HUBZONE PROGRAM John A. Leonard Jr. Business Development Specialist Washington Metropolitan Area District Office 25/13/2015

What We’ll Be Talking About Events leading to creation of HUBZone Purpose of the HUBZone Program Current State of the HUBZone program Qualifications to be certified as a HUBZone concern Contract Types (benefits) Question & Answer Session 5/13/20153

Quick History In 1996, U.S. Senator Christopher ‘Kit’ Bond, then Chairman of the Small Business Committee, crafts legislation to link preferences for award of Federal contracts to small businesses located in economically dormant and underserved areas, which he called HUBZones. Feels JOBS, not more job training, is what’s needed to promote long-term economic viability. 5/13/20154

HUBZone Program Becomes Law Opens Doors In 1997, Congress passed and the President signed into law the “Small Business Reauthorization Act of 1997,” which contained HUBZone provision. In 1998, the U.S. Small Business Administration moves final rules to create HUBZone Program. In 1999, program certifies on March 22 nd the first HUBZone small business concern. 5/13/20155

Program Overview Community-based HUBZone Program = E³ – Employment – Empowerment – Enterprise 5/13/20156

Program Purpose Provide Federal contracting assistance to qualified small business concerns located in historically underutilized business zones (HUBZones) to: Increase employment opportunities Stimulate capital investment in those areas Empower communities through economic leveraging and the “multiplier effect.” 5/13/20157

A July 2008 GAO audit created a paradigm shift in the HUBZone Program’s objectives and processes 5/13/20158 HUBZone 1.0HUBZone 2.0 Key programmatic objectives  Grow program participation  Implement low-cost, highly automated processes  Reduce fraud, waste, and abuse  Improve customer service  Maximize contracting to HZ firms Certification process  Near “self-certification”  “Absent evidence to the contrary” review philosophy  Full document review  “Reasonable assurance” review philosophy Monitoring efforts  Limited proactive monitoring of portfolio  Recertification every 3 years  Extensive proactive monitoring of portfolio  Confirm certification annually Backlog begins to fall New portfolio monitoring initiatives launched Backlog begins to fall New portfolio monitoring initiatives launched GAO Audit report published Program launched Today

During the Program’s transition, an application backlog developed – leading to long processing times 5/13/20159 Causes of backlog growth: –“Full-doc” process impacted processing rates –Staffing level grew slowly –Application volume grew Result: Processing time grew to >10 months (peaked Dec09) Total Application Pipeline

The backlog has been eliminated and new applicants can expect their cases to be finalized within 90 days Current: <90 days (Sept10) Causes of backlog reduction: – Processing rates improved – Staffing level way up Total Application Pipeline 5/13/201510

5/13/ Received Program Exam Letter in FY10 (~3,600) Recertified in FY2009 (~1,300) Received Program Exam w/ site visit in FY (~700) Total Portfolio of HUBZone Certified Firms (~8,000 in September 2010) Certified w/ full doc review FY08-FY10 (~2,400) 1 Includes a limited number of firms having undergone other review efforts such as Protests/Appeals Received PE Letter in FY2010 Required firm to sign under penalty of perjury that it remains eligible – or be decertified ~70% remain certified (~30% were decertified) Received site visits in FY2010 Over 1,000 site visits performed ~75% continued certification to-date In addition to tackling the backlog, the HUBZone Program began addressing its legacy portfolio

5/13/ Received Program Exam Letter in FY10 (~3,600) Recertified in FY2009 (~1,300) Received Program Exam w/ site visit in FY (~700) Total Portfolio of HUBZone Certified Firms (~8,000 in September 2010) Certified w/ full doc review FY08-FY10 (~2,400) Certified firms to undergo “full- doc” review All firms must demonstrate current eligibility By end of FY 2011, all certified firms will have gone through a Program Examination (13 CFR 126 – Subpart D) Already completed “full-doc” review Firms demonstrated eligibility with supporting documentation

In the future state, certified firms will be subject to a range of monitoring initiatives  Annual assertion of eligibility  Requiring firms to attest in writing under penalty of perjury they remain eligible  Target: All certified firms (except those certified <1 year)  Full document reviews  Collection and review of documentation to verify current eligibility  Target: All certified firms  Contract audits  Collection and review of documentation to verify eligibility at time of contract bid and/or award  Target: Select certified firms with HUBZone contracts  Site visits  Unannounced visits by Field Operations staff to verify Principal Office criterion  Target: New applicants and select certified firms 5/13/201513

Program Design From the outset, designed as a virtual program always available at: –Application for Certification –Recertification –Program Examinations 5/13/201514

HUBZone Eligibility Requirements Size: –Small, by relevant SBA standards. Ownership and Control: –At least 51% by U.S. citizen(s), Community Development Corporation, Agriculture Cooperative, Alaska Native Corporation, or Indian tribe. 5/13/201515

HUBZone Eligibility Requirements, cont’d… Location: –“Principal Office” must be located in a HUBZone (may differ for tribally owned concerns). Employment: –At least 35% of employees must reside in a HUBZone (may differ for tribally owned concerns). 5/13/201516

HUBZone Qualified Areas 5/13/201517

HUBZone Qualified Areas, cont’d… Metropolitan Area Census Tracts : 10,169 areas –“Qualified Census Tract” that meets test for Low Income Housing Tax Credit. (HUD) (Changes with decennial census.) Non-metropolitan Counties: 1,349 counties –Median household income is less than 80% of the non- metropolitan state level (Census) (Changes with decennial census.) –Unemployment rate that is at least 140% of the lower of the state-wide or U.S. average (BLS) (Changes annually.) 5/13/201518

HUBZone Qualified Areas, cont’d… Federally recognized Indian Reservations: 659 –Locations include land meeting the definition of Indian Country (BIA and IRS) (Change is periodic) Difficult Development Areas: 67 locations –“Difficult Development Area” external to continental U.S. that meets test for Low Income Housing Tax Credit. (HUD) (Changes with decennial census) Former military base closed by BRAC: 48 –Former military bases closed as a result of Base Realignment and Closure Act (BRAC). Locations remain HUBZone for five years after date of closing or, if already closed by Dec. 8, 2004, five years from that date. (Defense) (Changes periodically) 5/13/201519

HUBZone Program Benefits Set-aside awards Sole source awards Awards through full and open competition after application of 10% price evaluation preference (PEP) Subcontracting Opportunities 5/13/201520

How to Locate HUBZone contractors 5/13/201521

Federal Government-wide Prime HUBZone Contracting Awards by Fiscal Year FY 1999Goal - 1%Actual - not available FY 2000Goal – 1.5% Actual - $663.3 M (.33%) FY 2001Goal – 2.0%Actual - $1.7 B (.72%) FY 2002Goal – 2.5%Actual - $1.7 B (.71%) FY 2003Goal – 3.0%Actual - $3.4 B (1.23%) FY 2004Goal – 3.0%Actual - $4.8 B (1.59%) FY 2005Goal – 3.0%Actual - $6.2 B (1.94%) FY 2006Goal – 3.0%Actual – $7.1 B (2.11%) FY 2007Goal – 3.0%Actual – $8.5 B (2.24%) FY 2008Goal – 3.0%Actual – $10.1 B (2.34%) FY2009Goal – 3.0%Actual – $12.4 B (2.80%) FY2010Goal – 3.0%Actual – $12.8 B (2.30%) 5/13/201522

Performance of work requirements for HUBZone contracts CFR Section The HUBZone SBCs must spend at least 50% of the cost of the contract incurred for personnel on its own employees or employees of other qualified HUBZone SBCs. A qualified HUBZone SBC prime contractor receiving a HUBZone contract for general construction may meet this requirement itself by expending at least 50% of the cost of the contract incurred for personnel on its employees or it may subcontract at least 35% of the cost of the contract performance incurred for personnel to one or more qualified HUBZone SBCs. A qualified HUBZone SBC prime contractor may not, however, subcontract more than 50% of the cost of the contract incurred for personnel to non-qualified HUBZone SBCs. A qualified HUBZone SBC prime contractor receiving a HUBZone contract for specialty construction may meet this requirement itself by expending at least 50% of the cost of the contract incurred for personnel on its employees or it may subcontract at least 25% of the cost of the contract performance incurred for personnel to one or more qualified HUBZone SBCs. A qualified HUBZone SBC prime contractor may not, however, subcontract more than 50% of the cost of the contract incurred for personnel to non-qualified HUBZone SBCs. 5/13/201523

Performance of work requirements for HUBZone contracts 13 CFR Section cont’d... A contracting officer may waive the 50% requirement for a particular procurement after determining that at least two qualified HUBZone SBCs cannot meet the requirement. 5/13/201524

HUBZone Program Benefits cont’d… Notwithstanding any other provision of law, a contract opportunity shall be awarded on the basis of competition restricted to qualified HUBZone small business concerns if the contracting officer has a reasonable expectation that not less than 2 qualified HUBZone small business concerns will submit offers and that the award can be made at a fair market price. Section 602(b)(1)(B) of the Act, 15 U.S.C. sect. 657a GAO has interpreted this language to mean that a HUBZone set-aside is mandatory where the enumerated conditions are met. SBA has requested reconsideration of the GAO's decision. The SBA's position is that there should be parity between the small business programs. 5/13/201525

What you can do 5/13/  Maintain your eligibility  Keep good records  Notify SBA of firms that are out of compliance  Be prepared for upcoming “full-doc” Program Examinations

Key stakeholder issues  Long processing times  Why is it taking so long? Can my application get processed faster?  Fraud and abuse  Can I be certain a firm with HUBZone certification is truly eligible?  HUBZone Geographic designations  My region is suffering economically – why aren’t we a HUBZone?  Will my area lose its status with the 2010 census? If so, when?  Employee definition change  How is the new definition different? What if my firm is no longer eligible?  Contracting and parity  Does HUBZone take precedence over other SBA federal contracting programs?  What is being done to increase the number and value of HUBZone contracts? 5/13/201527

THANK YOU! John A. Leonard Jr. BDS; WMADO 5/13/201528