Large DoD 8(a) Sole Source Contracts Have Dropped By 86.5%

The number of 8(a) sole source contracts over $20 million awarded by the DoD has been “steadily declining since 2011,” when a new requirement was adopted requiring agencies to prepare written justifications of such awards.

According to a recent GAO report, such awards have dropped more than 86% compared to the period before the justification requirement took effect.  The report states that much of the work that was previously awarded on a sole source basis has now been competed.

8(a) Program participants owned by Alaska Native Corporations or Indian Tribes (which the GAO collectively refers to as “tribal 8(a) firms”) are eligible to receive  8(a) sole source contracts for any dollar amount.  In contrast, as the GAO writes, other 8(a) firms “generally must compete for contracts valued above certain thresholds: $4 million or $7 million, depending on what is being purchased.”

Section 811 of the 2010 National Defense Authorization Act did not eliminate the special sole source authority for tribal 8(a) firms, but required a contracting officer to issue a written justification and approval for any sole source 8(a) award over $20 million.  This portion of the 2010 NDAA was incorporated in the FAR in March 2011.  A regulatory update in late 2015 increased the threshold to $22 million, where it remains today.

In 2015, Congress directed the SBA to assess the impact of the justification requirement.  The GAO’s recent report responds to that Congressional directive.  The report demonstrates that large DoD 8(a) sole source awards have dropped dramatically since 2011.  The GAO writes:

From fiscal years 2006 through 2015, the number of sole-source 8(a) contracts started to decline in 2011 and remained low through 2015, while the number of competitive contract awards over $20 million increased in recent years.  Consistent with findings from our past reports, we found that sole-source contracts generally declined both number and value since 2011, when the 8(a) justification requirement went into effect.  DOD awarded 22 of these contracts from fiscal years 2011 through 2015, compared to 163 such contracts in the prior 5-year period (fiscal years 2006 through 2010).

In my eyes, this isn’t just a decline–it’s a dramatic drop in 8(a) sole source awards of 86.5% from one five-year period to the next.

The GAO stated that there is a variety of reasons for the drop, including “a renewed agency-wide emphasis on competition” at DoD, as well as budget declines and declines in the sizes of requirements.  DoD officials “had varying opinions about whether the 8(a) justification was a deterrent to awarding large sole-source 8(a) contracts.”  Some of the officials GAO interviewed “noted that the 8(a) justification review process would deter them, while others said they would award a sole-source contract over $20 million if they found that only one vendor could meet the requirement.”

The report wasn’t all bad news for tribal 8(a) firms.  The GAO wrote that competitive awards to tribal 8(a) firms have increased even as sole source awards have fallen:

Since 2011, tribal 8(a) firms have won an increasing number of competitively awarded 8(a) contracts over $20 million at DOD.  Although these firms represent less than 10 percent of the overall pool of 8(a) contractors, the number of competitively awarded DOD contracts over $20 million to tribal 8(a) firms grew from 26 in fiscal year 2011–or 20 percent–to 48 contracts in fiscal year 2015–or 32 percent of the total.  In addition, since 2011, tribal 8(a) firms have consistently won higher value awards than other 8(a) firms for competitive 8(a) contracts over $20 million.  In fiscal year 2015, the average award size of a competed 8(a) contract to a tribal 8(a) firm was $98 million, while other 8(a) firms had an average award of $48 million.

Despite the good news on the competitive front, tribal advocates are likely to see the GAO report as confirmation of what many have already assumed: that Section 811 of the 2010 NDAA has had a significant negative effect on sole source awards to 8(a) firms owned by ANCs and Indian tribes.  Alaska Congressman Don Young has included language in the 2017 NDAA to repeal Section 811.  Congressman Young included similar language in the 2016 NDAA, but it was removed from the final bill.  We’ll see what happens this year.