HUBZone Contracting Dollars Down 71% Since 2010

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HUBZone Contracting Dollars DOWN 71% Since 2010

Today on episode number 114 we will look at the HUBZone contracting dollars.  No, the title is not wrong.  HUBZone Contracting Dollars has been on a downward trend since 2010.  Does that mean that the end of the HUBZone program?  No, not necessarily.  However, I believe changes will have to be made to the program.

HUBZone Contracting Dollars Down 71% Since 2010

That’s right! HUBZone contracting dollars have been spiraling out of control since 2010 with no end in sight. Before we go any further we need to explain what the program is.

HUBZone Contracting Program Overview

HUBZone stands for Historically Underutilized Business Zones.  This program helps small businesses in urban and rural areas gain access to preferential federal procurement opportunities.  The catch?  These preferences are only available to small businesses that employ staff who live in these qualified zones.  In addition, the small business’s principal office must reside within one of the qualified zones.  Lastly, a small business must apply to SBA and be certified by them in order to obtain access to these procurement opportunities.

What areas qualify for the HUBZone program?  The area must be in a qualified census tract or a qualified non-metropolitan county or lands within the boundaries of federally recognized Indian reservations.  Now let’s see what has happened to contract dollars in the last decade.

HUBZone Dollars Is Down

By reviewing the chart in Figure 1 we can see that HUBZone Contracting Dollars is in a downward trend.  It is important to remember that Congress created this program in 1998.  You can see that contracting dollars for this program peaked in 2010.  It has been in a downward trend ever since.  In fact, HUBZone contracting dollars is down 71% from 2010 till 2018! 

HUBZone Contracting Dollars Figure 1
HUBZone Contracting Dollars from 2009 till 2019

How Does HUBZone Compare to Small Business Contracting Dollars?

As we can see from Figure 2, HUBZone contracting dollars were in a downward trend starting in 2010 whereas small business contracting dollars have been in an upward trend until 2017, then it plummeted.  Why are HUBZone Contracting Dollars declining? I believe part of the problem is that the qualified areas are constantly changing.  This is due to changes in income, unemployment or poverty data result in changes to areas that qualify as HUBZone.  Though a designated area remains certified for a period of three years it does impact the number of HUBZone eligible employees.  SBA recently addressed this issue with changes to the HUBZone program. For more information on the changes see the blog post on the topic.

Small Business versus HUBZone Contracting Dollars
Small Business versus HUBZone Contracting Dollars

Possible Reasons for The Decline

The downside to the HUBZone program is that a principal office may be in a HUBZone location today but three years from now it may not.  In addition, employees of a HUBZone Certified company may move or the area where the employee lives will be redesignated as nonqualifying.  This makes it difficult for many businesses to meet HUBZone qualifications.  The last census (2010) had a significant impact on the HUBZone designated areas that resulted in fewer designated areas.  This caused many HUBZone certified small businesses to lose their certification.

Will the Changes that SBA Made to The HUBZone Program Help?

I believe that the changes that SBA made to the program will be a benefit, but I doubt that it will have any impact on the procurement dollars being set-aside to the HUBZone Program. 

Possible Causes

I believe that part of the problem is with the way a Federal Agency claims credit on small business contracts.  What do I mean?  Well, presently a contracting officer can claim a credit on a small business set-aside contract for any certifications that the apparent successful offeror qualifies for.  The result is that federal agencies are claiming credit when a contract may not have been set aside for that set-aside.  For example, let’s say that my small business won a contract on a small business set-aside.  Presently, the contracting officer would claim credit for not just the small business set-aside but also for a woman-owned small business, and veteran-owned small business.  They would be claiming three credits on one contract. I believe that this needs to be changed. 

Claim Only One Set-aside Credit Per Contract.

A contracting officer should only be able to claim credit for the set-aside issued not for what certifications the apparent successful offeror has.  This would force contracting officers not to bundle as many contracts in order to meet their set-aside procurement goals.

More Changes Needed to HUBZone Program

I also believe that Congress and SBA need to adjust the criteria for the designated areas for the HUBZone program.  For example, if a HUBZone qualified area was granted the designation for five or ten years it would make more small businesses and employees of those small businesses eligible for the program.  Though I have no way to prove it without requesting the data from SBA (FOIA Request), I believe that the number of HUBZone certified businesses has also decreased which is adding to the problem.

SBA Under Pressure from Congress

The Senate Committee on Small Business and Entrepreneurship is aware of the problem. In fact, Senator Cardon posted an article on a report about the decline in small business set-asides even though government procurement spending has been increasing. 

The only way to reverse this trend is for Congress to make changes to procurement policy and SBA to change the way a small business set-aside is counted towards the goal.  Those are my thoughts anyway.

Summary

The HUBZone Contracting Dollars is at an all-time low with no end in sight.  Until such time as Congress and SBA make changes to procurement policy, this trend will continue.  I believe that a small business set-aside should only be counted once and not by the number of certifications a small business has. 

Presently, the government procurement policy has been forcing contracting officers to utilize larger contracting vehicles to the determent of small businesses.  Small businesses are the ones being impacted by these large contracting vehicles.

Hopefully, the President, Congress, and SBA will act soon to fix this spiraling decline on the small business contracting dollars.  If not, the result will that there will not be many small businesses participating in government contracting.

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