HUBZone Fraud: Which Businesses Qualify for HUBZone Certification?

The Government Accountability Office (GAO) has released a report finding fraud and abuse within the Small Business Administration's Historically Underutilized Business Zone (HUBZone) initiative. The HUBZone program is designed to provide federal contracting assistance to small businesses located in economically distressed areas. In light of the GAO's findings about businesses getting HUBZone benefits who shouldn't, here is a quick refresher on who does qualify for access to HUBZone contracts.

The GAO report found that 19 companies in Texas, California and Alabama received nearly $30 million in HUBZone contracts, despite not meeting the program's eligibility guidelines. It highlighted instances of continued misrepresentations by companies in the program who clearly did not meet guidelines themselves, or who subcontracted the work out to non-HUBZone companies, in violation of HUBZone rules. The report expressed fear that "[a]s a result of SBA's control vulnerabilities, there are likely hundreds and possibly thousands of firms in the HUBZone program that fail to meet program requirements."

So then, what is required in order to become HUBZone certified? To be eligible for contracts through the HUBZone program, a business must:

1. be a small business by SBA standards (here is a pdf table of SBA Business Sizing Standards);
2. be owned and controlled at least 51% by U.S. citizens, a Community Development Corporation, an agricultural cooperative or an Indian tribe;
3. have its principal office must located within a "Historically Underutilized Business Zone," which includes lands considered "Indian Country" and military facilities closed by the Base Realignment and Closure Act; and
4. have at least 35% of its employees residing in a HUBZone.

The HUBZones themselves are areas specially designated by the government as deserving economic stimulus through contracting preferences for small businesses. You can use this tool to find any HUBZones near you.

Calls for reform of the HUBZone program could bolster previous calls for fixing leaks within federal programs designed to aid small businesses. As Chris Gunn recently described in the Huffington Post, over a dozen federal investigations released since 2003 have identified billions of dollars in contracts meant for small businesses instead diverted to Fortune 500 and other large companies around the world. With small businesses more than ever in need of opportunities, perhaps a more careful eye will watch the contracts our government intends for them.

• The Full GAO Report [pdf]
• SBA HUBZone Program
• Federal Contracting Program Continues to Suffer from Fraud, Abuse (Washington Post Small Business Blog)
• Agencies Counted Big Firms As Small (Washington Post)
• Small Business Forms & Contracts (FindLaw)
• Business Organization and Transactions FAQ (provided by Williams Law, P.C.)