Section 3

What is Section 3?

It is a means by which HUD fosters local economic development, neighborhood economic improvement, and individual self-sufficiency. Section 3 is the legal basis for providing jobs for residents and awarding contracts to businesses in areas receiving certain types of HUD financial assistance.

During emergencies or other major events, contractors must fulfill and satisfy requests for resources from many utilities in a timely and accurate manner. ARCOS has created a centralized platform that automates the negotiation and commitment of contractor resources to utilities eliminating much of the manual work and data re-entry currently required in the process.

Under Section 3 of the HUD Act of 1968, wherever HUD financial assistance is expended for housing or community development, to the greatest extent feasible, economic opportunities will be given to Section 3 residents and businesses in that area.

Section 3 Policy

Congress established the Section 3 policy to guarantee that the employment and other economic opportunities created by Federal financial assistance for housing and community development programs should, if possible, be directed toward low- and very-low income persons, particularly those who are recipients of government assistance for housing.

Who are Section 3 residents?

Section 3 residents are:

• Public housing residents
• Low and very-low income persons who live in the metropolitan area or non-metropolitan county where a HUD-assisted project for housing or community development is located.
  Determining Income Levels
  • Low income is defined as 80% or below the median income of that area
  • Very low income is defined as 50% or below the median income of that area.
  • Median incomes can be found using the American Fact Finder

What is a Section 3 business & what types of economic opportunities are available under Section 3?

A business:

• That is at least 51 percent or more owned by Section 3 residents,
• Whose permanent, full-time employees include persons, at least 30 percent of whom are currently Section 3 residents, or within three years of the date of first employment with the business concern were Section 3 residents, or
• That provides evidence of a commitment to subcontract in excess of 25 percent of the dollar award of all subcontracts to be awarded to a Section 3 business concern.

Types of Opportunities:

• Job training
• Employment
• Contracts

Examples include:

Who will award the economic opportunities?

Recipients of HUD financial assistance and their contractors and subcontractors are required to provide economic opportunities, to the greatest extent possible, consistent with existing Federal, State, and local laws and regulations.

Who receives priority under Section 3?

For training and employment:

• Persons in public and assisted housing
• Persons in the area where the HUD financial assistance is expended
• Participants in HUD Youthbuild programs
• Homeless persons

For contracting:
Businesses that meet the definition of a Section 3 business concern

How can businesses find Section 3 residents to work for them?

Businesses can recruit in the neighborhood and public housing developments to inform residents about available training and job opportunities. Distributing flyers, posting signs, placing ads, and contacting resident organizations and local community development and employment agencies to locate potential workers are effective ways of acquiring jobs.

Are recipients, contractors and subcontractors required to provide long-term employment opportunities, and not simply seasonal or temporary employment?

Recipients are required, to the greatest extent feasible, to provide all types of employment opportunities to low and very low-income persons, including seasonal and temporary employment, as well as long-term jobs.

Employment goals are based on “new hires”, which are defined as full-time employees for permanent, temporary or seasonal employment opportunities.

Recipients and contractors are encouraged to provide long-term employment. At least 30 percent of the permanent, full-time employees hired should be Section 3 residents. After a Section 3 employee has been employed for 3 years, the employee may no longer be counted as a Section 3 employee to meet the 30 percent requirement. This requires recipients to continue hiring Section 3 residents when employment opportunities are available.

How can businesses and low income persons find out more about Section 3?

Contact the Fair Housing and Equal Opportunity representative at your nearest HUD Field Office or the HUD community Builder.

What if it appears an entity is not complying with Section 3?

There is a complaint process. Section 3 residents, businesses, or a representative for either may file complaints if they believe a violation of Section 3 requirements has occurred where a HUD-funded project is planned or underway. Complaints will be investigated; if appropriate, voluntary resolutions will be sought. A complaint that cannot be resolved voluntarily may result in an administrative hearing.

Will HUD require compliance?

Yes. HUD receives annual reports from recipients, monitors the performance of contractors and investigates complaints. HUD examines employment and contract records for evidence of actions taken to train and employ Section 3 residents and to award contracts to Section 3 businesses.

How can businesses or residents pursue an alleged violation of Section 3?

You can file a written complaint with the local HUD Field Office or mail it to: A written complaint should contain:

• Name and address of the person filing the complaint
• Name and address of subject of complaint (HUD recipient, contractor or subcontractor)
• Description of acts or omissions in alleged violation of Section 3
• Statement of corrective action sought i.e. training, employment or contracts

How does Section 3 apply to RAD Conversions?

The requirements of Section 3 apply to HUD funding that is used for or in connection with new construction, rehabilitation or infrastructure projects or activities. While the RAD program itself does not provide funding for housing construction or rehabilitation, the RAD Notice (PIH 2012-32 Rev 2) applies Section 3 to all initial repairs or new construction identified in the Financing Plan. Accordingly, for the purposes of the regulation all work included in the RAD Conversion Commitment is considered “Section 3 covered projects” and the Project Owner is considered the “Recipient.” Project owners must take proactive steps to hire local low-income persons and to award contracts to businesses that are owned by or substantially employ those persons. Additionally, the requirements of Section 3 may apply after conversion when HUD funding is used in connection with construction or rehabilitation activities.

Who is held responsible?

Property owners and Public Housing Agencies (PHAs) that administer RAD projects are responsible for ensuring compliance by their developers, general contractors and subcontractors. To that end, the Section 3 clause, found at 24 CFR Part 135.38 must be included, verbatim, in every covered contract. It stipulates that, among other provisions, that contractors shall post notice describing the number and types of positions for hires, training and apprenticeship positions and the anticipated start date of employment.

The responsibility of the Project Owner of units converted through RAD are the same as those of all other recipients of direct HUD financial assistance covered by Section 3. These responsibilities are outlined at 24 CFR Part 135.32.

• Notify residents and business about employment, training and contracting opportunities
• Facilitating employment and training opportunities to Section 3 residents and contracting opportunities to Section 3 businesses
• Ensuring that the Section 3 clause, found at 24 CFR Part 135.38 must be included, verbatim, in every covered contract. The Section 3 clause stipulates that, among other provisions, contractors shall post notice describing the number and types of positions for hires, training and apprenticeship positions and the anticipated start date of employment.
• Assist and cooperate with HUD to obtain compliance among contractors and subcontractors
• Submit annual reports to document Section 3 outcomes regarding jobs training and contracts. Project Owners must submit the complete Form HUD 60002 to HUD at completion of the Initial repairs or construction along with the post-closing cost certification. Prior to the completion of initial repairs or construction on an annual basis, the Project Owner should submit a status report stating that the Section 3 project has not been completed.

How will Compliance be achieved?

Effective networking with organizations that share common objectives may provide a productive alliance towards compliance with Section 3 in the most feasible and cost effective manner. Local PHAs and municipalities may have established lists of interested parties seeking opportunities through Section 3. Workforce Investment Board sanctioned by DOL, community colleges, business development organizations, regional consortia and community development advocates may share insights and connections that reduce barriers.

There are a number of strategies outlined in the appendix to the Section 3 regulations at 24 CFR Part 135. These include:

• Entering first source hiring agreements with organizations representing Section 3 residents
• Consulting resident organizations, YouthBuild administrators, vocational education institutions and job training organizations to recruit qualified workers
• Contacting business assistance agencies, local chambers of commerce and community organization to advertise contracting opportunities and solicit bids from Section 3 businesses
• Actively supporting joint ventures with Section 3 businesses
• Pursuant to competitive procurement methods authorized in 2 CFR 200.320
  • for contracts awarded based on lowest price, award contracts to section 3 businesses with reasonable and responsive bids within 10 percent of the lowest bid
  • for contracts based on a competitive proposal method, incorporate evaluative factors to award preference for Section 3 business in the form of bonus points.