[Federal Register: June 11, 1998 (Volume 63, Number 112)] 
[Rules and Regulations] 
[Page 31896-31916] 
From the Federal Register Online via GPO Access [wais.access.gpo.gov] 
[DOCID:fr11jn98-5] 
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SMALL BUSINESS ADMINISTRATION 
13 CFR Parts 121, 125, and 126 

HUBZone Empowerment Contracting 
Program AGENCY: Small Business Administration. 
ACTION: Final rule. 
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SUMMARY: The HUBZone Act of 1997, Title VI of Public Law 105-135, enacted on December 
2, 1997 (111 Stat. 2592), created the HUBZone Empowerment Contracting Program 
(hereinafter ``the HUBZone Program''). This final rule adds a new Part 126 to 
Title 13 of the Code of Federal Regulations to implement the HUBZone program. 
DATES: The effective date of this rule is September 9, 1998. However, at the conclusion 
of the congressional review, if the effective date has been changed, the Small 
Business Administration (SBA) will publish a document in the Federal Register 
to establish the actual effective date or to terminate the rule. FOR FURTHER INFORMATION 
CONTACT: Michael McHale, Assistant Administrator, Office of Procurement Policy 
and Liaison, 409 Third Street, SW, Washington, DC 20416, (202) 205-6731. SUPPLEMENTARY 
INFORMATION: On April 2, 1998, SBA published a proposed rule to implement the 
HUBZone program. See 63 FR 16148. The proposed rule set forth the program requirements 
for qualification as a HUBZone small business concern (HUBZone SBC), the federal 
contracting assistance available to qualified HUBZone SBCs, and other aspects 
of this program. SBA published a technical correction on April 14, 1998. See 63 
FR 18150. The public comment period closed on May 4, 1998. SBA received 35 comment 
letters on the proposed rule. This final rule includes changes based on some of 
the comments received. Section-by-Section Analysis The conforming amendments to 
Part 121 of this title remain as proposed. However, SBA has added a second conforming 
amendment to Part 125 of this title. Section 125.2 of this title must be amended 
to include HUBZone contracts in the contracts reviewed by SBA's procurement center 
representatives. A new part 126 is added to Title 13 of the Code of Federal Regulations 
to implement the HUBZone program. Section 126.100 explains that the purpose of 
the HUBZone program is to provide federal contracting assistance for qualified 
small business concerns (SBC) located in historically underutilized business zones 
in an effort to increase employment opportunities and investment in those areas. 
SBA received no comments concerning this section and it remains as proposed. Section 
126.101 lists the departments and agencies affected directly by the HUBZone program. 
SBA received no comments concerning this section and it remains as proposed. Section 
126.102 describes the effect the HUBZone program will have on the 8(d) subcontracting 
program. The HUBZone Act of 1997 amended section 8(d) of the Small Business Act, 
15 U.S.C. 637(d), to include qualified HUBZone SBCs in the formal subcontracting 
plans required by 8(d) of the Small Business Act and described in section 125.3 
of this title. Two comments on this section stated that SBA has not adequately 
addressed how SBA will implement the inclusion of qualified HUBZone SBCs in the 
8(d) subcontracting assistance program. SBA refers commenters to changes made 
to section 125.3 of this title, concerning SBA's 8(d) subcontracting program, 
to implement the inclusion of qualified HUBZone SBCs in this program. Changes 
to the Federal Acquisition Regulation also will need to be made to further implement 
these changes. This section remains as proposed. Section 126.103 defines terms 
that are important to the HUBZone program. SBA received comments regarding several 
of the proposed definitions. In defining some terms essential to the HUBZone program, 
the HUBZone Act of 1997 relied upon definitions provided by other federal agencies. 
This final rule cross-references those definitions for use in connection with 
the HUBZone program. HUBZone definition: The HUBZone Act defines a HUBZone as 
``a historically underutilized business zone which is in an area located within 
one or more qualified census tracts, qualified non-metropolitan counties, or lands 
within the external boundaries of an Indian reservation.'' Further, the HUBZone 
Act states that the term ``qualified census tract'' has the meaning given that 
term in Sec. 42(d)(5)(C)(ii)(I) of the Internal Revenue Code. This section of 
the Internal Revenue Code refers to the low-income housing credit program maintained 
by the Department of Housing and Urban Development (HUD). The Secretary of HUD 
designates the qualified census tracts by Notice published periodically in the 
Federal Register. These notices are titled ``Statutorily Mandated Designation 
of Qualified Census Tracts and Difficult Development Areas for Section 42 of the 
Internal Revenue Code of 1986.'' The most recent Notice may be found at 59 FR 
53518 (1994). The rule includes a cross-reference to Sec. 42(d)(5)(C)(ii)(I) of 
the Internal Revenue Code. Qualified non-metropolitan counties definition: The 
term qualified non-metropolitan counties is based on the most recent data available 
concerning median household income and unemployment rates. The Bureau of Census 
of the Department of Commerce gathers the data regarding median household income 
and the Bureau of Labor Statistics of the Department of Labor gathers the data 
regarding unemployment rates. The public can find the information from the Bureau 
of Census at any local Federal Depository Library. To find the nearest Federal 
Depository Library, call toll-free (888) 293-6498. The information from the Bureau 
of Labor Statistics is available for public inspection at the U.S. Department 
of Labor, Bureau of Labor Statistics, Division of Local Area Unemployment Statistics 
office in Washington, D.C. (the text of the rule lists the complete address). 
Again, the rule cross-references this information to provide guidance in determining 
whether or not a small business concern is located in a HUBZone. Qualified census 
tract definition: The terms qualified census tract and qualified non-metropolitan 
counties are based on statistics gathered periodically by various federal agencies. 
The census reflects changes every 10 years, while unemployment statistics are 
calculated [[Page 31897]] annually. Changes in either can generate changes in 
the areas that qualify as HUBZones--even as often as annually. Several commenters 
requested that SBA make various changes to these definitions that create HUBZones. 
Several comments stated that the definitions are unfair because communities that 
need the assistance of the HUBZone program will not get it because they do not 
fall within one of the definitions of HUBZone, especially small rural states and 
rural counties. One commenter stated that the criteria should include actual population 
and employment trends in a particular area. Another commenter stated that a definition 
based on poverty rates would be more appropriate in an inner-city community that 
does not contain low income housing. Some commenters suggested alternative definitions. 
For example, one comment suggested that SBA use Department of Commerce's Economic 
Development Administration's designation of ``Long Term Economic Deteriorated 
Areas'' as one definition of HUBZone. Two comments suggested that areas in which 
an active SBA Certified Development Company operates should be considered HUBZones. 
The definition of HUBZone is based on statutory language in the HUBZone Act of 
1997 and, therefore, SBA has no authority to modify it. The definitions remain 
as proposed. Lands within the external boundaries of an Indian reservation definition: 
The HUBZone Act of 1997 does not define ``lands within the external boundaries 
of an Indian reservation.'' For purposes of the HUBZone program, SBA proposed 
a definition of ``Indian reservation'' used in the Bureau of Indian Affairs'' 
(BIA) regulations and the rule includes a cross-reference to 25 CFR 151.2(f). 
The BIA definition of ``Indian reservation'' includes ``that area of land over 
which the tribe is recognized by the United States as having governmental jurisdiction, 
except that, in the State of Oklahoma or where there has been a final judicial 
determination that a reservation has been disestablished or diminished, Indian 
reservation means that area of land constituting the former reservation of the 
tribe as defined by the Secretary [of the Interior or authorized representative].'' 
25 CFR 151.2(f). BIA's definition of ``tribe'' includes Alaska Native entities. 
See 25 CFR 81.1(w). Indian reservation definition: Several commenters objected 
to the proposed definition of ``Indian reservation'' by reference to a Bureau 
of Indian Affairs regulation. One commenter said that using BIA's definition is 
inappropriate because it includes only federally recognized Indian tribes and 
that SBA should include in the definition state-recognized tribes and individual 
Indians residing on ``former Indian lands.'' One comment stated that the BIA definition 
should not control because it restricts the definition to lands over which the 
tribes exercise governmental jurisdiction and there are pockets of land within 
the outermost boundaries of a reservation that were allotted to individual Indians 
and therefore passed out of tribal ownership and control, creating a ``checkerboard'' 
pattern. This commenter suggested that the phrase ``lands within the external 
boundaries of an Indian reservation'' includes those pockets of land, even though 
those pockets are not considered part of the reservation itself. SBA has decided 
to keep the definition of ``Indian reservation'' as proposed. SBA believes that 
its use of a definition of ``Indian reservation'' created by the Federal agency 
responsible for Indian affairs is appropriate. SBA believes that if Congress had 
intended to include other than federally recognized Indian tribes or Indian land 
not part of an Indian reservation, Congress would have expressly stated that in 
the HUBZone Act of 1997. However, to accommodate the ``checkerboard'' pattern 
of ownership, SBA has added a definition for the term ``lands within the external 
boundaries of an Indian reservation.'' The definition states that all lands within 
the outside perimeter of an Indian reservation, whether tribally owned and governed 
or not, are included in the scope of ``lands within the external boundaries of 
an Indian reservation'' and, therefore, are in a HUBZone. Contract opportunity 
definition: SBA has redefined contract opportunity in light of several comments 
received which point out practical difficulties with the proposed rule and its 
reliance on goal achievement statistics. After further consideration of the issue, 
SBA has chosen to eliminate goaling statistics to define HUBZone contracting opportunities. 
That approach was considered impractical by procuring agencies and, therefore, 
was not likely to encourage the use of HUBZone contracting. In resolving this 
issue, SBA balanced HUBZone contracting with the stated Congressional purpose 
in the Small Business Act of maximizing 8(a) contracting, where practicable. In 
effect, SBA has replaced the three percent limitation on HUBZone set-aside contracting 
with revised provisions at Sec. 126.607 which create a priority for HUBZone firms 
which are also 8(a) participants and other 8(a) participants. No limitation on 
the amount of HUBZone contracting would then apply. This approach is also consistent 
with comments asking for a clear order of precedence regarding HUBZone contracting. 
In terms of priority, this approach would also retain consistency with the existing 
Defense Federal Acquisition Regulation Supplement. SBA anticipates that the HUBZone 
statutory goals will be readily achieved by this approach, and that there will 
now be no regulatory impediment to exceeding those goals. County definition: SBA 
has added a definition of ``county'' to make clear that county equivalents are 
considered counties for purposes of the ``non-metropolitan county'' definition 
of HUBZone. Employee definition: Two commenters suggested alternative definitions 
for ``employee.'' One stated that the proposed definition is limiting and should 
be expanded to include temporary employees. Another commenter recommended that 
SBA use the term ``full-time equivalent'' in lieu of ``employee.'' The purpose 
behind the definition as proposed was to focus on those jobs that best fulfill 
the statutory purpose of the HUBZone Act of 1997. This is why SBA specifically 
excluded temporary and leased employees and independent contractors from the definition. 
SBA also sought to encourage the maximum number of jobs by allowing companies 
to count part-time employees but only where their combined hours added up to at 
least 40 hours per week. This definition remains as proposed. HUBZone small business 
concern definition: One commenter objected that the 100 percent ownership requirement 
is too rigid. Two commenters noted that this requirement may be especially difficult 
for publicly- held corporations to meet. SBA considers that the statutory language 
in the HUBZone Act of 1997 requires that the HUBZone SBC be 100 percent owned 
and controlled by US citizens. This definition remains as proposed. HUBZone 8(a) 
concern definition: SBA has added a definition for HUBZone 8(a) concerns to provide 
guidance in applying Sec. 126.607. Principal office definition: The six comments 
received on this definition stated either that: (1) the ``principal office'' may 
change contract-by-contract for certain types of businesses with on-site contract 
performance (e.g., construction, trash removal); or (2) the term ``principal office'' 
is generally understood to mean the central headquarters or center of operations 
of the business, not where most of the businesses' employees are located. [[Page 
31898]] Suggestions for alternative definitions included ``where the company performs 
its general and administrative business functions,'' ``central headquarters or 
center of operations,'' and ``where the greatest proportion of the concern's labor 
cost is incurred.'' According to the HUBZone Act of 1997, a HUBZone SBC's principal 
office must be located in a HUBZone. SBA crafted the definition to fulfill the 
statutory purpose of hiring residents in HUBZones by encouraging businesses to 
move to or expand their business operations in a HUBZone (as opposed to just their 
headquarters, which may be where only a few employees work). As a result, SBA 
declines to accept these suggested changes. SBA acknowledges that for some types 
of businesses, their ``principal office'' may change contract by contract. However, 
this should not prevent those businesses from meeting the terms of this definition 
and participating in the HUBZone program. SBA has retained the definition as proposed. 
Reside definition: Several comments stated that it is unclear how SBA or the qualified 
HUBZone SBC will determine an employee's intent to reside in a HUBZone indefinitely. 
One commenter suggested that the criteria be more stringent than voter registration, 
noting that persons may have a voter registration in a state where they have not 
lived for some time. Another commenter stated that it will be a burden on SBA 
to check on residency and voting registration. SBA has retained the definition 
as proposed. According to the HUBZone Act of 1997, at least 35 percent of a qualified 
HUBZone SBC's employees must reside in a HUBZone. SBA's definition requires either 
of two means of indicating a permanent residence in the HUBZone (living there 
for 180 days or more or being a registered voter), along with ``intent to remain 
there indefinitely.'' SBA believes that the HUBZone SBC can readily obtain documentation 
regarding its employees' length of residency or voting registration in order to 
meet this definition. SBA also believes that a HUBZone SBC reasonably may rely 
on its employees' representation of their intent to remain in the HUBZone indefinitely. 
Section 126.200 contains the HUBZone eligibility requirements. In general, as 
described in the regulations, the company must be a small business concern; the 
company must be owned and controlled by one or more persons each of whom is a 
citizen of the United States; the principal office of the concern must be located 
in a HUBZone; at least 35 percent of the concern's employees must reside in a 
HUBZone; the concern must attempt to maintain this percentage during the performance 
of any HUBZone contract; and the concern must comply with certain contract performance 
requirements in connection with HUBZone contracts. To be counted as residing in 
the HUBZone, an employee either must be registered to vote in the HUBZone or have 
resided in the HUBZone for a period of not less than 180 days. SBA received two 
general comments on this section. One commenter recommended that large businesses 
be included in the HUBZone program in order to encourage further economic growth 
within HUBZones. SBA considers the statutory language in the HUBZone Act of 1997 
to include only small business concerns in the HUBZone program. Another commenter 
suggested that the 35-percent residency requirement will have a disproportionately 
adverse affect on smaller HUBZones which may not have an adequate pool of individuals 
residing within the HUBZone to hire as employees in order to meet the 35-percent 
requirement. SBA does not consider the statutory language in the HUBZone Act of 
1997 to allow any exception to this 35-percent requirement. As a result, SBA did 
not incorporate either of these suggestions. In addition, SBA received six comments 
suggesting that the phrase ``attempt to maintain'' the appropriate percentage 
of employees who reside in a HUBZone is not appropriate language. Commenters suggested 
that SBA should strengthen the language to make it mandatory. SBA declines to 
accept this recommendation because the phrase ``attempt to maintain'' comes directly 
from section 3(p)(5)(A)(i)(II) of the Small Business Act, as amended by section 
602(a) of the HUBZone Act of 1997. This language remains the same as in the proposed 
section. For additional clarity and to ensure consistency with section 126.304, 
SBA has inserted all of the statutory requirements into this section. Section 
126.201 describes who is considered to own a HUBZone SBC. SBA received no comments 
concerning this section and it remains as proposed. Section 126.202 explains who 
is considered to control a HUBZone SBC. SBA received no comments on this section 
and it remains as proposed. Section 126.203 states that a HUBZone SBC must meet 
SBA's size standards for its primary industry classification as defined in Part 
121 of this title. SBA asked for comments on a proposal to set a minimum size 
standard of at least 16 employees and a maximum size standard of one-half of the 
procurement assistance size standard for initial qualification only. SBA received 
22 comments addressing these issues. Minimum size standard of 16 employees: SBA 
received two comments in support of this idea and 13 comments in opposition. The 
reasons behind the opposition were primarily that the size standard would (1) 
be an unnecessary barrier to start-up businesses; (2) unduly burden rural states 
where many businesses are under 16 employees; (3) eliminate opportunities for 
businesses most likely to create new jobs; (4) negatively affect some types of 
businesses that do not carry 16 full- time employees (e.g., retailers, service 
providers); and (5) eliminate from eligibility those businesses with fewer than 
16 employees that already are located in HUBZones. One commenter noted that SBA's 
own statistics show that about 80 percent of small business concerns have fewer 
than 10 employees, so the overwhelming majority of small businesses would be excluded 
from the program under this minimum size standard. The commenter further noted 
that the impact would be even greater on minority- and women-owned concerns which 
tend to be smaller and have fewer employees. The commenter stated that the HUBZone 
statute did not give SBA discretion to add limitations to the statutory definition. 
Other commenters stated that HUBZones could benefit from businesses of any size. 
Maximum size standard at time of initial qualification of one-half of the procurement 
assistance size standard: SBA received two comments in support and five in opposition. 
One opposing commenter stated that this approach would reduce the number of contracts 
available for award to qualified HUBZone SBCs. This reduction would hinder procuring 
agencies' ability to reach the HUBZone contracting goal and reduce the benefit 
to HUBZone communities. Additionally, this commenter believed that there are certain 
industries in which most of the businesses would be over one-half of the size 
standard for that industry. The commenter observed that SBA's rationale stated 
that the HUBZone program is not a business development program so SBA should not 
be concerned with whether a firm grows out of its size standard due to receiving 
HUBZone contracts. Rather, SBA should be concerned primarily with accomplishing 
the statutory purpose of job creation and investment in HUBZones. Two commenters 
believed that providing an exception to the one-half [[Page 31899]] size standard 
for 8(a) participants and women-owned businesses (WOBs) might not survive legal 
challenge. SBA also received four comments in support of including Indian-owned 
businesses as another exception to a one-half size standard. SBA received another 
comment stating that SBA should deem Indian-owned businesses 8(a) participants 
for purposes of this program. This commenter also stated that 8(a) participants 
owned by white women or white men and WOBs owned by white women should not receive 
the benefit of this exception to the maximum one-half size standard. SBA has carefully 
considered all of these comments on this issue and has decided not to impose either 
a minimum size standard of 16 employees or a maximum one-half size standard for 
initial qualification for the program. As a result, Sec. 126.203 remains as proposed 
with regard to what size standards apply to HUBZone SBCs. Under Sec. 126.203(a), 
if SBA cannot verify that a concern is small, SBA may deny the concern status 
as a qualified HUBZone SBC or request a formal size determination from the responsible 
Government Contracting Area Director or designee. SBA received no comments on 
this section and it remains as proposed. Section 126.204 provides that qualified 
HUBZone SBCs may have affiliates so long as the affiliates are qualified HUBZone 
SBCs, 8(a) participants, or WOBs. SBA received two comments in opposition to the 
proposed rule regarding affiliation. Both commenters opposed restricting allowable 
affiliation to only specified types of SBCs. One commenter noted that there is 
no similar restriction under the 8(a) program. Another commenter suggested expanding 
allowable affiliation to include any other SBC. SBA has considered these comments 
but has declined to accept these recommendations. For the reasons stated in the 
preamble to the proposed rule, SBA continues to believe the regulation as proposed 
is appropriate. The regulation remains as proposed. Section 126.205 explains that 
WOBs, 8(a) participants, and small disadvantaged business concerns (SDBs) also 
can qualify as HUBZone SBCs if they meet the requirements set forth in this part. 
SBA received two comments on this section. One stated that the section adds nothing 
substantive. The other stated that allowing firms to qualify under more than one 
``preference'' program likely will result in higher contracting costs to the government. 
SBA believes that the HUBZone Act of 1997 does not permit excluding any other 
types of SBCs (i.e., SDBs, WOBs, 8(a) participants, etc.) from participating in 
the HUBZone program. As a result, SBA retains the section as proposed. Section 
126.206 states the conditions under which non-manufacturers can qualify as HUBZone 
SBCs. SBA received five comments concerning this section. Three stated that the 
section does not specifically require that the HUBZone SBC non-manufacturer supply 
the products of a manufacturer that is located in a HUBZone and that meets the 
employee residency requirement. Four comments stated that the term ``regular dealer'' 
is obsolete and suggested SBA use the term ``non- manufacturer'' or ``dealer'' 
instead. SBA has modified the section to state that the non-manufacturer must 
use a manufacturer that is a qualified HUBZone SBC. SBA believes this requirement 
will further enhance the impact of HUBZone contracting on job creation in HUBZones. 
Also, SBA has replaced the term ``regular dealer'' with ``non-manufacturer'' throughout 
Part 126. This term is consistent with current law and practice in government 
contracting, including Sec. 121.406(b) of this title (SBA's non-manufacturer rule). 
To show an equivalency, SBA notes in this section that the HUBZone Act of 1997 
uses the term ``regular dealer.'' Section 126.207 explains that a qualified HUBZone 
SBC may have offices or facilities located in another HUBZone or even outside 
a HUBZone. However, in order to qualify as a HUBZone SBC, the concern's principal 
office must be located in a HUBZone. SBA addresses the comments it received referring 
to this section under other sections. This section remains as proposed. Sections 
126.300 through 126.306 describe how a concern is certified as a qualified HUBZone 
SBC. Those sections explain how SBA certifies a concern for the program, when 
the certification takes place, and whether a concern can certify itself. Several 
commenters addressed the certification process as a whole. One commenter suggested 
that the mere existence of a certification process might discourage participation 
in the program. Another feared that self-certification risked fraud and abuse 
and asked SBA to specify when it would seek further information or pursue verification. 
A third commenter suggested that the period between self-certifications should 
be three years, not one year. That commenter believed that annual re- certification 
would be burdensome to the HUBZone SBCs. SBA has retained these sections essentially 
as proposed. Both the self-certification and the verification portions of the 
HUBZone program are based upon the HUBZone Act of 1997. SBA modeled its annual 
certification process on the 8(a) program where experience has demonstrated that 
waiting longer than one year postpones addressing too many significant changes 
in a concern's eligibility. A longer period would allow too many substantive changes 
to occur, whether voluntary or involuntary, without SBA's knowledge. Although 
there may be qualified HUBZone SBCs that do not experience changes in the course 
of a three- year period, SBA's program experience suggests that one year is the 
optimum period between self-certifications. Section 126.300 describes how SBA 
will certify a concern as a qualified HUBZone SBC. One comment suggested that 
SBA should not rely solely on the submitter's information and should modify its 
procedure based upon a review of various state and local empowerment programs' 
certification processes. This commenter believed that lack of verification might 
result in protests. SBA has retained the section as proposed. SBA believes that 
the application process, including an applicant's representations and SBA's ability 
to request additional information to verify those representations, along with 
the program examination process, adequately addresses the commenter's concerns. 
Section 126.301 states that only SBA may certify a qualified HUBZone SBC. Section 
126.302 prescribes when a concern may apply for certification and section 126.303 
provides the address where concerns must file their certifications. SBA received 
no comments on these sections and therefore they are retained without change. 
Section 126.304 sets forth what a concern must submit to be certified by SBA as 
a qualified HUBZone SBC. Two commenters raised concerns about the language governing 
a concern's application and submissions to SBA. The first commenter observed that 
SBA should move paragraphs (a)(4) and (a)(5) of this section (setting forth the 
``good faith efforts'' requirement to maintain the 35 percent residence standard 
and ensuring that limitations on subcontracting are met, respectively) to other 
sections. SBA has not adopted this recommendation because paragraphs (a)(4) or 
(a)(5) contain representations that the concern is required to make in the application 
process. The second [[Page 31900]] commenter was concerned with the substantive 
requirements. Those are dealt with in the discussion of Sec. 126.500 and Sec. 
126.700, respectively. SBA has revised Sec. 126.304(a) to eliminate unnecessary 
verbiage and to add a cross-reference to Sec. 126.700 for more complete details 
regarding contract performance requirements. Section 126.304(b) explains that 
if a concern is applying for certification based on a location ``within the external 
boundaries of an Indian reservation,'' it must submit official documentation from 
the Bureau of Indian Affairs Land Titles and Records Office governing their area 
that confirms that the concern is located within the external boundaries of an 
Indian reservation. This additional requirement is necessary because, although 
the qualified census tracts and qualified non-metropolitan counties are contained 
in databases available in an electronic format, the data concerning Indian reservations 
is available only through the BIA Land Titles and Records Offices, not in an electronic 
format. Consequently, concerns applying for HUBZone status based on location within 
the external boundaries of an Indian reservation must submit the additional documentation. 
SBA has added a sentence to this subsection stating that if BIA is unable to verify 
whether a business is located within the external boundaries of an Indian reservation, 
applicants should contact SBA. SBA intends to develop electronic data for lands 
within the external boundaries of an Indian reservation. If SBA succeeds in this 
effort, it may be able to eliminate this requirement in the future'. One commenter 
recommended that ``a letter signed by an official'' of BIA be required instead 
of ``official documentation from the appropriate Bureau of Indian Affairs (BIA) 
Land Titles and Records Office with jurisdiction over the concern's area * * *.'' 
The commenter suggested that the proposed provision was more complex than necessary 
and would create potential delays and hindrances for Alaska Native applicants. 
Another commenter noted that specifying a particular BIA office might create problems 
if BIA reorganized. SBA has retained the section as proposed. The section requires 
``official documentation,'' which may include a letter. BIA, in consultation with 
SBA, will decide what documentation best meets this requirement, provides efficient 
service for applicants, and protects the government against fraud and abuse. SBA 
does not expect Alaska Native applicants to encounter unusual or unexpected delays 
and hindrances in obtaining BIA approval and, therefore, has not modified the 
section. Although BIA may restructure itself, the function which that office provides 
to HUBZone applicants would be transferred to a successor office. SBA believes 
that specifying the name of the BIA office is the most accurate procedure. Another 
commenter recommended adding the Form 912 (``Statement of Personal History'') 
to the list of required items in Sec. 126.304(c). SBA declined to adopt this recommendation 
for three reasons. First, any listing of forms runs the risk of omitting others. 
Moreover, as presently worded, the subsection already requires the concern to 
``submit the forms, attachments, and any additional information required by SBA.'' 
Thus, SBA already is authorized to request any form it may deem appropriate. Finally, 
specifying a form by its number would necessitate another formal rulemaking procedure 
to modify the section in the event a form number changes. Section 126.305 explains 
the format for certifications to SBA and Sec. 126.306 describes how SBA will process 
the certifications. Section 126.307 states where SBA will maintain the List and 
Sec. 126.308 explains what a concern can do in the event SBA inadvertently omits 
a qualified HUBZone SBC from the List. SBA received no comments on any of these 
sections and therefore they remain as proposed. Section 126.309 provides a procedure 
for declined or de-certified concerns to seek certification at a later date. One 
commenter objected that the certification process lacks the procedural due process 
safeguards (rights of appeals and reconsideration) that are present in the 8(a) 
program. SBA has retained this section as proposed (except for a clarifying word) 
because a firm does not enter or depart, or participate in the HUBZone program 
in the same way it does with the 8(a) program. The 8(a) program not only helps 
program participants to obtain federal contracts but also provides ongoing support 
from SBA program staff to assist participants in their business development. There 
is a definite entry date, normally a nine-year term, and there is a termination. 
The HUBZone program merely determines a concern's eligibility to be placed on 
a list that may permit it to obtain federal contracts. There is no other SBA support 
available to HUBZone SBCs through the HUBZone program; Congress designed the program 
to foster community development, not the development of individual concerns. Four 
commenters addressed the one-year waiting period imposed on declined or decertified 
concerns. One recommended that ``reservation- based concerns'' be exempt from 
the one-year waiting period before reapplying. Another suggested that a 30-60 
day period was more appropriate. Two other commenters believed a one-year period 
might be appropriate for intentional misrepresentations or fraud but not for unintentional 
or minor technical errors. SBA will not decline applicants for technical errors 
or problems easily remedied by supplying clarifying information. Instead, SBA 
will screen out such errors and problems during the application process and will 
work with applicants who wish to overcome the errors or omissions. SBA is aware 
that difficulties might arise and Sec. 126.306(b) specifically authorizes SBA 
to request that the concern provide additional information or that it clarify 
the information contained in its submission. SBA considered the comments received 
and has decided to retain the one-year waiting period. SBA chose the one-year 
period to give HUBZone SBCs a reasonable period of time within which to make the 
changes or modifications that are necessary to enable them to qualify for the 
HUBZone program, and at the same time to allow SBA to administer the HUBZone program 
effectively with available resources. Sections 126.400 through 126.405 discuss 
program examinations, including who will conduct program exams, what the examiners 
will review, and when examinations will be conducted. In addition, these sections 
set out the action SBA may take when it cannot verify a concern's eligibility 
and what action SBA will take once it has verified a concern's eligibility. Qualified 
HUBZone SBCs have an obligation to maintain relevant documentation for six years. 
Proposed Sec. 126.401(b) required that qualified HUBZone SBCs retain all documentation 
demonstrating that it satisfied program qualifying requirements for six years. 
One commenter believed that SBA should require HUBZone concerns to maintain relevant 
documents for three years. SBA has decided to retain this section as proposed 
in order not to hinder enforcement. Many relevant statutes have statutes of limitation 
much longer than three years. Sections 126.402 and 126.403 set forth when SBA 
may conduct program examinations and state that SBA may require additional information 
from a HUBZone SBC. SBA received no [[Page 31901]] comments on these sections 
and has retained them as proposed. Section 126.404 discusses the action SBA may 
take if it is unable to verify a HUBZone SBC's eligibility. One commenter suggested 
adding language to make clear that the AA/HUB's decision on de-certification is 
final. SBA has adopted this recommendation and inserted language in Sec. 126.404(c) 
stating that the AA/Hub's decision is the final Agency decision. Although SBA 
received no comments on Sec. 126.404(b) (which governs the situation when SBA 
is unable to verify a qualified HUBZone SBC's eligibility), it added language 
to clarify the rule. Subsection (a) provides that SBA will notify the concern 
in writing that it is no longer eligible and subsection (b) granted the concern 
``10 business days to respond to the notification.'' SBA has modified subsection 
(b) to make clear that the 10-day period runs from the date the concern receives 
SBA's letter of notification. Sections 126.500 through 126.503 set forth how a 
concern maintains its qualified HUBZone SBC status; a qualified HUBZone SBC's 
ongoing obligation to SBA and the consequences for failure to uphold that obligation; 
the length of time a concern may qualify as a HUBZone SBC; and when SBA may remove 
a concern from the List. Specifically, a concern wishing to remain on the List 
must self-certify annually to SBA that it remains a qualified HUBZone SBC. This 
self-certification must take place within 30 days after each annual anniversary 
of their date of certification. One commenter pointed out that two sentences in 
Secs. 126.500 and 126.502 are inconsistent. SBA has modified the language in Secs. 
126.500(a) and 126.502 to clarify how long a concern may remain on the List. SBA 
eliminated the second sentence in Sec. 126.500(a) because it answered a question 
that is not posed in this section and there is a more complete and correct answer 
in Sec. 126.502. Section 126.500(a) only addresses a HUBZone SBCs responsibilities 
for maintaining its status whereas Sec. 126.502 speaks directly to the time limit 
for inclusion on SBA's List. SBA also corrects the cross- references listed in 
Sec. 126.502 by adding Sec. 126.200 and eliminating Sec. 126.503. Section 126.500 
states the requirements for a qualified HUBZone SBC to maintain its status. Two 
commenters objected that the proposed regulations did not adequately address the 
situation when an area that had previously qualified as a HUBZone ceases to be 
a HUBZone. Both commenters noted that the regulations do not indicate how or when 
the HUBZone SBCs in that area would be notified. One also suggested that the three-year 
grandfathering period should be extended to a five-year minimum. SBA has eliminated 
the ``grandfathering'' provision (in section 126.502) after careful reexamination. 
SBA believes that it is consistent with congressional intent to not afford HUBZone 
program benefits to concerns in a location when that location no longer meets 
the definition of ``HUBZone.'' Congress elected to tie the HUBZone definition 
to data which is well-known to be vulnerable to change. Therefore, the SBA website 
will endeavor to provide detailed statistical data to aid concerns in assessing 
the likelihood of a change in designation in the future. In the proposed rule, 
Sec. 126.600 through 126.616 explained the general conditions applicable to HUBZone 
contracts. Based on the comments received regarding these sections, SBA has revised 
some of these regulations. Section 126.600 states that HUBZone contracts are contracts 
awarded to a qualified HUBZone SBC through sole source awards, set-aside awards 
based on competition restricted to qualified HUBZone SBCs, or awards to qualified 
HUBZone SBCs through full and open competition after a price evaluation preference 
in favor of qualified HUBZone SBCs. SBA received no comments on this section; 
therefore, the section remains as proposed. Section 126.601 provides the additional 
requirements that a qualified HUBZone SBC must meet in order to bid on a HUBZone 
contract. SBA received comments with different views on this section. Two commenters 
suggested that SBA does not have the authority to require a certification to the 
contracting officer in order to bid on a HUBZone contract. Additionally, the commenters 
observed that the certifications required appear contrary to Sec. 4301, ``Elimination 
of Certain Certification Requirements,'' in the Clinger-Cohen Act of 1996. The 
HUBZone Act of 1997 gives the Administrator the authority to establish appropriate 
certification procedures by regulation. Furthermore, the Clinger-Cohen Act of 
1996 eliminated certain, but not all, certifications and none of those eliminated 
relate to small business concerns. Finally, the certifications required by this 
section are consistent with other SBA programs for federal contracting assistance 
(8(a), SDB, and WOB). One commenter was concerned that Sec. 126.601(c) implies 
that each party to a HUBZone joint venture must itself be a qualified HUBZone 
SBC. This is not the case. As stated in Sec. 126.616(a), a qualified HUBZone SBC 
may enter into a joint venture with one or more other qualified HUBZone SBCs, 
8(a) participants, or women-owned businesses, for the purpose of performing a 
specific HUBZone contract. Section 126.601(c) simply requires that each qualified 
HUBZone SBC that is a party to a joint venture make the applicable certifications 
separately. The List includes the names of individual concerns that SBA has certified 
as qualified HUBZone SBCs--not joint ventures. In order for the contracting officer 
to ensure that each qualified HUBZone SBC that is a party to the joint venture 
is on the List, each concern must certify under its own name. Finally, one commenter 
suggested that manufacturers that will provide a product to non-manufacturers 
and meet the requirements of Sec. 126.601(d) should be on the List of Qualified 
HUBZone SBCs. SBA has changed this section to specify that manufacturers must 
also be qualified HUBZone SBCs. Consequently, such firms are listed. Section 126.602 
clarifies that a qualified HUBZone SBC must ``attempt to maintain'' the employee 
residency percentage during performance of any HUBZone contract. SBA received 
a comment stating that the limitation originally listed in Sec. 126.602(b) also 
is listed in Sec. 126.700, but the other subcontracting limitations listed in 
Sec. 126.700 are not listed here. Additionally, numerous commenters challenged 
the authority and the ability of contracting officers to effectively monitor and 
enforce the requirements in proposed Sec. 126.602 (a) and (b). Proposed Sec. 126.602(c) 
set forth that requirement. Many comments indicated that SBA is in a better position 
than the contracting officer to monitor and enforce these requirements. Further, 
requiring the contracting officer to enforce these requirements is inconsistent 
with other SBA programs (including 8(a) and small business set-asides). After 
considering these comments, SBA has revised this section to provide that enforcement 
of Sec. 126.602 will be the responsibility of SBA and SBA will monitor compliance 
in accordance with Secs. 126.400- 126.505 of this title. Violations of Sec. 126.700 
may be grounds for termination of the contract at the election of the contracting 
officer. The contracting officer's responsibility can generally be met by obtaining 
an appropriate representation from the potential awardee. SBA will propose modifications 
to the FAR that will add this requirement as a new contract [[Page 31902]] clause, 
making it a requirement of contract performance. As revised, this section is consistent 
with other SBA programs. SBA has further revised this section by eliminating proposed 
Sec. 126.602(c). Section 126.603 states that HUBZone certification does not guarantee 
receipt of HUBZone contracts. SBA received no comments on this section; therefore, 
it remains as proposed. Section 126.604 provides that the contracting officer 
determines whether a HUBZone contract opportunity exists. Two commenters suggested 
that SBA revise this section to add that the contacting officer will make this 
decision with the advice and recommendation of the procuring agency's Director, 
Office of Small and Disadvantaged Business Utilization and either the agency's 
small business technical advisor or SBA's procurement center representative (PCR). 
Existing provisions of the FAR already require the contracting officer to work 
with those individuals, consequently, this section remains as proposed. One commenter 
expressed concern that such decisions by the contracting officers should be tracked 
for the first two years of program implementation. SBA will track the number and 
dollar amounts of contracts awarded to qualified HUBZone SBCs for the duration 
of the program. Additionally, as discussed further in connection with Sec. 126.611, 
if a contracting officer receives a recommendation from SBA's PCR and decides 
not to make an award to a qualified HUBZone SBC either on a HUBZone sole source 
or set-aside basis, the contracting officer must notify SBA's PCR or the AA/HUB, 
and ultimately the Administrator may appeal the contracting officer's decision. 
Section 126.605 lists those requirements which are not available as HUBZone contracts. 
One commenter recommended that SBA amend Sec. 126.605 to exclude all acquisitions 
at or under the simplified acquisition threshold including all procurements with 
an estimated value under $2,500 (micro-purchases). SBA does not agree completely 
with this suggestion. SBA has reconsidered the proposed exclusion as to requirements 
between $2,500 and $100,000. SBA now believes, after further review, that only 
contracting actions below the micropurchase threshold should not be available 
for HUBZone set-aside procedures because to include them would be impractical 
and would likely cause no meaningful impact in terms of job creation. Moreover, 
it would discourage the use of purchase cards to make small purchases. This does 
not mean that HUBZone firms could not provide goods and services at the micropurchase 
level, only that their HUBZone status would be incidental to the contracting action. 
Additionally, SBA has determined that the proposed exclusion of contracts above 
$2,500 and at or below $100,000 should be changed. SBA believes these contracts 
represent too significant a block of potential HUBZone contracting actions to 
exclude them from the program. At the same time, SBA is mindful of the significant 
benefits of simplified acquisition procedures which also include a reservation 
for small business. Accordingly, the final rule does not exclude contracts above 
the micropurchase threshold and below the simplified acquisition threshold, but 
makes the use of HUBZone contracting optional for such contracts. Revised Sec. 
126.608 makes this clear. Two commenters recommended that small business set-asides 
be excluded from HUBZone contracts. SBA declines to accept this recommendation 
since a very significant segment of government contracting requirements would 
be lost to HUBZones. As indicated, only contracts below the micropurchase threshold 
have been excluded in the final rule. Finally, one commenter asked what the effect 
of the HUBZone program would be on the Small Business Competitiveness Demonstration 
program. SBA has reviewed this issue and has decided to include requirements which 
fall within the Small Business Competitiveness Demonstration Program in Sec. 126.605. 
Exclusion of such procurements from the HUBZone program would result in a significant 
loss of contract requirements in many labor intensive industries, including construction, 
refuse collection and non-nuclear ship repair. SBA has retained Sec. 126.605 (a) 
and (b) as proposed, amended subsection (c) to exclude contracts below the micropurchase 
threshold, and deleted Sec. 126.605(d) as no longer necessary in light of the 
changed definition of contract opportunity in Sec. 126.103. Section 126.606 states 
that a contracting officer may request that SBA release an 8(a) requirement for 
award as a HUBZone contract. SBA will release only where neither the incumbent 
nor any other 8(a) participant can perform the requirement and where the 8(a) 
program will not be adversely affected. One commenter suggested that SBA release 
an 8(a) requirement if a HUBZone SBC can perform the work as an 8(a) participant 
would. SBA believes such a modification would adversely affect the 8(a) program. 
Furthermore, the legislative history includes numerous statements of congressional 
intent indicating that the HUBZone program should not adversely affect the 8(a) 
program. SBA declines to accept this recommendation and this section is retained 
as proposed. Section 126.607 describes when a contracting officer must set aside 
a requirement for qualified HUBZone SBCs. SBA has changed the heading for Sec. 
126.607 to now apply more generally to HUBZone contracting. For the reasons discussed 
above in connection with the changes to the ``contract opportunity'' definition, 
this section now establishes a priority first for qualified HUBZone 8(a) concerns 
and then other 8(a) concerns. After these preferences, the contracting officer 
must use a HUBZone set-aside competition when possible. Section 126.607 has been 
revised to accomplish these changes, while preserving the guidance to contracting 
officers with respect to consulting SBA's List of Qualified HUBZone SBCs to locate 
at least two such firms which are likely to compete. One commenter suggested that 
SBA add the term ``responsible'' before ``qualified HUBZone SBCs'' in subsection 
(c)(1) (proposed subsection (a)(1)). The comment describes this as a ``vital element.'' 
The HUBZone Act of 1997 does not include the term ``responsible'' in the applicable 
provision. However, SBA agrees that responsibility is a vital element in the contracting 
officer's decision and has revised the section to include the term. SBA has eliminated 
the proposed Sec. 126.608 and has created a new Sec. 126.608 to address commenters' 
concerns with respect to Simplified Acquisition Threshold procedures. As indicated 
above, the new Sec. 126.608 clarifies that Simplified Acquisition Threshold procedures 
can be used for HUBZone contracting. SBA eliminated the proposed Sec. 126.608 
because it was merely restating general procurement practices. SBA did not intend 
to create special rules to be followed in the HUBZone context where a competition 
results in only one or no acceptable offer received. Section 126.609 now explains 
what the contracting officer must do if a contracting opportunity does not exist 
for competition among qualified HUBZone SBCs. SBA has clarified this section. 
Section 126.609 now refers specifically to Sec. 126.607, and provides guidance 
to contracting officers if a contract opportunity does not exist for competition 
among qualified HUBZone SBCs. SBA received numerous [[Page 31903]] comments on 
the issue of order of precedence generally. Sixteen commenters stated that SBA 
exceeded its authority in proposed Secs. 126.608 and 126.609 by creating an order 
of precedence among SBA programs and directing the contracting officer to make 
certain types of awards (either sole source or full and open competition). The 
commenters also stated that the two provisions are ``confusing,'' ``contradictory,'' 
and ``inconsistent.'' However, many of the commenters stated that SBA has the 
authority to create an order of precedence within SBA programs, but the implementation 
of any such order should be left to the FAR. One commenter endorsed the order 
of precedence as proposed and another commenter suggested a priority for 8(a). 
SBA believes that it is within its authority to create an order of precedence 
among SBA's programs; therefore SBA has made the order of precedence in this rule 
mandatory. However, SBA agrees that the procurement methods a contracting officer 
uses in other respects should be left to the contracting officer in accordance 
with existing procedures set out in the FAR. As indicated, Sec. 126.608 has been 
eliminated in its proposed form. SBA has revised Sec. 126.609 to be consistent 
with that approach. SBA has revised Sec. 126.609 to make the order of precedence 
mandatory. In light of revisions to Sec. 126.607, that section is now simply referred 
to, and the remaining priorities are identified in Sec. 126.609. Section 126.610 
states that SBA may appeal a contracting officer's decision not to reserve a procurement 
for award as a HUBZone contract. One commenter recommended that SBA expand this 
right of appeal to include contracting officer decisions that adversely affect 
8(a) participants. However, the right of the Administrator to appeal the contracting 
officer's decision not to reserve a requirement for award as a HUBZone contract 
is the only appeal right provided by the HUBZone Act of 1997. Thus, the text remains 
as proposed. Section 126.611 describes the process for SBA's appeal of a contracting 
officer's decision not to reserve a procurement for award as a HUBZone contract. 
One commenter indicated that this section did not clearly identify when a contracting 
officer must notify SBA of such a decision. Also, five commenters suggested that 
requiring the contracting officers to notify SBA every time they decided not to 
reserve a procurement for award as a HUBZone contract imposes a ``significant 
administrative burden'' on the procurement process and on contracting officers. 
One commenter suggested including the HUBZone notification requirement in the 
documentation reviewed by SBA's PCR. The commenter felt that if an acquisition 
is not reviewed by a PCR, a separate HUBZone notification should not be required. 
Another commenter suggested that the contracting officer should notify the PCR 
only if she or he decides not to set aside a contract opportunity. Presently, 
both the FAR and Sec. 125.2 of this title discuss the process by which the contracting 
officer notifies SBA of such decisions in other small business set-aside programs. 
SBA has modified slightly subsection 126.611(a). It now provides that the contracting 
officer must notify the SBA's PCR of a decision not to reserve a procurement for 
award as a HUBZone contract when the contracting officer rejects a PCR's recommendation 
to make a requirement available. As previously proposed, if SBA intends to appeal 
the decision, SBA must notify the contracting officer within five days of receipt 
of the notification. SBA expects this notification to be in accordance with the 
procedures that presently exist in the FAR and 13 CFR 125.2. Sections 126.611(b), 
(c) and (d) are unchanged. Section 126.612 states when a contracting officer may 
award a sole source contract to a qualified HUBZone SBC. One comment suggested 
that SBA add a new paragraph to this section to provide that where unemployment 
exceeds 20 percent on an Indian reservation, the anticipated contract award price 
limits in subsections (b)(1) and (2) do not apply. Three other commenters argued 
that the limits in subsections (b)(1) and (2) should not apply to Indian reservation-based 
businesses. The limitations on sole source requirements set out in subsections 
(b)(1) and (2) of this section are taken directly from section 31(b)(2)(A) of 
the Small Business Act, as amended by section 602(b)(1) of the HUBZone Act of 
1997. The statute did not include any exceptions to these limitations. Consequently, 
SBA does not have the authority to provide such an exception. Section 126.612 
remains essentially as proposed (there are some minor clarifying word changes). 
SBA received 18 comments addressing proposed Secs. 126.613 and 126.614. The comments 
focused on two issues: (1) SBA's interpretation of the HUBZone price evaluation 
preference as flawed, and (2) whether concerns should be allowed to take advantage 
of ``dual status'' (HUBZone SBC and SDB). Proposed Sec. 126.613 explains how the 
HUBZone price evaluation preference affects the bid of a qualified HUBZone SBC 
in full and open competition. In a full and open competition, a contracting officer 
must deem the price offered by a qualified HUBZone SBC to be lower than the price 
offered by another offeror (other than another small business concern) if the 
price offered by the qualified HUBZone SBC is not more than 10 percent higher 
than the price offered by the otherwise lowest, responsive, and responsible offeror. 
This section includes an example of the application of the HUBZone price evaluation 
preference. The example has been revised to make it more clear that the preference 
applies to benefit HUBZone SBCs only where the HUBZone SBC would receive the award. 
The comments regarding the HUBZone price evaluation preference suggested that 
according to the HUBZone Act of 1997, the preference should never displace the 
offer of another small business concern. Commenters suggested that in the example 
included in this section, the small business concern submitting the $100 offer 
should receive the award. In other words, the HUBZone price evaluation preference 
should do no more than eliminate the lowest, responsive, responsible offeror that 
is a large business, leaving the small business concern as the new lowest, responsive, 
responsible offeror which would receive the award. One commenter suggested using 
the term ``apparent successful offeror'' instead of ``lowest, responsive, and 
responsible offeror.'' Responsibility is determined later in the acquisition process 
and not at the time the offers are evaluated. SBA did not change the term. The 
term ``lowest, responsive, and responsible offeror'' is taken directly from the 
statute. SBA does not interpret section 31(b)(3) of the Small Business Act, as 
amended by section 602(b) of the HUBZone Act of 1997, in this way. SBA interprets 
this statutory language to require that the lowest offer from a qualified HUBZone 
SBC displace the lowest, responsive, responsible offeror that is a large business, 
and replace that offeror with that HUBZone SBC. This would result in the HUBZone 
SBC receiving the award, in the example included in this section of the rule. 
SBA does not agree that a small business concern that is not a qualified HUBZone 
SBC can benefit from the HUBZone price evaluation preference. SBA believes that 
this result is contrary to the intent and goals of the HUBZone program. [[Page 
31904]] Proposed Sec. 126.614 described how a contracting officer must apply both 
HUBZone and SDB price evaluation preferences in a full and open competition in 
some detail and with an example. The comments SBA received on this section generally 
agreed that SBA's ``methodology is flawed'' and that the proposed application 
would result in an award to a qualified HUBZone/SDB at a ``differential above 
20 percent.'' Two comments suggested that statutory authority does not allow payment 
of differentials above 20 percent. Commenters also stated that SBA's methodology 
does not take into account exceptions to the application of the SDB price evaluation 
preference (e.g., otherwise successful offers of eligible products under the Trade 
Agreements Act when the acquisition meets or exceeds a certain dollar threshold). 
The consensus of the commenters concerned with process was that SBA regulations 
should contain a broad policy statement regarding the HUBZone price evaluation 
preference and SBA should leave the actual implementation to the FAR. In addition, 
SBA also received numerous comments dealing with the substance of the issue and 
whether dual status should be permitted at all. There were four in favor of allowing 
dual status and seven against. The comments in favor stated that dual status will 
encourage more minority-owned concerns to compete for federal contracts in HUBZones 
and create jobs; will assist SDBs in competing against qualified HUBZone SBCs; 
and would avoid harm to the SDB program. The opposing comments stated that concerns 
should be required to select one status or the other at the time they submit their 
offer on a contract because the application of multiple preferences is too confusing; 
would not work with negotiated procurements; would make it extremely difficult 
for a contracting officer to declare a price to be fair and reasonable; and would 
provide an unfair competitive advantage in favor of the ``dual status'' concerns. 
SBA has considered these comments carefully and has decided not to change its 
position in the final rule. As a result, SBA has eliminated proposed Sec. 126.614 
from the final rule. Nothing in the HUBZone Act requires that the HUBZone program 
displace a contracting activity's authority or responsibilities regarding any 
other programs designed to promote the development of small, small disadvantaged, 
or women-owned small businesses. Therefore, SBA has implemented the HUBZone program 
in such a way that any preference a concern receives under this program must be 
added to the preference it may receive pursuant to other statutory or regulatory 
programs. However, SBA has decided not to prescribe how a contracting officer 
must apply the two types of preferences in a full and open competition, leaving 
the mechanics for implementation in the FAR. As a result, SBA has revised Sec. 
126.614 to merely state the principle that firms which are both qualified HUBZone 
SBCs and SDBs must receive the benefit of both. Section 126.615 states that a 
large business may not participate as a prime contractor on a HUBZone contract 
but may participate as a subcontractor to an otherwise qualified HUBZone SBC. 
SBA received no comments on this section and it remains as proposed. Section 126.616 
describes the circumstances in which a contracting officer may award a HUBZone 
contract to a joint venture. This section also explains that a qualified HUBZone 
SBC may enter into a joint venture with one or more qualified HUBZone SBCs, 8(a) 
participants, or WOBs for the purpose of performing a specific HUBZone contract. 
One commenter argued that SBA should allow qualified HUBZone SBCs to joint venture 
with large businesses because the ability to joint venture with ``big business'' 
will bring jobs to HUBZones more rapidly. SBA declines to accept this recommendation 
because the HUBZone program is intended to provide contracting assistance to small, 
not large, business. If qualified HUBZone SBCs joint venture with large businesses, 
then the benefits of the program would flow to large businesses in addition to 
small. Additionally, SBA has found that in recent history small businesses create 
more jobs annually than large businesses. Thus, SBA has not modified this section 
in the final rule. In the proposed rule, SBA specifically requested comments on 
whether HUBZone contract opportunities should be limited to certain types of contracts. 
For example, should HUBZone contracts only be available for industries that are 
considered ``labor intensive''? Three commenters specifically addressed the issue. 
One commenter stated that, based on the intention of the program (creating jobs 
in HUBZones), restricting the types of contracts to labor intensive industries 
would be reasonable and would ensure that the HUBZone program is targeted at contracts 
with the greatest potential for creating jobs. However, the other commenters adamantly 
opposed the idea. These commenters argued that such a limitation would exclude 
participation by small business concerns that Congress intended to include in 
the program. Further, the commenters stated that there appears to be no statutory 
justification for imposing any limit on the types of industries involved in the 
program. Finally, the commenters noted that the term ``labor intensive'' is subjective 
and such a limitation would be problematic both in administration of the program 
and enforcement. As a result, SBA has not included any such limitation in the 
final rule. SBA also asked commenters to discuss whether HUBZone contract opportunities 
should be limited to those not now awarded to SBCs and to make suggestions for 
ways in which HUBZone implementation can better help government contracting activities 
meet their SDB and WOB goals. SBA received no comments specifically addressing 
these issues. SBA has retained Secs. 126.700 through 127.703, as proposed. SBA 
received four comments on Sec. 126.700 which addressed the amount of subcontracting 
that is allowed by general construction and special trade contractors. Specifically, 
three commenters questioned the provisions in the proposed rule that requires 
general construction firms to spend at least 15 percent of the cost of contract 
performance for personnel on the concern's employees or the employees of other 
qualified HUBZone SBCs. Special trade contractors have the same requirement except 
that their performance percentage is 25 percent. Although these percentages are 
less than the standards applied for servicing and manufacturing firms, these standards 
represent conventional industry practices and, therefore, remain unchanged. One 
commenter proposed that large firms be authorized to perform up to 75 percent 
of manufacturing as a subcontractor on contracts that are performed on Indian 
reservations. This proposal is inconsistent with the clear language of the HUBZone 
legislation which states that not less than 50 percent of the cost of manufacturing 
supplies (not including the cost of materials) will be incurred in connection 
with the performance of the contract in a HUBZone by one or more HUBZone small 
business concerns. Section 126.702 provides a process by which representatives 
of national trade or industry groups may request a change in subcontracting percentage 
for specific industry groups (as defined by two-digit major group industry codes). 
One commenter suggested that SBA revise [[Page 31905]] Sec. 126.702 to permit 
individual businesses to request changes in the subcontracting percentage limitations. 
SBA declines to accept this recommendation. SBA wants to insure that such requests 
reflect the views of a large number of businesses before invoking the procedures 
for changing the percentages. SBA received no comments regarding proposed Secs. 
126.701 and 126.703; however, as stated above, SBA has eliminated the subcontracting 
percentage and has modified these sections accordingly. Section 126.800 addresses 
protests relating to a small business concern's HUBZone status. This section explains 
who may file a protest; what the protest must contain; how and where a protest 
must be filed; who decides the protest; and what appeal rights are available. 
One commenter recommended that the SDB language in the 8(a) program should be 
applied to the HUBZone program to forestall frivolous protests under Sec. 126.800. 
SBA has declined to accept this recommendation as unnecessary. Although the SDB 
and the HUBZone provisions in this title are organized differently, there is little 
substantive difference between them. Section 126.800(b) permits any ``interested 
party'' to protest a HUBZone SBC's status. As defined in Sec. 126.103, an ``interested 
party'' may be any of the same three entities which are listed in Sec. 124.603, 
the SDB provision. Although expressed differently, the effect of the two provisions 
is the same. The difference between the SDB and HUBZone procedures lies in the 
fact that the HUBZone regulations separate out sole source procurements for different 
treatment. HUBZone regulations permit only the SBA or the contracting officer 
to file protests in those cases. The SDB protest procedures do not do so because 
there are no SDB sole source contracts. Three commenters urged that the protest 
procedures set forth in Sec. 126.800 should permit any small business that is 
prevented from competing for a sole source contract to protest the proposed awardee's 
qualified HUBZone status. (SBA changed ``apparent successful offeror'' to ``proposed 
awardee'' to more accurately reflect the fact that there is no competition in 
a sole source procurement.) SBA has retained the section as proposed. Third parties 
may not protest a sole source award because they have no stake in the contract, 
or ``standing.'' In other types of procurements, a competitor who protests an 
award may have standing to get the award if its protest is successful. In sole 
source procurements, however, there are no ``competitors'' because of the nature 
of the procurement. Although other concerns may not ``protest'' an award, they 
may notify SBA if they have information that a HUBZone SBC is not qualified for 
any reason. SBA, in its sole discretion, may pursue a program examination of that 
concern pursuant to Sec. 126.402. Although that course of action might not halt 
an award, third parties with pertinent information about a proposed awardee also 
are encouraged to notify the contracting officer or SBA directly to urge that 
a formal protest be filed. Section 126.801 sets forth the procedure for submitting 
a protest of a HUBZone SBC's status. Three commenters asked whether a protestor 
may combine concurrent size and status protests in a single letter and rely upon 
SBA to divide up the protests procedurally. SBA has added a phrase to make clear 
that existing size regulations require a protestor to file a size protest with 
the contracting officer. Protestors must direct protests relating to HUBZone status 
to SBA. One commenter suggested replacing the phrase ``unsuccessful offeror'' 
in Sec. 126.801(c)(1) with the phrase ``interested party'' to conform to the language 
used in Sec. 126.800. SBA accepts this recommendation and makes this change. SBA 
notes that Sec. 126.800(b) authorizes ``any interested party'' to protest the 
status of a qualified HUBZone SBC. SBA believes it is internally consistent as 
well as substantively correct to change ``unsuccessful offeror'' to ``interested 
party'' in Sec. 126.801(c)(1). Section 126.802 states who decides a HUBZone status 
protest. SBA received no comments on this section and has decided to keep the 
section as proposed. SBA received one comment on Sec. 126.803, which explains 
SBA's processing of protests. The commenter suggested that SBA define ``public 
interest'' and that the award decision should be made, or approved, at a higher 
level than contracting officer. SBA based this section on the FAR (Secs. 12.302(h)(1) 
and 19.505(f)) and it is consistent with the recently proposed SDB protest procedures. 
As a result, SBA declines to accept this recommendation. Section 126.804 notes 
that SBA will decide all protests not otherwise dismissed and Sec. 126.805 sets 
forth the appeal rights that are available. SBA received no comments on either 
of these sections and has retained them as proposed. Section 126.900 prescribes 
the penalties applicable under the HUBZone program including procurement and non-procurement 
suspension or debarment, as well as applicable civil and criminal penalties. SBA 
received one comment which observed that HUBZone SBCs would not be penalized under 
Sec. 126.900 during the year they are certified. This commenter stated further 
that SBA appeared to have no ability to halt contract performance by a HUBZone 
SBC losing its certification during the year. SBA has retained the section as 
proposed. This section allows the imposition of substantial penalties on a concern 
at any time that SBA discovers the concern has made misrepresentations about its 
status as a qualified HUBZone SBC. In addition, SBA has authority to notify a 
contracting agency that a HUBZone SBC is no longer qualified but SBA does not 
have authority to require that agency to terminate the contract. Contract termination 
(whether for convenience or default) is governed by the FAR. Compliance With Executive 
Orders 12612, 12778, and 12866, the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.), and the Paperwork Reduction Act (44 U.S.C. Ch. 35) SBA certifies that this 
rule is a major rule within the meaning of Executive Order 12866, and has 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. SBA submits the following 
economic analysis prepared pursuant to Executive Order 12866 and Initial Regulatory 
Flexibility Analysis (IRFA) prepared pursuant to the Regulatory Flexibility Act. 
In making its determination that this rule is a major rule and has a significant 
economic impact on a substantial number of small entities, SBA used the definition 
of small business set forth in 13 CFR Part 121. The HUBZone Act of 1997, Title 
VI of Public Law 105-135, 111 Stat. 2592 (December 2, 1997), creates the HUBZone 
program and directs the Administrator of SBA to promulgate regulations to implement 
it. The rule sets forth the program requirements for qualification as a HUBZone 
SBC, the federal contracting assistance available to qualified HUBZone SBCs, and 
other aspects of this program. The HUBZone program will benefit SBCs by increasing 
the number of federal government contracts awarded to them. There is a statutory 
requirement that HUBZone SBCs receive three percent of contract dollars. SBA received 
no additional information from the public during the comment period on the impact 
of the proposed rule on all small businesses. The [[Page 31906]] program also 
will benefit HUBZone communities by providing much needed jobs and investment 
in those communities. Prior to submitting an offer on a HUBZone contract, an interested 
small business must apply to SBA for certification as a qualified HUBZone SBC. 
The concern must submit information relating to its eligibility for the program, 
including supporting documentation. Once a concern is certified as a qualified 
HUBZone SBC, it must self-certify annually to SBA that there has been no material 
change in its circumstances that would affect eligibility. The information required 
for certification consists of general information about the business. The Paperwork 
Reduction Act aspect of this certification is that each concern will be able to 
complete the certification application in one hour or less. The HUBZone program 
is different from existing government contracting programs because it focuses 
on job creation in high unemployment and poverty-level communities. Commenters 
requested that SBA discuss the impact of the HUBZone program on other contracting/ 
procurement assistance programs. One commenter specifically raised the issue of 
the interaction between the HUBZone program and the previously proposed Empowerment 
Contracting program by the Department of Commerce in May 1997. The Department 
of Commerce did not and will not publish a final rule which would implement the 
empowerment contracting program. Two commenters raised the issue of the competition 
between HUBZone concerns and 8(a) participants owned by Community Development 
Companies. These 8(a) participants will be treated as any other 8(a) participant. 
The small entities affected by this rule are those who fit within the definition 
of a small business concern as defined by SBA in 13 CFR part 121 and new part 
126 and who participate in government contracting. Because the program is new, 
SBA cannot estimate precisely the number or classes of small entities that this 
rule will affect. However, as explained below, SBA estimates that more than 30,000 
SBCs will apply for certification as qualified HUBZone SBCs. Based on 1992 census 
data and making reasonable extrapolations to account for growth in recent years, 
SBA estimates that there are approximately five million businesses with employees 
in the United States; of this number, approximately 4.9 million--or 98 percent--are 
considered small. Clearly, not all of the businesses who are considered small 
seek to participate in federal government contracting or will seek to participate 
in the HUBZone program. Currently, there are approximately 170,000 SBCs registered 
on PRO-Net, SBA's database of SBCs actively seeking federal government contracts. 
While PRO-Net is not a perfect measure of businesses that may be interested in 
contracting with the government, it is the most accurate measure currently available 
to SBA. The number of entities that seek certification as qualified HUBZone SBCs 
will depend, first, on the number of businesses located in HUBZones. The potential 
number of HUBZones is significant. Based on the data available, there are approximately 
61,000 census tracts in the United States; of those tracts, about 7,000--or 11 
percent--are qualified census tracts for purposes of the HUBZone program. In addition, 
there are approximately 3,000 non-metropolitan counties in the United States; 
of those counties, about 900--or 30 percent--are qualified non-metropolitan counties 
for purposes of the HUBZone program. SBA believes that there are 310 Indian reservations 
and 217 Alaska Native villages. Based on combining the qualified census tract 
and qualified non-metropolitan county data, SBA estimates that approximately 12 
percent of the census tracts and non-metropolitan counties in the United States 
will qualify as HUBZones. If all small businesses interested in Federal procurement 
were evenly distributed geographically, then approximately 12 percent of the 170,000 
SBCs registered on PRO-Net--or 20,000--would be located in HUBZones. However, 
SBA believes that a much higher number of small business are located in qualified 
census tracts than in qualified non- metropolitan counties; therefore, SBA adjusts 
this number upward and estimates that 25,000 SBCs (or 15 percent of all SBCs) 
will be both interested in Federal procurement and located in HUBZones. However, 
as stated above, the number of concerns registered on PRO-Net may not reflect 
the entire universe of small businesses that are interested in contracting with 
the government. The incentives available through participation in the program 
could, moreover, result in additional SBCs relocating to HUBZone areas. SBA is 
unable to predict the impact of this factor on the total number of qualified HUBZone 
SBCs, but estimates that roughly 30,000 concerns that are either now HUBZone SBCs 
or will become HUBZone SBCs as a result of these incentive effects will apply 
for certification. As discussed above, these 30,000 HUBZone SBCs will be spread 
over about 7000 census tracts, about 900 non-metropolitan counties, 310 Indian 
reservations and 217 Alaska Native villages. Because the HUBZone program is new, 
SBA also cannot estimate precisely the economic impact the rule may have on the 
economy. According to the Congressional Budget Office (CBO), in 1996 the federal 
agencies specified in the HUBZone Act contracted for more than 90 percent of all 
federal procurement obligations. (143 Cong. Rec. S8976 (daily ed. September 9, 
1997)). In FY 1996, the federal government spent $197.6 billion on the procurement 
of goods and services. The government awarded small businesses $41.1 billion in 
direct contract actions--21 percent of the total $197.6 billion in federal procurement. 
The HUBZone Act of 1997 amends the Small Business Act to increase the Government-wide 
federal contracting goal for SBCs from 20 percent to 23 percent of all federal 
prime contracts. In addition, the HUBZone Act sets the government contracting 
goal for HUBZone SBCs initially at one percent of all federal prime contracts 
with a gradual increase to three percent by the year 2003. Thus, by 2003, assuming 
the participating agencies reach the three percent contracting goal, HUBZone SBCs 
may be awarded approximately $6 billion in federal contract actions (three percent 
of the approximately $200 billion procurement budget). Contracts for the purchase 
of Federal Government goods and services under the HUBZone program would operate 
in the following three ways: (1) a contract award to a qualified HUBZone small 
business concern can be made by a procuring agency if a contracting opportunity 
exists and it determines that two or more qualified HUBZone small business concerns 
will submit offers for the contract and the award can be made at a fair market 
price; (2) consistent with other criteria, a contracting officer can award a sole 
source contract to a qualified HUBZone small business concern if it submits a 
reasonable and responsive offer and is determined by the appropriate agency contracting 
officer to be a responsible contractor. Sole-source contracts cannot exceed $5 
million for manufacturing contracts and $3 million for all other contract opportunities; 
and (3) a 10 percent Price Evaluation Preference in full and open competition 
can be made on behalf of the Qualified HUBZone small business concern if its offer 
is not more than 10 percent higher than the other offeror, so long as it is not 
a small business concern. [[Page 31907]] In addition to the procurement contract 
awards available to qualified HUBZone concerns, the HUBZone program will have 
other effects on the economy including the possibility of increased costs to the 
government. CBO anticipates that implementation of the HUBZone program will increase 
the incidence of sole source contracting. According to CBO, about 19 percent of 
federal procurement is awarded through sole source contracts. It is not possible 
to project any increase in sole source awards at this time, and there might not 
be any increase in sole source awards at all. Instead, qualified HUBZone SBCs 
might receive sole source awards that would otherwise go to large businesses or 
other small businesses. CBO also estimates that implementing the HUBZone program 
would significantly increase discretionary spending for the federal agencies affected 
by the program. According to CBO, ``[s]uch costs could total tens of millions 
of dollars each year, but CBO cannot estimate such costs precisely.'' (143 Cong. 
Rec. S8976 (daily ed. September 9, 1997)). CBO anticipated that these additional 
costs would stem from both additional administrative responsibilities for SBA 
and other federal agencies, as well as the likely increased use of sole source 
contracting. SBA is not in a position to shed much additional light on this subject. 
SBA has received an appropriation of $2 million in FY 1998 to begin implementing 
the program and has requested $4 million for FY 1999. No other cost information 
is available at the present time. Assessing whether the government will have a 
net cost from this program is very subjective. It is at least possible that increased 
competition from HUBZone SBCs will cause competing concerns to lower prices thereby 
reducing government procurement costs (perhaps substantially). While it is at 
least possible that increased competition from HUBZone SBCs will cause competing 
concerns, it is useful to perform an informal sensitivity analysis on the possible 
implications for increased Federal Government contracting costs that derive from 
the description of contracting procedures under the HUBZone program. Calculations 
here assume that the program is fully in effect in the year 2003 and that HUBZone 
contracts are at the level (from above) of $6 billion. If all HUBZone contracts 
are awarded to qualified HUBZone SBCs in competitions in which two or more qualified 
HUBZone SBCs submit offers and the award is made at a fair market price, then 
the additional cost to the Federal Government could be close to zero. But, as 
noted above, there are expected to be about 30,000 HUBZone SBCs competing for 
contracts and they are expected to be spread over about 7000 census tracts and 
about 900 non-metropolitan counties, so the likelihood of this always happening 
is not large. The second possibility is that all HUBZone contracts would be awarded 
as sole source contracts to qualified HUBZone SBCs that submit reasonable and 
responsive offers and are determined by the appropriate contracting officer to 
be responsible contractors. (The sole-source contracts could not exceed $5 million 
for manufacturing contracts and $3 million for all other contract opportunities.) 
The extra costs to the Federal Government in this case would be the additional 
costs over competitive awards to the Federal Government that are usually associated 
with sole source contracting. The third possibility is that all HUBZone contracts 
would be awarded at a 10 percent Price Evaluation Preference in full and open 
competition. One could assume that the SBC offer is exactly 10 percent higher 
than other (non SBC) offers. In this unlikely case, the additional cost to the 
Federal Government is $600 million per year or 10 percent of $6 billion, the amount 
by which the SBC offer would exceed other non-SBC offers that did not receive 
preference. Under all of these circumstances, SBA has determined that this final 
rule is a major rule within the meaning of E.O. 12866, and has a significant impact 
on a substantial number of small entities within the meaning of the Regulatory 
Flexibility Act. For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA certifies that this final rule imposes new reporting or recordkeeping requirements 
on concerns applying to be certified as qualified HUBZone SBCs. The rule requires 
such concerns to submit evidence that they meet the eligibility requirements set 
forth in the rule; once certified, in order to remain on the List a concern must 
self-certify annually to SBA that it remains qualified; and qualified HUBZone 
SBCs must notify SBA immediately of any material change in circumstances which 
could affect their eligibility. For purposes of Executive Order 12612, SBA certifies 
that this rule has no federalism implications warranting the preparation of a 
Federalism Assessment. For purposes of Executive Order 12778, SBA certifies that 
it has drafted this rule, to the extent practicable, in accordance with the standards 
set forth in section 2 of that Order. (Catalog of Federal Domestic Assistance 
Programs, No. 59.009) List of Subjects 13 CFR Part 121 Government procurement, 
Government property, Grant programs- business, Individuals with disabilities, 
Loan programs-business, Small businesses. 13 CFR Part 125 Government contracts, 
Government procurement, Reporting and recordkeeping requirements, Research, 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 amends Title 13, 
Code of Federal Regulations (CFR), as follows: PART 121--[AMENDED] 1. The authority 
citation for 13 CFR part 121 is revised 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) 
and 644(c); and Pub. L. 102-486, 106 Stat. 2776, 3133. Sec. 121.401 [Amended] 
2. Section 121.401 is amended by deleting the word ``and'' before ``Federal Small 
Disadvantaged Business Programs,'' adding a comma after ``Federal Small Disadvantaged 
Business Programs,'' and adding the following language at the end of the sentence: 
``and SBA's HUBZone program''. 3. Section 121.1001 is amended by redesignating 
paragraph (a)(5) as (a)(6) and by adding the following new paragraph (a)(5) to 
read as follows: Sec. 121.1001 Who may initiate a size protest or a request for 
formal size determination? (a) Size Status Protests. * * * (5) For SBA's HUBZone 
program, the following entities may protest in connection with a particular HUBZone 
procurement: (i) Any concern that submits an offer for a specific HUBZone set- 
aside contract; (ii) Any concern that submitted an offer in full and open competition 
and its opportunity for award will be affected by a price evaluation preference 
given a qualified HUBZone SBC; (iii) The contracting officer; and (iv) The Associate 
Administrator for Government Contracting, or designee. * * * * * 4. Section 121.1008 
is amended by revising paragraph (a) to read as follows: [[Page 31908]] Sec. 121.1008 
What happens after SBA receives a size protest or a request for a formal size 
determination? (a) When a size protest is received, the SBA Government Contracting 
Area Director, or designee, will promptly notify the contracting officer, the 
protested concern, and the protestor that a protest has been received. In the 
event the size protest pertains to a requirement involving SBA's HUBZone Program, 
the Government Contracting Area Director will advise the AA/HUB of receipt of 
the protest. In the event the size protest pertains to a requirement involving 
SBA's SBIR Program, the Government Contracting Area Director will advise the Assistant 
Administrator for Technology of the receipt of the protest. SBA will provide a 
copy of the protest to the protested concern along with a blank SBA Application 
for Small Business Size Determination (SBA Form 355) by certified mail, return 
receipt requested, or by any overnight delivery service that provides proof of 
receipt. SBA will ask the protested concern to respond to the allegations of the 
protestor. * * * * * PART 125--[AMENDED] 5. The authority section for 13 CFR part 
125 is revised to read as follows: Authority: Pub. L. 105-135 sec. 601 et seq., 
111 Stat. 2592; 15 U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 9792. 6. Section 
125.2 is amended by revising the second sentence in paragraph (a)(1) to read as 
follows: Sec. 125.2 Prime contracting assistance. (a) * * * (1) * * * PCRs review 
all acquisitions not set aside for small businesses, including HUBZone small business 
concerns, to determine whether a set-aside would be appropriate. * * * * * * * 
* 7. Section 125.3 is amended by revising paragraphs (b) and (c) and by revising 
the last sentence of paragraph (d) to read as follows: Sec. 125.3 Subcontracting 
assistance. (a) * * * (b) Upon determination of the successful subcontract offeror 
on a subcontract for which a small business, small disadvantaged business, and/or 
a HUBZone small business received a preference, but prior to award, the prime 
contractor must inform each unsuccessful offeror in writing of the name and location 
of the apparent successful offeror and if the successful offeror was a small business, 
small disadvantaged business, or HUBZone business. This applies to all subcontracts 
over $10,000. (c) SBA Commercial Market Representatives (CMRs) facilitate the 
process of matching large prime contractors with small, small disadvantaged, and 
HUBZone subcontractors. CMRs identify, develop, and market small businesses to 
the prime contractors and assist the small concerns in obtaining subcontracts. 
(d) * * * Source identification means identifying those small, small disadvantaged, 
and HUBZone concerns which can fulfill the needs assessed from the opportunity 
development process. PART 126--[ADDED] 8. Add a new part 126 to read as follows: 
PART 126--HUBZONE PROGRAM Subpart A--Provisions of General Applicability 126.100 
What is the purpose of the HUBZone program? 126.101 Which government departments 
or agencies are affected directly by the HUBZone program? 126.102 What is the 
effect of the HUBZone program on the section 8(d) subcontracting program? 126.103 
What definitions are important in the HUBZone program? Subpart B--Requirements 
to be a Qualified Hubzone SBC 126.200 What requirements must a concern meet to 
receive SBA certification as a qualified HUBZone SBC? 126.201 For this purpose, 
who does SBA consider to own a HUBZone SBC? 126.202 Who does SBA consider to control 
a HUBZone SBC? 126.203 What size standards apply to HUBZone SBCs? 126.204 May 
a qualified HUBZone SBC have affiliates? 126.205 May WOBs, 8(a) participants or 
SDBs be qualified HUBZone SBCs? 126.206 May non-manufacturers be qualified HUBZone 
SBCs? 126.207 May a qualified HUBZone SBC have offices or facilities in another 
HUBZone or outside a HUBZone? Subpart C--Certification 126.300 How may a concern 
be certified as a qualified HUBZone SBC? 126.301 Is there any other way for a 
concern to obtain certification? 126.302 When may a concern apply for certification? 
126.303 Where must a concern file its certification? 126.304 What must a concern 
submit to SBA? 126.305 What format must the certification to SBA take? 126.306 
How will SBA process the certification? 126.307 Where will SBA maintain the List 
of qualified HUBZone SBCs? 126.308 What happens if SBA inadvertently omits a qualified 
HUBZone SBC from the List? 126.309 How may a declined or decertified concern seek 
certification at a later date? Subpart D--Program Examinations 126.400 Who will 
conduct program examinations? 126.401 What will SBA examine? 126.402 When may 
SBA conduct program examinations? 126.403 May SBA require additional information 
from a HUBZone SBC? 126.404 What happens if SBA is unable to verify a qualified 
HUBZone SBC's eligibility? 126.405 What happens if SBA verifies eligibility? Subpart 
E--Maintaining Hubzone Status 126.500 How does a qualified HUBZone SBC maintain 
HUBZone status? 126.501 What are a qualified HUBZone SBC's ongoing obligations 
to SBA? 126.502 Is there a limit to the length of time a qualified HUBZone SBC 
may be on the List? 126.503 When is a concern removed from the List? Subpart F--Contractual 
Assistance 126.600 What are HUBZone contracts? 126.601 What additional requirements 
must a qualified HUBZone SBC meet to bid on a contract? 126.602 Must a qualified 
HUBZone SBC maintain the employee residency percentage during contract performance? 
126.603 Does HUBZone certification guarantee receipt of HUBZone contracts? 126.604 
Who decides if a contract opportunity for HUBZone set-aside competition exists? 
126.605 What requirements are not available for HUBZone contracts? 126.606 May 
a contracting officer request that SBA release an 8(a) requirement for award as 
a HUBZone contract? 126.607 When must a contracting officer set aside a requirement 
for qualified HUBZone SBCs? 126.608 Are there HUBZone contracting opportunities 
below the simplified acquisition threshold? 126.609 What must the contracting 
officer do if a contracting opportunity does not exist for competition among qualified 
HUBZone SBCs? 126.610 May SBA appeal a contracting officer's decision not to reserve 
a procurement for award as a HUBZone contract? 126.611 What is the process for 
such an appeal? 126.612 When may a contracting officer award sole source contracts 
to a qualified HUBZone SBC? 126.613 How does a price evaluation preference affect 
the bid of a qualified HUBZone SBC in full and open competition? [[Page 31909]] 
126.614 How does a contracting officer treat a concern that is both a qualified 
HUBZone SBC and an SDB in a full and open competition? 126.615 May a large business 
participate on a HUBZone contract? 126.616 What requirements must a joint venture 
satisfy to bid on a HUBZone contract? Subpart G--Contract Performance Requirements 
126.700 What are the subcontracting percentages requirements under this program? 
126.701 Can these subcontracting percentages requirements change? 126.702 How 
can the subcontracting percentages requirements be changed? 126.703 What are the 
procedures for requesting changes in subcontracting percentages? Subpart H--Protests 
126.800 Who may protest the status of a qualified HUBZone SBC? 126.801 How does 
one file a HUBZone status protest? 126.802 Who decides a HUBZone status protest? 
126.803 How will SBA process a HUBZone status protest? 126.804 Will SBA decide 
all HUBZone status protests? 126.805 What are the procedures for appeals of HUBZone 
status determinations? Subpart I--Penalties 126.900 What penalties may be imposed 
under this part? Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 
15 U.S.C. 632(a). Subpart A--Provisions of General Applicability Sec. 126.100 
What is the purpose of the HUBZone program? The purpose of the HUBZone program 
is to provide federal contracting assistance for qualified SBCs located in historically 
underutilized business zones in an effort to increase employment opportunities, 
investment, and economic development in such areas. Sec. 126.101 Which government 
departments or agencies are affected directly by the HUBZone program? (a) Until 
September 30, 2000, the HUBZone program applies only to procurements by the following 
departments and agencies: (1) Department of Agriculture; (2) Department of Defense; 
(3) Department of Energy; (4) Department of Health and Human Services; (5) Department 
of Housing and Urban Development; (6) Department of Transportation; (7) Department 
of Veterans Affairs; (8) Environmental Protection Agency; (9) General Services 
Administration; and (10) National Aeronautics and Space Administration. (b) After 
September 30, 2000, the HUBZone program will apply to all federal departments 
and agencies which employ one or more contracting officers as defined by 41 U.S.C. 
423(f)(5). Sec. 126.102 What is the effect of the HUBZone program on the section 
8(d) subcontracting program? The HUBZone Act of 1997 amended the section 8(d) 
subcontracting program to include qualified HUBZone SBCs in the formal subcontracting 
plans described in Sec. 125.3 of this title. Sec. 126.103 What definitions are 
important in the HUBZone program? Administrator means the Administrator of the 
United States Small Business Administration (SBA). AA/8(a)BD means SBA's Associate 
Administrator for 8(a) Business Development. AA/HUB means SBA's Associate Administrator 
for the HUBZone Program. ADA/GC&8(a)BD means SBA's Associate Deputy Administrator 
for Government Contracting and 8(a) Business Development. Certify means the process 
by which SBA determines that a HUBZone SBC is qualified for the HUBZone program 
and entitled to be included in SBA's ``List of Qualified HUBZone SBCs.'' Citizen 
means a person born or naturalized in the United States. SBA does not consider 
holders of permanent visas and resident aliens to be citizens. Concern means a 
firm which satisfies the requirements in Secs. 121.105(a) and (b) of this title. 
Contract opportunity means a situation in which a requirement for a procurement 
exists, none of the exclusions from Sec. 126.605 applies, and any applicable conditions 
in Sec. 126.607 are met. County means the political subdivisions recognized as 
a county by a state or commonwealth or which is an equivalent political subdivision 
such as a parish, borough, independent city, or municipio, where such subdivisions 
are not subdivisions within counties. County unemployment rate is the rate of 
unemployment for a county based on the most recent data available from the United 
States Department of Labor, Bureau of Labor Statistics. The appropriate data may 
be found in the DOL/BLS publication titled ``Supplement 2, Unemployment in States 
and Local Areas.'' This publication is available for public inspection at the 
Department of Labor, Bureau of Labor Statistics, Division of Local Area Unemployment 
Statistics located at 2 Massachusetts Ave., NE, Room 4675, Washington DC 20212. 
A copy is also available at SBA, Office of AA/HUB, 409 3rd Street, SW, Washington 
DC 20416. Decertify means the process by which SBA determines that a concern is 
no longer a qualified HUBZone SBC and removes that concern from its List. Employee 
means a person (or persons) employed by a HUBZone SBC on a full-time (or full-time 
equivalent), permanent basis. Full-time equivalent includes employees who work 
30 hours per week or more. Full- time equivalent also includes the aggregate of 
employees who work less than 30 hours a week, where the work hours of such employees 
add up to at least a 40 hour work week. The totality of the circumstances, including 
factors relevant for tax purposes, will determine whether persons are employees 
of a concern. Temporary employees, independent contractors or leased employees 
are not employees for these purposes. Example 1: 4 employees each work 20 hours 
per week; SBA will regard that circumstance as 2 full-time equivalent employees. 
Example 2: 1 employee works 20 hours per week and 1 employee works 15 hours per 
week; SBA will regard that circumstance as not a full-time equivalent. Example 
3: 1 employee works 15 hours per week, 1 employee works 10 hours per week, and 
1 employee works 20 hours per week; SBA will regard that circumstance as 1 full-time 
equivalent employee. Example 4: 1 employee works 30 hours per week and 2 employees 
each work 15 hours per week; SBA will regard that circumstance as 1 full-time 
equivalent employee. HUBZone means a historically underutilized business zone, 
which is an area located within one or more qualified census tracts, qualified 
non-metropolitan counties, or lands within the external boundaries of an Indian 
reservation. See other definitions in this section for further details. HUBZone 
small business concern (HUBZone SBC) means a concern that is small as defined 
by Sec. 126.203, is exclusively owned and controlled by persons who are United 
States citizens, and has its principal office located in a HUBZone. HUBZone 8(a) 
concern means a concern that is certified as an 8(a) program participant and which 
is also a qualified HUBZone SBC. Indian reservation has the meaning used by the 
Bureau of Indian Affairs in 25 CFR 151.2(f). This definition refers [[Page 31910]] 
generally to land over which a ``tribe'' has jurisdiction, and ``tribe'' includes 
Alaska Native entities under 25 CFR 81.1(w). Interested party means any concern 
that submits an offer for a specific HUBZone sole source or set-aside contract, 
any concern that submitted an offer in full and open competition and its opportunity 
for award will be affected by a price evaluation preference given a qualified 
HUBZone SBC, the contracting activity's contracting officer, or SBA. Lands within 
the external boundaries of an Indian reservation includes all lands within the 
outside perimeter of an Indian reservation, whether tribally owned and governed 
or not. For example, land that is individually owned and located within the outside 
perimeter of an Indian reservation is ``lands within the external boundaries of 
an Indian reservation.'' By contrast, an Indian-owned parcel of land that is located 
outside the perimeter of an Indian reservation is not ``lands within the external 
boundaries of an Indian reservation.'' List refers to the database of qualified 
HUBZone SBCs that SBA has certified. Median household income has the meaning used 
by the Bureau of the Census, United States Department of Commerce, in its publication 
titled, ``1990 Census of Population, Social and Economic Characteristics,'' Report 
Number CP-2, pages B-14 and B-17. This publication is available for inspection 
at any local Federal Depository Library. For the location of a Federal Depository 
library, call toll- free (888) 293-6498 or contact the Bureau of the Census, Income 
Statistics Branch, Housing and Economic Statistics Division, Washington DC 20233-8500. 
Metropolitan statistical area means an area as defined in section 143(k)(2)(B) 
of the Internal Revenue Code of 1986, (Title 26 of the United States Code). Non-metropolitan 
has the meaning used by the Bureau of the Census, United States Department of 
Commerce, in its publication titled, ``1990 Census of Population, Social and Economic 
Characteristics,'' Report Number CP-2, page A-9. This publication is available 
for inspection at any local Federal Depository Library. For the location of a 
Federal Depository Library, call toll-free (888) 293-6498 or contact the Bureau 
of the Census, Population Distribution Branch, Population Division, Washington 
DC 20233-8800. Person means a natural person. Pursuant to the Alaska Native Claims 
Settlement Act, 43 U.S.C. 1626(e), Alaska Native Corporations and any direct or 
indirect subsidiary corporations, joint ventures, and partnerships of a Native 
Corporation are deemed to be owned and controlled by Natives, and are thus persons. 
Principal office means the location where the greatest number of the concern's 
employees at any one location perform their work. Qualified census tract has the 
meaning given that term in section 42(d)(5)(C)(ii)(I) of the Internal Revenue 
Code (Title 26 of the United States Code). Qualified HUBZone SBC means a HUBZone 
SBC that SBA certifies as qualified for federal contracting assistance under the 
HUBZone program. Qualified non-metropolitan county means any county that: (1) 
Based on the most recent data available from the Bureau of the Census of the Department 
of Commerce-- (i) Is not located in a metropolitan statistical area; and (ii) 
In which the median household income is less than 80 percent of the non-metropolitan 
State median household income; or (2) Based on the most recent data available 
from the Secretary of Labor, has an unemployment rate that is not less than 140 
percent of the statewide average unemployment rate for the State in which the 
county is located. Reside means to live in a primary residence at a place for 
at least 180 days, or as a currently registered voter, and with intent to live 
there indefinitely. Small disadvantaged business (SDB) means a concern that is 
small pursuant to part 121 of this title, and is owned and controlled by socially 
and economically disadvantaged individuals, tribes, Alaska Native Corporations, 
Native Hawaiian Organizations, or Community Development Corporations. Statewide 
average unemployment rate is the rate based on the most recent data available 
from the Bureau of Labor Statistics, United States Department of Labor, Division 
of Local Area Unemployment Statistics, 2 Massachusetts Ave., NE., Room 4675, Washington, 
DC 20212. A copy is also available at SBA, Office of AA/HUB, 409 3rd Street, SW., 
Washington DC 20416. Women-owned business (WOB) means a concern that is small 
pursuant to part 121 of this title, and is at least 51 percent owned and controlled 
by women. Subpart B--Requirements to be a Qualified HUBZone SBC Sec. 126.200 What 
requirements must a concern meet to receive SBA certification as a qualified HUBZone 
SBC? (a) The concern must be a HUBZone SBC as defined in Sec. 126.103; and (b) 
At least 35 percent of the concern's employees must reside in a HUBZone, and the 
HUBZone SBC must certify that it will attempt to maintain this percentage during 
the performance of any HUBZone contract it receives. When determining the percentage 
of employees that reside in a HUBZone, if the percentage results in a fraction 
round up to the nearest whole number, Example 1: A concern has 25 employees, 35 
percent or 8.75 employees must reside in a HUBZone. Thus, 9 employees must reside 
in a HUBZone. Example 2: A concern has 95 employees, 35 percent or 33.25 employees 
must reside in a HUBZone. Thus, 34 employees must reside in a HUBZone. and (c) 
The HUBZone SBC must certify that it will ensure that it will comply with certain 
contract performance requirements in connection with contracts awarded to it as 
a qualified HUBZone SBC, as set forth in Sec. 126.700. Sec. 126.201 For this purpose, 
who does SBA consider to own a HUBZone SBC? An owner of a HUBZone SBC is a person 
who owns any legal or equitable interest in such HUBZone SBC. More specifically: 
(a) Corporations. SBA will consider any person who owns stock, whether voting 
or nonvoting, to be an owner. SBA will consider options to purchase stock to have 
been exercised. SBA will consider the right to convert debentures into voting 
stock to have been exercised. (b) Partnerships. SBA will consider a partner, whether 
general or limited, to be an owner if that partner owns an equitable interest 
in the partnership. (c) Sole proprietorships. The proprietor is the owner. (d) 
Limited liability companies. SBA will consider each member to be an owner of a 
limited liability company. Example 1: All stock of a corporation is owned by US 
citizens. The president of the corporation, a non-U.S. citizen, owns no stock 
in the corporation, but owns options to purchase stock in the corporation. SBA 
will consider the option exercised, and the corporation is not eligible to be 
a qualified HUBZone SBC. Example 2: A partnership is owned 99.9 percent by persons 
who are US citizens, and 0.1 percent by someone who is not. The partnership is 
not eligible because it is not 100 percent owned by US citizens. [[Page 31911]] 
Sec. 126.202 Who does SBA consider to control a HUBZone SBC? Control means both 
the day-to-day management and long-term decisionmaking authority for the HUBZone 
SBC. Many persons share control of a concern, including each of those occupying 
the following positions: officer, director, general partner, managing partner, 
and manager. In addition, key employees who possess critical licenses, expertise 
or responsibilities related to the concern's primary economic activity may share 
significant control of the concern. SBA will consider the control potential of 
such key employees on a case by case basis. Sec. 126.203 What size standards apply 
to HUBZone SBCs? (a) At time of application for certification. A HUBZone SBC must 
meet SBA's size standards for its primary industry classification as defined in 
Sec. 121.201 of this title. If SBA is unable to verify that a concern is small, 
SBA may deny the concern status as a qualified HUBZone SBC, or SBA may request 
a formal size determination from the responsible Government Contracting Area Director 
or designee. (b) At time of contract offer. A HUBZone SBC must be small within 
the size standard corresponding to the SIC code assigned to the contract. Sec. 
126.204 May a qualified HUBZone SBC have affiliates? Yes. A qualified HUBZone 
SBC may have affiliates so long as the affiliates are also qualified HUBZone SBCs, 
8(a) participants, or WOBs. Sec. 126.205 May WOBs, 8(a) participants or SDBs be 
qualified HUBZone SBCs? Yes. WOBs, 8(a) participants, and SDBs can qualify as 
HUBZone SBCs if they meet the additional requirements in this part. Sec. 126.206 
May non-manufacturers be qualified HUBZone SBCs? Yes. Non-manufacturers (referred 
to in the HUBZone Act of 1997 as ``regular dealers'') may be certified as qualified 
HUBZone SBCs if they meet all the requirements set forth in Sec. 126.200 and they 
can demonstrate that they can provide the product or products manufactured by 
qualified HUBZone SBCs. ``Non-manufacturer'' is defined in Sec. 121.406(b)(1) 
of this title. Sec. 126.207 May a qualified HUBZone SBC have offices or facilities 
in another HUBZone or outside a HUBZone? Yes. A qualified HUBZone SBC may have 
offices or facilities in another HUBZone or even outside a HUBZone and still be 
a qualified HUBZone SBC. However, in order to qualify, the concern's principal 
office must be located in a HUBZone. Subpart C--Certification Sec. 126.300 How 
may a concern be certified as a qualified HUBZone SBC? A concern must apply to 
SBA for certification. The application must include a representation that it meets 
the eligibility requirements described in Sec. 126.200 and must submit relevant 
supporting information. SBA will consider the information provided by the concern 
in order to determine whether the concern qualifies. SBA, in its sole discretion, 
may rely solely upon the information submitted to establish eligibility, or may 
request additional information, or may verify the information before making a 
determination. If SBA determines that the concern is a qualified HUBZone SBC, 
it will issue a certification to that effect and add the concern to the List. 
Sec. 126.301 Is there any other way for a concern to obtain certification? No. 
SBA certification is the only way to qualify for HUBZone program status. Sec. 
126.302 When may a concern apply for certification? A concern may apply to SBA 
and submit the required information whenever it can represent that it meets the 
eligibility requirements, subject to Sec. 126.309. All representations and supporting 
information contained in the application must be complete and accurate as of the 
date of submission. The application must be signed by an officer of the concern 
who is authorized to represent the concern. Sec. 126.303 Where must a concern 
file its certification? The concern must file its certification with the AA/HUB, 
US Small Business Administration, 409 Third Street, SW, Washington, DC 20416. 
Sec. 126.304 What must a concern submit to SBA? (a) To be certified by SBA as 
a qualified HUBZone SBC, a concern must represent to SBA that under the definitions 
set forth in Sec. 126.103: (1) It is a small business concern that is both owned 
only by United States citizens and controlled only by United States citizens; 
(2) Its principal office is located in a HUBZone; (3) Not less than 35 percent 
of its employees reside in a HUBZone; (4) It will use good faith efforts to ensure 
that a minimum percentage of 35 percent of its employees continue to reside in 
a HUBZone so long as SBA certifies it as qualified and during the performance 
of any contract awarded to it on the basis of its status as a qualified HUBZone 
SBC; and (5) It will ensure that, where it enters into subcontracts to aid in 
performance of any prime contracts awarded to it because of its status as a qualified 
HUBZone SBC, it will incur not less than a certain minimum percentage of certain 
contract costs as set forth in Sec. 126.700. (b) If the concern is applying for 
HUBZone status based on a location within the external boundaries of an Indian 
reservation, the concern must submit with its application for certification official 
documentation from the appropriate Bureau of Indian Affairs (BIA) Land Titles 
and Records Office with jurisdiction over the concern's area, confirming that 
it is located within the external boundaries of an Indian reservation. BIA lists 
the Land Titles and Records Offices and their jurisdiction in 25 CFR 150.4 and 
150.5. In cases where BIA is unable to verify whether the business is located 
within the external boundaries of an Indian reservation, applicants should contact 
the AA/ HUB and SBA will assist them. (c) In addition to these representations, 
the concern must submit the forms, attachments, and any additional information 
required by SBA. Sec. 126.305 What format must the certification to SBA take? 
A concern must submit the required information in either a written or electronic 
application form provided by SBA. An electronic application must be sufficiently 
authenticated for enforcement purposes. Sec. 126.306 How will SBA process the 
certification? (a) The AA/HUB is authorized to approve or decline certifications. 
SBA will receive and review all certifications, but SBA will not process incomplete 
packages. SBA will make its determination within 30 calendar days after receipt 
of a complete package whenever practicable. The decision of the AA/HUB is the 
final agency decision. (b) SBA will base its certification on facts existing on 
the date of submission. SBA, in its sole discretion, may request additional information 
or clarification of information contained in the submission at any time. (c) If 
SBA approves the application, SBA will send a written notice to the [[Page 31912]] 
concern and automatically enter it on the List described in Sec. 126.307. (d) 
A decision to deny eligibility must be in writing and state the specific reasons 
for denial. Sec. 126.307 Where will SBA maintain the List of qualified HUBZone 
SBCs? SBA maintains the List at its Internet website at http:// www.sba.gov/HUB. 
Requesters also may obtain a copy of the List by writing to the AA/HUB at US Small 
Business Administration, 409 Third Street, SW, Washington, DC 20416 or via e-mail 
at aahub@sba.gov. Sec. 126.308 What happens if SBA inadvertently omits a qualified 
HUBZone SBC from the List? A HUBZone SBC that has received SBA's notice of certification, 
but is not on the List within 10 business days thereafter should immediately notify 
the AA/HUB in writing at US Small Business Administration, 409 Third Street, SW, 
Washington, DC 20416 or via e- mail at aahub@sba.gov. The concern must appear 
on the List to be eligible for HUBZone contracts. Sec. 126.309 How may a declined 
or decertified concern seek certification at a later date? A concern that SBA 
has declined or decertified may seek certification no sooner than one year from 
the date of decline or de- certification if it believes that it has overcome all 
reasons for decline through changed circumstances, and is currently eligible. 
Subpart D--Program Examinations Sec. 126.400 Who will conduct program examinations? 
SBA field staff or others designated by the AA/HUB will conduct program examinations. 
Sec. 126.401 What will SBA examine? (a) Eligibility. Examiners will verify that 
the qualified HUBZone SBC met the requirements set forth in Sec. 126.200 at the 
time of its application for certification and at the time of examination. (b) 
Scope of review. Examiners may review any information related to the HUBZone SBC 
qualifying requirements, including documentation related to the location and ownership 
of the concern, the employee percentage requirements, and the concern's attempt 
to maintain this percentage. The qualified HUBZone SBC must document each employee's 
residence address through employment records. The examiner also may review property 
tax, public utility or postal records, and other relevant documents. The concern 
must retain documentation demonstrating satisfaction of the employee residence 
and other qualifying requirements for 6 years from date of submission to SBA. 
Sec. 126.402 When may SBA conduct program examinations? SBA may conduct a program 
examination at the time the concern certifies to SBA that it meets the requirements 
of the program or at any other time while the concern is on the List or subsequent 
to receipt of HUBZone contract benefits. For example, SBA may conduct a program 
examination to verify eligibility upon notification of a material change under 
Sec. 126.501. Additionally, SBA, in its sole discretion, may perform random program 
examinations to determine continuing compliance with program requirements, or 
it may conduct a program examination in response to credible information calling 
into question the HUBZone status of a small business concern. For protests to 
the HUBZone status of a small business concern in regard to a particular procurement, 
see Sec. 126.800. Sec. 126.403 May SBA require additional information from a HUBZone 
SBC? Yes. At the discretion of the AA/HUB, SBA has the right to require that a 
HUBZone SBC submit additional information as part of the certification process, 
or at any time thereafter. If SBA finds a HUBZone SBC is not qualified, SBA will 
decertify the concern and delete its name from the List. SBA may choose to pursue 
penalties against any concern that has made material misrepresentations in its 
submissions to SBA in accordance with Sec. 126.900. Sec. 126.404 What happens 
if SBA is unable to verify a qualified HUBZone SBC's eligibility? (a) Authorized 
SBA headquarters personnel will first notify the concern in writing of the reasons 
why it is no longer eligible. (b) The concern will have 10 business days from 
the date that it receives notification to respond. (c) The AA/HUB will consider 
the reasons for proposed de- certification and the concern's response before making 
a decision whether to decertify. The AA/Hub's decision is the final agency decision. 
Sec. 126.405 What happens if SBA verifies eligibility? If SBA verifies that the 
concern is eligible, it will amend the date of certification on the List to reflect 
the date of verification. Subpart E--Maintaining Hubzone Status Sec. 126.500 How 
does a qualified HUBZone SBC maintain HUBZone status? (a) Any qualified HUBZone 
SBC wishing to remain on the List must self-certify annually to SBA that it remains 
a qualified HUBZone SBC. (b) Concerns wishing to remain in the program without 
any interruption must self-certify their continued eligibility to SBA within 30 
calendar days after each annual anniversary of their date of certification. Failure 
to do so will result in SBA decertifying the concern. The concern then would have 
to submit a new application for certification under Secs. 126.300 through 126.306. 
(c) The self-certification to SBA must be in writing and must represent that the 
circumstances relative to eligibility which existed on the date of certification 
showing on the List have not materially changed. Sec. 126.501 What are a qualified 
HUBZone SBC's ongoing obligations to SBA? The concern must immediately notify 
SBA of any material change which could affect its eligibility. The notification 
must be in writing, and must be sent or delivered to the AA/HUB to comply with 
this requirement. Failure of a qualified HUBZone SBC to notify SBA of such a material 
change will result in immediate de-certification and removal from the List, and 
SBA may seek the imposition of penalties under Sec. 126.900. If the concern later 
becomes eligible for the program, the concern must apply for certification pursuant 
to Secs. 126.300 through 126.309 and 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 pursuant to Sec. 126.306. Sec. 126.502 Is there a limit to the length 
of time a qualified HUBZone SBC may be on the List? There is no limit to the length 
of time a qualified HUBZone SBC may remain on the List so long as it continues 
to follow the provisions of Secs. 126.200, 126.500, and 126.501. Sec. 126.503 
When is a concern removed from the List? If SBA determines at any time that a 
HUBZone SBC is not qualified, SBA may decertify the HUBZone SBC, remove the concern 
from the List, and seek imposition of penalties pursuant to Sec. 126.900. An adverse 
finding in the resolution of a protest also may result in de- certification and 
removal from the [[Page 31913]] List, and the imposition of penalties pursuant 
to Sec. 126.900. Failure to notify SBA of a material change which could affect 
a concern's eligibility will result in immediate de-certification, removal from 
the List, and SBA may seek the imposition of penalties under Sec. 126.900. Subpart 
F--Contractual Assistance Sec. 126.600 What are HUBZone contracts? HUBZone contracts 
are contracts awarded to a qualified HUBZone SBC through any of the following 
procurement methods: (a) Sole source awards to qualified HUBZone SBCs; (b) Set-aside 
awards based on competition restricted to qualified HUBZone SBCs; or (c) Awards 
to qualified HUBZone SBCs through full and open competition after a price evaluation 
preference in favor of qualified HUBZone SBCs. Sec. 126.601 What additional requirements 
must a qualified HUBZone SBC meet to bid on a contract? (a) In order to submit 
an offer on a specific HUBZone contract, a concern must be small under the size 
standard corresponding to the SIC code assigned to the contract. (b) At the time 
a qualified HUBZone SBC submits its offer on a specific contract, it must certify 
to the contracting officer that (1) It is a qualified HUBZone SBC which appears 
on SBA's List; (2) There has been no material change in its circumstances since 
the date of certification shown on the List which could affect its HUBZone eligibility; 
and (3) It is small under the SIC code assigned to the procurement. (c) If bidding 
as a joint venture, each qualified HUBZone SBC must make the certifications in 
paragraphs (b)(1), (2), and (3) of this section separately under its own name. 
(d) A qualified HUBZone SBC which is a non-manufacturer may submit an offer on 
a contract for supplies if it meets the requirements under the non-manufacturer 
rule as defined in Sec. 121.406(b) of this title and if the small manufacturer 
is also a qualified HUBZone SBC. Sec. 126.602 Must a qualified HUBZone SBC maintain 
the employee residency percentage during contract performance? The qualified HUBZone 
SBC must attempt to maintain the required percentage of employees who reside in 
a HUBZone during the performance of any contract awarded to the concern on the 
basis of HUBZone status. ``Attempt to maintain'' means making substantive and 
documented efforts to maintain that percentage such as written offers of employment, 
published advertisements seeking employees, and attendance at job fairs. HUBZone 
contracts are described more fully in Sec. 126.600. Enforcement of this paragraph 
will be the responsibility of SBA, which will monitor the requirement in accordance 
with Secs. 126.400 through 126.405. Sec. 126.603 Does HUBZone certification guarantee 
receipt of HUBZone contracts? No. Qualified HUBZone SBCs should market their capabilities 
to appropriate procuring agencies in order to increase their prospects of having 
a requirement set aside for HUBZone contract award. Sec. 126.604 Who decides if 
a contract opportunity for HUBZone set- aside competition exists? The contracting 
officer for the contracting activity makes this decision. Sec. 126.605 What requirements 
are not available for HUBZone contracts? A contracting activity may not make a 
requirement available for a HUBZone contract if: (a) The contracting activity 
otherwise would fulfill that requirement through award to Federal Prison Industries, 
Inc. under 18 U.S.C. 4124 or 4125, or to Javits-Wagner-O'Day Act participating 
non- profit agencies for the blind and severely disabled, under 41 U.S.C. 46 et 
seq., as amended; or (b) An 8(a) participant currently is performing that requirement 
or SBA has accepted that requirement for performance under the authority of the 
section 8(a) program, unless SBA has consented to release of the requirement from 
the section 8(a) program; or (c) The requirement is at or below the micropurchase 
threshold. Sec. 126.606 May a contracting officer request that SBA release an 
8(a) requirement for award as a HUBZone contract? Yes. However, SBA will grant 
its consent only where neither the incumbent nor any other 8(a) participant(s) 
can perform the requirement, and where the section 8(a) program will not be adversely 
affected. The SBA official authorized to grant such consent is the AA/ 8(a)BD. 
Sec. 126.607 When must a contracting officer set aside a requirement for qualified 
HUBZone SBCs? (a) The contracting officer first must review a requirement to determine 
whether it is excluded from HUBZone contracting pursuant to Sec. 126.605. (b) 
The contracting officer must identify qualified HUBZone 8(a) concerns and other 
8(a) concerns. The contracting officer must give first priority to qualified HUBZone 
8(a) concerns. (c) After determining that neither paragraph (a) or (b) of this 
section apply, the contracting officer must set aside the requirement for competition 
restricted to qualified HUBZone SBCs if the contracting officer: (1) Has a reasonable 
expectation, after reviewing SBA's list of qualified HUBZone SBCs that at least 
two responsible qualified HUBZone SBCs will submit offers; and (2) Determines 
that award can be made at fair market price. Sec. 126.608 Are there HUBZone contracting 
opportunities below the simplified acquisition threshold? Yes. If the requirement 
is below the simplified acquisition threshold, the contracting officer should 
set-aside the requirement for consideration among qualified HUBZone SBCs using 
simplified acquisition procedures. Sec. 126.609 What must the contracting officer 
do if a contracting opportunity does not exist for competition among qualified 
HUBZone SBCs? If a contract opportunity for competition among qualified SBCs does 
not exist under the provisions of Sec. 126.607, the contracting officer must first 
consider the possibility of making an award to a qualified HUBZone SBC on a sole 
source basis, and then to a small business under small business set-aside procedures, 
in that order of precedence. If the criteria are not met for any of these special 
contracting authorities, then the contracting officer may solicit the procurement 
through another appropriate contracting method. Sec. 126.610 May SBA appeal a 
contracting officer's decision not to reserve a procurement for award as a HUBZone 
contract? The Administrator may appeal a contracting officer's decision not to 
make a particular requirement available for award as a HUBZone sole source or 
a HUBZone set-aside contract. Sec. 126.611 What is the process for such an appeal? 
(a) Notice of appeal. When the contracting officer rejects a recommendation by 
SBA's Procurement Center Representative to make a requirement available for award 
as a HUBZone contract, he or she must notify the Procurement Center Representative 
as soon as practicable. If the Administrator intends to appeal the decision, SBA 
must notify the contracting officer no later than five business days after receiving 
notice of the contracting officer's decision. [[Page 31914]] (b) Suspension of 
action. Upon receipt of notice of SBA's intent to appeal, the contracting officer 
must suspend further action regarding the procurement until the head of the contracting 
activity issues a written decision on the appeal, unless the head of the contracting 
activity makes a written determination that urgent and compelling circumstances 
which significantly affect the interests of the United States compel award of 
the contract. (c) Deadline for appeal. Within 15 business days of SBA's notification 
to the contracting officer, SBA must file its formal appeal with the head of the 
contracting activity or that agency may consider the appeal withdrawn. (d) Decision. 
The contracting activity must specify in writing the reasons for a denial of an 
appeal brought under this section. Sec. 126.612 When may a contracting officer 
award sole source contracts to a qualified HUBZone SBC? A contracting officer 
may award a sole source contract to a qualified HUBZone SBC only when the contracting 
officer determines that: (a) None of the provisions of Secs. 126.605 or 126.607 
apply; (b) The anticipated award price of the contract, including options, will 
not exceed: (1) $5,000,000 for a requirement within the SIC codes for manufacturing; 
or (2) $3,000,000 for a requirement within all other SIC codes; (c) Two or more 
qualified HUBZone SBCs are not likely to submit offers; (d) A qualified HUBZone 
SBC is a responsible contractor able to perform the contract; and (e) Contract 
award can be made at a fair and reasonable price. Sec. 126.613 How does a price 
evaluation preference affect the bid of a qualified HUBZone SBC in full and open 
competition? Where a contracting officer will award a contract on the basis of 
full and open competition, the contracting officer must deem the price offered 
by a qualified HUBZone SBC to be lower than the price offered by another offeror 
(other than another small business concern) if the price offered by the qualified 
HUBZone SBC is not more than 10 percent higher than the price offered by the otherwise 
lowest, responsive, and responsible offeror. Example: In a full and open competition, 
a qualified HUBZone SBC submits an offer of $98; another small business concern 
submits an offer of $100; and a large business submits an offer of $93. The lowest, 
responsive, responsible offeror would be the large business. However, the contracting 
officer must apply the HUBZone price evaluation preference. If the qualified HUBZone 
SBC's offer is not more than 10 percent higher than the large business's offer, 
the contracting officer must deem the qualified HUBZone SBC's price as lower than 
the price of the large business. In this example, the qualified HUBZone SBC's 
price is not more than 10 percent higher than the large business's price and, 
consequently, the qualified HUBZone SBC displaces the large business as the lowest, 
responsive, and responsible offeror. If the HUBZone SBC offer were $101, the award 
would go to the large business at $93. If the HUBZone SBC will not benefit from 
the preference, the preference is not applied to change an offer. Sec. 126.614 
How does a contracting officer treat a concern that is both a qualified HUBZone 
SBC and an SDB in a full and open competition? A concern that is both a qualified 
HUBZone SBC and an SDB must receive the benefit of both the HUBZone price evaluation 
preference described in Sec. 126.614 and the SDB price evaluation preference described 
in 10 U.S.C. 2323 and the Federal Acquisition Streamlining Act, section 7102(a)(1)(B), 
Public Law 103-355, in a full and open competition. Sec. 126.615 May a large business 
participate on a HUBZone contract? A large business may not participate as a prime 
contractor on a HUBZone award but may participate as a subcontractor to an otherwise 
qualified HUBZone SBC, subject to the contract performance requirements set forth 
in Sec. 126.700. Sec. 126.616 What requirements must a joint venture satisfy to 
bid on a HUBZone contract? A joint venture may bid on a HUBZone contract if the 
joint venture meets all of the following requirements: (a) HUBZone joint venture. 
A qualified HUBZone SBC may enter into a joint venture with one or more other 
qualified HUBZone SBCs, 8(a) participants, or WOBs for the purpose of performing 
a specific HUBZone contract. (b) Size of concerns. A joint venture of at least 
one qualified HUBZone SBC and an 8(a) participant or a woman-owned small business 
concern may submit an offer for a HUBZone contract so long as each concern is 
small under the size standard corresponding to the SIC code assigned to the contract, 
provided: (1) For a procurement having a revenue-based size standard, the procurement 
exceeds half the size standard corresponding to the SIC code assigned to the contract; 
and (2) For a procurement having an employee-based size standard, the procurement 
exceeds $10 million. (c) Performance of work. The aggregate of the qualified HUBZone 
SBCs to the joint venture, not each concern separately, must perform the applicable 
percentage of work required by Sec. 126.700. Subpart G--Contract Performance Requirements 
Sec. 126.700 What are the subcontracting percentages requirements under this program? 
(a) Subcontracting percentage requirements. A qualified HUBZone SBC prime contractor 
can subcontract part of a HUBZone contract provided: (1) In the case of a contract 
for services (except construction), the qualified HUBZone SBC spends at least 
50 percent of the cost of the contract performance incurred for personnel on the 
concern's employees or on the employees of other qualified HUBZone SBCs; (2) In 
the case of a contract for general construction, the qualified HUBZone SBC spends 
at least 15 percent of the cost of contract performance incurred for personnel 
on the concern's employees or the employees of other qualified HUBZone SBCs; (3) 
In the case of a contract for construction by special trade contractors, the qualified 
HUBZone SBC spends at least 25 percent of the cost of contract performance incurred 
for personnel on the concerns' employees or the employees of other qualified HUBZone 
SBCs; and (4) In the case of a contract for procurement of supplies (other than 
a procurement from a regular dealer in such supplies) the qualified HUBZone SBC 
spends at least 50 percent of the manufacturing cost (excluding the cost of materials) 
on performing the contract in a HUBZone. One or more qualified HUBZone SBCs may 
combine to meet this subcontracting percentage requirement. (b) Definitions. Many 
definitions applicable to this section can be found in Sec. 125.6 of this title. 
Sec. 126.701 Can these subcontracting percentages requirements change? Yes. The 
Administrator may change the subcontracting percentage requirements if the Administrator 
determines that such action is necessary to reflect conventional industry practices. 
[[Page 31915]] Sec. 126.702 How can the subcontracting percentage requirements 
be changed? Representatives of a national trade or industry group (as defined 
by two-digit Major Group industry codes) may request a change in subcontracting 
percentage requirements for that industry. Changes in subcontracting percentage 
requirements may be requested only for categories defined by two-digit Major Group 
industry codes in the Standard Industry Classification (SIC) Code system. SBA 
will not consider requests from anyone other than a representative of a national 
trade or industry group or requests for changes for four-digit SIC Code categories. 
Sec. 126.703 What are the procedures for requesting changes in subcontracting 
percentages? (a) Format of request. There is no prescribed format, but the requester 
should try to demonstrate to the Administrator that a change in percentage is 
necessary to reflect conventional industry practices, and should support its request 
with information including, but not limited to: (1) Information relative to the 
economic conditions and structure of the entire national industry; (2) Market 
data, technical changes in the industry and industry trends; (3) Specific reasons 
and justifications for the change in the subcontracting percentage; (4) The effect 
such a change would have on the federal procurement process; and (5) Information 
demonstrating how the proposed change would promote the purposes of the HUBZone 
Program. (b) Notice to public. Upon an adequate preliminary showing to SBA, SBA 
will publish in the Federal Register a notice of its receipt of a request that 
it consider a change in the subcontracting percentage requirements for a particular 
industry for HUBZone contracts. The notice will identify the group making the 
request, and give the public an opportunity to submit to the Administrator information 
and arguments in both support and opposition. (c) Comments. Once SBA has published 
a notice in the Federal Register, it will afford a period of not less than 60 
days for public comment. (d) Decision. SBA will render its decision after the 
close of the comment period. If it decides against a change, it will publish notice 
of its decision in the Federal Register. Concurrent with the notice, SBA will 
advise the requester of its decision in writing. If it decides in favor of a change, 
SBA will propose an appropriate change to this part in accordance with proper 
rulemaking procedures. Subpart H--Protests Sec. 126.800 Who may protest the status 
of a qualified HUBZone SBC? (a) For sole source procurements. SBA or the contracting 
officer may protest the proposed awardee's qualified HUBZone SBC status. (b) For 
all other procurements. Any interested party may protest the apparent successful 
offeror's qualified HUBZone SBC status. Sec. 126.801 How does one file a HUBZone 
status protest? (a) General. The protest procedures described in this part are 
separate from those governing size protests and appeals. All protests relating 
to whether a qualified HUBZone SBC is a ``small'' business for purposes of any 
Federal program are subject to part 121 of this title and must be filed in accordance 
with that part. If a protester protests both the size of the HUBZone SBC and whether 
the concern meets the HUBZone qualifying requirements set forth in Sec. 126.200, 
SBA will process each protest concurrently, under the procedures set forth in 
part 121 of this title and this part. (b) Format. Protests must be in writing 
and state all specific grounds for the protest. A protest merely asserting that 
the protested concern is not a qualified HUBZone SBC, without setting forth specific 
facts or allegations, is insufficient. (c) Filing. (1) An interested party other 
than a contracting officer or SBA must submit its written protest to the contracting 
officer. (2) A contracting officer and SBA must submit their protest to the AA/HUB. 
(3) Protestors may deliver their protests in person, by facsimile, by express 
delivery service, or by US mail (postmarked within the applicable time period). 
(d) Timeliness. (1) An interested party must submit its protest by close of business 
on the fifth business day after bid opening (in sealed bid acquisitions) or by 
close of business on the fifth business day after notification by the contracting 
officer of the apparent successful offeror (in negotiated acquisitions). (2) Any 
protest received after the time limits is untimely. (3) Any protest received prior 
to bid opening or notification of intended award, whichever applies, is premature. 
(e) Referral to SBA. The contracting officer must forward to SBA any non-premature 
protest received, notwithstanding whether he or she believes it is sufficiently 
specific or timely. The contracting officer must send protests to AA/HUB, US Small 
Business Administration, 409 3rd Street, SW, Washington, DC 20416. Sec. 126.802 
Who decides a HUBZone status protest? The AA/HUB or designee will determine whether 
the concern has qualified HUBZone status. Sec. 126.803 How will SBA process a 
HUBZone status protest? (a) Notice of receipt of protest. (1) SBA immediately 
will notify the contracting officer and the protestor of the date SBA receives 
a protest and whether SBA will process the protest or dismiss it in accordance 
with Sec. 126.804. (2) If SBA determines the protest is timely and sufficiently 
specific, SBA will notify the protested HUBZone SBC of the protest and the identity 
of the protestor. The protested HUBZone SBC may submit information responsive 
to the protest within 5 business days. (b) Time period for determination. (1) 
SBA will determine the HUBZone status of the protested HUBZone SBC within 15 business 
days after receipt of a protest. (2) If SBA does not contact the contracting officer 
within 15 business days, the contracting officer may award the contract, unless 
the contracting officer has granted SBA an extension. (3) The contracting officer 
may award the contract after receipt of a protest if the contracting officer determines 
in writing that an award must be made to protect the public interest. (c) Notice 
of determination. SBA will notify the contracting officer, the protestor, and 
the protested concern of its determination. (d) Effect of determination. The determination 
is effective immediately and is final unless overturned on appeal by the ADA/ 
GC&8(a)BD, pursuant to Sec. 126.805. If SBA upholds the protest, SBA will 
decertify the concern as a qualified HUBZone SBC. If SBA denies the protest, after 
considering the merits of the protest, SBA will amend the date of certification 
on the List to reflect the date of protest decision. Sec. 126.804 Will SBA decide 
all HUBZone status protests? SBA will decide all protests not dismissed as premature, 
untimely or nonspecific. [[Page 31916]] Sec. 126.805 What are the procedures for 
appeals of HUBZone status determinations? (a) Who may appeal. The protested HUBZone 
SBC, the protestor, or the contracting officer may file appeals of protest determinations 
with SBA's ADA/GC&8(a)BD. (b) Timeliness of appeal. SBA's ADA/GC&8(a)BD 
must receive the appeal no later than 5 business days after the date of receipt 
of the protest determination. SBA will dismiss any appeal received after the five-day 
period. (c) Method of Submission. The party appealing the decision may deliver 
its appeal in person, by facsimile, by express delivery service, or by US mail 
(postmarked within the applicable time period). (d) Notice of appeal. The party 
bringing an appeal must provide notice of the appeal to the contracting activity 
contracting officer and either the protested HUBZone SBC or original protestor, 
as appropriate. (e) Grounds for appeal. (1) SBA will reexamine a protest determination 
only if there was a clear and significant error in the processing of the protest 
or if the AA/HUB failed completely to consider a significant fact contained within 
the information supplied by the protestor or the protested HUBZone SBC. (2) SBA 
will not consider additional information or changed circumstances that were not 
disclosed at the time of the AA/Hub's decision or that are based on disagreement 
with the findings and conclusions contained in the determination. (f) Contents 
of appeal. The appeal must be in writing. The appeal must identify the protest 
determination being appealed and set forth a full and specific statement as to 
why the decision is erroneous or what significant fact the AA/HUB failed to consider. 
(g) Completion of appeal after award. An appeal may proceed to completion even 
after award of the contract that prompted the protest, if so desired by the protested 
HUBZone SBC, or where SBA determines that a decision on appeal is meaningful. 
(h) Decision. The ADA/GC&8(a)BD will make its decision within 5 business days 
of its receipt, if practicable, and will base its decision only on the information 
and documentation in the protest record as supplemented by the appeal. SBA will 
provide a copy of the decision to the contracting officer, the protestor, and 
the protested HUBZone SBC, consistent with law. The ADA/GC&8(a)BD's decision 
is the final agency decision. Subpart I--Penalties Sec. 126.900 What penalties 
may be imposed under this part? (a) Suspension or debarment. The Agency debarring 
official may suspend or debar a person or concern pursuant to the procedures set 
forth in part 145 of this title. The contracting agency debarring official may 
debar or suspend a person or concern under the Federal Acquisition Regulation, 
48 CFR Part 9, subpart 9.4. (b) Civil penalties. Persons or concerns are subject 
to civil remedies under the False Claims Act, 31 U.S.C. 3729-3733, and under the 
Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, and any other applicable 
laws. (c) Criminal penalties. Persons or concerns are subject to severe criminal 
penalties for knowingly misrepresenting the HUBZone status of a small business 
concern in connection with procurement programs pursuant to section 16(d) of the 
Small Business Act, 15 U.S.C. 645(d), as amended; 18 U.S.C. 1001; and 31 U.S.C. 
3729-3733. Persons or concerns also are subject to criminal penalties for knowingly 
making false statements or misrepresentations to SBA for the purpose of influencing 
any actions of SBA pursuant to section 16(a) of the Small Business Act, 15 U.S.C. 
645(a), as amended, including failure to correct ``continuing representations'' 
that are no longer true. Dated: June 5, 1998. Aiwa Alvarez, Administrator. [FR 
Doc. 98-15581 Filed 6-10-98; 8:45 am] BILLING CODE 8025-01-P