As PilieroMazza recently reported, on July 19, 2023, the U.S. District Court for the Eastern District of Tennessee declared that the Small Business Administration’s (SBA) rebuttable presumption of social disadvantage violated the equal protection rights of a government contractor and prohibited SBA’s use of the rebuttable presumption in administering the 8(a) Business Development Program. Below, we cover important developments 8(a) contractors should pay close attention to in order to stay in compliance and compete for and be awarded 8(a) contracts.
In light of the above decision, SBA temporarily suspended new 8(a) applications and is working through how this impacts not only pending and future 8(a) applicants, but also current participants. This is causing much confusion in the 8(a) world in terms of how the 8(a) program and contract awards might proceed.
Today, John Klein, Associate General Counsel for Procurement Law at SBA, provided much-needed guidance through the National 8(a) Association’s monthly webinar series. Mr. Klein reported that all pending and future 8(a) awards, including sole-source and competitive, will be subject to SBA’s affirming finding of social disadvantage for the qualifying owner(s). If you previously had a sole source offer accepted on your behalf by SBA, then agencies are permitted to rely on such acceptance. Additional details are provided below.
What Should I Do? (Current Participants)
If you were admitted to the program because the qualifying owner(s) established his or her social disadvantage by a preponderance of the evidence, then nothing further is required and you are not required to again prove your social disadvantage or provide any additional information.
If you were admitted to the program on the basis of the rebuttable presumption, then you will need to submit a social disadvantage narrative. This narrative should detail the chronic and substantial social disadvantage that the qualifying owner(s) of the participant has endured due to an objective distinguishing feature (i.e., race, ethnic origin, gender, physical handicap) that has negatively impacted the individual’s entry into or advance in the business world. These instances must have occurred in American society, but can encompass all stages of life—education, employment, and business history. SBA does not require proof, but does require facts to support the claim that a negative outcome was based on discriminatory conduct. PilieroMazza attorneys are here to help you work through the narrative and to tell your story. SBA will publish additional guidance on how to demonstrate social disadvantage in the near future.
If you were admitted to the program before August 2016, it is likely that you submitted an economic disadvantage narrative, which detailed the diminished capital and credit opportunities as compared to others in the same or similar line of business who were owned by individuals who are not socially disadvantaged. If you have previously prepared an economic disadvantage narrative, this might be a good starting point for your social disadvantage narrative.
A few things to note:
- The narrative must be submitted to and reviewed and approved by SBA headquarters, not your local district office. Mr. Klein noted that details regarding when and where to submit such narrative will be forthcoming. SBA understands that it has a five-day period under which to make an eligibility determination. While oftentimes agencies rely on SBA inaction to move forward with an award, agencies are not permitted to rely on SBA inaction in this instance. SBA must make an affirmative finding of social disadvantage prior to an agency proceeding with an 8(a) award. This applies to both 8(a) sole-source and competitive awards. SBA is prepared to process determinations within the five-day period. Once you receive the affirmative finding of social disadvantage, you are able to rely on such for future awards and no additional determination of social disadvantage will be required.
- There is no impact to previously awarded contracts, including in-scope modifications and priced options, as the award was made under the rules in effect at that time. However, an affirmative finding of social disadvantage will be required for: unpriced options on 8(a) contracts, 8(a) set-aside orders under a non-8(a) GWAC/IDIQ, 8(a) sole-source orders under an 8(a) GWAC/IDIQ (i.e., STARS III), and 8(a) contract novations.
- If you are party to an 8(a) joint venture, the joint venture’s eligibility for 8(a) contracts is dependent on the status of the qualifying 8(a) party. The same affirmative finding of social disadvantage of the 8(a) party to the joint venture will be required prior to award of an 8(a) contract to a joint venture.
- This decision impacts individually-owned firms, but does not impact entity-owned firms, such as firms owned by Indian tribes, Alaska Native Corporations, or Native Hawaiian Organizations.
What Should I Do? (Pending or Future Applicants)
All applications are currently suspended. If your application remains pending and was submitted on the basis of the rebuttable presumption, then SBA will require a social disadvantage narrative and answers to specific questions in order to continue processing your application and issue a final decision. Unfortunately, there was no clear guidance on when applications will be reopening. In the meantime, we recommend working on a social disadvantage narrative using the guidance noted above.
For assistance with your social disadvantage narrative or further information as to how this decision and guidance may impact you and your firm, please contact Meghan Leemon, the author of this client alert, or another member of PilieroMazza’s Government Contracts Group.
Looking for practical insights on gaining a competitive advantage through a deeper understanding of the government’s compliance requirements? Check out PilieroMazza’s podcasts “GovCon Live!” and “Clocking in with PilieroMazza.”
