United States. Congress. House. Committee on Small.

The abuses in the SBA's 8(a) Procurement Program : hearing before the Committee on Small Business, House of Representatives, One Hundred Fourth Congress, first session, Washington, DC, December 13, 1995 online

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1992 (17 pages).

BACKGROUND:

Pursuant to a legislative requirement GAO provided information on the
Small Business Administration's (SBA) progress in implementing provisions
of the Business Opportunity Development Reform Act of 1988, designed to
remedy the problems which prevented the SBA 8(a) Program from developing
firms owned by socially and economically disadvantaged individuals into
viable businesses.

FINDINGS:

GAO held that: (1) during the first 11 months of fiscal year (FY) 1990,
about 76 percent of all new applications that SBA approved or declined did
not meet the act's requirement to process applications within 90 days, and
the average processing time for those applications was 117 days; (2) as of
October 1, 1991, SBA had approved or revised the required business plans of
about 57 percent of the 3,922 firms in the program; (3) SBA has limited
control over the equitable geographical distribution of 8(a) contracts
because the act also directs SBA to award contracts to 8(a) firms



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recommended by procuring agencies, and such recommendations occur for about
95 percent of the 8(a) contracts offered; (4) of approximately 8,300 new
8(a) contracts awarded in FY 1990 and FY 1991, SBA awarded only 67
competitively; (5) missing and inaccurate data render the SBA Financial
Information System inadequate, but SBA has been in the process of
developing specific plans for correcting system weaknesses, (6) since SBA
did not track the various forms of assistance provided by contractors and
others, SBA did not know the full extent of management and technical
assistance provided to 8(a) firms; (7) due to higher-priority work and the
turnover of key staff, SBA did not issue until more than 2 years after the
requirement took effect an approved form for 8(a) firms to report their use
of paid consultants to obtain contracts; (8) SBA did not know the amount of
financial assistance it provided to 8(a) firms, since it did not collect
such information; and (9) SBA did not routinely gather information on
contract or bid protests involving 8(a) firms or challenges of firms'
eligibility to continue participating in the 8(a) program, since there
appeared to be few such protests or challenges.

11. TITLE: Small Business: Participation in SBA's 8(a) Business Development
Program

ACCESSION NUMBER; 144368 RPTNO: RCED-91-173

DOCUMENT DATE: 06/11/91 DOCUMENT TYPE: Letter Report

BACKGROUND:

Pursuant to a congressional request, GAO provided information on the extent
to which nonminority women participated in the Small Business
Administration's (SBA) 8(a) program, focusing on.- (1) the number of
Caucasian women in the program; (2) the number of women who sued SBA to
gain entry; and (3) the criteria SBA uses to determine whether Caucasian
women and others are socially disadvantaged.

FINDINGS:

GAO found that (1) 16 Caucasian women had participated In the program
since 1973; (2) as of February 1991, only 9 of the 3,665 active
participants in the 8(a) program were Caucasian women; (3) of the 16 women,
12 entered the program without suing SBA, while the 4 remaining women
brought 3 lawsuits against SBA to gam or regain entry into the program;
(4) each lawsuit alleged that SBA discriminated against each woman on the
basis of her sex, race or marital status; (5) as of April 1991, suits by 2
Caucasian women seeking entry into the 8(a) program were pending; (6) SBA
did not designate women to be socially disadvantaged for purposes of
participating in the program, and required those seeking entry into the
program to provide clear convincing evidence that they suffered racial or
ethnic prejudice or cultural bias; and (7) the 5 criteria for demonstrating



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evidence of social disadvantage included showing that the women's
disadvantage stemmed from her color, ethnic origin, or other similar causes
not common to persons not socially disadvantaged, was rooted in the
treatment experienced in American society, was chronic and substantial, was
personally experienced, and negatively affected the applicant's entry Into
and advancement in the business world.



12. TITLE: Small Business Administration: Status, Operations, and Views on the
8(a) Procurement Program

ACCESSION NUMBER 136131 RPTNO: RCED-88-148BR

DOCUMENT DATE: 05/24/88 DOCUMENT TYPE Briefing Report

BACKGROUND:

In response to a congressional request, GAO reviewed the Small Business
Administration's (SBA) 8(a) Procurement Program to: (1) provide a
statistical overview of the program's participants; (2) assess the extent
of concentration of 8(a) activity; (3) determine whether SBA prepared
graduating firms for the competitive market; (4) determine the adequacy of
SBA program administration and monitoring; (5) ascertain whether program
participants consistently met contract terms and conditions; and (6)
determine the impact of the program on other small businesses.

FINDINGS:

GAO found that (1) from 1968 through 1987, about 1,287 firms graduated
from the SBA 8(a) program; (2) 72 percent of the firms were in the program
5 years or less; (3) 50 firms received about $1.1 billion, or 35 percent,
of the 8(a) contracts awarded in 1987; (4) the program has not been
effective in assisting firms to be self-sufficient, since most firms were
heavily dependent on 8(a) sales, (5) SBA did not fully comply with its
requirements for helping firms to develop their non-8(a) business because
of inadequate staff; (6) most 8(a) contractors met contract delivery dates
and delivered services or products that exceeded quality specifications;
(7) the $3 billion annual expenditure on 8(a) procurements represented less
then 2 percent of the federal government's total procurement; and (8) it
was unable to determine the impact of the program on non-8(a) firms.



13. TITLE Misuse of SBA's 8(a) Program Increased Cost for Many ADP Equipment
Acquisitions

ACCESSION NUMBER: 116861 RPTNO: AFMD-82-9

DOCUMENT DATE 10/16/81 DOCUMENT TYPE: Chapter Report

BACKGROUND:

GAO reviewed the use of contracts under Section 8(a) of the Small Business
Act by various federal agencies as a means of acquiring automatic data
processing (ADP) equipment. GAO sought to determine whether government



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computer acquisition opportunities are being made available to as many
small and disadvantaged businesses as possible under the 8(a) program and
if federal procurement policies and regulations are being violated by the
Small Business Administration (SBA), federal agencies, or contractors when
ADP equipment is acquired under Section 8(a) contracts.
FINDINGS:

GAO believes that SBA management of the ADP resource acquisition portion of
the 8(a) program has been deficient. GAO found that (1) only a limited
number of minority-owned firms capable of supplying ADP equipment had been
recruited into the 8(a) program; (2) the 8(a) firms supplying ADP equipment
were functioning as brokers, not as regular dealers; (3) SBA failed to
follow its own procedures, which contributed to the brokering and increased
the cost of the ADP equipment; (4) federal agencies were able to acquire
specific items of ADP equipment through the 8(a) program which they had not
justified for acquisition without competition; (5) requirements concerning
cost and pricing data and preaward audits were not met; and (6) SBA
frequently ignored the small business regulations and SBA procedures
concerning size requirements. GAO believes that awarding these contracts is
not achieving the program goals of helping firms to gain the experience and
financial viability necessary to prosper in the competitive market place.
Agencies and SBA are paying the firms to perform a function for which there
is no competitive market, and this has unnecessarily cost the government
substantial sums of money. GAO believes that the program objectives would
best be served if individual 8(a) contract opportunities in computer
sciences were limited to annual awards not exceeding 50 percent of an
appropriately defined size standard for such services. Such a limitation
would allow 8(a) firms to acquire ADP contracts while minimizing the impact
on other small and minority businesses.

14. TITLE: The SBA 8(a) Procurement Program-A Promise Unfulfilled
ACCESSION NUMBER: 114863 RPTNO: CED-81-55

DOCUMENT DATE: 04/08/81 DOCUMENT TYPE: Chapter Report

BACKGROUND.

The 8(a) Procurement Program of the Small Business Administration (SBA) is
designed to channel noncompetitive federal contracts to disadvantaged small
businesses to help them to become self-sufficient The program also
provides management, technical, marketing, and financial aid. A review was
made of the program's implementation.

FINDINGS:

The program has had some benefits: the formation of many disadvantaged
firms, continued operation of these firms, providing experience in business
management, and assistance in getting commercial and non-8(a) government



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work. But the program has fallen short of its intended goal. Only 166 of
the participating firms have graduated from the program as competitive
businesses. A large volume of 8(a) contracts went to 50 firms which
continue to be active participants. Over three-fifths of the firms have
been in the program between 7 and 1 1 years. More than half of the
participants that GAO interviewed were dissatisfied with or did not need
the provided management, technical, and marketing aid. Removing
inappropriate 8(a) firms from the program would give other disadvantaged
firms an opportunity to participate. Often assessments of whether 8(a)
contract awards will have an impact on other small businesses were not
always made or were superficial. Several interrelated factors have limited
the program's effectiveness: the President's yearly 8(a) contract goal
imposed on SBA vague program graduation criteria, missing business plan
and financial statement data, and limited staff resources. Redirecting the
program could free the limited staff to better serve program participants,
provide an opportunity for other disadvantaged firms to participate, and
enhance the program's credibility within the business community.



15. TITLE: The 8(a) Pilot Program for Disadvantaged Small Businesses Has Not
Been Effective

ACCESSION NUMBER: 114212 RPTNO-. CED-81-22

DOCUMENT DATE OL/23/81 DOCUMENT TYPE: Chapter Report

BACKGROUND:

The implementation of the 8(a) pilot contracting program of the Small
Business Administration (SBA) is discussed. SBA awards procurement
contracts under this program to socially and economically disadvantaged
small businesses for the purpose of helping them become competitive. When
SBA uses the pilot program, it has the exclusive authority to designate
procurement requirements. The Department of the Army was selected as the
pilot agency in 1979; however, the Army and SBA disagree over the manner in
which this program can be most effective. In 1980, the President designated
three other agencies to participate in the pilot program. GAO sees no basis
for these designations.

FINDINGS:

The stated objective of the pilot program was to seek procurement
opportunities which were not currently offered by the Army under the
regular 8(a) program. The pilot program has not met this objective. The
three initial contracts awarded under the pilot program could have been
handled under the regular 8(a) program, and GAO questioned the contribution
the contracts would make for the firms that received them. In an attempt to
upgrade the quality of procurements available to participants in the
program, SBA issued criteria that firms must meet before they can be



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selected for the 8(a) program. It also issued criteria for contracts
selected for the pilot program. Better program controls are needed in order
for SBA to properly assess and match 8(a) firms' capabilities with
procurement opportunities. Additional program testing is necessary in an
agency that has not yet demonstrated its complete support for the 8(a)
program. The Army has had a history of fully supporting the program.



178



List of SBA Program Related Documents

The following GAO documents on SBA 8 (a) and other
disadvantaged business program topics were issued between August
1980 and August 1994, and discuss various procurement issues
relative to the programs.

1. GAO/RCED-94-168 (8/17/94) Highway Contracting:
Disadvantaged Business Program Meets Contract Goal, but
Refinements Are Needed (Chapter Report)

2. GAO/NSIAD-93-167 (7/27/93) Minority Contracting: DOD's
Reporting Does Not Address Legislative Goal (Letter Report)

3. GAO/RCED-93-89R (1/19/93) Disadvantaged Business
Enterprise Program (Correspondence)

4. GAO/RCED-92-166 (7/7/92) Small Business: Use of the
Surety Bond Waiver Has Been Limited (Letter Report)

5. GAO/NS2AD-92-130 (3/19/92) Small Business Program: Efforts
to Increase Participation in State Department Contracts
(Letter Report)

6. GAO/GGD-91-58BR (4/26/91) GSA Travel Services: Small
Disadvantaged Businesses Seldom Receive Contracts (Briefing
Report)

7. GAO/T-RCED-88-18 (2/18/88) [Review of SBA's 8(a)
Procurement Program) (Testimony)

8. GAO/T-OGC-87-1 (5/20/87) (Legal Opinion Concerning the
Exercise of Options in Section 8(a) Contracts and Comments on a
Pertinent Provision in H.R. 1807 Amending the Small Business Act]
(Testimony)

9. GAO/AFMD-83-40 (6/9/83) [NASA-Ames Research Center
Should Not Have Awarded Computational Services Contract to SBA
and Technology Development of California] (Letter Report)

10. GAO/PLRD-83-14 (11/12/82) [Division of Responsibilities
Between SBA and Procuring Agencies in Evaluating Proposals and
Negotiating Section 8(a) Contracts Over $100,000] (Letter Report)

11. GAO/PLRD-83-4 (10/12/82) Proposals for Minimizing the
Impact of the 8(a) Program on Defense Procurement (Chapter
Report)



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12. GAO/CED-81-149 (9/29/81) SBA's 7(j) Management
Assistance Program — Changes Needed To Improve Efficiency and
Effectiveness (Chapter Report)

13. (9/22/81) [SBA's Progress in Implementing
the Public Law 95-507 Surety Bond Waiver Provision and the 8(a)
Pilot Program] (Testimony)

14. (9/21/81) [The Small Business
Administration's 8(a) Pilot Program] (Testimony)

15. GAO/CED-81-151 (9/18/81) SBA's Progress in Implementing
the Public Law 95-507 Subcontracting and Surety Bond Waiver
Provisions Has Been Limited (Chapter Report)

16. (4/7/81) [Award of Contracts to Areata
Associates, Inc.] (Testimony)

17. GAO/AFMD-81-33 (3/23/81) [Reservation and Award of
Section 8(a) Small Business Act Contracts to Areata Associates]
(Chapter Report)

18. (1/23/81) (The Small Business
Administration's 8(a) Pilot Program] (Testimony)

19. GAO/CED-80-130 (8/20/80) [Status Report on Small and
Small Minority Business Subcontracting and Waiver of Surety
Bonding for 8(a) Firms] (Chapter Report)



180



JAN MEYERS. Kansas JOHN J. IaFALCE. New Ycwk

Congress of the United States

House of Keprescntatioes

lottti Congrtss
Committee on Small Business

2^61 Kagbum ftonst Office Building
Washington. ©£ 20in-«M

January 29, 1996



Mr. Calvin Jenkins

Associate Admininstrator

Minority Small Business & Capital Ownership

U.S. Small Business Administration

409 Third Street, SW

Washington, DC 20416

Dear Mr. Jenkins:

Thank you for appearing before the Committee on Small
Business during our hearing on December 13, 1995. Now that the
holidays are behind us and the budget debate has subsided I would
appreciate your response to a few written questions prior to the
closing of the hearing record. The questions will help round out
the hearing record and your cooperation is greatly appreciated.

I hope that the Committee can have your responses to the
enclosed questions within the next two weeks. I sincerely
appreciate your cooperation with the Committee's oversight
efforts and, of course, I know you are quite busy. Therefore, if
you have any problems in responding within two weeks please
contact Charles Rowe, Committee Counsel, at (202) 226 - 2227.

Thank you again for your assistance in this matter. I look
forward to reading your responses .



Sincerely,
Aoan Meyers



181



Further Questions for Mr. Calvin Jenkins, AA-MSB/COD

1) Mr. Jenkins, as you stated during the hearing Business Opportunity
Specialists are reviewed in part based on their success at getting 8(a)
contracts for their client 8(a) firms and, therefore, you would consider an
Opportunity Specialist deciding on a SIC code designation to have a
conflict of interest. Do Business Opportunity Specialists receive any
special training in contracting ? Any training that would enable them to
make SIC code decisions?

2) Why then would the Coast Guard's or any agency's contracting
professionals defer to their judgment on an SIC code question ?

3) Please furnish the Committee with a list of other contracts in which an
SBA BOS made an SIC code determination on behalf of an agency
contracting official.

4) Only participants in good standing in the MSB/COD program are
eligible for contract awards under the Section 8(a) preferential procedures.
Eligibility includes: (a) small business status according to the applicable
SIC code, (b) ownership by a socially and economically disadvantaged
individual, and (c) compliance with statutory and regulatory requirements.
How is such compliance verified and which SBA official makes such
determination for each contract award ?

5) When an 8(a) contract is competed among program participants, who
certifies that all the competitors are eligible and who approves the award?

6) The BOS for TAMSCO (Charita Albright) certified that the firm was
making its business plan mix, yet a financial report for the firm shows that
76 percent of their contracts were sole-source. Is that the correct business
mix for an 8(a) firm in that stage of participation?

7) If it was incorrect, then why did the BOS allow the contract to go
forward?



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8) Please furnish the Committee with a list of 8(a) Program Participants
who were determined to be ineligible for award of an 8(a) contract due to
the firm's failure to make its "business activity targets" during fiscal years
1989- 1995, identifying if possible whether the proposed contract was to
be awarded on a sole source basis or as the result of an 8(a) competition,
and the circumstances warranting the denial of award.

9) The offer letter from the Coast Guard to the SBA revealed no evidence
of self-marketing by TAMSCO, as required, nor did it reveal any other
contact with other 8(a) firms. In such a situation shouldn't the BOS
question the award of the contract, or suggest competitive procedures?
Why wasn't there any evidence that the BOS attempted to clarify this
situation or ask any basic questions about how this contract was steered to
TAMSCO?

10) In your testimony regarding the termination of ineligible firms from
program participation you stated that the SBA had terminated 334 firms in
the last 18 months. Please provide the Committee with a list of all firms
terminated from the program since 1989 and please indicate whether these
firms were terminated for: (a) exceeding applicable size standards, (b)
control or ownership by ineligible individuals, (c) overcoming the
"economic or social disadvantage" by the individuals upon whom the
firm's eligibility is based, (d) business success of the participant firm
compared to other small businesses, (e) failure of the firm to comply with
"business activity targets" for non-8(a) contracts, (f) failure to comply with
statutory or regulatory requirements relating to program administration, (g)
debarment or suspension of the firm or its owners, (h) administrative
termination due to cessation of the firm's business activities. Please also
include the date of the last approved business plan for these firms, the date
of the last contract award, and the total number of contracts awarded to
each firm.



183



11) The SB A is required to conduct eligibility reviews of program
participants whenever it receives specific and credible information
concerning a firm's eligibility. Please provide the Committee with
information regarding the numbers of eligibility reviews conducted since
1989 under those circumstances as a result of (a) referrals from other
agencies, (b) referrals from the Inspector General, (c) referrals from SBA
field offices, (d) referrals from the private sector. Please also provide
information on the number of referrals that were declined because their
information was not deemed credible, and the number of termination or
remedial actions taken as a result of credible referrals.

12) The Committee has received information that the SBA has drafted
regulations that would eliminate SIC code restrictions for eligibility for
contract awards in the 8(a) program. Is this correct? If so, how does the
SBA justify this departure from current practice.




184



U.S. Small Business Administration

Washington, D.C. 20416

MAR I 9 1996

The Honorable Jan Meyers

Chairman

Committee on Small Business

U.S. House of Representatives

Washington, DC 20515-1603

Dear Madam Chairman:

I am pleased to respond to the questions raised in your letter of January 29, 1996.

Question #1: Mr. Jenkins, as you stated during the hearing Business Opportunity Specialists
are reviewed in part based on their success at getting 8(a) contracts for their client 8(a) firms
and, therefore, you would consider an Opportunity Specialist deciding on a SIC code
designation to have a conflict of interest. Do Business Opportunity Specialists receive any
special training in contracting? Any training that would enable them to make SIC code
decisions?

Response: The Business Opportunity Specialists (BOSs) do receive training in Government
contracting procedures. The level and extent of such training varies by individual. However, as a
minimum all BOSs are required to complete the Management of Defense Acquisition Contracts
(ALMAC), which is considered to be the primer course for Federal Government procurement
personnel.

We are not aware of any formal training programs that prepare or enable contracting officials or
BOSs to make decisions regarding the appropriateness of assigned SIC codes. The SBA's Office
of Minority Enterprise Development has developed a comprehensive training curriculum for its BOS
staff. In the curriculum the ability to evaluate the appropriateness of assigned SIC codes is identified
as a skill required by BOSs. This skill is generally acquired on the job through interaction with
agency contracting and program personnel.



Question #2: Why then would the Coast Guard's or any agency's contracting professionals
defer to their judgement on an SIC code question?

Response: The responsibility to assign a proper SIC code to a specific contracting action rests with
the procuring agency contracting officer, because only the contracting officer knows the specifics
of the procurement. There may be an occasion when a contracting officer requests a BOSs opinion
concerning a particular SIC code selection. However, even in such a case, the SBA suggestion of
a SIC code to the contracting officer is only advisory because the ultimate decision regarding SIC
code designation remains with the contracting officer.



185



Question #3: Please furnish the Committee with a list of other contracts in which an SBA BOS
made an SIC determination on behalf of an agency contracting official.

Response: We do not have such a list. BOSs do not have the authority to make SIC code
determinations. As stated in section 19.303 of the Federal Acquisition Regulations (FAR) the
Contracting Officer "shall" determine the appropriate SIC and related small business size standard.
However, as a result of our canvassing our district offices, it was reported that four such advisory
determinations were made by our SBA San Francisco District Office, when requested by the agency
contracting officers.

Question #4: Only participants in good standing in the MSB/COD program are eligible for
contract awards under the Section 8(a) preferential procedures. Eligibility includes: (a) small
business status according to the applicable SIC code, (b) ownership by a socially and
economically disadvantaged individual, and (c) compliance with statutory and regulatory
requirements. How is such compliance verified and which SBA official makes such
determination for each contract award.

Response: Compliance is verified by the BOS at the district office level through the use of a
"contractor selection memo". This memo is used by the BOS to: (a) verify the eligibility of the 8(a)
firm and (b) confirm the suitability of a proposed contract offered for a specific 8(a) firm. The


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Online LibraryUnited States. Congress. House. Committee on SmallThe abuses in the SBA's 8(a) Procurement Program : hearing before the Committee on Small Business, House of Representatives, One Hundred Fourth Congress, first session, Washington, DC, December 13, 1995 → online text (page 15 of 20)