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Federal Market Intelligence for Small Business |
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Set-Aside Alert exclusive:Why HUBZone awards never reach 3% goalThe Small Business Administration’s “HUBZone” set-aside contracting program for small firms in disadvantaged areas continues to fall short despite recent efforts to improve it, according to testimony at a recent congressional hearing. “We all agree there is a problem,” Rep. Kweisi Mfume, D-MD, who chaired the hearing of a subcommittee of the House Small Business Committee. “It is frustrating, to say the least, that for 20 years we have not been able to reach the 3% goal” for Historically-Underutilized Business Zone (HUBZone) procurement, Mfume said at the hearing. In fiscal 2020, HUBZone awards totaled 2.44% of all small business-eligible procurements. Witnesses cited a number of factors contributing to the low level of HUBZone contracting awards, including:
As a result of such concerns, HUBZone participation has shrunk, from about 8,500 participants in 2011 to only 4,870 participants in May 2022, according to Mfume’s hearing memo. Potentially many more firms are eligible for HUBZone status as approximately 26% of the nation’s census tracts and counties are designated HUBZones. Competition with other set-asides Witnesses at the hearing cited competition with other SBA set-aside programs as a major factor negatively affecting HUBZone firms. In fact, more than half of all HUBZone awards in fiscal 2020--$7.5 billion of a total of $13.6 billion in HUBZone awards--was obtained through another type of set-aside, according to a Congressional Research Services report. This occurs, for example, when a firm with dual 8(a) and HUBZone certification receives an 8(a) set-aside award. Agencies generally would claim both Small Disadvantaged Business and HUBZone credit for that award. In fiscal 2020, only $2 billion was awarded to HUBZones utilizing HUBZone-specific set-asides. “Parity is the biggest issue,” testified Brent Lillard, chief executive of HUBZone firm GovSmart Inc. “The HUBZone program is overshadowed by the program for SDBs, and the 8(a) program specifically. That is the easiest program for contracting officers to use...and in my experience they will use what is easiest and fastest.” Another witness, attorney Matthew Schoonover, suggested that certain federal agencies--possibly the Commerce Dept. or Housing & Urban Development Dept.--ought to be required to give HUBZone firms top priority in contracting, in the same fashion as the Veterans Affairs Dept. under a 2006 law must give top consideration to veteran-owned firms in all of its contracts. “A similar requirement with a different federal agency could carry tremendous benefits to HUBZone companies,” Schoonover said. Office and Residency Rules HUBZone requirements for firm office locations and for employee residency in the zone have been concerns for the program participants for many years. Despite tweaks in those rules in recent years, many stresses remain. One of the trouble areas is difficulty maintaining 35% HUBZone employees’ residency in the zone. After starting work at his company, many zone-residing employees have resigned after realizing that their earnings would disqualify them from public assistance, Lillard said. Shirley Bailey, speaking on behalf of the HUBZone Contractors National Council, said telework also is presenting challenges, now that pandemic flexibilities are being phased out. The Council recommends allowing teleworking HUBZone employees to count toward the principal office requirement, or increasing the HUBZone residency percentage in lieu of principal office, she said.
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