One-time Eligibility Under SBA's 8(a) Program
As the number of Federal Government contracting dollars begins to dwindle under the Obama Administration, many small businesses are looking for a leg up on the competition, and the 8(a) Business Development Program of the U.S. Small Business Administration (SBA) provides one way to achieve that goal.
124.108 What other eligibility requirements apply for individuals or businesses?
The 8(a) program was created in 1974 to help minority and other disadvantaged businesses grow through a program of contracting preferences and set-asides. Participants are offered specialized management, technical, financial and government contracting assistance during a nine-year timeframe.
In order to be certified as an 8(a) firm by the SBA, a company must be a small business in accordance with the SBA's established standards, must generally have been in business at least two years and must be 51 percent owned and controlled by socially and economically disadvantaged individuals who are U.S. citizens. There are five groups presumed by the SBA to be socially disadvantaged: African-Americans, Native Americans, Hispanic-Americans, Asian-Pacific Americans and Subcontinent Asian-Americans.
In addition, for initial 8(a) entry, the applicant's personal net worth must be less than $250,000 (excluding the applicant's ownership interest of the business and primary residence). For continued eligibility after admission to the program, net worth must be less than $750,000. SBA will also consider the individual's average two-year income, fair market value of all assets, access to credit and capital, and the financial condition of the applicant firm in assessing economic disadvantage.
Given the business exposure and opportunities that a company can attain through the 8(a) program, the company's name in and of itself can attain significant value in contracting circles. Let’s say the XYZ firm successfully graduates from the 8(a) program but continues on as a non-8(a) entity. A couple of years later, the 100% owner of XYZ wants to sell the entity to another individual who we will assume is socially and economically disadvantaged. The current owner will have no role in XYZ after the sale. Do the SBA regulations bar XYZ, under different ownership, from applying to the 8(a) program again?
The relevant regulation is 13 CFR 124.108, which provides:
124.108 What other eligibility requirements apply for individuals or businesses?
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(b) One-time eligibility. Once a concern or disadvantaged individual upon whom eligibility was based has participated in the 8(a) BD program, neither the concern nor that individual will be eligible again.
Some may argue that “concern” encompasses the business entity plus the individual owner, so that if the individual owner changes but the name of the firm and everything else stays the same, XYZ has become a different "concern" for 8(a) purposes. Not a bad argument, but it's just not right--that interpretation is inconsistent with 13 CFR 121.105:
Some may argue that “concern” encompasses the business entity plus the individual owner, so that if the individual owner changes but the name of the firm and everything else stays the same, XYZ has become a different "concern" for 8(a) purposes. Not a bad argument, but it's just not right--that interpretation is inconsistent with 13 CFR 121.105:
121.105 How does SBA define "business concern or concern"?
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(c) A firm will not be treated as a separate business concern if a substantial portion of its assets and/or liabilities are the same as those of a predecessor entity. In such a case, the annual receipts and employees of the predecessor will be taken into account in determining size.
Thus, the one-time eligibility for the 8(a) program applies to both the concern as an entity and to the individual upon whom eligibility was based. Neither the 8(a) participant company nor the individual upon whom eligibility is based can participate in the program more than once. So, in the end, 13 CFR 124.108 bars the former 8(a) participant, even under different ownership, from applying to the 8(a) program again.
If you're thinking of buying a former 8(a) firm, this is something that you really need to know.
Posted by THE KONG FIRM PLLC at 9/21/2010 3:23 PM 
Categories: 8(a), sba, contracting
Tags: 8(a) Blog sba contracting
Categories: 8(a), sba, contracting
Tags: 8(a) Blog sba contracting
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