The Historically Underutilized Business Zones (HUBZone) program is one of the Small Business Associations socioeconomic programs that help small businesses in urban and rural communities gain preferential access to government contracts. The HUBZone program sets aside contracts specifically for HUBZone businesses. Additionally, in full and open competitions for government contracts, the HUBZone business receives a 10% price evaluation preference. This preference allows the HUBZone business to be considered the lowest bid if its price is within 10% of its competitors, provided that the competitors are not also HUBZone businesses or other similar small business concerns. Being a HUBZone business does not prevent the business from competing under any other socioeconomic programs for which the business is qualified.
In order to qualify as a HUBZone business and be certified by the SBA, you must meet four factors:
- Be a small business;
- Be at least 51 percent owned and controlled by U.S. citizens, a Community Development Corporation, an agricultural cooperative, a Native Hawaiian organization or an Indian tribe;
- Your principal office is located in a HUBZone (except for Indian Tribal businesses); and
- Have at least 35 percent of your employees live in a HUBZone.
With respect to the 35% requirement, the SBA rounds to the closest whole number. So, a business with 35 employees would need 12 employees (35% of 35 is 12.25) living in a HUBZone to qualify. An employee who lived in a HUBZone for at least 180 days after certification or recertification may move out of the HUBZone area and still be considered a HUBZone employee. The HUBZone business must maintain records of the employee’s HUBZone residence and records of the individual’s uninterrupted employment for as long as the business participates in the HUBZone program. When the business recertifies as a HUBZone business, the employee will no longer be considered a resident of a HUBZone.
For example, a business recertifies as a HUBZone business. After the recertification, an employee lived for 180 days in a HUBZone. On day 181, this employee moves out of the HUBZone. This employee is still considered a HUBZone employee for the remainder of the year. However, if the employee moved out of the HUBZone on Day 179, the employee would not be considered a HUBZone employee for the remainder of the year.
Other than the requirements of recertifying once per year and undergoing a full documentation review by the SBA once every three years, the HUBZone business is not restricted from continuing in the program as long as it qualifies. Even so, the SBA may visit HUBZone businesses unannounced and conduct program examinations to verify the accuracy of any certification made or information provided as part of the HUBZone application or recertification process.
If the HUBZone business wins a contract, it will be considered a HUBZone small business until the expiration or termination of that contract. The firm must attempt to maintain 35% employment of HUBZone residents, and it must employ at least 20% HUBZone residents. If the business ever employs less than 20% HUBZone residents while on a contract, the business must notify the SBA. The HUBZone business must also notify the SBA if their business is involved in a merger or acquisition.
On the contrary, if an Indian Tribal Government business owns the HUBZone business, the business has two options to qualify for 35% employment:
- Maintain a principal office located in a HUBZone and ensure that at least 35% of its employees reside in a HUBZone (with the same rounding rules as above); or
- Certify that when performing a HUBZone contract, at least 35% of its employees engaged in performing that contract will reside within any Indian reservation governed by one or more of the Indian Tribal Government owners or reside within any HUBZone adjacent to such Indian reservation.
A business may have multiple office locations, including outside of a HUBZone, so long as the principal office is in a HUBZone.
You may voluntarily withdraw from the HUBZone program at any time. When the SBA concurs, it removes the business’s certification. After this decertification, the business may re-apply for certification after 90 days.
A businesses status as a HUBZone small business concern can be protested. In sole source procurements, only the SBA or the contracting officer may protest a HUBZone business’s status as a HUBZone business. However, in all other procurements, other interested parties, in addition to the contracting officer and the SBA may protest, pursuant to the relevant rules.
The current HUBZone maps are frozen until 2021 and will be updated every five years. Governors may also now designate HUBZone areas to help reach rural communities with high unemployment. If you purchase a building or enter a long-term lease of at least ten years within a HUBZone area, you may maintain HUBZone eligibility for ten years, even if the office location eventually does not qualify as a HUBZone. However, this eligibility does not apply to buildings or leases that are within a “Redesignated Area.” A redesignated area is a tract or county which formerly met the qualifications for a HUBZone area but has ceased to meet the qualifications. These areas are in a three-year sunset period in which they still classify as a HUBZone area before they no longer classify as a HUBZone area.
If you are trying to determine whether your business qualifies as a HUBZone business, you can do so at https://certify.sba.gov/am-i-eligible. The SBA has stated that “applications will be processed within 60 days of a complete submission.” You should ensure your business’s principal office is located in a HUBZone area and that you meet the employee eligibility requirements. If you are a larger business that wishes to join with a HUBZone business, please see our articles on subcontracts, teaming agreements, and joint ventures.