8(a) Program: Is The SBA “Searching For Reasons To Deny” Women?

The SBA’s course of conduct in reviewing the 8(a) applications of companies owned by women “gives the distinct impression that the SBA is simply searching for reasons to deny every claim” of social disadvantage made by women applicants.

These strong words come from a recent SBA Office of Hearings and Appeals decision, in which OHA again overturned the SBA’s denial of a woman-owned business’s 8(a) application.

SBA OHA’s decision in Matter of Ironwood Commercial Builders, Inc., SBA No. BDPE-532 (2014) involved the 8(a) application of Ironwood Builders, Inc., a company owned by Nancy Brinkerhoff.  Ironwood applied to the 8(a) program in February 2012.

The SBA denied Ironwood’s initial 8(a) application, then denied Ironwood’s request for reconsideration.  Both the initial and final denial letters stated that Ironwood had been denied, in part, because it had not demonstrated that Ms. Brinkerhoff was socially disadvantaged.  Ironwood then filed an appeal with OHA, challenging the SBA’s decision.

OHA wrote that under the 8(a) program regulations, an 8(a) applicant most prove social disadvantage by a “preponderance of the evidence” standard.  Under this standard, “an applicant is not required to convince the fact-finder that an incident was motivated by bias.”  Instead, “the applicant must only present evidence sufficient to lead the fact-finder to conclude that it is more likely than not that bias was a factor.”

In Ironwood’s case, however, the SBA’s denial letters were “littered with evidence” that the SBA ignored the appropriate standard of review, and instead applied a much stricter legal standard: the so-called “clear and convincing evidence” test.  OHA gave several examples of the SBA’s failure to apply the correct standard.

For instance, Ms. Brinkerhoff alleged that her high school guidance counselor discouraged her from entering a particular program because the program was “too physical” for women. The counselor steered Ms. Brinkerhoff toward a career as a telephone operator or child care provider because they were “more appropriate” for a woman.

In its denial letters, the SBA postulated that because Ms. Brinkerhoff suffered from Myasthenia gravis (a form of muscular dystrophy), the guidance counselor’s actions may have been motivated by Ms. Brinkerhoff’s disease rather than her gender.  OHA wrote that the SBA’s explanation was “at odds with the evidence” and constituted impermissible speculation:

A claim may properly be disregarded if there is evidence of a non-discriminatory explanation in the Record. Here, however, there is no evidence that the guidance counselor was influenced by Mrs. Brinkerhoff’s medical condition. Indeed, there is no evidence that he was even aware of her diagnosis. The SBA’s suggestion that his comments were perhaps motivated by concern over Mrs. Brinkerhoff’s physical limitations is therefore pure speculation.  The SBA cannot base its determination on hypothetical theories.  It therefore also cannot condemn a petitioner for failing to address or disprove those theories.

In another instance, Ms. Brinkerhoff stated that after Ironwood completed Phase I of a construction project, the contractor’s owner, Tony DiGiorgio, told Ms. Brinkerhoff that “as a woman, I don’t think you are suitable to complete the second phase of this project.”

In its denial letter, the SBA referred to this incident as “unfortunate,” but stated that because Ironwood was awarded Phase I, it was “not clear” that gender bias was the reason why Ironwood was denied the opportunity to perform Phase II.  OHA strongly disagreed:

This outcome flies directly in the face of the evidence. Mr. DiGiorgio’s motivation is not in question. The claim is not based on hearsay or conjecture. According to the PES and the corroborating letter, Mr. DiGiorgio told Mrs. Brinkerhoff, to her face, that her gender was the reason Petitioner would not get the contract for Phase II. This is a rare, direct admission of bias. The SBA cannot merely wave it away as an ““unfortunate” incident. It is far more than unfortunate. It is unambiguous evidence of gender-motivated discrimination. The SBA has no reason to question the credibility of this claim, and does not even attempt to do so. Instead, it minimizes the evidence while demanding tangential information about who else bid on Phase II, what Phase II entailed, and who ultimately won the contract. The SBA never bothers to explain how this information is relevant or why it would be more persuasive than the direct evidence of bias.

OHA also analyzed several other claims made by Ms. Brinkerhoff, and the SBA’s corresponding denials.  OHA found “at a minimum, nine separate claims of social disadvantage that were either analyzed improperly or ignored entirely.”  OHA wrote that the SBA’s “determined skepticism in the face of direct evidence is pointedly inconsistent with the application of the preponderance standard,” which is supposed to govern 8(a) application evaluations.  OHA then offered a strongly-worded summary of its opinion:

Here, the SBA demanded that Petitioner disprove the SBA’s hypothetical alternate explanations. It assumed facts not in evidence, ignored evidence, and rejected claims for lacking irrelevant evidence. In doing so, the SBA imposed an evidentiary burden on Petitioner well in excess of that required by the regulations. The Court has previously observed the SBA’s tendency to place determinative weight on any evidence that happens to be missing. It did so again throughout these Determination Letters. This course of conduct gives the distinct impression that the SBA is simply searching for reasons to deny every claim. If so, this is not the product of a “fair and impartial mind,” but rather one that is actively antagonistic to the petitioner’s goals. There is no justification for this position.

OHA granted Ironwood’s appeal and remanded the matter to the SBA, with instructions to issue a new determination by October 23, 2014.

Longtime SmallGovCon readers know that we have been down this road before.  Earlier this year, OHA chided the SBA for seeming to require that a woman provide “smoking gun” evidence of gender bias.  And in a series of decisions in late 2012 and early 2013, OHA sustained several similar appeals, leading me to question whether the SBA’s process for evaluating social disadvantage was fundamentally flawed.

It is very troubling–to say the least–that the same problems OHA has identified in previous decisions keep cropping up.  By the time a federal administrative judge questions whether the SBA is “simply searching for reasons to deny” women applicants, the SBA should be taking every step internally to make sure that women applicants (and other applicants who must prove their social disadvantage) are given a fair shake.

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