Very recently, we went through some more of the potential changes to the HUBZone Program from SBA’s proposed rule from August 23, 2024. In this post, we will look at the remaining proposed changes. SBA’s proposed rule would change HUBZone protests appeals, principal office requirements (which we did discuss a bit before here), HUBZone map concepts, and the HUBZone price evaluation preference (PEP).
Protests and Interested Party
HUBZone status protests, like 8(a), WOSB/EDWOSB, and VOSB/SDVOSB status protests, can only be brought by SBA, the contracting officer for the procurement, or interested parties (essentially other bidders), per 13 C.F.R. § 126.800. Currently, any offeror on a HUBZone set-aside can bring a HUBZone protest, per 13 C.F.R. § 126.103. As the regulation is written, it doesn’t specify that the offeror has to actually be eligible for the set-aside. As such, SBA wants to change it so that only HUBZone parties can be interested parties for the purposes of a protest. In other words, only other HUBZone businesses could protest another HUBZone company’s HUBZone status. The change would still allow protests by other bidders in an unrestricted procurement where the PEP would affect the award decision as well. We think this only makes sense, and really should just clarify what should have been in the regulation in the first place.
Another proposed update is for 13 C.F.R. § 126.801. With this change, the protest would focus on the HUBZone company’s status at the time of offer, in light of the proposed change that HUBZone firms must be eligible for award at the time of offer, which we discussed in our last post on this rule. Further, similar to size protests, 13 C.F.R. § 126.803 would provide that “if a concern does not provide information requested by SBA within the allotted time provided, or if it submits incomplete information, SBA may draw an adverse inference and presume that the information that the applicant failed to provide would demonstrate ineligibility and sustain the protest on that basis.”
Principal Office
SBA’s rules would require additional showing for conducting work at the principal office. In addition, it “would require firms to provide a lease that commenced at least 30 days prior to the date of SBA’s review and ends at least 60 days after the date of SBA’s review.” This change is one where we think some revisions should be made with the language. The idea is fine, but as written, it could cause issues, since it requires that the company provide an active lease. It would make sense to require either that the lease have begun 30 days prior to the review or 60 days after, as that would eliminate short-term leases (Which it appears is what SBA is concerned about). As currently proposed, this would mean that if a company’s lease renewal just happened to begin either less than 30 days prior the date or review or the company’s current lease happened to expire less than 60 days after the date of review, that contractor would be ineligible for HUBZone status, regardless of if that contractor’s principal office had been located at that location for decades.
The proposed rule would also implement updates to the long-term investment rule under 13 C.F.R. § 126.200, which states that firms that “make long-term investments in qualifying HUBZones” can “maintain their principal office for up to 10 years and continue to be considered to meet the principal office requirement even if the area loses its HUBZone designation.”
One change would say that the 10-year period “starts to run on the firm’s HUBZone certification date (if the investment was made prior to the firm’s certification) or on the firm’s recertification date that follows the execution of the lease or deed (if the investment was made after the firm’s certification).” As an example, if a firm was certified on May 1, 2020, and purchased a building on December 1, 2020, the 10-year clock would start when the firm recertifies prior to May 1, 2023.” But only certain zones get this treatment, “a firm is not eligible to take advantage of the long-term investment provision if its principal office is in a Redesignated Area or a Qualified Disaster Area at the time of the investment.” This language brings some clarity on the 10-year period which we think was greatly needed. One additional thing to note, however: a residence will not work for this long-term investment rule.
Maps
SBA proposes to add 13 C.F.R. § 126.105 as a new regulation. Under this regulation, “Qualified Census Tracts and Qualified Non-Metropolitan Counties will be updated every 5 years.” This change essentially just incorporates the statutory requirement that SBA update the same on every five years. Furthermore, “Redesignated Areas will be added to the HUBZone Map when areas cease to be designated as Qualified Census Tracts or Qualified Non-Metropolitan Counties, in accordance with the 5-year cycle, and will expire after 3 years.” In other words, once added to the map, the Redesignated Area would then expire three years later.
Ownership Changes
SBA is seeking to update the rule about updates from ownership or related changes by modifying 13 C.F.R. § 126.501. What SBA wants to add is, to be sure, already current policy for SBA, but this will codify things. The “proposed rule would provide that a certified HUBZone small business concern that acquires, is acquired by, or merges with another business entity must provide evidence to SBA, within 30 calendar days of the transaction becoming final, that the concern continues to meet the HUBZone eligibility requirements.” We imagine that, if the only thing that changes for a company is ownership and those new owners are U.S. citizens, this shouldn’t cause too much trouble for the company. But, it is worth being aware of nonetheless if this proposed rule is put into effect.
In addition, SBA wants to make it so that the above regulation provides that a company that “that is performing a HUBZone contract and fails to ‘attempt to maintain’ the minimum employee HUBZone residency requirement must notify SBA notify SBA via email . . . within 30 calendar days.” This is an area that was unclear in the current regulations, and would impose additional mandate on a HUBZone company to inform SBA quickly if it’s no longer meeting the attempt to maintain requirements. In a practical sense, this basically only applies when a company’s workforce is made up of less than 20% HUBZone residents or is below the 35% mark after the first year. It is hard to see a company both not making a good faith effort to get to 35% and acknowledging the same, although the regulation would apply all the same in such a case.
PEP (Price Evaluation Preference)
Finally, we look at proposed changes to the HUBZone PEP. Here, SBA is seeking to add clarity in 13 C.F.R. § 126.613. The rule would add examples to show how “a non-HUBZone small business concern is not affected by the application of the HUBZone PEP where such non-HUBZone small business is not the lowest offeror prior to the application of the preference.” It is important to note here, and this is the current rule: The price preference only comes into play where the lowest, responsive, responsible offeror for an unrestricted contract is a large business. As SBA notes: “This is because the HUBZone PEP is intended neither to harm nor to benefit a non-HUBZone small business.” Thus, “a contracting officer should not apply the HUBZone PEP where the lowest, responsive, responsible offeror is a small business concern, even if a large business concern submitted an offer.” Further, for clarification, for best value procurements, the agency must “first apply the 10% price preference to the offers of any large businesses and then determine which offeror represents the best value to the Government.”
Summary
As we noted in our last post, SBA really is looking to tighten its grip on the reins of the HUBZone program. Many of the changes discussed in this post are more clarifications than anything, but some of them show that HUBZone will be stricter going forward. Comments on these changes must be received by October 7, 2024, so if you wish to get a comment in, now is the time to do so.
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