GCS Inc. receives questions every week from individuals who are confused about the SBA 8(a) “70 Percent Rule,” which addresses potential economic dependence between an 8(a) applicant firm and its customer(s).
To answer these common questions, GCS Inc. prepared a 6-page PDF document called The SBA 8a 70 Percent Rule; you can download it straight from this post (there is no fee or charge for the download).
If the download does not work for you:
1. Make sure you have the most recent version of the Adobe Reader installed on your computer.
2. Switch your Internet browser and try the download again using a different browser. Many Google Chrome users experience difficulty with downloading PDF files, so try Internet Explorer or Firefox instead.
If you have more questions about the SBA 8(a) 70 Percent Rule, the best way to reach GCS Inc. is via email:
The SBA will look at your personal federal income tax return for the 3 most recent consecutive years and calculate your 3-year average Adjusted Gross Income (AGI) to determine if you are economically disadvantaged for the 8(a) program.
To get into the 8(a) program, your AGI needs to be under $250K.
This means it should not be at $250K–it must be less than $250K.
You can find your AGI on your personal tax return, line 37:
When you apply to any federal government program or bid on any federal contract intended for small business participation only, be sure your business really is small under the federal government definition of small before you apply.
Here is what the federal government has to say about how it determines your company size:
“When you calculate the size of your business to determine if you are a small business, you must include the annual receipts and the employees of your affiliates.
“Affiliation is determined by the ability to control.
“When the ability to control exists, even if it is not exercised, affiliation exists.
“The SBA determines affiliation in accordance with 13 CFR 121.103 in its Small Business Size Regulations.
“Be sure to read the SBA’s affiliation discussion as well.”
The federal government typically views affiliation in a negative light, because the ability to control your business means your affiliate might exert negative control over your decision-making as a business owner. Note that the negative control does not have to even exist–only the potential to exert negative control has to exist.
A general rule of thumb is: take precautions to eliminate any affiliations you can before applying for federal small business programs, certifications, contracts or benefits.
In some situations, affiliation cannot be avoided and there is nothing you can do about it.
For example, businesses owned by immediate family members are de facto affiliates of your business by virtue of the fact you are family members.
This is not something you can discuss, negotiate or argue with the federal government–immediate family member owned businesses are automatically affiliates of your company, period.
Now, there are exceptions to every rule, but these exceptions are rare and are not guaranteed.
For example, imagine your immediate family member–a brother–owns a huge $300 million corporation. Under normal circumstances, this would knock you out of eligibility as a small business because (through affiliation), your little $100K company is now “other than small.”
“Other than small” means you can’t declare your company as a small business anymore, at least in government programs, unless–and here is where the rare exception comes in–you can prove a “clear line of fracture” between your business and your brother’s business.
A clear line of fracture would consist of conditions like: you and your brother are estranged and no longer on speaking terms; your brother operates his company in a different state from you; your brother operates a business in one industry and you operate your business in a wholly unrelated and altogether dissimilar other industry, your two companies have never contracted with each other before, your two businesses don’t share anything (e.g., employees, insurance, loans, office space, etc.)
Don’t count on being an exception. Take into the consideration the risk that affiliation poses to your company size when you check to see if you are eligible for federal certifications, contracts, programs or benefits set aside for small business.
Are you concerned about how affiliation, negative control and related factors affect your business size and eligibility for small business certifications? Our specialists can help sort out the situation. Send an inquiry to email@example.com and one of our specialists will reach out to help you. Include as much detail as you can about the affiliation and/or negative control problem in your email.
As an excellent recent article by Set Aside Alert pointed out, the number of participants in the SBA 8(a) program has been steadily shrinking over time, which the SBA’s Darryl Hairston attributed to increased graduations, voluntary withdrawals and terminations from the 8(a) program.
Another reason as to why the 8(a) program portfolio is shrinking is revealed in the SBA’s fiscal year 2013 budget justification document, which states that “lower approval rates for new applications” has resulted in fewer 8(a) certified firms.
Why are fewer companies being approved for the 8(a) program now as compared to 5 or 10 years ago?
One major reason why is because the SBA has been blasted by Congress, the news media and the GAO for allowing fraud, waste and abuse to exist within the 8(a) program.
Facing this harsh criticism and scrutiny, the agency has reacted by aggressively reviewing all incoming 8(a) applications to hunt for any signs of possible fraud, waste or abuse. Any factor in an 8(a) application that is perceived as risk is being probed and examined intensely, with the onus on the applicant to correct any misunderstandings that might occur.
If you are networking and run into 8(a) business owners or former 8(a) business owners who regale you with stories of how they got certified in 10 days and how easy it was to do so, just nod politely and move on, because those individuals are operating on outdated information.
The “new” SBA 8(a) application process of today is rigorous, hard, long and paperwork-intensive. That’s why consulting firms like Government Certification Specialists Inc. exist in the first place. If the 8(a) application process really was as easy as some people claim it is, companies like ours wouldn’t be in business, yet there are more 8(a) consulting firms in existence now than ever before!
This does not mean you cannot successfully get 8(a) certified on your own–you can.
Just enter the SBA 8(a) application process with a patient and realistic outlook: it’s going to take you multiple months to get certified, not mere days, and 8(a) certification is a privilege , not a right. Not all companies meet the very specific set of entry criteria for the 8(a) program; just being a minority owned business is not enough.
The SBA offices that review 8(a) applications are gatekeepers who are going to evaluate you and your company with a critical eye, so expect to be challenged and questioned as a routine part of the 8(a) process.
The upside to this more rigorous 8(a) application process is those firms that do get into this exclusive program will have less 8(a) competition, and thus will likely enjoy greater success within the 8(a) program. As federal spending trends downward further and fewer federal dollars appear on the table, you will fight fewer 8(a) competitors for those precious set aside dollars, and the federal buyers who purchase from you will do so feeling confident they are buying from a stellar 8(a) provider, the cream of the crop.
The federal sales process boils down to one key concept: face time.
The best way to win a federal contract is to meet first with federal buyers face-to-face at venues where such contact is encouraged, such as at formal matchmaking events, to gather information about what the agency is buying, when it plans to buy and how it plans to buy.
You need this information to decide whether or not each opportunity is a good fit for your company—or a long shot you should skip in lieu of better opportunities.
You also need face-to-face contact with federal buyers to generate trust and establish relationships, because as the old adage goes, people buy from people they know and trust. The federal government is no different—relationships ultimately drive purchases.
Here is one example of a matchmaking event where federal buyers set up appointment times to talk one-on-one with federal contractors and vendors like you:
Thursday, August 14, 2014
9:00 a.m. – 12:15 p.m.
90 K Street., NE, Suite 1200
Washington, DC 20002
Department of Homeland Security
Vendor Outreach Sessions with Small Business Specialists.
Note: this session is reserved for 8(a) and SDB companies only.
Appointment setting will begin on Thursday, August 7, 2014 at 12:00 noon (Eastern Time)
How can you find matchmaking events like this one, plus similar conferences and events where federal buyers attend?
There are multiple ways to accomplish this, but here are three places to look for such events:
1. The Federal Business Opportunities website at www.FBO.gov, specifically by clicking on the “Small Business Events” link on the right side of the homepage. Look for events labeled like this: matchmaking, vendor outreach session, small business event, industry day, networking event, business expo, procurement matchmaking, etc.
2. Industry associations and trade groups. Join the email and events lists of relevant trade associations within your industry and keep an eye out for notices of upcoming federal contracting events. Here are three examples of events offered by three different trade groups:
- Armed Forces Communications and Electronics Association (AFCEA) for defense contractors: National Geospatial-Intelligence Agency (NGA) Industry Day: Collaborating to Meet Increasingly Complex Geospatial Intelligence Needs
- Wyoming Business Council: Government Contracting Matchmaking Event
- United States Chamber of Commerce: America’s Small Business Summit with B2B Matchmaking and Confirmed Federal Agencies
3. The events page of each federal agency. Once you have determined a handful of agencies you are interested in working for, scour their individual websites to locate their events listings, and check these pages often. You might find events like these three examples:
- The Food and Drug Administration (FDA) On-Site Agency Visit
- The Federal Aviation Administration eFAST Industry Day: Computer Systems Development
- Department of Housing and Urban Development (HUD) Real Estate Assessment Center (REAC) Inspection Industry Day
There are other ways to meet federal buyers, but these types of matchmaking events are a great start.
The following is a brief 6-step overview of the general process of working with Government Certification Specialists Inc. (GCS) on your SBA 8(a) application.
Our consultants perform as much of the 8(a) application labor for you as is permissible under the SBA 8(a) guidelines.
Typically these activities entail 30 days or less to complete.
❶ Detailed Telephone Interview and Discussion to Ensure You Qualify
- 60 minute telecon with all owners
- Our consultants ask you multiple SBA questions about your business to hunt for potential anomalies or risk areas
- Our consultants interview the disadvantaged owners to take biographical notes that are used to compose the 8(a) narratives for you
- If we find any “showstoppers” (big problems that prevent certification) your retainer payment will be refunded
❷ Personal and Company Checklists of Required Documents are Provided
- Checklists are issued after the discussion/telecon
- Each owner and spouse will receive a tailored checklist of documents and data required from them
- Company checklist of 50+ documents
- Secure online file transfer using Dropbox
❸ Documentation Review by GCS Inc.
- All personal and company documents are reviewed by GCS Inc. consultants
- We help you find or create missing documents
- We give you helpful examples and templates as needed
- We help you correct any files or documents that fail to comply with SBA 8(a) rules
❹ Electronic Half of SBA 8(a) Application
- We open your SBA online account for you
- We perform all of the data entry work for you
- You have a chance to review and change anything we input into the system for you
❺ Paper Half of the SBA 8(a) Application
- We print, label and collate all of the files in the sequence SBA wants
- We create placeholders for items that do not apply
- We compose all of the disadvantage narratives
- We create the business history, organization chart, and other documents for you
- We flag all pages that require your signatures
- We mail the completed package to you for your review and signature
❻ Correspondence with the SBA
- We help you respond to SBA questions
- We will compose each cover letter
- We will give you advice and guidance on how to respond in a compliant manner
- We give you a list of attachments to collect
- We will explain the SBA’s rationale behind each of the agency’s questions
Please send an inquiry to firstname.lastname@example.org if you would like more information about our 8(a) application services.
Alternatively, for “do it yourself” business owners, you can access SBA 8(a) application document templates, examples, and guides on our website http://www.8aapplication.com.
The Get 8(a) Certified blog by Government Certification Specialists Inc., the longest running 8(a) blog on the Internet, is 6 years old this month!
Thank you to all of our readers and customers as well as all the nice people we have interacted with at the SBA since 2008 for helping to make this blog a success.