For decades now, the federal government has had various programs in place to provide preferences to businesses owned by groups to which the government wants to provide special opportunities. We wrote about this in a previous post and write now to expand on and update that post. In Part I of this blog series, we identify some of these government programs, and in an upcoming Part II, we will discuss some of the types of fraud that are prevalent in this area, as well as some recent cases.
Section 8(a) of the Small Business Act
The Section 8(a) business development program, named after Section 8(a) of the Small Business Act (“SBA”), is intended to foster business ownership by individuals who are both economically and socially disadvantaged. The goal is to give these individuals the opportunity to participate fully in the free enterprise system, through a variety of measures, including loans, training, assistance with marketing, executive development and counseling. The most common assistance for 8(a) participants is given through sole source and set-aside contracts. The qualifications for the 8(a) program are essentially the same as those for a Small Disadvantaged Business except: (1) to meet the economic disadvantage test, all owners must have a net worth below $250,000 (excluding the business and personal residence) and (2) the business must have been operating for at least two years (with possible exceptions if the socially and economically disadvantaged owners demonstrate substantial technical and business management experience).
Disadvantaged Business Enterprise Program
A program very similar to SBA’s 8(a) program is the Department of Transportation (DOT) Disadvantaged Business Enterprise (DBE) Program. The DBE program provides contracting opportunities in the transportation industry for small businesses owned and controlled by socially and economically disadvantaged individuals for projects through the Federal Highway Administration, the Federal Transit Administration, and the Federal Aviation Administration. Other programs of this ilk include the HUBZone Program, for Historically Underutilized Business Zones. The focus there is small businesses operating in economically distressed communities. A HUBZone is an area of high unemployment or low income. The businesses eligible for assistance must be small, 51% owned and controlled by U.S. citizens, have the primary office in a HUBZone, and have at least 35% of its employees reside in that zone.
Small Business Innovation Research Program
Three other programs are worth mentioning. The Small Business Innovation Research (SBIR) Program focuses on channeling funds from federal agencies with significant research and development budgets to small businesses. In effect, the SBIR program is a research and development small business set-aside. As explained on its website, “Through a competitive awards-based program, SBIR enables small businesses to explore their technological potential and provides the incentive to profit from its commercialization. By including qualified small businesses in the nation’s R&D arena, high-tech innovation is stimulated and the United States gains entrepreneurial spirit as it meets its specific research and development needs.”
Vets First Contracting Program
Under the Vets First Contracting Program, competing VA contractors must certify that they are eligible for Service-Disabled Veteran-Owned Small Business (SDVOSB) or Veteran-Owned Small Business (VOSB) status, allowing them to participate in both VA small-business set-aside contracts and small-business subcontracts with large VA prime contractors. The Department of Veterans Affairs estimates that this market involves more than $3 billion in contracts each year. Under those contracts, SDVOSBs and VOSBs may subcontract some work but must conduct a certain percentage of the contracted work themselves.
Women-Owned Small Businesses Federal Contracting Program
Finally, in 2011, Congress implemented the Women-Owned Small Businesses (WOSB) Federal Contracting Program, with the goal of expanding the number of industries where WOSBs can compete for business from the federal government. It allows set-asides for WOSBs in industries where women-owned small businesses are substantially underrepresented. There are also special considerations for Economically Disadvantaged WOSBs in certain industries.