Earlier this month, the United States Court of Appeals for the Fourth Circuit issued a decision dismissing a challenge to the Small Business Administration’s 8(a) Business Development Program. You can read a copy of the decision here.
The 8(a) Business Development program is a nine-year federal program that helps eligible businesses owned and controlled by socially and economically disadvantaged individuals (as well as small businesses owned by Alaska Native corporations, Community Development Corporations, Indian tribes, and Native Hawaiian organizations) access government contracts, training, and mentoring. The 8(a) program is administered by the Small Business Administration (SBA), and it has a competitive application process that requires you to submit various information and documents to prove your eligibility and business potential.
Plaintiff Marty Hierholzer is the owner of Plaintiff MJL Enterprises, LLC. Hierholzer is also a service-disabled veteran and his company has long held the Service-Disabled Veteran Owned Small Business (SDVOSB) designation. Hierholzer’s company had been awarded over $76,000,000 in federal contracts through the SDVOSB, and well over $60,000,000 in federal contracts without the certification.
Despite the success under the SDVOSB, Hierholzer submitted applications for MJL to participate in the 8(a) program in 2009 and 2016. As part of the application, MJL was required to present evidence to support that Hierholzer was socially disadvantaged under the regulations (Hierholzer is a white, non-Hispanic male and does not qualify for the presumption of social disadvantage). The SBA denied both applications as Hierholzer failed to established social and economic disadvantage.
Hierholzer and MJL sued the SBA, challenging that the use of racial classifications in a presumption of social disadvantage were unconstitutional.
The government fought back, arguing that Hierholzer and MJL had not established an injury in fact, because they did not adequately allege social or economic disadvantage. MJL could not show that it was able and ready to bid on 8(a) contracts. Hierholzer had failed to allege that he was economically disadvantaged (for the 8(a) program, that means a personal net worth of less than $850,000 and adjusted gross income of less than $400,000/year). In fact, the government argued that would be impossible, since MJL had participated in thousands of federal government contracts, having been awarded nearly $130,000,000 in contracts.
The Fourth Circuit agreed, and found that the Hierholzer and MJL could not meet the requirements of the program, regardless of his race, and thus lacked standing to proceed.
In a time where programs such as the 8(a) program are being attacked, this is a rare victory for the programs. It may also be a message to those individuals and companies that are bringing challenges to programs that they would not qualify for (regardless of their race) to perhaps think twice before spending the time and money on a meritless challenge.
If you have any questions about the SBA’s 8(a) Business Development Program or the application process, or the appeal process, please contact Danielle Dietrich, Esq. at ddietrich@potomaclaw.com or 412-449-9141.
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