For federal government contractors, certification in the U.S. Small Business Administration’s Historically Underutilized Business Zone (HUBZone) program can be tremendously lucrative. As you’re probably aware, the government issues many solicitations set aside for HUBZones – in other words, competitions in which only HUBZone participants are eligible to compete. HUBZone participants are also entitled to a special price evaluation preference against large businesses when competing in unrestricted competitions.
While HUBZone set-asides and price preferences are the best-known benefits of HUBZone status, the government also awards sole source contracts to HUBZone participants. In other words, a certified HUBZone participant is eligible to win certain contracts without any competition!
Sole source contracts can be an important piece of a HUBZone participant’s government business strategy, but many contractors are uncertain about the rules governing these contracts. So let’s take a look at the ins and outs of HUBZone sole source contracts.
Under the Federal Acquisition Regulation, a Contracting Officer may make a HUBZone sole source award when five conditions are met:
- The Contracting Officer does not have a reasonable expectation that offers would be received from two or more HUBZone participants, in the event the requirement was competed.
- The anticipated award price of the resulting contract, including options, will not exceed $4.5 million (or $7 million for a contract designated with a North American Industry Classification System code for manufacturing).
- The requirement is not currently being performed by an 8(a) Program participant under that program’s rules, and has not been accepted into the 8(a) Program. (Although it isn’t mentioned in the FAR, it’s worth noting that the VA is required to give preference to service-disabled veteran-owned small businesses and veteran-owned small businesses, which may impact a VA Contracting Officer’s ability to award a HUBZone sole source contract).
- The HUBZone concern receiving the sole source award has been determined to be responsible under the FAR’s responsibility provisions.
- In the Contracting Officer’s reasonable judgment, award can be made at a fair and reasonable price.
Five requirements may sound like a lot, but the first is the most important. After all, the fourth and fifth requirements (responsibility and fair/reasonable pricing, respectively) apply to almost all federal contracts, not just HUBZone sole source awards. The third requirement merely implements the “once 8(a), always 8(a)” rule, which – again – applies to almost all federal contracts. The dollar cap is unique to the sole source environment but is essentially self-explanatory.
Let’s briefly examine the first requirement in greater detail because, typically, this is where the rubber meets the road with respect to HUBZone sole source contracts.
“No Reasonable Expectation”
Under FAR 19.1306, HUBZone sole source contracts are permitted only when the Contracting Officer determines that the government is unlikely to receive offers from two or more HUBZone participants. But how does the Contracting Officer make this determination?
Before soliciting almost any requirement, the Contracting Officer must conduct market research, a process described in FAR Part 10. The nature and extent of market research vary considerably depending on the type and value of the acquisition and the Contracting Officer’s reasonable discretion, but a Contracting Officer considering a HUBZone acquisition will almost certainly consult SAM and the SBA’s Dynamic Small Business Search system to determine whether to expect offers from multiple HUBZone participants. The Contracting Officer may also engage in other research, such as soliciting responses through a Sources Sought or Request for Information.
If you’re considering lobbying a Contracting Officer to consider an HUBZone sole source award, it may be worth your time to do your own market research by examining the same databases. Remember that, to support a competitive HUBZone solicitation, a Contracting Officer must have a reasonable expectation of receiving two or more offers. If you’re in Florida and bidding on a job in Miami, the fact that another HUBZone located in Seattle does the same sort of work may not matter. If you can show that the Seattle company has never won a contract outside the Pacific Time Zone, the Contracting Officer likely cannot reasonably expect that company to make an offer on the Miami job.
Finally, if you think that the “reasonable expectation” requirement means that agencies never issue sole source HUBZone contracts, think again. According to USASpending.gov, the DoD alone awarded more than 300 such contracts and orders in Fiscal Years 2021 and 2022.
A Few Final Thoughts
The government has fallen short of its 3% HUBZone goal for many years in a row, achieving just 2.53% in Fiscal Year 2021. This ongoing shortfall means that many Contracting Officers are looking for ways to increase their HUBZone awards. You may be surprised what happens if you introduce your HUBZone business to a Contracting Officer and float the possibility of a sole source award.