Why It Matters

The Small Business Administration (SBA) released a final rule on Aug. 11 establishing a new test for social disadvantage in its 8(a) Business Development Program. A recent Congressional Research Service report examines the changes and the broader debate in Congress over who should qualify for federal contracting preferences.

The new test allows any U.S. citizen to establish social disadvantage by showing that a government or private entity discriminated or was biased against a racial, ethnic, or cultural group to which the applicant belonged, or favored a group to which the applicant did not belong, and that the action caused the applicant material harm. Applicants must self-certify their group membership and individual harm and provide evidence of the discrimination or bias. The rule takes effect Sept. 10.

The changes have already prompted lawmakers to introduce competing legislation over the future of contracting preferences for disadvantaged businesses.

The Big Picture

Congress explicitly authorized the 8(a) program in 1978 to help socially and economically disadvantaged small business owners overcome barriers to federal contracting. The program provides contract set-asides and sole-source awards, along with business development support including mentorship, training, and counseling.

More than 3,000 individually owned firms currently participate in the program, and SBA received roughly 4,000 applications in fiscal 2025.

To qualify, owners must demonstrate both social and economic disadvantage. Economic disadvantage generally requires a net worth below $850,000, adjusted gross income averaged over three years of $400,000 or less, and total assets of $6.5 million or less. Retirement accounts, ownership interest in the applicant firm, and equity in a primary residence are excluded from the net worth calculation.

Before a 2023 federal court ruling, SBA presumed members of certain racial and ethnic groups to be socially disadvantaged. After the court ruled that the presumption was unconstitutional, SBA stopped using it and required individually owned applicants to submit personal narratives demonstrating social disadvantage.

The Aug. 11 final rule replaces that narrative-based process with the new test. SBA said the change would reduce subjectivity in eligibility determinations and align the program with the Constitution and the court's ruling. The rule applies to individually owned applicants but does not change eligibility requirements for businesses owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations, or Community Development Corporations.

The Trump administration has also increased scrutiny of program eligibility. In February, SBA initiated termination proceedings against more than 150 D.C.-based 8(a) firms that the agency said failed to meet economic disadvantage requirements. The administration also returned the government-wide small disadvantaged business contracting goal to its statutory 5 percent.

The Bottom Line

The new rule has sharpened a broader congressional debate over the future of federal contracting preferences for disadvantaged businesses.

Rep. Gil Cisneros (D-CA) and Rep. Nydia Velázquez (D-NY) introduced H.R. 10071 on Aug. 10. The bill would extend 8(a) participation by one year for businesses that participated in the program between Jan. 20, 2025, and Sept. 30 and did not decline the extension. It would also allow certain firms that were terminated or voluntarily withdrew from the program to be reinstated and receive a one-year extension.

The bill would preserve the previous social-disadvantage rules for participants SBA had determined were socially disadvantaged on or before June 11 when assessing their continued participation in the program.

Other lawmakers are seeking to move federal contracting policy in the opposite direction. H.R. 8511 and S. 4390 would end federal contracting preferences for disadvantaged individuals and businesses.

Congress therefore faces competing proposals over whether to protect existing 8(a) participants or eliminate disadvantaged-business contracting preferences more broadly as SBA implements its new race-neutral standard for individually owned applicants.

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