Well, summer is certainly here. You only need to step outside to be able to tell. And with the arrival of summer, the long-awaited end to the HUBZone map freeze just occurred on June 30, 2023. The new map took effect the following day, July 1, 2023. If you’re in the HUBZone program, or are considering certification in the HUBZone program, you might have some questions as to what this means for you. In this post, we’ll explore what the changes will bring.
In the 2018 National Defense Authorization Act, at Section 1701, Congress included language that provided that no changes should be made to any HUBZone designations for any given area until the results of the 2020 Census were available. In essence, the SBA then issued a rule stating this freeze was to last until December 31, 2021. As you may recall, circumstances made completing the 2020 Census fairly difficult. As such, as we discussed back in May 2021, SBA extended the freeze until June 30, 2023. Well, as of now, the freeze has lifted. With that said, of course, what does this mean in general, and more importantly, what does this mean for you?
For those of you who are unfamiliar with the HUBZone program, the idea behind the program is basically to give a boost to what SBA describes as “historically underutilized business zones in an effort to increase employment opportunities, investment, and economic development in such areas.” In other words, it is tailored to help businesses located in the parts of the country that generally see lower income, higher unemployment, and more generally difficult economic conditions. Of course, whether a certain county or census tract is undergoing such difficult conditions is subject to change over time. As such, HUBZone designation for a county or census tract needs to be allowed to be changed over time to ensure that if an area does improve, it is no longer getting the assistance it no longer needs. As such, SBA will periodically review and update the designations accordingly.
The changes mean my business no longer would qualify! What does this mean?
If the changes in the HUBZone designations are such that your business no longer meets the HUBZone requirements, either because your principal office is no longer in a HUBZone or because now less than 35% of your employees do not reside in a HUBZone, do not panic. There’s a couple things to consider here. First, as SBA notes, you will keep your HUBZone status regardless until your next recertification date.
Second, as stated in 13 C.F.R. § 126.619, if you were a certified HUBZone concern at the time you submitted your initial offer on a contract, you are generally going to be considered a HUBZone concern for the duration of that contract. This also means you can still go for task orders generally for the duration of the underlying contract. The exceptions are 1) if the contracting officer request a new HUBZone certification for a given order under a Multiple Award Contract, and 2) if the Multiple Award Contract is not a HUBZone contract itself, but the order you’re going for is set aside for HUBZone, you must be certified at the time you submit your offer for the order.
Exception: The Legacy Employee Rule
If the HUBZone map changes mean that less than 35% of your employees reside in HUBZones, you may still be eligible for HUBZone recertification. First, there’s the legacy employee rule under 13 C.F.R. § 126.200. If the following are true:
- An employee resided in a HUBZone for at least 180 days prior to the company’s certification date (or a recertification date, in case they weren’t HUBZone at certification but resided in a HUBZone later)
- Said employee continued to live in a HUBZone for at least 180 days immediately after that certification or recertification date
- The employee has remained continuously employed with the company since that time (working at least 40 hours per month)
- And the certification date or recertification date in question occurred after December 26, 2019.
Then, that employee is considered a HUBZone resident even if they no longer live in a HUBZone. One thing, however, is that you will need to indicate at your recertification that you are using the legacy employee rule if you otherwise would have fewer than 35% of your employees as HUBZone residents. This will require additional documentation to support your position, which SBA runs down here.
Exception: The Attempt to Maintain Rule
If your business is currently performing a HUBZone contract, there is another rule that may protect you if at least 20% of your employees are still HUBZone residents but less than 35% are. 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.” 13 C.F.R. § 126.103 provides that “[a]ttempt 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.“ In other words, if at least 20% of your employees are HUBZone residents, SBA may allow you to recertify if you can show that you have been trying to maintain the 35% requirement. Note, this only applies if you are presently performing a HUBZone contract. We discuss this rule more here.
Exceptions: Long-Term Investment Rule
All that is great, but what if your principal office is now no longer in a HUBZone area? There is a rule that may protect you depending on your circumstances. 13 C.F.R. §126.200(c)(1) provides that if you purchased your principal office or entered a long-term lease for the office in a HUBZone after December 26, 2019, it will be treated as being in a HUBZone for ten years from the certification date or recertification date that follows the execution of the lease or deed so long as you maintain that ownership or lease. We explored this rule more here, and SBA’s FAQ also has details.
This won’t be the last time the HUBZone map changes. The next major change will be in 2028, and there will be changes in the meantime for things such as expiring redesignated areas and for disaster situations. So, keep an eye on SBA’s HUBZone map, they should provide details if any changes are forthcoming.
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