Final 2022 NDAA Draft Allows HUBZone Appeals

The final version of the 2022 National Defense Authorization Act, agreed upon by negotiators for both the House and Senate and signed by the president, will allow the SBA’s Office of Hearings and Appeals to hear appeals related to the SBA’s HUBZone status decisions.

We here at Koprince McCall Pottroff LLC welcome the pending change, which will be a big step forward for the HUBZone program in terms of transparency and fairness.

Among the SBA’s four major socioeconomic preference programs (8(a), WOSB/EDWOSB, SDVOSB and HUBZone), only the HUBZone Program does not allow for appeals to SBA’s administrative judges. Under current rules, if a certified HUBZone is found ineligible due to a HUBZone status protest, the applicant can appeal–but the appeal is decided by the SBA’s Associate Administrator, Office of Government Contracting & Business Development (known by the fun acronym AA/GC&BD) rather than by an independent judge.

The current system is flawed, in at least two major respects.

First, the lack of transparency prevents small businesses from understanding how the SBA interprets and applies its regulations. OHA’s decisions are published, giving all interested parties important insight into how the SBA’s small business, 8(a), WOSB/EDWOSB and SDVOSB regulations are applied in practice. That’s not true for the SBA’s current HUBZone decisions, meaning that HUBZone applicants and participants often have little or no guidance regarding gray areas in the law.

Second, the absence of an independent appeal option can create the perception that HUBZone appeal decisions (when they are allowed) could be unfair. That’s not to say that the AA/GC&BD actually acts unfairly, but the person holding this position–and considering the appeal–is effectively the boss of the person who makes the original decision on a HUBZone protest. Some contractors are suspicious that the AA/GC&BD might–even subconsciously–circle the wagons instead of giving a truly independent review.

That’s where the 2022 NDAA comes in. Section 864 of the NDAA says:

Not later than 1 year after the date of enactment of this Act, the Administrator of the Small Business Administration shall issue a rule authorizing the Office of Hearings and Appeals of the Administration to decide all appeals from formal protest determinations in connection with the status of a concern as a qualified HUBZone small business concern[.]

This change is very welcome news for HUBZone small businesses. That said, we wish that the NDAA had gone a little farther, and also allowed for appeals of denied initial applications to the HUBZone Program.

Under the SBA’s regulation, when an applicant is denied, there is no formal way to appeal the decision. Instead, the applicant has the right to reapply after 90 days. This system works in many cases, but not if the declination decision is arguably wrong as a matter of law. If the SBA’s HUBZone Office misunderstands or misapplies its own regulations once, there is no reason to think it will reach a different outcome 90 days later. In such cases, an applicant’s only legal recourse is to file suit against the SBA–something most applicants don’t wish to do.

Perhaps a future NDAA–or other legislation–will broaden the HUBZone appeal right. For now, though, the 2022 NDAA is a step in the right direction for HUBZone transparency and fairness. We will keep you posted on the SBA’s progress implementing this important change.

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