An advantage of being a HUBZone Program contractor is the aptly-named HUBZone price evaluation preference. The possibility of utilizing that price preference has been a great reason for contractors to form joint ventures with HUBZone businesses. However, contractors need to be aware that SBA has effectively eliminated the usage of price preference within certain joint ventures.
The HUBZone Program is one of the many socioeconomic certifications administered by the SBA, with many advantages (for more info on the HUBZone program check out our Back to Basics post on the program). The most well-known perk of the HUBZone Program is likely the so-called “price preference.” What this boils down to is that under 13 C.F.R. § 126.613, in a full and open competition (meaning not set-aside for small business) the Contracting Officer: “must deem the price offered by a certified HUBZone small business” to be lower than the price offered by a large business (what SBA calls other-than-small), if the large “business initially is the lowest responsive and responsible offeror, and the price offered by the certified HUBZone small business concern is not more than 10% higher than the price offered by the other than small business.” Basically if the HUBZone offeror is within 10% of the lowest price offer, and that offer is from a large business, then the HUBZone business will be treated as the lowest price offeror.
Logically, if you meet the joint venture requirements of 13 C.F.R. § 126.616, and properly form a HUBZone joint venture, then that joint venture should be able to claim that price preference. However, SBA’s regulations now state that is not always the case.
Avid readers of SmallGovCon will be aware that the HUBZone Program has had lots of released potential changes over the past year or so (here are just some of our recent HUBZone blogs). One change that took effect in early 2025 was that the HUBZone price preference regulation (13 C.F.R. § 126.613) was updated and added a section “(e)”, which states:
“The HUBZone price evaluation preference applies only to a joint venture consisting of a certified HUBZone small business concern and a small business concern that complies with the requirements of § 125.9. The HUBZone price evaluation preference does not apply to a joint venture consisting of a certified HUBZone small business concern and its other than small mentor.”
As indicated by the italics above, SBA has now made it clear that if you form a HUBZone mentor protege joint venture with a mentor who is not small, then that joint venture does not get the HUBZone price preference. The only type of joint venture that can utilize the HUBZone price preference is one between two small businesses (whether mentor and protege or not)
SBA, formulating this rule, wrote that “[s]everal commenters requested further clarification regarding the application of the HUBZone PEP to mentor-protégé joint ventures, particularly when a large business mentor is performing a significant portion (e.g., 60%) of the contract.” “SBA agrees that one large business should not be receiving a PEP against another large business.”
This change of course removes quite an incentive to many other than small businesses who wish to mentor and venture with a HUBZone protege. This rule would still seem to allow for a HUBZone prime contractor to subcontract to a large business, as that is not addressed in the rule. It is also quite the change that many contractors need to be aware of prior to forming a mentor protege agreement and subsequent joint venture if the protege is a HUBZone participant. As always, it is probably best to double check with federal government contracting lawyers such as ourselves when forming joint ventures and taking other federal government contracting actions.
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