On Wednesday, May 16, 2018, MWL Counsel Orest J. Jowyk, as part of the Jennifer Schaus & Associates GovCon Webinar Wednesday series, presented a webinar on the U.S. Small Business Administration’s (“SBA”) Historically Underutilized Business Zone (“HUBZone”) program, focusing on HUBZone certification and recent rule changes to the HUBZone program.

As Mr. Jowyk discussed, the HUBZone program was created by Congress in 1998 (through a law passed in 1997) to assist small businesses in certain urban and rural communities gain preferential access to federal procurement opportunities. A HUBZone is a specific and defined geographic area that is in one the following: (1) a qualified census tract, (2) a qualified metropolitan county, (3) certain lands near Indian reservations, (4) qualified military base closure areas, or (5) redesignated areas. Definitions of the above areas are complicated and scattered through several statutes and regulations. Happily, SBA provides a HUBZone map indicating all of the HUBZone areas in the U.S. Entering an address on the HUBZone map page quickly determines whether that address is in a HUBZone.

All of the HUBZone qualification requirements and the rules governing the program are contained in the SBA’s regulation at 13 C.F.R. Part 126. To meet the program’s basic eligibility requirements, however, a business must: (1) be small under SBA’s size standards, (2) be owned and controlled at least 51% by U.S. citizens (a major change to this requirement will be discussed below), a community development corporation, an agricultural cooperative, or Indian tribe, (3) have a principal office located in a HUBZone, and (4) have at least 35% of its employees living in a HUBZone (though not necessarily the same HUBZone as the business). SBA’s Certify website includes a handy tool that allows businesses to preliminarily assess whether they qualify for the HUBZone program.

The principal benefits of certifying as a HUBZone business include: (1) eligibility to compete on competitive procurements that are set-aside for HUBZone businesses, (2) eligibility to receive sole-source contracts that are set-aside for HUBZone businesses, (3) a 10% price evaluation preference in federal full and open procurements, and (4) subcontracting opportunities with larger prime contractors seeking to fulfill their subcontracting plan goals

Recent major changes to the HUBZone program were effected both by a regulatory change and by the 2018 National Defense Authorization Act. By a direct final rule, effective May 25, 2018, SBA changed the “51% ownership” qualification requirement to allow the ownership requirement to be met through corporate vehicles rather than directly as U.S. citizens (i.e., indirect ownership through a holding company is now allowed). Also, effective immediately, the current HUBZone map is to be “frozen,” with no changes until at least January 1, 2020.

Most of the remainder of the changes are set to take effect January 1, 2020. From that date forward, the HUBZone map is to be updated less frequently. Also, a military base closure HUBZone can be designated by SBA before the actual closure, and such a HUBZone area may remain a HUBZone area indefinitely, but for not less than 8 years. Finally, each state governor will be able to designate one HUBZone area per year, SBA will be required to process HUBZone applications in 60 days or less, and SBA will maintain a publicly available list of current HUBZone concerns.

The recent changes discussed above are likely to have several positive effects. Fewer changes to the HUBZone map should result in more certainty for HUBZone concerns and longer periods of eligibility for the program. Changes to the income ratios used to determine HUBZone areas and input by state governors are likely to result in the program expanding to more areas. Indirect ownership will allow for more flexibility in corporate structures and may entice more businesses to apply for the program. Finally, the new rules offer the hopes of SBA processing applications more quickly and the federal Government meeting its goal of awarding 3% of all federal prime contract procurement dollars to HUBZone concerns.

The entire webinar can be viewed and heard at this link.

For more information, contact MWL Counsel Orest J. Jowyk.