admission to the 8(a) BD program.

(4) An applicant is ineligible for admission to the 8(a) BD program

if the applicant concern or a proprietor, partner, limited liability

member, director, officer, or holder of at least 10 percent of its

stock, or another person (including key employees) with significant

authority over the concern:

(i) Lacks business integrity as demonstrated by information related

to an indictment or guilty plea, conviction, civil judgment, or

settlement; or

(ii) Is currently incarcerated, or on parole or probation pursuant

to a pre-trial diversion or following conviction for a felony or any

crime involving business integrity.

(5) If, during the processing of an application, SBA determines that

an applicant has knowingly submitted false information, regardless of

whether correct information would cause SBA to deny the application, and

regardless of whether correct information was given to SBA in

accompanying documents, SBA will deny the application. If, after

admission to the program, SBA discovers that false information has been

knowingly submitted by a firm, SBA will initiate termination proceedings

and suspend the firm under Sec. Sec. 124.304 and 124.305. Whenever SBA

determines that the applicant submitted false information, the matter

will be referred to SBA's Office of Inspector General for review.

(b) One-time eligibility. Once a concern or disadvantaged individual

upon whom eligibility was based has participated in the 8(a) BD program,

neither the concern nor that individual will be eligible again.

(1) An individual who claims disadvantage and completes the

appropriate SBA forms to qualify an applicant has participated in the

8(a) BD program if SBA approves the application.

(2) Use of eligibility will take effect on the date of the concern's

approval for admission into the program.

(3) An individual who uses his or her one-time eligibility to

qualify a concern for the 8(a) BD program will be considered a non-

disadvantaged individual for ownership or control purposes of another

applicant or Participant. The criteria restricting participation by non-

disadvantaged individuals will apply to such an individual. See

Sec. Sec. 124.105 and 124.106.

(4) When at least 50% of the assets of a concern are the same as

those of a former Participant, the concern will not be eligible for

entry into the program.

[[Page 374]]

(5) Participants which change their form of business organization

and transfer their assets and liabilities to the new organization may do

so without affecting the eligibility of the new organization provided

the previous business is dissolved and all other eligibility criteria

are met. In such a case, the new organization may complete the remaining

program term of the previous organization. A request for a change in

business form will be treated as a change of ownership under Sec.

124.105(i).

BD program as a wholesaler need not demonstrate that it is capable of

meeting the requirements of the nonmanufacturer rule for its primary

industry classification.

(d) Brokers. Brokers are ineligible to participate in the 8(a) BD

program. A broker is a concern that adds no material value to an item

being supplied to a procuring activity or which does not take ownership

or possession of or handle the item being procured with its own

equipment or facilities.

(e) Federal financial obligations. Neither a firm nor any of its

principals that fails to pay significant financial obligations owed to

the Federal Government, including unresolved tax liens and defaults on

Federal loans or other Federally assisted financing, is eligible for

admission to or participation in the 8(a) BD program.

(f) Achievement of benchmarks. Where actual participation by

disadvantaged businesses in a particular SIC Major Group exceeds the

benchmark limitations established by the Department of Commerce, SBA, in

its discretion, may decide not to accept an application for 8(a) BD

participation from a concern whose primary industry classification falls

within that Major Group.

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

Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any

special rules for applying to the 8(a) BD program?

(a) Special rules for ANCs. Small business concerns owned and

controlled by ANCs are eligible for participation in the 8(a) program

and must meet the eligibility criteria set forth in Sec. 124.112 to the

extent the criteria are not inconsistent with this section. ANC-owned

concerns are subject to the same conditions that apply to tribally-owned

concerns, as described in paragraphs (b) and (c) of this section, except

that the following provisions and exceptions apply only to ANC-owned

concerns:

(1) Alaska Natives and descendants of Natives must own a majority of

both the total equity of the ANC and the total voting powers to elect

directors of the ANC through their holdings of settlement common stock.

Settlement common stock means stock of an ANC issued pursuant to 43

U.S.C. 1606(g)(1), which is subject to the rights and restrictions

listed in 43 U.S.C. 1606(h)(1).

(2) An ANC that meets the requirements set forth in paragraph (a)(1)

of this section is deemed economically disadvantaged under 43 U.S.C.

1626(e), and need not establish economic disadvantage as required by

paragraph (b)(2) of this section.

(3) Even though an ANC can be either for profit or non-profit, a

small business concern owned and controlled by an ANC must be for profit

to be eligible for the 8(a) program. The concern will be deemed owned

and controlled by the ANC where both the majority of stock or other

ownership interest and total voting power are held by the ANC and

holders of its settlement common stock.

(4) The Alaska Native Claims Settlement Act provides that a concern

which is majority owned by an ANC shall be deemed to be both owned and

controlled by Alaska Natives and an economically disadvantaged business.

Therefore, an individual responsible for control and management of an

ANC-owned applicant or Participant need not establish personal social

and economic disadvantage.

(5) Paragraphs (b)(3)(i), (ii) and (iv) of this section are not

applicable to an ANC, provided its status as an ANC is clearly shown in

its articles of incorporation.

(6) Paragraph (c)(1) of this section is not applicable to an ANC-

owned concern to the extent it requires an express waiver of sovereign

immunity or a ``sue and be sued'' clause.

[[Page 375]]

(b) Tribal eligibility. In order to qualify a concern which it owns

and controls for participation in the 8(a) BD program, an Indian tribe

must establish its own economic disadvantaged status under paragraph

(b)(2) of this section. Thereafter, it need not reestablish such status

in order to have other businesses that it owns certified for 8(a) BD

program participation, unless specifically required to do so by the AA/

8(a)BD or designee. Each tribally-owned concern seeking to be certified

for 8(a) BD participation must comply with the provisions of paragraph

(1) Social disadvantage. An Indian tribe as defined in Sec. 124.3

is considered to be socially disadvantaged.

(2) Economic disadvantage. In order to be eligible to participate in

the 8(a) BD program, the Indian tribe must demonstrate to SBA that the

tribe itself is economically disadvantaged. This must involve the

consideration of available data showing the tribe's economic condition,

including but not limited to, the following information:

(i) The number of tribal members.

(ii) The present tribal unemployment rate.

(iii) The per capita income of tribal members, excluding judgment

awards.

(iv) The percentage of the local Indian population below the poverty

level.

(v) The tribe's access to capital.

(vi) The tribal assets as disclosed in a current tribal financial

statement. The statement must list all assets including those which are

encumbered or held in trust, but the status of those encumbered or in

trust must be clearly delineated.

(vii) A list of all wholly or partially owned tribal enterprises or

affiliates and the primary industry classification of each. The list

must also specify the members of the tribe who manage or control such

enterprises by serving as officers or directors.

(3) Forms and documents required to be submitted. Except as

otherwise provided in this section, the Indian tribe generally must

submit the forms and documents required of 8(a) BD applicants as well as

the following material:

(i) A copy of all governing documents such as the tribe's

constitution or business charter.

(ii) Evidence of its recognition as a tribe eligible for the special

programs and services provided by the United States or by its state of

residence.

(iii) Copies of its articles of incorporation and bylaws as filed

with the organizing or chartering authority, or similar documents needed

to establish and govern a non-corporate legal entity.

(iv) Documents or materials needed to show the tribe's economically

disadvantaged status as described in paragraph (b)(2) of this section.

the 8(a) BD program, a concern which is owned by an eligible Indian

tribe (or wholly owned business entities of such tribe) must meet the

conditions set forth in paragraphs (c)(1) through (c)(7) of this

section.

(1) Legal business entity organized for profit and susceptible to

suit. The applicant or participating concern must be a separate and

distinct legal entity organized or chartered by the tribe, or Federal or

state authorities. The concern's articles of incorporation, partnership

agreement or limited liability company articles of organization must

contain express sovereign immunity waiver language, or a ``sue and be

sued'' clause which designates United States Federal Courts to be among

the courts of competent jurisdiction for all matters relating to SBA's

programs including, but not limited to, 8(a) BD program participation,

loans, and contract performance. Also, the concern must be organized for

profit, and the tribe must possess economic development powers in the

tribe's governing documents.

(2) Size. (i) A tribally-owned applicant concern must qualify as a

small business concern as defined for purposes of Federal Government

procurement in part 121 of this title. The particular size standard to

be applied is based on the primary industry classification of the

applicant concern.

(ii) A tribally-owned Participant must certify to SBA that it is a

small business pursuant to the provisions of part 121 of this title for

the purpose of

[[Page 376]]

performing each individual contract which it is awarded.

(iii) In determining the size of a small business concern owned by a

socially and economically disadvantaged Indian tribe (or a wholly owned

business entity of such tribe) for either 8(a) BD program entry or

contract award, the firm's size shall be determined independently

without regard to its affiliation with the tribe, any entity of the

tribal government, or any other business enterprise owned by the tribe,

unless the Administrator determines that one or more such tribally-owned

business concerns have obtained, or are likely to obtain, a substantial

unfair competitive advantage within an industry category.

(3) Ownership. (i) For corporate entities, a tribe must own at least

51 percent of the voting stock and at least 51 percent of the aggregate

of all classes of stock. For non-corporate entities, a tribe must own at

least a 51 percent interest.

(ii) A tribe cannot own 51% or more of another firm which, either at

the time of application or within the previous two years, has been

operating in the 8(a) program under the same primary SIC code as the

applicant. A tribe may, however, own a Participant or an applicant that

conducts or will conduct secondary business in the 8(a) BD program under

the same SIC code that a current Participant owned by the tribe operates

in the 8(a) BD program as its primary SIC code.

(iii) The restrictions of Sec. 124.105(h) do not apply to tribes;

they do, however, apply to non disadvantaged individuals or other

business concerns that are partial owners of a tribally-owned concern.

(4) Control and management. (i) The management and daily business

operations of a tribally-owned concern must be controlled by the tribe,

through one or more disadvantaged individual members who possess

sufficient management experience of an extent and complexity needed to

run the concern, or through management as follows:

(A) Management may be provided by committees, teams, or Boards of

Directors which are controlled by one or more members of an economically

disadvantaged tribe, or

(B) Management may be provided by non-tribal members if SBA

determines that such management is required to assist the concern's

development, that the tribe will retain control of all management

decisions common to boards of directors, including strategic planning,

budget approval, and the employment and compensation of officers, and

that a written management development plan exists which shows how

disadvantaged tribal members will develop managerial skills sufficient

to manage the concern or similar tribally-owned concerns in the future.

(ii) Members of the management team, business committee members,

officers, and directors are precluded from engaging in any outside

employment or other business interests which conflict with the

management of the concern or prevent the concern from achieving the

objectives set forth in its business development plan. This is not

intended to preclude participation in tribal or other activities which

do not interfere with such individual's responsibilities in the

operation of the applicant concern.

(5) Individual eligibility limitation. SBA does not deem an

individual involved in the management or daily business operations of a

tribally-owned concern to have used his or her individual eligibility

within the meaning of Sec. 124.108(b).

(6) Potential for success. (i) A tribally-owned applicant concern

must be in business for at least two years, as evidenced by income tax

returns for each of the two previous tax years showing operating

revenues in the primary industry in which the applicant is seeking 8(a)

BD certification, or demonstrate potential for success as set forth in

paragraph (c)(6)(ii) of this section.

(ii) In determining whether a tribally-owned concern has the

potential for success, SBA will look at a number of factors including,

but not limited to:

(A) The technical and managerial experience and competency of the

individual(s) who will manage and control the daily operation of the

concern;

(B) The financial capacity of the concern; and

[[Page 377]]

private sector contracts in the primary industry in which the concern is

seeking 8(a) certification.

(7) Other eligibility criteria. (i) As with other 8(a) applicants, a

tribally-owned applicant concern shall not be denied admission into the

8(a) program due solely to a determination that specific contract

opportunities are unavailable to assist the development of the concern

unless:

(A) The Government has not previously procured and is unlikely to

procure the types of products or services offered by the concern; or

(B) The purchase of such products or services by the Federal

Government will not be in quantities sufficient to support the

developmental needs of the applicant and other program participants

providing the same or similar items or services.

(ii) Except for the tribe itself, the concern's officers, directors,

and all shareholders owning an interest of 20% or more must demonstrate

good character. See Sec. 124.108(a).

Sec. 124.110 Do Native Hawaiian Organizations have any special rules

for applying to the 8(a) BD program?

(a) Concerns owned by economically disadvantaged Native Hawaiian

Organizations, as defined in Sec. 124.3, are eligible for participation

in the 8(a) program and other federal programs requiring SBA to

determine social and economic disadvantage as a condition of

eligibility. Such concerns must meet all eligibility criteria set forth

in Sec. Sec. 124.101 through 124.108 and Sec. 124.112 to the extent

that they are not inconsistent with this section.

(b) A concern owned by a Native Hawaiian Organization must qualify

as a small business concern as defined in part 121 of this title. The

size standard corresponding to the primary industry classification of

the applicant concern applies for determining size. SBA will determine

the concern's size independently, without regard to its affiliation with

the Native Hawaiian Organization or any other business enterprise owned

by the Native Hawaiian Organization, unless the Administrator determines

that one or more such concerns owned by the Native Hawaiian Organization

have obtained, or are likely to obtain, a substantial unfair competitive

advantage within an industry category.

firm which, either at the time of application or within the previous two

years, has been operating in the 8(a) program under the same primary SIC

code as the applicant. A Native Hawaiian Organization may, however, own

a Participant or an applicant that conducts or will conduct secondary

business in the 8(a) BD program under the same SIC