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

Obligations

Summary of Section 3 Obligations (24 CFR 75)

  1. Inform Section 3 residents of employment and contracting opportunities (§75.27 Contract provisions).
  2. To the greatest extent feasible, hire and train Section 3 residents (§75.19 (a) Requirements). Verify eligibility based on Section 3 Income Limits (www.huduser.gov). The rule only gives preference to Section 3 residents after they meet necessary job qualifications.
  3. To the greatest extent feasible, contract with Section 3 businesses (§75.19 (b) Requirements). Search for a HUD Section 3 Business (hud.gov). The rule only gives preference to Section 3 businesses after they meet necessary contract qualifications.
  4. Section 3 Final Rule continues to emphasize creating economic opportunities to business concerns that provide economic opportunities to Section 3 workers residing within the metropolitan area (or non-metropolitan county) in which the funded project is located.
  5. Public notice: Include recommended Obligation Summary for Contract Awardees (DOC) in all bid/proposal solicitations. HUD no longer requires the exact text of the Section 3 Clause (24 CFR 135.38 – defunct); however, TDHCA and its subrecipients may use the clause, developed by our Legal Division (DOCX), to convey Section 3 obligations through their subcontracts for Section 3-covered projects (cf §75.27 Contract provisions). For detailed explanation of Section 3 obligations, subrecipient solicitations may refer bidders and job applicants to https://www.tdhca.state.tx.us/program-services/hud-section-3/index.htm.
  6. Submit Section 3 Summary Reports, as requested, to describe outreach efforts, ratios of Section 3 labor hours to total labor hours, and worker training, pursuant to creating economic opportunities for low- and very low-income persons using the Section 3 Report Form. TDHCA contract awardees must submit Section 3 reporting as part of their request for final or retainage draw.

Parties Subject to Section 3:

  • Subrecipients of “Section 3-covered assistance” include those who receive HUD funding for construction or rehab that meets the $200,000-per-project threshold (HOME, NSP, NHTF, ESGP, CDBG; §75.3 Applicability). Subrecipients report Section 3 accomplishments to TDHCA with their final contract draw request.
  • Contractors hired by Subrecipient (report through subrecipient).
  • Subcontractors hired by covered contractors (report through contractors).

Labor Hour Priorities

Section 3 requires that HUD-funded award subrecipients, contractors, and subcontractors fulfill the following obligations for outreach, employment, training, and labor hours (§75.19 Requirements, §75.25 Reporting, §75.27 Contract provisions, §75.31 Recordkeeping (b)(1)):

  • Inform area low-income residents and businesses about project-related training and employment opportunities. (§75.25 Reporting (b) Outreach, training, apprenticeship.). Area residents need to know the criteria by which HUD Section 3 grants them priority for employment opportunities.
  • Train Section 3 workers. (§75.19 (a)). Employers must give priority for training opportunities to residents of the metropolitan area or non-metropolitan county where the project happens, if applicants meet the employer’s (and Federal) requirements as adequately as non-Section 3 workers do.
  • Use priorities in hiring process (§75.19, §75.5 [Section 3 workers, Service Area]). The following populations get top priority.
  • Satisfy HUD’s “benchmarks for training and employment,” §75.23 Section 3 safe harbor.

Benchmarks for employment and training:

Reporting metrics: Starting with TDHCA program year 2022, HUD set the benchmark for Section 3 workers at 25 percent or more of the total number of labor hours worked by all workers on a Section 3 project. HUD set the benchmark for Targeted Section 3 workers at 5 percent or more of the total number of labor hours worked by all workers on the Section 3 project (§75.23 (b)) in question. Benchmark parameters in Federal Register, 9/29/2020. HUD commits to updating the benchmarks no less frequently than once every three years through notice, subject to public comment, in the Federal Register.

Fail safe: If subrecipients do not meet Section 3 benchmarks, they must additionally report qualitative efforts they pursued to create economic opportunities (14 examples suggested in §75.25 (b)).

Note: Nothing in 24 CFR 75 requires employment of a Section 3 resident who does not meet the minimum qualifications for a position or job. (Definition of Section 3 worker, §75.5)

Contracting Obligations

The 2020 Final Rule includes no numerical goals for businesses. However, contracting with Section 3 businesses can expedite accrual of Section 3 labor hours by their employees. Section 3-covered award subrecipients, contractors, and subcontractors must fulfill the following obligations when they contract with other businesses to do work on the project (24 CFR 75.19 (b)):

  • Include Section 3 requirements in all subcontracts and solicitations (§75.27).
  • "To greatest extent feasible” make contracts with Section 3 business concerns (§75.5).
  • Give contracting priority to these 3 categories:
    • Section 3 businesses that provide economic opportunities to Section 3 workers residing within the metropolitan area (or nonmetropolitan county) in which the project is located.
    • Section 3 businesses that provide economic opportunities to Section 3 workers residing within the service area or the neighborhood of the project (see definitions, §75.5).
    • HUD Youthbuild programs (Youthbuild.org).
  • HUD’s “benchmarks” for Section 3 labor hours combine those of direct hires and workers hired by subcontractors (§75.25 Reporting).

Contracting to expedite Section 3 hiring (24 CFR §75.19 (b)):

  1. To the greatest extent feasible, and consistent with existing Federal, state, and local laws and regulations, recipients covered by this subpart shall ensure contracts for work awarded in connection with Section 3 projects are provided to business concerns that provide economic opportunities to Section 3 workers residing within the metropolitan area (or nonmetropolitan county) in which the project is located.
  2. Where feasible, priority for contracting opportunities described in paragraph (b)(1) of this section should be given to:
    1. Section 3 business concerns that provide economic opportunities to Section 3 workers residing within the service area (new definition) or the neighborhood of the project, and
    2. YouthBuild programs.

Note: Nothing in 24 CFR 75 requires subrecipients, contractors, or subcontractors to engage an unqualified business. Federal procurement rules requiring ability to complete a contract still apply. (24 CFR 75.5 Section 3 business concern)

Reporting Requirements (§75.25 Reporting)

Making a plan to comply with Section 3, and integrating it with the overall project plan, increases the likelihood of achieving compliance. HUD allows recipients to include Section 3 compliance planning as an administrative cost, if included in their initial bid for funding. Subrecipients report final Section 3 data (labor hours worked on the project) on the Section 3 Report Form, included in their funding draw request workbook, to TDHCA prior to final contract funds disbursement.

Responsibility chain: HUD program (HOME, NHTF, NSP, ESGP, CDBG) awardees, funded through TDHCA, must complete a Section 3 Summary Report and submit it to TDHCA. This Section 3 Summary Report must contain information about labor hours worked by (a) the subrecipient, and (b) all contractors and subcontractors that received contracts related to the project. In order to do this, the subrecipient must collect data from contractors and subcontractors prior to submitting its Section 3 Summary Report to TDHCA (HUD considers TDHCA as the “Recipient”). TDHCA reports the Section 3 data to HUD through the Consolidated Annual Performance and Evaluation Report (CAPER).

All organizations and subcontractors that work on the project must report labor hours for Section 3 workers, in comparison to all labor hours for the project (including non-Section 3 labor), on the Section 3 Report Form in the draw request. Subrecipients funded through TDHCA do not report directly to HUD.

If you have any questions, please contact your program’s contract specialist, or TDHCA Program Services staff.