SBA has been hard at work this past year updating its 8(a) Business Development Program rules and policies. And we have been doing our best here at SmallGovCon to keep you posted. Many of our blog posts focused on SBA’s monumental November 2020 “rule overhaul,” which implemented several 8(a) rule changes. But given the sheer magnitude of information in that final rule, it is pretty easy to lose track of which updates might affect you, as a potential 8(a) applicant or current 8(a) participant. There were also some pretty important changes to the 8(a) Program just prior to and subsequent to SBA’s November 2020 final rule.
Suffice it to say, there is a lot to process! So, we thought a quick summary blog on some of the most significant changes to the 8(a) Program of late might help you in that endeavor. Without further ado, here are five things you should know about SBA’s recent 8(a) Program updates.
As an initial matter, please keep in mind that this blog does not provide an exhaustive list of the rule changes in SBA’s November 2020 final rule that may affect 8(a) Program admission or participation. It is merely a simplified discussion of some of the big picture changes that have already received a lot of attention in the government contracting community.
1. SBA’s economic disadvantage thresholds went up in July 2020 (and retirement accounts are out for everyone).
On July 15, 2020, the initial eligibility thresholds for net worth, adjusted gross income, and fair market value of all assets went up–and quite a bit too! SBA’s new rules increased: the net worth threshold from $250,000 to $750,000; the threshold for “adjusted gross income averaged over the three preceding years” from $250,000 to $350,000; and the fair market value of all assets threshold from $4 million to $6 million! You can read more about SBA’s economic disadvantage threshold increase here.
This is a significant threshold increase with a potential meteor-sized impact on the 8(a) Program. It will make far more people economically eligible for the 8(a) Program, opening the door to many more applicants. Moreover, it simplifies the initial versus continuing economic disadvantage analyses–as those thresholds are now the same.
Finally, under SBA’s July 2020 economic disadvantage rule changes, “retirement accounts will now be excluded from calculations of an economically disadvantaged individual’s net worth, irrespective of the individual’s age.” This is a big deal too, particularly for older applicants who often had to count those accounts prior to this rule, which you can read more about here.
2. SBA’s 8(a) joint venture approval requirements changed–for the better (or at least for the more convenient).
SBA’s prior requirement that all 8(a) joint venture agreements must be approved by the SBA prior to award of any 8(a) work has been significantly relaxed. Now, SBA only requires that 8(a) joint ventures be approved prior to the award of any 8(a) sole-source awards. That means an 8(a) joint venture can now be awarded competitive 8(a) awards without having to wait (often for quite some time) for SBA to approve their agreement.
This same logic applies to any addendums to the joint venture agreement for the purpose of pursuing additional projects. Only those addendums seeking 8(a) sole-source awards need prior approval (and this is regardless of which type of award the initial joint venture agreement sought). Specifically, SBA’s updated rules for 8(a) joint ventures state the following regarding prior approval:
(1) When a joint venture between one or more 8(a) Participants seeks a sole source 8(a) award, SBA must approve the joint venture prior to the award of the sole source 8(a) contract. SBA will not approve joint ventures in connection with competitive 8(a) awards (but see § 124.501(g) for SBA’s determination of Participant eligibility).
(2) Where a joint venture has been established for one 8(a) contract, the joint venture may receive additional 8(a) contracts provided the parties create an addendum to the joint venture agreement setting forth the performance requirements for each additional award (and provided any contract is awarded within two years of the first award as set forth in § 121.103(h)). If an additional 8(a) contract is a sole source award, SBA must also approve the addendum prior to contract award.
While, on its face, this change may not seem too impactful, it will make life much easier–and quicker–for 8(a) joint ventures not focused on any soles-source work. Also, it will certainly lighten the SBA Business Development Office’s load. So we may even see some big picture trickle-down effects of that. For more information on this change, check out our prior blog.
3. Earlier this year, SBA extended the 8(a) Program term for some participants due to the pandemic.
In January 2021, SBA issued its rule extending certain 8(a) Program terms by a full year, as directed by Congress. That rule became effective immediately (on January 13). SBA gave all 8(a) Program participants that were in the program on March 13, 2020, through September 9, 2020, this COVID-19-hardship-driven-extension. It clarified that participants who were terminated, graduated early, or voluntarily withdrew during that period were not eligible.
This extension was automatic for those participating in the 8(a) Program as of January 13, 2021, unless they declined. It also said: “Firms that were participating in the 8(a) program as of March 13, 2020, but then graduated or otherwise left the program before January 13, 2021 can be readmitted, but notify SBA within 60 days of January 13, 2021 and meet the 8(a) eligibility requirements.” As to how this would play out for the eligible 8(a) Program participants, SBA said that the extension period would be added to the participant’s transitional stage of the 8(a) Program, and the business activity target for that extension would remain at 50 percent non-8(a) business.
Read more about this change in our prior blog on the topic.
4. SBA has eased up on the 8(a) Program’s “immediate family member” restrictions.
As part of SBA’s November 2020 new rule, SBA finally eased up on its restrictions for participating in the 8(a) Program for those who have immediate family members who have previously received 8(a) benefits. Before this change, SBA’s rule had an outright prohibition that said: “An individual may not use his or her disadvantaged status to qualify a concern if that individual has an immediate family member who is using or has used his or her disadvantaged status to qualify another concern for the 8(a) BD program.” And although it allowed a potential waiver if several additional conditions were met, it was no easy feat (especially for relatives whose companies were in the same or similar line of business).
Now, the new rule doesn’t make family participation irrelevant. But it does ease up a bit. It now says that an individual “may not use his or her disadvantaged status to qualify a concern if that individual has an immediate family member who is using or has used his or her disadvantaged status to qualify another concern for the 8(a) BD program” and one of four circumstances exist:
(i) The concerns are connected by any common ownership or management, regardless of amount or position;
(ii) The concerns have a contractual relationship that was not conducted at arm’s length;
(iii) The concerns share common facilities; or
(iv) The concerns operate in the same primary NAICS code and the individual seeking to qualify the applicant concern does not have management or technical experience in that primary NAICS code.
Further, SBA acknowledged in its commentary on the new rule that it believes “requiring no connections is a bit extreme.” SBA said:
If two brothers own two totally separate businesses, one as a general construction contractor and one as a specialty trade construction contractor, in normal circumstances it would be completely reasonable for the brother of the general construction firm to hire his brother’s specialty trade construction firm to perform work on contracts that the general construction firm was doing.
So, most would argue that this is a significant step in the right direction. Now, 8(a) applicants and participants won’t have to meet the extremely high bar of showing “no connection” with current or past 8(a) participants controlled by their immediate family members. SBA will instead generally determine whether the two firms appear to be operating too closely, based on some of the bigger picture connections (shared control, owneship, etc.)
We covered many more details of this update to SBA’s rules in a prior blog as well.
5. There is no longer a separate 8(a) Mentor-Protégé Program (but don’t freak out, the consolidated Mentor-Protégé Program has you covered).
Last, but certainly not least, SBA did away with having separate Mentor-Protégé Programs (and governing rules) for 8(a) mentor-protégé relationship and well, everyone else. Specifically, SBA’s 8(a) Mentor-Protégé Program was officially consolidated into SBA’s All-Small Mentor-Protégé Program in order to eliminate regulatory duplications and alleviate confusion between these programs. This change was also implemented through SBA’s November 2020 final rule.
Most also call this a smart move, especially given the fact that 8(a) participants could actually participate in either program anyway. It also allowed SBA to clean up the rules a bit–which were substantively pretty similar to begin with. But what did this landmark consolidation mean for those in the 8(a) Mentor-Protégé Program? Whelp, supposedly not a whole lot. While there are no detailed procedures listed in the new rule or consolidated regulations, SBA’s commentary assured us all that its intent was to grandfather those new relationships in under SBA’s new all-encompassing Mentor-Protege Program.
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For a few other recent changes to the 8(a) Program rules that didn’t quite make the cut for this blog, check out our prior blog on SBA’s updated bona fide place of business requirement for 8(a) construction work and keep an eye out for more 8(a) Program blog posts sure to be coming your way!
Questions about this post? Email us or give us a call at 785-200-8919.