SBA Plans Comprehensive Overhaul of HUBZone Program

Small BusinessIn response to President Trump’s Executive Order to reduce regulatory burdens and control regulatory costs, the U.S. Small Business Administration (SBA) has proposed a rule to amend its regulations for the Historically Under-utilized Business Zones (HUBZone) Program.  The proposed rule promises to bring certainty and stability to a program that has been among SBA’s most challenging compliance hurdles.  In recent years, these hurdles have caused the federal government to fall consistently short of its goal to award at least 3% of all federal contracting dollars to HUBZone firms.

Under current law, to qualify for the HUBZone program, a business (except tribally-owned concerns) must (a) qualify as a small business, (b) be owned and controlled at least 51% by U.S. citizens, or a Community Development Corporation, or an agricultural cooperative or an Indian tribe, (c) have its principal office in a HUBZone (including lands considered “Indian Country” and military facilities closed by the Base Realignment and Closure Act), and (d) have at least 35% of its employees residing in a HUBZone.

As HUBZone lines change with each census and employees regularly relocate, compliance with the program has been a moving target for participants.  In addition, the onerous requirement for offerors to recertify their status for every bid and award of a HUBZone-eligible contract, has made tracking employee and business status difficult.

In response, SBA proposes the following changes:

  • To allow for more consistency in employee counts, an individual employee would remain a HUBZone resident if:
    • that individual worked for the certified firm, and
    • lived in a HUBZone at the time of certification, and
    • continues to work uninterruptedly for the firm.
  • To allow for fluctuations in staffing, SBA would eliminate the requirement to recertify HUBZone eligibility for every bid and award; instead, certification would be required only once a year. A firm would still represent that it is certified for each award, but its eligibility would be based on its date of annual certification.
  • To allow HUBZone businesses to perform overseas, SBA would provide that employees working overseas can be considered to be living in a HUBZone if they pay rent or own a home in a HUBZone.
  • To provide flexibility in hiring for large contracts, SBA would reduce the level of staffing needed to “attempt to maintain” compliance with the 35% employee HUBZone residency requirement, to more than 20% between certifications.
    • SBA would remove the requirement that an employee prove intent to live in a HUBZone indefinitely and, instead, require employees currently to live in the location full-time and for at least the 180 days prior to certification.
    • SBA would freeze HUBZone maps until December 31, 2021, to incorporate the information gathered in the 2020 census.
  • SBA would amend the definition of employee by increasing the required work hours from 40 hours a month to 20 hours a week.

Perhaps the proposed change with the most impact is the annual certification.  This will provide certainty and an ability to plan for the entire year without having to worry about recertifying every time a business pursues a HUBZone-eligible contract.  This will also ease concern over trying to predict compliance with HUBZone certification.

Once an area loses its HUBZone status, it is not always realistic to expect a small business to relocate, effectively having to chase HUBZone locations.  The proposed rule allows flexibility and provides some certainty that HUBZone status will not be in danger if employees move out of HUBZones, under certain circumstances.

Comments are due on or before December 31, 2018.