A participant in the SBA’s 8(a) Program was appropriately terminated because the company’s disadvantaged owner took another full-time job without the SBA’s permission.
The recent SBA Office of Hearings and Appeals decision upholding the termination is an important reminder of the limitations on outside employment for 8(a) owners–as well as a reminder of the importance to 8(a) firms of ongoing honesty and forthrightness with the SBA.
SBA OHA’s decision in ME Cubed Engineering, LLC, SBA No. BDPT-493 (2013) involved the 8(a) participation of ME Cubed Engineering, Inc. ME Cubed was originally admitted to the 8(a) Program in 2010.
At the time of ME Cubed’s 8(a) Program application, ME Cubed stated that its disadvantaged owner, Kevin Champion, was devoted to the company on a full-time basis. However, when the SBA conducted two site visits to the company’s address, it found no evidence of an office actually existing at that location. During a subsequent meeting with the SBA, Mr. Champion admitted that he had taken a full-time job with an another company one month before ME Cubed had been admitted to the 8(a) Program.
The SBA sent Mr. Champion a termination letter, stating that ME Cubed was being terminated from the 8(a) Program for good cause, including Mr. Champion’s failure to maintain full-time control of the firm. ME Cubed appealed its termination to SBA OHA.
SBA OHA wrote that the 8(a) Program’s regulations are “clear that full time management by disadvantaged individuals is requisite for Program eligibility.” Additionally, the regulations provide that a disadvantaged individual’s failure “for any reason” to maintain full-time control is reason for termination.
Although 8(a) Program participation does not necessarily preclude the disadvantaged owner from being involved in other business ventures, in this case, ME Cubed “does not dispute that as a result of this other employment, Mr. Champion failed to devote full-time work to ME Cubed during the period in question.” SBA OHA held that the SBA had appropriately terminated ME Cubed from the 8(a) Program.
SBA OHA’s decision in ME Cubed is an important reminder of the rule that a disadvantaged individual must devote full-time to management of an 8(a) participant. Failing to maintain such full-time control is grounds for termination. In addition, the SBA’s decision underscores the importance of honesty and forthrightness with the SBA. Here, the decision suggests that ME Cubed hid Mr. Champion’s other job from the SBA, which only served to lengthen the odds that the SBA–or SBA OHA–would cut the firm a break when it discovered the truth.