New Rules Set for HUBZone Construction Contracts SBA has placed new limitations on HUBZone construction contracts, but backed away from its controversial proposal to give HUBZone firms parity with 8(a) companies in federal contracting. In addition, the agency asked for a second round of comments on how to count HUBZone companies’ employees. By law, 35% of the employees must live in a HUBZone. Construction The final rule, effective June 23, requires HUBZone companies to perform at least 50% of the work on a set-aside construction contract, either as a prime or a subcontractor. A contracting officer may waive the rule if he or she determines that at least two HUBZone firms cannot reach the 50% requirement. SBA said it imposed the requirement because the purpose of the HUBZone program is to create jobs and investment in poor communities. Under another rule, all small business prime contractors are required to perform at least 15% of the work on a general construction contract and 25% on a specialty trade construction contract. That rule still applies; if, for example, a HUBZone prime contractor performed 15% of the job, the prime would be required to subcontract an additional 35% to another HUBZone firm. Certification The final rule provides that a HUBZone company must be eligible for the program at the time it is awarded a contract. Other small businesses certify their eligibility at the time they submit a bid. SBA said it imposed the special requirement on HUBZone firms because of the program’s job-creation mission. Ron Newlan, president of the HUBZone Contractors National Council, said he had not yet analyzed the impact of the new regulations at press time. Parity Nearly two-and-a-half years after proposing that 8(a) and HUBZone firms be given equal priority in federal procurement, the agency said, “SBA has decided to further examine the issues raised by the commentators and will not amend the rule at this time.” The House Small Business Committee voted last August to give 8(a) firms first claim on set-aside contracts. That bill, H.R. 2802, is still awaiting a House vote. At the time, SBA said it would hold back its proposed parity rule until Congress acted. (SAA, 8/22/03) The parity issue has been contentious since the HUBZone program was created in 1997. Senate backers of the program say parity was the intent of the law; House supporters of the 8(a) program disagree. SBA said it received more than 900 comments on the proposed rule. The final rule also changes some eligibility requirements for businesses owned by Tribal Governments or Community Development Corporations. The rule, FR Doc 04-11579, was published in the May 27 Federal Register. HUBZone Employees The HUBZone Act requires that at least 35% of an eligible company’s employees must live in a HUBZone. Currently SBA counts employees on a full-time-equivalent basis. In the May 13 Federal Register, SBA asked for further comment on its proposal to count leased, temporary and part-time employees as well. “SBA believes that counting leased, temporary and part-time employees as employees for HUBZone eligibility would fulfill the statutory purpose and intent of the HUBZone Act by providing more job opportunities for HUBZone residents, albeit temporary or part-time,” the agency said in its announcement. In the first round of comments, SBA said one commenter alleged that firms are taking advantage of the current exemption for leased and temporary employees by claiming only a small number of full-time-equivalent employees while using many temps that live outside a HUBZone. Another commenter said changing the rule could cause a large-scale shift of workers from full-time to leased or part-time status with reduced benefits. Newlan said HUBZone contractors are generally satisfied with the current rule and oppose any change. “I don’t know the definition of a leased employee,” he told Set-Aside Alert, asking how to distinguish a leased employee from a subcontractor or a consultant. After analyzing the comments, SBA said it needs more comments before deciding whether to change the rule. The proposed rule is FR Doc 04-10853 in the May 13 Federal Register. Comments due by July 12 and may be submitted to hubzone@sba.gov.