Chapter 8: Section 3 Requirements

This chapter describes Section 3 of the Housing and Urban Development Act of 1968 [12 U.S.C. 1701u and 24 CFR Part 75] and its applicability to CDBG projects. The various chapter components include: 

• Overview
• Implementing Section 3
• Oversight and Compliance
• Resources

Overview

Definitions

Section 3 is HUD’s legislative directive for providing preference to public housing residents and low-income residents of the local community (regardless of race or gender), and the businesses that substantially employ these persons, for new employment, training and contracting opportunities resulting from HUD-funded projects. The regulations seek to ensure that public housing residents and low- and very low- income persons, and the businesses that employ these individuals, are notified about the expenditure of HUD funds in their community and encouraged to seek opportunities, if created.

A Section 3 Worker is defined as any worker who currently fits or when hired within the past five (5) years fit at least one of the following categories:

1. The worker’s income for the previous or annualized calendar year is below the applicable income limits established by HUD;
2. The worker is employed by a Section 3 Business Concern;
3. The worker is a YouthBuild participant

A Targeted Section 3 Worker is defined as a Section 3 Worker who fits one of the following categories:

1. A worker employed by a Section 3 Business Concern;
2. A worker who currently fits, or when hired fits, one of the following categories, as documented within the past five (5) years;
   1. Living within one mile of the project, or if fewer than 5,000 people live within one mile of the project, within a circle/ radius centered on the project that is sufficient to encompass a population of 5,000 people;
   2. A YouthBuild participant

A Section 3 Business Concern is defined as a business that is:

1. At least 51% owned by low or very low- income persons; or
2. Over 75% of the labor hours performed for the business over the prior three-month period are performed by Section 3 Workers; or
3. At least 51% owned and controlled by current public housing residents or residents who currently live in Section 8-assisted housing

The Section 3 provision requires that recipients of certain HUD financial assistance, to the greatest extent feasible, provide job training, employment, and contracting opportunities for low- or very-low income residents in connection with projects and activities in their neighborhoods. 

However, recipients are not required to hire or enter into contracts with Section 3 residents or businesses simply to meet the Section 3 goals—anyone selected for contracting or employment opportunities must meet the qualifications for the job/contract being sought.

When Section 3 Applies

Section 3 applies to projects/activities involving housing (construction, demolition, rehabilitation) or other public construction—i.e., roads, sewers, community centers, etc. when the recipient has contracted with subcontractors for services, housing and/ or public construction activities AND the CDBG assistance exceeds $200,000.

Even if HUD assistance is only a portion of the project cost, Section 3 requirements apply to the entire project once the assistance meets the threshold. Section 3 requirements do not apply to materials-only contracts.

Compliance with Section 3

Each recipient has the responsibility to comply with Section 3 in its own operations, and ensure compliance in the operations of its contractors/ subcontractors. This responsibility includes but may not be necessarily limited to:

1. Implementing procedures designed to notify Section 3 residents about training and employment opportunities.
2. Notifying potential contractors for Section 3 covered projects of the requirements of the requirements of this part and incorporating compliance with Section 3 language in all solicitations and contracts.
3. Facilitating the training and employment of Section 3 Workers and the award of contracts to Section 3 Business Concerns.
4. Estimating the number of labor hours utilized per project and the projected number of labor hours to be worked by Section 3 Workers.
5. Assisting and actively cooperating with HUD 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 Section 3 regulations in 24 CFR Part 75.
6. Documenting actions taken to comply with the requirements of this part, the results of actions taken and impediments, if any.

Recipients and contractors are encouraged to use resources available through Iowa Workforce Development and IowaWORKS offices located throughout the state. IowaWORKS provides a variety of services at no charge for Iowa workers and businesses. IowaWORKS staff can refer workers to appropriate training and help the contractor post-employment and training opportunities available. HUD’s Section 3 Business Registry and the Iowa DOT DBE database are resources that contractors will be directed to for connecting with Section 3 Business Concerns. Recipients are encouraged to utilize all available local community resources to meet its Section 3 requirements.

Implementing Section 3

Defining Service Area

“Service area” or the “neighborhood of the project” means an area within one mile of the Section 3 project or if fewer than 5,000 people live within one mile of the project, within a circle centered on the project that is sufficient to encompass a population of 5,000 people according to the most recent U.S. Census.

Procurement & Bid Documents

CDBG recipients must include Section 3 language in all procurement and bid documents applicable under this rule. The required language to be included in these documents can be found in the appendix to this chapter of the CDBG Management Guide. In addition to the required language, recipients must include the “Intent to Comply with Section 3” form with all RFPs, also found in the appendix.

Contractors responding to bids must submit with their bid documents a signed copy of the “Intent to Comply with Section 3” form. This form will be used to collect information that recipients should use when reviewing responses to ensure compliance with Section 3 requirements.

Selecting Contractors with Section 3

In addition to certifying employees’ level of income, Section 3 requires recipients make an effort to the “greatest extent feasible” to facilitate contracts to Section 3 Business Concerns. By “greatest extent feasible,” HUD means that recipients of Section 3 covered financial assistance should make every effort within their disposal to meet the regulatory requirements. This may mean going a step beyond normal notification procedures for employment and contracting procedures by developing strategies that will specifically target Section 3 residents and businesses for these types of economic opportunities. Suggestions on strategies for reaching Section 3 businesses is provided later in Appendix 8 of the CDBG Management Guide.

While Iowa procurement procedures require recipients select the lowest responsible bidder when under a competitive sealed bid process, recipients may give preference to Section 3 businesses as a means of evaluation criteria for professional services contracts where proposals are solicited.

In order to give preference to Section 3 Business Concerns during the contract awarding process, recipients must ask the contractor to certify whether or not they are a Section 3 business when soliciting for proposals. The “Intent to Comply With Section 3” form that will be provided with procurement documents and submitted by bidders will capture this information.

Remember, to be considered a Section 3 Business Concern, the business must meet the definition by satisfying one of the following requirements:

1. At least 51% owned by low or very low income persons;
2. Over 75% of the labor hours performed for the business over the prior three-month period are performed by Section 3 Workers
3. At least 51% owned and controlled by current public housing residents or residents who currently live in Section 8-assisted housing 

Section 3 Business Concerns must be given priority in contracting for work, to the greatest extent feasible. Recipients should use the following order of priority:

1. 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
2. Applicants (as this term is defined in 42 U.S.C. 12899) selected to carry out HUD YouthBuild programs (category 2 businesses);
3. Other section 3 Business Concerns.

It is important to note that Section 3 requirements at 24 CFR 75 provides only preference for contracts and subcontracts to Section 3 businesses; Eligible businesses must demonstrate that they are responsible and are able to perform successfully under the terms and conditions of proposed contracts.

Hiring and Training with Section 3

Recipients and their contractors/subcontractors are required to give hiring and training preference to Section 3 residents, to the greatest extent feasible, when new employment opportunities result from a CDBG funded project.

When a recipient or contractor/subcontractor has identified that new employment or training opportunity will result from the normal completion of the CDBG construction and/or rehabilitation projects, the CDBG grant administrator should work with that entity to assist with advertising the opportunity to Section 3 residents.

Notices of employment/training opportunities must be sent to the Iowa Chapter of the National Association of Housing and Redevelopment Officials (NAHRO). Notices should be sent to the NAHRO Chapter President. Contact information can be found here: http://www.ianahro.org/contactus.cfm NAHRO will share the notice with public housing authorities, in an effort to help reach Section 3 Business Concerns. A sample notice for employment/training opportunities is provided in the appendix to this section of the Management Guide.

Notices of employment/training opportunities must also be posted to HUD’s Opportunity Portal (https://hudapps.hud.gov/OpportunityPortal/). This portal may also be used by businesses seeking Section 3 Workers for employment opportunities.

Additional suggestions on strategies for reaching Section 3 residents is provided in Appendix 8 of the CDBG Management Guide. Remember, recipients are required to document affirmative steps made to meet Section 3 goals when Section 3 requirements are triggered.

When giving hiring and training preference to Section 3 Workers, recipients and contractor/subcontractors should use the following order of priority:

1. Section 3 Workers residing in the service area or neighborhood in which the section 3 covered project is located (collectively, referred to as category 1 residents).
2. Participants in HUD YouthBuild programs (category 2 residents).
3. Other section 3 residents.

Oversight and Compliance

Section 3 Benchmarks

Federal regulations establish numerical goals for employment/training for Section 3 residents and contracts to Section 3 businesses. 

Recipients, their contractors and subcontractors will be considered to have complied with Section 3 requirements when:

1. 25% or more of the total number of labor hours worked by all workers on a Section 3 project are Section 3 Workers, inclusive of both regular Section 3 workers and Targeted Section 3 workers, as defined herein and;
2. At least 5% of the total number of labor hours worked by all workers on a Section 3 project are Targeted Section 3 Workers.

A recipient that has not met the numerical goals must explain why it was not feasible to meet the established numerical goals set forth in this section. Please refer to “Reporting requirements/ reporting forms” for more information.

Note: It is important to document efforts made to comply with Section 3. Recipient files should contain any memos, correspondence, advertisements, etc. illustrating attempts to meet Section 3 benchmarks and to support Outreach Efforts reported on the Contractor’s report. (e.g., to reach out to eligible persons regarding employment or training and/or business concerns). IEDA staff will review this documentation during the project on-site monitoring visit.

Penalties for Non-Compliance

Recipients of CDBG funding have the responsibility of complying with Section 3 regulations and ensuring compliance among its contractors and subcontractors. Federal code established penalties for Section 3 violations and non-compliance. (See 135.38(f))

Communities and contractors found in violation of Section 3 requirements may result in: 

• Sanctions from HUD
• Termination of contract for CDBG funds
• Debarment or suspension from future HUD assisted (CDBG) contracts

Non-compliance with Section 3 can impact a community’s ability to receive CDBG funding in the future. Under federal code, the State of Iowa may not enter into a contract with any entity when the state has knowledge that the entity has been found in violation of the Section 3 regulations.

Reporting Requirements & Forms

To report Section 3 data, recipients must analyze the number of labor hours worked on a Section 3 project, how many labor hours were worked by Section 3 Workers, and how many labor hours were worked by Targeted Section 3 Workers. Even if no hours were worked by Section 3 or Targeted Section 3 Workers, this information must be reported to IEDA.

For all projects employing Section 3 Workers or Targeted Section 3 Workers, the recipient/ contractors must maintain one of the following (in order of priority) to demonstrate Section 3 status of the worker:

1. Self- certification form. If the worker’s income is less than 80% of the area median income, they are considered a Section 3 Worker. Income limits are available on the IEDA website: https://www.iowaeda.com/cdbg/management-guide/
2. Certification from an employer that the worker’s income from the employer is within the income limits if annualized. This may be recorded and affirmed on the Compliance Form spreadsheet found in Appendix 8. Instructions for using the Contractor’s Report are contained within the Report.
3. Certification from an employer that the worker is employed by a Section 3 Business Concern. This can be demonstrated by a contractor’s submission of the Section 3 Business Certification and Compliance Form.
4. Certification from a PHA that the worker is a participant in one of its programs.

To report Section 3 data to IEDA, recipient and contractors are encouraged to use the Compliance Form spreadsheet to record labor hours worked by Section 3 Workers and Targeted Section 3 Workers. Even if no Section 3 Workers were utilized, this report must be completed and submitted to IEDA at the completion of the project. This form will be available on IowaGrants.

Recipients will also need to report Section 3 accomplishments and/or provide a detailed explanation as to why Section 3 benchmarks were not met and describe efforts made to identify and engage Section 3 Workers and Businesses. This data may be collected using the Compliance Form and aggregated for submission to IEDA. Grant administrators can use the Qualitative Efforts checklist available in Appendix 8 Files to the CDBG Management Guide to document this when submitting it via IowaGrants.

Resources

Section 3 Business Registry/ Opportunity Portal

The Section 3 Business Registry and Opportunity Portal are two online registries that connect Section 3 Workers to training and employment opportunities and Section 3 businesses to contracting opportunities. Businesses who self-certify that they meet one of the regulatory definitions of a Section 3 Business Concerns will be included in a searchable online database. The database can be used by agencies that receive HUD funds, developers, contractors, and others to facilitate the award of covered construction and non-construction contracts to Section 3 businesses. Section 3 Workers are encouraged to use the Opportunity Portal to identify businesses that may have HUD- funded employment opportunities available. Section 3 Business Concerns are encouraged to post training, employment, and contracting opportunities to the Opportunity Portal. CDBG recipients should utilize HUD’s Section 3 Business Registry to find Section 3 Business Concerns that may be able to participate in the CDBG project. Recipients can search through HUD’s Section 3 registry here: https://hudapps.hud.gov/OpportunityPortal/searchBusiness.action

Businesses may also use that link to register as a Section 3 Business through HUD’s website (click the “Sign in” link on that page): 

• The Opportunity Portal can be accessed through HUD’s website here: https://hudapps.hud.gov/OpportunityPortal/
• It is important to note that Section 3 Business Concerns are not entitled to receive contracts simply by being listed in HUD’s Section 3 Business Registry database or Opportunity Portal.

Additional Section 3 Resource

More information and resources on Section 3 can be found on HUD’s Section 3 website here: http://portal.hud.gov/hudportal/HUD?src=/program_offices/fair_housing_equal_opp/section3/section3.