It is well established that, in order to be eligible for HUBZone certification or recertification, one of the requirements is that 35% of a company’s employees must reside in a HUBZone. That part is (relatively) straightforward. But, as we all know, employees might come and go at any time. This raises a few questions about what the requirement is when a company is preparing to bid on contracts as well as when performing them. We explore this question here.
As we noted above, “[i]n order to be eligible for HUBZone certification, at least 35% of a concern’s employees must reside in a HUBZone.” 13 C.F.R. § 126.200(d)(1). But, of course, certification is only one part of the HUBZone program. What about everything afterwards, like bidding on or performing contracts?
Bidding on Contracts
Over ten years ago, the HUBZone rules were a fair bit stricter with regards to when a HUBZone business absolutely had to demonstrate that it met the 35% employee HUBZone residency requirement. We discussed this in a post from 2012 (Yes, 2012 was over ten years ago, no, I don’t like that fact any more than you). At that time, a HUBZone concern not only had to meet the 35% requirement when it applied for the program or recertified. It also had to meet the 35% requirement at the time it made any initial offers on a solicitation, as well as when it actually was issued an awarded contract.
Things are different now, and a fair bit easier for HUBZone companies. When it comes to the 35% rule, the question turns to the certification–or, if the concern has recertified since its certification, the most recent recertification: “If at the time of its recertification the certified HUBZone small business concern is not currently performing a HUBZone contract, its representation means that at least 35% of its employees continue to reside in a HUBZone and the principal office of the concern continues to be located in a HUBZone.” 13 C.F.R. § 126.500(a)(1).
In other words, if you met the 35% requirement at your certification/recertification, you are considered to continue to meet that requirement until your next recertification. If, in that time, you bid on a HUBZone set-aside or are awarded such a set-aside, you are considered to still meet that requirement at those times. This is true even if you have experienced some turnover and your employee makeup is such that you do not actually meet the 35% requirement at those times. Everything revolves around the date you were certified or, if you have recertified, your most recent recertification.
As recertification happens once a year, you technically only have to meet the 35% rule once a year, assuming you are not performing contracts. As SBA puts it, a “concern will be treated as a certified HUBZone small business concern eligible for all HUBZone contracts for which the concern qualifies as small, for a period of one year from the date of its initial certification or recertification” absent an acquisition or performance of a HUBZone contract for which it “fails to attempt to maintain the minimum employee HUBZone residency requirement.” 13 C.F.R. § 126.501.
Now, some of you may now be wondering about the “attempt to maintain” requirement. After all, 13 C.F.R. § 126.200(e)(1) notes that “At the time of application, a concern must certify that it will ‘attempt to maintain’ having at least 35% of its employees reside in a HUBZone during the performance of any HUBZone contract it receives.” Doesn’t this mean that a HUBZone concern has to show it is meeting that 35% requirement throughout the performance of a HUBZone set aside contract?
While SBA certainly wants HUBZone concerns to try, the answer appears to be no. First, the “attempt to maintain” requirement doesn’t mandate that HUBZone concerns be at that 35% requirement for the duration of the performance of a HUBZone contract. It really just asks that they try. For the HUBZone program, “Attempt to maintain means making substantive and documented efforts, such as written offers of employment, published advertisements seeking employees, and attendance at job fairs and applies only to concerns during the performance of any HUBZone contract. A certified HUBZone small business concern that has less than 20% of its total employees residing in a HUBZone during the performance of a HUBZone contract has failed to attempt to maintain the HUBZone residency requirement.“ 13 C.F.R. § 126.103. In other words, as long as a company is actually trying to meet or exceed the 35% requirement and at least 20% of its employees are HUBZone residents, it meets the “attempt to maintain” requirement and can continue performing.
Note, though, this rule only can be used if the concern is currently performing a HUBZone contract. If it is not currently performing, it needs to meet the 35% requirement. You cannot rely on the “attempt to maintain” rule if you are not currently performing a HUBZone set-aside. It is unclear what SBA’s exact reasoning is, but it may be that SBA allows for variance down to 20% when performing because you are having to hire employees to perform the contract and this may result in situations where the percentage of HUBZone employees goes below 35%.
Now, you may ask– well, what does the attempt to maintain requirement matter anyways, it all goes back to my most recent recertification, yes? If I met the requirements then, I meet them now. It would appear that one can indeed rely on this, although we would very much recommend not taking the requirements lightly even if one is in between recertifications. It is worth noting also that each certification period is only a year in length, and you will need to have evidence showing attempts to maintain if you are below that 35% figure at recertification if you are performing a HUBZone contract, and at least 20% of your employees need to be HUBZone residents regardless. Furthermore, if you aren’t performing a HUBZone contract, you need to meet that 35% requirement at time of recertification, and ramping up HUBZone employees solely at that time may not be feasible.
It appears, then, that when it comes to bids and issuing awards, an agency can rely on a HUBZone concern’s most recent certification/recertification as showing that the HUBZone concern is meeting the HUBZone eligibility requirements at the time it makes its offer or is awarded a contract. The HUBZone concern can further rely on this as it performs a contract, but it must be aware that recertification is an annual process and it must nonetheless show attempts to maintain at recertification if it is below 35% but above 20%. And, if at recertification the concern is not performing a HUBZone contract, it must meet the 35% requirement to be recertified.
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