As stated in our prior legal alert, on July 19, the U.S. District Court for the Eastern District of Tennessee enjoined the U.S. Small Business Administration from using a rebuttable presumption of social disadvantage in administering the SBA’s 8(a) BD program. In response, the SBA temporarily suspended new 8(a) application submissions to comply with the Court’s order. On Aug. 18, the SBA released official guidance on next steps for current 8(a) participants and new applicants to the program. As the government approaches the end of its fiscal year, typically a busy time for contract awards, the SBA also specifically directed federal agencies to continue use of the program, a clear indication of the impact of the Court’s ruling.
The 8(a) BD government contracting program provides certain benefits to socially and economically disadvantaged individuals. Prior to the Court’s injunction, individuals belonging to certain identified groups were presumed to be socially disadvantaged. The Court found this presumption to be contrary to the Equal Protection Clause of the U.S. Constitution. As of the publication of this legal update, the SBA has yet to appeal the Court’s order, although an appeal may follow a hearing in the case currently scheduled for Aug. 31.
The SBA is now immediately ceasing use of the social disadvantage presumption and will be requiring all new 8(a) Participant applicants to certify to their social disadvantage by submitting to the SBA a written narrative and supporting documentation. Current 8(a) Participants whose program eligibility was based upon the presumption will now be required to submit a written narrative to establish their individual social disadvantage. These Participants should receive a communication from the SBA with details on making this submission. Current Participants admitted into the 8(a) BD program based on the qualifying owner establishing social disadvantage will not be required to submit a new narrative to remain in the program. Because entity-owned businesses (e.g., Native Hawaiian Organizations and Alaskan Native Organizations) are not required by the Alaska Native Claims Settlement Act and SBA regulations to prove social disadvantage to be admitted into the 8(a) program, such entities will remain exempt from this narrative requirement.
The SBA states that its currently developing a new narrative process but until then the SBA will use its existing narrative process. Under this process, properly drafted socially disadvantage narratives should discuss two elements: (1) an indication of which identity or identities is/are the basis of social disadvantage; and (2) descriptions of incidents in which bias or discrimination has occurred. The narrative must describe applicant’s “race, religion, ethnic origin, gender, sexual orientation, identifiable disability, [or] isolation from American society.” Also, narratives “should typically provide two incidents of bias to establish chronic and substantial social disadvantage.” Each experience should be related to education, employment, and business history, and should provide details of the who, what, where, why, when, and how discrimination or bias occurred. Applicants and current Participants should review the SBA guidance and/or consult counsel when preparing their narratives to avoid any adverse findings by the SBA.
This current guidance from the SBA should only be considered temporary and a stopgap measure to address much of the initial confusion as to the status of the 8(a) program stemming from the Court’s injunction. Additional guidance should be expected. Absent relief from the Sixth Circuit, the SBA will likely initiate a new rule making process to permanently modify current 8(a) BD program regulations.
