Judge says SBA needs to rethink 8(a) program

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A federal judge says a company was discriminated against when the Agriculture Department and Small Business Administration made its contract an 8(a) set-aside. The result will mean major changes to the program.

The Small Business Administration long-running 8(a) program is in for some big changes following a court ruling that challenged how the agency determines whether a company is socially disadvantaged.

Ultima Services Corp.'s case versus the Agriculture Department challenged the use of “rebuttable presumption,” which allowed SBA to accept companies into the 8(a) program without having to show proof they were disadvantaged.

Ultima, which is not an 8(a) firm, lost a contract when Agriculture said the company couldn’t pursue the recompete. Instead, the department made a sole-source award to an 8(a) firm.

The company filed a lawsuit against SBA and the Agriculture Department claiming that its Fifth Amendment rights to equal protection under the law were violated. The company claimed Agriculture's decision to make its contract an 8(a) set-aside discriminated against Ultima.

Judge Clifton Corker in the U.S. District Court for the Eastern District of Tennessee ruled in Ultima’s favor. He said that SBA and Agriculture failed to apply “strict scrutiny” when they determined the contract should go to an 8(a) firm.

The agency also didn’t establish that Ultima was not harmed by the decision to make its contract a set-aside and essentially bar the company from competing for it.

One thing that hurt the Agriculture Department’s position on that count is that one of its contracting officers essentially shopped around to find an SBA office that would approve making the contract an 8(a) set-aside.

The first office did an analysis and said there was an adverse impact on Ultima and it shouldn’t be moved. The contracting officer then went to another SBA office, which accepted his request to make the contract an 8(a) set-aside.

The judge also cited the recent Supreme Court decision impacting affirmative action in college admissions and said that SBA has not considered how that decision affects the way it administers the 8(a) program.

Instead, SBA argued that its 8(a) program complied with the rulings, but the judge said SBA has not reconsidered the program since 1986.

All of this leaves a big question – what happens now?

SBA said it is working on guidance.

Judge Corker also has set a hearing for Aug. 31 on “any potential further remedies” whatever that means.

Deltek has a nice bit of analysis that you can read here. They are watching for the potential impacts, including changes to the application process.

Their analysts also also think the ruling and its impact on the application process may be a deterrent to new entrants into the program.

The Biden administration also has made it a priority to increase the share of federal dollars that go to small disadvantage business. The ruling will make meeting that goal more difficult.

It is also worth your time to read Emily Chancey and Joshau Duvall’s Aug. 17 blog at the law firm MaynardNexsen about an SBA webinar, where the agency said it will require 8(a) companies to establish their social disadvantage by a “narrative/evidence process.”

SBA’s guidance should provide more insight into how firms can establish their social disadvantage. But the guidance will also likely need to pass the scrutiny of the Aug. 31 hearing.

Stay tuned, folks. More to come on this one.