19–010 

Calendar No. 624

107TH CONGRESS REPORT " SENATE ! 2d Session 107–294 

COMBINED 8(a) AND HUBZONE PRIORITY PREFERENCE ACT

OCTOBER 1, 2002.—Ordered to be printed 

Mr. KERRY, from the Committee on Small Business and 

Entrepreneurship, submitted the following 

R E P O R T 

[To accompany S. 1994] 

The Committee on Small Business and Entrepreneurship, to 

which was referred the bill, S. 1994, to establish a priority preference among certain small business concerns for purposes of Federal contracts, and for other purposes, having considered the same, 

reports favorably thereon with amendments and recommends that 

the bill (as amended) do pass. 

On July 24, 2002, the Small Business and Entrepreneurship 

Committee considered S. 1994, the ‘‘Combined 8(a) and HUBZone 

Priority Preference Act.’’ The Committee adopted by unanimous 

voice vote an amendment offered by the Ranking Republican, Senator Christopher S. Bond and the Chairman, Senator John F. 

Kerry. As amended, S. 1994 would provide certain benefits to small 

business concerns with both 8(a) Business Development (BD) Program and Historically Underutilized Business Zone Program 

(HUBZone) certifications (8(a) HUBZone small business concern) 

under restricted competition contracts within each program; establish a price evaluation preference for the purposes of bidding on 

Federal procurement contracts under full and open competition for 

8(a) HUBZone small business concerns; and raise the sole-source 

threshold for all 8(a) BD and HUBZone small business concerns to 

$4 million on goods and services contracts and $6 million for manufacturing contracts, an increase of $1 million for each category. 

Having considered S. 1994, as amended, the Committee reports favorably thereon without further amendment and recommends that 

the bill do pass. 

2

1Letter dated August 17, 2001, from Robert Gangwere, Acting General Counsel, Small Business Administration, to Senator Bond. 2 Based on data reported by the Federal Procurement Data Center. 

I. INTRODUCTION

On June 24, 1997, legislation was introduced by then Chairman 

of the Committee on Small Business, Senator Christopher S. Bond, 

to establish a preference program for small business concerns 

based on their geographic location. The legislation, S. 208, the 

‘‘HUBZone Act of 1997,’’ provided for Federal contracting opportunities for small businesses located in historically underutilized 

business zones (HUBZones). 

On June 26, 1997 the HUBZone Act was approved by the Committee with an amendment in the nature of a substitute designed 

to protect the 8(a) Business Development (BD) Program by removing the priority granted the HUBZone Program under the legislation and replacing it with language to establish parity between the 

8(a) BD and the HUBZone programs. The HUBZone Act was subsequently included in the Small Business Reauthorization Act of 

1997 without further amendment and was signed by President 

Clinton on December 12, 1997. 

On June 11, 1998, the SBA published a final rule in the Federal 

Register (63 Federal Register 31896–916) to create Part 126 implementing the HUBZone program. One of the difficult issues involved 

in the rulemaking was the relationship between the HUBZone program and the 8(a) program. Under the 1998 regulations, if the 

small business concern is certified in both programs, it moves to 

the front of the line in getting government contracts. 

On January 28, 2002, the SBA published a proposal in the Federal Register to amend its HUBZone regulations. Among the proposal’s considerable changes to the HUBZone program and its relationship to the 8(a) BD program, the SBA proposed eliminating the 

‘‘first priority’’ status granted to HUBZone 8(a) firms. In doing so, 

the SBA cited an opinion from the SBA General Counsel the agency does not have the statutory authority to grant a special priority 

to HUBZone 8(a) firms.1

The SBA’s decision to eliminate the super-priority came at a difficult time for 8(a) BD firms. As demonstrated at the June 19, 

2002, Committee roundtable titled, ‘‘Are Government Purchasing 

Policies Hurting Small Business?’’ 8(a) BD firms are currently experiencing a percentage decline in Federal procurement contract 

awards, which climbed to 20 percent between Fiscal Years 1998 

and 2001.2

The cause of this decline has its roots in the new procurement 

environment created by the reforms in the mid-1990s, such as passage of the Federal Acquisition Streamlining Act [P.L. 103–335] 

and the Federal Acquisition Reform Act [P.L. 104–106], in the regulatory changes to procurement programs in response to the 

United States Supreme Court decision, Adarand Inc. v. Pena, in 

the reductions in the acquisition workforce and a procurement culture that favors expediency, and short-term cost savings over small 

business participation. Because negative trends hit socially and 

economically disadvantaged firms first and hardest, these small 

businesses have borne a disproportionate share of the percentage 

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decline in Federal contract dollars being awarded to small businesses in general. 

The HUBZone program has also suffered from the lack of procurement personnel, as well as the current procurement culture of 

expediency. For example, although the government-wide procurement goal for qualified HUBZone small business concerns was set 

at 2 percent for FY 2001, the Federal government only achieved 

0.72 percent, costing these firms nearly $3 billion in lost contracts. 

The Committee believes S. 1994 will re-establish and improve 

the benefits available to dual-certified small business concerns 

under the original HUBZone regulations, as well as assist all 8(a) 

BD and HUBZone small business concerns by raising the solesource thresholds, thus creating more contracting opportunities for 

these firms. 

II. LEGISLATIVE HISTORY

S. 1994, the ‘‘Combined 8(a) and HUBZone Priority Preference 

Act,’’ was introduced by Senators John F. Kerry and Christopher 

S. Bond on March 6, 2002. The Committee held a roundtable on 

June 19, 2002 titled, ‘‘Are Government Purchasing Policies Hurting 

Small Business?’’ During the roundtable, S. 1994 was a topic of discussion. 

Small business advocates that participated in the roundtable 

supported the re-establishment of a super-priority, known as a ‘‘priority preference,’’ as envisioned in S. 1994, and supported the in- crease in the sole-source thresholds by $1 million for goods and 

services contracts and manufacturing contracts. However, concerns 

were raised about the legislation’s price evaluation preference of 20 

percent under full and open competition for firms with a dual 8(a) 

Business Development (BD) Program and Historically Underutilized Business Zone (HUBZone) Program certification (8(a) 

HUBZone small business concerns). Additionally, concerns were 

raised about the meaning on the word ‘‘comparable’’ when used as 

a determining factor in awarding bids to 8(a) HUBZone small business concerns under restricted competition within the 8(a) BD and 

HUBZone Programs. 

During consideration of S. 1994, the Committee adopted, by voice 

vote, an amendment proposed by Senators Bond and Kerry to make 

changes to the types of benefits available to 8(a) HUBZone small 

business concerns under restricted competition, as well as to clarify 

the benefits to these firms for contracts under full and open competition. The amendment also included a provision to clarify when 

a publicly held small business concern may participate in the 

HUBZone program. 

The amendment was the result of a compromise agreement 

reached between the Committee’s Chairman and Ranking Republican and reflects suggestions raised at the June 19, 2002, Committee roundtable. 

III. ANALYSIS OF S. 1994, THE ‘‘COMBINED 8(a) AND HUBZONE

PRIORITY PREFERENCE ACT,’’ AS AMENDED

PURPOSE

The primary purpose of the ‘‘Combined 8(a) and HUBZone Priority Preference Act,’’ as amended, is to clarify the status of a small 

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business that is certified in both the HUBZone and 8(a) contracting 

programs. This amendment will provide statutory authority for a 

‘‘superpreference’’ for firms that are certified for both HUBZones 

and 8(a). This ‘‘superpreference’’ will be afforded to combined 

HUBZone 8(a) small businesses if their bids are comparable to 

other firms that are only eligible for one program. The word ‘‘comparable’’ has been difficult to define, and the amendment replaces 

this ‘‘comparable’’ language with more standard, more understandable language about best value contracts. 

S. 1994 also establishes a price evaluation preference for the purposes of bidding on Federal procurement contracts under full and 

open competition for small business concerns that have received 

both 8(a) Business Development (BD) Program and Historically 

Underutilized Business Zone (HUBZone Program) certification. The 

bill also raises the sole-source threshold for goods and services contracts, as well as manufacturing contracts by $1 million. Finally, 

the legislation would clarify non-citizen ownership of a HUBZone 

small business concern and would limit non-citizen ownership of up 

to fifteen percent (15%) of the outstanding shares of a HUBZone 

small business concern that is publicly traded. 

ESTABLISHMENT OF PRIORITY PREFERENCE

Effect on best value contracting 

The Committee-adopted amendment provides that best value 

contracts would be considered with a separate evaluation factor to 

recognize bidders participating in both the HUBZone and 8(a) programs. The amendment would replace all the existing set-aside and 

full-and-open preferences with a best value approach. Best value 

contracts consider both price and ‘‘non-price’’ factors; giving preference to a firm for its participation in both programs (a HUBZone 

8(a) dual status firm) is clearly a ‘‘non-price’’ factor. The Committee 

believes that implementing this concept in a best value approach 

makes the most sense. The amendment awards such bidders extra 

points when their bids are evaluated on ‘‘non-price’’ factors such as 

the competitiveness of its delivery schedules, quality of the goods 

or services, and technical support, etc. 

Effect on price evaluation preference 

As amended, S. 1994 will provide to an 8(a) HUBZone small 

business concern a price-evaluation preference for contracts under 

full and open competition. In competition against a small business 

concern, the price evaluation preference would be 10 percent. In 

competition against a large business, the price evaluation preference would be 12 percent. For example, if a large business were 

to bid $100 on a contract and would be the winning bidder, an 8(a) 

HUBZone small business concern would be awarded the contract 

with any bid up to $112, if the award were based solely on price. 

If a small business bid $100 on a contract, an 8(a) HUBZone small 

business concern would be awarded the contract with any bid up 

to $110, if the award were based solely on price. 

The legislation specifically excludes the 8(a) BD small business 

concern’s 10 percent price evaluation preference stemming from its 

status as a small disadvantaged business (SDB) concern from being 

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combined with the price evaluation preference for an 8(a) HUBZone 

small business concern. 

NON-CITIZEN OWNERSHIP

As enacted in 1997, the HUBZone program has encountered 

issues relating to the statutory requirement that a HUBZone firm 

be 100% owned and controlled by U.S. citizens. This means that potential applicants for HUBZone certification need to be flesh and 

blood citizens, either by birth or naturalized. This requirement also 

raises an issue about potential HUBZone firms with stock that is 

publicly traded. Because stock may be exchanged at any moment, 

the management of such a firm cannot certify to the SBA that all 

its stock is owned and controlled by U.S. citizens. 

After consulting with the Securities and Exchange Commission 

and other interested parties, it was concluded that a HUBZone 

firm could be certified and maintain its certification so long as noncitizens did not control more than fifteen percent (15%) of the outstanding shares of a HUBZone small business concern that is publicly traded. 

SOLE-SOURCE THRESHOLD INCREASE

The cap on the value of a contract that may be awarded to an 

8(a)BD or a HUBZone firm under sole-source authority (without 

competition) is raised by $1 million under the legislation, for both 

goods and services contracts and manufacturing contracts. The 

sole-source thresholds for each program would be $4 million for 

goods and services contracts and $6 million for manufacturing contracts. 

IV. COMMITTEE VOTE

In compliance with rule XXVI(7)(b) of the Standing Rules of the 

Senate, the following votes were recorded on July 24, 2002. A motion by Senator Kerry to adopt an amendment by Senators Bond 

and Kerry concerning an agreement on the legislation passed by 

unanimous voice vote. A motion by Senator Kerry to adopt S. 1994, 

the ‘‘Combined 8(a) and HUBZone Priority Preference Act,’’ as 

amended, was approved by a 19–0 recorded vote, with the following 

Senators voting in the affirmative: Kerry, Bond, Levin, Harkin, 

Lieberman, Wellstone, Cleland, Landrieu, Edwards, Cantwell, 

Carnahan, Burns, Bennett, Snowe, Enzi, Fitzgerald, Crapo, Allen 

and Ensign. 

V. EVALUATION OF REGULATORY IMPACT

In compliance with rule XXVI(11)(b) of the Standing Rules of the 

Senate, it is the opinion of the Committee that no significant additional regulatory impact will be incurred in carrying out the provisions of this legislation. There will be no additional impact on the 

personal privacy of companies or individuals who make use of the 

services provided. 

VI. COST ESTIMATE

In compliance with rule XXVI(11)(a)(1) of the Standing Rules of 

the Senate, the Committee estimates the cost of the legislation will 

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be equal to the amounts indicated by the Congressional Budget Office in the following letter. 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, September 11, 2002. 

Hon. JOHN F. KERRY, 

Chairman, Committee on Small Business and Entrepreneurship, 

U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 1994, the Combined 8(a) 

and HUBZone Priority Preference Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Matthew Pickford. 

Sincerely, 

BARRY B. ANDERSON

(For Dan L. Crippen, Director). 

Enclosure.

S. 1994—Combined 8(a) and HUBZone Priority Preference Act 

S. 1994 would establish new criteria for evaluating bids on certain federal procurement contracts. CBO estimates that implementing S. 194 would cost about $1 million a year, subject to the 

availability of appropriated funds. The bill would not affect direct 

spending or receipts, so pay-as-you-go procedures would not apply. 

S. 1994 contains no intergovernmental or private-sector mandates 

as defined in the Unfunded Mandates Reform Act and would not 

affect the budgets of state, local, or tribal governments. 

Under this bill, certain contracts would be deemed less expensive 

than others when being evaluated for price. For contracts subject 

to full and open competition, the bill would establish a price preference of up to 12 percent for firms that are dually certified under 

the Small Business Administration’s (SBA’s) 8(a) Business Development program and Historically Underutilized Business Zone 

(HUBZone) program. For contracts restricted to small businesses, 

firms that are dually certified would be given a price preference 

over comparable bids from firms that are only certified under the 

8(a) program or the HUBZone program. 

Based on information from SBA and the Office of Federal Procurement Policy (OFPP), CBO estimates that adding these new 

evaluation criteria would increase administrative costs about $1 

million annually, assuming the availability of appropriated funds. 

Price preferences could increase federal costs if it resulted in the 

award of higher-cost contracts, but based on information from SBA 

and OFPP, we expect that such effects would be insignificant. 

The CBO staff contact for this estimate is Matthew Pickford. 

This estimate was approved by Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

VII. SECTION-BY-SECTION ANALYSIS, S. 1994, AS AMENDED

Section 1. Short title 

This Act is titled the ‘‘Combined 8(a) and HUBZone Priority Preference Act.’’

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Section 2 

This section amends Section 3(p) of the Small Business Act to 

add paragraphs 9–13 defining the terms ‘‘best value contract,’’

‘‘best value factor relative importance,’’ ‘‘contracting officer’’ and 

‘‘8(a) HUBZone Small Business Concern.’’

Section 3 

(a) Amends Section 8(a)(1)(D) of the Small Business Act to provide a price evaluation preference of ten percent (10%) to an 8(a) 

HUBZone small business concern in a competition for a best value 

contract with one or more 8(a) small business concerns. 

(b) Amends Section 31(b)(2)(B) of the Small Business Act to provide a price evaluation preference of ten percent (10%) to an 8(a) 

HUBZone small business concern in a competition for a best value 

contract with one or more HUBZone small business concerns. 

(c) Amends Section 31(b)(3) of the Small Business Act to insert 

subparagraph (D), establishing a twelve percent (12%) price evaluation preference for 8(a) HUBZone small business concerns in a 

full and open competition, unless the otherwise lowest and response offer is from a small business concern, and the price evaluation preference will be ten percent (10%). 

Section 4 

Amends Section 3(p) of the Small Business Act to modify the requirement in existing law that requires a HUBZone small business 

concern to be owned by one or more U.S. citizens. The change 

would permit limited non-citizen ownership so long as it does not 

exceed fifteen percent (15%) of the beneficial ownership of the outstanding shares of the small business concern. This change affects 

those small business concerns that are required to file reports with 

the Securities and Exchange Commission. 

Section 5 

(a) Amends Section 8(a)(1)(D)(i)(II) of the Small Business Act to 

increase the sole-source threshold by $1 million for 8(a) small business concerns for both goods and services contracts and manufacturing contracts. 

(b) Amends Section 31(b)(2)(A)(ii) of the Small Business Act to increase the sole-source threshold by $1 million for qualified 

HUBZone small business concerns for both goods and services contracts and manufacturing contracts. 

VIII. CHANGES IN EXISTING LAW

In the opinion of the Committee, it is necessary to dispense with 

the requirement of rule XXVI (12) of the Standing Rules of the 

Senate in order to expedite the business of the Senate.

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