8(a) Program Denial: Federal Lawsuit Available, Says SBA OHA

An 8(a) Program applicant may challenge the SBA’s denial of its application in federal court if the SBA Office of Hearings and Appeals lacks jurisdiction to hear the case.

According to a recent OHA decision, although OHA’s own jurisdiction in 8(a) denial matters is limited, a rejected applicant “is not utterly without recourse” because relief can be sought in court.

OHA’s decision in A.J. Nesti Materials, SBA No. BDPE-551 (2015) involved the 8(a) Program application of A.J. Nesti Materials.  After reviewing A.J. Nesti’s application, the SBA issued a denial letter.  The denial letter gave two reasons for the SBA’s decision not to admit A.J. Nesti to the 8(a) Program: (1) the failure of A.J. Nesti to prove gender-based disadvantage by its owner, and (2) the failure to show “potential for business success.”

A.J. Nesti attempted to appeal the SBA’s decision to OHA.  However, OHA’s jurisdiction over 8(a) appeals is limited to cases involving denials based solely upon a negative finding of social disadvantage, economic disadvantage, ownership, or control.  OHA wrote that it “understands [A.J. Nesti’s] plight.”  However, “the controlling regulation is unambiguous,” and prohibits OHA from hearing an appeal of a denial based (in whole or in part) on reasons outside those specified in the statute.  OHA then wrote:

A final agency decision does not mean, however, that [A.J. Nesti] is utterly without recourse.  It means only that relief must be sought pursuant to the Administrative Procedures Act.

OHA dismissed the appeal for lack of jurisdiction.

The Administrative Procedures Act allows a person “suffering legal wrong because of agency action” to seek relief in federal court.  Although I am not aware of any case in which a rejected 8(a) Program applicant has brought suit, I see no reason why–as OHA suggested–a so-called “APA” action would not be available in a case where the SBA has issued a final agency decision rejecting an 8(a) application.

Of course, going to federal court can be expensive and time-consuming, and many disadvantaged businesses simply do not have the resources to pursue such action.  In my view, it would be preferable for Congress to amend the Small Business Act to give OHA the authority to review any rejected 8(a) application, whatever the reason.  This would allow all 8(a) applicants the option of a less expensive administrative review.  It might also boost confidence in the SBA’s 8(a) application decisions by eliminating the occasional complaint (whether right or wrong) that the SBA sometimes adds a “potential for success” piece to its denial letters specifically to avoid review of its decisions.

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