The End of SBA 8(a)?

The Small Business Administration (SBA) 8(a) Business Development Program is halted due to a recent court ruling. The program was designed to award at least 5% of annual federal contract funding to small, disadvantaged businesses for up to 9 years.

On July 19, 2023, the United States District Court for the Eastern District of Tennessee issued a ruling that could affect the eligibility process for minority-owned businesses applying for the SBA’s 8(a) program. In Ultima Servs. Corp. v. Dep’t of Ag. (E.D. Tenn.), the court held that utilizing certain racial preferences when awarding governmental contracts violates constitutional equal protection guarantees. This case appears to extend the reach of the ruling handed down by the United States Supreme Court in Students for Fair Admissions (SFFA) v. University of North Carolina and Students for Fair Admissions (SFFA) v. Harvard to the governmental contracting sphere.

Though the injunction has temporarily suspended applications pending review and created possible revisions to the application process, SBA Administrator Isabella Casillas Guzman stressed that the agency “remains committed to supporting this crucial program and the small business owners who have helped drive America’s strong economic growth.” The SBA’s Business Development Program eligibility was not limited to minority individuals. Individuals not expressly falling into a minority group were simply required to show that a social disadvantage negatively impacted their entry into or advancement in the business world. Nonetheless, it was the presumption that individuals of certain minority ethnic groups, including Asian Americans, Native Americans, Black Americans, and Pacific Islanders, are automatically subject to social disadvantage that failed to pass muster in the Tennessee District Court.

Equal Protection requires all government actions using classifications on the basis of race to undergo strict scrutiny, a form of judicial review that requires a rebuttable presumption and a compelling government interest. The court determined the SBA’s rebuttable presumption that members of minority ethnic groups are socially disadvantaged violates the Equal Protection Clause under the 14^th Amendment.

So, what does this mean for my small business?

The fact remains that minority-led business have historically experienced discrimination and failures at the hands of various industries. However, these experiences were not proven in court to be connected to being excluded from participation in the 8(a) program. 

As the United States enters 60 years since the Civil Rights Act of 1964, 160 years since the Emancipation Proclamation, and approaches 250 years since its inception, much remains to be done to formally ameliorate the social and economic barriers encountered by women, members of minority ethnic and other minority groups, and veterans. 

Surely one day lawmakers will enact enduring laws that ameliorate business barriers for individuals who are socially and economically disadvantaged. Further, perhaps policy changes to programs like The Business Development Program will be made to ensure that members of minority groups are not systemically immobilized by social and economic barriers. 

In the meantime, minority-led business considering 8(a) contracts should brace for lengthier applications and increased eligibility requirements. This ongoing legal precedent is likely to change forever how minority-led businesses seek governmental funding. 

Additional Links:

SBA Suspends 8(a) Applications Following Federal District Court Injunction

SBA Releases Interim Guidance to 8(a) Program Participants in Light of Lower Court Ruling

The post The End of SBA 8(a)? appeared first on The SJS Law Firm, PLLC.