Small Business Administration: Agency Should Assess Resources Devoted to Contracting and Improve Several Processes in the 8(a) Program
Published: 2008-11-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Small Business Administration (SBA) helps small businesses gain access to federal contracting opportunities and helps socially and economically disadvantaged small businesses, known as 8(a) firms, by providing management and contracting assistance. SBA negotiates agency-specific goals to ensure that the federal government meets the statutory goal of awarding 23 percent of contract dollars to small businesses. GAO was asked to (1) describe how SBA sets small business contracting goals and the extent to which federal agencies met these goals; (2) examine the role of SBA staff in supporting small business contracting at selected federal agencies; and (3) examine SBA's overall administration of the 8(a) program. To address these objectives, GAO reviewed SBA guidance and SBA Inspector General (IG) reports, interviewed SBA and other federal officials, and conducted site visits and file reviews at four SBA locations.
section_title: What GAO Found
paragraphs: SBA reviews prior year goal achievement and other factors to set individual contracting goals necessary for federal agencies to achieve the governmentwide goal of awarding 23 percent of federal contract dollars to small businesses. Individual agency results varied in fiscal years 2000 through 2006, although the agencies collectively achieved or came close to the 23 percent goal. In fiscal year 2006, SBA began using a scorecard to help monitor agencies' small business contracting efforts. Of the 24 agencies rated, half received the lowest rating (for failing to meet at least two contracting goals and other criteria). SBA later reviewed agency progress in implementing small business procurement plans and many agencies improved their ratings. SBA staff advocate, review, and monitor small business contracting at federal agencies, but resource constraints have limited the ability of staff to fulfill these responsibilities. SBA's procurement center representatives (PCR) work with federal agencies by reviewing proposed acquisitions, recommending contract set-asides, and performing surveillance reviews (which monitor small business contracting at federal agencies). As of August 2008, SBA had 59 PCRs, with many responsible for multiple agencies. SBA has recognized that more PCRs are needed, but has not developed a formal plan to align staff resources with program objectives. Resource constraints also affected SBA's commercial market representatives (CMR), who monitor subcontracting plans. For fiscal year 2006, the SBA IG reported that CMRs monitored less than half of the 2,200 large prime contractors. These resource constraints reduced assurances that SBA can monitor contracting effectively. SBA's administration of the 8(a) business development program is challenged by several factors, including some participants not understanding the program's purpose and requirements, its staff's diminished ability to conduct business development activities, an inefficient process to terminate firms, and a lack of routine surveillance reviews specific to the program. While SBA has controls in place to determine if firms are eligible to enter the program, firms do not have to participate in an information session or complete an assessment that rates their suitability for the program. Thus, some firms may have entered the program with unrealistic expectations or not clearly understood program requirements. SBA officials said that an emphasis on completing annual reviews of 100 percent of 8(a) firms, which are time intensive, and an inefficient termination process for noncompliant 8(a) firms diminished the time its business development specialists had for providing business development assistance. Delays in terminating firms also could result in noncompliant firms obtaining contracts. Finally, in 2006, the SBA IG recommended that SBA regularly conduct surveillance reviews for the 8(a) program. However, SBA has not yet implemented this recommendation. As a result, SBA has reduced assurances that agencies have complied with monitoring requirements for the 8(a) program.

section_title: Letter
paragraphs: In fiscal year 2006, the federal government awarded $77 billion in  In fiscal year 2006, the federal government awarded $77 billion in  contracts to small businesses. Under the Small Business Act, the Small  contracts to small businesses. Under the Small Business Act, the Small  Business Administration (SBA) plays an important role in ensuring that  Business Administration (SBA) plays an important role in ensuring that  small businesses gain access to federal contracting opportunities. For  small businesses gain access to federal contracting opportunities. For  instance, SBA negotiates agency-specific goals to ensure that the federal  instance, SBA negotiates agency-specific goals to ensure that the federal  government collectively meets the 23 percent statutory goal for contract  government collectively meets the 23 percent statutory goal for contract  dollars awarded to small businesses. In addition, SBA negotiates goals for  dollars awarded to small businesses. In addition, SBA negotiates goals for  socioeconomic programs such as small disadvantaged businesses (SDB),  socioeconomic programs such as small disadvantaged businesses (SDB),  women-owned businesses, Historically Underutilized Business Zones  women-owned businesses, Historically Underutilized Business Zones  (HUBZone), and service-disabled veteran-owned businesses. Further,  (HUBZone), and service-disabled veteran-owned businesses.
Congress first enacted requirements for specific procurement goals for federal contracting  for small businesses in 1988. Since then, these specific goals have been increased and  extended to firms participating in various small business programs. The 8(a) program has  no statutory goal, but 8(a) firms also are certified as SDBs. The current government-wide  goal for awarding prime contracts to SDBs and women-owned businesses is 5 percent, and  HUBZones and service-disabled veteran-owned businesses each have a goal of 3 percent.  For instance, under the HUBZone program, certain small businesses located in  economically distressed communities may be eligible for set-aside and “sole-source”  contracts. Women-owned businesses must be at least 51 percent owned and controlled by  women. Currently, there are no set-aside contracts for women-owned businesses. Service- disabled veteran-owned businesses must be at least 51 percent owned and controlled by  service-disabled veterans and can be eligible for certain set-aside and sole-source  contracts. management practices. Until recently, SBA also certified small businesses  as SDBs.
In addition, procurement center representatives (PCR) and commercial  market representatives (CMR) in SBA’s Office of Government Contracting  work to increase business opportunities for small businesses and ensure  they receive a fair and equitable opportunity to participate in federal prime  contracts and subcontracts. Further, all federal agencies with procurement  authority are required to establish an Office of Small and Disadvantaged  Business Utilization (OSDBU) to advocate for contracting opportunities  for small businesses. Procurement staff in most agencies also include  small business specialists (SBS), who are responsible for working with  OSDBUs and agency contracting officers to advocate for small businesses.
Concerns have been raised about the extent to which federal agencies  have met their small business contracting goals and about SBA’s efforts to  facilitate federal contracting opportunities for small businesses, including  those for 8(a) firms. In response to your request, this report (1) describes  the actions SBA takes to set these goals and the extent to which federal  agencies have achieved their small business contracting goals in recent  years, (2) examines the role of SBA staff in supporting small business  contracting at selected federal agencies, and (3) examines SBA’s overall  administration of the 8(a) business development program. In addition,  appendix II describes how the use of the SDB certification has changed  over time and appendix III provides information on the roles of OSDBUs  and federal agency procurement officials.
To address these objectives, we reviewed SBA guidance, our prior reports  and those of the SBA Inspector General, and interviewed officials at SBA  in the Office of Business Development, Office of Government Contracting,  and Division of Program Certification and Eligibility (DPCE). To address  the first objective, we reviewed the results of SBA’s inaugural Small  Business Procurement Scorecard for fiscal year 2006 and the midpoint  scorecard for fiscal year 2008. We used data from fiscal years 2000  through 2006 on SBA’s negotiated small business contracting goals with  agencies and small business goaling reports to determine what percentage  of agencies’ contracting dollars was awarded to small businesses. SBA  uses the Federal Procurement Data System-Next Generation (FPDS-NG)  to prepare its annual small business goaling reports, which evaluate  agencies’ performance on the various small business goals. To assess  these data, we reviewed related documentation, including the  methodology used to create these reports. For the purposes of this report,  we found these data to be reliable. To further understand the process for  establishing contracting goals and related achievements, we selected five  agencies for our review. We first selected four agencies (the Departments  of Commerce, Defense, and Homeland Security; and the Social Security  Administration) based on level of contracting activity and SBA’s  assessments of their goal achievement. The four agencies generally  obligated larger amounts of contracting dollars to small disadvantaged  businesses and, collectively, they received the full range of scores on  SBA’s 2006 scorecard. We also included SBA because it sets goals and is  responsible for assessing and reporting on goal achievement at federal  agencies. To address the second and third objectives, we conducted four  site visits at SBA district and area offices in Atlanta, Georgia; Chicago,  Illinois; San Francisco, California; and Washington, D.C., and interviewed  SBA officials in each location. We interviewed the 8 PCRs and 5 CMRs  located in the four locations we visited (out of an agency total of 59 PCRs  and 31 CMRs, respectively). In addition, we interviewed 19 BDSs. We  selected these locations based on the number of 8(a) firms in each  location and for geographic diversity. For the third objective, we also  analyzed at each location a sample of 20 8(a) participant files and  additional documentation that SBA provided on participants, contracts,  and federal procurement surveillance reviews (which evaluate federal  agency controls to ensure compliance with small business contracting  requirements). More specifically, we randomly selected two firms (one  that received a contract and one that did not) from each year of the 9-year  program and also randomly selected two firms in SBA’s mentor-protégé  program. In addition, we interviewed an official from a trade association  representing 8(a) and SDB firms and reviewed documents prepared by  other trade associations representing 8(a) and SDB firms.
We conducted this performance audit from October 2007 through  November 2008 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. Appendix I  provides a detailed description of our objectives, scope, and methodology.
subsections: section_title: Background
paragraphs: Two offices within SBA are primarily responsible for the contracting  assistance and business development programs discussed in this report.  SBA’s Office of Government Contracting administers the prime  contracting and subcontracting assistance programs through SBA  headquarters and six area offices located across the country. A goal of  these programs is to increase business opportunities for small businesses  and ensure that small businesses receive a fair and equitable opportunity  to participate in federal prime contracts and subcontracts. Area office  directors are responsible for supervising these programs in the field; the  Office of Government Contracting staff in the area offices that conduct  contracting program activities are PCRs and CMRs. PCRs help increase  the small business share of federal procurement awards by initiating small  business set-aside contracts (set-asides); reserving procurements for  competition among small businesses; and identifying federal agencies with  small business sources for goods and services. PCRs also conduct  surveillance reviews, which are used to assess federal agencies’  management of their small business programs and compliance with  regulations and published policies and procedures. CMRs conduct  compliance reviews of prime contractors, counsel small businesses on  how to obtain subcontracts, conduct and participate in “matchmaking”  activities to facilitate subcontracting with small businesses, and provide  orientation and training on the subcontracting assistance program for both  large and small businesses.
SBA’s Office of Business Development administers the 8(a) program.  BDSs, who work directly with 8(a) firms, are located in SBA’s 68 district  offices. They are required to assist firms with preparing a business plan,  conduct annual reviews of the firms’ progress in implementing these plans,  provide technical assistance, analyze year-end financial statements for  certain compliance requirements, and coordinate additional assistance  and training for firms through another SBA program. Additionally, BDSs  may have responsibilities related to other SBA programs such as  coordinating with resource partners that provide counseling, training, and  other assistance to small businesses.
Furthermore, SBA enters into partnership agreements with government  agencies to award contracts to qualified 8(a) firms. In order to do so, SBA  developed partnership agreements with 39 federal agencies, which  delegate SBA’s contract execution authority to the agencies. According to  SBA, the purpose of the partnership agreement is to streamline the  contract execution process so that 8(a) firms may have more procurement  opportunities. Without the partnership agreements, all federal agencies  would be required to involve SBA from start to finish in the procurement  process when 8(a) firms were the providers of goods and services. The  partnership agreement requires that both SBA and the partner agency  share the responsibilities of contract execution and oversight, monitoring,  and compliance with procurement laws and regulations governing 8(a)  contracts. In 2007, the partnership agreements were revised to clarify each  agency’s role. SBA also plans to revise the agreements in 2009 to make  further clarifications on subcontracting requirements.
To qualify for the 8(a) program, a firm must be at least 51 percent owned  and controlled by an individual who meets SBA’s criteria of socially and  economically disadvantaged. Socially disadvantaged individuals include  certain members of designated groups, such as Black Americans or  Hispanic Americans and individuals who are not members of designated  groups. Economically disadvantaged firms include those whose primary  owner(s) has $250,000 or less in personal net worth, adjusted to exclude  personal residence and business assets. In addition, a firm must  demonstrate its potential for success by being in business for 2 years or  meet waiver provisions (a waiver requires the applicant to present copies  of contracts or invoices demonstrating performance of work in the  industry for which the applicant seeks 8(a) certification). The 8(a)  program lasts 9 years and once completed, a firm cannot reapply.  However, all 8(a) firms automatically are certified as SDBs and SDB firms  can reapply for certification every 3 years.
Firms in the 8(a) program are eligible to receive competitive and sole- source set-asides. Competitive contracts can be awarded to 8(a) firms if  there is a reasonable expectation that at least two 8(a) firms will submit  offers and the award can be made at a fair price. Sole-source contracts can  be awarded when the dollar thresholds are $5.5 million or less for  acquisitions involving manufacturing and $3.5 million or less for all other  acquisitions.
section_title: SBA Considers Prior Goal Achievement of Agencies When Setting Contracting Goals, and Federal Agency Goal Achievement Has Varied in Recent Years
paragraphs: SBA considers such factors as prior-year goal achievement when setting  contracting goals for federal agencies; goal achievement among federal  agencies varied from 2000 through 2006. Currently, SBA emphasizes  quantitative measures for goal setting. For the 2008-2009 goal-setting cycle,  SBA reviewed contracting trends at agencies, prior-year goal achievement,  and the impact of each agency’s goals on the government-wide average. In  fiscal year 2006, SBA began using a scorecard to evaluate contracting  efforts at 24 agencies; 7 agencies received the highest rating, 5 received the  middle rating, and 12 received the lowest rating. In a subsequent review,  agency ratings showed improvement, with four agencies receiving the  lowest rating. While officials from all agencies we reviewed cited  challenges with the goal-setting process, such as limitations in negotiating  and appealing their goals, federal agencies collectively have achieved or  come close to achieving the government-wide goal of 23 percent, but  individual agency performance varied. Federal agencies had a similarly  varied record for other small business goals such as the SDB goal and 8(a)  negotiated goal. According to SBA and OSDBU officials, many factors can  influence an agency’s ability to achieve socioeconomic goals, such as a  lack of small business firms that can meet specialized procurement needs  or fluctuations in an agency’s procurement cycle.
subsections: section_title: SBA Analyzes Such Factors as Prior-Year Goal Achievement of Agencies and Potential Impacts on Meeting Government-wide Goals to Set Agencies’ Contracting Goals
paragraphs: SBA is required to report on contracting goal achievements of federal  agencies in an effort to meet the statutory government-wide goal of  awarding 23 percent of contracting dollars to small businesses and goals  established for four socioeconomic categories (see table 1).
In previous years, SBA negotiated annual procurement goals with each  federal agency so that, cumulatively, the government-wide goal was met or  exceeded. Each agency submitted proposed goals to SBA; SBA then  adjusted the goals to meet, in aggregate, the statutorily assigned levels.  For fiscal years 2008 and 2009, agencies did not submit proposed goals to  SBA. Instead, SBA set goals based on trend analysis, prior-year goal  achievement, and the impact of each agency’s goals on the national  average.
Officials from four of the agencies we reviewed cited challenges with the  goal-setting process such as limitations in negotiating and appealing their  goals. Two agencies said that the goal-setting process was not a  negotiation and that SBA did not factor in changes in the agencies’  contracting priorities in its goal setting. For example, one agency saw  significant increases in information technology spending, which typically  involves large contracts for which small businesses might not be  competitive, but the small business goal did not reflect this change.  Agency officials explained that efforts to appeal the goals were lengthy,  resource-intensive, and unsuccessful.
SBA officials explained that they were constrained in their ability to  negotiate anything less than full government-wide compliance with the  statutory 23 percent goal. They said that in some cases, SBA has  reconsidered an agency’s request to lower its annual goals but requires the  reconsideration to be both unique and compelling. For example, SBA  officials said they adjusted the goal for the Department of Health and  Human Services in the middle of a fiscal year because the department’s  contracting priorities shifted to accommodate the purchase of vaccines,  which generally are produced by large businesses. However, SBA officials  explained that other agencies would need to provide more small business  contracting opportunities to compensate. Agencies may appeal to SBA if  they disagree on the established goals; if they do not reach agreement,  they can submit their case to the Office of Federal Procurement Policy  (OFPP) for a final determination. The agencies we reviewed did not have  experience disputing their goals through OFPP. In addition, according to  SBA officials, in October 2007 the agency established an executive  subcommittee within the Small Business Procurement Advisory Council to  review the current goal-setting process and provide more transparency on  the process.
section_title: SBA Developed a Scorecard to Evaluate Small Business Contracting Efforts of Agencies
paragraphs: For fiscal year 2006, SBA began using a Small Business Procurement  Scorecard to help monitor agencies’ small business contracting efforts,  including plans and progress in meeting the goals, and to bring greater  attention to goal achievement (see fig. 1). SBA officials explained that SBA  has limited statutory authority to enforce the goals or impose corrective  action on agencies that fail to meet the negotiated small business  contracting goals.
SBA’s 2006 scorecard consisted of three color ratings. To receive the  highest (green) rating, an agency had to have met its overall contracting  goal for small business and at least three of the socioeconomic goals,  shown progress in meeting the remaining two socioeconomic goals, and  met the requirements for the middle (yellow) rating. To meet the yellow  rating, the agency had to have met two socioeconomic goals, improved in  one other goal, and met other criteria that included top-level commitment  by agency officials for small business contracting, cooperation with SBA,  and timely and accurate reporting. An agency received a low (red) rating  if it failed to meet the requirements for the middle (yellow) standards.  Although the scorecard reviewed activity in fiscal year 2006, SBA said it  did not publish the scorecard until August 2007. At that time, SBA also  published ratings on the scorecard for the progress the agencies made on  their small business procurement plans through July 25, 2007.
Of the 24 agencies SBA rated in the 2006 scorecard, 7 received the highest  rating, 5 received the middle rating, and 12 received the lowest rating. For  instance, DHS received the highest (green) rating because it met three out  of four socioeconomic goals, had an agency strategy to increase the  number of competitively awarded contracts to small businesses, and  demonstrated commitment to small business contracting at the higher  levels of the agency. The Department of Commerce (Commerce) did not  meet two of its socioeconomic goals and therefore received a yellow  rating. DOD did not meet its small business goal or socioeconomic goals  and received a red rating. The Social Security Administration (SSA) also  received a red rating for not meeting its goals and several other criteria,  including not having an evaluation factor for acquisition professionals on  goal achievement, enforcing subcontracting plans, and meeting  subcontracting goals.
However, many agencies showed improvement on the portion of the  scorecard that assessed the agencies’ progress through July 25, 2007. For  instance, of the 12 agencies with a low score for fiscal year 2006, 8 moved  up to the middle score. All five agencies that previously received a middle  score received the highest rating in terms of progress in implementing  their small business procurement plans. Of the agencies we reviewed, DHS  and SBA maintained the highest score, Commerce and DOD showed  improvement, and SSA continued to receive a low rating (see fig. 2).
Some agency officials we interviewed expressed dissatisfaction with the  fiscal 2006 scorecard. For example, senior officials from three of the four  agencies we selected suggested that SBA did not adequately take into  account factors that affected their goal achievements, since an agency  could receive the lowest category for barely missing its goals. One official  suggested that the scorecard could be improved by focusing on outcome- oriented criteria rather than activity-oriented criteria. For example, the  official suggested that rather than looking at the number of outreach  events in which an agency participated, SBA could assess the agency  based on how many firms received a contract as a result of attending the  event. Yet, they acknowledged that the scorecard promoted transparency.
SBA officials regarded the scorecard as a useful tool. They suggested that  the inaugural 2006 scorecard had the effect SBA intended—bringing  greater transparency to agencies’ current and future small business  contracting efforts. Moreover, agency officials have been incorporating the  results of the scorecard into their performance plans. For example,  according to SBA officials, some agencies have factored the results of the  scorecard into the performance evaluations of procurement officials. SBA  said that they had plans to improve the scorecard by providing agencies  the opportunity to present their procurement plan for small businesses,  progress made toward their plan, and mitigating factors affecting their  ability to implement their plan. SBA also is working to better align  scorecard reporting time frames toward the earlier part of the fiscal year  rather than the end of the fiscal year. In addition, SBA has provided  opportunities for agency officials to comment on the scorecard and  propose revisions.
In July 2008, SBA issued a midyear scorecard that assessed the progress  that agencies made on their fiscal year 2008 small business procurement  plans. SBA officials explained that as a result of feedback from other  federal agencies, SBA included some different elements on this scorecard  than on the 2006 scorecard. For example, SBA assessed whether the  agency    planned significant events to encourage small business participation,    planned training for contracting staff and managers, and    planned to collaborate on formulating policy.
SBA reviewed submissions from the agencies to determine if their plans  were “acceptable” or “needed work.” In addition, SBA identified best  practices at 16 of the agencies (see fig. 3).
The majority of the agencies had plans that SBA considered acceptable,  and SBA identified best practices at three of the four agencies we  reviewed. For instance, Commerce’s OSDBU director was a member of the  Federal Acquisition Regulatory Council and SBA suggested that other  agencies could benefit by having their OSDBU director join the council as  a way to influence policy initiatives. DOD was cited as having a unique  plan that set goals and objectives for small business procurement down to  the major department level. SBA noted that DHS had a comprehensive  small business program and supported it through outreach activities and a  directive that was issued by its top-level management. SBA suggested that  SSA could improve its scorecard by demonstrating top-level commitment  for small business contracting and developing a plan to submit all strategic  plans and reports to SBA. SBA’s small business plan also was cited as  needing work because it did not demonstrate that a policy or procedure  was in place for subcontracting goals. SBA said it planned to release the  second results and progress scorecard, which would be comparable to its  inaugural scorecard, by the end of fiscal year 2008.
section_title: Government-wide and Small Disadvantaged Business Goal Achievement Varied in Fiscal Years 2000–2006
paragraphs: For most fiscal years from 2000 through 2006, federal agencies collectively  achieved or came close to achieving the government-wide goal for overall  small business contracting. However, government-wide, the federal  agencies did not meet or exceed the overall contracting goal of 23 percent  in 4 of the 7 years (see fig. 4). At the select agencies we reviewed, goal  achievement varied. For instance, DHS consistently has met its SBA- negotiated (SBA-set) goal since 2004. DOD did not meet its goal in any  year from 2000 through 2006; however, the agency generally came close  each year. DOD’s small business goal was 23 percent each year; its goal  achievement ranged from a low in 2001 of 20.5 percent to a high in 2005 of  22.6 percent. Other agencies had mixed outcomes in their goal  achievement. For example, Commerce and SSA did not meet their SBA-set  small business goals in 1 of the 7 years we reviewed. However, in the years  these agencies met their goals, they generally exceeded the goals by large  margins. SBA did not meet its goals in 3 years (2002 through 2004), but  exceeded its goals in 4 years (2000, 2001, 2005, and 2006).
Government-wide, federal agencies exceeded the 5 percent statutory goal  for SDBs from 2000 through 2006. However, SBA also set goals above this  standard in the years we reviewed (the SBA-set goals, both government- wide and for the selected agencies, are shown in fig. 5). In the years that  federal agencies did not meet their goals (2004 and 2005), the SBA-set goal  was 8 percent. For the select agencies we reviewed, goal achievement  varied. For instance, DHS met its goal in all years we reviewed. DOD also  met its SDB goal each year. Other agencies had mixed outcomes. For  example, Commerce did not meet its goal in 3 of 7 years; however, in 2006  it missed its goal by a slight margin. SSA met its SDB goal in 2002 and  2003. SBA met its goal in 3 out of 7 years. For more information on  contracts awarded to firms with SDB certifications, see appendix II.
Although the statutory provision for setting goals for small business  participation in federal procurement contains no contracting goal for the  8(a) program, SBA negotiated an annual goal with agencies until 2007.  The government-wide goal was met in most years we reviewed, except for  2002 and 2004 (see fig. 6). For the select agencies we reviewed, goal  achievement varied. For instance, DHS met its goal in all years we  reviewed, but the degree by which it exceeded the goal declined. DOD met  SBA’s 8(a) goal in each year except 2002. Commerce met or exceeded its  goal in recent years but mostly missed its goal from 2000 through 2004.  SSA and SBA also had mixed results and missed their goal in 4 of the 7  years.
According to SBA officials and OSDBU directors, many factors can  influence an agency’s ability to achieve socioeconomic goals, such as the  focus of the agency’s business plan (that is, the type of contracts required),  a lack of small business firms that can meet specialized procurement  needs, or fluctuations in an agency’s procurement cycle. For example, the  Department of Energy relies on a business model that emphasizes large  contracts, which can make achievement of small business goals difficult.  SBA and DOD officials explained that small businesses do not provide  many of the goods and services that DOD purchases, such as airplanes,  tanks, and weapons. Commerce officials explained that SBA’s goal-setting  process did not adequately take into account the significant increase in  spending associated with the decennial census, which generally relies on  larger contracts that are not as conducive for small business contracting  opportunities. In contrast, SBA officials explained that other agencies  might have fewer contract dollars to spend but require more types of  services amenable to small business contracting. Finally, SBA officials  stated that changes in an agency’s mission and the types of goods and  services purchased could present barriers to goal achievement.
section_title: Resource Constraints Limit Ability of SBA Staff to Advocate for, Review, and Monitor Small Business Contracting at Federal Agencies
paragraphs: Resource constraints limit the ability of SBA staff to carry out some of  their core responsibilities. SBA staff have advocacy, review, and  monitoring roles to facilitate small business contracting at federal  agencies. PCRs are procurement analysts who implement SBA’s prime  contracting program. They can be located where agencies conduct  procurements or off-site at SBA’s offices. More specifically, PCRs  review federal agency acquisitions and recommend small business set- asides;    can dispute a procurement through informal or formal means with the  agency’s procurement officials in instances where an agency does not  accept the recommended set-aside;   conduct surveillance reviews, which monitor small business contracting at  recommend procurement strategies to federal agencies to maximize small  business participation in federal contracts; and   counsel and train small businesses on obtaining federal contracts.
However, PCRs have operated under resource constraints as a  consequence of overall agency downsizing and budget reductions. As we  previously reported, budget reductions in the 1990s resulted in SBA  streamlining its field structure and shifting its workload to district or  headquarters offices. During this time, SBA’s workforce declined  significantly, from 3,800 to about 3,100 employees (about 19 percent).  From 2000 to 2007, SBA restructured its organization and the workforce  further decreased by 26 percent. As of September 2007, SBA had 2,166  employees.
From our review of SBA’s August 2008 area office directory, most PCRs  covered multiple agencies and “buying activities” within agencies. As of  August 2008, SBA had 59 PCRs—16 of which also had CMR  responsibilities—but expected to increase the number to 66 through  additional hiring. Some PCRs were responsible for up to six agencies.  Almost all the PCRs (55 out of 59) had responsibilities for buying activities  at DOD. Twenty-two were assigned exclusively to DOD and 33 were  responsible for overseeing DOD and other agencies. DHS and Commerce  were assigned 4 and 2 PCRs, respectively, while SSA and SBA were  assigned 1. Our review of the number of buying activities for which a PCR  was responsible showed an average of 5 activities per PCR, with the  number of buying activities per PCR varying from 1 to 12. SBA officials  explained that the amount of work also can vary by agency, partly because  some agencies had automated contracting processes while others did not.
The reduced staff numbers, multiagency assignments, and other available  evidence suggest that PCRs are limited in the extent to which they can  carry out some of their responsibilities. According to SBA officials, in  2007, PCRs reviewed about 47,000 new procurement actions of 5.5 million  total procurement actions throughout the federal government. In 2002,  we also reported that the number of set-aside recommendations that PCRs  were making annually decreased by about half, from 529 in fiscal year 1991  to 281 in fiscal year 2001. Reasons for the decline during this period  included downsizing (which decreased the number of PCRs), the  reassignment of some PCRs to other roles, and the increased size of  federal procurements that contributed to fewer set-aside opportunities for  small businesses. We had planned to update our 2002 report data on the  number of PCR-recommended set-asides for this report, but because SBA  no longer collected this information electronically, the most recent data  are from 2001. We were able to update information about the number of  Form 70s that PCRs issued; the Form 70 reflects some level of discussion  or disagreement between agencies and SBA about recommended set- asides. When agency officials reject a set-aside recommendation, PCRs  can dispute the procurement through informal or formal means (Form  70s) with the agency’s procurement officials. From fiscal years 2003  through 2007, PCRs generally increased the number of informal Form 70s,  except for 2007, and decreased the number of formal Form 70s filed  annually.  Finally, PCRs participated in 94 surveillance reviews from 2003  to 2007, 59 of which were within one agency (DOD). However, SBA did not  conduct any surveillance reviews from 1994 through 2002 because of  budget constraints.
SBA has recognized that more PCRs are needed and has begun some  efforts to streamline some of the PCRs’ responsibilities. For instance, at a  congressional hearing in September 2007, SBA’s deputy administrator  cited the importance of the PCRs and mentioned SBA’s plan to fund  additional PCR positions and fill vacant positions in a timely manner.  Further, in February 2008, SBA’s former administrator testified on efforts  to refocus the responsibilities of PCRs from working directly with small  businesses to directing contracts to small businesses. The BDSs would  assume full responsibility for working directly with small businesses. SBA  headquarters officials explained efforts were underway for PCRs to  coordinate with BDSs when opportunities for small business were  identified at federal agencies. In our interviews with PCRs, some  mentioned changes in their responsibilities—to interact more with federal  agencies to identify small business contracting opportunities and less with  small businesses to provide outreach and training on federal contracts— but noted they were still transitioning to their new roles.
However, SBA officials also explained that SBA currently has no formal  guidance or plan in place to review the workload of PCRs and they made  PCR assignments by considering the contracting volume of the buying  activities and the level of automation of the contract process at the buying  activities. The officials explained that in the future, SBA plans to  undertake a business re-engineering process to develop a resource  allocation system that incorporates the above factors.
According to PCRs and others we interviewed, workload and resource  issues have affected their ability to conduct their current work. Officials in  three of the four area offices we visited explained PCRs were stretched  too thin and were not able to cover all contracting activities effectively.  More specifically, five of the eight PCRs we interviewed were finding it  difficult to provide adequate coverage to one agency, much less several.  Our analysis of the field directory indicated that 17 (29 percent) of 59  PCRs were responsible for six or more buying activities. Further, many  PCRs explained they had better results in advocating for small business  when they were involved with buying activities on an ongoing basis and  available to make informal recommendations and answer questions than  when they were not. At two of the four agencies we reviewed, OSDBU  officials explained that they rarely interacted with PCRs. In addition, an  official from another agency explained they do not rely as much on PCRs  for guidance and support since the PCRs appear to be overextended in  covering all their responsibilities. Therefore, these agencies may have  missed opportunities to identify or advocate small businesses for certain  contract opportunities. In addition, an OSDBU official explained that  because PCRs were responsible for several agencies they generally had to  focus on agencies that were most challenged to reach their small business  goals. Moreover, all the area office directors we interviewed explained  that a wave of PCR retirements was expected in the near future and it  would be difficult to replace the knowledge and relationships of the  current PCRs.
In addition to PCRs, who review agency acquisitions and recommend  contracting opportunities for small businesses, SBA’s CMRs    conduct compliance reviews of prime contractors,    counsel small businesses on how to obtain subcontracts,    conduct and participate in “matchmaking” activities to facilitate  subcontracting with small business, and   provide orientation and training on the subcontracting assistance program  for both large and small businesses.
However, the number of staff performing CMR duties has decreased  substantially in recent years, as has the number of staff dedicated to  performing those duties full time. A 2007 SBA IG report found a significant  decrease in the number of full-time CMRs from 24 in 1992 to 3 in 2006 and  an increase in the number of part-time CMRs from 3 to 35 over the same  period. As of August 2008, SBA had 31 CMRs, 16 of whom had additional  job functions such as PCR duties, conducting small business size  determinations, and issuing certificates of competency. These additional  roles often take higher priority and reduce the amount of time CMRs are  able to spend on subcontracting assistance activities. Moreover, the CMRs  with whom we spoke had large portfolios, ranging from approximately 90  to 200 prime contractors. The IG recommended that SBA develop a  performance plan that addresses how CMRs would be allocated. Although  SBA agreed with this recommendation and stated more resources were  needed, SBA still does not formally monitor the workload allocations of  the CMRs. SBA officials stated that the agency plans to evaluate CMR  workloads and possibly centralize some job functions.
Furthermore, resource constraints have limited the ability of CMRs to  perform a key monitoring function. All of the CMRs we interviewed  explained that their increased workload diminished their ability to monitor  prime contractors through compliance reviews. For instance, one CMR  with whom we spoke had not completed a formal compliance review of a  prime contractor in 5 years. Some CMRs also noted that the number of on- site reviews they conducted was limited because of budget constraints.
Furthermore, the SBA IG found in fiscal year 2006 that less than half of the  2,200 large prime contractors were monitored and only 24 percent of those  monitored had been reviewed on-site. CMRs are responsible for reviewing  subcontracting plans of prime contractors once a contract has been  issued. CMRs review the plans to see if prime contractors are meeting  their subcontracting goals, whether they have a program in place to  achieve their goals, and how well the program is being implemented. SBA  guidance also states that conducting compliance reviews is one of the  CMR’s most important responsibilities. The guidance further states these  reviews often are the only formal evaluation of a contractor’s compliance  with its subcontracting plan and that CMRs should conduct desk audits  and on-site reviews of prime contractors to ensure they are upholding  their subcontracting plans.
Resource constraints that contributed to extensive workloads and  responsibilities encompassing several agencies and activities have  hindered the ability of SBA staff to carry out core activities related to  monitoring of federal contracting. As a result, SBA has reduced assurance  that PCRs and CMRs are ensuring that federal agencies increase their  share of federal contracts for small business or are effectively monitoring  contracting activity at the federal agencies.
section_title: SBA Faces Several Challenges in Effectively Administering the 8(a) Program
paragraphs: SBA faces several challenges in its overall administration of the 8(a)  business development program. First, SBA offers voluntary seminars and  an assessment tool to help educate applicants on the 8(a) program, but  according to SBA officials some applicants still may not understand the  program’s purpose and reporting requirements. Second, SBA staff said that  the recent emphasis on meeting the long-standing statutory requirement to  complete annual reviews of 100 percent of 8(a) firms—which are time- and  resource-intensive—has diminished their ability to conduct business  development activities. Third, an inefficient termination process may  result in noncompliant firms remaining in the program and consuming  limited SBA resources that otherwise might be used to provide business  development assistance to compliant participants. Finally, a 2006 IG  recommendation that SBA regularly conduct surveillance reviews of  agency oversight of 8(a) contracting has not been implemented. As a result  of SBA not conducting such reviews, it has reduced assurance that  agencies met their responsibilities under partnership agreements,  including oversight of contracting, for the 8(a) program.
subsections: section_title: The Purpose of the 8(a) Program Is Business Development and Participants Must Meet Annual Reporting and Other Requirements
paragraphs: The purpose of SBA’s 8(a) program is to help eligible SDBs compete in the  economy through business development. Over the course of their 9-year  term, 8(a) participants can receive (1) business training, (2) financial  assistance, and (3) assistance with forming joint ventures and other  strategic agreements. As noted, firms in the 8(a) program also are eligible  to receive competitive and sole-source set-aside federal contracts.  Because the 8(a) program does not guarantee that participants will receive  these contracts, firms in the program have some responsibility for their  own success. For example, in all of the locations we visited, district office  officials told us that firms with marketing experience and that did  significant self-marketing with federal agencies were most successful.
Any firm has the right to apply for 8(a) program participation, but 8(a)  eligibility requires a firm to have a minimum of 2 years of business  experience or meet waiver provisions. Specifically, prospective 8(a) firms  must be in business for 2 full years immediately prior to the date of  application and present supporting documentation for SBA’s analysis or  apply for a waiver to the 2-year rule and demonstrate they meet certain  other conditions, including (1) business management experience,   (2) technical expertise, (3) adequate capital, (4) a record of successful  contract performance, and (5) the ability to obtain the resources necessary  to perform contracts. Applicants also must provide documentation on the  firm’s business and its owners, including business and personal financial  statements and business and personal tax returns. According to SBA, firms  were able to submit their applications electronically through its Business  Development Management Information System (BDMIS) in 2005, but the  system was implemented fully as of July 28, 2008. The system is intended  to significantly decrease processing times for 8(a) certifications. SBA’s  goal is to complete 8(a) certifications within 90 days.
Once approved for the program, participant firms must continue to meet  all eligibility criteria (including those for ownership and social and  economic disadvantage) and submit documentation that SBA requires to  complete mandatory annual reviews. For instance, each year, as part of  the annual review, participants must provide SBA with a certification that  they continue to meet eligibility requirements as well as financial  statements, income tax returns, and a report on all non-8(a) contracts. In  conjunction with SBA, each participant also must review its business plan  annually and modify the plan as appropriate based on future contract  targets and business development needs. Since SBA approves the business  plan upon admission, it reviews the plan annually to assess each firm’s  growth and progress toward attaining the ability to compete in the open  market without SBA assistance. Most annual review documents and the  updated business plan are due within 30 days after the close of each firm’s  program year and financial statements are due within 90 to 120 days of the  close of the reporting period. Participants sign an agreement upon entry to  the program that they will submit all required documentation to SBA on  time or face termination.
section_title: SBA Uses Voluntary Means to Educate Applicants on 8(a), but Some Applicants Still May Not Understand Program Purpose and Reporting Requirements
paragraphs: The number of applications to the 8(a) program increased sharply in 2002,  and remained relatively constant through 2007 (see fig. 7). SBA noted that  the numbers could increase during economic downturns or when  unexpected events like Hurricane Katrina affected business operations  and the applications might be the result of applicants not having a clear  understanding of the primary purpose of the 8(a) program as a business  development program. That is, firms may have applied to the program  because they focused on the contracting preferences they could receive as  8(a) firms and not on the program’s requirements for business  development. According to SBA officials, a majority of applications were  returned because the firms applying submitted incomplete applications.  Figure 7 also illustrates that for each year from 2002 through 2007, the  number of applications that were either returned or withdrawn exceeded  the numbers of approved applications and declined applications. Some  SBA officials also noted that often applicants were not prepared or well- suited for the program.
SBA has used several means to educate applicants about the purpose of  the 8(a) program and its eligibility and reporting requirements, but none  are a prerequisite for program application. SBA offers an information  session for firms interested in applying to the 8(a) program, but  participation in the session is voluntary. SBA markets these sessions  through its resource partners (such as Small Business Development  Centers and SCORE) and its Web site, and 8(a) program guidance states  that district offices are expected to encourage potential applicants to  attend the sessions, which the district offices or resource partners  conduct. The purpose of the information session is to educate potential  applicants about eligibility and the application process and to assist them  in making a determination about participation. For example, topics  covered in the session include (1) program background, (2) eligibility  requirements, (3) application forms, (4) requirements for participation and  continuing eligibility such as annual reviews, and (5) available program  resources. According to SBA guidance, information sessions may be  conducted as workshops with multiple firms or a one-on-one interview  with a single firm. At the four district offices that we visited, the BDSs said  that their offices conducted workshops for potential applicants. According  to SBA, its district offices held 1,912 8(a) workshops in fiscal year 2008  that were attended by more than 42,000 participants. Forty-seven of the   68 district offices, including the 4 we visited, reported that they held  workshops monthly or conducted at least 12 workshops in 2008.
SBA officials also explained that in 2007, they developed an online self- assessment tool that firms could use to determine their readiness for the  program before they applied. According to the officials, as of October  2008, over 26,000 firms had completed the assessment tool since its  inception. The tool includes an audio-visual presentation that provides  basic information on the 8(a) program and consists of 23 questions that  have accompanying explanations of their relevance to program  requirements. For example, SBA asks whether the potential applicant has  a current business plan and explains, “Sound business management is core  to the success of participating 8(a) certified firms. A key aspect of good  management is business planning. Prospective 8(a) firms should have a  current, well thought out business plan before applying to the program.”  Users’ responses are scored and they receive an assessment profile, which  places them in one of seven tracks such as a new business or business  with at least 2 years of experience. The assessment results also suggest  whether the firm might be a good fit for the program. In addition to the  assessment tool, SBA provides a separate informational course, “INSIGHT- Guide to the 8(a) Business Development Program,” to better educate firms  about the program. The course is on SBA’s Web site and firms must  register basic demographic and business status data prior to taking the  course. According to SBA officials, as of October 2008, approximately  30,000 firms had taken the course.
As with the information session, the 8(a) assessment tool is voluntary and  not a prerequisite to completing an application, although SBA officials said  they “highly suggested” that firms use the tool prior to application. In  addition, some SBA officials felt it was necessary that firms interested in  applying to the program be required to participate in a seminar that—like  the voluntary information session—explains the purpose of the program  and its reporting requirements. They also hoped that current efforts to  educate firms prior to applying for certification might help to reduce the  number of applications from unprepared firms or firms not well-suited for  the program. As illustrated earlier, 73 percent of applications were  returned or withdrawn in 2007. Moreover, certification officials told us  that in tracking the results of the assessment tool since inception, they  found that approximately 60 percent of firms completing the assessment  appeared that they did not qualify for the 8(a) program.
Applicants that do not receive adequate information about the program  may not be fully aware of their responsibilities for maintaining eligibility  and achieving success in the program. Moreover, the lack of a mandatory  assessment tool or required educational sessions may have implications  for use of SBA resources during a participant’s tenure in the program. That  is, firms that do not clearly understand 8(a) eligibility and reporting  requirements may increase SBA’s expenditure of resources and staff time.  For instance, as discussed in the following sections, firms that did not  adhere to (as a result of not understanding) the program requirements may  increase SBA’s expenditure of resources and staff time for conducting  annual reviews and diminish the time available for other program  activities.
section_title: SBA Staff Are Required to Review All 8(a) Firms Annually, but Workload Constraints and Firms Not Submitting Required Documentation Challenge Staff to Complete Timely Reviews
paragraphs: The purpose of annual reviews is to determine if a firm should be retained,  terminated, or graduated early from the 8(a) program. SBA staff (BDSs in  district offices) review documentation that participants submit on  financial and tax information, contracting activity, and continued  eligibility. For example, BDSs review 8(a) firms to determine if they still  qualify as economically disadvantaged according to the 8(a) limits on net  worth. Annual review documents are due each year, 30 days after a firm’s  certification date, and BDSs are required to complete the review 30 days  after receiving all required documentation. If, at that time, SBA has not  received the required documentation, the firm has two additional  opportunities to supply the information.
Staff workloads relating to the annual reviews appeared to be heavy.  Among the 19 BDSs with whom we spoke during our visits to district  offices in Atlanta, Chicago, San Francisco, and Washington, D.C., the  number of firms for which they were responsible ranged from 36 to 162,  with the majority of BDSs responsible for 90 or more firms. However,  portfolio size varies by district office because the concentration of 8(a)  firms varies by district office, with the Washington Metropolitan Area  district office having the highest number. In 2006, that office covered  more than 1,000 firms (of a total of 9,667 firms in the program).
SBA has long been required by statute to complete annual reviews of all  firms. SBA officials with whom we spoke acknowledged that in past  years not all district offices completed all required annual reviews (see  table 2). However, meeting statutory requirements such as 8(a) annual  reviews became a priority for SBA under the “reform agenda” developed  by SBA’s former administrator in 2006. In fiscal year 2007, SBA added this  measure to the performance scorecards of district offices as part of the  agency’s new emphasis on meeting all of its compliance requirements.  District office scorecards outline key annual compliance requirements and  loan volume goals. Consequently, to achieve the 100 percent statutory  goal, BDSs have devoted significantly more time and resources to this  activity.
However, SBA also has recognized that staff constraints affected its ability  to perform annual reviews. According to its 2006 Performance and  Accountability Report, a main contributing factor in the agency’s inability  to complete annual reviews of all 8(a) firms was a lack of staff resources  in the district offices. In 2006, when the agency began to emphasize  meeting all compliance requirements, it also planned to consider  reallocating resources to help ensure that staff could comply with the  review requirement. However, given the size of some BDS portfolios in the  district offices that we visited, we did not see evidence that SBA had  begun this effort.
Additionally, applicants not submitting required documentation  contributed to increasing the time and resources needed to complete  annual reviews. SBA officials said that a major challenge with conducting  and completing annual reviews was that participants had not submitted  the required documentation on time, even though participants signed an  agreement upon entry to the program that they would do so. Some  officials said they were aware that reporting requirements presented a  burden for some firms, particularly those that were smaller or did not have  contracts and therefore had less incentive to maintain eligibility. In one  location, a BDS provided an example of a firm that withdrew from the  program prior to its first annual review because the owner was  overwhelmed by the amount of documentation that needed to be  submitted. Several SBA officials also said that annual reviews were  resource-intensive since they required BDSs to type a significant amount  of information into the 8(a) database and to repeatedly attempt to obtain  required documentation from noncompliant firms. In our review of 80  files, we saw evidence that some annual reviews had taken several months  to complete because of missing documentation. SBA officials said that  they anticipate that greater automation, through BDMIS, would reduce the  time associated with data input for BDSs and allow more time for the  BDSs to provide business development assistance.
Delays in completing annual reviews also could result in potentially  noncompliant firms receiving contracts. Results from the annual reviews  help SBA to fulfill its role in partnership agreements with federal agencies.  For instance, SBA must verify that a firm is in compliance before SBA can  accept a proposed 8(a) contract from a federal procuring agency. This  process is referred to as the “offer and acceptance letter”—an offer letter  from the federal agency and an acceptance letter from SBA. Some federal  agency contracting officials reported frequent delays in receiving SBA’s  acceptance letter. However, SBA officials explained one reason for the  delay may be a result of the agency not providing complete information on  the offer letter. SBA officials said that if a firm identified in a federal  agency’s offer letter had compliance issues, such as missing  documentation required for the annual review, they attempted to get the  firm back into compliance to accept the offer if the issues were minor and  could be resolved within a reasonable time frame. Additionally, SBA  headquarters officials explained that in cases where a termination or early  graduation was pending, the firm could still receive contracts. In the case  of a termination, the firm could still receive contracts during its 45-day  appeal period unless SBA had issued a suspension (temporary  disqualification) to protect the government’s interests.
section_title: Competing Demands Have Diminished the Ability of Limited Numbers of SBA Staff to Conduct Business Development Activities and SBA Still Lacks Plan to Improve Service Delivery
paragraphs: SBA officials said that the current emphasis on 100 percent compliance for  annual reviews combined with limited district office resources diminished  the amount of time spent on business development activities. SBA  guidance requires business development specialists to be the primary  providers in helping firms develop business plans, seek loans, and receive  counseling on finances, marketing, and management practices. More  specifically, SBA guidance requires that each district office nurture a  relationship with its assigned agencies and buying activities to increase the  number of 8(a) contracts. In addition, each district office is required to  develop an outreach plan that identifies the groups of people, businesses,  agencies, and other organizations that will be targeted for outreach during  the year.
However, some BDSs told us that conducting annual reviews consumed  most of their time. In three of the four offices that we visited, the BDSs  said they previously conducted more site visits with their firms but  resource constraints and the time devoted to annual reviews had limited  these visits. Some officials also said that their offices previously held  marketing and other events to introduce federal agency contracting  officials to small businesses and 8(a) and other small businesses to each  other, but that they had discontinued or reduced the number of these  events. They said that such events provided opportunities for firms to  market their services and “interview” with federal agencies, connect with  other firms, and potentially pursue mentor-protégé relationships or joint  ventures. The officials also felt that BDSs had fewer opportunities to  develop relationships with their firms. Moreover, prior to the efforts to  meet the annual review requirements, a 2004 SBA IG audit also found that  SBA had not developed program-wide policy and guidance on how it  would deliver business development services to 8(a) firms or tracked the  services it was providing to firms.
Subsequently, SBA began some efforts to create tools or strategies to  increase and improve the delivery of business development assistance. In  its 2006 Performance and Accountability Report, SBA identified  improvements in providing individualized business development  assistance as one of several program actions that it would carry out for  fiscal year 2007. SBA’s 2007 Annual Performance Report discussed an 8(a)  business development plan that includes (1) creating a business  development assessment tool that identifies the individual needs of  program participants, (2) using SBA’s resource partners to assist in  delivering business development, and (3) developing a tracking  mechanism to assess firms’ progress in meeting their business  development needs. Although these initiatives may help SBA staff to  develop and prepare small disadvantaged firms for procurement and other  business opportunities in the future, SBA has not completed or  implemented the plan. SBA officials explained they were in the process of  soliciting feedback on the plan from the resource partners and would then  vet the plan within SBA. However, they have not yet established a  timetable to complete this process. As a result, BDSs lack some tools that  could help them offset existing resource constraints and better provide  business development assistance.
section_title: SBA Has Not Completed Revisions to an Inefficient Termination Process, Which May Keep Noncompliant Firms in the 8(a) Program and Consume Resources That Could Be Used for Business Development Assistance
paragraphs: Participants in the 8(a) program can leave the program in several ways,  including voluntary withdrawal and early graduation, prior to completing  the 9-year term. SBA also may terminate firms under several conditions,  including failure to follow program procedures; maintain eligibility for  participation; maintain ownership, management, and control by  disadvantaged individuals; or maintain licenses or charters. Although  participants can be terminated for several reasons, SBA officials told us  that most firms were terminated for not providing required  documentation. Table 3 shows the volume of voluntary withdrawals, early  graduations, and terminations over time. The BDSs with whom we spoke  said that only a small percentage of 8(a) firms graduated early and none of  the 19 BDSs with whom we spoke had experience in graduating firms  early. According to SBA’s report to Congress, approximately 80 to 150  firms were terminated annually from 1999 through 2007, with the  exception of 2006 when the number was more than 300. In one district  office that we visited, officials pointed out that the number of firms  terminated had increased since SBA had added the goal of completing  annual reviews of all 8(a) firms to district office scorecards.
Prior to terminating a participant, SBA headquarters requires proof that  the participant has received two notifications from the district office about  the agency’s intent to terminate. SBA then issues a letter of intent to  terminate and provides the participant with an opportunity to respond in  writing to justify retention and provide any pertinent documentation. If,  following the participant’s response or lack of response, SBA headquarters  makes a final determination to terminate the firm, it then issues the  participant a notice of termination. The participant has 45 days to appeal  the decision. During the appeal period, SBA headquarters also can rescind  the decision if the participant provides adequate supporting information.
However, because of the lengthy and inefficient termination process,  noncompliant firms have remained in the 8(a) program. Results from our  review of 80 files provided seven examples of firms that were repeatedly  out of compliance at the time of their annual reviews but were not  removed from the program. For example, one firm did not provide the  required documentation for 5 of the 7 years it was in the program. A total  of 25 firms (31 percent of the files we reviewed) were found to be out of  compliance. SBA has guidance in place to terminate firms from the  program, but SBA officials noted the process could take up to 120 days  after a firm was notified of SBA’s intent to terminate. In addition,  challenges arose when procedures in place did not apply to certain  scenarios and when headquarters delayed completing its own assessment  of the termination decision. One BDS told us of an instance where he  initiated termination of a newly certified firm that was unresponsive after  repeated attempts by the district office to communicate. The BDS  conducted a field visit and found no facility at the location the firm  provided on its application. However, since the BDS was unable to contact  the applicant and was unable to provide the required proof-of-notification  to headquarters, headquarters was reluctant to proceed with terminating  the firm. Our file review showed a total of three instances where BDSs had  difficulties in terminating firms because they were unable to locate the  firms with the information they provided to SBA. In such cases, district  office staff were limited in their ability to carry out timely terminations  and remained responsible for completing an annual review until the firm  was formally removed from the program.
SBA officials also told us they were revising the 8(a) termination process  and that they expect the new process to reduce the time to complete  terminations from 120 to 45 days. The officials said that delays under the  current process resulted from having to notify firms multiple times—twice  by the district office and twice by headquarters. Under the revised  process, SBA headquarters would send one notification of SBA’s intent to  terminate, rather than two, which could reduce the time to complete the  terminations. As part of recent efforts to improve agency performance and  ensure that all its programs operate efficiently and effectively, SBA has  been revising several of its standard operating procedures (SOP),  including the sections of the 8(a) SOP on annual reviews and terminations.  However, at the time of our review, SBA had not yet completed changes to  the termination process in the 8(a) SOP.
As a result of lengthy and sometimes uncompleted terminations,  noncompliant firms may continue to participate in the 8(a) program and  receive federal contracts. Our file review showed one instance where a  noncompliant firm received a contract; however, our sample was not  limited to firms that received contracts. The termination process also has  consumed scarce SBA resources and may have affected business  development activities. For instance, firms that repeatedly were  noncompliant would add to the annual review burden of the staff and  reduce the time that could be spent on assisting firms that are in  compliance. Finally, SBA’s delay in completing revisions that it expects  will expedite the termination process limits the ability of district office  staff to carry out timely terminations.
section_title: SBA Has Not Implemented Recommendations to Routinely Monitor 8(a) Partnership Agreements through Surveillance Reviews
paragraphs: SBA uses surveillance reviews to monitor small business contracting at  federal agencies, but the surveillance reviews have not assessed how  agencies administered and oversaw 8(a) contracting. Under partnership  agreements, SBA and federal agencies with procurement authority share  the responsibilities of contract execution and oversight, monitoring, and  compliance with procurement laws and regulations for 8(a) contracts.  According to SBA’s current SOP, the scope of a surveillance review  includes assessing (1) management of the small business programs,   (2) compliance with regulations and published policies and procedures,  (3) outreach programs focusing on small businesses, and (4) procurement  documentation. However, the SOP does not address specifically the 8(a)  program at the federal agencies and does not include procedures to  evaluate the program. SBA’s six area offices coordinate with headquarters  to determine which contracting activities within agencies will be selected  for review during the last quarter of the fiscal year. Criteria used in  selecting contracting activities included, among other things, the mission  and the workload of the contracting activity, the small business goal  achievement and overall level of small business participation over the  prior 2 fiscal years, and experience or known problems with the  contracting activity.
SBA staff conduct surveillance reviews by reviewing contract files and  interviewing agency officials. In some instances, the Office of  Government Contracting (in which the PCRs and CMRs work) and the  Office of Business Development (in which the BDSs work) informally have  shared responsibility for conducting surveillance reviews. More  specifically, BDSs accompanied PCRs and CMRs on surveillance reviews  to provide assistance in reviewing 8(a) contract files and were supposed to  report their findings on 8(a) separately. PCRs were primarily responsible  for reporting on all other surveillance review findings.
However, as identified in a 2006 SBA IG report, SBA’s surveillance reviews  did not monitor agencies’ compliance with 8(a) partnership agreements.  The IG report also noted that SBA was not aware that the 23 major  procuring agencies failed to monitor 8(a) compliance on the contracts  they administered and had no requirements for such monitoring. Further,  SBA officials could not explain why reviews for the 8(a) program had not  been conducted. Our review of reports for 32 surveillance reviews  conducted in fiscal years 2006 and 2007 found that 10 assessed 8(a)  contract files and that BDSs participated in 8 surveillance reviews. But the  BDSs did not report on their findings. The IG report recommended that  SBA conduct surveillance reviews on a regular basis to ensure that  procuring agencies effectively were monitoring for and enforcing  compliance with 8(a) regulations on the contracts they administered.
Although SBA agreed with the IG’s recommendations, it has not yet made  changes to its guidance for surveillance reviews (that is, the SOP) that  would direct these reviews to regularly assess 8(a) contracting activities.  As noted, SBA has been revising several of its SOPs and some officials  explained that this usually was a lengthy process. But SBA has made some  changes as a result of the IG report. According to SBA officials, in 2006,  monitoring 8(a) contracting activities during surveillance reviews became  the sole responsibility of the Office of Government Contracting. SBA  officials said that PCRs and other Government Contracting staff were to  complete the reviews, which would increase their efficiency and  comprehensiveness because PCRs already conduct (and are experienced  in) these reviews. SBA officials explained that by the end of fiscal year  2008, the Office of Government Contracting would begin incorporating the  8(a) program in its surveillance reviews.
Since SBA has not updated its guidance in a timely manner to incorporate  the 8(a) program into surveillance reviews, SBA does not have procedures  to monitor—and has not been monitoring regularly—how agencies with  which it has partnership agreements ensure compliance with 8(a) program  requirements. As suggested by the SBA IG in 2006, the integrity of the 8(a)  program could be undermined if government officials were unaware of  firms violating its regulations. As a result, SBA has reduced assurance that  agencies have complied with procurement laws and regulations for 8(a)  contracts.
section_title: Conclusions
paragraphs: SBA plays an important role in ensuring that federal agencies achieve  small business contracting goals, small businesses gain access to federal  contracting opportunities, and eligible socially and economically  disadvantaged small businesses can compete in the economy. Although  federal agencies have OSDBUs and their own offices in place to assist  small businesses in finding contracting opportunities, SBA’s role is to  advocate for and review prime and subcontracting opportunities for small  businesses through its PCRs and CMRs, respectively. Their multiple  responsibilities include recommending contract set-asides, resolving  disputed recommendations, conducting surveillance reviews, and  reviewing prime contractor plans for subcontracting. However, resource  constraints and increased workload have impaired the ability of PCRs and  CMRs to carry out these activities. For example, while SBA has recognized  that more PCRs are needed to effectively fulfill their responsibilities,  which include making set-aside recommendations, SBA has neither  tracked such recommendations since 2001 nor developed other measures  that could be used to develop a formal plan to better ensure that PCRs can  carry out their responsibilities. Further, years of downsizing at SBA have  significantly reduced the number of CMRs, with half of the CMRs  performing other functions as well. In view of the continuing difficulties  that federal agencies can have in consistently meeting goals for small  business contracting, SBA has the opportunity to consider ways in which  to maximize the effectiveness of its support to agencies for small business  contracting. By assessing the workloads of PCRs and CMRs and the extent  to which core responsibilities are being fulfilled and developing a strategy  to effectively allocate limited resources, SBA could help ensure that the  people and the resources necessary to identify and review federal  contracting opportunities, and ultimately achieve small business goals, are  in place.
In addition to reviewing staff responsibilities, SBA also has opportunities  to improve some tools and processes that could realize efficiencies that  would allow staff to devote more time to core activities such as business  development in the 8(a) program. For instance, the 8(a) program does not  have a mandatory education requirement such as a seminar or assessment  tool for applicants. Consequently, some participants that are not  adequately informed about the program’s purpose and requirements may  have unrealistic expectations of the program and be unprepared to fulfill  their responsibilities, such as providing documentation for annual reviews.  SBA currently must complete annual reviews of 100 percent of program  participants, but staff cited lengthy, resource-intensive efforts to elicit  documents from firms as a major reason for delays in completing the  reviews. Better education at the front end of the 8(a) program and  management of participant expectations could help reduce problems  during program tenure, and thus free SBA staff resources for assisting  firms with development activities.
As noted above, SBA’s resource limitations have affected the ability of its  staff to provide key services to small businesses. In the case of BDSs in the  8(a) program, the recent emphasis on completing required annual reviews  has diminished the time and resources they have to provide 8(a) firms with  business development support and conduct outreach activities that may  increase contracting opportunities for them. While acknowledging the  resource constraints that SBA faces and the necessity to comply fully with  its statutory obligations, we note that the mission of the 8(a) program is  business development. Additionally, SBA guidance requires BDSs to be the  primary providers in helping firms develop business plans, seek loans, and  receive counseling on finances, marketing, and management practices.  Although SBA has recognized some organizational challenges and begun  to reallocate resources in some district offices, we did not see evidence of  these changes during our site visits. SBA has proposed a plan to provide  more business development assistance through the creation of electronic  tools to identify individual firms’ needs and greater utilization of SBA’s  resource partners in providing assistance to businesses. However, the  success of these proposed changes as they relate to the priorities and  workload of staff such as the BDSs (and PCRs and CMRs) largely will  depend on the timely development and implementation of these  improvements. Furthermore, a lengthy and resource-intensive process for  terminating noncompliant participants from the program has resulted in  inefficient use of SBA’s limited program resources. SBA currently is  revising the termination process, but has not developed a timeline for its  completion and implementation. Prompt attention to these technological  and procedural revisions could allow SBA staff to concentrate more on  providing services to eligible firms and help ensure that program funds are  targeted to deserving small businesses.
Finally, SBA could improve the utility and effectiveness of its surveillance  reviews, which monitor small business contracting at federal agencies.  However, SBA has not yet implemented changes that its IG recommended  for the review process in 2006; notably, that the agency regularly conduct  surveillance reviews at the federal agencies with which it has partnership  agreements to ensure compliance with regulations for 8(a) contracting.  Without information on compliance with small business contracting  requirements that such a review provides, SBA and federal agencies could  be unaware of violations within 8(a), a key small business program. SBA  indicated that it planned to include 8(a) contracting in the surveillance  reviews by the end of fiscal year 2008. By revising its guidance to address  the IG recommendation, SBA could improve its oversight of contracting  activity in the 8(a) program and overall small business contracting. Such  monitoring helps to maintain the integrity of the program and contributes  to the achievement of small business and socioeconomic contracting  goals.
section_title: Recommendations for Executive Action
paragraphs: To improve its administration of the prime contracting, subcontracting,  and 8(a) business development programs, we recommend that the  Administrator of SBA take the following four actions:    SBA should assess resources allocated for procurement center  representative and commercial market representative functions and  develop a plan to better ensure that these staff can carry out their  responsibilities.
To better educate prospective applicants for the 8(a) program and  maximize limited SBA resources during program tenure of participants,  SBA should take additional steps to ensure that firms applying for the  program understand its requirements, and have realistic expectations for   participation. Such steps could include an education requirement, such as  a seminar or assessment tool.
In acknowledgment of the competing demands for business development  specialists to complete required annual reviews of 8(a) firms and support  the mission of the 8(a) program—that is, develop and prepare small  disadvantaged firms for procurement and other business opportunities— SBA should   assess the workload of business development specialists to ensure they  can carry out their responsibilities. As part of such an assessment, SBA  could review the size of the 8(a) portfolio for all business development  specialists and determine what mechanisms can be used to prioritize or  redistribute their workload; in a timely manner, develop and implement its proposed plan for  creating tools that would assist in the provision of business  development assistance for 8(a) firms; and   develop a timetable for planned changes to the termination process to  ensure that staff monitoring 8(a) participants can carry out  terminations from the program in a timely manner.
To increase the usefulness of surveillance reviews for the 8(a) program,  SBA should update its guidance to incorporate regular reviews of 8(a)  contracting in the scope of the reviews.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested SBA’s comments on a draft of this report, and the Deputy  Associate Administrator for Government Contracting and Business  Development provided written comments that are presented in   appendix V. SBA agreed with our recommendations and outlined steps  that it has initiated or plans to take to address each recommendation.
First, SBA stated that it is assessing statutory requirements and resources  for procurement center representatives and commercial market  representatives in order to develop a plan that effectively and efficiently  fulfills those requirements.
Second, with regard to better educating prospective applicants for its 8(a)  program and maximizing limited resources, SBA noted its continuing  efforts in developing a plan that assesses individual business development  needs of 8(a) participants and proposes a tool that tracks and manages  8(a) firms during their 9 years in the program. SBA also discussed its  previous efforts in providing an informational course on the 8(a) program  and a self-assessment tool for potential 8(a) firms online. In addition, SBA  stated that it has assembled a focus group, composed of offices within  SBA and its resource partners, to review the plan and provide feedback.  While these actions are consistent with our recommendations, we  encourage SBA to take additional steps to ensure that firms applying for  the program understand the 8(a) program requirements and have realistic  expectations for participation.  Such steps could include an education  requirement, such as a seminar or assessment tool, that must be  completed by the prospective applicant.
Third, SBA stated it would work with the Office of Human Capital  Management to assess the workload of the business development  specialists and their knowledge levels and stated this analysis would be  completed by the end of the 2009 fiscal year (i.e. September 2009). Once  completed, SBA plans to explore the possibility of redistributing certain  portfolios. In addition, SBA expects to implement its proposed plan for  creating tools that would assist in the provision of business development  assistance for 8(a) firms by March 2009. Further, SBA stated that planned  changes to its guidance on streamlining the termination process are  expected to be issued by December 2008.
Finally, SBA noted that its guidance for surveillance reviews was updated  on September 26, 2008, to incorporate regular reviews of 8(a) contracting  in the scope of the reviews. However, SBA did not disclose how it will  monitor the 8(a) program and its partnership agreements with federal  agencies. SBA also provided technical comments that we incorporated as  appropriate.
We also provided copies of the draft report to Commerce, DOD, DHS, and  SSA. All four agencies responded that they had no comments on the draft  report.
We are sending copies of this report to the Ranking Member of the House  Subcommittee on Government Management, Organization and  Procurement, House Committee on Oversight and Government Reform, as  well as the Ranking Member, House Committee on Homeland Security,  other interested congressional committees and the Acting Administrator of  the Small Business Administration. We are also sending copies to the  Secretaries of the Department of Commerce, Defense, and Homeland  Security and the Commissioner of the Social Security Administration. The  report also is available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your offices have any questions about this report, please contact  me at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix VI.
section_title: Appendix I: Scope and Methodology
paragraphs: To describe the actions the Small Business Administration (SBA) takes to  set small business contracting goals and the extent to which federal  agencies have achieved their small business goals in recent years, we  reviewed pertinent legislation, guidance issued by SBA, our prior reports,  and SBA’s Small Business Procurement Scorecard for fiscal years 2006 and  2008. In addition, we used data from fiscal years 2000 through 2006 on  SBA’s negotiated goals with agencies and small business goaling reports to  compare the goals of five agencies—the Departments of Commerce  (Commerce), Defense (DOD), and Homeland Security (DHS); the Social  Security Administration (SSA); and SBA—with the actual dollars awarded  for prime contracts and to determine what percentage of their contracting  dollars was awarded to small businesses. SBA uses the Federal  Procurement Data System-Next Generation (FPDS-NG) to prepare its  annual Small Business Goaling Reports, which are used to evaluate the  performance of federal agencies in achieving their small business and  socioeconomic procurement preference goals. To assess these data, we  reviewed related documentation, including the methodology used to  create these reports. For the purposes of this report, we found these data  to be reliable. We selected the first four agencies—a nongeneralizable  sample—based on level of contracting activity and SBA’s assessments of  their goal achievement. The four agencies generally obligated larger  amounts of contracting dollars to small disadvantaged businesses and,  collectively, they received the full range of scores on SBA’s 2006  scorecard. We also included SBA because it sets goals and is responsible  for assessing and reporting on goal achievement at federal agencies. We  also interviewed officials at SBA, Commerce, DOD, DHS, and SSA.
To examine SBA’s role in supporting small business contracting at select  agencies, we reviewed our previous reports, relevant policies, procedures,  and regulations; obtained information on SBA resources devoted to such  activities; interviewed officials from SBA headquarters and from four of its  six area offices; and interviewed officials at four selected federal agencies  (see above). We also analyzed the SBA field office directory for the six  area offices and identified the number of procurement center  representatives (PCR) and commercial market representatives (CMR) in  the agency as of August 2008. Area offices have responsibility for SBA’s  prime contracting and subcontracting assistance programs and their staff  can include PCRs and CMRs. We interviewed the 8 PCRs and 5 CMRs who  were located in the four area offices we visited (out of an agency total of  59 PCRs and 31 CMRs, respectively). We also reviewed the number of  agencies and buying activities assigned to each PCR. Buying activities are  agencies or divisions within agencies that purchase goods and services. In  addition, we analyzed SBA data on the number of formal and informal  Form 70s issued to federal agencies by PCRs. Form 70s are used by PCRs  to stop a contract action due to a disagreement between the PCR and  contracting officer on a set-aside recommendation for small business. We  had planned to update our 2002 report data on the number of PCR- recommended set-asides for this report, but because SBA no longer  collects this information electronically, the most recent data are from  2001. For more information, see appendix IV. Further, we interviewed  Office of Small and Disadvantaged Business Utilization (OSDBU)  directors, acquisition officials, small business specialists, and contracting  officers at our selected agencies. OSDBUs were established to advocate  for contracting opportunities for small businesses. Small business  specialists are responsible for working with OSDBUs and agency  contracting officers to advocate for small businesses.
To examine SBA’s overall administration of the 8(a) business development  program, we reviewed and analyzed 8(a) program regulations, SBA’s  procedures for administering the program, and previous SBA Inspector  General (IG) reports. We interviewed SBA officials in headquarters  program offices, 4 of 6 area offices, 4 of 68 district offices, and 1 of 2  Division of Program Certification and Eligibility (DPCE) offices to obtain  their perspectives on certification, monitoring activities, and other aspects  of the program. More specifically, we interviewed 19 business  development specialists (BDS). We also conducted site visits to SBA  offices in Atlanta, Georgia; Chicago, Illinois; San Francisco, California; and  Washington, D.C. We selected these locations based on the number of  SBA’s total 8(a) firms in each location and for geographic diversity. For  each of the district offices that we visited, we reviewed and analyzed a  sample of 20 8(a) participant files and additional documentation that SBA  provided on the 8(a) program. To select these files, we obtained a list of  8(a) firms within each district office’s portfolio that included information  on the year the firm was scheduled to graduate, whether the firm had  received a contract, and if the firm was part of SBA’s mentor-protégé  program. For each district office, we randomly selected two firms (one  that received a contract and one that did not) from each year of the 9-year  program and also randomly selected two firms in SBA’s mentor-protégé  program. We reviewed the number of 8(a) applications received,  approved, declined, and returned or withdrawn from fiscal years 1999  through 2007. We reviewed and assessed the reliability of SBA’s reports to  Congress on the 8(a) program from 2001 through 2006. More specifically,  we interviewed SBA officials about the data system used and reviewed  related documentation. We determined this information was reliable for  the purposes of this report. In addition, we reviewed 32 surveillance  reviews conducted by the four selected area offices in 2006 and 2007. SBA  uses surveillance reviews to assess federal agencies’ management of small  business programs and compliance with regulations and published  policies and procedures. Furthermore, we interviewed business  development specialists and business opportunity specialists about their  work and processes related to 8(a) applications, annual reviews, and  participant terminations at the district offices we visited. We also  interviewed an official from a trade association representing 8(a) and  small disadvantaged business (SDB) firms and reviewed documents  prepared by other trade associations representing 8(a) and SDB firms.
To describe how the use of SDB certification has changed, we reviewed  pertinent legislation and regulations, our previous reports, and SBA’s IG  report on SDB certification. We also interviewed officials at SBA,  Commerce, DOD, DHS, and SSA. In addition, we analyzed data from SBA’s  Dynamic Small Business Search and FPDS-NG from fiscal years 2004  through 2007 to determine the number of SDB firms during this time  period and the number of socioeconomic designations each SDB firm had.
We conducted this performance audit from October 2007 through  November 2008 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
section_title: Appendix II: Small Disadvantaged Business Certification and Changes to Its Use over Time
paragraphs: This appendix describes how the use of the small disadvantaged business  (SDB) certification has changed. The certification’s purpose was to assist  participating businesses in obtaining federal contracts and subcontracts.  The Small Business Administration’s (SBA) Office of Business  Development performed SDB certifications for the federal government,  but suspended its certification program on October 3, 2008. To qualify for  the SDB program, a firm had to be at least 51 percent owned and  controlled by one or more individuals who met SBA’s criteria of socially  and economically disadvantaged. Socially disadvantaged individuals  include certain members of designated groups, such as Black Americans  or Hispanic Americans and individuals who are not members of  designated groups. Economically disadvantaged firms included those  whose primary owner(s) have $750,000 or less in personal net worth,  adjusted to exclude personal residence and business assets. Unlike the  8(a) program, firms were not required to demonstrate potential for  success (for example, by having been in business at least for 2 years). In  contrast to the single 9-year term of the 8(a) program, SDB certifications  were valid for 3 years and firms had the option to recertify every 3 years.  Benefits of the program originally included contract set-asides. In addition,  all 8(a) firms automatically were certified as SDBs.
subsections: section_title: SDB Program Expanded from DOD to Civilian Agencies, but Judicial Decision Limited Implementation
paragraphs: The SDB program was established by the National Defense Authorization  Act of 1987 for the Department of Defense (DOD). From 1987 to 1995,  SDBs (which were then self-certified) were eligible to receive two main  benefits—a 10 percent price evaluation adjustment (PEA) in certain DOD  acquisitions, and the ability to compete for contracts set aside for SDBs  for certain DOD acquisitions—as well as an evaluation factor or subfactor  to credit contractors for the use of SDBs as subcontractors in certain  acquisitions. The program was extended to civilian agencies in 1994, but  implementation was delayed in the aftermath of a 1995 Supreme Court  decision. The decision resulted in changes to the SDB program. Notably,  the SDB set-aside was suspended although agencies could still use the  PEA and evaluation credits. SBA also began certifying firms as SDBs in  1998, but on October 3, 2008, SBA published an interim final rule stating it  would no longer certify SDB firms. For more details, see the following  section.
The authority of most civilian agencies to use the PEA expired in  December 2004. After that time, only DOD, the Coast Guard, and the  National Aeronautics and Space Administration (NASA) could use PEA  authority in awarding contracts; however, DOD has not used it in recent  years. DOD is statutorily required to suspend its use of the PEA for 1 year  after any fiscal year in which DOD awards more than 5 percent of its  eligible contract dollars to SDBs. Since 1999, DOD has determined that it  met this requirement and suspended PEA use. At the subcontracting level,  agencies could give credit to prime contractors that use SDBs as  subcontractors on certain government contracts.
section_title: According to Federal Agencies, SDB Certification Was of Limited Benefit
paragraphs: In our January 2001 report on the SDB certification, we reported that  several officials cited limitations with the SDB certification because the  set-asides or price preferences were not being used. In our recent  interviews with SBA and agency officials, officials from all the agencies  indicated that the certification was not useful at the prime contract level,  and they attributed this to the absence of mechanisms, other than full and  open competition, to award contracts to SDBs.
According to DOD officials, the SDB certification did not fill a legitimate  departmental need and was not useful to the agency. As discussed above,  DOD has not used the PEA since 1999.
DHS officials we interviewed indicated that the Coast Guard rarely used  PEAs to award prime contracts to SDB-certified firms because the agency  could reach its 5 percent SDB goal through other small business set-aside  programs. The Coast Guard also is proposing to ask for a waiver from  Congress on using PEAs because of their limited value to the agency.
From the civilian agency perspective, Commerce and SSA officials agreed  the SDB certification had limited benefit as a prime contracting tool  because their authority to use the PEA expired and due to the absence of a  SDB set-aside. They suggested its main benefit was to help firms identify  subcontractors.
Most agency officials with whom we spoke stated they relied on 8(a) firms  to meet their SDB goals. (All 8(a) firms automatically qualify for SDB  certification.)
SBA officials explained that agencies tended to concentrate on sole-source  and set-aside mechanisms in the 8(a), Historically Underutilized Business  Zone (HUBZone), and service-disabled veteran-owned business programs,  since these provisions make it easier to award contracts to small  businesses. SBA officials suggested some firms might continue to pursue  the SDB certification not for federal contracts but because of state and  local contracting programs that offer reciprocity to firms that are already  SDB- or 8(a)-certified. They also noted that many firms had not sought the  SDB certification because it was not worthwhile to them. Finally, in its  interim final rule, SBA recognized the benefits of the SDB certification had  greatly diminished over the past years.
section_title: The Number of SDB Firms Certified by SBA Decreased in Recent Years, Few SDB-only Firms Received Contracts, and Most SDB Firms Had Additional Certifications
paragraphs: SBA has conducted fewer SDB certifications in recent years and we found  that few firms that obtained federal contracts had only an SDB  certification. Further, as noted above, SBA has stated it will no longer  certify SDB firms. To conduct the SDB certifications prior to issuing its  interim rule, SBA headquarters reviewed firms’ applications, which had to  include evidence demonstrating that the firm was owned and controlled  by one or more individuals claiming disadvantaged status, along with  certifications or narratives regarding the individuals’ disadvantaged status.  The firm also had to submit information necessary for a size  determination. According to its implementing regulations, SBA had to tell  each applicant whether the application was complete and suitable for  evaluation, and, if not, what additional information or clarification was  required within 15 days of receipt. If the application was complete, SBA  had 30 days (if practicable) to determine whether the applicant met the  SDB eligibility criteria. Applicants could appeal SBA’s determinations.
The number of SDB firms that SBA certified decreased from fiscal years  1999 through 2007. For example, in fiscal year 2007, SBA certified 436  small businesses as SDBs, down substantially from 734 certified in 2006  and 1,045 in 2005. In general, SBA admitted fewer firms as SDBs than  applied, with the majority of applications returned or withdrawn   (see fig. 8). SBA officials explained that the decrease could be a result of  the expiration of the authority to use the PEA for most civilian agencies in  2004.
In our review of Federal Procurement Data System-Next Generation  (FPDS-NG) data from fiscal years 2004 through 2007, SDB firms with more  than one designation were more successful in receiving federal contracts  than firms with only one designation. The majority of SDBs had either one  or two additional designations. Fifteen percent (2,416) of the 15,950 SDB- certified firms in that period had only the SDB certification. Of SDBs that  received contracts, 8.5 percent were SDB-only firms (meaning they did not  have additional certifications). The majority of those firms that received  contracts had at least one or two other designations, such as 8(a),  HUBZone, or service-disabled veteran-owned (see fig. 9). However, of the  3,546 SDB firms with one other designation that received contracts,   85.9 percent also were designated as 8(a) firms. The results of this analysis  suggest few firms relied solely on the SDB certification to obtain federal  contracts.
section_title: Appendix III: Roles of Offices of Small Disadvantaged Business Utilization and Agency Officials in Small Business Contracts
paragraphs: In addition to the role of the Small Business Administration (SBA), the  Offices of Small Disadvantaged Business Utilization (OSDBU) and federal  agency staff have advocacy, review, and liaison roles to facilitate small  business contracting at federal agencies. For example, OSDBU officials we  interviewed set policy within their agency and functioned as a liaison  between small businesses and agency contracting officials. However, the  level of involvement the OSDBU directors had in reviewing procurements  and acquisition planning differed in the agencies selected for our review,  partly reflecting the differing levels of procurement activity in the  agencies. For example, the Department of Homeland Security (DHS) and  Department of Commerce (Commerce) OSDBU directors were involved in  the acquisition planning process with procurement officials, while the  Department of Defense (DOD) and Social Security Administration (SSA)  OSDBU directors were not. The roles of small business specialists, who  report directly to procurement officials at their agencies, also may include  being the liaison with SBA and the small business community.
subsections: section_title: Role of OSDBUs
paragraphs: The OSDBU directors we interviewed explained their roles included  advocating for small business and other socioeconomic contracting  programs, not just the 8(a) program. They set policy, participated in  outreach activities, attended monthly meetings with other OSDBUs,  provided internal training and guidance to agency officials, and acted as  liaisons between small businesses and contracting officials, among other  things. From our discussions with OSDBU directors at selected agencies,  the role of the OSDBU directors differed in the level of involvement in  reviewing procurements and acquisition planning. For example,  Commerce and SSA have policies that outline when OSDBUs became  involved in reviewing procurements at certain procurement thresholds.  Commerce and DHS OSDBU directors were involved in the acquisition  planning process with procurement officials, while DOD and SSA OSDBU  directors were not. Of the agencies we reviewed, the size of the OSDBU  office varied from 22 staff members in DOD to 1 staff member at SSA   (see table 4). Except for DOD, each agency had only one OSDBU office.
DOD has multiple offices for each of the military departments (Air Force,  Army, and Navy) and its other agencies.
The differences in staff size and budget may be related to the volume of  procurement in each agency. As the table illustrates, DOD spends a much  larger amount on small business procurement than SSA. The SSA OSDBU  director explained the small business specialist works closely with the  OSDBU in reviewing acquisitions. The director believed the staffing level  supported the workload of the OSDBU office, which in years past,  reviewed from approximately 40 to 45 procurements a year, but this may  change based on the new procurement center representative (PCR)  assigned to SSA in January 2008.
In 2003, we reported on the provision in the Small Business Act that  requires OSDBU directors to report to agency heads or deputies and how  select agencies were complying with this provision. We surveyed 24  agencies and determined 11 did not comply, including Commerce and SSA.  For instance, we found that Commerce’s OSDBU director reported to the  Chief Financial Officer and Assistant Secretary for Administration. We also  found that the SSA OSDBU director reported neither to the Social Security  Administration Commissioner nor the Deputy Commissioner. The DOD  OSDBU director was exempted from the reporting requirement in 1988  when Congress amended the pertinent section of the Act. Both Commerce  and SSA disagreed with our findings and concluded that they were in  compliance.
Although we did not conduct another evaluation of compliance with this  requirement for our selected agencies, we did obtain information on the  OSDBU directors’ current reporting structure. The DOD OSDBU director  continues to be exempt from the reporting requirement. The Commerce  OSDBU director said and their organizational charts indicate that the  position reports to the Chief Financial Officer/Assistant Secretary for  Administration, which is the same reporting relationship we found in our  previous report. The organizational chart for DHS illustrates that the  OSDBU director reports to the Deputy Secretary of the agency. SSA  officials explained that its OSDBU director reports to the Deputy  Commissioner for Budget, Finance, and Management, which is a similar  reporting position identified in our previous report.
subsections: section_title: Role of Small Business Specialists
paragraphs: Small business specialists (SBS) at federal agencies also promote the use  of small businesses and reviewed procurements. SBSs at the agencies we  reviewed (Commerce, DOD, DHS, and SSA) did not report to OSDBUs, but  worked with them to implement their small business procurement  policies. SBS roles in federal procurement include    making sure contracting officers take small businesses into consideration  when awarding contracts as required by regulation;   maintaining a liaison with SBA and the small business community to  ensure small businesses have access to procurement opportunities;   helping small businesses tailor their marketing materials for an agency’s    conducting outreach and advocacy efforts; and    conducting internal and external training.
The number of SBSs in an agency varied based on agency size; the  differences in staff size also may be related to the volume of procurement  in each agency. For example, DOD had approximately 500 SBSs and SSA  had 1. Three of the four agencies we reviewed assigned SBSs to their  bureaus and departments or divisions; however, SSA had one SBS for all  divisions within the agency.
In discussing their work, procurement officials cited some challenges they  faced within their agencies to increase opportunities for small business  procurement. For example, some officials explained that convincing  agency program officials of the benefits of using small business  contractors could be difficult because some program officials were risk- averse and perceived costs to be higher when using small business  contractors. Some officials explained that training and educating program  officials generally helped with this challenge, as did having support from  top-level management. In addition, some officials noted that their  interaction with SBA staff was limited. For instance, OSDBU officials we  interviewed at two agencies explained that they rarely interacted with  SBA’s PCRs, whose responsibilities include reviewing proposed agency  acquisitions and recommending small business set-asides.
SBA assesses how federal agencies promote small business goal  attainment through its procurement scorecard. The scorecard evaluates  factors such as goals met, progress shown, agency strategies, and top-level  commitment to meeting goals. SBA’s inaugural scorecard ratings were  based on fiscal year 2006 activities; SBA subsequently reviewed agencies’  progress in implementing procurement plans through July 25, 2007, and  appended additional ratings to the scorecard. The scorecard relates to the  roles of OSDBUs and SBSs through some of the elements reviewed, such  as agency plans and internal policy setting, collaboration on the formation  of small business procurement policy, and training provided to contracting  staff on small business practices.
section_title: Some of the Agencies We Reviewed Also Had Other Programs and Incentives in Place to Enhance Small Business Participation in Contracting
paragraphs: To meet the agency’s small business goals, some federal agencies have  developed their own programs and contracting mechanisms to promote  small business participation in federal procurement. For example, DOD  and DHS have mentor-protégé programs, administered through their  OSDBUs, in which selected firms provide support and guidance for new  firms entering the federal contracting arena. In return, at DOD, the mentor  may receive monetary compensation or contracting incentives and at DHS,  the mentor may receive contracting incentives. SBA also has a mentor- protégé program that is specific to the 8(a) program and administered by  the Office of Business Development and SBA’s district offices.
To promote greater competition within small business procurement,  several agencies explained that they created internal contracting  mechanisms.
For example, DOD-Navy created the SEAPORT-e initiative, which is a  rolling admission program in which firms compete for contracts in   22 types of naval services within seven geographic regions.
DHS and Commerce developed contracting vehicles to enhance small  business participation in information technology contracts.
At Commerce-Census, Census officials explained they took specific efforts  to involve small businesses as subcontractors in the upcoming 2010  decennial census by requiring prospective prime contractors to submit a  subcontract participation plan.
section_title: Appendix IV: Number of Form 70s and Appeals Filed by SBA’s Procurement Center Representatives, Fiscal Years 2003-2007
paragraphs: As stated previously in this report, the responsibilities of the Small  Business Administration’s (SBA) procurement center representatives  (PCR) include recommending that contracts be set aside for eligible small  businesses. In 2002, we reported that the number of set-aside  recommendations that PCRs were making decreased by half from fiscal  years 1991 through 2001. Reasons for the decline during this period  included downsizing (which decreased the number of PCRs), the  reassignment of some PCRs to other roles, and the increased size of  federal procurements that contributed to fewer set-aside opportunities for  small businesses. We planned to update our 2002 report; however, SBA  stated they no longer electronically collected information on the number  of set-asides. We were able to update information about the number of  Form 70s and appeals that PCRs filed; the Form 70 reflects some level of  discussion or disagreement between agencies and SBA about  recommended set-asides.
In instances where an agency does not accept a PCR’s recommendation  for a small business set-aside, the PCR may dispute the procurement  through informal or formal means to the agency’s procurement official. A  PCR generally will issue an informal Form 70 after discussing the set-aside  and reaching an agreement with the contracting officer to accept the  recommended set-aside. If the PCR and contracting officer do not reach an  agreement, the PCR submits a formal Form 70 to the contracting officer,  which effectively stops the contract action, pending further consideration.  If the procurement official refuses to accept the recommended set aside  addressed in the Form 70, SBA can appeal the rejection first to the head of  the contracting activity (the division within the agency purchasing the  goods or services), then to the agency head (known as a secretarial  appeal).
From fiscal years 2003 through 2007, the number of informal form 70s  increased approximately 71 percent and the number of formal form 70s  decreased approximately 60 percent (see table 5). SBA officials explained  their goal was to promote productive relationships with federal agencies  and using informal complaints was more conducive to achieving this end.
section_title: Appendix V: Comments from the Small Business Administration
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Paul Schmidt (Assistant Director),  Bernice Benta, Paula Braun, Tania Calhoun, Nadine Garrick, Fred  Jimenez, Julia Kennon, Amanda Miller, Marc Molino, Barbara Roesmann,  and William Woods made key contributions to this report.