The intent of the HUBZone program is to provide Federal contracting assistance to qualified small businesses located in distressed communities (HUBZones) to increase employment opportunities and stimulate capital investment.

HUBZones are specifically designated urban or rural areas that have low media/n household income and/or high unemployment rates. As of January 2002, approximately 7,000 metropolitan-area census tracts and 900 non-metropolitan counties qualified as HUBZones.

In addition, all Federally recognized areas covered by the phrase ‘Indian Country’ are statutorily designated as HUBZones.

Congress specified HUBZone contracting goals for all Federal agencies as part of the HUBZone Act of 1997. At the same time, Congress increased the government-wide procurement goal for small business from 20 percent to 23 percent to address concerns that the HUBZone program would reduce contract opportunities available to other, non-HUBZone small businesses. The goals for HUBZone contracting assigned to Federal agencies were set as a percentage of total Federal prime contracting. Specifically, the goals were set as follows: FY 1999 - 1 percent; FY 2000 - 1 ½ percent; FY 2001 - 2 percent; FY2002 - 2 ½ percent; FY 2003 – 3 percent; and each year thereafter for all Federal prime contracts.

Through the end of September 2000, the HUBZone program applied only to the procurements of ten specifically identified Federal agencies. However, as of October 1, 2000, the HUBZone contracting requirements and goals are applicable to all Federal agencies with at least one contracting officer.

HUBZone Contracting Methods

1. A competitive HUBZone contract is awarded when the contracting officer has a reasonable expectation that at least 2 qualified HUBZone small businesses will submit offers and that the contract can be awarded at a fair market price.
2. A sole source HUBZone contract may be awarded if the contracting officer does not have a reasonable expectation that two or more qualified HUBZone small businesses will submit offers, determines that the qualified HUBZone small business is responsible, and cannot exceed $5 million for manufacturing requirements or $3 million for all other requirements
3. A full and open competition contract may be awarded after application of the HUBZone price evaluation preference. The offer of the HUBZone small business will be considered lower than the offer of a non-HUBZone/non-small business providing that the offer of the HUBZone small business is not more than 10 percent higher.

Statutory and regulatory authority

The HUBZone Act of 1997 established the HUBZone program as part of Title VI of the Small Business Reauthorization Act, Public Law 105-135, signed into law on December 2, 1997.

Proposed rules and regulations for the HUBZone program were issued on April 2, 1998. After the public comment period, final rules and regulations were published on June 11, 1998, Chapter 13 Code of Federal Regulations (CFR), Part 126.

The HUBZone programs interim Federal Acquisition Regulation (FAR) rule (FAC 97-10, FAR Case 97-307) was published on December 18, 1998, with an effective date of January14, 1999. The rule implemented the contracting component of the program. The final FAR rule was published on September 24, 1999, in 48 CFR.

An amended final rule appeared in the Federal Register on January 18, 2001 and became effective February 20, 2001, which explained the effect of the program on state and local governments, clarified the definition of principal office, removed certain restrictions on affiliation and expanded participation for re-sellers and retailers.

The HUBZone program was also modified by the Small Business Reauthorization Act of 2000, which was signed into law December 2000 and clarified issues concerning program eligibility with regard to the geographic eligibility and ownership restrictions.

In 1996, the President Clinton signed Executive Order 13005 facilitating “empowerment contracting,” to encourage business in areas of “general distress,” but it was never fully implemented.

In 1996, U.S. Senator Christopher ‘Kit’ Bond, then chair of the Senate Small Business Committee, sponsored legislation providing preferences for Federal contracting awards to small businesses located in economically distressed areas (HUBZones).

In 1997, Congress passed and the President signed into law the “Small Business Reauthorization Act of 1997,” containing “The HUBZone Act of 1997.

Final Rule Summary Enacted by Congress