In Matter of 7Skyline, LLC, SBA No. BDPE-574 (2019), the U.S. Small Business Administration (SBA)'s Office of Hearings and Appeals (OHA) affirmed the SBA Area Office's denial of an 8(a) Business Development Program (the 8(a) Program) application based on gender. 7Skyline is a reminder of the difficulties of entering the 8(a) Program if the owner of the applicant is not a member of a presumptively-disadvantaged group and the importance of connecting any disadvantages to difficulties advancing in the business world.
Background on the 8(a) Business Development Program
The SBA's 8(a) Program seeks to level the playing field for small businesses owned by socially and economically disadvantaged people or entities. Once a small business gains access to the 8(a) Program, it gains access to procurement competitions set-aside and sole-sourced for participants in the Program by the U.S. federal government.
According to the SBA, to qualify for the 8(a) Program, applicants must:
- be a small business
- not have previously participated in the 8(a) Program
- be at least 51 percent owned and controlled by U.S. citizens who are economically and socially disadvantaged
- be owned by someone whose personal net worth is $250,000 or less
- be owned by someone whose average adjusted gross income for three years is $250,000 or less
- be owned by someone with $4 million or less in assets
- have the owner manage day-to-day operations and also make long-term decisions
- have all its principals demonstrate good character
Therefore, in applying for entry into the 8(a) Program, an applicant must show that it is unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and are citizens of the United States, with a demonstrated potential for business success.
In establishing the social disadvantaged status, an applicant may show the individual is a member of a presumptively-disadvantaged group. Otherwise, the applicant must establish the individual's social disadvantage by a preponderance of the evidence. Since gender is not a presumptively-disadvantaged group, applications based on gender must be demonstrated by a preponderance of the evidence. In order to demonstrate an instance of social disadvantage, each instance of alleged disadvantage must be accompanied by evidence demonstrating the negative impact on the individual's entry into or advancement in the business world.
Matter of 7Skyline, LLC, SBA No. BDPE-574 (2019)
In Matter of 7Skyline, LLC, SBA No. BDPE-574 (2019), OHA affirmed the SBA Area Office's denial of an 8(a) application based on gender. In 7Skyline, the applicant was 100 percent owned, controlled, and managed by a woman. To establish an instance of social disadvantage, the applicant first cited statistics related to gender discrimination in education and the renewable energy industry (the industry in which 7Skyline performed work). However, OHA noted that "[m]erely reciting statistical data, for example, sheds no light on whether [the] individual] herself experienced social disadvantage." Instead, OHA reasoned that an applicant must explicitly connect any discriminatory conduct to consequences that negatively impact entrance into, or advancement into, the business world. For similar reasons, OHA found that most of the other allegations were "vague, conclusory, insufficiently detailed, and/or unrelated to [the individual's] personal experiences."
The applicant did raise an instance of sexual harassment during college that resulted in a bad grade. However, OHA noted that this experience occurred one time and did not find it to be compelling for purposes of establishing disadvantaged status. Under established case law, the chronic and substantial social disadvantage requirement is usually met if the applicant describes "more than one or two specific, significant incidents." A single incident may be sufficient, however, if it is "so substantial and far-reaching that there can be no doubt that the applicant suffered social disadvantage." OHA found the single-occurrence insufficient, as the owner went on to graduate with honors and thereafter gained admittance to a prestigious graduate program. In addition, the owner went on to have a successful career in the renewable energy industry, holding high-level positions and managing large projects.
OHA found the applicant's situation in 7Skyline to be similar to a specific example set forth in the regulations:2
A woman who is not a member of a designated group attempts to establish her individual social disadvantage based on gender. She provides instances where one or more male business clients utter derogatory statements about her because she is a woman. After each instance, however, she acknowledges that the clients gave her contracts or otherwise continued to do business with her. Despite suffering discriminatory conduct, this individual has not established social disadvantage because the discriminatory conduct did not have an adverse effect on her business.
As a result, OHA concluded that "[h]ere, similar to the situation described in the above-quoted example, SBA analyzed [the owner's] allegations of discrimination during her employment and found no demonstrated nexus between the allegations and [the owner's] entry into, or advancement in, the business world."
Key Take-Away From the 7Skyline Decision
7Skyline is a reminder of the difficulties entering the 8(a) Program if the owner is not a member of a presumptively-disadvantaged group and the balance that an applicant must strike. On the one hand, the individual and business must be successful enough to demonstrate a potential for business success. On the other hand, however, the individual and business cannot be so successful to have overcome all identified disadvantages.