On June 11, 2026, the Small Business Administration (SBA) issued a much-anticipated proposed rule aimed at overhauling the 8(a) Business Development Program. More specifically, the proposed rule, entitled “Reforms To Remove SBA’s 8(a) Program’s Rebuttable Presumption of Social Disadvantage” and codified at 91 Fed. Reg. 35433, would significantly alter how “social disadvantage” is established for purposes of 8(a) eligibility.
To a certain extent, this rule simply codifies changes that are already in effect (in practice, if not yet reflected in the regulations) as a result of the now-infamous case Ultima Servs. Corp. v. U.S. Dep’t of Agric., which enjoined the SBA from using the rebuttable presumption of social disadvantage for certain racial or ethnic classes. However, the new proposed rule goes further than that. It not only proposes an entirely new test for social disadvantage but would also allow impacts from “unlawful” DEI programs or policies (including the old 8(a) program itself!) to serve as a basis to establish social disadvantage under that new test. Without a doubt, this proposed change will have significant impacts going forward.
Key Takeaways
- The proposed rule would formally remove the rebuttable presumption of social disadvantage for certain designated ethnic and racial classes that has been inoperative since the Ultima decision.
- The current social disadvantage test for non-presumptives (requiring applicants to submit a social disadvantage narrative demonstrating chronic and substantial discrimination that “negatively impacted on his or her entry into or advancement in the business world”) would also be removed, and an entirely new test for social disadvantage would be established.
- The new test would allow any individual US citizen to establish social disadvantage by showing that within his or her lifetime, a government, university or corporation, through any action, policy, rule, regulation, or other practice, 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.
- The proposed rule specifically identifies “unlawful” DEI programs, affirmative action policies, race-based quotas, set-asides, hiring targets, and similar initiatives as examples of potentially qualifying discriminatory conduct. Notably, this includes alleged discrimination pursuant to the prior versions of 13 CFR 124.103.
- Going forward, applicants would have to: (1) self-certify that they were a member of a particular group at the time that qualified discriminatory practices impacted said group; (2) “show evidence” that the discriminatory practices either favored other groups, excluding the applicant’s group, or disadvantaged the applicant’s group, or that the government or private entity took adverse actions against or otherwise disfavored the applicant’s group; and (3) self-certify that they suffered material harm (defined as loss of access to or diminished opportunities related to economic advancement) because of the qualified discriminatory practice.
- The proposed rule applies only to individually-owned 8(a) concerns, not to ANCs, NHOs, CDCs or tribally-owned concerns.
- For now, the proposed rule applies only to new 8(a) applicants, but the SBA has specifically asked for comments on the reliance interests of existing 8(a) participants, signaling that it might ultimately extend the application of these concepts to those already in the 8(a) program. It is unclear how the rule will be applied to those with pending 8(a) applications (of which there are many, given the current backlog).
To fully understand the proposed changes, and their potential impact, context is critical. To that end, we break down the history and specifics of the new rule below.
The Old Standard—a Rebuttable Presumption of Social Disadvantage for Certain Racial or Ethnic “Designated Groups”
The governing regulations for the SBA’s 8(a) Business Development Program are found at 13 CFR 124. These regulations set forth the criteria that a company must meet to be eligible for the 8(a) program, including but not limited to being majority-owned and unconditionally controlled by one or more individuals who are, among other things, “socially disadvantaged.” Under the old regulations at 13 CFR 124.103, an individual could fulfill this social disadvantage criterion in one of two ways. First, if the individual was a member of a “designated group” (i.e. certain racial and ethnic classes) under 13 CFR 124.103(b), there was a rebuttable presumption that the individual was socially disadvantaged. Therefore, if someone could establish that they were a member of a designated ethnic or racial group, and had held themselves out to be so, they were generally considered to have fulfilled the socially disadvantaged requirement without having to affirmatively establish discrimination.
For those not in a designated group, there was a second path to 8(a) social disadvantage. Specifically, under 13 CFR 124.103(c), an individual could establish social disadvantage by a preponderance of the evidence—that is, by submitting a social disadvantage narrative, outlining examples of discrimination they had faced during their education, professional life, or business history. The applicant bore the burden of showing that the discrimination was “chronic and substantial, not fleeting or insignificant” and, further, of showing that this discrimination had “negatively impacted on his or her entry into or advancement in the business world.” Through this alternative path, applicants not included in a designated ethnic or racial group under section (b) (including Caucasians) were nonetheless able to gain access to the 8(a) program. The only difference was that these folks needed to affirmatively prove social disadvantage, as opposed to it being “presumed.”
Ultima and Its Aftermath
In 2023, the US District Court for the Eastern District of Tennessee issued its opinion in Ultima Servs. Corp. v. U.S. Dep’t of Agric. The Court held that the “rebuttable presumption” under 13 CFR 124.103(b) was unconstitutional on the basis that it violated Ultima’s Fifth Amendment right to equal protection of the law. The Court enjoined the SBA from using the rebuttable presumption for social disadvantage going forward.
The SBA thereafter suspended all 8(a) applications and subsequently issued a press release and associated guidance, confirming that, thereafter, the rebuttable presumption for members of designated groups was dead. Instead, every 8(a) applicant—even if a member of the previously designated ethnic and racial groups—had to follow the second path outlined above, by submitting a social disadvantage narrative and affirmatively establishing that they experienced chronic and substantial discrimination that negatively impacted their entry into or advancement in the business world. The guidance explained that “[t]o comply with the Court’s order, SBA is requiring all 8(a) participants whose program eligibility is based upon one or more individuals who relied upon the presumption of social disadvantage to establish their individual social disadvantage by completing a social disadvantage narrative.”
Critically, this applied not only to new applicants but also to existing 8(a) businesses. Concerns already participating in the 8(a) program were required to go back and submit a social disadvantage narrative as well, in order to maintain eligibility.
Since 2023, this has remained the status quo, at least in theory. In reality, the SBA stopped admitting new applicants to the 8(a) program last summer, leaving the future of the program—and the eligibility criteria—somewhat in doubt.
The January Memorandum
The wheels for the June 11 proposed rule started turning back in January, when the SBA issued a memorandum advising that, among other things, the SBA would no longer approve admissions based on social disadvantage narratives or utilize or refer applicants to the SBA’s prior guidance, as outlined in the Guide for Demonstrating Social Disadvantage. The memorandum explained that:
When considering whether an individual has suffered social disadvantage … the [government] shall consider, for example, such factors as 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 targets… .
It went on to say that this would include situations where an individual was “formally, or in practice, excluded from the SBA’s 8(a) Program while these unconstitutional laws, practices and policies were in effect.”
In other words, this memo made it clear another sea change was coming. However, it stopped short of providing a new method for determining social disadvantage. Enter the June 11 proposed rule.
The New Proposed Rule
As a threshold matter, it is important to note that this rule applies only to individually owned companies. It does not affect the eligibility of entity-owned small businesses (i.e., those owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations, or Community Development Corporations). Moreover, for now, the rule appears to apply only to new 8(a) applicants, not existing participants in the 8(a) program. (However, there are some signs that this could be expanded at a later date, as discussed below.)
As for these individually owned new 8(a) applicants, the rule proposes several major changes. First, it would eliminate the rebuttable presumption of social disadvantage for certain designated ethnic and racial groups, currently codified at 13 CFR 124.103(b). No shocker there, as this was declared unconstitutional and removed—in practice, if not in written regulation—years ago. This revision merely codifies the post-Ultima landscape.
It is the next piece that is a bit more surprising (though perhaps not entirely so, given the language of the January 2026 memorandum). Here, the SBA proposes to establish a totally new test for social disadvantage, eliminating the existing test for non-presumptives currently codified at 13 CFR 124.103(c). The rule explains that the SBA considered maintaining the individual test for social disadvantage codified under the current section (c) as an alternative means to establish social disadvantage but rejected that option. This was because the SBA concluded that “the test in this proposed rule is superior to the existing test requiring the submission of a social disadvantage narrative because the proposed test reduces the potential for subjectivity involved in the certification process.” Accordingly, the SBA proposes an entirely new test for social disadvantage, which would be codified at 13 CFR 124.103(b) in the new proposed regulation:
SBA proposes a test by which any individual American citizen can establish social disadvantage by showing 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.
Material harm, as used above, shall mean loss of access to or diminished opportunities related to economic advancement.
The SBA’s proposed rule expressly explains that “unlawful diversity, equity, and inclusion programs or policies; unlawful affirmative action programs or policies; race-based quotas, set-asides, or hiring targets; or any policies or programs that favored some groups over others on the basis of race” would constitute qualifying discrimination under this test. More specifically, the proposed rule gives two examples of qualifying discrimination:
- Such actions, policies, rules, regulations, or other practices include prior iterations of 13 CFR 124.103 that excluded the Citizen’s racial or ethnic group as a group entitled to a rebuttable presumption of social disadvantage; and
- Such actions, policies, rules, regulations, or other practices also include situations where the citizen’s group was disadvantaged in college or university admissions decisions or otherwise discriminated against by a private entity in an unlawful manner.
That’s right—under (A), folks previously excluded from the 8(a) program under the old regulations could use such exclusion as a basis for establishing social disadvantage under the new regulation. Notably, though, this may be difficult in practice. This is because there were no racial or ethnic groups conclusively prohibited from seeking 8(a) eligibility under the old regulations; they were simply not a designated group benefiting from the rebuttable presumption of social disadvantage.
Going forward, in order to establish social disadvantage under the proposed new rule, a citizen will have to self-certify that he or she:
- Was a member of a particular group at the time of the governmental or private entity’s action or during the effective period of the relevant action, policy, rule, regulation, or other practice; and
- Suffered material harm because of the action, policy, rule, regulation, or other practice.
An individual seeking to establish social disadvantage will also have to “[s]how evidence that the government’s or private entity’s action, policy, rule, regulation or other practice favored other groups, excluding the citizen’s group, or disadvantaged the citizen’s group or that the government or private entity took adverse actions against or otherwise disfavored the citizen’s group.” The new regulatory language explains that “sufficient evidence” may include: materials on government, university, and corporate websites; government, university, and corporate policies, regulations, guidance, procedures, or documents; statements by government, university, or corporate officials; government, university, and corporate reports, audits, or findings; court decisions; or administrative rulings.
What’s Next, and What’s Still Unknown
The comment period for this rule is relatively short: Comments are due on July 13. Contractors are strongly encouraged to submit their feedback.
Even though the rule, for now, applies only to new applicants, the SBA has expressly requested comment on any reliance interests of existing 8(a) program participants that would be implicated by these proposed changes. While that’s not definitive, it sounds to me like the SBA is considering how this change may be applied—eventually—to existing participants. Thus, participants in the program should be on the lookout and should be thinking about how they can establish that they satisfy the new proposed social disadvantage test.
One notable question not addressed by the proposed rule is how this will apply to those who have already submitted their applications but not yet been admitted to the 8(a) program. Remember from above that there’s quite a backlog of applicants whose applications have been pending since 2025. It’s not yet clear how these changes will impact those folks, but if I had to guess, I might say they have some application revisions coming in the near future. They, too, should be looking ahead and thinking about how they can meet the new proposed requirements to establish social disadvantage.
It’s also unclear what impact this will have on competition for 8(a) contracts. The proposed rule significantly broadens the class of individuals who may qualify as socially disadvantaged and therefore be eligible for the 8(a) program, and 8(a) contracts (though it is still important to remember that social disadvantage is not the only criterion an applicant must meet). Though the SBA states in the rule that these changes are unlikely to have a significant adverse effect on competition, it would not be far-fetched to imagine a fair amount of increased competition in the 8(a) space going forward.
The McCarter & English team will keep you posted as this story continues to develop.