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FAR councils aim to finalize problematic HUBZone changesEmployee residency final rule questioned by SBA IG; ‘Legacy employee’ grace period expired Jan. 1, 2022The federal acquisition councils are planning to add to the Federal Acquisition Regulation this year a controversial HUBZone final rule of 2019 regarding employee residency. In the final rule, the Small Business Administration reinterpreted the statutory requirement that 35% of a HUBZone contractor’s employees must live in the geographic zone. It allowed some HUBZone employees who had moved from the zone to continue to be counted, provided that a 360-day residency in the zone and other conditions are met. However, the SBA’s Inspector General in an October 2021 report judged those changes to be out of compliance with Congress’ intentions and, therefore, a threat to SBA’s legal integrity. “HUBZone businesses could have no employees residing in the HUBZone at all and still qualify,” SBA IG Hannibal “Mike” Ware wrote in the Top Management and Performance Challenges Facing the SBA in Fiscal 2022 report. “The requirements of the rule are clearly inconsistent with legislative intent.” Complicating the issue further is the SBA’s attempt in 2021 to clarify apparent discrepancies in the HUBZone employee residency rule. The SBA published 13 “clarifications” to the original rule in a little-noticed “FAQ” document on its website, last updated in June 2021. The FAQ document also announced that SBA was creating a grace period for some HUBZone companies, allowing them to continue complying with the pre-clarification interpretation of the legacy employee rule. That grace period expired on Jan. 1, 2022. “New legacy employee provision” In the FAQ, the SBA introduced the “new legacy employee provision,” stating that a legacy employee “is an employee who no longer resides in a HUBZone but may continue to be counted as a HUBZone resident employee if he/she: resided in a HUBZone for at least 180 days prior to the firm’s certification (or cert. anniversary date) occurring after Dec. 26, 2019; continued to live in a HUBZone for at least 180 days immediately after certification (or cert. anniversary date); and has remained an employee of the firm (i.e., worked at least 40 hours per month) since that time.” Also in the FAQ, SBA provided 13 clarifications to the legacy employee provision. Three of those clarifications are the most significant, according to a recent column by Jon Williams, partner of PilieroMazza PLLC (Click to read the full column on Page 4).
The SBA also advised on how to invoke the legacy employee provision, what documentation is needed, and when does SBA need to be notified, among others. The IG, in his report in October 2021, made no reference to the SBA’s FAQ document and its clarifications of the employee residency rule. Set-Aside Alert contacted the FAR Councils, the SBA and the SBA IG’s office about the discrepancy but had received no responses as of press time.
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