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Congressional Research Service
Informing the IegisI9tive debate since 1914
0
June 15, 2023
The SBA's Historically Underutilized Business Zone (HUBZone)
Program
Program Overview
The Small Business Administration's (SBA) HUBZone
program provides federal contracting preferences to small
businesses located in areas designated by the SBA. Known
as HUBZones, SBA designates these areas based on Census
data that indicate levels of high poverty, high
unemployment, or low income, or if they are located in
qualified disaster areas, on Indian reservations, at some
closed military installations, or in governor-designated
places that meet certain criteria. The program was
authorized by P.L. 105-135, the HUBZone Act of 1997.
The HUBZone program is the only federal contracting
program that assists firms based on their geographic
location rather than their characteristics or those of their
owners (e.g., contracting programs for small businesses,
disabled-veteran owned small businesses). Congress has
established in statute an annual HUBZone procurement
goal of 3% of prime contract awards and 3% of subcontract
awards, as measured in dollars. This goal is codified at 15
U.S.C. §644(g)(1)(A). The government awarded 2.53% of
prime contract dollars and 1.6% of subcontract dollars in
FY2021, the most current fiscal year for which the SBA has
published data. The 3% goal has not yet been achieved by
the government as a whole, although a few individual
agencies have met the goal in certain fiscal years.
Program Benefits for Eligible Firms
HUBZone contracting preferences include contract set-
asides, sole-source awards, and price-evaluation
preferences. While a set-aside restricts competition for a
contract to specified contractors (HUBZone firms), a sole-
source award is a contract awarded to a firm without
competition. Set-asides may be exclusive, if an entire
procurement is set-aside, or partial, if part of it is restricted
to HUBZone firms.
As described at 13 C.F.R. §126.613(a)(1), a price
evaluation preference is granted where a contracting officer
will award a contract in full and open competition. In these
situations, the officer will deem the price offered by a
certified HUBZone small business concern to be lower than
the price offered by another [non-small business] offeror.
The contracting officer may not grant the preference,
however, if that price is more than 10% higher than the
price offered by the otherwise lowest, responsive, and
responsible offeror. Regulations provide examples of how
this preference is applied. In one example, a certified
HUBZone small business concern submits an offer of
$103 and a large business submits an offer of $93.
Because the HUBZone firm's offer is more than 10%
higher than the large firm's offer (the lowest offer), there is
no preference applied and the large firm is not displaced by
the HUBZone firm. If a certified HUBZone small business
concern were to submit an offer of $98 and the large
business were to submit an offer of $93, the HUBZone firm
would displace the large firm as the lowest offeror because
the HUBZone firm's offer is within 10% of the large firm's
offer. For agricultural commodities purchased by the
Department of Agriculture, regulations limit the use of the
price evaluation preference to certain purchase volumes.
Eligibity Criteria
A firm must be certified by the SBA before it can
participate in the HUBZone program and receive
contracting preferences. Firms attain certification by
submitting an application to the SBA. According to SBA
regulations available at 13 C.F.R. §126.200, a certifiable
firm must:
meet the SBA's small business size standards;
be at least 51% owned and controlled by U.S. citizens, a
community development corporation, an agricultural
cooperative, or an Indian tribe (including Alaska Native
Corporations and Native Hawaiian Organizations);
maintain a principal office in a HUBZone, where
principal office is defined as the location where the
greatest number of the firm's employees at any one
location perform their work;
have at least 35% of its employees reside in a
HUBZone; and
certify that it will attempt to maintain having at least
35% of its employees reside in a HUBZone during the
performance of any HUBZone contract; attempt to
maintain is defined at 13 C.F.R. §126.103, which
describes the requirements for firms to document their
maintenance efforts and specifies that firms with less
than 20% of [their] total employees residing in a
HUBZone during the performance of a HUBZone
contract [have] failed to attempt to maintain the
HUBZone residency requirement.
In December 2019, the SBA issued new regulations
intended, in part, to make the HUBZone program more
attractive to procuring agencies. The long-term investment
provision in these regulations allows HUBZone firms to
maintain HUBZone status for up to 10 years by owning or
making a long-term investment (such as a long-term lease)
in a principal office in an area that qualifies as a HUBZone
at the time of the firm's initial certification. With a](ViewImageLocal?handle=hein.crs/govelyo0001&div=1&collection=&method=preview&ext=.png&size=3)