Background:

• The stated goal of the HUBZone program is to “increase employment opportunities, investment and economic development” in the low income and/or high unemployment areas that meet the federal definition of a “historically underutilized business zone.”  The Associated General Contractors of America (AGC) understands the broad social objectives of the program but not how the Small Business Administration (SBA) currently applies the program to the construction industry.

AGC Recommendations:

• Limit the Program to Construction Projects in or Near a HUBZone. The SBA should apply the HUB Zone program only to contracts for the construction of federal projects within a 150-mile radius of the HUBZone contractor’s principal place of business.  Only those projects can offer employment to a significant number of HUBZone residents, and only those projects can promise to make a lasting change in their economic circumstance.
• Require HUB Zone Contractors Ensure that HUBZone Residents Receive at Least 30% of the Payroll Needed to Perform All HUB Zone Contracts.  Current regulations require HUB Zone contractors to self-perform only 15% of their general construction contracts. 13 CFR 126.700 (a)(2).  Using payroll as the correct measure to avoid pass through purchases of materials and supplies that encourage brokering by legal HUB Zones entities that nonetheless are not actually building construction projects.  This change would also help ensure that HUB Zone contractors are really in the market to construct the projects on which they bid.
• Require Annual Reports on Employment and Income in the Nation’s HUBZones. With the aid and assistance of the Departments of Labor and Commerce, the SBA can and should publish a report on employment and income in each of the nation’s HUBZones at least once each year.
• Require SBA Routinely to Investigate Alleged Abuses of the Program. Some construction contractors have found the SBA indifferent to their complaints that individual firms are abusing the HUBZone program, or violating its terms or conditions.  The SBA regulations should therefore require the agency’s local offices to investigate such complaints and publicly report their findings and decisions in a public writing within 10 days.
• Change the 10 Percent Price Preference to 5 Percent. Congress should authorize and require a smaller price preference apply to the construction industry, where prices rarely vary by as much as 10 percent.  Such a bid preference would still exceed the profit margin on the vast majority of federal construction contracts.  While Congress may want to give HUB Zone contractors some kind of advantage, it should not go so far as to guarantee federal contracts for any firm.
• Authorize All Contractors Who Stand Ready, Willing, and Able to Build to Protest. To help prevent fraud or other abuse of the HUB Zone program, the regulations should also permit contractors to protest a sole source acquisition on the grounds that the HUB Zone contractor does not actually qualify for the program.
• Either Require Certification During Periods of Peak Employment or Require Payroll Records. Current regulations permit construction contractors to seek and obtain certification for the HUBZone program at any time.  The SBA should either limit certification to the months of peak employment or require construction firms – companies that experience large fluctuations in employment throughout the course of any given year – to provide certified payroll records, at the end of each year.  This would establish that HUBZone residents truly worked at least 35 percent percent of all the hours worked in that year.