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Federal Market Intelligence for Small Business |
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SBA-OIG HUBZ dispute continuesThe Small Business Administration is continuing its dispute with its Office of Inspector General (OIG) regarding the changes made to HUBZone employee residency requirements in a final rule that went into effect in December 2019. In recent emails to Set-Aside Alert, the SBA and the Inspector General both say the disagreement is ongoing. The final rule “appears inconsistent with the agency's legislative authorization for this program,” Sheldon Shoemaker, assistant inspector general for management and operations, told Set-Aside Alert. Meanwhile, SBA is defending the final rule: “SBA disagrees with the SBA OIG's assertion that this change to the HUBZone regulations is not in line with the program's intent,” SBA spokeswoman Tiffani Clements wrote to Set-Aside Alert. In the final rule, the SBA reinterpreted the statutory requirement that 35% of a HUBZone contractor’s employees must live in the zone. It allowed some employees who had moved out to still be counted, provided a period of zone residency and other conditions were met. The SBA also issued a FAQ Document in 2021 adjusting its guidance on residency. However, the SBA’s Inspector General, in an October 2021 report, judged the final rule to be at odds with the law. The controversy has become more urgent since the FAR Councils recently announced a goal of enshrining the 2019 final rule in the FAR. OIG’s Shoemaker told Set-Aside Alert the final rule continues to be out of compliance with Congress’ intent. “SBA has not made any changes to the employee residency requirement since issuing the final rule in November 2019,” he wrote. “HUBZone businesses could theoretically have no employees currently residing in the HUBZone but continue to be qualified under this rule. Allowing continued certification of concerns without current HUBZone residents and no requirement that the company hire such residents in the future, appears inconsistent with the agency's legislative authorization for this program.” The SBA’s guidance in its FAQ Document did not mitigate those concerns, Shoemaker added. Meanwhile, SBA is standing firm. “In 2019, SBA proposed and implemented regulations to reduce barriers to entry and increase participation in the program, which is directly in line with the spirit and intent of the program,” its statement said. “We heard from small businesses who were occasionally challenged with the dilemma of having to choose between firing an employee to remain compliant with the HUBZone regulations or losing their HUBZone certification status in order to retain a valued employee. The Agency defines what it means to be a HUBZone employee and used its authority and customer feedback to make this important revision,” SBA said. Furthermore, the SBA claims that OIG did not provide evidence to support its opinion of the final rule, and it did not recognize the oversight measures SBA included in the final rule to monitor its implementation. “The OIG's assertion that this regulation could result in a HUBZone firm having zero employees residing in a HUBZone is theoretical, lacks empirical evidence, and is extremely unlikely. Essentially, the only way this could happen would be if a HUBZone small business never hired a new employee and no employees ever left the company's employment. Based on the observations of the HUBZone program office, this virtually never happens,” SBA said. SBA also said its reasoning is supported by the “attempt to maintain” language in HUBZone law, which allows employee residency to temporarily drop below 35% when the firm wins a new contract and needs to hire more workers.
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