“The Defense Department is concerned that foreign investment will take advantage of small businesses in the defense industrial base reeling from the COVID-19 pandemic.
The defense industrial base, which consists of more than 300,000 companies, is “vulnerable to adversarial capital,” and DOD wants them to “stay in business without losing their technology” or be subject to intellectual property theft.“
“Ellen Lord, DOD’s top acquisition executive: “The foreign investment issue is something that I have been tracking for the last couple years. There is no question that we have adversarial capital coming into our markets through nefarious means,” Lord said.
“So what we are doing, on the defense side, looking at [the Committee on Foreign Investment in the United States], on the offensive side, we’re looking at our Trusted Capital mechanisms.”
DOD has been conducting periodic Trusted Capital Marketplace virtual events to pre-empt CFIUS concerns and ensure companies’ access to “clean capital.”
Lord said the global outbreak of COVID-19 has created instability and uncertainty, especially for small businesses that aren’t sure if government contracts will continue.
“I think it presents a greater attack surface as there is greater uncertainty, especially to small businesses as to whether their contract will continue,” Lord said. “So we want to basically mitigate that uncertainty.”
DOD under the Trump administration has been pushing for more domestic manufacturing and reducing foreign investments, namely with drone production. It has also been adamant about finding U.S.-based solutions for telecommunications services and hardware production, barring the use of Huawei and ZTE products because those companies have ties to the Chinese government and military.
These moves, especially as the global health crisis persists, could have broader implications and shrink direct foreign investment up 15%, according to a United Nations report.
The Defense Department has also created a new task force to synchronize its COVID-19 efforts led by Stacy Cummings, the principal deputy assistant defense secretary and leader of the Acquisition Enablers office.
The Joint Acquisition Task Force will coordinate with military services and agencies’ acquisition resources and field requests from the Federal Emergency Management Agency, the Departments of Health and Human Services and Homeland Security and other federal agencies for medical resources and personal protective equipment.
The task force aims to identify weak points in workforce and industrial capability and ultimately reduce companies’ reliance on foreign supply sources. It will also direct use of Defense Production Act authorities, which include being able to use economic incentives and priority-rate defense contracts to best serve the need of troops in the field and team with industry to boost commercial capabilities.”
How can firms maintain the 35% HUBZone residency requirement if some employees are college students whose residence hall has closed? SBA recognizes that some HUBZone employees are students who have been called home to locations no longer in a HUBZone, even though they continue to work remotely, impacting firms’ ability to maintain the 35% HUBZone residency requirement. SBA will determine affected firms’ compliance with the 35% HUBZone residency requirement by reviewing documentation showing where the impacted employee lived prior to the COVID-19 response measures being put in place. Accordingly, a firm that has a HUBZone employee that was required to move from student housing to a non-HUBZone location AND continues to work for the HUBZone firm, the firm may continue to count that employee as a HUBZone resident by providing documentation showing: 1) the university/college closed the student’s residence and 2) the employee has been maintained on the payroll. This applies only to students who, at the time of the firm’s application for certification or recertification, were already on payroll and had residency established prior to the university closing student housing.
How can firms maintain compliance with the Principal Office requirement if their employees are required to telework? SBA recognizes that if all of a firm’s employees are required to telework in response to the COVID-19 pandemic, this might impact a firm’s ability to comply with the HUBZone program’s principal office requirement. In response to this concern, SBA will determine affected firms’ compliance with the principal office requirement by reviewing the firm’s compliance prior to the telework measures being put in place. Accordingly, at the time of application for certification or recertification, a firm that has placed its employees on mandatory telework will have to provide documentation showing where its employees performed their work prior to requiring telework. Such an applicant will also be required to provide a signed statement that: the firm put all their employees on telework associated with social distancing in response to the COVID-19 pandemic; the teleworking measure is temporary in nature; and the employees will return to their normal work location once the teleworking measures have been lifted.
How can firms maintain compliance with the requirement for uninterrupted and continued employment for “Legacy HUBZone employees,” as outlined in the HUBZone regulations at 13 C.F.R. 126.200(d)(ii)(3), if employees are laid off or on extended sick leave? The revised HUBZone regulations, which became effective December 26, 2019, allow firms to count “Legacy” HUBZone resident employees as permanent HUBZone resident employees if they are able to demonstrate that the employee was a HUBZone resident for 180 days prior to and for 180 days following the firm’s HUBZone certification or recertification. In addition, the requirement states, “The certified HUBZone small business concern must maintain records of the employee’s original HUBZone address, as well as records of the individual’s continued and uninterrupted employment by the HUBZone small business concern, for the duration of the concern’s participation in the HUBZone program.” SBA recognizes that many firms have placed employees on extended (unpaid) sick leave status or are contemplating layoffs. SBA will allow HUBZone companies to place an employee in a temporary non-paid status such as FMLA to care for themselves or a sick family member during COVID-19 if the firm attests to their intent to put such individuals back on payroll after the period of extended sick leave. However, there is no such exception for employees that have been laid-off. If a firm lays off an individual, that individual cannot be counted as a “legacy HUBZone employee” for any future HUBZone certification or recertification.
Can the HUBZone Program expedite my application for certification? SBA may expedite the application of any firm that submits a completepackage for certification and indicates that they intend to respond to a specified solicitation that relates to COVID-19.
Can the HUBZone Program waive or reduce the 35% residency requirement? This statutory requirement would necessitate Congressional action to change.
II. HUBZone Program updates related to a change in regulations
When and why did SBA propose new rule changes to the HUBZone program? The SBA proposed new regulations to make it easier for small businesses to participate in the HUBZone program. These changes will make the program more attractive for small businesses to invest in HUBZones and hire HUBZone residents, providing greater impact to communities and making it easier for federal agencies to meet their goal to award 3 percent of contracts to certified HUBZone small businesses. The rule change was published in November 2019 and took effect December 26, 2019.
What are the new rules around recertification? All firms will be required to undergo an annual recertification rather than a triennial recertification, with a full documentation review taking place every three years. Once certified, a firm is eligible for all HUBZone contracts for which the business qualifies as small, for a period of one year from the date of its initial certification or most recent recertification (unless the concern acquires, is acquired by, or merges with another firm during that period). Prior to this change, in order to be eligible for a HUBZone contract, firms had to prove their HUBZone eligibility at both the time of offer and the time of award, lengthening the procurement process for HUBZone firms uniquely among all small businesses—and serving as a disincentive for federal agencies to contract with HUBZone companies.
When and how will annual recertification begin? SBA has experienced a delay in the implementation of our new annual recertification process. Firms which, based on the prior triennial recertification schedule, were due for recertification in 2020 will be contacted automatically by the HUBZone Certification and Tracking System (HCTS) and will be required to recertify on the anniversary date of their initial certification. (For example, if a firm was initially certified on December 1, 2017, the firm will receive a notice from HCTS that it is due to recertify its HUBZone status within 30 days of December 1, 2020.) All other firms (which were not scheduled to recertify in 2020 under the triennial recertification rules) will continue to be considered eligible as of the date of their initial certification or most recent recertification, and must be prepared to prove their eligibility at that time if their HUBZone status is protested in connection with a HUBZone solicitation issued after December 26, 2019. Until such time as we have introduced a fully automated recertification process for all firms, we will also allow firms to voluntarily recertify on the anniversary date of their initial certification, if they choose to do so. We will advise firms within the next two weeks regarding the process for voluntary recertification on their anniversary date.
Are Governors now permitted to ask SBA to designate HUBZones? A new Governor-designated covered areas initiative that became effective on January 1, 2020, represents an opportunity to expand the HUBZone program to reach more distressed rural communities. The new authority allows state governors to petition SBA to designate as HUBZones rural areas with populations under 50,000 and unemployment levels of 120 percent of the U.S. or state average. SBA will provide updates and update the HUBZone maps to reflect newly covered areas.
Are there other changes to the HUBZone maps? SBA has frozen the HUBZone maps through 2021, until the results of the 2020 Census are available. This will provide the program and participating small businesses with an opportunity to transition to a new requirement to update the maps and designations on five-year intervals, starting after the 2020 Census. Five-year HUBZone updates will enable small businesses to plan and invest in their HUBZone communities without fear that their designation may change from one year to the next, thus providing stability for both the community and HUBZone businesses. While the maps are frozen, no new Qualified Non-Metropolitan Counties, Qualified Census Tracts, or Redesignated Areas will be removed from or added to the maps. However, SBA will continue to add locations approved through the new Governor-designated covered areas initiative, qualified base closure areas, qualified disaster areas, and Indian lands, as any new data is received.
How has the definition of the Principal Office changed? A new provision in the HUBZone regulations allows small businesses that invest in HUBZones by purchasing a building or entering a long-term lease (of 10 years or more) to maintain HUBZone eligibility for up to 10 years, even if at some point the office location no longer qualifies as a HUBZone. This provision does not apply to offices located in areas categorized on the HUBZone map as Redesignated areas.
Are there changes to the 35% HUBZone employee residency requirement? The new rule allows HUBZone companies to retain long-term “Legacy” HUBZone resident employees as permanent HUBZone resident employees, under certain circumstances. An employee who resides in a HUBZone for at least six months (180 days) at the time of certification or recertification, and continues to reside in a HUBZone for at least six months (180 days) after such time, may continue to be considered a HUBZone resident so long as they are continuously employed by the firm, even if he/she moves to a non-HUBZone area, or if the area of his/her residence loses HUBZone geographical eligibility. If the firm wants to count such a “Legacy” employee as a HUBZone resident for the duration of the individual’s employment, then at the time of any subsequent recertification, the firm will be required to identify any such employee and provide supporting documentation demonstrating that the individual resided in a HUBZone for 180 days before and after certification and that the individual has been an employee of the firm for the entire period of time since the firm’s certification.
How may I obtain help or learn more about the HUBZone Program? The following resources may be accessed for additional support:
Your SBA District Office can provide local assistance on topics such as government contracting, certifications, financing, general business support, and more. The list of local offices can be found at https:// sba.gov/local-assistance/.
The SBA Answer Desk at 1-800-827-5722 and firstname.lastname@example.org can also answer general questions.
As a volunteer counselor over the last decade, I have noted common traits among the most successful small business federal government contractors. The following are 10 of the most prominent traits and tips on how successful small companies developed them.
Commercial success before entering government contracting. From maintaining buildings to keeping the lights on, from grounds maintenance to flight maintenance, look for niches that can be pursued based on successful past performance, transitioning via industry teaming via subcontracts, partner roles with larger companies or in small business set aside orders for minor items and simpler services provided directly to the government. Your Entry Points
Willingness to concede there were things they did not know and seeking advice early. You may download the book, SmallBusiness Federal Government Contracting and its supplement from the “Box” in the left margin of this site. You may also benefit from the free “Reference Materials”. Contract agreements, incorporation instructions for all the US states, guidance on marketing and business planning are also included. Free Books and Supplements
Recognition of the value in industry teaming. Synergism is paramount in teaming with any size company, whether in a lead or subcontracting role. There should be technical, management and market segment similarities between you and any company with whom you are considering teaming. Your prospective team member ideally will not be a direct competitor; rather a business in a related field with whom you share a mutual need for each other’s contributions in pursuing large-scale projects. Small Business Teaming in Government Contracting
Strong capability statement (CAPE) development, networked prudently among government agencies and large government contractors. Your CAPE targets contracting officers and prime contractor buyers who are seeking to fulfill their small business buying goals. It is a way to get you in the door and speak to, or correspond with, the management and technical personnel who are the decision makers in sourcing small business buys. A good quality CAPE is the spearhead of your marketing campaign and your visual image; focused and direct, it must be informative, concise and a snapshot of the very best you can offer. Your Capability Statement
Maximizing set-aside qualifications in seeking both prime and subcontract opportunities. Small business group-designated procurements are far more frequent than sole source contract awards. Agencies must prepare special justifications for sole sourcing and those most frequently approved are for Hub Zone and Small, Disadvantaged [8(a)] firms. Small business group designations are beneficial to firms who hold them by enhancing the probability of an award through agency restrictions on prime contractor bidding to only those who hold the group designation. Others may bid as subcontractors to the prime but the prime small business contractor must be capable of performing at least 51% of the total effort in terms of work scope, hours and dollars. Marketing to Achieve a Small Business Set-aside Contract
Prudent bid/no bid decisions. Government contract proposal preparation is time consuming and can be costly. Meeting agency Request for Proposal (RFP) requirements with a responsive proposal can be well worth the effort if a winning strategy can be formulated. When considering a proposal to a given government solicitation, conduct a bid/no bid exercise. By going through that process you will begin formulating your win strategy or you will discover that your should not bid the job for lack of such a strategy. Making an Astute Bid/No Bid Decision
Ethical business conduct and avoidance of conflicts of interest. A small business ethics image is different than a product or service “Brand Identity”. The latter focuses on that which the customer receives from you in the way of products and/or services. A company ethics image is how the organization is viewed in general from a public perception as positive or negative. That view is held by customers, your industry partners or prospective partners, regulators and the average citizen. If carefully sculpted your public ethics image can be a vital element in business success; if neglected it can pose a high risk to your enterprise. Maintaining an Ethical Company Image
Excellence in risk analysis. The challenges and difficulties for the small business in government contracting are not so much in the areas of barriers as they are in lack of knowledge (which I concede is a form of barrier but one that can be dealt with) Large business and government agencies take advantage of the small enterprise lack of knowledge or make poor assumptions regarding what a small business knows about the Federal Acquisition Regulation (FAR) and associated Cost Accounting Standards (CAS). This leads directly to abusive practices.Managing Small Business Risk
Solid long range planning and plan maintenance. The time to consider separating government from commercial work and/or establishing new cost centers for bidding, accounting and billing purposes is when the enterprise is generating a long range marketing plan to determine rates for bidding new long term contracts. The location of the work (both geographic location and whether performance is in or out of a government facility, its duration, skill set requirements, government-mandated fringe benefits for workers and the competition are all factors to consider).Strategic Planning for Small Business
Excelling in meeting the past performance challenge, building a performance record with solid customer service and sensitivity. How can a new organization or one that is new to government contracting muster a response to the past performance challenge? The answer lies in historical projects that may be similar in the commercial arena and a high quality proposal that clearly demonstrates an understanding of the requirement at hand, a unique and cost effective project plan and high performing personnel and/or products tailored to the statement of work to offset an interim, light past performance record. Meeting the Past Performance Challenge