We reported in September that an unexpected conflict had developed between a new Labor Department rule and an existing congressionally mandated requirement that grants preferential treatment to HUBZone contractors —firms servicing Historically Underutilized Business Zones.
Based on a current article in the Washington Business Journal, it now appears that the conflict has dissipated.
HUBZone contractors are entitled to this preference in competitions for federal government opportunities and contracts. However, in order to qualify, they must hire 35 percent of their employees from these zones and must establish a principal office in these designated districts. The intent of the law is to encourage economic development in HUBZone areas.
The new Labor Department rule is entitled the “Nondisplacement of Qualified Workers Under Service Contracts” rule. It provides that when a new contractor steps in to a job to replace the previous one, the successor contractor must offer employment to the previous contractor’s employees. Although this rule is well intentioned, many in the small business community were concerned that this rule might conflict with the HUBZone program.
Specifically, as journalist Jill Aitoro points out in the Washington Business Journal, the HUBZone program requires that at least 35 percent of a company’s employees live in the designated HUBZone. If these small businesses lose a contract and a new contractor steps in and hires their employees, their work force percentage could dip well below 35 percent.
Alternatively, if a HUBZone business becomes the successor contractor, it would presumably have to give right of first refusal to workers from the previous company, many of whom might not live in the HUBZone. Again, the percentage could drop down.
According to Aitoro’s article, however, Major Clark, assistant chief counsel for procurement with SBA, said at a recent conference that the agency went to the Labor Department and explained the problem.
“HUBZone companies would potentially be wiped out on that second round of a contract,” Clark said. “We finally got Labor in an agreement to make changes,” providing an exception to the rule in the case of HUBZone companies.
For those of us who navigate the complex and highly regulated world of federal procurement, and for those of us who are interested in the advancement of small businesses and of companies that want to revive underserved areas, both urban and rural, this is a positive development. It shows that the bureaucracy can be moved if the appropriate level of pressure is exerted in the right places.