On July 19, 2023, a judge in the U.S. District Court for the Eastern District of Tennessee issued an injunction to prevent the Small Business Administration (SBA) from using the “rebuttable presumption of social disadvantage” that has been applied to Asian Pacific Americans, Black Americans, Hispanic Americans, Subcontinent Asian Americans, and Native Americans to assist in their admission to the 8(a) program. [The 8(a) program, established 25+ years ago, provides for preferential treatment in the award of federal contracts to 8(a) certified contractors. The SBA operates the program.]
The injunction was to enjoin the SBA from its use of the presumption in the administration of the 8(a) program and those impacted by the injunction wondered how the SBA intended to implement it. Shortly after the injunction was issued, the SBA stopped taking applications to the 8(a) program and stopped processing those applications in the system.
On Aug. 18, 2023, the SBA issued further guidance explaining how it would be going beyond simply halting 8(a) application approvals in the aftermath of the judge’s ruling. The guidance provides:
- To receive new 8(a) contracts, an individual-owned 8(a) participant that previously relied on the presumption of social disadvantage to support its eligibility will need to submit information to SBA, through the Certify.sba.gov system, that will allow SBA to determine whether the individual upon whom eligibility is based has established personal social disadvantage.
- If originally admitted to the program because the qualifying owner established social disadvantage by a preponderance of the evidence, there is no need to submit a narrative. The court’s decision also does not impact entity-owned firms, such as firms owned by Indian tribes, Alaska Native Corporations, or Native Hawaiian Organizations – these firms will not need to submit narratives.
- All current 8(a) participants will receive direct communication from SBA on Monday, Aug. 21, 2023. This communication will detail the process for establishing social disadvantage or will clarify that the participant has already established social disadvantage and may proceed with federal contract awards.
- Once a current 8(a) participant has submitted a narrative to SBA and received SBA’s approval verifying personal social disadvantage, the participant will receive a letter indicating it has established social disadvantage and may continue to receive 8(a) contracts and otherwise participate in the 8(a) program.
- Participants which previously established social disadvantage through the submission of a social disadvantage narrative and all entity-owned participants are not impacted by the court’s decision. They will receive a communication on Monday, Aug. 21, 2023, which will provide them a letter stating they have met social disadvantage requirements and may proceed with 8(a) federal contract awards.
- Current 8(a) participants, should continue to submit their annual review and continuing eligibility materials to SBA. With respect to social disadvantage, SBA will interpret the firm’s certification that it remains eligible for the 8(a) program as stating only that there have been no changes to the information the participant previously submitted in connection with its program eligibility that would affect the social disadvantage determination. Consistent with existing regulations, 8(a) applicants and 8(a) participants will only need to establish social disadvantage once for their program term unless there are ownership/control or other changes which affect eligibility.
- The 8(a) program remains open for business. SBA is encouraging its continued use as federal agencies identify 8(a) and other socio-economic small businesses to help meet critical mission needs, including during the end of the fiscal year, typically a time of increased usage of the program. Agencies can immediately continue to send offer letters to SBA. SBA is currently developing a new narrative process, but until the new process is in place, SBA will process individual claims of social disadvantage under its existing narrative process.
The SBA’s notice came with a guide for those preparing a social disadvantage narrative, which anyone preparing the narrative should consider.
More to come as the SBA determines what satisfies its requirement for a narrative to establish social disadvantage and what else, if anything, needs to be done to fully implement the federal district court judge’s injunction.