Calculating HUBZone Employee Residency Qualifications 13 CFR 126.601Contractors can sometimes make mistakes when calculating the SBA’s 35% HUBZone employee requirements when bidding for government contracts.  13 CFR 126.601 governs the employee residency requirements for certified companies.

Failure to comply with the rule can cause companies to lose out on millions in government contract awards.

Do not take chances with virtual office spaces:  If the SBA conducts its HUBZone requirements investigation and finds that you have a “shell” office or virtual office, it can pursue criminal action against you. See this case for proof.

It is the small business that has the burden of checking maps and making sure that it meets the HUBZone employee requirements when it is submitting a proposal for a new contract. Courts are very strict about this requirement. “[T]he government is not generally subject to estoppel or a waiver of restrictions on eligibility for benefits even when the applicant is given misleading information that results in prejudicing his efforts to obtain the benefits.” (citing Office of Personnel Mgmt. v. Richmond, 496 U.S. 414, 433 (1990))).

In a bid protest at the Court of Federal Claims (COFC), the issue was whether the awardee met the employee requirements both at the time of offer and on the date of award.

SBA HUB Zone Employee Requirements and Congressional Authority

The COFC discussed the basics of the 35% HUBZone employee requirements by first showing the Congress gave the SBA the authority to decide matters under the Program under the Small Business Reauthorization Act of 1997, Pub. L. 105-135, Tit. VI, 111 Stat 2592, 2627 (1997). The general rule is to be eligible under the Certification Program, a small business must have at least 35% of employees residing in a qualified Zone. See 13 CFR 126.200.

COFC Jurisdiction in a HUBZone Protest: The Air Force in this case, filed a motion to dismiss for lack of the Court’s jurisdiction. It claimed that the issue was a matter of contract administration. The COFC denied its motion because the real dispute was that the SBA decertified the protestor from the program. Thus, and the COFC had jurisdiction under bid protest regulations.

The COFC felt that the SBA’s program decertification was a governmental action in connection with a procurement. Citing Aeolus Sys., LLC v. United States, 79 Fed. Cl. 1, 6–7 (2007) (showing bid protest jurisdiction when challenging to SBA determination that plaintiff wasn’t a HUBZone small business concern under the regulations, which led to the cancellation of a contract awarded to plaintiff)

Who is an Employee Under 13 CFR 126? 

Under the HUB Zone requirements regulations, an “employee” is defined as “individuals who are employed on a full-time, part-time, or another basis, if that individual works a minimum of 40 hours per month.” 13 CFR 126.103. Under congressional authority to oversee the  Program, the SBA looks at the “the totality of the circumstances, which includes criteria used by the IRS for Federal income tax purposes and those outlined in SBA’s Size Policy Statement No. 1” to determine who is an employee.

What Does SBA HUBZone Residency Requirements Mean? Under SBA regulations governing SBA HUBZone employee requirements, “reside” means “to live in a primary residence at a place for at least 180 days, or as a currently registered voter, and with intent to live there indefinitely.” 13 CFR 126.103.

When conducting a residency investigation, the SBA usually asks for the following:

  •  Records indicating the home address of each resident employee of the company . . . including copies of driver’s licenses or voter registration cards showing that the employee’s home address is in a HUBZone .
  • A copy of a map determination for each employee residing in a Zone, including the name of each employee on the maps; and
  • An explanation and any other documents addressing the specific allegations set forth in a bid protest.

The employee requirements and statutory scheme establish several criteria for determining HUBZone redesignated tract areas. See 15 USC 632(p)(4). Under the first criterion, any census tract that the Department of Housing and Urban Development (HUD) has determined is a HUBZone qualified census tract for purposes of the low-income housing credit is also a HUBZone. See 51 USC 632(p)(4)(A) (incorporating by reference the definition found in 26 USC 42(d)(5)(B)(ii)). If a formerly qualified census tract “ceases to be qualified” (as determined by HUD), it becomes a “redesignated area” for a three-year period. See 15 USC 632(p)(4)(C). Redesignated areas are also HUBZones.

SBA HUBZone Employee Requirements –  35% When Bidding on New Contracts

Under 13 CFR 126.601(c), a small business  “must be an SBA qualified small business both at the time of  the initial offer and at the time of [the] award to be eligible for a government contract.”  Thus, small business bidders must meet the employee  35% residency requirements both on the time the bid offer and at the time of contract award. Find out more about HUBZone joint venture rules.

The Court of Federal Claims agreed with the SBA for decertifying the protestor because it failed to meet the compliance requirement at the date of the award.

HUBZone safe harbor provisions not applicable when bidding on new government contract: The safe harbor provided by the “attempt to maintain‟ language in the regulations applies only during the performance of an ongoing contract, and a firm must meet all the regulations of the HUBZone program – including the 35 percent residency requirement – at the time of offer and award of any new contracts.”

Contractors should make sure that they comply with the employee residency requirements or face elimination from getting a government contract award. Find out More About HUBZone Program Joint Ventures.

What is a HUBZone Status Protest Under 48 CFR 19.306 and How To Avoid Litigation Mistakes

When you believe that the awardee does not meet the SBA’s HUBZone requirements employee status, then you must file a bid protest that articulates a factual and legal basis as to why the awardee does not meet the requirements. 48 CFR 19.306 governs HUBZone status protests.

You Must be an Interested Party to File a Protest.

If you have reason to believe that the awardee does not meet the HUBZone employee requirements, then you must immediately file a bod protest. In order to file a protest, you must be an interested party. Keep in mind that the agency contracting officer, or the SBA may at anytime protest the apparent awardee’s status as a qualified historically underutilized business zone small business concern (see 13 CFR 126.800).

Tip: If you are an interested party seeking to file a protest for both the small business size and  status of the awardee, then you have to file two separate protests.

HUBZone Requirements Protest

HUBZone requirements to file bid protests must be in writing and must state all specific grounds for the protest. You cannot rely on suppositions or “information and belief”. These approaches are common mistakes still made today. It will get your protest dismissed.

Reasons for challenging the awardee’s status may include:

  • The awardee is not a qualified  small business concern as defined in 13 CFR 126.103 and 13 CFR 126.200.
  • The awardee’s principal office is not located in a HUBZone; or
  • At least 35 percent of the employees do not reside in a HUBZone.

Find Out The Basics About Joint Venture Agreements

For legal assistance with SBA HUBZone employee requirements appeals, call Watson & Associates, LLC’s government small business lawyers at 1-866-601-5518.