At a Glance
- The new proposed rule would remove the 8(a) program's rebuttable presumption of social disadvantage for individually owned firms and replace it with a new individual standard at 13 CFR § 124.103.
- In place of the social disadvantage presumption, SBA proposes a new evidentiary framework wherein an individual applicant would self-certify that he or she: (1) was a member of a particular group at the time of a relevant governmental or private entity action, policy, rule, regulation, or practice that targeted that group; and (2) suffered material harm because of that action, policy, rule, regulation, or practice.
- The proposal does not amend or affect eligibility for current participants in the 8(a) program, nor does it affect entity-owned 8(a) firms owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations, or Community Development Corporations. Comments are due July 13, 2026.
On June 11, 2026, the Small Business Administration (SBA) published a proposed rule in the Federal Register titled "Reforms to Remove SBA's 8(a) Program's Rebuttable Presumption of Social Disadvantage for Individually Owned Firms Only; Reforms Do Not Impact Entity-Owned Firms." The proposed rule would amend 13 CFR Part 124 to significantly alter the SBA's Section 8(a) Business Development Program by creating a new framework for determining "social disadvantage."
This alert summarizes the key provisions of the proposed rule, provides background on the legal and policy developments that led to the rulemaking, and discusses practical implications for small businesses and federal contractors.
SBA 8(a) Program Context
Background
Under the Small Business Act, federal agencies maintain a goal to award at least 5% of the total value of prime contract and subcontract awards each year to small business concerns owned and controlled by socially and economically disadvantaged individuals. Contracts awarded through the SBA's 8(a) Business Development program contribute to this goal. To be eligible to participate in the 8(a) program, a small business generally must be at least 51% owned by (1) one or more socially and economically disadvantaged individuals, (2) an economically disadvantaged Indian tribe (or wholly owned subsidiary of a tribe), or (3) an economically disadvantaged Native Hawaiian Organization (NHO). Businesses owned by Alaska Native Corporations (ANCs) and Community Development Corporations (CDCs) also may qualify under separate statutory authority.
Under the current SBA implementing regulations, members of certain designated groups, including "Black Americans, Hispanic Americans, Native Americans . . . , Asian Pacific Americans . . . , Subcontinent Asian Americans . . . , and members of other groups designated from time to time by [the] SBA," are entitled to a rebuttable presumption of being socially disadvantaged individuals. See 13 CFR § 124.103(b)(1). However, in July 2023, the US District Court for the Eastern District of Tennessee in Ultima Services Corp. v. U.S. Department of Agriculture held that SBA's "rebuttable presumption" of social disadvantage violated the equal protection component of the Fifth Amendment's Due Process Clause. The court enjoined SBA from using the race-based presumption in administering the 8(a) program. Following the Ultima decision, SBA stopped applying the designated-group presumption and required individualized proof of social disadvantage from applicants and from certain participants who had previously relied on the presumption.
Overview of the Proposed Rule
The proposed rule, issued on June 11, 2026, translates SBA's January 2026 policy guidance into a proposed formal regulation. SBA's January 2026 guidance asserted SBA's position that, when considering "whether an individual has suffered social disadvantage," it would consider "whether such individual has been the victim of illegal or radical DEI policies or illegal affirmative action policies or has otherwise been the victim of discriminatory practices such as race-based quotas, set asides, or hiring targets, in each case, whether by governmental or non-governmental actors."
Specifically, the proposed rule would make the following changes to the 8(a) program's eligibility requirements for individually owned firms:
- Elimination of the Rebuttable Presumption. SBA proposes to eliminate the longstanding regulatory presumption that individuals belonging to certain designated racial and ethnic groups are socially disadvantaged. Under current regulations, members of designated groups were presumed to be socially disadvantaged. The proposed rule would remove this presumption entirely for individually owned firms.
- New Individualized Standard. In place of the presumption, SBA proposes a new evidentiary framework. Under the proposal, an individual applicant would self-certify that he or she: (1) was a member of a particular group at the time of a relevant governmental or private entity action, policy, rule, regulation, or practice; and (2) suffered material harm because of that action, policy, rule, regulation, or practice. The proposed rule further identifies categories of sufficient evidence that may support a social disadvantage claim, including: government, university, and corporate websites; policies, regulations, guidance, procedures, or documents; statements by government, university, or corporate officials; government, university, and corporate reports, audits, or findings; court decisions; and administrative rulings.
- Current Participants. Although SBA states in the proposed rule that it does not currently intend to apply the new test to current 8(a) participants at their next annual review, SBA has requested public comment on reliance interests that would be implicated by the proposed changes, thus leaving open the possibility that the final rule could apply the new standard to current participants.
- Entity-Owned Firms Unaffected. The proposed rule explicitly does not amend or affect eligibility of small businesses owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations, or Community Development Corporations.
- Economic Impact. SBA estimates that approximately 4,190 individually owned applicants to the 8(a) program will be affected annually, based on FY25 data.
Comments on the proposed rule must be received on or before July 13, 2026. The rulemaking timeline after the close of the comment period will ultimately depend on SBA's review of comments received and any revisions before publication of a final rule. Given the significance of the proposed changes and the range of stakeholders affected, interested parties are strongly encouraged to submit comments during the open comment period.
Implications for Federal Contractors and 8(a) Participants
The proposed rule represents a significant shift in how SBA would review and process applications for the 8(a) program moving forward. In providing examples of discrimination that could establish social disadvantage, SBA expressly listed "unlawful diversity, equity, and inclusion programs or policies; unlawful affirmative action programs or policies; race-based quotas, set-asides, or hiring targets; or, any government or private entity policies or programs that favored some groups over others on the basis of race." SBA also justified the "need" for this proposed change by stating that, "[p]ractically speaking, [the rebuttable presumption test] rendered white Americans almost totally unable to participate in the program."
Accordingly, the proposed rule would materially change how applicants establish social disadvantage for 8(a) eligibility and would significantly alter the composition of the 8(a) program. Prospective applicants could no longer rely on a designated-group presumption or prior narrative templates, but instead would need to provide documentary support for self-certifications demonstrating "that within his or her lifetime, the federal or a state or local government or a university or corporation, through any action, policy, rule, regulation, or other practice of any of its agencies, subsidiaries, or authorized agents, discriminated or was biased against a clearly definable racial, ethnic, or cultural group of which the citizen is a member, or favored in any way a racial, ethnic, or cultural group of which the citizen is not a member, and that the discrimination, bias, or harm materially harmed the citizen."
Current 8(a) participants should also closely monitor developments in this rulemaking. Although SBA states that it does not currently intend to apply the new test to existing participants at their next annual review, existing participants should begin evaluating whether their circumstances would satisfy the proposed test.
Additionally, federal contractors that rely on 8(a) set-aside contracts should plan for potential delays or eligibility questions for individually owned 8(a) firms, particularly for procurements where SBA must confirm a firm's eligibility before award. Prime contractors, federal agencies, and teaming partners should review their subcontracting strategies to account for potentially narrower or differently documented pools of eligible individual-owned 8(a) participants, as the proposed rule could affect applications, annual reviews and recertifications, teaming arrangements, mentor-protege strategies, joint ventures, and bid pipelines for procurements involving individually owned 8(a) firms.
Other Relevant SBA Developments
In June 2026, SBA also initiated an audit of the Economically Disadvantaged Women-Owned Small Business (EDWOSB) program. As part of the audit, SBA sent emails to certified EDWOSB firms requiring them to submit personal and business tax returns for the last three years and respond to a survey by June 30, 2026. The audit follows a pattern of increased oversight of SBA's small business programs and represents a level of increased scrutiny of socioeconomic contracting programs across the board. EDWOSB program participants should review their eligibility documentation and respond promptly to any agency requests.
Additionally, companion bills titled the "Ending Discrimination in Government Contracting Act" were introduced in both chambers of Congress in April 2026 (S. 4390 and H.R. 8511). If enacted, the legislation would eliminate federal contracting preferences for businesses owned by socially and economically disadvantaged individuals and women, effectively dismantling the statutory foundations for both the 8(a) Business Development Program and the Women-Owned Small Business (WOSB) Program. Although neither bill has advanced beyond introduction as of this client alert, government contractors should monitor these bills closely, as their enactment would represent a fundamental restructuring of the federal small business contracting landscape.
Key Takeaway
SBA's proposed rule represents a fundamental shift in how social disadvantage is established for individually owned firms seeking 8(a) certification. By removing the designated-group rebuttable presumption and requiring individualized evidence of group-based disadvantage and material harm, the proposed rule would align the program with relevant legal precedent and guidance from the Trump administration. Because this is a proposed rule, all provisions remain subject to change based on public comments and SBA's final rulemaking. The July 13, 2026, comment deadline provides an important opportunity for affected stakeholders to shape the final regulation.
For More Information
For further information, you may contact the authors. Faegre Drinker's government contracts team will continue to monitor additional developments, relevant litigation updates, and further agency guidance in the coming weeks.
