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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: January 28, 2002

SUBJECT: Small Business Administration; Miscellaneous Amendments

SOURCE: Federal Register, January 28, 2002, Vol. 67, No. 18, page 3826

AGENCIES: Small Business Administration (SBA)

ACTION: Proposed Rule

SYNOPSIS: The SBA proposes to amend regulations to make the application of the nonmanufacturer rule consistent for all programs; to consolidate all of the subcontracting limitations requirements into one regulation; and to amend its Historically Underutilized Business Zone (HUBZone) regulations to address statutory changes and make other revisions.

EDITOR'S NOTE: The SBA's regulations are in Title 13 of the Code of Federal Regulations (CFR), Chapter 1, Small Business Administration.

DATES: Comments on the proposed rule must be received by February 27, 2002.

ADDRESSES: Send 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, 202-205-8885, or e-mail: hubzone@sba.gov.

SUPPLEMENTAL INFORMATION: This proposed rule makes several changes to SBA's regulations:

• Nonmanufacturer Rule: SBA proposes to amend its regulations in Part 121, Small Business Size Regulations, Section 121.406, How does a small business concern qualify to provide manufactured products under small business set-aside or 8(a) contracts?, to make SBA's application of the nonmanufacturer rule consistent for all programs. For contracts below the $100,000 simplified acquisition threshold, SBA would to permit a small business nonmanufacturer to submit the product of any domestic manufacturer, including a large business, and still be considered small. The introductory material to the proposed rule states, "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." This change would correspond to the change proposed for HUBZone contracts in Section 126.601, What additional requirements must a qualified HUBZone SBC [small business concern] meet to bid on a contract?"
  
  EDITOR'S NOTE: Paragraph (f) of Federal Acquisition Regulation (FAR) 19.102, Size Standards, addresses the nonmanufacturer rule.
  
  
• Subcontracting Limitation: Part 125, Government Contracting Programs, Section 125.6, Prime Contractor Performance Requirements (Limitations on Subcontracting), would be amended to include all subcontracting limitations (that is, the limit on the percentage of work that the concern can subcontract) for concerns 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% price evaluation preference/adjustment. Currently, Section 125.6 addresses the limitations on subcontracting percentages for SBCs, 8(a) concerns, and small and disadvantaged business concerns, and Section 126.700, What are the performance of work requirements for HUBZone contracts?, addresses the subcontracting limitations for qualified HUBZone SBCs. Including all the subcontracting limitation percentages in Section 125.6 will make it easier for SBCs and contracting officials to locate them.
  
  In addition, SBA proposes adding language to Section 125.6 to address requests for changes in subcontracting percentages for small business set-asides and for SBA's various programs. The new language in paragraph (c) would not change these percentages, but would explain how such percentages could be changed through requests from interested parties.
  
  EDITOR'S NOTE: FAR 52.219-14, Limitations on Subcontracting, specifies the percentage limits on subcontracting by small businesses under contracts that have been set-aside or awarded under the 8(a) program.
  
  
• HUBZone Program: The proposed rule would amend CFR Title 13, Part 126, HUBZone Program, to address amendments made by the Small Business Reauthorization Act of 2000 (Public Law 106-554) regarding eligibility requirements for SBCs owned by Tribal Governments or Community Development Corporations (CDCs). For example, it would add to Section 126.103, What definitions are important in the HUBZone Program?, a definition for CDCs and add an eligibility criterion for SBCs owned by CDCs so that such concerns can participate in the HUBZone Program; define the terms "Alaska Native Corporation (ANC)," "Alaska Native Village, and "Indian Reservation"; and revise the definition of "employee" to include leased or temporary employees but to exclude volunteers.
  
  One important change would be to the definition of "HUBZone" itself. A HUBZone would be defined as including "redesignated areas", which would be defined as "any census tract or any nonmetropolitan county that ceases to be a qualified HUBZone...", primarily because governmental data determines whether census tracts and non-metropolitan counties qualify as HUBZones, so some areas may shift in and out of eligibility year after year. To prevent an SBCs that locates to a HUBZone from losing its eligibility because of changes in such data, Congress decided to keep such "redesignated areas" as HUBZones for three years following the date of the census tract's or non-metropolitan county's disqualification. HUBZone status would apply to concerns currently in the HUBZone program and concerns that were seeking HUBZone certification when the area's status changed -- concerns moving into the area or applying for the HUBZone program during the three year period would not be eligible for HUBZone status.
  
  Another important change would clarify the interaction between the HUBZone and 8(a) programs. Section 126.607, When must a CO [contracting officer] set aside a requirement for qualified HUBZone SBCs?, would provide for parity between the two programs. It would require the contracting officer to "consider the contracting activity's achievement of its HUBZone and 8(a) goals, and other relevant factors" when determining how to fulfill a particular procurement requirement. In the introductory material to the proposed rule, SBA states, "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...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." The requirement that HUBZone set-asides procurements take priority over small business set-asides would remain in effect.
  
  Finally, SBA states that it is considering adding a paragraph to Section 126.700 which would require HUBZone construction contractors (either general construction or specialty trade construction) to perform at least 50% of the contract, either at the prime or subcontracting level. Such a provision would not affect the performance of work requirements in Section 125.6 for prime HUBZone construction contractors -- they would still be required to perform 15% for general construction or 25% for specialty trade construction. Rather, if the prime HUBZone construction contractor were to 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 prime HUBZone contractor performing 25% of a specialty trade construction 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," states SBA in the introductory material. "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."
  
  EDITOR'S NOTE: FAR Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Program, addresses the HUBZone program.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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