Zoned in for more contracts

When Jon Hammock and Cary Landis relaunched KeyLogic Systems Inc. as an information technology services provider in 1999, they made sure to choose office space in a part of Morgantown, W.Va., that qualified the company for the Small Business Administration's HUBZone Empowerment Contracting Program.

More than a year and half later, they're still waiting for their first HUBZone contract award and beginning to question the wisdom of pursuing the set-aside program so fervently.

"It was a significant part of our business plan in relaunching our company," said Hammock, KeyLogic's president. "It weighed heavily in our strategy. We're maintaining compliance in the belief that there'll be future gains, but at this point, it's a pure burden."

HUBZone, short for historically underutilized business zone, is designed to boost economically distressed areas by steering federal contracting dollars to companies located in those areas. Although the program is more than two years old, has more than 2,800 certified companies — including more than 160 IT firms — and favorable contracting rules, agencies are falling well short of governmentwide procurement goals.

In 2000, with a governmentwide HUBZone goal of 1.5 percent, just 0.23 percent of all prime contracts went to HUBZone companies. The HUBZone goal climbs to 3 percent for 2003, or about $6 billion in contracting dollars.

Proponents of the program say a lack of HUBZone awareness among contracting officers and a perception that HUBZone businesses can't do sophisticated work are keeping it from blossoming.

"Part of the problem, we feel, is that the contracting community doesn't understand how the program works," said Michael McHale, SBA associate administrator for HUBZone. "We've been going out and doing a lot of training in the federal contracting community."

Hammock said KeyLogic, which provides systems development, data warehousing and IT management consulting, has contacted about 20 agency small-business offices and has found their response "alarming..... Some knew nothing about it."

Many agencies that do know about it have had luck with other small-business set-aside programs, such as the 8(a) and small, disadvantaged business programs, and may be reluctant to adopt something new, Landis said.

HUBZone IT companies may also suffer from an image problem, in both what they can offer and where they're located.

J.R. Webley, vice president of Advanced Systems Technology Inc., said he was surprised to find out that areas of Lawton, Okla., where AST is located, qualified for the program. "It's not a wealthy town, but it's not some sort of cardboard shack slum either," he said. "It's middle America."

Agencies may think HUBZone companies aren't capable of doing more than menial work — "janitorial and lawn- cutting jobs," said Ronald Newlan, president and chairman of the HUBZone Contractors National Council and chairman of Global Solutions Network Inc., Alexandria, Va. "That's the initial perspective."

Given the chance, HUBZone companies will demonstrate a high degree of skill and expertise, including in the IT arena, HUBZone participants say. As proof, KeyLogic's Hammock said, his company has grown to 35 employees and is now working on contracts with eight federal agencies — all without receiving a HUBZone award.

Although KeyLogic officials are frustrated with the program's lack of success so far, they do see "glimmers of hope," Hammock said. Sen. Kit Bond (R-Mo.), who authored the HUBZone law and is chairman of the Senate Small Business Committee, has worked hard to get the program off the ground, Hammock said, including writing numerous letters to agencies chastising them for not meeting HUBZone contracting goals.

Newlan said the Federal Acquisition Regulation requires contracting officers to set aside contracts to HUBZone companies if there's "a reasonable expectation" that two or more HUBZone firms will bid. The HUBZone council he heads is working to "get the word out to contracting officers on that requirement," he said.

"We're going to see a whole lot of HUBZone set-asides," Newlan said. "It may take a while, but it's going to happen."

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