Effective December 26, 2019, the government made some changes to the Historically Underutilized Business Zone (HUBZone) program that should benefit both small businesses and the government. Small businesses should benefit because the restrictions will be slightly less rigorous to get certified as well as to maintain certification.
With these less stringent regulations, more companies most likely will be able to become HUBZone certified. Presumably, more certified businesses will enable the government to meet or at least be closer to meeting its HUBZone small business goals.
According to Bruce Purdy, deputy director of the Small Business Administration, there are currently about 6,000 HUBZone-certified businesses. To qualify and get certified as a HUBZone, a business must meet all the following qualifications:
- be a small business;
- be at least 51% owned and controlled by U.S. citizens, a Community Development Corporation, an agricultural cooperative, a Native Hawaiian organization or an Indian tribe;
- have its principal office located in a HUBZone; and
- have at least 35% of its employees live in a HUBZone.
Recent Changes and Clarifications
The government has not met its HUBZone small business goals since inception of the program. The following changes and clarifications may be useful for businesses seeking to qualify:
Change: The maps designating HUBZone areas will be frozen for five years with the current map remaining constant until December 2021. Areas may be added because of disasters or Base Realignment and Closure (BRAC), but existing areas will not be removed from the map.
Why this is useful: In the past, the HUBZone maps changed frequently. It is possible that an office or someone’s residence was located in a HUBZone. In a relatively short period of time, the HUBZone area changed and was no longer designated as a HUBZone. This rule change will make it easier to remain in compliance.
Change: Businesses will be recertified annually instead of each time they submit a proposal and win an award.
Why this is useful: Currently, a company has to recertify every time they win an award. A company that was not located near a HUBZone, for example, could win a new award that required employees to work on-site. In this case, it would be easy to understand how a company’s percentage of employees living in a HUBZone could be significantly reduced quickly. This rule gives the company time until the next recertification review to add employees so that it can meet the 35% residency requirement.
Clarification: In the past, the HUBZone program did not define an “attempt to maintain compliance” with respect to the 35% employee residency rate in a HUBZone. This led to confusion among businesses.
Why this is useful: The Small Business Administration (SBA) quantified that an “attempt to maintain compliance” is maintaining a minimum employee residency rate of 20% in a HUBZone. If at least 20% of a company’s employees have a HUBZone residence, it may recertify as a HUBZone. The company, however, may not win new awards until it meets the 35% residency requirement. Firms also have to show that they made substantive and documented efforts to meet this requirement, including written offers of employment, published advertisements and attendance at job fairs in and near HUBZones.
Change: Currently, as soon as an employee moves out of a HUBZone, he or she no longer counts toward the 35% residency requirement. This regulation will change as follows: if an employee resides in a HUBZone 180 days (6 months) before certification or recertification and 180 days (6 months) after certification or recertification and moves out of the HUBZone after 7 months of the certification/recertification, that employee can continue to count toward the 35% requirement until the next recertification.
Why this is useful: This change gives the company additional time to plan in terms of hiring employees in a HUBZone to maintain the 35% minimum residency requirement.
Qualifying and maintaining HUBZone status can be challenging. The SBA is attempting to make it easier without losing sight of the goal — that is, to have companies invest in underutilized business areas to increase employment opportunities and economic development.
Call us today for more help determining whether your company can meet or maintain its HUBZone certification. Reach us at 703-218-3600 or click here. To review our government contracting articles, click here. To learn more about MCB’s government contracting practice and our experts, click here.