Monday, December 20, 2010

The 8(a) Business Development Program: What It Is and Who It’s For

clip_image002[4]This article was written by Doug Dare, Public Information Officer, Santa Ana District Office, U.S. Small Business Administration

Editor’s Note: This article is a follow-up to the article Mr. Dare prepared for the November 2010 SCORE Newsletter concerning the workings of the Federal Procurement Program. Those who are interested in soliciting business from the Government should read that article for the full background. The article can be found by clicking the November 2010 tab in our blog.

Probably the best known contracting certification program that the SBA offers is known as the 8(a) Business Development program, which was created by Congress to assist in the growth and development of socially and economically disadvantaged businesses.  To qualify for the 8(a) Business Development Program, a business must: be a small business, be unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of the United States, and exhibit a potential for success.  Last year alone, the roughly 140 8(a) certified companies in our district secured $119 million in Federal contracts.  I’ll break each of these terms down and how the SBA considers them in an application below, so please read on if you think you might qualify.

Small Business Size.  Small business size standards are numerical definitions of what constitutes a small business.  A business is considered small if it’s below the size standard for that particular industry.  For a complete list of size standards, see the SBA’s Table of Small Business Size Standards.

Ownership and Control. An economically and/or socially disadvantaged person must unconditionally control the business applying for 8(a) certification.  Control is not the same as ownership, although both control and ownership may reside in the same person.  Control includes both strategic policy setting and the day-to-day management and administration of business operations by disadvantaged individuals.

Disadvantage. Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identities as a member of a group.  Social disadvantage must stem from circumstances beyond your control. Economically disadvantaged individuals are those whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities.  In layman’s terms, a person’s adjusted net worth (net worth, less equity in primary residence and business, must be less than $250,000).  African American, Hispanic, Asian/Pacific Islander, Native American and sub-continent Asian American are presumed to be socially disadvantaged and are only required to write a narrative outlining their economic disadvantage.  Individuals who do not belong to one of these designated groups (e.g. women, service-connected disabled veterans, physically handicapped individuals) are not presumed to be disadvantaged and must write a narrative outlining their social and economic disadvantage.

Potential for success. To evaluate an applicant’s potential for success, the SBA evaluates factors that include the technical and managerial experience of the applicant firm’s managers, the firm’s operating history, its ability to access credit and capital, and its record of performance.

By this point you’re probably wondering why someone would jump through so many hoops just to get a certification.  The reason for that is this certification provides you with access to set-aside contracts, the ability to receive sole-source contracts, and to enter into mentor-protégé agreements.  If you remember from the last article, set asides increase a businesses’ chance of getting a particular contract as the bidding pool is restricted to similar firms.  Sole source contracts (also called no-bid contracts), though rare, can be awarded to 8(a) firms, particularly when there is an urgent need for the procurement.  Also, the ability to enter into mentor-protégé relationships allows a mentor large business to provide technical and management assistance; financial assistance in the form of equity investments and/or loans, subcontract support, and assistance in performing prime contracts through joint venture agreements with 8(a) firms.

Applying for the Program. Before applying to the 8(a) Business Development Program, businesses should register for the following three databases (in this order):

DUNS number (Required in order to register with the Federal government for contracts and grants)

Central Contractor Registration (CCR) (Governmentwide vendor registration)

General Log-in System (SBA single login service)

The application is completed online and takes around 90 days to process after a 15-day review for completeness.  The SBA may contact the applicant to arrange an initial screening and gain more information.  After receiving the acceptance letter, the business meets with a small business representative and presents its business and marketing plans for the next year.

Participation. Companies participate in the 8(a) business development program for nine years.  During this time, they must remain eligible and inform the SBA of any factors that might affect that eligibility. As part of an annual review, each participating business must submit information to the servicing district office that includes records of payments, compensation, and distributions, along with certifications stating that it meets the program requirements and that there have been no changed circumstances that might affect its eligibility. If a participant fails to provide this documentation, the SBA may initiate termination proceedings.

Graduation and Termination. Businesses may be terminated from the 8(a) Business Development program for reasons such as falsification of information, failure to maintain eligibility, cessation of business operations, and inadequate performance on contracts. A business graduates when it exits the program after successful completion of its term.

I’d like to close this article with an example of one of our 8(a) firms that has used this program to grow.  Stronghold Engineering, a woman-owned construction firm based in Riverside, California, entered the 8(a) program in 1995 with annual revenues in the neighborhood of $1.5 million.  By the time Stronghold graduated from the program in 2004, Stronghold’s annual revenues exceeded $77 million and the company employed 185 individuals.  Of course, there’s a lot of hard work glossed over in that last statement – being in the program doesn’t mean you will be able to secure contracts, just that you will have the opportunity. In fact, many firms go through their entire nine years in the program without securing a single Federal contract because they don’t market to the individual buying activities or don’t do the research before entering the program to see if the Federal government is actually buying the products and/or services that their company provides.  We hope you don’t make the same your due diligence!