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SBA suspends ‘very restrictive’ rule on 8(a) construction contracts

Accounting Support • Oct 01, 2021
According to the Small Business Act, 8(a) contractors are required to maintain a "bona fide place of business." This means they have a physical office and employees. In late

The temporary changes in the construction 8(a) regulations could offer many opportunities to small businesses, at least for the next year. 

Update: The SBA has extended this suspension under SBA Policy Notice No. 6000-819056 for an additional year (through September 30, 2023).

According to the Small Business Act, 8(a) contractors are required to maintain a "bona fide place of business." This means they have a physical office and employees.

In late August, the agency announced a moratorium of the regulation, allowing companies to bid more effectively on distant prospects. According to a statement from the SBA, the suspension applies to all 8(a) contracts issued from Aug. 25, 2021, to Sept. 30, 2022. 

View of Former NACA executive director Joe Valandra 

According to Valandra, the rule change would be beneficial to contractors in remote areas having fewer federal projects. 

“It’s very difficult to get into the construction business,” Joe Valandra said to Tribal Business News. “The key to growing your 8(a) business is to accept the projects from wherever you receive. Contracts are all over the country. To grow and sustain your business, it's important to get as much work as you can.” 

According to the SBA, the rule has been in place since 1978, though the Federal Register indicates that it was recently clarified in 2011. It explained how an 8(a) certified contractor can operate outside of the SBA district. The law outlined when the SBA would recognize that a bona fide place of business existed at a new location. In addition, it clarified the procedures for establishing a new office. 

Valandra added an office outside of a company's region, which often makes the bids "uncompetitive". He said that the application is very restrictive and not very practical. Moreover, primary contractors may hire local subcontractors, thus suppressing the local labor market. 

According to him, it’s advantageous to small businesses overall because small businesses tend to hire other small businesses.”

Bibi Hidalgo,the associate administrator of Government Contracting and Business Development says

“The agency currently aims to award at least 5% of federal contracts to 8(a) businesses. President Joe Biden aims to bring that up to 15%,” Hidalgo 

"This is a step towards achieving the President’s goal of rising this percentage up to 15 percent," Hidalgo said. “We want to continue exploring the other responsibilities and what other levers and tools we have to utilize during such crisis”.

Steps of The Dean of the United States House of Representative Congressman Young

Zack Brown, Young's communications director, said the moratorium is positive, but Congressman Young hopes to make it permanent. According to him, the new rule may lead to the risk of bankruptcy for many Native small businesses, which is unacceptable. This legislation is a crucial lifeline for these businesses and the jobs they do." 

Young asked the SBA to "return to longstanding, established, and statutorily required practice." He asked to allow contractors to determine if they need bona fide business addresses. 

The legislation by Young, H.R 4697, was referred to the House Committee on Small Businesses. 

Valandra believes the rule change is in line with the SBA's goal of supporting small businesses. 

“The more competition opens up the possibility for these remote 8(a) businesses to compete at different places," Valandra said. “I believe it fulfills the purpose of SBA more fully and recognizes how business is done these days.

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