The next major legal ruling after affirmative action will eliminate billions of small business contracts.

• In fiscal year 2022, small disadvantaged businesses received 11.38% of the $69.9 billion awarded by the federal government for prime contracting.
• The Supreme Court's affirmative action ruling and subsequent legal challenges targeting the business world based on the precedent necessitated revisions to the 8(a) Business Development Program, which is crucial to achieving this goal.
• The application process for small business owners is complicated by pending legal rulings and litigation, but experts advise eligible owners not to be discouraged.

The Small Business Administration's federal contracting program for socially and economically disadvantaged small businesses was not directly affected by the U.S. Supreme Court decision that ended race-conscious admission programs at colleges and universities. However, the decision contributed to legal challenges against the SBA program, and further changes may occur due to ongoing litigation.

The SBA temporarily halted new applications and adjusted the application process for its 8(a) Business Development Program following a court ruling by Judge Clifton L. Corker of the U.S. District Court for the Eastern District of Tennessee. The judge found that the SBA had violated the U.S. Constitution by assuming that minority business owners were socially disadvantaged solely based on their race.

The ruling of Judge Corker highlights the extensive impact of the U.S. Supreme Court decision, which is still causing a ripple effect on corporate America and the business world.

In September, the SBA modified certain aspects of the application process for a specific group of small businesses to be eligible for federal contract work, in accordance with Judge Corker's ruling. Nevertheless, the case's plaintiff, a white woman who owns Ultima Services Corporation and does not qualify for the 8(a) program, still has additional pending challenges, and the litigation continues.

Small business owners vying for federal contracts should be aware of the following information in the interim.

Basic qualification factors for the 8(a) program

The 8(a) program assists socially and economically disadvantaged small business owners in expanding their presence in the federal marketplace through training and contract support. Prior to Judge Corker's ruling, eligible individuals from designated groups, including Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans, could prove their social disadvantage by identifying themselves as members of one of those groups. To qualify, owners must also meet specific ownership and economic requirements established by the SBA.

In fiscal year 2022, the federal government allocated 11.38% of its prime contracting dollars, which amounted to $69.9 billion, to small disadvantaged businesses. Of these awards, $21.7 billion were given through set-aside contracts to participants in the 8(a) program.

New social disadvantage explanation requirements

In response to the court ruling, the SBA initially suspended new applications for the 8(a) program. However, it later reopened the application portal in late September, providing guidance for small businesses on how to apply and update their application, if necessary.

The SBA's approach of presuming an owner to be socially disadvantaged based on certain racial groups was challenged in court. The judge ruled that the SBA had not narrowly tailored its approach, violating Ultima's Fifth Amendment right to equal protection of the law. To comply with the ruling, the SBA now requires owners to describe their social disadvantage in detail, rather than relying on a race-based presumption. The hope is that this approach will pass legal muster.

The application now features a plain language, fillable questionnaire that enables owners to describe their social disadvantage. This questionnaire includes a few questions to guide owners in describing what happened and how it impacted their ability to launch or expand their business.

Instead of submitting a "social disadvantage narrative" to the application platform, businesses can provide two incidents of bias to demonstrate chronic and substantial social disadvantage. One incident may be sufficient if it is pervasive or recurring, according to the SBA's guide. Additionally, the SBA advises owners to limit the number of examples to two to avoid delays during the review process.

Rewritten sentence: The SBA guide suggests that generally, three pages should be sufficient for the narrative, but it could be more or less, according to the guide.

SBA encourages use of simplified questionnaire

The SBA suggests using a simpler questionnaire pathway, but if an applicant has already prepared a narrative, they can upload it and skip the questions, according to a spokesperson.

Small businesses that previously relied on social disadvantage to support eligibility will need to re-establish eligibility through the new process to receive new 8(a) contracts.

According to the SBA, owners who included a narrative in their initial application will not have to submit a new narrative.

The length of extra time for an application will vary depending on the individual, but a guided questionnaire format can assist those who do not need to write their own narrative, attorneys stated.

Net-worth, income and asset tests

Businesses seeking to participate in the 8(a) program must demonstrate economic disadvantage through personal net worth, adjusted gross income, and assets, as well as undergo annual reviews for ongoing eligibility, according to Jayna Marie Rust, a partner with Thompson Coburn who frequently works with program participants.

Rust stated that if you believed the value was there before and were willing to undergo the application process, the same value remains, and the process has not significantly changed.

New application approval timelines

The SBA spokesperson stated that the process to be approved to the 8(a) program may take slightly longer than usual due to the new application requirements, and can take 60 to 90 days.

For applicants in the program who need to provide new evidence of social disadvantage, the process can be expedited. Dominique Casimir, a Blank Rome partner specializing in government contracts litigation and counseling, successfully had a client approved in just three weeks.

Be cautious, small businesses, as the SBA may request additional information based on your responses, according to Zachary Schroeder, an attorney in the government contracts group at Crowell & Moring. This may not be a straightforward process.

The SBA stated that the new procedure maintains the same level of strictness as the previous one.

Where the court proceedings stand

Ultima Services Corporation is seeking the court's permission to extend its injunction to prevent the SBA from granting, completing, modifying, or exercising options on any contracts through the 8(a) program to 8(a) participants who have benefited from the rebuttable presumption of social disadvantage, even if the SBA has subsequently approved a narrative of social disadvantage.

The SBA has argued that a decision in favor of the plaintiff would severely restrict the capabilities and effectiveness of the 8(a) program, effectively ending it abruptly.

A ruling on the matter may be issued by the judge soon, according to legal experts.

Making the decision to apply or wait out the litigation

Despite ongoing litigation, the application portal for small businesses is open, and industry participants urge owners to proceed with the program's necessary steps.

The SBA and the Biden-Harris Administration are still dedicated to backing the 8(a) Program and defending small business owners who have contributed to America's economic growth, as stated by SBA Administrator Isabel Guzman in a statement regarding the reopening of the application portal.

Casimir advises small businesses to apply or update their application to adhere to new procedures, otherwise they may miss out on opportunities.