SBA is proposing to amend its 8(a) Program rules to “remove the rebuttable presumption that individuals belonging to certain designated groups are socially disadvantaged and set forth revised standards for individuals establishing social disadvantage.” This proposed rule continues the trend that has been building since the Ultima decision in 2023. In 2023, a federal court said that the rebuttable presumption of social disadvantage under the 8(a) is unconstitutional as it violates the right to equal protection. Based on that decision, SBA stopped relying on the presumption of social disadvantage. Three years later, SBA is proposing to formally eliminate any mention of the presumption from the regulations. SBA would replace the individual social disadvantage narrative with a test that looks to whether a person experienced discrimination on the basis of race through programs like affirmative action.
Here are some key points from the proposed rule.
The proposed rule is titled “Reforms To Remove SBA’s 8(a) Program’s Rebuttable Presumption of Social Disadvantage for Individually Owned Firms Only; Reforms Do Not Impact Entity-Owned Firms.” It was released on June 11, 2026. Comments must be received on or before July 13, 2026.
Press Release
In its press release touting the proposed rules, SBA indicated that its goal is to “dismantle the race-based admissions framework that previously barred Americans of certain races from accessing 8(a) set-aside and sole-source contracting opportunities.” In addition, SBA stated that “all applicants will be required to prove their social disadvantage status by submitting verifiable, fact-based evidence.” The press release also noted that “From 2021 through 2024, the Biden Administration approved roughly 2,100 new 8(a) firms, compared with just 65 approved to date under the Trump Administration.”
Scope: Not Entity-Owned Firms
As an initial point, the “proposed rule applies only to the 8(a) BD eligibility of small businesses owned and controlled by individuals.” It does not impact “the eligibility of entity-owned small businesses (i.e., those owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations, or Community Development Corporations).”
Background
The Small Business Act says that a socially disadvantaged individual is “those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.” 15 U.S.C. 637(a)(5). In 2023, a federal court “enjoined the SBA from continuing to use the Rebuttable Presumption in administering the program. “Practically speaking, these regulations, both the text and its application, rendered white Americans almost totally unable to participate in the program.”
New Standard
The current language at 13 CFR 124.103(b) would be removed. That language pertains to “Members of designated groups” and states that “[t]here is a rebuttable presumption that the following individuals are socially disadvantaged” and then lists certain groups as socially disadvantaged, including Black Americans; Hispanic Americans; Native Americans; and Asian Americans. “SBA proposes replacing the current regulatory tests for social disadvantage with a new test.” SBA has not been enforcing this part of the rule with respect to designated groups for a number of years, but now has proposed to make it official in the regulations.
This new test would look at whether government or provide entity was biased against a “definable racial, ethnic, or cultural group.” SBA describes this as follows:
SBA proposes a test by which any individual American citizen can establish social disadvantage by showing that within his or her lifetime, the federal or a state or local government or a university or corporation, through any action, policy, rule, regulation, or other practice of any of its agencies, subsidiaries, or authorized agents, discriminated or was biased against a clearly definable racial, ethnic, or cultural group of which the citizen is a member, or favored in any way a racial, ethnic, or cultural group of which the citizen is not a member, and that the discrimination, bias, or harm materially harmed the citizen. Examples of such discrimination would include, but are not limited to: unlawful diversity, equity, and inclusion programs or policies; unlawful affirmative action programs or policies; race-based quotas, set-asides, or hiring targets; or, any government or private entity policies or programs that favored some groups over others on the basis of race.”
The social disadvantage narrative would go away: “In proposing these social disadvantage changes, SBA considered maintaining the individual test for social disadvantage under the current 13 CFR 124.103(c) as an alternative means to establish social disadvantage but rejected that option. SBA believes that its limited resources are best served through its proposed social disadvantage test because it does not require an individualized narrative of personal disadvantage that opens the program to abuses and unconstitutional discrimination.”
In addition, SBA stated “While SBA does not currently intend to apply the new test to current Participants at their next annual review, SBA requests comment on any reliance interests that would be implicated by these proposed changes.”
Under the proposed rule, social disadvantage can be shown if a a governmental or private entity “discriminated or was biased against a clearly definable racial, ethnic, or cultural group of which the citizen is a member, or favored in any way a racial, ethnic, or cultural group of which the citizen is not a member.” A citizen can show bias if the governmental or entity action “disadvantaged the citizen’s group or that the government or private entity took adverse actions against or otherwise disfavored the citizen’s group. Such actions, policies, rules, regulations, or other practices favoring or disfavoring groups may include, but are not limited to: unlawful diversity, equity, and inclusion programs or policies; unlawful affirmative action programs or policies; race-based quotas, set-asides, or hiring targets; or, any policies or programs that favored some groups over others on the basis of race.”
Two specific examples of bias in the proposed rule would include:
“(A) Such actions, policies, rules, regulations, or other practices include prior iterations of 13 CFR 124.103 that excluded the Citizen’s racial or ethnic group as a group entitled to a rebuttable presumption of social disadvantage; and
(B) Such actions, policies, rules, regulations, or other practices also include situations where the citizen’s group was disadvantaged in college or university admissions decisions or otherwise discriminated against by a private entity in an unlawful manner.”
This proposed rule would eliminate the individual social disadvantage narrative. In its place would be a test of social disadvantage based, it appears, solely on discrimination by the government or a private entity that specifically targeted a racial group. There is an emphasis on government-imposed discrimination such as DEI. So, it seems that SBA would look to those types of examples to show social disadvantage. This rule represents a big departure from prior iterations of the 8(a) Program. Beyond the language of the proposed rule, contractors will have to see how SBA will actually enforce and apply these rules. Additional guidance or operating procedures would be helpful for contractors to know how these rules will be applied.
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