FEDERAL CONTRACT LAW

Low-income areas get a boost from SBA program

Joseph J. Petrillo

The evolution of the procurement system has generated good and bad news for small businesses. One bright spot in the picture is the new HUBZone program.

HUBZone stands for historically underutilized business zone. Unlike other special procurement policies for small businesses such as the 8(a) program, the HUBZone initiative targets employment rather than ownership. Its goal is to use federal buying power to increase investment and employment in pockets of poverty.

Areas of pervasive unemployment and underdevelopment get the HUBZone designation from the Small Business Administration. A full list of designated areas, with maps, is posted on the SBA's Web site at www.sba.gov/hubzone.

To qualify, a business must meet four criteria:

' It must be a small business as defined by SBA rules, which apply on an industry-by-industry basis.

' It must be owned and controlled by U.S. citizens.

' The principal office of the company must be in a HUBZone.

' At least 35 percent of its employees must reside in a HUBZone.

Companies that meet these criteria are certified by SBA and can be found through a search of the SBA's Procurement Marketing and Access Network, at pro-net.sba.gov. There are about 140 certified HUBZone companies.

These companies are eligible for three procurement preferences.

First, they can receive special sole-source contracts, roughly analogous to those under the 8(a) program. The contracts cannot exceed $3 million'except for manufacturing contracts, which can be for up to $5 million'and are subject to other restrictions.

Second, some contracts are set aside for HUBZone companies, and any HUBZone company can compete for such a contract provided it can do the work.

Third, HUBZone companies enjoy a 10 percent price evaluation preference when competing against other companies. The price preference doesn't apply, though, against other small businesses or when it would be barred by an international agreement, including the Trade Agreements Act. If a HUBZone company is also certified as a small disadvantaged business, it gets the benefit of that preference as well.

HUBZone companies cannot use their advantageous position in certain procurements, however. Exempt from the program are contracts that are performed by federal prison inmates;'those that are under a special program for the blind or severely handicapped; those with requirements being met by 8(a) concerns, including minority-owned small businesses admitted to a special program; and those that total less than $2,500.

The rules for HUBZone companies apply to 10 agencies, including the Defense Department, the General Services Administration and NASA. Beginning in fiscal 2001, they will apply to all agencies subject to the Federal Acquisition Regulation.

In another significant development, DOD announced that it had met its goal of awarding 5 percent of its prime contracts and subcontracts to small disadvantaged businesses. That accomplishment, however, triggered a legal requirement to discontinue the evaluation price differential for such companies, at least for DOD.

So all the news is not rosy for small businesses. GSA continues to expand the use of its Federal Supply Service Multiple-Award Schedule contracts. Getting orders under these contracts requires brand recognition or a large, nationwide sales force, areas in which small businesses are at a decided disadvantage.

Weak link

Small businesses continue to be challenged by contract bundling. Weak legal requirements on this issue were watered down further by the General Accounting Office's June 10 decision in a bid protest by S&K Electronics Inc. of Ronan, Mont.

The 8(a) vendor objected to the Treasury Department's decision to move its microcomputer needs to GSA's Seat Management Program. Although the Small Business Act says a decision to consolidate contract requirements must be justified by market research, the GAO decision made no mention of research by Treasury buyers.

Nevertheless, GAO upheld Treasury's decision to take its new bundled contract outside the 8(a) program. A logical assertion of expected benefits, without supporting market research, apparently was deemed sufficient.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell PLLC. E-mail him at jp@petrillopowell.com.

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