After GAO reports described the HUBZone program as vulnerable to fraud and abuse, the SBA has cracked down in recent years—making site visits, decertifying HUBZone small businesses, even threatening some with suspension and debarment for violating the regulations.
The SBA should be commended, of course, for taking steps to ensure that HUBZone participants remain on the up-and-up, but the stricter enforcement can spell trouble for HUBZone firms that mean well, but don’t fully understand their ongoing compliance obligations under the HUBZone regulations. Case in point: the SBA has apparently proposed to decertify some HUBZone firms for failing to keep the SBA informed of “material changes” that may affect their program eligibility.
Under the HUBZone regulations, a HUBZone small business must immediately inform the SBA, in writing, of any material changes that could affect its program eligibility, including:
- Changes in ownership or business structure;
- Moving the principal office to a new address (even if the new address is within a HUBZone);
- A new office becomes the “principal” office (the principal office is the office where more employees work than any other office, excluding employees working on jobsites);
- Slipping below the 35% HUBZone residency requirement.
The best practice, of course, is not only to inform the SBA about relevant changes, but to take the next step and explain why the change doesn’t affect HUBZone eligibility. In the case of the 35% requirement, the firm should consider explaining that it is attempting to comply, explain its strategies for regaining the 35% threshold, and indicate that it will not bid upon new HUBZone set-asides until it regains compliance.
A word to the wise: the SBA is taking the “material changes” notifications seriously, which means HUBZone firms should, too.