Small Business Program Gets Closer Look

By Nick Wakeman, Staff WriterThe Small Business Administration's new program to foster growth in economically depressed areas holds promise for information technology companies, but adjustments will be needed to widen participation in the effort, government and industry officials said.The program, which aims to build investment in "historically underutilized business zones," or HUBZones, directs agencies to allocate a sliding percentage of the total amount they spend on goods and services to businesses in these zones. It was created by members of Congress under legislation passed in 1997.The target for each agency in fiscal year 1999 is 1 percent of their total spending on goods and services. That figure would rise a half percent each year, hitting three percent in fiscal year 2003.But SBA HUBZone Program Manager Michael McHale said that the 1 percent spending target for fiscal year 1999, which ends Sept. 30, probably will not be met because the program did not start until March 22. "We've been playing catch-up ever since," he said. With the government spending about $120 billion a year on goods and services, spending in HUBZones should reach about $3.6 billion by 2003.Under the program, agencies can use sole source and set-aside contracts to award work to HUBZone companies, and they can give 10 percent price breaks on HUBZone bids in open competitions, McHale said.There are about 7,000 HUBZones, which are based on Census Bureau tracts, in metropolitan areas of the United States. Another 900 rural counties qualify as well.While participants in a July 29 HUBZone conference sponsored by Science Applications International Corp. of San Diego praised the concept behind the program, some criticized the criteria used to qualify as a HUBZone company.One problem is an unintended one, said Cordell Smith, a legislative aide to Sen. Christopher Bond, R-Mo., who as chairman of the Senate Small Business Committee sponsored the legislation. The law requires that HUBZone businesses be 100 percent owned by U.S. citizens, but the citizenship requirement stops U.S. companies or other groups from investing in a HUBZone business. Even tribal organizations are barred from investing in HUBZone businesses because they are organizations and not individual citizens, Smith said. All American Indian reservations qualify as HUBZones. "We were alarmed that our phrasing barred [tribal groups and investment companies], so we are looking at ways to address it," he said.Start-up companies, especially in the information technology field, rely on investors such as equity groups and other large companies, such as SAIC, that like to invest in small companies, said Jack Hammett, a senior vice president and group manager at SAIC."We are cautious about encouraging start-ups because of the statute," he said.Other problems cited by conference participants included requirements that most of the company's work be in HUBZones and that at least 35 percent of the employees live in HUBZones.Smith held out little hope for substantial change to either requirement for fear of weakening the intent of the program."We never intended this program to be everything to everyone, but another tool," Smith said.The employee residency requirement, however, is a major hurdle because "traditionally, that is not where we find our employees," said Rita Prater, vice president of business support and development at International Technology Inc. of Gaithersburg, Md. "Most of our employees live in the suburbs."There must be other incentives, such as tax breaks, that would make people want to move to a HUBZone and stay there, she said. However, Prater said her company, a certified small, disadvantaged business, is considering relocating to a HUBZone to qualify for the program.Murray Schooner, director of small-business programs for Unisys Federal, said it was a mistake that only small businesses could qualify for the HUBZone program."What if a large business wanted to open offices in 10 HUBZones and hire people that lived there?" he said. "Aren't we trying to help the same people?"Large companies have several opportunities to participate in the program, either by being a subcontractor to a HUBZone company or using a HUBZone company as a subcontractor, SAIC's Hammett said. Large companies need to work with their small-business partners to find and bid on these opportunities, he said.