On Friday, August 23, the Small Business Administration issued a proposed rule that would significantly change the SBA’s HUBZone small business contracting program and other small business programs, including the 8(a) Program and the All Small Mentor-Protégé Program.

Comments are due by October 7, 2024. They should reference Docket No. SBA-2024-0007 or RIN 3245-AH68, and may be submitted through http://www.regulations.gov/.

In this update, we are addressing proposed changes to how and when HUBZone companies certify their eligibility, and continued eligibility, for the HUBZone program.

Currently, 13 C.F.R. 126.500 requires HUBZone-certified companies to recertify their status annually. The recertification is good for the ensuing year. This means that a HUBZone entity that’s in compliance with the principal office rule and HUBZone residency requirements as of their program anniversary date is eligible to submit offers for HUBZone procurements for the next year, even if the company no longer meets the HUBZone eligibility requirements for the current year.

The SBA is proposing to change this, and require HUBZone entities to be in compliance with applicable principal office and HUBZone residency requirements at the time of offer plus price. The agency explained that:

Currently, the HUBZone rules require firms to annually recertify their HUBZone status to SBA. Under the current rules, once a firm annually recertifies its HUBZone status, it generally can submit offers for HUBZone contracts for one year without being required to meet the 35% HUBZone residency and principal office requirements at the time of offer. Thus, SBA’s current regulations set one point in time—the date of certification or the certification anniversary date—as the time at which a firm must be eligible for a HUBZone contract. Under the current regulations, if a firm is eligible as of its certification or certification anniversary date, it remains eligible for HUBZone contracts for a period of one year from that date regardless of whether the firm falls out of compliance with the HUBZone eligibility requirements throughout the year. SBA believes that the current process can permit abuses that were not intended for the program. A firm could hire one or more individuals who reside in a HUBZone for four weeks prior to its application for certification and immediately dismiss those individuals from its employ after becoming certified and be eligible throughout the year for HUBZone contracts. Similarly, a firm could again re-hire one or more individuals who reside in a HUBZone for four weeks prior to its certification anniversary date and immediately release those individuals after the certification anniversary date and be eligible for additional HUBZone contracts for another year. SBA believes that that was not the intent of the program. Thus, proposed § 126.601(a) would require a firm to be both a certified HUBZone small business and one that continues to be eligible as of the date of its offer for a HUBZone contract.

This change, if implemented, would apply to both single-award contract opportunities (where the HUBZone entity would be required to be in compliance when submitting an offer plus price) and multiple-award contract vehicles (in which the HUBZone entity would be required to be in compliance when submitting an offer for a multiple-award contract vehicle without price). For sole-source HUBZone awards, the applicant would continue to have to be eligible at the time of contract award.

The new regulation would read:

§ 126.601 What additional requirements must a certified HUBZone small business concern meet to submit an offer on a HUBZone contract?

(a) Only certified HUBZone small business concerns are eligible to submit offers for a HUBZone contract or to receive a price evaluation preference under § 126.613.

(i) An offeror on a HUBZone contract must be identified as a certified HUBZone small business concern in DSBS (or successor system) and meet the HUBZone requirements in § 126.200 as of the date it submits its initial offer that includes price.

(ii) For a multiple award contract, where concerns are not required to submit price as part of the offer for the contract, an offeror must be identified as a certified HUBZone small business concern in DSBS (or successor system) and meet the HUBZone requirements in § 126.200 as of the date it submits its initial offer, which may not include price.

(iii) A HUBZone joint venture must have its joint venture agreement in place that complies with the requirements in § 126.616 as of its final offer.

If this proposed change is implemented, it may increase the compliance burdens of HUBZone companies and potentially make it harder for them to plan their procurement eligibility for upcoming HUBZone opportunities. Instead of knowing they will be eligible for any HUBZone opportunity in the year following their annual program certification, these companies will have to continually monitor their compliance with HUBZone residency requirements, and the location of their principal office, to ensure they are eligible prior to submitting an offer. Given that a HUBZone company’s employee count and residency may vary throughout the year, there might be an increased risk that a HUBZone company could spend significant time and effort preparing for a HUBZone solicitation and learn it is not eligible to submit an offer, due to employee changes over which it had no control.

If this proposed rule is adopted by the SBA, HUBZone companies should review their compliance programs so they can proactively identify and resolve eligibility issues prior to the submission of any offer plus price for a HUBZone contract.

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