SBA has released the final rule for the HUBZone Program Updates and Clarifications, and Clarifications to Other Small Business Programs on December 17, 2024. As we have discussed, this rule made a lot of changes to the HUBZone program. But it also updated a lot of other small business rules. Below are the details on some of these significant changes. This rule will be effective on January 16, 2025.
For an overview of the proposed rule, check out this post. Here are some of the main items covered in the proposed rule, along with our prior blogs discussing those changes. Where SBA changed the proposed rule based on comments, I’ve noted it below.
MPAs Too Effective?
Are Mentor-Protégé Joint Ventures Just Too Successful, Asks SBA. “SBA is seeking input on the perception that mentor-protégé joint ventures are winning an inordinate number of orders issued under small business multiple award contracts and seeks suggestions on how to incentivize a more equitable marketplace for individual small businesses who compete against mentor-protégé joint ventures for multiple award, small business contracts.”
Interestingly, I couldn’t fine any particular summary of what comments SBA received on this topic. Does this mean SBA is waiting to provide any feedback until a later ruling? We will wait and see and update you on SmallGovCon.
Section 125.12: Size and Status Recertification
SBA Proposed Rule: New Size and Status Recertification Standard. SBA will be implementing its strategy to include new 13 C.F.R. § 125.12, which sets forth disqualifying size and status events, which would render a business “ineligible for future set-aside or reserved awards, including awards of set-aside or reserved orders against pre-existing unrestricted or set-aside multiple award contracts” if it causes the business to be other than small. In addition, “for a multiple award small business set-aside or reserve, a concern that recertified as other than small or other than the required small business program would be ineligible to receive options.”
Comments were mixed on these changes. Some “were concerned that contract holders on multiple award contracts would not be eligible for orders set aside for small business or set aside for a specific type of small business after disqualifying recertifications.” Others said that allowing “a firm that was purchased by a very large business to remain an eligible contract holder on a small business multiple award contract would” was unfair.
In response, the SBA added a one-year delay to this part of the rule: “the final rule adds a new § 125.9(g) that would delay the effective date of ineligibility for orders and options on underlying small business multiple award contracts due to disqualifying recertifications for one year after the effective date of this final rule.” Thus, “a firm that has a disqualifying size or status recertification due to a merger, acquisition or sale that occurs prior to one year after the effective date of this final rule will remain eligible for orders issued under an underlying small business multiple award contract.” In addition, “the final rule will make ineligible only those contract holders that have disqualifying recertifications involving a merger, acquisition or sale with a large business.” So, the rule would not apply to businesses with a transaction where both companies “individually qualify as small before” before the transaction.
HUBZone Rules
Our original coverage on this topic included a two-part examination of HUBZone Changes (Part 1 and Part 2). Below are some of updates to the proposed rules. There are many more, so please make sure to consult the entire final rule.
As part of this rule change, SBA wants to increase the requirement that HUBZone employees work a minimum of 40 hours per month to 80 hours per month.” After reviewing over 80 comments, “the feedback indicated a strong desire for SBA to reconsider the 80-hour rule or provide more nuanced alternatives that balance the goals of the HUBZone program with the practicalities of running small businesses and supporting diverse employees.” So, “SBA has considered the comments received and decided to maintain the 40-hour threshold at this time.” But “this final rule generally requires an individual to work at least 10 hours per week during the 4-week period preceding the date of review.”
With respect to meaningful work, “SBA reiterates its position that the HUBZone program was intended to create meaningful employment opportunities in underserved areas. SBA will continue to require individuals to perform some work in order to be considered employees for HUBZone purposes and may require relevant documentation to ensure this requirement is being met.” A “proposed § 126.601(a) would require a firm to be both a certified HUBZone small business and one that continues to be eligible as of the date of its offer for a HUBZone contract. In light of this change, the rule also proposes to amend § 126.500 to require firms to recertify to SBA every three years, rather than annually.”
“The final rule adopts the 90-day residency requirement set forth in the proposed rule. SBA believes that 90 days strikes a good balance between ensuring that individuals actually reside in a specified location and allowing firms seeking HUBZone certification to avail themselves of a streamlined application process.”
“Based on the comments received, SBA has decided not to limit firms to only one Legacy HUBZone Employee. Instead, this final rule provides that a HUBZone small business concern may have up to four Legacy HUBZone Employees at a given time, but must have at least one other HUBZone employee in order for any employee to count as a Legacy HUBZone resident employee.”
SBA is also adjusting the threshold of 20 percent of employees for ‘attempt to maintain’ currently in § 126.500(a)(2) with 35 percent.” SBA is allowing a one-year grace period for attempting to maintain compliance after a firm is awarded a HUBZone contract. “After the grace period, then such firm would have to be back up to 35% HUBZone residency at the time of any recertification. SBA proposed that the grace period be 12 months following the award of a HUBZone contract.” However, it is a rolling 12-month period: and the new “language allows each additional HUBZone award to trigger a new 12-month grace period from the date of award of the additional HUBZone contract.”
JV Past Performance
Joint Venture Past Performance. In response to comments, SBA “agrees that the guidance provided is intended to ensure that procuring activities do not require the same full level of past performance and experience of protégé joint venture members as they do of other offerors generally. This logically means that if a procuring activity requires past performance of a protégé joint venture partner, it must be at a reduced level.”
Also, the “final rule also adds a provision to the regulatory text providing that if a procuring activity requires a protégé joint venture partner to demonstrate some successful performance and/or experience on fewer previous contracts of lower values than that required of other offerors generally, successful performance by the protégé firm on the contracts it identifies shall be rated equivalently to successful performance by the mentor.”
Other Items
- Receipts calculation. SBA can look beyond tax returns. “The final rule clarifies that SBA will consider a firm’s tax returns in every case and that SBA will generally rely solely on those tax returns” and “specifies that SBA may consider other relevant information beyond the submitted tax returns where there is reasonable basis to believe the tax filings are false.”
- VetCert Appeal. “[T]his rule changes the time to file an appeal for the VetCert program to 45 days.’
- 8(a) Program Changes. SBA adopted many of the changes as proposed.
This rule is long, about 230 pages in the pdf version. Make sure to read through the rule thoroughly if you think there are areas that could affect your business. We will continue to update our readers on how these updated play out in interacting with the SBA and other federal agencies.
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