SMALL BUSINESS

Expectations of Firms

in SBA’s 8(a) Program

Are Not Being Met

Statement of Stanley J. Czerwinski, Associate Director,

Housing and Community Development Issues,

Resources, Community, and Economic Development Division

United States General Accounting Office

GAO Testimony

Before the Committee on Small Business, U.S. Senate

For Release on Delivery

9:30 a.m., EDT

Thursday

July 20, 2000

GAO/T-RCED-00-261
1 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

Mr. Chairman and Members of the Committee:

We are here today to discuss our reviews of the Small Business Administration’s (SBA)

8(a) program. The 8(a) program is one of the federal government’s primary vehicles for

developing small businesses owned by socially and economically disadvantaged

individuals. Firms in the program are eligible for contracts that federal agencies set

aside for 8(a) firms and may receive technical assistance and management training from

SBA. In the 8(a) program, SBA has to consider the needs of 8(a) firms seeking to obtain

federal contracts that may help their small business succeed along with the needs of

federal agencies seeking to maximize their procurement dollars. In fiscal year 1999,

about 6,000 small businesses participated in the program, and $6.2 billion was awarded

in 8(a) contracts.

Our testimony is based on two reports, prepared at your request, that are being released

today--one on the overall focus of the program and one addressing the 8(a) information

system.1

We would like to highlight two main points that our reports make about the

8(a) program.

• First, SBA’s efforts are not aligned with the needs or expectations of 8(a) firms. SBA

has never surveyed its customers--the 8(a) firms--in a meaningful way to determine

what experience they have or what their needs are. We surveyed 1,200 firms

participating in the 8(a) program and found that firms want SBA to provide them with

more assistance that will help them obtain contracts.2

Firms did not place a high

priority on learning to manage a business because a large majority of the firms had

owners with over 10 years’ experience managing a business. In providing assistance,

we found that SBA has emphasized business management skills, even though most

firms joined the program to obtain 8(a) contracts. This misalignment of SBA’s efforts

1

See Small Business: SBA Could Better Focus its 8(a) Program to Help Firms Obtain Contracts

(GAO/RCED-00-196, July 20, 2000) and Small Business: SBA’s 8(a) Information System is Flawed and Does

Not Support the Program’s Mission (GAO/RCED-00-197, July 20, 2000). 2

We conducted a nationwide mail survey of 1,200 firms randomly selected from SBA’s database of 5,432

active 8(a) firms. Our survey response rate was 71 percent and our results can be generalized to the entire

population of active 8(a) firms as of September 30, 1999.
2 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

and the needs of 8(a) firms has been further compounded by the fact that most 8(a)

contract dollars go to a small number of firms. We recommended that SBA take a

number of actions, including periodically surveying 8(a) firms, to better meet the

needs of the firms in the program. SBA agreed with our recommendations.

• Second, SBA has no way to tell how well the 8(a) program is working. Almost a

decade ago, we first reported that the agency did not know the full extent of business

development assistance provided for firms. Yet, SBA still does not have a tracking

system in place. SBA did pilot a Business Assessment Tool in 1999 that would

evaluate firm’s business development needs, but at the time of our review, agency

officials were still evaluating the results of the pilot. Changes in the contracting

process have undermined the accuracy of SBA’s contracting data. As a result, SBA

lacks the ability to measure the 8(a) program’s performance in such basic areas as

determining the level of training provided, whether that training matched firms’

needs, or even the amount of 8(a) contracts that firms obtained. We recommended,

several steps that SBA agreed it should take to ensure that it collects data on

appropriate performance measures.

Background

SBA’s mission is to maintain and strengthen the nation’s economy by aiding, counseling,

assisting, and protecting the interests of small business and by helping businesses and

families recover from natural disasters. SBA’s new budget authority for fiscal year 2000

is $886 million. SBA administers small business programs such as the 7(a) loan program,

which provides loan guarantees to small business owners unable to secure financing on

reasonable terms through normal lending channels, and the 8(a) program, through which

qualified firms are eligible for federal contract set-asides. SBA also provides small

businesses with assistance through the agency’s partnerships and business centers.

SBA’s disaster loan program offers financial assistance to businesses and families trying

to rebuild in the aftermath of a disaster.
3 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

The Small Business Act, as amended, authorizes the 8(a) program. The purpose of the

program is to help eligible small socially and economically disadvantaged businesses

compete in the American economy through business development activities. Toward

this end, the Congress made three major legislative attempts—in 1978, 1980, and 1988—

to improve SBA’s administration of the 8(a) program and to emphasize its business

development aspects. The Congress enacted the 1988 act and subsequent amendments

partly because the program was not developing firms in the program into viable

businesses. To remedy this and other problems, the 1988 act made a number of changes

to improve the 8(a) program’s organization and participation standards, business

development activities, and overall management.

To be certified by SBA for participation in the 8(a) program, applicants must show that

their firm is owned by socially and economically disadvantaged individuals, meets SBA’s

small-business-size standards, and has a reasonable potential for success. Firms in the

program are eligible for contracts that federal agencies set aside for 8(a) firms.

However, 8(a) firms are not guaranteed success in obtaining contracts. According to

8(a) program regulations, firms may also receive SBA’s business development assistance,

such as contract support, financial assistance, training in developing business strategies

to enhance a firm’s ability to compete for contracts, training in transitional business

planning, and assistance in forming joint ventures with other firms. The firms’ 9-year

program participation 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 meet certain non-8(a) business contract levels in an effort to

ensure that firms do not develop an unreasonable reliance on the program.

SBA’s Efforts Are Not Aligned With Firms’ Needs and Expectations

Although the purpose of the 8(a) program is to provide business development to assist

eligible small disadvantaged firms compete in the American economy, SBA has never

surveyed its customers--the 8(a) firms--in a meaningful way to determine what

experience they have or what their needs are. We surveyed 1,200 firms participating in

the 8(a) program and found that firms want SBA to provide them with more assistance
4 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

that will help them obtain contracts. Firms did not place a high priority on learning to

manage a business because a large majority of the firms had owners with over 10 years’

experience in managing a business. Yet, in providing assistance, we found that SBA has

emphasized business management skills, even though most firms joined the program to

obtain 8(a) contracts and were more satisfied with the program if they received a

contract. This misalignment of SBA’s efforts and the needs of 8(a) firms has been further

compounded by the fact that most 8(a) contract dollars go to a small number of firms.

Few Firms Join to Learn How to Manage a Business,

but SBA Emphasizes Management Training

According to our survey data, most firms would like to see SBA place a greater emphasis

on increasing 8(a) contract opportunities. For example, 90 percent of those surveyed

want SBA to place a high priority on increasing efforts to link 8(a) firms with specific

federal program managers. Over 80 percent would like SBA to make sure that contacts

at federal agencies are familiar with the program. Furthermore, 83 percent of the survey

respondents want SBA to increase the number of ways the agency informs 8(a) firms

about contract opportunities.

On the other hand, our survey results showed that only 22 percent of the firms

considered learning more about managing a business to be a major reason for joining the

8(a) program. One reason why firms did not place a higher priority on learning to

manage a business is that a large majority of 8(a) firms already had substantial business

experience. As shown in figure 1, 71 percent of the firms had owners with over 10 years’

experience managing their current 8(a) firm and other companies. Furthermore, over 50

percent of the firms we surveyed were in business 5 years or more before joining the

program. One respondent wrote in his survey that his company had been in business 12

years before being certified as an 8(a) firm. Another respondent wrote that he had over

20 years’ business experience and just needed help finding contracting opportunities,

which he had not yet received from his local SBA office.
5 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

Figure 1: Owners’ Experience Managing Current 8(a) Firms and Other Companies

24% • 5 to 10 years

• 5%

4 years or less

71%

•

Over 10 years

Source: GAO’s survey of 8(a) firms.

SBA, however, has emphasized business management skills instead of the contracting

opportunities and related training that firms want. For example, since fiscal year 1996,

SBA has devoted 40 to 50 percent of its $2.6 million 8(a) training budget to executive

education for 8(a) firms.3A senior SBA program adviser estimated that about 10 percent

of the 8(a) firms have had their executives participate in this training, which focuses on

developing the skills of an 8(a) firm’s president or chief executive officer. The remaining

training resources are divided among contracts with various universities and other

providers. The 8(a) Business Development Mentor-Protégé Program, which encourages

private-sector relationships with mentors, is designed to help 8(a) firms compete more

successfully for contracts through assistance, such as financial, technical, and

management assistance provided by their mentors. Yet, this program also serves a

limited number of firms. As of April 2000, SBA only had 40 mentor-protégé agreements

in place.

3

Executive education training is given to select 8(a) firm executives who are nominated for participation by

SBA district offices and is provided through SBA’s 7(j) Management and Technical Assistance Program.
6 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

Firms Join the Program Primarily to Obtain Contracts,

and Their Satisfaction Is Tied to Receiving Contracts

Although SBA has emphasized training for the 8(a) firms, our survey results showed that

a major reason that 86 percent of the 8(a) firms cited for joining the program was to

obtain federal contracts, especially those set aside for the 8(a) program. As shown in

figure 2, a significant number of the firms we surveyed also entered the program to

broaden their customer base to include the federal government, overcome barriers to

discrimination, and increase their net income.

Figure 2: Major Reasons Firms Joined the 8(a) Program

0 10 20 30 40 50 60 70 80 90 100

Obtain 8(a) contracts

 Broaden customer base to

the federal government

Overcome barriers

of discrimination

Increase net income

Improve chances of obtaining

contracts outside of the 8(a) program

To make it easier to be awarded

 state and local contracts

Have access to training

offered to 8(a) firms

Improve access to

credit/financing

Learn more about

managing a business

86%

80%

69%

68%

48%

39%

34%

33%

22%

Source: GAO’s survey of 8(a) firms.

We found that firms’ overall satisfaction with the program was mixed, but firms that

received 8(a) contracts were more satisfied than those that did not. For example, over
7 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

48 percent of the firms in the program for at least 2 years that had obtained at least one

8(a) contract were satisfied with the program. However, only about 9 percent of the

firms in the program for at least 2 years that had not obtained an 8(a) contract were

satisfied. For example, one respondent wrote in her survey that she is frustrated

because her firm spent a considerable amount of money marketing to various federal

agencies for over 2 years but had no results to show for it.

When asked about satisfaction with general aspects of the 8(a) program, firms expressed

the most dissatisfaction with two items relating to contracting issues. As shown in figure

3, 58 percent of the 8(a) firms indicated that they were dissatisfied with the amount of

contracting opportunities afforded by the program. Over half the firms surveyed were

also dissatisfied with their efforts to find the right contact at a federal agency to discuss

potential 8(a) contracts. Additionally, over 40 percent were dissatisfied with the amount

of individual assistance that SBA provides and the level of interest that federal agencies

show for working with 8(a) firms. One respondent commented in the survey that his

firm has not received any assistance from its business opportunity specialist in over 5

years. Another respondent also wrote that he did not even know whom to contact at

SBA and that the only information that he receives from SBA is paperwork for

recertification and requests for financial information. Another respondent wrote that

federal agencies are reluctant to use the 8(a) program.
8 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

Figure 3: Major Reasons for Firms’ Satisfaction and Dissatisfaction With the 8(a) Program

Amount of 8(a)

contract opportunities

Level of effort to find the right

person at a federal agency to

discuss potential 8(a) contracts

Amount of individual assistance

SBA provides 8(a) firms

Level of interest that federal agencies

show for working with 8(a) firms

Number of opportunities to

develop new lines of business

Amount of paperwork SBA requires

Match between the training 8(a)

program offers and what firm needs

Satisfied

Neutral

Dissatisfied

24%

26%

33%

33%

30%

31%

26%

15%

19%

20%

20%

24%

31%

36%

58%

51%

44%

43%

41%

36%

31%

0 10 20 30 40 50 60 70 80 90 100

Note: Those who responded “uncertain” were not included in this figure. As a result, totals do not tally to 100

percent.

Source: GAO survey of 8(a) firms.

A Small Number of Firms Continue to Receive Most 8(a) Contracts

Firms’ success at obtaining these contracts has been a long-standing concern of the

Congress, GAO, and the SBA Inspector General. In amending the 8(a) program in 1988,

the Congress sought to improve the fair and equitable distribution of federal contracting

opportunities by increasing the number of competitive small businesses owned and

controlled by socially and economically disadvantaged individuals. Nonetheless, as our

prior reports4 and those of the SBA Inspector General have noted, (1) a large percentage

4

See Small Business: Problems in Restructuring SBA’s Minority Business Development Program

(GAO/RCED-92-68, Jan. 31, 1992), Small Business: Problems Continue With SBA’s Minority Business

Development Program (GAO/RCED-93-145, Sept. 17, 1993), Small Business: SBA Cannot Assess the

Success of Its Minority Business Development Program (GAO/T-RCED-94-278, July 27, 1994), Small

Business: Status of SBA’s 8(a) Minority Business Development Program (GAO/T-RCED-95-149, Apr. 4,
9 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

of the total dollar value of program contracts was awarded to very few firms and (2)

about half the firms in the program in a given year receive no 8(a) contracts. For

example, our analysis of SBA’s program data for fiscal year 1998 showed that 50 percent

($3.2 billion) of the dollar value of the 8(a) contracts and modifications went to only 209

of the over 6,000 firms in the program, while over 3,000 firms did not get any program

contracts. The Inspector General also listed the concentration of 8(a) contracts among a

few firms as 1 of the 10 most serious management challenges facing SBA in both fiscal

years 1999 and 2000. The concentration of program contract awards has also been

reported as a material weakness in SBA’s Federal Managers Financial Integrity Act

Report every fiscal year since 1994.

According to our survey results, many firms have yet to receive an 8(a) contract. For

example, as shown in figure 4, 24 percent of our survey respondents who have been in

the program for at least 2 years have not obtained an 8(a) contract, and over half have

gotten two or fewer contracts. Of those survey respondents who primarily joined the

program to obtain contracts and who have been in the program for at least 2 years, 35

percent indicated that they have not been successful in obtaining a contract. One survey

respondent wrote that her firm is going into its 4th year in the program without obtaining

any 8(a) contracts. The respondent wrote that her firm was under the impression that

SBA staff would assist it in contacting federal agencies and obtaining these contracts.

Instead, she said the firm has had to use its time and resources to fill out the paperwork

required by SBA but has nothing to show for its efforts.

1995), and Small Business: Status of SBA’s 8(a) Minority Business Development Program (GAO/T-RCED96-259, Sept. 18, 1996).
10 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

Figure 4: Number of 8(a) Contracts Awarded to Firms That Have Been in the 8(a) Program at Least 2 Years

12% • 11 and over

24% • None

31%•

1 to 2

•20%

3 to 5

•13%

6 to 10

Source: GAO survey of 8(a) firms.

In our analysis of the survey data, we examined the relationship between firms that have

not yet obtained 8(a) contracts and the number of years of the owners’ overall owner

management experience. The survey data indicate that firms that have owners with less

management experience are not as likely to obtain 8(a) contracts as firms with more

experienced owners. As illustrated in figure 5, nearly 63 percent of the firms surveyed

that have owners with 2 to 4 years’ management experience have not obtained a

contract.
11 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

Figure 5: Percentage of Firms That Have Not Obtained an 8(a) Contract on the Basis of the Owners’

Management Experience

Percentage of firms that have not obtained an 8(a) contract

0

10

20

30

40

50

60

70

80

90

100

2 to 4

years

5 to 7

years

8 to 10

years

Over 10

years

Years of owner management experience

63%

51%

36% 33%

Source: GAO survey of 8(a) firms.

SBA agrees that the concentration of 8(a) contracts among a few firms is a problem and

has made changes to the 8(a) program in an attempt to reduce the concentration.

However, SBA officials said that it is reasonable that not all firms in the program will

receive 8(a) contracts. According to SBA, 8(a) firms are no different from other small

businesses—some will be more successful than others. Among the factors that SBA said

defined a firm’s success in obtaining 8(a) contracts are the firm’s proximity to federal

agencies; the firm’s capabilities, access to credit and capital, and effective marketing;

and the share of each federal agency’s prime contracting dollars that are devoted to the

program. SBA officials also stressed that according to program regulations, admission

into the program does not guarantee that a participant will receive 8(a) contracts. In

addition, SBA relies on other federal agencies to make the contract awards, and federal

procuring officials are confronted with the competing objectives of accomplishing their

agency’s mission at a reasonable cost and achieving the 8(a) program’s business

development goals.
12 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

SBA Can Not Tell How Well the 8(a) Program Is Working

SBA remains unable to track the training and assistance it provides for 8(a) firms, but did

pilot a Business Assessment Tool in 1999 that would evaluate firms’ business

development needs. At the time of our review, SBA officials were still evaluating the

results of the pilot. In addition, changes in the contracting process have undermined the

accuracy of SBA’s contracting data. This lack of systematic data impairs SBA’s ability to

measure the program’s overall performance and to determine what assistance firms

need.

SBA Does Not Have a System for Tracking Business Development

SBA lacks a systematic way of tracking the business development services that firms

need and receive. In January 1992, we reported that the full extent of the management

and technical assistance provided for 8(a) firms was unknown because SBA did not have

a computer network that enabled the agency to collect this information.5In September

1996, SBA testified it had an automated information system that enabled the agency to

monitor, among other things, what kind of assistance was provided for firms and what

progress was made with business development. However, SBA’s Deputy Assistant

Administrator for Technology said that this capacity was never used because funding for

training has been reduced. The 8(a) program manager told us that, if information on

training and assistance is needed, headquarters would send an information request to the

district offices, which would provide the information. Yet, SBA’s district office officials

in Atlanta, Dallas/Ft. Worth, New York City, and San Francisco told us that they do not

have a system to track training information.

In an effort to better identify what type of assistance and training an 8(a) firm requires

and what the firms receive, SBA piloted an automated Business Assessment Tool in July

1999 at 14 of SBA’s district offices. The assessment tool was designed to match

information from a series of 58 questions that assess the firm’s developmental assistance

5

See Small Business: Problems in Restructuring SBA’s Minority Business Development Program

(GAO/RCED-92-68, Jan. 31, 1992).
13 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

needs with the business training and counseling resources provided by SBA and other

service providers. The tool also provided a mechanism for tracking the training and

assistance recommended. SBA officials said that the tool, which is not integrated into

SBA’s current information system, is being reassessed because the pilot showed that it

needed to be more user friendly. For example, if a business opportunity specialist were

not able to complete all the data entries in one session, the tool would not save the

entries already completed.

SBA’s Information on 8(a) Firms’

Contracting Activity Is Incomplete

SBA does not know which 8(a) firms are getting which contracts. When the contracting

authority for 8(a) was delegated to federal contracting agencies in 1997 and 1998, SBA no

longer required federal agencies to provide SBA with copies of 8(a) contracts for entry

into the 8(a) database. Instead, the agency planned to get contacting data from the

Federal Procurement Data System (FPDS)—a central source of federal contracts of over

$25,000 that is maintained by the General Services Administration. However, SBA did

not begin using FPDS until mid-fiscal year 2000 and found that considerable staff effort

was needed to match contracting records from FPDS with SBA’s demographic records

on 8(a) firms. Matching records is necessary for SBA to tell which firms got which

contracts. SBA said that it intends for future 8(a) systems development to simplify and

automate the matching process.

Even though the information system lacks data on a significant number of contracts,

staff in every district we visited said that they are still required to spend time entering

into the system the contracting data they do have even if it is of little or no use to them.

For example, one official estimated that the 8(a) contracting amounts for fiscal year 1999

are underrepresented in SBA’s system by about $1.8 billion when compared with FPDS.

SBA officials told us that they plan to update the 8(a) information system as part of an

agencywide information systems modernization initiative and have begun the

development of a strategic information technology plan for the office that oversees the
14 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

8(a) program. The testimony of Joel Willemssen later in the hearing will further discuss

SBA’s information technology management processes.6

SBA’s Lack of Systematic Data Impairs

Its Ability to Measure Program Performance

SBA managers acknowledged that the lack of a system to track and assess the results of

business development activities creates a weakness for the program because it is

difficult to assess the program’s effectiveness. The officials said that their system’s

inability to record training and assistance could lead to an underaccounting of the

benefits that firms receive from the program. For example, a district manager noted a

case in which an 8(a) firm received considerable assistance in developing its marketing

and other capabilities. This firm, through the auspices of the district office, later

negotiated and won a contract with a commercial firm. However, this outcome could

not be credited within the system because (1) staff have no way of recording the training

and assistance provided to firms, other than in informal notations, and (2) the contract

awarded to the firm was not an 8(a) contract, so the award information could not be

noted in the system.

In addition, the lack of accurate contracting data has made tracking program

performance difficult. Because of the lack of data, district offices cannot readily

produce accurate reports on the number of contracts awarded to 8(a) firms in their

district. For example, staff in one district office said they had been questioned by their

district office director about why the number of contracts awarded to firms in their

district had decreased dramatically. The matter was not really that the number of

contracts was decreasing, but that the information system lacked data on an estimated

50 percent of the contracts awarded.

-----

Mr. Chairman, this completes our prepared statement. We would be happy to respond to

any questions from you or members of the Committee.

6

See Information Technology Management: Small Business Administration Needs Policies and Procedures

to Control Key IT Processes (GAO/T-AIMD-00-260, July 20, 2000).
15 GAO/T-RCED-00-261 SBA’S 8(A) PROGRAM

Contact and Acknowledgement

For future contacts regarding this testimony, please contact Stanley J. Czerwinski at

(202) 512-7631. Individuals making key contributions to this testimony included Susan

Campbell, Andy Clinton, and David Lewis.

(385871)
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