HUBZone Help

President Signs Bill Eliminating HUBZone Set-Aside Preference

The President signed the Small Business Jobs and Credit Act of 2010 on September 27, 2010 which eliminated the preference HUBZone set-asides had over other small busines programs such as 8(a) and Service disabled veterans.  Section 1347(b) of the Act merely stated that it struck "shall" and inserted "may" in the Small Business Act, 15 U.S.C. 657a(b)(2)(B). This small change had a great afffect on the government's acquisition ppolicy. This is the section relied upon by GAO and Federal courts in ruling that HUBZone set-asides were mandatory and held preference over the other small business set-asides.

Prior to the change the section read:

(B) a contract opportunity shall be awarded pursuant to this

section on the basis of competition restricted to qualified

HUBZone small business concerns if the contracting officer has

a reasonable expectation that not less than 2 qualified HUBZone

small business concerns will submit offers and that the award

can be made at a fair market price; and . .  .

The "shall be awarded" language was held to give preference over the other set-asides
which declared that such contracts "may" be awarded using set-asides. Now that the
language has been changed most federal small business set-asides will give parity to the
several small business programs.


This change does not affect the Veterans Administration program giving preference on
VA awards to service disabled veterans and non service disabled veterans.  the statute covering
VA acquisitions, 38 U.S.C. 8127, still contains the mandatory "shall" language.

 

HUBZone Set-Aside has Preference Over SDVOB and 8(a) Programs

Analysis of Court of Claims Decision Coming

On March 2, 2010 the Court of Federal Claims released a public copy of a decision it reached on February 26, 2010.  The decision ruled that the HUBZone set-aside in the Small Business Act is mandatory and takes precedence over both the 8(a) and SDVOB permissive set-asides included in the Act.  In so ruling, the court rejected the positions taken by OMB, SBA, and the Department of Justice that there was parity among these three set-asides.  The decision has wider implications than just giving the HUBZone program an advantage.  How does it affect the new VA SDVOB set-aside program?  In rejecting some of SBA's regulations does this decision have a potential impact on other agency regulation, specifically the SBA and VA regulations.  I will be issuing an article on my view of these issues soon and sending it to you.  If you have questions on the decision you can send them to me at info@powerlawoffice.com and I will try to include answers to these questions.  Forward this message to anyone you think will be interested in this issue.   

Small Business, Small Disadvantaged Business, HUBZone, and Service-Disabled Veteran-Owned Protest and Appeal Regulations

The U.S. Small Business Administration (SBA or Agency) proposes to amend its regulations to clarify the effect, across all small business programs, of initial and appeal eligibility decisions on the procurement in question; increase the amount of time that SBA has to render formal size determinations; require that SBA's Office of Hearings and Appeals (OHA) issue a size appeal decision within 60 calendar days of the close of the record, if possible; increase the amount of time that SBA has to file North American Industry Classification System (NAICS) code appeals; alter the NAICS code appeal procedures to comply with a Federal Court decision; clarify that contracting officers must reflect final agency eligibility decisions in federal procurement databases and goaling statistics; clarify how a contracting officer assigns a NAICS code and size standard to a multiple award procurement; and make other changes to size status protest and appeal rules. See entire article and proposed regulations at govpulse

Senators Introduce Legislation to Improve HUBZone Program by Implementing GAO Recommendations

Washington, D.C. – U.S. Senate Committee on Small Business and Entrepreneurship Ranking Member Olympia J. Snowe (R-Maine) and Chair Mary L. Landrieu (D-La.) were joined by former Committee Chair Kit Bond (R-Mo.) and U.S. Senator Jeff Merkley (D-Ore.) today in introducing legislation to make improvements to the Historically Underutilized Business Zone – or HUBZone – program.  Their bill, the HUBZone Improvement Act of 2010, addresses the Government Accountability Office’s (GAO) recommendations for improving the Small Business Administration’s (SBA) management and oversight of the HUBZone program, which provides contracting assistance to small businesses located in economically distressed regions. “Let there be no doubt that with the federal government contracting for over $500 billion in goods and services in Fiscal Year 2009 alone, we must have a robust and transparent HUBZone program for small businesses to continue generating jobs in our nation’s most economically distressed communities,” said Senator Snowe.  “While the SBA has taken several critical steps to reduce fraud within this critical program, the GAO reports underscore that further improvements are necessary if the agency is to eliminate mismanagement and abuse.  The purpose of this legislation is to ensure that only eligible firms participate in the HUBZone program by providing the SBA a clear roadmap to improve the management, oversight and evaluation of the program.”“The HUBZone Improvement Act helps to create jobs and level the playing field for small firms by making sure the HUBZone program works as intended,” said Senator Landrieu. “By providing needed oversight, this bill ensures that federal contracting dollars are spent wisely on the small businesses that need help and have the greatest potential to grow our nation’s most economically distressed areas.” “The HUBZone Improvement Act is an important step in reforming a program that has become a vital tool in creating jobs and revitalizing the communities that need it most,” said Senator Bond.  “I’m proud to join this bipartisan group of Senators to help small businesses continue to rebuild, revitalize and bring hope to so many of our neighborhoods.”“HUBZones are valuable economic empowerment tools for distressed communities,” said Senator Merkley.  “But they are not as flexible and responsive to changing economic conditions as they should be.  This bill is an important first step to improve the HUBZone programs but it will not be the last.  I will continue to work with my colleagues to ensure that we are doing everything possible – as quickly as possible – to help communities get back on their feet.”This critical legislation comes on the heels of several GAO reports critical of the SBA’s oversight of the program, including two June 2008 reports and an additional report released on March 25, 2009.  Specifically, the GAO found that mechanisms the SBA uses to certify and monitor HUBZone firms provide limited assurance that only eligible firms participate in the program.  The GAO also stated that the “SBA’s control weaknesses exposed the government to fraud and abuse.”  Furthermore, the agency expressed concerns that the SBA had no proper means to adequately assess program results.The bill, which is similar to Senator Snowe’s HUBZone Improvement Act of 2008 (S.3699) from the 110th Congress, would require the SBA to:

via sbc.senate.gov

SBA Changes Definition of Employee for HUBZones

After several years of proposing changes to the definition of "employee" for purposes of the HUBZone program SBA has adopted a new definition at 13 CFR 126.103.  The new regulation becomes effective in six months, Mat 2010.  This is to allow HUBZone business concerns and those applying for certification sufficient time to comply with the new definition.  The percentage of employees required to be living in a HUBZone is not changed.  The new regulation reads as follows:

Sec. 126.103 What definitions are important in the HUBZone program? * * * * *

Employee means all individuals employed on a fulltime, part time, or other basis, so long as that individual works a minimum of 40 hours per month. This includes employees obtained from a temporary employee agency, leasing concern, or through a union agreement or co-employed pursuant to a professional employer organization agreement. SBA will consider the totality of the circumstances, including criteria used by the IRS for Federal income tax purposes and those set forth in SBA's Size Policy Statement No. 1, in determining whether individuals are employees of a concern. Volunteers (i.e., individuals who receive deferred compensation or no compensation, including no in kind compensation, for work performed) are not considered employees. However, if an individual has an ownership interest in and works for the HUBZone SBC a minimum of 40 hours per month, that owner is considered an employee regardless of whether or not the individual receives compensation.
* * * * *

More details on the changes will be addressed in a future post.

Parity Amendment Dropped

The amendment to the Department of Defense Authorization Act that replaced "shall" with "may" in the part of the Small Business Act relating to HUBZones was dropped from the final version of the Act.  This means that the HUBZone set-asides remain mandatory under the Small Business Act.  The Department of Justice has issued a memo that HUBZone set-asides are not mandatory, but dropping the amendment strengthens tha argument that Congress intended HUBZone set-asides to be mandatory and have priority over 8(a) and Veteran's set-asides.  The decision to drop the parity language as disappointing to the  sponsors of the amendment who said this would not be the end of the attempt to bring parity to the three programs.  See article here.

Unfortunately this leaves the priority of HUBZOne set-asides undecided, with GAO saying they are mandatory and the Obama administration saying they are not mandatory.  Because there are two Federal court cases interpreting the "shall" in the Act as making HUBZone set-asides mandatory, it will take another suit challenging the failure to use the HUBZone set-aside by a contracting agency to settle this issue for now. 

Senate Amendment to Give Parity to HUBZone, 8(a), and SDVOB Set-Asides

The Senate passed an amendment to the Defense Authorization Act (S 1390) that changes the language in the Small Business Act 15 U.S.C. 657a(b)(2)(B) from "shall" to "may".  This was the language relied upon in the Contract Management cases I litigated and the recent GAO decisions to find the HUBZone program mandatory and to have a preference over other small business set-asides.  If this amendment remains in the final bill sent to the President it will give parity to the three programs consistent with SBA's current regulations.

HUBZone Set-Asides Mandatory or Not?

Since the decisions in the Contract Management cases I believe HUBZone set-asides are mandatory in certain circumstances.  I have advised HUBZone concerns to assert their right to have a requirement set-aside for HUBZone participation when those circumstances are met.  With the OMB memo and SBA changing its popsition taken in the Contract Management decision, it is now confusing to contractors, and I am sure contracting officers, when a HUBZone set-aside is mandatory. 

OMB says it is looking into the mandatory requirement and will issue another memo in 30 days. If OMB keeps its present position then it seems only further federal court litigation will settle the issue.  Unfortunately this is one of those issues where there seems to be no easy way to get a determination.  The Federal courts and GAO have ruled on the issue but OMB and SBA refuse to follow their clear direction.   I will address this issue in more depth in an article to appear on my websites, powerlawoffice.com and hubzonehelp.com.  Let me and others know what you think about this issue and file a comment.

GAO Says Mandatory HUBZone Decisions Correct

In a decision issued on July 6, 2009, GAO refused to reconsider its earlier decisions that the HUBZone program is mandatory and takes precedence over other set-aside programs.  It cites the district court and appeals court decisions in Contract Management which I linked to in my blog entry yesterday.  I was the attorney for Contract Mangement and agree with GAO that those court decisions held that the Small Business Act, not SBA nor FAR regulationss, make the HUBZone set-asides mandatory. 

Ironically, SBA argued to GAO in seeking reconsideration, that GAO's ruling would negatively impact the 8(a) and Veteran's set-asides.  When I argued in Contract Management that finding the HUBZone program mandatory could result in HUBZone set-asides taking away possible 8(a) set-asides, SBA rejected that argument pointing out the small number of HUCZone set-asides then being used.   

HUBZone Not Mandatory Says OMB

In a memo release on July 10, 2009 the Office of Management and Budget ordered executive agencies to ignore two recent GAO decisions holding the HUBZone set-aside mandatory and entitled to preference over 8(a) and Veteran owned business set-asides.  OMB ordered the agencies to follow "parity" regulations from SBA giving wqual treatment to all three programs.  In doing so OMB relied only upon the GAO decisions and ignored, or was simply unaware of, the Hawaii district court and Ninth Circuit Court of Appeals decisions predating the GAO decisions in declaring the HUBZone set-aside as mandatory and entitled to a preference.  The OMB memo can be seen here.  Download District Court HUBZone decision. Court of appeals decision Download Cmiccafc.

I was involved in the Hawaii case and the SBA argued, contrary to its "parity" position that the HUBZone set-aside was mandatory under the Small Business Act.  That position was upheld by the Ninth Circuit Court of Appeals.  As a mandatory program under the Small Business Act, OMB and SBA do not have authority to change this to a program that is equal to 8(a) and SDVOB, no matter how beneficial those programs are.  If there is a change, it has to come from Congress.