United States Government Accountability Office

Washington, DC 20548 

November 8, 2006 

The Honorable Stephen C. Preston 

Administrator 

Small Business Administration 

Subject: State Department Contract for Security Installation at Embassies Awarded to 8(a) Joint 

Venture

Dear Mr. Preston: 

In March 2003, the Department of State (State) awarded a sole-source contract to EmbSEC, a Virginia 

limited liability corporation, for work at U.S. embassies. The contract currently has a ceiling price of 

$354 million. The contractor is required to install and maintain technical security equipment, such as 

alarms, cameras, and controlled-access equipment; establish X-ray capability for special projects; and 

maintain and repair physical security products. The contractor also procures equipment and materials 

and operates the warehouse where they are stored. 

EmbSEC was created as a joint venture, mentor/protégé partnership under the Small Business 

Administration’s (SBA) 8(a) business development program. A joint venture in the 8(a) program is an 

agreement between an 8(a) participant and one or more businesses to work together on a specific 8(a) 

contract. SBA regulations state that the purpose of the mentor/protégé relationship is to enhance the 

capabilities of the protégé and to improve its ability to successfully compete for contracts. The EmbSEC 

joint venture is comprised of RDR, Inc., the mentor, and BP International (BPI), the protégé, an 8(a) firm 

at the time the contract was awarded. State had awarded 8(a) contracts to RDR for the same type of 

work in 1992 and 1998. 

We received a tip on our fraud hotline regarding the EmbSEC contract.1

 The objectives of our review, 

conducted under the authority of the Comptroller General to conduct evaluations on his own initiative, 

were to determine (1) State’s basis for awarding the contract to EmbSEC without competition and (2) 

the extent to which SBA has monitored the roles and responsibilities of the companies under the joint 

venture arrangement. We are sending a separate management letter to State regarding this contract.2

Results in Brief

State relied on a waiver of 8(a) competitive thresholds, granted by SBA in 2001, to award the sole-source 

contract to EmbSEC. However, the waiver was improper because SBA was not authorized to grant it. 

SBA can authorize sole-source 8(a) awards above the competitive thresholds (1) for specific 

 1

 The purpose of GAO’s FraudNET is to facilitate reporting of allegations of fraud, waste, abuse, or mismanagement of federal 

funds. Allegations are received via e-mail at fraudnet@gao.gov. 

2

 GAO, Department of State Contract for Security Installation at Embassies, GAO-07-34R (Washington, D.C.: Nov. 8, 2006). 

Page 1 GAO-07-33R State Department 8(a) Contract 
procurements and (2) if it determines that other 8(a) firms cannot compete for the requirement. In this 

case, SBA authorized State to make sole-source 8(a) awards in any amount for contracts that 

“supplement the security of U.S. Government diplomatic posts and protect the lives of Departmental 

personnel.” The waiver was not tied to a specific procurement, but was a blanket waiver that could be 

applied to any contract pertaining to security at diplomatic posts. The waiver was signed by another 

official on behalf of SBA’s Associate Administrator for 8(a) Business Development; SBA headquarters 

officials were unaware of the waiver until we brought it to their attention. They agreed that it was 

unauthorized. State incorporated the waiver in its procurement regulation in April 2004, but officials 

from State’s offices of procurement policy and Small Business Utilization told us it has been used only 

for the EmbSEC contract. It is not clear why State used the waiver to award the 2003 contract to 

EmbSEC rather than using competitive procedures. Five years earlier, in 1998, when RDR was awarded 

the prior contract as the only 8(a) offerer, the contracting officer expressed concern with the lack of 

competition, noting that “it would be in the best interest of the government to re-compete this 

requirement at the earliest practical time.” State officials told us that a number of companies could

perform this work. 

Although SBA officials approved the EmbSEC joint venture and mentor/protégé agreement, they have 

not monitored the roles and responsibilities of the two contractors, despite the fact that this is an 

unusually large and complex 8(a) contract. According to contractor representatives, as well as State 

officials, RDR sought out BPI as an 8(a) joint venture partner for the contract. At the time, BPI was a 

very small firm specializing in information technology project management and consulting. Under the 

EmbSEC contract, RDR and DynCorp, a subcontractor, install and maintain security systems at 

embassies, and BPI provides administrative services, such as operating the warehouse for the 

equipment. SBA headquarters officials—the Associate Administrator for the 8(a) Business Development 

program and a representative from the office of General Counsel—said that this arrangement does not 

appear to be providing BPI, as the protégé, with the experience that would be expected. Officials in

SBA’s Washington, D.C., district office had not followed up to ensure that the 8(a) firm was receiving the 

appropriate benefits from the arrangement. 

We are recommending that SBA retract the 2001 waiver and that it review the roles and responsibilities 

of RDR and BPI under the 8(a) joint venture. In written comments on a draft of this report, SBA agreed 

with the recommendations. We also received a minor technical comment from EmbSEC, which we 

incorporated. 

Background

SBA’s 8(a) business development program is one of the federal government’s primary means for 

developing small businesses owned by socially and economically disadvantaged individuals. Firms 

approved as 8(a) participants can receive business development assistance from SBA but may only 

participate in the 8(a) program for a maximum of 9 years. BPI was an 8(a) firm at the time of contract 

award but has since graduated from the program. Contracting officers can award contracts to 8(a) firms 

without competition below certain dollar thresholds—namely up to $5 million for manufacturing and up 

to $3 million for all other contracts. These competitive thresholds may be waived by SBA’s Associate 

Administrator for 8(a) Business Development if there is not a reasonable expectation that at least two 

eligible 8(a) participants will submit offers at a fair price. 

In 1998, SBA started negotiating memorandums of understanding that allow federal agencies to contract 

directly with 8(a) firms. These memorandums delegate contract execution responsibility to the agencies 

and require them to monitor certain requirements of the contracts. Before contracting with an 8(a) firm, 

Page 2 GAO-07-33R State Department 8(a) Contract 
however, agencies must request approval from the relevant SBA district office (the Washington district 

office, in this case). 

Basis for the Sole-Source Award Was an Improper SBA Waiver

On September 18, 2001, State requested that SBA waive 8(a) competitive thresholds for contracts that 

“supplement the security of U.S. Government diplomatic posts and protect the lives of Departmental 

personnel.” An SBA official approved the waiver on behalf of the Associate Administrator for 8(a) 

Business Development the next day to apply “for the duration of the national state of emergency” as 

declared by the President; the waiver contains no expiration date. This waiver was improper because 

SBA was not authorized to issue it. SBA can waive the competitive thresholds for a specific contract 

opportunity after determining that there is not a reasonable expectation that at least two eligible 8(a) 

participants will submit offers at a fair price3

 but was not authorized to approve a blanket waiver, as was 

done here. In its letter approving the waiver, SBA agreed that “it is not reasonable that the Department 

of State would have the time to advertise, evaluate and negotiate with several contractors to obtain 

reasonable pricing.” State, however, had identified no specific requirement under which this would be 

the case. State officials said they interpret the waiver as a “security policy” after the September 2001 

terrorist attacks and never viewed it as pertaining to a specific requirement. SBA headquarters officials 

were not aware of the waiver until we brought it to their attention. They agreed that it was unauthorized. 

State made the waiver authority effective on September 19, 2001, via a procurement information bulletin. 

It was subsequently incorporated in State’s acquisition regulation4

 on April 13, 2004, so that, according to 

officials, it would be more visible to contracting officers. Officials from State’s Office of Small Business 

Utilization and from the contracting office told us the EmbSEC contract is the only one that has been 

awarded under the waiver. 

It is unclear why State relied on the SBA waiver rather than using competitive procedures to award this 

contract. State contracting officers had raised concerns in the past about the lack of competition for the 

security installation work. In 1998, when RDR was the only 8(a) offerer, the contracting officer 

expressed concern with the lack of competition and concluded that “it would be in the best interest of 

the government to re-compete this requirement at the earliest practical time.” Contracting officer’s 

representatives in State’s Bureau of Overseas Buildings Operations indicated to us that a number of 

companies could perform the security installation work. Nevertheless, State’s desire to continue 

contracting with RDR after it had graduated from the 8(a) program led RDR to seek out an 8(a) company 

with which to form a joint venture for the follow-on, sole-source contract. 

SBA Has Not Monitored Roles and Responsibilities of 8(a) Joint Venture Participants

SBA, which is responsible for monitoring the joint venture and ensuring that the mentor/protégé 

relationship complies with SBA regulations, has not carried out these duties—despite the fact that this 

$354 million, sole-source contract is, according to SBA headquarters officials, extremely unusual under 

the 8(a) program. Under joint ventures, the 8(a) firm is supposed to perform a significant portion of the 

contract, according to SBA regulations. While the EmbSEC joint venture operating agreement states that 

BPI shall perform a significant portion of the work, its description of the roles and responsibilities of 

 3

 13 C.F.R. 124.506(d) (2001). These standards remain in place. See 13 C.F.R. 124.506(d) (2006). 

4

 Department of State Acquisition Regulation, 48 C.F.R. 619.805-2 (2005). 

Page 3 GAO-07-33R State Department 8(a) Contract 
RDR and BPI states that RDR is to perform operations support, database development, and security

system design and installation services. On the other hand, BPI is to provide program management, 

subcontract management, warehousing, administrative, computer resource, and procurement services. 

According to contractor representatives, the division of work set forth in the joint venture agreement is 

an accurate depiction of how the two parties’ responsibilities have been carried out, with DynCorp, a 

subcontractor, providing security installation services along with RDR. According to RDR and BPI 

representatives, as well as State officials, RDR sought out BPI as an 8(a) partner with which to form the 

joint venture to win the follow-on contract for security installation. BPI had no experience with security 

installation; it was a very small firm specializing in information technology project management and 

consulting. 

SBA headquarters officials—the Associate Administrator for 8(a) Business Development and a senior 

attorney in SBA’s office of General Counsel--told us that the division of responsibilities does not appear 

to be providing BPI with experience in performing the basic intent of the contract—security system

installation. District officials explained that they may approve a joint venture under the expectation that 

the 8(a) firm would hire more people to learn the technical aspects of the contract work. They had not 

followed up to see if this was happening under the EmbSEC joint venture. 

RDR and BPI also entered into a mentor/protégé agreement, approved by SBA. The agreement sets forth 

the support to be provided by the mentor, consisting of, among other things, management assistance, 

assistance in setting up an accounting system compliant with government standards, and assistance in 

setting up lines of credit and obtaining loans. The technical assistance RDR is to provide to BPI is

broadly stated: “Identify and issue subcontracts for work...to build capabilities and qualifications” and 

“Provide access to technical training, equipment, and qualified personnel.” Contractor representatives 

told us that RDR has issued no subcontracts to BPI. According to BPI’s president, his company has 

benefited in that he can now cite this large contract as a corporate qualification for winning future

government contracts. There was never an intention that BPI receive technical experience installing 

security systems under the contract. 

SBA’s 8(a) regulation states that it will not approve a mentor/protégé agreement if it determines that the 

agreement is merely a vehicle to enable a non-8(a) participant to receive 8(a) contracts. SBA district 

officials had not followed up to ensure that the 8(a) firm was receiving the appropriate benefits from the 

arrangement, despite a requirement that they review the relationship annually to determine whether to 

approve its continuation for another year. At the time of our review, the EmbSEC contract had been in 

place for over 3 years. 

Conclusion

A lack of oversight at SBA contributed to the problems we identify in this letter. Actions are needed at 

headquarters and at the district office to address the issues we raised. We are making recommendations 

to State regarding this contract in a separate letter. 

Recommendations for Executive Action

We recommend that the Administrator of SBA take the following two actions: 

• Retract the September 2001 waiver of 8(a) competitive thresholds granted to the Department of 

State. 

Page 4 GAO-07-33R State Department 8(a) Contract 
• Direct the Washington district office to review the roles and responsibilities of BPI versus those of 

RDR under the EmbSEC 8(a) joint venture to determine whether the joint venture is meeting the 

intent of the SBA program. 

Agency Comments

In written comments on a draft of this report, SBA agreed with the recommendations, stating that it has 

retracted the waiver of 8(a) competitive thresholds and instructed State to terminate, for convenience, 

any contracts that were awarded under this waiver unless State believes other authority exists for such 

awards. SBA has also directed the district office to provide evidence of its annual assessments of the 

mentor/protégé relationship between RDR and BPI. If the assessments were not done, the district office 

is to conduct them and provide an explanation as to why they were not performed. SBA’s comments are 

reproduced in appendix I. We also received a minor technical comment from EmbSEC, which we 

incorporated. 

Scope and Methodology

We analyzed documents in State’s EmbSEC contract files as well as the prior contract with RDR. We 

reviewed pertinent sections of the Federal Acquisition Regulation and State’s supplement, and small 

business regulations. We held discussions with SBA officials from headquarters and the Washington

district office. We interviewed State contracting officials and met with contractor representatives. We 

conducted our review from May 2006 to August 2006 in accordance with generally accepted government 

auditing standards. Key contributors to this correspondence were Michele Mackin, Assistant Director; 

John Krump; Sylvia Schatz; and Tatiana Winger. 

Sincerely yours, 

Katherine V. Schinasi, Managing Director 

Acquisition and Sourcing Management 

Page 5 GAO-07-33R State Department 8(a) Contract 
Appendix: Comments from the U.S. Small 

Business Administration 

(120595) 

Page 6 GAO-07-33R State Department 8(a) Contract 
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