Posted on January 15, 2010 by Michael Payne

The HUBZone Program and Federal Construction

By: Michael H. Payne and Edward T. DeLisle

In order to qualify as a Historically Underutilized Business Zone (“HUBZone”) contractor, a firm must be a “small business” based on the size standards provided by the North American Industry Classification System (NAICS); the firm must be at least 51% owned and controlled by citizens of the United States; the firm's principal office (where the greatest number of employees perform their work, excluding contract sites) must be located in a designated HUBZone; and at least 35% of the firm's total workforce must reside in a designated HUBZone. In construction, a company does not need to include its field labor force among the 35% of its employees who must reside in a HUBZone.   (See the SBA's HUBZone regulations).

The program encourages small businesses to locate in and hire employees from economically disadvantaged areas. Small firms participating in the program can receive competitive advantages in winning federal contracts. The government generally expects approximately three percent (3%) of all federal contracting dollars to be awarded to HUBZone firms annually. As reported by the HUBZONE Contractors National Council, as of January 8, 2010, there were 9,255 HUBZone-certified small business concerns specializing in the following major industries:

• Construction - 2,984 firms (32% of total)
• Services - 4,176 firms (45.1%)
• Research & Development - 879 firms (9.5%)
• Manufacturing - 1,675 firms (18.1%)
(Numbers total more than 9,255 because some firms appear in more than one industry category.)

Many HUBZone-certified firms are also certified in other set-aside programs. 12.2% of HUBZone firms are also 8(a) small businesses (minority-owned); 8.0% are Service Disabled Veteran-owned firms; and 0.9% are qualified in all three set-aside programs.

The mission of the HUBZone program, as expressed by the SBA, is “to promote job growth, capital investment, and economic development to historically underutilized business zones by providing contracting assistance to small businesses located in these economically distressed communities.” See the SBA’s HUBZone website for more details. In order to apply for HUBZone status, companies are encouraged to apply using the electronic application on the SBA website.
 

Michael H. Payne is the Chairman of the firm's Federal Practice Group. Edward T. DeLisle is a Partner in the firm and a member of the Federal Practice Group. He is a available to assist federal contractors on a whole range of small business issues including HUBZone certification, 8(a)compliance issues, Service Disabled Veteran-Owned Small Business formation, and teaming arrangements.

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Posted on December 4, 2009 by Michael Payne

Fraud, Abuse and the Service-Disabled Veteran-Owned Small Business Program

By: Edward T. DeLisle

In recent testimony provided to the House of Representative’s Committee on Small Business, a disturbing fact was revealed: millions of dollars earmarked for Service-Disabled Veteran-Owned Businesses (“SDVOSBs”) have been paid to companies that do not qualify for the program. Compounding the problem is the fact that insufficient fraud-prevention programs exist to effectively combat such abuses. This was the conclusion reached by United States Government Accountability Office (the “GAO”) following a case study that included an investigation of ten (10) companies claiming SDVOSB eligibility.

In 2008 alone, $6.5 billion in federal contracts were awarded to companies that self-certified themselves as SDVOSBs. While this figure only represents 1.5% of all government contracts paid in that fiscal year, it is still a very large number. If the federal government ever attains its mandated goal of 3%, many more billions will become available to qualified SDVOSBs. Given the paucity of work in the private sector over the course of the last eighteen (18) months, many companies are attempting to tap into this potential source of revenue. As the GAO pointed out, however, a number of these companies have misrepresented their credentials, effectively taking contracts away from those that truly qualify to receive them.

The companies identified in the GAO case study received approximately $100 million in SDVOSB contracts, and over $300 million in additional 8(a), HUBZone and other non-SDVOSB contracts through the federal government. Certainly, none of these monies should have been paid to the companies in question. Notwithstanding the same, because there are no requirements to terminate contracts when a firm is deemed ineligible, in certain circumstances, companies were permitted to continue performing, despite the government’s determination that the firm did not qualify as an SDVOSB. Many more were not debarred from receiving federal contracts, even though the transgressions noted were obvious and seemingly blatant.

The GAO did note that Department of Veteran’s Affairs (the “VA”) has taken steps to address this problem by introducing an SDVOSB validation process. That process includes confirming an owner’s status as a disabled veteran, as well as his or her control over day-to-day operations. The problem, however, is that the VA’s certification and validation process is not a government-wide system. It is limited to those contracts issued directly by the VA. Because many other federal agencies issue contracts that are earmarked for SDVOSBs, there are considerable gaps in the SDVOSB program.

If your company is an SDVOSB, or if you are interested in forming a company that qualifies for participation in the program, it is very important for you to comply with applicable SBA and procurement regulations. The fierce competition for federal government contracts exposes many companies to size status protests which, if successful, can cause an SDVOSB to lose an award. Our Federal Contracting Practice Group is available to assist you with these important compliance issues.

Edward T. DeLisle is a Partner in the firm and is a member of the firm’s Federal Contract Practice Group. He is extensively involved in the representation of construction contractors on small business issues.

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