Up in the air Hubzone parity shot down -- again

Critical alert: The information in this post has been surpassed by new legislation. See, HUBZones demoted.

The US Federal government has a number of social preference schemes for set-aside contracts. Most, based on personal or racial status, such as women, veteran or Native classifications, are lumped under the so-called Section 8 classification.

And then there's the HUBZone classification, which includes many businesses situated in a geographically described Historically Underutilized Business Zone.

It has been the case that the government viewed all such classifications as on par, or, if not on par, with preference to Section 8 classifications.

But, as reported here previously, that notion was rejected in a US Court of Federal Claims case earlier this year. It was also reported here in another prior post that many government agencies gave short shrift to the Court of Federal Claims decision, and continued to give preference to Section 8 over HUBZone:

The Office of Management and Budget and Justice Department disagree with that decision and have directed agencies to disregard it.

The Air Force recently followed OMB's directive, telling GAO that it was ignoring its ruling in a second HUBZone protest case filed by DGR Associates Inc. "Contracting officers are not to provide a priority to HUBZones," Air Force officials told agency attorneys, according to correspondence Government Executive obtained.

The US Court of Federal Claims is not moved, nor likely amused.

Court rules against government, again, in small business parity

On Friday, the Court of Federal Claims found the Air Force violated the 1953 Small Business Act when it failed to first consider DGR Associates Inc., a HUBZone firm, before awarding a contract to an 8(a) small business.

The Air Force decided under the new contract it would limit competition to companies operating in SBA's 8(a) Business Development program because the service wanted to boost its percentage of awards issued to small disadvantaged businesses, the court said. A contracting officer noted in documents that the Air Force had exceeded its HUBZone goals by more than 600 percent but missed its small disadvantaged business goal -- which includes the 8(a) program -- by 53 percent.

In Friday's case, the Court of Federal Claims issued a permanent injunction requiring the Air Force "to terminate the unlawful contract" awarded to General Trades and Services of Waipahu, Hawaii. The Air Force must issue a new solicitation and will be required to first consider DGR, the Terrell, Texas, firm that had been the incumbent on the contract.

In his decision, Judge Thomas C. Wheeler said the statute was unambiguous.

"The language of the Small Business Act granting priority to the HUBZone program could not be more clear," Wheeler wrote. "By using the phrases 'notwithstanding any other provision of law . . . a contract opportunity shall be awarded on the basis of competition to qualified HUBZone small business concerns,' Congress established a priority for the HUBZone program over other competing small business programs. . . . If Congress intended something different from what it stated, Congress alone must enact an appropriate amendment."

Read the Decision here.

This ruling has significant relevance to Guam contractors. Guam has been determined to be a HUBZone. Billions of dollars of Federal funds are being spent on Guam to upgrade the US military presence in this part of the Pacific. Section 8 preferred Alaska Native Corporations are already here in force, and grabbing preference for much of the work.

This ruling should put Guam HUBZone-qualified contractors in the Catbird seat for social preference set-asides.


MORE ON THIS TOPIC:

I failed to point out something essential to understanding the interests at play in this discussion, which is that Section 8a preferences have different fiscal goals than HUBZone preferences and that there is a substantial difference in the geographical scope and economically disadvantaged character of the contracts available to the different preference set-asides.

Section 8a preferences are pretty much available to qualified socially and economically disadvantaged persons without geographic limitation, as is apparent from the world-wide penetration of Section 8a qualified contractors in Federal Government contracting.

HUBZone preferences, on the other hand, are available only to economically disadvantaged small businesses who are bona fide residents of geographically limited HUBZones.

Many, but not all, HUBZone qualified economically disadvantaged contractors are also Section 8a qualified as socially disadvantaged. The purpose of the HUBZone qualification is to lift all economically disadvantaged small businesses in a Historically Underutilized Business Zone, regardless of race, gender, clan, Veteran or other socially disadvantaged status.

There seems to have been more than usual ("usual" being, "not much") interest with this particular post, so I have been having a look around the web at other material on the subject. In no particular order and for no particular reason are the following additional readings links:

A very analytical view, made in 2006, from the "Ask A Professor" page on the Defense Acquisition University website (note: Firefox gave several warnings that the certification to this site was unknown, which my experience tells me happens on many military (.mil) sites).

New Complications for SBA Regulations May 2010

These informative posts from "Don's Acquisition Blog" from Nov 2009, in the "go to for Federal acquisition" Wifcon.com website, more formally known as "Where in Federal Contracting.com" and provided as a regular link on this author's blawg, in the sidebar to the right.

This informative post from Bob Antonio's Blog from July 2010 in Wifcom.com.

This post (HUBZone | Fraud Rampant in Billion Dollar Contracting Program ~ Post No. 071808-1) from the "activist" (for lack of a better word) website of The Voice of Small Business in America.

There are and undoubtedly will be many more good discussions and analyses of this issue, and if you run across a particularly useful one, feel free to share it via the Comments utility. I, of course, always reserve the right to vet all comments for tone, civility, pertinence or other rational or arbitrary reasons (and you have the right to start your own blog).

MORE LINKS, etc.: Court rules against government, again, in small business parity

The U.S. Court of Appeals for the Federal Circuit will soon hear Justice’s challenge of the Mission Critical Systems case. And, unlike the Court of Federal Claims, the appeals court’s ruling has precedential effect, meaning its decision would apply to future HUBZone priority cases.

Support for HUBZone government contractors from Timothy Power and Power Law Office

HUBZone Contractors National Council - provides membership in a trade organization of HUBZone contractors and information on the HUBZone program and statistics as well as other reports, information, networking and links.

HUBZone Wikipedia.

HUBZones are designated based on qualifying low income and/or employment. Is your business located in a HUBZone? Check out this map.

SBA online HUBZone site.

What is a Small Business?

Q & A:

Is a HUBZone contractor restricted to contracts to be awarded only in a HUBZone?

No. As the 9th Circuit Court of Appeals said in Contract Management, Inc. v. Rumsfeld (434 F.3d 1145, 1149; January 11, 2006), "there is no indication in the statutory text that HUBZone contracts must be awarded exclusively within HUBZone areas."

Must HUBZone awards be restricted to work to be performed only in HUBZone geographical areas?

No. Again, the Contract Management case above said, "[t]here is no requirement of any sort that the contract be performed in a HUBZone area. Indeed, the very nature of such historically underutilized zones make it unlikely that a significant volume of contracts would be found within them." (Id.; italics in original.)

It is thus a happy coincidence for Guam small business contractors that there is such a significant amount of work to be done on Guam for the buildup because they will not need to go off-island in search of qualifying HUBZone contracts.