In latest edition of The Wright Toolbox:
Massive Change to SBA 8(A) Program as a Result of a Recent Court Decision
In 1953, Congress enacted the Small Business Administration and established the 8(a) Business Development Program to allow participants to compete for 8(a) set-aside and sole-source awards of federal contracts. The government’s goal was to award at least 5 percent of all federal contracts to small disadvantaged businesses each year. In 2021, President Biden set an overall goal of awarding 15% of federal prime contracting to small disadvantaged businesses by fiscal year 2025. The 8(a) program is a nine-year program created to help companies owned and controlled by socially and economically disadvantaged individuals expand their footprint in the federal marketplace through training and technical assistance. In order to participate in the 8(a) Program, the company that is seeking certification must demonstrate that it is controlled by “socially and economically disadvantaged” individual(s). “Social disadvantage” is defined as an individual that has been subjected to racial, ethnic, or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities. See 13 CFR 124.103(c). Congress explained that “economically disadvantaged individuals” were “those socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same business area who are not socially disadvantaged.” Congress further noted “that such groups include, but are not limited to, Black Americans, Hispanic Americans, Native Americans, Indian Tribes, Asian Pacific Americans, Native Hawaiian Organizations, and other minorities[.]” Individuals must satisfy a preponderance of the evidence standard in making their showing of social disadvantage. Under the SBA’s current rules, individuals could demonstrate social disadvantage by simply indicating their inclusion in one of the recognized identified disadvantaged groups as part of the application process. This practice became known as using a “rebuttable presumption of social disadvantage” or “presumption of social disadvantage.”
On July 19, 2023, the U.S. District Court for the Eastern District of Tennessee, issued a ruling in Ultima Servs. Corp. v. U.S. Dep’t of Agric., No. 2:20-CV-00041-DCLC-CRW, 2023 WL 463348 (E.D. Tenn. July 19, 2023), that found the SBA’s use of a “rebuttable presumption” of social disadvantage for certain minority groups to qualify for inclusion in the 8(a) Program violates the Fifth Amendment’s Equal Protection Clause. The Court decided that the SBA could not presume individuals to be socially disadvantaged based on their membership in one of the identified groups. The Court’s decision also required SBA to immediately stop using the presumption of social disadvantage to administer the 8(a) program.
To comply with the Court’s order, SBA is now requiring all 8(a) participants whose program eligibility is based upon one or more individuals who relied upon the presumption of social disadvantage to establish their individual social disadvantage by completing a social disadvantage narrative. In light of the new ruling, the SBA must determine that the discrimination or bias experienced by an individual is chronic, substantial, and has occurred within American society (not another country). Additionally, the discrimination must have negatively impacted the individual’s entry or advancement in the business world. The SBA is sending all current 8(a) participants a direct communication that will detail the process for establishing social disadvantage. To assist with this new process, on August 18, 2023 the SBA published interim guidance on its website. To learn more, visit www.SBA.gov.
If you have any questions regarding this subject, please contact any member of the WCS Government Contracts Practice Group.