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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: October 3, 2000

FROM: Barry McVay, CPCM

SUBJECT: Small Business Administration; HUBZone Program Improvements

SOURCE: Federal Register, October 3, 2000, Vol. 65, No. 192, page 58963

AGENCIES: Small Business Administration (SBA)

ACTION: Proposed Rule

SYNOPSIS: SBA is proposing to revise its regulations governing the Historically Underutilized Business Zone (HUBZone) Empowerment Contracting Program to add three federal agencies to the list of those that must comply with the HUBZone regulations, and to make improvements to the administration and operation of the HUBZone program.

EDITOR'S NOTE: The SBA's regulations are in Title 13 of the Code of Federal Regulations (CFR). The HUBZone regulations are in Part 126, HUBZone Program, of Title 13.

The Federal Acquisition Regulation (FAR) addresses the HUBZone program in Subpart hubzone@sba.gov.

SUPPLEMENTAL INFORMATION: Title VI of the Small Business Reauthorization Act of 1997 (Public Law 105-135) established the HUBZone program to provide federal contract assistance to qualified small business concerns located in distressed communities. The law established a HUBZone annual contracting goal of 3% of overall prime contracting, which means the HUBZone program could account for about $6 billion a year in federal contracts by Fiscal Year 2003, when the full 3% goal becomes effective.

To participate in the HUBZone program, a small business' principal office must be located in a HUBZone. More than 7,000 urban census tracts and 900 rural counties currently qualify as HUBZones. Also, all federally-recognized Native American reservations qualify.

The SBA published implementing regulations on June 11, 1998, effective September 9, 1998. Since then, SBA has received over 2,000 applications for HUBZone certification. However, SBA has become aware of certain amendments that it believes will clarify the regulations, streamline the operation of the HUBZone program, and ease eligibility requirements that are thought to be overly burdensome to businesses. They are as follows:

• Paragraph (a) of Section 126.101, Which government departments or agencies are affected directly by the HUBZone program?, would be amended to add three departments to the list of agencies that must comply with the HUBZone regulations: the Departments of Commerce, Justice, and State (the agencies that must comply with the HUBZone regulations are the departments of Agriculture, Defense, Energy, Health and Human Services, Housing and Urban Development, Transportation, Veterans Affairs; Environmental Protection Agency, General Services Administration, and National Aeronautics and Space Administration). Though Public Law 105-135 required that the HUBZone program would apply to all federal agencies after September 30, 2000, Section 212 Public Law 106-113 (enacted November 29, 1999) requires that the HUBZone program apply to Commerce, Justice, and State. So these three departments would be added to the list.
  
  Also in Section 126.101, a paragraph (c) would be added, and it would state that the HUBZone program does not apply to contracts awarded by state and local governments, since the HUBZone Act only applies to the federal government. However, paragraph (c) would permit state and local governments that have programs similar to the HUBZone program to use SBA's list of qualified HUBZone small business concerns (at http://www.sba.gov/hubzone).
  
  
• In Section 126.103, What definitions are important in the HUBZone program?, "principle office" is currently defined as "the location where the greatest number of the concern's employees at any one location perform their work." However, maintaining compliance with the current definition of "principal office" is difficult for those concerns in the service and construction industries because, under this definition, their principal office is subject to change from contract to contract. Therefore, SBA proposes to keep the current definition, but to add that the "principle office" for service and construction concerns "excludes the concern's employees who perform the majority of their work at job-site locations to fulfill specific contract obligations."
  
  SBA includes an example in the introductory material of how this would work: "A construction concern might have an office in a HUBZone where 10 employees perform their work. This same firm might have a construction contract at a local government facility not located in a HUBZone, where 50 of the concern's employees work to fulfill the obligations of the construction contract. According to the proposed definition, the concern's principal office would be in the HUBZone."
  
  SBA goes on to explain that it decided not to include manufacturing concerns "because such firms tend to operate with fixed plant, equipment and personnel tied to one location." SBA specifically asks for comments on the exclusion of manufacturing concerns.
  
  
• Section 126.204, May a qualified HUBZone SBC [small business concern] have affiliates?, permits HUBZone concerns to affiliate only with other HUBZone concerns, participants in the 8(a) program, and women-owned small businesses. While the purpose of the restriction was to provide additional assistance to 8(a) and women-owned small businesses, the fact is that 8(a) participants and women-owned small businesses with affiliates that are not HUBZone concerns, 8(a) participants, or women-owned small businesses are not permitted to be affiliates of HUBZone concerns. SBA believes that the current affiliation requirement is unnecessarily restrictive and should be removed. Instead, the revised Section 126.204 would allow a HUBZone concern to have affiliates "provided that the aggregate size of the concern and all its affiliates is small as defined in Part 121 [Small Business Size Regulations] of this title [Title 13]".
  
  
• Two changes would be made to address HUBZone concerns that are non-manufacturers (such as dealers):
  
  
  1. The current eligibility requirement in Section 126.206, May non-manufacturers be certified as qualified HUBZone SBCs?, that non-manufacturers "demonstrate that they can provide the product or products manufactured by qualified HUBZone SBCs" would be deleted. Instead, non-manufacturers would merely have to meet the normal qualifications for becoming HUBZone certified. (EDITOR'S NOTE: The text of the proposed rule refers to this section as 126.205. This is incorrect.)
     
     
  2. Section 126.601, What additional requirements must a qualified HUBZone SBC meet to bid on a contract?, currently states that a qualified HUBZone non-manufacturer may submit an offer on a contract for supplies "if the small manufacturer is also a qualified HUBZone SBC." To this SBA proposes to add the following sentence: "However, for HUBZone contracts at or below $25,000 in total value, a qualified HUBZone SBC may supply the end item of any manufacturer, including a large business." SBA believes that "for many products purchased in small dollar quantities (at or below $25,000), there are often too few or no small business manufacturers participating in the federal market...This provision will encourage the participation of small business non-manufacturers that are located in HUBZones...An exemption for contracts greater than $25,000 would harm qualified HUBZone SBCs that are manufacturers and possibly impact the program's goal of attracting capital investment and jobs in HUBZones."

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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