[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR125]

[Page 399-410]

                TITLE 13--BUSINESS CREDIT AND ASSISTANCE

                CHAPTER I--SMALL BUSINESS ADMINISTRATION

PART 125--GOVERNMENT CONTRACTING PROGRAMS--Table of Contents


Sec.
125.1  Programs included.
125.2  Prime contracting assistance.
125.3  Subcontracting assistance.
125.4  Government property sales assistance.
125.5  Certificate of Competency Program.
125.6  Prime contractor performance requirements (limitations on
          subcontracting).
125.7  What is the Very Small Business program?

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

    Source: 61 FR 3312, Jan. 31, 1996, unless otherwise noted.

Sec. 125.1  Programs included.

    The regulations in this part relate to the Government contracting
assistance programs of SBA. There are four main programs: Prime
contracting assistance; Subcontracting assistance; Government property
sales assistance; and the Certificate of Competency program. The
objective of the programs is to assist small businesses in obtaining a
fair share of Federal Government contracts, subcontracts, and property
sales.

Sec. 125.2  Prime contracting assistance.

    (a) General. Small business concerns must receive any award or
contract, or any contract for the sale of Government property, that SBA
and the procuring or disposal agency determine to be in the interest of:
    (1) Maintaining or mobilizing the Nation's full productive capacity;
    (2) War or national defense programs;
    (3) Assuring that a fair proportion of the total purchases and
contracts for property, services and construction for the Government in
each industry category are placed with small business concerns; or
    (4) Assuring that a fair proportion of the total sales of Government
property is made to small business concerns.
    (b) PCR and procuring activity responsibilities. (1) SBA Procurement
Center Representatives (PCRs) are generally located at Federal agencies
and buying activities which have major contracting programs. PCRs review
all acquisitions not set-aside for small businesses to determine whether
a set-aside is appropriate.
    (2) A procuring activity must provide a copy of a proposed
acquisition strategy (e.g., Department of Defense Form 2579, or
equivalent) to the applicable PCR (or to the SBA Office of Government
Contracting Area Office serving the area in which the buying activity is
located if a PCR is not assigned to the procuring activity) at least 30
days prior to a solicitation's issuance whenever a proposed acquisition
strategy:
    (i) Includes in its description goods or services currently being
performed by a small business and the magnitude of the quantity or
estimated dollar value of the proposed procurement would render small
business prime contract participation unlikely;
    (ii) Seeks to package or consolidate discrete construction projects;
or
    (iii) Meets the definition of a bundled requirement as defined in
paragraph (d)(1)(i) of this section.
    (3) Whenever any of the circumstances identified in paragraph (b)(2)
of this section exist, the procuring activity must also submit to the
applicable PCR (or to the SBA Office of Government Contracting Area
Office serving the area in which the buying activity is located if a PCR
is not assigned to the procuring activity) a written statement
explaining why:
    (i) If the proposed acquisition strategy involves a bundled
requirement, the procuring activity believes that the bundled
requirement is necessary and justified under the analysis required by
paragraph (d)(3)(iii) of this section; or
    (ii) If the description of the requirement includes goods or
services currently being performed by a small business and the magnitude
of the quantity or estimated dollar value of the proposed procurement
would render small

[[Page 400]]

business prime contract participation unlikely, or if a proposed
procurement for construction seeks to package or consolidate discrete
construction projects:
    (A) The proposed acquisition cannot be divided into reasonably small
lots to permit offers on quantities less than the total requirement;
    (B) Delivery schedules cannot be established on a basis that will
encourage small business participation;
    (C) The proposed acquisition cannot be offered so as to make small
business participation likely; or
    (D) Construction cannot be procured as separate discrete projects.
    (4) In conjunction with their duties to promote the set-aside of
procurements for small business, PCRs will identify small businesses
that are capable of performing particular requirements, including teams
of small business concerns for larger or bundled requirements (see
Sec. 121.103(f)(3) of this chapter).
    (5)(i) If a PCR believes that a proposed procurement will render
small business prime contract participation unlikely, or if a PCR does
not believe a bundled requirement to be necessary and justified, the PCR
shall recommend to the procurement activity alternative procurement
methods which would increase small business prime contract
participation. Such alternatives may include:
    (A) Breaking up the procurement into smaller discrete procurements;
    (B) Breaking out one or more discrete components, for which a small
business set-aside may be appropriate; and
    (C) Reserving one or more awards for small companies when issuing
multiple awards under task order contracts.
    (ii) Where bundling is necessary and justified, the PCR will work
with the procuring activity to tailor a strategy that preserves small
business prime contract participation to the maximum extent practicable.
    (iii) The PCR will also work to ensure that small business
participation is maximized through subcontracting opportunities. This
may include:
    (A) Recommending that the solicitation and resultant contract
specifically state the small business subcontracting goals which are
expected of the contractor awardee; and
    (B) Recommending that the small business subcontracting goals be
based on total contract dollars instead of subcontract dollars.
    (6) In cases where there is disagreement between a PCR and the
contracting officer over the suitability of a particular acquisition for
a small business set-aside, whether or not the acquisition is a bundled
or substantially bundled requirement within the meaning of paragraph (d)
of this section, the PCR may initiate an appeal to the head of the
contracting activity. If the head of the contracting activity agrees
with the contracting officer, SBA may appeal the matter to the secretary
of the department or head of the agency. The time limits for such
appeals are set forth in 19.505 of the Federal Acquisition Regulation
(FAR) (48 CFR 19.505).
    (7) PCRs will work with a procuring activity's Small Business
Specialist (SBS) to identify proposed solicitations that involve
bundling, and with the agency acquisition officials to revise the
acquisition strategies for such proposed solicitations, where
appropriate, to increase the probability of participation by small
businesses, including small business contract teams, as prime
contractors. If small business participation as prime contractors
appears unlikely, the SBS and PCR will facilitate small business
participation as subcontractors or suppliers.
    (c) BPCR responsibilities. (1) SBA is required by section 403 of
Public Law 98-577 (15 U.S.C. 644(l)) to assign a breakout PCR (BPCR) to
major contracting centers. A major contracting center is a center that,
as determined by SBA, purchases substantial dollar amounts of other than
commercial items, and which has the potential to achieve significant
savings as a result of the assignment of a BPCR.
    (2) BPCRs advocate full and open competition in the Federal
contracting process and recommend the breakout for competition of items
and requirements which previously have not been competed. They may
appeal the failure by the buying activity to act favorably on a
recommendation in accord with the appeal procedures set forth in

[[Page 401]]

Sec. 19.505 of the FAR (48 CFR 19.505). BPCRs also review restrictions
and obstacles to competition and make recommendations for improvement.
Other authorized functions of a BPCR are set forth in 48 CFR 19.403(c)
of the FAR and Section 15(l) of the Act (15 U.S.C. 644(l)).
    (d) Contract bundling--(1) Definitions--(i) Bundled requirement or
bundling. The term bundled requirement or bundling refers to the
consolidation of two or more procurement requirements for goods or
services previously provided or performed under separate smaller
contracts into a solicitation of offers for a single contract that is
likely to be unsuitable for award to a small business concern due to:
    (A) The diversity, size, or specialized nature of the elements of
the performance specified;
    (B) The aggregate dollar value of the anticipated award;
    (C) The geographical dispersion of the contract performance sites;
or
    (D) Any combination of the factors described in paragraphs (d)(1)(i)
(A), (B), and (C) of this section.
    (ii) Separate smaller contract. A separate smaller contract is a
contract that has previously been performed by one or more small
business concerns or was suitable for award to one or more small
business concerns.
    (iii) Substantial bundling. Substantial bundling is any contract
consolidation, which results in an award whose average annual value is
$10 million or more.
    (2) Requirement to foster small business participation. The Small
Business Act requires each Federal agency to foster the participation of
small business concerns as prime contractors, subcontractors, and
suppliers in the contracting opportunities of the Government. To comply
with this requirement, agency acquisition planners must:
    (i) Structure procurement requirements to facilitate competition by
and among small business concerns, including small disadvantaged, 8(a)
and women-owned business concerns; and
    (ii) Avoid unnecessary and unjustified bundling of contract
requirements that inhibits or precludes small business participation in
procurements as prime contractors.
    (3) Requirement for market research. In addition to the requirements
of paragraph (b)(2) of this section and before proceeding with an
acquisition strategy that could lead to a contract containing bundled or
substantially bundled requirements, an agency must conduct market
research to determine whether bundling of the requirements is necessary
and justified. During the market research phase, the acquisition team
should consult with the applicable PCR (or if a PCR is not assigned to
the procuring activity, the SBA Office of Government Contracting Area
Office serving the area in which the buying activity is located).
    (4) Requirement to notify current small business contractors of
intent to bundle. The procuring activity must notify each small business
which is performing a contract that it intends to bundle that
requirement with one or more other requirements at least 30 days prior
to the issuance of the solicitation for the bundled or substantially
bundled requirement. The procuring activity, at that time, should also
provide to the small business the name, phone number and address of the
applicable SBA PCR (or if a PCR is not assigned to the procuring
activity, the SBA Office of Government Contracting Area Office serving
the area in which the buying activity is located).
    (5) Determining requirements to be necessary and justified. When the
procuring activity intends to proceed with an acquisition involving
bundled or substantially bundled procurement requirements, it must
document the acquisition strategy to include a determination that the
bundling is necessary and justified, when compared to the benefits that
could be derived from meeting the agency's requirements through separate
smaller contracts.
    (i) The procuring activity may determine a consolidated requirement
to be necessary and justified if, as compared to the benefits that it
would derive from contracting to meet those requirements if not
consolidated, it would derive measurably substantial benefits. The
procuring activity must quantify the identified benefits and explain how
their impact would be measurably substantial. The benefits may

[[Page 402]]

include cost savings and/or price reduction, quality improvements that
will save time or improve or enhance performance or efficiency,
reduction in acquisition cycle times, better terms and conditions, and
any other benefits that individually, in combination, or in the
aggregate would lead to:
    (A) Benefits equivalent to 10 percent of the contract value
(including options) where the contract value is $75 million or less; or
    (B) Benefits equivalent to 5 percent of the contract value
(including options) or $7.5 million, whichever is greater, where the
contract value exceeds $75 million.
    (ii) Notwithstanding paragraph (d)(5)(i) of this section, the
Assistant Secretaries with responsibility for acquisition matters
(Service Acquisition Executives) or the Under Secretary of Defense for
Acquisition and Technology (for other Defense Agencies) in the
Department of Defense and the Deputy Secretary or equivalent in civilian
agencies may, on a non-delegable basis determine that a consolidated
requirement is necessary and justified when:
    (A) There are benefits that do not meet the thresholds set forth in
paragraph (d)(5)(i) of this section but, in the aggregate, are critical
to the agency's mission success; and
    (B) Procurement strategy provides for maximum practicable
participation by small business.
    (iii) The reduction of administrative or personnel costs alone shall
not be a justification for bundling of contract requirements unless the
administrative or personnel cost savings are expected to be substantial,
in relation to the dollar value of the procurement to be consolidated
(including options). To be substantial, such cost savings must be at
least 10 percent of the contract value (including options).
    (iv) In assessing whether cost savings and/or a price reduction
would be achieved through bundling, the procuring activity and SBA must
compare the price that has been charged by small businesses for the work
that they have performed and, where available, the price that could have
been or could be charged by small businesses for the work not previously
performed by small business.
    (6) OMB Circular A-76 Cost Comparison Analysis. The substantial
benefit analysis set forth in paragraph (d)(5)(i) of this section is not
required where a requirement is subject to a Cost Comparison Analysis
under OMB Circular A-76 (See 5 CFR 1310.3 for availability).
    (7) Substantial bundling. Where a proposed procurement strategy
involves a substantial bundling of contract requirements, the procuring
agency must, in the documentation of that strategy, include a
determination that the anticipated benefits of the proposed bundled
contract justify its use, and must include, at a minimum:
    (i) The analysis for bundled requirements set forth in paragraph
(d)(5)(i) of this section;
    (ii) An assessment of the specific impediments to participation by
small business concerns as prime contractors that will result from the
substantial bundling;
    (iii) Actions designed to maximize small business participation as
prime contractors, including provisions that encourage small business
teaming for the substantially bundled requirement; and
    (iv) Actions designed to maximize small business participation as
subcontractors (including suppliers) at any tier under the contract or
contracts that may be awarded to meet the requirements.
    (8) Significant subcontracting opportunity. (i) Where a bundled or
substantially bundled requirement offers a significant opportunity for
subcontracting, the procuring agency must designate the following
factors as significant factors in evaluating offers:
    (A) A factor that is based on the rate of participation provided
under the subcontracting plan for small business in the performance of
the contract; and
    (B) For the evaluation of past performance of an offeror, a factor
that is based on the extent to which the offeror attained applicable
goals for small business participation in the performance of contracts.
    (ii) Where the offeror for such a bundled contract qualifies as a
small business concern, the procuring agency must give to the offeror
the highest

[[Page 403]]

score possible for the evaluation factors identified in paragraph
(d)(5)(i) of this section.

[61 FR 3312, Jan. 31, 1996, as amended at 63 FR 31908, June 11, 1998; 64
FR 57370, Oct. 25, 1999; 65 FR 45833, July 26, 2000]

Sec. 125.3  Subcontracting assistance.

    (a) The purpose of the subcontracting assistance program is to
achieve maximum utilization of small business by major prime
contractors. The Act requires other-than-small firms awarded contracts
that offer subcontracting possibilities by the Federal Government in
excess of $500,000, or $1 million for construction of a public facility,
to submit a subcontracting plan to the contracting agency. The FAR sets
forth the requirements for subcontracting plans in 48 CFR part 19,
subpart 19.7, and 48 CFR 52.219-9.
    (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) Each CMR has a portfolio of prime contractors and conducts
periodic compliance reviews and needs assessments of the companies in
this portfolio. CMRs are also required to perform opportunity
development and source identification. Opportunity development means
assessing the current and future needs of the prime contractors. Source
identification means identifying those small, small disadvantaged, and
HUBZone concerns which can fulfill the needs assessed from the
opportunity development process.

[61 FR 3312, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996, as amended at 63
FR 31908, June 11, 1998]

Sec. 125.4  Government property sales assistance.

    (a) The purpose of SBA's Government property sales assistance
program is to:
    (1) Insure that small businesses obtain their fair share of all
Federal real and personal property qualifying for sale or other
competitive disposal action; and
    (2) Assist small businesses in obtaining Federal property being
processed for disposal, sale, or lease.
    (b) SBA property sales assistance primarily consists of two
activities:
    (1) Obtaining small business set-asides when necessary to insure
that a fair share of Government property sales are made to small
businesses; and
    (2) Providing advice and assistance to small businesses on all
matters pertaining to sale or lease of Government property.
    (c) The program is intended to cover the following categories of
Government property:
    (1) Sales of timber and related forest products;
    (2) Sales of strategic material from national stockpiles;
    (3) Sales of royalty oil by the Department of Interior's Minerals
Management Service;
    (4) Leases involving rights to minerals, petroleum, coal, and
vegetation; and
    (5) Sales of surplus real and personal property.
    (d) SBA has established specific small business size standards and
rules for the sale or lease of the different kinds of Government
property. These provisions are contained in Secs. 121.501 through
121.514 of this chapter.

Sec. 125.5  Certificate of Competency Program.

    (a) General. (1) The Certificate of Competency (COC) Program is
authorized under section 8(b)(7) of the Small Business Act. A COC is a
written instrument issued by SBA to a Government contracting officer,
certifying that one or more named small business

[[Page 404]]

concerns possess the responsibility to perform a specific Government
procurement (or sale) contract. The COC Program is applicable to all
Government procurement actions. For purposes of this Section, the term
``United States'' includes its territories, possessions, and the
Commonwealth of Puerto Rico.
    (2) A contracting officer must, upon determining an apparent low
small business offeror to be nonresponsible, refer that small business
to SBA for a possible COC, even if the next low apparently responsible
offeror is also a small business.
    (3) A small business offeror referred to SBA as nonresponsible may
apply to SBA for a COC. Where the applicant is a non-manufacturing
offeror on a supply contract, the COC applies to the responsibility of
the non-manufacturer, not to that of the manufacturer.
    (b) COC Eligibility. (1) The offeror seeking a COC has the burden of
proof to demonstrate its eligibility for COC review. To be eligible for
the COC program, a firm must meet the following criteria:
    (i) It must qualify as a small business concern under the size
standard applicable to the procurement. Where the solicitation fails to
specify a size standard or Standard Industrial Classification (SIC)
code, SBA will assign the appropriate size standard to determine COC
eligibility. SBA determines size eligibility as of the date described in
Sec. 121.404 of this chapter.
    (ii) A manufacturing, service, or construction concern must
demonstrate that it will perform a significant portion of the proposed
contract with its own facilities, equipment, and personnel. The contract
must be performed or the end item manufactured within the United States.
    (iii) A non-manufacturer making an offer on a small business set-
aside contract for supplies must furnish end items that have been
manufactured in the United States by a small business. A waiver of this
requirement may be requested under Secs. 121.1301 through 121.1305 of
this chapter for either the type of product being procured or the
specific contract at issue.
    (iv) A non-manufacturer making an offer on an unrestricted
procurement or a procurement utilizing simplified acquisition threshold
procedures with a cost that does not exceed $25,000 must furnish end
items manufactured in the United States to be eligible for a COC.
    (v) An offeror intending to provide a kit consisting of finished
components or other components provided for a special purpose, is
eligible if:
    (A) It meets the Size Standard for the SIC code assigned to the
procurement;
    (B) Each component comprising the kit was manufactured in the United
States; and
    (C) In the case of a set-aside, each component comprising the kit
was manufactured by a small business under the size standard applicable
to the component provided. A waiver of this requirement may be requested
under Secs. 121.1301 through 121.1305 of this chapter.
    (2) SBA will determine a concern ineligible for a COC if the
concern, or any of its principals, appears in the ``Parties Excluded
From Federal Procurement Programs'' section found in the U.S. General
Services Administration Office of Acquisition Policy Publication: List
of Parties Excluded From Federal Procurement or Nonprocurement Programs.
If a principal is unable to presently control the applicant concern, and
appears in the Procurement section of the list due to matters not
directly related to the concern itself, responsibility will be
determined in accordance with paragraph (f)(2) of this section.
    (3) An eligibility determination will be made on a case-by-case
basis, where a concern or any of its principals appears in the
Nonprocurement Section of the publication referred to in paragraph
(b)(2) of this section.
    (c) Referral of nonresponsibility determination to SBA. (1) A
contracting officer who determines that an apparently successful offeror
that has certified itself to be a small business with respect to a
specific Government procurement lacks any element of responsibility
(including competency, capability, capacity, credit, integrity or
tenacity or perseverance) must refer the matter in writing to the SBA
Government Contracting Area Office (Area Office) serving the area in
which the

[[Page 405]]

headquarters of the offeror is located. The referral must include a copy
of the following:
    (i) Solicitation;
    (ii) Offer submitted by the concern whose responsibility is at issue
for the procurement (its Best and Final Offer for a negotiated
procurement);
    (iii) Abstract of Bids, where applicable, or the Contracting
Officer's Price Negotiation Memorandum;
    (iv) Preaward survey, where applicable;
    (v) Contracting officer's written determination of
nonresponsibility;
    (vi) Technical data package (including drawings, specifications, and
Statement of Work); and
    (vii) Any other justification and documentation used to arrive at
the nonresponsibility determination.
    (2) Contract award must be withheld by the contracting officer for a
period of 15 working days (or longer if agreed to by SBA and the
contracting officer) following receipt by the appropriate Area Office of
a referral which includes all required documentation.
    (3) The COC referral must indicate that the offeror has been found
responsive to the solicitation, and also identify the reasons for the
nonresponsibility determination.
    (d) Application for COC. (1) Upon receipt of the contracting
officer's referral, the Area Office will inform the concern of the
contracting officer's negative responsibility determination, and offer
it the opportunity to apply to SBA for a COC by a specified date.
    (2) The COC application must include all information and
documentation requested by SBA and any additional information which the
firm believes will demonstrate its ability to perform on the proposed
contract. The application should be returned as soon as possible, but no
later than the date specified by SBA.
    (3) Upon receipt of a complete and acceptable application, SBA may
elect to visit the applicant's facility to review its responsibility.
SBA personnel may obtain clarification or confirmation of information
provided by the applicant by directly contacting suppliers, financial
institutions, and other third parties upon whom the applicant's
responsibility depends.
    (e) Incomplete applications. If an application for a COC is
materially incomplete or is not submitted by the date specified by SBA,
SBA will close the case without issuing a COC and will notify the
contracting officer and the concern with a declination letter.
    (f) Reviewing an application. (1) The COC review process is not
limited to the areas of nonresponsibility cited by the contracting
officer. SBA may, at its discretion, independently evaluate the COC
applicant for all elements of responsibility, but it may presume
responsibility exists as to elements other than those cited as
deficient. SBA may deny a COC for reasons of nonresponsibility not
originally cited by the contracting officer.
    (2) A small business will be rebuttably presumed nonresponsible if
any of the following circumstances are shown to exist:
    (i) Within three years before the application for a COC, the
concern, or any of its principals, has been convicted of an offense or
offenses that would constitute grounds for debarment or suspension under
FAR subpart 9.4 (48 CFR part 9, subpart 9.4), and the matter is still
under the jurisdiction of a court (e.g., the principals of a concern are
incarcerated, on probation or parole, or under a suspended sentence); or
    (ii) Within three years before the application for a COC, the
concern or any of its principals has had a civil judgment entered
against it or them for any reason that would constitute grounds for
debarment or suspension under FAR subpart 9.4 (48 CFR part, subpart
9.4).
    (g) Decision by Area Director (``Director''). After reviewing the
information submitted by the applicant and the information gathered by
SBA, the Area Director will make a determination, either final or
recommended as set forth in the following chart:

[[Page 406]]



------------------------------------------------------------------------
                                 SBA official or         Finality of
                                   office with        decision; options
     Contracting actions        authority to make      for contracting
                                    decision              agencies
------------------------------------------------------------------------
$100,000 or less, or in       Director may approve  Final. The Director
 accordance with Simplified    or deny.              will notify both
 Acquisition Threshold                               applicant and
 procedures.                                         contracting agency
                                                     in writing of the
                                                     decision.
Between $100,000 and $25      (1) Director may      (1) Final.
 million.                      deny.
                              (2) Director may      (2) Contracting
                               approve, subject to   agency may proceed
                               right of appeal and   under paragraph (h)
                               other options.        or paragraph (i) of
                                                     this section.
Exceeding $25 million.......  (1) Director may      (1) Final.
                               deny.
                              (2) Director must     (2) Contracting
                               refer to SBA          agency may proceed
                               Headquarters          under paragraph (j)
                               recommendation for    of this section.
                               approval.
------------------------------------------------------------------------

    (h) Notification of intent to issue on a contract with a value
between $100,000 and $25 million. Where the Director determines that a
COC is warranted, he or she will notify the contracting officer of the
intent to issue a COC, and of the reasons for that decision, prior to
issuing the COC. At the time of notification, the contracting officer
has the following options:
    (1) Accept the Director's decision to issue the COC and award the
contract to the concern. The COC issuance letter will then be sent,
including as an attachment a detailed rationale of the decision; or
    (2) Ask the Director to suspend the case for one of the following
purposes:
    (i) To forward a detailed rationale for the decision to the
contracting officer for review within a specified period of time;
    (ii) To afford the contracting officer the opportunity to meet with
the Area Office to review all documentation contained in the case file;
    (iii) To submit any information which the contracting officer
believes SBA has not considered (at which time, SBA will establish a new
suspense date mutually agreeable to the contracting officer and SBA); or
    (iv) To permit resolution of an appeal by the contracting agency to
SBA Headquarters under paragraph (i) of this section.
    (i) Appeals of Area Director determinations. For COC actions with a
value exceeding $100,000, contracting agencies may appeal a Director's
decision to issue a COC to SBA Headquarters by filing an appeal with the
Area Office processing the COC application. The Area Office must honor
the request to appeal if the contracting officer agrees to withhold
award until the appeal process is concluded. Without such an agreement
from the contracting officer, the Director must issue the COC. When such
an agreement has been obtained, the Area Office will immediately forward
the case file to SBA Headquarters.
    (1) The intent of the appeal procedure is to allow the contracting
agency the opportunity to submit to SBA Headquarters any documentation
which the Area Office may not have considered.
    (2) SBA Headquarters will furnish written notice to the Director,
Office of Small and Disadvantaged Business Utilization (OSDBU) at the
secretariat level of the procuring agency (with a copy to the
contracting officer), that the case file has been received and that an
appeal decision may be requested by an authorized official at that
level. If the contracting agency decides to file an appeal, it must
notify SBA Headquarters through its Director, OSDBU, within 10 working
days (or a time period agreed upon by both agencies) of its receipt of
the notice under paragraph (h) of this section. The appeal and any
supporting documentation must be filed within 10 working days (or a
different time period agreed to by both agencies) after SBA receives the
request for a formal appeal.
    (3) The SBA Associate Administrator for Government Contracting (AA/
GC) will make a final determination, in writing, to issue or to deny the
COC.
    (j) Decision by SBA Headquarters where contract value exceeds $25
million. (1) Prior to taking final action, SBA Headquarters will contact
the contracting agency at the secretariat level or agency equivalent and
afford it the following options:
    (i) Ask SBA Headquarters to suspend the case so that the agency can
meet

[[Page 407]]

with Headquarters personnel and review all documentation contained in
the case file; or
    (ii) Submit to SBA Headquarters for evaluation any information which
the contracting agency believes has not been considered.
    (2) After reviewing all available information, the AA/GC will make a
final decision to either issue or deny the COC. If the AA/GC's decision
is to deny the COC, the applicant and contracting agency will be
informed in writing by the Area Office. If the decision is to issue the
COC, a letter certifying the responsibility of the firm will be sent to
the contracting agency by Headquarters and the applicant will be
informed of such issuance by the Area Office. Except as set forth in
paragraph (l) of this section, there can be no further appeal or
reconsideration of the decision of the AA/GC.
    (k) Notification of denial of COC. The notification to an
unsuccessful applicant following either an Area Director or a
Headquarters denial of a COC will briefly state all reasons for denial
and inform the applicant that a meeting may be requested with
appropriate SBA personnel to discuss the denial. Upon receipt of a
request for such a meeting, the appropriate SBA personnel will confer
with the applicant and explain the reasons for SBA's action. The meeting
does not constitute an opportunity to rebut the merits of the SBA's
decision to deny the COC, and is for the sole purpose of giving the
applicant the opportunity to correct deficiencies so as to improve its
ability to obtain future contracts either directly or, if necessary,
through the issuance of a COC.
    (l) Reconsideration of COC after issuance. (1) An approved COC may
be reconsidered and possibly rescinded, at the sole discretion of SBA,
where an award of the contract has not occurred, and one of the
following circumstances exists:
    (i) The COC applicant submitted false or omitted materially adverse
information;
    (ii) New materially adverse information has been received relating
to the current responsibility of the applicant concern; or
    (iii) The COC has been issued for more than 60 days (in which case
SBA may investigate the firm's current circumstances).
    (2) Where SBA reconsiders and reaffirms the COC the procedures under
paragraph (h) of this section do not apply.
    (m) Effect of a COC. By the terms of the Act, a COC is conclusive as
to responsibility. Where SBA issues a COC on behalf of a small business
with respect to a particular contract, contracting officers are required
to award the contract without requiring the firm to meet any other
requirement with respect to responsibility.
    (n) Effect of Denial of COC. Denial of a COC by SBA does not
preclude a contracting officer from awarding a contract to the referred
firm, nor does it prevent the concern from making an offer on any other
procurement.
    (o) Monitoring performance. Once a COC has been issued and a
contract awarded on that basis, SBA will monitor contractor performance.

[61 FR 3312, Jan. 31, 1996; 61 FR 7987, Mar. 1, 1996]

Sec. 125.6  Prime contractor performance requirements (limitations on
          subcontracting).

    (a) In order to be awarded a full or partial small business set-
aside contract, an 8(a) contract, or an unrestricted procurement where a
concern has claimed a 10 percent small disadvantaged business (SDB)
price evaluation preference, a small business concern must agree that:
    (1) In the case of a contract for services (except construction),
the concern will perform at least 50 percent of the cost of the contract
incurred for personnel with its own employees.
    (2) In the case of a contract for supplies or products (other than
procurement from a non-manufacturer in such supplies or products), the
concern will perform at least 50 percent of the cost of manufacturing
the supplies or products (not including the costs of materials).
    (3) In the case of a contract for general construction, the concern
will perform at least 15 percent of the cost of the contract with its
own employees (not including the costs of materials).

[[Page 408]]

    (4) In the case of a contract for construction by special trade
contractors, the concern will perform at least 25 percent of the cost of
the contract with its own employees (not including the cost of
materials).
    (b) Definitions. The following definitions apply to this section:
    (1) Cost of the contract. All allowable direct and indirect costs
allocable to the contract, excluding profit or fees.
    (2) Cost of contract performance incurred for personnel. Direct
labor costs and any overhead which has only direct labor as its base,
plus the concern's General and Administrative rate multiplied by the
labor cost.
    (3) Cost of manufacturing. Those costs incurred by the firm in the
production of the end item being acquired. These are costs associated
with the manufacturing process, including the direct costs of
fabrication, assembly, or other production activities, and indirect
costs which are allocable and allowable. The cost of materials, as well
as the profit or fee from the contract, are excluded.
    (4) Cost of materials. Includes costs of the items purchased,
handling and associated shipping costs for the purchased items (which
includes raw materials), off-the-shelf items (and similar
proportionately high-cost common supply items requiring additional
manufacturing or incorporation to become end items), special tooling,
special testing equipment, and construction equipment purchased for and
required to perform on the contract. In the case of a supply contract,
the acquisition of services or products from outside sources following
normal commercial practices within the industry are also included.
    (5) Off-the-shelf item. An item produced and placed in stock by a
manufacturer, or stocked by a distributor, before orders or contracts
are received for its sale. The item may be commercial or may be produced
to military or Federal specifications or description. Off-the-shelf
items are also known as Nondevelopmental Items (NDI).
    (6) Personnel. Individuals who are ``employees'' under Sec. 121.106
of this chapter.
    (7) Subcontracting. That portion of the contract performed by a
firm, other than the concern awarded the contract, under a second
contract, purchase order, or agreement for any parts, supplies,
components, or subassemblies which are not available off-the-shelf, and
which are manufactured in accordance with drawings, specifications, or
designs furnished by the contractor, or by the government as a portion
of the solicitation. Raw castings, forgings, and moldings are considered
as materials, not as subcontracting costs. Where the prime contractor
has been directed by the Government to use any specific source for
parts, supplies, components subassemblies or services, the costs
associated with those purchases will be considered as part of the cost
of materials, not subcontracting costs.
    (c) Compliance will be considered an element of responsibility and
not a component of size eligibility.
    (d) The period of time used to determine compliance will be the
period of performance which the evaluating agency uses to evaluate the
proposal or bid. If the evaluating agency fails to articulate in its
solicitation the period of performance it will use to evaluate the
proposal or bid, the base contract period, excluding options, will be
used to determine compliance. In indefinite quantity contracts,
performance over the guaranteed minimum will be used to determine
compliance unless the evaluating agency articulates a different period
of performance which it will use to evaluate the proposal or bid in its
solicitation.
    (e) Work to be performed by subsidiaries or other affiliates of a
concern is not counted as being performed by the concern for purposes of
determining whether the concern will perform the required percentage of
work.
    (f) The procedures of Sec. 125.5 apply where the contracting officer
determines non-compliance, the procurement is a full or partial small
business set-aside or an SDB has claimed a preference, and refers the
matter to SBA for a COC determination.
    (g) Where an offeror is exempt from affiliation under
Sec. 121.103(f)(3) of this chapter and qualifies as a small business
concern, the performance of work requirements set forth in this section
apply to the cooperative effort of the

[[Page 409]]

team or joint venture, not its individual members.

[61 FR 3312, Jan. 31, 1996; 61 FR 39305, July 20, 1996; as amended at 64
FR 57372, Oct. 25, 1999; 65 FR 45835, July 26, 2000]

Sec. 125.7  What is the Very Small Business program?

    (a) The Very Small Business (VSB) program is an extension of the
small business set-aside program, administered by SBA as a pilot to
increase opportunities for VSB concerns. Procurement requirements,
including construction requirements, estimated to be between $2,500 and
$50,000 must be reserved for eligible VSB concerns if the criteria in
paragraph (c) of this section are met.
    (b) Definitions. (1) The term designated SBA district means the
geographic area served by any of the following SBA district offices:
    (i) Albuquerque, NM, serving New Mexico;
    (ii) Los Angeles, CA, serving the following counties in California:
Los Angeles, Santa Barbara, and Ventura;
    (iii) Boston, MA, serving Massachusetts;
    (iv) Louisville, KY, serving Kentucky;
    (v) Columbus, OH, serving the following counties in Ohio: Adams,
Allen, Ashland, Athens, Auglaize, Belmont, Brown, Butler, Champaign,
Clark, Clermont, Clinton, Coshocton, Crawford, Darke, Delaware,
Fairfield, Fayette, Franklin, Gallia, Greene, Guernsey, Hamilton,
Hancock, Hardin, Highland, Hocking, Holmes, Jackson, Knox, Lawrence,
Licking, Logan, Madison, Marion, Meigs, Mercer, Miami, Monroe,
Montgomery, Morgan, Morrow, Muskingum, Noble, Paulding, Perry, Pickaway,
Pike, Preble, Putnam, Richland, Ross, Scioto, Shelby, Union, Van Wert,
Vinton, Warren, Washington, and Wyandot;
    (vi) New Orleans, LA, serving Louisiana;
    (vii) Detroit, MI, serving Michigan;
    (viii) Philadelphia, PA, serving the State of Delaware and the
following counties in Pennsylvania: Adams, Berks, Bradford, Bucks,
Carbon, Chester, Clinton, Columbia, Cumberland, Dauphin, Delaware,
Franklin, Fulton, Huntington, Juniata, Lackawanna, Lancaster, Lebanon,
Lehigh, Luzerne, Lycoming, Mifflin, Monroe, Montgomery, Montour,
Northampton, Northumberland, Philadelphia, Perry, Pike, Potter,
Schuylkill, Snyder, Sullivan, Susquehanna, Tioga, Union, Wayne, Wyoming,
and York;
    (ix) El Paso, TX, serving the following counties in Texas: Brewster,
Culberson, El Paso, Hudspeth, Jeff Davis, Pecos, Presidio, Reeves, and
Terrell; and
    (x) Santa Ana, CA, serving the following counties in California:
Orange, Riverside, and San Bernadino.
    (2) The term very small business or VSB means a concern whose
headquarters is located within the geographic area served by a
designated SBA district and, together with its affiliates, has no more
than 15 employees and has average annual receipts that do not exceed $1
million. The terms concerns, affiliates, average annual receipts, and
employees have the meaning given to them in Secs. 121.105, 121.103,
121.104, and 121.106, respectively, of this chapter.
    (c)(1) A contracting officer must set aside for VSB concerns each
procurement that has an anticipated dollar value between $2,500 and
$50,000 if:
    (i) In the case of a procurement for manufactured or supply items:
    (A) The buying activity is located within the geographical area
served by a designated SBA district, and
    (B) There is a reasonable expectation of obtaining offers from two
or more responsible VSB concerns headquartered within the geographical
area served by that designated SBA district that are competitive in
terms of market prices, quality and delivery; or
    (ii) In the case of a procurement for other than manufactured or
supply items:
    (A) The requirement will be performed within the geographical area
served by a designated SBA district, and
    (B) There is a reasonable expectation of obtaining offers from two
or more responsible VSB concerns headquartered within the geographical
area served by that designated SBA district that are competitive in
terms of market prices, quality and delivery.

[[Page 410]]

    (2) The geographic areas served by the SBA Los Angeles and Santa Ana
District Offices will be treated as one designated SBA district for the
purposes of this section.
    (3) If the contracting officer determines that there is not a
reasonable expectation of receiving at least two responsible offers from
VSB concerns headquartered within the geographic area served by the
applicable designated SBA district, he or she must include in the
contract file the reason(s) for this determination, and solicit the
procurement pursuant to the provisions of 48 CFR 19.502-2. SBA may
appeal such determination using the same procedure described in 48 CFR
19.505.
    (4) If the contracting officer receives only one acceptable offer
from a responsible VSB concern in response to a VSB set-aside, the
contracting officer will make an award to that firm. If the contracting
officer receives no acceptable offers from responsible VSB concerns, he
or she will withdraw the procurement and, if still valid, must resolicit
it pursuant to the provisions of 48 CFR 19.502-2.
    (d) Where a procurement is set aside for VSB concerns, only those
VSB concerns whose headquarters are located within the geographic area
served by the applicable designated SBA district are eligible to submit
offers in response to the solicitation.
    (e) Nothing in this section shall be construed to alter in any way
the procedures by which procuring activities award contracts under the
SBA's 8(a) Business Development program (see 13 CFR part 124).
    (f) This pilot program terminates on September 30, 2000. Any award
under this program must be made on or before this date.

[63 FR 46642, Sept. 2, 1998]