Federal Judge Rules that SBA Cannot Presume Social Disadvantage based on Race for 8(a) Program

July 24, 2023 - A recent ruling from a federal judge in Tennessee looks like it may significantly change the SBA 8(a) program. The judge has ordered an injunction that prevents the SBA from presuming social disadvantage based on race for program applicants. The immediate implementation of this injunction could be incredibly disruptive to the 8(a) program, although the full implications of the decision are still unclear.

The 8(a) program itself will continue, with contracting officers still able to use 8(a) set-asides, and the SBA can continue to accept applications and admit new members. However, removing the presumption of social disadvantage based on race raises significant questions for both current and potential participants of the program.

The 8(a) program is designed to aid businesses owned by socially and economically disadvantaged individuals. The program's established rules presume social disadvantage for certain racial and ethnic groups based on historical discrimination, and this presumption has dramatically increased minority-owned businesses’ participation in federal government contracting. The 8(a) program is the SBA’s most successful program.

The court's decision to prohibit this presumption may introduce a new challenge for businesses applying to the program. Although this is too early to say, current participants who have been benefiting from this presumption, could potentially need to provide additional proof of social disadvantage.

The court has scheduled a hearing for August 31 to discuss potential additional remedies. I think that is likely that the SBA appeals. However, if this goes to the Supreme Court, their recent ruling against affirmative action does not look promising. And for those that say that there is no chance of the Supreme Court striking this down, remember what happened with the VA and Kingdomware.

In the aftermath of this decision, the 8(a) program might experience slowed processing as the SBA reconfigures its procedures to comply with the ruling. An appeal could further delay implementation. Regardless of these possible outcomes, it is evident that changes to the SBA's regulations are inevitable. This ruling is likely just the start of substantial challenges and modifications for the SBA's 8(a) program.