HUBZone program has become a prime target for fraud

In a commentary piece published by Washington Technology, Baron & Budd Attorney Andrew Miller talks about how the HUBZone program has become a prime target for fraud. The HUBZone program was designed to provide legitimate small businesses in economically challenged areas with a path to obtain government contracts. Unfortunately, companies are attempting to use HUBZone businesses as a pass-through to allow non-HUBZone companies to gain access to set-aside contracts that would otherwise be unavailable.

What is the HUBZone program?

The Small Business Administration created the HUBZone program to give small businesses in so-called “historically underutilized business zones” a leg up in obtaining government contracts. HUBZones are urban and rural areas with low income, high poverty, high levels of unemployment and/or are near a recently closed military base or natural disaster area. The federal government’s goal is to award at least three percent of all federal contracting dollars—or roughly $15 billion—to HUBZone certified businesses annually. To accomplish this, the government limits competition for certain contracts to businesses located in these areas and gives them preferential consideration in full and open competition.

“The combination of billions of dollars in contracts set aside for HUBZone companies and bad actors looking to take advantage of inexperienced small business owners is a potential recipe for fraud,” says Andrew Miller, a Baron & Budd Shareholder. “When they are unable to meet all the needs of a federal contract on their own, small businesses can partner with larger companies. There are perfectly legitimate ways to engage in such a partnership and the SBA provides extensive guidance on how to do so. But, not infrequently, HUBZone businesses are approached with a proposal to commit fraud.”

Click here for a list of the most common fraudulent activity in HUBZone contracting.

National Conference

As people head to events like the upcoming National HUBZone Conference in Chantilly, Virginia, Miller advises small businesses to be on the lookout for partnership offers that seem too good to be true. While these conferences are designed to provide HUBZone business owners and corporations the opportunity to learn about HUBZone requirements and federal regulations, they unfortunately also offer prime opportunities for bad actors to intervene.

“Contractors who misrepresent their eligibility for HUBZone set-aside contracts not only undermine the integrity of the procurement process, but also harm legitimate small businesses vying for contracts set aside for them and put the entire program at risk,” Miller says. Participating in fraudulent schemes can cause a small business to lose its HUBZone certification, face criminal prosecution and/or be financially liable for damages in civil actions brought by whistleblowers under the Federal False Claims Act.

“While the SBA has taken important steps to tighten its screening of HUBZone applications, the industry continues to rely heavily on the community of legitimate HUBZone contractors to identify and report fraud. The HUBZone business owners who attend national events like the National HUBZone Conference are truly the eyes and ears of the industry. These hard-working business owners are the first, and most important, line of defense against HUBZone fraud.”

What Can You Do?

If you are aware of fraud involving a HUBZone-certified business or if you are the owner of a HUBZone-certified business who has been approached with a proposal to commit fraud, you may qualify to serve as a whistleblower. If the allegations you bring to light are successfully prosecuted by the federal government, you may be entitled to a monetary reward. Please call (866) 401-5971 if you would like more information.

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