Pay it Forward, or Pay the Price, Says SBA in Proposed Rules for 8(a) Tribal Entities

In a recent notice for Tribal consultation and request for comments, as well as a published proposed rule, the SBA seems to be signaling an increase in oversight of Native or Tribally-owned entities who are 8(a) Participants. SBA has an apparent goal of enforcing more stringent repercussions for not fully adhering to some stipulations that exclusively pertain to Native or Tribally-Owned participants in the 8(a) Business Development Program. While not final yet, the SBA has placed these potential consequences, the reasoning behind them, and the proposed rule out in the public for discussion. As these actions may present some rather drastic changes for some 8(a) Participants, I have done a quick breakdown of them here.

As many of our readers may well know, an 8(a) Program participating business that is owned and operated by Tribes, NHOs (Native Hawaiian Organizations), or ANCs (Alaskan Native Corporations), typically has some requirements for participation that will differ from other 8(a) Participants, as well as some additional benefits that other 8(a) Participants don’t receive. One of these requirements is that any 8(a) company that is owned by a Tribe, NHO, or ANC, must in its annual report to the SBA show how it “has provided benefits to the Tribal or Native members and/or the Tribal, Native or other community” through its participation in the 8(a) Program. 13 C.F.R. § 124.604. It is the actions taken by 8(a) Participants related to this requirement that the SBA seems to be focusing in on in its recent publications.

Before reading on, if you would like a refresher on the SBA’s 8(a) Business Development Program, I highly recommend you check out our Back to Basics posts on the 8(a) Program, and 8(a) Program eligibility. And if you want an even deeper dive after reading this blog, check out our 8(a) Program Handbook.

On August 26, 2022, the SBA released a Notice of tribal consultation meeting; request for comments, that, once fully read, operates as a sort-of “heads-up” to any 8(a) Participants who are owned and operated by Tribal entities, NHOs, or ANCs. Through this notice, it appears the SBA is voicing its displeasure with what they have received from 8(a) Participants related to the “community benefits” requirement.

In the August 26, 2022 notice, the SBA first announces that it will be conducting Tribal consultation meetings from September through October, releasing a proposed rule, and requesting comments, laying the groundwork for changes to the 8(a) Program regulations. The SBA appears to be concerned that Tribally-owned 8(a) Participants are not properly ensuring that the proceeds from 8(a) contracts are truly going back to the Tribal community or underserved communities as required. To address this, the SBA hints in this document that it will propose:

  • Any entity that is owned by a NHO, ANC, or Tribal organization, who applies for 8(a) participation will need to establish a community benefits plan laying out its commitments to give back to the Native Community in several specific identified ways.
  • Some form of programmatic consequence for when estimated revenues from 8(a) contracts were obtained, but committed benefits were not given to the community.
  • Requiring more precise cash benefit distribution plans to standardize SBA’s report reviews
  • Requiring a certain percentage of cash benefits to be given back to the community (possibly adjusted based on amount of receipts, length of time in business, and how many other businesses are owned by the ANC, NHO, or Tribal Entity).

The SBA also writes that it believes there should be some consequence if an entity simply doesn’t make good faith efforts to give back to their community (as stated in their annual reports). But SBA also seeks feedback from industry participants and Native organizations for what consequences may be best. The SBA has previewed the severity and breadth of contemplated consequences, by providing some potential ideas, such as:

  • Disallowing a Tribal or Native entity from admitting any new business to the 8(a) Program until that entity meets its previous commitments with businesses it owns already in the 8(a) Program.
  • Restricting award of additional sole source 8(a) contracts to any 8(a) Participant owned by the Native or Tribal entity if SBA determines that the entity did not make good faith efforts to meet the commitments set forth in its community benefits plan.

The SBA’s justifications for these potential consequences and contemplated regulatory changes are that the legislative purpose of Tribally-owned entity participation in the 8(a) Program is to benefit Native and underserved communities through revenues derived from the Program. Thus, entities participating in the 8(a) Program should better contribute a portion of their receipts to the communities they serve.

As promised by the SBA in their notice of consultation, on September 9, 2022, the SBA released a proposed rule to update the 8(a) regulations, that among many other revisions, proposed changes to 13 C.F.R. §§ 124.108, and 124.604. The SBA through this proposed rule is stating that they would change the subject regulations to require:

  • Each Tribal entity having one or more participant in the 8(a) Program must establish a Community Benefits Plan that outlines the anticipated approach it expects to deliver and strengthen its Native or underserved community over the next three or five years. Each entity would decide how to best serve and meet the needs of its community, though SBA expects commitments related to health, education, housing, infrastructure, cultural preservation, and economic development, as much as is possible.
  • Each 8(a) Participant owned by a NHO, ANC, or Tribal organization must submit to the SBA information showing how the Tribe, ANC, NHO or CDC has provided benefits to the Tribal community or other community, whether the benefits provided meet the goals set forth in the “Community Benefits Plan”, and how the benefits directly impacted the Native or underserved community.

The SBA is requesting comments on whether this “Community Benefits Plan” referenced in the proposed rule should be its own stand-alone plan, or included in the business plan submission and updates required in the annual 8(a) review process. The SBA is also requesting comments on if there should be monetary targets established for the support provided to Native or disadvantaged communities, whether there should be consequences for 8(a) Participants that do not meet or do not exercise good faith efforts to met the benefits plan, and how to best implement the proposed changes to benefits reporting. The Tribal consultation and listening sessions should already be underway at the time of this blog post, and comments are open until November 8, 2022, with the SBA providing a link to the comments, in the Federal Register publication of the proposed rule.

The SBA, through its notice of consultation, and then the proposed rule, seems to be quite intent on issuing a clear change to the 8(a) rules for Tribally-owned entities. These changes will likely affect how current and future entity-owned 8(a) Participants, and the Tribes or organizations that own them, allocate monies, budget, and craft reports, presenting potentially quite a shift in operation. Consequently, Contractors should, if time allows, read these publications thoroughly, and if so compelled, provide comments to the SBA on these changes. Of course, we at SmallGovCon will keep an eye on this ever developing situation, and as always if you are wanting help on entering the 8(a) Program, or any Federal Contracting issues, please contact us.

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