SBA Begins Review of Personal Social Disadvantage Narratives

The 8(a) Program is in a state of uncertainty as the U.S. Small Business Administration (SBA) requires participants who relied on the presumption of social disadvantage to enter the program to obtain SBA approval of personal social disadvantage narratives before they can receive future 8(a) contracts. In this blog, we address an 8(a) participant's options for appeal if it receives an adverse decision from SBA rejecting its assertion of social disadvantage. We also look at how 8(a) participants might seek to protest a fellow 8(a) competitor's status as socially disadvantaged when selected for award of future 8(a) contracts.

Background

The federal government's goal is to award at least 5 percent of all federal contracting dollars to small disadvantaged businesses each year. To help reach this goal, SBA established the 8(a) Business Development Program (8(a) Program), which allows participants to compete for 8(a) set-aside and sole-source awards while participating in a nine-year program that assists firms owned and controlled by socially and economically disadvantaged individuals through training and technical assistance to strengthen their ability to compete effectively in the U.S. economy. 13 C.F.R. § 124.1. Before a business concern may be admitted to the 8(a) Program, it must demonstrate that it is controlled by a socially and economically disadvantaged individual. See 13 C.F.R. § 124.106.

As previously discussed, the U.S. District Court for the Eastern District of Tennessee on July 19, 2023, issued a ruling in Ultima Servs. Corp. v. U.S. Dep't of Agric., No. 2:20-CV-00041-DCLC-CRW, 2023 WL 463348 (E.D. Tenn. July 19, 2023), that found the SBA's use of a "rebuttable presumption" of social disadvantage for certain minority groups to qualify for inclusion in the 8(a) Program violates the Fifth Amendment's Due Process Clause. The court ordered SBA to immediately stop using the presumption of social disadvantage to administer the 8(a) Program.

In response, on Aug. 18, 2023, SBA issued a press release and temporary guidance to 8(a) Program participants addressing concerns in light of the court's decision. By way of summary, to comply with the court's order, SBA is requiring all 8(a) participants whose program eligibility is based upon one or more individuals who relied upon the presumption of social disadvantage to establish their individual social disadvantage by completing a social disadvantage narrative. SBA must then approve the narrative to verify personal social disadvantage before 8(a) participants can receive additional 8(a) contracts.

As 8(a) participants submit personal social disadvantage narratives, and SBA inevitably rejects some and approves others, 8(a) participants must be aware of: 1) appeal options in the event of a rejection and termination from the 8(a) Program and 2) future 8(a) status protest options if SBA approves an 8(a) participant's status as socially disadvantaged that a competitor may wish to challenge.

Options for Appeal if SBA Rejects Personal Social Disadvantage Narrative and Terminates or Precludes a Participant from the 8(a) Program

If SBA finds a concern is ineligible for the 8(a) Program based on the submitted social disadvantage narrative "based solely on a negative finding(s) of social disadvantage, economic disadvantage, ownership or control" or "termination pursuant to §§ 124.303 and 124.304," a concern can appeal SBA's adverse finding to the SBA's Office of Hearing and Appeals (OHA). See 13 C.F.R. § 134.401(a) ("Denials of 8(a) BD program admission based solely on a negative finding(s) of social disadvantage, economic disadvantage, ownership or control pursuant to § 124.206 of this title."); 13 C.F.R. § 134.401(d) ("Termination pursuant to §§ 124.303 and 124.304.").

A concern has 45 calendar days from receipt of the SBA's determination to file the appeal with OHA. See 13 C.F.R. § 134.404; see also 13 C.F.R. § 134.403(a), (b) (providing the concern must also separately serve two SBA officials concurrent with its OHA filing depending on the nature of the appeal (i.e., appeal of a termination from the program or appeal of denial of program admission)). The appeal must be filed by 5 p.m. EST on the 45th day. 13 C.F.R. § 134.204(b)(2). Appeals to OHA can be filed by e-mail, ohafilings@sba.gov, or fax, 202.205.7059, or via the Hearing and Appeals Submission Upload (HASU) Application.

OHA's regulations provide that a judge will issue a written decision within 90 calendar days of the appeal date "as practicable." 13 C.F.R. § 134.409(b). If OHA denies a concern's appeal of its termination from the 8(a) Program, the concern may seek judicial review pursuant to the Administrative Procedures Act (APA). The APA provides that a "person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review[.]" 5 U.S.C. § 702. Here, the termination from the 8(a) Program or the denial of entry to the 8(a) Program would constitute adverse agency action.

Options for Protesting an 8(a) Competitor's Social Disadvantage Status if SBA Approves a Personal Social Disadvantage Narrative

If a competitor remains in the 8(a) Program after SBA's review of the owner's personal social disadvantage narrative, other 8(a) contractors may be tempted to protest the competitor's 8(a) status when selected as the apparent awardee in a future 8(a) set-aside opportunity. However, under SBA's regulations, such a direct protest to SBA is not permitted. Competitors cannot challenge a concern's 8(a) status by filing an 8(a) status protest with OHA – or a bid protest at the Government Accountability Office (GAO), for that matter. 13 C.F.R. § 124.517(a) ("The eligibility of a Participant for a sole source or competitive 8(a) requirement may not be challenged by another Participant or any other party, either to SBA or any administrative forum as part of a bid or other contract protest.")

The regulations leave open the possibility of judicial review of a concern's 8(a) status and a competitor could file a protest at the U.S. Court of Federal Claims (COFC) to test whether the court will conclude it has jurisdiction. This issue appears unresolved at this point. At least one COFC judge has determined that the court's bid protest jurisdiction under 28 U.S.C. § 1491(b)(1) includes challenges to the SBA's conclusion under 13 C.F.R. § 124.507(b) that an "apparent successful offeror" was not an 8(a) eligible joint venture due to the SBA's rejection of an amendment to the "apparent successful offeror['s]" 8(a) joint venture agreement. See CR/ZWS LLC v. United States, 138 Fed. Cl. at 222, 224-25, 227-30 (2018) (Kaplan, J.). But at least one other judge declined standing to determine whether SBA erroneously approved a concern's 8(a) joint venture agreement because there was "not sufficient evidence in the record to find that the SBA erred when approving [the concern's] joint venture agreement." Safeguard Base Operations, LLC v. United States, 144 Fed. Cl. 304, 357-61 (2019) (Horn, J.). Thus, whether COFC has or will exercise jurisdiction over review of 8(a) status determinations is currently uncertain and will have to be clarified in future protest litigation.

Finally, of course, it is well-established that competitors, contracting officers and the SBA District Director (or designee) can challenge the small business size of an 8(a) concern by filing a size protest with OHA. See 13 C.F.R. § 121.1001(a)(2).

Other Options for Raising Concerns Related to an 8(a) Competitor's Social Disadvantage Status

Separate from protests, SBA's regulations do provide that SBA can initiate its own review of the 8(a) status of any concern "whenever SBA receives credible information calling into question the SDB status of the firm." 13 C.F.R. § 124.1002(a). Therefore, a competitor could report any concerns related to a fellow 8(a) participant's social disadvantaged status by reporting those concerns to SBA (or the contracting officer). To file this type of requested review, a concerned competitor would send its request and supporting information to the SBA Associate Administrator for Business Development. 13 C.F.R. § 124.1002(a). While this option is available, it is important to note that SBA is under no obligation to respond to the concerned competitor or to even investigate such complaints.

Holland & Knight's Government Contracts Group will continue to monitor developments in both the appeal and protest areas as SBA undertakes this unprecedented exercise of reviewing personal social disadvantage narratives in response to the court's recent decision enjoining the use of rebuttable presumptions.

For questions about SBA's guidance, its specific impact on your company, drafting a social disadvantage narrative, or options for appeal or protest, please contact the authors.