In a previous blog post, Why File: An Appeal of SBA’s 8(a) Program Denial, we covered the process for appealing SBA’s denial of admission into the 8(a) Business Development Program (AKA 8(a) Program). We discussed what happens when a business is stopped at the door – denied entry altogether in the program. But what happens when a concern already admitted into the 8(a) Program is terminated by SBA? Here, we will touch on the arguably more consequential scenario of an 8(a) Program participant’s termination from the program. Specifically, the termination process, timing considerations, and OHA’s scope of review.
When can SBA terminate my 8(a) participation?
SBA may terminate a concern’s participation in the 8(a) Program for “good cause.” 13 C.F.R. § 124.303(a). The regulations provide many examples for what may constitute as “good cause” for termination. Reasons for termination may include submitting false information in the 8(a) application, failure to maintain eligibility based on economic disadvantage, ownership, and/or control by disadvantaged individuals.
SBA may also terminate a concern’s participation for its failure to provide SBA with “required financial statements, requested tax returns, reports, updated business plans, information requested by SBA’s Office of Inspector General, or other requested information or data within 30 days of the date of request.” 13 C.F.R. § 124.303(a)(7).
While the regulation includes an extensive list of examples, it also notes that other grounds for termination may exist. Thus, SBA has broad discretion when terminating a participant from the 8(a) Program. It is important, however, to be aware of the duties imposed on SBA when terminating a concern from the 8(a) Program and the rights afforded to the concern in response.
Can I appeal SBA’s termination to OHA?
OHA has jurisdiction to hear appeals of SBA’s termination of a concern’s participation in the 8(a) Program. See 13 C.F.R. § 134.102(j)(1). But there are a few steps that both SBA and the concern must take before the concern can bring the termination to OHA’s attention.
First, SBA is required to notify the 8(a) participant in writing of its intent to terminate the concern from the 8(a) Program. This notification is referred to as the “Letter of Intent to Terminate.” Second, the Letter of Intent to Terminate must state the specific facts and reasonings for SBA’s findings. And third, SBA must inform the 8(a) participant that “it has 30 days from the date it receives the letter to submit a written response to SBA explaining why the proposed ground(s) should not justify termination.” 13 C.F.R. § 124.304(b)(1).
After the 30-day response period, SBA will review the concern’s response and determine whether the termination is warranted. Id at (c). If the termination is deemed warranted, then SBA must issue a “Notice of Termination,” stating the specific facts and reasons for the decision. Idat (d). SBA’s decision must also inform the concern of its right to appeal to OHA. Id. The concern will have 45 days from receiving the Notice of Termination to appeal the termination to OHA. Id at (e).
Once SBA has determined the concern is terminated from the 8(a) Program, the concern is immediately ineligible to receive any further assistance from the 8(a) Program, even if the concern intends to appeal the termination to OHA. Fortunately, if OHA overrules SBA’s decision, then that period between the concern’s termination and OHA’s decision on appeal will be added on to the 8(a) Program participant’s term. 13 C.F.R. § 124.304(d).
Typically, the 8(a) company seeking to appeal gets one shot to make its argument. So, be sure to include all of your pertinent arguments in your initial appeal. Then, the SBA gets one response to rebut those arguments and demonstrate that termination was proper. While the appellant can ask for a reply, in most cases OHA will not grant it unless there is an entirely new argument or evidence that the SBA has advanced. Just responding to SBA’s arguments is not sufficient grounds to file a responsive pleading. Long story short, put all your arguments in your initial appeal.
There is an exception for concerns that are terminated for ceasing business operations. If SBA received evidence of an 8(a) participant’s cessation of business operations, then SBA may immediately terminate the concern’s participation through notification and the right to appeal to OHA. 13 C.F.R. § 124.304(b)(2). While notice is still required, the concern is not afforded the initial opportunity to respond to SBA. Rather, the concern must appeal the termination directly to OHA.
OHA’s Level of Review
While the road getting to OHA after an 8(a) Program termination requires a few additional steps than the process for appealing an 8(a) application denial, OHA’s review remains the same.
OHA’s review is limited to determining whether SBA’s determination was “arbitrary, capricious, or contrary to law.” 13 C.F.R. § 134.406(b). This includes determining whether there was a clear error of judgment made by SBA.
OHA will find a clear error of judgment if SBA:
- Fails to properly apply the law and regulations to the facts of the case;
- Fails to consider an important aspect of the problem;
- Offers an explanation for its determination that runs contrary to the evidence; or
- Provides an implausible explanation that is more than a difference between [OHA’s] views and those of the SBA.
See Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
While the process of appealing a termination is governed by procedural rules and strict timelines, these same rules can serve to a participant’s advantage when SBA fails to follow them. The regulations are designed to ensure notice, an opportunity to respond, and a stated reason for the decision. If SBA does not provide this, then OHA has little reason to sustain SBA’s decision.
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