Robert Jay Dilger
Senior Specialist in American National Government
The Small Business Administration (SBA) administers several programs to support small businesses, including the Historically Underutilized Business Zone Empowerment Contracting (HUBZone) program. The HUBZone program is a small business federal contracting assistance program “whose primary objective is job creation and increasing capital investment in distressed communities.” It provides participating small businesses located in areas with low income, high poverty rates, or high unemployment rates with contracting opportunities in the form of “setasides,” sole-source awards, and price-evaluation preferences.
In FY2009, the federal government awarded contracts valued at $13.1 billion to HUBZone certified businesses, with $3.4 billion of that amount awarded through the HUBZone program. The program’s total administrative cost is an estimated $11.7 million. In FY2010, it received an appropriation of $2.2 million, with the additional cost of administering the program provided by the SBA’s appropriation for general administrative expenses.
Congressional interest in the HUBZone program has increased in recent years, primarily due to U.S. Government Accountability Office (GAO) reports of fraud in the program. Some Members have called for the program’s termination. Others have recommended that the SBA continue its efforts to improve its administration of the program, especially its efforts to prevent fraud.
This report examines the arguments presented both for and against targeting assistance to geographic areas with specified characteristics, such as low income, high poverty, or high unemployment, as opposed to providing assistance to people or businesses with specified characteristics. It then assesses the arguments presented both for and against the creation and continuation of the HUBZone program, starting with the arguments presented during consideration of P.L. 105-135, the HUBZone Act of 1997 (Title VI of the Small Business Reauthorization Act of 1997), which authorized the program.
The report also discusses the HUBZone program’s structure and operation, focusing on the definitions of HUBZone areas and HUBZone small businesses and the program’s performance relative to federal contracting goals. The report includes an analysis of (1) the SBA’s administration of the program, (2) the SBA’s performance measures, and (3) the potential effect of the 2010 decennial census on which areas qualify as a HUBZone.
Congressional actions on several bills during the 111th Congress are also examined, including S. 3020, the HUBZone Improvement Act of 2010, which would extend for three years HUBZone eligibility for firms that lose their HUBZone eligibility due to the release of 2010 decennial census economic data and require the SBA to implement several GAO recommendations designed to improve the SBA’s administration of the program; and H.R. 5297, the Small Business Jobs Act of 2010, which was signed into law (P.L. 111-240) by President Obama on September 27, 2010. It amends the Small Business Act to remove certain language that had prompted federal courts and GAO to find that HUBZone set-asides have “precedence” over other small business set-asides.
Date of Report: October 15, 2010
Number of Pages: 29
Order Number: R41268
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John R. Luckey
Legislative Attorney
Kate M. Manuel
Legislative Attorney
This report provides an overview of the Small Business Administration’s (SBA’s) Minority Small Business and Capital Ownership Development Program. Based upon authorities given to the SBA by Sections 7(j) and 8(a) of the Small Business Act of 1958, as amended, this program is commonly known as the “8(a) Program.” The 8(a) Program provides participating small businesses with training, technical assistance, and contracting opportunities in the form of setasides and sole-source awards. A “set-aside” is an acquisition in which only certain contractors may compete, while a sole-source award is a contract awarded, or proposed for award, without competition. Eligibility for the 8(a) Program is generally limited to small businesses “unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of the United States” that demonstrate “potential for success.” However, small businesses owned by Indian tribes, Alaska Native Corporations (ANCs), Native Hawaiian Organizations (NHOs), and Community Development Corporations (CDCs) are eligible for the 8(a) Program under somewhat different terms. In FY2008, 9,462 firms participated in the 8(a) Program, and the federal government spent $6.3 billion on contracts with 8(a) firms.
The report surveys the historical development of the 8(a) Program, as well as the legal requirements presently governing (1) eligibility for the 8(a) Program, (2) set-asides and solesource awards under Section 8(a), and (3) related matters. It also discusses potential developments in the 8(a) Program in light of recently proposed legislation, changes in executive branch policies, and legal challenges. It includes the changes that SBA proposed to the regulations governing the 8(a) Program on October 28, 2009. The 8(a) Program is not the only contracting program for small businesses. There are similar programs for women-owned small businesses, Historically Underutilized Business Zone (HUBZone) small businesses, servicedisabled veteran-owned small businesses, and small businesses not belonging to any other category.
The 111th Congress has enacted legislation (P.L. 111-118) that would allow the Department of Defense to convert functions to performance by certain 8(a) firms without conducting the publicprivate competitions normally required under Office of Management and Budget Circular A-76. It is also considering bills that would modify various aspects of the 8(a) Program or otherwise promote contracting with 8(a) firms (e.g., H.R. 456, H.R. 2200, H.R. 2299, H.R. 2682, H.R. 3771, H.R. 4220, H.R. 4253, H.R. 4818, H.R. 4842, H.R. 4929, H.R. 5010, H.R. 5013, H.R. 5109, H.R. 5136, H.R. 5590, S. 1167, S. 2862, S. 3429, S. 3444, S. 3458).
Date of Report: October 14, 2010
Number of Pages: 40
Order Number: R40744
Price: $29.95
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Kate M. Manuel
Legislative Attorney
In government contracting law, a “set-aside” is a procurement in which only certain businesses can compete. Set-asides can be exclusive or partial, depending upon whether the entire procurement, or just part of it, is so restricted. Eligibility for set-asides is typically based on business size, as well as demographic characteristics of the business owners. Currently, federal law provides, in various ways, for set-asides for (1) small businesses generally, (2) small businesses located in Historically Underutilized Business Zones (HUBZones) (HUBZone small businesses), (3) service-disabled veteran-owned small businesses (SDVOSBs), (4) small businesses owned and controlled by socially and economically disadvantaged individuals that are participating in the Minority Small Business and Capital Ownership Development Program authorized by Section 8(a) of the Small Business Act (8(a) small businesses), and (5) womenowned- and-controlled small businesses.
On September 27, 2010, President Obama signed the Small Business Jobs and Credit Act of 2010 (P.L. 111-240) which amends several provisions of the Small Business Act pertaining to setasides. P.L. 111-240 changes certain language in the provisions regarding HUBZone set-asides to make clear that agencies may—but are not required to—use HUBZone set-asides when there is a reasonable expectation that at least two qualified HUBZone small businesses will submit offers and the award can be made at a fair market price. P.L. 111-240 also expressly authorizes agencies to set aside parts of multiple-award contracts for small businesses; place orders under multipleaward contracts with small businesses without complying with certain procedures ensuring that firms holding such contracts generally have a “fair opportunity to be considered” for orders under them; and “reserve” one or more awards for small businesses under “full and open multiple award procurements.”
P.L. 111-240 was enacted in response to a series of decisions in 2008-2010 by the U.S. Court of Federal Claims and the Government Accountability Office (GAO) interpreting the provisions of the Small Business Act establishing or implementing the set-aside programs for small businesses. One of these decisions, DGR Associates, Inc. v. United States, issued by the Court of Federal Claims on August 13, 2010, permanently enjoined the government from using an 8(a) set-aside when there is a reasonable expectation that at least two qualified HUBZone small businesses will submit offers and the award can be made at a fair market price. The court did so based, in part, on the interpretation of the Small Business Act set forth in its March 2, 2010, decision in Mission Critical Solutions v. United States. In Mission Critical Solutions, the court held that set-asides for HUBZone small businesses have precedence over those for 8(a) small businesses because HUBZone set-asides are mandatory while 8(a) set-asides are discretionary, and mandatory agency actions take precedence over discretionary ones. Another decision, Delex Systems, Inc., issued by GAO on October 28, 2008, recommended that orders issued under such contracts be subject to set-asides for small businesses because they are “acquisitions,” and any acquisition over $150,000 is subject to set-asides for small businesses.
However, despite the enactment of P.L. 111-240, questions remain as to whether the executive branch gave any required “precedence” to HUBZone set-asides in procurements conducted prior to the enactment of P.L. 111-240, and whether the Small Business Administration or the Federal Acquisition Regulation Council will reintroduce previously proposed regulations that would explicitly provide for parity among the set-aside programs. While P.L. 111-240 removes the language that prompted GAO and the courts to find that HUBZone set-asides have precedence, it does not amend the Small Business Act to expressly provide for parity among the set-aside programs.
Date of Report: October 8, 2010
Number of Pages: 25
Order Number: R40591
Price: $29.95
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Gerald Mayer
Analyst in Labor Policy
The National Labor Relations Act (NLRA) gives most private sector workers the right to join or form a labor union and to bargain collectively over wages, hours, and working conditions. The act allows workers in the construction industry to enter into a collective bargaining agreement before a project begins. A project labor agreement (PLA) is a collective bargaining agreement that applies to a specific construction project and lasts only for the duration of the project.
In February 2009, President Barack Obama signed an Executive Order (EO) that encourages federal agencies “to consider requiring” the use of PLAs on large-scale construction projects. The EO defines a large-scale project as one where the total cost to the federal government is $25 million or more. The order states that agencies are not required to use PLAs. Regulations implementing the EO went into effect in May 2010.
A PLA generally specifies the wages and fringe benefits to be paid on a project, and it usually includes procedures for resolving labor disputes. PLAs generally include a provision that unions agree not to strike and contractors agree not to lock out workers. A PLA may require contractors to hire workers through a union hiring hall. If not, it may require employees to become union members after being hired. A PLA applies to all contractors and subcontractors on a project.
Opponents and proponents of PLAs disagree on the economic effects of PLAs. Supporters argue that the agreements provide uniform wages, benefits, overtime pay, hours, working conditions, and work rules for work on major construction projects. They maintain that PLAs provide contractors with a reliable and uninterrupted supply of workers at predictable costs for wages and benefits, and they argue that a PLA makes it easier to manage a large project, which ensures that it will be completed on time and on budget. Supporters also say that PLAs help train workers and improve worker safety.
Opponents argue that PLAs have several disadvantages. They argue that PLAs increase construction costs. Because a PLA sets standard labor costs and work rules, nonunion contractors cannot win bids based on lower costs. In addition, nonunion contractors may not bid on projects that are covered by a collective bargaining agreement, resulting in fewer bids and higher costs. If a PLA requires contractors to hire workers through a union hiring hall, contractors may not be able to use their own workers. A nonunion contractor’s workers may have to join a union and pay union dues. If a contractor has to pay into a union pension plan, employees may not be on the project long enough to vest in the plan. Opponents of PLAs also argue that nonunion contractors can operate more efficient worker training programs and that evidence does not indicate that nonunion construction projects are less safe than union projects.
Much of the research on the effect of PLAs on the costs of construction is inconclusive. In part, it can be difficult to find similar projects where some use a PLA and the others do not. Instead of comparing similar projects, economists often use statistical models that attempt to control for differences in the characteristics of the projects. It can be difficult, however, to control for all the factors that affect the costs of construction. For example, if the Davis-Bacon locally prevailing wage is the local union wage, contractors may pay workers the union wage whether or not the project is covered by a PLA. In addition, statistical models may not take into account the quality of construction, whether projects are finished on time, or the safety records of different projects. Finally, the relationship between PLAs and construction costs may be interdependent. PLAs may affect construction costs, but the size and cost of construction may also affect the use of PLAs.
Date of Report: October 4, 2010
Number of Pages: 12
Order Number: R41310
Price: $29.95
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Robert Jay Dilger
Senior Specialist in American National Government
Oscar R. Gonzales
Analyst in Economic Development Policy
The Small Business Administration (SBA) has provided “technical and managerial aides to smallbusiness concerns, by advising and counseling on matters in connection with government procurement and on policies, principles and practices of good management” since it began operations in 1953. Initially, the SBA provided its own small business management and technical assistance training programs. However, over time, the SBA has relied increasingly on third parties to provide that training.
The SBA’s FY2010 budget for management and technical assistance training for small business owners is $181.1 million. The SBA expects more than one million aspiring entrepreneurs and small business owners to receive training from an SBA-supported resource partner in FY2010.
The SBA has argued that these programs have contributed “to the long-term success of these businesses and their ability to grow and create jobs.” It currently provides funding to about “14,000 resource partners including about 900 small business development centers, more than 100 women’s business centers and more than 350 chapters of the mentoring program, SCORE.”
The Department of Commerce also provides management and technical assistance training for small businesses. For example, its Minority Business Development Agency provides training to minority business owners to assist them in becoming suppliers to private corporations and the federal government.
For many years, a recurring theme at congressional hearings concerning the SBA’s management and technical assistance training programs has been the perceived need to improve program efficiency by eliminating duplication of services and increasing cooperation and coordination both within and among SCORE, women’s business centers (WBCs), and small business development centers (SBDCs). Congress has also explored ways to improve the SBA’s measurement of the programs’ effectiveness and to address the impact of national economic conditions on WBC and SBDC finances and their capacity to maintain client service levels and meet federal matching requirements.
This report examines the historical development of federal small business management and technical assistance training programs; describes their current structures, operations, and budgets; and assesses their administration and oversight, the measures used to determine their effectiveness, and WBC and SBDC finances and their capacity to maintain client service levels and meet federal matching requirements.
This report also discusses P.L. 111-240, the Small Business Jobs Act of 2010, which authorizes $50 million in additional funds for SBDCs to provide targeted technical assistance to small businesses for various specified activities, such as seeking access to capital or credit, federal procurement opportunities, and opportunities to export products. The act also guarantees each state not less than $325,000 of these additional funds and waives the non-federal matching requirement for these additional funds. The act also authorizes the SBA to temporarily waive, in whole or in part, for successive fiscal years, the non-federal share matching requirement relating to “technical assistance and counseling” for WBCs.
Date of Report: October 6, 2010
Number of Pages: 33
Order Number: R41352
Price: $29.95
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Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
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