Sharanya Iyer

CONE 4324

Mid Term Essay

Incorporation of Historically Underutilized

Businesses in Texas Construction Contracts

CONE 4324 - Construction Contracts and

Specifications

Sharanya Iyer
 Sharanya Iyer
CONE 4324

HUB involvement in Construction Contracts

A Historically Underutilized Business (HUB) is a business in the form of a sole proprietor, partnership

or corporation of which at least 51% of owned and equitable securities are owner by members of

the following groups:

 Asian Pacific Americans

 Black Americans
 Hispanic Americans
 Native Americans
 Women
 A United States Veteran

In addition, 20% of members that own equitable securities must have a disability rating. In

complement to owning equitable securities, speciality members must be involved in the operations,

management or control of the business. (Texas Facilities Commission (TFC), 2016)

Obligations and inclusion of HUBs in relation to construction works are vital to subcontractors and

their provided services.

In accordance with Texas Gov't Code §2161.252 and Texas Administrative Code §20.14, each state agency

(including institutions of higher education) as defined by §2151.002 that considers entering into a contract

with an expected value of $100,000 or more shall, before the agency solicits bids, proposals, offers, or other

applicable expressions of interest, determine whether subcontracting opportunities are probable under the

contract. If subcontracting opportunities are probable, each state agency's invitation for bids or other

purchase solicitation documents for construction, professional services, other services, and commodities

with an expected value of $100,000 or more shall state that probability and require a HUB Subcontracting

Plan (HSP).

Figure 1 HUB Sub-contracting requirement

from: (Glenn Hegar, 2016)
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CONE 4324

Since HUB participation is vital for projects valued at over $100,000 almost all construction bids will

require HUB subcontractors. Utilization of HUB work is also a fundamental legal obligation and an

opportunity to represent good will as an operating business. The Health and Human Services

Commission (HHSC) exemplifies the use of HUBs on their website as a promotional strategy of good

faith as demonstrated in figure 2 below.

“In accordance with the Health and Human Services Commission (HHSC) adopted rules, Section

392.100, relating to Historically Underutilized Businesses (HUBs) and Sections 2161.181-182 of the

Texas Government Code, state agencies shall make a good faith effort to utilize HUBs in contracts for

construction, services, including professional and consulting services and commodity contracts.”

Figure 2 Health and Human Services Commission’s use of HUBs to demonstrate Good Faith
from: (Health and Human Services Commission, 2016)

The state contracting system within construction related trades organised a list of goals specified in

accordance with the State of Texas Disparity Study. These goals relate to the required HUB

participation opportunities and sub-contracting requirements, as monitored by Texas Comptroller of

Public Accounts (CPA):

 11.2 percent for heavy construction other than building contracts.

 21.1 percent for all building construction, including general contractors and operative

builders contracts.

 32.7 percent for all special trade construction contracts.

 23.6 percent for professional services contracts.

 24.6 percent for all other services contracts.

 21 percent for commodities contracts.

 Sharanya Iyer
CONE 4324

Figure 3 HUB Subcontracting Plan

from: (The State of Texas Comptroller, 2016)

A HUB Subcontracting Plan entailed in the contract is arranged between the contractor and

subcontractor. Figure 3 outlines the HUB Subcontracting Plan which primary contractors are

required to fill as part of the contract necessitated by the State of Texas.

It is important to note that

these are the minimum

goals that need to be

achieved when the

contractor chooses sub-

contracted work.
Figure 4 Individual HUB Business Goals of Texas A&M University
from: (Texas A&M University, 1996) However, this does

not mean that the contractor cannot increase HUB focussed sub-contracting goals. In essence

this can actually be a beneficial marketing strategy to increase business reputation. Figure 4 and

5 provides an example of Texas A&M University’s personalised HUB use.

Figure 3 Report of HUB expenditures as part of the HUB Plan

from: (Texas A&M University, 1996)
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CONE 4324

Contractors and/or clients are also required

to produce their HUB utilization in their

annual HUB report. Figure 4 illustrates Texas

A&M University’s service expenditures in

relation to utilized HUBs and the percentage

of their use.

HUB certified awards are more boldly

Figure 4 Bid Procedures of the Office of Attorney General (OAG)
from: (Office of the Attorney General, 2014)
emphasised in government run

departments by the Comptroller of Public Accounts (CPA) which strongly affect the bidding process.

Figure 5 exhibits the way in which awards are allocated to bidders in the Office of the Attorney

General (OAG). Primary contractors must realise that HUB participation is pivotal in government

institutions especially when “two of three” chosen Informal Competitive Bids are awarded to HUBs.

Texas Administrative Code, §20.14 requires all respondents (prime contractors) bidding on the contract
to provide notice of each of their subcontracting opportunities to at least three (3) Texas certified HUBs
(who work within the respective industry applicable to the subcontracting opportunity), and allow the
HUBs at least seven (7) working days to respond to the notice prior to the respondent submitting its bid
response to the contracting agency. In addition, the respondent must provide notice of each of its
subcontracting opportunities to two (2) or more minority or women trade organizations or development
centers at least seven (7) working days prior to submitting its bid response to the contracting agency.

Figure 5 Codes for Bids over $100,000 in value

from: (The State of Texas Comptroller, 2016)

For larger bids over $100,000 (refer to figure 6) in value (a value which is common among

construction projects), the State of Texas requires that at least 3 opportunities be given to HUB sub-

contractors. It is also noted that a 7 working day grace period must be allowed for Vendors to

respond to primary contractor bids. Due to these legal obligations contractors are required to make
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CONE 4324

their bidding process equitable for HUB certified contractors. Hence, the contractor may not always

be able to choose the most price competitive bid. (The State of Texas Comptroller, 2016)

Figure 6 Texas HUB Government Code - Penalties

from: (Texas State Government, 1995)

To the contractor and sub-contractor, HUB certification is extremely vital. As stated above in figure 7

which exhibits the “Historically Underutilized Business Government Code”, the sub-contractor can

incur a third degree felony for falsely representing themselves as HUB operating business. On the

other spectrum, the contractor can be charged for fraudulently reporting sub-contractors as a HUB

operating business. In regards to the bidding process, reporting HUB participation is colossal. This

would mean, that background checking sub-contractors and double checking HUB certification will

need to be performed in order to reduce legal risk and non-compliance.

Subcontractors who are HUB certified are deemed as holding the “good faith” of society. This means

that the composition of their workforce is without discrimination and equal opportunity I given to

disadvantaged and minority groups of society. Being a contractor, good faith is also a good

representation of the business relationship to be expected from the subcontractor. HUB certification

represents the ethical practises that can be expected from the subcontractor during works and their

dedication to contributing to society in a positive manner with the interests of their diverse

workforce – in other words, delivering the triple bottom line over plain profits. In saying this, there

is a sense of trust that can be expected to form through the working relationship of the project and a

smaller risk to the contractor.

 Sharanya Iyer
CONE 4324

Bibliography
Glenn Hegar. (2016). HUB Subcontracting Plan. Retrieved March 1, 2016, from Glenn Hegar - Texas
Comptroller of Public Accounts: http://comptroller.texas.gov/procurement/prog/hub/hub-
subcontracting-plan/

Health and Human Services Commission. (2016). Policy on the Utilization of Historically Underutilized
Businesses (HUBs). Retrieved March 10, 2016, from Texas Health and Human Services
Commission (HHSC):
http://www.hhsc.state.tx.us/about_hhsc/BusOpp/HUB/HHSC_Policy.shtml

Office of the Attorney General. (2014, February). HUB Program and Vendor Tip Guide. Retrieved
March 10, 2016, from Texas Attorney General:
https://texasattorneygeneral.gov/files/agency/hub_vendors.pdf

Texas A&M University. (1996, September 9). Policy on Historically Underutilized Businesses.
Retrieved March 9, 2016, from Texas A&M University Kingsville:
https://www.tamuk.edu/ssgs/_pdf/_pdf_files/P-200%20HUB%20Policy.pdf

Texas Department of Assistive and Rahabilitative Services. (2016). Historically Underutilized Business
(HUB) Program. Retrieved March 9, 2016, from Department of Assistive and Rahabilitative
Services: http://www.dars.state.tx.us/business/hub.shtml

Texas Facilities Commission (TFC). (2016). Historically Underutilized Business (HUB) Program.
Retrieved February 26, 2016, from Texas Facilities Commission:
http://www.tfc.state.tx.us/divisions/commissionadmin/prog/hub/

Texas State Government. (1995, September 1). Chapter 2161. HIstorically Underutilized Businesses.
Retrieved March 10, 2016, from Texas Statutes Government Code:
http://www.statutes.legis.state.tx.us/Docs/GV/htm/GV.2161.htm#D

The State of Texas Comptroller. (2016). HUB SUBCONTRACTING PLAN (HSP). Retrieved March 11,
2016, from Texas Comptroller: http://comptroller.texas.gov/procurement/prog/hub/hub-
forms/HUBSubcontractingPlanForm_AllDocs.pdf