Monday, September 9, 2019

Contractor Pays $500 Thousand to Resolve Allegations It Misrepresented its HUBZone Status

HUBZone (Historically Under-utilized Business Zones) is a SBA (Small Business Program) for small businesses that operate it and employ workers living (mostly) in historically under-utilized business zones. To be more specific, HUBZones are metropolitan and rural areas with low income, high poverty rates, and high unemployment rates. The program is now a little more than 20 years old. There are about 2,500 designated HUBZones in the United States. The best way to view them is with SBA's HUBZone Map. HUBZones are periodically added and subtracted from the list.

Other than being a 'small business' with majority ownership by U.S. Citizens, businesses eligible to participate in the HUBZone program must meet two important criteria.

  1. the firm's principal office (the location where the greatest number of employees perform their work, excluding contract sites) must be in a HUBZone, and
  2. 35 percent of the firm's total workforce must reside in a HUBZone.
The Government targets three percent of contracting be set aside for HUBZone qualified contractors. This works out to about $2 billion per year. Based on a study performed a few years back, this program has not had significant economic impact on HUBZone areas (counties, census tracts, and Indian reservations).

Most of the contracts awarded to HUBZone contractors are 'set-aside' by SBA for that purpose and often awarded on a sole-source basis. For companies operating in the HUBZone environment, getting a non-competitively awarded contract offers unique financial opportunities.

But there are some companies that have abused the system. MASS Service and Supply is one that recently came under scrutiny for falsifying records to show that at least 35 percent of its workforce resided in a HUBZone. Before the falsification of employee residences was discovered, MASS had been awarded several HUBZone set-aside contracts. MASS even went so far as to falsify spreadsheets to show fictitious employee addresses to give to Federal investigators. That wasn't too smart as it would not be particularly challenging for an investigator to confirm employee addresses.

MASS agreed to pay $500 thousand to resolve the False Claims Act (FCA) allegations that the company misrepresented its HUBZone status and lied to Federal investigators. That probably wiped out most of the company's profits earned under the HUBZone contracts. 

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