Small Business Size Regulations; Government Contracting Programs; HUBZone Program

AGENCY:

Small Business Administration.

ACTION:

Proposed rule.

SUMMARY:

The Small Business Administration proposes to amend its regulations for the Historically Underutilized Business Zone Program (HUBZone Program). On December 21, 2000, the Small Business Reauthorization Act of 2000 made several changes to the HUBZone Program, including changes to the eligibility requirements for small business concerns owned by Native American Tribal Governments and Community Development Corporations, and the addition of new HUBZone areas called redesignated areas. This proposed rule addresses these statutory amendments, clarifies several regulations, and makes some technical changes, including changes to website addresses.

In addition, SBA proposes to amend its regulations, which address subcontracting limitations. Specifically, SBA proposes consolidating all of the subcontracting limitations requirements into one regulation, rather than have them scattered throughout SBA's chapter of the Code of Federal Regulations. In addition, SBA proposes language explaining how to petition for changes in the subcontracting limitations requirements.

Finally, SBA proposes to amend its size regulations to make SBA's application of the nonmanufacturer rule consistent for all programs. This change corresponds to a similar change made in this rule with respect to HUBZone contracts. For contracts below the simplified acquisition threshold, SBA proposes to permit a small business nonmanufacturer to submit the product of any manufacturer, including a large business, and still be considered small.

DATES:

Comments must be received on or before February 27, 2002.

ADDRESSES:

Send your comments to Michael McHale, Associate Administrator for the HUBZone Empowerment Contracting Program (AA/HUB), 409 3rd Street, SW., Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT:

Michael McHale, AA/HUB, (202) 205-8885 or hubzone@sba.gov.

SUPPLEMENTARY INFORMATION:

The HUBZone Program was established pursuant to the HUBZone Act of 1997 (HUBZone Act), Title VI of the Small Business Reauthorization Act of 1997, Public Law 105-135, enacted December 2, 1997. The purpose of the HUBZone Program is “to provide for Federal contracting assistance to qualified HUBZone small business concerns.” 15 U.S.C. 657a(a). The HUBZone Act authorizes the Administrator of the U.S. Small Business Administration (SBA or Agency) to publish regulations implementing the program. Public Law 105-135, section 605. On April 2, 1998, SBA published its proposed rules for the HUBZone Program. 63 FR 16148. After the close of the public comment period and review of the comments, SBA published its final regulations. 63 FR 31896 (June 11, 1998). These regulations amended parts 121 and 125 of title 13 of the Code of Federal Regulations (CFR), and added part 126. On October 3, 2000, SBA published a proposed rule amending the definition of principal office, the affiliation requirement, the non-manufacturer eligibility requirement, and the non-manufacturer contract performance requirement. 65 FR 58963. SBA published this rule as final on January 18, 2001. 66 FR 4643.

Since that time, SBA has received more applications for certification, has certified over four thousand concerns into the program, and has become aware of additional amendments that should be made to the program's regulations. Many of these amendments are technical, while others are proposed to clarify existing regulations. Some amendments, such as the amendment to the definition of “employee,” propose to ease program eligibility requirements perceived to be burdensome on concerns and streamline the operation of the HUBZone Program. SBA has also proposed to remove any regulatory provisions that it deems duplicative.

In addition, the proposed regulations address the recent amendments made to the HUBZone Act by the Small Business Reauthorization Act of 2000, Public Law 106-554. Specifically, Congress amended the eligibility requirements for small business concerns (SBCs) owned by Tribal Governments or Community Development Corporations (CDCs). Further, Congress amended the definition of HUBZone to include “redesignated areas,” and added definitions for the terms Indian Reservation and Alaska Native Corporation. This regulation addresses those amendments.

SBA also proposes to amend part 125 of its regulations to add language that addresses requests for changes in subcontracting percentages for small business set-asides and for SBA's various programs. In order to be awarded a small business set-aside or partial small business set-aside contract, an 8(a) contract, a HUBZone contract, a woman-owned small business (WOB) contract, or a contract awarded pursuant to an unrestricted procurement where a concern claims a 10 percent price evaluation preference/adjustment, the concern must agree that it will perform a certain percentage of the contract itself. In other words, there is a limit on the percentage of work that the concern can subcontract. Currently, § 125.6 sets forth these limitations on subcontracting percentages for SBCs, 8(a) concerns, and small and disadvantaged business concerns. Current § 126.700 addresses the subcontracting limitations for qualified HUBZone SBCs.

SBA does not propose changing these percentages; rather, SBA proposes adding language in § 125.6 explaining how such percentages may be changed through requests from interested parties. In addition, SBA proposes adding the subcontracting limitations for qualified HUBZone SBCs, currently set forth in § 126.700, to § 125.6 so that all such subcontracting limitations will be located in one place and, thus, be easy for SBCs and contracting officials to locate.

Finally, SBA proposes to amend its size regulations to make SBA's application of the nonmanufacturer rule consistent for all programs. This change corresponds to a similar change made in this rule with respect to HUBZone contracts. For contracts below the simplified acquisition threshold, SBA proposes to permit a small business nonmanufacturer to submit the product of any manufacturer, including a large business, and still be considered small.

SBA invites comments on the proposed rule and on any additional ways to improve the HUBZone Program.

Section-by-Section Analysis

SBA proposes to amend § 121.406(b) of SBA's size regulations pertaining to the application of the nonmanufacturer rule. Proposed § 121.406(b)(6) would permit a nonmanufacturer to supply the product of any domestic business, small or large, and be considered small with respect to any contract below the simplified acquisition threshold. This change corresponds to a similar change made in this rule for the HUBZone program in proposed § 126.601(e)(2). SBA believes that procurements below the simplified acquisition threshold were intended to be quick and easy, and that small business nonmanufacturers should not be restricted in this limited contracting arena. In addition, SBA proposes to remove current paragraph (d) because it would be superceded by the above amendment.

The proposed rule also revises § 121.1001 to permit the AA/HUB to protest the size status of a concern in connection with a HUBZone contract, and authorizes the AA/HUB to request a formal size determination in connection with a HUBZone application or continued HUBZone eligibility.

SBA proposes to amend 13 CFR 125.6 by adding the subcontracting limitations for qualified HUBZone SBCs, currently set forth in § 126.700, so that all such subcontracting limitations will be located in one place and thus easy for SBCs and contracting officials to locate. In addition, SBA proposes language explaining when it may use different percentages. According to the proposed rule, SBA may use different percentages if the Administrator determines that such action is necessary to reflect conventional industry practices among small business concerns in that industry group. Representatives of a national trade or industry group or any interested SBC may request a change in subcontracting percentage requirements for the categories defined by the six digit industry codes in the North American Industry Classification System (NAICS). The proposed rule sets forth the procedures by which an interested party may request a change (in writing, with information supporting its request). If SBA determines that there is an adequate preliminary showing, it will publish a notice in the Federal Register of its receipt of a request to consider a change in the subcontracting percentage requirements for a particular industry. The notice will identify the party making the request, and give the public an opportunity to submit information and arguments in both support and opposition.

SBA proposes several amendments to 13 CFR part 126.

SBA proposes to amend § 126.101, which addresses the government departments and agencies subject to the HUBZone Program. Prior to September 30, 2000, the HUBZone Program applied to the procurements of only ten agencies and departments. These agencies and departments are currently set forth in the regulations. The HUBZone Program now applies to more than those ten agencies and departments. Thus, SBA proposes to remove the names of those agencies and departments and simply state that the HUBZone Program applies to all agencies and departments that employ one or more contracting officers.

SBA proposes several amendments to the definitions contained in § 126.103. This rule would amend the definitions of the Associate Administrator for 8(a) Business Development (AA/8(a)BD) and Associate Deputy Administrator for Government Contracting and 8(a) Business Development (ADA/GC&8(a)BD). The rule would also change the name of the AA/8(a)BD to the Associate Administrator for Business Development and change the name of the ADA/GC&8(a)BD to the Associate Deputy Administrator for Government Contracting and Business Development. In addition, SBA is amending the definition of the term AA/HUB to mean the Associate Administrator for the HUBZone Empowerment Contracting Program. SBA proposes these changes in response to a re-organization within SBA's Office of Government Contracting and Business Development.

SBA proposes to define the term “Agricultural Commodity,” because Congress recently amended the HUBZone Act's application of the price evaluation preference in procurements involving agricultural commodities. This definition appearing in this rule is the same as the one mandated by Congress in Public Law 106-554.

SBA proposes to define the terms “Alaska Native Corporation (ANC)” and “Alaska Native Village” as those terms are defined in Public Law 106-554. Currently, the HUBZone regulations define the term “Alaska Native Corporation” under its definition of “person.” SBA proposes to define the terms “ANC” and “person” separately, to avoid confusion.

SBA proposes moving the definition of “attempt to maintain,” which is currently found in two places in the HUBZone regulations, to the definition section so that it is easier to find. The proposed rule would not change the substance of this definition, but would merely move it to the definition section for ease of use.

The proposed rule adds a definition for the term “Community Development Corporation (CDC).” Public Law 106-554 defines CDC and adds an eligibility criterion for SBCs owned by CDCs so that such concerns can participate in the HUBZone Program. The proposed definition is the same as the one enacted by Congress—a CDC is a corporation that receives financial assistance under 42 U.S.C. 9805.

SBA proposes to add a definition for the term “Contracting Officer (CO).” According to the HUBZone Act, a CO has the meaning given that term in 41 U.S.C. 423(f)(5). That statute defines a CO as a person who, by appointment in accordance with applicable regulations, has the authority to enter into a Federal agency procurement contract on behalf of the Government and to make determinations and findings with respect to such a contract.

SBA proposes to amend the definition of the term “employee.” Currently, the regulations provide that an “employee” of a concern includes “full-time equivalents.” SBA proposes to remove the provision concerning “full-time equivalents” because SBA believes it is confusing. SBA proposes a definition that allows persons employed on a full-time or part-time basis to be considered employees of the concern. This proposed definition is similar to the one used for size, set forth in part 121 of SBA's regulations.

In addition, SBA proposes to allow leased or temporary employees to be counted as employees of the concern. It is believed that such employees comprise approximately 2-5% of the work force in the U.S. economy. In addition, small businesses account for the employment of about 40% of such employees. SBA believes that counting leased, temporary and part-time employees will fulfill the statutory purpose and intent of the HUBZone Act by providing more job opportunities for HUBZone residents, albeit temporary or part-time.

Finally, the proposed definition of the term “employee” specifically states that volunteers are not to be counted. The rule would define a volunteer as a person who receives no compensation for work performed. SBA intends the term compensation to be read broadly and to be more than wages. Thus, a person who receives food, housing, or other non-monetary compensation in exchange for work performed would not be considered a volunteer under this regulation. SBA believes that allowing volunteers to be counted as employees would not fulfill the purpose of the HUBZone Act—job creation and economic growth in underutilized communities.

The proposed rule would amend the definition of the term “HUBZone” to include redesignated areas. As part of the Small Business Administration Reauthorization Act of 2000, Congress made “redesignated areas” qualified HUBZones because governmental data, which determines whether census tracts and non-metropolitan counties are qualified HUBZones, changes periodically. Non-metropolitan counties that qualify based upon unemployment level, may, as a result of updated U.S. Department of Labor, Bureau of Labor Statistics data, shift in and out of eligibility year after year. Also, individual census tracts and non-metropolitan counties that qualify based upon certain income levels may lose their status as a result of data developed during the decennial census—the results of which are due shortly. As a result, SBCs that locate to a HUBZone may lose their eligibility in only one year due to changes in such data. Consequently, Congress sought to stabilize this situation and determined that “redesignated areas” should be HUBZones. A “redesignated area” is a qualified census tract or qualified non-metropolitan county that ceases to be qualified as a result of a change in official government data. This “redesignated” status lasts for a period of 3 years following the date of the census tract's or non-metropolitan county's disqualification. It is important to note that the redesignated status applies to concerns currently in the program and concerns seeking certification to the program. Thus, because a redesignated area is a HUBZone, concerns may seek certification to the program if their principal office is located in and the required percentage of their employees reside in such an area. SBA has also proposed defining the term “redesignated area,” as set forth below.

SBA proposes to amend the term “HUBZone SBC.” The current definition is redundant of the eligibility criteria set forth in § 126.200 and does not set forth the new eligibility criteria for SBCs owned by Tribal governments or CDCs. The proposed definition would state that a “HUBZone SBC” is: (1) One that is owned and controlled by 1 or more persons, each of whom is a United States citizen; (2) an ANC owned and controlled by Natives (determined pursuant to the Alaskan Native Claims Settlement Act (ANCSA), 43 U.S.C. 1626(e)(1)); (3) a direct or indirect subsidiary corporation, joint venture, or partnership of an ANC qualifying pursuant to ANCSA, if that subsidiary, joint venture, or partnership is owned and controlled by Natives (determined pursuant ANCSA); (4) one that is wholly-owned by 1 or more Indian Tribal Governments, or by a corporation that is wholly owned by 1 or more Indian Tribal Governments; (5) one that is owned in part by 1 or more Indian Tribal Governments, or by a corporation that is wholly owned by 1 or more Indian Tribal Governments, if all other owners are either United States citizens or SBCs; or (6) one that is wholly owned by a CDC; or, (7) one that is owned in part by 1 or more CDCs, if all other owners are either United States citizens or SBCs. This proposed definition is the same as the one set forth in the HUBZone Act.

SBA proposes to amend its definition of “Indian reservation” to conform to Public Law 106-554. According to that law, the term “Indian reservation” has the same meaning as the term “Indian country” in 18 U.S.C. 1151, with certain exceptions. According to 18 U.S.C. 1151, the term “Indian country” means (a) all land within the limits of any Indian reservation under the jurisdiction of the United States Government, notwithstanding the issuance of any patent, and, including rights-of-way running through the reservation, (b) all dependent Indian communities within the borders of the United States whether within the original or subsequently acquired territory thereof, and whether within or without the limits of a state, and (c) all Indian allotments, the Indian titles to which have not been extinguished, including rights-of-way running through the same. The amendments to the HUBZone Act, however, excepted the following land from being treated as an “Indian reservation” for purposes of the HUBZone Program: (a) lands that are located within a State in which a tribe did not exercise governmental jurisdiction as of the date of enactment (December 21, 2000), unless that tribe is recognized after that date of enactment by either an Act of Congress or pursuant to regulations of the Secretary of the Interior for the administrative recognition that an Indian group exists as an Indian tribe (25 CFR part 83); and (b) lands taken into trust or acquired by an Indian tribe after the date of enactment of this paragraph if such lands are not located within the external boundaries of an Indian reservation or former reservation or are not contiguous to the lands held in trust or restricted status on that date of enactment.

In addition, Congress provided that for the state of Oklahoma, the term “Indian reservation” will include lands within the jurisdictional areas of an Oklahoma Indian tribe (as determined by the Secretary of Interior) and lands that are recognized by the Secretary of the Interior as eligible for trust land status under 25 CFR part 151 (as in effect as of December 21, 2000).

Essentially, the statutory definition of “Indian Reservation,” for HUBZone Program purposes, includes federally-recognized Indian reservations, Indian communities dependent on the Federal Government, and certain federal Indian allotments (parcels of land created out of a diminished Indian reservation and held in trust by the Federal Government for the benefit of individual Indians). The new statutory definition of “Indian Reservation” does not include lands transferred to Alaskan Natives pursuant to the Alaskan Native Claims Settlement Act. See Alaska v. Native Village of Venetie Tribal Government, 522 U.S. 520 (1998). In the state of Oklahoma, an “Indian Reservation” includes a federally recognized Indian reservation and trust land. SBA has been and intends to keep working with the U.S. Department of the Interior to appropriately identify these areas.

The proposed rule defines for the first time the term “Indian Tribal Government.” The recent amendments to the HUBZone Program set forth specific eligibility criteria for concerns owned by “Indian Tribal Governments.” The statutory amendments, however, do not define that term. Thus, SBA proposes to define the term “Indian Tribal Government” to mean “the governing body of any Indian tribe, band, nation, pueblo, or other organized group or community which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians.” The Bureau of Indian Affairs of the U. S. Department of the Interior (BIA) publishes in the Federal Register a list of tribes that it recognizes as eligible for special Federal programs. See 65 FR 13298 (March 13, 2000). An Indian Tribal Government is essentially the governing body of one of the tribes or entities set forth on that list. This definition does not include ANCs because the recent amendments to the HUBZone Program establish specific eligibility criteria solely for ANCs and concerns owned by ANCs.

SBA proposes to amend the definition of “person” by removing the provision relating to ANCs. ANCs and their subsidiaries were made eligible by Public Law 106-554 and therefore the discussion on ANCs in this definition is unnecessary.

SBA proposes to amend the terms “qualified census tract” and “qualified non-metropolitan county” to address technical changes made by Public Law 106-554. The changes to the definitions are based entirely on the changes made by Public Law 106-554.

SBA proposes defining the term “redesignated area,” discussed above, to mean any census tract and any non-metropolitan county that ceases to be a qualified HUBZone, except that a census tract or a non-metropolitan county may be a “redesignated area” only for the 3-year period following the date on which the census tract or non-metropolitan county ceased to be so qualified. This is the same definition that is set forth in the HUBZone Act, as recently amended. In addition, SBA proposes to use the public release date of the official government data, which affects the eligibility of the HUBZone, as the date on which the census tract or non-metropolitan county ceases to be qualified. It is important to note that it is the formerly qualified census tract or qualified non-metropolitan county that is designated as a HUBZone area (as a “redesignated area”) for three years from the date that it ceases to be qualified. As such, a concern that applies for and receives HUBZone certification based on its location in a redesignated area would not receive three years of HUBZone participation unless the tract or county again becomes qualified as a HUBZone based on new data. Such a firm would remain eligible as a qualified HUBZone concern until three years from the date that the tract or county became a redesignated area, regardless of the amount of time it had participated in the HUBZone Program.

SBA proposes a definition for the term “small business concern (SBC).” The recent amendments to the HUBZone Act allow a HUBZone SBC to be owned in part by a SBC, with certain restrictions. SBA proposes defining the term SBC to mean a concern that, with its affiliates, meets the size standard for its primary industry.

SBA proposes to amend the definition of “small disadvantaged business” to clarify that such a concern is one that is certified by SBA pursuant to subpart B, part 124, of this chapter.

SBA proposes to remove the definition of woman-owned business because that term is no longer referenced in this part of the regulations.

SBA proposes to amend § 126.200, which sets forth the eligibility requirements for the program, because Congress recently changed these requirements in Public Law 106-554. To be eligible, all applicants must (together with all their affiliates) be small. In addition, according to Public Law 106-554, concerns owned by Indian Tribal Governments or tribal corporations must certify: (1) That they are owned by an Indian Tribal Government, by a wholly-owned tribal corporation, or owned in part by a Indian Tribal Government or tribal corporation and in part by another SBC or U.S. citizens, and (2) when the concern obtains a HUBZone contract, at least 35 percent of its employees engaged in performing that contract will reside within any Indian reservation governed by one or more of the Indian Tribal Government owners, or reside within any HUBZone adjoining any such Indian reservation. When enacting this legislation, Congress believed that no firm should be made eligible solely by virtue of who owns the concern. Thus, for example, concerns owned by Indian Tribal Governments will not be eligible solely because they are tribally-owned. Instead, such concerns will be eligible only if they agree to advance the goals of the HUBZone Program—job creation and economic development in the areas that need it most. See S. Rpt. 422, 106th Cong., 2d Sess. 21 (2000).

As discussed above, the statutory amendments provide that an Indian Tribal Government or tribal corporation may own a HUBZone SBC “in part” with a SBC or U.S. citizens. For example, an SBC in which a Tribal Government or tribal corporation owned 1% or less could claim that it qualified for the program if the other owners were SBCs or U.S. citizens. Further, there is no principal office eligibility requirement for such applicants. Thus, SBA is considering whether or not to require a Tribal Government or tribal corporation to own at least 51 percent of the HUBZone SBC. SBA is specifically requesting comments on this issue, and whether or not the Agency should require the Tribal Government or tribal corporation own a certain percentage (e.g., 51% or more) of the HUBZone SBC. SBA believes Congress intended the HUBZone benefits to assist Native American Indian Tribes, their Indian Reservations, and the HUBZone communities adjoining those reservations. If a Tribal Government or tribal corporation were able to own an inconsequential amount of a HUBZone SBC, the intended benefits may not reach that community or those people.

It must be noted that SBA is not considering such a limitation on ownership for HUBZone SBC owned by CDCs. As discussed below, a HUBZone SBC may be owned in part by a CDC and in part by U.S. citizens or SBCs. SBA is not considering a limit on how much or little of the applicant the CDC must own because the qualified HUBZone SBC that is owned “in part” by a CDC must also have its principal office located in a HUBZone and must meet the 35% HUBZone residence requirement. Therefore, the benefits of the program must necessarily flow to a HUBZone community, regardless of the percentage of ownership by a CDC.

Finally, proposed § 126.200(a)(3) defines the term “adjoining.” When tribally-owned concerns obtain a HUBZone contract, at least 35 percent of the qualified HUBZone SBC's employees engaged in performing that contract must reside within any Indian reservation governed by one or more of the qualified HUBZone SBC's Tribal Government owners, or reside within any HUBZone adjoining any such Indian reservation. The common meaning of the term “adjoining” is “to be next to” or “to be in contact.” SBA believes that tribal members often may not reside on the reservation, but may still live next to the reservation. Thus, SBA believes the common meaning of the term is in harmony with the purpose of this amendment, the HUBZone Act and the employee residency requirement. Thus, this rule proposes that a HUBZone and Indian reservation are “adjoining” when the two areas are right next to and in contact with each other.

SBA also proposes to address the eligibility requirements for all other SBCs in § 126.200. According to the HUBZone statute, an applicant that is not tribally-owned must: be small; have a principal office located in a HUBZone; have at least 35% of its employees residing in a HUBZone; represent that it will attempt to maintain this percentage during the performance of any HUBZone contract; and represent that it will ensure compliance with certain contract performance requirements in connection with contracts awarded to it as a qualified HUBZone SBC, as set forth in § 126.700. The recent amendments to the HUBZone Act provide that an applicant may be owned by a CDC or owned in part by a CDC and the rest by U.S. citizens or SBCs.

SBA also proposes to amend § 126.201 concerning who owns a HUBZone SBC. The proposed rule would clarify Example 1 to § 126.201, addressing ownership of stock options. In addition, the proposed rule would move Example 2 from § 126.201 to § 126.200 because it provides a better example of the U.S. citizen ownership requirement set forth in that section. In addition, SBA has proposed addressing who it considers to own a concern owned by an Employee Stock Option Plan (ESOP). According to the proposed rule, SBA will deem the employees that participate in the ESOP and the ESOP's trustees to be owners because these persons have legal and equitable ownership in the ESOP. Likewise, SBA proposes addressing who it considers to own a concern owned by a trust. SBA believes that where the ownership interest in a HUBZone SBC is held under a trust, all of the trustees and trust beneficiaries must be deemed owners.

SBA proposes to amend § 126.202 to add “managing member” to the list of persons who share control of a concern because such persons share control of limited liability companies.

In § 126.203, SBA proposes a technical correction in paragraph (b). SBA recently amended its size regulations and established a new table of small business size standards based upon the NAICS rather than the Standard Industrial Classification (SIC) code. Thus, SBA proposes changing the reference in paragraph (b) from SIC codes to NAICS codes.

SBA proposes to amend § 126.205 to clarify that all SBCs, and not just 8(a) Participants, WOBs, and small disadvantaged businesses (SDBs), may be qualified HUBZone SBCs, if they meet the HUBZone Program's eligibility requirements.

SBA proposes amending § 126.207 to state that HUBZone SBCs may have offices located outside of a HUBZone, so long as the concern's principal office is located in a HUBZone (when required by § 126.200 to have a principal office located in a HUBZone). As noted above, Congress recently amended the HUBZone Act to no longer require certain tribally-owned concerns to have a principal office in a HUBZone.

SBA proposes to remove parts of § 126.300 that are duplicative of § 126.304. In addition, SBA has proposed language that allows SBA to draw an adverse inference from the failure of a HUBZone SBC to cooperate or submit additional information.

SBA proposes amendments to § 126.303 to address how the electronic HUBZone application may be submitted to SBA online.

SBA proposes to amend §§ 126.304(a)-(b) and move the certification requirement currently set forth in § 126.501 to this section. Currently, paragraph (a) reiterates all of the eligibility requirements set forth in § 126.200. SBA proposes to amend paragraph (a) to state that to be certified, concerns must submit a completed application (paper or electronic) and represent that they meet the eligibility requirements of § 126.200. In addition, paragraph (b) currently requires all concerns applying for HUBZone status based on a location within the external boundaries of an Indian reservation to submit official documentation from the appropriate BIA Land Titles and Records Office confirming that it is located within such an area. When SBA first promulgated the HUBZone regulations, it did not have available electronic data for lands within the external boundaries of an Indian reservation, as it did for qualified census tracts and qualified nonmetropolitan counties. SBA now has this data available electronically. However, SBA understands that there may be rare instances when a concern believes a certain location is within the external boundaries of an Indian reservation, but the HUBZone maps indicate otherwise. Thus, the proposed regulation provides that upon such an occurrence, the concern may obtain certification from the appropriate BIA Land Titles and Record Offices confirming that the location is within the external boundaries of an Indian Reservation, as defined by the HUBZone Act and regulations.

Finally, SBA proposes adding a new paragraph (c) to § 126.304 stating that if the concern was decertified for failure to notify SBA of a material change affecting its eligibility, it must include with its application for certification a full explanation of why it failed to notify SBA of the material change. If SBA is not satisfied with the explanation provided, SBA may decline to certify the concern. This requirement is currently set forth in § 126.501, which addresses a qualified HUBZone SBC's ongoing obligations. SBA believes it would be appropriate to place this requirement in this section, which addresses application requirements.

SBA proposes amending § 126.306 by deleting part of paragraph (b). Currently, the first sentence of paragraph (b) states that SBA will base its certification on facts existing on the date of submission. However, SBA can only certify a concern into the program that meets all of the eligibility requirements. If circumstances change from the date of submission of the application that affect the concern's eligibility, then SBA can not certify the concern into the program.

Section 126.307 would be amended to reflect the change in the Internet website where SBA maintains its List of qualified HUBZone SBCs and the change in SBA's HUBZone e-mail address. SBA believes that in addition to having a separate List of qualified HUBZone SBCs, Pro-Net may also be used as the List. Pro-Net is a database containing profiles of over 200,000 SBCs. The information in the Pro-Net system includes data from SBA's files and other available databases. Pro-Net is designed to be used as a search engine for COs and a marketing tool for SBCs.

Section 126.308 would be amended to reflect the change in SBA's HUBZone e-mail address.

Section 126.401, addressing program examinations, would be amended to clarify that examiners will verify that the concern currently meets the HUBZone eligibility requirements, and that it met such requirements at the time of its initial certification or most recent recertification. This provision would also permit an examination of a HUBZone certification in connection with a HUBZone contract. In addition, paragraph (b) would be amended to clarify how the examiners will conduct the review. SBA proposes to add a sentence explaining that the review, or parts of the review, may be conducted at one or all of the concern's offices. SBA also proposes an amendment that specifically allows the examiners to determine the location of the examination.

SBA proposes to amend § 126.403 to provide that SBA may draw an adverse inference from the failure of a concern to cooperate with a program examination or provide requested information. This provision should discourage firms from being unresponsive to SBA's request for more information. SBA also does not want firms to be able to purposely delay the examination process. SBA should be allowed to draw an adverse inference to make the process more efficient.

SBA proposes to remove § 126.405. This regulation currently provides that if SBA verifies that a concern is eligible after conducting a program examination or a protest, then SBA will amend the date of certification on the List to reflect the date of verification. Protests and program examinations do not always cover all of the program's eligibility requirements. Therefore, the List should not be amended to reflect a new “eligibility” date. In addition, even if a protest or program examination does cover all of the eligibility requirements, SBA believes that amending the List will be confusing to the SBC as to when its next recertification submission is due.

SBA proposes to amend § 126.500 concerning continued eligibility in the program. Currently, a qualified HUBZone SBC must recertify annually that it continues to be eligible for the program. SBA believes that such an annual recertification is burdensome to SBCs, and proposes that qualified HUBZone SBCs recertify every three years that they continue to meet all of the program eligibility requirements. SBA believes that the program examination process and protest mechanism will effectively eliminate concerns that are not eligible, and, therefore, annual recertification is unnecessary. SBA also believes that three years is a reasonable period of time to give effect to a HUBZone certification. SBA notes that a small disadvantaged business (SDB) certification generally lasts for three years. See 13 CFR 124.1014. In addition, under the new statutory language identified above, three years will correspond with the amount of time an area losing its HUBZone status is classified as a redesignated area.

SBA proposes amending § 126.501 to state that failure to notify SBA of a material change in the circumstances of a qualified HUBZone SBC's eligibility may result in decertification. In addition, SBA proposes moving the last sentence of this section, which requires the concern to submit with any new application for HUBZone certification a statement explaining why it failed to notify SBA of a material change, to § 126.304, which addresses what a concern must submit to SBA to be certified into the program.

SBA proposes combining the substance of current § 126.404, concerning what happens if SBA is unable to verify a concern's eligibility, with § 126.503, regarding decertification. In addition, SBA proposes to revise § 126.503 to clarify the procedures by which SBA decertifies a concern. These procedures ensure that due process is followed before any firm is decertified from the program. Under these procedures, SBA must generally first propose to decertify the concern and allow the concern to respond to all allegations that it is ineligible. The current regulations require a concern to respond within 10 business days from the date that it receives notification of SBA's intent to decertify. This rule changes the amount of time a concern has to respond to SBA's notification of intent to decertify from 10 business days to 30 calendar days. SBA believes that it is important to give a HUBZone SBC ample opportunity to respond to SBA's notification of its intent to decertify the concern. This is particularly true in the context of the 35% HUBZone residency requirement. Where a HUBZone SBC is experiencing economic hardships, it may be required to temporarily reduce its number of employees, and may fall below the 35% requirement. SBA would give the concern the opportunity to explain its situation and meet the 35% requirement. Although the firm would not be able to certify itself to be a qualified HUBZone SBC in connection with a HUBZone contract during the time that it did not meet the 35% requirement, if SBA believes that the firm will come into compliance, it may determine not to decertify the firm. The AA/HUB will review any responses submitted by a concern receiving a notification of SBA's intent to decertify and will make a written determination, which is the final agency decision. Where decertification emanates from an adverse finding in the resolution of a HUBZone protest, SBA need not propose the firm for decertification. The same due process rights afforded a concern through proposing a concern for decertification are available in the protest context. In both cases, the firm is apprised of allegations against it, and has the opportunity to rebut those allegations and prove its eligibility.

SBA proposes to amend § 126.601 to change the reference in paragraph (a) from SIC to NAICS, in light of SBA's change to the NAICS system. In addition, SBA proposes to add a new paragraph (b) that would specify that a firm must be a qualified HUBZone SBC both at the time of its initial offer and at the time of award in order to be eligible for a HUBZone contract. Further, SBA proposes to amend § 126.601 to clarify that a qualified HUBZone SBC must make certain representations to a CO at the time it submits its initial and final offers for a HUBZone contract. A concern that is not a qualified HUBZone SBC at the time it submits its initial offer can not submit an offer on a HUBZone sole source or set-aside contract, or receive the benefits of the HUBZone price evaluation preference. Similarly, a concern that is not qualified at the time of award can not receive a HUBZone contract. The proposed rule would also require SBCs owned by Indian Tribal Governments (as set forth in § 126.200(a)) to certify on a HUBZone contract that at least 35 percent of its employees engaged in performing the HUBZone contract will reside within any Indian reservation governed by one or more of the HUBZone SBC's tribal government owners or within any HUBZone adjoining any such Indian reservation. This is a statutory requirement for such concerns, added by Public Law 106-554.

Finally, SBA proposes to amend paragraph (e) to address confusion regarding the nonmanufacturer rule. The statutory nonmanufacturer rule generally requires a small business nonmanufacturer to supply the product of a small business in connection with an 8(a) or small business set aside contract. The SBA Administrator may waive that requirement in certain cases. The nonmanufacturer rule that applies to HUBZone contracts requires a HUBZone nonmanufacturer to supply the product of a manufacturer, which is a qualified HUBZone SBC. This rule would clarify that for purposes of a HUBZone contract, there are no waivers of the nonmanufacturer rule. The program is designed to assist HUBZones by assuring that individuals residing in those areas are employed generally by a qualified HUBZone SBC and specifically in connection with the performance of a HUBZone contract. SBA believes that allowing a non-HUBZone manufacturer to be the firm ultimately supplying the product for a HUBZone contract would be contrary to the intent of the program. The proposed rule would provide, however, that for HUBZone contracts at or below the simplified acquisition threshold (currently $100,000), a qualified HUBZone SBC may supply the end item of any manufacturer, including a large business.

SBA proposes to amend § 126.602 to address the employee residency requirements for qualified HUBZone SBCs performing HUBZone contracts. The requirements are different, depending on the ownership of the qualified HUBZone SBC, as mandated by Public Law 106-554. In addition, SBA proposes deleting the definition for “attempt to maintain” currently set forth in this regulation and moving it to the definition section of the regulations.

SBA proposes to replace the term “procuring agencies” in § 126.603 with “contracting activities” for consistency in the regulations and conformance with the Federal Acquisition Regulations (FAR).

SBA proposes to amend § 126.605 by deleting paragraph (c) to allow HUBZone contracts for micropurchases. SBA believes this will open up the market to the program's participants. In addition, SBA proposes to amend § 126.608 to explain that HUBZone contracts at or below the micropurchase threshold are not mandatory. Further, SBA proposes to clarify § 126.608 and allow HUBZone contract opportunities “at or below” the simplified acquisition threshold, as opposed to just below the simplified acquisition threshold. This change will conform the regulation to FAR part 13.

SBA proposes to amend § 126.606 to change the reference of “AA/8(a)BD” to “AA/BD,” as a result of a reorganization in SBA's Office of Government Contracting and Business Development that occurred more than a year ago, and to clarify that the AA/BD will consult with the AA/HUB before determining whether to release an 8(a) requirement to the HUBZone Program.

In response to several inquiries, SBA proposes to amend § 126.607 to clarify the interaction between the HUBZone and 8(a) Programs. The proposed rule would provide for parity between the two programs. A CO must look first to the HUBZone and 8(a) Programs in determining how to fulfill a particular procurement requirement. In deciding which contracting vehicle to use, a CO must consider where the contracting activity is in fulfilling its HUBZone and 8(a) goals, as well as other pertinent factors. The CO is directed to exercise his/her discretion on whether to offer the requirement to the 8(a) or HUBZone Program. For example, if the contracting activity has met 0% of its HUBZone goals and has met its 8(a) goals, then the CO should restrict the requirement for competition among HUBZone SBCs, if all other criteria are met. If the activity has met half of its HUBZone and half of its 8(a) goals, then the CO has the discretion to offer the requirement to the 8(a) Program or restrict the requirement for competition among HUBZone SBCs. At this point, other factors, including knowledge of a particular HUBZone or 8(a) SBC that is capable of performing the requirement, become more important. SBA believes that this determination should be made by the contracting activity, based upon the activity's needs at that time. Further, the regulation restates the position in the FAR that HUBZone set-asides procurements take priority over small business set-asides. A CO must consider using a HUBZone set-aside to fulfill a requirement before considering whether award can be made as a small business set-aside.

SBA proposes amending § 126.611 to clarify that SBA may appeal a CO's decision to not use a HUBZone contract for a certain requirement to the Secretary of the department or the head of the agency, rather than the head of the contracting activity. This proposed change conforms with the statute.

SBA proposes amending § 126.612 to address the conversion from the SIC to NAICS code. In addition, SBA has proposed adding language in paragraph (e), addressing when a CO may issue a sole source award to a qualified HUBZone SBC, to state that it is the CO's determination (not SBA's) that the contract can be made at a fair and reasonable price. This language is the same as set forth in the HUBZone Act.

SBA proposes amending § 126.613 to conform to the recent statutory amendments made by Public Law 106-554. According to that statute, for purchases by the Secretary of Agriculture of agricultural commodities, the price evaluation preferences is 10 percent for the portion of a contract to be awarded that is not greater than 25 percent of the total volume being procured for each commodity in a single invitation; 5 percent for the portion of a contract to be awarded that is greater than 25 percent, but not greater than 40 percent, of the total volume being procured for each commodity in a single invitation; and zero for the portion of a contract to be awarded that is greater than 40 percent of the total volume being procured for each commodity in a single invitation. HUBZone contracts awarded pursuant to this preference may not be counted toward the fulfillment of any requirement partially set aside for competition restricted to SBCs.

In addition, SBA proposes to add other examples to § 126.613, regarding the price evaluation preference for a qualified HUBZone SBC in full and open competition, to clarify that only qualified HUBZone SBCs should benefit from the preference. SBA also proposes to amend the current example by correcting a mathematical error. According to the current example, if the qualified HUBZone SBC's offer was $101 and the large business' offer was $93, the award would go to the large business. This is inaccurate because at $101, the HUBZone SBC's offer is not more than 10% higher than the large business' offer. SBA has amended the example to state that if the qualified HUBZone SBC's offer was $103 and the large business' offer was $93, the award would go to the large business because the qualified HUBZone SBC's offer would be more than 10% higher than the lowest, responsive, responsible offeror.

SBA proposes to correct a typographical error in § 126.614. That regulation currently refers to the price evaluation preference described in “126.614.” The regulation should refer to the price evaluation preference described in “126.613.” In addition, SBA proposes to amend the regulation by providing examples of how to apply the HUBZone and SDB price evaluation preferences when a CO receives offers from two such concerns and must apply both preferences, and when a CO receives an offer from a concern that qualifies for both preferences. SBA had proposed similar examples when it issued its first proposed regulations for the HUBZone Program. See 63 FR 16148, 16152 (April 2, 1998). SBA did not provide these examples in the final rule because the Agency decided to leave the mechanics for implementation in the FAR. 63 FR 31896, 31904 (June 11, 1998). Although the FAR has addressed these issues, SBA has received numerous requests for further clarification. Therefore, SBA proposes to provide examples explaining clearly how this process works.

SBA proposes to amend § 126.616 to allow for joint ventures comprised of only qualified HUBZone SBCs and not 8(a) concerns or women-owned businesses. SBA believes the proposed eligibility requirements allowing qualified HUBZone SBCs to be owned in part by SBCs, makes joint ventures with other SBCs and large businesses unnecessary. Allowing HUBZone contracts to go to qualified HUBZone SBCs that are owned in part by a non-qualified HUBZone SBC, and which joint venture with another non-qualified HUBZone SBC, will dilute the benefits intended to go to the HUBZone area and residents. In addition, SBA proposes clarifying that the joint venture, which is comprised of two or more qualified HUBZone SBCs, does not itself have to be certified as a qualified HUBZone SBC, because joint ventures are limited entities that are formed for the purpose of performing on a specific contract. In addition, SBA proposes to amend the reference of SIC to NAICS.

SBA proposes to add § 126.617 to address disputes arising under a HUBZone contract. Oftentimes, qualified HUBZone SBCs request SBA's assistance with contract disputes between the procuring activity and the concern. However, it is not within SBA's authority to decide disputes arising under a HUBZone contract. Therefore, SBA proposes a regulation specifically stating that for purposes of the Disputes Clause of a HUBZone contract, the procuring activity will decide disputes arising between a qualified HUBZone SBC and the procuring activity.

SBA proposes to add a new § 126.618, which would explain how the participation of an applicant to the HUBZone Program or a HUBZone SBC in a Mentor-Protégé relationship affects its participation in the HUBZone Program. This section would provide that qualified HUBZone SBCs may enter into Mentor-Protégé relationships in connection with other Federal programs, provided that such relationships do not conflict with the underlying HUBZone requirements. For example, SBA may approve mentor-protégé agreements for purposes of its 8(a) BD program in which the mentor owns up to 40% of the 8(a) protégé firm. See 13 CFR 124.520(d)(2). Because such a relationship would violate the statutory requirement that a HUBZone SBC be 100% owned and controlled by persons who are United States citizens, a protégé firm in such a relationship would not be eligible for the HUBZone Program. For purposes of determining whether an applicant to the HUBZone Program or a HUBZone SBC qualifies as small, proposed § 126.618(b) would exempt a protégé firm from being considered affiliated with its mentor based on its mentor-protégé agreement. SBA could still find affiliation on other grounds. Proposed § 126.618(c) would permit a qualified HUBZone SBC to team with and subcontract work under a HUBZone contract to its mentor, but would not permit a joint venture between a protégé and its mentor on a HUBZone contract unless the mentor was also a qualified HUBZone SBC.

SBA proposes to amend § 126.700 to state that the performance of work requirements for qualified HUBZone SBCs are set forth in 13 CFR 125.6. SBA proposes adding the performance of work requirements for qualified HUBZone SBCs to § 125.6 so that all of the performance of work requirements will be located in one place and thus easy to locate.

In addition, SBA is considering adding a new paragraph to § 126.700, which would add an additional contract performance requirement for construction HUBZone contracts. Specifically, in the case of a HUBZone construction contract (either general construction or specialty trade construction), SBA is considering requiring qualified HUBZone SBCs to perform at least 50 percent of the contract, either at the prime or subcontracting level. Such a provision would not affect the prime performance of work requirements set forth in § 125.6 (i.e., 15% for general construction and 25% for specialty trade construction); rather, the Agency is considering a new overall performance of work requirement for HUBZone construction contracts. Thus, for general construction, if a prime contractor will perform 15% of the contract, it would be required to subcontract at least 35% of the contract to one or more other qualified HUBZone SBCs. For a specialty trade construction contract, if a prime contractor will perform 25% of the contract, it would be required to subcontract at least 25% of the contract to one or more other qualified HUBZone SBCs.

The HUBZone Program is intended to stimulate historically underutilized business zones through job creation and capital investment. Where a qualified HUBZone SBC is able to subcontract up to 85% of a general construction contract or up to 75% of a specialty trade construction contract to non-HUBZone SBCs (which may in fact be large businesses), SBA is concerned that it would not be adequately meeting the underlying Congressional purpose of the program. At the same time, however, SBA is not seeking to impose a barrier that could dissuade COs from using the HUBZone Program. If such a requirement in any way would cause a CO to use a contracting vehicle other than a HUBZone set-aside because he or she believes that there are not at least two qualified HUBZone SBCs that could meet it, then the requirement would have the opposite effect of what is intended. In such a case, instead of causing more work to be done by one or more qualified HUBZone SBCs, and hopefully increasing jobs in a HUBZone, the requirement would have caused 15% (or 25% for specialty trade construction) of the work that would have been performed by a qualified HUBZone SBC to be taken away from the Program and go elsewhere.

Thus, SBA is also considering several alternatives that would attempt to encourage increased performance by qualified HUBZone SBCs, but that would not adversely affect the HUBZone Program. One alternative that SBA is considering is requiring that HUBZone SBCs perform at least 50% of a construction contract through prime or subcontracting arrangements, but allow the CO to waive this requirement where he or she believes it cannot be met for a particular procurement. Where a CO believes that the 50% requirement can be met, it would continue to apply. Where a CO waives the 50% requirement, the solicitation would have to specify that the 50% requirement does not apply to the HUBZone procurement. The 15% or 25% prime contractor performance of work requirement would continue to apply. As another alternative, SBA is also considering imposing an evaluation factor in the award of negotiated HUBZone set-asides relating to overall performance by qualified HUBZone SBCs. SBA specifically requests comments on these proposals, including whether the 50% requirement is one that can be met by the affected concerns, and whether and to what extent the CO waiver and evaluation factor can be used to make the requirement acceptable to COs and the procurement community.

In addition, SBA proposes to amend § 126.702 to state that the procedures for requesting changes in the subcontracting percentages are set forth in 13 CFR 125.6. As noted above, SBA has proposed a regulation amending § 125.6, which outlines the procedures for requesting changes in subcontracting percentages for all of SBA's program, including the HUBZone Program. Because it is redundant and unnecessary to have these procedures listed twice in the regulations, SBA proposes to remove § 126.703.

SBA proposes to amend paragraph (b) of § 126.800 to clarify that SBA and the CO may protest the apparent successful offeror's qualified HUBZone SBC status.

SBA proposes amending § 126.801 to clarify that SBA does not review protest issues concerning the conduct or administration of a HUBZone contract. In addition, SBA proposes amending paragraphs (d) to state that any protest received after the time limits is untimely, unless it is from SBA or the CO. This is similar to SBA's size protest procedures and will allow SBA or the CO to file HUBZone status protests any time either obtains information that a qualified HUBZone SBC may not be eligible. Further, SBA proposes amending paragraph (e) to state the information a CO should include in his or her protest referral letter to SBA. The CO's protest referral letter, in which he or she refers a HUBZone protest, should include certain information about the procurement so that SBA can determine issues of standing and timeliness.

SBA proposes amending paragraph (d) of § 126.803. Currently, that paragraph states that if SBA denies a protest, it will amend the date of certification on the List of qualified HUBZone SBCs to reflect the date of the protest decision. SBA believes that because protests often do not decide all eligibility issues, the Agency should not change the date of certification for the concern.

SBA proposes to change the references in § 126.805 of the ADA/GC&8(a)BD to ADA/GC&BD, to conform to SBA's recent re-organization and change in title of this position.

SBA proposes a technical change to § 126.900(b). SBA proposes to replace the term “civil remedies” with “civil penalties,” in accordance with the statute.

Compliance With Executive Orders 12866, 12988, and 13132, the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 601-602)

OMB has determined that this rule constitutes a “significant regulatory action” under Executive Order 12866. A copy of the Regulatory Impact Analysis is set forth below.

Regulatory Impact Analysis—HUBZone Empowerment Contracting Program

A. General Considerations

1. Is There a Need for the Regulatory Actions?

Yes. The U.S. Small Business Administration (SBA) is statutorily authorized to administer the HUBZone Empowerment Contracting Program (HUBZone Program). In addition, the SBA is required to implement and administer all statutory changes to the program. The HUBZone Act has been amended by the 2000 Reauthorization Act. These amendments must be implemented pursuant to regulations. There are no practical alternatives to the implementation of the proposed regulatory changes. In addition, the SBA believes these changes are necessary and appropriate to better service the needs of small business concerns (SBCs) and the statutory goals of the HUBZone Program.

2. What Is the Baseline?

There are several baselines being considered in the formulation of this proposed rule change. These include the present set of HUBZone Program regulations and definitions that would be modified by this proposal, the estimated universe of potential HUBZone SBCs, the existing statutory requirements, the achievement of HUBZone contracting goals by Federal agencies, and current procurement practices of Federal agencies. The SBA estimates that over 30,000 small businesses may be eligible and may be certified for the HUBZone Program. As of the end of fiscal year 2001, there were 4000 firms participating in the HUBZone Program. There are, at present, approximately 8000 designated HUBZone areas and approximately one HUBZone certified firm for every two designated HUBZone areas. As of the end of fiscal year 2000, Federal agencies (according to the Federal Procurement Data Center—FPDC) are, on average, achieving only 22% of their statutorily mandated goals for HUBZone contracting. This means that agencies are well below the required HUBZone goal of 2-3 percent of the total contracting dollars.

It is difficult to obtain precise quantitative estimates of the impact these changes might have on these baseline criteria. However, we estimate that adoption of this proposed regulation will significantly increase the number of HUBZone SBCs, increase the number of HUBZone procurement actions by Federal agencies, and result in better and more efficient administration of the program. Ultimately, the program would move closer to meeting its statutory objectives of creating jobs and infusing capital into distressed communities.

3. Alternatives

There are no alternatives to implementing or changing the statutorily mandated items detailed in the proposed rule. Issuance of policy notices, for example, which are not published material like regulations, would hinder a SBC's access to this needed information. However, SBA did consider proposing that no regulatory changes, other than those required by the amendments to the HUBZone Act, be made to the HUBZone Program. We also considered the proposal of less stringent and more stringent regulatory changes that were either well-short of or well-beyond what is included in this proposal. Those alternatives were disregarded on the basis of market, economic and administrative considerations. The utilization of HUBZone SBCs, while growing, lags far behind congressional goals. The SBA has observed and investigated this phenomenon and has concluded that our current rules are insufficient to propel the program to the legislatively established levels. The alternatives to propose less or more stringent regulatory changes were abandoned by the SBA as they precluded the Agency from striking a balance between the competing considerations of program integrity, program viability and program resources.

In addition, the “program achievement costs” of implementing less stringent regulations or not changing the regulations are unacceptably high. At the other end of the spectrum, the potential increases in program achievement to be gained by writing more stringent rules are far outweighed by the exponential increase in administrative and operating costs necessary to enforce regulations of that nature.

Our proposal maintains the legislative intent of the HUBZone Program. It facilitates the growth of the program to congressionally established levels, and provides balanced give and take among the needs to manage the program, maintain program integrity, service the program's small business participants and meet the procurement needs of other Federal agencies.

B. Benefit Estimates

The three most significant benefits to implementing the changes included in this proposal are:

1. Improved efficiency of the HUBZone Program and its added benefits to both small businesses and Federal agencies. SBA believes that the changes in this proposal will increase the base number of small businesses in the HUBZone Program and increase the viability and practicability of using the HUBZone Program by Federal agencies. We consider these to be mutually dependent in that the more firms that are in the program, the more Federal agencies will use the program, and when more Federal agencies use the program, more concerns will want to be able to take advantage of the benefits (contracts) available in the program. According to FPDC data, in fiscal year 2000 Federal agencies executed 3500 HUBZone actions worth over $650,000,000. We estimate that these changes in the rule have the potential to triple the number of participating concerns and the number of contract actions directed to the HUBZone Program.

2. Greater administrative efficiency and program integrity. SBA believes that this proposal will allow the program to be run more effectively with existing resources relative to program activity while simultaneously permitting SBA to more precisely focus the benefits of the program on the businesses and those areas of low income or high unemployment.

3. Greater contracting efficiency for Federal agencies. SBA believes that by increasing the level of activity and participation in the HUBZone Program, it will increase economic savings to the Federal government on HUBZone awards. By having more HUBZone eligible concerns, procuring agencies will have a larger base of HUBZone vendors, which will ultimately reduce the cost of HUBZone contracts through increased competition among HUBZone SBCs.

C. Cost Estimates

Pursuant to this proposed rule, SBA expects significant increases in the number of concerns participating in the HUBZone Program and in the number of contract dollars spent in the program by Federal agencies. To the extent that this materializes, there may be attendant cost increases to the government in terms of the costs of goods and services and slightly increased administrative costs. However, existing provisions of the Federal Acquisition Regulations concerning the determination of “fair and reasonable” pricing will mitigate any significant monetary costs to the government of this proposal.

The SBA does not believe these changes will result in significantly higher increased costs to HUBZone SBCs because SBA is attempting to streamline the program and ease burdensome restrictions on SBCs.

D. Other Considerations Including Distributional Effects, Equity Considerations and Uncertainty

SBA anticipates that the distribution of contracts among different procurement vehicles will change. Non-HUBZone concerns currently participating in the Federal marketplace will be affected economically as a result of their not being eligible to compete for the contracts that are restricted to the HUBZone Program. These costs will vary based on the goods and services provided by newly eligible HUBZone SBCs. In some industries there may be very little impact, while in other industries there may be substantial impact.

Large Federal prime contractors will see some decrease in contract opportunities as Federal agencies begin to utilize the HUBZone Program. However, these changes are insignificant in light of the magnitude of Federal procurement versus HUBZone procurement. The Federal government annually spends about $200 billion on goods and services. However, in fiscal year 2000, the HUBZone Program accounted for only $650 million of that amount (less than half of one percent). This is significantly less than the estimated $1-6 billion goal set by Congress for the program.

Current and future HUBZone participants will see a tightening of definitions concerning contract performance. However, additional contracting opportunities and clearer regulations should offset these additional restrictions.

Most of the benefits of this proposal will accrue to HUBZone communities. Expanded eligibility for designated areas, increased HUBZone contacting and a refocusing of HUBZone subcontracting should result in more Federal contract dollars going to distressed communities.

Overall, projecting winners and losers from regulatory changes in the HUBZone Program cannot be done with certainty. SBA believes that increasing the efficiency and access to the HUBZone Program to both Federal agencies and small businesses will, over time, result in increased use of the program and a higher probability that the HUBZone Program will meet its original objectives to create jobs and increase capital investment in HUBZone communities. The HUBZone Act of 1997 increased the small business goal from 20% to 23%, to include the HUBZone contracting goal (maximum level 3%), and ensure that small business contracting would not be impacted. In every case, the mix of winners and losers will be affected by the decisions of contracting agencies to use or not to use the HUBZone Program.

SBA has determined that this rule, if adopted in final form, may have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. The amendments proposed in this rule involve revising several definitions, including the definition of “HUBZone” and “employee.” These amendments may affect a large percentage of the over 30,000 SBCs that SBA believes are eligible or will become eligible for certification as qualified HUBZone SBCs over the life of the program. Thus, SBA has prepared an Initial Regulatory Flexibility Analysis (IRFA) and has submitted a complete copy of the IRFA to the Chief Counsel for Advocacy of the SBA. The IRFA explains that this proposed rule will affect those SBCs that participate in Federal procurements, that hire leased or temporary employees, or are owned by Indian Tribal Governments or tribal corporations. The proposed rule will make it easier for such entities to apply to and become eligible for the program. For a complete copy of the IRFA, please contact Michael McHale at (202) 205-8885.

SBA has determined that this proposed rule imposes additional reporting or recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C., chapter 35. The rule authorizes SBA to request that a HUBZone SBC submit updated financial information and information relating to the number of its employees. This information is needed to comply with the statutory requirement that SBA report to Congress “the degree to which the HUBZone program has resulted in increased employment opportunities and an increased level of investment in HUBZones.” Pub. L. 105-135, Title VI, § 606, 111 Stat. 2635. As noted in the Supplementary Information above, SBA has certified over four thousand concerns into the HUBZone Program. Each of these concerns could be subject to this request for information. SBA estimates the burden of this collection of information as follows: SBA may request updated financial information and information relating to the number of employees from a qualified HUBZone SBC annually. SBA estimates that the time needed to complete this collection will average less than one-half hour. SBA estimates that the cost to complete this collection will be approximately $30 per hour. Thus, the estimated aggregated burden for each qualified HUBZone SBC is 0.5 hours per annum costing an estimated $15 for the year. Included in the estimate is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing each collection of information.

SBA invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of SBA's functions, including whether the information will have a practical utility; (2) the accuracy of SBA's estimate of the burden of the proposed collections of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.

Please send comments by the closing date for comment for this proposed rule to David Rostker, Office of Management and Budget, Office of Information and Regulatory Affairs, 725 17th Street, NW, Washington, DC 20503 and to Michael McHale, Associate Administrator for the HUBZone Empowerment Contracting Program, Small Business Administration, 409 Third Street, SW, Washington, DC 20416.

For purposes of Executive Order 12988, SBA has drafted this proposed rule, to the extent practicable, in accordance with the standards set forth in section 3 of that Order.

For purposes of Executive Order 13132, SBA has determined that this proposed rule has no federalism implications warranting the preparation of a Federalism Assessment.

List of Subjects

13 CFR Part 121

• Government procurement
• Government property
• Grant programs—business
• Loan programs—business
• Small businesses

13 CFR Part 125

• Government contracts
• Government procurement
• Reporting and recordkeeping requirements
• Small businesses
• Technical assistance

13 CFR Part 126

• Administrative practice and procedure
• Government procurement
• Reporting and recordkeeping requirements
• Small businesses

Accordingly, for the reasons set forth above, SBA proposes to amend 13 CFR parts 121, 125 and 126, as follows:

PART 121—SMALL BUSINESS SIZE REGULATIONS

1. Revise the authority citation for 13 CFR part 121 to read as follows:

Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15 U.S. C. 632(a), 634(b)(6), 637(a), 644(c) and 662(5); and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.

2. Amend § 121.406 by revising the section heading, by adding a new paragraph (b)(6) to read as follows, and by removing paragraph (d):

PART 125—GOVERNMENT CONTRACTING PROGRAMS

4. The authority citation for 13 CFR part 125 continues to read as follows:

Authority: 15 U.S.C. 634(b)(6), 637 and 644; 31 U.S.C. 9701, 9702.

5. In § 125.6, redesignate paragraphs (b), (c), (d), (e), (f), and (g) as paragraphs (d), (e), (f), (g), (h), and (i) respectively, and add new paragraphs (b) and (c) to read as follows:

PART 126—HUBZONE PROGRAM

6. Revise the authority citation for 13 CFR part 126 to read as follows:

Authority: 15 U.S.C. 632, and 15 U.S.C. 657a.

7-8. Amend § 126.101 by revising paragraph (a), removing paragraph (b), and redesignating current paragraph (c) as paragraph (b) to read as follows: