HUBZone Program Updates and Clarifications, and Clarifications to Other Small Business Programs

SMALL BUSINESS ADMINISTRATION <CFR>13 CFR Parts 121, 124, 125, 126, 127, 128, 134</CFR> <DEPDOC>[Docket ID SBA-2024-0007]</DEPDOC> <RIN>RIN 3245-AH68</RIN> <SUBJECT>HUBZone Program Updates and Clarifications, and Clarifications to Other Small Business Programs</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> U.S. Small Business Administration. <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The U.S. Small Business Administration (SBA or Agency) proposes to amend its regulations governing the Historically Underutilized Business Zone (HUBZone) Program to clarify certain policies. In 2019, SBA published a comprehensive revision to the HUBZone Program regulations, which implemented changes intended to make the HUBZone Program more efficient and effective. This proposed rule is intended to clarify and improve policies surrounding some of those changes. In particular, the rule proposes to require any certified HUBZone small business to be eligible as of the date of offer for any HUBZone contract. SBA also proposes to make several changes to SBA's size and 8(a) Business Development (BD) regulations, as well as some technical changes to the Women-Owned Small Business (WOSB) and Veteran Small Business Certification (VetCert) programs. Of note, the proposed rule would delete the program specific recertification requirements contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and move them to a new section that would cover all size and status recertification requirements. This should ensure that the size and status requirements will be uniformly applied. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before October 7, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by Docket No. SBA-2024-0007 or RIN 3245-AH68, by any of the following methods: • <E T="03">Federal eRulemaking Portal: http://www.regulations.gov</E> and follow the instructions for submitting comments. • <E T="03">Mail (for paper submissions):</E> Laura Maas, HUBZone Program, 409 Third Street SW, Washington, DC 20416. <E T="03">Instructions:</E> All submissions received must include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. All comments received will be posted on <E T="03">http://www.regulations.gov.</E> If you wish to submit confidential business information (CBI) as defined in the User Notice at <E T="03">http://www.regulations.gov,</E> please submit the comments to Laura Maas and highlight the information that you consider to be CBI and explain why you believe this information should be held confidential. SBA will make a final determination as to whether the comments will be published or not. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Laura Maas, Deputy Director, Office of HUBZone, (202) 205-7341, <E T="03">hubzone@sba.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> On November 26, 2019, SBA published the first comprehensive revision of the HUBZone Program regulations since the program's implementation more than 20 years ago. 84 FR 65222. The revisions were intended to clarify current HUBZone Program policies and procedures and implement changes to make the HUBZone Program more efficient and effective. This proposed rule would make additional clarifications to the program regulations to reflect SBA policies established in response to feedback received in the time since the publication of the comprehensive revision. SBA also made a number of revisions to the HUBZone regulations as part of its implementation of section 1701 of the National Defense Authorization Act for Fiscal Year 2018 (NDAA 2018), Public Law 115-91, Dec. 12, 2017. Included within that rulemaking were revisions freezing the HUBZone map until the results of the 2020 census were released; authorizing “legacy HUBZone employees”; requiring annual recertification; implementing one-year certification and requiring HUBZone firms to be eligible on each anniversary of their HUBZone certification date; and requiring HUBZone firms to be HUBZone-certified at the time of offer for any HUBZone contract, with eligibility relating back to their certification anniversary date and removing the requirement for HUBZone small businesses to be eligible at the time of award of a HUBZone contract. In the time since SBA published the comprehensive revision, the Office of the HUBZone Program has received questions and information that prompted refinement and clarification of policies contained in that revision, which SBA published in “Frequently Asked Questions” in February 2020 and in subsequent updates. This proposed rule would incorporate some of those clarifications and make other refinements in the HUBZone regulations, including requiring HUBZone firms to be eligible on the date of offer for a HUBZone contract and relieving the burden of annual recertification by moving to a triennial recertification requirement. In addition, this proposed rule would clarify policies related to “Governor-designated covered areas,” which were authorized by the NDAA 2018 and implemented through a direct final rule published by SBA on November 15, 2019. 84 FR 62447. Further, in response to concerns related to potential fraud and abuse in the program, SBA is proposing to amend the definition of the term “employee” by raising the minimum number of work hours necessary for an individual to count as an employee for HUBZone program purposes. The proposed rule would also make several changes to SBA's size and 8(a) business development (BD) regulations, as well as some technical changes to the women-owned small business (WOSB) and the Veteran Small Business Certification (VetCert) programs. Of note, the proposed rule would delete the program specific recertification requirements contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and move them to a new section that would cover all size and status recertification requirements. Currently, there is some language contained in the program specific recertification rules that is not identical in each of the programs. This has caused some confusion as to whether SBA intended the rules to be different in certain cases. That was not SBA's intent. Moving all size and recertification to new § 125.12 should alleviate any confusion between the different programs and ensure that the size and status requirements will be uniformly applied. <HD SOURCE="HD1">II. Section-by-Section Analysis</HD> <HD SOURCE="HD2">Sections 121.103(a)(3), 124.106(h), 127.202(h) and 128.203(j)(6)</HD> SBA proposes to amend its rules on affiliation in the size regulations and control in the 8(a) BD, WOSB and VetCert program regulations regarding negative control. Specifically, this proposed rule would make the negative-control rules consistent across SBA's various programs. The negative control provision states that a concern may be deemed controlled by, and therefore affiliated with, a minority shareholder that has the ability to prevent a quorum or otherwise block action by the board of directors or shareholders. The rule does not include any specific exceptions, though some have developed through caselaw at SBA's Office of Hearings and Appeals (OHA). <E T="03">See, e.g., Southern Contracting Solutions III, LLC,</E> SBA No. SIZ-5956 (Aug. 30, 2018). This proposed rule would first amend § 121.103(a)(3) by adding language currently contained in the VetCert rules that developed from OHA case law to clarify that there are certain “extraordinary circumstances” under which a minority shareholder may have some decision-making authority without a finding of negative control. Specifically, SBA will not find that a lack of control exists where a qualifying individual or business does not have the unilateral power and authority to make decisions regarding: (1) adding a new equity stakeholder; (2) dissolution of the company; (3) sale of the company or all assets of the company; (4) the merger of the company; (5) the company declaring bankruptcy; and (g) amendment of the company's governance documents to remove the shareholder's authority to block any of (1) through (5). These exceptions to negative control are being implemented to promote consistency with other SBA contracting programs ( <E T="03">see</E> § 128.203(j)). This rule proposes to add the same language to a new § 124.106(h) for the 8(a) BD program and to § 127.202(h) for the WOSB program. Finally, since the current VetCert regulations have only the first five exceptions for control and this rule would add six to the size, 8(a) BD and WOSB regulations, the proposed rule would add that same sixth exception to the VetCert regulations also. That addition would be a new § 128.203(j)(6). Through this proposed rule, SBA would add explicit exceptions to the negative-control provision for all programs for which control is an eligibility element. This would permit all small businesses to seek equity funding without becoming affiliated with the investors solely because of a broad interpretation of the negative-control rule. SBA specifically requests comments as to whether the six identified exceptions are sufficient or whether one or more additional exceptions should also be included in the regulations. <HD SOURCE="HD2">Section 121.103(h)</HD> Section 121.103(h)(3) sets forth SBA's “ostensible subcontractor” rule, which may find a prime contractor ineligible for the award of any small business contract or order where a subcontractor that is not similarly situated (as that term is defined in § 125.1) performs primary and vital requirements of a contract, order, or agreement, or where the prime contractor is unusually reliant on such a subcontractor. The current regulatory text provides that a contractor and it ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 339k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━