A federal court in Tennessee issued a ruling this week that is likely to send shockwaves through the SBA’s 8(a) program. The judge enjoined the SBA from presuming that certain individuals applying for the program are disadvantaged due to their race.
The injunction is effective immediately, but how far-reaching the ruling will be is not yet clear. The program survives, that is certain. Contracting officers may use 8(a) set-asides. The SBA may take applications and admit new members. Beyond that, however, significant questions remain as to how this affects program participants and applicants.
As such, this decision may fundamentally change the 8(a) program.
The program requires that applicant businesses demonstrate ownership by individuals that are both socially and economically disadvantaged. The program presumes that certain individuals are socially disadvantaged because of the history of racial animus and mistreatment of those people in this country—African Americans, Native Americans, etc.—making it much easier for those businesses to gain access to the program.
The 8(a) program is SBA’s most successful socio-economic program. Just this week the SBA released its small business contracting scorecard revealing that the government again achieved its 8(a) contracting goal by ensuring almost $70 billion contracting dollars made it to 8(a) and/or small disadvantaged enterprises.
The program has also been one that has been targeted. In 1999, the program survived a challenge to its constitutionality when a Texas federal district court ruled:
[A] thorough examination of the statutory scheme at issue and its application to the contract at issue reveals no illegitimate purpose, no racial prejudice, and no racial stereotyping. Rather, the program is designed to address a societal ill that has been identified by Congress on the basis of extensive evidence, and the program is narrowly tailored to that purpose.
Rothe Development Corp. v. U.S. Dept. of Defense
In 2016, it survived again when the same plaintiff took a challenge up to the D.C. Circuit Court of Appeals. That decision hinged on the court’s ruling that it did not read the statute’s “reference to groups . . . as creating a racial presumption triggering strict scrutiny.”
So what’s the difference? Well, in the earlier cases the plaintiff explicitly challenged the statute creating the 8(a) program, not the SBA’s implementing regulations (which is where the enjoined presumption explicitly resides). Here, the opposite is true.
An intervening event also contributed to this decision. The U.S. Supreme Court’s decision on affirmative action last month undoubtedly had a huge impact on the outcome of this case. In fact, in anticipation of that case, the court had asked the parties to brief whether the outcome there might impact the outcome here. It clearly did.
As noted above, it is not obvious from the opinion how far reaching this decision is. We know the injunction prevents the SBA from using the program’s presumption of social disadvantage. But does that mean that current participants who gained entry to the program, in part thanks to the presumption, must now demonstrate disadvantage? Do current applicants who are being evaluated get rejected if they did not provide a statement of social disadvantage? The court has set a hearing for August 31 to discuss the issue of potential further remedies.
For what it’s worth, the “winner” here does not get much. It doesn’t make it any easier for that company to get into the program. It only makes it harder for businesses owned by minorities to get in.
Chances are the SBA will appeal. There are some, however, who feel the writing is on the wall. Twitter user @fedjudges, who tweets about judicial nominations and politics, counts five or six Supreme Court votes against the program. This decision may mark just the beginning of the SBA’s 8(a) troubles.
Ruling rocks 8(a) program: SBA enjoined from using presumption of social disadvantage was last modified: July 21st, 2023 by