The term HUB-Zone is thrown around a lot in government contracting. Many contracts include restrictions that limits bidding to businesses located within a these zones. If you are new to the game, it is easy not to know if the area your business is located in qualifies as a HUB-Zone or even if your business qualifies.
So… what is a HUB zone?
The Small Business Administration (SBA) created the Historically Underutilized Business Zone (frequently referred to as a HUB Zone) program in 1997 when Congress passed the Small Business Reauthorization Act, which included the HUB-Zone Empowerment Act. The SBA enforces the act by maintaining a list of qualified businesses for federal agencies to use. They certify businesses in these areas as Hub-Zone businesses based on the following requirements:
• The company must be a small business based on the size standards used by the North American Industry Classification System (NAICS).
• At least 51% of the company must be owned and controlled by US citizens.
• The main location of business, where most employees do work (excluding contract sites), must be located in an authorized HUB zone.
• At least 35% of the company’s employees must live in a HUB zone.
The main objective of the SBA’s HUB Zone program is to promote economic growth and create more employment opportunities by bringing them the opportunity to obtain Federal contracts. The SBA reports to Congress how much the Empowerment Act has increased employment opportunities in these areas. According to the SBA’s website, for an area to be classified as underutilized it must have at least one of the following:
• Qualified census tract criteria (areas are subject to change every 10 years due to census)
• A qualified non-metropolitan county that has an average household income of less than 80 percent of the State median household income, or with unemployment rates 140% or more above the state-wide average.
• Land within a federally-recognized Indian reserve.
There are many advantages designed to help businesses located within a HUB Zone and meeting all the requirements obtain these special federal contracts. For many contracts, there must be at least $100,000 set aside for small businesses that qualify as HUB-Zones. There can be sole-source contracts in the areas, but the value must be greater than $100,000 but less than $3 million (or $5 million for manufacturing contracts). While that may not seem like a decent advantage, HUB Zone small businesses receive what is known as a “10% price evaluation.” This means that a HUB Zone company bidding on a project (based on price) will have their bid evaluated at 10% lower than it actually is - so long as their price is no more than 10% higher than a non-HUB Zone small business, they will win.
Aside from the benefits listed above, there are plenty more opportunities for small businesses within these areas. Another example is that when larger companies that win bids need sub-contractors they are required to have at least one HUB Zone sub-contractor to help complete the project. In addition, these businesses can apply for higher surety bonds then others, tax credits, investment tax deductions, and tax-free facility bonds. For more information about where these HUB Zones are located visit the SBA HUB Zone homepage: http://www.sba.gov/hubzone.