A construction company with cash flow problems did not make payments on its SBA loan–and was terminated from the 8(a) program as a result.

The decision of the SBA Office of Hearings and Appeals in C.J. Hearne Construction Co., SBA No. BDP-449 (2012) is an important reminder that unpaid debts to Uncle Sam can be the kiss of death for 8(a) program participation.

C.J. Hearne Construction Company was an 8(a) program participant.  In May 2012, the SBA informed C.J. Hearne that it was being terminated from the 8(a) program for “failure . . . to pay or repay significant obligations owed to the Federal Government.”  Specifically, the SBA pointed out that C.J. Hearne had failed to make payment on an SBA loan with an outstanding principal balance of $47,576.71.

C.J. Hearne filed an appeal with SBA OHA, challenging the SBA’s decision to terminate it from the 8(a) program.  C.J. Hearne did not deny the existence of the debt, but explained that due to the downturn in the construction industry, as well as a “personal medical emergency” of the company’s owner, C.J. Hearne had been unable to make payments on the loan.  C.J. Hearne offered to enter into a repayment plan to rectify the loan situation.

SBA OHA noted that under the 8(a) program regulations, failure to pay or repay debts to the federal government is specifically identified as a basis for 8(a) program termination.  SBA OHA wrote, “Petitioner’s offer to enter into a repayment plan only confirms the SBA’s claim that Petitioner has not yet repaid its substantial financial obligation, which, by regulation, constitutes good cause for termination from the 8(a) program.”  SBA OHA denied C.J. Hearne’s appeal.

The C.J. Hearne case is an important reminder that 8(a) program participants must prioritize the repayment of their federal debts.  After all, fixing a debt problem will be that much harder if a company no longer has its 8(a) certification to rely upon in bidding federal work.