Texas Department of Housing & Community Affairs - Building Homes and Strengthening Communities


Summary of Section 3 Obligations

  1. Inform Section 3 residents of employment and contracting opportunities.
  2. To the greatest extent feasible, hire and train Section 3 residents. Verify eligibility based on Section 3 Income Limits (www.huduser.gov).
  3. To the greatest extent feasible, contract with Section 3 businesses. Search for a HUD Section 3 Business (hud.gov)
  4. Public notice: Include Local Economic Opportunity Obligation Notice: HUD Section 3 (PDF) in all bid/proposal solicitations and Section 3 Clause (24 CFR 135.38 - Code of Federal Regulations site) in all subcontracts for Section 3-covered projects.
  5. Submit Section 3 Summary Reports, as requested, to describe outreach efforts, hiring, worker training, and contracting pursuant to creating economic opportunities for low- and very low-income persons using the 60002 Report Form.

Parties Subject to Section 3 Obligations:

  • [Sub]recipients of “Section 3-covered assistance” (Definitions) who receive HUD funding for construction or rehab (HOME, ESGP, CDBG, NSP).
  • Contractors hired by [Sub]recipient.
  • Subcontractors hired by covered contractors.

Reporting Obligations

Texas [sub]recipients must estimate Section 3 data and report it with a compliance plan prior to initial disbursement; they report final Section 3 data on the 60002 Report Form to TDHCA prior to final disbursement.

All applicable HUD program (HOME, ESGP, CDBG, NSP) awardees must complete the Section 3 Summary Report and submit it to TDHCA. This Section 3 Summary Report must contain information (a) about the [sub]recipient and (b) about all the contractors and subcontractors that received related contracts. Therefore, the [sub]recipient must collect data from contractors and subcontractors prior to submitting its Section 3 Summary Report to TDHCA.

All organizations that work on the project must report new hires on the 60002 Report Form.

Visit Section 3 Reporting Instructions for information regarding completing the required forms. [Sub]recipients never report directly to HUD via online form.

Hiring Obligations

Section 3 requires that HUD-funded award [sub]recipients, contractors, and subcontractors fulfill the following obligations when hiring any new employee (24 CFR 135.32, 135.34, 135.36):

  • Inform area low-income residents and businesses about project-related training and employment opportunities. (Resources for Recruiting & Outreach and HUD examples).
  • Train new hires. Reduced pay for trainees requires certified apprenticeship (Texas Workforce Commission).
  • Use preferences in hiring process (24 CFR 135.34). If the Stewart B. McKinney Homeless Assistance Act supports the project, homeless persons residing in the service area or neighborhood of the project get top priority. Otherwise, the following populations get top priority.
    • Section 3 residents living in the service area or neighborhood of the project. This means any geography up to metropolitan area. (Category 1)
    • Participants in HUD Youthbuild programs (Youthbuild.org). (Category 2)
    • Other Section 3 residents. (A low-income individual can only be a Section 3 resident on a project if residing in the metropolitan area or non-metro county of the project. Low-income individuals outside the metropolitan area or non-metro county do not qualify as Section 3 residents for this project, although they may qualify for projects nearer to where they live.)
  • Satisfy HUD’s “minimum numerical target for training and employment,” 24 CFR 135.30 that 30% of new hires be Section 3 individuals.

Minimum numerical targets for training and employment: At least 30% of the aggregate number of new hires each year must meet Section 3 resident criteria. “New hires” refers to full-time employees for permanent, temporary or seasonal employment opportunities. If the business cannot meet this numerical goal, it must document attempts to comply with regulations and explain what happened. Such justification must include impediments encountered and actions taken.

Note: Nothing in 24 CFR 135 requires employment of a Section 3 resident who does not meet the minimum qualifications for a position or job. (24 CFR 135.34(c))

Contracting Obligations

Section 3-covered award [sub]recipients, contractors, and subcontractors must fulfill the following obligations when they contract with other businesses to do work on the project (24 CFR 135.36):

  • "To greatest extent feasible” make contracts with Section 3 business concerns.
  • Give contracting priority to these 3 categories:
  • Meet HUD’s required “minimum numerical target for contracting”.

Minimum numerical targets for contracting (24 CFR 135.30(c)): At least 10% of the dollar amount of contracts for building trades work must involve Section 3 Business Concerns, and at least 3% of the dollar amount of contracts for other work (non-building trades work) must involve Section 3 Business Concerns. If an organization with contracting obligations under Section 3 cannot meet these requirements, it must document why. Justification must describe impediments and actions taken.

These requirements concern (a) contracts for labor and (b) contracts for both labor and materials, but not (c) contracts just for materials. These obligations pertain to contracts of any dollar value.

Note: Nothing in 24 CFR 135 requires [sub]recipients, contractors, or subcontractors to engage an unqualified business. Rules requiring ability to complete a contract still apply. (24 CFR 135.36(c); 24 CFR 85.36; 24 CFR 85.36(b)(8) (gpo.gov); 24 CFR 84.44 Procurement Procedures)

If you have any questions, please email hudsection3@tdhca.state.tx.us or contact TDHCA Program Services staff.