Report: HUBZone Program Basically Ineffective

A government program designed to award federal contracts to small businesses in disadvantaged areas has grown significantly since its inception in 2000, but has not generated enough contract dollars to have a national impact, according to a new study (pdf) released today.

While the program has the potential to be effective, it currently isn't, said the report.

Congress asked the Small Business Administration's Office of Advocacy to take a look at the impact of the HUBZone program, which in its eight years of operation has awarded 21,350 contracts totaling $6.28 billion by price preference, set-asides or sole-source awards. Businesses in a HUB (historically underutilized business) zone, generally are quite small. Only about 7 percent of all HUBZone businesses have more than 50 employees.

The report, conducted by Microeconomic Applications, found that the program has grown steadily in terms of total contract dollars, from $44 million in fiscal 2000 to $1.76 billion in fiscal 2007. Fiscal 2004 was the only year that there was a decline in the total amount awarded to HUBZone businesses.

While the report found that the number of HUBZone businesses and vendors increases with the population and area of the zone, it concluded that the $6 billion generated by the program has a limited impact on a national scale. "When spread over an eight-year period across 2,450 metropolitan areas and counties with qualified census tracts, qualified counties and Indian reservations, $6 billion has a limited impact," reads a report summary. There are about 2,450 HUBZone areas around the nation.

The initiative has a substantial impact in a very small percentage of HUBZones, but where the impact is largest there is generally at least one "very successful" vendor, according to the report. "At present, however, the impact in two-thirds of all HUBZones is nil."

Radwan Saade, a regulatory economist with the Office of Advocacy and a project leader on the report, noted in an interview today that the HUBZone program has not met its goals and "for all practical purposes if a program doesn't meet its goals, from Congress's point of view they won't find it performing."

Congress received the report early this afternoon.

However, he added that the report reveals program successes and failures across various regions. For example, it has seen a high rate of success in Guam but has had virtually no impact on military Base Realignment and Closure areas.

Ronald Newlan, chairman of HUBZone Contractors National Council -- a trade group that aims to expand the implementation of the federal contracting program -- said last year that federal agencies that buy America's goods and services have done a poor job of implementing what is a well-designed program.

"The HUBZone statute sets a goal for HUBZone contracting at 3 percent of total federal contracting dollars...[but] the federal government has never come close to meeting this 3 percent level." In fiscal 2005, the government achieved 1.94 percent and in fiscal 2006 it achieved 2.1 percent, Newlan testified before the House Small Business Committee in September 2007.

"If I had to attribute the program's lack of success to one thing, I would attribute it to the procurement community's reluctance to change their methods of doing business," he said.

By Sharon McLoone |  May 23, 2008; 12:30 PM ET Gov't Contracting , Policymakers , Regulation Legislation
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