[Federal Register Volume 59, Number 125 (Thursday, June 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15951]
[[Page Unknown]]
[Federal Register: June 30, 1994]
_______________________________________________________________________
Part VI
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 135 and Subtitle A et al.
Economic Opportunities for Low and Very Low Income Persons; Interim and
Final Rules
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Fair Housing and Equal
Opportunity
24 CFR Part 135
[Docket No. R-94-1677; FR-2898-I-02]
RIN 2529-AA49
Economic Opportunities for Low- and Very Low-Income Persons
AGENCY: Office of the Assistant Secretary for Fair Housing and Equal
Opportunity, HUD.
ACTION: Interim rule.
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SUMMARY: This interim rule amends part 135 to implement the
comprehensive changes made to section 3 of the Housing and Urban
Development Act of 1968 by the Housing and Community Development Act of
1992. Section 3, as amended, requires that economic opportunities
generated by certain HUD financial assistance for housing (including
public and Indian housing) and community development programs shall, to
the greatest extent feasible, be given to low- and very low-income
persons, particularly those who are recipients of government assistance
for housing, and to businesses that provide economic opportunities for
these persons.
DATES: Effective date: August 1, 1994, through June 30, 1995.
Comments due date: August 29, 1994.
ADDRESSES: Interested persons are invited to submit comments regarding
this interim rule to the Office of General Counsel, Rules Docket Clerk,
Room 10276, Department of Housing and Urban Development, 451 Seventh
Street, SW., Washington, DC 20410. Communications should refer to the
above docket number and title. A copy of each communication submitted
will be available for public inspection and copying on weekdays between
7:30 a.m. and 5:30 p.m. at the above address.
FOR FURTHER INFORMATION CONTACT: Maxine B. Cunningham, Director, Office
of Economic Opportunity, Room 5232, Department of Housing and Urban
Development, 451 Seventh Street, SW., Washington, DC 20410, telephone
(202) 708-2251 (voice/TDD). (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION:
I. Paperwork Reduction Act Statement
The information collection requirements contained in this interim
rule have been reviewed by the Office of Management and Budget for
review under the Paperwork Reduction Act of 1980, and assigned OMB
control number 2529-0043.
II. Procedural Information
The regulations contained in this interim rule are based on the
proposed rule published on October 8, 1993, and take into consideration
public comment received on the proposed rule. The Department has made a
number of changes to the section 3 regulations in response to public
comment. Because of the changes made to the October 8, 1993 proposed
rule, the Department is publishing the new section 3 regulations as an
interim rule, rather than a final rule. Although the interim rule will
be effective 30 days from the date of publication, as would a final
rule, the Department solicits additional public comment, and public
comment will be taken into consideration in development of the final
rule.
Elsewhere in today's edition of the Federal Register, the
Department has published a final rule that makes conforming amendments
to several parts in title 24 of the Code of Federal Regulations that
include reference, or should include reference, to the part 135
regulations. The section 3 ``conforming amendments'' proposed rule was
published in the Federal Register on October 8, 1993. No comments were
received on that proposed rule, and no additional comments are
solicited. Accordingly, the conforming amendments rule is published as
a final rule.
In accordance with the Department's policy on interim rules, the
amendments made to part 135 by this interim rule will expire on the
twelve-month anniversary date of publication of this interim rule
unless extended by notice published in the Federal Register or adopted
by a final rule published on or before the twelve-month anniversary
date of publication of the interim rule.
III. Background--Proposed Rule
On October 8, 1993 (58 FR 52534), the Department published a
proposed rule that would implement section 3 of the Housing and Urban
Development Act of 1968 (section 3) (12 U.S.C. 1701u), as amended by
the Housing and Community Development Act of 1992 (1992 Act).
Since its enactment, section 3 has been a statutory basis for
promoting the award of jobs and contracts, generated from projects
receiving HUD financial assistance, to, respectively, low-income
residents and businesses of the areas where the projects to be assisted
are located. Although the 1992 Act significantly revised section 3, it
did not alter the objective of section 3--to provide economic
opportunities to low-income persons. The 1992 Act strengthens the
section 3 mandate by clarifying the types of HUD financial assistance,
activities, and recipients subject to the requirements of section 3;
identifying the specific individuals and businesses who are the
intended beneficiaries of the economic opportunities generated from
HUD-assisted activities; and establishing the order of priority in
which these individuals and businesses should be recruited and
solicited for the employment and other economic opportunities generated
from HUD-assisted activities.
Consistent with the comprehensive changes made to section 3 by the
1992 Act, the October 8, 1993 rule proposed to amend part 135 in its
entirety. The October 8, 1993 proposed rule provided for implementation
of section 3 in each of HUD's three principal program areas: (1) Public
and Indian housing; (2) housing; and (3) community development. The
proposed rule specified the types of efforts to be undertaken in these
three programs to comply with the training, employment and contracting
preferences required by section 3, and the responsibilities imposed on
recipients to ensure compliance with the section 3 requirements in
their own operations and the operations of their contractors and
subcontractors.
The comment period for the October 8, 1993 proposed rule expired on
December 8, 1993, but comments were accepted through December 31, 1993.
By this date, 63 comments were received. The commenters included
housing authorities, units of government of State and local
jurisdictions, non-profit organizations, legal organizations, and
organizations representing public housing residents and other low-
income persons.
The majority of the commenters were critical of one or more aspects
of the rule. Housing authorities and State and local jurisdictions
criticized the rule for being overly burdensome, and for failing to
appreciate the administrative time and cost involved in undertaking the
efforts required to provide training, employment and contracting
opportunities to low-income persons. Legal organizations and other
organizations representing low-income residents stated that the rule
failed to provide clear standards and requirements by which recipients
and contractors could achieve compliance with section 3, and as a
result, economic opportunities would not be directed to low- and very
low-income persons as required by section 3. Several commenters
submitted lengthy comments on the proposed rule. Almost all commenters
offered suggestions and recommendations on how implementation of
section 3 should be conducted. The suggestions, recommendations, issues
and questions submitted by commenters are discussed in Sections V and
VI of the preamble.
IV. Clarification of Purpose and Applicability of Section 3--Providing
Preference When Economic Opportunities Are Generated
Before discussion of the issues and suggestions raised by
commenters, the Department wants to clarify the purpose and
applicability of section 3. Certain questions and issues raised by
several commenters made the Department aware that there is some
confusion about the purpose of section 3 and when the training,
employment and contracting preferences of section 3 are applicable.
Several commenters stated that they did not have the funds to
initiate job training and apprenticeship programs, and they did not
need to employ additional personnel or contract for work. Section 3
does not require the creation of economic opportunities for low- and
very low-income persons, or for anyone, simply for the sake of creating
economic opportunities. Section 3 requires that when employment or
contract opportunities are generated because a project or activity
undertaken by a recipient of HUD financial assistance necessitates the
employment of additional personnel through individual hiring or the
awarding of contracts for work, the recipient must give preference in
hiring to low- and very low-income persons, and must give preference in
contracting to businesses owned by these persons or that substantially
employ low- and very low-income persons.
When the need to employ additional personnel or to contract for
work occurs (which is frequently the case when HUD financial assistance
is expended), the recipient or contractor will be recruiting
individuals, and soliciting contractors, for these economic
opportunities. Section 3 requires that recipients not only include low-
and very low-income persons in these recruitment and solicitation
efforts, but that, in fact, extra or greater efforts be undertaken to
make these persons aware of the existence of the economic
opportunities, encourage their application for these opportunities, and
facilitate the employment of, or award of contracts to, these persons.
If, however, the section 3 covered assistance is awarded and the
recipient has no need for additional employees or trainees, or the
recipient has no need to contract for work, then the section 3
preference requirements are not triggered because the recipient is not
recruiting any individuals for jobs, or soliciting any business
concerns for contracts. Again, the section 3 preference requirements
are triggered by the need for new hires (whether individual employees
or contractors or subcontractors) for work on a project or activity
assisted by HUD financial assistance covered by section 3.
V. Overview of the Interim Rule and Discussion of Public Comments
This section of the preamble provides a summary of the significant
changes made to the October 8, 1993 proposed rule by this interim rule
in response to public comment, and discusses the public comments that
prompted these changes. This section also discusses those provisions of
the proposed rule for which substantial comments were received
requesting change, and for which the Department declined to adopt the
recommended change.
Simplification of Rule
Several commenters stated that the rule was unnecessarily lengthy
and complex, and contained sections and subparts that seemed simply to
duplicate the same information. Other commenters stated that one of the
reasons for the complexity of the rule was that uniform standards were
not applied to all recipients and contractors. The commenters stated
that, under the October 8, 1993 proposed rule, the standards imposed on
recipients and contractors depended upon the program source of HUD
funds received. These commenters stated that the distinction of effort
required to be undertaken by recipients on the basis of the source of
the HUD financial assistance was inappropriate, and that all HUD
recipients and contractors should be required, as the statute mandates,
to provide, to the greatest extent feasible, economic opportunities to
low- and very low-income persons. Other commenters stated that the rule
was lengthened by the long list of examples of efforts that recipients
may, but were not required to, undertake to comply with the section 3
preference requirements. The commenters stated that the rule should
provide for the minimum requirements that recipients and contractors
must meet, and that options, suggestions, and recommendations should be
provided in a notice, handbook, or other form of guidance, but not in
the rule. The Department agrees with all of the above commenters, and
has made changes to the proposed section 3 regulations in response to
these comments.
Consolidation of Rule Sections
The Department has eliminated the separate subparts for
implementing section 3 in public and Indian housing programs, housing
programs, and community development programs. The Department agrees
with the commenters that much of the information in these three
subparts was duplicative. The interim rule provides one subpart that
addresses the implementation of section 3 in all covered programs, and
this subpart makes distinctions for individual program features or
requirements where such distinctions are necessary.
Application of One ``Effort'' Standard to All Recipients and
Contractors
The interim rule requires the same level of effort to be undertaken
by all recipients and contractors, regardless of the source of HUD
financial assistance, to comply with the section 3 preference
requirements. That level of effort is one consistent with the statute's
``to the greatest extent feasible'' requirement.
The distinction in effort in the proposed rule imposed on public
and Indian housing recipients on the one hand, and recipients of funds
from ``other'' programs (i.e., housing and community development
programs) on the other hand, was based on statutory terminology. The
Congress used two different terms in describing the level of effort to
be undertaken in each of these two broad categories of HUD programs.
The Congress used the term ``best efforts'' in connection with the
efforts required of public and Indian housing authorities, and
``greatest extent feasible'' in connection with the efforts required of
recipients of ``other program'' assistance. The different use of terms
raised a presumption that the terms have different meanings. However,
on further consideration, the Department recognizes that there is very
little difference in the common meaning of these terms. Additionally,
the Department determined that the statute contemplates that every
recipient and contractor that generates economic opportunities from the
expenditure of section 3 covered assistance, regardless of the HUD
program from which the assistance is derived, must provide these
economic opportunities to low- and very low-income persons to the
greatest extent feasible.
Removal of Examples of ``Best Efforts'' and ``Good Faith Efforts''
Because the list of efforts in each of the three subparts in the
proposed rule were examples of efforts that could be undertaken by a
recipient or contractor to comply with section 3, and not efforts
required to be undertaken, the Department has removed these efforts
from the interim rule. The Department agrees that the inclusion of
these efforts added to the length of the interim rule and gave the
appearance that the regulations are more cumbersome than they are. The
list of efforts has been moved to an appendix that accompanies the
interim rule, and therefore remain an available source of guidance to
those recipients and contractors that found the list of efforts
helpful.
Several commenters provided examples of additional activities that
may be helpful in soliciting the participation of low- and very low-
income persons in the job application and procurement processes, and
these activities have been included in the appendix to part 135. A few
commenters stated that as certain efforts or activities undertaken by
recipients, and not currently included in the list of examples, prove
to be successful, the Department should add the activity or activities
to the list of examples. The Department will amend the appendix from
time to time to include additional activities, or publish a notice in
the Federal Register or in an industry trade periodical to advise of
activities that a recipient or recipients have determined to be
successful in encouraging and facilitating the participation of low-
and very low-income persons in the job application or procurement
process.
Removal of Procurement Procedures Required of Housing Authorities (HAs)
In addition to removal of the list of efforts that may be
undertaken by recipients and contractors, the interim rule removes the
provision in the proposed rule concerning procurement procedures that
HAs were required to follow in implementing the section 3 contracting
preference for each of the competitive procurement methods authorized
in 24 CFR 85.36(d). As will be discussed in more detail later in this
preamble, the Department has moved from a ``process'' oriented rule to
a ``results'' oriented rule. That is, the Department is more concerned
with the results of a recipient's efforts to comply with the section 3
preference requirements than with each specific effort undertaken to
achieve those results.
The procurement procedures set forth in the proposed rule are
included in the appendix to the interim rule, and thus remain an option
that HAs may use if they find these procedures helpful. Because of the
removal of the required procurement procedures from the rule, the
concerns and issues raised by several housing authority commenters
about negotiation of best efforts before the award of a contract, and
other issues that were specific to the procurement procedures set forth
in the proposed rule are no longer relevant, and need not be addressed.
However, the Department emphasizes that the removal of the procurement
procedures from the text of the rule does not relieve recipients and
contractors (regardless of the type of section 3 covered assistance
involved, i.e., public or Indian housing assistance, community
development assistance, etc.) of the responsibility to ensure that, to
the greatest extent feasible, the procurement practices selected to
award contracts provide for preference for section 3 business concerns.
Retention of Tiers of Low-Income Persons and Business Concerns To Which
Preference Is To Be Given
A few commenters stated that the multi-tier preference categories
for residents and business concerns create an overly complex system,
and should be removed from the rule. The multi-tier preference
categories are established by statute, and the regulation reflects the
statutory requirement to provide preference for low-income persons and
business concerns in the order set forth in the statute. In recruiting
low- and very low-income persons, the Congress was very clear that in
directing economic opportunities to low- and very low-income persons,
recipients are to target first those low- and very low-income persons
residing in public housing developments (when public and Indian housing
assistance is involved) or those residing closest to the project (in
the service area or neighborhood) for which the section 3 covered
assistance is expended (when housing assistance and community
development assistance are involved).
In contrast to commenters requesting removal of the tiers of
preference categories were commenters that sought to increase the
numbers of preference categories. With respect to the preference
categories for individuals, two commenters suggested dividing the tiers
to provide preference first to very low-income persons in each of the
categories provided by statute, followed by low-income persons. Other
commenters suggested including preferences for welfare recipients, JTPA
graduates, and women and minorities who are low- and very low-income
persons before other low- and very low-income persons. With respect to
the preference categories for business concerns, the commenters
suggested providing preference for resident-owned businesses owned by
women or minorities, or providing preference for resident-owned
businesses outside the metropolitan area or non-metropolitan county
before opening up competition to all businesses, when there are no
eligible resident-owned businesses within the metropolitan area or non-
metropolitan county. The statute provides no authority for the
Department to adopt additional preference categories.
Results Oriented Rule: The Establishment of Numerical Goals
The interim rule provides for numerical hiring and contracting
goals to demonstrate compliance with section 3. As discussed in this
section, the numerical standards constitute a ``safe harbor'' for
compliance with section 3 and are not absolute numerical requirements.
The Department acknowledges that in the preamble to the proposed
rule, the Department specifically declined to adopt numerical goals
despite suggestions from members of the public to the contrary. The
suggestions to adopt numerical goals were made at meetings held at HUD
Headquarters before publication of the proposed rule. As part of
development of the proposed rule, the Department held two meetings on
section 3 at HUD Headquarters, and invited to these meetings various
housing authorities, industry groups, representatives of public housing
residents and other low-income residents. (These meetings and the
listing of some of the individuals and groups that attended these
meetings were discussed in the preamble to the proposed rule at 58 FR
52535-52536.) At these meetings, several of the meeting participants
suggested, as did commenters on the proposed rule, that the section 3
rule provide for numerical goals as goals that recipients and
contractors should strive to meet, and as a means of measuring
compliance with section 3.
In the proposed rule, the Department declined to adopt numerical
goals stating that the establishment of numerical goals was not
consistent with the objectives of section 3. The Department stated:
Section 3 provides that to the greatest extent feasible, and
consistent with existing Federal, State and local laws and
regulations, economic opportunities generated by the expenditure of
HUD financial assistance should be given to low- and very low-income
persons. This means that, if feasible and if consistent with
existing Federal, State and local laws and regulations, all economic
opportunities generated by HUD financial assistance must be given to
low- and very low-income persons. Generally, however, this will not
be feasible in every case. For example, with respect to employment
opportunities, it is unlikely that in every hiring situation low-
and very low-income persons will be qualified for every job
opportunity generated from the expenditure of HUD financial
assistance. Therefore, it is not possible to measure compliance with
section 3 in terms of a numerical result, because numerical results
will vary dependent upon the circumstances of the hiring, e.g., the
types of jobs offered, the skills required for these jobs, and the
qualifications of the low- and very low-income persons (residing
within the metropolitan area, or non-metropolitan county) to fill
these jobs. Although every job may not be filled by a low-or a very
low-income person, section 3 requires that efforts must be made to
hire as many low- and very low-income persons to the greatest extent
feasible. (58 FR 52536)
While the Department continues to recognize that numerical results
will vary depending upon the circumstances surrounding the hiring or
contract award, the Department was persuaded by comments on the
proposed rule that broadly established numerical ``goals'' (i.e.,
hiring or contracting levels likely to be achieved in most employment
and contracting situations) better serve the objectives of section 3,
and better assist recipients and contractors in complying with section
3, than a listing of various types of outreach efforts that recipients
and contractors may undertake.
The commenters on the proposed rule expressed concern about the
number of low- and very low-income persons hired, and the numbers of
contracts awarded to section 3 business concerns that would be
considered by the Department to be in compliance with section 3. The
commenters stated that the proposed rule required recipients to report
annually on the numbers of training and employment opportunities
provided to low- and very low-income persons, and the number of
contracting opportunities awarded to section 3 business concerns, but
failed to provide any indication about what hiring and contracting
results would be considered in compliance with section 3. A few
commenters stated that a focus on efforts, and not results, would make
recipients overly concerned with the process, and not with the outcome
of the process; that is, recipients would be too concerned whether
efforts undertaken matched those in the regulation, without serious
analysis of whether those efforts were appropriate for achieving the
desired results. In a similar vein, a few commenters stated that the
Department's role was to focus on the results, and the role of the
recipients and contractors is to determine how best to achieve those
results.
In response to these comments, Sec. 135.30 of the interim rule
establishes numerical goals (stated in terms of percentages) for
training and employment, and for contracting. The Department will not
repeat in the preamble, the entire text of this section, but will note
some key features of this section.
The goals in Sec. 135.30 apply to the entire amount of the section
3 covered assistance awarded to a recipient in any Federal Fiscal Year
commencing with the first Federal Fiscal Year (FY) following the
effective date of this rule.
The goals in Sec. 135.30 apply to ``new hires'' (i.e., that is
person in new employment opportunities generated from the expenditure
of section 3 covered assistance). The interim rule defines ``new
hires'' to mean full-time positions that are permanent, temporary or
seasonal. The interim rule makes clear that the employment
opportunities with which the numerical goal concept is concerned are
those full-time positions generated from the expenditure of section 3
covered assistance. The Department recognizes that the expenditure of
section 3 covered assistance may generate part-time employment
opportunities, either of a permanent, temporary or seasonal nature, and
these opportunities are addressed in Sec. 135.40, entitled ``Providing
Other Economic Opportunities.''
Section 135.30 provides for the goals to increase in percentage
over a period of three years. For example, for FY 1995, recipients of
section 3 covered public and Indian housing assistance must commit to
employ low- and very low-income persons as 10 percent of the aggregate
number of new hires they make. This percentage increases to 20 percent
in FY 1996, and to 30 percent in FY 1997 and thereafter.
Section 135.30 also provides that a recipient that meets the
minimum numerical goals set forth in this section will be considered to
have complied with the section 3 preference requirements, absent
evidence to the contrary. The following provides an example of how a
recipient may meet the minimum numerical goals, but found not to be in
compliance with the section 3 preference requirements. A recipient
meets the 10 percent minimum goals by employing section 3 residents in
new entry level positions that the recipient has available in
connection with work on a section 3 covered project. However, the
recipient made no effort to employ, and does not employ, section 3
residents in more skilled positions that the recipient also had
available. That is, the recipient made no effort to make section 3
residents aware that these positions were available, or to encourage
section 3 residents to apply for these positions. Again, section 3
requires that, to the greatest extent feasible, recipients and
contractors will give all employment opportunities generated from the
expenditure of section 3 covered assistance to section 3 residents.
The efforts to employ section 3 residents applies to all new
employment opportunities, at all levels. The efforts to award contracts
to section 3 business concerns applies to all contracts to be awarded.
In the example provided above, if the recipient that met the 10 percent
numerical goal, strived, to the greatest extent feasible, to provide
all available employment opportunities to section 3 residents, and if
the skills, previous work experience, or education of the those
residents who applied for the jobs only met the qualifications for
entry-level positions, then there is no evidence contradicting that the
recipient is in compliance with section 3.
Section 135.30 also provides that in evaluating compliance with
section 3 as provided in subpart D (which addresses both the
Department's compliance reviews, and complaints filed by section 3
residents or section 3 business concerns), a recipient that has not met
the numerical goals has the burden of demonstrating why it was not
feasible to meet the goals. Such justification would include not only a
description of actions taken to hire or contract with low- and very
low-income persons, but also impediments encountered despite efforts
undertaken. In demonstrating why it was not feasible to meet the
numerical goals, a recipient or contractor also can indicate other
economic opportunities provided to section 3 residents or section 3
business concerns, as addressed in Sec. 135.40 (other economic
opportunities provided to residents and business concerns in an effort
to comply with section 3 and the requirements of this part).
The inclusion of numerical goals, and the removal of the various
types of best effort and good faith effort activities from the rule,
respond to commenters' concerns about little flexibility in
implementation of section 3, and the uncertainty about what constitutes
compliance with section 3. The interim rule increases flexibility by
allowing recipients and contractors to determine the procedures,
efforts and activities that work for them in meeting the section 3
preference requirements. The interim rule reduces uncertainty about
what constitutes compliance with section 3 by providing recipients and
contractors with safe harbor levels.
The Department emphasizes that the numerical goals in the interim
rule are exactly that--``goals'' that recipients and contractors should
strive to reach. The goals are not to be construed as requirements,
quotas, set-asides or a cap on hiring or contracting with low- and very
low-income persons (e.g., recipients and contractors are not to set
aside or reserve ten percent of available jobs for low- and very low-
income persons). Consistent with the greatest extent feasible
requirement, the Department hopes that recipients and contractors will
exceed these goals. The goals, if met, constitute a safe harbor for
recipients and contractors on the issue of compliance with section 3
(absent evidence to the contrary, as discussed above). The goals, if
not met, do not automatically trigger sanctions against the recipient
or contractor. However, if challenged on the issue of compliance with
section 3, the recipient or contractor should be ready to demonstrate
that it strived, but was unable, to reach the safe harbor levels.
The establishment of numerical goals is the principal reason that
the Department is issuing this rule as an interim rule. The Department
believes that the low percentage goals that are targets to be met for
FY 1995 are achievable by the majority of recipients that will
undertake hiring or contracting as a result of the expenditure of
section 3 covered assistance.
The final section 3 rule, which will be based on additional public
comment, will be issued before the goals for FY 1996 are applicable.
The Department specifically requests comment from the public on the
numerical goals set forth in Sec. 135.30.
Retention of Thresholds for Recipients of Section 3 Covered Housing or
Community Development Assistance; Increased Threshold Amounts; Removal
of HUD Share and Project Cost
In addition to promoting one ``effort'' standard that would be
applicable to all recipients, several commenters stated that the issue
of thresholds also should be treated uniformly. The commenters stated
that the thresholds should be applied to all recipients and
contractors, or none at all. Eight commenters stated that a threshold
requirement is inconsistent with the statute's ``greatest extent
feasible'' requirement. Seven commenters stated that a dollar threshold
for housing authorities is not inconsistent with a greatest extent
feasible requirement. Nine commenters representing units of local
government stated that the dollar threshold for recipients of housing
and community development assistance was too low, and should be raised.
Other commenters stated that in lieu of a dollar threshold, the rule
should establish a population threshold so that small and rural
communities which sustain few businesses, and must advertise regionally
(rather than locally) to fill economic opportunities, would be exempt
from compliance with section 3.
The Department carefully considered all comments on the issue of
thresholds, and determined to retain the proposed rule's position on
this issue, which is to provide no dollar thresholds for HAs and their
contractors and subcontractors, and to provide dollar thresholds for
recipients of housing or community development, and their contractors
and subcontractors.
No Thresholds for HAs, and Their Contractors and Subcontractors
The Department continues to maintain that a dollar threshold in
section 3 covered public and Indian housing programs is not consistent
with the statute. Section 3 applies to public and Indian housing
operating assistance, development assistance and modernization
assistance, which covers virtually all HA projects and activities.
Additionally, the statute is very specific about the residents and
business concerns to which HAs and their contractors and subcontractors
must give preference. These residents and business concerns are tied to
the housing development for which the assistance is expended, or
another development owned by the HA. The Department 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.
Thresholds for Other Recipients and Their Contractors and
Subcontractors
In contrast to public and Indian housing programs, section 3
coverage in housing and community development programs is limited to
housing and community development assistance expended for housing
rehabilitation, housing construction and other public construction. The
Department continues to maintain that the limited section 3 coverage in
housing and community development programs makes thresholds in housing
and community development programs acceptable, and not inconsistent
with the statute. Additionally, on further consideration, and as
discussed below in the section on ``HUD share,'' the Department has
determined to raise the thresholds to twice the amount set forth in the
proposed rule.
Removal of HUD Share and Project Cost
Related to the issue of thresholds is the concept of ``HUD share''
because, under the proposed rule, the threshold was based on the HUD
share of project cost.
The commenters were divided on the issue of HUD share. Eight
commenters stated that in determining whether the dollar threshold is
met, the entire project and total dollar amount should be considered,
and not solely the HUD share of this total dollar amount. These
commenters stated that the use of HUD share creates excessive
paperwork. Ten commenters stated that using HUD share to determine the
dollar threshold was correct. These commenters stated that to peg the
threshold to total development cost would not appropriately tie section
3 responsibility to Federal assistance.
The Department agreed with the commenters who stated that the use
of HUD share and calculation of the project cost makes the rule
cumbersome, and creates additional paperwork. Accordingly, the interim
rule provides for the threshold to be based on the amount of the award
of assistance--an amount by which responsibility to comply with the
section 3 preference requirements is more easily determined. Because
the interim rule removes the HUD share and project cost calculations
for determining the threshold (a process which excluded certain costs
of the recipient), the Department determined that it is appropriate to
raise the dollar thresholds.
The interim rule provides that the requirements of part 135 apply
to recipients of covered section 3 housing and community development
assistance for which the amount of the assistance exceeds $200,000; and
these requirements apply to contractors and subcontractors performing
work on projects funded by housing and community development assistance
for which the recipient's award exceeds $200,000, and the contract or
subcontract exceeds $100,000. If the recipient's award of assistance
exceeds $200,000, but the contracts and subcontracts do not exceed
$100,000, then only the recipient is subject to the section 3
preference requirements. The recipient's responsibility includes
awarding contracts, to the greatest extent feasible, to section 3
business concerns.
Clarification of Range of Economic Opportunities ``Arising in
Connection With'' Section 3 Covered Housing and Community Development
Assistance
When the Congress amended section 3, it narrowed the type of
activity to which the statute would apply in housing and community
development programs to three types of construction projects: housing
rehabilitation (including reduction and abatement of lead-based paint
hazards); housing construction; and other public construction projects.
A few commenters stated that the proposed rule's implication that
``covered opportunities'' in housing and community development programs
were limited to construction-type jobs (e.g., heavy labor, trade jobs)
was incorrect. The commenters stated that the statute applies to
employment and training opportunities ``arising in connection with''
these three types of construction projects, and that jobs arising in
connection with these projects are not only the construction jobs, but
also, management, maintenance, clerical and administrative jobs that
come into existence because of the construction project.
The commenters are correct that management, maintenance and
administrative jobs created to undertake work in connection with the
construction or rehabilitation project are covered by section 3, and
the interim rule clarifies this coverage. However, management,
maintenance or administrative jobs generated from the expenditure of
housing assistance (excluding public and Indian housing assistance) or
community development assistance, but which assistance is not expended
for rehabilitation, construction, or other public construction (and
thus is not section 3 covered assistance), are not subject to the
section 3 preference requirements.
To determine whether employment opportunities generated from the
expenditure of HUD financial assistance are subject to the section 3
preference requirements, a determination must first be made if the HUD
assistance is covered by section 3. As discussed previously, section 3
applies to the following public and Indian housing assistance:
operating assistance, development assistance, and modernization
assistance. All employment opportunities generated by the expenditure
of this assistance are subject to the section 3 preference
requirements. With respect to assistance other than public and Indian
housing assistance, section 3 applies to housing assistance and
community development assistance expended for housing rehabilitation
(including reduction and abatement of lead-based paint hazards),
housing construction or other public construction project. Thus, the
section 3 preference requirements only apply to employment
opportunities ``arising in connection with'' housing rehabilitation,
housing construction or other public construction project.
Therefore, HUD housing assistance that is expended for project
operations (i.e., assistance that is operating assistance, but not
operating assistance pursuant to section 9 of the 1937 Act) is not
covered by section 3. Accordingly, a maintenance supervisory position
that becomes available as a result of the expenditure of this
assistance is not subject to the section 3 preference requirements. A
maintenance supervisory position that becomes available as a result of
work in connection with housing rehabilitation is subject to the
section 3 preference requirements.
Defining ``Employment Opportunities Generated From Section 3 Covered
Assistance''
The interim rule provides a definition of ``employment generated by
section 3 covered assistance'' to address the various types of
employment opportunities that may arise in connection with the
expenditure of section 3 covered assistance.
Defining ``Other HUD Programs''
Additionally, the interim rule provides a definition of ``other HUD
programs'' to distinguish between HUD public and Indian housing
programs covered by section 3 and other HUD programs covered by section
3. The other HUD programs covered by section 3 are those that provide
housing or community development assistance for housing rehabilitation,
housing construction, or other public construction project.
Clarification That in Covered Housing and Community Development
Programs, ``Housing Rehabilitation'' Does Not Include Routine
Maintenance and Repair
In addition to clarifying the types of jobs that are covered by the
statutory phrase ``arising in connection with,'' the interim rule also
clarifies what constitutes ``housing rehabilitation.'' Routine
maintenance and repair do not constitute ``housing rehabilitation.''
The parenthetical statement in the statute which follows the term
``housing rehabilitation'' provides that housing rehabilitation
includes reduction and abatement of lead-based paint hazards. This
language indicates that something more than routine maintenance and
repair or replacement is contemplated by the term ``housing
rehabilitation.'' As discussed in the preceding section, the Department
notes that maintenance and repair undertaken in connection with housing
rehabilitation (e.g., clean-up after rehabilitation has been performed)
are covered by section 3.
Clarification of Range of Economic Opportunities That May Be Generated
by Section 3 Covered Public and Indian Housing Assistance
A few commenters stated that the proposed rule placed a heavy
emphasis on construction jobs, which may be appropriate in the context
of housing and community development assistance (given the limited
section 3 coverage), but is inappropriate in the context of section 3
covered public and Indian housing assistance. The commenters stated
that, in public and Indian housing programs, the statute covers
opportunities generated by development assistance, modernization, and
operating assistance, and that all jobs generated from the expenditure
of these major sources of funding for HAs should be covered.
The commenters are correct that all jobs, whether administrative,
clerical, managerial, or construction related, generated from the
expenditure of operating assistance, development assistance or
modernization assistance are subject to the section 3 preference
requirements and the interim rule makes this clarification.
Clarification That Section 3 Applies to Section 8 Project-Based
Assistance in Limited Circumstances
A few commenters stated that the Department erred in its broad
exclusion of section 8 assistance from section 3 coverage. The
commenters are correct with respect to section 8 project-based
assistance. Although section 8 project-based assistance currently does
not often finance rehabilitation and construction projects, where
section 8 project-based assistance is expended for housing
rehabilitation or construction, the assistance is covered by section 3.
Retention of Proposed Rule's Interpretation of ``Section 3 Covered
Contract''
Thirteen commenters stated that the Department should interpret
``section 3 covered contracts'' to include contracts for the purchase
of materials, supplies, or equipment, where no installation is
involved.
Exclusion of Contracts for the Purchase of Materials and Supplies
The Department declines to adopt this interpretation. The
Department believes that the phrase ``for work'' which accompanies the
term ``contract'' throughout the statute indicates that the
requirements of section 3 were not intended to apply to contractors who
only furnish materials or supplies, and do not undertake work, as in
the installation of the material or equipment. The Department, however,
encourages the purchase of materials and supplies from section 3
business concerns as a means of providing economic opportunities other
than those connected with section 3 covered assistance (see
Sec. 135.40).
Coverage or Professional Service Contracts
The term ``section 3 covered contract'' however does include
professional service contracts provided that the work to be performed
by the professionals is for work generated by the expenditure of
section 3 covered public and Indian housing assistance, or for work
arising in connection with a section 3 covered project (i.e., housing
rehabilitation, housing construction, or other public construction
project).
Clarification of Exclusion of HUD Procurement Contracts
The interim rule also clarifies that ``section 3 covered
contracts'' do not include contracts awarded under HUD's procurement
programs. These contracts are governed by the Federal Acquisition
Regulation System.
Continuation of Extension of Section 3 Coverage to Private, For-Profit
Businesses Receiving HUD Assistance
In the proposed rule, the Department defined ``section 3 covered
project'' to clarify that ``other public construction project''
included buildings or improvements, regardless of ownership, assisted
with housing or community development assistance. The Department
specifically requested comment from the public on this proposal to
extend section 3 coverage though the definition of ``section 3 covered
project'' to all private, for-profit entities that receive HUD housing
or community development assistance for a section 3 covered project,
including private, for-profit businesses receiving Community
Development Block Grant (CDBG) funding for economic development
projects. Fifteen commenters supported this proposal, stating that it
was important that section 3 apply to private, for-profit entities
receiving HUD financial assistance. Six commenters opposed the
proposal, stating that the Economic Development portion of the CDBG
program is already designed to hire low- and very low-income persons,
and to extend section 3 coverage to economic development projects is
redundant and confusing.
The Department was not persuaded by the commenters in opposition to
the proposal. Although the Economic Development portion of the CDBG
program supports the employment of low- and very low-income persons,
the employment of these persons is not triggered in the same manner as
provided by section 3. For example, an economic development project may
involve the building of a widget factory. When construction of the
factory is complete, there is a commitment to employ a certain
percentage of low- and very low-income persons as factory workers.
However, there is no requirement for the developer or builder of the
factory to employ low- or very low-income persons in the construction
of the factory. Section 3 would cover the job opportunities created at
this stage of the economic development project.
Introduction of New Term--``Section 3 Residents''
Using ``Section 3 Residents'' to Refer Collectively to ``Low-Income
and Very Low-Income Persons.'' Several commenters expressed their
dissatisfaction with the proposed rule's use of ``low-income person''
to refer to both ``low- and very low-income persons.'' The commenters
expressed concern that the use of ``low-income persons'' to refer to
both low- and very low-income persons would result in oversight of the
need to direct recruitment and solicitation efforts to very low-income
persons. Instead of selecting one of the statutory terms to refer to
both income groups, the interim rule uses the term ``section 3
residents'' to refer to both low- and very low-income residents.
Clarification That ``Section 3 Resident'' Includes Public Housing
Residents. A few commenters stated that some public housing residents
do not meet the low-income or very low-income qualifications
established by section 3, but noted that the statute indicates that all
public housing residents are eligible for the priority consideration
established by section 3 for public housing resident in employment and
training opportunities. The commenters requested that the Department
resolve this contradiction by explicitly including public housing
residents in the definition of ``section 3 resident.'' The Department
agrees with the commenters that the definition of ``section 3
resident'' should include all public housing residents. Section 915 of
the 1992 Act (the section that amended section 3), provides that it is
``the policy of the Congress and the purpose of section 3'' that
economic opportunities generated by HUD financial assistance be
directed toward low- and very low-income persons, ``particularly [to]
those who are recipients of government assistance for housing.'' The
inclusion of ``public housing resident'' in the definition of ``section
3 resident'' is consistent with Congressional policy and statutory
intent.
Definitions of Low-Income and Very Low-Income Are Statutory. Many
commenters suggested alternative definitions for low-income person and
very low-income person. The commenters wanted the definitions to
specifically include participants in programs under the Job Training
Partnership Act (JTPA), welfare recipients, and welfare eligible
applicants, or to base the income level on household income, not
individual income, or to base the income level on a percentage of the
median of the majority income, and not an all inclusive median income.
Section 915 of the 1992 Act, which amended section 3, specifically
provides that ``low-income person'' and ``very low-income person''
shall have the meanings provided these terms in section 3(b)(2) of the
U.S. Housing Act of 1937 (1937 Act). Accordingly, the definitions are
taken from this section of the 1937 Act.
Proof of Status as Section 3 Resident Is the Responsibility of the
Individual. A few commenters raised questions concerning the form of
certification or other evidence they were required to obtain or accept
from individuals to verify their status as a section 3 resident. A few
other commenters stated that questions about a person's income were an
invasion of privacy.
The interim rule does not mandate (nor did the proposed rule) that
the recipient, contractor or subcontractor require certification or
evidence of a person's section 3 status. However, if verification of
status is requested, it is the responsibility of the individual seeking
the preference in employment provided by section 3, to present evidence
that the person is a low-income or very low-income person. The
Department does not prescribe any special form of certification.
Acceptable documentation or evidence may include evidence of a person's
residency in a public housing development, or evidence of section 8
certificate or voucher assistance, or other evidence of participation
in a HUD or other Federally assisted program such as JTPA, AFDC, or
JOBS, or evidence of participation in a State or local assistance
program, or receipt of welfare assistance.
On the subject of invasion of privacy, one commenter stated that an
individual who applies for a job should not have to disclose his or her
income. If an individual wants to take advantage of the preference
provided by section 3, the individual must be willing to make such
disclosure, or as noted earlier, present other evidence of
participation in a program that assists low- or very low-income
persons. It is not unusual for programs that provide preference for
certain groups (e.g., elderly persons, young persons of a certain age
group, minorities) to require the persons claiming the preference to
support eligibility for the preference.
Revision to the Definition of ``Section 3 Business Concern''
Several commenters suggested alternative definitions for ``section
3 business concern.'' The proposed rule defined a section 3 business
concern three different ways. To be eligible for the section 3
preference, a business concern would only have to meet one of the three
definitions.
First Definition Is Unchanged. Four commenters criticized the first
definition, which requires 51 percent or more ownership of the business
by low- or very low-income persons. The commenters stated that this
definition was totally unrealistic. The commenters stated that if a
business concern is sufficiently capitalized to bid on construction
projects of substantial size and complexity, then in all likelihood the
owners were not low-income or very low-income persons.
The first definition is derived from the statute which calls for
majority ownership by low-income or very low-income persons. The
Department acknowledges that there is a small percentage of these types
of business concerns. These business concerns exist primarily in public
housing developments, and therefore are business concerns to which
housing authorities have access for contract work.
In several public housing developments across the nation, residents
have organized to form small businesses that are engaged in lawn care,
building maintenance, and even small manufacturing work, and provide
these services for the development in which they reside or for other
developments owned by the housing authority. The commenters are correct
that generally resident-owned businesses are not the business concerns
that are capable of bidding and performing work as the primary
contractor for a major construction or rehabilitation project.
Nevertheless, because this definition is statutory, and has meaning
within the public housing industry, the first definition is retained by
the interim rule, and remains unchanged from the definition in the
proposed rule.
Some Revision to Second Definition. The second definition in the
proposed rule, which is also derived from the statute, provided that a
section 3 business concern also includes a business concern that
employs a substantial number of section 3 residents for the type of
activity in which the business concern is engaged. Commenters stated
that this definition was more realistic than the first definition, but
requested that the rule provide more guidance about the meaning of
``substantial.'' Several commenters suggested that this term be
quantified, and submitted suggestions ranging from 20 percent to 75
percent of the employees of the business.
In response to public comment, the second definition has been
revised in the interim rule to mean a ``business concern whose
permanent, full-time employees consist of persons, at least 30 percent
of whom are section 3 residents'' (or who were section 3 residents at
the time of their initial employment.) The Department believes that the
30 percent figure represents a reasonable interpretation of
``substantial'' in this context. A figure of 30 percent is not so high
as to significantly limit the number of business concerns that could
meet this standard, nor so low as to make the preference for a business
concern that employs a substantial number of low- or very low-income
persons to be irrelevant.
In response to several commenters who stated that employers should
receive credit for hiring persons who were formerly low-income or very
low-income persons, this second definition of ``section 3 business
concern'' provides for this credit. This second definition of section 3
business concern provides that in determining which business concerns
meet this second definition, consideration is give to business concerns
that employ a substantial number (30 percent) of low or very low-income
persons who were low- or very low-income persons at the time the
persons were employed by the business, but whose incomes now exceed the
income level of a low- or very low-income person, and the date of first
employment by the business concern has not exceeded a period of three
years. The Department wants to give preference to business concerns who
employed low- and very low-income persons, and provided for their
advancement from that income level.
New Third Definition. In the proposed rule, the third definition
for ``section 3 business concern'' referred to a business concern that
is substantially owned, but less than 51 percent owned, by low-income
persons or very low-income persons and employs these persons in key
management positions. This definition was soundly criticized by a
number of commenters as being unrealistic, and promoting fraud and
abuse by allowing less than 51 percent ownership by low- and very low-
income persons.
In response to public comment, this definition has been removed in
the interim rule and replaced with the following: ``a business concern
that provides evidence of a commitment to subcontract, in excess of 25
percent of the dollar amount of all subcontracts to be awarded, to
business concerns that meet either the first or second definition of
section 3 business concern.'' Through this definition, a preference in
contracting will be provided to business concerns that are neither
owned by low- or very low-income persons, nor employ (as their own
employees) a substantial number (30 percent) of low- or very low-income
persons, but that actively seek and award subcontracts to businesses
owned by low- or very low-income persons, or businesses that
substantially employ low- and very low-income persons. The purpose of
this definition is to provide a preference to primary contractors that
have a successful record of subcontracting with section 3 business
concerns.
Proof of Status as Section 3 Business Concern Is the Responsibility
of the Business Concern. A few commenters raised questions about
verifying the status of a section 3 business concern. Again,
verification or certification is not mandated by this interim rule. If
requested, it is the responsibility of the business concern that wants
to take advantage of the preference provided by section 3 to produce
acceptable support or documentation that it qualifies as a section 3
business concern.
Revision to NOFA and Bonus Points Provision
The Department received many comments on the proposal in the
October 8, 1993 rule to provide in a notice of funding availability
(NOFA) for the award of bonus points to applicants who have past
experience and achievements in providing economic opportunities to low-
and very low-income persons.
A few commenters stated that the award of bonus points for
applicants who have successfully complied with section 3 was a good
idea, but that the rule should place a limit on the number of points to
be awarded to avoid abuse. Other commenters stated that bonus points
should be awarded for past performance only if the applicant's current
proposal, submitted in response to the NOFA, demonstrates a commitment
to undertake section 3 efforts consistent with past performance. Two
commenters stated that bonus points should be awarded on the basis of
efforts made, and not results achieved, because many recipients make
good faith efforts without achieving significant results. Three
commenters stated that the proposal favored large housing authorities
(over small housing authorities) that have active resident management
corporations and resident councils. The commenters stated that as a
result of these active resident groups, large housing authorities would
more often be eligible for the bonus points and edge out small housing
authorities for awards made under a NOFA. Six commenters stated that
the bonus points proposal was inappropriate, and should be removed
because it is unrelated to funding need, and further stated that it
would be difficult for the Department to verify ``claimed'' past
success under section 3.
In response to these comments, the Department revised this
regulatory section. Section 135.9 of the interim rule, which addresses
this issue, provides the following. First, for competitively awarded
assistance in which the grants are for activities administered by an
HA, and those activities as described in the NOFA are anticipated by
the Department to generate significant training, employment or
contracting opportunities, the NOFA must include a statement that one
of the purposes of the assistance is to give, to the greatest extent
feasible, and consistent with existing Federal, State and local laws
and regulations, job training, employment, contracting, and other
economic opportunities generated from the expenditure of this
assistance to section 3 residents and section 3 business concerns.
Second, this same statement must be included in NOFAs for competitively
awarded assistance involving housing rehabilitation, housing
construction, or other public construction, where the amount of the
award to the applicant is anticipated to exceed $200,000. Third, this
section provides that in the evaluation of applications for the award
of assistance under the NOFAs discussed above, consideration will be
given to the extent to which the applicant demonstrates that it will
train and employ section 3 residents and contract with section 3
business concerns for economic opportunities generated in connection
with the project/activity assisted. The evaluation criteria to be
utilized and the rating points to be assigned will be specified in the
NOFA.
Absence of Listing of Existing Federal, State, and Local Laws and
Regulations That Are Inconsistent or in Conflict With Section 3
Several commenters raised questions about the statutory requirement
that implementation of section 3 (i.e., compliance with the preference
requirements) must be consistent with existing Federal, State and local
laws and regulations that are inconsistent with section 3. A few of the
commenters requested that the rule provide a list of all existing laws
and regulations that are inconsistent with section 3. Other commenters
stated that the rule should expressly provide for the preemption of
other laws that are inconsistent with section 3. Another commenter
asked that the rule clarify who will make the determination of whether
there is a conflict between section 3 and an existing Federal, State or
local law. As discussed in this section, the Department does not agree
that there is a need for a list of other laws and regulations
inconsistent with section 3, or that there is a need to expressly
preempt inconsistent laws.
Other Laws that Provide Preference. The section 3 preference in
hiring for low- and very low-income persons, and in contracting for
businesses owned by these persons was not created by the 1992 Act.
Section 3, when originally enacted in 1968, provided for this
preference. The 1992 Act amends section 3 to require that in providing
preference to low and very low-income persons, recipients, contractors,
and subcontractors must first target for job opportunities smaller
groups within the broad category of low-income persons, such as public
housing residents. Since its enactment in 1968, the Department is not
aware, or has not been made aware of any existing Federal, State, or
local law or regulation that is expressly in conflict with the section
3 preference requirements.
The rule of statutory construction is to interpret statutes to give
meaning to all and to avoid conflicts. For example, section 7(b) of the
Indian Self-Determination and Educational Assistance Act provides a
preference for training and employment opportunities and contracting
for Native Americans. Where both the preference for Native Americans
and the section 3 preference for local residents cannot be met, the
preference for Native Americans takes priority. However, it is possible
that the two preferences can work together so that the intent of both
statutes is met.
The consideration given to utilization of women's business
enterprises (WBEs) and minority business enterprises (MBEs) in HUD
programs is also not necessarily at odds with the section 3 preference,
as believed by some commenters. The preference required by section 3 is
neither gender specific nor race, nor ethnic origin specific. The
preference required by section 3 is one of income (to be eligible for
the preference, the person's income may not exceed a certain level) and
one of location (the preference is for low-income and very low-income
persons residing in proximity to the project or activity where the HUD
financial assistance is being expended). This is a very broad
preference category, and can encompass preferences promoted by other
statutes and regulations, such as preferences for WBEs, MBEs, and other
socially and economically disadvantaged businesses (i.e., business for
which are 51 percent or more owned by socially and economically
disadvantaged individuals). The Department anticipates that section 3
and similar preference laws will serve to support, rather than
obstruct, the preferences specified by each.
Preemption. On the issue of preemption, generally, Federal law may
preempt the enforcement of a State or local law if: (1) The Federal
statute expressly preempts State or local law; (2) the Federal statute
does not contain an express preemption provision, but it is clear that
the Congress intended to preempt by occupying an entire field of
regulation, and has thereby left no room for the State to supplement
Federal law; or (3) compliance with both Federal and State law is
impossible, or State law stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of the Congress.
Under the third test, Federal preemption must reflect a reasonable
accommodation of conflicting policies that were committed to the
agency's care by statute. (See Capital Cities Cable, Inc. v. Crisp, 467
U.S. 691, 699 (1984).
The first two tests do not apply because section 3 contains no
express preemption provision, and there is no clear indication of
Congressional intent to preempt. In fact, the statute specifically
provides that a recipient's efforts to employ section 3 residents and
award contracts to section 3 business concerns shall be ``consistent
with existing Federal, State, and local laws and regulations.''
Therefore, any claim of Federal preemption would have to be based on
the third test, and the Department would have to determine that
compliance with both section 3 and State or local law is impossible, or
that State or local law stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of section 3.
The inclusion of the phrase ``consistent with existing Federal,
State, and local laws and regulations'' indicates that the Congress did
not envision that State or local law would make compliance with Section
3 impossible or that State or local law would be an obstacle to
compliance with section 3. Again, as discussed earlier in this
preamble, the preference provided by section 3 is sufficiently broad
that there should be little conflict with State or local laws. However,
the section 3 preference requirements would prevail over a permissive
(not mandatory) State or local law provision that has the potential to
conflict with section 3.
Determining if There Is a Conflict in Laws. The issue of conflict
between part 135 and an existing Federal, State, or local law would
only arise if a recipient or contractor failed to comply with the
requirements of part 135, and asserted the position that the failure
was based upon conflicting Federal, State, or local law. The Department
would consider the recipient's assertion of conflicting laws (e.g., a
local legal opinion) when the Department determined that the recipient
or contractor failed to meet the requirements of part 135 and that
there was a reasonable basis for the Department to take sanctions based
on that failure. (The Department notes that some program statutes or
regulations (e.g., the Community Development Block Grant and HOME
Investment Partnership programs) may require notice and opportunity for
a hearing before an administrative law judge before sanctions are
imposed. Accordingly, the Department would have to convince the
administrative law judge of the Department's determination regarding
failure to comply with section 3, including the Department's
determination regarding the conflict of other law with part 135.)
New Section on Compliance With Other Applicable Laws
On the subject of the relationship of section 3 to other related
laws, the interim rule contains a new section (Sec. 135.11) that
references other laws that are applicable to job training, employment,
and contracting. These laws include program statutes that require
payment of prevailing wages determined under the Davis-Bacon Act or (in
the case of public and Indian housing) determined by HUD to be
prevailing. These laws also include reference to Executive Order 11246
(which requires affirmative action to ensure that employees or
applicants are treated without regard to their race, color, religion,
sex, or national origin), and regulations governing approved
apprenticeship programs. This section also references the procurement
procedures of 24 CFR 85.36.
A few commenters raised questions about the relationship of the
procurement procedures of 24 CFR 85.36 to section 3. The requirements
in Sec. 85.36 are not inconsistent with part 135. Rather provisions in
Sec. 85.36 can facilitate actions by the recipients to meet part 135.
For example, Sec. 85.36(c)(2) expressly prohibits the use of local
geographic preferences in the evaluation of bids or proposals, except
in the cases where applicable Federal statutes expressly mandate or
encourage geographic preference. Section 3 is such a statute
encouraging geographic preference. Additionally, the Department notes
that neither the section 3 statute nor the part 135 interim rule
supersedes the general requirement of 24 CFR 85.36(c) that all
procurement transactions be conducted in a competitive manner.
Reduced Monitoring Responsibilities of Recipients
Several housing authority commenters objected to the requirement in
the rule that they must monitor the operations of their contractors and
subcontractors to ensure compliance with section 3. They stated that
this requirement imposes a significant administrative burden on
recipients, and the rule provided no guidance on how recipients should
undertake this monitoring function.
The interim rule removes the provision in the proposed rule that
required recipients to ``monitor'' the operations of their contractors
and subcontractors to ensure compliance with section 3. While the
interim rule continues to require that recipients ``ensure'' that their
contractors and subcontractors comply with section 3, the rule (see
Sec. 135.32) clarifies that this responsibility to ``ensure
compliance'' means that a recipient: (1) Should refrain from
contracting with contractors for which the recipient has received
notice or has knowledge that the contractor has been found in violation
of the regulations in part 135; (2) should respond to complaints made
to the recipient by section 3 residents or section 3 business concerns
that a contractor or subcontractor is not in compliance with the part
135 regulations; and (3) must cooperate with the Department in
obtaining the compliance of contractors and subcontractors when
allegations are made and supported that the recipient's contractors and
subcontractors are not in compliance with the regulations of part 135.
Revisions to Enforcement Section
Several commenters criticized the enforcement provisions in the
proposed rule. The commenters either found the enforcement provisions
too weak, or too severe for a statute that requires recipients,
contractors, and subcontractors to make a good faith effort to employ
section 3 residents, and contract with section 3 business concerns.
The Department believes that the interim rule provides for an
enforcement process that promotes compliance with section 3, provides
relief to complainants where appropriate, encourages resolution at the
lowest possible level (i.e., resolutions among the parties involved in
the complaint), strives for an informal resolution whenever possible,
and when necessary, provides for the Assistant Secretary for Fair
Housing and Equal Opportunity to impose a resolution on the parties
involved, which resolution will be effective unless it is appealed
within 15 days of notice of the imposed resolution. The interim rule
continues to provide for the referral of the complaint for resolution
under the procedures and sanctions provided in the regulations
governing the section 3 covered assistance.
Reduced Recordkeeping Requirements
The majority of the commenters complained that the proposed rule
was unduly burdensome with respect to recordkeeping requirements. As
discussed in this section, the interim rule substantially reduces those
requirements.
For HAs, the interim rule removes the regulatory provision that
required HAs to undertake specific procurement procedures which
required the recipient to negotiate and agree upon, and to document the
``best efforts'' to be undertaken by a contractor before the award of
the contract to the contractor. For HAs, the interim rule removes the
requirement to amend HA personnel policies to include a statement that
the HA's personnel practices provide preference for low- and very low-
income persons in training and employment opportunities. For all
recipients, the interim rule removes the requirement to amend any
written procurement policies to include a statement that the
recipient's procurement practices provide preference for section 3
business concerns. For all recipients, the interim rule also removes
the requirement to document the mechanism by which the recipient
ensured that its contractors and subcontractors complied with the
section 3 preference requirements.
Additionally, the information that the Department does require is
largely information that the recipient, contractor, or subcontractor
already maintains. Recipients, contractors, and subcontractors engaged
in hiring, or in contracting are already required by other statutes and
regulations to maintain information on the number of new hires, the
names and addresses of these employees, the race, ethnic origin and
gender of the employees, and the positions for which they were
employed, and the salary provided. For contracts, the number of
contracts awarded, the party to whom the contract was awarded, the
nature of the contract and dollar value are data recorded by the
recipient or contractor. The additional information that this interim
rule requires is the income level of the employees hired (this
information is needed to determine if they are section 3 residents) and
the status of the business concern as a section 3 business concern. The
income level of the employees is information that the Department must
have to fulfill its responsibilities under section 3. The statute
requires the Secretary of HUD to ensure that economic opportunities are
being directed to low- and very low-income persons.
Solicitation of Additional Public Comment
The foregoing presents the significant changes made to the October
8, 1993 proposed rule by this interim rule. The Department solicits
comments on these changes, additional suggestions for implementation of
section 3, and such other issues as the commenters believe that the
Department should consider before publication of the final rule.
VI. Discussion of Additional Public Comments
This section discusses additional issues raised by the commenters,
and the Department's response to these issues. These comments may have
prompted additional, but less significant, changes to the rule. The
discussion begins with comments of general applicability, and is
followed by a discussion of comments received on specific sections of
the rule. This section does not discuss comments that were either
generally laudatory or generally critical of the proposed rule, either
of style or substantive comment, or that offered editorial suggestions,
or suggestions regarding format that would not affect the meaning of
the regulatory provisions.
General Comments
Comment. One commenter stated that the proposed rulemaking
procedure did not provide adequate participation by residents and
resident organizations, that the informal meetings held at the
Department in March were strictly for the benefit of industry
associations.
Response. Residents and resident organizations were invited, and
attended the two informal meetings held in March 1993. The preamble to
the proposed rule did not include a complete listing of all individuals
and organizations attending the March meetings. Individuals and
organizations representing residents and other low- and very low-income
persons that attended these meetings included the National Housing Law
Project, the Kenilworth Parkside Resident Management Corporation, the
National Association of Resident Management Corporations, and Bromley
Heath Tenant Management Corporation.
Comment. Three commenters asked why section 3 is administered by
the Office of Fair Housing and Equal Opportunity. The commenters stated
that since section 3 is actually implemented in public and Indian
housing, and housing, and community development programs, it should be
administered by the offices for these programs.
Response. The Secretary has delegated the functions and
responsibilities of the Secretary under section 3 to the Assistant
Secretary for Fair Housing and Equal Opportunity (FHEO). The delegation
of authority to the Assistant Secretary for FHEO dates back to the
issuance of the first regulations for part 135 in 1973. One of the
reasons for delegating responsibility to the Assistant Secretary for
FHEO is that, nationally, a disproportionate number of low- and very
low-income persons residing in family public housing developments, and
in neighborhoods receiving housing and community development
assistance, are racial and ethnic minorities, a group that has been
subject to discrimination in employment, housing, financing and other
areas. Since section 3 specifically pertains to matters of employment
(whether individual hiring or through the award of contracts) FHEO is
the office with expertise in addressing matters of discrimination in
employment. This expertise will be beneficial in addressing complaints
of recipient or contractor noncompliance with section 3.
Comment. Twenty-eight commenters stated that the rule imposes a
tremendous administrative burden on recipients and a costly one. The
commenters stated that additional Federal funding is needed to
undertake the monitoring and reporting and recordkeeping required by
the rule.
Response. The Department acknowledges that compliance with section
3 is not without cost or burden to recipients and contractors, but that
burden, in large part, is imposed by statute. The statute requires
recipients, their contractors, and subcontractors, to provide, to the
greatest extent feasible, economic opportunities to low- and very low-
income persons. To meet this statutory requirement, recipients,
contractors, and subcontractors must undertake certain actions and
efforts to make low- and very low-income persons aware of economic
opportunities generated from the expenditure of HUD financial
assistance, and to encourage their application for these opportunities.
The statute requires the Secretary of HUD to ensure that economic
opportunities generated from the expenditure of HUD financial
assistance are being directed, to the greatest extent feasible, to low-
and very low-income persons. To meet this statutory requirement, the
Secretary of HUD must solicit certain information from recipients to
ensure that they are undertaking the actions and efforts required by
statute. The Department, however, has made every effort to minimize the
burden on recipients and contractors.
In response to comments on the proposed rule, staff from the Office
of Fair Housing and Equal Opportunity invited various groups
representative of recipients, contractors, and residents for an
informal meeting held at HUD Headquarters on February 23, 1994, to
discuss the monitoring, reporting and recordkeeping requirements
proposed to be imposed on recipients by the October 8, 1993 rule. (A
summary of the meeting's discussion, and a list of the attendees at the
meeting is part of the docket file for this rule.) Following
consideration of comments at this meeting, in addition to comments
received on the proposed rule, the Department has revised the rule. The
interim rule reduces, to the greatest extent possible, the
administrative burden on recipients from that set forth in the October
8, 1993 proposed rule. The ways in which the administrative burden has
been reduced were discussed in Section V of the preamble.
Comment. A few commenters stated that the Department must commit to
working closely with housing authorities to implement and comply with
the new section 3 regulations.
Response. The Office of Fair Housing and Equal Opportunity (FHEO)
has announced a 30-site technical assistance initiative beginning in FY
1995 to help recipients understand their section 3 responsibilities and
to help them design and implement effective programs and procedures to
make training, employment and contracts available to section 3
residents. FHEO is planning to provide further guidance through
participation in conferences with associations representing recipients
and contractors. With support from the private sector, FHEO is
developing detailed guidance material that will assist recipients and
residents with understanding section 3, and the responsibilities
imposed on recipients. Additionally, the FY 1995 legislative proposal
would make expenses associated with implementation of section 3
eligible costs under section 3 covered programs. Further, the FY 1995
Budget includes a request for funding to establish ``economic
opportunity centers'' that will link low-income persons with jobs and
contracts generated by HUD-assisted projects and activities. These
centers will provide technical and financial assistance to qualified
residents, as well as assistance to HUD recipients in recruiting,
training and hiring of low-income persons.
Comment. Other commenters stated that the rule should require
recipients to provide training and other supportive services to low-
and very low-income persons to ensure that these persons will be
qualified for employment opportunities that become available through
section 3 efforts.
Response. As stated in Section V of this preamble, section 3 does
not require recipients or contractors to create training programs for
low- and very low-income persons, or to create or provide any other
services to low- and very low-income persons solely for the sake of
providing opportunity programs for low- or very low-income persons.
Section 3 requires that where section 3 covered assistance will
generate economic opportunities (i.e., not out of necessity to serve
low- or very low-income persons, but out of necessity to serve the
employment or contracting needs of the recipient or contractor), these
opportunities must be directed to section 3 residents and section 3
business concerns.
Comment. Several commenters offered suggestions on implementation
of section 3, including establishing section 3 target zones in which
individuals residing in those zones would be given the section 3
preference; maintaining the affirmative action plan that is currently
required in the codified part 135 regulations; providing a financial
reward to recipients and contractors that exceed minimum section 3
requirements; providing for ``first source'' agreements with resident
councils and community organizations; and establishing permanent
section 3 committees in each jurisdiction to oversee the planning and
implementation of section 3 within the jurisdiction.
Response. The Department is appreciative of all these suggestions
and others that were offered by commenters. The statute does not permit
the Department to adopt many of the suggestions made by the commenters.
The Department believes that the streamlined procedures and increased
flexibility provided in the interim rule will make for effective
implementation of section 3.
Assistance/Program Covered
Comment. One commenter stated that section 3 should apply to
programs that serve purposes similar to programs funded by sections 5,
9, and 14 of the U.S. Housing Act of 1937. The commenter specifically
cited the Urban Revitalization Demonstration Program, which is similar
to the section 14 modernization grant program.
Response. Although the statute is very specific concerning the
types of public and Indian housing assistance covered by section 3, to
the extent that any HUD housing or community development assistance is
expended for housing rehabilitation, housing construction or other
public construction, the HUD assistance is covered by section 3, and
that would include assistance provided under the Urban Revitalization
Demonstration Program.
Comment. One commenter stated that section 3 should apply to
housing and community development programs administered by other
Federal Agencies. The commenter noted that the Department of
Agriculture has not only the Farmers Home Administration rental and
homeownership programs for low-income people, but water and sewer
community development programs, and the Department of Commerce
administers a number of programs designed to stimulate small businesses
and other investments that promote the development of communities.
Response. The statute is very clear that application of section 3
only extends to HUD housing and community development programs.
Comment. A few commenters requested that the rule include a list of
HUD programs to which section 3 applies.
Response. Because programs to which section 3 applies may change
over time (new programs are created, existing programs are terminated),
the Department declines to include in the regulation a list of section
3 covered programs. HUD programs that are covered by section 3 will
contain reference to applicability of section 3 in their program
regulations, guidelines, or notices of funding availability.
Additionally, FHEO will attempt to publish annually, at the beginning
of each Federal Fiscal Year, a notice in the Federal Register of HUD
programs subject to section 3.
Comment. One commenter asked that the rule clarify the relationship
between part 135 and part 963.
Response. Part 963 entitled ``Contracting with Resident-Owned
Businesses'' was created before the recent amendments to section 3 by
the 1992 Act. Section 3, before the 1992 amendments, while providing a
preference for low-income persons, did not give priority consideration
to residents of public housing, or to businesses owned by residents of
public housing. Accordingly, the purpose of the part 963 program, at
the time of creation, was to encourage (not require) PHAs, in their
contracting, to award contracts to section 3 business concerns.
To a large extent, the new section 3 regulations supersede part
963. Part 135 requires (consistent with section 3) that PHAs give
preference in contracting to resident-owned businesses. Part 963 does
not require preference in contracting with resident-owned businesses
because part 963 is not based on statutory authority that mandates this
preference. Part 963 is totally voluntary. Part 963 imposes a monetary
cap on the amount of contract that can be awarded to a resident-owned
business. (This amount is being increased from $500,000 to $1,000,000
in the conforming amendment rule being published under a separate rule
in this edition of the Federal Register.) No monetary cap is imposed by
part 135. Contracts covered by part 963 include contracts for the
purchase of materials and supplies. Covered contracts under part 135,
as discussed earlier in this preamble, do not include contracts for the
purchase of materials and supplies because the section 3 statute uses
the term ``contract for work.'' Part 963 complements section 3, and
provides an effective means by which the section 3 contracting
preference can be implemented.
Definitions
Comment. One commenter stated that the definition of ``business
concern'' should include nonprofit enterprises. The commenter stated
that nonprofit enterprises frequently are major sources of employment
for low-income persons, particularly public housing residents.
Response. The Department believes that one of the principal
purposes of section 3 is to promote the growth of ``profit-making''
enterprises owned by low-income persons, and that substantially employ
low-income persons, and to encourage business concerns that are not
major sources of employment for low-income persons to increase their
employment of these persons.
Comment. One commenter stated that the definition of ``contractor''
was not consistent with the statutory language. The commenter stated
that section 915 of the 1992 Act makes clear that section 3 covered
contractors are contractors employed by public and Indian housing
authorities and by units of local government receiving Federal
financial assistance. The commenter stated that the definition for this
term should be revised to state that a contractor ``is any entity
employed by a public housing authority or a unit of local government to
perform work on a section 3 covered project.''
Response. The Department declines to adopt the change recommended
by the commenter. The statute does not limit contractors to those
employed by HAs or units of local government. The requirements of
section 3 attach to covered HUD assistance. The definition for
``contractor'' provided in the rule is consistent with the statute.
Comment. One commenter stated that the definition of metropolitan
area is too geographically broad and will impede the effectiveness of
section 3.
Response. The definition of ``metropolitan area'' is the standard
definition for this term used in all, or if not all, the majority of
Federal regulations. The statute recognized that ``metropolitan area''
covers a broad geographical area, which is why the statute directs
recipients to first give preferences to low- and very low-income
residents and businesses within smaller geographical areas. For HAs,
these smaller geographical areas are housing developments; and for
other recipients, these smaller geographical areas are the service area
or neighborhood in which the section 3 covered project is located.
Comment. Four commenters objected to the inclusion of ``soft
costs'' in the definition of ``project cost.'' Soft costs are costs
associated with the financing and development of the project and
relocation costs and land acquisition costs. The commenters stated that
these costs which refer to costs such as accounting, architectural, and
engineering are ``unrealistic.''
Response. The definition of ``project cost'' is no longer in the
regulation. By ``unrealistic,'' the Department assumes that the
commenters mean that recipients or contractors will be unable to
identify section 3 residents or section 3 business concerns that have
skills in the areas of accounting, architecture, engineering, and
related professions (professional opportunities that may be covered by
section 3 depending upon the project or activity for which section 3
covered assistance is expended). The recent closing of military bases,
and factories, and major industry plants have left many skilled
professionals unemployed. Therefore, it is not totally unrealistic that
low- or very low-income persons may have skills in the professions
identified above.
Comment. Four commenters stated that the definition of ``service
area'' covered too broad a geographical area, and should be limited.
Response. The proposed rule defined ``service area'' to mean the
geographical area in which the persons benefitting from the section 3
covered project reside, but which shall not extend beyond the unit of
general local government in which the section 3 covered assistance is
expended. The Department recognizes that this definition allows
recipients to define the service area narrowly or broadly. The
Department prefers to give recipients the flexibility to define the
applicable service area, and declines at this stage to impose further
limitations on recipients' assessment of the applicable service area.
The Department anticipates that recipients will make a good faith
effort to determine a realistic service area.
Section 3 Clause
Comment. Several commenters submitted comments on the section 3
clause. One commenter requested that the clause be eliminated. Another
commenter requested that the clause be used as model or advisory
language, but not made mandatory for all section 3 covered contracts. A
few commenters stated that the clause should include the penalties to
be imposed for violation of the part 135 regulations, or it should list
the minimum efforts to be undertaken by contractors. Other commenters
offered a number of editorial suggestions.
Response. The Department declines to eliminate the clause or to
make it only advisory. The Department has made a number of editorial
changes, but the clause is substantially the same as that set forth in
the October 8, 1993 proposed rule.
Apprenticeship Programs
Comment. A few commenters expressed concern about language in the
proposed rule that stated that participation in an approved
apprenticeship program does not, in and of itself, demonstrate
compliance with the regulations of part 135. The commenters stated that
such language may discourage HAs from investing the time necessary to
set up apprenticeship programs.
Response. The Department's intent was not to discourage
participation by HAs in establishing apprenticeship programs, but to
advise that participation in training programs in which the extent of
an HA's participation is limited to referral of residents to the
training program does not constitute compliance with section 3. The
HA's participation must be more active, and provide for training and
employment.
Comment. Nine commenters stated that the rule does not address
Davis-Bacon wage rate requirements or how to obtain exemptions from
these requirements.
Response. The interim rule addresses the Davis-Bacon wage rate
requirements, but not exemptions from these requirements. Section 3
does not provide a legal basis for exemption from Davis-Bacon
requirements where they are otherwise applicable to section 3 covered
projects.
Employment Opportunities
Comment. Two commenters asked whether residents that are already in
the employ of the HA may participate in decisions on the employment of,
or award of contracts to, other residents.
Response. This decision is one that rests with the housing
authority. The housing authority, however, should take measures to
ensure that there is no conflict of interest in hiring decisions and in
the award of contracts involving other residents. For example, a
resident employed by the PHA and that has a financial interest in a
resident-owned business should not be involved in the HA's decisions
awarding contracts to resident-owned businesses.
Comment. One commenter asked how an HA, in employing a public
housing resident, will deal with issues such as workers' compensation
insurance.
Response. The Department expects an HA to address this issue as it
would in employing anyone, whether the individual is a public housing
resident or not. Most individuals do not seek employment with workers'
compensation already in place.
Comment. Four commenters stated that efforts to recruit low- and
very low-income residents should be required to be undertaken in
languages other than English as appropriate for the community served by
the HA.
Response. The Department declines to impose this as a requirement
on HAs, but notes that HAs that serve populations that contain
substantial numbers of persons for whom English is not their first
language have been sensitive to providing information in languages
other than English.
Comment. One commenter asked that an HA that works with other
organizations to assist residents in locating job opportunities or
improving their job opportunities should be found to be in compliance
with section 3.
Response. An HA that undertakes such action, which is commendable,
may very well be in compliance with section 3. The Department
emphasizes, however, that the requirements of section 3 are triggered
by economic opportunities generated by the expenditure of certain HUD
assistance. A housing authority that uses funds, other than section 3
covered assistance, to improve the economic situation of their
residents deserves commendation and credit. However, the fact that the
HA may be locating economic opportunities for their residents through
such means, does not relieve the HA of the responsibility imposed by
section 3 to recruit low- and very low-income residents, or to solicit
section 3 business concerns for economic opportunities arising from the
expenditure of section 3 covered activity. The fact that economic
opportunities are generated from section 3 covered assistance triggers
the applicability of section 3.
Comment. One commenter stated that the rule should require
recipients and contractors to provide long-term employment
opportunities, and not simply seasonal or temporary employment.
Response. The Department cannot dictate the types of jobs for which
recipients and contractors must give preference to low-income and very
low-income persons. Again, section 3 is not a job creation program. The
economic opportunities that are available to low and very low-income
persons are those that the recipient or contractor has determined are
necessary for the project or activity funded by section 3 covered
assistance and that would be available on the job or contract market
with or without section 3. However, the objective of section 3 is to
provide low- and very low-income persons, especially those on
government assistance, with the types of economic opportunities that
will allow them to become self-sufficient.
Comment. A few commenters stated that the rule should emphasize
that section 3 does not mandate the employment of any low-income person
who is not qualified for job for which he or she applied.
Response. This statement is made in the text of the regulation, and
the Department believes this statement clarifies this point without
further elaboration.
Monitoring by Recipients
Comment. A majority of the commenters raised objections to the
requirement in the proposed rule that recipients must monitor the
operations of their contractors and subcontractors to ensure compliance
with the regulations of part 135, and questioned how recipients were to
perform this monitoring function.
Response. As discussed in the response to the fourth comment under
the ``General Comments'' section, while the interim rule continues to
require recipients to ensure that their contractors and subcontractors
are in compliance with section 3, this responsibility is not the same
as the ``monitoring'' responsibility imposed on recipients by the
proposed rule.
VII. Other Matters
Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made in accordance with HUD regulations at 24 CFR part 50, which
implements section 102(2)(C) of the National Environmental Policy Act
of 1969 (NEPA) at the time of development of the proposed rule. This
Finding remains applicable to this interim rule, and is available for
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the
Office of the Rules Docket Clerk, Office of the General Counsel,
Department of Housing and Urban Development, Room 10276, 451 Seventh
Street, SW, Washington, DC 20410.
Executive Order 12866
This interim rule was reviewed by the Office of Management and
Budget under Executive Order 12866 as a significant regulatory action.
Any changes made in this interim rule as a result of that review are
clearly identified in the docket file, which is available for public
inspection in the Office of HUD's Rules Docket Clerk, Room 10276, 451
Seventh St. SW, Washington, DC.
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this interim rule, and, in so
doing, certifies that the interim rule would not have a significant
economic impact on a substantial number of small entities. Recipients
and contractors that receive HUD financial assistance subject to the
requirements are currently required, to the greatest extent feasible,
to give economic opportunities generated by such assistance to low-
income persons, and to businesses owned by or that substantially employ
low-income persons. This interim rule, which implements the amendments
made to section 3 by the 1992 Act, provides greater guidance on how the
requirements of section 3 may be met, and decreases the administrative
burden on recipients from that contained in the existing part 135
regulations. The interim rule eliminates much of the recordkeeping and
reporting requirements in the proposed rule, and provides recipients
and contractors with greater flexibility in complying with section 3.
While the Department anticipates that the interim rule will
increase the number of small businesses that will benefit from the
implementation of amended section 3, the Department also anticipates
that the lower dollar threshold in HUD's housing and community
development programs (lower than that provided in the previous codified
part 135 regulations), and the absence of a dollar threshold in HUD's
public and Indian housing programs, may increase the number of small
business concerns that will be subject to compliance with the part 135
regulations. However, as with those small businesses expected to
benefit from the revised part 135 regulations, the increase in the
number of small businesses that may be made subject to compliance with
part 135 is not considered so great as to constitute a significant
economic impact on a substantial number of small entities.
Federalism Impact
The General Counsel, as the Designated Official under section 6(a)
of Executive Order No. 12611, Federalism, has determined that this
interim rule would not have a substantial, direct effect on the States
or on the relationship between the Federal government and the States,
or on the distribution of power or responsibilities among the various
levels of government. The interim rule provides, consistent with
section 3, that the preference requirements of section 3 are to be
carried out consistent with existing Federal, State, and local laws and
regulations.
Impact on the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that the interim rule may have
the potential to promote family formation, maintenance, and general
well-being. If the revised part 135 regulations, implemented by this
interim rule, contribute to successful implementation of section 3, an
increased number of low-income persons will be employed which may
promote family unification and general well-being. Since the impact of
this interim rule is anticipated to be beneficial, no further review
under the Order is necessary.
Regulatory Agenda
This interim rule was listed as sequence number 1669 in the
Department's Semiannual Agenda of Regulations published on April 25,
1994 (59 FR 20424, 20466), under Executive Order 12826 and the
Regulatory Flexibility Act.
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, 24 CFR part 135, consisting of Secs. 135.1 through
135.92 and Appendix to part 135, is revised to read as follows:
PART 135--ECONOMIC OPPORTUNITIES FOR LOW- AND VERY LOW-INCOME
PERSONS
Subpart A--General Provisions
Sec.
135.1 Purpose.
135.2 Effective date of regulation.
135.3 Applicability.
135.5 Definitions.
135.7 Delegation of authority.
135.9 Requirements applicable to HUD NOFAs for section 3 covered
programs.
135.11 Other laws governing training, employment, and contracting.
Subpart B--Economic Opportunities for Section 3 Residents and Section 3
Business Concerns
135.30 Numerical goals for meeting the greatest extent feasible
requirement.
135.32 Responsibilities of the recipient.
135.34 Preference for section 3 residents in training and
employment opportunities.
135.36 Preference for section 3 business concerns in contracting
opportunities.
135.38 Section 3 clause.
135.40 Providing other economic opportunities.
Subpart C--[Reserved]
Subpart D--Complaint and Compliance Review
135.70 General.
135.72 Cooperation in achieving compliance.
135.74 Section 3 compliance review procedures.
135.76 Filing and processing complaints.
Subpart E--Reporting and Recordkeeping
135.90 Reporting.
135.92 Recordkeeping and access to records.
Appendix to Part 135
Authority: 12 U.S.C. 1701u; 42 U.S.C. 3535(d).
Subpart A--General Provisions
Sec. 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 ensure that
employment 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 business
concerns which provide economic opportunities to low- and very low-
income persons.
(b) Part 135. The purpose of this part is to establish the
standards and procedures to be followed to ensure that the objectives
of section 3 are met.
Sec. 135.2 Effective date of regulation.
The regulations of this part will expire on June 30, 1995, unless
adopted by a final rule published on or before this date.
Sec. 135.3 Applicability.
(a) Section 3 covered assistance. Section 3 applies to the
following HUD assistance (section 3 covered assistance):
(1) Public and Indian housing assistance. Section 3 applies to
training, employment, contracting and other economic opportunities
arising from the expenditure of the following public and Indian housing
assistance:
(i) Development assistance provided pursuant to section 5 of the
U.S. Housing Act of 1937 (1937 Act);
(ii) Operating assistance provided pursuant to section 9 of the
1937 Act; and
(iii) Modernization assistance provided pursuant to section 14 of
the 1937 Act;
(2) Housing and community development assistance. Section 3 applies
to training, employment, contracting and other economic opportunities
arising in connection with the expenditure of housing assistance
(including section 8 assistance, and including other housing assistance
not administered by the Assistant Secretary of Housing) and community
development assistance that is used for the following projects;
(i) Housing rehabilitation (including reduction and abatement of
lead-based paint hazards, but excluding routine maintenance, repair and
replacement);
(ii) Housing construction; and
(iii) Other public construction.
(3) Thresholds--(i) No thresholds for section 3 covered public and
Indian housing assistance. The requirements of this part apply to
section 3 covered assistance provided to recipients, notwithstanding
the amount of the assistance provided to the recipient. The
requirements of this part apply to all contractors and subcontractors
performing work in connection with projects and activities funded by
public and Indian housing assistance covered by section 3, regardless
of the amount of the contract or subcontract.
(ii) Thresholds for section 3 covered housing and community
development assistance--(A) Recipient thresholds. The requirements of
this part apply to recipients of other housing and community
development program assistance for a section 3 covered project(s) for
which the amount of the assistance exceeds $200,000.
(B) Contractor and subcontractor thresholds. The requirements of
this part apply to contractors and subcontractors performing work on
section 3 covered project(s) for which the amount of the assistance
exceeds $200,000; and the contract or subcontract exceeds $100,000.
(C) Threshold met for recipients, but not contractors or
subcontractors. If a recipient receives section 3 covered housing or
community development assistance in excess of $200,000, but no contract
exceeds $100,000, the section 3 preference requirements only apply to
the recipient.
(b) Applicability of section 3 to entire project or activity funded
with section 3 assistance. The requirements of this part apply to the
entire project or activity that is funded with section 3 covered
assistance, regardless of whether the section 3 activity is fully or
partially funded with section 3 covered assistance.
(c) Applicability to Indian housing authorities and Indian tribes.
Indian housing authorities and tribes that receive HUD assistance
described in paragraph (a) of this section shall comply with the
procedures and requirements of this part to the maximum extent
consistent with, but not in derogation of, compliance with section 7(b)
of the Indian Self-Determination and Education Assistance Act (25
U.S.C. 450e(b)). (See 24 CFR part 905.)
(d) Other HUD assistance and other Federal assistance. Recipients,
contractors and subcontractors that receive HUD assistance, not listed
in paragraph (a) of this section, or other Federal assistance, are
encouraged to provide, to the greatest extent feasible, training,
employment, and contracting opportunities generated by the expenditure
of this assistance to low- and very low-income persons, and business
concerns owned by low- and very low-income persons, or which employ
low- and very low-income persons.
Sec. 135.5 Definitions.
As used in this part:
Annual Contributions Contract (ACC) means the contract under the
U.S. Housing Act of 1937 (1937 Act) between HUD and the PHA, or between
HUD and the IHA, that contains the terms and conditions under which HUD
assists the PHA or the IHA in providing decent, safe, and sanitary
housing for low income families. The ACC must be in a form prescribed
by HUD under which HUD agrees to provide assistance in the development,
modernization and/or operation of a low income housing project under
the 1937 Act, and the PHA or IHA agrees to develop, modernize and
operate the project in compliance with all provisions of the ACC and
the 1937 Act, and all HUD regulations and implementing requirements and
procedures. (The ACC is not a form of procurement contract.)
Applicant means any entity which makes an application for section 3
covered assistance, and includes, but is not limited to, any State,
unit of local government, public housing agency, Indian housing
authority, Indian tribe, or other public body, public or private
nonprofit organization, private agency or institution, mortgagor,
developer, limited dividend sponsor, builder, property manager,
community housing development organization (CHDO), resident management
corporation, resident council, or cooperative association.
Assistant Secretary means the Assistant Secretary for Fair Housing
and Equal Opportunity.
Business concern means a business entity formed in accordance with
State law, and which is licensed under State, county or municipal law
to engage in the type of business activity for which it was formed.
Business concern that provides economic opportunities for low- and
very low-income persons. See definition of ``section 3 business
concern'' in this section.
Contract. See the definition of ``section 3 covered contract'' in
this section.
Contractor means any entity which contracts to perform work
generated by the expenditure of section 3 covered assistance, or for
work in connection with a section 3 covered project.
Department or HUD means the Department of Housing and Urban
Development, including its Field Offices to which authority has been
delegated to perform functions under this part.
Employment opportunities generated by section 3 covered assistance
means all employment opportunities generated by the expenditure of
section 3 covered public and Indian housing assistance (i.e., operating
assistance, development assistance and modernization assistance, as
described in Sec. 135.3(a)(1)). With respect to section 3 covered
housing and community development assistance, this term means all
employment opportunities arising in connection with section 3 covered
projects (as described in Sec. 135.3(a)(2)), including management and
administrative jobs connected with the section 3 covered project.
Management and administrative jobs include architectural, engineering
or related professional services required to prepare plans, drawings,
specifications, or work write-ups; and jobs directly related to
administrative support of these activities, e.g., construction manager,
relocation specialist, payroll clerk, etc.
Housing authority (HA) means, collectively, public housing agency
and Indian housing authority.
Housing and community development assistance means any financial
assistance provided or otherwise made available through a HUD housing
or community development program through any grant, loan, loan
guarantee, cooperative agreement, or contract, and includes community
development funds in the form of community development block grants,
and loans guaranteed under section 108 of the Housing and Community
Development Act of 1974, as amended. Housing and community development
assistance does not include financial assistance provided through a
contract of insurance or guaranty.
Housing development means low-income housing owned, developed, or
operated by public housing agencies or Indian housing authorities in
accordance with HUD's public and Indian housing program regulations
codified in 24 CFR Chapter IX.
HUD Youthbuild programs mean programs that receive assistance under
subtitle D of Title IV of the National Affordable Housing Act, as
amended by the Housing and Community Development Act of 1992 (42 U.S.C.
12899), and provide disadvantaged youth with opportunities for
employment, education, leadership development, and training in the
construction or rehabilitation of housing for homeless individuals and
members of low- and very low-income families.
Indian housing authority (IHA) has the meaning given this term in
24 CFR part 905.
Indian tribes shall have the meaning given this term in 24 CFR part
571.
JTPA means the Job Training Partnership Act (29 U.S.C. 1579(a)).
Low-income person. See the definition of ``section 3 resident'' in
this section.
Metropolitan area means a metropolitan statistical area (MSA), as
established by the Office of Management and Budget.
Neighborhood area means:
(1) For HUD housing programs, a geographical location 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.
(2) For HUD community development programs, see the definition, if
provided, in the regulations for the applicable community development
program, or the definition for this term in 24 CFR 570.204(c)(1).
New hires mean full-time employees for permanent, temporary or
seasonal employment opportunities.
Nonmetropolitan county means any county outside of a metropolitan
area.
Other HUD programs means HUD programs, other than HUD public and
Indian housing programs, that provide housing and community development
assistance for ``section 3 covered projects,'' as defined in this
section.
Public housing agency (PHA) has the meaning given this term in 24
CFR part 941.
Public housing resident has the meaning given this term in 24 CFR
part 963.
Recipient means any entity which receives section 3 covered
assistance, directly from HUD or from another recipient and includes,
but is not limited to, any State, unit of local government, PHA, IHA,
Indian tribe, or other public body, public or private nonprofit
organization, private agency or institution, mortgagor, developer,
limited dividend sponsor, builder, property manager, community housing
development organization, resident management corporation, resident
council, or cooperative association. Recipient also includes any
successor, assignee or transferee of any such entity, but does not
include any ultimate beneficiary under the HUD program to which section
3 applies and does not include contractors.
Secretary means the Secretary of Housing and Urban Development.
Section 3 means section 3 of the Housing and Urban Development Act
of 1968, as amended (12 U.S.C. 1701u).
Section 3 business concern means a business concern, as defined in
this section--
(1) That is 51 percent or more owned by section 3 residents; or
(2) Whose permanent, full-time employees include persons, at least
30 percent of whom are currently section 3 residents, or within three
years of the date of first employment with the business concern were
section 3 residents; or
(3) That provides evidence of a commitment to subcontract in excess
of 25 percent of the dollar award of all subcontracts to be awarded to
business concerns that meet the qualifications set forth in paragraphs
(1) or (2) in this definition of ``section 3 business concern.''
Section 3 clause means the contract provisions set forth in
Sec. 135.38.
Section 3 covered activity means any activity which is funded by
section 3 covered assistance public and Indian housing assistance.
Section 3 covered assistance means: (1) Public and Indian housing
development assistance provided pursuant to section 5 of the 1937 Act;
(2) Public and Indian housing operating assistance provided
pursuant to section 9 of the 1937 Act;
(3) Public and Indian housing modernization assistance provided
pursuant to section 14 of the 1937 Act;
(4) Assistance provided under any HUD housing or community
development program that is expended for work arising in connection
with:
(i) Housing rehabilitation (including reduction and abatement of
lead-based paint hazards, but excluding routine maintenance, repair and
replacement);
(ii) Housing construction; or
(iii) Other public construction project (which includes other
buildings or improvements, regardless of ownership).
Section 3 covered contract means a contract or subcontract
(including a professional service contract) awarded by a recipient or
contractor for work generated by the expenditure of section 3 covered
assistance, or for work arising in connection with a section 3 covered
project. ``Section 3 covered contracts'' do not include contracts
awarded under HUD's procurement program, which are governed by the
Federal Acquisition Regulation System (see 48 CFR, Chapter 1).
``Section 3 covered contracts'' also do not include contracts for the
purchase of supplies and materials. However, whenever a contract for
materials includes the installation of the materials, the contract
constitutes a section 3 covered contract. For example, a contract for
the purchase and installation of a furnace would be a section 3 covered
contract because the contract is for work (i.e., the installation of
the furnace) and thus is covered by section 3.
Section 3 covered project means the construction, reconstruction,
conversion or rehabilitation of housing (including reduction and
abatement of lead-based paint hazards), other public construction which
includes buildings or improvements (regardless of ownership) assisted
with housing or community development assistance.
Section 3 joint venture. See Sec. 135.40. Section 3 resident means:
(1) A public housing resident; or
(2) An individual who resides in the metropolitan area or
nonmetropolitan county in which the section 3 covered assistance is
expended, and who is:
(i) A low-income person, as this term is defined in section 3(b)(2)
of the 1937 Act (42 U.S.C. 1437a(b)(2)). Section 3(b)(2) of the 1937
Act defines this term to mean families (including single persons) whose
incomes do not exceed 80 per centum of the median income for the area,
as determined by the Secretary, with adjustments for smaller and larger
families, except that the Secretary may establish income ceilings
higher or lower than 80 per centum of the median for the area on the
basis of the Secretary's findings that such variations are necessary
because of prevailing levels of construction costs or unusually high or
low-income families; or
(ii) A very low-income person, as this term is defined in section
3(b)(2) of the 1937 Act (42 U.S.C. 1437a(b)(2)). Section 3(b)(2) of the
1937 Act (42 U.S.C. 1437a(b)(2)) defines this term to mean families
(including single persons) whose incomes do not exceed 50 per centum of
the median family income for the area, as determined by the Secretary
with adjustments for smaller and larger families, except that the
Secretary may establish income ceilings higher or lower than 50 per
centum of the median for the area on the basis of the Secretary's
findings that such variations are necessary because of unusually high
or low family incomes.
(3) A person seeking the training and employment preference
provided by section 3 bears the responsibility of providing evidence
(if requested) that the person is eligible for the preference.
Section 8 assistance means assistance provided under section 8 of
the 1937 Act (42 U.S.C. 1437f) pursuant to 24 CFR part 882, subpart G.
Service area means the geographical area in which the persons
benefitting from the section 3 covered project reside. The service area
shall not extend beyond the unit of general local government in which
the section 3 covered assistance is expended. In HUD's Indian housing
programs, the service area, for IHAs established by an Indian tribe as
a result of the exercise of the tribe's sovereign power, is limited to
the area of tribal jurisdiction.
Subcontractor means any entity (other than a person who is an
employee of the contractor) which has a contract with a contractor to
undertake a portion of the contractor's obligation for the performance
of work generated by the expenditure of section 3 covered assistance,
or arising in connection with a section 3 covered project.
Very low-income person. See the definition of ``section 3
resident'' in this section.
Youthbuild programs. See the definition of ``HUD Youthbuild
programs'' in this section.
Sec. 135.7 Delegation of authority.
Except as may be otherwise provided in this part, the functions and
responsibilities of the Secretary under section 3, and described in
this part, are delegated to the Assistant Secretary for Fair Housing
and Equal Opportunity. The Assistant Secretary is further authorized to
redelegate functions and responsibilities to other employees of HUD;
provided however, that the authority to issue rules and regulations
under this part, which authority is delegated to the Assistant
Secretary, may not be redelegated by the Assistant Secretary.
Sec. 135.9 Requirements applicable to HUD NOFAs for section 3 covered
programs.
(a) Certification of compliance with part 135. All notices of
funding availability (NOFAs) issued by HUD that announce the
availability of funding covered by section 3 shall include a provision
in the NOFA that notifies applicants that section 3 and the regulations
in part 135 are applicable to funding awards made under the NOFA.
Additionally the NOFA shall require as an application submission
requirement (which may be specified in the NOFA or application kit) a
certification by the applicant that the applicant will comply with the
regulations in part 135. (For PHAs, this requirement will be met where
a PHA Resolution in Support of the Application is submitted.) With
respect to application evaluation, HUD will accept an applicant's
certification unless there is evidence substantially challenging the
certification.
(b) Statement of purpose in NOFAs. (1) For competitively awarded
assistance in which the grants are for activities administered by an
HA, and those activities are anticipated to generate significant
training, employment or contracting opportunities, the NOFA must
include a statement that one of the purposes of the assistance is to
give to the greatest extent feasible, and consistent with existing
Federal, State and local laws and regulations, job training,
employment, contracting and other economic opportunities to section 3
residents and section 3 business concerns.
(2) For competitively awarded assistance involving housing
rehabilitation, construction or other public construction, where the
amount awarded to the applicant may exceed $200,000, the NOFA must
include a statement that one of the purposes of the assistance is to
give, to the greatest extent feasible, and consistent with existing
Federal, State and local laws and regulations, job training,
employment, contracting and other economic opportunities to section 3
residents and section 3 business concerns.
(c) Section 3 as NOFA evaluation criteria. Where not otherwise
precluded by statute, in the evaluation of applications for the award
of assistance, consideration shall be given to the extent to which an
applicant has demonstrated that it will train and employ section 3
residents and contract with section 3 business concerns for economic
opportunities generated in connection with the assisted project or
activity. The evaluation criteria to be utilized, and the rating points
to be assigned, will be specified in the NOFA.
Sec. 135.11 Other laws governing training, employment, and
contracting.
Other laws and requirements that are applicable or may be
applicable to the economic opportunities generated from the expenditure
of section 3 covered assistance include, but are not necessarily
limited to those listed in this section.
(a) Procurement standards for States and local governments (24 CFR
85.36)--(1) General. Nothing in this part 135 prescribes specific
methods of procurement. However, neither section 3 nor the requirements
of this part 135 supersede the general requirement of 24 CFR 85.36(c)
that all procurement transactions be conducted in a competitive manner.
Consistent with 24 CFR 85.36(c)(2), section 3 is a Federal statute that
expressly encourages, to the maximum extent feasible, a geographic
preference in the evaluation of bids or proposals.
(2) Flexible Subsidy Program. Multifamily project mortgagors in the
Flexible Subsidy Program are not required to utilize the methods of
procurement in 24 CFR 85.36(d), and are not permitted to utilize
methods of procurement that would result in their award of a contract
to a business concern that submits a bid higher than the lowest
responsive bid. A multifamily project mortgagor, however, must ensure
that, to the greatest extent feasible, the procurement practices it
selects provide preference to section 3 business concerns.
(b) Procurement standards for other recipients (OMB Circular No. A-
110). Nothing in this part prescribes specific methods of procurement
for grants and other agreements with institutions of higher education,
hospitals, and other nonprofit organizations. Consistent with the
requirements set forth in OMB Circular No. A-110, section 3 is a
Federal statute that expressly encourages a geographic preference in
the evaluation of bids or proposals.
(c) Federal labor standards provisions. Certain construction
contracts are subject to compliance with the requirement to pay
prevailing wages determined under Davis-Bacon Act (40 U.S.C. 276a--
276a-7) and implementing U.S. Department of Labor regulations in 29 CFR
part 5. Additionally, certain HUD-assisted rehabilitation and
maintenance activities on public and Indian housing developments are
subject to compliance with the requirement to pay prevailing wage
rates, as determined or adopted by HUD, to laborers and mechanics
employed in this work. Apprentices and trainees may be utilized on this
work only to the extent permitted under either Department of Labor
regulations at 29 CFR part 5 or for work subject to HUD-determined
prevailing wage rates, HUD policies and guidelines. These requirements
include adherence to the wage rates and ratios of apprentices or
trainees to journeymen set out in ``approved apprenticeship and
training programs,'' as described in paragraph (d) of this section.
(d) Approved apprenticeship and trainee programs. Certain
apprenticeship and trainee programs have been approved by various
Federal agencies. Approved apprenticeship and trainee programs include:
an apprenticeship program approved by the Bureau of Apprenticeship and
Training of the Department of Labor, or a State Apprenticeship Agency,
or an on-the-job training program approved by the Bureau of
Apprenticeship and Training, in accordance with the regulations at 29
CFR part 5; or a training program approved by HUD in accordance with
HUD policies and guidelines, as applicable. Participation in an
approved apprenticeship program does not, in and of itself, demonstrate
compliance with the regulations of this part.
(e) Compliance with Executive Order 11246. Certain contractors
covered by this part are subject to compliance with Executive Order
11246, as amended by Executive Order 12086, and the Department of Labor
regulations issued pursuant thereto (41 CFR chapter 60) which provide
that no person shall be discriminated against on the basis of race,
color, religion, sex, or national origin in all phases of employment
during the performance of Federal or Federally assisted construction
contracts.
Subpart B--Economic Opportunities for Section 3 Residents and
Section 3 Business Concerns
Sec. 135.30 Numerical goals for meeting the greatest extent feasible
requirement.
(a) General. (1) Recipients and covered contractors may demonstrate
compliance with the ``greatest extent feasible'' requirement of section
3 by meeting the numerical goals set forth in this section for
providing training, employment, and contracting opportunities to
section 3 residents and section 3 business concerns.
(2) The goals established in this section apply to the entire
amount of section 3 covered assistance awarded to a recipient in any
Federal Fiscal Year (FY), commencing with the first FY following the
effective date of this rule.
(3) For recipients that do not engage in training, or hiring, but
award contracts to contractors that will engage in training, hiring,
and subcontracting, recipients must ensure that, to the greatest extent
feasible, contractors will provide training, employment, and
contracting opportunities to section 3 residents and section 3 business
concerns.
(4) The numerical goals established in this section represent
minimum numerical targets.
(b) Training and employment. The numerical goals set forth in
paragraph (b) of this section apply to new hires. The numerical goals
reflect the aggregate hires. Efforts to employ section 3 residents, to
the greatest extent feasible, should be made at all job levels.
(1) Numerical goals for section 3 covered public and Indian housing
programs. Recipients of section 3 covered public and Indian housing
assistance (as described in Sec. 135.5) and their contractors and
subcontractors may demonstrate compliance with this part by committing
to employ section 3 residents as:
(i) 10 percent of the aggregate number of new hires for the one
year period beginning in FY 1995;
(ii) 20 percent of the aggregate number of new hires for the one
period beginning in FY 1996;
(iii) 30 percent of the aggregate number of new hires for one year
period beginning in FY 1997 and continuing thereafter.
(2) Numerical goals for other HUD programs covered by section 3.
(i) Recipients of section 3 covered housing assistance provided under
other HUD programs, and their contractors and subcontractors (unless
the contract or subcontract awards do not meet the threshold specified
in Sec. 135.3(a)(3)) may demonstrate compliance with this part by
committing to employ section 3 residents as 10 percent of the aggregate
number of new hires for each year over the duration of the section 3
project;
(ii) Where a managing general partner or management agent is
affiliated, in a given metropolitan area, with recipients of section 3
covered housing assistance, for an aggregate of 500 or more units in
any fiscal year, the managing partner or management agent may
demonstrate compliance with this part by committing to employ section 3
residents as:
(A) 10 percent of the aggregate number of new hires for the one
year period beginning in FY 1995;
(B) 20 percent of the aggregate number of new hires for the one
year period beginning in FY 1996;
(C) 30 percent of the aggregate number of new hires for the one
year period beginning in FY 1997, and continuing thereafter.
(3) Recipients of section 3 covered community development
assistance, and their contractors and subcontractors (unless the
contract or subcontract awards do not meet the threshold specified in
Sec. 135.3(a)(3)) may demonstrate compliance with the requirements of
this part by committing to employ section 3 residents as:
(i) 10 percent of the aggregate number of new hires for the one
year period beginning in FY 1995;
(ii) 20 percent of the aggregate number of new hires for the one
year period beginning in FY 1996; and
(iii) 30 percent of the aggregate number of new hires for the one
year period beginning in FY 1997 and continuing thereafter.
(c) Contracts. Numerical goals set forth in paragraph (c) of this
section apply to contracts awarded in connection with all section 3
covered projects and section 3 covered activities. Each recipient and
contractor and subcontractor (unless the contract or subcontract awards
do not meet the threshold specified in Sec. 135.3(a)(3)) may
demonstrate compliance with the requirements of this part by committing
to award to section 3 business concerns:
(1) At least 10 percent of the total dollar amount of all section 3
covered contracts for building trades work for maintenance, repair,
modernization or development of public or Indian housing, or for
building trades work arising in connection with housing rehabilitation,
housing construction and other public construction; and
(2) At least three (3) percent of the total dollar amount of all
other section 3 covered contracts.
(d) Safe harbor and compliance determinations. (1) In the absence
of evidence to the contrary, a recipient that meets the minimum
numerical goals set forth in this section will be considered to have
complied with the section 3 preference requirements.
(2) In evaluating compliance under subpart D of this part, a
recipient that has not met the numerical goals set forth in this
section has the burden of demonstrating why it was not feasible to meet
the numerical goals set forth in this section. Such justification may
include impediments encountered despite actions taken. A recipient or
contractor also can indicate other economic opportunities, such as
those listed in Sec. 135.40, which were provided in its efforts to
comply with section 3 and the requirements of this part.
Sec. 135.32 Responsibilities of the recipient.
Each recipient has the responsibility to comply with section 3 in
its own operations, and ensure compliance in the operations of its
contractors and subcontractors. This responsibility includes but may
not be necessarily limited to:
(a) Implementing procedures designed to notify section 3 residents
about training and employment opportunities generated by section 3
covered assistance and section 3 business concerns about contracting
opportunities generated by section 3 covered assistance;
(b) Notifying potential contractors for section 3 covered projects
of the requirements of this part, and incorporating the section 3
clause set forth in Sec. 135.38 in all solicitations and contracts.
(c) Facilitating the training and employment of section 3 residents
and the award of contracts to section 3 business concerns by
undertaking activities such as described in the Appendix to this part,
as appropriate, to reach the goals set forth in Sec. 135.30.
Recipients, at their own discretion, may establish reasonable numerical
goals for the training and employment of section 3 residents and
contract award to section 3 business concerns that exceed those
specified in Sec. 135.30;
(d) Assisting and actively cooperating with the Assistant Secretary
in obtaining the compliance of contractors and subcontractors with the
requirements of this part, and refraining from entering into any
contract with any contractor where the recipient has notice or
knowledge that the contractor has been found in violation of the
regulations in 24 CFR part 135.
(e) Documenting actions taken to comply with the requirements of
this part, the results of actions taken and impediments, if any.
(f) A State or county which distributes funds for section 3 covered
assistance to units of local governments, to the greatest extent
feasible, must attempt to reach the numerical goals set forth in 135.30
regardless of the number of local governments receiving funds from the
section 3 covered assistance which meet the thresholds for
applicability set forth at 135.3. The State or county must inform units
of local government to whom funds are distributed of the requirements
of this part; assist local governments and their contractors in meeting
the requirements and objectives of this part; and monitor the
performance of local governments with respect to the objectives and
requirements of this part.
Sec. 135.34 Preference for section 3 residents in training and
employment opportunities.
(a) Order of providing preference. Recipients, contractors and
subcontractors shall direct their efforts to provide, to the greatest
extent feasible, training and employment opportunities generated from
the expenditure of section 3 covered assistance to section 3 residents
in the order of priority provided in paragraph (a) of this section.
(1) Public and Indian housing programs. In public and Indian
housing programs, efforts shall be directed to provide training and
employment opportunities to section 3 residents in the following order
of priority:
(i) Residents of the housing development or developments for which
the section 3 covered assistance is expended (category 1 residents);
(ii) Residents of other housing developments managed by the HA that
is expending the section 3 covered housing assistance (category 2
residents);
(iii) Participants in HUD Youthbuild programs being carried out in
the metropolitan area (or nonmetropolitan county) in which the section
3 covered assistance is expended (category 3 residents);
(iv) Other section 3 residents.
(2) Housing and community development programs. In housing and
community development programs, priority consideration shall be given,
where feasible, to:
(i) Section 3 residents residing in the service area or
neighborhood in which the section 3 covered project is located
(collectively, referred to as category 1 residents); and
(ii) Participants in HUD Youthbuild programs (category 2
residents).
(iii) Where the section 3 project is assisted under the Stewart B.
McKinney Homeless Assistance Act (42 U.S.C. 11301 et seq.), homeless
persons residing in the service area or neighborhood in which the
section 3 covered project is located shall be given the highest
priority;
(iv) Other section 3 residents.
(3) Recipients of housing assistance programs administered by the
Assistant Secretary for Housing may, at their own discretion, provide
preference to residents of the housing development receiving the
section 3 covered assistance within the service area or neighborhood
where the section 3 covered project is located.
(4) Recipients of community development programs may, at their own
discretion, provide priority to recipients of government assistance for
housing, including recipients of certificates or vouchers under the
Section 8 housing assistance program, within the service area or
neighborhood where the section 3 covered project is located.
(b) Eligibility for preference. A section 3 resident seeking the
preference in training and employment provided by this part shall
certify, or submit evidence to the recipient contractor or
subcontractor, if requested, that the person is a section 3 resident,
as defined in Sec. 135.5. (An example of evidence of eligibility for
the preference is evidence of receipt of public assistance, or evidence
of participation in a public assistance program.)
(c) Eligibility for employment. Nothing in this part shall be
construed to require the employment of a section 3 resident who does
not meet the qualifications of the position to be filled.
Sec. 135.36 Preference for section 3 business concerns in contracting
opportunities.
(a) Order of providing preference. Recipients, contractors and
subcontractors shall direct their efforts to award section 3 covered
contracts, to the greatest extent feasible, to section 3 business
concerns in the order of priority provided in paragraph (a) of this
section.
(1) Public and Indian housing programs. In public and Indian
housing programs, efforts shall be directed to award contracts to
section 3 business concerns in the following order of priority:
(i) Business concerns that are 51 percent or more owned by
residents of the housing development or developments for which the
section 3 covered assistance is expended, or whose full-time, permanent
workforce includes 30 percent of these persons as employees (category 1
businesses);
(ii) Business concerns that are 51 percent or more owned by
residents of other housing developments or developments managed by the
HA that is expending the section 3 covered assistance, or whose full-
time, permanent workforce includes 30 percent of these persons as
employees (category 2 businesses); or
(iii) HUD Youthbuild programs being carried out in the metropolitan
area (or nonmetropolitan county) in which the section 3 covered
assistance is expended (category 3 businesses).
(iv) Business concerns that are 51 percent or more owned by section
3 residents, or whose permanent, full-time workforce includes no less
than 30 percent section 3 residents (category 4 businesses), or that
subcontract in excess of 25 percent of the total amount of subcontracts
to business concerns identified in paragraphs (a)(1)(i) and (a)(1)(ii)
of this section.
(2) Housing and community development programs. In housing and
community development programs, priority consideration shall be given,
where feasible, to:
(i) Section 3 business concerns that provide economic opportunities
for section 3 residents in the service area or neighborhood in which
the section 3 covered project is located (category 1 businesses); and
(ii) Applicants (as this term is defined in 42 U.S.C. 12899)
selected to carry out HUD Youthbuild programs (category 2 businesses);
(iii) Other section 3 business concerns.
(b) Eligibility for preference. A business concern seeking to
qualify for a section 3 contracting preference shall certify or submit
evidence, if requested, that the business concern is a section 3
business concern as defined in Sec. 135.5.
(c) Ability to complete contract. A section 3 business concern
seeking a contract or a subcontract shall submit evidence to the
recipient, contractor, or subcontractor (as applicable), if requested,
sufficient to demonstrate to the satisfaction of the party awarding the
contract that the business concern is responsible and has the ability
to perform successfully under the terms and conditions of the proposed
contract. (The ability to perform successfully under the terms and
conditions of the proposed contract is required of all contractors and
subcontractors subject to the procurement standards of 24 CFR 85.36
(see 24 CFR 85.36(b)(8)).) This regulation requires consideration of,
among other factors, the potential contractor's record in complying
with public policy requirements. Section 3 compliance is a matter
properly considered as part of this determination.
Sec. 135.38 Section 3 clause.
All section 3 covered contracts shall include the following clause
(referred to as the section 3 clause):
A. The work to be performed under this contract is subject to
the requirements of section 3 of the Housing and Urban Development
Act of 1968, as amended, 12 U.S.C. 1701u (section 3). The purpose of
section 3 is to ensure that employment and other economic
opportunities generated by HUD assistance or HUD-assisted projects
covered by section 3, shall, to the greatest extent feasible, be
directed to low- and very low-income persons, particularly persons
who are recipients of HUD assistance for housing.
B. The parties to this contract agree to comply with HUD's
regulations in 24 CFR part 135, which implement section 3. As
evidenced by their execution of this contract, the parties to this
contract certify that they are under no contractual or other
impediment that would prevent them from complying with the part 135
regulations.
C. The contractor agrees to send to each labor organization or
representative of workers with which the contractor has a collective
bargaining agreement or other understanding, if any, a notice
advising the labor organization or workers' representative of the
contractor's commitments under this section 3 clause, and will post
copies of the notice in conspicuous places at the work site where
both employees and applicants for training and employment positions
can see the notice. The notice shall describe the section 3
preference, shall set forth minimum number and job titles subject to
hire, availability of apprenticeship and training positions, the
qualifications for each; and the name and location of the person(s)
taking applications for each of the positions; and the anticipated
date the work shall begin.
D. The contractor agrees to include this section 3 clause in
every subcontract subject to compliance with regulations in 24 CFR
part 135, and agrees to take appropriate action, as provided in an
applicable provision of the subcontract or in this section 3 clause,
upon a finding that the subcontractor is in violation of the
regulations in 24 CFR part 135. The contractor will not subcontract
with any subcontractor where the contractor has notice or knowledge
that the subcontractor has been found in violation of the
regulations in 24 CFR part 135.
E. The contractor will certify that any vacant employment
positions, including training positions, that are filled (1) after
the contractor is selected but before the contract is executed, and
(2) with persons other than those to whom the regulations of 24 CFR
part 135 require employment opportunities to be directed, were not
filled to circumvent the contractor's obligations under 24 CFR part
135.
F. Noncompliance with HUD's regulations in 24 CFR part 135 may
result in sanctions, termination of this contract for default, and
debarment or suspension from future HUD assisted contracts.
G. With respect to work performed in connection with section 3
covered Indian housing assistance, section 7(b) of the Indian Self-
Determination and Education Assistance Act (25 U.S.C. 450e) also
applies to the work to be performed under this contract. Section
7(b) requires that to the greatest extent feasible (i) preference
and opportunities for training and employment shall be given to
Indians, and (ii) preference in the award of contracts and
subcontracts shall be given to Indian organizations and Indian-owned
Economic Enterprises. Parties to this contract that are subject to
the provisions of section 3 and section 7(b) agree to comply with
section 3 to the maximum extent feasible, but not in derogation of
compliance with section 7(b).
Sec. 135.40 Providing other economic opportunities.
(a) General. In accordance with the findings of the Congress, as
stated in section 3, that other economic opportunities offer an
effective means of empowering low-income persons, a recipient is
encouraged to undertake efforts to provide to low-income persons
economic opportunities other than training, employment, and contract
awards, in connection with section 3 covered assistance.
(b) Other training and employment related opportunities. Other
economic opportunities to train and employ section 3 residents include,
but need not be limited to, use of ``upward mobility'', ``bridge'' and
trainee positions to fill vacancies; hiring section 3 residents in
management and maintenance positions within other housing developments;
and hiring section 3 residents in part-time positions.
(c) Other business related economic opportunities. (l) A recipient
or contractor may provide economic opportunities to establish,
stabilize or expand section 3 business concerns, including micro-
enterprises. Such opportunities include, but are not limited to the
formation of section 3 joint ventures, financial support for
affiliating with franchise development, use of labor only contracts for
building trades, purchase of supplies and materials from housing
authority resident-owned businesses, purchase of materials and supplies
from PHA resident-owned businesses and use of procedures under 24 CFR
part 963 regarding HA contracts to HA resident-owned businesses. A
recipient or contractor may employ these methods directly or may
provide incentives to non-section 3 businesses to utilize such methods
to provide other economic opportunities to low-income persons.
(2) A section 3 joint venture means an association of business
concerns, one of which qualifies as a section 3 business concern,
formed by written joint venture agreement to engage in and carry out a
specific business venture for which purpose the business concerns
combine their efforts, resources, and skills for joint profit, but not
necessarily on a continuing or permanent basis for conducting business
generally, and for which the section 3 business concern:
(i) Is responsible for a clearly defined portion of the work to be
performed and holds management responsibilities in the joint venture;
and
(ii) Performs at least 25 percent of the work and is contractually
entitled to compensation proportionate to its work.
Subpart C--[Reserved]
Subpart D--Complaint and Compliance Review
Sec. 135.70 General.
(a) Purpose. The purpose of this subpart is to establish the
procedures for handling complaints alleging noncompliance with the
regulations of this part, and the procedures governing the Assistant
Secretary's review of a recipient's or contractor's compliance with the
regulations in this part.
(b) Definitions. For purposes of this subpart:
(1) Complaint means an allegation of noncompliance with
regulations of this part made in the form described in Sec. 135.76(d).
(2) Complainant means the party which files a complaint with the
Assistant Secretary alleging that a recipient or contractor has failed
or refused to comply with the regulations in this part.
(3) Noncompliance with section 3 means failure by a recipient or
contractor to comply with the requirements of this part.
(4) Respondent means the recipient or contractor against which a
complaint of noncompliance has been filed. The term ``recipient'' shall
have the meaning set forth in Sec. 135.7, which includes PHA and IHA.
Sec. 135.72 Cooperation in achieving compliance.
(a) The Assistant Secretary recognizes that the success of ensuring
that section 3 residents and section 3 business concerns have the
opportunity to apply for jobs and to bid for contracts generated by
covered HUD financial assistance depends upon the cooperation and
assistance of HUD recipients and their contractors and subcontractors.
All recipients shall cooperate fully and promptly with the Assistant
Secretary in section 3 compliance reviews, in investigations of
allegations of noncompliance made under Sec. 135.76, and with the
distribution and collection of data and information that the Assistant
Secretary may require in connection with achieving the economic
objectives of section 3.
(b) The recipient shall refrain from entering into a contract with
any contractor after notification to the recipient by HUD that the
contractor has been found in violation of the regulations in this part.
The provisions of 24 CFR part 24 apply to the employment, engagement of
services, awarding of contracts or funding of any contractors or
subcontractors during any period of debarment, suspension or otherwise
ineligible status.
Sec. 135.74 Section 3 compliance review procedures.
(a) Compliance reviews by Assistant Secretary. The Assistant
Secretary shall periodically conduct section 3 compliance reviews of
selected recipients and contractors to determine whether these
recipients are in compliance with the regulations in this part.
(b) Form of compliance review. A section 3 compliance review shall
consist of a comprehensive analysis and evaluation of the recipient's
or contractor's compliance with the requirements and obligations
imposed by the regulations of this part, including an analysis of the
extent to which section 3 residents have been hired and section 3
business concerns have been awarded contracts as a result of the
methods undertaken by the recipient to achieve the employment,
contracting and other economic objectives of section 3.
(c) Where compliance review reveals noncompliance with section 3 by
recipient or contractor. Where the section 3 compliance review reveals
that a recipient or contractor has not complied with section 3, the
Assistant Secretary shall notify the recipient or contractor of its
specific deficiencies in compliance with the regulations of this part,
and shall advise the recipient or contractor of the means by which
these deficiencies may be corrected. HUD shall conduct a follow-up
review with the recipient or contractor to ensure that action is being
taken to correct the deficiencies.
(d) Continuing noncompliance by recipient or contractor. A
continuing failure or refusal by the recipient or contractor to comply
with the regulations in this part may result in the application of
sanctions specified in the contract through which HUD assistance is
provided, or the application of sanctions specified in the regulations
governing the HUD program under which HUD financial assistance is
provided. HUD will notify the recipient of any continuing failure or
refusal by the contractor to comply with the regulations in this part
for possible action under any procurement contract between the
recipient and the contractor. Debarment, suspension and limited denial
of participation pursuant to HUD's regulations in 24 CFR part 24, where
appropriate, may be applied to the recipient or the contractor.
(e) Conducting compliance review before the award of assistance.
Section 3 compliance reviews may be conducted before the award of
contracts, and especially where the Assistant Secretary has reasonable
grounds to believe that the recipient or contractor will be unable or
unwilling to comply with the regulations in this part.
(f) Consideration of complaints during compliance review.
Complaints alleging noncompliance with section 3, as provided in
Sec. 135.76, may also be considered during any compliance review
conducted to determine the recipient's conformance with regulations in
this part.
Sec. 135.76 Filing and processing complaints.
(a) Who may file a complaint. The following individuals and
business concerns may, personally or through an authorized
representative, file with the Assistant Secretary a complaint alleging
noncompliance with section 3:
(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 assistance with a recipient 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 concern on behalf of itself, or as a
representative of other section 3 business concerns similarly situated,
seeking contract opportunities generated from the expenditure of
section 3 covered assistance from a recipient or contractor, or by an
individual representative of section 3 business concerns.
(b) Where to file a complaint. A complaint must be filed with the
Assistant Secretary for Fair Housing and Equal Opportunity, Department
of Housing and Urban Development, Washington, D.C., 20410.
(c) Time of filing. (1) A complaint must be received not later than
180 days from the date of the action or omission upon which the
complaint is based, unless the time for filing is extended by the
Assistant Secretary for good cause shown.
(2) Where a complaint alleges noncompliance with section 3 and the
regulations of this part that is continuing, as manifested in a number
of incidents of noncompliance, the complaint will be timely if filed
within 180 days of the last alleged occurrence of noncompliance.
(3) Where a complaint contains incomplete information, the
Assistant Secretary shall request the needed information from the
complainant. In the event this information is not furnished to the
Assistant Secretary within sixty (60) days of the date of the request,
the complaint may be closed.
(d) Contents of complaint--(1) Written complaints. Each complaint
must be in writing, signed by the complainant, and include:
(i) The complainant's name and address;
(ii) The name and address of the respondent;
(iii) A description of the acts or omissions by the respondent that
is sufficient to inform the Assistant Secretary of the nature and date
of the alleged noncompliance.
(iv) A complainant may provide information to be contained in a
complaint by telephone to HUD or any HUD Field Office, and HUD will
reduce the information provided by telephone to writing on the
prescribed complaint form and send the form to the complainant for
signature.
(2) Amendment of complaint. Complaints may be reasonably and fairly
amended at any time. Such amendments may include, but are not limited
to, amendments to cure, technical defects or omissions, including
failure to sign or affirm a complaint, to clarify or amplify the
allegations in a complaint, or to join additional or substitute
respondents. Except for the purposes of notifying respondents, amended
complaints will be considered as having been made as of the original
filing date.
(e) Resolution of complaint by recipient. (1) Within ten (10) days
of timely filing of a complaint that contains complete information (in
accordance with paragraphs (c) and (d) of this section), the Assistant
Secretary shall determine whether the complainant alleges an action or
omission by a recipient or the recipient's contractor that if proven
qualifies as noncompliance with section 3. If a determination is made
that there is an allegation of noncompliance with section 3, the
complaint shall be sent to the recipient for resolution.
(2) If the recipient believes that the complaint lacks merit, the
recipient must notify the Assistant Secretary in writing of this
recommendation with supporting reasons, within 30 days of the date of
receipt of the complaint. The determination that a complaint lacks
merit is reserved to the Assistant Secretary.
(3) If the recipient determines that there is merit to the
complaint, the recipient will have sixty (60) days from the date of
receipt of the complaint to resolve the matter with the complainant. At
the expiration of the 60-day period, the recipient must notify the
Assistant Secretary in writing whether a resolution of the complaint
has been reached. If resolution has been reached, the notification must
be signed by both the recipient and the complainant, and must summarize
the terms of the resolution reached between the two parties.
(4) Any request for an extension of the 60-day period by the
recipient must be submitted in writing to the Assistant Secretary, and
must include a statement explaining the need for the extension.
(5) If the recipient is unable to resolve the complaint within the
60-day period (or more if extended by the Assistant Secretary), the
complaint shall be referred to the Assistant Secretary for handling.
(f) Informal resolution of complaint by Assistant Secretary--(1)
Dismissal of complaint. Upon receipt of the recipient's written
recommendation that there is no merit to the complaint, or upon failure
of the recipient and complainant to reach resolution, the Assistant
Secretary shall review the complaint to determine whether it presents a
valid allegation of noncompliance with section 3. The Assistant
Secretary may conduct further investigation if deemed necessary. Where
the complaint fails to present a valid allegation of noncompliance with
section 3, the Assistant Secretary will dismiss the complaint without
further action. The Assistant Secretary shall notify the complainant of
the dismissal of the complaint and the reasons for the dismissal.
(2) Informal resolution. Where the allegations in a complaint on
their face, or as amplified by the statements of the complainant,
present a valid allegation of noncompliance with section 3, the
Assistant Secretary will attempt, through informal methods, to obtain a
voluntary and just resolution of the complaint. Where attempts to
resolve the complaint informally fail, the Assistant Secretary will
impose a resolution on the recipient and complainant. Any resolution
imposed by the Assistant Secretary will be in accordance with
requirements and procedures concerning the imposition of sanctions or
resolutions as set forth in the regulations governing the HUD program
under which the section 3 covered assistance was provided.
(3) Effective date of informal resolution. The imposed resolution
will become effective and binding at the expiration of 15 days
following notification to recipient and complainant by certified mail
of the imposed resolution, unless either party appeals the resolution
before the expiration of the 15 days. Any appeal shall be in writing to
the Secretary and shall include the basis for the appeal.
(g) Sanctions. Sanctions that may be imposed on recipients that
fail to comply with the regulations of this part include debarment,
suspension and limited denial of participation in HUD programs.
(h) Investigation of complaint. The Assistant Secretary reserves
the right to investigate a complaint directly when, in the Assistant
Secretary's discretion, the investigation would further the purposes of
section 3 and this part.
(i) Intimidatory or retaliatory acts prohibited. No recipient or
other person shall intimidate, threaten, coerce, or discriminate
against any person or business because the person or business has made
a complaint, testified, assisted or participated in any manner in an
investigation, proceeding, or hearing under this part. The identity of
complainants shall be kept confidential except to the extent necessary
to carry out the purposes of this part, including the conduct of any
investigation, hearing or judicial proceeding arising thereunder.
(j) Judicial relief. Nothing in this subpart D precludes a section
3 resident or section 3 business concerning from exercising the right,
which may otherwise be available, to seek redress directly through
judicial procedures. (Approved by the Office of Management and Budget
under control number 2529-0043.)
Subpart E--Reporting and Recordkeeping
Sec. 135.90 Reporting.
Each recipient which receives directly from HUD financial
assistance that is subject to the requirements of this part shall
submit to the Assistant Secretary an annual report in such form and
with such information as the Assistant Secretary may request, for the
purpose of determining the effectiveness of section 3. 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. All
reports submitted to HUD in accordance with the requirements of this
part will be made available to the public. (Approved by the Office of
Management and Budget under control number 2529-0043.)
Sec. 135.92 Recordkeeping and access to records.
HUD shall have access to all records, reports, and other documents
or items of the recipient that are maintained to demonstrate compliance
with the requirements of this part, or that are maintained in
accordance with the regulations governing the specific HUD program
under which section 3 covered assistance is provided or otherwise made
available to the recipient or contractor.
Appendix to Part 135
I. Examples of Efforts To Offer Training and Employment
Opportunities to Section 3 Residents
(1) Entering into ``first source'' hiring agreements with
organizations representing Section 3 residents.
(2) Sponsoring a HUD-certified ``Step-Up'' employment and
training program for section 3 residents.
(3) Establishing training programs, which are consistent with
the requirements of the Department of Labor, for public and Indian
housing residents and other section 3 residents in the building
trades.
(4) Advertising the training and employment positions by
distributing flyers (which identify the positions to be filled, the
qualifications required, and where to obtain additional information
about the application process) to every occupied dwelling unit in
the housing development or developments where category 1 or category
2 persons (as these terms are defined in Sec. 135.34) reside.
(5) Advertising the training and employment positions by posting
flyers (which identify the positions to be filled, the
qualifications required, and where to obtain additional information
about the application process) in the common areas or other
prominent areas of the housing development or developments. For HAs,
post such advertising in the housing development or developments
where category 1 or category 2 persons reside; for all other
recipients, post such advertising in the housing development or
developments and transitional housing in the neighborhood or service
area of the section 3 covered project.
(6) Contacting resident councils, resident management
corporations, or other resident organizations, where they exist, in
the housing development or developments where category 1 or category
2 persons reside, and community organizations in HUD-assisted
neighborhoods, to request the assistance of these organizations in
notifying residents of the training and employment positions to be
filled.
(7) Sponsoring (scheduling, advertising, financing or providing
in-kind services) a job informational meeting to be conducted by an
HA or contractor representative or representatives at a location in
the housing development or developments where category 1 or category
2 persons reside or in the neighborhood or service area of the
section 3 covered project.
(8) Arranging assistance in conducting job interviews and
completing job applications for residents of the housing development
or developments where category 1 or category 2 persons reside and in
the neighborhood or service area in which a section 3 project is
located.
(9) Arranging for a location in the housing development or
developments where category 1 persons reside, or the neighborhood or
service area of the project, where job applications may be delivered
to and collected by a recipient or contractor representative or
representatives.
(10) Conducting job interviews at the housing development or
developments where category 1 or category 2 persons reside, or at a
location within the neighborhood or service area of the section 3
covered project.
(11) Contacting agencies administering HUD Youthbuild programs,
and requesting their assistance in recruiting HUD Youthbuild program
participants for the HA's or contractor's training and employment
positions.
(12) Consulting with State and local agencies administering
training programs funded through JTPA or JOBS, probation and parole
agencies, unemployment compensation programs, community
organizations and other officials or organizations to assist with
recruiting Section 3 residents for the HA's or contractor's training
and employment positions.
(13) Advertising the jobs to be filled through the local media,
such as community television networks, newspapers of general
circulation, and radio advertising.
(14) Employing a job coordinator, or contracting with a business
concern that is licensed in the field of job placement (preferably
one of the section 3 business concerns identified in part 135), that
will undertake, on behalf of the HA, other recipient or contractor,
the efforts to match eligible and qualified section 3 residents with
the training and employment positions that the HA or contractor
intends to fill.
(15) For an HA, employing section 3 residents directly on either
a permanent or a temporary basis to perform work generated by
section 3 assistance. (This type of employment is referred to as
``force account labor'' in HUD's Indian housing regulations. See 24
CFR 905.102, and Sec. 905.201(a)(6).)
(16) Where there are more qualified section 3 residents than
there are positions to be filled, maintaining a file of eligible
qualified section 3 residents for future employment positions.
(17) Undertaking job counseling, education and related programs
in association with local educational institutions.
(18) Undertaking such continued job training efforts as may be
necessary to ensure the continued employment of section 3 residents
previously hired for employment opportunities.
(19) After selection of bidders but prior to execution of
contracts, incorporating into the contract a negotiated provision
for a specific number of public housing or other section 3 residents
to be trained or employed on the section 3 covered assistance.
(20) Coordinating plans and implementation of economic
development (e.g., job training and preparation, business
development assistance for residents) with the planning for housing
and community development.
II. Examples of Efforts To Award Contracts to Section 3 Business
Concerns
(1) Utilizing procurement procedures for section 3 business
concerns similar to those provided in 24 CFR part 905 for business
concerns owned by Native Americans (see section III of this
Appendix).
(2) In determining the responsibility of potential contractors,
consider their record of section 3 compliance as evidenced by past
actions and their current plans for the pending contract.
(3) Contacting business assistance agencies, minority
contractors associations and community organizations to inform them
of contracting opportunities and requesting their assistance in
identifying section 3 businesses which may solicit bids or proposals
for contracts for work in connection with section 3 covered
assistance.
(4) Advertising contracting opportunities by posting notices,
which provide general information about the work to be contracted
and where to obtain additional information, in the common areas or
other prominent areas of the housing development or developments
owned and managed by the HA.
(5) For HAs, contacting resident councils, resident management
corporations, or other resident organizations, where they exist, and
requesting their assistance in identifying category 1 and category 2
business concerns.
(6) Providing written notice to all known section 3 business
concerns of the contracting opportunities. This notice should be in
sufficient time to allow the section 3 business concerns to respond
to the bid invitations or request for proposals.
(7) Following up with section 3 business concerns that have
expressed interest in the contracting opportunities by contacting
them to provide additional information on the contracting
opportunities.
(8) Coordinating pre-bid meetings at which section 3 business
concerns could be informed of upcoming contracting and
subcontracting opportunities.
(9) Carrying out workshops on contracting procedures and
specific contract opportunities in a timely manner so that section 3
business concerns can take advantage of upcoming contracting
opportunities, with such information being made available in
languages other than English where appropriate.
(10) Advising section 3 business concerns as to where they may
seek assistance to overcome limitations such as inability to obtain
bonding, lines of credit, financing, or insurance.
(11) Arranging solicitations, times for the presentation of
bids, quantities, specifications, and delivery schedules in ways to
facilitate the participation of section 3 business concerns.
(12) Where appropriate, breaking out contract work items into
economically feasible units to facilitate participation by section 3
business concerns.
(13) Contacting agencies administering HUD Youthbuild programs,
and notifying these agencies of the contracting opportunities.
(14) Advertising the contracting opportunities through trade
association papers and newsletters, and through the local media,
such as community television networks, newspapers of general
circulation, and radio advertising.
(15) Developing a list of eligible section 3 business concerns.
(16) For HAs, participating in the ``Contracting with Resident-
Owned Businesses'' program provided under 24 CFR part 963.
(17) Establishing or sponsoring programs designed to assist
residents of public or Indian housing in the creation and
development of resident-owned businesses.
(18) Establishing numerical goals (number of awards and dollar
amount of contracts) for award of contracts to section 3 business
concerns.
(19) Supporting businesses which provide economic opportunities
to low income persons by linking them to the support services
available through the Small Business Administration (SBA), the
Department of Commerce and comparable agencies at the State and
local levels.
(20) Encouraging financial institutions, in carrying out their
responsibilities under the Community Reinvestment Act, to provide no
or low interest loans for providing working capital and other
financial business needs.
(21) Actively supporting joint ventures with section 3 business
concerns.
(22) Actively supporting the development or maintenance of
business incubators which assist Section 3 business concerns.
III. Examples of Procurement Procedures That Provide for Preference
for Section 3 Business Concerns
This Section III provides specific procedures that may be
followed by recipients and contractors (collectively, referred to as
the ``contracting party'') for implementing the section 3
contracting preference for each of the competitive procurement
methods authorized in 24 CFR 85.36(d).
(1) Small Purchase Procedures. For section 3 covered contracts
aggregating no more than $25,000, the methods set forth in this
paragraph (1) or the more formal procedures set forth in paragraphs
(2) and (3) of this Section III may be utilized.
(i) Solicitation. (A) Quotations may be solicited by telephone,
letter or other informal procedure provided that the manner of
solicitation provides for participation by a reasonable number of
competitive sources. At the time of solicitation, the parties must
be informed of:
--the section 3 covered contract to be awarded with sufficient
specificity;
--the time within which quotations must be submitted; and
--the information that must be submitted with each quotation.
(B) If the method described in paragraph (i)(A) is utilized,
there must be an attempt to obtain quotations from a minimum of
three qualified sources in order to promote competition. Fewer than
three quotations are acceptable when the contracting party has
attempted, but has been unable, to obtain a sufficient number of
competitive quotations. In unusual circumstances, the contracting
party may accept the sole quotation received in response to a
solicitation provided the price is reasonable. In all cases, the
contracting party shall document the circumstances when it has been
unable to obtain at least three quotations.
(ii) Award. (A) Where the section 3 covered contract is to be
awarded based upon the lowest price, the contract shall be awarded
to the qualified section 3 business concern with the lowest
responsive quotation, if it is reasonable and no more than 10
percent higher than the quotation of the lowest responsive quotation
from any qualified source. If no responsive quotation by a qualified
section 3 business concern is within 10 percent of the lowest
responsive quotation from any qualified source, the award shall be
made to the source with the lowest quotation.
(B) Where the section 3 covered contract is to be awarded based
on factors other than price, a request for quotations shall be
issued by developing the particulars of the solicitation, including
a rating system for the assignment of points to evaluate the merits
of each quotation. The solicitation shall identify all factors to be
considered, including price or cost. The rating system shall provide
for a range of 15 to 25 percent of the total number of available
rating points to be set aside for the provision of preference for
section 3 business concerns. The purchase order shall be awarded to
the responsible firm whose quotation is the most advantageous,
considering price and all other factors specified in the rating
system.
(2) Procurement by sealed bids (Invitations for Bids).
Preference in the award of section 3 covered contracts that are
awarded under a sealed bid (IFB) process may be provided as follows:
(i) Bids shall be solicited from all businesses (section 3
business concerns, and non-section 3 business concerns). An award
shall be made to the qualified section 3 business concern with the
highest priority ranking and with the lowest responsive bid if that
bid--
(A) is within the maximum total contract price established in
the contracting party's budget for the specific project for which
bids are being taken, and
(B) is not more than ``X'' higher than the total bid price of
the lowest responsive bid from any responsible bidder. ``X'' is
determined as follows:
------------------------------------------------------------------------
x=lesser of:
------------------------------------------------------------------------
When the lowest responsive bid is 10% of that bid or $9,000.
less than $100,000.
When the lowest responsive bid is:
At least $100,000, but less 9% of that bid, or $16,000.
than $200,000.
At least $200,000, but less 8% of that bid, or $21,000.
than $300,000.
At least $300,000, but less 7% of that bid, or $24,000.
than $400,000.
At least $400,000, but less 6% of that bid, or $25,000.
than $500,000.
At least $500,000, but less 5% of that bid, or $40,000.
than $1 million.
At least $1 million, but less 4% of that bid, or $60,000.
than $2 million.
At least $2 million, but less 3% of that bid, or $80,000.
than $4 million.
At least $4 million, but less 2% of that bid, or $105,000.
than $7 million.
$7 million or more............. 1\1/2\% of the lowest responsive
bid, with no dollar limit.
------------------------------------------------------------------------
(ii) If no responsive bid by a section 3 business concern meets
the requirements of paragraph (2)(i) of this section, the contract
shall be awarded to a responsible bidder with the lowest responsive
bid.
(3) Procurement under the competitive proposals method of
procurement (Request for Proposals (RFP)). (i) For contracts and
subcontracts awarded under the competitive proposals method of
procurement (24 CFR 85.36(d)(3)), a Request for Proposals (RFP)
shall identify all evaluation factors (and their relative
importance) to be used to rate proposals.
(ii) One of the evaluation factors shall address both the
preference for section 3 business concerns and the acceptability of
the strategy for meeting the greatest extent feasible requirement
(section 3 strategy), as disclosed in proposals submitted by all
business concerns (section 3 and non-section 3 business concerns).
This factor shall provide for a range of 15 to 25 percent of the
total number of available points to be set aside for the evaluation
of these two components.
(iii) The component of this evaluation factor designed to
address the preference for section 3 business concerns must
establish a preference for these business concerns in the order of
priority ranking as described in 24 CFR 135.36.
(iv) With respect to the second component (the acceptability of
the section 3 strategy), the RFP shall require the disclosure of the
contractor's section 3 strategy to comply with the section 3
training and employment preference, or contracting preference, or
both, if applicable. A determination of the contractor's
responsibility will include the submission of an acceptable section
3 strategy. The contract award shall be made to the responsible firm
(either section 3 or non-section 3 business concern) whose proposal
is determined most advantageous, considering price and all other
factors specified in the RFP.
Dated: June 27, 1994.
Roberta Achtenberg,
Assistant Secretary for Fair Housing and Equal Opportunity.
[FR Doc. 94-15951 Filed 6-29-94; 8:45 am]
BILLING CODE 4210-28-P
