16520 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Proposed Rules 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 135 

[Docket No. FR–4893–P–01] 

RIN 2529–AA91 

Creating Economic Opportunities for 

Low- and Very Low-Income Persons 

and Eligible Businesses Through 

Strengthened ‘‘Section 3’’ 

Requirements 

AGENCY: Office of the Assistant 

Secretary for Fair Housing and Equal 

Opportunity, HUD. 

ACTION: Proposed rule. 

SUMMARY: Section 3 of the Housing and 

Urban Development Act of 1968, as 

amended by the Housing and 

Community Development Act of 1992 

(Section 3), contributes to the 

establishment of stronger, more 

sustainable communities by ensuring 

that employment and other economic 

opportunities generated by Federal 

financial assistance for housing and 

community development programs are, 

to the greatest extent feasible, directed 

toward low- and very low-income 

persons, particularly those who are 

recipients of government assistance for 

housing. HUD is statutorily charged 

with the authority and responsibility to 

implement and enforce Section 3. 

HUD’s regulations implementing the 

requirements of Section 3 have not been 

updated since 1994. This proposed rule 

would update HUD’s Section 3 

regulations to address new programs 

established since 1994 that are subject 

to the Section 3 requirements and 

promote compliance with the 

requirements of Section 3 by recipients 

of Section 3 covered financial 

assistance, while also recognizing 

barriers to compliance that may exist, 

and strengthening HUD’s oversight of 

Section 3. 

DATES: Comment Due Date: May 26, 

2015. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this rule to the Regulations Division, 

Office of General Counsel, Department 

of Housing and Urban Development, 

451 7th Street SW., Room 10276, 

Washington, DC 20410–0500. 

Communications must refer to the above 

docket number and title. There are two 

methods for submitting public 

comments. All submissions must refer 

to the above docket number and title. 

1. Submission of Comments by Mail. 

Comments may be submitted by mail to 

the Regulations Division, Office of 

General Counsel, Department of 

Housing and Urban Development, 451 

7th Street SW., Room 10276, 

Washington, DC 20410–0500. 

2. Electronic Submission of 

Comments. Interested persons may 

submit comments electronically through 

the Federal eRulemaking Portal at 

www.regulations.gov. HUD strongly 

encourages commenters to submit 

comments electronically. Electronic 

submission of comments allows the 

commenter maximum time to prepare 

and submit a comment, ensures timely 

receipt by HUD, and enables HUD to 

make them immediately available to the 

public. Comments submitted 

electronically through the 

www.regulations.gov Web site can be 

viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

Note: To receive consideration as public 

comments, comments must be submitted 

through one of the two methods specified 

above. Again, all submissions must refer to 

the docket number and title of the rule. 

No Facsimile Comments. Facsimile 

(fax) comments are not acceptable. 

Public Inspection of Public 

Comments. All properly submitted 

comments and communications 

submitted to HUD will be available for 

public inspection and copying between 

8 a.m. and 5 p.m., weekdays, at the 

above address. Due to security measures 

at the HUD Headquarters building, an 

appointment to review the public 

comments must be scheduled in 

advance by calling the Regulations 

Division at 202–708–3055 (this is not a 

toll-free number). Individuals with 

speech or hearing impairments may 

access this number via TTY by calling 

the Federal Relay Service at 800–877– 

8339. Copies of all comments submitted 

are available for inspection and 

downloading at www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Staci Gilliam, Director, Economic 

Opportunity Division, Office of Fair 

Housing and Equal Opportunity, 

Department of Housing and Urban 

Development, 451 7th Street SW., Room 

5236, Washington, DC 20410; telephone 

202–402–3468 (voice/TDD) (this is not a 

toll-free number). Persons with hearing 

or speech impairments may access this 

number through TTY by calling the 

Federal Relay Service, at toll-free, 800– 

877–8339. General email inquiries 

regarding Section 3 may be sent to: 

section3@hud.gov. 

SUPPLEMENTARY INFORMATION: 

Executive Summary 

Purpose of Regulatory Action 

This proposed rule would update the 

regulations implementing Section 3. 

The purpose of Section 3 is to ensure 

that employment, training, contracting, 

and other economic opportunities 

generated by certain HUD financial 

assistance shall, to the greatest extent 

feasible, and consistent with existing 

Federal, State and local laws and 

regulations, be directed to low- and very 

low-income persons, particularly those 

who are recipients of government 

assistance for housing, and to 

businesses that provide economic 

opportunities to low- and very lowincome persons. As noted in the 

summary of this preamble, the 

regulations for Section 3 have not been 

updated in over 20 years. Since the 

regulations were last issued in 1994, 

new HUD programs have been 

established to which Section 3 applies. 

HUD’s experience in administering 

Section 3 over the past 20 years has 

identified where HUD could improve 

the effectiveness of its regulations 

implementing Section 3. Recent efforts 

by HUD to improve Section 3 oversight 

without resorting to regulatory change 

(e.g., increased reporting compliance 

through grant competitions and 

establishment of a business registry) 

have not been as successful as HUD 

hoped. HUD concluded that regulatory 

changes are needed to more effectively 

strengthen Section 3 oversight and more 

effectively help recipients of HUD funds 

achieve the purposes of the Section 3 

statute. 

Summary of the Major Provisions of 

This Regulatory Action 

The following provides an overview 

of the more significant provisions of this 

proposed rule. 

Standard for Demonstrating 

Compliance ‘‘To the Greatest Extent 

Feasible.’’ The proposed rule strives to 

achieve uniformity with the statutory 

standard to undertake ‘‘best efforts’’ to 

provide economic opportunities to 

Section 3 residents and businesses, and 

the statutory standard to ensure ‘‘to the 

greatest extent feasible’’ that 

opportunities for training, employment, 

and contracting are provided to Section 

3 residents and businesses. HUD views 

these standards as essentially the same, 

and would remove the distinction in the 

existing codified regulations. HUD 

would only use the ‘‘to the greatest 

extent feasible’’ standard. 

The proposed rule clarifies that 

recipients of HUD funds are required to 

demonstrate compliance, to the greatest 

extent feasible, by: (1) Establishing and 


asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Proposed Rules 16521 

1See http://wdr.doleta.gov/directives/corr_

doc.cfm?DOCN=5842. 

2See http://www.doleta.gov/youth_services/

youthbuild.cfm. 

implementing policies and procedures 

designed to achieve compliance with 

the goals of Section 3 as reflected in 

HUD’s regulations; (2) fulfilling the 

recipient responsibilities set forth at 

§ 135.11 of the Section 3 regulations; 

and (3) either reaching or exceeding the 

minimum numerical goals for 

employment and contracting, or 

providing a written explanation as to 

why the goals were not met (for 

example, identifying barriers 

encountered that prevented the 

recipient from achieving targeted goals 

and actions that will be taken to 

overcome such barriers). HUD believes 

that this approach will provide 

recipients of HUD funds with more 

flexibility in planning how to meet their 

Section 3 obligations while holding 

them accountable when their actions do 

not result in compliance. 

Revised Definition of ‘‘New Hire.’’ The 

current Section 3 regulations establish a 

goal for 30 percent of new hires to be 

Section 3 residents, regardless of the 

length of time that the Section 3 

resident is employed. As a result, the 

Section 3 regulations create a loophole, 

so to speak, by allowing contractors to 

hire Section 3 residents for relatively 

short periods of time and this short-term 

employment would meet the new hire 

requirement. This proposed rule would 

close this loophole by redefining a 

Section 3 new hire for contractors or 

subcontractors as a person who works a 

minimum of 50 percent of the average 

staff hours worked for the job category 

for which the person was hired 

throughout the duration of time that the 

work is performed on the covered 

project. For example, if a Section 3 

resident is hired as a painter, and 

painters typically work 40 hours each 

week, the Section 3 resident must work 

a minimum of 20 hours each week 

during their employment on the project 

in order to be counted towards the 

recipient’s minimum numerical goal for 

employment. HUD believes that this 

new definition will result in more 

meaningful employment opportunities 

for Section 3 residents and prevent 

contractors from making nominal efforts 

to comply with Section 3. 

New Definition of ‘‘Section 3 

Business.’’ Currently, a ‘‘Section 3 

Business’’ must meet one of the 

following three definitions: (a) The 

business is 51 percent or more owned 

by Section 3 residents; (b) the business 

employs at least 30 percent of the 

permanent, full-time employees who are 

Section 3 residents; (c) the business 

provides evidence of a commitment to 

subcontract 25 percent or more of the 

dollar amount of all subcontracts to 

businesses that meet definitions (a) or 

(b). 

This proposed rule would remove the 

third category, paragraph (c) of the 

current definition of a Section 3 

Business in response to a pattern of 

misuse by contractors that initially 

indicated that they would award 25 

percent of subcontracts to Section 3 

businesses, in order to receive 

preference for contracts, but never 

provided contracts to them. 

The proposed rule would add to 

categories (a) and (b) of the current 

definition of Section 3 Business the 

following categories in an effort to 

increase contracting opportunities for 

businesses that are owned by residents 

of public housing and to incentivize 

contractors to sponsor Section 3 

residents to attend Department of Labor 

(DOL) or DOL-recognized registered 

apprenticeship programs. HUD would 

add the following categories to the 

definition of a Section 3 business: (1) 

The business meets the definition of a 

resident-owned business, as set forth in 

HUD’s regulations at 24 CFR 963.5; and 

(2) the business demonstrates that at 

least 20 percent of its permanent fulltime employees are Section 3 residents 

and the business either: (i) Sponsored a 

minimum of 10 percent of its current 

Section 3 employees to attend a DOL or 

DOL-recognized, State Apprenticeship 

Agency-approved, registered 

apprenticeship or pre-apprenticeship 

training program that meets the 

requirements outlined in DOL’s 

Employment Training Administration 

(ETA) Training and Employment Notice 

13–12 1; or (ii) 10 percent of the 

employees of the business are 

participants or graduates of a DOL 

YouthBuild program.2

Removal of Minimum Numerical Goal 

for Nonconstruction. Currently, the 

Section 3 regulations establish a 

minimum numerical goal that 3 percent 

of the total dollar amount of 

nonconstruction contracts shall be 

awarded to Section 3 businesses. Since 

there is no statutory basis for making a 

distinction between construction and 

nonconstruction contracts, and the 

interpretation of the nonconstruction 

goal has been problematic for recipients, 

HUD believes that a numerical goal of 

10 percent of the total dollar amount of 

all covered contracts to Section 3 

businesses, regardless of the type of 

contract or its dollar amount, will create 

more contracting opportunities for 

them. 

Introduction of New Term ‘‘Section 3 

Local Area’’. The definitions of ‘‘Section 

3 resident’’ and ‘‘Section 3 business 

concern’’ in the current Section 3 

regulation do not limit eligibility to 

residents and businesses, respectively, 

residing or located in proximity to 

Section 3 covered projects or activities. 

As a result, a public housing resident or 

a Section 3 business from anywhere in 

the U.S. can receive preference whether 

or not they live or operate in the specific 

metropolitan area where the HUDfunded work is being carried out. To be 

more consistent with the Section 3 

statute and congressional intent, this 

proposed rule clarifies that Section 3 

residents and businesses must reside or 

be located, as applicable, in the Section 

3 local area, which is defined as: (1) The 

primary statistical area where the 

Section 3 covered project or activity 

takes place, or (2) the nonmetropolitan 

county where the Section 3 covered 

project or activity takes place. 

Section 3 Resident and Business 

Verification Procedures. The current 

Section 3 regulations do not require 

recipients to verify that a Section 3 

resident or Section 3 business meets the 

applicable definitions in the regulations. 

Instead, residents and businesses are 

merely required to comply with 

whatever procedures recipients put in 

place, if such procedures exist. This 

proposed rule would continue to allow 

recipients to use their discretion for 

developing verification procedures. 

However, the proposed rule explicitly 

allows recipients to accept selfcertifications from residents or 

businesses, or presume that residents 

residing in or businesses located in 

disadvantaged census tracts are eligible 

to receive the preference in hiring and 

contracting. To prevent ineligible 

persons or businesses from receiving 

Section 3 benefits, this proposed rule 

would require recipients that implement 

self-certification or presumed benefit 

procedures to verify that such selfcertification or presumption policy is an 

acceptable approach by undertaking a 

sample of residents or businesses in the 

disadvantaged census tract or in areas 

which HUD funds are being expended 

for covered projects and activities. 

Monitoring Payroll Data of Developers 

and Contractors. This proposed rule 

recognizes that the most successful 

recipients monitor payroll data to track 

new hires. In an effort to formalize a 

long-standing best practice, this 

proposed rule would require recipients 

that are administering projects that are 

subject to both Section 3- and Davis 

Bacon-covered requirements to monitor 

a contractor’s payroll for changes in 

employment (i.e., terminations, 


asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
16522 Federal Register / Vol. 80, No. 59 / Friday, March 27, 2015 / Proposed Rules 

3See http://www.hudoig.gov/reportspublications/audit-reports/hud-did-not-enforcereporting-requirements-of-section-3-of. 4Average total compensation of all workers, BLS, 

March 2014. See http://www.bls.gov/news.release/

ecec.t01.htm. 

retirements, transfers, and other new job 

vacancies) to proactively identify 

instances when Section 3 obligations are 

triggered. This practice should increase 

monitoring and oversight by recipients 

and improve contractor accountability. 

Further, since the Davis-Bacon 

regulation requires recipients 

administering covered projects to 

monitor payroll data for compliance 

with prevailing wage laws, adding this 

Section 3 requirement should result in 

minimal administrative burden. 

Amending Agreements with Labor 

Unions. Recipients that are located in 

jurisdictions that are governed by 

bargaining agreements with labor 

unions typically have low rates of 

compliance with the minimum 

numerical goals for contracting because 

unions operate outside of Section 3 

obligations. In fact, a review of project 

labor agreements in Chicago and New 

York City revealed that these documents 

do not make any reference to HUD 

requirements, including Section 3. This 

proposed rule would require recipients 

to amend all existing agreements with 

labor unions to ensure that Section 3 

obligations are included and to prevent 

labor unions from obstructing the 

recipients’ ability to achieve 

compliance. 

Sanctions for Delinquent Section 3 

Annual Reports. Achieving full 

compliance with Section 3 reporting 

requirements has been a challenge for 

many years. While recent efforts to 

enhance reporting rates have resulted in 

increased reporting by 60 percentage 

points, there has been minimal 

imposition of penalties on recipients 

that are delinquent with the current 

regulatory reporting requirements. A 

2013 HUD Office of Inspector General 

(OIG) audit report of Section 3 found 

that HUD was not fully enforcing the 

Section 3 reporting requirements for 

public housing agencies (PHAs).3 The 

final audit report recommended that 

HUD’s Office of Fair Housing and Equal 

Opportunity (FHEO) refer PHAs to 

HUD’s Office of Public and Indian 

Housing (PIH) for the imposition of 

penalties for delinquent reporting. This 

proposed rule would extend this policy 

to all covered recipients and inform 

recipients that continuing failure to 

submit Section 3 annual reports may 

result in HUD denying or withholding 

subsequent funds. 

Funding Threshold for Recipients of 

Section-3 Covered Housing and 

Community Development Financial 

Assistance. Another weakness with the 

current Section 3 regulations is found in 

the interpretation that has been given to 

the funding threshold for recipients of 

housing and community development 

assistance (i.e., funds allocated or 

awarded under the Community 

Development Block Grants (CDBG) 

program, HOME Investment 

Partnerships program (HOME program), 

Housing Opportunities for Persons With 

AIDS (HOPWA), Lead Hazard Control 

program, Sections 202 and 811 

Supportive Housing programs, ProjectBased Section 8, etc.). The existing 

threshold is based on the receipt of 

more than $200,000 in covered funding. 

This proposed rule would establish a 

new threshold that is based on the 

expenditure of covered financial 

assistance. 

Under this proposed rule, Section 3 

requirements would apply to recipients 

of housing and community development 

financial assistance that plan to obligate 

or commit an aggregate amount of 

$400,000 or more in Section 3 covered 

financial assistance to projects involving 

housing rehabilitation, housing 

construction, demolition, or other 

public construction during a given 

annual reporting period. HUD arrived at 

the $400,000 threshold after analyzing 

2013 data for recipients of CDBG 

assistance from the Integrated 

Disbursement and Information System 

(IDIS) to determine the expenditure 

dollar amounts on projects involving 

construction and rehabilitation that 

produced the greatest amount of 

economic opportunities for Section 3 

residents and businesses. The data 

revealed that grantees that spent less 

than $400,000 on construction and 

rehabilitation received less than 5 

percent of total covered program 

funding and therefore generated an 

insignificant amount of subsequent jobs 

and contracts. The proposed threshold 

would exempt 37 percent of recipients 

of financial assistance awarded under 

programs administered by HUD’s Office 

of Community Planning and 

Development (CPD) (i.e., CDBG, HOME, 

and HOWPA programs, etc.). Currently 

just over 3 percent of these recipients 

are exempt under the existing threshold. 

As set forth above, HUD considered a 

number of alternate thresholds before 

selecting the proposed threshold of 

$400,000. The new threshold is 

considered to be more effective because 

it would enable HUD to focus on those 

recipients that produce the majority of 

economic opportunities and for which 

there is a direct correlation between 

their expenditure of covered financial 

assistance and opportunities created for 

Section 3 residents and businesses. 

Order of Priority Consideration for 

Recipients of Section 3 covered Housing 

and Community Development 

Assistance. To promote long-term hiring 

and create training positions for Section 

3 residents, this proposed rule would 

give highest priority consideration for 

projects financed with housing and 

community development financial 

assistance to Section 3 businesses that 

will: (1) Retain a minimum of 75 

percent of previously hired Section 3 

residents and (2) provide a minimum of 

50 percent of on-the-job training or 

registered apprenticeship opportunities 

to Section 3 residents. 

Costs and Benefits 

With respect to the costs and benefits 

of this rule, HUD has prepared a 

Regulatory Impact Assessment (RIA). 

The RIA assesses the likely costs and 

benefits of the proposed rule. The 

purpose of Section 3 is to provide jobs, 

including apprenticeship opportunities, 

to public housing residents and other 

eligible low- and very low-income 

residents of a local area, and contracting 

opportunities for businesses that 

substantially employ these persons. 

However, the Section 3 requirement 

itself does not create additional jobs or 

contracts. Instead, Section 3 redirects 

local jobs and contracts created as a 

result of the expenditure of HUD funds 

to Section 3 residents and businesses 

residing and operating in the area in 

which the HUD funds are expended. A 

reasonable estimate of the impact would 

be an additional 1,400 jobs provided to 

Section 3 residents, annually, and more 

than $172 million in contracts to 

Section 3 businesses, as a result of 

increased oversight and clarification of 

program standards. In addition, with 

respect to incomes for tenants of public 

housing, the Federal rental subsidies 

provided to those tenants are expected 

to be reduced as a result of the creation 

of job opportunities resulting from the 

expenditure of Federal funds. Such a 

reduction of Federal subsidies could 

result in a reduction of $19 million, 

annually. 

If implemented as proposed, this 

proposed rule would result in a 

reporting and recordkeeping burden of 

226,640 hours or $7.3 million 4 the first 

year and a reduction of administrative 

burden by ¥10,000 hours or $320,000 

in succeeding years. This rule will not 

have any impact on the level of funding 

for covered HUD programs. Funding is 

determined independently by 

congressional appropriations, and 


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5See http://www.archives.gov/federal-register/

executive-orders/pdf/12866.pdf. 

6See http://portal.hud.gov/hudportal/HUD?src=/

program_offices/fair_housing_equal_opp/section3/

section3. 

7Source: 2010 Section 3 annual summary report 

data (Form HUD 60002). 

8See https://nhlp.org/files/09%20Section%203%

20Barriers%20and%20best%20practices%208%

2024%20d10%20Final%20with%20

attachment.pdf. 

9See: http://www.hudoig.gov/reportspublications/audit-reports/hud-did-not-enforcereporting-requirements-of-section-3-of. 

authorizing statutes that may impose 

such requirements as minimum or 

maximum grants. This proposed rule is 

not an economically significant rule as 

defined in Executive Order 12866 

(Regulatory Planning and Review).5

I. Background 

Section 3 of the Housing and Urban 

Development Act of 1968 (Pub. L. 90– 

448, approved August 1, 1968) (Section 

3) was enacted for the purpose of 

bringing economic opportunities, 

generated by the expenditure of certain 

HUD financial assistance, to the greatest 

extent feasible, to low- and very lowincome persons residing in 

communities where the financial 

assistance is expended. Section 3 

recognizes that HUD funds are often one 

of the largest sources of funds expended 

in low-income communities and, where 

such funds are spent on activities such 

as construction and rehabilitation of 

housing and other public facilities, the 

expenditure results in economic 

opportunities. By directing HUD-funded 

economic opportunities to residents and 

businesses in the community where the 

funds are expended, the expenditure 

can have the double benefit of creating 

new or rehabilitated housing and other 

facilities while creating jobs for the 

residents of these communities. Section 

3 was amended by the Housing and 

Community Development Act of 1992 

(Pub. L. 102–550, approved October 28, 

1992), which required the Secretary of 

HUD to promulgate regulations to 

implement Section 3, codified at 12 

U.S.C. 1701u. HUD’s Section 3 

regulations were promulgated through 

an interim rule published on June 30, 

1994, at 59 FR 33880, and the 

regulations are codified in 24 CFR part 

135. 

In the 20 years that have lapsed since 

HUD promulgated the current set of 

Section 3 regulations, significant 

legislation has been enacted that affects 

HUD programs that are subject to the 

requirements of Section 3 and that are 

not adequately addressed in the current 

Section 3 regulations. This legislation 

includes, but is not limited to the 

following: reforms made to HUD’s 

Indian housing programs by the Native 

American Housing Assistance and SelfDetermination Act of 1996 (NAHASDA) 

(Pub. L. 104–330, approved October 26, 

1996); public housing reforms made by 

the Quality Housing and Work 

Responsibility Act of 1998 (QHWRA) 

(Pub. L. 105–276, approved October 21, 

1998); reforms made to HUD’s 

supportive housing programs by the 

Section 202 Supportive Housing for the 

Elderly Act of 2010 (Pub. L. 111–372, 

approved January 4, 2011), and the 

Frank Melville Supportive Housing 

Investment Act of 2010 (Pub. L. 111– 

347, approved January 4, 2011), and, 

more recently, reforms made to HUD’s 

public housing by the Rental Assistance 

Demonstration program authorized by 

the act appropriating 2012 funding for 

HUD, the Consolidated and Further 

Continuing Appropriations Act, 2012 

(Pub. L. 112–55, approved November 

18, 2011). 

HUD has sought to strengthen 

compliance with Section 3 by 

concentrating on oversight, outreach, 

and technical assistance. As part of this 

assistance, HUD has issued guidance 

related to applicability, recipient 

thresholds, and administrative 

procedures.6 These steps increased 

recipient reporting from 20 percent to 

over 80 percent. The increase in 

reporting led to a corresponding 

increase in reported jobs for Section 3 

residents to 21,600 (50 percent of all 

new hires) and an increase in reported 

contracts awarded Section 3 businesses 

to $675 million.7

While these efforts have facilitated 

increased compliance with Section 3, 

they have not resulted in full 

compliance with Section 3, nor do such 

efforts relieve HUD of its good 

governance responsibility to update its 

Section 3 regulations, now 20 years old, 

to ensure that the regulations capture 

new funded programs and current 

funding policies and practices. 

In August 2010, HUD hosted a Section 

3 Listening Forum 8 that brought 

together recipients of HUD Section 3 

covered financial assistance, advocates, 

Section 3 residents and businesses, and 

other stakeholders to highlight ‘‘best 

practices’’ and to discuss barriers to 

implementation across the country. The 

forum offered recipients of Section 3 

covered financial assistance the 

opportunity to identify challenges they 

were facing with their efforts to comply 

with Section 3. Forum participants 

stated that the existing Section 3 

regulations are not sufficiently explicit 

about specific actions that could be 

undertaken to achieve compliance; that 

the existing regulations do not clearly 

describe the extent to which recipients 

may require subrecipients, contractors, 

and subcontractors to comply with 

Section 3; and actions that recipients 

may take to impose meaningful 

sanctions for noncompliance by their 

subrecipients, contractors, and 

subcontractors. 

As noted earlier, in 2013, HUD’s OIG 

conducted an audit to assess HUD’s 

oversight of Section 3, in response to 

concerns about economic opportunities 

that were provided (or should have been 

provided) by the expenditure of 

financial assistance under the American 

Reinvestment and Recovery Act 

(Recovery Act) (Pub. L. 111–5, approved 

February 17, 2009). The audit found that 

HUD was not fully enforcing the 

reporting requirements of Section 3 for 

recipients of Fiscal Year 2009 Recovery 

Act Public Housing Capital funds from 

HUD.9 HUD’s OIG made several 

recommendations to address its 

findings. The following chart lists HUD 

OIG’s recommendations for HUD and 

describes whether each 

recommendation is addressed by this 

proposed rule. 

Recommendation #: 

Recommendation Addressed in Proposed Rule 

1A. ............... Implement the new HUD–60002 [Section 3 Summary Report] 

submission and tracking system that has been in development, as well as the planned system enhancements.

This recommendation will provide FHEO the vehicle to impose 

the proposed sanctions for delinquent reporting described in 

§ 135.23(f) and to address concerns with the reliability of 

data previously submitted by recipients. 

1B. ............... Establish procedures to follow up on missing and inaccurate information on HUD–60002 submissions.See Recommendation 1C. 


asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
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Recommendation #: 

Recommendation Addressed in Proposed Rule 

1C. .............. Establish procedures regarding when to refer to Public and Indian Housing (PIH) any public housing authorities (PHAs) 

that fail to make required submissions or corrections.

FHEO has developed procedures for reviewing HUD–60002 

submissions and established the steps that will be taken to 

refer PHAs to PIH when Section 3 reports are inaccurate or 

delinquent. Pursuant to this proposed rule, FHEO will expand 

the implementation of these procedures to all recipients of 

Section 3 covered financial assistance and make subsequent 

referrals for appropriate action to all HUD program offices. 

1D. .............. Resolve issues with CPD and complete the process to publish 

final regulations for 24 CFR Part 135.

This regulatory action represents FHEO’s efforts to comply with 

this recommendation. 

1E. ............... Require the six housing authorities in this finding that reported 

Section 3 noncompliance to provide justification or support 

that they met the [minimum numerical] goals. If they cannot 

show compliance, enter into a voluntary compliance agreement to bring their Section 3 programs into compliance, or 

refer them to PIH for repayment of the $26 million that 

should have been used for Section 3.

FHEO has incorporated this recommendation into its enforcement actions at § 135.99 and the sanctions for noncompliance at § 135.27. 

For the reasons set forth above, 

through this rule, HUD proposes to 

revise its Section 3 regulations at 24 

CFR part 135 in a manner designed to 

better fulfill the goal of Section 3. 

II. This Proposed Rule 

In order to provide better parameters 

for achieving the goals of Section 3, this 

proposed rule: communicates how 

recipients may meet minimum 

numerical goals for employment and 

contracting opportunities; provides 

other direction to recipients of Section 

3 covered financial assistance and their 

contractors in order that they may more 

effectively comply with Section 3; vests 

more discretion and responsibility with 

recipients on how to verify the 

eligibility of Section 3 residents and 

businesses for employment and 

contracting opportunities; and 

articulates procedures for complaint 

processing. This rule organizes the 

regulations of 24 CFR part 135 into five 

subparts: Subpart A—General 

Provisions; Subpart B—Additional 

Provisions for Public Housing Financial 

Assistance; Subpart C—Additional 

Provisions for Housing and Community 

Development Financial Assistance; 

Subpart D—Additional Provisions for 

Recipients of Competitively Awarded 

Section 3 Financial Assistance; and 

Subpart E—Enforcement. 

General Provisions—Subpart A 

Subpart A—General Provisions 

contains those provisions applicable to 

all Section 3 covered financial 

assistance, whether public housing 

financial assistance, housing and 

community development financial 

assistance, or competitively awarded 

financial assistance, including the 

following: definitions of terms 

applicable to compliance with Section 3 

(§ 135.5); demonstration compliance 

with the ‘‘greatest extent feasible’’ 

requirement (§ 135.7); description of 

official Section 3 policies and 

procedures to be developed and 

implemented by recipients (§ 135.9); 

recipient responsibilities under Section 

3 (§ 135.11); a general description of 

minimum numerical goals for 

employment and contracting 

opportunities (§ 135.13); the procedures 

for verifying the eligibility of Section 3 

residents and Section 3 businesses 

(§ 135.15); descriptions of written 

agreements and contractors that must be 

entered into by the recipient and its 

subrecipients, contracts, or 

subcontractors before the disbursement 

of any Section 3 covered financial 

assistance (§ 135.17 and § 135.19); an 

overview of certifications of compliance 

with this part (§ 135.21); description of 

annual reporting requirements 

(§ 135.23); a summary of recordkeeping 

responsibilities and HUD’s authority to 

have access to records demonstrating 

compliance with this part (§ 135.25); an 

outline of sanctions that may be 

imposed for noncompliance with this 

part (§ 135.27); and communication of 

other Federal requirements that may 

apply during the administration of 

Section 3 covered projects and activities 

(§ 135.29). 

Section 135.3 of the existing 

regulations, which addresses the scope 

of applicability of the requirements of 

Section 3, would be removed by this 

proposed rule. The applicability of 

Section 3 would now be addressed by 

the following: (1) The definitions of 

‘‘housing and community development 

financial assistance’’ and ‘‘public 

housing financial assistance’’ in § 135.5; 

(2) the individual applicability sections 

for public housing financial assistance 

and housing and community 

development financial assistance, in 

§ 135.31 and § 135.51, respectively; and 

(3) the thresholds that trigger 

applicability of Section 3, which are 

addressed in § 135.33, and § 135.53. 

HUD believes that placing this 

information in the subparts associated 

with each type of Section 3 covered 

financial assistance will prevent 

recipients from inadvertently referring 

to the wrong requirements. 

Section 135.3 of the proposed rule 

describes the Secretary’s delegation of 

authority to the Assistant Secretary for 

Fair Housing and Equal Opportunity 

(FHEO) to implement and oversee 

compliance with the requirements of 

Section 3. This delegation of authority 

is unchanged from § 135.7 of the 

existing regulations. While FHEO has 

the overall authority for carrying out 

Section 3 obligations within HUD, 

monitoring and oversight takes place in 

coordination with various HUD program 

offices, such as PIH, CPD, Healthy 

Homes and Lead Hazard Control 

(HHLHC), Housing, etc. 

Section 135.5 of the proposed rule 

provides the definitions of terminology 

used throughout the regulation (as it is 

in the existing regulations), introduces 

new definitions, revises definitions 

contained in the existing regulations, 

and removes definitions that are no 

longer applicable. Some of the newly 

defined terms include: ‘‘construction,’’ 

‘‘contracting opportunities,’’ ‘‘numerical 

goals,’’ ‘‘priority consideration,’’ 

‘‘professional services,’’ ‘‘project-based 

rental assistance,’’ ‘‘public housing 

financial assistance,’’ ‘‘rehabilitation,’’ 

‘‘routine maintenance,’’ ‘‘service area,’’ 

and ‘‘Section 3 local area.’’ The terms 

‘‘housing and community development 

financial assistance,’’ ‘‘new hires,’’ 

‘‘Section 3 business (formerly Section 3 

business concern),’’ ‘‘Section 3 covered 

financial assistance,’’ and ‘‘Section 3 

resident’’ have been revised with the 

objective of improving the 


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understanding of their meanings. The 

following existing defined terms are 

proposed to be removed: ‘‘annual 

contributions contract,’’ ‘‘HUD 

YouthBuild programs,’’ ‘‘Job Training 

Partnership Act.’’ 

Section 135.7 of the proposed rule 

addresses how recipients may 

demonstrate compliance to the greatest 

extent feasible. The 1968 statute 

established two standards for achieving 

compliance with the requirements of 

Section 3. PHAs and their contractors 

and subcontractors were required to 

make their ‘‘best effort,’’ consistent with 

existing Federal, State, and local laws 

and regulations to provide economic 

opportunities to Section 3 residents and 

businesses. On the other hand, programs 

that receive housing and community 

development assistance are required to 

ensure that, to the greatest extent 

feasible, and consistent with existing 

Federal, State, and local laws and 

regulations, opportunities for training 

and employment arising in connection 

with housing rehabilitation, housing 

construction, or other public 

construction are given to Section 3 

residents and businesses. HUD’s 1994 

interim rule, published on June 30, 

1994, at 59 FR 33880, established HUD’s 

position that there is very little 

difference in the common meaning of 

these statutory standards. Further, the 

Section 3 statute requires every 

recipient and contractor that generates 

economic opportunities from the 

expenditure of Section 3 financial 

assistance, regardless of the HUD 

program from which the assistance is 

derived, to provide these economic 

opportunities to low- and very lowincome persons and the businesses that 

employ them. Accordingly, this rule 

maintains one standard for achieving 

compliance. Recipients, as defined in 

§ 135.5, are required, to the greatest 

extent feasible, to target low- and very 

low-income persons for employment 

and training opportunities funded with 

Section 3 financial assistance, and 

businesses that are either owned by or 

substantially employ such persons. 

Section 135.7 provides that while 

reaching the minimum numerical goals 

is one way to demonstrate compliance 

with the statute’s ‘‘greatest extent 

feasible’’ requirement, compliance to 

the greatest extent feasible is 

demonstrated by the recipient, first and 

foremost, establishing and 

implementing procedures and strategies 

by which the recipient and, where 

applicable, its subrecipients, contractors 

and subcontractors will comply with the 

requirements set forth in § 135.11. This 

section also provides that where a 

recipient is unable to reach the 

minimum numerical goals set forth in 

the subpart associated with the type of 

financial assistance provided, (§ 135.35 

and § 135.55, respectively) such 

inability does not necessarily mean that 

the recipient did not undertake efforts to 

meet these goals. Accordingly, a 

recipient that does not reach the 

minimum numerical goals will be 

required to provide a written 

justification explaining: (1) Why it was 

unable to meet these goals; (2) the 

impediments the recipient encountered; 

and (3) the actions the recipient will 

take to address identified impediments 

in the future. For instance, if a recipient 

held a job fair to hire Section 3 residents 

for jobs in specific building trades (e.g., 

plumbers, electricians, welders, etc.) for 

an upcoming construction project, HUD 

may consider the recipient to be in 

compliance with Section 3 even if none 

of the participants of the job fair had the 

requisite job qualifications for the 

positions to be filled. HUD will take 

such justifications into consideration 

when making final compliance 

determinations. Written justifications 

that do not contain a valid explanation 

for why the recipient did not reach the 

minimum numerical goal may result in 

a finding of noncompliance. 

Section 135.9 of the proposed rule 

presents a new means of strengthening 

Section 3 compliance. This section 

would require the recipient to develop 

and adopt official policies and 

procedures to implement the 

requirements of Section 3, as a means of 

demonstrating compliance with the 

‘‘greatest extent feasible’’ requirement, 

as provided in § 135.7. This section 

provides that official policies and 

procedures must include at a minimum, 

steps that the recipient will take to: 

inform subrecipients and contractors 

about Section 3 obligations; evaluate 

potential bidders for Section 3 

compliance during contract selection; 

notify Section 3 residents and 

businesses about economic 

opportunities; implement verification 

and/or certification procedures for 

residents and businesses; provide 

priority consideration to qualified 

Section 3 residents and businesses; 

monitor subrecipients and contractors 

for compliance; establish consequences 

for noncompliance; and utilize local 

community resources to meet its Section 

3 requirements. The preceding list 

presents the minimum steps that the 

recipients’ policies and procedures 

should address, but recipients should 

include in official policies and 

procedures any additional steps tailored 

to their funding practices and 

operations that would increase 

compliance with Section 3. Section 135. 

9 provides that updates to official 

policies and procedures shall discuss 

the relative success of the immediate 

past policies and procedures and how 

any changes are aimed to better promote 

compliance with Section 3. 

This section further requires that to 

the extent a recipient must prepare a 

strategic plan, action plan, or other such 

plan in accordance with HUD program 

regulations, such plans must include a 

general description of the recipient’s 

official Section 3 policies and 

procedures. This section provides that if 

a recipient is not required to submit 

official plans to HUD—such as public 

housing plans, strategic or annual action 

plans, or other similar plans—the 

recipient’s official Section 3 policies 

and procedures shall be developed as an 

independent document at the time that 

Section 3 covered financial assistance is 

awarded and updated every 5 years 

thereafter. 

Section 135.11 describes steps that all 

recipients must take to implement the 

requirements of Section 3, and describes 

steps that would be unique to recipients 

of public housing financial assistance 

and housing and community 

development financial assistance. 

Section 135.13 of the proposed rule 

addresses the minimum numerical 

goals, generally, and provides that the 

goals apply to the aggregate number of 

employment and contracting 

opportunities generated by the 

expenditure of the Section 3 covered 

financial assistance. Specific minimum 

numerical goals are set forth in the 

subpart associated with the type of 

financial assistance provided; i.e., 

§ 135.35 and § 135.55, respectively. This 

section removes the current requirement 

that 3 percent of the total dollar amount 

of nonconstruction contracts shall be 

awarded to Section 3 businesses since 

there was no statutory reason to make a 

distinction between construction and 

nonconstruction contracts. HUD 

believes that requiring recipients to 

award 10 percent of the total dollar 

amount of all covered contracts to 

Section 3 businesses regardless of the 

type or dollar amount of the contract 

will result in more potential contracting 

opportunities for Section 3 businesses. 

Section 135.11 of the proposed rule 

describes the responsibilities of the 

recipient for complying with the 

requirements of Section 3 and ensuring 

the compliance of their subrecipients, 

contractors, or subcontractors, who have 

the same responsibilities as the direct 

recipient. This section responds to 

requests that HUD more clearly identify 

specific actions that a recipient is to 

undertake to demonstrate compliance 


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with Section 3. These responsibilities 

reflect best practices that are being 

implemented by successful recipients, 

and will result in a reduction of an 

estimated 10,000 hours of 

administrative burden annually. The 

actions listed in this section would 

replace the list of examples of efforts 

that recipients may undertake to 

demonstrate compliance with Section 3, 

which are found in Appendix A to the 

existing regulations. 

As provided in § 135.11, the listed 

responsibilities apply to all recipients 

and have been expanded to ensure that: 

(1) Section 3 residents and businesses 

are notified about economic 

opportunities, (2) payroll data is 

monitored for new hires on projects that 

are subject to wage rates determined 

under the Davis Bacon Act (40 U.S.C. 

3141 et seq.), (3) labor unions are 

notified about Section 3 obligations, (4) 

existing collective bargaining or project 

labor agreements with labor unions are 

amended to acknowledge HUD and 

Section 3 obligations, (5) procedures are 

developed by public housing agencies to 

comply with the earned income 

disregard and resident-owned business 

provisions set forth at 24 CFR part 963, 

and (6) contractor selection procedures 

employ Section 3 compliance measures. 

Section 135.13 of the proposed rule 

addresses the minimum numerical 

goals, generally, and provides that the 

goals apply to the aggregate number of 

employment and contracting 

opportunities generated by the 

expenditure of the Section 3 covered 

financial assistance. Specific minimum 

numerical goals are set forth in the 

subparts associated with the type of 

financial assistance provided (§ 135.35 

and § 135.55). This section removes the 

current requirement that 3 percent of 

the total dollar amount of 

nonconstruction contracts shall be 

awarded to Section 3 businesses since 

there was no statutory reason to make a 

distinction between construction and 

nonconstruction contracts. As noted 

earlier in this preamble, HUD believes 

that requiring recipients to award 10 

percent of the total dollar amount of all 

covered contracts to Section 3 

businesses regardless of the type or 

dollar amount of the contract will result 

in more potential contracting 

opportunities for Section 3 businesses. 

Section 135.15 of the proposed rule 

would require a recipient to verify that 

residents and businesses seeking 

employment and contracting 

opportunities generated by the 

expenditure of Section 3 covered 

financial assistance are in fact Section 3 

residents and businesses as defined in 

§ 135.5. This section does not dictate the 

manner of verification of the eligibility 

of Section 3 residents and businesses, 

but instead allows the recipient to 

decide how verification should be 

undertaken. HUD is aware that verifying 

Section 3 eligibility for residents and 

businesses often requires recipients to 

review and maintain confidential and 

sensitive personal information. In order 

to address concerns that have emerged 

regarding the secure handling of 

confidential information, this section of 

the proposed rule provides that a 

recipient may allow residents and 

businesses to self-certify their eligibility, 

and to presume that residents or 

businesses that are located in, or 

provide economic opportunities to 

persons that reside in a neighborhood, 

census tract, or area designated by HUD 

are eligible to receive Section 3 priority 

consideration absent evidence to the 

contrary. Both of these practices may be 

used if the recipient conducts 

procedures to verify that a sample of 

self-certified or Section 3 presumed 

benefit residents and businesses meet 

one of the regulatory definitions. 

Descriptions of procedures for verifying 

a sample of self-certified or Section 3 

presumed benefit residents and 

businesses will be provided in guidance 

materials after the publication of the 

final rule. This guidance will assist 

recipients with determining sample 

size, selecting self-certified beneficiaries 

for verification, identifying the type of 

evidence that may be requested, and 

steps that may be taken in the event that 

false certifications are discovered. 

Section 135.17 of the proposed rule 

stipulates that a written agreement must 

be executed by the recipient and any of 

its subrecipients, contractors, or 

subcontractors before the recipient 

disburses any Section 3 covered 

financial assistance to them. The 

purpose of this section is to both 

emphasize the responsibilities that 

subrecipients, contractors, and 

subcontractors have in complying with 

Section 3 and to assist the recipient in 

ensuring the compliance of these 

entities. 

Section 135.19 of the proposed rule 

contains provisions to be included in 

contracts with developers, contractors, 

and subcontractors and the Section 3 

clause language that is currently found 

in § 135.38 of the existing regulations. 

Section 135.21 of the proposed rule 

addresses certifications of compliance. 

This section would require a recipient 

to annually submit to HUD a 

certification documenting compliance 

with Section 3, including the 

compliance of any subrecipients, 

contractors, or subcontractors. This 

section provides that, where applicable, 

certifications may be submitted as part 

of a submission of annual strategic 

plans, consolidated plans, or public 

housing plans, or as part of a 

submission of an application for a 

competitively awarded grant, 

cooperative agreement, or other 

submissions. 

Sections 135.23 and 135.25 of the 

proposed rule contain reporting and 

recordkeeping requirements, now found 

in § 135.90 and § 135.92 of the existing 

regulations. Section 135.23 continues to 

require the submission of Section 3 

annual reports, and clarifies that, going 

forward, the time frame applicable for 

Section 3 reports should coincide with 

the recipient’s local program or fiscal 

year. If the recipient does not have a 

local program or fiscal year, the Section 

3 report shall follow the federal fiscal 

year (i.e., October 1 through September 

30). Since the timely submission of 

Section 3 reports continues to be an 

issue, the proposed rule would provide 

procedures for HUD to sanction 

recipients for delinquent or missing 

reports. Any sanction imposed would be 

in accordance with the requirements of 

the Section 3 regulations or a notice of 

funding availability (NOFA) governing 

the program under which the Section 3 

covered financial assistance is provided. 

Section 135.23 of the proposed rule also 

specifically requires a State or county 

recipient to submit to HUD an annual 

report regarding compliance with 

Section 3 in its own operations and in 

those of its subrecipients, contractors, 

and subcontractors. Section 135.25 of 

the proposed rule contains the 

requirement in existing § 135.92 that 

HUD shall have access to records, 

reports, and other documents recipients 

maintain to demonstrate compliance 

with Section 3, and it adds examples of 

such records. 

Section 135.27 of the proposed rule 

describes sanctions for noncompliance 

with the requirements of Section 3, and 

provides that these sanctions may 

include requiring additional 

certifications or assurances of 

compliance; repayment of Section 3 

covered financial assistance; 

ineligibility for future HUD financial 

assistance; withholding HUD financial 

assistance; or suspension, debarment, or 

limited denial of participation in HUD 

programs pursuant to 2 CFR part 2424, 

where appropriate. 

Section 135.29 of the proposed rule 

clarifies that neither the Section 3 

statute nor the Section 3 regulations 

supersede the employment and wage 

provisions of the Davis-Bacon Act or 

requirements of bona fide Federal or 

State apprentice or training programs. 


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Additional Provisions for Public 

Housing Financial Assistance—Subpart 

B 

Subpart B addresses demonstration of 

compliance that would be unique to 

recipients of public housing financial 

assistance or PHAs. 

Section 135.31 of the proposed rule 

provides that PHAs that receive public 

housing financial assistance, as defined 

in § 135.5, are subject to the provisions 

in subpart B in addition to those in 

subpart A. This section also provides 

that the requirements in subpart B apply 

to all new internal and external 

employment and training opportunities 

resulting from the expenditure of public 

housing financial assistance (i.e., those 

within the PHA and with its 

subrecipients, contractors, or 

subcontractors). Further, this section 

clarifies that the requirements of Section 

3 apply to the entire project or activity 

that is funded with public housing 

financial assistance regardless of 

whether the activity is fully- or 

partially-funded with Section 3 covered 

financial assistance. 

Section 135.33 of the proposed rule 

would continue to maintain HUD’s 

position that a monetary or unit 

threshold in public and Indian housing 

programs is not consistent with the 

Section 3 statute. Section 3 applies to 

public and Indian housing operating 

assistance, development assistance and 

modernization assistance, which covers 

virtually all PHA projects and activities. 

Additionally, the Section 3 statute is 

very specific about the residents and 

businesses to which PHAs and their 

contractors and subcontractors must 

give preference. These residents and 

businesses are tied to the housing 

development for which the assistance is 

expended, or another development 

managed by the PHA. HUD believes that 

the statute’s expansive coverage of 

public and Indian housing projects and 

activities indicates that any attempt to 

diminish the coverage would be 

inconsistent with the statute. 

Notwithstanding, HUD will make efforts 

to implement measures to reduce 

administrative burden for PHAs whose 

expenditure of covered financial 

assistance did not trigger Section 3 

obligations, but who still are required to 

submit annual reports, by only requiring 

the submission of an electronic 

certification. 

Section 135.35 would maintain the 

minimum numerical hiring goals for 

public housing financial assistance. 

PHAs, as well as any subrecipients, 

contractors, or subcontractors, would be 

required to employ, to the greatest 

extent feasible, Section 3 residents as 30 

percent of new hires, both within the 

agency and with its contractors. HUD 

chose to maintain this minimum 

numerical goal even though a review of 

recent national aggregated data 

indicated that recipients are exceeding 

the employment goal by 10 to 20 

percentage points. HUD OIG’s 2013 

Section 3 Audit report advises that 

concerns exist regarding the reliability 

and accuracy of the data previously 

submitted into the Section 3 Summary 

Reporting System. In light of such 

information, HUD is not changing at this 

time the current minimum numerical 

goals based on the previously reported 

data. The reliability of subsequent data 

submitted will be addressed when HUD 

implements its new Section 3 Summary 

Reporting System in FY 2015. 

The rule would establish that for a 

Section 3 resident to be considered a 

new hire by a contractor or 

subcontractor, the Section 3 resident 

must work, during the resident’s 

employment with a contractor or 

subcontractor, a minimum of 50 percent 

of the average staff hours worked for the 

category of work for which they were 

hired throughout the duration of time 

that the category of work is performed 

on the covered project. For instance, if 

electricians employed on a particular 

Section 3 covered project work an 

average of 40 hours each week, Section 

3 new hires in this category must work 

a minimum of 20 hours each week 

throughout the duration of time that the 

category of work is performed on the 

covered project to be counted towards 

the recipient’s minimum numerical goal 

for employment. 

Section 135.35 would also establish 

the minimum numerical contracting 

goals for public housing financial 

assistance. Under this section, PHAs, as 

well as any subrecipients, contractors, 

or subcontractors, would be required to 

award, to the greatest extent feasible, at 

least 10 percent of the total dollar 

amount of all subsequent contracting or 

subcontracting opportunities to Section 

3 businesses. This proposed rule would 

remove the current 3 percent minimum 

numerical goal for contracts that do not 

involve construction or rehabilitation. 

Instead, this proposed rule seeks to 

ensure that 10 percent of the total dollar 

amount of all covered contracts 

(including contracts for professional 

services) will be awarded to Section 3 

businesses. Since there is no statutory 

basis for making a distinction between 

construction and nonconstruction 

contracts, and the interpretation of the 

nonconstruction goal has been 

problematic for recipients, HUD 

believes that requiring recipients to 

award 10 percent of the total dollar 

amount of all covered contracts to 

Section 3 businesses regardless of the 

type is easier to administer and will 

result in more opportunities for Section 

3 residents and businesses. In 

establishing this minimum numerical 

goal, HUD reviewed aggregated data 

submitted by recipients, which 

indicated that only 13.3 percent of 

recipients are meeting both of the 

current minimum numerical goals for 

contracting. However, 17.4 percent of 

recipients would meet the proposed 

numerical goal for all covered contracts. 

HUD is not changing the minimum 

numerical contracting goal for the same 

reasons that HUD is not changing the 

minimum numerical hiring goal. 

Section 135.37 of the proposed rule 

would revise the priority consideration 

given when hiring Section 3 residents 

and in awarding contracts to Section 3 

businesses. The proposed rule provides 

that PHAs must give priority 

consideration to a Section 3 resident or 

business when equally qualified for the 

work under consideration. Priority 

consideration may be given to Section 3 

residents or businesses when they are 

minimally qualified. 

Additional Provisions for Housing and 

Community Development Financial 

Assistance—Subpart C 

Section 135.51 of the proposed rule 

provides that recipients of housing and 

community development assistance, as 

defined in § 135.5, are subject to the 

provisions in subpart C in addition to 

those in subpart A. Section 135.51 of the 

proposed rule addresses the 

applicability of Section 3 to housing and 

community development financial 

assistance. This section provides that 

Section 3 only applies to economic 

opportunities that arise from the 

expenditure of housing and community 

development financial assistance 

involving the demolition, rehabilitation, 

or construction of housing, public 

buildings, facilities, infrastructure, or 

other public construction or 

rehabilitation-related projects and 

activities. While HUD always 

considered demolition projects to be a 

part of rehabilitation activities, this 

proposed rule makes the applicability of 

Section 3 to demolition explicit. This 

section also clarifies that professional 

service contracts are subject to the 

requirements of this part, provided that 

the work to be performed arises in 

connection with a Section 3 covered 

project (i.e., housing rehabilitation, 

housing construction, or other public 

construction project). 

Consistent with the Section 3 statute, 

§ 135.51 exempts housing and 

community development financial 


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assistance that is used for acquisition, 

routine maintenance, operations, 

administrative costs, and project rental 

assistance contracts (PRAC) from 

compliance with Section 3 because 

these are not considered construction or 

rehabilitation activities. This section 

also exempts Indian tribes and tribally 

designated housing entities from 

complying with Section 3 requirements 

if the Indian tribe has adopted, and is 

complying with, tribal employment and 

contract preference laws (including 

regulations and tribal ordinances) in 

accordance with section 101(k) of the 

Native American Housing Assistance 

and Self-Determination Act 

(NAHASDA) and 24 CFR 1000.42. This 

section also exempts Indian tribes and 

other tribal entities from Section 3 

requirements if they are subject to 

Indian preference requirements under 

section 7(b) of the Indian SelfDetermination and Education 

Assistance Act. HUD recognizes that 

both tribal preference and Indian 

preference requirements already often 

require Indian tribes, tribally designated 

housing entities, and other tribal 

entities, to apply local preferences in 

employment and contracting in projects 

receiving assistance under NAHASDA 

and other grant programs for the benefit 

of Indians, such as the Indian CDBG 

program. This exemption reduces 

administrative burden for tribal grantees 

that have expressed concerns to HUD 

about the difficulty of complying with 

Section 3 requirements while also 

complying with Indian and tribal 

preference requirements. 

Section 135.53 of the proposed rule 

replaces the current threshold for 

recipients that administer housing and 

community development assistance. 

HUD has reassessed the policy behind 

the existing threshold and has decided 

to propose a new threshold requirement 

that is based on the total expenditures 

(rather than receipt or per-project). This 

change recognizes that it is the 

expenditure of covered financial 

assistance (not the receipt) that 

produces economic opportunities for 

Section 3 residents and businesses. 

Under this proposal, the threshold 

would be based on the aggregate 

expenditure of $400,000 of housing and 

community development financial 

assistance on construction related 

activities. In the section of this preamble 

entitled ‘‘Summary of Major Provisions 

of this Regulatory Action,’’ HUD 

described in detail the basis for 

selection of the $400,000 threshold. 

Section 135.55 of the proposed rule 

establishes the minimum numerical 

hiring goals that recipients of housing 

and community development financial 

assistance must meet to demonstrate 

compliance, to the greatest extent 

feasible, with the Section 3 statute and 

Section 3 regulations. Similar to the 

numerical goals established for public 

housing financial assistance, this 

section provides that recipients of 

housing and community development 

financial assistance must, to the greatest 

extent feasible, have its contractors and 

subcontractors employ Section 3 

residents as 30 percent of direct new 

hires. This section also provides, similar 

to § 135.35, that in order for a Section 

3 resident to be considered a new hire 

by contractors and subcontractors, the 

Section 3 resident must work, during 

the resident’s employment with a 

contractor or subcontractor, a minimum 

of 50 percent of the average staff hours 

worked for the category of work for 

which they were hired, throughout the 

duration of time that the category of 

work is performed on the covered 

project. For instance, if brick masons 

employed on a particular Section 3 

covered project work an average of 40 

hours each week, Section 3 new hires in 

this category must work a minimum of 

20 hours each week to be counted 

towards the recipient’s minimum 

numerical goal for employment. 

With respect to contracting 

opportunities, this section provides that 

recipients of housing and community 

development financial assistance, as 

well as their subrecipients, contractors, 

and subcontractors, must, to the greatest 

extent feasible, award at least 10 percent 

of the total dollar amount of all 

contracts to Section 3 businesses, 

similar to § 135.35. This proposed rule 

removes the requirement that 3 percent 

of the total dollar amount of 

nonconstruction contracts will be 

awarded to Section 3 businesses in an 

attempt to reduce administrative 

burden. Instead, this proposed rule 

seeks to ensure that 10 percent of the 

total dollar amount of all covered 

contracts (including contracts for 

professional services) will be awarded 

to Section 3 businesses. HUD makes this 

change in § 135.55 for the same reasons 

presented for the identical change in 

§ 135.35. 

Section 135.57 of the proposed rule 

establishes the orders of priority 

consideration for employment and 

contracting opportunities for housing 

and community development financial 

assistance and adds additional 

categories for priority consideration for 

businesses that promote job retention 

and training opportunities. 

Additional Provisions for Recipients of 

HUD Competitive Grant Financial 

Assistance—Subpart D 

Subpart D of this proposed rule, 

clarifies the scope of applicability of 

Section 3 to HUD NOFAs. This section 

would replace the existing regulatory 

section, § 135.9. 

As provided in proposed new 

§ 135.71, Section 3 applies to 

competitively awarded (1) public 

housing financial assistance, and (2) 

housing and community development 

financial assistance that is anticipated to 

generate significant economic 

opportunities. 

Section 135.73 provides that each 

NOFA that is subject to the 

requirements of Section 3 shall describe 

the selection criteria and points to be 

awarded. 

Section 135.75 requires recipients of 

competitive Section 3 covered financial 

assistance to sign assurances of 

compliance with Section 3, and 

provides that applicants that are 

awarded competitive funds will be 

monitored on their compliance with 

Section 3, and their progress in carrying 

out the strategies described in the 

narrative statements submitted with 

their application package. Section 

135.77, prohibits any recipient with 

outstanding findings of noncompliance 

with Section 3 from receiving additional 

competitively awarded financial 

assistance. 

Enforcement—Subpart E 

Subpart E of this proposed rule 

contains the complaint and compliance 

review provisions currently found in 

subpart D of the existing part 135 

regulations. This subpart also clarifies 

that voluntary compliance agreements 

that are drafted to address findings of 

noncompliance shall seek to protect the 

public interest, provide denied 

economic opportunities to Section 3 

residents and businesses, and may 

include the provision of damages and 

other relief for those injured by the 

recipient’s noncompliance. 

III. Specific Questions for Comment 

While HUD welcomes comments on 

all aspects of this proposed rule, HUD 

specifically requests comments on the 

following: 

1. To address a loophole in the 

current regulation that does not limit 

jobs, training, and contracting 

opportunities to Section 3 residents 

residing and Section 3 businesses 

located within the proximity of the 

covered project or activity, this 

proposed rule introduces a new term 

‘‘Section 3 local area’’ to clarify that in 


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order for Section 3 residents and 

businesses to receive priority 

consideration they must be residing or 

located within the metropolitan area or 

nonmetropolitan county where the 

Section 3 covered financial assistance is 

expended. HUD seeks comment on 

whether this clarification may adversely 

impact Section 3 residents and 

businesses located in neighboring 

jurisdictions, particularly when no 

Section 3 businesses are located in the 

Section 3 local area, and in rural 

communities where Section 3 residents 

in adjacent counties may be the most 

qualified job applicant. See § 135.5. 

2. The proposed rule revises the 

definition of a Section 3 business to 

remove the third category of the existing 

definition, which refers to businesses 

that can provide evidence of a 

commitment to subcontract in excess of 

25 percent of the dollar award of all 

subcontracts to other Section 3 

businesses. This revision is made in 

response to complaints that the 

commitment presented an easy loophole 

for some businesses, and did not equate 

to a legal obligation. HUD solicits 

comment on the removal of this third 

category. See § 135.5. 

3. The proposed rule seeks to provide 

incentives to contractors that retain 

Section 3 residents who were hired to 

work on previous projects, and to 

provide apprenticeship opportunities to 

Section 3 residents by adding two new 

categories to the orders of priority 

consideration for projects that are 

financed with housing and community 

development assistance at § 135.57. 

HUD solicits comment on the proposed 

orders of priority consideration. 

4. For the reasons presented in the 

preamble, HUD is maintaining the 

existing minimum numerical goals for 

employment and construction contracts. 

HUD seeks comments on whether other 

proposed minimum numerical goals for 

employment and contracting would be 

more appropriate. 

5. The proposed rule would replace 

the 3 percent minimum goal for the total 

dollar amount of all building trades and 

professional service contracts associated 

with construction (formerly referred to, 

respectively, as construction and 

nonconstruction contracts) with a goal 

of 10 percent. HUD seeks comment on 

whether the proposed goal that applies 

to building trades and professional 

services would result in any unintended 

consequences. See § 135.37 and 

§ 135.57. 

6. For the reasons presented in this 

preamble, under the ‘‘Summary of the 

Major Provisions of this Regulatory 

Action,’’ the proposed rule would 

change the threshold for recipients of 

housing and community development 

financial assistance to cover recipients 

that plan to obligate or commit $400,000 

or more of annual expenditures of 

covered funds on construction or 

construction related projects. As 

discussed, the current threshold is 

based on the receipt of covered funds, 

not its expenditure. HUD believes that 

the expenditure of funds is a better 

indicator of the type and amount of 

economic opportunities that HUD funds 

create. The proposed threshold applies 

Section 3 to all construction and 

construction related projects (regardless 

of the dollar amount invested into 

individual projects) if a grantee plans to 

spend $400,000, or more, of covered 

HUD funding during the reporting 

period. HUD seeks comment on whether 

an alternate threshold would be more 

appropriate or equally effective to the 

proposed $400,000 threshold. In the 

table below, HUD sets out alternative 

expenditure thresholds and the 

percentage of funding that would be 

covered. While HUD believes that the 

proposed expenditure threshold of 

$400,000 is the appropriate threshold 

and would best enable the Department 

to focus on those recipients that 

produce the majority of economic 

opportunities, HUD would consider a 

different threshold but no lower than 

$400,000. HUD would consider a high 

threshold but no higher than $1 million. 

Although the $1 million threshold 

would capture almost 85 percent of the 

funding, which HUD finds reasonable 

and acceptable, HUD believes the 

$400,000 threshold, which would cover 

more than 95 percent of the funding, 10 

percentage points higher than a $1 

million threshold, presents the better 

approach, but HUD welcomes comment 

on the thresholds. 

Expenditure level $250K $300K $400K $500K $750 $1M 

Agencies Below ....................................... 265 329 440 542 703 816 

% of those below ..................................... 22.3% 27.7% 37.0% 45.6% 59.1% 68.6% 

Agencies Above ....................................... 924 860 749 647 486 373 

% of those above ..................................... 77.7% 72.3% 63.0% 54.4% 40.9% 31.4% 

% change # of agencies .......................... 4.2% 5.4% 9.3% 8.6% 13.5% 9.5% 

% of covered funding ............................... 98.3% 97.5% 95.7% 93.6% 89.0% 84.4% 

Threshold level Expenditure excluded Agencies excluded % Covered 

$250K+ .............................................................................. $35,622,322.04 265 98.3 

$300K+ .............................................................................. 53,260,584.53 329 97.5 

$400K+ .............................................................................. 91,850,709.06 440 95.7 

$500K+ .............................................................................. 137,962,427.28 542 93.6 

$750K+ .............................................................................. 237,242,870.83 703 89.0 

$1M+ .................................................................................. 335,799,935.66 816 84.4 

7. In order for a Section 3 resident to 

be counted as a new hire, the proposed 

rule would require a resident to work, 

during employment as a new hire, a 

minimum of 50 percent of the average 

staff hours worked for the job category 

for which the resident was hired, 

throughout the duration of time that the 

category of work is performed on the 

covered project. HUD seeks comment on 

whether this proposed change 

effectively addresses concerns that were 

raised about contractors that hired 

Section 3 residents for short time frames 

for purposes of circumventing 

meaningful compliance with Section 3. 

See § 135.35 and § 135.55. 

8. HUD seeks comment on the specific 

challenges for State CDBG grantees with 

meeting Section 3 goals and how HUD 

can assist in addressing these challenges 

in this proposed rule. 

9. HUD solicits comments from Indian 

tribes, tribally designated housing 

entities, and other tribal entities on its 

proposal to exempt them from Section 

3 compliance when they adopt, and are 

complying with, tribal employment and 

contract preference laws (including 

regulations and tribal ordinances) in 


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10Average total compensation of all workers, 

BLS, March 2014. See http://www.bls.gov/

news.release/ecec.t01.htm. 

accordance with section 101(k) of 

NAHASDA (25 U.S.C. 4111(k)), or are 

subject to Indian preference 

requirements under section 7(b) of the 

Indian Self-Determination and 

Education Assistance Act. See 

§ 135.519(b)(3). 

10. HUD seeks comment on ways that 

recipients can demonstrate compliance 

with Section 3 in communities that are 

governed by agreements that prohibit 

work by non-labor union workers. 

11. HUD seeks comment on 

requirements or goals that should apply 

to contractors whose expenditure of 

covered financial assistance will only 

enable them to sustain their current 

workforce and will not result in new 

employment, training, or subcontracting 

opportunities. 

12. HUD solicits comment on goals or 

strategies for training opportunities that 

the proposed rule should address. 

13. HUD seeks comment on whether 

the proposal to require recipients to 

incorporate compliance with Section 3 

into procurement procedures for 

responsive and responsible bidders 

creates an undue burden on recipients? 

See § 135.37(a)(3), § 135.57(a)(4), and 

§ 135.11(b)(9). 

14. In 2012, HUD implemented a 

Section 3 Business Registry Pilot 

Program in five metropolitan areas as a 

potential resource to help recipients 

meet, or exceed, the minimum 

numerical goals for contracting and 

reduce administrative burden in 

identifying section 3 businesses. Under 

the pilot program, businesses that met 

one of the definitions of a ‘‘Section 3 

Business’’ self-certified their status with 

HUD, and were placed into a database 

to be used by recipients, developers, 

contractors, and others to notify these 

businesses about the availability of 

Section 3 contracting opportunities. See 

www.hud.gov/sec3biz. In 2014, HUD 

expanded the Section 3 Business 

Registry nationally. HUD seeks 

comments about this registry and ways 

that HUD should incorporate its usage 

into the Section 3 requirements. 

IV. Findings and Certifications 

Regulatory Review—Executive Orders 

12866 and 13563 

Under Executive Order 12866 

(Regulatory Planning and Review), a 

determination must be made whether a 

regulatory action is significant and, 

therefore, subject to review by the Office 

of Management and Budget (OMB) in 

accordance with the requirements of the 

order. Executive Order 13563 

(Improving Regulations and Regulatory 

Review) directs executive agencies to 

analyze regulations that are ‘‘outmoded, 

ineffective, insufficient, or excessively 

burdensome, and to modify, streamline, 

expand, or repeal them in accordance 

with what has been learned. Executive 

Order 13563 also directs that, where 

relevant, feasible, and consistent with 

regulatory objectives, and to the extent 

permitted by law, agencies are to 

identify and consider regulatory 

approaches that reduce burdens and 

maintain flexibility and freedom of 

choice for the public. 

This rule was determined to be a 

‘‘significant regulatory action’’ as 

defined in Section 3(f) of the order 

(although not an economically 

significant regulatory action under the 

order). Consistent with Executive Order 

13563, this rule revises the existing part 

135 regulations that have not been 

revised or updated since 1994, with the 

intention to make them less 

burdensome, and more effective and, 

therefore, help to contribute to job 

creation for low-income persons. As 

noted earlier in this preamble, HUD has 

prepared an initial RIA that addresses 

the costs and benefits of the proposed 

rule. HUD’s RIA is part of the docket file 

for this rule. 

The docket file is available for public 

inspection in the Regulations Division, 

Office of the General Counsel, Room 

10276, 451 7th Street SW., Washington, 

DC 20410–0500. Due to security 

measures at the HUD Headquarters 

building, please schedule an 

appointment to review the docket file by 

calling the Regulations Division at 202– 

402–3055 (this is not a toll-free 

number). Individuals with speech or 

hearing impairments may access this 

number via TTY by calling the Federal 

Relay Service at toll-free 800–877–8339. 

Environmental Impact 

This proposed rule is a policy 

document that sets out regulatory 

requirements and standards for 

complying with Section 3 of the 

Housing and Urban Development Act of 

1968 (12 U.S.C. 1701u). Accordingly, 

under 24 CFR 50.19(c)(3), this proposed 

rule is categorically excluded from 

environmental review under the 

National Environmental Policy Act of 

1969 (42 U.S.C. 4321 et seq.). 

Unfunded Mandates Reform Act 

The Unfunded Mandates Reform Act 

of 1995 (2 U.S.C. 1531–1538) (UMRA) 

establishes requirements for Federal 

agencies to assess the effects of their 

regulatory actions on State, local, and 

tribal governments and on the private 

sector. This proposed rule does not 

impose a Federal mandate on any state, 

local, or tribal government, or on the 

private sector, within the meaning of 

UMRA. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) generally requires an 

agency to conduct a regulatory 

flexibility analysis of any rule subject to 

notice and comment rulemaking 

requirements, unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. As has been 

discussed in this preamble, this rule 

proposes to update HUD’s Section 3 

regulations in 24 CFR part 135, for 

which the objective is to increase 

employment opportunities for lowincome persons and businesses that are 

owned by or employ such persons, by 

requiring that they be considered for 

employment, including training 

positions, and contracting opportunities 

that are generated by the expenditure of 

certain HUD financial assistance. These 

entities generally are small and 

therefore strengthening the 

requirements of Section 3 should benefit 

small businesses that are Section 3 

businesses. 

As more fully discussed in the 

accompanying RIA, the number of 

economic opportunities generated for 

Section 3 residents and businesses will 

not increase to the degree that this rule 

would have a significant economic 

impact on a substantial number of small 

entities. In addition, for those small 

entities that are recipients of Section 3 

covered financial assistance and must 

comply with this proposed rule, the 

changes made by this proposed rule are 

designed to reduce burden on them, as 

well as all recipients. For these reasons, 

HUD has determined that this rule 

would not have a significant economic 

impact on a substantial number of small 

entities. In fact, streamlined procedures 

in the proposed rule and HUD’s recent 

implementation of a national Section 3 

Business Registry will reduce the 

current administrative burden for 

grantees by a net ¥10,000 hours or 

$320,000 annually.10

Notwithstanding HUD’s 

determination that this rule will not 

have a significant effect on a substantial 

number of small entities, HUD 

specifically invites comments regarding 

any less burdensome alternatives to this 

rule that will meet HUD’s objectives as 

described in this preamble. 


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11 Due to the recent expansion of the national 

Section 3 Business Registry, HUD estimates a 

decrease in the original 80 hours that it estimated 

for this activity. As such, administrative burden for 

covered recipients is reduced. 

12See footnote 1. 

13See footnote 11. 

Executive Order 13132, Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either: (1) 

Imposes substantial direct compliance 

costs on State and local governments 

and is not required by statute, or (2) 

preempts State law, unless the agency 

meets the consultation and funding 

requirements of Section 6 of the 

Executive Order. This proposed rule 

does not have federalism implications 

and does not impose substantial direct 

compliance costs on State and local 

governments nor preempt state law 

within the meaning of the Executive 

Order. 

Paperwork Reduction Act 

The information collection 

requirements contained in this proposed 

rule have been submitted to OMB under 

the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520). In accordance 

with the Paperwork Reduction Act, an 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless the 

collection displays a currently valid 

OMB control number. HUD anticipates 

only marginal additional impact of this 

rule on document preparation time. 

Recipients are required already to 

provide HUD with reports documenting 

Section 3 activities under the existing 

interim regulations. The additional time 

to submit the new proposed information 

required by the rule is minimal. The 

burden of information collection in this 

proposed rule is estimated as follows: 

REPORTING AND RECORDKEEPING BURDEN EXISTING REGULATION VERSUS THIS PROPOSED RULE

Section reference in proposed rule Number of 

parties 

Number of 

responses per 

respondent 

Estimated 

average time 

for 

requirement 

(in hours) 

Existing regulation 

(hours) 

Proposed rule 

(hours) 

Total 

estimated 

annual burden 

One-time 

burden not 

reoccurring 

annually 

(in hours) 

Incremental 

burden 

One-time 

burden—not 

reoccurring 

annually 

Section 3 resident and business verification 

(§ 135.15) ................................................... 2,000 1 80 160,000 0 11¥80,000 0 

Maintain lists of eligible Section 3 residents 

and businesses (§ 135.11) ........................ 2,000 2 40 160,000 0 12¥80,000 0 

Notify Section 3 residents and businesses 

about the availability of economic opportunities (§ 135.11) ......................................... 2,000 2 20 80,000 0 13¥20,000 0 

Post signs or notices at job sites (§ 135.11) 2,000 10 1 20,000 0 0 0 

Ensure that bid solicitations acknowledge 

Section 3 obligations (§ 135.11) ................ 2,000 1 0.5 0 1,000 0 0 

Monitor the payroll data of developers and 

contractors (§ 135.11) ................................ 2,000 1 40 N/A N/A 80,000 0 

Incorporate Section 3 factors into contractor 

selection procedures (§ 135.11) ................ 2,000 1 40 N/A N/A 0 80,000 

Amend and renegotiate existing collective 

bargaining agreements, PLAs, etc., as appropriate (§ 135.11) ................................... 500 1 40 N/A N/A 0 20,000 

Coordinate with DOL, Youth Build, etc. 

(§ 135.11) ................................................... 1,000 1 40 N/A N/A 40,000 0 

Draft written subrecipient agreements 

(§ 135.17) ................................................... 1,110 1 24 N/A N/A 0 26,640 

Include the Section 3 Clause in covered 

contracts (§ 135.19) ................................... 2,000 1 0.5 1,000 0 0 0 

Develop official Section 3 policies and procedures (§ 135.9) ....................................... 5,000 1 40 0 200,000 0 100,000 

Annual Certifications of compliance 

(§ 135.21) ................................................... 5,000 1 0.5 2,500 0 0 0 

Provide priority consideration to Section 3 

residents and businesses (§ 135.37 and 

§ 135.57) .................................................... 1,000 2 10 20,000 0 0 0 

NOFA certification of compliance 

(§ 135.71(d)) .............................................. 500 1 0.5 250 0 0 0 

Reporting requirements (§ 135.23) ............... 5,000 5 10 250,000 0 0 0 

Recordkeeping requirements (§ 135.25) ....... 5,000 1 40 200,000 0 50,000 0 

Complaint investigations (§ 135.95 and 

(§ 135.97) ................................................... 30 1 80 2,400 0 0 0 

Right to review letter of findings (§ 135.99(c) 5 1 8 40 0 0 0 

Total Burden .......................................... ........................ ........................ ........................ 896,190 201,000 ¥10,000 226,640 

In accordance with 5 CFR 

1320.8(d)(1), HUD is soliciting 

comments from members of the public 

and affected agencies concerning the 

information collection requirements in 

the proposed rule regarding: 

(1) Whether the proposed collection 

of information is necessary for the 

proper performance of the functions of 

the agency, including whether the 

information will have practical utility; 

(2) The accuracy of the agency’s 

estimate of the burden of the proposed 

collection of information; 

(3) Whether the proposed collection 

of information enhances the quality, 

utility, and clarity of the information to 

be collected; and 

(4) Whether the proposed information 

collection minimizes the burden of the 

collection of information on those who 

are to respond; including through the 

use of appropriate automated collection 

techniques or other forms of information 

technology (e.g., permitting electronic 

submission of responses). 

Interested persons are invited to 

submit comments regarding the 


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information collection requirements in 

this rule. Under the provisions of 5 CFR 

part 1320, OMB is required to make a 

decision concerning this collection of 

information between 30 and 60 days 

after the publication date. Therefore, a 

comment on the information collection 

requirements is best assured of having 

its full effect if OMB receives the 

comment within 30 days of the 

publication. This time frame does not 

affect the deadline for comments to the 

agency on the proposed rule, however. 

Comments must refer to the proposed 

rule by name and docket number (FR– 

4893) and must be sent to: 

HUD Desk Officer, Office of 

Management and Budget, New 

Executive Office Building, 

Washington, DC 20503, Fax number: 

202–395–6947 

and 

Colette Pollard, HUD Reports Liaison 

Officer, Department of Housing and 

Urban Development, 451 7th Street 

SW., Room 2204, Washington, DC 

20410. 

Interested persons may submit 

comments regarding the information 

collection requirements electronically 

through the Federal eRulemaking Portal 

at http://www.regulations.gov. HUD 

strongly encourages commenters to 

submit comments electronically. 

Electronic submission of comments 

allows the commenter maximum time to 

prepare and submit a comment, ensures 

timely receipt by HUD, and enables 

HUD to make them immediately 

available to the public. Comments 

submitted electronically through the 

http://www.regulations.gov Web site can 

be viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

List of Subjects in 24 CFR Part 135 

Administrative practice and 

procedure, Community development, 

Equal employment opportunity, 

Government contracts, Grant 

programs—housing and community 

development, Housing, Loan 

programs—housing and community 

development, Reporting and 

recordkeeping requirements, Small 

businesses. 

■ Accordingly, for the reasons described 

in the preamble, and under the 

authority of 42 U.S.C. 3535(d), HUD 

proposes to revise 24 CFR part 135 to 

read as follows: 

PART 135—ECONOMIC 

OPPORTUNITIES FOR LOW- AND 

VERY LOW-INCOME PERSONS 

Subpart A—General Provisions 

Sec. 

135.1 Purpose. 

135.3 Delegation of authority. 

135.5 Definitions. 

135.7 Compliance to the greatest extent 

feasible. 

135.9 Official Section 3 policies and 

procedures. 

135.11 Recipient responsibilities. 

135.13 General minimum numerical goals. 

135.15 Verification of Section 3 resident 

and Section 3 business status. 

135.17 Written agreements. 

135.19 Contracts and Section 3 clause. 

135.21 Certifications of compliance. 

135.23 Reporting requirements. 

135.25 Recordkeeping and access to 

records. 

135.27 Sanctions for noncompliance. 

135.29 Other Federal requirements. 

Subpart B—Additional Provisions for Public 

Housing Financial Assistance 

135.31 Applicability. 

135.33 Public housing agency unit 

thresholds. 

135.35 Minimum numerical goals. 

135.37 Orders of priority consideration for 

employment and contracting 

opportunities. 

Subpart C—Additional Provisions for 

Housing and Community Development 

Financial Assistance 

135.51 Applicability. 

135.53 Funding thresholds that trigger 

Section 3 compliance. 

135.55 Minimum numerical goals. 

135.57 Orders of priority consideration for 

employment and contracting 

opportunities. 

Subpart D—Additional Provisions for 

Recipients of Competitively Awarded 

Financial Assistance 

135.71 Applicability. 

135.73 Applicant selection criteria. 

135.75 Section 3 compliance for NOFA 

grantees. 

135.77 Resolution of outstanding Section 3 

matters. 

Subpart E—Enforcement 

135.91 Cooperation in achieving 

compliance. 

135.93 Conduct of investigations 

Authority: 12 U.S.C. 1701u; 42 U.S.C. 

3535(d). 

PART 135—ECONOMIC 

OPPORTUNITIES FOR LOW- AND 

VERY LOW-INCOME PERSONS 

Subpart A—General Provisions 

§ 135.1 Purpose. 

(a) Section 3. The purpose of Section 

3 of the Housing and Urban 

Development Act of 1968 (12 U.S.C. 

1701u) (Section 3) is to direct, to the 

greatest extent feasible, and consistent 

with existing Federal, State, and local 

laws and regulations, training, 

employment, contracting, and other 

economic opportunities generated by 

the expenditure of certain HUD 

financial assistance to: 

(1) Low- and very low-income 

residents of the neighborhood or 

neighborhoods where the Section 3 

covered financial assistance is 

expended, particularly those that 

receive assistance from the Federal 

government for housing; and 

(2) The businesses that are owned by, 

or substantially employ, low- or very 

low-income residents of the 

neighborhood or neighborhoods where 

the Section 3 covered financial 

assistance is expended. 

(b) Part 135. The purpose of this 

subpart is to establish the standards and 

procedures by which all recipients of 

Section 3 covered financial assistance 

and their subrecipients, contractors, and 

subcontractors that may be 

administering Section 3 covered 

financial assistance on behalf of the 

recipient may meet the requirements of 

Section 3. 

§ 135.3 Delegation of authority. 

Except as may be otherwise provided 

in this part, the functions and 

responsibilities of the Secretary of the 

Department of Housing and Urban 

Development, pursuant to Section 3, 

and described in this part, are delegated 

to HUD’s Assistant Secretary for Fair 

Housing and Equal Opportunity. The 

Assistant Secretary for Fair Housing and 

Equal Opportunity is further authorized 

to redelegate functions and 

responsibilities in this part to other 

employees of HUD. However, the 

authority to issue or waive regulations 

of this part may not be redelegated by 

the Assistant Secretary. Monitoring and 

enforcement may be carried out in 

coordination with the HUD program 

office that provided Section 3 covered 

financial assistance to recipients, and 

the imposition of sanctions shall be in 

accordance with the requirements of the 

regulation or NOFA governing the 

program under which the Section 3 

covered financial assistance is provided, 

as set forth at § 135.27. 

§ 135.5 Definitions. 

For purposes of this part, the terms in 

this section have the meanings provided 

in this section. The terms Department, 

HUD, Public housing agency (PHA), and 

Secretary are defined in 24 CFR part 5. 

Applicant means any entity which 

makes an application to HUD for 

Section 3 covered financial assistance, 


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and includes but is not limited to, any 

State, unit of local government, PHA, 

public housing commission, Indian 

tribe, tribally designated housing entity, 

or other public agency, public or private 

nonprofit organization, private agency 

or institution, mortgagor, developer, 

limited dividend sponsor, builder, 

property owner, property manager, 

resident management corporation, 

resident council, or cooperative 

association. 

Assistant Secretary means the 

Assistant Secretary for Fair Housing and 

Equal Opportunity (FHEO). 

Business means a business entity 

formed in accordance with State law, 

and licensed as appropriate under State, 

county or municipal law to engage in 

the type of business activity for which 

it was formed. 

Awarding Agency means the recipient 

or subrecipient that awards Section 3 

contracting opportunities. 

Complainant means the party that 

files a complaint with the Assistant 

Secretary alleging that a recipient has 

failed or refused to comply with the 

regulations of this part. 

Complaint means an allegation of 

noncompliance with the requirements 

of this part as provided in subpart E. 

Construction, unless inconsistent 

with or otherwise defined in the 

regulation or NOFA governing the 

program under which the Section 3 

financial assistance is provided, means 

the act or process of building houses, 

roads, public buildings, infrastructure, 

and other structures. 

Contract. See the definition of 

‘‘contracting opportunities’’ in this 

section. 

Contracting opportunities subject to 

the requirements of Section 3 means 

contracts or subcontracts for work 

awarded in connection with Section 3 

covered projects and activities. 

Contracting opportunities include, but 

are not limited to: Demolition, 

rehabilitation, housing construction, 

other public construction, architectural 

design, legal representation, or other 

services directly related to construction 

and rehabilitation activities. In addition, 

for public housing financial assistance, 

contracting opportunities include, but 

are not limited to, facilities 

maintenance, landscaping, painting, 

professional services, police and 

security, equipment servicing, janitorial 

services, and extermination. This term 

does not include material-only 

contracts; i.e., contracts that are 

awarded for supplies without 

installation, demolition, rehabilitation, 

or other construction activities. 

Contractor means any entity that 

enters into a contract or agreement to 

perform work generated by the 

expenditure of Section 3 covered 

financial assistance for a recipient, 

subrecipient, or another contractor, or 

for work in connection with Section 3 

covered projects or activities, including 

contracts for services, but excluding 

contracts for supplies or materials that 

do not involve installation, 

rehabilitation, or construction. 

Department of Labor or DOL refers to 

the U.S. Department of Labor. 

Department of Labor YouthBuild 

program is a nonresidential, 

community-based alternative education 

program that provides classroom 

instruction and occupational skills 

training to at-risk individuals ages 16 to 

24. The classroom training leads to a 

high school diploma or a general 

education development or other staterecognized equivalency diploma. The 

occupational skills training component 

provides YouthBuild participants with 

industry-recognized certifications in 

construction or other occupations. The 

construction skills training component 

teaches skills through a program to 

build or rehabilitate housing for lowincome or homeless individuals and 

families in their communities. 

Economic Opportunities Generated by 

Section 3 Covered Financial Assistance 

Means 

(1) Training, employment, or other 

opportunities generated by the 

expenditure of Section 3 covered 

financial assistance as such term is 

defined in this section. Examples of 

economic opportunities may include, 

but are not limited to: Jobs (including 

training positions or on-the-job training 

opportunities), skills development (e.g., 

computer classes, secretarial courses, 

etc.), registered apprenticeships, and 

business development; or 

(2) Other training opportunities; and 

contracting opportunities for building 

trades, professional services, and other 

activities directly associated with 

demolition, rehabilitation, or 

construction. 

Housing and community development 

financial assistance subject to the 

requirements of Section 3 means 

Section 3 covered financial assistance, 

provided in the form of a grant, loan, 

cooperative agreement, or contract, 

expended for housing demolition, 

rehabilitation, or construction, or the 

construction or rehabilitation of public 

facilities, infrastructure, or buildings 

and provided, or otherwise made 

available, from such HUD financial 

assistance. HUD housing or community 

development programs subject to the 

requirements of Section 3 include, but 

are not limited to, the following 

programs: The Community 

Development Block Grants (CDBG) 

program, authorized by title I of the 

Housing and Community Development 

Act of 1974 (42 U.S.C. 5301 et seq.); the 

HOME Investment Partnerships 

program, authorized by the HOME 

Investment Partnerships Act (42 U.S.C. 

12701 note); the HUD homeless 

assistance programs authorized under 

title IV of the McKinney-Vento 

Homeless Assistance Act (42 U.S.C. 

11360 et seq.); the Housing 

Opportunities for Persons With AIDS 

(HOPWA) program, authorized by the 

AIDS Housing Opportunity Act, subtitle 

D of title VII of the Cranston-Gonzalez 

National Affordable Housing Act (42 

U.S.C. 12901 note); disaster recovery 

grants (DRG), as authorized by 

appropriations acts; the Supportive 

Housing for the Elderly program, 

authorized by Section 202 of the 

Housing Act of 1959 (12 U.S.C. 1701q); 

the Supportive Housing for Persons 

with Disabilities program, authorized by 

Section 811, subtitle B of title VIII of the 

Cranston Gonzalez National Affordable 

Housing Act (42 U.S.C. 8013); the 

Project-Based Rental Assistance 

programs authorized by Section 811, 

subtitle B of title VIII of the CranstonGonzalez National Affordable Housing 

Act (42 U.S.C. 8013); the Healthy Homes 

and Lead Hazard Control programs, as 

authorized by the Lead-Based Paint 

Poisoning Prevention Act (42 U.S.C 

4801 et seq.) and Residential LeadBased Paint Hazard Reduction Act of 

1992 (42 U.S.C. 4851 et seq.); and any 

housing and community development 

programs that HUD designates as 

covered by Section 3 and announced by 

HUD as such through a Federal Register 

notice, notice of funding availability, or 

announcement posted on HUD’s Section 

3 Web site(s). Housing and community 

development financial assistance does 

not include financial assistance 

provided for mortgage insurance. 

Indian tribe means a tribe that is a 

federally recognized tribe or a State 

recognized tribe as defined in 25 U.S.C. 

4103(13). 

Low-income person means a person as 

defined in section 3(b)(2) of the United 

States Housing Act of 1937 (42 U.S.C. 

1437(b)(2)), or a person whose median 

household income does not exceed 80 

percent of the median household 

income within the metropolitan area or 

nonmetropolitan county where the 

Section 3 covered project or activity is 

located. 

Metropolitan area means the primary 

metropolitan statistical area (PMSA), as 

established by the Office of Management 

and Budget (OMB). 


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Neighborhood, unless otherwise 

defined in the regulation or NOFA 

governing the program under which the 

Section 3 financial assistance is 

provided, means Zip codes or other 

geographical locations within the 

jurisdiction of a unit of general local 

government (but not the entire 

jurisdiction) designated in ordinances, 

or other local documents as a 

neighborhood, village, or similar 

geographical designation; 

New hires mean full- or part-time 

employees for permanent, temporary, or 

seasonal employment opportunities. 

This term refers to any employee who: 

(1) Was not on the payroll of the 

recipient, subrecipient, contractor, or 

subcontractor administering Section 3 

covered financial assistance funds on 

behalf of the recipient at the beginning 

of the award of Section 3 covered 

financial assistance; or 

(2) Any person hired by an entity on 

a per-project basis as a result of a 

Section 3 covered project or activity. 

NOFA means a notice of funding 

availability issued by HUD for 

discretionary grant funding that is 

awarded competitively to eligible 

applicants. 

Nonmetropolitan county means rural 

counties or any other county outside of 

a metropolitan area. 

Numerical goals means minimum 

numerical targets that recipients, 

subrecipients, contractors, or 

subcontractors that may be 

administering Section 3 covered 

financial assistance on behalf of the 

recipient reach, or exceed, in order to 

demonstrate compliance with this part. 

These goals are not construed as quotas, 

set-asides, or a cap on the provision of 

economic opportunities, and may be 

exceeded. 

Other HUD programs subject to the 

requirements of Section 3 means HUD 

programs, other than HUD programs 

providing public housing financial 

assistance, that provide covered housing 

and community development financial 

assistance, as defined in this section. 

Priority consideration means that 

recipients, subrecipients, contractors, or 

subcontractors that may be 

administering Section 3 covered 

financial assistance on behalf of the 

recipient must give, to the greatest 

extent feasible, training, employment, or 

contracting opportunities to Section 3 

residents or Section 3 businesses as 

defined in this section in accordance 

with the appropriate orders of priority 

consideration related to the Section 3 

covered financial assistance, as 

provided in § 135.37 and § 135.57. 

Priority consideration should not be 

construed to be a quota or set-aside 

program, or an entitlement to economic 

opportunities such as a particular 

position or contract. 

Professional services means nonbuilding trade services that are 

performed in connection with 

construction and rehabilitation 

activities, including but not limited to: 

architecture, professional engineering, 

structural engineering, land surveying, 

mapping, project management, 

planning, design, accounting, and other 

related services, which are required to 

be performed or approved by a person 

licensed, registered, or certified to 

provide such services. 

Project-based rental housing 

assistance means rental assistance 

contracts provided under section 8(b)(1) 

of the U.S. Housing Act of 1937 or 

section 8(b)(2) of U.S. Housing Act of 

1937 as it existed immediately prior to 

October 1, 1983. 

Public housing has the meaning that 

this term is given in 24 CFR 5.100 or 24 

CFR 963.5. 

Public housing financial assistance 

subject to the requirements of Section 3 

means any HUD financial assistance, 

subject to minimum unit thresholds 

specified in § 135.33, that is provided 

through the following HUD assistance: 

(1) Annual contributions for low 

income housing projects provided 

pursuant to Section 5 of the U.S. 

Housing Act of 1937 (42 U.S.C. 1437c); 

(2) Capital fund project assistance 

provided pursuant to Section 9 of the 

U.S. Housing Act of 1937 (42 U.S.C, 

1473g); 

(3) Operating subsidy provided 

pursuant to Section 9 of the U.S. 

Housing Act of 1937 (42 U.S.C, 1473g); 

(4) Competitively awarded HUD 

public housing financial assistance for 

activities that will result in new 

employment, training, or contracting 

opportunities, under such programs as 

the Family-Supportive Service 

Coordinator (FSS), or Resident 

Opportunity Supportive Service (ROSS) 

grant funding; 

(5) Emergency funds, for example, 

authorized for emergency capital repair 

of public housing or public housing 

facilities; 

(6) Financial assistance made 

available under an appropriations act 

such as financial assistance provided for 

the Choice Neighborhoods program; and 

(7) Such other financial assistance 

designated by HUD as public housing 

financial assistance covered by Section 

3 as announced through a Federal 

Register notice, NOFA, or 

announcement on HUD’s Section 3 Web 

site. 

Public housing project has the 

meaning given this term in 3(b)(1) of the 

United States Housing Act of 1937. 

Public housing resident has the 

meaning given this term in 24 CFR 

963.5. 

Recipient means: 

(1) Any entity that receives Section 3 

covered financial assistance directly 

from HUD, including but not limited to: 

Any State, unit of local government, 

public housing agency (PHA), public 

housing commission, Indian tribe, 

tribally designated housing entity, or 

other public agency, public or private 

nonprofit organization, private agency 

or institution, mortgagor, developer, 

limited dividend sponsor, builder, 

property owner, property manager, 

community housing development 

organization (CHDO), resident 

management corporation, resident 

council, or cooperative association. The 

term ‘‘recipient’’ also includes any 

subrecipients, successor, assignee, or 

transferee of such entity. 

(2) ‘‘Recipient’’ does not include any 

ultimate beneficiary under a HUD 

program to which Section 3 applies (for 

example an individual or family 

receiving a housing rehabilitation grant 

financed with HOME assistance) and 

does not include contractors and 

subcontractors, but as provided in this 

part, contractors and subcontractors are 

subject to compliance with this part. 

Rehabilitation, for the purposes of 

this regulation, means improvements or 

interventions taken to improve or 

restore the structural condition, 

architectural components, energy 

performance, or environmental quality 

of an existing building, dwelling, unit, 

or structure that are taken to improve its 

safety, aesthetics, or suitability for use. 

For project-based rental assistance 

contracts, including project-based 

Section 8, Section 202, and Section 811 

properties, this definition shall apply 

when performed as part of a 

recapitalization event where Reserve for 

Replacement funds are utilized. 

Examples include replacement of 

roofing, gutters, electrical, plumbing, 

heating systems, flooring, windows, 

doors and concrete. 

Routine maintenance, for the 

purposes of this regulation, means 

activities that do not materially add to 

the value of the building, appreciably 

prolong its useful life, or adapt it to new 

uses. Examples include: Painting, 

caulking, sealing, repairing minor 

components, including work required to 

prepare units for new tenants upon 

turnover, or other activities planned and 

performed at regular intervals normally 

established by manufacturers or 

associations. In the case of project-based 


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rental assistance contracts these 

planned activities include the work 

described in the required Project Capital 

Needs Assessment (PCNA). 

Section 3 means Section 3 of the 

Housing and Urban Development Act of 

1968 (12 U.S.C. 1701u). 

Section 3 business means a business 

that is located in the Section 3 local area 

as defined in this section and that is 

able to demonstrate one of the 

following: 

(1) Meets the definition of ‘‘residentowned’’ business in 24 CFR 963.5; 

(2) The business is 51 percent or more 

owned by Section 3 residents; 

(3) The permanent, full-time 

employees of the business include 

persons, at least 30 percent of whom are 

Section 3 residents; or 

(4) The business demonstrates that at 

least 20 percent of its permanent fulltime employees are Section 3 residents 

and the business either: sponsored a 

minimum of 10 percent of its current 

Section 3 employees to attend a DOL or 

DOL recognized State-Apprenticeship 

Agency approved, registered 

apprenticeship, or a pre-apprenticeship 

training program that meets the 

requirements in outlined DOL/ETA 

Training and Employment Notice 13–12 

; or that 10 percent of its employees are 

participants or graduates of a DOL 

YouthBuild program. For the purposes 

of determining Section 3 business 

eligibility only, Section 3 residents 

include persons who: 

(i) Met the definition of Section 3 

resident, provided in this section, at the 

time the resident was hired or became 

an owner, or met such definition within 

the 3 years before the business sought 

certification; or 

(ii) Graduated from a DOL, State 

approved, or YouthBuild training 

program within the 3 years before the 

business sought certification; and 

(iii) Eligibility as a Section 3 business 

only applies as long as the businesses’ 

employees continue to meet the 

definition of a Section 3 resident set 

forth in this part. 

Section 3 clause means the contract 

provisions set forth in § 135.17. 

Section 3 covered financial assistance 

means HUD loans, grants, or other 

financial assistance provided under: 

(1) Public housing financial assistance 

as defined in this section; and 

(2) Housing and community 

development financial assistance as 

defined in this section. 

Section 3 covered project or activity 

means any project or activity that is 

funded by Section 3 covered financial 

assistance. 

Section 3 local area is the: 

(1) Primary metropolitan statistical 

area where the Section 3 covered project 

or activity takes place; or 

(2) Nonmetropolitan county where the 

Section 3 covered project or activity 

takes place. 

Section 3 resident means an 

individual residing in the Section 3 

local area who can document that he/

she is: 

(1) A public housing resident; 

(2) A participant in a DOL YouthBuild 

program; 

(3) A member of a family that receives 

federal housing assistance; or 

(4) An individual who meets the HUD 

income limits for determining the 

eligibility of low- and very low-income 

persons for HUD assisted housing 

programs within the metropolitan area 

or nonmetropolitan county. 

Service Area, unless defined in the 

regulation or NOFA governing the 

program under which the Section 3 

covered financial assistance is provided, 

means the area to be served by a Section 

3 covered project or activity. 

Subcontractor means any entity (other 

than a person who is an employee of the 

contractor) that has a contract with a 

contractor to undertake a portion of the 

contractor’s obligation to perform work 

generated by the expenditure of Section 

3 covered financial assistance, or arising 

in connection with a Section 3 covered 

project or activity. 

Subrecipient means 

(1) An entity that receives Section 3 

covered financial assistance from a 

recipient or other subrecipient of 

Section 3 covered financial assistance to 

carry out a Section 3 covered project or 

activity on the recipient’s or other 

subrecipient’s behalf. This term 

includes, but is not limited to: any unit 

of State, county or local government, 

public housing agency (PHA), public 

housing commission, Indian tribe, 

tribally designated housing entity, or 

other public agency, public or private 

nonprofit organization, private agency, 

institution, mortgagor, developer, 

limited dividend sponsor, builder, 

property owner, property manager, 

community housing development 

organization (CHDO), resident 

management corporation, resident 

council, or cooperative association. 

Subrecipients also include any 

successor, assignee, or transferee of any 

such entity. 

(2) ‘‘Subrecipient’’ does not include 

any ultimate beneficiary under a HUD 

program to which Section 3 applies (for 

example an individual or family 

receiving a housing voucher) and does 

not include contractors or 

subcontractors, but as provided in this 

part, contractors and subcontractors are 

subject to compliance with this part. 

Tribally designated housing entities 

have the meaning this term is given in 

25 U.S.C. 4103(22). 

Very low-income person means the 

definition for this term set forth in 

Section 3(b)(2) of the U.S. Housing Act 

of 1937 (42 U.S.C. 1437a(b)(2)), or 

persons whose household income does 

not exceed 50 percent of the median 

household income within the 

metropolitan area or nonmetropolitan 

county where the Section 3 covered 

project or activity is located. 

§ 135.7 Compliance to the greatest extent 

feasible. 

(a) General. In accordance with the 

findings of Congress, as stated in section 

3 of the Housing and Urban 

Development Act of 1968, economic 

opportunities offer an effective means of 

empowering low- and very low-income 

persons residing in the metropolitan 

area where HUD financial assistance is 

expended. Recipients, as defined in 

§ 135.5, are required, to the greatest 

extent feasible, to ensure that 

employment and training opportunities 

funded with Section 3 covered financial 

assistance be provided to low-and very 

low-income persons, and that contracts 

are awarded to businesses that are either 

owned by, or substantially employ such 

persons. 

(b) Demonstrating compliance to the 

greatest extent feasible. Absent evidence 

to the contrary, recipients of housing 

and community development assistance 

that meets the funding threshold set at 

§ 135.53 and PHAs shall demonstrate 

compliance with Section 3 and the 

requirements of this part by: 

(1) Establishing policies and 

procedures to achieve compliance with 

Section 3, as provided in § 135.9; 

(2) Fulfilling its responsibilities, as 

specified in § 135.11; and either 

(3) Reaching or exceeding each 

minimum numerical goal for 

employment and contracting 

opportunities, as provided in § 135.13 

and either § 135.35 or § 135.55; or 

(4) If the minimum numerical goals 

for employment and contracting are not 

met, providing written justification 

explaining the extent of efforts taken to 

meet the minimum numerical goals and 

the impediments confronted in trying to 

meet the minimum numerical goals. 

Such justifications must include, at a 

minimum, a summary of: impediments 

encountered; actions taken to address 

the identified impediments; and an 

identification of steps that may be 

successful in overcoming impediments 

in the future. Justifications provided by 

recipients will be taken into 


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consideration by HUD when making 

compliance determinations. 

(c) Compliance monitoring and 

enforcement. (1) When determining if 

efforts taken by recipients demonstrate 

compliance with Section 3, to the 

greatest extent feasible, HUD shall 

review: 

(i) Policies and procedures, as 

specified in § 135.9 developed by the 

recipient to ascertain the extent to 

which they present measures for 

achieving compliance with Section 3; 

and 

(ii) The extent to which the recipient 

fulfilled its responsibilities, as specified 

in § 135.11; and either: 

(A) Whether the minimum goals at 

§ 135.35 or § 135.55 were met; or 

(B) Whether written justifications for 

not meeting the minimum goals explain 

the extent of efforts taken to achieve the 

goals of Section 3, identify the 

impediments encountered, the actions 

taken to address the identified 

impediments, and steps that may be 

successful in overcoming impediments 

in the future. Justifications provided by 

recipients will be taken into 

consideration by HUD when making 

compliance determinations. 

(2) Recipients that fail to comply with 

the requirements of this part are subject 

to sanctions for noncompliance in 

accordance with the requirements of the 

regulation or NOFA governing the 

program under which the Section 3 

covered financial assistance is provided, 

as set forth at § 135.27. 

§ 135.9 Official Section 3 policies and 

procedures. 

(a) Official Section 3 policies and 

procedures. (1) All recipients that plan 

to undertake Section 3 covered activities 

must develop and adopt official policies 

or procedures to implement the 

requirements of this part in accordance 

with the ‘‘to the greatest extent feasible’’ 

requirement as set forth at § 135.7. 

Official policies and procedures shall be 

updated as appropriate. 

(2) Official policies and procedures 

must include, at a minimum, steps that 

the recipient will take to: inform 

subrecipients and contractors about 

Section 3 obligations; evaluate potential 

bidders for Section 3 compliance during 

contract selection; notify Section 3 

residents and businesses about 

economic opportunities; implement 

verification and/or certification 

procedures for residents and businesses; 

provide priority consideration to 

qualified Section 3 residents and 

businesses; monitor subrecipients and 

contractors for compliance; establish 

consequences for noncompliance; and 

utilize local community resources to 

meet its Section 3 requirements. The 

preceding list is not inclusive of all 

elements that recipients should include 

in official policies and procedures. 

Updates to official policies and 

procedures shall discuss the relative 

success of the immediate past policies 

and procedures and how any changes 

are aimed to better promote compliance 

with Section 3. 

(3) Section 3 official policies and 

procedures shall be incorporated into 

any strategic and annual plans required 

of recipients of HUD covered assistance 

by HUD program regulations. 

(i) Recipients of Section 3 covered 

funding shall include a general 

description of their Section 3 official 

policies and procedures in required 

recipient plans, such as public housing 

plans required by HUD regulation in 24 

CFR part 903, strategic and annual 

action plans required by HUD 

regulations in 24 CFR parts 91 and 570, 

or other similar plans that may be 

required under other covered HUD 

programs. 

(ii) If a recipient is not required to 

submit official plans to HUD such as 

public housing plans required by 

regulations in 24 CFR part 903, strategic 

or annual action plans required by 

regulations in 24 CFR parts 91 or 570, 

or other similar plans, the recipients’ 

official section 3 policies and 

procedures shall be developed as an 

independent document at the time that 

Section 3 covered financial assistance is 

awarded and updated every 5 years 

thereafter. 

(4) Official policies and procedures 

shall be available for review by HUD, 

Section 3 residents and businesses, and 

the general public upon request. 

§ 135.11 Recipient responsibilities. 

(a) General. Recipients have the 

responsibility for monitoring and 

ensuring compliance with this part in 

their own operations, and ensuring 

compliance in the operations of their 

subrecipients, contractors, or 

subcontractors. The use of 

subrecipients, contractors, or 

subcontractors does not relieve a 

recipient of its responsibility. Recipients 

are also responsible for determining the 

adequacy of performance under 

subrecipient agreements or procurement 

contracts, and for taking appropriate 

action when performance problems 

arise. 

(b) Specific responsibilities for all 

recipients. Recipients shall comply with 

the following requirements: 

(1) Develop and implement official 

Section 3 policies and procedures in 

accordance with § 135.9. 

(2) Maintain lists of eligible Section 3 

residents and businesses that have 

asked to receive priority consideration 

for training, employment, contracting, 

or other economic opportunities. 

(3) Notify Section 3 residents and 

businesses that have asked to receive 

priority consideration about the 

availability of new employment, 

training, contracting, or other economic 

opportunities created as a result of the 

expenditure of Section 3 covered 

financial assistance. 

(i) Recipients must ensure that all 

communications are provided in a 

manner that is effective for persons with 

hearing, visual, and other 

communications-related disabilities 

consistent with section 504 of the 

Rehabilitation Act of 1973 and, as 

applicable, the Americans with 

Disabilities Act. 

(ii) Notifications shall be made in 

accordance with ‘‘HUD’s Final 

Guidance to Federal Financial 

Assistance Regarding Title VI 

Prohibition Against National Origin 

Discrimination Affecting Limited 

English Proficient Persons’’ published 

in the Federal Register on January 22, 

2007 at 72 FR 2732 (or other subsequent 

updated guidance). 

(4) Ensure that priority consideration 

is provided to Section 3 residents and 

businesses in accordance with the 

orders of priority consideration set forth 

at §§ 135.37 and 135.57. 

(5) Monitor the payroll data of 

developers, contractors, and 

subcontractors throughout the project or 

activity, to ensure that new employment 

opportunities are made available 

consistent with the requirements of this 

part. This requirement only applies to 

projects or activities that are subject to 

wage rates determined under the Davis 

Bacon Act (40 U.S.C. 3141 et seq.). 

(6) Ensure that all bid solicitations 

associated with Section 3 covered 

projects or activities acknowledge the 

applicability of Section 3 to the project 

or activity and communicate the 

selected contractor’s obligation to 

comply with the requirements of this 

part to prospective bidders. Some 

examples include: notifying prospective 

contractors about Section 3 applicability 

during pre-bid meetings or conferences; 

requiring bidders to certify that they 

have received a copy of the recipient’s 

Section 3 policies/procedures; etc. 

(7) Ensure that subrecipients, 

contractors, or subcontractors enter into 

written agreements consistent with 

§ 135.17, and include the Section 3 

clause at § 135.19, as appropriate. 

(8) Ensure that notices or signs 

acknowledging Section 3 obligations 

and advertising vacant employment, 


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training, contracting, or subcontracting 

opportunities are posted in places 

where they can be clearly seen by both 

current employees and prospective 

applicants for economic opportunities. 

(i) At a minimum, such notices shall 

include the following: anticipated dates 

that work will begin and end; 

anticipated number and type of job 

vacancies available; anticipated number 

and type of registered apprenticeship or 

training opportunities offered; 

anticipated dollar amount and type of 

subcontracting opportunities; 

application and bidding procedures; 

required employment and 

subcontracting qualifications; and the 

name and contact information for the 

person(s) accepting applications. 

(ii) Notifications shall be in 

accordance with ‘‘HUD’s Final 

Guidance to Federal Financial 

Assistance Regarding Title VI 

Prohibition Against National Origin 

Discrimination Affecting Limited 

English Proficient Persons’’ published 

in the Federal Register on January 22, 

2007 at 72 FR 2732 (or other subsequent 

updated guidance). 

(9) If applicable, ensure that new or 

existing subrecipient or contractor 

selection procedures, including those 

developed in accordance with 24 CFR 

part 85; assess the responsible bidder’s 

previous compliance and ability to: 

(i) Retain Section 3 hires for 

employment opportunities; 

(ii) Comply with Section 3 

requirements; and 

(iii) Provide training opportunities for 

Section 3 residents. 

(10) If applicable, ensure that labor 

unions are notified about recipient’s and 

contractor’s obligations to comply with 

the requirements of this part. Collective 

bargaining agreements, project labor 

agreements or other agreements between 

labor unions and recipients, or 

subrecipients that are established, or 

revised, after [EFFECTIVE DATE OF 

FINAL RULE], shall ensure that projects 

generated from the expenditure of 

Section 3 covered financial assistance 

provide employment, registered 

apprenticeship, training, contracting, or 

other economic opportunities to Section 

3 residents and businesses in a manner 

that is consistent with this part 

(11) Coordinate with local DOL 

Workforce Investment Boards, 

YouthBuild grantees, or other State or 

Federal training programs to ensure that 

Section 3 residents and businesses are 

notified about the availability of federal 

training opportunities. 

(12) Document actions taken to 

comply with the requirements of this 

part; the results of actions taken; 

sanctions imposed upon subrecipients, 

contractors, subcontractors, or 

subcontractors; impediments 

encountered; actions taken to address 

the identified impediments; and steps 

that may be successful in overcoming 

impediments in the future. 

(c) Responsibilities specific to PHAs. 

In addition to the responsibilities set 

forth in paragraph (b) of this section, 

PHAs must comply with the following 

additional requirements: 

(1) PHAs are required to monitor 

successful bidders for compliance with 

descriptions provided in qualified bid 

proposals. 

(2) Develop appropriate procedures to 

comply with the earned income 

disregard requirements; and 

(3) Develop procedures to set-aside 

eligible contracting opportunities for 

public housing resident-owned 

businesses that are consistent with 24 

CFR part 963, as appropriate. 

(d) Responsibilities specific to 

recipients of housing and community 

development financial assistance. In 

addition to the responsibilities set forth 

in paragraph (b) of this section, 

recipients of housing and community 

development financial assistance must 

comply with the following additional 

requirements: 

(1) Where practicable, recipients are 

required to monitor successful bidders 

for compliance with descriptions 

provided in qualified bid proposals. 

(2) Recipients must ensure that 

qualified local Section 3 businesses are 

included on lists of preferred or 

recommended contractors when such 

lists are provided to homeowners for 

rehabilitation loan or grant programs. 

The recipient or subrecipient may count 

any Section 3 businesses that are 

selected by homeowners towards their 

minimum numerical goals annually. 

The recipient is not required to count 

any non-Section 3 businesses that are 

selected by homeowners toward the 

total amount of contracts awarded to 

Section 3 businesses annually. 

§ 135.13 General minimum numerical 

goals. 

(a) Calculation of goals. The 

minimum numerical goals established 

in this part apply to the aggregate 

number of employment and contracting 

opportunities generated by Section 3 

covered financial assistance during each 

annual reporting period as defined at 

§ 135.23(b). 

(b) Minimum numerical goals. (1) 

Recipients of public housing financial 

assistance shall, to the greatest extent 

feasible, reach the minimum numerical 

goals set forth at § 135.35. 

(2) Recipients of housing and 

community development financial 

assistance shall, to the greatest extent 

feasible, reach the minimum numerical 

goals set forth at § 135.55. 

(3) Recipients of competitively 

awarded Section 3 covered financial 

assistance shall, to the greatest extent 

feasible, reach the minimum numerical 

goals set forth in the subpart associated 

with the type of financial assistance 

provided, §§ 135.35 and 135.55, 

respectively. 

(c) Inability or failure to meet goals. 

Recipients that are unable or fail to meet 

minimum numerical goals must provide 

to HUD a written justification as to why 

the goals were not met, as provided in 

§ 135.7(b)(4). Justifications provided by 

recipients will be taken into 

consideration by HUD when making 

compliance determinations. 

§ 135.15 Verification of Section 3 resident 

and Section 3 business status. 

(a) General. Recipients of Section 3 

covered financial assistance are required 

to verify that residents and businesses 

seeking the employment and contracting 

opportunities offered by the recipient 

meet the definitions of Section 3 

residents and Section 3 businesses at 

§ 135.5 prior to providing priority 

consideration for employment, training, 

contracting, or other economic 

opportunities. Unless otherwise 

directed by HUD, recipients may use 

their own discretion for developing 

specific verification procedures for 

Section 3 residents and Section 3 

businesses. 

(b) Section 3 residents. (1) A recipient 

may allow persons to self-certify that 

they are a Section 3 resident as defined 

in § 135.5 provided that the recipient 

conducts procedures to verify a sample 

of self-certified Section 3 residents. 

(2) A recipient may presume a person 

that can provide evidence that they 

reside within a neighborhood, zip code, 

census tract, etc. that has officially been 

identified by HUD is eligible to receive 

priority consideration as a Section 3 

resident absent evidence to the contrary. 

(3) A recipient may require 

information verifying that a person 

meets the definition of a Section 3 

resident. Examples of evidence of 

eligibility include but are not limited to: 

evidence of receipt of Federal housing 

assistance; evidence of receipt of other 

Federal subsidies or Federal assistance 

programs; Federal tax returns; proof of 

residence in a neighborhood, zip code, 

census tract, or other area that has 

officially been identified by HUD. 

(4) A recipient shall impose sanctions 

upon individuals who make false claims 

or representations regarding their 

income eligibility, residence, or other 

factors in order to be determined a 


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Section 3 resident. In addition, the 

recipient will refer such individuals to 

the HUD Office of Inspector General. 

(c) Section 3 businesses. (1) A 

recipient may allow a business to selfcertify that they are a Section 3 business 

as defined in § 135.5, provided that the 

recipient conducts procedures to verify 

a sample of self-certified Section 3 

businesses. 

(2) A recipient may presume that a 

business meets the eligibility criteria if 

the business provides evidence that it is 

located within a neighborhood, zip 

code, or census tract that has been 

identified by HUD; or if the business is 

able to provide evidence that it 

substantially employs residents from 

neighborhoods, zip codes, or census 

tracts identified by HUD, absent 

evidence to the contrary. 

(3) A recipient may require 

information verifying that a business 

meets the definition of a Section 3 

business. Examples of evidence of 

eligibility for priority consideration as a 

Section 3 business may include: Federal 

tax returns for workers, owners, or 

businesses; payroll data; employee-selfcertification statements; articles of 

business ownership; evidence that 

owners or employees received housing 

or other Federal subsidies within 3 

years from the date that the business 

sought designation as a Section 3 

business. 

(4) A recipient shall impose 

appropriate sanctions upon businesses 

that make false claims or 

representations regarding their 

eligibility, business location, eligible 

employees, or other factors in order to 

be determined a Section 3 business. In 

addition, the recipient will refer such 

individuals to the HUD Office of 

Inspector General. 

§ 135.17 Written agreements. 

(a) General. Before disbursing any 

Section 3 covered financial assistance to 

subrecipients that may administer all or 

a part of Section 3 covered financial 

assistance on- behalf of a recipient, the 

recipient must ensure that the parties 

enter into a written agreement to 

facilitate compliance with the 

requirements of this part. 

(b) Provisions in written agreements. 

The contents of the agreement may vary 

depending upon the role the 

subrecipient is asked to assume on 

behalf of the recipient, the type of 

Section 3 covered project or activity that 

is to be undertaken, or the dollar 

amount of the contract. Recipients are 

responsible for enforcing the provisions 

of written agreements, including 

imposing sanctions upon subrecipients 

for noncompliance. This section 

specifies the minimum provisions that 

must be included in written agreements 

and contracts. 

(c) [Reserved]. 

(d) [Reserved]. 

(e) Subrecipient agreements. 

Agreements between the recipient and 

the subrecipient must: 

(1) Describe the subrecipient’s plan 

for implementing Section 3 and meeting 

the numerical hiring and contracting 

goals; ensuring eligibility of Section 3 

residents and businesses; and 

monitoring contractor compliance. This 

description must provide enough detail 

to provide a sound basis for the 

recipient to monitor performance under 

the agreement; 

(2) Specify the duties set forth in this 

part that the subrecipient will 

undertake; 

(3) State that the subrecipient will 

incorporate the Section 3 clause, as 

provided in § 135.19, into all contracts 

or subcontracts, memoranda of 

understanding, cooperative agreements, 

or similar legally binding arrangements, 

ensure that contractors and 

subcontractors certify their compliance 

at the time of contract award, and 

monitor parties for compliance, as 

appropriate; 

(4) Specify other responsibilities as 

needed to ensure that the subrecipient 

or contractor complies with all 

requirements at §§ 135.23 and 135.25; 

(5) Specify the particular records that 

must be maintained and the information 

or reports that must be submitted in 

order to assist the recipient in meeting 

its recordkeeping and reporting 

requirements for Section 3; and 

(6) Provide for a means of 

enforcement and describe the sanctions 

for failure to comply with this part. 

§ 135.19 Contracts and Section 3 clause. 

(a) General. Before disbursing any 

Section 3 covered financial assistance to 

contractors or subcontractors that may 

administer all or a part of Section 3 

covered financial assistance on- behalf 

of a recipient, the recipient must ensure 

that the parties enter into a contract to 

facilitate compliance with the 

requirements of this part. 

(b) Provisions in contracts. The 

contents of the contract may vary 

depending upon the dollar amount of 

the contract. Recipients are responsible 

for enforcing the provisions of contracts, 

including imposing sanctions upon 

contractors or subcontractors for 

noncompliance. This section specifies 

the minimum provisions that must be 

included in contracts. 

(c) Contracts of $200,000 or above. 

Contracts of $200,000 or more shall 

include the Section 3 clause at § 135.19 

in its entirety. 

(d) Contracts less than $200,000. 

Contracts of less than $200,000 shall 

include provisions A, B, C, F, H, and M 

of the Section 3 clause at § 135.19. 

(e) Where required, the following 

Section 3 clause shall be included in 

contracts: 

Section 3 Clause 

A. The work to be performed under this 

contract, subcontract, memorandum of 

understanding, cooperative agreement or 

similar legally binding agreement, is subject 

to the requirements of section 3 of the 

Housing and Urban Development Act of 1968 

(Section 3). The purpose of Section 3 is to 

ensure, to the greatest extent feasible, that 

training, employment, contracting, and other 

economic opportunities generated by Section 

3 covered financial assistance shall be 

directed to low- and very low-income 

residents of the neighborhood where the 

financial assistance is spent, particularly to 

those who are recipients of government 

assistance for housing, and to businesses that 

are either owned by low- or very low-income 

residents of the neighborhood where the 

financial assistance is spent, or substantially 

employ these persons. 

B. The parties to this contract, subcontract, 

memorandum of understanding, cooperative 

agreement, or similar legally binding 

agreement agree to comply with HUD’s 

regulations in 24 CFR part 135, which 

implement Section 3. As evidenced by their 

execution of this contract or subcontract 

memorandum of understanding, cooperative 

agreement or similar legally binding 

agreement the parties certify that they are 

under no contractual or other impediment 

that would prevent them from complying 

with the requirements of 24 CFR part 135. 

C. The contractor agrees to identify current 

employees on its payroll when the contract 

or subcontract was awarded who will be 

working on the Section 3 covered project or 

activity and certify that any vacant 

employment opportunities, including 

training positions, that are filled: 

1. After the contractor is selected; and 

2. With persons other than those that meet 

the definition of a Section 3 resident, were 

not filled to circumvent the contractor’s 

Section 3 obligations. 

D. The contractor agrees to maintain 

records documenting Section 3 residents that 

were hired to work on previous Section 3 

covered projects or activities that were 

retained by the contractor for subsequent 

Section 3 covered projects or activities. 

E. The contractor agrees to post signs 

advertising new employment, training, or 

subcontracting opportunities that will be 

available as a result of the Section 3 covered 

projects and activities in conspicuous places 

at the work site where potential applicants 

can review them. 

F. The contractor agrees to hire, to the 

greatest extent feasible, Section 3 residents as 

30 percent of new hires, or provide written 

justification to the recipient that is consistent 

with § 135.7(b)(4), describing why it was 

unable to meet minimum numerical hiring 


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goals, despite its efforts to comply with the 

provisions of this clause. 

G. The contractor agrees that in order for 

a Section 3 resident to be counted as a new 

hire, the resident must work a minimum of 

50 percent of the average staff hours worked 

for the category of work for which they were 

hired throughout the duration of time that 

the category of work is performed on the 

covered project. 

H. The contractor agrees to award, to the 

greatest extent feasible, 10 percent of the total 

dollar amount of subsequent subcontracts 

awarded in connection with the Section 3 

covered project or activity to Section 3 

businesses, or provide written justification 

that is consistent with § 135.7(b)(4) 

describing why it was unable to meet that 

goal, despite their efforts to comply with the 

provisions of this clause. 

I. The contractor agrees to notify Section 3 

residents and businesses about the 

availability of new employment, training, or 

contracting opportunities created as a result 

of the receipt of Section 3 covered financial 

assistance, as stipulated by the awarding 

agency. 

J. The contractor agrees to verify the 

eligibility of prospective Section 3 residents 

and businesses for employment, training, or 

subcontracting opportunities, in accordance 

with the recipient’s policies and procedures. 

K. The contractor agrees to provide priority 

consideration to eligible residents and 

businesses in accordance with 24 CFR 135.37 

or 24 CFR 135.57, as applicable. 

L. The contractor agrees to notify potential 

bidders on subcontracts that are associated 

with Section 3 covered projects and activities 

about the requirements of Section 3, and 

include this Section 3 clause in its entirety 

into every subcontract awarded. 

M. The contractor agrees to impose 

sanctions upon any subcontractor that has 

violated the requirements of this clause in 

accordance with the awarding agency’s 

Section 3 policies and procedures. 

N. The contractor agrees to comply with all 

monitoring, reporting, recordkeeping, and 

other procedures specified by the awarding 

agency. 

O. If applicable, the contractor agrees to 

notify each labor organization or 

representative of workers with which the 

recipient, subrecipient, or contractor has a 

collective bargaining or similar labor 

agreement or other understanding, if any, 

about its obligation to comply with the 

requirements of Section 3 and ensure that 

new collective bargaining or similar labor 

agreements provide employment, registered 

apprenticeship, training, subcontracting, or 

other economic opportunities to Section 3 

residents and businesses, and to post notices 

in conspicuous places at the work site 

advising the labor union, organization, or 

workers’ representative of the contractor’s 

commitments under this part. 

P. Failure to comply with this clause shall 

result in the imposition of sanctions. 

Appropriate sanctions for noncompliance 

may include: Requiring additional 

certifications or assurances of compliance; 

termination or cancelation of the contract, 

subcontract, memorandum of understanding, 

cooperative agreement, or similar legally 

binding arrangement for default; refraining 

from entering into subsequent contracts, 

subcontracts, memoranda of understanding, 

cooperative agreements, or similar legally 

binding arrangement; repayment of funds, 

and withholding a portion of contract 

awards, subcontracts, memoranda of 

understanding, cooperative agreements, or 

similar legally binding arrangements. 

§ 135.21 Certifications of compliance. 

(a) Annual certifications.—(1) 

Recipient certifications. (i) A recipient 

shall submit annual certifications to 

HUD documenting its acknowledgement 

of obligations to comply with the 

requirements of this part in its own 

operations and those of its 

subrecipients, contractors, 

subcontractors, and others that may be 

administering Section 3 covered 

financial assistance on behalf of the 

recipient. Certifications shall be 

submitted in accordance with the 

requirements of the regulation or NOFA 

governing the program under which the 

Section 3 covered financial assistance is 

provided. 

(ii) HUD may require recipients to 

provide additional documentation or 

assurances as evidence of compliance 

with the requirements of this part prior 

to the acceptance of annual 

certifications. HUD may refuse to accept 

any certification when there are 

reasonable grounds to believe that the 

recipient is not in compliance with the 

requirements of this part. 

(2) Subrecipients, contractors and 

subcontractors. (i) Subrecipients, 

contractors, and subcontractors shall 

certify their compliance by entering into 

a written agreement with the recipient, 

as specified at § 135.17 or contract that 

contains the Section 3 clause provided 

at § 135.19. 

(ii) [Reserved] 

(b) [Reserved] 

§ 135.23 Reporting requirements. 

(a) Recipient reporting requirements. 

(1) Each recipient shall submit to HUD 

an annual report documenting the 

recipient’s compliance with Section 3 in 

such form and with such information as 

HUD may request. The purpose of the 

report is to summarize efforts 

undertaken by the recipient and 

accomplishments (or lack thereof) 

towards meeting the employment and 

contracting goals set forth at § 135.11. 

(i) The report will include an 

accounting of all new hires, as defined 

at § 135.5, and Section 3 new hires 

employed as a result of the expenditure 

of Section 3 covered financial assistance 

in a manner that allows HUD to 

determine if the minimum numerical 

goal for employment was met during the 

reporting period. 

(ii) The report will also account for 

the total dollar amount of contracts 

awarded as a result of the expenditure 

of Section 3 covered financial assistance 

during the reporting period, and the 

dollar amount of those contracts that 

were awarded to Section 3 businesses in 

a manner that allows HUD to determine 

if the minimum numerical goal for 

contracting was met. 

(iii) The report must include a written 

justification consistent with 

§ 135.7(b)(4) if a recipient failed to meet 

the minimum numerical goals during 

the reporting period. 

(2) Only recipients are required to 

submit Section 3 annual reports to HUD. 

HUD will not accept reports from 

subrecipients, contractors, or 

subcontractors administering Section 3 

covered financial assistance on behalf of 

a recipient. 

(b) Reporting periods. Unless 

otherwise indicated, a recipient’s 

reporting period shall coincide with 

their local program of fiscal year. 

(c) Report due dates. (1) Unless 

otherwise indicated, all Section 3 

annual reports shall be submitted to 

HUD’s Office of Fair Housing and Equal 

Opportunity. Where the program 

providing the Section 3 covered 

assistance requires submission of an 

annual performance report, the Section 

3 report will be submitted with that 

annual performance report. If the 

program providing the Section 3 

covered assistance does not require an 

annual performance report, the Section 

3 report is to be submitted by January 

10 of each year or within 10 days of 

project completion, whichever is earlier. 

(2) HUD may grant an extension of the 

due date for a Section 3 annual report 

for good reason based on a recipient’s 

demonstration of the inability, through 

no fault of its own, to meet the reporting 

due date. 

(d) Electronic submission. Unless 

otherwise specified, Section 3 annual 

reports shall be submitted electronically 

through online reporting systems as 

specified by HUD. 

(e) Data collection. Data presented in 

a Section 3 annual report shall be used 

to make determinations regarding the 

recipient’s efforts to ensure compliance 

with the requirements of Section 3 in its 

own operations, and those of its 

subrecipients, contractors, or 

subcontractors that may be 

administering Section 3 covered 

financial assistance on behalf of the 

recipient. Data from Section 3 annual 

reports may be used to produce reports 

for the Secretary, for the Executive 

Branch, Congress, housing 

professionals, the general public, and 


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others that may benefit from the 

information provided in such reports. 

(f) Sanctions for delinquent reports. 

(1) Recipients that fail to submit Section 

3 annual reports by the reporting due 

date may be sanctioned in accordance 

with the requirements of the regulation 

or NOFA governing the program under 

which the Section 3 covered financial 

assistance is provided. 

(2) Continuing failure to submit 

Section 3 annual reports may result in 

HUD denying or withholding HUD 

financial assistance. 

(g) Subrecipient reporting. A state or 

county recipient that distributes Section 

3 covered financial assistance to 

subrecipients shall compile data 

regarding compliance with the 

requirements of this regulation in its 

own operations, and in the operations of 

its subrecipients, contractors, and 

subcontractors into one annual report to 

HUD in a manner that allows HUD to 

make an accurate determination 

regarding the State or county recipient’s 

efforts to ensure compliance during the 

reporting period. Subrecipients are not 

required to submit annual reports 

directly to HUD. 

(h) Availability of Section 3 reports. 

All Section 3 annual reports submitted 

to HUD in accordance with the 

requirements of this part will be made 

available to the public upon request. 

§ 135.25 Recordkeeping and access to 

records. 

HUD shall have access to all records, 

reports, documents, contracts, or other 

items that are maintained by a recipient 

to demonstrate compliance with the 

requirements of this part, in the 

recipient’s own operations or those of 

its subrecipients, contractors, or 

subcontractors. These records include, 

but are not limited to: Section 3 

policies, procedures, and other guidance 

materials; lists of Section 3 residents 

and businesses; evidence of efforts to 

notify Section 3 residents and 

businesses about the availability of 

employment training, contracting, or 

other economic opportunities; payroll 

data or other similar documentation 

verifying new hires; copies of Section 3 

contracts, clauses, and assurances; 

evidence of efforts taken by contractors 

or subcontractors to comply with the 

terms of the Section 3 clause and efforts 

taken to reach the minimum numerical 

goals; and other data, evidence or 

materials deemed by HUD as 

demonstrating compliance with the 

requirements of this part. 

§ 135.27 Sanctions for noncompliance. 

Sanctions imposed on recipients that 

fail to comply with any of the 

requirements of this part shall be in 

accordance with the requirements and 

procedures concerning the imposition of 

sanctions or resolutions set forth in the 

regulations governing the program 

under which the Section 3 financial 

assistance is provided. Appropriate 

sanctions for noncompliance may, 

depending on the regulation governing 

the program under which the Section 3 

financial assistance was provided, 

include: requiring additional 

certifications or assurances of 

compliance; repayment of HUD 

financial assistance; ineligibility for 

HUD financial assistance; withholding 

HUD financial assistance; or 

suspension, debarment, or limited 

denial of participation in HUD programs 

pursuant to 2 CFR part 2424 where 

appropriate. 

§ 135.29 Other Federal requirements. 

Compliance with Section 3 and the 

regulations of this part does not 

supersede other Federal requirements 

that may be applicable to the execution 

of HUD programs. 

(a) Federal labor standards 

provisions. Certain construction 

contracts are subject to compliance with 

the requirement to pay prevailing wages 

determined under the Davis-Bacon Act 

and with implementing DOL 

regulations, including those at 29 CFR 

parts 1, 3 and 5. Additionally, 

maintenance activities on public 

housing developments are subject to 

compliance with the requirement to pay 

prevailing wage rates, as determined or 

adopted by HUD, for maintenance 

laborers and mechanics engaged in this 

work. 

(b) Use of apprentices. Apprentices 

and trainees will be permitted to work 

at less than the predetermined rate for 

the work they perform when they are 

employed pursuant to a bona fide 

apprenticeship program registered with 

the DOL Office of Apprenticeship, or a 

state apprenticeship agency recognized 

by that Office, or pursuant to a trainee 

program approved by the DOL 

Employment and Training 

Administration, under the conditions 

specified in DOL regulations at 29 CFR 

5.5(a)(4). Apprentices and trainees may 

be utilized only to the extent permitted 

under either DOL regulations or, for 

work subject to HUD-determined or 

adopted prevailing wage rates consistent 

with HUD policies and guidelines. The 

allowable use of apprentices and 

trainees includes adherence to the wage 

rates and ratios of apprentices or 

trainees to journeymen set out in the 

approved program. 

Subpart B—Additional Provisions for 

Public Housing Financial Assistance 

§ 135.31 Applicability. 

(a) General. The requirements of 

Section 3 apply to training, 

employment, contracting and other 

economic opportunities arising from the 

expenditure of public housing financial 

assistance, as defined in § 135.5. This 

subpart communicates provisions to be 

implemented by PHAs in addition to 

those set forth in subpart A. 

(b) Scope of applicability. (1) The 

requirements of this subpart apply to all 

new employment and training 

opportunities that are generated as a 

result of the expenditure of public 

housing financial assistance. 

(2) The requirements of this subpart 

apply to all contracting opportunities 

(including contracts for professional 

services) that are funded with Section 3 

public housing financial assistance, 

regardless of whether the Section 3 

project is fully- or partially-funded with 

Section 3 covered financial assistance. 

Accordingly, if any amount of Section 3 

covered financial assistance is invested 

into Section 3 covered projects or 

activities, the requirements of this 

subpart apply to the entire project. 

§ 135.33 Public housing agency 

thresholds. 

There are no thresholds for Section 3 

public housing financial assistance. The 

requirements of this subpart apply to 

Section 3 public housing assistance 

provided to recipients, notwithstanding 

the amount of the assistance provided to 

the recipient. The requirements of this 

subpart apply to all subrecipients, 

contractors, or subcontractors 

performing work in connection with 

projects and activities funded by public 

housing Section 3 covered financial 

assistance, regardless of the dollar 

amount of the contract or subcontract. 

§ 135.35 Minimum numerical goals. 

(a) Employment opportunities. (1) 

PHAs must employ, to the greatest 

extent feasible, Section 3 residents as 30 

percent of direct new hires within the 

public housing agency (PHA). 

Employment opportunities are not 

limited to those related to construction 

and rehabilitation and may include, but 

are not limited, to the following 

employment opportunities: 

management, administrative, 

accounting, food services, case 

management, information technology, 

facilities maintenance, janitorial, 

daycare, construction, etc. 

(2) PHAs must direct their 

subrecipients, contractors, 

subcontractors, and others that may be 


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administering Section 3 covered 

financial assistance on the PHA’s behalf 

to employ, to the greatest extent 

feasible, Section 3 residents as 30 

percent of its direct new hires. 

(3) For a Section 3 resident to be 

considered a new hire by a contractor or 

subcontractor, the Section 3 resident 

must work, during its employment with 

the contractor or subcontractor, a 

minimum of 50 percent of the average 

staff hours worked for the category of 

work for which they were hired 

throughout the duration of time that the 

category of work is performed on the 

covered project. 

(b) Contracting opportunities. (1) 

PHAs must award, to the greatest extent 

feasible, to Section 3 businesses at least 

10 percent of the total dollar amount of 

all contracting opportunities generated 

from the expenditure of Section 3 

covered financial assistance. 

(2) PHAs must direct their 

subrecipients, contractors, 

subcontractors, and others that may be 

administering Section 3 covered 

financial assistance on the PHA’s behalf 

to award, to the greatest extent feasible, 

to Section 3 businesses at least 10 

percent of the total dollar amount of all 

subsequent contracting or 

subcontracting opportunities. 

§ 135.37 Orders of priority consideration 

for employment and contracting 

opportunities. 

(a) General. (1) Priority consideration 

should not be construed to be a quota 

or set-aside program, or an entitlement 

to economic opportunities such as a 

particular position or contract. 

(2) Section 3 residents must possess 

the same job qualifications, skills, 

eligibility criteria, and capacity as other 

applicants for employment and training 

opportunities being sought. 

(3) Section 3 businesses must be 

selected in accordance with the 

procurement standards of 24 CFR 85.36, 

including price, ability and willingness 

to comply with this part, and other 

factors, to be considered lowest 

responsible bidders on contracting 

opportunities being sought. 

(4) A PHA may give priority 

consideration to a Section 3 resident or 

business if such resident or business is 

qualified for the respective employment 

or contracting opportunity. 

(5) A PHA must give priority 

consideration to a Section 3 resident or 

business when that Section 3 resident or 

business is equally qualified with other 

individuals or businesses to which the 

PHA would offer employment or 

contracting opportunities. 

(b) Order of priority consideration for 

Section 3 residents in employment and 

training opportunities. A PHA, its 

subrecipients, contractors, and 

subcontractors shall direct their efforts 

to provide employment and training 

opportunities generated from the 

expenditure of Section 3 covered 

financial assistance to Section 3 

residents in the following order of 

priority consideration: 

(1) Residents of the public housing 

project or projects where the Section 3 

covered financial assistance is 

expended. 

(2) Residents of other public housing 

projects managed by the PHA that is 

spending Section 3 covered financial 

assistance. 

(3) Section 3 residents participating in 

DOL YouthBuild programs. 

(4) Other Section 3 residents in the 

Section 3 local area, including 

individuals and families receiving 

Section 8 housing choice vouchers. 

(c) Order of priority consideration for 

Section 3 businesses in contracting 

opportunities. A PHA, its subrecipients, 

contractors, and others shall direct their 

efforts to award contracting and 

subcontracting opportunities to Section 

3 businesses in the following order of 

priority consideration: 

(1) Section 3 businesses that are 51 

percent or more owned by residents of 

the public housing project(s) where the 

Section 3 covered financial assistance is 

expended; or whose full-time, 

permanent workforce is comprised of 30 

percent or more of residents of the 

public housing project(s) where the 

Section 3 covered financial assistance is 

expended. 

(2) Section 3 businesses that are 51 

percent or more owned by residents of 

any public housing projects 

administered by the PHA; or whose fulltime, permanent, workforce is 

comprised of 30 percent or more of 

residents of any public housing projects 

managed by the PHA. 

(3) Grantees selected to carry out DOL 

YouthBuild programs. 

(4) Any other Section 3 business in 

the Section 3 local area. 

Subpart C—Additional Provisions for 

Housing and Community Development 

Financial Assistance 

§ 135.51 Applicability. 

(a) General. This subpart 

communicates provisions that must be 

implemented by recipients of Section 3 

housing and community development 

financial assistance in addition to those 

set forth in subpart A. Section 3 applies 

to training, employment, contracting 

(including contracts for professional 

services), and other economic 

opportunities arising in connection with 

the expenditure of housing and 

community development financial 

assistance that is used for projects 

involving: 

(1) Housing rehabilitation (including 

demolition); 

(2) Housing construction; or 

(3) Other public construction 

(including the demolition, rehabilitation 

or construction of other public 

buildings, facilities, or infrastructure). 

(b) Exemptions. (1) The following is a 

list of some activities and projects that 

are exempt from the requirements of 

this subpart. This is not intended to be 

an all-inclusive list of activities that 

may be exempt from the requirements of 

this subpart. 

(2) Covered housing and community 

financial assistance used for acquisition, 

routine maintenance, operations, 

administrative costs, and project rental 

assistance contracts (PRAC) is exempt 

from the requirements of this subpart. 

(3) Indian tribes and tribally 

designated housing entities shall 

comply with the responsibilities set 

forth in subpart A and in this subpart. 

However, Indian tribes and tribally 

designated housing entities that adopt, 

and are complying with, tribal 

employment and contract preference 

laws (including regulations and tribal 

ordinances) in accordance with Section 

101(k) of Native American Housing 

Assistance and Self-Determination Act 

of 1996 (NAHASDA) (25 U.S.C. 4111(k)) 

shall also be deemed to be in 

compliance with this subpart. Indian 

tribes, tribally designated housing 

entities, and other tribal entities that are 

subject to the Indian preference 

requirements of Section 7(b) of the 

Indian Self-Determination and 

Education Assistance Act (25 U.S.C. 

450e) shall also be deemed to be in 

compliance with this subpart. The 

requirements of this subpart apply to 

Indian tribes that have not adopted 

tribal preference laws for employment 

and contracting in accordance with 

Section 101(k) of NAHASDA, and 

Indian tribes, tribally designated 

housing entities, and tribal entities that 

are not subject to Indian preference 

requirements of Section 7(b) of the 

Indian Self-Determination and 

Education Assistance Act, in the same 

manner as other recipients of housing 

and community development financial 

assistance set forth in subpart C of this 

part. 

§ 135.53 Funding thresholds that trigger 

Section 3 compliance. 

(a) Funding thresholds for recipients 

and subrecipients. (1) The requirements 

of this subpart apply to recipients of 

housing and community development 


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financial assistance that plan to obligate 

or commit an aggregate amount of 

$400,000 or more in Section 3 covered 

financial assistance on projects 

involving demolition, housing 

rehabilitation, housing construction, or 

other public construction during an 

annual reporting period. 

(2) The $400,000 funding threshold is 

comprised of the combined expenditure 

of all sources of housing and 

community development financial 

assistance set forth in § 135.5. 

(b) Applicability of Section 3 

requirements to individual projects. (1) 

Where the thresholds set forth in 

paragraph (a) of this section are met, the 

requirements of this subpart apply to all 

Section 3 projects and activities that are 

funded with housing and community 

development financial assistance, 

regardless of the specific dollar amount 

invested into the Section 3 covered 

project or activity. 

(2) The requirements of this subpart 

apply to the entire project that is funded 

with Section 3 covered financial 

assistance, regardless of whether the 

Section 3 project is fully- or partiallyfunded with housing and community 

development financial assistance. 

Accordingly, if any amount of Section 3 

covered financial assistance is invested 

into a project involving housing 

demolition, rehabilitation or 

construction, or the rehabilitation or 

construction of public buildings, 

facilities, or infrastructure, the 

requirements of this subpart apply to 

the entire project, both HUD and nonHUD funded portions. 

§ 135.55 Minimum numerical goals. 

(a) Employment opportunities. (1) 

Recipients of housing and community 

development financial assistance must 

direct its contractors and subcontractors 

employ, to the greatest extent feasible, 

Section 3 residents as 30 percent of 

direct new hires. For a Section 3 

resident to be considered a new hire, the 

Section 3 resident must work, during 

the resident’s employment with the 

contractor or subcontractor, a minimum 

of 50 percent of the average staff hours 

worked for the category of work for 

which they were hired throughout the 

duration of time that the category of 

work is performed on the covered 

project. 

(2) Recipients of housing and 

community development financial 

assistance must ensure, to the greatest 

extent feasible, that 30 percent of any 

new hires within the agency that will 

primarily work on HUD-funded projects 

or activities involving demolition; 

housing rehabilitation; housing 

construction; demolition, rehabilitation, 

or construction of other public 

buildings, facilities, or infrastructure; or 

construction and rehabilitation-related 

(professional service) projects and 

activities are Section 3 residents. For 

example, these positions may include 

electricians, plumbers, construction 

managers, general laborers, consultants, 

accountants, and architects. 

(c) Contracting opportunities. (1) 

Recipients of housing and community 

development financial assistance must 

award, to the greatest extent feasible, at 

least 10 percent of the total dollar 

amount of all contracts to Section 3 

businesses. 

(2) Recipients of housing and 

community development financial 

assistance must, to the greatest extent 

feasible, have its subrecipients, 

contractors, and subcontractors that 

receive contracts for Section 3 covered 

projects and activities award at least 10 

percent of the total dollar amount of all 

subsequent contracting and 

subcontracting opportunities to Section 

3 businesses. 

§ 135.57 Orders of priority consideration 

for employment and contracting 

opportunities. 

(a) General. (1) Recipients of housing 

and community development financial 

assistance and their subrecipients, and 

contractors shall provide priority 

consideration to Section 3 residents and 

Section 3 businesses for new training, 

employment, and contracting 

opportunities generated as a result of 

the expenditure of Section 3 covered 

financial assistance. 

(2) Priority consideration should not 

be construed to be a quota or set-aside 

program, or as an entitlement to 

economic opportunities such as a 

particular job or contract. 

(3) Section 3 residents must possess 

the same job qualifications, skills, 

eligibility criteria, and capacity as other 

applicants for employment and training 

opportunities being sought. 

(4) Section 3 businesses must be 

selected in accordance with the 

procurement standards of 24 CFR 85.36 

or 24 CFR 84.40, as appropriate, 

including price, ability and willingness 

to comply with this part, and other 

factors, to be considered lowest 

responsible bidders on contracting 

opportunities being sought. 

(5) Recipients of housing and 

community development financial 

assistance and their subrecipients, and 

contractors may give priority 

consideration to a Section 3 resident or 

business if such resident or business is 

qualified for the respective employment 

or contracting opportunities 

(6) Recipients of housing and 

community development and their 

subrecipients, and contractors must give 

priority consideration to a Section 3 

resident or business when that Section 

3 resident or business is equally 

qualified with other individuals or 

businesses that would be offered 

employment or contracting 

opportunities. 

(b) Orders of priority consideration for 

employment and training opportunities. 

(1) Recipients of housing and 

community development financial 

assistance that meet the funding 

thresholds set forth at § 135.53 shall 

direct their efforts to provide training 

and employment opportunities 

generated from the expenditure of 

Section 3 housing and community 

development financial assistance, to 

Section 3 residents in the following 

order of priority consideration: 

(i) Section 3 residents residing in the 

neighborhood or service area where the 

housing and community development 

financial assistance is spent; 

(ii) Section 3 residents participating 

in DOL YouthBuild programs; 

(iii) Section 3 residents residing in a 

neighborhood or service area within the 

Section 3 local area that has been 

officially identified by HUD; 

(iv) Other Section 3 residents located 

in the Section 3 local area. 

(2) Recipients of housing and 

community development financial 

assistance may, at their own discretion, 

provide priority consideration 

specifically to residents of public 

housing or recipients of other Federal 

assistance for housing, including 

individuals or families receiving Section 

8 housing choice vouchers within the 

neighborhood where work on the 

Section 3 covered project or activity is 

located. 

(c) Orders of priority consideration for 

Section 3 businesses in contracting 

opportunities. (1) Recipients of housing 

and community development financial 

assistance and their subrecipients, and 

contractors shall direct their efforts to 

provide contracting or subcontracting 

opportunities generated from the 

expenditure of housing and community 

development financial assistance to 

Section 3 businesses in the following 

order of priority consideration: 

(i) Section 3 businesses that can 

provide evidence, to the satisfaction of 

the awarding agency, that a minimum of 

75 percent of previously hired Section 

3 residents residing in the service area 

of the project or neighborhood will be 

retained for the project. 

(ii) Section 3 businesses that can 

provide evidence to the satisfaction of 

the awarding agency that a minimum of 


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50 percent of on-the-job training or 

registered apprenticeship opportunities 

will be provided to Section 3 residents 

in the neighborhood or area to be served 

by the Section 3 project or activity. 

(iii) Section 3 businesses that are 

located in the neighborhood or service 

area where the Section 3 covered project 

or activity is located, and a minimum of 

30 percent of its permanent full-time 

workforce is comprised of Section 3 

residents residing in the neighborhood 

or service area where the Section 3 

covered project or activity is located. 

(iv) Grantees selected to carry DOL 

YouthBuild programs. 

(5) All other businesses that are 

located in the Section 3 local area that 

meet the definition of Section 3 

business in § 135.5. 

Subpart D—Additional Provisions for 

Recipients of Competitively Awarded 

Section 3 Financial Assistance 

§ 135.71 Applicability. 

(a) General.—(1) Competitively 

awarded assistance. The requirements 

of this subpart apply to Section 3 

covered financial assistance 

competitively awarded by HUD. 

(2) HUD Notices of Funding 

Availability (NOFAs). (i) All HUD 

NOFAs announcing the availability of 

Section 3 covered financial assistance 

will provide notification of the 

requirements of Section 3. 

(ii) For competitively awarded public 

housing financial assistance involving 

activities that are anticipated to generate 

significant employment, training, 

contracting, or other economic 

opportunities, regardless of the source 

or amount of the public housing 

financial assistance, HUD’s NOFA will 

include a statement advising that 

successful applicants shall, to the 

greatest extent feasible, and consistent 

with existing Federal, State, and local 

laws and regulations, ensure that 

employment, training, contracting, or 

other economic opportunities created as 

a result of the provision of financial 

assistance be directed to Section 3 

residents and businesses consistent with 

the orders of priority consideration set 

forth at § 135.37. 

(iii) For competitively awarded 

housing and community development 

financial assistance involving housing 

demolition, rehabilitation, or 

construction, or the demolition, 

rehabilitation or construction of other 

public buildings, facilities or 

infrastructure, HUD’s NOFA will 

include a statement acknowledging that 

if the award of competitive financial 

assistance will result in the successful 

applicant receiving and planning to 

obligate or commit Section 3 covered 

financial assistance that exceeds the 

thresholds set forth at § 135.53, the 

grantee is required to ensure that 

employment, training, contracting 

(including contracts for professional 

services), or other economic 

opportunities generated as a result of 

the provision of Section 3 covered 

financial assistance that is competitively 

awarded be directed, to the greatest 

extent feasible, and consistent with 

existing Federal, State, and local laws 

and regulations, to Section 3 residents 

and businesses. 

(3) Exemption. HUD NOFA 

competitions that primarily use 

volunteer labor, sweat equity, 

homeowners, or other beneficiaries to 

carryout construction or rehabilitation 

projects or activities are exempt from 

complying with the requirements of this 

subpart. 

(b) [Reserved] 

§ 135.73 Applicant selection criteria. 

Where not otherwise precluded by 

statute, and where applicable, in the 

evaluation of applications for the award 

of assistance, consideration shall be 

given to the extent to which an 

applicant has described in their 

applications their plans to train and 

employ Section 3 residents and contract 

with Section 3 business concerns in 

furtherance of the proposed activities. 

The program NOFAs for which Section 

3 is applicable will include information 

regarding how Section 3 activities will 

be considered in rating the application. 

§ 135.75 Section 3 compliance for NOFA 

grantees. 

(a) Certifications of compliance with 

this part. Successful applicants must 

certify that they will comply with the 

requirements set forth in this part. A 

HUD office that awards Section 3 

covered financial assistance may require 

execution of a certification that reflects 

the requirements and goals of the 

Section 3 covered financial assistance. 

The Assistant Secretary for the program 

office will accept an applicant’s 

certification absent evidence to the 

contrary. 

(b) Monitoring and compliance. 

Successful applicants shall be held 

accountable for complying with the 

requirements of this subpart; 

implementing strategies described in 

narrative statements; meeting annual 

reporting requirements; and will be 

subject to monitoring at the discretion of 

HUD. 

§ 135.77 Resolution of outstanding 

Section 3 matters. 

Applicants that have received a letter 

of finding from HUD identifying 

noncompliance with Section 3 or that 

have received a sanction from HUD for 

noncompliance with Section 3, which 

has not been resolved to HUD’s 

satisfaction before the application 

deadline, are ineligible to apply for 

competitive HUD funding. HUD will 

determine if actions taken to resolve the 

letter of findings or sanction taken 

before the deadline are sufficient to 

resolve the matter. 

Subpart E—Enforcement 

§ 135.91 Cooperation in achieving 

compliance. 

(a) General. HUD recognizes that the 

success of ensuring that Section 3 

residents and Section 3 businesses have 

the opportunity to benefit from 

employment, training, contracting, and 

other economic opportunities generated 

from Section 3 covered financial 

assistance depends on the cooperation 

and assistance of recipients and their 

subrecipients, contractors, and 

subcontractors. Accordingly, all 

recipients shall fully and promptly 

cooperate with monitoring reviews, 

compliance reviews, or complaint 

investigations undertaken by HUD. 

(b) Records of compliance. Each 

recipient shall maintain adequate 

records demonstrating compliance with 

Section 3 in its own operations and 

those of its subrecipients, contractors, 

and subcontractors, consistent with 

§ 135.25. Recipients shall submit to 

HUD timely, complete and accurate data 

at such times, in specified formats, and 

containing information determined by 

HUD to be necessary to ascertain 

whether the recipient has complied 

with this subpart. 

§ 135.93 Conduct of investigations. 

(a) Periodic compliance reviews. The 

Assistant Secretary or designee may 

periodically review the practices of 

recipients to determine whether they are 

complying with this part and where he 

or she has a reasonable basis to do so 

may conduct on-site or remote reviews. 

Such basis may include any evidence 

that a problem exists or that 

programmatic matters exist that justify 

investigation in selected circumstances. 

The Assistant Secretary or designee 

shall initiate compliance reviews by 

sending to the recipient a letter advising 

the recipient of the practices to be 

reviewed; the programs affected by the 

review; and the opportunity, at any time 

prior to receipt of a final determination, 

to make a documentary or other 

submission that explains, validates, or 

otherwise addresses the practices under 

review. In addition, normal program 

compliance reviews and monitoring 


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procedures shall identify appropriate 

actions to review and monitor 

compliance with general or specific 

program requirements designed to 

effectuate the requirements of this part. 

(b) Interdepartmental coordination. 

Monitoring and enforcement may be 

carried out in coordination with the 

HUD program office that provided 

Section 3 covered financial assistance to 

the recipient being reviewed for 

compliance with Section 3. 

(c) Investigations. The Assistant 

Secretary may conduct an investigation 

whenever a compliance or monitoring 

review, Section 3 annual report, 

complaint or any other information 

indicates a possible failure by a 

recipient to comply with this part, or 

that a recipient failed to ensure 

compliance with this part by its 

subrecipients, contractors, or 

subcontractors that may be 

administering Section 3 covered 

financial assistance on behalf of the 

recipient. 

(d) Who may file a complaint. The 

following individuals and businesses 

may file a complaint alleging 

noncompliance of the requirements of 

Section 3 with the Assistant Secretary, 

personally or through an authorized 

representative: 

(1) Any Section 3 resident on behalf 

of himself or herself, or as a 

representative of persons similarly 

situated, seeking employment, training 

or other economic opportunities 

generated from the expenditure of 

Section 3 covered financial assistance 

by a recipient, subrecipient, or 

contractor, or by a representative who is 

not a Section 3 resident but who 

represents one or more Section 3 

residents; 

(2) Any Section 3 business on behalf 

of itself, or as a representative of other 

Section 3 businesses similarly situated, 

seeking contract opportunities generated 

from the expenditure of Section 3 

covered financial assistance from a 

recipient, subrecipient, or contractor, or 

by an individual representative of 

Section 3 businesses. 

(3) The Assistant Secretary or 

designee shall hold in confidence the 

identity of any person submitting a 

complaint, unless the person submits 

written authorization otherwise, and 

except to the extent necessary to carry 

out the purposes of this part, including 

the conduct of any investigation, 

hearing, or proceeding under this part. 

(e) When to file. Complaints shall be 

filed within 180 days of the last 

occurrence of the alleged violation, 

unless the time for filing is extended by 

the Assistant Secretary for good cause 

shown. For purposes of determining 

when a complaint is filed under this 

paragraph (c) of this section, a 

complaint mailed to HUD shall be 

deemed filed on the date it is 

postmarked. Any other complaint shall 

be deemed filed on the date it is 

received by HUD. 

(f) Where to file a complaint. A 

complaint must be filed with the Office 

of Fair Housing and Equal Opportunity, 

U.S. Department of Housing and Urban 

Development, 451 7th Street SW., 

Washington, DC, 20410, or any FHEO 

Regional or Field Office, as stipulated 

by HUD. 

(g) Contents of complaint. Each 

complaint must contain the 

complainant’s name and address, the 

name and address of the recipient 

alleged to have violated this part, and a 

description of the recipient’s alleged 

violation in sufficient detail to inform 

HUD of the nature and date of the 

alleged violation of this part. HUD may 

provide assistance in drafting a 

complaint based on information 

received. 

(h) Amendment of complaints. 

Complaints may be reasonably and 

fairly amended at any time. 

Amendments to complaints, such as a 

clarification and amplification of 

allegations in a complaint, or the 

addition of other recipients may be 

made at any time during the pendency 

of the complaint and any amendment 

shall be deemed to be made as of the 

original filing date. 

(i) Notification. The Assistant 

Secretary will notify the complainant 

and the recipient of the agency’s receipt 

of the complaint within 10 calendar 

days. 

(j) Preliminary investigation. (1) 

Within 30 calendar days of 

acknowledgement of the complaint, the 

Assistant Secretary will review the 

complaint for acceptance, rejection, or 

referral to the appropriate Federal 

agency. 

(2) If the complaint is accepted, the 

Assistant Secretary will notify the 

complainant and the applicable HUD 

program office. The Assistant Secretary 

will also notify the recipient of the 

allegations and provide them an 

opportunity to make a written 

submission responding to, rebutting, or 

denying the allegations presented in the 

complaint. 

(3) The recipient may send the 

Assistant Secretary a response to the 

notice of complaint within 30 calendar 

days of receipt. With the agreement of 

the Assistant Secretary, an answer may 

be amended at any time. The Assistant 

Secretary will permit answers to be 

amended for good cause shown. 

(k) Dismissal of complaint. If the 

investigation reveals no violation of this 

part, the Assistant Secretary or designee 

will dismiss the complaint and notify 

the complainant and recipient. 

(l) Letter of finding. If no informal 

resolution of the complaint or 

compliance review is reached, and the 

facts disclosed during a compliance 

review or an investigation indicate a 

failure by the recipient or its 

subrecipients or contractors to comply 

with the requirements of this part in its 

own operations or to ensure the 

compliance of subrecipients, 

contractors, or subcontractors that may 

be administering Section 3 covered 

financial assistance on behalf of the 

recipient, the Assistant Secretary will 

issue a letter of findings within 180 

calendar days of receipt of the 

complaint or culmination of a 

compliance review. The letter of 

findings shall contain the following: 

(1) Preliminary findings of fact and 

preliminary finding of noncompliance; 

(2) The actions that must be taken to 

address the areas of noncompliance 

within a specified timeframe; 

(3) A notice that a copy of the Final 

Investigative Report of HUD will be 

made available, upon request, to the 

recipient; and 

(4) Provide complainants or recipients 

30 days to respond to HUD’s findings 

and resolve or remedy findings of 

noncompliance identified during the 

compliance review or investigation. 

(m) Right to review of the letter of 

findings. (1) A complainant or recipient 

may request that a complete review be 

made of the letter of findings within 30 

calendar days of receipt, by mailing or 

delivering to the Assistant Secretary, 

Office of Fair Housing and Equal 

Opportunity, U.S. Department of 

Housing and Urban Development, 451 

7th Street SW., Washington, DC 20410, 

a written statement of the reasons why 

the letter of findings should be modified 

in light of supplementary information. 

(2) The Assistant Secretary will send 

by certified mail, return receipt 

requested, or other similar mail services, 

a copy of the request for review to the 

other party, if any. Such other party 

shall have 30 calendar days to respond 

to the request for review. 

(3) The Assistant Secretary will either 

sustain or modify the letter of findings 

within 60 calendar days of the request 

for review. The Assistant Secretary’s 

decision shall constitute the formal 

determination. 

(4) If neither party requests that the 

letter of findings be reviewed, the 

Assistant Secretary shall send a formal 

written determination of noncompliance 

to the recipient and the appropriate 


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HUD program office that administers the 

Section 3 financial assistance provided 

within 14 calendar days of the 

expiration of the time period provided 

in paragraph (c)(1) of this section. 

(n) Voluntary compliance time limits. 

If it has been determined that the matter 

cannot be resolved by voluntary means 

within 30 days HUD may proceed with 

sanctions as described at § 135.27. 

(l) Informal resolution of complaint 

investigations and compliance reviews. 

(1) General. It is the policy of HUD to 

encourage the informal resolution of 

matters. The Assistant Secretary may 

attempt to resolve a matter through 

informal means at any stage of a 

complaint investigation or compliance 

review. 

(2) Objectives of informal resolution/ 

voluntary compliance. In attempting 

informal resolution, the Assistant 

Secretary will attempt to achieve a just 

resolution of the matter and will take 

such action as will assure the 

elimination of any violation of this part 

or the prevention of the occurrence of 

such violation in the future. 

(3) The terms of such an informal 

resolution shall be reduced to a written 

voluntary compliance agreement and 

signed by the recipient and the 

Assistant Secretary. Such voluntary 

compliance agreements shall seek to 

protect the public interest, provide 

denied economic opportunities to 

Section 3 residents and businesses, and 

may include the provision of relief for 

those injured by the recipient’s 

noncompliance. 

(o) Intimidatory or retaliatory acts 

prohibited. No recipient or other person 

shall intimidate, threaten, coerce, or 

discriminate against any person for the 

purpose of interfering with any right or 

privilege secured by this part, or 

because he or she has made a complaint, 

testified, assisted, or participated in any 

manner in an compliance review, 

investigation or hearing under this part. 

Dated: March 2, 2015. 

Gustavo Velasquez, 

Assistant Secretary for Fair Housing and 

Equal Opportunity. 

[FR Doc. 2015–06544 Filed 3–26–15; 8:45 am] 

BILLING CODE 4210–67–P 


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