SBA Inspector General: 89% of WOSB Sole Source Contracts Were Improper

Nearly 90% of women-owned small business sole source contracts reviewed by the SBA Office of Inspector General were improper, according to a startling report issued yesterday.

In the study, the SBA OIG concluded that because of pervasive flaws in the award of WOSB and EDWOSB sole source contracts, “there was no assurance that these contracts were awarded to firms that were eligible to receive sole-source awards under the Program.”  And if that wasn’t enough, the SBA OIG reiterated its position that, as a legal matter, it is improper to award any WOSB or EDWOSB sole source contract to a self-certified company.

The SBA OIG studied 56 WOSB and EDWOSB sole source contracts awarded between January 1, 2016 and April 30, 2017.  This pool “represented 81 percent of the Program’s contracts awarded on a sole-source basis for this time period.”

The results were startling: SBA OIG determined that “Federal agencies’ contracting officers and firms did not comply with Federal regulations for 50 of the 56 Program sole-source contracts, valued at $52.2 million.”  As a result, there was no assurance that these contracts were awarded to eligible WOSBs and EDWOSBs.

Before awarding a WOSB or EDWOSB contract (whether set-aside or sole source), the Contracting Officer is required to confirm that the WOSB or EDWOSB has provided certain supporting documentation to the certify.sba.gov portal.  But SBA OIG found that “contracting officers awarded 18 contracts, valued at $11.7 million, on a sole-source basis” to companies with no documentation in the system.  Thirty-two sole source contracts were awarded to companies with incomplete documentation in the system.

“Awarding contracts to potentially ineligible firms eliminates contracting opportunities for eligible businesses,” the SBA OIG wrote.  “Further, the results associated with the Federal Government’s goals for contracting with WOSBs may be overstated, and the public and Congress may not know to which the Program has addressed underrepresentation.”

The SBA OIG pointed out that the 2015 National Defense Authorization Act, which allowed WOSBs to receive sole source contracts, also required the SBA to implement a formal certification program for WOSBs and EDWOSBs.  However, although the SBA implemented the sole source authority in October 2015, “SBA has not issued regulations pertaining to a certification progress for the Program.”  An SBA official interviewed by the SBA OIG “estimated that it will take at least another year to actually implement a certification process.”

Citing the plain language of the 2015 NDAA, SBA OIG repeated an opinion it has previously expressed–that it is against the law to award WOSB or EDWOSB sole source contracts to self-certified companies.  “OIG firmly contends that the enabling legislation limited eligibility for sole-source contracts to certified entities,” the SBA OIG wrote.  The SBA OIG report notes that the SBA’s government contracting leadership disagrees with this conclusion, but doesn’t explain the leadership’s legal rationale for doing so.

This isn’t the first time that an oversight body has questioned whether WOSB and EDWOSB self-certification may be causing ineligible companies to win set-aside and sole source contracts.  Just last summer, the GAO concluded that WOSB and EDWOSB self-certification may allow “potentially ineligible businesses” to receive contracts.  In a 2015 report, the SBA OIG found that 15 of 34 WOSB set-aside awards were improper.   The same year, the SBA OIG pushed the SBA to quickly implement a formal certification program, stating that self-certification “exposes the program to abuse.”  Two years earlier, the NASA Inspector General issued a report suggesting that incorrect WOSB self-certifications may be pervasive.

The 2015 NDAA became law on December 19, 2014.  We’re approaching four years since Congress eliminated WOSB self-certification.  But despite repeated pushes from watchdogs like GAO and SBA OIG, the SBA has yet to even propose regulations to implement a government-wide WOSB and EDWOSB certification program.

I cut the SBA some slack early on, because there’s no doubt that implementing a brand new certification program is a complex process, requiring careful thought and a thorough understanding of potential options and resources.  But enough is enough.  At this point, I can only conclude that despite repeated reports about pervasive problems with self-certification, implementing the WOSB certification program simply isn’t a priority for the SBA.  That’s a shame because reports like the one the SBA OIG issued yesterday make clear that WOSB self-certification just isn’t working well.

A cynic might wonder if the SBA is dragging its feet because requiring WOSB certification could torpedo the Government’s already-low WOSB goaling achievements.  I doubt that’s the case–I bet the SBA’s hesitance is probably more about the significant time and resources and time needed to implement the certification program.

I’m also not sure that the Small Business Act, as amended by the 2015 NDAA, requires the government to discontinue counting self-certified WOSBs for goaling purposes.  As I read it, the statute very clearly prohibits set-aside and sole source contracts from being awarded to self-certified companies, but doesn’t necessarily preclude the government from counting self-certified companies toward its annual goals.  It will be interesting to see what the SBA’s lawyers make of it.

I’ve long predicted that a formal certification program ultimately will increase WOSB awards.  If I were a Contracting Officer, I’d be tempted to skimp on WOSB contracts because of the added administrative burden involved in checking for supporting documents, as well as a lack of confidence that self-certified bidders truly qualify.  A formal certification program will eliminate the additional administrative requirement while giving Contracting Officers much-needed assurances their WOSB awardees really are eligible.