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Understanding the Dreaded SBA’s 8(a) 70% Rule

Understanding the Dreaded SBA’s 8(a) 70% Rule

I often run into firms that have spent the last few years working as a subcontractor for a federal prime contractor. These firms learn the benefits of obtaining an 8(a) Certification and becoming a prime contractor themselves. But when these firms go to apply, they find out about the dreaded 70% rule. Many of these firms have large opportunities in hand if they could obtain the 8(a) Certification.

I am going to go over the 70% Rule to provide a greater understanding of how it works, so firms can better prepare for compliance with this rule. As always, if you have any questions, feel free to click on the ‘Ask An Expert’ feature on 8a Magazine for clarification on this requirement, or any other thing pertaining to the 8(a) Certification, other Federal or State Certification, or GSA Schedule.

8(a) 70% Rule Basics
To qualify for the SBA 8(a) BD Program, not more than 70% of the firm’s billing can come from a single client. The most common methodology the SBA uses to evaluate the firm’s billing is on a rolling 12-month basis. I have created two examples below:

Example A: 8(a) Application Date July 1, 2021

 

This firm is eligible because its largest customer, ABC, represents only 66.67% of the firm’s billing on a 12-month basis.

Now let’s take a look at what happens if we wait until December 1, 2021, to apply. During the month of December in 2020, all of the firm’s billing comes from ABC, instead of XYZ

Example B: 8(a) Application Date December 1, 2021

 

This firm is ineligible because its largest customer, ABC, represents 70.83%, and is over the 70% threshold on a rolling 12-month basis.

Exceptions to the 70% Rule:
If a firm is applying with a two-year waiver and only has one client, the SBA will then waive the 70% requirement, because it is unlikely that a firm this new would have achieved the required level of client diversity.

If you are interested in exploring if the 8(a) Certification could have a profound impact on your firm’s business development potential, I always recommend contacting an industry expert such as ez8a or Advance 8a. Both do not charge for an initial consultation.

 

 
 

 

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