Back to Basics: Get in the Zone, The HUBZone

The SBA’s HUBZone  Program, short for “Historically Underutilized Business Zone,” is likely the SBA program that we hear the least about. Tucked away in Title 13, Section 126 of the U.S. Code of Federal Regulations, the HUBZone Program gives HUBZone participants benefits in multiple federal government contracting situations in an effort to revitalize historically underutilized business zones through increased employment opportunities, investments, and economic development. So, what exactly makes an area a HUBZone, and how can your small business be designated as a HUBZone participant? Read on to find out.

What are HUBZones?

As its title suggests, HUBZones are areas that are determined to historically show low business development. HUBZones are located in low-income areas as a bid to increase business development, employment opportunities, and economic growth. There are many factors that go into determining which areas should be designated as a HUBZone, with the criteria from the most recent census guiding the requirements. Most often, the areas that are designated as HUBZones fall into either inner city or rural areas that are low-income, underutilized, and underdeveloped, but they may also be Qualified Disaster Areas and Governor’s Designated Areas. The HUBZone map is reevaluated every five years using the U.S. Census data to ensure the areas that need help the most are appealing to business owners.

ALERT: The next update to the HUBZone map will occur on July 1, 2023. SBA has a preview of this map, so be sure to check if your business will be affected by any changes. As SBA says: “Check this preview of the HUBZone map now to determine whether your principal office and employees will still be located in a HUBZone once the new map goes into effect on July 1, 2023. Your firm’s eligibility to participate in the program might be impacted on July 1, 2023, if your principal office is located, or your employees reside, in an area that will no longer qualify as a HUBZone.” “Certified HUBZone firms that are no longer eligible on July 1, 2023 due to the map change may continue to participate in the HUBZone program through their following annual recertification.”

How can my business be certified as a HUBZone small business?

The requirements for HUBZone small business certification are a little bit different than what you see from the SBA’s other contracting programs. This is because a HUBZone participant’s eligibility is generally not tied to an individual. Rather, the SBA looks to collective ownership, size, principal office location, and the area in which its employees reside. Notably, a business may be certified as a HUBZone small business concern as long as it continues to comply with the HUBZone regulations.

Ownership: HUBZone certified concerns must be at least 51% owned by one or more of the following:

  • United States citizens;
  • Alaska Native Corporations or a wholly owned business entity of an Alaska Native Corporation;
  • Indian Tribal Governments or a corporation that is wholly owned by one or more Indian Tribal Governments;
  • Certified Development Company;
  • Small agricultural cooperatives organized or incorporated in the United States; or
  • Native Hawaiian Organization.

Size: As with all other categories of SBA recognized small businesses, HUBZone businesses, including any affiliates, must be small under the size standard corresponding to its primary industry classification, and small under one or more NAICS Codes in which it does business.

As you can see, ownership requirements and size are fairly similar to requirements of other SBA contracting programs. However, as shown below, principal office and employees are two areas that are quite different.

Principal Office: Principal office location is vitally important for participation in the HUBZone Program. Where other SBA contracting programs only generally require a principal office to be within a reasonable distance from where work is being performed, to ensure the disadvantaged owner is able to perform its oversight duties as required, HUBZone Program participants must have their principal located within a designated HUBZone. Because the goal of the HUBZone Program is to revitalize certain areas, participants that make long-term investments in HUBZones, by continually maintaining a lease or ownership of the property, will be deemed to keep its principal office in a HUBZone for at least 10 years.

Employees: The employee requirements for HUBZone participants are probably the most unique requirement of any SBA contracting program. Other programs are only concerned with whether employees have the ability, exercised or not, to control the participant, usurping the disadvantaged or key owner’s control. HUBZone rules, rather, are not concerned with employees’ ability to control. Instead, a HUBZone participant must have at least 35% of its employees residing within a HUBZone. Participants must also certify that it will attempt to maintain the 35% requirement throughout performance of any HUBZone contract, and those that fall between 20% during contract performance will be determined to have failed to attempt to maintain the HUBZone residency requirements.

What are the benefits?

So, you may be asking, “what benefits do HUBZone participants receive?” Well, I’m glad you asked. As with other SBA programs, contracts may be set-aside for HUBZone participants, both through competitive set-asides and as sole-source awards. Federal agencies have a contracting goal of 3% HUBZone procurements, but this goal has not been met even once in the past 18 years, making the HUBZone Program one that has great potential for growth for both the HUBZone Program itself and HUBZone participants. In addition to set-asides, HUBZone participants receive the benefit of a 10% price evaluation preference when participating in full and open competition. This means that, in most situations, contracting officers must add 10% to all offers that will be evaluated on price, that are received through full and open competition, that did not come from HUBZone participants or other small businesses. This often results in the HUBZone participants having more competitive evaluated prices than large businesses.

As you can see, the SBA’s HUBZone Program can have some serious benefits for small businesses that meet the criteria. As the only program that does not depend on a disadvantaged individual as the owner, it can assist those small businesses that don’t qualify for the 8(a) Program, Woman-Owned Small Business Program, or Service-Disabled Veteran Owned Small Business Program. Not only will the small business benefit from the certification, but the area in which the business is primarily located will also receive substantial benefits; a quality that is not reflected in other SBA programs.

SBA’s HUBZone Program rules can be found at 13 C.F.R. § 126.100, et seq.

Interested in more information on agency HUBZone contracting requirements, and measures taken to increase agency’s use of HUBZone small businesses, visit this report from the Congressional Research Service.

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