The Small Business Administration agency (SBA) has hit pause on their Section 8(a) Business Development program to assist businesses 51+% owned by socially and economically disadvantaged individuals. Data on the immediate financial impact to our region's economy were not available, but experts report the economic impact nationally could be measured in billions of dollars. 

The SBA provides loans, guidance and other services, including programs that help small businesses grow and compete for contracts with the largest buyer of products and services in the country, the U.S. federal government. 

Along with HUBZone (Historically Underutilized Business Zone) and WOSB (Women Owned Small Business), SBA's contracting programs include the Section 8(a) Business Development Program. 

Authorized by Sections 7(j)(10) and 8(a) of the Small Business Act (15 U.S.C. §§ 636(j)(10) and 637(a)) the SBA established this nine-year program to certify and provide assistance to small businesses owned by: Alaska Native corporations, Community Development Corporations, Indian tribes, Native Hawaiian organizations, and by socially and economically disadvantaged individuals. Known in short as Section 8(a), the program provided various forms of management, training, technical, financial, and equitable access assistance for obtaining contracting opportunities in the federal marketplace. The stated aim was for 5% representation by Section 8(a) certified businesses in federal contracting. 

In response to the recent Supreme Court decision, Students for Fair Admissions. Harvard Docket #20-1199;  600 U.S. ___ (2023), a federal district court for the Eastern District of Tennessee has enjoined the U.S. Small Business Administration from continuing Section 8(a) program applications. The district court reversed decades of precedent of the SBA's use of a rebuttable presumption, consistent with its authority granted by Congress through the Small Business Act which found that certain groups “have suffered the effects of discriminatory practices or similar invidious circumstances over which they have no control” and “it is in the national interest to expeditiously ameliorate the conditions” of these groups.

The SBA has now suspended its Section 8(a) program saying it will reassess its application and certification processes. Applicants in the process of applying should seek guidance on how the recent decision will affect them, and government contractors are being warned to prepare for SBA Section 8(a) program changes that could affect current participants. 

The ruling does not apply to non-government services dedicated to entrepreneurship, small business development and contracting, including legal, accounting, and business mentorship.

The SBA may appeal. But observers are noting that in any event they expect to see Section 8(a) undergo big changes to eligibility criteria and SBA's ability to accept procurements. 

The decision would require the SBA to research and rewrite its program eligibility criteria on an industry-by-industry basis, and defend its program using more recent and historical data to prove economic disadvantage, even to businesses that did not apply for Section 8(a) participation. 

This could be reflected in regulatory changes to the rules SBA must follow for obtaining procurement awards, 13 C.F.R. Sections 124.502 and 124.504. They currently consider the impact on small business, and the number of Section 8(a) procurements already awarded. It appears the SBA will soon also have to begin assessing whether specific groups are or were underrepresented in specific businesses categories. 

Given the new data requirements on metrics that were not previously expected, the certification process, if it survives, could take much longer, and affected businesses are being advised to plan accordingly.