The Inspector General (IG) of the Small Business Administration (SBA) released a report on October 15, 2015 citing performance deficiencies in the agency’s management of its small business contracting responsibilities, especially the woman-owned small business program; technology security; lending and disaster loan programs; acquisition management; and its marquis activity — the 8(a) business development program.
A significant change in this year’s IG report involves small business contracting (Challenge 1 on chart above). The SBA is responsible for managing and overseeing the small business procurement process throughout the federal government. Last year, the IG reported that procurement flaws allow large firms to obtain small business awards and allow agencies to count contracts performed by large firms towards their small business goals. While large firms continue to receive contracts that are counted towards small business goals, this year the IG realigned the discussion to include concerns regarding weaknesses in small business contracting programs and the reliability of data used to calculate contracting goal achievements.
Recently, both the SBA’s IG and the Government Accountability Office have reported weaknesses in SBA’s controls that would ensure only eligible firms receive contracts set-aside for the Women Owned Small Business (WOSB) federal contracting program. The National Defense Authorization Acts (NDAA) for FY 2013 and FY 2015 made major programmatic changes to this program. Specifically, the NDAA for 2013 removed previously existing contract caps on set-aside awards for which WOSB and economically disadvantaged WOSB firms (EDWOSBs) were able to compete. The NDAA for 2015 granted contracting officers the authority to award sole-source awards to WOSB firms and required firms to be certified by a federal agency, a state government, SBA’s Administrator, or a national certifying entity approved by the Administrator. However, SBA has opted to implement the sole-source authority provision first — separate from a certification program. The IG’s latest report expresses the belief that allowing sole source contracting authority in the WOSB, without implementing the contemporaneously required certification program, is inconsistent with SBA’s statutory authorization and exposes the program to abuse. Absent a certification program, the IG believes, the government is more likely to award contracts to ineligible WOSB firms.
Among the IG’s recommendations in the small business contracting are are:
- Strengthen controls to ensure the accuracy of the Federal Government’s annual small business procurement goals achievements reported in the Small Business Goaling Report.
- Implement a certification process for the WOSB Program.
- Revise SBA’s Program Fraud Civil Remedies Act regulations so that SBA can pursue violations of its Federal contracting programs and demonstrate a capacity for taking enforcement actions under that statute.
The IG is also critical of the SBA’s management of its 8(a) program. The 8(a) Program was created to provide business development assistance to eligible small disadvantaged businesses seeking to compete in the American economy. SBA’s challenge has been to ensure that 8(a) guidance, controls, and practices truly prepare participating firms for a competitive market. According to the IG, the SBA historically has not placed adequate emphasis on business development to enhance the ability of 8(a) firms to compete and has not adequately ensured that only 8(a) firms with economically disadvantaged owners in need of business development remained in the program.
In its latest report, the IG says that the SBA continues to address issues that hinder its ability to deliver an effective 8(a) program. For example, SBA has made its assistance more readily available to program participants by using resource partners such as small business development centers. The SBA has also taken steps to ensure business opportunity specialists assess program participants’ business development needs during site visits. The SBA also revised its regulations, effective March 2011, to ensure that companies deemed “business successes” graduate from the program, rather than allowing them to remain in the program and receive 8(a) contracts, which caused fewer companies to receive the majority of 8(a) contract dollars and many to receive none. These regulations also establish additional standards to address the definition of “economic disadvantage.” However, the IG notes, for the third consecutive year, the SBA has not finalized its 8(a) Program standard operating procedures (SOP) to reflect the March 2011 regulatory changes. Further, although the March 2011 regulations establish the threshold for “economic disadvantage,” the IG has concerns that SBA’s standards for determining economic disadvantage are not justified or objective because they are not based on economic analysis. The IG maintains that SBA’s standards for determining economic disadvantage are not justified or objective based on the absence of an economic analysis.
Among the IG’s recommendations pertaining to the 8(a) program are:
- Develop and implement a plan, including SOP provisions, which ensures that the 8(a) Business Development Program identifies and addresses program participants’ business development needs on an individualized basis.
- Update and issue the 8(a) Business Development SOP to reflect the March 2011 regulatory changes.
- Establish objective and reasonable criteria that effectively measure “economic disadvantage,” and implement the new criteria.
The full report by the SBA’s Office of Inspector General may be found at: https://www.sba.gov/sites/default/files/oig/FY_2016_Management_Challenges.pdf