Myths & Realities of 8(a) Certification: Golden Ticket or Not?

The federal government’s 8(a) Business Development Program (8a) is misunderstood and often misrepresented. There are many misperceptions, with the most common being that the program is only for minority individuals, that one must be certified as 8a in order to win contracts and once certified, you are guaranteed business.

In reality, anyone can be considered for 8a certification, one can win contracts without being 8a certified and that no one is ever guaranteed a federal contract, whether 8a certified or not. In fact, many 8a-certified companies never see a dollar increase in revenues after getting 8a certified. On the flip side, over $40 billion in federal prime contracts were awarded to 8a certified businesses in fiscal year 2017, which is motivation for many business people to pursue the certification.

To set the stage, the U.S. Small Business Administration (SBA) created the 8(a) Business Development Program to help small, disadvantaged businesses compete in the federal marketplace. This program offers a broad range of assistance to those companies owned and controlled at least 51% by individuals who are considered socially and economically disadvantaged. These individuals may be of any sex or heritage.

The 8a program has a nine-year life span which is divided into two phases: an initial four-year developmental stage and a final five-year transition stage.

The 8a program application process is extensive and requires financial, business organization, banking, and personal information to address these eligibility requirements such as proof of: ownership and control of the business, social and economic disadvantage statements, business acumen, experience in the government market, business revenues and number of employees.

Business people may choose to apply for the certification on their own, use the local Procurement Technical Assistance Center (PTAC) for guidance, follow the SBA website step by step or engage with a consultant or attorney.

Applying for the 8a certification has recently been improved and now includes an online submission process. The good news is that a complete, straight-forward application may take the SBA as little as a month to approve. The bad news is that complicated or incomplete applications take much longer, especially if there are red flags in finances, ownership, experience or other mandated requirements.

Once approved, it is the responsibility of the 8a certified business owner to actively research opportunities and market their capabilities to the various layers of federal customer decision-makers. The time and effort involved in getting 8a certified is substantial, and many of the 8a companies never realize a measurable benefit in going through the certification.

However, for those business people who understand the 8a program, are established in the market and aggressive in pursuing business, the benefits are unique. Direct-award (or sole-source) contracts may be awarded without competition up $4 million for services and $7 million for manufactures. There is a limit on sole-source contracts over the life of the 8a participant of $100 million or five times the value of the primary NAICS code.

It is a fallacy to think that one wins business simply because of a certification. The competition among 8a certified firms is fierce, and the business development and marketing process required to identify opportunities, position and pursue before the request for proposal is advertised can be lengthy and complicated.

Once an 8a certified firm begins to see success by winning prime contracts, and reinforces positive contract performance with great contract report cards, the door does begin to open for aggressive growth within the 8a program.

Other advantages include: the 8a companies may also form joint ventures and teams to pursue larger prime contracts and participate in the mentor-protégé program to help grow business, and take advantage of specialized business training, counseling, marketing assistance, and high-level executive development provided by the SBA and resource partners. 8a participants may be eligible for assistance in obtaining access to surplus government property and supplies, SBA-guaranteed loans, and bonding assistance while involved in the program.

While it is often thought of a minority program, any person of any heritage may be 8a certified if he or she can prove social and economic disadvantage. Under federal law, socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identification as members of groups without regard to their individual qualities.

For purposes of the 8a program, the following individuals are presumed socially disadvantaged: Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans and Subcontinent Asian American. However, the SBA states that “…An individual who is not a member of one of the “presumed groups” can be admitted into the 8(a) Business Development program if they can submit preponderance of evidence…Other individuals may similarly be found socially disadvantaged and eligible for the program on a case-by-case basis.”

Once the SBA accepts the social disadvantage of the individual, it is necessary to satisfy the economic disadvantage eligibility requirements by proving that their competition in the free enterprise system has been impaired due to diminished capital and credit opportunities. Required supporting documents include business and personal financial information for the applicant and spouse (if any) including but not limited to tax returns, financial statements, fair market value of all assets, retirement accounts, property owned, debt, and tax issues.

In every case, when married, the socially disadvantaged individual must submit separate financial information to SBA for his or her spouse (including tax returns and certain SBA forms).

Before the SBA can approve an application, the individuals claiming to be disadvantaged must submit supporting documents to prove their assets, income, and net worth fall below certain threshold amounts. These include: assets cannot exceed $4 million, personal income cannot exceed $250,000, averaged over 3 years and adjusted net worth must be less than $250,000.

This is often when SBA, PTAC, attorneys or consultants can be of help in understanding the acceptable kinds of social or economic disadvantage proof and acceptable documentation.

Gloria Larkin, published in Business Monthly

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