SECTION 4: Cross-Cutting Requirements

Besides the rules and requirements specific to CDBG-DR, there are several broad Federal rules that must be followed when implementing programs with CDBG-DR funds. Grantees, their subrecipients, and contractors must be aware of these requirements and ensure that any activities are in compliance. The Guidebook covers the following areas: Environmental & Related Requirements; the URA, Section 104(d) and Related Relocation Requirements; Davis-Bacon & Related Acts; and the Section 3 Final Rule.

Section 3 Requirements

The Section 3 program requires recipients of HUD funding to direct employment, training, and contracting opportunities to low-income individuals and the businesses that employ these persons within their community. This section will walk grantees through Section 3, which is a provision of the HUD Act of 1968 and is found at 12 U.S.C. 1701u. The regulations are found at 24 CFR Part 75.

The Section 3 Final Rule became effective on November 30, 2020 and is codified at 24 CFR part 75. The regulation simplifies and establishes Section 3 requirements. Section 3 contributes to the establishment of stronger, more sustainable communities by ensuring that employment and other economic opportunities generated by federal funds for housing and community development programs are directed toward low- and very low-income persons.

These opportunities are, to the greatest extent feasible, required to be given to low- and very low-income persons and business concerns, particularly those who are recipients of government assistance for housing or residents of the community in which the federal funds are spent. Where feasible, a grantee and its recipients should give priority for contracting opportunities and training to Section 3 workers residing within the service area or the neighborhood of the project, and participants in YouthBuild programs.

A Section 3 worker is a worker who currently fits or when hired within the past five years fits at least one of the following categories:

  • An LMI worker that fell below HUD income limits for the previous or annualized calendar year.

  • Employed by a Section 3 business concern.

  • A YouthBuild participant.

A Targeted Section 3 worker is a worker who meets the definition of a Section 3 worker, plus one of the following:

  1. A worker employed by a Section 3 business concern, or

  2. A worker who currently fits or when hired was living within the service area, neighborhood of the project, or is a YouthBuild participant. The grantee should document that the worker meets this definition within the past five years.

A Section 3 Business Concern creates a contracting priority for businesses that provide economic opportunities to LMI workers. This is accomplished by prioritizing Section 3 business concerns in the awarding of contracts. A business concern can be any type of business such as a sole proprietorship, partnership or a corporation, properly licensed and meeting all legal requirements to perform the contract under consideration. Grantees must certify that they are making efforts to prioritize contracting with Section 3 business concerns and are responsible for verifying that businesses meet the definition.

A Section 3 Business Concern is defined as a business that meets at least one of the following (documented within the last 6-month period):

  1. At least 51 percent owned or controlled by low-or very low-income persons;

  2. More than 75 percent of the labor hours performed for the business over the previous 3-month period are performed by Section 3 workers; or

  3. At least 51 percent owned and controlled by current residents of public housing or residents who currently live in Section 8 assisted housing.

When Do Section 3 Requirements Apply?

Projects that are financed with state, local or private matching or leveraged funds used in conjunction with HUD funds are covered by Section 3 if the amount of HUD funding for the project exceeds the $200,000 project threshold. For example, Section 3 applies to training or employment arising in connection with HUD-funded housing rehabilitation, housing construction, or other public construction projects, and related contracting opportunities if the amount of HUD funding exceeds the $200,000 project threshold.

To meet the requirements, grantees must include Section 3 language in any agreements or contracts for qualifying projects. However, contractors and subcontractors must meet the regulation’s requirements, regardless of whether their agreements or contracts include Section 3 language. CDBG-DR grantees are encouraged to offer training to any contractors or subcontractors who may be new to Section 3 requirements. Grantees should also be regularly monitoring for contractor compliance; assisting contractors to obtain compliance; penalizing non-compliance; providing incentives for good performance; and refraining from entering into contracts with any contractor that previously failed to comply with the requirements of Section 3.

Diagram that illustrates
                                                the types of HUD-funded projects
                                                that Section 3 requirements
                                                apply such as, rehabilitations
                                                of housing, new construction of
                                                housing, public construction
                                                projects, and related
                                                contracting opportunities if the
                                                amount of HUD funding exceeds
                                                the $200,000 project threshold.

When Don’t Section 3 Requirements Apply?

Section 3 requirements do not apply to projects that do not include housing rehabilitation, housing construction or other public construction. For example, if CDBG-DR funds are used for direct homebuyer assistance or tenant-based rental assistance, the Section 3 requirements do not apply. Section 3 requirements also do not apply to “materials-only” contracts or contracts that do not require any labor. An example of a materials-only contract is a contract for office or janitorial supplies only.

Section 3 Reporting Requirements

Grantees must track and report labor hours for three categories of workers on Section 3 projects: all workers, Section 3 workers, and Targeted Section 3 workers. “Labor hours” means the number of paid hours worked by persons on a Section 3 project or by persons employed with funds that include public housing financial assistance.

Grantees will report Section 3 data at the activity level data in DRGR. In instances where there are multiple funding sources, grantees must collect and report the same data across programs for consistency. For assistance with reporting in DRGR, please see the DRGR Guidance on Reporting Section 3 Labor Hours Fact Sheet which can be found here.

For purposes of reporting the labor hours for Section 3 workers, an employer may choose whether to define the workers as Section 3 workers for a five-year period at the time of the workers’ hire, or when the workers are first certified as meeting the Section 3 worker definition. The five-year period for a worker cannot begin before November 30, 2020; therefore, Section 3 workers hired prior to November 30, 2020 may be certified for a five-year period beginning November 30, 2020.

HUD offers guidance to grantees on how they can track and report on each of the three categories of workers as a safe harbor for compliance.

  1. Benchmark 1: Twenty-five (25) percent or more of the total number of labor hours worked by all workers on a Section 3 project must be done by Section 3 workers (Section 3 Labor Hours/Total Labor Hours = 25%), and

  2. Benchmark 2: Five (5) percent or more of the total number of labor hours worked by all workers on a Section 3 project must be done by Targeted Section 3 workers (Targeted Section 3 Labor Hours/Total Labor Hours = 5%).

    HUD will consider grantees to have complied with Section 3 benchmarks, in the absence of evidence to the contrary if they certify to the prioritization of effort in 24 CFR 75.19 and meet or exceed the applicable Section 3 benchmarks. (HUD published a separate Benchmark Notice which established initial numeric goals, or benchmarks, to measure grantee compliance with the regulation).

    If an activity does not meet the benchmarks, but the grantee can provide evidence that it has made qualitative efforts to provide LMI persons with employment and training opportunities, then HUD will consider the grantee compliant with Section 3, absent of evidence or findings obtained when monitoring (qualitative efforts are listed in 24 CFR 75.25).

    If the project does not require time and attendance reporting, grantees may report to HUD using a good faith assessment. To do this, a grantee can report their own labor hours or that of a subrecipient, contractor or subcontractor based on the employer’s good faith assessment of the labor hours of a full-time or part-time employee. This assessment should be informed by the employer’s existing salary or time and attendance-based payroll systems.

Monitoring for Compliance

HUD will monitor CDBG-DR grantees for compliance with Section 3 using exhibits in the CPD Monitoring Handbook. To prepare for potential monitoring, grantees must establish and maintain documentation that:

  1. Demonstrates the workers meet the definition of a Section 3 worker or Targeted Section 3 worker,

  2. Reports total labor hours worked, and

  3. Certifies the employee met the requirements to receive the Section 3 worker status.

Grantees should retain documentation either at the time the employee is hired or the first reporting period. Grantees are reminded that recordkeeping and record retention requirements continue to apply.

A Guide on How CDBG-DR Grantees Can Meet the Requirements of the Consolidated Notice