From the outside, an unassuming brick courthouse in rural eastern Tennessee may not look like much, but this summer, a judge issued a ruling from that court that has rippled through thousands of small businesses, including here in Atlanta.
At issue are federal advantages granted to minority businesses, which are presumably socially and economically disadvantaged, through a specific certification program.
Ultima Services Corporation, a white woman-owned administrative support business based in Greeneville, Tennessee, had a contract with a division of the USDA. In 2020, Ultima sued USDA and the Small Business Administration when the contract was moved into a minority business development program run by the SBA, known as the 8(a) program, for which Ultima was not eligible.
A ruling on the case in July plunged metro Atlanta minority entrepreneurs into uncertainty and has now made them apprehensive about what may come for key portions of their businesses.
“For about two months, we were in limbo, not knowing if some of these contracts that were due to be awarded… whether or not we would get them,” said Tracey Grace, president and CEO of Sandy Springs-based IBEX IT Business Experts. She has been part of the 8(a) program since 2015 and had started hiring staff for some pending contracts when the July decision threw those agreements into question.
Credit: Miguel Martinez
Credit: Miguel Martinez
The 8(a) Business Development Program was created more than 50 years ago to help small businesses owned and run by socially and economically disadvantaged individuals. Participants get access to federal contracts set aside just for 8(a) businesses, essentially allowing them to fish in a smaller pool, though there are monetary limits to those agreements. Companies can be in the program for up to nine years.
“Small businesses don’t always have the capital and strength, if you will, and bench to pursue contracts. And so, if you’re a small business that say you’re generating $10 million and you are going after a contract that Lockheed Martin is going after, how are you going to compete with Lockheed Martin?” said Donna Ennis, director of community engagement and program development for the Georgia Tech Enterprise Innovation Institute, an economic development organization.
Many 8(a) businesses depend on the government contracts they get through the program. About half of Grace’s business is government contracts and a good portion of those are from the 8(a) program. At the beginning of this year, Grace won a large contract from NASA through the program. She has also worked with the Centers for Disease Control and Prevention and multiple military branches.
To qualify for the 8(a) program, businesses must have been in operation for at least two years, meet certain personal net worth requirements and, crucially, be at least 51 percent owned and controlled by U.S. citizens who are socially and economically disadvantaged.
That requirement is at the heart of Ultima’s lawsuit. Previously, business owners from certain minority groups – like Black, Asian, Native and Hispanic Americans – were presumed to be socially disadvantaged and did not have to submit evidence beyond being a member of that group. Ultima argued that presumption was racially discriminatory.
A Tennessee district court judge agreed with the company in July, saying the SBA’s use of that presumption violated Ultima’s Fifth Amendment rights and that the agency could no longer presume social disadvantage from minority status.
To prove that disadvantage now, people who are currently in the 8(a) program like Grace had to write a narrative to stay in the program, explaining how they had been discriminated against in business.
In the weeks since the injunction, the SBA says it has reviewed or recertified thousands of current 8(a) participants.
“We will not let attacks from those who seek to take us backward chill our efforts to promote equal opportunity, expand access to the American Dream, and ultimately strengthen our country’s industrial base,” SBA Administrator Isabella Casillas Guzman said in a statement late last month.
In the wake of the ruling, the SBA suspended new applications to the 8(a) program but has since reopened the portal. Business owners now must fill out a questionnaire, or write a narrative about being socially disadvantaged that answers the who, what, when, where, why and how discrimination or bias occurred in the incident they are describing, according a guide put out by the SBA.
But Ultima is now arguing that the agency is misconstruing the July ruling. It has asked the court to temporarily bar the SBA from “awarding, completing, modifying, or exercising options on any contracts” given to 8(a) participants. Ultima is also trying to get the court to ban 8(a) contracts from being awarded in the administrative and technical support industry in general.
Though Ultima first filed its lawsuit in 2020, the ruling in July and the subsequent filings are happening at a time when programs meant to help African Americans and other minorities overcome entrenched racial inequality are being targeted.
The 8(a) program limits participants to just nine years for a reason. Its goal is to help businesses use their experience in the program to go on and compete for federal contracts against all sizes of companies. Labrescia Dawson, CEO of Duluth-based Dawson’s Management, has done just that. Dawson has been in the 8(a) program since 2017 and turned it into a billion-dollar opportunity.
She helps manage commercial properties, janitorial facilities and other assets for government agencies. In 2021, she won a two-year contract with the USDA that was set aside just for small businesses. But in February this year, Dawson was awarded a 10-year contract with the USDA open to all businesses, worth up to $1 billion.
“We re-competed with the bigger companies, and we still won,” Dawson said.
Credit: Special
Credit: Special
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