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Tuesday, January 25, 2011

The “8(a) Program” for Small Businesses Owned and Controlled by the Socially and Economically Disadvantaged: Legal Requirements and Issues

John R. Luckey
Legislative Attorney

Kate M. Manuel
Legislative Attorney

The Small Business Administration’s (SBA’s) Minority Small Business and Capital Ownership Development Program is commonly known as the “8(a) Program.” This program provides participating small businesses with training, technical assistance, and contracting opportunities in the form of set-asides and sole-source awards. A “set-aside” is an acquisition in which only certain contractors may compete, while a sole-source award is a contract awarded, or proposed for award, without competition. In FY2009, the federal government spent $18 billion on contracts and subcontracts with 8(a) firms.

Eligibility for the 8(a) Program is generally limited to small businesses “unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of the United States” that demonstrate “potential for success.” Each of these terms is further defined by the Small Business Act; regulations that the SBA has promulgated to implement Section 8(a); and/or judicial or administrative decisions.

A “business” is a for-profit entity that has a place of business located in the United States and operates primarily within the United States or makes a significant contribution to the U.S. economy by paying taxes or using American products, materials, or labor. A business is “small” if it is independently owned and operated; is not dominant in its field of operations; and meets any definitions or standards established by the Administrator of the SBA. Ownership is “unconditional” when it is not subject to any conditions precedent or subsequent, executory agreements, or similar limitations. “Control” is not the same as ownership and includes both strategic policy setting and day-to-day administration of business operations.

Members of certain racial and ethnic groups are presumed to be socially disadvantaged, although individuals who do not belong to these groups may prove they are also socially disadvantaged. To be economically disadvantaged, an individual must have a net worth of less than $250,000 (excluding ownership in the 8(a) firm and equity in one’s primary residence) at the time of entry into the 8(a) Program. This amount increases to $750,000 for continuing eligibility. In determining whether an applicant has good character, SBA looks for criminal conduct, violations of SBA regulations, or current debarment or suspension from federal contracting. For a firm to have demonstrated “potential for success,” it generally must have been in business in the field of its primary industry classification for at least two years immediately prior to applying to the 8(a) Program. However, small businesses owned by Indian tribes, Alaska Native Corporations (ANCs), Native Hawaiian Organizations (NHOs), and Community Development Corporations (CDCs) are eligible for the 8(a) Program under somewhat different terms.

The 8(a) Program is not the only contracting program for small businesses. There are similar programs for women-owned small businesses, Historically Underutilized Business Zone (HUBZone) small businesses, service-disabled veteran-owned small businesses, and small businesses not belonging to any other category.

During the 111
th Congress, a number of bills proposed modifying aspects of the current 8(a) Program or promoting contracting with 8(a) firms. The 112th Congress may consider similar legislation. There may also be opportunities to review implementation of the 8(a) Program by SBA and procuring agencies, including changes to the regulations governing the 8(a) Program proposed by SBA on October 28, 2009.

Date of Report: January 4, 2011
Number of Pages: 35
Order Number: R40744
Price: $29.95

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