The SBA’s Historically Underutilized Business Zone (HUBZone) Program

The SBA’s Historically Underutilized Business Zone (HUBZone) Program

June 15, 2023
The SBA’s Historically Underutilized Business Zone (HUBZone)
Program
Program Overview
no preference applied and the large firm is not displaced by
The Small Business Administration’s (SBA) HUBZone
the HUBZone firm. If a certified HUBZone small business
program provides federal contracting preferences to small
concern were to submit an offer of $98 and the large
businesses located in areas designated by the SBA. Known
business were to submit an offer of $93, the HUBZone firm
as HUBZones, SBA designates these areas based on Census
would displace the large firm as the lowest offeror because
data that indicate levels of high poverty, high
the HUBZone firm’s offer is within 10% of the large firm’s
unemployment, or low income, or if they are located in
offer. For agricultural commodities purchased by the
qualified disaster areas, on Indian reservations, at some
Department of Agriculture, regulations limit the use of the
closed military installations, or in governor-designated
price evaluation preference to certain purchase volumes.
places that meet certain criteria. The program was
authorized by P.L. 105-135, the HUBZone Act of 1997.
Eligibility Criteria
A firm must be certified by the SBA before it can
The HUBZone program is the only federal contracting
participate in the HUBZone program and receive
program that assists firms based on their geographic
contracting preferences. Firms attain certification by
location rather than their characteristics or those of their
submitting an application to the SBA. According to SBA
owners (e.g., contracting programs for small businesses,
regulations available at 13 C.F.R. §126.200, a certifiable
disabled-veteran owned small businesses). Congress has
firm must:
established in statute an annual HUBZone procurement
goal of 3% of prime contract awards and 3% of subcontract
• meet the SBA’s small business size standards;
awards, as measured in dollars. This goal is codified at 15
U.S.C. §644(g)(1)(A). The government awarded 2.53% of
• be at least 51% owned and controlled by U.S. citizens, a
prime contract dollars and 1.6% of subcontract dollars in
community development corporation, an agricultural
FY2021, the most current fiscal year for which the SBA has
cooperative, or an Indian tribe (including Alaska Native
published data. The 3% goal has not yet been achieved by
Corporations and Native Hawaiian Organizations);
the government as a whole, although a few individual
agencies have met the goal in certain fiscal years.
• maintain a principal office in a HUBZone, where
principal office is defined as the location where the
Program Benefits for Eligible Firms
greatest number of the firm’s employees at any one
HUBZone contracting preferences include contract set-
location perform their work;
asides, sole-source awards, and price-evaluation
preferences. While a set-aside restricts competition for a
• have at least 35% of its employees reside in a
contract to specified contractors (HUBZone firms), a sole-
HUBZone; and
source award is a contract awarded to a firm without
competition. Set-asides may be exclusive, if an entire
• certify that it will “attempt to maintain” having at least
procurement is set-aside, or partial, if part of it is restricted
35% of its employees reside in a HUBZone during the
to HUBZone firms.
performance of any HUBZone contract; “attempt to
maintain” is defined at 13 C.F.R. §126.103, which
As described at 13 C.F.R. §126.613(a)(1), a price
describes the requirements for firms to document their
evaluation preference is granted where a contracting officer
maintenance efforts and specifies that firms with “less
will award a contract in full and open competition. In these
than 20% of [their] total employees residing in a
situations, the officer will “deem the price offered by a
HUBZone during the performance of a HUBZone
certified HUBZone small business concern to be lower than
contract [have] failed to attempt to maintain the
the price offered by another [non-small business] offeror.”
HUBZone residency requirement.”
The contracting officer may not grant the preference,
however, if that price is more than 10% higher than the
In December 2019, the SBA issued new regulations
price offered by the “otherwise lowest, responsive, and
intended, in part, to make the HUBZone program more
responsible offeror.” Regulations provide examples of how
attractive to procuring agencies. The “long-term investment
this preference is applied. In one example, “a certified
provision” in these regulations allows HUBZone firms to
HUBZone small business concern submits an offer of
maintain HUBZone status for up to 10 years by owning or
$103” and “a large business submits an offer of $93.”
making a long-term investment (such as a long-term lease)
Because the HUBZone firm’s offer is more than 10%
in a principal office in an area that qualifies as a HUBZone
higher than the large firm’s offer (the lowest offer), there is
at the time of the firm’s initial certification. With a
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The SBA’s Historical y Underutilized Business Zone (HUBZone) Program
qualified long-term investment in a HUBZone, a firm can
of 50,000 or fewer, and (3) have an unemployment rate that
continue to be considered to meet the principal office
is at least 120% of the unemployment rate for the nation or
program requirement and participate in the HUBZone
state in which it is located, whichever is less.
program, even if the area loses its HUBZone designation.
HUBZone Updates and Revisions
Types of HUBZones
The locations of HUBZones are shown in an online
The six types of HUBZone designations are described
HUBZone map available at https://preview-
below, including: qualified census tracts, qualified
maps.certify.sba.gov/hubzone/map/help. The map has most
nonmetropolitan counties, qualified Indian lands, certain
recently been updated to reflect 2020 Census data. These
closed military installations, qualified disaster areas, and
updates will become effective as of July 1, 2023. The map’s
governor-designated areas.
qualified census tracts and nonmetropolitan counties will be
updated again in July 2028, according to a five-year
Qualified Census Tract
revision cycle that is required by the National Defense
A qualified census tract is any census tract (1) that is
Authorization Act for Fiscal Year 2018. Throughout any
designated by the Secretary of Housing and Urban
given year, the SBA makes governor-designated and
Development (HUD) for the low-income housing tax credit
disaster area updates.
program, and (2) in which either of the following is true:
50% or more of the households have an income of less than
Expired HUBZones are granted a three-year grace period,
60% of the area median gross income, or the federal
starting from the date on which the area ceased to be a
poverty rate is at least 25%.
qualified census tract or a qualified non-metropolitan
county. During the grace period, the areas are known as
Qualified Nonmetropolitan County
redesignated areas. SBA is to revise the map’s redesignated
A qualified nonmetropolitan county is any county that is
areas in 2026. According to the SBA, most currently
not located in a metropolitan statistical area and in which
redesignated areas have exhausted their three-year grace
one of the following is true: (1) the median household
period and will not appear on the map on July 1, 2023.
income is less than 80% of the state median household
income, (2) the unemployment rate is not less than 140% of
Issues for Congress
the average unemployment rate for the United States or for
the state in which such county is located, whichever is less,
HUBZone Procurement Goal Attainment
or (3) the county has been designated by the Secretary of
A 2018 program evaluation report prepared for the SBA
HUD as a “difficult development area” within Alaska,
found that major “barriers and challenges preventing some
Hawaii, or any territory or possession of the United States
federal agencies from reaching the 3 percent [HUBZone
outside the 48 contiguous states.
procurement] goal” included a “combination of perceptions
of HUBZone small businesses’ capabilities and skills and
Qualified Indian Lands
untargeted marketing strategies.” Congress may wish to
P.L. 105-135 provided HUBZone eligibility to lands within
explore how the SBA and purchasing agencies are working
the external boundaries of an Indian reservation.
to improve program utilization.
BRAC Areas
Economic Development Impacts
P.L. 108-447, the Consolidated Appropriations Act, 2005,
The SBA stated in its FY2024 Congressional Budget
provided HUBZone eligibility for five years to lands within
Justification that the program “promotes job growth, capital
the external boundaries of a military installation closed
investment, and economic development in economically
through a privatization process under the Department of
distressed areas designated as HUBZones.” Although the
Defense’s Base Realignment and Closure (BRAC) process.
Budget Justification statement did not include supporting
data, a 2021 evaluation of the program’s impact
Disaster Areas
commissioned by the SBA “estimated the total
P.L. 114-92, the National Defense Authorization Act for
employment, earnings, value added, as well as gross output
Fiscal Year 2016, provided HUBZone eligibility to
impacts” of HUBZone firm contracts. Using an input-
qualified disaster areas. These areas are defined as “any
output model for its analysis, the study found that the
census tract or nonmetropolitan county for which the
HUBZone program had “a moderate impact on all 30
President has declared a major disaster ... or located in an
counties [studied] in terms of value added and employment
area in which a catastrophic incident has occurred ... if such
supported by contract awards to HUBZone firms.”
census tract or nonmetropolitan county ceased to be
Recommendations included further analysis, such as case
qualified [as a HUBZone] ... during the period beginning
studies, and a “monitoring tool” for the HUBZone program.
five years before the date on which the President declared
Congress may be interested in further impact assessments
the major disaster or the catastrophic incident occurred and
and/or regular updates to previous analyses.
ending two years after such date.”
R. Corinne Blackford, Analyst in Small Business and
Governor-Designated Areas
Economic Development Policy
P.L. 115-91, the National Defense Authorization Act for
Fiscal Year 2018, authorized governors to petition the SBA
IF12428
annually to grant HUBZone eligibility to areas that (1) are
located outside of an urbanized area, (2) have a population
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The SBA’s Historical y Underutilized Business Zone (HUBZone) Program

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