Federal Contracting: Slow Start to Implementation of Justifications for 8(a) Sole-Source Contracts
Published: 2012-12-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: SBA's 8(a) program is the government's primary means of developing small businesses owned by socially and economically disadvantaged individuals, including firms owned by Alaska Native Corporations and Indian tribes. The NDAA for Fiscal Year 2010, enacted on October 28, 2009, called for revisions to the FAR to provide for a written justification for sole-source 8(a) contracts over $20 million, where previously justifications were not required. GAO determined (1) the timeliness with which this new justification requirement was incorporated in the FAR; (2) the number of 8(a) sole-source contracts valued over $20 million that have been awarded since October 2009 and trends over time; and (3) the extent to which agencies have implemented this new justification requirement. GAO analyzed federal procurement data, reviewed the 14 contracts subject to the requirement across five federal agencies, and interviewed officials from OFPP, SBA, the Department of Defense, and other agencies.
section_title: What GAO Found
paragraphs: The National Defense Authorization Act (NDAA) for Fiscal Year 2010 required that the Federal Acquisition Regulation (FAR) be amended within 180 days after enactment to require justifications for 8(a) sole-source contracts over $20 million. These justifications bring more attention to large 8(a) sole source contracts. The FAR Council, which updates the FAR, missed this mandatory deadline by almost 325 days. During this delay, based on data in the Federal Procurement Data System-Next Generation (FPDS-NG), 42 sole-source 8(a) contracts with reported values over $20 million, totaling over $2.3 billion, were awarded without being subject to a justification. Office of Federal Procurement Policy (OFPP) representatives involved with the FAR Council's implementation of this rule attributed the delay primarily to the time required to establish a process for consulting with Indian Tribes and Alaska Native Corporations.
From October 28, 2009, through March 31, 2012, agencies reported awarding 72 sole-source 8(a) contracts over $20 million. GAO also analyzed trend information in FPDS-NG from fiscal year 2008 through fiscal year 2011 (the most current available information), which showed that the number and value of these contracts declined significantly in 2011. While GAO determined that FPDS-NG data was sufficiently reliable for the purposes of this review, GAO found errors, such as contracts with an implausible reported value of zero.
GAO found a slow start to implementation of the new justification requirement. Of the 14 sole-source 8(a) contracts awarded since the FAR was revised, only three included an 8(a) justification. The agencies awarding the remaining 11 contracts did not comply, either because contracting officials were not aware of the justification requirement or because they were confused about what the FAR required. For example, contracting officials were confused in one instance where another justification was already in place that covered multiple contracts. Further, the Small Business Administration (SBA) cannot accept a contract over $20 million for negotiation under the 8(a) program unless the procuring agency has completed a justification, but GAO found that SBA did not have a process in place to confirm the presence of a justification.
section_title: What GAO Recommends
paragraphs: GAO recommends that OFPP issue guidance to clarify the circumstances in which an 8(a) justification is required. GAO also recommends that the General Services Administration--which operates FPDS-NG--implement controls in FPDS-NG to help ensure that contract values are accurately recorded, and that SBA take steps to ensure that its staff confirm the presence of justifications. OFPP and GSA generally agreed with the recommendations. SBA indicated it would take some actions but did not fully address the recommendations.

section_title: Letter
paragraphs: The federal government obligates hundreds of billions of dollars in  contracts for goods and services each year—$537 billion in fiscal year  2011. That year, $16.7 billion was obligated to firms participating in the  Small Business Administration’s (SBA) 8(a) program—one of the federal  government’s primary means for developing small businesses owned by  socially and economically disadvantaged individuals. Contract awards  under this program may be competed among eligible 8(a) firms or  awarded on a sole-source basis to 8(a) firms in certain instances. For  example, since 1986, Congress has authorized 8(a) firms owned by  Alaska Native Corporations (ANC) and Indian tribes to receive sole-  Over the last several fiscal years, the  source contracts for any amount.majority of large-dollar sole-source 8(a) contracts have been awarded to  firms owned by these entities. More recently, Section 811 of the National  Defense Authorization Act (NDAA) for Fiscal Year 2010—enacted in  October 2009 and later implemented in the Federal Acquisition  Regulation (FAR)—required a written justification of sole-source 8(a)  awards over $20 million. Previously, no justification was required for sole- source 8(a) awards of any amount. This new justification requirement  brings more attention to large-dollar-value, sole-source contracts awarded  through the 8(a) program.
You asked us to review how this new justification requirement is being  implemented across the federal government. In response to your request,  we determined (1) the timeliness of actions taken to implement the  justification requirement in the FAR, (2) the number of sole source 8(a)  contracts over $20 million that have been awarded since October 2009  and trends over time, and (3) the extent to which agencies have  implemented the new justification requirement.
To address these objectives, we analyzed federal procurement data,  reviewed contract files, and interviewed agency officials. Specifically, to  assess the timeliness of the actions taken to incorporate the new  justification requirement into the FAR, we reviewed the relevant interim  and final rules published in the Federal Register. We also interviewed  officials from the Office of Federal Procurement Policy (OFPP), as the  Administrator of OFPP serves as chair of the Federal Acquisition  Regulatory Council, which implements changes to the FAR. To identify  trends in 8(a) sole-source contracts over $20 million, we analyzed data  from the Federal Procurement Data System-Next Generation (FPDS-NG)  from fiscal year 2008 through March 31, 2012, the latest date we could  obtain complete information at the time of our review. We used the Base  and All Options data element in FPDS-NG to identify relevant contracts  awarded during this period. We took several steps to assess data  reliability, including reviewing seven contracts identified as valued  between $19.5 million and $20 million to confirm that they were not  subject to the new justification requirement. We determined that the  federal procurement data for this period was sufficiently reliable to identify  contracts that exceeded the $20 million threshold. To assess agencies’  implementation of the new justification requirements, we reviewed all 14  sole-source 8(a) contracts over $20 million awarded since the FAR  incorporated the new justification requirements in March 2011. Eleven of  these contracts were identified using the Base and All Options field in  FPDS-NG. To compensate for any errors in these data, we also  calculated cumulative obligations for all 8(a) sole-source contracts  awarded during this period and identified one additional contract that had  an anticipated value of over $20 million at the time of award. Two  additional contracts were identified in the course of our review. Eight of  the 14 contracts were awarded by the Department of Defense (DOD), and  the remaining six were awarded by the General Services Administration  and the Departments of the Interior, Justice, and State. We reviewed  contract files and spoke with contracting and policy officials at the  locations where we conducted our review. Finally, we interviewed SBA  officials to understand that agency’s role in implementing this new  requirement. Appendix I contains more information on our scope and  methodology.
We conducted this performance audit from April 2012 to December 2012  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Competition in Contracting Act (CICA) of 1984 requires agencies to  obtain full and open competition through the use of competitive  procedures in their procurement activities unless otherwise authorized by  law. However, Congress also recognized that in certain situations  contracts may need to be awarded noncompetitively—that is, without full  and open competition. Generally, these contracts must be supported by  written justifications and approvals that contain sufficient facts and  rationale to justify the use of a specific exception to full and open  competition, such as when the contractor is the only source capable of  performing the work.program fall under one of these exceptions but were not previously  required to include a justification.
Sole-source contracts awarded under the 8(a)
Pub. L. No. 111-84, § 811 (2009). table 1, which compares the required elements of CICA and 8(a)  justifications for sole-source contracts.
While the required elements of 8(a) and CICA justifications differ, both  types of justifications are generally required to be published on the federal  government’s web site for announcing contract opportunities and the  agency website after the contract award is made. In addition, the official  who must approve an 8(a) justification for a contract over $20 million  would be the same official who must approve a CICA justification of the  same amount. This official is determined by the estimated total dollar  value of the proposed contract, as outlined in the FAR. The head of the  procuring activity or the agency’s senior procurement executive generally  approves 8(a) justifications.  Figure 1 shows the competition thresholds  and current sole-source justification requirements under the 8(a) program.
Prior to awarding an 8(a) contract, whether sole-source or competitive,  agencies are required to submit an offer letter to SBA identifying the  requirement—that is, what goods or services are being procured—as well  as any procurement history for the requirement, the estimated dollar  amount, and the name of the particular 8(a) firm if intending to award the  contract on a sole-source basis. A business opportunity specialist within  an 8(a) program district office is to respond with a letter stating whether  SBA has accepted the procurement into the 8(a) program after confirming  the firm’s eligibility to receive the contract and considering factors that  could prohibit SBA’s acceptance of the procurement. SBA assesses a  firm’s eligibility based on a number of criteria, including the firm’s size and  whether the procurement is consistent with the firm’s business plan.  Under the new 8(a) justification requirement, SBA may not accept a sole- source contract over $20 million for negotiation under the 8(a) program  unless the procuring agency has completed an 8(a) justification in  accordance with the FAR. Partnership agreements between the procuring  agencies and SBA outline the responsibilities of both parties in the 8(a)  contracting process. These agreements generally delegate SBA’s  contract execution function to the agencies after SBA has completed  initial acceptance of the procurement into the program.
The FAR Council oversees development and maintenance of the FAR. Its  membership consists of the OFPP Administrator for Federal Procurement  Policy, the Secretary of Defense, the Administrator of the National  Aeronautics and Space Administration, and the Administrator of the  General Services Administration. The FAR Council issues rules to  implement changes to the FAR that are mandated by law. Typically, the  first step is a proposed rule, which presents the proposed text in the  Federal Register and seeks written comments. In some cases, interim  rules are used to implement immediate changes to the FAR and include  the text of the revision. Proposed and interim rules can be amended by  final rules, which make changes to the FAR after consideration of public  comments.
section_title: Statutory Deadline for Incorporation of New Justification into FAR Was Not Met, Which Delayed Implementation
paragraphs: The FAR Council did not implement the new 8(a) justification requirement  in the FAR by the mandatory deadline set in law. Section 811 of the  NDAA for Fiscal Year 2010 required that the FAR be amended within 180  days of the statute’s enactment date to require justifications for 8(a) sole- source contracts over $20 million. Instead, 504 days elapsed between the  enactment of the law on October 28, 2009, and the FAR change to  implement it on March 16, 2011.
In August 2010, almost 1 year after enactment of section 811, the FAR  Council issued a notice announcing plans to hold three tribal consultation  meetings to obtain comments on implementation of this section from the  tribal communities. The council held public meetings during October 2010  in Washington, D.C.; Albuquerque, New Mexico; and Fairbanks, Alaska.  After receiving comments, the FAR Council published the rule addressing  the 8(a) justification requirements as an interim rule, rather than  proposed, because the statutory date for issuance of regulations had  already passed. OFPP officials who were involved in the implementation  of this rule explained that the primary reason for the FAR Council’s delay  was establishing a process for, and holding, tribal consultations.  According to the OFPP officials, the FAR Council did not have previous  experience conducting such consultations, and developing a process for  this delayed the announcement of the meetings. Figure 2 shows key  dates in the enactment and implementation of this provision.
In its announcement of the planned tribal consultation meetings, the  Council cited an executive order that directs certain executive federal  agencies to consult with Indian tribes on policies that have tribal  implications.order are a critical component of a sound and productive federal-tribal  relationship.
The Council noted that the consultations provided for in the  Section 811 of the NDAA for Fiscal Year 2010 did not require agencies to  implement the new justification requirement until it was implemented in  the FAR through an interim or final rule, and contracting and policy  officials from the agencies involved in our review confirmed that they  waited for the FAR revision. Almost 325 days elapsed between the 180- day mandatory deadline after enactment (April 26, 2010) and FAR  implementation on March 16, 2011. During this period, according to  FPDS-NG data, agencies awarded 42 sole-source 8(a) contracts with  anticipated values over $20 million—with a total value of over $2.3  billion—that would have been subject to the new justification requirement  if the FAR Council had implemented the change by the statutory deadline.  Figure 3 illustrates the number of such contracts awarded per fiscal year  quarter in the last 4 years and key dates in the implementation of the new  justification requirement.
section_title: Agencies Report Awarding 72 Relevant Contracts Since Enactment, and Such Awards Have Recently Decreased
paragraphs: According to FPDS-NG data, 72 contracts had a reported value of more  than $20 million in the period from the October 28, 2009, enactment of  the statute requiring the 8(a) justification requirement through March 31,  2012. (See appendix II for the number and value of contracts by agency.)   However, we found inaccuracies in the data on reported contract value.
To understand the trends in award of 8(a) sole-source contracts with  reported values greater than $20 million, we also analyzed FPDS-NG  data from fiscal year 2008 through the last full year of data available,  fiscal year 2011. Compared to fiscal years 2008 through 2010, the  number and value of these contracts declined significantly in fiscal year  2011, when only 20 were awarded, as shown in figure 4.
Although we found the FPDS-NG data on total contract value overall to  be sufficiently reliable to use for our analysis, we found several cases  where the Base and All Options data element had been inaccurately  reported by the agencies as being much lower than the actual value of  the contract. For instance, the Army had awarded a contract worth about  $84 million according to contract documents, but its reported value in  FPDS-NG was only $24 million. This data element is intended to reflect  the total contract value at the time of award, including all options. For  indefinite delivery indefinite quantity (IDIQ) contracts, the FPDS-NG data  dictionary stipulates that this element is the estimated value for all orders  expected to be placed against the contract.field in FPDS-NG for all awards, we found five awarded since October 28,    Although this is a required  2009, that implausibly listed a total value of zero. For example, two  related Army contracts were both listed as having a value of zero, but  when we reviewed the contract files, we found that their total anticipated  value was actually $350 million. GSA officials who are responsible for  managing the FPDS-NG data system told us that there should not be any  instances in which a contract award would have a value of zero. The  errors in this data element make it difficult to accurately determine the  extent to which agencies are awarding sole source 8(a) contracts valued  over $20 million.
section_title: Most Agencies Did Not Meet the New Justification Requirement Following the FAR Change
paragraphs: From March 16, 2011, through March 31, 2012, 14 sole-source 8(a)  contracts worth over $20 million were awarded by five agencies. Only  three of those contracts—two awarded by the Air Force and the other by  the State Department—included 8(a) justifications. The agencies  awarding the remaining 11 contracts did not comply with the new  justification requirement, either because they were not aware of the  requirement and did not prepare a justification, or because they were  confused and incorrectly used a CICA justification, as summarized in  Figure 5.
Contracting officials are required to ensure that all requirements of law  and regulation are met before awarding any contract, and as a result,  they should keep abreast of changes to the FAR. Yet, for five of the 11  contracts, contracting officials did not comply with the new justification  requirement because they were not aware of it.
A GSA regional office awarded a sole-source contract for support  services to an 8(a) firm in October 2011, with an anticipated value of  $40 million. No justification was completed. According to GSA  officials, the contracting officer was unaware of the justification  requirement at the time of award. As a result of our inquiry, GSA  officials stated that they will not exercise options on the contract and  are planning to award a replacement contract through an 8(a)  competitive process. The regional office also plans to issue guidance  to acquisition staff regarding the justification requirement.
The Naval Sea Systems Command awarded a contract for information  technology services worth about $40.5 million, but did not prepare an  8(a) justification. According to Command contracting officials, they  were unaware of the requirement at the time the contract was  awarded in July 2011. The Command issued guidance in December  2011 requiring that justifications be prepared not only for 8(a) sole- source contracts above the $20 million threshold, but also for any  such contracts above the 8(a) competition threshold of $4 million (or  $6.5 million for manufacturing contracts). The contracting officials said  that they have begun planning to award the successor contract  through a competition among 8(a) firms.
Officials at a U.S. Army Corps of Engineers contracting office were  aware of increased scrutiny of 8(a) sole-source contracts, but were  not aware of the justification requirement itself. They had received a  January 2011 memorandum from Army acquisition executives noting  the forthcoming justification requirement and calling for contracting  officials to limit the use of 8(a) sole-source contracts over $20 million.  As a result, when awarding a $35 million 8(a) sole-source contract  award for museum relocation services in May 2011, Army Corps  contracting officials prepared a memorandum explaining the decision  to exceed the $20 million threshold, but it did not meet the  requirements of an 8(a) justification.
The Army awarded two sole-source IDIQ contracts for engineering  and technical support services in June 2011, each of which had a  value over $20 million, but did not prepare 8(a) justifications for either  contract, as required. These contracts were awarded through a single  solicitation to two different firms, with a total value of $350 million.  Contracting officials stated that they were not aware of the new  justification requirement. Furthermore, we found that these two Army  contracts were awarded improperly because SBA had not reviewed  the eligibility of the firms and the procurement for the 8(a) program.  The contract file documentation states that the contracts were 8(a)  sole-source, yet the agency did not send an offer letter to SBA. The  contracting officer had contacted an SBA official outside of the 8(a)  program, thinking that this was the proper way to offer the  procurement into the 8(a) program. But without an offer letter and  subsequent SBA acceptance into the program, there was no way to  ensure that the firm was eligible to receive the award or that the  procurement was properly accepted into the program.  We brought  this issue to the attention of SBA headquarters officials, who  expressed concern and stated they would look into it.
subsections: section_title: Even Contracting Officials Who Were Aware Were Often Confused by the Requirement
paragraphs: Even in cases where contracting officials were aware of the new 8(a)  justification requirement, they did not always correctly implement it, due to  confusion about what the FAR requires. For example, we found four  cases where officials, having determined that their contracts were subject  to the new justification requirement, prepared CICA justifications rather  than 8(a) justifications. According to the contracting officer for one such  contract at the State Department, the preparation of the CICA justification  was a result of the rush of end-of-fiscal-year work and the fact that 8(a)  justifications were a new requirement they had not dealt with previously.  Likewise, a contracting officer at the Army Contracting Command,  realizing that 8(a) sole-source contracts now require a justification,  prepared a CICA justification instead of an 8(a) justification. The  command’s competition advocate, who reviews justifications for sole- source contracts, initially advised the contracting officer that a justification  was not required.  According to the contracting officer, he learned shortly  before contract award that a justification was in fact required, but he was  not aware that the elements required in an 8(a) justification were different  from those in a CICA justification.
In one case at the Drug Enforcement Administration (DEA), officials were  aware of the justification requirement but decided not to complete one  because their acquisition process began before the FAR was amended.  SBA had accepted the procurement into the 8(a) program in January  2011, before the 8(a) justification requirement was implemented in the  FAR. However, the $448 million contract, for administrative support  services, was awarded on June 14, 2011. A justification was required  because the contract was awarded after the FAR implementation date. A  memorandum in the contract file dated May 15, 2011, explained DEA’s  rationale for not preparing a justification, stating that it would not be  constructive to revisit the solicitation process in order to prepare a  justification because the negotiations with the firm were nearing  conclusion.
For one Department of the Interior contract, officials were unsure whether  the 8(a) justification requirement applied—in part because of ambiguities  in the regulations regarding whether 8(a) justifications should be prepared  when class justifications already exist—and thus did not prepare one. A  class justification generally covers multiple contracts within a program or  sets of programs. This contract was awarded by Interior on behalf of a  DOD program office that had a class CICA justification in place, which  permitted the award of sole-source contracts to support the program’s  work. Contracting officials for this contract were unsure whether the class  justification would preclude the need for a separate 8(a) justification for  this sole-source contract award. The FAR only states that contracting  officers must ensure that each contract action taken under the authority of  the class justification is within its scope; it does not address whether a  separate 8(a) justification would be required in this situation.
This contract illustrates another source of confusion—how to proceed  when the anticipated value of a contract changes during negotiation,  which happens between SBA’s acceptance of the procurement and  contract award. The FAR requires an 8(a) justification at two points: before SBA can accept the contract for negotiation under the 8(a) at time of contract award.
The potential for confusion arises because a contract’s value can change  during the negotiation process, and the FAR does not address scenarios  in which anticipated contract values rise above or fall below the $20  million threshold between SBA’s acceptance of the procurement for  negotiation and the award of the contract. For the contract awarded by  the Department of the Interior, at the time SBA accepted the  procurement, the anticipated value was slightly under the $20 million  threshold. However, by the time the contract was awarded, estimated  costs had increased to $21.4 million. We also reviewed a DOD contract  that illustrates the opposite situation, but which was not required to have  an 8(a) justification because the offer letter was sent before the  requirement was implemented in the FAR. At the time the procurement  was accepted by SBA under the 8(a) program, its anticipated value was  about $30 million. The estimated value of the contract dropped to $18.3  million by the time of award.
The FAR also does not address whether the new 8(a) justification is  needed when out-of-scope modifications are made on existing 8(a) sole- source contracts. Generally, agencies may not modify contracts to add  products or services not anticipated in the original scope without a  separate sole-source justification. In some cases, however, agencies  have determined that the flexibilities of 8(a) sole-source contracts  awarded to firms owned by ANCs or Indian tribes allowed them to make  such modifications without preparing a justification. For example, in our  2006 report on 8(a) contracting, we found that the Department of Energy  had added a number of new types of work to a contract, nearly tripling the  value, and the contracting officer cited the flexibilities of the 8(a) sole- source contract awarded to an ANC-owned firm as the reason he was  able to do so.   We did not identify any such modifications in our present  review; however, some contracting officials told us that it was not clear to  them if a justification would be required for modifications to 8(a) sole- source contracts.  DEA contracting officials cited the ability to make out- of-scope modifications as one of the attractive features of awarding 8(a)  sole-source contracts to firms owned by ANCs or Indian tribes, but said  they would require a justification for any modification of $20 million or  more.
GAO-06-399. $20 million each. Officials stated that they were not aware of the new 8(a)  justification requirement at the time they awarded these contracts. These  awards were not subject to the 8(a) justification, as it only applies to  contracts over $20 million.
section_title: Little Evidence That SBA Ensured 8(a) Justifications Had Been Completed
paragraphs: SBA does not have a process in place to confirm that 8(a) justifications  are present. The FAR states that the procuring agency must have  completed a justification before SBA can accept for negotiation an 8(a)  sole-source contract over $20 million, but it does not specify what steps  SBA should take to confirm the presence of an 8(a) justification. We  found that in most cases, SBA did not discuss the new justification  requirements in its correspondence to agencies.
During our review, we found a case where an agency had improperly  awarded an 8(a) contract, a situation that was not detected by the SBA  district official who reviewed the sole-source justification. Army  contracting officials told us that an SBA district office business opportunity  specialist followed up after receiving an 8(a) offer letter from the Army, to  request a sole-source justification. The Army provided SBA with a  justification—although it was again a CICA justification, as opposed to an  8(a) justification—and the SBA official noted that the justification  requirement had been met. However, the SBA official did not recognize  and respond to information showing that the contract was to be awarded  to a sister subsidiary owned by the same tribal entity as the incumbent  firm—a practice prohibited by SBA’s 8(a) regulations.when offering this procurement to the 8(a) program, the Army stated that  there was no acquisition history, yet the justification clearly stated that the  incumbent and proposed 8(a) firms were owned by the same tribal entity.  Hence, this contract was improperly awarded to the sister subsidiary.   When we informed SBA headquarters officials of this situation, they    Specifically,  expressed concern and indicated they would follow up with the business  opportunity specialist.
To highlight the 8(a) sole source justification requirement, SBA has  revised its partnership agreements to reflect that the procuring agency is  responsible for completing the justification. However, SBA’s district  officials also have an important role to play in ensuring that the  justifications are properly prepared. SBA officials said they were not sure  why the district officials did not confirm the presence of justifications in  most of the cases we reviewed, noting that the FAR change is relatively  recent and that it may take time for all staff to learn of the requirement.  The officials added that they are revising their operating procedures and  training curricula to reflect the 8(a) justification requirement. These  actions, when implemented, will be useful in highlighting the justification  requirement for SBA district officials. However, SBA has yet to convey to  its district officials the practical means of how to go about ensuring that  the procuring agencies have completed the justification.
section_title: Conclusions
paragraphs: Agencies have generally not complied with the justification requirement  for 8(a) sole-source contracts. This slow start may be due in part to the  relatively recent implementation of the requirement; however, we also  found a lack of awareness and confusion among contracting officials and  SBA district officials. In some situations the FAR is not clear whether a  justification is required. This includes cases where there is a class  justification already in place, when the value of a contract rises above or  falls below $20 million during the negotiation process, or when out-of- scope modifications are made to 8(a) sole-source contracts. Clarifying  guidance is needed to help ensure that agencies are applying the  justification requirement consistently. While agencies are required to  prepare justifications in accordance with the FAR, SBA is required, in  practice, to confirm that these justifications are in place. SBA does not  currently have a process in place to do so. Finally, because of  shortcomings in the data agencies are entering into FPDS-NG regarding  the total value of contracts at the time of award, agencies lack the  information that would allow them to monitor how many sole-source 8(a)  contracts are awarded over the $20 million threshold.
section_title: Recommendations
paragraphs: To help mitigate future confusion regarding justifications for 8(a) sole- source contracts over $20 million, we recommend that the Administrator  of the Office of Federal Procurement Policy, in consultation with the FAR  Council, promulgate guidance to:
Clarify whether an 8(a) justification is required for 8(a) contracts that  are subject to a pre-existing CICA class justification.
Provide additional information on actions contracting officers should  take to comply with the justification requirement when the contract  value rises above or falls below $20 million between SBA’s  acceptance of the contract for negotiation under the 8(a) program and  the contract award.
Clarify whether and under what circumstances a separate sole-source  justification is necessary for out-of-scope modifications to 8(a) sole- source contracts.
To help ensure that Small Business Administration officials meet FAR  requirements for sole source contracts over $20 million, we recommend  that the Administrator of the Small Business Administration take the  following two actions when revising operating procedures and training  curricula:  Include instructions to business opportunity specialists on the steps  they are to take to confirm whether agencies have met the justification  requirement, such as obtaining a copy of the justification from the  agency.  Include instructions to confirm that procuring agencies have prepared  an 8(a) justification rather than a CICA justification.
To help ensure that federal procurement data provides accurate and  complete information, we recommend that the Administrator of the  General Services Administration implement controls in FPDS-NG to  preclude agency officials from entering a value of zero dollars for the  Base and All Options data element when the initial award of a contract is  entered into the database.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to SBA, OFPP, GSA, and the  departments of Defense, the Interior, Justice, and State. We received  written comments from SBA, which are reproduced in appendix III. SBA  did not fully address our recommendations. In email responses, OFPP  and GSA generally agreed with our recommendations, and OFPP also  included additional comments. DOD did not respond. The other agencies  responded with no comment.
In its written response, SBA stated that the burden is on the procuring  agencies to prepare the appropriate sole-source justification and that SBA  would take actions to ensure that the agencies do so. For example, SBA  plans to modify its partnership agreements to incorporate a requirement  that the contracting officer certify that the justification has been  completed. While these actions may help increase awareness of the  justification requirement at the procuring agencies, they do not address  SBA’s own responsibilities. As we discuss in the report, the FAR states  that SBA may not accept for negotiation sole source 8(a) contracts over  $20 million unless the appropriate justification has been completed. SBA  states that it is difficult to interpret the FAR as requiring SBA to verify the  existence of the justification. We disagree. Logically, to meet the FAR  requirement, SBA must confirm the existence of an 8(a) justification. Our  recommendations were intended to help SBA’s business opportunity  specialists understand how to comply with the FAR requirement.
In an email response, OFPP generally agreed with our recommendations  and asked that we reflect that the Administrator of OFPP should take the  recommended actions in consultation with the FAR Council. We agreed  and made that change. OFPP further noted that, when planning the tribal  consultations to implement the 8(a) justification requirement, the FAR  Council also considered the President’s Memorandum of November 5,  2009, which underscores the Administration’s commitment to regular and  meaningful consultation with tribal officials in policy decisions that have  tribal implications.
We are sending copies of this report to the Secretaries of Defense, the  Interior, and State; the Attorney General; the Administrators of the Small  Business Administration, the General Services Administration, and the  Office of Federal Procurement Policy; and interested congressional  committees. This report will also be available at no charge on GAO’s  website at http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-4841 or by e-mail at mackinm@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 IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this review were to determine (1) the timeliness of  actions taken to implement the 8(a) justification requirement in the  Federal Acquisition Regulation (FAR); (2) the number of sole source 8(a)  contracts over $20 million that have been awarded since October 2009  and trends over time; and (3) the extent to which agencies have  implemented the new justification requirement.
To assess the timeliness of the actions taken to incorporate the new  justification requirement into the FAR, we reviewed the relevant interim  and final rules published in the Federal Register. We also interviewed  officials from the Office of Federal Procurement Policy (OFPP), as the  Administrator of OFPP serves as chair of the Federal Acquisition  Regulatory Council, which implements changes to the FAR. Additionally,  to confirm agency officials’ statements to us that they did not include  justifications in 8(a) sole-source contracts awarded after the October 29,  2009, enactment of the law but before its March 16, 2011, implementation  in the FAR, we selected a judgmental sample of five such contracts. We  selected those with the highest reported values in the Federal  Procurement Data System-Next Generation (FPDS-NG) at agencies  already within the scope of our review, and verified the absence of  justifications with agency contracting officials. As stated in the report,  Section 811 of the NDAA for Fiscal Year 2010 did not require agencies to  implement the new justification requirement until it was implemented in  the FAR.
To determine the number of 8(a) sole-source contracts over $20 million  awarded in the last several years, we analyzed contract data from FPDS- NG for contracts awarded from October 1, 2007, through March 31, 2012.  We took several measures to assess the reliability of this FPDS-NG data:
We selected nine additional contracts to review for data reliability  purposes. Among the 13 contracts identified in FPDS-NG as having  values between $19.5 million and $20 million, we selected a  judgmental sample of seven to review, including four contracts  awarded by one Army Corps of Engineers contracting office worth  exactly $20 million each. For these contracts, we reviewed information  in the contract files to determine the anticipated total value of the  contract at the time of award, and confirmed that all were equal to or  under $20 million and thus not subject to 8(a) justification  requirements.  In addition, we conducted a statistical analysis of 8(a) sole-source  contracts with a total value of less than $19.5 million, identifying  contracts with high levels of correlation with characteristics of high- value 8(a) sole-source contracts, such as contract type and the type  of service provided. Based on this analysis, we selected two  additional contracts at entities already included in our review and  reviewed relevant contract files to verify their value, and confirmed  that both were under the $20 million threshold.
We also calculated total obligations as of March 31, 2012, on the  contracts in this data set as a further check against inaccuracies in the  Base and All Options data element in FPDS-NG.
Finally, we checked the data reported in FPDS-NG against  information gathered in reviews of contract files for 14 contracts over  the $20 million threshold awarded after March 16, 2011, as discussed  below.
We determined that the data for this period was sufficiently reliable to  identify contracts that were subject to the 8(a) justification requirements  and describe their characteristics.
To determine the extent to which agencies have implemented the new  justification requirement, we identified and reviewed all 14 relevant  contracts that were awarded between the FAR implementation date of  March 16, 2011, and March 31, 2012. We took the following steps to  identify these contracts:
Most of the relevant contracts were identified using the Base and All  Options data element in FPDS-NG. We initially identified 14 sole- source 8(a) contracts with values over $20 million.
During reviews of the contract files, we determined that 3 of the 14  contracts identified in our FPDS-NG analysis did not meet criteria for  the justification requirement and eliminated them from our review.  One Army contract was eliminated because its reported value of $99  billion was erroneous, and its actual value was below $20 million. The  Army has taken steps to correct this information. We found that  another Army contract was not a new award, but rather an  administrative action taken for accounting purposes; the underlying  contract was awarded prior to implementation of the justification  requirement. We also eliminated an Office of Personnel Management  contract that was awarded competitively, despite being reported in  FPDS-NG as 8(a) sole-source.
To compensate for any errors in the Base and All Options data  element, we also calculated cumulative obligations for all 8(a) sole- source contracts awarded during the same period. Based on this  analysis, we identified one additional DOD contract, awarded by the  Army. A review of the contract file confirmed that its value was over  $20 million.
Finally, in the course of our review, we identified two additional  contracts through other means. One contract was identified by State  Department officials when we inquired about 8(a) sole-source  contracts over $20 million. The other, an Army contract, was identified  through references to it in a related contract file.
Of the 14 contracts that we identified as meeting the criteria for the  justification requirement, 8 were awarded by DOD and the rest by the  General Services Administration and the Departments of the Interior,  Justice, and State. We reviewed these contract files to determine if  justification documents were present and assess whether the  justifications complied with FAR requirements. We also reviewed other  contract documents, including Small Business Administration (SBA)  coordination records, acquisition plans, price negotiation memorandums,  and award memorandums. We reviewed policy documents related to  implementation of the justification requirement. We also interviewed  contracting and policy officials at the relevant organizations regarding  acquisition histories of the contracts and policies and practices related to  the justification requirement.
In addition, we also reviewed a contract awarded by DOD’s Washington  Headquarters Service that was not subject to the justification requirement.  It was identified for review because it had obligations of more than $20  million. A review of the contract file revealed that the contract was valued  below $20 million at the time of award, thus it was not included among the  14 contracts discussed above.
The organizations with contracts in our review, including those reviewed  for data reliability purposes, were as follows:
Naval Surface Warfare Center, Dahlgren, Virginia
Peterson Air Force Base, Colorado
Redstone Arsenal Army Base, Alabama  Joint Base Elmendorf-Richardson, Alaska
Robins Air Force Base, Georgia
Space and Naval Warfare Systems Command, Systems Center  Pacific, San Diego, California
U.S. Army Corps of Engineers Norfolk District
U.S. Army Corps of Engineers Sacramento District
U.S. Army Corps of Engineers Tulsa District
U.S. Army Contracting Command, Natick, Massachusetts
Washington Headquarters Service, Washington, D.C.
General Services Administration, Federal Acquisition Service Region  8, Denver, Colorado
Department of the Interior, Acquisition Services Directorate, Reston,
Department of Justice, Drug Enforcement Administration, Arlington,
Department of State, Office of Acquisition Management, Arlington,  Additionally, we interviewed SBA officials regarding their interpretation of  the FAR rule implementing the 8(a) justification requirements and  measures the agency has taken or plans to take to comply with this  change. We also reviewed SBA 8(a) program regulations.
We conducted this performance audit from April 2012 to December 2012  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: 8(a) Sole-Source Contracts over $20 Million, by Agency, Awarded between October 28, 2009, and March 31, 2012
subsections: section_title: Agency Department of Defense
section_title: Department of Energy General Services Administration Department of Health and Human Services Department of the Interior Department of Justice Office of Personnel Management Department of State Department of Transportation Total
paragraphs: Air Force  Army  Navy  Other DOD  This table summarizes the number of contracts and reported value  awarded by agency between October 28, 2009—the date of enactment  for the National Defense Authorization Act for Fiscal Year 2010—and  March 31, 2012, the date of the most current data available at the time of  our review.
section_title: Appendix III: Comments from the Small Business Administration
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the person named above, Tatiana Winger, Assistant  Director; Pamela Davidson; Danielle Green; Georgeann Higgins; Julia  Kennon; Teague Lyons; Kenneth Patton; Dae Park; Jungjin Park; Sylvia  Schatz; and Roxanna Sun made key contributions to this report.