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Preparing For Big Changes With HUBZone Program

Government Contracts Law360 - August 15, 2011

Edward DeLisle authored an article, "Preparing For Big Changes With HUBZone Program" which appeared in Government Contracts Law360.

On July 21, 2011 the Small Business Administration (SBA) issued an interim final rule that alters the reapplication process for those companies who have been denied HUBZone status. The rule also affects the waiting period for decertified HUBZone companies to regain their HUBZone status. See 76 Fed. Reg. 43571 (July 21, 2011). Given all the scrutiny that the HUBZone program has endured over the last several years, one would think that the new rule would make it more difficult to obtain HUBZone status following either a denial or decertification. In fact, just the opposite is true.

The rule actually shortens the time within which a HUBZone company can reapply for HUBZone status. Under the old rule, a company removed from, or denied access to, the program had to wait twelve (12) months after the date that its application was denied, or it was decertified, before it could reapply. See 13 C.F.R. § 126.309 and 13 C.F.R. § 126.803. Under the interim final rule issued several weeks ago, the time period to reapply was shortened to ninety (90) days. As long as the company applying for HUBZone status meets all of the eligibility requirements following that ninety (90) day waiting period, the SBA will allow it into the program.

Many may ask why the SBA would publish such a rule, which, based upon its interim nature, allows it to take immediate effect, in light of all of the negative publicity that the program has endured. The reason is simple: necessity. The HUBZone program was developed to “provide federal contracting assistance for qualified SBCs (Small Business Concerns) located in historically underutilized business zones in an effort to increase employment opportunities, investment, and economic development in such areas.” 13 C.F.R. § 126.100. The regulations define a HUBZone area as one falling within one or more “(1) Qualified census tracts; (2) Qualified non-metropolitan counties; (3) Lands within the external boundaries of an Indian reservation; (4) Qualified base closure area; or (5) Redesignated area.” 13 C.F.R. § 126.103. Importantly, SBA does not have the discretion to singlehandedly determine which areas are, or are not, HUBZones. That determination is made in large part with assistance from other federal agencies.

The two areas that most widely impact HUBZone participation are those falling under the “qualified census tract” and “qualified non-metropolitan counties” categories. In determining which areas are in fact HUBZones under these categories, the SBA relies upon data from the Department of Housing and Urban Development (HUD), the Census Bureau and the Department of Labor (DOL). Currently, the SBA is using HUD and Census Bureau information from 2000, despite the existence of more recent employment and census information. This decision was made to promote stability in the program. It would be untenable to have large scale changes to HUBZone areas from year to year. Therefore, through legislation passed in 2000, a three (3) year grace period was provided to those companies qualifying for participation, but whose eligibility was adversely affected because their census tract or non-metropolitan county was no longer deemed in need of assistance. These companies were deemed to fall within “redesignated areas.” Later, as a result of the 2000 Census and the threat of decertifying scores of companies from the program based upon its results, additional legislation was passed.

In 2004, the Small Business Act was amended to redefine what constituted a “redesignated area.” Under the new definition, any qualified census tract or qualified non-metropolitan county that became no longer qualified due to the issuance of new demographic information could continue to qualify under the “redesignated area” category until the later of (1) the date on which the Census Bureau publicly releases the first results of the 2010 Decennial Census; or (2) three years after the date on which the census tract or non-metropolitan county ceased to be qualified. 15 U.S.C. § 632(p)(4)(C). The day of reckoning for many companies falling within “redesignated areas” is upon us. The Census Bureau is prepared to publicly release the first results from the 2010 Census on October 1, 2011 and the SBA has estimated nearly half of those companies currently qualified under the HUBZone program could be affected.

What this means is that later this year, the SBA will automatically propose decertification for those companies whose principal place of business no longer falls within a HUBZone. The new interim rule will allow those companies to re-locate to a HUBZone and reapply for entry into the program within ninety (90) days, rather than twelve (12) months. While the SBA would conceivably have a more difficult time automatically decertifying companies that may no longer comply with the program’s 35% residency requirement, companies currently in the program must be cognizant of this issue. In either event, given the magnitude of the problem, companies who anticipate being affected by the release of the 2010 Census results should be prepared. While the ninety (90) day reapplication period will certainly assist in addressing the problem, the number of reapplications pouring into SBA will be enormous. That will, most certainly, impact the recertification process. Companies must take this into consideration and be proactive in addressing issues impacting their eligibility.

Edward T. DeLisle is a Partner at Cohen Seglias Pallas Greenhall & Furman, PC. A member of the Federal Contracting Group, Ed concentrates his practice in the areas of construction law, construction litigation and small business procurement and litigation. He is also a frequent contributor to the Firm’s Federal Construction Contracting blog. Ed can be reached at 215.564.1700 or edelisle@cohenseglias.com.