SBA Plans Major Changes in HUBZone Program

By Pamela J. Bethel

This is the third blog post in our series about new federal regulatory initiatives that are on tap for the  first half of 2014.

Last May, in an action that was somewhat embarrassing to the Small Business Administration, that agency made a decision to strip D.C.-based Strong Castle Inc. of its certification as a small business operating in a “historically underutilized business zone” or HUBZone.

The agency made this determination amidst allegations by Rep. Darrell Issa (R-Calif.) that Strong Castle engaged in contract fraud regarding the HUBZone designation and other matters. Strong Castle received nearly $500 million in Internal Revenue Service technology contracts in 2012. Among the allegations was a suggestion that Strong Castle may have been actually based in Leesburg, Va., but may have used a D.C. Chinatown row house in a HUBZone as its headquarters address in order to gain certification. Strong Castle denied any wrongdoing.

Perhaps because of situations like Strong Castle, where the HUBZone designation was allegedly misused by government contractors, the SBA is now moving to tighten up the HUBZone program.  In addition, many people close to the program believe that it is not being utilized as much as it could be, both because it is not well known enough in the contracting community and because there is a perception that it involves too much bureaucratic red tape.

The program is intended to create incentives for the U.S. government to do business with companies that create jobs in communities with statistically proven economic needs – the HUBZones. Federal agencies are required by the HUBZone Empowerment Act to contract with HUBZone certified small businesses for more than three percent of their budget in the form of prime contracts to HUBZone firms.

Now, according to a Notice of Proposed Rulemaking by the SBA, the agency “has been reviewing its processes and procedures for implementing the HUBZone program and has determined that several of the regulations governing the program should be amended in order to resolve certain issues that have arisen.”

Possible amendments, the SBA wrote, “will make it easier for participants to comply with the program requirements and enable them to maximize the benefits afforded by participation.”

The SBA said it wishes both “to determine whether portions of regulations should be modified, streamlined, expanded or repealed to make the HUBZone program more effective and/or less burdensome on small business concerns” and to “maintain a framework that helps identify and reduce waste, fraud, and abuse in the program.”

What has your experience with the HUBZone program been?  We’d like to know.

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