SBA Finalizes Sweeping Regulations Governing 8(a) Programs

A year after its original proposed rulemaking, the U.S. Small Business Administration today published a package of final rules that will revise regulations to strengthen its 8(a) Business Development program to better ensure that the benefits flow to the intended recipients and help prevent waste, fraud and abuse. The rules were published February 11, 2011, in the Federal Register and will become effective on March 14, 2011. The revisions are the first comprehensive overhaul of the 8(a) program in more than 10 years.  The regulations incorporate technical changes and substantive changes that mirror existing or new legislation enacted since the last revision in June 1998. The rules cover a variety of areas of the program, ranging from clarifications on determining economic disadvantage to requirements on Joint Ventures and the Mentor-Protégé program. Some of the components of the 8(a) program that the revised regulations will affect include:

• Joint Ventures – requiring that the 8(a) firm must perform 40 percent of the work of each 8(a) joint venture contract that is awarded, including those awarded under  a Mentor/Protégé agreement, to ensure that these companies are able to build capacity;
• Economic Disadvantage – providing more clarification on factors that determine economic disadvantage as it relates to total assets, gross income, retirement accounts and a spouse of an 8(a) company owner when determining the owner’s ability to access capital and credit;
• Mentor-Protégé Program – adding consequences for a mentor who does not provide assistance to their protégé, ranging from stop-work orders to debarment
• Ownership and Control Requirements – providing flexibility on whether to admit 8(a) program companies owned by individuals with immediate family members who are owners of current and former 8(a) participants;
• Tribally-Owned Firms – requiring firms owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations and Community Development Corporations to report benefits flowing back to their respective communities;
• Excessive Withdrawals – amending regulations on what amount is considered excessive as a basis for termination or early graduation from the 8(a) program; and
• Business Size for Primary Industry – requiring that a firm’s size status remain small for its primary industry code during its participation in the 8(a) program.

The SBA initially published the proposed rule on October 28, 2009 and provided a 60-day comment period for the public to submit their comments.  Many businesses requested more time, so the SBA extended the comment period an additional 30 days, allowing the public to submit their comments by January 28, 2010.  In addition to requesting written comments from the public, the SBA also embarked on a “Listening Tour” and hosted public meetings between December 2009 and January 2010 in 10 cities around the country. The SBA also conducted tribal consultations to gain further public input to the revisions in Albuquerque, Fairbanks and Anchorage, Alaska, and Seattle.  In total, the SBA received more than 2,500 individual comments from the public. AGC provided comments to SBA and worked extensively with the agency and Congressional leaders in the development of these final rules. AGC is also pressing SBA to change current rules to allow prime contractors to receive credit for small business contracting dollars that flow down to all tiers. Current rules only allow primes to receive credit only at the first tier if the first tier subcontractor is a small business. For more information about the revised 8(a) regulations, a compliance guide, and the 8(a) program, visit http://www.sba.gov/content/revised-8a-regulations. For more information, please contact Marco Giamberardino at (703) 837-5325 or giamberm@agc.org.