For those of you eagerly awaiting news on the recent shake-up of the Small Business Administration’s (SBA) 8(a) program, I have updates! (For those of you who have not been following, you can catch up on the legal context and background here.) Consistent with industry predictions, SBA will now require all applicants and certain existing 8(a) program participants to submit a social disadvantage narrative and prove social disadvantage by a preponderance of the evidence.  Entity-owned firms, such as firms owned by Indian tribes, Alaska Native Corporations, or Native Hawaiian Organizations will not need to submit narratives; nor will 8(a) participants who previously established their social disadvantage through submission of a social disadvantage narrative. For any company that previously relied on the rebuttable presumption, though, you have some work ahead of you.  Read on for more detail.

As you may remember, earlier this month, the SBA temporarily suspended 8(a) applications. SBA did this so that the agency could revise the applications to be consistent with a recent Eastern District of Tennessee court case decision (Ultima Servs. Corp. v. U.S. Dep’t of Agric), which enjoined the SBA from applying the rebuttable presumption of social disadvantage to certain ethnic and racial categories. While there is still no information available about when, specifically, the application process will reopen, the SBA has issued some vital guidance relating to what the program will look like going forward.

Specifically, on August 18, 2023, the SBA issued a press release reaffirming its support for the 8(a) program, providing some background on the inciting case that started all of this and—perhaps most importantly for contractorsannouncing that the agency had published interim guidance about how to proceed in the meantime. That interim guidance can be found on the SBA website (look for the gray box that says “Guidance for 8(a) program participants in light of U.S. District Court Ruling,” and click on the little “+” to see full guidance). The guidance explains that “[t]o comply with the Court’s order, SBA is requiring all 8(a) participants whose program eligibility is based upon one or more individuals who relied upon the presumption of social disadvantage to establish their individual social disadvantage by completing a social disadvantage narrative.” The site also links to some guidance on how to complete that social disadvantage narrative in a way that is consistent with SBA regulations.

Critically important here is the fact that the social disadvantage narrative requirement is not limited to new or pending applications. Contractors that have already been certified and approved as 8(a) participants and have been participating in the program for years, will in many cases need to submit a social disadvantage narrative. By way of further explanation: As you may know, until these recent developments, there were two ways to prove social disadvantage. First, for those individuals belonging to certain ethnic or racial minority groups (as per the regulation, “Black Americans; Hispanic Americans; Native Americans; Asian Pacific Americans and Subcontinent Asian Americans”), there was a rebuttable presumption that they were socially disadvantaged. Second, for those individuals not belonging to the aforementioned designated groups, they could still be considered socially disadvantaged if they established as much through a social disadvantage narrative. So, bringing us back to the present, for those 8(a) program participants that previously applied and were admitted to the 8(a) program using a social disadvantage narrative to establish social disadvantage, there is no need to submit anything at this point. 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. But those 8(a) participants that relied on the rebuttable presumption of social disadvantage to establish the social disadvantage necessary for admittance to the 8(a) program will now need to submit a narrative to affirmatively establish social disadvantage.

The interim guidance states that every current 8(a) participant “will receive a direct communication from SBA on Monday, August 21, 2023.” The guidance further explains that “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.” It is critically important that 8(a) contractors keep an eye out for this communication. Moreover, contractors should make sure to submit everything they need to submit, by whatever deadline is specified by the SBA, in order to ensure continued 8(a) compliance and eligibility. It is not clear how quickly contractors will be expected to do this. But the guidance does specify that:

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 system, that will allow SBA to determine whether that the individual upon whom eligibility is based has established personal social disadvantage.

It also states that:

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.

Presumably, then, there is some question about eligibility in the interim.

We laid out some guidelines for a successful social disadvantage narrative in our last post. But to reiterate, you must demonstrate the following:

  • 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).
  • That the individual’s social disadvantage is rooted in treatment that he or she has experienced in American society, not in other countries.
  • That the individual’s social disadvantage is chronic and substantial, not fleeting or insignificant.
  • 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 impacted his or her entry into or advancement in the business world.

If you need help with a social disadvantage narrative or have any questions about this new development, the McCarter & English team is here to help.