8(a) Business Development Program
The Minority Small Business and Capital Ownership Development Program—commonly known as the “8(a) Program”—provides participating small businesses with training, technical assistance, and contracting opportunities in the form of set-aside and sole-source awards. Under the regulations of the SBA, which administers the program, 8(a) Program eligibility 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 and residing in the United States” that demonstrate “potential for success.” In FY2018, federal agencies awarded 8(a) firms awarded $29.5 billion in federal contracts, including $9.2 billion in 8(a) set-aside awards and $8.6 billion in 8(a) sole-source awards. This is one of the several government contracting programs that provides similar assistance and benefit to other types of small businesses that fit in a particular socio-economic class, including businesses that are women-owned, in a HUBZone (“historically underutilized business zone”), and service-disabled veteran-owned). This page provides an overview of the program.
As mentioned above, 8(a) Program eligibility 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 and residing in the United States” that demonstrate “potential for success.” Members of certain racial and ethnic groups are presumed to be socially disadvantaged, including Black Americans, Hispanic Americans, Native Americans (Alaska Natives, Native Hawaiians, or enrolled members of a Federally or State recognized Indian Tribe) and Asian Pacific Americans, among others. Importantly, while small businesses owned by Alaska Native Corporations (ANC), Community Development Corporations, Indian tribes, and Native Hawaiian Organizations are eligible to participate in the 8(a) Program, they do so under somewhat different terms.
If you do not belong to these groups, you can still demonstrate that you are socially disadvantaged by meeting the 8(a) program’s requirements. Under SBA regulations, those individuals must prove that they have an objective distinguishing feature that has contributed to social disadvantage, such as race, ethnic origin, or gender, and that their social disadvantage was experienced in American society, not in other countries. Finally the individual’s social disadvantage must be chronic and substantial, not fleeting or insignificant; and must have negatively impacted on his or her entry into or advancement in the business world.
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 his or her primary residence) at the time of entry into the program. This amount increases to $750,000 for continuing eligibility. In determining whether an applicant has good character, the SBA takes into account any criminal conduct, violations of SBA regulations, or debarment or suspension from federal contracting. For a firm to demonstrate potential for success, it generally must have been in business in its primary industry classification for two years immediately prior to applying to the program.
Furthermore, 8(a) firms must be “at least 51% unconditionally and directly owned” by one or more socially and economically-disadvantaged individuals (unless owned by an ANC, NHO, or Indian tribe). Ownership is unconditional when it is not subject to any conditions precedent or subsequent, executory agreements, voting trusts, restrictions on or assignments of voting rights, or other arrangements that could cause the benefits 8(a) firms must be “at least 51% unconditionally and directly owned by one or more socially and economically disadvantaged individuals who are citizens of the United States” unless they are owned by an ANC, CDC, NHO, or Indian tribe. Ownership is unconditional when it is not subject to any conditions precedent or subsequent, executory agreements, voting trusts, restrictions on or assignments of voting rights, or other arrangements that could cause the benefits.
In addition, 8(a) firms must be “controlled” by one or more disadvantaged individuals. Control is not the same as ownership and includes both strategic policy setting and day-to-day management and administration of business operations.
Finally, the business must be small. For more on what qualifies as a small business, check out Ward & Berry’s page on small businesses
Benefits of the Program
Once you are in the program there are numerous resources at your disposal that can help your business grow. 8(a) business development assistance has many forms, including business counseling and mentoring, both in online and traditional face-to-face settings; access to capital and surety bond guarantees; contract marketing guidance; and assistance with acquiring federal government surplus property. In addition, the Small Business Administration (SBA) reviews and certifies eligible clients; assigns SBA personnel (Business Opportunity Specialists, BOSs) to monitor and measure each firm’s progress through annual reviews, business planning collaboration, and systematic evaluations; helps to identify potential contract opportunities; and markets each firm’s technical capabilities to federal agency procurement officials.
The Small Business Act’s Section 8(a) also authorizes agencies to award contracts for goods or services, or to perform construction work, to the SBA for subcontracting to 8(a) firms. The act also authorizes the SBA to delegate the function of executing contracts to the procuring agencies and often does so. A set-aside award is a contract awarded in which only certain contractors may compete, whereas a sole-source award is a contract awarded, or proposed for award, without competition. The Competition in Contracting Act (CICA) generally requires federal agencies to allow full and open competition through the use of competitive procedures when procuring goods or services. However, set-aside and sole-source awards to 8(a) firms are permissible under CICA under certain circumstances. In fact, an 8(a) set-aside is a recognized competitive procedure. Agencies are effectively encouraged to subcontract through the 8(a) Program because there are government-wide and agency-specific goals regarding the percentage of procurement dollars awarded to small disadvantaged businesses, which include 8(a) firms (the current governmentwide goal is 5% of all small business eligible federal contracts).
Finally, 8(a) small businesses can participate in the SBA’s 8(a) Mentor-Protégé Program. The program is designed to “enhance the capabilities” of 8(a) firms and “improve [their] ability to successfully compete for contracts” by providing various forms of assistance, including technical or management training, financial assistance in the form of equity investments or loans, subcontracts, trade education, and assistance in performing prime contracts with the federal government through joint venture agreements. The 8(a) Mentor-Protégé Program is intended to benefit both mentors and protégés. Serving as a mentor to an 8(a) firm counts toward any subcontracting requirements to which the mentor firm may be subject under Section 8(d) of the Small Business Act. Section 8(d) requires that all federal contractors awarded a contract valued in excess of $700,000 ($1.5 million for construction contracts) that offers subcontracting possibilities agree to a “subcontracting plan” that ensures small businesses have “the maximum practicable opportunity to participate in [contract] performance.” In addition, in certain circumstances, mentors may form joint ventures with their protégés that are eligible to be awarded an 8(a) contract or another contract set aside for small businesses. For more on the Mentor-Protégé Program, check out this page.
The 8(a) Program is an excellent way to establish and grow your business. Moreover, the National 8(a) Association offers even more advantages, by connecting many of these businesses with each other so that everyone’s business wins. Reach out to us at Ward & Berry if you think you might qualify or if you have any other questions.