On August 18, 2023 the U.S. Small Business Administration (“SBA”) released new guidance regarding the application and ongoing participation in the 8(a) program. The 8(a) program is designed to help firms owned and controlled by socially and economically disadvantaged individuals by setting aside federal contracts for companies owned by such individuals. Until now, individuals could qualify for the 8(a) program under a rebuttable “presumption of social disadvantage” if they were Asian Pacific Americans, Black Americans, Hispanic Americans, Subcontinent Asian Americans, or Native Americans, and met the requirements for economic disadvantage. Other individuals could participate in the 8(a) program if they established social disadvantage by a preponderance of evidence.
However, on July 19, 2023, a Tennessee federal district court ruled the SBA could no longer utilize the rebuttable presumption of social disadvantaged based on race. The ruling relied in part on the recent U.S. Supreme Court case striking down the use of race as a factor in college acceptance decisions. In response, the SBA temporarily suspended new applications to the 8(a) program in light of the ruling. However, on August 18, 2023 the SBA released interim guidance stating that all 8(a) participants whose program eligibility was based on the presumption of social disadvantage must complete a social disadvantage narrative.
All current participants in the 8(a) program should have received a direct communication from SBA yesterday, Monday, August 21, 2023 relating to whether or not they need take action to continue participating in the 8(a) program. The communication was to inform participants if they need to submit a narrative or whether the participants already established social disadvantage when they applied to the program. If directed to establish social disadvantage, 8(a) participants must submit a narrative and receive SBA approval verifying personal disadvantage before continuing to participate in the 8(a) program and receiving 8(a) contracts. Participants only need to establish social disadvantage once for their nine-year term, unless there are relevant ownership/control changes.
Potential participants who have already initiated their 8(a) application may continue, but may be required to incorporated changes in the future. Potential participants who have not initiated an 8(a) application should wait until the reopening of the application on certify.sba.gov.
Looking ahead, the Court also scheduled a hearing in the Tennessee case for August 31, 2023. As a result, the SBA may update its guidance again in the near future. The SBA also clarified that it is developing a new narrative process but will use the one in place until a new one is developed.
The court’s decision does not impact 8(a) firms owned by Indian tribes, Alaska Native Corporations, or Native Hawaiian Organizations.
Sources:
2:20-CV-00041-DCLC-CRW (E.D. Tenn. Jul. 19, 2023)
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