Koprince Law LLC. Understanding, Obtaining & Leveraging the SBA s 8(a) Certification GOVOLOGY. February 23, 2017

Transcription

1 Understanding, Obtaining & Leveraging the SBA s 8(a) Certification GOVOLOGY February 23, 2017

2 Presentation Overview

3 Presentation Overview 8(a) Program Overview 8(a) Program Eligibility 8(a) Program Application Process We re In! Some Best (and Worst) Practices for Certified 8(a) Firms

4 8(a) Program Overview

5 8(a) Program Overview The 8(a) Business Development Program: Purpose: to assist eligible small disadvantaged business concerns compete in the American economy through business development. Formal certification program (not selfcertification) administered by U.S. Small Business Administration

6 8(a) Program Overview Limited Duration: Company can participate in 8(a) Program for a maximum of nine years Program term can be shortened by voluntary withdrawal, early graduation, or termination One time eligibility for disadvantaged individuals and businesses

7 8(a) Program Overview Benefits: Sole source contracts up to $7 million (manufacturing NAICS codes) or $4 million (other NAICS codes) Unlike other socioeconomic programs, no requirement that agency determine that it is unlikely to receive multiple competitive offers Access to 8(a) set-aside contracts Competition limited to active 8(a) participants

8 8(a) Program Overview Benefits: Sole source contracts up to $7 million (manufacturing NAICS codes) or $4 million (other NAICS codes) Unlike other socioeconomic programs, no requirement that agency determine that it is unlikely to receive multiple competitive offers Access to 8(a) set-aside contracts Competition limited to active 8(a) participants Eligibility as SDB subcontractor to meet large primes subcontracting goals

9 8(a) Program Overview Benefits: SBA counseling and business development assistance Ability to participate as protégé in SBA s 8(a) mentor-protégé program May receive significant financial, contractual and other assistance from mentor May form joint ventures with mentor (even large mentor) to pursue set-aside contracts.

10 8(a) Program Eligibility

11 8(a) Program Eligibility Big Picture Requirements for ordinary 8(a)s: Small business in primary NAICS code At least 51% unconditionally owned and controlled by one or more individuals who are: Socially disadvantaged Economically disadvantaged U.S. citizens residing in U.S. Good character Has potential for success Tribes, ANCs, NHOs and CDCs may also own 8(a)s. These special rules not discussed in this course.

12 8(a) Program Eligibility Small business: An 8(a) applicant must be a small business in its primary industry Primary industry is generally the NAICS in which the company received more revenues than any other NAICS in the prior completed fiscal year SBA may also consider other factors: see 13 C.F.R SBA will look at primary NAICS identified on applicant s tax returns, but self-identification isn t conclusive; SBA may determine that the company s primary NAICS is something else Small business status determined by rules set forth in SBA s size regulations (13 C.F.R. part 121), and includes consideration of any affiliates

13 8(a) Program Eligibility Socially Disadvantaged: Contrary to common misconception, 8(a) Program is not limited to minorities However, members of certain minority groups are presumed disadvantaged

14 8(a) Program Eligibility Socially Disadvantaged: Rebuttable presumption that members of certain groups are socially disadvantaged Includes Hispanic Americans, Native Americans, Black Americans, and many others: see 13 C.F.R Members of these groups must demonstrate (if SBA requires) that they hold themselves out, and are identified by others, as members of this group Members of these groups usually must do little more than show their membership in order to meet social disadvantage test

15 8(a) Program Eligibility Socially Disadvantaged: Individuals who are not presumed socially disadvantaged must prove individual social disadvantage Objective characteristic such as gender or disability Chronic and substantial disadvantage in American society (not elsewhere) Concrete economic effect: more than just made me feel bad

16 8(a) Program Eligibility Socially Disadvantaged: Social disadvantage must be supported by written narrative Be very detailed about specific incidents Be prepared for SBA pushback Despite additional hurdle, many Caucasian women, disabled veterans, and others have been admitted to 8(a) Program

17 8(a) Program Eligibility Economically Disadvantaged: Adjusted net worth of less than $250,000 Excludes funds in retirement accounts, equity in primary residence, and equity in 8(a) applicant Excludes income from S Corp, LLC or partnership where applicant demonstrates that money was reinvested in the firm or used to pay firm taxes Unadjusted net worth of less than $4 million Excludes retirement accounts, but adds in equity in primary residence and equity in 8(a) applicant

18 8(a) Program Eligibility Economically Disadvantaged: Three year average adjusted gross income of less than $250,000 Similar LLC/S Corporation investment exception applies If applicant exceeds $250,000, may be able to rebut presumption of ineligibility by showing that income was unusual and not likely to occur in the future, such as with an inheritance.

19 8(a) Program Eligibility Economically Disadvantaged: After 8(a) Program admission, net worth threshold rises to $750,000 and income threshold rises to $350,000 SBA may early graduate an 8(a) firm if the owner exceeds these thresholds

20 8(a) Program Eligibility Unconditional ownership: 8(a) company must be at least 51% unconditionally and directly owned by one or more socially and economically disadvantaged individuals Direct means that ownership cannot be through a holding company or another vehicle, with limited exception of some revocable trusts Unconditional means that ownership cannot be subject to acquisition by others (e.g., stock options)

21 8(a) Program Eligibility Immediate family members: Individual generally cannot use disadvantaged status to qualify a company for 8(a) certification if the individual has an immediate family member who is using, or has used, his or her status to qualify another company General rule is one 8(a) company per family SBA may waive prohibition if the two concerns have no connections, either in the form of ownership, control or contractual relationships, and provided the individual seeking to qualify the second concern has management and technical experience in the industry.

22 8(a) Program Eligibility Unconditional control: Company must be managed on a full-time basis by a disadvantaged individual with requisite management capabilities Disadvantaged individual must hold highest officer position (usually President or CEO) Highest officer must devote full-time to the business during the normal working hours of firms in the same or similar line of business

23 8(a) Program Eligibility Unconditional Control: Highest manager generally must be highest paid Non-disadvantaged individuals can participate in management but cannot control or have the power to control the company Various arrangements (i.e., unusual reliance for financing) may cause SBA to find a lack of unconditional control

24 8(a) Program Eligibility Potential for Success: 8(a) Program generally not for start-ups Better seen as a business accelerator for companies that have already experienced a small level of success Two years in business rule : SBA ordinarily will not certify a business if it has not generated revenues in its primary industry in each of the last two tax years Waivers are available but (in my experience) are infrequently granted

25 8(a) Program Eligibility Potential for Success: SBA will also more generally consider the company s access to capital and credit, bonding (if applicable), licensing, technical and managerial experience of managers, and so on

26 8(a) Program Eligibility Good Character: SBA will evaluate criminal history of owners and managers and may require background check If it s out there, SBA will probably find it even if you think it s expunged Cover up is worse than the crime SBA won t admit a company if the company or its principals owe significant outstanding taxes or other federal financial obligations (such as defaults on SBA small business loans)

27 8(a) Application Process

28 8(a) Program Application Applications to the 8(a) Program are time consuming and can be frustrating Be prepared to spend a great deal of time putting together the application and waiting for SBA s review Many applicants use paid consultants to assist Be sure to report any paid consultants as part of application form

29 8(a) Program Application Applicants must provide, among other things: List of all contracts within two years Company lease agreements Proof of signature authority from bank accounts Corporate governing documents (e.g., bylaws, etc.) Much more

30 8(a) Program Application Applicants must provide, among other things: Last three years of company tax returns Last three years of personal tax returns for owners, officers and key employees Last three years of company financial statements Last three years of P&L statements Must also include statement current within 90 days of application

31 8(a) Program Application Applicants must complete many forms, including: SBA Form 1010 (Application) SBA Form 1010-IND (Individual Application Information) SBA Form 413 (Personal Financial Statement) SBA Form 912 (Statement of Personal History)

32 8(a) Program Application For more information about applying, visit: t-contracting-programs/8a-businessdevelopment-program/how-apply

33 Best (and Worst) Practices

34 Best (and Worst) Practices Best Practice: Forge good, strong relationship with local SBA office The SBA office controls whether you get sole source contracts, the speed at which various filings (e.g., JV agreements) are reviewed, and the seriousness with which any minor infractions are treated

35 Best (and Worst) Practices Worst Practice: Assume that your SBA representative is your best friend The 8(a) representative is responsible for two (sometimes inconsistent) functions: (1) helping your business grow and develop; and (2) enforcing the 8(a) Program rules Don t forget the cop part of the SBA s role

36 Best (and Worst) Practices Best Practice: Know exactly what you intend to do with your 8(a) certification before you get it If possible, line up potential sole source awards, prime contract awards, and mentor Plan, plan, plan An 8(a) certification is a nine-year hunting license, but you gotta hunt. 8(a) contracts don t rain down from heaven

37 Best (and Worst) Practices Worst Practice: Assume that you can do stuff without SBA prior approval Many seemingly ordinary corporate actions may require SBA s prior approval New minority owner Joint venture agreement Change of business structure (i.e., corporation to LLC) When in doubt, ask the SBA first

38 Best (and Worst) Practices Best Practice: Understand, and timely satisfy, all reporting requirements SBA takes Annual Report very seriously Don t be late! Recognize and comply with additional reporting obligations, such as JV certifications or reports regarding business development consultants When in doubt (you see where I m going with this)

39 Questions? Thank you! Questions?

40 For More Information Steven J. Koprince Managing Partner (785) Visit to sign up for our free monthly electronic newsletter