SBA’s Oversight of ANC-Owned 8(a) Firms Has Come a Long Way, But Still Has a Long Journey Ahead, GAO Says

In its report published last week, GAO both commends and criticizes SBA for its handling of tribally affiliated 8(a) business development firms—particularly Alaska Native Corporations (ANCs) and ANC-owned businesses participating in the 8(a) program.

Generally, ANCs and ANC-owned firms are subject to special 8(a) eligibility rules, located at 13 C.F.R. § 124.109. In sum, there are a number of rules that distinguish Tribes, ANCs, and Native Hawaiian Organizations from other 8(a) participants. For one, these types of entities may own multiple 8(a) companies at once and an unlimited number over time. What’s more, companies owned by these entities are not affiliated with each other based on common ownership, management, and certain administrative services. Despite the substantial number of ANC-owned 8(a) participants, only the Alaska SBA District Office reviews their compliance with SBA regulations.

GAO has published three reports on similar topics between 2006 and 2016. In each of these reports (located here, here , and here), GAO found that SBA had incomplete documentation on ANC-owned firms and their compliance with the SBA’s 8(a) regulations. GAO identified the roots of this issue as (1) limitations in SBA’s ability to track program data, (2) insufficient staffing in the Alaska SBA District Office, and (3) inadequate program guidance for existing staff members.

All in all, GAO made 21 recommendations in its previous reports. GAO now reports that 15 of those recommendations were addressed as SBA enhanced its training and guidance to better address ANCs and follow-on sole-source contracts awarded to them.

Still, GAO notes, there are three major actions the SBA should take to improve its oversight further. “Absent action on these recommendations,” GAO warns, “SBA exposes the program to continued noncompliance.”

First, GAO recommends that SBA keep closer tabs on revenues of ANC-owned businesses. Per SBA regulation, multiple subsidiaries of the same ANC may not generate revenue in the same primary industry (or under the same primary NAICS code). To prevent violation of this requirement, GAO explains that SBA was “testing an analytics tool that, they said, would allow them to track revenues for ANC-owned firms” with an estimated implementation date of December 31, 2018. The tool, however, has not yet been demonstrably implemented. Consequently, GAO remains concerned that ANC-owned entities may be able to generate revenue in the same primary industry, contrary to SBA’s regulations.

Second, GAO once again recommends modifying SBA’s regulations requiring procuring agencies to provide certain information about 8(a) contracts, including contract modifications. Currently, SBA’s regulations require agencies to report information about 8(a) set-aside contracts, including all contract modifications, to SBA. Because the requirement is so broad, GAO found in 2006 that many contracting officers didn’t follow the notification requirements. As a result, GAO recommended that this requirement be amended to create specific thresholds for required notification in its 2006 report. As of 2019, however, this recommendation has not been implemented. Accordingly, GAO remains concerned that agencies will keep failing to comply with SBA’s regulatory notification requirements.

Finally, GAO reminded SBA that it should consistently determine “whether other small businesses were losing contracting opportunities when large, sole-source contracts were awarded to ANC-owned firms.” Importantly, GAO had identified instances where SBA failed to act when incumbent small businesses lost contract opportunities to ANC-owned businesses. In response, GAO recommended in prior reports that SBA come up with a plan for ongoing, and more extensive, reviews of contracts awarded to ANC-owned entities. SBA has yet to create or implement such a plan, so GAO’s current report nudges SBA to get the ball rolling.

Only time will tell if the SBA takes GAO’s advice this time. As always, we’ll keep you updated here at SmallGovCon. In addition, if you are interested in more information about the rules governing ANC 8(a) participation, Steven Koprince recently published a helpful (and humorous) handbook about the 8(a) Program, available through Amazon! Check it out and call us with any questions about ANCs, the Handbook’s “fun fact” footnotes, or any other government contracting matters. We’re happy to help!

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