The 8(a) program, administered by SBA’s Office of Minority Enterprise Development, is one of the federal government’s primary vehicles for developing small businesses that are owned by minorities and other socially and economically disadvantaged individuals. Firms that enter the program are eligible to receive contracts that federal agencies designate as 8(a) contracts without competition from firms outside the program. During fiscal year 1995, 6,002 firms participated in the 8(a) program. SBA data show that during fiscal year 1995, 6,625 new contracts and 25,199 contract modifications, totaling about $5.82 billion were awarded to 8(a) firms. To be eligible for the 8(a) program, a firm must be a small business that is at least 51-percent owned and controlled by one or more socially and economically disadvantaged persons. A business is small if it meets the SBA standard for size established for its particular industry. Members of certain ethnic groups, such as black and hispanic Americans, are presumed to be socially disadvantaged. To be economically disadvantaged as well, socially disadvantaged individuals cannot have personal net worth (excluding equity in a personal residence and ownership in the firms) exceeding $250,000. In addition, the firm must be an eligible business and possess a reasonable prospect for success in the private sector. Firms can participate in the 8(a) program for a maximum of 9 years. The Business Opportunity Development Reform Act of 1988 marked the third major effort by the Congress to improve SBA’s administration of the 8(a) program and to emphasize its business development aspects. The legislation affirmed that the measure of success for the 8(a) program would be the number of firms that leave the program without being unreasonably reliant on 8(a) contracts and that are able to compete on an equal basis in the mainstream of the American economy. Over the years, reports by GAO, SBA’s Inspector General, and others have identified continuing problems with SBA’s administration of the program and/or with the program’s ability to develop firms that could successfully compete in the marketplace after leaving the program. To help develop firms and better prepare them to compete in the commercial marketplace after they leave the program, the act requires that 8(a) program contracts be awarded competitively to 8(a) firms when the total contract price, including the estimated value of contract options, exceeds $5 million for manufacturing contracts or $3 million for all other contracts. Of the approximately $3.13 billion in new 8(a) contracts awarded in fiscal year 1995, about $610 million, or 19.5 percent of the total dollar amount, was awarded competitively. In comparison, in fiscal year 1994, about $380 million, or 18.5 percent of the $2.06 billion in new 8(a) contracts, was awarded competitively. Between fiscal years 1991 and 1995, the total dollar value of new 8(a) contract awards increased by about 96 percent, while the value of contracts awarded competitively increased by about 190 percent. Appendix I shows the number and the dollar value of 8(a) contracts awarded competitively in fiscal years 1991 through 1995. SBA’s June 1995 revisions to the 8(a) program regulations closed a major loophole involving the competitive award of indefinite delivery, indefinite quantity (IDIQ) contracts. IDIQ contracts are used when an agency does not know the precise quantity of supplies or services to be provided under a contract. As the agency identifies a specific need for goods or services, it modifies the IDIQ contract to reflect the actual costs associated with providing that quantity of goods or services, up to the maximum amount specified in the contract. Before the June 1995 revisions, SBA’s 8(a) program regulations required that an agency, when determining whether an IDIQ contract should be offered on a competitive or noncompetitive (sole-source) basis, consider only the guaranteed minimum value of the contract rather than the estimated total contract amount. According to SBA, IDIQ contracts were often improperly used simply to avoid the need for competition, and wide differences often occurred between the guaranteed minimum values of IDIQ contracts and the amount eventually spent by agencies under the contracts. To avoid this problem, the June 1995 regulations require that for all 8(a) program contracts SBA accepts after August 7, 1995, including IDIQ contracts, the procuring agency must consider the total estimated value of the contract, including the value of contract options, when determining whether the contract should be awarded competitively. The concentration of 8(a) contract dollars among relatively few firms is a long-standing condition that continued in fiscal year 1995. SBA data show that in fiscal year 1995, 50 firms—less than 1 percent of the 6,002 total firms in the 8(a) program during the fiscal year—received about $1.46 billion, or about 25 percent of the $5.82 billion in total 8(a) contracts awarded. In fiscal year 1994, 50 firms—about 1 percent of the 5,155 firms then in the program—also received about 25 percent of the $4.37 billion in total 8(a) contract dollars awarded during the fiscal year. Twelve firms that were among the top 50 in fiscal year 1995 were also among the top 50 firms in the previous year. Furthermore, 22 firms that were among the top 50 in fiscal year 1994 were also among the top 50 firms in fiscal year 1993. Appendix II contains a table that shows the range of total contracts dollars awarded to the top 50 firms for fiscal years 1992 through 1995. While 8(a) contract dollars continue to be concentrated in a relatively few firms, many economically disadvantaged firms do not receive any 8(a) program contracts. SBA data show that of the 6,002 firms in the program during fiscal year 1995, 3,267 firms, about 54 percent, did not receive any program contracts during the fiscal year. In comparison, in fiscal year 1994, 56 percent of the 8(a) firms did not receive any program contracts. As we testified in April 1995, a key reason for the continuing concentration of contract dollars among a relatively few firms is the conflicting objectives confronting procuring officials, according to SBA officials. In SBA’s view, the primary objective of procuring officials is to accomplish their agency’s mission at a reasonable cost; for these officials, the 8(a) program’s business development objectives are secondary. At the same time, the agency’s procurement goals for the 8(a) program are stated in terms of the dollar value of contracts awarded. According to SBA, the easiest way for agencies to meet these goals is to award a few large contracts to a few firms, preferably firms with which the agencies have had experience and whose capabilities are known. In addition, according to SBA the concentration of firms receiving 8(a) contracts is no different than the concentration among firms that occurs in the normal course of federal procurement. However, while this may be true for federal procurement overall, the Congress in amending the 8(a) program in 1988 sought to increase the number of competitive small businesses owned and controlled by socially and economically disadvantaged individuals through the fair and equitable distribution of federal contracting opportunities. In 1995, SBA made several efforts to increase the award of 8(a) contracts to firms that had never received contracts. SBA required its district offices to develop action plans to increase the number of 8(a) contract opportunities offered to a greater percentage of 8(a) firms. These action plans were to include specific initiatives for marketing the program to federal procurement offices in their jurisdictions. In addition, the Departments of Defense and Veterans Affairs agreed to give special emphasis to 8(a) firms that had never received contracts. Although SBA has not assessed the impact of these activities on increasing contract awards, SBA officials believe that these steps have helped in getting 8(a) contracts to firms that had never received them. At the same time, in the view of SBA officials, the fact that some firms do not receive any 8(a) contracts may not be a problem because not all firms enter the program to receive 8(a) contracts. Rather, some firms, according to SBA officials, seek 8(a) certification in order to qualify as disadvantaged firms for other federal programs, such as the highway construction program funded by the Department of Transportation, or state and city programs that set aside contracts for disadvantaged firms. To increase the program’s emphasis on business development and the viability of firms leaving the program, the act directed SBA to establish target levels of non-8(a) business for firms during their last 5 years in the program. The non-8(a) target levels increase during each of the 5 years, from a minimum of 15 percent of a firm’s total contract dollars during its fifth year to a minimum of 55 percent in the firm’s ninth or final program year. SBA field offices, as part of their annual reviews of firms, are responsible for determining whether firms achieve these target levels. In April 1995, we testified that SBA data showed that while 72 percent of the firms in their fifth year that had 8(a) sales met or exceeded the minimum 15-percent non-8(a) target established for the fifth year, only 37 percent of the firms in their ninth or final program year that had 8(a) sales met or exceeded the minimum 55-percent target established for that year. The data also showed that of the 1,038 firms in the fifth through the ninth year of their program term that had 8(a) sales, 37 percent did not meet the minimum targets. SBA data for fiscal year 1995 showed that of the 8(a) firms in their fifth year that had 8(a) sales during the fiscal year, about 85 percent met or exceeded the minimum non-8(a) business target of 15 percent established for that year.