Last year, we wrote about the SBA’s Office of Inspector General’s concerns with the SBA’s review of potential 8(a) participants’ eligibility. In this report, the OIG made three recommendations aimed at improving to verify applicants’ eligibility.

Just last week, the OIG released a new report analyzing the 8(a) Program. This report picks up where the earlier report left off—it addressed several issues in the SBA’s evaluation of participants’ continuing eligibility.

The results of this report are rather alarming: based on its review, the OIG identified almost $127 million in 8(a) set-aside awards to ineligible firms.

Before diving into the OIG report, it’s important to remember that 8(a) participants not only have to meet initial eligibility criteria for admission into the Program, but they also have to meet continuing eligibility criteria to stay in the Program. These criteria not only include a $750,000 cap on the 8(a)’s disadvantaged owner’s net worth and a $6 million limit on his/her overall assets, but also a restriction on the amount of withdrawals an owner can make from the participant. A participant is subjected to annual eligibility reviews once admitted to the Program; if the firm fails to meet these criteria, it should be removed from the Program.

SBA’s OIG analyzed the SBA’s oversight of 8(a) continuing eligibility, to determine whether it was doing enough to make sure that 8(a) participants met these continuing eligibility requirements. The OIG analyzed the continuing eligibility of twenty-five 8(a) participants—the 15 individually-owned 8(a) firms with the highest 8(a) set-aside contract dollars in 2016 (totaling some $461 million in set-aside awards) and 10 other firms about which the OIG had received complaints alleging continuing eligibility violations.

The OIG’s investigation revealed a troubling truth: 20 of the 25 firms reviewed by the OIG did not meet the 8(a) Program’s continuing eligibility requirements and should have been removed from the Program. These firms were not removed, however, and “received $126.8 million in new 8(a) set-aside contract obligations in FY 2017 at the expense of eligible disadvantaged firms.”

Based on its investigation, the OIG identified three issues that contributed to these improper awards.

First, the OIG noted that the SBA did not consistently identify ineligible 8(a) firms. It noted that, in some cases, the SBA’s reviewers did not perform continuing eligibility reviews for the most high risk firms and, when reviews were conducted, did not detect indicators of ineligibility. As a result, ineligible firms were able to stay in the Program.

Second, the SBA did not remove ineligible firms in a timely manner. When issues relating to eligibility were discovered, the SBA did not provide several firms with a Notice of Intent to Terminate or Graduate Early; for those that the SBA did notice its intent to terminate, it lacked sufficient follow-through to actually terminate. Problematically, the OIG noted that the SBA did not have an adequate system to track the removal of a firm or the resolution of eligibility issues once concerns with that firm were identified.

Third, and perhaps most striking, was that the SBA did not address complaints about 8(a) firms that were forwarded from its OIG Hotline. Here, it’s important to remember that SBA’s regulations say that the SBA will review a firm’s eligibility “upon receipt of specific and credible information alleging that a Participant no longer meets the eligibility requirements for continued eligibility.” From a sample of 10 complaints, the OIG found that the SBA did not conduct any follow-up investigation. When the OIG reviewed these complaints, however, it found that all 10 firms failed to meet the continued eligibility criteria.

From these findings, the OIG made 11 recommendations to improve the SBA’s oversight of 8(a) participants’ continued eligibility. These recommendations largely focus on the SBA’s internal processes for identifying and reviewing eligibility reviews. For example, the OIG recommended that the SBA “[d]evelop and implement a centralized process to track and document all adverse actions and voluntary withdrawals from the 8(a) program, from recommendation through resolution” and “[e]stablish and implement clear policies and procedures that include timelines for sending Notices of Intent to Terminate and to Graduate Early firms after eligibility issues are first identified.”

The OIG further recommended that the SBA develop a system for tracking and resolving complaints that are received via the OIG’s Hotline. Moreover, the OIG recommended that the SBA evaluate the eligibility of specific 8(a) concerns (as referenced in the report) and, if necessary, remove them from the Program.

***

In our practice, we often counsel prospective and admitted 8(a) participants about the Program’s nuanced eligibility criteria. The OIG’s recent report is revealing, as it shows that the SBA often struggles with issues of continuing eligibility, too. Going forward, we wouldn’t be surprised if the SBA more thoroughly scrutinizes 8(a) eligibility as a result of the OIG’s recent investigations.

Questions about this post? Or need help with a government contracting legal issue? Email us or give us a call at 785-200-8919.

Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.