HUD Section 3: Workers, Business Concerns, and Benchmarks

HUD Section 3 requirements direct that when federal housing and community development dollars flow into a project, the resulting jobs, training, and contracts go, to the greatest extent feasible, to low- and very low-income residents and to businesses that employ or are owned by them. The rule sits at 12 U.S.C. § 1701u, with implementing regulations at 24 CFR Part 75.¹ Compliance is measured mostly through labor hours, and the obligation flows down from the recipient of HUD funds through every contractor and subcontractor on the job.

The Core Obligation

The statute uses the phrase “to the greatest extent feasible.”¹ That is a best-efforts standard, not a hard quota. Recipients and their contractors have to take real steps to hire qualifying workers and use qualifying businesses. Posting one listing and moving on is not enough, but the rule also does not force anyone to hire someone who cannot do the work.

Recipients bear responsibility for their contractors and subcontractors. A general contractor on a covered project must track and report labor hours for every sub on the job, not just for its own crew.

Which Projects Are Covered

Section 3 kicks in at different thresholds depending on the funding source:

Public housing financial assistance triggers Section 3 for all development, operations, and capital improvement work, with no minimum dollar amount.²
Housing and community development programs like CDBG and HOME trigger Section 3 when total project assistance exceeds $200,000.²
Lead Hazard Control and Healthy Homes projects use a lower $100,000 threshold.²

Covered work generally means housing construction, housing rehabilitation, and other public construction. The employment benefit is intended to stay in the metropolitan area or nonmetropolitan county where the project sits.

Who Counts as a Section 3 Worker

A person qualifies as a Section 3 worker if they currently meet, or met at hire within the past five years, at least one of these:

Their income for the previous or annualized calendar year is below HUD’s income limit for their area.
They are employed by a Section 3 business concern.
They are a YouthBuild participant, currently or within the past five years.³

Two details matter. A prior arrest or conviction cannot be used to deny someone Section 3 worker status. And once a worker qualifies at hire, that status carries forward for five years, so a raise later on does not knock them out of the count.³

Targeted Section 3 Workers

Some Section 3 workers get extra priority as “Targeted.” On public housing projects, a Targeted Section 3 worker is someone employed by a Section 3 business concern, a resident of public housing or Section 8-assisted housing, or a YouthBuild participant within the past five years.⁴ On housing and community development projects, the definition also includes residents of the project’s geographic area and participants in other means-tested federal programs.

Proving Worker Status

HUD uses self-certification. Workers sign a form under penalty of perjury confirming they meet the income or program-participation criteria.⁵ Supporting documents can include prior-year tax returns, W-2s, proof of public housing residency, or YouthBuild enrollment records. Contractors and recipients keep the signed certifications on file for audits.

What Makes a Section 3 Business Concern

A business qualifies as a Section 3 Business Concern if it meets at least one of three tests, with documentation from within the last six months:

At least 51 percent owned and controlled by low- or very low-income individuals.
Over 75 percent of total labor hours in the prior three months performed by Section 3 workers.
At least 51 percent owned and controlled by current public housing residents or people living in Section 8-assisted housing.³

The six-month documentation rule is strict. Owners need to keep current articles of incorporation or operating agreements showing ownership percentages, payroll records tracking Section 3 worker labor hours, and current employee self-certifications. A business that qualified a year ago but hasn’t updated its file can fail a compliance review.

The 25 Percent and 5 Percent Benchmarks

Section 3 compliance is measured through labor hours, not headcounts, and the benchmarks are the same whether the funding is for public housing or other community development:

At least 25 percent of total labor hours on the project must be worked by Section 3 workers.
At least 5 percent of total labor hours must be worked by Targeted Section 3 workers.⁶

Contractors and subcontractors both track and report their hours. Recipients collect the data from everyone on the project and report it to HUD.⁷ Meeting the benchmarks creates a safe harbor: HUD treats the recipient as compliant unless something else on the record shows otherwise.

Professional Services Come Out of the Denominator

Not every hour worked on a project counts toward the total. Professional services requiring an advanced degree or professional license, such as architects, attorneys, civil engineers, financial consultants, and environmental assessors, can be excluded from total labor hours.⁸ If one of those professionals happens to qualify as a Section 3 worker, their hours can still be counted in the numerator without being added to the denominator.⁹

When You Miss the Benchmarks

Falling short of 25 percent or 5 percent is not automatically a violation. Recipients who miss the numbers report the qualitative steps they and their contractors took to create Section 3 opportunities. HUD accepts a range of efforts:

Outreach to recruit Targeted Section 3 job applicants
Training and apprenticeship opportunities
Resume help, interview coaching, and job placement assistance
Job fairs
Support services like transportation, child care, or test-fee assistance
Breaking contracts into smaller pieces so Section 3 businesses can bid
Bonding assistance or guarantees to help small firms submit viable bids
Referrals through the state workforce system under the Workforce Innovation and Opportunity Act¹⁰

What HUD looks for is real effort, sustained and documented. A recipient that partnered with local workforce agencies, held a community job fair, and offered pre-employment training will generally satisfy the standard even when the numbers come up short. Token gestures will not.

Finding Section 3 Jobs and Contracts

The old HUD Section 3 Opportunity Portal and Business Registry have both been shut down, and there is no federal replacement.¹¹ If older guidance sent you there, ignore it.

For workers, the most productive moves are contacting your local Public Housing Authority directly, checking with the municipal office that administers CDBG or HOME funds, and registering with your local workforce development board. Many PHAs keep their own Section 3 worker lists and share them with contractors bidding on upcoming projects. Local community organizations and trade unions may also know which HUD-funded projects are gearing up.

For businesses, HUD points to the Small Business Administration’s Dynamic Small Business Search as one way to raise visibility.¹¹ Beyond that, attend pre-bid meetings on HUD-funded projects, build relationships with general contractors doing public housing work, and keep your business concern documentation current so you can respond quickly when a solicitation lands.

Filing a Complaint

If a recipient, contractor, or subcontractor on a HUD-funded project is not meeting Section 3 obligations, you can file a complaint with the HUD program office responsible for the project or with your local HUD field office.⁷ A complaint triggers a compliance review. Recipients previously covered by the safe harbor can lose it if the review shows the obligation was not actually met, and consequences for violations can include withheld funds and restrictions on future HUD-funded work.

1
Office of the Law Revision Counsel. 12 USC 1701u – Economic Opportunities for Low- and Very Low-Income Persons
2
eCFR. 24 CFR 75.3 – Applicability
3
eCFR. 24 CFR 75.5 – Definitions
4
eCFR. 24 CFR 75.11 – Targeted Section 3 Worker for Public Housing Financial Assistance
5
HUD. Section 3 Worker Self Certification
6
Federal Register. Section 3 Benchmarks for Creating Economic Opportunities for Low- and Very Low-Income Persons
7
HUD. Frequently Asked Questions for Section 3
8
eCFR. 24 CFR Part 75 – Economic Opportunities for Low- and Very Low-Income Persons
9
HUD Exchange. Are Professional Service Contracts Required to Be Reported Under Section 3?
10
eCFR. 24 CFR 75.25 – Reporting
11
HUD Exchange. What Is the Status of the Section 3 Business Registry/Opportunity Portal