On Friday, September 29, 2023, the federal government filed its response to Ultima Services Corporation’s September 15^th filing in the Ultima case. As a reminder, in its September 15^th filing, Ultima Services Corporation asked for a court order:

• to enjoin the federal government from using the 8(a) program in the administrative and technical support industry at all, which is not specifically defined by Ultima but would likely include NAICS Codes 541611 (Administrative Management and General Management Consulting Services), 561110 (Office Administrative Services), and 561320 (Temporary Help Services);
• either to appoint a monitor to review the SBA’s certification of 8(a) participants who previously had received the benefit of the rebuttable presumption, or to make the narrative essays of social disadvantage (and the SBA’s decision with respect to each of them) public with appropriate redaction of identifying information; and
• to immediately and temporarily enjoin the federal government from awarding, completing, modifying, or exercising options on any 8(a) contracts involving 8(a) entities who entered the 8(a) program based on the rebuttable presumption, regardless of whether the SBA subsequently approved a “narrative of social disadvantage,” until the District Court resolves the merits of Ultima’s new request for equitable relief.

In response, the federal government argued that Ultima’s motion has no basis in the facts or the law, and repeatedly noted that Ultima’s requested remedy would go far beyond its alleged injury and impact 8(a) entities that did not rely upon the rebuttable presumption for entry in the 8(a) program, including Tribes and Alaska Native Corporations.

The federal government took a forceful position against Ultima’s request for an order that would enjoin the federal government from using the 8(a) Program in the administrative and technical support industry. The federal government argued that Ultima:

cannot demonstrate it is entitled to an injunction eliminating a program that does not use a race-based presumption or classification. Most importantly, it has not shown it suffers any cognizable harm from an 8(a) program that operates without use of a rebuttable presumption. Any injury that Plaintiff allegedly suffers now—by not being able to compete for contracts under a program that does not use any race-based presumption—does not flow from the practice the Court found to be a constitutional violation. Nor has Plaintiff alleged that SBA improperly has or will deny its entry into the program under the post-July 19 procedures. Further, a challenge to a presumption-free 8(a) program is not before the Court, and any such challenge would be subject to rational basis review, which it easily would survive. See Rothe Dev. Corp. v. Dep’t of Def., 836 F.3d 57, 72-73 (D.C. Cir. 2016).

Notably, the federal government also recognized and argued that Ultima’s requested order would impact Alaska Native Corporations and Indian Tribes that never relied on the rebuttable presumption:

Plaintiff’s request here would require government-wide sequestration from the 8(a) program of multiple types of services and awards in multiple industries with multiple NAICS codes with no set end date. It would preclude all 8(a) participants, even entity-based participants like Indian tribes and Alaska Native Corporations that never relied on the presumption—and that the parties agree were not affected by the Court’s July 19 order—from contract awards in these industries through the 8(a) program. Such relief would extend far beyond Plaintiff’s injury and the constitutional violation identified. Plaintiff’s efforts to have the Court expand its injunction to reach nonparty federal agencies and small businesses contravenes Sixth Circuit authority holding that “[a]court order that goes beyond the injuries of a particular plaintiff to enjoin government action against nonparties exceeds the norms of judicial power.” Skrmetti, 73 F.4th at 415. (emphasis added).

With regard to the scope of Ultima’s request to enjoin the federal government from using the 8(a) program in the administrative and technical support industry, the federal government views Ultima’s request as encompassing NAICS code 541611 (Administrative Management and General Management Consulting Services), NAICS code 561110 (Office Administrative Services), and NAICS code 561320 (Temporary Help Services).

The federal government also addressed Ultima’s complaints about how the SBA is determining whether individuals are socially disadvantaged. The federal government stated that the SBA is reviewing submissions “under the preponderance of the evidence standard,” and that “[s]ince the Court’s order, all social disadvantage determinations have been made using the standard previously used for applicants who were not members of the designated groups entitled to rely on the presumption.”

The federal government also responded to Ultima’s argument that the District Court’s injunction prevents federal agencies from exercising options on contracts awarded prior to the date of the injunction. The federal government argued that the FAR defines when the SBA’s approval must be obtained, and that is the process being followed:

Defendants are not arbitrarily picking and choosing points in the 8(a) program at which to apply a social disadvantage review, but instead have interpreted the injunction consistent with longstanding federal regulations. Those regulations, including both SBA regulations and the Federal Acquisition Regulations (“FAR”), are explicit about the circumstances when SBA must make eligibility determinations (and thus potentially use the presumption) and when it does not. They provide that SBA must make an eligibility determination when accepting sole source contracts into the program, 13 C.F.R. § 124.501(g), when approving a competitive acquisition, id. § 124.507(b), when reviewing participants’ annual submissions, id. § 124.112(b), and when procuring authorities seek to exercise unpriced options and out-of-scope modifications, id. § 124.514(a), (c). SBA is not required to make such a determination when an agency exercises a priced option or an in-scope modification.

The SBA also forcefully objected to Ultima’s request that the District Court appoint a monitor to oversee the SBA’s determination of social disadvantage, or bar the SBA from making any such determinations. The federal government pointed out that Ultima did not challenge the SBA’s application of the regulation requiring proof of social disadvantage (13 C.F.R. § 124.103(c)), but only the rebuttable presumption that certain classes of people were presumed to be socially disadvantaged. The federal government also noted that appointment of a monitor over a federal agency is an extraordinary measure and that Ultima had not established the contempt of court or substantial government misconduct that has supported appointment of monitors over other federal agencies in the past.

The federal government also objected to Ultima’s alternative request to make social disadvantage narratives public:

Plaintiff has offered only unfounded speculation to support its “need” for this protected information. On the other hand, the harm to small business owners would be significant. Evidence of social disadvantage submitted by business owners contains highly sensitive and personal information about discrimination and bias they have faced. Requiring such information to be released publicly may dissuade small business owners from applying to the program out of fear that their personal experiences of discrimination and bias would be available for public consumption and judgment. Plaintiff does not specify whether this largescale release of Privacy Act protected information would apply to all social disadvantage narratives submitted to SBA or only those of 8(a) participants that previously relied on the presumption. If the latter, the result would be that only business owners of certain races would be made to submit to such scrutiny. The Court should outright reject this request, which Plaintiff fails to support with any legal authority.

The federal government argued that Ultima’s request for an immediate order barring the SBA from awarding contracts to 8(a) entities who were originally admitted to the 8(a) program based on the rebuttable presumption of social disadvantage is too broad. The federal government contended that Ultima’s request is unsupported by the case law and, if such an order is entered, it would prevent the SBA “from approving the award of an 8(a) contract in any industry by any federal agency only to businesses owned by individuals of certain races—even if those business owners have since established social disadvantage without reliance on the presumption.”

Finally, the federal government objected to Ultima’s motion for an order barring the federal government from completing any additional reviews of social disadvantage narratives. The federal government argued that:

Such relief has no basis in this Court’s order, and it would prevent federal agencies that are not a party to this litigation from filling vital procurement needs for goods and services through the 8(a) program. It also would prevent only 8(a) participants owned by members of certain races from receiving contracts through the program—even if they have already established social disadvantage without the rebuttable presumption or may be fully capable of doing so—while participants owned by other races are free to receive 8(a) contract awards. Plaintiff offers no justification to disqualify only minority-owned businesses from receiving 8(a) awards, solely on the basis that they received the presumption through no fault of their own.

Ultima’s reply brief is due October 5, 2023. We will keep you updated.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.