FAQs - Applicability

Q. What is Section 3 covered assistance?
Section 3 covered assistance includes:

• Public and Indian Housing Operating Subsidy; Capital Funds; or Modernization assistance; and
• Housing and community development assistance expended for housing rehabilitation, housing construction, or other public construction.

Q. What are funding thresholds and how do they apply to Section 3 covered financial assistance?
Funding thresholds are minimum dollar amounts that trigger Section 3 requirements. There are no thresholds for public and Indian housing (PIH) programs. The requirements of Section 3 apply to all PIH programs regardless of the amount of assistance received from HUD.

The Section 3 requirements apply to recipients of Housing and/or Community Development Assistance exceeding $200,000 combined from all sources in any one year. Section 3 covers the expenditure of any portion of those funds for any activity that involves housing construction, rehabilitation, or other public construction.

For example, a city receives $600,000 for CDBG, $150,000 in HOME Funding, and $75,000 in NSP funding. This represents a total of $825,000 in housing and community development assistance. As such, any construction or rehabilitation activities funded by the city using those funds is covered by Section 3.

Q. Do the requirements of Section 3 apply to grantees on a "per project" basis?
No. Any agency that receives covered assistance that exceeds $200,000 is required to comply with the requirements of Section 3 whenever any projects involving housing construction, rehabilitation, or other public construction are administered, regardless of the actual dollar amount of covered assistance that is invested into the individual project/activity.

Q. If a project is funded with non-HUD assistance, do the requirements of Section 3 still apply?
Section 3 applies to projects that are fully or partially funded with HUD financial assistance. Projects that are financed with state, local or private matching or leveraged funds used in conjunction with HUD funds are covered by Section 3.

Q. What dollar threshold amounts apply to contractors / subcontractors?
All contracts (or subcontracts) funded with Public and Indian Housing assistance, regardless of dollar amount or type of contract, is subject to the requirements of Section 3.

With respect to recipients of Housing and/or Community Development funding, all contractors or subcontractors that receive covered contracts in excess of $100,000 for housing construction, rehabilitation, or other public construction are required to comply with the requirements of Section 3.

Q. What responsibilities do contractors/subcontractors have if they receive Section 3 covered contracts?
If the contractor/subcontractor has the need to hire new persons to complete the Section 3 covered contract or needs to subcontract portions of the work to another business, they are required to direct their newly created employment and/or subcontracting opportunities to Section 3 residents and business concerns. The same numerical goals apply to contractors and subcontractors (i.e., 30 percent of new hires, 10 percent of construction contracts, and 3 percent of non-construction contracts). In addition, the contractor/subcontractor must notify the recipient agency about their efforts to comply with Section 3 and submit any required documentation.

Q. Do the Section 3 requirements apply to material only contracts?
No. Section 3 does not apply to material only contracts or those that do not require any labor. For example, a contract for office or janitorial supplies would not be covered by Section 3. In this example, Section 3 would be encouraged but not required. However, a contract to replace windows that includes the removal of existing windows and the installation of new windows would be covered.

Q. Are maintenance projects covered by Section 3?
Yes, but only for PIH funded programs administered by Public Housing Authorities.

Q. Does the reduction and abatement of lead-based paint hazards constitute housing rehabilitation?
Yes, reduction and abatement of lead-based paint hazards does constitute housing rehabilitation and is covered by Section 3.

Q. Are demolition projects covered by the requirements of Section 3?
Yes. Recipients of Section 3 covered assistance should make efforts to award a minimum of ten percent of the total dollar amount of all demolition contracts to Section 3 businesses.

Q. Are professional service contracts covered under Section 3?
Yes, the term "Section 3 covered contract" includes professional service contracts provided that the work to be performed is generated by the expenditure of Section 3 covered Public and Indian housing assistance, or for work arising in connection with projects involving housing rehabilitation, housing construction, or other public construction.

Q. Does Section 3 apply to new hiring by a CDBG-Entitlement recipient?
Yes. If the recipient intends to use its HUD allocation to hire additional staff person(s) to perform work related to housing construction, rehabilitation, or other public construction, then the position(s) is covered by Section 3. However, if the local municipality uses a civil servant applicant process to hire new employees, compliance with the requirements of Section 3 may not be feasible.

Q. Does Section 3 apply to new hiring by a Public Housing Authority?
Yes. Section 3 applies to all Public and Indian Housing capital, operating or development funds; therefore, new hiring done by the PHA (regardless of the position) is covered by Section 3.

Q. For community development and other housing assistance, do the thresholds apply to the total amount of HUD assistance received or the amount of funds invested into Section 3 covered projects/activities?
The threshold applies to the total amount of HUD assistance received. Example: the City of Mountain View, receives $210,000 through the State CDBG program. The funds will be used as follows:

• Housing rehabilitation- $180,000;
• Micro-enterprise revolving loan fund- $20,000; and
• Fair housing counseling- $10,000.

City of Mountain View is subject to Section 3 requirements because they received over $200,000 in housing and community development funds. However, only the funds expended for Section 3 covered activities must comply with the requirements of Section 3. Therefore, the expenditure of the $180,000 is covered by Section 3. The remaining $30,000 that was used for fair housing counseling and a revolving loan fund is not covered by Section 3.

Q. Are contracts cumulative for reaching the Section 3 threshold?
No. Contracts for Section 3 covered projects are not cumulative. The requirements of Section 3 apply to each individual contract that meets the thresholds.

For example, if a recipient agency awards 3 housing rehabilitation contracts (at $36,000; $50,000; and $20,000 for a cumulative total of $106,000) to one contractor for three different projects within a twelve month period, the contractor is not required to comply with the requirements of Section 3 because none of his contracts met the $100,000 threshold. Accordingly, the responsibility for meeting the requirements of Section 3 would remain with the recipient agency that awarded the contracts.