The 8(a) program was designed to assist small, disadvantaged businesses in competing in the American economy through business development. Over the course of the program, qualified small, disadvantaged businesses can receive business development support from SBA, such as mentoring, procurement assistance, business counseling, training, financial assistance, surety bonding, and other management and technical assistance. However, one of the key areas of support is eligibility for set-aside competitive and sole-source federal contracts for 8(a) businesses, which can be an important factor in the financial development for ANC-owned firms. Generally, ANCs as organizations can be either for-profit or not-for-profit and can own a family of for-profit subsidiary firms, including but not limited to, wholly-owned holding companies that often provide administrative support to smaller sister subsidiaries. Additionally, ANCs can wholly or partially own, with at least a majority share, the subsidiary firms that participate in the 8(a) program, as illustrated in figure 1. But one condition for participation in the 8(a) program is that subsidiary firms are for-profit. Appendix II contains additional descriptive information about ownership for the firms we selected for our review. According to program rules, once a firm has been certified to participate in the 8(a) program, any changes in ownership should be reported to the local SBA district office. When a change in ownership is reported, SBA’s certification and program eligibility office in San Francisco reevaluates that firm’s eligibility. SBA relies on the firm to provide updates on changes in ownership. Generally, firms, including ANC-owned firms, can remain in the 8(a) program for up to 9 years, provided they maintain their eligibility. During the first 4 years, known as the developmental stage of the program, firms may be eligible for assistance including sole-source and competitive 8(a) contract support, and training in business capacity development and strategies to compete successfully for both 8(a) and non-8(a) contracts, among other things. During the last 5 years of the program, also known as a transitional period, firms are required to obtain a certain percentage of non-8(a) revenue to demonstrate their progress in developing into a viable business that is not solely reliant on the 8(a) program. SBA also provides a variety of other types of assistance to firms during the transitional phase of the program. In the later stage of the program, to remain eligible for continued sole-source contracting opportunities, participating 8(a) firms are expected to maintain a specific mix between 8(a) and non-8(a) contracts—assuming an increased number of non-8(a) contracts as they matriculate through the program beginning in the fifth year—and provide information to SBA on their achievement of developmental progress through annual reviews. By the end of the program’s term, firms are expected to attain a business mix from mostly non-8(a) federal contracts. Figure 2 below outlines the expected progression of a firm’s development in the program. In general, SBA’s oversight and monitoring responsibilities for the 8(a) program are delegated to its 68 district offices nationwide. The first point of contact for an ANC-owned firm accepted into the program is the SBA district office and the compliance staff—referred to as business opportunity specialists—assigned to that firm. SBA’s district offices are responsible for providing a combination of technical assistance/marketing and monitoring activities. With regard to its monitoring activities, SBA’s business opportunity specialists: review annual updates provided by ANC firms as a key condition of continuing in the program. review eligibility for contract offers, assess and update business name and ownership changes, assist firms in meeting their business acquisition targets; and process early graduations, withdrawals, or terminations. As part of these monitoring steps, SBA’s business opportunity staff are expected to coordinate contracting activities with procurement staff at other federal departments and agencies. Agencies must indicate their intent to award a procurement as an 8(a) contract by submitting a written offer letter to SBA, unless the contract does not exceed the Simplified Acquisition Procedures (SAP) threshold of $150,000 and SBA has delegated its contract execution authority to the procuring agency. SBA’s contracting staff are expected to review all awards over $150,000 and may accept the award either as a competitive procurement—to be competed among all eligible 8(a) firms—or as sole-source procurement in support of a specific recipient. Internal coordinating responsibilities include ensuring compliance with certain regulations related to sole source contracts. Before SBA’s contracting staff accept an offered procurement as an 8(a) sole-source contract, staff are expected to verify, among other things, the proposed firm’s size status to ensure that it still qualifies as small under the identified NAICS code. Other federal agencies that would like to use SBA’s authority to offer contracts to 8(a) ANC-owned firms also have an important role in the 8(a) process. For sole-source awards, these agencies can identify ANC- owned firms to whom they want to offer contracts and submit those offers to SBA for approval. In our prior work, agencies told us that the award of these contracts to ANC-owned firms provides a streamlined contracting process and assists agencies in meeting their disadvantaged small business contracting goals. In February 2011, SBA revised its regulations for the 8(a) Business Development program by adding language that (1) restricted the award of follow-on, sole-source 8(a) contracts to sister subsidiary firms owned by the same ANC; (2) made minor technical updates to outdated terminology regarding ANC ownership of multiple sister subsidiaries operating in the same primary line of business; and (3) revised existing rules related to ownership, compensation as a component of excessive withdrawals, and ANC-owned firm benefits reporting, among other things. The 2011 changes to the regulations include: Follow-on, Sole-Source Contracts-Once an applicant is admitted to the 8(a) program, it may not receive an 8(a) sole-source contract that is a follow-on contract to an 8(a) contract that was performed immediately previously by another participant (or former participant) owned by the same ANC. Sister Subsidiaries Sharing NAICS Codes-Sister-subsidiaries of an ANC may not use the same NAICS codes for their primary lines of business. Other Reporting Requirements-A number of clarifications and revisions were made to rules related to how compensation provided to firm officials impacts SBA’s excessive withdrawal limits and the provision of an annual benefits report for ANC-owned firms. Specifically, SBA revised previous excessive withdrawal rules that, in SBA’s opinion, unnecessarily hampered an 8(a) firm’s ability to recruit and retain key employees or to pay fair wages to its officers. SBA, in its new rule, clarified that officers’ salaries generally will not be included within what constitutes a withdrawal unless, when looking at the totality of the circumstances, SBA believes the compensation represents an attempt to circumvent the excessive withdrawal limit. When SBA determines withdrawals are excessive and detrimental to the achievement of a firm’s business development goals, SBA may initiate termination proceedings against a firm. Importantly, the excessive withdrawal analysis does not apply to withdrawals made by ANC-owned firms for the benefit of the ANC or the native or shareholder community. SBA also updated the rules for excessive withdrawals by increasing each maximum threshold amount by $100,000. Therefore, withdrawals are deemed excessive if in the aggregate during any fiscal year they exceed: (i) $250,000 for firms with sales up to $1,000,000; (ii) $300,000 for firms with sales between $1,000,000 and (iii) $400,000 for firms with sales exceeding $2,000,000. Finally, the rules also require ANC-owned firms to submit an annual report on the benefits distributed to ANC or the community. As we have reported previously, SBA’s ability to identify and enforce the regulations that prohibit the award of follow-on, sole-source contracts to subsidiaries of the same ANC is limited by a process that relies on the information provided by federal contracting departments and agencies, which we found in many cases to be incomplete. According to SBA regulations, once an applicant is admitted to the 8(a) program, it may not receive an 8(a) sole-source contract that is also a follow-on contract to an 8(a) contract that was performed “immediately previously” by another participant (or former participant) firm owned by the same ANC. To assess whether contract awards are in line with this prohibition, SBA regulations require contracting agencies to provide an offer letter with details on 17 items related to the contract, such as type of contract, acquisition history (if any), contract value, and the names of any small business contractors who have performed the requirement in the previous 24 months. Figure 3 below is an excerpt of the 8(a) program regulation outlining the items that must be included in an agency offer to SBA. Senior SBA officials in Anchorage, Alaska, who oversaw about 50 percent of the active ANC firms in the program from fiscal year 2011 through fiscal year 2014 (the period of our analysis) —informed us that they enforce the regulation prohibiting the award of follow-on, sole-source contracts to ANC sister-subsidiaries exclusively by reviewing information provided in the procuring agency offer letters that agencies are required by program rules to submit.