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SBA Program for Minority Contractors Ruled Unconstitutional

S.J. Steinhardt
Published Date:
Sep 7, 2023

A federal judge has ruled that a provision of a Small Business Administration (SBA) program designed to help historically disadvantaged groups to bid for government contracts is unconstitutional, The Washington Post reported.

The ruling in Ultima Servs. Corp. v. Dep’t of Agric., issued by the U.S. District Court for the Eastern District of Tennessee, concerns the SBA’s five-decade old 8(a) Business Development Program, which equated race with social disadvantage. The case was one of the first to have an impact on the private sector after the U.S. Supreme Court’s June decision that race-conscious college admissions policies violate the Equal Protection Clause of the 14th Amendment. The new ruling means that being a person of color is no longer enough to qualify as being socially disadvantaged—a crucial step in making it into the program. Business owners must now prove that their race puts them at a “social disadvantage.”

The ruling could portend trouble for other programs meant to help underrepresented groups win federal contracts, including veterans and women, legal experts interviewed by the Post said.

In response to the court ruling, the SBA released interim guidance on Aug. 18. The guidance provides in part, "To comply with the Court’s order, SBA is requiring all 8(a) participants whose program eligibility is based upon one or more individuals who relied upon the presumption of social disadvantage to establish their individual social disadvantage by completing a social disadvantage narrative." And in a mass email that SBA officials distributed on Aug. 22, the agency instructed business owners to submit an essay demonstrating that race had hindered their success, the Post reported.

Approximately 4,800 businesses participate in the 8(a) program, and nearly 4,000 of them were certified under the presumption of social disadvantage, according to the SBA. In fiscal year 2021, 8(a) firms were awarded $34.4 billion in federal contracts, including $8.7 billion in 8(a) set-aside awards and $11.3 billion in 8(a) sole-source awards, according to a Congressional Research Service report.

Other government business programs meant to benefit disadvantaged groups may also be vulnerable, said Antonio Franco, managing partner at Washington-based PilieroMazza, which works with government contractors to apply for the 8(a) program, in an interview with the Post. He cited the Transportation Department’s Disadvantaged Business Enterprise program, which issues  transportation-related construction contracts to minority-owned businesses. Though different from the 8(a) program in some respects, it relies on the same social disadvantage presumption.

The plaintiff in the underlying case, Celeste Bennett, owner of Ultima Servs. Corp., filed the lawsuit in March 2020, claiming that she was precluded from being awarded a contract under the 8(a) program because she is white.

In a March 2022 deposition, she said that she had never applied to the 8(a) program “[b]ecause I am White, and I would never be accepted into the program,” the Post reported. She added that the process for establishing social disadvantage was a “farce.”

Asked during her deposition why she chose to take advantage of the program for women but wanted to challenge a similar program for minorities, she replied, “Because I don’t set the rules, and I need to play.”

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