HUBZone stands above other small-biz programs

Unless the law is changed, HUBZones are first in line for set-aside dollars

A group of small-business executives talked with passersby at the FOSE 2010 conference, trying to spread the word about their major $15 billion governmentwide information technology acquisition contract.

The Alliant Small Business Industry Council formed after 72 small companies earned the right from the General Services Administration to compete for information technology orders that are set aside just for small companies. Agencies can use the task-order contract to acquire IT services and products and work toward reaching their annual small-business contracting quotas.

But marketing the Alliant contract wasn't the only thing on their mind at the March trade show. A bug lingers in the small-business community, and it’s keeping some of its members on edge.

In February, a Federal Court of Claims judge ruled that small companies in the Historically Underutilized Business Zone (HUBZone) program get to move to the front of the line when an agency sets a contract aside.

Because of the ruling, small businesses have less time to respond to solicitations as agencies need more time to search the market for HUBZone companies. More protests also are more likely if agencies make mistakes, said Esther Burgess, senior vice president and deputy chief operating officer at  Vistronix, a small business that provides IT services.

“I’m nervous about how this might play out in small-business contract competitions.” Burgess said. She’s a member of the ad hoc industry council, but her company also competes for work outside Alliant.

Words Matter

If a contracting officer wants to reserve an acquisition for small businesses, the officer must check to see if two viable HUBZone companies are available to compete for the work. If so, the acquisition goes directly to them. Other types of small businesses, such as women-owned companies and even service-disabled veteran-owned companies, must wait for the next opportunity.

The issue comes down to the word “shall” in the law. Despite overwhelming dislike for the decision and a push to make all small-business programs equal, "shall" overruns them all.

“The court interprets the language of the HUBZone competition provision — ‘shall be awarded’ — to be mandatory,” Federal Judge Emily Hewitt wrote in her opinion released March 2.

“The court concludes that the HUBZone competition provision is properly interpreted as mandatory in relationship to both the sole-source provision and the 8(a) program provisions and that this interpretation is further supported by the differences in the statutory language providing authority for contract decision-making and program administration,” Hewitt wrote.

The decision has small-business advocates again calling for the elimination of the HUBZone program's preference by changing one word in the statute. But although the solution is simple, getting it done isn't.

Support for Change

Sens. Mary Landrieu (D-La.), chairwoman of the Small Business and Entrepreneurship Committee, and Richard Durbin (D-Ill.), the majority whip, introduced the Small Business Programs Parity Act (S. 3190) March 26. The bill would simply strike "shall" and replace it with "may," giving contracting officers authority and flexibility to choose the type of small business with which they want to contract.

Landrieu and Sen. Olympia Snowe (R-Maine), the committee's ranking member, tried to do the same in 2009, but the language was stripped from the bill before it was signed. Both say they are pushing legislation that would remove the “shall” in the law regarding HUBZone companies. Snowe introduced the Small Business Contracting Programs Parity Act (S. 1489) in July 2009, and Landrieu has co-sponsored the legislation. The committee hasn’t acted on either bill.

Some House members also want changes.

At a March 24 hearing, Rep. Yvette Clarke (D-N.Y.), a Small Business Committee member, said the court’s decision hurts other small businesses, and Congress needs to deal with it.

“I think it’s important for Congress to make its intent clear that each of the specialized procurement programs at [the Small Business Administration] must be on equal footing,” Clarke said. “I think Congress must act to address the outcome of this case.”

Need for Equal Standing

When Clarke asked small-business representatives about changes, Linda Hillmer, president and chief executive officer of CorpComm Inc., a HUBZone and woman-owned company, agreed everything should be equal.

“By putting one program above another program, we’re creating an atmosphere where small businesses are fighting against each other for small pieces of the pie instead of putting them all together and growing the pie in general,” said Hillmer, a former federal contracting officer.

Rep. Nydia Velázquez (D-N.Y.), chairwoman of the House Small Business Committee, has been generally mum about the issue. “It was a court decision,” she said when asked about the ruling. She didn’t say whether she would introduce legislation to equalize the programs.

A spokeswoman for Rep. Roscoe Bartlett (R-Md.), co-chairman of the Congressional HUBZone Caucus and a member of Velázquez’s committee, said Bartlett was glad that the court followed the “shall” in the law. She also said Bartlett voted for parity in the last Congress because he was concerned about the future of the HUBZone program if there was no parity.

The court's decision threw a wrench into the Obama administration’s small-business contracting policy. Administration officials wanted parity now. They rejected the Government Accountability Office’s decisions in 2008 and 2009 that HUBZones come first before other programs. The administration said GAO put a lot of weight on the word "shall" in the statute. As a result, officials told agencies to ignore GAO's decisions.

Despite Hewitt’s legal ruling, SBA officials still believe in their interpretation of the law.

“SBA has consistently interpreted the Small Business Act to provide that federal contracting officers are to choose equally among all of SBA’s procurement and business development programs, without giving one preference over the others," Jonathan Swain, SBA’s associate administrator for the Office of Communication and Public Liaison, said in a statement after the decision came out. "This is the rule of ‘parity’ between the programs.”

As agency officials review the court’s decision, “SBA will continue to present its views in that matter and in all ongoing judicial proceedings involving interpretation of the Small Business Act,” he wrote. Other administration officials declined to comment on the ruling.

During the court proceedings, Justice Department lawyers argued that the opposition of senators and House members to the HUBZone disparity was enough to dismiss the word “shall” in the law.

However, Judge Hewitt wrote, “Congress’ statements about the proper interpretation of a statute subsequent to the statute’s passage are of little persuasive authority.”

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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