To be eligible to participate in the 8(a) Business Development Program, an applicant firm must be a small business that is at least 51% owned and controlled by a socially- and economically-disadvantaged individual (or individuals) who are of good character and citizen(s) of the United States. The firm, moreover, must show a potential for success.
The Small Business Administration’s internal watchdog (the Office of Inspector General, or OIG) recently raised its continuing concerns regarding the admission of several entities to the 8(a) Program. The OIG’s report is worth reading, as it may lead to changes in the 8(a) Program’s eligibility criteria.
Before getting into the OIG’s recommendations, a bit of history is helpful. In April 2016, the OIG reviewed the eligibility of 48 different 8(a) firms and concluded that the Associate Administrator for Business Development (AA/BD) didn’t adequately address eligibility concerns for 30 of them (a whopping 62.5%). In July 2017, the OIG conducted an audit to determine whether the eligibility concerns for these 30 firms were adequately resolved.
Of these 30 firms, the OIG found that 20 of them had adequately resolved their eligibility concerns by providing sufficient documentation demonstrating their status. The AA/BD, moreover, provided written support for the firms’ 8(a) approval.
For 10 of these firms, however, the OIG found continuing concerns with eligibility. These concerns touched each of the 8(a) Program’s requirements, and all but 2 of the firms had issues under multiple eligibility requirements: 2 of the firms didn’t demonstrate they were small; 2 did not demonstrate control by a disadvantaged individual, and 2 more didn’t demonstrate ownership by a disadvantaged individual; 2 might not have had good character; and 7 didn’t demonstrate a potential for success. Because the AA/BD “is the final decision authority for the 8(a) program[,]” the OIG placed blame for these continuing concerns at the AA/BD’s feet, writing:
The additional information considered by the AA/BD did not sufficiently address that 10 of the 30 firms met eligibility requirements by either not fully documenting or addressing all concerns from lower-level reviewers or not obtaining sufficient assurance to prove eligibility.
Given the significant benefits that come from participating in the 8(a) Program, the OIG rightly noted these concerns with alarm. As the report noted, in its summary:
Absent adequate documentation to demonstrate that participants met all eligibility requirements, SBA lacks assurance that only eligible firms receive the benefits of the 8(a) program. Unqualified firms that receive Federal contracts jeopardize the integrity of the 8(a) program.
None of this would shock seasoned government contractors. Many 8(a) participants could probably share stories of other participants they think aren’t eligible, for one reason or another. So what’s to come of this report?
The OIG included three recommendations for the SBA’s 8(a) Program Office. First, OIG recommended the AA/BD conduct continuing eligibility reviews for the 10 firms specifically discussed in its report. Its second and third recommendations are of broader applicability: develop specific measurements to monitor the performance and compliance of 8(a) applicants when there are concerns about the applicant’s eligibility, and adjust eligibility requirements as needed.
These recommendations are modest steps to address some of the perceived issues with the 8(a) Program. Though the SBA has balked at implementing them, it has said that it will strengthen its evaluation procedures when there is concern expressed about eligibility. Going forward, it will be interesting to see how these strengthened procedures are implemented and what their impact might be. We’ll follow any developments, so check back for additional information.