Steven J. KoprincePartner

Petefish, Immel, Heeb & Hird, LLP

Government Contracts Solutions for Small Business

Best Practices for

Remaining HUBZone Compliant

National HUBZone Conference

Overview

• Importance of Ongoing HUBZone Compliance• “Principal Office” Compliance• “35% Employee Residency” Compliance• Other HUBZone Compliance Rules• SBA Reporting Requirements• Special Indian Tribal Exceptions• HUBZone Compliance Best Practices Summary• Questions

Importance of Compliance

• HUBZone Program Examinations:Can occur at any timeSBA may perform site visitWill review relevant documentsBe prepared!

• HUBZone Eligibility Protests:Competitor, SBA or CO may protest eligibilityMust meet all requirements to win contract

Importance of Compliance

• DecertificationsSBA may initiate decertification if any ongoing

compliance factor is not met • “Even Worse” penalties:

Suspension & debarmentFalse Claims Act & civil penaltiesCriminal penalties

“Principal Office” Compliance

• The Rule: A HUBZone company’s principal office must be located in a HUBZone

• What It Means: Office where greatest number of employees at any one location perform their workExcept: Employees who perform majority of work at

customers’ jobsites to fulfill specific contractual obligations (so long as primary industry is service or construction)

“Principal Office” Compliance

• Who is an “Employee”?Works at least 40 hours per month• May include part-timers, leased employees, etc.

Paid for services• Volunteers (e.g., unpaid interns) usually don’t count• But an unpaid owner counts, unless works less than 40

hours per month

“Principal Office” Compliance

• “Just Doesn’t Matter” which office is:Designated as headquartersWhere the CEO, President or top officers workListed as primary office in CCR/SAM, DSBS, etc.Where most employees worked at time HUBZone

application was submitted

Best Practices: “Principal Office”

• Check locations of all offices against HUBZone maps

• Keep written tally, on payroll-by-payroll basis, of location of each employee

• As employees come and go, continuously verify that more employees work at a HUBZone office than any other• Be prepared to show documents to SBA

Best Practices: “Principal Office”

• For employees who split time:• Track hours spent at HUBZone office and other

locations• Adjust hours if need be to ensure majority of time

spent at HUBZone office• If use written employment agreements, specify

HUBZone office as employee’s primary location

Best Practices: “Principal Office”

Exclude “jobsite” employees, but only if:• Primary industry is service or construction• Employee spends majority of his/her time on

customer’s jobsite• Employee’s physical presence on customer’s jobsite is

necessary to fulfill specific contractual obligations

Be prepared to cross-walk between specific contractual obligations and employee’s duties

“35% Residency” Compliance

• The Rule: At least 35% of employees must reside in HUBZones

• What It Means: “Employee” defined the same as for principal officeCannot exclude jobsite employees“Reside” means:• Lived in primary residence for at least 180 days and/or• Registered to vote at location• Intends to live there indefinitely

Best Practices: “35% Residency”

• Keep Updated Residency File Containing:Current address of all employeesProof of residencyHUBZone maps for all HUBZone employeesRunning calculation of 35% compliance• Must round up to determine # of employees necessary• Example: 35% of 9 employees = 3.15 employees

– Firm needs 4 out of 9 (44%!) to qualify

Best Practices: “35% Residency”

• Get employees involved:Inform you of pending address changesVoter registration at new HUBZone locationsConsider incentives for relocating to and/or living in

HUBZonesDevelop plan to recruit HUBZone residents as

necessary

Best Practices: “35% Residency”

• What about “attempt to maintain” rule?• The Rule: may continue to perform existing

HUBZone contracts so long as attempting to maintain compliance with 35% residency rule

• What it Means: • Cannot bid on new HUBZone contracts if “attempting”

to maintain• May be decertified (though SBA may allow grace

period)

Best Practices: “35% Residency”

• If “attempting” to maintain:Do not bid on new HUBZone contractsBe able to demonstrate good faith, reasonable

efforts to regain compliance• Have a prior HUBZone hiring plan in place!

If unable to regain compliance, consider voluntarily decertifying

Other HUBZone Compliance Rules

• Ownership:HUBZone company must, at all times, be at least

51% owned by U.S. citizens who are natural persons• Flesh-and-blood human beings—not other companies• Exceptions for Indian tribes, ANCs, CDCs and small

agricultural cooperatives• SBA will apply “present effect” rule to determine

ownership

Other HUBZone Compliance Rules

• Size:Firm must continue to be small in its primary

industry• Size calculation includes all affiliates under SBA

affiliation rules• “Primary industry” determined based on most recently

completed fiscal year

Other HUBZone Compliance Rules

• Performance of Work:For all HUBZone contracts, at least 50% of cost of

contract incurred for personnel must be spent on employees of HUBZone firms• Includes prime’s employees and employees of

HUBZone subcontractors• Rule covers general and specialty trade construction,

notwithstanding ordinary 15%/25% limits• CO may waive rule—but waiver rare

Other HUBZone Compliance Rules

• HUBZone Contract Eligibility:Must be eligible both on date of offer and date of

awardIncludes 35% requirement• Cannot “attempt to maintain” on date of award

SBA Reporting Requirements

• The Rule: A HUBZone firm must “immediately notify SBA of any material change that could affect its eligibility.”

• Includes changes in 35% employee residency• Notification must be in writing• SBA may impose penalties for failure to notify

– In at least one case, SBA sought debarment

Special Indian Tribe Exceptions

• Tribally-owned HUBZones:Need not be 51% owned by U.S. citizens• But must be at least majority-owned by tribal

government or corporation wholly owned by tribal government

Must either:• Meet standard principal office and 35% residency rules

or • Certify that when performing a HUBZone contract, at

least 35% of performing employees will reside on the reservation or an adjoining HUBZone

HUBZone Best Practices Summary

• Principal Office:• Check all offices against HUBZone maps• Keep running tally of employees and primary work

locations to avoid unforeseen shifts in primary office• For employees who split time, keep track of hours

worked at HUBZone and non-HUBZone locations• Exclude jobsite employees from principal office

calculation, but only if primary industry is service or construction and employee spends majority of time on jobsite fulfilling specific contractual requirements

HUBZone Best Practices Summary

• 35% Employee Residency:• Keep updated residency file containing addresses,

HUBZone maps, and evidence of residency• Encourage employee participation • Consider incentives for HUBZone employees• Maintain running compliance tally—and remember to

round up• Develop HUBZone employee recruitment and retention

plan• Do not bid on new HUBZone contracts if “attempting” to

maintain

HUBZone Best Practices Summary

• Other Key Rules:• Ensure continued ownership of at least 51% by U.S.

citizens (except tribes, etc.)• Maintain “small” status in primary industry• For all HUBZone contracts, ensure at least 50% of cost

of contract incurred for personnel expended on HUBZone employees• Ensure HUBZone eligibility both on date of offer and

award• Inform SBA in writing of material eligibility changes

Questions?

Thank you!

Questions?