8(a) Subcontracting Limitations:

Continued Noncompliance with Monitoring Requirements Signals Need for Regulatory Change

GAO-14-706: Published: Sep 16, 2014. Publicly Released: Sep 16, 2014.

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(202) 512-4841
mmackinm@gao.gov

 

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What GAO Found

Similar to prior GAO findings from April 2006 and January 2012, contracting officers are generally not collecting information on the amount of subcontracted work performed under the 8(a) contracts reviewed, as required. The amount of work prime contractors must perform differs according to what is being procured. For example, the subcontractor's personnel costs are not to exceed 50 percent of the total work under service contracts. Two of the contracting officers associated with the 10 contracts GAO reviewed had monitored and ensured that the subcontracting limitations were not exceeded. In these cases the contractors had been asked to provide necessary information. In the other cases, however, contracting officers did not monitor and were not fully aware of what they were required to do, in part because their responsibilities are not set forth in the Federal Acquisition Regulation (FAR), the primary source for federal procurement policies, to which they regularly turn for guidance. Instead, these responsibilities are outlined in agency agreements with the Small Business Administration (SBA).

 

Reasons Contracting Officers Cited for Not Ensuring Compliance with Subcontracting Limitations

Total

Not responsible for monitoring compliance with subcontracting limitations

2

Not fully aware of responsibilities in agency agreements with SBA

5

Did not have access to information on the extent of subcontracted work

6

Primarily concerned with contractors satisfactorily performing the contracted services but not compliance with subcontracting limitations

6

Source: GAO analysis of interviews with nine contracting officers. I GAO-14-706

Note: Some contracting officers cited more than one reason. One contracting officer was not available for interview due to separation from the agency.

All 10 contractors GAO met with stated that they maintain and are willing to provide information to demonstrate compliance with subcontracting limitations, if required. While all 8(a) contracts GAO reviewed must comply with the limitations, 5 of the 10 contracts had an increased risk of exceeding these limits. These situations, which underscore the need to monitor, included cases where a subcontractor had been the prime contractor under a prior contract for the same or similar work.

In January 2014, SBA took an initial step in the federal rule making process by announcing that it was drafting a rule to implement the amendments to the Small Business Act. It will take more actions and could take years, however, to incorporate any changes into the FAR, which is maintained by a council chaired by the Administrator of the Office of Federal Procurement Policy (OFPP). Contracting officers and contractors stated that pending changes could make it easier to determine compliance with subcontracting limitations. At the same time, however, contractors had some concerns that it could be more challenging to comply because previously excluded subcontracted costs, such as materials, will be considered as subcontracted work. Contractors said that new monetary penalties—a minimum of $500,000—for violating subcontracting limitations are high but would encourage firms to perform the required amount of work.

Why GAO Did This Study

SBA's 8(a) program is one of the federal government's primary means for developing small businesses owned by socially and economically disadvantaged individuals. To ensure that 8(a) firms do not pass along the benefits of their contracts to their subcontractors, regulations limit the amount of work that can be performed by subcontractors. In 2013, the Small Business Act was amended to make several changes related to these subcontracting limitations. GAO was asked to review how federal agencies and small businesses monitor the amount of subcontracted work under 8(a) contracts and the potential effects of the changes to the Small Business Act.

This report examines (1) the extent to which contracting officers and firms monitor compliance with 8(a) subcontracting limits and (2) the implementation status of changes to the Small Business Act and potential effects. GAO reviewed a nongeneralizable sample of 10 8(a) contracts at the three agencies with highest 8(a) obligations in fiscal years 2011 and 2012. GAO selected a small sample to delve more deeply into the circumstances of the contracts. GAO also examined the amendments to the Small Business Act.

What GAO Recommends

GAO recommends that the OFPP Administrator take the appropriate steps to amend the FAR to reflect contracting officers' responsibilities for monitoring 8(a) subcontracting limits and require 8(a) contractors to regularly report on the amount of subcontracted work. OFPP agreed with GAO's recommendations.

For more information, contact Michele Mackin at (202) 512-4841 or mmackinm@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The Office of Federal Procurement Policy (OFPP) agreed with the recommendation. In the years that we have followed up on this recommendation, OFPP has consistently responded that it is waiting for the Small Business Administration (SBA) to take steps to implement other provisions related to subcontracting before taking action. In November 2019, SBA issued a final rule to implement several provisions of the National Defense Authorization Acts (NDAA) for fiscal years 2016 and 2017, which confirmed that contracting officers have the authority to request information in connection with a contractor's compliance with limitations on subcontracting. In addition, the FAR Council is completing its work on FAR case 2016-011, Revision of Limitations on Subcontracting, which implements a provision in the NDAA for Fiscal Year 2013 pertaining to performance requirements applicable to small business and socioeconomic program set-aside contracts and small business subcontracting. In September 2020, OFPP told us that it would not initiate follow-on work to SBA's final rule prior to completion of this FAR case. We recognize that SBA's November 2019 final rule, while it did not fully implement our recommendation, helped draw attention to the issues we identified in our report. However, due to the amount of time that has passed since we made this recommendation and the lack of progress to fully implement it, we decided to close this recommendation as not implemented.

    Recommendation: The Administrator of OFPP should take appropriate steps to amend the FAR to include the following requirement: at the time of the contract award, contracting officers shall conduct and document an assessment of the 8(a) firm's ability to comply with the subcontracting limitations.

    Agency Affected: Executive Office of the President: Office of Management and Budget: Office of Federal Procurement Policy

  2. Status: Closed - Not Implemented

    Comments: The Office of Federal Procurement Policy (OFPP) agreed with the recommendation. In the years that we have followed up on this recommendation, OFPP has consistently responded that it is waiting for the Small Business Administration (SBA) to take steps to implement other provisions related to subcontracting before taking action. In November 2019, SBA issued a final rule to implement several provisions of the National Defense Authorization Acts (NDAA) for fiscal years 2016 and 2017, which confirmed that contracting officers have the authority to request information in connection with a contractor's compliance with limitations on subcontracting. In addition, the FAR Council is completing its work on FAR case 2016-011, Revision of Limitations on Subcontracting, which implements a provision in the NDAA for Fiscal Year 2013 pertaining to performance requirements applicable to small business and socioeconomic program set-aside contracts and small business subcontracting. In September 2020, OFPP told us that it would not initiate follow-on work to SBA's final rule prior to completion of this FAR case. We recognize that SBA's November 2019 final rule, while it did not fully implement our recommendation, helped draw attention to the issues we identified in our report. However, due to the amount of time that has passed since we made this recommendation and the lack of progress to fully implement it, we decided to close this recommendation as not implemented.

    Recommendation: The Administrator of OFPP should take appropriate steps to amend the FAR to include the following requirement: contracting officers shall include monitoring and oversight provisions in all 8(a) contracts to ensure that the contractors comply with the subcontracting limitations.

    Agency Affected: Executive Office of the President: Office of Management and Budget: Office of Federal Procurement Policy

  3. Status: Closed - Not Implemented

    Comments: The Office of Federal Procurement Policy (OFPP) agreed with the recommendation. In the years that we have followed up on this recommendation, OFPP has consistently responded that it is waiting for the Small Business Administration (SBA) to take steps to implement other provisions related to subcontracting before taking action. In November 2019, SBA issued a final rule to implement several provisions of the National Defense Authorization Acts (NDAA) for fiscal years 2016 and 2017, which confirmed that contracting officers have the authority to request information in connection with a contractor's compliance with limitations on subcontracting. In addition, the FAR Council is completing its work on FAR case 2016-011, Revision of Limitations on Subcontracting, which implements a provision in the NDAA for Fiscal Year 2013 pertaining to performance requirements applicable to small business and socioeconomic program set-aside contracts and small business subcontracting. In September 2020, OFPP told us that it would not initiate follow-on work to SBA's final rule prior to completion of this FAR case. We recognize that SBA's November 2019 final rule, while it did not fully implement our recommendation, helped draw attention to the issues we identified in our report. However, due to the amount of time that has passed since we made this recommendation and the lack of progress to fully implement it, we decided to close this recommendation as not implemented.

    Recommendation: The Administrator of OFPP should take appropriate steps to amend the FAR to include the following requirement: prime 8(a) contractors shall periodically report to the contracting officer on the percentage of subcontracted work being performed.

    Agency Affected: Executive Office of the President: Office of Management and Budget: Office of Federal Procurement Policy

 

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