The SBA’s 2022 Proposed Rule Changes - Part 2: Changes To The HUBZone Small Business Program

Decertification For Submitting False Information
The SBA regulation at 13 CFR 126.503 currently provides that if the SBA is unable to verify a certified HUBZone small business’ eligibility or has information that a concern was not eligible at the time of its certification or recertification, the SBA may propose decertification.  Similarly, the SBA may propose decertification if during the one-year period after certification or decertification it believes that a HUBZone small business performing a HUBZone contract no longer has at least 20% of its employees living in a HUBZone.  Lastly, under the current rules, if the Director of SBA's Office of HUBZone sustains a HUBZone small business status protest, the SBA will immediately decertify the HUBZone small business.

Although the SBA believes the current regulation permits it to initiate decertification proceedings if after admission to the HUBZone program it discovers that false information has been knowingly submitted by a certified HUBZone small business, to eliminate any doubt the Proposed Rule adds a paragraph to 13 CFR 126.503 specifically authorizing the SBA to initiate decertification proceedings.

Clarifying The Ostensible Contractor Rule
The Proposed Rule clarifies the SBA’s regulation at 13 CFR 126.601(d), which dictates what happens to a HUBZone small business prime contractor that is in an ostensible subcontractor relationship with a company that is not a HUBZome small business.  In particular, as amended by the Proposed Rule, the SBA regulation makes clear that when a subcontractor that is not a certified HUBZone small business will perform the primary and vital requirements of a HUBZone contract, or when a HUBZone prime contractor is unduly reliant on one or more small businesses that are not HUBZone-certified to perform the HUBZone contract, the prime contractor will not be eligible for award of that HUBZone contract.

HUBZone Joint Venture Designation In SAM
Currently, the SBA’s regulation at 13 CFR 126.616(a) provides that a HUBZone small business can, for the purpose of submitting an offer on a HUBZone contract, enter into a joint venture agreement with one or more other small businesses or with its approved mentor under the SBA’s small business mentor-protégé program.  The Proposed Rule now amends the regulation to state that a HUBZone joint venture should be registered in the System for Award Management (SAM) and identified as a HUBZone joint venture, with the HUBZone-certified joint venture partner identified.  As amended by the Proposed Rule, the regulation also provides that a certified HUBZone small business cannot be a joint venture partner on more than one joint venture that submits an offer for a specific HUBZone small business set-aside contract.

According to the SBA, the lack of a way to designate an entity in the SBA's DSBS database caused confusion about how to determine whether a business qualifies as a HUBZone joint venture that is eligible to submit an offer on a HUBZone contract.  The certification can only be made in SAM and the Proposed Rule’s changes are intended to help HUBZone firms and contracting officers determine if an entity is eligible to submit an offer as a HUBZone joint venture.

Protesting HubZone Small Business Status And Set-Asides
The Proposed Rule amends 13 CFR 126.801(b) to clarify the basis on which a HUBZone protest may be filed, which include that: (i) the protested business did not meet the HUBZone eligibility requirements set forth in § 126.200 at the time it applied for HUBZone certification or on the anniversary date of such certification; (ii) the protested joint venture does not meet HUBZone small business eligibility requirements under 13 CFR § 126.616; (iii) the protested business, as a HUBZone prime contractor, is unduly reliant on one or more small subcontractors that are not HUBZone-certified, or subcontractors that are not HUBZone-certified will perform the primary and vital requirements of the contract; and/or (iv) the protested business, on the anniversary date of its initial HUBZone certification, failed to attempt to maintain compliance with the 35% HUBZone residence requirement.

The Proposed Rule also adds a new paragraph (d)(1)(i) to clarify the timeliness of protests of orders or agreements that are set-aside for certified HUBZone small business concerns when the underlying multiple award contract is not set aside for certified HUBZone small business concerns. Specifically, a protest challenging the HUBZone status of the winning bidder will be considered timely if it is submitted within five business days of notification of the identity of the winning bidder. The Proposed Rule also adds a new paragraph (d)(1)(ii) to clarify that where a contracting officer requires recertification in connection with a specific order under a multiple award contract that itself is set-aside for certified HUBZone small businesses, a protest challenging the HUBZone status of a winning offeror will be considered timely if it is submitted within five business days of notification of the identity of the winning offeror.

SBA Processing of HUBZone Applications
The current regulation under 13 CFR 126.306(b) provides that if a business does not provide information requested by the SBA within the time allotted or submits incomplete information, the SBA may presume that the missing information would demonstrate a lack of program eligibility.  The Proposed Rule changes go even further by stating that if the SBA is unable to determine a business’ compliance with any of the HUBZone eligibility requirements because of inconsistent information contained in the application, the SBA will decline the application. In addition, under the Proposed Rule, if, during the processing of an application, the SBA determines that an applicant has knowingly submitted false information, regardless of whether correct information would cause SBA to deny the application, and regardless of whether correct information was given to SBA in accompanying documents, SBA will deny the application.