This is the first of our 5-part series to help small business owners evaluate whether federal certification is right for their business.
Does attracting potentially millions of dollars’ worth of new business interest you? With government contracting work, you can open the doors to additional business that larger companies are not eligible to receive. For instance, government agencies and corporations that do business with the government are mandated by law or corporate policies to spend approximately 20 percent of their budget with small, disadvantaged companies.
Many federal, state, and city contracts that are set aside for certified small businesses go unclaimed because those businesses do not know how to be recognized as a small business. Certification is a review process designed by the certifying agencies to ensure that the business is actually owned, controlled, and operated by applicants that are an underserved group such as women, minorities, or veterans. Each program, however, comes with unique rules and compliance hurdles.
Be cautioned that the Small Business Administration (SBA), the agency responsible for approving four of the five programs we will discuss in this series, denies a large percentage of the applications it receives. For example, the SBA rejects approximately 70 percent of applications under the 8(a) Business Development Program. If your application is rejected, all of the programs require that you wait a mandated time period before reapplying, in many cases one full year. Moreover, once you do reapply, your application will likely receive closer scrutiny the second time around. To have the best chance of getting certified, your application must be fully and correctly completed, with all proper documentation accompanying the application.
Below is the first of five main federal certification programs we will discuss in this small business series.
8(a) Business Development Program
This is considered the grand dame among certification programs. The SBA offers the 8(a) Business Development Program, commonly referred to as the 8(a) certification; to assist small businesses that are owned by individuals who are socially and economically disadvantaged, by providing them access to government contracting opportunities. The intent is to provide a temporary vehicle for disadvantaged individuals to catch up with their non-disadvantaged peers. For that reason, a company is only allowed to participate for a single, nine-year term.
To qualify as an 8(a) participant, your company must:
- Qualify as a small business in its primary North American Industry Classification System (NAICS) Code;
- Demonstrate potential for success; and
- Be at least 51 percent unconditionally and directly owned by one or more economically and socially disadvantaged individuals who are U.S. citizens.
Minority groups such as African Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and subcontinent Asian Americans are presumed to be socially disadvantaged for purpose of the 8(a) program. To determine if an individual is economically disadvantaged, he or she must provide the SBA with a narrative statement of economics disadvantage and personal financial information.
Additionally, to prove control of the business, the majority owner should meet specific criteria such as having the highest officer title in the company, being the highest paid, having the technical expertise to carry out the operations/business development, and work full time at the business.
Participating in the 8(a) program allows your company to win contracts that are set aside exclusively for 8(a) businesses, as well as the potential to obtain sole source contracts, which are contracts awarded without any competition. Many companies use the 8(a) certification process to grow their business into multinational companies with millions of dollars in revenue.