On April 27th, the U.S. Small Business Administration (“SBA”) published a final rule making changes to the regulations governing the 8(a) program. This final rule is SBA’s implementation of the proposed rules issued by the SBA on September 9, 2022. We summarized the changes adopted by the final rule here.

While many of the SBA’s regulatory changes are intended to document existing SBA policies and practices, the SBA did implement a number of substantive changes. Accordingly, over the next several weeks, we will be going through various parts of the final rule and conducting an in-depth discussion and analysis of the changes. We anticipate addressing the following areas in this series:

• Bona fide place of business requirements.
• Joint ventures.
• Size determinations in connection with multiple award contracts.
• Ostensible subcontractor rule.
• Limitations on subcontracting.
• 8(A) business activity targets.
• Follow-on contracts.
• Size protests.
• All small mentor-protégé programs.

Bona Fide Place of Business Requirements

In this update, we are addressing the changes to the bona fide place of business requirements.

Please note that some members of Congress are looking to eliminate the bona fide place of business rule. On May 3, 2023, the Alaska Delegation to Congress, Senator Murkowski, Senator Sullivan, and Representative Peltola, announced they were introducing legislation to remove the bona fide place of business rule. The legislation is cosponsored by Senator Mazie Hirono (D-Hawai’i) in the Senate and Representatives Jill Tokuda and Ed Case (both D-Hawai’i) in the House. The legislation is endorsed by the Native American Contractors Association and the National 8(a) Association. The legislation in the House is H.R. 2970.

The bona fide place of business requirement was adopted by the SBA in 1998 and applies only to 8(a) entities engaged in construction work for the federal government. The bona fide place of business rule generally requires an 8(a) construction firm to have a “bona fide place of business” in the area in which they are performing a federal construction project. The SBA adopted this requirement to implement Section 8(a)(11) of the Small Business Act, 15 U.S.C. 637(a)(11), which states that “[t]o the maximum extent practicable, construction subcontracts awarded by the Administration pursuant to this subsection shall be awarded within the county or State where the work is to be performed.” The bona fide place of business rule applies to both sole source and competitive 8(a) contracts.

A “bona fide place of business” generally means an office that employs at least one full-time individual. It does not include construction trailers or other temporary construction sites. As such, 8(a) entities doing construction work are required to establish offices, staffed by a “full-time” employee, in the areas in which they are working on an 8(a) construction contract. Therefore, as an example, if an 8(a) firm based in Anchorage, Alaska, wanted to receive an 8(a) construction contract in Denver, Colorado, that 8(a) firm would have to establish an office in Denver staffed by a full-time employee.

The “bona fide place of business” can limit the ability of 8(a) entities to receive 8(a) construction contracts in areas of the country where the 8(a) firm does not have a presence, as there is a certain amount of up-front cost that must be incurred to set up a “bona fide place of business.” Accordingly, 8(a) firms have consistently urged the SBA to remove the bona fide place of business requirement, or at least provide for exceptions to the rule. In the 2023 final rule, the SBA refused to eliminate the bona fide place of business rule, explaining that it viewed the Small Business Act as mandating some version of the rule:

SBA understands that some have expressed the view that the “to the maximum extent practicable” statutory language should be read in a way that affords procuring agencies the discretion to broaden or do away with the bona fide place of business requirement where they deem it to be appropriate, for whatever reason. SBA disagrees that the statutory language affords such flexibility. In SBA’s view, “to the maximum extent practicable” denotes Congress’s intent that something be followed whenever possible, not merely when a procuring agency thinks it is the best option or appropriate in particular circumstances. Thus, SBA will continue to apply the bona fide place of business requirement to both sole source and competitive 8(a) construction procurements unless SBA determines that it is not “practicable” to do so.

As such, 8(a) firms must continue to be aware of, and comply with once the COVID-19-related moratorium on the rule expires, the bona fide place of business rule. The SBA’s moratorium on the bona fide place of business rule is set to expire on September 30, 2023, and the SBA has not committed to extending the moratorium.

In the final rule, the SBA loosened the requirements of “bona fide place of business,” both in terms of the geographic location that can be “served” by a bona fide place of business and what an 8(a) firm must do to establish a bona fide place of business.

Geographic Area Served By a Bona Fide Place of Business

In October 2020, the SBA modified the bona fide place of business regulation to state that a bona fide place of business is:

a location where a Participant regularly maintains an office that employs at least one full-time individual within the appropriate geographical boundary. The term does not include construction trailers or other temporary construction sites.

The revised regulations also defined the appropriate geographic boundaries as including:

the geographic area serviced by the SBA district office, a Metropolitan Statistical Area (MSA), a contiguous county (whether in the same or different state), or the geographical area serviced by a contiguous SBA district office to where the work will be performed. SBA may determine that a Participant with a bona fide place of business anywhere within the state (if the state is serviced by more than one SBA district office), one or more other SBA district offices (in the same or another state), or another nearby area is eligible for the award of an 8(a) construction contract.

In the Final Rule, the SBA explained that the intent of the 2020 revision was “a Participant with a bona fide place of business anywhere in a particular state should be deemed eligible for a construction contract throughout that entire state (even if the state is serviced by more than one SBA district office). However, because the regulatory text used the word ‘may’, several Participants sought clarification of SBA’s intent.” The Final Rule attempts to clarify this intent and confirm the geographic locations that an 8(a) firm’s bona fide place of business can serve.

Specifically, after the Final Rule, an 8(a) firm can perform an 8(a) sole source or competitive 8(a) construction contract in the following locations for each bona fide place of business:

• Anywhere in the geographic area serviced by a SBA District Office where a bona fide place of business is located. For example, if an 8(a) firm has a bona fide place of business in Portland, Oregon, the 8(a) firm can perform 8(a) contracts anywhere in the area served by the Portland District Office, which services 30 counties in Oregon and four counties in southwestern Washington.
• Anywhere in the geographic area serviced by the Metropolitan Statistical Area where a bona fide place of business is located.
• Any county that is contiguous (whether in the same state or not) to the county where a bona fide place of business is located.
• Anywhere in a state where a bona fide place of business is located, even if the state is serviced by more than one SBA District Office.
• Anywhere in a state where the 8(a) firm performs an 8(a) contract.
• Anywhere the geographical area is serviced by a contiguous SBA district office to where the firm has a bona fide place of business. For example, if an 8(a) firm has a bona fide place of business in Portland, Oregon, the 8(a) firm can perform work in the geographic area served by the Boise District (34 counties in southern Idaho and the easternmost six counties in Oregon) and the Seattle District (Washington and 10 counties in northern Idaho). Accordingly, an 8(a) firm with a bona fide place of business in Portland, Oregon, can perform 8(a) construction contracts anywhere in Oregon, Washington, or Idaho without having to establish a new bona fide place of business.

There are some limitations on these rules. An 8(a) firm may not link together multiple places of performance in order to be eligible to perform work in other states, or areas served by a District Office, where it does not have a bona fide place of business. This means that an 8(a) firm cannot use the fact that it is performing a contract in one state (or area served by an SBA District Office), as a result of it having a bona fide place of business in a state (or area served by an SBA District Office) that is contiguous to that contract’s place of performance, in order to perform work in yet another state (or area served by an SBA District Office), unless the 8(a) firm establishes a bona fide place of business in either:

• the location in which it is currently performing a contract,
• a state that is contiguous to where it wants to start a new contract, or
• in the geographical area serviced by the SBA district office that is contiguous to the District Office where the work will be performed.

For example, if an 8(a) firm had an office in Portland, Oregon, it could perform an 8(a) construction contract in Idaho. That 8(a) firm, however, could not then use the fact that it is performing work in Idaho to perform work in Wyoming, even though Wyoming is contiguous with Idaho. In order to be eligible to perform work in Wyoming, the 8(a) firm would first have to establish a bona fide place of business in Idaho, Wyoming, or in the geographical area serviced by the SBA District Office that is contiguous to the Wyoming District Office where the work will be performed.

The SBA gave the following example in the Final Rule:

The language of the rule states that a firm will be eligible for work that will be performed in the geographical area serviced by a contiguous SBA district office to where the firm has a bona fide place of business (in addition to stating a firm will be eligible for work anywhere in a state in which the firm has a bona fide place of business). There are two SBA district offices servicing Virginia: the Washington Metropolitan Area District Office services northern Virginia and the Richmond District Office services the rest of Virginia. North Carolina has only one SBA district office, so any district office whose geographic area touches any part of North Carolina will be eligible for any 8(a) construction contract anywhere in the entire state. Only the geographic area serviced by the Richmond District Office touches North Carolina. As such, a firm having a bona fide place of business in the geographic area serviced by the Richmond District Office will be eligible for 8(a) construction contracts in North Carolina. Firms having a bona fide place of business in the geographic area serviced by the Washington Metropolitan Area District Office will be not eligible because the geographic area serviced by that office is not contiguous to that of the area serviced by the North Carolina District Office.

What Constitutes a Bona Fide Place of Business?

In adopting the Final Rule, the SBA recognized the rapid change in working conditions, specifically working from home, in recent years. Accordingly, the Final Rule permits 8(a) firms to establish a bona fide place of business based in a home office, provided the office is staffed by a full-time employee. Moreover, the SBA also revised the regulations to define a full-time employee for purposes of the bona fide place of business rule as someone who works at least 20 hours a week in that location. That employee does not need to be a permanent resident of the state where the bona fide place of business is located, and the 8(a) firm can rotate different employees in and out of the bona fide place of business. This provides greater flexibility for 8(a) construction firms.

Bona Fide Place of Business for Contracts with Multiple Locations

Some 8(a) construction contracts require work at multiple locations, including across multiple states. For those contracts, there is a potential for the rule to be interpreted as requiring the 8(a) firm to have a bona fide place of business in each state or location where the work is being performed. The Final Rule recognizes this is not SBA’s intent, and provides that the 8(a) firm must have a bona fide place of business in the location where a “majority” of the work is to be performed, measured by dollar value.

For example, if an 8(a) construction contract requires work in Portland, Oregon, and Cheyenne, Wyoming, and the 8(a) firm has a bona fide place of business in Portland, the 8(a) firm will not need to have a bona fide place of business in Wyoming if the majority of the dollar value of the contract is for the work in Portland. If a majority of the dollar value of the work is in Cheyenne, however, the 8(a) firm would have to have a bona fide place of business in Cheyenne. This is because the 8(a) firm’s bona fide place of business in Portland would not make them eligible to receive an 8(a) contract in Wyoming, as Wyoming is not contiguous with the District Office where the 8(a) firm has a bona fide place of business.

If the 8(a) contract, however, requires work in Portland, Oregon, and Boise, Idaho, and the 8(a) firm has a bona fide place of business in Portland, the 8(a) firm would not need to have a bona fide place of business in Boise, even if a majority of the dollar value of the contract is for work in Boise. A bona fide place of business in Boise would not be required because Boise is located in the Boise District Office, which is contiguous with a District Office (Portland) in which the 8(a) firm has a bona fide place of business.

Comparison of Prior Rule with New Rule

The following demonstrates the changes made to the bona fide place of business regulations. Strikethroughs indicate language that has been removed. Bolding and underling indicates language that has been added.

13 CFR 124.3: What definitions are important in the 8(a) BD program?

Bona fide place of business, for purposes of 8(a) construction procurements, means a location where a Participant regularly maintains an office which employs at least one full-time individual who works at least 20 hours per week at that location within the appropriate geographical boundary. The term does not include construction trailers or other temporary construction sites.

• 124.501: What general provisions apply to the award of 8(a) contracts?

(k) In order to be awarded a sole source or competitive 8(a) construction contract, a Participant must have a bona fide place of business within the applicable geographic location determined by SBA. This will generally be the geographic area serviced by the SBA district office, a Metropolitan Statistical Area (MSA), a contiguous county (whether in the same or different state), or the geographical area serviced by a contiguous SBA district office to where the work will be performed. SBA may determine that a A Participant with a bona fide place of business anywhere within the a state will be deemed eligible for a construction contract anywhere in that state (even if the state is serviced by more than one SBA district office). SBA may also determine that a Participant with a bona fide place of business in the geographic area served by one of several , one or more other SBA district offices (in the same or another state), or another nearby area is eligible for the award of an 8(a) construction contract.

(1) A Participant may have bona fide places of business in more than one location.

(2) In order for a Participant to establish a bona fide place of business in a particular geographic location, the SBA district office serving the geographic area of that location must determine if the location in fact qualifies as a bona fide place of business under SBA’s requirements.

(i) A Participant must submit a request for a bona fide business determination to the SBA district office servicing it. Such request may, but need not, relate to a specific 8(a) requirement. In order to apply to a specific competitive 8(a) solicitation, such request must be submitted at least 20 working days before initial offers that include price are due.

(ii) The servicing district office will immediately forward the request to the SBA district office serving the geographic area of the particular location for processing. Within 10 working days of receipt of the submission, the reviewing district office will conduct a site visit, if practicable. If not practicable, the reviewing district office will contact the Participant within such 10-day period to inform the Participant that the reviewing office has received the request and may ask for additional documentation to support the request.

(iii) In connection with a specific competitive solicitation, the reviewing office will make a determination whether or not the Participant has a bona fide place of business in its geographical area within 5 working days of a site visit or within 15 working days of its receipt of the request from the servicing district office if a site visit is not practical in that timeframe. If the request is not related to a specific procurement, the reviewing office will make a determination within 30 working days of its receipt of the request from the servicing district office, if practicable.

(A) Where SBA does not provide a determination within the identified time limit, a Participant may presume that SBA has approved its request for a bona fide place of business and submit an offer for a competitive 8(a) procurement that requires a bona fide place of business in the requested area.

(B) In order to be eligible for award, SBA must approve the bona fide place of business prior to award. If SBA has not provided a determination prior to the time that a Participant is identified as the apparent successful offeror, SBA will make the bona fide place of business determination as part of the eligibility determination set forth in paragraph (g)(4) of this section within 5 days of receiving a procuring activity’s request for an eligibility determination, unless the procuring activity grants additional time for review. If, due to deficiencies in a Participant’s request, SBA cannot make a determination, and the procuring activity does not grant additional time for review, SBA will be unable to verify the Participant’s eligibility for award and the Participant will be ineligible for award.

(3) The effective date of a bona fide place of business is the date that the evidence (paperwork) shows that the business in fact regularly maintained its business at the new geographic location.

(4) If a Participant is currently performing a contract in a specific state, it qualifies as having a bona fide place of business in that state for one or more additional contracts. The Participant may not use contract performance in one state to allow it to be eligible for an 8(a) contract in a contiguous state unless it officially establishes a bona fide place of business in the location in which it is currently performing a contract, in the contiguous state or in a location in another state in which the geographical area serviced by the SBA district office is contiguous to the district office in the state where the work will be performed.

(5) A Participant may establish a bona fide place of business through a full-time employee in a home office.

(6) An individual designated as the full-time employee of the Participant seeking to establish a bona fide place of business in a specific geographic location need not be a resident of the state where he/she is conducting business.

(7) Except as provided in paragraph (k)(2)(iii) of this section, in order for a Participant to be eligible to submit an offer for an 8(a) procurement limited to a specific geographic area, it must receive from SBA a determination that it has a bona fide place of business within that area prior to submitting its offer for the procurement. [renumbered from 13 CFR 124.501(k)(4) without change]

(8) Once a Participant has established a bona fide place of business, the Participant may change the location of the recognized office without prior SBA approval. However, the Participant must notify SBA and provide documentation demonstrating an office at that new location within 30 days after the move. Failure to timely notify SBA will render the Participant ineligible for new 8(a) construction procurements limited to that geographic area. [renumbered from 13 CFR 124.501(k)(5) without change]

(9) For an 8(a) construction contract requiring work in multiple locations, a Participant is eligible if:

(i) For a single award contract, the Participant has a bona fide place of business where a majority of the work (as identified by the dollar value of the work) is anticipated to be performed; and

(ii) For a multiple award contract, the Participant has a bona fide place of business in any location where work is to be performed.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.