In seeking potentially lucrative government contracts, smaller companies are often at a disadvantage compared with larger competitors with greater sales resources and cost efficiencies. However, a program offered by the U.S. Small Business Administration can put those modestly sized businesses on a more competitive footing. The Historically Underserved Business Zones (HUBZone) Program is offered to certain entities that meet the SBA criteria for business size and are headquartered in less affluent urban and rural communities.

Key Takeaways

  • The HUBZone program helps small businesses in underutilized areas achieve a competitive edge in procuring government contracts.
  • In order to qualify for the program, entities have to meet the definition of a “small business” and have their headquarters in a “historically underutilized business zone.”
  • The federal government has a goal of awarding 3% of contracts to HUBZone-certified businesses, although it has never reached that objective.

Potential Benefits

The objective of the federal HUBZone program is to support small businesses in underserved parts of the country. By funneling a portion of government purchases to such entities, the program aims to incentivize entrepreneurship and increase employment in places where jobs are harder to find.

The stated goal of the program is to award 3% of federal prime and subcontracts to small businesses that are HUBZone-certified, although it has regularly fallen short of that goal. The Small Business Administration’s audit of 2018 prime contracts showed that 2.05% were given to HUBZone participants, up from 1.7% a year earlier. 

According to the SBA, companies that participate in the program benefit from “competitive and sole-source contracting.” In concrete terms, government agencies are incentivized to consider bids from HUBZone businesses, even in cases where the price they offer is slightly higher than that of other firms. The government offers a 10% “price evaluation preference” to certified entities for both full contracting and subcontracting competitions.

While the intent of the program is to diversify federal purchasing and assist businesses in frequently overlooked parts of the country, critics charge that it has sometimes fallen short of those goals. For instance, a 2019 review by the Washington Post found that over two decades, 70% of HUBZone contracts in the nation’s capital went to just 11 companies. And because some of the city’s once-neglected areas underwent revitalization, the Post found that much of that money went to firms located in wealthier neighborhoods within Washington, D.C.

“The program can encourage investment, but it does not have a precision that could be associated with public contributions serving a specific geographic area,” Bill Shear, director of financial markets and community investment at the U.S. Government Accountability Office, told the newspaper.

Who’s Eligible?

The U.S. Small Business Administration determines whether companies are eligible to obtain contracts through the HUBZone program and keeps a record of those businesses on file, so that federal agencies can find potential suppliers.

To achieve certification as a HUBZone business, the entity must:

  • Meet the definition of a “small business” based on SBA guidelines. The SBA’s interactive Size Standards Tool can help business owners figure out whether that’s the case.
  • Have controlling ownership (at least a 51% stake) by U.S. citizens, a community development corporation, an agricultural cooperative, or a Native American tribe.
  • Have a main office located within a “historically underutilized business zone.” This includes military facilities that have been shuttered by the Base Realignment and Closure Act, as well as land designated as “Indian Country.” The SBA offers an interactive map that shows whether a given property is within one of these zones.
  • Have at least 35% of its employees live in the HUBZone. If a business falls below that threshold after receiving its certification, it would have to once again meet that residency requirement prior to its annual recertification.

Business operators can obtain an initial assessment of whether they meet this list of conditions at the SBA’s certify website.

Once a business joins the HUBZone program, it typically has to recertify every year in order to retain that designation.

Attaining Certification

Businesses that are interested in receiving the HUBZone certification can create an account on the SBA General Login System. After logging in, you’ll need to click on “Access” and then select “HUBZone.”

Before registering, however, interested parties must first have an active profile from Dun & Bradstreet, as well as an accompanying Data Universal Numbering System (DUNS) number. Dun & Bradstreet provides one of these unique nine-digit numbers for every physical location operated by a business, and they’re offered free to businesses seeking to obtain orders from the federal government. 

In addition, companies seeking HUBZone designation must have an active U.S. government System for Award Management (SAM) account. If you already have one, you can update your company’s profile after receiving certification to indicate you run a HUBZone business.

As of Dec. 26, 2019, businesses that achieve certification in the program have to recertify once a year in order to maintain their HUBZone status. What's more, businesses that merge with other organizations must recertify before the one-year window closes.

The Bottom Line

The HUBZone program can help small businesses compete for important federal procurement opportunities by making them eligible for sole-source contracts and giving them pricing preferences compared with bigger competitors. While the program has thus far fallen short in awarding 3% of public contracts to HUBZone members, it may nonetheless prove a worthwhile designation for businesses seeking to bring in government revenue.

In order to participate, businesses must meet a list of criteria as outlined by the U.S. Small Business Administration. That includes having majority ownership by U.S. citizens or other eligible groups and maintaining a headquarters within a “historically underutilized business zone.”