The U.S. Small Business Administration proposed sweeping changes to the HUBZone Program regulations last week. Most of the proposed regulations will be considered welcome changes that seek to streamline and relax some compliance requirements, making it easier for firms to maintain and retain their HUBZone status after initial adoption into the HUBZone Program. The changes also clarify ambiguities in the regulations.
The deadline for submitting comments on the proposed rules is December 31, 2018. We recommend that interested parties consider submitting comments on the proposed rules, even if it is to generally support the SBA’s proposal. Opportunities to revise this program’s rules are rare. We strongly recommend that the following stakeholders review the specific changes proposed and seek advice from counsel as needed:
Current HUBZone businesses
Entity-owners (such as tribes, ANCs, etc.) of HUBZone businesses
Current or potential applicants to the HUBZone Program
Businesses interested in partnering with HUBZone businesses
Proposed Rule Highlights
Move to Annual Recertification. The proposed rule would eliminate the burden on HUBZone small businesses to continually demonstrate that they meet all eligibility requirements at the time of each offer and award for any HUBZone contract opportunity. SBA would require only annual recertification of HUBZone status, instead of multiple contract-specific certification dates throughout the year. So participants would re-certify once a year, and participants would certify their HUBZone status at the time of the offer for each HUBZone contract, but the date of eligibility will be determined by the annual certification date (not the offer date). This change will lessen the administrative and compliance burden on HUBZone businesses, and it also makes compliance activity more predictable and certifications more stable.
Relaxation of Requirement for 35% of Employees to be HUBZone Residents. SBA proposes some practical changes to relax some compliance requirements regarding the requirement to have 35% of your employees in a HUBZone Area, making it easier for HUBZone participants to retain their status.
Who is a HUBZone Resident? SBA has relaxed requirements for which employees can be claimed as HUBZone residents. In addition to employees currently residing in a HUBZone as of the certification date, HUBZone residents will also include employees who resided in a HUBZone at the time of certification regardless of whether the employee moved to a non-HUBZone area later or the area lost its HUBZone status. SBA also proposed changes to include employees who reside overseas for the contract duration, when they continue to meet certain requirements regarding residency in a U.S. HUBZone while not performing the overseas contract.
“Attempt to Maintain” Compliance with 35% HUBZone Resident Employees. The proposed rule would authorize SBA to propose decertification of a HUBZone small business concern that is performing one or more HUBZone contracts if SBA determines that the concern no longer has at least 20% of its employees living in a HUBZone. The proposed rule has defined the statutory requirement that a HUBZone small business concern ‘‘attempt to maintain’’ compliance with the 35% HUBZone requirement while performing a HUBZone contract to mean having not less than 20% HUBZone employees. During the proposed decertification process, the concern could demonstrate that it does in fact continue to have at least 20% HUBZone employees and has otherwise attempted to meet the 35% requirement.
Definition of Employee. HUBZone stakeholders may have different feelings regarding this issue. SBA proposes some clarifications to the definition of employee, which refers to an individual who works a minimum of 40 hours per month. SBA is considering revising the requirement from 40 hours per month and replacing it with 20 hours per week. If this impacts your business (positively or negatively), you may wish to provide comments on this issue.
Topics for Comments
While all comments are welcome, SBA specifically requested comments regarding the following issues:
Seasonal Employees. Should/can seasonal employees be counted while still maintaining the integrity of the eligibility requirements?
20% Minimum HUBZone Resident Employees. What do you think about the proposed 20% minimum requirement (under the 35% HUBZone resident employee rule)? “SBA believes that a lower percentage (i.e., allowing less than 20% HUBZone residents) would unreasonably diminish the impact of the program on the targeted areas and populations. However, SBA requests comments as to whether a different percentage is also reasonable and would accomplish the objectives of the HUBZone program while not unduly burdening firms performing HUBZone contracts.”
In-kind Compensation guidance. Is SBA’s treatment of in-kind compensation (non-monetary compensation such as housing, food, etc.) reasonable?
Overseas Employees & Contracts. Proposed application of employee residency requirements to employees working overseas on overseas contracts.
More SBA Regulations Expected for 8(a) Program & Mentor Protégé Programs
We wanted to note that this set of regulatory changes to the HUBZone Program is really the first of two major revisions of SBA regulations. The SBA is working on revamping much of the SBA 8(a) Program and aspects of the Mentor Protégé Programs. We anticipate the release of proposed regulations regarding those changes next year.
The Federal Communications Commission (FCC) and the US Department of Agriculture, Rural Utilities Service (RUS) are responsible for implementing the programs that provide funding for rural broadband. Two recent Government Accountability Office (GAO) reports note that lack of fair data collection methods as well as lack of tribal input and feedback have made tribal access to such broadband funding extremely difficult or impossible. In both reports the GAO provided recommendations to remedy these hurdles. Both reports and their recommendations are set forth below.
The first GAO report, entitled “Broadband Internet: FCC’s Data Overstate Access on Tribal Lands,” (GAO-18-630) was released on September 7, 2018, and examined issues associated with carrier-provided data measuring broadband access on Tribal lands and the impact the overstating of available broadband has on broadband deployment across Indian Country.
In this report the GAO found that the FCC collects broadband availability data from broadband providers, but its method for collection of that data does not accurately or completely capture broadband access – the ability to obtain service – on tribal lands. The GAO recognized the FCC’s definition of “available” creates the opportunity for the FCC to overstate fixed broadband availability on tribal lands by allowing providers to: (1) count an entire census block as served if only one location has broadband, and (2) report availability in blocks where they do not have any infrastructure connecting hoes to their networks. Additionally, when reporting on broadband access on tribal lands, the FCC does not collect information on factors that both the FCC and tribal stakeholders have identified as affecting broadband access, including affordability, service quality and service denials. The FCC utilizes the collected broadband availability data to create the National Broadband Map.
The GAO highlighted that the FCC, in its 2010 National Broadband Plan, identified the need for the federal government to improve the quality of data regarding broadband on tribal lands, and recommended that the FCC work with Tribes to ensure that any information collected is accurate and useful. In this September report, the GAO found insufficient tribal outreach from the FCC, insufficient FCC support of tribal efforts to build technical expertise concerning broadband issues, and no formal process to obtain tribal input on FCC broadband data.
Finally, the GAO noted that the FCC has abdicated its government-to-government role with tribes by requiring that providers receiving funds to serve tribal lands meaningfully engage with Tribes and discuss broadband deployment planning. GAO noted that the FCC had done little follow up on this requirement since issuing guidance on the requirement in 2012, and has taken limited steps to obtain any feedback from this request. GAO noted that both Tribes and providers identified failed attempts to engage with the other.
The FCC develop and implement methods – such as a targeted data collection – for collecting and reporting accurate and complete data on broadband access specific to tribal lands. [It was reported to Congress that the FCC agreed with this recommendation and stated that it is exploring methods to collect more granular broadband deployment data.]
The FCC develop a formal process to obtain tribal input on the accuracy of provider-submitted broadband data that includes outreach and technical assistance to help Tribes participate in the process. [It was reported to Congress that the FCC agreed with this recommendation and stated that it will work with stakeholders to explore options for implementing such a process.]
The FCC obtain feedback from tribal stakeholders and providers on the effectiveness of FCC’s 2012 statement to providers on how to fulfill their tribal engagement requirements to determine whether FCC needs to clarify the agency’s tribal engagement statement. [It was reported to Congress that the FCC agreed.]
In addition to the GAO recommendations, it is important to recognize that RUS is proposing utilizing the FCC’s National Broadband Map (created from the compiled broadband availability data), together with its own mapping data, to identify areas of the United States that are eligible to participate in the $600,000,000 e-Connectivity Pilot for which regulations are currently being crafted.
The second GAO report, entitled “Few Partnerships Exist and the Rural Utilities Service Needs to Identify and Address and Funding Barriers Tribes Face,” (GAO-18-682) was released on September 28, 2018, and examines the use of partnership arrangements between Tribal entities – Tribal governments and telecommunications providers owned by Tribes – and other entities, and their impact on broadband funding and deployment across Indian Country.
In this report, the GAO found that partnership arrangements between Tribes and other entities to increase broadband deployment on tribal lands are not widespread. It is important to note that ALL the examples of partnership arrangements provided in this GAO report arose out of funding available from USDA’s Rural Utility Service (RUS) and NTIA under programs authorized by the American Recovery and Reinvestment Act of 2009 (Recovery Act).
GAO stated that during its review, it did not find ANY partnership arrangements that leveraged currently available federal funding from the FCC’s Connect America Fund (CAF) or RUS’s Community Connect Program. Although not stated in this report, it is clear that there will be no partnership arrangements that benefit Tribes absent the availability of higher levels of financing and the prospect that partnership applications are viewed more favorably when distributing that financing. As a result, this GAO report continued by looking at current tribal options independent of partnership efforts.
The GAO report identified the two primary barriers Tribes may face with seeking federal funding for broadband deployment as: (1) the statutory requirement for Eligible Telecommunications Carrier (ETC) designation for CAF funding and (2) grant application requirements of the RUS programs.
The FCC’s Connect America Fund is the largest source of federal funding for broadband deployment in unserved and underserved areas. But only ETCs are eligible for CAF funding; and there are only 11 Tribes that have providers designated as ETCs. Between 2012 and 2017, the FCC received nine ETC applications, four of which were from tribally owned providers – but only one tribally owned provider was designated as an ETC. Additionally, during the same 5-year period, GAO found that only 14 tribal entities received federal funding to increase broadband deployment from the FCC and RUS combined.
RUS does not require that applicants for RUS funding be ETCs. However, with regard to the RUS Community Connect Grant Program, the Tribes have multiple concerns:
The language included in the grant applications is difficult to understand.
The administrative requirements are burdensome.
The time between grant announcement and submission deadlines is not long enough to prepare the required application materials.
The required submission of existing and proposed network diagrams requires funding of engineers and consultants – expenses a tribe may not be able to cover.
The requirement to demonstrating financial sustainability within 5 years is not feasible – the period is more like 15 years.
The requirement that Tribes provide at least 15% matching funds from non-federal sources is also a complete show stopper for some Tribes.
As a result of the above concerns, and after finding that RUS has not taken steps to identify or address the barriers Tribes face when applying for RUS grant funding, GAO recommended that RUS undertake an assessment to identify any regulatory barriers that may unduly impede efforts by Tribes to obtain RUS federal grant funds for broadband deployment on tribal lands and implement any steps necessary to address the identified barriers. When GAO asked RUS officials about the feasibility of undertaking such an assessment, RUS has stated it has limited resources and multiple competing purposes for those resources.
It is important to recognize that, although finding fault with the FCC’s ETC requirement, the GAO did not include a recommendation to Congress that a statutory workaround be crafted for the FCC’s ETC requirement that would allow tribes to access CAF funding.
 The FCC defines “available” as whether the provider does – or could, within a typical service interval or without an extraordinary commitment of resources, provide service to at least one end-user premises in a census block. This definition allows service providers to report broadband availability by census block but can consider the census block to be “served” even if only one household in the block has service available to it – or even worse, if the provider doesn’t currently serve anyone in the block but could do so within a “typical service interval” and without “an extraordinary commitment of resources.”
 FCC, Connecting America: The National Broadband Plan (Mar. 16, 2010).
 In the Matter of Connect America Fund, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rdc 17663 (2011).
 United States. Cong. Senate Committee on Indian Affairs. Oversight Hearing on “GAO Reports Relating to Broadband Internet Availability on Tribal Lands” October 3, 2018. 115th Cong. 2nd sess. Washington: GAO-19-134T (Statement of Mark Goldstein, Director, Physical Infrastructure Issues).
In 2006, Congress passed the Veterans Benefits, Health Care, and Information Technology Act of 2005 (38 U.S.C. 501,513), this in part created the Vets First Contracting Program within the Department of Veterans Affairs (VA). This program enabled approved firms to participate in Veteran-Owned Small Business (VOSB) and Service Disabled Veteran-Owned Small Business (SDVOSB) set asides issued by the VA. On October 1, 2018, both the VA and the U.S. Small Business Administration (SBA) made changes in their regulations that change the manner in which Veteran Owned Businesses will be certified and determined eligible to participate in Federal Procurement Programs.
In 2017, Congress passed the National Defense Authorization Act of 2017 (NDAA) which directed standardized definitions for VOSBs, and SDVOSBs between the VA and SBA. The NDAA further clarified how veteran-owned firms were certified and directed how the U.S. Small Business Administration (SBA) and VA would administer the veteran contracting program. The NDAA instructed the VA to use SBA regulations to determine ownership and control of both VOSB and SDVOSBs. The VA would determine whether the individuals were veterans or service disabled veterans and would verify applicant firms. Any challenges as to control and size issues would be determined by the SBA and ultimately heard by SBA Office of Hearings and Appeals (OHA).
The VA removed references related to ownership and control to clarify the terms and references part of the verification process. This clarified that surviving spouse or employee stock ownership plan (ESOP) could also be qualified for the program under specific circumstances.
The SBA published final regulations that were effective October 1, 2018. This rule amends the rules of practice of SBA’s OHA to implement protests of eligibility for inclusion in the VA center for Verification and Evaluation database eligibility, and it also includes procedures for appeals and denials of cancellations of inclusions in the database. SBA amended its regulations and issued definitions of ownership and control for small business concerns (SBC) which applies to the VA in its verification and “Vets First Contracting Program” and all other government acquisitions requiring self-certification.
The rule defines a Service Disabled Veteran as one who possesses either a valid disability rating letter issued by the VA establishing a rating between 0-100% or a valid disability determination from the DOD, or is registered in the beneficiary identification and records locator subsystem maintained by the VA. Reserve and National Guard disabled from disease or injury incurred or aggravated in line of duty also qualifies. These veterans with a permanent and severe disability are those with a service-connected disability that was determined by the VA to have permanent and total service connected disability for purposes of receiving disability compensation or pension.
The new rule and regulations define a VOSB concern as one where not less than 51 percent of which is owned by one or more veterans or, for publicly owned business, not less than 51% of the stock of which is owned by one or more veterans, and the management and daily business operations are controlled by one or more veterans or, if permanently and totally disabled, no less than 51% is owned by one or more veterans for both small business concerns and publicly owned businesses. Daily business operations are defined as the marketing, production, sales, and administrative functions of the firm, as well as supervision of the executive team.
An owner of an SDVO SBC and Conditions of Ownership are:
The SBA regulations essentially remain the same with some important changes for unique circumstances providing a concern must be at least 51% unconditionally and directly owned by one or more service-disabled veterans. For partnerships at least 51% of aggregate voting interest must be unconditionally owned by one or more service-disabled veterans. For publicly owned businesses, no less than 51% of stock must be unconditionally owned by one or more veterans. One or more service-disabled veterans must be entitled to receive at least 51% of the annual distribution of profits paid to owners of corporation, partnership etc. Ownership is determined regardless of whether the ownership and business concern is located in a community property state.
A SDVOSB upon the death of the service-disabled veteran will continue to qualify as a small business concern if the surviving spouse acquires the veterans ownership interest, veteran was rated 100% disabled under VA or the veteran owner with majority ownership died as a result of the service related disability. The SBA limits the ability to continue to be a qualified business from the time of the death of the veteran and the ending of the earliest of the following three events:
The veteran’s spouse remarries;
The spouse divest ownership interest in the business; or
Ten (10 years) after the death of the veteran.
Control of a SDVOSB or VOSB:
The SBA has clarified the requirement for veteran control of the business concern under a variety of circumstances essentially providing eligibility integrity while providing that the veteran can still get the benefits in unique situations. In the case of a permanent or severely disabled veteran the spouse or designated caregiver may act on behalf of that veteran. A Permanent Caregiver for the veteran may control the affairs of the business on behalf of the veteran when it has been legally demonstrated that the person has the responsibility for managing the wellbeing of the veteran with a severe or permanent disability as determined by the VA. There may be only one permanent caregiver.
Control over a corporation for one or more service-disabled veterans (or spouse or caregiver of a permanent and severe disabled veteran, will be deemed to be service disabled to control the board of directors when a single service-disabled veteran owns 100% of all voting stock of an applicant or concern, or owns at least 51% of all voting stock of an applicant or concern, is on the board of directors, and no super majority voting requirements exist for shareholders to approve actions.
If supermajority exists in the articles of incorporation the veteran must be able to overcome super majority voting requirements. If more than one seeks to qualify the concern each individual on the board together should own at least 51%. All voting stock, there is no requirement for supermajority, and the shareholders can demonstrate that they have made enforceable arrangements to permit one of them to vote the stock as a block without a shareholder meeting. If supermajority exists shareholders must provide for a sufficient percent of voting stock to overcome requirements. Weighted voting is required when an applicant does not meet these above requirements.
The SBA will NOT make a determination that the veteran lacks control in “extraordinary circumstances.” The limited extraordinary circumstances are defined as:
Adding a new equity stakeholder
Dissolution of the company
Sale of the company
Merger of the company
Company declaring bankruptcy, and
There is a rebuttable presumption that service-disabled veterans do not control the firm when they are unable to work for the firm during normal working hours that businesses in the industry usually work (not limited to other full or part time employment, student, other activities etc.). There is also a presumption that these veterans do not control the firm if they are not within a reasonable commute to the firm’s HQ or job-site. Ability to respond to phone calls or emails is not by itself a presumption.
If the service-disabled veteran has been called to active duty, they may elect to designate in writing one or more individuals to control the concern on behalf of the service-disabled veteran during the period of active duty. This will not remove the eligibility based on absence during active duty. Written records must be kept.
This short report on the new regulations is not intended to be comprehensive and does not cover all of the details of the two sets of regulations. This short report is not intended as legal advice. We recommend people interested in this issue complete due diligence and independent research into the new regulations.
2018-09-18T00:07:25+00:00 September 17th, 2018|
Written by Anmei Goldsmith
Last Friday, September 24, 2018, the Alaska Supreme Court issued opinions in three cases briefed and argued by the BHBC municipal team – with favorable decisions in two of the three. In each case, the municipal team, led by the practice group’s lead attorney Holly Wells, vigorously defended its client city’s interests. These three cases highlight the municipal team’s depth of experience in appellate work, particularly for its municipal clients.
In City of Kodiak v. Kodiak Public Broadcasting Corporation, Slip Op. No. 7291, Holly Wells and Katie Davies successfully defended the City of Kodiak from an award of full attorney’s fees in a case involving production of public records under the Public Records Act. A radio station in Kodiak, KMXT, filed suit against the City to compel production of certain public records after the City objected. After brief litigation lasting less than two months, the City agreed to turn over all the records KMXT requested. KMXT then demanded its full attorney’s fees – almost $25,000, arguing that because access to public records is a fundamental right, it was entitled to full fees under AS 09.60.010, which allows full fees to the prevailing party in a constitutional claim. The trial court awarded KMXT its full attorney’s fees. The Supreme Court overturned this award, agreeing with the City that KMXT asserted a statutory right rather than a constitutional right, and was therefore not entitled to its full attorney’s fees. The case was remanded back to the Superior Court for a decision on Rule 82 attorney’s fees.
In Griswold v. Homer City Council, et al., Slip Op. No. 7297, BHBC defended the City of Homer in another case involving disclosure of public records under the Public Records Act. Holly Wells and Katie Davies defended the City’s assertion of the attorney-client privilege and the deliberative process privilege as exceptions to the general rule that the public has full access to inspect and copy public records generated by municipal governments. The Supreme Court took this opportunity to reaffirm the existence of the deliberative process privilege and the balancing test that trial courts must apply when this privilege is litigated. The Supreme Court also addressed for the first time how the attorney-client and work-product privileges interact with the Public Records Act. The Supreme Court held that these two privileges are exceptions to the general disclosure rule of the Public Records Act and provided guidance for future cases. This case was remanded to the trial court to re-examine the requested records in light of the Supreme Court’s holdings and to decide issues not addressed in the appeal.
In Griswold v. Homer Board of Adjustment, et al., Slip Op. No. 7295, the trial court issued an order “sua sponte” dismissing Griswold’s appeal of a conditional use permit granted by the City of Homer’s Board of Adjustment. Though neither side had raised the standing issue in the trial court, the trial court nevertheless decided the issue on its own. This placed Homer in the unusual legal position of defending an order it did not request. The Supreme Court overturned the trial court’s dismissal order and reaffirmed the principle that notice of an adverse argument that affects a party’s participation in a case, such as standing, is an essential part of due process. The case was remanded to Superior Court for further proceedings on the substantive issues of the case. Holly Wells and Tom Klinkner briefed and argued this case.
Birch Horton Bittner & Cherot recently held its biennial retreat as an opportunity for attorneys and paralegals to get out of the office together, in order to focus on the direction and future of the firm. One of the events on the agenda was an early morning yoga class, demonstrating the firm’s commitment to the health and wellness of its people. The complex practice of law can be demanding and stressful at times, and studies have shown the practice of yoga has several benefits for corporate professionals. Some of the many benefits of yoga include the following:
Alleviates certain physical pain and prevents injury. Any physical pain will impact work productivity and absenteeism. Yoga has been shown to be beneficial to reduce low back pain, shoulder stiffness and immobility, neck strain, carpal tunnel and arthritis symptoms, and reduce headaches in some instances. The increased range of motion and flexibility also helps to prevent common injuries. Of course all individuals with any physical limitations or ailments should consult their physician before beginning a physical yoga practice.
Relieves Stress. Aside from the many physical benefits, one of the best benefits of yoga is how it helps a person manage and reduce stress, which is known to have devastating effects on the body and mind. A regular yoga practice creates mental calmness and relieves chronic stress patterns by relaxing the mind. By practicing mindful breathing and the other relaxation techniques emphasized in yoga, individuals experience tremendous stress relief.
Improves Concentration & Focus. Yoga’s practice of slowing down, mindful and intentional movement and controlled breathing centers attention and sharpens concentration, contributing to more focus and creativity.
Increases Positivity and Productivity. By moving the body, its muscles, joints, ligaments and bones in all of the way that the body needs to move; by removing certain toxins through deep breathing; and by clearing the clutter of the mind by practicing one point of focus, individuals find they have more energy and just feel better, physically and emotionally. And an employee that feels better, will perform better in all aspects of their professional life.
Healthy, relaxed, energized and focused employees are more productive, efficient and cost effective. By promoting and encouraging the practice of yoga, Birch Horton Bittner & Cherot values wellness and is committed to the happiness and health of its employees.
For the second year in a row, members of Birch Horton Bittner & Cherot competed in the Tour de Cure bike race in Anchorage to raise money for the American Diabetes Association.
Jack McKenna, Anmei Goldsmith, Katie Davies, Peggy Crowe, Rachel Crowe (l to r)
Team BHBC proudly raised $2,900 through their fundraising efforts!
Jack McKenna, Anmei Goldsmith, Katie Davies, Peggy Crowe, and Rachel Crowe braved the rain and wind to compete in the 100KM race, and Adam Cook took on the elements in the 50KM race. On behalf of Team BHBC, thank you to everyone who supported our team and the American Diabetes Association!