Misuse of SBA's 8(a) Program Increased Cost for Many ADP Equipment Acquisitions

AFMD-82-9: Published: Oct 16, 1981. Publicly Released: Nov 16, 1981.

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GAO reviewed the use of contracts under Section 8(a) of the Small Business Act by various federal agencies as a means of acquiring automatic data processing (ADP) equipment. GAO sought to determine whether government computer acquisition opportunities are being made available to as many small and disadvantaged businesses as possible under the 8(a) program and if federal procurement policies and regulations are being violated by the Small Business Administration (SBA), federal agencies, or contractors when ADP equipment is acquired under Section 8(a) contracts.

GAO believes that SBA management of the ADP resource acquisition portion of the 8(a) program has been deficient. GAO found that: (1) only a limited number of minority-owned firms capable of supplying ADP equipment had been recruited into the 8(a) program; (2) the 8(a) firms supplying ADP equipment were functioning as brokers, not as regular dealers; (3) SBA failed to follow its own procedures, which contributed to the brokering and increased the cost of the ADP equipment; (4) federal agencies were able to acquire specific items of ADP equipment through the 8(a) program which they had not justified for acquisition without competition; (5) requirements concerning cost and pricing data and preaward audits were not met; and (6) SBA frequently ignored the small business regulations and SBA procedures concerning size requirements. GAO believes that awarding these contracts is not achieving the program goals of helping firms to gain the experience and financial viability necessary to prosper in the competitive market place. Agencies and SBA are paying the firms to perform a function for which there is no competitive market, and this has unnecessarily cost the government substantial sums of money. GAO believes that the program objectives would best be served if individual 8(a) contract opportunities in computer sciences were limited to annual awards not exceeding 50 percent of an appropriately defined size standard for such services. Such a limitation would allow 8(a) firms to acquire ADP contracts while minimizing the impact on other small and minority businesses.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: When the government acquires supplies and equipment, the Administrator, SBA, should issue a directive requiring compliance with all appropriate procurement laws and regulations, as well as small and minority business regulations and procedures. Specific emphasis should be placed on the requirements of the Walsh-Healey Act, the Brooks Act, the Federal Procurement and Defense Acquisition Regulations, and SBA requirements for 8(a) firms to perform substantial portions of contracts with their own workers.

    Agency Affected: Small Business Administration

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator, SBA, should review all existing 8(a) contracts for electronic data processing equipment to identify those in which the 8(a) firm is acting as a broker, and those in which it is in the best interest of the government to initiate contract termination proceedings, or take other action to eliminate the brokerage situation.

    Agency Affected: Small Business Administration

  3. Status: Closed - Implemented

    Comments: Congress passed three related competition and small business acts, which will now require technical competition and public notice on small and minority business contract opportunities. It is impossible to directly connect savings with the acts and the report.

    Recommendation: The Administrator, SBA, should direct SBA program officials to select 8(a) subcontractors through an equitable selection process which encourages technical competition among 8(a) firms and gives due consideration to the firm's capabilities and development needs.

    Agency Affected: Small Business Administration

  4. Status: Closed - Implemented

    Comments: GSA proposed the regulation which was turned down by OMB upon objections of SBA and changed enforcement of size standards by SBA recommended by another GAO report.

    Recommendation: The Administrator of General Services, with the advice of the Director of the Office of Management and Budget (OMB) under the general commission of the Paperwork Reduction Act and the Brooks Act, as well as other authorities, should place in subpart 1-4.11 of title 41 of the Federal Procurement Regulations, and other appropriate places, guidance on the size of electronic data processing and data communication contracts appropriate for award to small business and 8(a) firms.

    Agency Affected: General Services Administration


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