Government contractors maintaining or seeking HUBZone certification should make themselves aware of the Small Business Administration’s (SBA) recent efforts to tighten and enforce new and existing rules surrounding the HUBZone program. In this client alert, PilieroMazza details the SBA’s enforcement efforts and the major implications for HUBZone contractors who do not comply with program requirements.
On September 20, 2023, the SBA issued a press release announcing its plan to strengthen enforcement of HUBZone regulations. The press release, titled “U.S. Small Business Administration Acts to Safeguard Integrity of HUBZone Program,” indicates the SBA will be more diligent in overseeing the HUBZone program and eliminating firms where there is noncompliance. The SBA is taking a closer look at HUBZone-certified employees, their job descriptions, and the scope of their work to ensure compliance with the program’s requirements.
The SBA’s HUBZone program provides federal contracting opportunities to HUBZone-certified small businesses. To be eligible for the program, small businesses must, among other requirements, (1) be principally located in HUBZone-designated areas and (2) have at least 35% of its employees reside within HUBZone-designated borders.
The press release follows the SBA’s discovery that some HUBZone firms “kept HUBZone residents who did not perform work for the company on their payroll in order to claim them as employees and appear to qualify for the program,” in alleged violation of program requirements. In light of these findings, the SBA’s press release listed key actions it will take to oversee the future of the HUBZone program, including its pursuit of decertification and debarment for alleged wrongdoers, its increased auditing and monitoring of certified firms, and its intent to release new regulations in coming months.
In its release, the SBA emphasized Information Notice 6000-849335, published in August 2023 to reiterate existing program regulations and impose new measures. It is important that HUBZone-certified firms and applicants are aware of and abide by the following notices:
- Employee Hours: SBA reminds businesses that for an employee to qualify under HUBZone requirements, the individual can be full-time or part-time, “so long as that individual works a minimum of 40 hours during the four-week period immediately prior to the relevant date of review.” Thus, firms should ensure their employees are contributing at least 40 hours of work over a four-week period. “Placing HUBZone residents on the payroll is not the equivalent of putting them to work…an employee is someone who works,” according to the SBA.
- Job Descriptions: HUBZone-certified firms and applicants should prepare to “submit job descriptions for any HUBZone residents who appear on the payroll for less than 30 hours per week,” as SBA analysts “may request information demonstrating that each part-time individual is performing the work outlined in their job description[.]”
- Program Examinations: SBA analysts may request information from both HUBZone-certified firms and applicants that proves each part-time employee is performing the work in their job descriptions. Requested information could include an employee’s resume, timesheet, progress report, evidence of attendance at meetings or trainings, evidence of work communications (emails, meeting notes), or evidence of work product. If a firm cannot provide the requested information, SBA will require a written explanation as to why the information cannot be made available.
- 35% HUBZone Residency Requirement: Standard HUBZone regulations require that a firm “attempt to maintain” 35% HUBZone residency during the duration of a HUBZone contract. SBA clarifies that falling below 20% HUBZone residency means that a “firm has failed, regardless of any such efforts.” Notably, an attempt to recruit and hire at least 35% HUBZone residents is insufficient to meet this threshold. A firm that drops below 20% while performing a HUBZone contract must notify the SBA and voluntarily decertify from the program.
- HUBZone Certification Anniversary: If performing a HUBZone contract at the time of their HUBZone certification anniversary, HUBZone-certified firms should be prepared to submit tangible evidence of efforts to maintain 35% HUBZone residency.
- Decertification and Debarment: Businesses should be aware that “SBA has and will continue to use its authority to decline or decertify firms from the HUBZone Program if they appear to be placing individuals on their payroll without providing them legitimate work.” Decertification will result in lost access to HUBZone contracts and key program benefits. Debarment will result in graver consequences, including a loss of access to all federal contract opportunities.
HUBZone clients, applicants, and those seeking re-certification should make themselves aware of the SBA’s notice and should keep an eye out for future developments to ensure their compliance and eligibility.