The Small Business Administration released its final regulations governing its new HUBZone program in June 1998. HUB stands for Historically Underutilized Business. The HUBZone program is designed to give preference to small business concerns (SBC) in economically depressed areas of the country when awarding government contracts. The HUBZone program regulations were promulgated pursuant to the HUBZone Act, passed by Congress in 1997.
The HUBZone program is limited to small businesses; large businesses may not participate in the HUBZone program. Small business size status is determined by the SBA using the same North American Industrial Classification System (NAICS) Code categories now used to determine whether a business is considered small for a government contract. The SBA publishes and updates a series of HUBZone maps to help identify areas classified as HUBZones.
To be eligible for the HUBZone program and become a certified HUBZone SBC, a contractor must be a small business concern owned and controlled by U.S. citizens. The principal office of the contract must be located in the HUBZone, and at least 35 percent of the concern's employees must reside in a HUBZone, a percentage which the contractor must maintain during contract performance. To be considered a resident, the employee must either have registered to vote in the HUBZone or have resided there for at least 180 days, and have an intent to live there indefinitely.
While the definition of a HUBZone SBC may seem simple, it's fraught with definitional fine lines. For example, the SBA has decided that the term "employee" refers only to full-time employees who work at least 30 hours per week, and excludes part-time or leased employees or consultant contractors (although this definition is the subject of a 2004 proposed rulemaking that may result in changes to the definition). Principal office is defined as the HUBZone SBC's office where most of its employees work.
There are also ownership issues. The HUBZone SBC must be 100 percent owned by U.S. citizens. A foreigner owning as little as 0.1 percent makes the contractor ineligible. The same holds true if the foreigner doesn't currently own any stock in the company but has an option to buy shares at a later date.
To become a HUBZone SBC, a contractor must apply to the SBA for certification. The SBA will review the application, and if granted, add the contractor to the list of certified HUBZone SBCs. Even after certification, the HUBZone SBC must continue to meet the eligibility requirements before entering into a HUBZone contract.
Once in the HUBZone program, the SBA may examine a HUBZone SBC's eligibility to stay in the program. Contractors found lacking can be decertified. However, there is no term limit to a participant's stay in the HUBZone program.
The reward for achieving HUBZone SBC is the contractual assistance available through government contracts. An agency may award a sole source contract to a HUBZone SBC as long as the award price does not exceed $5,000,000 for manufacturing contracts and $3,000,000 for other NAICS Codes, and assuming there are no other qualified HUBZone SBCs likely to submit offers.
In addition, an agency may conduct a HUB Zone set-aside procurement among several HUB Zone SBCs. Finally, in full and open competitions, contracting officers are required to find the price of a HUBZone SBC to be lower than the price offered by a large business if the HUBZone SBC's price is not more than 10 percent higher than the next lowest offeror.
During the contract, a HUBZone SBC must perform at least 50 percent of the labor services rendered. For supply contracts, the HUBZone SBC either be a regular dealer of the supplies, or if a manufacturer, must incur at least 50 percent of the manufacturing cost.
Finally, interested parties can protest the award of a HUBZone contract or a parties' eligibility as a HUBZone SBC.
Large businesses can use the HUBZone program to their benefit, too. The SBA amended the small business subcontracting regulations to include HUBZone SBCs in large contractor's subcontracting plans. Large businesses contractors will thus be motivated to use HUBZone SBCs to meet the contractor's small business subcontracting goals.
The HUBZone program reflects a new mood at the SBA that itself mirrors a larger trend in the United States to move away from minority-based social programs to economically based programs where minority status is not determinative. The contracting community may use the HUBZone program as an attractive alternative for giving businesses in economically depressed areas a leg up on their economically better-off competition.
