In reference to Section 8(a) of the Small Business Act, this is a business whose owner-operator is an economically or socially disadvantaged member of society inducted into the 8(a) Business Development Program.
8(a) Firm Details
Through an amendment passed by Congress, the Small Business Act created the 8(a) program, ensuring that the US Small Business Administration (SBA) helps develop businesses owned and operated by economically and socially disadvantaged people. The government grants 8(a) status to a business by qualification from the SBA. The federal government's goal is to award 5% of government contracts to these enterprises each year. Owners of 8(a) designated enterprises compete for special Business Development Program contracts that help level the market landscape. Incentives include sole-source contracts from the federal government that don't have competitive bidding and forming joint mentor-protégé ventures with established members of the program.
As of July 15, 2020, a business must meet certain SBA guidelines to be classified as an 8(a) firm. The said enterprise must be:
- A small business
- A new entrant to the program
- At least 51% owned and operated by a US citizen considered socially or economically disadvantaged
- Owned by an individual whose net worth doesn't exceed $750,000, and an average AGI or Adjusted Gross Income of no more than $350,000
- Owned by persons of good character and who don't have assets that exceed $6 million
- Show potential for performance and the successful completion of contracts
The CFR or Code of Federal Regulations, Title 13 Part 124 spells out the definitions of socially and economically disadvantaged as a preamble of who qualifies for the 8(a) designation. An ideal candidate is a business owned and operated by an American of black, Hispanic, native, sub-continental, or Asia pacific origins. White females and service-disabled veterans also count to substantiate gender bias and disability. With an 8(a) status, businesses receive sole-source contracts and a ceiling of up to $6.5 million for manufacturing and $4 million in financial assistance for services and products.
8(a) Firm Example
The 8(a) program, through the SBAs suitability tool, invites business owners to take part in an online self-evaluation and training course. This course will help you determine if your business qualifies for the program, after which you'll the SBA will direct you to the appropriate resources. One of the mandatory requirements for firms wishing to participate in the program includes certification by SBA and registration to do business with the US government.
Once the government awards your business certification, it lasts for nine years, four of which are considered developmental and the remainder transitioning. Your business will go through to annual reviews that help maintain good standing within the 8(a) program. Reviews are rigorous, and they involve systematic evaluations and business plans. However, the much sought-after status is rewarding, and although there's a lengthy application process, having experience with federal contracting will help.
Types of 8(a) Firms
Different types of firms have different requirements to qualify for 8(a) status.
- Manufacturing firms: depending on the product the business manufactures, the maximum number of employees cannot exceed 500.
- Wholesalers: employees cannot exceed 100.
- Services: annual receipts are no more than $2.5 and $21.5 million.
- Retailers: annual receipts cannot exceed $5 and $21.5 million, depending on their retail product.
- General and Heavy construction: annual receipts cannot exceed $13.5 and $17 million.
- Special trade construction firms: annual receipts cannot exceed $7 million.
- Agricultural enterprises: cannot have an excess of $0.5 and $5 million in annual receipts.
History of the 8(a) Program
When two special interest federal programs merged, the result was the 8(a) program. The first government program looked to assist ethnic and racial minorities, while the other sought to help small businesses in general. It gained statutory status in 1978.
In 1942, Congress authorized the first federal agency to enter into performance contracts with non-federal agencies or subcontractors. The contract was with the SWPC or Smaller War Plants Corporation. After WWII and by the start of the Korean conflict in 1951, Congress created the SDPA or Small Defense Plants Administration under the SWPCs mandate. Congress later transferred the SDPAs subcontracting authorities two years later to create the SBA or Small Business Administration. The Small Business Act Of 1958 made the SBA into a permanent agency. Congress added subcontracting authority under section 8(a) of this Act.