On December 17, the U.S. Small Business Administration issued a final rule that made significant changes to the SBA’s HUBZone small business contracting program. The final rule generally adopted many of the changes SBA initially proposed in August 2024. However, the agency also refrained from making certain changes after it received comments that overwhelmingly opposed them.

The amendments to the HUBZone program regulations both benefit current or prospective HUBZone business concerns and implement more stringent compliance measures for eligibility. Each week, we will provide a section of a summary of the most significant changes. Here is last week’s update on HUBZone Certification and Eligibility, which covered the list of requirements a business must meet to qualify as a certified HUBZone small business concern.

Below is the second significant change that we summarize in our series.

II.‎ Maintaining HUBZone Certification and Eligibility Requirements for HUBZone-‎Specific Contract Awards

The final rule amends §§ 126.500, 126.601, and 126.602, which cover how to maintain HUBZone certification and eligibility for contracts.

Section § 126.500 lists the general requirements for a firm to maintain its status as a HUBZone small business concern, including a requirement that certified HUBZone concerns formerly had to recertify on an annual basis. The final rule has eliminated this provision to require each ‎HUBZone concern must only recertify on a triennial basis instead, rather than annually.

In conjunction with this change, the SBA also amended § 126.601(a) to specify that HUBZone firms must be a certified small business concern at the time the firm submits its ‎initial offer, including price, which means the applicant may not submit offers while awaiting its initial certification. The firm must submit its recertification within 90 days before the triennial recertification date.

1. 1. 1. Qualifying for HUBZone Contracts

The final rule clarified that joint ventures may be awarded HUBZone contracts if the venture complies with the requirements in § 126.616, is designated as a HUBZone joint venture in SAM, and identifies the HUBZone-certified partner. Large businesses may submit for HUBZone contracts by serving as approved mentors to a certified HUBZone firm under the SBA’s mentor-protégé program.

1. 1. 1. 1. Size Determination at Time of Offer + Price

In addition to certifying as HUBZone eligible, the final rule clarified in § 121.404 the dates to determine size status for HUBZone and small business contract awards in the case of: 1) multiple award contracts; 2) post-merger, -sale, or -acquisition applications; and 3) long-term contracts.

In general, a business concern must qualify as small under the NAICS code assigned to the specific contract as of the date of initial offer, including price. If a business concern is determined as “other than small” for the specific small business contract it seeks, it is not eligible. In contrast, once awarded a contract as a small business, the concern will generally be treated as “small” for the life of the contract.

The final rule clarifies that, for multiple award contracts, the date of size determination for certification will be based on the contract award type as follows:

• • Where an order or agreement is to be set aside for a small business under an unrestricted multiple award contract, size is determined as of the date of initial offer (or other formal response to a solicitation), including price, for each order or agreement placed against the multiple award contract. A contract is “unrestricted” if any size of business is eligible to receive the award. For unrestricted multiple award contracts, because any size firm may be eligible to compete for orders on the underlying contract, the size of the concern is not relevant until a specific task order is set aside for a small business. Thus, the small business concern must certify it is small for each small business set-aside order that flows from an unrestricted multiple award contract.
  • Where the underlying multiple award contract was itself set aside or reserved for small business, size status is determined as of the date of initial offer for the entire multiple award contract, including price, unless recertification is requested by the contracting officer with respect to an agreement or order.
  • For size recertifications triggered by a merger, sale, or acquisition, size will be determined as of the date of the merger, sale, or acquisition.
  • For size recertifications in the fifth year of a long-term contract, size will be determined on the date of the size recertification.

In addition, the final rule clarifies that where the contracting officer requests recertification for a specific order or agreement, if an initially eligible HUBZone contract holder cannot recertify its status for the specific order or agreement, size status of the concern is determined only with respect to that specific order or agreement. The concern may continue to qualify as eligible for other competitively awarded orders or agreements whenever a contracting officer does not request recertification. Thus, failure to recertify as small for a specific request does not automatically render the HUBZone concern decertified for all other small business contracts.

b. Recertification of HUBZone Eligibility and Failure to Recertify

As stated above, to certify as a HUBZone small business concern, a company must have 35% of its employees residing in a HUBZone, and its principal office must be in a HUBZone as well. In addition, under the current rules, a firm is required to certify it will “attempt to maintain” the 35% residency requirement during the performance of any HUBZone contract at the time of application to the HUBZone program. An “Attempt to Maintain” is defined under § 126.103 as “making substantive and documented efforts, such as written offers of employment, published advertisements seeking employees, and attendance at job fairs and applies only to concerns during the performance of any HUBZone contract.”

Therefore, under the current rules, once a HUBZone concern was certified or recertified, it was considered eligible to submit for HUBZone contracts over the entire subsequent year, even if it did not comply with the Residency and Principal Office requirements at the time of offer. Furthermore, if the business was performing a HUBZone contract at the time of its annual recertification, it was not expected to meet the Residency Requirement at that time. Accordingly, because many contracts entail performance that extends beyond one year, certain firms could theoretically maintain HUBZone status indefinitely without ever having to comply with the residency requirement.

Since a main priority of the HUBZone program is to make employment opportunities available to historically underserved areas, the final rule clarifies that, in addition to certifying it will “attempt to maintain” the Residency requirement during the performance of a contract at the time of application, a HUBZone contractor must certify it will “attempt to maintain” 1) each time it is required to recertify under § 126.500(a), and 2) each time it submits an offer for a HUBZone contract.

This means that an applicant will not be eligible to receive any HUBZone contracts if it does not comply with the “attempt to maintain” requirements at the time of offer. As a threshold matter, if a HUBZone concern’s percentage of employees that reside in a HUBZone falls below 20% at any time during the performance of the contract, the firm has failed to “attempt to maintain” the Residency Requirement.

Merely certifying that the firm will “attempt to maintain” the Residency requirement does not absolve it from actually complying with the requirement. The final rule added § 126.500(a)(1)(i) to stipulate that a firm which did not receive a HUBZone contract during the year before its recertification date must meet the Residency and Principal office requirements at the time of recertification. With respect to HUBZone firms that were awarded a HUBZone contract during the year before their recertification date, the final rule added § 126.500(a)(1)(ii), which requires the firm to show it is “attempting to maintain” compliance with the Residency and Principal Office requirements at the time of recertification. In addition, the final rule requires the firm to  comply fully with the Residency requirement within 12 months of the contract award.

Therefore, to avoid decertification, firms that lack an active HUBZone contract awarded within the past year must meet the 35% Residency requirement at the time of recertification; and firms that do have an active HUBZone contract awarded within the past year must show at least 20% of their total employees reside in a HUBZone at the time of recertification and meet the 35% Residency requirement within 12 months of the HUBZone contract award date.

With respect to mergers, sales, or acquisitions, the final rule clarified that for small business set-aside awards, if a HUBZone-certified concern is eligible at the time it submits a successful offer on a HUBZone or other small-business award, and the firm subsequently engages in a merger, sale, or acquisition, it must recertify as small if such event occurred after the date of offer submission but prior to award. If the merger, sale, or acquisition occurs within 180 days of the date of an offer and the firm is unable to recertify as small, it will not be eligible to receive the award of the contract as a small business. If the merger, sale, or acquisition occurs more than 180 days after the date of an offer submission, the firm remains eligible and an award can be made, but it will not count as an award to small business.

If a firm receives a disqualifying certification due to a merger, acquisition, or sale, the final rule makes contract holders ineligible for orders and options under a multiple award contract only if they receive a disqualifying recertification due to a merger, acquisition, or sale with a large business. Therefore, if prior to a merger, acquisition, or sale, the participating businesses individually qualified as small, the surviving entity may continue to hold the contract and remain eligible for further orders issued under an underlying small business multiple award contract, even if the new entity does not qualify as small after the merger, acquisition, or sale. However, the procuring activity might no longer count orders issued to the entity as awards to small businesses.

In cases where a firm fails to recertify, the final rule added § 126.500(a)(3), which provides that the firm will lose its certification (or be “decertified”) at the end of its eligibility period, unless it can recertify within 30 days of the conclusion of its eligibility. Also, if a firm is debarred from federal contracting, the SBA will automatically decertify the firm, without first proposing decertification.

The final rule adds § 125.12(g) to delay the effective date of ineligibility for orders and ‎options on underlying ‎small business multiple award contracts due to disqualifying ‎recertifications ‎until January 16, 2026. Plus, if a firm becomes disqualified for certification due ‎to a merger, acquisition, or sale, it will remain eligible for orders issued under an underlying small ‎business multiple award contract if the disqualifying event occurs before January 16, 2026. ‎Similarly, firms in the fifth year of a long-term contract will remain eligible for any options to be ‎exercised before that date, even if they have a disqualifying size or status recertification prior to ‎January 16, 2026. In all cases, if the firm is disqualified from certification, the orders or option ‎do not count toward small business awards. ‎

This article summarizes aspects of the law. This article does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.

We also acknowledge the contributions of Molly Gunther, one of our Anchorage Law Clerks, in the development and drafting of this article.