HUBZone awards keep missing federal contract goals a quarter-century after creation

The federal HUBZone program has failed to meet a small-business contracting goal for more than two decades, and a House committee convened a meeting of legislators and business leaders to figure out why.

The HUBZone program created by Congress in 1997 and overseen by the Small Business Administration, supports entrepreneurs in historically disadvantaged areas with a goal of awarding at least 3% of federal contract dollars to certified companies each year. In 2020, that would’ve amounted to roughly $20 billion out of $682 billion total contracting dollars. In reality, only $13.6 billion in HUBZone prime contracts and $4.2 billion in subcontracts were awarded that year. The closest it ever came to meeting this goal was in 2009 at 2.81%.

Meanwhile, the number of participants in the program has almost halved to 4,870 from more than 8,500 a decade ago.

“The program was intended to provide small businesses in economically distressed areas with greater access to federal employment and procurement opportunities,” said Rep. Kweisi Mfume, chairman of the House Small Business Committee’s Subcommittee on Contracting and Infrastructure. “This undoubtedly was a worthy goal, but it still remains, unfortunately, a goal.”

Small business contracts create jobs, buoy local economies and supplement the government’s stream of resources to maintain its services, panelists said. In support of these goals, HUBZone gives burgeoning firms advantages designed to lower the barrier to entering federal contracting, yet panelists said the program is underutilized, partly because it competes with other less cumbersome programs. President Joe Biden vowed to increase the share of contracts awarded to small disadvantaged businesses to 15% by 2025.

In a 2018 blog post announcing proposed changes to make HUBZone more accessible, the SBA acknowledged that “compliance is often difficult to achieve and maintain and can change almost without warning.” That unpredictability threatens the confidence of the government buyer to use the program, it said.

“I mean, it’s been 20 years. Do we throw the whole thing out and start over again?” Mfume said. “Or do we admit that there are some real serious issues that this committee ought to be looking to try to find a way to enhance the program and participation?”

Committee members vouch for HUBZone use

As part of the Small Business Reauthorization Act, HUBZone can be an invigorating economic catalyst, translating to thousands of jobs, said Rep. Pete Stauber, a Republican from Minnesota, at the panel.

The program offers set asides, in which competition is restricted exclusively to HUBZone firms. It also allows eligible contracts to be awarded without competition and offers a price preference during full and open competition.

Inés Rivas-Hutchins founded Kentucky-based INTEC Group, LLC., classified as an Economically Disadvantaged Women-Owned Small Business. She became HUBZone certified because a contract opportunity was set aside as such.

She said set asides entice businesses to become certified, which in turn will produce more HUBZone opportunities. Rivas-Hutchins added that this certification accounts for more than half of her company’s revenue and allows her to open doors for local talent amid labor shortages.

“HUBZone ensures there’s an incentive for educated and talented workers to stay in Kentucky,” she said. “We want them there, where they grew up, and not having to move to big cities to chase work.”

At least 35% of employees must reside in a HUBZone for a company to qualify, thereby investing in whole communities, said Matthew Schoonover, a Kansas-based lawyer representing small-business issues.

Is HUBZone being overshadowed by other programs?

More than 22,000 communities across the country are designated HUBZones, however Schoonover and others said the program’s shortcomings hinder its potential.

More than half of all prime contracts awarded to HUBZone firms were “not awarded because of the HUBZone designation, but because the firm qualified for another small business preference,” according to a meeting memo.

For example, in fiscal 2020, 2.44% was awarded to HUBZone firms in prime contracts, and even that number is likely to be inflated. Because these awards may have been double counted among other similar programs, “the number of true HUBZone contracts is certainly lower,” Schoonover said.

“Had the government met its goal, these areas in dire need of economic development would’ve received billions of dollars more in investment,” he added.

Schoonover made a few recommendations, including urging Congress to require that a specific agency, like the Departments of Commerce or Housing and Urban Development, prioritize HUBZone contracts.

“I tend to think still that the biggest problem with the HUBZone program is that not enough awards are made under it,” said Schoonover.

Others said more education is needed to recruit participants. Schoonover said that companies may not see the value in getting certified, given the the time and expense that it takes to comply and to maintain certification.

Brent Lillard, CEO & co-founder of GovSmart, Inc., said the HUBZone program is overshadowed by the SBA 8(a) program, which aids firms that are at least 51% owned and operated by socially and economically disadvantaged individuals.

Lillard said it’s easier for contracting offers to use the 8(a) program, which also moves more quickly because awards cannot be protested.

Committee discussions were intended, in part, to determine what additional reforms are needed based on participants’ feedback.

Last July, the SBA announced that the federal government exceeded its overall small business federal contracting goal, awarding about 26 percent to small businesses, a $13 billion increase from the previous fiscal year.