Obtaining & Maintaining SBA HUBZone Certification GOVOLOGY March 16, 2017
Presentation Summary
HUBZone Program Overview of the HUBZone Program Purpose Benefits Obtaining HUBZone Certification Overview of requirements Who is an employee?
HUBZone Program Obtaining HUBZone Certification (con t) The principal office requirement The 35% residency requirement U.S. citizenship and other requirements Applying for Certification Maintaining HUBZone Certification Attempt to maintain and its limits Best practices
HUBZone Overview
HUBZone Overview Purpose: to assist businesses that operate in and employ people who live in economically disadvantaged areas HUBZone = Historically Underutilized Business Zone ) Formal certification required Eligibility term is three years, but may be renewed indefinitely
HUBZone Overview Unlike the other three major socioeconomic programs (8(a), SDVOSB & WOSB), HUBZone Program is not based on the socioeconomic status of owners No income or net worth requirements No racial, ethnic or gender preferences
HUBZone Program Benefits: HUBZone set-aside contracts Sole source contracts Up to $5.5 million in manufacturing and $3.5 million in other NAICS codes No difference for firms owned by Tribes, ANCs or NHOs (unlike 8(a) Program) Not permitted unless agency determines that two or more qualified HUBZones are unlikely to submit offers
HUBZone Program Benefits: Subcontracting preferences to meet primes subcontracting goals Ten percent price evaluation preference on unrestricted contracts May have better chance of landing qualified mentor under SBA All Small Mentor-Protégé program
HUBZone Program HUBZones are geographically-based Ordinary HUBZones are determined based on census data Others are assigned HUBZone status for different reasons (i.e., base closure areas) Lands within the external boundaries of an Indian reservation are automatically deemed HUBZones
HUBZone Eligibility
HUBZone Eligibility Eligibility for ordinary HUBZone: Small business in primary NAICS code At least 51% unconditionally and directly owned and controlled by persons who are U.S. citizens Principal office located in a HUBZone At least 35% of employees reside in HUBZone Some differences for HUBZones owned by Tribes, ANCs, NHOs & CDCs
HUBZone Eligibility Principal office and 35% residency requirements are employee-based but who is an employee? Someone who works at least 40 hours per month (not per week) Must work for pay, except owners who don t take pay still count (so long as they work at least 40 hours per month)
HUBZone Eligibility A HUBZone Employee : May be temporary May be part-time May be obtained from a PEO, temp agency, or leasing company A bona fide independent contractor (1099) is not an employee for HUBZone purposes SBA likely will ask to see independent contractor agreement and invoices to verify bona fide 1099 status
HUBZone Eligibility Principal Office: the location where more employees work than in any other location Excludes employees working at customer jobsites Not necessarily the company s headquarters
HUBZone Eligibility Principal Office: If an employee works in multiple locations, the employee is counted toward the single location where he/she spends the majority of time An employee who works from home is counted toward his/her home, not headquarters or some other office
HUBZone Eligibility EXAMPLE QuickDri LLC has 30 employees. Twelve work from Office A, 20 from Office B, and eight from Office C. Office A is the corporate headquarters. Result: QuickDri s principal office is Office B.
HUBZone Eligibility 35% requirement: At least 35% of employees must reside in HUBZones Can reside in any HUBZone Not limited to HUBZone where principal office is located or where work will be performed
HUBZone Eligibility 35% requirement: No exclusion for jobsite employees Jobsite exclusion applies only to principal office calculation, not 35% requirement As with principal office, bona fide independent contractors are excluded SBA won t round up For example: a company with six employees, two of whom live in HUBZones (33.3%) doesn t qualify
HUBZone Eligibility Company must be at least 51% directly and unconditionally owned by U.S. citizens 51% ownership must be by natural persons, that is, flesh-and-blood human beings Ownership through another entity (e.g., LLC holding company) isn t permitted for regular HUBZones
HUBZone Eligibility HUBZone may have affiliates, provided that affiliation doesn t cause HUBZone to exceed size standard in its primary NAICS When HUBZone has an affiliate, SBA will look to see whether there is a clear fracture between businesses If no clear fracture, SBA will use aggregated employee count in determining principal office and 35% SBA wants to discourage affiliated companies from artificially moving employees in order to qualify one of the companies as HUBZone
HUBZone Eligibility To obtain HUBZone certification, must apply to SBA Electronic application form Must submit supporting documents together with (or shortly after) submitting electronic application
HUBZone Eligibility SBA s goal is to process HUBZone applications within 90 days of receipt In my experience, 100-120 days is more likely, but depends on SBA workloads
Maintaining HUBZone Certification
Maintaining HUBZone Many companies assume that, once they are HUBZone-certified, they are good for the next three years Wrong and potentially dangerous A HUBZone firm is required to maintain eligibility throughout its term
Maintaining HUBZone Sometimes, an employee quits or something else outside of a HUBZone company s control causes the HUBZone company to temporarily fall out of compliance A HUBZone company will not be removed from the program if it is actively attempting to maintain compliance
Maintaining HUBZone Attempt to Maintain is frequently misunderstood: Applies only to maintaining the certification not to receiving HUBZone contracts A company must be in actual, active compliance with all HUBZone program criteria the date it bids on, and the date it is awarded, a HUBZone contract Attempting to comply doesn t allow a company to obtain HUBZone set-aside contracts; only actual compliance works
Maintaining HUBZone Attempt to Maintain is frequently misunderstood: Applies only on a short-term basis SBA will expect actual, demonstrable, efforts to regain compliance Must notify SBA when fall out of compliance
Maintaining HUBZone SBA may conduct random, unannounced audits to determine compliance Be sure to staff the office during the hours specified in the HUBZone application SBA may interview corporate neighbors to determine if anyone is ever around
Maintaining HUBZone Competitors may file HUBZone status protests of HUBZone set-aside awards Many certified HUBZones have been caught out of compliance when they were protested Despite being certified, many HUBZones didn t understand how the 35% and principal office factors work Many HUBZones incorrectly thought that they were eligible for HUBZone set-asides so long as they were certified, or so long as they were attempting to maintain compliance
Maintaining HUBZone Best Practices: Educate employees about the HUBZone criteria and the importance of meeting them Use employee handbook and internal requirements to ensure that employees report when they are moving If using independent contractors who don t live in HUBZones, make sure to have written independent contractor agreement, and don t include contractor in payroll If contractor will use company title or email, explain limits on agreement
Best Practices: Maintaining HUBZone Assign employee to keep up-to-date ready response file in case of SBA audit, showing active compliance with all eligibility criteria Have attempt to maintain plan ready to go in the event needed Be sure that plan includes demonstrable actions that can be shown to SBA
Maintaining HUBZone Best Practices: When bidding a HUBZone contract, assign an employee (perhaps the ready response employee) to confirm active HUBZone eligibility on bid date When anticipating a pending HUBZone award, assign an employee to confirm active HUBZone eligibility Make friends with your corporate neighbors SBA might ask And it s just plain nice
Questions? Questions?
For More Information Steven J. Koprince Managing Partner Koprince Law LLC (785) 200-8919 Visit to sign up for our free monthly electronic newsletter