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Homes and Community Renewal

Understanding Section 3

Understanding Section 3

Section 3 is triggered when the award of U.S. Department of Housing and Urban Development funds for construction and rehabilitation projects creates the need for new employment, contracting, or training opportunities.

Section 3 requirements that apply to HCR’s HUD funded Programs:

  • Section 3 applies to recipients of HUD funding, as well as its sub-recipients and developers receiving HUD funding in excess of $200,000. Whenever any portion of HUD funding is invested into projects involving housing construction, demolition or rehabilitation, commercial/private improvements for economic development, or other public construction (e.g., roads, sewers, community centers, and public facilities), the requirements of Section 3 may apply, based on the guidance provided below.

Section 3 requirements that apply to HUD funded Projects:

In conjunction with construction activity, Section 3 applies to projects that are fully or partially funded with HUD assistance, including projects that are financed in conjunction with state, local or private matching or leveraged funds, provided that the Section 3 monetary threshold requirements are met. In particular:

  • In conjunction with construction activities, Section 3 applies to contractors or subcontractors that receive contracts in excess of $100,000 for Section 3 covered projects/activities; and
  • A “Section 3 covered contract” includes professional service contracts, provided that the work to be performed is generated by the expenditure of funds in furtherance of Section 3 covered work (e.g., housing construction, housing rehabilitation and other public construction), arising in connection with construction projects. Professional service contracts that may constitute Section 3 “covered contracts” include construction contract oversight, engineering, architectural, environmental and property evaluation, construction progress and construction draw inspection and prevailing wage labor compliance.
  • Direct beneficiaries (i.e. homeowners, landlords and businesses) are not responsible for meeting Section 3 requirements, as previously detailed above.

The regulations should not be construed to mean that recipients are required to hire Section 3 residents or award contracts to Section 3 Business Concerns other than what is needed to complete covered projects and activities. If the expenditure of funding for an otherwise covered project and activity does not result in new employment, contracting, or training opportunities, reporting is still required.

Section 3 Minimum Program Goals

HCR’s subrecipients, developers and contractors will be required, to the greatest extent feasible, meet the Section 3 HUD numerical goals found at 24 CFR Part 135.30:

  • Thirty percent (30%) of the aggregate number of new hires are Section 3 residents;
  • Ten percent (10%) of the total dollar amount of all covered construction contracts are awarded to Section 3 Business Concerns; and
  • Three percent (3%) of the total dollar amount of all covered non-construction contracts (professional services) are awarded to Section 3 Business Concerns.

Section 3 Residents

To achieve the Section 3 goals, preference should be given to those individuals that meet the following definitions and priority:

  • Public Housing Residents;
  • Low and very low-income persons who live in the metropolitan area or non-metropolitan county where a HUD-assisted project for housing or community development is located;
  • Other Public Housing residents;
  • Participants in Youthbuild programs; and
  • Other Section 3 residents or low to very low-income persons, in metropolitan areas or non-metropolitan counties.

Section 3 Business

To be considered a Section 3 Business Concern a business must meet one of the following criteria:

  • At least 51% or more owned by Section 3 residents, or
  • Whose permanent, full-time employees include persons, at least 30% 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
  • Provides evidence of a commitment to subcontract in excess of 25% of the dollar award of all subcontracts to be awarded to a Section 3 Business Concern.