![](media/image1.wmf)SBA PROCEDURAL NOTICE

TO: SBA Headquarters, District Directors (DDs), CONTROL NO.: 8000-583

Deputy District Directors (DDDs), Area

Directors (ADs), Procurement Center

Representatives (PCRs), Assistant

District Directors for Business

Development (ADD/BDs) and Business

Opportunity Specialists (BOSs)

SUBJECT: Application of the HUBZone EFFECTIVE: 11-04-2002

Price Evaluation Preference

The Office of Government Contracting and Business Development is issuing
this notice to clarify procedures for applying the HUBZone Price
Evaluation Preference (PEP) to qualified HUBZone small business concerns
(SBC).

There are three types of contracting mechanisms to increase contract
opportunities to qualified HUBZone SBCs under the HUBZone Program, they
are: set-asides, sole source awards and price evaluation preferences in
full and open competition. Federal agencies must also submit a goal for
subcontracts to be awarded by prime contractors to certified HUBZone
SBCs under subcontracting plans.

In accordance with section 126.613 of Title 13 of the Code of Federal
Regulations (CFR), "How does a price evaluation preference affect the
bid of a qualified HUBZone SBC in full and open competition?" and
Federal Acquisition Regulation (FAR) §19.1307(b), when evaluating offers
in full and open competition under the HUBZone Program, contracting
officers must apply a factor of 10 percent to all offers, except offers
from other small businesses. In addition, according to 13 CFR §126.613,
if the offer of the HUBZone SBC is not more than 10 percent higher than
the offer of a non-small business, the contracting officer must deem the
qualified HUBZone SBC's offer as lower than the offer of the non-small
business. Conversely, if the HUBZone SBC's offer is more than 10 percent
higher than the non-small business' offer, the PEP would not be applied.
Finally, a small business concern that is not a qualified HUBZone SBC
can not benefit from the application of the HUBZone PEP to gain the
award of a contract.

This notice provides examples of the application of the price evaluation
preference and detailed explanations on how the answers were derived.

**EXAMPLE #1:**

> Base HZ Evaluated

[Offer]{.underline} [PEP]{.underline} [Offer]{.underline}

HUBZone\* \$100 n/a \$100

# Small \$102 n/a \$102

Large \$104 n/a \$104

-   The HUBZone small business concern is the lowest, responsive and
    responsible offeror; consequently, it is the apparent successful
    offeror.

-   Therefore, the HUBZone price evaluation preference is not
    applicable.

**EXAMPLE #2:**

Base HZ Evaluated

[Offer]{.underline} [PEP]{.underline} [Offer]{.underline}

# HUBZone \$113 n/a \$113

# Small \$103 n/a \$103

Large\* \$100 \$10 \$110

-   The large business is the lowest, responsive and responsible
    offeror.

-   The HUBZone small business concern's offer is [more
    than]{.underline} 10 percent higher than the large business' offer.
    After applying the 10% PEP; to the large business, the large
    business is still the lowest, responsive and responsible offeror.

-   In this example, the application of the PEP [does not]{.underline}
    benefit the HUBZone SBC.

-   In addition, the application of the PEP cannot be used to benefit
    the non-HUBZone SBC.

-   The base offer is therefore used and the large business is the
    apparent successful offeror.

**EXAMPLE #3:**

> Base HZ Evaluated

[Offer]{.underline} [PEP]{.underline} [Offer]{.underline}

HUBZone\* \$102 n/a \$102

# Small \$104 n/a \$104

Large \$100 \$10 \$110

-   The HUBZone SBC's offer is [not more than]{.underline} 10 percent
    higher than the lowest responsive and responsible offeror, the large
    business.

-   Consequently, in accordance with 13 CFR 126.613 and FAR §19.1307(b),
    a factor of 10 percent is added to the offer of all non-small
    businesses to determine the lowest responsive and responsible
    offeror.

-   As a result, the HUBZone small business concern displaces the large
    business as the apparent successful offeror.

**EXAMPLE #4:**

> Base HZ Evaluated

[Offer]{.underline} [PEP]{.underline} [Offer]{.underline}

HUBZone\* \$104 n/a \$104

# Small \$102 n/a \$102

Large \$100 \$10 \$110

-   The HUBZone small business concern's offer is [not more
    than]{.underline} 10 percent higher than the lowest responsive and
    responsible offeror, the large business.

-   A factor of 10 percent is added to the offer of all non-small
    businesses to determine the lowest responsive and responsible
    offeror.

-   As a result, the price of the HUBZone SBC is deemed to be lower than
    the price offered by the large business.

-   The HUBZone small business concern displaces the large business as
    the apparent successful offeror. Although the small business
    concern's offer is lower than the HUBZone SBC's offer, a non-HUBZone
    small business cannot benefit from the application of the PEP and
    therefore, does not prevent the HUBZone small business concern from
    becoming the apparent successful offeror.

**EXAMPLE #5:**

## Base HZ Evaluated

[Offer]{.underline} [PEP]{.underline} [Offer]{.underline}

### HUBZone \$113 n/a \$113

# Small\* \$100 n/a \$100

Large \$103 n/a \$103

-   The small business is the lowest, responsive and responsible
    offeror.

-   The price evaluation preference is [not]{.underline} applied when
    the otherwise successful offer is from another small business
    concern.

-   As a result, the non-HUBZone small business concern remains the
    apparent successful offeror.

**[HUBZone or SDB STATUS]{.underline}:**

Any preference a small business concern receives under the HUBZone
program does not eliminate the benefits another small business concern
would receive under any other program designed to promote the
development of small, small disadvantaged, or women-owned small
businesses. Therefore, if a firm is a small disadvantaged business
(SDB), it is entitled to the price evaluation adjustment (PEA) in
accordance with 13 CFR §124.1015 and FAR Subpart 19.11.

SDBs are eligible for PEAs of up to 10 percent when bidding on federal
contracts in the eligible North American Industry Classification System
Industry Subsectors as determined by the Department of Commerce.
Currently, the SDB PEA is 10 percent.

When an offer is received from a SDB concern or a firm that qualifies as
both a HUBZone and SDB concern, the SDB PEA is applied first in order to
establish the lowest, responsive and responsible offeror. If the
contracting officer applies the HUBZone PEP first, the SDB PEA would
effectively negate the HUBZone PEP.

**EXAMPLE #6:**

SDB HZ Total

> Base SDB Evaluated HZ Evaluated Evaluated

[Offer]{.underline} [PEA]{.underline} [Offer]{.underline}
[PEP]{.underline} [Offer]{.underline} [Offer]{.underline}

# HUBZone\* \$102 \$10.2 \$112.2 n/a \$102 \$112.2

# SDB \$111 n/a \$111 n/a \$111 n/a

Large \$100 \$10 \$110 \$10 \$110 \$120

-   First, the SDB PEA is applied in order to establish the lowest,
    responsive, and responsible offeror.

-   A factor of 10 percent is added to the offer of all non-SDB
    concerns.

-   The SDB concern does not benefit as a result of the application of
    the PEA.

-   The large business' offer remains the lowest, responsive and
    responsible offer.

-   Second, the HUBZone PEP is applied to all non-small business
    offerors.

-   In accordance with the 13 CFR and FAR, a factor of 10 percent is
    added to the offer of all non-small businesses. For evaluation
    purposes, the offer of the large business becomes \$120 after
    applying the HUBZone PEP.

-   Consequently, the HUBZone SBC becomes the lowest responsive and
    responsible offeror; thereby, displacing the large business as the
    apparent successful offeror.

**EXAMPLE #7:**

> Base SDB Evaluated

[Offer]{.underline} [PEA]{.underline} [Offer]{.underline}

# HUBZone \$100 \$10 \$110 

# SDB\* \$101 n/a \$101 

# Large \$102 \$10.2 \$112.2 

-   The SDB PEA is applied to establish the lowest, responsive, and
    responsible offeror.

-   A factor of 10 percent is added to the offer of all non-SDB
    concerns.

-   As a result, the SDB concern becomes the lowest responsive and
    responsible offeror.

-   The HUBZone PEP [is not applied]{.underline}, because another small
    business concern is the lowest, responsive and responsible offeror.

-   The SDB concern is the apparent successful offeror.

**EXAMPLE #8:**

## Base SDB Evaluated 

[Offer]{.underline} [PEA]{.underline} [Offer]{.underline}

# HUBZone \$105 \$10.5 \$115.5 

# 8(a)\* \$102 n/a \$102 

# Small \$101 \$10.1 \$111.1 

-   First, apply the SDB PEA to establish the lowest responsive and
    responsible offeror.

-   A factor of 10 percent is added to the offer of all non-SDB
    concerns.

-   As a result, the 8(a) firm (which automatically qualifies as an SDB
    concern) becomes the lowest responsive and responsible offeror.

-   The HUBZone PEP is [not]{.underline} applied, because all offerors
    are small businesses.

-   As a result, the 8(a) firm is the apparent successful offeror.

**[DUAL HUBZONE/SDB STATUS]{.underline}**

A concern that is both certified as a HUBZone SBC and an SDB must
receive the benefit of both the HUBZone PEP and the SDB PEA. Each
applicable price evaluation preference or adjustment shall be calculated
independently against an offeror\'s base offer. These individual
preference and adjustment amounts shall both be added to the base offer
to arrive at the total evaluated price for that offer.

**EXAMPLE #9:**

#### Base SDB Evaluated HZ Evaluated 

[Offer]{.underline} [PEA]{.underline} [Offer]{.underline}
[PEP]{.underline} [Offer]{.underline}

# HUBZone \$110 \$11 \$121 n/a \$121 

# HZ/SDB\* \$113 n/a \$113 n/a \$113 

# SDB \$112 n/a \$112 n/a \$112 

# Small \$102 \$10.2 \$112.2 n/a \$112.2 

# Large \$100 \$10 \$110 \$10 \$120 

-   First, the SDB PEA is applied to all non-SDB offerors to establish
    the lowest responsive and responsible offeror.

-   A factor of 10 percent is added to the offer of all non-SDB
    concerns.

-   The SDB concern does not benefit as a result of the application of
    the PEA.

-   The large business' offer remains the lowest, responsive and
    responsible offer.

-   Second, apply the HUBZone PEP to the base offer of all non-small
    businesses.

-   In accordance with 13 CFR and FAR §19.1307(b), a factor of 10
    percent is added to the offer of all non-small businesses.

-   As a result of its dual status, the HUBZone/SDB SBC becomes the
    apparent successful offeror. Although the SDB concern's offer is
    lower than the HUBZone/SDB concern's offer, a non-HUBzone SBC cannot
    benefit from the application of the HUBZone PEP.

These examples are not all inclusive. If there is a specific situation
that is not addressed in this notice, questions may be directed to the
HUBZone Program office at (202) 205-8885 or via e-mail at
hubzone@sba.gov.

This notice is effective immediately. Any questions pertaining to the
notice may be addressed to Teresa Artis, Office of Policy, Planning, and
Liaison on (202) 619-1624 or via e-mail at teresa.artis@sba.gov.

Fred C. Armendariz

Associate Deputy Administrator for

Government Contracting and

Business Development

Expires: 11-1-2003