Some need-to-know Small Business Administration rules

Brent Carpenter, BridgeTower Media Newswires

For small businesses owned by socially and economically disadvantaged individuals, the U.S. Small Business Administration offers several opportunities to expand into the field of federal government contracting. The SBA administers the 8(a) Business Development Program in order to help businesses owned by socially and economically disadvantaged individuals compete for federal government contracts.

In order to qualify for the program, a socially and/or economically disadvantaged individual must own or control at least 51 percent of the business. The SBA presumes that individuals who are African-American, Hispanic American, Asian-Pacific American, Native American or Subcontinent-Asian American are socially disadvantaged. However, individuals who are not a member of these groups may show social disadvantage through, for example, gender, physical handicap or “long-term residence in an environment isolated from the mainstream of American society.” Individuals must also prove economic disadvantage through documentation of their income, assets and net worth. Further, the business must be “small” according to SBA’s small business concerns size standards.

The 8(a) program is for a set duration of nine years, consisting of a four-year developmental stage and a five-year transition stage, at the end of which the firm graduates. The SBA monitors a firm’s progress through the program through reviews, planning and evaluations. Among other support, the program provides procurement and financial assistance as well as surety bonding. 8(a) firms are eligible for sole-source contracts and are encouraged to participate in competitive procurements.

The SBA also offers the Mentor-Protégé Program, which allows businesses to mentor 8(a) firms. Mentors may be in the transitional phase or graduates of the 8(a) program, but often are non-8(a) small businesses. In order to participate in this program, 8(a) firms must be in the developmental phase of the 8(a) program, not have previously received an 8(a) contract, be less than half the size of the applicable SBA standard, and be in good standing in the 8(a) program. The Mentor-Protégé Program allows mentors to provide technical and management assistance to protégés. Further, mentors are allowed to own up to a 40 percent equity interest in protégés. Finally, in addition to the loans and other assistance provided by the 8(a) program, protégés in good standing may qualify for additional financial assistance.

Another valuable opportunity provided by the 8(a) Business Development Program and the Mentor-Protégé Program is for an 8(a) firm to form a joint venture with a non-8(a) small business and compete for and perform larger prime contracts. A joint venture is a commercial enterprise undertaken for profit by two or more firms that otherwise are distinct legal entities. 8(a) firms may form joint ventures with small businesses, whether or not those small businesses are mentors in the Mentor-Protégé Program, in order to bid on and perform prime contracts. A joint venture is a separate entity, which must be properly registered and licensed. Additionally, the SBA must approve the joint venture prior to contract award. For purposes of approval, the proposed joint venture must show that the 8(a) firm lacks the ability to perform the contract itself and that the joint venture agreement is fair, equitable and will substantially benefit the 8(a) firm. The 8(a) firm must also own or control at least 51 percent of the joint venture entity and exercise management control over the joint venture generally and over the performance of the contract specifically. Subcontracting limitations apply to joint venture contract performance as well, with the requirement that the 8(a) firm perform at least 40 percent of the contract work.

Together, the SBA’s programs for socially and economically disadvantaged individuals allow for those individuals’ firms, as well as the small businesses with which they form joint ventures, to compete for larger prime contracts. Beyond the intrinsic value of increased diversity in federal contracting, the hope is that the resultant increase in competition will lead to decreased costs to taxpayers.


Brent Carpenter is an attorney with Jordan Ramis PC. He focuses on construction law. Contact him at 503-598-7070 or brent.