Government contracts attorney Steven Koprince's presentation from the 2012 National HUBZone Conference entitled "Best Practices for Ongoing HUBZone Compliance."

1. Best Practices
for Remaining
HUBZone
Compliant
National HUBZone
Conference Government
Steven J. Koprince
Partner
Contracts
Petefish, Immel, Heeb & Hird, LLP
Solutions
for Small Business

2. Overview
• Importance of Ongoing HUBZone Compliance
• “Principal Office” Compliance
• “35% Employee Residency” Compliance
• Other HUBZone Compliance Rules
• SBA Reporting Requirements
• Special Indian Tribal Exceptions
• HUBZone Compliance Best Practices Summary
• Questions

3. Importance of Compliance
• HUBZone Program Examinations:
Can occur at any time
SBA may perform site visit
Will review relevant documents
Be prepared!
• HUBZone Eligibility Protests:
Competitor, SBA or CO may protest eligibility
Must meet all requirements to win contract

4. Importance of Compliance
• Decertifications
SBA may initiate decertification if any ongoing
compliance factor is not met
• “Even Worse” penalties:
Suspension & debarment
False Claims Act & civil penalties
Criminal penalties

5. “Principal Office” Compliance
• The Rule: A HUBZone company’s principal
office must be located in a HUBZone
• What It Means: Office where greatest number
of employees at any one location perform
their work
Except: Employees who perform majority of work at
customers’ jobsites to fulfill specific contractual
obligations (so long as primary industry is service
or construction)

6. “Principal Office” Compliance
• Who is an “Employee”?
Works at least 40 hours per month
• May include part-timers, leased employees, etc.
Paid for services
• Volunteers (e.g., unpaid interns) usually don’t count
• But an unpaid owner counts, unless works less than 40
hours per month

7. “Principal Office” Compliance
• “Just Doesn’t Matter” which office is:
Designated as headquarters
Where the CEO, President or top officers work
Listed as primary office in CCR/SAM, DSBS, etc.
Where most employees worked at time HUBZone
application was submitted

8. Best Practices: “Principal Office”
• Check locations of all offices against HUBZone
maps
• Keep written tally, on payroll-by-payroll
basis, of location of each employee
• As employees come and go, continuously verify that
more employees work at a HUBZone office than any
other
• Be prepared to show documents to SBA

9. Best Practices: “Principal Office”
• For employees who split time:
• Track hours spent at HUBZone office and other
locations
• Adjust hours if need be to ensure majority of time
spent at HUBZone office
• If use written employment agreements, specify
HUBZone office as employee’s primary location

10. Best Practices: “Principal Office”
Exclude “jobsite” employees, but only if:
• Primary industry is service or construction
• Employee spends majority of his/her time on
customer’s jobsite
• Employee’s physical presence on customer’s jobsite is
necessary to fulfill specific contractual obligations
Be prepared to cross-walk between specific
contractual obligations and employee’s duties

11. “35% Residency” Compliance
• The Rule: At least 35% of employees must
reside in HUBZones
• What It Means:
“Employee” defined the same as for principal office
Cannot exclude jobsite employees
“Reside” means:
• Lived in primary residence for at least 180 days and/or
• Registered to vote at location
• Intends to live there indefinitely

12. Best Practices: “35% Residency”
• Keep Updated Residency File Containing:
Current address of all employees
Proof of residency
HUBZone maps for all HUBZone employees
Running calculation of 35% compliance
• Must round up to determine # of employees necessary
• Example: 35% of 9 employees = 3.15 employees
– Firm needs 4 out of 9 (44%!) to qualify

13. Best Practices: “35% Residency”
• Get employees involved:
Inform you of pending address changes
Voter registration at new HUBZone locations
Consider incentives for relocating to and/or living in
HUBZones
Develop plan to recruit HUBZone residents as
necessary

14. Best Practices: “35% Residency”
• What about “attempt to maintain” rule?
• The Rule: may continue to perform existing
HUBZone contracts so long as attempting to
maintain compliance with 35% residency rule
• What it Means:
• Cannot bid on new HUBZone contracts if “attempting”
to maintain
• May be decertified (though SBA may allow grace
period)

15. Best Practices: “35% Residency”
• If “attempting” to maintain:
Do not bid on new HUBZone contracts
Be able to demonstrate good faith, reasonable
efforts to regain compliance
• Have a prior HUBZone hiring plan in place!
If unable to regain compliance, consider voluntarily
decertifying

16. Other HUBZone Compliance Rules
• Ownership:
HUBZone company must, at all times, be at least
51% owned by U.S. citizens who are natural
persons
• Flesh-and-blood human beings—not other companies
• Exceptions for Indian tribes, ANCs, CDCs and small
agricultural cooperatives
• SBA will apply “present effect” rule to determine
ownership

17. Other HUBZone Compliance Rules
• Size:
Firm must continue to be small in its primary
industry
• Size calculation includes all affiliates under SBA
affiliation rules
• “Primary industry” determined based on most recently
completed fiscal year

18. Other HUBZone Compliance Rules
• Performance of Work:
For all HUBZone contracts, at least 50% of cost of
contract incurred for personnel must be spent on
employees of HUBZone firms
• Includes prime’s employees and employees of
HUBZone subcontractors
• Rule covers general and specialty trade
construction, notwithstanding ordinary 15%/25% limits
• CO may waive rule—but waiver rare

19. Other HUBZone Compliance Rules
• HUBZone Contract Eligibility:
Must be eligible both on date of offer and date of
award
Includes 35% requirement
• Cannot “attempt to maintain” on date of award

20. SBA Reporting Requirements
• The Rule: A HUBZone firm must “immediately
notify SBA of any material change that could
affect its eligibility.”
• Includes changes in 35% employee residency
• Notification must be in writing
• SBA may impose penalties for failure to notify
– In at least one case, SBA sought debarment

21. Special Indian Tribe Exceptions
• Tribally-owned HUBZones:
Need not be 51% owned by U.S. citizens
• But must be at least majority-owned by tribal
government or corporation wholly owned by tribal
government
Must either:
• Meet standard principal office and 35% residency rules
or
• Certify that when performing a HUBZone contract, at
least 35% of performing employees will reside on the
reservation or an adjoining HUBZone

22. HUBZone Best Practices Summary
• Principal Office:
• Check all offices against HUBZone maps
• Keep running tally of employees and primary work
locations to avoid unforeseen shifts in primary office
• For employees who split time, keep track of hours
worked at HUBZone and non-HUBZone locations
• Exclude jobsite employees from principal office
calculation, but only if primary industry is service or
construction and employee spends majority of time on
jobsite fulfilling specific contractual requirements

23. HUBZone Best Practices Summary
• 35% Employee Residency:
• Keep updated residency file containing addresses,
HUBZone maps, and evidence of residency
• Encourage employee participation
• Consider incentives for HUBZone employees
• Maintain running compliance tally—and remember to
round up
• Develop HUBZone employee recruitment and
retention plan
• Do not bid on new HUBZone contracts if “attempting”
to maintain

24. HUBZone Best Practices Summary
• Other Key Rules:
• Ensure continued ownership of at least 51% by U.S.
citizens (except tribes, etc.)
• Maintain “small” status in primary industry
• For all HUBZone contracts, ensure at least 50% of cost
of contract incurred for personnel expended on
HUBZone employees
• Ensure HUBZone eligibility both on date of offer and
award
• Inform SBA in writing of material eligibility changes

25. Questions?
Thank you!
Questions?