The Small Business Administration ("SBA") recently changed one of the rules regarding HUBZone certification. The rule change, effective April 25, 2018, following a public comment period, allows the minimum “51 percent ownership by U.S. citizens” to be met through corporate or other ownership vehicles rather than “direct” (meaning owned directly by individuals).
The HUBZone Act of 1997 (15 U.S.C. 631) created the acronym HUBZone, referring to a Historically Underutilized Business Zone, and created the program, described in FAR Subpart 19.13 and managed by the SBA, 13 C.F.R. Part 126. HUBZone locations in each state are designated by the SBA based on a number of criteria. It is easy to determine whether a location qualifies as a HUBZone by looking up the address on the SBA’s website. It is important to know that the maps are dynamic and change over time to reflect the current economic conditions of an area.
Besides its location, there are three other aspects to be met in order to become a certified HUBZone contractor. The first is that the company’s principal office must be in a HUBZone; the second that 35% of the firm’s total workforce must live/reside in a HUBZone (although not necessarily the same HUBZone where the business is located).
The final requirement deals with ownership. The regulation previously required the business to be 51% owned and controlled by U.S. citizens, e.g. individuals (unless those companies were a community development corporation, an agricultural cooperative or an Indian tribe). The new change impacts this requirement. The SBA, in explaining the ownership change, said that the emphasis with a HUBZone is the location of the business itself and residence of its employees, not the business ownership.
Locating in a HUBZone can prove especially beneficial to a company. Federal government agencies, which have target goals for each of the small/disadvantaged business categories, have a goal of spending 3% of their procurement dollars with HUBZone contractors. However, traditionally, many agencies have been unable to meet the 3% goal. Whenever there are two or more qualified HUBZone contractors, federal agencies can set aside procurements exclusively for HUBZone certified contractors and, in certain circumstances, may make sole source awards to certified HUBZone contractors. Now that the ownership requirements have changed, getting certified as a HUBZone contractor may be something to consider.