SBA swiftly finalizes new rule on 8(a) social disadvantage
The standard takes effect September 10
SBA will publish a new social disadvantage standard for 8(a) program applications tomorrow, just four weeks after the agency received mostly negative responses from the public on the change. The final rule adopting the new standard appeared on FederalRegister.gov this morning. The standard is scheduled to take effect 30 days after publication, on September 10.
The new standard changes how most applicants to the 8(a) program justify their eligibility as socially disadvantaged. Instead of submitting a narrative, applicants will need to produce evidence of discriminatory practices or actions that excluded the applicant’s group. The change does not affect the eligibility requirements for businesses owned by tribal entities—Alaska Native Corporations, Native Hawaiian Organizations, and Indian Tribes. The new rule follows a 2023 federal court decision that struck down SBA’s presumption that minority-owned applicants were socially disadvantaged.
SBA acknowledged that, after reviewing a proposed version, most of the 114 comments “expressed opposition.” One of the opposing viewpoints was that a proposed requirement for evidence-gathering would be difficult for smaller businesses to meet. In response, SBA added a more flexible evidentiary standard.
“Where evidence of group discrimination or bias by the specific governmental entity or private entity is not readily available, a Citizen may present other adequate evidence demonstrating such discrimination or bias,” SBA provided in the final regulatory text.
In most cases, the necessary evidence is publicly available on the internet, SBA explained. The rule provides examples of types of evidence: regulations, statements, reports, audits, and other similar documents.
Existing firms and women-owned companies
SBA also responded to two common areas of criticism raised in public comments. First, SBA stated that the new test would not apply to current 8(a) participants. Commenters had speculated that SBA might require existing 8(a) firms to re-establish their eligibility under the new rule. That will not be the case, SBA said. “If SBA has determined an individual to be ‘socially disadvantaged,’ that individual need not again establish his or her social disadvantage status,” the agency wrote in the final rule.
Second, SBA responded to questions on whether women could qualify for the 8(a) program on the basis of sex or gender. The current SBA standard allows applications based on gender, but SBA’s proposed rule referred only to race. In the final rule, however, SBA directly addresses sex-based discrimination.
“This certainly could include discrimination or bias based on sex,” the agency wrote. “For example, prior to the enactment of the Equal Credit Opportunity Act of 1974, it was official policy of many banks to prohibit women from applying for and obtaining credit cards in their own name. This discriminatory conduct against women adversely affected their ability to participate in the free enterprise system.”
Though citing the 1974 law on equal credit and the 1990 Americans with Disabilities Act, the policy still requires that discrimination or bias occur during the applicant’s lifetime.
No final RFA analysis
SBA dismissed requests to prepare a full accounting of the impact of the rule. That analysis is required in some circumstances by a federal law, the Regulatory Flexibility Act. Several commenters argued that the rule would have a significant economic impact on small businesses, triggering the RFA. But SBA disagreed. The agency wrote, “The new test for social disadvantage is no more burdensome than the current requirement that applicants prepare a narrative.”
SBA also stated that it would apply the new test to applicants yet to be approved. This includes companies that applied before the change but had not received a decision. It has been nearly a full calendar year since SBA has approved a new 8(a) application, and it is likely that several hundred applications are pending. Companies that applied but have not yet been approved are expected to have their applications returned if the new standard applies to them. Entity-owned applicants are not covered by the new rule and would be treated differently.
The final rule did not include a timeline for current applicants to amend their applications. Companies submit applications for the 8(a) program through MySBA Certifications, which is expected to be updated to reflect the new standard.
The comments filed by the July 13 deadline included several from civil rights legal organizations. The NAACP, Asian Americans Advancing Justice, and MBELDEF objected to the rule’s constitutional basis and statutory compliance. SBA did not specifically respond to those organizations in the final rule. Instead, SBA explained broadly, “This regulation is necessary to align the program with constitutional and statutory requirements and goals.”
With over 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. His website is www.samlelaw.com. This article is for informational purposes only and does not constitute legal advice.