On July 19, 2023, the U.S. District Court for the Eastern District of Tennessee held in Ultima Servs. Corp. v. U.S. Dep't of Agric. that the "rebuttable presumption" of social disadvantage under Small Business Administration's ("SBA") 8(a) Business Development Program ("8(a) BD Program") violated a plaintiff's Fifth Amendment right to equal protection under the law. The Court enjoined the SBA from using the rebuttable presumption in administering SBA’s 8(a) BD Program. As a result, discussed further below, both future and current 8(a) BD Program participants will need to affirmatively demonstrate social disadvantage to participate in, and remain eligible for, the 8(a) BD Program.
Brief Overview of the Ultima Decision
The decision in Ultima is lengthy but relatively straightforward. The plaintiff, Ultima Services – a small government contractor that is not entitled to the rebuttable presumption – filed a lawsuit alleging that the use of the rebuttable presumption under the 8(a) BD Program violated its right to equal protection under the Constitution. Ultima argued that the presumption is unconstitutional because it "does not further a compelling governmental interest and is not narrowly tailored to achieve that interest." [1] While the Government opposed the argument, the Court ultimately sided with the plaintiff and enjoined the SBA from using the rebuttable presumption in administering the 8(a) BD Program. [2] Now that the injunction is in place, and considering SBA's 8(a) BD Program regulations, what should contractors expect?
Brief Overview of SBA 8(a) BD Program
Before diving into the answer, it is best to take a step back.
As many in the government contracting space may know, the SBA 8(a) BD Program is a nine-year program "to assist eligible small disadvantaged business concerns compete in the American economy through business development." [3] To gain admission to the program, prospective participants not only must satisfy the requirements for admission but also "must maintain its program eligibility during its tenure in the program." [4] Generally, prospective small businesses must establish social and economic disadvantage to be admitted to the program. [5] The decision in Ultima focuses on social disadvantage, which is the subject of this article.
SBA's regulations state that "[s]ocially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities." [6] Broadly, SBA's regulations state that social disadvantage may be demonstrated through a rebuttable presumption (for certain groups) or by establishing social disadvantage by a preponderance of the evidence (for others). [7]
For the former, SBA's rules provide a rebuttable presumption to various groups, including for "Black Americans; Hispanic Americans; Native Americans (Alaska Natives, Native Hawaiians, or enrolled members of a Federally or State recognized Indian Tribe); Asian Pacific Americans (persons with origins from Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China (including Hong Kong), Taiwan" and others. [8] The regulations also state that the individual must hold themselves out as a member of a designated group and that the presumption may be overcome with credible evidence.
On the other hand, individuals who are not part of a group that is given a rebuttable presumption must establish and provide evidence of social disadvantage by a preponderance of the evidence. [9] SBA's regulation generally provides the following elements to establish social disadvantage: (1) the individual must have an objective distinguishing feature such as race, ethnic origin, gender, identifiable disability, etc.; (2) the social disadvantage must be rooted in treatment which they have experienced in American society; (3) the social disadvantage the individual has faced is chronic and substantial, and not fleeting and insignificant; and (4) the social disadvantage that the individual has faced has had a negative impact on their entry into or advancement in the business world (e.g., education, employment, and business history). [10]
And, because social disadvantage must be established by a preponderance of the evidence, these individuals must provide a narrative and evidence to SBA as part of their application process.
Moving Forward
In Ultima, after concluding that the rebuttable presumption violated the plaintiff's Fifth Amendment right to equal protection, Court issued an injunction to prohibit SBA from using it in administering the 8(a) BD Program. Soon thereafter, SBA provided an update on certify.SBA.gov. SBA's notice stated that, in light of Ultima, it "has temporarily suspended new 8(a) application submissions while it revises the application questionnaire to comply with the Court’s decision. Thank you for your patience and interest in the 8(a) Business Development program." Thus, while SBA works through the issues relating to the Court’s decision and its application questionnaire for the 8(a) BD Program, future and current 8(a) BD Program participants should not sit idle.
As mentioned above, SBA's regulations require propsective 8(a) BD Program participants to meet the admission criteria and require current participants to "maintain [their] program eligibility during its tenure in the program." [11] This means that while SBA will inevitably require future 8(a) BD Program participants to establish social disadvantage by a preponderance of the evidence to enter the program (i.e., by providing a narrative and evidence), current participants also will likely be required to do the same to remain eligible. Indeed, maintaining eligibility throughout the 8(a) Program involves, for example, annual reviews that include a "certification that [the participant] meets the 8(a) BD program eligibility requirements." [12] Thus, current 8(a) participants who relied on the rebuttable presumption should begin working to establish social disadvantage through the narrative process.
Further, and relatedly, the ripple of Ultima through the 8(a) BD Program does not necessarily end there: it also remains unclear how 8(a) contract awards will unfold.
Specifically, notwithstanding the fact that SBA's regulations state that the eligibility of an 8(a) company may not be challenged in a protest to "SBA or any administrative forum," [13] because the Court held that the rebuttable presumption is unconstitutional, an award to an 8(a) company that relied on the rebuttable presumption may not be entirely insulated from judicial review. That is, unsuccessful 8(a) offerors (that were not given a rebuttable presumption) may consider using Federal courts to enjoin such awards in light of the holding in Ultima. [14] This uncertainty confirms notion that current 8(a) BD Program participants that established social disadvantage under SBA's rebuttable presumption should not delay in creating a social disadvantage narrative that hews to the regulatory requirements. Failure to do so may result in an award being upended.
Finally, while there has been no movement on the Ultima docket since the Court issued its decision, it is also worth noting that the Court also stated that “it reserves ruling on any further remedy subject to a hearing on that issue.” [15] Thus, there may be more to come out of the Eastern District of Tennessee (and, if appealed, the U.S. Court of Appeals for the Sixth Circuit). Given the uncertainty and fluidity surrounding the Ultima decision and SBA’s response thereto, we will keep you posted with further developments.
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[1] Ultima Servs. Corp. v. U.S. Dep't of Agric., No. 20-0041, slip op. at 1 (July 19, 2023).
[2] Id. at 41.
[3] 13 C.F.R. § 124.1.
[4] 13 C.F.R. § 124.2; see also 13 C.F.R. § 124.112(b) (continued eligibility annual reviews).
[5] 13 C.F.R. § 124.101.
[6] 13 C.F.R. § 124.103.
[7] Id.
[8] 13 C.F.R. § 124.103(b).
[9] 13 C.F.R. § 124.104(c).
[10] Id.
[11] 13 C.F.R. § 124.2.
[12] 13 C.F.R. § 124.112(b) (annual reviews).
[13] 13 C.F.R. § 124.517(a).
[14] Notably, SBA regulations also provide that anyone can submit information to SBA regarding the eligibility of an 8(a) participant (for the 8(a) BD Program or for a particular 8(a) contract). See 13 C.F.R. § 124.517(e).
[15] Supra note 2.
