On Monday, April 10, 2023, the Small Business Administration (SBA) released a final rule regarding appeals from protest determinations related to Historically Underutilized Business Zone (HUBZone) small business concerns. The new rule allows government contractors, disappointed bidders, and contracting officers to appeal protest determinations that turn on an entity’s status as a HUBZone small business concern to the SBA Office of Hearings and Appeals (OHA). The new rule becomes effective on May 10, 2023.
The SBA’s HUBZone program, codified at 13 CFR part 126, supports small businesses in historically underutilized areas, including by granting them a 10% price evaluation preference in standard contract competitions and establishing additional set-aside contracts. To qualify for the program, an entity must be a small business as determined by the SBA, be at least 51% owned and controlled by a U.S. citizen, Alaska Native corporation, or certain other entities, have its principal office in a HUBZone, and have at least 35% of its employees living in a HUBZone. The SBA publishes a map of HUBZone locations, which it updates every five years, including an upcoming change to be published on July 1, 2023.[1]
Relevant protests occur when an interested party, the contracting officer, or the SBA challenges an entity based on their status as a certified HUBZone entity in the context of a procurement. These initial protests are heard by the Director of SBA’s Office of HUBZone (D/HUB) or a representative designated by the D/HUB (a designee). Similar protests at the SBA may occur based on contractors’ small business status or inclusion in certain other contracting assistance programs, such as for contractors who claim status as woman-owned small businesses (WOSB) under 13 CFR part 127.
Under the existing rules, however, the appeals path for these types of protest determinations diverges based on the contracting assistance program challenged. Protests concerning an entity’s size determination, status as a WOSB, and certain other designations are currently appealed to the OHA, which is staffed by Administrative Judges. The OHA publishes its decisions, which are precedential, here. Under the existing 13 CFR 126.805, HUBZone protest determinations must be appealed to the Associate Administrator of Government Contracting and Business Development (AA/GC&BD) rather than the OHA. A copy of the AA/GC&BD decision must be provided only to the contracting officer, the protestor, and the protested HUBZone entity.
Congress added the directive to amend the HUBZone appeals process to the National Defense Authorization Act (NDAA) for fiscal year 2022 and the SBA issued a proposed rule on December 15, 2022. Notably, the proposed rule received zero comments. The new rule amends regulations at 13 CFR 126.805 and 13 CFR part 134 subparts A and B and adds new subpart M to 13 CFR Part 134.
This new rule changes the procedure for appeals of HUBZone protest determinations and more closely aligns them with the appeals procedures for protests for certain other contracting assistance programs, such as those related to WOSBs. Appeals from HUBZone status protest determinations will be heard by the SBA OHA and can be filed following a decision based on the grounds listed in 13 CFR 126.801 or on dismissals “based on a finding that the protest was premature, untimely, nonspecific, not based upon protestable allegations, moot, or not filed by an interested party.” The standard of review for an appeal is whether the initial determination was “based on clear error of fact or law.”
Parties challenging the initial determination will have ten business days following receipt of the initial protest determination to file an appeal, the same timeframe as protests related to WOSB determinations under 13 CFR 134.703, but notably different than the 15 calendar days afforded to submit a size protest appeal under 13 CFR 134.304(a). Under the new rules, if a protest is filed before an award, “the contracting officer must withhold award until the appellate decision is rendered” unless that person determines continuing with the contract award and performance is in the government’s best interests. If a protest is filed after an award, “the contracting officer must consider whether performance can be suspended until an appellate decision is rendered.” Additionally, the new regulation includes specific information regarding requirements, procedure, and timing for the appeal process.
Ideally, shifting the HUBZone protest appeals process to the OHA will reinforce a consistent approach in determining HUBZone protests and should offer contractors and their legal representation the benefit of a developing record of decisions that grants more insight into HUBZone determinations.
One thing that has not changed is that federal contractors should keep a close eye on changing regulations, closely check and follow the rules if considering a HUBZone determination protest and should consult with a knowledgeable attorney regarding the process.
The final rule can be found here: https://www.federalregister.gov/documents/2023/04/10/2023-07460/hubzone-appeal-process.
Smith, Currie & Hancock LLP is a national boutique law firm that has provided sophisticated legal advice and strategic counsel to our construction industry and government contractor clients for fifty years. We pride ourselves on staying current with the most recent trends in the law, whether it be recent court opinions, board decisions, agency regulations, current legislation, or other topics of interest. Smith Currie publishes a newsletter for the industry “Common Sense Contract Law” that is available on our website: www.SmithCurrie.com.
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[1] For information related to the HUBZone locations, see HUBZone Map (sba.gov). For information related to changes to the map, see HUBZone July 2023 Map Changes: What You Need to Know (sba.gov); HUBZone Map Update: Guide for Small Businesses (sba.gov).