FEDERAL 

CONTRACTING

Monitoring and 

Oversight of Tribal 

8(a) Firms Need 

Attention

Report to Congressional Requesters

January 2012

GAO-12-84

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-84, a report to 

congressional requesters

January 2012

FEDERAL CONTRACTING

Monitoring and Oversight of Tribal 8(a) Firms Need 

Attention

Why GAO Did This Study

Tribal firms—those owned by Alaska 

Native Corporations, Native Hawaiian 

Organizations, and Indian tribes—are 

afforded special advantages within the 

Small Business Administration’s (SBA) 

8(a) business development program. 

GAO was asked to (1) identify trends in 

government 8(a) contracting with tribal 

firms; (2) determine why the 

government awarded sole-source 

contracts to tribal 8(a) firms and the 

methods used to make price 

determinations; (3) assess the 

procuring agencies’ oversight of 

contracts for compliance with 

subcontracting requirements; and (4) 

examine SBA’s new 8(a) regulation, 

intended to clarify program rules, to

determine how the changes could 

affect oversight of tribal 8(a) firms. 

GAO reviewed non-generalizable 

samples of 87 contracts (based on 

dollar value and location) and 62 tribal 

8(a) firms’ SBA files and spoke with 

SBA headquarters and district officials 

as well as officials from 9 agencies. 

What GAO Recommends

GAO recommends that the Office of 

Federal Procurement Policy (OFPP) 

amend acquisition regulations and 

provide guidance (including data 

collection) on monitoring the limits on 

subcontracting. OFPP generally 

agreed with the recommendations. 

GAO’s recommendations also include

that SBA include specific capabilities in 

its 8(a) database to improve tribal 8(a) 

tracking and that it examine tribal 

participation to determine whether 

certain practices align with the 8(a) 

program’s business development goal.

SBA questioned GAO’s methodology, 

which GAO continues to believe is 

appropriate, but did not address GAO’s 

recommendations. 

What GAO Found

Federal dollars obligated to tribal 8(a) firms grew from $2.1 billion in fiscal year 

2005 to $5.5 billion in 2010, a greater percentage increase than non-tribal 8(a) 

obligations (160 percent versus 45 percent). Obligations to 8(a) firms owned by 

Alaska Native Corporations (ANC) represented the majority of tribal obligations 

every year during the period, rising to $4.7 billion in 2010. While tribal 8(a) firms 

comprised 6.2 percent of total 8(a) firms, their obligations accounted for almost a 

third of total 8(a) obligations in fiscal year 2010. Over the 6 years, the percentage 

of competitively awarded obligations to tribal 8(a) firms rose; however, solesource contracts remained the primary source of growth, representing at least 75 

percent of all tribal 8(a) obligations in a given year. 

Consistent with GAO’s 2006 review of ANC 8(a) contracting, contracting officials 

said that awarding contracts to tribal firms under the 8(a) program allows officials

to award sole-source contracts for any value quickly, easily, and legally, and 

helps agencies meet their small business goals. However, the officials added that 

the program offices’ push for awarding follow-on contracts to the same firm also

plays a role. GAO’s review of noncompetitive tribal 8(a) contracts shows the 

methods used to determine price reasonableness in a sole-source environment. 

In some cases, when agencies moved away from sole-source tribal 8(a) 

contracts toward competition, agency officials estimated savings as a result. 

To ensure that 8(a) firms do not pass along the benefits of their contracts to their 

subcontractors, regulations limit the amount of work that can be performed by the 

subcontractors. Of the 87 contracts in GAO’s review, 71 had subcontractors. 

GAO found that required monitoring of limitations on subcontracting by procuring 

agencies was not routinely occurring. Similar to what GAO reported in 2006, 

some contracting officers do not understand that ensuring compliance is their 

responsibility under partnership agreements with SBA, and the regulations do not 

make this clear. Further, agency officials did not know how to monitor 

subcontracting limitations, particularly for indefinite-quantity contracts, as the 

data are not readily available. Not monitoring the limits on subcontracting can 

pose a major risk that an improper amount of work is being done by large firms. 

In March 2011, SBA revised 8(a) regulations to clarify program rules, correct

misinterpretations, and address program issues. Although a positive step, SBA 

will have difficulty enforcing new regulations pertaining to tribal 8(a) follow-on 

contracts and joint ventures given the information currently available. SBA told 

GAO it is currently in the process of developing the requirements for a new 8(a) 

tracking database. Further, the new regulations do not address some issues 

GAO has previously raised, such as ANC 8(a) firms under the same parent 

corporation generating a majority of revenue in the same line of business. SBA 

regulations do not allow a tribal organization to have more than one 8(a) 

subsidiary perform most of its work under the same primary business line. GAO 

also discusses practices that highlight how some tribal 8(a) firms operate, in 

effect, as large businesses because of their parent corporation’s backing and 

interconnectedness with sister subsidiaries. SBA has not reviewed these 

practices to determine whether they are congruent with the business

development purpose of the 8(a) program.

View GAO-12-84. For more information, 

contact John Hutton at (202) 512-4841 or 

huttonj@gao.gov.
Page i GAO-12-84 Tribal 8(a) Contracting

Letter 1 

Background 5

Obligations to Tribal 8(a) Firms Have Grown Steadily, with Most 

under Sole- Source Contracts 12

Sole-Source Contracts to Tribal 8(a) Firms Viewed as Expedient, 

but Could Lead to Missed Opportunities for Savings 17

Agency Oversight of Subcontracting under Tribal 8(a) Contracts 

Continues to Be Lacking 30

SBA’s New Regulations Will Be Difficult to Implement, and Other 

Problems and Practices Have Not Been Addressed 35

Conclusions 51

Recommendations for Executive Action 52

Agency Comments and Our Evaluation 54

Appendix I Scope and Methodology 59

Appendix II Comments from the Small Business Administration 64

Appendix III GAO Contact and Staff Acknowledgments 73

Tables

Table 1: Differences in Requirements for Tribal 8(a) Firms and 

Other 8(a) Firms 7

Table 2: Number of Tribal and Non-tribal 8(a) Firms and 

Obligations in Fiscal Year 2010 14

Table 3: Percentage of Obligations under Competitively Awarded 

Contracts to Tribal 8(a) Firms for Fiscal Year 2005 and 

2010 14

Table 4: Example of the Declared Primary Industries and Actual 

Revenue Generators of 8(a) Subsidiaries under One ANC 

Parent Entity 44

Table 5: Summary of Tribal 8(a) Firms That Have Left the Program 50

Contents
Page ii GAO-12-84 Tribal 8(a) Contracting

Figures

Figure 1: Notional ANC with Holding Company and Multiple 

Subsidiaries 6

Figure 2: Flow of Work and Profits As Allowed in the 8(a) Program 

under an Illustrative Joint Venture Contract for Services 11

Figure 3: Obligations to Non-Tribal and Tribal 8(a) Firms, Fiscal 

Years 2005 through 2010 (dollars in billions) 13

Figure 4: Competitive and Sole-Source Obligations to Tribal and 

Non-Tribal 8(a) Firms, Fiscal Years 2005 through 2010 (in 

billions) 15

Figure 5: Monthly Sole-Source Obligations for New Awards to 

Tribal and Non-Tribal 8(a) Firms, Fiscal Year 2005 

through 2010 16

Figure 6: Example of Relationship between Large Business and 

Tribal 8(a) Firm That Were Found Affiliated 45

Abbreviations

ANC Alaska Native Corporation

ANCSA Alaska Native Claims Settlement Act 

BOA basic ordering agreement 

DCAA Defense Contract Audit Agency

DOD Department of Defense 

DUNS Data Universal Numbering System 

FAR Federal Acquisition Regulation 

FPDS-NG Federal Procurement Data System-Next Generation 

GSA U.S. General Services Administration

NAICS North American Industry Classification System 

NHO Native Hawaiian Organization

OFPP Office of Federal Procurement Policy 

OMB Office of Management and Budget 

SBA Small Business Administration

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-12-84 Tribal 8(a) Contracting

United States Government Accountability Office

Washington, DC 20548

January 31, 2012

Congressional Requesters:

The federal government obligates hundreds of billions of dollars in 

contracts for goods and services each year—about $537 billion in fiscal 

year 2010. That year, about $18.5 billion was obligated to firms 

participating in the Small Business Administration’s (SBA) 8(a) program. 

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

developing small businesses owned by socially and economically 

disadvantaged individuals. Congress has repeatedly emphasized in 

legislation that the purpose of the 8(a) program is business development, 

with a goal of enabling these businesses to compete on an equal basis in 

the mainstream American economy. Over two decades ago, Congress 

expanded participation in the 8(a) program to include not just firms owned 

by disadvantaged individuals, but also firms owned by tribal entities. In 

this report, “tribal entities” refers to Alaska Native Corporations (ANC), 

Indian tribes, and Native Hawaiian Organizations (NHO). We use the term 

“tribal 8(a) firm” to refer to a firm that is majority owned by an ANC, Indian 

tribe, or NHO.

Firms owned by tribal entities have been afforded special advantages in 

the 8(a) program. For example, they can receive sole-source 8(a) 

contracts for any amount, whereas sole-source awards to other 8(a) firms 

generally must be made under certain competitive dollar thresholds ($6.5 

million for manufacturing or $4 million for all other acquisitions). ANCs, 

created in 1971 through the Alaska Native Claims Settlement Act 

(ANCSA), were established to distribute land and monetary benefits to 

Alaska Native shareholders in lieu of a reservation system.1

 

1 The goal of the Act was, in part, to resolve long-standing aboriginal land claims and to 

foster economic development for Alaska Natives. ANCs are eligible to participate in 

federal procurement programs, such as the 8(a) program, pursuant to ANCSA. See 43 

U.S.C. §§ 1602, 1626(a) and (e).

Relevant 

legislation defines the term Indian tribes to include bands, nations, or 

other organized groups of communities of Indians, which are recognized 

as eligible for the special programs and services provided by the United 

States because of their status as Indians. NHOs are not-for-profit 

community service organizations controlled by Native Hawaiians whose 

business activities are to principally benefit Native Hawaiians. These tribal 

 
 

Page 2 GAO-12-84 Tribal 8(a) Contracting

entities generally provide, to varying extents, economic and community 

development for their native populations through different programs.

In a 2006 report, we noted that the legislative history leading to the 

procurement advantages for ANCs was sparse and confusing.2 We also 

reported on the challenge SBA officials cited in overseeing ANC activity in 

the 8(a) program. The officials attributed this challenge to the fact that the 

program’s business development goals can be in conflict with ANCs’ 

charter under ANCSA—economic and community development for 

Alaska Natives. We made a number of recommendations, focused on the 

need for improved SBA oversight of the special advantages afforded to 

ANCs under the 8(a) program. The Small Business Act does not provide 

tribal entities a purpose in the 8(a) program that is different from the 

program’s stated goal of business development. In fact, in a 1989 revision 

to the 8(a) program regulations, SBA stated that the 8(a) program is 

intended to be used exclusively for business development purposes to 

help small businesses owned and controlled by socially and economically 

disadvantaged individuals, Indian tribes, ANCs, and NHOs to compete on 

an equal basis in the mainstream of the American economy.3

SBA revised the 8(a) regulations, effective in March 2011, to clarify and 

refine certain provisions in the program, with some revisions specifically 

focused on tribal participation. Also in March 2011, the Federal 

Acquisition Regulation (FAR) was amended,

We also 

reported in 2006 that agencies were not effectively monitoring compliance 

with required percentages of work to be performed by 8(a) firms versus 

their subcontractors. While our 2006 report focused on 8(a) firms owned 

by ANCs, the scope of this report includes 8(a) firms owned by Indian 

tribes and NHOs as well.

4

 

2 GAO, Contract Management: Increased Use of Alaska Native Corporations’ Special 8(a) 

Provisions Calls for Tailored Oversight, 

on an interim basis, to 

GAO-06-399 (Washington, D.C.: Apr. 27, 2006). 

For example, legislative language suggests that 8(a) businesses owned by Indian tribes 

and ANCs were exempt from sole source dollar thresholds because such businesses are 

located on reservations and account for the major employment of the workforce. ANCs, 

however, do not have reservations. 

3 13 C.F.R. § 124.1. (1989) The regulations were revised in 1998 to restate the business 

development purpose of the program for “small disadvantaged business concerns,” which 

include tribal 8(a) firms.

4 FAR 6.303-1(b). The written justification must be approved in writing by the appropriate 

official depending on the dollar value (see FAR 6.304) and made publicly available (see 

FAR 6.305). 
 

Page 3 GAO-12-84 Tribal 8(a) Contracting

implement a provision in the National Defense Authorization Act for Fiscal 

Year 2010 that required a written justification prior to awarding solesource 8(a) contracts over $20 million 5

In response to your request, we (1) identified trends in federal obligations 

under 8(a) contracts with tribal firms; (2) determined the reasons federal 

agencies awarded sole-source contracts to tribal 8(a) firms and the 

methods used to make price determinations; (3) assessed the procuring 

agencies’ oversight of tribal 8(a) contracts for compliance with 

subcontracting requirements; and (4) examined SBA’s new 8(a) 

regulations to determine how the changes could affect oversight of tribal 

firms and the extent to which previously identified problems are 

addressed. During the course of our work, we also discussed with 

procuring agency officials the potential impact of the recent FAR 

requirement for written justifications for sole-source 8(a) awards over $20 

million. This requirement was not applicable to the contracts we reviewed.

We evaluated the administration of the tribal 8(a) program; the scope of 

our work did not include an evaluation of the program’s merits.

Previously, no justification was 

required for any dollar amount for 8(a) contracts, including those awarded 

to tribal 8(a) firms.

To identify trends in 8(a) contracting with tribal firms, we analyzed data 

from the Federal Procurement Data System-Next Generation (FPDS-NG) 

for fiscal years 2005 through 2010 (the last year of complete information 

at the time of our review). We found the FPDS-NG data fields that identify 

firms owned by ANCs, NHOs, and Indian tribes to be unreliable because 

these data were not available during the entire time period. We therefore 

obtained from SBA tribal 8(a) firms’ Data Universal Numbering System 

(DUNS) numbers and used this information to obtain the FPDS-NG data, 

which we determined was sufficiently reliable to identify trends in tribal 

8(a) contracting. To address our second and third objectives, we used a 

stratified purposeful, selected sampling approach to identify 87 contracts 

for review.6

 

5 National Defense Authorization Act for Fiscal Year 2010, § 811 (2009).

This nonprobability sample included contracts over the 

competitive 8(a) threshold amounts ($6.5 million for manufacturing and $4 

6 Our initial sample included 90 contracts; however, we excluded 2 from the sample 

because they had been incorrectly coded in FPDS-NG as being awarded through the 8(a) 

program to tribal 8(a) firms. A third contract was excluded because obligations under one 

indefinite quantity contract had been listed in FPDS-NG as being under two separate 

contracts. 
 

Page 4 GAO-12-84 Tribal 8(a) Contracting

million for other acquisitions), focusing on those with large dollar value 

obligations in fiscal year 2009 (the latest data available at the time we 

selected our contract sample). We also focused on contracting activities 

that had higher levels of sole-source tribal 8(a) activity. The majority of 

the contracts in our sample (62) were awarded by defense agencies, and 

25 were awarded by civilian agencies, including the departments of 

Agriculture, Energy, Health and Human Services, Homeland Security, 

Justice, Labor, and State, and the Social Security Administration. Most 

(75) of the contracts were with ANC 8(a) firms; 10 were with firms owned 

by Indian tribes and 2 were with firms owned by NHOs. Of the 87 

contracts, 7 were competitively awarded, and 79 were sole-source 

procurements. For the one remaining contract we could not confirm 

whether it was awarded competitively or not because the entire pre-award 

file was missing. We reviewed the contract files and spoke with 

contracting and program officials and small business advocates at the 

agency locations. The results of our contract file analysis are not 

generalizable to the population of tribal 8(a) contracts.

To address the potential effect of the new SBA regulations on oversight of 

tribal firms and the extent to which previously identified problems were 

addressed, we visited SBA headquarters as well as district offices in 

Anchorage, AK; Philadelphia, PA; and Washington, DC. We also spoke 

with SBA district officials in Hawaii, New Mexico, and Oklahoma. We 

selected these particular district offices primarily based on their relatively 

higher level of involvement with tribal 8(a) firms. In addition to the 87 

contract files we reviewed, we also reviewed a sample of 62 SBA files for 

tribal 8(a) firms’ application information, annual reviews, and business 

plans. In selecting the firms for this portion of our work, we focused on 

those that had relatively high representation in our contract sample as 

well as those that had relatively low representation. The results of our 

review of the firms’ SBA files are not generalizable to the universe of tribal 

8(a) firms. We did not assess the extent to which benefits from tribal 8(a) 

contracts flow to the parent entity.

To understand the potential impact of the new FAR requirement for 

written justifications of 8(a) sole-source awards over $20 million, we 

reviewed the FAR and public comments on the new rule: interviewed 

agency small business advocates, Office of Federal Procurement Policy 

(OFPP) officials, and contracting officers for the contracts we reviewed; 
 

Page 5 GAO-12-84 Tribal 8(a) Contracting

and drew from the findings in our prior report on ANC 8(a) contracting.7

Appendix I contains more information on our scope and methodology. We 

conducted this performance audit from October 2010 to January 2012 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.

The Administrator of OFPP serves as chair of the Federal Acquisition 

Regulatory Council; the council oversees development and maintenance 

of the FAR.

ANCs, Indian tribes and NHOs—i.e., the parent entities of tribal 8(a) 

firms—can be large, with worldwide operations and revenues in the 

hundreds of millions of dollars. They can own 8(a) and non-8(a) 

subsidiaries and sometimes form complicated corporate structures. 

Figure 1 illustrates a notional corporate structure of an ANC with a 

holding company—a non-8(a) subsidiary that provides shared 

administrative services to other subsidiaries for a fee. The figure depicts a 

mix of 8(a) and non-8(a) subsidiaries that may be only partly owned by 

the ANC.

 

7 GAO-06-399. 

Background 
 

Page 6 GAO-12-84 Tribal 8(a) Contracting

Figure 1: Notional ANC with Holding Company and Multiple Subsidiaries

Note: Only the 8(a) subsidiaries would be eligible for 8(a) contracts.

According to SBA, in fiscal year 2010, there were over 8,400 firms in the 

8(a) program, 354 of which were owned by a tribal entity. For any firm 

(including tribal firms) to be eligible to participate in the 8(a) program, it 

must qualify as small under a primary industry size standard as measured 

by the number of employees or average revenues from the previous 3 

years. In addition, the firm must be, among other things, majority-owned 

by one or more socially and economically disadvantaged individuals or a 

qualified entity, such as a tribal entity. Firms approved as 8(a) participants 

can receive business development assistance from SBA and are eligible 

to receive contracts that agencies offer to SBA for the 8(a) program. All 

8(a) firms, including tribal 8(a) firms, are subject to a 9-year limit on 

participation in the 8(a) program. During the last 5 years in the program, 

known as a transitional period, firms are required to obtain a certain 

percentage of non-8(a) revenue to demonstrate their progress in 

developing a viable business that is not solely reliant on the 8(a) program. 

SBA’s district offices are responsible for tracking this business mix on an 

annual basis. If a firm does not meet its required business mix during one 

of the last 5 years, SBA invokes a plan of remedial action for the next 

year, in which the firm is to report to SBA on its progress. Until the 

required mix is demonstrated, the firm will generally not be eligible for 

sole-source 8(a) contracts.

Congress has provided tribal 8(a) firms with distinct advantages over 

other 8(a) businesses, in addition to the ability to receive sole-source 8(a) 

contracts for any amount. In some cases, there are also differences 
 

Page 7 GAO-12-84 Tribal 8(a) Contracting

among the advantages provided to firms owned by ANCs, Indian tribes, 

and NHOs. Table 1 provides more details.

Table 1: Differences in Requirements for Tribal 8(a) Firms and Other 8(a) Firms 

Requirement Firms owned by an ANC

Firms owned by an 

Indian Tribe

Firms owned by an 

NHO Other 8(a) firms

Number of firms a 

participant may own

No limit as long as each business is in a different primary industry. Only one in a lifetime.

Size determination for 

eligibility in 8(a) 

program

Other affiliated companies not considered in size determination; however, the SBA 

Administrator may find the existence of affiliation if, for example, SBA determines 

that the tribal 8(a) firm or firms have a substantial unfair competitive advantage 

within an industry.

For-profit, nonprofit, 

domestic, and foreign 

affiliates considered in 

size determination.

Competitive threshold No threshold. 

Procurements need not be competed before being 

accepted on a sole-source basis.

No threshold for DOD 

contracts only.

DOD procurements 

need not be competed 

before being accepted 

on a sole-source 

basis.

Can receive solesource contracts for up 

to $6.5 million for

manufacturing or $4 

million for all other 

acquisitions.

Dollar limits on amount 

of sole-source 8(a) 

contracts 

No limits on the amount of sole-source contracts. May not receive solesource 8(a) contract 

awards if the 

combined total of 

competitive and sole 

source 8(a) contracts 

received is above (1) 

$100 million where a 

firm’s size is based on 

its number of 

employees, or, (2) the 

lesser of $100 million 

or five times the size 

standard for the 

industry where a firm’s 

size is based on 

revenues.a

 
 

Page 8 GAO-12-84 Tribal 8(a) Contracting

Requirement Firms owned by an ANC

Firms owned by an 

Indian Tribe

Firms owned by an 

NHO Other 8(a) firms

Demonstration of 

social and economic 

disadvantage

Deemed in legislation as socially 

and economically disadvantaged.

Defined as socially 

disadvantaged, but 

must demonstrate that 

the tribe is 

economically 

disadvantaged in 

connection with the 

application for one 

tribally-owned firm.b

Deemed socially 

disadvantaged but 

must establish 

economic 

disadvantage and that 

its business activities 

principally benefit 

Native Hawaiians. 

Economic 

disadvantage for an 

NHO is determined 

when the majority of 

an NHO’s members—

or if no members, the 

board of directors—

qualify as 

economically 

disadvantaged 

individuals. Economic 

disadvantage must be 

determined for every 

8(a) applicant. 

The tribe need not 

reestablish its 

economic 

disadvantage to have 

other businesses it 

owns certified for 8(a) 

participation, unless 

requested to do so by 

SBA. 

Must (1) be a member 

of a group deemed as 

socially disadvantaged

or prove social 

disadvantage by

meeting certain 

standards and (2) 

must prove economic 

disadvantage.

Management 

background

President/chief executive officer 

need not be a disadvantaged 

individual.

Management and daily 

operations must be 

controlled by the tribe. 

The concern may be 

controlled by the tribe 

through one or more 

individuals who 

possess sufficient 

management 

experience to run the 

firm or through 

management, which 

can be a non-tribal 

member.c

President/chief 

executive officer need 

not be a 

disadvantaged 

individual.

 

President/chief 

executive officer

must be a 

disadvantaged 

individual. 

Potential for success (1) Must be in business in primary industry classification for at least 2 years before 

8(a) application date; or

(2) generally, the individuals who will manage and control the daily business 

operations of the firm have substantial technical and management experience; the 

applicant has successful past performance on contracts from government and nongovernment sources in its primary industry, and the applicant has adequate capital 

to sustain its operations and carry out its business plan as a participant; or

(3) the tribal entity made a firm written commitment to support the operations of the 

applicant concern and it has the financial ability to do so.

Must be in business in 

primary industry 

classification for at

least 2 years before 

8(a) application date.

SBA can waive the 

requirement if certain 

conditions are met,

such as substantial 

business experience, 

adequate capital, and 

past success on 

contracts.

Source: GAO analysis of SBA 8(a) laws and regulations.

a

8(a) contracts awarded under $100,000 will not be considered in the $100 million limit.
 

Page 9 GAO-12-84 Tribal 8(a) Contracting

b

This includes consideration of available data such as present tribal unemployment rate, the per 

capita income of tribal members, and percentage of local Indian population below the poverty level.

c

Management is provided by either (1) committees, teams, or Board of Directors controlled by at least 

one economically disadvantaged tribe member; or (2) non-tribal members if the tribe can hire and fire 

those individuals, retains control of all management decisions, and a written plan exists which shows 

how tribal members will develop managerial skills sufficient to manage the 8(a) firm or similar triballyowned firms in the future.

For tribal 8(a) firms, SBA has specific oversight responsibility for

• accepting the firm into the program, which includes ensuring that the 

tribal entity owning the firm does not have more than one 8(a) firm in 

the same primary line of business, defined by a North American 

Industry Classification System (NAICS) code8

• annually reviewing 8(a) firms to track their progress in the 8(a) 

program, including their mix of 8(a) and non-8(a) revenue in the last 5 

years in the program and any changes to the firms’ business targets, 

objectives, and goals.

and

The procuring agency offers, and SBA may accept, a procuring agency’s 

requirement into the 8(a) program either as a competitive procurement—

to be competed among all eligible 8(a) firms—or as a sole-source 

procurement. The agency’s offer letter must identify the requirement, any 

procurement history, the estimated dollar amount, and NAICS code, 

among other things.9

 

8

The NAICS assigns codes to all economic activity within 20 broad sectors, and the codes 

reflect the industry in which the firm operates, e.g., wireless telecommunication carriers or 

industrial building construction. SBA has designated a small business size standard for 

every NAICS code. Applicants to the 8(a) program must qualify as small under their 

primary NAICS code at the time of application and SBA’s certification date. SBA regulation 

requires that at least 2 years lapse after a tribal firm exits the 8(a) program before another 

firm owned by the same parent entity can enter the program with the prior firm’s primary 

NAICS code. 

Before accepting a procurement as an 8(a) solesource contract, SBA is to verify the proposed firm’s size status to ensure 

that it qualifies as small under the identified NAICS code. Once accepted 

into the program, 8(a) firms may pursue contracts in additional lines of 

work, called secondary NAICS codes. Once a requirement is awarded as 

an 8(a) contract, it must remain in the 8(a) program unless the procuring 

agency decides it would like to fulfill the follow-on requirement outside of 

the program and requests approval from SBA to do so. Procuring agency 

contracting officers also have responsibilities under the 8(a) program. For 

9 FAR 19.804-2.
 

Page 10 GAO-12-84 Tribal 8(a) Contracting

all of the agencies in our review, SBA has delegated responsibility for 

contract administration to the contracting officers through partnership 

agreements.10

SBA’s 8(a) program regulations allow for involvement of other businesses 

and non-disadvantaged individuals as a way of helping the 8(a) business 

grow and develop. For example, 8(a) firms can hire outside agents to 

assist them in obtaining 8(a) contracts; however, SBA’s revised 

regulations now prohibit agreements in which agents receive a 

percentage of the contract value as compensation for their assistance. In 

addition, large businesses can create a mentor-protégé joint venture with 

an 8(a) firm to win 8(a) prime contracts or can act as a subcontractor 

under an 8(a) contract.

These responsibilities include, for example, ensuring 

compliance with the limitations on subcontracting requirements under 8(a) 

contracts.

11

 

10 For agencies where there is no partnership agreement in place, SBA is generally 

responsible for the contract administration function.

Certain limitations apply regarding the 

percentage of labor costs that 8(a) firms and non-8(a) partners may incur 

under service and construction contracts. For service contracts with 

subcontracting activity, the 8(a) firm must incur at least 50 percent of the 

personnel costs with its own employees (15 percent for construction 

contracts). Further, a non-disadvantaged individual can own up to a 49 

percent interest in an 8(a) firm, retaining his or her percentage of 

ownership in the profits the firm generates. These arrangements with 

other businesses or non-disadvantaged individuals can result in a 

relatively small percentage of contract profits being retained by the tribal 

entity that owns the 8(a) firm. Figure 2 is an illustrative example of how 

these arrangements could occur when a tribal 8(a) firm forms a joint 

venture with a large business under the mentor-protégé program, as 

allowed by SBA regulations.

11 SBA must approve the mentor/protégé agreement before the two businesses submit an 

offer as a joint venture to receive exclusion from affiliation. 13 C.F.R. §§ 124.513(b)(3) and 

124.520(b) and (d)(1)(i). 
 

Page 11 GAO-12-84 Tribal 8(a) Contracting

Figure 2: Flow of Work and Profits As Allowed in the 8(a) Program under an Illustrative Contract for Services

Notes: In our example, the joint venture is unpopulated—meaning it merely exists through a written 

agreement and uses the employees of the firms in the joint venture. The profits from an unpopulated 

joint venture are distributed commensurate with the work performed; thus, in this example the 8(a) 

firm receives 10 percent in profit from the 40 percent of the work it performed.
 

Page 12 GAO-12-84 Tribal 8(a) Contracting

For 8(a) construction contracts, the prime contractor must incur at least 15 percent of the personnel 

costs with its own employees. Thus, if our illustrative example above were a construction contract, the 

tribe that owns a 51 percent interest in the firm would receive $31,000 in profit distribution. 

In 2006, we reported that ANCs used the 8(a) program as one of many 

sources of revenue (which could include revenue generated outside of 

government contracts) to provide benefits to their shareholders.12 We also 

found that there was no explicit link between the revenues ANCs 

generated from the 8(a) program and the benefits they provided to 

shareholders, because ANCs only tracked benefits generated from their 

consolidated revenue sources. The recently revised 8(a) regulations 

require tribal 8(a) firms to report annually to SBA on the benefits they are 

providing their members or community from their participation in the 8(a) 

program.

From fiscal year 2005 through 2010, federal dollars obligated to tribal 8(a) 

firms grew from $2.1 billion to $5.5 billion. Obligations to 8(a) firms owned 

by ANCs—which represented the majority of these tribal obligations 

during each fiscal year—rose steadily, from $1.9 billion to $4.7 billion. 

Obligations to 8(a) firms owned by Indian tribes and NHOs also grew 

steadily during this time frame, to $690 million and $109 million, 

respectively, in fiscal year 2010. Total 8(a) obligations (to tribal and nontribal 8(a) firms) increased from $11.3 billion to $18.8 billion during the 

six-year period. Obligations to tribal 8(a) firms represented a 160 percent 

increase over this time, while obligations to non-tribal 8(a) firms increased 

45 percent. Figure 3 shows the growth of non-tribal and tribal 8(a) 

obligations.

 

12 GAO-06-399. 

Obligations to Tribal 

8(a) Firms Have 

Grown Steadily, with 

Most under SoleSource Contracts
 

Page 13 GAO-12-84 Tribal 8(a) Contracting

Figure 3: Obligations to Non-Tribal and Tribal 8(a) Firms, Fiscal Years 2005 through 

2010 (dollars in billions)

Note: Obligation amounts are inflation adjusted to 2010 dollars.

Tribal firms represented a very small percentage of all 8(a) firms, but 

accounted for almost 30 percent of 8(a) obligations—about $5.5 billion—

in fiscal year 2010, as shown in table 2.
 

Page 14 GAO-12-84 Tribal 8(a) Contracting

Table 2: Number of Tribal and Non-tribal 8(a) Firms and Obligations in Fiscal Year 

2010

Number of 8

(a) firms

Percentage of 

total number of 

8(a) firms

8(a) 

obligations

(in millions)

Percentage of 

FY 10 8(a) 

obligations

Non-tribal 8(a) 

firms

5,340 93.8 $13,310 70.8

Tribal 8(a) 

firms

353 6.2 5,480 29.2

Total 5,693 100 18,790 100

Source: GAO analysis of FPDS-NG data.

The percentage of obligations under competitively awarded tribal 8(a) 

contracts increased from fiscal year 2005 to 2010. In fiscal year 2010, 

sole-source obligations to ANC 8(a) firms decreased slightly, for the first 

time since 2005. Table 3 compares the percentage of obligations under 

competitively awarded contracts for ANC, Indian tribe, and NHO 8(a) 

firms in fiscal year 2005 and 2010.

Table 3: Percentage of Obligations under Competitively Awarded Contracts to 

Tribal 8(a) Firms for Fiscal Year 2005 and 2010

8(a) firms owned by

Fiscal year 2005

(percent)

Fiscal year 2010

(percent)

ANC 14.8 21.8

Indian tribe 10.2 18.1

NHO 4.2 26

Source: GAO analysis of FPDS-NG data.

Even with this increase in obligations under competitively awarded 

contracts to tribal 8(a) firms, sole-source contracts still accounted for at 

least 75 percent of all tribal 8(a) obligations annually. In terms of 

obligations, in fiscal year 2010, sole-source awards to tribal 8(a) firms 

accounted for $4.3 billion of the total $5.5 billion in tribal 8(a) obligations. 

Figure 4 shows the breakdown of sole-source and competitive 8(a) 

obligations for tribal and non-tribal 8(a) firms from fiscal years 2005 

through 2010.
 

Page 15 GAO-12-84 Tribal 8(a) Contracting

Figure 4: Competitive and Sole-Source Obligations to Tribal and Non-Tribal 8(a) 

Firms, Fiscal Years 2005 through 2010 (in billions)

Note: Obligation amounts are inflation adjusted to 2010 dollars.

As shown in figure 4, the percentage of competitive obligations for nontribal 8(a) firms—about 45 percent in fiscal year 2010—still far outpaces 

those of tribal 8(a) firms.

Further, our analysis of FPDS-NG obligation data for new sole source 

awards under the 8(a) program, issued from fiscal years 2005 through 

2010, reveals that for both tribal and non-tribal 8(a) firms, obligations on 

sole-source 8(a) awards increased during the last month of each fiscal 
 

Page 16 GAO-12-84 Tribal 8(a) Contracting

year.13

Figure 5: Monthly Sole-Source Obligations for New Awards to Tribal and Non-Tribal 8(a) Firms, Fiscal Year 2005 through 2010

Figure 5 shows the dramatic spike in 8(a) obligations in 

September of each year.

Note: Obligation amounts are inflation adjusted to 2010 dollars.

One tribal 8(a) firm’s business plan we reviewed, submitted to SBA, 

alluded to increased obligations at the end of the fiscal year and noted 

that it changes its marketing strategy accordingly during that time. The 

plan noted that “[Our] business is not seasonal with the exception of the 

end of fiscal year spending for the U.S. Government. During this period, 

we concentrate our efforts directly at the government by increasing our 

 

13 Interestingly, this trend is the opposite of what we reported in 2010 regarding 

obligations under all contracts (not just those awarded to 8(a) firms). We found that the 

majority of noncompetitive obligations from fiscal years 2006 to 2009 occurred in the first 

quarter of the fiscal year. GAO, Federal Contracting: Opportunities Exist to Increase 

Competition and Assess Reasons When Only One Offer is Received, GAO-10-833

(Washington, D.C.: July 26, 2010).
 

Page 17 GAO-12-84 Tribal 8(a) Contracting

visits and solicitations at the locations where we have the most successful 

and loyal contacts.” 

Contracting officials at the agencies we reviewed, similar to what we 

reported in 2006, told us that using tribal firms under the 8(a) program 

allows them to award sole-source contracts for any value quickly, easily 

and legally.14 They further stated these awards help procuring agencies to 

meet their small business goals, but added that the program offices’ 

preference for using the same firms for follow-on contracts also plays a 

role.15 Our review of 79 sole-source tribal 8(a) contracts revealed some of 

the methods used by contracting officials to determine price 

reasonableness in a sole-source environment. However in several cases 

we found that contracting officers were moving away from sole-source 

tribal 8(a) contracts toward competition. We also found examples where 

tribal 8(a) contracts that had previously been awarded on a sole-source 

basis were competed, resulting in savings.

Contracting officials viewed sole-source contract awards to tribal 8(a) 

firms as a way to expedite the federal acquisition process, avoid some 

potential bid protests, and help them meet their agencies’ small business 

goals. Prior to SBA’s acceptance of any sole-source requirement into the 

8(a) program, the procuring agency need only identify a qualified 8(a) firm 

and obtain approval from SBA to award a contract. It is the procuring 

agency’s responsibility to conduct market research, including determining 

whether offers can be obtained from two or more firms at fair market 

prices. However, SBA also considers market research requirements to be 

satisfied when a participant in the 8(a) program self-markets its abilities to 

a procuring agency and is subsequently offered a sole-source 8(a) 

requirement.16

 

14 GAO-06-399. 

15 The federal government has an annual agencywide goal of awarding not less than 23 

percent of all prime contract dollars to small businesses. See 15 U.S.C. § 644(g)(1).

16 SBA may not accept a procurement into the 8(a) program under certain circumstances 

and if the contract pricing exceeds a fair market price.

Sole-Source Contracts 

to Tribal 8(a) Firms 

Viewed as Expedient, 

but Could Lead to 

Missed Opportunities 

for Savings

Tribal 8(a) Sole-Source 

Contracts Viewed as Quick 

and Easy and Contributing 

to Small Business Goals
 

Page 18 GAO-12-84 Tribal 8(a) Contracting

Acquisition planning activities are intended to ensure that the government 

meets its needs in the most effective, economical, and timely manner 

possible. Some contracting officers awarded sole-source 8(a) contracts to 

tribal firms because this approach allowed them to avoid lengthy 

acquisition planning and market research procedures, thereby expediting 

the procurement process.17

In another scenario, DOD contracting officials used the expedited 

procurement process of sole-source contracts to tribal 8(a) firms to 

maintain the quality of critical services. They awarded two contracts—

each valued at over $500 million for a 10-year period (base period plus 9 

option years)—for base engineering support at two different military 

installations. A large part of the justification for this acquisition strategy 

was that annual DOD appropriations acts permitted the department to

avoid using the Office of Management and Budget’s Circular No. A-76

competitive sourcing process by contracting with tribal 8(a) firms.

For example, documentation in a Department 

of Homeland Security contract revealed that the contracting official 

awarded a $96 million sole-source contract to a tribal 8(a) firm because 

this was the most streamlined approach to obtain services. According to 

the contract file, the agency saved considerable time in the acquisition 

process and thereby ensured a timely award. In another example, one 

contracting officer told us that she sees many more sole-source contracts 

to tribal 8(a) firms at the end of the fiscal year, likely because of poor 

acquisition planning. Recalling a time when a program office needed to 

award a contract quickly during the fourth quarter of the fiscal year, she 

said she was able to award the contract on a sole-source basis to a tribal 

8(a) firm within 2 weeks. She estimated that to award the contract 

competitively would have taken 60 to 90 days.

18

 

17 We recently reported on opportunities to strengthen acquisition planning. See GAO, 

Acquisition Planning: Opportunities to Build Strong Foundations for Better Service 

Contracts, 

The 

purpose of the competitive sourcing process is to determine whether the 

GAO-11-672 (Washington, D.C.: Aug. 9, 2011).

18 The A-76 process is a federal government policy which subjects commercial activities to 

competition and requires agency officials to identify all activities performed by government 

personnel as either commercial or inherently governmental.OMB, Circular A-76 (Revised),

Performance of Commercial Activities 4, (May 29, 2003). The provisions in these 

appropriations acts allowed DOD to avoid the A-76 process when contracting with tribal 

8(a) firms. DOD used the authority in section 8(a) of the Small Business Act to make the 

sole source awards. See, for example, Consolidated Security, Disaster Assistance, and 

Continuing Appropriations Act, 2009, Pub. L. No. 110-329 § 8016, 122 Stat. 3623-24 

(Sept. 30, 2008).

Award of Sole-Source Tribal 

8(a) Contracts Allows 

Expedited Acquisition Planning 

and Market Research 
 

Page 19 GAO-12-84 Tribal 8(a) Contracting

government should be performing a function with its personnel or 

contracting those functions to private sector firms. DOD officials believed 

awarding the sole-source contracts was necessary, since concerns about 

the time frames to conduct the A-76 process—which officials at one base 

estimated could take up to 3 years—were causing the government 

employees performing the work to become increasingly concerned about 

their job security and to seek employment elsewhere.

In some cases, as allowed, contracting officials awarded sole-source 

contracts to tribal 8(a) firms even though market research had revealed 

other firms capable of performing the work. For example, Army 

contracting officials’ request for information for medical services resulted 

in six firms’ submitting comments. However, citing the current contract’s 

expiration time frame, the contracting officer stated that a successful 

competition would require a great deal of acquisition planning and, as 

such, would likely result in a break in services. In another example, 

market research identified 93 potential contractors for a base engineering 

support requirement; several of which were known to possess the 

capabilities to handle the requirement if it were competitively solicited. In 

fact, the previous contract for this requirement had been competitively 

awarded in the 8(a) program, with seven offers received. Our review of 

the acquisition plan and discussion with the contracting officer revealed 

that the reason for awarding the sole-source follow-on contract was 

because of the significant delay in obtaining the statement of work from 

the program office. Because the requirement was critical and the new 

contractor would have to “hit the ground running,” a sole-source contract 

was awarded to a tribal 8(a) firm that had subcontracted with the 

incumbent contractor.

At one Army Corps of Engineers location we visited, contracting officials 

told us that they put basic ordering agreements (BOA) in place—such as 

the one we reviewed for design and construction services with a tribal 

8(a) firm—because BOAs can be quickly set up, sometimes in only a 

matter of hours. The regulations require that an agency offer, and SBA 

accept, each order under a BOA to the 8(a) program prior to award, 

because the BOA itself is not a contract. 19

 

19 A BOA is a written instrument of understanding between an agency and contractor that 

generally contains terms and clauses applying to future orders, a description of supplies 

and services to be provided, and methods for pricing future orders under the BOA. FAR 

16.703(a).

As part of this process, SBA 
 

Page 20 GAO-12-84 Tribal 8(a) Contracting

would ensure that the tribal 8(a) firm still meets the size standard for the 

NAICS code for the requirement at the time the order is offered to SBA. 

However, we found that the contracting officer was not offering each 

order under this $10 million BOA (which had been awarded in June 2009) 

to SBA, in violation of FAR and SBA regulations. The DOD contracting 

official in this case sent notices of the orders to the SBA district office 

after the award. SBA district officials did not follow up to determine why 

these orders had not been offered prior to the award. By not offering each 

order under the BOA, there is a risk that a tribal 8(a) firm could outgrow 

the size standard and be improperly awarded a sole-source contract 

through the 8(a) program. In subsequent discussions, SBA and an Army 

Corps of Engineers legal representative confirmed that all orders under 

BOAs in the 8(a) program should be offered to SBA. According to the 

legal representative, the contracting office is no longer using BOAs to 

meet its requirements and is instead using indefinite quantity contracts.20

Tribal 8(a) sole-source contracts are also attractive because there are 

limitations on their ability to be protested. Although 8(a) sole-source 

awards have been protested, the following issues may not be challenged 

of any 8(a) participant by any party, either to SBA or any administrative 

forum as part of a bid or other contract protest: (1) the eligibility of the 

participant for a sole-source or competitive 8(a) requirement, (2) the 

NAICS code assigned to a sole-source 8(a) requirement, or (3) the size 

status of a nominated participant for a sole-source 8(a) procurement.21

Competitive 8(a) awards can be protested by other 8(a) firms, and we 

found an example of this in one of the seven competitively awarded 

According to contracting officials, bid protests can result in significant and 

costly delays and potentially disrupt critical services. Moreover, the 

officials stated that responding to bid protests absorbs their already 

limited time and resources. One tribal 8(a) company, in its marketing 

materials to the government, mentioned that one of the many benefits of 

a sole-source award to their company was that it would not be subject to 

a bid protest.

 

20 This type of contract provides for an indefinite quantity, within stated limits, of supplies 

or services during a fixed period. The government places orders for individual 

requirements. Quantity limits may be stated as number of units or as dollar values.

21 As examples, 8(a) sole-source awards to tribal 8(a) firms have been protested in 

Mission Critical Solutions, B-401057, May 4, 2009 and JMX, Inc., B-402643, June 25, 

2010.

Reduced Likelihood That Tribal 

8(a) Sole-Source Contracts Will 

Be Protested 
 

Page 21 GAO-12-84 Tribal 8(a) Contracting

contracts we reviewed. After an 8(a) contract was awarded competitively 

to a tribal firm, the incumbent firm’s sister subsidiary, who had competed 

under the solicitation, protested the award.22 This sister subsidiary did not 

receive the award because its proposal relied on the past performance of 

its sister firm (the incumbent). According to the solicitation’s instructions, 

past performance of sister firms would not be considered as highly as the 

firm’s own past performance.23

Another reason contracting officials gave for awarding sole source tribal 

8(a) contracts is to help their agencies meet their small business prime 

contracting goals. Some tribal 8(a) firms also recognize that this is an 

attractive feature and promote it in their marketing materials. However, at 

one location we visited, agency officials told us that they chose to 

compete a follow-on procurement outside of the 8(a) program even 

though they knew it would significantly affect their ability to meet their 

small business goals. The previous 8(a) contractor had been awarded a 

5-year, $250 million dollar contract. Obligations under this contract had 

helped the agency meet its small business goals. Nevertheless, agency 

officials, including the small business advocate, thought the potential to 

obtain a better price and service through full and open competition was 

more important at that time.

Further, its offer was 86 percent higher 

than that of the winning tribal 8(a) contractor. As a result of the protest, 

the expiring contract was extended 5 months, resulting in over $800,000 

in additional revenue for the incumbent firm.

Contracting officials we spoke with noted that some program officials 

prefer to continue working with specific tribal 8(a) firms, especially when 

program officials had established a working rapport with the incumbent 

contractors. Our prior work has shown that program officials generally 

have a preference for working with incumbent firms.24

 

22 A sister subsidiary is another tribal 8(a) firm that is owned by the same parent entity.

Program officials 

play an important role in the contracting process—developing 

23 GAO bid protest decisions have established that an agency may consider the 

experience or past performance of an offeror’s parent or affiliated company under certain 

circumstances, for instance where the proposal demonstrates that the resources of the 

parent or affiliate will affect contract performance. However, reliance on a third party’s 

experience, even if otherwise permissible, could be precluded from consideration by a 

solicitation provision. 

24 GAO-10-833. We also recently reported on the program offices’ roles in acquisition 

planning (GAO-11-672).

Sole-Source Tribal 8(a) 

Contracts Can Help Agencies 

Meet Small Business Goals 

Officials Also Award SoleSource Contracts to Tribal 8(a) 

Firms for Continuity
 

Page 22 GAO-12-84 Tribal 8(a) Contracting

requirements, performing market research, and interfacing with 

contractors. For one Army contract we reviewed to provide direct 

healthcare services at military medical-treatment facilities, program 

officials had decided that a follow-on sole-source 8(a) contract award to 

one of the incumbent firm’s sister subsidiaries was the best option 

because there was a potential for risk if the procurement start date was 

not met. Additionally, in its proposal, the incumbent’s sister subsidiary 

highlighted the fact that SBA regulations permitted it to share senior 

management with the incumbent and that as a result, their services were 

provided under the same team.

We found instances in which contracting officials awarded bridge or 

follow-on sole-source contracts to incumbent tribal 8(a) firms or to their 

sister subsidiaries for continuity.25

• Forest Service contracting officials had a history of awarding solesource bridge or follow-on contracts for similar requirements to the 

same incumbent 8(a) firm or one of its sister subsidiaries. The 

contracting official responsible for the three contracts in our sample 

explained that the program office pressured her to continue awarding 

to this particular firm because the program office believed that 

awarding the requirement to a new contractor would cause a 

disruption in services. One of these contracts—a $125-million solesource 8(a) contract for computer hardware and enterprise software—

was awarded to a firm’s sister subsidiary when the incumbent was no 

longer eligible to receive 8(a) contracts. An email from an official from 

the sister firm to the contracting officer, in suggesting that the new 

contract be awarded to the sister firm, told the agency that all 

incumbent personnel working on the contract, as well as equipment, 

would be transferred over and that essentially the agency “will see 

only a name change in the firm providing the service.” 

• A contracting official at the Department of Energy told us that she 

awarded a sole-source contract for facility maintenance and support 

services to the sister subsidiary of a tribal 8(a) firm because the 

incumbent firm had graduated from the 8(a) program, thus making it 

ineligible for the follow-on contract. Further, she stated that this made 

 

25 All of the contracts in our sample were awarded prior to the March 2011 effective date 

of SBA’s new regulations, which now prohibit the award of a follow-on sole source 8(a) 

contract to an Indian tribe or ANC sister subsidiary under the same tribal entity.
 

Page 23 GAO-12-84 Tribal 8(a) Contracting

the transition very easy to manage, since nearly 100 percent of the 

incumbent’s staff transferred directly to the sister firm.

We also found examples where bridge contracts to tribal 8(a) firms were 

used to ensure continuity while competing the follow-on requirement; 

however, it was not always a smooth transition. In one case, a contracting 

officer at an Army acquisition activity awarded a one-year bridge contract 

to the incumbent tribal 8(a) firm to avoid unnecessary delays and provide 

sufficient time to compete the requirement in the future. The incumbent’s 

contract—awarded out of a different Army contracting office—had been 

terminated after one and a half years on the grounds that it was legally 

insufficient. However, when awarding the bridge contract, contracting 

officials learned that the incumbent contractor’s employees had assisted 

the Army in developing the follow-on requirement. The contracting officer

had the contractor put in place a plan to mitigate this conflict of interest, 

but still awarded the sole-source bridge contract to meet the immediate 

need. In another case, Army officials tried to award a task order under an 

existing contract as a bridge contract to maintain the service while they 

competed the follow-on award. According to Army officials, the tribal 8(a) 

firm refused to negotiate, stating it would only agree to a 6-month bridge 

contract with three 1-year option periods. The contracting officer told us 

that they believed they were in a bind, agreed to the terms, and ended up 

exercising all 3 option years. The follow-on requirement is currently being 

competed.

In March 2011, the FAR was revised to incorporate a new rule, pursuant 

to section 811 of the National Defense Authorization Act for Fiscal Year 

2010, which requires a written justification for sole-source 8(a) contracts 

over $20 million. The justification must be approved by the appropriate 

officials—dictated by dollar thresholds—and be publicly posted within 14 

days of award. This provision may have an impact on how quickly and 

easily sole-source tribal 8(a) contracts are awarded. The new justification 

must include, at a minimum

• a description of the needs of the agency that will be addressed by the 

contract,

• specification of the statutory provision allowing for the exception to 

competition,

• a determination that the use of a sole-source contract is in the best 

interest of the agency concerned,

• a determination that the anticipated cost of the contract will be fair and 

reasonable, and

• other matters the head of the agency would like included.

Potential Impact of New SoleSource Justification 

Requirement Unclear 
 

Page 24 GAO-12-84 Tribal 8(a) Contracting

While these requirements were not in effect for the contracts we 

reviewed, we discussed with the contracting officials the potential impact 

on future sole-source tribal 8(a) awards. Their opinions varied. Several 

officials stated that it will be more difficult to award sole-source contracts 

to tribal 8(a) firms, and in some cases these officials said they were 

pleased to have a tool to encourage program offices to increase 

competition. Others thought it would make no difference, stating that the 

justification is simply additional paperwork for the contract file. Still others 

stated that the new requirement will not affect them because their office 

had already moved away from awarding sole-source 8(a) contracts to 

tribally owned firms toward more competition. Some officials attributed 

this change in attitude in part to congressional and media attention on 

large dollar, sole-source awards to tribally owned firms.

When awarding an 8(a) contract, contracting officers are required to 

determine that the overall price is a fair market price, which can be done 

through a cost or price analysis. The fair market price does not have to be 

the lowest price. However in a sole-source environment, there are 

increased concerns that the prices may not be the best for the 

government, as competition is the cornerstone of the acquisition system 

and a critical tool for achieving the best possible return on investment for 

taxpayers. These concerns would be no different under non-tribal 8(a) 

sole-source contracts. We found that contracting officials used various 

methods to determine price reasonableness of contractors’ proposed 

costs or prices. We also found examples where the follow-on 

requirements were subsequently competed and agency officials 

estimated savings.

In finding a fair market price, contracting officers must first determine that 

the costs or prices proposed are fair and reasonable. According to the 

FAR, price analysis shall be used when certified cost or pricing data are 

not required. Price analysis is the process of examining and evaluating a 

proposed price without evaluating its separate cost elements and 

proposed profit. One of the preferred price analysis techniques is 

comparing proposed prices from more than one contractor in response to 

a competitive solicitation, as adequate price competition establishes a fair 

and reasonable price. The other preferred price analysis method is a 

comparison to historical pricing for the same or similar items. When using 

this method, however, the contracting officer must ensure that the pricing 

is a valid basis for comparison, such as ensuring that significant time has 

not lapsed between the prior acquisition and the present one. In addition, 

the prior price must be adjusted to account for materially differing terms 

Various Methods Used to 

Negotiate Prices for SoleSource Awards, and Some 

Savings Realized through 

Subsequent Competition
 

Page 25 GAO-12-84 Tribal 8(a) Contracting

and conditions, quantities, and market and economic factors. If 

contracting officers determine that these two techniques are unavailable 

or insufficient, they are encouraged to use other methods appropriate to 

the circumstances, such as comparison with competitive published price 

lists or independent government estimates. The FAR also states that cost 

analysis shall be used to evaluate the reasonableness of individual cost 

elements when certified cost or pricing data are required (however, price 

analysis is used to determine that the overall price offered is fair and 

reasonable). Cost analysis is the review and evaluation of any separate 

cost elements and profit or fee in an offeror’s or contractor’s proposal.

Some cost analysis techniques include evaluating the government’s need 

for proposed cost elements, verifying labor rates, or comparing proposed 

costs to actual costs previously incurred by the same offeror. Cost 

analysis may also be used to determine cost reasonableness or cost 

realism when a fair and reasonable price cannot be determined through 

price analysis alone.

For many of the sole-source contracts in our review, agency officials 

compared contractors’ proposed prices to the prices on the prior contract, 

U.S. General Services Administration (GSA) schedule prices, or pricing 

data from other sources. The following cases indicate the complexities of 

this price analysis technique. For example:

• A price analyst at the Social Security Administration found that a tribal 

8(a) firm’s proposed prices for a $100-million sole-source contract 

were generally 5 to 192 percent higher than the prior, non-8(a) 

contractor’s prices. As a result, the price analyst recommended 

negotiating price reductions with the tribal firm. The contracting officer 

then performed an additional analysis of the same proposal and noted 

that the tribal firm’s proposed rates were 8 to 51 percent lower than 

the prior firm’s GSA schedule rates and were at or below the schedule 

rates of a subcontractor. The documented analysis noted that 

comparing the proposed rates to the incumbent contractor’s rates 

could be potentially misleading because performance problems also 

needed to be taken into account and that the incumbent contractor 

had not always provided qualified personnel, among other things. The 

tribal 8(a) firm’s proposed prices were accepted.

• For another Social Security Administration contract, the contracting 

officer evaluated the tribal 8(a) firm’s proposed prices for a solesource, fixed-price contract based on pricing information from the 

current contract and noticed a significant increase in the tribal 8(a) 

firm’s price for installation and storage of the equipment being 

purchased. Upon further investigation, the contracting officer learned 

Comparison to Historical 

Pricing or Published Price Lists
 

Page 26 GAO-12-84 Tribal 8(a) Contracting

that the previous pricing had not accounted for substantial 

government delays that had added to the costs; the new proposal was 

attempting to appropriately include those costs. The contracting officer 

noted that the government would work to improve the inefficiencies 

that were causing this increase in cost, and based on these 

circumstances, the proposed higher price was determined fair and 

reasonable.

Independent government cost estimates were also used to determine 

price reasonableness for the sole-source contracts in our review. The 

examples below illustrate some challenges faced when the estimates 

relied in part on outdated costs or inaccurate assumptions. For example:

• In one Army contract, the initial independent government estimate had 

to be revised from about $49 million to about $100 million, because it 

had not taken into account many different factors, such as travel and 

overtime for subcontractors. The contract was awarded for about 

$113 million.

• In another example at the Army, an independent government estimate 

was $2.7 million, compared to the contractor’s proposal of $4.7 

million. The price negotiation memorandum noted that the 

government’s estimate was found to have several missing items, 

outdated estimates, and inaccurate assumptions. The estimate was 

used as the primary basis for conducting negotiations with the 

contractor and to determine that the contractor’s higher price was fair 

and reasonable. The contract was ultimately awarded for about $4.0 

million.

For one Army contract we reviewed, the contracting officer told us that 

she stopped using a competed, single-award indefinite quantity contract 

to a tribal 8(a) firm because the firm’s proposals for two of three task 

orders were significantly over the government estimates and the 

government officials did not believe they were getting a fair market price. 

In this case, the Army had simultaneously competed and awarded the 

base contract and the first task order. The contractor’s proposed price for 

the second task order, however, was almost $6 million, whereas the initial 

government estimate was just below $4 million. Contracting and program 

officials pushed back on the contractor’s proposed price, but the firm 

would not negotiate. The government ultimately awarded the second task 

order at the contractor’s proposed price. The contracting officer told us 

that the same thing happened on the third task order, so the Army

officials canceled the procurement and stopped using that contract.

Independent Government Cost 

Estimates Are Another Tool to 

Assess Price Reasonableness 
 

Page 27 GAO-12-84 Tribal 8(a) Contracting

Some officials told us that developing independent government estimates 

can be challenging, as the pricing environment can change and the 

estimate—which may be prepared 6 months to a year prior to contract 

award—can become outdated before negotiations begin. For example, 

when construction work is in high demand, prices for those services can 

increase over the course of a year, according to contracting officers.

Other contracting officials told us that they question how independent the 

government estimates are when the tribal 8(a) incumbent works closely 

with the program staff who develop the estimates.

For many of the sole-source awards we reviewed, contracting officials 

requested support from the Defense Contract Audit Agency (DCAA) to 

evaluate the reasonableness of the proposed costs.26

In another instance, agency officials awarded a sole-source contract to a 

tribal 8(a) firm quickly to ensure that critical services were maintained, but 

asked DCAA to audit the proposal with the understanding that the officials 

would further negotiate the costs after award based on the findings. 

DCAA’s assessment of the firm’s proposed costs was provided 2 months 

after the contract’s award. The audit questioned some of the contractor’s 

proposed costs, such as duplicative labor positions and staff positions 

that were vacant but for which salaries, wages, fringes, and retirement 

contributions were included in the final cost of the contract. The 

contracting officers faced challenges negotiating the contract’s price, as 

they were still negotiating some of these costs with the contractor nearly a 

year and a half after contract award.

Some contracting 

officials effectively used this support to negotiate a lower overall price. For 

example, in our review of one DOD contract, DCAA submitted findings to 

the procuring agency 3 months prior to the award date, citing, among 

other things, $6.9 million in unsupported costs. Consequently, the 

contracting officials negotiated a 15 percent reduction of the proposed 

price, which amounted to a savings of nearly $9 million. In an Army 

contract, contracting officials agreed with the lower rates suggested by 

DCAA for certain cost categories and ultimately negotiated those rates 

with the tribal 8(a) firm, reducing the contract price by over $6 million.

 

26 DCAA provides services that can help DOD and other federal agencies by performing 

audits and providing financial advisory services in connection with the negotiation, 

administration, and settlement of contracts and subcontracts.

Contracting Officers May Use 

Audits to Negotiate Lower 

Overall Prices 
 

Page 28 GAO-12-84 Tribal 8(a) Contracting

For sole source procurements, the government and contractor may use 

what is known as “alpha” procedures, where they work as a team during 

negotiations to define or refine requirements and come to agreement on 

prices. A number of contracting officers had used this method to work 

with a tribal 8(a) contractor to agree on a fair market price. One 

contracting official told us that negotiating prices face-to-face with the 

contractor using alpha procedures is easier and less time intensive, 

primarily because he can tell the 8(a) contractor how much funding he 

has to spend. From there, the contractor can explain to him what the 

government needs to “take off the table” and what items in the scope of 

work the contractor can provide at that price. Another contracting official 

told us that he used alpha procedures because the program office had

failed to set all of the contract requirements prior to commencing 

negotiations with the tribal 8(a) contractor.

Contracting officials at one location we visited noted that alpha 

contracting in a sole-source environment can lead to the best deal for the 

government for a variety of reasons, such as leveraging the insight of 

technical experts throughout the price negotiation process and providing 

a forum for the contractor to ask for additional clarification about the 

government’s requirements. At another location we visited, one 

contracting official told us that he believed the government got a better 

price using alpha procedures than by using full and open competition 

when contracting for construction of identical buildings. He attributed this 

in part to the fact that the contractor in the alpha process had a better 

understanding of the government requirements and the government did 

not have to go back and correct or make adjustments to the contract.

Several contracting officers we spoke with noted that they are moving 

away from sole-source contracts to tribal 8(a) firms and towards 

competition. We recently highlighted the benefits of competition in federal 

government contracting, including that it can save money, improve 

contractor performance, and promote accountability for results.27

 

27

We 

recommended appropriate actions, including that both program and 

contracting officials encourage competition, so that federal agencies 

would have greater opportunities to take advantage of the effectiveness 

of the marketplace and potentially achieve billions of dollars in cost 

GAO-10-833 and GAO, Opportunities to Reduce Potential Duplication in Government 

Programs, Save Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: 

Mar. 1, 2011).

Some Contracting Officers 

Used Alpha Negotiation 

Procedures 

With Focus on Competition, 

Some Estimate That Savings 

Occurred
 

Page 29 GAO-12-84 Tribal 8(a) Contracting

savings. Recent policy and guidance from agencies, most significantly the 

Office of Management and Budget (OMB) and DOD, have also 

emphasized the importance of competition.28

In the sole-source contracts we reviewed, we found examples where the 

follow-on requirements were subsequently competed, resulting in savings 

according to agency officials.

With regard to ANCs, the 

Acting Deputy Assistant Secretary of the Army (Procurement) issued a 

memo in January 2011, stating that high-dollar sole-source awards to 8(a) 

ANC firms should be the exception rather than the rule, and laid out the 

expectation that these awards be scrutinized to ensure they are in the 

government’s best interest. Further, in November 2011, DOD’s Director of 

Defense Procurement and Acquisition Policy called for a review of all 

active sole-source contracts to ANCs that were awarded prior to the new 

requirement for a written justification for awards over $20 million. As part 

of the review, DOD services, agencies, and activities must review the 

justifications (if any) that support the contract awards and describe 

actions to ensure there is no abuse of these types of contracts.

• The Air Force awarded a contract competitively for base operation 

support and, according to officials, saved about $17 million for a 

requirement that was valued at over $100 million. Officials stated that 

the previous contractor had high management costs.

• At the Army, we reviewed an approximately $8.9 million sole-source 

contract with a tribal 8(a) firm for one year of medical services. The 

contracting activity recompeted the follow-on requirement, and the 

contracting officer estimated savings of $2.3 million annually, for a 

total of $11.5 million over the life of the contract.

• At the Federal Emergency Management Agency, the contracting 

officer told us that when the follow-on to the sole-source tribal 8(a) 

contract in our review had been competed among small businesses, 

the labor rates on the new contract were, with one exception, between 

5 and 46 percent lower than the previous sole-source contract.

• Department of Energy officials told us that they competed a 

requirement that was previously awarded sole source to a tribal 8(a) 

 

28 See GAO, Federal Contracting: OMB’s Acquisition Savings Initiative Had Results, but 

Improvements Needed, GAO-12-57 (Washington, D.C.: Nov. 15, 2011) for our 

observations on an OMB initiative to reduce spending under high-risk contracts, including 

noncompetitive awards and awards receiving only one offer.
 

Page 30 GAO-12-84 Tribal 8(a) Contracting

firm, and while they could not estimate dollar savings, they believed 

they were getting better performance as a result of the competition.

To ensure that 8(a) firms do not pass along the benefits of their contracts 

to their subcontractors, regulations limit the amount of work that can be 

performed by subcontractors. Specifically, for service contracts with 

subcontracting activity, the 8(a) firm must incur at least 50 percent of the 

personnel costs with its own employees (for general construction 

contracts, the firm must incur at least 15 percent of the personnel 

costs).29 In 2006, we reported that procuring agency contracting officers 

were not monitoring compliance with the limitations on the percentage of 

work performed by subcontractors as required—largely because they 

were confused about whose responsibility it was to do so.30 Based on our 

recommendations, SBA took some actions to clarify this issue, including

providing training to contracting officers and revising its partnership 

agreements with procuring agencies. Nevertheless, we have continued to 

find that monitoring of subcontracting limitations is not routinely occurring 

due to a lack of clarity as to who is responsible for the monitoring and 

uncertainty on the part of contracting officers about how to conduct the 

monitoring. Of the 87 contracts in our review, 71 had one or more 

subcontractors. We found no evidence of regular and systematic 

monitoring of the limitations on subcontracting.31

 

29 13 C.F.R § 125.6(a)(1); FAR 52.219-14, “Limitations on Subcontracting.” 

Some of these contracts 

had large dollar values, up to $500 million. When the subcontracting 

limitations are not being monitored, there is an increased risk that an 

inappropriate degree of the work is being done by large business 

subcontractors rather than the 8(a) firm. These risks can be significant 

given the large dollar value contracts awarded to tribal 8(a) firms.

30 GAO-06-399. 

31 In one contract file we reviewed at the Department of Energy, the contractor’s invoices 

reflected the amount of work that was subcontracted; however, there was no evidence 

that agency officials were actively monitoring the subcontracting limitations. For an Army 

contract in our sample, contracting officials told us they started monitoring the amount of 

work that was subcontracted after their Principal Assistant Responsible for Contracting 

directed them to do so; until that time, the limitations on subcontracting had not been 

monitored. 

Agency Oversight of 

Subcontracting under 

Tribal 8(a) Contracts 

Continues to Be 

Lacking 
 

Page 31 GAO-12-84 Tribal 8(a) Contracting

In response to our 2006 recommendations, SBA clarified in its partnership 

agreements with the procuring agencies that it is the contracting officer’s 

responsibility to monitor compliance with the limits on subcontracting 

under 8(a) contracts.32 In addition, SBA standardized language in its 8(a) 

acceptance letters to state that contracting officers are responsible for the 

monitoring.33 SBA also provided additional training and guidance for 

agency contracting officers about this responsibility, among other 8(a) 

contracting requirements. Even with these actions, however, we still 

found that some contracting officers do not understand that ensuring 

compliance with the limitations on subcontracting is their responsibility.

Some stated that it was SBA’s responsibility as part of the annual review 

process for tribal 8(a) firms, and officials for one agency thought that it 

was ultimately the prime contractor’s responsibility.34

We found situations where there is an increased risk that the 

subcontractor may be performing more than the limitations allow. In some 

cases, these subcontractors were large firms or firms that had graduated 

from the 8(a) program, yet the government was not monitoring 

compliance with the limits on subcontracting. For example, in one case, 

the subcontractor to a tribal 8(a) firm under a base engineering support 

contract had held the prior contract for the requirement, and the 

A contracting official 

from the State Department told us that he did not have the time or staff to 

monitor compliance, but he believed that the prime contractor selfmonitored because the firm was hiring some subcontractor employees to 

work for it to ensure that the required work percentages were met.

 

32 In another report, we recommended that SBA incorporate regular assessments of 8(a) 

contracting into its surveillance reviews that monitor small business contracting at federal 

agencies. This would include assessing how agencies administer and oversee 8(a) 

contracting under the partnership agreements. See GAO, Small Business Administration: 

Agency Should Assess Resources Devoted to Contracting and Improve Several 

Processes in the 8(a) Program, GAO-09-16, (Washington, D.C.: Nov. 21, 2008).

33 SBA regulations provide that, through special contract clauses in the 8(a) contract 

documents or by separate agreement, SBA may delegate to procuring activities 

responsibility for certain contract administration matters. 13 C.F.R. § 124.512.

34 SBA regulations require 8(a) firms to certify in their offers that they will meet the 

applicable percentage of work requirement for each contract when subcontracting.

However, for agencies with partnership agreements, monitoring compliance with the 

limitations on subcontracting clause after contract award is the procuring agency’s 

responsibility. As noted above, for all of the agencies in our review, SBA has delegated 

responsibility for contract administration to the contracting officers through partnership 

agreements.

Confusion Remains about 

Accountability for 

Monitoring Subcontracting 

Limitations 
 

Page 32 GAO-12-84 Tribal 8(a) Contracting

subcontractor’s president had part-ownership in the tribal 8(a) firm. For 

another contract, to build an airplane hangar at an Air Force base—in 

which the percentage of work subcontracted was not monitored—the 

tribal 8(a) firm had subcontracted with a large business that had extensive 

experience in hangar building. During the negotiation process, after much 

discussion about the project, a government representative asked the 

tribal 8(a) firm what work it would be doing; up to that point the 

subcontractor had been answering all the questions. In another example, 

for construction of an aircraft facility at another Air Force base, the prime 

contractor stated in its proposal that it could not meet the 15 percent of 

work requirement, and thus a legal review initially found the pending 

award to be legally insufficient and unacceptable. The contracting 

specialist wrote a note on the legal memo stating that the prime 

contractor would meet the required work percentages, with no additional 

explanation. Notwithstanding the concerns raised, the contract was 

awarded. The contracting officer told us that she does not monitor the 

percentage of work that is subcontracted on this contract.

Although contracting officers should consider all applicable regulations 

when awarding and administering 8(a) contracts, several contracting 

officers we spoke with told us they depend primarily on the requirements 

outlined in the FAR for guidance. The FAR only directs contracting 

officers to include the “limitations on subcontracting” clause—under which 

the prime contractor agrees to perform a certain percentage of the 

contract work itself in its 8(a) contract. The FAR does not state who is 

accountable for monitoring compliance with the required percentages. 

While the partnership agreements between SBA and the agencies clearly 

state that the procuring agencies are responsible for the monitoring, these 

agreements are signed by high level SBA and agency procurement 

officials; contracting officials may not be aware of the content of the 

agreements.

Adding to the confusion over which agency is responsible for monitoring 

subcontracting, in reviewing 8(a) files in the SBA Alaska district office, we 

found examples where prime contractors had reported to SBA that they 

were complying with the limitations on subcontracting. However, SBA 

officials told us that they do not consistently collect this information from 

8(a) firms and that it is ultimately the responsibility of the procuring 

agency to monitor compliance.
 

Page 33 GAO-12-84 Tribal 8(a) Contracting

Many contracting officials told us they do not know how to monitor the 

percentage of work that is subcontracted. Based on our review of agency 

contract files, data were not readily available, making it difficult to 

determine how much work was being performed by the prime contractor 

versus the subcontractor. For example, contractor invoices in some of the 

files we reviewed did not reflect the subcontracting activity. And for those 

invoices that did include subcontractor information, the separation 

between labor and materials costs was unclear. This information would 

be needed for contracting officers to properly monitor compliance with the 

limits on subcontracting, which excludes the costs of materials. Some 

contracting officials noted that the prime contractor itself would have 

ready access to the subcontracting percentages (such as in its financial 

systems). One contracting official noted that contractor invoices for timeand-materials services under a contract in our sample identified the 

subcontracted work, but the invoices for fixed-price services, billed under 

the same contract, did not. She estimated that it would take her several 

weeks to calculate the percentage of work that was subcontracted.

A further complication pertains to monitoring subcontracting under 

indefinite quantity contracts, the government’s use of which is now 

outpacing stand-alone contracts. Of the 41 indefinite quantity contracts in 

our sample that had subcontractors, we found no evidence that the 

subcontracting limits were being routinely monitored. SBA regulations 

state that the 8(a) participant must demonstrate semi-annually whether it 

has incurred 50 percent of personnel costs with its own employees for the 

combined total of all task or delivery orders at the end of each 6-month 

period.35

Contracting officials told us they would appreciate additional guidance 

regarding methods they should employ to track compliance with the limits 

on subcontracting. The FAR is silent on this subject, and the SBA 8(a) 

regulation does not provide detailed instructions on how to do so. In the 

absence of specific guidance, some of the contracting officers we spoke 

with pointed to techniques that they have used to try to gauge the amount 

However, the FAR does not cross-reference to this provision or 

otherwise describe how to monitor subcontract limitations in indefinite 

quantity contracts.

 

35 For supply or service contracts, this 50 percent minimum requirement does not apply to 

work performed under each individual task order, nor does it oblige a contractor to meet 

the required percentages cumulatively for work performed under all task orders at any 

given point in time during the contract’s life. 13 CFR § 124.510 (c).

Contracting Officers 

Unclear about How to 

Monitor Subcontracting 

Limitations 
 

Page 34 GAO-12-84 Tribal 8(a) Contracting

of work that is subcontracted. For example, one official said that he 

monitored subcontractors by “walking the ground,” so he can easily sightcheck contractor badges to determine who is a prime contractor and who 

is a subcontractor. In another scenario, officials stated that they visit the 

worksite to check the company names on the trucks parked there. Others 

relied on their personal knowledge of the contractors, stating that 

because they were very familiar with the prime contractor, they would 

know if the firm was not performing its required percentage of the work. 

And still others tallied the number of workers employed by the prime 

versus subcontractor to get a general picture of the amount 

subcontracted, but did not calculate the percentage of labor costs 

associated with the subcontractors. While these actions are ways to get a 

general sense of subcontracting activity, they are not adequate to 

determine the extent of personnel costs that are incurred by the 

contractor.

Many contracting officials also told us they reviewed contractor proposals 

to verify that the prime contractor planned to perform the required 

percentage of the work. However, this level of review alone does not 

ensure compliance with the limitations on subcontracting clause because 

subcontractors, and the amount of work they do, can change once the 

contract is awarded. In addition, contracting officers may not even be 

aware that work is being subcontracted. The tribal 8(a) contractor’s 

proposal for one contract we reviewed, for example, noted as a benefit to 

the government that the contractor’s own employees would be 

indistinguishable from those of its subcontractor. We also found cases in 

our review where contracting officials inadvertently learned that their 

prime contractors were using subcontractors. One Department of 

Agriculture official told us that he did not realize certain positions were 

going to be subcontracted until he questioned a particular wage rate 

during the negotiation process, and the firm stated that it needed to seek 

additional information from the subcontractor. In another instance, a 

contracting official at the Department of Justice was unaware that the 

prime contractor had subcontracted work until we brought it to her 

attention based on our review of the contract file. She added that often 

“the contracting officer is the last to know” about the prime contractor’s 

hiring subcontractors, because of a lack of communication among the 

contractor, program office, and contracting office. In yet another example, 

a DOD contracting officer said that he only learned that work was being 

subcontracted when a subcontractor employee was caught speeding on 

the base.
 

Page 35 GAO-12-84 Tribal 8(a) Contracting

During our review of contract files, we found a few instances where the 

file included a recently performed analysis of subcontracting percentages 

that appeared to have been prepared in anticipation of our visit. In one 

case, at the Centers for Medicare and Medicaid Services, an analysis, 

which the contracting officer said was prepared for our visit, showed that 

the prime contractor had subcontracted almost 72 percent of the total 

costs for the 3-month base period of a 5-year, almost $205 million 

contract, but a few years into the contract the overall subcontracting level 

had dropped to about 40 percent. The contracting officer explained that 

he knew that the 8(a) firm would have to initially subcontract out a 

substantial portion of the work, but the expectation was that the contractor 

would meet the required work percentage over the course of the period of 

performance. In another case, a recent analysis of the subcontracting 

percentages for several 6-month periods on an Army indefinite quantity 

contract showed that the prime contractor was performing the required 

percentage of the work, but when we asked the contracting officer about 

the analysis, he was not sure who had completed it or the basis for the 

figures. In another example, a document in a Food and Drug 

Administration contract file showed the prime contractor was performing 

the required percentage of the work. The contracting officer said that, in 

preparation for our visit, she had requested the analysis from the 

contractor, as she did not have the information to do it herself. She told us 

that she requests this information periodically from the vendor; however, 

there was no record of these periodic analyses in the contract file. We 

also talked to contracting officials who told us that they requested regular 

reports from the contractor on the amount of work subcontracted, but 

when we asked for examples of the reports, none could be provided, and 

there were no examples of these reports in the contract files.

SBA made the first significant revision to 8(a) program regulations, 

effective March 14, 2011, in over 10 years, aimed at clarifying program 

rules, correcting misinterpretations, and addressing program issues. The 

revised rules include new requirements that will affect tribal firm 

participation in the 8(a) program, such as rules related to sole-source 

follow-on contracts and work performed by joint ventures. However, SBA 

will have difficulty enforcing some of these new regulations given the 

information currently available. Further, SBA, in its regulations or 

elsewhere, has still not addressed some issues we raised in our 2006 

report. Finally, in this review we discuss practices that highlight how some 

tribal 8(a) firms operate, in effect, like large businesses due to their parent 

corporation’s backing and relationships with their sister subsidiaries. SBA 

SBA’s New 

Regulations Will Be 

Difficult to 

Implement, and Other 

Problems and 

Practices Have Not 

Been Addressed
 

Page 36 GAO-12-84 Tribal 8(a) Contracting

has not reviewed these practices to determine whether they are 

acceptable given the business development purpose of the 8(a) program.

Although the recent SBA rule changes are intended, in part, to address 

tribally owned firms’ participation in the 8(a) program, SBA does not have 

critical data it needs to implement or enforce compliance with some of the 

new requirements. These include new restrictions on agencies’ ability to 

award sole-source follow-on contracts to firms under the same tribal entity 

and restrictions on work performed by the non-8(a) partner in a joint 

venture. SBA headquarters officials told us they are currently in the initial 

stages of developing the requirements for a new system intended to 

provide necessary data on 8(a) firms, and estimate that it will be 

operational between September 2012 and January 2013. They are also in 

the process of re-writing their Standard Operating Procedures for district 

officials to implement the new regulations; however, they could not 

estimate at this time when the final version will be completed.

In 2006, we reported that ANC 8(a) firms were taking advantage of their 

ability to create new subsidiaries to win follow-on work from subsidiaries 

that had left the 8(a) program. One of the new SBA rules prohibits the 

award of successive follow-on sole-source 8(a) contracts to multiple firms 

owned by the same tribal entity. Specifically, agencies are now prohibited 

from awarding a follow-on 8(a) sole-source contract to another subsidiary 

firm owned by the same entity—also called a sister subsidiary.36

 

36 NHOs are also subject to the new prohibition; however, it applies only 2 years from the 

date on which the firms have been admitted to the 8(a) program. 

 In its 

explanation of this new provision, SBA stated that having one subsidiary 

take over work previously performed by a sister subsidiary does not 

advance the business development of two distinct firms. SBA expects 

that, when it accepts multiple firms under the same tribal entity into the 

8(a) program, each firm will operate and grow independently in line with 

the business development purposes of the program. SBA’s intention was 

to address a negative perception that businesses could operate in the 

8(a) program in perpetuity by changing their structure or form to continue 

to perform work as they had under previous contracts. As an example of 

this perception, we found that one tribal 8(a) firm stated in its marketing 

materials that it would “never graduate” from the 8(a) program. Agency 

officials told us that it is their general impression that by awarding followSBA Lacks Data to 

Implement and Enforce 

Some of the New 

Regulations 

SBA Will Have Difficulty 

Tracking Sole-Source Followon Contracts with Sister 

Subsidiaries 
 

Page 37 GAO-12-84 Tribal 8(a) Contracting

on contracts to the incumbent firm’s sister subsidiary, they are, for all 

intents and purposes, working with the same company.

In our current review, we found multiple examples of follow-on solesource 8(a) contracts being awarded to a sister subsidiary. While these 

contracts had all been awarded prior to the effective date of the new rule, 

these examples suggest that it is not unusual for agencies to turn to sister 

subsidiaries for follow-on sole-source 8(a) contracts. For example:

• When we spoke to one contracting officer’s representative with the 

Army in May 2011, we found that he was unaware of the new 

regulation. He explained that when a tribal firm graduates from the 

8(a) program, his office would typically award a sole-source follow-on 

contract to one of the firm’s sister subsidiaries based upon the past 

performance of the incumbent. Noting that a current sole-source tribal 

8(a) contract to provide research and development support was set to 

expire in 2012 and that the incumbent was graduating from the 8(a) 

program, he stated that it made sense to award the follow-on to one of 

the firm’s sister subsidiaries, especially since the incumbent had 

performed well. After we told him this was no longer permissible under 

SBA regulations, he said that the new rule put a “kink” in his plans and 

that he would need to start planning right away to ensure there was 

adequate time to successfully award the requirement competitively.

In another example from our review, a procuring agency had awarded a 

follow-on contract to a sister subsidiary without realizing the relationship 

between the firms. In September 2007, the Social Security Administration 

awarded a $48 million 8(a) sole- source follow-on contract for information 

technology support services. The incumbent 8(a) ANC firm recommended 

that the agency make the award to its protégé, as the incumbent was no 

longer in the 8(a) program. When we spoke to agency officials in July 

2011, the agency was not aware that the protégé firm, which received the 

follow-on award, was also a sister subsidiary of the incumbent. According 

to the officials, they will rely on SBA to know if a firm targeted for a followon procurement is eligible for an 8(a) award based on the new rules.

Although prohibiting this practice of awarding sole-source follow-on 

contracts to sister subsidiaries of 8(a) firms is a positive step toward 

curbing some perceived abuses of the 8(a) program, the required 

information is not always available to enforce this new rule. For example, 

SBA’s data system for tracking 8(a) participants does not provide district 

offices with the full information needed to track compliance. District 

officials have access only to information on the firms that they service. 

Yet a number of tribal entities have firms in multiple locations throughout 
 

Page 38 GAO-12-84 Tribal 8(a) Contracting

the country, and those firms are serviced by different SBA district offices. 

To illustrate, one ANC parent company has eight subsidiaries serviced in 

six different district offices. Because SBA’s Alaska district office services 

the majority of ANC 8(a) firms, its insight into the activities of those parent 

corporations’ subsidiaries may be greater than that of other SBA districts, 

which may service only one of several subsidiaries under the same 

parent corporation. When we visited the Alaska district office 7 weeks 

after the new rule had taken effect, we found evidence that SBA had 

turned down a follow-on contract offer from a procuring agency because 

the contract violated the new regulation; district officials informed us that 

they had declined four to five other contract offers for the same reason. 

However, the officials explained that they maintain paper files and that 

they would have limited procurement history information—including 

information about the prior, incumbent firm—unless the requirement had 

always been serviced by that district. Conversely, officials at an SBA 

district office that services relatively few tribal 8(a) firms told us that they 

have not turned down any offer letters that violate this new regulation, but 

that they also would not necessarily know if the incumbent was a sister 

firm given the information they can access in the 8(a) tracking system.

SBA headquarters officials are aware of the limitations of the data system 

and told us that they are currently developing a new system that is 

intended to provide a more global view of tribal entities to the officials at 

all district offices. They are also considering ways to access more 

information on a contract’s procurement history, including linking their 

new system to FPDS-NG to obtain more information on 8(a) contract 

awards. Officials reported that, as of September 2011, they were in the 

process of awarding a contract to develop the system; they estimated it 

would be operational between September 2012 and January 2013.

Further, SBA regulations require procuring agencies to discuss the 

requirement’s acquisition history, if any, in their 8(a) offer letter and 

information on any small business contractors which had performed the 

requirement in the past 2 years.37

 

37 These regulations were in place prior to the revisions in SBA’s 2011 final rule and were 

used to determine if other small businesses would be adversely impacted by accepting the 

requirement into the 8(a) program. 13 CFR § 124.502(c)(9) and 13 CFR § 124.502(c)(10).

In some cases, however, we found that 

contracting officers did not include the complete procurement history in 

their offer letters to SBA even when the requirement had been performed 

by a prior 8(a) contractor. For one contract we reviewed, the contracting 
 

Page 39 GAO-12-84 Tribal 8(a) Contracting

officer had provided no acquisition history in its offer letter to SBA even 

though he told us that the requirement had previously been performed by 

the same contractor under another contract awarded by a different 

agency. He explained that he did not provide the procurement history to 

SBA because his office had no acquisition history with the requirement. In 

another example, the contracting officer told SBA there was no 

acquisition history for the procurement; however, documents in the 

contract file showed that the agency clearly considered it a follow-on 

requirement. The contracting officer could not recall why no acquisition 

history was included in the SBA offer letter, but noted that the scope of 

work had significantly expanded. SBA district officials also told us that 

they do not always receive complete procurement history information. In 

some cases, this is because agency contracting officials are unaware of 

the full procurement history, which can be a result of contracting officer 

turnover. Without access to a complete and accurate procurement 

history, SBA district offices will have difficulty enforcing this new 

regulation.

Non-8(a) businesses can create a mentor-protégé joint venture with an 

8(a) firm to win 8(a) prime contracts. In 2006, we reported that there was 

a risk that large businesses could take advantage of the 8(a) status of 

firms for their own benefit and that SBA may not obtain the information 

necessary to determine if the partnership is working as intended.38

 

38

SBA 

officials told us that they had seen cases where the non-8(a) partner in a 

joint venture was performing the vast majority—80 to 90 percent—of work 

on a contract. SBA’s new rules require that the 8(a) partner in certain 

kinds of joint ventures perform a specific portion of the work. Application 

of this new rule depends on whether the joint venture is populated (i.e., it 

is a separate legal entity that has its own employees) or unpopulated (i.e., 

it merely exists through a written agreement and would use the 

employees of the 8(a) and non-8(a) partners). The new regulation 

specifies that the 8(a) partner in (1) an unpopulated joint venture or (2) a 

populated joint venture with one or more administrative personnel, must 

perform at least 40 percent of the work performed by the joint venture. 

GAO-06-399. In another report, also issued in 2006, we found that SBA had not carried 

out its responsibilities to monitor an 8(a) joint venture, mentor/protégé partnership that had 

won a $354 million sole source contract where the protégé firm did not appear to be 

getting the beneficial experience expected. See GAO, State Department Contract 

Awarded for Security Installation at Embassies Awarded to 8(a) Joint Venture, 

GAO-07-33R (Washington, D.C.: Nov. 8, 2006).

SBA Cannot Implement New 

Rules Intended to Strengthen 

8(a) Role in Joint Ventures with 

Current Information
 

Page 40 GAO-12-84 Tribal 8(a) Contracting

The previous regulations simply stated that the 8(a) partner must perform 

a “significant portion” of the contract.39

SBA relies on information from 8(a) firms on their joint venture 

agreements, but SBA officials told us that they do not always get the 

information they need to determine how the work would be performed. 

For example, one joint venture mentor-protégé agreement we reviewed—

approved by SBA but formed prior to the new rule—stated that the 8(a) 

firm would have full responsibility in overseeing performance of any 

contract awarded to the venture. It further stated that the 8(a) partner 

would perform at least 51 percent of the work for the contract, but did not 

provide any details on how the work would be divided. Questions were 

subsequently raised about this joint venture. In 2008, DCAA—at the 

request of Army officials who had concerns about the amount of work the 

tribal 8(a) firm in this joint venture would perform—found that there was 

not enough financial information available to perform an assessment of 

either the joint venture or tribal 8(a) firm. DCAA noted, however, that the 

8(a) firm had only one employee and that a majority of its work had been 

subcontracted.

SBA officials believe that this is an 

improvement because it gives an exact measure of how much work 

should be done by the 8(a) partner, to better ensure that the firm receives 

significant benefit from the venture. However, the agency does not have 

the information necessary to implement this new requirement.

40

 

39While the new rule specifies that the 8(a) partner in a populated joint venture with

administrative personnel must perform at least 40 percent of the work, the new rule does 

not address the amount of work the 8(a) partner must perform in a joint venture populated 

with employees intended to actually perform the contract work. For these joint ventures, 

the 8(a) participant must demonstrate what it will gain from performance of the contract 

and how this will assist in its business development. The new rule also states that the 8(a) 

participant must demonstrate that it controls the joint venture. 13 CFR § 124.513 (d)(1).

An SBA official from the district office overseeing the 

firm said the agency generally receives an annual statement that a firm is 

complying with joint venture requirements, but does not receive further 

information on how the work is split between the 8(a) and non-8(a) 

partner. SBA officials acknowledge having little insight into how joint 

40 SBA records we reviewed showed that the 8(a) firm had grown to almost 100 

employees in 2010.
 

Page 41 GAO-12-84 Tribal 8(a) Contracting

venture partners share the work, making it difficult to enforce new 

regulations.41

The new rule also requires that, for populated joint ventures, the non-8(a) 

firm and its affiliates cannot receive subcontracts at any level—first tier or 

below—under a joint venture 8(a) contract.42 For example, the new rule 

would be violated if a joint venture subcontractor further subcontracted 

work to a firm that was an affiliate of the non-8(a) partner. Thus, enforcing 

this rule requires knowledge of all subcontractors at all levels, as well as 

the ability to identify whether any of the subcontractors are affiliated with 

the non-8(a) partner. Given SBA’s limited insight into subcontracting on 

8(a) contracts, this new regulation will be hard to enforce. SBA officials 

state that they do not see information on planned subcontractors, noting 

that this information may be included in the contract proposal, which they 

currently do not review. They also acknowledged that a significant 

amount of research would be required to uncover any relationship 

between the non-8(a) firm and all levels of its subcontractors and 

affiliates. According to SBA headquarters officials, district officials could 

request contract proposals that would include more information on the 

planned subcontractors. However, SBA officials do not receive 

information on changes to the planned subcontractors after contract 

award.

While the new regulations address certain issues pertaining to the 

primary and secondary lines of business under which 8(a) firms can 

operate, the rules’ impact on tribal firms, given their special advantages in 

the program, are not clear. Specifically, SBA has not addressed, in 

regulation or otherwise, issues we raised in our 2006 report regarding (1) 

the need for SBA to track the various industries under which multiple 8(a) 

subsidiaries of one tribal organization are generating revenue and (2) 

 

41 The new SBA rules require the 8(a) participant in a joint venture to annually, and at 

contract completion, describe how it is meeting or has met the performance of work 

requirements for 8(a) contracts performed as a joint venture. However, SBA officials did 

not explain whether or how they will use this reporting requirement to ensure compliance 

with the new regulations.

42 The final rule provides an exception to this rule if SBA determines that other potential 

subcontractors are not available, or the joint venture is populated only with administrative 

personnel.

SBA Has Not Addressed 

Previously Identified 

Issues 
 

Page 42 GAO-12-84 Tribal 8(a) Contracting

SBA’s statutory requirement to determine if firms in a tribal organization 

will obtain a substantial unfair competitive advantage in an industry.

In 2006, we reported that SBA was not tracking the business industries in 

which ANC subsidiaries won 8(a) contracts under secondary NAICS 

codes. Thus, SBA was not ensuring that a firm’s secondary NAICS codes 

did not, in effect, become the primary business line under which the firm 

generated the majority of its revenue. Prior to the recent regulatory 

changes, if an 8(a) firm outgrew its primary NAICS code, it could still 

operate in the program and be awarded contracts under one or more of 

its secondary NAICS codes, as long as it qualified as small for these 

secondary codes.43 The new regulations now state that, when an 8(a) 

participant outgrows the size standard for its primary NAICS code, SBA 

considers that firm to have met its goals in the program, and SBA may 

graduate the firm prior to the expiration of its program term. Although this 

change may shorten the length of time that a tribal 8(a) firm is in the 

program, its impact is not clear because tribal entities can simply create a 

new subsidiary with a different stated primary industry, and the subsidiary 

can continue to work in any industry under secondary NAICS codes.44

A second regulatory change allows 8(a) participants to change their 

primary NAICS code if they can show that they have been performing 

work in a different industry.

Conversely, non-tribal 8(a) firms can only own one 8(a) firm in a lifetime.

45

 

43 A firm outgrows its primary NAICS code when it exceeds the size standard for that 

NAICS code for three successive program years.

Previously, the primary NAICS code 

identified at the time of application was in effect through the firm’s tenure 

in the 8(a) program. For tribal 8(a) firms, this new requirement means 

that, if they are outgrowing the size standards for their initial primary 

NAICS code, they can change to a secondary code with larger size 

standards to stay in the program (as long as it is not the same primary 

code as a sister subsidiary). However, SBA officials have said that firms 

will have to show that they are moving into a new industry through a 

thoughtful process and that outgrowing the size standard cannot be the 

44 New tribal 8(a) firms cannot operate under the same primary NAICS code as a sister 

firm that has already been admitted to the program or that graduated within the last 2 

years. 

45 This is demonstrated when a majority of a firm’s revenues during a 2-year period has 

evolved from its former primary code to another code in a different industry.

SBA Still Has Not Addressed 

Need to Track Revenue 

Generators 
 

Page 43 GAO-12-84 Tribal 8(a) Contracting

only reason for changing their industry as this would not be in the spirit of 

the 8(a) program. At the same time, 8(a) firms are allowed to pursue 

multiple, diverse lines of business in an unlimited number of secondary 

NAICS codes. We found that one tribal firm in the 8(a) program had 49 

declared NAICS codes, including industrial building construction, 

investigation services, and religious organizations. Another firm reported 

25 different NAICS codes under which it may pursue work, including 

computer and software stores, advertising agencies, and educational 

support services.

While the regulatory changes are a step in the right direction in enforcing 

and enhancing the business development aspects of the program, SBA 

has not taken steps to address a key finding and recommendation from 

our 2006 report pertaining to tracking secondary lines of business of 8(a) 

firms under the same ANC. We reported that SBA was not tracking 

revenue generated under these firms’ secondary lines of business. Thus, 

SBA was not ensuring that a firm’s secondary NAICS codes did not, in 

effect, become the primary business line by generating the majority of 

revenue. This situation could allow for a tribal organization to have more 

than one 8(a) subsidiary perform most of its work under the same primary 

NAICS code, which SBA regulation does not allow. We recommended 

that SBA collect data on primary revenue generators for 8(a) ANC firms to 

ensure that multiple subsidiaries under one parent company were not 

generating their revenue in the same industry.

SBA systems that track 8(a) participant data do not collect information on 

the industries in which firms generate their income. In fact, in reviewing 

annual reports that tribal 8(a) firms had submitted to SBA, we found 

cases where multiple 8(a) firms under the same tribal entity reported 

generating most of their revenue in the same industry. For example, SBA 

records showed that six 8(a) firms under one ANC parent entity 

generated most of their 2009 revenue in the same lines of business, 

although each firm has declared a unique primary industry. Table 4 

shows the declared primary revenue and actual main revenue generators 

for 2009 for each subsidiary. 
 

Page 44 GAO-12-84 Tribal 8(a) Contracting

Table 4: Example of the Declared Primary Industries and Actual Revenue 

Generators of 8(a) Subsidiaries under One ANC Parent Entity

 Declared primary industry

Primary revenue-generating 

industry, 2009

Subsidiary A Site preparation contractors Commercial and institutional 

building construction

Subsidiary B Industrial-building construction Commercial and institutional 

building construction

Subsidiary C Facilities support services Commercial and institutional 

building Construction

Subsidiary D Highway, street, and bridge 

construction

Commercial and institutional 

building construction

Subsidiary E Engineering services Facilities support services

Subsidiary F Commercial and institutional building 

construction

Facilities support services

Source: GAO analysis of SBA files.

SBA has not addressed another recommendation we made in 2006 as to 

how it will comply with an existing law requiring the Administrator to 

determine whether and when one or more ANC firms are obtaining, or are 

likely to obtain, a substantial unfair competitive advantage in an industry. 

“Substantial unfair competitive advantage” is not clearly defined in statute 

or regulation.46

In our current review, we found a few cases where the SBA district office 

had made such an affiliation determination between tribal 8(a) firms and 

related non-8(a) firms. In one case, SBA’s Alaska district office found 

affiliation between a tribal 8(a) firm and its part-owner, a business that 

had previously graduated from the 8(a) program. In another complex 

situation, a tribal 8(a) firm was 40 percent owned by a large business that 

was also a subcontractor to one of the 8(a) firm’s sister subsidiaries. SBA 

eventually determined that there was affiliation between the large 

We found that the SBA Administrator has never made this

determination, nor is there a process in place to do so. Making such a 

determination would result in all the subsidiaries under a tribal entity 

being considered affiliated and thus no longer considered independent for 

size purposes. A finding of affiliation with the parent organization or a 

sister 8(a) firm could result in a tribal 8(a) firm exceeding small business 

size standards and not being eligible for 8(a) contracts.

 

46 15 U.S.C. § 636(j)(1)(J)(ii)(II) and 13 C.F.R. § 124.109(c)(2)(iii). 

SBA Has Not Articulated a 

Process for Addressing the 

Statutory Requirement to 

Determine Unfair Competitive 

Advantage 
 

Page 45 GAO-12-84 Tribal 8(a) Contracting

business and the sister subsidiary, resulting in the two firms’ revenues 

being considered together for the sister firm’s size standard 

determination. As a result, SBA rejected a contract offer for the sister 

subsidiary where the large business would be a subcontractor, because 

the firm could not meet the size standards when its revenues were jointly 

considered with those of the large business. Figure 6 illustrates the 

relationships between the parent entity, the 8(a) firm and its sister 

subsidiary, and the large business.

Figure 6: Example of Relationship between Large Business and Tribal 8(a) Firm 

That Were Found Affiliated

Because SBA has not taken steps to more rigorously determine how to 

ascertain substantial unfair competitive advantage, there is a risk that 

tribal 8(a) firms are being considered independent for size determinations 

when they should be considered affiliated. SBA officials told us that they 

are in the early stages of drafting a policy that will outline the process for 

making determinations of unfair competitive advantage.
 

Page 46 GAO-12-84 Tribal 8(a) Contracting

In 2006, SBA officials told us that the charter of ANCs under ANCSA—

economic development for Alaska natives from a community standpoint—

can be in conflict with the business development intent of the 8(a) 

program. We pointed out ways that ANCs use the 8(a) program differently 

than individually owned 8(a) businesses do. Congress has stated that the 

8(a) program purpose is exclusively for business development purposes 

to help small businesses owned and controlled by the socially and 

economically disadvantaged to compete on an equal basis in the 

mainstream of the American economy. SBA, in changing its rules to 

disallow the award of follow-on contracts to tribal 8(a) sister subsidiaries, 

stated that it expects that two or more firms under the same tribal 

organization are to operate and grow independently, in line with the 

business development purposes of the 8(a) program. However, we found 

other practices, not addressed under the regulations, that highlight the 

particular nature of tribal 8(a) firms’ interconnectedness. These practices 

result in some firms essentially operating like large businesses and not 

developing as independent 8(a) firms. For example, the tribal firms often 

have common management and subcontract with each other or otherwise 

draw resources from one another or from the parent corporation. Access 

to these additional resources can help promote their significant business 

growth over a short period of time, sometimes resulting in firms leaving 

the 8(a) program early after outgrowing their size standards. By not 

participating in the transition phase of the program, these firms are 

missing out on some of the business development aspects of the 

program, such as competing for non-8(a) contracts to demonstrate their 

progress in developing into viable businesses that are not solely reliant on 

the 8(a) program.

SBA headquarters officials recognize that tribal 8(a) firms have some 

advantages over other 8(a) firms because of the resources they can draw 

from their parent organization and sister firms. But SBA has not 

determined whether these other practices we identified are congruent 

with the business development purpose of the 8(a) program. SBA officials 

look at individual firms during annual reviews, but do not consider the 

consequences of their interconnectedness with sister subsidiaries and the 

parent company in the areas discussed below.

One way firms under tribal organizations are generally interconnected is 

through common management. Common management was evident in 

many of the tribal 8(a) firms’ applications we reviewed. For example, the 

manager of one 8(a) firm also served as Chief Executive Officer to three 

sister subsidiaries under the same parent, including a sister subsidiary 

that provides administrative support services to the “family of 

SBA Has Not Considered 

Whether Tribal 8(a) Firms’ 

Large Business-Like 

Practices Are Consistent 

with the Business 

Development Purpose of 

the 8(a) Program

Common Management of Sister 

Subsidiaries
 

Page 47 GAO-12-84 Tribal 8(a) Contracting

companies.”47

Another way tribal 8(a) firms become interconnected is through 

subcontracts with their own sister subsidiaries. During negotiations with 

the Army for an 8(a) contract, one tribal firm noted its ability to quickly 

subcontract with its sister firms as a benefit. We found that some tribal 

firms demonstrated their potential for success when they did not have 2 

years in business, using these subcontracts as a record of successful 

performance in their primary industry. Of the 44 firms we reviewed that 

entered the program with less than 2 years of experience in their industry, 

we identified 20 that had obtained some initial experience through 

subcontracts with a sister subsidiary. For example, we reviewed seven 

firms owned by one Indian tribe, and five of those seven firms used 

subcontracts from sister firms to demonstrate their ability to successfully 

perform work in their primary industry.

This practice of common management is a key factor in 

tribal 8(a) firms’ ability to show potential for success in the 8(a) program. 

SBA requires applicants to show potential for success by having at least 2 

years of experience in their primary industry or by showing that their 

managers have technical and management experience in that industry, 

among other things. Of the 62 tribal 8(a) firms we reviewed, 44 entered 

the 8(a) program with less than 2 years of experience in their primary 

industry. Most of the firms demonstrated potential for success by showing 

corporate managers’ significant experience in the stated primary industry 

through work with a sister subsidiary. For example, in considering an 

applicant that was applying to the 8(a) program just 6 months after it was 

organized, SBA pointed to the extensive managerial and technical 

experience of the firm’s president, including his previous position as vice 

president to a sister subsidiary. Further, the interconnectivity of some 

tribal 8(a) firms is also evident where the same board members oversee 

multiple firms under their parent entity. For example, we found that a 

member of the board of directors had served on the board of three 

different 8(a) subsidiaries, while also serving as a member of the board of 

directors for the parent entity.

 

47 Federal laws provide that a tribal 8(a) firm may own more than one firm eligible for 

assistance from the 8(a) program if, among other things, the individuals responsible for 

the management and daily operations of the concern do not manage more than two 

program participants. We did not assess whether these individuals met the requirements 

for management and control of the daily operations of the tribal 8(a) firm. 

Using Sister Subsidiaries for 

Subcontracting and Past 

Performance 
 

Page 48 GAO-12-84 Tribal 8(a) Contracting

As another example of firms’ interconnectedness, we found that tribal 8(a) 

firms can leverage subcontracts from sister subsidiaries to generate 

required percentages of non-8(a) revenue as the firm progresses in the 

8(a) program. During the last 5 years in the program, known as the 

transition period, firms are required to obtain a certain percentage of non8(a) revenue to demonstrate their progress in developing a viable 

business that is not solely reliant on the 8(a) program. In one example, a 

firm did not meet its non-8(a) revenue requirements in its seventh year in 

the program. Consequently, the SBA district office placed the firm under 

remedial action, wherein it was ineligible to receive sole-source 8(a) 

contracts. However, SBA reinstated the firm after a sister subsidiary 

awarded it a $20 million subcontract that boosted its non-8(a) revenue to 

the required annual level. The firm then regained its eligibility to receive 

sole-source 8(a) contracts.

Tribal 8(a) firms may also cite the past performance of sister firms to 

demonstrate their own capability to perform under an 8(a) contract. In our 

review of contract files, we found a number of examples where firms 

pointed to the past performance of sister subsidiaries in their proposals to 

demonstrate their capability. One firm, in its business plan presented to 

SBA, pointed out that leveraging the past performance of a sister 

company was extremely important as a basis for demonstrating capability 

to perform. The firm noted that during its first 2 months of operation, it 

was often asked to provide past performance documentation and that 

“this is a requirement that is obviously difficult to meet given that we are a 

brand new company that has only been just recently certified and 

approved to begin accepting contracts.” Another firm pointed out that it 

had an advantage over competitors because of the history of successful 

contract performance by sister subsidiaries.

Some tribal 8(a) firms promote the fact that they are part of a larger 

corporate brand and can access resources from their parent organization 

and sister firms. Even though tribal 8(a) firms must be “small” under the 

SBA size standard for their primary industry, their ability to leverage these 

additional resources can vastly increase the breadth and depth of their 

capabilities. As the following examples show, the firms can operate, in 

effect, more like large businesses. 

• One ANC 8(a) firm reported to SBA that it is without “geographical 

limitations as the ANC presence has been established in 49 states. 

[The firm] will continue to work with its existing customer base as well 

as network with agencies familiar with the ANC name.” 

Capitalizing on Corporate 

Resources and “Brand” to 

Promote Business
 

Page 49 GAO-12-84 Tribal 8(a) Contracting

• One ANC firm reported the intention to transfer staff and management 

from other subsidiaries as workloads dictate, “with reach back

capabilities to access 6,700 employees nationwide and the means of 

accessing many in-house subject matter experts when necessary.” In 

another contract, the same firm advertised to a procuring agency that 

its resources included over 7,000 employees at over 90 locations in 

31 states to support construction projects. For a different ANC 8(a) 

firm, procuring agency officials noted that the firm had 4,000 

employees it could draw from to perform the contract.

• One firm owned by an Indian tribe, in describing its prior experience, 

advertised in its proposal to the Army the overall success of firms 

under the parent entity in providing services to the federal government 

and managing contract employees. The firm also stated in the 

proposal that its performance on the contract would be at the same 

high level as its successful sister firm that had graduated from the 8(a) 

program, as the firms share the same senior management.

• One ANC has a marketing and proposal services center that is 

dedicated to supporting all of its subsidiaries in developing cost and 

technical proposals for government contracts. This ANC also 

designated an employee to act as the sole point of contact to the SBA 

for all correspondence and filings for seven of its 8(a) subsidiaries.

• An ANC firm stated in its business plan that a benefit of its 

organizational structure is the ability to operate as a small company 

while having access to corporate backing “that typically only a large, 

seasoned company can provide.” Another firm—in its capabilities 

briefing to a procuring agency—advertised that while the firm is an 

8(a) small business, it operates within a resource environment of a 

large business.

• In its business plan to SBA, an ANC 8(a) firm listed some large 

businesses as primary competitors in its market, including Lockheed 

Martin, Northrop Grumman, CACI and General Dynamics.

Access to these additional resources, plus the special advantages 

afforded tribal 8(a) firms, can help promote their significant business 

growth in the 8(a) program over a short period of time. For example, one 

tribal 8(a) firm reported average revenues of $31,000 from landscaping 

contracts when entering the program in 2009. Subsequently, the firm 

received a $500 million contract for construction. In 2011, the firm 

reported sales of $21.3 million, an increase of 764 percent from the 

previous year. In another example, a firm had one employee when it 

applied to the 8(a) program, but had grown to 124 employees by its first 

annual review by SBA.

Tribal 8(a) Firms Can Quickly 

Outgrow the 8(a) Program 
 

Page 50 GAO-12-84 Tribal 8(a) Contracting

Many tribal 8(a) firms have left the program prior to completing the full 9 

year term. Table 5 shows that of the 165 tribal 8(a) firms that have left the 

program, 70 left prior to completing the full 9 year term. Furthermore, 

more ANC firms withdrew or graduated from the program early than 

completed the 9 year term.

Table 5: Summary of Tribal 8(a) Firms That Have Left the Program

 ANC Indian tribe NHO Total

Firms completing full 9 years of program 60 22 3 85

Firms that withdrew or graduated early 64 6 0 70

Firms that were terminated 5 a 5 0 10

Total firms 129 33 3 165

Source: GAO analysis of SBA data.

a

SBA may terminate a firm’s participation in the 8(a) program for a number of reasons, including 

submitting false information in its 8(a) application and failing to maintain eligibility for program 

participation.

For some tribal 8(a) firms, their rapid growth prevents them from reaching 

the transition phase of the 8(a) program because they have outgrown the 

small business size standards. The small business regulation states that 

to ensure participants do not develop an unreasonable reliance on 8(a) 

awards and to ease their transition into the competitive marketplace after 

graduating from the 8(a) program, participants must make maximum 

efforts to obtain business outside the 8(a) program. As a result of 

withdrawing from the program early, these firms never have to compete 

for contract awards and thus do not experience some of the intended 

business development aspects of the 8(a) program. For example: 

• In its review of an ANC firm’s third year in the 8(a) program, SBA 

found that the firm had average annual revenue of $78.4 million, 

which exceeded its small business size standards. Furthermore, SBA 

pointed out that the firm likely would not meet its targets for non-8(a) 

revenue once it reached the transition phase and recommended early 

graduation from the program as a result of these factors. During the 

firm’s time in the program, 99 percent of its revenue came from 8(a) 

contracts.

• SBA stated in its analysis of another ANC firm’s 8(a) application that 

rapid growth could be a weakness, as subsidiaries under the firm’s 

parent entity tended to grow too large to continue in the 8(a) program 

after just 4 to 5 years. This firm had reported $318 million in revenue 

from 8(a) contracts in its third year in the program, and SBA 

recommended that the firm be graduated early from the program as it 
 

Page 51 GAO-12-84 Tribal 8(a) Contracting

was no longer a small business. However, the firm remained in the 

program for one more year.

• In another example, an ANC firm voluntarily withdrew from the 8(a) 

program after almost 4 years. In commenting to SBA about its 

experience, the firm suggested that SBA should increase size 

standards for industries because of the size of large government 

contracts that tribal firms win.

For tribal 8(a) firms that do continue to the transition phase, some have 

difficulty meeting non-8(a) revenue requirements because they were 

awarded large 8(a) sole-source contracts in their early years in the 

program. In one example, a tribal firm reported to SBA that large 8(a) 

sole-source contracts were taking up a lot of its existing labor pool, not 

allowing it to seek non-8(a) contract opportunities. Another firm did not 

meet its non-8(a) revenue requirements in the transition years, and SBA 

district officials eventually recommended that this firm voluntarily withdraw 

as officials believed the firm had not complied with the spirit of the 8(a) 

program. When a firm does not meet its non-8(a) revenue requirements, it 

is generally prohibited from receiving further sole-source contracts. 

However, we found that in 2009, SBA accepted an offer from the Army for 

a $45 million sole-source award on behalf of a firm that had not met its 

non-8(a) revenue requirements. SBA district officials thought they may 

have accepted the offer on behalf of the firm because of severe financial 

hardship, but they could not locate the file to determine the exact reason.

It has been more than 20 years since Congress began granting tribal 

firms special advantages under the 8(a) program. The steady growth in 

government obligations to these firms, largely through sole-source 

contracts, draws attention to policies that are designed to promote small 

businesses and the need to spend taxpayer dollars wisely. SBA has 

taken some steps, based on our earlier recommendations, to clarify 

program rules, including the need for monitoring the limitations on 

subcontracting. However, contracting officers generally are not 

performing the monitoring—often because of confusion about how to go

about doing so and a lack of clarity in existing regulations, particularly 

with respect to indefinite quantity contracts. Not monitoring the limitations 

on subcontracting can pose a major risk that an improper amount of work 

is being done by large business subcontractors under large-dollar value, 

sole-source contracts to tribal 8(a) firms.

Tribal firms, because of their special advantages in the 8(a) program, can 

operate under more complex contracts and business relationships than 

Conclusions 
 

Page 52 GAO-12-84 Tribal 8(a) Contracting

typical 8(a) firms, making oversight difficult. SBA’s recent revisions to the 

8(a) regulations are intended to address several issues we had raised in 

the past regarding improved oversight of ANC 8(a) contracting that also 

apply to all tribal 8(a) firms. However, SBA does not have a way to track 

the information it needs and lacks clear procedures to deter certain 

prohibitions addressed in the regulations—for example, sister subsidiaries 

winning follow-on sole-source contracts and joint-venture partners unduly 

benefiting from their 8(a) partners’ contracts by performing most of the 

work or improperly subcontracting to an affiliate. The new 8(a) tracking 

database, which is in the initial stages of development, could, if structured 

to capture key information, better position SBA to implement these new 

regulations and to address issues we identified, such as tracking 

revenues from tribal 8(a) firms’ primary and secondary industries. Further, 

when agencies do not provide the full acquisition history in offer letters, 

SBA may not have the necessary information to enforce the new 

regulations. Finally, while SBA officials recently told us they are in the 

early stages of drafting a policy that will outline a process for determining 

unfair competitive advantage, SBA still has not addressed in its 

regulations the process for implementing the statutory requirement to 

determine whether substantial unfair competitive advantage exists for one 

or more tribal 8(a) firms.

Finally, some tribal 8(a) firms effectively operate as large firms in a small 

business program. The practices we have identified, such as capitalizing 

on corporate resources to promote business and using sister subsidiaries 

for subcontracting and past performance, are currently allowed, even 

under SBA’s revised regulations. However, it is within SBA’s purview as 

the agency statutorily authorized for the 8(a) program to determine if 

these practices are congruent with the purpose of the 8(a) program—

which is to develop sustainable, small, disadvantaged businesses in the 

U.S. economy.

To improve oversight of the limitations on subcontracting clause and to 

clarify who has responsibility for monitoring compliance with the clause, 

we recommend the Administrator of the Office of Federal Procurement 

Policy, in consultation with the Administrator of SBA, take the following 

two actions:

1. Provide specific guidance (including data collection options) to agency 

officials, including to contracting officers, about how to monitor the 

extent of subcontracting under 8(a) contracts, including for orders 

under indefinite quantity contracts.

Recommendations for 

Executive Action
 

Page 53 GAO-12-84 Tribal 8(a) Contracting

2. Take actions to amend the FAR to (1) direct contracting officers at 

agencies that have been delegated responsibility for ensuring 

compliance with the limitations on subcontracting clause to document 

in the contract file the steps they have taken to ensure compliance 

and (2) clarify the percentage of work required by an 8(a) participant 

under indefinite quantity contracts. 

To improve oversight of tribal firms’ participation in the 8(a) program, we 

recommend that the Administrator of SBA take the following five actions:

1. As the new 8(a) tracking database is being developed, take steps to 

ensure that it has the capability to

• provide visibility to district offices into all tribal 8(a) firms’ activity by 

tribal entity to ensure compliance with new prohibition to award 

sole-source 8(a) follow-on contracts to sister subsidiaries;

• track revenue from tribal 8(a) firms’ primary and secondary 

industry codes to ensure that subsidiaries under the same parent 

company are not generating the majority of their revenue from the 

same primary industry; and

• track information on 8(a) contracts and task or delivery orders, 

including orders awarded under basic ordering agreements, to 

help ensure that district officials have information necessary to 

enforce the 8(a) program regulations.

2. In light of the new prohibition on awarding 8(a) sole-source follow-on 

contracts to sister subsidiaries, reinforce to procuring agencies the 

requirement to provide the full acquisition history of the procurement 

in the offer letter, when available, and direct district office business 

development specialists to focus on this issue when they review offer 

letters for tribal 8(a) firms.

3. Establish procedures to enforce new joint venture rules, including how 

SBA district officials will ascertain that the 8(a) partner performs the 

required percentage of the joint venture’s work and, for populated joint 

ventures, that the non-8(a) partner and its affiliates do not receive 

subcontracts under the 8(a) contract.

4. Examine relationships between subsidiaries under tribal entities to 

determine whether practices such as subcontracting to a sister 

subsidiary or using the past performance of a sister subsidiary to 

show capability to perform on an 8(a) contract are in line with the 

business development purposes of the 8(a) program and should be 

allowed under program rules. If SBA determines that these practices 

are not in line with the 8(a) program purposes—and to the extent that 
 

Page 54 GAO-12-84 Tribal 8(a) Contracting

Congress has not authorized a practice in law—SBA should address 

them in its regulations.

5. Establish and communicate to Congress the time frame for 

developing and implementing SBA’s new, planned policy regarding 

determination of substantial unfair competitive advantage in an 

industry, and when the policy will be incorporated into the regulations.

We provided a draft of this report to SBA; OFPP; the departments of 

Agriculture, Defense, Energy, Health and Human Services, Homeland 

Security, Justice, Labor, and State; and the Social Security 

Administration. We received written comments from SBA, which are 

reproduced in appendix II. SBA did not address our recommendations. 

OFPP provided comments on our recommendations via email. The Social 

Security Administration provided technical comments, which we 

incorporated as appropriate. The other agencies responded with no 

comment. 

In written comments, SBA provided background information pertaining to 

the history of Indian tribes’ and ANCs’ special preferences and their 

purpose in the 8(a) program. We believe this information is adequately 

reflected in our report. Although the SBA did not specifically comment on 

our recommendations, it stated that it will work with us to further 

strengthen its administration of the 8(a) program. SBA also stated that it 

will make changes as necessary to continue its efforts to eliminate waste, 

fraud, and abuse and to ensure that the 8(a) program is operating 

according to its statutory intent, but did not specify what these actions

would entail. In addition, SBA stated that it is fully committed to 

implementing all of the provisions of its March 2011 regulations, but did 

not specifically address the issues we raised that may impede such 

implementation or our related recommendations.

SBA also acknowledged the challenges in administering the 8(a) program 

with respect to tribal entities because the purpose of including tribally

owned entities in the 8(a) program can be contradictory to the program’s 

business development purpose. We recognize in the report that 8(a) 

businesses owned by tribal entities have special preferences in the 

program. However, we also note that these entity-owned businesses are 

subject to the business development purpose of the 8(a) program. This 

requirement led to our recommendations that SBA determine whether 

certain practices we found that are currently allowed under the 8(a) 

regulations—such as firms subcontracting to a sister subsidiary—are 

consistent with the business development purpose of the 8(a) program. 

Agency Comments 

and Our Evaluation
 

Page 55 GAO-12-84 Tribal 8(a) Contracting

SBA also commented that its foremost concern with our report was our 

use of a nonprobability sample, with the suggestion that this sampling 

technique can be biased based on the judgment of the sampler and that 

we used this technique to generalize results for tribal 8(a) firms. We 

strongly disagree. Our use of a nonprobability sample was a sound 

methodological approach to address our reporting objectives. 

Nonprobability samples are appropriate to provide illustrative examples or 

to provide information on a specific group within a population. We used 

this sampling technique to balance a sample that was large enough to 

provide a sufficiently comprehensive understanding of the issues with one 

that was small enough to study within our time and resource constraints. 

Further, we took a number of steps to ensure the factual accuracy of our 

findings, including traveling to locations where contract files were located 

so that we had access to the complete available records and the ability to 

ask follow-up questions as appropriate to ensure that we did not 

misinterpret or misrepresent any information in the files. Appendix I of the 

report sets forth the many steps we took to ensure that our contract file 

and tribal 8(a) file samples were selected in a non-biased, transparent, 

and objective manner. In accordance with generally accepted government 

auditing standards, we appropriately state the results of our work in the 

report, including the clear statement that our results are not generalizable 

to the population of tribal 8(a) firms. We did not attempt to generalize our 

results because that approach was not necessary to meet our objectives. 

In an email response, OFPP generally agreed with our recommendations 

and with our conclusion that steps need to be taken to provide clarity to 

the acquisition community regarding limitations on subcontracting. OFPP 

also noted that steps need to be taken to strengthen the application of 

these requirements to all small business set-aside programs in FAR Part 

19. Regarding our recommendation that OFPP provide guidance on how 

to monitor the extent of subcontracting, OFPP noted that agency officials 

other than contracting officers—such as agency offices that perform 

acquisition management reviews and SBA officials—would also be 

interested parties. We agreed and modified our recommendation to 

include “agency officials” and not only contracting officers. OFPP stated 

that it intends to work with the FAR Council and the Chief Acquisition 

Officers Council to review the roles of various agency officials and 

evaluate strategies for monitoring and receiving data about the 

percentage of work performed by a small business prime contractor. It 

also stated that, with respect to data collection, it anticipates seeking 

input from the public on strategies to receive and monitor data regarding 

the percentage of work performed by small business prime contractors. 
 

Page 56 GAO-12-84 Tribal 8(a) Contracting

OFPP added that, in taking this action, it intends to minimize the burden 

on both small businesses and agencies.

OFPP also commented on our recommendation that it take actions to 

amend the FAR to direct contracting officers to document steps taken to 

ensure compliance with the limits on subcontracting and to address 

monitoring requirements for indefinite quantity contracts. OFPP stated 

that it intends to ask that the FAR Council open a case so that 

appropriate regulatory refinements may be made to support 

improvements in the implementation of the limitation on subcontracting. 

OFPP stated that this action will include reviewing existing clauses that 

implement the limitation, considering alternatives for collecting 

information, and documenting steps taken. OFPP also plans to obtain 

comments from the public, including small businesses, as it develops 

amendments and evaluates alternatives that can accomplish goals in the 

least burdensome manner for industry and agencies. Consistent with our 

recommendation, OFPP plans to clarify in the FAR the percentage of 

work required by an 8(a) participant under an indefinite quantity contract, 

but OFPP asked that the recommendation be amended to allow the FAR 

Council and SBA to work together to determine the best way to clarify this 

point. We agreed that this would be appropriate and modified the 

recommendation to reflect this approach.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 7 days from the 

report date. At that time, we will send copies of this report to interested 

congressional committees; the Secretaries of Agriculture, Defense, 

Energy, Health and Human Services, Homeland Security, Labor, and 

State; the Administrator of SBA; the Attorney General; the Commissioner 

of the Social Security Administration; and the Acting Director of the Office 

of Management and Budget. This report will be available at no charge on 

GAO’s Web site at http://www.gao.gov. 

If you or your staff have any questions about this report or need additional 

information, please contact me at (202) 512-4841 or huttonj@gao.gov. 
 

Page 57 GAO-12-84 Tribal 8(a) Contracting

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. Staff 

acknowledgments are provided in appendix III. 

John P. Hutton

Director

Acquisition and Sourcing Management
 

Page 58 GAO-12-84 Tribal 8(a) Contracting

List of Congressional Requesters

The Honorable Claire McCaskill

Chairman

Subcommittee on Contracting Oversight

Committee on Homeland Security and Governmental Affairs

U.S. Senate

The Honorable Mark Begich

U.S. Senate

The Honorable John McCain

U.S. Senate

The Honorable Darrell E. Issa

Chairman

The Honorable Elijah Cummings

Ranking Member

Committee on Oversight and Government Reform

House of Representatives

The Honorable Edward J. Markey

Ranking Member

Committee on Natural Resources

House of Representatives

The Honorable Edolphus Towns

House of Representatives

The Honorable Don Young

House of Representatives
Appendix I: Scope and Methodology

Page 59 GAO-12-84 Tribal 8(a) Contracting

The objectives of this review were to (1) identify trends in government 

8(a) contracting with firms owned by Alaska Native Corporations (ANC), 

Native Hawaiian Organizations (NHO), and Indian tribes; (2) determine 

the reasons federal agencies awarded sole-source contracts to tribal 8(a) 

firms and the methods used to make price determinations; (3) assess the 

procuring agencies’ oversight of tribal 8(a) contracts for compliance with 

subcontracting requirements; and (4) examine the Small Business 

Administration’s (SBA) new 8(a) regulation, effective March 14, 2011, to 

determine how the changes could affect oversight of tribal firms and the 

extent to which previously identified problems are addressed. In this 

report, “tribal entities” refers to ANCs, NHOs, and Indian tribes. We use 

the term “tribal 8(a) firm” to refer to a firm that is majority-owned by an 

ANC, NHO, or Indian tribe. During the course of our work, we also 

discussed with procuring agency officials the potential impact of the 

recent Federal Acquisition Regulation (FAR) requirement for written 

justifications for sole-source 8(a) awards over $20 million. This 

requirement was not applicable to the contracts we reviewed. We 

evaluated the administration of the tribal 8(a) program; the scope of our 

work did not include an evaluation of the program’s merits.

To identify the trends in government tribal 8(a) contracting, we analyzed 

data from the government’s procurement database—the Federal 

Procurement Data System-Next Generation (FPDS-NG) for fiscal years 

2005 through 2010. To assess the reliability of the FPDS-NG we (1) 

reviewed related documentation, and (2) performed electronic testing on 

required data fields. We found the FPDS-NG data fields that identify firms 

owned by ANC, NHO, and Indian tribes to be unreliable because these 

data were not available during the entire time period. Subsequently, we 

requested that SBA provide Data Universal Numbering System (DUNS) 

numbers for 8(a) firms owned by ANC, NHO, and Indian tribes, in addition 

to mentor-protégé joint ventures that participated in the 8(a) program, for 

fiscal years 2005 through 2010.1

 

1 A DUNS number is a 9-digit identification number assigned by Dun & Bradstreet, Inc., to 

identify unique business entities.

We tested the reliability of these DUNS 

numbers by using them to search for the tribal 8(a) firms and joint 

ventures in the Central Contractor Registry and SBA’s Dynamic Small 

Business Search database. We used these systems to verify the data 

SBA had provided, including to identify additional DUNS numbers that 

were not included among the data SBA had provided. We also requested 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 60 GAO-12-84 Tribal 8(a) Contracting

additional DUNS numbers from SBA on joint ventures with tribal 8(a) 

firms; however, the information provided was on all joint ventures in the 

8(a) program. To select contracts for our sample that were awarded to 

joint ventures with at least one tribal 8(a) partner, we identified those that 

had obligations in fiscal year 2009 and then used the Central Contractor 

Registry to determine whether the joint venture was listed as owned by an 

ANC, Indian Tribe, or NHO. Once we substituted the compiled final list of 

DUNS numbers for the tribal 8(a) data fields, we determined that the 

FPDS-NG was sufficiently reliable to identify trends in tribal 8(a) 

contracting for fiscal years 2005 through 2010. We adjusted the obligation 

data for inflation using a gross domestic product price index with a base 

year of 2010.

To identify the reasons agencies have awarded 8(a) sole-source 

contracts to firms owned by ANCs, NHOs, and Indian tribes and the 

methods contracting officials use to determine fair and reasonable price, 

we selected and reviewed a stratified nonprobability sample of 87 

contracts, 7 of which had been competitively awarded. This nonprobability 

sample was based upon contracts (1) with fiscal year 2009 obligations 

over the competitive threshold,2

We originally selected 90 contracts for review, 10 of which were coded as 

competitively awarded. In reviewing the source documentation, we found 

that two of the contracts had been incorrectly coded: one was not owned 

by a tribal entity and the other was not awarded through the 8(a) program. 

We eliminated these contracts from our sample. We also found that 

obligations under one indefinite quantity contract were listed as two 

separate contracts in our initial sample; therefore, this was counted as 

only one contract. Another three contracts had been incorrectly coded in 

especially if those obligations exceeded 

$100 million (fiscal year 2009 data were the most recent at the time) and 

(2) in locations where multiple tribal 8(a) contracts had been awarded. 

The majority of the contracts we reviewed (75) were with ANC firms; 10 

were with Indian tribes, and 2 were with NHOs. The majority of contracts 

in our sample (62) were awarded at the Department of Defense (DOD). 

Our findings from the contract reviews are not generalizable to the 

population of all tribal 8(a) contracts.

 

2 The competitive 8(a) threshold is $6.5 million for manufacturing or $4 million for all other 

acquisitions.
Appendix I: Scope and Methodology

Page 61 GAO-12-84 Tribal 8(a) Contracting

FPDS-NG as competitively awarded or as sole-source. These three 

contracts remained in our sample.

The specific locations of the contracts in our review were as follows:

DOD:

• Air Force Metrology and Calibration, Heath, OH

• National Guard Bureau, Arlington, VA

• Defense Advanced Research Projects Agency, Arlington, VA

• Defense Supply Center, Philadelphia, PA

• Fleet and Industrial Supply Center, Pearl Harbor, HI

• Fort Sam Houston Army Base, TX

• Fort Wainwright Army Base, AK

• Joint Base Elmendorf-Richardson, AK

• Kirtland Air Force Base, NM

• MacDill Air Force Base, FL

• Marine Corps Systems Command, Quantico, VA

• Naval Facilities Engineering Command, Pearl Harbor, HI

• Redstone Arsenal Army Base, AL

• U.S. Army Corp of Engineers locations in Anchorage, AK; Alexandria, 

VA; Baltimore, MD; Fort Worth, TX; Philadelphia, PA; and Vicksburg, 

MS

• U.S. Army Research Development and Engineering Command, 

Natick, MA

• Washington Navy Yard, District of Columbia

• Wright-Patterson Air Force Base, OH

Civilian:

• Department of Agriculture’s Forest Service, New Mexico

• Department of Energy’s National Nuclear Security AdministrationService Center, New Mexico 

• Department of Health and Human Service’s Centers for Disease 

Control and Prevention Atlanta, GA; Centers for Medicare and 

Medicaid Services, Baltimore, MD; and Food and Drug Administration, 

Rockville, MD

• Department of Homeland Security’s Bureau of Customs and Border 

Protection, Federal Emergency Management Agency, and Office of 

Procurement Operations, Washington, D.C.

• Department of Justice’s Drug Enforcement Administration, 

Washington, D.C., and Federal Bureau of Investigation, Chantilly, VA

• Department of Labor’s Office of Procurement Services, Washington, 

D.C.

• Department of State’s Office of Acquisition Management, Arlington, 

VA
Appendix I: Scope and Methodology

Page 62 GAO-12-84 Tribal 8(a) Contracting

• Social Security Administration’s Office of Acquisition and Grants, 

Baltimore, MD.

For the contracts in our sample, we examined contract file 

documentation, including acquisition plans, market research reports, and 

price negotiation memorandums. However, for three of the contracts we 

reviewed, one each at the Army Corps, Department of Homeland 

Security, and the State Department, pre-award information was 

completely missing from the files. For one of these, we were unable to 

determine whether or not it had been competitively awarded, as coded in 

FPDS-NG, because of the missing information. We also interviewed 

contracting officials, small business advocates, and program officials.

To determine the extent to which procuring agencies are overseeing tribal 

8(a) contracts for compliance with the 8(a) program’s subcontracting 

requirements, we reviewed and analyzed documentation for the contracts 

in our review, including acquisition plans, price negotiation 

memorandums, contractor proposals, and SBA offer and acceptance 

letters, in addition to any additional information pertaining to 

subcontractor monitoring. We also interviewed contracting and program 

officials, as well as agency small business advocates, about the methods 

they employ to monitor compliance. Additionally, we reviewed agencyspecific guidance or operating instructions, various statutory provisions, 

the Federal Acquisition Regulation, and Title 13 of the Code of Federal 

Regulations. We also drew from the findings in our 2006 report on 8(a) 

contracting with ANC firms.3

To determine the extent to which SBA’s new regulations could affect 

oversight of tribal firms’ participation in the 8(a) program and to which 

previously identified problems have been addressed, we reviewed SBA 

documents, such as annual reviews and 8(a) program applications, for 

selected tribal firms. These firms were strategically chosen based upon 

their parent entity’s (i.e., ANC, NHO, or Indian tribe) representation in our 

overall contract sample. We selected those firms whose parent entities 

had higher representation in our sample and those with less 

representation. Consequently, we examined the files for 49 ANC, 3 NHO, 

and 10 Indian tribe firms. For the ANC firms, the 49 firms fell under 11 

parent entities. The results of our review are not generalizable to the 

 

3 GAO, Contract Management: Increased Use of Alaska Native Corporations’ Special 8(a) 

Provisions Calls for Tailored Oversight, GAO-06-399 (Washington, D.C.: Apr. 27, 2006).
Appendix I: Scope and Methodology

Page 63 GAO-12-84 Tribal 8(a) Contracting

population of tribal 8(a) firms. Moreover, we reviewed SBA regulations, 

operating procedures and business systems (such as the system used to 

process 8(a) applications), and interviewed officials at SBA headquarters 

and the Alaska, Hawaii, Oklahoma, New Mexico, and Washington, D.C., 

district offices. We also met or spoke with ANC, NHO, and Indian tribe 

representatives in three “town hall” meetings to explain the scope and 

methodology for this review. We did not assess the extent to which 

benefits from tribal 8(a) contracts flow to the parent entity.

We conducted this performance audit from October 2010 to January 2012 

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 II: Comments from the Small 

Business Administration

Page 64 GAO-12-84 Tribal 8(a) Contracting

Appendix II: Comments from the Small 

Business Administration

Note: GAO comments 

supplementing those in 

the report text appear at 

the end of this appendix.
Appendix II: Comments from the Small 

Business Administration

Page 65 GAO-12-84 Tribal 8(a) Contracting
Appendix II: Comments from the Small 

Business Administration

Page 66 GAO-12-84 Tribal 8(a) Contracting
Appendix II: Comments from the Small 

Business Administration

Page 67 GAO-12-84 Tribal 8(a) Contracting
Appendix II: Comments from the Small 

Business Administration

Page 68 GAO-12-84 Tribal 8(a) Contracting

See comment 1.

See comment 1.
Appendix II: Comments from the Small 

Business Administration

Page 69 GAO-12-84 Tribal 8(a) Contracting

See comment 6.

See comment 5.

See comment 4.

See comment 2.

See comment 3.

See comment 2.
Appendix II: Comments from the Small 

Business Administration

Page 70 GAO-12-84 Tribal 8(a) Contracting

See comment 7.
Appendix II: Comments from the Small 

Business Administration

Page 71 GAO-12-84 Tribal 8(a) Contracting

1. SBA said that we had incorrectly reported that employee-based size 

standards are calculated over a 3-year period. We disagree; the 

statement in the report accurately states that the size standards are 

based on the number of employees or on the average revenues from 

the previous 3 years. Therefore, no change is needed.

SBA also characterized as “not true” our statements that a firm that 

does not meet its applicable business activity or mix target is not 

eligible for 8(a) sole-source contracts. SBA noted that if the 

competitive business mix target is not met, the prohibition on the 

award of further 8(a) sole-source contracts can be waived. We agree 

and, to be consistent in how we addressed this issue later in the 

report, we added the word “generally” the first time it was mentioned 

to reflect the potential for a waiver.

2. SBA stated that the report relied on anecdotal information and 

hypothetical scenarios, without analyzing the issue from other 

perspectives, including those of the tribal and ANC participants, and 

that this reliance gives a negative view of the participation of tribally

owned 8(a) firms. We disagree with this comment. As stated in our 

report, we did not generalize our findings. Our findings are not

anecdotal and did not rely on hypothetical scenarios. Nonetheless, 

our objectives for this review were to examine SBA’s and procuring 

agencies’ administration of various aspects of the 8(a) program and 

not to capture the views of program participants. We provided one 

illustrative example to give the reader insight into how 8(a) firms—

both tribal and nontribal—are able to form relationships with non-8(a) 

businesses and non-disadvantaged individuals under current SBA 

regulations. This illustrative example is factually correct in terms of 

what the current regulations allow. All of our findings are based on 

criteria for the program as set forth in statute and regulation. 

3. SBA stated that, in discussing joint ventures with other-than-small 

businesses, we provide an overly simplistic explanation and do not 

explain the benefits of the mentor-protégé initiative within the 8(a) 

program. Our purpose was simply to discuss this program in the 

context of one way that 8(a) businesses can grow and develop. We 

believe this discussion is adequate for the purposes of this report. 

 

4. Regarding the section of our report that discusses challenges SBA will 

face in implementing parts of its new regulations, SBA stated that its 

ability to implement the regulations has been “pre-judged” without 

affording SBA an opportunity to see the results of the regulatory 

changes, and that there is little mention of the agency’s current 

GAO’s Comments
Appendix II: Comments from the Small 

Business Administration

Page 72 GAO-12-84 Tribal 8(a) Contracting

initiatives. We disagree. As we stated in our report, SBA has 

recognized some of the challenges it faces in implementing the new 

regulations. The report also includes information on SBA’s initial steps 

to develop a new data collection system and notes that the agency is 

in the process of re-writing its standard operating procedures. SBA did 

not provide us with any evidence that it will address the data 

limitations we identified in our report, which was the basis for several 

of our recommendations. Because SBA did not comment on our 

recommendations, the agency’s planned actions remain uncertain.

5. SBA stated that we did not take into account tribal 8(a) entities’ 

special statutory benefits. We disagree. The background section of 

our report clearly presents information on these preferences. The 

existence of the preferences is what allows some firms to, as we 

state, operate in effect as large businesses in a small business 

program.

6. SBA stated that we implied that the agency as a whole lacked 

knowledge in administering entity-owned 8(a) companies, based on 

our findings at a specific SBA district office. Our point was not what 

was known at the policy level, but at the implementation level. Our 

findings were based on interviews with agency officials and file 

reviews at several SBA district offices, as discussed in appendix I of 

the report. As our report states, the data system gaps we identified 

do, in fact, create knowledge gaps across SBA, which led to our 

recommendation on this issue. SBA did not address our 

recommendations intended to improve oversight of tribal firms’ 

participation in the 8(a) program. For example, we recommended 

several actions SBA could take as it develops its new 8(a) tracking 

database that may help provide more visibility across district offices. 

7. SBA commented that we implied that cost savings could be realized 

by using procedures other than 8(a). We disagree with this 

characterization. Our focus in this section of the report was on 

competitive versus noncompetitive awards, not on 8(a) versus non8(a). As we have reported in the past, competition is a cornerstone of 

the acquisition system and a critical tool for achieving the best 

possible return on investment for taxpayers. Further, as we explain in 

the background of this report, once a requirement is awarded as an 

8(a) contract, it must remain in the 8(a) program unless the procuring 

agency decides it would like to fulfill the follow-on requirement outside 

of the program and requests approval from SBA to do so. 
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 73 GAO-12-84 Tribal 8(a) Contracting

John P. Hutton, (202) 512-4841 or huttonj@gao.gov

In addition to the person named above, Michele Mackin, Assistant 

Director; Tatiana Winger; Virginia Chanley; Celina Davidson; Julia 

Kennon; Jeff Malcolm; Kenneth Patton; Sylvia Schatz; Erin Stockdale; 

Roxanna Sun; and Holly Williams made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(120946)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (www.gao.gov). Each weekday afternoon, 

GAO posts on its website newly released reports, testimony, and 

correspondence. To have GAO e-mail you a list of newly posted products, 

go to www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations 

Public Affairs

Please Print on Recycled Paper.