HUBZone and DBE Designations: When being a Disadvantaged Business Can Be an Advantage

Many small business owners feel that they are at a disadvantage either due to perceived discrimination due to the location of their business or discrimination due to their status as a minority. The federal government has created two programs to aid these businesses and help bolster the economy in underused areas. Though these programs are similar in the types of aid they offer, they are distinctly different programs and will be described as such below.

HUBZones
A HUBZone is a Historically Underutilized Business Zone. The program encourages small businesses to locate in and hire employees from economically disadvantaged areas. Small firms participating in the program can receive competitive advantages in winning federal contracts. US Federal Government Agencies are required to contract with HUBZone certified businesses for 3% of their budget in the form of prime contracts. The mission of the HUBZone program, as expressed by the Small Business Administration, is “to promote job growth, capital investment, and economic development to historically underutilized business zones by providing contracting assistance to small businesses located in these economically distressed communities.”

The qualifications for HUBZone are: 1) you must be a small business based upon the NAICS; 2) you must be 51% owned by American citizens; 3) your principal office must be in a HUBZone; and 4) 35% of your employees must live in a HUBZone.

There are three different types of HUBZone contracts. First, is the Competitive HUBZone contract. A Competitive HUBZone contract can be awarded if the contracting officer has a reasonable expectation that at least two qualified HUBZone certified businesses will submit offers and that the contract can be awarded at a fair market price.

Second, is the Sole Source HUBZone Contract. This type can be awarded if the contracting officer does not have a reasonable expectation that two or more qualified HUBZone certified businesses will submit offers, determines that the qualified HUBZone business is responsible, and determines that the contract can be awarded at a fair price.

Last, is the Full and Open Competition HUBZone Contract. This one will give you similar advantages to a DBE type of businesses as described below. The Full and Open Competition Contract can be awarded with a price evaluation preference. The offer of the HUBZone certified 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 (10%) higher.

As you can see each of these contracts is different, but extremely beneficial to a small business with a HUBZone designation. If your business qualifies for more than HUBZone the benefits to your business can increase exponentially.

DBE
The Disadvantaged Business Enterprise (DBE) program can be confusing. While it is federally mandated, certification is actually managed by each state’s Department of Transportation. Once certified your business is able to bid as a DBE anywhere within the certifying state. However if you want to bid as a DBE in a separate State you will need to certify again within that State.

In order to qualify as a DBE, your business must be owned and operated by one or more socially or economically disadvantaged individuals. The Wisconsin Department of Transportation (WisDOT) presumes certain groups are disadvantaged. Those groups include: women, African-Americans, Hispanics, Native Americans and Asian-Pacific Americans. Individuals who are not members of one of these groups may be eligible if they establish their “social” and “economic” disadvantage. For example, an individual who is disabled might have a disproportionately low income or experience unemployment. A determination of whether an individual with a disability meets DBE eligibility criteria is made on a case-by-case basis. Non-minority males and tribal owners might also meet this requirement if they can prove that they have been socially and economically disadvantaged.

Your business must meet SBA size standards and must not have gross annual revenue over $22,410,000 in the past three fiscal years. As a small business owner applying for DBE Certification, your personal net worth (and that of each eligible owner applicant) must be less than $750,000.00. This amount excludes the values of your ownership interest in the business and your primary residence. Similar to the HUBZone designation, your small business must retain 51% ownership by socially and economically disadvantaged individuals. Again these are only the basics for DBE designation; however, meeting all the above requirements is an excellent start towards becoming certified as a DBE.

This is a great way to get into government contracting. Becoming certified gives socially and economically disadvantaged businesses an advantage over larger firms when competing for these types of contracts. Additionally, large firms are often given contract incentives to use DBEs as subcontractors. As an example, WisDOT invests between $600 and $700 million annually in federal and state dollars for highway, airport and transit projects. These funds translate into millions of dollars in transportation-related contracts and project work for DBE firms.

You Can Be Both
Many HUBZone-certified firms are also certified in other set-aside programs. 12.2% of HUBZone firms are also 8(a) small businesses (minority-owned); 8.0% are Service Disabled Veteran-owned firms; and 0.9% are qualified in all three set-aside programs. There are programs comparable to HUBZone and DBE for Women Owned Businesses, Veteran Owned Businesses, and others similarly situated. As you can clearly see, being a disadvantaged business can now be an advantage. To get started on any of the aforementioned certifications, contact Gerbers Law, S.C.