THE WEBINAR WILL BEGIN SHORTLY. HUBZone Compliance Issues: Staying Ahead of the Curve June 29, 2017
Presented by Jon Williams, Partner jwilliams@pilieromazza.com (202) 857-1000 Julia Di Vito, Associate jdivito@pilieromazza.com (202) 857-1000 2
About PilieroMazza PilieroMazza PLLC is a full-service law firm with offices in Washington, DC and Boulder, CO. We are most well known as a government contracting firm and for 25 years we have helped our clients navigate the complexities of doing business with the federal government. We also provide a full range of legal services including advice on corporate, labor and employment, SBA procurement programs, and litigation matters. Our clients value the diverse array of legal guidance they receive from us and our responsiveness as we guide their growth and secure their success. Our primary practice areas are: Government Contracting Small Business Programs Labor & Employment Business & Corporate Litigation Sign up for our newsletters and blog at www.pilieromazza.com 3
Overview Common HUBZone compliance issues Tips to avoid potential pitfalls What to expect and prepare for in a HUBZone status protest Dealing with a redesignated HUBZone area Update from Capitol Hill 4
Common Compliance Issues Employees lots of issues! Documentation Attempting to maintain compliance Affiliation 5
Does an Individual Count as Your Employee? Individual usually works at least 40 hours per month, but last month only worked 30 hours Individual was leased from a company that is not in the business of leasing personnel Individual is a 1099 independent contractor Does it matter what the individual does for you? Does it matter how much you pay the individual? What about the business owners? 6
Does an Employee Count as Living in a HUBZone? Employee s address is not showing up in SBA s HUBZone map tool Employee s driver s license is expired Employee just recently rented an apartment in a HUBZone 7
Where Is My Principal Office? Each employee works from home Non-HUBZone office locations are much larger and have more sophisticated equipment and operations than the HUBZone office Only administrative or ministerial functions are performed in the HUBZone office What about my employees who work on a job site? 8
Mixing 35% and Principal Office Are we HUBZone eligible if 35% of the people working in our HUBZone office live in a HUBZone? Do 35% of my employees living in a HUBZone need to live in the same HUBZone where our principal office is located? 9
Affiliation Do I have affiliates? Common ownership Common management Family connections Economic dependence (70% test) Other factors Does affiliation impact my firm s small business status? Do I need to count the employees of my affiliates with my company s employees to determine HUBZone compliance? Can I use an affiliate to qualify my business for HUBZone? 10
Issues with Joint Ventures (JVs) Two common requests: I want to form a JV with another small business that is not in the HUBZone program I want to form a JV with a large business In the past, our answer was Sorry, you can t do that But, SBA changed the rules last year now the answer to both requests is Yes, we can! 11
Key New SBA JV Rules HUBZone firms may JV with non-hubzone firms HUBZone firm must be the lead partner in the JV The secondary partner can be any type of small business The secondary partner can also be a large business, if the parties are in an SBA-approved mentor-protégé relationship A HUBZone JV qualifies for the HUBZone price evaluation preference SBA does not need to pre-approve a HUBZone JV You must have a written JV agreement that complies with the HUBZone JV rules 12
SBA s New Mentoring Program SBA s new All Small mentor-protégé program allows a HUBZone firm to be a protégé Combining a mentor-protégé relationship and a JV allows a HUBZone firm to JV with a large business for federal prime contracts and subcontracts Step 1: Form mentor-protégé relationship, submit to SBA for approval (right now, it could be approved in about two weeks) Step 2: Form JV (give yourself about 3 weeks at least) Step 3: JV submits proposal If the mentor is a large business, SBA must approve mentor-protégé relationship before JV submits proposal 13
Develop Strong Internal Controls HUBZone compliance is challenging, so it is critical to develop solid procedures for regular oversight of your employees and HUBZone numbers Many clients utilize monthly HUBZone status checks Best practice is to document your procedures in writing and stick to them Train your people on your procedures, HUBZone eligibility requirements, and the importance your company places on compliance Require employees to maintain current driver s license on file and notify you as soon as they move 14
Documentation Is Key Create a compliance file for every HUBZone bid date and award date File should contain all the information you need to prove your HUBZone eligibility on that date Keep these files for at least three years after contract close out Make sure you have each HUBZone employee s current driver s license on file at all times Utility bills, mortgage statements, and even a declaration may be necessary to confirm a HUBZone employee s residence and intent to remain living in a HUBZone If you have job site employees, make sure you have copies of the contracts specifying those job sites 15
Make a Good First Impression Make sure your HUBZone office looks and acts the part Appropriate signage Office equipment, records, and resources consistent with the work being done in that location Size is suitable for the number of people who work there Scrub your website and online presence Avoid outdated or incorrect information that may give a misimpression about your business or its relationship with other firms Project the right image through company policies, employee handbook, and other similar documentation that show importance of HUBZone compliance in the company s culture 16
Attempt to Maintain Compliance Regularly attend job fairs and post hiring announcements seeking HUBZone employees and document these efforts Incentivize current or new employees to move to or stay in a HUBZone residence If you are attempting to maintain compliance, you have flexibility to dip below the HUBZone employee thresholds SBA will allow you to remain in the HUBZone Program as long as you can demonstrate you are attempting to increase your HUBZone numbers Only applies when you are performing HUBZone prime contracts Does NOT apply if you are only performing non-hubzone prime contracts or subcontracts, or when you bid on or win a HUBZone contract 17
Understand & Manage Affiliation HUBZone firms are allowed to have affiliates, BUT Only if the combined revenues are below the size standard for the HUBZone firm s industry And, if there is no clear line of fracture between the HUBZone firm and its affiliate, SBA will likely combine the firms employees for the principal office and 35% HUBZone residency calculations Clear line of fracture means: No sharing employees No sharing facilities, equipment, or other resources No subcontracting Engage in separate lines of work 18
Dealing with SBA Inquiries SBA may visit your office for a surprise inspection, or ask you to submit documents to confirm continued eligibility as part of renewal process If you are up for renewal and have not heard from SBA, check in with them SBA has had snafus with the renewal notices, causing many firms to be removed for failure to renew despite lack of notice from SBA Calendar your renewal date so you will be aware of it as it approaches Notify SBA if you have a material change that could affect your HUBZone eligibility Generally, it can be a simple notice and is sent to SBA via email New: if you send a notice of material change to SBA while a proposal is pending for a HUBZone contract, you must notify the CO 19
Overview of HUBZone Protests Current climate means more firms are being protested SBA, contracting officer, or disappointed offeror can protest the awardee s HUBZone status Protest by competitor must be filed on 5 th business day after notification of the apparent successful offeror Protest needs a specific basis to allege the firm is not compliant with the HUBZone eligibility criteria Specific basis is a relatively low bar Not surprisingly, most common bases of protest are noncompliance with the 35% and principal office requirements Size eligibility should be filed as a separate protest and would be decided by a different SBA office 20
Overview of HUBZone Protests Initial protest ruling is made by SBA s Director of the HUBZone Office No appeal to SBA s Office of Hearings and Appeals Appeals go to the Associate Administrator of Government Contracting and Business Development High standard: Must be clear and significant error in the processing of the protest, or a complete failure to consider a significant fact supplied by either the protestor or HUBZone firm Sample HUBZone protest decisions Available on SBA s website here: https://www.sba.gov/contracting/government-contractingprograms/hubzone-program/protest-case-highlights 21
Responding to a HUBZone Protest Onus is on the protested firm to provide anything and everything needed to prove your HUBZone eligibility You must substantiate HUBZone status on date of offer and date of award Two snapshots in time can make responses cumbersome Must provide documentation similar to application process It will be easier to respond if you have kept good compliance files for each bid and award date for your HUBZone contracts SBA will often give you a short window to respond Get cracking! And ask for an extension 22
Documents Required for a Typical HUBZone Protest Response Written response to protest allegations Documents showing ownership and control of company Company payroll records for four-week period prior to both bid and award dates (substantiate that employees who are being counted worked at least 40 hours for the month) Explanation of officer positions as employees Records demonstrating HUBZone employees residence, such as drivers licenses, and HUBZone maps for each address State unemployment tax filings for dates in question Records indicating where job site employees performed work, including a copy of the contract cover page Leases and deeds for all office locations Utility bills for principal office location Most recent federal corporate income tax return Proposal submitted in response to solicitation 23
Understanding Redesignation SBA s HUBZone map will tell you whether a location is in a HUBZone and what type of designation There are several types of HUBZone designations Qualified Census Tract Qualified Nonmetropolitan County Qualified Indian Reservation Qualified Base Closure Area Qualified Disaster Zone Redesignated Area When an area will lose its HUBZone status depends on the type of designation 24
Length of HUBZone Designations Qualified Census Tract: data updated every 5 years Based on census data Qualified Nonmetropolitan County: data updated annually Based on unemployment and income data Qualified Indian Reservation: designation never ends as long as reservation exists Qualified Base Closure Area: up to 8 years after closure Could end sooner if SBA Administrator decides Qualified Disaster Zone: up to 5 years (or 10 years if catastrophic incident) Redesignated Area: 3 years after area loses HUBZone status 25
Activity on the Hill Lots of positive momentum in Congress to improve the HUBZone Program and the HUBZone Council is leading this charge Two current bills would increase the grandfathering period for redesignated areas from 3 to 7 years H.R. 2013 (Delaney) S. 690 (Cardin) S. 929 (Shaheen) would: Lower employee residency requirement from 35% to 33% Allow governors to petition SBA to designate a HUBZone area Bipartisan House bill in progress that would positively overhaul the program 26
Questions? Jon Williams jwilliams@pilieromazza.com Julia Di Vito jdivito@pilieromazza.com 888 17th Street, NW 11th Floor Washington, DC 20006 202-857-1000 This material is presented with the understanding that the author is not rendering any legal, accounting, or other professional service or advice. Because of the rapidly changing nature of the law, information contained in this presentation may become outdated. As a result, the user of this material must always research original sources of authority and update information to ensure accuracy when dealing with a specific legal matter. In no event will the author be liable for any damages resulting from the use of this material.
THE WEBINAR HAS CONCLUDED. A HANDOUT IS AVAILABLE ON THE HUBZONE UNIVERSITY WEB PAGE (hubzonecouncil.org under the Events tab) FOR A LIMITED TIME. HUBZone Compliance Issues: Staying Ahead of the Curve June 29, 2017