U.S. Court Strikes Down Key Provision of SBA's 8(a) Program: What You Need to Know
A recent U.S. District Court decision has sent shockwaves through the business world, particularly for small businesses hoping to participate in the government's 8(a) program. In Ultima Servs. Corp. v. U.S. Dep't of Agric., 2:20-CV-00041-DCLC-CRW (E.D. Tenn. Jul. 19, 2023), the court found that a key provision of the program – a "rebuttable presumption" of social disadvantage for certain racial groups – violated the Fifth Amendment's Equal Protection Clause. This decision is preceded by the Supreme Court Decision, Students For Fair Admission, Inc. v. President and Fellows of Harvard College, 600 U.S. 181(2023), where the Court determined that Harvard's use of race in admissions violated the Equal Protection Clause of the Fourteenth Amendment. The Fair Admission case has triggered a ripple effect of changes, and undoubtedly influenced the Eastern District of Tennessee’s decision in Ultima. The Result: Significant changes to the 8(a) program, impacting both its administration and how businesses qualify for participation.
Discriminatory Nuances Exposed:
Under SBA 8(a), the "rebuttable presumption" meant members of certain historically disadvantaged racial groups were automatically considered socially disadvantaged for 8(a) eligibility, while others had to provide extensive evidence to overcome a presumption to the contrary. The court found this created a two-tiered system, disadvantaging non-minority small businesses like Ultima Services Corporation, the plaintiff in the case.
Shifting to Narratives:
In response to the court's decision, the Small Business Administration (SBA) has implemented substantial changes to the 8(a) program. One key alteration is the removal of the "rebuttable presumption." Instead, all applicants, regardless of race or ethnicity, must now submit a detailed narrative describing their social and economic disadvantage. This narrative will be the primary basis for eligibility determinations, moving away from a system focused primarily on racial background.
Additional Changes and Past Turbulence:
Suspension and Delays: Prior to and during the implementation of the narrative requirement, the SBA briefly suspended accepting applications for the 8(a) program in July 2023. This caused significant confusion and frustration among businesses already in the application process.
New Guidance: The SBA has issued updated guidance to assist applicants in navigating the new narrative-based system. This guidance outlines the types of information and evidence that should be included in the narrative to demonstrate social and economic disadvantage.
Moving Forward:
The future of the 8(a) program remains uncertain in light of this significant shift. While some advocate for the program's complete overhaul, others believe the narrative requirement presents a more equitable approach. Only time will tell how effective the revamped program will be in achieving its goals of promoting small business growth and leveling the playing field for historically disadvantaged groups.
Key Points to Remember:
The "rebuttable presumption" of social disadvantage in the 8(a) program is no longer valid.
All applicants must now submit a narrative describing their social and economic disadvantage for eligibility consideration.
The SBA has issued updated guidance to assist applicants with the narrative requirement.
The future of the 8(a) program may be uncertain, with high potential for further changes or complete revamp.
This article provides a brief overview of the Ultima Servs. Corp. case and its impact on the 8(a) program. For more detailed information about the SBA 8(A) program, or assistance with your program eligibility and narrative drafting, contact our offices today and schedule a consultation.
Please note: This information is intended as general commentary or guidance only and should not be construed as legal advice. Please consult with a qualified legal professional, at KARLO Law, directly for specific professional advice.
