Are you a Native-Hawaiian Owned (“NHO”) business interested in applying for the Small Business Administration (“SBA”) 8(a) Development Program (“8(a) Program”)? Ward and Berry provides this brief informative guide as to the legal framework and regulations for becoming an NHO (as defined by the SBA) and applying for the 8(a) Program.

 

Under 13 CFR 124.110(a), small businesses that are owned by economically disadvantaged Native Hawaiian Organizations (“NHOs”) are eligible to participate in the 8(a) program and other federal programs that require the SBA to determine social and economic disadvantage as a condition of eligibility, so long as they meet certain eligibility criteria. 13 CFR 124.110(a).

 

There are three general steps for becoming an 8(a) NHO-owned small business. First, the business must be owned by a “community service organization (“CSO”) which is a not for profit organization chartered by the State of Hawaii, is controlled by Native Hawaiians and whose business activities will principally benefit such Native Hawaiians. See Step 1 as to the requirements for forming an NHO. Then, the NHO must be the majority owner of a small business in the industry in which the NHO wants to pursue work. See Step 2 for more information as to forming a majority owned business. Once the NHO is registered as an NHO nonprofit formed primarily for the benefit of Native Hawaiians, then the NHO may apply for the SBA’s 8(a) Program so long as it meets the other eligibility criteria. See Step 3 for an explanation of the eligibility criteria.

 

Please note that this guide only addresses the legal requirements as well as tips and tricks for fulfilling those legal requirements. It does not address the myriad business considerations that come into play when creating an NHO for the 8(a) program.  Further, this guide does not explain the requirements necessary to maintain eligibility as an NHO or in the 8(a) Program. If you have questions or concerns about maintaining eligibility in the 8(a) Program, Ward and Berry is available to help.

 

Guide to forming an NHO and applying for the 8(a) Program

 

Step 1: Form an NHO

 

The SBA defines an NHO as “any community service organization serving Native Hawaiians in the State of Hawaii which is a not-for-profit organization chartered by the State of Hawaii, is controlled by Native Hawaiians, and whose business activities will principally benefit such Native Hawaiians.” 13 CFR 124.3 “Native Hawaiian Organization”. Therefore, the first step to qualifying for the 8(a) program or similar federal programs, is to form an NHO or partner with an existing NHO that has not yet created any subsidiaries for the purpose of applying for the 8(a) program and performing government contracts.

 

To Do List for Starting a new NHO:

1. Identify individuals who can serve on a board of directors. These individuals who will be in control of the organization must be registered with the Hawaiian Registry Program (HRP) for a Hawaiian Registry. https://www.oha.org/resources/hawaiian-registry/.
2. Register a domestic nonprofit corporation in Hawaii. https://cca.hawaii.gov/breg/registration/dnc/, which is controlled by Native Hawaiian board of directors.
3. Determine and describe how the nonprofit’s business activities will principally benefit the specific Native Hawaiians community that it is intended to serve (this is necessary to fulfill the requirements for economic disadvantage for the 8(a) program at 13 CFR 124.110(c) Specifically, the NHO must provide data showing the economic condition of the Native Hawaiian community that it intends to serve, including:

• The number of Native Hawaiians in the community that the NHO intends to serve;
• The present Native Hawaiian unemployment rate of those individuals;
• The per capita income of those Native Hawaiians, excluding judgment awards;
• The percentage of those Native Hawaiians below the poverty level;
• The access to capital of those Native Hawaiians; and
• Describe any activities that it has done to benefit Native Hawaiians at the time its NHO-owned firm applies to the 8(a) BD program

4. Ensure that the NHO’s bylaws or operating agreements identify the benefits Native Hawaiians will receive from the NHO. The NHO must have a detailed plan that shows how revenue is earned by the NHO.

 

Step 2: Create (or acquire) an entity that is majority owned and controlled by an economically disadvantage NHO that can successfully work in the desired industry and is small for the applicable North American Industry Classification System (“NAICS”) code.

 

After the NHO is created, it should next create the subsidiary for-profit entity that will actually apply for the 8(a) program and perform the government contracts.

 

This entity can be formed in any state; however, Hawaii is recommended for ease of administration.

 

The NHO is permitted to own and control more than one for profit business. The SBA will generally not consider the other businesses that an NHO owns as affiliated when determining whether an NHO-business is small.

 

The for-profit business will need a separate set of bylaws that is oriented toward for-profit work and allows for any minority partners in the for-profit business.

 

Step 3: Apply for the Small Business Administration 8(a) Development Program (8(a) Program) as an NHO-owned business.

 

To apply for the SBA 8(a) Program, the NHO-Owned business must meet certain eligibility criteria. The following is the list of requirements:

 

• Qualify as “small” as defined in 13 CFR 121. (13 CFR 124.110(b))
  • Under 13 CFR 121, the SBA has established size standards by NAICS code to determine whether a business is small. 13 CFR 121.101(a). The size standards are expressed either in number of employees or annual receipts in millions of dollars. 13 CFR 121.201.
  • For NHO-owned business, the SBA will determine the size of the business without regard to its affiliation with the NHO or other businesses owned by the NHO, unless the SBA determines that one or more of the NHO-owned concerns will have a substantial unfair competition. 13 CFR 124.110(b).

 

• Economically disadvantaged (13 CFR 124.110I).
  • The NHO must establish that it is economically disadvantaged and that its business activities will principally benefit Native Hawaiians. Once an NHO has established that it satisfies this requirement, it does not need to reestablish this status for other small businesses owned by the NHO.
  • NHO must present data showing the economic condition of the Native Hawaiian community it intends to serve, including: number of Native Hawaiians in that community, the present Native Hawaiian unemployment rate of those individuals, the pre capita income of those Native Hawaiians (excluding judgment awards), the percentage of Native Hawaiians below the poverty level, and access to capital of those native Hawaiians.
  • As evidence that the NHO is for the benefit of Native Hawaiians, the NHO must: (1) describe the activities it has done to benefit the Native Hawaiians at the time it applies to the 8(a) program; (2) have statements in its corporate documents (bylaws or operating agreements) identifying the benefits that Native Hawaiians will receive from the NHO; (3) have a detailed plan that shows how the NHO’s revenues primarily benefit Native Hawaiians. The SBA will review these requirements annually.

 

• Control (13 CFR 124.110(d)).
  • The NHO must control the applicant or 8(a) Participant firm. The NHO must show that it controls the board of directors, managing members, or managing partner. The NHO does not need technical expertise to run the business but must have managerial experience of the extent and complexity needed to run the business.
  • The NHO must unconditionally own at least 51% of the voting stock and at least 51% of the aggregate of all classes of stock.
  • The NHO can only have one business at a time primarily operating in the same NAICS code. See generally 13 CFR 124.110(f). Specifically, the NHO cannot own 51% or more of another firm which at the time of application or within the last two years was operating in the 8(a) program under the same primary NAICS code as the applicant business. However, this restriction does not apply if the NHO owns another 8(a) business that is conducting secondary business in the same NAICS code as the applicant firm’s primary business.

 

• Potential of Success (13 CFR 124.110(i)).
  • The NHO-owned applicant business must demonstrate potential for success by showing one of the following:
  • That it has been in business for at least two years, as evidence by income tax returns showing operating revenues in the primary industry in which the applicant is seeking 8(a) BD certification;
  • Individuals managing and controlling the daily business of the firm has substantial technical and management experience, and the applicant has a record of successfully performing contracts in the primary industry category and had adequate capital.
  • The NHO makes a firm written commitment to support the operations of the applicant control and shows that it has the financial ability to do so.

 

• Good Character (13 CFR 124.108(a)):
  • All 8(a) applicant businesses must demonstrate good character. The SBA will review any adverse information received from a credible source regarding possible criminal conduct. 13 CFR 124.108(a)(1). The SBA can deny participation in the 8(a) program if the applicant is involved in any violations of SBA regulations, has been debarred or suspended or is owned by a debarred or suspended person, is owned by someone who lacks business integrity, or is currently incarcerated or on parole or probation following the conviction of a felony, or if the applicant submits false information as part of its 8(a) application.

 

To do List for applying to the SBA 8(a) Program:

1. Register in sam.gov and obtain a Unique Entity Identifier (“UEI”).
2. Obtain a CAGE code: https://www.dla.mil/Working-With-DLA/Applications/Details/Article/2920893/cage-code-commercial-and-government-entity-code/
3. Apply for 8(a) certification – https://certify.sba.gov/. This step involves filling out an application and submitting the required documentation. Applicants can find guides to assist them on the application process at https://sbaone.atlassian.net/wiki/spaces/CHDB/pages/1294172161/Prepare+and+Submit+Your+8+a+Initial+Application.
4. Timely respond to requests for information and inquiries as needed from the SBA.

Conclusion

 

There are many advantages to applying for the 8(a) program and other federal programs as a NHO-owned small business, including being eligible to perform set-aside contracts for small business, 8(a) Participants, and for NHOs.  Ward & Berry is available to help with any issues or questions you may have with applying for 8(a) certification or responding to the SBA.