8(a) Program: Participant Terminated for Not Paying Subcontractor

An 8(a) Program participant was terminated from the 8(a) Program for failing to pay a subcontractor.

According to the SBA, the non-payment reflected poorly on the 8(a) company’s character–and “good character” is a prerequisite for 8(a) Program participation.

The decision of the SBA Office of Hearings and Appeals in Corporate Portfolio Management Solutions, SBA No. BDPT-567 (2018) was an appeal of the SBA’s decision to terminate Corporate Portfolio Management Solutions from the 8 (a) Program.  The reason for the termination was CPMS’s failure to pay a subcontractor.

In 2012, the SBA certified CPMS as an 8(a) Program participant.  The following year, the GSA awarded CPMS an 8(a) prime contract.  CPMS then hired a subcontractor, Procon Consulting, LLC, to perform some of the work under the GSA contract.

By April 2016, CPMS owed Procon $68.688.53 for its subcontract work.  In August 2016, Procon initiated arbitration before the American Arbitration Association to recover the amounts due.  In December 2016, CPMS signed a consent order and judgment acknowledging that it owed Procon the full $68,688.53.  CPMS agreed to pay Procon $75,000 in three installments, with the last installment due February 28, 2017.

In June 2017, Procon filed a complaint in the Superior Court of the District of Columbia, seeking to enforce the arbitration consent order.  Procon alleged that CPMS had failed to make any of the agreed-upon installment payments.  In October 2017, the Court issued a judgment in favor of Procon.

Procon didn’t limit itself to civil remedies.  In July 2017, Procon sent a letter to the SBA asking for the SBA’s assistance in recovering the unpaid debt and urging the SBA to revoke Procon’s 8(a) certification.

In August 2017, the SBA suspended CPMS from participating in the 8(a) Program.  By notice dated October 27, 2017, the SBA informed CPMS that it was being terminated from the 8(a) Program.  The SBA’s notice specified that the termination was due to a lack of business integrity because CPMS had failed to pay Procon and failed to comply with the arbitration order.

CPMS appealed the termination to OHA.  CPMS said that it had begun making payments to Procon and had taken other corrective actions such as implementing new corporate policies.  However, CPMS did not dispute any of the underlying facts regarding its relationship with Procon.

OHA wrote that “[t]he SBA has an affirmative responsibility under the Small Business Act to ensure that only eligible business concerns are admitted into, and remain in, the 8(a) BD program.”  OHA explained, “[t]his ensures that public funds are properly administered, and that the benefits of the 8(a) BD program are limited to those small businesses that qualify to receive such benefits.”

Here,  even assuming that CPMS had begun making payments to Procon and had changed some of its internal corporate policies, “these contentions do not rebut SBA’s conclusion that [CPMS] engaged in conduct indicating a lack of business integrity when it failed to pay its subcontractor.”  OHA dismissed the appeal.

The Corporate Portfolio Management Solutions case shows that, when it comes to 8(a) Program participation, “good character” means more than avoiding criminal convictions.  If an 8(a) Program participant doesn’t pay its bills, the SBA may terminate the participant from the 8(a) Program.