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Section 3 Brochure

Sec. 134.38 Section 3 clause

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.

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
  • Section 8 Residents
  • Youthbuild Participants
  • 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 website

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

Type of Opportunities:

  • Job training
  • Employment
  • Contracts

Examples include:

  • Administrative/ Management
    • accounting
    • payroll
    • research
    • bookkeeping
    • purchasing
    • word processing
  • Services
    • appliance repair
    • florists
    • marketing
    • carpet installation
    • janitorial
    • photography
    • catering
    • landscaping
    • printing
    • computer/information
    • manufacturing
    • transportation
  • Construction
    • architecture
    • bricklaying
    • carpentry
    • cement/masonry
    • demolition
    • drywall
    • electrical
    • elevator construction
    • engineering
    • fencing
    • heating
    • iron works
    • machine operation painting
    • plastering
    • plumbing
    • surveying
    • tile setting

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 the area where the HUD financial assistance is expended
  • Persons in public and assisted housing
  • Participants in HUD Youthbuild programs
  • Other Section 3 residents in the metropolitan area

For contracting:

Businesses that meet the definition of a Section 3 business owner.

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 at:

  • ATTN: Region 7 Office of Fair Housing and Opportunity
    U.S. Department of Housing and Urban Development
    Gateway Tower II
    Fourth Floor
    400 State Avenue
    Kansas City, KS 66101

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

Sec. 134.38 Section 3 clause

All section 3 covered contracts shall include the following clause (referred to as the section 3 clause):

A. The work to be performed under this contract is subject to the requirements of section 3 of the Housing and Urban Development Act of 1968, as amended, 12 U.S.C. 1701u (section 3). The purpose of section 3 is to ensure that employment and other economic opportunities generated by HUD assistance or HUD-assisted projects covered by section 3 shall, to the greatest extent feasible, be directed to low- and very low-income persons, particularly persons who are recipients of HUD assistance for housing.

B. The parties to this contract agree to comply with HUD's regulations in 24 CFR part 135, which implement section 3. As evidenced by their execution of this contract, the parties to this contract certify that they are under no contractual or other impediment that would prevent them from complying with the part 135 regulations.

C. The contractor agrees to send to each labor organization or representative of workers with which the contractor has a collective bargaining agreement or other understanding, if any, a notice advising the labor organization or workers' representative of the contractor's commitments under this section 3 clause and will post copies of the notice in conspicuous places at the work site where both employees and applicants for training and employment positions can see the notice. The notice shall describe the section 3 preference, shall set forth the minimum number and job titles subject to hire, availability of apprenticeship and training positions, the qualifications for each; and the name and location of the person(s) taking applications for each of the positions; and the anticipated date the work shall begin.

D. The contractor agrees to include this section 3 clause in every subcontract subject to compliance with regulations in 24 CFR part 135 and agrees to take appropriate action, as provided in an applicable provision of the subcontract or in this section 3 clause, upon a finding that the subcontractor is in violation of the regulations in 24 CFR part 135. The contractor will not subcontract with any subcontractor where the contractor has notice or knowledge that the subcontractor has been found in violation of the regulations in 24 CFR part 135.

E. The contractor will certify that any vacant employment positions, including training positions, that are filled (1) after the contractor is selected but before the contract is executed and (2) with persons other than those to whom the regulations of 24 CFR part 135 require employment opportunities to be directed, were not filled to circumvent the contractor's obligations under 24 CFR part 135.

F. Noncompliance with HUD's regulations in 24 CFR part 135 may result in sanctions, termination of this contract for default, and debarment or suspension from future HUD-assisted contracts.

G. With respect to work performed in connection with section 3 covered Indian housing regulations, section 7(b) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450e) also applies to the work to be performed under this contract. Section 7(b) requires that to the greatest extent feasible (i) preference and opportunities for training and employment shall be given to Indians, and (ii) preference in the award of contracts and subcontracts shall be given to Indian organizations and Indian-owned Economic Enterprises. Parties to this contract that are subject to the provisions of section 3 and section 7(b) agree to comply with section 3 to the maximum extent feasible, but not in derogation of compliance with section 7(b).

I. Examples of Efforts To Offer Training and Employment Opportunities to Section 3 Residents

  1. Entering into "first source" hiring agreements with organizations representing Section 3 residents.
  2. Sponsoring a HUD-certified "step-up" employment and training program for Section 3 residents.
  3. Establishing training programs, which are consistent with the requirements of the Department of Labor, for public and Indian housing residents and other Section 3 residents in the building trades.
  4. Advertising the training and employment positions by distributing flyers (which identify the positions to be filled, the qualifications required, and where to obtain additional information about the application process) to every occupied dwelling unit in the housing development or developments where category 1 or category 2 persons (as these terms are defined in Sec. 134.34) reside.
  5. Advertising the training and employment positions by posting flyers (which identify the positions to be filled, the qualifications required, and where to obtain additional information about the application process) in the common areas or other prominent areas of the housing development or developments where category 1 or category 2 persons reside; for all other recipients, post such advertising in the housing development or developments and transitional housing in the neighborhood or service area of the Section 3 covered project.
  6. Contacting resident councils, resident management corporations, or other resident organizations, where they exist, in the housing development or developments where category 1 or category 2 persons reside, and community organizations in HUD-assisted neighborhoods, to request the assistance of these organizations ion notifying residents of the training and employment positions to be filled.
  7. Sponsoring (scheduling, advertising, financing or providing in-kind services) a job informational meeting to be conducted by an HA or contractor representative or representatives at a location in the housing development or developments where category 1 or category 2 persons reside or in the neighborhood or service area of the Section 3 covered project.
  8. Arranging assistance in conducting job interviews and completing job applications for residents of the housing development or developments where category 1 or category 2 persons reside and in the neighborhood or service area in which a Section 3 project is located.
  9. Arranging for a location in the housing development or developments where category 1 persons reside or the neighborhood or service area of the project, where job applications may be delivered to and collected by a recipient or contractor representative or representatives.
  10. Conducting job interviews at the housing development or developments where category 1 or category 2 persons reside, or at a location within the neighborhood or service area of Section 3 covered project.
  11. Contacting agencies administering HUD Youthbuild programs and requesting their assistance in recruiting HUD Youthbuild program participants for the HA's or contractor's training and employment positions.
  12. Consulting with State and local agencies administering training programs funded through JTPA or JOBS, probation and parole agencies, unemployment compensation programs, community organizations, and other officials or organizations to assist with recruiting Section 3 residents for the HA's or contractor's training and employment positions.
  13. Advertising the jobs to be filled through the local media, such as community television networks, newspapers or general circulation, and radio advertising.
  14. Employing a job coordinator or contracting with a business concern that is licensed in the field of job placement (preferably one of the Section 3 business concerns identified in part 135) that will undertake, on behalf of the HA, other recipient or contractor, the efforts to match eligible and qualified Section 3 residents with the training and employment positions that the HA or contractor intends to fill.
  15. For an HA, employing Section 3 residents directly on either a permanent or a temporary basis to perform work generated by Section 3 assistance. (This type of employment is referred to as "force account labor" in HUD's Indian Housing regulations. See 24 CFR 905.102, and Sec. 905.201(a)(6)
  16. Where there are more qualified Section 3 residents than there are positions to be filled, maintaining a file of eligible qualified Section 3 residents for future employment positions.
  17. Undertaking job counseling, education, and related programs in association with local educational institutions.
  18. Undertaking such continued job training efforts as may be necessary to ensure the continued employment of Section 3 residents previously hired for employment opportunities.
  19. After selection of bidders but prior to execution of contracts, incorporating into the contract a negotiated provision for a specific number of public housing or other Section 3 residents to be trained or employed on Section 3 covered assistance.
  20. Coordinating plans and implementation of economic development (e.g., job training and preparation, business development assistance for residents) with the planning for housing and community development.

II. Examples of Efforts To Award Contracts to Section 3 Business Concerns

  1. Utilizing procurement procedures for Section 3 business concerns similar to those provided in 24 CFR part 905 for business concerns owned by Native Americans (see section III of this Appendix).
  2. In determining the responsibility of potential contractors, consider their record of Section 3 compliance as evidenced by past actions and their current plans for the pending contract.
  3. Contacting business assistance agencies, minority contractors associations, and community organizations to inform them of contracting opportunities and requesting their assistance in identifying Section 3 businesses that may solicit bids or proposals for contracts for work in connection with Section 3 covered assistance.
  4. Advertising contracting opportunities by posting notices, which provide general information about the work to be contracted and where to obtain additional information in the common areas or other prominent areas of the housing development or developments owned and managed by the HA.
  5. For HAs, contact resident councils, resident management corporations, or other resident organizations where they exist and request their assistance in identifying category 1 and category 2 business concerns.
  6. Providing written notice to all known Section 3 business concerns of the contracting opportunities. This notice should be in sufficient time to allow the Section 3 business concerns to respond to the bid invitations or request for proposals.
  7. Follow up with Section 3 business concerns that have expressed interest in the contracting opportunities by contacting them to provide additional information on the contracting opportunities.
  8. Coordinating pre-bid meetings at which Section 3 business concerns could be informed of upcoming contracting and subcontracting opportunities.
  9. Carrying out workshops on contracting procedures and specific contract opportunities in a timely manner so that Section 3 business concerns can  take advantage of upcoming contracting opportunities, with such information being made available in languages other than English where appropriate.
  10. Advising Section 3 business concerns as to where they may seek assistance to overcome limitations such as the inability to obtain bonding, lines of credit, financing, or insurance.
  11. Arranging solicitations, times for the presentation of bids, quantities, specifications, and delivery schedules in ways to facilitate the participation of Section 3 business concerns.
  12. Where appropriate, breaking out contract work items into economically feasible units to facilitate participation by Section 3 business concerns.
  13. Contacting agencies administering HUD Youthbuild programs and notifying these agencies of the contracting opportunities.
  14. Advertising the contracting opportunities through trade association papers and newsletters and through the local media, such as community television networks, newspapers of general circulation, and radio advertising.
  15. Develop a list of eligible Section 3 business concerns.
  16. For HAs, participating in the "Contracting with Resident-Owned Business" program provided under 24 CFR part 963.
  17. Establishing or sponsoring programs designed to assist residents of public or Indian housing in the creation and development of resident-owned businesses.
  18. Establishing numerical goals (number of awards and dollar amount of contracts) for the award of contracts to Section 3 business concerns.
  19. Supporting businesses that provide economic opportunities to low-income persons by linking them to the support services available through the Small Business Administration (SBA), the Department of Commerce, and comparable agencies at the State and local levels.
  20. Encouraging financial institutions, in carrying out their responsibilities under the Community Reinvestment Act, to provide no or low-interest loans for providing working capital and other financial business needs.
  21. Actively supporting joint ventures with Section 3 business concerns.
  22. Actively supporting the development or maintenance of business incubators that assist Section 3 business concerns.

III. Examples of Procurement Procedures That Provide for Preference for Section 3 Business Concerns

This Section III provides specific procedures that may be followed by recipients and contractors (collectively referred to as the "contracting party") for implementing the Section 3 contracting preference for each of the competitive procurement methods authorized in 24 CFR 85.36(d).

  1. Small Purchase Procedures. For Section 3 covered contracts aggregating no more than $25,000, the methods set forth in this paragraph (1) or the more formal procedures set forth in paragraphs (2) and (3) of this Section III may be utilized.
    1. Solicitation.
      1. Quotations may be solicited by telephone, letter, or other informal procedure provided that the manner of solicitation provides for participation by a reasonable number of competitive sources. At the time of solicitation, the parties must be informed of:
        • the Section 3 covered contract to be awarded with sufficient specificity;
        • the time within which quotations must be submitted; and
        • the information that must be submitted with each quotation.
      2. If the method described in paragraph (i) (A) is utilized, there must be an attempt to obtain quotations from a minimum of three qualified sources in order to promote competition. Fewer than three quotations are acceptable when the contracting party has attempted, but has been unable, to obtain a sufficient number of competitive quotations. In unusual circumstances, the contracting party may accept the sole quotation received in response to a solicitation provided the price is reasonable. In all cases, the contracting party shall document the circumstances when is has been unable to obtain at least three quotations.
    2. Award.
      1. Where the Section 3 covered contract is to be awarded based upon the lowest price, the contract shall be awarded to the qualified Section 3 business concern with the lowest responsive quotation, if it is reasonable and no more than 10 percent higher than the quotation of the lowest responsive quotation from any qualified source, the award shall be made to the source with the lowest quotation.
      2. Where the Section 3 covered contract is to be awarded based on factors other than price, a request for quotations shall be issued by developing the particulars of the solicitation, including a rating system for the assignment of points to evaluate the merits of each quotation. The solicitation shall identify all factors to be considered, including price or cost. The rating system shall provide for a range of 15 to 25 percent of the total number of available rating points to be set aside for the provision of preference pg. 13  for Section 3 business concerns. The purchase order shall be awarded to the responsible firm whose quotation is the most advantageous, considering price and all other factors specified in the rating system.

  2. Procurement by sealed bids (Invitation for Bids). Preference in the award of Section 3 covered contracts that are awarded under a sealed bid (IFB) process may be provided as follows:
    1. Bids shall be solicited from all businesses (Section 3 business concerns, and non-Section 3 business concerns). An award shall be made to the qualified Section 3 business concern with the highest priority ranking and with the lowest responsive bid if that bid
      1. Is within the maximum total contract price established in the contracting party's budget for the specific project for which bids are being taken, and
      2. Is not more than "X" higher than the total bid price of the lowest responsive bid from any responsible bidder. "X" is determined as follows:
        • When the lowest responsive bid is less than $100,000: 10% of that bid or $9,000
        • At least $100,000, but less than $200,000: 9% of that bid, or $16,000
        • At least $200,000, but less than $300,000: 8% of that bid, or $21,000
        • At least $300,000, but less than $400,000: 7% of that bid, or $24,000 
        • At least $400,000, but less than $500,000: 6% of that bid, or $25,000
        • At least $500,000, but less than $1 million: 5% of that bid, or $40,000
        • At least $1 million, but less than $2 million: 4% of that bid, or $60,000
        • At least $2 million, but less than $4 million: 3% of that bid, or $80,000
        • At least $4 million, but less than $7 million: 2% of that bid, or $105,000
        • $7 million or more: 1.5% of the lowest responsive bid, with no dollar limit.
    2. If no responsive bid by a Section 3 business concern meets the requirements of paragraph (2)(i) of this section, the contract shall be awarded to a responsible bidder with the lowest responsive bid.

  3. Procurement under the competitive proposals method of procurement (Request for Proposals (RFP)).
    1. For contracts and subcontracts awarded under the competitive proposals method of procurement (24 CRF 85.36(d)(3)), a Request for Proposals (RFP) shall identify all evaluation factors (and their relative importance ) to be used to rate proposals.
    2. One of the evaluation factors shall address both the preference for 3 business concerns and the acceptability of the strategy for meeting the greatest extent feasible requirement (Section 3 strategy), as disclosed in proposals submitted by all business concerns (Section 3 and non-Section 3 business concerns). This factor shall provide for a range of 15 to 25 percent of the total number of available points to be set aside for the evaluation of these two components.
    3. The component of this evaluation factor designed to address the preference for Section 3 business concerns must establish a preference for business concerns in the order of priority ranking as described in 24 CFR these 135.36.
    4. With respect to the second component (the acceptability of the Section 3 strategy), the FRP shall require the disclosure of the contractor's Section 3 strategy to comply with the section 3 training and employment preference, or contracting preference, or both, if applicable. A determination of the contractor's responsibility will include the submission of an acceptable Section 3 strategy. The contract award shall be made to the responsible firm (either Section 3 or non-Section 3 business concern) whose proposal is determined most advantageous, considering price and all other factors specified in the RFP.

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