Federal Contracting:

Monitoring and Oversight of Tribal 8(a) Firms Need Attention

GAO-12-84: Published: Jan 31, 2012. Publicly Released: Feb 7, 2012.

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What GAO Found

Federal dollars obligated to tribal 8(a) firms grew from $2.1 billion in fiscal year 2005 to $5.5 billion in 2010, a greater percentage increase than non-tribal 8(a) obligations (160 percent versus 45 percent). Obligations to 8(a) firms owned by Alaska Native Corporations (ANC) represented the majority of tribal obligationsevery year during the period, rising to $4.7 billion in 2010. While tribal 8(a) firms comprised 6.2 percent of total 8(a) firms, their obligations accounted for almost a third of total 8(a) obligations in fiscal year 2010. Over the 6 years, the percentage of competitively awarded obligations to tribal 8(a) firms rose; however, solesource contracts remained the primary source of growth, representing at least 75 percent of all tribal 8(a) obligations in a given year.

Consistent with GAO’s 2006 review of ANC 8(a) contracting, contracting officials said that awarding contracts to tribal firms under the 8(a) program allows officials to award sole-source contracts for any value quickly, easily, and legally, and helps agencies meet their small business goals. However, the officials added that the program offices’ push for awarding follow-on contracts to the same firm also plays a role. GAO’s review of noncompetitive tribal 8(a) contracts shows the methods used to determine price reasonableness in a sole-source environment. In some cases, when agencies moved away from sole-source tribal 8(a) contracts toward competition, agency officials estimated savings as a result.

To ensure that 8(a) firms do not pass along the benefits of their contracts to their subcontractors, regulations limit the amount of work that can be performed by the subcontractors. Of the 87 contracts in GAO’s review, 71 had subcontractors. GAO found that required monitoring of limitations on subcontracting by procuring agencies was not routinely occurring. Similar to what GAO reported in 2006, some contracting officers do not understand that ensuring compliance is their responsibility under partnership agreements with SBA, and the regulations do not make this clear. Further, agency officials did not know how to monitor subcontracting limitations, particularly for indefinite-quantity contracts, as the data are not readily available. Not monitoring the limits on subcontracting can pose a major risk that an improper amount of work is being done by large firms.

In March 2011, SBA revised 8(a) regulations to clarify program rules, correct misinterpretations, and address program issues. Although a positive step, SBA will have difficulty enforcing new regulations pertaining to tribal 8(a) follow-on contracts and joint ventures given the information currently available. SBA told GAO it is currently in the process of developing the requirements for a new 8(a) tracking database. Further, the new regulations do not address some issues GAO has previously raised, such as ANC 8(a) firms under the same parent corporation generating a majority of revenue in the same line of business. SBA regulations do not allow a tribal organization to have more than one 8(a) subsidiary perform most of its work under the same primary business line. GAO also discusses practices that highlight how some tribal 8(a) firms operate, in effect, as large businesses because of their parent corporation’s backing and interconnectedness with sister subsidiaries. SBA has not reviewed these practices to determine whether they are congruent with the business development purpose of the 8(a) program.

Why GAO Did This Study

Tribal firms—those owned by Alaska Native Corporations, Native Hawaiian Organizations, and Indian tribes—are afforded special advantages within the Small Business Administration’s (SBA) 8(a) business development program. GAO was asked to (1) identify trends in government 8(a) contracting with tribal firms; (2) determine why the government awarded sole-source contracts to tribal 8(a) firms and the methods used to make price determinations; (3) assess the procuring agencies’ oversight of contracts for compliance with subcontracting requirements; and (4)examine SBA’s new 8(a) regulation, intended to clarify program rules, to determine how the changes could affect oversight of tribal 8(a) firms. GAO reviewed non-generalizable samples of 87 contracts (based on dollar value and location) and 62 tribal 8(a) firms’ SBA files and spoke with SBA headquarters and district officials as well as officials from 9 agencies.

What GAO Recommends

GAO recommends that the Office of Federal Procurement Policy (OFPP) amend acquisition regulations and provide guidance (including data collection) on monitoring the limits on subcontracting. OFPP generally agreed with the recommendations. GAO’s recommendations also include that SBA include specific capabilities in its 8(a) database to improve tribal 8(a) tracking and that it examine tribal participation to determine whether certain practices align with the 8(a) program’s business development goal. SBA questioned GAO’s methodology, which GAO continues to believe is appropriate, but did not address GAO’s recommendations.

For more information, contact John Hutton at (202) 512-4841 or huttonj@gao.gov..

Recommendations for Executive Action

  1. Status: Open

    Comments: The Office of Federal Procurement Policy (OFPP) agreed with the recommendation. In September 2013, OFPP officials informed us that they were working with the Small Business Administration (SBA) to develop regulations to address the recommendations of this report as well as implementing sections 1651 and 1654 from the Fiscal Year 2013 National Defense Authorization Act. OFPP also noted that it has worked closely with SBA on the recently finalized amendments to its subcontracting rules as part of the implementation of the Small Business Jobs Act, which addresses, among other things, contracting officer responsibilities. Finally, OFPP stated that it had established an informal working group to address SBA's subcontracting rule, which is meant to address subcontracting compliance and the interrelationship between contracting offices, small business offices, and program offices relating to oversight and review activities. OFPP has not provided any additional updates on actions taken to implement this recommendation. We will continue to monitor progress with OFPP's efforts.

    Recommendation: To improve oversight of the limitations on subcontracting clause and to clarify who has responsibility for monitoring compliance with the clause, the Administrator of the Office of Federal Procurement Policy, in consultation with the Administrator of SBA, should provide specific guidance (including data collection options) to agency officials, including to contracting officers, about how to monitor the extent of subcontracting under 8(a) contracts, including for orders under indefinite quantity contracts.

    Agency Affected: Executive Office of the President: Office of Management and Budget: Office of Federal Procurement Policy

  2. Status: Open

    Comments: The Office of Federal Procurement Policy (OFPP) agreed with the recommendation. In September 2013, OFPP officials informed us that they were working with the Small Business Administration (SBA) to develop regulations to address the recommendations of this report as well as implementing sections 1651 and 1654 from the Fiscal Year 2013 National Defense Authorization Act. OFPP also noted that it had worked closely with SBA on the recently finalized amendments to its subcontracting rules as part of the implementation of the Small Business Jobs Act, which addresses, among other things, contracting officer responsibilities. Finally, OFPP stated that it had established an informal working group to address SBA's subcontracting rule, which is meant to address subcontracting compliance and the interrelationship between contracting offices, small business offices, and program offices relating to oversight and review activities. OFPP has not provided any additional updates on actions taken to implement this recommendation. We will continue to monitor progress with the status of OFPP's efforts.

    Recommendation: To improve oversight of the limitations on subcontracting clause and to clarify who has responsibility for monitoring compliance with the clause, the Administrator of the Office of Federal Procurement Policy, in consultation with the Administrator of SBA, should take actions to amend the Federal Acquisition Regulation (FAR) to (1) direct contracting officers at agencies that have been delegated responsibility for ensuring compliance with the limitations on subcontracting clause to document in the contract file the steps they have taken to ensure compliance and (2) clarify the percentage of work required by an 8(a) participant under indefinite quantity contracts.

    Agency Affected: Executive Office of the President: Office of Management and Budget: Office of Federal Procurement Policy

  3. Status: Open

    Comments: The Small Business Administration (SBA) neither agreed nor disagreed with this recommendation. In August 2013, SBA officials told GAO that the recommended capability will not be included in the initial release of the new 8(a) tracking database; however, it is included in the overall system plan and will be developed in a future system update. SBA has not provided information on the time frames for completing the system update. We will continue to track progress on the development of the new 8(a) tracking database.

    Recommendation: To improve oversight of tribal firms' participation in the 8(a) program, the Administrator of SBA should, as the new 8(a) tracking database is being developed, take steps toensure that it has the capability to (1) provide visibility to district offices into all tribal 8(a) firms' activity by tribal entity to ensure compliance with new prohibition to award sole-source 8(a) follow-on contracts to sister subsidiaries; (2) track revenue from tribal 8(a) firms' primary and secondary industry codes to ensure that subsidiaries under the same parent company are not generating the majority of their revenue from the same primary industry; and (3) track information on 8(a) contracts and task or delivery orders,including orders awarded under basic ordering agreements, tohelp ensure that district officials have information necessary toenforce the 8(a) program regulations.

    Agency Affected: Small Business Administration

  4. Status: Open

    Comments: The Small Business Administration (SBA) neither agreed nor disagreed with this recommendation. In August 2013, SBA stated that additional guidance regarding offer and acceptance will be fully delineated in the revised 8(a) Business Development program Standard Operating Procedures manual. SBA also noted that it has conducted training on processing, oversight and observance of fraud, waste and abuse on Alaska Native Corporations to all of it District Offices. This training included a review of the new requirements prohibiting sole source follow-on contracts to sister subsidiaries. SBA has not provided an update on actions taken to implement this recommendation. We will continue to follow up with SBA on progress in revising the Standard Operating Procedures manual and any efforts to reinforce to procuring agencies the requirement to provide the full acquisition history.

    Recommendation: To improve oversight of tribal firms' participation in the 8(a) program, the Administrator of SBA should, in light of the new prohibition on awarding 8(a) sole-source follow-oncontracts to sister subsidiaries, reinforce to procuring agencies therequirement to provide the full acquisition history of the procurement in the offer letter, when available, and direct district office business development specialists to focus on this issue when they review offer letters for tribal 8(a) firms.

    Agency Affected: Small Business Administration

  5. Status: Open

    Comments: The Small Business Administration (SBA) neither agreed nor disagreed with this recommendation. In September 2014, SBA stated that, starting February 2013, 8(a) firms were required to complete an updated 8(a) Annual Update form which is completed annually by all 8(a) firms. The updated form collects information on the amount of work performed by the 8(a) firm in a joint venture, and for populated joint ventures, confirms whether the non-8(a) firm and its affiliates received any subcontracts under the 8(a) contract. Additionally, SBA noted that the revised 8(a) Business Development program Standard Operating Procedures manual will contain appropriate guidance for the monitoring and oversight of joint ventures. We will continue to monitor progress in updating the manual.

    Recommendation: To improve oversight of tribal firms' participation in the 8(a) program, the Administrator of SBA should establish procedures to enforce new joint venture rules, including how SBA district officials will ascertain that the 8(a) partner performs the required percentage of the joint venture's work and, for populated jointventures, that the non-8(a) partner and its affiliates do not receivesubcontracts under the 8(a) contract.

    Agency Affected: Small Business Administration

  6. Status: Open

    Comments: The Small Business Administration (SBA) neither agreed nor disagreed with this recommendation. In August 2013, SBA stated that guidance clarifying its views and policy will be included in the revised 8(a) Business Development program Standard Operating Procedures manual. SBA has not provided any additional updates on actions taken to implement this recommendation. We will continue to follow up with SBA to monitor progress on issuing this guidance.

    Recommendation: To improve oversight of tribal firms' participation in the 8(a) program, the Administrator of SBA should examine relationships between subsidiaries under tribal entities to determine whether practices such as subcontracting to a sister subsidiary or using the past performance of a sister subsidiary to show capability to perform on an 8(a) contract are in line with the business development purposes of the 8(a) program and should beallowed under program rules. If SBA determines that these practices are not in line with the 8(a) program purposes-and to the extent that Congress has not authorized a practice in law-SBA should address them in its regulations.

    Agency Affected: Small Business Administration

  7. Status: Open

    Comments: The Small Business Administration (SBA) neither agreed nor disagreed with this recommendation. SBA has not provided an update on actions taken to implement this recommendation.

    Recommendation: To improve oversight of tribal firms' participation in the 8(a) program, the Administrator of SBA should establish and communicate to Congress the time frame for developing and implementing SBA's new, planned policy regarding determination of substantial unfair competitive advantage in an industry, and when the policy will be incorporated into the regulations.

    Agency Affected: Small Business Administration

 

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