Historically, the Small Business Administration (SBA) 8(a) Business Development Program is designed to help socially and economically disadvantaged small businesses compete in the federal marketplace by providing access to training, technical assistance, and contracting opportunities that are set-aside for 8(a) participants. Recently, the program’s policies and administrative efforts have come under fire for allegedly perpetuating waste, fraud, and abuse.
The SBA closed out the month of July with a formal warning to Federal contracting officers. SBA Administrator, Kelly Loeffler, advised that “Our 8(a) contracting officers have a legal responsibility to uphold the law and protect taxpayer dollars, ensuring that federal awards go to legitimate, eligible small businesses… This notice is part of our effort to ensure officers understand their obligation – and the SBA’s renewed commitment to rigorous oversight of their work.” This recently issued letter follows and reinforces the goals of an earlier announced effort by Ms. Loeffler to conduct a full-scale audit of the agency’s 8(a) program.
The audit, covering a fifteen (15)-year period and reportedly already underway, is designed to uncover any additional sources of fraud following a U.S. Department of Justice (DOJ) investigation that recently unveiled an 8(a) related $550 million loss to American taxpayers. To reach its full investigative potential, the audit will begin its review of 8(a) contracts with those that are high-dollar, awarded under limited competition (e.g., sole sourced, etc.), and to joint venture and mentor protégé arrangements since 2010. This means even completed contracts and 8(a) program alumni could be subjected to an 8(a) audit in addition to current program participants.
If you are a current 8(a) program participant, you should take note and consider taking the following steps:
- Ensure adherence to ongoing eligibility criteria such as the business owner’s net worth, income and assets, and business ownership rights being attributed to the “disadvantaged” individual. To this end, be wary of merger and acquisition activity that may jeopardize your current small business status, and stay abreast of the SBA’s affiliation, joint venture, and subcontracting rules, which change from time to time.
- Ensure reporting transparency on an ongoing basis and especially during your annual certifications.
- Proactively prepare for an SBA audit by conducting an internal review and gathering of the contract(s) and corporate governance documents that SBA would review during its audit, i.e., contract documents for each 8(a) contract you were awarded (e.g., proposal materials, subcontracts, joint venture agreements, certifications, etc.), financials of the company owner, past program certifications and correspondence, operating agreements or corporate bylaws, articles of organization or incorporation and any governance documents that require SBA approval, including but not limited to mentor protégé agreements. 8(a) program alumni should take this internal review action too.
Per the SBA, “findings will be referred to the SBA Office of Inspector General and DOJ for enforcement, and the SBA will pursue all available actions to recover misused funds.” In addition to restitution, firms found to be non-compliant may face serious ramifications ranging from suspension or termination from the 8(a) program to government-wide debarment and criminal and civil penalties.
The Morris, Manning & Martin, LLP Government Contracts team continues to closely track updates pertinent to the SBA 8(a) audit effort. Please reach out with any pertinent questions, comments, and concerns.
