As many GovCon news junkies following recent events had predicted, the Small Business Administration (SBA) just “temporarily suspended” new 8(a) application submissions. For those of you who haven’t been following along the past two weeks, this critically important development might be a little confusing. Let’s get you up to speed.
The TL;DR version is that, in the wake of a July 19, 2023 federal court case enjoining the SBA from applying a rebuttable presumption of social disadvantage to individuals of certain racial or ethnic groups, the SBA has put a pause on new 8(a) applications. The agency needs time to revise its application questionnaire, likely to require “Social Disadvantage Narratives” from all applicants. For those of you who want a little more information on the 8(a) requirements, the rebuttable presumption at issue, what may come next, and what the heck goes into a Social Disadvantage Narrative, read on (or give us a call).
The 8(a) Program, and the “Rebuttable Presumption” of Social Disadvantage for Certain Designated Ethnic/Racial Groups
To participate in the SBA’s 8(a) Business Development Program, applicant businesses need to meet a number of requirements. Among other things, the company must be majority-owned and unconditionally controlled by an individual or individuals who are economically and socially disadvantaged. It’s that last piece that is central to what’s going on here. The regulations define social disadvantage as follows:
Socially 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. The social disadvantage must stem from circumstances beyond their control.
Until recently, applicants could satisfy the “social disadvantage” requirement in one of two ways. For those individuals belonging to certain minority groups, there was a rebuttable presumption that they were socially disadvantaged. These groups include, as per the regulation, “Black Americans; Hispanic Americans; Native Americans; Asian Pacific Americans and Subcontinent Asian Americans.” Those individuals not belonging to the aforementioned designated groups could still be considered socially disadvantaged. The difference was that these folks needed to affirmatively prove as much, as opposed to it being assumed. This “proof” was given to the SBA through the submission of a Social Disadvantage Narrative during the 8(a) application process (more on that below).
Ultima Servs. and the 8(a) Applications Aftermath
Big changes to the social disadvantage status quo started on July 19, 2023, when the US District Court for the Eastern District of Tennessee issued its opinion in Ultima Servs. Corp. v. U.S. Dep’t of Agric. In this opinion, the Court enjoined the SBA from using the rebuttable presumption of social disadvantage for certain racial groups on the basis that it violated the Fifth Amendment Equal Protection Clause. Lots of speculation of how the SBA would react—and what it would mean for pending or forthcoming 8(a) applications—followed. We don’t have answers to all the open questions (yet), but we do know this: The SBA has now confirmed on the certify.sba.gov website (the portal for SBA applications) that it is taking a little break to figure out its next moves. Specifically, the website explains:
On July 19, 2023, the United States District Court for the Eastern District of Tennessee enjoined SBA from applying a rebuttable presumption of social disadvantage to individuals of certain racial groups applying to the 8(a) Business Development program. SBA 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.
How to Establish Social Disadvantage Through a Social Disadvantage Narrative
So what comes next? We will have to wait and see. But as a betting woman, I would predict that the new application will require all applicant companies to affirmatively establish that the individual(s) upon whom they are basing eligibility are socially disadvantaged. This isn’t necessarily that difficult; it just requires a little critical thinking and a good understanding of the regulations regarding social disadvantage.
To be successful, a narrative must demonstrate: (1) that the individual in question has at least one objective distinguishing feature that has contributed to social disadvantage (such as race, ethnic origin, gender, identifiable disability, long-term residence in an environment isolated from the mainstream of American society, or other similar causes not common to individuals who are not socially disadvantaged); (2) that the individual’s social disadvantage is rooted in treatment that he or she has experienced in American society, not in other countries; (3) that the individual’s social disadvantage is chronic and substantial, not fleeting or insignificant; and (4) that the individual’s social disadvantage negatively impacted on his or her entry into or advancement in the business world.
The SBA will consider any relevant evidence in assessing this element, including experiences relating to education, employment, and business history (including experiences relating to both the applicant firm and any other previous firm owned and/or controlled by the individual), where applicable. The key, though, is that each instance of alleged discriminatory conduct must be accompanied by a negative impact on the individual’s entry into or advancement in the business world in order for it to constitute an instance of social disadvantage. The SBA may disregard a claim of social disadvantage where an individual presents evidence of discriminatory conduct but fails to connect the discriminatory conduct to consequences that negatively impact his or her entry into or advancement in the business world.