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Understanding HUD’s Section 3 local hiring provisions is key to complying with developer/contractor obligations

March 22, 2022

Female Construction Worker

A year ago, HUD’s Office of Field Policy and Management published guidance for developers, contractors and subcontractors to help them comply with Section 3 of the HUD Act of 1968 (12 U.S.C § 1701u) requiring the hiring of low income workers at affordable housing developments that receive federal funding. The updated policies were welcomed by developers and contractors, but there are some “lessons learned” that can help partners navigate the labyrinth of the related regulations and rules.

The purpose of Section 3 is “to ensure that employment and other economic opportunities generated by certain HUD financial assistance shall, to the greatest extent feasible, and consistent with existing Federal, State, and local laws and regulations, be directed to low- and very low-income persons, particularly those who are recipients of government assistance for housing, and to business concerns which provide economic opportunities to low- and very low-income persons.”

As a nonprofit affordable housing developer, Preservation of Affordable Housing often receives federal funds to preserve and create affordable housing in 11 states across the country and the District of Columbia. Committing to participate in the Section 3 policy is the easy part but once the commitment is made, complying with the multiple policy guidance documents and regulations can present a host of challenges.

First is the fact that multiple funding agencies utilize the HUD requirement, which is shifting, in addition to their own mandates. We discovered that some projects for which we sought to apply Section 3 goals were operating from an outdated definition of Section 3.

The patchwork of contracting and hiring requirements can create confusion and frustrate the partners’ good intentions to comply with Section 3, especially because some agencies will impose fines if goals are not met (even as many of these fines are hard to enforce because the language around best efforts is extremely vague). It’s never a good practice for a developer to accept the fines as an acceptable penalty to the general contractor; instead, the best approach is to work as a team towards achieving the goals, starting in pre-construction.

In the case of POAH’s three Boston projects, federal funds were allocated on the state level via the Department of Housing and Community Development and at the local level through the City of Boston Department of Neighborhood Development. Each funding agency has their own interpretation of Section 3 requirements in addition to referencing those in the official HUD Act.

In addition to the state and local federal allocations, local public housing authorities often partner with nonprofit developers and use federal funding, which also triggers compliance with the Section 3 policy.

POAH’s internal goals are in line with the fundamentals of Section 3, but when dealing with conflicting agency requests and duplicative paperwork, achieving the best results can be difficult. Here are some of the practices we developed to meet the Section 3 goals:

  • In preparation for construction financing closing, have all funders agree to one Section 3 policy which includes a clear definition of “best efforts”, or clear definition of a Section 3 labor employee and contractor?
  • Discuss with funders each agency’s goal requirements and record the most stringent goal as the project goal to avoid confusion down the road. If funders do not have established goals, you as the developer need to create an internal goal and ensure the general contractor’s contract includes a stated target.
  • Establish consistent reporting documents for the contractors’ contract exhibits.
  • Hire a general contractor who has a staff person dedicated to tracking Section 3 goals. This will help to support sub-contractors on executing intentional “best efforts,” collecting and organizing supportive documentation and achieving Section 3 labor and contracting goals
  • Include the process for Section 3 Policy requirements in the general contractor Request for Proposal and specify the expectations for progress updates.
  • Create a job- and neighborhood-specific plan for engaging potential workers a few months before construction starts on site. As part of this, establish connections between the general contractor and existing neighborhood partners in order to expand the pool of potential Section 3 labor workers and subcontractors.
  • Understand that every household does not have access to a computer and the internet. When conducting Section 3 recruiting and outreach, use a range of communications vehicles to reach potential workers.

For POAH’s development in the Roxbury neighborhood of Boston, we worked with subcontractors and the housing authority to sponsor job fairs to attract residents to employment opportunities early on. These resident relationships with the general contractor continued through the first two phases of the development. In one case, a resident was subsequently hired for POAH’s newest development in Nubian Square where a job fair attracted six new hires for contractors to date. On POAH’s project in Mattapan, two job fairs were held including one that offered resume writing assistance.

When the development team and the general contractor work together and start early to understand the goals and create a plan, the results can be rewarding and will establish a process that will inform future projects.  The benefit of meeting Section 3 goals will enhance the development’s presence in the wider community and set an example for others to follow.