HUBZone firms rise in number but HUBZone set-asides slump
HUBZone set-aside awards drop by half from 2017-2019
Small businesses located in "HUBZones" are growing in number and being awarded more federal contracts, even though HUBZone set-asides are drastically shrinking.
The value of federal contract awards won by small firms in Historically Underutilized Business Zones (HUBZones) has increased substantially, and the number of firms also has jumped, from fiscal 2017-2019.
But at the same time, the value of the awards won by those firms through HUBZone set-asides has dropped dramatically, according to Set-Aside Alert’s analysis of data from USASpending.gov and the Small Business Administration.
A similar sharp downward trend in the value of set-aside awards has affected all small business federal contractors during the 2017-2019 period, including those for small disadvantaged, women-owned and service-disabled veteran-owned firms, Set-Aside Alert has found (see June 19, Aug. 21, Sept. 4 and Sept. 18, 2020 issues).
HUBZone goals not met
The SBA began registering firms in the HUBZone program in 1999 with the goal of expanding commerce and reducing poverty in the hardest-hit geographic areas. There were 14,980 census tracts and 613 rural counties, as well as Indian lands, former military bases and other areas, designated as HUBZones as of 2018, the latest data available, according to a recent Congressional Research Services (CRS) report on HUBZones.
The government aims to award 3% of procurements to small businesses in HUBZones, but that goal has never been met.
The number of HUBZone small businesses hit a peak of 8,533 in May of 2011, then slumped for several years. The number of small firms registered as HUBZone firms has been rising for the last five years:
- 2017 5,961;
- 2018 6,558; and
- 2019 7,183.
Those numbers indicate 20% growth in the number of HUBZone small businesses registered with the federal government from 2017-2019.
HUBZone contract awards
After several years of sequestration and tight budgets, total federal contract award spending boomed with a 25% increase from fiscal 2017-2019 (from USASpending.gov):
- $501.4 billion in fiscal 2017;
- $545.2 billion in fiscal 2018; and
- $578.4 billion in fiscal 2019.
Total awards to HUBZone small businesses rose dramatically, by 56%, during the same period (SBA):
- $7.3 billion in fiscal 2017;
- $9.9 billion in fiscal 2018; and
- $11.4 billion in fiscal 2019.
During the same period of time, the government came closer to, but did not meet, its HUBZone procurement 3% goal (SBA figures):
- Fiscal 2017 1.65%;
- Fiscal 2018 2.05%; and
- Fiscal 2019 2.28%.
(Editor’s Note: The SBA computes the percentages based on "eligible" total contract award value, which is less than total contract award value in USASpending.gov.)
HUBZone set-asides
While HUBZone small businesses got a major boost from the surge in federal contracting in the last three years, it was not due to HUBZone set-asides.
HUBZone set-asides have shrunk dramatically during the period. The value of HUBZone set-aside awards (including sole-source awards) dropped by 52% from fiscal 2017-2019 (USASpending.gov):
- $1.57 billion in fiscal 2017
- $915 million in fiscal 2018; and
- $756 million in fiscal 2019.
The percentage of HUBZone set-aside awards that were competitive ranged from 92% to 96% in those years. SBA officials declined to comment for this article (see Spampinato story).
Analysis
Small firms located in HUBZones benefited from the huge upswing in federal contract awards in the 2017-2019 period, but HUBZone set-asides sagged during that period.
Those trends suggest that HUBZone firms win federal awards primarily through other types of set-asides or in open competition.
The CRS confirmed that pattern in its recent report, stating that about $6.7 billion was awarded to HUBZone small firms by utilizing another small business preference, and about $2.8 billion was awarded to HUBZone small firms in open competition, in fiscal 2019.
Possible reasons for the reduction in HUBZone set-aside awards include:
- As total contract spending ballooned in 2018 and 2019, contracting officers likely had less time to create set-asides, which are relatively labor intensive;
- The fiscal years were well underway before budgets got approved in the last three years. The fiscal 2017 budget was not final until May of 2017. In the next two years the final budgets were approved in March 2018 and February 2019. This likely contributed to contracting officials having less time to develop set-asides;
- Regarding HUBZones specifically, the Opportunity Zone tax break program created in 2017 to target distressed geographic areas may have helped the HUBZones also designated as Opp Zones, but may have hurt HUBZones without the dual designation; and
- The HUBZone program has continued to have administrative challenges as geographic areas can rapidly change ineligibility. This contributes to turnover among HUBZone firms and hinders long-term planning.
More information:
CRS Report: https://bit.ly/3cKwglX
USASpending.gov: Click here
SBA reports: https://bit.ly/3mSbaqd