The Associated General Contractors of America (AGC) has filed suit to enjoin the Small Business Administration (SBA) from using draft questionnaires issued last month directed at Paycheck Protection Program (PPP) borrowers who received PPP loans of $2 million or more. The AGC lawsuit echoes and expands on the deficiencies and improprieties that we pointed out in our prior article. The questionnaires concern the so-called uncertainty certification (sometimes referred to as the "necessity certification").1 Many of the questions focus on the business's operations after  receiving the PPP loans to gauge the uncertainty the business faced at the time of the PPP loan application. Nevertheless, the SBA has been instructing PPP lenders to issue a questionnaire to their PPP borrowers with loans of $2 million or more. Compounding the problems, PPP borrowers have to respond to the questionnaire within 10 business days. The AGC lawsuit seeks to enjoin the SBA from using those questionnaires and to compel the SBA to revise the questionnaires to reflect applicable procedural and substantive laws. 

The complaint, filed in federal district court in D.C., asserts that the process that produced the questionnaires, as well as the questionnaires themselves, violate the Paperwork Reduction Act and the Administrative Procedures Act and that the federal agencies failed to meet the minimum standards for due process. AGC asks the court to declare that the questionnaires are arbitrary and capricious and declare that the SBA cannot lawfully use the information that the questionnaires generate to find a company ineligible for a PPP loan or deny a company's application for forgiveness of its loan.

More specifically, the complaint alleges that the government disregarded the legally mandated process for developing such questionnaires, claiming that the Office of Management and Budget (OMB) authorized the SBA to use the form in complete secrecy instead of releasing it and providing a 60-day period for public comment. The agencies also violated the Administrative Procedure Act by arbitrarily declaring — to bypass the normal review process — that the new questionnaire required approval on an "emergency" basis and did not constitute a change in the scope of SBA's prior information collection process. The complaint suggests that the procedural shortcomings were intentionally designed to obviate the Congressional intent of the PPP.

Substantively, the lawsuit (correctly in our opinion) argues that the CARES Act, in establishing the PPP, only required loan applicants to make a "good faith certification that the uncertainty of current economic conditions makes necessary the loan request...." Instead of asking borrowers about the foundation for their uncertainty when applying for their loans, the questionnaires attempt to impose a means test, a revenue impact test and a liquidity test that Congress never contemplated. The questionnaires also focus on subsequent events that few companies could have predicted when applying. Indeed, the questionnaires seem to ignore the beneficial impact on borrower revenue that PPP funds often enabled — precisely in accordance with Congressional goals of preserving our economy.

We applaud the AGC for initiating suit to halt such government improprieties on behalf of all PPP borrowers.


1 The uncertainty certification is the certification that PPP applicants made that "Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."

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