SBA Suspends 8(a) Program Applicant Process

In late July and under the case, Ultima Servs. Corp. v. United States Dep't of Agric., a district court in Tennessee ruled that use of rebuttable presumption in the SBA’s 8(a) application program for certain minority groups violates fifth amendment rights to equal protection of law. Rebuttable presumption is defined as presuming something is true without the need to provide evidence.

In essence, the court found fault in the vetting process for certain small businesses applying as socially disadvantaged under the SBA’s 8(a) program.

As a reminder, the 8(a) Business Development program helps those businesses that are at least 51% owned by a U.S. citizen who is socially and/or economically disadvantaged to compete effectively in the federal marketplace. Those applying to the 8(a) program as socially disadvantaged under a minority group, such as Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, Subcontinent Asian Americans, and other groups designated by the SBA, are not required to submit proof of social disadvantage in the application process.  According to court documents, the SBA is prohibited from using rebuttable presumption towards those applying as socially disadvantaged in the 8(a) program.

Consequently, the SBA temporarily suspended new 8(a) application submissions. The SBA has not indicated any immediate effect on current socially disadvantaged small businesses in the 8(a) program. A videoconference among all parties in the case is scheduled for August 31st on “the issue of any potential further remedies,” according to the court.

Implications

Changes to the Application Process. Depending on the results of the upcoming videoconference, and in the absence of an appeal to the court’s decision, modifications to the 8(a) program application process are likely. The small business agency does require a narrative explanation in applications from businesses seeking entry into the program outside of the aforementioned minority groups (i.e. based on gender or disabilities). Given this, it is possible that the SBA will consider the requirements it already has in place and institute the same process across all applications.

New Entrant Deterrence. The temporary halt in the application process, coupled with the potential of changing requirements that may lengthen and complicate entrance into the program, will deter potential new entries into the 8(a) program. Small businesses, typically already strapped for resources, may also find it difficult to provide evidence of social disadvantage and reconsider participation in the 8(a) program.

Effects on Biden Administration Agenda: Advancing equity and economic opportunity to underserved communities, particularly through the federal procurement process, is a key Biden Administration initiative. In a June 2021 statement, the White House announced an increase in the share of federal contracts going to small disadvantaged business from 10% to 15% by 2025. The recent court ruling and subsequent 8(a) application pause will ultimately impact such efforts by the administration to close the racial wealth gap. Long term effects of the pause may include failure to reach the 15% goal in its intended timeframe.