Effective Jan. 16, 2025, SBA HUBZone Program Updates and Clarifications to Other Small Business Programs will be realigned within the 13 C.F.R. Parts 121 and 125, and important programmatic changes will be implemented in Parts 124 through 128.

New Regulatory Section 13 C.F.R. § 125.12: Recertification of Size and Small Business Program Status and Its Grace Period

The SBA has realigned recertification from all the respective program regulations into a new section, §125.12, to create more uniformity among the socioeconomic programs.

The new regulations parse through different triggering events and contractual variables, such as long-term contracts and multiple award contracts, that may result in different recertification eligibility. These examples will seem familiar but, with the new alignment of all the respective socioeconomic programs, the outcomes may be different.

A company will have a disqualifying recertification if the company is no longer small or meets the socioeconomic regulations for its program. Common disqualifying recertification events are the merger or sale of the company or an affiliated company. Companies must report changes in controlling interests within 30 days in order to recertify as to size and program status. Disqualifying recertifications must be reported to the contracting agency.

In many instances, if a company has a disqualifying recertification due to a merger, acquisition, or sale prior to Jan. 17, 2026, it remains eligible for orders under multiple award contracts, but the contracting agency cannot count future orders toward its small business goaling.

This grace period is especially important for sale or merger transactions that involve large businesses and private equity. The grace period allows time for multiple award contract holders to align their business sale or merger transaction to close prior to Jan. 17, 2026, and to still receive orders under their multiple award contracts. Afterward, they will be ineligible for new order awards.

This may sound familiar because the Federal Acquisition Regulation also was recently updated, and will take effect on Jan. 17, 2025. The FAR update similarly prohibits new orders under set-asides for small businesses that are no longer small. The FAR does not have the same grace period, so it is unclear how these two issues will be reconciled.

HUBZone: No More Annual Recertification, Only Triennial

The HUBZone program, by its nature, is unique. As an oversimplified background, HUBZone companies must be located in a HUBZone, must have 35% of the employees living in a HUBZone, and must be a small business within its NAICS Code. HUBZone is the smallest of the SBA’s socioeconomic programs in terms of active certified companies and in terms of United States government (USG) contracting spend toward goaling.

The SBA recognized that HUBZone companies bear an administrative burden to recertify annually, especially when each firm also undergoes a full, more intensive recertification process once every three years. The Triennial Recertification is rigorous, and SBA officials truly delve deep into understanding if a company has been compliant with the regulations. Other socioeconomic programs do not have this same ongoing, in depth review, so the SBA is reducing the burden on HUBZones. HUBZone companies need to continue their own internal compliance reviews, because each will still need to represent as to size and employees annually. Other regulatory tweaks and changes apply, so HUBZone companies should review 13 C.F.R. Part 126 carefully for the revisions.

The revised regulations will continue to allow HUBZone companies to take credit for certain legacy HUBZone employees. It is important to understand the public policy behind HUBZone in order to understand this provision. HUBZone is designed to improve economic conditions for historically underutilized business areas or, more simply, geographic areas that experience economic hardship. That necessarily includes the people who live in those areas. If a HUBZone company hires a local resident, pays at least the USG-contractually required wages, and provides the USG-contractually required benefits, it stands to reason that the local resident may be interested in moving to a different location, potentially outside of a HUBZone. The new regulations clarify when and how those legacy HUBZone employees can be counted toward the mandatory 35% and what efforts the company must undertake. More information is located at 13 C.F.R. 126.200.

Extraordinary Actions for Minority Interest Holders in 8(a) and WOSB

The HUBZone program regulations have the majority of the changes, but 8(a), WOSB, and SDVOSB programs will also have some updates. These updates are designed to put greater detail around the agency’s interpretation of the regulations, and provide use-case examples for industry. Notably, there is a heavy emphasis on ownership, when ownership changes need to be reported to the SBA, and examples of ownership structures that allow for or prohibit partial equity transfers.

Further, the regulations now make the socioeconomic programs more uniform. For years, SDVOSB had case law and subsequent regulations that expressly identified when the SBA would not find negative control (i.e., when a minority ownership interest could have a say in the actions of the company). These were known colloquially as the extraordinary action exceptions. Specifically, these allowed a non-veteran with a minority stake in the SDVOSB company to have input for critical company governance issues but not for day-to-day operations. These include dissolving, merging, or selling the SDVOSB company, declaring bankruptcy, or other actions that do not impede the veteran owner’s ability to conduct the business of the company. These regulations were often important for joint venture companies, including those under the SBA’s Mentor-Protégé Program.

Now, minority interest owners of 8(a) and WOSB companies will have the right to similar consents. Notably, the new regulations allow for the amendment of existing corporate governance documents, as needed, and without harm to the minority interest holder.

In short, a lot of regulatory changes go into effect now and may take a little time to shake out.