SBA Extends Public Comment Period for Proposed HUBZone Program Overhaul

As we discussed in a previous post, there are big changes on the horizon for the HUBZone program. On October 31, the SBA published a proposed rule that, if adopted, would overhaul the program.

Recently, the SBA extended the period for public comment to February 14, 2019.

On December 31, 2018, the SBA published notice in the Federal Register that the comment period for the proposed HUBZone regulation revisions was extended to February 14, 2019. “Due to the scope and significance of the changes contemplated by the proposed rule,” the SBA felt the original 60-day comment period was too short.

In the event the scope of these changes leaves you scratching your head, allow us to summarize some of the most important proposals.

As we mentioned in the first blog addressing these proposed changes, the HUBZone Program has a noble mission: to direct federal contracts to economically disadvantaged portions of the country, known as Historically Underutilized Business Zones. But the way the HUBZone Program has been structured has made it difficult for contractors to comply, and has contributed to a significant ongoing annual shortfall in HUBZone awards.

The SBA’s thoughtful proposal would address some of the most glaring structural problems with the HUBZone Program.

First, the proposed rule would eliminate the requirement that a HUBZone company be in active compliance with all HUBZone criteria on the dates it bids, and is awarded, any HUBZone contract. This requirement can be very difficult for contractors to meet: in some cases, if a single employee resigns or moves out of a HUBZone, the contractor can dip below the 35% residency requirement. And if that happens close to the day a proposal is due, or when a HUBZone award is announced, the contractor can be out of luck.

The proposed rule would replace this cumbersome requirement with an annual certification process. Each HUBZone company would be required to recertify compliance with all HUBZone eligibility elements annually. But once the company was certified, it could bid and be awarded HUBZone contracts for the next year, even if during that time it temporarily fell out of actual compliance.

Second, HUBZone companies are required to “attempt to maintain” compliance with the 35% HUBZone residency requirement during the performance of any HUBZone contract. But what does it mean to “attempt to maintain” compliance? The current rules are largely silent.

The proposed rule attempts to eliminate guesswork as to what is required as a concern “attempts to maintain” the residency requirement that 35% of the concern’s workforce lives in a HUBZone. SBA’s proposed solution to the existing ambiguity is to establish a 20% floor. In the event less than 20% of a concern’s workforce resides inside a HUBZone, that concern has failed in its “attempt to maintain” the residency requirement.

Third, HUBZone companies can be put in a bind when employees who live in HUBZones decide to move. In fact, sometimes employees who receive good jobs with HUBZone companies use their improved financial positions to move out of HUBZones.

The proposed rule makes some accommodations for a concern’s existing employees moving out of a HUBZone. Specifically, if a HUBZone employee moves outside of a HUBZone, that same employee is grandfathered in for the purposes of calculating a concern’s HUBZone residency requirement, even though the employee no longer lives in the HUBZone.

These three changes aren’t all, of course. The proposed rule would make many other changes, including changes to the HUBZone protest process, clarifications about how 1099 independent contractors are treated, and much more.

As you can see, even our attempt to “briefly” summarize the issues ends up being longer than intended. If you are still trying to wrap your head around the proposed changes and their potential impact on your business, contact our office. And if the proposed changes could impact your business, for the better or worse, and you want your voice to be heard – you now have until Valentine’s Day to let the SBA hear your story.