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4 min read

Changes ahead for SBA’s HUBZone program

Attracting economic development to rural, tribal areas and metropolitan areas plagued with poverty has always been challenging. To address the problem, the Small Business Administration (SBA) HUBZone program was established pursuant to the HUBZone Act of 1997 (HUBZone Act), Title VI of the Small Business Reauthorization Act of 1997, Public Law 105-135, enacted December 2, 1997. The stated purpose of the HUBZone program is to provide for Federal contracting assistance to HUBZone small business concerns. [1]

What are HUBZones?

In general, HUBZone small businesses are those that have their principal place of business located in a HUBZone and have 35 percent of their employees residing in one or more HUBZones. The SBA must certify HUBZone businesses for them to be eligible to bid on government contracting set-aside procurement opportunities.

There are actually five types of HUBZone classifications:

1. Qualified Census Tracts,

2. Qualified nonmetropolitan counties,

3. Qualified Indian reservations,

4. Military bases closed under the BRAC, and

5. Qualified Disaster Areas.

HUBZone areas are generally defined as areas with low-income levels, high poverty rates and high unemployment rates. It’s essentially an SBA program for a place-based contracting assistance program whose primary objective is job creation and increasing capital investment in distressed communities for the five HUBZone types.

The Report

On April 3, 2019, the Congressional Research Service issued a 36-page report that “examines arguments both for and against targeting assistance to geographic areas with specified characteristics as opposed to providing assistance to people or businesses with specified characteristics. It then assesses the arguments both for and against the continuation of the HUBZone program.”[2]

The CRS report comes on the heels of SBA’s proposed updating of the HUBZone regulations. Those proposed regulations were published in the Federal Register on Dec. 21, 2018. They would amend its regulations for the Historically Underutilized Business Zone (HUBZone) Program to reduce the regulatory burdens imposed on HUBZone small business concerns and government agencies, implement new statutory provisions, and eliminate ambiguities in the regulations. SBA has reviewed all of its HUBZone regulations and is proposing a comprehensive revision to the HUBZone Program to clarify current HUBZone Program policies and procedures and to make changes that will benefit the small business community by making the HUBZone Program more efficient and effective. The proposed amendments are intended to make it easier for small business concerns to understand and comply with the program's requirements and to make the HUBZone program a more attractive avenue for procuring agencies.” Comments were due on Feb. 14, 2019.

The proposed streamlining of the regulations were issued after President Trump’s Executive Order 13771 on January 30, 2017 came out, directing federal departments and agencies to reduce regulatory burdens and control regulatory costs. In response to this directive, SBA initiated a review of all of its regulations to determine which might be revised or eliminated.

Proposed Regulations

The proposed regulations would do three things:

1. Freeze the HUBZone maps until 2020 and then update the maps every 5 years

Freezing the maps provides some predictability for certified businesses. They can count on certification for at least five years and then for another three years afterwards as a “redesignated” community.

2. Amend “35 percent rule” regarding mixture of HUBZone/Non-HUBZone employees.

Employees who initially lived in a HUBZone for a certain amount of time wouldn’t lose that designation if they moved.

3. Fix the eligibility requirement for awards.

One thing the proposed regulations address are the eligibility designations are placed based, so when the economic status of the people living there changes, the eligibility can change. HUBZones can change over time based on economic data changing. It’s not realistic to have a business owner or their employee (35 percent are required to live within the HUBZone) to relocate in order to attempt to maintain the business’ status when the area where the business is located or the employee resides loses its HUBZone status.

The proposed rule would eliminate the burden on HUBZone small businesses to continually demonstrate that they meet all eligibility requirements at the time of each offer and award for any HUBZone contract opportunity. The proposed rule would require only annual recertification rather than immediate recertification at the time of every offer for a HUBZone contract award. This reduced burden on certified HUBZone small businesses would allow a firm to remain eligible for future HUBZone contracts for an entire year, without requiring it to demonstrate that it continues to meet all HUBZone eligibility requirements at the time it submits an offer for each additional HUBZone opportunity.

Why all this interest in revising the HUBZone program? The CRS report details the history of the program and the various problems it has encountered over the years including serious fraud. The federal government has a contracting goal of three (3) percent for HUBZone small businesses but has not been able to meet this goal since 2005. Despite the low penetration rate, the HUBZone program has had a lot of fraud within it.

The CRS report details the most recent Office of Inspector General report that was released earlier this year. On March 28, 2019, the Office of Inspector General released the results of an audit of 15 firms that received HUBZone certification and approximately $29.4 million in contracts from April 1, 2017 to March 31, 2018. Three of the 15 firms were found to be deficient in meeting the eligibility requirements of the program. There were other findings regarding the time it took to certify the companies and the lack of a standardized review policy.

The OIG actually made several recommendations for the SBA to consider:

Re-examine the three cited firms’ eligibility

  • Update and implement HUBZone written guidance.
  • Implement a plan to mitigate information technology issues affecting the HUBZone’” certification process.

Updates to Come

The SBA has not updated the agency’s standard operating procedures of the HUBZone program when it has assured Congress it would do so. Meaningful performance measures are also lacking. Perhaps between the proposed federal regulations and the CRS report, the SBA will be spurred to action to improve this underutilized and very important place based economic development program.

[1] 15 U.S.C. 657a(a).

[2] Small Business Administration HUBZone Program, Updated April 3, 2019 Congressional Research Service,, R41268