The HUBZone program has been struggling for a while now, and the latest data suggest the hard times may be lingering.

      After peaking five years ago, the Small Business Administration’s HUBZone program has been falling further behind in meeting its goals each year. Awards have fallen for four years in a row.

      A Set-Aside Alert exclusive survey of 353 HUBZone vendors shows many signs of discontent: “Costly waste of time” and “made to fail” were among the many negative comments received about the program.

      But there are a few bright spots, and the HUBZone firms are not giving up yet: three-quarters of the respondents planned to renew their certifications for another three years.

      The program was established by Congress in 1998 to help lift impoverished geographic areas into prosperity, with tools including set-asides for federal work. Certified HUBZone firms must be located in a designated zone and 35% of their employees must live in the zone.

      From a high of $12 billion in federal contracts to HUBZone firms in fiscal 2009, awards have dropped each year since then, totaling about $6.2 billion for fiscal 2013. That figure was obtained on April 15 from the White House’s Small Business Dashboard, a dynamic database updated frequently. Official statistics will be announced soon.

      Correspondingly, the dashboard reports that the percentage of federal contracts going to HUBZone firms peaked at 2.71% in fiscal 2009 and has fallen each year, down to 1.75% in fiscal 2013. The goal is 3%.

      Set-Aside Alert’s survey of the 353 HUBZone-certified firms points to some specific areas of dissatisfaction. For example, 69% of the respondents reported they had won no federal contracts yet.

      The lack of work was not due to inexperience, as 65% of those surveyed said they had been in the HUBZone program for three years or longer.

      Many HUBZone vendors still hope for a rebound: While 56% of the HUBZone companies surveyed said they are not optimistic about HUBZones, 75% plan to renew their certifications when they expire.

      Asked what the greatest problem was for HUBZones, the largest number of respondents-- 66%--cited a lack of HUBZone set-asides to bid on. The second most difficult was finding federal opportunities, named by 45% (editor’s note: for more survey results see related story p. 1 and insert).

      Preliminary data collected by Set-Aside Alert from FBO.gov seems to support those concerns.

      According to the website, the number of HUBZone set-asides and references to such set-asides has dropped sharply from a peak of 2,402 in fiscal 2009, to less than half that number in fiscal 2013.

      The number fell to 2,288 in fiscal 2010; 1,336 in fiscal 2011; 1,034 in fiscal 2012 and 1,037 in fiscal 2013, according to FBO.gov.

      That data includes solicitations for HUBZone set-asides as well as modifications and other notices about such set-asides. Even so, the overall trend is steeply downward.

      During the same period, references to generic small business set-asides increased from 41,099 in fiscal 2009 to 48,529 in fiscal 2013, according to FBO.gov.

      References to set-asides for 8(a) firms and to companies owned by service-disabled veterans increased from approximately 4,000 a year to 5,600 per year, combined, during the same period.

      In addition to coping with apparently fewer set-asides, HUBZones also took a major hit with the release of the 2010 Census, which caused many HUBZone geographic areas to be disqualified from certification as they flourished economically. From about 7,600 HUBZone firms in April 2010, the number of firms dropped to 5,600 in January 2013, according to a December 2013 report from the Congressional Research Service.

      There has been a partial rebound since then, with 5,799 active HUBZone firms as of December 2013, the report said.

      But the threat of ongoing decertifications due to HUBZone geographic areas becoming ineligible is substantial. The HUBZone Contractors National Council says about 1,250 of the 13,000 HUBZone-eligible census tracts will become ineligible in 2015.

      “The HUBZone maps are shrinking--which in one sense is a measure of the program’s success,” Mark Crowley, executive director of HCNC, told Set-Aside Alert. “But at the same time, each time the map shrinks, the program has to struggle to regroup and to maintain a viable portfolio to meet the needs.”

Are HUBZone awards diminishing because of a “chicken and egg” situation?

      But are HUBZone awards diminishing because there are fewer HUBZone firms able to bid on specific types of work, or because there are too few HUBZone set-asides? The answer is probably both.

      It is a “chicken and egg” situation,” Steven Koprince, government contracts attorney, told Set-Aside Alert. As HUBZone companies leave the program due to census changes or other reasons, federal contracting officers may become more reluctant to set aside contracts for HUBZones, possibly causing more HUBZone contractors to become discouraged and leave, he said.

      “The government’s inability to reach the HUBZone goals suggests it is not finding enough HUBZone firms to do the work,” Koprince said.

      The SBA said contracting officers make the final decisions about whether to create a HUBZone set-aside. “Many factors, including market research results and responses, past performance and history, and goals, go into a decision on whether to set aside a contract,” Tiffani Clements, an SBA spokeswoman, told Set-Aside Alert. “Ultimately, it is up the contracting officer to make the decision in the best interests of the agency,” she said.

      Crowley cautions against thinking the HUBZone program is down and out. For one, there still is a 10% HUBZone price preference on contracts that are not set aside.

      And being a HUBZone “does give you a leg up in subcontracting,” Maria Panichelli, associate with Cohen Seglias law firm, told Set-Aside Alert.

      “We have seen a lot of positive activity,” Crowley said, including upticks in matchmaking and subcontracting. “One HUBZone company owner reported he wore a lapel pin that said ‘HUBZone’ to an event and he was inundated with requests to network on projects.”

      Crowley says some HUBZone vendors do not compete well. “They wait for the phone to ring,” he said.

      Even so, the requirements for employees living in the zone and the “shrinking HUBZone map” make it difficult to be successful as a HUBZone, Crowley said.

      “The regulations have not kept up with the times,” he said.

More information: HCNC website: http://www.hubzonecouncil.org
CRS report: http://www.fas.org/sgp/crs/misc/R41268.pdf
Small Business Dashboard: http://smallbusiness.data.gov