“Disadvantaged” Small Businesses:
Definitions and Designations for Purposes of
Federal and Federally Funded Contracting
Programs
Kate M. Manuel
Legislative Attorney
January 3, 2011
Congressional Research Service
7-5700
www.crs.gov
R40987
CRS Report for Congress
P
repared for Members and Committees of Congress

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“Disadvantaged” Small Businesses

Summary
This report discusses what constitutes a “disadvantaged” small business for purposes of federal
and federally funded contracting programs and how firms are certified or otherwise designated as
such. Three primary categories of disadvantaged small businesses are currently eligible for
various contracting programs: (1) small businesses participating in the Small Business
Administration’s (SBA’s) Minority Small Business and Capital Ownership Development Program
(commonly known as the 8(a) Program) (8(a) participants); (2) “small disadvantaged businesses”
(SDBs) and (3) “disadvantaged business enterprises” (DBEs).
These firms are characterized as disadvantaged because they are at least 51% owned by one or
more socially and economically disadvantaged individuals or groups. However, social and
economic disadvantage is defined somewhat differently for each program. Members of certain
racial and ethnic groups are presumed to be socially disadvantaged for purposes of the 8(a) and
SDB programs, while women are also presumed to be socially disadvantaged for purposes of the
DBE program. Similarly, individuals’ net worth must be $250,000 or less for entry into the 8(a)
Program, while net worth can be as high as $750,000 for newly designated SDBs or DBEs.
The programs for the various types of firms also differ in their operation. The 8(a) Program is
open only to firms that have been certified by SBA, and firms and individual owners may
participate in the 8(a) Program for a maximum of nine years. 8(a) participants are eligible for set-
aside or sole-source contracts, as well as other assistance from the SBA. All 8(a) firms qualify as
SDBs. Other firms must be certified by procuring agencies, private certifying entities, or state or
local governments to qualify for federal programs for SDB prime contractors, although they may
self certify for similar programs for SDB subcontractors. SDB certification, when required, lasts
three years, but firms may be certified multiple times. There are government-wide and agency-
specific goals for the percentage of federal contract and subcontract dollars awarded to SDBs.
Additionally, certain prime contractors must have “plans” for subcontracting with SDBs as terms
of their contracts; agencies may use past performance in subcontracting with SDBs as an
evaluation factor in source selection decisions; and agencies may give prime contractors
“monetary incentives” for subcontracting with SDBs. DBEs must be certified by the state of the
funding recipient. Certifications last at least three years, and firms cannot be required to reapply
for certification as a condition of continuing participation in the program unless the factual basis
upon which the certification was made changes. There is a national goal that 10% of federal
funding for certain transportation-related projects be awarded to DBE contractors and
subcontractors. Funding recipients must set similar goals, including on individual contracts.
All programs are based in statute. Section 8(a) of the Small Business Act authorizes the 8(a)
Program; Section 8(d) of the Small Business Act, the SDB program; and various transportation
statutes, the DBE program. However, many of the specific requirements pertaining to these
programs derive from agency regulations.
In part because of small businesses’ widely reported role in job creation and concerns that the
recent recession disproportionately affected disadvantaged small businesses, Members of the
111th Congress enacted or proposed numerous bills that assisted disadvantaged small businesses
in various ways. Members of the 112th Congress may consider similar legislation if concerns
about disadvantaged small businesses persist. Members of the 112th Congress may also review
agency programs for disadvantaged small businesses, including proposed regulatory changes to
the eligibility and certification requirements for 8(a) firms and DBEs.
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Contents
Introduction ................................................................................................................................ 1
Categories of Disadvantaged Small Businesses ........................................................................... 1
8(a) Participants .................................................................................................................... 1
Social Disadvantage........................................................................................................ 2
Economic Disadvantage .................................................................................................. 2
Applications to the 8(a) Program..................................................................................... 3
Maximum Nine-Year Term in the 8(a) Program............................................................... 4
Contracting and Related Assistance for 8(a) Participants ................................................. 4
Small Disadvantaged Businesses ........................................................................................... 5
Certification of SDBs...................................................................................................... 6
Contracting Programs for SDBs ...................................................................................... 7
Disadvantaged Business Enterprises...................................................................................... 8
Certification of DBEs...................................................................................................... 9
Contracting Programs for DBEs .................................................................................... 10
Tabular Comparison of the Various Types of Disadvantaged Small Businesses .................... 11
Constitutionality of Federal Programs for Disadvantaged Small Businesses............................... 12
Recently Enacted or Proposed Legislation................................................................................. 13
Proposed Changes in Regulations.............................................................................................. 15

Tables
Table 1. Auditing Requirements Based on Firms’ Gross Revenue ................................................ 4
Table 2. Comparison of the Various Types of Disadvantaged Small Businesses.......................... 11

Contacts
Author Contact Information ...................................................................................................... 15

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Introduction
This report discusses what constitutes a “disadvantaged” small business for purposes of federal
and federally funded contracting programs and how firms are certified or otherwise designated as
such. Three primary categories of disadvantaged small businesses are currently eligible for
various contracting programs: (1) small businesses participating in the Small Business
Administration’s (SBA’s) Minority Small Business and Capital Ownership Development Program
(commonly known as the 8(a) Program) (8(a) participants); (2) “small disadvantaged businesses”
(SDBs) and (3) “disadvantaged business enterprises” (DBEs).1 These firms are characterized as
“disadvantaged” because they are at least 51% unconditionally owned and controlled by socially
and economically disadvantaged individuals or groups.2 Members of certain racial and ethnic
groups are presumed to be disadvantaged, and other individuals can prove personal disadvantage
by a preponderance of the evidence. Veterans and persons with disabilities are not presumed to be
disadvantaged for purposes of these programs. However, there are separate contracting programs
for them.3 Disadvantaged groups include Indian tribes, Alaska Native Corporations, Native
Hawaiian Organizations, and Community Development Corporations.4 In FY2009, the federal
government awarded $33.5 billion in contacts or subcontracts to SDBs,5 including $18 billion in
contracts to 8(a) participants.6 Comparable data regarding contracting with DBEs are not readily
available.
Categories of Disadvantaged Small Businesses
8(a) Participants
Small businesses that are at least 51% unconditionally owned and controlled by “socially and
economically disadvantaged individuals” or groups are eligible for the Minority Small Business
and Capital Ownership Development Program.7 Implemented by the SBA under the authority of

1 There are other federal programs for SDBs and DBEs, in particular, that are agency-specific and smaller in scale, such
as the Environmental Protection Agency’s DBE program. See 33 C.F.R. §§ 33.101-33.503. Such programs are not
addressed in this report. Also not addressed in this report are programs for “minority business enterprises” (MBEs), as
defined by the Department of Commerce’s Minority Business Development Agency (MDBA). MBEs need not be
“small,” and their owners can be either socially or economically disadvantaged. 15 C.F.R. § 1400.2(a). MBEs are not
certified for purposes of federal programs, and there are no federal or federally funded contracting programs for MBEs
that are not also 8(a) participants, SDBs, or DBEs.
2 See 13 C.F.R. § 124.105 (8(a) participants); 13 C.F.R. § 124.1002(b)(2) (SDBs); 49 C.F.R. § 26.5 (DBEs).
3 See 15 U.S.C. §§ 657b-657c (programs for veteran-owned small businesses); 15 U.S.C. § 657f (programs for service-
disabled veteran-owned small businesses); 41 U.S.C. §§ 46-47 (program to benefit “the blind and severely disabled”).
The latter program is commonly known as the Javits-Wagner-O’Day Program (JWOD).
4 For more on contracting with Alaska Native Corporations, see CRS Report R40855, Contracting Programs for Alaska
Native Corporations: Historical Development and Legal Authorities, by Todd Garvey, John R. Luckey, and Kate M.
Manuel.
5 See Small Business Goaling Report: Fiscal Year 2009, available at https://www.fpdsng.com/downloads/top_requests/
FPDSNG_SB_Goaling_FY_2009.pdf. The report on FY2010 has not yet been compiled.
6 Not all contracts awarded to 8(a) firms are awarded through the 8(a) Program. 8(a) firms can also be awarded
contracts under the general contracting authorities.
7 13 C.F.R. § 124.101. Eligibility for the 8(a) Program is further limited to firms that demonstrate “potential for
success” and whose owners are U.S. citizens and possess “good character.” Id. Detailed regulations govern each of
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Sections 7(j) and 8(a) of the Small Business Act, as amended,8 this program is commonly known
as the 8(a) Program, and participants in it are often called 8(a) participants or 8(a) firms.
Social Disadvantage
Owners of 8(a) firms must be “socially disadvantaged,” or have experienced “racial or ethnic
prejudice or cultural bias within American society because of their identities as members of
groups and without regard to their individual qualities.”9 Members of the following racial and
ethnic groups are presumed to be socially disadvantaged:
Black Americans; Hispanic Americans; Native Americans (American Indians, Eskimos,
Aleuts, or Native Hawaiians); Asian Pacific Americans (persons with origins from Burma,
Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China (including Hong Kong),
Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust
Territory of the Pacific Islands (Republic of Palau), Republic of the Marshall Islands,
Federated States of Micronesia, the Commonwealth of the Northern Mariana Islands, Guam,
Samoa, Macao, Fiji, Tonga, Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans
(persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives
Islands or Nepal); and members of other groups designated from time to time by SBA.10
Individuals who are not members of these groups must establish social disadvantage by a
preponderance of the evidence, including (1) at least one objective distinguishing feature
contributing to social disadvantage, such as race, ethnic origin, gender, or physical handicap; (2)
personal experiences of substantial and chronic disadvantage in American society; and (3)
negative impact on entry into or advancement in the business world because of this
disadvantage.11
Economic Disadvantage
Owners of 8(a) firms must also be “economically disadvantaged” in that their “ability to compete
in the free enterprise system has been impaired due to diminished credit and capital opportunities
as compared to others in the same or similar line of business who are not socially
disadvantaged.”12 Economic disadvantage is not presumed for any individual owners.13 Rather, all

(...continued)
these requirements. See 13 C.F.R. § 124.105 (ownership); 13 C.F.R. § 124.106 (control); 13 C.F.R. § 124.107
(potential for success); 13 C.F.R. § 124.108(a) (good character).
8 See 15 U.S.C. § 636(j); 15 U.S.C. § 637(a).
9 13 C.F.R. § 124.103(a). Such prejudice or bias must also be due to circumstances beyond the individuals’ control. Id.
10 13 C.F.R. § 124.103(b)(1). This presumption may be overcome by “credible evidence” to the contrary, and SBA may
require individuals relying on the presumption to demonstrate that they held themselves out and are currently
recognized by others as members of the group. 13 C.F.R. § 124.103(b)(2)-(3). The SBA relies upon a group petition
process in recognizing additional groups. See 13 C.F.R. § 124.103(d)(1)-(3).
11 13 C.F.R. § 124.103(c)(2)(i)-(iii). In assessing the third factor, the SBA will consider all relevant evidence produced
by the applicant, but must consider the applicant’s education, employment, and business history to see if the totality of
the circumstances shows disadvantage. 13 C.F.R. § 124.103(c)(2)(iii).
12 13 C.F.R. § 124.104(a).
13 Certain group-owners are, however, deemed to be economically disadvantaged. See 43 U.S.C. § 1626(e)(1) (Alaska
Native Corporations deemed economically disadvantaged); Small Disadvantaged Business Certification Application:
Community Development Corporation (CDC) Owned Concern, OMB Approval No. 3245-0317 (Community
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individuals upon whom an 8(a) firm’s eligibility is based must describe their economic
disadvantage in a narrative statement and submit personal financial information to the SBA.14
This information must include, among other things, income for the past two years, personal net
worth, and the fair market value of all assets.15 Individuals’ net worth, excluding ownership
interests in 8(a) firms and equity in primary personal residences, must be less than $250,000 at
the time of application to the 8(a) Program and less than $750,000 thereafter.16 The value of
retirement accounts is currently not excluded when the net worth of prospective 8(a) participants
is calculated, although the SBA has proposed changing its regulations to exclude it.17 The SBA
also compares the financial condition of firms applying to the 8(a) Program to the financial
profiles of small businesses in the same primary industry classification18 or similar line of
business that are not owned by socially and economically disadvantaged individuals when
determining economic disadvantage.19
Applications to the 8(a) Program
Firms must apply to participate in the 8(a) Program and may not receive contracting or other
federal assistance based upon 8(a) status until the SBA approves their application.20 The
application form requires submission of various materials including, but not limited to, financial
statements, federal personal and business tax returns, and personal history statements.21
Once accepted into the 8(a) Program, firms must inform the SBA in writing of any changes in
circumstances that adversely affect their eligibility.22 Each firm must also complete an annual
review, which has its own form23 and requires submission of (1) certifications that the firm meets
the eligibility requirements and no changes in circumstances adversely affect its eligibility; (2)
personal financial information for each disadvantaged owner; and (3) a financial statement for the
firm, among other things.24 Depending upon the firm’s gross revenue, its financial statement may
need to be audited by an independent public accountant,25 as Table 1 illustrates.

(...continued)
Development Corporations deemed economically disadvantaged).
14 13 C.F.R. § 124.104(b)(1).
15 13 C.F.R. § 124.104(c).
16 13 C.F.R. § 124.104(c)(2).
17 Small Business Administration, Small Business Size Regulations; 8(a) Business Development/Small Disadvantaged
Business Status Determinations, 74 Fed. Reg. 55694 (Oct. 28, 2009).
18 Businesses are classified by North American Industry Classification System (NAICS) codes. A firm’s primary
industry is that in which it earns the majority of its revenue.
19 13 C.F.R. § 124.104(c).
20 13 C.F.R. § 124.2.
21 See 13 C.F.R. § 124.203; Small Business Administration, Application for 8(a) Business Development (8(a) BD) and
Small Disadvantaged Business (SDB) Certification, available at http://www.sba.gov/idc/groups/public/documents/
sba_homepage/forms_trng1010banc.pdf. Despite the title of this form, SBA no longer certifies SDBs. See infra note 43
and accompanying text.
22 13 C.F.R. § 124.112(a).
23 See Small Business Administration, 8(a) Annual Update, available at http://www.sba.gov/idc/groups/public/
documents/sba_homepage/forms_1450.pdf.
24 13 C.F.R. § 124.112(b)(1)-(8); 13 C.F.R. § 124.603.
25 13 C.F.R. § 124.602(a)-(c).
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Table 1. Auditing Requirements Based on Firms’ Gross Revenue
Amount of Revenue
Auditing Requirements
Under $1 million
Annual financial statement prepared in-house, or a compilation statement prepared
by a licensed independent public accountant, verified as to accuracy by an
authorized officer, partner, limited liability member, or sole proprietor within 90
days of the fiscal year close
Between $1 million and $5
Reviewed financial statement prepared by a licensed independent public accountant
million
within 90 days of the fiscal year close
Over $5 million
Audited annual financial statement prepared by a licensed independent public
accountant within 120 days of the close of the fiscal year
Source: Congressional Research Service, based on 13 C.F.R. § 124.602(a)-(c).
Maximum Nine-Year Term in the 8(a) Program
Firms may participate in the 8(a) Program one time, for a period of no more than nine years.26
Once a firm has exited the program after participating in it for any period of time, it is generally
ineligible for further participation.27 Additionally, socially and economically disadvantaged
individuals may confer eligibility for the 8(a) Program upon only one firm over their lives.28 In
contrast, disadvantaged groups (i.e., Indian tribes, Alaska Native Corporations, Native Hawaiian
Organizations, and Community Development Corporations) may confer eligibility upon multiple
8(a) firms, which may participate in the 8(a) Program concurrently (subject to certain limitations
on the primary industries in which they operate) or at different times.29
Contracting and Related Assistance for 8(a) Participants
Federal agencies “set aside” certain contracts for 8(a) firms by conducting procurements in which
only 8(a) firms may compete.30 They can also award contracts to 8(a) firms on a sole-source
basis, sometimes in circumstances in which they could not otherwise make sole-source awards.31
Federal agencies reportedly spent $18 billion on competitive or sole-source contracts or
subcontracts with 8(a) participants in FY2009.32 However, 8(a) participants are not guaranteed

26 13 C.F.R. § 124.2. Firms may be terminated or subjected to early graduation from the 8(a) Program before nine years
have passed. 15 U.S.C. § 636(j)(10)(C)(i) (nine-year term); 15 U.S.C. § 637(a)(9) (termination and early graduation);
13 C.F.R. § 124.301 (exiting the 8(a) Program); 13 C.F.R. § 124.302 (early graduation); 13 C.F.R. § 124.303
(termination from the Program).
27 13 C.F.R. § 124.108(b). When at least 50% of the assets of one firm are the same as those of another firm, the firms
are considered identical for purposes of eligibility for the 8(a) Program. 13 C.F.R. § 124.108(b)(4).
28 15 U.S.C. § 636(j)(11)(B)-(C); 13 C.F.R. § 124.108(b).
29 15 U.S.C. § 644(o); 13 C.F.R. § 125.6; 48 C.F.R. § 52.219-14.
30 13 C.F.R. §§ 124.501-124.519.
31 See, e.g., 48 C.F.R. 19.805-1(b)(2) (authorizing sole-source awards to 8(a) participants owned by Indian tribes or
Alaska Native Corporations (ANCs) even when there is a reasonable expectation that at least two eligible and
responsible 8(a) firms will submit offers at a fair market price). However, Section 811 of the National Defense
Authorization Act (NDAA) for FY2010 has somewhat limited agencies’ authority to make certain sole-source awards
to ANC- or tribally owned firms. See P.L. 111-84, § 811, 123 Stat. 2405-06 (Oct. 28, 2009) (requiring justifications and
approvals for sole-source awards in excess of $20 million made under the authority of Section 8(a) of the Small
Business Act).
32 See Small Business Goaling Report, supra note 5.
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federal contracts, and only 44% percent of 8(a) firms not owned by Alaska Native Corporations
reportedly received contracts in FY2008.33
8(a) firms are also eligible for (1) direct and guaranteed loans from the SBA; (2) transfer of
technology and surplus property owned by the United States; and (3) management and technical
assistance, including training in financing, management, accounting, bookkeeping, marketing, the
operation of small businesses, and the identification and development of new business
opportunities.34 Additionally, the SBA sponsors a mentor-protégé program for eligible 8(a)
participants.35 Mentors are established firms that provide their 8(a) protégés with “technical
and/or management assistance; financial assistance in the form of equity investments and/or
loans; subcontracts; and/or assistance in performing prime contracts with the Government in the
form of joint venture arrangements.”36 Mentors and protégés can also form joint ventures that
may qualify as “small” for purposes of government procurements, including sole-source awards
under Section 8(a).37
Small Disadvantaged Businesses
“Small disadvantaged businesses” (SDBs) include 8(a) participants and other small businesses
that are at least 51% unconditionally owned and controlled by socially or economically
disadvantaged individuals or groups.38 SDBs that are not 8(a) firms need not demonstrate
potential for success,39 and individuals owning and controlling non-8(a) SDBs may have net
worth of up to $750,000, excluding ownership interests in 8(a) firms and equity in primary
personal residences, when their firms are first designated as SDBs.40 Otherwise, however, SDBs
must generally meet the same eligibility requirements as 8(a) firms, although they do not apply to
the SBA to be designated SDBs in the same way that 8(a) firms do.

33 Office of the Inspector General, U.S. Small Business Administration, Participation in the 8(a) Program by Firms
Owned by Alaska Native Corporations, at 5 (July 10, 2009), available at http://www.sba.gov/idc/groups/public/
documents/sba_homepage/oig_reptbydate_july9-15.pdf. In contrast, 63% of 8(a) firms owned by Alaska Native
Corporations received contracts in FY2008. Similar data regarding FY2009 do not appear to be available.
34 13 C.F.R. § 124.404(a)-(c); 13 C.F.R. § 124.405; 13 C.F.R. §§ 124.701-704. 8(a) firms are also eligible for certain
other assistance from SBA because they are small businesses, not because they are participants in the 8(a) Program.
See, e.g., 15 U.S.C. § 694b (surety bond guarantees for small businesses).
35 Eligibility for the mentor-protégé program is generally limited to 8(a) firms that are in the developmental stage of the
8(a) Program; have never received an 8(a) contract; and have a size that is less than half the size standard
corresponding to its primary NAICS code. 13 C.F.R. § 124.520(c)(1)(i)-(iii).
36 13 C.F.R. § 124.520(a).
37 13.C.F.R. § 124.520(d)(1). For the joint venture to qualify as “small,” the 8(a) firm must qualify as “small” under the
size standards for the procurement, and, in the case of sole-source contracts awarded under the authority of Section
8(a), must not have received a combined total of competitive and sole-source awards in excess of $100 million or other
applicable threshold. See 13 C.F.R. § 519.
38 13 C.F.R. § 124.1002. The majority of the firm’s earnings must also accrue to socially and economically
disadvantaged individuals or groups for purposes of programs under 10 U.S.C. § 2323, discussed below. Id.
39 13 C.F.R. § 124.1002(e).
40 13 C.F.R. § 124.1002(c).
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Certification of SDBs
At one time, SDBs had to be certified by the SBA, or a private certifying entity acting in
compliance with SBA regulations, to qualify for certain federal programs as prime contractors.41
However, most federal programs for SDB prime contractors have been discontinued, with only
the government-wide and agency-specific goals for the percentage of federal contract dollars
awarded to SDB contractors (and subcontractors) each year remaining.42 Because of the
discontinuance of these programs, the SBA ceased certifying SDBs in October 2008,43 and no
longer issues regulations for private certifiers.44 In the few cases where SDB certification is
currently required, 8(a) participants are deemed to be certified,45 and other firms may be certified
by the agency conducting the procurement, private certifying entities, or state and local
governments.46 Firms not relying on their 8(a) status that have submitted applications for SDB
certification to a procuring agency are treated as if they are certified so long as the agency has not
rejected their application.47 Certification generally lasts for three years,48 and the same firm may
be certified as an SDB repeatedly, so long as it meets the requirements for certification.
Firms do not need to be certified SDBs to qualify for federal programs for subcontractors. Rather,
A firm may represent that it qualifies as an SDB for any Federal subcontracting program if it
believes in good faith that it is owned and controlled by one or more socially and
economically disadvantaged individuals.49
Prime contractors “acting in good faith” may rely on subcontractors’ written representation of
their status as an SDB.50 Although the Federal Acquisition Regulation (FAR) still contains
contract clauses obligating prime contractors to verify firms’ SDB status with the SBA,51 agencies
appear to be dropping this requirement in light of the SBA ceasing to certify SDBs.52 However,
the SBA still retains the authority to review the status of uncertified firms that represent
themselves as SDBs for purposes of federal subcontracts when it receives “credible information”
that they are not disadvantaged.53

41 See, e.g., 13 C.F.R. § 124.1004 and § 124.1008 (2007).
42 See infra notes 54-60 and accompanying text.
43 See Small Business Administration, Small Disadvantaged Business Program, 73 Fed. Reg. 57490 (Oct. 3, 2008
(announcing that SBA would not longer certify SDBs).
44 Id.
45 13 C.F.R. § 124.1003(a).
46 13 C.F.R. § 124.1003(b)-(c). It is the procuring agency’s decision whether to accept certifications from private
certifying entities or state or local governments.
47 13 C.F.R. § 124.1001(b)(4).
48 13 C.F.R. § 124.1005(a).
49 13 C.F.R. § 124.1001(c).
50 48 C.F.R. § 19.703(b).
51 See 48 C.F.R. § 52.219-25.
52 See, e.g., Class Deviation to the Federal Acquisition Regulation: Small Disadvantaged Business Certification for
Subcontractors, Nov. 19, 2009, at 3, available at http://www.acq.osd.mil/dpap/policy/policyvault/USA006725-09-
DPAP.pdf.
53 13 C.F.R. § 124.1006.
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Contracting Programs for SDBs
The government promotes contracting and subcontracting with SDBs by setting government-wide
and agency-specific goals for the percentage of federal contract and subcontract dollars awarded
to SDBs each fiscal year. The government-wide goal is that “not less than 5 percent of the total
value of all prime contract and subcontract awards” be made to SDBs,54 a goal that was met in
FY2009, when $33.5 billion was awarded to SDBs.55 Agency specific goals are generally also set
at 5% of the total value of prime contracts and subcontracts awarded each fiscal year, although
agency achievements range from 1.7% (Department of Energy) to 46.4% (SBA).56 In the past,
agencies also had authority to “us[e] less than full and open competitive procedures and partial
set-asides,” including a 10% price evaluation adjustment,57 when evaluating bids or offers
involving SDB contractors or subcontractors.58 However, such authorities have either expired59 or
been subject to statutory conditions or judicial decisions precluding their use.60
Other federal programs focus specifically on promoting SDBs as subcontractors on federal prime
contracts. Agencies must negotiate “subcontracting plans” with the apparently successful bidder
or offeror on eligible prime contracts prior to awarding the contract.61 Subcontracting plans set
goals for the percentage of subcontract dollars to be awarded to SDBs, among others, and
describe efforts that will be made to ensure that SDBs “have an equitable opportunity to compete
for subcontracts.”62 Failure to make a good faith effort to comply with the subcontracting plan
constitutes a material breach of the contract, potentially allowing the agency to terminate the
contract for default63 and subjecting the contractor to liquidated damages.64 Federal agencies may

54 15 U.S.C. § 644(g)(1).
55 See Small Business Goaling Report, supra note 5. This $33.5 billion represents 7.6% of all federal procurement
spending in FY2009. The goal for contracting and subcontracting with SDBs was the only government-wide goal for
contracting and subcontracting with small businesses that was met in FY2009. Id.
56 Id.
57 A price evaluation adjustment works as follows: when comparing a bid or offer from an SDB with one submitted by
another business, the agency can subtract up to 10% of the price from the bid or offer submitted by the SDB in
determining which bid or offer has the lowest price or represents the best value. For example, if a business that is not an
SDB bids $100,000 and an SDB bids $110,000, the SDB would win because it is the lower bidder after its price is
reduced by 10% ($110,000-$11,000=$99,000).
58 See, e.g., Department of Defense Authorization Act for FY1987, P.L. 99-661, § 1207, 100 Stat. 3973-75 (Nov. 14,
1986) (codified at 10 U.S.C. § 2323) (procurements of defense agencies); Federal Acquisition Streamlining Act, P.L.
103-355, § 7102, 108 Stat. 3368-69 (Oct. 13, 1994) (procurements of civilian agencies).
59 See P.L. 103-355, § 7102 (authority expiring at the end of FY2000). This authority was later extended through the
end of FY2003, but not renewed thereafter.
60 See Strom Thurmond National Defense Authorization Act for FY1999, P.L. 105-261, § 801, 112 Stat. 2080-81 (Oct.
17, 1998) (barring DOD from granting price evaluation adjustments in any fiscal year directly following a fiscal year in
which DOD awarded at least 5% of its contract dollars to SDBs); Rothe Dev. Corp. v. Dep’t of Defense, 545 F.3d 1023
(Fed. Cir. 2008) (finding 10 U.S.C. § 2323 unconstitutional on its face).
61 15 U.S.C. § 637(d)(4) & (5). Eligible contracts are those (1) exceeding $650,000 ($1.5 million, in the case of
contracts to construct public facilities) and (2) offering subcontracting possibilities. Id. Agencies may not find a
contractor affirmatively “responsible” for purposes of the award of a federal contract unless it agrees to any required
subcontracting plan. For more on responsibility determinations, see CRS Report R40633, Responsibility
Determinations Under the Federal Acquisition Regulation: Legal Standards and Procedures, by Kate M. Manuel.
62 15 U.S.C. § 637(d)(6).
63 15 U.S.C. § 637(d)(8).
64 48 C.F.R. § 19.705-7. Liquidated damages are damages whose amount was agreed upon, as compensation for
specific breaches, by the parties during the contract’s formation.
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also consider the extent of subcontracting with SDBs in determining to whom to award a
contract,65 or give contractors “monetary incentives” to subcontract with SDBs.66 Such incentives
reward prime contractors by paying them up to 10% of the amount by which their actual
performance in subcontracting with SDBs exceeds their proposed performance.67
Disadvantaged Business Enterprises
Like 8(a) participants and SDBs, “disadvantaged business enterprises” (DBEs) are small
businesses at least 51% unconditionally owned and controlled by socially and economically
disadvantaged individuals.68 However, DBEs differ from 8(a) participants and SDBs in that
members of the following groups—which include women—are presumed to be both socially and
economically disadvantaged:
(i) “Black Americans,” which includes persons having origins in any of the Black racial
groups of Africa; (ii) “Hispanic Americans,” which includes persons of Mexican, Puerto
Rican, Cuban, Dominican, Central or South American, or other Spanish or Portuguese
culture or origin, regardless of race; (iii) “Native Americans,” which includes persons who
are American Indians, Eskimos, Aleuts, or Native Hawaiians; (iv) “Asian-Pacific
Americans,” which includes persons whose origins are from Japan, China, Taiwan, Korea,
Burma (Myanmar), Vietnam, Laos, Cambodia (Kampuchea), Thailand, Malaysia, Indonesia,
the Philippines, Brunei, Samoa, Guam, the U.S. Trust Territories of the Pacific Islands
(Republic of Palau), the Commonwealth of the Northern Marianas Islands, Macao, Fiji,
Tonga, Kirbati, [T]uvalu, Nauru, Federated States of Micronesia, or Hong Kong; (v)
“Subcontinent Asian Americans,” which includes persons whose origins are from India,
Pakistan, Bangladesh, Bhutan, the Maldives Islands, Nepal or Sri Lanka; (vi) Women; (vii)
[a]ny additional groups whose members are designated as socially and economically
disadvantaged by the SBA, at such time as the SBA designation becomes effective.69

65 48 C.F.R. § 19.1202-3 (“In developing an SDB participation evaluation factor or subfactor for the solicitation,
agencies may consider—(a) [t]he extent to which SDB concerns are specifically identified; (b) [t]he extent of
commitment to use SDB concerns (for example, enforceable commitments are to be weighted more heavily than non-
enforceable ones); (c) [t]he complexity and variety of the work SDB concerns are to perform; (d) [t]he realism of the
proposal; (e) [p]ast performance of offerors in complying with subcontracting plan goals for SDB concerns and
monetary targets for SDB participation; and (f) [t]he extent of participation of SDB concerns in terms of the value of
the total acquisition.”).
66 48 C.F.R. § 19.1203 (“The contracting officer may encourage increased subcontracting opportunities in the NAICS
Industry Subsector as determined by the Department of Commerce for SDB concerns in negotiated acquisitions by
providing monetary incentives.... Monetary incentives shall be based on actual achievement as compared to proposed
monetary targets for SDB subcontracting.”).
67 48 C.F.R. § 52.219-26(b) (“If the Contractor exceeds its total monetary target for subcontracting to small
disadvantaged business concerns in the authorized, NAICS Industry Subsectors, it will receive ____________
[Contracting Officer to insert the appropriate number between 0 and 10] percent of the dollars in excess of the
monetary target, unless the Contracting Officer determines that the excess was not due to the Contractor’s efforts (e.g.,
a subcontractor cost overrun caused the actual subcontract amount to exceed that estimated in the offer, or the excess
was caused by the award of subcontracts that had been planned but had not been disclosed in the offer during contract
negotiations).”).
68 49 C.F.R. § 26.5 (defining “disadvantaged business enterprise”). SBA size standards are used in determining whether
DBE firms are “small.” 49 C.F.R. § 26.65(a).
69 49 U.S.C. § 26.5. Members of these groups may be required to present evidence of their membership in the group,
including showing that they held themselves out as a member of the group over a “long period of time prior to
application for certification” and are regarded as a member of the group by the relevant community. 49 C.F.R. §
26.63(a)(1) & (b).
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Members of these groups must nonetheless submit a signed, notarized statement regarding their
group membership,70 as well as information concerning their economic disadvantage.71
Additionally, their net worth cannot exceed $750,000,72 excluding their ownership interest in the
DBE firm and equity in their primary residence.73 Individuals who are not members of designated
groups must demonstrate by a preponderance of the evidence that they are socially and
economically disadvantaged.74
Certification of DBEs
8(a) firms and SDBs are not automatically deemed to be DBEs.75 However, their application for
8(a) status or SDB certification generally suffices as their application for DBE certification,76 and
they must be granted DBE certification unless the certifying entity determines, based on an on-
site visit to the firm and related information, that the firm does not meet eligibility requirements.77
Firms that are not 8(a) participants or SDBs can only be certified as DBEs after they are found to
be eligible based upon (1) an on-site visit with the firm, including interviews with its principal
officers; (2) an on-site visit to any job sites operated by the firm; (3) an analysis of the ownership
of stock in the firm, as well as its bonding and financial capacity; (4) the firm’s work history,
including the contracts it has received and the work it has completed; (5) a statement from the
firm indicating its preferred type(s) of work and work locations; (6) a list of equipment owned by
or available to the firm; and (7) a completed application form.78 All certifications must be final
before the due date for bids or offers for any contract on which a firm seeks to participate as a
DBE.79
Once certified, DBEs must provide written notices of any changes in circumstances affecting
their eligibility as these changes occur.80 They must also produce a sworn affidavit affirming that
there have been no changes in circumstances affecting the firm’s eligibility each year on the
anniversary of their date of certification.81
Certification lasts for at least three years, and firms cannot be required to reapply for certification
as a condition of continuing participation in the program unless the factual basis upon which the
certification was made changes.82 Assuming firms must be recertified, there is no limit on the

70 49 C.F.R. § 26.65(a).
71 49 C.F.R. § 26.61(c); 49 C.F.R. § 26.67(a)(2)(ii).
72 49 C.F.R. § 26.67(a)(2)(i).
73 49 C.F.R. § 26.67(a)(2)(iii)(A)-(B).
74 49 C.F.R. § 26.61(d).
75 49 C.F.R. § 26.84(c) (requiring the certifying entity to conduct an on-site review before certifying an 8(a) participant
or SDB as a DBE).
76 49 C.F.R. § 26.84(a). However, the certifying entity may require 8(a) participants and SDBs to submit information
not included in their applications for the 8(a) Program or SDB certification. 49 C.F.R. § 26.84(b).
77 49 C.F.R. § 26.84(d).
78 49 C.F.R. § 26.83(c)(1)-(7). This application form can be found in Appendix F to Part 26 of Title 49 of the Code of
Federal Regulations.
79 49 C.F.R. § 26.81(c).
80 49 C.F.R § 26.83(i).
81 49 C.F.R. § 26.83(j).
82 49 C.F.R. § 26.83(h) (“Once you have certified a DBE, it shall remain certified for a period of at least three years
unless and until its certification has been removed through the procedures of Sec. 26.87. You may not require DBEs to
(continued...)
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number of times they may be recertified. Certifications are state-specific,83 although states may
recognize one another’s certifications.84
Contracting Programs for DBEs
DBEs are eligible for various contracting programs, most of which are operated by state
governments and other entities that receive certain federal highway or transit funds, or airport
funds.85 The federal government has as a goal that 10% of such funds be awarded to DBEs.
However, this is “an aspirational goal at the national level” and “does not authorize or require
[funding] recipients to set overall or contract goals at the 10 percent level, or any other particular
level, or to take any special administrative steps if their goals are above or below 10 percent.”86
Funding recipients also set goals for DBE participation overall and on individual contracts that
have the possibility of subcontracting.87 However, they are barred from using “quotas,” or
requiring that certain percentages of their contract dollars go to DBEs, and they can “set aside”
contracts for DBEs only “in limited and extreme circumstances … when no other method could
be reasonably expected to redress egregious instances of discrimination.”88 Instead, they must use
race-neutral means to meet “the maximum feasible portion” of these goals.89 Such means include
• arranging solicitations, times for the presentation of bids, quantities,
specifications, and delivery schedules so as to facilitate DBE participation (e.g.,
unbundling contracts; encouraging prime contractors to subcontract work that
they would otherwise perform in-house);
• limiting obstacles that DBEs may encounter in obtaining bonding or financing
(e.g., simplifying bonding processes; eliminating surety costs from bids);
• providing technical assistance and other services;
• publicizing contract opportunities and providing information about contracting
procedures (e.g., providing information in languages other than English);
• assisting DBEs in developing and improving their business management, record
keeping, and financial and accounting capabilities;

(...continued)
reapply for certification as a condition of continuing to participate in the program during this three-year period, unless
the factual basis on which the certification was made changes.”).
83 See 49 C.F.R. § 26.81(a) & (b)(1) (requiring all recipients of federal funding within a state to participate in a Unified
Certification Program (UCP), whose DBE certifications are binding on recipients in that state).
84 49 C.F.R. § 26.81(e)-(f).
85 49 C.F.R. § 26.3(a).
86 49 C.F.R. § 26.41(b)-(c).
87 49 C.F.R. § 26.45(a)(1). These goals are to be based on demonstrable evidence of the availability of ready, willing
and able DBEs relative to the availability of other firms ready, willing and able to participate on the contract. 49 C.F.R.
§ 26.45(b). See also 49 C.F.R. § 26.51(e)(1) (goals only on contracts with subcontracting possiblity); 49 C.F.R. §
26.41(f)(3) (requiring funding recipients to project the portions of the overall goal to be met through race-conscious and
race-neutral means).
88 49 C.F.R. § 26.43.
89 49 C.F.R. § 26.51(b).
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• providing services to help DBEs develop, participate in various kinds of work,
and achieve self-sufficiency;
• assisting new start-up firms, particularly in fields where DBE participation has
historically been low;
• distributing DBE directories to potential prime contractors; and
• assisting DBEs to develop their capability to utilize emerging technology and
conduct business through electronic media.90
Funding recipients cannot be penalized for failure to meet their goals unless they did not
administer their DBE program in good faith.91
Recipients may also establish development and mentor-protégé programs for DBEs, although
participants in any mentor-protégé programs do not enjoy the same exemption from the SBA size
standards when they form joint ventures as 8(a) firms participating in the SBA mentor-protégé
program do.92
Tabular Comparison of the Various Types of Disadvantaged Small
Businesses
Table 2 provides a comparison of the various types of disadvantaged small businesses for
purposes of federal and federally funded contracting programs.
Table 2. Comparison of the Various Types of Disadvantaged Small Businesses
8(a)
Participant
SDB
DBE
Social
Presumed for designated racial
Presumed for designated racial
Presumed for designated racial
disadvantage
and ethnic groups
and ethnic groups
and ethnic groups

Not presumed for women
Not presumed for women
Presumed for women
Economic
Not presumeda
Not presumeda
Presumed for designated racial
disadvantage
and ethnic groups and women
Personal net worth of less than Personal net worth of less than
$250,000 at time of application $750,000
Personal net worth of less than
($750,000 thereafter)
$750,000

Application or Firms apply to the SBA
8(a) participants deemed to be
8(a) participants and SDBs not
certification
SDBs; other firms certified by
deemed to be DBEs, but their
process
Firms must be approved
procuring agencies, private
application can be denied only in
before participating
certifying entities, or state or
certain circumstances; other
Initial application form with
local governments
firms must be certified by the
supporting materials
Unified Certification Program for
Firms can participate as prime
the state of the funding recipient
Mandatory disclosure of
contractors while certification is
changes in circumstances
pending and as subcontractors
Firms must be certified before
with good faith belief in their
participating in programs
Annual renewal form with

90 49 C.F.R. § 26.51(b)(1)-(9).
91 49 C.F.R. § 26.47(a).
92 See Small Business Size Regulations, 74 Fed. Reg. at 55694.
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8(a)
Participant
SDB
DBE
supporting materials; may need eligibility
On-site reviews conducted
audited financial statements
Mandatory disclosure of changes
in circumstances
Sworn affidavit annual y on
anniversary of certification
Length of
One time eligibility for firms
Certification lasts three years;
Certification lasts at least three
designation
and disadvantaged individuals;
firms may seek and be certified
years; if necessary, firms may
no more than nine years in the
multiple times
seek and be certified multiple
8(a) Program
times
Contracting
Set-asides and sole-source
5% government-wide goal for
10% national goal for contracting
and related
contracts
contracting and subcontracting
and subcontracting
programs
Direct and guaranteed loans
Agency-specific goals for
Recipient-set goals, including on
from the SBA
contracting and subcontracting
individual contracts
Transfer of federal technology
Subcontracting plans
Race-neutral means to meet
and surplus property
goals, if possible
Subcontracting an evaluation
Management and technical
factor
Development programs
assistance
Monetary incentives for
Mentor-protégé programs
Mentor-protégé program
subcontracting
Source: Congressional Research Service, based on 13 C.F.R. §§ 124.1-12.1014 and 49 C.F.R. §§ 26.1-26.109.
a. Individually owned firms only. Group-owned firms are treated somewhat differently.
Constitutionality of Federal Programs for
Disadvantaged Small Businesses
All federal programs for disadvantaged small businesses currently define “disadvantage,” in part,
based on the presumption that racial and ethnic minorities, or women, are disadvantaged.93
Presumptions based on race have been found to constitute “explicit racial classifications,”94
subjecting programs that incorporate them to “strict scrutiny” when such programs are challenged
as violations of due process and equal protection under the U.S. Constitution.95 For a challenged
program to survive strict scrutiny, the government must show that the program is necessary to a
compelling government interest.96 The U.S. Court of Appeals for the Federal Circuit recently
stuck down a Department of Defense program for SDBs because the government could not show
a “strong basis in evidence” for concluding that the program was necessary to remedy
discrimination in the defense industry.97 Presumptions based on sex may also be subjected to

93 See 13 C.F.R. § 124.103(b)(1) (8(a) participants); 13 C.F.R. § 124.1001(a) (SDBs); 49 C.F.R. § 26.5 (DBEs).
94 Rothe Dev. Corp. v. Dep’t of Defense, 545 F.3d 1023, 1035 (Fed. Cir. 2008).
95 Due process under the Fifth Amendment includes equal protection, or the constitutional assurance that the
government will apply the law equally to all people and not improperly prefer one class of people over another. See
Bolling v. Sharpe, 347 U.S. 497 (1954).
96 Adarand Constructors, Inc. v. Peña, 515 U.S. 200 (1995). See generally CRS Report RL33284, Minority Contracting
and Affirmative Action for Disadvantaged Small Businesses: Legal Issues, by Jody Feder.
97 Rothe Dev. Corp., 545 F.3d at 1049. In determining whether there was a “strong basis in evidence,” the court
examined the empirical studies upon which the government relied in concluding that there was discrimination in the
(continued...)
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heightened scrutiny if challenged, because courts have required the government to show that
other programs classifying individuals on the basis of sex are substantially related to important
government objectives.98 Something like a “strong basis in evidence” might thus be required for
programs incorporating the presumption that women are disadvantaged.99
Recently Enacted or Proposed Legislation
In part because of small businesses’ widely recognized role in job creation100 and concerns that
the recent recession has disproportionately affected disadvantaged small businesses,101 the 111th
Congress enacted legislation that assisted disadvantaged small businesses in various ways,
including by:
• giving SDBs special consideration in the selection of grant recipients under the
Broadband Technology Opportunities Program funded by the American
Recovery and Reinvestment Act (ARRA);102
• providing bonding assistance for DBEs performing transportation contracts
funded under ARRA;103
• allowing the U.S. Agency for International Development to issue orders under
certain multiple-award indefinite-delivery, indefinite quantity (ID/IQ) contracts

(...continued)
defense industry, including their geographical scope, their currency, and whether they were “before” Congress. For
more on the Rothe decision, see CRS Report R40440, Rothe Development Corporation v. Department of Defense: The
Constitutionality of Federal Contracting Programs for Minority-Owned and Other Small Businesses, by Jody Feder
and Kate M. Manuel.
98 See, e.g., Craig v. Boren, 429 U.S. 190, 197 (1976). In United States v. Virginia, the Court required the State of
Virginia to provide an “exceedingly persuasive justification” for its policy of maintaining an all-male military academy.
518 U.S. 515 (1996). It is unclear whether this standard differs from the intermediate scrutiny standard of review.
99 During the Bush Administration, the SBA extended the comment period on a proposed rule regarding set-asides for
women-owned small businesses in order to “review” the evidence underlying its determinations regarding the
industries in which women are underrepresented. See Small Business Administration, The Women-Owned Small
Business Federal Contract Assistance Procedures: Eligible Industries, 74 Fed. Reg. 1153 (Jan. 12, 2009). Set-asides for
women-owned firms are only possible in industries in which the SBA has determined that women-owned firms are
underrepresented. See 15 U.S.C. § 637(m)(2)(A)-(F) & (m)(4). However, the Obama Administration has issued final
regulations regarding set-asides for women-owned small businesses that are scheduled to take effect on February 4,
2011. See Small Business Administration, Women-Owned Small Business Federal Contract Program; Final Rule, 75
Fed. Reg. 62258 (Oct. 7, 2010). Among other things, these regulations identify 83 industries in which women are
underrepresented or substantially underrepresented.
100 See, e.g., Mark Trumbull, Why Obama Job Creation Plan Focuses on Small Business, The Christian Science
Monitor, Dec. 8, 2009, available at http://features.csmonitor.com/politics/2009/12/08/why-obama-job-creation-plan-
focuses-on-small-business (noting that small businesses are reported to have created 65% of all new jobs in the United
States over the past 15 years).
101 See, e.g., John Rosenthal, Tough Times Often Even Tougher on Minority Biz, Chicago Business, Nov. 30, 2009,
available at http://www.chicagobusiness.com/cgi-bin/mag/article.pl?articleId=32738&seenIt=1.
102 P.L. 111-5, § 6001(h)(3), 123 Stat. 515 (Feb. 17, 2009).
103 Id. at Title XII, 123 Stat. 207. Contractors are often required to post bid, performance, payment and/or patent
infringement bonds, the proceeds of which are used to pay the government for any losses it sustains when the
contractor fails to perform as required.
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funded by the Omnibus Appropriations Act, 2009 to SDBs, among others,
without providing other firms a fair opportunity to be considered;104
• granting the Department of the Interior special authority to contract with SDBs,
among others, for forest hazardous fuels reduction, watershed or water quality
monitoring or restoration, wildlife or fish population monitoring, or habitat
restoration or management;105 and
• establishing a three-year program to provide grants to states for use in carrying
out programs that assist 8(a) firms and other small firms in doing business
abroad.106
Legislation reflecting concerns about disadvantaged small businesses may be reintroduced in the
112th Congress.107 Members of the 112th Congress may also review agency programs for

104 P.L. 111-8, § 7034, 123 Stat. 877 (Mar. 11, 2009). The Federal Acquisition Streamlining Act of 1994 generally
requires that all contractors holding a multiple-award ID/IQ contract be given a “fair opportunity to be considered” for
the issuance of orders under that contract unless certain conditions are met. See 10 U.S.C. § 2304c(b)(1)-(4)
(procurements of defense agencies) & 41 U.S.C. § 303j(b)(1) (procurements of civilian agencies).
105 Interior Department and Further Continuing Appropriations, Fiscal Year 2010, P.L. 111-88, § 413, 123 Stat. 2958-
59 (Oct. 30, 2009).
106 Small Business Jobs and Credit Act of 2010, P.L. 111-240, § 1207, 124 Stat. 2532-35 (Sept. 27, 2010).
107 Examples of legislation that was introduced, but not enacted, in the 111th Congress, include the following: Minority
Small Business Enhancement Act of 2009, H.R. 2299, § 2 (increasing the net-worth threshold to $1.5 million;
exempting businesses that have not completed an 8(a) contract from time limits on participation in the 8(a) Program;
and raising the government-wide goal for contracting with SDBs to 10%); An Act to Amend the Small Business Act to
Change the Net Worth Amount Under the Small Business Program for Socially and Economically Disadvantaged
Individuals from $750,000 to $978,722, and For Other Purposes, H.R. 4253, § 1; 8(a) Improvements Act, S. 3458, § 4
(requiring periodic adjustment of the net worth thresholds for inflation and extending the maximum term of the 8(a)
Program); Promoting Jobs for Veterans Act of 2009, H.R. 4220, § 104 (extending the maximum term of participation in
the 8(a) Program for individuals called to “active duty” in the U.S. military for more than 30 days); Expanding
Opportunities for Main Street Act of 2010, H.R. 4929, § 101 (increasing agencies’ authority to make sole-source
awards to 8(a) firms and requiring that agencies implement set-asides for such firms “to the extent practicable”); Small
Business Training in Federal Contracting Certification Act of 2010, S. 3444 (establishing a program to certify
acquisition personnel in various things, including use of 8(a) and other set-asides); Homeland Security Science and
Technology Authorization Act of 2010, H.R. 4842, § 303 (requiring a report on the role of the venture capital
community in funding advanced homeland security technologies, including the possibility of set-asides for 8(a) and
other types of small businesses); An Act to Amend the Small Business Act to Establish Mentorship and Assistance
Programs Designed to Help Minority, Veteran-Owned, and Women-Owned Small Businesses Operate in the
Construction Industry, and For Other Purposes, H.R. 3771, § 2; Transportation Security Administration Authorization
Act, H.R. 2200, § 103 (requiring that contractors holding Transportation Security Administration contracts in excess of
$300 million implement their plans for contracting with SDBs and report periodically on this implementation, including
the percentages of contract dollars awarded to all tiers of SDB subcontractors); Coast Guard Authorization Act of 2010,
H.R. 3619, § 221 (encouraging heads of certain federally funded laboratories at minority-serving institutions to
establish partnerships with SDBs for the purpose of increasing R&D capacity, among other things); An Act to Require
the Comptroller General of the United States to Carry Out a Study on Procurement under the American Recovery and
Reinvestment Act of 2009, S. 3429; An Act to Amend Title 49, United States Code, to Require That Not Less Than
10% of the Amounts Made Available to Certain High-Speed Rail Projects be Expended through Small Business
Concerns Owned and Controlled by Socially and Economically Disadvantaged Individuals, and for Other Purposes,
H.R. 5010; Aviation Safety and Investment Act of 2010, H.R. 1586 (increasing the net worth threshold for DBEs and
requiring that this threshold be annually adjusted for inflation; excluding retirement income from net worth calculations
for DBEs; and prohibiting the imposition of “excessive, unreasonable, or discriminatory bonding requirements” upon
DBEs); FAA Air Transportation Modernization and Safety Improvement Act, H.R. 1586, § 715 (requiring that airport
concessionaires receive training on certification of DBEs); BUILD Act of 2010, H.R. 5935 (providing additional
bonding assistance to DBEs); Hiring Incentives to Restore Employment Act, H.R. 2847, § 451 (requiring that no less
than 10% of the funds made available under certain statutes go to DBEs, and that the Secretary of Transportation
establish minimum criteria for certifying DBEs).
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disadvantaged small businesses, including proposed regulatory changes to the eligibility and
certification requirements for 8(a) firms and DBEs, discussed below.
Proposed Changes in Regulations
The Obama Administration has issued two proposed regulations that would make changes to the
eligibility and certification requirements for the 8(a) and DBE programs, in particular. On
October 28, 2009, the Small Business Administration issued a proposed rule that would exclude
certain property when calculating net worth for 8(a) firms and SDBs (e.g., retirement funds,
income from S corporations).108 This rule would also establish a rebuttable presumption that
individuals are not economically disadvantaged if their adjusted gross income averaged over the
past two years exceeds $200,000.109 Later, on May 10, 2010, the Department of Transportation
issued a proposed rule that would increase the net worth threshold for DBEs to $1.3 million;
require that the net worth threshold be annually adjusted for inflation; and exclude certain
retirement income from net worth determinations.110 This rule would also (1) require funding
recipients who fail to meet their goals for contracting with DBEs to report on why they failed and
what they will do to correct any identified problems; (2) establish a rebuttable presumption that
firms certified in one state are certifiable in another;111 (3) make clear that certifications do not
need to be renewed, but instead last until a firm is decertified; (4) require funding recipients to
concur in terminations or substitutions of DBE subcontractors; (5) prohibit new firms from being
denied certification because they lack experience; and (6) allow the use of race-conscious goals in
certain circumstances.112 Although the comment periods on both proposed regulations have
closed, final regulations had not been issued for either the 8(a) or DBE program as of January 1,
2011.

Author Contact Information

Kate M. Manuel

Legislative Attorney
kmanuel@crs.loc.gov, 7-4477


108 74 Fed. Reg. at 55698-99.
109 Id. at 55699.
110 Dep't of Transportation, Disadvantaged Business Enterprise: Program Improvements, 75 Fed. Reg. 25815 (May 10,
2010); Small Business Administration, Small Business Size Regulations.
111 This would mean that the state seeking to deny certification to a firm that is certified in another state would have the
burden of proving that the firm should not be certified in the second state.
112 Id. at 25818-23.
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