In an August 2024 proposed rule, SBA proposed several updates to the Historically Underutilized Business Zones (HUBZone) program, aiming to clarify qualifications and enhance program administration. These changes are designed to strengthen HUBZone-certified businesses' access to federal contracts and assist government buyers in meeting small business diversity goals. As threats to the 8(a) program increase, HUBZone could become an increasingly important socioeconomic goal in the future.

HUBZones are businesses with employees located in economically distressed areas to direct federal spending toward these regions and stimulate job creation. HUBZone contractors are eligible for set-aside and sole-source contracting opportunities and benefit from a 10% price evaluation preference in full-and-open contract competitions. However, complex qualification rules have historically posed challenges for businesses seeking certification, prompting the SBA to propose updates for clarification.

Proposed changes to the HUBZone program

Employee residency flexibility

SBA proposes increased flexibility on the requirement that 35% of a HUBZone-certified business's employees reside within a HUBZone. The proposed rule would allow businesses to maintain certification if they meet residency requirements on the date of application or recertification, accommodating personnel fluctuations without jeopardizing HUBZone status.

Simplified principal office requirement

Recognizing the shift toward hybrid work models, the SBA proposes updates to the principal office requirement. The proposed changes would allow businesses to count remote workers or satellite offices within HUBZones toward compliance, reflecting modern work environments and potentially increasing the number of businesses eligible for HUBZone certification.

Expanded recertification timing

To streamline program administration, SBA proposes altering the recertification schedule from a three-year cycle to an annual one. This shift aims to align with other SBA programs and provide federal contracting officers with more accurate, up-to-date information on HUBZone status.

Enhanced Compliance Reviews

SBA plans to bolster its compliance review process that maintains the program’s integrity. This involves more frequent but less invasive compliance checks.

Effects of proposed rule

These proposed updates address longstanding issues faced by HUBZone contractors and federal contracting officers, including residency compliance challenges and difficulties in maintaining certification amid workforce changes. By relaxing certain requirements and streamlining the recertification process, the SBA aims to make the HUBZone program more accessible and practical for small businesses while enhancing contracting officers' ability to meet small business contracting goals.

For federal agencies, these changes could lead to more reliable access to HUBZone-certified contractors, particularly in competitive sectors such as IT, construction, and logistics. Simplified certification requirements and increased transparency may enable federal buyers to source services from qualified small businesses more efficiently, supporting the government's goal to award 3% of contracts to HUBZone-certified businesses.

For small businesses in economically disadvantaged communities, the streamlined application process and added compliance flexibility may open new opportunities. Businesses previously deterred by administrative hurdles might find the program more manageable, positioning them to bid on valuable federal contracts.