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BLOG: HUBZone Program Flexibility During the COVID-19 Outbreak

March 31, 2020

By Jon Williams
Practice Areas: Government Contracts Law and Small Business Programs & Advisory Services

In a webinar on March 25, 2020, officials with SBA’s HUBZone Program showed that SBA understands the unprecedented COVID-19 outbreak has created some unique challenges for HUBZone firms. Fortunately, SBA acted proactively to provide flexibilities to HUBZone firms that are struggling to maintain their principal office location and employees during this challenging time.  Highlights from SBA’s webinar included:

  • The new annual recertification process will be voluntary for the remainder of 2020, except for firms that are up for a three-year review this year. If you are not up for a three-year review this year, you have the choice of skipping the annual recertification in 2020. Or, if you prefer, you can request an annual recertification this year. 
  • If you do not have an annual recertification in 2020, and you submit a proposal for a HUBZone contract or are protested in connection with a HUBZone contract solicited after December 26, 2019, SBA will judge your HUBZone eligibility as of your most recent three-year recertification (or your initial certification date, if you have not yet gone through a three-year recertification). This means you need to be sure that you were eligible as of your most recent three-year recertification, which could have been a few years ago, as that date will impact your eligibility for HUBZone contracts solicited after December 26, 2019. 
  • If you are unsure about your eligibility as of your last three-year recertification date, or your initial certification date, or you would just prefer to go through the annual recertification this year, you can contact SBA to initiate this process. For some firms, it may be better to wait to voluntarily request recertification until after the worst of the COVID-19 outbreak passes, hopefully in the not-too-distant future. However, if you do go through a recertification in the midst of the outbreak, SBA is prepared to show flexibility if your principal office is not staffed or if you have had to lay off personnel due to the virus. In these circumstances, SBA would look at things like where your employees lived and worked prior to the measures you put in place based on COVID-19, whether the measures are temporary, and if the employees will be rehired or return to working in the principal office after the outbreak has passed and your emergency measures are no longer needed. However, SBA will not relax the 35% HUBZone employee threshold (or 20% floor if you are performing on a HUBZone contract).
  • If you are not interested in seeking an annual recertification voluntarily, or if you believe you are up for a three-year recertification this year, there is nothing you need to do at this time. You can sit tight and wait for SBA to contact you to initiate the recertification, which could be later this year if you are due for a three-year recertification or it may not be until next year, depending on your situation.

If you have any questions about how to handle your HUBZone eligibility during the COVID-19 outbreak, or about the new HUBZone rules that took effect on December 26, 2019, please do not hesitate to contact Jon Williams, the author of this blog, at jwilliams@pilieromazza.com. We also invite you to visit PilieroMazza’s COVID-19 Client Resource Center for information and resources to assist businesses during this difficult time.


   



HUBZone Program flexibilities during COVID-19


How can firms maintain the 35% HUBZone residency requirement if some employees are college students whose residence hall has closed?  

SBA recognizes that some HUBZone employees are students who have been called home to locations no longer in a HUBZone, even though they continue to work remotely, impacting firms’ ability to maintain the 35% HUBZone residency requirement.  SBA will determine affected firms’ compliance with the 35% HUBZone residency requirement by reviewing documentation showing where the impacted employee lived prior to the COVID-19 response measures being put in place. Accordingly, a firm that has a HUBZone  employee that was required to move from student housing to a non-HUBZone location AND continues to work for the HUBZone firm, the firm may continue to count that employee as a HUBZone resident by providing documentation showing:  1) the university/college closed the student’s residence and 2) the employee has been maintained on the payroll.  This applies only to students who, at the time of the firm’s application for certification or recertification, were already on payroll and had residency established prior to the university closing student housing. 

How can firms maintain compliance with the Principal Office requirement if their employees are required to telework? 

 SBA recognizes that if all of a firm’s employees are required to telework in response to the COVID-19 pandemic, this might impact a firm’s ability to comply with the HUBZone program’s principal office requirement.  In response to this concern, SBA will determine affected firms’ compliance with the principal office requirement by reviewing the firm’s compliance prior to the telework measures being put in place. Accordingly, at the time of application for certification or recertification, a firm that has placed its employees on mandatory telework will have to provide documentation showing where its employees performed their work prior to requiring telework.  Such an applicant will also be required to provide a signed statement that: the firm put all their employees on telework associated with social distancing in response to the COVID-19 pandemic;  the teleworking measure is temporary in nature; and the employees will return to their normal work location once the teleworking measures have been lifted.

How can firms maintain compliance with the requirement for uninterrupted and continued employment for “Legacy HUBZone employees,” as outlined in the HUBZone regulations at 13 C.F.R. 126.200(d)(ii)(3), if employees are laid off or on extended sick leave? 

The revised HUBZone regulations, which became effective December 26, 2019, allow firms to count “Legacy” HUBZone resident employees as permanent HUBZone resident employees if they are able to demonstrate that the employee was a HUBZone resident for 180 days prior to and for 180 days following the firm’s HUBZone certification or recertification.  In addition, the requirement states, “The certified HUBZone small business concern must maintain records of the employee's original HUBZone address, as well as records of the individual's continued and uninterrupted employment by the HUBZone small business concern, for the duration of the concern’s participation in the HUBZone program.”  SBA recognizes that many firms have placed employees on extended (unpaid) sick leave status or are contemplating layoffs. SBA will allow HUBZone companies to place an employee in a temporary non-paid status such as FMLA to care for themselves or a sick family member during COVID-19 if the firm attests to their intent to put such individuals back on payroll after the period of extended sick leave. However, there is no such exception for employees that have been laid-off.  If a firm lays off an individual, that individual cannot be counted as a “legacy HUBZone employee” for any future HUBZone certification or recertification.

Can the HUBZone Program expedite my application for certification? 

 SBA may expedite the application of any firm that submits a complete package for certification and indicates that they intend to respond to a specified solicitation that relates to COVID-19. 

Can the HUBZone Program waive or reduce the 35% residency requirement?  

This statutory requirement would necessitate Congressional action to change

   

HUBZone Program updates related to a change in regulations


When and why did SBA propose new rule changes to the HUBZone program?

The SBA proposed new regulations to make it easier for small businesses to participate in the HUBZone program. These changes will make the program more attractive for small businesses to invest in HUBZones and hire HUBZone residents, providing greater impact to communities and making it easier for federal agencies to meet their goal to award 3 percent of contracts to certified HUBZone small businesses.  The rule change was published in November 2019 and took effect December 26, 2019.   

What are the new rules around recertification? 

All firms will be required to undergo an annual recertification rather than a triennial recertification, with a full documentation review taking place every three years.  Once certified, a firm is eligible for all HUBZone contracts for which the business qualifies as small, for a period of one year from the date of its initial certification or most recent recertification (unless the concern acquires, is acquired by, or merges with another firm during that period).   Prior to this change, in order to be eligible for a HUBZone contract, firms had to prove their HUBZone eligibility at both the time of offer and the time of award, lengthening the procurement process for HUBZone firms uniquely among all small businesses—and serving as a disincentive for federal agencies to contract with HUBZone companies. 

When and how will annual recertification begin? 

SBA has experienced a delay in the implementation of our new annual recertification process.   Firms which, based on the prior triennial recertification schedule, were due for recertification in 2020 will be contacted automatically by the HUBZone Certification and Tracking System (HCTS) and will be required to recertify on the anniversary date of their initial certification.  (For example, if a firm was initially certified on December 1, 2017, the firm will receive a notice from HCTS that it is due to recertify its HUBZone status within 30 days of December 1, 2020.)   All other firms (which were not scheduled to recertify in 2020 under the triennial recertification rules) will continue to be considered eligible as of the date of their initial certification or most recent recertification, and must be prepared to prove their eligibility at that time if their HUBZone status is protested in connection with a HUBZone solicitation issued after December 26, 2019.    Until such time as we have introduced a fully automated recertification process for all firms, we will also allow firms to voluntarily recertify on the anniversary date of their initial certification, if they choose to do so. We will advise firms within the next two weeks regarding the process for voluntary recertification on their anniversary date.

Are Governors now permitted to ask SBA to designate HUBZones? 

A new Governor-designated covered areas initiative that became effective on January 1, 2020, represents an opportunity to expand the HUBZone program to reach more distressed rural communities.  The new authority allows state governors to petition SBA to designate as HUBZones rural areas with populations under 50,000 and unemployment levels of 120 percent of the U.S. or state average.  SBA will provide updates and update the HUBZone maps to reflect newly covered areas.

Are there other changes to the HUBZone maps? 

SBA has frozen the HUBZone maps through 2021, until the results of the 2020 Census are available. This will provide the program and participating small businesses with an opportunity to transition to a new requirement to update the maps and designations on five-year intervals, starting after the 2020 Census. Five-year HUBZone updates will enable small businesses to plan and invest in their HUBZone communities without fear that their designation may change from one year to the next, thus providing stability for both the community and HUBZone businesses. While the maps are frozen, no new Qualified Non-Metropolitan Counties, Qualified Census Tracts, or Redesignated Areas will be removed from or added to the maps. However, SBA will continue to add locations approved through the new Governor-designated covered areas initiative, qualified base closure areas, qualified disaster areas, and Indian lands, as any new data is received.

How has the definition of the Principal Office changed 

A new provision in the HUBZone regulations allows small businesses that invest in HUBZones by purchasing a building or entering a long-term lease (of 10 years or more) to maintain HUBZone eligibility for up to 10 years, even if at some point the office location no longer qualifies as a HUBZone. This provision does not apply to offices located in areas categorized on the HUBZone map as Redesignated areas.

Are there changes to the 35% HUBZone employee residency requirement?  

The new rule allows HUBZone companies to retain long-term “Legacy” HUBZone resident employees as permanent HUBZone resident employees, under certain circumstances.  An employee who resides in a HUBZone for at least six months (180 days) at the time of certification or recertification, and continues to reside in a HUBZone for at least six months (180 days) after such time, may continue to be considered a HUBZone resident so long as they are continuously employed by the firm, even if he/she moves to a non-HUBZone area, or if the area of his/her residence loses HUBZone geographical eligibility. If the firm wants to count such a “Legacy” employee as a HUBZone resident for the duration of the individual’s employment, then at the time of any subsequent recertification, the firm will be required to identify any such employee and provide supporting documentation demonstrating that the individual resided in a HUBZone for 180 days before and after certification and that the individual has been an employee of the firm for the entire period of time since the firm’s certification.

How may I obtain help or learn more about the HUBZone Program? 

The following resources may be accessed for additional support:

  • Your SBA District Office can provide local assistance on topics such as government contracting, certifications, financing, general business support, and more. The list of local offices can be found at https:// sba.gov/local-assistance/.
  • The SBA Answer Desk at 1-800-827-5722 and answerdesk@sba.gov can also answer general questions.
  • Speak with a member of our HUBZone team by joining our weekly call, held every Thursday from 2 p.m. to 3 p.m. ET: 1-202-765-1264; access code 63068189#.



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HUBZone Contractors National Council is a 501(c)6 non-profit organization.

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