Small Business Administration
Agency Should Assess Resources Devoted to Contracting and Improve Several Processes in the 8(a) Program Gao ID: GAO-09-16 November 21, 2008The Small Business Administration (SBA) helps small businesses gain access to federal contracting opportunities and helps socially and economically disadvantaged small businesses, known as 8(a) firms, by providing management and contracting assistance. SBA negotiates agency-specific goals to ensure that the federal government meets the statutory goal of awarding 23 percent of contract dollars to small businesses. GAO was asked to (1) describe how SBA sets small business contracting goals and the extent to which federal agencies met these goals; (2) examine the role of SBA staff in supporting small business contracting at selected federal agencies; and (3) examine SBA's overall administration of the 8(a) program. To address these objectives, GAO reviewed SBA guidance and SBA Inspector General (IG) reports, interviewed SBA and other federal officials, and conducted site visits and file reviews at four SBA locations.
SBA reviews prior year goal achievement and other factors to set individual contracting goals necessary for federal agencies to achieve the governmentwide goal of awarding 23 percent of federal contract dollars to small businesses. Individual agency results varied in fiscal years 2000 through 2006, although the agencies collectively achieved or came close to the 23 percent goal. In fiscal year 2006, SBA began using a scorecard to help monitor agencies' small business contracting efforts. Of the 24 agencies rated, half received the lowest rating (for failing to meet at least two contracting goals and other criteria). SBA later reviewed agency progress in implementing small business procurement plans and many agencies improved their ratings. SBA staff advocate, review, and monitor small business contracting at federal agencies, but resource constraints have limited the ability of staff to fulfill these responsibilities. SBA's procurement center representatives (PCR) work with federal agencies by reviewing proposed acquisitions, recommending contract set-asides, and performing surveillance reviews (which monitor small business contracting at federal agencies). As of August 2008, SBA had 59 PCRs, with many responsible for multiple agencies. SBA has recognized that more PCRs are needed, but has not developed a formal plan to align staff resources with program objectives. Resource constraints also affected SBA's commercial market representatives (CMR), who monitor subcontracting plans. For fiscal year 2006, the SBA IG reported that CMRs monitored less than half of the 2,200 large prime contractors. These resource constraints reduced assurances that SBA can monitor contracting effectively. SBA's administration of the 8(a) business development program is challenged by several factors, including some participants not understanding the program's purpose and requirements, its staff's diminished ability to conduct business development activities, an inefficient process to terminate firms, and a lack of routine surveillance reviews specific to the program. While SBA has controls in place to determine if firms are eligible to enter the program, firms do not have to participate in an information session or complete an assessment that rates their suitability for the program. Thus, some firms may have entered the program with unrealistic expectations or not clearly understood program requirements. SBA officials said that an emphasis on completing annual reviews of 100 percent of 8(a) firms, which are time intensive, and an inefficient termination process for noncompliant 8(a) firms diminished the time its business development specialists had for providing business development assistance. Delays in terminating firms also could result in noncompliant firms obtaining contracts. Finally, in 2006, the SBA IG recommended that SBA regularly conduct surveillance reviews for the 8(a) program. However, SBA has not yet implemented this recommendation. As a result, SBA has reduced assurances that agencies have complied with monitoring requirements for the 8(a) program.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-09-16, Small Business Administration: Agency Should Assess Resources Devoted to Contracting and Improve Several Processes in the 8(a) Program
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
November 2008:
Small Business Administration:
Agency Should Assess Resources Devoted to Contracting and Improve
Several Processes in the 8(a) Program:
GAO-09-16:
GAO Highlights:
Highlights of GAO-09-16, a report to congressional requesters.
Why GAO Did This Study:
The Small Business Administration (SBA) helps small businesses gain
access to federal contracting opportunities and helps socially and
economically disadvantaged small businesses, known as 8(a) firms, by
providing management and contracting assistance. SBA negotiates agency-
specific goals to ensure that the federal government meets the
statutory goal of awarding 23 percent of contract dollars to small
businesses. GAO was asked to (1) describe how SBA sets small business
contracting goals and the extent to which federal agencies met these
goals; (2) examine the role of SBA staff in supporting small business
contracting at selected federal agencies; and (3) examine SBA‘s overall
administration of the 8(a) program. To address these objectives, GAO
reviewed SBA guidance and SBA Inspector General (IG) reports,
interviewed SBA and other federal officials, and conducted site visits
and file reviews at four SBA locations.
What GAO Found:
SBA reviews prior year goal achievement and other factors to set
individual contracting goals necessary for federal agencies to achieve
the government-wide goal of awarding 23 percent of federal contract
dollars to small businesses. Individual agency results varied in fiscal
years 2000 through 2006, although the agencies collectively achieved or
came close to the 23 percent goal. In fiscal year 2006, SBA began using
a scorecard to help monitor agencies‘ small business contracting
efforts. Of the 24 agencies rated, half received the lowest rating (for
failing to meet at least two contracting goals and other criteria). SBA
later reviewed agency progress in implementing small business
procurement plans and many agencies improved their ratings.
SBA staff advocate, review, and monitor small business contracting at
federal agencies, but resource constraints have limited the ability of
staff to fulfill these responsibilities. SBA‘s procurement center
representatives (PCR) work with federal agencies by reviewing proposed
acquisitions, recommending contract set-asides, and performing
surveillance reviews (which monitor small business contracting at
federal agencies). As of August 2008, SBA had 59 PCRs, with many
responsible for multiple agencies. SBA has recognized that more PCRs
are needed, but has not developed a formal plan to align staff
resources with program objectives. Resource constraints also affected
SBA‘s commercial market representatives (CMR), who monitor
subcontracting plans. For fiscal year 2006, the SBA IG reported that
CMRs monitored less than half of the 2,200 large prime contractors.
These resource constraints reduced assurances that SBA can monitor
contracting effectively.
SBA‘s administration of the 8(a) business development program is
challenged by several factors, including some participants not
understanding the program‘s purpose and requirements, its staff‘s
diminished ability to conduct business development activities, an
inefficient process to terminate firms, and a lack of routine
surveillance reviews specific to the program. While SBA has controls in
place to determine if firms are eligible to enter the program, firms do
not have to participate in an information session or complete an
assessment that rates their suitability for the program. Thus, some
firms may have entered the program with unrealistic expectations or not
clearly understood program requirements. SBA officials said that an
emphasis on completing annual reviews of 100 percent of 8(a) firms,
which are time intensive, and an inefficient termination process for
noncompliant 8(a) firms diminished the time its business development
specialists had for providing business development assistance. Delays
in terminating firms also could result in noncompliant firms obtaining
contracts. Finally, in 2006, the SBA IG recommended that SBA regularly
conduct surveillance reviews for the 8(a) program. However, SBA has not
yet implemented this recommendation. As a result, SBA has reduced
assurances that agencies have complied with monitoring requirements for
the 8(a) program.
What GAO Recommends:
GAO recommends actions that include SBA reassessing the resources
allocated to achieve program objectives; better ensuring that
prospective 8(a) applicants are aware of program requirements; and
conducting regular surveillance reviews for the 8(a) program. In
responding to a draft of this report, SBA agreed with these
recommendations and outlined steps that it has initiated or plans to
take to address them.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/products/GAO-09-16]. For more
information, contact William B. Shear at (202) 512-8678 or
shearw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
SBA Considers Prior Goal Achievement of Agencies When Setting
Contracting Goals, and Federal Agency Goal Achievement Has Varied in
Recent Years:
Resource Constraints Limit Ability of SBA Staff to Advocate for,
Review, and Monitor Small Business Contracting at Federal Agencies:
SBA Faces Several Challenges in Effectively Administering the 8(a)
Program:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Small Disadvantaged Business Certification and Changes to
Its Use over Time:
Appendix III: Roles of Offices of Small Disadvantaged Business
Utilization and Agency Officials in Small Business Contracts:
Appendix IV: Number of Form 70s and Appeals Filed by SBA's Procurement
Center Representatives, Fiscal Years 2003-2007:
Appendix V: Comments from the Small Business Administration:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Statutory Government-wide Small Business and Socioeconomic
Goals for Small Business Contracting:
Table 2: Percentage of 8(a) Annual Reviews Completed, Fiscal Years 2003-
2007:
Table 3: 8(a) Terminations, Early Graduations, and Voluntary
Withdrawals, Fiscal Years 1999-2007:
Table 4: OSDBU Size and Budget and Small Business Contract Dollars and
Actions, for Commerce, DOD, DHS, and SSA:
Table 5: Total Informal Form 70s, Formal Form 70s, and Appeals Filed,
Fiscal Years 2003-2007:
Figures:
Figure 1: Example of a Small Business Procurement Scorecard, Fiscal
Year 2006:
Figure 2: SBA's Small Business Procurement Scorecard Results by Select
Agency, Fiscal Year 2006:
Figure 3: Example of SBA's Small Business Procurement Midyear
Scorecard, Fiscal Year 2008:
Figure 4: Overall Small Business Goal Attainment Government-wide and at
Select Agencies, Fiscal Years 2000-2006:
Figure 5: SDB Goal Attainment Government-wide and at Select Agencies,
Fiscal Years 2000-2006:
Figure 6: 8(a) Negotiated Goal Attainment Government-wide, Fiscal Years
2000-2006:
Figure 7: Number of 8(a) Applications Received, Approved, Declined, and
Withdrawn or Returned, Fiscal Years 1999-2007:
Figure 8: Number of SDB Applications Received and Number of SDB Firms
Certified by SBA, Fiscal Years 1999-2007:
Figure 9: Number of Designations for SDBs That Received Contracts,
Fiscal Years 2004-2007:
Abbreviations:
BDS: business development specialist:
BDMIS: Business Development Management Information System:
CMR: commercial market representative:
CoC: Certification of Competency:
Commerce: Department of Commerce:
DHS: Department of Homeland Security:
DOD: Department of Defense:
DPCE: Division of Program Certification and Eligibility:
FPDS-NG: Federal Procurement Data System-Next Generation:
HUBZone: Historically Underutilized Business Zone:
IG: Inspector General:
NASA: National Aeronautics and Space Administration:
OFPP: Office of Federal Procurement Policy:
OSDBU: Office of Small and Disadvantaged Business Utilization:
PCR: procurement center representative:
PEA: price evaluation adjustment:
SBA: Small Business Administration:
SBS: small business specialist:
SDB: small disadvantaged business:
SOP: standard operating procedure:
SSA: Social Security Administration:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
November 21, 2008:
The Honorable Bennie G. Thompson:
Chairman:
Committee on Homeland Security:
House of Representatives:
The Honorable Edolphus Towns:
Chairman:
Subcommittee on Government Management, Organization, and Procurement:
Committee on Oversight and Government Reform:
House of Representatives:
In fiscal year 2006, the federal government awarded $77 billion in
contracts to small businesses. Under the Small Business Act, the Small
Business Administration (SBA) plays an important role in ensuring that
small businesses gain access to federal contracting opportunities. For
instance, SBA negotiates agency-specific goals to ensure that the
federal government collectively meets the 23 percent statutory goal for
contract dollars awarded to small businesses. In addition, SBA
negotiates goals for socioeconomic programs such as small disadvantaged
businesses (SDB), women-owned businesses, Historically Underutilized
Business Zones (HUBZone), and service-disabled veteran-owned
businesses.[Footnote 1] Further, under section 8(a) of the Act, SBA
helps eligible socially and economically SDBs, known as 8(a) firms,
compete in the economy through various business development activities.
In the 8(a) program, SBA business development specialists (BDS) are
required to work directly with 8(a) firms and offer assistance such as
counseling on financial, marketing, and management practices. Until
recently, SBA also certified small businesses as SDBs.
In addition, procurement center representatives (PCR) and commercial
market representatives (CMR) in SBA's Office of Government Contracting
work to increase business opportunities for small businesses and ensure
they receive a fair and equitable opportunity to participate in federal
prime contracts and subcontracts. Further, all federal agencies with
procurement authority are required to establish an Office of Small and
Disadvantaged Business Utilization (OSDBU) to advocate for contracting
opportunities for small businesses.[Footnote 2] Procurement staff in
most agencies also include small business specialists (SBS), who are
responsible for working with OSDBUs and agency contracting officers to
advocate for small businesses.
Concerns have been raised about the extent to which federal agencies
have met their small business contracting goals and about SBA's efforts
to facilitate federal contracting opportunities for small businesses,
including those for 8(a) firms. In response to your request, this
report (1) describes the actions SBA takes to set these goals and the
extent to which federal agencies have achieved their small business
contracting goals in recent years, (2) examines the role of SBA staff
in supporting small business contracting at selected federal agencies,
and (3) examines SBA's overall administration of the 8(a) business
development program. In addition, appendix II describes how the use of
the SDB certification has changed over time and appendix III provides
information on the roles of OSDBUs and federal agency procurement
officials.
To address these objectives, we reviewed SBA guidance, our prior
reports and those of the SBA Inspector General, and interviewed
officials at SBA in the Office of Business Development, Office of
Government Contracting, and Division of Program Certification and
Eligibility (DPCE).[Footnote 3] To address the first objective, we
reviewed the results of SBA's inaugural Small Business Procurement
Scorecard for fiscal year 2006 and the midpoint scorecard for fiscal
year 2008.[Footnote 4] We used data from fiscal years 2000 through 2006
on SBA's negotiated small business contracting goals with agencies and
small business goaling reports to determine what percentage of
agencies' contracting dollars was awarded to small businesses. SBA uses
the Federal Procurement Data System-Next Generation (FPDS-NG) to
prepare its annual small business goaling reports, which evaluate
agencies' performance on the various small business goals.[Footnote 5]
To assess these data, we reviewed related documentation, including the
methodology used to create these reports. For the purposes of this
report, we found these data to be reliable. To further understand the
process for establishing contracting goals and related achievements, we
selected five agencies for our review. We first selected four agencies
(the Departments of Commerce, Defense, and Homeland Security; and the
Social Security Administration) based on level of contracting activity
and SBA's assessments of their goal achievement. The four agencies
generally obligated larger amounts of contracting dollars to small
disadvantaged businesses and, collectively, they received the full
range of scores on SBA's 2006 scorecard. We also included SBA because
it sets goals and is responsible for assessing and reporting on goal
achievement at federal agencies. To address the second and third
objectives, we conducted four site visits at SBA district and area
offices in Atlanta, Georgia; Chicago, Illinois; San Francisco,
California; and Washington, D.C., and interviewed SBA officials in each
location. We interviewed the 8 PCRs and 5 CMRs located in the four
locations we visited (out of an agency total of 59 PCRs and 31 CMRs,
respectively). In addition, we interviewed 19 BDSs.[Footnote 6] We
selected these locations based on the number of 8(a) firms in each
location and for geographic diversity. For the third objective, we also
analyzed at each location a sample of 20 8(a) participant files and
additional documentation that SBA provided on participants, contracts,
and federal procurement surveillance reviews (which evaluate federal
agency controls to ensure compliance with small business contracting
requirements). More specifically, we randomly selected two firms (one
that received a contract and one that did not) from each year of the 9-
year program and also randomly selected two firms in SBA's mentor-
protégé program.[Footnote 7] In addition, we interviewed an official
from a trade association representing 8(a) and SDB firms and reviewed
documents prepared by other trade associations representing 8(a) and
SDB firms.
We conducted this performance audit from October 2007 through November
2008 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives. Appendix I
provides a detailed description of our objectives, scope, and
methodology.
Results in Brief:
SBA reviews prior-year goal achievement and other factors to set
individual contracting goals for federal agencies to ensure the
government-wide goal of 23 percent is met; in fiscal years 2000 through
2006, the agencies collectively achieved or came close to achieving the
23 percent goal, but individual agency results varied. For the 2008-
2009 goal-setting cycle, SBA reviewed each agency's contracting trends,
and the effect of each agency's goals on the government-wide average.
And, in fiscal year 2006, SBA began using a Small Business Procurement
Scorecard to help monitor contracting efforts at agencies. The
scorecard evaluates factors such as goals met, progress shown, agency
strategies, and top-level commitment to meeting goals. Of the 24
agencies rated in fiscal year 2006, 7 received the highest rating, 5
the middle rating, and 12 the lowest. SBA subsequently reviewed
agencies' progress in implementing procurement plans and many agencies
improved their ratings. While officials from all four agencies we
reviewed cited challenges with the goal-setting process, such as
limitations in negotiating and appealing their goals, the individual
agencies have been able to achieve the goals, albeit not consistently.
For example, the Department of Homeland Security (DHS) consistently
met, and the Department of Defense (DOD) came close to, but did not
meet, the overall small business goal in each of those years. Federal
agencies had a similarly varied record for other small business goals.
According to SBA and OSDBU officials, many factors can influence an
agency's ability to achieve socioeconomic goals, such as a lack of
small business firms that can meet agencies' specialized procurement
needs or fluctuations in an agency's procurement cycle.
Resource constraints have limited the ability of SBA staff to carry out
core responsibilities. For instance, SBA's PCRs work with federal
agencies by reviewing proposed acquisitions and recommending small
business set-asides and procurement strategies to agencies, and
conducting surveillance reviews of federal agency administration of
small business contracting programs. Years of SBA downsizing and budget
reductions significantly reduced the resources available for these
agency functions, including contracting review and monitoring. As of
August 2008, SBA had 59 PCRs, 16 of which also had CMR
responsibilities. Many of these PCRs were responsible for multiple
agencies and several buying activities (divisions within agencies that
purchase goods and services). Our review indicated that some PCRs were
responsible for up to six agencies and an average of 5 buying
activities, with the number of buying activities per PCR varying from 1
to 12. SBA has recognized that more PCRs are needed, but has not
developed a formal plan to align staff resources with program
objectives. Some PCRs with whom we spoke stated they were not able to
cover all responsibilities effectively because they were "stretched too
thin," and some agency procurement officials explained that they rarely
interacted with their assigned PCRs. The number of SBA's CMRs, who
monitor subcontracting plans of large contractors, also has been
reduced significantly in recent years. The CMRs with whom we spoke said
they had been unable to carry out their multiple responsibilities, such
as compliance reviews of contractors' plans, because of workload
demands. SBA's Inspector General (IG) found that in fiscal year 2006,
CMRs monitored less than half of the 2,200 large prime contractors. As
a result of these constraints, SBA has reduced assurances that staff
effectively are advocating for and monitoring federal contracting with
small businesses.
SBA's overall administration of the 8(a) business development program
is challenged by several factors including an apparent lack of
understanding by some participating firms of the program's purpose and
requirements, competing demands on limited numbers of staff that
diminish the time available to spend on business development
activities, an inefficient removal or termination process of 8(a)
firms, and lack of routine surveillance reviews at agencies that are
specific to the 8(a) business development program.
* While SBA has controls in place to determine a firm's eligibility
prior to its admittance to the 8(a) program, participation in an
information session that SBA provides on the program to interested
firms is voluntary. SBA also has an online self-assessment tool that
helps applicants determine their suitability for the program, but firms
are not required to complete the assessment during the application
process. As a result, some firms may have entered the 8(a) program with
unrealistic expectations of obtaining federal contracts and may not
have clearly understood their responsibilities for maintaining and
reporting on their eligibility, which also has had implications for
staff workload as noted below.
* SBA staff reported challenges related to balancing the time necessary
to conduct mandatory reviews with the time needed to conduct business
development activities. Specifically, SBA is required by law to conduct
annual reviews of participating firms to determine their continued
eligibility in the program. For the reviews, firms must submit
documentation on finances, taxes, and contracts, but SBA officials said
that firms often did not submit this documentation on time, causing
staff to expend more time contacting firms and soliciting documentation
and making it difficult to complete the reviews in a timely fashion.
SBA officials explained that a recent agency emphasis on ensuring the
completion of reviews of 100 percent of participants and an inefficient
termination process (discussed below) diminished the amount of time
staff had to provide business development assistance to firms. Staff
said that they made fewer site visits to firms or less frequently held
events in which they could introduce federal contracting officials to
small businesses. As a result of the workload constraints on staff, SBA
is limited in its ability to provide the business development services
that form the core of the 8(a) program.
* SBA staff also stated that it was difficult to remove firms from the
program that were found to be noncompliant. SBA may terminate firms
under several conditions, including failure to follow program
procedures and maintain eligibility for participation. For instance,
staff stated that the termination process could take up to 120 days, in
part because of multiple notification requirements and delays by
headquarters in completing its review. In our review of 80 participant
files (which included firms that did not receive contracts), we found
instances where firms repeatedly were recommended for termination but
remained in the program after the recommendations had been made. For
example, one firm did not provide the required documentation for 4 of
the 8 years it was required do so. Our review also found one instance
of a noncompliant firm receiving a contract. As a result, firms that no
longer met program criteria could continue participating and consume
SBA resources that otherwise might be used to provide business
development assistance to compliant firms.
* Finally, SBA has not yet begun to monitor the 8(a) program at federal
agencies through required surveillance reviews, as recommended in a
2006 SBA IG report. Under partnership agreements for the 8(a) program,
SBA and federal agencies with procurement authority share the
responsibilities of contract execution and oversight, monitoring, and
compliance with procurement laws and regulations for 8(a) contracts.
The IG recommended that SBA regularly conduct surveillance reviews on
8(a) contracts; however, the IG recommendation has not been
implemented. Although SBA officials told us they planned to expand
surveillance reviews to include the 8(a) program, SBA had not yet
incorporated procedures for such reviews into its guidance. Because it
has not developed guidance for 8(a) surveillance reviews, SBA has
reduced assurance that agencies have complied with procurement laws and
regulations for 8(a) contracts.
This report contains recommendations for SBA to (1) assess resources
allocated to PCRs and CMRs and develop a plan to better ensure they can
effectively meet their mission responsibilities; (2) take steps to
better ensure that prospective applicants to the 8(a) program are aware
of program requirements; (3) assess the workload of BDSs and improve
processes for providing business development assistance and carrying
out terminations from the 8(a) program in a timely manner; and (4)
increase the effectiveness of surveillance reviews for the 8(a)
program. We provided SBA with a draft of this report for its review and
comment. SBA agreed with our recommendations and outlined steps that it
has initiated or plans to take to address each of them. For example,
SBA stated it will work with the Office of Human Capital Management to
assess the workload of the BDSs and their knowledge levels and stated
this analysis would be completed by the end of the 2009 fiscal year
(i.e., September 2009). In addition, SBA expects to implement its
proposed plan for creating tools that would assist in the provision of
business development assistance for 8(a) firms by March 2009. Further,
SBA stated that planned changes to its guidance on streamlining the
termination process are expected to be issued by December 2008. SBA's
comments are reprinted in appendix V.
Background:
Two offices within SBA are primarily responsible for the contracting
assistance and business development programs discussed in this report.
SBA's Office of Government Contracting administers the prime
contracting and subcontracting assistance programs through SBA
headquarters and six area offices located across the country. A goal of
these programs is to increase business opportunities for small
businesses and ensure that small businesses receive a fair and
equitable opportunity to participate in federal prime contracts and
subcontracts. Area office directors are responsible for supervising
these programs in the field; the Office of Government Contracting staff
in the area offices that conduct contracting program activities are
PCRs and CMRs. PCRs help increase the small business share of federal
procurement awards by initiating small business set-aside contracts
(set-asides); reserving procurements for competition among small
businesses; and identifying federal agencies with small business
sources for goods and services. PCRs also conduct surveillance reviews,
which are used to assess federal agencies' management of their small
business programs and compliance with regulations and published
policies and procedures. CMRs conduct compliance reviews of prime
contractors, counsel small businesses on how to obtain subcontracts,
conduct and participate in "matchmaking" activities to facilitate
subcontracting with small businesses, and provide orientation and
training on the subcontracting assistance program for both large and
small businesses.
SBA's Office of Business Development administers the 8(a) program.
BDSs, who work directly with 8(a) firms, are located in SBA's 68
district offices.[Footnote 8] They are required to assist firms with
preparing a business plan, conduct annual reviews of the firms'
progress in implementing these plans, provide technical assistance,
analyze year-end financial statements for certain compliance
requirements, and coordinate additional assistance and training for
firms through another SBA program.[Footnote 9] Additionally, BDSs may
have responsibilities related to other SBA programs such as
coordinating with resource partners that provide counseling, training,
and other assistance to small businesses.
Furthermore, SBA enters into partnership agreements with government
agencies to award contracts to qualified 8(a) firms. In order to do so,
SBA developed partnership agreements with 39 federal agencies, which
delegate SBA's contract execution authority to the agencies. According
to SBA, the purpose of the partnership agreement is to streamline the
contract execution process so that 8(a) firms may have more procurement
opportunities. Without the partnership agreements, all federal agencies
would be required to involve SBA from start to finish in the
procurement process when 8(a) firms were the providers of goods and
services. The partnership agreement requires that both SBA and the
partner agency share the responsibilities of contract execution and
oversight, monitoring, and compliance with procurement laws and
regulations governing 8(a) contracts. In 2007, the partnership
agreements were revised to clarify each agency's role. SBA also plans
to revise the agreements in 2009 to make further clarifications on
subcontracting requirements.
To qualify for the 8(a) program, a firm must be at least 51 percent
owned and controlled by an individual who meets SBA's criteria of
socially and economically disadvantaged. Socially disadvantaged
individuals include certain members of designated groups, such as Black
Americans or Hispanic Americans and individuals who are not members of
designated groups.[Footnote 10] Economically disadvantaged firms
include those whose primary owner(s) has $250,000 or less in personal
net worth, adjusted to exclude personal residence and business assets.
In addition, a firm must demonstrate its potential for success by being
in business for 2 years or meet waiver provisions (a waiver requires
the applicant to present copies of contracts or invoices demonstrating
performance of work in the industry for which the applicant seeks 8(a)
certification).[Footnote 11] The 8(a) program lasts 9 years and once
completed, a firm cannot reapply.[Footnote 12] However, all 8(a) firms
automatically are certified as SDBs and SDB firms can reapply for
certification every 3 years.[Footnote 13]
Firms in the 8(a) program are eligible to receive competitive and sole-
source set-asides. Competitive contracts can be awarded to 8(a) firms
if there is a reasonable expectation that at least two 8(a) firms will
submit offers and the award can be made at a fair price. Sole-source
contracts can be awarded when the dollar thresholds are $5.5 million or
less for acquisitions involving manufacturing and $3.5 million or less
for all other acquisitions.[Footnote 14]
SBA Considers Prior Goal Achievement of Agencies When Setting
Contracting Goals, and Federal Agency Goal Achievement Has Varied in
Recent Years:
SBA considers such factors as prior-year goal achievement when setting
contracting goals for federal agencies; goal achievement among federal
agencies varied from 2000 through 2006. Currently, SBA emphasizes
quantitative measures for goal setting. For the 2008-2009 goal-setting
cycle, SBA reviewed contracting trends at agencies, prior-year goal
achievement, and the impact of each agency's goals on the government-
wide average. In fiscal year 2006, SBA began using a scorecard to
evaluate contracting efforts at 24 agencies; 7 agencies received the
highest rating, 5 received the middle rating, and 12 received the
lowest rating. In a subsequent review, agency ratings showed
improvement, with four agencies receiving the lowest rating. While
officials from all agencies we reviewed cited challenges with the goal-
setting process, such as limitations in negotiating and appealing their
goals, federal agencies collectively have achieved or come close to
achieving the government-wide goal of 23 percent, but individual agency
performance varied. Federal agencies had a similarly varied record for
other small business goals such as the SDB goal and 8(a) negotiated
goal. According to SBA and OSDBU officials, many factors can influence
an agency's ability to achieve socioeconomic goals, such as a lack of
small business firms that can meet specialized procurement needs or
fluctuations in an agency's procurement cycle.
SBA Analyzes Such Factors as Prior-Year Goal Achievement of Agencies
and Potential Impacts on Meeting Government-wide Goals to Set Agencies'
Contracting Goals:
SBA is required to report on contracting goal achievements of federal
agencies in an effort to meet the statutory government-wide goal of
awarding 23 percent of contracting dollars to small businesses and
goals established for four socioeconomic categories (see table 1).
[Footnote 15]
Table 1: Statutory Government-wide Small Business and Socioeconomic
Goals for Small Business Contracting:
Categories: Small Business;
Percentage of prime contracting dollars: 23%.
Socioeconomic Categories: Small Disadvantaged Business;
Percentage of prime contracting dollars: 5%.
Socioeconomic Categories: Women-Owned Small Business;
Percentage of prime contracting dollars: 5%.
Socioeconomic Categories: HUBZone Business;
Percentage of prime contracting dollars: 3%.
Socioeconomic Categories: Service-Disabled Veteran-Owned Small
Business;
Percentage of prime contracting dollars: 3%.
Source: Small Business Act, as amended.
Note: A prime contract is awarded directly to a contractor by the
federal government.
[End of table]
In previous years, SBA negotiated annual procurement goals with each
federal agency so that, cumulatively, the government-wide goal was met
or exceeded. Each agency submitted proposed goals to SBA; SBA then
adjusted the goals to meet, in aggregate, the statutorily assigned
levels.[Footnote 16] For fiscal years 2008 and 2009, agencies did not
submit proposed goals to SBA. Instead, SBA set goals based on trend
analysis, prior-year goal achievement, and the impact of each agency's
goals on the national average.
Officials from four of the agencies we reviewed cited challenges with
the goal-setting process such as limitations in negotiating and
appealing their goals. Two agencies said that the goal-setting process
was not a negotiation and that SBA did not factor in changes in the
agencies' contracting priorities in its goal setting. For example, one
agency saw significant increases in information technology spending,
which typically involves large contracts for which small businesses
might not be competitive, but the small business goal did not reflect
this change. Agency officials explained that efforts to appeal the
goals were lengthy, resource-intensive, and unsuccessful.
SBA officials explained that they were constrained in their ability to
negotiate anything less than full government-wide compliance with the
statutory 23 percent goal. They said that in some cases, SBA has
reconsidered an agency's request to lower its annual goals but requires
the reconsideration to be both unique and compelling. For example, SBA
officials said they adjusted the goal for the Department of Health and
Human Services in the middle of a fiscal year because the department's
contracting priorities shifted to accommodate the purchase of vaccines,
which generally are produced by large businesses. However, SBA
officials explained that other agencies would need to provide more
small business contracting opportunities to compensate. Agencies may
appeal to SBA if they disagree on the established goals; if they do not
reach agreement, they can submit their case to the Office of Federal
Procurement Policy (OFPP) for a final determination.[Footnote 17] The
agencies we reviewed did not have experience disputing their goals
through OFPP. In addition, according to SBA officials, in October 2007
the agency established an executive subcommittee within the Small
Business Procurement Advisory Council to review the current goal-
setting process and provide more transparency on the process.[Footnote
18]
SBA Developed a Scorecard to Evaluate Small Business Contracting
Efforts of Agencies:
For fiscal year 2006, SBA began using a Small Business Procurement
Scorecard to help monitor agencies' small business contracting efforts,
including plans and progress in meeting the goals, and to bring greater
attention to goal achievement (see fig. 1). SBA officials explained
that SBA has limited statutory authority to enforce the goals or impose
corrective action on agencies that fail to meet the negotiated small
business contracting goals.
Figure 1: Example of a Small Business Procurement Scorecard, Fiscal
Year 2006:
[Refer to PDF for image]
This figure is an example of a Small Business Procurement scorecard, as
follows:
Initiative: Small Business Procurement;
Agency Lead: Director, OSBDU;
Current Status (As of July 25, 2007): Green;
Green Standards:
* Meets the small business goal, at least 3 socio-economic goals, and
shows improvement in the remaining 1 goal.
* Meet all Yellow standards:
1. Meets the small business goal, at least 2 additional socio-economic
goals, and improves in at least one of the unmet goals. Credit can also
be given for meeting 4 goals, regardless of which they are.
2. Has implemented a strategy to increase the number of competitively
awarded contracts to small businesses.
3. Has demonstrated high-level Agency commitment to small business
contracting.
4. Has a comprehensive small business program that includes written
policies and procedures focused on improving the competitive
environment and increasing small business participation in the
procurement process.
5. Has small business goal achievement as a rating element for
acquisition personnel.
6. Works cooperatively with SBA on outreach and targeting initiatives.
7. Meets deadlines for all strategic plans and annual reports due to
SBA.
8. Has a process to ensure small business data is accurately reported
in FPDS-NG.
9. Enforces small business subcontracting plans and meets
subcontracting goals.
Progress (As of July 25, 2007): Green;
Actions taken this quarter:
1. The agency has met its small business gaol, 2 additional socio-
economic goals, and improved in at least one of its unmet goals.
2. The agency has implemented an aggressive strategy to increase the
number of competitively awarded contracted to small businesses.
3. The agency shows top-level agency commitment to small business
contracting through internal scorecards, set-aside strategies, goal
performance, and top executive meeting on a monthly basis.
4. The agency has a comprehensive and active small business plan that
is documented and regularly updated.
5. The agency has built-in goal achievement requirements in their
executive management's performance to ensure increased accountability.
6. The agency's OSDBU coordinates with SBA in 8(a) orientation and
match-making events to further outreach and marketing initiatives.
7. The agency submitted all plans and reports by the required
deadlines.
8. The agency regularly verifies its small business data in FPDS-NG for
accuracy. The agency also uses internal/external reports as a tool to
rectify discrepancies found in the FPDS-NG system.
9. The agency does have a system in place to enforce small business
subcontracting plans and goal expectations.
Comments:
Did not meet its SDVO goal; however exceeded in all others in progress.
Source: SBA.
[End of figure]
SBA's 2006 scorecard consisted of three color ratings. To receive the
highest (green) rating, an agency had to have met its overall
contracting goal for small business and at least three of the
socioeconomic goals, shown progress in meeting the remaining two
socioeconomic goals, and met the requirements for the middle (yellow)
rating. To meet the yellow rating, the agency had to have met two
socioeconomic goals, improved in one other goal, and met other criteria
that included top-level commitment by agency officials for small
business contracting, cooperation with SBA, and timely and accurate
reporting.[Footnote 19] An agency received a low (red) rating if it
failed to meet the requirements for the middle (yellow) standards.
Although the scorecard reviewed activity in fiscal year 2006, SBA said
it did not publish the scorecard until August 2007.[Footnote 20] At
that time, SBA also published ratings on the scorecard for the progress
the agencies made on their small business procurement plans through
July 25, 2007.
Of the 24 agencies SBA rated in the 2006 scorecard, 7 received the
highest rating, 5 received the middle rating, and 12 received the
lowest rating. For instance, DHS received the highest (green) rating
because it met three out of four socioeconomic goals, had an agency
strategy to increase the number of competitively awarded contracts to
small businesses, and demonstrated commitment to small business
contracting at the higher levels of the agency. The Department of
Commerce (Commerce) did not meet two of its socioeconomic goals and
therefore received a yellow rating. DOD did not meet its small business
goal or socioeconomic goals and received a red rating. The Social
Security Administration (SSA) also received a red rating for not
meeting its goals and several other criteria, including not having an
evaluation factor for acquisition professionals on goal achievement,
enforcing subcontracting plans, and meeting subcontracting goals.
However, many agencies showed improvement on the portion of the
scorecard that assessed the agencies' progress through July 25, 2007.
For instance, of the 12 agencies with a low score for fiscal year 2006,
8 moved up to the middle score. All five agencies that previously
received a middle score received the highest rating in terms of
progress in implementing their small business procurement plans. Of the
agencies we reviewed, DHS and SBA maintained the highest score,
Commerce and DOD showed improvement, and SSA continued to receive a low
rating (see fig. 2).
Figure 2: SBA's Small Business Procurement Scorecard Results by Select
Agency, Fiscal Year 2006:
[Refer to PDF for image]
This figure is an illustration of SBA's Small Business Procurement
Scorecard Results by Select Agency, Fiscal Year 2006, as follows:
Department/Agency: Department of Homeland Security;
Fiscal year 2006 scorecard results, Results (fiscal year end): green;
Fiscal year 2006 scorecard results, Progress (through 7/25/07): green.
Department/Agency: Small Business Administration;
Fiscal year 2006 scorecard results, Results (fiscal year end): green;
Fiscal year 2006 scorecard results, Progress (through 7/25/07): green.
Department/Agency: Department of Commerce;
Fiscal year 2006 scorecard results, Results (fiscal year end): yellow;
Fiscal year 2006 scorecard results, Progress (through 7/25/07): green.
Department/Agency: Department of Defense;
Fiscal year 2006 scorecard results, Results (fiscal year end): red;
Fiscal year 2006 scorecard results, Progress (through 7/25/07): yellow.
Department/Agency: Social Security Administration;
Fiscal year 2006 scorecard results, Results (fiscal year end): red;
Fiscal year 2006 scorecard results, Progress (through 7/25/07): red.
Green:
Results criteria: The agency must meet its small business goal, 3 socio-
economic goals, progress in 1 goal, and meet all yellow standards;
Progress criteria: The agency‘s current status must be at least a
’yellow“ with all yellow standards met.
Yellow:
Results criteria: Small business goal, 2 socio-economic goals, progress
in 1 goal, must meet all yellow standards;
Progress criteria: The agency can miss no more than 2 yellow standards
regardless of its current status grade.
Red:
Results criteria: Does not meet either of the above conditions;
Progress criteria: Does not meet either of the above conditions.
Source: SBA.
[End of figure]
Some agency officials we interviewed expressed dissatisfaction with the
fiscal 2006 scorecard. For example, senior officials from three of the
four agencies we selected suggested that SBA did not adequately take
into account factors that affected their goal achievements, since an
agency could receive the lowest category for barely missing its goals.
One official suggested that the scorecard could be improved by focusing
on outcome-oriented criteria rather than activity-oriented criteria.
For example, the official suggested that rather than looking at the
number of outreach events in which an agency participated, SBA could
assess the agency based on how many firms received a contract as a
result of attending the event. Yet, they acknowledged that the
scorecard promoted transparency.
SBA officials regarded the scorecard as a useful tool. They suggested
that the inaugural 2006 scorecard had the effect SBA intended--bringing
greater transparency to agencies' current and future small business
contracting efforts. Moreover, agency officials have been incorporating
the results of the scorecard into their performance plans. For example,
according to SBA officials, some agencies have factored the results of
the scorecard into the performance evaluations of procurement
officials. SBA said that they had plans to improve the scorecard by
providing agencies the opportunity to present their procurement plan
for small businesses, progress made toward their plan, and mitigating
factors affecting their ability to implement their plan. SBA also is
working to better align scorecard reporting time frames toward the
earlier part of the fiscal year rather than the end of the fiscal year.
In addition, SBA has provided opportunities for agency officials to
comment on the scorecard and propose revisions.
In July 2008, SBA issued a midyear scorecard that assessed the progress
that agencies made on their fiscal year 2008 small business procurement
plans. SBA officials explained that as a result of feedback from other
federal agencies, SBA included some different elements on this
scorecard than on the 2006 scorecard. For example, SBA assessed whether
the agency:
* planned significant events to encourage small business participation,
* planned training for contracting staff and managers, and:
* planned to collaborate on formulating policy.
SBA reviewed submissions from the agencies to determine if their plans
were "acceptable" or "needed work." In addition, SBA identified best
practices at 16 of the agencies (see fig. 3).
Figure 3: Example of SBA's Small Business Procurement Midyear
Scorecard, Fiscal Year 2008:
[Refer to PDF for image]
This figure is an example of SBA's Small Business Procurement Midyear
Scorecard, Fiscal Year 2008, as follows:
First Scorecard:
Initiative: Small Business Procurement; Agency Lead: OSDBU Director.
FY 2008 Goals:
SB: 31.90%;
SDB: 5%;
WOSB: 5%;
HUBZone: 3%;
SDVOB: 3%.
FY 2008 Plan: Acceptable; Actions taken:
Meets all Plan Requirements:
1. Implemented strategic plan to increase the value of competitively
awarded contracts to small businesses during the period.
2. Demonstrated top-level Agency commitment to small business
contracting during the period.
3. Planned significant events to increase small business participation
in the procurement process during the period.
4. Demonstrates that small business data is accurately reported in FPDS-
NG during the period.
5. Demonstrates that policies and procedures are into ensure compliance
with subcontracting plans and attainment of subcontracting goals during
the period.
6. Demonstrated no unjustified bundling has taken place during the
period.
7. Planned training to contracting staff/managers in executing small
business/socioeconomic procurements during the period.
8. Planned to collaborate on formulation of small business procurement
policy initiatives during the period.
9. Agency submits all strategic plans and reports that become due to
SBA during the reporting period.
Comments For Agency:
SBA Recognizes The Agency For Their Outstanding Achievement.
Best Practices:
has a comprehensive small business program supported by its directive
and outreach activities. The directive has many elements that would be
useful for other Federal agencies to adopt, if they do not currently
have a separate SB directive.
Source: SBA.
[End of figure]
The majority of the agencies had plans that SBA considered acceptable,
and SBA identified best practices at three of the four agencies we
reviewed. For instance, Commerce's OSDBU director was a member of the
Federal Acquisition Regulatory Council and SBA suggested that other
agencies could benefit by having their OSDBU director join the council
as a way to influence policy initiatives. DOD was cited as having a
unique plan that set goals and objectives for small business
procurement down to the major department level. SBA noted that DHS had
a comprehensive small business program and supported it through
outreach activities and a directive that was issued by its top-level
management. SBA suggested that SSA could improve its scorecard by
demonstrating top-level commitment for small business contracting and
developing a plan to submit all strategic plans and reports to SBA.
SBA's small business plan also was cited as needing work because it did
not demonstrate that a policy or procedure was in place for
subcontracting goals. SBA said it planned to release the second results
and progress scorecard, which would be comparable to its inaugural
scorecard, by the end of fiscal year 2008.[Footnote 21]
Government-wide and Small Disadvantaged Business Goal Achievement
Varied in Fiscal Years 2000-2006:
For most fiscal years from 2000 through 2006, federal agencies
collectively achieved or came close to achieving the government-wide
goal for overall small business contracting.[Footnote 22] However,
government-wide, the federal agencies did not meet or exceed the
overall contracting goal of 23 percent in 4 of the 7 years (see fig.
4).[Footnote 23] At the select agencies we reviewed, goal achievement
varied. For instance, DHS consistently has met its SBA-negotiated (SBA-
set) goal since 2004.[Footnote 24] DOD did not meet its goal in any
year from 2000 through 2006; however, the agency generally came close
each year. DOD's small business goal was 23 percent each year; its goal
achievement ranged from a low in 2001 of 20.5 percent to a high in 2005
of 22.6 percent. Other agencies had mixed outcomes in their goal
achievement. For example, Commerce and SSA did not meet their SBA-set
small business goals in 1 of the 7 years we reviewed. However, in the
years these agencies met their goals, they generally exceeded the goals
by large margins. SBA did not meet its goals in 3 years (2002 through
2004), but exceeded its goals in 4 years (2000, 2001, 2005, and 2006).
Figure 4: Overall Small Business Goal Attainment Government-wide and at
Select Agencies, Fiscal Years 2000-2006:
[Refer to PDF for image]
This figure is a vertical bar graph depicting the following data:
Overall Small Business Goal Attainment Government-wide and at Select
Agencies, Fiscal Years 2000-2006:
Goals exceeded indicated by positive percentage;
Goals missed indicated by a negative percentage.
Government-wide:
FY 2000: -0.74%;
FY 2001: -0.19%;
FY 2002: -0.7%;
FY 2003: 0.29%;
FY 2004: 0.09%;
FY 2005: 0.41%;
FY 2006: -0.17%.
DOC:
FY 2000: -6.39%;
FY 2001: 9.2%;
FY 2002: 16.56%;
FY 2003: 18.34%;
FY 2004: 8.46%;
FY 2005: 4.66%;
FY 2006: 1.65%.
DOD:
FY 2000: -1.59%;
FY 2001: -2.47%;
FY 2002: -1.83%;
FY 2003: -0.65%;
FY 2004: -0.73%;
FY 2005: -0.4%;
FY 2006: -1.16%.
DHS:
FY 2000: N/A;
FY 2001: N/A;
FY 2002: N/A;
FY 2003: N/A;
FY 2004: 15.46%;
FY 2005: 16.6%;
FY 2006: 1.6%.
SSA:
FY 2000: 3.16%;
FY 2001: 2.31%;
FY 2002: 8.59%;
FY 2003: 8.61%;
FY 2004: 10.4%;
FY 2005: 11.31%;
FY 2006: -2.06%.
SBA:
FY 2000: 7.69%;
FY 2001: 17.18%;
FY 2002: -4.51%;
FY 2003: -11.92%;
FY 2004: -0.87%;
FY 2005: 11.99%;
FY 2006: 7.05%.
Source: GAO analysis of Small Business Goaling Reports and FPDS-NG
Reports on Annual Procurement Preference Goaling Achievements.
[End of figure]
Government-wide, federal agencies exceeded the 5 percent statutory goal
for SDBs from 2000 through 2006. However, SBA also set goals above this
standard in the years we reviewed (the SBA-set goals, both government-
wide and for the selected agencies, are shown in fig. 5). In the years
that federal agencies did not meet their goals (2004 and 2005), the SBA-
set goal was 8 percent. For the select agencies we reviewed, goal
achievement varied. For instance, DHS met its goal in all years we
reviewed. DOD also met its SDB goal each year. Other agencies had mixed
outcomes. For example, Commerce did not meet its goal in 3 of 7 years;
however, in 2006 it missed its goal by a slight margin. SSA met its SDB
goal in 2002 and 2003. SBA met its goal in 3 out of 7 years. For more
information on contracts awarded to firms with SDB certifications, see
appendix II.
Figure 5: SDB Goal Attainment Government-wide and at Select Agencies,
Fiscal Years 2000-2006:
[Refer to PDF for image]
This figure is a vertical bar graph depicting the following data:
SDB Goal Attainment Government-wide and at Select Agencies, Fiscal
Years 2000-2006:
Goals exceeded indicated by positive percentage;
Goals missed indicated by a negative percentage.
Government-wide:
FY 2000: 0.79%;
FY 2001: 1.42%;
FY 2002: 0.49%;
FY 2003: 0.75%;
FY 2004: -1.82%;
FY 2005: -1.45%;
FY 2006: 1.76%.
DOC:
FY 2000: -4.87%;
FY 2001: 0.76%;
FY 2002: 4.35%;
FY 2003: 4.57%;
FY 2004: 2.12%;
FY 2005: -1.43%;
FY 2006: -0.26%.
DOD:
FY 2000: 0.56%;
FY 2001: 0.54%;
FY 2002: 0.96%;
FY 2003: 1.28%;
FY 2004: -0.04%;
FY 2005: 0.62%;
FY 2006: 0.45%.
DHS:
FY 2000: N/A;
FY 2001: N/A;
FY 2002: N/A;
FY 2003: N/A;
FY 2004: 4.55%;
FY 2005: 2.18%;
FY 2006: 2.73%.
SSA:
FY 2000: -4.76%;
FY 2001: -2.57%;
FY 2002: 3.13%;
FY 2003: 2.32%;
FY 2004: -1.65%;
FY 2005: -4.35%;
FY 2006: -11.80%.
SBA:
FY 2000: -3.48%;
FY 2001: -27.94%;
FY 2002: -4.18%;
FY 2003: -14.08%;
FY 2004: 2.62%;
FY 2005: 16.57%;
FY 2006: 14.65%.
Source: GAO analysis of Small Business Goaling Reports and FPDS-NG
Reports on Annual Procurement Preference Goaling Achievements.
[End of figure]
Although the statutory provision for setting goals for small business
participation in federal procurement contains no contracting goal for
the 8(a) program, SBA negotiated an annual goal with agencies until
2007.[Footnote 25] The government-wide goal was met in most years we
reviewed, except for 2002 and 2004 (see fig. 6). For the select
agencies we reviewed, goal achievement varied. For instance, DHS met
its goal in all years we reviewed, but the degree by which it exceeded
the goal declined. DOD met SBA's 8(a) goal in each year except 2002.
Commerce met or exceeded its goal in recent years but mostly missed its
goal from 2000 through 2004. SSA and SBA also had mixed results and
missed their goal in 4 of the 7 years.
Figure 6: 8(a) Negotiated Goal Attainment Government-wide, Fiscal Years
2000-2006:
[Refer to PDF for image]
This figure is a vertical bar graph depicting the following data:
8(a) Negotiated Goal Attainment Government-wide, Fiscal Years 2000-
2006:
Goals exceeded indicated by positive percentage;
Goals missed indicated by a negative percentage.
Government-wide:
FY 2000: 1.48%;
FY 2001: 1.46%;
FY 2002: -0.65%;
FY 2003: 0.6%;
FY 2004: -0.19%;
FY 2005: 0.68%;
FY 2006: 1.17%.
DOC:
FY 2000: -8.52%;
FY 2001: -5.03%;
FY 2002: 1.31%;
FY 2003: -4.62%;
FY 2004: -1.35%;
FY 2005: 1.09%;
FY 2006: 2.95%.
DOD:
FY 2000: 2.64%;
FY 2001: 2.21%;
FY 2002: -1.06%;
FY 2003: 0.77%;
FY 2004: 0.11%;
FY 2005: 0.78%;
FY 2006: 0.66%.
DHS:
FY 2000: N/A;
FY 2001: N/A;
FY 2002: N/A;
FY 2003: N/A;
FY 2004: 2.60%;
FY 2005: 1.22%;
FY 2006: 2.19%.
SSA:
FY 2000: -5.46%;
FY 2001: -3%;
FY 2002: 3.51%;
FY 2003: 4.77%;
FY 2004: 3.24%;
FY 2005: -1.21%;
FY 2006: -1.42%.
SBA:
FY 2000: -27.37%;
FY 2001: -21.5%;
FY 2002: 8.87%;
FY 2003: -0.31%;
FY 2004: -6.21%;
FY 2005: 9.89%;
FY 2006: 7.27%.
Source: GAO analysis of Small Business Goaling Reports and FPDS-NG
Reports on Annual Procurement Preference Goaling Achievements.
[End of figure]
According to SBA officials and OSDBU directors, many factors can
influence an agency's ability to achieve socioeconomic goals, such as
the focus of the agency's business plan (that is, the type of contracts
required), a lack of small business firms that can meet specialized
procurement needs, or fluctuations in an agency's procurement cycle.
For example, the Department of Energy relies on a business model that
emphasizes large contracts, which can make achievement of small
business goals difficult. SBA and DOD officials explained that small
businesses do not provide many of the goods and services that DOD
purchases, such as airplanes, tanks, and weapons. Commerce officials
explained that SBA's goal-setting process did not adequately take into
account the significant increase in spending associated with the
decennial census, which generally relies on larger contracts that are
not as conducive for small business contracting opportunities. In
contrast, SBA officials explained that other agencies might have fewer
contract dollars to spend but require more types of services amenable
to small business contracting. Finally, SBA officials stated that
changes in an agency's mission and the types of goods and services
purchased could present barriers to goal achievement.
Resource Constraints Limit Ability of SBA Staff to Advocate for,
Review, and Monitor Small Business Contracting at Federal Agencies:
Resource constraints limit the ability of SBA staff to carry out some
of their core responsibilities. SBA staff have advocacy, review, and
monitoring roles to facilitate small business contracting at federal
agencies. PCRs are procurement analysts who implement SBA's prime
contracting program. They can be located where agencies conduct
procurements or off-site at SBA's offices. More specifically, PCRs:
* review federal agency acquisitions and recommend small business set-
asides;
* can dispute a procurement through informal or formal means with the
agency's procurement officials in instances where an agency does not
accept the recommended set-aside;
* conduct surveillance reviews, which monitor small business
contracting at federal agencies;
* recommend procurement strategies to federal agencies to maximize
small business participation in federal contracts; and:
* counsel and train small businesses on obtaining federal contracts.
However, PCRs have operated under resource constraints as a consequence
of overall agency downsizing and budget reductions. As we previously
reported, budget reductions in the 1990s resulted in SBA streamlining
its field structure and shifting its workload to district or
headquarters offices.[Footnote 26] During this time, SBA's workforce
declined significantly, from 3,800 to about 3,100 employees (about 19
percent). From 2000 to 2007, SBA restructured its organization and the
workforce further decreased by 26 percent. As of September 2007, SBA
had 2,166 employees.[Footnote 27]
From our review of SBA's August 2008 area office directory, most PCRs
covered multiple agencies and "buying activities" within
agencies.[Footnote 28] As of August 2008, SBA had 59 PCRs--16 of which
also had CMR responsibilities--but expected to increase the number to
66 through additional hiring.[Footnote 29] Some PCRs were responsible
for up to six agencies. Almost all the PCRs (55 out of 59) had
responsibilities for buying activities at DOD. Twenty-two were assigned
exclusively to DOD and 33 were responsible for overseeing DOD and other
agencies. DHS and Commerce were assigned 4 and 2 PCRs, respectively,
while SSA and SBA were assigned 1. Our review of the number of buying
activities for which a PCR was responsible showed an average of 5
activities per PCR, with the number of buying activities per PCR
varying from 1 to 12. SBA officials explained that the amount of work
also can vary by agency, partly because some agencies had automated
contracting processes while others did not.
The reduced staff numbers, multiagency assignments, and other available
evidence suggest that PCRs are limited in the extent to which they can
carry out some of their responsibilities. According to SBA officials,
in 2007, PCRs reviewed about 47,000 new procurement actions of 5.5
million total procurement actions throughout the federal government.
[Footnote 30] In 2002, we also reported that the number of set-aside
recommendations that PCRs were making annually decreased by about half,
from 529 in fiscal year 1991 to 281 in fiscal year 2001.[Footnote 31]
Reasons for the decline during this period included downsizing (which
decreased the number of PCRs), the reassignment of some PCRs to other
roles, and the increased size of federal procurements that contributed
to fewer set-aside opportunities for small businesses. We had planned
to update our 2002 report data on the number of PCR-recommended set-
asides for this report, but because SBA no longer collected this
information electronically, the most recent data are from 2001.
[Footnote 32] We were able to update information about the number of
Form 70s that PCRs issued; the Form 70 reflects some level of
discussion or disagreement between agencies and SBA about recommended
set-asides. When agency officials reject a set-aside recommendation,
PCRs can dispute the procurement through informal or formal means (Form
70s) with the agency's procurement officials. From fiscal years 2003
through 2007, PCRs generally increased the number of informal Form 70s,
except for 2007, and decreased the number of formal Form 70s filed
annually. [Footnote 33] Finally, PCRs participated in 94 surveillance
reviews from 2003 to 2007, 59 of which were within one agency (DOD).
However, SBA did not conduct any surveillance reviews from 1994 through
2002 because of budget constraints.
SBA has recognized that more PCRs are needed and has begun some efforts
to streamline some of the PCRs' responsibilities. For instance, at a
congressional hearing in September 2007, SBA's deputy administrator
cited the importance of the PCRs and mentioned SBA's plan to fund
additional PCR positions and fill vacant positions in a timely manner.
[Footnote 34] Further, in February 2008, SBA's former administrator
testified on efforts to refocus the responsibilities of PCRs from
working directly with small businesses to directing contracts to small
businesses.[Footnote 35] The BDSs would assume full responsibility for
working directly with small businesses. SBA headquarters officials
explained efforts were underway for PCRs to coordinate with BDSs when
opportunities for small business were identified at federal agencies.
In our interviews with PCRs, some mentioned changes in their
responsibilities--to interact more with federal agencies to identify
small business contracting opportunities and less with small businesses
to provide outreach and training on federal contracts--but noted they
were still transitioning to their new roles.
However, SBA officials also explained that SBA currently has no formal
guidance or plan in place to review the workload of PCRs and they made
PCR assignments by considering the contracting volume of the buying
activities and the level of automation of the contract process at the
buying activities. The officials explained that in the future, SBA
plans to undertake a business re-engineering process to develop a
resource allocation system that incorporates the above factors.
According to PCRs and others we interviewed, workload and resource
issues have affected their ability to conduct their current work.
Officials in three of the four area offices we visited explained PCRs
were stretched too thin and were not able to cover all contracting
activities effectively.[Footnote 36] More specifically, five of the
eight PCRs we interviewed were finding it difficult to provide adequate
coverage to one agency, much less several. Our analysis of the field
directory indicated that 17 (29 percent) of 59 PCRs were responsible
for six or more buying activities. Further, many PCRs explained they
had better results in advocating for small business when they were
involved with buying activities on an ongoing basis and available to
make informal recommendations and answer questions than when they were
not. At two of the four agencies we reviewed, OSDBU officials explained
that they rarely interacted with PCRs. In addition, an official from
another agency explained they do not rely as much on PCRs for guidance
and support since the PCRs appear to be overextended in covering all
their responsibilities. Therefore, these agencies may have missed
opportunities to identify or advocate small businesses for certain
contract opportunities. In addition, an OSDBU official explained that
because PCRs were responsible for several agencies they generally had
to focus on agencies that were most challenged to reach their small
business goals. Moreover, all the area office directors we interviewed
explained that a wave of PCR retirements was expected in the near
future and it would be difficult to replace the knowledge and
relationships of the current PCRs.
In addition to PCRs, who review agency acquisitions and recommend
contracting opportunities for small businesses, SBA's CMRs:
* conduct compliance reviews of prime contractors,
* counsel small businesses on how to obtain subcontracts,
* conduct and participate in "matchmaking" activities to facilitate
subcontracting with small business, and:
* provide orientation and training on the subcontracting assistance
program for both large and small businesses.
However, the number of staff performing CMR duties has decreased
substantially in recent years, as has the number of staff dedicated to
performing those duties full time. A 2007 SBA IG report found a
significant decrease in the number of full-time CMRs from 24 in 1992 to
3 in 2006 and an increase in the number of part-time CMRs from 3 to 35
over the same period.[Footnote 37] As of August 2008, SBA had 31 CMRs,
16 of whom had additional job functions such as PCR duties, conducting
small business size determinations, and issuing certificates of
competency.[Footnote 38] These additional roles often take higher
priority and reduce the amount of time CMRs are able to spend on
subcontracting assistance activities. Moreover, the CMRs with whom we
spoke had large portfolios, ranging from approximately 90 to 200 prime
contractors. The IG recommended that SBA develop a performance plan
that addresses how CMRs would be allocated. Although SBA agreed with
this recommendation and stated more resources were needed, SBA still
does not formally monitor the workload allocations of the CMRs. SBA
officials stated that the agency plans to evaluate CMR workloads and
possibly centralize some job functions.
Furthermore, resource constraints have limited the ability of CMRs to
perform a key monitoring function. All of the CMRs we interviewed
explained that their increased workload diminished their ability to
monitor prime contractors through compliance reviews. For instance, one
CMR with whom we spoke had not completed a formal compliance review of
a prime contractor in 5 years. Some CMRs also noted that the number of
on-site reviews they conducted was limited because of budget
constraints. Furthermore, the SBA IG found in fiscal year 2006 that
less than half of the 2,200 large prime contractors were monitored and
only 24 percent of those monitored had been reviewed on-site. CMRs are
responsible for reviewing subcontracting plans of prime contractors
once a contract has been issued. CMRs review the plans to see if prime
contractors are meeting their subcontracting goals, whether they have a
program in place to achieve their goals, and how well the program is
being implemented. SBA guidance also states that conducting compliance
reviews is one of the CMR's most important responsibilities. The
guidance further states these reviews often are the only formal
evaluation of a contractor's compliance with its subcontracting plan
and that CMRs should conduct desk audits and on-site reviews of prime
contractors to ensure they are upholding their subcontracting plans.
Resource constraints that contributed to extensive workloads and
responsibilities encompassing several agencies and activities have
hindered the ability of SBA staff to carry out core activities related
to monitoring of federal contracting. As a result, SBA has reduced
assurance that PCRs and CMRs are ensuring that federal agencies
increase their share of federal contracts for small business or are
effectively monitoring contracting activity at the federal agencies.
SBA Faces Several Challenges in Effectively Administering the 8(a)
Program:
SBA faces several challenges in its overall administration of the 8(a)
business development program. First, SBA offers voluntary seminars and
an assessment tool to help educate applicants on the 8(a) program, but
according to SBA officials some applicants still may not understand the
program's purpose and reporting requirements. Second, SBA staff said
that the recent emphasis on meeting the long-standing statutory
requirement to complete annual reviews of 100 percent of 8(a) firms--
which are time-and resource-intensive--has diminished their ability to
conduct business development activities. Third, an inefficient
termination process may result in noncompliant firms remaining in the
program and consuming limited SBA resources that otherwise might be
used to provide business development assistance to compliant
participants. Finally, a 2006 IG recommendation that SBA regularly
conduct surveillance reviews of agency oversight of 8(a) contracting
has not been implemented. As a result of SBA not conducting such
reviews, it has reduced assurance that agencies met their
responsibilities under partnership agreements, including oversight of
contracting, for the 8(a) program.
The Purpose of the 8(a) Program Is Business Development and
Participants Must Meet Annual Reporting and Other Requirements:
The purpose of SBA's 8(a) program is to help eligible SDBs compete in
the economy through business development.[Footnote 39] Over the course
of their 9-year term, 8(a) participants can receive (1) business
training, (2) financial assistance, and (3) assistance with forming
joint ventures and other strategic agreements. As noted, firms in the
8(a) program also are eligible to receive competitive and sole-source
set-aside federal contracts. Because the 8(a) program does not
guarantee that participants will receive these contracts, firms in the
program have some responsibility for their own success. For example, in
all of the locations we visited, district office officials told us that
firms with marketing experience and that did significant self-marketing
with federal agencies were most successful.
Any firm has the right to apply for 8(a) program participation, but
8(a) eligibility requires a firm to have a minimum of 2 years of
business experience or meet waiver provisions. Specifically,
prospective 8(a) firms must be in business for 2 full years immediately
prior to the date of application and present supporting documentation
for SBA's analysis or apply for a waiver to the 2-year rule and
demonstrate they meet certain other conditions, including (1) business
management experience, (2) technical expertise, (3) adequate capital,
(4) a record of successful contract performance, and (5) the ability to
obtain the resources necessary to perform contracts. Applicants also
must provide documentation on the firm's business and its owners,
including business and personal financial statements and business and
personal tax returns. According to SBA, firms were able to submit their
applications electronically through its Business Development Management
Information System (BDMIS) in 2005, but the system was implemented
fully as of July 28, 2008.[Footnote 40] The system is intended to
significantly decrease processing times for 8(a) certifications. SBA's
goal is to complete 8(a) certifications within 90 days.
Once approved for the program, participant firms must continue to meet
all eligibility criteria (including those for ownership and social and
economic disadvantage) and submit documentation that SBA requires to
complete mandatory annual reviews. For instance, each year, as part of
the annual review, participants must provide SBA with a certification
that they continue to meet eligibility requirements as well as
financial statements, income tax returns, and a report on all non-8(a)
contracts.[Footnote 41] In conjunction with SBA, each participant also
must review its business plan annually and modify the plan as
appropriate based on future contract targets and business development
needs. Since SBA approves the business plan upon admission, it reviews
the plan annually to assess each firm's growth and progress toward
attaining the ability to compete in the open market without SBA
assistance. Most annual review documents and the updated business plan
are due within 30 days after the close of each firm's program year and
financial statements are due within 90 to 120 days of the close of the
reporting period. Participants sign an agreement upon entry to the
program that they will submit all required documentation to SBA on time
or face termination.
SBA Uses Voluntary Means to Educate Applicants on 8(a), but Some
Applicants Still May Not Understand Program Purpose and Reporting
Requirements:
The number of applications to the 8(a) program increased sharply in
2002, and remained relatively constant through 2007 (see fig. 7). SBA
noted that the numbers could increase during economic downturns or when
unexpected events like Hurricane Katrina affected business operations
and the applications might be the result of applicants not having a
clear understanding of the primary purpose of the 8(a) program as a
business development program. That is, firms may have applied to the
program because they focused on the contracting preferences they could
receive as 8(a) firms and not on the program's requirements for
business development. According to SBA officials, a majority of
applications were returned because the firms applying submitted
incomplete applications. Figure 7 also illustrates that for each year
from 2002 through 2007, the number of applications that were either
returned or withdrawn exceeded the numbers of approved applications and
declined applications. Some SBA officials also noted that often
applicants were not prepared or well-suited for the program.
Figure 7: Number of 8(a) Applications Received, Approved, Declined, and
Withdrawn or Returned, Fiscal Years 1999-2007:
[Refer to PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Fiscal year: 1999;
Total applications: 2,521;
Declined: 291;
Approved: 918;
Returned/Withdrawn: 1,152.
Fiscal year: 2000;
Total applications: 2,443;
Declined: 363;
Approved: 819;
Returned/Withdrawn: 1,100.
Fiscal year: 2001;
Total applications: 2,338;
Declined: 386;
Approved: 992;
Returned/Withdrawn: 1,092.
Fiscal year: 2002;
Total applications: 3,741;
Declined: 381;
Approved: 1,112;
Returned/Withdrawn: 2,017.
Fiscal year: 2003;
Total applications: 3,783;
Declined: 4043;
Approved: 1,217;
Returned/Withdrawn: 2,292.
Fiscal year: 2004;
Total applications:3,924;
Declined: 316;
Approved: 1,203;
Returned/Withdrawn: 2,488.
Fiscal year: 2005;
Total applications: 3,881;
Declined: 309;
Approved: 1,415;
Returned/Withdrawn: 2,178.
Fiscal year: 2006;
Total applications: 4,487;
Declined: 165;
Approved: 853;
Returned/Withdrawn: 2,860.
Fiscal year: 2007;
Total applications: 4,325;
Declined: 173;
Approved: 621;
Returned/Withdrawn: 3,173.
Source: GAO analysis of SBA data.
Note: Total applications received in each fiscal year do not equal the
sum of all other categories because some decisions can be reconsidered
in the following year or carried over from prior fiscal years.
[End of figure]
SBA has used several means to educate applicants about the purpose of
the 8(a) program and its eligibility and reporting requirements, but
none are a prerequisite for program application. SBA offers an
information session for firms interested in applying to the 8(a)
program, but participation in the session is voluntary. SBA markets
these sessions through its resource partners (such as Small Business
Development Centers and SCORE) and its Web site, and 8(a) program
guidance states that district offices are expected to encourage
potential applicants to attend the sessions, which the district offices
or resource partners conduct.[Footnote 42] The purpose of the
information session is to educate potential applicants about
eligibility and the application process and to assist them in making a
determination about participation. For example, topics covered in the
session include (1) program background, (2) eligibility requirements,
(3) application forms, (4) requirements for participation and
continuing eligibility such as annual reviews, and (5) available
program resources. According to SBA guidance, information sessions may
be conducted as workshops with multiple firms or a one-on-one interview
with a single firm. At the four district offices that we visited, the
BDSs said that their offices conducted workshops for potential
applicants. According to SBA, its district offices held 1,912 8(a)
workshops in fiscal year 2008 that were attended by more than 42,000
participants. Forty-seven of the 68 district offices, including the 4
we visited, reported that they held workshops monthly or conducted at
least 12 workshops in 2008.
SBA officials also explained that in 2007, they developed an online
self-assessment tool that firms could use to determine their readiness
for the program before they applied. According to the officials, as of
October 2008, over 26,000 firms had completed the assessment tool since
its inception. The tool includes an audio-visual presentation that
provides basic information on the 8(a) program and consists of 23
questions that have accompanying explanations of their relevance to
program requirements. For example, SBA asks whether the potential
applicant has a current business plan and explains, "Sound business
management is core to the success of participating 8(a) certified
firms. A key aspect of good management is business planning.
Prospective 8(a) firms should have a current, well thought out business
plan before applying to the program." Users' responses are scored and
they receive an assessment profile, which places them in one of seven
tracks such as a new business or business with at least 2 years of
experience. The assessment results also suggest whether the firm might
be a good fit for the program. In addition to the assessment tool, SBA
provides a separate informational course, "INSIGHT-Guide to the 8(a)
Business Development Program," to better educate firms about the
program. The course is on SBA's Web site and firms must register basic
demographic and business status data prior to taking the course.
According to SBA officials, as of October 2008, approximately 30,000
firms had taken the course.
As with the information session, the 8(a) assessment tool is voluntary
and not a prerequisite to completing an application, although SBA
officials said they "highly suggested" that firms use the tool prior to
application. In addition, some SBA officials felt it was necessary that
firms interested in applying to the program be required to participate
in a seminar that--like the voluntary information session--explains the
purpose of the program and its reporting requirements. They also hoped
that current efforts to educate firms prior to applying for
certification might help to reduce the number of applications from
unprepared firms or firms not well-suited for the program. As
illustrated earlier, 73 percent of applications were returned or
withdrawn in 2007. Moreover, certification officials told us that in
tracking the results of the assessment tool since inception, they found
that approximately 60 percent of firms completing the assessment
appeared that they did not qualify for the 8(a) program.
Applicants that do not receive adequate information about the program
may not be fully aware of their responsibilities for maintaining
eligibility and achieving success in the program. Moreover, the lack of
a mandatory assessment tool or required educational sessions may have
implications for use of SBA resources during a participant's tenure in
the program. That is, firms that do not clearly understand 8(a)
eligibility and reporting requirements may increase SBA's expenditure
of resources and staff time. For instance, as discussed in the
following sections, firms that did not adhere to (as a result of not
understanding) the program requirements may increase SBA's expenditure
of resources and staff time for conducting annual reviews and diminish
the time available for other program activities.
SBA Staff Are Required to Review All 8(a) Firms Annually, but Workload
Constraints and Firms Not Submitting Required Documentation Challenge
Staff to Complete Timely Reviews:
The purpose of annual reviews is to determine if a firm should be
retained, terminated, or graduated early from the 8(a) program. SBA
staff (BDSs in district offices) review documentation that participants
submit on financial and tax information, contracting activity, and
continued eligibility. For example, BDSs review 8(a) firms to determine
if they still qualify as economically disadvantaged according to the
8(a) limits on net worth. Annual review documents are due each year, 30
days after a firm's certification date, and BDSs are required to
complete the review 30 days after receiving all required documentation.
If, at that time, SBA has not received the required documentation, the
firm has two additional opportunities to supply the information.
Staff workloads relating to the annual reviews appeared to be heavy.
Among the 19 BDSs with whom we spoke during our visits to district
offices in Atlanta, Chicago, San Francisco, and Washington, D.C., the
number of firms for which they were responsible ranged from 36 to 162,
with the majority of BDSs responsible for 90 or more firms. However,
portfolio size varies by district office because the concentration of
8(a) firms varies by district office, with the Washington Metropolitan
Area district office having the highest number.[Footnote 43] In 2006,
that office covered more than 1,000 firms (of a total of 9,667 firms in
the program).[Footnote 44]
SBA has long been required by statute to complete annual reviews of all
firms.[Footnote 45] SBA officials with whom we spoke acknowledged that
in past years not all district offices completed all required annual
reviews (see table 2). However, meeting statutory requirements such as
8(a) annual reviews became a priority for SBA under the "reform agenda"
developed by SBA's former administrator in 2006.[Footnote 46] In fiscal
year 2007, SBA added this measure to the performance scorecards of
district offices as part of the agency's new emphasis on meeting all of
its compliance requirements. District office scorecards outline key
annual compliance requirements and loan volume goals. Consequently, to
achieve the 100 percent statutory goal, BDSs have devoted significantly
more time and resources to this activity.
Table 2: Percentage of 8(a) Annual Reviews Completed, Fiscal Years 2003-
2007:
Statutory mandate is 100% annually: %8(a) annual reviews completed;
FY 2003: 55;
FY 2004: 60;
FY 2005: 77;
FY 2006: 56;
FY 2007: 100.
Source: SBA.
[End of table]
However, SBA also has recognized that staff constraints affected its
ability to perform annual reviews. According to its 2006 Performance
and Accountability Report, a main contributing factor in the agency's
inability to complete annual reviews of all 8(a) firms was a lack of
staff resources in the district offices. In 2006, when the agency began
to emphasize meeting all compliance requirements, it also planned to
consider reallocating resources to help ensure that staff could comply
with the review requirement. However, given the size of some BDS
portfolios in the district offices that we visited, we did not see
evidence that SBA had begun this effort.
Additionally, applicants not submitting required documentation
contributed to increasing the time and resources needed to complete
annual reviews. SBA officials said that a major challenge with
conducting and completing annual reviews was that participants had not
submitted the required documentation on time, even though participants
signed an agreement upon entry to the program that they would do so.
Some officials said they were aware that reporting requirements
presented a burden for some firms, particularly those that were smaller
or did not have contracts and therefore had less incentive to maintain
eligibility. In one location, a BDS provided an example of a firm that
withdrew from the program prior to its first annual review because the
owner was overwhelmed by the amount of documentation that needed to be
submitted. Several SBA officials also said that annual reviews were
resource-intensive since they required BDSs to type a significant
amount of information into the 8(a) database and to repeatedly attempt
to obtain required documentation from noncompliant firms. In our review
of 80 files, we saw evidence that some annual reviews had taken several
months to complete because of missing documentation. SBA officials said
that they anticipate that greater automation, through BDMIS, would
reduce the time associated with data input for BDSs and allow more time
for the BDSs to provide business development assistance.
Delays in completing annual reviews also could result in potentially
noncompliant firms receiving contracts. Results from the annual reviews
help SBA to fulfill its role in partnership agreements with federal
agencies. For instance, SBA must verify that a firm is in compliance
before SBA can accept a proposed 8(a) contract from a federal procuring
agency. This process is referred to as the "offer and acceptance
letter"--an offer letter from the federal agency and an acceptance
letter from SBA. Some federal agency contracting officials reported
frequent delays in receiving SBA's acceptance letter.[Footnote 47]
However, SBA officials explained one reason for the delay may be a
result of the agency not providing complete information on the offer
letter. SBA officials said that if a firm identified in a federal
agency's offer letter had compliance issues, such as missing
documentation required for the annual review, they attempted to get the
firm back into compliance to accept the offer if the issues were minor
and could be resolved within a reasonable time frame. Additionally, SBA
headquarters officials explained that in cases where a termination or
early graduation was pending, the firm could still receive contracts.
In the case of a termination, the firm could still receive contracts
during its 45-day appeal period unless SBA had issued a suspension
(temporary disqualification) to protect the government's interests.
Competing Demands Have Diminished the Ability of Limited Numbers of SBA
Staff to Conduct Business Development Activities and SBA Still Lacks
Plan to Improve Service Delivery:
SBA officials said that the current emphasis on 100 percent compliance
for annual reviews combined with limited district office resources
diminished the amount of time spent on business development activities.
SBA guidance requires business development specialists to be the
primary providers in helping firms develop business plans, seek loans,
and receive counseling on finances, marketing, and management
practices. More specifically, SBA guidance requires that each district
office nurture a relationship with its assigned agencies and buying
activities to increase the number of 8(a) contracts. In addition, each
district office is required to develop an outreach plan that identifies
the groups of people, businesses, agencies, and other organizations
that will be targeted for outreach during the year.
However, some BDSs told us that conducting annual reviews consumed most
of their time. In three of the four offices that we visited, the BDSs
said they previously conducted more site visits with their firms but
resource constraints and the time devoted to annual reviews had limited
these visits. Some officials also said that their offices previously
held marketing and other events to introduce federal agency contracting
officials to small businesses and 8(a) and other small businesses to
each other, but that they had discontinued or reduced the number of
these events. They said that such events provided opportunities for
firms to market their services and "interview" with federal agencies,
connect with other firms, and potentially pursue mentor-protégé
relationships or joint ventures. The officials also felt that BDSs had
fewer opportunities to develop relationships with their firms.[Footnote
48] Moreover, prior to the efforts to meet the annual review
requirements, a 2004 SBA IG audit also found that SBA had not developed
program-wide policy and guidance on how it would deliver business
development services to 8(a) firms or tracked the services it was
providing to firms.[Footnote 49]
Subsequently, SBA began some efforts to create tools or strategies to
increase and improve the delivery of business development assistance.
In its 2006 Performance and Accountability Report, SBA identified
improvements in providing individualized business development
assistance as one of several program actions that it would carry out
for fiscal year 2007. SBA's 2007 Annual Performance Report discussed an
8(a) business development plan that includes (1) creating a business
development assessment tool that identifies the individual needs of
program participants, (2) using SBA's resource partners to assist in
delivering business development, and (3) developing a tracking
mechanism to assess firms' progress in meeting their business
development needs.[Footnote 50] Although these initiatives may help SBA
staff to develop and prepare small disadvantaged firms for procurement
and other business opportunities in the future, SBA has not completed
or implemented the plan. SBA officials explained they were in the
process of soliciting feedback on the plan from the resource partners
and would then vet the plan within SBA. However, they have not yet
established a timetable to complete this process. As a result, BDSs
lack some tools that could help them offset existing resource
constraints and better provide business development assistance.
SBA Has Not Completed Revisions to an Inefficient Termination Process,
Which May Keep Noncompliant Firms in the 8(a) Program and Consume
Resources That Could Be Used for Business Development Assistance:
Participants in the 8(a) program can leave the program in several ways,
including voluntary withdrawal and early graduation, prior to
completing the 9-year term.[Footnote 51] SBA also may terminate firms
under several conditions, including failure to follow program
procedures; maintain eligibility for participation; maintain ownership,
management, and control by disadvantaged individuals; or maintain
licenses or charters.[Footnote 52] Although participants can be
terminated for several reasons, SBA officials told us that most firms
were terminated for not providing required documentation. Table 3 shows
the volume of voluntary withdrawals, early graduations, and
terminations over time. The BDSs with whom we spoke said that only a
small percentage of 8(a) firms graduated early and none of the 19 BDSs
with whom we spoke had experience in graduating firms early. According
to SBA's report to Congress, approximately 80 to 150 firms were
terminated annually from 1999 through 2007, with the exception of 2006
when the number was more than 300. In one district office that we
visited, officials pointed out that the number of firms terminated had
increased since SBA had added the goal of completing annual reviews of
all 8(a) firms to district office scorecards.
Table 3: 8(a) Terminations, Early Graduations, and Voluntary
Withdrawals, Fiscal Years 1999-2007:
Voluntary withdrawals:
Fiscal Year: 1999: 64;
Fiscal Year: 2000: 67;
Fiscal Year: 2001: 49;
Fiscal Year: 2002: 57;
Fiscal Year: 2003: 56;
Fiscal Year: 2004: 75;
Fiscal Year: 2005: 98;
Fiscal Year: 2006: 95;
Fiscal Year: 2007: 149.
Early graduations:
Fiscal Year: 1999: 1;
Fiscal Year: 2000: 2;
Fiscal Year: 2001: 1;
Fiscal Year: 2002: 0;
Fiscal Year: 2003: 0;
Fiscal Year: 2004: 11;
Fiscal Year: 2005: 18;
Fiscal Year: 2006: 12;
Fiscal Year: 2007: 12.
Terminations:
Fiscal Year: 1999: 83;
Fiscal Year: 2000: 126;
Fiscal Year: 2001: 147;
Fiscal Year: 2002: 123;
Fiscal Year: 2003: 92;
Fiscal Year: 2004: 148;
Fiscal Year: 2005: 130;
Fiscal Year: 2006: 318;
Fiscal Year: 2007: 143.
Totals:
Fiscal Year: 1999: 148;
Fiscal Year: 2000: 195;
Fiscal Year: 2001: 197;
Fiscal Year: 2002: 180;
Fiscal Year: 2003: 148;
Fiscal Year: 2004: 234;
Fiscal Year: 2005: 246;
Fiscal Year: 2006: 425;
Fiscal Year: 2007: 304.
Source: SBA.
[End of table]
Prior to terminating a participant, SBA headquarters requires proof
that the participant has received two notifications from the district
office about the agency's intent to terminate. SBA then issues a letter
of intent to terminate and provides the participant with an opportunity
to respond in writing to justify retention and provide any pertinent
documentation. If, following the participant's response or lack of
response, SBA headquarters makes a final determination to terminate the
firm, it then issues the participant a notice of termination. The
participant has 45 days to appeal the decision. During the appeal
period, SBA headquarters also can rescind the decision if the
participant provides adequate supporting information.
However, because of the lengthy and inefficient termination process,
noncompliant firms have remained in the 8(a) program. Results from our
review of 80 files provided seven examples of firms that were
repeatedly out of compliance at the time of their annual reviews but
were not removed from the program. For example, one firm did not
provide the required documentation for 5 of the 7 years it was in the
program. A total of 25 firms (31 percent of the files we reviewed) were
found to be out of compliance. SBA has guidance in place to terminate
firms from the program, but SBA officials noted the process could take
up to 120 days after a firm was notified of SBA's intent to terminate.
In addition, challenges arose when procedures in place did not apply to
certain scenarios and when headquarters delayed completing its own
assessment of the termination decision. One BDS told us of an instance
where he initiated termination of a newly certified firm that was
unresponsive after repeated attempts by the district office to
communicate. The BDS conducted a field visit and found no facility at
the location the firm provided on its application. However, since the
BDS was unable to contact the applicant and was unable to provide the
required proof-of-notification to headquarters, headquarters was
reluctant to proceed with terminating the firm. Our file review showed
a total of three instances where BDSs had difficulties in terminating
firms because they were unable to locate the firms with the information
they provided to SBA. In such cases, district office staff were limited
in their ability to carry out timely terminations and remained
responsible for completing an annual review until the firm was formally
removed from the program.
SBA officials also told us they were revising the 8(a) termination
process and that they expect the new process to reduce the time to
complete terminations from 120 to 45 days. The officials said that
delays under the current process resulted from having to notify firms
multiple times--twice by the district office and twice by headquarters.
Under the revised process, SBA headquarters would send one notification
of SBA's intent to terminate, rather than two, which could reduce the
time to complete the terminations. As part of recent efforts to improve
agency performance and ensure that all its programs operate efficiently
and effectively, SBA has been revising several of its standard
operating procedures (SOP), including the sections of the 8(a) SOP on
annual reviews and terminations. However, at the time of our review,
SBA had not yet completed changes to the termination process in the
8(a) SOP.
As a result of lengthy and sometimes uncompleted terminations,
noncompliant firms may continue to participate in the 8(a) program and
receive federal contracts. Our file review showed one instance where a
noncompliant firm received a contract; however, our sample was not
limited to firms that received contracts. The termination process also
has consumed scarce SBA resources and may have affected business
development activities. For instance, firms that repeatedly were
noncompliant would add to the annual review burden of the staff and
reduce the time that could be spent on assisting firms that are in
compliance. Finally, SBA's delay in completing revisions that it
expects will expedite the termination process limits the ability of
district office staff to carry out timely terminations.
SBA Has Not Implemented Recommendations to Routinely Monitor 8(a)
Partnership Agreements through Surveillance Reviews:
SBA uses surveillance reviews to monitor small business contracting at
federal agencies, but the surveillance reviews have not assessed how
agencies administered and oversaw 8(a) contracting. Under partnership
agreements, SBA and federal agencies with procurement authority share
the responsibilities of contract execution and oversight, monitoring,
and compliance with procurement laws and regulations for 8(a)
contracts. According to SBA's current SOP, the scope of a surveillance
review includes assessing (1) management of the small business
programs, (2) compliance with regulations and published policies and
procedures, (3) outreach programs focusing on small businesses, and (4)
procurement documentation. However, the SOP does not address
specifically the 8(a) program at the federal agencies and does not
include procedures to evaluate the program. SBA's six area offices
coordinate with headquarters to determine which contracting activities
within agencies will be selected for review during the last quarter of
the fiscal year. Criteria used in selecting contracting activities
included, among other things, the mission and the workload of the
contracting activity, the small business goal achievement and overall
level of small business participation over the prior 2 fiscal years,
and experience or known problems with the contracting activity.
[Footnote 53]
SBA staff conduct surveillance reviews by reviewing contract files and
interviewing agency officials.[Footnote 54] In some instances, the
Office of Government Contracting (in which the PCRs and CMRs work) and
the Office of Business Development (in which the BDSs work) informally
have shared responsibility for conducting surveillance reviews. More
specifically, BDSs accompanied PCRs and CMRs on surveillance reviews to
provide assistance in reviewing 8(a) contract files and were supposed
to report their findings on 8(a) separately. PCRs were primarily
responsible for reporting on all other surveillance review findings.
However, as identified in a 2006 SBA IG report, SBA's surveillance
reviews did not monitor agencies' compliance with 8(a) partnership
agreements. The IG report also noted that SBA was not aware that the 23
major procuring agencies failed to monitor 8(a) compliance on the
contracts they administered and had no requirements for such
monitoring. Further, SBA officials could not explain why reviews for
the 8(a) program had not been conducted. Our review of reports for 32
surveillance reviews conducted in fiscal years 2006 and 2007 found that
10 assessed 8(a) contract files and that BDSs participated in 8
surveillance reviews. But the BDSs did not report on their findings.
The IG report recommended that SBA conduct surveillance reviews on a
regular basis to ensure that procuring agencies effectively were
monitoring for and enforcing compliance with 8(a) regulations on the
contracts they administered.[Footnote 55]
Although SBA agreed with the IG's recommendations, it has not yet made
changes to its guidance for surveillance reviews (that is, the SOP)
that would direct these reviews to regularly assess 8(a) contracting
activities. As noted, SBA has been revising several of its SOPs and
some officials explained that this usually was a lengthy process. But
SBA has made some changes as a result of the IG report. According to
SBA officials, in 2006, monitoring 8(a) contracting activities during
surveillance reviews became the sole responsibility of the Office of
Government Contracting. SBA officials said that PCRs and other
Government Contracting staff were to complete the reviews, which would
increase their efficiency and comprehensiveness because PCRs already
conduct (and are experienced in) these reviews. SBA officials explained
that by the end of fiscal year 2008, the Office of Government
Contracting would begin incorporating the 8(a) program in its
surveillance reviews.
Since SBA has not updated its guidance in a timely manner to
incorporate the 8(a) program into surveillance reviews, SBA does not
have procedures to monitor--and has not been monitoring regularly--how
agencies with which it has partnership agreements ensure compliance
with 8(a) program requirements. As suggested by the SBA IG in 2006, the
integrity of the 8(a) program could be undermined if government
officials were unaware of firms violating its regulations. As a result,
SBA has reduced assurance that agencies have complied with procurement
laws and regulations for 8(a) contracts.
Conclusions:
SBA plays an important role in ensuring that federal agencies achieve
small business contracting goals, small businesses gain access to
federal contracting opportunities, and eligible socially and
economically disadvantaged small businesses can compete in the economy.
Although federal agencies have OSDBUs and their own offices in place to
assist small businesses in finding contracting opportunities, SBA's
role is to advocate for and review prime and subcontracting
opportunities for small businesses through its PCRs and CMRs,
respectively. Their multiple responsibilities include recommending
contract set-asides, resolving disputed recommendations, conducting
surveillance reviews, and reviewing prime contractor plans for
subcontracting. However, resource constraints and increased workload
have impaired the ability of PCRs and CMRs to carry out these
activities. For example, while SBA has recognized that more PCRs are
needed to effectively fulfill their responsibilities, which include
making set-aside recommendations, SBA has neither tracked such
recommendations since 2001 nor developed other measures that could be
used to develop a formal plan to better ensure that PCRs can carry out
their responsibilities. Further, years of downsizing at SBA have
significantly reduced the number of CMRs, with half of the CMRs
performing other functions as well. In view of the continuing
difficulties that federal agencies can have in consistently meeting
goals for small business contracting, SBA has the opportunity to
consider ways in which to maximize the effectiveness of its support to
agencies for small business contracting. By assessing the workloads of
PCRs and CMRs and the extent to which core responsibilities are being
fulfilled and developing a strategy to effectively allocate limited
resources, SBA could help ensure that the people and the resources
necessary to identify and review federal contracting opportunities, and
ultimately achieve small business goals, are in place.
In addition to reviewing staff responsibilities, SBA also has
opportunities to improve some tools and processes that could realize
efficiencies that would allow staff to devote more time to core
activities such as business development in the 8(a) program. For
instance, the 8(a) program does not have a mandatory education
requirement such as a seminar or assessment tool for applicants.
Consequently, some participants that are not adequately informed about
the program's purpose and requirements may have unrealistic
expectations of the program and be unprepared to fulfill their
responsibilities, such as providing documentation for annual reviews.
SBA currently must complete annual reviews of 100 percent of program
participants, but staff cited lengthy, resource-intensive efforts to
elicit documents from firms as a major reason for delays in completing
the reviews. Better education at the front end of the 8(a) program and
management of participant expectations could help reduce problems
during program tenure, and thus free SBA staff resources for assisting
firms with development activities.
As noted above, SBA's resource limitations have affected the ability of
its staff to provide key services to small businesses. In the case of
BDSs in the 8(a) program, the recent emphasis on completing required
annual reviews has diminished the time and resources they have to
provide 8(a) firms with business development support and conduct
outreach activities that may increase contracting opportunities for
them. While acknowledging the resource constraints that SBA faces and
the necessity to comply fully with its statutory obligations, we note
that the mission of the 8(a) program is business development.
Additionally, SBA guidance requires BDSs to be the primary providers in
helping firms develop business plans, seek loans, and receive
counseling on finances, marketing, and management practices. Although
SBA has recognized some organizational challenges and begun to
reallocate resources in some district offices, we did not see evidence
of these changes during our site visits. SBA has proposed a plan to
provide more business development assistance through the creation of
electronic tools to identify individual firms' needs and greater
utilization of SBA's resource partners in providing assistance to
businesses. However, the success of these proposed changes as they
relate to the priorities and workload of staff such as the BDSs (and
PCRs and CMRs) largely will depend on the timely development and
implementation of these improvements. Furthermore, a lengthy and
resource-intensive process for terminating noncompliant participants
from the program has resulted in inefficient use of SBA's limited
program resources. SBA currently is revising the termination process,
but has not developed a timeline for its completion and implementation.
Prompt attention to these technological and procedural revisions could
allow SBA staff to concentrate more on providing services to eligible
firms and help ensure that program funds are targeted to deserving
small businesses.
Finally, SBA could improve the utility and effectiveness of its
surveillance reviews, which monitor small business contracting at
federal agencies. However, SBA has not yet implemented changes that its
IG recommended for the review process in 2006; notably, that the agency
regularly conduct surveillance reviews at the federal agencies with
which it has partnership agreements to ensure compliance with
regulations for 8(a) contracting. Without information on compliance
with small business contracting requirements that such a review
provides, SBA and federal agencies could be unaware of violations
within 8(a), a key small business program. SBA indicated that it
planned to include 8(a) contracting in the surveillance reviews by the
end of fiscal year 2008. By revising its guidance to address the IG
recommendation, SBA could improve its oversight of contracting activity
in the 8(a) program and overall small business contracting. Such
monitoring helps to maintain the integrity of the program and
contributes to the achievement of small business and socioeconomic
contracting goals.
Recommendations for Executive Action:
To improve its administration of the prime contracting, subcontracting,
and 8(a) business development programs, we recommend that the
Administrator of SBA take the following four actions:
* SBA should assess resources allocated for procurement center
representative and commercial market representative functions and
develop a plan to better ensure that these staff can carry out their
responsibilities.
* To better educate prospective applicants for the 8(a) program and
maximize limited SBA resources during program tenure of participants,
SBA should take additional steps to ensure that firms applying for the
program understand its requirements, and have realistic expectations
for:
* participation. Such steps could include an education requirement,
such as a seminar or assessment tool.
* In acknowledgment of the competing demands for business development
specialists to complete required annual reviews of 8(a) firms and
support the mission of the 8(a) program--that is, develop and prepare
small disadvantaged firms for procurement and other business
opportunities--SBA should:
- assess the workload of business development specialists to ensure
they can carry out their responsibilities. As part of such an
assessment, SBA could review the size of the 8(a) portfolio for all
business development specialists and determine what mechanisms can be
used to prioritize or redistribute their workload;
- in a timely manner, develop and implement its proposed plan for
creating tools that would assist in the provision of business
development assistance for 8(a) firms; and:
- develop a timetable for planned changes to the termination process to
ensure that staff monitoring 8(a) participants can carry out
terminations from the program in a timely manner.
* To increase the usefulness of surveillance reviews for the 8(a)
program, SBA should update its guidance to incorporate regular reviews
of 8(a) contracting in the scope of the reviews.
Agency Comments and Our Evaluation:
We requested SBA's comments on a draft of this report, and the Deputy
Associate Administrator for Government Contracting and Business
Development provided written comments that are presented in appendix V.
SBA agreed with our recommendations and outlined steps that it has
initiated or plans to take to address each recommendation.
First, SBA stated that it is assessing statutory requirements and
resources for procurement center representatives and commercial market
representatives in order to develop a plan that effectively and
efficiently fulfills those requirements.
Second, with regard to better educating prospective applicants for its
8(a) program and maximizing limited resources, SBA noted its continuing
efforts in developing a plan that assesses individual business
development needs of 8(a) participants and proposes a tool that tracks
and manages 8(a) firms during their 9 years in the program. SBA also
discussed its previous efforts in providing an informational course on
the 8(a) program and a self-assessment tool for potential 8(a) firms
online. In addition, SBA stated that it has assembled a focus group,
composed of offices within SBA and its resource partners, to review the
plan and provide feedback. While these actions are consistent with our
recommendations, we encourage SBA to take additional steps to ensure
that firms applying for the program understand the 8(a) program
requirements and have realistic expectations for participation. Such
steps could include an education requirement, such as a seminar or
assessment tool, that must be completed by the prospective applicant.
Third, SBA stated it would work with the Office of Human Capital
Management to assess the workload of the business development
specialists and their knowledge levels and stated this analysis would
be completed by the end of the 2009 fiscal year (i.e. September 2009).
Once completed, SBA plans to explore the possibility of redistributing
certain portfolios. In addition, SBA expects to implement its proposed
plan for creating tools that would assist in the provision of business
development assistance for 8(a) firms by March 2009. Further, SBA
stated that planned changes to its guidance on streamlining the
termination process are expected to be issued by December 2008.
Finally, SBA noted that its guidance for surveillance reviews was
updated on September 26, 2008, to incorporate regular reviews of 8(a)
contracting in the scope of the reviews. However, SBA did not disclose
how it will monitor the 8(a) program and its partnership agreements
with federal agencies. SBA also provided technical comments that we
incorporated as appropriate.
We also provided copies of the draft report to Commerce, DOD, DHS, and
SSA. All four agencies responded that they had no comments on the draft
report.
We are sending copies of this report to the Ranking Member of the House
Subcommittee on Government Management, Organization and Procurement,
House Committee on Oversight and Government Reform, as well as the
Ranking Member, House Committee on Homeland Security, other interested
congressional committees and the Acting Administrator of the Small
Business Administration. We are also sending copies to the Secretaries
of the Department of Commerce, Defense, and Homeland Security and the
Commissioner of the Social Security Administration. The report also is
available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you or your offices have any questions about this report, please
contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix VI.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Scope and Methodology:
To describe the actions the Small Business Administration (SBA) takes
to set small business contracting goals and the extent to which federal
agencies have achieved their small business goals in recent years, we
reviewed pertinent legislation, guidance issued by SBA, our prior
reports, and SBA's Small Business Procurement Scorecard for fiscal
years 2006 and 2008. In addition, we used data from fiscal years 2000
through 2006 on SBA's negotiated goals with agencies and small business
goaling reports to compare the goals of five agencies--the Departments
of Commerce (Commerce), Defense (DOD), and Homeland Security (DHS); the
Social Security Administration (SSA); and SBA--with the actual dollars
awarded for prime contracts and to determine what percentage of their
contracting dollars was awarded to small businesses. SBA uses the
Federal Procurement Data System-Next Generation (FPDS-NG) to prepare
its annual Small Business Goaling Reports, which are used to evaluate
the performance of federal agencies in achieving their small business
and socioeconomic procurement preference goals. To assess these data,
we reviewed related documentation, including the methodology used to
create these reports. For the purposes of this report, we found these
data to be reliable. We selected the first four agencies--a
nongeneralizable sample--based on level of contracting activity and
SBA's assessments of their goal achievement. The four agencies
generally obligated larger amounts of contracting dollars to small
disadvantaged businesses and, collectively, they received the full
range of scores on SBA's 2006 scorecard. We also included SBA because
it sets goals and is responsible for assessing and reporting on goal
achievement at federal agencies. We also interviewed officials at SBA,
Commerce, DOD, DHS, and SSA.
To examine SBA's role in supporting small business contracting at
select agencies, we reviewed our previous reports, relevant policies,
procedures, and regulations; obtained information on SBA resources
devoted to such activities; interviewed officials from SBA headquarters
and from four of its six area offices; and interviewed officials at
four selected federal agencies (see above). We also analyzed the SBA
field office directory for the six area offices and identified the
number of procurement center representatives (PCR) and commercial
market representatives (CMR) in the agency as of August 2008. Area
offices have responsibility for SBA's prime contracting and
subcontracting assistance programs and their staff can include PCRs and
CMRs. We interviewed the 8 PCRs and 5 CMRs who were located in the four
area offices we visited (out of an agency total of 59 PCRs and 31 CMRs,
respectively).[Footnote 56] We also reviewed the number of agencies and
buying activities assigned to each PCR. Buying activities are agencies
or divisions within agencies that purchase goods and services. In
addition, we analyzed SBA data on the number of formal and informal
Form 70s issued to federal agencies by PCRs. Form 70s are used by PCRs
to stop a contract action due to a disagreement between the PCR and
contracting officer on a set-aside recommendation for small business.
We had planned to update our 2002 report data on the number of PCR-
recommended set-asides for this report, but because SBA no longer
collects this information electronically, the most recent data are from
2001.[Footnote 57] For more information, see appendix IV. Further, we
interviewed Office of Small and Disadvantaged Business Utilization
(OSDBU) directors, acquisition officials, small business specialists,
and contracting officers at our selected agencies. OSDBUs were
established to advocate for contracting opportunities for small
businesses.[Footnote 58] Small business specialists are responsible for
working with OSDBUs and agency contracting officers to advocate for
small businesses.
To examine SBA's overall administration of the 8(a) business
development program, we reviewed and analyzed 8(a) program regulations,
SBA's procedures for administering the program, and previous SBA
Inspector General (IG) reports. We interviewed SBA officials in
headquarters program offices, 4 of 6 area offices, 4 of 68 district
offices, and 1 of 2 Division of Program Certification and Eligibility
(DPCE) offices to obtain their perspectives on certification,
monitoring activities, and other aspects of the program.[Footnote 59]
More specifically, we interviewed 19 business development specialists
(BDS).[Footnote 60] We also conducted site visits to SBA offices in
Atlanta, Georgia; Chicago, Illinois; San Francisco, California; and
Washington, D.C. We selected these locations based on the number of
SBA's total 8(a) firms in each location and for geographic diversity.
For each of the district offices that we visited, we reviewed and
analyzed a sample of 20 8(a) participant files and additional
documentation that SBA provided on the 8(a) program. To select these
files, we obtained a list of 8(a) firms within each district office's
portfolio that included information on the year the firm was scheduled
to graduate, whether the firm had received a contract, and if the firm
was part of SBA's mentor-protégé program. For each district office, we
randomly selected two firms (one that received a contract and one that
did not) from each year of the 9-year program and also randomly
selected two firms in SBA's mentor-protégé program.[Footnote 61] We
reviewed the number of 8(a) applications received, approved, declined,
and returned or withdrawn from fiscal years 1999 through 2007. We
reviewed and assessed the reliability of SBA's reports to Congress on
the 8(a) program from 2001 through 2006. More specifically, we
interviewed SBA officials about the data system used and reviewed
related documentation. We determined this information was reliable for
the purposes of this report. In addition, we reviewed 32 surveillance
reviews conducted by the four selected area offices in 2006 and 2007.
SBA uses surveillance reviews to assess federal agencies' management of
small business programs and compliance with regulations and published
policies and procedures. Furthermore, we interviewed business
development specialists and business opportunity specialists about
their work and processes related to 8(a) applications, annual reviews,
and participant terminations at the district offices we visited. We
also interviewed an official from a trade association representing 8(a)
and small disadvantaged business (SDB) firms and reviewed documents
prepared by other trade associations representing 8(a) and SDB firms.
To describe how the use of SDB certification has changed, we reviewed
pertinent legislation and regulations, our previous reports, and SBA's
IG report on SDB certification. We also interviewed officials at SBA,
Commerce, DOD, DHS, and SSA. In addition, we analyzed data from SBA's
Dynamic Small Business Search and FPDS-NG from fiscal years 2004
through 2007 to determine the number of SDB firms during this time
period and the number of socioeconomic designations each SDB firm had.
We conducted this performance audit from October 2007 through November
2008 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Small Disadvantaged Business Certification and Changes to
Its Use over Time:
This appendix describes how the use of the small disadvantaged business
(SDB) certification has changed. The certification's purpose was to
assist participating businesses in obtaining federal contracts and
subcontracts. The Small Business Administration's (SBA) Office of
Business Development performed SDB certifications for the federal
government, but suspended its certification program on October 3, 2008.
To qualify for the SDB program, a firm had to be at least 51 percent
owned and controlled by one or more individuals who met SBA's criteria
of socially and economically disadvantaged. Socially disadvantaged
individuals include certain members of designated groups, such as Black
Americans or Hispanic Americans and individuals who are not members of
designated groups. Economically disadvantaged firms included those
whose primary owner(s) have $750,000 or less in personal net worth,
adjusted to exclude personal residence and business assets. Unlike the
8(a) program, firms were not required to demonstrate potential for
success (for example, by having been in business at least for 2 years).
In contrast to the single 9-year term of the 8(a) program, SDB
certifications were valid for 3 years and firms had the option to
recertify every 3 years. Benefits of the program originally included
contract set-asides. In addition, all 8(a) firms automatically were
certified as SDBs.
SDB Program Expanded from DOD to Civilian Agencies, but Judicial
Decision Limited Implementation:
The SDB program was established by the National Defense Authorization
Act of 1987 for the Department of Defense (DOD).[Footnote 62] From 1987
to 1995, SDBs (which were then self-certified) were eligible to receive
two main benefits--a 10 percent price evaluation adjustment (PEA) in
certain DOD acquisitions, and the ability to compete for contracts set
aside for SDBs for certain DOD acquisitions--as well as an evaluation
factor or subfactor to credit contractors for the use of SDBs as
subcontractors in certain acquisitions. The program was extended to
civilian agencies in 1994, but implementation was delayed in the
aftermath of a 1995 Supreme Court decision.[Footnote 63] The decision
resulted in changes to the SDB program. Notably, the SDB set-aside was
suspended although agencies could still use the PEA and evaluation
credits. SBA also began certifying firms as SDBs in 1998, but on
October 3, 2008, SBA published an interim final rule stating it would
no longer certify SDB firms. For more details, see the following
section.
The authority of most civilian agencies to use the PEA expired in
December 2004. After that time, only DOD, the Coast Guard, and the
National Aeronautics and Space Administration (NASA) could use PEA
authority in awarding contracts; however, DOD has not used it in recent
years. DOD is statutorily required to suspend its use of the PEA for 1
year after any fiscal year in which DOD awards more than 5 percent of
its eligible contract dollars to SDBs. Since 1999, DOD has determined
that it met this requirement and suspended PEA use. At the
subcontracting level, agencies could give credit to prime contractors
that use SDBs as subcontractors on certain government contracts.
According to Federal Agencies, SDB Certification Was of Limited
Benefit:
In our January 2001 report on the SDB certification, we reported that
several officials cited limitations with the SDB certification because
the set-asides or price preferences were not being used.[Footnote 64]
In our recent interviews with SBA and agency officials, officials from
all the agencies indicated that the certification was not useful at the
prime contract level, and they attributed this to the absence of
mechanisms, other than full and open competition, to award contracts to
SDBs.[Footnote 65]
* According to DOD officials, the SDB certification did not fill a
legitimate departmental need and was not useful to the agency. As
discussed above, DOD has not used the PEA since 1999.
* DHS officials we interviewed indicated that the Coast Guard rarely
used PEAs to award prime contracts to SDB-certified firms because the
agency could reach its 5 percent SDB goal through other small business
set-aside programs. The Coast Guard also is proposing to ask for a
waiver from Congress on using PEAs because of their limited value to
the agency.
* From the civilian agency perspective, Commerce and SSA officials
agreed the SDB certification had limited benefit as a prime contracting
tool because their authority to use the PEA expired and due to the
absence of a SDB set-aside. They suggested its main benefit was to help
firms identify subcontractors.
* Most agency officials with whom we spoke stated they relied on 8(a)
firms to meet their SDB goals. (All 8(a) firms automatically qualify
for SDB certification.)
SBA officials explained that agencies tended to concentrate on sole-
source and set-aside mechanisms in the 8(a), Historically Underutilized
Business Zone (HUBZone), and service-disabled veteran-owned business
programs, since these provisions make it easier to award contracts to
small businesses.[Footnote 66] SBA officials suggested some firms might
continue to pursue the SDB certification not for federal contracts but
because of state and local contracting programs that offer reciprocity
to firms that are already SDB-or 8(a)-certified. They also noted that
many firms had not sought the SDB certification because it was not
worthwhile to them. Finally, in its interim final rule, SBA recognized
the benefits of the SDB certification had greatly diminished over the
past years.
The Number of SDB Firms Certified by SBA Decreased in Recent Years, Few
SDB-only Firms Received Contracts, and Most SDB Firms Had Additional
Certifications:
SBA has conducted fewer SDB certifications in recent years and we found
that few firms that obtained federal contracts had only an SDB
certification. Further, as noted above, SBA has stated it will no
longer certify SDB firms.[Footnote 67] To conduct the SDB
certifications prior to issuing its interim rule, SBA headquarters
reviewed firms' applications, which had to include evidence
demonstrating that the firm was owned and controlled by one or more
individuals claiming disadvantaged status, along with certifications or
narratives regarding the individuals' disadvantaged status. The firm
also had to submit information necessary for a size determination.
[Footnote 68] According to its implementing regulations, SBA had to
tell each applicant whether the application was complete and suitable
for evaluation, and, if not, what additional information or
clarification was required within 15 days of receipt. If the
application was complete, SBA had 30 days (if practicable) to determine
whether the applicant met the SDB eligibility criteria. Applicants
could appeal SBA's determinations.
The number of SDB firms that SBA certified decreased from fiscal years
1999 through 2007. For example, in fiscal year 2007, SBA certified 436
small businesses as SDBs, down substantially from 734 certified in 2006
and 1,045 in 2005. In general, SBA admitted fewer firms as SDBs than
applied, with the majority of applications returned or withdrawn (see
fig. 8). SBA officials explained that the decrease could be a result of
the expiration of the authority to use the PEA for most civilian
agencies in 2004.
Figure 8: Number of SDB Applications Received and Number of SDB Firms
Certified by SBA, Fiscal Years 1999-2007:
[Refer to PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Fiscal year: 1999;
Total applications: 3,312;
Declined: 96;
Approved: 1,235;
Returned/Withdrawn: 1,981.
Fiscal year: 2000;
Total applications: 2,419;
Declined: 140;
Approved: 1,450;
Returned/Withdrawn: 829.
Fiscal year: 2001;
Total applications: 1,871;
Declined: 24;
Approved: 769;
Returned/Withdrawn: 1,078.
Fiscal year: 2002;
Total applications: 2,311;
Declined: 50;
Approved: 608;
Returned/Withdrawn: 1,653.
Fiscal year: 2003;
Total applications: 2,138;
Declined: 42;
Approved: 1,039;
Returned/Withdrawn: 1,057.
Fiscal year: 2004;
Total applications: 2,139;
Declined: 146;
Approved: 919;
Returned/Withdrawn: 1,074.
Fiscal year: 2005;
Total applications: 1,623;
Declined: 379;
Approved: 1,045;
Returned/Withdrawn: 402
Fiscal year: 2006;
Total applications: 1,975;
Declined: 109;
Approved: 734;
Returned/Withdrawn: 1,426.
Fiscal year: 2007;
Total applications: 1,697;
Declined: 55;
Approved: 436;
Returned/Withdrawn: 747.
Source: GAO analysis of SBA data.
[End of figure]
In our review of Federal Procurement Data System-Next Generation (FPDS-
NG) data from fiscal years 2004 through 2007, SDB firms with more than
one designation were more successful in receiving federal contracts
than firms with only one designation.[Footnote 69] The majority of SDBs
had either one or two additional designations. Fifteen percent (2,416)
of the 15,950 SDB-certified firms in that period had only the SDB
certification. Of SDBs that received contracts, 8.5 percent were SDB-
only firms (meaning they did not have additional certifications). The
majority of those firms that received contracts had at least one or two
other designations, such as 8(a), HUBZone, or service-disabled veteran-
owned (see fig. 9). However, of the 3,546 SDB firms with one other
designation that received contracts, 85.9 percent also were designated
as 8(a) firms. The results of this analysis suggest few firms relied
solely on the SDB certification to obtain federal contracts.
Figure 9: Number of Designations for SDBs That Received Contracts,
Fiscal Years 2004-2007:
[Refer to PDF for image]
This figure is a pie-chart depicting the following data:
Number of Designations for SDBs That Received Contracts, Fiscal Years
2004-2007:
* SDB and 1 other designation: 45.3%;
- SDB and 1 designation [8(a)]: 38.9%;
- SDB and 1 designation [non-8(a)]: 6.4%;
* SDB and 2 other designations: 37.7%;
* SDB only: 8.5%;
* SDB and 3 other designations: 8.3%;
* SDB and 4 other designations: 0.2%.
Source: GAO analysis of FPDS-NG data.
[End of figure]
[End of section]
Appendix III: Roles of Offices of Small Disadvantaged Business
Utilization and Agency Officials in Small Business Contracts:
In addition to the role of the Small Business Administration (SBA), the
Offices of Small Disadvantaged Business Utilization (OSDBU) and federal
agency staff have advocacy, review, and liaison roles to facilitate
small business contracting at federal agencies. For example, OSDBU
officials we interviewed set policy within their agency and functioned
as a liaison between small businesses and agency contracting officials.
However, the level of involvement the OSDBU directors had in reviewing
procurements and acquisition planning differed in the agencies selected
for our review, partly reflecting the differing levels of procurement
activity in the agencies. For example, the Department of Homeland
Security (DHS) and Department of Commerce (Commerce) OSDBU directors
were involved in the acquisition planning process with procurement
officials, while the Department of Defense (DOD) and Social Security
Administration (SSA) OSDBU directors were not. The roles of small
business specialists, who report directly to procurement officials at
their agencies, also may include being the liaison with SBA and the
small business community.
Role of OSDBUs:
The OSDBU directors we interviewed explained their roles included
advocating for small business and other socioeconomic contracting
programs, not just the 8(a) program.[Footnote 70] They set policy,
participated in outreach activities, attended monthly meetings with
other OSDBUs, provided internal training and guidance to agency
officials, and acted as liaisons between small businesses and
contracting officials, among other things. From our discussions with
OSDBU directors at selected agencies, the role of the OSDBU directors
differed in the level of involvement in reviewing procurements and
acquisition planning. For example, Commerce and SSA have policies that
outline when OSDBUs became involved in reviewing procurements at
certain procurement thresholds. Commerce and DHS OSDBU directors were
involved in the acquisition planning process with procurement
officials, while DOD and SSA OSDBU directors were not. Of the agencies
we reviewed, the size of the OSDBU office varied from 22 staff members
in DOD to 1 staff member at SSA (see table 4). Except for DOD, each
agency had only one OSDBU office. DOD has multiple offices for each of
the military departments (Air Force, Army, and Navy) and its other
agencies.[Footnote 71]
Table 4: OSDBU Size and Budget and Small Business Contract Dollars and
Actions, for Commerce, DOD, DHS, and SSA:
Agency: Commerce;
Staff size (2008 including director): 5; (including 2 vacancies);
Budget (FY 2007--actual): $361,000;
Small business dollars (FY 2006): $1,041,420,608;
Small business actions[A](FY 2006): 15,416;
SDB dollars (FY 2006): $347,696,162;
SDB actions[B[(FY 2006)] 06): 3,089.
Agency: DOD;
Staff size (2008 including director): 22[C]; (including 2 vacancies);
Budget (FY 2007--actual): $41,966,557[D];
Small business dollars (FY 2006): $51,316,934,021;
Small business actions[A](FY 2006): 963,132;
SDB dollars (FY 2006): $14,690,399,904;
SDB actions[B[(FY 2006)] 06): 123,784.
Agency: DHS;
Staff size (2008 including director): 11;
Budget (FY 2007--actual): $1,727,091[E];
Small business dollars (FY 2006): $4,410,173,942;
Small business actions[A](FY 2006): 45,604;
SDB dollars (FY 2006): $1,497,052,836;
SDB actions[B[(FY 2006)] 06): 7,728.
Agency: SSA;
Staff size (2008 including director): 1;
Budget (FY 2007--actual): $3,662[F];
Small business dollars (FY 2006): $258,708,716;
Small business actions[A](FY 2006): 5,828;
SDB dollars (FY 2006): $74,697,173;
SDB actions[B[(FY 2006)] 06): 519.
Sources: Commerce, DOD, DHS, and SSA (staff size and budget data); and
Small Business Goaling report.
[A] "Small business actions" include the number of small business
contracts awarded or modified for purchase, rent, lease, or supplies of
equipment using appropriated dollars.
[B] "SDB actions" include the number of SDB contracts awarded or
modified for purchase, rent, lease, or supplies of equipment using
appropriated dollars. SBA certifies small businesses as SDBs. 8(a)
firms automatically are certified as SDBs.
[C] In addition, 23 departments and agencies within DOD each have an
OSDBU director and staff. (DOD renamed its Office of Small
Disadvantaged Business the Office of Small Business Programs.) This
table does not include the "OSDBU" directors and staff in the 23
entities.
[D] The total under the budget includes funding for programs for small
businesses that are administered through DOD's Office of Small Business
Programs.
[E] This number is estimated and not actual and includes salaries,
benefits, and other expenses.
[F] The SSA OSDBU office does not collect budget information in the
same way as the other agencies in the table. SSA numbers reflect
expenses used for local travel, conferences, and training.
[End of table]
The differences in staff size and budget may be related to the volume
of procurement in each agency. As the table illustrates, DOD spends a
much larger amount on small business procurement than SSA. The SSA
OSDBU director explained the small business specialist works closely
with the OSDBU in reviewing acquisitions. The director believed the
staffing level supported the workload of the OSDBU office, which in
years past, reviewed from approximately 40 to 45 procurements a year,
but this may change based on the new procurement center representative
(PCR) assigned to SSA in January 2008.[Footnote 72]
In 2003, we reported on the provision in the Small Business Act that
requires OSDBU directors to report to agency heads or deputies and how
select agencies were complying with this provision.[Footnote 73] We
surveyed 24 agencies and determined 11 did not comply, including
Commerce and SSA. For instance, we found that Commerce's OSDBU director
reported to the Chief Financial Officer and Assistant Secretary for
Administration. We also found that the SSA OSDBU director reported
neither to the Social Security Administration Commissioner nor the
Deputy Commissioner.[Footnote 74] The DOD OSDBU director was exempted
from the reporting requirement in 1988 when Congress amended the
pertinent section of the Act. Both Commerce and SSA disagreed with our
findings and concluded that they were in compliance.
Although we did not conduct another evaluation of compliance with this
requirement for our selected agencies, we did obtain information on the
OSDBU directors' current reporting structure. The DOD OSDBU director
continues to be exempt from the reporting requirement. The Commerce
OSDBU director said and their organizational charts indicate that the
position reports to the Chief Financial Officer/Assistant Secretary for
Administration, which is the same reporting relationship we found in
our previous report. The organizational chart for DHS illustrates that
the OSDBU director reports to the Deputy Secretary of the agency. SSA
officials explained that its OSDBU director reports to the Deputy
Commissioner for Budget, Finance, and Management, which is a similar
reporting position identified in our previous report.
Role of Small Business Specialists:
Small business specialists (SBS) at federal agencies also promote the
use of small businesses and reviewed procurements. SBSs at the agencies
we reviewed (Commerce, DOD, DHS, and SSA) did not report to OSDBUs, but
worked with them to implement their small business procurement
policies. SBS roles in federal procurement include:
* making sure contracting officers take small businesses into
consideration when awarding contracts as required by regulation;
* maintaining a liaison with SBA and the small business community to
ensure small businesses have access to procurement opportunities;
* helping small businesses tailor their marketing materials for an
agency's specific needs;
* conducting outreach and advocacy efforts; and:
* conducting internal and external training.
The number of SBSs in an agency varied based on agency size; the
differences in staff size also may be related to the volume of
procurement in each agency. For example, DOD had approximately 500 SBSs
and SSA had 1. Three of the four agencies we reviewed assigned SBSs to
their bureaus and departments or divisions; however, SSA had one SBS
for all divisions within the agency.
In discussing their work, procurement officials cited some challenges
they faced within their agencies to increase opportunities for small
business procurement. For example, some officials explained that
convincing agency program officials of the benefits of using small
business contractors could be difficult because some program officials
were risk-averse and perceived costs to be higher when using small
business contractors. Some officials explained that training and
educating program officials generally helped with this challenge, as
did having support from top-level management. In addition, some
officials noted that their interaction with SBA staff was limited. For
instance, OSDBU officials we interviewed at two agencies explained that
they rarely interacted with SBA's PCRs, whose responsibilities include
reviewing proposed agency acquisitions and recommending small business
set-asides.
SBA assesses how federal agencies promote small business goal
attainment through its procurement scorecard. The scorecard evaluates
factors such as goals met, progress shown, agency strategies, and top-
level commitment to meeting goals. SBA's inaugural scorecard ratings
were based on fiscal year 2006 activities; SBA subsequently reviewed
agencies' progress in implementing procurement plans through July 25,
2007, and appended additional ratings to the scorecard. The scorecard
relates to the roles of OSDBUs and SBSs through some of the elements
reviewed, such as agency plans and internal policy setting,
collaboration on the formation of small business procurement policy,
and training provided to contracting staff on small business practices.
Some of the Agencies We Reviewed Also Had Other Programs and Incentives
in Place to Enhance Small Business Participation in Contracting:
To meet the agency's small business goals, some federal agencies have
developed their own programs and contracting mechanisms to promote
small business participation in federal procurement. For example, DOD
and DHS have mentor-protégé programs, administered through their
OSDBUs, in which selected firms provide support and guidance for new
firms entering the federal contracting arena. In return, at DOD, the
mentor may receive monetary compensation or contracting incentives and
at DHS, the mentor may receive contracting incentives. SBA also has a
mentor-protégé program that is specific to the 8(a) program and
administered by the Office of Business Development and SBA's district
offices.
To promote greater competition within small business procurement,
several agencies explained that they created internal contracting
mechanisms.
* For example, DOD-Navy created the SEAPORT-e initiative, which is a
rolling admission program in which firms compete for contracts in 22
types of naval services within seven geographic regions.
* DHS and Commerce developed contracting vehicles to enhance small
business participation in information technology contracts.
* At Commerce-Census, Census officials explained they took specific
efforts to involve small businesses as subcontractors in the upcoming
2010 decennial census by requiring prospective prime contractors to
submit a subcontract participation plan.
[End of section]
Appendix IV: Number of Form 70s and Appeals Filed by SBA's Procurement
Center Representatives, Fiscal Years 2003-2007:
As stated previously in this report, the responsibilities of the Small
Business Administration's (SBA) procurement center representatives
(PCR) include recommending that contracts be set aside for eligible
small businesses. In 2002, we reported that the number of set-aside
recommendations that PCRs were making decreased by half from fiscal
years 1991 through 2001.[Footnote 75] Reasons for the decline during
this period included downsizing (which decreased the number of PCRs),
the reassignment of some PCRs to other roles, and the increased size of
federal procurements that contributed to fewer set-aside opportunities
for small businesses.[Footnote 76] We planned to update our 2002
report; however, SBA stated they no longer electronically collected
information on the number of set-asides. We were able to update
information about the number of Form 70s and appeals that PCRs filed;
the Form 70 reflects some level of discussion or disagreement between
agencies and SBA about recommended set-asides.
In instances where an agency does not accept a PCR's recommendation for
a small business set-aside, the PCR may dispute the procurement through
informal or formal means to the agency's procurement official. A PCR
generally will issue an informal Form 70 after discussing the set-aside
and reaching an agreement with the contracting officer to accept the
recommended set-aside. If the PCR and contracting officer do not reach
an agreement, the PCR submits a formal Form 70 to the contracting
officer, which effectively stops the contract action, pending further
consideration. If the procurement official refuses to accept the
recommended set aside addressed in the Form 70, SBA can appeal the
rejection first to the head of the contracting activity (the division
within the agency purchasing the goods or services), then to the agency
head (known as a secretarial appeal).
From fiscal years 2003 through 2007, the number of informal form 70s
increased approximately 71 percent and the number of formal form 70s
decreased approximately 60 percent (see table 5). SBA officials
explained their goal was to promote productive relationships with
federal agencies and using informal complaints was more conducive to
achieving this end.
Table 5: Total Informal Form 70s, Formal Form 70s, and Appeals Filed,
Fiscal Years 2003-2007:
Number of informal Form 70s issued:
FY 2003: 197;
FY 2004: 344;
FY 2005: 455;
FY 2006: 452;
FY 2007: 337;
Totals: 1,785.
Number of formal Form 70s issued:
FY 2003: 53;
FY 2004: 55;
FY 2005: 41;
FY 2006: 22;
FY 2007: 21;
Totals: 192.
Number of Head of Contracting Activity appeals filed:
FY 2003: 3;
FY 2004: 8;
FY 2005: 10;
FY 2006: 5;
FY 2007: 3;
Totals: 29.
Number of Secretarial appeals filed:
FY 2003: 1;
FY 2004: 3;
FY 2005: 5;
FY 2006: 3;
FY 2007: 0;
Totals: 12.
Totals:
FY 2003: 254;
FY 2004: 410;
FY 2005: 511;
FY 2006: 482;
FY 2007: 361.
Source: SBA.
[End of table]
[End of section]
Appendix V: Comments from the Small Business Administration:
U.S. Small Business Administration:
Washington, D.C. 20416:
November 7, 2008:
Mr. William B. Shear:
Director:
Financial Markets and Community Investment Team:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Shear:
Thank you for allowing the U.S. Small Business Administration (SBA) the
opportunity to comment on your Draft Government Accountability Office
(GAO) Report Number: GAO-09-16, entitled, "Agency Should Assess
Resources Devoted to Contracting and Improve Several Processes in the
8(a) Program."
SBA has reviewed your recommendations and the following response
indicates the actions already taken or planned to address the issues
outlined in the Report:
Recommendation #1:
SBA should assess resources allocated for Procurement Center
Representative and Commercial Market Representative functions and
develop a plan to better ensure that the staff can carry out their
responsibilities.
Response: SBA agrees with the recommendation. SBA is assessing
statutory requirements and resources for developing of a plan to most
effectively and efficiently fulfill those requirements.
Recommendation #2:
To better educate prospective applicants for the 8(a) program and
maximize limited SBA resources during program tenure of participants,
SBA should take additional steps to ensure that firms applying for the
program understand its requirements, and have realistic expectations
for participation. Such steps could include an education requirement,
such as a seminar or assessment tool.
Response: SBA agrees with the recommendation. In an effort to refocus
the 8(a) Business Development Program to emphasize "business
development" the Office of Business Development developed a "Plan to
Provide Individualized Business Development Assistance to 8(a) Program
Participants." This Plan outlines a methodology for: 1) assessing the
individual business development needs of each 8(a) Participant and 2)
provides an 8(a) Assessment Tool - which utilizes a comprehensive
online approach to assess and provide ongoing tracking and follow up
management, technical, financial, and procurement assistance to each
8(a) Participant during its nine-year term. The plan includes the
following components:
* A Focus Group (comprised of representatives from SBA's Office of
Business Development, Office of Entrepreneurial Development and Office
of Field Operations, (OFO), along with representatives from the Small
Business Development Centers - SBA's resource partners, and Business
Development Specialists) has been assembled to review and provide
feedback on the draft Plan and 8(a) Assessment Tool.
* Secondly, in an effort to ensure that firms that are applying for
8(a) Program certification understand its requirements and have
realistic expectations, the Office of Business Development developed an
online tool entitled: "Insight: Guide to the 8(a) Business Development
Program." This online web based tutorial has been linked to the 8(a)
application package in an effort to ensure that prospective applicants
access and complete this tool prior to submitting an application for
the 8(a) Program. In addition, the Office of Business Development
developed an 8(a) Business Development Suitability Tool which is linked
to the 8(a) application. This tool is available by visiting:
[hyperlink,
http://www.sba.gov/aboutsbalsbaprograms/8abd/application/index.html].
* This online course describes the 8(a) Program in detail and
culminates with an eligibility self-assessment test. The test consists
of a series of simple "yes/no" type questions that evaluate the degree
to which the firm meets the basic eligibility criteria. If the firm
meets the basic eligibility criteria, the firm can then apply to the
8(a) Program via the electronic online system. If key criteria are not
met, the prospective applicant is directed to the SBA resource deemed
most appropriate to assist them in their business growth. The firms are
still allowed to apply however, due to the statutory and regulatory
requirements of the 8(a) Program.
Recommendation #3:
In acknowledgment of the competing demands for business development
specialists to complete required annual reviews of 8(a) firms and
support the mission of the 8(a) program - that is, develop and prepare
small disadvantaged firms for procurement and other business
opportunities, SBA should:
3(a) assess the workload of business development specialists (BDS) to
ensure that they can carry out their responsibilities. As part of such
an assessment, SBA could review the size of the 8(a) portfolio for each
BDS and determine what mechanisms can be used to prioritize or
redistribute their workload;
Response: SBA agrees with the recommendation. OFO will work with the
Office of Human Capital Management (OHCM) to assess the workload of the
BDS and their knowledge levels. This workforce analysis will be
completed by the end of Fiscal Year 2009. Based upon this workforce
analysis, OFO will work with the regional administrators and district
directors to examine workloads and explore possible scenarios for the
redistribution of certain portfolios.
3(b) in a timely manner, develop and implement its proposed plan for
creating tools that would assist in the provision of business
development assistance for 8(a) firms;
Response: The SBA agrees with this recommendation. The Office of
Business Development anticipates that the "Plan to Provide
Individualized Business Development Assistance to 8(a) Firms" will be
implemented by March 2009.
3(c) develop a timetable for planned changes to the termination process
to ensure that staff monitoring 8(a) participants can carry out
terminations from the program in a timely manner
Response: The SBA agrees with this recommendation. The Office of
Business Development revised Chapter 10 of its 8(a) Standard Operating
Procedure (SOP) to ensure that actions to terminate a firm's 8(a)
Program participation are processed in a timely manner. The guidance
that is outlined in the revised Chapter 10 of the 8(a) SOP will reduce
the processing timeframe by streamlining the termination process and
utilizing resources of both the district office and the Office of
Business Development. The Office of Business Development anticipates
that Chapter 10 of the 8(a) SOP will be issued by December 2008.
Concurrent with the release, the Office of Business Development will
issue a Procedural Notice.
Recommendation #4:
To increase the usefulness of surveillance reviews for the 8(a)
program, SBA should update its guidance to incorporate regular reviews
of 8(a) contracting in the scope of the reviews.
Response: The SBA agrees with this recommendation. The Standard
Operating Procedures for surveillance reviews have been updated in line
with the recommendation and were issued on September 26, 2008.
Again, thank you for the opportunity to comment. If you have additional
questions or comments, please contact Tiffani Cooper, GAO Liaison at
(202) 205-6700.
Sincerely,
Signed by:
Calvin Jenkins:
Deputy Associate Administrator:
Office of Business Development and Government Contracting:
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
William B. Shear, (202)-512-8678 or shearw@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Paul Schmidt (Assistant
Director), Bernice Benta, Paula Braun, Tania Calhoun, Nadine Garrick,
Fred Jimenez, Julia Kennon, Amanda Miller, Marc Molino, Barbara
Roesmann, and William Woods made key contributions to this report.
[End of section]
Footnotes:
[1] Congress first enacted requirements for specific procurement goals
for federal contracting for small businesses in 1988. Since then, these
specific goals have been increased and extended to firms participating
in various small business programs. The 8(a) program has no statutory
goal, but 8(a) firms also are certified as SDBs. The current government-
wide goal for awarding prime contracts to SDBs and women-owned
businesses is 5 percent, and HUBZones and service-disabled veteran-
owned businesses each have a goal of 3 percent. For instance, under the
HUBZone program, certain small businesses located in economically
distressed communities may be eligible for set-aside and "sole-source"
contracts. Women-owned businesses must be at least 51 percent owned and
controlled by women. Currently, there are no set-aside contracts for
women-owned businesses. Service-disabled veteran-owned businesses must
be at least 51 percent owned and controlled by service-disabled
veterans and can be eligible for certain set-aside and sole-source
contracts.
[2] 15 U.S.C.§ 644k. The Department of Defense renamed its Office of
Small Disadvantaged Business the Office of Small Business Programs. For
simplicity, we use the term OSDBU for all agencies in our study.
[3] SBA's DPCE certifies 8(a) firms and is centralized in two regional
offices (San Francisco, Calif., and Philadelphia, Pa.).
[4] SBA released the second results and progress scorecard at the
beginning of fiscal year 2009 on October 22, 2008.
[5] The Federal Acquisition Regulation requires executive departments
and agencies to collect and report procurement data to FPDS-NG. The
government uses the reported data to measure and assess the impact of
federal procurement on the nation's economy, the extent to which awards
are made to businesses in the various socioeconomic categories, and the
impact of full and open competition on the acquisition process.
[6] As of September 2007, SBA had 340 full-time equivalent BDSs. SBA
officials explained this number might not be a true representation of
the number of BDSs that work within the 8(a) program because district
offices have discretion in how they use their staff and it is not clear
by job title which BDSs work within the 8(a) program.
[7] SBA's mentor-protégé program is designed to encourage approved
mentors to provide various forms of assistance to eligible protégé
participants. The purpose of the mentor-protégé relationship is to
enhance the capabilities of the protégés and improve their ability to
successfully compete for federal contracts.
[8] As of May 2008, 67 of the 68 district offices had 8(a) portfolios.
In addition to BDSs who work with 8(a) firms, district office staff
include BDSs who work with other SBA business assistance programs and
staff who work primarily with lenders.
[9] Through the 7(j) Management and Technical Assistance Program, SBA
provides qualifying businesses with counseling and training in the
areas of financing, business development, management, accounting,
bookkeeping, marketing, and other small business operating concerns.
[10] 13 C.F.R. § 124.103.
[11] To meet the "potential for success" requirement, firms must be in
business for 2 full years immediately prior to the date of application
and present supporting documentation for SBA's analysis or apply for a
waiver to the 2-year rule and demonstrate that they meet certain
conditions, including (1) business management experience, (2) technical
expertise, (3) adequate capital, (4) a record of successful contract
performance, and (5) the ability to obtain the resources necessary to
perform contracts. Firms also must provide documentation on the
applicant's business and its owners, including business and personal
financial statements and business and personal tax returns.
[12] The 9-year program tenure is divided into two stages--a
developmental stage covering years 1 through 4 and a transitional stage
covering years 5 through 9. During the transitional years, firms are
required to obtain certain levels of non-8(a) contracts to ensure they
do not develop an unreasonable reliance on the program.
[13] See app. II for more information on SDBs.
[14] However, SBA generally may award a sole-source 8(a) contract to an
8(a) firm owned and controlled by an Indian tribe or an Alaska Native
Corporation where the value of the procurement exceeds the competitive
dollar threshold. If it is DOD procurement, this exemption extends to
Native Hawaiian Organizations.
[15] In a prior report, we stated it can be difficult to identify how
many contract dollars firms received based on a particular
socioeconomic program because agencies can count contracting dollars
awarded to small businesses under more than one socioeconomic program.
See GAO, Small Business Administration: Additional Actions Are Needed
to Certify and Monitor HUBZone Businesses and Assess Program Results,
[hyperlink, http://www.gao.gov/products/GAO-08-643] (Washington, D.C.:
June 17, 2008).
[16] To get their goal base, agencies would estimate their total prime
contract dollars for the next fiscal year using their prior fiscal year
procurement budget and estimate any increases or decreases in the
procurement budget and then exclude certain categories. Excluded
categories not counted in the goal base include nonappropriated funds,
internal transactions, mandatory sources, contracts for foreign
governments or international organizations, contracts overseas, and
contracts not subject to the Federal Acquisition Regulation. Then, the
agency would propose goals based on the agency average achievement over
3 years but also take into account the government-wide statutory goals
for each of the socioeconomic categories.
[17] In 1974, Congress established OFPP in the Office of Management and
Budget to provide overall direction of government-wide procurement
policies, regulations, and procedures for executive agencies and to
promote economy, efficiency, and effectiveness in federal procurements.
[18] Members of the advisory council include the OSDBU directors from
the 24 agencies with procurement authority.
[19] More specifically, the agency had to meet the following criteria-
-development of an agency strategy to increase the number of
competitively awarded contracts to small business; demonstrated
commitment to small business contracting at the higher levels of the
agency (at the Secretary, Administrator, or Director level);
cooperative work with SBA on outreach and targeting initiatives; a
record of meeting deadlines for all required strategic plans and annual
reports due to SBA; and a process to ensure that small business data
are accurately reported in FPDS-NG and that small business
subcontracting plans are enforced.
[20] SBA officials explained the fiscal-year end results of the
scorecard cannot be determined until all agencies certify their goaling
data, which was certified by June 30, 2007. They are working to have
the data certified by December 31 to ensure more timely reporting for
future scorecards.
[21] SBA released the second results and progress scorecard at the
beginning of fiscal year 2009 on Oct. 22, 2008.
[22] As mentioned earlier, SBA negotiated annual procurement goals with
each federal agency so that, cumulatively, the government-wide goal
could be met or exceeded.
[23] The 23 percent goal is statutory and was raised from 20 percent
when the HUBZone socioeconomic goal was added in 1997. The HUBZone goal
has been 3 percent as of fiscal year 2003.
[24] We do not have DHS data from all the years we analyzed because the
department was formed on Mar. 1, 2003.
[25] SBA officials explained that they have not negotiated the 8(a)
goal since 2007 because it is not a statutory goal.
[26] GAO, Small Business Administration: Opportunities Exist to Build
on Leadership's Effort to Improve Agency Performance and Employee
Morale, [hyperlink, http://www.gao.gov/products/GAO-08-995]
(Washington, D.C.: Sept. 24, 2008).
[27] The SBA employee numbers from the 1990s to 2007 do not include
employees in SBA's Office of Disaster Assistance because these numbers
fluctuate from year to year and include temporary employees, depending
on the disaster assistance workload. These numbers also do not include
employees in SBA's Office of the IG.
[28] A buying activity can be a federal agency or divisions within
federal agencies that purchase goods and services. For example, in DOD,
the Naval Air Warfare Center represents a buying activity.
[29] In its budget request for fiscal year 2008, SBA proposed to fund
five additional PCRs. House Small Business Committee, Testimony of SBA
Deputy Administrator Jovita Carranza, 110th Congress, 2nd sess., Sept.
19, 2007.
[30] Total procurement actions can include definitive contracts;
purchase orders; indefinite delivery vehicles; and all calls and orders
awarded under the indefinite delivery vehicle, over the micro-purchase
threshold (which is generally $3,000 but there are exceptions) plus all
modifications to these actions regardless of dollar value, which do not
all require PCR review.
[31] GAO, Small Business Set-Asides: Information on the Number of Small
Business Set-Asides Issued and Successfully Challenged, [hyperlink,
http://www.gao.gov/products/GAO-03-242R] (Washington, D.C.: Nov. 1,
2002).
[32] SBA officials explained the agency is looking into other ways to
assess PCR performance and plans to develop a system to track PCR
performance in fiscal year 2009.
[33] See app. IV for more information on the use of Form 70s from
fiscal years 2003 through 2007.
[34] House Small Business Committee, Testimony of SBA Deputy
Administrator Jovita Carranza, 110th Congress, 2nd sess., Sept. 19,
2007.
[35] House Committee on Small Business, Testimony by SBA Administrator
Steve Preston, 110th Congress, 2nd sess., Feb. 7, 2008.
[36] We visited four of the six area offices in SBA.
[37] SBA, Review of SBA's Subcontracting Assistance Program, Audit
Report No. 7-33 (Washington, D.C., Sept. 28, 2007).
[38] The Office of Government Contracting conducts size determinations
and Certifications of Competency (CoC). SBA conducts small business
size determinations when, for example, a contracting officer or another
interested party challenges the size of a small business in connection
with a particular procurement. Under the CoC program, SBA conducts a
detailed review of a small business to evaluate its responsibility to
receive and perform a specific procurement. If SBA determines that a
CoC is warranted, SBA notifies the contracting officer for the specific
contract. The officer can accept the CoC for the small business and
award the contract or may ask SBA for further review. SBA ultimately
has conclusive authority to issue or refuse to issue a CoC for a small
business.
[39] 13 C.F.R. § 124.1.
[40] That is, BDMIS was operational in all the district offices,
allowing 8(a) applicants and participants to submit information
electronically and BDSs to review the documentation electronically. By
September 30, 2008, SBA stated it will convert paper applications
currently in process and other paper files to BDMIS-compatible format.
However, SBA stated that, by law, it must continue to accept paper
applications. When an applicant submits a paper application (does not
apply through BDMIS), a BDS will need to enter the data manually into
BDMIS for it to be processed. In addition, in an effort to prevent
fraud, SBA's Office of General Counsel and Office of IG still require
applicants to submit signed forms and required supplemental
documentation.
[41] To ensure that 8(a) participants do not continue to rely on 8(a)
contract awards following graduation from the program, SBA requires
that they obtain certain levels of non-8(a) contracts. SBA establishes
these non-8(a) business activity targets based on the participant's
program year.
[42] Currently, SBA partners with SCORE (formerly the Service Corps of
Retired Executives), Small Business Development Centers, Women's
Business Centers, and other organizations to provide training,
counseling, and other assistance to small businesses.
[43] The 8(a) firms are assigned to district offices based on their
geographic location. However, 8(a) firms that are in the construction
industry are assigned based on the location of the construction.
[44] As of May 2008, 67 of 68 district offices had an 8(a) portfolio.
[45] Pub. L. No. 100-656, § 209, 102 Stat. 3853, 3863 (1988), codified
at 15 U.S.C. § 637(a)(6)(B). The requirement to complete annual reviews
of all program participants, along with other provisions in the law,
was intended to prevent firms that were not the intended beneficiaries
of the program from participating in the program.
[46] The agenda emphasized (1) meeting all compliance requirements, (2)
ensuring that all SBA's programs operated efficiently and effectively,
(3) improving communication, and (4) providing effective training.
[47] The agreement also states that if SBA does not respond to the
agency within that time frame, the agency can proceed with the
procurement.
[48] We were unable to assess the extent of business development
assistance provided to firms because SBA has not implemented its
tracking system to date.
[49] SBA IG, Business Development Provided By SBA's 8(a) Business
Development Program, Report Number 4-22, June 2, 2004.
[50] The assessment tool will allow a firm to answer a series of
questions on a number of management and business skills. Further, SBA
officials stated the BDMIS will assist SBA in addressing the purpose of
the 8(a) program, meet the needs and expectations of the firms in the
program, and improve SBA's ability to automate and streamline various
processing functions. GAO and SBA IG reports have cited a lack of
tracking in place to measure the level of business development
assistance provided. See GAO, Small Business: SBA Could Better Focus
Its 8(a) Program to Help Firms Obtain Contracts, [hyperlink,
http://www.gao.gov/products/GAO/RCED-00-196] (Washington, D.C.: July
20, 2000) and SBA IG, Report Number 4-22.
[51] A firm may withdraw from the program at any time. SBA also may
graduate a participant early if it determines that the firm has
completed the program successfully by substantially achieving the
targets, objectives, and goals in its business plan and has
demonstrated the ability to compete in the marketplace without the
program's assistance, or no longer meets the economically disadvantaged
criteria.
[52] SBA Office of Business Development, 2006 Report to Congress. SBA
submits annual reports to Congress on the status of former 8(a)
participants, including those that have completed the program as well
as those that have exited the program through termination, early
graduation, and voluntary withdrawal.
[53] Between 2003 and 2007, SBA conducted 94 surveillance reviews (59
within DOD) but did not conduct any reviews from 1994 to 2002 due to a
suspension of the program as a result of budget constraints.
[54] SBA Standard Operating Procedure 60 02 7, Prime Contracts Program,
Oct. 8, 2004.
[55] SBA, Audit of Monitoring Compliance with 8(a) Business Development
Regulations During 8(a) Business Development Contract Performance,
Audit Report No. 6-15 (Washington, D.C., Mar. 16, 2006).
[56] The total agency staff numbers are as of August 2008.
[57] GAO, Small Business Set-Asides: Information on the Number of Small
Business Set-Asides Issued and Successfully Challenged, [hyperlink,
http://www.gao.gov/products/GAO-03-242R] (Washington, D.C.: Nov. 1,
2002).
[58] P.L. 95-507, Small Business Act, section 15 as amended, 1978
(U.S.C.§ 644).
[59] At the end of fiscal year 2008, SBA had 68 district offices. The
district offices are responsible primarily for administering SBA's 8(a)
program and 67 had 8(a) portfolios as of May 2008. In addition to
business development specialists (BDS) who work with 8(a) firms,
district office staff include BDSs who work with other SBA business
assistance programs and staff who work primarily with lenders.
[60] As of September 2007, SBA had 340 full-time equivalent BDSs. SBA
officials explained this number might not be a true representation of
the number of BDSs that work within the 8(a) program because district
offices have discretion in how they use their staff and it is not clear
by job title which BDSs work within the 8(a) program.
[61] We refined our file selection methodology after visiting the
Atlanta District Office and did not request contract information at
that location. We randomly selected two firms by graduation year and
also two firms in SBA's mentor-protégé program, which is designed to
encourage approved mentors to provide various forms of assistance to
eligible protégé participants. The purpose of the mentor-protégé
relationship is to enhance the capabilities of the protégés and to
improve their ability to successfully compete for federal contracts.
[62] The program, established by Section 1207 of the Act and codified
at 10 U.S.C. § 2323, has been reenacted several times, most recently in
2006. On November 4, 2008, the U.S. Court of Appeals for the Federal
Circuit held that Section 1207, i.e., 10 U.S.C. § 2323, as reenacted in
2006, is unconstitutional. Rothe Development Corp. v. Department of
Defense and Department of the Air Force, C.A.F.C. No. 2008-1017 (2008
[63] In Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995), the
Supreme Court held that all federal affirmative action programs that
use racial classifications are subject to strict judicial scrutiny. To
meet this standard, a program must be shown to meet a compelling
governmental interest and must be narrowly tailored to meet that
interest.
[64] GAO, Small Business: Status of Small Disadvantaged Business
Certifications, [hyperlink, http://www.gao.gov/products/GAO-01-273]
(Washington, D.C.: Jan. 19, 2001).
[65] We interviewed officials at Commerce, DOD, DHS, and SSA. We
selected these agencies--a nongeneralizable sample--based on the amount
of contracting dollars they awarded to small disadvantaged businesses
and the ratings they received on SBA's inaugural scorecard (for fiscal
year 2006) that evaluated agencies' performance on the various small
business goals.
[66] To qualify for the 8(a) program, a firm must be at least 51
percent owned and controlled by an individual who meets SBA's criteria
of socially and economically disadvantaged. Firms in the 8(a) program
are eligible to receive competitive and sole-source set-asides. Under
the HUBZone program, certain small businesses located in economically
distressed communities may be eligible for set-aside and "sole-source"
contracts. Women-owned businesses must be at least 51 percent owned and
controlled by women. Currently, there are no set-aside contracts for
women-owned businesses. Service-disabled veteran-owned businesses must
be at least 51 percent owned and controlled by service-disabled
veterans and can be eligible for certain set-aside and sole-source
contracts.
[67] SBA's interim rule shifts the responsibility of certifying firms
as SDBs to those limited agencies that have the authority and choose to
use PEAs, instead of requiring the 20 agencies that had Economy Act
agreements with SBA to fund this service. In addition, the rule allows
SDB firms to self-represent their status for subcontracting purposes.
The rule stated that SBA took this action because only NASA and the
Coast Guard were able to use the SDB PEA and their use of the PEA had
been minimal. As a result, SBA did not believe that certifying SDBs
government-wide was effective or efficient. Further, some agencies
notified SBA they would not reimburse SBA for this service, as required
through Economy Act agreements. The rule also stated SBA cannot use its
own funds to support the certification because it is not a program but
a service SBA agreed to provide through Economy Act agreements.
[68] SBA has established and revised numerical size standard
definitions for all for-profit industries that are generally stated
either as the number of employees or average annual receipts of a firm.
In addition to establishing eligibility for SBA programs, all federal
agencies must use SBA's size standards for the federal government
contracts it identifies as a small business.
[69] The Federal Acquisition Regulation requires executive departments
and agencies to collect and report procurement data to FPDS-NG. The
government uses the reported data to measure and assess the impact of
federal procurement on the nation's economy, the extent to which awards
are made to businesses in the various socioeconomic categories, and the
impact of full and open competition on the acquisition process.
[70] We interviewed officials at Commerce, DOD, DHS, and SSA. We
selected these agencies--a nongeneralizable sample--based on the amount
of contracting dollars they awarded to small disadvantaged businesses
and the ratings they received on SBA's inaugural scorecard (for fiscal
year 2006) that evaluated agencies' performance on the various small
business goals.
[71] DOD changed the name from OSDBU to the Office of Small Business
Programs. For simplicity, we use the term OSDBU for all agencies we
reviewed.
[72] SSA was assigned a new PCR who worked with SSA management to
implement changes to increase the number of contract actions eligible
for review by the SSA OSDBU director.
[73] 15 U.S.C. § 644(k)(3). See also GAO, Small and Disadvantaged
Businesses: Some Agencies' Advocates Do Not Report to the Required
Management Level, GAO-03-863 (Washington, D.C.: Sept. 4, 2003).
[74] SBA was not included in the study. The scope of the review
included 24 agencies that procured $200 million or more in goods and
services in fiscal year 2001. DHS was not included in the 2003 report
since it had not been created yet.
[75] GAO, Small Business Set-Asides: Information on the Number of Small
Business Set-Asides Issued and Successfully Challenged, [hyperlink,
http://www.gao.gov/products/GAO-03-242R] (Washington, D.C.: Nov. 1,
2002).
[76] SBA plans to develop a PCR tracking system in fiscal year 2009.
[End of section]
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