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Big Victory for the SBA 8(a) Program and Small Businesses

On Behalf of | Oct 18, 2017 | Firm News

Written by:  Jon M. DeVore

On October 13, 2017, the U.S. Supreme Court denied the Writ of Certiorari in the case of Rothe v. Department of Defense/U.S. Small Business Administration (SBA), letting stand a DC Circuit Court of Appeals decision finding that the SBA 8(a) Program constitutional because the Federal government has a legitimate interest in remedying the effects of discrimination in Federal contracting, and that the Program is rationally related to achieving that goal. This is a significant victory for qualifying individuals and businesses, including many Alaska Native Corporations, Tribal, and NHO communities that participate in the SBA 8(a) program, as well as Women Owned Small Businesses and Service Disabled Veteran Owned Businesses that have benefited by the business development assistance provided by the SBA including access to set-aside contracts in the Federal procurement system.

Contested for nearly a two decades, Rothe is the latest in a series of cases challenging the constitutionality of the SBA’s 8(a) Program, alleging that the Program’s contracting preferences for certain entities violate the Fifth Amendment’s equal protection clause.  In 2015, the DC District Court upheld the Program, finding the Program to survive strict constitutional scrutiny as the government had a compelling state interest in remediating discriminatory treatment and that Program was narrowly tailored to that interest.  The matter was appealed to DC Circuit Court of Appeals on the questions of whether the Program included an impermissible racial classification and provides race-based preferences in federal contracting, and whether the Program indeed met the constitutional standard of review under “strict scrutiny.”

In September 2016, the DC Circuit Court of Appeals subsequently held the Program to be facially constitutional, finding that Section 8(a) itself does not contain a racial classification, and there are no racial or ethnic presumptions built into the statute itself; rather, the statute focuses on socially and economically disadvantaged small businesses.  In a significant departure from the lower court’s decision the Circuit Court found a lower constitutional standard applicable, the “rational basis test,” requiring only that the Program be “rationally related to a legitimate state interest.”  Additionally notable, the Circuit Court focused on the fact that Rothe challenged the underlying federal statute and not the SBA regulations that actually implement the 8(a) Program, indicating that a challenge to the SBA regulations might have yielded a different analysis.

Petitioning for a hearing before the United States Supreme Court this past April, Rothe argued that the Court erred in applying the lower standard and questioned, (1) whether a statutory program that requires an agency to distribute benefits to “socially disadvantaged individuals,” and defines “socially disadvantaged” in terms of membership in certain racial minority groups, classifies on the basis of race and is thus subject to strict scrutiny; and (2) whether a statute that may not classify exclusively on the basis of race, but uses race as a factor in determining eligibility for benefits, is subject to strict scrutiny.  In denying the Petition for Certiorari without comment, the Supreme Court leaves the current application of the 8(a) Program intact.