The small business program that gives the most companies an advantage when selling products or services to the federal government is the Small Business Administration’s 8(a) program. It was designed as a business development program for small business owners who are socially and economically disadvantaged. During 2007, the last year for which statistics are available, there were about 7,395 SBA 8(a) contractors. Some 47 percent of those were awarded at least one contract. Following are answers to common questions about attaining 8(a) status.
The SBA’s certification process consists of three parts. Part one is ensuring that the small business applying for 8(a) status is at least 51 percent owned by a woman or qualifying minority. The SBA uses a comprehensive system to examine the individual majority owner and make sure they meet all the program regulations. The majority owner must be involved in day-to-day operations of the business on a basis consistent with their ownership percentage.
Part two requires applicants to demonstrate that they’re economically disadvantaged. To be considered economically disadvantaged, the business’s majority shareholder must not have a net worth of more than $250,000 (excluding personal residence and value of company ownership).
In part three, the SBA examines the applicant’s business to ensure it meets the small business size requirements and that it is not on the list of businesses prohibited from becoming 8(a) certified.
The SBA’s small business size standards are based on the North American Industry Classification System code. According to the SBA’s size standard methodology, “The SBA has established three base size standards, which are (1) 500 employees for manufacturing, mining, and other industries with employee-based size standards (except for wholesale trade), (2) $7 million in average annual receipts for most nonmanufacturing industries with receipts-based size standards, and (3) 100 employees for all wholesale trade industries.” There are considerable variances among NAICS codes.
What Kinds of Projects Can I Bid On?
Companies that are 8(a) certified receive access to federal contracts on a set-aside basis and SBA 8(a) competitive bid basis. Set-aside bids are typically the most profitable and can be awarded for contracts of up to $3 million. The 8(a) competitive bid contracts can be worth hundreds of millions of dollars, and only certified 8(a) contractors can bid on them. Construction is the most common type of contract awarded, followed by staffing contracts in the medical and IT staffing areas. Many other service contracts are awarded.
How Long Is the Certification Period?
Typically, a business may remain in the 8(a) program for nine years. Early graduation from the 8(a) program can occur if the person qualifying for the certification ceases to be economically disadvantaged. There are several other ways the SBA can decide a company is ready to graduate, including showing revenue and profits significantly higher than their 8(a) peers with the same NAICS code.
How Do I Apply?
Download and complete the SBA 8(a) application. You must provide substantial documentation showing that you meet all the requirements, such as personal and business tax returns and all corporate records. You will have to find a local law enforcement agency to fingerprint you for the application.
The SBA determines the completeness of the application package within 15 days. If the package is complete, the law requires the SBA to approve or deny certification within 90 days. In 2007, the average number of days it took for the process was 72 days.
Sam Thacker is a partner in Austin, Texas-based Business Finance Solutions.