COVID-19 Update: How We Are Serving and Protecting Our Clients

Probe Shows Government is not Following Small Business Contracting Rules

September 22, 2014

The Small Business Administration (SBA) has a seemingly wonderful program under which certain federal contracts are supposed to be reserved for competitions among small businesses, called the "8(a) Business Development Program." The SBA describes the program as "a business assistance program for small disadvantaged businesses" and states that the program "offers a broad scope of assistance to firms that are owned and controlled by at least 51% by socially and economically disadvantaged individuals." The program is supposed to provide business for startups run by members of various racial minorities who have suffered from economic disadvantage. It does this in part by setting aside certain government contracts for small firms to compete over without having to compete against larger corporations. However, it turns out, the government contracts that are supposed to be handled by these small businesses are actually being handled by large corporations.

Problem with the 8(a) Program

The Washington Post reports that contracting officers from various federal departments are not ensuring that work awarded to small businesses under the 8(a) program is being performed by those small businesses. Historically the program has been abused, usually by the small business getting the contract and then passing much of the work (and a portion of the profits) along to a large corporation that did not have the right to bid on the contract. To stop this abuse, regulators put strict limits in place on how much of the work the small business awarded the contract can subcontract out. If the limits are violated, the small business can be fined $500,000.

However, as strictly as those new regulations are written, they are not being fully enforced. The Government Accountability Office (GAO) investigated the program recently and found troubling results. The GAO picked ten contracts awarded under the program by three federal agencies: the Department of Defense, the Department of Homeland Security, and the Department of Health and Human Services. Those three agencies alone represent about 75% of the total contracts that are awarded under the program. What the GAO found was that of the ten contracting officers in charge of monitoring those ten contracts, only two monitored the amount of work conducted by subcontractors. In fact, while the agencies in question all told the GAO that the responsibility fell on the contracting officers, when asked, half of the contracting officers themselves did not know that this sort of monitoring was their responsibility.

Small Business Owners Confirm a Lack of Monitoring

Later in the investigation, the GAO went straight to the small businesses who had been awarded the contracts. Those small business owners confirmed what the investigation showed-the awarding agencies very rarely ask for information regarding subcontractors hired by the small businesses. What this means is that the abuse that existed before the new regulations could very well be continuing, but because no one from the awarding agencies asks, the abuse goes unpunished. And it means that work that should be done by small businesses is instead being done by large corporations.

Client Reviews
★★★★★
Kristina Reed handled the legal work of creating a corporation for my photography business in the state of California. She was extremely professional to work with and very prompt in her response times. She explained everything in language I could understand and helped me navigate the process smoothly from start to finish. I was very happy with her services and will definitely return to her for any future needs! Amy W.
★★★★★
As the co-owner of a small business, the process of selling assets was overwhelming. It was great to have [Kristina Reed's] advice throughout every step of a very demanding and hectic process. We were very pleased with [Kristina Reed's] class, focus and approachability. [Kristina Reed] always acted as a valued associate to the company and became a reliable advisor. Furthermore, we thank [Kristina Reed] for [her] calm encouragement when it was most needed would recommend [her] expertise unequivocally. Todd S.
★★★★★
I reached out to Kristina to assist with drafting some contractual real estate paperwork, and was not disappointed. She provided a prompt response and was very helpful in accommodating my request. Her expertise ensured a thorough conclusion. I would gladly recommend Kristina to other individuals needing real estate expertise. Stephen R.
★★★★★
I'm extremely impressed with my experience with Kristina Reed. I used her services to negotiate a commercial lease in Folsom. Our agent had actually recommended a few attorneys to us but we didn't feel comfortable with any of them. I was very impressed with Kristina on our first conversation. The landlord group was one of the hardest you can find to deal with. There were lots of going back and forth but Kristina's knowledge and experience made my life very easy. She was always quick to get back to us whenever we have questions. She pointed out issues on my lease that my previous lawyer totally missed. I recommend Kristina's services to everyone I know. My friend just used Kristina's services for his lease negotiation in Davis and he was very impressed as well. Devin B.