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HUBZone Can Assist Small Businesses Located in Distressed Business Zones

Filed under Government Contracting. Fact checked on May 24, 2012.

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The HUBZone Empowerment Contracting Program is designed to stimulate economic development and create jobs in urban and rural communities. The program provides contracting opportunities to small businesses located in, and hiring employees from, Historically Underutilized Business Zones. If you and your business qualify, it could help you break into the business of government contracting.

The Historically Underutilized Business Zone (HUBZone) Empowerment Contracting program, which was enacted into law as part of the Small Business Reauthorization Act of 1997, provides federal contracting assistance and opportunities for qualified small businesses located in distressed historically underutilized business zones, known as "HUBZones."

Among other things, it allows small firms located in many urban or rural areas to qualify for sole-source and other types of federal contract benefits. The underlying purpose of the program is to encourage economic development and increase employment opportunities.

The HUBZone program falls under the auspices of the Small Business Administration (SBA), which is responsible for implementing the program and determining which businesses are eligible to receive HUBZone contracts. SBA maintains a listing of qualified HUBZone small businesses that federal agencies can use to locate vendors and also adjudicates protests of eligibility to receive HUBZone contracts. In addition, SBA is responsible for reporting to Congress on the program's impact on employment and investment in HUBZone areas.

While the Small Business Reauthorization Act of 1997 increased the overall government-wide procurement goal for small business from 20 to 23 percent, the statute sets the goal for HUBZone contracts at 1-1/2 percent for 2000, 2 percent for 2001, 2-1/2 percent for 2002, and 3 percent for 2003 and thereafter.

The Benefits of the HUBZone Program

There are four types of contract benefits that a HUBZone certified business can qualify for:

  • A competitive HUBZone contract can be awarded if the Contracting Officer has a reasonable expectation that at least two qualified HUBZone small businesses will submit offers and that the contract can be awarded at a fair market price.
  • A sole source HUBZone contract can be awarded if the Contracting Officer does not have a reasonable expectation that two or more qualified HUBZone small businesses will submit offers, determines that the qualified HUBZone small business is responsible, and determines that the contract can be awarded at a fair price. The government estimate cannot exceed $5 million for manufacturing purchases or $3 million for all other requirements.
  • A full and open competition contract can be awarded with a price evaluation preference. The offer of the HUBZone small business will be considered lower than the offer of a non-HUBZone/non-small business, providing that the offer of the HUBZone small business is not more than 10 percent higher than that of the non-HUBZone business.
  • A subcontract could be awarded by a large prime contractor. Federal rules require these contractors to include HUBZone contracting goals.

In addition to the contract benefits, certified HUBZone firms can qualify for higher SBA-guaranteed surety bonds on construction and service contract bids. Firms in Empowerment Zones and Enterprise Communities (EZ/EC) can also benefit from employer tax credits, tax-free facility bonds, and investment tax deductions.

Eligibility and Certification

To qualify for the HUBZone program, a business must meet four requirements:

  • It must be a small business.
  • It must be owned and controlled only by U.S. citizens.
  • The principal office of the business must be located in a "historically underutilized business zone."
  • At least 35 percent of its employees must reside in a HUBZone.

Existing businesses that choose to move to qualified areas are eligible. To fulfill the 35 percent requirement, employees must live in a primary residence within that area for at least 180 days or be a currently registered voter in that area.

Warning

If you are a one-person business and your office is located in a HUBZone, but you don't reside in the HUBZone, you do not qualify!

To be designated a "HUBZone," an area must also meet certain criteria. It must be located in one or more of the following three areas:

  • a qualified census tract (as defined in the Internal Revenue Code of 1986)
  • a qualified "non-metropolitan county" (as defined in the Internal Revenue Code of 1986) with a median household income of less than 80 percent of the State median household income or with an unemployment rate of not less than 140 percent of the statewide unemployment rate, based on U.S. Department of Labor recent data
  • a federally recognized Indian reservation.

The certification process is fully electronic, Internet-based, and integrated with CCR. The SBA will verify eligibility and make sure that ownership, location, and employment percentage requirements are satisfied. The average time for processing is approximately 30 days, and SBA's decision will be in writing.

To apply, companies are encouraged to use the electronic application directly on the HUBZone website. Applicants can also submit a paper copy to SBA headquarters in Washington, D.C. Applicants can download the paper version from the website or obtain it from any local SBA district office.

Computer mapping software available on SBA's website allows firms to search a database to determine whether or not they are located in a qualified HUBZone. The system allows searches by address, county or town and displays metropolitan areas, Indian reservations and areas that qualify by income, unemployment rate, or both.

For further information and to find out if your location is in a HUBZone, you can visit the SBA website at https://eweb1.sba.gov/hubzone/internet/.

HUBZone SDB and 8(a) Offer Unique Advantages

The SBA administers three core certification programs for small businesses: the Small Disadvantaged Business Program (SDB), the 8(a) Business Development Program, and the HUBZone Program. All three are designed to help small businesses market themselves to both large business and government procurements. However, not every small business can participate in these programs. To participate, a business must meet specific criteria and must be certified by SBA that these criteria have been met.

Benefits Compared

There are some major differences in the benefits of the SDB, 8(a), and HUBZone programs. SDB and HUBZone are essentially contractor programs designed to expand economic opportunity for disadvantaged businesses. In contrast, 8(a) is a business development program that provides a broad scope of assistance to disadvantaged firms, including personalized business counseling. Under the program, each 8(a) certified company is assigned a Business Opportunity Specialist (BOS) who advises and coaches the company in business matters. There is no such benefit in SDB and HUBZone.

Only the HUBZone Program specifically promotes business opportunities in distressed communities. Small businesses not located within these areas may be eligible for certification in the SDB or 8(a) BD Programs.

Certification Requirements Compared

To be certified for the SDB, 8(a), or HUBZone programs, a business must demonstrate that it meets the basic requirements for admission. Although there are differences in the requirements for each, there is one universal requirement for all of these programs: the business must be classified as small.

For SDB and 8(a) certification, a business must generally show that it is unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of the United States. In addition, the net worth of the individual claiming economic disadvantage may not exceed the limit set by law. For SDB eligibility, net worth must be less than $750,000, excluding the value of the business and personal residence. For initial 8(a) eligibility, the net worth of an individual claiming disadvantage must be less than $250,000, excluding the value of the business and personal residence. For continued 8(a) eligibility after admission to the program, net worth must be less than $750,000. (Note that companies that are 8(a) firms automatically qualify for SDB certification.)

For HUBZone certification, your business must be located in a qualified HUBZone area. A pre-determined percentage of employees who work for the company must also live in a HUBZone.

Application Process Compared

You can apply to all three certification programs and, under the right circumstances, you could conceivably qualify for all three; for example, if you were an 8(a) eligible business located in an Historically Underutilized Business Zone.

Although you can apply to all three programs, there is no universal application. Each core program has its own application form and specific process for certification. However, all three certification programs require similar information along with your application, including such items as personal financial statements, previous tax returns, SBA forms, and IRS forms.

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