Background: The Law

The Small Business Act of 1953 states that minority-owned businesses (and small businesses generally) should enjoy the “maximum practical opportunity” to participate in federal contacting. The Small Business Act established the Small Business Administration (SBA) to assist such businesses and to insure they receive a “fair proportion” of federal contracts.

As in the case of women-owned businesses (WOSBs), Congress has established a 5-percent government-wide goal for awards to small disadvantaged businesses (SDBs).

The Programs

The SBA administers two business assistance programs for small disadvantaged businesses: the 8(a) Business Development Program and the Small Disadvantaged Business Certification (SDB) Program. One big difference between the two: the 8(a) Program offers a broad scope of assistance to socially and economically disadvantaged firms, while SDB certification applies only to benefits in federal procurement. 8(a) firms automatically qualify for SDB certification.

Keep in mind, as you read this article, that states have similar programs in place. The requirements for participation are generally the same, as are the sales and marketing principles. (An example of such a program is Vermont’s Disadvantaged Business Enterprise Program, http://www.aot.state.vt.us/CivilRights/Dbe.htm.)

Here are some details on the two major federal programs:

Section 8(A) Program

Section 8(a) of the Small Business Act empowers the SBA to enter into contracts with other agencies to provide supplies, services and construction. In contracting with another agency, the SBA subcontracts all of the performance requirements to a “socially and economically disadvantaged small business concern.” Vendor participation is divided into two phases over nine years: a four-year developmental stage and a five-year transition stage.

Eligibility:

To qualify for the program, a small business must be owned and controlled by a socially and economically disadvantaged individual. Presumed disadvantaged groups include African Americans, Hispanic Americans, Asian Pacific Americans, and Subcontinent Asian Americans.

Other individuals can be admitted to the program if they show through a “preponderance of the evidence” that they are disadvantaged because of race, ethnicity, gender, physical handicap, or residence in an environment isolated from the mainstream of American society.

Individuals must have a net worth of less than $250,000, excluding the value of the business and personnel residence.

You can apply to the 8(a) Program by contacting any SBA district office, http://www.sba.gov/regions/states.html. For more information or questions, call the Division of Program Certification & Eligibility at (202) 205-6417.

Benefits:

The biggest and most powerful benefit of 8(a) participation: vendors can receive sole-source contracts up to a cap of $3 million for goods and services and $5 million for manufacturing.

The SBA has signed Memorandums of Understanding (MOUs) with 25 federal agencies allowing them to contract directly with certified 8(a) firms (bypassing the SBA’s traditional role as “middleman”). Recent changes permit 8(a) firms to form joint ventures and teams to bid on contracts.

These changes were intended to help overcome the effects of contract bundling, the combining of two or more contracts together into one large contract.

SDB Program

Eligibility:

A small business must be at least 51% owned and controlled by a socially and economically disadvantaged individual or individuals. Presumed disadvantaged groups are the same as the 8(a) Program. Other individuals can qualify if they show by a “preponderance of the evidence” that they are disadvantaged.

All individuals must have a net worth of less than $750,000, excluding the equity of the business and primary residence. Participants must also meet applicable size standards for small businesses in their particular industries.

Go here to apply for certification:

• http://www.sba.gov/sdb/indexsdbapply.html.

Or get in touch with your district office, http://www.sba.gov/regions/states.html

Benefits:

Under the government’s reformed affirmative action rules, small disadvantaged businesses are eligible for price evaluation adjustments of up to 10 percent when bidding on federal contracts in certain industries. The program also provides evaluation credits for prime contractors who achieve SDB subcontracting targets. The program is intended to help federal agencies achieve the government-wide goal of 5-percent SDB participation in prime contracting.

Sales Strategy

It’s important to keep in mind that new contracting vehicles, such as GSA Schedule contracts, have made things a bit more difficult for 8(a) and SDB firms. A sign of this: in 2000, federal agencies awarded 2.8 percent of prime contract dollars to minority-owned firms. That compares with 3.3 percent in 1999. 8(a) set-aside contracts totaled $5.6 billion in 2000, down from $6.1 billion in 1999.

Now, more than ever, 8(a) and SDB executives cannot expect to receive work simply because of the firm’s minority status. This is particularly true among 8(a) firms. From a buyer’s perspective, there just isn’t as much need to “sole-source” these days.

So what’s the strategy in this new environment?

First, be realistic. These programs guarantee nothing; they’re just tools to help level the playing field overall.

Second, diversify your business early on. Pursue work beyond the 8(a) and SDB programs, including commercial opportunities.

Third, as we discussed in the prior installment on women-owned business contracting, seek out subcontracting work arising from large prime contracts. Federal law requires that prime contractors with contracts exceeding the simplified acquisition threshold provide maximum practicable subcontracting opportunities to small businesses, including small disadvantaged businesses. For more thoughts on subcontracting, see Finding Subcontracting Opportunities.

Fourth, as always, market and sell personally. Talk to buyers and end-users. And remember: although the reasons for sole-sourcing are not as compelling as they once were, federal agencies still have the 5-percent goal. Play on that; be there to help the target agency achieve its 5-percent goal for the fiscal year and those to come.

Fifth, remember that, while sole-sourcing may be down, it’s not dead. One of the considerations for establishing a sole-source contract is if the 8(a) vendor has “self marketed.” Self-marketing occurs when an 8(a) vendor identifies a requirement that has not been committed to the 8(a) Program and then, through its marketing efforts, causes the agency to offer that specific requirement to the 8(a) Program on the vendor’s behalf. (Code of Federal Regulations, Title 13, Sec. 124.3. See also GSA.gov’s summary of 8(a) procurement rules: http://www.gsa.gov/Portal/content/offerings_content.jsp?contentOID=119945&contentType=1004)

So get out there and “self market” because you may find yourself with a sole-source contract someday. Indeed, it’s all about personal marketing and selling. Amazingly, in this case at least, even the federal regulations say that.

Resources:

• 8(a) Business Development Program
  http://www.sba.gov/8abd/
• Small Disadvantaged Business Certification Program
  http://www.sba.gov/sdb/
• 13 CFR 124, 8(a) Business Development/Small Disadvantaged Business Status Determinations
  http://www.sba.gov/library/cfrs/13cfr124.html